MUNIYIELD
QUALITY
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
April 30, 1999
<PAGE>
MuniYield Quality Fund, Inc.
DEAR SHAREHOLDER
For the six months ended April 30, 1999, the Common Stock of MuniYield Quality
Fund, Inc. earned $0.429 per share income dividends, which included earned and
unpaid dividends of $0.069. This represents a net annualized yield of 5.65%,
based on a month-end per share net asset value of $15.33. Over the same period,
the total investment return on the Fund's Common Stock was +1.26%, based on a
change in per share net asset value from $15.58 to $15.33, and assuming
reinvestment of $0.435 per share income dividends.
For the six-month period ended April 30, 1999, the average yields of the Fund's
Auction Market Preferred Stock were: Series A, 3.45%; Series B, 3.02%; Series C,
2.98%; and Series D, 3.07%.
The Municipal Market Environment
During the six months ended April 30, 1999, long-term bond yields generally
moved higher. From November 1998 through mid-January 1999, long-term bond yields
traded in a relatively narrow range. However, during February, a number of
economic indicators were released that suggested that economic growth in the
United States would likely remain strong throughout most of 1999. Consequently,
long-term US Treasury bond yields rose more than 60 basis points (0.60%) to
5.70% by early March. During the remainder of the six-month period, US Treasury
bond yields traded between 5.50% and 5.70% as the lack of inflationary pressures
offset much of the concerns generated by continued strong economic growth.
During most of the period, long-term, uninsured tax-exempt bond yields exhibited
far less volatility and were largely stable. Also, long-term municipal bond
yields rose just 5 basis points to 5.29% at the end of April 1999, as measured
by the Bond Buyer Revenue Bond Index.
In recent months, the tax-exempt market was better able to withstand much of the
upward pressure on bond yields because of its stronger technical position. While
the continued positive inflationary environment limited some of the recent
increases in taxable bond yields, a deteriorating supply/demand position helped
push taxable bond yields significantly higher than municipal bond yields. Much
of the US Treasury bond market's underperformance in recent months can be
attributed to the large amounts of taxable corporate issuance. Large taxable
corporate underwritings reduced the demand for US Government securities in
recent months, pushing US Treasury bond yields higher.
On the other hand, the tax-exempt bond market enjoyed only limited new-issue
supply. During the six months ended April 30, 1999, more than $123 billion in
new long-term tax-exempt securities was underwritten, a decline of 10% compared
to the same period a year ago. Municipalities issued less than $60 billion in
long-term tax-exempt securities during the three months ended April 30, 1999, a
decline of 25% compared to the April 30, 1998 quarter. More recently, the rate
of new tax-exempt issuance has declined even further. During April 1999, just
over $15 billion in long-term tax-exempt securities was marketed, a decline of
over 33% compared to April 1998 levels. As municipal bond yields fell and
stabilized in recent quarters, the ability of municipalities to refinance
existing higher-couponed debt declined. This led to a significant decrease in
refunding issuance and an overall drop in new municipal bond supply. When
coupled with ongoing, moderate retail and institutional demand, the tax-exempt
bond market was able to avoid much of the yield volatility exhibited by US
Treasury securities.
Looking ahead, the expected combination of moderate economic growth in the
United States and continued negligible inflation suggests a relatively stable
interest rate environment. However, in recent years, bond yields reached their
annual peaks in early May and declined for the remainder of the year.
1
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
A meaningful decline in fixed-income bond yields would require either evidence
of a significant slowdown in the US economy or the resumption of concerns
regarding renewed shocks to the world's economic system. Currently, neither
condition exists or seems likely in the immediate future. In our opinion, this
suggests a continuation of the narrow trading ranges seen in recent months.
Portfolio Strategy
During the six-month period ended April 30, 1999, we shifted our strategy to a
neutral-to-defensive outlook toward the municipal bond market. We changed our
previously positive view because a domestic slowdown did not materialize and the
global economy appears to have bottomed. We increased our cash position and
moved to the sidelines while we awaited further economic data. At April 30,
1999, we maintained approximately 83% of the Fund's holdings in bonds rated A or
better by at least one of the major rating agencies.
Currently, inflation continues to be negligible and does not present any problem
at this time. However, with a robust domestic economy and a global economy
showing signs of life, we are carefully monitoring the environment for any signs
of inflation. Should the domestic economy cool, we would look for an opportunity
to re-enter the municipal bond marketplace at higher yield levels.
Short-term tax-exempt yields exhibited considerable volatility in recent months.
