MuniYield Quality Fund, Inc.
Semi-Annual
Report
April 30, 1994
Officers and Directors
Arthur Zeikel, President and Director
Kenneth S. Axelson, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
NYSE Symbol
MQY
<PAGE>
This report, including the financial information
herein, is transmitted to the shareholders of Muni-
Yield Quality Fund, Inc. for their information. It
is not a prospectus, circular or representation
intended for use in the purchase of shares of the
Fund or any securities mentioned in the report. Past
performance results shown in this report should not
be considered a representation of future perfor-
mance. The Fund has leveraged its Common Stock by
issuing Preferred Stock to provide the Common Stock
shareholders with a potentially higher rate of re-
turn. Leverage creates risks for Common Stock share-
holders, including the likelihood of greater volatili-
ty 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.
MuniYield Quality Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield Quality Fund, Inc.
TO OUR SHAREHOLDERS
For the six-month period ended April 30, 1994, the Common Stock
of MuniYield Quality Fund, Inc. earned $0.681 per share income
dividends, which includes earned and unpaid dividends of $0.074.
This represents a net annualized yield of 9.83%, based on a month-
end per share net asset value of $13.98. Over the same period,
the total investment return on the Fund's Common Stock was -8.02%,
based on a change in per share net asset value from $15.95 to
$13.98, and assuming reinvestment of $0.692 per share income di-
vidends and $0.013 per share capital gains distributions.
For the six-month period ended April 30, 1994, the Fund's Auction
Market Preferred Stock had an average yield as follows: Series A,
2.54%; Series B, 3.10%; Series C, 2.40%; and Series D, 3.23%.
<PAGE>
The Environment
Inflationary expectations and investor sentiment changed for the
worse during the three-month period ended April 30, 1994. Follow-
ing stronger-than-expected economic results through year-end 1993,
the Federal Reserve Board broke with tradition on February 4, 1994
and publicly announced a modest 25 basis point (0.25%) increase in
short-term interest rates. At the March 22 meeting of the Federal
Open Market Committee, the Federal Reserve Board again raised the
Federal Funds rate by 25 basis points, followed by another 25 basis
point increase on April 18.
Rather than view the Federal Reserve Board's first tightening move
as a preemptive strike against inflation, fixed-income investors
focused on Chairman Greenspan's implicit promise of further tighten-
ing should the rate of inflation accelerate, and bond prices de-
clined sharply. The setback in the bond market was also reflected
in greater stock market volatility. While the second and third in-
creases in the Federal Funds rate were less of a surprise, investors
remained concerned that interest rates would trend upward sharply
as the central bank aggressively attempted to contain the inflation-
ary pressures of an improving economy. At the same time, highly
leveraged investors were focused to liquidate positions in the
face of declining stock and bond prices. Investor confidence was
not restored with the announcement of the surprisingly slow 2.6%
gross domestic product growth rate for the first calendar quarter
of 1994. Instead, investors focused on the higher-than-expected
(but still moderate) broad inflation measures and became concerned
that business activity was beginning to stagnate as inflationary
pressures were increasing.
The volatility in the US capital markets was mirrored in interna-
tional markets during the period. Political and economic develop-
ments, along with concerns of heightened global inflationary
pressures, led to a sell-off in most capital markets, especially
the emerging markets that had appreciated strongly in 1993.
The Municipal Market
During the six months ended April 30, 1994, tax-exempt bond yields
exhibited considerable volatility as they rose to their highest
level in the past two years. As measured by the Bond Buyer Revenue
Bond Index, the yield on newly issued municipal bonds maturing in
30 years rose over 90 basis points to 6.42% by the end of April.
Yields on seasoned municipal revenue bonds rose by over 100 basis
points in sympathy with the equally dramatic increase in long-
term US Treasury bond yields. By the end of April, yields on US
Treasury securities rose by over 95 basis points to approximately
7.30%.
<PAGE>
Long-term tax-exempt bond yields were essentially unchanged from
the end of October 1993 to the end of January 1994. However, on
a weekly basis, tax-exempt bond yields fluctuated by as much as
15 basis points as investors were unable to reconcile the rapid
economic growth seen late last year with continued low inflation.
Following the initial interest rate increase by the Federal Re-
serve Board in early February, municipal bond prices began to
erode in concert with taxable bond prices as investors began to
sell securities in anticipation of further interest rate increases.
This fear led investors to withdraw from the tax-exempt market.
From early February to the end of March, total assets of all tax-
exempt bond funds declined by $14 billion to $247 billion. This
decline in investor demand, coupled with fears that the robust eco-
nomic recovery seen during the fourth quarter of 1993 would con-
tinue well into 1994, helped push municipal bond yields higher in
February and March. Attracted by tax-exempt yields in excess of
6.25%, investor demand returned in April, allowing yields to de-
cline approximately 15 basis points to end the April period at
approximately 6.40%.
