MuniYield Arizona Fund, Inc.
Semi-Annual
Report
April 30, 1994
Officers and Directors
Arthur Zeikel, President and Director
Kenneth S. Axelson, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agents
Common Stock:
The Bank of New York
110 Washington Street
New York, New York 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
NYSE Symbol
MZA
<PAGE>
This report, including the financial information herein,
is transmitted to the shareholders of MuniYield Arizona
Fund, Inc. for their information. It is not a prospectus,
circular or representation intended for use in the purchase
of shares of the Fund or any securities mentioned in the
report. Past performance results shown in this report
should not be considered a representation of future
performance. The Fund has leveraged its Common Stock
by issuing Preferred Stock to provide the Common Stock
shareholders with a potentially higher rate of return.
Leverage creates risks for Common Stock shareholders,
including the likelihood of greater volatility of net
asset value and market price of shares of the Common
Stock, and the risk that fluctuations in the short-term
dividend rates of the Preferred Stock may affect the
yield to Common Stock shareholders.
MuniYield Arizona Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield Arizona Fund, Inc.
TO OUR SHAREHOLDERS
For the six-month period ended April 30, 1994, the Common Stock
of MuniYield Arizona Fund, Inc. earned $0.474 per share income
dividends, which includes earned and unpaid dividends of $0.071.
This represents a net annualized yield of 7.59%, based on a
month-end per share net asset value of $12.60. Over the same
period, the total investment return on the Fund's Common Stock
was -11.96%, based on a change in per share net asset value from
$14.82 to $12.60, and assuming reinvestment of $0.490 per share
income dividends.
For the six-month period ended April 30, 1994, the Fund's Auction
Market Preferred Stock had an average yield of 2.75%.
<PAGE>
The Environment
Inflationary expectations and investor sentiment changed for the
worse during the three-month period ended April 30, 1994.
Following stronger-than-expected economic results through year-
end 1993, the Federal Reserve Board broke with tradition on
February 4, 1994 and publicly announced a modest 25 basis point
(0.25%) increase in short-term interest rates. At the March 22,
1994 meeting of the Federal Open Market Committee, the Federal
Reserve Board again raised the Federal Funds rate by 25 basis
points, followed by another 25 basis point increase on April 18,
1994.
Rather than view the Federal Reserve Board's first tightening
move as a preemptive strike against inflation, fixed-income
investors focused on Chairman Greenspan's implicit promise of
further tightening should the rate of inflation accelerate, and
bond prices declined sharply. The setback in the bond market was
also reflected in greater stock market volatility. While the
second and third increases in the Federal Funds rate were less of
a surprise, investors remained concerned that interest rates
would trend upward sharply as the central bank aggressively
attempted to contain the inflationary pressures of an improving
economy. At the same time, highly leveraged investors were forced
to liquidate positions in the face of declining stock and bond
prices. Investor confidence was not restored with the
announcement of the surprisingly slow 2.6% gross domestic product
growth rate for the first calendar quarter of 1994. Instead,
investors focused on the higher-than-expected (but still
moderate) broad inflation measures and became concerned that
business activity was beginning to stagnate as inflationary
pressures were increasing.
The volatility in the US capital markets was mirrored in
international markets during the period. Political and economic
developments, along with concerns of heightened global
inflationary pressures, led to a sell-off in most capital
markets, especially the emerging markets that had appreciated
strongly in 1993.
The Municipal Market
During the six months ended April 30, 1994, tax-exempt bond
yields exhibited considerable volatility as they rose to their
highest level in the past two years. As measured by the Bond
Buyer Revenue Bond Index, the yield on newly issued municipal
bonds maturing in 30 years rose over 90 basis points to 6.42% by
the end of April. Yields on seasoned municipal revenue bonds rose
by over 100 basis points in sympathy with the equally dramatic
increase in long-term US Treasury bond yields. By the end of
April, yields on US Treasury securities rose by over 95 basis
points to approximately 7.30%.
