UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6728
Name of Fund: MuniYield Quality Fund II, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, MuniYield
Quality Fund II, Inc., 800 Scudders Mill Road, Plainsboro, NJ, 08536.
Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 04/30/03
Date of reporting period: 11/01/02 - 04/30/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers
Semi-Annual Report
April 30, 2003
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.
Swap
Agreements
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, 2003
DEAR SHAREHOLDER
For the six months ended April 30, 2003, the Common Stock of MuniYield Quality
Fund II, Inc. had a net annualized yield of 6.05%, based on a period-end per
share net asset value of $13.67 and $.410 per share income dividends. Over the
same period, the total investment return on the Fund's Common Stock was +6.54%,
based on a change in per share net asset value from $13.27 to $13.67, and
assuming reinvestment of $.408 per share ordinary income dividends.
For the six-month period ended April 30, 2003, the Fund's Auction Market
Preferred Stock had an average yield of 1.25% for Series A, .98% for Series B
and 1.05% for Series C.
For a description of the Fund's total investment return based on a change in the
per share market value (as measured by the trading price of the Fund's shares on
the New York Stock Exchange), and assuming reinvestment of dividends, please
refer to the Financial Highlights section of the Financial Statements included
in this report. As a closed-end fund, the Fund's shares may trade in the
secondary market at a premium or discount to the Fund's net asset value. As a
result, total investment returns based on changes in the Fund's market value can
vary significantly from total investment return based on changes in the Fund's
net asset value.
The Municipal Market Environment
During the six-month period ended April 30, 2003, amid considerable weekly and
monthly volatility, long-term fixed income interest rates generally declined.
Geopolitical tensions and volatile equity valuations continued to overshadow
economic fundamentals as they have for most of the last 12 months. Reacting to
the strong U.S. equity rally that began last October, fixed income bond yields
remained under pressure in November 2002, as U.S. equity markets continued to
strengthen. During November, the Standard & Poor's 500 (S&P 500) Index rose an
additional 5.5%. Equity prices were supported by further signs of U.S. economic
recovery, especially improving labor market activity. In late November,
third-quarter 2002 U.S. gross domestic product growth was 4%, well above the
second-quarter 2002 rate of 1.3%. Financial conditions were also strengthened by
a larger-than-expected reduction in short-term interest rates by the Federal
Reserve Board in early November. The Federal Funds target rate was lowered 50
basis points (0.50%) to 1.25%, its lowest level since the 1960s. This action by
the Federal Reserve Board was largely viewed as being taken to bolster the
sputtering U.S. economic recovery. Rebounding U.S. equity markets and the
prospects for a more substantial U.S. economic recovery pushed long-term U.S.
Treasury yield levels to 5.10% by late November.
However, into early 2003, softer equity prices and renewed investor concerns
about U.S. military action against Iraq and North Korea again pushed bond prices
higher. Reacting to disappointing holiday sales and corporate managements'
attempts to scale back analysts' expectation of future earnings, the S&P 500
Index declined more than 10% from December 2002 to February 2003. Fearing an
eventual U.S./Iraq military confrontation in 2003, investors again sought the
safety of U.S. Treasury obligations and the prices of fixed income issues rose.
By the end of February 2003, U.S. Treasury bond yields had declined
approximately 40 basis points to 4.67%.
Bond yields continued to fall into early March. Once direct U.S. military action
against Iraq began, bond yields quickly rose. Prior uncertainty surrounding the
Iraqi situation was obviously removed and early U.S. military successes fostered
the hope that the conflict would be quickly and positively concluded.
Concurrently, the S&P 400 Index rose over 6% as investors, in part, sold fixed
income issues to purchase equities in anticipation of a strong U.S. economic
recovery once the Iraqi conflict was resolved. By mid-March, U.S. Treasury bond
yields again rose to above 5%. However, as there was growing sentiment that
hostilities may not be resolved in a matter of weeks, U.S. Treasury bond yields
again declined to end the month at 4.81%.
For the six months ended April 30, 2003, long-term U.S. Treasury bond yields
ratcheted back to near 5% by mid-April, as U.S. equity markets continued to
improve and the safe-haven premium U.S. Treasury issues had commanded prior to
the beginning of the Iraqi conflict continued to be withdrawn. However, with the
quick positive resolution of the Iraqi war, investors quickly resumed their
focus on the fragile U.S. economic recovery. Business activity in the United
States has remained sluggish, especially job creation. Investors have also been
concerned that the recent SARS outbreak would have a material, negative impact
on world economic conditions, especially in China and Japan. First quarter 2003
U.S. gross domestic product was released in late April initially estimating U.S.
economic activity to be growing at 1.6%, well below many analysts' assessments.
These factors, as well as the possibility that the Federal Reserve Board could
again lower short-term interest rates to encourage more robust U.S. economic
growth, pushed bond prices higher during the last two weeks of the period. By
April 30, 2003, long-term U.S. Treasury bond yields had declined to almost
4.75%. Over the past six months, long-term U.S. bond yields fell more than 20
basis points.
For the six months ended April 30, 2003, long-term tax-exempt bond yields also
fell modestly. Yield volatility was reduced relative to that seen in U.S.
Treasury issues, as municipal bond prices were much less sensitive to worldwide
geopolitical pressures on a daily and weekly basis. Tax-exempt bond yields
generally followed their taxable counterparts higher, responding to a more
positive U.S. fixed income environment and continued slow economic growth. After
rising approximately 10 basis points in November 2002 to 5.30%, municipal bond
yields generally declined through February 2003. At February 28, 2003, long-term
tax-exempt revenue bond yields, as measured by the Bond Buyer Revenue Bond
Index, fell to approximately 5.05%. However, similar to U.S. Treasury bond
yields, once military action began in Iraq, municipal bond yields rose sharply
to nearly 5.20% before declining to approximately 5.10% by the end of April.
