MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Semi-Annual Report
April 30, 1995
Officers and Directors
Arthur Zeikel, President and 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
Robert E. Putney III, Assistant Secretary
<PAGE>
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
ASE Symbol
MZA
This report, including the financial informa-
tion herein, is transmitted to the shareholders
of MuniYield Arizona Fund, Inc. for their infor-
mation. It is not a prospectus, circular or repre-
sentation 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 repre-
sentation of future performance. The Fund has
leveraged its Common Stock by issuing Pre-
ferred 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 divi-
dend rates of the Preferred Stock may affect the
yield to Common Stock shareholders.
MuniYield Arizona Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MuniYield Arizona Fund, Inc.
TO OUR SHAREHOLDERS
On March 27, 1995, MuniYield Arizona Fund, Inc. and
MuniYield Arizona Fund II, Inc. merged, becoming one
Fund. On April 18, 1995, the Fund changed its name to
MuniYield Arizona Fund, Inc.
For the six-month period ended April 30, 1995, the
Common Stock of MuniYield Arizona Fund, Inc. earned
$0.377 per share income dividends, which included
earned and unpaid dividends of $0.075. This represents
a net annualized yield of 6.13%, based on a month-end
per share net asset value of $12.41. Over the same
period, the total investment return on the Fund's
Common Stock was +13.17%, based on a change in per
share net asset value from $11.33 to $12.41, and assuming
reinvestment of $0.370 per share income dividends.
For the six-month period ended April 30, 1995, the
Fund's Auction Market Preferred Stock had an average
yield of 3.91% for Series A and 3.85% for Series B.
The Municipal Market
During the six-month period ended April 30, 1995, the
tax-exempt bond market gradually recouped much of
the losses sustained during 1994. Signs of a weakening
domestic economy and ongoing moderate inflationary
pressures have fostered an environment of declining
interest rates. Since October 31, 1994, A-rated, uninsured
municipal revenue bond yields, as measured by the
Bond Buyer Revenue Bond Index, have declined over
65 basis points (0.65%) to close the six-month period
ended April 30, 1995 at 6.29%. Tax-exempt bond yields
initially continued to climb in late 1994, reaching a high
of 7.37% in late November 1994. Municipal bond yields
have since declined over 100 basis points from their
recent highs and are presently lower than they were a
year ago. US Treasury bond yields have experienced
similar declines over the last six months to end the
April period at 7.34%.
<PAGE>
Much of the recent improvement in the tax-exempt
bond market, however, has occurred over the last three
months. During this most recent quarter, municipal
bond yields have fallen approximately 50 basis points,
while US Treasury bond yields declined only 35 basis
points. Tax-exempt bond yields declined more than
their taxable counterparts in recent months, largely in
response to the significant decline in new bond issu-
ance in recent quarters. Over the last six months, less
than $60 billion in new long-term municipal securities
were underwritten, a decline of nearly 45% versus the
comparable period a year earlier. Issuance was particu-
larly low this past January and February, with monthly
volume of less than $8 billion. These levels are the
lowest monthly totals since the mid-1980s.
To compound the municipal market's already strong
technical posture, both institutional and individual
investors have seen significant cash inflows in recent
months. These assets were derived from regular coupon
payments, bond maturities and the proceeds from early
bond calls and redemptions. It has been estimated that
investors received over $20 billion in principal redemp-
tions and coupon income in January 1995 alone. With
monthly issuance in the $10 billion range thus far this
year, the current supply/demand imbalance has domi-
nated the municipal market, and bond prices have risen
accordingly. The tax-exempt bond market's technical
position is likely to remain very strong throughout most
of 1995. Investors are expected to receive almost $40
billion in principal and coupon payments on July 1,
1995. Investor proceeds from all sources have been
estimated to exceed $200 billion for all of 1995. Esti-
mates of total new bond issuance for 1995 have contin-
ued to be lowered with most estimates now in the $125
billion range. Investors should find it increasingly diffi-
cult to replace existing holdings as they mature and to
reinvest coupon income in such an environment.
