[LOGO] Merrill Lynch Investment Managers
Semi-Annual Report
April 30, 2002
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.
The Fund may also invest in swap agreements, which are over-the-counter
contracts in which one party agrees to make periodic payments based on the
change in market value of a specified bond, basket of bonds, or index in return
for periodic payments based on a fixed or variable interest rate or the change
in market value of a different bond, basket of bonds or index. Swap agreements
may be used to obtain exposure to a bond or market without owning or taking
physical custody of securities.
MuniYield Quality Fund II, Inc., April 30, 2002
DEAR SHAREHOLDER
For the six months ended April 30, 2002, the Common Stock of MuniYield Quality
Fund II, Inc. earned $0.393 per share income dividends, which included earned
and unpaid dividends of $0.065. This represents a net annualized yield of 6.18%,
based on a month-end net asset value of $12.81 per share. For the six-month
period ended April 30, 2002, the total investment return of the Fund's Common
Stock was +0.24%, based on a change in per share net asset value from $13.21 to
$12.81, and assuming reinvestment of $0.391 per share income dividends.
For the six-month period ended April 30, 2002, the Fund's Auction Market
Preferred Stock had an average yield of 1.69% for Series A, 1.66% for Series B
and 1.42% for Series C.
The Municipal Market Environment
During the six months ended April 30, 2002, long-term fixed-income bond yields
generally rose, while exhibiting considerable monthly volatility. However,
throughout the period, tax-exempt bond yield volatility was appreciably lower
and the overall increase in municipal bond yields was lower than its taxable
counterpart. This relative outperformance by the tax-exempt market largely
reflected an improving technical position in recent months. Despite additional
decreases in the short-term interest rate target to 1.75% by the Federal Reserve
Board, long-term fixed-income markets were unable to hold their October 2001
gains. Rapid, significant US military success in Afghanistan,
stronger-than-expected retail sales and recovering US equity markets combined to
suggest to many investors that US economic recovery was far more imminent than
had been anticipated earlier in the fall of 2001. Bond yields rose during
November and December 2001 as investors sold securities both to realize recent
profits and in anticipation of an early reversal of the Federal Reserve Board's
policy. By the end of December, long-term US Treasury bond yields rose more than
50 basis points (0.50%) to approximately 5.45%.
During January and February 2002, economic indicators were mixed, signaling some
strength in consumer spending and housing-related industries, but with continued
declines in manufacturing employment. Interest rates remained in a narrow but
volatile range as weak US equity markets generally supported fixed-income
products. By the end of January 2002, the Federal Reserve Board ended its
aggressive series of short-term interest rate reductions by maintaining its
overnight rate target at 1.75%, a 40-year low. The Federal Reserve Board noted
that while US economic activity was beginning to strengthen, earlier weakness
could easily resume should consumer spending falter. In recent months, however,
the index of leading economic indicators has risen, suggesting that economic
activity is likely to expand later this year. In its final revision, fourth
quarter 2001 US gross domestic product growth was revised higher to 1.6%,
signaling improving economic conditions relative to earlier in 2001. By the end
of February 2002, long-term US Treasury bond yields stood at 5.42%.
In early March, a number of economic indicators, including surging existing home
sales, solid consumer spending and positive nonfarm payroll growth following
several months of job losses, suggested US economic activity was continuing to
strengthen. Also, in Congressional testimony, Federal Reserve Board Chairman
Alan Greenspan was cautiously optimistic regarding future US economic growth
noting, while any increase in activity was likely to be moderate, "an economic
expansion (was) well underway." These factors combined to push US equity prices
higher and bond prices sharply lower in expectation of a reversal of the Federal
Reserve Board actions taken during the past 15 months. By the end of March 2002,
long-term US Treasury bond yields stood at 5.80%, their highest level in more
than 18 months.
During April 2002, bond yields reversed to move lower as US economic conditions,
especially employment trends, weakened and US equity markets solidly declined.
Also, first quarter 2002 US gross domestic product growth was initially
estimated to have grown 0.6%. This decline in US economic activity from the
fourth quarter of 2001 suggested that earlier US economic strength was weakening
and the Federal Reserve Board would be unlikely to raise interest rates for much
of 2002. US Treasury issue prices were also boosted by erupting Middle East
politics that led many international investors to seek the safe haven of US
Treasury securities. By April 30, 2002, long-term US Treasury bond yields
declined to 5.59%. During the past six months, US Treasury bond yields rose
more than 70 basis points.
The municipal bond market displayed a similar pattern to its taxable counterpart
during the six-month period ended April 2002. The tax-exempt bond market was
also unable to maintain the gains made in late September and October 2001. In
addition to a modestly stronger financial environment, increased tax-exempt new
bond issuance in late 2001 also put upward pressure on municipal bond yields. By
year-end 2001, long-term tax-exempt revenue bond yields as measured by the Bond
Buyer Revenue Bond Index stood at 5.60%, an increase of approximately 25 basis
points during the last two months of 2001. In early 2002, tax-exempt bond yields
traded in a relatively narrow range as an increasingly positive technical
position supported existing municipal bond prices. However, in March, increased
economic activity and associated concerns regarding near-term Federal Reserve
Board actions also pushed tax-exempt bond prices lower. By late March, long-term
municipal revenue bond yields rose to 5.67%, their highest level in more than a
year. Similar to US Treasury issues, tax-exempt bond yields declined throughout
April as economic conditions weakened. The municipal bond market's improvement
was bolstered by a continued improvement in the market's technical environments.
