MUNIYIELD
QUALITY
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
April 30, 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., April 30, 2000
DEAR SHAREHOLDER
For the six months ended April 30, 2000, the Common Stock of MuniYield Quality
Fund, Inc. earned $0.408 per share income dividends, which included earned and
unpaid dividends of $0.681. This represents a net annualized yield of 6.03%,
based on a month-end per share net asset value of $13.58. Over the same period,
the total investment return on the Fund's Common Stock was +3.86%, based on a
change in per share net asset value from $13.54 to $13.58, and assuming
reinvestment of $0.410 per share income dividends.
For the six-month period ended April 30, 2000, the average yields of the Fund's
Auction Market Preferred Stock were: Series A, 4.20%; Series B, 3.92%; Series C,
3.42%; and Series D, 3.88%.
The Municipal Market Environment
Since October 1999 through mid-January 2000, fixed-income bond yields rose
steadily higher. US economic growth, in part intensified by Year 2000
preparations, grew at a 7.3% rate in the fourth quarter of 1999 and at a 4.2%
annual rate for all of 1999. Initial estimates for the first quarter of 2000
were reported at 5.4%. However, despite these significant growth rates, no price
measure indicator has shown any considerable signs of future price pressures at
the consumer level, despite the lowest unemployment rates since January 1970.
Given no signs of an economic slowdown, the Federal Reserve Board continued to
raise short-term interest rates in November 1999 and again in February and March
2000. In each instance, the Federal Reserve Board cited both the continued
growth of US employment and the impressive strength of the US equity markets as
reasons for attempting to moderate US economic growth before inflationary price
increases are realized. By mid-January 2000, US Treasury bond yields rose 60
basis points (0.60%) to 6.75%. Similarly, as measured by the Bond Buyer Revenue
Bond Index, long-term tax-exempt bond yields rose approximately 20 basis points
to 6.35%.
Since mid-January, fixed-income markets have largely ignored strong economic
fundamentals and concentrated on very positive technical supply factors.
Declining bond issuance, both current, and more importantly, expected future
issuance, helped push bond yields lower from mid-January to mid-April 2000. In
late January and early February 2000, the US Treasury announced its intention to
reduce the number of issues to be auctioned in the quarterly Treasury note and
bond auctions. Furthermore, budgetary surpluses would allow the US Treasury to
repurchase outstanding, higher-couponed Treasury issues, primarily in the
15-year and longer-term maturity sectors. Both these actions would result in a
significant reduction in the outstanding supply of long-term US Treasury debt.
Domestic and international investors quickly began to accumulate what was
expected to become a scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined over 100 basis points to
5.67%. However, bond yields rose somewhat during the last two weeks of the
period as economic statistics were released, indicating that the economic
strength seen in late 1999 was continuing into early 2000. The decline in
long-term US Treasury bond yields resulted in an inverted taxable yield curve as
short-term and intermediate-term interest rates have not fallen proportionately
since the Federal Reserve Board is expected to continue to raise short-term
interest rates. The current inversion has had much more to do with debt
reduction and Treasury buybacks than with investor expectations of slower
economic growth. Over the last six months, long-term US Treasury bond yields
have fallen almost 20 basis points to close the six-month period ended April 30,
2000 at 5.96%.
Tax-exempt bond yields have also declined in recent months. The decline has
largely been in response to the rally in US Treasury securities, as well as a
continued positive technical supply environment. States such as California and
Maryland have announced that their large current and anticipated future budget
surpluses will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to repurchase
existing debt, reducing the supply of tax-exempt bonds in the secondary market
as well. Since their recent peak in January 2000, long-term municipal bond
yields declined over 25 basis points to finish the six-month period ended April
30, 2000 at 6.07%. During the last six months, municipal bond yields declined
just 10 basis points overall.
The relative underperformance of the municipal bond market in recent months has
been especially disappointing given the strong technical position the tax-exempt
bond market enjoyed. The issuance of long-term tax-exempt securities has
dramatically declined. Over the last year, $203 billion in new long-term
municipal securities was issued, a decline of almost 25% compared to the same
period a year earlier. For the six months ended April 30, 2000, approximately
$90 billion in new tax-exempt bonds was underwritten, a decline of more than 25%
compared to the same period in 1999. Although investors received over $30
billion in coupon payments, bond maturities, and the proceeds from early bond
redemptions, coupled with the highest municipal bond yields in three years,
overall investor demand has diminished. Long-term municipal bond 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.
Over the last four months, tax-exempt mutual funds have had net redemptions of
more than $8 billion. Also, the demand from property and casualty insurance
companies has weakened as a result of the losses and anticipated losses incurred
from a series of damaging storms across much of the eastern United States.
