[LOGO] Merrill Lynch Investment Managers
Semi-Annual Report
April 30, 2001
MuniYield
Quality
Fund II, Inc.
www.mlim.ml.com
MUNIYIELD QUALITY FUND II, INC.
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.
MuniYield Quality Fund II, Inc., April 30, 2001
DEAR SHAREHOLDER
For the six months ended April 30, 2001, the Common Stock of MuniYield Quality
Fund II, Inc. earned $0.365 per share income dividends, which included earned
and unpaid dividends of $0.058. This represents a net annualized yield of 5.91%,
based on a month-end net asset value of $12.43 per share. For the six-month
period ended April 30, 2001, the total investment return on the Fund's Common
Stock was +3.53%, based on a change in per share net asset value from $12.39 to
$12.43, and assuming reinvestment of $0.373 per share income dividends.
For the six-month period ended April 30, 2001, the Fund's Auction Market
Preferred Stock had an average yield of 4.35% for Series A, 4.33% for Series B
and 3.74% for Series C.
The Municipal Market Environment
During the six months ended April 30, 2001, the direction of long-term
fixed-income bond yields was affected by the continued decline in US economic
activity, volatile US equity markets, and most importantly, the reaction of the
Federal Reserve Board to these factors. A preliminary estimate for the first
quarter of 2001 gross national product growth was recently released at 2%, much
higher than expected by most economic analysts. While this estimate is subject
to revision in the coming months, its initial level denotes that US economic
activity remains far below its growth potential. Additionally, inflationary
pressures have remained well contained, largely in the 2%-3% range. These
factors combined to promote a very favorable financial environment for bonds,
and when coupled with significant declines in US equity markets in late 2000,
especially the NASDAQ, pushed US Treasury bond yields lower.
By mid-December, the Federal Reserve Board announced that economic conditions
warranted the cessation of the series of short-term interest rate increases.
Given a supportive economic environment and, at least, a neutral Federal Reserve
Board, investors were free again to focus on the ongoing US Treasury debt
reduction programs and forecasts of sizable Federal budgetary surpluses going
forward. Many analysts and investors concluded that there would be a significant
future shortage of longer-maturing US Treasury securities. These factors
combined to help push US Treasury bond yields significantly lower.
In early January 2001, the Federal Reserve Board lowered short-term interest
rates by 50 basis points (0.50%), citing declining consumer confidence and
weakening industrial production and retail sales growth. Similar reasons were
given for an additional 50 basis point reduction in short-term interest rates by
the Federal Reserve Board at the end of January 2001. These interest rate cuts
triggered a significant rebound in many US equity indexes, reducing the appeal
of a large number of US fixed-income securities. Additionally, many investors,
believing that the Federal Reserve Board's actions in January 2001 as well as
those anticipated in the coming months would quickly restore US economic growth
to earlier levels, sold US Treasury bonds to realize recent profits. At the end
of January 2001, long-term US Treasury bonds yielded approximately 5.50%, a
decline of more than 25 basis points since the end of October 2000.
In response to weakening employment, a decline in business investments and
profits, and fears of ongoing weak consumer spending, the Federal Reserve Board
continued to lower short-term interest rates in March and April in an effort to
foster higher US economic activity. Long-term taxable fixed-income interest
rates responded by declining to recent historic lows. By late March 2001,
long-term US Treasury bond yields declined an additional 25 basis points to
5.26%.
However, in April, US equity markets, particularly the NASDAQ, rallied strongly
on the expectation that the Federal Reserve Board would take steps to restore
economic activity and corporate profitability. Throughout much of April many
investors reallocated assets out of US Treasury securities into equities.
Corporate bond issuance remained heavy, providing an additional investment
alternative to US Treasury issues. Under these various pressures, US Treasury
bond prices declined sharply and yields rose to 5.78% by the end of April.
During the past six months, long-term US Treasury bond yields, although
exhibiting considerable volatility, remained unchanged.
By April 2001, the tax-exempt bond market also reacted to the Federal Reserve
Board's actions and equity market volatility, but its reaction was muted in both
intensity and degree. Throughout most of the past six months, long-term
municipal bond yields traded in a range between 5.45%-5.60%. In mid-March, the
tax-exempt bond market rallied to 5.40%, following the Federal Reserve Board's
most recent monetary easing. With tax-exempt bond yield ratios in excess of 95%
relative to their US Treasury counterparts during most of the period, investor
demand was particularly strong during periods of declining equity prices.
Strong equity markets in April 2001, as well as the possibility that the Federal
Reserve Board was close to the end of its interest rate reduction cycle, lowered
much of the investor demand and long-term tax-exempt bond yields rose throughout
April. As measured by the Bond Buyer Revenue Bond Index, long-term, uninsured
tax-exempt bond yields rose to approximately 5.63% at the end of the period.
Despite the price reversal in April, long-term municipal bond yields declined
more than 10 basis points.
