MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Semi-Annual Report
April 30, 1998
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
Philip M. Mandel, 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
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
Printed on post-consumer recycled paper
MuniYield Arizona Fund, Inc.
TO OUR SHAREHOLDERS
For the six-month period ended April 30, 1998, the Common Stock of
MuniYield Arizona Fund, Inc. earned $0.357 per share income
dividends, which included earned and unpaid dividends of $0.058.
This represents a net annualized yield of 5.30%, based on a month-
end per share net asset value of $13.59. Over the same period, the
total investment return on the Fund's Common Stock was +2.59%, based
on a change in per share net asset value from $13.61 to $13.59, and
assuming reinvestment of $0.358 per share income dividends.
For the six-month period ended April 30, 1998, the Fund's Auction
Market Preferred Stock had an average yield of 3.61% for Series A
and 3.52% for Series B.
The Municipal Market Environment
During the six months ended April 30, 1998, bond yields generally
moved lower, and by mid-January 1998 had declined to recent historic
lows. Long-term US Treasury bond yields declined 20 basis points
(0.20%) during the same period and stood at 5.95% by April 30, 1998.
Similarly, long-term uninsured tax-exempt bond yields, as measured
by the Bond Buyer Revenue Bond Index, fell approximately 35 basis
points to 5.25%, a level not seen since the mid-1970s. While low
inflation has supported lower interest rates, much of the decline in
bond yields in late 1997 and early 1998 was driven more by the
turmoil in Asian financial markets than by domestic economic
fundamentals. Weak economic conditions in Asia were expected to
negatively impact US growth through reduced export demand.
Additionally, inflation in the United States was also expected to
decline in response to lower prices on goods imported from Asian
manufacturers.
However, in recent months, many investors have become increasingly
concerned that most of the downturn in Asia, especially in Japan,
has already occurred and any future deterioration will not be severe
enough to constrain US economic growth and inflationary pressures.
These concerns served to push interest rates higher in the latter
part of the period, causing fixed-income yields to retrace much of
their earlier gains.
Thus far in 1998, the municipal bond market has experienced
unexpectedly strong supply pressures. These supply pressures have
prevented tax-exempt bond yields from declining as much as US
Treasury bond yields. Over the last six months, more than $135
billion in new tax-exempt bonds were underwritten, an increase of
over 40% compared to the same period a year ago. During the last
three months, municipalities issued over $72 billion in new
securities, an increase of more than 60% compared to the same three-
month period in 1997. Additionally, corporate issuers have also
viewed current interest rate levels as an opportunity to issue
significant amounts of taxable securities. Thus far in 1998, over
$100 billion in investment-grade corporate bonds have been
underwritten, an increase of more than 60% relative to the
comparable period a year ago. This sizeable corporate bond issuance
has tended to support generally higher fixed-income yields and
reduce the demand for tax-exempt bonds.
However, the recent pace of new municipal bond issuance is unlikely
to be maintained. Continued increases in bond issuance will require
lower and lower tax-exempt bond yields to generate the economic
savings necessary for additional municipal bond refinancing.
Preliminary estimates for 1998 total municipal bond issuance are
presently in the $200 billion--$225 billion range. These estimates
suggest that recent supply pressures are likely to abate later in
the year. Municipal bond investors received approximately $30
billion earlier this year in coupon payments, bond maturities and
proceeds from early redemptions. The demand generated by these
assets has helped offset the increase in supply seen thus far this
year. Furthermore, looking ahead, June and July have also tended to
be periods of strong investor demand as seasonal factors are likely
to generate strong income flows similar to those seen earlier this
year.
MuniYield Arizona Fund, Inc.
