MUNIYIELD
QUALITY
FUND II, INC.
FUND LOGO
Semi-Annual Report
April 30, 1997
This report, including the financial information herein, is
transmitted to the shareholders of MuniYield Quality Fund II, Inc.
for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a
representation of future performance. The Fund has leveraged its
Common Stock by issuing Preferred Stock to provide the Common Stock
shareholders with a potentially higher rate of return. Leverage
creates risks for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price
of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the
yield to Common Stock shareholders. Statements and other information
herein are as dated and are subject to change.
<PAGE>
MuniYield Quality Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield Quality Fund II, Inc.
TO OUR SHAREHOLDERS
For the six-month period ended April 30, 1997, the Common Stock of
MuniYield Quality Fund II, Inc. earned $0.456 per share income
dividends, which included earned and unpaid dividends of $0.074.
This represents a net annualized yield of 6.26%, based on a month-
end per share net asset value of $14.67. Over the same period, the
total investment return on the Fund's Common Stock was +2.35%, based
on a change in per share net asset value from $14.86 to $14.67, and
assuming reinvestment of $0.459 per share income dividends and
$0.035 per share capital gains distributions.
The average yields of the Fund's Auction Market Preferred Stock for
the six-month period ended April 30, 1997 were as follows: Series A,
3.84%; Series B, 3.83%; and Series C, 3.63%.
<PAGE>
The Municipal Market Environment
Long-term tax-exempt revenue bonds traded in a relatively narrow
range throughout much of the six months ended April 30, 1997. By mid-
January 1997, municipal bond yields had risen to over 6% as
investors reacted negatively to reports of progressively stronger
domestic economic growth. However, a continued lack of any material
inflationary pressures allowed bond yields to decline to their prior
levels by late February. Bond yields rose again as investors became
increasingly concerned that the US domestic economic strength seen
thus far in 1997 would continue and that the increase in short-term
interest rates administered by the Federal Reserve Board (FRB) in
late March would be the first in a series of such moves designed to
slow the US economy before any dormant inflationary pressures were
awakened. Long-term tax-exempt bond yields rose approximately 15
basis points (0.15%) to almost 6.15% by mid-April. Similarly, long-
term US Treasury bond yields rose over 35 basis points over the same
period to 7.16%. However, in late April economic indicators were
released showing that despite considerable economic growth, any
inflationary pressures, particularly those associated with wage
increases, were well-contained and of no immediate concern. Fixed-
income bond prices staged a significant rally during the last week
of April with long-term US Treasury bond yields falling nearly 20
basis points to end the month at 6.95%. Municipal bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined nearly 15
basis points to stand at 6.01% by April 30, 1997.
As in recent quarters, the relative stability of long-term tax-
exempt bond yields was supported by low levels of new municipal bond
issuance. Over the past six months, approximately $90 billion in
long-term tax-exempt bonds was underwritten, a decline of more than
6% versus the corresponding period a year earlier. During the three
months ended April 30, 1997, $41 billion in new long-term municipal
bonds was issued, also a 6% decline in issuance as compared to the
three-month period ended April 30, 1996. Overall investor demand has
remained strong, particularly from property and casualty insurance
companies and individual retail investors. In recent years, investor
demand has increased whenever tax-exempt bond yields have approached
or exceeded the 6% level as they have in the past few months.
Additionally, in recent months much of the new bond issuance was
dominated by a number of larger issues. These included $710 million
in New York City water bonds, $600 million in state of California
bonds, $1 billion in New York City general obligation bonds, $435
million in Dade County, Florida water and sewer revenue bonds, $450
million in Puerto Rico Electric Authority issues, and $930 million
in Port Authority of New York and New Jersey issues. These bonds
have typically been issued in states with relatively high state
income taxes and consequently generally were underwritten at yields
that were relatively unattractive to residents in other states. This
has exacerbated the general decline in overall issuance in recent
years, making the decrease in supply even more dramatic for general
market investors.
<PAGE>
The present economic situation remains nearly ideal. The domestic
economy continues to grow steadily with little, if any, sign of a
resurgence in inflation. Recent economic growth generated
considerable unexpected tax revenues for the Federal government.
Forecasts for the 1997 Federal fiscal deficit were reduced to under
$100 billion, a level not seen since the early 1980s. Such a reduced
Federal deficit enhances the prospect for a balanced Federal budget.