The municipal bond market's outperformance thus far
this year caused the tax-exempt market to become
temporarily expensive relative to its taxable counter-
part in late April. Investor concerns regarding the inter-
national currency situation and the future impact of
proposed revisions to US taxation policies upon the
tax-advantage inherent to municipal bonds have com-
bined to cause tax-exempt bond yields to increase
marginally in recent weeks. Municipal bond yields have
risen approximately 15 basis points from their lows in
mid-April 1995. Long-term US Treasury bond yields
have remained essentially stable.
<PAGE>
We believe such an underperformance by the tax-
exempt bond market is likely to be limited in dura-
tion. The recent increase in tax-exempt bond yields
has already begun to attract institutional investors
since some municipal bonds yielding in excess of 85%
of US Treasury bond yields are again available. Also,
concerns regarding the implication for municipal
bonds' tax-advantage resulting from various proposed
tax law changes (for example, flat-tax, value-added
tax or national sales tax) are all likely to quickly
recede as investors realize that such changes, if any,
are unlikely to be enacted before late 1996 at the
earliest. Long-term investors will also recall 1986 when
similar tax proposals were made and tax-exempt bond
yields initially rose and then quickly fell. Investors
are likely to view the current situation as an opportu-
nity to purchase very attractively priced tax-advantaged
products. This should cause municipal bond yields to
quickly return to their more historic relationship.
Portfolio Strategy
For the six months ended April 30, 1995, our portfolio
strategy shifted slightly on the belief that bond yields
had peaked. Cash reserves, which averaged 5% of net
assets over the prior six months, were drawn down to
an average of 1%. We did this to increase income for
shareholders while extending the duration to better
capture any market appreciation. Another factor in
keeping cash reserves low was that municipal issuance
of Arizona bonds for this six-month period versus the
same six-month period last year declined 61%. This
decrease in issuance exacerbated existing concerns
that it would be difficult to buy bonds when the market
becomes more active. Looking forward, our strategy
will consist of seeking to enhance the total return of
the Fund as yields continue their downward path.
The Fund's Preferred Stock was auctioned on a weekly
basis because of the lower average rate associated with
the seven-day auction schedule versus a longer auction
rate schedule. The preferred rate averaged 3.88% for
the six months ended April 30, 1995, which included
abnormally high auction rates in response to technical
reasons during the end of December and the end of
April. Short-term interest rates have continued to gen-
erate significant yield benefits to the Fund's Common
Stock shareholders as a result of leveraging in a steep
yield curve environment. However, should the spread
between short-term and long-term interest rates
narrow, the benefits of the leverage will diminish and
reduce the yield of the Common Stock. (For a complete
explanation of the benefits and risks of leveraging, see
page 3 of this report to shareholders.)
<PAGE>
In Conclusion
We appreciate your ongoing interest in MuniYield
Arizona Fund, Inc., and we look forward to serving your
investment needs 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 15, 1995
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. 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 differen-
tial between short-term and long-term interest rates,
the incremental yield pick-up on the Common Stock
will be reduced or eliminated completely. At the same
time, the market value on 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.
IMPORTANT TAX INFORMATION
On March 27, 1995, MuniYield Arizona Fund, Inc. was
merged into MuniYield Arizona Fund II, Inc. All of
the net investment income distributions paid monthly
by both Funds during the taxable period ended April 30,
1995 qualify as tax-exempt dividends for Federal
income tax purposes. Additionally, there were no capital
gains distributed by both Funds during the period.
Please retain this information for your records.