Interest rates paid to the Fund's Preferred Stock shareholders traded below 3%
in December 1998, reflecting heightened investor demand at year-end. Current
short-term interest rate levels reflect tax season-related pressures, which we
expect to abate soon. During the six-month period ended April 30, 1999,
leveraging generated a significant incremental yield to the Fund's Common Stock
shareholders. Because we believe that the Federal Reserve Board's monetary
policy is likely to remain in a narrow range for the remainder of the year, we
expect short-term tax-exempt interest rates to remain at, or slightly below,
current levels. However, should the spread between short-term and long-term
interest rates narrow, the benefits of the leverage will decline and, as a
result, reduce the yield to the Fund's Common Stock. (For a complete explanation
of the benefits and risks of leveraging, see page 4 of this report to
shareholders.)
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,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Kenneth A. Jacob
Kenneth A. Jacob
Vice President and Portfolio Manager
June 10, 1999
================================================================================
After more than 20 years of service, Arthur Zeikel recently retired as Chairman
of Merrill Lynch Asset Management, L.P. (MLAM). Mr. Zeikel served as President
of MLAM from 1977 to 1997 and as Chairman since December 1997. Mr. Zeikel is one
of the country's most respected leaders in asset management and presided over
the growth of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500 billion. Mr.
Zeikel will remain on MuniYield Quality Fund, Inc.'s Board of Directors. We are
pleased to announce that Terry K. Glenn has been elected President and Director
of the Fund. Mr. Glenn has held the position of Executive Vice President of MLAM
since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors in wishing
him well in his retirement from Merrill Lynch and are pleased that he will
continue as a member of the Fund's Board of Directors.
================================================================================
2
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
PROXY RESULTS
During the six-month period ended April 30, 1999, MuniYield Quality Fund, Inc.'s
Common Stock shareholders voted on the following proposals. Proposals 1 and 2
were approved at a shareholders' meeting on April 21, 1999. The meeting was
adjourned with respect to Proposal 3. The description of each proposal and
number of shares voted are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Directors: Terry K. Glenn 28,740,948 524,886
James H. Bodurtha 28,736,978 528,856
Herbert I. London 28,736,978 528,856
Robert R. Martin 28,734,685 531,149
Arthur Zeikel 28,736,978 528,856
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 28,907,819 139,412 218,603
- -----------------------------------------------------------------------------------------------------------------
3. To approve an amendment to the Articles Supplementary of the Fund. Adjourned Adjourned Adjourned
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended April 30, 1999, MuniYield Quality Fund, Inc.'s
Preferred Stock shareholders (Series A, B, C and D) voted on the following
proposals. Proposals 1 and 2 were approved at a shareholders' meeting on April
21, 1999. The meeting was adjourned with respect to Proposal 3. The description
of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn, James H. Bodurtha,
Herbert I. London, Robert R. Martin, Joseph L. May, Andre F. Perold and
Arthur Zeikel as follows:
Series A 1,520 0
Series B 679 1,003
Series C 1,929 4
Series D 1,713 0
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's independent
auditors for the current fiscal year as follows:
Series A 1,520 0 0
Series B 1,683 0 0
Series C 1,702 0 230
Series D 1,713 0 0
- ----------------------------------------------------------------------------------------------------------------
3. To approve an amendment to the Articles Supplementary of the Fund as
follows:
Series A Adjourned Adjourned Adjourned
Series B Adjourned Adjourned Adjourned
Series C Adjourned Adjourned Adjourned
Series D Adjourned Adjourned Adjourned
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
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 mu ni cipal 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 share holders. 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.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
der ivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses of invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed-rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its net
investment income to its share holders 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.
