MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Semi-Annual Report
April 30, 1997
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.
<PAGE>
MuniYield Arizona Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield Arizona Fund, Inc.
TO OUR SHAREHOLDERS
For the six-month period ended April 30, 1997, the Common Stock of
MuniYield Arizona Fund, Inc. earned $0.358 per share income
dividends, which included earned and unpaid dividends of $0.057.
This represents a net annualized yield of 5.61%, based on a month-
end per share net asset value of $12.87. Over the same period, the
total investment return on the Fund's Common Stock was +1.49%, based
on a change in per share net asset value from $13.06 to $12.87, and
assuming reinvestment of $0.362 per share income dividends.
For the six-month period ended April 30, 1997, the Fund's Auction
Market Preferred Stock had an average yield of 3.31% for Series A
and 3.38% for Series B.
<PAGE>
The Municipal Market Environment
Long-term tax-exempt revenue bonds traded in a relatively narrow
range throughout much of the six months ended April 30, 1997. By mid-
January 1997, municipal bond yields had risen to over 6% as
investors reacted negatively to reports of progressively stronger
domestic economic growth. However, a continued lack of any material
inflationary pressures allowed bond yields to decline to their prior
levels by late February. Bond yields rose again as investors became
increasingly concerned that the US domestic economic strength seen
thus far in 1997 would continue and that the increase in short-term
interest rates administered by the Federal Reserve Board (FRB) in
late March would be the first in a series of such moves designed to
slow the US economy before any dormant inflationary pressures were
awakened. Long-term tax-exempt bond yields rose approximately 15
basis points (0.15%) to almost 6.15% by mid-April. Similarly, long-
term US Treasury bond yields rose over 35 basis points over the same
period to 7.16%. However, in late April economic indicators were
released showing that despite considerable economic growth, any
inflationary pressures, particularly those associated with wage
increases, were well-contained and of no immediate concern. Fixed-
income bond prices staged a significant rally during the last week
of April with long-term US Treasury bond yields falling nearly 20
basis points to end the month at 6.95%. Municipal bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined nearly 15
basis points to stand at 6.01% by April 30, 1997.
As in recent quarters, the relative stability of long-term tax-
exempt bond yields was supported by low levels of new municipal bond
issuance. Over the past six months, approximately $90 billion in
long-term tax-exempt bonds was underwritten, a decline of more than
6% versus the corresponding period a year earlier. During the three-
month period ended April 30, 1997, $41 billion in new long-term
municipal bonds was issued, also a 6% decline in issuance as
compared to the three months ended April 30, 1996. Overall investor
demand has remained strong, particularly from property and casualty
insurance companies and individual retail investors. In recent
years, investor demand has increased whenever tax-exempt bond yields
have approached or exceeded the 6% level as they have in the past
few months.
Additionally, in recent months much of the new bond issuance was
dominated by a number of larger issues. These included $710 million
in New York City water bonds, $600 million in state of California
bonds, $1 billion in New York City general obligation bonds, $435
million in Dade County, Florida water and sewer revenue bonds, $450
million in Puerto Rico Electric Authority issues, and $930 million
in Port Authority of New York and New Jersey issues. These bonds
have typically been issued in states with relatively high state
income taxes and consequently generally were underwritten at yields
that were relatively unattractive to residents in other states. This
has exacerbated the general decline in overall issuance in recent
years, making the decrease in supply even more dramatic for general
market investors.
<PAGE>
The present economic situation remains nearly ideal. The domestic
economy continues to grow steadily with little, if any, sign of a
resurgence in inflation. Recent economic growth generated
considerable unexpected tax revenues for the Federal government.
Forecasts for the 1997 Federal fiscal deficit were reduced to under
$100 billion, a level not seen since the early 1980s. Such a reduced
Federal deficit enhances the prospect for a balanced Federal budget.
