MUNIYIELD
QUALITY
FUND II, INC.
STRATEGIC
Performance
Annual Report
October 31, 1997
<PAGE>
MuniYield Quality Fund II, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1997, the Common Stock of MuniYield Quality Fund
II, Inc. earned $0.903 per share income dividends, which included earned and
unpaid dividends of $0.073. This represents a net annualized yield of 5.84%,
based on a month-end per share net asset value of $15.46. Over the same period,
the total investment return on the Fund's Common Stock was +11.24%, based on a
change in per share net asset value from $14.86 to $15.46, and assuming
reinvestment of $0.907 per share income dividends and $0.035 per share capital
gains distributions.
For the six-month period ended October 31, 1997, the total investment return on
the Fund's Common Stock was +8.69%, based on a change in per share net asset
value from $14.67 to $15.46, and assuming reinvestment of $0.448 per share
income dividends.
For the six-month period ended October 31, 1997, the Fund's Auction Market
Preferred Stock had an average yield as follows: Series A, 3.35%; Series B,
3.35%; and Series C, 3.59%.
The Municipal Market Environment
Long-term interest rates generally declined during the six-month period ended
October 31, 1997. The general financial environment has remained one of solid
economic growth tempered by few or no inflationary pressures. While economic
growth has been conducive to declining bond yields, it has remained strong
enough to suggest that the Federal Reserve Board (FRB) might find it necessary
to raise short-term interest rates. This would be intended to slow economic
growth and ensure that any incipient inflationary pressures would be curtailed.
There were investor concerns that the FRB would be forced to raise interest
rates prior to year-end, thus preventing an even more dramatic decline in
interest rates. Long-term tax-exempt revenue bonds, as measured by the Bond
Buyer Revenue Bond Index, declined over 50 basis points (0.50%) to end the
six-month period ended October 31, 1997 at 5.60%.
Similarly, long-term US Treasury bond yields generally moved lower during most
of the six-month period ended October 31, 1997. However, the turmoil in the
world's equity markets during the last week in October has resulted in a
significant rally in the Treasury bond market. The US Treasury bond market was
the beneficiary of a flight to quality mainly by foreign investors whose own
domestic markets have continued to be very volatile. Prior to the initial
decline in Asian equity markets, long-term US Treasury bond yields were
essentially unchanged. By the end of October, US Treasury bond yields declined
80 basis points to 6.15%, their lowest level of 1997.
The tax-exempt bond market's continued underperformance as compared to its
taxable counterpart has been largely in response to its ongoing weakening
technical position. As municipal bond yields have declined, municipalities have
hurriedly rushed to refinance outstanding higher-couponed debt with new issues
financed at present low rates. During the last six months, over $118 billion in
new long-term tax-exempt issues were underwritten, an increase of over 25%
versus the comparable period a year ago. As interest rates have continued to
decline, these refinancings have intensified municipal bond issuance. During the
past three months, approximately $60 billion in new long-term municipal
securities were underwritten, an increase of over 34% as compared to the October
31, 1996 quarter.
The recent trend toward larger and larger bond issues has also continued.
However, issues of such magnitude usually must be attractively priced to ensure
adequate investor interest. Obviously, the yields of other municipal bond issues
are impacted by the yield premiums such large issuers have been required to pay.
Much of the municipal bond market's recent underperformance can be traced to
market pressures that these large bond issuances have exerted.
In our opinion, the recent correction in world equity markets has enhanced the
near-term prospects for continued low, if not declining, interest rates in the
United States. It is likely that the recent correction will result in slower US
domestic growth in the coming months. This decline is likely to be generated in
part by reduced US export growth. Additionally, some
1
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
decline in consumer spending also can be expected in response to reduced
consumer confidence. Perhaps more importantly, it is likely that barring a
dramatic and unexpected resurgence in domestic growth, the FRB may be unwilling
to raise interest rates until the full impact of the equity market's corrections
can be established.