<PAGE>
Long-term tax-exempt bond yields were essentially unchanged from
the end of October 1993 to the end of January 1994. However, on a
weekly basis, tax-exempt bond yields fluctuated by as much as 15
basis points as investors were unable to reconcile the rapid
economic growth seen late last year with continued low inflation.
Following the initial interest rate increase by the Federal
Reserve Board in early February, municipal bond prices began to
erode in concert with taxable bond prices as investors began to
sell securities in anticipation of further interest rate
increases. This fear led investors to withdraw from the tax-
exempt market. From early February to the end of March, total
assets of all tax-exempt bond funds declined by $14 billion to
$247 billion. This decline in investor demand, coupled with fears
that the robust economic recovery seen during the fourth quarter
of 1993 would continue well into 1994, helped push municipal bond
yields higher in February and March. Attracted by tax-exempt
yields in excess of 6.25%, investor demand returned in April,
allowing yields to decline approximately 15 basis points to end
the April period at approximately 6.40%.
A rise in tax-exempt bond yields the magnitude of that
experienced over the past six months has not been seen since 1987
when municipal bond rates rose 250 basis points between March and
October of that year. It is very important to note that the
recent municipal bond price declines were largely the result of
consistent and insistent selling pressures over the last two
months. In 1987, the tax-exempt bond market was much more
volatile and, at times, chaotic as investors sought to liquidate
positions without concern for fundamental value. For the most
part, the recent price deterioration has been orderly, and the
municipal bond market's liquidity and integrity have not been
challenged or jeopardized.
<PAGE>
To a large extent, the municipal bond market has continued to be
supported by its strong technical position. New-issue volume for
the last six months has been less than $105 billion. This
represents a decline of approximately 20% versus the comparable
period a year ago. This decline was expected and has been
discussed in previous shareholder reports. This reduced issuance
has minimized potential selling pressure in recent months since
institutional investors have been wary of selling appreciable
amounts of securities that they may be unable to replace later
this year at any price level. We expect this decline in issuance
to continue since we anticipate recent yield increases to
significantly impact future municipal bond issuance. Just as
higher mortgage rates slow home mortgage refinancings, the recent
rise in bond yields will prevent bond refinancings from becoming
the driving force in bond issuance in 1994 as they were in 1993.
Despite recent price declines, tax-exempt securities remain among
the most attractive investment alternatives available. After the
recent yield increases, longer-term municipal securities yielded
approximately 90% of comparable US Treasury yields. Purchasers of
these municipal bonds also accrue substantial after-tax yield
advantages. To investors in the 39% marginal Federal income tax
bracket, the purchase of a municipal bond yielding 6.50%
represents an after-tax equivalent of 10.65%. With prevailing
estimates of 1994 inflation at no more than 3%--4%, real after-
tax rates in excess of 6.50% easily compensate longer-term
investors for much of the price volatility recently experienced.
Portfolio Strategy
The municipal bond market has witnessed increased volatility in
response to the conflicting reports of economic growth and
resurgences of inflationary pressures. During the April quarter
we attempted to cushion the effect this volatility has had on
fixed-income securities by raising the Fund's cash reserves to
approximately 8% of net assets. We expect the technical backdrop
for municipal bonds, especially in low-issuance states like
Arizona, to be quite positive for bond prices going forward.
Therefore, we do not anticipate any major restructuring of the
Fund or any further increases to the Fund's cash reserve
position.
<PAGE>
When possible we have sold some of the lower-rated credits in the
Fund's holdings with the intention of reinvesting the proceeds in
AA-rated or credit-enhanced vehicles. When these securities
become available, we expect to accomplish transactions with a
negligible forfeiture of current return because of the current
narrowing of quality spreads. The Fund's Preferred Stock is
presently extended to a one-year maturity, providing some yield
stability in what has proved to be a quite volatile interest rate
period. However, since long-term interest rates have risen, the
net asset value of the Fund's Common Stock has declined. (For a
complete explanation of leveraging, see page 3 of this report to
shareholders.)