April 30, 1998
It is also possible that at least some of the recent economic
strength seen in the United States will be reversed in the coming
months. A particularly mild winter has been partially responsible
for a strong housing sector, as well as other construction
industries. This recent strong trend may not be sustained and may
lead to weaker construction growth later this year. Additionally,
strong economic growth in 1997 and the increased use of electronic
tax filing have resulted in larger and earlier Federal and state
income tax refunds to many individuals. These refunds appear to have
supported strong consumer spending in recent months, but may be
borrowing against weaker spending later this year. In addition, the
continued impact of the Asian financial crisis on the US domestic
economy's future growth remains unclear. Barring a dramatic and
unexpected resurgence of domestic inflation, we do not believe that
the Federal Reserve Board will be willing to raise interest rates
until the full impact of the Asian situation can be established.
All these factors suggest that over the near term, tax-exempt as
well as taxable bond yields are unlikely to rise by any appreciable
amount. Recent supply pressures have caused municipal bond yield
ratios to rise relative to US Treasury bond yields. At April 30,
1998, long-term tax-exempt bond yields were at attractive yield
ratios relative to comparable US Treasury securities (over 90%), and
well in excess of their expected range of 85%--88%. Any further
pressure upon the municipal market may well represent a very
attractive investment opportunity.
Portfolio Strategy
Given the volatile market environment over the six-month period
ended April 30, 1998, we continued to maintain the Fund's strategy
of a neutral investment position. Our strategy has remained to keep
the Fund fully invested as we await further data regarding the Asian
financial crisis and its impact on the domestic economy. We believe
our neutral position insulated the Fund from much of the volatility
experienced in the first quarter of 1998.
Looking ahead, we anticipate little change to our position, barring
a further rise in long-term interest rates. We continue to believe
that the economic growth will eventually slow and in the process
produce a negligible rate of inflation. However, should the impact
from the Asian economic situation accelerate and domestic economic
growth return to industry trend, our patient strategy in the
municipal market should prove to serve the Fund well.
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
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
May 29, 1998
MuniYield Arizona Fund, Inc.
April 30, 1998
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 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.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its
net investment income to its shareholders on a monthly basis.
However, in order to provide shareholders with a more consistent
yield to the current trading price of shares of Common Stock of the
Fund, the Fund may at times pay out less than the entire amount of
net investment income earned in any particular month and may at
times in any month pay out such accumulated but undistributed income
in addition to net investment income earned in that month. As a
result, the dividends paid by the Fund for any particular month may
be more or less than the amount of net investment income earned by
the Fund during such month. The Fund's current accumulated but
undistributed net investment income, if any, is disclosed in the
Statement of Assets, Liabilities and Capital, which comprises part
of the Financial Information included in this report.
MuniYield Arizona Fund, Inc.
April 30, 1998
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
DATES Daily Adjustable Tax-Exempt Securities
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--88.8%
<S> <S> <C> <S> <C>
Arizona Educational Loan Marketing Corporation, Educational Loan Revenue
Bonds, AMT, Series B:
NR* Aa2 $ 700 7% due 3/01/2002 $ 748
NR* Aa2 2,920 7% due 3/01/2003 3,123
NR* Aaa 1,810 Arizona Health Facilities Authority, Hospital System Revenue Refunding Bonds
(Saint Luke's Health Systems), 7.25% due 11/01/2003 (h) 2,032
AAA Aaa 325 Arizona State Municipal Financing Program, COP, Series 34, 7.25% due 8/01/2009 (i) 394
AA+ Aa1 3,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds (City of Phoenix), 6.80% due 7/01/2011 3,297
AAA Aaa 1,000 Chandler, Arizona, Water and Sewer Revenue Bonds, 6.50% due 7/01/2006 (b)(h) 1,140
Coconino County, Arizona, Pollution Control Corporation, PCR (Nevada Power
Co. Project), AMT:
BBB- NR* 1,750 6.375% due 10/01/2036 1,867
BBB- NR* 3,000 Series B, 5.80% due 11/01/2032 3,045
BBB Baa2 3,500 Gila County, Arizona, IDA, Revenue Refunding Bonds (Environmental--Asarco Inc.),
5.55% due 1/01/2027 3,475
AAA Aaa 605 Gilbert, Arizona, Projects of 1988, GO, UT, Series C, 8.50% due 7/01/2004 (b)(h) 740
Glendale, Arizona, IDA, Educational Facilities Revenue Refunding Bonds (American
Graduate School International) (d):
AAA NR* 500 7% due 7/01/2005 (h) 578
AAA NR* 500 7.125% due 7/01/2005 (h) 582
AAA NR* 500 5.875% due 7/01/2015 526
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) 3,108
AAA Aaa 1,000 Maricopa County, Arizona, Chandler Unified School District Number 80 Refunding
Bonds, 6.25% due 7/01/2011 (c) 1,140
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) 2,178
BBB- Baa1 2,505 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun Health
Corporation), 6.125% due 4/01/2018 2,635
</TABLE>
MuniYield Arizona Fund, Inc.