All of these factors suggest that for at least the near term, interest rates,
including tax-exempt bond yields, are unlikely to rise by any appreciable
amount. It is probable that municipal bond yields will remain under some
pressure as a result of continued strong new-issue supply. However, the recent
pace of municipal bond issuance is likely to be unsustainable. Continued
increases in bond issuance will require lower tax-exempt bond yields to generate
the economic savings necessary for additional municipal bond refinancing. With
tax-exempt bond yields at already attractive yield ratios relative to US
Treasury bonds (approximately 90% at the end of October), any further pressure
on the municipal market may represent an attractive investment opportunity.
Portfolio Strategy
At the beginning of 1997, our outlook was for higher interest rates. Since the
bond market had rallied in anticipation of a weakening economy with no
possibility of an FRB tightening, we perceived a risk of sudden change in
investor expectations. At this time, the Fund remained fully invested as we
purchased bonds less sensitive to interest rate volatility, such as
shorter-duration bonds. This strategy proved beneficial as economic data
released during the fourth quarter of 1996 and the first quarter of 1997 showed
significant signs of strength. As a result, the FRB increased short-term
interest rates 25 basis points and pushed tax-exempt interest rates to 6% by the
middle of April. Anticipating further tightening, we remained cautious on the
bond market and concentrated on protecting the Fund's net asset value and
maintaining as high a level as possible of tax-exempt income.
Surprisingly, the bond market staged a significant rally during the summer
months, and long-term tax-exempt yields declined nearly 75 basis points. In our
opinion, this occurred as a result of the economy turning decidedly weaker in
the second quarter of 1997. Fortunately, higher-coupon bonds, which we purchased
for defensive measures, outperformed aggressively structured bonds since they
were now advance refunding candidates. We maintained a defensive, fully invested
posture for the Fund for the remainder of the 12-month period ended October 31,
1997 as the bond market remained in a narrow 25 basis point trading range.
Looking ahead, our outlook is for lower interest rates. The economic expansion
is now entering its seventh year with benign inflation. Equity markets
throughout the world have entered into a very volatile stage triggered by the
currency crisis in the Southeast Asia. We believe a continuation of equity
market declines may have a negative impact on economic growth, thereby
constraining global inflation.
The yield on the Fund's Auction Market Preferred Stock has been trading between
3.25%-4.00% during the past year. Leverage continues to benefit the Fund's
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, as a result, reduce the yield
to the Fund's Common Stock. (For a complete explanation of the benefits and
risks of leveraging, see page 4 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,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert A. DiMella
Robert A. DiMella
Vice President and Portfolio Manager
December 4, 1997
2
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
PROXY RESULTS
During the six-month period ended October 31, 1997, MuniYield Quality Fund II,
Inc. Common Stock shareholders voted on the following proposals. The proposals
were approved at a shareholders' meeting on September 18, 1997. The description
of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors: Herbert I. London 21,345,681 468,712
Robert R. Martin 21,346,541 467,852
Andre F. Perold 21,351,177 463,216
Arthur Zeikel 21,339,037 475,356
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 21,353,817 127,302 333,274
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended October 31, 1997, MuniYield Quality Fund
II, Inc. Preferred Stock shareholders (Series A, B, and C) voted on the
following proposals. The proposals were approved at a shareholders' meeting
on September 18, 1997. The description of each proposal and number of shares
voted are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors: James H. Bodurtha,
Herbert I. London, Robert R. Martin, Joseph L. May, Andre F.
Perold and Arthur Zeikel as follows:
Series A 1,397 0
Series B 1,130 0
Series C 1,958 0
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year as follows:
Series A 1,397 0 0
Series B 1,130 0 0
Series C 1,958 0 0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 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.
