MUNIYIELD
QUALITY
FUND II, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
October 31, 1998
<PAGE>
MuniYield Quality Fund II, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1998, the Common Stock of MuniYield Quality Fund
II, Inc. earned $1.089 per share income dividends, which included earned and
unpaid dividends of $0.082. This represents a net annualized yield of 7.02%,
based on a month-end net asset value of $15.52 per share. Over the same period,
the total investment return on the Fund's Common Stock was +8.80%, based on a
change in per share net asset value from $15.46 to $15.52, and assuming
reinvestment of $1.081 per share income dividends and $0.130 per share capital
gains distributions.
For the six months ended October 31, 1998, the total investment return on the
Fund's Common Stock was +6.23%, based on a change in per share net asset value
from $15.04 to $15.52, and assuming reinvestment of $0.437 per share income
dividends.
For the six-month period ended October 31, 1998, the Fund's Auction Market
Preferred Stock had an average yield as follows: Series A, 3.63%; Series B,
3.65%; and Series C, 3.75%.
The Municipal Market Environment
During the six months ended October 31, 1998, long-term bond yields declined
significantly. The near absence of any inflationary pressures in the United
States continued to support historic low interest rates. Additionally, foreign
economic factors have continued to outweigh US domestic fundamentals, as they
have for much of 1998. The economic crisis that began in Asia over a year ago
has spread both to Russia and South America. However, economic factors in these
countries have begun to negatively impact US growth. For example, employment in
the US manufacturing sector declined in recent months as a result of reduced
demand for export goods. Concern that the modest decline in US economic growth
seen thus far would spread and intensify led the Federal Reserve Board to lower
short-term interest rates in late September, in mid-October and in mid-November.
These actions were taken to offset the drag of foreign economies on future US
growth.
US Treasury bond yields continued to benefit from a strong "flight to quality"
as foreign investors were drawn to the relative safe haven of US Government
securities. Additionally, the sharp equity market correction, which began at the
end of August, triggered a further flight into US Treasury securities. Long-term
US Treasury bond yields fell over 90 basis points (0.90%) to approximately 5% by
the end of September. This is the lowest level since the US Treasury
reintroduced 30-year maturity bond auctions in 1977.
By early October, worldwide investor confidence began to rise, reducing the
demand for the safety and liquidity of US Treasury securities. Investor
confidence was restored by the belief that major world governments, as well as
the International Monetary Fund, would take the necessary action to support weak
domestic economies in Asia and Latin America. Additionally, rapid recovery in US
and world equity markets caused some investors to reallocate funds from US debt
instruments back to various world equity markets. US Treasury security yields
rose for the remainder of the month to end October at 5.15%. During the
six-month period ended October 31, 1998, long-term Treasury security yields
declined approximately 80 basis points.
During the past 12 months, the tax-exempt bond market has contended with
significant new-issue supply pressures. Over the past year, more than $277
billion in new long-term tax-exempt bonds were underwritten, an increase of
almost 30% compared to the same period a year ago. During the most recent
six-month period, approximately $140 billion in new long-term municipal bonds
were underwritten, representing an increase of more than 15% over the same
six-month period last year. This increased supply, coupled with the high returns
the US equity market generated for much of 1998, was one of the major reasons
municipal bond yields declined less than their taxable counterparts during the
period.
The continued increase in new bond issuance has required ever-lower tax-exempt
bond yields to generate
1
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1998
the economic savings necessary for additional municipal bond financings.
Consequently, the pace of new bond issuance has slowed in recent months. In
fact, the trend may be reversing. During the three months ended October 31,
1998, just over $60 billion in new long-term municipal bonds were underwritten,
a decline of 4% compared to the same quarter a year ago. During the month of
October, there were less than $20 billion in new municipal bond securities
issued, a decline of over 10% compared to October 1997. We will monitor this
trend closely in the coming months to determine if the supply pressures exerted
thus far in 1998 are abating and fostering a more balanced supply/demand
environment.