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield Arizona Fund,
Inc.'s portfolio holdings in the Schedule of Invest-
ments, 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
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
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Arizona--80.9%
Arizona Educational Loan Marketing Corporation, Educational Loan Revenue Bonds, AMT:
NR* A $ 700 Series B, 7% due 3/01/2002 $ 737
NR* A 2,920 Series B, 7% due 3/01/2003 3,070
NR* A 1,000 Subordinate Series, 5.70% due 12/01/2008 992
Arizona Health Facilities Authority, Hospital System Revenue Refunding Bonds:
NR* NR* 1,970 (Saint Luke's Health Systems), 7.25% due 11/01/2003 (h) 2,229
AAA Aaa 1,000 (Samaritan Health System), 5.625% due 12/01/2015 (a) 957
AAA Aaa 325 Arizona State Municipal Financing Program, COP, Series 34, 7.25% due 8/01/2009 (i) 376
Arizona State Power Authority, Power Resource Revenue Refunding Bonds
(Hoover Uprating Project) (a):
AAA Aaa 1,180 5.375% due 10/01/2013 1,107
AAA Aaa 1,725 5.25% due 10/01/2017 1,561
AA Aaa 500 Arizona State Transportation Board, Highway Revenue Bonds, Sub-Series A, 6.50% due
7/01/2001 (h) 542
<PAGE>
AA A1 3,500 Arizona State University, Revenue Refunding Bonds, Series A, 5.50% due 7/01/2019 3,253
AA+ Aa 3,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds, 6.80% due 7/01/2011 3,246
AAA Aaa 605 Gilbert, Arizona, Projects of 1988, UT, Series C, 8.50% due 7/01/2005 (a) 745
Glendale, Arizona, IDA, Educational Facilities Revenue Refunding Bonds (American
Graduate School International) (j):
AAA NR* 500 7% due 7/01/2014 545
AAA NR* 500 7.125% due 7/01/2020 547
A A3 1,250 Greenlee County, Arizona, IDA, PCR, Refunding (Phelps Dodge Corporation Project),
5.45% due 6/01/2009 1,178
AAA Aaa 2,920 Maricopa County, Arizona, Alhambra Elementary School District Number 68 Refunding
Bonds, Series A, UT, 6.80% due 7/01/2011 (g) 3,195
AAA Aaa 1,000 Maricopa County, Arizona, Chandler Unified School District Number 80 Refunding Bonds,
6.25% due 7/01/2011 (c) 1,056
AAA Aaa 7,500 Maricopa County, Arizona, IDA, Health Facilities Revenue Insured Bonds (Catholic
Health Care West), Series A, 5.625% due 7/01/2023 (a) 6,994
Maricopa County, Arizona, IDA, Hospital Facility Revenue Bonds (Samaritan Health
Service Hospital) (a):
AAA Aaa 500 Refunding, Series A, 7% due 12/01/2013 541
AAA Aaa 2,400 Refunding, Series A, 7% due 12/01/2016 2,723
A1+ VMIG1++ 200 VRDN, Series B2, 5.10% due 12/01/2008 (b) 200
Maricopa County, Arizona, Peoria Unified School District Number 11 Refunding Bonds:
AAA Aaa 1,500 6.10% due 7/01/2010 (g) 1,530
AAA Aaa 2,245 Improvement, 5.727%** due 7/01/2004 (a) 1,344
Maricopa County, Arizona, Tempe Elementary School District Number 3 Refunding Bonds:
AAA Aaa 1,000 5.90%** due 7/01/2008 (g) 458
AAA Aaa 500 Improvement, UT, 7.50% due 7/01/2010 (c) 592
AAA Aaa 2,700 Navajo County, Arizona, Pollution Control Corporation, Revenue Refunding Bonds
(Arizona Public Service Company), Series A, 5.875% due 8/15/2028 (g) 2,602
A A1 500 Phoenix, Arizona, Civic Improvement Corporation, Wastewater System Lease Revenue
Refunding Bonds, 5% due 7/01/2018 422