The recent relative outperformance of the tax-exempt bond market was
particularly impressive given the dramatic increase in long-term municipal bond
issuance during April 2001. Historically low municipal bond yields continued to
allow municipalities to refund outstanding, higher-couponed debt. Also, as
yields rose in early April, tax-exempt issuers rushed to issue new financing,
fearing higher yields in the coming months. During the past six months, more
than $115 billion in long-term tax-exempt bonds was issued, an increase of over
25% compared to the same period a year ago. During the three-month period ended
April 30, 2001, tax-exempt bond issuance was particularly heavy with more than
$66 billion in long-term municipal bonds underwritten, an increase of over 40%
compared to the same period ended April 30, 2000. More than $20 billion in
municipal securities was issued in April 2001, a 20% increase compared to April
2000.
Historically, April has been a period of weak demand for tax-exempt products as
investors are often forced to liquidate bond positions to meet Federal and state
tax payments. In April 2001, there was no appreciable selling by retail
accounts. It has been noted that thus far in 2001, new net cash inflows into
municipal bond mutual funds have exceeded $4 billion compared to net new cash
outflows of nearly $9 billion for the same period a year ago. This suggests that
the positive technical structure of the municipal market has remained intact.
Also, the coming months of June and July tend to be periods of strong retail
demand in response to the larger-coupon income payments and proceeds from bond
maturities these months generate. Additionally, short-term tax-exempt interest
rates are poised to move lower. Seasonal tax pressures have kept short-term
municipal rates artificially high, although not as high as in recent years. We
believe all of these factors should enhance the tax-exempt market's technical
position in the coming months.
Looking forward, the municipal market's direction appears uncertain. Should the
US economy materially weaken into late summer, the Federal Reserve Board may be
forced to ease monetary policy to a greater extent than investors currently
expect. The prospect of two or three additional interest rate easings may push
fixed-income bond yields, including municipal bond yields, lower. However,
should the cumulative 200 basis point reduction in short-term interest rates by
the Federal Reserve Board and the proposed Federal tax reform combine to quickly
restore consumer confidence and economic activity, tax-exempt bond rates may not
decline further. Given the strong technical position of the municipal market, we
believe the tax-exempt market is poised to continue to outperform its taxable
counterpart in the coming months.
Portfolio Strategy
In response to significant national economic and fiscal developments during the
six-month period ended April 30, 2001, we adopted a more defensive strategy.
Specifically, the Federal Reserve Board acted
2 & 3
MuniYield Quality Fund II, Inc., April 30, 2001
aggressively to rekindle economic growth by lowering short-term interest rates,
while significant Federal tax relief packages were proposed to Congress. We
believe both of these developments will increase growth and inflationary
expectations. Additionally, municipal market yields dropped to the lowest levels
since the spring of 1999. We shifted the Fund to a more defensive stance by
purchasing premium coupon bonds and/or selling bonds with longer maturities. The
Fund did remain materially fully invested to enhance shareholder income and
maintained its overall credit quality profile. At April 30, 2001, the Fund had
approximately 86% of net assets in bonds rated A or better (the majority of
which were rated AAA) by at least one of the major bond rating agencies.
Looking ahead, we expect to remain fully invested in the municipal market and to
retain the current credit quality profile. We will look for opportunities in the
market provided by new municipal issuance to structure the portfolio more
favorably. We also expect to retain our current position until the effects of
recent monetary stimulus and any proposed tax cuts are exhibited in the economy.
The drop in short-term interest rates engineered by the Federal Reserve Board
should provide a favorable backdrop for the Fund's borrowing costs. A decline in
borrowing costs can generate additional income for the Fund's Common Stock
shareholders from the leveraging of Preferred Stock. However, should the spread
between short-term and long-term interest rates narrow, the benefits of 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 leveraging, see page 1 of
this report to shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniYield Quality Fund II Inc., and we
look forward to serving your investment needs in the months and years to come.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Michael Kalinoski
Michael Kalinoski
Vice President and
Portfolio Manager
May 30, 2001
PROXY RESULTS
During the six-month period ended April 30, 2001, MuniYield Quality Fund II,
Inc.'s Common Stock shareholders voted on the following proposal. The proposal
was approved at a shareholders' meeting on April 25, 2001. The description of
the proposal and number of shares voted are as follows:
-----------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
-----------------------------------------------------------------------------------------------
1. To elect the Fund's Directors: Terry K. Glenn 12,590,166 309,203
Herbert I. London 12,584,317 315,052
Andre F. Perold 12,592,012 307,357
Roberta Cooper Ramo 12,589,364 310,005
-----------------------------------------------------------------------------------------------
During the six-month period ended April 30, 2001, MuniYield Quality Fund II,
Inc.'s Preferred Stock shareholders (Series A, B and C) voted on the following
proposal. The proposal was approved at a shareholders' meeting on April 25,
2001. The description of the proposal and number of shares voted are as follows:
-----------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
-----------------------------------------------------------------------------------------------