All of these factors support a scenario of steady, or even falling,
interest rates in the coming years. Present annual estimates of
future municipal bond issuance remain centered around $175 billion,
indicating that the current relative scarcity of tax-exempt bonds
should continue for at least the remainder of the year. Should
interest rates begin to decline later this year, either as the
result of a balanced Federal budget or continued benign inflation,
investors are unlikely to be able to purchase long-term municipal
bonds at their currently attractive levels.
Portfolio Strategy
During the past six months we maintained a neutral-to-slightly
constructive investment strategy that concentrated on providing an
attractive level of tax-exempt income while seeking to preserve the
Fund's net asset value. The everchanging perception on the state of
the economy, and the need for further monetary policy tightening by
the FRB caused large swings in interest rates over this time period.
We have strived to take advantage of market fluctuations to seek to
enhance the Fund's total return. We purchased interest rate-
sensitive bonds in the middle of January when tax-exempt interest
rates increased to attractive levels. However, we subsequently sold
these issues after the bond market rally in early February. Looking
forward, we expect the FRB to continue raising short-term interest
rates, which is expected to place negative pressure on long-term tax-
exempt interest rates. We anticipate maintaining a neutral portfolio
strategy until there are signs that the economy is slowing to below
trend growth, thereby reducing the threat of rising inflation.
The yield on the Fund's Auction Market Preferred Stock has been
trading within a narrow range between 3.50%--3.75%. Over the past
few weeks, the interest rate on the Preferred Stock has been greater
than 4% in response to pressures from seasonal corporate and
individual tax payments. This interest rate has started to decline,
but is expected to return to normal levels shortly. Leverage
continues to benefit the Common Stock shareholders by significantly
augmenting their yield. However, should the spread between short-
term and long-term tax-exempt interest rates narrow, the benefits of
leverage will decline and the yield on the Fund's Common Stock will
be reduced. (For a complete explanation of the benefits and risks of
leveraging, see page 3 of this report to shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniYield Quality Fund II,
Inc., and we look forward to serving your investment needs in the
months and years to come.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Robert A. DiMella)
Robert A. DiMella
Vice President and Portfolio Manager
June 4, 1997
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield Quality Fund II, Inc. utilizes leveraging to seek to
enhance the yield and net asset value of its Common Stock. However,
these objectives cannot be achieved in all interest rate
environments. To leverage, the Fund issues Preferred Stock, which
pays dividends at prevailing short-term interest rates, and invests
the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form
of dividends, and the value of these portfolio holdings is reflected
in the per share net asset value of the Fund's Common Stock.
However, in order to benefit Common Stock shareholders, the yield
curve must be positively sloped; that is, short-term interest rates
must be lower than long-term interest rates. At the same time, a
period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the
risks of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock
for an additional $50 million, creating a total value of $150
million available for investment in long-term municipal bonds. If
prevailing short-term interest rates are approximately 3% and long-
term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
<PAGE>
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield Quality Fund II, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--1.6% NR* Aaa $ 7,390 Alabama HFA, S/F Mortgage Revenue Bonds (Home Mortgage
Bond Program), Series B-1, 6.65% due 10/01/2025 $ 7,780
<PAGE>