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)
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
M/F Multi-Industry
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
4
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <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 $ 7,907
- -------------------------------------------------------------------------------------------------------------------------------
Alaska--0.6% A- A2 2,580 Alaska Industrial Development and Export Authority,
Revolving Fund, AMT, Series A, 6.375% due 4/01/2008 2,792
- -------------------------------------------------------------------------------------------------------------------------------
California--2.8% AAA Aaa 7,980 California State Public Works Board, Lease Revenue Bonds
(Department of Corrections--Corcoran II), Series A,
5.50% due 1/01/2017 (b) 8,154
AAA Aaa 4,900 University of California, RITR, Series 13, 8.77% due
9/01/2019 (c)(e) 5,788
- -------------------------------------------------------------------------------------------------------------------------------
Colorado--4.6% NR* Aaa 1,350 Colorado Health Facilities Authority, Hospital Revenue Bonds
(P/SL Healthcare System Project), Series A, 6.875% due 2/15/2003 (f) 1,529
Colorado Public Highway Authority, Revenue Refunding
Bonds (E-470), Senior Series B (c)**:
AAA Aaa 13,000 5.55% due 9/01/2019 4,053
AAA Aaa 23,000 5.52% due 9/01/2026 4,863
Denver, Colorado, City and County Airport Revenue Bonds, Series A:
AAA Baa1 2,150 7.25% due 11/15/2002 (f) 2,468
AAA NR* 850 7.25% due 11/15/2002 (f) 976
AAA Aaa 8,505 5.50% due 11/15/2025 (c) 8,540
- -------------------------------------------------------------------------------------------------------------------------------
Connecticut--0.6% Connecticut State Learning Regional Educational Service
Center Revenue Bonds (Office/Education Center Facilities):
NR* NR* 1,720 7.50% due 2/01/2005 1,882
NR* NR* 1,100 7.75% due 2/01/2015 1,244
- -------------------------------------------------------------------------------------------------------------------------------
District of A+ A3 4,460 District of Columbia Revenue Bonds (Howard University),
Columbia--1.0% Series A, 7.25% due 10/01/2020 4,834
- -------------------------------------------------------------------------------------------------------------------------------
Florida--4.9% AAA Aaa 5,105 Florida State Department of Transportation (Right of Way),
Series B, 5% due 7/01/2015 (c) 5,016
AAA Aaa 6,790 Lakeland, Florida, Hospital System Revenue Refunding Bonds
(Lakeland Regional Medical Center), Series A, 5% due
11/15/2022 (c) 6,500
NR* Baa 2,285 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
Education and Research Foundation Project), Series A, 7% due
9/01/2024 2,551
AAA Aaa 10,000 Port of St. Lucie, Florida, Improvement and Utility Revenue
Refunding Bonds, Series A, 5.125% due 9/01/2027 (c) 9,768
- -------------------------------------------------------------------------------------------------------------------------------
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 2,744
NR* Aa 1,335 Sub-Series 1, 6.80% due 10/01/2006 1,436
- -------------------------------------------------------------------------------------------------------------------------------
Illinois--5.0% NR* Aaa 4,385 Chicago, Illinois, M/F Housing Revenue Bonds
(Bryn Mawr/Belle Project), AMT, 6.125% due 6/01/2039 (j) 4,547
A+ A1 3,645 Illinois Educational Facilities Authority, Revenue Refunding Bonds
(Loyola University--Chicago), Series A, 7.125% due 7/01/2001 (f) 4,060
AAA Aaa 10,000 Illinois Health Facilities Authority, Revenue Refunding Bonds
(Loyola University Health System), Series A, 5% due 7/01/2024 (c) 9,424
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan
Revenue Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 6,392
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C>
Indiana--2.4% AAA NR* $ 2,675 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.75% due 2/01/2017 $ 3,011
Indianapolis, Indiana, Local Public Improvement Bond Bank:
