MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Semi-Annual Report
April 30, 1996
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
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Kenneth A. Jacob, Vice President
Hugh T. Hurley III, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, 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 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. Statements and other information
herein are as dated and are subject to change.
MuniYield Arizona Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield Arizona Fund, Inc.
TO OUR SHAREHOLDERS
<PAGE>
For the six-month period ended April 30, 1996, the Common Stock of
MuniYield Arizona Fund, Inc. earned $0.385 per share income
dividends, which included earned and unpaid dividends of $0.063.
This represents a net annualized yield of 6.00%, based on a month-
end per share net asset value of $12.86. Over the same period, the
total investment return on the Fund's Common Stock was -0.21%, based
on a change in per share net asset value from $13.29 to $12.86, and
assuming reinvestment of $0.389 per share income dividends.
For the six-month period ended April 30, 1996, the Fund's Auction
Market Preferred Stock had an average yield of 3.48% for Series A
and 3.56% for Series B.
The Environment
Investor perceptions regarding the US economy changed over the
course of the six-month period ended April 30, 1996. As 1995 drew to
a close and 1996 began, it appeared that the US economy was losing
momentum. Lackluster retail sales, increases in initial unemployment
claims (along with weak job and income growth), and evidence of
slowing in the manufacturing sector all suggested that the rate of
economic growth was decelerating, with some forecasters even
suggesting the possibility of an imminent recession.
However, the consensus outlook for the rate of future economic
growth changed dramatically with the report of stronger-than-
expected employment data for February and March. As a result,
investors began to anticipate renewed economic growth. Long-term
interest rates rose, and the Federal Reserve Board left monetary
policy on hold. Adding to investor concerns was the report that the
Knight Ridder-Commodity Research Bureau Index was near an eight-year
high, largely because of an increase in agricultural prices and an
upward spike in the price of crude oil.
Investors are likely to continue to focus on the probable direction
of economic activity and Federal Reserve Board monetary policy in
the weeks ahead. At this time, inflationary pressures do not seem to
be building and the capital spending, housing and consumption
sectors are still relatively weak, which suggest that the economy is
not on the verge of overheating. Nevertheless, it is likely that
further indications of stronger economic activity in the weeks ahead
may add to investor concerns that accelerating economic activity
could lead to higher inflation and interest rates.
<PAGE>
The Municipal Market
During the six months ended April 30, 1996, tax-exempt bond yields
rose as investors became increasingly concerned that recent economic
growth would reignite inflationary pressures. Through early February
1996, municipal bond yields continued their earlier declines
supported by continued moderate economic growth and favorable
inflationary expectations. As measured by the Bond Buyer Revenue
Bond Index, yields on uninsured, A-rated municipal revenue bonds
declined an additional 30 basis points (0.30%) to 5.70% by early
February. As signs of emerging economic growth became more numerous,
particularly with the release of the strong March employment
figures, inflation fears increased and bond yields rose in response
for the remainder of the six-month period ended April 30, 1996. At
April 30, 1996, long-term municipal bond yields were approximately
6.30%, an increase of approximately 30 basis points over the last
six months. The rise in US Treasury bond yields was more
substantial. Over the last six months, yields on US Treasury
securities rose approximately 60 basis points to 6.90%. During the
April period, the municipal bond market reversed the trend seen
throughout much of 1995 and significantly outperformed the US
Treasury bond market.
The municipal bond market's recent outperformance was largely the
result of two principal factors. First, and perhaps more important,
much of the earlier concern regarding proposed changes in Federal
income tax codes and their effect on the tax treatment of tax-exempt
bond income has dissipated. As the negative revenue impact of the
various proposals, such as the flat tax, became apparent, the
likelihood of immediate reform quickly diminished. When the Kemp
Commission dealing with Federal income tax reform released its
findings early in 1996, the obvious need for reform was highlighted.
However, no specific recommendations of a flat tax, value-added tax
or any other reform were made. Consequently, fears of losing the
favored tax treatment of municipal bond income declined even
further. As a percentage of Treasury bond yields, tax-exempt bond
yield ratios quickly declined from 95% to approximately 90%. This
allowed the municipal bond market to maintain much of the gains made
since early 1995.