1. To elect the Fund's Board of Directors: Terry K. Glenn,
James H. Bodurtha, Herbert I. London, Joseph L. May,
Andre F. Perold and Roberta Cooper Ramo as follows:
Series A 1,383 415
Series B 2,000 0
Series C 1,656 18
-----------------------------------------------------------------------------------------------
4 & 5
MuniYield Quality Fund II, Inc., April 30, 2001
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
Arizona--1.4% A1+ P1 $ 700 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding
(Arizona Public Service Company), VRDN, Series C, 4.50% due 5/01/2029 (m) $ 700
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Maricopa County, Arizona, Stadium District Revenue Bonds, 5.75% due
7/01/2016 (i) 2,067
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,750 Mesa, Arizona, GO, 6.50% due 7/01/2011 (c) 3,192
====================================================================================================================================
California--5.1% ABC, California, Unified School District, GO (c):
AAA Aaa 665 5.59%** due 8/01/2032 113
AAA Aaa 1,115 5.59%** due 8/01/2033 179
AAA Aaa 1,170 5.60%** due 8/01/2034 177
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 7,500 Alameda Corridor, California, Transportation Authority Revenue Bonds,
Series 1999-A, 5.402%** due 10/01/2030 (i) 1,407
-----------------------------------------------------------------------------------------------------------------
AAA NR* 2,500 California Health Facilities Finance Authority Revenue Bonds
(Kaiser Permanente), RIB, Series 26, 6.56% due 6/01/2022 (g)(l) 2,575
-----------------------------------------------------------------------------------------------------------------
A1+ NR* 4,100 California Pollution Control Financing Authority, PCR, Refunding
(Pacific Gas and Electric), VRDN, AMT, Series B, 5% due 11/01/2026 (m) 4,100
-----------------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 California State, GO, Refunding, RIB, Series 470x, 7.58% due 2/01/2010 (i)(l) 2,430
-----------------------------------------------------------------------------------------------------------------
AAA NR* 6,250 Los Angeles, California, Water and Power Revenue Refunding Bonds, DRIVERS,
Series 185, 6.103% due 7/01/2013 (i)(l) 6,718
-----------------------------------------------------------------------------------------------------------------
AA Aa3 3,650 Sacramento County, California, Sanitation District Financing Authority,
Revenue Refunding Bonds, Trust Receipts, Class R, Series A, 7.597% due
12/01/2019 (l) 4,055
====================================================================================================================================
Colorado--6.7% AAA Aaa 16,250 Colorado Department of Transit, TRAN, 6% due 6/15/2015 (a) 17,629
-----------------------------------------------------------------------------------------------------------------
AA Aa2 3,000 Colorado HFA, Revenue Bonds, AMT, Senior Series E-2, 7% due 2/01/2030 3,290
-----------------------------------------------------------------------------------------------------------------
Colorado Housing and Finance Authority Revenue Bonds:
AA Aa2 3,000 (S/F Program), AMT, Senior Series A-2, 6.50% due 8/01/2031 3,258
AA Aa2 1,000 Senior Series E-3, 6.70% due 2/01/2032 1,080
-----------------------------------------------------------------------------------------------------------------
NR* Aaa 3,000 Lower Colorado River Authority, Texas, Revenue Refunding Bonds, DRIVERS,
Series 166, 7.625% due 5/15/2009 (g)(l) 3,596
====================================================================================================================================
Connecticut--6.6% AA Aa2 5,550 Connecticut State, GO, Series A, 6% due 4/15/2016 6,079
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,400 Connecticut State Health and Educational Facilities Authority, Revenue
Refunding Bonds (Yale University), RIB, 8.025% due 6/10/2030 (l) 1,482
-----------------------------------------------------------------------------------------------------------------
Connecticut State Regional Learning Educational Service Center Revenue Bonds
(Office/Education Center Facility):
NR* NR* 860 7.50% due 2/01/2005 877
NR* NR* 1,100 7.75% due 2/01/2015 1,155
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 11,195 Connecticut State Resource Recovery Authority, Revenue Refunding Bonds
(Mid-Connecticut System), Series A, 5.50% due 11/15/2011 (i) 11,787
-----------------------------------------------------------------------------------------------------------------
NR* Aaa 2,750 Connecticut State Special Tax Obligation Revenue Bonds, RIB, Series 372,
7.78% due 12/01/2017 (c)(l) 3,194
-----------------------------------------------------------------------------------------------------------------
AAA NR* 3,000 Connecticut State Special Tax Obligation Revenue Refunding Bonds, DRIVERS,
Series 168, 7.741% due 10/01/2009 (i)(l) 3,718
====================================================================================================================================
Florida--1.7% AAA Aaa 5,000 Florida State Board of Education, Lottery Revenue Bonds, Series B, 5.75%
due 7/01/2010 (c) 5,481
-----------------------------------------------------------------------------------------------------------------
NR* B1 2,080 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida Education and
Research Foundation Project), Series A, 7% due 9/01/2024 1,842
====================================================================================================================================
Georgia--6.4% AAA Aaa 7,850 Atlanta, Georgia, Airport Revenue Refunding Bonds, Series A, 5.875% due
1/01/2017 (c) 8,368
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 15,175 Georgia Municipal Electric Authority, Power Revenue Refunding Bonds,
Series Z, 5.50% due 1/01/2020 (i) 15,876
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,620 Georgia State, GO, Series E, 6.75% due 12/01/2012 3,108
====================================================================================================================================
Illinois--5.8% AAA NR* 3,500 Chicago, Illinois, Gas Supply Revenue Refunding Bonds (People's Gas,
Light & Coke), Series A, 6.10% due 6/01/2025 (a) 3,668