All of these factors support a scenario of steady, or even falling,
interest rates in the coming years. Present annual estimates of
future municipal bond issuance remain centered around $175 billion,
indicating that the current relative scarcity of tax-exempt bonds
should continue for at least the remainder of the year. Should
interest rates begin to decline later this year, either as the
result of a balanced Federal budget or continued benign inflation,
investors are unlikely to be able to purchase long-term municipal
bonds at their currently attractive levels.
Portfolio Strategy
During the past six months, we generally have maintained a neutral
outlook on the market. While we have witnessed strong economic
growth data, they were coupled with low inflation numbers. Low
inflation is typically good news for fixed-income investments while
strong economic growth is not. Anticipating potential inflationary
pressures, the FRB raised short-term interest rates in March. This
move and any further interest rate hikes may eventually slow the
economy and start a downward trend in interest rates.
Until the economy starts to show signs of a real slowdown, we expect
the municipal bond market to trade in a narrow range. However, with
the backdrop of a promised balanced budget agreement out of
Washington, yields may have a downward bias. We will continue to buy
higher-couponed, defensively structured bonds balanced by discount
coupon bonds in the 15-year--20-year maturity range. This strategy
is expected to allow us to provide an attractive tax-exempt dividend
while muting potential volatility in the municipal bond marketplace.
We expect rates of our Auction Market Preferred Stock to return to
the 3.50%--3.75% range rather than their recent seasonal level of
4%. Should this occur, the leverage of the Auction Market Preferred
Stock will be augmented even more to increase the dividend to the
Common Stock shareholder. However, should the spread between short-
term and long-term tax-exempt interest rates narrow, the benefits of
leverage will decline and the yield on the Fund's Common Stock will
be reduced. (For a complete explanation of the benefits and risks of
leveraging, see page 3 of this report to shareholders.)
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.
<PAGE>
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
May 27, 1997
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.
<PAGE>
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 pickup on the
Common Stock will be reduced or eliminated completely. At the same
time, the market value of the fund's Common Stock (that is, its
price as listed on the American Stock Exchange) may, as a result,
decline. Furthermore, if long-term interest rates rise, the Common
Stock's net asset value will reflect the full decline in the price
of the portfolio's investments, since the value of the fund's
Preferred Stock does not fluctuate. In addition to the decline in
net asset value, the market value of the fund's Common Stock may
also decline.
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
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
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>
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--89.5%
<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 $ 745
NR* A 2,920 7% due 3/01/2003 3,121
Arizona Health Facilities Authority, Hospital System Revenue Bonds:
AAA Aaa 2,000 (Northern Arizona Healthcare), Series A, 5.25% due 10/01/2026 (a) 1,859
NR* Aaa 1,865 Refunding (Saint Luke's Health Systems), 7.25% due 11/01/2003 (h) 2,072
AAA Aaa 325 Arizona State Municipal Financing Program, COP, Series 34, 7.25% due 8/01/2009 (i) 380
AA Aaa 1,400 Arizona State Transportation Board, Highway Revenue Bonds, Sub-Series B,
6.50% due 7/01/2002 (h) 1,524
AAA Aaa 750 Arizona State University, Research Park Development, Revenue Refunding Bonds,
5% due 7/01/2021 (a) 684
AA+ Aa1 3,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds (City of Phoenix), 6.80% due 7/01/2011 3,307
<PAGE>
Chandler, Arizona, Water and Sewer Revenue Bonds (a):
AAA Aaa 1,000 6.50% due 7/01/2014 1,076
AAA Aaa 1,000 5.25% due 7/01/2016 956
BBB- NR* 1,750 Coconino County, Arizona, Pollution Control Corporation, PCR (Nevada Power Co.