The second major factor leading to the municipal bond market's
recent improvement was the return of a more favorable technical
environment. Over the past six months, approximately $90 billion in
municipal securities were underwritten, an increase of approximately
45% versus the comparable period a year earlier. However, much of
this increase was biased by recent underwritings dedicated toward
refinancing. Like individual homeowners, municipal issuers sought to
refinance their existing higher-couponed debt as tax-exempt bond
yields declined from their highs in 1995. In recent months such
refinancings were estimated to represent at least 50% of total
issuance. However, the recent rise in tax-exempt interest rates
slowed the pace of such refinancings. Over the last three months
approximately $40 billion in long-term tax-exempt securities were
underwritten, an increase of 35% compared to the same period a year
ago. At current interest rate levels large amounts of refundings are
unlikely and the rate of new bond issuance should continue to
decline.
<PAGE>
Additionally, investors continue to receive significant amounts of
assets derived from coupon income, bond maturities, and proceeds
from early redemptions. In recent months investors received over $30
billion in such assets. These cash flows helped maintain individual
retail investor demand in recent months. Additionally, major
institutional investors, such as certain insurance companies whose
underwriting profits were cyclically high, demonstrated significant
ongoing interest in the tax-exempt bond market, particularly on
higher-quality securities. Individual and institutional investor
demand was strong enough during the six-month period ended April 30,
1996 to absorb the relative increase in bond issuance.
Looking ahead, we believe the municipal bond market is likely to
continue to outperform the US Treasury market. Investor demand
should remain adequate to absorb new bond issuance. It is also
unlikely that the rapid pace of issuance seen thus far in 1996 will
be maintained. The recent rise in yields made further bond
refinancings economically unfeasible. Since these refinancings were
the driving force of recent bond issuance, as the amount of these
refundings decline, overall issuance should decline. This should
allow the current demand/supply balance to be easily maintained in
upcoming months.
Additionally, as a percentage of US Treasury bond yields, long-term
municipal bond yields remain historically attractive. It is likely
that recent interest rate increases will have a negative impact on
economic growth, perhaps as early as late summer 1996. With long-
term mortgage rates above 8%, the domestic housing sector has
already indicated signs of slower growth. If other interest rate
sectors of the economy, such as the automobile industry, begin to
show similar adverse effects, taxable interest rates would be poised
to resume their decline. With long-term tax-exempt revenue bonds
yielding approximately 90% of their taxable counterparts, municipal
bond yields are poised to decline further.
Portfolio Strategy
We entered the six-month period ended April 30, 1996 expecting
interest rates to continue to decline as they had done for much of
1995 since the economy was showing continued signs of sluggishness
and it appeared that an agreement to balance the Federal budget was
imminent. The Federal Reserve Board saw these signs as well and
reduced the Federal Funds rate by 50 basis points to 5.25% in
January. The fixed-income markets rallied on this news and
anticipated further interest rate cuts.
To take advantage of this positive environment for bonds, we reduced
the Fund's cash reserve position and extended its duration so that
it could fully participate in the ensuing increase of bond prices.
However, with the higher-than-expected rate of job growth reported
in March, fixed-income prices declined sharply. We quickly reversed
our investment strategy to seek to preserve capital. To do this, we
cut the Fund's exposure to the bond market by raising cash. As the
municipal market has started to settle in at higher yields, we have
begun to invest in quality bonds at much higher yield levels than
was possible only a short time ago.
<PAGE>
Looking ahead, we will continue to focus on signs of growth and
possible inflation in the economy. Absent growth and inflation, the
municipal market may be poised for a substantial rally.
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
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
<PAGE>
May 30, 1996
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. 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.