4
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
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--2.2% Jefferson County, Alabama, Sewer Revenue Bonds (d):
AAA Aaa $ 4,500 Capital Improvement Warrants, Series A, 5% due 2/01/2033 $ 4,323
AAA NR* 10,250 RIB, Series 124, 6.39% due 2/01/2036 (j) 10,636
- --------------------------------------------------------------------------------------------------------------------------------
Alaska--1.0% Valdez, Alaska, Marine Terminal Revenue Refunding Bonds:
NR* NR* 6,000 (Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 6,254
A1+ VMIG1+ 300 (Exxon Pipeline Company Project), VRDN, Series B,
4.05% due 12/01/2033 (k) 300
- --------------------------------------------------------------------------------------------------------------------------------
Arizona--1.5% A A2 5,000 Maricopa County, Arizona, IDA, Health Facilities Revenue
Refunding Bonds (Catholic Healthcare West Project), Series A,
5% due 7/01/2016 4,843
A1+ P1 4,100 Maricopa County, Arizona, Pollution Control Corporation, PCR,
Refunding (Arizona Public Service Company), VRDN, Series A,
4.10% due 5/01/2029 (k) 4,100
AA Aa1 1,000 Scottsdale, Arizona, Water and Sewer Revenue Bonds (Project
of 1989), Series E, 4.50% due 7/01/2020 924
- --------------------------------------------------------------------------------------------------------------------------------
California--3.0% AAA NR* 3,750 California Health Facilities Finance Authority, Revenue
Refunding Bonds, RIB, Series 90, 6.535% due 8/15/2028 (h)(j) 3,953
California State Public Works Board, Lease Revenue Bonds,
Series A (i):
A Aaa 6,800 (Department of Corrections), 7% due 11/01/2004 8,008
AAA Aaa 7,000 (Various University of California Projects),
6.60% due 12/01/2002 7,841
- --------------------------------------------------------------------------------------------------------------------------------
Colorado--3.7% NR* Aa2 2,190 Colorado HFA, S/F Program Revenue Bonds, AMT,
Senior Series A-1, 7.40% due 11/01/2027 2,475
Colorado Health Facilities Authority, Hospital Revenue Bonds,
Series A (i):
NR* Aaa 1,350 (P/SL Healthcare System Project), 6.875% due 2/15/2003 1,519
NR* Aaa 4,550 (Swedish Medical Center Project), 6.80% due 1/01/2003 5,094
Denver, Colorado, City and County Airport Revenue Bonds:
BBB+ Baa1 5,000 AMT, Series D, 7.75% due 11/15/2013 6,284
NR* Aaa 6,545 RITR, Series 13, 6.07% due 11/15/2023 (j) 6,703
AAA Aaa 2,855 E-470 Public Highway Authority, Colorado, Revenue Refunding
Bonds, Senior Series A, 4.75% due 9/01/2023 (h) 2,705
- --------------------------------------------------------------------------------------------------------------------------------
</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
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
5
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
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>
Delaware--0.3% AA Aa1 $ 2,135 New Castle County, Delaware, GO, 5.125% due 10/01/2012 $ 2,226
- --------------------------------------------------------------------------------------------------------------------------------
District of
Columbia--0.7% AAA Aaa 5,000 Washington D.C., Convention Center Authority, Dedicated Tax
Revenue Bonds, Senior Lien, 4.75% due 10/01/2028 (a) 4,592
- --------------------------------------------------------------------------------------------------------------------------------
Florida--2.2% AAA Aaa 6,015 Florida State Board of Education, Lottery Revenue Bonds,
Series C, 5.125% due 7/01/2015 (d) 6,178
AAA Aaa 5,260 Orange County, Florida, Tourist Development Tax Revenue
Refunding Bonds, 5.125% due 10/01/2021 (h) 5,275
NR* B1 3,120 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
Education and Research Foundation Project), Series A,
7% due 9/01/2024 3,051
- --------------------------------------------------------------------------------------------------------------------------------
Georgia--2.1% AA Aa3 4,825 Atlanta, Georgia, GO, Series A, 6.125% due 12/01/2004 (i) 5,426
A A3 4,785 Monroe County, Georgia, Development Authority, PCR,
Refunding (Oglethorpe Power Corporation--Scherer), Series A,
6.80% due 1/01/2011 5,640
A1 VMIG1+ 3,100 Putnam County, Georgia, Development Authority, PCR, Refunding
(Georgia Power Company Plant Project), VRDN,
Second Series, 4.25% due 9/01/2029 (k) 3,100
- --------------------------------------------------------------------------------------------------------------------------------
Illinois--12.7% Chicago, Illinois, Board of Education (j):