April 30, 1998
<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>
Maricopa County, Arizona, IDA, Hospital Facility Revenue Refunding Bonds
(Samaritan Health Services Hospital), Series A (b):
AAA Aaa $ 500 7% due 12/01/2013 $ 540
AAA Aaa 2,400 7% due 12/01/2016 2,950
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) 997
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 (b) 2,607
AAA Aaa 1,500 Maricopa County, Arizona, Peoria Unified School District Number 11 Refunding
Bonds, 6.10% due 7/01/2010 (g) 1,623
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding:
A1+ P1 100 (Arizona Public Service Company), VRDN, Series E, 4.10% due 5/01/2029 (a) 100
BB+ Ba1 1,825 (Public Service Company), Series A, 5.75% due 11/01/2022 1,856
BB+ Ba1 2,500 (Public Service Company of New Mexico Project), Series A, 6.30% due 12/01/2026 2,669
AA Aa2 1,825 Maricopa County, Arizona, Scottsdale Unified School District Number 48
Improvement Bonds, UT, 6.60% due 7/01/2012 2,136
AAA Aaa 500 Maricopa County, Arizona, Tempe Elementary School District Number 3, Refunding
and Improvement Bonds, UT, 7.50% due 7/01/2010 (c) 623
AAA Aaa 4,000 Mesa, Arizona, Utilities System Revenue Bonds, 6.125% due 7/01/2007 (c)(h) 4,485
AAA Aaa 1,000 Mohave County, Arizona, IDA, Hospital System Revenue Bonds (Baptist Hospital),
5.50% due 9/01/2021 (b) 1,011
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) 2,818
AA- Aa3 1,000 Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue Bonds,
Junior Lien, 6% due 7/01/2019 1,056
AA+ Aa1 1,485 Phoenix, Arizona, Refunding, UT, Series A, 6% due 7/01/2011 1,656
Phoenix, Arizona, Various Purpose Bonds, GO, UT:
AA+ Aa1 2,655 4.50% due 7/01/2019 2,408
AA+ Aa1 8,020 4.50% due 7/01/2022 7,111
AAA Aaa 1,000 Pima County, Arizona, IDA, Revenue Refunding Bonds (Healthpartners), Series A,
5.625% due 4/01/2014 (b) 1,042
AAA Aaa 3,050 Pima County, Arizona, Tucson Unified School District Number 1, Refunding
Bonds, LT, 7.50% due 7/01/2009 (c) 3,773
A1+ P1 100 Pinal County, Arizona, IDA, PCR (Newmont Mining Corp.), DATES, 4.15% due
12/01/2009 (a) 100
AA+ Aa1 825 Tempe, Arizona, Refunding Bonds, GO, UT, Series A, 5.35% due 7/01/2010 868
AAA Aaa 1,000 Tempe, Arizona, Unified High School District Number 213 Refunding and
Improvement Bonds, UT, 7% due 7/01/2008 (c) 1,184
AAA Aaa 1,000 Tucson, Arizona, GO, UT, Series A, 5.375% due 7/01/2017 (b) 1,008
AAA Aaa 2,000 Tucson, Arizona, Local Business Development Finance Corporation, Lease
Revenue Refunding Bonds, 6.25% due 7/01/2012 (c) 2,153
A+ A1 1,430 Tucson, Arizona, Water Revenue Refunding Bonds, 6.50% due 7/01/2016 1,531
AA A1 1,345 University of Arizona, University Revenue Refunding Bonds, 6.25% due 6/01/2011 1,446
</TABLE>
MuniYield Arizona Fund, Inc.