Throughout the six-month period ended October 31, 1998, municipal bond yields
followed a pattern that was similar to US Treasury securities, although the
yield declines were more muted. As measured by the unmanaged Bond Buyer Revenue
Bond Index, long-term, uninsured tax-exempt revenue bond yields declined over 40
basis points to 5.09% by the end of September, their lowest level since the
early 1970s. Municipal bond yields rose during October to end the period at
5.24%. Over the past six months, long-term tax-exempt bond yields declined
almost 30 basis points.
Although municipal bond yields declined during the six-month period, recent
supply pressures and the absence of the safe haven status enjoyed by US
securities caused municipal bond yields to rise relative to US Treasury bond
yields. At October 31, 1998, long-term tax-exempt bond yield spreads were
attractive relative to US Treasury securities of comparable maturities (over
100%), well in excess of their historic range of 85%-88%. Tax-exempt bond yield
ratios have rarely exceeded 90% in the 1980s and 1990s. Historically, yield
spreads have been wider than these levels when there have been potential changes
in Federal tax codes that would have adversely affected the tax-favored status
of municipal bonds.
Currently, municipal bond investors find themselves in a unique investment
environment. Previous opportunities to purchase tax-exempt bonds with yields
exceeding that of comparable US Treasury issues have been limited to relatively
brief episodes and then further limited to a few municipal credits undergoing
specific financial pressures. At present, almost the entire municipal bond
universe, across nearly all maturity and credit sectors, can be purchased at
yields greater than their taxable counterparts. However, the current opportunity
may quickly disappear should tax-exempt bond supply pressures diminish or the
safe-haven status of US Treasury securities become less desirable. Under these
conditions, municipal bond ratios should quickly revert to more normal historic
percentages, certainly well below their presently attractive levels.
Portfolio Strategy
During the six-month period ended October 31, 1998, we maintained the Fund's
constructive strategy. Equity markets throughout the world entered a very
volatile period, triggered by the currency crisis in Asia and followed by
turmoil in Russia and Latin America. We believed a continuation of equity market
declines would have a negative impact on economic growth, further constraining
global inflation and allowing for further declines in long-term interest rates.
This proved to be true as the increase in financial market volatility caused a
flight to quality into US Treasury bonds, pushing interest rates to historic
lows. Our constructive strategy enabled the Fund to fully participate in the
bond market rally and realize an attractive total return.
We believe that interest rates are likely to continue to trend lower in the
months ahead. Global economic growth appears to be slowing substantially.
Central banks throughout the world, including the US Federal Reserve Board, are
trying to stimulate economic growth by easing monetary policy. However, these
actions are likely to have a delayed impact. Consequently, our investment
outlook will remain constructive until there are signs that the economy has
started responding to the monetary stimulus.
During the six-month period ended October 31, 1998, the yield on the Fund's
Auction Market Preferred Stock traded between 3.20% and 4.05%. Leverage
continues to benefit the Common Stock shareholders by significantly augmenting
their yield. However, should the spread between short-term and long-term
tax-exempt 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.)
2
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MuniYield Quality Fund II, Inc. October 31, 1998
In Conclusion
We thank you for your support of MuniYield Quality Fund II, Inc., and we look
forward to serving your investment needs in the months and years ahead.
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 3, 1998
PROXY RESULTS
During the six-month period ended October 31, 1998, MuniYield Quality Fund II,
Inc. Common Stock shareholders voted on the following proposals. The proposals
were approved at a shareholders' meeting on September 24, 1998. 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 20,810,820 513,496
Robert R. Martin 20,808,924 515,392
Andre F. Perold 20,808,055 516,261
Arthur Zeikel 20,814,573 509,743
</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. 20,616,777 160,390 547,149
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended October 31, 1998, 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
24, 1998. 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>
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 1,906 2
Series B 2,000 0
Series C 1,937 0
</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 as follows:
Series A 1,908 0 0
Series B 2,000 0 0
Series C 1,937 0 0
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 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 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 benefi ciaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differ ential between short-term and long-term interest rates, the incre mental
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.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, interest rates on inverse
floaters will decrease when short-term interest rates increase and increase when
short-term interest rates decrease. Investments in inverse floaters may be char
acterized as derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested principal. In
addition, inverse floaters have the effect of providing investment leverage and,
as a result, the market value of such securities will generally be more volatile
than that of fixed-rate, tax-exempt securities. To the extent the Fund invests
in inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in such securities.