We appreciate your ongoing interest in MuniYield Arizona Fund,
Inc., and we look forward to serving your investment needs and
objectives in the months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
May 27, 1994
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield Arizona 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.
<PAGE>
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.
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 pick-up on the Common Stock will be reduced. 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.
<PAGE>
PER SHARE INFORMATION
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Dividends/Distributions
Net Realized Unrealized ----------------------------------------
Investment Gains Gains Net Investment Income Capital Gains
For the Period Income (Losses) (Losses) Common Preferred Common Preferred
<S> <C> <C> <C> <C> <C> <C> <C>
July 30, 1993++ to October 31, 1993 $.27 $ .04 $ .73 $.15 $.03 -- --
November 1, 1993 to January 31, 1994 .27 .22 (.02) .23 .04 $.04 $.01
February 1, 1994 to April 30, 1994 .26 (.10) (2.26) .22 .05 -- --
<CAPTION>
Net Asset Value Market Price**
For the Period High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
July 30, 1993++ to October 31, 1993 $15.05 $14.13 $15.50 $14.625 150
November 1, 1993 to January 31, 1994 14.98 14.28 15.25 13.875 143
February 1, 1994 to April 30, 1994 14.92 11.90 15.00 11.50 175
<FN>
++Commencement of Operations.
* Calculations are based upon shares of Common Stock outstanding at the end of each period.
** As reported in the consolidated transaction reporting system.
*** In thousands.
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield Arizona 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
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
IDA Industrial Development Authority
LEVRRS Leveraged Reverse Rate Securities
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
YCN Yield Curve Notes
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona--79.5%
<S> <S> <C> <S> <C>
Arizona Educational Loan Marketing Corporation, Educational Loan Revenue Bonds:
NR Aa $ 500 Senior Series B, VRDN, 3.30% due 12/01/2002 (a) $ 500
NR A 700 Series B, AMT, 7% due 3/01/2002 743
NR A 1,000 Subordinate Series, AMT, 5.70% due 12/01/2008 967
Arizona Health Facilities Authority, Hospital System Revenue Refunding Bonds:
NR Ba 1,000 (Saint Luke's Health System), 7.25% due 11/01/2014 996
AAA Aaa 1,000 (Samaritan Health System), 5.625% due 12/01/2015 (b) 923
Arizona State, COP, Refunding Bonds (Capital Guaranty), Series B:
AAA Aaa 500 5% due 11/01/2009 451
AAA Aaa 965 5% due 5/01/2011 849
AA A1 1,000 Arizona State University, Revenue Refunding Bonds, Series A, 5.75% due 7/01/2012 952
AAA Aaa 1,550 Chandler, Arizona, Street and Highway User Revenue Refunding Bonds, 5.50% due
7/01/2010 (c) 1,475
A A3 2,500 Greenlee County, Arizona, IDA, PCR, Refunding (Phelps Dodge Corporation Project),
5.45% due 6/01/2009 2,329
