MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Annual Report
October 31, 1998
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 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 year ended October 31, 1998, the Common Stock of MuniYield
Arizona Fund, Inc. earned $0.727 per share income dividends, which
included earned and unpaid dividends of $0.061. This represents a
net annualized yield of 5.14%, based on a month-end per share net
asset value of $14.14. Over the same period, the total investment
return on the Fund's Common Stock was +9.61%, based on a change in
per share net asset value from $13.61 to $14.14, and assuming
reinvestment of $0.725 per share income dividends.
For the six-month period ended October 31, 1998, the total
investment return on the Fund's Common Stock was +6.84%, based on a
change in per share net asset value from $13.59 to $14.14, and
assuming reinvestment of $0.367 per share income dividends.
For the six-month period ended October 31, 1998, the Fund's Auction
Market Preferred Stock had an average yield of 3.15% for Series A
and 3.40% for Series B.
The Municipal Market Environment
During the six months ended October 31, 1998, long-term bond yields
declined significantly. The near absence of any inflationary
pressures in the United States continued to support historic low
interest rates. Additionally, foreign economic factors have
continued to outweigh US domestic fundamentals, as they have for
much of 1998. The economic crisis that began in Asia over a year ago
has spread both to Russia and South America. However, economic
factors in these countries have begun to negatively impact US
growth. For example, employment in the US manufacturing sector
declined in recent months as a result of reduced demand for export
goods. Concern that the modest decline in US economic growth seen
thus far would spread and intensify led the Federal Reserve Board to
lower short-term interest rates in late September, in mid-October
and in mid-November. These actions were taken to offset the drag of
foreign economies on future US growth.
US Treasury bond yields continued to benefit from a strong "flight
to quality" as foreign investors were drawn to the relative safe
haven of US Government securities. Additionally, the sharp equity
market correction, which began at the end of August, triggered a
further flight into US Treasury securities. Long-term US Treasury
bond yields fell over 90 basis points (0.90%) to approximately 5% by
the end of September. This is the lowest level since the US Treasury
reintroduced 30-year maturity bond auctions in 1977.
By early October, worldwide investor confidence began to rise,
reducing the demand for the safety and liquidity of US Treasury
securities. Investor confidence was restored by the belief that
major world governments, as well as the International Monetary Fund,
would take the necessary action to support weak domestic economies
in Asia and Latin America. Additionally, rapid recovery in US and
world equity markets caused some investors to reallocate funds from
US debt instruments back to various world equity markets. US
Treasury security yields rose for the remainder of the month to end
October at 5.15%. During the six-month period ended October 31,
1998, long-term Treasury security yields declined approximately 80
basis points.
During the past 12 months, the tax-exempt bond market has contended
with significant new-issue supply pressures. Over the past year,
more than $277 billion in new long-term tax-exempt bonds were
underwritten, an increase of almost 30% compared to the same period
a year ago. During the most recent six-month period, approximately
$140 billion in new long-term municipal bonds were underwritten,
representing an increase of more than 15% over the same six-month
period last year. This increased supply, coupled with the high
returns the US equity market generated for much of 1998, was one of
the major reasons municipal bond yields declined less than their
taxable counterparts during the period.
MuniYield Arizona Fund, Inc.
October 31, 1998
The continued increase in new bond issuance has required ever-lower
tax-exempt bond yields to generate the economic savings necessary
for additional municipal bond financings. Consequently, the pace of
new bond issuance has slowed in recent months. In fact, the trend
may be reversing. During the three months ended October 31, 1998,
just over $60 billion in new long-term municipal bonds were
underwritten, a decline of 4% compared to the same quarter a year
ago. During the month of October, there were less than $20 billion
in new municipal bond securities issued, a decline of over 10%
compared to October 1997. We will monitor this trend closely in the
coming months to determine if the supply pressures exerted thus far
in 1998 are abating and fostering a more balanced supply/demand
environment.
Throughout the six-month period ended October 31, 1998, municipal
bond yields followed a pattern that was similar to US Treasury
securities, although the yield declines were more muted. As measured
by the unmanaged Bond Buyer Revenue Bond Index, long-term, uninsured
tax-exempt revenue bond yields declined over 40 basis points to
5.09% by the end of September, their lowest level since the early
1970s. Municipal bond yields rose during October to end the period
at 5.24%. Over the past six months, long-term tax-exempt bond yields
declined almost 30 basis points.
