MUNIYIELD
QUALITY
FUND, INC.
[GRAPHICS OMITTED]
STRATEGIC
Performance
Semi-Annual Report
April 30, 1998
<PAGE>
MuniYield Quality Fund, Inc.
DEAR SHAREHOLDER
For the six months ended April 30, 1998, the Common Stock of MuniYield Quality
Fund, Inc. earned $0.439 per share income dividends, which included earned and
unpaid dividends of $0.073. This represents a net annualized yield of 5.84%,
based on a month-end net asset value of $15.15 per share. Over the same period,
the total investment return on the Fund's Common Stock was +2.87%, based on a
change in per share net asset value from $15.17 to $15.15, and assuming
reinvestment of $0.441 per share income dividends.
For the six months ended April 30, 1998, the average yields of the Fund's
Auction Market Preferred Stock were: Series A, 3.98%; Series B, 3.44%; Series C,
3.30%; and Series D, 3.56%.
The Municipal Market Environment
During the six months ended April 30, 1998, bond yields generally moved lower,
and by mid-January 1998 had declined to recent historic lows. Long-term US
Treasury bond yields declined 20 basis points (0.20%) during the same period and
stood at 5.95% by April 30, 1998. Similarly, long-term uninsured tax-exempt bond
yields, as measured by the Bond Buyer Revenue Bond Index, fell approximately 35
basis points to 5.25%, a level not seen since the mid-1970s. While low inflation
has supported lower interest rates, much of the decline in bond yields in late
1997 and early 1998 was driven more by the turmoil in Asian financial markets
than by domestic economic fundamentals. Weak economic conditions in Asia were
expected to negatively impact US growth through reduced export demand.
Additionally, inflation in the United States was also expected to decline in
response to lower prices on goods imported from Asian manufacturers.
However, in recent months, many investors have become increasingly concerned
that most of the downturn in Asia, especially in Japan, has already occurred and
any future deterioration will not be severe enough to constrain US economic
growth and inflationary pressures. These concerns served to push interest rates
higher in the latter part of the period, causing fixed-income yields to retrace
much of their earlier gains.
Thus far in 1998, the municipal bond market has experienced unexpectedly strong
supply pressures. These supply pressures have prevented tax-exempt bond yields
from declining as much as US Treasury bond yields. Over the last six months,
more than $135 billion in new tax-exempt bonds were underwritten, an increase of
over 40% compared to the same period a year ago. During the last three months,
municipalities issued more than $72 billion in new securities, an increase of
over 60% compared to the same three-month period in 1997. Additionally,
corporate issuers have also viewed current interest rate levels as an
opportunity to issue significant amounts of taxable securities. Thus far in
1998, more than $100 billion in investment-grade corporate bonds have been
underwritten, an increase of over 60% relative to the comparable period a year
ago. This sizeable corporate bond issuance has tended to support generally
higher fixed-income yields and reduce the demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely to be
maintained. Continued increases in bond issuance will require lower and lower
tax-exempt bond yields to generate the economic savings necessary for additional
municipal bond refinancings. Preliminary estimates for 1998 total municipal bond
issuance are presently in the $200 billion-$225 billion range. These estimates
suggest that recent supply pressures are likely to abate later in the year.
Municipal bond investors
1
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
received approximately $30 billion earlier this year in coupon payments, bond
maturities and proceeds from early redemptions. The demand generated by these
assets has helped offset the increase in supply seen thus far this year.
Furthermore, looking ahead, June and July have also tended to be periods of
strong investor demand as seasonal factors are likely to generate strong income
flows similar to those seen earlier this year.
It is also possible that at least some of the recent economic strength seen in
the United States will be reversed in the coming months. A particularly mild
winter has been partially responsible for a strong housing sector, as well as
other construction industries. This recent strong trend may not be sustained and
may lead to weaker construction growth later this year. Additionally, strong
economic growth in 1997 and the increased use of electronic tax filing have
resulted in larger and earlier Federal and state income tax refunds to many
individuals. These refunds appear to have supported strong consumer spending in
recent months, but may be borrowing against weaker spending later this year. In
addition, the continued impact of the Asian financial crisis on the US domestic
economy's future growth remains unclear. Barring a dramatic and unexpected
resurgence of domestic inflation, we do not believe that the Federal Reserve
Board will be willing to raise interest rates until the full impact of the Asian
situation can be established.