A rise in tax-exempt bond yields the magnitude of that exper-
ienced over the past six months has not been seen since 1987
when municipal bond rates rose 250 basis points between March
and October of that year. It is very important to note that
the recent municipal bond price declines were largely the re-
sult of consistent and insistent selling pressures over the
last two months. In 1987, the tax-exempt bond market was much
more volatile and, at times, chaotic as investors sought to
liquidate positions without concern for fundamental value.
For the most part, the recent price deterioration has been or-
derly, and the municipal bond market's liquidity and integrity
have not been challenged or jeopardized.
<PAGE>
To a large extent, the municipal bond market has continued to
be supported by its strong technical position. New-issue volume
for the last six months has been less than $105 billion. This
represents a decline of approximately 20% versus the comparable
period a year ago. This decline was expected and has been dis-
cussed in previous shareholder reports. This reduced issuance
has minimized potential selling pressure in recent months since
institutional investors have been wary of selling appreciable
amounts of securities that they may be unable to replace later
this year at any price level. We expect this decline in issu-
ance to continue since we anticipate recent yield increases to
significantly impact future municipal bond issuance. Just as
higher mortgage rates slow home mortgage refinancings, the re-
cent rise in bond yields will prevent bond refinancings from
becoming the driving force in bond issuance in 1994 as they
were in 1993.
Despite recent price declines, tax-exempt securities remain
among the most attractive investment alternatives available.
After the recent yield increases, longer-term municipal secur-
ities yielded approximately 90% of comparable US Treasury
yields. Purchasers of these municipal bonds also accrue sub-
stantial after-tax yield advantages. To investors in the 39%
marginal Federal income tax bracket, the purchase of a muni-
cipal bond yielding 6.50% represents an after-tax equivalent
of 10.65%. With prevailing estimates of 1994 inflation at no
more than 3%--4%, real after-tax rates in excess of 6.50% easily
compensate longer-term investors for much of the price vola-
tility recently experienced.
Portfolio Strategy
During the six months ended April 30, 1994, our portfolio stra-
tegy concentrated on modestly restructuring the Fund to adopt
a more defensive posture in the marketplace. We sold deeply dis-
counted securities that we had purchased during the prior year
in anticipation of lower interest rates, replacing them with in-
vestment-grade tax-exempt bonds priced over par. Such securities
tend to exhibit less volatility and can therefore be expected to
perform relatively well in an uncertain interest rate environment.
Additionally, the higher coupons associated with these premium
bonds generate a significant amount of tax-exempt income for Common
Stock shareholders. However, since long-term interest rates have
risen, the net asset value of the Common Stock has declined.
<PAGE>
In spite of our more cautious market outlook, we have been reluc-
tant to increase cash reserves substantially above 5% of net assets.
Any significant effort to raise the Fund's cash position through the
liquidation of the portfolio's long-term holdings would have an
adverse impact on the dividends to Common Stock shareholders. In
addition, the expectation of declining volume in the tax-exempt
marketplace may make it exceedingly difficult to reinvest the pro-
ceeds in the months ahead. Volume for the quarter ended April 30,
1994 totaled $42.2 billion, representing a 40% decrease from one
year ago levels. Furthermore, while cautious, our outlook is not
overly negative and does in fact leave open the possibility for
interest rates to resume their downward trend, perhaps as early
as in the second half of 1994. For now we consider it prudent to
maintain a relatively unaggressive investment strategy, focusing
our efforts on sustaining the current level of tax-exempt income.
We appreciate your ongoing interest in MuniYield Quality Fund,
Inc., and we look forward to serving your investment needs and
objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
June 2, 1994
THE BENEFITS AND RISKS OF LEVERAGING
<PAGE>
MuniYield Quality Fund, Inc. utilizes leveraging to seek
to enhance the yield and net asset value of its Common
Stock. However, these objectives cannot be achieved in
all interest rate environments. To leverage, the Fund
issues Preferred Stock, which pays dividends at prevail-
ing short-term interest rates, and invests the proceeds in
long-term municipal bonds. The interest earned on these
investments is paid to Common Stock shareholders in
the form of dividends, and the value of these portfolio
holdings is reflected in the per share net asset value of
the Fund's Common Stock. However, in order to benefit
Common Stock shareholders, the yield curve must be pos-
itively 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 out-
weigh 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 approx-
imately 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.
<PAGE>
In this case, the dividends paid to Preferred Stock share-
holders 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 pick-up
on the Common Stock will be reduced. At the same time,
the market value on 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 invest-
ments, 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.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield Quality Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according
to the list below and at right.
