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 811-06728
Name of Fund: BlackRock MuniYield Quality Fund II, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock 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: 10/31/06
Date of reporting period: 11/01/05 - 10/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
Annual Reports BLACKROCK
OCTOBER 31, 2006
BlackRock MuniYield Fund, Inc.
BlackRock MuniYield Insured Fund, Inc.
BlackRock MuniYield Quality Fund, Inc.
BlackRock MuniYield Quality Fund II, Inc.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock MuniYield Fund, Inc.
BlackRock MuniYield Insured Fund, Inc.
BlackRock MuniYield Quality Fund, Inc.
BlackRock MuniYield Quality Fund II, Inc.
Quality Profiles as of October 31, 2006
--------------------------------------------------------------------------------
Percent of
BlackRock MuniYield Fund, Inc. by Total
S&P/Moody's Rating Investments
--------------------------------------------------------------------------------
AAA/Aaa ............................................................ 41.7%
AA/Aa .............................................................. 12.0
A/A ................................................................ 10.0
BBB/Baa ............................................................ 10.2
BB/Ba .............................................................. 1.4
B/B ................................................................ 4.5
CCC/Caa ............................................................ 2.2
NR (Not Rated) ..................................................... 17.1
Other* ............................................................. 0.9
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and variable rate
demand notes.
--------------------------------------------------------------------------------
Percent of
BlackRock MuniYield Insured Fund, Inc. by Total
S&P/Moody's Rating Investments
--------------------------------------------------------------------------------
AAA/Aaa ............................................................ 83.1%
AA/Aa .............................................................. 3.8
A/A ................................................................ 6.1
BBB/Baa ............................................................ 1.7
NR (Not Rated) ..................................................... 2.5
Other* ............................................................. 2.8
--------------------------------------------------------------------------------
* Includes portfolio holdings in variable rate demand notes.
--------------------------------------------------------------------------------
Percent of
BlackRock MuniYield Quality Fund, Inc. by Total
S&P/Moody's Rating Investments
--------------------------------------------------------------------------------
AAA/Aaa ............................................................ 86.9%
AA/Aa .............................................................. 5.2
A/A ................................................................ 6.8
BBB/Baa ............................................................ 0.3
Other* ............................................................. 0.8
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
--------------------------------------------------------------------------------
Percent of
BlackRock MuniYield Quality Fund II, Inc. by Total
S&P/Moody's Rating Investments
--------------------------------------------------------------------------------
AAA/Aaa ............................................................ 86.8%
AA/Aa .............................................................. 5.4
A/A ................................................................ 6.3
BBB/Baa ............................................................ 0.3
Other* ............................................................. 1.2
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
Announcement of Annual Stockholders Meeting
Each Fund has determined that its annual stockholders meeting originally
scheduled to be held in April 2007 will be postponed until and will be held in
June 2007. Proposals of stockholders intended to be presented at the meeting
must be received by each Fund by February 15, 2007 for inclusion in the Fund's
proxy statement and form of proxy for that meeting. The persons named as proxies
in the proxy materials for each Fund's 2007 Annual meeting of stockholders may
exercise discretionary authority with respect to any stockholder proposal
presented at such meeting if written notice of such proposal has not been
received by the Funds by April 1, 2007. Written proposals and notices should be
sent to the Secretary of the Fund, 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
2 ANNUAL REPORTS OCTOBER 31, 2006
A Letter to Shareholders
Dear Shareholder
Ten months into 2006, we are able to say it has been an interesting year for
investors. After a volatile start and far-reaching mid-year correction, the
financial markets regained some positive momentum through late summer and fall.
For the six- and 12-month periods ended October 31, 2006, most major market
indexes managed to post positive returns:
Total Returns as of October 31, 2006 6-month 12-month
===============================================================================================
U.S. equities (Standard & Poor's 500 Index) +6.11% +16.34%
-----------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) +0.90 +19.98
-----------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +3.77 +27.52
-----------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) +4.60 + 5.19
-----------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +4.12 + 5.75
-----------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse High Yield Index) +4.66 +10.29
-----------------------------------------------------------------------------------------------
The Federal Reserve Board (the Fed), after raising the target short-term
interest rate 17 times between June 2004 and June 2006, finally opted to pause
on August 8, 2006. This left the federal funds rate at 5.25%, where it remained
through the September and October Fed meetings. In interrupting its two-year
rate-hiking campaign, the Fed acknowledged that economic growth is slowing, led
by softness in the housing market. However, the central bankers continue to take
a cautionary position on inflation, despite a decline in energy prices in recent
months. At the time of this writing, the price of oil had settled into the
$60-per-barrel range after reaching nearly $78 per barrel earlier in the year.
Notwithstanding the mid-year correction, equity markets generally found support
in solid corporate earnings reports in the first three quarters of the year.
Overall corporate health, including strong company balance sheets, helped to
sustain robust dividend-distribution, share-buyback and merger-and-acquisition
activity. Many international equity markets fared equally well or better, thanks
in part to higher economic growth rates and low inflation.
In the U.S. bond market, prices declined for much of the year as investors
focused on decent economic activity and inflation concerns. Bond prices began to
improve in late June as the economy showed signs of weakening and inflation
pressures subsided. Notably, the Treasury curve inverted periodically, a
phenomenon typically associated with periods of economic weakness. At the end of
October, the one-month Treasury bill offered the highest yield on the curve at
5.18%, while the 30-year Treasury bond had a yield of 4.72%.
Amid the uncertainty inherent in the financial markets, we encourage you to
review your goals periodically with your financial professional and to make
portfolio changes, as needed. For additional insight and timely "food for
thought" for investors, we also invite you to visit Shareholder magazine at
www.blackrock.com/shareholdermagazine. We are pleased to make our
investor-friendly magazine available to you online. We thank you for trusting
BlackRock with your investment assets, and we look forward to continuing to
serve your investment needs.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
ANNUAL REPORTS OCTOBER 31, 2006 3
A Discussion With Your Funds' Portfolio Managers
The Funds recorded total returns that surpassed their respective Lipper
group averages for the fiscal year, while also continuing to provide
shareholders with an attractive monthly income stream.
Describe the recent market environment relative to municipal bonds.
Supported by a positive technical backdrop, municipal bonds managed to
significantly outperform their taxable counterparts for the 12-month period
ended October 31, 2006. Despite considerable volatility, taxable bond yields
were little changed over the past year. Tax-exempt bonds, in the meantime, saw
their yields decline (as prices, which move opposite of yields, rose).
For much of the first half of the fiscal period, longer-maturity U.S. Treasury
bond yields rose (and prices declined) as investors focused on strong U.S.
economic activity and inflationary concerns triggered by rising oil prices. By
mid-May 2006, the yield on 30-year U.S. Treasury bonds rose more than 70 basis
points (.70%) to 5.31%. Bond prices began to improve in late June as economic
activity weakened and inflationary pressures subsided. Bond price improvement
accelerated after the Federal Reserve Board (the Fed) refrained from raising the
target interest rate at its August 8 meeting, a move that came after 17
consecutive interest rate hikes since June 2004. Recent declines in oil prices,
and especially gasoline prices, helped to reverse earlier inflationary concerns
and support higher bond prices. Over the 12-month period, 30-year U.S. Treasury
bond yields fell four basis points to 4.72%, while 10-year Treasury yields rose
four basis points to 4.61%.
Meanwhile, the municipal bond market found support in declining new-issue volume
and increasing investor demand. As reported by Municipal Market Data, yields on
AAA-rated municipal issues maturing in 30 years declined 52 basis points to
4.07% over the past 12 months. Shorter maturities experienced smaller yield
declines, with yields on AAA-rated municipal issues maturing in 10 years falling
28 basis points to 3.64%.
Demand for municipal product by retail and institutional investors has remained
very strong despite the recent decline in bond yields. The strong demand is
reflected in continued flows into long-term, tax-exempt mutual funds. As
reported by the Investment Company Institute, long-term municipal bond funds saw
net new cash inflows of more than $1.3 billion during September 2006, a material
increase from $344 million in July and $283 million in June. During the first
nine months of 2006, long-term tax-exempt bond funds had net new cash flows of
over $9.6 billion, a 43% increase versus the same period a year earlier. Recent
weekly fund flows, reported by AMG Data, averaged $416 million in October 2006,
well above the July average of $247 million and the year-to-date weekly average
of $315 million.
Also supporting municipal bond price improvement has been a decline in new
issuance. In the first 10 months of 2006, more than $295 billion in new
long-term municipal bonds was underwritten, a decline of over 12.5% versus the
same period a year ago. Notably, after declining for much of the year, refunding
activity increased slightly in October as the lower interest rate environment
sparked an increase in refinancing activity. On a year-to-date basis, however,
refunding activity has declined over 50% relative to last year's refunding
issuance.
Looking ahead, the positive technical framework in the municipal marketplace
suggests that the tax-exempt market should continue to perform well. New supply
is expected to remain manageable and tax-exempt bond yield ratios remain in
their recent range of 86% - 89% of comparable long-term U.S. Treasury yields,
well within their recent historic norms. These ratios argue for continued strong
demand from non-traditional, arbitrage-related accounts, which continue to be
attracted to the municipal bond market given its relatively steep yield curve.
Taken together, these factors suggest that the municipal market is poised to
continue to perform well as we approach year-end.
4 ANNUAL REPORTS OCTOBER 31, 2006
BlackRock MuniYield Fund, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended October 31, 2006, the Common Stock of BlackRock
MuniYield Fund, Inc. (formerly MuniYield Fund, Inc.) had net annualized yields
of 6.23% and 5.92%, based on a year-end per share net asset value of $14.98 and
a per share market price of $15.76, respectively, and $.933 per share income
dividends. Over the same period, the total investment return on the Fund's
Common Stock was +10.30%, based on a change in per share net asset value from
$14.48 to $14.98, and assuming reinvestment of all distributions.
The Fund's total return, based on net asset value, exceeded the +8.42% average
return of the Lipper General Municipal Debt Funds (Leveraged) category for the
12-month period. (Funds in this Lipper category invest primarily in municipal
debt issues rated in the top four credit-rating categories. These funds can be
leveraged via use of debt, preferred equity and/or reverse repurchase
agreements.)
As in prior reporting periods, Fund performance continued to be driven by our
exposure to lower-rated, higher-yielding credits. As credit spreads contracted
throughout the period, lower-rated instruments outperformed the broader market
and provided both price appreciation and incremental yield for the Fund. It
should be noted that the spread contraction trend slowed considerably over the
latter six months of the period, and the benefits of the Fund's spread product
exposure decreased. Still, positive security selection kept the Fund's
performance ahead of the median of its Lipper peer group throughout the 12-month
period.
Another factor benefiting performance was our active management of the
portfolio's duration, or its sensitivity to interest rate risk. Entering the
fiscal year, we had a neutral duration posture compared to our Lipper peers,
with the intention of lengthening that position slightly going into the end of
2005, which we did. In light of market improvement, we subsequently shortened
our duration modestly in a timely move ahead of the market backup that occurred
in the beginning of 2006. Through the last six months of the period, we
maintained a generally neutral duration, although we have remained flexible with
respect to market moves. We also continued to position the portfolio to take
advantage of the flattening trend in the municipal yield curve. The curve did
flatten over the 12 months, further benefiting Fund performance.
For the six-month period ended October 31, 2006, the total investment return on
the Fund's Common Stock was +6.03%, based on a change in per share net asset
value from $14.57 to $14.98, and assuming reinvestment of all distributions.
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (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
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 market value of the Fund's
Common Stock may vary significantly from total investment returns based on
changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
Portfolio activity during the period was focused on taking advantage of the
further flattening of the municipal yield curve, as well as improving the
overall quality and diversification of the Fund. Our yield curve strategy
evolved in response to municipal market moves over the 12-month period. In the
first half of the period, we typically made purchases in the 20-year - 30-year
maturity range using proceeds from the sale of bonds with much shorter
maturities, such as those in the five-year - 10-year area. We also looked to
sell longer bonds that were likely to be called by their issuers in that
five-year - 10-year time frame. As we perceived a shift in value to the 10-year
- 15-year maturity range, we focused our buying activity in that area of the
curve during the latter half of the period. Most notably, we participated in the
initial offering of a New Jersey Transportation Trust Fund debt refinancing
transaction, which was worth $2.8 billion and included a number of attractively
priced opportunities in the 15-year sector. While we have been reluctant to fund
these purchases by selling bonds at the long end of the curve, which may yet
benefit from additional flattening, we believe the Fund will be better served by
a shift to the intermediate range.
In addition to pursuing our yield curve strategy, we also sought opportunities
to reduce our weighting in non-investment grade, high yield bonds. Given the
demand for high yield issues that was initially sparked by high call activity in
the low interest rate environment of the last few years, we were able to sell
bonds that we believed had become overvalued and were unlikely to continue their
outperformance. Despite the loss of yield associated with our reductions in high
yield paper,
ANNUAL REPORTS OCTOBER 31, 2006 5
A Discussion With Your Funds' Portfolio Managers (continued)
the Fund performed quite well throughout the 12-month period as the high yield
positions that were retained, particularly those in the health care and airline
sectors, continued to outperform.
For the six-month period ended October 31, 2006, the Fund's Auction Market
Preferred Stock had average yields of: 3.27% for Series A, 3.24% for Series B,
3.38% for Series C, 3.30% for Series D, 3.21% for Series E, 3.22% for Series F
and 3.23% for Series G. The Fed raised short-term interest rates six times
during the 12-month period, but opted to keep the target rate on hold at 5.25%
in August, September and October 2006. As such, the Fund's borrowing costs
started to stabilize and even move slightly lower late in the period. Despite
the Fed's rate increases during the period, the municipal yield curve remained
positively sloped and continued to generate an income benefit to the Common
Stock shareholder from the leveraging of Preferred Stock. However, should the
spread between short-term and long-term interest rates narrow, the benefits of
leverage will decline and, as a result, reduce the yield on the Fund's Common
Stock. (For a more complete explanation of the benefits and risks of leveraging,
see page 11 of this report to shareholders.)
How would you characterize the Fund's position at the close of the period?
At period-end, the Fund was neutrally positioned in terms of interest rate risk,
and our exposure to lower-rated securities had been reduced. Our yield curve
outlook changed during the period as it became likely that the Fed would pause
in its monetary tightening program, which it did in the third quarter of 2006.
With the majority of the curve flattening likely behind us, we began the process
of reducing our exposure to the long end of the curve over the latter half of
the reporting period. We now see that the most attractive value is closer to the
middle of the curve, around the 10-year - 15-year range. We will continue to use
periods of market strength to sell high yield issues and those at the long end
of the yield curve in order to further improve the portfolio's credit quality
and allocate more assets to the intermediate part of the curve.
BlackRock MuniYield Insured Fund, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended October 31, 2006, the Common Stock of BlackRock
MuniYield Insured Fund, Inc. (formerly MuniYield Insured Fund, Inc.) had net
annualized yields of 4.99% and 5.31%, based on a year-end per share net asset
value of $15.30 and a per share market price of $14.36, respectively, and $.763
per share income dividends. Over the same period, the total investment return on
the Fund's Common Stock was +8.09%, based on a change in per share net asset
value from $15.27 to $15.30, and assuming reinvestment of all distributions.
The Fund's total return, based on net asset value, exceeded the +7.11% average
return of the Lipper Insured Municipal Debt Funds (Leveraged) category for the
12-month period. (Funds in this Lipper category invest primarily in municipal
debt issues insured as to timely payment. These funds can be leveraged via use
of debt, preferred equity and/or reverse repurchase agreements.)
The Fund's outperformance can be attributed to a few factors, including our
focus on bonds issued by high-tax and specialty states and our emphasis on the
long end of the municipal yield curve. The Fund was able to realize price
outperformance from its holdings of bonds issued by higher-tax states such as
California and New York. Approximately 33% of the Fund's assets was allocated to
California and 15.4% to New York municipal issues, which performed well and
boosted Fund performance for the year. We also purchased bonds issued by
specialty states, such as Nebraska, Kansas and Missouri, where favorable
supply/demand dynamics led to solid price performance for these states' bonds.
Finally, the Fund's slightly longer maturity compared to its peers proved
advantageous as the yield curve continued to flatten and long-term bonds
outperformed short-term issues. This strategy also helped the portfolio to
maintain an above-average yield.
For the six-month period ended October 31, 2006, the total investment return on
the Fund's Common Stock was +5.68%, based on a change in per share net asset
value from $14.85 to $15.30, and assuming reinvestment of all distributions.
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (as measured by the trading
price of the Fund's shares on the New York Stock Exchange), and assuming
6 ANNUAL REPORTS OCTOBER 31, 2006
reinvestment of dividends, please refer to the Financial Highlights section of
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 market value of the Fund's
Common Stock can vary significantly from total investment returns based on
changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
We did not significantly alter our strategy or the Fund's portfolio during the
past 12 months. We continued to target additional yield for the portfolio by
investing in longer-dated bonds, specifically in the 25-year - 30-year maturity
range, while also seeking to protect the Fund's underlying value.
As new municipal bond issuance declined during the year, we found few compelling
opportunities to restructure the portfolio. Having said that, we did notice a
marked narrowing of credit spreads between municipal bonds issued by high-tax
states and those issued by low-tax states and sought to capitalize on this
trend. When available, we found it advantageous to purchase high-quality bonds
issued by the high-tax states, as opposed to bonds issued by low-tax states.
Because of the relatively high income taxes imposed by these states, their
securities typically meet with strong retail demand, which in turn creates a
solid technical market, leading to better liquidity. We participated in these
transactions in such high-tax states as California, New York and New Jersey.
In our efforts to maintain a diversified portfolio, we also bought approximately
$30 million in general obligation bonds of the State of Louisiana. Although
these issues came with shorter maturities than we had been targeting, this was a
rare opportunity to participate in the Louisiana debt market in bonds that were
offering yields comparable to other states' 30-year issues. We also found a
number of compelling opportunities in the Pacific Northwest, specifically bonds
issued by the State of Washington. These made up approximately 10% - 11% of the
portfolio at period-end. We observe solid credit fundamentals in this region of
the country.
Importantly, the Fund continued to be fully invested throughout the period,
consistent with our goal of maintaining an attractive level of income.
For the six-month period ended October 31, 2006, the Fund's Auction Market
Preferred Stock had average yields of: 3.05% for Series A, 3.00% for Series B,
2.97% for Series C, 3.12% for Series D, 2.92% for Series E, 3.06% for Series F,
2.86% for Series G, 2.90% for Series H and 2.87% for Series I. The Fed raised
short-term interest rates six times during the 12-month period, but opted to
keep the target rate on hold at 5.25% in August, September and October 2006. As
such, the Fund's borrowing costs began to stabilize and even move slightly lower
late in the period. Despite the Fed's interest rate increases during the period,
the municipal yield curve remained positively sloped and continued to generate
an income benefit to the Common Stock shareholder from the leveraging of
Preferred Stock. However, should the spread between short-term and long-term
interest rates narrow, the benefits of leverage will decline and, as a result,
reduce the yield on the Fund's Common Stock. (For a more complete explanation of
the benefits and risks of leveraging, see page 11 of this report to
shareholders.)
How would you characterize the Fund's position at the close of the period?
We ended the period with a fully invested portfolio and a slightly long duration
relative to our peers. Municipal yields and credit spreads are near their
all-time lows and the slope of the yield curve is historically very flat.
However, a favorable supply/demand environment should continue to be supportive
of present valuations in the municipal market.
Against this backdrop, we intend to continue our efforts to enhance yield for
shareholders while also protecting the Fund's underlying value. To that end, we
continue to look for maturities in the 25-year area and to favor a neutral to
slightly long portfolio duration, which we believe offers the benefit of
incremental yield. Recently, we started looking down the yield curve slightly at
opportunities in the 15-year - 17-year area. Ultimately, we believe that
above-average yields can provide for competitive Fund returns over time.
ANNUAL REPORTS OCTOBER 31, 2006 7
A Discussion With Your Funds' Portfolio Managers (continued)
BlackRock MuniYield Quality Fund, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended October 31, 2006, the Common Stock of BlackRock
MuniYield Quality Fund, Inc. (formerly MuniYield Quality Fund, Inc.) had net
annualized yields of 5.04% and 5.33%, based on a year-end per share net asset
value of $15.32 and a per share market price of $14.48, respectively, and $.772
per share income dividends. Over the same period, the total investment return on
the Fund's Common Stock was +7.78%, based on a change in per share net asset
value from $15.02 to $15.32, and assuming reinvestment of all distributions.
The Fund's total return, based on net asset value, outpaced the +7.11% average
return of the Lipper Insured Municipal Debt Funds (Leveraged) category for the
12-month period. (Funds in this Lipper category invest primarily in municipal
debt issues insured as to timely payment. These funds can be leveraged via use
of debt, preferred equity and/or reverse repurchase agreements.) The Fund also
provided an above-average yield relative to its Lipper peers.
The bulk of the Fund's outperformance occurred in the latter six months of the
fiscal year, when our fully invested position allowed the portfolio to take
advantage of the bond market rally that ensued once the Fed stopped raising
interest rates. Also contributing to performance was the Fund's above-average
yield, which is additive to total return, and the advance refunding of several
positions. When bonds are refunded ahead of their maturity date, they generally
rise sharply in value. The price appreciation was somewhat more muted given the
flatness of the yield curve, but prerefundings are a special event nonetheless
and contributed to the positive performance of the Fund during this 12-month
period.
For the six-month period ended October 31, 2006, the total investment return on
the Fund's Common Stock was +5.62%, based on a change in per share net asset
value from $14.89 to $15.32, and assuming reinvestment of all distributions.
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (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
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 market value of the Fund's
Common Stock can vary significantly from total investment returns based on
changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
Municipal bonds fared quite well during the year, supported by low new issuance,
healthy investor demand and strong performance relative to the taxable bond
market. We did not make significant changes to the portfolio's composition or
our investment strategy over the past 12 months. Given the limited supply in the
market, and the generally low coupons available on new issues, there were few
compelling opportunities to restructure the portfolio. We did sell some of the
recently advance refunded positions, as their book yields were not significantly
above current market yields, and moved into higher-yielding current issues. For
the most part, we targeted the 20-year maturity range for the relative yield
enhancement it offered. Nevertheless, we were reluctant to restructure the
portfolio significantly, as most of the securities held in the portfolio have
higher yields than those currently available in the market.
Overall, we maintained a fairly neutral duration profile for most of the period
and a fully invested stance. Both of these factors aided performance,
particularly as the bond markets embarked on a strong rally in the final three
months of the period. In managing the Fund's duration, we employed hedging
strategies rather than trading in and out of bonds. We felt this was a prudent
approach, as it allowed us to target our desired duration without having to give
up attractively structured bonds that contribute meaningfully to the Fund's
distribution rate.
8 ANNUAL REPORTS OCTOBER 31, 2006
For the six-month period ended October 31, 2006, the Fund's Auction Market
Preferred Stock had average yields of 3.32% for Series A, 3.24% for Series B,
3.38% for Series C, 3.26% for Series D and 3.23% for Series E. The Fed raised
short-term interest rates six times during the 12-month period, but opted to
keep the target rate on hold at 5.25% in August, September and October 2006. As
such, the Fund's borrowing costs began to stabilize and even move slightly lower
late in the period. Despite the Fed's interest rate increases during the period,
the municipal yield curve remained positively sloped and continued to generate
an income benefit to the Common Stock shareholder from the leveraging of
Preferred Stock. However, should the spread between short-term and long-term
interest rates narrow, the benefits of leverage will decline and, as a result,
reduce the yield on the Fund's Common Stock. (For a more complete explanation of
the benefits and risks of leveraging, see page 11 of this report to
shareholders.)
How would you characterize the Fund's position at the close of the period?
We remained fully invested at period-end and fairly neutral with respect to
interest rate risk. The bond market has come a long way in recent months,
despite some uncertain rhetoric from the Fed. The central bankers acknowledge
that the economy is slowing, led by a sharp deceleration in housing, but
continue to take a cautionary tone on inflation. Against this backdrop, we
believe a neutral stance is appropriate. We will look to sell into strength as
the market presents opportunities, particularly at the longer end of the curve.
We also continue to explore opportunities back down the curve in the 15-year -
20-year range. We have found that we can move five years - 10 years down the
curve without sacrificing a significant amount of yield. Given the degree of
yield-curve flattening that has occurred over the course of the Fed's interest
rate-hiking campaign, we believe this maturity range could perform well in the
future. Overall, we remain committed to our goal of providing shareholders with
an attractive level of tax-exempt income.
BlackRock MuniYield Quality Fund II, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended October 31, 2006, the Common Stock of BlackRock
MuniYield Quality Fund II, Inc. (formerly MuniYield Quality II Fund, Inc.) had
net annualized yields of 5.12% and 5.40%, based on a year-end per share net
asset value of $13.64 and a per share market price of $12.93, respectively, and
$.698 per share income dividends. Over the same period, the total investment
return on the Fund's Common Stock was +7.98%, based on a change in per share net
asset value from $13.36 to $13.64, and assuming reinvestment of all
distributions.
The Fund's total return, based on net asset value, outpaced the +7.11% average
return of the Lipper Insured Municipal Debt Funds (Leveraged) category for the
12-month period. (Funds in this Lipper category invest primarily in municipal
debt issues insured as to timely payment. These funds can be leveraged via use
of debt, preferred equity and/or reverse repurchase agreements.) The Fund also
provided an above-average yield relative to its Lipper peers.
The bulk of the Fund's outperformance occurred in the latter six months of the
fiscal year, when our fully invested position allowed the portfolio to take
advantage of the bond market rally that ensued once the Fed stopped raising
interest rates. Also contributing to performance was the Fund's above-average
yield, which is additive to total return, and the advance refunding of several
positions. When bonds are refunded ahead of their maturity date, they generally
rise sharply in value. The price appreciation was somewhat more muted given the
flatness of the yield curve, but prerefundings are a special event nonetheless
and contributed to the positive performance of the Fund during this 12-month
period.
For the six-month period ended October 31, 2006, the total investment return on
the Fund's Common Stock was +5.74%, based on a change in per share net asset
value from $13.25 to $13.64, and assuming reinvestment of all distributions.
ANNUAL REPORTS OCTOBER 31, 2006 9
A Discussion With Your Funds' Portfolio Managers (concluded)
For a description of the Fund's total investment return based on a change in the
per share market value of the Fund's Common Stock (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
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 market value of the Fund's
Common Stock can vary significantly from total investment returns based on
changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
Municipal bonds fared quite well during the year, supported by low new issuance,
healthy investor demand and strong performance relative to the taxable bond
market. We did not make significant changes to the portfolio's composition or
our investment strategy over the past 12 months. Given the limited supply in the
market, and the generally low coupons available on new issues, there were few
compelling opportunities to restructure the portfolio. We did sell some of the
recently advance refunded positions, as their book yields were not significantly
above current market yields, and moved into higher-yielding current issues. For
the most part, we targeted the 20-year maturity range for the relative yield
enhancement it offered. Nevertheless, we were reluctant to restructure the
portfolio significantly, as most of the securities held in the portfolio have
higher yields than those currently available in the market.
Overall, we maintained a fairly neutral duration profile for most of the period
and a fully invested stance. Both of these factors aided performance,
particularly as the bond markets embarked on a strong rally in the final three
months of the period. In managing the Fund's duration, we employed hedging
strategies rather than trading in and out of bonds. We felt this was a prudent
approach, as it allowed us to target our desired duration without having to give
up attractively structured bonds that contribute meaningfully to the Fund's
distribution rate.
For the six-month period ended October 31, 2006, the Fund's Auction Market
Preferred Stock had average yields of 3.33% for Series A, 3.44% for Series B,
3.21% for Series C and 3.22% for Series D. The Fed raised short-term interest
rates six times during the 12-month period, but opted to keep the target rate on
hold at 5.25% in August, September and October 2006. As such, the Fund's
borrowing costs began to stabilize during the period, the municipal yield curve
remained positively sloped and continued to generate an income benefit to the
Common Stock shareholder from the leveraging of Preferred Stock. However, should
the spread between short-term and long-term interest rates narrow, the benefits
of leverage will decline and, as a result, reduce the yield on the Fund's Common
Stock. (For a more complete explanation of the benefits and risks of leveraging,
see page 11 of this report to shareholders.)
How would you characterize the Fund's position at the close of the period?
We remained fully invested at period-end and fairly neutral with respect to
interest rate risk. The bond market has come a long way in recent months,
despite some uncertain rhetoric from the Fed. The central bankers acknowledge
that the economy is slowing, led by a sharp deceleration in housing, but
continue to take a cautionary tone on inflation. Against this backdrop, we
believe a neutral stance is appropriate. We will look to sell into strength as
the market presents opportunities, particularly at the longer end of the curve.
We also continue to explore opportunities back down the curve in the 15-year -
20-year range. We have found that we can move five years - 10 years down the
curve without sacrificing a significant amount of yield. Given the degree of
yield-curve flattening that has occurred over the course of the Fed's interest
rate-hiking campaign, we believe this maturity range could perform well in the
future. Overall, we remain committed to our goal of providing shareholders with
an attractive level of tax-exempt income.
Theodore R. Jaeckel Jr., CFA
Vice President and Portfolio Manager
BlackRock MuniYield Fund, Inc.
William R. Bock
Vice President and Portfolio Manager
BlackRock MuniYield Insured Fund, Inc.
Michael A. Kalinoski, CFA
Vice President and Portfolio Manager
BlackRock MuniYield Quality Fund, Inc.
BlackRock MuniYield Quality Fund II, Inc.
November 20, 2006
10 ANNUAL REPORTS OCTOBER 31, 2006
The Benefits and Risks of Leveraging
The Funds utilize leveraging to seek to enhance the yield and net asset value of
their Common Stock. However, these objectives cannot be achieved in all interest
rate environments. To leverage, each 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, net of
dividends to Preferred Stock, 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 each 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.
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 of October 31, 2006, BlackRock MuniYield Fund, Inc., BlackRock MuniYield
Insured Fund, Inc., BlackRock MuniYield Quality Fund, Inc. and MuniYield Quality
Fund II, Inc. had leverage amounts, due to Auction Market Preferred Stock, of
33.78%, 35.62%, 34.92% and 34.40% of total net assets, respectively, before the
deduction of Preferred Stock.
As a part of their investment strategy, the Funds 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 Funds 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 Funds invest
in inverse floaters, the market value of each Fund's portfolio and the net asset
value of each Fund's shares may also be more volatile than if the Funds did not
invest in these securities.
Swap Agreements
The Funds may 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. Swap agreements involve the risk that the party with whom each
Fund has entered into a swap will default on its obligation to pay the Fund and
the risk that the Fund will not be able to meet its obligations to pay the other
party to the agreement.
ANNUAL REPORTS OCTOBER 31, 2006 11
Schedule of Investments as of October 31, 2006
BlackRock MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Alabama--2.2%
$ 5,250 Jefferson County, Alabama, Limited Obligation School
Warrants, Series A, 5.50% due 1/01/2022 $ 5,733
Tuscaloosa, Alabama, Special Care Facilities Financing
Authority, Residential Care Facility Revenue Bonds
(Capstone Village, Inc. Project) Series A:
2,200 5.625% due 8/01/2025 2,214
6,425 5.875% due 8/01/2036 6,559
===============================================================================================
Arizona--11.6%
Arizona State Transportation Board, Highway Revenue
Bonds, Sub-Series A:
5,825 5% due 7/01/2021 6,230
7,030 5% due 7/01/2022 7,504
5,240 5% due 7/01/2023 5,576
3,300 Maricopa County, Arizona, IDA, Education Revenue
Bonds (Arizona Charter Schools Project 1), Series A,
6.75% due 7/01/2029 3,315
Maricopa County, Arizona, IDA, M/F Housing Revenue
Refunding Bonds (CRS Pine Ridge Housing
Corporation), Series A-1 (e)(i):
5,000 6% due 10/20/2031 5,381
5,000 6.05% due 10/20/2036 5,327
Phoenix, Arizona, IDA, Airport Facility, Revenue
Refunding Bonds (America West Airlines Inc.