Alaska--0.6% A- A2 2,580 Alaska Industrial Development and Export Authority, Revolving
Fund, AMT, Series A, 6.375% due 4/01/2008 2,745
California-- AAA Aaa 10,000 Anaheim, California, Public Financing Authority, Lease Revenue
3.5% Bonds (Public Improvements Project), Sub-Series C, 6.15% due
9/01/2026 (i)** 1,744
NR* Baa2 1,340 California Educational Facilities Authority Revenue Bonds
(Pooled College and University Projects), Series B, 6.125%
due 4/01/2013 1,341
AAA Aaa 7,500 San Diego, California, IDR, RITR, 7.435% due 9/01/2018 (e) 7,828
AAA Aaa 4,900 University of California, RITR, Series 13, 8.42% due
9/01/2019 (c)(e) 5,286
Colorado-- NR* Aaa 1,350 Colorado Health Facilities Authority, Hospital Revenue Bonds
1.0% (P/SL Healthcare System Project), Series A, 6.875%
due 2/15/2003 (f) 1,500
Denver, Colorado, City and County Airport Revenue Bonds,
Series A (f):
AAA Baa 2,150 7.25% due 11/15/2002 2,430
AAA NR* 850 7.25% due 11/15/2002 961
Connecticut-- Connecticut State Learning Regional Educational Service
0.7% Center Revenue Bonds (Office/Education Center Facilities):
NR* NR* 1,720 7.50% due 2/01/2005 1,838
NR* NR* 1,100 7.75% due 2/01/2015 1,210
District of A+ A3 4,460 District of Columbia Revenue Bonds (Howard University),
Columbia-- Series A, 7.25% due 10/01/2020 4,793
1.0%
Florida-- AAA Aaa 24,830 Dade County, Florida, Water and Sewer Systems Revenue Bonds,
7.0% 5.25% due 10/01/2021 (h) 23,303
AAA Aaa 3,000 Florida Ports Financing Commission Revenue Bonds (State
Transportation Trust Fund), AMT, 5.375% due 6/01/2027 (c) 2,795
AAA Aaa 5,140 Jacksonville, Florida, Sales Tax Revenue Bonds (River City
Renaissance Project), 5.125% due 10/01/2018 (h) 4,783
NR* Baa 2,285 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
Education and Research Foundation Project), Series A, 7%
due 9/01/2024 2,477
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Idaho--0.9% Idaho Student Loan Fund, Student Loan Revenue Bonds
(Marketing Association, Inc.), AMT:
NR* NR* $ 2,635 Series B, 6.60% due 10/01/2006 $ 2,662
NR* Aa 1,335 Sub-Series 1, 6.80% due 10/01/2006 1,402
<PAGE>
Illinois-- AAA Aaa 7,000 Chicago, Illinois, Refunding, Series B, 5.125% due 1/01/2025 (h) 6,317
3.4% A+ A1 3,645 Illinois Educational Facilities Authority, Revenue Refunding
Bonds (Loyola University--Chicago), Series A, 7.125% due 7/01/2021 3,936
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan Revenue
Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 6,245
Indiana--5.1% A NR* 2,675 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.75% due 2/01/2017 2,944
NR* A 2,200 Indiana Health Facility Financing Authority, Hospital Revenue
Refunding Bonds (Methodist Hospitals Inc.), 6.75% due 9/15/2009 2,353
Indianapolis, Indiana, Local Public Improvement Bond Bank:
AAA Aaa 8,000 Refunding, Series A, 5% due 1/01/2017 (i) 7,280
A+ NR* 5,800 Refunding, Series D, 6.75% due 2/01/2020 6,229
NR* Aaa 5,000 Series C, 6.70% due 1/01/2002 (f) 5,462
Kentucky-- NR* NR* 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
0.7% (TJ International Project), AMT, 7% due 6/01/2024 3,103
Louisiana-- NR* Baa2 5,000 Lake Charles, Louisiana, Harbor and Terminal District, Port
1.2% Facilities Revenue Refunding Bonds (Trunkline LNG Company
Project), 7.75% due 8/15/2022 5,649
Massachusetts BBB+ Baa2 2,000 Massachusetts Municipal Wholesale Electric Company, Power
- --4.1% Supply System Revenue Refunding Bonds, Series A, 6.75%
due 7/01/2011 2,125
AAA Aaa 5,000 Massachusetts State, HFA (Residential Development), Series A,
6.875% due 11/15/2011 (d) 5,329
Massachusetts State Health and Educational Facilities Authority,
Revenue Refunding Bonds:
AA Aa2 2,500 (Daughters of Charity), Series D, 6.10% due 7/01/2014 2,569
A- NR* 3,500 (Melrose-Wakefield Hospital), Series B, 6.375% due 7/01/2016 3,590
NR* B2 2,640 (New England Memorial Hospital), Series B, 6% due 7/01/2008 2,202
NR* B2 4,590 (New England Memorial Hospital), Series B, 6.125%
due 7/01/2013 3,736
Michigan-- AAA Aaa 3,585 Detroit, Michigan, Sewage Disposal Revenue Refunding Bonds,
2.8% Series B, 5.25% due 7/01/2021 (c) 3,326
AAA Aaa 11,000 Detroit--Wayne County, Michigan, Stadium Authority, 5.25%
due 2/01/2027 (h) 10,175
