MUNIYIELD
QUALITY
FUND II, INC.
[GRAPHIC OMITTED]
Strategic
Performance
Semi-Annual Report
April 30, 1998
<PAGE>
MuniYield Quality Fund II, Inc.
TO OUR SHAREHOLDERS
For the six months ended April 30, 1998, the Common Stock of MuniYield Quality
Fund II, Inc. earned $0.644 per share income dividends, which included earned
and unpaid dividends of $0.074. This represents a net annualized yield of 8.64%,
based on a month-end net asset value of $15.04 per share. Over the same period,
the total investment return on the Fund's Common Stock was +2.42%, based on a
change in per share net asset value from $15.46 to $15.04, and assuming
reinvestment of $0.644 per share income dividends and $0.130 per share capital
gains distributions.
For the six months ended April 30, 1998, the Fund's Auction Market Preferred
Stock had an average yield as follows: Series A, 4.94%; Series B, 4.95%; and
Series C, 4.55%.
The Municipal Market Environment
During the six months ended April 30, 1998, bond yields generally moved lower,
and by mid-January 1998 had declined to recent historic lows. Long-term US
Treasury bond yields declined 20 basis points (0.20%) during the same period and
stood at 5.95% by April 30, 1998. Similarly, long-term uninsured tax-exempt bond
yields, as measured by the Bond Buyer Revenue Bond Index, fell approximately 35
basis points to 5.25%, a level not seen since the mid-1970s. While low inflation
has supported lower interest rates, much of the decline in bond yields in late
1997 and early 1998 was driven more by the turmoil in Asian financial markets
than by domestic economic fundamentals. Weak economic conditions in Asia were
expected to negatively impact US growth through reduced export demand.
Additionally, inflation in the United States was also expected to decline in
response to lower prices on goods imported from Asian manufacturers.
However, in recent months, many investors have become increasingly concerned
that most of the downturn in Asia, especially in Japan, has already occurred and
any future deterioration will not be severe enough to constrain US economic
growth and inflationary pressures. These concerns served to push interest rates
higher in the latter part of the period, causing fixed-income yields to retrace
much of their earlier gains.
Thus far in 1998, the municipal bond market has experienced unexpectedly strong
supply pressures. These supply pressures have prevented tax-exempt bond yields
from declining as much as US Treasury bond yields. Over the last six months,
more than $135 billion in new tax-exempt bonds were underwritten, an increase of
more than 40% compared to the same period a year ago. During the last three
months, municipalities issued over $72 billion in new securities, an increase of
more than 60% compared to the same three-month period in 1997. Additionally,
corporate issuers have also viewed current interest rate levels as an
opportunity to issue significant amounts of taxable securities. Thus far in
1998, more than $100 billion in investment-grade corporate bonds have been
underwritten, an increase of over 60% relative to the comparable period a year
ago. This sizeable corporate bond issuance has tended to support generally
higher fixed-income yields and reduce the demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely to be
maintained. Continued increases in bond issuance will require lower and lower
tax-exempt bond yields to generate the economic savings necessary for additional
municipal bond refinancings. Preliminary estimates for 1998 total municipal bond
issuance are presently in the $200 billion-$225 billion range. These estimates
suggest that recent supply pressures are likely to abate later in the year.
Municipal bond investors received approximately $30 billion earlier this year in
coupon payments, bond maturities and proceeds from early redemptions. The demand
generated by these assets has helped offset the increase in supply seen thus far
this year. Furthermore, looking ahead, June and July have also tended to be
periods of strong investor demand as seasonal factors are likely to generate
strong income flows similar to those seen earlier this year.
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
It is also possible that at least some of the recent economic strength seen in
the United States will be reversed in the coming months. A particularly mild
winter has been partially responsible for a strong housing sector, as well as
other construction industries. This recent strong trend may not be sustained and
may lead to weaker construction growth later this year. Additionally, strong
economic growth in 1997 and the increased use of electronic tax filing have
resulted in larger and earlier Federal and state income tax refunds to many
individuals. These refunds appear to have supported strong consumer spending in
recent months, but may be borrowing against weaker spending later this year. In
addition, the continued impact of the Asian financial crisis on the US domestic
economy's future growth remains unclear. Barring a dramatic and unexpected
resurgence of domestic inflation, we do not believe that the Federal Reserve
Board will be willing to raise interest rates until the full impact of the Asian
situation can be established.