AMT Alternative Minimum Tax (subject to)
CP Commercial Paper
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
UPDATES Unit Price Daily Adjustable Tax-Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--0.6% BBB Baa1 $ 3,640 Courtland, Alabama, Industrial Development Board, Solid Waste
Disposal Revenue Bonds (Champion International Corporation
Project), AMT, 7% due 6/01/2022 $ 3,653
Alaska--0.8% A- A 5,000 Alaska Industrial Development and Export Authority Revenue
Bonds, Series A, AMT, 6.50% due 4/01/2014 4,945
Arizona--0.4% AA P1 2,700 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining
Corp.), VRDN, 2.95% due 12/01/2009 (a) 2,700
Arkansas--0.7% AAA NR 4,240 Arkansas State Development Financial Authority, S/F Mortgage
Revenue Bonds, Series A, AMT, 7.30% due 3/01/2013 (h) 4,378
California--3.2% A1+ VMIG1 300 California Health Facilities, Financing Authority Revenue Bonds
(Sutter Health), VRDN, Series A, 2.85% due 3/01/2020 (a) 300
AAA Aaa 7,000 California State, Public Works Board, Lease Revenue Bonds (Various
Universities of California Projects), Series A, 6.60% due
12/01/2002 (i) 7,715
AA Aa 5,000 Los Angeles, California, Department of Water and Power, Crossover
Revenue Refunding Bonds, Second Issue (Electric Plant), 4.75%
due 11/15/2019 4,006
AAA Aaa 5,000 Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Refunding Bonds, Proposition A,
Series A, 5% due 7/01/2021 (e) 4,142
AAA Aaa 5,000 Southern California Public Power Authority, Power Project Revenue
Bonds (San Juan Unit 3), Series A, 5% due 1/01/2020 (c) 4,161
Colorado--5.6% Colorado Health Facilities Authority, Hospital Revenue Bonds:
BBB+ Baa1 1,350 (P/SL Healthcare System Project), Series A, 6.875% due 2/15/2023 1,314
BBB- NR 2,000 Refunding (National Jewish Center Immunization Project),
7.10% due 2/15/2022 1,939
BBB+ Baa1 4,550 (Swedish Medical Center Project), Series A, 6.80% due 1/01/2023 4,549
Denver, Colorado, City and County, Airport Revenue Bonds, AMT:
BBB Baa1 15,500 Series B, 7.25% due 11/15/2023 14,846
BBB Baa1 5,000 Series D, 7.75% due 11/15/2013 5,148
BBB Baa1 7,250 Series D, 7.75% due 11/15/2021 7,293
Florida--1.5% A1+ VMIG1 4,200 Dade County, Florida, Water and Sewer System Revenue Bonds,
VRDN, 3.45% due 10/05/2022 (a) (e) 4,200
A1+ VMIG1 1,300 Hillsborough County, Florida, IDA, PCR, Refunding (Tampa
Electric Company Project), VRDN, 3% due 5/15/2018 (a) 1,300
A1 VMIG1 700 Pinellas County, Florida, Revenue Refunding Bonds (Pooled
Hospital Loan Program), VRDN, 2.95% due 12/01/2015 (a) 700
BBB+ A 3,500 Saint John's County, Florida, IDA, Hospital Revenue Bonds
(Flagler Hospital Project), 6% due 8/01/2022 3,091
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Georgia--0.8% AA- A3 $ 4,785 Monroe County, Georgia, Development Authority, PCR, Refunding
(Oglethorpe Power Corporation), Series A, 6.80% due 1/01/2011 $ 4,964
Illinois--8.1% AA NR 17,000 Chicago, Illinois, Metropolitan Housing Development
Corporation, Mortgage Revenue Refunding Bonds (Housing
Development), Series A, 6.85% due 7/01/2022 (f) 17,271
BBB Baa2 21,000 Illinois Development Finance Authority, PCR, Refunding (Illinois
Power Company Project), Series A, 7.375% due 7/01/2021 22,226
Illinois Health Facilities Authority Revenue Bonds (Mercy
Center for Health Care Services):
NR A 1,300 6.625% due 10/01/2012 1,309
NR A 3,830 6.65% due 10/01/2022 3,833
A+ A 2,500 Illinois Health Facilities Authority, Revenue Refunding Bonds
(Lutheran Health System), Series A, 6% due 4/01/2011 2,358
NR A 3,750 Illinois Student Assistance Commission, Student Loan Revenue
Bonds, Sub-Series CC, AMT, 6.875% due 3/01/2015 3,809
Indiana--1.6% A+ A1 5,000 Fort Wayne, Indiana, Hospital Authority, Hospital Revenue
Refunding Bonds (Parkview Memorial Hospital Incorporated
Project), 6.40% due 11/15/2022 4,878
A+ NR 5,000 Indianapolis, Indiana, Local Public Improvement Revenue
Refunding Bonds, Series D, 6.75% due 2/01/2020 4,975
Iowa--0.9% A1+ NR 1,400 Iowa Finance Authority, Solid Waste Disposal Revenue Bonds
(Cedar River Paper Company Project), Series A, VRDN,
3.15% due 7/01/2023 (a) 1,400
NR A 4,250 Iowa Student Loan Liquidity Corporation, Student Loan Revenue
Bonds (Iowa Partnership), AMT, 6.60% due 7/01/2008 4,319
Kentucky--2.2% NR Baa1 5,000 Ashland, Kentucky, PCR, Refunding (Ashland Oil Incorporated
Project), 6.65% due 8/01/2009 5,003
AA Aa2 8,680 Trimble County, Kentucky, PCR (Louisville Gas & Electric
Company), Series B, AMT, 6.55% due 11/01/2020 8,856
Louisiana--1.6% BBB Baa2 7,000 Saint Charles Parish, Louisiana, Solid Waste Disposal Revenue
Bonds (Louisiana Power and Light Company Project), Series A,
AMT, 7% due 12/01/2022 7,030