All these factors suggest that over the near term, tax-exempt as well as taxable
bond yields are unlikely to rise by any appreciable amount. Recent supply
pressures have caused municipal bond yield ratios to rise relative to US
Treasury bond yields. At April 30, 1998, long-term tax-exempt bond yields were
at attractive yield ratios relative to comparable US Treasury securities (over
90%), and well in excess of their expected range of 85%-88%. Any further
pressure upon the municipal market may well represent a very attractive
investment opportunity.
Portfolio Strategy
Given the volatile market environment over the six-month period ended April 30,
1998, we continued to maintain the Fund's strategy of a neutral investment
position. Our strategy has remained to keep the Fund fully invested as we await
further data regarding the Asian financial crisis and its impact on the domestic
economy. We believe our neutral position insulated the Fund from much of the
volatility experienced in the first quarter of 1998.
Looking ahead, we anticipate little change to our position, barring a further
rise in long-term interest rates. We continue to believe that economic growth
will eventually slow and in the process produce a negligible rate of inflation.
However, should the impact from the Asian economic situation accelerate and
domestic economic growth return to industry trend, our patient strategy in the
municipal market should prove to serve the Fund well.
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 ahead.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Kenneth A. Jacob
Kenneth A. Jacob
Vice President and Portfolio Manager
June 1, 1998
2
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
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.
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.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any month pay out such accumulated but undistributed income in
addition to net investment income earned in that month. As a result, the
dividends paid by the Fund for any particular month may be more or less than the
amount of net investment income earned by the Fund during such month. The Fund's
current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the Financial Information included in this report.
3
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alabama--1.1% BBB Baa1 $ 3,000 Courtland, Alabama, IDB, IDR, Refunding (Champion
International Corporation), Series A, 7.20% due 12/01/2013 $ 3,304
BBB Baa1 3,640 Courtland, Alabama, IDB, Solid Waste Disposal Revenue Bonds
(Champion International Corporation Project), AMT, 7%
due 6/01/2022 3,941
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Alaska--3.0% A- A2 5,000 Alaska Industrial Development and Export Authority
(Revolving Fund), AMT, Series A, 6.50% due 4/01/2014 5,363
Valdez, Alaska, Marine Terminal Revenue Refunding Bonds:
NR* NR* 6,000 (Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 6,331
A1+ VMIG1+ 1,700 (Exxon Pipeline Company Project), VRDN, Series A, 4.10%
due 12/01/2033 (a) 1,700
A1+ VMIG1+ 4,300 (Exxon Pipeline Company Project), VRDN, Series B, 4.10%
due 12/01/2033 (a) 4,300
A1+ VMIG1+ 2,000 (Exxon Pipeline Company Project), VRDN, Series C, 4.10%
due 12/01/2033 (a) 2,000
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Arkansas--0.0% A1+ P1 100 Clark County, Arkansas, Solid Waste Disposal Revenue Bonds
(Reynolds Metals Company Project), VRDN, AMT, 4.20%
due 8/01/2022 (a) 100
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California--3.3% California State Public Works Board, Lease Revenue Bonds,
