MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Annual Report
October 31, 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 NewYork
90 Washington Street
New York, New York 10286
<PAGE>
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, New York 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
ASE Symbol
MZA
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.
Merrill Lynch
MuniYield Arizona
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MuniYield Arizona Fund, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1994, the Common Stock of MuniYield
Arizona Fund, Inc. earned $0.903 per share income dividends, which
includes earned and unpaid dividends of $0.072. This represents a
net annualized yield of 7.75%, based on a month-end net asset value
of $11.65 per share. Over the same period, the total investment
return on the Fund's Common Stock was -15.68%, based on a change in
per share net asset value from $14.82 to $11.65, and assuming
reinvestment of $0.918 per share income dividends.
For the six-month period ended October 31, 1994, the total
investment return on the Fund's Common Stock was -4.23%, based on a
change in per share net asset value from $12.60 to $11.65, and
assuming reinvestment of $0.428 per share income dividends.
For the six-month period ended October 31, 1994, the Fund's Auction
Market Preferred Stock had an average yield of 2.87%.
The Environment
As discussed in our last report to shareholders, the Federal Reserve
Board moved to counteract inflationary pressures by tightening
monetary policy. This trend continued during the May--October
period. Despite the series of preemptive strikes against inflation
by the central bank, concerns of increasing inflationary pressures
continued to prompt volatility in the US capital markets during the
period. In addition, the weakness of the US dollar in foreign
exchange markets prolonged stock and bond market declines.
Ongoing strength in the manufacturing sector and better-than-
expected economic results continue to fuel speculation that the
Federal Reserve Board will continue to raise short-term interest
rates in the months ahead. However, although consumer spending is
increasing, it is doing so at a lower rate than has been the case in
recent economic recoveries. In the weeks ahead, investors will
continue to assess economic data and inflationary trends in order to
gauge whether further increases in short-term interest rates are
imminent. Continued indications of moderate and sustainable levels
of economic growth would be positive for the US capital markets. At
the same time, greater US dollar stability in foreign exchange
markets would help to dampen expectations of significantly higher
short-term interest rates.
The Municipal Market
The long-term tax-exempt market continued to erode throughout the
three months ended October 31, 1994. As measured by the Bond Buyer
Revenue Bond Index, yields on A-rated municipal revenue bonds
maturing in 30 years rose by almost 50 basis points (0.50%) to 6.95%
during the October 31, 1994 quarter. This represents the highest
level in tax-exempt bond yields in over two years. US Treasury bonds
suffered even greater declines during the quarter as Treasury bond
yields rose approximately 60 basis points to end the quarter at
8.00%.
<PAGE>
The tax-exempt bond market reacted negatively throughout the October
quarter to indications that, despite a series of interest rate
increases by the Federal Reserve Board, the strength of the domestic
economy seen in recent quarters has not yet been significantly
reduced. While inflationary pressures have remained well contained,
additional Federal Reserve Board actions have been expected both to
ensure that domestic economic growth is eventually confined to
current levels and to assure nervous financial markets of its anti-
inflationary intentions.
Fortunately, while the demand for tax-exempt bonds has declined
somewhat in recent months, new bond issuance has remained greatly
reduced. During the quarter ended October 31, 1994, only $32 billion
in long-term tax-exempt securities were issued, a decline of over
50% versus the October 31, 1993 quarter. Similarly, for the six
months ended October 31, 1994, only $75 billion in municipal
securities were underwritten, a decline of over 50% versus the
comparable period a year earlier. This reduction in issuance in
recent quarters has allowed the municipal bond market to react to
both the decline in investor demand and the rise in fixed-income
yields in a more orderly fashion than in similar situations in the
past, particularly during 1987.
Long-term tax-exempt revenue bonds currently yield approximately 7%,
or almost 11.5% on an after-tax equivalent basis, to an investor in
the 39.6% Federal income tax bracket. As inflation has only
marginally increased in the past year, real tax-exempt interest
rates have risen dramatically. The Federal Reserve Board appears
committed to maintaining inflation at or below its current levels.
Indeed, most forecasts expect inflation to remain in its present
range of 3%--4% throughout 1995 and, potentially, for the remainder
of the 1990s. Real after-tax equivalent interest rates exceeding 7%
represent historically attractive municipal investments for long-
term investors.