A1+ Aa 400 Pima County, Arizona, IDA, M/F Housing Revenue Bonds (Quail Ridge Apartments), VRDN,
AMT, Series B, 4.80% due 6/01/2034 (b) 400
AAA Aaa 1,000 Pima County, Arizona, Sewer Revenue Refunding Bonds, Series A, 5% due 7/01/2015 (c) 886
<PAGE>
AAA Aaa 3,050 Pima County, Arizona, Tucson Unified School District Number 1 Refunding Bonds, 7.50%
due 7/01/2009 (c) 3,608
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Arizona (concluded)
Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corporation) (b):
A1+ P1 $ 800 DATES, 5.15% due 12/01/2009 $ 800
AA P1 200 VRDN, 5.15% due 12/01/2009 200
Salt River Project, Arizona, Agricultural Improvement and Power District, Electric
System Revenue Bonds:
AA Aa 2,795 Refunding, Series C, 5.50% due 1/01/2010 2,713
AA Aa 3,065 Series A, 6.50% due 1/01/2022 3,154
AA Aa 600 Series C, 6.25% due 1/01/2019 604
AAA Aaa 1,000 Santa Cruz County, Arizona, Nogales Unified School District Number 1 Revenue Bonds,
Series A, 5.80% due 7/01/2013 (f) 984
AAA Aaa 1,000 Scottsdale, Arizona, IDA, Hospital Revenue Bonds (Scottsdale Memorial Hospital),
5.25% due 9/01/2018 (g) 897
AA+ Aa 825 Tempe, Arizona, Refunding Bonds, UT, Series A, 5.35% due 7/01/2010 786
AAA Aaa 1,000 Tempe, Arizona, Unified High School District Number 213, Revenue Refunding and
Improvement Bonds, UT, 7% due 7/01/2008 (c) 1,131
AAA Aaa 2,000 Tucson, Arizona, Local Development, Business Development Finance Corporation, Lease
Revenue Refunding Bonds, 6.25% due 7/01/2012 (c) 2,038
AAA Aaa 2,500 Tucson, Arizona, Street and Highway User Revenue Bonds, Senior Lien, Series A, 5%
due 7/01/2015 (a) 2,215
AA- A1 1,000 Tucson, Arizona, UT, Series A, 5.375% due 7/01/2017 926
A+ A1 2,700 Tucson, Arizona, Water Revenue Refunding Bonds, Series A, 5.75% due 7/01/2018 2,574
AAA Aaa 1,000 University of Arizona, COP (Residence Life Project), Series A, 5.80% due 9/01/2013 (d) 974
AA A1 1,345 University of Arizona, University Revenue Refunding Bonds, 6.25% due 6/01/2011 1,387
Puerto Rico--12.2%
<PAGE> Puerto Rico Commonwealth, Aqueduct and Sewer Authority Revenue Bonds, Series A:
A Baa 1,000 7.875% due 7/01/2017 1,099
A Baa 1,500 7% due 7/01/2019 1,588
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, RIB, YCN, 7.647% due 7/01/2020 (e) (f) 1,900
A1+ VMIG1++ 400 Puerto Rico Commonwealth, Government Development Bank, Refunding Bonds, VRDN,
4.55% due 12/01/2015 (b) 400
A Baa1 520 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue
Bonds, Series T, 6.625% due 7/01/2018 534
Puerto Rico Electric Power Authority, Power Revenue Bonds:
AAA Aaa 2,000 LEVRRS, 7.688% due 7/01/2023 (e) (f) 1,933
A- Baa1 465 Refunding, Series N, 7.125% due 7/01/2014 494
A- Baa1 2,250 Series P, 7% due 7/01/2021 2,411
Total Investments (Cost--$78,898)--93.1% 79,378
Other Assets Less Liabilities--6.9% 5,908
-----------
Net Assets--100.0% $ 85,286
===========
<FN>
*Not Rated.
**Represents the yield to maturity on this zero coupon issue.
(a)MBIA Insured.
(b)The interest rate is subject to change periodically based on
prevailing market rates. The interest rate shown is the rate
in effect at April 30, 1995.
(c)FGIC Insured.
(d)Capital Guaranty.
