MUNIYIELD
QUALITY
FUND, INC.
FUND LOGO
Annual Report
October 31, 1996
Officers and Directors
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
<PAGE>
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MQY
This report, including the financial information herein, is
transmitted to the shareholders of MuniYield 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 performance. The Fund has leveraged its
Common Stock by issuing Preferred Stock to provide the Common Stock
shareholders with a potentially higher rate of return. Leverage
creates risks for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price
of shares of the Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may affect the
yield to Common Stock shareholders. Statements and other information
herein are as dated and are subject to change.
MuniYield
Quality Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MuniYield Quality Fund, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1996, the Common Stock of MuniYield
Quality Fund, Inc. earned $0.899 per share income dividends, which
included earned and unpaid dividends of $0.076. This represents a
net annualized yield of 6.17%, based on a month-end net asset value
of $14.57 per share. Over the same period, the total investment
return on the Fund's Common Stock was +6.93%, based on a change in
per share net asset value from $14.58 to $14.57, and assuming
reinvestment of $0.898 per share income dividends.
For the six-month period ended October 31, 1996, the total
investment return on the Fund's Common Stock was +5.31%, based on a
change in per share net asset value from $14.31 to $14.57, and
assuming reinvestment of $0.444 per share income dividends.
The average yields of the Fund's Auction Market Preferred Stock for
the six-month period ended October 31, 1996 were as follows: Series
A, 3.68%; Series B, 3.37%; Series C, 3.73%; and Series D, 3.50%.
The Municipal Market Environment
Municipal bond yields generally moved lower during the six months
ended October 31, 1996. Long-term tax-exempt revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined approximately
35 basis points (0.35%) to close the six-month period ended October
31, 1996 at approximately 5.94%. The municipal bond market exhibited
considerable weekly yield volatility over the six months ended
October 31, 1996 with bond yields vacillating as much as 20 basis
points. This ongoing volatility was in response to fluctuating
evidence regarding the degree to which recent economic growth
would result in any significant increase in inflationary pressures.
Much of the evidence supporting stronger growth centered around the
strong employment growth seen in April and June with bond yields
rising in response. Other more recent economic indicators have
suggested that economic growth will not be excessive and inflationary
pressures will remain well-contained. This continued benign inflationary
environment has supported lower tax-exempt bond yields in recent months.
US Treasury bond yields have exhibited similar, albeit greater,
volatility during the six-month period ended October 31, 1996,
falling more than 20 basis points to end the period at 6.64%. Over
the past six months, tax-exempt bond yields registered significantly
greater declines than those shown by the US Treasury bond. This relative
outperformance by the municipal bond market was largely the result of
the strong technical support the tax-exempt market has enjoyed
throughout most of 1996. Perhaps most significantly, the pace of
new bond issuance has recently slowed.
<PAGE>
Over the last year, approximately $180 billion in long-term
municipal securities was issued, an increase of over 25% versus the
same period a year ago. Much of this increase was the result of
issuers seeking to refinance their existing higher-couponed debt as
interest rates declined in 1995 and early 1996. As interest rates
rose, these financings became increasingly economically impractical
and issuance declined. Over the last six months, approximately $90
billion in long-term tax-exempt securities was underwritten, an
increase of 5% versus the comparable period a year earlier. Only $41
billion in tax-exempt securities was issued in the last three
months, a 3% decline in issuance versus the October 31, 1995
quarter.
At the same time, investor demand remained consistently strong. With
nominal new-issue yields generally above 6%, retail investor
interest was steady. Additionally, investors received over $50
billion this June and July in assets derived from coupon income,
bond maturities, and proceeds from early redemptions. Annual new
bond issuance has declined in recent years and is expected to remain
below levels seen in the early 1990s. Consequently, as the higher-
couponed bonds issued in the early-to-mid 1980s were redeemed at
their first optional call date, the total number of outstanding tax-
exempt bonds has declined. This combination of a declining net
supply and significant amounts of assets helped maintain investor
demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance has led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While still historically
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor, such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
<PAGE>
Portfolio Strategy
During the third quarter of the Fund's fiscal year ended October 31,
1996, we maintained MuniYield Quality Fund, Inc.'s neutral-to-
defensive position by cutting the Fund's exposure to the bond market
and maintaining a high cash reserve position. We developed this
strategy in anticipation of stronger economic growth and the
possibility of rising inflation. The economy experienced growth
which later subsided, and inflation never rose to become a signifi-
cant problem. The bond market reacted favorably to these events, and
interest rates started to trend lower.