Minnesota-- NR* Aa3 3,000 Duluth, Minnesota, Seaway Port Authority, Industrial
0.7% Development Dock and Wharf Revenue Refunding Bonds
(Cargill Inc. Project), Series B, 6.80% due 5/01/2012 3,259
Mississippi-- A A2 6,000 Lowndes County, Mississippi, Solid Waste Disposal, PCR,
1.4% Refunding (Weyerhaeuser Company Project), Series A, 6.80%
due 4/01/2022 6,673
New Hampshire NR* Aa 5,240 New Hampshire State, HFA, S/F Mortgage Acquisition Revenue
- --1.1% Bonds, AMT, Series G, 6.30% due 1/01/2026 5,259
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New Jersey-- AAA Aaa $ 5,000 Cape May County, New Jersey, Industrial Pollution Control
3.3% Financing Authority, Revenue Refunding Bonds (Atlantic City
Electric Company Project), Series B, 7% due 11/01/2029 (c) $ 5,542
AAA Aaa 2,630 New Jersey EDA, Revenue Bonds (Clara Maass Health System),
5% due 7/01/2016 (i) 2,423
AAA Aaa 3,270 New Jersey Health Care Facilities, Financing Authority, Revenue
Refunding Bonds (Shoreline Behavioral Health), 5.50%
due 7/01/2027 (c) 3,149
New Jersey State Educational Facilities Authority Revenue Bonds:
AAA Aaa 1,900 Refunding (University of Medicine and Dentistry), Series B,
5.25% due 12/01/2021 (b) 1,788
AAA Aaa 2,500 (Trenton State College), Series A, 5.10% due 7/01/2021 (c) 2,310
New Mexico-- A A2 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
1.5% Corporation Project), 6.50% due 4/01/2013 5,254
AAA Aaa 1,825 Los Alamos County, New Mexico, Utility System Revenue
Refunding Bonds, Series A, 6% due 7/01/2015 (i) 1,869
New York-- AAA Aaa 5,000 Metropolitan Transportation Authority, New York, Dedicated Tax
11.1% Fund, Series A, 5.25% due 4/01/2026 (c) 4,656
New York City, New York, GO, UT:
BBB+ Baa1 14,000 Refunding, Series J, 6% due 8/01/2017 13,741
BBB+ Baa1 5,150 Series H, 7% due 2/01/2021 5,444
New York City, New York, IDA, Civic Facilities Revenue Bonds
(New York Blood Center Inc. Project) (f):
NR* NR* 2,000 7.20% due 5/01/2004 2,250
NR* NR* 3,250 7.25% due 5/01/2004 3,665
BBB+ Baa1 5,000 New York State Dormitory Authority Revenue Bonds (State
University Educational Facilities), 5.50% due 5/15/2026 4,626
A Aa 7,500 New York State Environmental Facilities Corporation, PCR
(State Water Revolving Fund), Series E, 6.50% due 6/15/2014 7,935
A Aaa 5,000 New York State Local Government Assistance Corporation,
Series A, 6.875% due 4/01/2002 (f) 5,529
BBB+ Baa1 3,615 New York State Medical Care Facilities Finance Agency
Revenue Bonds (Mental Health Services Facilities Improvement),
Series B, 7.875% due 8/15/2020 4,001
North A A2 14,750 Martin County, North Carolina, Industrial Facilities and Pollution
Carolina-- Control Financing Authority, Solid Waste Disposal Revenue Bonds
3.3% (Weyerhaeuser Company), AMT, 6.80% due 5/01/2024 15,855
Ohio--1.4% A-1 NR* 200 Cincinnati and Hamilton Counties, Ohio, Port Authority, IDR
(Multi-Color Corporation Project), VRDN, 4.50% due 11/01/2000 (a) 200
AA- Aa3 6,500 Ohio State Air Quality Development Authority, Revenue
Refunding Bonds (Dayton Power and Light Project), Series B,
6.40% due 8/15/2027 6,762
<PAGE>
Oklahoma-- BB+ Baa2 5,000 Tulsa, Oklahoma, Municipal Airport Trust, Revenue Refunding
1.1% Bonds (American Airlines Project), 6.25% due 6/01/2020 5,017
Oregon--3.5% AAA Aaa 500 Chemeketa, Oregon, Community College District, UT, 5.95%
due 6/01/2016 (h) 511
NR* Aaa 1,000 Klamath County, Oregon, UT, Series A, 5.25% due 6/01/2010 (h) 991
Oregon Health Sciences, University Revenue Bonds, Series A (c):
AAA Aaa 1,000 5.25% due 7/01/2025 937
AAA Aaa 12,450 5.25% due 7/01/2028 11,619
AAA Aaa 1,635 Oregon State Department of Administrative Services, COP,
Series B, 5.50% due 11/01/2011 (c) 1,632
AAA Aaa 3,880 Portland, Oregon, Arena Gas Tax Revenue Bonds (Deferred
Interest), 6.25% due 6/01/2018 (i)** 1,101
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Pennsylvania AAA Aaa $ 4,750 Lehigh County, Pennsylvania, IDA, PCR, Refunding
- --5.3% (Pennsylvania Power and Light Company Project), Series A,
6.40% due 11/01/2021 (c) $ 4,965
AAA Aaa 5,000 Pennsylvania HFA, Refunding (Rental Housing), 6.50%
due 7/01/2023 (d) 5,143
AA+ Aa 5,000 Pennsylvania HFA, S/F Mortgage, Series 34A, 6.85% due 4/01/2016 5,261
AAA Aaa 10,000 Philadelphia, Pennsylvania, GO, UT, 5% due 5/15/2025 (c) 8,936
