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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0001005477-01-502246.txt : 20020413
<SEC-HEADER>0001005477-01-502246.hdr.sgml : 20020413
ACCESSION NUMBER:		0001005477-01-502246
CONFORMED SUBMISSION TYPE:	N-30D
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20011031
FILED AS OF DATE:		20011213

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			MUNIYIELD QUALITY FUND INC
		CENTRAL INDEX KEY:			0000890196
		STANDARD INDUSTRIAL CLASSIFICATION:	 []
		IRS NUMBER:				223170744
		STATE OF INCORPORATION:			NJ
		FISCAL YEAR END:			1031

	FILING VALUES:
		FORM TYPE:		N-30D
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-06660
		FILM NUMBER:		1812548

	BUSINESS ADDRESS:	
		STREET 1:		800 SCUDDER MILL ROAD
		CITY:			PLAINSBORO
		STATE:			NJ
		ZIP:			08536
		BUSINESS PHONE:		6092822800

	MAIL ADDRESS:	
		STREET 1:		P O BOX 9011
		CITY:			PRINCETON
		STATE:			NJ
		ZIP:			08543-9011
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<FILENAME>d01-35398.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>

[LOGO] Merrill Lynch Investment Managers

Annual Report

October 31, 2001

MuniYield
Quality
Fund, Inc.

www.mlim.ml.com

<PAGE>

                          MUNIYIELD QUALITY FUND, INC.

A Special Message to Shareholders

               THE U.S. ECONOMY & THE AFTERMATH OF SEPTEMBER 11th

      A Perspective from Bob Doll, President & Chief Investment Officer of
                    Merrill Lynch Investment Managers, L.P.

For Americans, the world was changed forever on September 11th. In looking for
some perspective, I have been reassured by my belief that the pride of America
is its people and its economy. In the wake of this attack, there has been no
question about the mettle of Americans--across the country, they have risen to
the occasion again and again by helping the victims and raising the flag. But
there are many important questions about the American economy, the engine of our
way of life, that have yet to be answered, indeed, that may take months to
answer.

During the coming days, weeks and months, navigating a course through the
financial markets will be challenging. The resolve of Americans and the U.S.
Government will be tested. But history tells us that Americans and America are
resilient. And we know that the market will eventually rally. As President Bush
told the nation in his speech on September 20th, "Terrorists attacked a symbol
of prosperity. They did not touch its source. America is successful because of
the hard work and creativity and enterprise of our people. They were the true
strengths of our economy before September 11th and they are our strengths
today."

For the rest of this year at least, the main event will be a market of
tug-of-war as consumer demand shock vies with proactive monetary and fiscal
policies from the Fed and government, which may pump as much as $100 billion
into the economy. Where we go and when we get there will depend on the
government's ability to reinvigorate consumer and business confidence.
Eventually, the market will get back to focusing on the basics--economic and
earnings fundamentals.

There is no doubt that these are extraordinarily trying times. But we have been
through trying times before, and the economy has always emerged stronger than
ever. We have no reason to believe this time will be any different.

<PAGE>

                                  MuniYield Quality Fund, Inc., October 31, 2001

DEAR SHAREHOLDER

The Board of Directors of MuniYield Quality Fund, Inc. recently approved a
change to the Fund's investment strategy. Effective immediately, at least 80% of
the Fund's assets must be invested in insured municipal bonds under normal
circumstances. In addition, the Fund may not invest in below investment-grade
securities.

For the year ended October 31, 2001, the Common Stock of MuniYield Quality Fund,
Inc. earned $0.845 per share income dividends, which included earned and unpaid
dividends of $0.076. This represents a net annualized yield of 5.53%, based on a
month-end net asset value of $15.27 per share. During the same period, the total
investment return on the Fund's Common Stock was +14.46%, based on a change in
per share net asset value from $14.18 to $15.27, and assuming reinvestment of
$0.837 per share income dividends.

For the six-month period ended October 31, 2001, the total investment return on
the Fund's Common Stock was +8.65%, based on a change in per share net asset
value from $14.49 to $15.27, and assuming reinvestment of $0.431 per share
income dividends.

For the six-month period ended October 31, 2001, the Fund's Auction Market
Preferred Stock had an average yield of 2.45% for Series A, 2.53% for Series B,
2.98% for Series C and 2.58% for Series D.

The Municipal Market Environment

Throughout most of the six-month period ended October 31, 2001, long-term
interest rates generally declined. Continued weak economic activity and
declining equity markets led the Federal Reserve Board to lower short-term
interest rates 100 basis points (1.00%) from May to August. These actions were
taken largely to boost both economic activity and consumer confidence. By early
September there were a number of, albeit few, indications pointing toward the
beginning of a US economic recovery. However, immediately following the tragedy
of the World Trade Center and Pentagon attacks, all such indications effectively
vanished. After anemic economic growth of just 0.3% during the second quarter of
2001 and -0.4% for the third quarter of 2001, US gross domestic product is
widely expected to be negative for the remainder of the year and perhaps into
early 2002. The Federal Reserve Board quickly lowered short-term interest rates
an additional 50 basis points immediately following the attacks, just prior to
the reopening of the stock exchanges. This marked the eighth time this year the
Federal Reserve Board had eased monetary conditions. Despite the events of
September 11, the Federal Reserve Board noted that the nation's long-term
economic prospects remained favorable.

Initially, long-term interest rates rose during the days following the September
11 attacks. The quick response by both Federal and state governments to
stabilize, aid and restore US business activities promptly improved fixed-income
investors' confidence. Investor attention again focused on weak US economic
fundamentals and on a financial environment further impaired by the economic
losses resulting from the attacks. In addition to the immediate loss of four
days of equity trading and air transportation, including air cargo transfers, US
consumer confidence was expected to be severely shaken, resulting in weaker
consumer spending and, eventually, diminished business manufacturing. By
September 30, 2001, US Treasury bond yields declined to 5.42%, their approximate
level before the September attacks.