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)
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
4
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MuniYield Quality Fund II, Inc. October 31, 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 $ 7,853
- -----------------------------------------------------------------------------------------------------------------------------
Alaska--0.6% A- A2 2,580 Alaska Industrial Development and Export Authority
Revolving Fund, AMT, Series A, 6.375% due 4/01/2008 2,803
- -----------------------------------------------------------------------------------------------------------------------------
California--11.4% AAA Aaa 10,000 Anaheim, California, Public Financing Authority, Lease
Revenue Bonds (Public Improvements Project), Sub-Series C,
5%** due 9/01/2036 (f) 1,450
AAA Aaa 10,000 California Educational Facilities Authority, Revenue Refunding
Bonds (California Institute of Technology), 4.25% due 10/01/2028 8,927
AAA Aaa 8,000 Central Coast, California, Water Authority, Revenue Refunding
Bonds (State Water Project Regional Facilities), Series A, 5%
due 10/01/2022 (b) 8,000
AAA Aaa 12,000 San Diego, California, Convention Center Expansion Financing
Authority Lease Revenue Bonds, Series A, 4.75%
due 4/01/2028 (b) 11,558
AAA Aaa 15,250 San Diego, California, Public Facilities Financing Authority,
Sewer Revenue Bonds, 5% due 5/15/2025 (e) 15,227
AAA Aaa 12,000 San Francisco, California, City and County Airport Commission,
International Airport Revenue Refunding Bonds, Secured
Series--Issue 20, 4.50% due 5/01/2026 (c) 11,159
- -----------------------------------------------------------------------------------------------------------------------------
Colorado--9.3% NR* Aaa 1,350 Colorado Health Facilities Authority, Hospital Revenue Bonds
(P/SL Healthcare System Project), Series A, 6.875%
due 2/15/2003 (a) 1,536
Denver, Colorado, City and County Airport Revenue Bonds (c):
AAA Aaa 25,965 Refunding, Series D, 5.50% due 11/15/2025 27,414
AAA Aaa 7,280 Series A, 5.60% due 11/15/2020 7,703
AAA Aaa 8,505 Series A, 5.50% due 11/15/2025 8,980
- -----------------------------------------------------------------------------------------------------------------------------
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 1,640
NR* NR* 1,100 7.75% due 2/01/2015 1,256
- -----------------------------------------------------------------------------------------------------------------------------
Florida--4.4% AAA Aaa 7,500 Florida State Board of Education, Capital Outlay, Public
Education, Series B, 4.50% due 6/01/2028 (c) 6,935
Miami--Dade County, Florida, Special Obligation Refunding
Bonds, Series A (c)**:
AAA Aaa 8,500 5.248% due 10/01/2019 2,865
AAA Aaa 5,000 5.286% due 10/01/2021 1,504
NR* B1 2,285 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
Education and Research Foundation Project), Series A, 7%
due 9/01/2024 2,267
AAA Aaa 8,000 Tampa, Florida, Sports Authority Revenue Bonds (Local Option
Sales Tax--Stadium Project), 5.25% due 1/01/2027 (c) 8,189
- -----------------------------------------------------------------------------------------------------------------------------
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 925
- -----------------------------------------------------------------------------------------------------------------------------
Illinois--3.7% NR* Aaa 4,385 Chicago, Illinois, M/F Housing Revenue Bonds (Bryne
Mawr/Belle Project), AMT, 6.125% due 6/01/2039 (d) 4,718
AAA Aaa 7,000 Illinois Development Finance Authority, PCR, Refunding
(Illinois Power Company Project), Series B, 5.40%
due 3/01/2028 (c) 7,137
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan
Revenue Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 6,323
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
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MuniYield Quality Fund II, Inc. October 31, 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>
Indiana--1.3% AAA NR* $ 2,675 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.75% due 2/01/2017 $ 3,043
AA NR* 3,100 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.75% due 2/01/2020 3,431
- -----------------------------------------------------------------------------------------------------------------------------
Kentucky--0.7% NR* NR* 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
(TJ International Project), AMT, 7% due 6/01/2024 3,315
- -----------------------------------------------------------------------------------------------------------------------------