BBB- Baa3 3,000 West Feliciana Parish, Louisiana, PCR (Gulf STS Utilities),
Series C, 7% due 11/01/2015 3,000
<PAGE>
Maine--1.0% BBB Baa1 6,380 Bucksport, Maine, Solid Waste Disposal Revenue Bonds (Champion
International Corporation Project), 6.25% due 5/01/2010 6,119
Maryland--2.7% Maryland State Health and Higher Educational Facilities Authority,
Project Revenue Refunding Bonds:
AAA Aaa 4,500 (Frederick Memorial Hospital), 5% due 7/01/2023 (e) 3,692
A A 3,100 (Peninsula Regional Medical), 5.25% due 7/01/2012 2,699
A A 5,365 (Peninsula Regional Medical), 5% due 7/01/2023 4,265
A+ A1 5,000 Montgomery County, Maryland, PCR, Refunding (Potomac Electric
Power Company), 5.375% due 2/15/2024 4,345
NR Aaa 1,950 Prince Georges County, Maryland, Hospital Revenue
Bonds (Dimensions Health Corporation), 7% due 7/01/2002 (j) 2,163
Massachusetts--6.1% Massachusetts Municipal Wholesale Electric Company, Power Supply
System Revenue Refunding Bonds:
NR Aaa 1,045 Series B, 6.75% due 7/01/2002 (i) 1,153
BBB+ A 455 Series B, 6.75% due 7/01/2017 475
BBB+ A 4,450 Series D, 6.125% due 7/01/2019 4,244
Massachusetts State Health and Educational Facilities Authority
Revenue Bonds:
A Aa 3,595 (Brigham & Women's Hospital), Series C, 7% due 6/01/2018 3,772
A- NR 2,500 Refunding (Melrose-Wakefield Hospital), Series B, 6.375%
due 7/01/2016 2,393
BBB Baa1 10,500 (Sisters of Providence Health System), Series A, 6.625% due
11/15/2022 9,917
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Massachusetts Massachusetts State Water Resources Authority, Revenue Refunding
(concluded) Bonds:
A A $ 6,500 General, Series B, 5% due 3/01/2022 $ 5,266
A NR 10,000 Series A, 6.50% due 12/01/2001 (i) 10,863
Michigan--1.0% A1+ VMIG1 500 Grand Rapids, Michigan, Water Supply Systems, Revenue
Refunding Bonds, VRDN, 2.95% due 1/01/2020 (a)(c)(e) 500
A- A 4,375 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Detroit Medical Center Obligation Group),
Series A, 6.50% due 8/15/2018 4,255
NR P1 1,200 Michigan State Strategic Fund, Limited Obligation Revenue Bonds
(Dow Chemical Company Project), VRDN, AMT, 3.30% due 12/01/2014
(a) 1,200
NR P1 200 Monroe County, Michigan, Economic Development Corporation,
Limited Obligation Revenue Refunding Bonds (Detroit Edison
Co.), Series CC, VRDN, 3% due 10/01/2024 (a) 200
Missouri--0.7% AA- Aa3 4,000 Saint Louis, Missouri, Parking Facility Revenue Bonds, 6.625%
due 12/15/2021 4,062
Montana--0.7% BBB+ Baa1 5,000 Forsyth, Montana, PCR, Refunding (Montana Power Company
Colstrip Project), Series A, 6.125% due 5/01/2023 4,634
New Hampshire--0.6% NR Baa1 4,290 New Hampshire Higher Educational and Health Facilities Authority
Revenue Bonds (Saint Anselm College), 6.20% due 7/01/2013 4,047
New Jersey--0.9% A A 5,700 New Jersey State Turnpike Authority, Turnpike Revenue
Refunding Bonds, Series C, 6.50% due 1/01/2016 5,867
New Mexico--0.8% A A3 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge Corporation
Project), 6.50% due 4/01/2013 4,989
New York--9.8% New York City, New York, GO:
AAA Aaa 2,000 Refunding, Series C, UT, 6% due 8/01/2012 1,969
A- Baa1 5,000 Series A, UT, 7.75% due 8/15/2017 5,490
A- Baa1 2,500 Series C, Sub-Series C-1, 7% due 8/01/2017 2,616
A-1 VMIG1 4,200 Series E, UT, VRDN, 2.95% due 9/01/1995 (a) 4,200
A- Baa1 4,000 Series H, UT, 7.10% due 2/01/2012 4,238
A- Baa1 8,470 Series H, UT, 7% due 2/01/2019 8,827
AAA Aaa 2,500 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, Series B, 5.375%
due 6/15/2019 (c) 2,216
<PAGE>
A1+ NR 700 New York State Energy Research and Development Authority,
PCR (Niagara Power Corporation Project), Series B, VRDN,
AMT, 3.15% due 7/01/2027 (a) 700
AA Aa 3,415 New York State Environmental Facilities Corporation, PCR
(State Water Revolving Fund-Pooled Loan), Series A,
5.60% due 9/15/2013 3,128
BBB Baa1 10,000 New York State Housing Finance Agency, Service Contract
Obligation, Revenue Refunding Bonds, Series C, 6.125%
due 3/15/2020 9,472
New York State Local Government Assistance Corporation
Revenue Bonds:
A A 6,250 Refunding, Series C, 5% due 4/01/2021 5,133
A A 13,450 Series A, 6.50% due 4/01/2020 13,562
North Carolina-- AAA VMIG1 3,300 Charlotte, North Carolina, Airport Revenue Refunding Bonds,
0.8% VRDN, Series A, 3.45% due 7/01/2016 (a) 3,300
A+ A 2,500 North Carolina Medical Care Community, Hospital Revenue Bonds
(Moore Regional Hospital Project), 5% due 10/01/2018 2,046
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Ohio--4.6% NR A $ 5,000 Franklin County, Ohio, Hospital Revenue Refunding and Improve-
ment Bonds (Doctors Hospital Project), 5.875% due 12/01/2023 $ 4,454