All these factors suggest that over the near term, tax-exempt as well as taxable
bond yields are unlikely to rise by any appreciable amount. Recent supply
pressures have caused municipal bond yield ratios to rise relative to US
Treasury bond yields. At April 30, 1998, long-term tax-exempt bond yields were
at attractive yield ratios relative to comparable US Treasury securities (over
90%), and well in excess of their expected range of 85%-88%. Any further
pressure on the municipal market may well represent a very attractive investment
opportunity.
Portfolio Strategy
During the six months ended April 30, 1998, we shifted from our defensive
position to a more constructive investment outlook. We expected economic growth
to slow along with a continued reduction in inflation as a result of the
declines in Asian equity markets. As of April 30, 1998, only one of these
expectations had been met. Inflation has continued to fall but economic growth
has not slowed. Looking forward to the balance of 1998, we expect to maintain
our constructive outlook. We believe the continued instability of the Asian
equity markets will have a negative impact on the US economy, allowing inflation
and interest rates to decline further.
The yield on the Fund's Auction Market Preferred Stock has been trading between
3.20%-3.90% during the past 12 months. Recently, the yield has been at the
higher end of this range because of temporary tax season pressure, but is
expected to return to the 3.50% level in the next few weeks. 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 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,
/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
May 26, 1998
2
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
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 addi tional $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.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any month pay out such accumulated but undistributed income in
addition to net investment income earned in that month. As a result, the
dividends paid by the Fund for any particular month may be more or less than the
amount of net investment income earned by the Fund during such month. The Fund's
current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the Financial Information included in this report.
3
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Alabama--1.6% NR* Aaa $ 7,280 Alabama HFA, S/F Mortgage Revenue Bonds (Home Mortgage
Bond Program), Series B-1, 6.65% due 10/01/2025 $ 7,782
- ----------------------------------------------------------------------------------------------------------------------
Alaska--0.6% A- A2 2,580 Alaska Industrial Development and Export Authority
Revolving Fund, AMT, Series A, 6.375% due 4/01/2008 2,788
- ----------------------------------------------------------------------------------------------------------------------
California--1.2% AAA Aaa 4,900 University of California Revenue Bonds, RITR, Series 13,
8.37% due 9/01/2019 (c)(e) 5,856
- ----------------------------------------------------------------------------------------------------------------------
Colorado--11.7% 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) 1,515
Denver, Colorado, City and County Airport Revenue Bonds:
AAA Aaa 25,965 Refunding, Series D, 5.50% due 11/15/2025 (c) 26,275
AAA Baa1 2,150 Series A, 7.25% due 11/15/2002 (f) 2,437
AAA NR* 850 Series A, 7.25% due 11/15/2002 (f) 962
AAA Aaa 7,280 Series A, 5.60% due 11/15/2020 (c) 7,431
AAA Aaa 8,505 Series A, 5.50% due 11/15/2025 (c) 8,607
E-470 Public Highway Authority, Colorado, Revenue
Refunding Bonds, Senior Series B (c)**:
AAA Aaa 13,000 5.55% due 9/01/2019 4,093
AAA Aaa 23,000 5.52% due 9/01/2026 4,903
- ----------------------------------------------------------------------------------------------------------------------
Connecticut--0.6% Connecticut State Learning, Regional Educational Service
Center Revenue Bonds (Office/Education Center Facilities):
NR* NR* 1,505 7.50% due 2/01/2005 1,650
NR* NR* 1,100 7.75% due 2/01/2015 1,251
- ----------------------------------------------------------------------------------------------------------------------