Additionally, many institutional investors who have in recent years been
attracted to the municipal bond market by historically attractive tax-exempt
bond yield ratios of over 90% found other asset classes even more attractive.
Even with a favorable supply position, tax-exempt municipal bond yields have
underperformed their taxable counterparts.
Any significantly lower municipal bond yields are still likely to require weaker
US employment growth and consumer spending. The actions taken in recent months
by the Federal Reserve Board should eventually slow US economic growth. The
recent declines in US home sales are perhaps the first sign that consumer
spending is being slowed by higher interest rates. Until further signs develop,
it is likely that the municipal bond market's current favorable technical
position will dampen significant tax-exempt interest rate volatility and provide
a stable environment for eventual improvement in municipal bond prices.
Portfolio Strategy
During the six-month period ended April 30, 2000, we maintained our
slightly-above neutral portfolio structure. We adopted this position in part
because the municipal bond market offered higher yields not seen since mid-1996.
Municipal bonds yields also reached or exceeded those of taxable US Treasury
bonds, and we believed it was advantageous to lock in these high absolute
yields. Our portfolio strategy continues to focus on seeking to increase current
yield. During periods of bond strength, we pursued this goal by exchanging
lower-coupon bonds for higher-coupon bonds. We implemented this strategy in an
effort to raise shareholder income and lower the volatility of the Fund's net
asset value. Additionally, an increase in current yield would help offset rising
short-term interest rates experienced by the Fund's leveraged portfolio and paid
to the Fund's Preferred Stock shareholders. (For a complete explanation of the
benefits and risks of leveraging, please see page 1 of this report to
shareholders.)
2 & 3
<PAGE>
MuniYield Quality Fund, Inc., April 30, 2000
Given the current economic backdrop of generally rising Federal Fund rates and
unusually strong domestic economic growth, we do not anticipate moving to a more
aggressive investment approach. We intend to remain substantially invested and
pursue strategies that would increase current yield. We also expect to maintain
our investments in high-quality bonds. At April 30, 2000, 83.2% of the Fund was
invested in securities rated A or better by at least one of the major rating
agencies. Should the Federal Reserve Board move dramatically to rein in the
domestic economy (as it did after the close of the period when it raised
interest rates on May 16, 2000), we would take steps to participate in any bond
market rally.
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
May 30, 2000
We are pleased to announce that Michael A. Kalinoski is responsible for the
day-to-day management of MuniYield Quality Fund, Inc. Mr. Kalinoski has been
employed by Merrill Lynch Asset Management, L.P. since 1999 as a Portfolio
Manager. Mr. Kalinoski was previously employed from 1993 to 1999 as a municipal
trader with Strong Capital Management.
PROXY RESULTS
During the six-month period ended April 30, 2000, MuniYield Quality Fund, Inc.'s
Common Stock shareholders voted on the following proposals. The proposals were
approved at a shareholders' meeting on April 27, 2000. The description of each
proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
-------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn 17,661,654 322,406
James H. Bodurtha 17,658,044 326,016
Herbert I. London 17,658,044 326,016
Roberta Cooper Ramo 17,658,044 326,016
Arthur Zeikel 17,656,799 327,261
-------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 17,728,488 101,232 154,341
----------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended April 30, 2000, MuniYield Quality Fund, Inc.'s
Preferred Stock shareholders (Series A, B, C and D) voted on the following
proposals. The proposals were approved at a shareholders' meeting on April 27,
2000. The description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
-------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn,
James H. Bodurtha, Herbert I. London, Joseph L. May,
Andre F. Perold, Roberta Cooper Ramo and Arthur Zeikel
as follows:
Series A 720 0
Series B 1,381 54
Series C 1,187 140
Series D 1,997 3
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year as follows:
Series A 720 0 0
Series B 1,435 0 0
Series C 1,187 0 140
Series D 1,996 3 1
----------------------------------------------------------------------------------------------------------------
</TABLE>
4 & 5
<PAGE>
MuniYield Quality Fund, Inc., April 30, 2000
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Alaska--1.1% AAA Aaa $ 1,160 Anchorage, Alaska, Water Revenue Refunding Bonds, 6%
due 9/01/2024 (a) $ 1,163
-----------------------------------------------------------------------------------------------------------
NR* NR* 6,000 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds
(Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 5,842
====================================================================================================================================
Arizona--0.5% AAA Aaa 3,000 Mesa, Arizona, IDA, Revenue Bonds (Discovery Health
System), Series A, 5.875% due 1/01/2014 (h) 3,073
