MUNIYIELD
QUALITY
FUND II, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
October 31, 1999
<PAGE>
MuniYield Quality Fund II, Inc.
DEAR SHAREHOLDER
For the year ended October 31, 1999, the Common Stock of MuniYield Quality Fund
II, Inc. earned $0.850 per share income dividends, which included earned and
unpaid dividends of $0.070. This represents a net annualized yield of 6.91%,
based on a month-end net asset value of $12.31 per share. Over the same period,
the total investment return on the Fund's Common Stock was -12.74%, based on a
change in per share net asset value from $15.52 to $12.31, and assuming
reinvestment of $1.136 per share ordinary income dividends and $0.213 per share
capital gains distributions.
For the six months ended October 31, 1999, the total investment return on the
Fund's Common Stock was -12.77%, based on a change in per share net asset value
from $14.58 to $12.31, and assuming reinvestment of $0.413 per share income
dividends.
For the six months ended October 31, 1999, the Fund's Auction Market Preferred
Stock had an average yield as follows: Series A, 3.17%; Series B, 3.17%; and
Series C, 3.24%.
The Municipal Market Environment
The combination of steady strong domestic economic growth, improvement in
foreign economies (most notably in Japan) and increasing investor concerns
regarding potential increases in US inflation put upward pressure on bond yields
throughout the six-month period ended October 31, 1999. Continued strong US
employment growth, particularly the decline in the US unemployment rate to 4.2%
in early June, was among the reasons the Federal Reserve Board cited for raising
short-term interest rates in late June and again in late August. US Treasury
bond yields reacted by climbing above 6.375% by late October. However, at
October month-end, economic indicators were released suggesting that, despite
strong economic and employment growth in the third quarter, inflationary
pressures have remained extremely well contained. This resulted in a significant
rally in the US Treasury bond market, pushing US Treasury bond yields downward
to end the six-month period at approximately 6.15%. During the period, yields on
30-year US Treasury bonds increased over 50 basis points (0.50%).
Long-term tax-exempt bond yields also rose during the six months ended October
31, 1999. Until early May, the municipal bond market was able to withstand much
of the upward pressure on bond yields. However, investor concerns of additional
moves by the Federal Reserve Board to moderate US economic growth and, more
importantly, the loss of the strong technical support that the tax-exempt market
enjoyed in early 1999 helped push municipal bond yields significantly higher for
the remainder of the period. The yields on long-term tax-exempt revenue bonds
rose nearly 90 basis points to 6.18% by October 31, 1999, as measured by the
Bond Buyer Revenue Bond Index.
In recent months, the significant decline in new tax-exempt bond issuance has
remained a positive factor within the municipal bond market, as it had been for
much of the past year. During the last six months, more than $110 billion in
long-term municipal bonds was issued, a decline of nearly 20% compared to the
same period a year ago. During the past three months, $55 billion in municipal
bonds was underwritten, representing a decline of nearly 10% compared to the
corresponding period in 1998. Additionally, in June and July, investors received
more than $40 billion in coupon income and pro-ceeds from bond maturities and
early bond redemptions. These proceeds have generated considerable retail
investor interest, which has helped absorb the recent diminished supply.
Although tax-exempt bond yields are at their highest level in over two years and
have attracted significant retail investor interest, institutional demand has
declined sharply. Long-term municipal mutual funds have seen consistent outflows
in recent months as the yields of individual securities have risen faster than
those of larger, more diverse mutual funds. In
1
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
addition, the demand from property/casualty insurance companies has weakened as
a result of the losses, and anticipated losses, incurred as a result of the
series of damaging storms across much of the eastern United States.
Additionally, many institutional investors who were attracted to the municipal
bond market in recent years by historically attractive tax-exempt bond yield
ratios of over 90% have found other asset classes even more attractive. Even
with a reduced supply position, tax-exempt issuers have been forced to
repeatedly raise municipal bond yields in the attempt to attract adequate
demand.
The recent relative underperformance of the municipal bond market has resulted
in an opportunity for long-term investors to purchase tax-exempt issues whose
yields are nearly identical with taxable US Treasury securities. At October 31,
1999, long-term uninsured municipal revenue bond yields were 100% of comparable
US Treasury securities. In recent months, many taxable asset classes, such as
corporate bonds, mortgage-backed securities and US agency debt, have all
accelerated debt issuance. This acceleration was initiated largely to avoid
issuing securities at year-end and to minimize any associated Year 2000 (Y2K)
problems that may develop. However, this increased issuance has also resulted in
higher yield levels in the various asset classes as lower bond prices became
necessary to attract sufficient investor demand. Going forward, it is believed
that the pace of non-US government debt issuance is likely to slow
significantly. As the supply of this debt declines, we would expect many
institutional investors to return to the municipal bond market and the
attractive yield ratios available.