Upon realizing that growth and inflation would not be a problem and
that radical tax reform was not imminent, we shifted our portfolio
strategy during the Fund's fourth fiscal quarter. We returned to the
municipal bond market by lowering our cash reserve position and
structuring the portfolio to participate in any bond market rally.
While being defensive during the third fiscal quarter caused us to
miss some market opportunities, our fourth quarter strategy worked
out well. We anticipate this same strategy will continue to show
strong results over the near term. Over the last 12 months, the Fund
provided shareholders with an attractive yield and total return.
In Conclusion
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
Senior Vice President
<PAGE>
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
December 9, 1996
<TABLE>
PROXY RESULTS
<CAPTION>
During the six-month period ended October 31, 1996, MuniYield
Quality Fund, Inc. Common Stock shareholders voted on the following
proposals. The proposals were approved at a special shareholders'
meeting on September 19, 1996. The description of each proposal and
number of shares voted are as follows:
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1.To elect the Fund's Board of Directors: James H. Bodurtha 29,108,658 737,744
Herbert I. London 29,105,867 740,535
Robert R. Martin 29,101,635 744,767
Arthur Zeikel 29,101,321 745,081
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2.To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 29,102,611 185,962 557,828
<CAPTION>
During the six-month period ended October 31, 1996, MuniYield
Quality Fund, Inc. Preferred Stock shareholders (Series A, B, C and
D) voted on the following proposals. The proposals were approved at
a special shareholders' meeting on September 19, 1996. The
description of each proposal and number of shares voted are as
follows:
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1.To elect the Fund's Board of Directors:
James H. Bodurtha, Herbert I. London,
Robert R. Martin, Joseph L. May,
Andre F. Perold and Arthur Zeikel as follows: Series A 1,520 200
Series B 1,198 61
Series C 1,386 60
Series D 1,573 39
<PAGE>
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <S> <C> <C> <C>
2.To ratify the selection of Deloitte & Touche
LLP as the Fund's independent auditors
for the current fiscal year as follows: Series A 1,520 0 200
Series B 1,259 0 0
Series C 1,446 0 0
Series D 1,568 21 23
</TABLE>
THE BENEFITS AND RISKS OF LEVERAGING
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
prevailing short-term interest rates, and invests the proceeds in
long-term municipal bonds. The interest earned on these investments
is paid to Common Stock shareholders in the form of dividends, and
the value of these portfolio holdings is reflected in the per share
net asset value of the Fund's Common Stock. However, in order to
benefit Common Stock shareholders, the yield curve must be
positively sloped; that is, short-term interest rates must be lower
than long-term interest rates. At the same time, a period of
generally declining interest rates will benefit Common Stock
shareholders. If either of these conditions change, then the risks
of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock
for an additional $50 million, creating a total value of $150
million available for investment in long-term municipal bonds. If
prevailing short-term interest rates are approximately 3% and long-
term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
<PAGE>
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 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 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.
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)
DATES Daily Adjustable Tax-Exempt Securities
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
