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 811-06414
Name of Fund: MuniYield Fund, 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, MuniYield Fund, 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: 10/31/05
Date of reporting period: 11/01/04 - 10/31/05
Item 1 - Report to Stockholders
MuniYield Fund, Inc.
MuniYield Quality Fund, Inc.
MuniYield Quality Fund II, Inc.
Annual Reports
October 31, 2005
MuniYield Fund, Inc.
MuniYield Quality Fund, Inc.
MuniYield Quality Fund II, Inc.
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 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. As of October 31, 2005, the percentages of MuniYield
Fund, Inc.'s, MuniYield Quality Fund, Inc.'s and MuniYield Quality Fund II,
Inc.'s total net assets invested in inverse floaters were 7.69%, 12.58% and
11.67%, respectively, before the deduction of Preferred Stock.
2 ANNUAL REPORTS OCTOBER 31, 2005
A Letter From the President
Dear Shareholder
As the financial markets continued to muddle their way through 2005, the Federal
Reserve Board (the Fed) advanced its monetary tightening campaign full steam
ahead. The 12th consecutive interest rate hike since June 2004 came on November
1, bringing the target federal funds rate to 4%. The central bank is clearly
more focused on inflationary figures than on economic growth, which has shown
some signs of moderating. Despite rising short-term interest rates and
record-high energy prices, the major market indexes managed to post positive
results for the current reporting period:
Total Returns as of October 31, 2005 6-month 12-month
==============================================================================================
U.S. equities (Standard & Poor's 500 Index) + 5.27% + 8.72%
----------------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) +12.25 +12.08
----------------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) + 8.63 +18.09
----------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 0.15 + 1.13
----------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.59 + 2.54
----------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) + 2.87 + 3.54
----------------------------------------------------------------------------------------------
The headlines in recent months focused on Hurricanes Katrina and Rita and, more
recently, the nomination of Ben Bernanke to succeed Alan Greenspan as Chairman
of the Fed. While the hurricanes prompted a spike in energy prices and
short-term disruptions to production and spending, the longer-term economic
impact is likely to be tempered. In fact, the fiscal stimulus associated with
reconstruction efforts in the Gulf Coast region could add to gross domestic
product growth in 2006. Notably, the uncontroversial nomination of Dr. Bernanke
was well received by the markets.
The U.S. equity markets remained largely range bound in 2005. Up to this point,
strong corporate earnings reports and relatively low long-term bond yields have
worked in favor of equities. Looking ahead, high energy prices, continued
interest rate hikes, a potential consumer slowdown and/or disappointing earnings
pose the greatest risks to U.S. stocks. Internationally, many markets have
benefited from strong economic statistics, trade surpluses and solid finances.
The bond market continued to be characterized by a flattening yield curve,
although long-term yields finally began to inch higher toward period end. The
10-year Treasury yield hit 4.57% on October 31, 2005, its highest level in more
than six months. Still, the difference between the two-year and 10-year Treasury
yield was just 17 basis points (.17%) at period end, compared to 149 basis
points a year earlier.
Financial markets are likely to face continued crosscurrents in the months
ahead. Nevertheless, opportunities do exist and we encourage you to work with
your financial advisor to diversify your portfolio among a variety of asset
types. This can help to diffuse risk while also tapping into the potential
benefits of a broader range of investment alternatives. As always, we thank you
for trusting Merrill Lynch Investment Managers with your investment assets.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
ANNUAL REPORTS OCTOBER 31, 2005 3
A Discussion With Your Funds' Portfolio Managers
The Funds outperformed their respective Lipper category averages for the
fiscal year and ended the period with a relatively neutral exposure to interest
rate risk.
Describe the recent market environment relative to municipal bonds.
Over the past year, long-term bond yields were little changed. Initially, U.S.
Treasury prices rallied strongly while their yields, which move in the opposite
direction, fell. By the end of June 2005, 30-year U.S. Treasury bond yields had
declined 60 basis points (.60%) to 4.19%. Bond prices improved in response to
several favorable factors, including moderating U.S. economic growth, slowing
growth in foreign economies, modest inflationary pressures and strong demand for
U.S. Treasury issues from Asian governments.
During the final months of the period, however, bond yields rose (prices fell)
as investors worried that higher energy costs in the wake of Hurricanes Katrina
and Rita would pressure inflation upward. Stronger-than-expected third quarter
gross domestic product growth also added to inflationary concerns. For its part,
the Federal Reserve Board (the Fed) continued to raise short-term interest rates
at each of its meetings, lifting the federal funds target rate to 4% on November
1, 2005. As short-term interest rates moved higher in concert with the Fed
interest rate hikes and longer-term bond yields remained steadier, the yield
curve continued to flatten.
During the past 12 months, 30-year Treasury bond yields declined three basis
points to 4.76%, while 10-year Treasury note yields rose 52 basis points to
4.57%. Tax-exempt bond yields exhibited a similar pattern. According to
Municipal Market Data, the yield on AAA-rated issues maturing in 30 years
increased one basis point to 4.59%, while the yield on AAA-rated issues maturing
in 10 years rose 52 basis points to 3.92%.
Historically low nominal tax-exempt bond yields continued to encourage
municipalities to issue new debt and refund outstanding, higher-couponed issues.
During the past year, more than $394 billion in new long-term tax-exempt bonds
was issued, an 8.4% increase over the previous year's total of $363 billion.
During the first nine months of 2005, the volume of refunding issues increased
by more than 55% versus the same period one year ago. Refunding issues were
heavily weighted in the 10-year - 20-year maturity range, putting pressure on
intermediate tax-exempt bond yields while supporting longer-term bond prices.
Investor demand for municipal product remained positive during most of the
period. The most current statistics from the Investment Company Institute
indicate that, year-to-date through September 2005, net new cash flows into
long-term municipal bond funds exceeded $6.7 billion -- a significant
improvement from the $12.9 billion net outflow seen during the same period in
2004. Notably, throughout much of the past year, high yield tax-exempt bond
funds have been the principal target for these new cash inflows. During recent
months, these lower-rated and non-rated bond funds received an average of $115
million per week. The need to invest these cash flows has led to strong demand
for lower-rated issues and a consequent narrowing of credit spreads.
Solid investor demand for tax-exempt issues generally helped municipal bond
performance approach that of taxable bonds in recent months and reverse some of
their prior underperformance. In addition, the ratio of tax-exempt bond yields
to taxable bond yields remains attractive and should continue to draw both
traditional and non-traditional investors to the municipal marketplace,
especially if municipal bond issuance remains manageable.
The communities shattered by Hurricanes Katrina and Rita will require extensive
reconstruction. It is too early to estimate the amount of tax-exempt debt that
may be required to finance these efforts or to assess the overall impact on the
municipal market. However, much of the rebuilding is likely to be funded through
federal loans and grants, and the reconstruction will likely be spread over a
number of years. Consequently, any new municipal bond issuance prompted by the
hurricanes is not likely to disrupt the tax-exempt market in the near future.
4 ANNUAL REPORTS OCTOBER 31, 2005
MuniYield Fund, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended October 31, 2005, the Common Stock of MuniYield
Fund, Inc. had net annualized yields of 6.86% and 7.00%, based on a year-end per
share net asset value of $14.48 and a per share market price of $14.20,
respectively, and $.994 per share income dividends. Over the same period, the
total investment return on the Fund's Common Stock was +8.38%, based on a change
in per share net asset value from $14.31 to $14.48, and assuming reinvestment of
all distributions.
The Fund's total return, based on net asset value, significantly exceeded the
+5.08% 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.)
Fund performance was driven by our overweight exposure to lower-rated,
higher-yielding credits, which outperformed the broader market as credit spreads
tightened during the year. The Fund benefited from the incremental yield
generated by these issues. Also additive to performance was our above-average
exposure to industrial development bonds, those issued by governmental agencies
on behalf of corporate entities to finance qualified projects. In selecting
securities in these sectors, we used the skill of our in-house staff of
analysts, and we were effectively able to capture much of the spread compression
and outperformance generated by these issues.
In addition, our neutral duration posture (that is, interest rate risk
consistent with that of our peers) and our strategy of moving further out on the
municipal yield curve enhanced results for the period. Based on our expectation
that the curve would flatten, we reduced exposure to bonds with 10-year
maturities in favor of 15-year and 25-year - 30-year issues. As the curve
flattened significantly, longer-dated bonds outperformed those with shorter
maturities, and Fund performance benefited accordingly.
For the six-month period ended October 31, 2005, the total investment return on
the Fund's Common Stock was +1.88%, based on a change in per share net asset
value from $14.70 to $14.48, 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 year was primarily driven by our curve flattening
strategy, but also by our perception of good relative value at other points
along the yield curve. Specifically, in and around the 15-year and 25-year areas
of the curve, we purchased high-quality, liquid names. We paid for these
purchases with the proceeds from bonds that recently had been advance refunded.
This enabled us to lock in capital gains and redeploy the assets in areas where
we identified compelling value.
We reduced our overweight exposure to some of the riskier, higher-yielding
credits, albeit at a modest pace. In particular, we trimmed our position in
industrial development bonds rated B and BB. For the most part, the proceeds
from these sales were reinvested in health care and land-secured special tax
bonds, both of which exhibit stable credit outlooks.
For the six-month period ended October 31, 2005, the Fund's Auction Market
Preferred Stock (AMPS) had average yields of 2.60% for Series A, 2.54% for
Series B, 2.72% for Series C, 2.20% for Series D, 2.41% for Series E, 2.43% for
Series F and 2.43% for Series G. The Fed's interest rate hikes are clearly
having a material impact on the Fund's borrowing costs. The Fed raised the
short-term interest rate target 200 basis points during the 12-month period (and
25 basis points more on November 1). Still, the tax-exempt yield curve remained
relatively steep and continued to generate an income benefit to the holders of
Common Stock from the leveraging of Preferred Stock. However, should the spread
between short-term and long-term interest rates narrow, the benefits of
leveraging will decline and, as a result, reduce the yield on the Fund's Common
Stock. At the end of the period, the Fund's leverage amount, due to AMPS, was
34.33% of total net assets, before the deduction of Preferred Stock. (For a more
ANNUAL REPORTS OCTOBER 31, 2005 5
A Discussion With Your Funds' Portfolio Managers (continued)
complete explanation of the benefits and risks of leveraging, see page 2 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 positioned relatively neutral in terms of interest
rate risk, and somewhat less heavily weighted in lower-rated and non-rated
securities. We anticipate making further progress in reducing that exposure in
the coming months. In addition, we would also expect to lengthen the portfolio's
duration modestly, anticipating a slower economy and reflecting our view that
current inflationary fears are transitory. We will look to maintain our yield
advantage, a strategy that has enabled the Fund to outperform its peers in a
relatively stable interest rate environment.
MuniYield Quality Fund, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended October 31, 2005, the Common Stock of MuniYield
Quality Fund, Inc. had net annualized yields of 6.37% and 6.71%, based on a
year-end per share net asset value of $15.02 and a per share market price of
$14.27, respectively, and $.957 per share income dividends. Over the same
period, the total investment return on the Fund's Common Stock was +3.10%, based
on a change in per share net asset value from $15.54 to $15.02, and assuming
reinvestment of all distributions.
The Fund's total return, based on net asset value, outpaced the +2.93% 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 advance refunding of significant positions in the portfolio benefited Fund
performance most, particularly in the second half of the year. When municipal
bonds are advance refunded, or refinanced ahead of their maturity date, their
prices generally increase sharply. In addition, our defensive market posture,
which detracted from relative performance in the first half of the fiscal year,
enhanced results in the second half as long-term interest rates rose. Finally,
our ability to generate an above-average yield was additive to performance
throughout the 12-month period.
For the six-month period ended October 31, 2005, the total investment return on
the Fund's Common Stock was +.58%, based on a change in per share net asset
value from $15.41 to $15.02, 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?
As in prior periods, we continued to favor bonds in the 25-year maturity range
and with premium coupons. More recently, we began to transition away from our
defensive market stance, taking advantage of episodes of market weakness (rising
yields and falling prices) to move toward a more neutral duration. We made this
shift in recognition of the overall higher yields in the market. The long end of
the curve, where yields had remained stubbornly low, finally began to inch
higher toward period-end.
The yield curve flattening phenomenon continued throughout the year, although it
was a much more significant factor in the first half of the fiscal year than in
the latter months. From May to October, the municipal yield curve flattened
approximately 10 basis points - 15 basis points between the 10-year and 30-year
sectors. This compared to 40 basis points in flattening in the first six months.
Nevertheless, we continued to pursue higher yields throughout the year by moving
further out on the curve and reducing exposure to shorter maturities. In doing
so, we carefully considered each bond's acquisition yield to ensure that the
sales would not have a material negative impact on the Fund's income stream, as
some of these shorter-maturity bonds were acquired in higher interest rate
environments. We also maintained the Fund's fully invested position in an effort
to preserve the level of income available to shareholders.
6 ANNUAL REPORTS OCTOBER 31, 2005
Finally, the Fund increased its use of leverage during the period with the
issuance of additional Auction Market Preferred Stock (AMPS). The goal was to
bring the Fund's AMPS leverage more in line with that of its peers and to
generate additional income for the portfolio. With the proceeds from the sale of
the AMPS, we invested in the longer end of the municipal yield curve, consistent
with our underlying investment strategy.
For the six-month period ended October 31, 2005, the Fund's AMPS had average
yields of 2.61% for Series A, 2.35% for Series B, 2.34% for Series C, 2.32% for
Series D and 2.58% for Series E. The Fed's interest rate hikes clearly are
having a material impact on the Fund's borrowing costs. The Fed raised the
short-term interest rate target 200 basis points during the 12-month period (and
25 basis points more on November 1). Still, the tax-exempt yield curve remained
relatively steep and continued to generate an income benefit to the holders of
Common Stock from the leveraging of Preferred Stock. However, should the spread
between short-term and long-term interest rates narrow, the benefits of
leveraging will decline and, as a result, reduce the yield on the Fund's Common
Stock. At the end of the period, the Fund's leverage amount, due to AMPS, was
35.37% of total net assets, before the deduction of Preferred Stock. (For a more
complete explanation of the benefits and risks of leveraging, see page 2 of this
report to shareholders.)
How would you characterize the Fund's position at the close of the period?
We continue to favor maturities in the 25-year range. The Fund ended the period
close to neutral in terms of interest rate exposure. The Fed, having already
raised interest rates 12 times since June 2004, has come a long way in its
measured monetary tightening campaign. In recognition of this and the higher
rates all along the curve, we believe a more neutral duration is the appropriate
course. Having said that, we stand ready to adjust our strategy as market
dynamics dictate. At period-end, the Fund remained fully invested, reflecting
our efforts to generate the greatest level of tax-exempt income for our
shareholders.
ANNUAL REPORTS OCTOBER 31, 2005 7
A Discussion With Your Funds' Portfolio Managers (concluded)
MuniYield Quality Fund II, Inc.
How did the Fund perform during the fiscal year?
For the 12-month period ended October 31, 2005, the Common Stock of MuniYield
Quality Fund II, Inc. had net annualized yields of 6.35% and 6.60%, based on a
year-end per share net asset value of $13.36 and a per share market price of
$12.86, respectively, and $.849 per share income dividends. Over the same
period, the total investment return on the Fund's Common Stock was +3.98%, based
on a change in per share net asset value from $13.72 to $13.36, and assuming
reinvestment of all distributions.
The Fund's total return, based on net asset value, exceeded the +2.93% 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 first six
months of the year brought especially strong performance from a relatively
large, uninsured credit in the portfolio. Uninsured bonds performed quite well
as credit spreads (versus bonds of higher quality but similar maturity)
continued to narrow over the year. We took the opportunity to lock in profits
and sold the position.
In the second half of the year, the advance refunding of significant positions
in the portfolio benefited performance most. When municipal bonds are advance
refunded, or refinanced ahead of their maturity date, their prices generally
increase sharply. In addition, our defensive market posture, which detracted
from relative performance in the first half of the fiscal year, enhanced results
in the second half as long-term interest rates rose. Finally, our ability to
generate an above-average yield was additive to performance throughout the
12-month period.
For the six-month period ended October 31, 2005, the total investment return on
the Fund's Common Stock was +.57%, based on a change in per share net asset
value from $13.71 to $13.36, 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?
As in prior periods, we continued to favor bonds in the 25-year maturity range
and with premium coupons. More recently, we began to transition away from our
defensive market stance, taking advantage of episodes of market weakness (rising
yields and falling prices) to move toward a more neutral duration. We made this
shift in recognition of the overall higher yields in the market. The long end of
the curve, where yields had remained stubbornly low, finally began to inch
higher toward period-end.
The yield curve flattening phenomenon continued throughout the year, although it
was a much more significant factor in the first half of the fiscal year than in
the latter months. From May to October, the municipal yield curve flattened
approximately 10 basis points - 15 basis points between the 10-year and 30-year
sectors. This compared to 40 basis points in flattening in the first six months.
Nevertheless, we continued to pursue higher yields throughout the year by moving
further out on the curve and reducing exposure to shorter maturities. In doing
so, we carefully considered each bond's acquisition yield to ensure that the
sales would not have a material negative impact on the Fund's income stream, as
some of these shorter-maturity bonds were acquired in higher interest rate
environments. We also maintained the Fund's fully invested position in an effort
to preserve the level of income available to shareholders.
8 ANNUAL REPORTS OCTOBER 31, 2005
Finally, the Fund increased its use of leverage during the period with the
issuance of additional Auction Market Preferred Stock (AMPS). The goal was to
bring the Fund's AMPS leverage more in line with that of its peers and to
generate additional income for the portfolio. With the proceeds from the sale of
the AMPS, we invested in the longer end of the municipal yield curve, consistent
with our underlying investment strategy.