Looking ahead, it appears to us that long-term tax-exempt bond yields will
remain under pressure, trading in a broad range centered near current levels.
Investors are likely to remain concerned about future action by the Federal
Reserve Board in November. Y2K considerations may prohibit any further Federal
Reserve Board moves through the end of the year and the beginning of 2000. Any
improvement in bond prices will probably be contingent upon weakening in both US
employment growth and consumer spending. The 100 basis point rise in US Treasury
bond yields seen thus far this year may negatively impact US economic growth.
The US housing market will be among the first sectors likely to be affected, as
some declines have already been evidenced in response to higher mortgage rates.
We believe that it is also unrealistic to expect double-digit returns in US
equity markets to continue indefinitely. Much of the US consumer's wealth is
tied to recent stock market appreciation. Any slowing in these incredible growth
rates is likely to reduce consumer spending. We believe that these factors
suggest that the worst of the recent increase in bond yields has passed and
stable, if not slightly improving, bond prices may be expected.
Portfolio Strategy
At the start of the six-month period ended October 31, 1999, we were neutral on
interest rates. We adopted this stance based on expectations of slower US
economic growth, continuing weakness in global economies and little perceived
threat of an upturn in inflationary expectations. We believed tax-exempt
interest rates would trade in a narrow range around then-current levels.
However, interest rates increased substantially over the period as it appeared
the US economy was not going to slow and most economies around the world,
including Japan and Europe, showed a quick recovery soon after the turmoil of
last fall.
In addition to the general increase in interest rates during the past six
months, volatility in the municipal market increased substantially relative to
the Treasury market. Historically, long-term tax-exempt bond yield ratios
relative to US Treasury securities of comparable maturity have been
approximately in the range of 84% - 86%. However, tax-exempt yield ratios began
1999 at 100% of US Treasury yields. Since then, the ratio of municipal bond
yields to Treasury bond yields has fluctuated between 90% - 100%. This has been
in response to greatly diminished institutional demand and the absence of
crossover buyers who have historically purchased municipal bonds whenever yield
ratios exceed 88% - 90%. Rising yields in corporate bond and mortgage-backed
securities markets allowed these crossover accounts to remain in taxable issues.
The tax-exempt bond market has not exhibited such underperformance since late
1994.
At October 31, 1999, MuniYield Quality Fund II, Inc. was positioned positively.
We believe that we are approaching the highs in yields. Recent interest rate
increases have largely restored investor confidence that the Federal Reserve
Board will not allow inflation to rise significantly. Some decline in economic
growth, particularly in the housing and retail sales sectors, can already be
seen in response to interest rate increases in recent months. Additionally,
history suggests that whenever tax-exempt bond yields rise
2
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MuniYield Quality Fund II, Inc. October 31, 1999
close to or above US Treasury bond yields for an extended period of time,
municipal bond portfolios generate significant total returns in the following
six months - twelve months.
Short-term tax-exempt bond yields averaged approximately 3.375% throughout most
of the six-month period ended October 31, 1999. Short-term municipal bond yields
have been much more stable than those associated with 25-year - 30-year maturity
issues. This has resulted in a significant incremental yield being paid to
Common Stock shareholders as a result of the Fund's leverage. Since the Federal
Reserve Board is believed to be near the end of its current interest rate
tightening cycle, short-term tax-exempt bond interest rates are expected to
remain near their current levels. However, should the spread between short-term
and long-term interest rates narrow, the benefits of the leverage will decline
and, as a result, reduce the yield on the Fund's Common Stock. (For a complete
explanation of the benefits and risks of leverage, see page 5 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 ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Robert A. DiMella
Robert A. DiMella
Vice President and Portfolio Manager
December 7, 1999
3
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MuniYield Quality Fund II, Inc. October 31, 1999
PROXY RESULTS
During the six-month period ended October 31, 1999, MuniYield Quality Fund II,
Inc.'s Common Stock shareholders voted on the following proposal. Proposal 1 was
not approved at a shareholders' meeting on June 23, 1999. A description of the
proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To approve an amendment to the Articles Supplementary of the Fund. 11,360,364 734,800 582,106
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended October 31, 1999, MuniYield Quality Fund II,
Inc.'s Preferred Stock shareholders (Series A, B, C and D) voted on the
following proposal. Proposal 1 was not approved at a shareholders' meeting on
June 23, 1999. A description of the proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -------------------------------------------------------------------------------------------------------------------------
1. To approve an amendment to the Articles Supplementary of the Fund as follows:
<S> <C> <C> <C>
Series A 148 0 200
Series B 882 0 8
Series C 378 44 0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1999 were as
follows:
- -------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- -------------------------------------------------------------------------------
AAA/Aaa ............................................................ 54.9%
AA/Aa .............................................................. 10.2
A/A ................................................................ 14.5
BBB/Baa ............................................................ 13.7
BB/Ba .............................................................. 0.9
B/B ................................................................ 0.4
CC/Ca .............................................................. 0.4
NR (Not Rated) ..................................................... 2.1
Other* ............................................................. 2.7
- -------------------------------------------------------------------------------
* Temporary investments in short-term municipal securities.