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<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--1.1% BBB Baa1 $ 3,000 Courtland, Alabama, IDB, IDR, Refunding (Champion
International Corporation), Series A, 7.20% due 12/01/2013 $ 3,239
BBB Baa1 3,640 Courtland, Alabama, IDB, Solid Waste Disposal Revenue
Bonds (Champion International Corporation Project),
AMT, 7% due 6/01/2022 3,806
<PAGE>
Alaska--1.7% A- A 5,000 Alaska Industrial Development and Export Authority
(Revolving Fund), AMT, Series A, 6.50% due 4/01/2014 5,236
NR* NR* 6,000 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds
(Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 5,878
Arizona--0.6% A1+ P1 200 Coconino County, Arizona, Pollution Control Corporation
Revenue Bonds (Arizona Public Service--Navajo Project),
VRDN, AMT, Series A, 3.65% due 10/01/2029 (a) 200
A1+ P1 200 Maricopa County, Arizona, Pollution Control Corporation,
PCR, Refunding (Arizona Public Service Company), VRDN,
Series B, 3.55% due 5/01/2029 (a) 200
AA Aa 1,825 Maricopa County, Arizona, Unified School District No. 48
(Scottsdale School Improvement), UT, 6.60% due 7/01/2012 2,075
A1+ NR* 1,600 Pima County, Arizona, IDA, Revenue Refunding Bonds (Guaranteed
Mortgage Obligation), VRDN, AMT, Series A, 3.85% due 6/30/2021 (a) 1,600
Arkansas--0.4% AAA NR* 2,235 Arkansas State Development Finance Authority, S/F Mortgage
Revenue Bonds, AMT, Series A, 7.30% due 3/01/2013 (h) 2,366
A1+ P1 100 Clark County, Arkansas, Solid Waste Disposal Revenue Bonds
(Reynolds Metals Company Project), VRDN, AMT,
3.60% due 8/01/2022 (a) 100
California--2.5% California State Public Works Board, Lease Revenue Bonds,
Series A (i):
A A 6,800 (Department of Corrections, Monterey County--Soledad II),
7% due 11/01/2004 7,957
AAA Aaa 7,000 (Various University of California Projects), 6.60%
due 12/01/2002 7,916
Colorado--8.8% AAA Aaa 3,000 Adams and Arapahoe Counties, Colorado, Joint School District
No. 28-J (Aurora), UT, Series C, 5.75% due 12/01/2005 (c) 3,178
Colorado HFA, S/F Program:
NR* Aa 2,500 AMT, Senior Series A-1, 7.40% due 11/01/2027 2,754
NR* Aa 7,000 AMT, Senior Series D-1, 7.375% due 6/01/2026 7,648
NR* Aa 4,350 Refunding, AMT, Senior Series B-1, 7.90% due 12/01/2025 4,916
NR* Aa 1,465 Senior Series C-2, 7.45% due 6/01/2017 1,635
NR* Aaa 1,350 Colorado Health Facilities Authority, Hospital Revenue Bonds
(P/SL Healthcare System Project), Series A, 6.875% due
2/15/2003 (i) 1,528
NR* Aaa 4,550 Colorado Health Facilities Authority Revenue Bonds (Swedish
Medical Center Project), Series A, 6.80% due 1/01/2003 (i) 5,122
Denver, Colorado, City and County Airport Revenue Bonds:
BBB Baa 10,000 AMT, Series B, 7.25% due 11/15/2023 10,770
BBB Baa 5,000 AMT, Series D, 7.75% due 11/15/2013 5,943
BBB Baa 7,250 AMT, Series D, 7.75% due 11/15/2021 8,029
AAA Aaa 5,000 Refunding, Series D, 5.50% due 11/15/2025 (c) 4,838
District of AAA Aaa 5,000 District of Columbia, Revenue Bonds (American University),
Columbia--0.8% 5.625% due 10/01/2026 (b) 4,876
<PAGE>
Florida--1.5% AA Aa 5,000 Gainesville, Florida, Utilities System, Revenue Refunding Bonds,
Series A, 5.20% due 10/01/2022 4,715
A1+ VMIG1++ 200 Manatee County, Florida, PCR, Refunding (Florida Power &
Light Company Project), VRDN, 3.60% due 9/01/2024 (a) 200
NR* Baa 3,405 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
Education and Research Foundation Project), Series A,
7% due 9/01/2024 3,693
A-1 VMIG1++ 900 Pinellas County, Florida, Health Facilities Authority, Revenue
Refunding Bonds (Pooled Hospital Loan Program), DATES,
3.65% due 12/01/2015 (a) 900
</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>
Georgia--1.6% AA Aa $ 4,825 Atlanta, Georgia, GO, UT, Series A, 6.125% due 12/01/2023 $ 4,995
A+ A3 4,785 Monroe County, Georgia, Development Authority, PCR, Refunding
(Oglethorpe Power Scherer), Series A, 6.80% due 1/01/2011 5,386