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 5,755
AAA Aaa 1,500 New Orleans, Louisiana, Public Improvement Bonds, UT, 5.90%
due 11/01/2025 (e) 1,638
- -----------------------------------------------------------------------------------------------------------------------------
Massachusetts--4.4% BBB+ Baa2 2,000 Massachusetts Municipal Wholesale Electric Company,
Power Supply System Revenue Refunding Bonds, Series A,
6.75% due 7/01/2011 2,165
A+ Aa 5,500 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT,
Series 40, 6.60% due 12/01/2024 5,932
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 2,719
A- NR* 3,500 (Melrose-Wakefield Hospital), Series B, 6.375%
due 7/01/2004 (a) 3,865
NR* Caa2 2,640 (New England Memorial Hospital), Series B, 6%
due 7/01/2008 2,508
NR* Caa2 4,590 (New England Memorial Hospital), Series B, 6.125%
due 7/01/2013 4,361
- -----------------------------------------------------------------------------------------------------------------------------
Mississippi--1.5% A A2 6,000 Lowndes County, Mississippi, Solid Waste Disposal, PCR,
Refunding (Weyerhaeuser Company Project), Series A, 6.80%
due 4/01/2022 7,366
- -----------------------------------------------------------------------------------------------------------------------------
New Jersey--1.2% 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) 5,756
- -----------------------------------------------------------------------------------------------------------------------------
New Mexico--1.1% A A2 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporation Project), 6.50% due 4/01/2013 5,523
- -----------------------------------------------------------------------------------------------------------------------------
New York--18.5% Long Island Power Authority, New York, Electric System
Revenue Bonds, Series A:
A- Baa1 12,400 5.50% due 12/01/2029 12,806
AAA Aaa 17,225 5.50% due 12/01/2029 (c) 18,042
BBB+ Baa1 5,950 Metropolitan Transportation Authority, New York, Commuter
Facilities Revenue Bonds, Series A, 5.25% due 7/01/2028 5,960
New York City, New York, GO:
A- A3 6,000 Refunding, Series G, 5.25% due 8/01/2016 6,112
A- A3 8,500 Refunding, UT, Series J, 6% due 8/01/2017 9,271
A- A3 5,015 Series H, 7% due 2/01/2002 (a) 5,582
A- A3 135 Series H, 7% due 2/01/2021 149
New York City, New York, IDA, Civic Facilities Revenue Bonds
(New York Blood Center Inc. Project) (a):
NR* NR* 2,000 7.20% due 5/01/2004 2,307
NR* NR* 3,250 7.25% due 5/01/2004 3,757
AAA Aaa 5,000 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, Series B, 5.125%
due 6/15/2030 (e) 5,009
</TABLE>
6
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MuniYield Quality Fund II, Inc. October 31, 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 York New York State Dormitory Authority Revenue Bonds:
(concluded) AAA Aaa $ 5,690 (City University System), Consolidated Third Series 1,
5% due 7/01/2026 (e) $ 5,622
NR* Aaa 2,445 (Ithaca College), 5% due 7/01/2026 (b) 2,416
AAA Aaa 5,075 New York State Urban Development Corporation Revenue
Bonds (Correctional Facilities Services Contract), Series A,
5% due 1/01/2028 (f) 5,006
AAA Aaa 10,000 Port Authority of New York and New Jersey, Consolidated
Revenue Refunding Bonds, 116th Series, 4.25% due 10/01/2026 (e) 8,905
- -----------------------------------------------------------------------------------------------------------------------------
North Carolina--3.3% 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 16,310
- -----------------------------------------------------------------------------------------------------------------------------
Ohio--6.2% BBB NR* 6,000 Dayton, Ohio, Special Facilities Revenue Refunding Bonds
(Emery Air Freight), Series A, 5.625% due 2/01/2018 6,082
AA Aa3 2,000 Franklin County, Ohio, Hospital Revenue Refunding Bonds
(Holy Cross Health System Corp.), 5.875% due 6/01/2021 2,167
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 7,028
BBB Baa3 10,000 Ohio State Solid Waste Disposal Revenue Bonds (USG
Corporation Project), AMT, 5.60% due 8/01/2032 10,017
AAA Aaa 5,260 Ohio State Water Development Authority Revenue Bonds
(Water Development Community Assistance), 5.375%
due 12/01/2024 (b) 5,472
- -----------------------------------------------------------------------------------------------------------------------------
Oklahoma--1.1% BBB- Baa2 5,000 Tulsa, Oklahoma, Municipal Airport Trust, Revenue Refunding
Bonds (American Airlines Project), 6.25% due 6/01/2020 5,331
