MUNIYIELD
QUALITY
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
October 31, 1999
<PAGE>
MuniYield Quality Fund, Inc.
DEAR SHAREHOLDER
For the year ended October 31, 1999, the Common Stock of MuniYield Quality Fund,
Inc. earned $0.855 per share income dividends, which included earned and unpaid
dividends of $0.070. This represents a net annualized yield of 6.31%, based on a
month-end net asset value of $13.54 per share. Over the same period, the total
investment return on the Fund's Common Stock was -7.62%, based on a change in
per share net asset value from $15.58 to $13.54, and assuming reinvestment of
$0.860 per share income dividends.
For the six-month period ended October 31, 1999, the total investment return on
the Fund's Common Stock was -8.77%, based on a change in per share net asset
value from $15.33 to $13.54, and assuming reinvestment of $0.424 per share
income dividends.
For the six-month period ended October 31, 1999, the Fund's Auction Market
Preferred Stock had an average yield as follows: Series A, 3.14%; Series B,
3.24%; Series C, 3.50%; and Series D, 3.24%.
The Municipal Market Environment
The combination of steady strong domestic economic growth, improvement in
foreign economies (most notably in Japan) and increasing investor concerns
regarding potential increases in US inflation put upward pressure on bond yields
throughout the 12-month period ended October 31, 1999. Continued strong US
employment growth, particularly the decline in the US unemployment rate to 4.2%
in early June, was among the reasons the Federal Reserve Board cited for raising
short-term interest rates in late June and again in late August. US Treasury
bond yields reacted by climbing above 6.375% by late October. However, by
October 31, 1999, economic indicators were released suggesting that despite
strong economic and employment growth in the third fiscal quarter of 1999,
inflationary pressures have remained extremely well-contained. This resulted in
a significant rally in the US Treasury bond market, pushing US Treasury bond
yields downward to approximately 6.15% by October 31, 1999. During the last six
months, yields on 30-year US Treasury bonds increased more than 50 basis points
(0.50%).
Long-term tax-exempt bond yields also rose during the six months ended October
31, 1999. Until early May, the municipal bond market was able to withstand much
of the upward pressure on bond yields. However, investor concerns of additional
moves by the Federal Reserve Board to moderate US economic growth and, more
importantly, the loss of the strong technical support that the tax-exempt market
enjoyed in early 1999 helped push municipal bond yields significantly higher for
the remainder of the period. The yields on long-term tax-exempt revenue bonds
rose almost 90 basis points to 6.18% by October 31, 1999, as measured by the
Bond Buyer Revenue Bond Index.
In recent months, the significant decline in new tax-exempt bond issuance has
remained a positive factor within the municipal bond market, as it had been for
much of the past year. During the last six months, more than $110 billion in
long-term municipal bonds was issued, a decline of almost 20% compared to the
same period a year ago. During the past three months, $55 billion in municipal
bonds was underwritten, representing a decline of nearly 10% compared to the
corresponding period in 1998. Additionally, in June and July, investors received
more than $40 billion in coupon income and proceeds from bond maturities and
early bond redemptions. These proceeds have generated considerable retail
investor interest, which has helped absorb the recent diminished supply.
Although tax-exempt bond yields are at their highest level in over two years and
have attracted significant retail investor interest, institutional demand has
declined sharply. Long-term municipal mutual funds have seen consistent outflows
in recent months as the yields of individual securities have risen faster than
those of larger, more diverse mutual funds. In addition, the demand from
property/casualty insurance companies has weakened as a result of the
1
<PAGE>
MuniYield Quality Fund, Inc. October 31, 1999
losses, and anticipated losses, incurred as a result of the series of damaging
storms across much of the eastern United States. Additionally, many
institutional investors who were attracted to the municipal bond market in
recent years by historically attractive tax-exempt bond yield ratios of over 90%
have found other asset classes even more attractive. Even with a reduced supply
position, tax-exempt issuers have been forced to repeatedly raise municipal bond
yields in the attempt to attract adequate demand.
The recent relative underperformance of the municipal bond market has resulted
in an opportunity for long-term investors to purchase tax-exempt issues whose
yields are nearly identical to taxable US Treasury securities. At October 31,
1999, long-term uninsured municipal revenue bond yields were 100% of comparable
US Treasury securities. In recent months, many taxable asset classes, such as
corporate bonds, mortgage-backed securities and US agency debt, have all
accelerated debt issuance. This acceleration was initiated largely to avoid
issuing securities at year-end and to minimize any associated Year 2000 (Y2K)
problems that may develop. However, this increased issuance has also resulted in
higher yield levels in the various asset classes as lower bond prices became
necessary to attract sufficient investor demand. Going forward, it is believed
that the pace of the non-US Government debt issuance is likely to slow
significantly. As the supply of this debt declines, we would expect many
institutional investors to return to the municipal bond market and the
attractive yield ratios available.