Although municipal bond yields declined during the six-month period,
recent supply pressures and the absence of the safe haven status
enjoyed by US securities caused municipal bond yields to rise
relative to US Treasury bond yields. At October 31, 1998, long-term
tax-exempt bond yield spreads were attractive relative to US
Treasury securities of comparable maturities (over 100%), well in
excess of their historic range of 85%--88%. Tax-exempt bond yield
ratios have rarely exceeded 90% in the 1980s and 1990s.
Historically, yield spreads have been wider than these levels when
there have been potential changes in Federal tax codes that would
have adversely affected the tax-favored status of municipal bonds.
Currently, municipal bond investors find themselves in a unique
investment environment. Previous opportunities to purchase tax-
exempt bonds with yields exceeding that of comparable US Treasury
issues have been limited to relatively brief episodes and then
further limited to a few municipal credits undergoing specific
financial pressures. At present, almost the entire municipal bond
universe, across nearly all maturity and credit sectors, can be
purchased at yields greater than their taxable counterparts.
However, the current opportunity may quickly disappear should tax-
exempt bond supply pressures diminish or the safe-haven status of US
Treasury securities become less desirable. Under these conditions,
municipal bond ratios should quickly revert to more normal historic
percentages, certainly well below their presently attractive levels.
Portfolio Strategy
Over the six-month period ended October 31, 1998, we maintained a
neutral-to-positive outlook for the municipal market. We also
remained committed to our strategy of being fully invested in long-
term Arizona municipal bonds. At October 31, 1998, the Fund was
comprised of approximately 89% of bonds rated A or better by at
least one of the major rating agencies.
While the rate of inflation is presently negligible, we feel that it
can possibly decline even further as other countries try to use
exporting as a means out of their economic crises. We expect that
this flood of exports could slow the US economy and possibly allow
the Federal Reserve Board to lower interest rates further. We
believe that the Fund is well-positioned to perform favorably in a
declining interest rate environment.
In Conclusion
We appreciate your ongoing interest in MuniYield Arizona Fund, Inc.,
and we look forward to serving your investment needs in the months
and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
December 7, 1998
MuniYield Arizona Fund, Inc.
October 31, 1998
PROXY RESULTS
During the six-month period ended October 31, 1998, MuniYield
Arizona Fund, Inc. Common Stock shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
September 24, 1998. The description of each proposal and number of
shares voted are as follows:
<TABLE>
<CAPTION>
Shares Shares Withheld
Voted For From Voting
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: James H. Bodurtha 4,308,416 95,471
Herbert I. London 4,311,065 92,822
Robert R. Martin 4,289,487 114,400
Arthur Zeikel 4,290,492 113,395
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 4,268,633 17,831 117,423
</TABLE>
During the six-month period ended October 31, 1998, MuniYield
Arizona Fund, Inc. Preferred Stock shareholders voted on the
following proposals. The proposals were approved at a shareholders'
meeting on September 24, 1998. The description of each proposal and
number of shares voted are as follows:
<TABLE>
<CAPTION>
Shares Shares Withheld
Voted For From Voting
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors:
James H. Bodurtha, Herbert I. London,
Robert R. Martin,Joseph L. May,
Andre F. Perold and Arthur Zeikel
as follows: Series A 361 0
Series B 689 0
<CAPTION>
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <S> <C> <C> <C>
2. To ratify the selection of Deloitte &
Touche LLP as the Fund's independent
auditors for the current fiscal year
as follows: Series A 361 0 0
Series B 685 0 4
</TABLE>
MuniYield Arizona Fund, Inc.
October 31, 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 Pre-ferred 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 New York 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.
As a part of its investment strategy, the Fund may invest in certain
securities whose potential income return is inversely related to
changes in a floating interest rate ("inverse floaters"). In
general, interest rates on inverse floaters will decrease when short-
term interest rates increase and increase when short-term interest
rates decrease. Investments in inverse floaters may be characterized
as derivative securities and may subject the Fund to the risks of
reduced or eliminated interest payments and losses of invested
principal. In addition, inverse floaters have the effect of
providing investment leverage and, as a result, the market value of
such securities will generally be more volatile than that of fixed-
rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the
net asset value of the Fund's shares may also be more volatile than
if the Fund did not invest in such securities.
MuniYield Arizona Fund, Inc.