A+ NR* 3,100 Refunding, Series D, 6.75% due 2/01/2020 3,424
NR* Aaa 5,000 Series C, 6.70% due 1/01/2002 (f) 5,545
- -------------------------------------------------------------------------------------------------------------------------------
Kentucky--0.7% NR* NR* 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue
Bonds (TJ International Project), AMT, 7% due 6/01/2024 3,257
- -------------------------------------------------------------------------------------------------------------------------------
Louisiana--1.5% NR* A3 5,000 Lake Charles, Louisiana, Harbor and Terminal District,
Port Facilities Revenue Refunding Bonds (Trunkline LNG
Company Project), 7.75% due 8/15/2022 5,730
AAA Aaa 1,500 New Orleans, Louisiana, Public Improvement Bonds, UT, 5.90%
due 11/01/2025 (h) 1,563
- -------------------------------------------------------------------------------------------------------------------------------
Massachusetts--5.4% BBB+ Baa2 2,000 Massachusetts Municipal Wholesale Electric Company,
Power Supply System Revenue Refunding Bonds, Series A,
6.75% due 7/01/2011 2,157
AAA Aaa 5,000 Massachusetts State, HFA (Residential Development),
Series A, 6.875% due 11/15/2011 (d) 5,435
A+ Aa 5,500 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT,
Series 40, 6.60% due 12/01/2024 5,864
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 2,657
A- NR* 3,500 (Melrose-Wakefield Hospital), Series B, 6.375% due 7/01/2016 3,705
NR* B2 2,640 (New England Memorial Hospital), Series B, 6% due 7/01/2008 2,462
NR* B2 4,590 (New England Memorial Hospital), Series B, 6.125%
due 7/01/2013 4,252
A1+ P1 100 Massachusetts State Port Authority, Revenue Refunding Bonds,
VRDN, Series A, 3.60% due 7/01/2015 (a) 100
- -------------------------------------------------------------------------------------------------------------------------------
Minnesota--0.4% AA+ Aa2 2,000 Minnesota State, HFA, S/F Mortgage, AMT, Series D,
5.85% due 7/01/2019 2,038
- -------------------------------------------------------------------------------------------------------------------------------
Mississippi--1.4% A A2 6,000 Lowndes County, Mississippi, Solid Waste Disposal, PCR, Refunding
(Weyerhaeuser Company Project), Series A, 6.80% due 4/01/2022 7,113
- -------------------------------------------------------------------------------------------------------------------------------
Montana--0.6% AA Aa2 2,965 Montana State Board of Housing, S/F Mortgage, Refunding,
Series A-1, 5.95% due 12/01/2027 3,058
- -------------------------------------------------------------------------------------------------------------------------------
New Jersey--5.6% AAA Aaa 5,000 Cape May County, New Jersey, Industrial Pollution Control
Finance Authority, Revenue Refunding Bonds (Atlantic City
Electric Company Project), Series B, 7% due 11/01/2029 (c) 5,694
AAA Aaa 7,040 Casino Reinvestment Development Authority, New Jersey, Parking
Fee Revenue Bonds, Series A, 5.25% due 10/01/2017 (i) 7,031
AAA Aaa 1,430 New Jersey EDA, Parking Facility Revenue Bonds (Elizabeth
Development Company Project), 5.60% due 10/15/2019 (h) 1,466
New Jersey Health Care Facilities, Financing Authority,
Revenue Refunding Bonds:
AAA Aaa 10,000 (AHS Hospital Corporation), Series A, 5% due 7/01/2016 (b) 9,762
AAA Aaa 3,270 (Shoreline Behavioral Health), 5.50% due 7/01/2027 (c) 3,287
AA A1 300 Rutgers State University of New Jersey, Series A, 5.20% due
5/01/2027 297
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C>
New Mexico--1.7% A A2 $ 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporation Project), 6.50% due 4/01/2013 $ 5,412
AAA NR* 2,800 New Mexico Mortgage Finance Authority, M/F Housing Revenue
Bonds (Rio Volcan II Apartments Project), AMT, 5.65% due
7/01/2018 (d) 2,805
- -------------------------------------------------------------------------------------------------------------------------------
New York--14.2% New York City, New York, GO, UT:
BBB+ Baa1 8,500 Refunding, Series J, 6% due 8/01/2017 8,826
AAA Aaa 1,000 Series B, 7.25% due 8/15/2007 (b) 1,193