4
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield Quality Fund II, Inc. utilizes leveraging to seek to enhance the yield
and net asset value of its Common Stock. However, these objectives cannot be
achieved in all interest rate environments. To leverage, the Fund issues
Preferred Stock, which pays dividends at prevailing short-term interest rates,
and invests the proceeds in long-term municipal bonds. The interest earned on
these investments is paid to Common Stock shareholders in the form of dividends,
and the value of these portfolio holdings is reflected in the per share net
asset value of the Fund's Common Stock. However, in order to benefit Common
Stock shareholders, the yield curve must be positively sloped; that is,
short-term interest rates must be lower than long-term interest rates. At the
same time, a period of generally declining interest rates will benefit Common
Stock shareholders. If either of these conditions change, then the risks of
leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock capitalization of
$100 million and the issuance of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for investment in long-term
municipal bonds. If prevailing short-term interest rates are approximately 3%
and long-term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million of Preferred
Stock based on the lower short-term interest rates. At the same time, the fund's
total portfolio of $150 million earns the income based on long-term interest
rates. Of course, increases in short-term interest rates would reduce (and even
eliminate) the dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term investments,
and therefore the Common Stock shareholders are the beneficiaries of the
incremental yield. However, if short-term interest rates rise, narrowing the
differential between short-term and long-term interest rates, the incremental
yield pickup on the Common Stock will be reduced or eliminated completely. At
the same time, the market value of the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
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, income 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 characterized 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 these securities.
5
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MuniYield Quality Fund II, Inc. October 31, 1999
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 -- 4.3% AAA NR* $12,070 Jefferson County, Alabama, Sewer Revenue Bonds, RIB,
Series 124, 6.93% due 2/01/2036 (c)(h) $ 9,380
AAA Aaa 10,000 Jefferson County, Alabama, Sewer Revenue Refunding Warrants,
Series A, 5.375% due 2/01/2027 (c) 9,066
- ---------------------------------------------------------------------------------------------------------------------------
Alaska -- 0.6% A- A2 2,580 Alaska Industrial Development and Export Authority Revenue
Bonds (Revolving Fund), AMT, Series A, 6.375% due 4/01/2008 2,706
- ---------------------------------------------------------------------------------------------------------------------------
California -- 9.8% AAA Aaa 12,485 Anaheim, California, Public Financing Authority, Lease Revenue
Bonds (Public Improvements Project), Sub-Series C,
5.90% due 9/01/2034 (d)(j) 1,487
NR* A2 7,500 California Health Facilities Finance Authority Revenue Bonds
(Cedars-Sinai Medical Center), Series A, 6.25% due 12/01/2034 7,392
AAA Aaa 9,650 California State, GO, 4.50% due 12/01/2024 (c) 7,700
California State, GO, Refunding:
AAA Aaa 10,000 4.25% due 10/01/2026 (f) 7,579
AA- Aa3 5,000 (Veterans Bonds), AMT, Series BH, 5.60% due 12/01/2032 4,592
AAA Aaa 7,500 Los Angeles, California, Unified School District, GO,
Series B, 5% due 7/01/2023 (c) 6,566
AAA Aaa 8,000 San Francisco, California, City and County Airport Commission,
International Airport Revenue Bonds, Second Series,
Issue 15-B, 4.50% due 5/01/2028 (f) 6,289
- ---------------------------------------------------------------------------------------------------------------------------
Colorado -- 0.1% A1+ VMIG1+ 200 Moffat County, Colorado, PCR, Refunding (Pacificorp Projects),
VRDN, 3.50% due 5/01/2013 (a)(i) 200
- ---------------------------------------------------------------------------------------------------------------------------
Connecticut -- 1.4% Connecticut State Regional Learning Educational Service