For the six-month period ended October 31, 2005, the Fund's AMPS had average
yields of 2.60% for Series A, 2.25% for Series B, 2.28% for Series C and 2.53%
for Series D. The Fed's interest rate hikes clearly are having a material impact
on the Fund's borrowing costs. The Fed raised the short-term interest rate
target 200 basis points during the 12-month period (and 25 basis points more on
November 1). Still, the tax-exempt yield curve remained relatively steep and
continued to generate an income benefit to the holders of Common Stock from the
leveraging of Preferred Stock. However, should the spread between short-term and
long-term interest rates narrow, the benefits of leveraging will decline and, as
a result, reduce the yield on the Fund's Common Stock. At the end of the period,
the Fund's leverage amount, due to AMPS, was 34.89% of total net assets, before
the deduction of Preferred Stock. (For a more complete explanation of the
benefits and risks of leveraging, see page 2 of this report to shareholders.)
How would you characterize the Fund's position at the close of the period?
We continue to favor maturities in the 25-year range. The Fund ended the period
close to neutral in terms of interest rate exposure. The Fed, having already
raised interest rates 12 times since June 2004, has come a long way in its
measured monetary tightening campaign. In recognition of this and the higher
rates all along the curve, we believe a more neutral duration is the appropriate
course. Having said that, we stand ready to adjust our strategy as market
dynamics dictate. At period-end, the Fund remained fully invested, reflecting
our efforts to generate the greatest level of tax-exempt income for our
shareholders.
Theodore R. Jaeckel Jr., CFA
Vice President and Portfolio Manager
MuniYield Fund, Inc.
Michael A. Kalinoski, CFA
Vice President and Portfolio Manager
MuniYield Quality Fund, Inc.
MuniYield Quality Fund II, Inc.
November 16, 2005
ANNUAL REPORTS OCTOBER 31, 2005 9
Portfolio Information
Quality Profiles as of October 31, 2005
Percent of
MuniYield Fund, Inc. by Total
S&P/Moody's Rating Investments
--------------------------------------------------------------------------------
AAA/Aaa ................................................. 36.7%
AA/Aa ................................................... 12.0
A/A ..................................................... 9.8
BBB/Baa ................................................. 15.4
BB/Ba ................................................... 4.8
B/B ..................................................... 2.6
CCC/Caa ................................................. 1.8
NR (Not Rated) .......................................... 16.6
Other* .................................................. 0.3
--------------------------------------------------------------------------------
Percent of
MuniYield Quality Fund II, Inc. by Total
S&P/Moody's Rating Investments
--------------------------------------------------------------------------------
AAA/Aaa ................................................. 90.2%
AA/Aa ................................................... 3.4
A/A ..................................................... 5.4
BBB/Baa ................................................. 0.4
NR (Not Rated) .......................................... 0.3
Other* .................................................. 0.3
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
Percent of
MuniYield Quality Fund, Inc. by Total
S&P/Moody's Rating Investments
--------------------------------------------------------------------------------
AAA/Aaa ................................................. 86.5%
AA/Aa ................................................... 5.8
A/A ..................................................... 4.9
BBB/Baa ................................................. 0.3
NR (Not Rated) .......................................... 0.9
Other* .................................................. 1.6
--------------------------------------------------------------------------------
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.
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 Net Assets, which comprises
part of the financial information included in these reports.
10 ANNUAL REPORTS OCTOBER 31, 2005
Schedule of Investments MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
Alabama--1.6%
$ 2,500 Huntsville, Alabama, Health Care Authority Revenue
Bonds, Series B, 5.75% due 6/01/2032 $ 2,627
5,250 Jefferson County, Alabama, Limited Obligation School
Warrants, Series A, 5.50% due 1/01/2022 5,605
2,200 Tuscaloosa, Alabama, Special Care Facilities Financing
Authority, Residential Care Facility Revenue Bonds
(Capstone Village, Inc. Project) Series A,
5.625% due 8/01/2025 2,186
===========================================================================================================
Arizona--9.3%
Arizona State Transportation Board, Highway Revenue
Bonds, Sub-Series A:
5,825 5% due 7/01/2021 6,121
7,030 5% due 7/01/2022 7,367
5,240 5% due 7/01/2023 5,476
3,400 Maricopa County, Arizona, IDA, Education Revenue
Bonds (Arizona Charter Schools Project 1), Series A,
6.75% due 7/01/2029 3,409
Maricopa County, Arizona, IDA, M/F Housing Revenue
Refunding Bonds (CRS Pine Ridge Housing Corporation),
Series A-1 (d)(g):
5,000 6% due 10/20/2031 5,263
5,000 6.05% due 10/20/2036 5,215
Phoenix, Arizona, IDA, Airport Facility, Revenue Refunding
Bonds (America West Airlines Inc. Project), AMT:
5,800 6.25% due 6/01/2019 4,594
6,900 6.30% due 4/01/2023 5,074
Phoenix, Arizona, IDA, M/F Housing Revenue Bonds
(Summit Apartments LLC Project) (g):
1,610 6.25% due 7/20/2022 1,728
1,425 6.45% due 7/20/2032 1,524
1,305 6.55% due 7/20/2037 1,400
1,400 Pima County, Arizona, IDA, Education Revenue Bonds
(Arizona Charter Schools Project II), Series A,
6.75% due 7/01/2031 1,463
Vistancia Community Facilities District, Arizona, GO:
3,000 5.50% due 7/15/2020 3,009
2,125 5.75% due 7/15/2024 2,134
5,900 Yavapai County, Arizona, IDA, Hospital Facility Revenue
Bonds (Yavapai Regional Medical Center), Series A,
6% due 8/01/2033 6,271
===========================================================================================================
Arkansas--0.9%
University of Arkansas, University Construction Revenue
Bonds (UAMS Campus), Series B (e):
2,000 5% due 11/01/2020 2,110
1,600 5% due 11/01/2027 1,665
1,000 University of Arkansas, University Revenue Refunding
Bonds (UAMS Campus), Series A, 5%
due 11/01/2014 (e) 1,080
1,000 Washington County, Arkansas, Hospital Construction
Revenue Refunding Bonds (Regional Medical Center),
Series A, 5% due 2/01/2035 967
===========================================================================================================
California--13.9%
8,760 California State, GO, 5% due 2/01/2033 8,872
California State Public Works Board, Lease Revenue Bonds:
2,000 (Department of Corrections), Series C,
5% due 6/01/2025 2,052
4,500 (Department of Mental Health--Coalinga State
Hospital), Series A, 5.125% due 6/01/2029 4,618
California State, Various Purpose, GO:
6,800 5.25% due 11/01/2025 7,163
10,000 5% due 4/01/2031 (c) 10,290
5,550 5.50% due 11/01/2033 5,948
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds:
5,500 Series A-3, 7.875% due 6/01/2042 6,713
7,500 Series A-4, 7.80% due 6/01/2042 9,118
18,400 Los Angeles, California, Unified School District, GO,
Series A, 5% due 7/01/2023 (i) 19,169
2,500 Sacramento County, California, Sanitation District
Financing Authority, Revenue Refunding Bonds,
Series A, 6% due 12/01/2019 2,531
5,145 Santa Clara, California, Subordinated Electric Revenue
Bonds, Series A, 5% due 7/01/2022 (e) 5,358
7,465 University of California Revenue Bonds (Multiple
Purpose Projects), Series Q, 5% due 9/01/2021 (i) 7,778
===========================================================================================================
Colorado--4.6%
400 Colorado HFA, Revenue Refunding Bonds (S/F Program),
AMT, Series D-2, 6.90% due 4/01/2029 415
8,000 Denver, Colorado, City and County Airport Revenue
Bonds, AMT, Series D, 7.75% due 11/15/2013 (c) 9,362
5,050 Denver, Colorado, Urban Renewal Authority, Tax
Increment Revenue Bonds (Pavilions), AMT,
7.75% due 9/01/2016 5,261
Elk Valley, Colorado, Public Improvement Revenue
Bonds (Public Improvement Fee), Series A:
1,735 7.10% due 9/01/2014 1,857
5,065 7.35% due 9/01/2031 5,366
6,850 Plaza Metropolitan District No. 1, Colorado, Tax
Allocation Revenue Bonds (Public Improvement Fees),
8% due 12/01/2025 7,519
===========================================================================================================
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
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
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
ROLS Reset Option Long Securities
S/F Single-Family
ANNUAL REPORTS OCTOBER 31, 2005 11
Schedule of Investments (continued) MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
Connecticut--0.7%
$ 5,000 Bridgeport, Connecticut, Senior Living Facilities Revenue
Bonds (3030 Park Retirement Community Project),
7.25% due 4/01/2035 $ 4,200
525 Connecticut State Development Authority, IDR (AFCO
Cargo BDL-LLC Project), AMT, 7.35% due 4/01/2010 531
===========================================================================================================
Florida--4.4%
Hillsborough County, Florida, IDA, Exempt Facilities
Revenue Bonds (National Gypsum), AMT:
11,500 Series A, 7.125% due 4/01/2030 12,749
5,000 Series B, 7.125% due 4/01/2030 5,543
5,450 Midtown Miami, Florida, Community Development
District, Special Assessment Revenue Bonds, Series B,
6.50% due 5/01/2037 5,847
1,100 Orange County, Florida, Health Facilities Authority,
Health Care Revenue Refunding Bonds (Orlando
Lutheran Towers), 5.375% due 7/01/2020 1,078
3,000 Santa Rosa Bay Bridge Authority, Florida, Revenue Bonds,
6.25% due 7/01/2028 2,977
===========================================================================================================
Georgia--3.8%
12,140 Atlanta, Georgia, Airport Revenue Refunding Bonds,
Series A, 5.875% due 1/01/2016 (h) 13,259
4,600 Atlanta, Georgia, Tax Allocation Bonds (Atlantic Station
Project), 7.90% due 12/01/2024 4,961
Brunswick & Glynn County, Georgia, Development
Authority, First Mortgage Revenue Bonds (Coastal
Community Retirement Corporation Project), Series A:
2,285 7.125% due 1/01/2025 2,389
3,595 7.25% due 1/01/2035 3,758
===========================================================================================================
Idaho--1.7%
380 Idaho Housing Agency, S/F Mortgage Revenue
Refunding Bonds, AMT, Senior Series C-2,
7.15% due 7/01/2023 380
10,000 Power County, Idaho, Industrial Development
Corporation, Solid Waste Disposal Revenue
Bonds (FMC Corporation Project), AMT,
6.45% due 8/01/2032 10,474
===========================================================================================================
Illinois--4.4%
725 Beardstown, Illinois, IDR (Jefferson Smurfit Corp.
Project), 8% due 10/01/2016 759
13,200 Chicago, Illinois, O'Hare International Airport
Revenue Bonds, 3rd Lien, AMT, Series B-2,
6% due 1/01/2029 (j) 14,549
3,915 Chicago, Illinois, O'Hare International Airport, Special
Facility Revenue Refunding Bonds (American Airlines
Inc. Project), 8.20% due 12/01/2024 3,313
65 Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT,
Series B, 7.625% due 9/01/2027 (f)(g)(l) 66
3,285 Illinois Development Finance Authority Revenue Bonds
(Presbyterian Home Lake Project), Series B,
6.30% due 9/01/2022 (i) 3,424
1,750 Illinois State Finance Authority Revenue Bonds
(Friendship Village of Schaumburg), Series A,
5.625% due 2/15/2037 1,733
4,000 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Bonds (McCormick
Place Expansion), Series A, 5.50% due 6/15/2023 (e) 4,343
===========================================================================================================
Indiana--0.5%
2,850 Indiana Municipal Power Agency, Power Supply System
Revenue Bonds, Series A, 5% due 1/01/2029 (h) 2,930
===========================================================================================================
Kansas--0.2%
1,250 Lenexa, Kansas, Health Care Facility Revenue
Bonds (Lakeview Village Inc.), Series C,
6.875% due 5/15/2032 1,338
===========================================================================================================
Kentucky--0.5%
3,000 Kentucky Economic Development Finance Authority,
Health System Revenue Refunding Bonds (Norton
Healthcare Inc.), Series A, 6.625% due 10/01/2028 3,257
===========================================================================================================
Louisiana--4.1%
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 6,859
19,000 Port New Orleans, Louisiana, IDR, Refunding (Continental
Grain Company Project), 6.50% due 1/01/2017 19,408
===========================================================================================================
Maryland--1.4%
3,000 Maryland State Energy Financing Administration,
Limited Obligation Revenue Bonds (Cogeneration--
AES Warrior Run), AMT, 7.40% due 9/01/2019 3,044
4,000 Maryland State Health and Higher Educational Facilities
Authority Revenue Refunding Bonds (University of
Maryland Medical System), 6% due 7/01/2032 4,297
500 Maryland State Industrial Development Financing
Authority, Economic Development Revenue Bonds
(Our Lady of Good Counsel School), Series A,
6% due 5/01/2035 509
1,500 Prince Georges County, Maryland, Special Obligation
Bonds (National Harbor Project), 5.20%
due 7/01/2034 1,502
===========================================================================================================
Massachusetts--9.7%
6,640 Massachusetts Bay Transportation Authority, Sales Tax
Revenue Refunding Bonds, Senior Series A,
5% due 7/01/2032 6,794
10,000 Massachusetts State, Consolidated Loan, GO, Series C,
5% due 9/01/2022 10,466
3,500 Massachusetts State Development Finance Agency,
Human Service Provider Revenue Bonds (Seven Hills
Foundation & Affiliates), 5% due 9/01/2035 (n) 3,538
1,700 Massachusetts State Development Finance Agency
Revenue Bonds (WGBH Educational Foundation),
Series A, 5.375% due 1/01/2042 (c) 1,802
2,750 Massachusetts State Development Finance Agency,
Revenue Refunding Bonds (Western New England
College), Series A, 5% due 9/01/2033 2,801
6,250 Massachusetts State Health and Educational Facilities
Authority, Revenue Bonds (University of Massachusetts
Memorial Healthcare), Series D, 5% due 7/01/2033 6,139
19,330 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A,
5% due 8/15/2030 (i) 19,979
10,000 Massachusetts State Special Obligation Dedicated Tax
Revenue Bonds, 5.25% due 1/01/2014 (b)(h) 10,841
===========================================================================================================
12 ANNUAL REPORTS OCTOBER 31, 2005
Schedule of Investments (continued) MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
Michigan--0.9%
$ 6,060 Macomb County, Michigan, Hospital Finance Authority,
Hospital Revenue Bonds (Mount Clemens General
Hospital), Series B, 5.875% due 11/15/2034 $ 6,115
===========================================================================================================
Minnesota--0.9%
Eden Prairie, Minnesota, M/F Housing Revenue Bonds
(Rolling Hills Project), Series A (g):
420 6% due 8/20/2021 457
2,000 6.20% due 2/20/2043 2,150
960 Minneapolis, Minnesota, M/F Housing Revenue Bonds
(Gaar Scott Loft Project), AMT, 5.95% due 5/01/2030 1,004
Minnesota State Municipal Power Agency, Electric
Revenue Bonds:
1,000 5% due 10/01/2030 1,009
1,500 5% due 10/01/2035 1,509
===========================================================================================================
Missouri--2.0%
Fenton, Missouri, Tax Increment Revenue Refunding and
Improvement Bonds (Gravois Bluffs):
230 6.75% due 10/01/2015 231
2,800 7% due 10/01/2021 2,993
Kansas City, Missouri, Municipal Assistance Corporation,
Leasehold Improvement Revenue Bonds (H. Roe
Bartle Convention Center), Series B-1 (c):
