MUNIYIELD
QUALITY
FUND, INC.
FUND LOGO
Semi-Annual Report
April 30, 1997
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 repre-
sentation 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 repre-
sentation 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.
<PAGE>
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, 1997, the Common Stock of
MuniYield Quality Fund, Inc. earned $0.447 per share income
dividends, which included earned and unpaid dividends of $0.072.
This represents a net annualized yield of 6.26%, based on a month-
end per share net asset value of $14.40. Over the same period, the
total investment return on the Fund's Common Stock was +2.18%, based
on a change in per share net asset value from $14.57 to $14.40, and
assuming reinvestment of $0.450 per share income dividends.
The average yields of the Fund's Auction Market Preferred Stock for
the six-month period ended April 30, 1997 were as follows: Series A,
3.55%; Series B, 3.41%; Series C, 3.17%; and Series D, 3.43%.
<PAGE>
The Municipal Market Environment
Long-term tax-exempt revenue bonds traded in a relatively narrow
range throughout much of the six months ended April 30, 1997. By mid-
January 1997, municipal bond yields had risen to over 6% as in-
vestors reacted negatively to reports of progressively stronger
domestic economic growth. However, a continued lack of any material
inflationary pressures allowed bond yields to decline to their prior
levels by late February. Bond yields rose again as investors became
increasingly concerned that the US domestic economic strength seen
thus far in 1997 would continue and that the increase in short-term
interest rates administered by the Federal Reserve Board (FRB) in
late March would be the first in a series of such moves designed to
slow the US economy before any dormant inflationary pressures were
awakened. Long-term tax-exempt bond yields rose approximately 15
basis points (0.15%) to almost 6.15% by mid-April. Similarly, long-
term US Treasury bond yields rose over 35 basis points over the same
period to 7.16%. However, in late April economic indicators were
released showing that despite considerable economic growth, any
inflationary pressures, particularly those associated with wage
increases, were well-contained and of no immediate concern. Fixed-
income bond prices staged a significant rally during the last week
of April with long-term US Treasury bond yields falling nearly 20
basis points to end the month at 6.95%. Municipal bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined nearly 15
basis points to stand at 6.01% by April 30, 1997.
As in recent quarters, the relative stability of long-term tax-
exempt bond yields was supported by low levels of new municipal bond
issuance. Over the past six months, approximately $90 billion in
long-term tax-exempt bonds was underwritten, a decline of more than
6% versus the corresponding period a year earlier. During the three
months ended April 30, 1997, $41 billion in new long-term municipal
bonds was issued, also a 6% decline in issuance as compared to the
three-month period ended April 30, 1996. Overall investor demand has
remained strong, particularly from property and casualty insurance
companies and individual retail investors. In recent years, investor
demand has increased whenever tax-exempt bond yields have approached
or exceeded the 6% level as they have in the past few months.
Additionally, in recent months much of the new bond issuance was
dominated by a number of larger issues. These included $710 million
in New York City water bonds, $600 million in state of California
bonds, $1 billion in New York City general obligation bonds, $435
million in Dade County, Florida water and sewer revenue bonds, $450
million in Puerto Rico Electric Authority issues, and $930 million
in Port Authority of New York and New Jersey issues. These bonds
have typically been issued in states with relatively high state
income taxes and consequently generally were underwritten at yields
that were relatively unattractive to residents in other states. This
has exacerbated the general decline in overall issuance in recent
years, making the decrease in supply even more dramatic for general
market investors.
<PAGE>
The present economic situation remains nearly ideal. The domestic
economy continues to grow steadily with little, if any, sign of a
resurgence in inflation. Recent economic growth generated
considerable unexpected tax revenues for the Federal government.
Forecasts for the 1997 Federal fiscal deficit were reduced to under
$100 billion, a level not seen since the early 1980s. Such a reduced
Federal deficit enhances the prospect for a balanced Federal budget.
All of these factors support a scenario of steady, or even falling,
interest rates in the coming years. Present annual estimates of
future municipal bond issuance remain centered around $175 billion,
indicating that the current relative scarcity of tax-exempt bonds
should continue for at least the remainder of the year. Should
interest rates begin to decline later this year, either as the
result of a balanced Federal budget or continued benign inflation,
investors are unlikely to be able to purchase long-term municipal
bonds at their currently attractive levels.