Center Revenue Bonds (Office/Education Center Facility):
NR* NR* 1,290 7.50% due 2/01/2005 1,339
NR* NR* 1,100 7.75% due 2/01/2015 1,188
NR* Baa3 4,000 Mashantucket Western Pequot Tribe, Connecticut, Special
Revenue Refunding Bonds, Sub-Series A, 5.50% due 9/01/2028 3,524
- ---------------------------------------------------------------------------------------------------------------------------
District of District of Columbia, GO, Refunding, Series B (d):
Columbia -- 2.3% AAA Aaa 5,000 5.50% due 6/01/2013 4,901
AAA Aaa 5,000 5.50% due 6/01/2014 4,839
- ---------------------------------------------------------------------------------------------------------------------------
Florida -- 4.0% AAA Aaa 10,000 Florida State Board of Education, Capital Outlay, GO
(Public Education), Series B, 4.50% due 6/01/2023 (f) 8,034
NR* Aaa 5,500 Orange County, Florida, School Board COP, RIB, Series 130,
6.67% due 8/01/2023 (f)(h) 4,462
NR* B1 2,080 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
Education and Research Foundation Project), Series A,
7% due 9/01/2024 1,919
A1+ VMIG1+ 2,500 Saint Lucie County, Florida, PCR, Refunding (Florida Power and
Light Company Project), VRDN, 3.55% due 3/01/2027 (i) 2,500
- ---------------------------------------------------------------------------------------------------------------------------
</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)
COP Certificates of Participation
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDB Industrial Development Board
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
6
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
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 -- 0.1% NR* NR* $ 465 Idaho Student Loan Fund Marketing Association, Inc., Student
Loan Revenue Refunding Bonds, AMT, Sub-Series 1, 6.80%
due 10/01/2006 $ 473
- ---------------------------------------------------------------------------------------------------------------------------
Illinois -- 6.1% AAA Aaa 10,000 Chicago, Illinois, Board of Education, GO (Chicago School Reform
Project), Series A, 5.25% due 12/01/2022 (a) 8,931
NR* Aaa 4,385 Chicago, Illinois, M/F Housing Revenue Bonds (Bryn Mawr/
Belle Project), AMT, 6.125% due 6/01/2039 (e) 4,349
AAA Aaa 7,000 Illinois Development Finance Authority, PCR, Refunding (Illinois
Power Company Project), Series B, 5.40% due 3/01/2028 (f) 6,310
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan Revenue
Refunding Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 6,197
- ---------------------------------------------------------------------------------------------------------------------------
Indiana -- 3.6% AAA NR* 2,675 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.75% due 2/01/2017 2,875
AA NR* 3,100 Indianapolis, Indiana, Local Public Improvement Bond Bank
Revenue Refunding Bonds, Series D, 6.75% due 2/01/2020 3,274
AAA Aaa 9,230 Marion County, Indiana, Convention and Recreational Facilities
Authority, Excise Tax Revenue Refunding Bonds, Lease Rental,
Series A, 5.375% due 6/01/2013 (a) 8,948
- ---------------------------------------------------------------------------------------------------------------------------
Kentucky -- 0.7% NR* NR* 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
(TJ International Project), AMT, 7% due 6/01/2024 3,093
- ---------------------------------------------------------------------------------------------------------------------------
Louisiana -- 1.8% A1+ VMIG1+ 7,600 Louisiana State Offshore Terminal Authority, Deepwater Port
Revenue Refunding Bonds (1st Stage A-Loop Inc.), VRDN,
3.50% due 9/01/2008 (i) 7,600
- ---------------------------------------------------------------------------------------------------------------------------
Massachusetts -- 4.2% BBB+ Baa2 2,000 Massachusetts Municipal Wholesale Electric Company,
Power Supply System Revenue Refunding Bonds, Series A,
6.75% due 7/01/2011 2,120
A+ Aa3 5,455 Massachusetts State, HFA, S/F Housing Revenue Bonds, AMT,
Series 40, 6.60% due 12/01/2024 5,597
AA+ Aa2 2,500 Massachusetts State Health and Educational Facilities Authority
Revenue Bonds (Daughters of Charity-Carney), Series D,
6.10% due 7/01/2006 (g) 2,651
Massachusetts State Health and Educational Facilities Authority,
Revenue Refunding Bonds (New England Memorial Hospital),
Series B (k):
NR* Ca 2,416 6% due 7/01/2008 607
NR* Ca 4,201 6.125% due 7/01/2013 1,056