Project), AMT:
3,000 6.25% due 6/01/2019 3,088
5,090 6.30% due 4/01/2023 5,195
Phoenix, Arizona, IDA, M/F Housing Revenue Bonds
(Summit Apartments LLC Project) (i):
1,610 6.25% due 7/20/2022 1,763
1,425 6.45% due 7/20/2032 1,557
1,305 6.55% due 7/20/2037 1,429
1,400 Pima County, Arizona, IDA, Education Revenue Bonds
(Arizona Charter Schools Project II), Series A,
6.75% due 7/01/2031 1,485
17,500 Salt River Project, Arizona, Agriculture Improvement
and Power District, Electric System Revenue Bonds,
Series A, 5% due 1/01/2037 18,624
Vistancia Community Facilities District, Arizona, GO:
3,000 5.50% due 7/15/2020 3,120
2,125 5.75% due 7/15/2024 2,230
5,900 Yavapai County, Arizona, IDA, Hospital Facility Revenue
Bonds (Yavapai Regional Medical Center), Series A,
6% due 8/01/2033 6,406
===============================================================================================
Arkansas--0.7%
University of Arkansas, University Construction
Revenue Bonds (UAMS Campus), Series B (k):
2,000 5% due 11/01/2020 2,137
1,600 5% due 11/01/2027 1,695
1,000 University of Arkansas, University Revenue Refunding
Bonds (UAMS Campus), Series A, 5%
due 11/01/2014 (k) 1,086
===============================================================================================
California--14.4%
8,760 California State, GO, 5% due 2/01/2033 9,160
California State Public Works Board, Lease
Revenue Bonds:
2,000 (Department of Corrections), Series C, 5%
due 6/01/2025 2,098
4,500 (Department of Mental Health--Coalinga State
Hospital), Series A, 5.125% due 6/01/2029 4,744
California State, Various Purpose, GO:
6,800 5.25% due 11/01/2025 7,310
10,000 5% due 4/01/2031 (a) 10,511
5,550 5.50% due 11/01/2033 6,104
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds:
5,500 Series A-3, 7.875% due 6/01/2042 6,758
7,500 Series A-4, 7.80% due 6/01/2042 9,184
Los Angeles, California, Unified School District, GO,
Series A (h):
7,570 5% due 7/01/2022 8,050
18,400 5% due 7/01/2023 19,455
5,145 Santa Clara, California, Subordinated Electric Revenue
Bonds, Series A, 5% due 7/01/2022 (k) 5,465
7,465 University of California Revenue Bonds (Multiple
Purpose Projects), Series Q, 5% due 9/01/2021 (h) 7,960
===============================================================================================
Colorado--5.1%
3,245 Colorado Educational and Cultural Facilities Authority,
Revenue Refunding Bonds (University of Denver
Project), Series B, 5.25% due 3/01/2035 (d) 3,524
330 Colorado HFA, Revenue Refunding Bonds (S/F Program),
AMT, Series D-2, 6.90% due 4/01/2029 333
8,000 Denver, Colorado, City and County Airport Revenue
Bonds, AMT, Series D, 7.75% due 11/15/2013 (a) 9,132
4,755 Denver, Colorado, Urban Renewal Authority, Tax
Increment Revenue Bonds (Pavilions), AMT, 7.75%
due 3/01/2007 (l) 4,853
Portfolio Abbreviations
To simplify the listings of portfolio holdings in the Schedules of Investments,
we have abbreviated the names of many of the securities according to the list at
right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
DRIVERS Derivative Inverse Tax-Exempt Receipts
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
PILOT Payment in Lieu of Taxes
S/F Single-Family
VRDN Variable Rate Demand Notes
12 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments (continued)
BlackRock MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Colorado (concluded)
Elk Valley, Colorado, Public Improvement Revenue
Bonds (Public Improvement Fee), Series A:
$ 1,615 7.10% due 9/01/2014 $ 1,738
5,065 7.35% due 9/01/2031 5,407
Plaza Metropolitan District Number 1, Colorado,
Tax Allocation Revenue Bonds (Public
Improvement Fees):
6,850 8% due 12/01/2025 7,595
1,885 8.125% due 12/01/2025 1,899
===============================================================================================
Connecticut--0.1%
450 Connecticut State Development Authority, IDR (AFCO
Cargo BDL-LLC Project), AMT, 7.35% due 4/01/2010 473
===============================================================================================
Delaware--0.3%
2,000 New Castle County, Delaware, PCR (General Motors
Corporation Project), VRDN, 7.10%
due 10/01/2008 (n) 2,000
===============================================================================================
Florida--6.3%
4,240 Highlands County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System),
Series C, 5.25% due 11/15/2036 4,523
Hillsborough County, Florida, IDA, Exempt Facilities
Revenue Bonds (National Gypsum Company), AMT:
11,500 Series A, 7.125% due 4/01/2030 12,651
5,000 Series B, 7.125% due 4/01/2030 5,500
4,705 Lee County, Florida, Revenue Bonds, 5%
due 10/01/2022 (a) 5,016
5,450 Midtown Miami, Florida, Community Development
District, Special Assessment Revenue Bonds, Series B,
6.50% due 5/01/2037 6,053
1,100 Orange County, Florida, Health Facilities Authority,
Health Care Revenue Refunding Bonds (Orlando
Lutheran Towers), 5.375% due 7/01/2020 1,116
2,500 Orlando, Florida, Greater Orlando Aviation Authority,
Airport Facilities Revenue Bonds (JetBlue Airways
Corp.), AMT, 6.50% due 11/15/2036 2,616
4,620 Santa Rosa Bay Bridge Authority, Florida, Revenue
Bonds, 6.25% due 7/01/2028 4,675
===============================================================================================
Georgia--1.6%
4,600 Atlanta, Georgia, Tax Allocation Bonds (Atlantic Station
Project), 7.90% due 12/01/2024 5,117
Brunswick and Glynn County, Georgia, Development
Authority, First Mortgage Revenue Bonds (Coastal
Community Retirement Corporation Project), Series A:
2,285 7.125% due 1/01/2025 2,253
3,595 7.25% due 1/01/2035 3,556
===============================================================================================
Idaho--1.6%
180 Idaho Housing Agency, S/F Mortgage Revenue
Refunding Bonds, AMT, Senior Series C-2,
7.15% due 7/01/2023 185
10,000 Power County, Idaho, Industrial Development
Corporation, Solid Waste Disposal Revenue
Bonds (FMC Corporation Project), AMT, 6.45%
due 8/01/2032 10,663
===============================================================================================
Illinois--5.1%
675 Beardstown, Illinois, IDR (Jefferson Smurfit Corp.
Project), 8% due 10/01/2016 690
1,000 Bolingbrook, Illinois, Special Services Area Number 1,
Special Tax Bonds (Forest City Project), 5.90%
due 3/01/2027 (p) 1,013
13,200 Chicago, Illinois, O'Hare International Airport Revenue
Bonds, Third Lien, AMT, Series B-2, 6%
due 1/01/2029 (f) 14,813
3,915 Chicago, Illinois, O'Hare International Airport, Special
Facility Revenue Refunding Bonds (American Airlines
Inc. Project), 8.20% due 12/01/2024 4,037
Illinois State Finance Authority Revenue Bonds, Series A:
1,750 (Friendship Village of Schaumburg), 5.625%
due 2/15/2037 1,788
2,155 (Landing At Plymouth Place Project), 6%
due 5/15/2037 2,261
5,000 Illinois State Finance Authority, Revenue Refunding
Bonds (Northwestern University), 5% due 12/01/2042 5,249
4,000 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Bonds (McCormick
Place Expansion), Series A, 5.50% due 6/15/2023 (k) 4,346
===============================================================================================
Indiana--1.1%
2,850 Indiana Municipal Power Agency, Power Supply System
Revenue Bonds, Series A, 5% due 1/01/2029 (d) 3,010
4,300 Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A, 5% due 6/01/2028 (h) 4,503
===============================================================================================
Kansas--0.2%
1,250 Lenexa, Kansas, Health Care Facility Revenue
Bonds (Lakeview Village Inc.), Series C, 6.875%
due 5/15/2032 1,365
===============================================================================================
Kentucky--0.5%
Kentucky Economic Development Finance Authority,
Health System Revenue Refunding Bonds (Norton
Healthcare, Inc.), Series A:
2,350 6.625% due 10/01/2010 (l) 2,622
650 6.625% due 10/01/2028 722
===============================================================================================
Louisiana--5.7%
6,750 Louisiana Public Facilities Authority, Hospital Revenue
Bonds (Franciscan Missionaries of Our Lady Health
System, Inc.), Series A, 5.25% due 8/15/2036 7,139
1,000 Louisiana Public Facilities Authority, Revenue Refunding
Bonds (Pennington Medical Foundation Project),
5% due 7/01/2031 1,038
10,000 Louisiana State Citizens Property Insurance Corporation,
Assessment Revenue Bonds, Series B, 5%
due 6/01/2020 (a) 10,789
19,000 Port New Orleans, Louisiana, IDR, Refunding
(Continental Grain Company Project), 6.50%
due 1/01/2017 19,379
===============================================================================================
ANNUAL REPORTS OCTOBER 31, 2006 13
Schedule of Investments (continued)
BlackRock MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Maryland--3.6%
Baltimore, Maryland, Convention Center Hotel
Revenue Bonds:
$ 5,615 Senior Series A, 5.25% due 9/01/2039 (f) $ 6,105
1,920 Sub-Series B, 5.875% due 9/01/2039 2,032
3,000 Maryland State Energy Financing Administration,
Limited Obligation Revenue Bonds (Cogeneration --
AES Warrior Run), AMT, 7.40% due 9/01/2019 3,023
Maryland State Health and Higher Educational Facilities
Authority, Revenue Refunding Bonds:
6,375 (Peninsula Regional Medical Center), 5%
due 7/01/2036 6,694
4,000 (University of Maryland Medical System), 6%
due 7/01/2032 4,364
500 Maryland State Industrial Development Financing
Authority, Economic Development Revenue Bonds
(Our Lady of Good Counsel School), Series A,
6% due 5/01/2035 537
1,500 Prince Georges County, Maryland, Special Obligation
Bonds (National Harbor Project), 5.20%
due 7/01/2034 1,532
===============================================================================================
Massachusetts--4.9%
1,410 Massachusetts State College Building Authority, Project
Revenue Bonds, Series A, 5% due 5/01/2031 (a) 1,501
10,000 Massachusetts State, Consolidated Loan, GO, Series C,
5% due 9/01/2015 (l) 10,964
3,500 Massachusetts State Development Finance Agency,
Human Service Provider Revenue Bonds (Seven Hills
Foundation & Affiliates), 5% due 9/01/2035 (m) 3,647
2,750 Massachusetts State Development Finance Agency,
Revenue Refunding Bonds (Western New England
College), Series A, 5% due 9/01/2033 (b) 2,894
3,125 Massachusetts State Health and Educational Facilities
Authority, Revenue Bonds (University of Massachusetts
Memorial Healthcare), Series D, 5% due 7/01/2033 3,186
10,000 Massachusetts State Special Obligation Dedicated Tax
Revenue Bonds, 5.25% due 1/01/2014 (d)(l) 10,961
===============================================================================================
Michigan--1.5%
6,060 Macomb County, Michigan, Hospital Finance Authority,
Hospital Revenue Bonds (Mount Clemens General
Hospital), Series B, 5.875% due 11/15/2034 6,419
1,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Henry Ford Health System),
Series A, 5.25% due 11/15/2032 1,071
2,500 Michigan State Strategic Fund, PCR, Refunding
(General Motors Corp.), 6.20% due 9/01/2020 2,512
===============================================================================================
Minnesota--1.8%
Eden Prairie, Minnesota, M/F Housing Revenue Bonds
(Rolling Hills Project), Series A (i):
420 6% due 8/20/2021 460
2,000 6.20% due 2/20/2043 2,172
945 Minneapolis, Minnesota, M/F Housing Revenue Bonds
(Gaar Scott Loft Project), AMT, 5.95% due 5/01/2030 985
Minnesota State Municipal Power Agency, Electric
Revenue Bonds:
4,500 5% due 10/01/2030 4,707
3,340 5% due 10/01/2035 3,486
===============================================================================================
Missouri--4.1%
2,690 Fenton, Missouri, Tax Increment Revenue Refunding
and Improvement Bonds (Gravois Bluffs), 7%
due 10/01/2011 (l) 3,113
2,500 Missouri Joint Municipal Electric Utility Commission,
Power Project Revenue Bonds (Latan 2 Project),
Series A, 4.50% due 1/01/2036 (a) 2,504
Missouri State Highways and Transportation Commission,
First Lien State Road Revenue Bonds, Series A:
5,000 5% due 5/01/2020 5,433
15,000 5% due 5/01/2021 16,262
85 Missouri State Housing Development Commission,
S/F Mortgage Revenue Bonds, Homeownership,
AMT, Series B, 7.55% due 9/01/2027 (g)(i) 86
===============================================================================================
Nebraska--0.3%
Lincoln, Nebraska, Sanitation and Sewer Revenue Bonds:
865 4.25% due 6/15/2024 862
905 4.25% due 6/15/2025 898
===============================================================================================
New Hampshire--0.6%
3,425 New Hampshire Health and Education Facilities
Authority, Revenue Refunding Bonds (Elliot
Hospital), Series B, 5.60% due 10/01/2022 3,705
===============================================================================================
New Jersey--17.3%
11,435 New Jersey EDA, Cigarette Tax Revenue Bonds,
5.50% due 6/15/2024 12,120
New Jersey EDA, First Mortgage Revenue Bonds,
Series A:
710 (Lions Gate Project), 5.75% due 1/01/2025 732
230 (Lions Gate Project), 5.875% due 1/01/2037 237
3,000 (The Presbyterian Home), 6.375% due 11/01/2031 3,184
20,000 New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A, 5% due 7/01/2029 (k) 21,119
4,400 New Jersey EDA, Retirement Community Revenue
Bonds (Cedar Crest Village Inc. Facility), Series A,
7.25% due 11/15/2031 4,786
8,825 New Jersey EDA, School Facilities Construction Revenue
Bonds, Series O, 5.25% due 3/01/2023 9,574
New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines Inc. Project), AMT:
3,905 6.25% due 9/15/2019 4,043
14,000 6.25% due 9/15/2029 14,469
New Jersey Health Care Facilities Financing Authority
Revenue Bonds (Pascack Valley Hospital Association):
1,515 6% due 7/01/2013 1,548
1,835 6.625% due 7/01/2036 1,891
3,000 New Jersey State Educational Facilities Authority,
Revenue Bonds (Richard Stockton College), Series F,
4.25% due 7/01/2036 (k) 2,945
New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds:
3,975 Series A, 5.50% due 12/15/2021 4,607
6,600 Series A, 5.50% due 12/15/2022 7,673
13,110 Series C, 5.05% due 12/15/2035 (a)(p) 3,691
5,425 Series D, 5% due 6/15/2019 (h) 5,848
9,410 Series D, 5% due 6/15/2020 10,012
7,000 Series D, 5% due 6/15/2020 (h) 7,527
===============================================================================================
14 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments (continued)
BlackRock MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
New York--17.5%
$ 2,200 Dutchess County, New York, IDA, Civic Facility Revenue
Refunding Bonds (Saint Francis Hospital), Series A,
7.50% due 3/01/2029 $ 2,424
2,400 Erie County, New York, IDA, Revenue Bonds (Orchard
Park Ccrc, Inc. Project), Series A, 6% due 11/15/2026 2,556
11,000 Metropolitan Transportation Authority, New York,
Transportation Revenue Refunding Bonds, Series F,
5% due 11/15/2035 11,563
New York City, New York, City IDA, PILOT Revenue Bonds:
2,000 (Queens Baseball Stadium Project), 5%
due 1/01/2022 (a) 2,166
2,175 (Queens Baseball Stadium Project), 5%
due 1/01/2023 (a) 2,349
13,250 (Yankee Stadium Project), 5% due 3/01/2036 (k) 14,118
1,250 New York City, New York, City IDA, Special Facility
Revenue Bonds (British Airways Plc Project), AMT,
7.625% due 12/01/2032 1,402
10,000 New York City, New York, City Municipal Water Finance
Authority, Water and Sewer System, Revenue
Refunding Bonds, 5.50% due 6/15/2010 (l) 10,760
New York City, New York, GO:
10,000 Series M, 5% due 4/01/2021 10,620
2,500 Series O, 5% due 6/01/2033 2,624
6,500 New York Liberty Development Corporation, Revenue
Bonds (Goldman Sachs Headquarters), 5.25%
due 10/01/2035 7,552
New York State Dormitory Authority, Non-State
Supported Debt, Revenue Refunding Bonds (Mount
Sinai Health), Series A:
3,145 6.75% due 7/01/2010 (l) 3,500
1,855 6.75% due 7/01/2020 2,019
5,000 New York State Dormitory Authority, State Personal
Income Tax Revenue Bonds (Education), Series F,
5% due 3/15/2035 5,294
8,360 New York State Dormitory Authority, Supported Debt
Revenue Refunding Bonds (Department of Health),
Series A, 5% due 7/01/2023 (c) 8,879
2,500 Suffolk County, New York, IDA, IDR, Refunding
(Nissequogue Cogeneration Partners Facility), AMT,
5.50% due 1/01/2023 2,483
9,400 Tobacco Settlement Financing Corporation of New York
Revenue Bonds, Series C-1, 5.50% due 6/01/2021 10,277
10,000 Triborough Bridge and Tunnel Authority, New York,
Subordinate Revenue Bonds, 5.25% due 11/15/2030 10,665
Westchester County, New York, IDA, Continuing Care
Retirement Mortgage Revenue Bonds (Kendal on
Hudson Project), Series A:
3,450 6.375% due 1/01/2024 3,689
2,895 6.50% due 1/01/2034 3,098
===============================================================================================
North Carolina--1.8%
4,750 North Carolina Eastern Municipal Power Agency,
Power System Revenue Bonds, Series D, 6.75%
due 1/01/2026 5,166
165 North Carolina HFA, Home Ownership Revenue Bonds,
AMT, Series 8-A, 6.20% due 7/01/2016 170
785 North Carolina, HFA, S/F Revenue Bonds, Series II,
6.20% due 3/01/2016 (e) 819
North Carolina Medical Care Commission, Health Care
Facilities, First Mortgage Revenue Bonds:
1,000 (Arbor Acres Community Project), 6.375%
due 3/01/2032 1,074
5,000 (Presbyterian Homes Project), 5.40%
due 10/01/2027 5,163
===============================================================================================
Ohio--3.1%
3,000 Cincinnati, Ohio, City School District, GO (Classroom
Construction and Improvement), Refunding,
5.25% due 12/01/2020 (d) 3,429
Cuyahoga County, Ohio, Mortgage Revenue Bonds
(West Tech Apartments Project), AMT (i):
141 5.75% due 9/20/2020 141
225 5.85% due 9/20/2030 225
5,065 Hamilton County, Ohio, Sewer System Improvement
Revenue Bonds (The Metropolitan Sewer District of
Greater Cincinnati), Series B, 5% due 12/01/2028 (k) 5,396
2,175 Lucas County, Ohio, Health Care Facility Revenue
Refunding and Improvement Bonds (Sunset Retirement
Communities), Series A, 6.625% due 8/15/2030 2,342
5,000 Mason, Ohio, City School District, GO (School
Improvement), 5% due 12/01/2031 (h) 5,274
970 Port of Greater Cincinnati Development Authority,
Ohio, Special Assessment Revenue Bonds
(Cooperative Public Parking Infrastructure Project),
6.30% due 2/15/2024 1,062
Toledo-Lucas County, Ohio, Port Authority Revenue
Bonds (Saint Mary Woods Project), Series A:
750 6% due 5/15/2024 766
2,250 6% due 5/15/2034 2,277
===============================================================================================
Oregon--1.4%
4,405 Oregon State Department of Administrative Services,
COP, Series A, 6% due 5/01/2010 (a)(l) 4,796
2,870 Oregon State, GO, Refunding (Veterans Welfare),
Series 80A, 5.70% due 10/01/2032 2,891
1,830 Portland, Oregon, Housing Authority, Housing Revenue
Bonds (Pine Square and University Place), Series A,
5.875% due 1/01/2022 1,879
===============================================================================================
Pennsylvania--5.6%
5,270 Pennsylvania Economic Development Financing
Authority, Exempt Facilities Revenue Bonds
(National Gypsum Company), AMT, Series A,
6.25% due 11/01/2027 5,558
16,270 Pennsylvania State Higher Educational Facilities
Authority, Health Services Revenue Refunding Bonds
(Allegheny Delaware Valley Obligation), Series C,
5.875% due 11/15/2016 (k) 16,623
ANNUAL REPORTS OCTOBER 31, 2006 15
Schedule of Investments (continued)
BlackRock MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Pennsylvania (concluded)
$ 1,265 Philadelphia, Pennsylvania, Authority for IDR,
Commercial Development, 7.75% due 12/01/2017 $ 1,268
Philadelphia, Pennsylvania, Authority for IDR,
Commercial Development, Refunding:
3,650 (Days Inn), Series B, 6.50%
due 2/01/2007 (l) 3,746
4,000 (Doubletree), Series A, 6.50%
due 2/01/2007 (l) 4,106
5,000 Sayre, Pennsylvania, Health Care Facilities Authority,
Revenue Bonds (Guthrie Healthcare System),
Series B, 7.125% due 12/01/2031 5,993
===============================================================================================
Rhode Island--1.1%
4,240 Central Falls, Rhode Island, Detention Facility
Corporation, Detention Facility, Revenue Refunding
Bonds, 7.25% due 7/15/2035 4,771
Woonsocket, Rhode Island, GO (d):
1,225 6% due 10/01/2017 1,343
1,195 6% due 10/01/2018 1,306
===============================================================================================
Tennessee--2.2%
4,340 Hardeman County, Tennessee, Correctional Facilities
Corporation Revenue Bonds, 7.75% due 8/01/2017 4,476
10,000 McMinn County, Tennessee, IDB, Solid Waste Revenue
Bonds (Recycling Facility--Calhoun Newsprint), AMT,
7.40% due 12/01/2022 10,150
===============================================================================================
Texas--13.2%
5,000 Alliance Airport Authority, Inc., Texas, Special Facilities
Revenue Bonds (American Airlines Inc. Project), AMT,
7.50% due 12/01/2029 5,100
Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), First Tier, Series A:
5,000 6.70% due 1/01/2028 5,331
5,000 6.70% due 1/01/2032 5,294
Bexar County, Texas, Housing Finance Corporation,
M/F Housing Revenue Bonds (Water at Northern
Hills Apartments), Series A (k):
1,300 5.80% due 8/01/2021 1,331
2,460 6% due 8/01/2031 2,518
1,000 6.05% due 8/01/2036 1,024
3,755 Brazos River Authority, Texas, Revenue Refunding
Bonds (Reliant Energy Inc. Project), Series B,
7.75% due 12/01/2018 3,996
5,480 Dallas-Fort Worth, Texas, International Airport Facilities
Improvement Corporation Revenue Bonds (American
Airlines, Inc.), AMT, 7.25% due 11/01/2030 5,562
Gregg County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Good Shepherd
Medical Center Project) (m):
3,000 6.875% due 10/01/2020 3,374
2,000 6.375% due 10/01/2025 2,214
5,000 Guadalupe-Blanco River Authority, Texas, Sewage and
Solid Waste Disposal Facility Revenue Bonds (E. I. du
Pont de Nemours and Company Project), AMT,
6.40% due 4/01/2026 5,108
3,900 Gulf Coast, Texas, IDA, Solid Waste Disposal Revenue
Bonds (Citgo Petroleum Corporation Project), AMT,
7.50% due 5/01/2025 4,387
Houston, Texas, Airport System, Special Facilities
Revenue Bonds (Continental Airlines), AMT, Series E:
3,500 7.375% due 7/01/2022 3,839
3,000 7% due 7/01/2029 3,245
1,600 Houston, Texas, Industrial Development Corporation
Revenue Bonds (Air Cargo), AMT, 6.375%
due 1/01/2023 1,716
Lower Colorado River Authority, Texas, PCR (Samsung
Austin Semiconductor), AMT:
4,830 6.375% due 4/01/2027 4,981
3,330 6.95% due 4/01/2030 3,674
7,030 Matagorda County, Texas, Navigation District Number 1,
Revenue Refunding Bonds (Reliant Energy Inc.),
Series C, 8% due 5/01/2029 7,475
3,900 Port Corpus Christi, Texas, Individual Development
Corporation, Environmental Facilities Revenue Bonds
(Citgo Petroleum Corporation Project), AMT,
8.25% due 11/01/2031 4,035
6,500 Texas State Turnpike Authority, Central Texas Turnpike
System Revenue Bonds, First Tier, Series A, 5.50%
due 8/15/2039 (a) 7,051
7,020 Tyler, Texas, Waterworks and Sewer Revenue Bonds,
5.70% due 9/01/2010 (d)(l) 7,546
===============================================================================================
Virginia--2.5%
James City County, Virginia, EDA, Residential Care
Facility, First Mortgage Revenue Refunding Bonds
(Williamsburg Landing, Inc.), Series A:
1,500 5.35% due 9/01/2026 1,541
2,000 5.50% due 9/01/2034 2,056
Pocahontas Parkway Association, Virginia, Toll Road
Revenue Bonds (l):
5,000 Senior Series A, 5.50% due 8/15/2008 5,264
24,800 Senior Series B, 6.67% due 8/15/2008 (p) 6,991
1,000 Winchester, Virginia, IDA, Residential Care Facilities,
Revenue Bonds (Westminster-Canterbury), Series A,
5.20% due 1/01/2027 1,017
===============================================================================================
Washington--0.3%
Vancouver, Washington, Housing Authority, Housing
Revenue Bonds (Teal Pointe Apartments Project), AMT:
945 6% due 9/01/2022 970
1,250 6.20% due 9/01/2032 1,282
===============================================================================================
Wisconsin--0.6%
695 Milwaukee, Wisconsin, Revenue Bonds (Air Cargo),
AMT, 6.50% due 1/01/2025 750
Wisconsin Health and Educational Facilities Authority,
Revenue Refunding Bonds (Eastcastle Place
Inc. Project):
1,000 6% due 12/01/2024 1,031
1,800 6.125% due 12/01/2034 1,845
700 Wisconsin State, GO, AMT, Series B, 6.20%
due 11/01/2026 (k) 708
===============================================================================================
16 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments (concluded)
BlackRock MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Wyoming--0.4%
$ 2,500 Wyoming Student Loan Corporation, Student Loan
Revenue Refunding Bonds, Series A, 6.20%
due 6/01/2024 $ 2,658
===============================================================================================
U.S. Virgin Islands--1.0%
6,250 Virgin Islands Public Finance Authority, Refinery
Facilities Revenue Bonds (Hovensa Refinery), AMT,
6.125% due 7/01/2022 6,910
-----------------------------------------------------------------------------------------------
Total Municipal Bonds
(Cost--$889,759)--141.3% 950,288
===============================================================================================
Municipal Bonds Held in Trust (o)
===============================================================================================
New York--3.3%
New York City, New York, GO, Refunding, Series A (d):
10,000 6.375% due 5/15/2014 10,959
10,000 6.375% due 5/15/2015 10,959
===============================================================================================
South Carolina--2.8%
Charleston Educational Excellence Financing Corporation,
South Carolina, Revenue Bonds (Charleston County
School District) (b):
7,795 5.25% due 12/01/2028 8,444
6,920 5.25% due 12/01/2029 7,491
2,510 5.25% due 12/01/2030 2,717
===============================================================================================
Puerto Rico--5.6%
30,000 Puerto Rico Commonwealth Highway and Transportation
Authority, Transportation Revenue Bonds, Series B,
5.875% due 7/01/2035 (k) 32,678
5,000 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series HH, 5.75% due 7/01/2010 (h)(l) 5,415
-----------------------------------------------------------------------------------------------
Total Municipal Bonds Held in Trust
(Cost--$75,321)--11.7% 78,663
===============================================================================================
Shares
Held Short-Term Securities
===============================================================================================
6,924 Merrill Lynch Institutional Tax-Exempt Fund,
3.38% (j)(q) 6,924
-----------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$6,924)--1.0% 6,924
===============================================================================================
Total Investments (Cost--$972,004*)--154.0% 1,035,875
Other Assets Less Liabilities--2.5% 16,485
Liability for Trust Certificates, Including Interest Expense Payable--(5.4%) (36,610)
Preferred Stock, at Redemption Value--(51.1%) (343,383)
----------
Net Assets Applicable to Common Stock--100.0% $ 672,367
==========
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................. $ 937,168
===========
Gross unrealized appreciation .............................. $ 62,754
Gross unrealized depreciation .............................. (160)
-----------
Net unrealized appreciation ................................ $ 62,594
===========
(a) AMBAC Insured.
(b) Assured Guaranty Insured.
(c) CIFG Insured.
(d) FGIC Insured.
(e) FHA Insured.
(f) XL Capital Insured.
(g) FNMA Collateralized.
(h) FSA Insured.
(i) GNMA Collateralized.
(j) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund 4,424 $ 346
--------------------------------------------------------------------------
(k) MBIA Insured.
(l) Prerefunded.
(m) Radian Insured.
(n) Security may have a maturity of more than one year at time of issuance,
but has variable rate and demand features that qualify it as a short-term
security. The rate disclosed is that currently in effect. This rate
changes periodically based upon prevailing market rates.
(o) Securities represent underlying bonds transferred to a separate
securitization trust established in a tender option bond transaction in
which the Fund acquired the residual interest certificates. These
securities serve as collateral in a financing transaction. See Note 1(c)
to Financial Statements for details of Municipal Bonds Held in Trust.
(p) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(q) Represents the current yield as of October 31, 2006.