In early October, the Federal Reserve Board lowered short-term interest rates an
additional 50 basis points to a target of 2.50%, the lowest rate in nearly 40
years. US economic reports continued to be very weak, pushing US equity prices
lower in early October and bond prices higher. US military reprisals in
Afghanistan also helped to support higher bond prices as investors sought the
safe haven of US Treasury obligations. At October 31, 2001, the US Treasury
announced that it would no longer issue 30-year maturity bonds, triggering an
explosive fixed-income rally as investors scrambled to purchase soon-to-be
unavailable issues. By the end of October, long-term US Treasury bond yields
fell to 4.87%, declining more than 90 basis points during the last six months
and more than 50 basis points in October 2001.

The municipal bond market displayed a very similar pattern during the October
period. Long-term tax-exempt bond yields had generally declined through early
September as strong investor demand easily outweighed sizable increases in new
bond issuance. The disruption in the financial markets following the September
11 attacks also served to push tax-exempt bond yields higher. The municipal bond
market was able to reorganize operations quickly, and tax-exempt bond yields
were able to decline in conjunction with US Treasury bond yields for the
remainder of the period. While municipal bond yields were unable to match the
dramatic declines witnessed in the US Treasury market, tax-exempt bond prices
rose strongly during late October. For the six months ended October 31, 2001, as
measured by the Bond Buyer Revenue Bond Index, long-term municipal bond yields
stood at 5.23%, a decline of 40 basis points and approximately 20 basis points
during October.

Increased investor demand was the driving force for much of the municipal bond
market's performance during the period. Investors received more than $60 billion
in coupon income payments and monies from maturities and early redemptions in
June and July 2001. Also, a number of mutual fund families raised more than $2.5
billion in new closed-end tax-exempt bond funds during the summer. Perhaps most
importantly, short-term municipal rates continued to move lower in response to
Federal Reserve Board actions. Seasonal tax pressures in March and April 2001
kept short-term municipal rates artificially high, although not as high as in
recent years. As these pressures abated, short-term municipal rates declined to
approximately 2%. As interest rates declined, investors extended maturities to
take advantage of the steep municipal bond yield curve. All of these factors
contributed to a very positive technical environment for municipal bonds in
recent months. Much of this positive environment can be expected to continue in
the coming months.

Recent investor demand has been strong enough to easily outweigh the continued
dramatic increase in new tax-exempt bond issuance. Historically low municipal
bond yields continued to allow municipalities to refund outstanding,
high-couponed debt. For the six months ended October 31, 2001, more than $145
billion in long-term tax-exempt bonds was issued, an increase of nearly 40%
compared to the same period a year ago. During the October 31, 2001 quarter,
tax-exempt bond issuance remained sizable with almost $70 billion in long-term
municipal bonds underwritten, an increase of more than 30% compared to the
October 31, 2000 quarter. Municipalities issued nearly $30 billion in tax-exempt
bonds during October 2001, an increase of more than 45% compared to October 2000
issuance.

Interest rates are likely to remain near current levels, or perhaps move
slightly lower, as we expect US economic conditions to remain very weak.
However, in the coming months, business activity is likely to accelerate,
perhaps significantly. Immediately after the September 11 attacks, the Federal
Government announced a $45 billion aid package for New York City, Washington, DC
and the airline industry, with additional fiscal aid packages expected. The
military response to these attacks will continue to require sizable increases in
Defense Department spending. Eventually, this governmental spending should
result in increased US economic activity, particularly in the construction and
defense industries. This governmental stimulus, in conjunction with the actions
already taken by the Federal Reserve Board, can be expected to generate
significant increases in US gross domestic product growth some time in 2002.

As inflationary pressures are expected to remain well-contained going forward,
increased economic activity need not result in significant increases in
long-term bond yields. Also, throughout much of 2001, the municipal bond market
exhibited far less volatility than its taxable counterparts. Since the strong
technical position that supported the tax-exempt bond market's performance this
year can be expected to continue going forward, any potential increases in
municipal bond yields also can be expected to be minimal.

Portfolio Strategy

We entered the period with the Fund fully invested in municipal bonds with a
relatively high-credit profile. We structured the Fund's position toward the
defensive side, with investments largely in premium coupon issues and
intermediate maturities. We adopted


                                     2 & 3
<PAGE>

                                  MuniYield Quality Fund, Inc., October 31, 2001

this structure in response to the aggressive fiscal and monetary stimulus
intended to generate increased economic growth. During the period, despite
additional significant monetary stimulus, the US economy failed to exhibit
favorable momentum. Consequently, we recently adopted a more positive outlook
toward the municipal bond market. We maintained the Fund's fully invested status
throughout the period in an effort to enhance shareholder income and upgrade its
already strong credit profile. At October 31, 2001, 96.4% of the Fund's assets
were invested in securities rated A or better by at least one of the major bond
rating agencies and more than 80% of the Fund's assets were invested in
securities insured by AAA-rated municipal bond insurers.

The 400 basis point decline in short-term interest rates engineered by the
Federal Reserve Board in 2001 resulted in a material decrease in the Fund's
borrowing cost into the 2% range. This decline, in combination with a steep
tax-exempt yield curve, generated a substantial income benefit to the Fund's
Common Stock shareholders from the leveraging of the Preferred Stock. Additional
limited declines in short-term interest rates are expected this year, which
should lead to lower borrowing costs for the Fund and additional income for the
Fund's Common Stock shareholders from the leveraging of the Preferred Stock.
However, should the spread between short-term and long-term interest rates
narrow, the benefits of leverage will decline and the yield to the Fund's Common
Stock shareholders will be reduced. (For a complete explanation of the benefits
and risks of leveraging, see page 5 of this report to shareholders.)

Looking ahead, we expect to remain essentially fully invested and retain or
improve the current credit quality profile. We will continue to seek
opportunities for the Fund in the market provided by new municipal issuance to
structure the portfolio more favorably. We also expect to pursue opportunities
to adopt a more aggressive stance given the favorable backdrop of low inflation
and declining economic growth.

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, 2001

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.

The Fund may also invest in swap agreements, which are over-the-counter
contracts in which one party agrees to make periodic payments based on the
change in market value of a specified bond, basket of bonds, or index in return
for periodic payments based on a fixed or variable interest rate or the change
in market value of a different bond, basket of bonds or index. Swap agreements
may be used to obtain exposure to a bond or market without owning or taking
physical custody of securities.