Portfolio Strategy
During the past six months, we generally have maintained a neutral
outlook on the market. While we have witnessed strong economic
growth data, they were coupled with low inflation numbers. Low
inflation is typically good news for fixed-income investments while
strong economic growth is not. Anticipating potential inflationary
pressures, the FRB raised short-term interest rates in March. This
move and any further interest rate hikes may eventually slow the
economy and start a downward trend in interest rates.
Until the economy starts to show signs of a real slowdown, we expect
the municipal bond market to trade in a narrow range. However, with
the backdrop of a promised balanced budget agreement out of
Washington, yields may have a downward bias. We will continue to buy
higher-couponed, defensively structured bonds balanced by discount
coupon bonds in the 15-year--20-year maturity range. This strategy
is expected to allow us to provide an attractive tax-exempt dividend
while muting potential volatility in the municipal bond marketplace.
We expect rates of our Auction Market Preferred Stock to return to
the 3.50%--3.75% range rather than their recent seasonal level of
4%. Should this occur, the leverage of the Auction Market Preferred
Stock will be augmented even more to increase the dividend to the
Common Stock shareholder. However, should the spread between short-
term and long-term tax-exempt interest rates narrow, the benefits of
leverage will decline and the yield on the Fund's Common Stock will
be reduced. (For a complete explanation of the benefits and risks of
leveraging, see page 3 of this report to shareholders.)
<PAGE>
In Conclusion
We appreciate your ongoing interest in MuniYield Quality Fund, Inc.,
and we look forward to serving your investment needs in the months
and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
May 30, 1997
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
prevailing short-term interest rates, and invests the proceeds in
long-term municipal bonds. The interest earned on these investments
is paid to Common Stock shareholders in the form of dividends, and
the value of these portfolio holdings is reflected in the per share
net asset value of the Fund's Common Stock. However, in order to
benefit Common Stock shareholders, the yield curve must be
positively sloped; that is, short-term interest rates must be lower
than long-term interest rates. At the same time, a period of
generally declining interest rates will benefit Common Stock
shareholders. If either of these conditions change, then the risks
of leveraging will begin to outweigh the benefits.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock
for an additional $50 million, creating a total value of $150
million available for investment in long-term municipal bonds. If
prevailing short-term interest rates are approximately 3% and long-
term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Stock (that is, its
price as listed on the New York Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
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.
<PAGE>
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
RITR Residual Interest Trust Receipts
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--3.8% AA Aa $ 19,390 Birmingham, Alabama, Special Care Facilities Financing
Authority, Revenue Refunding Bonds (Daughter's of Charity--
Saint Vincents), 5% due 11/01/2025 $ 17,093
BBB Baa1 3,000 Courtland, Alabama, IDB, IDR, Refunding (Champion
International Corporation), Series A, 7.20% due 12/01/2013 3,244
BBB Baa1 3,640 Courtland, Alabama, IDB, Solid Waste Disposal Revenue Bonds
(Champion International Corporation Project), AMT, 7% due
6/01/2022 3,798
Alaska--1.8% A- A2 5,000 Alaska Industrial Development and Export Authority
(Revolving Fund), AMT, Series A, 6.50% due 4/01/2014 5,232
NR* NR* 6,000 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds
(Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 5,905
Arizona--0.3% A1+ P1 1,000 Maricopa County, Arizona, Pollution Control Corporation,