District of A1+ VMIG1+ 2,400 District of Columbia, General Fund Recovery Bonds,
Columbia--0.5% VRDN, UT, Series B-1, 4.25% due 6/01/2003 (a) 2,400
- ----------------------------------------------------------------------------------------------------------------------
Florida--5.2% AAA Aaa 4,395 Florida State Turnpike Authority, Turnpike Revenue
Bonds (Department of Transportation), Series A, 4.50%
due 7/01/2027 (h) 3,834
Miami--Dade County, Florida, Special Obligation
Refunding Bonds, Series A (c)**:
AAA Aaa 8,500 5.248% due 10/01/2019 2,659
AAA Aaa 5,000 5.286% due 10/01/2021 1,397
NR* Ba2 2,285 Palm Bay, Florida, Lease Revenue Refunding Bonds
(Florida Education and Research Foundation Project),
Series A, 7% due 9/01/2024 2,467
AAA Aaa 15,000 Tampa, Florida, Sports Authority Revenue Bonds (Local
Option Sales Tax--Stadium Project),
5.25% due 1/01/2027 (c) 14,867
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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)
DATES Daily Adjustable Tax-Exempt Securities
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
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. April 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Idaho--0.2% NR* Aa $ 870 Idaho Student Loan Fund, Student Loan Revenue Bonds
(Marketing Association Inc.), AMT, Sub-Series 1, 6.80%
due 10/01/2006 $ 930
- ---------------------------------------------------------------------------------------------------------------------
Illinois--6.0% NR* Aaa 4,385 Chicago, Illinois, M/F Housing Revenue Bonds (Bryn
Mawr/Belle Project), AMT, 6.125% due 6/01/2039 (d) 4,567
NR* Aa2 1,600 Chicago, Illinois, O'Hare International Airport Revenue
Bonds (American Airlines), DATES, Series D,
4.15% due 12/01/2017 (a) 1,600
AAA Aaa 7,000 Illinois Development Finance Authority, PCR, Refunding
(Illinois Power Company Project), Series B, 5.40%
due 3/01/2028 (c) 6,924
NR* Aaa 10,000 Illinois Health Facilities Authority, Revenue Refunding
Bonds (Northwestern Medical Facilities Foundation),
5.125% due 11/15/2028 (c) 9,476
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan
Revenue
Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 6,364
- ---------------------------------------------------------------------------------------------------------------------
Indiana--1.3% AAA NR* 2,675 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.75% due 2/01/2017 3,011
AA NR* 3,100 Indianapolis, Indiana, Local Public Improvement Bond
Bank, Refunding, Series D, 6.75% due 2/01/2020 3,416
- ---------------------------------------------------------------------------------------------------------------------
Kentucky--0.7% NR* NR* 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue
Bonds (TJ International Project), AMT, 7% due 6/01/2024 3,305
- ---------------------------------------------------------------------------------------------------------------------
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 5,735
AAA Aaa 1,500 New Orleans, Louisiana, Public Improvement Bonds, UT,
5.90% due 11/01/2025 (h) 1,565
- ---------------------------------------------------------------------------------------------------------------------
Massachusetts--5.6% BBB+ Baa2 2,000 Massachusetts Municipal Wholesale Electric Company,
Power Supply System Revenue Refunding Bonds, Series A,
6.75% due 7/01/2011 2,152
AAA Aaa 5,000 Massachusetts State, HFA (Residential Development),
Series A, 6.875% due 11/15/2011 (g) 5,427
A+ Aa 5,500 Massachusetts State, HFA, S/F Housing Revenue Bonds,
AMT, Series 40, 6.60% due 12/01/2024 5,862
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 2,669
A- NR* 3,500 (Melrose-Wakefield Hospital), Series B, 6.375%
due 7/01/2004 (f) 3,904
NR* B2 2,640 (New England Memorial Hospital), Series B, 6%
due 7/01/2008 2,502
NR* B2 4,590 (New England Memorial Hospital), Series B, 6.125%
due 7/01/2013 4,334
- ---------------------------------------------------------------------------------------------------------------------
Mississippi--2.6% AAA Aaa 5,000 Harrison County, Mississippi, Waste Water Management
District Revenue Bonds (Wastewater Treatment Facilities),
5.875% due 2/01/2025 (h) 5,220
