In a measuring cup, mix together the water, the quarter teaspoon of sugar and the yeast.
In a three quart saucepan, on low heat, melt the butter and cream cheese, just until the butter is melted. Remove from the heat and add the milk , yolks, vanilla, and the yeast mixture.
In a large mixing bowl, sift together the flour, salt, and half cup of sugar. Add the pot contents and stir until combined. Dump onto a floured board and knead for 5 minutes.
Place the dough in an oiled bowl, cover it and let it rise 90 minutes.
Pat the dough out until it's a half inch thick. Cut doughnuts and holes using a 3 inch donut cutter. Place on two parchment lined sheets, spacing doughnuts two inches apart, cover, and let rise 30 minutes.
Bake at 375 degrees 17 minutes until browned. Let them cool on a wire rack and then dip the tops into the glaze.