AAA Aaa 1,000 Maricopa County, Arizona, Chandler Unified School District Number 80 Refunding Bonds,
6.25% due 7/01/2011 (c) 1,016
AAA Aaa 5,500 Maricopa County, Arizona, IDA, Health Facilities Revenue Insured Bonds (Catholic Health
Care West), Series A, 5.625% due 7/01/2023 (b) 4,986
A1+ VMIG1 2,000 Maricopa County, Arizona, IDA, Hospital Facility Revenue Bonds (Samaritan Health Service
Hospital), Series B2, VRDN, 2.95% due 12/01/2008 (a)(b) 2,000
BB Ba2 2,500 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (Public Service
Company--Palo Verde), Series A, 6.375% due 8/15/2023 2,230
AA- Aa 1,000 Maricopa County, Arizona, Scottsdale Unified School District Number 48 Revenue Bonds,
UT, 6% due 7/01/2002 (f)(g) 1,047
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona (concluded)
<S> <S> <C> <S> <C>
BBB Baa2 $5,000 Navajo County, Arizona, Pollution Control Corporation, Revenue Refunding Bonds
(Arizona Public Service Company), Series A, 5.875% due 8/15/2028 $ 4,503
A A1 5,750 Phoenix, Arizona, Civic Improvement Corporation, Wastewater System Lease Revenue
Refunding Bonds, 4.75% due 7/01/2023 4,435
A1+ P1 1,600 Pinal County, Arizona, IDA, PCR (Magma--Copper/Newmont Mining Corporation), DATES,
2.65% due 12/01/2009 (a) 1,600
AAA Aaa 1,000 Santa Cruz County, Arizona, Unified School District Number 1 Revenue Bonds (Nogales),
Series A, 5.80% due 7/01/2013 (d) 948
AAA Aaa 1,000 Scottsdale, Arizona, IDA, Hospital Revenue Bonds (Scottsdale Memorial Hospital), 5.25%
due 9/01/2018 (e) 869
A NR 500 Scottsdale, Arizona, Mountain Community Facilities District Revenue Bonds, Series A, UT,
6.20% due 7/01/2017 493
A NR 1,500 Tatum Ranch, Arizona, Community Facilities District Revenue Bonds, Series A, UT, 6.875%
due 7/01/2016 1,564
AAA Aaa 300 Tucson, Arizona, GO, Refunding, 6.10% due 7/01/2012 (c) 298
A+ A1 1,400 Tucson, Arizona, Water Revenue Refunding Bonds, Series A, 5.75% due 7/01/2018 1,307
AA A1 1,345 University of Arizona, University Revenue Refunding Bonds, 6.25% due 6/01/2011 1,350
Puerto Rico--17.5%
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, RIB, YCN, 8.882% due 7/01/2020 (d)(f)(g) 1,858
Puerto Rico Electric Power Authority, Power Revenue Bonds:
AAA Aaa 2,000 LEVRRS, 9.238% due 7/01/2023 (d)(f)(g) 1,905
A- Baa1 3,000 Series R, 6.25% due 7/01/2017 2,946
A Baa1 1,000 Puerto Rico Public Building Authority, Public Educational and Health Facilities
Refunding Bonds, Guaranteed, Series M, 5.75% due 7/01/2015 915
A Baa1 1,000 Puerto Rico Public Building Authority, Revenue Refunding Bonds, Guaranteed, Series L,
5.75% due 7/01/2016 911
Total Investments (Cost--$51,236)--97.0% 47,366
Other Assets Less Liabilities--3.0% 1,468
-------
Net Assets--100.0% $48,834
=======
<PAGE>
<FN>
(a) The interest rate is subject to change periodically
based upon the prevailing market rate. The interest
rates shown are the rates in effect at April 30, 1994.
(b) MBIA Insured.
(c) FGIC Insured.
(d) FSA Insured.
(e) AMBAC Insured.
(f) Prerefunded.