A A2 6,000 Lowndes County, Mississippi, Solid Waste Disposal, PCR,
Refunding (Weyerhaeuser Company Project), Series A,
6.80% due 4/01/2022 7,177
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
New Jersey--2.9% AAA Aaa $ 5,000 Cape May County, New Jersey, Industrial Pollution
Control Financing Authority, Revenue Refunding
Bonds (Atlantic City Electric Company Project),
` Series B, 7% due 11/01/2029 (c) $ 5,637
AAA Aaa 7,040 Casino Reinvestment Development Authority, New Jersey,
Parking Fee Revenue Bonds, Series A,
5.25% due 10/01/2017 (i) 7,006
AAA Aaa 1,430 New Jersey EDA, Parking Facilities Revenue Bonds
(Elizabeth Development Company Project), 5.60%
due 10/15/2019 (h) 1,473
- ---------------------------------------------------------------------------------------------------------------------
New Mexico--1.1% A A2 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporation Project), 6.50% due 4/01/2013 5,458
- ---------------------------------------------------------------------------------------------------------------------
New York--11.6% New York City, New York, GO:
BBB+ A3 8,500 Refunding, UT, Series J, 6% due 8/01/2017 9,002
BBB+ A3 4,665 Series H, 7% due 2/01/2002 (f) 5,145
BBB+ A3 485 Series H, 7% due 2/01/2021 526
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 2,273
NR* NR* 3,250 7.25% due 5/01/2004 3,703
AA Aa3 15,000 New York City, New York, Transitional
Finance Authority Revenue Bonds (Future Tax Secured),
Series C, 4.75% due 5/01/2023 13,728
AAA Aaa 5,600 New York State Dormitory Authority Revenue Bonds (Mental
Health Services Facilities),
Series B, 5.375% due 2/15/2026 (i) 5,572
A+ Aaa 6,000 New York State Local Government Assistance Corporation,
Series A, 6.875% due 4/01/2002 (f) 6,655
BBB+ Baa1 10,000 New York State Urban Development Corporation, Revenue
Refunding Bonds (Correctional Facilities),
5% due 1/01/2019 9,340
- ---------------------------------------------------------------------------------------------------------------------
North Carolina--4.2% 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 16,337
AA Aa2 2,550 North Carolina HFA, S/F, AMT, Series RR,
5.85% due 9/01/2028 2,616
A1+ NR* 1,300 Raleigh-Durham, North Carolina, Airport Authority,
Special Facility Revenue Refunding Bonds (American
Airlines), VRDN, Series A, 4.15% due 11/01/2015 (a) 1,300
- ---------------------------------------------------------------------------------------------------------------------
Ohio--1.9% AA Aa3 2,000 Franklin County, Ohio, Hospital Revenue Refunding Bonds
(Holy Cross Health System Corp.),
5.875% due 6/01/2021 2,108
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 7,001
- ---------------------------------------------------------------------------------------------------------------------
Oklahoma--1.1% BBB- Baa2 5,000 Tulsa, Oklahoma, Municipal Airport Trust, Revenue
Refunding Bonds (American Airlines Project),
6.25% due 6/01/2020 5,285
- ---------------------------------------------------------------------------------------------------------------------
Oregon--2.8% AAA Aaa 1,250 Multnomah County, Oregon, Educational Facilities Revenue
Refunding Bonds (University of Portland Project), 5%
due 4/01/2011 (b) 1,258
NR* Baa2 10,000 Oregon State, Economic Development Revenue Refunding
Bonds (Georgia Pacific Corporation Project), Series
183, 5.70% due 12/01/2025 10,156
A- A3 2,000 Port Umpqua, Oregon, PCR, Refunding (International
Paper Company Projects),
Series B, 5.20% due 6/01/2011 2,010
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Pennsylvania--1.1% AA+ Aa $ 5,000 Pennsylvania HFA, S/F Mortgage Bonds, Series 34A, 6.85%
due 4/01/2016 $ 5,343
- ---------------------------------------------------------------------------------------------------------------------
Rhode Island--0.7% A- Baa1 3,000 Rhode Island Depositors, Economic Protection Corporation,
Special Obligation, Refunding, Series A,
5.75% due 8/01/2021 (j) 3,211
- ---------------------------------------------------------------------------------------------------------------------
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 6,233
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 1,084