(e)The interest rate is subject to change periodically and
inversely to the prevailing market rate. The interest rate
shown is the rate in effect at April 30, 1995.
(f)FSA Insured.
(g)AMBAC Insured.
(h)Prerefunded.
(i)BIG Insured.
(j)Connie Lee Insured.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$78,897,813) (Note 1a) $79,378,405
Cash 12,578
Receivables:
Securities sold $ 4,717,951
Interest 1,419,632 6,137,583
-----------
Deferred organization expenses (Note 1e) 17,385
Prepaid expenses and other assets 11,728
-----------
Total assets 85,557,679
-----------
Liabilities: Payables:
Dividends payable to shareholders (Note 1f) 13,873
Investment adviser (Note 2) 6,632 20,505
-----------
Accrued expenses and other liabilities 251,588
-----------
Total liabilities 272,093
-----------
Net Assets: Net assets $85,285,586
===========
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (1,212 shares of AMPS* issued and
outstanding at $25,000 per share liquidation preference) $30,300,000
Common Stock, par value $.10 per share (4,429,288 shares issued
and outstanding) $ 442,929
Paid-in capital in excess of par 60,410,935
Undistributed investment income--net 343,504
Accumulated realized capital losses--net (Note 5) (6,692,374)
Unrealized appreciation on investments--net 480,592
-----------
Total--Equivalent to $12.41 net asset value per share of Common Stock
(market price--$10.875) 54,985,586
-----------
Total capital $85,285,586
===========
<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, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 1,364,791
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 110,484
Professional fees 27,509
Commission fees (Note 4) 25,051
Accounting services (Note 2) 16,657
Printing and shareholder reports 16,508
Transfer agent fees 12,185
Directors' fees and expenses 9,651
Custodian fees 3,838
Listing fees 3,381
Pricing fees 2,909
Amortization of organization expenses (Note 1e) 1,870
Other 6,176
-----------
Total expenses before reimbursement 236,219
Reimbursement of expenses (Note 2) (88,387)
-----------
Total expenses after reimbursement 147,832
-----------
Investment income--net 1,216,959
-----------
Realized & Realized loss on investments (1,660,781)
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 3,435,915
(Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 3,010,093
(Notes 1b, 1d ===========
& 3):
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1995 Oct. 31, 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 1,216,959 $ 1,829,657
Realized loss on investments--net (1,660,781) (1,485,923)
Change in unrealized appreciation/depreciation on investments--net 3,453,915 (3,487,450)
----------- -----------
Net increase (decrease) in net assets resulting from operations 3,010,093 (3,143,716)
----------- -----------
Dividends to Investment income--net:
Shareholders Common Stock (690,938) (1,391,922)
(Note 1f): Preferred Stock (315,435) (309,713)
----------- -----------
Net decrease in net assets resulting from dividends to shareholders (1,006,373) (1,701,635)
----------- -----------
Capital Stock Proceeds from issuance of Preferred Stock resulting from reorganization 17,350,000 --
Transactions Net proceeds from issuance of Common Stock resulting from reorganization 31,828,468 --
(Notes 1e & 4): Proceeds from issuance of Preferred Stock -- 12,950,000
Offering and underwriting costs resulting from the issuance of Preferred Stock -- (318,750)
Value of shares issued to Common Stock shareholders in reinvestment of
dividends and distributions -- 811,846
----------- -----------
Net increase in net assets derived from capital stock transactions 49,178,468 13,443,096
----------- -----------
Net Assets: Total increase in net assets 51,182,188 8,597,745
Beginning of period 34,103,398 25,505,653
----------- -----------
End of period* $85,285,586 $34,103,398
=========== ===========
<FN>
*Undistributed investment income--net $ 343,504 $ 132,918
=========== ===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
For the
For the Six For the Period
The following per share data and ratios have been derived Months Year Oct. 29,
from information provided in the financial statements. Ended Ended 1993++ to
April 30, Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.33 $ 14.11 $ 14.18
Operating -------- -------- --------
Performance: Investment income--net .51 .99 --
Realized and unrealized gain (loss) on investments--net 1.12 (2.68) --
-------- -------- --------
Total from investment operations 1.63 (1.69) --
-------- -------- --------
Less dividends to Common Stock shareholders:
Investment income--net (.37) (.75) --
-------- -------- --------
Capital charge resulting from issuance of Common Stock (.05) -- (.07)