AAA Aaa 1,000 Philadelphia, Pennsylvania, School District, Series B, 5.50%
due 9/01/2025 (b) 953
Rhode Island Rhode Island Depositors Economic Protection Corporation,
- --0.6% Special Obligation Refunding Bonds, Series A (g):
A- Baa1 1,880 5.75% due 8/01/2021 1,897
A- Baa1 1,120 5.75% due 8/01/2021 1,113
South A- A1 5,765 Berkeley County, South Carolina, Pollution Control Facilities
Carolina-- Revenue Bonds (South Carolina Electric and Gas Company),
4.6% 6.50% due 10/01/2014 6,178
A A1 4,150 Fairfield County, South Carolina, PCR (South Carolina Electric
and Gas Company), 6.50% due 9/01/2014 4,445
AA- Aa3 1,000 Florence County, South Carolina, Pollution Control Facilities
Revenue Bonds (E.I. du Pont), Series A, 6.35% due 7/01/2022 1,056
A- A1 7,000 Richland County, South Carolina, PCR, Refunding (Union Camp
Corporation Project), Series C, 6.55% due 11/01/2020 7,417
NR* NR* 2,500 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55%
due 11/01/2024 2,717
<PAGE>
South Dakota AAA Aa1 9,975 South Dakota HDA, Homeownership Mortgage, Series B, 7.10%
- --2.2% due 5/01/2017 10,421
Tennessee-- BBB Baa1 5,000 McMinn County, Tennessee, IDB, Solid Waste Recycling Facility
1.1% Revenue Bonds (Calhoun Newsprint--Bowater), AMT, 7.40%
due 12/01/2022 5,372
Texas--5.3% Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds:
BBB Baa1 4,200 (Champion International Corporation), AMT, 7.375%
due 10/01/2025 4,498
AAA Aaa 1,600 Refunding (Houston Light and Power Company), Series A,
6.375% due 4/01/2012 (c) 1,697
Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds:
A- A2 5,860 (Memorial Hospital Systems Project), Series A, 6.625%
due 6/01/2004 (f) 6,479
AAA Aaa 4,000 RITR, Series 12, 8.32% due 10/01/2024 (c)(e) 4,350
A- Baa1 1,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 1,510
BBB NR* 1,600 Midland County, Texas, Hospital District Revenue Bonds
(Midland Memorial Hospital), 7.50% due 6/01/2016 1,705
Tarrant County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding and Improvement Bonds
(Fort Worth Osteopathic):
BBB Baa 1,950 7% due 5/15/2003 (f) 2,178
BBB Baa 1,935 7% due 5/15/2028 2,023
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Utah--3.5% A+ A1 $ 5,000 Intermountain Power Agency, Utah, Power Supply Revenue
Refunding Bonds, Series D, 5% due 7/01/2021 $ 4,430
AA Aa 7,200 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals Inc.), 6.25% due 2/15/2023 7,313
AAA Aaa 5,000 Utah State Board of Regents, Student Loan Revenue Bonds, AMT,
Series H, 6.70% due 11/01/2015 (b) 5,197
Virginia-- AA Aa3 6,600 Chesapeake, Virginia, Water and Sewer, UT, Series A, 5% due
4.0% 12/01/2025 5,952
AAA Aaa 2,250 Hanover County, Virginia, Water and Sewer System Revenue Bonds,
5.25% due 2/01/2026 (c) 2,092
AAA Aaa 5,250 Loudoun County, Virginia, Sanitation Authority, Water and Sewer
Revenue Refunding Bonds, 5.125% due 1/01/2030 (h) 4,768
AAA NR* 1,000 Prince William County, Virginia, IDA, Revenue Refunding Bonds
(Potomac Place), Series A, 6.25% due 12/20/2027 (j) 1,005
AA+ Aa1 5,025 Virginia State, HDA, Commonwealth Mortgage, Series J,
Sub-Series J-2, 6.65% due 7/01/2014 5,306
<PAGE>
Washington-- AA- Aaa 6,250 Lewis County, Washington, Public Utility District No. 1
3.7% Revenue Bonds (Cowlitz Falls Hydroelectric Project), 7%
due 10/01/2001 (f) 6,906
AA- Aa1 10,000 Washington State Public Power Supply System, Revenue
Refunding Bonds (Nuclear Project No. 1), Series A, 6.50%
due 7/01/2015 10,352
Wisconsin-- NR* A2 5,300 Wisconsin State Health and Educational Facilities Authority
1.7% Revenue Bonds (Mercy Hospital of Janesville Inc.), 6.50%
due 8/15/2011 5,410
AA Aa2 2,800 Wisconsin State Housing and Economic Development Authority,
Home Ownership Revenue Refunding Bonds, AMT, Series B,
6.25% due 9/01/2027 2,802
Puerto Rico-- AAA Aaa 5,250 Puerto Rico Commonwealth, GO, UT, 7% due 7/01/2010 (b) 6,055
2.4% AAA Aaa 5,300 Puerto Rico Municipal Finance Agency, UT, Series A, 5.50%
due 7/01/2021 (i) 5,148
Total Investments (Cost--$441,573)--96.4% 456,496
Other Assets Less Liabilities--3.6% 17,239
--------
Net Assets--100.0% $473,735
========