AAA NR* 6,035 GO, RIB, Series 51, 6.105% due 12/01/2027 (a) 6,017
NR* Aaa 10,000 RITR, Series 3, 6.07% due 12/01/2027 9,970
NR* Aaa 11,050 RITR, Series 39, 6.085% due 12/01/2030 11,006
AAA Aaa 2,000 Chicago, Illinois, Sales Tax Revenue Refunding Bonds,
5.25% due 1/01/2028 (d) 1,994
AAA Aaa 2,500 Chicago, Illinois, Wastewater Transmission Revenue Bonds,
Second Lien, 5.25% due 1/01/2028 (a) 2,492
Cook County, Illinois, GO (Capital Improvement), Series A (d):
AAA Aaa 4,500 5% due 11/15/2023 4,346
AAA Aaa 15,750 5% due 11/15/2028 15,116
BBB Baa1 15,000 Illinois Development Finance Authority, PCR, Refunding
(Illinois Power Company Project), Series A, 7.375% due 7/01/2021 17,309
AA- Aa3 2,130 Illinois Development Finance Authority Revenue Bonds
(Presbyterian Home Lake Project), Series B, 6.25% due 9/01/2017 2,349
NR* A1 3,750 Illinois Student Assistance Commission, Student Loan Revenue
Refunding Bonds, AMT, Sub-Series CC, 6.875% due 3/01/2015 3,960
NR* Aaa 10,000 Metropolitan Pier and Exposition Authority, Illinois, Dedicated
State Tax Revenue Bonds, RITR, Series 8, 6.07% due 6/15/2027 (j) 9,970
- --------------------------------------------------------------------------------------------------------------------------------
Indiana--5.2% De Kalb County, Indiana, Redevelopment Authority Revenue
Bonds (Mini-Mill), Series A (b):
AAA NR* 3,000 6.50% due 1/15/2014 3,337
AAA NR* 3,220 6.625% due 1/15/2017 3,593
AAA NR* 2,500 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.875% due 2/01/2012 2,854
</TABLE>
6
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
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 BBB Baa2 $ 7,800 Indianapolis, Indiana, Airport Authority, Special Facilities
(concluded) Revenue Bonds (Federal Express Corporation Project), AMT,
7.10% due 1/15/2017 $ 8,691
AA NR* 15,000 Indianapolis, Indiana, Local Public Improvement Bond Bank
Revenue Bonds, Series D, 6.75% due 2/01/2020 16,444
- --------------------------------------------------------------------------------------------------------------------------------
Kansas--0.6% Kansas City, Kansas, Utility System Revenue Refunding Bonds (d):
AAA NR* 1,140 6.375% due 9/01/2004 (i) 1,294
AAA Aaa 2,360 6.375% due 9/01/2023 2,634
- --------------------------------------------------------------------------------------------------------------------------------
Kentucky--3.6% AAA Aaa 4,935 Kentucky Housing Corporation, Housing Revenue Bonds, AMT,
Series B, 6.625% due 7/01/2026 (e) 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 11/01/2004 (h)(i) 7,596
NR* NR* 5,250 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
(TJ International Project), AMT, 7% due 6/01/2024 5,691
A+ Aa2 5,000 Trimble County, Kentucky, PCR, AMT, Series B,
6.55% due 11/01/2020 5,374
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts--8.4% AAA Aaa 11,500 Boston, Massachusetts, Water and Sewer Commission Revenue
Bonds, Senior-Series D, 5% due 11/01/2028 (d) 11,121
Massachusetts Bay Transportation Authority, Massachusetts,
Revenue Refunding Bonds (General Transportation System),
Series A:
AA- Aa3 3,730 7% due 3/01/2011 4,528
AA- Aa3 3,550 7% due 3/01/2014 4,377
Massachusetts State, HFA, S/F Housing Revenue Bonds:
A+ Aa3 3,735 Series 33, 6.35% due 6/01/2017 3,960
A+ Aa3 2,925 Series 37, 6.35% due 6/01/2017 3,102
NR* Aaa 7,000 Massachusetts State Health and Educational Facilities Authority,
Revenue Refunding Bonds (Southcoast Health System),
Series A, 4.75% due 7/01/2027 (h) 6,478
Massachusetts State Turnpike Authority, Metropolitan Highway
System, Revenue Refunding Bonds, Senior-Series A (h):
AAA Aaa 6,000 5.125% due 1/01/2023 5,931
AAA Aaa 2,000 5% due 1/01/2027 1,936
AAA Aaa 9,170 Massachusetts State Turnpike Authority, Western Turnpike
Revenue Refunding Bonds, Series A, 5.55% due 1/01/2017 (h) 9,273
NR* Aaa 2,500 Massachusetts State Water Pollution Abatement Trust,
Water Pollution Revenue Refunding Bonds (New Bedford
Program), Series A, 4.75% due 2/01/2021 (d) 2,361
AAA Aaa 2,545 Springfield, Massachusetts, GO, Refunding (Municipal Purpose
Loan), 5.25% due 11/15/2013 (f) 2,652
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
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--1.9% BBB Baa1 $12,650 Dickinson County, Michigan, Economic Development
Corporation, PCR, Refunding (Champion International
Corporation Project), 5.85% due 10/01/2018 $ 12,944
- --------------------------------------------------------------------------------------------------------------------------------
Mississippi--1.4% Jackson County, Mississippi, PCR, Refunding (Chevron U.S.A.