                                     4 & 5
<PAGE>

                                  MuniYield Quality Fund, Inc., October 31, 2001

SCHEDULE OF INVESTMENTS                                           (in Thousands)

<TABLE>
<CAPTION>
                     S&P    Moody's   Face
STATE              Ratings  Ratings  Amount    Issue                                                                Value
==========================================================================================================================
<S>                  <C>      <C>   <C>        <C>                                                                <C>
Arizona--1.8%        AAA      NR*   $ 2,345    Maricopa County, Arizona, Public Finance Corporation, Lease
                                               Revenue Bonds, RIB, Series 511X, 8.61% due 7/01/2014 (a)(j)        $  2,799
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     2,000    Mesa, Arizona, IDA, Revenue Bonds (Discovery Health System),
                                               Series A, 5.875% due 1/01/2014                                        2,238
                     -----------------------------------------------------------------------------------------------------
                     AA+      NR*     3,250    Phoenix, Arizona, GO, Refunding, DRIVERS, Series 173, 12.551%
                                               due 7/01/2008 (j)                                                     4,691
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     1,930    Phoenix, Arizona, IDA, S/F Mortgage Revenue Refunding Bonds,
                                               AMT, Series 1B, 7.35% due 6/01/2031 (h)(l)                            2,255
==========================================================================================================================
California--4.0%                               California State, GO, Refunding:
                     AAA      NR*    13,000      5.50% due 3/01/2011                                                14,679
                     NR*      Aaa     4,000      RIB, Series 470X, 9.69% due 2/01/2010 (h)(j)                        5,267
                     -----------------------------------------------------------------------------------------------------
                     AAA      NR*     5,750    Los Angeles, California, Water and Power Revenue Refunding
                                               Bonds, DRIVERS, Series 185, 8.391% due 7/01/2013 (h)(j)               6,931
==========================================================================================================================
Colorado--14.5%                                Colorado Housing and Finance Authority, Revenue Bonds (S/F
                                               Program) (h):
                     AAA      NR*     2,190      AMT, Series B-2, 6.80% due 4/01/2030                                2,496
                     AAA      NR*     6,080      Series B-3, 6.55% due 10/01/2016                                    6,878
                     AAA      NR*     4,175      Series B-3, 6.50% due 10/01/2029                                    4,656
                     -----------------------------------------------------------------------------------------------------
                                               Colorado Housing and Finance Authority, Revenue Refunding Bonds:
                     AAA      Aaa    14,495      AMT, Series A-2, 6.60% due 5/01/2028 (a)                           16,227
                     AAA      NR*     4,345      AMT, Series C-2, 7.05% due 4/01/2031 (e)(h)                         5,010
                     AAA      Aaa     9,605      AMT, Series C-2, 7.25% due 10/01/2031 (a)                          10,970
                     AAA      Aaa     2,000      AMT, Series E-2, 7% due 2/01/2030 (h)                               2,291
                     AAA      Aaa     3,000      (S/F Program), AMT, Series B-2, 5.20% due 2/01/2031 (h)             3,375
                     AAA      NR*     2,960      (S/F Program), AMT, Series C-2, 8.40% due 10/01/2021 (e)(h)         3,296
                     AAA      NR*     2,605      Series C-3, 7.15% due 10/01/2030 (e)(h)                             2,984
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     8,500    Denver, Colorado, City and County Airport Revenue Bonds, AMT,
                                               Series D, 7.75% due 11/15/2013 (h)                                   10,815
                     -----------------------------------------------------------------------------------------------------
                                               Denver, Colorado, City and County, COP, Series B (a):
                     AAA      Aaa     6,405      5.75% due 12/01/2018                                                7,004
                     AAA      Aaa    14,590      5.50% due 12/01/2025                                               15,303
                     -----------------------------------------------------------------------------------------------------
                                               Longmont, Colorado, Sales and Use Tax Revenue Bonds (d):
                     AAA      NR*     2,280      5.70% due 11/15/2018                                                2,466
                     AAA      NR*     2,200      5.75% due 11/15/2019                                                2,379
==========================================================================================================================
Connecticut--0.5%    AA       NR*     2,675    Connecticut State, GO, DRIVERS, Series 190, 9.48% due
                                               11/01/2013 (j)                                                        3,359
==========================================================================================================================
District of          AAA      Aaa     6,000    District of Columbia, GO, Refunding, DRIVERS, Series
Columbia--2.2%                                 152, 8.566% due 6/01/2013 (f)(j)                                      7,062
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     4,000    District of Columbia, GO, Series A, 5.50% due 6/01/2012 (f)           4,383
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     3,000    District of Columbia, Revenue Refunding Bonds (Catholic
                                               University of America Project), 5.625% due 10/01/2029 (a)             3,154
==========================================================================================================================
Florida--1.8%        AAA      Aaa    11,000    Florida State Division of Bonds and Finance Department, General
                                               Services Revenue Bonds (Environmental Protection and Preservation),
                                               Series 2000-B, 5.25% due 7/01/2013 (f)                               11,762