Federal Reserve Board actions taken thus far have yet to fully
impact US domestic growth and expected additional actions should
promote only a modest economic expansion within a benign
inflationary context beginning sometime early in 1995. Within such
an environment, it is unlikely that tax-exempt interest rates will
remain at their current attractive levels. Tax-exempt bond issuance
is unlikely to return to the historic high levels seen in 1992 and
1993, while investor demand should return as markets stabilize. As
we have discussed in earlier reports, the total number of tax-exempt
bonds outstanding is scheduled to decline dramatically in 1994 and
1995 as a result of both regular bond maturities and early
redemptions. Investors seeking tax-advantaged issues are likely to
find it very difficult to obtain currently available tax-exempt
yields as the current supply/demand balance is unlikely to be
maintained in the coming quarters.
<PAGE>
Portfolio Strategy
During the quarter ended October 31, 1994, our portfolio strategy
for MuniYield Arizona Fund, Inc. consisted of selling discounted
bonds and replacing them with higher-yielding current and premium
coupon bonds when available. This strategy produced enhanced yield
for Common Stock shareholders and created a more defensive portfolio
structure in a volatile interest rate environment. Complicating the
implementation of the strategy was a 75% decrease in issuance of
Arizona bonds this quarter versus the same quarter last year. This
decrease illustrates the difficulty of purchasing bonds that both
meet our portfolio strategy and satisfy the Fund's diversification
requirements. Furthermore, as a result of this decrease in issuance,
we kept cash reserves at 3% of net assets since any bonds sold would
be extremely difficult to replace. Looking forward, our strategy
will seek to enhance income for Common Stock shareholders by
purchasing attractively priced current and premium coupon bonds.
In Conclusion
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
December 8, 1994
<PAGE>
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.
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
American 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 (unaudited)
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Net Realized Unrealized Dividends/Distributions
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 -- --
May 1, 1994 to July 31, 1994 .26 (.21) .49 .21 .05 -- --
August 1, 1994 to October 31, 1994 .27 (.39) (.82) .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 $14.12 $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
May 1, 1994 to July 31, 1994 13.31 12.22 13.50 11.50 128
August 1, 1994 to October 31, 1994 12.91 11.62 13.125 10.50 193
<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 at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
IDA Industrial Development Authority
M/F Multi-Family
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--88.6%
<S> <S> <C> <S> <C>
Arizona Educational Loan Marketing Corporation, Educational
Loan Revenue Bonds, AMT:
NR* A $ 700 Series B, 7% due 3/01/2002 $ 723
NR* A 1,000 Subordinate Series, 5.70% due 12/01/2008 926
Arizona Health Facilities Authority, Hospital System Revenue Refunding Bonds:
NR* Ba 1,000 (Saint Luke's Health System), 7.25% due 11/01/2014 951
AAA Aaa 1,000 (Samaritan Health System), 5.625% due 12/01/2015 (b) 874
AAA Aaa 1,180 Arizona State Power Authority, Power Resource Revenue Refunding Bonds
(Hoover Uprating Project), 5.375% due 10/01/2013 (b) 1,018
AA Aaa 500 Arizona State Transportation Board, Highway Revenue Bonds, Sub-Series A, 6.50%
due 7/01/2001 (g) 530