(g) The interest rate is subject to change periodically and inversely
based upon the prevailing market rate. The interest rates shown
are the rates in effect at April 30, 1994.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statement of Assets, Liabilities and Capital as of April 30, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$51,236,028)(Note 1a) $47,366,437
Cash 39,038
Receivables:
Interest $ 853,323
Securities sold 642,794
Investment adviser (Note 2) 11,495 1,507,612
-----------
Deferred organization expenses (Note 1e) 26,523
Prepaid expenses and other assets 47,164
-----------
Total assets 48,986,774
-----------
Liabilities: Dividends payable to shareholders (Note 1g) 39,759
Accrued expenses 113,206
-----------
Total liabilities 152,965
-----------
Net Assets: Net assets $48,833,809
===========
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (347 shares of AMPS* issued
and outstanding at $50,000 per share liquidation preference) $17,350,000
Common Stock, par value $.10 per share (2,499,161 shares issued and
outstanding) $ 249,916
Paid-in capital in excess of par 34,621,019
Undistributed investment income--net 191,138
Undistributed realized capital gains--net 291,327
Unrealized depreciation on investments--net (3,869,591)
-----------
Total--Equivalent to $12.60 net asset value per share of Common Stock
(market price--$13.25) 31,483,809
-----------
Total capital $48,833,809
===========
<FN>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
April 30, 1994
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 1,497,394
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 130,215
Professional fees 34,207
Accounting services (Note 2) 16,934
Transfer agent fees 13,920
Printing and shareholder reports 12,523
Directors' fees and expenses 11,720
Commission fees (Note 4) 5,063
Listing fees 3,468
Amortization of organization expenses (Note 1e) 2,828
Custodian fees 2,607
Pricing fees 2,467
Other 10,650
-----------
Total expenses before reimbursement 246,602
Reimbursement of expenses (Note 2) (76,162)
-----------
Total expenses after reimbursement 170,440
-----------
Investment income--net 1,326,954
-----------
Realized & Realized gain on investments--net 291,390
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net (5,673,597)
(Loss) on -----------
Investments--Net Net Decrease in Net Assets Resulting from Operations $(4,055,253)
(Notes 1d & 3): ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Period
Months Ended July 30, 1993++
Increase (Decrease) in Net Assets: April 30, 1994 to Oct. 31, 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 1,326,954 $ 663,406
Realized gain on investments--net 291,390 107,520
Change in unrealized appreciation/depreciation on investments--net (5,673,597) 1,804,006
----------- -----------
Net increase (decrease) in net assets resulting from operations (4,055,253) 2,574,932
----------- -----------
Dividends & Investment income--net:
Distributions to Common Stock (1,120,576) (365,402)
Shareholders Preferred Stock (231,074) (82,170)
(Note 1g): Realized gain on investments--net:
Common Stock (94,265) --
Preferred Stock (13,318) --
----------- -----------
Net decrease in net assets resulting from dividends and distributions
to shareholders (1,459,233) (447,572)
----------- -----------
Capital Stock Net proceeds from issuance of Common Stock -- 34,593,338
Transactions Proceeds from issuance of Preferred Stock -- 17,350,000
(Note 4): Offering and underwriting costs resulting from the issuance of
Preferred Stock -- (426,956)
Value of shares issued to Common Stock shareholders in reinvestment
of dividends 396,285 208,263
----------- -----------
Net increase in net assets derived from capital stock transactions 396,285 51,724,645
----------- -----------
Net Assets: Total increase (decrease) in net assets (5,118,201) 53,852,005
Beginning of period 53,952,010 100,005
----------- -----------
End of period* $48,833,809 $53,952,010
=========== ===========
<FN>
* Undistributed investment income--net $ 191,138 $ 215,834
=========== ===========
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
For the Six Period
The following per share data and ratios have been derived Months July 30,
from information provided in the financial statements. Ended 1993++ to
April 30, October 31,
Increase (Decrease) in Net Asset Value: 1994 1993
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 14.82 $ 14.18
Operating ----------- -----------
Performance: Investment income--net .53 .27
Realized and unrealized gain (loss) on investments--net (2.16) .77
----------- -----------
Total from investment operations (1.63) 1.04
----------- -----------
Less dividends and distributions to Common Stock shareholders:
Investment income--net (.45) (.15)
Realized gain on investments--net (.04) --
----------- -----------
Total dividends and distributions to Common Stock shareholders (.49) (.15)
----------- -----------
Capital charge resulting from issuance of Common Stock -- (.05)
----------- -----------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred Stock shareholders:
Investment income--net (.09) (.03)
Realized gain on investments--net (.01) --
Capital charge resulting from issuance of Preferred Stock -- (.17)
----------- -----------
Total effect of Preferred Stock activity (.10) (.20)
----------- -----------
Net asset value, end of period $ 12.60 $ 14.82
=========== ===========
Market price per share, end of period $ 13.25 $ 14.875
=========== ===========
Total Investment Based on market price per share (7.76)%+++ 0.16%+++
Return:** =========== ===========
Based on net asset value per share (11.96)%+++ 5.56%+++
=========== ===========
<PAGE>
Ratios to Expenses, net of reimbursement .65%* 0%*
Average =========== ===========
Net Assets:*** Expenses .94%* 1.09%*
=========== ===========
Investment income--net 5.08%* 5.73%*
=========== ===========
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 31,484 $ 36,602
Data: =========== ===========
Preferred Stock outstanding, end of period (in thousands) $ 17,350 $ 17,350
=========== ===========
Portfolio turnover 18.65% 16.91%
=========== ===========
Dividends Per Investment income--net $ 666 $ 237
Share on
Preferred Stock
Outstanding:
<FN>
* Annualized.