Project), AMT, 6.375% due 10/01/2036 1,735
AAA Aaa 605 Gilbert, Arizona, Projects of 1988, GO, UT, Series C, 8.50% due 7/01/2005 (a) 749
Glendale, Arizona, IDA, Educational Facilities Revenue Refunding Bonds
(American Graduate School International) (d):
AAA NR* 500 7% due 7/01/2005 (h) 570
AAA NR* 500 7.125% due 7/01/2005 (h) 574
AAA NR* 500 5.875% due 7/01/2015 504
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona (continued)
<S> <S> <C> <S> <C>
AAA Aaa $2,920 Maricopa County, Arizona, Alhambra Elementary School District Number 68
Refunding Bonds, UT, Series A, 6.80% due 7/01/2011 (g) $ 3,165
AAA Aaa 1,000 Maricopa County, Arizona, Chandler Unified School District Number 80 Refunding
Bonds, 6.25% due 7/01/2011 (c) 1,085
AAA Aaa 2,000 Maricopa County, Arizona, Gilbert Unified School District Number 41 Improvement
Bonds, UT, Series C, 6.10% due 7/01/2004 (c)(h) 2,142
Maricopa County, Arizona, IDA, Hospital Facility Revenue Refunding Bonds
(Samaritan Health Services Hospital), Series A (a):
AAA Aaa 500 7% due 12/01/2013 538
AAA Aaa 2,400 7% due 12/01/2016 2,787
AAA Aaa 1,000 Maricopa County, Arizona, Mesa Unified School District Number 4, Project of 1995,
UT, Series B, 5% due 7/01/2012 (c) 950
AAA Aaa 2,600 Maricopa County, Arizona, Paradise Valley Unified School District Number 69,
Project of 1994, UT, Series B, 5.25% due 7/01/2015 (a) 2,480
AAA Aaa 1,500 Maricopa County, Arizona, Peoria Unified School District Number 11 Refunding Bonds,
6.10% due 7/01/2010 (g) 1,575
BB+ Ba1 2,500 Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding (Public
Service Company of New Mexico Project), Series A, 6.30% due 12/01/2026 2,463
<PAGE>
AA Aa 1,825 Maricopa County, Arizona, Scottsdale Unified School District Number 48 Improvement
Bonds, UT, 6.60% due 7/01/2012 2,044
AAA Aaa 500 Maricopa County, Arizona, Tempe Elementary School District Number 3, Refunding and
Improvement Bonds, UT, 7.50% due 7/01/2010 (c) 593
AAA Aaa 4,000 Mesa, Arizona, Utilities System Revenue Bonds, 6.125% due 7/01/2013 (c) 4,209
AAA Aaa 1,000 Mohave County, Arizona, IDA, Hospital System Revenue Bonds (Baptist Hospital),
5.50% due 9/01/2021 (a) 964
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) 2,718
Phoenix, Arizona, Civic Improvement Corporation, Wastewater System, Lease Revenue
Refunding Bonds:
A A1 500 5% due 7/01/2018 452
AAA Aaa 800 5% due 7/01/2018 (a) 730
Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue Bonds,
Junior Lien:
AA- Aa 1,000 5.60% due 7/01/2017 987
AA- Aa 1,000 6% due 7/01/2019 1,018
AA+ Aa1 2,000 Phoenix, Arizona, GO, UT, Series B, 5% due 7/01/2020 1,843
Phoenix, Arizona, Refunding Bonds, UT, Series A:
AA+ Aa1 1,485 6% due 7/01/2011 1,578
AA+ Aa1 4,285 5% due 7/01/2019 3,930
AAA Aaa 1,000 Pima County, Arizona, IDA, Revenue Refunding Bonds (Healthpartners), Series A,
5.625% due 4/01/2014 (a) 990
AAA Aaa 1,500 Pima County, Arizona, Sewer Revenue Refunding Bonds, Series A, 5% due 7/01/2015 (c) 1,385
</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>
AAA Aaa $3,050 Pima County, Arizona, Tucson Unified School District Number 1, Refunding Bonds, LT,
7.50% due 7/01/2009 (c) $ 3,638
A1+ P1 2,700 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corp.), VRDN,
4.60% due 12/01/2009 (b) 2,700
<PAGE>
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 3,366
AA+ Aa1 825 Tempe, Arizona, Refunding Bonds, GO, UT, Series A, 5.35% due 7/01/2010 824
AAA Aaa 1,000 Tempe, Arizona, Unified High School District Number 213 Refunding and Improvement
Bonds, UT, 7% due 7/01/2008 (c) 1,152
AAA Aaa 1,000 Tucson, Arizona, GO, UT, Series A, 5.375% due 7/01/2017 (a) 966
AAA Aaa 2,000 Tucson, Arizona, Local Business Development Finance Corporation, Lease Revenue
Refunding Bonds, 6.25% due 7/01/2012 (c) 2,096
A+ A1 1,430 Tucson, Arizona, Water Revenue Refunding Bonds, 6.50% due 7/01/2016 1,523
AA A1 1,345 University of Arizona, University Revenue Refunding Bonds, 6.25% due 6/01/2011 1,423
Puerto Rico--8.1%
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, YCN, 8.382% due 7/01/2020 (e)(f) 2,010
