MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Annual Report
October 31, 1995
<PAGE>
Officers and Directors
Arthur Zeikel, President and Director
James H. Bodurtha, 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
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
<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 year ended October 31, 1995, the Common Stock of MuniYield
Arizona Fund, Inc. earned $0.774 per share income dividends, which
included earned and unpaid dividends of $0.068. This represents a
net annualized yield of 5.82%, based on a month-end net asset value
of $13.29 per share. Over the same period, the total investment
return on the Fund's Common Stock was +25.37%, based on a change in
per share net asset value from $11.33 to $13.29, and assuming
reinvestment of $0.774 per share income dividends.
For the six-month period ended October 31, 1995, the total
investment return on the Fund's Common Stock was +10.78%, based on a
change in per share net asset value from $12.41 to $13.29, and
assuming reinvestment of $0.404 per share income dividends.
For the six-month period ended October 31, 1995, the Fund's Auction
Market Preferred Stock had an average yield of 3.76% for Series A
and 3.61% for Series B.
<PAGE>
The Environment
After losing momentum through the second calendar quarter of 1995,
it now appears that the US economic expansion has resumed. Gross
domestic product growth for the three months ended September 30 was
reported to be 4.2%, higher than generally expected. September
durable goods orders increased a surprisingly strong 3%, and
existing home sales rose to a near-record level. At the same time,
there is evidence that inflationary pressures remain subdued.
Reflecting the trend of renewed economic growth--and continued good
news on the inflation front--the Federal Reserve Board signaled no
near-term shift in monetary policy following its September meeting.
Thus, official interest rates may not be reduced further in the
immediate future.
Another significant development has been the strengthening of the US
dollar relative to the yen and the Deutschemark. Improving interest
rate differentials favoring the US currency, combined with
coordinated central bank intervention and more positive investor
sentiment, have helped to bolster the dollar in foreign exchange
markets. Other factors that appear to be improving the US dollar's
outlook in the near term are a pick-up in capital flows to the
United States and the prospect of increased capital outflows from
Japan. However, it remains to be seen if the US dollar's
strengthening trend can continue without significant improvements in
the US budget and trade deficits.
In the weeks ahead, investor interest will continue to focus on US
economic activity. Clear signs of a moderate, noninflationary
expansion could further benefit the US stock and bond markets. In
addition, should the current Federal budget deficit reduction
efforts now underway in Washington prove successful, the
implications would likely be positive for the US financial markets.
The Municipal Market
Tax-exempt bond yields continued to decline during the six-month
period ended October 31, 1995. As measured by the Bond Buyer Revenue
Bond Index, the yield on uninsured, long-term municipal revenue
bonds fell 30 basis points (0.30%) to end the October period at
approximately 6.00%. While tax-exempt bond yields have declined
dramatically from their highs one year ago, municipal bond yields
have exhibited considerable yield volatility on a weekly basis. In
recent months, tax-exempt bond yields have fluctuated by as much as
20 basis points on a week-to-week basis. US Treasury bond yields
have displayed similar volatility, but the extent of their decline
has been greater. By the end of October, long-term US Treasury bond
yields had declined almost 100 basis points to 6.33%. Proposed
Federal tax restructuring continued to weigh heavily on the tax-
exempt bond market. Thus far in 1995, US Treasury bond yields have
declined approximately 150 basis points. Municipal bond yields have
fallen approximately 95 basis points as the uncertainty surrounding
any changes to the existing Federal income tax structure has
prevented the municipal bond market from rallying as strongly as its
taxable counterpart.
<PAGE>
A general view of a moderately expanding domestic economy, supported
by a very favorable inflationary environment, allowed interest rates
to significantly decline from their recent highs in November 1994.