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at April 30, 1997.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)FNMA Collateralized.
(e)The interest rate is subject to change periodically and
inversely based upon prevailing market rates. The interest rate
shown is the rate in effect at April 30, 1997.
(f)Prerefunded.
(g)Escrowed to Maturity.
(h)FGIC Insured.
(i)FSA Insured.
(j)GNMA Collateralized.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$441,573,014) (Note 1a) $456,495,609
Cash 111,218
Receivables:
Securities sold $ 20,484,743
Interest 7,583,859 28,068,602
------------
Deferred organization expenses (Note 1e) 4,716
Prepaid expenses and other assets 56,737
------------
Total assets 484,736,882
------------
Liabilities: Payables:
Securities purchased 10,280,262
Dividends to shareholders (Note 1f) 420,565
Investment adviser (Note 2) 193,052 10,893,879
------------
Accrued expenses and other liabilities 108,151
------------
Total liabilities 11,002,030
------------
Net Assets: Net assets $473,734,852
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (6,000 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $150,000,000
Common Stock, par value $.10 per share (22,070,885 shares issued
and outstanding) $ 2,207,089
Paid-in capital in excess of par 307,412,636
Undistributed investment income--net 3,264,447
Accumulated realized capital losses on investments--net (4,071,915)
Unrealized appreciation on investments--net 14,922,595
------------
Total--Equivalent to $14.67 net asset value per share of Common
Stock (market price--$13.75) 323,734,852
------------
Total capital $473,734,852
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
For the Six Months
Ended April 30, 1997
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 14,165,478
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,182,730
Commission fees (Note 4) 188,920
Accounting services (Note 2) 40,941
Transfer agent fees 39,778
Professional fees 39,719
Printing and shareholder reports 19,239
Listing fees 16,739
Custodian fees 14,015
Directors' fees and expenses 11,106
Pricing fees 7,274
Amortization of organization expenses (Note 1e) 2,301
Other 14,808
------------
Total expenses 1,577,570
------------
Investment income--net 12,587,908
------------
Realized & Realized gain on investments--net 2,056,249
Unrealized Gain Change in unrealized appreciation on investments--net (5,096,611)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 9,547,546
(Notes 1b, 1d ============
& 3):
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 12,587,908 $ 25,465,715
Realized gain on investments--net 2,056,249 2,563,664
Change in unrealized appreciation on investments--net (5,096,611) 2,424,096
------------ ------------
Net increase in net assets resulting from operations 9,547,546 30,453,475
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (10,126,762) (20,195,323)
Shareholders Preferred Stock (2,596,620) (5,409,880)
(Note 1f): Realized gain on investments--net:
Common Stock (764,403) --
Preferred Stock (206,200) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (13,693,985) (25,605,203)
------------ ------------
Net Assets: Total increase (decrease) in net assets (4,146,439) 4,848,272
Beginning of period 477,881,291 473,033,019
------------ ------------
End of period* $473,734,852 $477,881,291
============ ============
<FN>
*Undistributed investment income--net $ 3,264,447 $ 3,399,921
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
April 30, For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.86 $ 14.64 $ 13.20 $ 16.27 $ 13.58
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .58 1.16 1.16 1.18 1.21
Realized and unrealized gain (loss) on
investments--net (.15) .23 1.53 (2.68) 2.75
-------- -------- -------- -------- --------
Total from investment operations .43 1.39 2.69 (1.50) 3.96
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.46) (.92) (.89) (.96) (1.07)
Realized gain on investments--net (.03) -- (.10) (.37) --
In excess of realized gain on
investments--net -- -- --++ -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.49) (.92) (.99) (1.33) (1.07)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.12) (.25) (.25) (.16) (.20)
Realized gain on investments--net (.01) -- (.01) (.08) --