Arizona State University, Revenue Refunding Bonds, Series A:
AA A1 1,000 5.75% due 7/01/2012 907
AA A1 1,000 5.50% due 7/01/2019 853
AA+ Aa 1,500 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds, 6.80% due 7/01/2011 1,528
AAA Aaa 1,000 Chandler, Arizona, Street and Highway User Revenue Refunding Bonds,
5.50% due 7/01/2010 (c) 903
AAA Aaa 1,815 Chandler, Arizona, Water and Sewer Revenue Refunding Bonds, 6.25%
due 7/01/2013 (c) 1,768
A A3 2,500 Greenlee County, Arizona, IDA, PCR, Refunding Bonds (Phelps Dodge
Corporation Project), 5.45% due 6/01/2009 2,218
AAA Aaa 1,000 Maricopa County, Arizona, Chandler Unified School District Number 80 Refunding
Bonds, 6.25% due 7/01/2011 (c) 985
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) 4,658
A1+ VMIG1 100 Maricopa County, Arizona, IDA, Hospital Facility Revenue Bonds (Samaritan Health
Service Hospital), VRDN, Series B2, 3.60% due 12/01/2008 (a)(b) 100
AAA Aaa 1,500 Maricopa County, Arizona, Peoria Unified School District Number 11 Refunding
Bonds, 6.10% due 7/01/2010 (e) 1,463
BB Ba2 2,500 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding Bonds
(Public Service Company--Palo Verde), Series A, 6.375% due 8/15/2023 2,146
AA- NR* 1,000 Maricopa County, Arizona, Scottsdale Unified School District Number 48 Revenue
Bonds, UT, 6% due 7/01/2002 (g) 1,025
</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 $ 4,110
AA+ Aa 1,300 Phoenix, Arizona, Civic Improvement Corporation, Excise Tax Revenue Bonds
(Senior Lien--New City Hall Project), 5.10% due 7/01/2018 1,044
A1+ Aa 400 Pima County, Arizona, IDA, M/F Housing Revenue Bonds (Quail Ridge Apartments),
VRDN, AMT, Series B, 3.55% due 6/01/2034 (a) 400
AAA Aaa 1,050 Pima County, Arizona, Unified School District Number 1 Revenue Refunding Bonds
(Tucson), 7.50% due 7/01/2009 (c) 1,173
Salt River Project, Arizona, Agricultural Improvement and Power District,
Electric System Revenue Bonds:
AA Aa 2,000 Series A, 6.50% due l/01/2022 1,962
AA Aa 500 Series C, 6.25% due 1/01/2019 477
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) 920
AAA Aaa 1,000 Scottsdale, Arizona, IDA, Hospital Revenue Bonds (Scottsdale Memorial Hospital),
5.25% due 9/01/2018 (e) 812
A NR* 500 Scottsdale, Arizona, Mountain Community Facilities District Revenue Bonds, UT,
Series A, 6.20% due 7/01/2017 468
A NR* 1,500 Tatum Ranch, Arizona, Community Facilities District Revenue Bonds, UT, Series A,
6.875% due 7/01/2016 1,522
AAA Aaa 500 Tempe, Arizona, Unified High School District Number 213, Revenue Refunding and
Improvement Bonds, UT, 7% due 7/01/2008 (c) 540
AAA Aaa 300 Tucson, Arizona, GO, Refunding Bonds, 6.10% due 7/01/2012 (c) 289
AAA Aaa 1,000 Tucson, Arizona, Local Development, Business Development Finance Corporation,
Lease Revenue Refunding Bonds, 6.25% due 7/01/2012 (c) 980
A+ A1 1,400 Tucson, Arizona, Water Revenue Refunding Bonds, Series A, 5.75% due 7/01/2018 1,228
AAA Aaa 500 University of Arizona, COP (Administrative and Parking Facility Project),
Series B, 6% due 7/15/2016 (b) 466
AA A1 1,345 University of Arizona, University Revenue Refunding Bonds, 6.25% due 6/01/2011 1,318
<PAGE>
Puerto Rico--9.6%
Puerto Rico Commonwealth, GO:
AAA Aaa 2,000 RIB, YCN, 8.132% due 7/01/2020 (d)(f) 1,607
A Baa1 3,000 UT, 6.50% due 7/01/2023 2,887
Total Investments (Cost--$50,490)--98.2% 45,779
Other Assets Less Liabilities--1.8% 846
-------
Net Assets--100.0% $46,625
=======
<FN>
*Not Rated.
(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 October 31, 1994.
(b)MBIA Insured.
(c)FGIC Insured.
(d)FSA Insured.
(e)AMBAC Insured.
(f)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 October 31, 1994.