Series A (i):
A Aaa 6,800 (Department of Corrections--Monterey County Soledad II),
7% due 11/01/2004 7,893
AAA Aaa 7,000 (Various University of California Projects), 6.60%
due 12/01/2002 7,788
AAA Aaa 6,600 Los Angeles County, California, Metropolitan Transportation
Authority, Sales Tax Revenue Bonds (Proposition C),
Second Series A, 5% due 7/01/2025 (b) 6,289
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</TABLE>
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)
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
4
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Colorado--7.3% Colorado HFA, S/F Program, AMT:
NR* Aa2 $ 2,490 Senior Series A-1, 7.40% due 11/01/2027 $ 2,796
NR* Aa2 6,990 Series D-1, 7.375% due 6/01/2026 7,813
NR* Aa2 1,260 Colorado HFA, S/F Project, Senior Series C-2, 7.45%
due 6/01/2017 1,418
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) 1,515
NR* Aaa 4,550 Colorado Health Facilities Authority Revenue Bonds (Swedish
Medical Center Project), Series A, 6.80%
due 1/01/2003 (i) 5,082
Denver, Colorado, City and County Airport Revenue Bonds:
BBB Aaa 2,045 AMT, Series B, 7.25% due 11/15/2002 (i) 2,318
BBB Baa1 7,955 AMT, Series B, 7.25% due 11/15/2023 8,794
BBB Baa1 5,000 AMT, Series D, 7.75% due 11/15/2013 6,195
BBB Baa1 5,740 AMT, Series D, 7.75% due 11/15/2021 6,368
AAA Aaa 5,000 RITR, Series 13, 6.02% due 11/15/2023 (c)(g) 4,831
AAA Aaa 5,800 E-470 Public Highway Authority, Colorado, Revenue Refunding
Bonds, Senior Series B, 5.40%** due 9/01/2025 (c) 1,309
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Florida--0.5% AA- VMIG1+ 100 Dade County, Florida, IDA, Exempt Facilities Revenue
Refunding Bonds (Florida Power and Light Company), VRDN,
4.10% due 6/01/2021 (a) 100
A1+ VMIG1+ 100 Martin County, Florida, PCR, Refunding (Florida Power and
Light Company Project), VRDN, 4.10% due 9/01/2024 (a) 100
NR* Ba2 3,120 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
Education and Research Foundation Project), Series A, 7%
due 9/01/2024 3,368
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Georgia--1.6% AA Aa3 4,825 Atlanta, Georgia, GO, UT, Series A, 6.125% due 12/01/2023 5,219
A A3 4,785 Monroe County, Georgia, Development Authority, PCR,
Refunding (Oglethorpe Power--Scherer), Series A, 6.80%
due 1/01/2011 5,531
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Illinois--13.0% AAA Aaa 10,000 Chicago, Illinois, Board of Education, RITR, UT, Series 3,
6.02% due 12/01/2027 (b)(g) 9,463
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) 17,971
BBB Baa1 21,000 Illinois Development Finance Authority, PCR, Refunding
(Illinois Power Company Project), Series A, 7.375%
due 7/01/2021 24,176
AA- Aa3 2,130 Illinois Development Finance Authority Revenue Bonds
(Presbyterian Home Lake), Series B, 6.25% due 9/01/2017 2,312
A1+ VMIG1+ 6,900 Illinois Health Facilities Authority Revenue Bonds
(Northwestern Memorial Hospital), VRDN, 3.95%
due 8/15/2025 (a) 6,900
NR* A1 3,750 Illinois Student Assistance Commission, Student Loan
Revenue Bonds, AMT, Sub-Series CC, 6.875% due 3/01/2015 3,993
Metropolitan Pier & Exposition Authority, Illinois,
Dedicated State Tax Revenue Bonds:
AAA Aaa 10,000 RITR, Series 8, 6.02% due 6/15/2027 (b)(g) 9,413
AAA Aaa 16,570 Refunding (McCormick Place Expansion Project), Series A,
5.87%** due 12/15/2020 (c) 4,802
AAA Aaa 10,000 Refunding (McCormick Place Expansion Project), Series A,
6.03%** due 12/15/2022 (c) 2,592
AAA Aaa 10,000 Will County, Illinois, Community Unit School District No.