BBB+ Baa1 10,000 Series C, 5.50% due 11/15/2037 9,669
BBB+ Baa1 265 Series H, 7% due 2/01/2002 (f) 296
BBB+ Baa1 4,885 Series H, 7% due 2/01/2021 5,341
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 2,304
NR* NR* 3,250 7.25% due 5/01/2004 3,753
AAA Aaa 15,925 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, Series B, 5.875% due
6/15/2026 (i) 16,558
New York State Dormitory Authority,
Revenue Refunding Bonds:
A- Baa1 3,000 (Mental Health Service Facilities), Series B, 5.50%
due 8/15/2017 3,000
AAA Aaa 2,000 (Mortgage Hospital--UTD Health Services), 5.50% due
8/01/2017 (b)(k) 2,019
A+ Aaa 6,000 New York State Local Government Assistance Corporation,
Series A, 6.875% due 4/01/2002 (f) 6,738
A- 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 4,013
AA- Aa3 3,000 New York State Thruway Authority, General Revenue Bonds,
Series D, 5.50% due 1/01/2016 3,050
AAA Aaa 1,000 New York State Urban Development Corporation, Revenue
Refunding Bonds (Correctional Facilities), Series A, 5% due
1/01/2017 (b) 966
AA- A1 2,000 Port Authority of New York and New Jersey, 109th Series,
Fourth Installment, 5.375% due 1/15/2032 1,977
- -------------------------------------------------------------------------------------------------------------------------------
North Carolina--3.8% A A2 14,750 Martin County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Solid Waste Disposal Revenue
Bonds (Weyerhaeuser Company), AMT, 6.80% due 5/01/2024 16,320
AA Aa2 2,550 North Carolina, HFA, S/F, AMT, Series RR, 5.85% due 9/01/2028 2,586
- -------------------------------------------------------------------------------------------------------------------------------
Ohio--1.4% A-1 NR* 100 Cincinnati and Hamilton Counties, Ohio, Port Authority, IDR
(Multi-Color Corporation Project), VRDN, 3.65% due 11/01/2000 (a) 100
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 7,006
- -------------------------------------------------------------------------------------------------------------------------------
Oklahoma--1.1% BBB- Baa2 5,000 Tulsa, Oklahoma, Municipal Airport Trust, Revenue Refunding
Bonds (American Airlines Project), 6.25% due 6/01/2020 5,303
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C>
Oregon--1.7% Multnomah County, Oregon, Educational Facilities Revenue
Refunding Bonds (University of Portland Project) (b):
AAA Aaa $ 1,250 5% due 4/01/2011 $ 1,238
AAA Aaa 1,500 5.05% due 4/01/2012 1,485
AAA Aaa 1,500 5.10% due 4/01/2013 1,484
AAA Aaa 500 5.15% due 4/01/2014 495
Oregon Health Sciences, University Revenue Bonds, Series A (c):
AAA Aaa 1,000 5.25% due 7/01/2025 991
AAA Aaa 2,850 5.25% due 7/01/2028 2,824
- -------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--2.2% AAA Aaa 5,000 Pennsylvania HFA, Refunding (Rental Housing), 6.50% due
7/01/2023 (d) 5,264
AA+ Aa 5,000 Pennsylvania HFA, S/F Mortgage, Series 34A, 6.85% due 4/01/2016 5,318
- -------------------------------------------------------------------------------------------------------------------------------
Rhode Island--0.6% A- Baa1 3,000 Rhode Island Depositors Economic Protection Corporation,
Special Obligation Refunding Bonds, Series A, 5.75% due
8/01/2021 (g) 3,163
- -------------------------------------------------------------------------------------------------------------------------------
South Carolina--4.3% A- A1 5,765 Berkeley County, South Carolina, Pollution Control Facilities
Revenue Bonds (South Carolina Electric and Gas Company),
6.50% due 10/01/2014 6,276
A A1 2,950 Fairfield County, South Carolina, PCR (South Carolina Electric
and Gas Company), 6.50% due 9/01/2014 3,205
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 1,081
A- A1 7,000 Richland County, South Carolina, PCR, Refunding (Union Camp
Corporation Project), Series C, 6.55% due 11/01/2020 7,584
NR* NR* 2,500 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55% due
11/01/2024 2,822
- -------------------------------------------------------------------------------------------------------------------------------
South Dakota--2.1% AAA Aa1 9,975 South Dakota HDA, Homeownership Mortgage, Series B,