                     -----------------------------------------------------------------------------------------------------
                     A        VMIG1@    400    Hillsborough County, Florida, IDA, PCR, Refunding (Tampa
                                               Electric Company Project), VRDN, 2.05% due 9/01/2025 (k)                400
==========================================================================================================================
Georgia--2.8%        AAA      Aaa     5,000    Columbia County, Georgia, Water and Sewer Revenue Bonds, 5.70%
                                               due 6/01/2006 (a)(i)                                                  5,636
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     4,750    Georgia Municipal Electric Authority, Power Revenue Bonds,
                                               Series Y, 10% due 1/01/2010 (h)                                       6,714
                     -----------------------------------------------------------------------------------------------------
                     A        A2        250    Georgia Municipal Electric Authority, Power Revenue Refunding
                                               Bonds, Series Y, 10% due 1/01/2010 (c)                                  356
                     -----------------------------------------------------------------------------------------------------
                     A        A3      4,785    Monroe County, Georgia, Development Authority, PCR, Refunding
                                               (Oglethorpe Power Corporation--Scherer), Series A,
                                               6.80% due 1/01/2011                                                   5,644
==========================================================================================================================
Hawaii--1.3%         AAA      Aaa     7,055    Honolulu, Hawaii, City and County, GO, Series A, 6.25% due
                                               4/01/2014 (d)                                                         8,368
==========================================================================================================================
Illinois--8.5%                                 Chicago, Illinois, Board of Education, GO:
                     NR*      Aaa     5,000      RIB, Series 467, 9.11% due 12/01/2027 (a)(j)                        5,623
                     AAA      Aaa     5,000      School Reform, Series B-1, 5.51%** due 12/01/2030 (d)               1,043
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa    12,495    Chicago, Illinois, GO (Lakefront Millennium Parking
                                               Facilities), 5.125% due 1/01/2028 (h)                                12,531
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     2,875    Chicago, Illinois, S/F Mortgage Revenue Bonds, AMT, Series C,
                                               7% due 3/01/2032 (h)(l)                                               3,288
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     3,540    Chicago, Illinois, Special Transportation Revenue Bonds, 5.50%
                                               due 1/01/2015 (a)                                                     3,820
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     2,130    Illinois Development Finance Authority Revenue Bonds
                                               (Presbyterian Home Lake Project), Series B, 6.25% due 9/01/2017       2,304
                     -----------------------------------------------------------------------------------------------------
                                               Illinois State, GO, First Series (f):
                     AAA      Aaa     2,000      5.50% due 5/01/2017                                                 2,128
                     AAA      NR*    10,000      5.50% due 8/01/2018                                                10,531
                     -----------------------------------------------------------------------------------------------------
                     NR*      A1      3,750    Illinois Student Assistance Commission, Student Loan Revenue
                                               Refunding Bonds, AMT, Sub-Series CC, 6.875% due 3/01/2015             3,845
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa    10,000    University of Illinois, University Revenue Bonds (Auxiliary
                                               Facilities System), Series A, 6% due 4/01/2010 (i)                   11,645
==========================================================================================================================
Indiana--4.2%                                  De Kalb County, Indiana, Redevelopment Authority Revenue Bonds
                                               (Mini-Mill), Series A (b):
                     AAA      NR*     3,000      6.50% due 1/15/2014                                                 3,346
                     AAA      NR*     3,220      6.625% due 1/15/2017                                                3,601
                     -----------------------------------------------------------------------------------------------------
                     AAA      NR*     2,500    Indiana Bond Bank Revenue Bonds, Guarantee State Revolver,
                                               6.875% due 2/01/2012 (a)                                              2,826
                     -----------------------------------------------------------------------------------------------------
                     BBB      Baa2    9,800    Indianapolis, Indiana, Airport Authority, Special Facilities
                                               Revenue Bonds (Federal Express Corporation Project), AMT,
                                               7.10% due 1/15/2017                                                  10,324
                     -----------------------------------------------------------------------------------------------------
                     AA       NR*     7,500    Indianapolis, Indiana, Local Public Improvement Bond Bank
                                               Revenue Refunding Bonds, Series D, 6.75% due 2/01/2020                8,015
==========================================================================================================================
</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
DRIVERS    Derivative Inverse Tax-Exempt Receipts
EDA        Economic Development Authority
GO         General Obligation Bonds
HDA        Housing Development Authority
HFA        Housing Finance Agency
IDA        Industrial Development Authority
IDB        Industrial Development Board
PCR        Pollution Control Revenue Bonds
RIB        Residual Interest Bonds
RITR       Residual Interest Trust Receipts
S/F        Single-Family
VRDN       Variable Rate Demand Notes