- -----------------------------------------------------------------------------------------------------------------------------
Oregon--2.5% NR* Baa2 10,000 Oregon State, Economic Development Revenue Refunding
Bonds (Georgia Pacific Corporation Project), Series 183, 5.70%
due 12/01/2025 10,214
BBB+ A3 2,000 Port Umpqua, Oregon, PCR, Refunding (International Paper
Company Projects), Series B, 5.20% due 6/01/2011 2,093
- -----------------------------------------------------------------------------------------------------------------------------
Rhode Island--0.7% A- Baa1 3,000 Rhode Island Depositors, Economic Protection Corporation,
Special Obligation Refunding Bonds, Series A, 5.75% due
8/01/2021 (g) 3,324
- -----------------------------------------------------------------------------------------------------------------------------
South Carolina--4.3% A A2 5,765 Berkeley County, South Carolina, Pollution Control Facilities
Revenue Bonds (South Carolina Electric and Gas Company),
6.50% due 10/01/2014 6,344
A+ A1 2,950 Fairfield County, South Carolina, PCR (South Carolina Electric
and Gas Company), 6.50% due 9/01/2014 3,259
AA- Aa3 1,000 Florence County, South Carolina, Pollution Control Facilities
Revenue Bonds (E.I. du Pont de Nemours), Series A, 6.35%
due 7/01/2022 1,106
A- A1 7,000 Richland County, South Carolina, PCR, Refunding (Union Camp
Corporation), Series C, 6.55% due 11/01/2020 7,692
NR* NR* 2,500 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55%
due 11/01/2024 2,877
- -----------------------------------------------------------------------------------------------------------------------------
South Dakota--2.0% AAA Aa1 9,320 South Dakota, HDA, Home Ownership Mortgage,
Series B, 7.10% due 5/01/2017 9,798
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 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>
Tennessee--2.5% BBB Baa1 $ 5,000 McMinn County, Tennessee, IDB, Solid Waste Recycling Facilities
Revenue Bonds (Calhoun Newsprint --Bowater), AMT, 7.40% due
12/01/2022 $ 5,547
AA Aa2 6,500 Tennessee Housing Development Agency (Homeowner
Program), AMT, Series 3, 6% due 1/01/2028 6,883
- -----------------------------------------------------------------------------------------------------------------------------
Texas--3.0% BBB Baa1 4,200 Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds
(Champion International Corporation), AMT, 7.375%
due 10/01/2025 4,618
BB- Ba1 4,000 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 4,156
A- NR* 1,600 Midland County, Texas, Hospital District Revenue Bonds
(Midland Memorial Hospital), 7.50% due 6/01/2002 (a) 1,810
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 (a) 2,230
BBB Baa 1,935 7% due 5/15/2028 2,116
- -----------------------------------------------------------------------------------------------------------------------------
Utah--1.0% AAA Aaa 4,715 Utah State, HFA, S/F Mortgage, AMT, Series C-2, Class I, 6.05%
due 7/01/2022 4,979
- -----------------------------------------------------------------------------------------------------------------------------
Virginia--5.6% NR* Aa1 3,800 Arlington County, Virginia, IDA, Headquarters Facilities
Revenue Bonds (The Nature Conservancy), Series A, 5.45%
due 7/01/2027 3,965
Pocahontas Parkway Association, Virginia, Route 895 Toll Road
Connector Revenue Bonds, Senior Series B**:
BBB- Baa3 26,500 5.875% due 8/15/2024 5,996
BBB- Baa3 48,400 5.95% due 8/15/2034 6,032
Virginia State, HDA, Commonwealth Mortgage:
AA+ Aa1 5,750 AMT, Series B, Sub-Series B-1, 6.375% due 7/01/2026 6,185
AA+ Aa1 5,025 Series J, Sub-Series J-2, 6.65% due 7/01/2014 5,407
- -----------------------------------------------------------------------------------------------------------------------------
Washington--2.3% AAA Aa1 10,000 Washington State Public Power Supply System, Revenue
Refunding Bonds (Nuclear Project No. 1), Series A, 6.50%
due 7/01/2002 (a) 11,130
- -----------------------------------------------------------------------------------------------------------------------------
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 10,508
- -----------------------------------------------------------------------------------------------------------------------------
Wisconsin--1.1% NR* A2 5,300 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Mercy Hospital of Janesville Incorporated),
6.50% due 8/15/2011 5,703
- -----------------------------------------------------------------------------------------------------------------------------