7.10% due 5/01/2017 10,511
- -------------------------------------------------------------------------------------------------------------------------------
Tennessee--3.2% BBB Baa1 5,000 McMinn County, Tennessee, IDB, Solid Waste Recycling Facility
Revenue Bonds (Calhoun Newsprint--Bowater), AMT, 7.40% due
12/01/2022 5,574
AA Aa2 10,000 Tennessee HDA (Homeowner Program), AMT, Series 3, 6%
due 1/01/2028 10,252
- -------------------------------------------------------------------------------------------------------------------------------
Texas--6.4% AAA Aaa 5,000 Dripping Springs, Texas, Independent School District, UT,
6% due 8/15/2021 5,284
Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds:
BBB Baa1 4,200 (Champion International Corporation), AMT, 7.375% due
10/01/2025 4,649
AAA Aaa 1,600 Refunding (Houston Light and Power Company), Series A,
6.375% due 4/01/2012 (c) 1,751
A1+ NR* 3,300 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Methodist Hospital), VRDN, 3.70% due
12/01/2025 (a) 3,300
A- NR* 1,600 Midland County, Texas, Hospital District Revenue Bonds
(Midland Memorial Hospital), 7.50% due 6/01/2002 (f) 1,820
AAA Aaa 11,000 Tarrant County, Texas, Health Facilities Development Corporation,
Health System Revenue Bonds (Texas Health Resources System),
Series A, 5% due 2/15/2026 (c) 10,350
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) 2,223
BBB Baa 1,935 7% due 5/15/2028 2,098
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C>
Utah--5.0% AAA Aaa $ 9,300 Intermountain Power Agency, Utah, Power Supply Revenue
Refunding Bonds, Series B, 5.75% due 7/01/2019 (c) $ 9,644
AAA Aaa 5,000 Utah County, Utah, Hospital Revenue Bonds (IHC Health
Services, Inc.), 5.25% due 8/15/2026 (c) 4,862
AAA Aaa 5,000 Utah State Board of Regents, Student Loan Revenue Bonds,
AMT, Series H, 6.70% due 11/01/2015 (b) 5,300
AAA Aaa 4,730 Utah State, HFA, S/F Mortgage, AMT, Series C-2, Class I,
6.05% due 7/01/2022 4,849
- -------------------------------------------------------------------------------------------------------------------------------
Virginia--4.4% NR* Aa1 3,800 Arlington County, Virginia, IDA, Headquarters Facility Revenue
Bonds (The Nature Conservancy), Series A, 5.45% due 7/01/2027 3,842
AA Aa3 6,600 Chesapeake, Virginia, Water and Sewer, UT, Series A, 5% due
12/01/2025 6,321
Virginia State HDA, Commonwealth Mortgage:
AA+ Aa1 5,750 AMT, Series B, Sub-Series B-1, 6.375% due 7/01/2026 6,080
AA+ Aa1 5,025 Series J, Sub-Series J-2, 6.65% due 7/01/2014 5,399
- -------------------------------------------------------------------------------------------------------------------------------
Washington--3.7% AA- Aaa 6,250 Lewis County, Washington, Public Utility District No. 1 Revenue
Bonds (Cowlitz Falls Hydroelectric Project), 7% due 10/01/2001 (f) 6,987
AA- Aa1 10,000 Washington State Public Power Supply System, Revenue Refunding
Bonds (Nuclear Project No. 1), Series A, 6.50% due 7/01/2002 (f) 11,071
- -------------------------------------------------------------------------------------------------------------------------------
West Virginia--2.1% A A2 9,945 Braxton County, West Virginia, Solid Waste Disposal Revenue
Bonds (Weyerhaeuser Company Project), AMT, 5.80% due
6/01/2027 10,123
- -------------------------------------------------------------------------------------------------------------------------------
Wisconsin--1.2% NR* A2 5,300 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Mercy Hospital of Janesville Inc.),
6.50% due 8/15/2011 5,662
- -------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--1.3% AAA Aaa 5,250 Puerto Rico Commonwealth, GO, UT, 7% due 7/01/2010 (b) 6,336
- -------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$467,689)--100.4% 493,129
LiabilitiesIn Excess of Other Assets--(0.4%) (1,899)
--------
Net Assets--100.0% $491,230
========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(a) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at October 31,
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 October 31, 1997.