In excess of realized gain on
investments--net -- -- --++ -- --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.13) (.25) (.26) (.24) (.20)
-------- -------- -------- -------- --------
Net asset value, end of period $ 14.67 $ 14.86 $ 14.64 $ 13.20 $ 16.27
======== ======== ======== ======== ========
Market price per share, end of period $ 13.75 $ 13.50 $ 12.625 $ 11.125 $ 15.50
======== ======== ======== ======== ========
Total Investment Based on market price per share 5.59%+++ 14.50% 23.09% (20.99%) 16.82%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 2.35%+++ 8.68% 20.30% (10.68%) 28.67%
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .67%* .67% .68% .69% .57%
Net Assets:*** ======== ======== ======== ======== ========
Expenses .67%* .67% .68% .69% .61%
======== ======== ======== ======== ========
Investment income--net 5.32%* 5.36% 5.63% 5.46% 5.49%
======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $323,735 $327,881 $323,033 $291,338 $359,020
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover 91.52% 95.49% 79.27% 47.42% 81.12%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,158 $ 3,186 $ 3,154 $ 2,942 $ 3,393
======== ======== ======== ======== ========
Dividends Series A--Investment income--net $ 442 $ 897 $ 885 $ 564 $ 760
Per Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net $ 441 $ 899 $ 942 $ 564 $ 811
Outstanding:++++++ ======== ======== ======== ======== ========
Series C--Investment income--net $ 415 $ 910 $ 934 $ 600 $ 640
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Amount is less than $.01 per share.
++++Dividends per share have been adjusted to reflect a two-for-one
stock split that occurred on December 1, 1994.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Quality Fund II, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The Fund determines and makes available for publication the net
asset value of its Common Stock on a weekly basis. The Fund's Common
Stock is listed on the New York Stock Exchange under the symbol MQT.
The following is a summary of significant accounting policies
followed by the Fund.
<PAGE>
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. Securities with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Securities and assets for
which market quotations are not readily available are valued at
their fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell interest
rate futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
<PAGE>
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
NOTES TO FINANCIAL STATEMENTS (concluded)
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 1997 were $427,966,490 and
$451,414,228, respectively.
<PAGE>
Net realized and unrealized gains as of April 30, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 2,056,249 $14,922,595
----------- -----------
Total $ 2,056,249 $14,922,595
=========== ===========
As of April 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $14,922,595, of which $16,588,515 related to
appreciated securities and $1,665,920 related to depreciated
securities. The aggregate cost of investments at April 30, 1997 for
Federal income tax purposes was $441,573,014.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Common Stock
For the six months ended April 30, 1997, shares issued and
outstanding remained constant at 22,070,885. At April 30, 1997,
total paid-in capital amounted to $309,619,725.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund that entitle their holders to receive cash
dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at April 30, 1997 were as
follows: Series A, 3.80%; Series B, 3.75%; and Series C, 4.15%.
As of April 30, 1997, there were 6,000 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%,
calculated on the proceeds of each auction. For the six months ended
April 30, 1997, Merrill Lynch, Pierce, Fenner & Smith Inc., an
affiliate of FAM, earned $73,550 as commissions.
5. Subsequent Event:
On May 9, 1997, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.074042 per share, payable on May 29, 1997 to shareholders of
record as of May 19, 1997.
<PAGE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MQT