365, Refunding (Valley View), UT, Series B, 5.45%**
due 11/01/2013 (d) 4,391
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</TABLE>
5
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Indiana--5.3% De Kalb County, Indiana, Redevelopment Authority
(Mini-Mill), Series A (l):
AAA NR* $ 3,000 6.50% due 1/15/2014 $ 3,297
AAA NR* 3,220 6.625% due 1/15/2017 3,551
AAA NR* 2,500 Indiana Bond Bank, Revenue Guaranteed Bonds (State
Revolving Fund Program), Series A, 6.875% due 2/01/2012 2,832
BBB Baa2 7,800 Indianapolis, Indiana, Airport Authority, Special
Facilities Revenue Bonds (Federal Express Corporation
Project), AMT, 7.10% due 1/15/2017 8,721
AA NR* 15,000 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Refunding, Series D, 6.75% due 2/01/2020 16,529
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Kansas--0.6% AAA Aaa 3,500 Kansas City, Kansas, Utility System Revenue Refunding and
Improvement Bonds, 6.375% due 9/01/2023 (e) 3,868
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Kentucky--4.4% NR* Baa1 5,000 Ashland, Kentucky, PCR, Refunding (Ashland Oil Incorporated
Project), 6.65% due 8/01/2009 5,390
AAA Aaa 4,955 Kentucky Housing Corporation, Housing Revenue Bonds, AMT,
Series B, 6.625% due 7/01/2026 (f) 5,282
AAA Aaa 6,570 Lexington-Fayette Urban County Government, Kentucky,
Governmental Project Revenue Bonds (University of Kentucky
Alumni Association Inc. Project), 6.75% due 11/01/2020 (c) 7,395
NR* NR* 5,250 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
(TJ International Project), AMT, 7% due 6/01/2024 5,784
AA- Aa2 5,000 Trimble County, Kentucky, PCR (Louisville Gas and Electric
Company), AMT, Series B, 6.55% due 11/01/2020 5,401
- ----------------------------------------------------------------------------------------------------------------------------------
Louisiana--1.9% NR* A3 11,115 Lake Charles, Louisiana, Harbor and Terminal District,
Port Facilities Revenue Refunding Bonds (Trunkline LNG
Company Project), 7.75% due 8/15/2022 12,749
A1+ VMIG1+ 100 Louisiana State Offshore Terminal Authority, Deepwater Port
Revenue Refunding Bonds (Loop Inc.--First Stage), VRDN,
Series A, 4.10% due 9/01/2008 (a) 100
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Maryland--0.3% NR* Aaa 1,950 Prince Georges County, Maryland, Hospital Revenue Bonds
(Dimensions Health Corporation), 7% due 7/01/2002 (i) 2,175
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Massachusetts-- Massachusetts Bay Transportation Authority, General
5.2% Transportation Systems, Refunding, Series A:
AA- A1 3,730 7% due 3/01/2011 4,469
AA- A1 3,550 7% due 3/01/2014 4,281
BBB+ Aaa 1,045 Massachusetts Municipal Wholesale Electric Company, Power
Supply System Revenue Bonds, Series B, 6.75%
due 7/01/2002 (i) 1,158
AAA Aaa 3,500 Massachusetts State HFA, Residential Development, Series D,
6.80% due 11/15/2012 (j) 3,764
Massachusetts State HFA, S/F Housing Revenue Bonds:
A+ Aa 3,960 Series 33, 6.35% due 6/01/2017 4,174
A+ Aa 3,005 Series 37, 6.35% due 6/01/2017 3,167
NR* Aaa 7,000 Massachusetts State Health and Educational Facilities
Authority Revenue Bonds (Southcoast Health System),
Series A, 4.75% due 7/01/2027 (c) 6,269
AA- Aa3 7,500 Massachusetts State Port Authority Revenue Bonds, Series A,
5% due 7/01/2027 7,072
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</TABLE>
6
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michigan--2.7% BBB Baa1 $12,650 Dickinson County, Michigan, Economic Development
Corporation, PCR, Refunding (Champion International
Corporation Project), 5.85% due 10/01/2018 $ 13,046
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 4,735
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Missouri--1.0% 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) 1,925
AA- Aa3 4,000 Saint Louis, Missouri, Parking Facility Revenue Bonds,
6.625% due 12/15/2002 (i) 4,406
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Montana--0.2% BBB Baa2 1,370 Lewis and Clark County, Montana, Environmental Revenue
Refunding Bonds (Asarco Inc. Project), 5.60% due 1/01/2027 1,371
- ----------------------------------------------------------------------------------------------------------------------------------
Nebraska--1.4% AAA Aaa 9,400 Nebraska Public Power District, Power Supply System
Revenue Bonds, Series A, 5.25% due 1/01/2028 (c) 9,233
