MUNIYIELD
QUALITY
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
October 31, 2000
<PAGE>
MUNIYIELD QUALITY FUND, INC.
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 of the fund's Common Stock (that is, its price
as listed on the New York Stock Exchange) may, as a result, decline.
Furthermore, if long-term interest rates rise, the Common Stock's net asset
value will reflect the full decline in the price of the portfolio's investments,
since the value of the fund's Preferred Stock does not fluctuate. In addition to
the decline in net asset value, the market value of the fund's Common Stock may
also decline.
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.
<PAGE>
MuniYield Quality Fund, Inc., October 31, 2000
DEAR SHAREHOLDER
For the year ended October 31, 2000, the Common Stock of MuniYield Quality Fund,
Inc. earned $0.815 per share income dividends, which included earned and unpaid
dividends of $0.068. This represents a net annualized yield of 5.75%, based on a
month-end net asset value of $14.18 per share. During the same period, the total
investment return on the Fund's Common Stock was +12.09%, based on a change in
per share net asset value from $13.54 to $14.18, and assuming reinvestment of
$0.817 per share income dividends.
For the six-month period ended October 31, 2000, the total investment return on
the Fund's Common Stock was +7.92%, based on a change in per share net asset
value from $13.58 to $14.18, and assuming reinvestment of $0.407 per share
income dividends.
For the six-month period ended October 31, 2000, the Fund's Auction Market
Preferred Stock had an average yield of 3.96% for Series A, 4.18% for Series B,
4.55% for Series C and 4.11% for Series D.
The Municipal Market Environment
During the six months ended October 31, 2000, long-term US Treasury bond yields
generally drifted lower. A number of economic indicators, particularly
employment, new home sales and consumer spending, have suggested that US
economic growth, while still strong, has moderated from 1999's robust levels.
Preliminary estimates for third-quarter 2000 US gross domestic product growth
were recently released at 2.7%, well below the first-quarter 2000 rate of 4.8%
and the second-quarter 2000 rate of 5.6%. This decline in economic growth
suggests to some analysts that the Federal Reserve Board has finished raising
interest rates for its current interest rate cycle. The Federal Reserve Board
increased short-term interest rates at its May meeting and has since kept
monetary policy steady at its subsequent meetings. Given the potential for
stable short-term interest rates in the coming months, investor emphasis focused
on the continuing US Treasury debt reduction program and forecasts of sizeable
Federal budgetary surpluses going forward. Many investors have concluded that
there will be a significant future shortage of longer-dated maturity US Treasury
securities. By late August, US Treasury bond yields declined 30 basis points
(0.30%) to 5.66%, their lowest level in more than a year.
However, for the remainder of the period, bond yields were unable to maintain
their earlier gains. Rising oil prices were the major focus behind the decline
in bond prices, as many investors feared that higher oil prices would result in
increased inflationary pressures. Additionally, US corporations issued large
amounts of taxable debt in order to take advantage of the current low interest
rate environment. During the last three months, US corporations issued more than
$100 billion in investment-grade securities, offering yields in the 7.25%-9%
range. Many investors found these taxable issues an attractive and more
plentiful alternative to US Treasury bonds. As the demand for US Treasury issues
weakened, US bond yields rose. Although US Treasury bond yields rose to 5.78% by
the end of October 2000, overall they declined almost 20 basis points during the
last six months.
The six-month period ended October 31, 2000 was one of the few periods in recent
years in which the tax-exempt bond market outperformed its taxable counterpart,
the US Treasury bond market. While municipal bond yields followed the similar
seesaw pattern of Treasury bond yields, tax-exempt bond price volatility was
significantly reduced. Municipal bond yields traded in a relatively narrow range
during much of October 2000. Overall investor demand for municipal bonds
remained strong, allowing tax-exempt bond yields, as measured by the Bond Buyer
Revenue Bond Index, to decline 30 basis points to end the period at 5.75%.
In the past three months, new long-term municipal bond issuance has continued to
decline, albeit at a slower rate than earlier this year. During this period,
more than $53 billion in new long-term municipal bonds was issued, a decline of
3% compared to the same three-month period in 1999. During the last six months,
more than $105 billion in tax-exempt bonds was underwritten, a decline of 8%
compared to the same six-month period in 1999. Just under $200 billion in new
municipal securities was marketed during the past year, a decline of more than
16% compared to the same 12-month period in 1999.
The demand for municipal bonds came from a number of non-traditional and
conventional sources. Derivative/arbitrage programs and insurance companies
remained the dominant institutional buyers, while individual retail purchases
also remained strong. Traditional, open-end tax-exempt mutual funds have
continued to see significant disintermediation. It was recently reported that
thus far during the 2000 calendar year, long-term municipal bond mutual funds
experienced net cash outflows of more than $15 billion. Fortunately, the
combination of reduced new bond issuance and ongoing demand from non-traditional
sources has been able to more than offset the decline in demand from tax-exempt
mutual funds. This favorable balance has fostered a significant decline in
municipal bond yields in recent months.