Investor demand strengthened, in part aided by declining equity prices, as
issuance levels declined. At April 30, 2002, long-term tax-exempt bond yields
stood at 5.52%, an increase of approximately 30 basis points during the last six
months.
Interest rates are likely to remain near current levels as US economic
conditions are expected to remain relatively weak. However, going forward,
business activity appears likely to accelerate, perhaps significantly.
Immediately after the September 11 attacks, the Federal Government announced a
$45 billion package to aid New York City, Washington, DC and the airline
industry, with additional fiscal aid packages expected. The military response to
these attacks will continue to require sizable increases in Defense Department
spending. Eventually, this governmental spending should result in increased US
economic activity, particularly in the construction and defense industries. This
governmental stimulus, in conjunction with the actions already taken by the
Federal Reserve Board, can be expected to generate significant increases in US
gross domestic product growth some time in mid-to-late 2002.
As inflationary pressures are expected to remain well contained going forward,
increased economic activity need not result in significant increases in
long-term bond yields. Also, throughout much of 2001, the municipal bond market
exhibited far less volatility than its taxable counterparts. Since the strong
technical position that has supported the tax-exempt bond market's performance
for much of 2001 can be expected to continue, any potential increases in
municipal bond yields can also be expected to be limited.
Portfolio Strategy
The Fund began the six-month period ended April 30, 2002 fully invested in
tax-exempt municipal bonds with a relatively strong credit profile. The Fund
remained somewhat defensively structured with investments primarily in premium
coupon issues and intermediate maturities. During the period, new purchases were
in premium coupon bonds in the 20-year maturity area. We focused on these
maturities because they offered close to 95% of maximum yield available in the
entire municipal yield curve with less interest rate volatility than that
associated with longer maturity bonds. We adopted this strategy in recognition
of the relatively low municipal yields within the background of a cautious
economic environment. Despite significant monetary and fiscal stimulus, the US
2 & 3
MuniYield Quality Fund II, Inc., April 30, 2002
economy is still facing considerable uncertainty. We maintained the Fund's fully
invested position throughout the period in an effort to enhance shareholder
income. At the end of the period, more than 90% of the Fund's assets were
invested in securities rated A or better by one of the major bond rating
agencies and more than 80% of the Fund's assets were invested in securities
insured by AAA-rated municipal bond insurers.
Looking ahead, we expect to remain essentially fully invested and to retain the
Fund's current high credit quality profile. We will continue to look for
opportunities in the market provided by new municipal issuance to purchase
premium coupon issues primarily in the 20-year maturity range.
The 475 basis point decline in short-term interest rates engineered by the
Federal Reserve Board in 2001 has resulted in a material decrease in the Fund's
borrowing cost to below 2%. This decline, in combination with a steep tax-exempt
yield curve, has generated a substantial income benefit to the Fund's Common
Stock shareholder from the leveraging of the Preferred Stock. Further declines
in short-term interest rates are not expected, but neither is a substantial
increase during the next six months. 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
more 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/ Kenneth A. Jacob
Kenneth A. Jacob
Senior Vice President
/s/ John M. Loffredo
John M. Loffredo
Senior Vice President
/s/ Michael Kalinoski
Michael Kalinoski
Vice President and Portfolio Manager
May 29, 2002
PROXY RESULTS
During the six-month period ended April 30, 2002, MuniYield Quality Fund II,
Inc.'s Common Stock shareholders voted on the following proposal. The proposal
was approved at a shareholders' meeting on April 8, 2002. A 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 21,068,400 778,238
Joe Grills 21,046,353 800,285
Andre F. Perold 21,046,063 800,575
Roberta Cooper Ramo 21,046,632 200,006
Robert S. Salomon, Jr. 21,044,820 801,818
Melvin R. Seiden 21,068,595 778,043
Stephen B. Swensrud 21,034,789 811,849
------------------------------------------------------------------------------------------
During the six-month period ended April 30, 2002, 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 8, 2002. A 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,
Joe Grills, Herbert I. London, Andre F. Perold, Roberta Cooper Ramo,
Robert S. Salomon, Jr., Melvin R. Seiden and Stephen B. Swensrud: 5,546 6
--------------------------------------------------------------------------------------------------------------
4 & 5
MuniYield Quality Fund II, Inc., April 30, 2002
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Joe Grills, Director
Herbert I. London, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
Michael A. Kalinoski, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Joseph L. May, Director and Vincent R. Giordano, Senior Vice President of
MuniYield Quality Fund II, Inc., have recently retired. The Fund's Board of
Directors wishes Messrs. May and Giordano well in their retirements.