AAA Aaa 7,000 Massachusetts State Water Resource Authority Revenue Bonds,
Series B, 5% due 12/01/2025 (f) 6,009
- ---------------------------------------------------------------------------------------------------------------------------
Michigan -- 2.0% NR* Aaa 9,830 Wayne Charter County, Michigan, Airport Revenue Bonds, RIB,
AMT, Series 68, 6.845% due 12/01/2017 (f)(h) 8,313
- ---------------------------------------------------------------------------------------------------------------------------
Mississippi -- 1.5% A A2 6,000 Lowndes County, Mississippi, Solid Waste Disposal and PCR,
Refunding (Weyerhaeuser Company Project), Series A,
6.80% due 4/01/2022 6,395
- ---------------------------------------------------------------------------------------------------------------------------
New Jersey -- 2.1% 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 (f) 5,479
AAA Aaa 3,700 New Jersey State Transportation Trust Fund Authority Revenue
Bonds (Transportation System), Series A, 5.125% due 12/15/2014 (f) 3,497
- ---------------------------------------------------------------------------------------------------------------------------
New Mexico -- 1.2% A- A2 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporation Project), 6.50% due 4/01/2013 5,053
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
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 -- 17.9% Long Island Power Authority, New York, Electric System
Revenue Refunding Bonds, Series A:
AAA Aaa $ 5,000 5.125% due 12/01/2022 (d) $ 4,418
AAA Aaa 29,625 5.50% due 12/01/2029 (f) 27,417
AAA Aaa 10,380 Metropolitan Transportation Authority, New York, Commuter
Facilities Revenue Refunding Bonds, Series B,
4.75% due 7/01/2026 (c) 8,498
AAA Aaa 10,000 Metropolitan Transportation Authority, New York,
Transportation Facilities Revenue Refunding Bonds,
Series B, 4.75% due 7/01/2026 (c) 8,187
AAA Aaa 9,280 Nassau Health Care Corporation, New York, Health System
Revenue Bonds, 5.75% due 8/01/2022 (d) 8,949
New York City, New York, City Transitional Finance Authority
Revenue Bonds, Future Tax Secured:
AA Aa3 10,000 Series B, 4.75% due 11/01/2018 8,453
NR* VMIG1+ 600 VRDN, Series C, 3.50% due 5/01/2028 (i) 600
AAA NR* 10,000 New York State Dormitory Authority, Revenue Refunding Bonds,
RIB, Series 45, 6.675% due 7/01/2025 (f)(h) 7,927
AAA Aaa 2,000 New York State Urban Development Corporation Revenue Bonds
(Correctional Facilities Service Contract), Series B, 4.75%
due 1/01/2028 (a) 1,630
- ---------------------------------------------------------------------------------------------------------------------------
North Carolina -- A A2 14,750 Martin County, North Carolina, Industrial Facilities and Pollution
4.0% Control Financing Authority Revenue Bonds (Solid Waste
Disposal -- Weyerhaeuser Company), AMT, 6.80% due 5/01/2024 15,342
AAA Aaa 1,975 Wilmington, North Carolina, COP, Series A, 5.30% due 6/01/2019 (f) 1,816
- ---------------------------------------------------------------------------------------------------------------------------
Ohio -- 3.7% BBB NR* 6,000 Dayton, Ohio, Special Facilities Revenue Refunding Bonds
(Emery Air Freight), Series A, 5.625% due 2/01/2018 5,355
AA Aa3 2,000 Franklin County, Ohio, Hospital Revenue Refunding Bonds
(Holy Cross Health System Corporation), 5.875% due 6/01/2021 1,946
BBB+ Baa2 10,000 Ohio State Solid Waste Disposal Revenue Bonds (USG Corporation
Project), AMT, 5.60% due 8/01/2032 8,483
- ---------------------------------------------------------------------------------------------------------------------------
Oklahoma -- 1.1% BBB- Baa1 5,000 Tulsa, Oklahoma, Municipal Airport Trust, Revenue Refunding
Bonds (American Airlines Project), 6.25% due 6/01/2020 4,866
- ---------------------------------------------------------------------------------------------------------------------------
Oregon -- 2.4% NR* Baa2 9,500 Oregon State Economic Development, Revenue Refunding
Bonds (Georgia Pacific Corp. Project), AMT, Series 183,
5.70% due 12/01/2025 8,330
BBB+ A3 2,000 Port Umpqua, Oregon, PCR, Refunding (International Paper
Co. Projects), Series B, 5.20% due 6/01/2011 1,926
- ---------------------------------------------------------------------------------------------------------------------------
Pennsylvania -- 2.1% AAA Aaa 10,800 Philadelphia, Pennsylvania, GO, Refunding, 4.75% due 5/15/2020 (c) 9,027