PCR, Refunding (Arizona Public Service Company), VRDN,
Series C, 4.35% due 5/01/2029 (a) 1,000
A1+ VMIG1++ 700 Phoenix, Arizona, VRDN, UT, Series 95-2, 4.60% due 6/01/2020 (a) 700
Arkansas--0.4% AAA NR* 2,085 Arkansas State Development Finance Authority, S/F Mortgage
Revenue Bonds, AMT, Series A, 7.30% due 3/01/2013 (h) 2,205
A1+ P1 100 Clark County, Arkansas, Solid Waste Disposal Revenue Bonds
(Reynolds Metals Company Project), VRDN, AMT, 4.65%
due 8/01/2022 (a) 100
<PAGE>
California-- California State Public Works Board, Lease Revenue Bonds:
3.4% A Aaa 6,800 (Department of Corrections--Monterey County, Soledad II),
Series A, 7% due 11/01/2004 (i) 7,805
AAA Aaa 2,000 Refunding (Various University of California Projects),
Series A, 5.35% due 12/01/2015 (b) 1,915
AAA Aaa 7,000 (Various University of California Projects), Series A, 6.60%
due 12/01/2002 (i) 7,740
AAA Aaa 5,000 San Diego, California, Public Facilities Financing Authority,
Sewer Revenue Bonds, 5% due 5/15/2025 (e) 4,474
</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>
Colorado--7.5% Colorado HFA, S/F Program:
NR* Aa2 $ 2,490 AMT, Senior Series A-1, 7.40% due 11/01/2027 $ 2,744
NR* Aa2 6,990 AMT, Senior Series D-1, 7.375% due 6/01/2026 7,648
NR* Aa2 4,185 Refunding, AMT, Senior Series B-1, 7.90% due 12/01/2025 4,631
NR* Aa2 1,430 Senior Series C-2, 7.45% due 6/01/2017 1,600
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) 1,500
NR* Aaa 4,550 Colorado Health Facilities Authority Revenue Bonds (Swedish
Medical Center Project), Series A, 6.80% due 1/01/2003 (i) 5,037
Denver, Colorado, City and County Airport Revenue Bonds, AMT:
BBB Baa 10,000 Series B, 7.25% due 11/15/2023 10,745
BBB Baa 5,000 Series D, 7.75% due 11/15/2013 5,933
BBB Baa 7,250 Series D, 7.75% due 11/15/2021 7,971
Florida--2.1% AA- VMIG1++ 1,550 Dade County, Florida, IDA, Exempt Facilities Revenue
Refunding Bonds (Florida Power and Light Company), VRDN,
4.30% due 6/01/2021 (a) 1,550
AA Aa 5,000 Gainesville, Florida, Utilities System, Revenue Refunding
Bonds, Series A, 5.20% due 10/01/2022 4,628
NR* Baa 3,120 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
Education and Research Foundation Project), Series A, 7% due
9/01/2024 3,382
A1 VMIG1++ 4,100 Pinellas County, Florida, Health Facilities Authority, Revenue
Refunding Bonds (Pooled Hospital Loan Program), DATES, 4.60%
due 12/01/2015 (a) 4,100
Georgia--2.2% AA Aa 4,825 Atlanta, Georgia, GO, UT, Series A, 6.125% due 12/01/2023 4,942
A1 VMIG1++ 4,000 Burke County, Georgia, Development Authority, PCR (Georgia
Power Company--Plant Vogtle Project), VRDN, 3rd Series, 4.05%
due 7/01/2024 (a) 4,000
A A3 4,785 Monroe County, Georgia, Development Authority, PCR,
Refunding (Oglethorpe Power--Scherer), Series A, 6.80%
due 1/01/2011 5,299
<PAGE>
Hawaii--1.5% AA Aa 8,820 Honolulu, Hawaii, City and County, UT, Series A, 6.25% due
4/01/2014 9,461
Illinois--9.1% 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) 17,750
AAA Aaa 5,000 Chicago, Illinois, Wastewater Transmission Revenue
Refunding Bonds, 5.125% due 1/01/2025 (e) 4,512
BBB Baa1 21,000 Illinois Development Finance Authority, PCR, Refunding
(Illinois Power Company Project), Series A, 7.375% due
7/01/2021 23,284
AA- Aa3 2,130 Illinois Development Finance Authority Revenue Bonds
(Presbyterian Home Lake), Series B, 6.25% due 9/01/2017 2,175
NR* A1 3,750 Illinois Student Assistance Commission, Student Loan Revenue
Bonds, AMT, Sub-Series CC, 6.875% due 3/01/2015 3,929
Metropolitan Pier and Exposition Authority, Illinois, Dedicated
State Tax Revenue Refunding Bonds (McCormick Plant
Expansion Project), Series A (c)**:
AAA Aaa 16,570 5.87% due 12/15/2020 4,044
AAA Aaa 10,000 6.03% due 12/15/2022 2,159
</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>
Indiana--5.2% De Kalb County, Indiana, Redevelopment Authority
(Mini-Mill Local Public Improvement Project), Series A:
A NR* $ 3,000 6.50% due 1/15/2014 $ 3,204
A NR* 3,220 6.625% due 1/15/2017 3,442
A NR* 2,500 Indiana Bond Bank Revenue Guarantee Bonds (State Revolving
Fund Program), Series A, 6.875% due 2/01/2012 2,736