Currently, there is no reason to expect that the positive technical position of
the municipal bond market will significantly deteriorate. The steeply positive
yield curve and the relatively high credit quality that the tax-exempt bond
market offers should continue to attract different classes of institutional
buyers. Strong state and local governmental financial conditions also suggest
that issuance should remain manageable into next year.
However, the results of the presidential election may affect the tax-exempt bond
market. Various tax and spending programs proposed by both candidates have
obvious implications for state and local governments as well as corporate and
individual taxpayers. Political history has shown that the enactment of campaign
promises, both Republican and Democratic, has very often been a long, laborious
process. This suggests that over the next few months US economic factors will
most likely have a greater effect on bond yields than political considerations.
Portfolio Strategy
During the six-month period ended October 31, 2000, we shifted our strategy from
a slightly above-neutral portfolio structure to a neutral portfolio structure.
This change occurred because of the rise in bond prices during the period as
well as our efforts to sell highly sensitive interest rate securities. We
thought it prudent to move to this investment structure in anticipation of
clearer signs detailing future economic growth and inflation expectations.
Throughout the period, we continued to maintain a strong credit profile. At
October 31, 2000, 85.5% of the Fund's net assets was invested in securities
rated A or better by at least one of the major bond rating agencies.
Additionally, we focused on maintaining and/or increasing the amount of earned
tax-exempt income, in part to offset the heightened levels of short-term
interest rates experienced by our leveraged portfolio. Despite the Fund's
increased cost of borrowing, the leveraging of the portfolio remains an
important income-generating vehicle for the Fund. (For a complete explanation of
the benefits and risks of leveraging, see page 1 of this report to
shareholders.)
Looking ahead, we expect to remain fully invested in the municipal market in an
effort to enhance shareholder income. We will look for opportunities in the
market provided by new municipal issuance to structure the portfolio more
favorably. We also expect to retain our current position until we can better
evaluate the ramifications of the presidential and congressional elections and
their implications on economic growth, inflation expectations and the municipal
market.
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/ Michael Kalinoski
Michael Kalinoski
Vice President and Portfolio Manager
November 30, 2000
2 & 3
<PAGE>
MuniYield Quality Fund, Inc., October 31, 2000
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
Alaska--1.0% NR* NR* $ 6,000 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds
(Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 $ 6,007
====================================================================================================================================
Arizona--0.8% AAA Aaa 2,000 Mesa, Arizona, IDA, Revenue Bonds (Discovery Health System), Series A,
5.875% due 1/01/2014 (k) 2,112
-----------------------------------------------------------------------------------------------------------
AAA NR* 2,640 Phoenix, Arizona, IDA, S/F Mortgage Revenue Refunding Bonds (The Phoenix
Authority), AMT, Series 1B, 6% due 6/01/2031 (f)(h)(n) 2,941
====================================================================================================================================
Colorado--9.8% Colorado HFA, Revenue Bonds (S/F Program):
NR* Aa2 1,685 AMT, Senior Series A-1, 7.40% due 11/01/2027 1,877
NR* Aa2 3,000 Senior Series B-3, 6.50% due 10/01/2029 3,233
NR* Aa2 2,750 Series B-3, 6.55% due 10/01/2016 2,987
-----------------------------------------------------------------------------------------------------------
Colorado HFA, Revenue Refunding Bonds (S/F Program):
NR* Aa2 13,760 AMT, Senior Series A-2, 6.60% due 5/01/2028 14,658
NR* Aa2 1,970 AMT, Senior Series B-2, 6.40% due 11/01/2024 2,089
AA Aa2 3,300 AMT, Senior Series C-2, 8.40% due 10/01/2021 (e) 3,613
NR* Aa2 2,500 AMT, Senior Series C-2, 7.05% due 4/01/2031 2,813
AA Aa2 4,800 AMT, Senior Series C-2, 7.25% due 10/01/2031 5,458
AA Aa2 2,750 Senior Series C-3, 7.15% due 10/01/2030 3,132
-----------------------------------------------------------------------------------------------------------
NR* Aaa 4,550 Colorado Health Facilities Authority, Hospital Revenue Bonds (Swedish
Medical Center Project), Series A, 6.80% due 1/01/2003 (l) 4,846
-----------------------------------------------------------------------------------------------------------
AAA Aaa 8,500 Denver, Colorado, City and County Airport Revenue Bonds, AMT, Series D,
7.75% due 11/15/2013 (k) 10,297
-----------------------------------------------------------------------------------------------------------
AAA Aaa 6,405 Denver, Colorado, City and County, COP, Series B, 5.75% due 12/01/2018 (a) 6,601