Looking ahead, it appears to us that long-term municipal bond yields will remain
under pressure, trading in a broad range centered near current levels. Investors
are likely to remain concerned about future action by the Federal Reserve Board.
Y2K considerations may prohibit any further Federal Reserve Board moves through
the end of the year and the beginning of 2000. Any improvement in bond prices
will probably be contingent upon weakening in both US employment growth and
consumer spending. The 100 basis point rise in US Treasury bond yields seen thus
far this year may negatively affect US economic growth. The US housing market
will be among the first sectors likely to be affected, as some declines have
already been evidenced in response to higher mortgage rates. We believe that it
is also unrealistic to expect double-digit returns in US equity markets to
continue indefinitely. Much of the US consumer's wealth is tied to recent stock
market appreciation. Any slowing in these incredible growth rates is likely to
reduce consumer spending. We believe that these factors suggest that the worst
of the recent increase in bond yields has passed and stable, if not slightly
improving, bond prices may be expected.
Portfolio Strategy
With tax-exempt bond yields at their highest levels in more than two years, we
viewed the recent rise in tax-exempt interest rates as an opportunity to add
higher-yielding issues to the portfolio and to seek to enhance the Fund's
dividend into the coming years. The ability to purchase municipal bonds at
yields equal to, or in some cases above, taxable US Treasury yields has not been
available since late 1994. Past history suggests that whenever tax-exempt bond
yields rise near or above US Treasury bond yields for an extended period of
time, municipal bond portfolios generate significant total returns during the
following six months-twelve months.
Recent interest rate increases by the Federal Reserve Board have largely
restored investor confidence that US inflation will not be allowed to rise
significantly. Some decline in economic growth, particularly in the housing and
retail sectors, can already be seen in response to interest rate increases in
recent months. Consequently, we adopted a slightly above neutral portfolio
structure in an effort to take advantage of the expected decline in interest
rates in the coming months and to recapture much of the losses incurred
recently.
During most of the period, short-term tax-exempt bond yields ranged from 3.00%
to 3.375%. Short-term municipal bond yields have been much more stable than
those associated with 25-year-30-year maturity issues. This has resulted in a
significant incremental yield paid to Common Stock shareholders as a result of
the Fund's use of leverage. As the Federal Reserve Board is believed to be near
the end of its current interest rate tightening cycle, short-term tax-exempt
bond rates are expected to remain near their current levels. However, should the
spread between long-term and short-term tax-exempt rates narrow, the benefits of
the leverage will decline and the yield on the Common Stock will decline. (For a
complete explanation of the benefits and risks of leveraging, see page 4 of this
report to shareholders.)
2
<PAGE>
MuniYield Quality Fund, Inc. October 31, 1999
In Conclusion
We appreciate your ongoing interest in MuniYield Quality Fund, Inc., and we look
forward to assisting you with your financial needs in the months and years
ahead.
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
November 30, 1999
PROXY RESULTS
During the six-month period ended October 31, 1999, MuniYield Quality Fund,
Inc.'s Common Stock shareholders voted on the following proposal. Proposal 1 was
not approved at a shareholders' meeting on June 23, 1999. A description of the
proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To approve an amendment to the Articles Supplementary of the Fund. 15,696,939 995,378 800,471
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended October 31, 1999, MuniYield Quality Fund,
Inc.'s Preferred Stock shareholders (Series A, B, C and D) voted on the
following proposal. Proposal 1 was not approved at a shareholders' meeting on
June 23, 1999. A description of the proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. To approve an amendment to the Articles
Supplementary of the Fund as follows:
Series A 486 0 0
Series B 567 217 0
Series C 428 215 0
Series D 305 8 21
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
IMPORTANT TAX INFORMATION
All of the net investment income distributions paid by MuniYield Quality Fund,
Inc. during its taxable year ended October 31, 1999 qualify as tax-exempt
interest dividends for Federal income tax purposes. Additionally, there were no
capital gains distributed by the Fund during the year.
Please retain this information for your records.