-----------------------------------------------------------------------------------------------------------------
NR* Aaa 2,500 Cook County, Illinois, Community Consolidated School District Number 146,
Tinley Park, GO, 9% due 12/01/2016 (c) 3,540
-----------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Illinois Regional Transportation Authority Revenue Bonds, 6.50% due
7/01/2026 (i) 11,641
-----------------------------------------------------------------------------------------------------------------
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan Revenue Refunding
Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 6,177
====================================================================================================================================
Indiana--1.5% AAA NR* 2,675 Indiana Bond Bank Revenue Bonds (State Revolving Fund Program),
Series A, 6.75% due 2/01/2017 2,947
-----------------------------------------------------------------------------------------------------------------
AA NR* 3,100 Indianapolis, Indiana, Local Public Improvement Bond Bank Revenue Refunding
Bonds, Series D, 6.75% due 2/01/2020 3,298
====================================================================================================================================
Kansas--3.3% AA+ Aa1 2,000 Kansas State Development Finance Authority Revenue Bonds, Water Pollution
Control Revolving Fund, Series II, 6% due 11/01/2015 2,167
-----------------------------------------------------------------------------------------------------------------
Sedgwick and Shawnee Counties, Kansas, S/F Revenue Bonds, AMT (h):
NR* Aaa 7,500 (Mortgage Backed Securities Program), Series A-2, 6% due 12/01/2031 8,510
NR* Aaa 2,975 Series A-1, 6.875% due 12/01/2026 3,321
====================================================================================================================================
Kentucky--0.7% NR* A3 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds (TJ International
Project), AMT, 7% due 6/01/2024 3,124
====================================================================================================================================
Louisiana--1.0% AAA Aaa 3,900 Louisiana Local Government, Environmental Facilities, Community Development
Authority Revenue Bonds (Capital Projects and Equipment Acquisition),
Series A, 6.30% due 7/01/2030 (a) 4,412
====================================================================================================================================
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)
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDB Industrial Development Board
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
TRAN Tax Revenue Anticipation Notes
VRDN Variable Rate Demand Notes
6 & 7
MuniYield Quality Fund II, Inc., April 30, 2001
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
Massachusetts--2.5% BBB+ Baa2 $ 2,000 Massachusetts Municipal Wholesale Electric Company, Power Supply
System Revenue Refunding Bonds, Series A, 6.75% due 7/01/2011 $ 2,101
--------------------------------------------------------------------------------------------------------------
AA+ Aaa 2,500 Massachusetts State Health and Educational Facilities Authority
Revenue Bonds (Daughters of Charity-Carney), Series D, 6.10% due
7/01/2006 (k) 2,701
--------------------------------------------------------------------------------------------------------------
Massachusetts State Health and Educational Facilities Authority, Revenue
Refunding Bonds (New England Memorial Hospital), Series B (j):
NR* Ca 2,416 6% due 7/01/2008 483
NR* Ca 4,201 6.125% due 7/01/2013 840
--------------------------------------------------------------------------------------------------------------
NR* Aa3 4,200 Massachusetts State Revenue Bonds, RIB, Series 420, 7.03% due
12/15/2014 (l) 4,749
====================================================================================================================================
Michigan--0.7% AA+ NR* 2,685 Michigan State, HDA, Revenue Refunding Bonds, Series C, 5.90% due
12/01/2015 (d) 2,803
--------------------------------------------------------------------------------------------------------------
A1+ VMIG1@ 200 Royal Oak, Michigan, Hospital Finance Authority, Hospital Revenue Bonds
(William Beaumont Hospital), VRDN, Series L, 4.50% due 1/01/2027 (m) 200
====================================================================================================================================
Mississippi--3.5% A A3 6,000 Lowndes County, Mississippi, Solid Waste Disposal and PCR, Refunding
(Weyerhaeuser Company Project), Series A, 6.80% due 4/01/2022 6,659
--------------------------------------------------------------------------------------------------------------
BBB- Ba1 9,000 Mississippi Business Finance Corporation, Mississippi, PCR, Refunding
(System Energy Resources Inc. Project), 5.875% due 4/01/2022 8,152
====================================================================================================================================
Missouri--1.4% Saint Louis County, Missouri, Pattonville R-3 School District,
GO (Missouri Direct Deposit Program) (c):
AAA Aaa 2,000 5.75% due 3/01/2015 2,136
AAA Aaa 2,000 5.75% due 3/01/2016 2,123
AAA Aaa 1,500 6% due 3/01/2019 1,614
====================================================================================================================================
New Jersey--2.6% 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 (i) 5,561
--------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Salem County, New Jersey, Industrial Pollution Control Financing
Authority, Revenue Refunding Bonds (Public Service Electric & Gas), RIB,
Series 380, 8.08% due 6/01/2031 (i)(l) 5,601
====================================================================================================================================
New Mexico--4.9% BBB Baa2 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge Corporation Project),
6.50% due 4/01/2013 5,148
--------------------------------------------------------------------------------------------------------------
AAA NR* 2,360 New Mexico Mortgage Finance Authority Revenue Bonds (S/F Mortgage Program),
AMT, Series E-2, 6.25% due 7/01/2029 (e)(f) 2,531