Over the past six months, long-term tax-exempt bond yields fell approximately 11
basis points, slightly less than U.S. Treasury obligations.
A number of factors have combined to generate consistently strong demand for
municipal bonds throughout the six-month period ended April 30, 2003. Generally
weak U.S. equity markets have supported continued positive demand for tax-exempt
products as investors have sought the relative security of fixed income issues.
Also, with tax-exempt money market rates near 1%, the demand for longer maturity
municipal issues has increased as investors have opted to buy longer maturity
issues rather than remain in cash reserves. Additionally, investors received
approximately $30 billion in January 2003 from bond maturities, coupon income
and proceeds from early redemptions. However, these positive demand factors were
not totally able to offset the increase in tax-exempt new-issue supply,
preventing more significant declines in tax-exempt bond yields. This modest
underperformance has served to make municipal bonds a particularly attractive
purchase relative to their taxable counterparts. Throughout most of the yield
curve, municipal bonds have been able to be purchased at yields near or
exceeding those of comparable Treasury issues. Compared to their recent
historical averages of 82% - 88% of U.S. Treasury yields, municipal bond yield
ratios in their current 95% - 105% range are likely to prove attractive to
long-term investors.
Declining U.S. equity markets and escalating geopolitical pressures have
resulted in reduced economic activity and consumer confidence. It is important
to note that, despite all the recent negative factors impeding the growth of
U.S. businesses, the U.S. economy still grew at an approximate 2.5% rate for all
of 2002, twice that of 2001. Similar expansion is expected for early 2003. Lower
oil prices, reduced geopolitical uncertainties, increased Federal spending for
defense, and a likely Federal tax cut are all factors which should promote
stronger economic growth later this year. However, it is questionable to expect
that business and investor confidence can be so quickly restored as to trigger
dramatic, explosive U.S. economic growth and engender associated, large-scale
interest rate increases. The resumption of solid economic growth is likely to be
a gradual process accompanied by equally graduated increases in bond yields.
Moderate economic growth, especially within a context of negligible inflationary
pressures, should not greatly endanger the positive fixed income environments
tax-exempt products currently enjoy.
Portfolio Strategy
For the six months ended April 30, 2003, our principal portfolio strategy was to
maintain the Fund's slightly defensive structure and competitive tax-exempt
yield. We implemented
2 & 3
MuniYield Quality Fund II, Inc., April 30, 2003
this strategy by remaining fully invested and favoring premium coupon bonds. We
also pursued the strategy of extending out the yield curve. The municipal yield
curve has become exceptionally steep during the past year, with the ten-year
area of the curve exhibiting considerable volatility. When available, we
purchased premium coupon bonds in the 20-year - 25-year maturity range and sold
bonds with ten-year - 15-year maturities. The larger issuance of municipal bonds
during the period compared to levels one year ago assisted in implementing this
strategy. We adopted our current strategy in recognition of relatively low
municipal yields within the background of a cautious economic environment.
Despite significant monetary and fiscal stimulus, the U.S. economy grew at
sub-par levels. Additionally, significant international events contributed to
the uncertainty facing the U.S. economy. Looking ahead, we expect to remain
essentially fully invested and to retain the Fund's current defensive structure.
We will wait until the domestic economy strengthens further before adopting a
more defensive position.
During the period, the Fund's borrowing costs remained at very low levels,
generally between 1% and 1.50%. These attractive borrowing levels, in
combination with a steep tax-exempt yield curve, generated a substantial income
benefit to the Fund's Common Stock shareholder from the leveraging of the
Preferred Stock. Further material declines in short-term interest rates would
require significant easing of monetary policy by the Federal Reserve Board.
While such action is not expected, an increase in short-term interest rates by
the Federal Reserve Board is even less anticipated. We expect the Fund's
short-term borrowing costs to remain at current attractive levels for the
foreseeable future. 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 A. Kalinoski
Michael A. Kalinoski
Vice President and Portfolio Manager
May 30, 2003
PROXY RESULTS
During the six-month period ended April 30, 2003, MuniYield Quality Fund II,
Inc.'s Common Stock shareholders voted on the following proposal. The proposal
was approved at a shareholders' meeting on April 28, 2003. 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 20,660,447 614,453
Joe Grills 20,641,953 632,947
Andre F. Perold 20,648,855 626,045
Roberta Cooper Ramo 20,645,568 629,332
Robert S. Salomon, Jr. 20,645,999 628,901
Stephen B. Swensrud 20,640,328 634,572
-----------------------------------------------------------------------------------------------------------------
During the six-month period ended April 30, 2003, MuniYield Quality Fund II,
Inc.'s Preferred Stock shareholders (Series A, B & C) voted on the following
proposal. The proposal was approved at a shareholders' meeting on April 28,
2003. 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. and Stephen B. Swensrud 5,314 16
-----------------------------------------------------------------------------------------------------------------
4 & 5
MuniYield Quality Fund II, Inc., April 30, 2003
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
Alabama--0.9% AAA NR* $ 2,645 Birmingham, Alabama, Capital Improvement Warrants, GO, Series A,
5.55% due 8/01/2021 (e) $ 2,922
====================================================================================================================================
Alaska--0.5% AAA Aaa 1,400 Alaska State International Airports Revenue Bonds, Series B, 5.75%
due 10/01/2019 (a) 1,572
====================================================================================================================================
California--4.2% AAA NR* 2,500 California Health Facilities Finance Authority Revenue Bonds (Kaiser
Permanente), RIB, Series 26, 9.34% due 6/01/2022 (c)(h) 2,838
-------------------------------------------------------------------------------------------------------------
BBB+ A3 2,490 California State Department of Water Resources, Power Supply Revenue
Bonds, Series A, 5.375% due 5/01/2022 2,611
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,265 Los Angeles, California, Unified School District, GO, Series C,
5.25% due 7/01/2024 (e) 1,333
-------------------------------------------------------------------------------------------------------------
AA Aa3 3,650 Sacramento County, California, Sanitation District Financing