3
<PAGE>
MuniYield Quality Fund, Inc. October 31, 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 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.
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
derivative 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 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.
4
<PAGE>
MuniYield Quality Fund, Inc. October 31, 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--3.1% Jefferson County, Alabama, Sewer Revenue Bonds,
Capital Improvement Warrants, Series A (d):
AAA Aaa $ 8,500 5.375% due 2/01/2036 $ 7,575
AAA Aaa 12,000 5.75% due 2/01/2038 11,396
- ------------------------------------------------------------------------------------------------------------------------------------
Alaska--1.8% AAA Aaa 1,160 Anchorage, Alaska, Water Revenue Refunding Bonds,
6% due 9/01/2024 (a) 1,150
Valdez, Alaska, Marine Terminal Revenue Refunding Bonds:
NR* NR* 6,000 (Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 6,023
A1+ VMIG1+ 300 (Exxon Pipeline Company Project), VRDN, Series B,
4.05% due 12/01/2033 (k) 300
A1+ VMIG1+ 3,825 (Exxon Pipeline Company Project), VRDN, Series C,
3.50% due 12/01/2033 (k) 3,825
- ------------------------------------------------------------------------------------------------------------------------------------
California--1.1% AAA Aaa 7,500 California Health Facilities Finance Authority, Revenue
Refunding Bonds (Sutter Health), Series A, 5.35% due
8/15/2028 (h) 6,784
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado--6.5% Colorado HFA, Revenue Bonds (S/F Program):
NR* Aa2 1,970 AMT, Senior Series A-1, 7.40% due 11/01/2027 2,145
NR* Aa2 3,000 Senior Series B-3, 6.50% due 10/01/2029 3,138
NR* Aa2 13,000 Colorado HFA, Revenue Refunding Bonds (S/F Program), AMT,
Senior Series A-2, 6.60% due 5/01/2028 13,299
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 1,469
NR* Aaa 4,550 (Swedish Medical Center Project), 6.80% due 1/01/2003 4,934
BBB+ Baa1 5,000 Denver, Colorado, City and County Airport Revenue Bonds, AMT,
Series D, 7.75% due 11/15/2013 5,865
AAA Aaa 10,000 Denver, Colorado, City and County Airport Revenue Refunding
Bonds, Series E, 5.25% due 11/15/2023 (h) 8,958
- ------------------------------------------------------------------------------------------------------------------------------------
District of District of Columbia, GO, Refunding, Series B (f):
Columbia--3.7% AAA Aaa 7,500 5.50% due 6/01/2013 7,352
AAA Aaa 7,500 5.50% due 6/01/2014 7,259
AAA Aaa 10,000 Washington D.C., Convention Center Authority, Dedicated Tax
Revenue Bonds, Senior Lien, 4.75% due 10/01/2028 (a) 7,993
- ------------------------------------------------------------------------------------------------------------------------------------
Florida--1.2% AAA Aaa 5,260 Orange County, Florida, Tourist Development Tax Revenue
Refunding Bonds, 5.125% due 10/01/2021 (h) 4,726
NR* B1 2,840 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
Education and Research Foundation Project), Series A, 7% due
9/01/2024 2,620
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia--1.7% AA Aa3 4,825 Atlanta, Georgia, GO, Series A, 6.125% due 12/01/2004 (i) 5,214
A A3 4,785 Monroe County, Georgia, Development Authority, PCR, Refunding
(Oglethorpe Power Corporation--Scherer), Series A, 6.80%
due 1/01/2011 5,242
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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.