- ---------------------------------------------------------------------------------------------------------------------------
Rhode Island -- 1.6% Rhode Island Depositors, Economic Protection Corporation,
Special Obligation Revenue Refunding Bonds, Series A:
A- Baa1 1,120 5.75% due 8/01/2021 1,095
A- NR* 1,880 5.75% due 8/01/2021 (b) 1,839
AAA Aaa 4,010 Rhode Island State Health and Educational Building Corporation
Revenue Bonds, Higher Education Facilities (University of Rhode
Island), Series A, 5.70% due 9/15/2024 (f) 3,804
- ---------------------------------------------------------------------------------------------------------------------------
South Carolina -- A A2 5,765 Berkeley County, South Carolina, Pollution Control Facilities,
3.0% Revenue Refunding Bonds (South Carolina Electric and Gas
Company), 6.50% due 10/01/2014 6,005
A+ A1 2,950 Fairfield County, South Carolina, PCR (South Carolina Electric
and Gas Company), 6.50% due 9/01/2014 3,125
AA Aa3 1,000 Florence County, South Carolina, Pollution Control Facility
Revenue Bonds (E.I. Du Pont), Series A, 6.35% due 7/01/2022 1,008
NR* NR* 2,500 Spartanburg County, South Carolina, Solid Waste Disposal Facilities
Revenue Bonds (BMW Project), AMT, 7.55% due 11/01/2024 2,717
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
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 -- 2.0% BBB Baa1 $ 5,000 McMinn County, Tennessee, IDB, Solid Waste Revenue
Bonds (Recycling Facility -- Calhoun Newsprint), AMT,
7.40% due 12/01/2022 $ 5,294
AAA Aaa 3,600 Metropolitan Government, Nashville and Davidson County,
Tennessee, GO, Series A, 5.125% due 11/15/2027 (c) 3,145
- ---------------------------------------------------------------------------------------------------------------------------
Texas -- 9.4% BBB- Baa1 5,000 Dallas-Fort Worth, Texas, International Airport Facilities,
Improvement Corporation Revenue Bonds (American Airlines
Inc.), AMT, 6.375% due 5/01/2035 4,787
A1+ VMIG1+ 400 Gulf Coast Waste Disposal Authority, Texas, PCR, Refunding
(Amoco Oil Company Project), VRDN, 3.50% due 10/01/2017 (i) 400
BBB Baa1 4,200 Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds
(Champion International Corporation), AMT, 7.375% due 10/01/2025 4,436
NR* Aaa 10,000 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds, RITR, Series 23,
6.47% due 6/01/2027 (d)(h) 7,451
BB- Ba1 4,000 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 3,891
AAA Aaa 6,350 Matagorda County, Texas, Navigation District Number 1,
Revenue Refunding Bonds (Reliant Energy Inc.), Series A,
5.25% due 6/01/2026 (a) 5,598
NR* Aa1 13,500 San Antonio, Texas, Electric and Gas Revenue Refunding Bonds,
RIB, Series 77, 6.645% due 2/01/2016 (h) 11,573
BBB Baa2 1,935 Tarrant County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Fort Worth), 7% due 5/15/2028 2,005
- ---------------------------------------------------------------------------------------------------------------------------
Utah -- 1.1% AAA Aaa 4,615 Utah State, HFA, S/F Mortgage Revenue Refunding Bonds, AMT,
Series C-2, Class I, 6.05% due 7/01/2022 4,592
- ---------------------------------------------------------------------------------------------------------------------------
Virginia -- 3.2% Pocahontas Parkway Association, Virginia, Toll Road Revenue
Bonds, Senior Series B (j):
BBB- Baa3 26,500 5.875% due 8/15/2024 4,836
BBB- Baa3 48,400 5.95% due 8/15/2034 4,447
AA+ Aa1 4,155
Virginia State, HDA, Commonwealth Mortgage Revenue Bonds, AMT,
Series B, Sub-Series B-1, 6.375% due 7/01/2026 4,231
- ---------------------------------------------------------------------------------------------------------------------------
West Virginia -- 2.5% A A2 11,395 Braxton County, West Virginia, Solid Waste Disposal Revenue
Bonds (Weyerhaeuser Company Project), AMT, 5.80% due 6/01/2027 10,667
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost -- $451,473) -- 99.8% 424,606
Other Assets Less Liabilities -- 0.2% 675
--------
Net Assets -- 100.0% $425,281
========
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) Escrowed to maturity.
(c) FGIC Insured.
(d) FSA Insured.
(e) GNMA Collateralized.
(f) MBIA Insured.
(g) Prerefunded.
(h) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at October 31, 1999.
(i) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at October 31,
1999.