<PAGE>
Portfolio Abbreviations
To simplify the listings of MuniYield Arizona Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the
names of many of the securities according to the list below and at
right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
IDA Industrial Development Authority
LEVRRS Leveraged Reverse Rate Securities
LT Limited Tax
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--85.4%
<S> <S> <C> <S> <C>
Arizona Educational Loan Marketing Corporation, Educational Loan Revenue
Bonds, AMT, Series B:
NR* A $ 700 7% due 3/01/2002 $ 743
NR* A 2,920 7% due 3/01/2003 3,106
NR* Aaa 1,915 Arizona Health Facilities Authority, Hospital System Revenue Refunding
Bonds (Saint Luke's Health System), 7.25% due 11/01/2003 (h) 2,149
AAA Aaa 325 Arizona State Municipal Financing Program, COP, Series 34, 7.25% due
8/01/2009 (i) 384
AAA Aaa 900 Arizona State Power Authority, Power Resource Revenue Refunding Bonds
(Hoover Uprating Project), 5.375% due 10/01/2013 (a) 875
<PAGE>
Arizona State Transportation Board, Highway Revenue Bonds (h):
AAA Aaa 1,500 7% due 7/01/2000 1,649
AA Aaa 1,400 Sub-Series B, 6.50% due 7/01/2002 1,543
AAA Aaa 750 Arizona State University, Research Park Development Revenue Refunding Bonds,
5% due 7/01/2021 (a) 668
AA+ Aa 3,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds, 6.80% due 7/01/2011 3,272
AAA Aaa 605 Gilbert, Arizona, GO, Projects of 1988, UT, Series C, 8.50% due 7/01/2005 (a) 748
Glendale, Arizona, IDA, Educational Facilities Revenue Refunding Bonds
(American Graduate School International) (d):
AAA NR* 500 7% due 7/01/2014 548
AAA NR* 500 7.125% due 7/01/2020 551
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) 3,189
AAA Aaa 1,000 Maricopa County, Arizona, Chandler Unified School District Number 80 Refunding
Bonds, 6.25% due 7/01/2011 (c) 1,079
AAA Aaa 2,000 Maricopa County, Arizona, Gilbert Unified School District Number 41 Improvement
Bonds, Series C, UT, 6.10% due 7/01/2004 (c)(h) 2,149
AAA Aaa 3,000 Maricopa County, Arizona, IDA, Health Facilities Revenue Bonds
(Catholic Health Care West), Series A, 5.625% due 7/01/2023 (a) 2,897
Maricopa County, Arizona, IDA, Hospital Facility Revenue Refunding Bonds
(Samaritan Health Services Hospital), Series A (a):
AAA Aaa 500 7% due 12/01/2013 542
AAA Aaa 2,400 7% due 12/01/2016 2,778
Maricopa County, Arizona, Paradise Valley Unified School District No. 69, UT (a):
AAA Aaa 3,100 Projects of 1994, Series B, 5.25% due 7/01/2015 2,911
AAA Aaa 1,500 Refunding Bonds, 5.30% due 7/01/2011 1,461
AAA Aaa 1,500 Maricopa County, Arizona, Peoria Unified School District Number 11 Refunding
Bonds, 6.10% due 7/01/2010 (g) 1,573
AA A1 1,245 Maricopa County, Arizona, Phoenix Elementary School District Number 1 Revenue
Bonds, UT, 6.60% due 7/01/2001 (h) 1,361
AA Aa 1,825 Maricopa County, Arizona, Scottsdale Unified School District Number 48
Improvement Bonds, UT, 6.60% due 7/01/2012 2,038
AAA Aaa 500 Maricopa County, Arizona, Tempe Elementary School District Number 3 Refunding
and Improvement Bonds, UT, 7.50% due 7/01/2010 (c) 598
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) 2,659
<PAGE>
AAA Aaa 2,175 Phoenix, Arizona, Airport Revenue Refunding Bonds, Series A, 5.75% due 7/01/2002
(a) 2,292
</TABLE>
<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>
Phoenix, Arizona, Civic Improvement Corporation, Wastewater System Lease
Revenue Bonds:
AAA NR* $ 3,000 6.125% due 7/01/2003 (h) $ 3,268
A A1 500 Refunding, 5% due 7/01/2018 437
AAA Aaa 800 Refunding, 5% due 7/01/2018 (a) 717
AA+ Aa1 2,000 Phoenix, Arizona, GO, Series B, UT, 5% due 7/01/2020 1,779
Phoenix, Arizona, Refunding Bonds, Series A, UT:
AA+ Aa1 1,485 6% due 7/01/2011 1,567
AA+ Aa1 1,000 5.25% due 7/01/2012 965
AA+ Aa1 2,250 5% due 7/01/2019 1,991
AAA Aaa 1,500 Pima County, Arizona, Sewer Revenue Refunding Bonds, Series A, 5% due
7/01/2015 (c) 1,365
AAA Aaa 3,050 Pima County, Arizona, Tucson Unified School District Number 1 Refunding
Bonds, LT, 7.50% due 7/01/2009 (c) 3,677
AA P1 200 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corporation),
VRDN, 4.05% due 12/01/2009 (b) 200
AA Aa 3,165 Salt River Project, Arizona, Agricultural Improvement and Power District,
Electric System Revenue Bonds, Series A, 6.50% due 1/01/2022 3,289
AAA Aaa 1,000 Scottsdale, Arizona, IDA, Hospital Revenue Bonds (Scottsdale Memorial Hospital),
5.25% due 9/01/2018 (g) 914
AA+ Aa 825 Tempe, Arizona, Refunding Bonds, UT, Series A, 5.35% due 7/01/2010 812
AAA Aaa 1,000 Tempe, Arizona, Unified High School District Number 213 Refunding and
Improvement Bonds, UT, 7% due 7/01/2008 (c) 1,156
<PAGE>
AAA Aaa 1,000 Tucson, Arizona, GO, UT, Series A, 5.375% due 7/01/2017 (a) 951