====================================================================================================================================
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) 6,862
====================================================================================================================================
Colorado--7.6% Colorado HFA, Revenue Bonds (S/F Program):
NR* Aa2 1,855 AMT, Senior Series A-1, 7.40% due 11/01/2027 1,992
NR* Aa2 3,000 Senior Series B-3, 6.50% due 10/01/2029 3,101
-----------------------------------------------------------------------------------------------------------
NR* Aa2 12,500 Colorado HFA, Revenue Refunding Bonds (S/F Program),
AMT, Senior Series A-2, 6.60% due 5/01/2028 12,708
-----------------------------------------------------------------------------------------------------------
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 1,439
NR* Aaa 4,550 (Swedish Medical Center Project), 6.80% due 1/01/2003 4,834
-----------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Denver, Colorado, City and County Airport Revenue Bonds, AMT,
Series D, 7.75% due 11/15/2013 (h) 5,941
-----------------------------------------------------------------------------------------------------------
Denver, Colorado, City and County Airport Revenue Refunding Bonds (h):
AAA Aaa 8,535 Series A, 5.50% due 11/15/2025 8,023
AAA Aaa 5,000 Series E, 5.25% due 11/15/2023 4,513
-----------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Jefferson County, Colorado, School District Number R-001,
GO, Refunding, 6.50% due 12/15/2010 (h) 3,850
====================================================================================================================================
District of Columbia-- District of Columbia, GO, Refunding, Series B (f):
4.4% AAA Aaa 7,500 5.50% due 6/01/2013 7,431
AAA Aaa 4,500 5.50% due 6/01/2014 4,430
-----------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 District of Columbia, GO, Series A, 5.50% due 6/01/2012 (f) 3,986
-----------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 District of Columbia, Revenue Refunding Bonds (Catholic University
America Project), 5.625% due 10/01/2029 (a) 2,857
-----------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Washington D.C., Convention Center Authority, Dedicated Tax Revenue
Bonds, Senior Lien, 4.75% due 10/01/2028 (a) 8,122
====================================================================================================================================
Florida--1.3% AAA Aaa 3,000 Dade County, Florida, Water and Sewer System Revenue Bonds,
5.25% due 10/01/2026 (d) 2,726
-----------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Orange County, Florida, Tourist Development Tax Revenue
Refunding Bonds, 5.125% due 10/01/2021 (h) 2,709
-----------------------------------------------------------------------------------------------------------
NR* B1 2,840 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida Education
and Research Foundation Project), Series A, 7% due 9/01/2024 2,578
====================================================================================================================================
Georgia--1.7% AA Aa3 4,825 Atlanta, Georgia, GO, Series A, 6.125% due 12/01/2004 (i) 5,114
-----------------------------------------------------------------------------------------------------------
A A3 4,785 Monroe County, Georgia, Development Authority, PCR, Refunding
(Oglethorpe Power Corporation--Scherer), Series A,
6.80% due 1/01/2011 5,240
====================================================================================================================================
Illinois--16.1% Chicago, Illinois, Board of Education, GO (Chicago School
Reform Project) (a):
AAA Aaa 10,000 5.75% due 12/01/2027 9,652
AAA Aaa 32,085 Series A, 5.25% due 12/01/2027 28,468
AAA Aaa 6,385 Series A, 5.25% due 12/01/2030 5,629
-----------------------------------------------------------------------------------------------------------
AAA Aaa 12,495 Chicago, Illinois, GO (Lakefront Millennium Parking Facilities),
5.125% due 1/01/2028 (h) 10,832
-----------------------------------------------------------------------------------------------------------
BBB- Baa1 2,000 Chicago, Illinois, O'Hare International Airport, Special Facility
Revenue Refunding Bonds (American Airlines Inc. Project),
8.20% due 12/01/2024 2,179
-----------------------------------------------------------------------------------------------------------
NR* Aaa 3,000 Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT, Series A,
6.35% due 10/01/2030 (l) 3,042
-----------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Chicago, Illinois, Sales Tax Revenue Refunding Bonds,
5.25% due 1/01/2028 (d) 3,991
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Chicago, Illinois, Wastewater Transmission Revenue Bonds,
Second Lien, 5.25% due 1/01/2028 (a) 2,217
-----------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Chicago, Illinois, Water Revenue Refunding Bonds,
5.25% due 11/01/2027 (d) 4,438
-----------------------------------------------------------------------------------------------------------
BBB+ Baa1 15,000 Illinois Development Finance Authority, PCR, Refunding
(Illinois Power Company Project), Series A, 7.375% due 7/01/2021 15,851
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,130 Illinois Development Finance Authority Revenue Bonds (Presbyterian
Home Lake Project), Series B, 6.25% due 9/01/2017 (f) 2,181