ACES(SM) Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
DATES Daily Adjustable Tax-Exempt Securities
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
5
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MuniYield Quality Fund, Inc. October 31, 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>
Illinois--18.1% Chicago, Illinois, Board of Education, GO (Chicago School
Reform Project), Series A (a):
AAA Aaa $48,085 5.25% due 12/01/2027 $ 42,213
AAA Aaa 6,385 5.25% due 12/01/2030 5,569
AAA Aaa 12,495 Chicago, Illinois, GO (Lakefront Millennium Parking
Facilities), 5.125% due 1/01/2028 (h) 10,717
NR* Aaa 3,000 Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT, Series A,
6.35% due 10/01/2030 (l) 3,081
AAA Aaa 4,500 Chicago, Illinois, Sales Tax Revenue Refunding Bonds,
5.25% due 1/01/2028 (d) 3,950
AAA Aaa 2,500 Chicago, Illinois, Wastewater Transmission Revenue Bonds,
Second Lien, 5.25% due 1/01/2028 (a) 2,194
AAA Aaa 5,000 Chicago, Illinois, Water Revenue Refunding Bonds,
5.25% due 11/01/2027 (d) 4,390
AAA Aaa 12,255 Cook County, Illinois, GO, Capital Improvement, Series A,
5% due 11/15/2028 (d) 10,285
BBB Baa1 15,000 Illinois Development Finance Authority, PCR, Refunding
(Illinois Power Company Project), Series A, 7.375% due
7/01/2021 16,235
AAA Aa3 2,130 Illinois Development Finance Authority Revenue Bonds
(Presbyterian Home Lake Project), Series B, 6.25% due
9/01/2017 (f) 2,175
A1+ VMIG1+ 200 Illinois Health Facilities Authority, Revenue Refunding Bonds
(University of Chicago Hospitals), VRDN, 3.55% due
8/01/2026 (h)(k) 200
NR* A1 3,750 Illinois Student Assistance Commission, Student Loan Revenue
Refunding Bonds, AMT, Sub-Series CC, 6.875% due 3/01/2015 3,870
AAA Aaa 6,800 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds (McCormick
Place Expansion Project), Series A, 5.25% due 6/15/2027 (a) 5,975
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana--5.5% De Kalb County, Indiana, Redevelopment Authority Revenue
Bonds (Mini-Mill), Series A (b):
AAA NR* 3,000 6.50% due 1/15/2014 3,174
AAA NR* 3,220 6.625% due 1/15/2017 3,370
AAA NR* 2,500 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.875% due 2/01/2012 2,736
BBB Baa2 7,800 Indianapolis, Indiana, Airport Authority, Special Facilities
Revenue Bonds (Federal Express Corporation Project), AMT,
7.10% due 1/15/2017 8,308
AA NR* 15,000 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Revenue Refunding Bonds, Series D, 6.75% due 2/01/2020 15,843
- ------------------------------------------------------------------------------------------------------------------------------------
Kansas--0.6% Kansas City, Kansas, Utility System Revenue Refunding Bonds (d):
AAA NR* 1,140 6.375% due 9/01/2004 (i) 1,243
AAA Aaa 2,360 6.375% due 9/01/2023 2,416
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky--3.7% AAA Aaa 4,935 Kentucky Housing Corporation, Housing Revenue Bonds, AMT,
Series B, 6.625% due 7/01/2026 (e) 5,077
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) 7,287
NR* NR* 5,250 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
(TJ International Project), AMT, 7% due 6/01/2024 5,413
A+ Aa2 5,000 Trimble County, Kentucky, PCR, AMT, Series B, 6.55% due
11/01/2020 5,127
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana--0.1% NR* VMIG1+ 600 Louisiana State Offshore Terminal Authority, Deepwater Port
Revenue Refunding Bonds (First Stage Loop Inc.), ACES,
3.55% due 9/01/2006 (k) 600
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
MuniYield Quality Fund, Inc. October 31, 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>
Massachusetts--5.7% Massachusetts Bay Transportation Authority, Revenue
Refunding Bonds (General Transportation System):
AA- Aa3 $ 3,730 Series A, 7% due 3/01/2011 $ 4,221
AA- Aa3 3,550 Series A, 7% due 3/01/2014 4,039
AAA Aaa 10,000 Series B, 5% due 3/01/2028 (h) 8,524
Massachusetts State, HFA, S/F Housing Revenue Bonds:
A+ Aa3 3,500 Series 33, 6.35% due 6/01/2017 3,560
A+ Aa3 2,865 Series 37, 6.35% due 6/01/2017 2,914
AAA Aaa 9,170 Massachusetts State Turnpike Authority, Western Turnpike
Revenue Refunding Bonds, Series A, 5.55% due 1/01/2017 (h) 9,170
AAA Aaa 2,545 Springfield, Massachusetts, GO, Refunding (Municipal Purpose
Loan), 5.25% due 11/15/2013 (f) 2,442
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan--2.2% NR* P1 1,600 Delta County, Michigan, Economic Development Corporation,
Environmental Improvement Revenue Refunding Bonds (Mead-
Escanaba Paper), DATES, Series D, 3.50% due 12/01/2023 (k) 1,600
BBB Baa1 12,650 Dickinson County, Michigan, Economic Development Corporation,
PCR, Refunding (Champion International Corporation Project),
5.85% due 10/01/2018 11,729
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi--0.8% NR* VMIG1+ 5,155 Jackson County, Mississippi, PCR, Refunding (Chevron U.S.A.