- ----------------------------------------------------------------------------------------------------------------------------------
New Hampshire-- New Hampshire Higher Educational and Health Facilities
0.7% Authority, Revenue Refunding Bonds (Saint Anselm College):
NR* Baa1 3,410 6.20% due 7/01/2003 (i) 3,729
NR* Baa1 880 6.20% due 7/01/2013 927
- ----------------------------------------------------------------------------------------------------------------------------------
New Mexico--0.9% A1+ P1 700 Farmington, New Mexico, PCR, Refunding (Arizona
Public Service Company ), VRDN, Series B, 4.05%
due 9/01/2024 (a) 700
A A2 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporation Project), 6.50% due 4/01/2013 5,458
- ----------------------------------------------------------------------------------------------------------------------------------
New York--12.1% New York City, New York, GO, UT:
BBB+ A3 5,000 Refunding, Series E, 6.50% due 2/15/2006 5,513
BBB+ A3 2,875 Refunding, Series F, 5% due 8/01/2023 2,691
BBB+ A3 2,315 Refunding, Series J, 6% due 8/01/2017 2,452
BBB+ A3 5,000 Series B, 5.875% due 8/15/2013 5,231
BBB+ A3 9,055 Series F, 5.75% due 2/01/2019 9,320
BBB+ A3 8,825 Series G, 5.75% due 2/01/2017 9,083
BBB+ A3 5,000 Series K, 6.25% due 4/01/2006 (i) 5,591
New York City, New York, Municipal Water Financing
Authority, Water and Sewer System Revenue Bonds:
AAA Aaa 8,085 RITR, Series RI-97-6, 6.995% due 6/15/2026 (c)(g) 8,651
AAA Aaa 1,590 Series B, 5.75% due 6/15/2026 (c) 1,650
AAA Aaa 1,500 Series D, 4.75% due 6/15/2025 (e) 1,366
AA Aa3 2,375 New York City, New York, Transitional Finance Authority
Revenue Bonds (Future Tax Secured), Series B, 4.60%
due 11/15/2011 2,259
AAA Aaa 3,485 New York State Dormitory Authority Revenue Bonds (Saint
Vincent's Hospital and Medical Center), 5.75%
due 8/01/2015 (b)(f) 3,621
A+ Aa2 3,380 New York State Environmental Facilities Corporation, PCR
(State Water Revolving Fund--New York City Municipal Water
Yield Quality Fund, Inc. April 30, 1998 Finance Authority),
Series B, 5.25% due 6/15/2014 3,380
New York State Local Government Assistance Corporation,
Series A:
A+ Aaa 12,000 6.50% due 4/01/2001 (i) 12,956
A+ A3 1,000 6% due 4/01/2016 1,078
BBB+ Baa1 5,000 New York State Urban Development Corporation Revenue
Refunding Bonds (Correctional Capital Facilities), 5.75%
due 1/01/2013 5,102
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North Carolina-- A1+ NR* $ 100 Raleigh-Durham, North Carolina, Airport Authority, Special
0.0% Facilities Revenue Refunding Bonds (American Airlines),
VRDN, Series B, 4.15% due 11/01/2005 (a) $ 100
- ----------------------------------------------------------------------------------------------------------------------------------
Ohio--2.0% 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 10,770
BBB Ba1 2,500 Ohio State Solid Waste Disposal Revenue Bonds (USG
Corporation Project), AMT, 5.65% due 3/01/2033 2,470
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--1.7% NR* Aaa 7,500 Delaware County, Pennsylvania, University Authority Revenue
Bonds (Villanova University), Series A, 5%
due 12/01/2018 (c) 7,238
Harrisburg, Pennsylvania, Refunding (b)**:
NR* Aaa 1,735 Series D, 5.39% due 9/15/2018 582
NR* Aaa 1,485 Series D, 5.39% due 9/15/2020 445
NR* Aaa 1,825 Series F, 5.35% due 3/15/2018 629
NR* Aaa 1,345 Series F, 5.39% due 9/15/2018 451
NR* Aaa 2,280 Series F, 5.35% due 3/15/2019 742
NR* Aaa 2,965 Series F, 5.39% due 9/15/2020 888
- ----------------------------------------------------------------------------------------------------------------------------------
Rhode Island-- AAA Aaa 2,500 Providence, Rhode Island, GO, UT, Series A, 5.70%
0.4% due 7/15/2019 (d) 2,594
- ----------------------------------------------------------------------------------------------------------------------------------
South Carolina-- A A1 12,000 Fairfield County, South Carolina, PCR (South Carolina
6.2% Electric and Gas Company), 6.50% due 9/01/2014 13,038
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 8,649
AAA Aaa 4,000 South Carolina State Housing Finance and Development
Authority, Mortgage Revenue Bonds, AMT, Series A-1, 5.95%
due 7/01/2029 (b) 4,150
AAA Aaa 9,500 South Carolina State Public Service Authority Revenue Bonds
(Santee Cooper), Series D, 6.625% due 7/01/2002 (i) 10,489