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
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
Alaska--0.5% AAA Aaa $ 1,400 Alaska State International Airports Revenue Bonds,
Series B, 5.75% due 10/01/2019 (a) $ 1,483
====================================================================================================================================
Arizona--0.7% AAA Aaa 2,000 Maricopa County, Arizona, Stadium District Revenue Bonds,
5.75% due 7/01/2016 (e) 2,121
====================================================================================================================================
California--2.4% AAA NR* 2,500 California Health Facilities Finance Authority Revenue Bonds
(Kaiser Permanente), RIB, Series 26, 9.10% due 6/01/2022 (c)(h) 2,641
---------------------------------------------------------------------------------------------------------
AA Aa3 3,650 Sacramento County, California, Sanitation District Financing
Authority, Revenue Refunding Bonds, Trust Receipts, Class R,
Series A, 10.001% due 12/01/2019 (h) 4,293
====================================================================================================================================
Colorado--12.2% AAA NR* 11,020 Colorado Department of Transportation Revenue Bonds, DRIVERS,
Series 249, 10.11% due 6/15/2014 (a)(h) 13,524
---------------------------------------------------------------------------------------------------------
Colorado Housing and Finance Authority, Revenue Refunding Bonds:
AAA Aaa 3,000 AMT, Series E-2, 7% due 2/01/2030 (e) 3,362
AAA NR* 1,740 (S/F Program), AMT, Series A-2, 6.45% due 4/01/2030 (e) 1,914
AAA Aaa 3,000 (S/F Program), AMT, Series A-2, 6.50% due 8/01/2031 (e) 3,335
AAA Aaa 3,470 (S/F Program), AMT, Series B-2, 6.80% due 2/01/2031 (e) 3,859
AAA Aaa 1,275 (S/F Program), AMT, Series C-1, 7.65% due 12/01/2025 (e)(j) 1,347
AAA NR* 5,320 (S/F Program), Series B-3, 6.70% due 8/01/2017 (c) 5,924
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,735 Northwest Parkway, Colorado, Public Highway Authority Revenue
Bonds, Series A, 5.50% due 6/15/2021 (a) 1,814
====================================================================================================================================
Connecticut--9.6% AAA NR* 5,550 Connecticut State, GO, Series A, 6% due 4/15/2010 (c)(g) 6,361
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,400 Connecticut State Health and Educational Facilities Authority,
Revenue Refunding Bonds (Yale University), RIB, 10.144%
due 6/10/2030 (h) 1,496
---------------------------------------------------------------------------------------------------------
Connecticut State Regional Learning Educational Service
Center Revenue Bonds (Office/Education Center Facility):
NR* NR* 645 7.50% due 2/01/2005 655
NR* NR* 1,100 7.75% due 2/01/2015 1,148
---------------------------------------------------------------------------------------------------------
AAA NR* 9,325 Connecticut State Resource Recovery Authority, Revenue
Refunding Bonds, DRIVERS, Series 187, 9.12% due
11/15/2011 (e)(h) 10,699
---------------------------------------------------------------------------------------------------------
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
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
HDA Housing Development Authority
IDB Industrial Development Board
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
6 & 7
MuniYield Quality Fund II, Inc., April 30, 2002
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
Connecticut NR* Aaa $ 2,750 Connecticut State Special Tax Obligation Revenue Bonds, RIB,
(concluded) Series 372, 10.07% due 12/01/2017 (b)(h) $ 3,315
-------------------------------------------------------------------------------------------------------
AAA NR* 3,000 Connecticut State Special Tax Obligation, Revenue Refunding
Bonds, DRIVERS, Series 168, 10.10% due 10/01/2009 (e)(h) 3,825
====================================================================================================================================
District of Columbia-- AAA Aaa 5,000 District of Columbia, Revenue Refunding Bonds
1.9% (Georgetown University), Series A, 6% due 4/01/2018 (e) 5,395
====================================================================================================================================
Georgia--4.1% AAA Aaa 7,850 Atlanta, Georgia, Airport Revenue Refunding Bonds, Series A,
5.875% due 1/01/2017 (b) 8,477
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Georgia Municipal Electric Authority, Power Revenue Refunding
Bonds, Series Z, 5.50% due 1/01/2020 (e) 3,234
====================================================================================================================================
Illinois--14.6% AAA Aaa 10,000 Chicago, Illinois, Board of Education, GO (Chicago School
Reform Project), Series B-1, 5.42%** due 12/01/2027 (b) 2,276
-------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Chicago, Illinois, GO (Lakefront Millennium Parking Facilities),
5.75% due 1/01/2023 (e) 1,081
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Chicago, Illinois, Gas Supply Revenue Refunding Bonds (People's
Gas, Light & Coke), Series A, 6.10% due 6/01/2025 (a) 3,737
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Chicago, Illinois, O'Hare International Airport, General
Airport Revenue Refunding Bonds, Second Lien, AMT, Series A,
5.50% due 1/01/2011 (a) 2,092
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,830 Chicago, Illinois, Park District, GO, Refunding, Series C,
5.50% due 1/01/2021 (b) 2,910
-------------------------------------------------------------------------------------------------------
NR* Aaa 2,500 Cook County, Illinois, Community Consolidated School District
Number 146, Tinley Park, GO, 9% due 12/01/2016 (b) 3,576
-------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Illinois Regional Transportation Authority Revenue Bonds,
6.50% due 7/01/2026 (e)(l) 11,900