Authority, Revenue Refunding Bonds, Trust Receipts, Class R,
Series A, 10.32% due 12/01/2019 (h) 4,454
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,450 San Diego, California, Unified School District, Election 1998, GO,
Series D, 5.25% due 7/01/2024 (b) 1,547
====================================================================================================================================
Colorado--15.5% AAA NR* 11,020 Colorado Department of Transportation Revenue Bonds, DRIVERS,
Series 249, 10.30% due 6/15/2014 (a)(h) 15,201
-------------------------------------------------------------------------------------------------------------
Colorado Health Facilities Authority Revenue Bonds, Series A:
AA Aa2 1,725 (Catholic Health Initiatives), 5.50% due 3/01/2032 1,773
AA NR* 1,200 (Covenant Retirement Communities Inc.), 5.50% due 12/01/2027 (m) 1,246
AA NR* 675 (Covenant Retirement Communities Inc.), 5.50% due 12/01/2033 (m) 699
-------------------------------------------------------------------------------------------------------------
Colorado Housing and Finance Authority, Revenue Refunding Bonds:
AAA Aaa 2,090 AMT, Series E-2, 7% due 2/01/2030 (e) 2,208
AAA NR* 1,240 (S/F Program), AMT, Series A-2, 6.45% due 4/01/2030 (e) 1,324
AAA Aaa 3,000 (S/F Program), AMT, Series A-2, 6.50% due 8/01/2031 (e) 3,309
AAA Aaa 3,470 (S/F Program), AMT, Series B-2, 6.80% due 2/01/2031 (e) 3,978
AAA Aaa 815 (S/F Program), AMT, Series C-1, 7.65% due 12/01/2025 (e)(j) 822
AAA Aaa 5,195 (S/F Program), Series B-3, 6.70% due 8/01/2017 (c) 5,880
-------------------------------------------------------------------------------------------------------------
Northwest Parkway, Colorado, Public Highway Authority:
AAA Aaa 1,000 Capital Appreciation Revenue Bonds, Senior Convertible, Series C,
5.116%** due 6/15/2021 (a) 712
AAA Aaa 11,900 Capital Appreciation Revenue Bonds, Senior Convertible, Series C,
5.378%** due 6/15/2025 (c) 8,286
AAA Aaa 1,735 Revenue Bonds, Series A, 5.50% due 6/15/2021 (a) 1,905
====================================================================================================================================
Connecticut--6.1% Connecticut State Regional Learning Educational Service Center
Revenue Bonds (Office/Education Center Facility):
NR* NR* 430 7.50% due 2/01/2005 434
NR* NR* 1,100 7.75% due 2/01/2015 1,140
-------------------------------------------------------------------------------------------------------------
AAA NR* 9,325 Connecticut State Resource Recovery Authority, Revenue Refunding
Bonds, DRIVERS, Series 187, 9.41% due 11/15/2011 (e)(h) 11,585
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Connecticut State Special Tax Obligation Revenue Bonds,
Transportation Infrastructure, Series A, 6% due 12/01/2009 (b)(g) 5,400
====================================================================================================================================
Georgia--3.5% Atlanta, Georgia, Airport Revenue Refunding Bonds, Series A (b):
AAA Aaa 7,850 5.875% due 1/01/2017 8,977
AAA Aaa 1,500 5.60% due 1/01/2030 1,632
====================================================================================================================================
Illinois--16.9% 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) 3,849
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,830 Chicago, Illinois, Park District, GO, Refunding, Series C, 5.50%
due 1/01/2021 (b) 3,072
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Cook County, Illinois, Capital Improvement, GO, Series C, 5.50%
due 11/15/2026 (a) 3,235
-------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Illinois Regional Transportation Authority Revenue Bonds, 6.50%
due 7/01/2026 (e)(i) 12,774
-------------------------------------------------------------------------------------------------------------
AAA Aaa 12,850 Illinois Sports Facilities Authority Revenue Bonds, 5.365%**
due 6/15/2030 (a) 9,252
-------------------------------------------------------------------------------------------------------------
Illinois State, GO, First Series:
AAA Aaa 1,000 5.50% due 2/01/2018 (b) 1,108
AAA Aaa 7,000 5.625% due 6/01/2025 (e) 7,680
-------------------------------------------------------------------------------------------------------------
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan Revenue
Refunding Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 6,070
-------------------------------------------------------------------------------------------------------------
AAA NR* 3,625 Metropolitan Pier and Exposition Authority, Illinois, Dedicated
State Tax Revenue Refunding Bonds, DRIVERS, Series 269, 9.80%
due 6/15/2023 (e)(h) 4,501
====================================================================================================================================
Indiana--1.0% AAA NR* 2,675 Indiana Bond Bank Revenue Bonds, Guarantee State Revolver, 6.75%
due 2/01/2017 (a) 2,955
====================================================================================================================================
Kansas--4.4% AAA NR* 4,950 Sedgwick and Shawnee Counties, Kansas, S/F Mortgage-Backed Revenue
Bonds, AMT, Series A-2, 7.60% due 12/01/2031 (d)(e) 5,730
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,855 Sedgwick and Shawnee Counties, Kansas, S/F Mortgage-Backed Revenue
Refunding Bonds, AMT, Series A-2, 6.45% due 12/01/2033 (e)(k) 3,177
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,125 Sedgwick and Shawnee Counties, Kansas, S/F Revenue Bonds, AMT,
Series A-1, 6.875% due 12/01/2026 (d)(e) 4,686
====================================================================================================================================
Kentucky--1.0% BBB Baa2 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds (TJ
International Project), AMT, 7% due 6/01/2024 3,113
====================================================================================================================================
Louisiana--3.4% AAA Aaa 5,000 Jefferson Parish, Louisiana, Home Mortgage Authority, S/F Mortgage
Revenue Bonds, AMT, Series B-1, 6.65% due 12/01/2033 (e)(k) 5,598
-------------------------------------------------------------------------------------------------------------
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) 4,793
====================================================================================================================================
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
IDA Industrial Development Authority
IDB Industrial Development Board
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
6 & 7
MuniYield Quality Fund II, Inc., April 30, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
Massachusetts--3.8% AAA Aaa $ 725 Massachusetts State, GO, Refunding, Consolidated Loan, Series D,
5.375% due 8/01/2022 (e) $ 784
-------------------------------------------------------------------------------------------------------------
Massachusetts State Health and Educational Facilities Authority,
Revenue Refunding Bonds (New England Memorial Hospital), Series B (f):
NR* Ca 1,907 6% due 7/01/2008 114
NR* Ca 3,317 6.125% due 7/01/2013 199