Ohio State Air Quality, Development Authority, Revenue
Refunding Bonds (Dayton Power & Light Project):
BB Baa3 5,000 6.85% due 7/01/2023 4,764
AA- A1 15,000 Series B, 6.40% due 8/15/2027 14,815
AA- A1 5,000 Ohio State Turnpike Commission, Turnpike Revenue Bonds, Series A,
5.75% due 2/15/2024 4,651
Pennsylvania--2.5% NR A 5,000 Allegheny County, Pennsylvania, Hospital Development Authority,
Revenue Refunding Bonds (Health Facilities--South Hills Health),
6% due 5/01/2020 4,577
AAA Aaa 6,470 Pennsylvania Intergovernmental Cooperative Authority, Special
Tax Revenue Bonds (City of Philadelphia--Refunding
Program), 5.625% due 6/15/2023 (c) 5,842
Philadelphia, Pennsylvania, Hospitals and Higher Educational
Facilities Authority, Hospital Revenue Bonds, Series A:
BBB Baa1 2,250 (Frankford Hospital), 6% due 6/01/2014 1,994
BBB+ Baa1 3,150 Refunding (Temple University Hospital), 6.625% due 11/15/2023 3,022
<PAGE>
South Carolina-- A A1 15,000 Fairfield County, South Carolina, PCR (South Carolina Electric &
6.4% Gas Company), 6.50% due 9/01/2014 15,293
A- A1 9,000 Richland County, South Carolina, Solid Waste Disposal Facilities
Revenue Bonds (Union Camp Corporation Project), Series A,
AMT, 6.75% due 5/01/2022 9,190
BBB- Baa 5,000 South Carolina Jobs, EDA, Economic Development Revenue Bonds
(Franciscan Sisters of the Poor), 7% due 7/01/2015 4,918
A+ Aaa 9,500 South Carolina State Public Service Authority Revenue
Bonds (Santee Cooper), Series D, 6.625% due 7/01/2002 (i) 10,422
South Dakota--0.9% AA+ Aa1 5,500 South Dakota HDA, Homeownership Mortgage Revenue Refunding
Bonds, Series A, 6.45% due 5/01/2022 5,402
Tennessee--1.2% BBB- Baa1 7,500 McMinn County, Tennessee, Industrial Development Board, Solid
Waste Revenue Bonds (Recycling Facility-Calhoun Newsprint-Bowater),
AMT, 7.40% due 12/01/2022 7,744
Texas--7.4% BB+ Baa2 5,000 Alliance Airport Authority Incorporated, Texas, Special Facilities
Revenue Bonds (American Airlines Incorporated Project), AMT,
7.50% due 12/01/2029 5,031
NR Aaa 1,000 Bell County, Texas, Health Facilities Development Corporation
Revenue Bonds (Lutheran General Health Care System-Parkside
Medical Services Corporation), 6.50% due 7/01/2019 1,032
BBB Baa1 5,000 Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds
(Champion International), Series A, AMT, 6.875% due 12/01/2028 4,899
A- A 5,000 Harris County, Texas, Health Facilities Development
Corporation (Hospital Revenue Memorial Hospital Systems),
Series A, 6.60% due 6/01/2014 4,959
A- A3 3,445 Matagorda County, Texas, Naval District No. 1, PCR, Refunding
(Central Power & Light Company Project), 6% due 7/01/2028 3,196
NR P1 1,100 Port Arthur, Texas, Naval District, Industrial Development
Corporation, PCR (American Petrofina Incorporated), VRDN,
3% due 5/01/2003 (a) 1,100
AA Aa1 5,000 San Antonio, Texas, Electric and Gas Revenue Refunding Bonds,
6% due 2/01/2014 4,864
AAA Aaa 2,500 Tarrant County, Texas, Water Control and Improvement District
No. 001, Water Revenue Refunding Bonds, 4.75% due 3/01/2013 (b) 2,103
A+ Aa 14,380 Texas Housing Agency, Residential Development Revenue Mortgage
Bonds, Series A, 7.50% due 7/01/2015 (h) 14,644
AA Aa 4,000 Texas State, Registered RIB, UT, Series B-1 and B-2, 8.871%
due 9/30/2011 (g) 4,165
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Utah--3.5% AA Aa $ 15,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals Incorporated), 6.30% due 2/15/2015 $ 15,403
West Jordan, Utah, Hospital Revenue Refunding Bonds
(Holy Cross Health System--Jordan):
AA- A1 1,590 6.25% due 12/01/2012 1,561
AA- A1 4,805 6.25% due 12/01/2022 4,686
Vermont--0.4% AAA Aaa 2,500 Vermont State Student Assistance Corporation, Educational Loan
Revenue Bonds (Financing Program), Series B, AMT, 6.70% due
12/15/2012 (d) 2,591
Virginia--5.6% AAA Aa2 2,000 Peninsula Ports Authority, Virginia, Revenue Refunding
Port Facility Bonds (Shell Oil Company), UPDATES, AMT, CP,
Series A, 2.90% due 12/01/2005 (a) 2,000
AA+ Aa 22,000 Virginia State HDA, Commonwealth Mortgage Revenue Bonds,
Series A, 7.15% due 1/01/2033 22,725
AA Aa 10,000 Virginia State Transportation Board, Transportation Revenue
Refunding Bonds (Route 28 Project), 6.50% due 4/01/2018 10,123
Washington--8.1% AA Aaa 12,500 Lewis County, Washington, Public Utility Revenue Bonds,
District No. 001 (Cowlitz Falls Hydroelectric Project),
7% due 10/01/2001 (i) 13,975
AAA Aaa 7,000 Seattle, Washington, Municipality Metropolitan Seattle Sewer
Revenue Bonds, Series W, 6.30% due 1/01/2033 (c) 6,889
Washington State Public Power Supply System, Revenue
Refunding Bonds (Nuclear Project No. 2), Series A:
AA Aa 15,220 6.25% due 7/01/2012 14,816