--------------------------------------------------------------------------------------------------------------
New Mexico State Highway Commission, Tax Revenue Bonds, Senior Sub Lien,
Series A:
AA+ Aa2 7,295 6% due 6/15/2014 7,935
AA+ Aa2 4,995 6% due 6/15/2015 5,399
====================================================================================================================================
New York--12.3% AAA Aaa 9,280 Nassau Health Care Corporation, New York, Health System Revenue Bonds,
5.75% due 8/01/2022 (g) 9,643
--------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue Bonds, Series C (i):
AAA Aaa 1,490 7.375% due 5/15/2009 (k) 1,815
AAA Aaa 5,510 7.375% due 5/15/2010 6,461
--------------------------------------------------------------------------------------------------------------
AAA Aaa 9,000 New York State Dormitory Authority, Revenue Refunding Bonds (State
University Educational Facilities), 5.75% due 5/15/2024 (c) 9,430
--------------------------------------------------------------------------------------------------------------
NR* Aaa 9,825 New York State Mortgage Agency Revenue Bonds, AMT, 24th Series, 5.875%
due 10/01/2015 10,238
--------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 New York State Thruway Authority, Local Highway and Bridge Service
Contract Revenue Refunding Bonds, 6% due 4/01/2012 (i) 3,831
--------------------------------------------------------------------------------------------------------------
AAA Aaa 10,505 New York State Thruway Authority, Service Contract Revenue Bonds
(Local Highway and Bridge), 5.625% due 4/01/2013 (i) 11,185
====================================================================================================================================
North Carolina--4.0% NR* Aaa 1,750 Appalachian State University, North Carolina, Housing and Student Center
System Revenue Bonds, 5.60% due 7/15/2020 (g) 1,805
--------------------------------------------------------------------------------------------------------------
A A3 14,750 Martin County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority Revenue Bonds (Solid Waste Disposal--
Weyerhaeuser Company), AMT, 6.80% due 5/01/2024 15,251
====================================================================================================================================
Ohio--1.9% A1+ VMIG1@ 1,400 Cuyahoga County, Ohio, Hospital Revenue Bonds (The Cleveland Clinic),
VRDN, Series D, 4.50% due 1/01/2026 (m) 1,400
--------------------------------------------------------------------------------------------------------------
NR* Aaa 6,290 Plain, Ohio, Local School District, GO, Refunding, 6% due 12/01/2020 (c) 6,715
====================================================================================================================================
Pennsylvania--1.4% NR* Aaa 3,335 Delaware River Port Authority of Pennsylvania and New Jersey Revenue
Bonds, RIB, Series 396, 7.61% due 1/01/2019 (g)(l) 3,858
--------------------------------------------------------------------------------------------------------------
NR* NR* 4,000 Pennsylvania Economic Development Financing Authority, Exempt
Facilities Revenue Bonds (National Gypsum Company), AMT, Series A,
6.25% due 11/01/2027 2,100
====================================================================================================================================
Rhode Island--1.7% A- Baa1 3,000 Rhode Island Depositors Economic Protection Corporation, Special
Obligation Revenue Refunding Bonds, Series A, 5.75% due 8/01/2021 (b) 3,177
--------------------------------------------------------------------------------------------------------------
AAA Aaa 4,010 Rhode Island State Health and Educational Building Corporation,
Higher Education Facilities Revenue Bonds (University of Rhode Island),
Series A, 5.70% due 9/15/2024 (i) 4,111
====================================================================================================================================
South Carolina--2.8% A- A2 5,765 Berkeley County, South Carolina, Pollution Control Facilities Revenue
Refunding Bonds (South Carolina Electric and Gas Company), 6.50%
due 10/01/2014 6,050
--------------------------------------------------------------------------------------------------------------
A A1 2,950 Fairfield County, South Carolina, PCR (South Carolina Electric and Gas
Company), 6.50% due 9/01/2014 3,119
--------------------------------------------------------------------------------------------------------------
NR* NR* 2,500 Spartanburg County, South Carolina, Solid Waste Disposal Facilities
Revenue Bonds (BMW Project), AMT, 7.55% due 11/01/2024 2,661
====================================================================================================================================
Tennessee--3.0% AAA Aaa 7,365 Chattanooga, Tennessee, IDB, Lease Rent Revenue Bonds (Southside
Redevelopment Corporation), 5.875% due 10/01/2024 (a) 7,703
--------------------------------------------------------------------------------------------------------------
BBB Baa3 5,000 McMinn County, Tennessee, IDB, Solid Waste Revenue Bonds (Recycling
Facility--Calhoun Newsprint), AMT, 7.40% due 12/01/2022 5,154
====================================================================================================================================
Texas--7.5% AAA Aaa 2,900 Austin, Texas, Electric Utility System Revenue Refunding Bonds, 7.25%
due 11/15/2009 (g) 3,442
--------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Austin, Texas, Utility System Revenue Refunding Bonds, Series 1998, 6.75%
due 11/15/2009 (a) 4,614
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,630 Brownsville, Texas, GO (Combined Tax and Revenue Certificates of
Obligation), Series A, 6.50% due 2/15/2017 (c) 1,798
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,730 Corpus Christi, Texas, Utility System Revenue Refunding Bonds, Series A,
6% due 7/15/2016 (g) 2,929
--------------------------------------------------------------------------------------------------------------
Dickinson, Texas, Independent School District, GO, Refunding:
AAA Aaa 1,180 6% due 2/15/2017 1,254
AAA Aaa 1,250 6% due 2/15/2018 1,325