-------------------------------------------------------------------------------------------------------
Illinois State, GO, First Series:
AAA Aaa 1,000 5.50% due 2/01/2018 (b) 1,048
AAA Aaa 7,000 5.625% due 6/01/2025 (e) 7,217
-------------------------------------------------------------------------------------------------------
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan Revenue
Refunding Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 6,127
====================================================================================================================================
Indiana--2.2% AAA NR* 2,675 Indiana Bond Bank Revenue Bonds, Guarantee State Revolver,
6.75% due 2/01/2017 (a) 2,961
-------------------------------------------------------------------------------------------------------
AA NR* 3,100 Indianapolis, Indiana, Local Public Improvement Bond Bank
Revenue Refunding Bonds, Series D, 6.75% due 2/01/2020 3,263
====================================================================================================================================
Kansas--5.7% AAA NR* 6,480 Sedgwick and Shawnee Counties, Kansas, S/F Mortgage-Backed
Revenue Bonds, AMT, Series A-2, 7.60% due 12/01/2031 (d)(e) 7,354
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Sedgwick and Shawnee Counties, Kansas, S/F Mortgage-Backed
Revenue Refunding Bonds, AMT, Series B-2, 5.125%
due 12/01/2033 (e)(k) 3,262
-------------------------------------------------------------------------------------------------------
AAA Aaa 4,955 Sedgwick and Shawnee Counties, Kansas, S/F Revenue Bonds, AMT,
Series A-1, 6.875% due 12/01/2026 (d)(e) 5,576
====================================================================================================================================
Kentucky--1.1% BBB Baa2 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
(TJ International Project), AMT, 7% due 6/01/2024 3,150
====================================================================================================================================
Louisiana--3.5% AAA Aaa 5,000 Jefferson Parish, Louisiana, Home Mortgage Authority,
S/F Mortgage Revenue Bonds, AMT, Series B-1,
5.25% due 12/01/2033 (e)(k) 5,471
-------------------------------------------------------------------------------------------------------
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) 4,434
====================================================================================================================================
Massachusetts--2.9% AAA Aaa 2,500 Massachusetts State Health and Educational Facilities Authority
Revenue Bonds (Daughters), Series D, 6.10% due 7/01/2006 (a)(g) 2,702
-------------------------------------------------------------------------------------------------------
Massachusetts State Health and Educational Facilities
Authority, Revenue Refunding Bonds (New England Memorial
Hospital), Series B (f):
NR* Ca 2,118 6% due 7/01/2008 197
NR* Ca 3,682 6.125% due 7/01/2013 342
-------------------------------------------------------------------------------------------------------
NR* Aa3 4,200 Massachusetts State Revenue Bonds, RIB, Series 420,
9.59% due 12/15/2014 (h) 4,975
====================================================================================================================================
Michigan--3.0% AAA Aaa 1,855 Brown City, Michigan, Community School District, Building and
Site, GO, 5.50% due 5/01/2019 (b) 1,930
-------------------------------------------------------------------------------------------------------
AAA Aaa 1,800 Bryon Center, Michigan, Public Schools, GO,
5.50% due 5/01/2018 (b) 1,887
-------------------------------------------------------------------------------------------------------
AAA NR* 1,800 Michigan Municipal Bond Authority Revenue Bonds
(Pooled Project), Series B, 5.625% due 10/01/2019 (e) 1,885
-------------------------------------------------------------------------------------------------------
AAA NR* 2,685 Michigan State, HDA, Revenue Refunding Bonds, Series C,
5.90% due 12/01/2015 (c)(j) 2,823
====================================================================================================================================
Missouri--2.1% Saint Louis County, Missouri, Pattonville R-3 School District,
GO (Missouri Direct Deposit Program) (b):
AAA Aaa 2,000 5.75% due 3/01/2015 2,182
AAA Aaa 2,000 5.75% due 3/01/2016 2,173
AAA Aaa 1,500 6% due 3/01/2019 1,640
====================================================================================================================================
Nevada--1.7% AAA Aaa 4,500 Las Vegas New Convention and Visitors Authority Revenue Bonds,
6% due 7/01/2013 (a) 4,980
====================================================================================================================================
New Jersey--4.6% 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 (e) 5,568
-------------------------------------------------------------------------------------------------------
AAA Aaa 1,540 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Refunding Bonds, Series B,
6% due 12/15/2018 (e) 1,709
-------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Salem County, New Jersey, Industrial Pollution Control
Financing Authority, Revenue Refunding Bonds (Public Service
Electric & Gas), RIB, Series 380, 10.59% due 6/01/2031 (e)(h) 5,846
====================================================================================================================================
New Mexico--5.8% AAA Aaa 2,325 New Mexico Mortgage Finance Authority, S/F Premium Revenue
Bonds, AMT, Series E-2, 6.25% due 7/01/2029 (e)(k) 2,524
-------------------------------------------------------------------------------------------------------
New Mexico State Highway Commission, Tax Revenue Bonds,
Senior Sub-Lien, Series A (c):
AAA NR* 7,295 6% due 6/15/2014 8,095
AAA NR* 5,495 6% due 6/15/2015 6,082
====================================================================================================================================