-------- -------- --------
Effect of Preferred Stock activity++++:
Dividends to Preferred Stock shareholders:
Investment income--net (.13) (.17) --
Capital charge resulting from issuance of Preferred Stock -- (.17) --
-------- -------- --------
Total effect of Preferred Stock activity (.13) (.34) --
-------- -------- --------
Net asset value, end of period $ 12.41 $ 11.33 $ 14.11
======== ======== ========
Market price per share, end of period $ 10.875 $ 10.375 $ 15.00
======== ======== ========
Total Investment Based on market price per share (8.30%)+++ (26.55%) 0.00%+++
Return:** ======== ======== ========
Based on net asset value per share 13.17%+++ (14.73%) (.49%)+++
======== ======== ========
Ratios to Average Expenses, net of reimbursement .67%* .54% --
Net Assets:*** ======== ======== ========
Expenses 1.07%* 1.09% --
======== ======== ========
Investment income--net 5.50%* 5.13% .02%*
======== ======== ========
<PAGE>
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 54,986 $ 21,153 $ 25,506
Data: ======== ======== ========
Preferred Stock outstanding, end of period (in thousands) $ 30,300 $ 12,950 --
======== ======== ========
Portfolio turnover 46.96% 80.03% --
======== ======== ========
Dividends Per Series A--Investment income--net $ 480 $ 598 --
Share on Series B--Investment income--net 96 -- --
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 December 2, 1993
(Series A) and March 27, 1995 (Series B).
++++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Arizona Fund, Inc. (the "Fund"), formerly
known as MuniYield Arizona Fund II, Inc., is regis-
tered under the Investment Company Act of 1940 as a
non-diversified, closed-end management investment
company. These unaudited financial statements reflect
all adjustments which are, in the opinion of manage-
ment, necessary to a fair statement of the results
for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund determines
and makes available for publication the net asset
value of its Common Stock on a weekly basis. The
Fund's Common Stock is listed on the American 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, which approximates market value. Securities
for which market quotations are not readily available
are valued at fair value as determined in good faith
by or under the direction of the Board of Directors
of the Fund.
(b) Derivative financial instruments--The Fund
may engage in various portfolio strategies to seek to
increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or
if the counterparty does not perform under the
contract.
* Financial futures contracts--The Fund may pur-
chase 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.
<PAGE>
* 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 pre-
mium 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 cur-
rent 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 pro-
ducing investments.
(c) Income taxes--It is the Fund's policy to comply
with the requirements of the Internal Revenue Code
applicable to regulated investment companies and
to distribute substantially all of its taxable income to
its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--
Security transactions are recorded on the dates the
transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis.
Discounts and market premiums are amortized into
interest income. Realized gains and losses on secu-
rity 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
<PAGE>
(f) Dividends and distributions--Dividends from net
investment income are declared and paid monthly.
Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory
Agreement with Fund Asset Management, L.P. ("FAM").
The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's
portfolio and provides the necessary personnel, facil-
ities, 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 six
months ended April 30, 1995, FAM earned fees of
$110,484, of which $88,387 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, 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 six months ended April 30,
1995 were $65,785,534 and $22,761,350, respectively.
Net realized and unrealized gains (losses) as of
April 30, 1995 were as follows:
Realized Unrealized
Losses Gains
Long-term investments $(1,382,251) $480,592
Financial futures contracts (278,530) --
----------- --------
Total $(1,660,781) $480,592
=========== ========
<PAGE>
As of April 30, 1995, net unrealized appreciation for
Federal income tax purposes aggregated $480,592,
of which $1,835,876 related to appreciated securities
and $1,355,284 related to depreciated securities. The
aggregate cost of April 30, 1995 for Federal income
tax purposes was $78,897,813.