--------------------------------------------------------------------------------------------------------------
AA NR* 4,000 Gregg County, Texas, Health Facilities Development Corporation, Hospital
Revenue Bonds (Good Shepherd Medical Center Project), 6.875% due
10/01/2020 4,387
--------------------------------------------------------------------------------------------------------------
8 & 9
MuniYield Quality Fund II, Inc., April 30, 2001
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
Texas BBB+ Baa1 $ 4,200 Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds (Champion
(concluded) International Corporation), AMT, 7.375% due 10/01/2025 $ 4,379
--------------------------------------------------------------------------------------------------------------
A1+ NR* 900 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN, 4.50%
due 12/01/2025 (m) 900
--------------------------------------------------------------------------------------------------------------
A1+ NR* 3,600 Harris County, Texas, Health Facilities Development Corporation,
Revenue Refunding Bonds (Saint Luke's Episcopal Hospital), VRDN,
Series A, 4.75% due 2/15/2027 (m) 3,600
--------------------------------------------------------------------------------------------------------------
BBB- Baa3 3,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 3,432
====================================================================================================================================
Virginia--1.2% BBB- Baa3 26,500 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds,
Senior-Series B, 5.875%** due 8/15/2024 5,206
====================================================================================================================================
Washington--5.3% AAA Aaa 7,470 Port Seattle, Washington, Revenue Bonds, AMT, Series B, 6% due
2/01/2016 (i) 7,865
--------------------------------------------------------------------------------------------------------------
AAA Aaa 6,500 Seattle, Washington, Municipal Light and Power Revenue Bonds, 6% due
10/01/2019 (i) 6,888
--------------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Snohomish County, Washington, Arlington School District Number 016,
GO, 6.50% due 12/01/2015 (c) 5,610
--------------------------------------------------------------------------------------------------------------
AA NR* 2,200 Washington State Health Care Facilities Authority Revenue Bonds
(Kadlec Medical Center), 6% due 12/01/2030 2,216
====================================================================================================================================
Puerto Rico--2.0% A Baa1 5,000 Puerto Rico Commonwealth Highway and Transportation Authority,
Transportation Revenue Bonds, Series B, 6% due 7/01/2026 (g) 5,209
--------------------------------------------------------------------------------------------------------------
NR* Aaa 3,250 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
RIB, Series 449x, 6.63% due 7/01/2016 (a)(l) 3,438
====================================================================================================================================
Total Investments (Cost--$420,041)--98.9% 423,273
Other Assets Less Liabilities--1.1% 4,711
--------
Net Assets--100.0% $427,984
========
====================================================================================================================================
(a) AMBAC Insured.
(b) Escrowed to maturity.
(c) FGIC Insured.
(d) FHA Insured.
(e) FHLMC Collateralized.
(f) FNMA/GNMA Collateralized.
(g) FSA Insured.
(h) GNMA Collateralized.
(i) MBIA Insured.
(j) Non-income producing security.
(k) Prerefunded.
(l) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at April 30, 2001.
(m) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at April 30,
2001.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
@ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of April 30, 2001
====================================================================================================================================
Assets: Investments, at value (identified cost--$420,041,020) ........................ $423,273,325
Cash ......................................................................... 7,683
Interest receivable .......................................................... 7,213,466
Prepaid expenses and other assets ............................................ 86,328
------------
Total assets ................................................................. 430,580,802
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased ...................................................... $ 2,168,660
Dividends to shareholders ................................................. 228,994
Investment adviser ........................................................ 172,278 2,569,932
------------
Accrued expenses and other liabilities ....................................... 26,818
------------
Total liabilities ............................................................ 2,596,750
------------
====================================================================================================================================
Net Assets: Net assets ................................................................... $427,984,052
============
====================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized):
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 ......................................... 1,646,342
Accumulated realized capital losses on investments--net ...................... (28,815,381)
Accumulated distributions in excess of realized capital gains on
investments--net ............................................................. (12,079,199)
Unrealized appreciation on investments--net .................................. 3,232,305
------------
Total--Equivalent to $12.43 net asset value per share of Common Stock
(market price--$11.60) ....................................................... 277,984,052
------------
Total capital ................................................................ $427,984,052
============
====================================================================================================================================
* Auction Market Preferred Stock.
See Notes to Financial Statements.