-------------------------------------------------------------------------------------------------------------
Massachusetts State Port Authority, Special Facilities Revenue Bonds
(Delta Air Lines Inc. Project) AMT, Series A (a):
AAA Aaa 2,900 5.50% due 1/01/2016 3,087
AAA Aaa 1,775 5.50% due 1/01/2019 1,856
-------------------------------------------------------------------------------------------------------------
NR* Aa3 4,200 Massachusetts State Revenue Bonds, RIB, Series 420, 9.86% due
12/15/2014 (h) 5,479
====================================================================================================================================
Michigan--3.6% AAA NR* 1,300 Michigan Higher Education Student Loan Authority, Student Loan
Revenue Refunding Bonds, AMT, Series XVII-G, 5.20% due 9/01/2020 (a) 1,346
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,685 Michigan State, HDA, Revenue Refunding Bonds, Series C, 5.90% due
12/01/2015 (c)(j) 2,858
-------------------------------------------------------------------------------------------------------------
Michigan State Strategic Fund, Limited Obligation Revenue Refunding
Bonds (Detroit Edison Company Project), AMT (l):
AAA Aaa 2,600 5.45% due 9/01/2029 2,744
AAA Aaa 3,900 Series C, 5.45% due 12/15/2032 4,049
====================================================================================================================================
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 2,295
AAA Aaa 2,000 5.75% due 3/01/2016 2,292
AAA Aaa 1,500 6% due 3/01/2019 1,740
====================================================================================================================================
Nevada--1.3% Director of the State of Nevada, Department of Business and Industry
Revenue Bonds (Las Vegas Monorail Company Project), First Tier (a):
AAA Aaa 250 5.625% due 1/01/2032 275
AAA Aaa 3,600 5.375% due 1/01/2040 3,813
====================================================================================================================================
New Jersey--4.8% 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) 5,497
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Salem County, New Jersey, Industrial Pollution Control Financing
Authority, Revenue Refunding Bonds (Public Service Electric & Gas),
RIB, Series 380, 10.86% due 6/01/2031 (e)(h) 5,689
-------------------------------------------------------------------------------------------------------------
A- A3 3,800 Tobacco Settlement Financing Corporation of New Jersey Revenue
Bonds, 6.75% due 6/01/2039 3,362
====================================================================================================================================
New Mexico--4.9% New Mexico State Highway Commission, Tax Revenue Bonds, Senior
Sub-Lien, Series A (c):
AAA Aaa 7,295 6% due 6/15/2014 8,516
AAA Aaa 5,495 6% due 6/15/2015 6,434
====================================================================================================================================
New York--13.4% AAA Aaa 9,280 Nassau Health Care Corporation, New York, Health System Revenue
Bonds, 5.75% due 8/01/2022 (c) 10,367
-------------------------------------------------------------------------------------------------------------
AA+ Aa2 2,500 New York City, New York, City Transitional Finance Authority,
Revenue Refunding Bonds, Future Tax Secured, Series C, 5.50% due
11/01/2024 2,712
-------------------------------------------------------------------------------------------------------------
New York City, New York, GO:
AAA Aaa 4,000 Series D, 5.875% due 6/01/2021 (e) 4,505
AAA Aaa 1,000 Series E, 5.75% due 5/15/2018 (l) 1,110
AAA Aaa 2,000 Series I, 6.25% due 4/15/2017 (l) 2,280
-------------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 New York State Dormitory Authority, Revenue Refunding Bonds (State
University Educational Facilities), 5.75% due 5/15/2010 (b)(g) 9,456
-------------------------------------------------------------------------------------------------------------
AAA Aaa 9,825 New York State Mortgage Agency Revenue Bonds, AMT, 24th Series,
5.875% due 10/01/2015 (e) 10,698
====================================================================================================================================
North Carolina--3.9% BBB Baa2 10,500 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 10,874
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Randolph County, North Carolina, COP, 5.50% due 6/01/2014 (c) 1,130
====================================================================================================================================
Ohio--2.4% Plain, Ohio, Local School District, GO, Refunding (b):
NR* Aaa 5,120 6% due 6/01/2011 (g) 6,094
NR* Aaa 1,170 6% due 12/01/2020 1,329
====================================================================================================================================
Pennsylvania--5.2% AAA Aaa 600 Allegheny County, Pennsylvania, Sanitation Authority, Sewer Revenue
Bonds, 5.50% due 12/01/2030 (e) 651
-------------------------------------------------------------------------------------------------------------
NR* Aaa 3,335 Delaware River Port Authority of Pennsylvania and New Jersey Revenue
Bonds, RIB, Series 396, 10.383% due 1/01/2019 (c)(h) 4,389
-------------------------------------------------------------------------------------------------------------
AAA Aaa 3,230 Philadelphia, Pennsylvania, Authority for Industrial Development,
Lease Revenue Bonds, Series B, 5.50% due 10/01/2020 (c) 3,538
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Philadelphia, Pennsylvania, School District, GO, Series B, 5.625%
due 8/01/2022 (b) 4,947
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Washington County, Pennsylvania, Capital Funding Authority Revenue
Bonds (Capital Projects and Equipment Program), 6.15% due
12/01/2029 (a) 2,406
====================================================================================================================================
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) 4,455
====================================================================================================================================
South Carolina--3.7% 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 5,957
-------------------------------------------------------------------------------------------------------------
AAA NR* 2,250 South Carolina State Public Service Authority, Revenue Refunding
Bonds, DRIVERS, Series 277, 9.81% due 1/01/2022 (e)(h) 2,716
-------------------------------------------------------------------------------------------------------------
NR* A1 2,500 Spartanburg County, South Carolina, Solid Waste Disposal Facilities
Revenue Bonds (BMW Project), AMT, 7.55% due 11/01/2024 2,715
====================================================================================================================================
Tennessee--2.7% AAA Aaa 7,365 Chattanooga, Tennessee, IDB, Lease Rent Revenue Bonds (Southside
Redevelopment Corporation), 5.875% due 10/01/2024 (a) 8,353
====================================================================================================================================