BBB Baa2 7,800 Indianapolis, Indiana, Airport Authority, Special Facilities
Revenue Bonds (Federal Express Corporation Project), AMT,
7.10% due 1/15/2017 8,393
A+ NR* 15,000 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.75% due 2/01/2020 16,109
Kansas--0.6% AAA Aaa 3,500 Kansas City, Kansas, Utility System Revenue Refunding and
Improvement Bonds, 6.375% due 9/01/2023 (e) 3,705
<PAGE>
Kentucky--4.4% NR* Baa1 5,000 Ashland, Kentucky, PCR, Refunding (Ashland Oil Incorporated
Project), 6.65% due 8/01/2009 5,278
AAA Aaa 5,000 Kentucky Housing Corporation, Housing Revenue Bonds, AMT,
Series B, 6.625% due 7/01/2026 (f) 5,152
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) 7,199
NR* NR* 5,250 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
(TJ International Project), AMT, 7% due 6/01/2024 5,431
AA Aa2 5,000 Trimble County, Kentucky, PCR (Louisville Gas and Electric
Company), AMT, Series B, 6.55% due 11/01/2020 5,251
Louisiana--2.0% NR* Baa2 11,115 Lake Charles, Louisiana, Harbor and Terminal District, Port
Facilities Revenue Refunding Bonds (Trunkline LNG Company
Project), 7.75% due 8/15/2022 12,558
Maryland--0.3% NR* Aaa 1,950 Prince Georges County, Maryland, Hospital Revenue Bonds
(Dimensions Health Corporation), 7% due 7/01/2002 (i) 2,169
Massachusetts Massachusetts Bay Transportation Authority, General
- --4.5% Transportation Systems, Revenue Refunding Bonds, Series A:
A+ A1 3,730 7% due 3/01/2011 4,286
A+ A1 3,550 7% due 3/01/2014 4,087
A+ A1 5,000 Massachusetts Bay Transportation Authority, Massachusetts
Transportation Systems, Series C, 6.10% due 3/01/2023 5,024
BBB+ Aaa 1,045 Massachusetts Municipal Wholesale Electric Company, Power
Supply System Revenue Bonds, Series B, 6.75% due 7/01/2002 (i) 1,151
AAA Aaa 3,000 Massachusetts State, HFA, Residential Development, Series D,
6.80% due 11/15/2012 (j) 3,185
Massachusetts State, HFA, S/F Housing Revenue Bonds:
A+ Aa 4,060 Series 33, 6.35% due 6/01/2017 4,177
A+ Aa 3,035 Series 37, 6.35% due 6/01/2017 3,123
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 3,800
Michigan--3.2% BBB Baa1 12,650 Dickinson County, Michigan, Economic Development
Corporation, PCR, Refunding (Champion International
Corporation Project), 5.85% due 10/01/2018 12,424
AAA Aaa 3,215 Michigan State Building Authority, Revenue Refunding Bonds,
Series I, 6.25% due 10/01/2020 (c) 3,318
A A2 4,375 Michigan State Hospital Finance Authority, Revenue Refunding
Bonds (Detroit Medical Center Obligation Group), Series A,
6.50% due 8/15/2018 4,577
</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>
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) $ 1,822
AA- Aa3 4,000 Saint Louis, Missouri, Parking Facility Revenue Bonds, 6.625%
due 12/15/2002 (i) 4,144
<PAGE>
Nebraska--1.7% AAA NR* 2,000 Nebraska Investment Finance Authority, S/F Housing Revenue
Bonds, AMT, Series C, 6.30% due 9/01/2028 2,008
AAA Aaa 9,400 Nebraska Public Power District, Power Supply System Revenue
Bonds, Series A, 5.25% due 1/01/2028 (c) 8,662
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 4,156
New Mexico--0.8% A A2 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporation Project), 6.50% due 4/01/2013 5,254
New York--11.1% New York City, New York, GO, UT:
BBB+ Baa1 5,000 Refunding, Series E, 6.50% due 2/15/2006 5,277
AAA Aaa 4,690 Series A, 7.75% due 8/15/2001(i) 5,297
BBB+ Baa1 310 Series A, 7.75% due 8/15/2017 343
BBB+ Baa1 5,000 Series B, 5.875% due 8/15/2013 4,879
BBB+ Baa1 9,055 Series F, 5.75% due 2/01/2019 8,592
BBB+ Baa1 8,825 Series G, 5.75% due 2/01/2017 8,414
BBB+ Baa1 5,000 Series K, 6.25% due 4/01/2026 4,980
AAA Aaa 8,085 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, RITR, Series RI-97-6,
6.695% due 6/15/2026 (c)(d) 7,893
New York State Environmental Facilites Corporation,
New York City Municipal Water Finance Authority, PCR
(State Water Revolving Fund):
A- Aa2 3,380 Series B, 5.25% due 6/15/2014 3,211
A Aa 2,500 Series E, 6.50% due 6/15/2014 2,645
A A3 13,450 New York State Local Government Assistance Corporation,
Series A, 6.50% due 4/01/2020 14,267