10 & 11
MuniYield Quality Fund II, Inc., April 30, 2001
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 2001
===================================================================================================================================
Investment Interest and amortization of premium and discount earned ................. $ 12,058,675
Income:
===================================================================================================================================
Expenses: Investment advisory fees ................................................. $ 1,076,469
Commission fees .......................................................... 183,111
Accounting services ...................................................... 63,841
Professional fees ........................................................ 43,502
Transfer agent fees ...................................................... 29,691
Listing fees ............................................................. 16,883
Printing and shareholder reports ......................................... 16,123
Directors' fees and expenses ............................................. 13,246
Custodian fees ........................................................... 12,563
Pricing fees ............................................................. 7,334
Other .................................................................... 15,223
-------------
Total expenses ........................................................... 1,477,986
-------------
Investment income--net ................................................... 10,580,689
-------------
===================================================================================================================================
Realized & Realized gain on investments--net ........................................ 1,368,149
Unrealized Gain on Change in unrealized appreciation on investments--net .................... 219,194
Investments--Net: -------------
Net Increase in Net Assets Resulting from Operations ..................... $ 12,168,032
=============
===================================================================================================================================
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 2001 Oct. 31, 2000
===================================================================================================================================
Operations: Investment income--net ................................................... $ 10,580,689 $ 22,029,545
Realized gain (loss) on investments--net ................................. 1,368,149 (25,891,907)
Change in unrealized appreciation/depreciation on investments--net ....... 219,194 29,880,898
------------- -------------
Net increase in net assets resulting from operations ..................... 12,168,032 26,018,536
------------- -------------
===================================================================================================================================
Dividends to Investment income--net:
Shareholders: Common Stock .......................................................... (8,334,701) (18,016,562)
Preferred Stock ....................................................... (3,078,500) (6,054,040)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders ...... (11,413,201) (24,070,602)
------------- -------------
===================================================================================================================================
Net Assets: Total increase in net assets ............................................. 754,831 1,947,934
Beginning of period ...................................................... 427,229,221 425,281,287
------------- -------------
End of period* ........................................................... $ 427,984,052 $ 427,229,221
============= =============
===================================================================================================================================
*Undistributed investment income--net .................................... $ 1,646,342 $ 2,478,854
============= =============
===================================================================================================================================
See Notes to Financial Statements.
12 & 13
MuniYield Quality Fund II, Inc., April 30, 2001
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended October 31,
April 30, -------------------------------------------
Increase (Decrease) in Net Asset Value: 2001 2000 1999 1998 1997
===================================================================================================================================
Per Share Net asset value, beginning of period .................... $ 12.39 $ 12.31 $ 15.52 $ 15.46 $ 14.86
Operating -------- -------- --------- -------- --------
Performance: Investment income--net .................................. .47 .99 1.04 1.10 1.15
Realized and unrealized gain (loss) on investments--net . .08 .17 (2.65) .46 .64
-------- -------- --------- -------- --------
Total from investment operations ........................ .55 1.16 (1.61) 1.56 1.79
-------- -------- --------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ................................ (.37) (.81) (.86) (.87) (.91)
Realized gain on investments--net ..................... -- -- -- (.34) (.03)
In excess of realized gain on investments--net ........ -- -- (.49) -- --
-------- -------- --------- -------- --------
Total dividends and distributions to Common Stock
shareholders ............................................ (.37) (.81) (1.35) (1.21) (.94)
-------- -------- --------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net .............................. (.14) (.27) (.19) (.17) (.24)
Realized gain on investments--net ................... -- -- -- (.12) (.01)
In excess of realized gain on investments--net ...... -- -- (.06) -- --
-------- -------- --------- -------- --------
Total effect of Preferred Stock activity ................ (.14) (.27) (.25) (.29) (.25)
-------- -------- --------- -------- --------
Net asset value, end of period .......................... $ 12.43 $ 12.39 $ 12.31 $ 15.52 $ 15.46
======== ======== ========= ======== ========
Market price per share, end of period ................... $ 11.60 $ 11.50 $ 11.50 $15.1875 $ 14.375
======== ======== ========= ======== ========
===================================================================================================================================
Total Based on market price per share ......................... 4.09%++ 7.35% (16.70%) 14.51% 13.86%
Investment ======== ======== ========= ======== ========
Return:** Based on net asset value per share ...................... 3.53%++ 8.04% (12.74%) 8.80% 11.24%
======== ======== ========= ======== ========
===================================================================================================================================
Ratios Based Total expenses*** ....................................... 1.05%* 1.08% .99% .95% .95%
on Average ======== ======== ========= ======== ========
Net Assets Of Total investment income--net*** ......................... 7.50%* 8.04% 7.31% 7.21% 7.50%
Common Stock: ======== ======== ========= ======== ========
Amount of dividends to Preferred Stock shareholders ..... 2.18%* 2.21% 1.30% 1.12% 1.55%
======== ======== ========= ======== ========
Investment income--net, to Common Stock shareholders .... 5.32%* 5.83% 6.01% 6.09% 5.95%
======== ======== ========= ======== ========
===================================================================================================================================
Ratios Based Total expenses .......................................... .69%* .70% .67% .66% .66%
on Total ======== ======== ========= ======== ========
Average Net Total investment income--net ............................ 4.91%* 5.19% 4.97% 4.98% 5.22%
Assets:***+ ======== ======== ========= ======== ========
===================================================================================================================================
Ratios Based Dividends to Preferred Stock shareholders ............... 4.14%* 4.02% 2.75% 2.53% 3.48%
on Average ======== ======== ========= ======== ========
Net Assets
Of Preferred
Stock:
===================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) ......................................... $277,984 $277,229 $ 275,281 $342,496 $341,230
======== ======== ========= ======== ========
Preferred Stock outstanding, end of period (in thousands) $150,000 $150,000 $ 150,000 $150,000 $150,000
======== ======== ========= ======== ========
Portfolio turnover ...................................... 45.99% 142.46% 164.45% 154.08% 201.87%
======== ======== ========= ======== ========
===================================================================================================================================
Leverage: Asset coverage per $1,000 ............................... $ 2,853 $ 2,848 $ 2,835 $ 3,283 $ 3,275
======== ======== ========= ======== ========
===================================================================================================================================
Dividends Series A--Investment income--net ........................ $ 539 $ 1,017 $ 706 $ 629 $ 869
Per Share ======== ======== ========= ======== ========
On Preferred Series B--Investment income--net ........................ $ 536 $ 1,024 $ 702 $ 634 $ 868
Stock ======== ======== ========= ======== ========
Outstanding: Series C--Investment income--net ........................ $ 464 $ 986 $ 650 $ 634 $ 872
======== ======== ========= ======== ========
===================================================================================================================================
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may
result in substantially different returns. Total investment
returns exclude the effects of sales charges.