Texas--12.7% A+ Aa3 4,000 Austin, Texas, Convention Center Revenue Bonds (Convention
Enterprises Inc.), Trust Certificates, Second Tier, Series B, 5.75%
due 1/01/2032 4,186
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,730 Corpus Christi, Texas, Utility System Revenue Refunding Bonds,
Series A, 6% due 7/15/2016 (c) 3,192
-------------------------------------------------------------------------------------------------------------
Dallas-Fort Worth, Texas, International Airport Joint Revenue
Refunding and Improvement Bonds, AMT, Series A (b):
AAA Aaa 3,000 5.50% due 11/01/2031 3,126
AAA Aaa 600 5.50% due 11/01/2035 625
-------------------------------------------------------------------------------------------------------------
AAA NR* 3,250 Dallas-Fort Worth, Texas, International Airport Revenue Bonds,
DRIVERS, AMT, Series 202, 10.28% due 11/01/2028 (b)(h) 3,911
-------------------------------------------------------------------------------------------------------------
8 & 9
MuniYield Quality Fund II, Inc., April 30, 2003
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
Texas Dickinson, Texas, Independent School District, GO, Refunding (e):
(concluded) AAA Aaa $ 1,180 6% due 2/15/2017 $ 1,369
AAA Aaa 1,250 6% due 2/15/2018 1,446
-------------------------------------------------------------------------------------------------------------
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 (m) 4,746
-------------------------------------------------------------------------------------------------------------
Houston, Texas, Airport System Revenue Refunding Bonds, Sub-Lien (c):
AAA Aaa 1,065 AMT, Series A, 5.625% due 7/01/2020 1,138
AAA Aaa 2,000 AMT, Series A, 5.625% due 7/01/2021 2,132
AAA Aaa 1,000 AMT, Series A, 5.50% due 7/01/2023 1,043
AAA Aaa 1,900 Series B, 5.50% due 7/01/2030 2,028
-------------------------------------------------------------------------------------------------------------
A- A3 3,500 Lower Colorado River Authority, Texas, PCR (Samsung Austin
Semiconductor), AMT, 6.375% due 4/01/2027 3,652
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,800 Texas State Turnpike Authority, Central Texas Turnpike System
Revenue Bonds, First Tier, Series A, 5.75% due 8/15/2038 (a) 5,270
-------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 University of Houston, Texas, University Revenue Bonds, 5.50% due
2/15/2030 (e) 1,076
====================================================================================================================================
Virginia--2.1% AAA Aaa 2,100 Halifax County, Virginia, IDA, Exempt Facility Revenue Refunding
Bonds (Old Dominion Electric Cooperative Project), AMT, 5.625% due
6/01/2028 (a) 2,248
-------------------------------------------------------------------------------------------------------------
BB NR* 26,500 Pocahontas Parkway Association, Virginia, Toll Road Revenue Bonds,
Senior-Series B, 5.875%** due 8/15/2024 4,108
====================================================================================================================================
Washington--11.1% AAA Aaa 3,750 Energy Northwest, Washington, Electric Revenue Refunding Bonds
(Columbia Generating), Series B, 6% due 7/01/2018 (a) 4,308
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,150 King County, Washington, Sewer Revenue Refunding Bonds, Series B,
5.50% due 1/01/2027 (c) 2,303
-------------------------------------------------------------------------------------------------------------
Port Seattle, Washington, Revenue Bonds, AMT, Series B (e):
AAA Aaa 7,470 6% due 2/01/2016 8,352
AAA Aaa 1,000 5.625% due 2/01/2024 1,053
-------------------------------------------------------------------------------------------------------------
AAA Aaa 6,150 Seattle, Washington, Municipal Light and Power Revenue Bonds, 6%
due 10/01/2019 (e) 7,134
-------------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Snohomish County, Washington, Arlington School District Number 016,
GO, 6.50% due 12/01/2015 (b) 6,055
-------------------------------------------------------------------------------------------------------------
AAA Aaa 4,250 Washington State, Various Purpose, GO, Series A, 5.625% due
7/01/2021 (c) 4,716
====================================================================================================================================
Wisconsin--3.6% Wisconsin State, GO:
AAA Aaa 2,000 Series C, 5.55% due 5/01/2021 (e) 2,208
AAA Aaa 3,000 Series F, 5.50% due 5/01/2019 (c) 3,311
-------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Wisconsin State Transportation Revenue Bonds, Series A, 5.50% due
7/01/2015 (b) 5,635
====================================================================================================================================
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) 5,486
-------------------------------------------------------------------------------------------------------------
NR* Aaa 3,250 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
RIB, Series 449X, 9.41% due 7/01/2016 (c)(h) 3,861
-------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Puerto Rico Municipal Finance Agency, GO, Series A, 5.50% due
8/01/2023 (c) 2,742
====================================================================================================================================
Total Municipal Bonds (Cost--$416,680)--144.2% 440,952
====================================================================================================================================
Shares
Held Short-Term Securities
====================================================================================================================================
2,366 Merrill Lynch Institutional Tax-Exempt Fund+ 2,366
====================================================================================================================================
Total Short-Term Securities (Cost--$2,366)--0.8% 2,366
====================================================================================================================================
Total Investments (Cost--$419,046)--145.0% 443,318
Variation Margin on Financial Futures Contracts***--0.0% (208)
Other Assets Less Liabilities--4.1% 12,570
Preferred Stock, at Redemption Value--(49.1%) (150,000)
---------
Net Assets Applicable to Common Stock--100.0% $ 305,680
=========
====================================================================================================================================
(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, 2003.
(i) All or a portion of security held as collateral in connection with open
financial futures contracts.
(j) FHA Insured.
(k) FNMA/GNMA Collateralized.
(l) XL Capital Insured.
(m) Radian Insured.
* 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, 2003 were as follows:
(in Thousands)
--------------------------------------------------------------------------
Number of Expiration
Contracts Issue Date Value
--------------------------------------------------------------------------
350 U.S. Treasury Bonds June 2003 $40,294
--------------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$40,444) $40,294