                                     6 & 7
<PAGE>

                                  MuniYield Quality Fund, Inc., October 31, 2001

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)                                         $  1,279
                     AAA      Aaa     2,360      6.375% due 9/01/2023                                                2,597
==========================================================================================================================
Kentucky--2.6%       AAA      Aaa     3,735    Kentucky Housing Corporation, Housing Revenue Bonds, AMT,
                                               Series B, 6.625% due 7/01/2026 (e)(h)                                 3,938
                     -----------------------------------------------------------------------------------------------------
                     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)         7,480
                     -----------------------------------------------------------------------------------------------------
                     A-       A3      5,250    Perry County, Kentucky, Solid Waste Disposal Revenue Bonds (TJ
                                               International Project), AMT, 7% due 6/01/2024                         5,577
==========================================================================================================================
Louisiana--1.7%      A1+      P1        200    East Baton Rouge Parish, Louisiana, PCR, Refunding (Exxon
                                               Project), VRDN, 1.85% due 3/01/2022 (k)                                 200
                     -----------------------------------------------------------------------------------------------------
                     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)        10,865
==========================================================================================================================
Massachusetts--2.7%                            Massachusetts Bay, Massachusetts, Transportation Authority,
                                               General Transportation System Revenue Refunding Bonds,
                                               Series A (h):
                     AAA      Aaa     3,730      7% due 3/01/2011                                                    4,594
                     AAA      Aaa     3,550      7% due 3/01/2014                                                    4,440
                     -----------------------------------------------------------------------------------------------------
                                               Massachusetts State, HFA, S/F Housing Revenue Bonds:
                     AAA      Aaa     3,040      6.35% due 6/01/2017                                                 3,205
                     AAA      Aaa     2,605      Series 37, 6.35% due 6/01/2017 (h)                                  2,743
                     -----------------------------------------------------------------------------------------------------
                     NR*      Aa3     2,500    Massachusetts State Revenue Bonds, RIB, Series 420, 9.14% due
                                               12/15/2014 (j)                                                        3,090
==========================================================================================================================
Mississippi--0.6%    AAA      NR*     3,440    Mississippi Home Corporation, S/F Revenue Refunding Bonds,
                                               AMT, Series I, 7.375% due 6/01/2028 (h)(l)                            3,946
==========================================================================================================================
Missouri--1.2%                                 Missouri State Housing Development Commission, S/F Mortgage
                                               Revenue Bonds (h):
                     AAA      Aaa     1,965      (Homeowner Loan), AMT, Series B-1, 7.45% due 9/01/2031              2,277
                     AAA      NR*     1,800      Series C-1, 6.55% due 9/01/2028                                     2,021
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     3,140    Saint Joseph, Missouri, School District, GO (Missouri Direct
                                               Deposit Program), 5.75% due 3/01/2017 (f)                             3,441
==========================================================================================================================
Nevada--0.9%         AAA      Aaa     5,710    Washoe County, Nevada, School District, GO, 5.875% due
                                               6/01/2017 (f)                                                         6,253
==========================================================================================================================
New Jersey--2.1%     AAA      Aaa     3,000    New Jersey EDA Revenue Bonds (Transportation
                                               Project--Sublease), Series A, 5.75% due 5/01/2013 (f)                 3,337
                     -----------------------------------------------------------------------------------------------------
                     AAA      NR*     7,500    New Jersey State Transportation Trust Fund Authority, Revenue
                                               Refunding Bonds, DRIVERS, Series 172, 10.766% due 6/15/2010 (j)      10,404
==========================================================================================================================
New Mexico--0.6%     AAA      Aaa     3,500    University of New Mexico, University Revenue Bonds, Sub-Lien,
                                               Series A, 5.75% due 6/01/2020 (h)                                     3,788
==========================================================================================================================
New York--10.8%      AAA      Aaa     8,085    New York City, New York, City Municipal Water Finance
                                               Authority, Water and Sewer System Revenue Bonds, RITR, Series
                                               FR-6, 9.245% due 6/15/2026 (h)(j)                                     9,675
                     -----------------------------------------------------------------------------------------------------
                                               New York City, New York, GO:
                     AAA      NR*     3,500      DRIVERS, Series 194, 9.29% due 2/01/2015 (f)(j)                     4,097
                     NR*      Aaa     6,920      RIB, Series 394, 9.542% due 8/01/2016 (h)(j)                        8,504
                     AAA      NR*     5,000      Series B, 5.875% due 8/15/2013                                      5,432
                     AAA      NR*     9,055      Series F, 5.75% due 2/01/2019                                       9,535
                     AAA      NR*     1,495      Series I, 6.25% due 4/15/2017                                       1,642
                     -----------------------------------------------------------------------------------------------------
                                               New York City, New York, GO, Refunding:
                     AAA      NR*     5,000      Series B, 7.25% due 8/15/2007                                       5,939
                     AAA      NR*     5,000      Series E, 6.50% due 2/15/2006                                       5,633
                     AAA      NR*     9,325      Series G, 5.75% due 2/01/2017 (f)                                  10,048
                     AAA      NR*     2,315      Series J, 6% due 8/01/2017                                          2,585
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     4,000    New York State Dormitory Authority, Revenue Refunding Bonds
                                               (State University), Series B, 7.50% due 5/15/2011 (f)                 4,904
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     3,500    New York State Thruway Authority, Local Highway and Bridge
                                               Service Contract Revenue Refunding Bonds, 6% due 4/01/2012 (h)        3,933
==========================================================================================================================
North                                          Charlotte, North Carolina, Water and Sewer System Revenue
Carolina--2.2%       AAA      NR*     2,865    Bonds, DRIVERS, Series 205, 8.83% due 6/01/2012 (j)                   3,486
                     -----------------------------------------------------------------------------------------------------
                                               Iredell County, North Carolina, Public Facilities, Corporate
                                               Installment Payment Revenue Bonds (School Projects) (a):
                     NR*      Aaa     2,180      6% due 6/01/2014                                                    2,487
                     NR*      Aaa     1,000      6% due 6/01/2017                                                    1,120
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     6,625    North Carolina Eastern Municipal Power Agency, Power System
                                               Revenue Refunding Bonds, Series B, 7% due 1/01/2008 (h)               7,784
==========================================================================================================================
Ohio--0.3%           AA       NR*     2,000    Jackson, Ohio, Hospital Facilities Revenue Bonds (Consolidated
                                               Health System--Jackson Hospital), 6.125% due 10/01/2020               2,156
==========================================================================================================================
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                                                    1,073
                     AAA      Aaa     1,000      6.125% due 6/01/2026                                                1,084
==========================================================================================================================
Oregon--1.4%         NR*      Aaa     7,500    Portland, Oregon, Sewer System Revenue Bonds, RIB, Series 386,
                                               9.06% due 8/01/2020 (d)(j)                                            9,264
==========================================================================================================================
Pennsylvania--0.3%   AAA      Aaa     2,000    Allegheny County, Pennsylvania, Port Authority, Special
                                               Transportation Revenue Bonds, 6% due 3/01/2009 (h)(i)                 2,307
==========================================================================================================================
Rhode Island--0.4%   AAA      Aaa     2,500    Providence, Rhode Island, GO, Series A, 5.70% due 7/15/2019 (f)       2,645
==========================================================================================================================
South                                          Fairfield County, South Carolina, PCR (South Carolina Electric
Carolina--2.2%       AAA      NR*    10,000    and Gas), 6.20% due 9/01/2014 (h)                                    10,597
                     -----------------------------------------------------------------------------------------------------
                     NR*      A1      3,800    Spartanburg County, South Carolina, Solid Waste Disposal
                                               Facilities Revenue Bonds (BMW Project), AMT, 7.55% due 11/01/2024     4,135
==========================================================================================================================
South Dakota--0.7%   AAA      Aa1     4,865    South Dakota HDA, Homeownership Mortgage Revenue Refunding
                                               Bonds, Series A, 6.45% due 5/01/2022                                  4,986
==========================================================================================================================
</TABLE>