Hawaii--1.5% AA Aa 8,820 Honolulu, Hawaii, City and County, UT, Series A, 6.25%
due 4/01/2014 9,565
Illinois--7.3% AAA Aaa 17,000 Chicago, Illinois, Metropolitan Housing Development
Corporation, Mortgage Revenue Refunding Bonds (Housing
Development), Series A, 6.85% due 7/01/2022 (b)(f) 17,854
BBB Baa1 21,000 Illinois Development Finance Authority, PCR, Refunding
(Illinois Power Company Project), Series A, 7.375% due 7/01/2021 23,338
AA- Aa3 2,130 Illinois Development Finance Authority Revenue Bonds
(Presbyterian Home Lake), Series B, 6.25% due 9/01/2017 2,169
NR* A 3,750 Illinois Student Assistance Commission, Student Loan Revenue
Bonds, AMT, Sub-Series CC, 6.875% due 3/01/2015 3,949
Indiana--5.3% De Kalb County, Indiana, Redevelopment Authority
(Mini-Mill Local Public Improvement Project), Series A:
A NR* 3,000 6.50% due 1/15/2014 3,207
A NR* 3,220 6.625% due 1/15/2017 3,448
A NR* 2,500 Indiana Bond Bank, Revenue Guarantee (State Revolving Fund
Program), Series A, 6.875% due 2/01/2012 2,741
BBB Baa2 7,800 Indianapolis, Indiana, Airport Authority, Special Facilities
Revenue Bonds (Federal Express Corporation Project), AMT, 7.10%
due 1/15/2017 8,340
A+ NR* 15,000 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.75% due 2/01/2020 16,193
Iowa--0.7% NR* A 4,070 Iowa Student Loan Liquidity Corporation, Student Loan
Revenue Bonds (Iowa Partnership), AMT, 6.60% due 7/01/2008 4,264
<PAGE>
Kansas--0.6% AAA Aaa 3,500 Kansas City, Kansas, Utility System Revenue Refunding and
Improvement Bonds, 6.375% due 9/01/2023 (e) 3,741
Kentucky--4.4% NR* Baa1 5,000 Ashland, Kentucky, PCR, Refunding (Ashland Oil Incorporated
Project), 6.65% due 8/01/2009 5,289
AAA Aaa 5,000 Kentucky Housing Corporation, Housing Revenue Bonds, AMT,
Series B, 6.625% due 7/01/2026 (f) 5,169
AAA Aaa 6,570 Lexington--Fayette Urban County Government, Kentucky,
Governmental Project Revenue Bonds (University of Kentucky
Alumni Association Incorporated Project), 6.75% due
11/01/2020 (c) 7,358
NR* NR* 5,250 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
(TJ International Project), AMT, 7% due 6/01/2024 5,425
AA Aa2 5,000 Trimble County, Kentucky, PCR (Louisville Gas and Electric
Company), AMT, Series B, 6.55% due 11/01/2020 5,258
Louisiana--1.9% NR* Baa2 11,115 Lake Charles, Louisiana, Harbor and Terminal District, Port
Facilities Revenue Refunding Bonds (Trunkline Company
Project), 7.75% due 8/15/2022 12,538
Maryland--0.3% NR* Aaa 1,950 Prince Georges County, Maryland, Hospital Revenue Bonds
(Dimensions Health Corporation), 7% due 7/01/2002 (i) 2,219
Massachusetts-- Massachusetts Bay Transportation Authority, General
4.6% Transportation Systems, Revenue Refunding Bonds, UT, Series A:
A+ A1 3,730 7% due 3/01/2011 4,312
A+ A1 3,550 7% due 3/01/2014 4,144
BBB+ Aaa 1,045 Massachusetts Municipal Wholesale Electric Company, Power
Supply System Revenue Bonds, Series B, 6.75% due 7/01/2002 (i) 1,174
A A1 3,595 Massachusetts State Health and Educational Facilities Authority
Revenue Bonds (Brigham and Women's Hospital), Series C,
7% due 6/01/2018 3,816
</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>
Massachusetts AAA Aaa $ 3,000 Massachusetts State, HFA, Residential Development, Series D,
(concluded) 6.80% due 11/15/2012 (j) $ 3,205
Massachusetts State, HFA, S/F Housing Revenue Bonds:
A+ Aa 4,090 Series 33, 6.35% due 6/01/2017 4,222
A+ Aa 3,035 Series 37, 6.35% due 6/01/2017 3,133
AAA Aaa 5,000 Massachusetts State Water Resource Authority, Series A,
6.50% due 12/01/2001 (i) 5,539
Michigan--3.5% BBB Baa1 12,650 Dickinson County, Michigan, Economic Development Corporation,
PCR, Refunding (Champion International Corporation Project),
5.85% due 10/01/2018 12,285
A A 4,375 Michigan State Hospital Finance Authority, Revenue Refunding
Bonds (Detroit Medical Center Obligated Group), Series A,
6.50% due 8/15/2018 4,571
AA Aaa 5,000 Royal Oak, Michigan, Hospital Finance Authority, Hospital