Inc. Project), VRDN (k):
NR* VMIG1+ 2,800 4.25% due 12/01/2016 2,800
NR* P1 1,200 4.25% due 6/01/2023 1,200
AAA Aaa 5,340 Mississippi State, GO (Capital Improvements), Series B,
4.25% due 11/01/2018 (d) 4,802
NR* P1 200 Perry County, Mississippi, PCR, Refunding (Leaf River Forest
Project), VRDN, 4.25% due 3/01/2002 (k) 200
- --------------------------------------------------------------------------------------------------------------------------------
Missouri--0.7% AA- Aa3 4,000 Saint Louis, Missouri, Parking Facilities Revenue Bonds,
6.625% due 12/15/2002 (i) 4,430
- --------------------------------------------------------------------------------------------------------------------------------
Nebraska--1.5% AAA Aaa 9,400 Nebraska Public Power District, Power Supply System
Revenue Bonds, Series A, 5.25% due 1/01/2005 (h)(i) 10,070
- --------------------------------------------------------------------------------------------------------------------------------
Nevada--0.7% A A2 5,000 Henderson, Nevada, Health Care Facilities Revenue Bonds
(Catholic Healthcare West), 5.375% due 7/01/2026 4,898
- --------------------------------------------------------------------------------------------------------------------------------
New Hampshire-- NR* NR* 3,410 New Hampshire Higher Educational and Health Facilities
0.6% Authority, Revenue Refunding Bonds (Saint Anselm College),
6.20% due 7/01/2003 (i) 3,766
- --------------------------------------------------------------------------------------------------------------------------------
New Mexico--0.8% A1+ P1 100 Farmington, New Mexico, PCR, Refunding (Arizona Public
Service Company), VRDN, Series B, 4.25% due 9/01/2024 (k) 100
A- A2 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporation Project), 6.50% due 4/01/2013 5,472
- --------------------------------------------------------------------------------------------------------------------------------
New York--13.4% A1+ VMIG1+ 2,400 Long Island Power Authority, New York, Electric System
Revenue Bonds, VRDN, Sub-Series 5, 4.25% due 5/01/2033 (k) 2,400
Municipal Assistance Corporation for New York City, New York,
Revenue Refunding Bonds:
AA Aa2 1,935 Series E, 5.50% due 7/01/2007 2,091
AA Aa2 5,000 Series O, 5.25% due 7/01/2007 5,331
AA Aa2 3,500 Series O, 5.25% due 7/01/2008 3,741
New York City, New York, GO:
A- A3 5,000 Series B, 5.875% due 8/15/2013 5,393
A- A3 9,055 Series F, 5.75% due 2/01/2019 9,569
A- A3 5,000 Series K, 6.25% due 4/01/2006 (i) 5,685
New York City, New York, GO, Refunding:
A- A3 5,000 Series E, 6.50% due 2/15/2006 5,632
A- A3 8,825 Series G, 5.75% due 2/01/2017 9,378
A- A3 2,315 Series J, 6% due 8/01/2017 2,525
New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds:
AAA Aaa 8,085 RITR, Series FR-5, 7.095% due 6/15/2026 (j) 9,277
AAA Aaa 1,590 Series B, 5.75% due 6/15/2026 (h) 1,704
A1+ VMIG1+ 1,800 VRDN, Series C, 4.20% due 6/15/2023 (d)(k) 1,800
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
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>
New York New York City, New York, Municipal Water Finance Authority,
(concluded) Water and Sewer System Revenue Refunding Bonds (d):
AAA Aaa $ 1,500 Series D, 4.75% due 6/15/2025 $ 1,412
A1+ VMIG1+ 1,400 VRDN, Series A, 4.20% due 6/15/2025 (k) 1,400
AA Aa3 7,455 New York City, New York, Transitional Finance Authority
Revenue Bonds, Future Tax Secured, Series B, 4.75%
due 11/15/2023 7,012
AAA Aaa 3,485 New York State Dormitory Authority, Revenue Refunding
Bonds (Saint Vincent's Hospital and Medical Center),
5.75% due 8/01/2015 (a)(e) 3,703
AA- Aa1 3,380 New York State Environmental Facilities Corporation, PCR
(State Water Revolving Fund), Series B, 5.25% due 6/15/2014 3,475
A+ A3 1,000 New York State Local Government Assistance Corporation
Revenue Bonds, Series A, 6% due 4/01/2016 1,091
BBB+ Baa1 5,000 New York State Urban Development Corporation, Revenue
Refunding Bonds (Correctional Capital Facilities),
5.75% due 1/01/2013 5,225
A+ Aa3 1,080 Triborough Bridge and Tunnel Authority, New York, General
Purpose Revenue Refunding Bonds, Series A, 5.50%
due 1/01/2008 1,171
- --------------------------------------------------------------------------------------------------------------------------------
North Dakota--1.0% NR* Aaa 6,750 Oliver County, North Dakota, PCR, Refunding, RIB, Series 12,
6.205% due 1/01/2027 (a)(j) 6,878
- --------------------------------------------------------------------------------------------------------------------------------
Ohio--3.8% AA+ Aa1 2,750 Ohio State, GO, Infrastructure Improvement, Series B,
5% due 2/01/2016 2,767
Ohio State Solid Waste Disposal Revenue Bonds
(USG Corporation Project), AMT:
BBB Baa3 5,000 5.60% due 8/01/2032 4,970
BBB Baa3 2,500 5.65% due 3/01/2033 2,502
AAA Aaa 10,250 Ohio State Turnpike Commission, Turnpike Revenue Bonds,
Series B, 4.75% due 2/15/2028 (d) 9,637
AAA Aaa 5,345 Ohio State Water Development Authority, Pollution Control
Facilities Revenue Bonds (Water Control Loan Fund--
Water Quality Series), 5% due 12/01/2013 (h) 5,446