Puerto Rico--1.3% AAA Aaa 5,250 Puerto Rico Commonwealth, GO, UT, 7% due 7/01/2010 (b) 6,567
- -----------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$475,128)--101.0% 497,636
Liabilities in Excess of Other Assets--(1.0%) (5,140)
--------
Net Assets--100.0% $492,496
========
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Prerefunded.
(b) AMBAC Insured.
(c) MBIA Insured.
(d) GNMA Collateralized.
(e) FGIC Insured.
(f) FSA Insured.
(g) 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.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
8
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1998
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$475,128,209) (Note 1a) ........ $497,636,098
Cash ................................................................... 2,803,975
Receivables:
Interest ............................................................. $ 8,765,972
Securities sold ...................................................... 2,682,275 11,448,247
------------
Prepaid expenses and other assets ...................................... 15,629
------------
Total assets ........................................................... 511,903,949
------------
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ................................................. 18,620,816
Dividends and distributions to shareholders (Note 1e) ................ 428,733
Investment adviser (Note 2) .......................................... 216,945 19,266,494
------------
Accrued expenses and other liabilities ................................. 141,084
------------
Total liabilities ...................................................... 19,407,578
------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ............................................................. $492,496,371
============
- ---------------------------------------------------------------------------------------------------------------------------
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 ....................................... 307,412,597
Undistributed investment income--net ................................... 4,672,582
Undistributed realized capital gains on investments--net ............... 5,696,214
Unrealized appreciation on investments--net ............................ 22,507,889
------------
Total--Equivalent to $15.52 net asset value per share of Common Stock
(market price--$15.1875) ............................................... 342,496,371
------------
Total capital .......................................................... $492,496,371
============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
9
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1998
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned ............... $ 27,586,856
(Note 1d):
- ------------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ...................................... $ 2,445,659
Commission fees (Note 4) ............................................... 379,500
Transfer agent fees .................................................... 80,395
Professional fees ...................................................... 79,951
Accounting services (Note 2) ........................................... 76,606
Listing fees ........................................................... 32,731
Custodian fees ......................................................... 28,720
Printing and shareholder reports ....................................... 27,882
Directors' fees and expenses ........................................... 22,933
Pricing fees ........................................................... 16,656
Other .................................................................. 29,611
-------------
Total expenses ......................................................... 3,220,644
-------------
Investment income--net ................................................. 24,366,212
-------------
- ------------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ...................................... 12,877,595
Unrealized Gain Change in unrealized appreciation on investments--net .................. (2,932,168)
(Loss) on -------------
Investments--Net Net Increase in Net Assets Resulting from Operations ................... $ 34,311,639
(Notes 1b, 1d & 3): =============
- ------------------------------------------------------------------------------------------------------------------------------