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2006 17
Schedule of Investments as of October 31, 2006
BlackRock MuniYield Insured Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Alaska--0.4%
$ 3,695 Alaska Energy Authority, Power Revenue Refunding
Bonds (Bradley Lake), Fourth Series, 6%
due 7/01/2018 (g) $ 4,371
===============================================================================================
Arizona--2.2%
21,355 Downtown Phoenix Hotel Corporation, Arizona,
Revenue Bonds, Senior Series A, 5%
due 7/01/2036 (c) 22,460
===============================================================================================
California--29.8%
10,000 Alameda Corridor Transportation Authority,
California, Capital Appreciation Revenue
Refunding Bonds, Subordinate Lien, Series A,
5.40% due 10/01/2014 (a)(m) 8,123
5,000 Antioch, California, Public Finance Authority, Lease
Revenue Refunding Bonds (Municipal Facilities
Project), Series A, 5.50% due 1/01/2032 (b) 5,326
10,000 California Infrastructure and Economic Development
Bank, Bay Area Toll Bridges Revenue Bonds,
First Lien, Series A, 5% due 7/01/2025 (c)(i) 11,334
California State Public Works Board, Lease
Revenue Bonds:
5,500 (Department of Corrections), Series C,
5.25% due 6/01/2028 5,854
3,755 (Department of General Services), Series D,
5.25% due 6/01/2028 3,997
5,250 (Department of Mental Health--Coalinga State
Hospital), Series A, 5.125% due 6/01/2029 5,534
12,000 California State, Various Purpose, GO, 5.25%
due 11/01/2029 12,840
32,000 California State, Various Purpose, GO, Refunding,
5% due 6/01/2034 (d) 33,729
7,740 California Statewide Communities Development
Authority, Health Facility Revenue Bonds (Memorial
Health Services), Series A, 6% due 10/01/2023 8,617
4,205 California Statewide Communities Development
Authority, Water Revenue Bonds (Pooled Financing
Program), Series C, 5.25% due 10/01/2034 (g) 4,492
5,800 Fairfield-Suisun, California, Unified School District,
GO (Election of 2002), 5.50% due 8/01/2028 (b) 6,403
6,060 Glendale, California, Community College District, GO
(Election of 2002), Series D, 5% due 11/01/2031 (b) 6,483
13,155 Huntington Beach, California, Union High School
District, GO (Election of 2004), 5%
due 8/01/2029 (g) 13,916
1,000 Long Beach, California, Harbor Revenue Refunding
Bonds, AMT, Series B, 5.20% due 5/15/2027 (b) 1,060
42,750 Los Angeles, California, Unified School District, GO,
Series A, 5% due 1/01/2028 (b) 45,202
Los Angeles, California, Water and Power Revenue
Bonds (Power System) (g):
12,775 Series B, 5% due 7/01/2035 13,386
35,200 Sub-Series A-1, 5% due 7/01/2035 37,305
7,500 Modesto, California, Irrigation District, COP,
Refunding and Capital Improvements, Series A,
5% due 10/01/2036 (a) 7,957
10,365 Pasadena, California, Area Community College
District, GO (Election of 2002), Series B,
5% due 8/01/2031 (a) 11,073
145 Port of Oakland, California, Revenue Bonds, AMT,
Series K, 5.75% due 11/01/2021 (c) 154
10,000 Riverside County, California, Public Financing
Authority, Tax Allocation Revenue Bonds
(Redevelopment Projects), 5% due 10/01/2035 (e) 10,458
3,000 Riverside County, California, Public Financing
Authority, Tax Allocation Revenue Refunding
Bonds (Jurupa Valley Project and Interstate 215
Corridor Project), 5% due 10/01/2023 (b) 3,221
San Francisco, California, Bay Area Rapid Transit
District, Sales Tax Revenue Bonds (g):
7,500 5% due 7/01/2031 7,920
10,000 5% due 7/01/2036 10,539
8,170 San Francisco, California, Community College
District, GO (Election of 2001), Series C, 5%
due 6/15/2029 (g) 8,736
8,310 Stockton, California, Public Financing Authority,
Lease Revenue Bonds (Parking & Capital Projects),
5.25% due 9/01/2034 (c) 8,911
12,000 West Valley Mission Community College District,
California, GO (Election of 2004), Series A,
5% due 8/01/2030 (g) 12,810
===============================================================================================
Colorado--1.0%
10,000 Colorado HFA, Revenue Refunding Bonds (Adventist
Health System/Sunbelt Obligor Group), Series D,
5.125% due 11/15/2029 10,558
===============================================================================================
District of Columbia--3.6%
District of Columbia, Ballpark Revenue Bonds,
Series B-1 (c):
25,000 5% due 2/01/2031 26,420
10,000 5% due 2/01/2035 10,537
===============================================================================================
Florida--1.4%
4,715 Highlands County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System),
Series C, 5.25% due 11/15/2036 5,029
1,000 Miami-Dade County, Florida, Aviation Revenue
Refunding Bonds (Miami International Airport),
AMT, 5.375% due 10/01/2027 (c) 1,060
5,000 Orange County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System),
5.625% due 11/15/2032 5,407
3,225 Pinellas County, Florida, Health Facilities Authority,
Revenue Refunding Bonds (Pooled Hospital
Loan Program), DATES, VRDN, 3.65%
due 12/01/2015 (a)(h) 3,225
===============================================================================================
Georgia--4.6%
Atlanta, Georgia, Airport General Revenue Refunding
Bonds (g):
26,500 AMT, Series A, 5.125% due 1/01/2030 27,753
12,500 Series B, 5.25% due 1/01/2033 13,428
Burke County, Georgia, Development Authority, PCR,
Refunding, VRDN (a)(h):
3,000 (Oglethorpe Power Corporation),
3.61% due 1/01/2021 3,000
3,000 (Oglethorpe Power Corporation--Vogtle),
3.61% due 1/01/2022 3,000
===============================================================================================
Hawaii--0.5%
2,000 Hawaii State, GO, Series CX, 5.50% due 2/01/2021 (g) 2,168
3,000 Hawaii State Harbor System Revenue Bonds, AMT,
Series A, 5% due 1/01/2031 (g) 3,130
===============================================================================================
18 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments (continued)
BlackRock MuniYield Insured Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Illinois--4.8%
$ 15,400 Chicago, Illinois, GO, Series C, 5% due 1/01/2035 (b) $ 16,097
Chicago, Illinois, O'Hare International Airport,
Revenue Refunding Bonds, AMT:
1,500 Third Lien, Series C-2, 5.25% due 1/01/2034 (e) 1,577
13,000 Illinois Health Facilities Authority Revenue Refunding
Bonds (University of Chicago Hospitals), VRDN,
3.63% due 8/01/2026 (b)(h) 13,000
5,000 Illinois State, GO, 5% due 4/01/2028 (a) 5,299
6,035 McLean and Woodford Counties, Illinois, Community
Unit, School District Number 005, GO, Refunding,
6.375% due 12/01/2016 (g) 6,786
4,800 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds
(McCormick Place Expansion Project), Series B,
5.75% due 6/15/2023 (b) 5,301
1,000 Regional Transportation Authority, Illinois, Revenue
Bonds, Series C, 7.75% due 6/01/2020 (c) 1,381
===============================================================================================
Indiana--5.6%
2,250 Indiana Health Facilities Financing Authority, Hospital
Revenue Bonds (Deaconess Hospital Obligated
Group), Series A, 5.375% due 3/01/2034 (a) 2,419
Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A:
3,000 5.25% due 6/01/2026 (c) 3,268
3,750 5% due 6/01/2028 (g) 3,927
14,000 5.25% due 6/01/2028 (c) 15,078
20,000 5.25% due 6/01/2029 (c) 21,526
2,705 Indianapolis, Indiana, Local Public Improvement
Bond Bank, Revenue Bonds (Waterworks Project),
Series A, 5.125% due 7/01/2027 (b) 2,855
Indianapolis, Indiana, Local Public Improvement
Bond Bank, Revenue Refunding Bonds (Indianapolis
Airport Authority Project), AMT, Series B (b):
2,000 5.25% due 1/01/2028 2,141
6,525 5.25% due 1/01/2030 6,975
===============================================================================================
Louisiana--6.6%
3,750 Louisiana Local Government, Environmental
Facilities, Community Development Authority
Revenue Bonds (Capital Projects and Equipment
Acquisition), Series A, 6.30% due 7/01/2030 (a) 4,482
6,615 Louisiana Public Facilities Authority, Hospital
Revenue Bonds (Franciscan Missionaries of
Our Lady Health System, Inc.), Series A, 5.25%
due 8/15/2036 6,996
31,255 Louisiana State, GO, Series C, 5% due 5/01/2022 (g) 33,654
Louisiana State, Gas and Fuels Tax Revenue Bonds,
Series A:
4,500 5% due 5/01/2025 (e) 4,801
13,000 5% due 5/01/2031 (g) 13,860
3,545 New Orleans, Louisiana, GO (Public Improvements),
5% due 10/01/2033 (b) 3,693
===============================================================================================
Massachusetts--4.5%
2,500 Massachusetts State, HFA, Housing Development
Revenue Refunding Bonds, Series B, 5.40%
due 12/01/2028 (b) 2,582
12,805 Massachusetts State, HFA, Rental Housing Mortgage
Revenue Bonds, AMT, Series A, 5.15%
due 7/01/2026 (g) 13,079
7,550 Massachusetts State Port Authority Revenue Bonds,
Series A, 5% due 7/01/2033 (b) 7,902
Massachusetts State Special Obligation Dedicated
Tax Revenue Bonds (c)(f):
10,160 5.25% due 1/01/2014 11,136
10,000 5.75% due 1/01/2014 11,273
===============================================================================================
Michigan--3.6%
11,250 Detroit, Michigan, Sewage Disposal System, Second
Lien Revenue Bonds, Series B, 5% due 7/01/2036 (c) 11,903
4,325 Michigan Higher Education Student Loan Authority,
Student Loan Revenue Bonds, AMT, Series XVII-Q,
5% due 3/01/2031 (a) 4,481
20,000 Wayne County, Michigan, Airport Authority Revenue
Bonds (Detroit Metropolitan Wayne County
Airport), AMT, 5% due 12/01/2029 (b) 20,905
===============================================================================================
Missouri--2.9%
Missouri Joint Municipal Electric Utility Commission,
Power Project Revenue Bonds (Latan 2 Project),
Series A (a):
6,550 5% due 1/01/2026 6,986
7,930 5% due 1/01/2027 8,452
8,325 5% due 1/01/2028 8,860
150 Missouri State Housing Development Commission,
S/F Mortgage Revenue Bonds (Homeownership
Loan Program), AMT, Series C-1, 7.15%
due 3/01/2032 (k) 153
5,000 Missouri State Housing Development Commission,
S/F Mortgage Revenue Refunding Bonds
(Homeownership Loan Program), AMT, Series D-1,
5% due 9/01/2037 (k)(l) 5,116
===============================================================================================
Nebraska--3.3%
15,435 Nebraska Public Power District Revenue Bonds,
Series A, 5% due 1/01/2035 (a) 16,137
6,780 Omaha Convention Hotel Corporation, Nebraska,
Convention Center Revenue Bonds, First Tier,
Series A, 5.125% due 4/01/2032 (a) 7,134
10,000 Omaha Public Power District, Nebraska, Electric
System Revenue Bonds, Series A, 5% due 2/01/2034 10,463
===============================================================================================
Nevada--7.5%
25,000 Clark County, Nevada, Airport System Subordinate
Lien Revenue Bonds, Series A-2, 5%
due 7/01/2030 (c) 26,198
6,000 Henderson, Nevada, Health Care Facilities Revenue
Bonds (Catholic Healthcare West), Series A,
5.625% due 7/01/2024 6,502
5,000 Humboldt County, Nevada, PCR, Refunding (Sierra
Pacific Project), 6.55% due 10/01/2013 (a) 5,078
1,165 Reno, Nevada, Capital Improvement Revenue Bonds,
5.50% due 6/01/2019 (c) 1,264
12,500 Truckee Meadows, Nevada, Water Authority,
Water Revenue Refunding Bonds, 4.75%
due 7/01/2032 (g) 12,831
Washoe County, Nevada, Gas Facilities Revenue
Bonds (Sierra Pacific Power Company), AMT:
15,000 6.65% due 12/01/2017 (a) 15,036
5,000 6.55% due 9/01/2020 (b) 5,078
5,000 Washoe County, Nevada, Water Facility Revenue
Bonds (Sierra Pacific Power Company), AMT,
6.65% due 6/01/2017 (b) 5,118
===============================================================================================
ANNUAL REPORTS OCTOBER 31, 2006 19
Schedule of Investments (continued)
BlackRock MuniYield Insured Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
New Hampshire--1.0%
$ 10,000 New Hampshire State Business Finance Authority,
PCR, Refunding (Public Service Company Project),
AMT, Series B, 4.75% due 5/01/2021 (b) $ 10,278
===============================================================================================
New Jersey--5.3%
16,000 Garden State Preservation Trust of New Jersey, Open
Space and Farmland Preservation Revenue Bonds,
Series A, 5.75% due 11/01/2028 (g) 19,749
New Jersey EDA, Cigarette Tax Revenue Bonds:
3,060 5.75% due 6/15/2029 3,329
2,610 5.50% due 6/15/2031 2,780
14,135 5.75% due 6/15/2034 15,283
New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds, Series C (a)(m):
20,000 4.96% due 12/15/2035 5,631
20,000 5.03% due 12/15/2036 5,344
Newark, New Jersey, Housing Authority, Port
Authority--Port Newark Marine Terminal
Additional Rent-Backed Revenue Bonds
(City of Newark Redevelopment Projects) (b):
1,500 5.50% due 1/01/2027 1,652
1,380 5.50% due 1/01/2028 1,520
===============================================================================================
New Mexico--0.2%
1,605 New Mexico Educational Assistance Foundation,
Student Loan Revenue Refunding Bonds (Student
Loan Program), AMT, First Sub-Series A-2,
6.65% due 11/01/2025 1,607
445 New Mexico Mortgage Finance Authority,
S/F Mortgage Revenue Bonds, AMT, Series C-2,
6.95% due 9/01/2031 (k) 452
===============================================================================================
New York--15.4%
10,250 Long Island Power Authority, New York, Electric
System Revenue Bonds, Series A, 5.10%
due 9/01/2029 10,836
12,500 Metropolitan Transportation Authority, New York,
Commuter Facilities Revenue Refunding Bonds,
Series B, 5.125% due 7/01/2024 (a)(i) 12,870
11,250 Metropolitan Transportation Authority, New York,
Transportation Revenue Refunding Bonds, Series F,
5% due 11/15/2030 11,878
30,000 New York City, New York, City Municipal Water
Finance Authority, Water and Sewer System,
Revenue Refunding Bonds, Series B, 5%
due 6/15/2036 (g) 31,678
New York City, New York, GO:
1,880 Series B, 5.875% due 8/01/2016 (b) 2,038
10,000 Series J, 5.25% due 5/15/2024 10,732
1,000 Series J, 5.25% due 5/15/2025 1,075
20,000 Series M, 5% due 4/01/2030 (n) 21,182
6,000 Sub-Series C-1, 5.25% due 8/15/2026 6,439
2,250 New York City, New York, IDA Civic Facilities
Revenue Bonds (YMCA of Greater New York
Project), 5% due 8/01/2026 2,361
11,865 New York State Dormitory Authority, Supported
Debt Revenue Bonds (Mental Health Services
Facilities Improvement), Series E, 5% due 2/15/2035 12,430
6,645 New York State Urban Development Corporation,
Personal Income Tax Revenue Bonds, Series B,
5% due 3/15/2030 (g) 7,046
19,500 Port Authority of New York and New Jersey,
Consolidated Revenue Bonds, AMT, One Hundred
Thirty-Seventh Series, 5.125% due 7/15/2030 (g) 20,644
7,190 Port Authority of New York and New Jersey,
Consolidated Revenue Refunding Bonds, AMT,
One Hundred Thirty-Eighth Series, 5%
due 12/01/2011 (c) 7,603
===============================================================================================
Pennsylvania--2.5%
Philadelphia, Pennsylvania, School District, GO,
Series D (c):
12,115 5.125% due 6/01/2034 12,838
6,000 5.25% due 6/01/2034 6,438
5,000 Sayre, Pennsylvania, Health Care Facilities Authority
Revenue Bonds (Guthrie Healthcare System),
Series B, 7.125% due 12/01/2031 5,993
===============================================================================================
South Carolina--4.1%
5,000 Berkeley County, South Carolina, School District,
Installment Lease Revenue Bonds (Securing Assets
for Education Project), 5.125% due 12/01/2030 5,301
Charleston Educational Excellence Financing
Corporation, South Carolina, Revenue Bonds
(Charleston County School District) (n):
3,895 5.25% due 12/01/2028 4,219
3,465 5.25% due 12/01/2029 3,751
1,160 5.25% due 12/01/2030 1,256
Kershaw County, South Carolina, Public Schools
Foundation, Installment Power Revenue
Refunding Bonds (d):
3,775 5% due 12/01/2030 3,986
3,690 5% due 12/01/2031 3,893
1,185 South Carolina Housing Finance and Development
Authority, Mortgage Revenue Refunding Bonds,
AMT, Series A-2, 6.35% due 7/01/2019 (g) 1,239
18,030 South Carolina Transportation Infrastructure Bank
Revenue Bonds, Series A, 5% due 10/01/2029 (a) 18,826
===============================================================================================
Tennessee--4.1%
3,955 Blount County, Tennessee, Public Building
Authority, Local Government Public Improvement
Revenue Bonds, VRDN, Series A3A, 3.65%
due 6/01/2026 (a)(h) 3,955
Sevier County, Tennessee, Public Building Authority,
Local Government Public Improvement Revenue
Bonds, VRDN (a)(h):
3,580 Series IV-E-1, 3.61% due 6/01/2030 3,580
2,000 Series VI-D-3, 3.61% due 6/01/2033 2,000
100 Sevier County, Tennessee, Public Building Authority
Revenue Bonds, Local Government Public
Improvement IV, VRDN, Series F-1, 3.61%
due 6/01/2025 (a)(h) 100
20,000 Tennessee Energy Acquisition Corporation, Gas
Revenue Bonds, Series A, 5.25% due 9/01/2026 22,661
Tennessee HDA, Revenue Bonds (Homeownership
Program), AMT, Series 2C:
1,795 6.05% due 7/01/2012 1,844
2,250 6.15% due 7/01/2014 2,294
Tennessee HDA, Revenue Refunding Bonds
(Homeownership Program), AMT, Series A (g):
3,340 5.25% due 7/01/2022 3,443
2,365 5.35% due 1/01/2026 2,437
===============================================================================================
20 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments (continued)
BlackRock MuniYield Insured Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Texas--9.3%
$ 1,880 Bexar, Texas, Metropolitan Water District, Waterworks
System Revenue Refunding Bonds, 6.35%
due 5/01/2025 (b) $ 1,903
1,000 Dallas-Fort Worth, Texas, International Airport,
Joint Revenue Bonds, AMT, Series A, 5%
due 11/01/2035 (g) 1,009
750 Dallas-Fort Worth, Texas, International Airport
Revenue Refunding Bonds, DRIVERS, AMT,
Series 336Z, 7.34% due 11/01/2026 (c)(j) 859
Harris County-Houston Sports Authority, Texas,
Revenue Refunding Bonds, Senior Lien, Series G (b):
1,665 5.75% due 11/15/2019 1,808
3,500 5.75% due 11/15/2020 3,800
10,000 5.25% due 11/15/2030 10,621
18,650 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Texas
Children's Hospital), VRDN, Series B-1, 3.62%
due 10/01/2029 (b)(h) 18,650
15,000 North Texas Municipal Water District, Texas, Water
System Revenue Bonds, 5% due 9/01/2031 (b) 15,970
5,890 North Texas Thruway Authority, Dallas North
Thruway System Revenue Bonds, Series A,
5% due 1/01/2035 (g) 6,192
4,825 Texas State Department of Housing and Community
Affairs, S/F Mortgage Revenue Bonds, AMT,
Series A, 5.45% due 9/01/2023 (b)(k) 5,006
20,000 Texas State Transportation Commission, GO
(Mobility Fund), Series A, 4.50% due 4/01/2035 (c) 19,841
10,000 Texas State Turnpike Authority, Central Texas
Turnpike System Revenue Bonds, First Tier,
Series A, 5.50% due 8/15/2039 (a) 10,848
===============================================================================================
Vermont--0.1%
565 Vermont HFA, S/F Housing Revenue Bonds, AMT,
Series 12B, 6.30% due 11/01/2019 (g) 571
===============================================================================================
Virginia--1.0%
2,500 Halifax County, Virginia, IDA, Exempt Facility
Revenue Refunding Bonds (Old Dominion
Electric Cooperative Project), AMT, 5.625%
due 6/01/2028 (a) 2,737
7,695 Virginia Port Authority, Port Facilities Revenue Bonds,
AMT, 5% due 7/01/2036 (c) 7,975
===============================================================================================
Washington--11.1%
Bellevue, Washington, GO, Refunding (b):
2,545 5.25% due 12/01/2026 2,776
2,455 5.25% due 12/01/2027 2,651
2,850 5.25% due 12/01/2028 3,073
3,000 5.25% due 12/01/2029 3,231
17,600 5% due 12/01/2034 18,482
3,030 Chelan County, Washington, Public Utility District
Number 001, Consolidated Revenue Bonds
(Chelan Hydro System), AMT, Series A, 5.45%
due 7/01/2037 (a) 3,252
Chelan County, Washington, Public Utility District
Number 001, Consolidated Revenue Refunding
Bonds (Chelan Hydro System), AMT (b):
6,595 Series B, 6.35% due 7/01/2026 6,837
6,000 Series C, 5.65% due 7/01/2032 6,468
10,000 King County, Washington, School District Number 401
(Highline), GO, 5.25% due 12/01/2025 (g) 10,994
10,000 Radford Court Properties, Washington, Student
Housing Revenue Bonds, 5.75% due 6/01/2032 (b) 10,766
1,720 Seattle, Washington, Drain and Wastewater Utility
Revenue Bonds, 5.75% due 11/01/2009 (b)(f) 1,843
Skagit County, Washington, Public Hospital
District, GO (b):
4,945 Series A, 5.25% due 12/01/2025 5,347
5,450 Series A, 5.25% due 12/01/2026 5,889
5,300 Tacoma, Washington, Regional Water Supply System,
Water Revenue Bonds, 5% due 12/01/2032 (b) 5,514
7,250 Tacoma, Washington, Solid Waste Utility
Revenue Refunding Bonds, Series B, 5.50%
due 12/01/2007 (a)(f) 7,470
7,000 Washington State Health Care Facilities Authority
Revenue Bonds (Providence Health System),
Series A, 5.25% due 10/01/2021 (b) 7,390
12,035 Washington State, Motor Vehicle Fuel Tax, GO,
Series B, 5% due 7/01/2031 (g) 12,793
===============================================================================================
West Virginia--0.6%
5,925 Harrison County, West Virginia, County Commission
for Solid Waste Disposal Revenue Bonds
(Monongahela Power), AMT, Series C, 6.75%
due 8/01/2024 (a) 5,940
===============================================================================================
Wisconsin--0.4%
3,395 Wisconsin State Health and Educational Facilities
Authority Revenue Bonds (Synergyhealth Inc.),
6% due 11/15/2032 3,709
===============================================================================================
Puerto Rico--0.5%
5,000 Puerto Rico Commonwealth, Public Improvement,
GO, Series A, 5.25% due 7/01/2027 5,405
-----------------------------------------------------------------------------------------------
Total Municipal Bonds
(Cost--$1,351,219)--137.9% 1,419,820
===============================================================================================
Municipal Bonds Held in Trust (o)
===============================================================================================
California--6.5%
12,900 California State, GO, 5.50%, due 4/1/2030 (b) 14,167
14,900 California State, Various Purpose, GO, 5.50%
due 11/1/2033 (b) 16,357
10,030 Gavilan, California, Joint Community College District,
GO (Election of 2004), Series A, 5.50%
due 8/01/2028 (a) 11,073
14,000 Port of Oakland, California, Revenue Bonds, AMT,
Series K, 5.75% due 11/01/2021 (c) 14,915
9,460 Port of Oakland, California, Revenue Refunding Bonds,
AMT, Series L, 5.375% due 11/01/2027 (c) 10,179
===============================================================================================
Florida--1.1%
10,750 Miami-Dade County, Florida, Aviation Revenue Refunding
Bonds (Miami International Airport), AMT, 5.375%
due 10/01/2025 (c) 11,404
===============================================================================================
ANNUAL REPORTS OCTOBER 31, 2006 21
Schedule of Investments (concluded)
BlackRock MuniYield Insured Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Held in Trust (o) Value
===============================================================================================
Illinois--8.1%
$ 16,400 Chicago, Illinois, O'Hare International Airport, General
Airport Revenue Refunding Bonds, Third Lien, AMT,
Series C-2,5.25% due 1/01/2030 (g) $ 17,258
Chicago, Illinois, O'Hare International Airport Revenue
Bonds, Third Lien, AMT, Series B-2,
16,680 5.25% due 1/01/2027 (b) 17,595
26,230 6% due 1/01/2027 (b) 29,435
17,200 6% due 1/01/2029 (e) 19,301
===============================================================================================
Louisiana--1.5%
15,000 Louisiana Public Facilities Authority, Mortgage Revenue
Refunding Bonds (Baton Rouge General Medical
Center Project), 5.25% due 7/01/2033 (b) 16,012
===============================================================================================
Michigan--1.4%
Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds (Detroit Edison Company
Pollution Control Project), AMT: (e)
8,000 Series A, 5.50% due 6/01/2030 8,626
5,000 Series C, 5.65% due 9/01/2029 5,327
===============================================================================================
New Jersey--3.1%
New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds: (b)
14,665 Series A, 5.25% due 7/01/2031 15,787
15,000 Series A, 5.25% due 7/01/2033 16,147
===============================================================================================
Nevada--1.3%
12,675 Clark County, Nevada, IDR (Southwest Gas Corporation
Project), AMT, Series A, 5.25% due 7/01/2034 (a) 13,390
===============================================================================================
Oklahoma--0.9%
8,680 Oklahoma State Industries Authority Revenue
Refunding Bonds (Health System-Obligation
Group), Series A, 5.75% due 8/15/2029 (b) 9,215
===============================================================================================
Pennsylvania--1.7%
15,600 Pennsylvania State Turnpike Commission, Turnpike
Revenue Bonds, Series A, 5.50% due 12/01/2031 (a) 17,304
===============================================================================================
Texas--6.7%
21,000 Dallas-Fort Worth, Texas, International Airport Revenue
Bonds, AMT, Series A, 5.50% due 11/01/2033 (b) 22,601
13,500 Dallas-Fort Worth, Texas, International Airport, Revenue
Refunding and Improvement Bonds, AMT, Series A,
5.625% due 11/01/2026 (c) 14,479
30,000 Houston, Texas, Airport System Revenue Refunding
Bonds, Sub-Lien, Series B, 5.50% due 7/01/2030 (g) 31,760
===============================================================================================
Washington--4.1%
20,565 Port Seattle, Washington, Revenue Refunding Bonds,
Series B, AMT, 5.20% due 7/01/2029 (b) 21,528
20,000 Washington State, Various Purpose, GO, Series A,
5.625% due 7/01/2010 (b)(f) 21,272
-----------------------------------------------------------------------------------------------
Total Municipal Bonds Held in Trust
(Cost--$352,884)--36.4% 375,132
===============================================================================================
Total Investments (Cost--$1,704,103*)--174.3% 1,794,952
Liabilities in Excess of Other Assets--(1.8%) (18,792)
Liability for Trust Certificates, Including Interest Expense Payable--(17.1%) (175,656)
Preferred Stock, at Redemption Value--(55.4%) (570,456)
----------
Net Assets Applicable to Common Stock--100.0% $1,030,048
==========
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................. $ 1,548,282
===========
Gross unrealized appreciation .............................. $ 72,573
Gross unrealized depreciation .............................. (19)
-----------
Net unrealized appreciation ................................ $ 72,554
===========
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) CIFG Insured.
(e) XL Capital Insured.
(f) Prerefunded.
(g) FSA Insured.
(h) Security may have a maturity of more than one year at time of issuance,
but has variable rate and demand features that qualify it as a short-term
security. The rate disclosed is that currently in effect. This rate
changes periodically based upon prevailing market rates.
(i) Escrowed to maturity.
(j) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(k) FNMA/GNMA Collateralized.
(l) FHLMC Collateralized.
(m) Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase.
(n) Assured Guaranty Insured.
(o) Securities represent underlying bonds transferred to a separate
securitization trust established in a tender option bond transaction in
which the Fund acquired the residual interest certificates. These
securities serve as collateral in a financing transaction. See Note 1(c)
to Financial Statements for details of Municipal Bonds Held in Trust.
o Forward interest rate swaps outstanding as of October 31, 2006 were as
follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------
Pay a fixed rate of 3.636% and receive a
floating rate based on 1-week Bond
Market Association Rate
Broker, JPMorgan Chase
Expires February 2017 $337,000 $ 228
--------------------------------------------------------------------------
o Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund -- $ 115
--------------------------------------------------------------------------
See Notes to Financial Statements.
22 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments as of October 31, 2006
BlackRock MuniYield Quality Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
California--19.1%
$ 4,150 Alameda Corridor Transportation Authority, California,
Capital Appreciation Revenue Refunding
Bonds, Subordinate Lien, Series A, 5.45%
due 10/01/2025 (a)(n) $ 3,368
1,250 Anaheim, California, Public Financing Authority,
Electric System Distribution Facilities Revenue Bonds,
Series A, 5% due 10/01/2031 (f) 1,317
2,940 California State, GO, 5.50% due 4/01/2028 3,248
California State, GO, Refunding:
4,450 5.25% due 9/01/2010 (h) 4,727
2,300 5.125% due 6/01/2027 2,396
3,450 California State University, Systemwide Revenue Bonds,
Series A, 5% due 11/01/2035 (d) 3,612
California State, Various Purpose, GO:
10,000 5.25% due 11/01/2029 10,700
3,200 5.50% due 11/01/2033 3,519
1,200 Chino Valley, California, Unified School District, GO
(Election of 2002), Series C, 5.25% due 8/01/2030 (g) 1,307
2,150 East Side Union High School District, California, Santa
Clara County, GO (Election of 2002), Series D,
5% due 8/01/2026 (b) 2,283
1,600 Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds
Series B, 5.50% due 6/01/2013 (b)(h) 1,778
5,000 Hacienda-La Puente, California, Unified School District,
GO (Election of 2000), Series B, 5% due 8/01/2027 (f) 5,257
10,650 Los Angeles, California, Unified School District, GO,
Series A, 5% due 1/01/2028 (g) 11,261
Metropolitan Water District of Southern California,
Waterworks Revenue Bonds, Series B-1 (d):
4,000 5% due 10/01/2029 4,237
2,275 5% due 10/01/2036 2,387
2,000 Mount Diablo, California, Unified School District, GO
(Election of 2002), 5% due 7/01/2027 (d) 2,102
2,750 Orange County, California, Sanitation District, COP,
5% due 2/01/2033 (d) 2,878
2,000 Poway, California, Redevelopment Agency, Tax
Allocation Refunding Bonds (Paguay Redevelopment
5.125% due 6/15/2033 (a) 2,101
2,100 Sacramento, California, Unified School District, GO
(Election of 2002), 5% due 7/01/2030 (g) 2,233
9,000 San Diego County, California, Water Authority, Water
Revenue Refunding Bonds, COP, Series A, 5%
due 5/01/2032 (g) 9,428
2,725 San Mateo County, California, Community College
District, GO (Election of 2001), Series A, 5%
due 9/01/2026 (d) 2,865
1,950 Tamalpais, California, Union High School District, GO
(Election of 2001), 5% due 8/01/2028 (f) 2,049
3,150 Ventura County, California, Community College District,
GO (Election of 2002), Series B, 5% due 8/01/2030 (g) 3,349
===============================================================================================
Colorado--4.0%
Colorado Health Facilities Authority Revenue Bonds:
1,650 (Catholic Health Initiatives), Series A, 5.50%
due 3/01/2032 (c) 1,791
1,600 (Covenant Retirement Communities Inc.),
Series A, 5.50% due 12/01/2027 (j) 1,715
1,000 (Covenant Retirement Communities Inc.),
Series A, 5.50% due 12/01/2033 (j) 1,069
1,065 Colorado Housing and Finance Authority, Revenue
Refunding Bonds (S/F Program), AMT, Series B-2,
6.80% due 2/01/2031 (g) 1,105
9,000 E-470 Public Highway Authority, Colorado, Capital
Appreciation Revenue Refunding Bonds, Series B,
5.485% due 9/01/2029 (g)(n) 2,893
11,125 Northwest Parkway, Colorado, Public Highway Authority,
Capital Appreciation Revenue Bonds, Senior
Convertible, Series C, 5.345% due 6/15/2025 (f)(n) 10,031
===============================================================================================
District of Columbia--0.8%
1,200 District of Columbia, COP, 5% due 1/01/2025 (d) 1,272
2,500 District of Columbia, Revenue Refunding Bonds
(Catholic University of America Project),
5.625% due 10/01/2029 (a) 2,652
===============================================================================================
Florida--2.2%
2,235 Beacon Tradeport Community Development District,
Florida, Special Assessment Revenue Refunding
Bonds (Commercial Project), Series A, 5.625%
due 5/01/2032 (j) 2,432
2,065 Highlands County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System),
Series C, 5.25% due 11/15/2036 2,203
5,200 Orange County, Florida, Sales Tax Revenue Refunding
Bonds, Series B, 5.125% due 1/01/2032 (d) 5,505
===============================================================================================
Georgia--5.3%
3,500 Atlanta, Georgia, Airport Passenger Facility Charge and
Subordinate Lien, General Revenue Refunding Bonds,
Series C, 5% due 1/01/2033 (f) 3,665
Atlanta, Georgia, Water and Wastewater Revenue Bonds:
4,270 5% due 11/01/2034 (f) 4,500
1,200 Series A, 5% due 11/01/2033 (g) 1,247
1,675 Series A, 5% due 11/01/2039 (g) 1,737
Augusta, Georgia, Water and Sewer Revenue Bonds (f):
5,000 5.25% due 10/01/2034 5,406
2,820 5.25% due 10/01/2039 3,039
4,785 Monroe County, Georgia, Development Authority,
PCR, Refunding (Oglethorpe Power Corporation --
Scherer), Series A, 6.80% due 1/01/2011 5,317
===============================================================================================
Hawaii--0.5%
2,000 Hawaii State, GO, Series CX, 5.50% due 2/01/2021 (f) 2,168
===============================================================================================
Illinois--16.2%
Chicago, Illinois, GO (Lakefront Millennium Parking
Facilities) (g):
5,000 5.125% due 1/01/2028 5,221
2,500 5.75% due 1/01/2029 (n) 2,764
Chicago, Illinois, O'Hare International Airport Revenue
Bonds, Third Lien, AMT, Series B-2:
3,400 5.75% due 1/01/2023 (f) 3,750
4,000 5.75% due 1/01/2024 (f) 4,409
3,300 6% due 1/01/2029 (b) 3,703
Chicago, Illinois, O'Hare International Airport, Revenue
Refunding Bonds, AMT:
2,665 3rd Lien, Series A-2, 5.75% due 1/01/2021 (f) 2,941
3 DRIVERS, Series 250, 7.584% due 1/01/2021 (g)(i) 3
5,080 Cook County, Illinois, Capital Improvement, GO,
Series C, 5.50% due 11/15/2012 (a)(h) 5,600
Illinois Sports Facilities Authority, State Tax Supported
Revenue Bonds (a):
28,525 5.212% due 6/15/2030 (n) 26,225
5,500 5% due 6/15/2032 5,742
ANNUAL REPORTS OCTOBER 31, 2006 23
Schedule of Investments (continued)
BlackRock MuniYield Quality Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Illinois (concluded)
$ 3,750 Illinois Student Assistance Commission, Student Loan
Revenue Refunding Bonds, AMT, Sub-Series CC,
6.875% due 3/01/2015 $ 3,757
Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds
(McCormick Place Expansion Project):
7,000 5.50% due 12/15/2024 (d) 7,420
3,500 Series B, 5.75% due 6/15/2023 (g) 3,865
===============================================================================================
Indiana--5.2%
Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A:
3,750 5% due 6/01/2028 (f) 3,927
7,500 5.25% due 6/01/2029 (d) 8,072
Indianapolis, Indiana, Local Public Improvement
Bond Bank, Revenue Refunding Bonds (Indianapolis
Airport Authority Project), AMT, Series B (g):
6,470 5.25% due 1/01/2028 6,926
5,055 5.25% due 1/01/2030 5,403
===============================================================================================
Louisiana--6.1%
8,500 Louisiana Local Government, Environmental Facilities,
Community Development Authority Revenue Bonds
(Capital Projects and Equipment Acquisition),
Series A, 6.30% due 7/01/2030 (a) 10,158
2,800 Louisiana State Citizens Property Insurance
Corporation, Assessment Revenue Bonds, Series B,
5% due 6/01/2023 (a) 2,996
4,675 Louisiana State Transportation Authority, Senior Lien
Toll Revenue Capital Appreciation Bonds, Series B,
5.31% due 12/01/2027 (a)(n) 1,588
New Orleans, Louisiana, Ernest N. Morial Exhibit Hall
Authority, Special Tax, Sub-Series A (a):
6,150 5.25% due 7/15/2028 6,498
5,000 5% due 7/15/2033 5,161
1,900 Terrebonne Parish, Louisiana, Hospital Service District
Number 1, Hospital Revenue Bonds (Terrebonne
General Medical Center Project), 5.50%
due 4/01/2033 (a) 2,076
===============================================================================================
Maryland--1.3%
5,615 Baltimore, Maryland, Convention Center Hotel Revenue
Bonds, Senior Series A, 5.25% due 9/01/2039 (b) 6,105
===============================================================================================
Massachusetts--6.8%
Massachusetts Bay, Massachusetts, Transportation
Authority, General Transportation System Revenue
Refunding Bonds, Series A (g):
3,730 7% due 3/01/2011 4,225
3,550 7% due 3/01/2014 4,229
4,000 Massachusetts State, HFA, Rental Housing
Mortgage Revenue Bonds, AMT, Series C,
5.60% due 1/01/2045 (f) 4,271
2 Massachusetts State Port Authority, Special Facilities
Revenue Bonds, DRIVERS, AMT, Series 501,
7.08% due 7/01/2009 (a)(i) 2
14,400 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A,
5% due 8/15/2030 (f) 15,293
2,400 Massachusetts State Special Obligation Dedicated
Tax Revenue Bonds, 5.25% due 1/01/2014 (d)(h) 2,631
1,210 Massachusetts State Water Resource Authority,
General Revenue Refunding Bonds, Series B,
5.125% due 8/01/2027 (g) 1,281
===============================================================================================
Michigan--3.5%
2,350 Detroit, Michigan, Sewage Disposal System, Second
Lien Revenue Bonds, Series B, 5% due 7/01/2036 (d) 2,486
2,300 Michigan Higher Education Student Loan Authority,
Student Loan Revenue Refunding Bonds, AMT,
Series XVII-G, 5.20% due 9/01/2020 (a) 2,416
Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds (Detroit Edison Company
Pollution Control Project), AMT (b):
1,700 Series A, 5.50% due 6/01/2030 1,833
3,300 Series C, 5.65% due 9/01/2029 3,516
5,800 Series C, 5.45% due 12/15/2032 6,169
===============================================================================================
Minnesota--0.5%
2,100 Dakota County, Minnesota Community Development
Agency, S/F Mortgage Revenue Bonds (Mortgage-
Backed Securities Program) Series B, 5.15%
due 12/01/2038 (o)(p) 2,192
===============================================================================================
Nebraska--2.0%
6,315 Municipal Energy Agency of Nebraska, Power
Supply System Revenue Bonds, Series A, 5%
due 4/01/2033 (f) 6,600
2,300 Washington County, Nebraska, Wastewater Facilities
Revenue Bonds (Cargill Inc. Project), AMT, 5.90%
due 11/01/2027 2,509
===============================================================================================
Nevada--8.0%
4,100 Carson City, Nevada, Hospital Revenue Bonds
(Carson-Tahoe Hospital Project), Series A,
5.50% due 9/01/2033 (j) 4,416
Clark County, Nevada, Airport System Subordinate
Lien Revenue Bonds, Series A-2 (d):
2,000 5% due 7/01/2030 2,096
19,100 5% due 7/01/2036 19,951
4,750 Clark County, Nevada, IDR (Southwest Gas Corp.