- --------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--3.7% A1+ NR* 200 Pennsylvania State Higher Educational Facilities Authority,
Revenue Refunding Bonds (Carnegie Mellon University), VRDN,
Series B, 4.20% due 11/01/2027 (k) 200
AAA Aaa 6,000 Pennsylvania State Turnpike Commission, Oil Franchise Tax
Revenue Bonds, Senior Series A, 5.25% due 12/01/2017 (a) 6,136
A1+ VMIG1+ 1,200 Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds (Children's
Hospital of Philadelphia Project), VRDN, 4.20% due 3/01/2027 (k) 1,200
Southeastern Pennsylvania Transportation Authority,
Pennsylvania, Special Revenue Bonds (d):
AAA Aaa 2,650 5.40% due 3/01/2010 2,828
AAA Aaa 3,615 Series A, 5.25% due 3/01/2013 3,790
AAA Aaa 11,000 Series A, 4.75% due 3/01/2024 10,357
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
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>
Rhode Island--0.4% AAA Aaa $ 2,500 Providence, Rhode Island, GO, Series A, 5.70% due 7/15/2019 (f) $ 2,652
- --------------------------------------------------------------------------------------------------------------------------------
South Carolina--6.1% A+ A1 12,000 Fairfield County, South Carolina, PCR (South Carolina Electric
and Gas Company), 6.50% due 9/01/2014 13,155
A- A2 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 8,692
AAA Aaa 4,000 South Carolina Housing Finance and Development Authority,
Mortgage Revenue Refunding Bonds, AMT, Series A-1, 5.95%
due 7/01/2029 (a)(e) 4,197
AAA Aaa 9,500 South Carolina State Public Service Authority Revenue Bonds
(Santee Cooper), Series D, 6.625% due 7/01/2002 (i) 10,508
NR* NR* 3,800 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55%
due 11/01/2024 4,299
- --------------------------------------------------------------------------------------------------------------------------------
South Dakota--0.9% AAA Aa1 5,500 South Dakota HDA, Homeownership Mortgage Revenue
Refunding Bonds, Series A, 6.45% due 5/01/2022 5,786
- --------------------------------------------------------------------------------------------------------------------------------
Texas--4.3% AAA Aaa 8,800 Austin, Texas, Independent School District, GO,
5.125% due 8/01/2016 8,915
NR* Aaa 1,000 Bell County, Texas, Health Facilities Development Revenue
Bonds (Lutheran General Health Care System), 6.50%
due 7/01/2019 (c) 1,160
NR* NR* 5,000 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Memorial Hospital System Project),
Series A, 6.60% due 6/01/2004 (i) 5,660
A1+ NR* 1,300 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN,
4.25% due 12/01/2025 (k) 1,300
A1+ VMIG1+ 1,700 Harris County, Texas, Industrial Development Corporation,
Revenue Refunding Bonds (Shell Oil Company Project),
VRDN, 4% due 4/01/2027 (k) 1,700
AA Aaa 3,480 Texas Housing Agency, Residential Development Mortgage
Revenue Bonds, Series A, 7.50% due 7/01/2015 (e)(g) 3,710
AAA Aaa 6,070 Texas Technology University Revenue Refunding and
Improvement Bonds (Financing System), 6th Series,
5.25% due 2/15/2015 (a) 6,262
- --------------------------------------------------------------------------------------------------------------------------------
Utah--4.8% AA Aa2 15,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals Incorporated), 6.30% due 2/15/2015 17,397
AAA Aaa 12,500 Weber County, Utah, Hospital Revenue Bonds (INC Health
Services Inc.), 5% due 8/15/2030 (a) 11,929
A- NR* 2,710 West Valley City, Utah, Redevelopment Agency, Tax Increment
Revenue Bonds, 6% due 3/01/2024 2,890
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
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>
Virginia--3.4% Norfolk, Virginia, GO (Capital Improvement) (d):
AAA Aaa $ 2,190 5.375% due 6/01/2016 $ 2,270
AAA Aaa 2,190 5.375% due 6/01/2017 2,261
AA+ Aa1 17,435 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds,
Series A, 7.15% due 1/01/2033 18,225
- --------------------------------------------------------------------------------------------------------------------------------
Washington--1.2% NR* Aaa 5,000 Washington State Health Care Facilities Authority, Revenue
Refunding Bonds (Children's Hospital and Regional Medical
Center), 5% due 10/01/2028 (f) 4,778
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 (a) 3,038
- --------------------------------------------------------------------------------------------------------------------------------
West Virginia--0.8% A A2 5,000 Braxton County, West Virginia, Solid Waste Disposal Revenue Bonds
(Weyerhaeuser Company Project), AMT, 6.50% due 4/01/2025 5,422
- --------------------------------------------------------------------------------------------------------------------------------
Wisconsin--0.6% AA- A1 3,800 Wisconsin Housing and EDA, Housing Revenue Bonds, AMT,
Series D, 7.20% due 11/01/2013 4,104
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$626,367)--99.2% 661,206
Other Assets Less Liabilities--0.8% 5,239
--------
Net Assets--100.0% $666,445
========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) Connie Lee Insured.