NR* NR* 3,800 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55%
due 11/01/2024 4,368
- ----------------------------------------------------------------------------------------------------------------------------------
South Dakota-- AAA Aa1 5,500 South Dakota, HDA, Home Ownership Mortgage Revenue
0.9% Refunding Bonds, Series A, 6.45% due 5/01/2022 5,778
- ----------------------------------------------------------------------------------------------------------------------------------
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 2,779
AAA Aa2 18,050 Metropolitan Government, Nashville and Davidson County,
Tennessee, GO, UT, 6.15% due 5/15/2002 (i) 19,538
- ----------------------------------------------------------------------------------------------------------------------------------
Texas--4.3% 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 (k) 1,154
BBB Baa1 1,840 Gulf Coast, Texas, Waste Disposal Authority Revenue Bonds
(Champion International Corporation), AMT, 7.45%
due 5/01/2026 2,023
Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds:
NR* A3 5,000 (Memorial Hospital Systems Project), Series A, 6.60%
due 6/01/2004 (i) 5,613
A1+ NR* 7,200 (Methodist Hospital), VRDN, 4.15% due 12/01/2025 (a) 7,200
AA Aa2 5,000 Harris County, Texas, Toll Road Revenue Refunding Bonds,
GO, UT, Sub-Lien, 6.75% due 8/01/2014 5,423
A1+ VMIG1+ 500 Sabine River Authority, Texas, PCR, Refunding (Texas
Utilities Project), VRDN, Series A, 4.10% due 3/01/2026
(a)(b) 500
A+ Aa 4,655 Texas Housing Agency, Residential Development Mortgage
Revenue Bonds, Series A, 7.50% due 7/01/2015 (h) 4,971
AAA Aaa 1,400 Texas State Turnpike Authority, Dallas North Thruway
Revenue Bonds (President George Bush Turnpike), 5%
due 1/01/2025 (e) 1,333
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Utah--3.0% AA Aa $15,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals Incorporated), 6.30% due 2/15/2015 $ 17,104
A- NR* 2,710 West Valley City, Utah, Redevelopment Agency, Tax
Incremental Revenue Bonds, 6% due 3/01/2024 2,807
- ----------------------------------------------------------------------------------------------------------------------------------
Virginia--7.8% AA Aa3 5,000 Chesapeake, Virginia, Water and Sewer, GO, UT, Series A,
5% due 12/01/2025 4,819
Norfolk, Virginia, Capital Improvement, GO, UT (e):
AAA Aaa 2,190 5.375% due 6/01/2016 2,221
AAA Aaa 2,190 5.375% due 6/01/2017 2,216
AAA Aaa 3,500 Richmond, Virginia, Refunding, GO, UT, Series B,
5% due 1/15/2021 (e) 3,344
Virginia State HDA, Commonwealth Mortgage Revenue Bonds:
AA+ Aa1 22,000 Series A, 7.15% due 1/01/2033 22,997
AA+ Aa1 5,000 Series B, Sub-Series B-1, 6.875% due 7/01/2011 5,285
AA Aa 10,000 Virginia State, Transportation Board, Transportation
Contract Revenue Refunding Bonds (Route 28 Project), 6.50%
due 4/01/2018 10,804
- ----------------------------------------------------------------------------------------------------------------------------------
Washington--0.8% AAA Aaa 2,000 Washington State Healthcare Facilities Authority Revenue
Refunding Bonds (Virginia Mason Medical Center), Series A,
5.125% due 8/15/2017 (c) 1,948
AAA Aaa 2,825 Washington State Public Power Supply System Revenue
Refunding Bonds (Nuclear Project No. 2), Series A, 5.70%
due 7/01/2011 (b) 2,972
- ----------------------------------------------------------------------------------------------------------------------------------
West Virginia--1.7% A A2 5,000 Braxton County, West Virginia, Solid Waste Disposal Revenue
Bonds (Weyerhaeuser Company Project), AMT, 6.50%
due 4/01/2025 5,451
BBB+ Baa1 5,600 Putnam County, West Virginia, PCR, Refunding (Appalachian
Power Company Project), Series C, 6.60% due 7/01/2019 5,977
- ----------------------------------------------------------------------------------------------------------------------------------
Wisconsin--0.8% A A1 3,800 Wisconsin Housing and EDA, Housing Revenue Bonds, AMT,
Series D, 7.20% due 11/01/2013 4,024
NR* A2 1,100 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Mercy Hospital of Janesville Inc.), 6.60%
due 8/15/2022 1,174
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$614,630)--99.5% 657,739
Other Assets Less Liabilities--0.5% 3,204
---------
Net Assets--100.0% $ 660,943
=========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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,
1998.