AAA Aaa 520 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway Revenue
Bonds, Series T, 6.625% due 7/01/2002 (h) 571
Puerto Rico Electric Power Authority, Power Revenue Bonds:
AAA Aaa 2,000 LEVRRS, 8.328% due 7/01/2023 (e)(f) 2,025
BBB+ Aaa 2,250 Series P, 7% due 7/01/2001 (h) 2,488
Total Investments (Cost--$82,828)--97.6% 85,264
Other Assets Less Liabilities--2.4% 2,053
-------
Net Assets--100.0% $87,317
=======
<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, 1997.
(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, 1997.
(f)FSA Insured.
(g)AMBAC Insured.
(h)Prerefunded.
(i)BIG Insured.
*Not Rated.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$82,827,560) (Note 1a) $85,263,516
Cash 51,001
Receivables:
Securities sold $ 3,011,494
Interest 1,447,752 4,459,246
-----------
Deferred organization expenses (Note 1e) 8,164
Prepaid expenses and other assets 24,039
-----------
Total assets 89,805,966
-----------
Liabilities: Payables:
Securities purchased 2,331,699
Dividends to shareholders (Note 1f) 60,947
Investment adviser (Note 2) 35,599 2,428,245
-----------
Accrued expenses and other liabilities 60,654
-----------
Total liabilities 2,488,899
-----------
Net Assets: Net assets $87,317,067
===========
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 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 262,443
Accumulated realized capital losses on investments--net (Note 5) (6,466,583)
Unrealized appreciation on investments--net 2,435,956
-----------
Total--Equivalent to $12.87 net asset value per share of
Common Stock (market price--$12.25) 57,017,067
-----------
Total capital $87,317,067
===========
<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, 1997
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,439,543
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 218,324
Professional fees 38,388
Commission fees (Note 4) 37,477
Accounting services (Note 2) 25,578
Printing and shareholder reports 19,177
Transfer agent fees 16,552
Directors' fees and expenses 11,229
Listing fees 4,143
Pricing fees 3,324
Custodian fees 2,999
Amortization of organization expenses (Note 1e) 2,001
Other 7,071
-----------
Total expenses before reimbursement 386,263
Reimbursement of expenses (Note 2) (34,874)
-----------
Total expenses after reimbursement 351,389
-----------
Investment income--net 2,088,154
-----------
Realized & Realized loss on investments--net (2,930)
Unrealized Change in unrealized appreciation on investments--net (819,739)
Gain (Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 1,265,485
(Notes 1b, 1d & 3): ===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1997 Oct. 31, 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 2,088,154 $ 4,371,303
Realized loss on investments--net (2,930) (79,557)
Change in unrealized appreciation on investments--net (819,739) (852,369)
----------- -----------
Net increase in net assets resulting from operations 1,265,485 3,439,377
----------- -----------
<PAGE>
Dividends to Investment income--net:
Shareholders Common Stock (1,601,649) (3,382,627)
(Note 1f): Preferred Stock (503,548) (1,016,052)
----------- -----------
Net decrease in net assets resulting from dividends to
shareholders (2,105,197) (4,398,679)
----------- -----------
Capital Stock Offering costs from issuance of Common Stock resulting from
Transactions reorganization -- (68,551)
(Notes 1e & 4): ----------- -----------
Net decrease in net assets derived from capital stock
transactions -- (68,551)
----------- -----------
Net Assets: Total decrease in net assets (839,712) (1,027,853)
Beginning of period 88,156,779 89,184,632
----------- -----------
End of period* $87,317,067 $88,156,779
=========== ===========
<FN>
*Undistributed investment income--net $ 262,443 $ 279,486
=========== ===========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMAITON (concluded)
<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: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.06 $ 13.29 $ 11.33 $ 14.11 $ 14.18