Revenue Bonds (William Beaumont Hospital), Series D,
6.75% due 1/01/2001 (i) 5,508
<PAGE>
Missouri--0.9% AAA Aaa 2,000 Kansas City, Missouri, Municipal Assistance Corporation,
Revenue Refunding Bonds (Leasehold--H. Roe Bartle), Series A,
5% due 4/15/2020 (c) 1,852
AA- Aa3 4,000 Saint Louis, Missouri, Parking Facility Revenue Bonds, 6.625%
due 12/15/2021 4,161
Nebraska--2.5% Nebraska Public Power District Revenue Bonds, Series A (c):
AAA Aaa 7,600 Electric System, 5.25% due 1/01/2028 7,220
AAA Aaa 9,400 Power Supply System, 5.25% due 1/01/2028 8,930
Nevada--0.2% A1+ P1 1,500 Washoe County, Nevada, Water Facility Revenue Bonds
(Sierra Pacific Power Company Project), VRDN, AMT,
3.65% due 12/01/2020 (a) 1,500
New Hampshire-- NR* Baa1 4,290 New Hampshire Higher Educational and Health Facilities
0.7% Authority, Revenue Refunding Bonds (Saint Anselm College),
6.20% due 7/01/2013 4,244
New Mexico--1.1% A1+ P1 1,580 Farmington, New Mexico, PCR, Refunding (Arizona Public
Service Company), VRDN, Series B, 3.60% due 9/01/2024 (a) 1,580
A A2 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporation Project), 6.50% due 4/01/2013 5,259
New York--10.4% New York City, New York, GO, UT:
BBB+ Baa1 5,000 Refunding, Series E, 6.50% due 2/15/2006 5,289
AAA Aaa 3,535 Series A, 7.75% due 8/15/2001 (i) 4,076
BBB+ Baa1 1,465 Series A, 7.75% due 8/15/2017 1,634
BBB+ Baa1 5,000 Series B, 5.875% due 8/15/2013 4,862
BBB+ Baa1 9,055 Series F, 5.75% due 2/01/2019 8,566
BBB+ Baa1 8,825 Series G, 5.75% due 2/01/2017 8,389
BBB+ Baa1 5,000 Series K, 6.25% due 4/01/2026 4,993
AAA Aaa 7,300 New York State Dormitory Authority, Revenue Refunding Bonds
(City University System), Third Generation Resources, Series 1,
5.50% due 7/01/2024 (c) 7,097
A Aa 2,500 New York State Environmental Facilities Corporation, PCR
(State Water Revolving Fund), Series E, 6.50% due 6/15/2014 2,681
A A 13,450 New York State Local Government Assistance Corporation,
Series A, 6.50% due 4/01/2020 14,269
BBB Baa1 5,000 New York State Urban Development Corporation, Revenue
Refunding Bonds (Correctional Capital Facilities), 5.75%
due 1/01/2013 4,866
</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>
North Carolina-- NR* Aa1 $ 4,800 Craven County, North Carolina, Industrial Facilities and
2.0% Pollution Control Financing Authority Resource Bonds
(Craven Wood Energy Project), VRDN, AMT, Series C, 3.55%
due 5/01/2011 (a) $ 4,800
A A2 4,500 Martin County, North Carolina, Industrial Facilities and
Pollution Control Financing Authority Revenue Bonds (Solid
Waste--Weyerhaeuser Company), AMT, 5.65% due 12/01/2023 4,378
NR* VMIG1++ 4,000 Person County, North Carolina, Industrial Facilities and
Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds (Carolina Power and Light Company), DATES, AMT,
3.75% due 11/01/2016 (a) 4,000
<PAGE>
Ohio--1.6% AA- Aa3 10,000 Ohio State Air Quality Development Authority, Revenue
Refunding Bonds (Dayton Power and Light Project), Series B,
6.40% due 8/15/2027 10,462
Pennsylvania-- A1+ VMIG1++ 2,000 Philadelphia, Pennsylvania, Hospitals and Higher Education
0.3% Facilities Authority, Hospital Revenue Bonds (Children's
Hospital Project), VRDN, Series A, 3.70% due 3/01/2027 (a) 2,000
South Carolina-- A A1 12,000 Fairfield County, South Carolina, PCR (South Carolina Electric
7.6% and Gas Company), 6.50% due 9/01/2014 12,891
A- A1 8,000 Richland County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (Union Camp Corporation Project), AMT,
Series A, 6.75% due 5/01/2022 8,477
BBB Baa1 5,000 South Carolina Jobs, EDA, Economic Development Revenue
Bonds (Saint Francis Hospital--Franciscan Sisters), 7% due
7/01/2015 5,260
South Carolina State Public Service Authority Revenue Bonds
(Santee Cooper), Series D (i):
AAA Aaa 6,590 6.50% due 7/01/2002 (b) 7,334
AAA Aaa 9,500 6.625% due 7/01/2002 10,629
NR* NR* 3,800 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55% due