                                     8 & 9
<PAGE>

                                  MuniYield Quality Fund, Inc., October 31, 2001

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--4.6%      AAA      Aaa   $17,000    Chattanooga, Tennessee, IDB, Lease Rent Revenue Bonds
                                               (Southside Redevelopment Corporation), 5.875% due 10/01/2024 (a)   $ 18,454
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     5,000    Memphis--Shelby County, Tennessee, Airport Authority, Airport
                                               Revenue Bonds, AMT, Series D, 6.25% due 3/01/2018 (a)                 5,516
                     -----------------------------------------------------------------------------------------------------
                                               Tennessee HDA, Homeownership Revenue Bonds, AMT, Series 2-C (a):
                     AAA      Aaa     1,750      5.90% due 7/01/2010                                                 1,934
                     AAA      Aaa     2,075      6.10% due 7/01/2013                                                 2,269
                     AAA      Aa2     2,390      6.20% due 7/01/2015                                                 2,588
==========================================================================================================================
Texas--6.9%          AA       Aa3     6,900    Austin, Texas, Convention Center Revenue Bonds (Convention
                                               Enterprises Inc.), Trust Certificates, Second Tier, Series B,
                                               5.75% due 1/01/2032                                                   7,065
                     -----------------------------------------------------------------------------------------------------
                     AA       Aa3     5,000    Austin, Texas, Convention Enterprises Inc., Convention Center
                                               Revenue Bonds, Trust Certificates, Second Tier, Series B, 6%
                                               due 1/01/2023                                                         5,288
                     -----------------------------------------------------------------------------------------------------
                     NR*      Aaa     1,000    Bell County, Texas, Health Facilities Development Revenue
                                               Bonds (Lutheran General Health Care System), 6.50% due 7/01/2019 (c)  1,209
                     -----------------------------------------------------------------------------------------------------
                     NR*      Aaa     5,235    Denton, Texas, Utility System Revenue Bonds, RIB, Series 369,
                                               9.56% due 12/01/2017 (f)(j)                                           6,420
                     -----------------------------------------------------------------------------------------------------
                                               Gregg County, Texas, Health Facilities Development Corporation,
                                               Hospital Revenue Bonds (Good Shepherd Medical Center Project):
                     AA       NR*     6,000      6.875% due 10/01/2020                                               6,793
                     AA       NR*     2,600      6.375% due 10/01/2025                                               2,826
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa    30,000    Houston, Texas, Water and Sewer System, Revenue Refunding
                                               Bonds, Junior Lien, Series A, 5.358%** due 12/01/2021 (f)            10,411
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa       840    Texas Housing Agency, Residential Development Mortgage Revenue
                                               Bonds, Series A, 7.50% due 7/01/2015 (e)(g)                             863
                     -----------------------------------------------------------------------------------------------------
                     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)                                    5,177
==========================================================================================================================
Utah--4.0%                                     Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC
                                               Hospitals Inc.):
                     AAA      Aaa     4,375      6.30% due 2/15/2015 (a)                                             5,141
                     AAA      Aaa    15,000      6.30% due 2/15/2015 (h)                                            17,727
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     3,230    Utah State Board of Regents, Hospital Revenue Bonds
                                               (University of Utah), 5.50% due 8/01/2017 (h)                         3,404
==========================================================================================================================
Virginia--3.7%       AAA      Aaa     6,000    Fairfax County, Virginia, EDA, Resource Recovery Revenue
                                               Refunding Bonds, AMT, Series A, 6.05% due 2/01/2009                   6,763
                     -----------------------------------------------------------------------------------------------------
                     AA+      Aa1    17,435    Virginia State, HDA, Commonwealth Mortgage Revenue Bonds,
                                               Series A, 7.15% due 1/01/2033                                        17,823
==========================================================================================================================
Washington--4.5%     AAA      NR*     2,545    King County, Washington, GO, Series D, 5.70% due 12/01/2010 (f)       2,835
                     -----------------------------------------------------------------------------------------------------
                     AAA      NR*     5,000    Tacoma, Washington, Electric System Revenue Refunding Bonds,
                                               RIB, Series 512X, 9.09% due 1/01/2017 (f)(j)                          5,852
                     -----------------------------------------------------------------------------------------------------
                                               Washington State, GO (f):
                     AAA      NR*     7,500      Series A and AT-6, 6.25% due 2/01/2011                              8,787
                     AAA      NR*     9,000      Series S-4, 5.75% due 1/01/2013                                    10,028
                     -----------------------------------------------------------------------------------------------------
                     AAA      Aaa     2,000    Washington State Public Power Supply System, Revenue Refunding
                                               Bonds (Nuclear Project Number 1), Series A, 5.75% due 7/01/2010 (h)   2,201
==========================================================================================================================
Wisconsin--0.6%      AA       Aa3     3,800    Wisconsin Housing and EDA, Housing Revenue Bonds, AMT, Series
                                               D, 7.20% due 11/01/2013                                               3,918
==========================================================================================================================
Puerto Rico--0.5%    AAA      Aaa     2,435    Puerto Rico Electric Power Authority, Power Revenue Bonds,
                                               Trust Receipts, Class R, Series 16 HH, 9.277% due 7/01/2013 (f)(j)    3,025
==========================================================================================================================
                     Total Investments (Cost--$609,107)--98.0%                                                     651,561

                     Other Assets Less Liabilities--2.0%                                                            12,961
                                                                                                                  --------
                     Net Assets--100.0%                                                                           $664,522
                                                                                                                  ========
==========================================================================================================================
</TABLE>

(a)   AMBAC Insured.
(b)   Connie Lee Insured.
(c)   Escrowed to maturity.
(d)   FGIC Insured.
(e)   FHA Insured.
(f)   FSA Insured.
(g)   GNMA Collateralized.
(h)   MBIA Insured.
(i)   Prerefunded.
(j)   The interest rate is subject to change periodically and inversely based
      upon prevailing market rates. The interest rate shown is the rate in
      effect at October 31, 2001.
(k)   The interest rate is subject to change periodically based upon prevailing
      market rates. The interest rate shown is the rate in effect at October 31,
      2001.
(l)   FNMA/GNMA Collateralized.
  *   Not Rated.
 **   Represents a zero coupon bond; the interest rate shown reflects the
      effective yield at the time of purchase by the Fund.
  @   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 (unaudited)

The quality ratings of securities in the Fund as of October 31, 2001 were as
follows:

- --------------------------------------------------------------------------------
                                                                      Percent of
S&P Rating/Moody's Rating                                             Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ............................................................    83.7%
AA/Aa ..............................................................     9.8
A/A ................................................................     2.9
BBB/Baa ............................................................     1.5
Other* .............................................................     0.1
- --------------------------------------------------------------------------------
*     Temporary investments in short-term municipal securities.