However, this decline was not a smooth downward curve. Conflicting
economic indicators were released during recent months that have
prevented a clear consensus regarding the near-term direction of
interest rates from being reached. The resultant uncertainty has
promoted more of a saw-toothed pattern as interest rate declines
were repeatedly interrupted by indications of stronger-than-expected
economic growth. As these concerns were overcome by subsequent
weaker economic releases, interest rate declines have resumed. These
periods of volatility are likely to continue for the remainder of
1995, or until proposed Federal budget deficit reduction packages
are resolved and any resultant responses by the Federal Reserve
Board have occurred.
However, the municipal bond market's technical position remained
supportive throughout recent quarters. Approximately $82 billion in
long-term municipal securities were issued during the six months
ended October 31, 1995. While this issuance is virtually identical
to underwritings during the October 31, 1994 quarter, tax-exempt
bond issuance over the last 12 months remained approximately 25%
below comparable 1994 levels. The municipal bond market should
maintain this positive technical position well into 1996. Annual
issuance for 1995 is now projected to be approximately $140 billion,
significantly less than last year's already low level of $162
billion. Projected maturities and early redemptions for the
remainder of 1995 and throughout 1996 will lead to a continued
decline in the total outstanding municipal bond supply throughout
1996 and, perhaps, into 1998 should new bond issuance remain at
historically low levels.
Despite the municipal bond market's relative underperformance
compared to the US Treasury market thus far in 1995, the extent of
the tax-exempt bond market's rally was nonetheless quite impressive.
Municipal bond yields have fallen 135 basis points from their highs
reached in November 1994 and municipal bond prices rose accordingly.
Most tax-exempt products recouped almost all of the losses incurred
in 1994 and are well on their way to posting double-digit total
returns for all of 1995. This relative underperformance so far in
1995 provided long-term investors with the rare opportunity to
purchase tax-exempt securities at yield levels near those of taxable
securities.
<PAGE>
Additionally, many of the factors that led to the relative
underperformance of the tax-exempt bond market thus far in 1995,
namely investor concern regarding Federal budget deficit reductions
and proposed changes in the Federal income tax structure, are
nearing resolution. The Federal budget reconciliation process has
already begun, and may be essentially completed by year-end. Recent
public opinion polls suggest that the majority of American taxpayers
prefer the existing Federal income tax system compared to proposed
changes, such as the flat tax or a national sales tax. In an
upcoming election year, neither party is likely to advocate a
clearly unpopular position, particularly one that can be expected to
negatively impact the Federal budget deficit reduction program
through reduced tax revenues. As these factors are resolved, we
believe that much of the resistance that the municipal bond market
met this year should dissipate. This should allow municipal bond
yields to significantly decline from current levels in order to
return to more normal historic yield relationships.
Portfolio Strategy
For the fiscal year ended October 31, 1995, our portfolio strategy
was essentially constructive. However, within this period there were
a few months of volatility that we took advantage of to purchase
bonds that we believed would better suit our optimistic outlook. We
sought to anticipate shifts in investor sentiment, whether they were
motivated by perceived changes in economic conditions or the belief
that interest rates had gone too high. The Fund was positioned
accordingly throughout the 12-month period to take full advantage of
the declining interest rate environment.
The only constant throughout the 12-month period was that cash
reserves were kept at minimum levels. This was done for two reasons:
First, to enhance income for the shareholders, and second, to keep
reserves low out of concern of an extremely tight technical market
for Arizona bonds. Compared to the prior 12 months, Arizona bond
issuance declined 37%. Looking ahead, our strategy will continue to
focus on seeking to provide an attractive total return and a
generous level of tax-exempt income for our shareholders.
In Conclusion
We appreciate your ongoing interest in MuniYield Arizona Fund, Inc.,
and we look forward to assisting you with your financial needs in
the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
<PAGE>
(Vincent R. Giordano)
Vincent R. Giordano
Vice President
(Walter C. O'Connor)
Walter C. O'Connor
Portfolio Manager
December 4, 1995
We are pleased to announce that Walter C. O'Connor is responsible
for the day-to-day management of MuniYield Arizona Fund, Inc. Mr.