15,000 5.383%** due 4/15/2028 4,959
5,000 5.28%** due 4/15/2029 1,570
5,000 5.31%** due 4/15/2030 1,491
5,000 5.32%** due 4/15/2031 1,415
185 Missouri State Housing Development Commission, S/F
Mortgage Revenue Bonds, Homeownership, AMT,
Series B, 7.55% due 9/01/2027 (f)(g) 187
===========================================================================================================
Nebraska--0.3%
Lincoln, Nebraska, Sanitation and Sewer Revenue Bonds:
865 4.25% due 6/15/2024 816
905 4.25% due 6/15/2025 849
===========================================================================================================
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 3,591
===========================================================================================================
New Jersey--19.0%
4,500 Garden State Preservation Trust of New Jersey, Open
Space and Farmland Preservation Revenue Bonds,
Series A, 5.80% due 11/01/2022 (i) 5,107
11,435 New Jersey EDA, Cigarette Tax Revenue Bonds,
5.50% due 6/15/2024 11,871
New Jersey EDA, First Mortgage Revenue Bonds, Series A:
710 (Lions Gate Project), 5.75% due 1/01/2025 719
230 (Lions Gate Project), 5.875% due 1/01/2037 234
3,000 (The Presbyterian Home), 6.375% due 11/01/2031 3,088
20,000 New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A, 5% due 7/01/2029 (e) 20,754
4,400 New Jersey EDA, Retirement Community Revenue
Bonds (Cedar Crest Village Inc. Facility), Series A,
7.25% due 11/15/2031 4,756
New Jersey EDA, School Facilities Construction
Revenue Bonds, Series O:
8,825 5.25% due 3/01/2023 9,345
1,585 5.25% due 3/01/2026 1,671
New Jersey EDA, Special Facility Revenue Bonds
(Continental Airlines Inc. Project), AMT:
3,905 6.25% due 9/15/2019 3,316
14,830 6.25% due 9/15/2029 11,990
3,680 New Jersey Health Care Facilities Financing Authority
Revenue Bonds (Pascack Valley Hospital Association),
6.625% due 7/01/2036 3,768
1,500 New Jersey Health Care Facilities Financing Authority,
Revenue Refunding Bonds (Pascack Valley Hospital
Association), 5.125% due 7/01/2028 1,300
9,410 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Bonds, Series D,
5% due 6/15/2020 (i) 9,849
4,360 Port Authority of New York and New Jersey, Revenue
Refunding Bonds, DRIVERS, AMT, Series 177,
8.977% due 10/15/2032 (e)(m) 4,827
20,575 Port Authority of New York and New Jersey, Special
Obligation Revenue Bonds, DRIVERS, AMT, Series 192,
8.477% due 12/01/2025 (e)(m) 22,232
7,500 Tobacco Settlement Financing Corporation of New
Jersey, Asset-Backed Revenue Refunding Bonds,
6% due 6/01/2037 7,831
===========================================================================================================
New York--17.7%
2,200 Dutchess County, New York, IDA, Civic Facility Revenue
Refunding Bonds (Saint Francis Hospital), Series A,
7.50% due 3/01/2029 2,388
5,595 Metropolitan Transportation Authority, New York,
Commuter Facilities Revenue Bonds, RITR, Series 9,
9.25% due 7/01/2006 (b)(h)(m) 6,040
New York City, New York, City IDA, Special Facilities
Revenue Bonds, AMT:
1,250 (British Airways PLC Project), 7.625% due 12/01/2032 1,344
10,000 (Terminal One Group Association Project),
6.125% due 1/01/2024 10,063
5,000 New York City, New York, City Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds,
DRIVERS, Series 198, 8.497% due 6/15/2026 (e)(m) 5,267
14,000 New York City, New York, City Municipal Water Finance
Authority, Water and Sewer System, Revenue
Refunding Bonds, 5.50% due 6/15/2033 15,019
10,000 New York City, New York, GO, Refunding, Trust Receipts,
Series R, 9.669% due 5/15/2014 (h)(m) 12,499
10,000 New York City, New York, GO, Series M,
5% due 4/01/2021 10,333
6,500 New York Liberty Development Corporation, Revenue
Bonds (Goldman Sachs Headquarters),
5.25% due 10/01/2035 7,115
New York State Dormitory Authority, Revenue
Refunding Bonds (Mount Sinai Health), Series A:
5,000 6.75% due 7/01/2020 5,381
315 6.50% due 7/01/2025 333
8,360 New York State Dormitory Authority, Supported Debt
Revenue Refunding Bonds (Department of Health),
Series A, 5% due 7/01/2023 (k) 8,678
2,500 Suffolk County, New York, IDA, IDR, Refunding
(Nissequogue Cogeneration Partners Facility), AMT,
5.50% due 1/01/2023 2,502
ANNUAL REPORTS OCTOBER 31, 2005 13
Schedule of Investments (continued) MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
New York (concluded)
$ 9,400 Tobacco Settlement Financing Corporation of New York
Revenue Bonds, Series C-1, 5.50% due 6/01/2021 $ 10,174
10,000 Triborough Bridge and Tunnel Authority, New York,
Subordinate Revenue Bonds, 5.25% due 11/15/2030 10,515
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 3,651
2,895 6.50% due 1/01/2034 3,077
===========================================================================================================
North Carolina--1.9%
2,710 Charlotte, North Carolina, Airport Revenue Bonds,
Series A, 5% due 7/01/2029 (e) 2,787
4,750 North Carolina Eastern Municipal Power Agency,
Power System Revenue Bonds, Series D,
6.75% due 1/01/2026 5,235
285 North Carolina HFA, Home Ownership Revenue Bonds,
AMT, Series 8-A, 6.20% due 7/01/2016 295
865 North Carolina HFA, S/F Revenue Bonds, Series II,
6.20% due 3/01/2016 (d) 889
1,000 North Carolina Medical Care Commission, Health
Care Facilities, First Mortgage Revenue Bonds (Arbor
Acres Community Project), 6.375% due 3/01/2032 1,039
2,000 North Carolina Medical Care Commission, Health Care
Housing Revenue Bonds (The ARC of North Carolina
Projects), Series A, 5.80% due 10/01/2034 2,045
===========================================================================================================
Ohio--3.6%
Cuyahoga County, Ohio, Mortgage Revenue Bonds
(West Tech Apartments Project), AMT (g):
1,410 5.75% due 9/20/2020 1,474
2,250 5.85% due 9/20/2030 2,346
5,065 Hamilton County, Ohio, Sewer System Improvement
Revenue Bonds (The Metropolitan Sewer District of
Greater Cincinnati), Series B, 5% due 12/01/2028 (e) 5,264
2,175 Lucas County, Ohio, Health Care Facility Revenue
Refunding and Improvement Bonds (Sunset
Retirement Communities), Series A,
6.625% due 8/15/2030 2,320
5,000 Mason, Ohio, City School District, GO (School
Improvement), 5% due 12/01/2031 (i) 5,151
2,495 Mason, Ohio, Sewer System Revenue Refunding and
Improvement Bonds, 5% due 12/01/2028 (e) 2,581
970 Port of Greater Cincinnati Development Authority,
Ohio, Special Assessment Revenue Bonds
(Cooperative Public Parking Infrastructure Project),
6.30% due 2/15/2024 1,026
Toledo-Lucas County, Ohio, Port Authority Revenue
Bonds (Saint Mary Woods Project), Series A:
750 6% due 5/15/2024 759
2,250 6% due 5/15/2034 2,259
===========================================================================================================
Oregon--1.5%
4,405 Oregon State Department of Administrative Services,
COP, Series A, 6% due 5/01/2010 (b)(c) 4,892
3,085 Oregon State, GO, Refunding (Veterans Welfare),
Series 80A, 5.70% due 10/01/2032 3,109
1,830 Portland, Oregon, Housing Authority, Housing Revenue
Bonds (Pine Square and University Place), Series A,
5.875% due 1/01/2022 1,816
===========================================================================================================
Pennsylvania--6.6%
5,000 Lehigh County, Pennsylvania, IDA, PCR, Refunding
(Pennsylvania Power and Light Utilities Corporation
Project), 4.75% due 2/15/2027 (h) 5,026
5,270 Pennsylvania Economic Development Financing
Authority, Exempt Facilities Revenue Bonds
(National Gypsum Company), AMT, Series A,
6.25% due 11/01/2027 5,616
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 (e) 16,968
Philadelphia, Pennsylvania, Authority for IDR,
Commercial Development:
1,265 7.75% due 12/01/2017 1,293
3,650 (Days Inn), Refunding, Series B, 6.50%
due 10/01/2027 3,744
4,000 (Doubletree), Refunding, Series A, 6.50%
due 10/01/2027 4,103
5,000 Sayre, Pennsylvania, Health Care Facilities Authority,
Revenue Bonds (Guthrie Healthcare System), Series B,
7.125% due 12/01/2031 5,898
===========================================================================================================
Rhode Island--1.1%
4,240 Central Falls, Rhode Island, Detention Facility
Corporation, Detention Facility, Revenue Refunding
Bonds, 7.25% due 7/15/2035 4,396
Woonsocket, Rhode Island, GO (h):
1,225 6% due 10/01/2017 1,369
1,195 6% due 10/01/2018 1,333
===========================================================================================================
Tennessee--2.3%
4,610 Hardeman County, Tennessee, Correctional Facilities
Corporation Revenue Bonds, 7.75% due 8/01/2017 4,779
10,000 McMinn County, Tennessee, IDB, Solid Waste Revenue
Bonds (Recycling Facility--Calhoun Newsprint), AMT,
7.40% due 12/01/2022 10,120
===========================================================================================================
Texas--13.6%
5,000 Alliance Airport Authority, Inc., Texas, Special Facilities
Revenue Bonds (American Airlines Inc. Project), AMT,
7.50% due 12/01/2029 3,766
Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), First Tier, Series A:
5,000 6.70% due 1/01/2028 5,338
5,000 6.70% due 1/01/2032 5,273
14 ANNUAL REPORTS OCTOBER 31, 2005
Schedule of Investments (continued) MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
Bexar County, Texas, Housing Finance Corporation,
M/F Housing Revenue Bonds (Water at Northern
Hills Apartments), Series A (e):
$ 1,300 5.80% due 8/01/2021 $ 1,330
2,460 6% due 8/01/2031 2,516
1,000 6.05% due 8/01/2036 1,023
6,650 Brazos River Authority, Texas, PCR, Refunding
(Utilities Electric Company), AMT, Series B,
5.05% due 6/01/2030 6,702
3,755 Brazos River Authority, Texas, Revenue Refunding
Bonds (Reliant Energy Inc. Project), Series B,
7.75% due 12/01/2018 4,129
Gregg County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Good
Shepherd Medical Center Project) (n):
3,000 6.875% due 10/01/2020 3,380
2,000 6.375% due 10/01/2025 2,209
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 5,146
3,900 Gulf Coast, Texas, IDA, Solid Waste Disposal Revenue
Bonds ( Citgo Petroleum Corporation Project), AMT,
7.50% due 5/01/2025 4,398
1,600 Houston, Texas, Industrial Development Corporation
Revenue Bonds (Air Cargo), AMT,
6.375% due 1/01/2023 1,648
Lower Colorado River Authority, Texas, PCR (Samsung
Austin Semiconductor), AMT:
4,830 6.375% due 4/01/2027 5,089
3,330 6.95% due 4/01/2030 3,723
7,030 Matagorda County, Texas, Navigation District Number 1,
Revenue Refunding Bonds (Reliant Energy Inc.),
Series C, 8% due 5/01/2029 7,651
5,200 Nueces River Authority, Texas, Water Supply Facilities,
Revenue Refunding Bonds (Corpus Christi Lake
Project), 5% due 7/15/2026 (i) 5,394
3,900 Port Corpus Christi, Texas, Individual Development
Corporation, Environmental Facilities Revenue
Bonds (Citgo Petroleum Corporation Project), AMT,
8.25% due 11/01/2031 4,129
6,500 Texas State Turnpike Authority, Central Texas Turnpike
System Revenue Bonds, First Tier, Series A,
5.50% due 8/15/2039 (c) 6,998
7,020 Tyler, Texas, Waterworks and Sewer Revenue Bonds,
5.70% due 9/01/2010 (b)(h) 7,700
===========================================================================================================
Utah--0.3%
1,545 Utah State Board of Regents, Revenue Refunding
Bonds (University of Utah Research Facilities),
Series A, 5.50% due 4/01/2010 (b)(e) 1,686
===========================================================================================================
Virginia--2.8%
James City County, Virginia, Economic Development
Authority, Residential Care Facility, First Mortgage
Revenue Refunding Bonds (Williamsburg Landing,
Inc.), Series A:
1,500 5.35% due 9/01/2026 1,478
2,000 5.50% due 9/01/2034 1,979
Pocahontas Parkway Association, Virginia, Toll Road
Revenue Bonds:
6,750 Senior-Series A, 5.50% due 8/15/2028 6,951
24,800 Senior-Series B, 6.67%** due 8/15/2029 6,351
1,000 Winchester, Virginia, IDA, Residential Care Facilities,
Revenue Bonds (Westminster-Canterbury), Series A,
5.20% due 1/01/2027 991
===========================================================================================================
Washington--0.3%
Vancouver, Washington, Housing Authority, Housing
Revenue Bonds (Teal Pointe Apartments Project), AMT:
945 6% due 9/01/2022 949
1,250 6.20% due 9/01/2032 1,256
===========================================================================================================
West Virginia--0.1%
1,000 Princeton, West Virginia, Hospital Revenue Refunding
Bonds (Community Hospital Association Inc. Project),
6% due 5/01/2019 930
===========================================================================================================
Wisconsin--0.7%
700 Milwaukee, Wisconsin, Revenue Bonds (Air Cargo),
AMT, 6.50% due 1/01/2025 733
Wisconsin Health and Educational Facilities Authority,
Revenue Refunding Bonds (Eastcastle Place Inc. Project):
1,000 6% due 12/01/2024 1,019
1,800 6.125% due 12/01/2034 1,826
965 Wisconsin State, GO, AMT, Series B,
6.20% due 11/01/2026 (e) 970
===========================================================================================================
Wyoming--0.8%
2,550 Sweetwater County, Wyoming, Solid Waste Disposal
Revenue Bonds (FMC Corporation Project), AMT,
Series A, 7% due 6/01/2024 2,569
2,500 Wyoming Student Loan Corporation, Student Loan
Revenue Refunding Bonds, Series A,
6.20% due 6/01/2024 2,665
===========================================================================================================
Puerto Rico--8.0%
15,000 Puerto Rico Commonwealth Highway and
Transportation Authority, Transportation Revenue
Bonds, Trust Receipts, Class R, Series B,
8.70% due 7/01/2035 (e)(m) 18,358
Puerto Rico Commonwealth Highway and
Transportation Authority, Transportation Revenue
Refunding Bonds:
16,360 Series D, 5.75% due 7/01/2012 (b) 18,314
7,500 Series K, 5% due 7/01/2040 7,522
2,500 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Trust Receipts, Class R, Series 16 HH,
8.451% due 7/01/2013 (i)(m) 3,014
ANNUAL REPORTS OCTOBER 31, 2005 15
Schedule of Investments (concluded) MuniYield Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
Puerto Rico (concluded)
$ 4,350 Puerto Rico Public Finance Corporation Revenue Bonds,
DRIVERS, Series 272, 9.293% due 8/01/2030 (m) $ 4,626
===========================================================================================================
U.S. Virgin Islands--1.1%
6,250 Virgin Islands Public Finance Authority, Refinery
Facilities Revenue Bonds (Hovensa Refinery), AMT,
6.125% due 7/01/2022 6,819
-----------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$908,980)--147.8% 953,378
Shares
Held Short-Term Securities
===========================================================================================================
2,500 Merrill Lynch Institutional Tax-Exempt Fund (a) 2,500
-----------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$2,500)--0.4% 2,500
===========================================================================================================
Total Investments (Cost--$911,480*)--148.2% 955,878
Other Assets Less Liabilities--5.0% 32,072
Preferred Stock, at Redemption Value--(53.2%) (343,125)
----------
Net Assets Applicable to Common Stock--100.0% $ 644,825
==========
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ........................................... $ 910,901
==========
Gross unrealized appreciation ............................ $ 51,331
Gross unrealized depreciation ............................ (6,354)
----------
Net unrealized appreciation .............................. $ 44,977
==========
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
(a) 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 (6,913) $116
--------------------------------------------------------------------------
(b) Prerefunded.
(c) AMBAC Insured.
(d) FHA Insured.
(e) MBIA Insured.
(f) FNMA Collateralized.
(g) GNMA Collateralized.
(h) FGIC Insured.
(i) FSA Insured.
(j) XL Capital Insured.
(k) CIFG Insured.
(l) FHLMC Collateralized.
(m) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(n) Radian Insured.
See Notes to Financial Statements.