                                    10 & 11
<PAGE>

                                  MuniYield Quality Fund, Inc., October 31, 2001

STATEMENT OF ASSETS, LIABILITIES AND CAPITAL

<TABLE>
<CAPTION>
               As of October 31, 2001
=================================================================================================================
<S>            <C>                                                                 <C>              <C>
Assets:        Investments, at value (identified cost--$609,106,818) ...........                    $ 651,560,756
               Cash ............................................................                          305,958
               Receivables:
                 Interest ......................................................   $  11,283,713
                 Securities sold ...............................................       6,679,261       17,962,974
                                                                                   -------------
               Prepaid expenses and other assets ...............................                           32,507
                                                                                                    -------------
               Total assets ....................................................                      669,862,195
                                                                                                    -------------
=================================================================================================================
Liabilities:   Payables:
                 Securities purchased ..........................................       4,548,574
                 Dividends to shareholders .....................................         422,167
                 Investment adviser ............................................         281,136        5,251,877
                                                                                   -------------
               Accrued expenses ................................................                           88,530
                                                                                                    -------------
               Total liabilities ...............................................                        5,340,407
                                                                                                    -------------
=================================================================================================================
Net Assets:    Net assets ......................................................                    $ 664,521,788
                                                                                                    =============
=================================================================================================================
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 ................................     423,867,385
               Undistributed investment income--net ............................       4,382,001
               Accumulated realized capital losses on investments--net .........      (9,224,062)
               Unrealized appreciation on investments--net .....................      42,453,938
                                                                                   -------------
               Total--Equivalent to $15.27 net asset value per share of Common
               Stock (market price--$14.24) ....................................                      464,521,788
                                                                                                    -------------
               Total capital ...................................................                    $ 664,521,788
                                                                                                    =============
=================================================================================================================
</TABLE>

*     Auction Market Preferred Stock.

      See Notes to Financial Statements.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                    For the Year Ended October 31, 2001
========================================================================================================
<S>                 <C>                                                        <C>           <C>
Investment          Interest and amortization of premium and discount earned                 $36,721,836
Income:
========================================================================================================
Expenses:           Investment advisory fees ...............................   $ 3,254,392
                    Commission fees ........................................       506,460
                    Accounting services ....................................       197,480
                    Transfer agent fees ....................................       126,766
                    Professional fees ......................................        99,127
                    Printing and shareholder reports .......................        45,256
                    Directors' fees and expenses ...........................        38,303
                    Custodian fees .........................................        32,755
                    Listing fees ...........................................        31,500
                    Pricing fees ...........................................        20,124
                    Other ..................................................        41,904
                                                                               -----------
                    Total expenses .........................................                   4,394,067
                                                                                             -----------
                    Investment income--net .................................                  32,327,769
                                                                                             -----------
========================================================================================================
Realized &          Realized gain on investments--net ......................                   8,352,760
Unrealized          Change in unrealized appreciation on investments--net ..                  24,382,848
Gain on                                                                                      -----------
Investments--Net:   Net Increase in Net Assets Resulting from Operations ...                 $65,063,377
                                                                                             ===========
========================================================================================================
</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:                                        2001             2000
====================================================================================================================
<S>            <C>                                                                    <C>              <C>
Operations:     Investment income--net ............................................   $  32,327,769    $  32,312,498
                Realized gain (loss) on investments--net ..........................       8,352,760       (6,671,571)
                Change in unrealized appreciation/depreciation on investments--net.      24,382,848       26,889,941
                                                                                      -------------    -------------
                Net increase in net assets resulting from operations ..............      65,063,377       52,530,868
                                                                                      -------------    -------------
====================================================================================================================
Dividends to    Investment income--net:
Shareholders:     Common Stock ....................................................     (25,478,111)     (24,863,521)
                  Preferred Stock .................................................      (6,534,340)      (8,079,920)
                                                                                      -------------    -------------
                Net decrease in net assets resulting from dividends to shareholders     (32,012,451)     (32,943,441)
                                                                                      -------------    -------------
====================================================================================================================
Net Assets:     Total increase in net assets ......................................      33,050,926       19,587,427
                Beginning of year .................................................     631,470,862      611,883,435
                                                                                      -------------    -------------
                End of year* ......................................................   $ 664,521,788    $ 631,470,862
                                                                                      =============    =============
====================================================================================================================
               *Undistributed investment income--net ..............................   $   4,382,001    $   4,066,683
                                                                                      =============    =============
====================================================================================================================
</TABLE>

See Notes to Financial Statements.