-----------------------------------------------------------------------------------------------------------
NR* A1 3,750 Illinois Student Assistance Commission, Student Loan Revenue
Refunding Bonds, AMT, Sub-Series CC, 6.875% due 3/01/2015 3,863
-----------------------------------------------------------------------------------------------------------
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) 6,058
====================================================================================================================================
Indiana--5.7% De Kalb County, Indiana, Redevelopment Authority Revenue Bonds
(Mini-Mill), Series A (b):
AAA NR* 3,000 6.50% due 1/15/2014 3,141
AAA NR* 3,220 6.625% due 1/15/2017 3,432
-----------------------------------------------------------------------------------------------------------
AAA NR* 2,500 Indiana Bond Bank Revenue Bonds (State Revolving Fund Program),
Series A, 6.875% due 2/01/2012 2,691
-----------------------------------------------------------------------------------------------------------
BBB Baa2 9,800 Indianapolis, Indiana, Airport Authority, Special Facilities
Revenue Bonds (Federal Express Corporation Project), AMT,
7.10% due 1/15/2017 10,131
-----------------------------------------------------------------------------------------------------------
AA NR* 15,000 Indianapolis, Indiana, Local Public Improvement Bond Bank, Revenue
Refunding Bonds, Series D, 6.75% due 2/01/2020 15,770
====================================================================================================================================
</TABLE>
================================================================================
Portfolio
Abbreviations
To simplify the listings of MuniYield Quality Fund, Inc.'s portfolio holdings in
the Schedule of Investments, we have abbreviated the names of many of the
securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
6 & 7
<PAGE>
MuniYield Quality Fund, Inc., April 30, 2000
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Kansas--0.6% Kansas City, Kansas, Utility System Revenue Refunding Bonds (d):
AAA NR* $ 1,140 6.375% due 9/01/2004 (i) $ 1,220
AAA Aaa 2,360 6.375% due 9/01/2023 2,436
====================================================================================================================================
Kentucky--3.7% AAA Aaa 4,850 Kentucky Housing Corporation, Housing Revenue Bonds, AMT,
Series B, 6.625% due 7/01/2026 (e) 4,942
-----------------------------------------------------------------------------------------------------------
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 (h)(i) 7,140
-----------------------------------------------------------------------------------------------------------
NR* NR* 5,250 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
(TJ International Project), AMT, 7% due 6/01/2024 5,343
-----------------------------------------------------------------------------------------------------------
A+ A1 5,000 Trimble County, Kentucky, PCR, AMT, Series B, 6.55% due 11/01/2020 5,158
====================================================================================================================================
Massachusetts--5.8% Massachusetts Bay Transportation Authority, Massachusetts,
Revenue Refunding Bonds (General Transportation System):
AA- Aa2 3,730 Series A, 7% due 3/01/2011 4,234
AA- Aa2 3,550 Series A, 7% due 3/01/2014 4,069
AAA Aaa 17,845 Series B, 5% due 3/01/2028 (h) 15,331
-----------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Massachusetts State, HFA, Housing Development Revenue Refunding Bonds,
Series B, 5.40% due 12/01/2028 (h) 5,442
-----------------------------------------------------------------------------------------------------------
Massachusetts State, HFA, S/F Housing Revenue Bonds:
A+ Aa3 3,500 Series 33, 6.35% due 6/01/2017 3,568
A+ Aa3 2,865 Series 37, 6.35% due 6/01/2017 2,888
====================================================================================================================================
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 11,761
====================================================================================================================================
Missouri--0.3% AAA NR* 2,000 Missouri State Housing Development Commission, S/F Mortgage Revenue
Bonds, Series C-1, 6.55% due 9/01/2028 (l) 2,095
====================================================================================================================================
Nebraska--2.5% AAA NR* 6,000 Nebraska Investment Finance Authority, S/F Housing Revenue Refunding
Bonds, AMT, Series A, 5.75% due 9/01/2025 6,012
-----------------------------------------------------------------------------------------------------------
AAA Aaa 9,000 Nebraska Public Power District Revenue Bonds, Power Supply System,
Series A, 5.25% due 1/01/2005 (h)(i) 9,152
====================================================================================================================================
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 1,943
-----------------------------------------------------------------------------------------------------------
AAA Aaa 5,710 Washoe County, Nevada, School District, GO, 5.875% due 6/01/2017 (f) 5,774
====================================================================================================================================