8 & 9
MuniYield Quality Fund II, Inc., April 30, 2002
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
New York--20.0% AAA Aaa $ 9,280 Nassau Health Care Corporation, New York, Health System Revenue
Bonds, 5.75% due 8/01/2022 (c) $ 9,882
-------------------------------------------------------------------------------------------------------
New York City, New York, GO:
AAA Aaa 1,000 Series E, 5.75% due 5/15/2018 1,070
AAA Aaa 2,000 Series I, 6.25% due 4/15/2017 2,167
-------------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue Bonds, Series C (e):
AAA Aaa 1,490 7.375% due 5/15/2009 (g) 1,857
AAA Aaa 5,510 7.375% due 5/15/2010 6,496
-------------------------------------------------------------------------------------------------------
AAA Aaa 9,000 New York State Dormitory Authority, Revenue Refunding Bonds
(State University Educational Facilities),
5.75% due 5/15/2024 (b) 9,558
-------------------------------------------------------------------------------------------------------
AAA Aaa 9,825 New York State Mortgage Agency Revenue Bonds, AMT, 24th Series,
5.875% due 10/01/2015 (e) 10,422
-------------------------------------------------------------------------------------------------------
AAA Aaa 14,505 New York State Thruway Authority, Service Contract Revenue
Bonds (Local Highway and Bridge), 5.625% due 4/01/2013 (e) 15,752
====================================================================================================================================
North Carolina--4.6% BBB Baa2 11,500 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 12,025
-------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Randolph County, North Carolina, COP, 5.50% due 6/01/2014 (c) 1,069
====================================================================================================================================
Ohio--2.4% NR* Aaa 6,290 Plain, Ohio, Local School District, GO, Refunding,
6% due 12/01/2020 (b) 6,835
====================================================================================================================================
Pennsylvania--2.5% NR* Aaa 3,335 Delaware River Port Authority of Pennsylvania and New Jersey
Revenue Bonds, RIB, Series 396, 10.09% due 1/01/2019 (c)(h) 3,955
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,230 Philadelphia, Pennsylvania, Authority for Industrial
Development, Lease Revenue Bonds, Series B,
5.50% due 10/01/2020 (c) 3,346
====================================================================================================================================
Rhode Island--1.5% 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 (e) 4,186
====================================================================================================================================
South Carolina-- A- A2 5,765 Berkeley County, South Carolina, Pollution Control Facilities
5.8% Revenue Refunding Bonds (South Carolina Electric and Gas
Company), 6.50% due 10/01/2014 6,022
-------------------------------------------------------------------------------------------------------
AAA NR* 2,950 Fairfield County, South Carolina, PCR (South Carolina Electric
and Gas), 6.20% due 9/01/2014 (e) 3,077
-------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 South Carolina State Public Service Authority, Revenue
Refunding Bonds, Series A, 5.75% due 1/01/2022 (e) 4,701
-------------------------------------------------------------------------------------------------------
NR* A1 2,500 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT,
7.55% due 11/01/2024 2,722
====================================================================================================================================
South Dakota--0.7% AAA Aaa 2,015 South Dakota State Health and Educational Facilities Authority
Revenue Bonds (Rapid City Regional Hospital),
5.625% due 9/01/2019 (e) 2,093
====================================================================================================================================
Tennessee--2.7% AAA Aaa 7,365 Chattanooga, Tennessee, IDB, Lease Rent Revenue Bonds
(Southside Redevelopment Corporation), 5.875% due 10/01/2024 (a) 7,845
====================================================================================================================================
Texas--10.8% AA- Aa3 4,000 Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), Trust Certificates, Second Tier, Series B,
5.75% due 1/01/2032 4,032
-------------------------------------------------------------------------------------------------------
A1+ VMIG1@ 3,920 Bell County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Scott & White Memorial Hospital), VRDN,
Series 2001-1, 1.70% due 8/15/2031 (i) 3,920
-------------------------------------------------------------------------------------------------------
AAA Aaa 1,630 Brownsville, Texas, GO (Combined Tax and Revenue Certificates
of Obligation), Series A, 6.50% due 2/15/2017 (b) 1,839
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,730 Corpus Christi, Texas, Utility System Revenue Refunding Bonds,
Series A, 6% due 7/15/2016 (c) 2,991
-------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Dallas-Fort Worth, Texas, International Airport Revenue
Refunding and Improvement Bonds, AMT, Series A,
5.75% due 11/01/2013 (b) 3,201
-------------------------------------------------------------------------------------------------------
Dickinson, Texas, Independent School District, GO, Refunding
(e):
AAA Aaa 1,180 6% due 2/15/2017 1,282
AAA Aaa 1,250 6% due 2/15/2018 1,353
-------------------------------------------------------------------------------------------------------
AA Baa2 4,000 Gregg County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Good Shepherd Medical Center Project),
6.875% due 10/01/2020 4,490
-------------------------------------------------------------------------------------------------------