                                    12 & 13
<PAGE>

                                  MuniYield Quality Fund, Inc., October 31, 2001

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:                     2001       2000       1999       1998       1997
===================================================================================================================================
<S>                  <C>                                                       <C>        <C>        <C>        <C>        <C>
Per Share            Net asset value, beginning of year ...................... $  14.18   $  13.54   $  15.58   $  15.17   $  14.57
Operating                                                                      --------   --------   --------   --------   --------
Performance:         Investment income--net ..................................     1.06       1.07       1.07       1.12       1.13
                     Realized and unrealized gain (loss) on investments--net .     1.08        .66      (2.04)       .40        .59
                                                                               --------   --------   --------   --------   --------
                     Total from investment operations ........................     2.14       1.73       (.97)      1.52       1.72
                                                                               --------   --------   --------   --------   --------
                     Less dividends to Common Stock shareholders from
                     investment income--net .................................      (.84)      (.82)      (.86)      (.88)      (.89)
                                                                               --------   --------   --------   --------   --------
                     Effect of Preferred Stock:
                      Dividends to Preferred Stock shareholders from
                      investment income--net .................................     (.21)      (.27)      (.21)      (.23)      (.23)
                                                                               --------   --------   --------   --------   --------
                     Net asset value, end of year ............................ $  15.27   $  14.18   $  13.54   $  15.58   $  15.17
                                                                               ========   ========   ========   ========   ========
                     Market price per share, end of year ..................... $  14.24   $12.0625   $12.0625   $15.5625   $14.4375
                                                                               ========   ========   ========   ========   ========
===================================================================================================================================
Total Investment     Based on market price per share .........................   25.47%      7.03%    (17.61%)    14.33%     19.58%
Return:*                                                                       ========   ========   ========   ========   ========
                     Based on net asset value per share ......................   14.46%     12.09%     (7.62%)     8.93%     11.03%
                                                                               ========   ========   ========   ========   ========
===================================================================================================================================
Ratios Based on      Total expenses** ........................................     .98%       .99%       .95%       .91%       .94%
Average Net Assets                                                             ========   ========   ========   ========   ========
Of Common Stock:     Total investment income--net** ..........................    7.18%      7.74%      7.17%      7.30%      7.69%
                                                                               ========   ========   ========   ========   ========
                     Amount of dividends to Preferred Stock shareholders .....    1.45%      1.94%      1.41%      1.50%      1.56%
                                                                               ========   ========   ========   ========   ========
                     Investment income--net, to Common Stock shareholders ....    5.73%      5.81%      5.76%      5.80%      6.13%
                                                                               ========   ========   ========   ========   ========
===================================================================================================================================
Ratios Based on      Total expenses ..........................................     .68%       .67%       .66%       .64%       .65%
Total Average Net                                                              ========   ========   ========   ========   ========
Assets:**+           Total investment income--net ............................    4.97%      5.23%      4.99%      5.12%      5.32%
                                                                               ========   ========   ========   ========   ========
===================================================================================================================================
Ratios Based on      Dividends to Preferred Stock shareholders ...............    3.27%      4.03%      3.21%      3.51%      3.51%
Average Net Assets                                                             ========   ========   ========   ========   ========
Of Preferred Stock:
===================================================================================================================================
Supplemental         Net assets, net of Preferred Stock, end of year
Data:                (in thousands) .......................................... $464,522   $431,471   $411,883   $473,898   $461,647
                                                                               ========   ========   ========   ========   ========
                     Preferred Stock outstanding, end of year (in
                     thousands) .............................................. $200,000   $200,000   $200,000   $200,000   $200,000
                                                                               ========   ========   ========   ========   ========
                     Portfolio turnover ......................................   89.58%     51.19%     91.78%     42.95%     36.87%
                                                                               ========   ========   ========   ========   ========
===================================================================================================================================
Leverage:            Asset coverage per $1,000 ............................... $  3,323   $  3,157   $  3,059   $  3,369   $  3,308
                                                                               ========   ========   ========   ========   ========
===================================================================================================================================
Dividends Per Share  Series A--Investment income--net ........................ $    852   $  1,024   $    824   $    961   $    864
On Preferred Stock                                                             ========   ========   ========   ========   ========
Outstanding:         Series B--Investment income--net ........................ $    792   $  1,015   $    779   $    879   $    892
                                                                               ========   ========   ========   ========   ========
                     Series C--Investment income--net ........................ $    832   $    999   $    809   $    815   $    884
                                                                               ========   ========   ========   ========   ========
                     Series D--Investment income--net ........................ $    791   $  1,002   $    787   $    856   $    873
                                                                               ========   ========   ========   ========   ========
===================================================================================================================================
</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


                                    14 & 15
<PAGE>

                                  MuniYield Quality Fund, Inc., October 31, 2001

NOTES TO FINANCIAL STATEMENTS (concluded)

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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis. The
Fund will adopt the provisions to amortize all premiums and discounts on debt
securities effective November 1, 2001, as now required under the new AICPA Audit
and Accounting Guide for Investment Companies. The cumulative effect of this
accounting change will have no impact on the total net assets of the Fund, but
will result in a $45,653 increase to the cost of securities and a corresponding
$45,653 decrease to net unrealized appreciation, based on debt securities held
as of October 31, 2001.

(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.

(f) Reclassification--Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax differences of $35 have been reclassified
between paid-in capital in excess of par and accumulated net realized capital
losses. These reclassifications have no effect on net assets or net asset value
per share.

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.

Prior to January 1, 2001, FAM provided accounting services to the Fund at its
cost and the Fund reimbursed FAM for these services. FAM continues to provide
certain accounting services to the Fund. The Fund reimburses FAM for such
services. For the year ended October 31, 2001, the Fund reimbursed FAM an
aggregate of $20,670 for the above-described services. The Fund entered into an
agreement with State Street Bank and Trust Company ("State Street"), effective
January 1, 2001, pursuant to which State Street provides certain accounting
services to the Fund. The Fund pays a fee for these services.

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, 2001 were $571,503,467 and $568,243,424, respectively.

Net realized gains (losses) for the year ended October 31, 2001 and net
unrealized gains as of October 31, 2001 were as follows:

- --------------------------------------------------------------------------------
                                                  Realized           Unrealized
                                               Gains (Losses)           Gains
- --------------------------------------------------------------------------------
Long-term investments ...................        $ 9,973,398         $42,453,938
Financial futures contracts .............         (1,620,638)                 --
                                                 -----------         -----------
Total ...................................        $ 8,352,760         $42,453,938
                                                 ===========         ===========
- --------------------------------------------------------------------------------

As of October 31, 2001, net unrealized appreciation for Federal income tax
purposes aggregated $42,452,861, of which $42,567,605 related to appreciated
securities and $114,744 related to depreciated securities. The aggregate cost of
investments at October 31, 2001 for Federal income tax purposes was
$609,107,895.

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, 2001 and
October 31, 2000 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, 2001 were as follows: Series A, 1.95%; Series B, 1.83%; Series C,
1.85%; and Series D, 1.85%.

Shares issued and outstanding during the years ended October 31, 2001 and
October 31, 2000 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, 2001, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, an affiliate of FAM, earned $263,177 as commissions.

5. Capital Loss Carryforward:

At October 31, 2001, the Fund had a net capital loss carryforward of
approximately $4,695,000, all of which expires in 2008. This amount will be
available to offset like amounts of any future taxable gains.

6. Subsequent Event:

On November 8, 2001, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.075500 per share,
payable on November 29, 2001 to shareholders of record as of November 20, 2001.


                                    16 & 17
<PAGE>

                                  MuniYield Quality Fund, Inc., October 31, 2001

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, 2001, 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 presented. 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, 2001 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, 2001, 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
New York, New York
December 5, 2001

IMPORTANT TAX INFORMATION (unaudited)

All of the net investment income distributions paid by MuniYield Quality Fund,
Inc. during its taxable year ended October 31, 2001 qualify as tax-exempt
interest dividends for Federal income tax purposes.

Please retain this information for your records.

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.

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
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>

[LOGO] Merrill Lynch Investment Managers

                                                              [GRAPHICS OMITTED]

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 and intends to remain leveraged 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

[RECYCLE LOGO] Printed on post-consumer recycled paper             #16352--10/01

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