New Hampshire--0.6% NR* NR* 3,410 New Hampshire Higher Educational and Health Facilities Authority,
Revenue Refunding Bonds (Saint Anselm College), 6.20% due
7/01/2003 (i) 3,581
====================================================================================================================================
New York--11.4% AAA Aaa 14,910 Long Island Power Authority, New York, Electric System Revenue
Refunding Bonds, Series A, 5.25% due 12/01/2026 (h) 13,396
-----------------------------------------------------------------------------------------------------------
AAA Aaa 8,085 New York City, New York, City Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, RITR, Series FR-6, 5.945%
due 6/15/2026 (h)(j) 7,741
-----------------------------------------------------------------------------------------------------------
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 (f) 3,596
-----------------------------------------------------------------------------------------------------------
New York City, New York, GO:
A- A3 5,000 Series B, 5.875% due 8/15/2013 5,076
A- A3 9,055 Series F, 5.75% due 2/01/2019 8,872
A- A3 5,000 Series K, 6.25% due 4/01/2006 (i) 5,344
-----------------------------------------------------------------------------------------------------------
New York City, New York, GO, Refunding:
A- A3 5,000 Series E, 6.50% due 2/15/2006 5,288
A- A3 8,825 Series G, 5.75% due 2/01/2017 8,740
A- A3 2,315 Series J, 6% due 8/01/2017 2,348
-----------------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Revenue Refunding Bonds:
BBB+ Baa1 5,000 (Mount Sinai Health), Series A, 6.625% due 7/01/2019 5,044
AAA Aaa 3,485 (Saint Vincent's Hospital and Medical Center),
5.75% due 8/01/2015 (a)(e) 3,501
-----------------------------------------------------------------------------------------------------------
New York State Local Government Assistance Corporation Revenue
Bonds, Series A:
AA- NR* 180 6% due 4/01/2005 (i) 190
AA- A3 820 6% due 4/01/2016 835
====================================================================================================================================
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) 12,127
====================================================================================================================================
Ohio--0.8% AA NR* 2,000 Jackson, Ohio, Hospital Facilities Revenue Bonds (Consolidated
Health System--Jackson Hospital), 6.125% due 10/01/2020 1,992
-----------------------------------------------------------------------------------------------------------
AA+ Aa1 2,750 Ohio State, GO, Infrastructure Improvement, Series B, 5% due 2/01/2016 2,565
====================================================================================================================================
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 995
AAA Aaa 1,000 6.125% due 6/01/2026 992
====================================================================================================================================
Pennsylvania--0.7% AAA Aaa 2,000 Allegheny County, Pennsylvania, Port Authority, Special
Transportation Revenue Bonds, 6% due 3/01/2019 (h) 2,034
-----------------------------------------------------------------------------------------------------------
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) 2,235
====================================================================================================================================
Rhode Island--0.4% AAA Aaa 2,500 Providence, Rhode Island, GO, Series A, 5.70% due 7/15/2019 (f) 2,459
====================================================================================================================================
South Carolina--4.3% A A1 10,000 Fairfield County, South Carolina, PCR (South Carolina Electric
and Gas Company), 6.50% due 9/01/2014 10,530
-----------------------------------------------------------------------------------------------------------
BBB+ Baa1 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 8,123
-----------------------------------------------------------------------------------------------------------
NR* NR* 3,800 Spartanburg County, South Carolina, Solid Waste Disposal Facilities
Revenue Bonds (BMW Project), AMT, 7.55% due 11/01/2024 4,024
-----------------------------------------------------------------------------------------------------------
AAA Aaa 3,750 York County, South Carolina, School District Number 4, Fort Mill,
GO, Series A, 5.80% due 3/01/2024 (f) 3,730
====================================================================================================================================
South Dakota--0.9% AAA Aa1 5,500 South Dakota, HDA, Homeownership Mortgage Revenue Refunding Bonds,
Series A, 6.45% due 5/01/2022 5,567
====================================================================================================================================
</TABLE>
8 & 9
<PAGE>
MuniYield Quality Fund, Inc., April 30, 2000
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Tennessee--0.8% AAA Aaa $ 5,000 Memphis--Shelby County, Tennessee, Airport Authority, Airport
Revenue Bonds, AMT, Series D, 6.25% due 3/01/2018 (a) $ 5,162
====================================================================================================================================
Texas--8.8% BBB- Baa1 1,100 Alliance Airport Authority, Inc., Texas, Special Facilities
Revenue Bonds (American Airlines Inc.