BBB Baa1 5,000 New York State Urban Development Corporation, Revenue
Refunding Bonds (Correctional Capital Facilities), 5.75%
due 1/01/2013 4,879
North Carolina-- A A2 4,500 Martin County, North Carolina, Industrial Facilities and
1.0% Pollution Control Financing Authority, Solid Waste Revenue
Bonds (Weyerhaeuser Company), AMT, 5.65% due 12/01/2023 4,288
A1+ NR* 2,200 Raleigh-Durham, North Carolina, Airport Authority, Special
Facility Revenue Refunding Bonds (American Airlines), VRDN,
Series A, 4.35% due 11/01/2015 (a) 2,200
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 10,403
</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>
South Carolina-- A A1 $ 12,000 Fairfield County, South Carolina, PCR (South Carolina Electric
5.6% and Gas Company), 6.50% due 9/01/2014 $ 12,853
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 8,427
AAA Aaa 9,500 South Carolina State Public Service Authority Revenue Bonds
(Santee Cooper), Series D, 6.625% due 7/01/2002 (i) 10,410
NR* NR* 3,800 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55%
due 11/01/2024 4,130
South Dakota-- AAA Aa1 5,500 South Dakota, HDA, Homeownership Mortgage, Refunding,
0.9% Series A, 6.45% due 5/01/2022 5,643
Tennessee--3.4% BBB Baa1 2,500 McMinn County, Tennessee, IDB, Solid Waste Revenue Bonds
(Recycling Facility--Calhoun Newsprint--Bowater), AMT, 7.40%
due 12/01/2022 2,686
AA Aa 18,050 Metropolitan Government, Nashville and Davidson Counties,
Tennessee, UT, 6.15% due 5/15/2025 18,652
Texas--3.5% AAA Aaa 2,150 Austin, Texas, Utility System Revenue Bonds (Combined Prior
Lien), 6.25% due 11/15/2019 (c) 2,224
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
BBB Baa1 1,840 Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds
(Champion International Corporation), AMT, 7.45% due 5/01/2026 1,974
A- A2 5,000 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Memorial Hospital Systems Project),
Series A, 6.60% due 6/01/2004 (i) 5,521
AA Aa3 5,000 Harris County, Texas, Toll Road Revenue Refunding Bonds,
Sub-Lien, UT, 6.75% due 8/01/2014 5,408
A+ Aa 5,900 Texas Housing Agency, Residential Development Mortgage
Revenue Bonds, Series A, 7.50% due 7/01/2015 (h) 6,264
Utah--3.6% AAA Aaa 5,000 Murray City, Utah, Hospital Revenue Bonds (IHC Health
Services Incorporated), 5% due 5/15/2022 (c) 4,397
AA Aa 15,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals Incorporated), 6.30% due 2/15/2015 15,739
A- NR* 2,710 West Valley City, Utah, Redevelopment Agency Tax Increment
Revenue Bonds, 6% due 3/01/2024 2,643
<PAGE>
Virginia--8.9% AA Aa3 5,000 Chesapeake, Virginia, Water and Sewer, UT, Series A, 5%
due 12/01/2025 4,509
Norfolk, Virginia, Capital Improvement, UT (e):
AAA Aaa 2,190 5.375% due 6/01/2016 2,125
AAA Aaa 2,190 5.375% due 6/01/2017 2,121
AAA Aaa 3,500 Richmond, Virginia, Refunding, UT, Series B, 5% due 1/15/2021 (e) 3,154
Virginia State, HDA, Commonwealth Mortgage:
AA+ Aa1 22,000 Series A, 7.15% due 1/01/2033 22,790
AA+ Aa1 5,000 Series B, Sub-Series B-1, 6.875% due 7/01/2011 5,296
AA Aa 6,470 Virginia State Public School Authority (School Financing--
1991 Resolution), Series B, 5.125% due 8/01/2014 6,092
AA Aa 10,000 Virginia State Transportation Board, Transportation Contract
Revenue Refunding Bonds (Route 28 Project), 6.50% due
4/01/2018 10,650
</TABLE>
<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>
West Virginia-- A A2 $ 5,000 Braxton County, West Virginia, Solid Waste Disposal Revenue
1.7% Bonds (Weyerhaeuser Company Project), AMT, 6.50% due
4/01/2025 $ 5,210
BBB+ Baa1 5,600 Putnam County, West Virginia, PCR, Refunding (Appalachian
Power Company Project), Series C, 6.60% due 7/01/2019 5,766
Wisconsin-- A A1 3,800 Wisconsin Housing and EDA, Housing Revenue Bonds, AMT,
0.8% Series D, 7.20% due 11/01/2013 4,007
NR* A2 1,100 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Mercy Hospital of Janesville Incorporated),
6.60% due 8/15/2022 1,136
Total Investments (Cost--$602,468)--98.5% 628,504
Other Assets Less Liabilities--1.5% 9,637
--------
Net Assets--100.0% $638,141
========
<PAGE>