Inc. Project), VRDN, 3.50% due 12/01/2016 (k) 5,155
- ------------------------------------------------------------------------------------------------------------------------------------
Nebraska--1.6% AAA Aaa 9,400 Nebraska Public Power District Revenue Bonds, Power Supply
System, Series A, 5.25% due 1/01/2005 (h)(i) 9,686
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada--0.9% AAA Aaa 5,710 Washoe County, Nevada, School District, GO, 5.875% due
6/01/2017 (f) 5,663
- ------------------------------------------------------------------------------------------------------------------------------------
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) 3,650
- ------------------------------------------------------------------------------------------------------------------------------------
New York--13.1% A1+ VMIG1+ 6,500 Long Island Power Authority, New York, Electric System Revenue
Bonds, VRDN, Sub-Series 5, 3.50% due 5/01/2033 (k) 6,500
AAA Aaa 14,910 Long Island Power Authority, New York, Electric System Revenue
Refunding Bonds, Series A, 5.25% due 12/01/2026 (h) 13,294
New York City, New York, GO:
A- A3 5,000 Series B, 5.875% due 8/15/2013 5,028
A- A3 9,055 Series F, 5.75% due 2/01/2019 8,708
A- A3 5,000 Series K, 6.25% due 4/01/2006 (i) 5,426
New York City, New York, GO, Refunding:
A- A3 5,000 Series E, 6.50% due 2/15/2006 5,367
A- A3 8,825 Series G, 5.75% due 2/01/2017 8,552
A- A3 2,315 Series J, 6% due 8/01/2017 2,305
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 (h)(j) 7,508
AAA Aaa 1,590 Series B, 5.75% due 6/15/2026 (h) 1,535
A1+ VMIG1+ 1,900 VRDN, Series C, 3.50% due 6/15/2022 (d)(k) 1,900
AAA NR* 4,030 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Refunding Bonds, Series B,
5.25% due 6/15/2029 (f) 3,578
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) 3,407
AA- A3 1,000 New York State Local Government Assistance Corporation
Revenue Bonds, Series A, 6% due 4/01/2016 1,010
</TABLE>
7
<PAGE>
MuniYield Quality Fund, Inc. October 31, 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 A- Baa1 $ 5,000 New York State Urban Development Corporation, Revenue
(concluded) Refunding Bonds (Correctional Capital Facilities), 5.75%
due 1/01/2013 $ 4,945
A+ Aa3 1,080 Triborough Bridge and Tunnel Authority, New York, General
Purpose Revenue Refunding Bonds, Series A, 5.50% due
1/01/2008 1,107
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina--0.1% A1+ NR* 400 Raleigh-Durham, North Carolina, Airport Authority, Special
Facility Revenue Refunding Bonds (American Airlines), VRDN,
Series A, 3.55% due 11/01/2005 (k) 400
- ------------------------------------------------------------------------------------------------------------------------------------
North Dakota--2.0% AAA Aaa 13,500 Oliver County, North Dakota, PCR, Refunding (Square Butte
Electric Cooperative), Series A, 5.30% due 1/01/2027 (a) 12,006
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio--0.4% AA+ Aa1 2,750 Ohio State, GO, Infrastructure Improvement, Series B,
5% due 2/01/2016 2,509
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--2.4% AAA Aaa 5,125 Allegheny County, Pennsylvania, Port Authority, Special
Transportation Revenue Bonds, 6% due 3/01/2019 (h) 5,152
AAA Aaa 6,000 Pennsylvania State Turnpike Commission, Oil Franchise Tax
Revenue Refunding Bonds, Senior Series A, 5.25% due
12/01/2017 (a) 5,532
Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds (Children's
Hospital of Philadelphia Project), VRDN (k):
A1+ VMIG1+ 1,200 3.50% due 3/01/2027 1,200
A1+ VMIG1+ 300 Series A, 3.50% due 3/01/2027 300
AAA Aaa 2,500 Pittsburgh and Allegheny County, Pennsylvania, Public
Auditorium Revenue Bonds (Regional Asset District Sales Tax),
5.25% due 2/01/2031 (a) 2,211
- ------------------------------------------------------------------------------------------------------------------------------------
Rhode Island--0.4% AAA Aaa 2,500 Providence, Rhode Island, GO, Series A, 5.70% due 7/15/2019 (f) 2,394
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina-- A+ A1 12,000 Fairfield County, South Carolina, PCR (South Carolina Electric
4.8% and Gas Company), 6.50% due 9/01/2014 12,714
BBB+ A3 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 8,456