A- A1 7,000 Richland County, South Carolina, PCR, Refunding (Union
Camp Corporation), Series C, 6.55% due 11/01/2020 7,559
NR* NR* 2,500 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55%
due 11/01/2024 2,874
- ---------------------------------------------------------------------------------------------------------------------
South Dakota--2.2% AAA Aa1 9,975 South Dakota, HDA, Home Ownership Mortgage, Series B,
7.10% due 5/01/2017 10,476
- ---------------------------------------------------------------------------------------------------------------------
Tennessee--3.3% BBB Baa1 5,000 McMinn County, Tennessee, IDB, Solid Waste Recycling
Facilities Revenue Bonds (Calhoun Newsprint--Bowater),
AMT, 7.40% due 12/01/2022 5,557
AA Aa2 10,000 Tennessee Housing Development Agency (Homeowner
Program), AMT, Series 3, 6% due 1/01/2028 10,353
- ---------------------------------------------------------------------------------------------------------------------
Texas--5.9% BBB Baa1 4,200 Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds
(Champion International Corporation), AMT, 7.375%
due 10/01/2025 4,637
Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds:
A1+ NR* 900 (Methodist Hospital), VRDN, 4.15% due 12/01/2025 (a) 900
AAA Aaa 7,500 RITR, Series 23, 6.02% due 6/01/2027 (e)(i) 7,078
Laredo, Texas, Certificates of Obligation, Series B (c):
AAA Aaa 1,270 4.50% due 2/15/2016 1,148
AAA Aaa 1,880 4.50% due 2/15/2017 1,690
AAA Aaa 1,690 4.50% due 2/15/2018 1,514
BB- Ba1 4,000 Lower Colorado River Authority, Texas, PCR (Samsung
Austin Semiconductor), AMT, 6.375% due 4/01/2027 4,125
A- NR* 1,600 Midland County, Texas, Hospital District Revenue Bonds
(Midland Memorial Hospital),
7.50% due 6/01/2002 (f) 1,794
A- A3 1,425 Nacogdoches, Texas, IDA, PCR, Refunding (International
Paper Company Projects),
Series A, 5.30% due 12/01/2011 1,435
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) 2,198
BBB Baa 1,935 7% due 5/15/2028 2,111
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Utah--2.2% A1+ VMIG1+ $ 600 Emery County, Utah, PCR, Refunding (Pacificorp Projects),
VRDN, 4.15% due 11/01/2024 (a)(b) $ 600
AAA Aaa 5,000 Utah State Board of Regents, Student Loan Revenue Bonds,
AMT, Series H, 6.70% due 11/01/2015 (b) 5,292
AAA Aaa 4,730 Utah State, HFA, S/F Mortgage, AMT, Series C-2,
Class I, 6.05% due 7/01/2022 4,910
- ---------------------------------------------------------------------------------------------------------------------
Virginia--5.5% NR* Aa1 3,800 Arlington County, Virginia, IDA, Headquarters Facilities
Revenue Bonds (The Nature Conservancy), Series A, 5.45%
due 7/01/2027 3,831
Virginia State, HDA, Commonwealth Mortgage:
AA+ Aa1 5,750 AMT, Series B, Sub-Series B-1, 6.375% due 7/01/2026 6,091
AA+ Aa1 11,060 AMT, Series G, Sub-Series G-1, 5.30% due 1/01/2022 10,971
AA+ Aa1 5,025 Series J, Sub-Series J-2, 6.65% due 7/01/2014 5,393
- ---------------------------------------------------------------------------------------------------------------------
Washington--2.3% 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) 10,954
- ---------------------------------------------------------------------------------------------------------------------
West Virginia--4.1% Braxton County, West Virginia, Solid Waste Disposal
Revenue Bonds (Weyerhaeuser Company Project), AMT:
A A2 9,945 5.80% due 6/01/2027 10,222
A A2 10,000 Refunding, 5.40% due 5/01/2025 9,660
- ---------------------------------------------------------------------------------------------------------------------
Wisconsin--1.2% NR* A2 5,300 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Mercy Hospital of Janesville Incorporated),
6.50% due 8/15/2011 5,663
- ---------------------------------------------------------------------------------------------------------------------
Puerto Rico--1.3% AAA Aaa 5,250 Puerto Rico Commonwealth, GO, UT, 7% due 7/01/2010 (b) 6,321
- ---------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$459,231)--99.0% 477,336
Other Assets Less Liabilities--1.0% 4,694
--------
Net Assets--100.0% $482,030
========
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(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,
1998.