16 ANNUAL REPORTS OCTOBER 31, 2005
Schedule of Investments MuniYield Quality Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
Alaska--0.5%
$ 2,100 Alaska State International Airports Revenue Bonds,
Series B, 5.75% due 10/01/2019 (a) $ 2,327
===========================================================================================================
Arizona--0.6%
2,345 Maricopa County, Arizona, Public Finance Corporation,
Lease Revenue Bonds, RIB, Series 511X,
8.04% due 7/01/2014 (a)(i) 2,762
===========================================================================================================
California--22.6%
1,250 Alameda Corridor Transportation Authority, California,
Capital Appreciation Revenue Refunding Bonds,
Subordinate Lien, Series A, 4.738%**
due 10/01/2023 (a) 925
4,150 Alameda Corridor Transportation Authority, California,
Revenue Refunding Bonds, Subordinated Lien,
Series A, 5.525%** due 10/01/2025 (a) 3,068
California State Department of Water Resources, Power
Supply Revenue Bonds, Series A:
1,400 5.375% due 5/01/2021 1,510
1,000 5.375% due 5/01/2022 (g) 1,084
California State, GO, Refunding:
5,700 5.25% due 9/01/2026 5,981
6,000 5.25% due 2/01/2030 (b) 6,348
7,700 5.25% due 2/01/2030 (g) 8,147
2,850 ROLS, Series II-R-272, 7.656% due 2/01/2033 (i)(j) 3,086
California State, Various Purpose, GO:
3,300 5.50% due 4/01/2028 3,539
2,500 5.25% due 11/01/2029 2,613
3,200 5.50% due 11/01/2033 3,430
3,525 Gilroy, California, Unified School District, GO,
5% due 8/01/2027 (d) 3,641
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds:
5,000 RIB, Series RR II R 285X, 8.173% due 6/01/2043 (b)(i) 6,053
7,080 RIB, Series RR II R 287X, 8.426% due 6/01/2038 (i)(k) 8,686
4,600 Series B, 5.50% due 6/01/2013 (b)(h) 5,084
1,870 Series B, 5.625% due 6/01/2013 (b)(h) 2,082
7,300 Los Angeles, California, Unified School District, GO,
Series A, 5% due 1/01/2028 (g) 7,568
2,000 Mount Diablo, California, Unified School District, GO
(Election of 2002), 5% due 7/01/2027 (d) 2,066
2,000 Poway, California, Redevelopment Agency, Tax
Allocation Refunding Bonds (Paguay Redevelopment
Project), 5.125% due 6/15/2033 (a) 2,058
1,335 San Diego, California, Community College District, GO
(Election of 2002), 5% due 5/01/2030 (f) 1,383
9,000 San Diego County, California, Water Authority, Water
Revenue Refunding Bonds, COP, Series A,
5% due 5/01/2032 (g) 9,224
10,000 San Francisco, California, City and County, COP (San
Bruno Jail No. 3), 5.25% due 10/01/2033 (a) 10,513
1,400 Santa Monica, California, Community College District,
GO (Election of 2002), Refunding, Series C,
5% due 8/01/2029 (g) 1,451
1,950 Tamalpais, California, Union High School District, GO
(Election of 2001), 5% due 8/01/2028 (f) 2,013
1,700 University of California, Limited Project Revenue Bonds,
Series B, 5% due 5/15/2033 (f) 1,752
===========================================================================================================
Colorado--4.1%
Colorado Health Facilities Authority Revenue Bonds,
Series A:
1,650 (Catholic Health Initiatives), 5.50%
due 3/01/2032 (c) 1,790
1,600 (Covenant Retirement Communities Inc.), 5.50%
due 12/01/2027 (j) 1,683
1,000 (Covenant Retirement Communities Inc.), 5.50%
due 12/01/2033 (j) 1,046
Colorado Housing and Finance Authority Revenue
Refunding Bonds, AMT:
1,385 (S/F Program), Series B-2, 6.80%
due 2/01/2031 (g) 1,451
1,095 Series C-2, 7.25% due 10/01/2031 (a) 1,128
9,000 E-470 Public Highway Authority, Colorado, Capital
Appreciation Revenue Refunding Bonds, Series B,
5.485%** due 9/01/2029 (g) 2,517
11,125 Northwest Parkway, Colorado, Public Highway Authority,
Capital Appreciation Revenue Bonds, Senior
Convertible, Series C, 5.345%** due 6/15/2025 (f) 9,207
===========================================================================================================
District of Columbia--0.6%
2,500 District of Columbia Revenue Refunding Bonds
(Catholic University of America Project),
5.625% due 10/01/2029 (a) 2,687
===========================================================================================================
Florida--1.7%
2,240 Beacon Tradeport Community Development District,
Florida, Special Assessment Revenue Refunding
Bonds (Commercial Project), Series A,
5.625% due 5/01/2032 (j) 2,390
5,200 Orange County, Florida, Sales Tax Revenue Refunding
Bonds, Series B, 5.125% due 1/01/2032 (d) 5,379
===========================================================================================================
Georgia--4.2%
6,000 Atlanta, Georgia, Development Authority, Student
Housing Revenue Bonds (Georgia State University),
5% due 9/01/2035 (b) 6,145
3,220 Augusta, Georgia, Water and Sewer Revenue Bonds,
5.25% due 10/01/2039 (f) 3,398
4,000 Fulton County, Georgia, Water and Sewer Revenue
Bonds, 5% due 1/01/2035 (d) 4,119
4,785 Monroe County, Georgia, Development Authority,
PCR, Refunding (Oglethorpe Power Corporation--
Scherer), Series A, 6.80% due 1/01/2011 5,426
===========================================================================================================
Hawaii--0.5%
2,000 Hawaii State, GO, Series CX, 5.50% due 2/01/2021 (f) 2,168
===========================================================================================================
Illinois--24.4%
5,000 Chicago, Illinois, Board of Education, GO, RIB,
Series 467, 8.54% due 12/01/2027 (a)(i) 5,707
Chicago, Illinois, Capital Appreciation, GO, Project and
Refunding, Series A (g):
1,000 5.376%** due 1/01/2029 820
1,000 5.387%** due 1/01/2030 817
Chicago, Illinois, GO (Lakefront Millennium Parking
Facilities) (g):
5,000 5.125% due 1/01/2028 5,127
2,500 5.372%** due 1/01/2029 2,625
Chicago, Illinois, O'Hare International Airport Revenue
Bonds, 3rd Lien, AMT, Series B-2:
3,400 5.75% due 1/01/2023 (f) 3,709
4,000 5.75% due 1/01/2024 (f) 4,364
3,300 6% due 1/01/2029 (b) 3,637
ANNUAL REPORTS OCTOBER 31, 2005 17
Schedule of Investments (continued)
MuniYield Quality Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
Illinois (concluded)
Chicago, Illinois, O'Hare International Airport Revenue
Refunding Bonds, AMT:
$ 2,665 3rd Lien, Series A-2, 5.75% due 1/01/2021 (f) $ 2,902
6,835 DRIVERS, Series 250, 8.455% due 1/01/2021 (g)(i) 7,837
2,500 DRIVERS, Series 844Z, 7.957% due 7/01/2010 (g)(i) 2,735
6,250 RIB, Series 994X, 7.74% due 1/01/2032 (g)(i) 6,648
6,200 Cook County, Illinois, Capital Improvement, GO,
Series C, 5.50% due 11/15/2026 (a) 6,730
2,130 Illinois Development Finance Authority Revenue Bonds
(Presbyterian Home Lake Project), Series B,
6.25% due 9/01/2017 (f) 2,216
Illinois Sports Facilities Authority, State Tax Supported
Revenue Bonds (a):
28,525 5.21%** due 6/15/2030 23,897
5,500 5% due 6/15/2032 5,626
10,000 Illinois State, GO, First Series, 5.50% due 8/01/2018 (f) 10,745
3,750 Illinois Student Assistance Commission, Student Loan
Revenue Refunding Bonds, AMT, Sub-Series CC,
6.875% due 3/01/2015 3,756
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) 7,540
3,500 Series B, 5.75% due 6/15/2023 (g) 3,895
===========================================================================================================
Indiana--4.8%
7,500 Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A, 5.25% due 6/01/2029 (d) 7,929
2,000 Indianapolis, Indiana, Local Public Improvement Bond
Bank Revenue Bonds (Waterworks Project), Series A,
5.25% due 7/01/2033 (g) 2,093
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 6,681
5,055 5.25% due 1/01/2030 5,207
===========================================================================================================
Louisiana--5.4%
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) 9,234
4,675 Louisiana State Transportation Authority, Senior Lien
Toll Revenue Capital Appreciation Bonds, Series B,
5.31%** due 12/01/2027 (a) 1,463
New Orleans, Louisiana, Ernest N. Morial Exhibit Hall
Authority, Special Tax, Sub-Series A (a):
6,800 5.25% due 7/15/2028 7,052
5,000 5% due 7/15/2033 5,035
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) 2,015
===========================================================================================================
Massachusetts--13.4%
Massachusetts Bay, Massachusetts, Transportation
Authority, General Transportation System Revenue
Refunding Bonds, Series A (g):
3,730 7% due 3/01/2011 4,317
3,550 7% due 3/01/2014 4,247
Massachusetts Bay Transportation Authority, Sales Tax
Revenue Refunding Bonds, Senior Series A:
1,800 5% due 7/01/2032 1,842
2,000 5% due 7/01/2035 2,041
3,400 Massachusetts State, Consolidated Loan, GO, Series C,
5% due 9/01/2025 3,542
5,000 Massachusetts State HFA, Rental Housing Mortgage
Revenue Bonds, AMT, Series C,
5.60% due 1/01/2045 (f) 5,227
1,915 Massachusetts State Port Authority, Special Facilities
Revenue Bonds, DRIVERS, AMT, Series 501,
7.947% due 7/01/2009 (a)(i) 2,066
33,430 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A,
5% due 8/15/2030 (f) 34,552
2,400 Massachusetts State Special Obligation Dedicated Tax
Revenue Bonds, 5.25% due 1/01/2014 (d)(h) 2,602
800 Massachusetts State Water Resource Authority,
General Revenue Refunding Bonds, Series B,
5.125% due 8/01/2027 (g) 834
===========================================================================================================
Michigan--3.5%
1,750 Detroit, Michigan, Water Supply System Revenue Bonds,
Series B, 5% due 7/01/2034 (g) 1,795
3,040 Michigan Higher Education Student Loan Authority,
Student Loan Revenue Refunding Bonds, AMT,
Series XVII-G, 5.20% due 9/01/2020 (a) 3,143
Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds
(Detroit Edison Company Project), AMT (b):
1,700 Series A, 5.50% due 6/01/2030 1,793
3,300 Series C, 5.65% due 9/01/2029 3,475
5,800 Series C, 5.45% due 12/15/2032 6,043
===========================================================================================================
Minnesota--0.4%
2,000 Minnesota State Municipal Power Agency, Electric
Revenue Bonds, 5% due 10/01/2035 2,012
===========================================================================================================
Nebraska--0.5%
2,300 Washington County, Nebraska, Wastewater Facilities
Revenue Bonds (Cargill Inc. Project), AMT,
5.90% due 11/01/2027 2,469
===========================================================================================================
Nevada--3.7%
4,100 Carson City, Nevada, Hospital Revenue Bonds
(Carson-Tahoe Hospital Project), Series A, 5.50%
due 9/01/2033 (j) 4,288
Clark County, Nevada, Airport System Subordinate
Lien Revenue Bonds, Series A-2 (d):
2,000 5% due 7/01/2030 2,051
4,100 5% due 7/01/2036 4,192
5,710 Washoe County, Nevada, School District, GO,
5.875% due 12/01/2009 (f)(h) 6,240
===========================================================================================================
New Hampshire--3.5%
10,000 New Hampshire Health and Education Facilities
Authority Revenue Bonds (Dartmouth-Hitchcock
Obligation Group), 5.50% due 8/01/2027 (f) 10,854
5,000 New Hampshire State Business Finance Authority,
PCR, Refunding (Public Service Company), AMT,
Series D, 6% due 5/01/2021 (g) 5,351
===========================================================================================================
New Jersey--5.4%
New Jersey EDA, Cigarette Tax Revenue Bonds:
910 5.75% due 6/15/2029 956
1,385 5.50% due 6/15/2031 1,424
2,750 New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A, 5.25% due 7/01/2031 (g) 2,921
18 ANNUAL REPORTS OCTOBER 31, 2005
Schedule of Investments (continued)
MuniYield Quality Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
New Jersey (concluded)
New Jersey EDA, Revenue Bonds, ROLS (e)(i):
$ 3,575 Series II-R-309-1, 8.173% due 6/15/2024 $ 4,065
3,000 Series II-R-309-2, 8.173% due 6/15/2031 3,425
New Jersey EDA, School Facilities Construction
Revenue Bonds, Series O:
3,860 5.125% due 3/01/2028 4,003
7,500 5.125% due 3/01/2030 7,755
===========================================================================================================
New York--8.9%
New York City, New York, GO:
6,920 RIB, Series 394, 8.754% due 8/01/2016 (g)(i) 8,374
9,325 Refunding, Series G, 5.75% due 2/01/2017 (f) 9,522
2,410 Series B, 5.875% due 8/15/2006 (b)(h) 2,499
2,590 Series B, 5.875% due 8/15/2013 (b) 2,681
1,255 Series F, 5.75% due 2/01/2019 (b) 1,282
8,000 New York State Thruway Authority, General Revenue
Refunding Bonds, Series G, 5% due 1/01/2032 (f) 8,279
7,320 Tobacco Settlement Financing Corporation of New York
Revenue Bonds, Series A-1, 5.25% due 6/01/2022 (a) 7,839
===========================================================================================================
Ohio--1.1%
2,500 Columbus, Ohio, City School District, GO (School
Facilities Construction and Improvements),
5.25% due 12/01/2027 (f) 2,667
2,000 Jackson, Ohio, Hospital Facilities Revenue Bonds
(Consolidated Health System--Jackson Hospital),
6.125% due 10/01/2009 (h)(j) 2,209
===========================================================================================================
Oklahoma--0.8%
Tulsa, Oklahoma, Airports Improvement Trust, General
Revenue Bonds (Tulsa International Airport), AMT (d):
1,250 Series A, 6% due 6/01/2020 1,433
1,000 Series B, 6% due 6/01/2019 1,077
1,000 Series B, 6.125% due 6/01/2026 1,082
===========================================================================================================
Oregon--2.0%
7,500 Portland, Oregon, Sewer System Revenue Bonds, RIB,
Series 386, 8.49% due 8/01/2020 (d)(i) 8,966
===========================================================================================================
Pennsylvania--7.6%
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 6,395
2,440 5% due 6/01/2029 2,505
11,750 5% due 6/01/2033 12,040
6,250 Philadelphia, Pennsylvania, Authority for Industrial
Development, Lease Revenue Bonds, Series B,
5.50% due 10/01/2021 (f) 6,800
6,170 Philadelphia, Pennsylvania, School District, GO,
Series B, 5.625% due 8/01/2012 (d)(h) 6,853
===========================================================================================================
Rhode Island--0.6%
2,500 Providence, Rhode Island, GO, Series A,
5.70% due 7/15/2007 (f)(h) 2,630
===========================================================================================================
South Carolina--1.4%
20,000 Piedmont Municipal Power Agency, South Carolina,
Electric Revenue Refunding Bonds, Sub-Series A-2,
4.915%** due 1/01/2028 (a) 6,523
===========================================================================================================
Tennessee--5.8%
15,000 Chattanooga, Tennessee, IDB, Lease Rent Revenue
Bonds (Southside Redevelopment Corporation),
5.875% due 10/01/2024 (a) 16,424
5,000 Memphis-Shelby County, Tennessee, Airport Authority,
Airport Revenue Bonds, AMT, Series D, 6.25%
due 3/01/2018 (a) 5,456
Tennessee HDA, Homeownership Revenue Bonds,
AMT, Series 2-C (a):
2,075 6.10% due 7/01/2013 2,116
2,390 6.20% due 7/01/2015 2,453
===========================================================================================================
Texas--13.3%
2,000 Austin, Texas, Convention Center Revenue Bonds
(Convention Enterprises Inc.), Trust Certificates,
Second Tier, Series B, 6% due 1/01/2023 2,126
1,000 Bell County, Texas, Health Facilities Development
Revenue Bonds (Lutheran General Health Care
System), 6.50% due 7/01/2019 (c) 1,200
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 2,592
5,235 Denton, Texas, Utility System Revenue Bonds, RIB,
Series 369, 8.99% due 12/01/2017 (f)(i) 6,406
Gregg County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Good
Shepherd Medical Center Project) (j):
6,000 6.875% due 10/01/2020 6,761
2,600 6.375% due 10/01/2025 2,872
4,000 Harris County, Houston, Texas, Sports Authority
Revenue Refunding Bonds, Senior Lien, Series G,
5.75% due 11/15/2020 (g) 4,359
4,000 Harris County, Texas, Toll Road Revenue Refunding
Bonds, Senior Lien, Series A, 5.25% due 8/15/2035 (f) 4,154
2,700 Houston, Texas, Airport System Revenue Refunding
Bonds, Sub-Lien, Series B, 5.50% due 7/01/2030 (f) 2,880
9,250 Leander, Texas, Independent School District, Capital
Appreciation, GO, Refunding (School Building),
5.46%** due 8/15/2028 (d) 2,760
7,150 North Harris County, Texas, Regional Water
Authority, Senior Lien Revenue Bonds,
5.125% due 12/15/2035 (g) 7,413
7,200 Texas State Turnpike Authority, Central Texas Turnpike
System Revenue Bonds, First Tier, Series A,
5.75% due 8/15/2038 (a) 7,942
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) 5,124
===========================================================================================================
Utah--3.8%
15,000 Salt Lake City, Utah, Hospital Revenue Refunding
Bonds (IHC Hospitals Inc.), 6.30% due 2/15/2015 (g) 17,226
===========================================================================================================
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) 3,344
===========================================================================================================
Washington--6.1%
10,000 Energy Northwest, Washington, Electric Revenue Bonds,
DRIVERS, Series 242, 8.487% due 7/01/2017 (g)(i) 12,091
2,835 King County, Washington, Sewer Revenue Refunding
Bonds, Series B, 5.50% due 1/01/2027 (f) 3,044
2,400 Port of Tacoma, Washington, Revenue Refunding Bonds,
Series A, 5.25% due 12/01/2034 (a) 2,528
ANNUAL REPORTS OCTOBER 31, 2005 19
Schedule of Investments (concluded)
MuniYield Quality Fund, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
Washington (concluded)
$ 4,475 Seattle, Washington, Municipal Light and Power
Revenue Refunding Bonds, 5% due 11/01/2028 (f) $ 4,597
5,000 Washington State, GO, Series A and AT-6,
6.25% due 2/01/2011 (f) 5,430
===========================================================================================================
Puerto Rico--0.3%
1,475 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series II, 5.25% due 7/01/2031 1,525
-----------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$665,036)--152.2% 695,299
Shares
Held Short-Term Securities
===========================================================================================================
11,500 Merrill Lynch Institutional Tax-Exempt Fund (l) 11,500
-----------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$11,500)--2.5% 11,500
===========================================================================================================
Total Investments (Cost--$676,536*)--154.7% 706,799
Other Assets Less Liabilities--0.0% 213
Preferred Stock, at Redemption Value--(54.7%) (250,126)
----------
Net Assets Applicable to Common Stock--100.0% $ 456,886
==========
Forward interest rate swaps outstanding as of October 31, 2005 were as
follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------
Pay a fixed rate of 3.801% and receive a
floating rate based on 1-week Bond
Market Association Rate
Broker, JPMorgan Chase Bank
Expires November 2015 $60,000 $ 309
Pay a fixed rate of 3.80% and receive a
floating rate based on 1-week Bond
Market Association Rate
Broker, JPMorgan Chase Bank
Expires January 2016 $15,000 105
--------------------------------------------------------------------------
Total $ 414
==========
* The cost and unrealized appreciation (depreciation) on investments as of
October 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................... $676,475
========
Gross unrealized appreciation ................................ $ 33,103
Gross unrealized depreciation ................................ (2,779)
--------
Net unrealized appreciation .................................. $ 30,324
========
** Represents a zero coupon or step bond; the interest rate shown is the
effective yield at the time of purchase.
(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 6,530 $132
--------------------------------------------------------------------------
See Notes to Financial Statements.