O'Connor has been employed by Merrill Lynch Asset Management, L.P.
(an affiliate of the Fund's investment adviser) since 1993 as Vice
President and Portfolio Manager, and was Assistant Vice President
from 1991 to 1993. Prior thereto, he was Assistant Vice President
with Prudential Securities from 1984 to 1991.
<TABLE>
PROXY RESULTS
<CAPTION>
During the year ended October 31, 1995, MuniYield Arizona Fund II,
Inc. Common and Preferred Stock shareholders voted on the following
proposals. The proposals were approved at a special shareholders'
meeting on March 10, 1995. The description of each proposal and
number of shares voted are as follows:
<PAGE>
Shares Voted Shares Voted Shares Voted
For Against Abstain
1. To approve or disapprove an Agreement and Plan of Reorganization
(the "Agreement and Plan of Reorganization") contemplating the
acquisition of substantially all of the assets of Arizona I by
Arizona II, and the assumption of substantially all of the
liabilities of Arizona I by Arizona II, in exchange solely for an
equal aggregate value of shares of Common Stock of Arizona II
("Arizona II Common Stock") and shares of a newly-created series of
Auction Market Preferred Stock of Arizona II ("Arizona II Series B
AMPS") and a distribution of such Arizona II Common Stock to holders
of Common Stock of Arizona I and such Arizona II Series B AMPS to
the holders of Auction Market Preferred Stock of Arizona I in
liquidation of Arizona I. A vote in favor of this proposal also will
constitute a vote in favor of a liquidation and dissolution of
Arizona I and a termination of its registration under the Investment
Company Act of 1940:
<S> <C> <C> <C>
MuniYield Arizona Fund, Inc. Common Stock shareholders 1,420,838 55,032 99,714
MuniYield Arizona Fund, Inc. Preferred Stock shareholders 542 0 4
MuniYield Arizona Fund II, Inc. Common Stock shareholders 1,063,967 26,481 37,206
MuniYield Arizona Fund II, Inc. Preferred Stock shareholders 320 0 0
<CAPTION>
Shares Voted Shares Voted
For Without Authority Exceptions
2. To elect the Fund's Board of Directors: Herbert I. London, Robert
R. Martin, Joseph L. May, Andre F. Perold and Arthur Zeikel:
<S> <C> <C> <C>
MuniYield Arizona Fund, Inc., Common Stock shareholders 1,607,535 76,656 321
MuniYield Arizona Fund, Inc. Preferred Stock shareholders 564 0 0
MuniYield Arizona Fund II, Inc. Common Stock shareholders 1,122,480 46,834 0
MuniYield Arizona Fund II, Inc. Preferred Stock shareholders 466 0 0
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
3. To consider and act upon a proposal to ratify selection of
Deloitte & Touche LLP as independent auditors of the Fund for its
fiscal year ending October 31, 1995:
<S> <C> <C> <C>
MuniYield Arizona Fund, Inc. Common Stock shareholders 1,600,224 25,885 58,403
MuniYield Arizona Fund, Inc. Preferred Stock shareholders 560 0 4
MuniYield Arizona Fund II, Inc. Common Stock shareholders 1,130,287 18,454 20,573
MuniYield Arizona Fund II, Inc. Preferred Stock shareholders 466 0 0
</TABLE>
THE BENEFITS AND RISKS OF LEVERAGING
<PAGE>
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. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield 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.