====================================================================================================================================
District of District of Columbia, GO, Refunding, Series B (i):
Columbia--3.9% AAA Aaa 7,500 5.50% due 6/01/2013 7,693
AAA Aaa 4,500 5.50% due 6/01/2014 4,588
-----------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 District of Columbia, GO, Series A, 5.50% due 6/01/2012 (i) 4,133
-----------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 District of Columbia, Revenue Refunding Bonds (Catholic University of
America Project), 5.625% due 10/01/2029 (a) 2,981
-----------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Washington, D.C., Convention Center Authority, Dedicated Tax Revenue Bonds,
Senior Lien, 4.75% due 10/01/2028 (a) 5,158
====================================================================================================================================
Florida--0.4% NR* B1 2,840 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida Education and
Research Foundation Project), Series A, 7% due 9/01/2024 2,570
====================================================================================================================================
Georgia--2.7% AA Aa3 4,825 Atlanta, Georgia, GO, Series A, 6.125% due 12/01/2004 (l) 5,187
-----------------------------------------------------------------------------------------------------------
A A3 5,000 Georgia Municipal Electric Authority, Power Revenue Refunding Bonds,
Series Y, 10% due 1/01/2010 6,815
-----------------------------------------------------------------------------------------------------------
A A3 4,785 Monroe County, Georgia, Development Authority, PCR, Refunding (Oglethorpe
Power Corporation--Scherer), Series A, 6.80% due 1/01/2011 5,346
====================================================================================================================================
Hawaii--1.2% AAA Aaa 7,055 Honolulu, Hawaii, City and County, GO, Series A, 6.25% due 4/01/2014 (d) 7,836
====================================================================================================================================
Illinois--15.1% Chicago, Illinois, Board of Education, GO (Chicago School Reform
Project) (a):
AAA Aaa 10,000 5.75% due 12/01/2027 10,049
AAA Aaa 32,085 Series A, 5.25% due 12/01/2027 30,191
AAA Aaa 6,385 Series A, 5.25% due 12/01/2030 5,982
-----------------------------------------------------------------------------------------------------------
AAA Aaa 12,495 Chicago, Illinois, GO (Lakefront Millennium Parking Facilities), 5.125%
due 1/01/2028 (k) 11,483
-----------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Chicago, Illinois, Sales Tax Revenue Refunding Bonds,
5.25% due 1/01/2028 (d) 4,227
-----------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Chicago, Illinois, Water Revenue Refunding Bonds, 5.25% due 11/01/2027 (d) 4,700
-----------------------------------------------------------------------------------------------------------
BBB+ Baa1 15,000 Illinois Development Finance Authority, PCR, Refunding (Illinois Power
Company Project), Series A, 7.375% due 7/01/2021 16,064
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,130 Illinois Development Finance Authority Revenue Bonds (Presbyterian Home
Lake Project), Series B, 6.25% due 9/01/2017 (i) 2,233
-----------------------------------------------------------------------------------------------------------
NR* A1 3,750 Illinois Student Assistance Commission, Student Loan Revenue Refunding
Bonds, AMT, Sub-Series CC, 6.875% due 3/01/2015 3,884
-----------------------------------------------------------------------------------------------------------
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) 6,396
====================================================================================================================================
Indiana--5.6% De Kalb County, Indiana, Redevelopment Authority Revenue Bonds (Mini-Mill),
Series A (b):
AAA NR* 3,000 6.50% due 1/15/2014 3,209
AAA NR* 3,220 6.625% due 1/15/2017 3,473
-----------------------------------------------------------------------------------------------------------
AAA NR* 2,500 Indiana Bond Bank Revenue Bonds (State Revolving Fund Program), Series A,
6.875% due 2/01/2012 2,726
-----------------------------------------------------------------------------------------------------------
BBB Baa2 9,800 Indianapolis, Indiana, Airport Authority, Special Facilities Revenue Bonds
(Federal Express Corporation Project), AMT, 7.10% due 1/15/2017 10,310
-----------------------------------------------------------------------------------------------------------
AA NR* 15,000 Indianapolis, Indiana, Local Public Improvement Bond Bank Revenue
Refunding Bonds, Series D, 6.75% due 2/01/2020 15,826
====================================================================================================================================
Kansas--0.6% Kansas City, Kansas, Utility System Revenue Refunding Bonds (d):
AAA NR* 1,140 6.375% due 9/01/2004 (l) 1,234
AAA Aaa 2,360 6.375% due 9/01/2023 2,486
====================================================================================================================================