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 author-
ized, 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, 1995, shares issued
and outstanding increased by 2,562,245 pursuant to a
plan of reorganization. At April 30, 1995, shares
issued and outstanding amounted to 4,429,288 and
total paid-in capital amounted to $57,308,194.
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 yields
in effect at April 30, 1995 were as follows: Series A,
4.40% and Series B, 4.17%.
In addition, AMPS shares increased by 694 pursuant
to a plan of reorganization. As a result, as of
April 30, 1995 there were 1,212 AMPS shares
authorized, issued and outstanding, with a
liquidation preference of $25,000 per share, plus
accumulated and unpaid dividends of $6,070.
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 six months ended April 30, 1995,
MLPF&S, an affiliate of FAM, earned $16,609 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1994, the Fund had a capital loss
carryforward of approximately $4,783,000, all of which
expires in 2002. This amount will be available to off-
set like amounts of any future taxable gains.
<PAGE>
6. Acquisition of MuniYield Arizona Fund, Inc.:
On March 27, 1995, MuniYield Arizona Fund II, Inc.
acquired all the net assets of MuniYield Arizona Fund,
Inc. pursuant to a plan of reorganization. The acquisi-
tion was accomplished by a tax-free exchange of
2,562,245 Common Stock shares and 694 AMPS shares
of MuniYield Arizona Fund II, Inc. for 2,519,982
Common Stock shares and 694 AMPS shares outstanding
of MuniYield Arizona Fund, Inc. MuniYield Arizona
Fund, Inc.'s net assets on that date of $49,394,460,
including $507,137 of unrealized appreciation and
$3,545,670 of accumulated net realized capital losses,
were combined with those of MuniYield Arizona Fund II,
Inc. The aggregate net assets of MuniYield Arizona
Fund II, Inc. immediately after the acquisition
amounted to $85,692,530.
Subsequent to the acquisition, MuniYield Arizona
Fund II, Inc. changed its name to MuniYield Arizona
Fund, Inc.
7. Subsequent Event:
On May 9, 1995, the Fund's Board of Directors declared
an ordinary income dividend to Common Stock share-
holders in the amount of $.075062 per share, payable
on May 30, 1995 to shareholders of record as of
May 19, 1995.
PER SHARE INFORMATION
<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>
October 29, 1993++ to October 31, 1993 -- -- -- -- -- -- --
November 1, 1993 to January 31, 1994 $.23 $ .08 $ .55 $.13 $.03 -- --
February 1, 1994 to April 30, 1994 .26 (.06) 1.24 .22 .04 -- --
May 1, 1994 to July 31, 1994 .25 (.27) (2.97) .21 .05 -- --
August 1, 1994 to October 31, 1994 .25 (.56) (.69) .19 .05 -- --
November 1, 1994 to January 31, 1995 .26 (.63) 1.27 .19 .07 -- --
February 1, 1995 to April 30, 1995 .25 (.10) .58 .18 .06 -- --
<PAGE>
<CAPTION>
Net Asset Value Market Price**
For the Period High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
October 29, 1993++ to October 31, 1993 -- -- -- -- --
November 1, 1993 to January 31, 1994 $14.67 $13.97 $15.00 $13.25 147
February 1, 1994 to April 30, 1994 14.61 11.57 14.50 12.00 131
May 1, 1994 to July 31, 1994 12.97 11.81 13.50 11.50 119
August 1, 1994 to October 31, 1994 12.59 11.32 12.125 9.875 166
November 1, 1994 to January 31, 1995 11.96 10.25 11.625 9.25 212
February 1, 1995 to April 30, 1995 12.75 11.97 11.75 10.75 330
<FN>
++Commencement of Operations.
*Calculations are based upon Common Stock outstanding at the end of each period.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