11/01/2024 4,134
South Dakota-- AAA Aa1 5,500 South Dakota, HDA, Homeownership Mortgage, Refunding,
0.9% Series A, 6.45% due 5/01/2022 5,624
Tennessee--3.3% BBB Baa1 2,500 McMinn County, Tennessee, IDB, Solid Waste Revenue Bonds
(Recycling Facility--Calhoun Newsprint--Bowater), AMT,
7.40% due 12/01/2022 2,695
AA Aa 18,050 Metropolitan Government, Nashville and Davidson Counties,
Tennessee, UT, 6.15% due 5/15/2025 18,575
Texas--5.1% BB+ Baa2 5,000 Alliance Airport Authority Incorporated, Texas, Special
Facilities Revenue Bonds (AMR/American Airlines Incorporated
Project), AMT, 7.50% due 12/01/2029 5,326
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 (g) 1,049
A-1 VMIG1++ 3,900 Brazos River Authority, Texas, PCR, Refunding (Texas Utilities
Electric Company), VRDN, AMT, Series C, 3.65% due
6/01/2030 (a) (b) 3,900
NR* VMIG1++ 1,400 Gulf Coast, Texas, IDA, Solid Waste Disposal Revenue Bonds
(Citgo Petroleum Corporation Project), VRDN, AMT, 3.70% due
5/01/2025 (a) 1,400
BBB Baa1 1,840 Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds
(Champion International Corporation), AMT, 7.45% due
5/01/2026 1,979
A- A 5,000 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Memorial Hospital
Systems Project), Series A, 6.60% due 6/01/2014 5,268
</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>
Texas A-1 VMIG1++ $ 1,000 Harris County, Texas, Industrial Development Corporation,
(concluded) Solid Waste Disposal Revenue Bonds (Deer Park Limited
Partnership), VRDN, AMT, Series A, 3.70% due 2/01/2023 (a) $ 1,000
AA Aa 5,000 Harris County, Texas, Toll Road Revenue Refunding Bonds,
Sub-Lien, UT, 6.75% due 8/01/2014 5,433
NR* VMIG1++ 400 Port of Port Arthur, Texas, Navigational District, PCR,
Refunding (Texaco Inc. Project), VRDN, 3.60% due 10/01/2024 (a) 400
A+ Aa 6,425 Texas Housing Agency, Residential Development Mortgage
Revenue Bonds, Series A, 7.50% due 7/01/2015 (h) 6,843
Utah--2.5% AA Aa 15,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals Inc.), 6.30% due 2/15/2015 16,012
Vermont--1.1% AA Aa 5,000 Vermont Educational and Health Buildings, Financing Agency
Revenue Bonds (Middlebury College Project), 5.375% due
11/01/2026 4,747
AAA Aaa 2,500 Vermont State Student Assistance Corporation Revenue Bonds
(Education Loan Financing Program), AMT, Series B,
6.70% due 12/15/2012 (d) 2,644
Virginia--7.0% AA Aa 5,000 Chesapeake, Virginia, Water and Sewer, UT, Series A, 5% due
12/01/2025 4,552
AA A1 1,550 Virginia Polytechnic Institute and State University Revenue
Bonds, Series A, 5.50% due 6/01/2016 1,535
Virginia State, HDA, Commonwealth Mortgage:
AA+ Aa1 22,000 Series A, 7.15% due 1/01/2033 23,114
AA+ Aa1 5,000 Series B, Sub-Series B-1, 6.875% due 7/01/2011 5,327
AA Aa 10,000 Virginia State, Transportation Board, Transportation Contract
Revenue Refunding Bonds (Route 28 Project), 6.50% due
4/01/2018 10,633
Washington--1.1% AA- Aaa 6,250 Lewis County, Washington, Public Utility District No. 001
Revenue Bonds (Cowlitz Falls Hydroelectric Project), 7% due
10/01/2001 (i) 7,041
West Virginia-- A P1 5,000 Braxton County, West Virginia, Solid Waste Disposal Revenue
1.7% Bonds (Weyerhaeuser Company Project), AMT, 6.50% due
4/01/2025 5,247
BBB+ Baa1 5,600 Putnam County, West Virginia, PCR, Refunding (Appalachian
Power Company Project), Series C, 6.60% due 7/01/2019 5,795
Wisconsin--0.8% A A1 3,800 Wisconsin Housing and EDA, Housing Revenue Bonds, AMT,
Series D, 7.20% due 11/01/2013 4,021
NR* A 1,100 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Mercy Hospital of Janesville Incorporated),
6.60% due 8/15/2022 1,145
<PAGE>
Total Investments (Cost--$610,440)--99.9% 642,811
Other Assets Less Liabilities--0.1% 343
--------
Net Assets--100.0% $643,154
========
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at October 31, 1996.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)FSA Insured.