(b) AMBAC Insured.
(c) MBIA Insured.
(d) FSA Insured.
(e) FGIC Insured.
(f) FHA Insured.
(g) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at April 30, 1998.
(h) GNMA Collateralized.
(i) Prerefunded.
(j) FNMA Collateralized.
(k) Escrowed to maturity.
(l) Connie Lee Insured.
+ Highest short-term rating by Moody's Investors, Inc.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
See Notes to Financial Statements.
9
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of April 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $614,629,728) (Note 1a) .......... $657,739,263
Cash ....................................................................... 50,997
Receivables:
Interest ................................................................. $ 11,267,104
Securities sold .......................................................... 92,371 11,359,475
Prepaid expenses and other assets .......................................... 14,272
------------
Total assets ............................................................... 669,164,007
============
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ..................................................... 7,292,192
Dividends to shareholders (Note 1e) ...................................... 578,068
Investment adviser (Note 2) .............................................. 274,681 8,144,941
-----------
Accrued expenses and other liabilities ..................................... 75,838
------------
Total liabilities .......................................................... 8,220,779
------------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ................................................................. $660,943,228
============
- --------------------------------------------------------------------------------------------------------------------------------
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 ..................................... 4,232,900
Accumulated realized capital losses on investments--net (Note 5) ........... (13,309,153)
Unrealized appreciation on investments -- net .............................. 43,109,535
-----------
Total -- Equivalent to $15.15 net asset value per share of Common Stock
(market price -- $14.4375) ................................................. 460,943,228
------------
Total capital .............................................................. $660,943,228
============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
10
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the
Six Months Ended
April 30, 1998
- --------------------------------------------------------------------------------------------------------------------------------
Investment Income Interest and amortization of premium and discount earned $ 19,070,906
(Note 1d):
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expenses: Investment advisory fees (Note 2) .................................. $ 1,638,802
Commission fees (Note 4) ........................................... 250,101
Transfer agent fees ................................................ 50,136
Accounting services (Note 2) ....................................... 43,713
Professional fees .................................................. 43,099
Listing fees ....................................................... 18,482
Custodian fees ..................................................... 17,347
Printing and shareholder reports ................................... 16,636
Directors' fees and expenses ....................................... 11,240
Pricing fees ....................................................... 8,354
Other .............................................................. 18,865
------------
Total expenses ..................................................... 2,116,775
------------
Investment income -- net ........................................... 16,954,131
------------
- --------------------------------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized gain on investments -- net ................................ 3,322,469
ized Gain (Loss) on Change in unrealized appreciation on investments -- net ............ (4,072,999)
Investments -- Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ............... $ 16,203,601
============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1998 Oct. 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income -- net ........................................... $ 16,954,131 $ 34,604,385
Realized gain on investments -- net ................................ 3,322,469 3,328,987
Change in unrealized appreciation on investments -- net ............ (4,072,999) 14,811,503
------------ ------------
Net increase in net assets resulting from operations ............... 16,203,601 52,744,875
------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income -- net:
Shareholders Common Stock ..................................................... (13,406,129) (27,227,016)
(Note 1e): Preferred Stock .................................................. (3,500,780) (7,025,740)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (16,906,909) (34,252,756)
------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets ............................ (703,308) 18,492,119
Beginning of period ................................................ 661,646,536 643,154,417
------------ ------------
End of period* ..................................................... $660,943,228 $661,646,536
============ ============
- --------------------------------------------------------------------------------------------------------------------------------
* Undistributed investment income -- net ............................. $ 4,232,900 $ 4,185,678
============ ============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
For the Six
The following per share data and ratios have been derived Months Ended For the Year Ended October 31,
from information provided in the financial statements. April 30, ----------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 15.17 $ 14.57 $ 14.58 $ 13.16 $ 15.95
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ......................... .56 1.13 1.14 1.15 1.16
Realized and unrealized gain (loss) on
investments--net ............................... (.02) .59 (.01) 1.43 (2.57)
-------- -------- -------- -------- --------