A1+ VMIG1@ 100 Gulf Coast, Texas, Waste Disposal Authority, PCR, Refunding
(Amoco Oil Company Project), VRDN, 1.65% due 10/01/2017 (i) 100
-------------------------------------------------------------------------------------------------------
A1+ NR* 2,200 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding Bonds (Methodist
Hospital), VRDN, 1.70% due 12/01/2026 (i) 2,200
-------------------------------------------------------------------------------------------------------
BBB+ Baa2 3,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 3,482
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 San Angelo, Texas, Waterworks and Sewer System, Revenue
Refunding and Improvement Bonds, 5.50% due 4/01/2017 (c) 2,095
====================================================================================================================================
Virginia--1.3% BBB- Baa3 26,500 Pocahontas Parkway Association, Virginia, Toll Road Revenue
Bonds, Senior-Series B, 5.875%** due 8/15/2024 3,724
====================================================================================================================================
Washington--12.0% Energy Northwest, Washington, Electric Revenue Refunding Bonds
(Columbia Generating):
AAA Aaa 2,550 Series A, 5.75% due 7/01/2018 (e) 2,722
AAA Aaa 3,750 Series B, 6% due 7/01/2018 (a) 4,105
-------------------------------------------------------------------------------------------------------
King County, Washington, Issaquah School District Number 411, GO (c):
AAA Aa2 1,500 6.25% due 12/01/2014 1,683
AAA Aa2 1,900 6.25% due 12/01/2015 2,123
AAA Aa2 2,000 6.25% due 12/01/2016 2,228
-------------------------------------------------------------------------------------------------------
AAA Aaa 7,470 Port Seattle, Washington, Revenue Bonds, AMT, Series B,
6% due 2/01/2016 (e) 8,011
-------------------------------------------------------------------------------------------------------
AAA Aaa 6,150 Seattle, Washington, Municipal Light and Power Revenue Bonds,
6% due 10/01/2019 (e) 6,637
-------------------------------------------------------------------------------------------------------
AAA Aaa 1,200 Seattle, Washington, Municipal Light and Power Revenue
Refunding and Improvement Bonds, 5.50% due 3/01/2019 (c) 1,238
-------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Snohomish County, Washington, Arlington School District Number
016, GO, 6.50% due 12/01/2015 (b) 5,717
====================================================================================================================================
Wisconsin--2.9% AAA Aaa 3,000 Wisconsin State, GO, Series F, 5.50% due 5/01/2019 (c) 3,131
-------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Wisconsin State Transportation Revenue Bonds, Series A,
5.50% due 7/01/2015 (b) 5,300
====================================================================================================================================
10 & 11
MuniYield Quality Fund II, Inc., April 30, 2002
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
Ratings Ratings Amount Issue Value
====================================================================================================================================
Puerto Rico--4.0% AAA Aaa $ 5,000 Puerto Rico Commonwealth, Highway and Transportation Authority,
Transportation Revenue Bonds, Series B, 6% due 7/01/2026 (e) $ 5,336
-------------------------------------------------------------------------------------------------------
NR* Aaa 3,250 Puerto Rico Electric Power Authority, Power Revenue Refunding
Bonds, RIB, Series 449X, 9.17% due 7/01/2016 (a)(h) 3,628
-------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Puerto Rico Municipal Finance Agency, GO, Series A,
5.50% due 8/01/2023 (c) 2,616
====================================================================================================================================
Total Investments (Cost--$421,844)--149.8% 429,461
Variation Margin on Financial Futures Contracts***--0.0% (48)
Other Assets Less Liabilities--2.5% 7,216
Preferred Stock, at Redemption Value--(52.3%) (150,000)
------------
Net Assets Applicable to Common Stock--100.0% $ 286,629
============
====================================================================================================================================
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) GNMA Collateralized.
(e) MBIA Insured.
(f) Non-income producing security.
(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 April 30, 2002.
(i) 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,
2002.
(j) FHA Insured.
(k) FNMA/GNMA Collateralized.
(l) All or a portion of security held as collateral in connection with open
financial futures contracts.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
*** Financial futures contracts sold as of April 30, 2002 were as follows:
------------------------------------------------------------
Number of Expiration
Contracts Issue Date Value
------------------------------------------------------------
440 US Treasury Bonds June 2002 $46,447,500
------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$46,488,750) $46,447,500
===========
------------------------------------------------------------
@ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
Quality Profile
The quality ratings of securities in the Fund as of April 30, 2002 were as
follows:
-------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Total Assets
-------------------------------------------------------------
AAA/Aaa....................................... 84.4%
AA/Aa......................................... 4.8
A/A........................................... 2.0
BBB/Baa....................................... 5.1
CC/Ca......................................... 0.1
NR (Not Rated)................................ 0.4
Other*........................................ 1.4
-------------------------------------------------------------
* Temporary investments in short-term municipal securities.