</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: 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ................................................. $ 24,366,212 $ 25,222,292
Realized gain on investments--net ...................................... 12,877,595 8,957,629
Change in unrealized appreciation on investments--net .................. (2,932,168) 5,420,851
------------- -------------
Net increase in net assets resulting from operations ................... 34,311,639 39,600,772
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Stock ......................................................... (19,296,155) (20,009,111)
Shareholders Preferred Stock ...................................................... (3,794,200) (5,217,080)
(Note 1e): Realized gain on investments--net:
Common Stock ......................................................... (7,414,382) (764,403)
Preferred Stock ...................................................... (2,540,240) (261,760)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ........................................................ (33,044,977) (26,252,354)
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets ........................................... 1,266,662 13,348,418
Beginning of year ...................................................... 491,229,709 477,881,291
------------- -------------
End of year* ........................................................... $ 492,496,371 $ 491,229,709
============= =============
- ------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1f) ......................... $ 4,672,582 $ 3,396,022
============= =============
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1998
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: 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ................. $ 15.46 $ 14.86 $ 14.64 $ 13.20 $ 16.27
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ............................. 1.10 1.15 1.16 1.16 1.18
Realized and unrealized gain (loss) on
investments--net ................................... .46 .64 .23 1.53 (2.68)
-------- -------- -------- -------- --------
Total from investment operations ................... 1.56 1.79 1.39 2.69 (1.50)
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ........................... (.87) (.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 ........................ (1.21) (.94) (.92) (.99) (1.33)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net ......................... (.17) (.24) (.25) (.25) (.16)
Realized gain on investments--net .............. (.12) (.01) -- (.01) (.08)
In excess of realized gain on investments--net.. -- -- -- --+ --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ........... (.29) (.25) (.25) (.26) (.24)
-------- -------- -------- -------- --------
Net asset value, end of year ....................... $ 15.52 $ 15.46 $ 14.86 $ 14.64 $ 13.20
======== ======== ======== ======== ========
Market price per share, end of year ................ $15.1875 $ 14.375 $ 13.50 $ 12.625 $ 11.125
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share .................... 14.51% 13.86% 14.50% 23.09% (20.99%)
Return:* ======== ======== ======== ======== ========
Based on net asset value per share ................. 8.80% 11.24% 8.68% 20.30% (10.68%)
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ........................................... .66% .66% .67% .68% .69%
Net Assets:** ======== ======== ======== ======== ========
Investment income--net ............................. 4.98% 5.22% 5.36% 5.63% 5.46%
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end of year
Data: (in thousands) ..................................... $342,496 $341,230 $327,881 $323,033 $291,338
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands) ..................................... $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover ................................. 154.08% 201.87% 95.49% 79.27% 47.42%
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 .......................... $ 3,283 $ 3,275 $ 3,186 $ 3,154 $ 2,942
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share Series A--Investment income--net ................... $ 629 $ 869 $ 897 $ 885 $ 564
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:++ Series B--Investment income--net ................... $ 634 $ 868 $ 899 $ 942 $ 564
======== ======== ======== ======== ========
Series C--Investment income--net ................... $ 634 $ 872 $ 910 $ 934 $ 600
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
</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.