Project), AMT, Series A, 4.75% due 9/01/2036 (d) 4,807
5,710 Washoe County, Nevada, School District, GO,
5.875% due 12/01/2009 (f)(h) 6,095
===============================================================================================
New Hampshire--3.4%
10,000 New Hampshire Health and Education Facilities
Authority Revenue Bonds (Dartmouth-Hitchcock
Obligation Group, 5.50% due 8/01/2027 (f) 10,843
5,000 New Hampshire State Business Finance Authority,
PCR, Refunding (Public Service Company), AMT,
Series D, 6% due 5/01/2021 (g) 5,256
===============================================================================================
New Jersey--4.4%
New Jersey EDA, Cigarette Tax Revenue Bonds:
910 5.75% due 6/15/2029 990
1,385 5.50% due 6/15/2031 1,475
5,500 New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A, 5.25% due 7/01/2031 (g) 5,927
New Jersey EDA, School Facilities Construction
Revenue Bonds, Series O:
3,860 5.125% due 3/01/2028 4,114
7,500 5.125% due 3/01/2030 7,983
===============================================================================================
New York--4.7%
8,990 Metropolitan Transportation Authority, New York,
Transportation Revenue Bonds, Series A, 5%
due 11/15/2032 (d) 9,447
8,000 New York State Thruway Authority, General Revenue
Refunding Bonds, Series G, 5% due 1/01/2032 (f) 8,514
24 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments (continued)
BlackRock MuniYield Quality Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
New York (concluded)
$ 3,570 Tobacco Settlement Financing Corporation of New York
Revenue Bonds, Series A-1, 5.25% due 6/01/2022 (a) $ 3,834
===============================================================================================
Ohio--1.5%
2,500 Columbus, Ohio, City School District, GO (School
Facilities Construction and Improvements),
5.25% due 12/01/2014 (f)(h) 2,771
2,000 Jackson, Ohio, Hospital Facilities Revenue Bonds
(Consolidated Health System--Jackson Hospital),
6.125% due 10/01/2009 (h)(j) 2,155
2,200 Ohio State Air Quality, Development Authority
Revenue Bonds (Dayton Power and Light Company
Project), 4.80% due 9/01/2036 (d) 2,238
===============================================================================================
Oklahoma--0.5%
Tulsa, Oklahoma, Airports Improvement Trust,
General Revenue Bonds (Tulsa International Airport),
AMT, Series B (d):
1,000 6% due 6/01/2019 1,069
1,000 6.125% due 6/01/2026 1,072
===============================================================================================
Pennsylvania--7.1%
Pennsylvania State Public School Building Authority,
School Lease Revenue Bonds (The School District of
Philadelphia Project) (f):
6,000 5.25% due 6/01/2025 6,477
19,025 5% due 6/01/2033 19,936
6,250 Philadelphia, Pennsylvania, Authority for Industrial
Development, Lease Revenue Bonds, Series B,
5.50% due 10/01/2021 (f) 6,777
===============================================================================================
Rhode Island--0.5%
2,500 Providence, Rhode Island, GO, Series A, 5.70%
due 7/15/2007 (f)(h) 2,562
===============================================================================================
South Carolina--3.6%
3,750 Berkeley County, South Carolina, School District,
Installment Lease Revenue Bonds (Securing Assets
for Education Project), 5.125% due 12/01/2030 3,976
3,200 Kershaw County, South Carolina, Public Schools
Foundation, Installment Power Revenue Refunding
Bonds, 5% due 12/01/2029 (k) 3,382
8,900 South Carolina Transportation Infrastructure Bank
Revenue Bonds, Series A, 5% due 10/01/2033 (a) 9,274
===============================================================================================
Tennessee--4.0%
7,850 Chattanooga, Tennessee, IDB, Lease Rent Revenue
Bonds (Southside Redevelopment Corporation),
5.875% due 10/01/2024 (a) 8,460
5,000 Memphis-Shelby County, Tennessee, Airport Authority,
Airport Revenue Bonds, AMT, Series D, 6.25%
due 3/01/2018 (a) 5,401
Tennessee HDA, Homeownership Revenue Bonds,
AMT, Series 2-C (a):
2,075 6.10% due 7/01/2013 2,133
2,390 6.20% due 7/01/2015 2,438
===============================================================================================
Texas--10.9%
2,000 Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), Trust Certificates,
Second Tier, Series B, 6% due 1/01/2023 2,120
1,000 Bell County, Texas, Health Facilities Development
Revenue Bonds (Lutheran General Health Care
System), 6.50% due 7/01/2019 (c) 1,228
Dallas-Fort Worth, Texas, International Airport
Revenue Refunding and Improvement Bonds,
AMT, Series A (d):
1,835 5.875% due 11/01/2017 1,994
2,145 5.875% due 11/01/2018 2,331
2,385 5.875% due 11/01/2019 2,591
Gregg County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Good
Shepherd Medical Center Project) (j):
6,000 6.875% due 10/01/2020 6,749
2,600 6.375% due 10/01/2025 2,878
4,000 Harris County--Houston Sports Authority, Texas,
Revenue Refunding Bonds, Senior Lien, Series G,
5.75% due 11/15/2020 (g) 4,343
Leander, Texas, Independent School District, Capital
Appreciation, GO, Refunding (School Building) (n):
9,250 5.46% due 8/15/2028 (d) 3,066
13,350 5.58% due 8/15/2035 2,913
7,150 North Harris County, Texas, Regional Water
Authority, Senior Lien Revenue Bonds, 5.125%
due 12/15/2035 (g) 7,557
7,200 Texas State Turnpike Authority, Central Texas Turnpike
System Revenue Bonds, First Tier, Series A, 5.75%
due 8/15/2038 (a) 7,919
4,600 Travis County, Texas, Health Facilities Development
Corporation, Revenue Refunding Bonds
(Ascension Health Credit), Series A, 6.25%
due 11/15/2009 (g)(h) 4,985
===============================================================================================
Utah--3.7%
15,000 Salt Lake City, Utah, Hospital Revenue Refunding
Bonds (IHC Hospitals Inc.), 6.30%
due 2/15/2015 (g) 17,333
===============================================================================================
Virginia--0.7%
3,100 Halifax County, Virginia, IDA, Exempt Facility Revenue
Refunding Bonds (Old Dominion Electric Cooperative
Project), AMT, 5.625% due 6/01/2028 (a) 3,394
===============================================================================================
Washington--2.8%
2,400 Port of Tacoma, Washington, Revenue Refunding
Bonds, Series A, 5.25% due 12/01/2034 (a) 2,578
5,100 Tacoma, Washington, Regional Water Supply System,
Water Revenue Bonds, 5% due 12/01/2032 (g) 5,306
5,000 Washington State, GO, Series A and AT-6, 6.25%
due 2/01/2011 (f) 5,288
===============================================================================================
Puerto Rico--1.9%
Puerto Rico Electric Power Authority, Power
Revenue Bonds:
1,475 Series II, 5.25% due 7/01/2031 1,566
6,925 Series NN, 5.125% due 7/01/2029 7,310
-----------------------------------------------------------------------------------------------
Total Municipal Bonds
(Cost--$580,079)--131.2% 611,430
===============================================================================================
Municipal Bonds Held in Trust (q)
===============================================================================================
Arizona--1.4%
6,000 Maricopa County, Arizona, Public Finance Corporation,
Lease Revenue Bonds, 5.50% due 7/01/2014 (a) 6,460
===============================================================================================
California--7.1%
5,700 California State, GO, Refunding, 5.25%
due 2/01/2033 (j) 6,149
ANNUAL REPORTS OCTOBER 31, 2006 25
Schedule of Investments (concluded)
BlackRock MuniYield Quality Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Held in Trust (q) Value
===============================================================================================
California (concluded)
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds,
Series B (h):
$ 10,000 5.50% due 6/01/2013 (b) $ 11,113
14,160 5.625% due 6/01/2013 (k) 15,838
===============================================================================================
Georgia--2.2%
10,000 Atlanta, Georgia, Airport Passenger Facility Charge,
Subordinate Lien Revenue Refunding Bonds,
Series C, 5% due 1/01/2033 (f) 10,472
===============================================================================================
Illinois--9.4%
10,000 Chicago, Illinois, Board of Education, GO (Chicago
School Reform Project), 5.75% due 12/01/2027 (a) 10,426
Chicago, Illinois, O'Hare International Airport, General
Airport Revenue Refunding Bonds, Third Lien, AMT,
Series A (g):
13,665 5.75% due 1/01/2021 14,770
5,000 5.50% due 1/01/2022 5,339
12,500 5.375% due 1/01/2032 13,270
===============================================================================================
Massachusetts--0.9%
3,825 Massachusetts State Port Authority, Special Facilities
Revenue Bonds (Delta Air Lines Inc. Project), AMT,
Series A, 5.50% due 1/01/2019 (a) 4,030
===============================================================================================
New Jersey--3.1%
New Jersey EDA, Cigarette Tax Revenue Bonds (e):
7,150 5.50% due 6/15/2024 7,768
6,000 5.50% due 6/15/2031 6,518
===============================================================================================
New York--3.3%
13,840 New York City, New York, GO, Series B,
5.875% due 8/01/2016 (g) 15,000
===============================================================================================
Oregon--3.5%
Portland, Oregon, Sewer System Revenue Bonds: (d)(h)
5,000 Series A, 5.75% due 8/01/2010 5,381
10,000 Series A, 5.75% due 8/01/2010 10,762
===============================================================================================
Texas--2.4%
10,470 Denton, Texas, Utility System Revenue Bonds, Series A,
6% due 12/01/2010 (f)(h) 11,416
===============================================================================================
Washington--4.7%
20,000 Energy Northwest, Washington, Electric Revenue
Refunding Bonds (Project Number 1), Series A,
5.75% due 7/01/2017 (g) 22,068
-----------------------------------------------------------------------------------------------
Total Municipal Bonds Held in Trust
(Cost--$168,549)--38.0% 176,780
===============================================================================================
Shares
Held Short-Term Securities
===============================================================================================
6,716 Merrill Lynch Institutional Tax-Exempt Fund,
3.38% (l)(m) 6,716
-----------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$6,716)--1.4% 6,716
===============================================================================================
Total Investments (Cost--$755,344*)--170.6% 794,926
Liability for Trust Certificates, Including Interest Expense Payable--(18.6%) (86,406)
Other Assets Less Liabilities--1.6% 7,615
Preferred Stock, at Redemption Value--(53.6%) (250,133)
----------
Net Assets Applicable to Common Stock--100.0% $ 466,002
==========
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost .......................................... $ 671,175
===========
Gross unrealized appreciation ........................... $ 38,748
Gross unrealized depreciation ........................... (54)
-----------
Net unrealized appreciation ............................. $ 38,323
===========
(a) AMBAC Insured.
(b) XL Capital Insured.
(c) Escrowed to maturity.
(d) FGIC Insured.
(e) Assured Guaranty Insured.
(f) FSA Insured.
(g) MBIA Insured.
(h) Prerefunded.
(i) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(j) Radian Insured.
(k) CIFG Insured.
(l) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund (4,784) $ 145
--------------------------------------------------------------------------
(m) Represents the current yield as of October 31, 2006
(n) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(o) FNMA/GNMA Collateralized.
(p) FHLMC Collateralized.
(q) Securities represent underlying bonds transferred to a separate
securitization trust established in a tender option bond transaction in
which the Fund acquired the residual interest certificates. These
securities serve as collateral in a financing transaction. See Note 1(c)
to Financial Statements for details of Municipal Bonds Held in Trust.
o Forward interest rate swaps outstanding as of October 31, 2006 were as
follows:
--------------------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
--------------------------------------------------------------------------------------
Pay a fixed rate of 3.636% and receive a floating rate
based on 1-week Bond Market Association Rate
Broker, JPMorgan Chase
Expires February 2017 $58,000 $ 39
Pay a fixed rate of 3.855% and receive a floating Rate
based on 1-week Bond
Market Association Rate
Broker, Citibank, N.A.
Expires January 2022 $ 7,000 (50)
--------------------------------------------------------------------------------------
Total $ (11)
============
See Notes to Financial Statements.
26 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments as of October 31, 2006
BlackRock MuniYield Quality Fund II, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Arizona--1.0%
$ 2,700 Northern Arizona University System Revenue Bonds,
5.50% due 6/01/2034 (c) $ 2,974
===============================================================================================
California--26.8%
7,150 Alameda Corridor Transportation Authority, California,
Capital Appreciation Revenue Refunding Bonds, Sub-
ordinate Lien, Series A, 5.33% due 10/01/2025 (a)(n) 5,802
3,800 Anaheim, California, Public Financing Authority,
Electric System Distribution Facilities Revenue Bonds,
Series A, 5% due 10/01/2031 (f) 4,002
2,500 California Health Facilities Financing Authority
Revenue Bonds (Kaiser Permanente), RIB, Series 26,
7.14% due 6/01/2022 (f)(j) 2,743
California State, GO, Refunding:
2,200 5.25% due 9/01/2010 (g) 2,337
1,500 5.125% due 6/01/2027 1,562
1,600 California State Public Works Board, Lease Revenue
Bonds (Department of Corrections), Series C, 5%
due 6/01/2025 1,679
2,200 California State University, Systemwide Revenue Bonds,
Series A, 5% due 11/01/2035 (c) 2,303
California State, Various Purpose, GO:
2,750 5.25% due 11/01/2029 2,942
6,500 5.50% due 11/01/2033 7,148
15,000 East Side Union High School District, California, Santa
Clara County, Capital Appreciation, GO (Election of
2002), Series E, 5.15% due 8/01/2029 (h)(n) 4,932
1,370 East Side Union High School District, California, Santa
Clara County, GO (Election of 2002), Series D, 5%
due 8/01/2026 (h) 1,455
2,770 Fairfield-Suisun, California, Unified School District, GO
(Election of 2002), 5.50% due 8/01/2028 (i) 3,058
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds,
Series B (g):
2,300 5.50% due 6/01/2013 (h) 2,556
3,725 5.625% due 6/01/2013 (b) 4,167
2,815 John Swett Unified School District, California, GO,
Series A, 5.50% due 8/01/2026 (f) 3,050
9,300 Los Angeles, California, Unified School District, GO,
Series A, 5% due 1/01/2028 (i) 9,833
Metropolitan Water District of Southern California,
Waterworks Revenue Bonds, Series B-1 (c):
2,600 5% due 10/01/2029 2,754
1,475 5% due 10/01/2036 1,548
2,300 Orange County, California, Sanitation District, COP, 5%
due 2/01/2033 (c) 2,407
2,900 Palm Springs, California, Financing Authority, Lease
Revenue Refunding Bonds (Convention Center
Project), Series A, 5.50% due 11/01/2029 (i) 3,233
1,250 Poway, California, Redevelopment Agency, Tax
Allocation Refunding Bonds (Paguay Redevelopment
Project), 5.125% due 6/15/2033 (a) 1,313
6,000 Sacramento, California, Municipal Utility District,
Electric Revenue Bonds, Series N, 5%
due 8/15/2028 (i) 6,272
1,350 Sacramento, California, Unified School District, GO
(Election of 2002), 5% due 7/01/2030 (i) 1,436
1,325 Tamalpais, California, Union High School District, GO
(Election of 2001), 5% due 8/01/2028 (f) 1,392
2,025 Ventura County, California, Community College District,
GO (Election of 2002), Series B, 5% due 8/01/2030 (i) 2,153
===============================================================================================
Colorado--6.0%
Colorado Health Facilities Authority Revenue Bonds,
Series A:
1,150 (Catholic Health Initiatives), 5.50%
due 3/01/2032 (d) 1,248
1,200 (Covenant Retirement Communities Inc.), 5.50%
due 12/01/2027 (k) 1,286
675 (Covenant Retirement Communities Inc.), 5.50%
due 12/01/2033 (k) 722
1,245 Colorado Housing and Finance Authority, Revenue
Refunding Bonds (S/F Program), AMT, Series B-2,
6.80% due 2/01/2031 (i) 1,292
7,500 E-470 Public Highway Authority, Colorado, Capital
Appreciation Revenue Refunding Bonds, Series B,
5.607% due 9/01/2032 (i)(n) 2,029
10,975 Northwest Parkway, Colorado, Public Highway Authority,
Capital Appreciation Revenue Bonds, Senior
Convertible, Series C, 5.327% due 6/15/2025 (f)(n) 9,895
1,735 Northwest Parkway, Colorado, Public Highway Authority
Revenue Bonds, Series A, 5.50% due 6/15/2021 (a) 1,890
===============================================================================================
District of Columbia--1.6%
4,710 District of Columbia, COP, 5% due 1/01/2025 (c) 4,994
===============================================================================================
Florida--1.7%
1,250 Highlands County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System),
Series C, 5.25% due 11/15/2036 1,333
3,575 Orange County, Florida, Sales Tax Revenue Refunding
Bonds, Series B, 5.125% due 1/01/2032 (c) 3,785
===============================================================================================
Georgia--6.9%
5,000 Atlanta, Georgia, Airport General Revenue Refunding
Bonds, Series B, 5.25% due 1/01/2033 (f) 5,371
5,000 Atlanta, Georgia, Airport Revenue Refunding Bonds,
Series A, 5.875% due 1/01/2017 (c) 5,365
Atlanta, Georgia, Water and Wastewater Revenue Bonds:
2,850 5% due 11/01/2034 (f) 3,004
800 Series A, 5% due 11/01/2033 (i) 832
4,075 Series A, 5% due 11/01/2039 (i) 4,226
1,880 Augusta, Georgia, Water and Sewer Revenue Bonds,
5.25% due 10/01/2039 (f) 2,026
===============================================================================================
Illinois--15.1%
Chicago, Illinois, O'Hare International Airport Revenue
Bonds, Third Lien, AMT, Series B-2:
5,200 5.75% due 1/01/2023 (f) 5,735
2,200 6% due 1/01/2029 (h) 2,469
2,460 Cook County, Illinois, Capital Improvement, GO,
Series C, 5.50% due 11/15/2012 (a)(g) 2,712
10,000 Illinois Regional Transportation Authority Revenue
Bonds, 6.50% due 7/01/2026 (i) 13,105
21,675 Illinois Sports Facilities Authority, State Tax Supported
Revenue Bonds, 5.264% due 6/15/2030 (a)(n) 19,927
2,000 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Bonds (McCormick
Place Expansion), Series A, 5% due 12/15/2028 (i) 2,093
===============================================================================================
ANNUAL REPORTS OCTOBER 31, 2006 27
Schedule of Investments (continued)
BlackRock MuniYield Quality Fund II, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
Indiana--4.2%
Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A:
$ 3,350 5% due 6/01/2028 (f) $ 3,509
3,750 5.25% due 6/01/2028 (c) 4,039
5,000 5.25% due 6/01/2029 (c) 5,381
===============================================================================================
Louisiana--7.0%
1,950 Jefferson Parish, Louisiana, Home Mortgage Authority,
S/F Mortgage Revenue Bonds, AMT, Series B-1,
6.65% due 12/01/2033 (e)(i) 2,032
5,500 Lafayette, Louisiana, Utilities Revenue Bonds, 5%
due 11/01/2028 (i) 5,819
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) 4,661
1,800 Louisiana State Citizens Property Insurance Corporation,
Assessment Revenue Bonds, Series B, 5%
due 6/01/2023 (a) 1,926
3,185 Louisiana State Transportation Authority, Senior Lien
Toll Revenue Capital Appreciation Bonds, Series B,
5.31% due 12/01/2027 (a)(n) 1,082
4,200 New Orleans, Louisiana, Ernest N. Morial Exhibit Hall
Authority, Special Tax, Sub-Series A, 5.25%
due 7/15/2028 (a) 4,438
1,300 Terrebonne Parish, Louisiana, Hospital Service District
Number 1, Hospital Revenue Bonds (Terrebonne
General Medical Center Project), 5.50%
due 4/01/2033 (a) 1,420
===============================================================================================
Massachusetts--3.0%
5,800 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A, 5%
due 8/15/2030 (f) 6,160
1,800 Massachusetts State Special Obligation Dedicated Tax
Revenue Bonds, 5.25% due 1/01/2014 (c)(g) 1,973
840 Massachusetts State Water Resource Authority, General
Revenue Refunding Bonds, Series B, 5.125%
due 8/01/2027 (i) 889
===============================================================================================
Michigan--2.6%
1,500 Detroit, Michigan, Sewage Disposal System, Second
Lien Revenue Bonds, Series B, 5% due 7/01/2036 (c) 1,587
1,000 Michigan Higher Education Student Loan Authority,
Student Loan Revenue Refunding Bonds, AMT,
Series XVII-G, 5.20% due 9/01/2020 (a) 1,050
Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds (Detroit Edison Company
Pollution Control Project), AMT (h):
1,000 Series A, 5.50% due 6/01/2030 1,078
3,900 Series C, 5.45% due 12/15/2032 4,148
===============================================================================================
Minnesota--0.5%
1,350 Dakota County, Minnesota Community Development
Agency, S/F Mortgage Revenue Bonds (Mortgage-
Backed Securities Program) Series B, 5.15%
due 12/01/2038 (e)(p) 1,409
===============================================================================================
Missouri--1.9%
Saint Louis County, Missouri, Pattonville R-3 School
District, GO (Missouri Direct Deposit Program) (c)(g):
4,000 5.75% due 3/01/2010 4,310
1,500 6% due 3/01/2010 1,627
===============================================================================================
Nebraska--0.4%
1,300 Municipal Energy Agency of Nebraska, Power Supply
System Revenue Bonds, Series A, 5%
due 4/01/2033 (f) 1,359
===============================================================================================
Nevada--3.9%
2,800 Carson City, Nevada, Hospital Revenue Bonds (Carson-
Tahoe Hospital Project), Series A, 5.50%
due 9/01/2033 (k) 3,016
Clark County, Nevada, Airport System Subordinate Lien
Revenue Bonds, Series A-2 (c):
1,500 5% due 7/01/2030 1,572
2,700 5% due 7/01/2036 2,820
4,450 Clark County, Nevada, IDR (Southwest Gas Corp.
Project), AMT, Series A, 4.75% due 9/01/2036 (c) 4,503
===============================================================================================
New Jersey--5.9%
New Jersey EDA, Cigarette Tax Revenue Bonds:
1,070 5.75% due 6/15/2029 1,164
500 5.50% due 6/15/2031 533
New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A (i):
2,400 5% due 7/01/2029 2,534
4,800 5.25% due 7/01/2033 5,170
New Jersey EDA, School Facilities Construction
Revenue Bonds:
4,250 Series O, 5.125% due 3/01/2028 4,530
4,000 Series P, 5.125% due 9/01/2028 4,277
===============================================================================================
New Mexico--2.2%
6,295 New Mexico State Highway Commission, Tax Revenue
Bonds, Senior Sub-Lien, Series A, 6%
due 6/15/2010 (f)(g) 6,799
===============================================================================================
New York--10.4%
Metropolitan Transportation Authority, New York,
Transportation Revenue Bonds, Series A:
1,800 5% due 11/15/2032 (c) 1,891
7,500 5% due 11/15/2035 7,918
9,280 Nassau Health Care Corporation, New York, Health
System Revenue Bonds, 5.75% due 8/01/2009 (f)(g) 9,996
5,000 New York State Dormitory Authority, Revenue Refunding
Bonds (State University Educational Facilities),
5.75% due 5/15/2010 (c)(g) 5,416
6,115 Tobacco Settlement Financing Corporation of New York
Revenue Bonds, Series A-1, 5.25% due 6/01/2022 (a) 6,568
===============================================================================================
Ohio--2.7%
1,300 Ohio State Air Quality, Development Authority Revenue
Bonds (Dayton Power and Light Company Project),
4.80% due 9/01/2036 (c) 1,323
Plain, Ohio, Local School District, GO, Refunding (c):
5,120 6% due 6/01/2011 (g) 5,642
1,170 6% due 12/01/2020 1,283
===============================================================================================
Pennsylvania--4.1%
8,675 Pennsylvania State Public School Building Authority,
School Lease Revenue Bonds (The School District of
Philadelphia Project), 5% due 6/01/2033 (f) 9,091
3,230 Philadelphia, Pennsylvania, Authority for Industrial
Development, Lease Revenue Bonds, Series B,
5.50% due 10/01/2020 (f) 3,513
===============================================================================================
Rhode Island--1.4%
4,010 Rhode Island State Health and Educational Building
Corporation, Higher Education Facilities Revenue
Bonds (University of Rhode Island), Series A, 5.70%
due 9/15/2009 (g)(i) 4,281
28 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments (continued)
BlackRock MuniYield Quality Fund II, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================================
South Carolina--3.7%
$ 2,450 Berkeley County, South Carolina, School District,
Installment Lease Revenue Bonds (Securing Assets
for Education Project), 5.125% due 12/01/2030 $ 2,597
2,075 Kershaw County, South Carolina, Public Schools
Foundation, Installment Power Revenue Refunding
Bonds, 5% due 12/01/2029 (b) 2,193
6,100 South Carolina Transportation Infrastructure Bank
Revenue Bonds Series A, 5% due 10/01/2033 (a) 6,356
===============================================================================================
Tennessee--0.8%
2,150 Chattanooga, Tennessee, IDB, Lease Rent Revenue
Bonds (Southside Redevelopment Corporation),
5.875% due 10/01/2024 (a) 2,317
===============================================================================================
Texas--9.6%
2,000 Corpus Christi, Texas, Utility System Revenue Refunding
Bonds, Series A, 6% due 7/15/2010 (f)(g) 2,165
4,000 Gregg County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Good
Shepherd Medical Center Project), 6.875%
due 10/01/2020 (k) 4,499
Leander, Texas, Independent School District, Capital
Appreciation, GO, Refunding (School Building) (n):
9,345 5.51% due 8/15/2030 (c) 2,763
8,800 5.58% due 8/15/2035 1,921
3,500 Lower Colorado River Authority, Texas, PCR (Samsung
Austin Semiconductor), AMT, 6.375% due 4/01/2027 3,609
4,925 North Harris County, Texas, Regional Water Authority,
Senior Lien Revenue Bonds, 5.125%
due 12/15/2035 (i) 5,205
Texas State Turnpike Authority, Central Texas Turnpike
System Revenue Bonds, First Tier, Series A (a):
4,800 5.75% due 8/15/2038 5,279
3,600 5.50% due 8/15/2039 3,905
===============================================================================================
Virginia--0.8%
2,100 Halifax County, Virginia, IDA, Exempt Facility Revenue
Refunding Bonds (Old Dominion Electric Cooperative
Project), AMT, 5.625% due 6/01/2028 (a) 2,299
===============================================================================================
Washington--5.4%
7,470 Port of Seattle, Washington, Revenue Bonds, AMT,
Series B, 6% due 2/01/2016 (i) 8,044
1,600 Port of Tacoma, Washington, Revenue Refunding Bonds,
Series A, 5.25% due 12/01/2034 (a) 1,719
6,150 Seattle, Washington, Municipal Light and Power
Revenue Bonds, 6% due 10/01/2009 (g)(i) 6,619
===============================================================================================
Puerto Rico--1.2%
3,375 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series NN, 5.125% due 7/01/2029 3,563
-----------------------------------------------------------------------------------------------
Total Municipal Bonds
(Cost--$376,367)--130.8% 399,180
===============================================================================================
Municipal Bonds Held in Trust (j)
===============================================================================================
California--1.4%
3,900 California State, GO, Refunding, 5.25%
due 2/01/2033 (k) 4,207
===============================================================================================
Delaware--2.3%
6,670 Delaware River Port Authority of Pennsylvania and
New Jersey Revenue Bonds, 6% due 1/01/2017 (f) 7,139
===============================================================================================
Georgia--5.8%
17,000 Atlanta, Georgia, Airport Passenger Facility Charge,
Subordinate Lien Revenue Refunding Bonds,
Series C, 5% due 1/01/2033 (f) 17,803
===============================================================================================
Illinois--5.9%
9,500 Chicago, Illinois, O'Hare International Airport, General
Airport Revenue Refunding Bonds, Third Lien, AMT,
Series A, 5.50% due 1/01/2022 (i) 10,145
7,250 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds
(McCormick Place Expansion Project), Series B,
5.75% due 6/15/2023 (i) 8,006
===============================================================================================
Massachusetts--8.7%
20,000 Massachusetts State HFA, Housing Revenue Bonds
(Rental Mortgage), AMT, Series F, 5.25%
due 1/01/2046 (f) 20,705
Massachusetts State Port Authority, Special Facilities
Revenue Bonds (Delta Air Lines Inc. Project), AMT,
Series A (a):
2,900 5.50% due 1/01/2016 3,058
2,670 5.50% due 1/01/2019 2,811
===============================================================================================
New Jersey--3.1%
New Jersey EDA, Cigarette Tax Revenue Bonds (l):
4,600 5.50% due 6/15/2024 4,980
4,000 5.50% due 6/15/2031 4,363
===============================================================================================
South Carolina--5.6%
Charleston Educational Excellence Financing Corporation,
South Carolina, Revenue Bonds (Charleston County
School District) (l):
2,725 5.25% due 12/01/2028 2,952
2,425 5.25% due 12/01/2029 2,625
880 5.25% due 12/01/2030 953
10,000 South Carolina Transportation Infrastructure Bank
Revenue Bonds, Series A, 5% due 10/1/2033 (a) 10,420
===============================================================================================
Texas--2.3%
6,500 Dallas-Fort Worth, Texas, International Airport Revenue
Bonds, AMT, Series A, 6% due 11/01/2028 (c) 6,897
-----------------------------------------------------------------------------------------------
Total Municipal Bonds Held in Trust
(Cost--$104,704)--35.1% 107,064
===============================================================================================
Shares
Held Short-Term Securities
===============================================================================================
5,915 Merrill Lynch Institutional Tax-Exempt Fund,
3.38% (m)(o) 5,915
-----------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$5,915)--1.9% 5,915
===============================================================================================
Total Investments (Cost--$486,986*)--167.8% 512,159
Other Assets Less Liabilities--1.4% 4,170
Liability for Trust Certificates, Including Interest Expense Payable--(16.7%) (51,093)
Preferred Stock, at Redemption Value--(52.5%) (160,125)
----------
Net Assets Applicable to Common Stock--100.0% $ 305,111
==========
ANNUAL REPORTS OCTOBER 31, 2006 29
Schedule of Investments (concluded)
BlackRock MuniYield Quality Fund II, Inc. (in Thousands)
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................. $ 437,187
===========
Gross unrealized appreciation .............................. $ 24,593
Gross unrealized depreciation .............................. (131)
-----------
Net unrealized appreciation ................................ $ 24,462
===========
(a) AMBAC Insured.
(b) CIFG Insured.
(c) FGIC Insured.
(d) Escrowed to maturity.
(e) FNMA/GNMA Collateralized.
(f) FSA Insured.
(g) Prerefunded.
(h) XL Capital Insured.
(i) MBIA Insured.
(j) Securities represent underlying bonds transferred to a separate
securitization trust established in a tender option bond transaction in
which the Fund acquired the residual interest certificates. These
securities serve as collateral in a financing transaction. See Note 1(c)
to Financial Statements for details of Municipal Bonds Held in Trust.
(k) Radian Insured.
(l) Assured Guaranty Insured.
(m) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund 4,515 $ 112
--------------------------------------------------------------------------
(n) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(o) Represents the current yield as of October 31, 2006.