AAA Aaa 2,000 Tucson, Arizona, Local Development, Business Development Finance Corporation,
Lease Revenue Refunding Bonds, 6.25% due 7/01/2012 (c) 2,089
A+ A1 1,430 Tucson, Arizona, Water Revenue Refunding Bonds, 6.50% due 7/01/2016 1,502
AAA Aaa 3,000 University of Arizona Medical Center Corporation, Hospital Revenue Refunding
Bonds, 5% due 7/01/2021 (a) 2,637
AA A1 1,345 University of Arizona, University Revenue Refunding Bonds, 6.25% due 6/01/2011 1,398
Puerto Rico--11.1%
Puerto Rico Commonwealth, Aqueduct and Sewer Authority Revenue Bonds,
Series A (h):
AAA Baa1 1,500 7% due 7/01/1998 1,616
AAA Baa1 1,000 7.875% due 7/01/1998 1,096
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, YCN, 7.832% due 7/01/2020 (e)(f) 1,913
A Baa1 520 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, Series T, 6.625% due 7/01/2002 (h) 578
Puerto Rico Electric Power Authority, Power Revenue Bonds:
AAA Aaa 2,000 LEVRRS, 8.267% due 7/01/2023 (e)(f) 1,960
A- Aaa 2,250 Series P, 7% due 7/01/2001 (h) 2,525
Total Investments (Cost--$82,658)--96.5% 84,165
Other Assets Less Liabilities--3.5% 3,082
-------
Net Assets--100.0% $87,247
=======
<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 April 30, 1996.
(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 April 30, 1996.
(f)FSA Insured.
(g)AMBAC Insured.
(h)Prerefunded.
(i)BIG Insured.
*Not Rated.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$82,657,997) (Note 1a) $84,165,331
Cash 75,275
Receivables:
Interest $ 1,630,817
Securities sold 1,485,980 3,116,797
-----------
Deferred organization expenses (Note 1e) 12,280
Prepaid expenses and other assets 3,926
-----------
Total assets 87,373,609
-----------
Liabilities: Payables:
Dividends to shareholders (Note 1f) 73,032
Investment adviser (Note 2) 21,526 94,558
-----------
Accrued expenses and other liabilities 31,974
-----------
Total liabilities 126,532
-----------
Net Assets: Net assets $87,247,077
===========
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 60,342,318
Undistributed investment income--net 286,654
Accumulated realized capital losses on investments--net (Note 5) (5,632,162)
Unrealized appreciation on investments--net 1,507,334
-----------
Total--Equivalent to $12.86 net asset value per share of
Common Stock (market price--$12.125) 56,947,077
-----------
Total capital $87,247,077
===========
<PAGE>
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended April 30, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,486,763
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 222,875
Professional fees 37,691
Commission fees (Note 4) 28,793
Accounting services (Note 2) 24,518
Printing and shareholder reports 18,371
Transfer agent fees 16,635
Directors' fees and expenses 11,373
Listing fees 4,263
Custodian fees 4,040
Pricing fees 3,551
Amortization of organization expenses (Note 1e) 2,005
Other 6,749
-----------
Total expenses before reimbursement 380,864
Reimbursement of expenses (Note 2) (129,597)
-----------
Total expenses after reimbursement 251,267
-----------
Investment income--net 2,235,496
-----------
Realized & Realized gain on investments--net 751,934
Unrealized Gain Change in unrealized appreciation on investments--net (2,600,730)
(Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 386,700
(Notes 1b, ===========
1d & 3):
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 2,235,496 $ 3,531,075
Realized gain (loss) on investments--net 751,934 (1,352,566)
Change in unrealized appreciation/depreciation on investments--net (2,600,730) 7,081,388
----------- -----------
Net increase in net assets resulting from operations 386,700 9,259,897
----------- -----------
Dividends to Investment income--net:
Shareholders Common Stock (1,723,362) (2,481,154)
(Note 1f): Preferred Stock (532,342) (875,977)
----------- -----------
Net decrease in net assets resulting from dividends to
shareholders (2,255,704) (3,357,131)
----------- -----------
Capital Stock Proceeds from issuance of Preferred Stock resulting from
Transactions reorganization -- 17,350,000
(Notes 1e & 4): Net proceeds from issuance of Common Stock resulting from
reorganization -- 31,828,468
Offering costs from issuance of Common Stock resulting from
reorganization (68,551) --
----------- -----------
Net increase (decrease) in net assets derived from capital stock
transactions (68,551) 49,178,468
----------- -----------
Net Assets: Total increase (decrease) in net assets (1,937,555) 55,081,234
Beginning of period 89,184,632 34,103,398
----------- -----------
End of period* $87,247,077 $89,184,632
=========== ===========
<FN>