Kentucky--3.2% NR* NR* 3,000 Kentucky Economic Development Finance Authority, Health System Revenue
Bonds (Norton Healthcare Inc.), Series A, 6.50% due 10/01/2020 2,912
-----------------------------------------------------------------------------------------------------------
AAA Aaa 4,530 Kentucky Housing Corporation, Housing Revenue Bonds, AMT, Series B,
6.625% due 7/01/2026 (e) 4,648
-----------------------------------------------------------------------------------------------------------
AAA Aaa 6,570 Lexington-Fayette Urban County Government, Kentucky, Governmental Program
Revenue Bonds (University of Kentucky Alumni Association Inc. Project),
6.75% due 11/01/2004 (k)(l) 7,213
-----------------------------------------------------------------------------------------------------------
NR* NR* 5,250 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds (TJ International
Project), AMT, 7% due 6/01/2024 5,361
====================================================================================================================================
</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)
COP Certificates of Participation
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
4 & 5
<PAGE>
MuniYield Quality Fund, Inc., October 31, 2000
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
Louisiana--1.6% AAA Aaa $ 9,000 Louisiana Local Government, Environmental Facilities, Community
Development Authority Revenue Bonds (Capital Projects and Equipment
Acquisition), Series A, 6.30% due 7/01/2030 (a) $ 9,948
====================================================================================================================================
Massachusetts--3.3% Massachusetts Bay Transportation Authority, Revenue Refunding Bonds
(General Transportation System), Series A:
AA Aa2 3,730 7% due 3/01/2011 4,365
AA Aa2 3,550 7% due 3/01/2014 4,167
-----------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Massachusetts State, HFA, Housing Development Revenue Refunding Bonds,
Series B, 5.40% due 12/01/2028 (k) 5,741
-----------------------------------------------------------------------------------------------------------
Massachusetts State, HFA, S/F Housing Revenue Bonds:
A+ Aa3 3,355 Series 33, 6.35% due 6/01/2017 3,457
A+ Aa3 2,840 Series 37, 6.35% due 6/01/2017 2,884
====================================================================================================================================
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 12,174
====================================================================================================================================
Missouri--0.7% Missouri State Housing Development Commission, S/F Mortgage Revenue
Bonds (h):
AAA NR* 2,000 (Homeowner Loan), AMT, Series B-1, 7.45% due 9/01/2031 2,247
AAA NR* 2,000 Series C-1, 6.55% due 9/01/2028 2,156
====================================================================================================================================
Nevada--1.3% BBB+ Baa1 1,980 Henderson, Nevada, Health Care Facilities Revenue Bonds (Catholic
Healthcare West), Series A, 6.20% due 7/01/2009 1,993
-----------------------------------------------------------------------------------------------------------
AAA Aaa 5,710 Washoe County, Nevada, School District, GO, 5.875% due 6/01/2017 (i) 5,919
====================================================================================================================================
New York--14.0% A1+ VMIG1++ 100 Long Island Power Authority, New York, Electric System Revenue Bonds, VRDN,
Sub-Series 5, 4.55% due 5/01/2033 (g) 100
-----------------------------------------------------------------------------------------------------------
AAA Aaa 14,910 Long Island Power Authority, New York, Electric System Revenue Refunding
Bonds, Series A, 5.25% due 12/01/2026 (k) 14,139
New York City, New York, City Municipal Water Finance Authority, Water
and Sewer System Revenue Bonds:
AAA Aaa 8,085 RITR, Series FR-6, 6.795% due 6/15/2026 (k)(m) 8,217
A1+ VMIG1++ 3,400 VRDN, Series C, 4.55% due 6/15/2023 (d)(g) 3,400
-----------------------------------------------------------------------------------------------------------
AAA NR* 4,030 New York City, New York, City Municipal Water Finance Authority, Water and
Sewer System Revenue Refunding Bonds, Series B, 5.25% due 6/15/2029 (i) 3,802
-----------------------------------------------------------------------------------------------------------
New York City, New York, GO:
NR* Aaa 6,920 RIB, Series 394, 7.44% due 8/01/2016 (k)(m) 7,622
A A2 5,000 Series B, 5.875% due 8/15/2013 5,204
A A2 9,055 Series F, 5.75% due 2/01/2019 9,150
A A2 5,000 Series K, 6.25% due 4/01/2006 (l) 5,458
-----------------------------------------------------------------------------------------------------------
New York City, New York, GO, Refunding:
A A2 5,000 Series B, 7.25% due 8/15/2007 5,707
A A2 5,000 Series E, 6.50% due 2/15/2006 5,422
A A2 9,325 Series G, 5.75% due 2/01/2017 9,456
A A2 2,315 Series J, 6% due 8/01/2017 2,402
-----------------------------------------------------------------------------------------------------------
AAA NR* 4,000 New York State Dormitory Authority, Revenue Refunding Bonds (State