(j) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
(k) Non-income producing security.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
9
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $451,473,334) (Note 1a) .......... $424,605,547
Cash ....................................................................... 67,949
Interest receivable ........................................................ 8,569,677
Prepaid expenses and other assets .......................................... 54,900
------------
Total assets ............................................................... 433,298,073
------------
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ..................................................... $ 7,334,994
Dividends to shareholders (Note 1e) ...................................... 387,823
Investment adviser (Note 2) .............................................. 206,485 7,929,302
------------
Accrued expenses and other liabilities ..................................... 87,484
------------
Total liabilities .......................................................... 8,016,786
------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ................................................................. $425,281,287
============
- ------------------------------------------------------------------------------------------------------------------------------
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 (22,366,930 shares issued
and outstanding) ......................................................... $ 2,236,693
Paid-in capital in excess of par ........................................... 311,763,292
Undistributed investment income -- net ..................................... 4,519,911
Accumulated realized capital losses on investments -- net (Note 5) ......... (4,291,623)
Accumulated distributions in excess of realized capital gains on
investments-- net (Note 1e) ................................................ (12,079,199)
Unrealized depreciation on investments -- net .............................. (26,867,787)
------------
Total -- Equivalent to $12.31 net asset value per share of Common Stock
(market price -- $11.50) ................................................... 275,281,287
------------
Total capital .............................................................. $425,281,287
============
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
10
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned .................. $ 26,314,806
(Note 1d):
- ------------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ......................................... $ 2,326,561
Commission fees (Note 4) .................................................. 379,480
Professional fees ......................................................... 99,861
Transfer agent fees ....................................................... 90,299
Accounting services (Note 2) .............................................. 79,515
Listing fees .............................................................. 32,441
Custodian fees ............................................................ 28,792
Directors' fees and expenses .............................................. 23,176
Printing and shareholder reports .......................................... 22,081
Pricing fees .............................................................. 11,344
Other ..................................................................... 32,035
------------
Total expenses ............................................................ 3,125,585
------------
Investment income -- net .................................................. 23,189,221
------------
- ------------------------------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized loss on investments -- net ....................................... (9,987,837)
ized Loss on Change in unrealized appreciation/depreciation on investments -- net ...... (49,375,676)
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations ...................... $(36,174,292)
============
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations: Investment income -- net ................................................ $ 23,189,221 $ 24,366,212
Realized gain (loss) on investments -- net .............................. (9,987,837) 12,877,595
Change in unrealized appreciation/depreciation on investments -- net .... (49,375,676) (2,932,168)
------------ ------------
Net increase (decrease) in net assets resulting from operations ......... (36,174,292) 34,311,639
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income -- net:
Distributions to Common Stock .......................................................... (19,226,452) (19,296,155)
Shareholders Preferred Stock ....................................................... (4,115,440) (3,794,200)
(Note 1e): In excess of realized gain on investments -- net:
Common Stock .......................................................... (10,757,359) (7,414,382)
Preferred Stock ....................................................... (1,321,840) (2,540,240)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ......................................................... (35,421,091) (33,044,977)
------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment
Transactions of dividends and distributions .......................................... 4,380,299 --
(Note 4): ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets ................................. (67,215,084) 1,266,662
Beginning of year ....................................................... 492,496,371 491,229,709
------------ ------------
End of year* ............................................................ $425,281,287 $492,496,371
============ ============
- ------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income -- net ................................. $ 4,519,911 $ 4,672,582
============ ============
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
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: 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year .................... $ 15.52 $ 15.46 $ 14.86 $ 14.64 $ 13.20
Operating -------- -------- -------- -------- --------
Performance: Investment income -- net .............................. 1.04 1.10 1.15 1.16 1.16
Realized and unrealized gain (loss) on investments
-- net .............................................. (2.65) .46 .64 .23 1.53
-------- -------- -------- -------- --------
Total from investment operations ...................... (1.61) 1.56 1.79 1.39 2.69
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income -- net ............................ (.86) (.87) (.91) (.92) (.89)
Realized gain on investments -- net ................. -- (.34) (.03) -- (.10)
In excess of realized gain on investments -- net .... (.49) -- -- -- --+
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders .................................... (1.35) (1.21) (.94) (.92) (.99)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income -- net .......................... (.19) (.17) (.24) (.25) (.25)
Realized gain on investments -- net ............... -- (.12) (.01) -- (.01)
In excess of realized gain on investments -- net .. (.06) -- -- -- --+
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity .............. (.25) (.29) (.25) (.25) (.26)
-------- -------- -------- -------- --------
Net asset value, end of year .......................... $ 12.31 $ 15.52 $ 15.46 $ 14.86 $ 14.64