11
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 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. 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 written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). 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 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) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Reclassification--Generally accepted accounting principles require that
certain components of net
12
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1998
assets be adjusted to reflect permanent differences between financial and tax
reporting. Accordingly, current year's permanent book/tax differences of $703
have been reclassified between undistributed net realized capital gains and
undistributed net investment income and $39 has been reclassified between
paid-in capital in excess of par and undistributed net realized capital gains.
These reclassifications have no effect on net assets or net asset value per
share.
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
year ended October 31, 1998 were $749,989,377 and $752,316,514, respectively.
Net realized gains (losses) for the year ended October 31, 1998 and net
unrealized gains as of October 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ........................... $ 12,886,666 $ 22,507,889
Financial futures contracts ..................... (9,071) --
------------ ------------
Total ........................................... $ 12,877,595 $ 22,507,889
============ ============
- --------------------------------------------------------------------------------
As of October 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $22,507,889, of which $23,788,975 related to appreciated
securities and $1,281,086 related to depreciated securities. The aggregate cost
of investments at October 31, 1998 for Federal income tax purposes was
$475,128,209.
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, 1998 and
October 31, 1997 remained constant.
Preferred Stock
Auction Market Preferred Shares ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.05 per share and a liquidation preference of $25,000
per share, 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, 1998 were as follows: Series A, 3.50%; Series B, 3.55%; and Series
C, 3.25%.
Shares issued and outstanding during the years ended October 31, 1998 and
October 31, 1997 remained constant.
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, 1998, Merrill Lynch, Pierce, Fenner
& Smith Inc., an affiliate of FAM, earned $131,652 as commissions.
5. Subsequent Event:
On November 5, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.081584 per share,
payable on November 27, 1998 to shareholders of record as of November 20, 1998.
13
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1998
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, 1998, 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, 1998 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, 1998, 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 4, 1998
QUALITY PROFILE (unaudited)
The quality ratings of securities in the Fund as of October 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa............................................................... 45.2%
AA/Aa................................................................. 12.9
A/A................................................................... 23.6
BBB/Baa............................................................... 13.5
BB/Ba................................................................. 1.3
CCC/Caa............................................................... 1.4
NR (Not Rated)........................................................ 3.1
- --------------------------------------------------------------------------------
14
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1998
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, 1998 qualify as tax-exempt
interest dividends for Federal income tax purposes. Additionally, the following
table summarizes the taxable distributions paid by the Fund during the year:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Payable Ordinary Long-Term
Date Income Capital Gains
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Shareholders 12/30/97 $ .206327 $ .129608*
- ----------------------------------------------------------------------------------
Preferred Stock Shareholders: Series A 11/10/97 $67.14 $39.18*
12/08/97 $69.22 $41.86*
1/05/98 $61.47 $43.23**
10/13/98 $62.04 $52.37**
--------------------------------------------------
Series B 11/10/97 $67.14 $39.18*
12/08/97 $69.83 $42.26*
1/05/98 $60.54 $42.63**
10/13/98 $61.52 $51.92**
--------------------------------------------------
Series C 11/03/97 $27.78 --
11/10/97 $17.45 $10.18*
11/17/97 $17.10 $10.37*
11/24/97 $17.47 $10.69*
12/01/97 $16.57 $10.26*
12/08/97 $17.78 $11.14*
12/15/97 $14.57 $12.65*
12/22/97 $16.06 $14.22*
12/29/97 $15.81 $14.45*
1/05/98 $19.47 $18.78**
1/12/98 $18.37 $11.34**
1/20/98 -- $ .58**
10/13/98 $15.45 $13.05**
10/19/98 $11.82 $10.06**
10/26/98 $15.07 $12.92**
- ----------------------------------------------------------------------------------
</TABLE>
* Of this distribution, 57.77% is subject to the 28% tax rate and 42.23% is
subject to the 20% tax rate.
** The entire distribution is subject to the 20% tax rate.
Please retain this information for your records.
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.
15
<PAGE>
Officers and Directors
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
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 pro spectus, 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 #16433-10/98
[RECYCLE LOGO] Printed on post-consumer recycled paper