20 ANNUAL REPORTS OCTOBER 31, 2005
Schedule of Investments MuniYield Quality Fund II, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
Alaska--0.5%
$ 1,400 Alaska State International Airports Revenue Bonds,
Series B, 5.75% due 10/01/2019 (a) $ 1,551
===========================================================================================================
Arizona--1.0%
2,700 Northern Arizona University System Revenue Bonds,
5.50% due 6/01/2034 (c) 2,922
===========================================================================================================
California--27.9%
8,150 Alameda Corridor Transportation Authority, California,
Revenue Refunding Bonds, Subordinated Lien, Series A,
5.319%* due 10/01/2025 (a) 6,025
2,500 California Health Facilities Financing Authority
Revenue Bonds (Kaiser Permanente), RIB, Series 26,
8% due 6/01/2022 (f)(l) 2,821
2,490 California State Department of Water Resources,
Power Supply Revenue Bonds, Series A,
5.375% due 5/01/2022 (i) 2,698
4,600 California State, GO, 5.125% due 2/01/2027 4,751
California State, GO, Refunding:
2,800 5.25% due 9/01/2026 2,938
1,780 5.25% due 2/01/2030 (h) 1,883
5,300 5.25% due 2/01/2030 (i) 5,608
1,950 ROLS, Series II-R-272, 7.656% due 2/01/2033 (k)(l) 2,112
California State, Various Purpose, GO:
2,750 5.25% due 11/01/2029 2,874
6,500 5.50% due 11/01/2033 6,966
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) 4,361
2,770 Fairfield-Suisun, California, Unified School District, GO
(Election of 2002), 5.50% due 8/01/2028 (i) 3,019
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds,
Series B (j):
4,350 5.50% due 6/01/2013 (h) 4,808
7,075 5.625% due 6/01/2013 (b) 7,878
1,300 5.625% due 6/01/2013 (h) 1,447
2,815 John Swett Unified School District, California, GO,
Series A, 5.50% due 8/01/2026 (f) 3,054
4,900 Los Angeles, California, Unified School District, GO,
Series A, 5% due 1/01/2028 (i) 5,080
2,900 Palm Springs, California, Financing Authority, Lease
Revenue Refunding Bonds (Convention Center
Project), Series A, 5.50% due 11/01/2029 (i) 3,185
1,250 Poway, California, Redevelopment Agency, Tax
Allocation Refunding Bonds (Paguay Redevelopment
Project), 5.125% due 6/15/2033 (a) 1,286
6,000 Sacramento, California, Municipal Utility District, Electric
Revenue Bonds, Series N, 5% due 8/15/2028 (i) 6,151
1,000 San Diego, California, Community College District, GO
(Election of 2002), 5% due 5/01/2030 (f) 1,036
950 Santa Monica, California, Community College District,
GO (Election of 2002), Refunding, Series C,
5% due 8/01/2029 (i) 985
1,325 Tamalpais, California, Union High School District, GO
(Election of 2001), 5% due 8/01/2028 (f) 1,368
1,000 University of California, Limited Project Revenue Bonds,
Series B, 5% due 5/15/2033 (f) 1,031
===========================================================================================================
Colorado--5.9%
Colorado Health Facilities Authority Revenue Bonds,
Series A:
1,150 (Catholic Health Initiatives),
5.50% due 3/01/2032 (n) 1,248
1,200 (Covenant Retirement Communities Inc.),
5.50% due 12/01/2027 (k) 1,262
675 (Covenant Retirement Communities Inc.),
5.50% due 12/01/2033 (k) 706
1,610 Colorado Housing and Finance Authority Revenue
Refunding Bonds (S/F Program), AMT, Series B-2,
6.80% due 2/01/2031 (i) 1,686
7,500 E-470 Public Highway Authority, Colorado, Capital
Appreciation Revenue Refunding Bonds, Series B,
5.607%* due 9/01/2032 (i) 1,762
10,975 Northwest Parkway, Colorado, Public Highway
Authority, Capital Appreciation Revenue Bonds, Senior
Convertible, Series C, 5.327%* due 6/15/2025 (f) 9,083
1,735 Northwest Parkway, Colorado, Public Highway Authority
Revenue Bonds, Series A, 5.50% due 6/15/2021 (a) 1,897
===========================================================================================================
Connecticut--3.8%
1,100 Connecticut State Regional Learning Educational
Service Center Revenue Bonds (Office/Education
Center Facility), 7.75% due 2/01/2006 (j) 1,134
9,325 Connecticut State Resource Recovery Authority
Revenue Refunding Bonds, DRIVERS, Series 187,
7.996% due 11/15/2011 (i)(l) 10,120
===========================================================================================================
Florida--1.9%
Miami-Dade County, Florida, Subordinate Special
Obligation Revenue Bonds, Series A (i):
4,575 5.21%* due 10/01/2034 1,005
4,495 5.22%* due 10/01/2035 934
3,575 Orange County, Florida, Sales Tax Revenue Refunding
Bonds, Series B, 5.125% due 1/01/2032 (c) 3,698
===========================================================================================================
Georgia--5.8%
5,000 Atlanta, Georgia, Airport General Revenue Refunding
Bonds, Series B, 5.25% due 1/01/2033 (f) 5,263
5,000 Atlanta, Georgia, Airport Revenue Refunding Bonds,
Series A, 5.875% due 1/01/2017 (c) 5,451
4,125 Atlanta, Georgia, Development Authority, Student
Housing Revenue Bonds (Georgia State University),
5% due 9/01/2035 (h) 4,225
2,170 Augusta, Georgia, Water and Sewer Revenue Bonds,
5.25% due 10/01/2039 (f) 2,290
===========================================================================================================
Illinois--18.4%
Chicago, Illinois, O'Hare International Airport Revenue
Bonds, 3rd Lien, AMT, Series B-2:
5,200 5.75% due 1/01/2023 (f) 5,673
2,200 6% due 1/01/2029 (h) 2,425
4,750 Chicago, Illinois, O'Hare International Airport, Revenue
Refunding Bonds, DRIVERS, AMT, Series 844Z,
7.957% due 7/01/2010 (i)(l) 5,196
2,830 Chicago, Illinois, Park District, GO, Refunding, Series C,
5.50% due 1/01/2021 (c) 3,058
3,000 Cook County, Illinois, Capital Improvement, GO,
Series C, 5.50% due 11/15/2026 (a) 3,256
ANNUAL REPORTS OCTOBER 31, 2005 21
Schedule of Investments (continued)
MuniYield Quality Fund II, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
Illinois (concluded)
$10,000 Illinois Regional Transportation Authority Revenue
Bonds, 6.50% due 7/01/2026 (i) $ 12,672
21,675 Illinois Sports Facilities Authority, State Tax Supported
Revenue Bonds, 5.264%* due 6/15/2030 (a) 18,158
3,625 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax, Revenue Refunding Bonds,
DRIVERS, Series 269, 8.477% due 6/15/2023 (i)(l) 4,443
===========================================================================================================
Indiana--3.6%
Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A (c):
3,750 5.25% due 6/01/2028 3,973
5,000 5.25% due 6/01/2029 5,286
1,500 Indianapolis, Indiana, Local Public Improvement Bond
Bank Revenue Bonds (Waterworks Project), Series A,
5.25% due 7/01/2033 (i) 1,570
===========================================================================================================
Kansas--0.7%
2,025 Sedgwick and Shawnee Counties, Kansas, S/F Mortgage-
Backed Revenue Refunding Bonds, AMT, Series A-2,
6.45% due 12/01/2033 (e)(i) 2,121
===========================================================================================================
Louisiana--4.7%
2,445 Jefferson Parish, Louisiana, Home Mortgage Authority,
S/F Mortgage Revenue Bonds, AMT, Series B-1,
6.65% due 12/01/2033 (e)(i) 2,535
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) 4,237
3,185 Louisiana State Transportation Authority, Senior Lien
Toll Revenue Capital Appreciation Bonds, Series B,
5.31%* due 12/01/2027 (a) 997
4,650 New Orleans, Louisiana, Ernest N. Morial Exhibit
Hall Authority, Special Tax, Sub-Series A, 5.25%
due 7/15/2028 (a) 4,823
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) 1,379
===========================================================================================================
Massachusetts--13.0%
Massachusetts Bay Transportation Authority, Sales Tax
Revenue Refunding Bonds, Senior Series A:
1,265 5% due 7/01/2032 1,294
1,375 5% due 7/01/2035 1,403
5,000 Massachusetts Bay Transportation Authority, Special
Assessment Revenue Refunding Bonds, Series A,
5% due 7/01/2031 5,162
2,100 Massachusetts State, Consolidated Loan, GO, Series C,
5% due 9/01/2025 2,188
10,000 Massachusetts State HFA, Housing Revenue Bonds,
DRIVERS, AMT, Series 982, 7.478%
due 1/01/2011 (f)(l) 10,438
2,785 Massachusetts State Port Authority, Special Facilities
Revenue Bonds, DRIVERS, AMT, Series 501,
7.947% due 7/01/2009 (a)(l) 3,004
12,450 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A,
5% due 8/15/2030 (f) 12,868
1,800 Massachusetts State Special Obligation Dedicated Tax
Revenue Bonds, 5.25% due 1/01/2014 (c)(j) 1,951
550 Massachusetts State Water Resource Authority,
General Revenue Refunding Bonds, Series B,
5.125% due 8/01/2027 (i) 573
===========================================================================================================
Michigan--8.3%
Detroit, Michigan, Water Supply System Revenue
Bonds, Series B (i):
8,900 5.25% due 7/01/2032 9,358
3,250 5% due 7/01/2034 3,333
1,300 Michigan Higher Education Student Loan Authority,
Student Loan Revenue Refunding Bonds, AMT,
Series XVII-G, 5.20% due 9/01/2020 (a) 1,344
2,685 Michigan State, HDA, Revenue Refunding Bonds,
Series C, 5.90% due 12/01/2015 (d)(f) 2,773
Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds (Detroit Edison Company
Project), AMT (h):
1,000 Series A, 5.50% due 6/01/2030 1,055
3,900 Series C, 5.45% due 12/15/2032 4,064
2,625 Wayne County, Michigan, Airport Authority Revenue
Bonds, DRIVERS, AMT, Series 986,
7.459% due 6/01/2013 (i)(l) 2,850
===========================================================================================================
Minnesota--0.2%
500 Minnesota State Municipal Power Agency, Electric
Revenue Bonds, 5% due 10/01/2035 503
===========================================================================================================
Missouri--2.0%
Saint Louis County, Missouri, Pattonville R-3 School
District, GO (Missouri Direct Deposit Program) (c)(j):
4,000 5.75% due 3/01/2010 4,400
1,500 6% due 3/01/2010 1,662
===========================================================================================================
Nevada--2.4%
2,800 Carson City, Nevada, Hospital Revenue Bonds
(Carson-Tahoe Hospital Project), Series A,
5.50% due 9/01/2033 (k) 2,928
Clark County, Nevada, Airport System Subordinate
Lien Revenue Bonds, Series A-2 (c):
1,500 5% due 7/01/2030 1,538
2,700 5% due 7/01/2036 2,761
===========================================================================================================
New Jersey--6.8%
3,000 Garden State Preservation Trust of New Jersey, Open
Space and Farmland Preservation Revenue Bonds,
Series A, 5.80% due 11/01/2021 (f) 3,415
New Jersey EDA, Cigarette Tax Revenue Bonds:
1,070 5.75% due 6/15/2029 1,124
500 5.50% due 6/15/2031 514
New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A (i):
2,400 5% due 7/01/2029 2,490
4,800 5.25% due 7/01/2033 5,098
New Jersey EDA, Revenue Bonds, ROLS (g)(l)(m):
2,300 Series II-R-309-1, 8.173% due 6/15/2024 2,615
2,000 Series II-R-309-2, 8.173% due 6/15/2031 2,283
2,600 New Jersey EDA, School Facilities Construction
Revenue Bonds, Series O, 5.125% due 3/01/2028 2,696
===========================================================================================================
New Mexico--2.3%
6,295 New Mexico State Highway Commission,
Tax Revenue Bonds, Senior Sub-Lien, Series A,
6% due 6/15/2010 (f)(j) 6,951
===========================================================================================================
22 ANNUAL REPORTS OCTOBER 31, 2005
Schedule of Investments (continued)
MuniYield Quality Fund II, Inc. (in Thousands)
Face
Amount Municipal Bonds Value
===========================================================================================================
New York--8.8%
$ 9,280 Nassau Health Care Corporation, New York, Health
System Revenue Bonds, 5.75% due 8/01/2009 (f)(j) $ 10,236
2,720 New York City, New York, GO, Series D,
5.875% due 6/01/2021 (i) 3,036
5,000 New York State Dormitory Authority Revenue
Refunding Bonds (State University Educational
Facilities), 5.75% due 5/15/2010 (c)(j) 5,531
7,115 Tobacco Settlement Financing Corporation of New York
Revenue Bonds, Series A-1, 5.25% due 6/01/2022 (a) 7,619
===========================================================================================================
Ohio--2.3%
Plain, Ohio, Local School District, GO, Refunding (c):
5,120 6% due 6/01/2011 (j) 5,719
1,170 6% due 12/01/2020 1,298
===========================================================================================================
Pennsylvania--6.0%
3,335 Delaware River Port Authority of Pennsylvania and
New Jersey Revenue Bonds, RIB, Series 396,
9.003% due 1/01/2019 (f)(l) 3,950
5,500 Pennsylvania State Public School Building Authority,
School Lease Revenue Bonds (The School District of
Philadelphia Project), 5% due 6/01/2033 (f) 5,636
3,230 Philadelphia, Pennsylvania, Authority for Industrial
Development, Lease Revenue Bonds, Series B,
5.50% due 10/01/2020 (f) 3,514
4,500 Philadelphia, Pennsylvania, School District, GO,
Series B, 5.625% due 8/01/2012 (c)(j) 4,998
===========================================================================================================
Rhode Island--1.5%
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 (i)(j) 4,382
===========================================================================================================
Tennessee--2.7%
7,365 Chattanooga, Tennessee, IDB, Lease Rent Revenue
Bonds (Southside Redevelopment Corporation),
5.875% due 10/01/2024 (a) 8,064
===========================================================================================================
Texas--11.7%
2,730 Corpus Christi, Texas, Utility System Revenue Refunding
Bonds, Series A, 6% due 7/15/2010 (f)(j) 3,018
3,250 Dallas-Fort Worth, Texas, International Airport
Revenue Bonds, DRIVERS, AMT, Series 202,
8.956% due 11/01/2028 (c)(l) 3,729
1,190 Dickinson, Texas, Independent School District, GO,
Refunding, 6% due 2/15/2010 (i)(j) 1,307
4,000 Gregg County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Good Shepherd
Medical Center Project), 6.875% due 10/01/2020 (k) 4,507
1,900 Houston, Texas, Airport System Revenue Refunding
Bonds, Sub-Lien, Series B, 5.50% due 7/01/2030 (f) 2,027
9,345 Leander, Texas, Independent School District, Capital
Appreciation, GO, Refunding (School Building),
5.51%* due 8/15/2030 (c) 2,483
3,500 Lower Colorado River Authority, Texas, PCR (Samsung
Austin Semiconductor), AMT, 6.375% due 4/01/2027 3,687
4,925 North Harris County, Texas, Regional Water Authority,
Senior Lien Revenue Bonds, 5.125%
due 12/15/2035 (i) 5,106
Texas State Turnpike Authority, Central Texas Turnpike
System Revenue Bonds, First Tier, Series A (a):
4,800 5.75% due 8/15/2038 5,295
3,600 5.50% due 8/15/2039 3,876
===========================================================================================================
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) 2,266
===========================================================================================================
Washington--7.4%
2,150 King County, Washington, Sewer Revenue Refunding
Bonds, Series B, 5.50% due 1/01/2027 (f) 2,309
7,470 Port of Seattle, Washington, Revenue Bonds, AMT,
Series B, 6% due 2/01/2016 (i) 8,093
1,600 Port of Tacoma, Washington, Revenue Refunding
Bonds, Series A, 5.25% due 12/01/2034 (a) 1,685
6,150 Seattle, Washington, Municipal Light and Power
Revenue Bonds, 6% due 10/01/2009 (i)(j) 6,778
3,100 Seattle, Washington, Municipal Light and Power
Revenue Refunding Bonds, 5% due 11/01/2028 (f) 3,184
===========================================================================================================
Puerto Rico--0.9%
2,500 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series NN, 5.125% due 7/01/2024 2,612
-----------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost--$434,246)--151.3% 451,985
===========================================================================================================
Shares
Held Short-Term Securities
===========================================================================================================
1,400 Merrill Lynch Institutional Tax-Exempt Fund (o) 1,400
-----------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$1,400)--0.5% 1,400
===========================================================================================================
Total Investments (Cost--$435,646**)--151.8% 453,385
Other Assets Less Liabilities--1.8% 5,342
Preferred Stock, at Redemption Value--(53.6%) (160,005)
----------
Net Assets Applicable to Common Stock--100.0% $ 298,722
==========
ANNUAL REPORTS OCTOBER 31, 2005 23
Schedule of Investments (concluded)
MuniYield Quality Fund II, Inc. (in Thousands)
Forward interest rate swaps outstanding as of October 31, 2005 were as
follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
--------------------------------------------------------------------------
Pay a fixed rate of 3.801% and receive a
floating rate based on 1-week Bond
Market Association Rate
Broker, JPMorgan Chase Bank
Expires November 2015 $30,000 $154
Pay a fixed rate of 3.80% and receive a
floating rate based on 1-week Bond
Market Association Rate
Broker, JPMorgan Chase Bank
Expires January 2016 $15,000 105
--------------------------------------------------------------------------
Total $259
====
* Represents a zero coupon or step bond; the interest rate shown is the
effective yield at the time of purchase.
** The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................. $435,646
========
Gross unrealized appreciation .............................. $ 19,557
Gross unrealized depreciation .............................. (1,818)
--------
Net unrealized appreciation ................................ $ 17,739
========
(a) AMBAC Insured.
(b) CIFG Insured.
(c) FGIC Insured.
(d) FHA Insured.
(e) FNMA/GNMA Collateralized.
(f) FSA Insured.
(g) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(h) XL Capital Insured.
(i) MBIA Insured.
(j) Prerefunded.
(k) Radian Insured.