(g)Prerefunded.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets, Liabilities and Capital as of October 31, 1994
<S> <S>
Assets: Investments, at value (identified cost--$50,490,397)(Note 1a) $45,779,197
Cash 59,179
Interest receivable 965,435
Deferred organization expenses (Note 1e) 12,833
Prepaid expenses and other assets 11,716
-----------
Total assets 46,828,360
-----------
Liabilities: Payables:
Dividends payable to shareholders (Note 1g) $ 80,364
Investment adviser (Note 2) 9,383 89,747
-----------
Accrued expenses 113,609
-----------
Total liabilities 203,356
-----------
Net Assets: Net assets $46,625,004
===========
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 (2,513,709 shares
issued and outstanding) $ 251,371
Paid-in capital in excess of par 34,765,706
Undistributed investment income--net 190,937
Accumulated realized capital losses--net (Note 5) (1,221,810)
Unrealized depreciation on investments--net (4,711,200)
-------------
Total--Equivalent to $11.65 net asset value per share of
Common Stock (market price--$10.75) 29,275,004
-----------
Total capital $46,625,004
===========
*Auction Market Preferred Stock.
</TABLE>
<PAGE>
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended October 31, 1994
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 2,985,585
Income
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 252,642
Professional fees 75,182
Accounting services (Note 2) 31,559
Transfer agent fees 26,654
Directors' fees and expenses 23,162
Printing and shareholder reports 22,757
Commission fees (Note 4) 7,589
Listing fees 7,115
Custodian fees 4,655
Pricing fees 4,316
Amortization of organization expenses (Note 1e) 3,429
Other 11,644
-------------
Total expenses before reimbursement 470,704
Reimbursement of expenses (Note 2) (137,460)
-------------
Total expenses after reimbursement 333,244
-----------
Investment income--net 2,652,341
-----------
Realized & Realized loss on investments--net (1,221,747)
Unrealized Loss Change in unrealized appreciation/depreciation on investments--net (6,515,206)
on Investments-- -----------
Net (Notes 1d Net Decrease in Net Assets Resulting from Operations $(5,084,612)
& 3): ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statements of Changes in Net Assets
For the
Period
For the July 30,
Year Ended 1993++ to
October 31, October 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 2,652,341 $ 663,406
Realized gain (loss) on investments--net (1,221,747) 107,520
Change in unrealized appreciation/depreciation
on investments--net (6,515,206) 1,804,006
----------- -----------
Net increase (decrease) in net assets resulting from operations (5,084,612) 2,574,932
----------- -----------
Dividends & Investment income--net:
Distributions Common Stock (2,195,165) (365,402)
to Shareholders Preferred Stock (482,073) (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 (2,784,821) (447,572)
----------- -----------
Capital Stock Net proceeds from issuance of Common Stock -- 34,593,338
Transactions Proceeds from issuance of Preferred Stock -- 17,350,000
(Notes 1e & 4): Offering and underwriting costs resulting from the issuance of
Common Stock 2,373 --
Offering and underwriting costs resulting from the issuance of
Preferred Stock (39,316) (426,956)
Value of shares issued to Common Stock shareholders in
reinvestment of dividends and distributions 579,370 208,263
----------- -----------
Net increase in net assets derived from capital stock transactions 542,427 51,724,645
----------- -----------
<PAGE>
Net Assets: Total increase (decrease) in net assets (7,327,006) 53,852,005
Beginning of period 53,952,010 100,005
----------- -----------
End of period* $46,625,004 $53,952,010
=========== ===========
<FN>
*Undistributed investment income--net $ 190,937 $ 215,834
=========== ===========
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived For the July 30,
from information provided in the financial statements. Year Ended 1993++ to
October 31, 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 1.06 .27
Realized and unrealized gain (loss) on investments--net (3.09) .77
----------- -----------
Total from investment operations (2.03) 1.04
----------- -----------
Less dividends and distributions to Common Stock shareholders:
Investment income--net (.88) (.15)
Realized gain on investments--net (.04) --
----------- -----------
Total dividends and distributions to Common Stock shareholders (.92) (.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 (.19) (.03)
Realized gain on investments--net (.01) --
Capital charge resulting from issuance of Preferred Stock (.02) (.17)
----------- -----------
Total effect of Preferred Stock activity (.22) (.20)
----------- -----------
Net asset value, end of period $ 11.65 $ 14.82
=========== ===========
Market price per share, end of period $ 10.75 $ 14.875
=========== ===========
<PAGE>
Total Investment Based on market price per share (22.48%) .16%+++
Return:** =========== ===========
Based on net asset value per share (15.68%) 5.56%+++
=========== ===========
Ratios to Expenses, net of reimbursement .66% --
Average =========== ===========
Net Assets:*** Expenses .93% 1.09%*
=========== ===========
Investment income--net 5.24% 5.73%*
=========== ===========
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) $ 29,275 $ 36,602
=========== ===========
Preferred Stock outstanding, end of period
(in thousands) $ 17,350 $ 17,350
=========== ===========
Portfolio turnover 57.28% 16.91%
=========== ===========
Dividends Per Investment income--net $ 1,389 $ 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>
<PAGE>
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 American
Stock Exchange under the symbol MZA. 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, 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, which approximates market
value. 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.