University), Series B, 7.50% due 5/15/2011 (i) 4,706
-----------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 New York State Thruway Authority, Local Highway and Bridge Service Contract
Revenue Refunding Bonds, 6% due 4/01/2012 3,761
====================================================================================================================================
North Carolina--0.5% Iredell County, North Carolina, Public Facilities, Corporate Installment
Payment Revenue Bonds (School Projects) (a):
NR* Aaa 2,180 6% due 6/01/2014 2,331
NR* Aaa 1,000 6% due 6/01/2017 1,052
====================================================================================================================================
North Dakota--1.6% AAA Aaa 11,000 Oliver County, North Dakota, PCR, Refunding (Square Butte Electric
Cooperative), Series A, 5.30% due 1/01/2027 (a) 10,362
====================================================================================================================================
Ohio--0.3% AA NR* 2,000 Jackson, Ohio, Hospital Facilities Revenue Bonds (Consolidated Health
System--Jackson Hospital), 6.125% due 10/01/2020 2,057
====================================================================================================================================
Oklahoma--0.3% Tulsa, Oklahoma, Airports Improvement Trust, General Revenue Bonds (Tulsa
International Airport), AMT, Series B (d):
AAA Aaa 1,000 6% due 6/01/2019 1,021
AAA Aaa 1,000 6.125% due 6/01/2026 1,030
====================================================================================================================================
Oregon--1.3% NR* Aaa 7,500 Portland, Oregon, Sewer System Revenue Bonds, RIB, Series 386, 6.79% due
8/01/2020 (d)(m) 8,161
====================================================================================================================================
Pennsylvania--0.4% AAA Aaa 2,000 Allegheny County, Pennsylvania, Port Authority, Special Transportation
Revenue Bonds, 6% due 3/01/2019 (k) 2,093
-----------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 400 Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities
Authority, Hospital Revenue Bonds (Children's Hospital of Philadelphia
Project), VRDN, Series A, 4.60% due 3/01/2027 (g) 400
====================================================================================================================================
Rhode Island--0.4% AAA Aaa 2,500 Providence, Rhode Island, GO, Series A, 5.70% due 7/15/2019 (i) 2,541
====================================================================================================================================
South Carolina--3.6% A A1 10,000 Fairfield County, South Carolina, PCR (South Carolina Electric and Gas
Company), 6.50% due 9/01/2014 10,541
-----------------------------------------------------------------------------------------------------------
BBB+ Baa1 7,900 Richland County, South Carolina, Solid Waste Disposal Facilities Revenue
Bonds (Union Camp Corporation Project), AMT, Series A, 6.75% due 5/01/2022 7,976
-----------------------------------------------------------------------------------------------------------
NR* NR* 3,800 Spartanburg County, South Carolina, Solid Waste Disposal Facilities Revenue
Bonds (BMW Project), AMT, 7.55% due 11/01/2024 4,023
====================================================================================================================================
South Dakota--0.9% AAA Aa1 5,500 South Dakota HDA, Homeownership Mortgage Revenue Refunding Bonds, Series A,
6.45% due 5/01/2022 5,605
====================================================================================================================================
Tennessee--1.9% AAA Aaa 5,000 Memphis--Shelby County, Tennessee, Airport Authority, Airport Revenue Bonds,
AMT, Series D, 6.25% due 3/01/2018 (a) 5,288
-----------------------------------------------------------------------------------------------------------
Tennessee HDA, Revenue Bonds (Homeownership Program), AMT, Series 2C:
AA Aa2 1,750 5.90% due 7/01/2010 1,832
AA Aa2 2,075 6.10% due 7/01/2013 2,157
AA Aa2 2,390 6.20% due 7/01/2015 2,475
====================================================================================================================================
</TABLE>
6 & 7
<PAGE>
MuniYield Quality Fund, Inc., October 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<C> <C> <C> <C> <S> <C>
Texas--7.7% NR* Aaa $ 1,000 Bell County, Texas, Health Facilities Development Revenue Bonds (Lutheran
General Health Care System), 6.50% due 7/01/2019 (c) $ 1,117
-----------------------------------------------------------------------------------------------------------
NR* Aaa 5,235 Denton, Texas, Utility System Revenue Bonds, RIB, Series 369, 7.29% due
12/01/2017 (i)(m) 5,785
-----------------------------------------------------------------------------------------------------------
Gregg County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Good Shepherd Medical Center Project):
AA NR* 3,000 6.875% due 10/01/2020 3,257
AA NR* 2,600 6.375% due 10/01/2025 2,675
-----------------------------------------------------------------------------------------------------------