AA Aa 15,000 6.30% due 7/01/2012 14,759
West Virginia--0.9% BBB+ A3 5,600 Putnam County, West Virginia, PCR, Refunding (Appalachian
Power Company Project), Series C, 6.60% due 7/01/2019 5,465
Wisconsin--1.3% A A1 3,800 Wisconsin Housing and EDA Housing Revenue Bonds,
Series D, AMT, 7.20% due 11/01/2013 3,883
NR A 4,250 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Mercy Hospital of Janesville Incorporated),
6.60% due 8/15/2022 4,117
Wyoming--0.0% NR P1 200 Unita County, Wyoming, PCR, Refunding (Chevron USA
Incorporated Project), VRDN, 2.80% due 8/15/2020 (a) 200
<PAGE>
Total Investments (Cost--$608,004)--95.9% 599,902
Other Assets Less Liabilities--4.1% 25,473
--------
Net Assets--100.0% $625,375
========
<FN>
(a) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rates shown are the rates in
effect at April 30, 1994.
(b) MBAC Insured.
(c) MBIA Insured.
(d) FSA Insured.
(e) FGIC Insured.
(f) FHA Insured.
(g) The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rates shown
are the rates in effect at April 30, 1994.
(h) GNMA Collateralized.
(i) Prerefunded.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$608,003,864) (Note 1a) $599,901,888
Cash 10,136,150
Receivables:
Securities sold $ 19,918,311
Interest 11,684,018 31,602,329
------------
Deferred organization expenses (Note 1e) 27,559
Prepaid expenses and other assets 269,059
------------
Total assets 641,936,985
------------
Liabilities: Payables:
Securities purchased 15,259,072
Dividends to shareholders (Note 1g) 967,223
Investment adviser (Note 2) 248,118 16,474,413
------------
Accrued expenses and other liabilities 87,414
------------
Total liabilities 16,561,827
------------
Net Assets: Net assets $625,375,158
------------
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (4,000 shares of AMPS* issued and
outstanding at $50,000 per share liquidation preference) $200,000,000
Common Stock, par value $.10 per share (30,425,258 shares issued
and outstanding) $ 3,042,526
Paid-in capital in excess of par 423,867,420
Undistributed investment income--net 3,417,973
Undistributed realized capital gains--net 3,149,215
Unrealized depreciation on investments--net (8,101,976)
------------
Total--Equivalent to $13.98 net asset value per share of Common Stock
(market price--$12.875) 425,375,158
------------
Total capital $625,375,158
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six
Months Ended
April 30,1994
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 19,886,990
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,651,946
Commission fees (Note 4) 270,809
Professional fees 37,129
Transfer agent fees 36,560
Accounting services (Note 2) 27,977
Printing and shareholder reports 26,128
Listing fees 19,015
Custodian fees 13,799
Directors' fees and expenses 10,717
Pricing fees 6,402
Amortization of organization expenses (Note 1e) 3,509
Other 22,145
------------
Total expenses 2,126,136
------------
Investment income--net 17,760,854
------------
Realized & Realized gain on investments--net 3,149,247
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net (56,349,078)
(Loss) on ------------
Investments--Net Net Decrease in Net Assets Resulting from Operations $(35,438,977)
(Notes 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
Increase (Decrease) in Net Assets: April 30, 1994 Oct. 31, 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 17,760,854 $ 35,963,672
Realized gain on investments--net 3,149,247 8,560,711
Change in unrealized appreciation/depreciation on investments--net (56,349,078) 69,627,484
------------ ------------
Net increase (decrease) in net assets resulting from operations (35,438,977) 114,151,867
------------ ------------
Dividends & Investment income--net:
Distributions Common Stock (14,882,302) (30,199,772)
To Shareholders Preferred Stock (1,836,350) (5,952,010)
(Note 1g): Realized gain on investments:
Common Stock (6,545,052) --
Preferred Stock (1,298,020) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (24,561,724) (36,151,782)
------------ ------------
Common & Value of shares issued to Common Stock shareholders in reinvestment of
Preferred Stock dividends -- 3,837,626
Transactions ------------ ------------
(Notes 1e & 4): Net increase (decrease) in net assets derived from stock transactions -- 3,837,626
------------ ------------
Net Assets: Total increase (decrease) in net assets (60,000,701) 81,837,711
Beginning of period 685,375,859 603,538,148
------------ ------------
End of period* $625,375,158 $685,375,859
============ ============
<FN>
*Undistributed investment income--net $ 3,417,973 $ 2,375,771
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE?