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .47 .98 1.03 .99 --
Realized and unrealized gain (loss) on
investments--net (.19) (.20) 2.01 (2.68) --
-------- -------- -------- -------- --------
Total from investment operations .28 .78 3.04 (1.69) --
<PAGE> -------- -------- -------- -------- --------
Less dividends to Common Stock shareholders:
Investment income--net (.36) (.76) (.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 (.11) (.23) (.26) (.17) --
Capital charge resulting from issuance
of Preferred Stock -- -- -- (.17) --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.11) (.23) (.26) (.34) --
-------- -------- -------- -------- --------
Net asset value, end of period $ 12.87 $ 13.06 $ 13.29 $ 11.33 $ 14.11
======== ======== ======== ======== ========
Market price per share, end of period $ 12.25 $ 12.125 $ 11.75 $ 10.375 $ 15.00
======== ======== ======== ======== ========
Total Investment Based on market price per share 4.05%+++ 9.70% 21.04% (26.55%) .00%+++
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 1.49%+++ 4.47% 25.37% (14.73%) (.49%)+++
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .80%* .66% .55% .54% --
Net Assets:*** ======== ======== ======== ======== ========
Expenses .88%* .87% .95% 1.09% --
======== ======== ======== ======== ========
Investment income--net 4.78%* 4.93% 5.33% 5.13% .02%*
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $ 57,017 $ 57,857 $ 58,885 $ 21,153 $ 25,506
======== ======== ======== ======== ========
Preferred Stock outstanding, end of
period (in thousands) $ 30,300 $ 30,300 $ 30,300 $ 12,950 --
======== ======== ======== ======== ========
Portfolio turnover 21.73% 31.75% 75.93% 80.03% --
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 2,882 $ 2,909 $ 2,943 $ 2,633 --
======== ======== ======== ======== ========
<PAGE>
Dividends Series A--Investment income--net $ 410 $ 824 $ 953 $ 598 --
Per Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net $ 420 $ 849 $ 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.
(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.
<PAGE>
(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).
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.
<PAGE>
(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 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, 1997, FAM earned fees of $218,324, of which $34,874 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, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 1997 were $18,920,110 and
$18,252,238, respectively.
Net realized and unrealized gains (losses) as of April 30, 1997 were
as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (2,930) $2,435,956
---------- ----------
Total $ (2,930) $2,435,956
========== ==========
As of April 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $2,435,956, of which $2,778,675 related to
appreciated securities and $342,719 related to depreciated
securities. The aggregate cost of investments at April 30, 1997 for
Federal income tax purposes was $82,827,560.
<PAGE>
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, 1997, shares issued and
outstanding remained constant at 4,429,326. At April 30, 1997, 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, 1997 were as
follows: Series A, 3.10% and Series B, 4.00%.
As of April 30, 1997, 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, 1997, Merrill Lynch, Pierce, Fenner & Smith Inc., an
affiliate of FAM, earned $16,872 as commissions.
5. Capital Loss Carryforward:
At October 31, 1996, the Fund had a net capital loss carryforward of
approximately $6,007,000, of which $1,193,000 expires in 2001,
$3,561,000 expires in 2002 and $1,253,000 expires in 2003. This
amount will be available to offset like amounts of any future
taxable gains.
6. Subsequent Event:
On May 9, 1997, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.056865 per share, payable on May 29, 1997 to shareholders of
record as of May 19, 1997.