=======
--------------------------------------------------------------------------
+ Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
(in Thousands)
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Institutional
Tax-Exempt Fund (891) $24
--------------------------------------------------------------------------
See Notes to Financial Statements.
Quality Profile
The quality ratings of securities in the Fund as of April 30, 2003 were as
follows:
--------------------------------------------------------------------------------
Percent
of Total
S&P Rating/Moody's Rating Investments
--------------------------------------------------------------------------------
AAA/Aaa ................................................. 85.1%
AA/Aa ................................................... 5.7
A/A ..................................................... 4.1
BBB/Baa ................................................. 3.2
BB/Ba ................................................... 0.9
CC/Ca ................................................... 0.1
NR (Not Rated) .......................................... 0.9
--------------------------------------------------------------------------------
10 & 11
MuniYield Quality Fund II, Inc., April 30, 2003
STATEMENT OF NET ASSETS
As of April 30, 2003
===============================================================================================================================
Assets: Investments, at value (identified cost--$419,045,773) ............. $ 443,318,038
Cash .............................................................. 38,907
Receivables:
Interest ........................................................ $ 8,054,588
Securities sold ................................................. 4,863,379
Dividends ....................................................... 76 12,918,043
-------------
Prepaid expenses .................................................. 22,421
-------------
Total assets ...................................................... 456,297,409
-------------
===============================================================================================================================
Liabilities: Payables:
Dividends to Common Stock shareholders .......................... 212,774
Variation margin ................................................ 207,813
Investment adviser .............................................. 190,766
Other affiliates ................................................ 3,504 614,857
-------------
Accrued expenses .................................................. 2,104
-------------
Total liabilities ................................................. 616,961
-------------
===============================================================================================================================
Preferred Stock: Preferred Stock, at redemption value, par value $.05 per share
(2,000 Series A shares, 2,000 Series B shares and 2,000 Series C
shares of AMPS* issued and outstanding at $25,000 per share
liquidation preference) ........................................... 150,000,000
-------------
===============================================================================================================================
Net Assets Net assets applicable to Common Stock ............................. $ 305,680,448
Applicable to =============
Common Stock:
===============================================================================================================================
Analysis of Net Common Stock, par value $.10 per share (22,366,930 shares issued
Assets Applicable to and outstanding) .................................................. $ 2,236,693
Common Stock: Paid-in capital in excess of par .................................. 311,763,292
Undistributed investment income--net .............................. $ 4,141,613
Accumulated realized capital losses on investments--net ........... (36,883,805)
Unrealized appreciation on investments--net ....................... 24,422,655
-------------
Total accumulated losses--net ..................................... (8,319,537)
-------------
Total--Equivalent to $13.67 net asset value per share of Common
Stock (market price--$12.40) ...................................... $ 305,680,448
=============
===============================================================================================================================
* Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 2003
===============================================================================================================================
Investment Interest .......................................................... $ 12,167,734
Income: Dividends ......................................................... 24,077
-------------
Total income ...................................................... 12,191,811
-------------
===============================================================================================================================
Expenses: Investment advisory fees .......................................... $ 1,114,576
Commission fees ................................................... 184,940
Accounting services ............................................... 73,935
Professional fees ................................................. 31,999
Transfer agent fees ............................................... 30,726
Printing and shareholder reports .................................. 17,837
Listing fees ...................................................... 15,347
Directors' fees and expenses ...................................... 14,047
Custodian fees .................................................... 13,634
Pricing fees ...................................................... 9,582
Other ............................................................. 21,408
-------------
Total expenses before reimbursement ............................... 1,528,031
Reimbursement of expenses ......................................... (4,499)
-------------
Total expenses after reimbursement ................................ 1,523,532
-------------
Investment income--net ............................................ 10,668,279
-------------
===============================================================================================================================
Realized & Realized gain on investments--net ................................. 536,447
Unrealized Gain On Change in unrealized appreciation/depreciation on investments--net 7,567,397
Investments--Net: -------------
Total realized and unrealized gain on investments--net ............ 8,103,844
-------------
===============================================================================================================================
Dividends to Preferred Investment income--net ............................................ (812,840)
Stock Shareholders: -------------
Net Increase in Net Assets Resulting from Operations .............. $ 17,959,283
=============
===============================================================================================================================
See Notes to Financial Statements.