PORTFOLIO ABBREVIATIONS
<PAGE>
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
LEVRRS Leveraged Reverse Rate Securities
PCR Pollution Control Revenue 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)
Arizona--86.0%
<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 $ 765
NR* A 2,920 Series B, 7% due 3/01/2003 3,175
NR* A 1,000 Subordinate Series, 5.70% due 12/01/2008 999
NR* Aaa 1,970 Arizona Health Facilities Authority, Hospital System Revenue Refunding Bonds
(Saint Luke's Health System), 7.25% due 11/01/2003 (h) 2,314
AAA Aaa 325 Arizona State Municipal Financing Program, COP, Series 34, 7.25% due 8/01/2009 (i) 389
Arizona State Power Authority, Power Resource Revenue Refunding Bonds
(Hoover Uprating Project) (a):
AAA Aaa 900 5.375% due 10/01/2013 890
AAA Aaa 1,725 5.25% due 10/01/2017 1,668
Arizona State Transportation Board, Highway Revenue Bonds (h):
AAA Aaa 1,480 6% due 7/01/2000 1,592
AA Aaa 1,500 Sub-Series A, 6.50% due 7/01/2001 1,670
AAA Aaa 4,500 Arizona State University, System Revenue Refunding Bonds, Series A, 5.50% due
7/01/2019 (a) 4,519
AA+ Aa 3,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds, 6.80% due 7/01/2011 3,326
<PAGE>
AAA Aaa 605 Gilbert, Arizona, Projects of 1988, UT, Series C, 8.50% due 7/01/2005 (a) 763
Glendale, Arizona, IDA, Educational Facilities Revenue Refunding Bonds
(American Graduate School International) (d):
AAA NR* 500 7% due 7/01/2014 569
AAA NR* 500 7.125% due 7/01/2020 570
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) 3,253
AAA Aaa 1,000 Maricopa County, Arizona, Chandler Unified School District Number 80 Refunding
Bonds, 6.25% due 7/01/2011 (c) 1,098
AAA Aaa 1,500 Maricopa County, Arizona, Gilbert Unified School District Number 41 Improvement
Bonds, Series C, UT, 6.10% due 7/01/2004(c)(h) 1,657
Maricopa County, Arizona, IDA, Health Facilities Revenue Bonds
(Catholic Health Care West), Series A (a):
AAA Aaa 5,500 5.625% due 7/01/2023 5,488
AAA Aaa 2,400 Refunding, 5% due 7/01/2015 2,232
Maricopa County, Arizona, IDA, Hospital Facility Revenue Refunding Bonds
(Samaritan Health Services Hospital), Series A (a):
AAA Aaa 500 7% due 12/01/2013 559
AAA Aaa 2,400 7% due 12/01/2016 2,839
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona (concluded)
<S> <S> <C> <S> <C>
A1+ P1 $ 100 Maricopa County, Arizona, PCR, Refunding (Arizona Public Service Co.), VRDN,
Series B, 3.90% due 5/01/2029 (b) $ 100
Maricopa County, Arizona, Peoria Unified School District Number 11 Refunding Bonds:
AAA Aaa 1,500 6.10% due 7/01/2010 (g) 1,586
AAA Aaa 1,000 6.40% due 7/01/2010 (a) 1,078
AA A1 1,245 Maricopa County, Arizona, Phoenix Elementary School District Number 001 Refunded
Bonds, UT, 6.60% due 7/01/2001 (h) 1,385
AA Aa 1,825 Maricopa County, Arizona, Scottsdale Unified School District Number 48 Improvement
Bonds, UT, 6.60% due 7/01/2012 2,083
<PAGE>
AAA Aaa 500 Maricopa County, Arizona, Tempe Elementary School District Number 3 Refunding and
Improvement Bonds, UT, 7.50% due 7/01/2010 (c) 614