<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 April 30, 1997.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at April 30, 1997.
(e)FGIC Insured.
(f)FHA Insured.
(g)Escrowed to Maturity.
(h)GNMA Collateralized.
(i)Prerefunded.
(j)FNMA Collateralized.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$602,467,836) (Note 1a) $628,504,104
Receivables:
Interest $ 11,551,122
Securities sold 10,861,731 22,412,853
------------
Deferred organization expenses (Note 1e) 4,917
Prepaid expenses and other assets 91,055
------------
Total assets 651,012,929
------------
Liabilities: Payables:
Securities purchased 8,150,794
Custodian bank (Note 1g) 3,694,643
Dividends to shareholders (Note 1f) 622,011
Investment adviser (Note 2) 260,448 12,727,896
------------
Accrued expenses and other liabilities 144,042
------------
Total liabilities 12,871,938
------------
Net Assets: Net assets $638,140,991
============
<PAGE>
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 3,949,679
Accumulated realized capital losses on investments--net
(Note 5) (18,676,016)
Accumulated distributions in excess of realized capital gains--net
(Note 1f) (78,886)
Unrealized appreciation on investments--net 26,036,268
------------
Total--Equivalent to $14.40 net asset value per share of Common
Stock (market price--$13.375) 438,140,991
------------
Total capital $638,140,991
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
April 30, 1997
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 19,259,161
Income
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,592,663
Commission fees (Note 4) 250,824
Transfer agent fees 54,751
Accounting services (Note 2) 42,448
Professional fees 39,854
Printing and shareholder reports 25,743
Custodian fees 17,989
Listing fees 15,885
Directors' fees and expenses 11,291
Pricing fees 6,971
Amortization of organization expenses (Note 1e) 2,415
Other 19,528
------------
Total expenses 2,080,362
------------
Investment income--net 17,178,799
------------
<PAGE>
Realized & Realized gain on investments--net 1,205,707
Unrealized Change in unrealized appreciation on investments--net (6,334,763)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 12,049,743
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 17,178,799 $ 34,288,678
Realized gain (loss) on investments--net 1,205,707 (5,776,283)
Change in unrealized appreciation on investments--net (6,334,763) 5,462,482
------------ ------------
Net increase in net assets resulting from operations 12,049,743 33,974,877
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (13,701,589) (27,326,111)
(Note 1f): Preferred Stock (3,361,580) (7,212,600)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (17,063,169) (34,538,711)
------------ ------------
Net Assets: Total decrease in net assets (5,013,426) (563,834)
Beginning of period 643,154,417 643,718,251
------------ ------------
End of period* $638,140,991 $643,154,417
============ ============
<FN>
*Undistributed investment income--net $ 3,949,679 $ 3,834,049
============ ============
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 Six
from information provided in the financial statements. Months Ended
April 30, For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.57 $ 14.58 $ 13.16 $ 15.95 $ 13.38
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .56 1.14 1.15 1.16 1.18
Realized and unrealized gain (loss) on
investments--net (.17) (.01) 1.43 (2.57) 2.58
-------- -------- -------- -------- --------
Total from investment operations .39 1.13 2.58 (1.41) 3.76
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.45) (.90) (.89) (.96) (.99)
Realized gain on investments--net -- -- (.02) (.22) --
In excess of realized gain on
investments--net -- -- --+++++ -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.45) (.90) (.91) (1.18) (.99)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.11) (.24) (.25) (.16) (.20)
Realized gain on investments--net -- -- --+++++ (.04) --
In excess of realized gain
investments--net -- -- --+++++ -- --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.11) (.24) (.25) (.20) (.20)