(c) Escrowed to maturity.
(d) FGIC Insured.
(e) FHA Insured.
(f) FSA Insured.
(g) GNMA Collateralized.
(h) MBIA Insured.
(i) Prerefunded.
(j) 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, 1999.
(k) 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,
1999.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
11
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of April 30, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$626,366,509) (Note 1a) .......... $661,205,543
Cash ..................................................................... 6,125,528
Receivables:
Interest ............................................................... $ 11,247,584
Securities sold ........................................................ 5,403,389 16,650,973
------------
Prepaid expenses and other assets ........................................ 17,697
------------
Total assets ............................................................. 683,999,741
------------
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ................................................... 16,715,547
Dividends to shareholders (Note 1e) .................................... 538,768
Investment adviser (Note 2) ............................................ 293,274 17,547,589
------------
Accrued expenses and other liabilities ................................... 6,817
------------
Total liabilities ........................................................ 17,554,406
------------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ............................................................... $666,445,335
============
- ---------------------------------------------------------------------------------------------------------------------------------
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 ..................................... 4,934,926
Accumulated realized capital losses on investments--net (Note 5) ......... (238,571)
Unrealized appreciation on investments--net .............................. 34,839,034
------------
Total--Equivalent to $15.33 net asset value per share of Common Stock
(market price--$14.375) .................................................. 466,445,335
------------
Total capital ............................................................ $666,445,335
============
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
12
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
April 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned......... $ 18,862,921
(Note 1d):
- -----------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2)................................ $ 1,674,659
Commission fees (Note 4)......................................... 248,992
Transfer agent fees.............................................. 57,464
Accounting services (Note 2)..................................... 54,194
Professional fees................................................ 36,690
Custodian fees................................................... 17,727
Listing fees..................................................... 15,906
Printing and shareholder reports................................. 15,360
Directors' fees and expenses..................................... 11,496
Pricing fees..................................................... 8,053
Other............................................................ 18,618
------------
Total expenses .................................................. 2,159,159
------------
Investment income--net........................................... 16,703,762
------------
- -----------------------------------------------------------------------------------------------------------------------------
Realized & Unreal- Realized gain on investments--net ............................... 9,290,113
ized Gain (Loss) on Change in unrealized appreciation on investments--net ........... (17,080,884)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ............ $ 8,912,991
============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1999 Oct. 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ............................................ $ 16,703,762 $ 34,209,212
Realized gain on investments--net ................................. 9,290,113 7,102,938
Change in unrealized appreciation on investments--net ............. (17,080,884) 4,737,384
------------- -------------
Net increase in net assets resulting from operations .............. 8,912,991 46,049,534
------------- -------------
- -----------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders Common Stock .................................................... (13,244,997) (26,777,909)
(Note 1e): Preferred Stock ................................................. (3,120,660) (7,020,160)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders (16,365,657) (33,798,069)
------------- -------------
- -----------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets ........................... (7,452,666) 12,251,465
Beginning of period ............................................... 673,898,001 661,646,536
------------- -------------
End of period* .................................................... $ 666,445,335 $ 673,898,001
============= =============
- -----------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net .............................. $ 4,934,926 $ 4,596,821
============= =============
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended October 31,
April 30, --------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 15.58 $ 15.17 $ 14.57 $ 14.58 $ 13.16
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ......................... .55 1.12 1.13 1.14 1.15
Realized and unrealized gain (loss) on
investments--net ............................... (.26) .40 .59 (.01) 1.43
-------- -------- -------- -------- --------
Total from investment operations ............... .29 1.52 1.72 1.13 2.58
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net ....................... (.44) (.88) (.89) (.90) (.89)
Realized gain on investments--net ............ -- -- -- -- (.02)
In excess of realized gain on investments--net -- -- -- -- --+
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders ............................. (.44) (.88) (.89) (.90) (.91)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net ..................... (.10) (.23) (.23) (.24) (.25)
Realized gain on investments--net .......... -- -- -- -- --+