12 & 13
MuniYield Quality Fund II, Inc., April 30, 2003
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2003 2002
==============================================================================================================================
Operations: Investment income--net ........................................... $ 10,668,279 $ 21,083,958
Realized gain (loss) on investments--net ......................... 536,447 (727,453)
Change in unrealized appreciation/depreciation on investments--net 7,567,397 802,420
Dividends to Preferred Stock shareholders ........................ (812,840) (2,259,120)
------------- -------------
Net increase in net assets resulting from operations ............. 17,959,283 18,899,805
------------- -------------
==============================================================================================================================
Dividends to Investment income--net ........................................... (9,125,707) (17,510,018)
Common Stock ------------- -------------
Shareholders: Net decrease in net assets resulting from dividends to Common
Stock shareholders ............................................... (9,125,707) (17,510,018)
------------- -------------
==============================================================================================================================
Net Assets Applicable Total increase in net assets applicable to Common Stock .......... 8,833,576 1,389,787
To Common Stock: Beginning of period .............................................. 296,846,872 295,457,085
------------- -------------
End of period* ................................................... $ 305,680,448 $ 296,846,872
============= =============
==============================================================================================================================
*Undistributed investment income--net ............................. $ 4,141,613 $ 3,411,881
============= =============
==============================================================================================================================
See Notes to Financial Statements.
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: 2003 2002 2001 2000 1999
==================================================================================================================================
Per Share Net asset value, beginning of period ........ $ 13.27 $ 13.21 $ 12.39 $ 12.31 $ 15.52
Operating -------- -------- -------- -------- --------
Performance:+++ Investment income--net ...................... .48+ .94 .94 .99 1.04
Realized and unrealized gain (loss) on
investments--net ............................ .37 --++ .84 .17 (2.65)
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net ..................... (.04) (.10) (.22) (.27) (.19)
Realized gain on investments--net .......... -- -- -- -- --
In excess of realized gain on investments--net -- -- -- -- (.06)
-------- -------- -------- -------- --------
Total from investment operations ............ .81 .84 1.56 .89 (1.86)
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net ..................... (.41) (.78) (.74) (.81) (.86)
Realized gain on investments--net .......... -- -- -- -- --
In excess of realized gain on investments--net -- -- -- -- (.49)
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders .......................... (.41) (.78) (.74) (.81) (1.35)
-------- -------- -------- -------- --------
Net asset value, end of period .............. $ 13.67 $ 13.27 $ 13.21 $ 12.39 $ 12.31
======== ======== ======== ======== ========
Market price per share, end of period ....... $ 12.40 $ 11.75 $ 12.07 $ 11.50 $ 11.50
======== ======== ======== ======== ========
==================================================================================================================================
Total Investment Based on market price per share ............. 9.14%@ 3.95% 11.70% 7.35% (16.70%)
Return:** ======== ======== ======== ======== ========
Based on net asset value per share .......... 6.54%@ 7.27% 13.47% 8.04% (12.74%)
======== ======== ======== ======== ========
==================================================================================================================================
Ratios Based on Total expenses, net of reimbursement*** ..... 1.03%* 1.06% 1.07% 1.08% .99%
Average Net Assets ======== ======== ======== ======== ========
Of Common Stock: Total expenses*** ........................... 1.03%* 1.06% 1.07% 1.08% .99%
======== ======== ======== ======== ========
Total investment income--net*** ............. 7.19%* 7.26% 7.36% 8.04% 7.31%
======== ======== ======== ======== ========
Amount of dividends to Preferred Stock
shareholders ................................ .55%* .78% 1.74% 2.21% 1.30%
======== ======== ======== ======== ========
Investment income--net, to Common Stock
shareholders ................................ 6.65%* 6.48% 5.62% 5.83% 6.01%
======== ======== ======== ======== ========
==================================================================================================================================
Ratios Based on Total expenses, net of reimbursement ........ .68%* .70% .70% .70% .67%
Average Net Assets ======== ======== ======== ======== ========
Of Common & Total expenses .............................. .69%* .70% .70% .70% .67%
Preferred Stock:*** ======== ======== ======== ======== ========
Total investment income--net ................ 4.79%* 4.79% 4.83% 5.19% 4.97%
======== ======== ======== ======== ========
==================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders ... 1.09%* 1.51% 3.31% 4.02% 2.75%
Average Net Assets ======== ======== ======== ======== ========
Of Preferred Stock:
==================================================================================================================================
Supplemental Net assets applicable to Common Stock, end of
Data: period (in thousands) ....................... $305,680 $296,847 $295,457 $277,229 $275,281
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) .............................. $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover .......................... 15.10% 42.89% 98.99% 142.46% 164.45%
======== ======== ======== ======== ========
==================================================================================================================================
Leverage: Asset coverage per $1,000 ................... $ 3,038 $ 2,979 $ 2,970 $ 2,848 $ 2,835
======== ======== ======== ======== ========
==================================================================================================================================
Dividends Per Share Series A--Investment income--net ............ $ 154 $ 390 $ 855 $ 1,017 $ 706
On Preferred Stock ======== ======== ======== ======== ========
Outstanding: Series B--Investment income--net ............ $ 122 $ 388 $ 853 $ 1,024 $ 702
======== ======== ======== ======== ========
Series C--Investment income--net ............ $ 130 $ 351 $ 777 $ 986 $ 650
======== ======== ======== ======== ========
==================================================================================================================================
* 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.