(p) FHLMC Collateralized.
o Forward interest rate swaps outstanding as of October 31, 2006 were as
follows:
-------------------------------------------------------------------------
Notional Unrealized
Amount Depreciation
-------------------------------------------------------------------------
Pay a fixed rate of 3.981% and receive a
floating rate based on 1-week Bond
Market Association Rate
Broker, JPMorgan Chase
Expires November 2016 $20,000 $ (542)
Pay a fixed rate of 4.145% and receive a
floating rate based on 1-week Bond
Market Association Rate
Broker, JPMorgan Chase
Expires November 2021 $ 8,000 (304)
Pay a fixed rate of 4.004% and receive a
floating rate based on 1-week Bond
Market Association Rate
Broker, JPMorgan Chase
Expires December 2021 $17,000 (391)
Pay a fixed rate of 3.855% and receive a
floating rate based on 1-week Bond
Market Association Rate
Broker, Citibank N.A.
Expires January 2022 $ 9,000 (64)
-------------------------------------------------------------------------
Total $ (1,301)
============
See Notes to Financial Statements.
30 ANNUAL REPORTS OCTOBER 31, 2006
Statements of Net Assets
BlackRock BlackRock BlackRock
BlackRock MuniYield MuniYield MuniYield
MuniYield Insured Quality Quality
As of October 31, 2006 Fund, Inc. Fund, Inc. Fund, Inc. Fund II, Inc.
===================================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value* .... $ 1,028,951,130 $ 1,794,951,517 $ 788,210,105 $ 506,243,735
Investments in affiliated securities, at value** ..... 6,923,672 -- 6,715,918 5,914,960
Cash ................................................. 67,015 79,608 22,608 15,174
Interest receivable .................................. 16,954,751 26,327,117 11,607,411 7,198,936
Receivable for securities sold ....................... 10,000 75,000 5,000 --
Unrealized appreciation on forward interest rate swaps -- 227,812 39,208 --
Prepaid expenses and other assets .................... 24,445 37,431 52,456 37,393
---------------------------------------------------------------------
Total assets ......................................... 1,052,931,013 1,821,698,485 806,652,706 519,410,198
---------------------------------------------------------------------
===================================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Trust certificates ................................... 36,112,500 174,115,000 85,427,072 50,510,000
Unrealized depreciation on forward interest rate swaps -- -- 50,043 1,300,596
Interest expense payable ............................. 497,019 1,540,712 978,855 582,789
Payable for securities purchased ..................... -- 38,370,373 2,008,319 1,305,408
Payable to investment adviser ........................ 413,317 652,186 291,447 189,054
Payable for swaps .................................... -- 5,849,000 1,463,000 --
Dividends payable to Common Stock shareholders ....... -- 467,210 182,014 201,201
Payable to other affiliates .......................... 6,508 10,248 4,592 2,980
Accrued expenses ..................................... 152,066 189,981 111,688 82,162
---------------------------------------------------------------------
Total liabilities .................................... 37,181,410 221,194,710 90,517,030 54,174,190
---------------------------------------------------------------------
===================================================================================================================================
Preferred Stock
-----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock, at redemption value, par value $.05
and $.10 per share*** of AMPS@ at $25,000 per share
liquidation preference .............................. 343,382,741 570,455,972 250,133,450 160,124,835
---------------------------------------------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock ................ $ 672,366,862 $ 1,030,047,803 $ 466,002,226 $ 305,111,173
=====================================================================
ANNUAL REPORTS OCTOBER 31, 2006 31
Statements of Net Assets (concluded)
BlackRock BlackRock BlackRock
BlackRock MuniYield MuniYield MuniYield
MuniYield Insured Quality Quality
As of October 31, 2006 Fund, Inc. Fund, Inc. Fund, Inc. Fund II, Inc.
===================================================================================================================================
Net Assets Consist of
-----------------------------------------------------------------------------------------------------------------------------------
Undistributed investment income--net ................. $ 6,100,554 $ 5,518,944 $ 1,835,414 $ 1,375,621
Accumulated realized capital losses--net ............. (40,730,023) (10,527,488) (1,428,483) (33,948,880)
Unrealized appreciation--net ......................... 63,870,472 91,076,126 39,335,735 23,872,012
---------------------------------------------------------------------
Total accumulated earnings (losses)--net ............. 29,241,003 86,067,582 39,742,666 (8,701,247)
Common Stock, par value $.10 per share + ............. 4,487,083 6,730,313 3,042,526 2,236,693
Paid-in capital in excess of par ..................... 638,638,776 937,249,908 423,217,034 311,575,727
---------------------------------------------------------------------
Net assets applicable to Common Stock ................ $ 672,366,862 $ 1,030,047,803 $ 466,002,226 $ 305,111,173
=====================================================================
Net asset value per share of Common Stock ............ $ 14.98 $ 15.30 $ 15.32 $ 13.64
=====================================================================
Market price ......................................... $ 15.76 $ 14.36 $ 14.48 $ 12.93
=====================================================================
* Identified cost on unaffiliated securities ...... $ 965,080,658 $ 1,704,103,203 $ 748,628,483 $ 481,071,127
=====================================================================
** Identified cost on affiliated securities ........ $ 6,923,672 -- $ 6,715,918 $ 5,914,960
=====================================================================
*** Preferred Stock authorized, issued and
outstanding:
Series A Shares, $.05 per share ............... 1,800 -- 2,000 2,000
=====================================================================
Series A Shares, $.10 per share ............... -- 2,200 -- --
=====================================================================
Series B Shares, $.05 per share ............... 1,800 -- 2,000 2,000
=====================================================================
Series B Shares, $.10 per share ............... -- 2,200 -- --
=====================================================================
Series C Shares, $.05 per share ............... 1,800 -- 2,000 2,000
=====================================================================
Series C Shares, $.10 per share ............... -- 2,200 -- --
=====================================================================
Series D Shares, $.05 per share ............... 1,800 -- 2,000 --
=====================================================================
Series D Shares, $.10 per share ............... -- 2,200 -- 400
=====================================================================
Series E Shares, $.05 per share ............... 2,800 -- 2,000 --
=====================================================================
Series E Shares, $.10 per share ............... -- 4,000 -- --
=====================================================================
Series F Shares, $.05 per share ............... 1,720 -- -- --
=====================================================================
Series F Shares, $.10 per share ............... -- 2,400 -- --
=====================================================================
Series G Shares, $.05 per share ............... 2,000 -- -- --
=====================================================================
Series G Shares, $.10 per share ............... -- 2,400 -- --
=====================================================================
Series H Shares, $.10 per share ............... -- 2,600 -- --
=====================================================================
Series I Shares, $.10 per share ............... -- 2,600 -- --
=====================================================================
+ Common Stock issued and outstanding ............. 44,870,829 67,303,125 30,425,258 22,366,930
=====================================================================
@ Auction Market Preferred Stock.
See Notes to Financial Statements.
32 ANNUAL REPORTS OCTOBER 31, 2006
Statements of Operations
BlackRock BlackRock BlackRock
BlackRock MuniYield MuniYield MuniYield
MuniYield Insured Quality Quality
For the Year Ended October 31, 2006 Fund, Inc. Fund, Inc. Fund, Inc. Fund II, Inc.
===================================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------------------
Interest ............................................. $ 56,228,890 $ 82,662,004 $ 38,077,204 $ 24,113,861
Dividends from affiliates ............................ 345,980 115,290 144,945 111,871
---------------------------------------------------------------------
Total income ......................................... 56,574,870 82,777,294 38,222,149 24,225,732
---------------------------------------------------------------------
===================================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................. 4,988,867 7,902,576 3,534,735 2,295,236
Interest expense and fees ............................ 1,862,376 6,518,037 3,248,460 1,827,648
Commission fees ...................................... 868,388 1,457,840 629,700 407,778
Accounting services .................................. 274,551 372,787 219,859 155,760
Transfer agent fees .................................. 130,345 178,642 104,721 62,533
Professional fees .................................... 71,761 87,262 65,285 56,647
Printing and shareholder reports ..................... 49,662 50,001 36,064 24,413
Custodian fees ....................................... 47,661 75,266 35,794 25,967
Directors' fees and expenses ......................... 37,643 53,245 29,980 23,416
Pricing fees ......................................... 32,449 37,500 26,005 21,433
Listing fees ......................................... 27,472 41,491 18,756 16,572
Other ................................................ 83,849 107,629 72,253 54,432
---------------------------------------------------------------------
Total expenses before reimbursement .................. 8,475,024 16,882,276 8,021,612 4,971,835
Reimbursement of expenses ............................ (22,374) (6,779) (9,197) (7,002)
---------------------------------------------------------------------
Total expenses after reimbursement ................... 8,452,650 16,875,497 8,012,415 4,964,833
---------------------------------------------------------------------
Investment income--net ............................... 48,122,220 65,901,797 30,209,734 19,260,899
---------------------------------------------------------------------
===================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
-----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net .................................. 9,069,648 9,751,811 5,212,680 3,935,261
Financial futures contracts and/or forward
interest rate swaps--net ......................... 2,281,796 (10,645,915) (2,078,756) (423,244)
---------------------------------------------------------------------
Total realized gain (loss)--net ...................... 11,351,444 (894,104) 3,133,924 3,512,017
---------------------------------------------------------------------
Change in unrealized appreciation/depreciation on:
Investments--net .................................. 16,345,769 33,121,967 8,358,372 6,291,729
Forward interest rate swaps--net .................. -- (1,037,545) (424,340) (1,559,601)
---------------------------------------------------------------------
Total change in unrealized
appreciation/depreciation--net ...................... 16,345,769 32,084,422 7,934,032 4,732,128
---------------------------------------------------------------------
Total realized and unrealized gain--net .............. 27,697,213 31,190,318 11,067,956 8,244,145
---------------------------------------------------------------------
===================================================================================================================================
Dividends & Distributions to Preferred Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................... (11,189,023) (16,899,454) (8,213,090) (5,311,655)
Realized gain--net ................................... (23,325) (2,997,462) -- --
---------------------------------------------------------------------
Total dividends and distributions to Preferred
Stock shareholders .................................. (11,212,348) (19,896,916) (8,213,090) (5,311,655)
---------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . $ 64,607,085 $ 77,195,199 $ 33,064,600 $ 22,193,389
=====================================================================
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2006 33
Statements of Changes in Net Assets
BlackRock MuniYield Fund, Inc.
---------------------------------
For the Year Ended October 31,
---------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................................... $ 48,122,220 $ 49,171,909
Realized gain--net ....................................................................... 11,351,444 21,389,966
Change in unrealized appreciation/depreciation--net ...................................... 16,345,769 (11,862,154)
Dividends and distributions to Preferred Stock shareholders .............................. (11,212,348) (7,182,793)
---------------------------------
Net increase in net assets resulting from operations ..................................... 64,607,085 51,516,928
---------------------------------
===================================================================================================================================
Dividends and Distributions to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................................... (42,053,117) (44,098,403)
Realized gain--net ....................................................................... (137,799) --
---------------------------------
Net decrease in net assets resulting from dividends and distributions to Common Stock
shareholders ............................................................................ (42,190,916) (44,098,403)
---------------------------------
===================================================================================================================================
Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in reinvestment of dividends ......... 5,095,713 1,390,397
Adjustments of offering costs resulting from the issuance of Preferred Stock ............. 30,397 (3,155)
---------------------------------
Net increase in net assets derived from stock transactions ............................... 5,126,110 1,387,242
---------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets applicable to Common Stock .................................. 27,542,279 8,805,767
Beginning of year ........................................................................ 644,824,583 636,018,816
---------------------------------
End of year* ............................................................................. $ 672,366,862 $ 644,824,583
=================================
* Undistributed investment income--net ................................................ $ 6,100,554 $ 11,220,564
=================================
See Notes to Financial Statements.
34 ANNUAL REPORTS OCTOBER 31, 2006
Statements of Changes in Net Assets (As Restated for 2005. See Note 6)
BlackRock MuniYield
Insured Fund, Inc.
---------------------------------
For the Year Ended October 31,
---------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................................... $ 65,901,797 $ 69,818,702
Realized gain (loss)--net ................................................................ (894,104) 29,296,640
Change in unrealized appreciation/depreciation--net ...................................... 32,084,422 (43,116,622)
Dividends and distributions to Preferred Stock shareholders .............................. (19,896,916) (12,432,230)
---------------------------------
Net increase in net assets resulting from operations ..................................... 77,195,199 43,566,490
---------------------------------
===================================================================================================================================
Dividends and Distributions to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................................... (52,496,438) (64,072,574)
Realized gain--net ....................................................................... (22,672,673) (953,820)
---------------------------------
Net decrease in net assets resulting from dividends and distributions to Common Stock
shareholders ............................................................................ (75,169,111) (65,026,394)
---------------------------------
===================================================================================================================================
Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Adjustment of offering costs resulting from the issuance of Preferred Stock .............. -- 58,387
---------------------------------
Net increase in net assets derived from stock transactions ............................... -- 58,387
---------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock ....................... 2,026,088 (21,401,517)
Beginning of year ........................................................................ 1,028,021,715 1,049,423,232
---------------------------------
End of year* ............................................................................. $ 1,030,047,803 $ 1,028,021,715
=================================
* Undistributed investment income--net ................................................ $ 5,518,944 $ 9,013,346
=================================
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2006 35
Statements of Changes in Net Assets (As Restated for 2005. See Note 6)
BlackRock MuniYield
Quality Fund, Inc.
---------------------------------
For the Year Ended October 31,
---------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................................... $ 30,209,734 $ 30,267,716
Realized gain--net ....................................................................... 3,133,924 6,620,058
Change in unrealized appreciation/depreciation--net ...................................... 7,934,032 (18,567,754)
Dividends to Preferred Stock shareholders ................................................ (8,213,090) (4,365,838)
---------------------------------
Net increase in net assets resulting from operations ..................................... 33,064,600 13,954,182
---------------------------------
===================================================================================================================================
Dividends to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................................... (23,944,678) (29,269,098)
---------------------------------
Net decrease in net assets resulting from dividends to Common Stock shareholders ......... (23,944,678) (29,269,098)
---------------------------------
===================================================================================================================================
Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Offering and underwriting costs, including adjustments, resulting from the issuance of
Preferred Stock ......................................................................... (4,076) (646,275)
---------------------------------
Net decrease in net assets derived from stock transactions ............................... (4,076) (646,275)
---------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock ....................... 9,115,846 (15,961,191)
Beginning of year ........................................................................ 456,886,380 472,847,571
---------------------------------
End of year* ............................................................................. $ 466,002,226 $ 456,886,380
=================================
* Undistributed investment income--net ................................................ $ 1,835,414 $ 3,783,204
=================================
See Notes to Financial Statements.
36 ANNUAL REPORTS OCTOBER 31, 2006
Statements of Changes in Net Assets (As Restated for 2005. See Note 6)
BlackRock MuniYield
Quality Fund II, Inc.
---------------------------------
For the Year Ended October 31,
---------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................................... $ 19,260,899 $ 19,907,110
Realized gain--net ....................................................................... 3,512,017 2,976,301
Change in unrealized appreciation/depreciation--net ...................................... 4,732,128 (8,435,388)
Dividends to Preferred Stock shareholders ................................................ (5,311,655) (3,147,298)
---------------------------------
Net increase in net assets resulting from operations ..................................... 22,193,389 11,300,725
---------------------------------
===================================================================================================================================
Dividends to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ................................................................... (15,858,153) (19,101,358)
---------------------------------
Net decrease in net assets resulting from dividends to Common Stock shareholders ......... (15,858,153) (19,101,358)
---------------------------------
===================================================================================================================================
Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Offering and underwriting costs, including adjustments, resulting from the issuance of
Preferred Stock ......................................................................... 54,002 (241,567)
---------------------------------
Net increase (decrease) in net assets resulting from stock transactions .................. 54,002 (241,567)
---------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock ....................... 6,389,238 (8,042,200)
Beginning of year ........................................................................ 298,721,935 306,764,135
---------------------------------
End of year* ............................................................................. $ 305,111,173 $ 298,721,935
=================================
* Undistributed investment income--net ................................................ $ 1,375,621 $ 3,284,530
=================================
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2006 37
Statement of Cash Flows
BlackRock BlackRock
MuniYield MuniYield
Quality Quality
For the Year Ended October 31, 2006 Fund, Inc. Fund II, Inc.
===================================================================================================================================
Cash Provided by Operating Activities
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ..................................... $ 33,064,600 $ 22,193,389
Increase/decrease in receivables ......................................................... (710,370) 249,660
Increase/decrease in other assets and prepaid expenses ................................... (5,904) 480,765
Increase in other liabilities ............................................................ 1,846,229 177,066
Increase in dividends and distributions payable to Preferred Stock shareholders .......... 7,050 119,983
Realized and unrealized gain on investments and forward interest rate swaps--net ......... (11,067,956) (8,244,145)
Realized loss on financial futures contracts ............................................. (2,078,756) (423,244)
Amortization of premium and discount ..................................................... (237,894) (746,860)
Proceeds from sales of long-term securities .............................................. 279,970,999 201,172,181
Other investment related transactions .................................................... -- 243,566
Purchases of long-term securities ........................................................ (278,967,500) (190,202,022)
Net proceeds from sales (net purchases) of short-term investments ........................ 4,784,082 (4,514,960)
---------------------------------
Cash provided by operating activities .................................................... 26,604,580 20,505,379
---------------------------------
===================================================================================================================================
Cash Used for Financing Activities
-----------------------------------------------------------------------------------------------------------------------------------
Cash receipts from trust certificates .................................................... 2,500,000 11,950,000
Cash payments on trust certificates ...................................................... (5,000,000) (16,515,000)
Cash payments on offering costs .......................................................... (147,828) (85,844)
Dividends and distributions paid to Common Stock shareholders ............................ (24,013,645) (15,859,274)
---------------------------------
Cash used for financing activities ....................................................... (26,661,473) (20,510,118)
---------------------------------
===================================================================================================================================
Cash
-----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash ..................................................................... (56,893) (4,739)
Cash at beginning of year ................................................................ 79,501 19,913
---------------------------------
Cash at end of year ...................................................................... $ 22,608 $ 15,174
=================================
===================================================================================================================================
Cash Flow Information
-----------------------------------------------------------------------------------------------------------------------------------
Cash paid for interest ................................................................... $ 2,914,046 $ 1,761,691
=================================
Dividends and distributions paid to Preferred Stock shareholders ......................... $ 8,206,040 $ 5,191,672
=================================
See Notes to Financial Statements.
38 ANNUAL REPORTS OCTOBER 31, 2006
Financial Highlights (As Restated for 2005, 2004, 2003 and 2002. See Note 6)
BlackRock MuniYield Fund, Inc.
------------------------------------------------------------
For the Year Ended October 31,
The following per share data and ratios have been derived ------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........................... $ 14.48 $ 14.31 $ 13.85 $ 13.28 $ 13.55
------------------------------------------------------------
Investment income--net ....................................... 1.08+ 1.11+ 1.09+ 1.06+ 1.04
Realized and unrealized gain (loss)--net ..................... .61 .21 .41 .52 (.31)
Dividends and distributions to Preferred Stock shareholders:
Investment income--net .................................... (.25) (.16) (.07) (.07) (.08)
Realized gain--net ........................................ --++ -- -- -- --
------------------------------------------------------------
Total from investment operations ............................. 1.44 1.16 1.43 1.51 .65
------------------------------------------------------------
Less dividends and distributions to Common Stock shareholders:
Investment income--net .................................... (.94) (.99) (.96) (.94) (.92)
Realized gain--net ........................................ --++ -- -- -- --
------------------------------------------------------------
Total dividends and distributions to Common Stock shareholders (.94) (.99) (.96) (.94) (.92)
------------------------------------------------------------
Offering and underwriting costs, including adjustments,
resulting from issuance of Preferred Stock ................. --@ --++ (.01) -- --
------------------------------------------------------------
Net asset value, end of year ................................. $ 14.98 $ 14.48 $ 14.31 $ 13.85 $ 13.28
============================================================
Market price per share, end of year .......................... $ 15.76 $ 14.20 $ 13.74 $ 13.29 $ 12.88
============================================================
==================================================================================================================================
Total Investment Return*
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........................... 10.30% 8.38% 11.04% 11.99% 5.07%
============================================================
Based on market price per share .............................. 18.33% 10.69% 11.11% 10.80% (.94%)
============================================================
==================================================================================================================================
Ratios Based on Average Net Assets Applicable to Common Stock
----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement and excluding interest
expense** ................................................... 1.01% 1.02% .97% .99% 1.01%
============================================================
Total expenses, net of reimbursement** ....................... 1.29% 1.26% 1.13% 1.14% 1.24%
============================================================
Total expenses** ............................................. 1.29% 1.26% 1.14% 1.14% 1.24%
============================================================
Total investment income--net** ............................... 7.35% 7.55% 7.75% 7.86% 7.97%
============================================================
Amount of dividends to Preferred Stock shareholders .......... 1.71% 1.10% .51% .50% .74%
============================================================
Investment income--net, to Common Stock shareholders ......... 5.64% 6.45% 7.24% 7.36% 7.23%
============================================================
==================================================================================================================================
Ratios Based on Average Net Assets Applicable to Preferred Stock
----------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders .................... 3.26% 2.09% 1.05% 1.02% 1.50%
============================================================
==================================================================================================================================
Supplemental Data
----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of year
(in thousands) .............................................. $ 672,367 $ 644,825 $ 636,019 $ 615,169 $ 590,101
============================================================
Preferred Stock outstanding at liquidation preference, end of
year (in thousands) ......................................... $ 343,000 $ 343,000 $ 343,000 $ 293,000 $ 293,000
============================================================
Portfolio turnover ........................................... 32% 30% 22% 56% 94%
============================================================
==================================================================================================================================
Leverage
----------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 .................................... $ 2,960 $ 2,880 $ 2,854 $ 3,100 $ 3,014
============================================================
==================================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
----------------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net ............................. $ 819 $ 524 $ 266 $ 256 $ 346
============================================================
Series B--Investment income--net ............................. $ 809 $ 549 $ 268 $ 274 $ 369
============================================================
Series C--Investment income--net ............................. $ 846 $ 531 $ 268 $ 261 $ 353
============================================================
Series D--Investment income--net ............................. $ 826 $ 509 $ 260 $ 281 $ 504
============================================================
Series E--Investment income--net ............................. $ 803 $ 522 $ 244 $ 236 $ 346
============================================================
Series F--Investment income--net ............................. $ 806 $ 494 $ 253 $ 247 $ 324
============================================================
Series G+++--Investment income--net .......................... $ 807 $ 533 $ 60 -- --
============================================================
+ Based on average shares outstanding.
++ Amount is less than $(.01) per share.
+++ Series G was issued on August 31, 2004.
@ Amount is less than $.01 per share.
* 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.
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2006 39
Financial Highlights (As Restated for 2005, 2004, 2003 and 2002. See Note 6)
BlackRock MuniYield Insured Fund, Inc.
-------------------------------------------------------------
For the Year Ended October 31,
The following per share data and ratios have been derived -------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .......................... $ 15.27 $ 15.59 $ 15.36 $ 15.15 $ 15.18
-------------------------------------------------------------
Investment income--net ...................................... .98@ 1.04@ 1.04@ 1.08@ 1.07
Realized and unrealized gain (loss)--net .................... .46 (.22) .25 .16 (.04)
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net .................................. (.25) (.16) (.07) (.08) (.11)
Realized gain--net ...................................... (.04) (.02) -- -- --+
-------------------------------------------------------------
Total from investment operations ............................ 1.15 .64 1.22 1.16 .92
-------------------------------------------------------------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net .................................. (.78) (.95) (.97) (.95) (.95)
Realized gain--net ...................................... (.34) (.01) -- -- --+
-------------------------------------------------------------
Total dividends and distributions to Common Stock
shareholders ............................................... (1.12) (.96) (.97) (.95) (.95)
-------------------------------------------------------------
Offering and underwriting costs, including adjustments,
resulting from issuance of Preferred Stock ................. -- --++ (.02) -- --
-------------------------------------------------------------
Net asset value, end of year ................................ $ 15.30 $ 15.27 $ 15.59 $ 15.36 $ 15.15
=============================================================
Market price per share, end of year ......................... $ 14.36 $ 14.70 $ 14.57 $ 14.51 $ 14.31
=============================================================
==================================================================================================================================
Total Investment Return*
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......................... 8.09% 4.54% 8.52% 8.18% 6.52%
=============================================================
Based on market price per share ............................. 5.38% 7.69% 7.36% 8.19% 1.42%
=============================================================
==================================================================================================================================
Ratios Based on Average Net Assets Applicable to Common Stock
----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement and excluding
interest expense** ......................................... 1.02% 1.01% .95% .94% .97%
=============================================================
Total expenses, net of reimbursement** ...................... 1.67% 1.60% 1.19% 1.18% 1.23%
=============================================================
Total expenses** ............................................ 1.67% 1.60% 1.19% 1.18% 1.24%
=============================================================
Total investment income--net** .............................. 6.52% 6.62% 6.77% 6.99% 7.16%
=============================================================
Amount of dividends to Preferred Stock shareholders ......... 1.67% 1.05% .51% .49% .73%
=============================================================
Investment income--net, to Common Stock shareholders ........ 4.85% 5.57% 6.26% 6.50% 6.43%
=============================================================
==================================================================================================================================
Ratios Based on Average Net Assets Applicable to Preferred Stock
----------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders ................... 2.96% 1.94% 1.08% 1.06% 1.53%
=============================================================
==================================================================================================================================
Supplemental Data
----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of year
(in thousands) ............................................. $1,030,048 $1,028,022 $1,049,423 $ 953,662 $ 940,852
=============================================================
Preferred Stock outstanding at liquidation preference,
end of year (in thousands) ................................. $ 570,000 $ 570,000 $ 570,000 $ 440,000 $ 440,000
=============================================================
Portfolio turnover .......................................... 95% 105% 122% 95% 82%
=============================================================
==================================================================================================================================
Leverage
----------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ................................... $ 2,807 $ 2,804 $ 2,841 $ 3,167 $ 3,138
=============================================================
==================================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
----------------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net ............................ $ 763 $ 478 $ 272 $ 270 $ 364
=============================================================
Series B--Investment income--net ............................ $ 750 $ 481 $ 283 $ 273 $ 364
=============================================================
Series C--Investment income--net ............................ $ 744 $ 502 $ 251 $ 268 $ 360
=============================================================
Series D--Investment income--net ............................ $ 779 $ 474 $ 264 $ 247 $ 348
=============================================================
Series E--Investment income--net ............................ $ 729 $ 471 $ 259 $ 240 $ 352
=============================================================
Series F--Investment income--net ............................ $ 766 $ 481 $ 271 $ 274 $ 359
=============================================================
Series G--Investment income--net ............................ $ 714 $ 487 $ 269 $ 304 $ 545
=============================================================
Series H@@--Investment income--net .......................... $ 725 $ 493 $ 63 -- --
=============================================================
Series I@@--Investment income--net .......................... $ 718 $ 498 $ 65 -- --
=============================================================
+ Amount is less than $(.01) per share.
++ Amount is less than $.01 per share.
@ Based on average shares outstanding.
@@ Series H and Series I were issued on August 23, 2004.
* 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.
See Notes to Financial Statements.
40 ANNUAL REPORTS OCTOBER 31, 2006
Financial Highlights (As Restated for 2005, 2004, 2003 and 2002. See Note 6)
BlackRock MuniYield Quality Fund, Inc.
------------------------------------------------------------
For the Year Ended October 31,
The following per share data and ratios have been derived ------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........................... $ 15.02 $ 15.54 $ 15.36 $ 15.19 $ 15.27
------------------------------------------------------------
Investment income--net ....................................... .99+ .99+ 1.03+ 1.07+ 1.06
Realized and unrealized gain (loss)--net ..................... .37 (.39) .19 .13 (.13)
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net ..................................... (.27) (.14) (.07) (.07) (.09)
Realized gain--net ......................................... -- -- -- -- --@
------------------------------------------------------------
Total from investment operations ............................. 1.09 .46 1.15 1.13 .84
------------------------------------------------------------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ..................................... (.79) (.96) (.97) (.96) (.91)
Realized gain--net ......................................... -- -- -- -- (.01)
------------------------------------------------------------
Total dividends and distributions to Common Stock
shareholders ................................................ (.79) (.96) (.97) (.96) (.92)
------------------------------------------------------------
Offering and underwriting costs, including adjustments,
resulting from the issuance of Preferred Stock .............. --@ (.02) -- -- --
------------------------------------------------------------
Net asset value, end of year ................................. $ 15.32 $ 15.02 $ 15.54 $ 15.36 $ 15.19
============================================================
Market price per share, end of year .......................... $ 14.48 $ 14.27 $ 14.83 $ 14.35 $ 13.74
============================================================
==================================================================================================================================
Total Investment Return*
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........................... 7.78% 3.10% 8.26% 8.13% 6.12%
============================================================
Based on market price per share .............................. 7.22% 2.64% 10.58% 11.68% 2.94%
============================================================
==================================================================================================================================
Ratios Based on Average Net Assets Applicable to Common Stock
----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement and excluding
interest expense** .......................................... 1.04% .96% .94% .94% .96%
============================================================
Total expenses, net of reimbursement** ....................... 1.75% 1.44% 1.25% 1.24% 1.33%
============================================================
Total expenses** ............................................. 1.76% 1.45% 1.25% 1.24% 1.33%
============================================================
Total investment income--net** ............................... 6.61% 6.46% 6.74% 6.89% 7.03%
============================================================
Amount of dividends to Preferred Stock shareholders .......... 1.80% .93% .45% .42% .61%
============================================================
Investment income--net, to Common Stock shareholders ......... 4.81% 5.53% 6.29% 6.47% 6.42%
============================================================
==================================================================================================================================
Ratios Based on Average Net Assets Applicable to Preferred Stock
----------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders .................... 3.29% 2.12% 1.04% .99% 1.40%
============================================================
==================================================================================================================================
Supplemental Data
----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of year
(in thousands) .............................................. $ 466,002 $ 456,886 $ 472,848 $ 467,370 $ 462,156
============================================================
Preferred Stock outstanding at liquidation preference,
end of year (in thousands) .................................. $ 250,000 $ 250,000 $ 200,000 $ 200,000 $ 200,000
============================================================
Portfolio turnover ........................................... 33% 29% 28% 30% 37%
============================================================
==================================================================================================================================
Leverage
----------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 .................................... $ 2,864 $ 2,828 $ 3,364 $ 3,337 $ 3,311
============================================================
==================================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
----------------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net ............................. $ 830 $ 540 $ 271 $ 273 $ 370
============================================================
Series B--Investment income--net ............................. $ 810 $ 520 $ 255 $ 238 $ 337
============================================================
Series C--Investment income--net ............................. $ 844 $ 536 $ 261 $ 253 $ 349
============================================================
Series D--Investment income--net ............................. $ 815 $ 514 $ 251 $ 228 $ 339
============================================================
Series E ++--Investment income--net .......................... $ 808 $ 72 -- -- --
============================================================
+ Based on average shares outstanding.
++ Series E was issued on September 21, 2005. Amount is less than $(.01) per
share.
* 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.
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2006 41
Financial Highlights (As Restated for 2005, 2004, 2003 and 2002. See Note 6)
BlackRock MuniYield Quality Fund II, Inc.
------------------------------------------------------------
For the Year Ended October 31,
The following per share data and ratios have been derived ------------------------------------------------------------
from information provided in the financial statements. 2006 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........................... $ 13.36 $ 13.72 $ 13.44 $ 13.27 $ 13.21
------------------------------------------------------------
Investment income--net ....................................... .86+ .89+ .94+ .97+ .94
Realized and unrealized gain (loss)--net ..................... .37 (.25) .27 .09 --++
Dividends to Preferred Stock shareholders from
investment income--net ...................................... (.24) (.14) (.07) (.07) (.10)
------------------------------------------------------------
Total from investment operations ............................. .99 .50 1.14 .99 .84
------------------------------------------------------------
Less dividends to Common Stock shareholders from
investment income--net ...................................... (.71) (.85) (.86) (.82) (.78)
------------------------------------------------------------
Offering and underwriting costs, including adjustments,
resulting from the issuance of Preferred Stock ............. --++ (.01) -- -- --
------------------------------------------------------------
Net asset value, end of year ................................. $ 13.64 $ 13.36 $ 13.72 $ 13.44 $ 13.27
============================================================
Market price per share, end of year .......................... $ 12.93 $ 12.86 $ 12.69 $ 12.18 $ 11.75
============================================================
==================================================================================================================================
Total Investment Return*
----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........................... 7.98% 3.98% 9.32% 8.28% 7.27%
============================================================
Based on market price per share .............................. 6.34% 8.21% 11.57% 10.83% 3.95%
============================================================
==================================================================================================================================
Ratios Based on Average Net Assets Applicable to Common Stock
----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement and excluding
interest expense** .......................................... 1.05% 1.03% 1.01% 1.03% 1.06%
============================================================
Total expenses, net of reimbursement** ....................... 1.66% 1.49% 1.21% 1.30% 1.42%
============================================================
Total expenses** ............................................. 1.66% 1.49% 1.22% 1.31% 1.42%
============================================================
Total investment income--net** ............................... 6.44% 6.51% 7.00% 7.17% 7.26%
============================================================
Amount of dividends to Preferred Stock shareholders .......... 1.78% 1.03% .51% .50% .78%
============================================================
Investment income--net, to Common Stock shareholders ......... 4.66% 5.48% 6.49% 6.67% 6.48%
============================================================
==================================================================================================================================
Ratios Based on Average Net Assets Applicable to Preferred Stock
----------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders .................... 3.32% 2.08% 1.04% 1.00% 1.51%
============================================================
==================================================================================================================================
Supplemental Data
----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of year
(in thousands) .............................................. $ 305,111 $ 298,722 $ 306,764 $ 300,502 $ 296,847
============================================================
Preferred Stock outstanding at liquidation preference,
end of year (in thousands) .................................. $ 160,000 $ 160,000 $ 150,000 $ 150,000 $ 150,000
============================================================
Portfolio turnover ........................................... 37% 29% 27% 35% 34%
============================================================
==================================================================================================================================
Leverage
----------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 .................................... $ 2,907 $ 2,867 $ 3,045 $ 3,003 $ 2,979
============================================================
==================================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
----------------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net ............................. $ 832 $ 536 $ 271 $ 276 $ 390
============================================================
Series B--Investment income--net ............................. $ 860 $ 514 $ 253 $ 240 $ 388
============================================================
Series C--Investment income--net ............................. $ 803 $ 510 $ 252 $ 235 $ 351
============================================================
Series D+++--Investment income--net .......................... $ 804 $ 71 -- -- --
============================================================
+ Based on average shares outstanding.