Project), AMT, 7% due 12/01/2011 1,185
-----------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Bell County, Texas, Health Facilities Development Revenue Bonds
(Lutheran General Health Care System), 6.50% due 7/01/2019 (c) 1,066
-----------------------------------------------------------------------------------------------------------
BBB- Baa1 2,800 Dallas-Fort Worth, Texas, International Airport Facilities,
Improvement Corporation Revenue Bonds (American Airlines Inc.),
AMT, 6.375% due 5/01/2035 2,660
-----------------------------------------------------------------------------------------------------------
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 3,161
AA NR* 2,600 6.375% due 10/01/2025 2,608
-----------------------------------------------------------------------------------------------------------
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) 5,347
-----------------------------------------------------------------------------------------------------------
A1+ NR* 200 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding Bonds (Methodist
Hospital), VRDN, 5.80% due 12/01/2025 (k) 200
-----------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Houston, Texas, Water and Sewer System Revenue Bonds, Junior
Lien, Series C, 5.375% due 12/01/2027 (d) 9,138
-----------------------------------------------------------------------------------------------------------
AAA Aaa 16,710 Houston, Texas, Water and Sewer System Revenue Refunding Bonds,
Junior Lien, Series A, 5.375% due 12/01/2027 (d) 15,269
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,360 Texas Housing Agency, Residential Development Mortgage Revenue
Bonds, Series A, 7.50% due 7/01/2015 (e)(g) 2,427
-----------------------------------------------------------------------------------------------------------
AAA Aaa 6,070 Texas Technology University Revenue Refunding and Improvement
Bonds (Financing System), 6th Series, 5.25% due 2/15/2015 (a) 5,799
-----------------------------------------------------------------------------------------------------------
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 (h) 4,813
====================================================================================================================================
Utah--3.0% AA Aa2 15,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC
Hospitals Incorporated), 6.30% due 2/15/2015 16,002
-----------------------------------------------------------------------------------------------------------
A- NR* 2,710 West Valley City, Utah, Redevelopment Agency, Tax Increment
Revenue Bonds, 6% due 3/01/2024 2,588
====================================================================================================================================
Virginia--4.6% AAA Aaa 6,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue
Refunding Bonds, AMT, Series A, 6.05% due 2/01/2009 (a) 6,329
-----------------------------------------------------------------------------------------------------------
Norfolk, Virginia, GO, Capital Improvement (d):
AAA Aaa 2,190 5.375% due 6/01/2016 2,147
AAA Aaa 2,190 5.375% due 6/01/2017 2,129
-----------------------------------------------------------------------------------------------------------
AA+ Aa1 17,435 Virginia State, HDA, Commonwealth Mortgage Revenue Bonds,
Series A, 7.15% due 1/01/2033 17,783
====================================================================================================================================
Washington--1.5% AA+ Aa1 6,000 Washington State, GO, Series A & AT-6, 6.25% due 2/01/2011 6,448
-----------------------------------------------------------------------------------------------------------
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) 2,862
====================================================================================================================================
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 4,945
====================================================================================================================================
Wisconsin--0.7% AA Aa3 3,800 Wisconsin Housing and EDA, Housing Revenue Bonds, AMT, Series D,
7.20% due 11/01/2013 3,986
====================================================================================================================================
Total Investments (Cost--$597,217)--97.2% 595,587
Other Assets Less Liabilities--2.8% 17,465
--------
Net Assets--100.0% $613,052
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) Connie Lee Insured.
(c) Escrowed to maturity.
(d) FGIC Insured.
(e) FHA Insured.
(f) FSA Insured.
(g) GNMA Collateralized.
(h) MBIA Insured.
(i) Prerefunded.
(j) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at April 30, 2000.
(k) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at April 30,
2000.
(l) FNMA/GNMA Collateralized.
* Not Rated.
See Notes to Financial Statements.
================================================================================
Quality Profile
The quality ratings of securities in the Fund as of April 30, 2000 were as
follows:
-------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
-------------------------------------------------------
AAA/Aaa............................... 54.3%
AA/Aa................................. 17.8
A/A................................... 11.1
BBB/Baa............................... 9.6
B/B................................... 0.4
NR (Not Rated)........................ 3.9
Other*................................ 0.1
-------------------------------------------------------
* Temporary investments in short-term municipal securities.