In excess of realized gain on
investments--net ........................... -- -- -- -- --+
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ....... (.10) (.23) (.23) (.24) (.25)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 15.33 $ 15.58 $ 15.17 $ 14.57 $ 14.58
======== ======== ======== ======== ========
Market price per share, end of period .......... $ 14.375 $15.5625 $14.4375 $ 12.875 $ 12.625
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share ................ (4.94%)++ 14.33% 19.58% 9.12% 23.63%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share ............. 1.26%++ 8.93% 11.03% 6.93% 19.34%
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ....................................... .64%* .64% .65% .66% .66%
Net Assets:*** ======== ======== ======== ======== ========
Investment income--net ......................... 4.99%* 5.12% 5.32% 5.32% 5.65%
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end
Data: of period (in thousands) ....................... $466,445 $473,898 $461,647 $443,154 $443,718
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) ................................. $200,000 $200,000 $200,000 $200,000 $200,000
======== ======== ======== ======== ========
Portfolio turnover ............................. 47.45% 42.95% 36.87% 68.22% 57.56%
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ...................... $ 3,332 $ 3,369 $ 3,308 $ 3,216 $ 3,219
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends Per Series A--Investment income--net ............... $ 431 $ 961 $ 864 $ 953 $ 961
Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net ............... $ 376 $ 879 $ 892 $ 880 $ 917
Outstanding: ======== ======== ======== ======== ========
Series C--Investment income--net ............... $ 372 $ 815 $ 884 $ 888 $ 977
======== ======== ======== ======== ========
Series D--Investment income--net ............... $ 382 $ 856 $ 873 $ 885 $ 921
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
</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.
++ Aggregate total investment return.
See Notes to Financial Statements.
15
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Quality Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management investment
company. The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which may require the use of management
accruals and estimates. 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 written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets 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
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.
16
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
(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) 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, 1999 were $306,433,786 and $308,326,457, respectively.
Net realized gains for the six months ended April 30, 1999 and net unrealized
gains as of April 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ................... $9,290,113 $34,839,034
---------- -----------
Total ................................... $9,290,113 $34,839,034
========== ===========
- --------------------------------------------------------------------------------
As of April 30, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $34,839,034, of which $37,068,846 related to appreciated
securities and $2,229,812 related to depreciated securities. The aggregate cost
of investments at April 30, 1999 for Federal income tax purposes was
$626,366,509.
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, 1999 and the
year ended October 31, 1998 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.05 per share and a liquidation preference of $25,000
per share, 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, 1999 were as follows: Series A, 3.38%; Series B, 3.60%; Series C,
3.00%; and Series D, 3.40%.
Shares issued and outstanding during the six months ended April 30, 1999 and the
year ended October 31, 1998 remained constant.
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, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $122,330 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1998, the Fund had a net capital loss carryforward of
approximately $1,083,000, all of which expires in 2004. This amount will be
available to offset like amounts of any future taxable gains.
6. Subsequent Event:
On May 6, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.068881 per share,
payable on May 27, 1999 to shareholders of record as of May 21, 1999.
17
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the securities in which
the Fund invests and this could hurt the Fund's investment returns.
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa.............................................................. 50.6%
AA/Aa ............................................................... 18.1
A/A.................................................................. 14.1
BBB/Baa.............................................................. 8.7
B/B.................................................................. 0.5
NR (Not Rated)....................................................... 3.9
Other+............................................................... 3.3
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
18
<PAGE>
MuniYield Quality Fund, Inc. April 30, 1999
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer and Philip M. Mandel, Secretary of MuniYield
Quality Fund, Inc. have recently retired. Their colleagues at Merrill Lynch
Asset Management, L.P. join the Fund's Board of Directors in wishing Mr. Richard
and Mr. Mandel well in their retirements.
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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 Whitehall Bank & Trust Company
One State Street
New York, NY 10004
NYSE Symbol
MQY
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This report, including the financial information herein, is transmitted to the
shareholders of MuniYield Quality Fund, Inc. for their information. It is not a
pro spectus, 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 vola-tility 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.
State ments and other information herein are as dated and are subject to change.
MuniYield
Quality Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #16352--4/99
[RECYCLE LOGO] Printed on post-consumer recycled paper