++ Amount is less than $.01 per share.
+++ Series D was issued on September 21, 2005.
* 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.
See Notes to Financial Statements.
42 ANNUAL REPORTS OCTOBER 31, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Quality Fund, Inc. and MuniYield Quality Fund II, Inc. were renamed
BlackRock MuniYield Fund, Inc., BlackRock MuniYield Insured Fund, Inc.,
BlackRock MuniYield Quality Fund, Inc. and BlackRock MuniYield Quality Fund II,
Inc. (the "Funds" or individually as the "Fund"), respectively. The Funds are
registered under the Investment Company Act of 1940, as amended, as
non-diversified, closed-end management investment companies. The Funds'
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. The Funds determine
and make available for publication the net asset value of their Common Stock on
a daily basis. The Funds' Common Stock shares are listed on the New York Stock
Exchange under the symbol MYD for BlackRock MuniYield Fund, Inc., MYI for
BlackRock MuniYield Insured Fund, Inc., MQY for BlackRock MuniYield Quality
Fund, Inc. and MQT for BlackRock MuniYield Quality Fund II, Inc. The following
is a summary of significant accounting policies followed by the Funds.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of each of the Funds under the general
direction of the respective Board of Directors. Such valuations and procedures
are reviewed periodically by the Boards of Directors of the Funds. 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. Options traded in the OTC market are valued at the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued by quoted fair values received daily by the Funds' pricing service.
Short-term investments with a remaining maturity of 60 days or less are valued
at amortized cost, which approximates market value, under which method the
investment is valued at cost and any premium or discount is amortized on a
straight line basis to maturity. Investments in open-end investment companies
are valued at their net asset value each business day. Securities and other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of each Fund's Board
of Directors of the Funds.
(b) Derivative financial instruments -- Each Fund may engage in various
portfolio investment strategies both to increase the return of each Fund and to
hedge, or protect, its exposure to interest rate movements 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 -- Each Fund may purchase or sell financial
futures contracts and options on such financial futures contracts.
Financial 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 -- Each Fund may purchase and write call and 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 -- Each Fund may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make periodic net payments on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. When the agreement is closed,
ANNUAL REPORTS OCTOBER 31, 2006 43
Notes to Financial Statements (continued)
the Fund records a realized gain or loss in an amount equal to the value
of the agreement.
o Swaps -- Each Fund may enter into swap agreements, which are OTC contracts
in which the Fund and a counterparty agree to make periodic net payments
on a specified notional amount. The net payments can be made for a set
period of time or may be triggered by a predetermined credit event. The
net periodic payments may be based on a fixed or variable interest rate;
the change in market value of a specified security, basket of securities,
or index; or the return generated by a security. These periodic payments
received or made by the Fund are recorded in the accompanying Statement of
Operations as realized gains or losses, respectively. Gains or losses are
also realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the
swap agreements.
(c) Municipal bonds held in trust -- Certain Funds invest in leveraged residual
certificates ("TOB Residuals") issued by tender option bond trusts ("TOBs"). A
TOB is established by a third party sponsor forming a special purpose entity,
into which a Fund, or an agent on behalf of the Fund, transfers municipal
securities. A TOB typically issues two classes of beneficial interests:
short-term floating rate certificates, which are sold to third party investors,
and residual certificates, which are generally issued to the Fund which made the
transfer or to affiliates of the Fund. Each Fund's transfers of the municipal
securities to a TOB do not qualify for sale treatment under Statement of
Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," therefore the municipal
securities deposited into a TOB are presented in the Funds' schedules of
investments and the proceeds from the transactions are reported as liability for
trust certificates. Similarly, proceeds from residual certificates issued to
affiliates, if any, from the transaction are included in the liability for trust
certificates. Interest income from the underlying security is recorded by the
Funds on an accrual basis. Interest expense incurred on the secured borrowing
and other expenses related to remarketing, administration and trustee services
to a TOB are reported as expenses of a Fund. The floating rate certificates have
interest rates that generally reset weekly and their holders have the option to
tender certificates to the TOB for redemption at par at each reset date. The
residual interests held by the Funds include the right of the Funds (1) to cause
the holders of a proportional share of floating rate certificates to tender
their certificates at par, and (2) to transfer a corresponding share of the
municipal securities from the TOB to the Funds. At October 31, 2006, the
aggregate value of the underlying municipal securities transferred to TOBs and
the liability for trust certificates were:
--------------------------------------------------------------------------------
Underlying
Municipal
Liability Range of Bonds
for Trust Interest Transferred
Certificates Rates to TOBs
--------------------------------------------------------------------------------
BlackRock MuniYield
Fund, Inc. ......................... $ 36,112,500 3.59% $ 78,662,771
BlackRock MuniYield
Insured Fund, Inc. ................. $174,115,000 3.59-3.63% $375,135,650
BlackRock MuniYield
Quality Fund, Inc. ................. $ 85,427,072 3.58-3.61% $176,779,808
BlackRock MuniYield
Quality Fund II, Inc. .............. $ 50,510,000 3.59-3.61% $107,063,961
================================================================================
Financial transactions executed through TOBs generally will under perform the
market for fixed rate municipal bonds in a rising interest rate environment, but
tend to outperform the market for fixed rate bonds when interest rates decline
or remain relatively stable. Should short-term interest rates rise, a Fund's
investment in TOB Residuals likely will adversely affect a Fund's investment
income-net and distributions to shareholders. Fluctuations in the market value
of municipal securities deposited into the TOB may adversely affect the Fund's
net asset value per share.
While the Funds' investment policies and restrictions expressly permit
investments in inverse floating rate securities such as TOB Residuals, they
generally do not allow the Funds to borrow money for purposes of making
investments. The Funds' management believes that the Funds' restrictions on
borrowings do not apply to the secured borrowings deemed to have occurred for
accounting purposes.
(d) Income taxes -- It is each 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.
(e) 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.
44 ANNUAL REPORTS OCTOBER 31, 2006
Notes to Financial Statements (continued)
Interest income is recognized on the accrual basis. The Funds amortize all
premiums and discounts on debt securities.
(f) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(g) Offering costs -- Direct expenses relating to the public offering of each
Fund's Preferred Stock were charged to capital at the time of issuance of the
shares. Any adjustments to estimates of offering costs were recorded back to
capital.
(h) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
fiscal years beginning after December 15, 2006. The impact on each of the Fund's
financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implications of
FAS 157. At this time its impact on each of the Fund's financial statements has
not been determined.
(i) Reclassifications -- BlackRock MuniYield Fund, Inc.
U.S. generally accepted accounting principles require that certain components of
net assets be adjusted to reflect permanent differences between financial and
tax reporting. Accordingly, during the current year, $90 has been reclassified
between undistributed net investment income and accumulated net realized capital
losses as a result of permanent differences attributable to distributions in
excess of capital gains. This reclassification has no effect on net assets or
net asset values per share.
BlackRock MuniYield Insured Fund, Inc.
U.S. generally accepted accounting principles require that certain components of
net assets be adjusted to reflect permanent differences between financial and
tax reporting. Accordingly, during the current year, $5,774,512 has been
reclassified between paid-in capital in excess of par and accumulated net
realized capital losses and $307 has been reclassified between undistributed net
investment income and accumulated net realized capital losses as a result of
permanent differences attributable to distributions in excess of realized
capital gains and the reclassification of distributions. These reclassifications
have no effect on net assets or net asset values per share.
BlackRock MuniYield Quality Fund, Inc.
U.S. generally accepted accounting principles require that certain components of
net assets be adjusted to reflect permanent differences between financial and
tax reporting. Accordingly, during the current year, $244 has been reclassified
between accumulated net realized capital losses and undistributed net investment
income as a result of permanent differences attributable to amortization methods
on fixed income securities. This reclassification has no effect on net assets or
net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. ("MLIM") and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc. has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
On August 15, 2006, shareholders of each Fund approved a new Investment Advisory
Agreement with BlackRock Advisors, Inc. (the "Manager"), an indirect, wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was recently
reorganized into a limited liability company and renamed BlackRock Advisors,
LLC. The new Investment Advisory Agreement between each Fund and the Manager
became effective on September 29, 2006. Prior to September 29, 2006, FAM was the
Investment Adviser. The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly owned subsidiary of Merrill Lynch, which is the
limited partner.
The Manager is responsible for the management of each of the Fund's portfolios
and provides the necessary personnel, facilities, equipment and certain other
services necessary to
ANNUAL REPORTS OCTOBER 31, 2006 45
Notes to Financial Statements (continued)
the operations of each Fund. For such services, each Fund pays a monthly fee at
an annual rate of .50% of the Fund's average daily net assets, including
proceeds from the issuance of Preferred Stock. The Manager (and formerly FAM)
has agreed to reimburse its management fee by the amount of management fees each
Fund pays to the Manager and/or FAM indirectly through its investment in the
Merrill Lynch Institutional Tax-Exempt Fund. The reimbursements were as follows:
--------------------------------------------------------------------------------
November 1, 2005 to September 30, 2006
September 29, 2006, to October 31, 2006,
Reimbursement Reimbursement
by FAM by the Manager
--------------------------------------------------------------------------------
BlackRock MuniYield
Fund, Inc. ................... $ 21,034 $ 1,340
BlackRock MuniYield
Insured Fund, Inc. ........... $ 6,083 $ 696
BlackRock MuniYield
Quality Fund, Inc. ........... $ 8,324 $ 873
BlackRock MuniYield
Quality Fund II, Inc. ........ $ 6,178 $ 824
--------------------------------------------------------------------------------
In addition, the Manager has entered into a sub-advisory agreement with
BlackRock Investment Management, LLC, an affiliate of the Manager, under which
the Manager pays the Sub-Adviser for services it provides a fee equal to 59% of
the management fee paid by each Fund to the Manager.
The Funds reimbursed the Manager and/or FAM for certain accounting services. The
reimbursements were as follows:
--------------------------------------------------------------------------------
For the Period For the Period
November 1, 2005 to September 30, 2006
September 29, 2006 to October 31, 2006
Reimbursement Reimbursement
to FAM to the Manager
--------------------------------------------------------------------------------
BlackRock MuniYield
Fund, Inc. ................... $ 20,359 $ 1,627
BlackRock MuniYield
Insured Fund, Inc. ........... $ 32,031 $ 2,562
BlackRock MuniYield
Quality Fund, Inc. ........... $ 15,019 $ 1,148
BlackRock MuniYield
Quality Fund II, Inc. ........ $ 9,693 $ 745
--------------------------------------------------------------------------------
Prior to September 29, 2006, certain officers and/or directors of the Funds were
officers and/or directors of Merrill Lynch, FAM, MLIM, and/or PSI.
Commencing September 29, 2006, certain officers and/or directors of the Funds
are officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 2006 were as follows:
--------------------------------------------------------------------------------
Total Total
Purchases Sales
--------------------------------------------------------------------------------
BlackRock MuniYield
Fund, Inc. ................................... $ 330,054,190 $ 349,420,013
BlackRock MuniYield
Insured Fund, Inc. ........................... $1,664,751,319 $1,711,175,409
BlackRock MuniYield
Quality Fund, Inc. ........................... $ 261,708,607 $ 265,388,404
BlackRock MuniYield
Quality Fund II, Inc. ........................ $ 185,894,489 $ 188,165,744
--------------------------------------------------------------------------------
4. Stock Transactions:
Each 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 shares of stock without approval of the holders of Common Stock.
Common Stock
BlackRock MuniYield Fund, Inc.
Shares issued and outstanding during the years ended October 31, 2006 and
October 31, 2005, increased by 346,987 and 93,211, respectively, as a result of
dividend reinvestment.
BlackRock MuniYield Insured Fund, Inc.
Shares issued and outstanding during the years ended October 31, 2006 and
October 31, 2005 remained constant.
BlackRock MuniYield Quality Fund, Inc.
Shares issued and outstanding during the years ended October 31, 2006 and
October 31, 2005 remained constant.
BlackRock MuniYield Quality Fund II, Inc.
Shares issued and outstanding during the years ended October 31, 2006 and
October 31, 2005 remained constant.
46 ANNUAL REPORTS OCTOBER 31, 2006
Notes to Financial Statements (continued)
Preferred Stock
Auction Market Preferred Stock are redeemable shares of Preferred Stock of the
Funds, with 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 October 31, 2006 were as follows:
--------------------------------------------------------------------------------
BlackRock BlackRock BlackRock
BlackRock MuniYield MuniYield MuniYield
MuniYield Insured Quality Quality
Fund, Inc. Fund, Inc. Fund, Inc. Fund II, Inc.
--------------------------------------------------------------------------------
Series A ........... 3.40% 3.45% 3.62% 3.57%
Series B ........... 3.62% 3.50% 3.45% 3.47%
Series C ........... 3.48% 3.57% 3.47% 3.48%
Series D ........... 3.45% 3.39% 3.49% 3.42%
Series E ........... 3.40% 3.45% 3.48% --
Series F ........... 3.40% 3.62% -- --
Series G ........... 3.42% 3.45% -- --
Series H ........... -- 3.33% -- --
Series I ........... -- 3.33% -- --
--------------------------------------------------------------------------------
BlackRock MuniYield Fund, Inc.
Shares issued and outstanding during the years ended October 31, 2006 and
October 31, 2005 remained constant.
BlackRock MuniYield Insured Fund, Inc.
Shares issued and outstanding during the years ended October 31, 2006 and
October 31, 2005 remained constant.
BlackRock MuniYield Quality Fund, Inc.
Shares issued and outstanding during the year ended October 31, 2006 remained
constant and during the year ended October 31, 2005 increased by 2,000 shares
from the issuance of an additional series of Preferred Stock.
BlackRock MuniYield Quality Fund II, Inc.
Shares issued and outstanding during the year ended October 31, 2006 remained
constant and during the year ended October 31, 2005 increased by 400 shares from
the issuance of an additional series of Preferred Stock.
Each Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the year ended October 31, 2006, MLPF&S earned commissions as
follows:
--------------------------------------------------------------------------------
Commissions
--------------------------------------------------------------------------------
BlackRock MuniYield Fund, Inc. .................................... $ 374,266
BlackRock MuniYield Insured Fund, Inc. ............................ $ 651,097
BlackRock MuniYield Quality Fund, Inc. ............................ $ 330,351
BlackRock MuniYield Quality Fund II, Inc. ......................... $ 178,675
--------------------------------------------------------------------------------
5. Distributions to Shareholders:
Each Fund paid a tax-exempt income dividend to holders of Common Stock on
November 29, 2006 to shareholders of record on November 14, 2006. The amount of
the tax-exempt income dividend per share was as follows:
--------------------------------------------------------------------------------
Per Share
Amount
--------------------------------------------------------------------------------
BlackRock MuniYield Fund, Inc. ...................................... $ .075000
BlackRock MuniYield Insured Fund, Inc. .............................. $ .058000
BlackRock MuniYield Quality Fund, Inc. .............................. $ .061000
BlackRock MuniYield Quality Fund II, Inc. ........................... $ .056000
--------------------------------------------------------------------------------
The tax character of distributions paid during the fiscal years ended October
31, 2006 and October 31, 2005 was as follows:
--------------------------------------------------------------------------------
BlackRock MuniYield Fund, Inc. 10/31/2006 10/31/2005
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $53,242,140 $51,281,196
Ordinary income ...................... 161,124 --
-------------------------------
Total distributions .................... $53,403,264 $51,281,196
===============================
--------------------------------------------------------------------------------
BlackRock MuniYield
Insured Fund, Inc. 10/31/2006 10/31/2005
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $69,395,892 $75,110,574
Ordinary income ...................... 5,734,611 239,427
Long-term capital gain ............... 19,935,524 2,108,623
-------------------------------
Total distributions .................... $95,066,027 $77,458,624
===============================
--------------------------------------------------------------------------------
BlackRock MuniYield
Quality Fund, Inc. 10/31/2006 10/31/2005
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $32,157,768 $33,634,936
-------------------------------
Total distributions .................... $32,157,768 $33,634,936
===============================
--------------------------------------------------------------------------------
BlackRock MuniYield
Quality Fund II, Inc. 10/31/2006 10/31/2005
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $21,169,808 $22,248,656
-------------------------------
Total distributions .................... $21,169,808 $22,248,656
===============================
ANNUAL REPORTS OCTOBER 31, 2006 47
Notes to Financial Statements (continued)
As of October 31, 2006, the components of accumulated earnings/losses on a tax
basis were as follows:
-----------------------------------------------------------------------------
BlackRock MuniYield Fund, Inc.
-----------------------------------------------------------------------------
Undistributed tax-exempt income -- net .................. $ 5,244,988
Undistributed long-term capital gains -- net ............ --
------------
Total undistributed earnings -- net ..................... 5,244,988
Capital loss carryforward ............................... (35,322,040)*
Unrealized gains -- net ................................. 59,318,055**
------------
Total accumulated earnings -- net ....................... $ 29,241,003
============
* At October 31, 2006, the Fund had a net capital loss carryforward of
$35,322,040, of which $1,763,311 expires in 2007, $25,927,589 expires in
2008, $7,261,361 expires in 2009 and $369,779 expires in 2010. These
amounts will be available to offset like amounts of any future taxable
gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
tax deferral of losses on straddles, the difference between book and tax
amortization methods for premiums and discounts on fixed income
securities, the difference between the book and tax treatment of residual
interests in tender option bond trusts and other book/tax differences.
-----------------------------------------------------------------------------
BlackRock MuniYield Insured Fund, Inc.
-----------------------------------------------------------------------------
Undistributed tax-exempt income -- net .................. $ 5,481,179
Undistributed long-term capital gains -- net ............ --
------------
Total undistributed earnings -- net ..................... 5,481,179
Capital loss carryforward ............................... (1,799,562)*
Unrealized gains -- net ................................. 82,385,965**
------------
Total accumulated earnings -- net ....................... $ 86,067,582
============
* At October 31, 2006, the Fund had a net capital loss carryforward of
$1,799,562, all of which expires in 2014. These amounts will be available
to offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
tax deferral of losses on straddles, the difference between book and tax
amortization methods for premiums and discounts on fixed income securities
and the difference between the book and tax treatment of residual
interests in tender option bond trusts.
-----------------------------------------------------------------------------
BlackRock MuniYield Quality Fund, Inc.
-----------------------------------------------------------------------------
Undistributed tax-exempt income -- net .................. $ 1,761,841
Undistributed long-term capital gains -- net ............ --
------------
Total undistributed earnings -- net ..................... 1,761,841
Capital loss carryforward ............................... (372,595)*
Unrealized gains -- net ................................. 38,353,420**
------------
Total accumulated earnings -- net ....................... $ 39,742,666
============
* At October 31, 2006, the Fund had a net capital loss carryforward of
$372,595, all of which expires in 2012. These amounts will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles, the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities and the difference between the book
and tax treatment of residual interests in tender option bond trusts.
-----------------------------------------------------------------------------
BlackRock MuniYield Quality Fund II, Inc.
-----------------------------------------------------------------------------
Undistributed tax-exempt income -- net .................. $ 1,375,621
Undistributed long-term capital gains -- net ............ --
------------
Total undistributed earnings -- net ..................... 1,375,621
Capital loss carryforward ............................... (33,129,439)*
Unrealized gains -- net ................................. 23,052,571**
------------
Total accumulated losses -- net ......................... $ (8,701,247)
============
* At October 31, 2006, the Fund had a net capital loss carryforward of
$33,129,439, of which $231,352 expires in 2007, $26,302,644 expires in
2008, $1,033,640 expires in 2010 and $5,561,803 expires in 2012. These
amounts will be available to offset like amounts of any future taxable
gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles and the
difference between the book and tax treatment of residual interests in
tender option bond trusts.
6. Restatement Information:
During the year ended October 31, 2006, each of the Funds determined that the
criteria for sale accounting in Statement of Financial Accounting Standards No.
140 had not been met for certain transfers of municipal bonds and that these
transfers should have been accounted for as secured borrowings rather than as
sales. Accordingly, BlackRock MuniYield Insured Fund, Inc., BlackRock MuniYield
Quality Fund, Inc., and BlackRock MuniYield Quality Fund II, Inc. each has
restated its Statement of Changes in Net Assets for the year ended October 31,
2005 to give effect to offsetting changes in realized gain -- net and in the
change in unrealized appreciation/ depreciation-net on the transferred municipal
securities. Additionally, each of the Funds, including BlackRock MuniYield Fund,
Inc., has restated its financial highlights for the years ended October 31,
2005, 2004, 2003 and 2002 to give effect to recording the transfers of the
municipal bonds as secured borrowings, including recording interest on the bonds
as interest income and interest on the secured borrowings as interest expense.
48 ANNUAL REPORTS OCTOBER 31, 2006
Notes to Financial Statements (continued)
----------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended October 31, 2005
----------------------------------------------------------------------------------------------------------------------------------
BlackRock MuniYield BlackRock MuniYield BlackRock MuniYield
Insured Fund, Inc. Quality Fund, Inc. Quality Fund II, Inc.
----------------------------- ----------------------------- -----------------------------
Previously Previously Previously
Reported Restated Reported Restated Reported Restated
----------------------------------------------------------------------------------------------------------------------------------
Realized gain -- net ............ $ 28,419,498 $ 29,296,640 $ 6,677,386 $ 6,620,058 $ 2,723,150 $ 2,976,301
Change in unrealized
appreciation/depreciation -- net $(42,239,480) $(43,116,622) $(18,625,082) $(18,567,754) $ (8,182,237) $ (8,435,388)
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Financial Highlights for BlackRock MuniYield Fund, Inc.
For the Year Ended October 31, 2005, 2004, 2003 and 2002
----------------------------------------------------------------------------------------------------------------------------------
2005 2004 2003 2002
---------------------- --------------------- --------------------- --------------------
Previously Previously Previously Previously
Reported Restated Reported Restated Reported Restated Reported Restated
----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement** 1.02% 1.26% .97% 1.13% .99% 1.14% 1.01% 1.24%
Total expenses** ..................... 1.02% 1.26% .98% 1.14% .99% 1.14% 1.01% 1.24%
Portfolio turnover ................... 32.66% 30% 23.62% 22% 61.95% 56% 104.63% 94%
----------------------------------------------------------------------------------------------------------------------------------
** Do not reflect the effect of dividends to Preferred Stock shareholders.
----------------------------------------------------------------------------------------------------------------------------------
Financial Highlights for BlackRock MuniYield Insured Fund, Inc.
For the Year Ended October 31, 2005, 2004, 2003 and 2002
----------------------------------------------------------------------------------------------------------------------------------
2005 2004 2003 2002
---------------------- --------------------- --------------------- --------------------
Previously Previously Previously Previously
Reported Restated Reported Restated Reported Restated Reported Restated
----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement** 1.01% 1.60% .95% 1.19% .94% 1.18% .97% 1.23%
Total expenses** ..................... 1.01% 1.60% .95% 1.19% .95% 1.18% .97% 1.24%
Portfolio turnover ................... 123.85% 105% 144.40% 122% 114.05% 95% 97.34% 82%
----------------------------------------------------------------------------------------------------------------------------------
** Do not reflect the effect of dividends to Preferred Stock shareholders.
----------------------------------------------------------------------------------------------------------------------------------
Financial Highlights for BlackRock MuniYield Quality Fund, Inc.
For the Year Ended October 31, 2005, 2004, 2003 and 2002
----------------------------------------------------------------------------------------------------------------------------------
2005 2004 2003 2002
---------------------- --------------------- --------------------- --------------------
Previously Previously Previously Previously
Reported Restated Reported Restated Reported Restated Reported Restated
----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement** .96% 1.44% .94% 1.25% .94% 1.24% .96% 1.33%
Total expenses** ..................... .96% 1.45% .95% 1.25% .95% 1.24% .96% 1.33%
Portfolio turnover ................... 35.62% 29% 32.87% 28% 33.92% 30% 46.29% 37%
----------------------------------------------------------------------------------------------------------------------------------
** Do not reflect the effect of dividends to Preferred Stock shareholders.
----------------------------------------------------------------------------------------------------------------------------------
Financial Highlights for BlackRock MuniYield Quality Fund II, Inc.
For the Year Ended October 31, 2005, 2004, 2003 and 2002
----------------------------------------------------------------------------------------------------------------------------------
2005 2004 2003 2002
---------------------- --------------------- --------------------- --------------------
Previously Previously Previously Previously
Reported Restated Reported Restated Reported Restated Reported Restated
----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement** 1.03% 1.49% 1.01% 1.21% 1.03% 1.30% 1.06% 1.42%
Total expenses** ..................... 1.03% 1.49% 1.02% 1.22% 1.03% 1.31% 1.06% 1.42%
Portfolio turnover ................... 37.55% 29% 32.30% 27% 42.06% 35% 42.89% 34%
----------------------------------------------------------------------------------------------------------------------------------
** Do not reflect the effect of dividends to Preferred Stock shareholders.
ANNUAL REPORTS OCTOBER 31, 2006 49
Notes to Financial Statements (concluded)
While the Statements of Net Assets for each of the Funds as of October 31, 2005,
2004, 2003 and 2002, not presented herein, have not been reissued to give effect
to the restatement, the principal effects of the restatement would be to
increase investments and liability for trust certificates by corresponding
amounts at each year end, with no effect on previously reported net assets.
The Statements of Operations for each of the Funds for the years ended October
31, 2005, 2004, 2003 and 2002, not presented herein, have not been reissued to
give effect to the restatement. However, the principal effects of the
restatement would be to increase interest income and interest expense and fees
by corresponding amounts each year, and, where applicable, to revise realized
gain (loss) on investments -- net, and the change in unrealized
appreciation/depreciation on investments -- net, by corresponding and offsetting
amounts.
The Statements of Changes in Net Assets for each of the Funds for the years
ended October 31, 2004, 2003 and 2002, not presented herein, have not been
reissued to give effect to the restatement, but the principal effects of a
restatement, where applicable, would be to revise previously reported realized
gain (loss) -- net, and change in unrealized appreciation/depreciation-net, by
corresponding and offsetting amounts.
50 ANNUAL REPORTS OCTOBER 31, 2006
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of BlackRock MuniYield Fund, Inc.,
BlackRock MuniYield Insured Fund, Inc., BlackRock MuniYield Quality Fund, Inc.
and BlackRock MuniYield Quality Fund II, Inc.:
We have audited each of the accompanying statements of net assets, including the
schedules of investments, of BlackRock MuniYield Fund, Inc. (formerly MuniYield
Fund, Inc.), BlackRock MuniYield Quality Fund, Inc. (formerly MuniYield Quality
Fund, Inc.), and BlackRock MuniYield Quality Fund II, Inc. (formerly MuniYield
Quality Fund II, Inc.), as of October 31, 2006, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, the financial highlights for
each of the five years in the period then ended for each of the respective
funds, and the statements of cash flows of BlackRock MuniYield Quality Fund,
Inc. and BlackRock MuniYield Quality Fund II, Inc. for the year then ended. We
have also audited the accompanying statement of net assets, including the
schedule of investments, of BlackRock MuniYield Insured Fund, Inc. (formerly
MuniYield Insured Fund, Inc.) as of October 31, 2006, and the related statements
of operations, changes in net assets and the financial highlights for the year
then ended. The above- referenced funds are hereinafter referred to collectively
as the "Funds." These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on the financial statements and financial highlights of each of the
funds based on our audits. The statement of changes in net assets of BlackRock
MuniYield Insured Fund, Inc. for the year ended October 31, 2005 (before the
restatement described in Note 6) and its financial highlights for each of the
four years in the period ended October 31, 2005 (before the restatement
described in Note 6) were audited by other auditors whose report, dated December
9, 2005, expressed a qualified opinion on that financial statement and financial
highlights because of the errors described in Note 6.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Funds
are not required to have, nor were we engaged to perform, audits of their
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Funds' internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of October 31, 2006, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights of BlackRock
MuniYield Fund, Inc., BlackRock MuniYield Quality Fund, Inc. and BlackRock
MuniYield Quality Fund II, Inc. referred to above present fairly, in all
material respects, the respective financial positions of each of those funds as
of October 31, 2006, the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended, their financial highlights for each of the five years in the period then
ended, and, for BlackRock MuniYield Quality Fund, Inc. and BlackRock MuniYield
Quality Fund II, Inc., their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
Additionally, in our opinion, the financial statements and financial highlights
of BlackRock MuniYield Insured Fund, Inc. as of and for the year ended October
31, 2006, present fairly, in all material respects, its financial position as of
October 31, 2006, and the results of its operations, changes in its net assets
and its financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 6, the statements of changes in net assets of BlackRock
MuniYield Quality Fund, Inc. and BlackRock MuniYield Quality Fund II, Inc. for
the year ended October 31, 2005, and their respective financial highlights for
each of the four years in the period then ended have been restated. As also
discussed in Note 6, the financial highlights of BlackRock MuniYield Fund, Inc.
for each of the four years in the period ended October 31, 2005 have been
restated.
ANNUAL REPORTS OCTOBER 31, 2006 51
Report of Independent Registered Public Accounting Firm (concluded)
We also have audited the adjustments, applied by management, to restate the
statement of changes in net assets of BlackRock MuniYield Insured Fund, Inc.
(the "Insured Fund") for the year ended October 31, 2005 and certain financial
highlights of the Insured Fund for each of the four years in the period then
ended, to correct the errors described in Note 6. These adjustments are the
responsibility of the Insured Fund's management. The audit procedures that we
performed with respect to the adjustments included such tests as we considered
necessary in the circumstances and were designed to obtain reasonable assurance
about whether the adjustments are appropriate and have been properly applied, in
all material respects, to the restated statement of changes in net assets of the
Insured Fund for the year ended October 31, 2005, and to the restated
information in its financial highlights for each of the four years in the period
then ended. We did not perform any audit procedures designed to assess whether
any additional adjustments or disclosures to the Insured Fund's financial
statements or financial highlights as of October 31, 2005, and for each of the
four years in the period then ended, might be necessary in order for such
financial statements or financial highlights to be presented in conformity with
generally accepted accounting principles. In our opinion, the adjustments to the
statement of changes in net assets of the Insured Fund for the year ended
October 31, 2005, and to its financial highlights for each of the four years in
the period then ended, for the restatement described in Note 6 are appropriate
and have been properly applied, in all material respects. However, we were not
engaged to audit, review, or apply any procedures to the Insured Fund's
financial statements or financial highlights as of October 31, 2005, and for
each of the four years in the period then ended, other than with respect to the
adjustments to the Insured Fund's statement of changes in net assets and its
financial highlights for the restatement described in Note 6 and, accordingly,
we do not express an opinion or any other form of assurance on the Insured
Fund's financial statements as of October 31, 2005, or on its financial
highlights for each of the four years in the period then ended.
Deloitte & Touche LLP
Princeton, New Jersey
January 16, 2007
52 ANNUAL REPORTS OCTOBER 31, 2006
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of MuniYield Insured Fund, Inc.:
We have audited, before the effects of the adjustments for the correction of the
error described in Note 6, the accompanying statement of changes in net assets
of MuniYield Insured Fund, Inc., for the year ended October 31, 2005, and
financial highlights for each of the four years in the period then ended (the
2005 financial statement and financial highlights referred to above before the
effects of the adjustments discussed in Note 6 are not presented herein). This
financial statement and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on this financial
statement and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, except for the error described in Note 6, the 2005 financial
statement and financial highlights referred to above present fairly, in all
material respects, the changes in net assets of MuniYield Insured Fund, Inc. for
the year ended October 31, 2005, and the financial highlights for each of the
four years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
We were not engaged to audit, review, or apply any procedures to the adjustments
for the correction of the error described in Note 6 and, accordingly, we do not
express an opinion or any other form of assurance about whether such adjustments
are appropriate and have been properly applied. Those adjustments were audited
by Deloitte & Touche LLP.
/s/ Ernst + Young LLP
Philadelphia, Pennsylvania
December 9, 2005
ANNUAL REPORTS OCTOBER 31, 2006 53
Important Tax Information
All of the net investment income distributions paid by BlackRock MuniYield Fund,
Inc., BlackRock MuniYield Insured Fund, Inc., BlackRock MuniYield Quality Fund,
Inc. and BlackRock MuniYield Quality Fund II, Inc. during the taxable year ended
October 31, 2006 qualify as tax-exempt interest dividends for federal income tax
purposes.