(l) The rate disclosed is that currently in effect. This rate changes
periodically and inversely based upon prevailing market rates.
(m) Assured Guaranty Insured.
(n) Escrowed to maturity.
(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 (1,466) $62
--------------------------------------------------------------------------
See Notes to Financial Statements.
24 ANNUAL REPORTS OCTOBER 31, 2005
Statements of Net Assets
MuniYield MuniYield
MuniYield Quality Quality
As of October 31, 2005 Fund, Inc. Fund, Inc. Fund II, Inc.
=================================================================================================================================
Assets
---------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value* . $ 953,377,905 $ 695,298,798 $ 451,985,476
Investments in affiliated securities, at value** .. 2,500,000 11,500,000 1,400,000
Cash .............................................. 2,009,591 79,501 19,913
Interest receivable ............................... 16,328,785 10,251,790 7,023,459
Receivable for securities sold .................... 27,918,718 9,028,682 2,528,146
Unrealized appreciation on forward interest rate
swaps ............................................ -- 413,505 259,005
Dividends from affiliates ......................... 176 810 98
Prepaid expenses and other assets ................. 24,091 46,552 518,157
-------------------------------------------------------
Total assets ...................................... 1,002,159,266 726,619,638 463,734,254
-------------------------------------------------------
=================================================================================================================================
Liabilities
---------------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased .................. 13,256,005 18,853,213 4,410,420
Payable to investment adviser ..................... 393,048 280,373 182,504
Payable for offering costs ........................ -- 143,752 139,846
Dividends payable to Common Stock shareholders .... 442,522 250,981 202,322
Payable to other affiliates ....................... 12,953 8,230 5,612
Accrued expenses and other liabilities ............ 104,777 70,309 66,763
-------------------------------------------------------
Total liabilities ................................. 14,209,305 19,606,858 5,007,467
-------------------------------------------------------
=================================================================================================================================
Preferred Stock
---------------------------------------------------------------------------------------------------------------------------------
Preferred Stock, at redemption value, par value
$.05 and $.10 per share*** of AMPS@ at $25,000
per share liquidation preference ................. 343,125,378 250,126,400 160,004,852
-------------------------------------------------------
=================================================================================================================================
Net Assets Applicable to Common Stock
---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock ............. $ 644,824,583 $ 456,886,380 $ 298,721,935
=======================================================
=================================================================================================================================
Net Assets Consist of
---------------------------------------------------------------------------------------------------------------------------------
Undistributed investment income--net .............. $ 11,220,564 $ 3,783,204 $ 3,284,530
Accumulated realized capital losses--net .......... (48,794,036) (3,836,311) (36,319,720)
Unrealized appreciation--net ...................... 44,398,307 30,675,851 17,998,707
-------------------------------------------------------
Total accumulated earnings (losses)--net .......... 6,824,835 30,622,744 (15,036,483)
Common Stock, par value $.10 per share+ ........... 4,452,384 3,042,526 2,236,693
Paid-in capital in excess of par .................. 633,547,364 423,221,110 311,521,725
-------------------------------------------------------
Net assets ........................................ $ 644,824,583 $ 456,886,380 $ 298,721,935
=======================================================
Net asset value per share of Common Stock ......... $ 14.48 $ 15.02 $ 13.36
=======================================================
Market price ...................................... $ 14.20 $ 14.27 $ 12.86
=======================================================
* Identified cost for unaffiliated securities . $ 908,979,598 $ 665,036,452 $ 434,245,774
=======================================================
** Identified cost for affiliated securities ... $ 2,500,000 $ 11,500,000 $ 1,400,000
=======================================================
*** Preferred Stock authorized, issued and
outstanding:
Series A Shares, $.05 per share .......... 1,800 2,000 2,000
=======================================================
Series B Shares, $.05 per share .......... 1,800 2,000 2,000
=======================================================
Series C Shares, $.05 per share .......... 1,800 2,000 2,000
=======================================================
Series D Shares, $.05 per share .......... 1,800 2,000 --
=======================================================
Series D Shares, $.10 per share .......... -- -- 400
=======================================================
Series E Shares, $.05 per share .......... 2,800 2,000 --
=======================================================
Series F Shares, $.05 per share .......... 1,720 -- --
=======================================================
Series G Shares, $.05 per share .......... 2,000 -- --
=======================================================
+ Common Stock issued and outstanding ......... 44,523,842 30,425,258 22,366,930
=======================================================
@ Auction Market Preferred Stock.
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2005 25
Statements of Operations
MuniYield MuniYield
MuniYield Quality Quality
For the Year Ended October 31, 2005 Fund, Inc. Fund, Inc. Fund II, Inc.
=================================================================================================================================
Investment Income
---------------------------------------------------------------------------------------------------------------------------------
Interest .......................................... $ 55,672,905 $ 34,619,167 $ 22,986,098
Dividends from affiliates ......................... 116,327 132,397 62,051
-------------------------------------------------------
Total income ...................................... 55,789,232 34,751,564 23,048,149
-------------------------------------------------------
=================================================================================================================================
Expenses
---------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees .......................... 4,969,003 3,370,784 2,284,127
Commission fees ................................... 870,811 522,682 389,234
Accounting services ............................... 284,895 216,361 157,978
Transfer agent fees ............................... 158,725 121,656 85,470
Professional fees ................................. 56,671 52,342 50,176
Custodian fees .................................... 46,947 36,441 24,737
Printing and shareholder reports .................. 50,839 44,360 35,230
Pricing fees ...................................... 31,428 26,757 21,435
Directors' fees and expenses ...................... 36,684 28,237 23,228
Listing fees ...................................... 31,594 21,637 19,117
Other ............................................. 91,241 55,054 56,310
-------------------------------------------------------
Total expenses before reimbursement ............... 6,628,838 4,496,311 3,147,042
Reimbursement of expenses ......................... (11,515) (12,463) (6,003)
-------------------------------------------------------
Total expenses after reimbursement ................ 6,617,323 4,483,848 3,141,039
-------------------------------------------------------
Investment income--net ............................ 49,171,909 30,267,716 19,907,110
-------------------------------------------------------
=================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
---------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ............................ 18,101,307 9,169,495 4,246,080
Futures contracts and/or forward interest
rate swaps--net ............................ 3,288,659 (2,492,109) (1,522,930)
-------------------------------------------------------
Total realized gain--net .......................... 21,389,966 6,677,386 2,723,150
-------------------------------------------------------
Change in unrealized appreciation/depreciation on:
Investments--net ............................ (11,862,154) (20,430,085) (9,221,693)
Futures contracts and/or forward interest
rate swaps--net ............................ -- 1,805,003 1,039,456
-------------------------------------------------------
Total change in unrealized
appreciation/depreciation--net ................... (11,862,154) (18,625,082) (8,182,237)
-------------------------------------------------------
Total realized and unrealized gain (loss)--net .... 9,527,812 (11,947,696) (5,459,087)
-------------------------------------------------------
=================================================================================================================================
Dividends to Preferred Stock Shareholders
---------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................ (7,182,793) (4,365,838) (3,147,298)
-------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 51,516,928 $ 13,954,182 $ 11,300,725
=======================================================
See Notes to Financial Statements.
26 ANNUAL REPORTS OCTOBER 31, 2005
Statements of Changes in Net Assets MuniYield Fund, Inc.
For the Year Ended
October 31,
-------------------------------
Increase (Decrease) in Net Assets: 2005 2004
===========================================================================================================================
Operations
---------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. $ 49,171,909 $ 47,961,143
Realized gain--net .................................................. 21,389,966 1,490,339
Change in unrealized appreciation/depreciation--net ................. (11,862,154) 17,986,132
Dividends to Preferred Stock shareholders ........................... (7,182,793) (3,152,152)
-------------------------------
Net increase in net assets resulting from operations ................ 51,516,928 64,285,462
-------------------------------
===========================================================================================================================
Dividends to Common Stock Shareholders
---------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. (44,098,403) (42,786,698)
-------------------------------
Net decrease in net assets resulting from dividends to Common
Stock shareholders ................................................. (44,098,403) (42,786,698)
-------------------------------
===========================================================================================================================
Stock Transactions
---------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in reinvestment
of dividends ....................................................... 1,390,397 --
Offering and underwriting costs resulting from the issuance of
Preferred Stock .................................................... (3,155) (648,585)
-------------------------------
Net increase (decrease) in net assets derived from stock transactions 1,387,242 (648,585)
-------------------------------
===========================================================================================================================
Net Assets Applicable to Common Stock
---------------------------------------------------------------------------------------------------------------------------
Total increase in net assets applicable to Common Stock ............. 8,805,767 20,850,179
Beginning of year ................................................... 636,018,816 615,168,637
-------------------------------
End of year* ........................................................ $ 644,824,583 $ 636,018,816
===============================
* Undistributed investment income--net ....................... $ 11,220,564 $ 13,490,885
===============================
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2005 27
Statements of Changes in Net Assets MuniYield Quality Fund, Inc.
For the Year Ended
October 31,
-------------------------------
Increase (Decrease) in Net Assets: 2005 2004
===========================================================================================================================
Operations
---------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. $ 30,267,716 $ 31,467,544
Realized gain--net .................................................. 6,677,386 112,652
Change in unrealized appreciation/depreciation--net ................. (18,625,082) 5,545,913
Dividends to Preferred Stock shareholders ........................... (4,365,838) (2,075,540)
-------------------------------
Net increase in net assets resulting from operations ................ 13,954,182 35,050,569
-------------------------------
===========================================================================================================================
Dividends to Common Stock Shareholders
---------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. (29,269,098) (29,573,351)
-------------------------------
Net decrease in net assets resulting from dividends to Common
Stock shareholders ................................................. (29,269,098) (29,573,351)
-------------------------------
===========================================================================================================================
Stock Transactions
---------------------------------------------------------------------------------------------------------------------------
Offering and underwriting costs resulting from the issuance of
Preferred Stock .................................................... (646,275) --
-------------------------------
Net decrease in net assets derived from stock transactions .......... (646,275) --
-------------------------------
===========================================================================================================================
Net Assets Applicable to Common Stock
---------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock .. (15,961,191) 5,477,218
Beginning of year ................................................... 472,847,571 467,370,353
-------------------------------
End of year* ........................................................ $ 456,886,380 $ 472,847,571
===============================
* Undistributed investment income--net ....................... $ 3,783,204 $ 7,150,424
===============================
See Notes to Financial Statements.
28 ANNUAL REPORTS OCTOBER 31, 2005
Statements of Changes in Net Assets MuniYield Quality Fund II, Inc.
For the Year Ended
October 31,
-------------------------------
Increase (Decrease) in Net Assets: 2005 2004
===========================================================================================================================
Operations
---------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. $ 19,907,110 $ 21,097,310
Realized gain (loss)--net ........................................... 2,723,150 (4,603,827)
Change in unrealized appreciation/depreciation--net ................. (8,182,237) 10,444,599
Dividends to Preferred Stock shareholders ........................... (3,147,298) (1,551,920)
-------------------------------
Net increase in net assets resulting from operations ................ 11,300,725 25,386,162
-------------------------------
===========================================================================================================================
Dividends to Common Stock Shareholders
---------------------------------------------------------------------------------------------------------------------------
Investment income--net .............................................. (19,101,358) (19,123,725)
-------------------------------
Net decrease in net assets resulting from dividends to Common
Stock shareholders ................................................. (19,101,358) (19,123,725)
-------------------------------
===========================================================================================================================
Stock Transactions
---------------------------------------------------------------------------------------------------------------------------
Offering and underwriting costs resulting from the issuance of
Preferred Stock .................................................... (241,567) --
-------------------------------
Net decrease in net assets derived from stock transactions .......... (241,567) --
-------------------------------
===========================================================================================================================
Net Assets Applicable to Common Stock
---------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock .. (8,042,200) 6,262,437
Beginning of year ................................................... 306,764,135 300,501,698
-------------------------------
End of year* ........................................................ $ 298,721,935 $ 306,764,135
===============================
* Undistributed investment income--net ....................... $ 3,284,530 $ 5,625,994
===============================
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2005 29
Financial Highlights 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. 2005 2004 2003 2002 2001
=========================================================================================================================
Per Share Operating Performance
-------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........ $ 14.31 $ 13.85 $ 13.28 $ 13.55 $ 13.08
--------------------------------------------------------
Investment income--net .................... 1.11+ 1.09+ 1.06+ 1.04 1.03
Realized and unrealized gain (loss)--net .. .21 .41 .52 (.31) .52
Dividends to Preferred Stock
shareholders from investment income--net . (.16) (.07) (.07) (.08) (.22)
--------------------------------------------------------
Total from investment operations .......... 1.16 1.43 1.51 .65 1.33
--------------------------------------------------------
Less dividends to Common Stock
shareholders from investment income--net . (.99) (.96) (.94) (.92) (.86)
Offering and underwriting costs resulting
from issuance of Preferred Stock ......... --++ (.01) -- -- --
--------------------------------------------------------
Net asset value, end of year .............. $ 14.48 $ 14.31 $ 13.85 $ 13.28 $ 13.55
========================================================
Market price per share, end of year ....... $ 14.20 $ 13.74 $ 13.29 $ 12.88 $ 13.94
========================================================
=========================================================================================================================
Total Investment Return*
-------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........ 8.38% 11.04% 11.99% 5.07% 10.51%
========================================================
Based on market price per share ........... 10.69% 11.11% 10.80% (.94%) 17.79%
========================================================
=========================================================================================================================
Ratios Based on Average Net Assets of Common Stock
-------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement** .... 1.02% .97% .99% 1.01% 1.01%
========================================================
Total expenses** .......................... 1.02% .98% .99% 1.01% 1.01%
========================================================
Total investment income--net** ............ 7.55% 7.75% 7.86% 7.97% 7.74%
========================================================
Amount of dividends to Preferred Stock
shareholders ............................. 1.10% .51% .50% .74% 1.63%
========================================================
Investment income--net, to Common Stock
shareholders ............................. 6.45% 7.24% 7.36% 7.23% 6.11%
========================================================
=========================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
-------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders . 2.09% 1.05% 1.02% 1.50% 3.33%
========================================================
30 ANNUAL REPORTS OCTOBER 31, 2005
Financial Highlights (concluded) 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. 2005 2004 2003 2002 2001
=========================================================================================================================
Supplemental Data
-------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock,
end of year (in thousands) ............... $644,825 $636,019 $615,169 $590,101 $524,737
========================================================
Preferred Stock outstanding, end of year
(in thousands) ........................... $343,000 $343,000 $293,000 $293,000 $250,000
========================================================
Portfolio turnover ........................ 32.66% 23.62% 61.95% 104.63% 83.26%
========================================================
=========================================================================================================================
Leverage
-------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ................. $ 2,880 $ 2,854 $ 3,100 $ 3,014 $ 3,099
========================================================
=========================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
-------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net .......... $ 524 $ 266 $ 256 $ 346 $ 816
========================================================
Series B--Investment income--net .......... $ 549 $ 268 $ 274 $ 369 $ 864
========================================================
Series C--Investment income--net .......... $ 531 $ 268 $ 261 $ 353 $ 847
========================================================
Series D--Investment income--net .......... $ 509 $ 260 $ 281 $ 504 $ 850
========================================================
Series E--Investment income--net .......... $ 522 $ 244 $ 236 $ 346 $ 805
========================================================
Series F@--Investment income--net ......... $ 494 $ 253 $ 247 $ 324 --
========================================================
Series G@@--Investment income--net ........ $ 533 $ 60 -- -- --
========================================================
* Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Based on average shares outstanding.
++ Amount is less than $(.01) per share.
@ Series F was issued on November 19, 2001.
@@ Series G was issued on August 31, 2004.
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2005 31
Financial Highlights 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. 2005 2004 2003 2002 2001
=========================================================================================================================
Per Share Operating Performance
-------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........ $ 15.54 $ 15.36 $ 15.19 $ 15.27 $ 14.18
--------------------------------------------------------
Investment income--net .................... .99+ 1.03+ 1.07+ 1.06 1.06
Realized and unrealized gain (loss)--net .. (.39) .19 .13 (.13) 1.08
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net .............. (.14) (.07) (.07) (.09) (.21)
Realized gain--net .................. -- -- -- --++ --
--------------------------------------------------------
Total from investment operations .......... .46 1.15 1.13 .84 1.93
--------------------------------------------------------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net .............. (.96) (.97) (.96) (.91) (.84)
Realized gain--net .................. -- -- -- (.01) --
--------------------------------------------------------
Total dividends and distributions to
Common Stock shareholders ................ (.96) (.97) (.96) (.92) (.84)
--------------------------------------------------------
Offering and underwriting costs resulting
from issuance of Preferred Stock ......... (.02) -- -- -- --
--------------------------------------------------------
Net asset value, end of year .............. $ 15.02 $ 15.54 $ 15.36 $ 15.19 $ 15.27
========================================================
Market price per share, end of year ....... $ 14.27 $ 14.83 $ 14.35 $ 13.74 $ 14.24
========================================================
=========================================================================================================================
Total Investment Return*
-------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........ 3.10% 8.26% 8.13% 6.12% 14.46%
========================================================
Based on market price per share ........... 2.64% 10.58% 11.68% 2.94% 25.47%
========================================================
=========================================================================================================================
Ratios Based on Average Net Assets of Common Stock
-------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement** .... .96% .94% .94% .96% .98%
========================================================
Total expenses** .......................... .96% .95% .95% .96% .98%
========================================================
Total investment income--net** ............ 6.46% 6.74% 6.89% 7.03% 7.18%
========================================================
Amount of dividends to Preferred Stock
shareholders ............................. .93% .45% .42% .61% 1.45%
========================================================
Investment income--net, to Common Stock
shareholders ............................. 5.53% 6.29% 6.47% 6.42% 5.73%
========================================================
=========================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
-------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders . 2.12% 1.04% .99% 1.40% 3.27%
========================================================
32 ANNUAL REPORTS OCTOBER 31, 2005
Financial Highlights (concluded) 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. 2005 2004 2003 2002 2001
=========================================================================================================================
Supplemental Data
-------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock,
end of year (in thousands) ............... $456,886 $472,848 $467,370 $462,156 $464,522
========================================================
Preferred Stock outstanding, end of year
(in thousands) ........................... $250,000 $200,000 $200,000 $200,000 $200,000
========================================================
Portfolio turnover ........................ 35.62% 32.87% 33.92% 46.29% 89.58%
========================================================
=========================================================================================================================
Leverage
-------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ................. $ 2,828 $ 3,364 $ 3,337 $ 3,311 $ 3,323
========================================================
=========================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
-------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net .......... $ 540 $ 271 $ 273 $ 370 $ 852
========================================================
Series B--Investment income--net .......... $ 520 $ 255 $ 238 $ 337 $ 792
========================================================
Series C--Investment income--net .......... $ 536 $ 261 $ 253 $ 349 $ 832
========================================================
Series D--Investment income--net .......... $ 514 $ 251 $ 228 $ 339 $ 791
========================================================
Series E@--Investment income--net ......... $ 72 -- -- -- --
========================================================
* Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Based on average shares outstanding.