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 (l) 5,405
-----------------------------------------------------------------------------------------------------------
AAA Aaa 7,000 Houston, Texas, Water and Sewer System Revenue Bonds, Junior Lien,
Series C, 5.375% due 12/01/2027 (d) 6,754
-----------------------------------------------------------------------------------------------------------
AAA Aaa 17,710 Houston, Texas, Water and Sewer System, Revenue Refunding Bonds,
Junior Lien, Series A, 5.375% due 12/01/2027 (d) 17,088
-----------------------------------------------------------------------------------------------------------
AAA Aaa 1,715 Texas Housing Agency, Residential Development Mortgage Revenue Bonds,
Series A, 7.50% due 7/01/2015 (e)(j) 1,767
-----------------------------------------------------------------------------------------------------------
AAA Aaa 4,600 Travis County, Texas, Health Facilities Development Corporation, Revenue
Refunding Bonds (Ascension Health Credit), Series A, 6.25% due
11/15/2014 (k) 4,940
====================================================================================================================================
Utah--3.0% AA Aa2 15,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC Hospitals
Incorporated), 6.30% due 2/15/2015 16,331
-----------------------------------------------------------------------------------------------------------
A- NR* 2,710 West Valley City, Utah, Redevelopment Agency, Tax Increment Revenue Bonds,
6% due 3/01/2024 2,650
====================================================================================================================================
Virginia--3.9% AAA Aaa 6,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue Refunding Bonds,
AMT, Series A, 6.05% due 2/01/2009 (a) 6,514
-----------------------------------------------------------------------------------------------------------
AA+ Aa1 17,435 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds, Series A,
7.15% due 1/01/2033 17,963
====================================================================================================================================
Washington--3.3% Washington State, GO:
AA+ Aa1 7,500 Series A & AT-6, 6.25% due 2/01/2011 8,262
AA+ Aa1 9,000 Series S-4, 5.75% due 1/01/2013 9,450
-----------------------------------------------------------------------------------------------------------
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) 2,949
====================================================================================================================================
West Virginia--0.8% A A3 5,000 Braxton County, West Virginia, Solid Waste Disposal Revenue Bonds
(Weyerhaeuser Company Project), AMT, 6.50% due 4/01/2025 5,028
====================================================================================================================================
Wisconsin--0.6% AA Aa3 3,800 Wisconsin Housing and EDA, Housing Revenue Bonds, AMT, Series D, 7.20% due
11/01/2013 3,967
====================================================================================================================================
Wyoming--0.1% NR* P1 500 Uinta County, Wyoming, PCR, Refunding (Chevron USA Inc. Project), VRDN,
4.55% due 8/15/2020 (g) 500
====================================================================================================================================
Puerto Rico--0.4% NR* Aaa 2,435 Puerto Rico Electric Power Authority, Power Revenue Bonds, Trust Receipts,
Class R, Series 16 HH, 7.346% due 7/01/2013 (m) 2,744
====================================================================================================================================
Total Investments (Cost--$601,195)--98.1% 619,266
Other Assets Less Liabilities--1.9% 12,205
--------
Net Assets--100.0% $631,471
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) Connie Lee Insured.
(c) Escrowed to maturity.
(d) FGIC Insured.
(e) FHA Insured.
(f) FHLMC Collateralized.
(g) 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,
2000.
(h) FNMA/GNMA Collateralized.
(i) FSA Insured.
(j) GNMA Collateralized.
(k) MBIA Insured.
(l) Prerefunded.
(m) 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, 2000.
(n) Represents a step bond. The interest rate will increase to a predetermined
rate on a predetermined date and will remain in effect until maturity.
* 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, 2000 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
--------------------------------------------------------------------------------
AAA/Aaa .......................................................... 50.2%
AA/Aa ............................................................ 23.1
A/A .............................................................. 12.2
BBB/Baa .......................................................... 7.7
B/B .............................................................. 0.4
NR (Not Rated) ................................................... 3.8
Other* ........................................................... 0.7
--------------------------------------------------------------------------------
* Temporary investments in short-term municipal securities.