April 30, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Puerto Rico--9.5%
<S> <S> <C> <S> <C>
AAA Aaa $ 520 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, Series T, 6.625% due 7/01/2002 (h) $ 572
A Baa1 1,300 Puerto Rico Commonwealth Public Improvement Refunding Bonds, 4.50% due
7/01/2023 1,140
AAA Aaa 2,000 Puerto Rico Commonwealth, YCN, 7.682% due 7/01/2020 (e)(f) 2,210
AAA Aaa 2,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, LEVRRS, 8.208%
due 7/01/2002 (e)(f)(h) 2,295
AAA Aaa 2,500 Puerto Rico Public Buildings Authority Revenue Bonds (Guaranteed
Government Facilities), Series B, 5% due 7/01/2027(g) 2,396
Total Investments (Cost--$84,814)--98.3% 88,972
Other Assets Less Liabilities--1.7% 1,503
-------
Net Assets--100.0% $90,475
=======
<FN>
(a)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, 1998.
(b)MBIA Insured.
(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, 1998.
(f)FSA Insured.
(g)AMBAC Insured.
(h)Prerefunded.
(i)BIG Insured.
*Not Rated.
See Notes to Financial Statements.
</TABLE>
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 1998
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 51.6%
AA/Aa 26.4
A/A 2.9
BBB/Baa 12.2
BB/Ba 5.0
Other++ 0.2
[FN]
++Temporary investments in short-term securities.
MuniYield Arizona Fund, Inc.
April 30, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$84,813,416)
(Note 1a) $88,971,688
Cash 83,841
Interest receivable 1,542,414
Deferred organization expenses (Note 1e) 4,059
Prepaid expenses and other assets 2,211
-----------
Total assets 90,604,213
-----------
Liabilities: Payables:
Dividends to shareholders (Note 1f) $ 46,357
Investment adviser (Note 2) 37,694 84,051
-----------
Accrued expenses 45,590
-----------
Total liabilities 129,641
-----------
Net Assets: Net assets $90,474,572
===========
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 272,874
Accumulated realized capital losses on investments--net
(Note 5) (5,041,825)
Unrealized appreciation on investments--net 4,158,272
-----------
Total--Equivalent to $13.59 net asset value per share of
Common Stock (market price--$13.00) 60,174,572
-----------
Total capital $90,474,572
===========
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
April 30, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
April 30, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,469,469
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 224,975
Professional fees 37,747
Commission fees (Note 4) 37,171
Accounting services (Note 2) 21,068
Transfer agent fees 14,969
Directors' fees and expenses 11,018
Printing and shareholder reports 4,138
Listing fees 4,110
Custodian fees 3,968
Pricing fees 3,252
Amortization of organization expenses (Note 1e) 1,963
Other 6,803
-----------
Total expenses 371,182
-----------
Investment income--net 2,098,287
-----------
Realized & Realized gain on investments--net 1,159,870
Unrealized Change in unrealized appreciation on investments--net (1,253,558)
Gain (Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 2,004,599
(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, 1998 Oct. 31, 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 2,098,287 $ 4,221,958
Realized gain on investments--net 1,159,870 261,958
Change in unrealized appreciation on investments--net (1,253,558) 2,156,135
----------- -----------
Net increase in net assets resulting from operations 2,004,599 6,640,051
----------- -----------
Dividends to Investment income--net:
Shareholders Common Stock (1,586,797) (3,186,010)
(Note 1f): Preferred Stock (529,216) (1,024,834)
----------- -----------
Net decrease in net assets resulting from dividends
to shareholders (2,116,013) (4,210,844)
----------- -----------
Net Assets: Total increase (decrease) in net assets (111,414) 2,429,207
Beginning of period 90,585,986 88,156,779
----------- -----------
End of period* $90,474,572 $90,585,986
=========== ===========
<FN>
*Undistributed investment income--net $ 272,874 $ 290,600
=========== ===========
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
April 30, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended For the Year