<PAGE>
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) 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. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), 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 0.50% of
the Fund's average weekly net assets. For the year ended October 31,
1994, FAM earned fees of $252,642, of which $137,460 was voluntarily
waived.
NOTES TO FINANCIAL STATEMENTS (concluded)
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, FAMI, PSI, 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 year ended October 31, 1994 were $29,541,309 and
$27,433,841, respectively.
<PAGE>
Net realized and unrealized gains (losses) as of October 31, 1994
were as follows:
Realized
Gains Unrealized
(Losses) Losses
Long-term investments $ (842,546) $(4,711,200)
Short-term investments (425,826) --
Financial futures contracts 46,625 --
----------- -----------
Total $(1,221,747) $(4,711,200)
=========== ===========
As of October 31, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $4,711,200, all of which related to
depreciated securities. The aggregate cost of investments at October
1994 for Federal income tax purposes was $50,490,397.
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 year ended October 31,1994, shares issued and outstanding
increased by 43,583 to 2,513,709 as a result of dividend
reinvestment. At October 31, 1994, total paid-in capital amounted to
$35,017,077.
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 October 31, 1994 was
3.1625%.
In connection with the offering of AMPS, the Board of Directors
reclassified 347 shares of unissued capital stock as AMPS. For the
year ended October 31, 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. Effective
December 1, 1994, as a result of a two-for-one stock split, there
will be 694 AMPS shares with a liquidation preference of $25,000 per
share.
<PAGE>
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%,
calculated on the proceeds of each auction. For the year ended
October 31, 1994, MLPF&S, an affiliate of FAMI, earned $7,516 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1994, the Fund had a capital loss carryforward of
approximately $1,222,000, all of which expires in 2002. This amount
will be available to offset like amounts of any future taxable
gains.
6. Subsequent Event:
On November 8, 1994, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.071661 per share, payable on November 29, 1994 to shareholders
of record as of November 18, 1994.
7. Reorganization Plan:
On June 17, 1994, the Board of Directors approved a plan of
reorganization, subject to shareholder approval and certain other
conditions, whereby MuniYield Arizona Fund II, Inc. would acquire
substantially all of the assets and liabilities of the Fund in
exchange for newly issued shares of MuniYield Arizona Fund II, Inc.
MuniYield Arizona Fund II, Inc. is a registered, non-diversified,
closed-end management investment company, with a similar investment
objective to the Fund, and is managed by FAM.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
MuniYield Arizona Fund, Inc.:
We have audited the accompanying statement of assets, liabilities,
and capital, including the schedule of investments, of MuniYield
Arizona Fund, Inc. as of October 31, 1994, the related statements of
operations for the year then ended and changes in net assets, and
the financial highlights for the year then ended and for the period
July 30, 1993 (commencement of operations) to October 31, 1993.
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.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. 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, 1994 by correspondence with the custodian. 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 Arizona Fund, Inc. as of October 31, 1994, the results of
its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 6, 1994
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
MuniYield Arizona Fund, Inc. during its taxable year ended October
31, 1994 qualify as tax-exempt interest dividends for Federal income
tax purposes. Additionally, the following table summarizes the per
share capital gains distributions paid by the Fund during the year.
Payable Short-Term Long-Term
Date Capital Gains Capital Gains
Common Stock Shareholders 12/30/93 $ 0.038137 --
Preferred Stock Shareholders 12/01/93 $38.38 --
Please retain this information for your records.