======== ======== ======== ======== ========
Market price per share, end of year ................... $ 11.50 $15.1875 $ 14.375 $ 13.50 $ 12.625
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share ....................... (16.70%) 14.51% 13.86% 14.50% 23.09%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share .................... (12.74%) 8.80% 11.24% 8.68% 20.30%
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios Based on Total expenses** ...................................... .99% .95% .95% .98% 1.01%
Average Net Assets ======== ======== ======== ======== ========
of Common Stock: Total investment income -- net** ...................... 7.31% 7.21% 7.50% 7.88% 8.42%
======== ======== ======== ======== ========
Amount of dividends to Preferred Stock shareholders ... 1.30% 1.12% 1.55% 1.67% 1.81%
======== ======== ======== ======== ========
Investment income -- net, to Common Stock shareholders 6.01% 6.09% 5.95% 6.21% 6.61%
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios Based on Total expenses ........................................ .67% .66% .66% .67% .68%
Total Average Net ======== ======== ======== ======== ========
Assets:++** Total investment income -- net ........................ 4.97% 4.98% 5.22% 5.36% 5.63%
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios Based on Dividends to Preferred Stock shareholders ............. 2.75% 2.53% 3.48% 3.61% 3.68%
Average Net Assets ======== ======== ======== ======== ========
of Preferred Stock:
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end
Data: of year (in thousands) ................................ $275,281 $342,496 $341,230 $327,881 $323,033
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year (in thousands) $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover .................................... 164.45% 154.08% 201.87% 95.49% 79.27%
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ............................. $ 2,835 $ 3,283 $ 3,275 $ 3,186 $ 3,154
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends Per Series A -- Investment income -- net .................. $ 706 $ 629 $ 869 $ 897 $ 885
Share on ======== ======== ======== ======== ========
Preferred Stock Series B -- Investment income -- net .................. $ 702 $ 634 $ 868 $ 899 $ 942
Outstanding ======== ======== ======== ======== ========
Series C -- Investment income -- net .................. $ 650 $ 634 $ 872 $ 910 $ 934
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</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
charges.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Amount is less than $.01 per share.
++ Includes Common and Preferred Stock average net assets.
See Notes to Financial Statements.
13
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
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's financial statements are prepared in accordance with
generally accepted accounting principles, which may require the use of
management accruals and estimates. 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
14
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
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. Distributions in excess of realized capital gains are due
primarily to differing tax treatments for futures transactions.
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 .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, 1999 were $749,127,790 and $771,493,873, respectively.
Net realized gains (losses) for the year ended October 31, 1999 and net
unrealized losses as of October 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments ....................... $(12,501,096) $(26,867,787)
Financial futures contracts ................. 2,513,259 --
------------ ------------
Total ....................................... $ (9,987,837) $(26,867,787)
============ ============
- --------------------------------------------------------------------------------
As of October 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $26,867,787, of which $3,836,539 related to appreciated
securities and $30,704,326 related to depreciated securities. The aggregate cost
of investments at October 31, 1999 for Federal income tax purposes was
$451,473,334.
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 year ended October 31, 1999 increased
by 296,045 as a result of dividend reinvestment and during the year ended
October 31, 1998 remained constant.
Preferred Stock
Auction Market Preferred Stock ("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, 1999 were as follows: Series A, 3.70%; Series B, 3.70%; and Series
C, 3.129%.
Shares issued and outstanding during the years ended October 31, 1999 and
October 31, 1998 remained constant.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the year ended October 31, 1999, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, an affiliate of FAM, earned $135,635 as commissions.
5. Capital Loss Carryforward:
At October 31, 1999, the Fund had a net capital loss carryforward of
approximately $14,562,000, all of which expires in 2007. This amount will be
available to offset like amounts of any future taxable gains.
6. Subsequent Event:
On November 8, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.070000 per share,
payable on November 29, 1999 to shareholders of record as of November 22, 1999.
15
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
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, 1999, 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, 1999 by correspondence with the custodian and broker. 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, 1999, 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 9, 1999
16
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
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, 1999 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> <C>
Common Stock Shareholders 12/30/98 $.273843 $.212921
- ------------------------------------------------------------------------------------------------------------------
Preferred Stock Shareholders: Series A 11/09/98 $61.46 $42.48
12/07/98 $60.96 $45.14
1/04/99 $ .55 $ 3.86
-------------------------------------------------------------------------
Series B 11/09/98 $62.28 $43.12
12/07/98 $59.01 $43.71
1/04/99 $ 3.67 $ 6.25
-------------------------------------------------------------------------
Series C 11/02/98 $13.34 $11.57
11/09/98 $14.34 $ 9.91
11/16/98 $14.22 $ 9.94
11/23/98 $14.27 $10.05
11/30/98 $13.48 $ 9.60
12/07/98 $13.84 $10.00
12/14/98 $13.26 $ 9.74
12/21/98 $13.41 $10.03
12/28/98 $13.89 $10.69
1/04/99 $18.08 $14.55
1/11/99 $ 2.14 $ 2.99
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* All of the distributions are subject to the 20% tax rate.
Please retain this information for your records.
17
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
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.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the securities in which
the Fund invests and this could hurt the Fund's investment returns.
18
<PAGE>
MuniYield Quality Fund II, Inc. October 31, 1999
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Robert A. DiMella, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, 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:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MQT
19
<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 -- 10/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