(b) AMBAC Insured.
(c) MBIA Insured.
(d) GNMA 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, 1998.
(f) Prerefunded.
(g) FNMA Collateralized.
(h) FGIC Insured.
(i) FSA Insured.
(j) Escrowed to maturity.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
+ Highest short-term ratings by Moody's Investors Service, Inc.
See Notes to Financial Statements.
8
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of April 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Assets: Investments, at value
(identified cost--$459,231,404)
(Note 1a) ............................. $477,335,577
Cash .................................. 81,186
Receivables:
Securities sold ..................... $ 15,373,584
------------
Interest ............................ 7,815,677 23,189,261
Prepaid expenses and other assets ..... ------------ 13,194
------------
Total assets .......................... 500,619,218
------------
- ----------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ................ 17,886,678
Dividends to shareholders (Note 1e) . 452,140
Investment adviser (Note 2) ......... 200,478 18,539,296
------------
Accrued expenses and other liabilities 49,746
------------
Total liabilities ..................... 18,589,042
------------
- ----------------------------------------------------------------------------------
Net Assets: Net assets ............................ $482,030,176
============
- ----------------------------------------------------------------------------------
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 .. 4,247,576
Undistributed realized capital gains
on investments--net ................... 58,702
Unrealized appreciation
on investments--net ................... 18,104,173
------------
Total--Equivalent to $15.04 net asset
value per share of Common Stock
(market price--$14.6875) .............. 332,030,176
------------
Total capital ......................... $482,030,176
============
- ----------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
9
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
April 30, 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned ...... $ 13,744,885
(Note 1d):
- -----------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ............................. $ 1,202,708
Commission fees (Note 4) ...................................... 167,078
Transfer agent fees ........................................... 40,380
Professional fees ............................................. 39,893
Accounting services (Note 2) .................................. 37,383
Printing and shareholder reports .............................. 16,340
Listing fees .................................................. 15,866
Custodian fees ................................................ 14,927
Directors' fees and expenses .................................. 11,156
Pricing fees .................................................. 8,245
Other ......................................................... 21,716
------------
Total expenses ................................................ 1,575,692
------------
Investment income--net ........................................ 12,169,193
------------
- -----------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ............................. 6,577,159
Unrealized Gain Change in unrealized appreciation on investments--net ......... (7,335,884)
------------
(Loss) on Net Increase in Net Assets Resulting from Operations .......... $ 11,410,468
============
Investments--Net
(Notes 1b, 1d & 3):
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
MuniYield Quality Fund II, Inc . April 30, 1998
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ........................................ $ 12,169,193 $ 25,222,292
Realized gain on investments--net ............................. 6,577,159 8,957,629
Change in unrealized appreciation on investments--net ......... (7,335,884) 5,420,851
------------ ------------
Net increase in net assets resulting from operations .......... 11,410,468 39,600,772
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Stock ................................................ (9,654,159) (20,009,111)
Shareholders Preferred Stock ............................................. (1,663,480) (5,217,080)
(Note 1e): Realized gain on investments--net:
Common Stock ................................................ (7,414,382) (764,403)
Preferred Stock ............................................. (1,877,980) (261,760)
------------ ------------
Net decrease in net assets resulting from
dividends and distributions
to shareholders ............................................... (20,610,001) (26,252,354)
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets ....................... (9,199,533) 13,348,418
Beginning of period ........................................... 491,229,709 477,881,291
------------ ------------
End of period* ................................................ $482,030,176 $491,229,709
============ ============
- ---------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net .......................... $ 4,247,576 $ 3,396,022
============ ============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended For the Year Ended October 31,
April 30, ----------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .......... $ 15.46 $ 14.86 $ 14.64 $ 13.20 $ 16.27
-------- -------- -------- -------- --------
Operating Investment income--net ........................ .56 1.15 1.16 1.16 1.18
Performance: Realized and unrealized gain (loss) on