The following summarizes the taxable per share distributions paid by BlackRock
MuniYield Fund, Inc. during the year:
--------------------------------------------------------------------------------
Payable Date Ordinary Income
--------------------------------------------------------------------------------
Common Stock Shareholders 12/29/2005 $.003092
--------------------------------------------------------------------------------
Preferred Stock Shareholders: Series A ....... 12/21/2005 $ 1.73
Series B ....... 12/28/2005 $ 1.65
Series C ....... 12/14/2005 $ 1.75
Series D ....... 12/07/2005 $ 1.68
Series E ....... 12/14/2005 $ 1.68
Series F ....... 12/15/2005 $ 1.63
Series G ....... 12/19/2005 $ 1.78
--------------------------------------------------------------------------------
54 ANNUAL REPORTS OCTOBER 31, 2006
Important Tax Information (concluded)
Additionally, the following summarizes the taxable per share distributions paid
by BlackRock MuniYield Insured Fund, Inc. during the year:
--------------------------------------------------------------------------------
Payable Ordinary Long-Term
Date Income Capital Gains
--------------------------------------------------------------------------------
Common Stock Shareholders 12/29/2005 $.059435 $.277439
--------------------------------------------------------------------------------
Preferred Stock Shareholders:
--------------------------------------------------------------------------------
Series A 11/17/2005 $23.89 $51.34
12/15/2005 $ 8.69 $27.31
--------------------------------------------------------------------------------
Series B 11/25/2005 $25.60 $53.18
12/22/2005 $ 7.20 $23.81
--------------------------------------------------------------------------------
Series C 11/03/2005 $13.28 $65.17
12/01/2005 $14.25 $64.32
12/29/2005 $ 6.71 $30.35
--------------------------------------------------------------------------------
Series D 11/10/2005 $25.86 $50.82
12/08/2005 $ 6.49 $27.88
--------------------------------------------------------------------------------
Series E 11/03/2005 $ 3.35 $15.46
11/10/2005 $ 3.46 $16.46
11/17/2005 $ 3.40 $16.15
11/25/2005 $ 3.72 $17.77
12/01/2005 $ 3.23 $15.42
12/08/2005 $ 3.57 $16.94
12/15/2005 $ 1.53 $ 7.30
--------------------------------------------------------------------------------
Series F 11/01/2005 $13.38 $65.69
11/29/2005 $14.98 $67.63
12/27/2005 $ 6.26 $28.29
--------------------------------------------------------------------------------
Series G 11/01/2005 $ 3.29 $15.15
11/08/2005 $ 3.51 $16.18
11/15/2005 $ 2.31 $10.97
11/22/2005 $ 3.52 $16.75
11/29/2005 $ 3.58 $17.06
12/06/2005 $ 3.91 $18.58
12/13/2005 $ 3.58 $17.06
12/20/2005 $ 3.03 $14.45
--------------------------------------------------------------------------------
Series H 11/04/2005 $ 3.55 $16.37
11/14/2005 $ 4.74 $22.54
11/18/2005 $ 1.95 $ 9.34
11/25/2005 $ 3.58 $17.06
12/02/2005 $ 3.54 $16.89
12/09/2005 $ 3.91 $18.58
12/16/2005 $ 2.30 $11.00
--------------------------------------------------------------------------------
Series I 11/07/2005 $ 3.55 $16.37
11/14/2005 $ 3.45 $16.40
11/21/2005 $ 3.34 $15.85
11/28/2005 $ 3.58 $17.06
12/05/2005 $ 3.49 $16.57
12/12/2005 $ 3.78 $17.97
12/19/2005 $ 3.80 $18.03
12/27/2005 $ 0.04 $ 0.19
--------------------------------------------------------------------------------
ANNUAL REPORTS OCTOBER 31, 2006 55
Change in Fund's Independent Registered Public Accounting Firm
On August 28, 2006, Ernst & Young llp ("E&Y) resigned as the Independent
Registered Public Accounting Firm of BlackRock MuniYield Insured Fund, Inc. (the
"Fund").
E&Y's reports on the financial statements of the Fund for the past two fiscal
years did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the two most recent fiscal years and through
August 28, 2006 (1) there were no disagreements with E&Y on any matter of
accounting principle or practice, financial statement disclosure or auditing
scope or procedure, whereby such disagreements, if not resolved to the
satisfaction of E&Y, would have caused them to make reference to the subject
matter of the disagreements in connection with their report on the financial
statements for such years; and (2) there have been no reportable events (as
defined in item 304(a)(1)(v) of Regulation S-K).
The Audit Committee of the Fund's Board of Directors approved the engagement of
Deloitte & Touche llp as the Fund's Independent Registered Public Accounting
Firm for the fiscal year ended October 31, 2006.
Fund Certifications
In May 2006, BlackRock MuniYield Fund, Inc., BlackRock MuniYield Insured Fund,
Inc., BlackRock MuniYield Quality Fund, Inc. and BlackRock MuniYield Quality
Fund II, Inc. filed their Chief Executive Officer Certification for the prior
year with the New York Stock Exchange pursuant to Section 303A.12(a) of the New
York Stock Exchange Corporate Governance Listing Standards.
The Funds' Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Funds' Form N-CSR and are available on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
56 ANNUAL REPORTS OCTOBER 31, 2006
Disclosure of Investment Advisory Agreement
Disclosure of FAM Investment Advisory Agreements
The Board of Directors of each Fund met in August 2006 to consider approval of
the Fund's investment advisory agreement with Fund Asset Management, L.P.
("FAM"), each Fund's investment adviser at that time.
Activities and Composition of the Boards
All but one member of each Board is an independent director whose only
affiliation with FAM or other Merrill Lynch affiliates was as a director of the
Fund and as a director or trustee of certain other funds advised by FAM or its
affiliates. The Co-chairmen of each Board are also independent directors. New
director nominees are chosen by a Nominating Committee comprised of independent
directors. All independent directors also are members of each Board's Audit
Committee, and the independent directors meet in executive session at each
in-person Board meeting. Each Board and each Board's Audit Committee meet in
person for at least two days each quarter and conduct other in-person and
telephone meetings throughout the year, some of which are formal Board meetings
and some of which are informational meetings. The independent counsel to the
independent directors attends all in-person Board and Audit Committee meetings
and other meetings at the independent directors' request.
FAM Investment Advisory Agreements -- Matters Considered by the Boards
Every year, each Fund's Board considers approval of the Fund's investment
advisory agreement. Each Board assesses the nature, scope and quality of the
services provided to the Fund by the personnel of the investment adviser and its
affiliates, including administrative services, shareholder services, oversight
of fund accounting, marketing services and assistance in meeting legal and
regulatory requirements. Each Board also receives and assesses information
regarding the services provided to the Fund by certain unaffiliated service
providers.
At various times throughout the year, each Board also considers a range of
information in connection with its oversight of the services provided by the
investment adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the investment adviser and its
affiliates by the Fund; (b) Fund operating expenses paid to third parties; (c)
the resources devoted to and compliance reports relating to each Fund's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and compliance policies and procedures; and (d) the nature, cost
and character of non-investment management services provided by the investment
adviser and its affiliates.
Each Board noted its view of FAM as one of the most experienced global asset
management firms and considered the overall services provided by FAM to be of
high quality. Each Board also noted its view of FAM as financially sound and
well managed and noted FAM's affiliation with one of America's largest financial
firms. Each Board works closely with the investment adviser in overseeing the
investment adviser's efforts to achieve good performance. As part of this
effort, each Board discusses portfolio manager effectiveness and, when
performance is not satisfactory, discusses with the investment adviser taking
steps such as changing investment personnel.
Annual Consideration of Approval by the Boards
In the period prior to the Board meeting to consider renewal of the investment
advisory agreement, each Board requests and receives materials specifically
relating to the Fund's investment advisory agreement. These materials are
prepared separately for each Fund and include (a) information compiled by Lipper
Inc. ("Lipper") on the fees and expenses, investment performance and leverage of
the Fund as compared to a comparable group of funds as classified by Lipper; (b)
information comparing each Fund's market price with its net asset value per
share; (c) a discussion by the Fund's portfolio management team regarding
investment strategies used by the Fund during its most recent fiscal year; (d)
information on the profitability to the investment adviser and its affiliates of
the investment advisory agreement and other relationships with the Fund; and (e)
information provided by the investment adviser concerning investment advisory
fees charged to other clients, such as retail closed-end funds, under similar
investment mandates. Each Board also considers other matters it deems important
to the approval process, such as payments made for services related to the
valuation and pricing of Fund portfolio holdings, the Fund's portfolio turnover
statistics, and direct and indirect benefits to the investment adviser and its
affiliates from their relationship with the Fund.
Certain Specific Renewal Data
In connection with the most recent renewal of each Fund's investment advisory
agreement with FAM (each, a "FAM Investment Advisory Agreement") in August 2006,
the independent directors' and the Board's review included the following:
ANNUAL REPORTS OCTOBER 31, 2006 57
Disclosure of Investment Advisory Agreement (concluded)
Services Provided by the Investment Adviser -- Each Fund's Board reviewed the
nature, extent and quality of services provided by FAM, focusing on the
investment advisory services and the resulting performance of the Fund. Each
Board uses data provided by Lipper and by management in its review of advisory
services. Each Board compared Fund performance -- both including and excluding
the effects of the Fund's fees and expenses -- to the performance of a
comparable group of funds and the performance of a relevant index or combination
of indexes. While each Board reviews performance data at least quarterly, each
Board attaches more importance to performance over relatively long periods of
time, typically three to five years. Each Fund's Board concluded that the
comparative data indicated that the Fund's performance was competitive.
Considering all these factors, each Fund's Board concluded that the nature and
quality of the services provided supported the continuation of the Fund's FAM
Investment Advisory Agreement.
FAM's Personnel and Investment Process -- Each Fund's Board reviewed the Fund's
investment objectives and strategies. Each Board discussed with FAM's senior
management responsible for investment operations and the senior management of
FAM's municipal investing group the strategies being used to achieve the stated
objectives. Among other things, each Board considered the size, education and
experience of FAM's investment staff, its use of technology, and FAM's approach
to training and retaining portfolio managers and other research, advisory and
management personnel. Each Board also reviewed FAM's compensation policies and
practices with respect to the Fund's portfolio managers. Each Board also
considered the experience of the Fund's portfolio manager. The Board of
MuniYield Fund, Inc. noted that Mr. Jaeckel has more than 15 years of experience
in portfolio management, the Board of MuniYield Insured Fund, Inc. noted that
Mr. Bock has more than 15 years of experience in portfolio management and the
Boards of MuniYield Quality Fund, Inc. and MuniYield Quality Fund II, Inc. noted
that Mr. Kalinoski has more than five years of experience in portfolio
management. Each Fund's Board concluded that FAM and its investment staff have
extensive experience in analyzing and managing the types of investments used by
the Fund and that the Fund benefits from that experience.
Management Fees and Other Expenses -- Each Fund's Board reviews the Fund's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels -- the actual rate includes advisory and
administrative service fees and the effects of any fee waivers -- compared to
the other funds in its Lipper category. It also compares the Fund's total
expenses to those of other comparable funds. Each Board considered the services
provided to and the fees charged by FAM to other clients with similar investment
mandates. Each Fund's Board determined that the Fund's contractual and actual
management fee rates, as well as total expenses, were competitive with those of
comparable funds. Each Fund's Board concluded that the Fund's management fee
rate and overall expense ratio were reasonable.
Profitability -- Each Board considers the cost of the services provided to the
Fund by the investment adviser and the investment adviser's and its affiliates'
profits relating to the management and distribution of the Fund and the funds
advised by the investment manager and its affiliates. As part of its analysis,
each Fund's Board reviewed FAM's methodology in allocating its costs to the
management of the Fund and concluded that there was a reasonable basis for the
allocation. The Board concluded that the profits of FAM and its affiliates were
acceptable in relation to the nature and quality of services provided.
Economies of Scale -- Each Fund's Board considered the extent to which economies
of scale might be realized as the assets of the Fund increase and whether there
should be changes in the management fee rate or structure in order to enable the
Fund to participate in these economies of scale. Each Fund's Board considered
economies of scale to the extent applicable to the Fund's closed-end structure
and determined that the Fund appropriately benefits from any economies of scale.
Each Board determined that the management fee structure was reasonable and that
no changes were currently necessary.
Conclusion -- After the independent directors of each Board deliberated in
executive session, the entire Board of each Fund, including all of the
independent directors, approved the renewal of the pertinent FAM Investment
Advisory Agreement, concluding that the advisory fee was reasonable in relation
to the services provided and that a contract renewal was in the best interests
of the shareholders.
58 ANNUAL REPORTS OCTOBER 31, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreements -- Matters Considered by the Boards
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Investment
Adviser"), with that of BlackRock, Inc. ("BlackRock") to create a new
independent company ("New BlackRock") (the "Transaction"), each Fund's Board of
Directors considered and approved a new investment advisory agreement (each, a
"BlackRock Investment Advisory Agreement") between the Fund and BlackRock
Advisors, LLC ("BlackRock Advisors"). Each Fund's shareholders subsequently
approved the Fund's BlackRock Investment Advisory Agreement and it became
effective on September 29, 2006, replacing the Fund's investment advisory
agreement with the Previous Investment Adviser (each, a "Previous Investment
Advisory Agreement").
Each Fund's Board discussed the Fund's BlackRock Investment Advisory Agreement
at telephonic and in-person meetings held during April and May 2006. Each Fund's
Board, including the independent directors, approved the Fund's BlackRock
Investment Advisory Agreement at an in-person meeting held on May 9, 2006.
To assist each Fund's Board in its consideration of the Fund's BlackRock
Investment Advisory Agreement, BlackRock provided materials and information
about BlackRock, including its financial condition and asset management
capabilities and organization, and Merrill Lynch provided materials and
information about the Transaction. Each Fund's independent directors, through
their independent legal counsel, also requested and received additional
information from Merrill Lynch and BlackRock in connection with their
consideration of the Fund's BlackRock Investment Advisory Agreement. The
additional information was provided in advance of the May 9, 2006 meetings. In
addition, each Fund's independent directors consulted with their counsel and
Fund counsel on numerous occasions, discussing, among other things, the legal
standards and certain other considerations relevant to the directors'
deliberations.
At each Fund's Board meetings, the directors discussed with Merrill Lynch
management and certain BlackRock representatives the Transaction, its strategic
rationale and BlackRock's general plans and intentions regarding the Fund. At
these Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Boards. The directors also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Previous Investment Adviser, and of its
affiliates, to be transferred to BlackRock in connection with the Transaction.
The independent directors also conferred separately and with their counsel about
the Transaction and other matters related to the Transaction on a number of
occasions, including in connection with the April and May 2006 meetings. After
the presentations and after reviewing the written materials provided, each
Fund's independent directors met in executive sessions with their counsel to
consider the Fund's BlackRock Investment Advisory Agreement.
In connection with the directors' review of each Fund's BlackRock Investment
Advisory Agreement, Merrill Lynch and/or BlackRock advised the directors about a
variety of matters. The advice included the following, among other matters:
o that there was not expected to be any diminution in the nature, quality
and extent of services provided to any of the Funds or their shareholders
by BlackRock Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
o that each Fund was expected to benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements that were currently in effect and, while it
reserved the right to do so in the future, it would seek Board approval
before making any changes;
o that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Previous Investment Adviser (or affiliates),
respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they had a financial interest in the
matters being considered that was different from that of Fund
shareholders.
ANNUAL REPORTS OCTOBER 31, 2006 59
Disclosure of New Investment Advisory Agreement (continued)
The directors considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to each Fund's shareholders from being part of a
combined fund family with BlackRock-sponsored funds, including possible
economies of scale and access to investment opportunities;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of each Fund's BlackRock Investment Advisory
Agreement, including the fact that no Fund's schedule of total advisory
fees would increase under the pertinent BlackRock Investment Advisory
Agreement, but would remain the same;
o that in August 2005, each Fund's Board had performed a full annual review
of the pertinent Previous Investment Advisory Agreement, as required by
the 1940 Act, and had determined that the Previous Investment Adviser had
the capabilities, resources and personnel necessary to provide the
advisory and administrative services that were then being provided to the
Fund; and that the advisory and/or management fees paid by the Fund,
taking into account any applicable agreed-upon fee waivers and
breakpoints, had represented reasonable compensation to the Previous
Investment Adviser in light of the services provided, the costs to the
Previous Investment Adviser of providing those services, economies of
scale, the fees and other expenses paid by similar funds (including
information provided by Lipper Inc. ["Lipper"]), and such other matters as
the directors had considered relevant in the exercise of their reasonable
judgment; and
o that Merrill Lynch had agreed to pay all expenses of each Fund in
connection with the consideration by the Board of the Fund's BlackRock
Investment Advisory Agreement and related agreements and all costs of
shareholder approval of the BlackRock Investment Advisory Agreement and as
a result the Fund would bear no costs in obtaining shareholder approval of
the BlackRock Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the Fund's BlackRock Investment Advisory Agreement, each Fund's
Board assessed the nature, quality and scope of the services to be provided to
the Fund by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting and
assistance in meeting legal and regulatory requirements. In its review of the
Fund's BlackRock Investment Advisory Agreement, each Fund's Board also
considered a range of information in connection with its oversight of the
services to be provided by BlackRock Advisors and its affiliates. Among the
matters considered for each Fund were: (a) fees (in addition to management fees)
to be paid to BlackRock Advisors and its affiliates by the Fund; (b) Fund
operating expenses paid to third parties; (c) the resources devoted to and
compliance reports relating to the Fund's investment objective, policies and
restrictions, and its compliance with its Code of Ethics and BlackRock Advisors'
compliance policies and procedures; and (d) the nature, cost and character of
non-investment management services to be provided by BlackRock Advisors and its
affiliates.
In the period prior to each Fund's Board meeting to consider renewal of the
Fund's Previous Investment Advisory Agreement, the Board had requested and
received materials specifically relating to the Previous Investment Advisory
Agreement. For each Fund, these materials included (a) information compiled by
Lipper on the fees and expenses and the investment performance of the Fund as
compared to a comparable group of funds as classified by Lipper; (b) information
comparing the Fund's market price with its net asset value per share; (c) a
discussion by the Fund's portfolio management team on investment strategies used
by the Fund during its most recent fiscal year; (d) information on the
profitability to the Previous Investment Adviser of the Fund's Previous
Investment Advisory Agreement and other payments received by the Previous
Investment Adviser and its affiliates from the Fund; and (e) information
provided by the Previous Investment Adviser concerning services related to the
valuation and pricing of Fund portfolio holdings, the Fund's portfolio turnover
statistics, and direct and indirect benefits to the Previous Investment Adviser
and its affiliates from their relationship with the Fund.
In their deliberations, each Fund's directors considered information received in
connection with their most recent approval of the continuance of the Fund's
Previous Investment Advisory Agreement, in addition to information
60 ANNUAL REPORTS OCTOBER 31, 2006
provided by BlackRock and BlackRock Advisors in connection with their evaluation
of the terms and conditions of the Fund's BlackRock Investment Advisory
Agreement. None of the Funds' directors identified any particular information
that was all-important or controlling. Each Fund's directors, including a
majority of the independent directors, concluded that the terms of the Fund's
BlackRock Investment Advisory Agreement are appropriate, that the fees to be
paid are reasonable in light of the services to be provided to the Fund, and
that the BlackRock Investment Advisory Agreement should be approved and
recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided -- Each Fund's Board reviewed
the nature, quality and scope of services provided by the Previous Investment
Adviser, including the investment advisory services and the resulting
performance of the Fund, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. Each Fund's Board focused
primarily on the Previous Investment Adviser's investment advisory services and
the Fund's investment performance, but also considered certain areas in which
both the Previous Investment Adviser and the Fund received services as part of
the Merrill Lynch complex. Each Fund's Board compared the Fund's performance --
both including and excluding the effects of fees and expenses -- to the
performance of a comparable group of funds, and the performance of a relevant
index or combination of indexes. While each Board reviews performance data at
least quarterly, consistent with the Previous Investment Adviser's investment
goals, the Board attaches more importance to performance over relatively long
periods of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under each Fund's BlackRock Investment Advisory Agreement,
the directors considered, among other things, the expected impact of the
Transaction on the operations, facilities, organization and personnel of New
BlackRock and how it would affect the Fund; the ability of BlackRock Advisors to
perform its duties after the Transaction; and any anticipated changes to the
investment and other practices of the Fund.
Each Fund's directors were given information with respect to the potential
benefits to the Fund and its shareholders from having access to BlackRock's
state of the art technology and risk management analytic tools, including the
investment tools provided under the BlackRock Solutions brand name.
Each Fund's directors were advised that, as a result of Merrill Lynch's equity
interest in BlackRock after the Transaction, the Fund would continue to be
subject to restrictions concerning certain transactions involving Merrill Lynch
affiliates (for example, transactions with a Merrill Lynch broker-dealer acting
as principal) absent revised or new regulatory relief. Each Fund's directors
were advised that a revision of existing regulatory relief with respect to these
restrictions was being sought from the Securities and Exchange Commission and
were advised of the possibility of the receipt of such revised regulatory
relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, each Fund's
directors determined that the nature and quality of services to be provided to
the Fund under the Fund's BlackRock Investment Advisory Agreement were expected
to be as good as or better than that provided under the Fund's Previous
Investment Advisory Agreement. The directors were advised that BlackRock
Advisors did not plan to change any of the Funds' portfolio management team upon
the closing of the transaction. It was noted, however, that other changes in
personnel were expected to follow the Transaction and the combination of the
operations of the Previous Investment Adviser and its affiliates with those of
BlackRock. Each Fund's directors noted that if current portfolio managers or
other personnel were to cease to be available prior to the closing of the
Transaction, the Board would consider all available options, including seeking
the investment advisory or other services of BlackRock affiliates. Accordingly,
each Fund's directors concluded that, overall, they were satisfied with
assurances from BlackRock and BlackRock Advisors as to the expected nature,
quality and extent of the services to be provided to the Fund under the Fund's
BlackRock Investment Advisory Agreement.
Costs of Services Provided, Fees and Profitability -- It was noted that, in
conjunction with their recent review of the Fund's Previous Investment Advisory
Agreement, each Fund's directors had received, among other things, a report from
Lipper comparing the Fund's fees and expenses to those of a peer group selected
by Lipper, and information as to the fees charged by the Previous Investment
Adviser or its affiliates to other registered investment company clients for
investment management services. Each Fund's Board reviewed the Fund's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels -- the actual rate includes advisory fees
and the effects of any fee waivers -- compared to the other funds in its Lipper
category. Each Fund's Board also compared the
ANNUAL REPORTS OCTOBER 31, 2006 61
Disclosure of New Investment Advisory Agreement (concluded)
Fund's total expenses to those of other comparable funds. The information showed
that each Fund had fees and expenses within the range of fees and expenses of
comparable funds. Each Fund's Board considered the services to be provided by
and the fees to be charged by BlackRock Advisors to other funds with similar
investment mandates and noted that the fees charged by BlackRock Advisors in
those cases, including fee waivers and expense reimbursements, were generally
comparable to those being charged to the Fund. Each Fund's Board concluded that
the Fund's management fee and fee rate and overall expense ratio are reasonable
compared to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the Fund's BlackRock Investment Advisory Agreement, each Fund's directors
considered, among other things, whether advisory fees or other expenses would
change as a result of the Transaction. Based on their review of the materials
provided and the fact that the Fund's BlackRock Investment Advisory Agreement is
substantially similar to the Fund's Previous Investment Advisory Agreement in
all material respects, including the rate of compensation, each Fund's directors
determined that the Transaction should not increase the total fees payable,
including any fee waivers or after any expense caps or expense reimbursements,
for advisory and administrative services. Each Fund's directors noted that it
was not possible to predict how the Transaction would affect BlackRock Advisors'
profitability from its relationship with the Fund.
Each Fund's directors discussed with BlackRock Advisors its general methodology
to be used in determining it's profitability with respect to its relationship
with the Fund and noted that they expect to receive profitability information
from BlackRock Advisors on at least an annual basis.
Economies of Scale -- Each Fund's Board considered the extent to which economies
of scale might be realized as the assets of the Fund increase and whether there
should be changes in the management fee rate or structure in order to enable the
Fund to participate in these economies of scale. The Board considered economies
of scale to the extent applicable to each Fund's closed-end structure and
determined that each Fund appropriately benefits from any economies of scale and
no changes were currently necessary.
Fall-Out Benefits -- The directors considered whether the Funds would generate
any fall-out benefits to BlackRock Advisors. Fall-out benefits are indirect
profits from other activities that accrue to the adviser or its affiliates
solely because of the existence of the fund. In evaluating the fall-out benefits
to be received by BlackRock Advisors under the Fund's BlackRock Investment
Advisory Agreement, each Fund's directors considered whether BlackRock Advisors
would experience such benefits to the same extent that the Previous Investment
Adviser was experiencing such benefits under the Fund's Previous Investment
Advisory Agreement. Based on their review of the materials provided, including
materials received in connection with their most recent approval of the
continuance of the Fund's Previous Investment Advisory Agreement, and their
discussions with management of the Previous Investment Adviser and BlackRock,
each Fund's directors determined that BlackRock Advisors' fall-out benefits
could include increased ability for BlackRock to distribute shares of its funds
and other investment products. The directors noted that any fall-out benefits
were difficult to quantify with certainty.
Investment Performance -- Each Fund's Board considered investment performance
for the Fund. Each Fund's directors compared the Fund's performance -- both
including and excluding the effects of fees and expenses -- to the performance
of a comparable group of funds, and the performance of a relevant index or
combination of indexes. The comparative information received from Lipper showed
each Fund's performance at various levels within the range of performance of
comparable funds over different time periods. Each Fund's directors believed the
Fund's performance was satisfactory. Also, each Board took into account the
investment performance of funds advised by BlackRock Advisors. Each Board
considered comparative information from Lipper which showed that the performance
of the funds advised by BlackRock Advisors was within the range of performance
of comparable funds over different time periods. Each Fund's Board noted
BlackRock's considerable investment management experience and capabilities, but
was unable to predict
62 ANNUAL REPORTS OCTOBER 31, 2006
what effect, if any, consummation of the Transaction would have on the future
performance of the Fund.
Conclusion -- After the independent directors of each Fund deliberated in
executive session, the Fund's entire Board, including the independent directors,
approved the Fund's BlackRock Investment Advisory Agreement, concluding that the
advisory fee rate was reasonable in relation to the services provided and that
the BlackRock Investment Advisory Agreement was in the best interests of the
shareholders. In approving the Fund's BlackRock Investment Advisory Agreement,
each Fund's Board noted that it anticipated reviewing the continuance of the
agreement in advance of the expiration of the initial two-year period.
New BlackRock Sub-Advisory Agreements -- Matters Considered by the Boards
At an in-person meeting held on August 22-23, 2006, each Fund's Board of
Directors or Board of Trustees, as pertinent, including the independent
directors, discussed and approved the Fund's sub-advisory agreement (each, a
"BlackRock Sub-Advisory Agreement") between BlackRock Advisors and its
affiliate, BlackRock Investment Management, LLC (the "Sub-Adviser"). Each Fund's
BlackRock Sub-Advisory Agreement became effective on September 29, 2006, at the
same time the Fund's BlackRock Investment Advisory Agreement became effective.
Pursuant to each Fund's BlackRock Sub-Advisory Agreement, the Sub-Adviser
receives a monthly fee from BlackRock Advisors equal to 59% of the advisory fee
received by BlackRock Advisors from the Fund. BlackRock Advisors pays the
Sub-Adviser out of its own resources, and there is no increase in the expenses
of any of the Funds as a result of the Funds' BlackRock Sub-Advisory Agreement.
In approving the Funds' BlackRock Sub-Advisory Agreement at the August in-person
meeting, each Fund's Board reviewed its considerations in connection with its
approval of the Fund's BlackRock Investment Advisory Agreement in May 2006. Each
Fund's Board relied on the same information and considered the same factors as
those discussed above in connection with the approval of the Fund's BlackRock
Investment Advisory Agreement, and came to the same conclusion. In reviewing the
sub-advisory fee rate provided in each Fund's BlackRock Sub-Advisory Agreement,
the Fund's Board noted the fact that both BlackRock Advisors and the Sub-Adviser
have significant responsibilities under their respective advisory agreements.
BlackRock Advisors remains responsible for oversight of each Fund's operations
and administration, and the Sub-Adviser provides advisory services to the Fund
and is responsible for the day-to-day management of the Fund's portfolio under
the Fund's BlackRock Sub-Advisory Agreement. Each Fund's Board also took into
account the fact that there is no increase in total advisory fees paid by the
Fund as a result of the Fund's BlackRock Sub-Advisory Agreement. Under all of
the circumstances, each Fund's Board concluded that it was a reasonable
allocation of fees for the Sub-Adviser to receive 59% of the advisory fee paid
by the Fund to BlackRock Advisors.
After each Fund's independent directors deliberated in executive session, each
Fund's entire Board, including the independent directors, approved the Fund's
BlackRock Sub-Advisory Agreement, concluding that the sub-advisory fee was
reasonable in relation to the services provided and that the BlackRock
Sub-Advisory Agreement was in the best interests of shareholders.
ANNUAL REPORTS OCTOBER 31, 2006 63
Officers and Directors
Number of
Funds and
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Funds Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to Vice Chairman and Director of BlackRock, Inc., 122 Funds None
Doll, Jr.* Princeton, NJ and present Global Chief Investment Officer for Equities, 168 Portfolios
08543-9011 Director Chairman of the BlackRock Retail Operating
Age: 52 Committee, and member of the BlackRock Executive
Committee since 2006; President of the Funds
advised by Merrill Lynch Investment Managers, L.P.
("MLIM") and its affiliates ("MLIM/FAM-advised
funds") from 2005 to 2006 and Chief Investment
Officer thereof from 2001 to 2006; President of
MLIM and Fund Asset Management, L.P. ("FAM") from
2001 to 2006; Co-Head (Americas Region) thereof
from 2000 to 2001 and Senior Vice President from
1999 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since 2001;
President of Princeton Administrators, L.P.
("Princeton Administrators") from 2001 to 2006;
Chief Investment Officer of OppenheimerFunds, Inc.
in 1999 and Executive Vice President thereof from
1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which
BlackRock acts as investment adviser. Mr. Doll is an "interested person," as described in the Investment Company
Act, of each Fund based on his current and former positions with BlackRock, Inc. and its affiliates. Directors
serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As each
Fund's President, Mr. Doll serves at the pleasure of the Board of Directors.
64 ANNUAL REPORTS OCTOBER 31, 2006
Officers and Directors (continued)
Number of
Funds and
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Funds Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors*
------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Director 2002 to Director, The China Business Group, Inc. since 1996 37 Funds None
Bodurtha** Princeton, NJ present and Executive Vice President thereof from 1996 to 57 Portfolios
08543-9095 2003; Chairman of the Board, Berkshire Holding
Age: 62 Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9095 Director 2005 to Professor, Harvard University since 1992; Professor, 37 Funds None
Froot Princeton, NJ present Massachusetts Institute of Technology from 1986 to 57 Portfolios
08543-9095 1992.
Age: 49
------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Director 1994 to Member of the Committee of Investment of Employee 37 Funds Kimco
Grills** Princeton, NJ present Benefit Assets of the Association of Financial 57 Portfolios Realty
08543-9095 Professionals ("CIEBA") since 1986; Member of Corporation
Age: 71 CIEBA's Executive Committee since 1988 and its
Chairman from 1991 to 1992; Assistant Treasurer of
International Business Machines Corporation ("IBM")
and Chief Investment Officer of IBM Retirement
Funds from 1986 to 1993; Member of the Investment
Advisory Committee of the State of New York Common
Retirement Fund since 1989; Member of the
Investment Advisory Committee of the Howard Hughes
Medical Institute from 1997 to 2000; Director, Duke
University Management Company from 1992 to 2004,
Vice Chairman thereof from 1998 to 2004, and
Director Emeritus thereof since 2004; Director,
LaSalle Street Fund from 1995 to 2001; Director,
Kimco Realty Corporation since 1997; Member of the
Investment Advisory Committee of the Virginia
Retirement System since 1998, Vice Chairman thereof
from 2002 to 2005, and Chairman thereof since 2005;
Director, Montpelier Foundation since 1998 and its
Vice Chairman since 2000; Member of the Investment
Committee of the Woodberry Forest since 2000;
Member of the Investment Committee of the National
Trust for Historic Preservation since 2000.
------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director 2002 to Chairman of the Board of Directors of Vigilant 37 Funds None
London Princeton, NJ present Research, Inc. since 2006; Member of the Board of 57 Portfolios
08543-9095 Directors for Grantham University since 2006;
Age: 67 Director of AIMS since 2006; Director of Reflex
Security since 2006; Director of InnoCentive, Inc.
since 2006; Director of Cerego, LLC since 2005;
Professor Emeritus, New York University since 2005;
John M. Olin Professor of Humanities, New York
University from 1993 to 2005; and Professor thereof
from 1980 to 2005; President, Hudson Institute
since 1997 and Trustee thereof since 1980; Dean,
Gallatin Division of New York University from 1976
to 1993; Distinguished Fellow, Herman Kahn Chair,
Hudson Institute from 1984 to 1985; Director, Damon
Corp. from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993.
ANNUAL REPORTS OCTOBER 31, 2006 65
Officers and Directors (continued)
Number of
Funds and
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Funds Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors* (concluded)
------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 37 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 57 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of the
Age: 64 Board of Governors thereof from 1994 to 1997;
Shareholder, Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director of ECMC Group
(service provider to students, schools and lenders)
since 2001; Director, United New Mexico Bank (now
Wells Fargo) from 1983 to 1988; Director, First
National Bank of New Mexico (now Wells Fargo) from
1975 to 1976; Vice President, American Law
Institute since 2004.