8 & 9
<PAGE>
MuniYield Quality Fund, Inc., October 31, 2000
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of October 31, 2000
====================================================================================================================================
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$601,194,887) ................................. $619,265,977
Cash .................................................................................. 60,701
Receivables:
Interest ............................................................................ $ 11,442,858
Securities sold ..................................................................... 2,456,860 13,899,718
------------
Prepaid expenses and other assets ..................................................... 73,911
------------
Total assets .......................................................................... 633,300,307
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased ................................................................ 978,074
Dividends to shareholders ........................................................... 398,161
Investment adviser .................................................................. 257,286 1,633,521
------------
Accrued expenses ...................................................................... 195,924
------------
Total liabilities ..................................................................... 1,829,445
------------
====================================================================================================================================
Net Assets: Net assets ............................................................................ $631,470,862
============
====================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized):
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 .................................................. 4,066,683
Accumulated realized capital losses on investments--net ............................... (17,576,857)
Unrealized appreciation on investments--net ........................................... 18,071,090
------------
Total--Equivalent to $14.18 net asset value per share of Common Stock
(market price--$12.0625) .............................................................. 431,470,862
Total capital ......................................................................... $631,470,862
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended October 31, 2000
====================================================================================================================================
<C> <S> <C> <C>
Investment Interest and amortization of premium and discount earned .................... $ 36,440,039
Income:
====================================================================================================================================
Expenses: Investment advisory fees .................................................... $ 3,082,666
Commission fees ............................................................. 511,300
Transfer agent fees ......................................................... 132,110
Accounting services ......................................................... 118,725
Professional fees ........................................................... 83,299
Directors' fees and expenses ................................................ 41,415
Listing fees ................................................................ 37,730
Custodian fees .............................................................. 34,827
Printing and shareholder reports ............................................ 31,893
Pricing fees ................................................................ 17,045
Other ....................................................................... 36,531
------------
Total expenses .............................................................. 4,127,541
------------
Investment income--net ...................................................... 32,312,498
------------
====================================================================================================================================
Realized & Realized loss on investments--net ........................................... (6,671,571)
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net .......... 26,889,941
(Loss) on ------------
Investments--Net: Net Increase in Net Assets Resulting from Operations ........................ $ 52,530,868
============
====================================================================================================================================
</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: 2000 1999
====================================================================================================================================
<C> <S> <C> <C>
Operations: Investment income--net .......................................................... $ 32,312,498 $ 32,656,202
Realized loss on investments--net ............................................... (6,671,571) (1,376,602)
Change in unrealized appreciation/depreciation on investments--net .............. 26,889,941 (60,738,769)
------------ ------------
Net increase (decrease) in net assets resulting from operations ................. 52,530,868 (29,459,169)
------------ ------------
====================================================================================================================================
Dividends to Investment income--net:
Shareholders: Common Stock .................................................................. (24,863,521) (26,156,777)
Preferred Stock ............................................................... (8,079,920) (6,398,620)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders ............. (32,943,441) (32,555,397)
------------ ------------
====================================================================================================================================
Net Assets: Total increase (decrease) in net assets ......................................... 19,587,427 (62,014,566)
Beginning of year ............................................................... 611,883,435 673,898,001
------------ ------------
End of year* .................................................................... $631,470,862 $611,883,435
============ ============
====================================================================================================================================
*Undistributed investment income--net ............................................ $ 4,066,683 $ 4,697,626
============ ============
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
MuniYield Quality Fund, Inc., October 31, 2000
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended October 31,
-----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
====================================================================================================================================
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ..................... $ 13.54 $ 15.58 $ 15.17 $ 14.57 $ 14.58
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ................................. 1.07 1.07 1.12 1.13 1.14
Realized and unrealized gain (loss) on investments--net .66 (2.04) .40 .59 (.01)
-------- -------- -------- -------- --------
Total from investment operations ....................... 1.73 (.97) 1.52 1.72 1.13
-------- -------- -------- -------- --------
Less dividends to Common Stock shareholders from
investment income--net ................................. (.82) (.86) (.88) (.89) (.90)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends to Preferred Stock shareholders from
investment income--net ................................ (.27) (.21) (.23) (.23) (.24)
-------- -------- -------- -------- --------
Net asset value, end of year ........................... $ 14.18 $ 13.54 $ 15.58 $ 15.17 $ 14.57
======== ======== ======== ======== ========
Market price per share, end of year .................... $12.0625 $12.0625 $15.5625 $14.4375 $ 12.875