Total from investment operations ............... .54 1.72 1.13 2.58 (1.41)
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ....................... (.44) (.89) (.90) (.89) (.96)
Realized gain on investments--net ............ -- -- -- (.02) (.22)
In excess of realized gain on investments--net -- -- -- --+ --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders ............................. (.44) (.89) (.90) (.91) (1.18)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net .................... (.12) (.23) (.24) (.25) (.16)
Realized gain on investments--net ......... -- -- -- --+ (.04)
In excess of realized gain on
investments--net .......................... -- -- -- --+ --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ....... (.12) (.23) (.24) (.25) (.20)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 15.15 $ 15.17 $ 14.57 $ 14.58 $ 13.16
======== ======== ======== ======== ========
Market price per share, end of period .......... $14.4375 $14.4375 $ 12.875 $ 12.625 $ 11.00
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share ................ 3.01%+++ 19.58% 9.12% 23.63% (21.32%)
Return:** ======== ======== ======== ======== ========
Based on net asset value per share ............. 2.87%+++ 11.03% 6.93% 19.34% (10.00%)
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ....................................... .65%* .65% .66% .66% .66%
Net Assets:*** ======== ======== ======== ======== ========
Investment income--net ......................... 5.18%* 5.32% 5.32% 5.65% 5.50%
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end
Data: of period (in thousands) ....................... $460,943 $461,647 $443,154 $443,718 $400,387
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) ................................. $200,000 $200,000 $200,000 $200,000 $200,000
======== ======== ======== ======== ========
Portfolio turnover ............................. 11.48% 36.87% 68.22% 57.56% 42.31%
- ---------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ...................... $ 3,305 $ 3,308 $ 3,216 $ 3,219 $ 3,002
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends Per Series A--Investment income--net ............... $ 488 $ 864 $ 953 $ 961 $ 571
Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net ............... $ 421 $ 892 $ 880 $ 917 $ 627
Outstanding:++ ======== ======== ======== ======== ========
Series C--Investment income--net ............... $ 404 $ 884 $ 888 $ 977 $ 577
======== ======== ======== ======== ========
Series D--Investment income--net ............... $ 436 $ 873 $ 885 $ 921 $ 698
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
+ Amount is less than $.01 per share.
++ Dividends per share have been adjusted to reflect a two-for-one stock
split that occurred on December 1, 1994.
+++ Aggregate total investment return.
See Notes to Financial Statements.
12
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Quality Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management investment
company. 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.
o Financial futures contracts--The Fund may purchase or sell financial 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.
o 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
MuniYield Quality Fund, Inc. April 30, 1998 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).
13
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
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, including
proceeds from the issuance of Preferred Stock.
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, 1998 were $74,241,576 and $112,223,991, respectively.
Net realized gains for the six months ended April 30, 1998 and net unrealized
gains as of April 30, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ............................... $ 3,322,469 $43,109,535
----------- -----------
Total ............................................... $ 3,322,469 $43,109,535
=========== ===========
- --------------------------------------------------------------------------------
As of April 30, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $43,109,535, of which $45,129,390 related to appreciated
securities and $2,019,855 related to depreciated securities.
The aggregate cost of investments at April 30, 1998 for Federal income tax
purposes was $614,629,728.
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
Shares issued and outstanding during the six months ended April 30, 1998 and the
year ended October 31, 1997 remained constant.
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,
1998 were as follows: Series A, 3.68%; Series B, 3.95%; Series C, 3.58%; and
Series D, 3.70%.
As of April 30, 1998, 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, 1998, Merrill Lynch, Pierce,
Fenner & Smith Inc., an affiliate of FAM, earned $121,768 as commissions.
5. Capital Loss Carryforward:
At October 31, 1997, the Fund had a net capital loss carryforward of
approximately $8,171,000, of which $3,654,000 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 7, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.072807 per share,
payable on May 28, 1998 to shareholders of record as of May 21, 1998.
14
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1998
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
Philip M. Mandel, Secretary
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
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 1998 were as
follows:
- ----------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- ----------------------------------------------------------------------------
AAA/Aaa........................................................... 33.9%
AA/Aa ............................................................ 23.7
A/A............................................................... 18.1
BBB/Baa........................................................... 15.8
BB/Ba............................................................. 0.5
NR (Not Rated).................................................... 3.9
Other+............................................................ 3.6
- ----------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
15
<PAGE>
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 16352 -- 4/98
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