++ Amount is less than $(.01) per share.
@ Series E was issued on September 21, 2005.
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2005 33
Financial Highlights 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. 2005 2004 2003 2002 2001
=========================================================================================================================
Per Share Operating Performance
-------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........ $ 13.72 $ 13.44 $ 13.27 $ 13.21 $ 12.39
--------------------------------------------------------
Investment income--net .................... .89+ .94+ .97+ .94 .94
Realized and unrealized gain (loss)--net .. (.25) .27 .09 --++ .84
Dividends to Preferred Stock shareholders
from investment income--net .............. (.14) (.07) (.07) (.10) (.22)
--------------------------------------------------------
Total from investment operations .......... .50 1.14 .99 .84 1.56
--------------------------------------------------------
Less dividends to Common Stock
shareholders from investment income--net . (.85) (.86) (.82) (.78) (.74)
--------------------------------------------------------
Offering and underwriting costs resulting
from issuance of Preferred Stock ......... (.01) -- -- -- --
--------------------------------------------------------
Net asset value, end of year .............. $ 13.36 $ 13.72 $ 13.44 $ 13.27 $ 13.21
========================================================
Market price per share, end of year ....... $ 12.86 $ 12.69 $ 12.18 $ 11.75 $ 12.07
========================================================
=========================================================================================================================
Total Investment Return*
-------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ........ 3.98% 9.32% 8.28% 7.27% 13.47%
========================================================
Based on market price per share ........... 8.21% 11.57% 10.83% 3.95% 11.70%
========================================================
=========================================================================================================================
Ratios Based on Average Net Assets of Common Stock
-------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement** .... 1.03% 1.01% 1.03% 1.06% 1.07%
========================================================
Total expenses** .......................... 1.03% 1.02% 1.03% 1.06% 1.07%
========================================================
Total investment income--net** ............ 6.51% 7.00% 7.17% 7.26% 7.36%
========================================================
Amount of dividends to Preferred Stock
shareholders ............................. 1.03% .51% .50% .78% 1.74%
========================================================
Investment income--net, to Common Stock
shareholders ............................. 5.48% 6.49% 6.67% 6.48% 5.62%
========================================================
=========================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
-------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders . 2.08% 1.04% 1.00% 1.51% 3.31%
========================================================
34 ANNUAL REPORTS OCTOBER 31, 2005
Financial Highlights (concluded) 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. 2005 2004 2003 2002 2001
=========================================================================================================================
Supplemental Data
-------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock,
end of year (in thousands) ............... $298,722 $306,764 $300,502 $296,847 $295,457
========================================================
Preferred Stock outstanding, end of year
(in thousands) ........................... $160,000 $150,000 $150,000 $150,000 $150,000
========================================================
Portfolio turnover ........................ 37.55% 32.30% 42.06% 42.89% 98.99%
========================================================
=========================================================================================================================
Leverage
-------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ................. $ 2,867 $ 3,045 $ 3,003 $ 2,979 $ 2,970
========================================================
=========================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
-------------------------------------------------------------------------------------------------------------------------
Series A--Investment income--net .......... $ 536 $ 271 $ 276 $ 390 $ 855
========================================================
Series B--Investment income--net .......... $ 514 $ 253 $ 240 $ 388 $ 853
========================================================
Series C--Investment income--net .......... $ 510 $ 252 $ 235 $ 351 $ 777
========================================================
Series D@--Investment income--net ......... $ 71 -- -- -- --
========================================================
* Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Based on average shares outstanding.
++ Amount is less than $.01 per share.
@ Series D was issued on September 21, 2005.
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2005 35
Notes to Financial Statements
1. Significant Accounting Policies:
MuniYield Fund, Inc., MuniYield Quality Fund, Inc. and MuniYield Quality Fund
II, Inc. (the "Funds" or individually as the "Fund") 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
MuniYield Fund, Inc., MQY for MuniYield Quality Fund, Inc. and MQT for 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 the Funds under the general direction
of the Board of Directors. Such valuations and procedures are reviewed
periodically by the Board 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. In the
case of options traded in the OTC market, valuation is 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 the 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, their 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 futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed.
o Options -- 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.
36 ANNUAL REPORTS OCTOBER 31, 2005
Notes to Financial Statements (continued)
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, the Fund records a realized gain or
loss in an amount equal to the value of the agreement.
(c) 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.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Divided income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Funds amortize all
premiums and discounts on debt securities.
(e) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Offering expenses -- 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.
(g) Reclassification --
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, $161,034 has been
reclassified between undistributed net investment income and accumulated net
realized capital losses as a result of permanent differences attributable to
amortization methods for premiums and discounts on fixed income securities. This
reclassification has no effect on net assets or net asset values per share.
MuniYield Quality Fund II, 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, $82 has been reclassified
between accumulated realized capital losses and undistributed net investment
income as a result of permanent differences attributable to amortization methods
for premiums and discounts 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:
Each Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML
& Co."), which is the limited partner.
FAM is responsible for the management of the Funds' portfolios and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Funds. For such services, each Fund pays a monthly fee
at an annual rate of .50% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock. The Investment Adviser has agreed
to reimburse its management fee by the amount of management fees each Fund pays
to FAM indirectly through its investment in Merrill Lynch Institutional
Tax-Exempt Fund. For the year ended October 31, 2005, FAM reimbursed each Fund
as follows:
--------------------------------------------------------------------------------
Reimbursement
--------------------------------------------------------------------------------
MuniYield Fund, Inc. ................................................ $11,515
MuniYield Quality Fund, Inc. ........................................ $12,463
MuniYield Quality Fund II, Inc. ..................................... $ 6,003
--------------------------------------------------------------------------------
For the year ended October 31, 2005, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), an affiliate of FAM, received underwriting fees in
connection with the issuance of the Funds' Preferred Stock. The underwriting
fees were as follows:
--------------------------------------------------------------------------------
Underwriting Fees
--------------------------------------------------------------------------------
MuniYield Fund, Inc. ................................................ --
MuniYield Quality Fund, Inc. ........................................ $500,000
MuniYield Quality Fund II, Inc. ..................................... $100,000
--------------------------------------------------------------------------------
In addition, MLPF&S received $1,500 in commissions on the execution of portfolio
security transactions for MuniYield Quality Fund, Inc. for the year ended
October 31, 2005.
For the year ended October 31, 2005, the Funds reimbursed FAM for certain
accounting services. The reimbursements were as follows:
--------------------------------------------------------------------------------
Reimbursement
--------------------------------------------------------------------------------
MuniYield Fund, Inc. ................................................ $25,727
MuniYield Quality Fund, Inc. ........................................ $16,089
MuniYield Quality Fund II, Inc. ..................................... $11,118
--------------------------------------------------------------------------------
Certain officers and/or directors of the Funds are officers and/or directors of
FAM, PSI, and/or ML & Co.
ANNUAL REPORTS OCTOBER 31, 2005 37
Notes to Financial Statements (continued)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 2005 were as follows:
--------------------------------------------------------------------------------
MuniYield MuniYield
MuniYield Quality Quality
Fund, Inc. Fund, Inc. Fund II, Inc.
--------------------------------------------------------------------------------
Total Purchases .......... $317,345,295 $283,411,289 $177,029,721
Total Sales .............. $345,908,340 $236,799,708 $168,891,081
--------------------------------------------------------------------------------
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
MuniYield Fund, Inc.
Shares issued and outstanding during the year ended October 31, 2005 increased
by 93,211 as a result of dividend reinvestment. Shares issued and outstanding
during the year ended October 31, 2004 remained constant.
MuniYield Quality Fund, Inc.
Shares issued and outstanding during the years ended October 31, 2005 and
October 31, 2004 remained constant.
MuniYield Quality Fund II, Inc.
Shares issued and outstanding during the years ended October 31, 2005 and
October 31, 2004 remained constant.
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, 2005 were as follows:
--------------------------------------------------------------------------------
MuniYield MuniYield
MuniYield Quality Quality
Fund, Inc. Fund, Inc. Fund II, Inc.
--------------------------------------------------------------------------------
Series A .................... 2.57% 2.67% 2.82%
Series B .................... 2.64% 2.50% 2.72%
Series C .................... 2.60% 2.60% 2.50%
Series D .................... 2.54% 2.70% 2.53%
Series E .................... 2.55% 2.80% --
Series F .................... 2.55% -- --
Series G .................... 2.70% -- --
--------------------------------------------------------------------------------
MuniYield Fund, Inc.
Shares issued and outstanding during the year ended October 31, 2005 remained
constant. Shares issued and outstanding during the year ended October 31, 2004
increased by 2,000 shares from the issuance of an additional series of Preferred
Stock.
MuniYield Quality Fund, Inc.
Shares issued and outstanding during the year ended October 31, 2005 increased
by 2,000 shares from the issuance of an additional series of Preferred Stock.
Shares issued and outstanding during the year ended October 31, 2004 remained
constant.
MuniYield Quality Fund II, Inc.
Shares issued and outstanding during the year ended October 31, 2005 increased
by 400 shares from the issuance of an additional series of Preferred Stock.
Shares issued and outstanding during the year ended October 31, 2004 remained
constant.
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, 2005, MLPF&S earned commissions as
follows:
--------------------------------------------------------------------------------
Commissions
--------------------------------------------------------------------------------
MuniYield Fund, Inc. ....................................... $371,770
MuniYield Quality Fund, Inc. ............................... $223,965
MuniYield Quality Fund II, Inc. ............................ $194,462
--------------------------------------------------------------------------------
5. Distributions to Shareholders:
Each Fund paid a tax-exempt income dividend to holders of Common Stock on
November 29, 2005 to shareholders of record on November 15, 2005. The amount of
the tax-exempt income dividend per share was as follows:
--------------------------------------------------------------------------------
Per Share
Amount
--------------------------------------------------------------------------------
MuniYield Fund, Inc. ....................................... $.083000
MuniYield Quality Fund, Inc. ............................... $.076000
MuniYield Quality Fund II, Inc. ............................ $.067000
--------------------------------------------------------------------------------
The tax character of distributions paid during the fiscal years ended October
31, 2005 and October 31, 2004 was as follows:
--------------------------------------------------------------------------------
MuniYield Fund, Inc. 10/31/2005 10/31/2004
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $51,281,196 $45,938,850
-------------------------------
Total distributions .................... $51,281,196 $45,938,850
===============================
38 ANNUAL REPORTS OCTOBER 31, 2005
Notes to Financial Statements (concluded)
--------------------------------------------------------------------------------
MuniYield Quality Fund, Inc. 10/31/2005 10/31/2004
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $33,634,936 $31,648,891
-------------------------------
Total distributions .................... $33,634,936 $31,648,891
===============================
--------------------------------------------------------------------------------
MuniYield Quality Fund II, Inc. 10/31/2005 10/31/2004
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $22,248,656 $20,675,645
-------------------------------
Total distributions .................... $22,248,656 $20,675,645
===============================
As of October 31, 2005, the components of accumulated earnings/losses on a tax
basis were as follows:
-----------------------------------------------------------------------------
MuniYield Fund, Inc.
-----------------------------------------------------------------------------
Undistributed tax-exempt income--net ..................... $ 10,515,180
Undistributed ordinary income--net ....................... 161,034
Undistributed long-term capital losses--net .............. --
------------
Total undistributed earnings--net ........................ 10,676,214
Capital loss carryforward ................................ (43,211,705)*
Unrealized gains--net .................................... 39,360,326**
------------
Total accumulated earnings--net .......................... $ 6,824,835
============
* At October 31, 2005, the Fund had a net capital loss carryforward of
$43,211,705, of which $3,242,729 expires in 2006, $7,973,446 expires in
2007, $25,806,020 expires in 2008, $6,000,235 expires in 2009 and $189,275
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 and the difference between book and
tax amortization methods for premiums and discounts on fixed income
securities.
-----------------------------------------------------------------------------
MuniYield Quality Fund, Inc.
-----------------------------------------------------------------------------
Undistributed tax-exempt income--net ..................... $ 3,722,146
Undistributed long-term capital losses--net .............. --
------------
Total undistributed earnings--net ........................ 3,722,146
Capital loss carryforward ................................ (2,453,619)*
Unrealized gains--net .................................... 29,354,217**
------------
Total accumulated earnings--net .......................... $ 30,622,744
============
* At October 31, 2005, the Fund had a net capital loss carryforward of
$2,453,619, of which $114,477 expires in 2010 and $2,339,142 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 book and tax amortization methods for premiums and
discounts on fixed income securities.
-----------------------------------------------------------------------------
MuniYield Quality Fund II, Inc.
-----------------------------------------------------------------------------
Undistributed tax-exempt income--net ..................... $ 3,284,530
Undistributed long-term capital losses--net .............. --
------------
Total undistributed earnings--net ........................ 3,284,530
Capital loss carryforward ................................ (35,441,922)*
Unrealized gains--net .................................... 17,120,909**
------------
Total accumulated losses--net ............................ $(15,036,483)
============
* At October 31, 2005, the Fund had a net capital loss carryforward of
$35,441,922, of which $2,730,523 expires in 2007, $26,079,903 expires in
2008, $1,096,837 expires in 2010 and $5,534,659 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.
ANNUAL REPORTS OCTOBER 31, 2005 39
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
MuniYield Fund, Inc., MuniYield Quality Fund,
Inc. and MuniYield Quality Fund II, Inc.:
We have audited the accompanying statements of net assets, including the
schedules of investments, of MuniYield Fund, Inc., MuniYield Quality Fund, Inc.
and MuniYield Quality Fund II, Inc. (the "Funds") as of October 31, 2005, 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, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements 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. 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, 2005, 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 referred to
above present fairly, in all material respects, the respective financial
positions of MuniYield Fund, Inc., MuniYield Quality Fund, Inc. and MuniYield
Quality Fund II, Inc. as of October 31, 2005, 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, and the financial highlights for each of the
five years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 19, 2005
Fund Certification (unaudited)
In May 2005, MuniYield Fund, Inc., MuniYield Quality Fund, Inc. and 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.
40 ANNUAL REPORTS OCTOBER 31, 2005
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
MuniYield Fund, Inc. and MuniYield Quality Fund II, Inc. and Equiserve Trust
Company N.A. for 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 MuniYield Fund, Inc. and MuniYield Quality Fund II,
Inc. and Equiserve Trust Company N.A. (c/o Computershare Investor Services),
P.O. Box 43010, Providence, RI 02940-3010, Telephone: 800-426-5523 for MuniYield
Quality Fund, Inc.
ANNUAL REPORTS OCTOBER 31, 2005 41
Disclosure of Investment Advisory Agreement Activities of and Composition of the
Board of Directors
All but one member of each Fund's Board of Directors is an independent director
whose only affiliation with Fund Asset Management, L.P. (the "Investment
Adviser") or other Merrill Lynch affiliates is as a director of each Fund and
certain other funds advised by the Investment Adviser or its affiliates. The
Co-chairmen of the Boards are also independent directors. New director nominees
are chosen as nominees 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. The Board and the 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.
Investment Advisory Agreements -- Matters Considered by the Board
Every year, each Board considers approval of each Fund's investment advisory
agreement (the "Investment Advisory Agreement"). Each Board assesses the nature,
scope and quality of the services provided to each 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 each 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 the Investment Adviser's 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 believes that the Investment Adviser is one of the most experienced
global asset management firms and considers the overall services provided by the
Investment Adviser to be of high quality. Each Board also believes that the
Investment Adviser is financially sound and well managed and notes that the
Investment Adviser is affiliated 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 Approvals by the Board of Directors
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 with respect to each Fund, and include (a) information
compiled by Lipper Inc. ("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; and
(d) information on the profitability to the Investment Adviser and its
affiliates of the Investment Advisory Agreement and other relationships with the
Fund. Each Board also considers other matters it deems important to the approval
process such as services related to the valuation and pricing of Fund portfolio
holdings, allocation of Fund portfolio transaction, 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 in May 2005, the independent directors' and Board's review included
the following:
Services Provided by the Investment Adviser -- Each Board reviewed the nature,
extent and quality of services provided by the Investment Adviser, including the
investment advisory services and the resulting performance of the Fund. Each
Board focused primarily on the Investment Adviser's investment advisory services
and the Fund's investment performance. 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
42 ANNUAL REPORTS OCTOBER 31, 2005
funds, and the performance of a relevant index or combination of indexes. While
each Board reviews performance data at least quarterly, consistent with the
Investment Adviser's investment goals, each Board attaches more importance to
performance over relatively long periods of time, typically three to five years.