======== ======== ======== ======== ========
====================================================================================================================================
Total Investment Based on market price per share ........................ 7.03% (17.61%) 14.33% 19.58% 9.12%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share ..................... 12.09% (7.62%) 8.93% 11.03% 6.93%
======== ======== ======== ======== ========
====================================================================================================================================
Ratios Based on Total expenses** ....................................... .99% .95% .91% .94% .96%
Average Net Assets ======== ======== ======== ======== ========
Of Common Stock: Total investment income--net** ......................... 7.74% 7.17% 7.30% 7.69% 7.79%
======== ======== ======== ======== ========
Amount of dividends to Preferred Stock shareholders .... 1.94% 1.41% 1.50% 1.56% 1.64%
======== ======== ======== ======== ========
Investment income--net, to Common Stock shareholders ... 5.81% 5.76% 5.80% 6.13% 6.15%
======== ======== ======== ======== ========
====================================================================================================================================
Ratios Based on Total expenses ......................................... .67% .66% .64% .65% .66%
Total Average Net ======== ======== ======== ======== ========
Assets:**+ Total investment income--net ........................... 5.23% 4.99% 5.12% 5.32% 5.32%
======== ======== ======== ======== ========
====================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders .............. 4.03% 3.21% 3.51% 3.51% 3.61%
Average Net Assets ======== ======== ======== ======== ========
Of Preferred Stock:
====================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of year
Data: (in thousands) ......................................... $431,471 $411,883 $473,898 $461,647 $443,154
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year (in thousands) $200,000 $200,000 $200,000 $200,000 $200,000
======== ======== ======== ======== ========
Portfolio turnover ..................................... 51.19% 91.78% 42.95% 36.87% 68.22%
======== ======== ======== ======== ========
====================================================================================================================================
Leverage: Asset coverage per $1,000 .............................. $ 3,157 $ 3,059 $ 3,369 $ 3,308 $ 3,216
======== ======== ======== ======== ========
====================================================================================================================================
Dividends Per Share Series A--Investment income--net ....................... $ 1,024 $ 824 $ 961 $ 864 $ 953
On Preferred Stock ======== ======== ======== ======== ========
Outstanding: Series B--Investment income--net ....................... $ 1,015 $ 779 $ 879 $ 892 $ 880
======== ======== ======== ======== ========
Series C--Investment income--net ....................... $ 999 $ 809 $ 815 $ 884 $ 888
======== ======== ======== ======== ========
Series D--Investment income--net ....................... $ 1,002 $ 787 $ 856 $ 873 $ 885
======== ======== ======== ======== ========
====================================================================================================================================
</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.
+ Includes Common and Preferred Stock average net assets.
See Notes to Financial Statements.
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 conformity with
accounting principles generally accepted in the United States of America, 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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. 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
12 & 13
<PAGE>
MuniYield Quality Fund, Inc., October 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
an option, an amount equal to the premium received by the Fund is reflected as
an asset and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of the option
written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) 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.
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, 2000 were $319,145,866 and $306,006,529, respectively.
Net realized losses for the year ended October 31, 2000 and net unrealized gains
as of October 31, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Gains
--------------------------------------------------------------------------------
Long-term investments ................... $(6,251,271) $18,071,090
Financial futures contracts ............. (420,300) --
----------- -----------
Total ................................... $(6,671,571) $18,071,090
=========== ===========
--------------------------------------------------------------------------------
As of October 31, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $17,823,045, of which $23,102,321 related to appreciated
securities and $5,279,276 related to depreciated securities. The aggregate cost
of investments at October 31, 2000 for Federal income tax purposes was
$601,442,932.
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, 2000 and
October 31, 1999 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, 2000 were as follows: Series A, 4.30%; Series B, 4.05%; Series C,
4.23%; and Series D, 3.90%.
Shares issued and outstanding during the years ended October 31, 2000 and
October 31, 1999 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, 2000, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, an affiliate of FAM, earned $294,747 as commissions.
5. Capital Loss Carryforward:
At October 31, 2000, the Fund had a net capital loss carryfoward of
approximately $12,528,000, of which $1,083,000 expires in 2004, $3,645,000
expires in 2007 and $7,800,000 expires in 2008. This amount will be available to
offset like amounts of any future taxable gains.
6. Subsequent Event:
On November 8, 2000, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.067800 per share,
payable on November 29, 2000 to shareholders of record as of November 20, 2000.
14 & 15
<PAGE>
MuniYield Quality Fund, Inc., October 31, 2000
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, 2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000 by correspondence with the custodian and
broker. 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, 2000, the results of its operations, the changes in
its net assets, and the financial highlights for the respective stated periods
in conformity with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Princeton, New Jersey
December 6, 2000
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. 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.
16 & 17
<PAGE>
MuniYield Quality Fund, Inc., October 31, 2000
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield Quality Fund,
Inc. during its taxable year ended October 31, 2000 qualify as tax-exempt
interest dividends for Federal income tax purposes. Additionally, there were no
capital gains distributions paid by the Fund during the year.
Please retain this information for your records.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Joseph L. May, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Michael A. Kalinoski, 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
18 & 19
<PAGE>
MuniYield Quality Fund, Inc. seeks to provide shareholders with as high a level
of current income exempt from Federal income taxes as is consistent with its
investment policies and prudent investment management by investing primarily in
a portfolio of long-term, high-grade municipal obligations the interest on which
is exempt from Federal income taxes in the opinion of bond counsel to the
issuer.
This report, including the financial information herein, is transmitted to
shareholders of MuniYield Quality Fund, Inc. for their information. It is not a
prospectus. 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--10/00
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