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) 3,926
NR* NR* 3,800 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55% due
11/01/2024 4,130
- ------------------------------------------------------------------------------------------------------------------------------------
South Dakota--0.9% AAA Aa1 5,500 South Dakota, HDA, Homeownership Mortgage Revenue Refunding
Bonds, Series A, 6.45% due 5/01/2022 5,629
- ------------------------------------------------------------------------------------------------------------------------------------
Texas--6.5% NR* Aaa 1,000 Bell County, Texas, Health Facilities Development Revenue
Bonds (Lutheran General Health Care System), 6.50% due
7/01/2019 (c) 1,050
AAA Aaa 2,900 Brazos River Authority, Texas, Revenue Refunding Bonds
(Houston Industries Inc. Project), Series A, 5.125% due
5/01/2019 (a) 2,542
A1+ VMIG1+ 200 Gulf Coast Waste Disposal Authority, Texas, PCR, Refunding
(Amoco Oil Company Project), VRDN, 3.50% due 10/01/2017 (k) 200
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) 5,443
AAA Aaa 10,000 Houston, Texas, Water and Sewer System Revenue Bonds,
Junior Lien, Series C, 5.375% due 12/01/2027 (d) 9,056
AAA Aaa 13,850 Houston, Texas, Water and Sewer System Revenue Refunding
Bonds, Junior Lien, Series A, 5.375% due 12/01/2027 (d) 12,542
AA Aaa 2,975 Texas Housing Agency, Residential Development Mortgage
Revenue Bonds, Series A, 7.50% due 7/01/2015 (e)(g) 3,087
AAA Aaa 6,070 Texas Technology University Revenue Refunding and
Improvement Bonds, 6th Series, 5.25% due 2/15/2015 (a) 5,693
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
MuniYield Quality Fund, Inc. October 31, 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>
Utah--3.6% AA Aa2 $15,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals Incorporated), 6.30% due 2/15/2015 $ 15,659
NR* P1 3,600 Salt Lake County, Utah, PCR, Refunding (Service Station
Holdings Project), VRDN, 3.50% due 2/01/2008 (k) 3,600
A- NR* 2,710 West Valley City, Utah, Redevelopment Agency, Tax Increment
Revenue Bonds, 6% due 3/01/2024 2,629
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia--3.6% Norfolk, Virginia, GO (Capital Improvement) (d):
AAA Aaa 2,190 5.375% due 6/01/2016 2,085
AAA Aaa 2,190 5.375% due 6/01/2017 2,070
AA+ Aa1 17,435 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds,
Series A, 7.15% due 1/01/2033 17,864
- ------------------------------------------------------------------------------------------------------------------------------------
Washington--1.1% 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) 4,134
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) 2,863
- ------------------------------------------------------------------------------------------------------------------------------------
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 5,026
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin--0.7% AA Aa3 3,800 Wisconsin Housing and EDA, Housing Revenue Bonds,
AMT, Series D, 7.20% due 11/01/2013 4,026
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$616,185)--99.3% 607,366
Other Assets Less Liabilities--0.7% 4,517
--------
Net Assets--100.0% $611,883
========
- ------------------------------------------------------------------------------------------------------------------------------------
</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 October 31, 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 October 31,
1999.
(l) FNMA/GNMA Collateralized.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ........................................................... 54.3%
AA/Aa ............................................................. 16.7
A/A ............................................................... 12.8
BBB/Baa ........................................................... 6.9
B/B ............................................................... 0.4
NR (Not Rated) .................................................... 4.0
Other* ............................................................ 4.2
- --------------------------------------------------------------------------------
* Temporary investments in short-term municipal securities.