+ Based on average shares outstanding.
++ Amount is less than $.01 per share.
+++ Certain prior year amounts have been reclassified to conform to current
year presentation.
@ Aggregate total investment return.
See Notes to Financial Statements.
14 & 15
MuniYield Quality Fund II, Inc., April 30, 2003
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 both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movement and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o Financial futures contracts -- The Fund may purchase or sell financial futures
contracts and options on such futures contracts. 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.
o Forward interest rate swaps -- The Fund is authorized to enter into forward
interest rate swaps. In a forward interest rate swap, the Fund and the
counterparty agree to pay or receive interest on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. The value of the agreement is determined by quoted fair values received
daily by the Fund from the counterparty. When the agreement is closed, the Fund
records a realized gain or loss in an amount equal to the value of the
agreement.
(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. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(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, 2003, FAM reimbursed the Fund in the amount of $4,499.
For the six months ended April 30, 2003, the Fund reimbursed FAM $4,928 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, 2003 were $66,485,927 and $76,533,818, respectively.
Net realized gains (losses) for the six months ended April 30, 2003 and net
unrealized gains as of April 30, 2003 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
--------------------------------------------------------------------------------
Long-term investments ................... $ 2,748,526 $24,272,265
Financial futures contracts ............. (2,212,079) 150,390
----------- -----------
Total ................................... $ 536,447 $24,422,655
=========== ===========
--------------------------------------------------------------------------------
As of April 30, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $24,272,265, of which $33,116,938 related to appreciated
securities and $8,844,673 related to depreciated securities. The aggregate cost
of investments at April 30, 2003 for Federal income tax purposes was
$419,045,773.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of 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
16 & 17
MuniYield Quality Fund II, Inc., April 30, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
shares of stock without approval of the holders of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended April 30, 2003 and the
year ended October 31, 2002 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are redeemable shares of Preferred Stock
of the Fund, with a par value of $.05 per share and a liquidation preference of
$25,000 per share plus accrued and unpaid dividends, 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, 2003 were as follows: Series
A, 1.10%; Series B, 1.15%; and Series C, 1.25%.
Shares issued and outstanding during the six months ended April 30, 2003 and the
year ended October 31, 2002 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, 2003, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, an affiliate of FAM, earned $70,969 as commissions.
5. Capital Loss Carryforward:
On October 31, 2002, the Fund had a net capital loss carryforward of
$35,865,542, of which $8,688,802 expires in 2007, $26,079,903 expires in 2008
and $1,096,837 expires in 2010. This amount will be available to offset like
amounts of any future taxable gains.
6. Subsequent Event:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.069000 per share on May 29, 2003 to shareholders of record on May
16, 2003.
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
Joe Grills, Director
Herbert I. London, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., 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
Brian D. Stewart, Secretary
Custodian
The Bank of New York
100 Church 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
--------------------------------------------------------------------------------
Melvin R. Seiden, Director of MuniYield Quality Fund II, Inc., has recently
retired. The Fund's Board of Directors wishes Mr. Seiden well in his retirement.
--------------------------------------------------------------------------------
18 & 19
[LOGO] Merrill Lynch Investment Managers
[GRAPHICS 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
[RECYCLED LOGO] Printed on post-consumer recycled paper #16433--4/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request-- N/A (not answered until July 15, 2003 and only
annually for funds)
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -N/A (not answered until July
15, 2003 and only annually for funds)
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last two
fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's
annual financial statements or services that are
normally provided by the accountant in connection with
statutory and regulatory filings or engagements for
those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and related
services by the principal accountant that are
reasonably related to the performance of the
audit of the registrant's financial statements
and are not reported under paragraph (a) of this
Item. Registrants shall describe the nature of
the services comprising the fees disclosed under
this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services provided
by the principal accountant, other than the services
reported in paragraphs (a) through (c) of this Item.
Registrants shall describe the nature of the
services comprising the fees disclosed under this
category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of paragraphs
(b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees.
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities. N/A (not answered
until July 1, 2003)
Item 8 -- Reserved
Item 9(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MuniYield Quality Fund II, Inc.
By: /s/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
MuniYield Quality Fund II, Inc.
Date: June 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Terry K. Glenn
-------------------------------
Terry K. Glenn,
President of
MuniYield Quality Fund II, Inc.
Date: June 23, 2003
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
MuniYield Quality Fund II, Inc.
Date: June 23, 2003
Attached hereto as an exhibit are the certifications pursuant to Section 906 of
the Sarbanes-Oxley Act.