*** Do not reflect the effect of dividends to Preferred Stock
shareholders.
+ Includes Common and Preferred Stock average net assets.
++ Aggregate total investment return.
See Notes to Financial Statements.
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 conformity with
accounting principles generally accepted in the United States of America, which
may require the use of management accruals and estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal, recurring nature. The Fund
determines and makes available for publication the net asset value of its Common
Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock
Exchange under the symbol MQT. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options 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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. 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
14 & 15
MuniYield Quality Fund II, Inc., April 30, 2001
NOTES TO FINANCIAL STATEMENTS (concluded)
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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. The
Fund will adopt the provisions to amortize all premiums and discounts on debt
securities effective November 1, 2001, as now required under the new AICPA Audit
and Accounting Guide for Investment Companies. The cumulative effect of this
accounting change will have no impact on the total net assets of the Fund. The
impact of this accounting change has not been determined, but will result in an
adjustment to the cost of securities and a corresponding adjustment to net
unrealized appreciation/depreciation, based on debt securities held as of
October 31, 2001.
(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.
Prior to January 1, 2001, FAM provided accounting services to the Fund at its
cost and the Fund reimbursed FAM for these services. FAM continues to provide
certain accounting services to the Fund. The Fund reimburses FAM at its cost
for such services. For the six months ended April 30, 2001, the Fund reimbursed
FAM an aggregate of $18,773 for the above-described services. The Fund entered
into an agreement with State Street Bank and Trust Company ("State Street"),
effective January 1, 2001, pursuant to which State Street provides certain
accounting services to the Fund. The Fund pays a fee for these services.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended April 30, 2001 were $194,028,161 and $204,108,971, respectively.
Net realized gains for the six months ended April 30, 2001 and net unrealized
gains as of April 30, 2001 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
--------------------------------------------------------------------------------
Long-term investments .................. $ 1,368,149 $ 3,232,305
----------- ------------
Total .................................. $ 1,368,149 $ 3,232,305
=========== ============
--------------------------------------------------------------------------------
As of April 30, 2001, net unrealized appreciation for Federal income tax
purposes aggregated $3,232,305, of which $13,990,437 related to appreciated
securities and $10,758,132 related to depreciated securities. The aggregate cost
of investments at April 30, 2001 for Federal income tax purposes was
$420,041,020.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of the holders
of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended April 30, 2001 and
during the year ended October 31, 2000 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
April 30, 2001 were as follows: Series A, 3.40%; Series B, 3.40%; and Series C,
3.50%.
Shares issued and outstanding during the six months ended April 30, 2001 and
during the year ended October 31, 2000 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 six months ended April 30, 2001, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, an affiliate of FAM, earned $82,749 as commissions.
5. Capital Loss Carryforward:
At October 31, 2000, the Fund had a net capital loss carryforward of
approximately $40,642,000, of which $14,562,000 expires in 2007 and $26,080,000
expires in 2008. This amount will be available to offset like amounts of any
future taxable gains.
6. Subsequent Event:
On May 8, 2001, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.058460 per share,
payable on May 30, 2001 to shareholders of record as of May 16, 2001.
16 & 17
MuniYield Quality Fund II, Inc., April 30, 2001
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 2001 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
--------------------------------------------------------------------------------
AAA/Aaa .............................................................. 64.4%
AA/Aa ................................................................ 11.9
A/A .................................................................. 10.0
BBB/Baa .............................................................. 7.8
B/B .................................................................. 0.4
CC/Ca ................................................................ 0.3
NR (Not Rated) ....................................................... 1.6
Other* ............................................................... 2.5
--------------------------------------------------------------------------------
* Temporary investments in short-term municipal securities.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. 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.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Joseph L. May, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Michael A. Kalinoski, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
--------------------------------------------------------------------------------
Arthur Zeikel, Director of MuniYield Quality Fund II, Inc., has recently
retired. The Fund's Board of Directors wishes Mr. Zeikel well in his retirement.
--------------------------------------------------------------------------------
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
18 & 19
[LOGO] Merrill Lynch Investment Managers
[GRAPHIC OMITTED]
MuniYield Quality Fund II, Inc. seeks to provide shareholders with as high a
level of current income exempt from Federal income taxes as is consistent with
its investment policies and prudent investment management by investing primarily
in a portfolio of long-term, high-grade municipal obligations, the interest on
which is exempt from Federal income taxes in the opinion of bond counsel to the
issuer.
This report, including the financial information herein, is transmitted to
shareholders of MuniYield Quality Fund II, Inc. for their information. It is not
a prospectus. 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
[RECYCLE LOGO] Printed on post-consumer recycled paper #16433 -- 4/01