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) 2,715
Phoenix, Arizona, Civic Improvement Corporation, Wastewater System Lease Revenue
Refunding Bonds:
A A1 500 5% due 7/01/2018 459
AAA Aaa 500 5% due 7/01/2018 (a) 464
Phoenix, Arizona, Refunding Bonds, Series A, UT:
AA+ Aa 1,485 6% due 7/01/2011 1,588
AA+ Aa 2,250 5% due 7/01/2019 2,086
AAA Aaa 1,000 Pima County, Arizona, Sewer Revenue Refunding Bonds, Series A, 5% due 7/01/2015(c) 943
AAA Aaa 3,050 Pima County, Arizona, Tucson Unified School District Number 1 Refunding Bonds,
7.50% due 7/01/2009 (c) 3,735
AA P1 700 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corporation), VRDN,
4% due 12/01/2009 (b) 700
Salt River Project, Arizona, Agricultural Improvement and Power District, Electric
System Revenue Bonds:
AA Aa 1,420 Refunding, Series B, 5.25% due 1/01/2019 1,335
AA Aa 3,065 Series A, 6.50% due 1/01/2022 3,297
AAA Aaa 1,000 Scottsdale, Arizona, IDA, Hospital Revenue Bonds (Scottsdale Memorial Hospital),
5.25% due 9/01/2018 (g) 951
AA+ Aa 825 Tempe, Arizona, Refunding Bonds, UT, Series A, 5.35% due 7/01/2010 824
AAA Aaa 1,000 Tempe, Arizona, Unified High School District Number 213, Revenue Refunding and
Improvement Bonds, UT, 7% due 7/01/2008 (c) 1,165
AAA Aaa 2,000 Tucson, Arizona, Local Development, Business Development Finance Corporation, Lease
Revenue Refunding Bonds, 6.25% due 7/01/2012 (c) 2,126
AAA Aaa 500 Tucson, Arizona, Refunding Bonds, 4.90% due 7/01/2013 (c) 466
AAA Aaa 1,000 Tucson, Arizona, UT, Series A, 5.375% due 7/01/2017 (a) 982
A+ A1 1,430 Tucson, Arizona, Water Revenue Refunding Bonds, 6.50% due 7/01/2016 1,531
AAA Aaa 3,000 University of Arizona Medical Center Corporation, Hospital Revenue Refunding Bonds,
5% due 7/01/2021 (a) 2,745
AA A1 1,345 University of Arizona, University Revenue Refunding Bonds, 6.25% due 6/01/2011 1,424
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Puerto Rico--12.1%
<S> <S> <C> <S> <C>
Puerto Rico Commonwealth, Aqueduct and Sewer Authority Revenue Bonds, Series A:
A Baa1 $1,000 7.875% due 7/01/2017 $ 1,115
A Baa1 1,500 7% due 7/01/2019 1,627
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, YCN, 7.792% due 7/01/2020 (e)(f) 2,007
A1+ VMIG1++ 400 Puerto Rico Commonwealth, Government Development Bank, Refunding Bonds, VRDN,
3.65% 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 551
Puerto Rico Electric Power Authority, Power Revenue Bonds:
AAA Aaa 2,000 LEVRRS, 7.988% due 7/01/2023 (e)(f) 2,020
A- Baa1 465 Refunding, Series N, 7.125% due 7/01/2014 507
A- Baa1 2,250 Series P, 7% due 7/01/2001 (h) 2,578
Total Investments (Cost--$83,414)--98.1% 87,522
Other Assets Less Liabilities--1.9% 1,663
-------
Net Assets--100.0% $89,185
=======
<FN>
(a)MBIA Insured.
(b)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at October 31, 1995.
(c)FGIC Insured.
(d)Connie Lee Insured.
(e)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 1995.
(f)FSA Insured.
(g)AMBAC Insured.
(h)Prerefunded.