October 31, 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
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--91.4%
<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 $ 757
NR* Aa2 2,920 7% due 3/01/2003 3,160
AAA Aaa 325 Arizona State Municipal Financing Program, COP, Series 34, 7.25% due 8/01/2009 (i) 403
AA+ Aa1 3,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds (City of Phoenix), 6.80% due 7/01/2011 3,342
AAA Aaa 1,000 Chandler, Arizona, Water and Sewer Revenue Bonds, 6.50% due 7/01/2006 (b)(h) 1,169
Coconino County, Arizona, Pollution Control Corporation, PCR (Nevada Power
Co. Project), AMT:
BBB- NR* 1,750 6.375% due 10/01/2036 1,910
BBB- NR* 3,000 Series B, 5.80% due 11/01/2032 3,058
A1+ P1 400 Coconino County, Arizona, Pollution Control Corporation Revenue Bonds (Arizona
Public Service--Navajo Project), VRDN, AMT, Series A, 3.75% due 10/01/2029 (a) 400
BBB- Baa2 4,000 Gila County, Arizona, IDA, Revenue Refunding Bonds (Environmental--Asarco
Inc.), 5.55% due 1/01/2027 3,969
AAA Aaa 605 Gilbert, Arizona, Projects of 1988, GO, UT, Series C, 8.50% due 7/01/2004 (b)(h) 749
Glendale, Arizona, IDA, Educational Facilities Revenue Refunding Bonds
(American Graduate School International)(d):
AAA NR* 500 7% due 7/01/2005 (h) 591
AAA NR* 500 7.125% due 7/01/2005 (h) 594
AAA NR* 500 5.875% due 7/01/2015 543
AAA Aaa 875 Greater Arizona Development Authority, Infrastructure Revenue Bonds, 4.85% due
8/01/2018 (b) 869
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) 3,112
Maricopa County, Arizona, Chandler Unified School District Number 80 (c):
AAA Aaa 595 6.25% due 7/01/2011 697
AAA Aaa 405 6.25% due 7/01/2011 (j) 478
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) 2,222
BBB- Baa1 2,505 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun Health
Corporation), 6.125% due 4/01/2018 2,682
AA+ NR* 2,000 Maricopa County, Arizona, IDA, Hospital Facility Revenue Bonds (Mayo Clinic
Hospital), 5.25% due 11/15/2037 2,026
</TABLE>
MuniYield Arizona Fund, Inc.
October 31, 1998
<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>
Maricopa County, Arizona, IDA, Hospital Facility Revenue Refunding Bonds
(Samaritan Health Services Hospital), Series A (b):
AAA Aaa $ 500 7% due 12/01/2013 $ 541
AAA Aaa 2,400 7% due 12/01/2016 3,040
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) 1,035
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) 2,679
AAA Aaa 1,500 Maricopa County, Arizona, Peoria Unified School District Number 11 Refunding
Bonds, 6.10% due 7/01/2010 (g) 1,655
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding:
A1+ P1 100 (Arizona Public Service Company), VRDN, Series B, 3.70% due 5/01/2029 (a) 100
A1+ P1 400 (Arizona Public Service Company), VRDN, Series E, 3.70% due 5/01/2029 (a) 400
BB+ Ba1 2,125 (Public Service Company), Series A, 5.75% due 11/01/2022 2,165
BB+ Ba1 2,500 (Public Service Company of New Mexico Project), Series A, 6.30% due 12/01/2026 2,674
AA Aa2 1,825 Maricopa County, Arizona, Scottsdale Unified School District Number 48
Improvement Bonds, UT, 6.60% due 7/01/2012 2,223
AAA Aaa 500 Maricopa County, Arizona, Tempe Elementary School District Number 3, Refunding
and Improvement Bonds, UT, 7.50% due 7/01/2010 (c) 644
AAA Aaa 4,000 Mesa, Arizona, Utilities System Revenue Bonds, 6.125% due 7/01/2007 (c)(h) 4,620
AAA Aaa 1,000 Mohave County, Arizona, IDA, Hospital System Revenue Bonds (Baptist Hospital),
5.50% due 9/01/2021 (b) 1,044
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) 2,920
AA- Aaa 1,000 Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue Bonds,
Junior Lien, 6% due 7/01/2006 (h) 1,129
AA+ Aa1 1,485 Phoenix, Arizona, Refunding, UT, Series A, 6% due 7/01/2011 1,718
Phoenix, Arizona, Various Purpose Bonds, GO, UT:
AA+ Aa1 2,655 4.50% due 7/01/2019 2,528
AA+ Aa1 8,020 4.50% due 7/01/2022 7,541
AAA Aaa 1,000 Pima County, Arizona, IDA, Revenue Refunding Bonds (Healthpartners), Series A,
5.625% due 4/01/2014 (b) 1,080
AAA Aaa 3,050 Pima County, Arizona, Tucson Unified School District Number 1, Refunding
Bonds, LT, 7.50% due 7/01/2009 (c) 3,890
A1+ P1 300 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corp.), VRDN, 3.70%