-------- -------- -------- -------- --------
Net asset value, end of period $ 14.40 $ 14.57 $ 14.58 $ 13.16 $ 15.95
======== ======== ======== ======== ========
Market price per share, end of period $ 13.375 $ 12.875 $ 12.625 $ 11.00 $ 15.25
======== ======== ======== ======== ========
Total Investment Based on market price per share 7.41%+++ 9.12% 23.63% (21.32%) 19.68%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 2.18%+++ 6.93% 19.34% (10.00%) 27.46%
======== ======== ======== ======== ========
<PAGE>
Ratios to Average Expenses, net of reimbursement .65%* .66% .66% .66% .60%
Net Assets:*** ======== ======== ======== ======== ========
Expenses .65%* .66% .66% .66% .61%
======== ======== ======== ======== ========
Investment income--net 5.39%* 5.32% 5.65% 5.50% 5.52%
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $438,141 $443,154 $443,718 $400,387 $485,376
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $200,000 $200,000 $200,000 $200,000 $200,000
======== ======== ======== ======== ========
Portfolio turnover 22.09% 68.22% 57.56% 42.31% 66.14%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,191 $ 3,216 $ 3,219 $ 3,002 $ 3,427
======== ======== ======== ======== ========
Dividends Series A--Investment income--net $ 440 $ 953 $ 961 $ 571 $ 713
Per Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net $ 423 $ 880 $ 917 $ 627 $ 685
Outstanding:++ ======== ======== ======== ======== ========
Series C--Investment income--net $ 393 $ 888 $ 977 $ 577 $ 747
======== ======== ======== ======== ========
Series D--Investment income--net $ 425 $ 885 $ 921 $ 698 $ 832
======== ======== ======== ======== ========
<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.
++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. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The Fund determines and makes available for publication the net
asset value of its Common Stock on a weekly basis. The Fund's Common
Stock is listed on the New York Stock Exchange under the symbol 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
(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.
(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.
(g) Custodian bank--The Fund recorded an amount payable to the
Custodian Bank reflecting an overnight overdraft which resulted from
a failed trade which settled the next day.
<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"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 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, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 1997 were $137,108,260 and
$144,325,900, respectively.
Net realized and unrealized gains as of April 30, 1997 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 1,205,707 $ 26,036,268
----------- ------------
Total $ 1,205,707 $ 26,036,268
=========== ============
As of April 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $26,036,268, of which $27,166,154 related to
appreciated securities and $1,129,886 related to depreciated
securities. The aggregate cost of investments at April 30, 1997 for
Federal income tax purposes was $602,467,836.
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.
<PAGE>
Common Stock
For the six months ended April 30, 1997, shares issued and
outstanding remained constant at 30,425,258. At April 30, 1997,
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
dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at April 30, 1997 were as
follows: Series A, 3.718%; Series B, 4.05%; Series C, 3.65%; and
Series D, 4.00%.
As of April 30, 1997, 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 six months ended
April 30, 1997, Merrill Lynch, Pierce, Fenner & Smith Inc., an
affiliate of FAM, earned $122,512 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 May 9, 1997, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.072447 per share, payable on May 29, 1997 to shareholders of
record as of May 19, 1997
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
<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