The Board noted that the performance of MuniYield Fund, Inc. was superior. It
ranked in the first quintile for the one-, three- and five-year periods ended
May 31, 2005. The Board noted that the performance of MuniYield Quality Fund,
Inc. ranked in the third quintile for the one- and three-year periods, and in
the first quintile for the five-year period, ended May 31, 2005. The Board noted
that the performance of MuniYield Quality II Fund, Inc. ranked in the first
quintile for the one-, three- and five-year periods ended May 31, 2005.
Considering these factors, each Board concluded that the Fund's performance
supported the continuation of the Investment Advisory Agreement.
The Investment Adviser's Personnel and Investment Process -- Each Board reviews
at least annually the Fund's investment objectives and strategies. Each Board
discusses with senior management of the Investment Adviser responsible for
investment operations and the senior management of the Investment Adviser's
municipal investing group the strategies being used to achieve the stated
objectives. Among other things, the Board considers the size, education and
experience of the Investment Adviser's investment staff, its use of technology,
and the Investment Adviser's approach to training and retaining portfolio
managers and other research, advisory and management personnel. Each Board also
reviews the Investment Adviser'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 fifteen years of experience in portfolio
management. 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. The Investment Adviser and its investment staff have
extensive experience in analyzing and managing the types of investments used by
the Funds. Each Board concluded that the Fund benefits from that expertise.
Management Fees and Other Expenses -- Each 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. In the case of each Fund, the
contractual and actual management fee rates, as well as the total expenses, were
lower than the median of fees and expenses charged by comparable funds, as
determined by Lipper. Each Board has concluded that the Fund's management fee
and fee rate and overall expense ratio are reasonable compared to those of
other, comparable funds.
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
MLIM/FAM-advised funds. As part of its analysis, each Board reviewed the
Investment Adviser's methodology in allocating its costs to the management of
the Fund and concluded that there was a reasonable basis for the allocation. The
Boards also considered federal court decisions discussing an investment
adviser's profitability and profitability levels considered to be reasonable in
those decisions. Each Board believes the Investment Adviser's profits are
reasonable in relation to the nature and quality of services provided.
Economies of Scale -- Each 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 Board considered economies
of scale to the extent applicable to each Fund's closed-end structure and
determined that each Fund currently appropriately benefits from any economies of
scale and no changes were currently necessary.
Conclusion
After the independent directors deliberated in executive session, each entire
Board, including all of the independent directors, approved the renewal of the
existing 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.
ANNUAL REPORTS OCTOBER 31, 2005 43
Officers and Directors
Number of
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 President of the MLIM/FAM-advised funds since 2005; 131 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 177 Portfolios
08543-9011 Director (Americas Region) thereof from 2000 to 2001 and
Age: 51 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")
since 2001; Chief Investment Officer of Oppenheimer
Funds, 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 MLIM or
FAM acts as investment adviser. Mr. Doll is an "interested person," as described in the Investment Company Act, of the
Fund based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators. Directors serve
until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President,
Mr. Doll serves at the pleasure of the Board of Directors.
====================================================================================================================================
Independent Directors*
------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Director 1995 to Director, The China Business Group, Inc. since 39 Funds None
Bodurtha** Princeton, NJ present 1996 and Executive Vice President thereof from 59 Portfolios
08543-9095 1996 to 2003; Chairman of the Board, Berkshire
Age: 61 Holding 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, 39 Funds None
Froot Princeton, NJ present Massachusetts Institute of Technology from 59 Portfolios
08543-9095 1986 to 1992.
Age: 48
------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Director 2002 to Member of the Committee of Investment of 39 Funds Kimco
Grills** Princeton, NJ present Employee Benefit Assets of the Association of 59 Portfolios Realty
08543-9095 Financial Professionals ("CIEBA") since 1986;
Age: 70 Member of 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 School since 2000; Member of the
Investment Committee of the National Trust
for Historic Preservation since 2000.
44 ANNUAL REPORTS OCTOBER 31, 2005
Officers and Directors (continued)
Number of
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)
------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Director 1991 John M. Olin Professor of Humanities, New York 39 Funds None
London Princeton, NJ (MYD) University since 1993 and Professor thereof since 59 Portfolios
08543-9095 and 1992 1980; President, Hudson Institute since 1997
Age: 66 (MQY & and Trustee thereof since 1980; Dean, Gallatin
MQT) to Division of New York University from 1976 to
present 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.
------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Director 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 39 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 59 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of
Age: 63 the 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) 39 Funds None
Salomon, Princeton, NJ present since 1994; Chairman and CEO of Salomon 59 Portfolios
Jr. 08543-9095 Brothers Asset Management Inc. from 1992 to
Age: 68 1995; 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.
------------------------------------------------------------------------------------------------------------------------------------
Stephen B. P.O. Box 9095 Director 1992 to Chairman of Fernwood Advisors, Inc. (investment 40 Funds None
Swensrud Princeton, NJ present adviser) since 1996; Principal, Fernwood 60 Portfolios
08543-9095 Associates (financial consultants) since 1975;
Age: 72 Chairman of R.P.P. Corporation (manufacturing
company) since 1978; Director of International
Mobile Communications, Inc. (telecommunications)
since 1998.
------------------------------------------------------------------------------------------------------------------------
* 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 and the Audit Committee.
ANNUAL REPORTS OCTOBER 31, 2005 45
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*
------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and and 1999 since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
Age: 45 Treasurer to President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990
present to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9011 Senior Vice 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Jacob Princeton, NJ President present Management) of MLIM from 1997 to 2000.
08543-9011
Age: 54
------------------------------------------------------------------------------------------------------------------------------------
John M. P.O. Box 9011 Senior Vice 2002 to Managing Director of MLIM since 2000; Director (Municipal Tax-Exempt Fund
Loffredo Princeton, NJ President present Management) of MLIM from 1997 to 2000.
08543-9011
Age: 41
------------------------------------------------------------------------------------------------------------------------------------
Theodore P.O. Box 9011 Vice 2004 Managing Director of MLIM since 2005; Director (Municipal Tax-Exempt Fund
R. Jaeckel Princeton, NJ President (MYD) to Management) of MLIM from 1997 to 2005; Vice President of MLIM from 1991 to 1997.
Jr. 08543-9011 present
Age: 46
------------------------------------------------------------------------------------------------------------------------------------
Michael A. P.O. Box 9011 Vice 1999 Vice President of MLIM since 1999.
Kalinoski Princeton, NJ President (MQY)
08543-9011 and 2000
Age: 35 (MQT) to
present
------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 54 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 Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* Officers of the Funds serve at the pleasure of the Board of Directors.
------------------------------------------------------------------------------------------------------------------------------------
MuniYield Fund, Inc. and
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
MuniYield Quality Fund, Inc.
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agents
Common Stock:
Equiserve Trust Company N.A.
(c/o Computershare
Investor Services)
P.O. Box 43010
Providence, RI 02940-3010
800-426-5523
Preferred Stock:
The Bank of New York
101 Barclay Street -- 7 West
New York, NY 10286
46 ANNUAL REPORTS OCTOBER 31, 2005
Investment Objectives
NYSE Symbol MuniYield Fund, Inc. seeks to provide shareholders with as
MYD 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 MuniYield Quality Fund, Inc. seeks to provide shareholders
MQY with as high a level of current income exempt from federal
income taxes as is consistent with its investment policies and
prudent investment management by investing primarily in a
portfolio of long-term, high-grade municipal obligations the
interest on which is exempt from federal income taxes in the
opinion of bond counsel to the issuer.
NYSE Symbol MuniYield Quality Fund II, Inc. seeks to provide shareholders
MQT with as high a level of current income exempt from federal
income taxes as is consistent with its investment policies and
prudent investment management by investing primarily in a
portfolio of long-term, high-grade municipal obligations the
interest on which is exempt from federal income taxes in the
opinion of bond counsel to the issuer. The Fund invests
primarily in insured municipal bonds.
ANNUAL REPORTS OCTOBER 31, 2005 47
Proxy Results MuniYield Quality Fund, Inc.
During the six-month period ended October 31, 2005, MuniYield Quality Fund,
Inc.'s Common Stock shareholders voted on the following proposal. Proposal 3 was
approved at a shareholders' meeting on June 27, 2005. A description of the
proposal and number of shares voted were as follows:
----------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
----------------------------------------------------------------------------------------------------
3. To approve an amendment to Articles Supplementary or
Certificate of Designation 17,122,385 2,317,216 896,675
----------------------------------------------------------------------------------------------------
During the six-month period ended October 31, 2005, MuniYield Quality Fund,
Inc.'s Preferred Stock shareholders (Series A - D) voted on the following
proposal. Proposal 3 was approved at a shareholders' meeting on June 27, 2005. A
description of the proposal and number of shares voted were as follows:
----------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
----------------------------------------------------------------------------------------------------
3. To approve an amendment to Articles Supplementary or
Certificate of Designation 7,394 569 36
----------------------------------------------------------------------------------------------------
Proxy Results MuniYield Quality Fund II, Inc.
During the six-month period ended October 31, 2005, MuniYield Quality Fund II,
Inc.'s Common Stock shareholders voted on the following proposal. Proposal 3 was
approved at a shareholders' meeting on June 27, 2005. A description of the
proposal and number of shares voted were as follows:
----------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
----------------------------------------------------------------------------------------------------
3. To approve an amendment to Articles Supplementary or
Certificate of Designation 11,306,335 900,082 465,977
----------------------------------------------------------------------------------------------------
During the six-month period ended October 31, 2005, MuniYield Quality Fund II,
Inc.'s Preferred Stock shareholders (Series A - C) voted on the following
proposal. Proposal 3 was approved at a shareholders' meeting on June 27, 2005. A
description of the proposal and number of shares voted were as follows:
----------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
----------------------------------------------------------------------------------------------------
3. To approve an amendment to Articles Supplementary or
Certificate of Designation 5,605 342 51
----------------------------------------------------------------------------------------------------
48 ANNUAL REPORTS OCTOBER 31, 2005
Dividend Policy
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. In order to provide
shareholders with a more stable level of dividend distributions, the Fund may at
times pay out less than the entire amount of net investment income earned in any
particular month and may at times in any month pay out such accumulated but
undistributed income in addition to net investment income earned in that month.
As a result, the dividends paid by the Fund for any particular month may be more
or less than the amount of net investment income earned by the Fund during such
month. The Fund's current accumulated but undistributed net investment income,
if any, is disclosed in the Statement of Assets, Liabilities and Capital, which
comprises part of the Financial Information included in this report.
Important Tax Information
All of the net investment income distributions paid by MuniYield Fund, Inc.,
MuniYield Quality Fund, Inc. and MuniYield Quality Fund II, Inc. during the
taxable year ended October 31, 2005 qualify as tax-exempt interest dividends for
federal income tax purposes.
ANNUAL REPORTS OCTOBER 31, 2005 49
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule 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 Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's 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.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
50 ANNUAL REPORTS OCTOBER 31, 2005
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
--------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
These reports, including the financial information herein, are transmitted to
shareholders of MuniYield Fund, Inc., MuniYield Quality Fund, Inc. and 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-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.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.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
MuniYield Fund, Inc.
MuniYield Quality Fund, Inc.
MuniYield Quality Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
#MYQII -- 10/05
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
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
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.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending October 31, 2005 - $32,000
Fiscal Year Ending October 31, 2004 - $30,000
(b) Audit-Related Fees - Fiscal Year Ending October 31, 2005 - $19,400
Fiscal Year Ending October 31, 2004 - $3,000
The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees, and services rendered in
connection with the registration and issuance of a new series of AMPS.
(c) Tax Fees - Fiscal Year Ending October 31, 2005 - $5,700
Fiscal Year Ending October 31, 2004 - $5,610
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2005 - $0
Fiscal Year Ending October 31, 2004 - $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, 2005 - $6,277,749
Fiscal Year Ending October 31, 2004 - $13,270,096
(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) - $1,227,000, 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 (as of June 1, 2005)
Joe Grills
Herbert I. London
Roberta Cooper Ramo
Robert S. Salomon, Jr.
Stephen B. Swensrud
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/Trustees has delegated to Merrill Lynch
Investment Managers, L.P. and/or Fund Asset Management, L.P. (the
"Investment Adviser") authority to vote all proxies relating to the
Fund's portfolio securities. The Investment Adviser has adopted
policies and procedures ("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 Investment Adviser'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 Investment Adviser 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 Investment Adviser considers
the interests of its clients, including the Funds, and not the
interests of the Investment Adviser, when voting proxies and that real
(or perceived) material conflicts that may arise between the Investment
Adviser's interest and those of the Investment Adviser's clients are
properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The
Committee is comprised of the Investment Adviser's Chief Investment
Officer (the "CIO"), one or more other senior investment professionals
appointed by the CIO, portfolio managers and investment analysts
appointed by the CIO and any other personnel the CIO deems appropriate.
The Committee will also include two non-voting representatives from the
Investment Adviser's Legal department appointed by the Investment
Adviser's General Counsel. The Committee's membership shall be limited
to full-time employees of the Investment Adviser. No person with any
investment banking, trading, retail brokerage or research
responsibilities for the Investment Adviser'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 Investment Adviser 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 Investment Adviser 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 Investment Adviser
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
Investment Adviser 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 Investment Adviser 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 Investment Adviser will generally seek to vote proxies over which
the Investment Adviser exercises voting authority in a uniform manner
for all the Investment Adviser'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 Investment Adviser 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 Investment
Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser 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 Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Investment Adviser
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 Investment Adviser 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 Investment Adviser may be required to vote proxies in
respect of an issuer where an affiliate of the Investment Adviser (each, an
"Affiliate"), or a money management or other client of the Investment Adviser
(each, a "Client") is involved. The Proxy Voting Procedures and the Investment
Adviser'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 Investment
Adviser'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 powers of the Committee shall pass to a subcommittee,
appointed by the CIO (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by the CIO. The CIO
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 Investment Adviser'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 Investment Adviser'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 Investment Adviser's normal voting guidelines
or, on matters where the Investment Adviser'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 Investment Adviser 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 Investment
Adviser's fiduciary duties
In addition to the general principles outlined above, the Investment
Adviser 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 Investment Adviser 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 Investment Adviser 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 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, that 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.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - as
of October 31, 2005.
(a)(1) Mr. Theodore R. Jaeckel, Jr. is primarily responsible for the
day-to-day management of the registrant's portfolio ("Portfolio
Manager"). Mr. Jaeckel has been a Managing Director of MLIM since
2005. He was a Director of MLIM from 1997 to 2005. Mr. Jaeckel has
been a portfolio manager with the Investment Adviser and MLIM since
1991 and has been the Fund's portfolio manager since 2003.
(a)(2) As of October 31, 2005:
(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
Theodore R.
Jaeckel, Jr. 7 1 0 0 1 0
$1,682,556,422 $20,565,318 $ 0 $ 0 $20,565,318 $ 0
(iv) Potential Material Conflicts of Interest
Real, potential or apparent conflicts of interest may arise when a
portfolio manager has day-to-day portfolio management responsibilities with
respect to more than one fund or account, including the following:
Certain investments may be appropriate for the Fund and also for other
clients advised by the Investment. Adviser and its affiliates, including other
client accounts managed by the Fund's portfolio management team. Investment
decisions for the Fund and other clients are made with a view to achieving their
respective investment objectives and after consideration of such factors as
their current holdings, availability of cash for investment and the size of
their investments generally. Frequently, a particular security may be bought or
sold for only one client or in different amounts and at different times for more
than one but less than all clients. Likewise, because clients of the Investment
Adviser and its affiliates may have differing investment strategies, a
particular security may be bought for one or more clients when one or more other
clients are selling the security. The investment results for the Fund may differ
from the results achieved by other clients of the Investment Adviser and its
affiliates and results among clients may differ. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Investment Adviser and its affiliates to be equitable to each.
The Investment Adviser will not determine allocations based on whether it
receives a performance based fee from the client. In some cases, the allocation
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Investment Adviser and its
affiliates in the interest of achieving the most favorable net results to the
Fund.
To the extent that the Fund's portfolio management team has
responsibilities for managing accounts in addition to the Fund, a portfolio
manager will need to divide his time and attention among relevant accounts.
In some cases, a real, potential or apparent conflict may also arise where
(i) the Investment Adviser may have an incentive, such as a performance based
fee, in managing one account and not with respect to other accounts it manages
or (ii) where a member of the Fund's portfolio management team owns an interest
in one fund or account he or she manages and not another.
(a)(3) As of October 31, 2005:
Portfolio Manager Compensation
The Portfolio Manager Compensation Program of MLIM and its affiliates,
including the Investment Adviser, is critical to MLIM'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 MLIM and its affiliates portfolio
managers are a fixed base salary, annual performance-based cash and stock
compensation (cash and stock bonus) and other benefits. MLIM 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 MLIM 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
MLIM 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, MLIM and its affiliates portfolio manager incentive compensation is
based on a formulaic compensation program. MLIM'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 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. MLIM
and its affiliates also consider the extent to which individuals exemplify and
foster ML & Co.'s principles of client focus, respect for the individual,
teamwork, responsible citizenship and integrity. All factors are considered
collectively by MLIM 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 ML & Co. 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 ML & Co. stock price performance. As such, the stock bonus
aligns each portfolio manager's financial interests with those of the ML & Co.
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 ML & Co.'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 MLIM mutual funds (including their own
fund) during a five-year vesting period. The deferred cash program aligns the
interests of participating portfolio managers with the investment results of
MLIM 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 employees of ML & Co. and its affiliates, including
broad-based retirement, 401(k), health, and other employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of October 31, 2005, Mr.
Jaeckel does not beneficially own 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 certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
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.
MuniYield Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
MuniYield Fund, Inc.
Date: December 16, 2005
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
MuniYield Fund, Inc.
Date: December 16, 2005
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
MuniYield Fund, Inc.
Date: December 16, 2005