9
<PAGE>
MuniYield Quality Fund, Inc. October 31, 1999
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$616,185,139) (Note 1a) ................ $607,366,288
Cash ........................................................................... 46,369
Receivables:
Interest ..................................................................... $ 11,401,241
Securities sold .............................................................. 220,000 11,621,241
------------
Prepaid expenses and other assets .............................................. 29,754
------------
Total assets ................................................................... 619,063,652
------------
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ......................................................... 6,254,410
Dividends to shareholders (Note 1e) .......................................... 533,191
Investment adviser (Note 2) .................................................. 295,537 7,083,138
------------
Accrued expenses and other liabilities ......................................... 97,079
------------
Total liabilities .............................................................. 7,180,217
------------
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ..................................................................... $611,883,435
============
- -----------------------------------------------------------------------------------------------------------------------------
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 ........................................... 4,697,626
Accumulated realized capital losses on investments--net (Note 5) ............... (10,905,286)
Unrealized depreciation on investments--net .................................... (8,818,851)
------------
Total--Equivalent to $13.54 net asset value per share of Common Stock
(market price--$12.0625) ....................................................... 411,883,435
------------
Total capital .................................................................. $611,883,435
============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
10
<PAGE>
MuniYield Quality Fund, Inc. October 31, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned ............. $ 36,972,584
(Note 1d):
- -----------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) .................................... $ 3,267,363
Commission fees (Note 4) ............................................. 506,440
Transfer agent fees .................................................. 160,590
Accounting services (Note 2) ......................................... 106,997
Professional fees .................................................... 80,726
Custodian fees ....................................................... 36,303
Listing fees ......................................................... 32,355
Printing and shareholder reports ..................................... 25,579
Directors' fees and expenses ......................................... 23,276
Pricing fees ......................................................... 19,087
Other ................................................................ 57,666
------------
Total expenses ....................................................... 4,316,382
------------
Investment income--net ............................................... 32,656,202
------------
- -----------------------------------------------------------------------------------------------------------------------------
Realized & Realized loss on investments--net .................................... (1,376,602)
Unrealized Loss on Change in unrealized appreciation/depreciation on investments--net ... (60,738,769)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations ................. $(29,459,169)
============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ............................................... 32,656,202 $ 34,209,212
Realized gain (loss) on investments--net ............................. (1,376,602) 7,102,938
Change in unrealized appreciation/depreciation on investments--net ... (60,738,769) 4,737,384
------------ ------------
Net increase (decrease) in net assets resulting from operations ...... (29,459,169) 46,049,534
------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------
Dividends to Investment income--net:
Shareholders Common Stock ....................................................... (26,156,777) (26,777,909)
(Note 1e): Preferred Stock .................................................... (6,398,620) (7,020,160)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders .. (32,555,397) (33,798,069)
------------ ------------
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets .............................. (62,014,566) 12,251,465
Beginning of year .................................................... 673,898,001 661,646,536
------------ ------------
End of year* ......................................................... $611,883,435 $673,898,001
============ ============
- -----------------------------------------------------------------------------------------------------------------------------
* Undistributed investment income--net ................................. $ 4,697,626 $ 4,596,821
============ ============
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
MuniYield Quality Fund, Inc. October 31, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. October 31,
----------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ...................... $ 15.58 $ 15.17 $ 14.57 $ 14.58 $ 13.16
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .................................. 1.07 1.12 1.13 1.14 1.15
Realized and unrealized gain (loss) on investments--net.. (2.04) .40 .59 (.01) 1.43
-------- -------- -------- -------- --------
Total from investment operations ........................ (.97) 1.52 1.72 1.13 2.58
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ................................ (.86) (.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 ...................................... (.86) (.88) (.89) (.90) (.91)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net ............................. (.21) (.23) (.23) (.24) (.25)
Realized gain on investments--net .................. -- -- -- -- --+
In excess of realized gain on investments--net ..... -- -- -- -- --+
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ................ (.21) (.23) (.23) (.24) (.25)
-------- -------- -------- -------- --------
Net asset value, end of year ............................ $ 13.54 $ 15.58 $ 15.17 $ 14.57 $ 14.58
======== ======== ======== ======== ========
Market price per share, end of year ..................... $12.0625 $15.5625 $14.4375 $ 12.875 $ 12.625