(i)BIG Insured.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$83,413,870) (Note 1a) $87,521,934
Cash 66,441
Interest receivable 1,809,711
Deferred organization expenses (Note 1e) 12,280
Prepaid expenses and other assets 3,792
-----------
Total assets 89,414,158
-----------
Liabilities: Payables:
Dividends to shareholders (Note 1f) $ 74,169
Investment adviser (Note 2) 7,298 81,467
-----------
Accrued expenses and other liabilities 148,059
-----------
Total liabilities 229,526
-----------
Net Assets: Net assets $89,184,632
===========
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 (4,429,326
shares issued and outstanding) $ 442,933
Paid-in capital in excess of par 60,410,869
Undistributed investment income--net 306,862
Accumulated realized capital losses on investments--net
(Note 5) (6,384,096)
Unrealized appreciation on investments--net 4,108,064
-----------
Total--Equivalent to $13.29 net asset value per
Common Stock (market price--$11.75) 58,884,632
-----------
Total capital $89,184,632
===========
<FN>
*Auction Market Preferred Stock.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended October 31, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 3,894,632
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 331,002
Professional fees 67,467
Commission fees (Note 4) 59,368
Accounting services (Note 2) 44,160
Printing and shareholder reports 43,148
Transfer agent fees 34,523
Directors' fees and expenses 23,723
Custodian fees 7,530
Listing fees 6,187
Pricing fees 6,146
Amortization of organization expenses (Note 1e) 5,105
-----------
Total expenses before reimbursement 628,359
Reimbursement of expenses (Note 2) (264,802)
-----------
Total expenses after reimbursement 363,557
-----------
Investment income--net 3,531,075
-----------
Realized & Realized loss on investments--net (1,352,566)
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 7,081,388
(Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 9,259,897
(Notes 1b, 1d ===========
& 3):
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended Oct. 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 3,531,075 $ 1,829,657
Realized loss on investments--net (1,352,566) (1,485,923)
Change in unrealized appreciation/depreciation on
investments--net 7,081,388 (3,487,450)
----------- -----------
Net increase (decrease) in net assets resulting from
operations 9,259,897 (3,143,716)
----------- -----------
Dividends to Investment income--net:
Shareholders Common Stock (2,481,154) (1,391,922)
(Note 1f): Preferred Stock (875,977) (309,713)
----------- -----------
Net decrease in net assets resulting from dividends to
shareholders (3,357,131) (1,701,635)
----------- -----------
Capital Stock Proceeds from issuance of Preferred Stock resulting from
Transactions reorganization 17,350,000 --
(Note 1e & 4): Net proceeds from issuance of Common Stock resulting from
reorganization 31,828,468 --
Proceeds from issuance of Preferred Stock -- 12,950,000
Offering and underwriting costs resulting from the issuance of
Preferrred Stock -- (318,750)
Value of shares issued to Common Stock shareholders in
reinvestment of dividends -- 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 55,081,234 8,597,745
Beginning of year 34,103,398 25,505,653
----------- -----------
End of year* $89,184,632 $34,103,398
=========== ===========
<FN>
*Undistributed investment income--net $ 306,862 $ 132,918
=========== ===========
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived Oct. 29,
from information provided in the financial statements. For the Year 1993++ to
Ended October 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 1.03 0.99 --
Realized and unrealized gain (loss) on
investments--net 2.01 (2.68) --
-------- -------- --------
Total from investment operations 3.04 (1.69) --
-------- -------- --------
Less dividends to Common Stock shareholders:
Investment income--net (.77) (.75) --
-------- -------- --------
Capital charge resulting from issuance of
Common Stock (.05) -- (.07)
-------- -------- --------
Effect of Preferred Stock activity:++++
Dividends to Preferred Stock shareholders:
Investment income--net (.26) (.17) --
Capital charge resulting from issuance of
Preferred Stock -- (.17) --
-------- -------- --------
Total effect of Preferred Stock activity (.26) (.34) --
-------- -------- --------
Net asset value, end of period $ 13.29 $ 11.33 $ 14.11
======== ======== ========
Market price per share, end of period $ 11.75 $ 10.375 $ 15.00
======== ======== ========
Total Investment Based on market price per share 21.04% (26.55%) .00%+++
Return:** ======== ======== ========
Based on net asset value per share 25.37% (14.73%) (.49%)+++
======== ======== ========
Ratios to Average Expenses, net of reimbursement .55% .54% --
Net Assets:*** ======== ======== ========
Expenses .95% 1.09% --
======== ======== ========
Investment income--net 5.33% 5.13% .02%*
======== ======== ========
<PAGE>
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) $ 58,885 $ 21,153 $ 25,506
======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $ 30,300 $ 12,950 --
======== ======== ========
Portfolio turnover 75.93% 80.03% --
======== ======== ========
Dividends Per Series A--Investment income--net $ 953 $ 299 --
Share on Series B--Investment income--net 551 -- --
Preferred Stock
Outstanding:
<FN>
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
***Do not reflect the effect of dividends to Preferred 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 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.