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived For the Year For the Period
from information provided in the financial statements. For the Six Ended June 26,1992++
Months Ended October 31, to October 31,
Increase (Decrease) in Net Asset Value: April 30, 1994 1993 1992
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.95 $ 13.38 $ 14.18
Operating ----------- ---------- -----------
Performance: Investment income--net .58 1.18 .32
Realized and unrealized gain (loss) on investments--net (1.74) 2.58 (.75)
----------- ---------- -----------
Total from investment operations (1.16) 3.76 (.43)
----------- ---------- -----------
Less dividends to Common Stock shareholders:
Investment income--net (.49) (.99) (.20)
Realized gain on investments--net (.22) -- --
----------- ---------- -----------
Total dividends to Common Stock shareholders (.71) (.99) (.20)
----------- ---------- -----------
Capital charge resulting from issuance of Common Stock -- -- (.01)
----------- ---------- -----------
Effect of Preferred Stock activity++++:
Dividends to Preferred Stock shareholders:
Investment income--net (.06) (.20) (.03)
Realized gain investments--net (.04) -- --
Capital charge resulting from issuance of Preferred Stock -- -- (.13)
----------- ---------- -----------
Total effect of Preferred Stock activity (.10) (.20) (.16)
----------- ---------- -----------
Net asset value, end of period $ 13.98 $ 15.95 $ 13.38
=========== ========== ===========
Market price per share, end of period $ 12.875 $ 15.250 $ 13.625
=========== ========== ===========
Total Investment Based on market price per share (11.40%)+++ 19.68% (7.83%)+++
Return:** =========== ========== ===========
Based on net asset value per share (8.02%)+++ 27.46% (4.25%)+++
=========== ========== ===========
Ratios to Average Expenses, net of reimbursement .64%* .60% .14%*
Net Assets:*** =========== ========== ===========
Expenses .64%* .61% .59%*
=========== ========== ===========
Investment income--net 5.36%* 5.52% 5.71%*
=========== ========== ===========
<PAGE>
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 425,375 $ 485,376 $ 403,538
Data: =========== ========== ===========
Preferred Stock outstanding, end of period (in thousands) $ 200,000 $ 200,000 $ 200,000
=========== ========== ===========
Portfolio turnover 13.86% 66.14% 10.12%
=========== ========== ===========
Dividends Per Series A--Investment income--net $ 439 $ 1,425 $ 187
Share On Series B--Investment income--net 464 1,370 193
Preferred Stock Series C--Investment income--net 355 1,493 199
Outstanding: Series D--Investment income--net 578 1,664 205
<FN>
*Annualized.
**Total investment returns based on market value, which can be significantly greater or lesser than the net asset
value, result in substantially different returns. Total investment returns exclude the effects of sales loads.
***Do not reflect the effect of dividends to Preferred Stock shareholders.
++Commencement of Operations.
++++The Fund's Preferred Stock was issued on September 16, 1992.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Quality Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. The Fund determines and makes avail-
able for publication the net asset value of its Common Stock on a
weekly basis. The Fund's Common Stock is listed on the New York
Stock Exchange under the symbol MQY. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing ser-
vice from dealers that make markets in such securities. Financial
futures contracts, which are traded on exchanges, are valued at
their closing prices as of the close of such exchanges. Options,
which are traded on exchanges, are valued at their last sale price
as of the close of such exchanges or, lacking any sales, at the
last available bid price. Securities with remaining maturities of
sixty days or less are valued at amortized cost, which approximates
market value. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund.
<PAGE>
(b) Financial futures contracts--The Fund may purchase or sell in-
terest rate futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities
or the intended purchase of securities. Futures contracts are con-
tracts 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 re-
quired by the exchange on which the transaction is effected. Pur-
suant 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.