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share ......................... (17.61%) 14.33% 19.58% 9.12% 23.63%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share ...................... (7.62%) 8.93% 11.03% 6.93% 19.34%
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios Based on Total expenses** ........................................ .95% .91% .94% .96% .97%
Average Net Assets ======== ======== ======== ======== ========
of Common Stock: Total investment income--net** .......................... 7.17% 7.30% 7.69% 7.79% 8.28%
======== ======== ======== ======== ========
Amount of dividends to Preferred Stock shareholders ..... 1.41% 1.50% 1.56% 1.64% 1.78%
======== ======== ======== ======== ========
Investment income--net, to Common Stock shareholders .... 5.76% 5.80% 6.13% 6.15% 6.50%
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios Based on Total expenses .......................................... .66% .64% .65% .66% .66%
Total Average Net ======== ======== ======== ======== ========
Assets:++** Total investment income--net ............................ 4.99% 5.12% 5.32% 5.32% 5.65%
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios Based on Dividends to Preferred Stock shareholders ............... 3.21% 3.51% 3.51% 3.61% 3.78%
Average Net Assets ======== ======== ======== ======== ========
of Preferred Stock:
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end
Data: of year (in thousands) .................................. $411,883 $473,898 $461,647 $443,154 $443,718
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year (in thousands).. $200,000 $200,000 $200,000 $200,000 $200,000
======== ======== ======== ======== ========
Portfolio turnover ...................................... 91.78% 42.95% 36.87% 68.22% 57.56%
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ............................... $ 3,059 $ 3,369 $ 3,308 $ 3,216 $ 3,219
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends Per Series A--Investment income--net ........................ $ 824 $ 961 $ 864 $ 953 $ 961
Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net ........................ $ 779 $ 879 $ 892 $ 880 $ 917
Outstanding: ======== ======== ======== ======== ========
Series C--Investment income--net ........................ $ 809 $ 815 $ 884 $ 888 $ 977
======== ======== ======== ======== ========
Series D--Investment income--net ........................ $ 787 $ 856 $ 873 $ 885 $ 921
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 charges.
** Do not reflect the effect of dividends to Preferred Stock
shareholders.
+ Amount is less than $.01 per share.
++ Includes Common and Preferred Stock average net assets.
See Notes to Financial Statements.
12
<PAGE>
MuniYield Quality Fund, Inc. October 31, 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. 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.
(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.
13
<PAGE>
MuniYield Quality Fund, Inc. October 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 .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
year ended October 31, 1999 were $572,967,397 and $577,027,047, respectively.
Net realized gains (losses) for the year ended October 31, 1999 and net
unrealized losses as of October 31, 1999 were as follows:
- -------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- -------------------------------------------------------------------------------
Long-term investments ........................ $(2,486,002) $(8,818,851)
Financial futures contracts .................. 1,109,400 --
----------- -----------
Total ........................................ $(1,376,602) $(8,818,851)
=========== ===========
- -------------------------------------------------------------------------------
As of October 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $9,047,839, of which $15,142,656 related to appreciated
securities and $24,190,495 related to depreciated securities. The aggregate cost
of investments at October 31, 1999 for Federal income tax purposes was
$616,414,127.
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 years ended October 31, 1999 and
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
October 31, 1999 were as follows: Series A, 3.649%; Series B, 3.25%; Series C,
3.45%; and Series D, 3.34%.
Shares issued and outstanding during the years ended October 31, 1999 and
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 .25% to .375%, calculated on the proceeds of each
auction. For the year ended October 31, 1999, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, an affiliate of FAM, earned $225,654 as commissions.
5. Capital Loss Carryforward:
At October 31, 1999, the Fund had a net capital loss carryforward of
approximately $4,728,000, of which $1,083,000 expires in 2004 and $3,645,000
expires in 2007. This amount will be available to offset like amounts of any
future taxable gains.
6. Subsequent Event:
On November 8, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.070000 per share,
payable on November 29, 1999 to shareholders of record as of November 22, 1999.
14
<PAGE>
MuniYield Quality Fund, Inc. October 31, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders, MuniYield Quality Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniYield Quality Fund, Inc. as of
October 31, 1999, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1999 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniYield Quality
Fund, Inc. as of October 31, 1999, the results of its operations, the changes in
its net assets, and the financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 3, 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.
15
<PAGE>
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
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, 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:
The Bank of New York
100 Church Street
New York, NY 10286
NYSE Symbol
MQY
This report, including the financial information herein, is transmitted to the
shareholders of MuniYield Quality Fund, Inc. for their information. It is not a
prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in the report. Past performance
results shown in this report should not be considered a representation of future
performance. The Fund has leveraged its Common Stock by issuing Preferred Stock
to provide the Common Stock shareholders with a potentially higher rate of
return. Leverage creates risks for Common Stock shareholders, including the
likelihood of greater volatility of net asset value and market price of shares
of the Common Stock, and the risk that fluctuations in the short-term dividend
rates of the Preferred Stock may affect the yield to Common Stock shareholders.
Statements and other information herein are as dated and are subject to change.
MuniYield
Quality Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #16352--10/99
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