(e)FGIC Insured.
(f)FHA Insured.
(g)Escrowed to Maturity.
(h)GNMA Collateralized.
(i)Prerefunded.
(j)FNMA Collateralized.
++Highest short-term rating by Moody's Investors Service, Inc.
*Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$610,440,249) (Note 1a) $642,811,280
Cash 87,028
Receivables:
Interest $ 11,704,926
Securities sold 179,475 11,884,401
------------
Deferred organization expenses (Note 1e) 4,917
Prepaid expenses and other assets 91,054
------------
Total assets 654,878,680
------------
Liabilities: Payables:
Securities purchased 10,577,008
Dividends to shareholders (Note 1f) 746,870
Investment adviser (Note 2) 271,764 11,595,642
------------
Accrued expenses and other liabilities 128,621
------------
Total liabilities 11,724,263
------------
<PAGE>
Net Assets: Net assets $643,154,417
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (8,000 shares of
AMPS* issued and outstanding at $25,000 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 3,834,049
Accumulated realized capital losses on investments--net (Note 5) (19,881,723)
Accumulated distributions in excess of realized capital gains--net
(Note 1f). (78,886)
Unrealized appreciation on investments--net 32,371,031
------------
Total--Equivalent to $14.57 net asset value per share of Common
Stock (market price--$12.875) 443,154,417
------------
Total capital $643,154,417
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended October 31, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 38,515,534
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 3,215,162
Commission fees (Note 4) 504,744
Transfer agent fees 114,488
Accounting services (Note 2) 87,391
Professional fees 86,277
Printing and shareholder reports 55,575
Custodian fees 38,660
Listing fees 38,105
Directors' fees and expenses 23,187
Pricing fees 15,176
Amortization of organization expenses (Note 1e) 7,561
Other 40,530
------------
Total expenses 4,226,856
------------
Investment income--net 34,288,678
------------
<PAGE>
Realized & Realized loss on investments--net (5,776,283)
Unrealized Gain Change in unrealized appreciation on investments--net 5,462,482
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 33,974,877
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 34,288,678 $ 35,119,813
Realized loss on investments--net (5,776,283) (14,104,541)
Change in unrealized appreciation on
investments--net 5,462,482 57,751,325
------------ ------------
Net increase in net assets resulting from operations 33,974,877 78,766,597
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (27,326,111) (27,222,513)
Shareholders Preferred Stock (7,212,600) (7,552,050)
(Note 1f): Realized gain on investments--net:
Common Stock -- (501,333)
Preferred Stock -- (80,648)
In excess of realized gain on investments--net:
Common Stock -- (67,954)
Preferred Stock -- (10,932)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (34,538,711) (35,435,430)
------------ ------------
Net Assets: Total increase (decrease) in net assets (563,834) 43,331,167
Beginning of year 643,718,251 600,387,084
------------ ------------
End of year* $643,154,417 $643,718,251
============ ============
<FN>
*Undistributed investment income--net $ 3,834,049 $ 4,084,082
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the Period
The following per share data and ratios have been derived June 26,
from information provided in the financial statements. 1992++ to
For the Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.58 $ 13.16 $ 15.95 $ 13.38 $ 14.18
Operating -------- -------- -------- -------- --------
Performance: Investment income--net 1.14 1.15 1.16 1.18 .32
Realized and unrealized gain (loss) on
investments--net (.01) 1.43 (2.57) 2.58 (.75)
-------- -------- -------- -------- --------
Total from investment operations 1.13 2.58 (1.41) 3.76 (.43)
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.90) (.89) (.96) (.99) (.20)
Realized gain on investments--net -- (.02) (.22) -- --
In excess of realized gain on
investments--net -- --++++ -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.90) (.91) (1.18) (.99) (.20)
-------- -------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock -- -- -- -- (.01)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.24) (.25) (.16) (.20) (.03)
Realized gain on investments--net -- --+++++ (.04) -- --
In excess of realized gain on
investments--net -- --+++++ -- -- --
Capital charge resulting from issuance of
Preferred Stock -- -- -- -- (.13)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.24) (.25) (.20) (.20) (.16)
-------- -------- -------- -------- --------
Net asset value, end of period $ 14.57 $ 14.58 $ 13.16 $ 15.95 $ 13.38
======== ======== ======== ======== ========
Market price per share, end of period $ 12.875 $ 12.625 $ 11.00 $ 15.25 $ 13.625
======== ======== ======== ======== ========
Total Investment Based on market price per share 9.12% 23.63% (21.32%) 19.68% (7.83%)+++