STATEMENT OF NET ASSETS
As of April 30, 2002
==================================================================================================================
Assets: Investments, at value (identified cost--$421,844,267)...... $429,460,968
Cash....................................................... 190,123
Receivables:
Interest................................................. $ 7,368,174
Securities sold.......................................... 56,753 7,424,927
------------
Prepaid expenses and other assets.......................... 12,391
------------
Total assets............................................... 437,088,409
------------
==================================================================================================================
Liabilities: Payables:
Dividends to shareholders................................ 218,845
Investment adviser....................................... 178,661
Variation margin......................................... 48,125 445,631
------------
Accrued expenses........................................... 14,005
------------
Total liabilities.......................................... 459,636
------------
==================================================================================================================
Preferred Stock: 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
------------
==================================================================================================================
Net Assets Net assets applicable to Common Stock...................... $286,628,773
Applicable to ============
Common Stock:
==================================================================================================================
Analysis of Net Common Stock, par value $.10 per share (22,366,930 shares
Assets Applicable to issued and outstanding).................................... $ 2,236,693
Common Stock: Paid-in capital in excess of par........................... 311,763,422
Undistributed investment income--net....................... 2,451,539
Accumulated realized capital losses on investments--net.... (37,480,832)
Unrealized appreciation on investments--net................ 7,657,951
------------
Total--Equivalent to $12.81 net asset value per share of
Common Stock (market price--$11.61)........................ $286,628,773
============
==================================================================================================================
* Auction Market Preferred Stock.
See Notes to Financial Statements.
12 & 13
MuniYield Quality Fund II, Inc., April 30, 2002
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 2002
==================================================================================================================
Investment Interest................................................... $ 11,900,306
Income:
==================================================================================================================
Expenses: Investment advisory fees................................... $ 1,082,263
Commission fees............................................ 189,294
Accounting services........................................ 79,402
Professional fees.......................................... 59,832
Transfer agent fees........................................ 30,330
Printing and shareholder reports........................... 16,965
Directors' fees and expenses............................... 15,094
Listing fees............................................... 14,109
Custodian fees............................................. 13,078
Pricing fees............................................... 7,536
Other...................................................... 17,769
------------
Total expenses............................................. 1,525,672
------------
Investment income--net..................................... 10,374,634
------------
==================================================================================================================
Realized & Realized loss on investments--net.......................... (882,280)
Unrealized Loss on Change in unrealized appreciation on investments--net...... (8,397,204)
Investments--Net: ------------
Total realized and unrealized loss on investments--net..... (9,279,484)
------------
==================================================================================================================
Dividends to Preferred Investment income--net..................................... (1,181,280)
Stock Shareholders: ------------
Net Decrease in Net Assets Resulting from Operations....... $ (86,130)
============
==================================================================================================================
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2002 2001+
==================================================================================================================
Operations: Investment income--net..................................... $ 10,374,634 $ 21,051,913
Realized gain (loss) on investments--net................... (882,280) 5,664,177
Change in unrealized appreciation on investments--net...... (8,397,204) 13,042,044
Dividends to Preferred Stock shareholders.................. (1,181,280) (4,971,540)
------------ ------------
Net increase (decrease) in net assets resulting from
operations................................................. (86,130) 34,786,594
------------ ------------
==================================================================================================================
Dividends to Investment income--net..................................... (8,742,182) (16,558,730)
Common Stock ------------ ------------
Shareholders: Net decrease in net assets resulting from dividends to
Common Stock shareholders.................................. (8,742,182) (16,558,730)
------------ ------------
==================================================================================================================
Net Assets Applicable Total increase (decrease) in net assets applicable to
To Common Stock: Common Stock............................................... (8,828,312) 18,227,864
Beginning of period........................................ 295,457,085 277,229,221
------------ ------------
End of period*............................................. $286,628,773 $295,457,085
============ ============
==================================================================================================================
* Undistributed investment income--net................. $ 2,451,539 $ 2,000,367
============ ============
==================================================================================================================
+ Certain prior year amounts have been reclassified to
conform to current year presentation.
See Notes to Financial Statements.