(c) Income taxes--It is the Fund's policy to comply with the require-
ments 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 trans-
actions are recorded on the dates the transactions are entered into
(the trade dates). Interest income is recognized on the accrual basis.
Discounts and market premiums are amortized into interest income.
Realized gains and losses on security transactions are determined
on the identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(f) Non-income producing investments--Written and purchased options
are non-income producing investments.
(g) Dividends and distributions--Dividends from net investment income
are declared and paid monthly. Distributions of capital gains are re-
corded on the ex-dividend dates.
<PAGE>
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). Effective January 1, 1994, the in-
vestment advisory business of FAM was reorganized from a corporation
to a limited partnership. Both prior to and after the reorganization,
ultimate control of FAM was vested with Merrill Lynch & Co., Inc.
("ML & Co."). The general partner of FAM is Princeton Services, Inc.,
an indirect wholly-owned subsidiary of ML & Co. The limited partners
are ML & Co. and Merrill Lynch Investment Management, Inc. ("MLIM"),
which is also an indirect wholly-owned subsidiary of ML & Co.
NOTES TO FINANCIAL STATEMENTS (concluded)
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, MLIM, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term secur-
ities, for the six months ended April 30, 1994 were $87,533,981 and
$106,819,311, respectively.
Net realized and unrealized gains (losses) as of April 30, 1994
were as follows:
Realized Unrealized
Gains Losses
Long-term investments $1,074,764 $(8,101,976)
Short-term investments 9,530 --
Financial futures contracts 2,064,953 --
---------- -----------
Total $3,149,247 $(8,101,976)
========== ===========
As of April 30, 1994, net unrealized depreciation for Federal in-
come tax purposes aggregated $8,101,976, of which $7,044,108 re-
lated to appreciated securities and $15,146,084 related to deprec-
iated securities. The aggregate cost of investments at April 30,
1994 for Federal income tax purposes was $608,003,864.
<PAGE>
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors
is authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Common Stock
For the six months ended April 30, 1994, shares issued and out-
standing remained constant at 30,425,258. At April 30, 1994, total
paid-in capital amounted to $426,909,946.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund that entitle their holders to receive cash di-
vidends at an annual rate that may vary for the successive dividend
periods. The yields in effect at April 30, 1994 were as follows:
Series A, 2.445%; Series B, 3.10%; Series C, 2.48%; and Series D,
3.23%.
For the six months ended April 30, 1994, there were 4,000 AMPS
shares authorized, issued and outstanding with a liquidation pre-
ference of $50,000 per share plus accumulated and unpaid dividends
of $837,018.
The Fund pays commissions to certain broker-dealers at the end of
each auction at the annual rate of one-quarter of 1% calculated
on the proceeds of each auction. For the six months ended April 30,
1994, MLPF&S, an affiliate of MLIM, earned $118,491 as commissions.
5. Subsequent Event:
On May 6, 1994, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of $0.073907
per shares, payable on May 27, 1994 to shareholders of record as of
May 17, 1994.
<PAGE>
PER SHARE INFORMATION
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Net Realized Unrealized Dividends/Distributions
Investment Gains Gains Net Investment Income Capital Gains
For the Period Income (Losses) (Losses) Common Preferred Common Preferred
<S> <C> <C> <C> <C> <C> <C> <C>
June 26, 1992++ to July 31, 1992 $.06 -- $ .28 -- -- -- --
August 1, 1992 to October 31, 1992 .26 $(.03) (1.00) $.20 $.03 -- --
November 1, 1992 to January 31, 1993 .30 (.04) .94 .25 .05 -- --
February 1, 1993 to April 30, 1993 .29 .15 .52 .24 .05 -- --
May 1, 1993 to July 31, 1993 .30 .08 .25 .25 .05 -- --
August 1, 1993 to October 31, 1993 .29 .10 .58 .25 .05 -- --
November 1, 1993 to January 31, 1994 .30 .03 .13 .25 .01 $.22 $.04
February 1, 1994 to April 30, 1994 .28 .07 (1.97) .24 .05 -- --
<CAPTION>
Net Asset Value Market Price**
For the Period High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
June 26, 1992++ to July 31, 1992 $14.57 $14.15 $15.125 $15.00 275
August 1, 1992 to October 31, 1992 14.46 13.23 15.125 13.375 943
November 1, 1992 to January 31, 1993 14.28 13.38 14.625 13.50 2,290
February 1, 1993 to April 30, 1993 15.30 14.28 15.00 14.375 3,139
May 1, 1993 to July 31, 1993 15.46 14.84 15.125 14.25 2,767
August 1, 1993 to October 31, 1993 16.17 15.29 15.75 14.875 4,395
November 1, 1993 to January 31, 1994 15.90 15.44 15.50 14.00 3,394
February 1, 1994 to April 30, 1994 15.85 13.48 15.375 12.50 2,781
<FN>
++ Commencement of Operations.
* Calculations are based upon shares of Common Stock outstanding at the end of each period.
** As reported in the consolidated transaction reporting system.
*** In thousands.
</TABLE>