April 30, Ended October 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.61 $ 13.06 $ 13.29 $ 11.33 $ 14.11
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .47 .96 .98 1.03 .99
Realized and unrealized gain (loss) on
investments--net (.01) .54 (.20) 2.01 (2.68)
-------- -------- -------- -------- --------
Total from investment operations .46 1.50 .78 3.04 (1.69)
-------- -------- -------- -------- --------
Less dividends to Common Stock shareholders:
Investment income--net (.36) (.72) (.76) (.77) (.75)
-------- -------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock -- -- (.02) (.05) --
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net (.12) (.23) (.23) (.26) (.17)
Capital charge resulting from issuance
of Preferred Stock -- -- -- -- (.17)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.12) (.23) (.23) (.26) (.34)
-------- -------- -------- -------- --------
Net asset value, end of period $ 13.59 $ 13.61 $ 13.06 $ 13.29 $ 11.33
======== ======== ======== ======== ========
Market price per share, end of period $ 13.00 $ 12.875 $ 12.125 $ 11.75 $ 10.375
======== ======== ======== ======== ========
Total Investment Based on market price per share 3.73%+++ 12.46% 9.70% 21.04% (26.55%)
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 2.59%+++ 10.37% 4.47% 25.37% (14.73%)
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .83%* .85% .66% .55% .54%
Net Assets:*** ======== ======== ======== ======== ========
Expenses .83%* .89% .87% .95% 1.09%
======== ======== ======== ======== ========
Investment income--net 4.67%* 4.73% 4.93% 5.33% 5.13%
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands) $ 60,175 $ 60,286 $ 57,857 $ 58,885 $ 21,153
======== ======== ======== ======== ========
Preferred Stock outstanding, end of
period (in thousands) $ 30,300 $ 30,300 $ 30,300 $ 30,300 $ 12,950
======== ======== ======== ======== ========
Portfolio turnover 26.15% 34.49% 31.75% 75.93% 80.03%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 2,986 $ 2,990 $ 2,909 $ 2,943 $ 2,633
======== ======== ======== ======== ========
Dividends Series A--Investment income--net $ 443 $ 820 $ 824 $ 953 $ 598
Per Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net $ 432 $ 865 $ 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.
++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>
MuniYield Arizona Fund, Inc.
April 30, 1998
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.
(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
financial 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.
MuniYield Arizona Fund, Inc.
April 30, 1998
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(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, including proceeds from the
issuance of Preferred Stock.
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, 1998 were $28,731,279 and
$23,378,388, respectively.
Net realized gains for the six months ended April 30, 1998 and net
unrealized gains as of April 30, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $1,159,870 $4,158,272
---------- ----------
Total $1,159,870 $4,158,272
========== ==========
As of April 30, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $4,158,272, of which $4,687,094 related to
appreciated securities and $528,822 related to depreciated
securities. The aggregate cost of investments at April 30, 1998 for
Federal income tax purposes was $84,813,416.
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
Shares issued and outstanding during the six months ended April 30,
1998 and the year ended October 31, 1997 remained constant.
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, 1998 were as
follows: Series A, 3.95% and Series B, 4.10%.
As of April 30, 1998, 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, 1998, Merrill Lynch, Pierce, Fenner & Smith Inc., an
affiliate of FAM, earned $18,468 as commissions.
5. Capital Loss Carryforward:
At October 31, 1997, the Fund had a net capital loss carryforward of
approximately $5,751,000, of which $937,000 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 7, 1998, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.058443 per share, payable on May 28, 1998 to shareholders of
record as of May 21, 1998.