due 12/01/2009 (a) 300
AA+ Aa1 825 Tempe, Arizona, Refunding Bonds, GO, UT, Series A, 5.35% due 7/01/2010 902
AAA Aaa 1,000 Tempe, Arizona, Unified High School District Number 213 Refunding and
Improvement Bonds, UT, 7% due 7/01/2008 (c) 1,224
AAA Aaa 1,000 Tucson, Arizona, GO, UT, Series A, 5.375% due 7/01/2017 (b) 1,038
Tucson, Arizona, Local Business Development Finance Corporation, Lease Revenue
Bonds (c):
AAA Aaa 625 6.25% due 7/01/2002 (h) 691
AAA Aaa 1,375 6.25% due 7/01/2012 1,501
</TABLE>
MuniYield Arizona Fund, Inc.
October 31, 1998
<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>
A+ A1 $1,430 Tucson, Arizona, Water Revenue Refunding Bonds, 6.50% due 7/01/2016 $ 1,546
AA A1 1,345 University of Arizona, University Revenue Refunding Bonds, 6.25% due 6/01/2011 1,468
Puerto Rico--7.0%
A Baa1 1,250 Puerto Rico Commonwealth, GO, 5.40% due 7/01/2025 1,298
AAA Aaa 520 Puerto Rico Commonwealth, Highway and Transportation Authority, Highway
Revenue Bonds, Series T, 6.625% due 7/01/2002 (h) 581
AAA Aaa 2,000 Puerto Rico Commonwealth, YCN, 8.232% due 7/01/2020 (e)(f) 2,270
AAA Aaa 2,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, LEVRRS, 8.179%
due 7/01/2002 (e)(f)(h) 2,355
Total Investments (Cost--$85,173)--98.4% 91,531
Other Assets Less Liabilities--1.6% 1,449
--------
Net Assets--100.0% $ 92,980
========
<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 October 31, 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 October 31, 1998.
(f)FSA Insured.
(g)AMBAC Insured.
(h)Prerefunded.
(i)BIG Insured.
(j)Escrowed to maturity.
*Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
</TABLE>
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1998
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 48.8%
AA/Aa 27.6
A/A 3.0
BBB/Baa 12.5
BB/Ba 5.2
Other++ 1.3
[FN]
++Temporary investments in short-term municipal securities.
MuniYield Arizona Fund
October 31, 1998
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$85,172,638) (Note 1a) $ 91,531,396
Cash 57,513
Interest receivable 1,517,342
Prepaid expenses and other assets 4,753
------------
Total assets 93,111,004
------------
Liabilities: Payables:
Investment adviser (Note 2) $ 40,975
Dividends to shareholders (Note 1f) 10,757 51,732
------------
Accrued expenses 79,759
------------
Total liabilities 131,491
------------
Net Assets: Net assets $ 92,979,513
============
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 (4,432,333 shares
issued and outstanding) $ 443,233
Paid-in capital in excess of par 60,384,537
Undistributed investment income--net 289,912
Accumulated realized capital losses on investments--net
(Note 5) (4,796,927)
Unrealized appreciation on investments--net 6,358,758
------------
Total--Equivalent to $14.14 net asset value per share of
Common Stock (market price--$14.125) 62,679,513
------------
Total capital $ 92,979,513
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 5,000,333
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 458,591
Commission fees (Note 4) 76,871
Professional fees 74,769
Accounting services (Note 2) 42,690
Transfer agent fees 27,630
Directors' fees and expenses 22,803
Printing and shareholder reports 12,188
Custodian fees 8,010
Listing fees 7,083
Pricing fees 6,555
Amortization of organization expense (Note 1e) 4,059
Other 13,559
------------
Total expenses 754,808
------------
Investment income--net 4,245,525
------------
Realized & Realized gain on investments--net 1,404,768
Unrealized Gain on Change in unrealized appreciation on investments--net 946,928
Investments--Net ------------
(Notes 1b, Net Increase in Net Assets Resulting from Operations $ 6,597,221
1d & 3): ============
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
October 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 4,245,525 $ 4,221,958
Realized gain on investments--net 1,404,768 261,958
Change in unrealized appreciation on investments--net 946,928 2,156,135
------------ ------------
Net increase in net assets resulting from operations 6,597,221 6,640,051
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (3,211,182) (3,186,010)