*Undistributed investment income--net $ 286,654 $ 306,862
=========== ===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
For the For the
Six Period
The following per share data and ratios have been derived Months Oct. 29,
from information provided in the financial statements. Ended For the Year 1993++ to
April 30, Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.29 $ 11.33 $ 14.11 $ 14.18
Operating -------- -------- -------- --------
Performance: Investment income--net .50 1.03 .99 --
Realized and unrealized gain (loss) on investments--net (.40) 2.01 (2.68) --
-------- -------- -------- --------
Total from investment operations .10 3.04 (1.69) --
-------- -------- -------- --------
Less dividends to Common Stock shareholders:
Investment income--net (.39) (.77) (.75) --
-------- -------- -------- --------
Capital charge resulting from issuance of Common Stock (.02) (.05) -- (.07)
-------- -------- -------- --------
Effect of Preferred Stock activity:++++
Dividends to Preferred Stock shareholders:
Investment income--net (.12) (.26) (.17) --
Capital charge resulting from issuance of Preferred
Stock -- -- (.17) --
-------- -------- -------- --------
Total effect of Preferred Stock activity (.12) (.26) (.34) --
-------- -------- -------- --------
Net asset value, end of period $ 12.86 $ 13.29 $ 11.33 $ 14.11
======== ======== ======== ========
Market price per share, end of period $ 12.125 $ 11.75 $ 10.375 $ 15.00
======== ======== ======== ========
Total Investment Based on market price per share 6.45%+++ 21.04% (26.55%) .00%+++
Return:** ======== ======== ======== ========
Based on net asset value per share (.21%)+++ 25.37% (14.73%) (.49%)+++
======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .56%* .55% .54% --
Net Assets:*** ======== ======== ======== ========
Expenses .85%* .95% 1.09% --
======== ======== ======== ========
Investment income--net 5.00%* 5.33% 5.13% .02%*
======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) $ 56,947 $ 58,885 $ 21,153 $ 25,506
======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $ 30,300 $ 30,300 $ 12,950 --
======== ======== ======== ========
Portfolio turnover 21.76% 75.93% 80.03% --
======== ======== ======== ========
<PAGE>
Leverage: Asset coverage per $1,000 $ 2,879 $ 2,943 $ 2,633 --
======== ======== ======== ========
Dividends Series A--Investment income--net $ 434 $ 953 $ 598 --
Per Share on ======== ======== ======== ========
Preferred Stock Series B--Investment income--net $ 443 $ 551 -- --
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 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") is registered 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 management,
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 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.
* 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).
<PAGE>
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 issuance of Common
Stock resulting from the reorganization were charged to capital.
(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 six months ended April
30, 1996, FAM earned fees of $222,875, of which $129,597 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, 1996 were $18,821,647 and
$19,150,052, respectively.
<PAGE>
Net realized and unrealized gains as of April 30, 1996 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 666,140 $1,507,334
Financial futures contracts 85,794 --
---------- ----------
Total $ 751,934 $1,507,334
========== ==========
As of April 30, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $1,507,334, of which $2,578,186 related to
appreciated securities and $1,070,852 related to depreciated
securities. The aggregate cost of investments at April 30, 1996 for
Federal income tax purposes was $82,657,997.
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 six months ended April 30, 1996, shares issued and
outstanding remained constant at 4,429,326. At April 30, 1996, total
paid-in capital amounted to $60,785,251.
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, 1996 were as
follows: Series A, 3.85% and Series B, 3.75%.
As of April 30, 1996, there were 1,212 AMPS shares authorized,
issued and outstanding, with a liquidation preference of $25,000 per
share.
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, 1996, MLPF&S, an affiliate of FAM, earned $16,949 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a net 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.
<PAGE>
6. Subsequent Event:
On May 10, 1996, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$0.063096 per share, payable on May 30, 1996 to shareholders of
record as of May 21, 1996.