14 & 15
MuniYield Quality Fund II, Inc., April 30, 2002
FINANCIAL HIGHLIGHTS
The following per share data and
ratios have been derived from
information provided in the For the Six For the Year Ended
financial statements. Months Ended October 31,
April 30, -----------------------------------------
Increase (Decrease) in Net Asset Value: 2002 2001 2000 1999 1998
========================================================================================================================
Per Share Net asset value, beginning of
Operating period.................................. $ 13.21 $ 12.39 $ 12.31 $ 15.52 $ 15.46
Performance:+ -------- -------- -------- -------- --------
Investment income--net.................. .46 .94 .99 1.04 1.10
Realized and unrealized gain (loss)
on investments--net..................... (.42) .84 .17 (2.65) .46
Dividends and distributions to
Preferred Stock shareholders:
Investment income--net................ (.05) (.22) (.27) (.19) (.17)
Realized gain on investments--net..... -- -- -- -- (.12)
In excess of realized gain on
investments--net...................... -- -- -- (.06) --
-------- -------- -------- -------- --------
Total from investment operations........ (.01) 1.56 .89 (1.86) 1.27
-------- -------- -------- -------- --------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net................ (.39) (.74) (.81) (.86) (.87)
Realized gain on investments--net..... -- -- -- -- (.34)
In excess of realized gain on
investments--net...................... -- -- -- (.49) --
-------- -------- -------- -------- --------
Total dividends and distributions
to Common Stock shareholders............ (.39) (.74) (.81) (1.35) (1.21)
-------- -------- -------- -------- --------
Net asset value, end of period.......... $ 12.81 $ 13.21 $ 12.39 $ 12.31 $ 15.52
======== ======== ======== ======== ========
Market price per share, end of
period.................................. $ 11.61 $ 12.07 $ 11.50 $ 11.50 $15.1875
======== ======== ======== ======== ========
========================================================================================================================
Total Investment Based on market price per share......... (.57%)++ 11.70% 7.35% (16.70%) 14.51%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share...... .24%++ 13.47% 8.04% (12.74%) 8.80%
======== ======== ======== ======== ========
========================================================================================================================
Ratios Based on Total expenses***....................... 1.07%* 1.07% 1.08% .99% .95%
Average Net Assets ======== ======== ======== ======== ========
Of Common Stock: Total investment income--net***......... 7.29%* 7.36% 8.04% 7.31% 7.21%
======== ======== ======== ======== ========
Amount of dividends to Preferred
Stock shareholders...................... .83%* 1.74% 2.21% 1.30% 1.12%
======== ======== ======== ======== ========
Investment income--net, to Common
Stock shareholders...................... 6.46%* 5.62% 5.83% 6.01% 6.09%
======== ======== ======== ======== ========
========================================================================================================================
Ratios Based on Total expenses.......................... .70%* .70% .70% .67% .66%
Average Net Assets ======== ======== ======== ======== ========
Of Common & Total investment income--net............ 4.79%* 4.83% 5.19% 4.97% 4.98%
Preferred Stock:*** ======== ======== ======== ======== ========
========================================================================================================================
Ratios Based on Dividends to Preferred Stock
Average Net Assets shareholders............................ 1.59%* 3.31% 4.02% 2.75% 2.53%
Of Preferred Stock: ======== ======== ======== ======== ========
========================================================================================================================
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands)............ $286,629 $295,457 $277,229 $275,281 $342,496
======== ======== ======== ======== ========
Preferred Stock outstanding, end of
period (in thousands)................... $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover...................... 22.90% 98.99% 142.46% 164.45% 154.08%
======== ======== ======== ======== ========
========================================================================================================================
Leverage: Asset coverage per $1,000............... $ 2,911 $ 2,970 $ 2,848 $ 2,835 $ 3,283
========================================================================================================================
Dividends Per Share Series A--Investment income--net........ $ 209 $ 855 $ 1,017 $ 706 $ 629
On Preferred Stock ======== ======== ======== ======== ========
Outstanding: Series B--Investment income--net........ $ 205 $ 853 $ 1,024 $ 702 $ 634
======== ======== ======== ======== ========
Series C--Investment income--net........ $ 176 $ 777 $ 986 $ 650 $ 634
======== ======== ======== ======== ========
========================================================================================================================
* 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.
+ Certain prior year amounts have been reclassified
to conform to current year presentation.
++ 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
16 & 17
MuniYield Quality Fund II, Inc., April 30, 2002
NOTES TO FINANCIAL STATEMENTS (concluded)
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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual 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.
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.
For the six months ended April 30, 2002, the Fund reimbursed FAM $9,899 for
certain accounting 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, 2002 were $97,650,379 and $101,609,501, respectively.
Net realized losses for the six months ended April 30, 2002 and net unrealized
gains as of April 30, 2002 were as follows:
-----------------------------------------------------------
Realized Unrealized
Losses Gains
-----------------------------------------------------------
Long-term investments $ (365,701) $ 7,616,701
Financial futures contracts (516,579) 41,250
----------- ------------
Total $ (882,280) $ 7,657,951
=========== ============
-----------------------------------------------------------
As of April 30, 2002, net unrealized appreciation for Federal income tax
purposes aggregated $7,616,701, of which $16,980,391 related to appreciated
securities and $9,363,690 related to depreciated securities. The aggregate cost
of investments at April 30, 2002 for Federal income tax purposes was
$421,844,267.
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, 2002 and
during the year ended October 31, 2001 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, 2002 were as follows: Series A, 1.41%; Series B, 1.41%; and Series C,
1.40%.
Shares issued and outstanding during the six months ended April 30, 2002 and
during the year ended October 31, 2001 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, 2002, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, an affiliate of FAM, earned $90,710 as commissions.
5. Capital Loss Carryforward:
At October 31, 2001, the Fund had a net capital loss carryforward of
approximately $34,769,000, of which $8,689,000 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, 2002, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.065000 per share,
payable on May 30, 2002 to shareholders of record as of May 20, 2002.
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.
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. The Fund invests primarily in insured municipal bonds.
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 and intends to remain leveraged 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--4/02