------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Director 1996 to Principal of STI Management (investment adviser) 37 Funds None
Salomon, Princeton, NJ present from 1994 to 1995; Chairman and CEO of Salomon 57 Portfolios
Jr. 08543-9095 Brothers Asset Management Inc. from 1992 to 1995;
Age: 69 Chairman of Salomon Brothers Equity Mutual Funds
from 1992 to 1995; regular columnist with Forbes
Magazine from 1992 to 2002; Director of Stock
Research and U.S. Equity Strategist at Salomon
Brothers Inc. from 1975 to 1991; Trustee,
Commonfund from 1980 to 2001.
------------------------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Co-Chairman of the Board of Directors and the Audit Committee.
------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length of
Held with Time
Name Address & Age Funds Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to Managing Director of BlackRock since 2006; Managing Director of MLIM and FAM in
Burke Princeton, NJ President present 2006; First Vice President of MLIM and FAM from 1997 to 2005 and Treasurer thereof
08543-9011 and and from 1999 to 2006; Vice President of MLIM and FAM from 1990 to 1997.
Age: 46 Treasurer 1999 to
present
------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior Vice 2002 to Managing Director of BlackRock since 2006; Managing Director (Tax-Exempt Fund
Loffredo Princeton, NJ President present Management) of MLIM from 2000 to 2006; Director of MLIM from 1997 to 2000.
08543-9011
Age: 42
------------------------------------------------------------------------------------------------------------------------------------
66 ANNUAL REPORTS OCTOBER 31, 2006
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name Address & Age Funds Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers* (concluded)
------------------------------------------------------------------------------------------------------------------------------------
William R. P.O. Box 9011 Vice 1993 to Director of BlackRock since 2006; Director of MLIM from 2005 to 2006 and Vice
Bock Princeton, NJ President present President, thereof, from 1989 to 2005.
08543-9011
Age: 70
------------------------------------------------------------------------------------------------------------------------------------
Theodore P.O. Box 9011 Vice 2004 to Managing Director of BlackRock since 2006; Managing Director of MLIM from 2005 to
R. Jaeckel Princeton, NJ President present 2006; Director (Municipal Tax-Exempt Fund Management) of MLIM from 1997 to 2005;
Jr. 08543-9011 Vice President of MLIM from 1991 to 1997.
Age: 47
------------------------------------------------------------------------------------------------------------------------------------
Michael A. P.O. Box 9011 Vice 1999 Director of BlackRock since 2006; Director of MLIM in 2006 and Vice President,
Kalinoski Princeton, NJ President (MQY) thereof, from 1999 to 2006.
08543-9011 and 2000
Age: 36 (MQT) to
present
------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Fund Chief 2004 to Managing Director of BlackRock and Fund Chief Compliance Officer since 2006; Chief
Hiller Princeton, NJ Compliance present Compliance Officer of the MLIM/FAM-advised funds and First Vice President and Chief
08543-9011 Officer Compliance Officer of MLIM (Americas Region) from 2004 to 2006; Chief Compliance
Age: 55 Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Securities and Exchange
Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director of BlackRock since 2006; Director (Legal Advisory) of MLIM from 2002 to
Pellegrino Princeton, NJ present 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with MLIM from
08543-9011 1997 to 2006; Secretary of MLIM, FAM, FAM Distributors, Inc. and Princeton Services
Age: 46 from 2004 to 2006.
------------------------------------------------------------------------------------------------------------------------
* Officers of the Funds serve at the pleasure of the Board of Directors.
------------------------------------------------------------------------------------------------------------------------------------
BlackRock MuniYield Fund, Inc. and BlackRock MuniYield Quality Fund II, Inc.
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 -- 11 East
New York, NY 10286
Preferred Stock:
The Bank of New York
101 Barclay Street -- 7 West
New York, NY 10286
Address of the Funds
P.O. Box 9011
Princeton, NJ 08543-9011
BlackRock MuniYield Insured Fund, Inc. and BlackRock MuniYield Quality Fund,
Inc.
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agents
Common Stock:
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
Preferred Stock:
The Bank of New York
101 Barclay Street -- 7 West
New York, NY 10286
ANNUAL REPORTS OCTOBER 31, 2006 67
Investment Objectives
Investment Objectives
NYSE Symbol BlackRock MuniYield Fund, Inc. seeks to provide
MYD 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, investment grade
municipal obligations the interest on which, in the opinion of
bond counsel to the issuer, is exempt from federal income
taxes.
NYSE Symbol BlackRock MuniYield Insured Fund, Inc. seeks to provide
MYI 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, investment grade
municipal obligations the interest on which, in the opinion of
bond counsel to the issuer, is exempt from federal income
taxes.
NYSE Symbol BlackRock MuniYield Quality Fund, Inc. seeks to provide
MQY 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, in the opinion of bond
counsel to the issuer, is exempt from federal income taxes.
NYSE Symbol BlackRock MuniYield Quality Fund II, Inc. seeks to
MQT 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, in the opinion of
bond counsel to the issuer, is exempt from federal income
taxes. The Fund invests primarily in insured municipal bonds.
Proxy Results
BlackRock MuniYield Fund, Inc.
During the six-month period ended October 31, 2006, BlackRock MuniYield Fund,
Inc.'s shareholders voted on the following proposals, which were approved at a
special shareholders' meeting on August 15, 2006. A description of the proposals
and number of shares voted were as follows:
-----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
-----------------------------------------------------------------------------------------------------------------
To approve a new investment advisory agreement with
BlackRock Advisors, Inc. 22,383,716 690,012 859,642
-----------------------------------------------------------------------------------------------------------------
To approve a contingent subadvisory agreement with
BlackRock Advisors, Inc. 22,349,074 729,612 854,685
-----------------------------------------------------------------------------------------------------------------
68 ANNUAL REPORTS OCTOBER 31, 2006
Proxy Results (concluded)
BlackRock MuniYield Insured Fund, Inc.
During the six-month period ended October 31, 2006, BlackRock MuniYield Insured
Fund, Inc.'s shareholders voted on the following proposals, which were approved
at a special shareholders' meeting on August 15, 2006. A description of the
proposals and number of shares voted were as follows:
-----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
-----------------------------------------------------------------------------------------------------------------
To approve a new investment advisory agreement with
BlackRock Advisors, Inc. 36,261,576 1,153,334 1,949,389
-----------------------------------------------------------------------------------------------------------------
To approve a contingent subadvisory agreement with
BlackRock Advisors, Inc. 36,219,414 1,180,427 1,964,458
-----------------------------------------------------------------------------------------------------------------
BlackRock MuniYield Quality Fund, Inc.
During the six-month period ended October 31, 2006, BlackRock MuniYield Quality
Fund, Inc.'s shareholders voted on the following proposals, which were approved
at a special shareholders' meeting on August 15, 2006. A description of the
proposals and number of shares voted were as follows:
-----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
-----------------------------------------------------------------------------------------------------------------
To approve a new investment advisory agreement with
BlackRock Advisors, Inc. 16,131,843 576,595 576,034
-----------------------------------------------------------------------------------------------------------------
To approve a contingent subadvisory agreement with
BlackRock Advisors, Inc. 16,117,951 591,917 574,605
-----------------------------------------------------------------------------------------------------------------
BlackRock MuniYield Quality Fund II, Inc.
During the six-month period ended October 31, 2006, BlackRock MuniYield Quality
Fund II, Inc.'s shareholders voted on the following proposals, which were
approved at a special shareholders' meeting on August 15, 2006. A description of
the proposals and number of shares voted were as follows:
-----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
-----------------------------------------------------------------------------------------------------------------
To approve a new investment advisory agreement with
BlackRock Advisors, Inc. 12,365,450 557,035 520,715
-----------------------------------------------------------------------------------------------------------------
To approve a contingent subadvisory agreement with
BlackRock Advisors, Inc. 12,367,724 569,237 506,239
-----------------------------------------------------------------------------------------------------------------
ANNUAL REPORTS OCTOBER 31, 2006 69
Automatic Dividend Reinvestment Plan
How the Plan Works -- The Funds offer a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by each Fund are
automatically reinvested in additional shares of Common Stock of each Fund. The
Plan is administered on behalf of the shareholders by The Bank of New York for
BlackRock MuniYield Fund, Inc. and BlackRock MuniYield Quality Fund II, Inc. and
Computershare Trust Company, N.A. for BlackRock MuniYield Insured Fund, Inc. and
BlackRock MuniYield Quality Fund, Inc. (individually, the "Plan Agent" or
together, the "Plan Agents"). Under the Plan, whenever the Funds declare a
dividend, participants in the Plan will receive the equivalent in shares of
Common Stock of each Fund. The Plan Agents will acquire the shares for the
participant's account either (i) through receipt of additional unissued but
authorized shares of each Fund ("newly issued shares") or (ii) by purchase of
outstanding shares of Common Stock on the open market on the New York Stock
Exchange or elsewhere. If, on the dividend payment date, each Fund's net asset
value per share is equal to or less than the market price per share plus
estimated brokerage commissions (a condition often referred to as a "market
premium"), the Plan Agents will invest the dividend amount in newly issued
shares. If the Funds' net asset value per share is greater than the market price
per share (a condition often referred to as a "market discount"), the Plan
Agents will invest the dividend amount by purchasing on the open market
additional shares. If the Plan Agents are unable to invest the full dividend
amount in open market purchases, or if the market discount shifts to a market
premium during the purchase period, the Plan Agents will invest any uninvested
portion in newly issued shares. The shares acquired are credited to each
shareholder's account. The amount credited is determined by dividing the dollar
amount of the dividend by either (i) when the shares are newly issued, the net
asset value per share on the date the shares are issued or (ii) when shares are
purchased in the open market, the average purchase price per share.
Participation in the Plan -- Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Funds unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan, must advise their Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by writing to the Plan Agent.
Benefits of the Plan -- The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Funds. The Plan
promotes a long-term strategy of investing at a lower cost. All shares acquired
pursuant to the Plan receive voting rights. In addition, if the market price
plus commissions of each Fund's shares is above the net asset value,
participants in the Plan will receive shares of the Funds for less than they
could otherwise purchase them and with a cash value greater than the value of
any cash distribution they would have received. However, there may not be enough
shares available in the market to make distributions in shares at prices below
the net asset value. Also, since each Fund does not redeem shares, the price on
resale may be more or less than the net asset value.
Plan Fees -- There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agents' service fees for handling the reinvestment of
distributions are paid for by the Funds. However, brokerage commissions may be
incurred when the Funds purchase shares on the open market and shareholders will
pay a pro rata share of any such commissions.
Tax Implications -- The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income tax that may
be payable (or required to be withheld) on such dividends. Therefore, income and
capital gains may still be realized even though shareholders do not receive
cash. The value of shares acquired pursuant to the Plan will generally be
excluded from gross income to the extent that the cash amount reinvested would
be excluded from gross income. If, when the Funds' shares are trading at a
market premium, the Funds issue shares pursuant to the Plan that have a greater
fair market value than the amount of cash reinvested, it is possible that all or
a portion of the discount from the market value (which may not exceed 5% of the
fair market value of each Fund's shares) could be viewed as a taxable
distribution. If the discount is viewed as a taxable distribution, it is also
possible that the taxable character of this discount would be allocable to all
the shareholders, including shareholders who do not participate in the Plan.
Thus, shareholders who do not participate in the Plan might be required to
report as ordinary income a portion of their distributions equal to their
allocable share of the discount.
Contact Information -- All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at The Bank of
New York, Church Street Station, P.O. Box 11258, New York, NY 10286-1258,
Telephone: 800-432-8224 for BlackRock MuniYield Fund, Inc. and BlackRock
MuniYield Quality Fund II, Inc. and Computershare Trust Company, N.A., P.O. Box
43010, Providence, RI 02940-3010, Telephone: 800-426-5523 for BlackRock
MuniYield Insured Fund, Inc. and BlackRock MuniYield Quality Fund, Inc.
70 ANNUAL REPORTS OCTOBER 31, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated third parties are
required to protect the confidentiality and security of this information and to
use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
Availability of Quarterly Schedule of Investments
The Funds file their complete schedules of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters of
each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the SEC's
Web site at http://www.sec.gov. The Funds' Forms N-Q may also be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Dividend Policy
The Funds' dividend policy is to distribute all or a portion of their net
investment income to their shareholders on a monthly basis. In order to provide
shareholders with a more stable level of dividend distributions, the Funds 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 Funds for any particular month may be
more or less than the amount of net investment income earned by the Funds during
such month. The Funds' 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.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Funds' Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Funds' electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
ANNUAL REPORTS OCTOBER 31, 2006 71
These reports, including the financial information herein, are transmitted to
shareholders of BlackRock MuniYield Fund, Inc., BlackRock MuniYield Insured
Fund, Inc., BlackRock MuniYield Quality Fund, Inc. and BlackRock MuniYield
Quality Fund II, Inc. for their information. This is not a prospectus. Past
performance results shown in these reports should not be considered a
representation of future performance. The Funds have leveraged their Common
Stock and intend to remain leveraged by issuing Preferred Stock to provide the
Common Stock shareholders with potentially higher rates 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.
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how the Funds voted proxies relating to
securities held in the Funds' portfolios during the most recent 12-month period
ended June 30 is available (1) at www.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BLACKROCK
#MYQII-10/06
Item 2 - Code of Ethics - The registrant has adopted 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
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge at
www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Joe Grills,
(2) Robert S. Salomon, Jr., and (3) Stephen B. Swensrud (retired as of
December 31, 2005).
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending October 31, 2006 - $28,000
Fiscal Year Ending October 31, 2005 - $27,500
(b) Audit-Related Fees - Fiscal Year Ending October 31, 2006 - $3,500
Fiscal Year Ending October 31, 2005 - $16,400
The nature of the services include professional services rendered in
connection with the registration and issuance of new AMP series of the
Fund, and compliance procedures associated with the Fund's AMPS.
(c) Tax Fees - Fiscal Year Ending October 31, 2006 - $6,000
Fiscal Year Ending October 31, 2005 - $5,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2006 - $0
Fiscal Year Ending October 31, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending October 31, 2006 - $3,204,783
Fiscal Year Ending October 31, 2005 - $6,277,749
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,739,500 , 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals are
members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
James H. Bodurtha
Kenneth A. Froot
Joe Grills
Herbert I. London
Roberta Cooper Ramo
Robert S. Salomon, Jr.
Stephen B. Swensrud (retired as of December 31, 2005)
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors has delegated to the Manager authority
to vote all proxies relating to the Fund's portfolio securities. The
Manager has adopted policies and procedures (the "Proxy Voting
Procedures") with respect to the voting of proxies related to the
portfolio securities held in the account of one or more of its clients,
including a Fund. Pursuant to these Proxy Voting Procedures, the
Manager's primary objective when voting proxies is to make proxy voting
decisions solely in the best interests of each Fund and its
shareholders, and to act in a manner that the Manager believes is most
likely to enhance the economic value of the securities held by the
Fund. The Proxy Voting Procedures are designed to ensure that the
Manager considers the interests of its clients, including each Fund,
and not the interests of the Manager, when voting proxies and that real
(or perceived) material conflicts that may arise between the Manager's
interest and those of the Manager's clients are properly addressed and
resolved.
In order to implement the Proxy Voting Procedures, the Manager has
formed a Proxy Voting Committee (the "Committee"). The Committee, which
is a subcommittee of the Manager's Equity Investment Policy Oversight
Committee ("EIPOC"), is comprised of a senior member of the Manager's
equity management group who is also a member of EIPOC, one or more
other senior investment professionals appointed by EIPOC, portfolio
managers and investment analysts appointed by EIPOC and any other
personnel EIPOC deems appropriate. The Committee will also include two
non-voting representatives from the Manager's Legal Department
appointed by the Manager's General Counsel. The Committee's membership
shall be limited to full-time employees of the Manager. No person with
any investment banking, trading, retail brokerage or research
responsibilities for the Manager's affiliates may serve as a member of
the Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information to
the Committee on the same basis as other interested knowledgeable
parties not affiliated with the Manager might be asked to do so). The
Committee determines how to vote the proxies of all clients, including
a Fund, that have delegated proxy voting authority to the Manager and
seeks to ensure that all votes are consistent with the best interests
of those clients and are free from unwarranted and inappropriate
influences. The Committee establishes general proxy voting policies for
the Manager and is responsible for determining how those policies are
applied to specific proxy votes, in light of each issuer's unique
structure, management, strategic options and, in certain circumstances,
probable economic and other anticipated consequences of alternate
actions. In so doing, the Committee may determine to vote a particular
proxy in a manner contrary to its generally stated policies. In
addition, the Committee will be responsible for ensuring that all
reporting and recordkeeping requirements related to proxy voting are
fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The Manager
believes that certain proxy voting issues require investment analysis -
such as approval of mergers and other significant corporate
transactions - akin to investment decisions, and are, therefore, not
suitable for general guidelines. The Committee may elect to adopt a
common position for the Manager on certain proxy votes that are akin to
investment decisions, or determine to permit the portfolio manager to
make individual decisions on how best to maximize economic value for a
Fund (similar to normal buy/sell investment decisions made by such
portfolio managers). While it is expected that the Manager will
generally seek to vote proxies over which the Manager exercises voting
authority in a uniform manner for all the Manager's clients, the
Committee, in conjunction with a Fund's portfolio manager, may
determine that the Fund's specific circumstances require that its
proxies be voted differently.
To assist the Manager in voting proxies, the Committee has retained
Institutional Shareholder Services ("ISS"). ISS is an independent
adviser that specializes in providing a variety of fiduciary-level
proxy-related services to institutional investment managers, plan
sponsors, custodians, consultants, and other institutional investors.
The services provided to the Manager by ISS include in-depth research,
voting recommendations (although the Manager is not obligated to follow
such recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Manager's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Manager generally will
not seek to vote proxies related to portfolio securities that are on
loan, although it may do so under certain circumstances. In addition,
the Manager will vote proxies related to securities of foreign issuers
only on a best efforts basis and may elect not to vote at all in
certain countries where the Committee determines that the costs
associated with voting generally outweigh the benefits. The Committee
may at any time override these general policies if it determines that
such action is in the best interests of a Fund.
From time to time, the Manager may be required to vote proxies in
respect of an issuer where an affiliate of the Manager (each, an
"Affiliate"), or a money management or other client of the Manager,
including investment companies for which the Manager provides
investment advisory, administrative and/or other services (each, a
"Client"), is involved. The Proxy Voting Procedures and the Manager's
adherence to those procedures are designed to address such conflicts of
interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates
and Clients. If, however, an issue representing a non-routine matter
that is material to an Affiliate or a widely known Client is involved
such that the Committee does not reasonably believe it is able to
follow its guidelines (or if the particular proxy matter is not
addressed by the guidelines) and vote impartially, the Committee may,
in its discretion for the purposes of ensuring that an independent
determination is reached, retain an independent fiduciary to advise the
Committee on how to vote or to cast votes on behalf of the Manager's
clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the Committee may pass the voting power to a subcommittee,
appointed by EIPOC (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by EIPOC. EIPOC shall
appoint to the subcommittee, where appropriate, only persons whose job
responsibilities do not include contact with the Client and whose job
evaluations would not be affected by the Manager's relationship with
the Client (or failure to retain such relationship). The subcommittee
shall determine whether and how to vote all proxies on behalf of the
Manager's clients or, if the proxy matter is, in their judgment, akin
to an investment decision, to defer to the applicable portfolio
managers, provided that, if the subcommittee determines to alter the
Manager's normal voting guidelines or, on matters where the Manager's
policy is case-by-case, does not follow the voting recommendation of
any proxy voting service or other independent fiduciary that may be
retained to provide research or advice to the Manager on that matter,
no proxies relating to the Client may be voted unless the Secretary, or
in the Secretary's absence, the Assistant Secretary of the Committee
concurs that the subcommittee's determination is consistent with the
Manager's fiduciary duties.
In addition to the general principles outlined above, the Manager has
adopted voting guidelines with respect to certain recurring proxy
issues that are not expected to involve unusual circumstances. These
policies are guidelines only, and the Manager may elect to vote
differently from the recommendation set forth in a voting guideline if
the Committee determines that it is in a Fund's best interest to do so.
In addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon the
vote of a majority of Committee members present at a Committee meeting
at which there is a quorum.
The Manager has adopted specific voting guidelines with respect to the
following proxy issues:
o Proposals related to the composition of the board of directors of
issuers other than investment companies. As a general matter, the
Committee believes that a company's board of directors (rather than
shareholders) is most likely to have access to important, nonpublic
information regarding a company's business and prospects, and is,
therefore, best-positioned to set corporate policy and oversee
management. The Committee, therefore, believes that the foundation of
good corporate governance is the election of qualified, independent
corporate directors who are likely to diligently represent the
interests of shareholders and oversee management of the corporation in
a manner that will seek to maximize shareholder value over time. In
individual cases, the Committee may look at a nominee's number of other
directorships, history of representing shareholder interests as a
director of other companies or other factors, to the extent the
Committee deems relevant.
o Proposals related to the selection of an issuer's independent
auditors. As a general matter, the Committee believes that corporate
auditors have a responsibility to represent the interests of
shareholders and provide an independent view on the propriety of
financial reporting decisions of corporate management. While the
Committee will generally defer to a corporation's choice of auditor, in
individual cases, the Committee may look at an auditors' history of
representing shareholder interests as auditor of other companies, to
the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits.
As a general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation,
but believes that compensation matters are normally best determined by
an issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not
be supported.
o Proposals related to requests, principally from management, for
approval of amendments that would alter an issuer's capital structure.
As a general matter, the Committee will support requests that enhance
the rights of common shareholders and oppose requests that appear to be
unreasonably dilutive.
o Proposals related to requests for approval of amendments to an
issuer's charter or by-laws. As a general matter, the Committee opposes
poison pill provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the
Committee believes that a fund's board of directors (rather than its
shareholders) is best positioned to set fund policy and oversee
management. However, the Committee opposes granting boards of directors
authority over certain matters, such as changes to a fund's investment
objective, which the Investment Company Act envisions will be approved
directly by shareholders.
o Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and
opposes shareholder resolutions "micromanaging" corporate conduct or
requesting release of information that would not help a shareholder
evaluate an investment in the corporation as an economic matter. While
the Committee is generally supportive of proposals to require corporate
disclosure of matters that seem relevant and material to the economic
interests of shareholders, the Committee is generally not supportive of
proposals to require disclosure of corporate matters for other
purposes.
Information about how a Fund voted proxies relating to securities held
in the Fund's portfolio during the most recent 12 month period ended
October 31 is available without charge (1) at www.blackrock.com and (2)
on the Commission's web site at http://www.sec.gov.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - as
of October 31, 2006.
(a)(1) BlackRock MuniYield Quality Fund II, Inc. is managed by a team
of investment professionals comprised of Michael A. Kalinoski, Director
at BlackRock, Theodore R. Jaeckel, Jr., CFA, Managing Director at
BlackRock, and Walter O'Connor, Managing Director at BlackRock. Each is
a member of BlackRock's municipal tax-exempt management group. Mr.
Jaeckel and Mr. O'Connor are responsible for setting the Fund's overall
investment strategy and overseeing the management of the Fund. Mr.
Kalinoski is the Fund's lead portfolio manager and is responsible for
the day-to-day management of the Fund's portfolio and the selection of
its investments. Messrs. Jaeckel and O'Connor have been members of the
Fund's management team since 2006 and Mr. Kalinoski has been the Fund's
portfolio manager since 2000.
Mr. Jaeckel joined BlackRock in 2006. Prior to joining BlackRock, he
was a Managing Director (Municipal Tax-Exempt Fund Management) of
Merrill Lynch Investment Managers, L.P. ("MLIM") from 2005 to 2006 and
a Director of MLIM from 1997 to 2005. He has been a portfolio manager
with BlackRock or MLIM since 1991.
Mr. O'Connor joined BlackRock in 2006. Prior to joining BlackRock, he
was a Managing Director (Municipal Tax-Exempt Fund Management) of MLIM
from 2003 to 2006 and was a Director of MLIM from 1997 to 2002. He has
been a portfolio manager with BlackRock or MLIM since 1991.
Mr. Kalinoski joined BlackRock in 2006. Prior to joining BlackRock, he
was Director (Municipal Tax-Exempt Fund Management) of MLIM since 2006
and a Vice President from 1999 to 2006. He has been a portfolio manager
of BlackRock or MLIM since 1999.
(a)(2)As of October 31, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
--------------- --------------- --------------- --------------- --------------- ---------------
Michael A.
Kalinoski 7 0 0 0 0 0
$ 2,446,507,786 $ 0 $ 0 $ 0 $ 0 $ 0
Theodore R.
Jaeckel, Jr. 82 0 0 0 0 0
$30,050,473,876 $ 0 $ 0 $ 0 $ 0 $ 0
Walter O'Connor 82 0 0 0 0
$30,050,473,876 $ 0 $ 0 $ 0 $ 0 $ 0
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address the
allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential
conflicts of interest that are designed to ensure that all client
accounts are treated equitably over time. Nevertheless, BlackRock
furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with
applicable law, make investment recommendations to other clients or
accounts (including accounts which are hedge funds or have performance
or higher fees paid to BlackRock, or in which portfolio managers have a
personal interest in the receipt of such fees), which may be the same
as or different from those made to the Fund. In addition, BlackRock,
its affiliates and any officer, director, stockholder or employee may
or may not have an interest in the securities whose purchase and sale
BlackRock recommends to the Fund. BlackRock, or any of its affiliates,
or any officer, director, stockholder, employee or any member of their
families may take different actions than those recommended to the Fund
by BlackRock with respect to the same securities. Moreover, BlackRock
may refrain from rendering any advice or services concerning securities
of companies of which any of BlackRock's (or its affiliates') officers,
directors or employees are directors or officers, or companies as to
which BlackRock or any of its affiliates or the officers, directors and
employees of any of them has any substantial economic interest or
possesses material non-public information. Each portfolio manager also
may manage accounts whose investment strategies may at times be opposed
to the strategy utilized for the Fund. In this connection, it should be
noted that certain portfolio managers currently manage certain accounts
that are subject to performance fees. In addition, certain portfolio
managers assist in managing certain hedge funds and may be entitled to
receive a portion of any incentive fees earned on such funds and a
portion of such incentive fees may be voluntarily or involuntarily
deferred. Additional portfolio managers may in the future manage other
such accounts or funds and may be entitled to receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated in a
manner consistent with its fiduciary duties. BlackRock attempts to
allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this
end, BlackRock has adopted a policy that is intended to ensure that
investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve reasonable
efficiency in client transactions and provide BlackRock with sufficient
flexibility to allocate investments in a manner that is consistent with
the particular investment discipline and client base.
(a)(3) As of October 31, 2006:
Portfolio Manager Compensation
The portfolio manager compensation program of BlackRock and its
affiliates, including the Investment Adviser, is critical to BlackRock's ability
to attract and retain the most talented asset management professionals. This
program ensures that compensation is aligned with maximizing investment returns
and it provides a competitive pay opportunity for competitive performance.
Compensation Program
The elements of total compensation for certain BlackRock and its
affiliates portfolio managers are a fixed base salary, annual performance-based
cash and stock compensation (cash and stock bonus) and other benefits. BlackRock
has balanced these components of pay to provide portfolio managers with a
powerful incentive to achieve consistently superior investment performance. By
design, portfolio manager compensation levels fluctuate -- both up and down --
with the relative investment performance of the portfolios that they manage.
Base Salary
Under the BlackRock approach, like that of many asset management firms,
base salaries represent a relatively small portion of a portfolio manager's
total compensation. This approach serves to enhance the motivational value of
the performance-based (and therefore variable) compensation elements of the
compensation program.
Performance-Based Compensation
BlackRock believes that the best interests of investors are served by
recruiting and retaining exceptional asset management talent and managing their
compensation within a consistent and disciplined framework that emphasizes pay
for performance in the context of an intensely competitive market for talent. To
that end, certain BlackRock and its affiliates portfolio manager incentive
compensation is based on a formulaic compensation program.
BlackRock's formulaic portfolio manager compensation program includes:
investment performance relative to a subset of general closed-end, leveraged,
municipal debt funds over 1-, 3- and 5-year performance periods and a measure of
operational efficiency. Portfolio managers are compensated based on the pre-tax
performance of the products they manage. If a portfolio manager's tenure is less
than 5-years, performance periods will reflect time in position. Portfolio
managers are compensated based on the products they manage. A discretionary
element of portfolio manager compensation may include consideration of:
financial results, expense control, profit margins, strategic planning and
implementation, quality of client service, market share, corporate reputation,
capital allocation, compliance and risk control, leadership, workforce
diversity, supervision, technology and innovation. All factors are considered
collectively by BlackRock management.
Cash Bonus
Performance-based compensation is distributed to portfolio managers in a
combination of cash and stock. Typically, the cash bonus, when combined with
base salary, represents more than 60% of total compensation for portfolio
managers.
Stock Bonus
A portion of the dollar value of the total annual performance-based bonus
is paid in restricted shares of BlackRock stock. Paying a portion of annual
bonuses in stock puts compensation earned by a portfolio manager for a given
year "at risk" based on the Company's ability to sustain and improve its
performance over future periods.
The ultimate value of stock bonuses is dependent on future BlackRock stock
price performance. As such, the stock bonus aligns each portfolio manager's
financial interests with those of BlackRock shareholders and encourages a
balance between short-term goals and long-term strategic objectives. Management
strongly believes that providing a significant portion of competitive
performance-based compensation in stock is in the best interests of investors
and shareholders. This approach ensures that portfolio managers participate as
shareholders in both the "downside risk" and "upside opportunity" of the
Company's performance. Portfolio managers therefore have a direct incentive to
protect BlackRock's reputation for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and financial
management objectives during a performance year are eligible to participate in a
deferred cash program. Awards under this program are in the form of deferred
cash that may be benchmarked to a menu of certain BlackRock mutual funds
(including their own funds) during a five-year vesting period. The deferred cash
program aligns the interests of participating portfolio managers with the
investment results of BlackRock products and promotes continuity of successful
portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-based plans
offered generally to BlackRock employees, including broad-based retirement,
401(k), health, and other employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of October 31, 2006, neither
of Messrs. Kalinoski, Jaeckel and O'Connor beneficially owns any
stock issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The Registrant's principal executive and principal financial officers
have evaluated the Registrant's disclosure controls and procedures,
including internal control over financial reporting, within 90 days of
this filing. Such principal officers have concluded that the
Registrant's disclosure controls and procedures were effective in design
and operation to reasonably ensure that information required to be
disclosed by the Registrant in this Form N-CSR was recorded, processed,
summarized, and reported within the required time periods, and were
sufficient to form the basis of the certifications required by Rule
30a-(2) of the Investment Company Act of 1940, as amended. Prior to
reaching that conclusion, such principal officers had become aware of
matters relating to the Registrant's participation in certain inverse
floater structures that necessitated adjustments to financial
information included in Item 1 of this filing. As a result, management
of the Registrant has reevaluated certain disclosure controls and
procedures determined not to be effective, as discussed more fully
below.
Management of the Registrant is responsible for establishing and
maintaining effective internal control over financial reporting. In
fulfilling this responsibility, estimates and judgments by management
are required to assess the expected benefits and related costs of
controls. The Registrant's internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally
accepted accounting principles. Such internal control includes policies
and procedures that provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of a
registrant's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
A control deficiency exists when the design or operation of a control
does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect misstatements
on a timely basis. A significant deficiency is a control deficiency, or
combination of control deficiencies, that adversely affects the
Registrant's ability to initiate, authorize, record, process or report
financial data reliably in accordance with generally accepted accounting
principles such that there is more than a remote likelihood that a
misstatement of the Registrant's annual or interim financial statements
that is more than inconsequential will not be prevented or detected. A
material weakness is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
Prior to the filing of this Form N-CSR, the Registrant identified the
following control deficiency, that was determined to be a material
weakness, as defined above, in the Registrant's internal control over
financial reporting. The Registrant's controls related to the review and
analysis of relevant terms and conditions of transfers of certain assets
pertaining to inverse floater structures were not operating effectively
to appropriately determine whether the transfers of assets qualified for
sale accounting under the provisions of Statement of Financial
Accounting Standards No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS 140").
Accordingly, the Registrant's financial statements as of and for the
period ended October 31, 2006, including prior periods where applicable,
were adjusted prior to being issued to appropriately reflect transfers
of such securities as secured borrowings and to report the related
income and expense. These adjustments had no impact on net assets, net
asset value per share or total return.
Management of the Registrant believes that subsequent to the
adjustments, the Registrant's accounting treatment of such transfers is
appropriate under SFAS 140. Additionally, management of the Registrant
is taking such further actions as are necessary to enhance its internal
control over financial reporting, and in doing so, increase the
effectiveness of such controls, so that such transfers of assets are
reviewed and evaluated appropriately under the provisions of SFAS 140.
11(b) - There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940, as amended) that occurred during the second half of
the Registrant's fiscal year that have materially affected, or are
reasonably likely to materially affect, the Registrant's internal
control over financial reporting. However, as discussed above,
subsequent to October 31, 2006, the Registrant is further enhancing
controls related to the application of SFAS 140.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - 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.
BlackRock MuniYield Quality Fund II, Inc.
By: /s/ Robert C. Doll, Jr.
----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock MuniYield Quality Fund II, Inc.
Date: January 18, 2007
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/ Robert C. Doll, Jr.
----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock MuniYield Quality Fund II, Inc.
Date: January 18, 2007
By: /s/ Donald C. Burke
----------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock MuniYield Quality Fund II, Inc.
Date: January 18, 2007