10 & 11
<PAGE>
MuniYield Quality Fund, Inc., April 30, 2000
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of April 30, 2000
===================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$597,217,130) .......................... $595,586,916
Cash ........................................................................... 89,016
Receivables:
Securities sold .............................................................. $ 11,703,881
Interest ..................................................................... 11,495,359 23,199,240
------------
Prepaid expenses and other assets .............................................. 143,101
Total assets ................................................................... 619,018,273
------------
===================================================================================================================================
Liabilities: Payables:
Securities purchased ......................................................... 5,074,291
Dividends to shareholders .................................................... 647,825
Investment adviser ........................................................... 203,536 5,925,652
------------
Accrued expenses and other liabilities ......................................... 40,373
------------
Total liabilities .............................................................. 5,966,025
------------
===================================================================================================================================
Net Assets: Net assets ..................................................................... $613,052,248
============
===================================================================================================================================
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 ........................................... 4,440,062
Accumulated realized capital losses on investments--net ........................ (16,667,546)
Unrealized depreciation on investments--net .................................... (1,630,214)
------------
Total--Equivalent to $13.58 net asset value per share of Common Stock
(market price--$11.625) ........................................................ 413,052,248
------------
Total capital .................................................................. $613,052,248
============
===================================================================================================================================
</TABLE>
*Auction Market Preferred Stock
See Notes to Financial Statements
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 2000
===================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ....................... $ 18,110,005
Income:
===================================================================================================================================
Expenses: Investment advisory fees ....................................................... $ 1,520,721
Commission fees ................................................................ 253,332
Transfer agent fees ............................................................ 76,671
Accounting services ............................................................ 50,178
Professional fees .............................................................. 42,911
Listing fees ................................................................... 18,781
Custodian fees ................................................................. 17,663
Printing and shareholder reports ............................................... 14,214
Directors' fees and expenses ................................................... 12,157
Pricing fees ................................................................... 9,009
Other .......................................................................... 20,106
------------
Total expenses ................................................................. 2,035,743
------------
Investment income--net ......................................................... 16,074,262
------------
===================================================================================================================================
Realized & Realized loss on investments--net .............................................. (5,762,260)
Unrealized Change in unrealized depreciation on investments--net .......................... 7,188,637
Gain (Loss) on ------------
Investments--Net: Net Increase in Net Assets Resulting from Operations ........................... $ 17,500,639
============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 2000 Oct 31, 1999
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ......................................................... $ 16,074,262 $ 32,656,202
Realized loss on investments--net .............................................. (5,762,260) (1,376,602)
Change in unrealized appreciation/depreciation on investments--net ............. 7,188,637 (60,738,769)
------------ ------------
Net increase (decrease) in net assets resulting from operations ................ 17,500,639 (29,459,169)
------------ ------------
===================================================================================================================================
Dividends to Investment income--net:
Shareholders: Common Stock ................................................................. (12,486,526) (26,156,777)
Preferred Stock .............................................................. (3,845,300) (6,398,620)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders ............ (16,331,826) (32,555,397)
------------ ------------
===================================================================================================================================
Net Assets: Total increase (decrease) in net assets ........................................ 1,168,813 (62,014,566)
Beginning of period ............................................................ 611,883,435 673,898,001
------------ ------------
End of period* ................................................................. $613,052,248 $611,883,435
============ ============
===================================================================================================================================
*Undistributed investment income--net ........................................... $ 4,440,062 $ 4,697,626
============ ============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
MuniYield Quality Fund, Inc., April 30, 2000
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
April 30,
Increase (Decrease) in Net Asset Value: 2000
======================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period ........................... $ 13.54
Operating --------
Performance: Investment income--net ......................................... .54
Realized and unrealized gain (loss) on investments--net ........ .04
--------
Total from investment operations ............................... .58
--------
Less dividends to Common Stock shareholders from investment
income--net .................................................... (.41)
--------
Effect of Preferred Stock activity:
Dividends to Preferred Stock shareholders:
Investment income--net ....................................... (.13)
--------
Net asset value, end of period ................................. $ 13.58
========
Market price per share, end of period .......................... $ 11.625
========
======================================================================================================
Total Investment Based on market price per share ................................ (.20%)++
Return:** ========
Based on net asset value per share ............................. 3.86%++
========
======================================================================================================
Ratios Based on Total expenses*** .............................................. .99%*
Average Net Assets ========
Of Common Stock Total investment income--net*** ................................ 7.84%*
========
Amount of dividends to Preferred Stock shareholders ............ 1.87%*
========
Investment income--net, to Common Stock shareholders ........... 5.96%*
========
======================================================================================================
Ratios Based on Total expenses ................................................. .67%*
Total Average Net ========
Assets:***+ Total investment income--net ................................... 5.27%*
========
======================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders ...................... 3.86%*
Average Net Assets ========
Of Preferred Stock:
======================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $413,052
Data: ========
Preferred Stock outstanding, end of period (in thousands) ...... $200,000
========
Portfolio turnover ............................................. 20.23%
========
======================================================================================================
Leverage: Asset coverage per $1,000 ...................................... $ 3,065
========
======================================================================================================
Dividends Per Share Series A--Investment income--net ............................... $ 524
On Preferred Stock ========
Outstanding: Series B--Investment income--net ............................... $ 489
========
Series C--Investment income--net ............................... $ 426
========
Series D--Investment income--net ............................... $ 484
========
======================================================================================================
</TABLE>
<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: 1999 1998 1997 1996
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........................... $ 15.58 $ 15.17 $ 14.57 $ 14.58
Operating -------- -------- -------- --------
Performance: Investment income--net ......................................... 1.07 1.12 1.13 1.14
Realized and unrealized gain (loss) on investments--net ........ (2.04) .40 .59 (.01)
-------- -------- -------- --------
Total from investment operations ............................... (.97) 1.52 1.72 1.13
-------- -------- -------- --------
Less dividends to Common Stock shareholders from investment
income--net .................................................... (.86) (.88) (.89) (.90)
-------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends to Preferred Stock shareholders:
Investment income--net ....................................... (.21) (.23) (.23) (.24)
-------- -------- -------- --------
Net asset value, end of period ................................. $ 13.54 $ 15.58 $ 15.17 $ 14.57
======== ======== ======== ========
Market price per share, end of period .......................... $12.0625 $15.5625 $14.4375 $ 12.875
======== ======== ======== ========
===================================================================================================================================
Total Investment Based on market price per share ................................ (17.61%) 14.33% 19.58% 9.12%
Return:** ======== ======== ======== ========
Based on net asset value per share ............................. (7.62%) 8.93% 11.03% 6.93%
======== ======== ======== ========
===================================================================================================================================
Ratios Based on Total expenses*** .............................................. .95% .91% .94% .96%
Average Net Assets ======== ======== ======== ========
Of Common Stock: Total investment income--net*** ................................ 7.17% 7.30% 7.69% 7.79%
======== ======== ======== ========
Amount of dividends to Preferred Stock shareholders ............ 1.41% 1.50% 1.56% 1.64%
======== ======== ======== ========
Investment income--net, to Common Stock shareholders ........... 5.76% 5.80% 6.13% 6.15%
======== ======== ======== ========
===================================================================================================================================
Ratios Based on Total expenses ................................................. .66% .64% .65% .66%
Total Average Net ======== ======== ======== ========
Assets:***+ Total investment income--net ................................... 4.99% 5.12% 5.32% 5.32%
======== ======== ======== ========
===================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders ...................... 3.21% 3.51% 3.51% 3.61%
Average Net Assets ======== ======== ======== ========
Of Preferred Stock:
===================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $411,883 $473,898 $461,647 $443,154
Data: ======== ======== ======== ========
Preferred Stock outstanding, end of period (in thousands) ...... $200,000 $200,000 $200,000 $200,000
======== ======== ======== ========
Portfolio turnover ............................................. 91.78% 42.95% 36.87% 68.22%
======== ======== ======== ========
===================================================================================================================================
Leverage: Asset coverage per $1,000 ...................................... $ 3,059 $ 3,369 $ 3,308 $ 3,216
======== ======== ======== ========
===================================================================================================================================
Dividends Per Share Series A--Investment income--net ............................... $ 824 $ 961 $ 864 $ 953
On Preferred Stock ======== ======== ======== ========
Outstanding: Series B--Investment income--net ............................... $ 779 $ 879 $ 892 $ 880
======== ======== ======== ========
Series C--Investment income--net ............................... $ 809 $ 815 $ 884 $ 888
======== ======== ======== ========
Series D--Investment income--net ............................... $ 787 $ 856 $ 873 $ 885
======== ======== ======== ========
===================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Includes Common and Preferred Stock average net assets.
++ Aggregate total investment return.
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 accordance with
accounting principles generally accepted in the United States of America, which
may require the use of management accruals and estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature. The Fund
determines and makes available for publication the net asset value of its Common
Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock
Exchange under the symbol MQY. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund, which may
utilize a matrix system for valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
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
14 & 15
<PAGE>
MuniYield Quality Fund, Inc., April 30, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
(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 six
months ended April 30, 2000 were $131,261,217 and $119,168,242, respectively.
Net realized losses for the six months ended April 30, 2000 and net unrealized
losses as of April 30, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Losses Losses
--------------------------------------------------------------------------------
Long-term investments .................. $(5,341,960) $(1,630,214)
Financial futures contracts ............ (420,300) --
----------- -----------
Total .................................. $(5,762,260) $(1,630,214)
=========== ===========
--------------------------------------------------------------------------------
As of April 30, 2000, net unrealized depreciation for Federal income tax
purposes aggregated $1,630,214, of which $14,081,059 related to appreciated
securities and $15,711,273 related to depreciated securities. The aggregate cost
of investments at April 30, 2000 for Federal income tax purposes was
$597,217,130.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of the holders
of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended April 30, 2000 and the
year ended 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
April 30, 2000 were as follows: Series A, 4.20%; Series B, 4.15%; Series C,
3.90%; and Series D, 4.70%.
Shares issued and outstanding during the six months ended April 30, 2000 and the
year ended 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 six months ended April 30, 2000, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, an affiliate of FAM, earned $148,382 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 May 5, 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 May 30, 2000 to shareholders of record as of May 16, 2000.
16 & 17
<PAGE>
MuniYield Quality Fund, Inc., April 30, 2000
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its share holders 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.
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
--------------------------------------------------------------------------------
Robert R. Martin, Director of MuniYield Quality Fund, Inc. has recently retired.
The Fund's Board of Directors wishes Mr. Martin well in his retirement.
--------------------------------------------------------------------------------
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>
[BACK COVER]
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--4/00
[RECYCLE LOGO] Printed on post-consumer recycled paper