(f) Prerefunded.
(g) Escrowed to maturity.
(h) FGIC Insured.
(i) FSA Insured.
(j) GNMA Collateralized.
(k) FHA Insured.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
9
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets: Investments, at value (identified cost--$467,689,431) (Note 1a) . $493,129,488
Cash............................................................. 8,062
Receivables:
Securities sold................................................ $ 13,512,902
Interest ...................................................... 8,422,579 21,935,481
------------
Prepaid expenses and other assets................................ 13,194
------------
Total assets .................................................... 515,086,225
------------
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased........................................... 23,065,010
Dividends to shareholders (Note 1f)............................ 433,727
Investment adviser (Note 2).................................... 220,675 23,719,412
------------
Accrued expenses and other liabilities........................... 137,104
------------
Total liabilities ............................................... 23,856,516
------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets....................................................... $491,229,709
============
- ------------------------------------------------------------------------------------------------------------------------------
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 ............................ 3,396,022
Undistributed realized capital gains on investments--net......... 2,773,905
Unrealized appreciation on investments--net...................... 25,440,057
------------
Total--Equivalent to $15.46 net asset value per share of Common Stock
(market price--$14.375).......................................... 341,229,709
------------
Total capital.................................................... $491,229,709
============
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
10
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned......... $ 28,431,451
(Note 1d):
- -----------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2)................................ $ 2,418,357
Commission fees (Note 4)......................................... 386,348
Professional fees................................................ 78,691
Transfer agent fees.............................................. 74,522
Accounting services (Note 2)..................................... 72,527
Printing and shareholder reports................................. 35,859
Listing fees..................................................... 34,297
Custodian fees................................................... 29,957
Directors' fees and expenses..................................... 22,888
Pricing fees..................................................... 15,854
Amortization of organization expenses (Note 1e).................. 4,715
Other............................................................ 35,144
-----------
Total expenses................................................... 3,209,159
------------
Investment income--net........................................... 25,222,292
------------
- -----------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ............................... 8,957,629
Unrealized Gain on Change in unrealized appreciation on investments--net ........... 5,420,851
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ............ $ 39,600,772
============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net........................................... $ 25,222,292 $ 25,465,715
Realized gain on investments--net................................ 8,957,629 2,563,664
Change in unrealized appreciation on investments--net............ 5,420,851 2,424,096
------------ ------------
Net increase in net assets resulting from operations............. 39,600,772 30,453,475
------------ ------------
- -------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Stock................................................... (20,009,111) (20,195,323)
Shareholders Preferred Stock................................................ (5,217,080) (5,409,880)
(Note 1f): Realized gain on investments--net:
Common Stock................................................... (764,403) --
Preferred Stock................................................ (261,760) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders.................................... (26,252,354) (25,605,203)
------------ ------------
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets..................................... 13,348,418 4,848,272
Beginning of year................................................ 477,881,291 473,033,019
------------ ------------
End of year*..................................................... $491,229,709 $477,881,291
============ ============
- -------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net............................ $ 3,396,022 $ 3,399,921
============ ============
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended October 31,
-----------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ............... $ 14.86 $ 14.64 $ 13.20 $ 16.27 $ 13.58
Operating -------- -------- -------- --------- ---------
Performance: Investment income--net ........................... 1.15 1.16 1.16 1.18 1.21
Realized and unrealized gain (loss) on
investments--net ................................. .64 .23 1.53 (2.68) 2.75
-------- -------- -------- --------- ---------
Total from investment operations ................. 1.79 1.39 2.69 (1.50) 3.96
-------- -------- -------- --------- ---------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ......................... (.91) (.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 ...................... (.94) (.92) (.99) (1.33) (1.07)
-------- -------- -------- --------- ---------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net ....................... (.24) (.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 ......... (.25) (.25) (.26) (.24) (.20)