** Total investment returns based on market value, which can be significantly greater
or lesser than the net asset value, result in substantially different returns.
Total investment returns exclude the effects of sales loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
++ Commencement of Operations.
++++ The Fund's Preferred Stock was issued on August 30, 1993.
+++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Arizona Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. 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 MZA. The following is a
summary of significant accounting policies followed by the Fund.
<PAGE>
(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, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options, which are traded on exchanges, are
valued at their last sale price as of the close of such exchanges
or, lacking any sales, at the last available bid price.
Securities with remaining maturities of sixty days or less are
valued at amortized cost. Securities 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.
(b) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures
contracts are contracts for delayed delivery of securities at a
specific future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on
which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract.
Such receipts or payments are known as variation margin and are
recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income is recognized on
the accrual basis. Discounts and market premiums are amortized
into interest income. Realized gains and losses on security
transactions are determined on the identified cost basis.
<PAGE>
(e) Deferred organization expenses and offering expenses--
Deferred organization expenses are amortized on a straight-line
basis over a five-year period. Direct expenses relating to the
public offering of the Common and Preferred Stock were charged to
capital at the time of issuance.
(f) Non-income producing investments--Written and purchased
options are non-income producing investments.
(g) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital
gains are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
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. For the six
months ended April 30, 1994, FAM earned fees of $130,215, of
which $76,162 was voluntarily waived.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, MLIM, Merrill Lynch, Pierce, Fenner & Smith
Inc. ("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the six months ended April 30, 1994 were
$9,185,393 and $13,334,565, respectively.
<PAGE>
Net realized and unrealized gains (losses) as of April 30, 1994
were as follows:
Realized Unrealized
Gains Losses
Long-term investments $ 291,390 $(3,869,591)
---------- -----------
Total $ 291,390 $(3,869,591)
========== ===========
As of April 30, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $3,869,591, of which $10,163
related to appreciated securities and $3,879,754 related to
depreciated securities. The aggregate cost of investments at
April 30, 1994 for Federal income tax purposes was $51,236,028.
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
For the six months ended April 30, 1994, shares issued and
outstanding increased by 29,035 to 2,499,161 as a result of
dividend reinvestment. At April 30, 1994, total paid-in capital
amounted to $34,870,935.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund that entitle their holders to receive cash
dividends at an annual rate that may vary for the successive
dividend periods. The yield in effect at April 30, 1994 was
2.75%.
In connection with the offering of AMPS, the Board of Directors
reclassified 347 shares of unissued capital stock as AMPS. For
the six months ended April 30, 1994, there were 347 AMPS shares
authorized, issued and outstanding with a liquidation preference
of $50,000 per share, plus accumulated and unpaid dividends of
$7,481.
The Fund pays commissions to certain broker-dealers at the end of
each auction at the annual rate of one-quarter of 1% calculated
on the proceeds of each auction.
5. Subsequent Event:
On May 6, 1994, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the
amount of 0.071169 per share, payable on May 27, 1994 to
shareholders of record as of May 15, 1994.