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 6.93% 19.34% (10.00%) 27.46% (4.25%)+++
======== ======== ======== ======== ========
<PAGE>
Ratios to Average Expenses, net of reimbursement .66% .66% .66% .60% .14%*
Net Assets:*** ======== ======== ======== ======== ========
Expenses .66% .66% .66% .61% .59%*
======== ======== ======== ======== ========
Investment income--net 5.32% 5.65% 5.50% 5.52% 5.71%*
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $443,154 $443,718 $400,387 $485,376 $403,538
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $200,000 $200,000 $200,000 $200,000 $200,000
======== ======== ======== ======== ========
Portfolio turnover 68.22% 57.56% 42.31% 66.14% 10.12%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,216 $ 3,219 $ 3,002 $ 3,427 $ 3,018
======== ======== ======== ======== ========
Dividends Per Series A--Investment income--net $ 953 $ 961 $ 571 $ 713 $ 94
Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net $ 880 $ 917 $ 627 $ 685 $ 97
Outstanding:++++++ ======== ======== ======== ======== ========
Series C--Investment income--net $ 888 $ 977 $ 577 $ 747 $ 100
======== ======== ======== ======== ========
Series D--Investment income--net $ 885 $ 921 $ 698 $ 832 $ 103
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales 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.
++++++Dividends per share have been adjusted to reflect a two-for-
one stock split that occurred on December 1, 1994.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
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
available for publication the net asset value of its Common Stock on
a weekly basis. The Fund's Common Stock is listed on the New York
Stock Exchange under the symbol 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
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options, 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, including valuations furnished by a
pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest 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 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.
<PAGE>
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for futures transactions.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
<PAGE>
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, PSI, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1996 were $419,379,067 and
$434,466,350, respectively.
Net realized and unrealized gains (losses) as of October 31, 1996
were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $(1,003,412) $32,371,031
Short-term investments 6,910 --
Financial futures contracts (4,779,781) --
----------- -----------
Total $(5,776,283) $32,371,031
=========== ===========
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $32,371,031, of which $32,378,665
related to appreciated securities and $7,634 related to depreciated
securities. The aggregate cost of investments at October 31, 1996
for Federal income tax purposes was $610,440,249.
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 year ended October 31, 1996, shares issued and outstanding
remained constant at 30,425,258. At October 31, 1996, total paid-in
capital amounted to $426,909,946.
<PAGE>
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund 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, 1996 were as
follows: Series A, 3.70%; Series B, 3.31%; Series C, 3.39%; and
Series D, 3.36%.
As of October 31, 1996, there were 8,000 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%,
calculated on the proceeds of each auction. For the year ended
October 31, 1996, MLPF&S, an affiliate of FAM, earned $280,524 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1996, the Fund had a net capital loss carryforward of
approximately $11,565,000, of which $7,048,000 expires in 2003 and
$4,517,000 expires in 2004. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On November 8, 1996, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.075636 per share, payable on November 27, 1996 to shareholders
of record as of November 18, 1996.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
MuniYield Quality Fund, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of MuniYield
Quality Fund, Inc. as of October 31, 1996, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the four-year period
then ended and the period June 26, 1992 (commencement of operations)
to October 31, 1992. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at October
31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniYield Quality Fund, Inc. as of October 31, 1996, the results of
its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 9, 1996
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield
Quality Fund, Inc. during its taxable year ended October 31, 1996
qualify as tax-exempt interest dividends for Federal income tax
purposes. Additionally, there were no capital gains distributed by
the Fund during the year.
Please retain this information for your records.