investments--net .............................. (.03) .64 .23 1.53 (2.68)
-------- -------- -------- -------- --------
Total from investment operations .............. .53 1.79 1.39 2.69 (1.50)
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ...................... (.44) (.91) (.92) (.89) (.96)
Realized gain on investments--net ........... (.34) (.03) -- (.10) (.37)
In excess of realized gain on investments--net -- -- -- -- + --
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders ................... (.78) (.94) (.92) (.99) (1.33)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net .................... (.08) (.24) (.25) (.25) (.16)
Realized gain on investments--net ......... (.09) (.01) -- (.01) (.08)
In excess of realized gain on investments--net -- -- -- -- + --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ...... (.17) (.25) (.25) (.26) (.24)
-------- -------- -------- -------- --------
Net asset value, end of period ................ $ 15.04 $ 15.46 $ 14.86 $ 14.64 $ 13.20
======== ======== ======== ======== ========
Market price per share, end of period ......... $14.6875 $ 14.375 $ 13.50 $ 12.625 $ 11.125
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share ............... 7.57%++ 13.86% 14.50% 23.09% (20.99%)
======== ======== ======== ======== ========
Return:** Based on net asset value per share ............ 2.42%++ 11.24% 8.68% 20.30% (10.68%)
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ...................................... .65%* .66% .67% .68% .69%
======== ======== ======== ======== ========
Net Assets:*** Investment income--net ........................ 5.06%* 5.22% 5.36% 5.63% 5.46%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) ................................ $332,030 $341,230 $327,881 $323,033 $291,338
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) ................................ $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover ............................ 75.18% 201.87% 95.49% 79.27% 47.42%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ..................... $ 3,214 $ 3,275 $ 3,186 $ 3,154 $ 2,942
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share Series A--Investment income--net .............. $ 283 $ 869 $ 897 $ 885 $ 564
======== ======== ======== ======== ========
On Preferred Stock Series B--Investment income--net .............. $ 285 $ 868 $ 899 $ 942 $ 564
======== ======== ======== ======== ========
Outstanding:++ Series C--Investment income--net .............. $ 263 $ 872 $ 910 $ 934 $ 600
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
12
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
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.
(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 financial 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 invest ment 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) Dividends and distributions--Dividends from net investment income are
declared and paid
13
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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, including
proceeds from the issuance of Preferred Stock.
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, 1998 were $363,417,315 and $381,927,448, respectively.
Net realized gains for the six months ended April 30, 1998 and net ( unrealized
gains as of April 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ................ $ 6,577,159 $18,104,173
----------- -----------
Total ................................ $ 6,577,159 $18,104,173
=========== ===========
- --------------------------------------------------------------------------------
As of April 30, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $18,104,173, of which $21,117,341 related to appreciated
securities and $3,013,168 related to depreciated securities. The aggregate cost
of investments at April 30, 1998 for Federal income tax purposes was
$459,231,404.
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 six months ended April 30, 1998 and the
year ended October 31, 1997 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 April 30,
1998 were as follows: Series A, 3.71%; Series B, 3.80%; and Series C, 4.125%.
As of April 30, 1998, 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, 1998, Merrill Lynch, Pierce,
Fenner & Smith Inc., an affiliate of FAM, earned $68,044 as commissions.
5. Subsequent Event:
On May 7, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.073699 per share,
payable on May 28, 1998 to shareholders of record as of May 21, 1998.
14
<PAGE>
MuniYield Quality Fund II, Inc. April 30, 1998
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
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa............................................................... 41.7%
AA/Aa ................................................................ 19.2
A/A................................................................... 22.2
BBB/Baa............................................................... 8.6
BB/Ba................................................................. 1.4
B/B................................................................... 1.4
NR (Not Rated)........................................................ 3.1
Other+................................................................ 1.4
- --------------------------------------------------------------------------------
+Temporary investments in short-term municipal securities.
15
<PAGE>
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 16433-4/98
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