-------- -------- -------- --------- ---------
Net asset value, end of year ..................... $ 15.46 $ 14.86 $ 14.64 $ 13.20 $ 16.27
======== ======== ======== ========= =========
Market price per share, end of year .............. $ 14.375 $ 13.50 $ 12.625 $ 11.125 $ 15.50
======== ======== ======== ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share .................. 13.86% 14.50% 23.09% (20.99%) 16.82%
Return:* ======== ======== ======== ========= =========
Based on net asset value per share ............... 11.24% 8.68% 20.30% (10.68%) 28.67%
======== ======== ======== ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses, net of reimbursement ................... .66% .67% .68% .69% .57%
Net Assets:** ======== ======== ======== ========= =========
Expenses ......................................... .66% .67% .68% .69% .61%
======== ======== ======== ========= =========
Investment income--net ........................... 5.22% 5.36% 5.63% 5.46% 5.49%
======== ======== ======== ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end of year
Data: (in thousands) ................................... $341,230 $327,881 $323,033 $ 291,338 $ 359,020
======== ======== ======== ========= =========
Preferred Stock outstanding, end of year
(in thousands) ................................... $150,000 $150,000 $150,000 $ 150,000 $ 150,000
======== ======== ======== ========= =========
Portfolio turnover ............................... 201.87% 95.49% 79.27% 47.42% 81.12%
======== ======== ======== ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ........................ $ 3,275 $ 3,186 $ 3,154 $ 2,942 $ 3,393
======== ======== ======== ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share Series A--Investment income--net ................. $ 869 $ 897 $ 885 $ 564 $ 760
On Preferred Stock ======== ======== ======== ========= =========
Outstanding:++ Series B--Investment income--net ................. $ 868 $ 899 $ 942 $ 564 $ 811
======== ======== ======== ========= =========
Series C--Investment income--net ................. $ 872 $ 910 $ 934 $ 600 $ 640
======== ======== ======== ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
See Notes to Financial Statements.
12
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
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. 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.
(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.
o 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.
o 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).
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.
(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.
13
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
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
year ended October 31, 1997 were $944,164,404 and $952,653,630, respectively.
Net realized and unrealized gains (losses) as of October 31, 1997 were as
follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments $10,093,914 $25,440,057
Short-term investments (167,545) --
Financial futures contracts (968,740) --
----------- -----------
Total...................... $ 8,957,629 $25,440,057
=========== ===========
- --------------------------------------------------------------------------------
As of October 31, 1997, net unrealized appreciation for Federal income tax
purposes aggregated $25,440,057, of which $25,874,233 related to appreciated
securities and $434,176 related to depreciated securities. The aggregate cost of
investments at October 31, 1997 for Federal income tax purposes was
$467,689,431.
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
Shares issued and outstanding during the years ended October 31, 1997 and
October 31, 1996 remained constant.
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 October
31, 1997 were as follows: Series A, 3.57%; Series B, 3.57%; and Series C, 3.50%.
As of October 31, 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 year ended October 31, 1997, Merrill Lynch, Pierce, Fenner
& Smith Inc., an affiliate of FAM, earned $148,378 as commissions.
5. Subsequent Event:
On November 6, 1997, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.073285 per share,
payable on November 26, 1997 to shareholders of record as of November 17, 1997.
14
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MuniYield Quality Fund II, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniYield Quality Fund II, Inc. as of
October 31, 1997, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniYield Quality
Fund II, Inc. as of October 31, 1997, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 5, 1997
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield Quality Fund
II, Inc. during its taxable year ended October 31, 1997 qualify as tax-exempt
interest dividends for Federal income tax purposes.
Additionally, the following table summarizes the per share capital gains
distributions paid by the Fund during the year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Payable Short-Term Long-Term
Date Capital Gains Capital Gains
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Shareholders 12/30/96 $.0001008 $ .034526
- --------------------------------------------------------------------------------------------------
Preferred Stock Shareholders: Series A 12/09/96 $.11 $34.07
Series B 12/09/96 $.11 $34.14
Series C 12/09/96 $.11 $34.56
- --------------------------------------------------------------------------------------------------
Please retain this information for your records.
</TABLE>
15
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1997
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
Philip M. Mandel, Secretary
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
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.
MuniYield Quality Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011 #16433 -- 10/97
[Logo] Printed on post-consumer recycled paper