<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 and options thereon, 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 and assets 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, including valuations furnished by a
pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio 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 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.
<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 premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). 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 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) 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, 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,
1995, FAM earned fees of $331,002, of which $264,802 was voluntarily
waived.
Accounting services are provided to the Fund by FAM at cost.
<PAGE>
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 year ended October 31, 1995 were $97,989,001 and
$49,566,677, respectively.
Net realized and unrealized gains (losses) as of October 31, 1995
were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $(1,401,343) $4,108,064
Financial futures contracts 48,777 --
----------- ----------
Total $(1,352,566) $4,108,064
=========== ==========
As of October 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $4,108,064, of which $4,301,274
related to appreci-ated securities and $193,210 related to
depreciated securities. The aggregate cost of investments at October
31, 1995 for Federal income tax purposes was $83,413,870.
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 holders of Common Stock.
Common Stock
For the year ended October 31, 1995, shares issued and outstanding
increased by 2,562,283 pursuant to a plan of reorganization. At
October 31, 1995, shares issued and outstanding amounted to
4,429,326 and total paid-in capital amounted to $60,853,802.
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 October 31, 1995 were as
follows: Series A, 3.55% and Series B, 3.65%.
<PAGE>
In addition, AMPS shares increased by 694 pursuant to a plan of
reorganization. As a result, as of October 31, 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 $2,282.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate of ranging from 0.25% to 0.375%
calculated on the proceeds of each auction. For the year ended
October 31, 1995, MLPF&S, an affiliate of FAM, earned $38,438 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a capital loss carryforward of
approximately $6,036,000, of which $2,708,000 expires in 2002 and
$3,328,000 expires in 2003. This amount will be available to offset
like amounts of any future taxable gains.
NOTES TO FINANCIAL STATEMENTS (concluded)
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 acquisition was accomplished by a tax-free
exchange of 2,562,283 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 November 13, 1995, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $0.067645 per share, payable on November 29, 1995 to shareholders
of record as of November 24, 1995.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
<PAGE>
The Board of Directors and Shareholders of
MuniYield Arizona Fund, Inc. (formerly MuniYield
Arizona Fund II, 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, 1995, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the the two-year period then ended, and the
financial highlights for each of the years in the two-year period
then ended and for the period October 29, 1993 (commencement of oper-
ations) 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.
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, 1995 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, 1995, 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 4, 1995
</AUDIT-REPORT>
PER SHARE INFORMATION (unaudited)
<PAGE>
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Dividends/Distributions
Net Realized Unrealized
Investment Gains Gains Net Investment Income Capital Gains
For the Quarter Income (Losses) (Losses) Common Preferred Common Preferred
<S> <C> <C> <C> <C> <C> <C> <C>
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 -- --
May 1, 1995 to July 31, 1995 .26 (.47) .33 .20 .07 -- --
August 1, 1995 to October 31, 1995 .26 .54 .49 .20 .06 -- --
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
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 10.24 11.625 9.25 212
February 1, 1995 to April 30, 1995 12.75 11.97 11.75 10.75 330
May 1, 1995 to July 31, 1995 13.30 12.37 12.375 10.625 609
August 1, 1995 to October 31, 1995 13.39 12.54 12.25 11.50 313
<FN>
*Calculations are based upon shares of Common Stock outstanding at
the end of each quarter.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
<PAGE>
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, 1995 qualify as tax-exempt interest dividends for Federal income
tax purposes. Additionally, there were no capital gains distributed
by the Fund during the year.
Please retain this information for your records.