(Note 1f): Preferred Stock (1,035,031) (1,024,834)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (4,246,213) (4,210,844)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends 42,519 --
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 2,393,527 2,429,207
Beginning of year 90,585,986 88,156,779
------------ ------------
End of year* $ 92,979,513 $ 90,585,986
============ ============
<FN>
*Undistributed investment income--net $ 289,912 $ 290,600
============ ============
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
October 31, 1998
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the
Year 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 year $ 13.61 $ 13.06 $ 13.29 $ 11.33 $ 14.11
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .95 .96 .98 1.03 .99
Realized and unrealized gain (loss) on
investments--net .53 .54 (.20) 2.01 (2.68)
------- ------- ------- ------- -------
Total from investment operations 1.48 1.50 .78 3.04 (1.69)
------- ------- ------- ------- -------
Less dividends to Common Stock shareholders:
Investment income--net (.72) (.72) (.76) (.77) (.75)
------- ------- ------- ------- -------
Capital charge resulting from issuance of
Common Stock -- -- (.02) (.05) --
------- ------- ------- ------- -------
Effect of Preferred Share activity:++
Dividends to Preferred Stock shareholders:
Investment income--net (.23) (.23) (.23) (.26) (.17)
Capital charge resulting from issuance of
Preferred Stock -- -- -- -- (.17)
------- ------- ------- ------- -------
Total effect of Preferred Stock activity (.23) (.23) (.23) (.26) (.34)
------- ------- ------- ------- -------
Net asset value, end of year $ 14.14 $ 13.61 $ 13.06 $ 13.29 $ 11.33
======= ======= ======= ======= =======
Market price per share, end of year $14.125 $12.875 $12.125 $ 11.75 $10.375
======= ======= ======= ======= =======
Total Investment Based on market price per share 15.74% 12.46% 9.70% 21.04% (26.55%)
Return:* ======= ======= ======= ======= =======
Based on net asset value per share 9.61% 10.37% 4.47% 25.37% (14.73%)
======= ======= ======= ======= =======
Ratios to Average Expenses, net of reimbursement .82% .85% .66% .55% .54%
Net Assets:** ======= ======= ======= ======= =======
Expenses .82% .89% .87% .95% 1.09%
======= ======= ======= ======= =======
Investment income--net 4.63% 4.73% 4.93% 5.33% 5.13%
======= ======= ======= ======= =======
Supplemental Net assets, net of Preferred Stock, end of
Data: year (in thousands) $62,680 $60,286 $57,857 $58,885 $21,153
======= ======= ======= ======= =======
Preferred Stock outstanding, end of
year (in thousands) $30,300 $30,300 $30,300 $30,300 $12,950
======= ======= ======= ======= =======
Portfolio turnover 39.58% 34.49% 31.75% 75.93% 80.03%
======= ======= ======= ======= =======
Leverage: Asset coverage per $1,000 $ 3,069 $ 2,990 $ 2,909 $ 2,943 $ 2,633
======= ======= ======= ======= =======
Dividends Series A--Investment income--net $ 842 $ 820 $ 824 $ 953 $ 598
Per Share on ======= ======= ======= ======= =======
Preferred Stock Series B--Investment income--net $ 863 $ 865 $ 849 $ 551 --
Outstanding:++ ======= ======= ======= ======= =======
<FN>
*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).
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
October 31, 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. 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 written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of
options traded in the over-the-counter market, valuation is the last
asked price (options written) or the last bid price (options
purchased). 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.
(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 period not exceeding
five years.
MuniYield Arizona Fund, Inc.
October 31, 1998
(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 year ended October 31, 1998 were $40,081,502 and
$35,542,892, respectively.
Net realized gains for the year ended October 31, 1998 and net
unrealized gains as of October 31, 1998 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $ 1,404,768 $ 6,358,758
----------- -----------
Total $ 1,404,768 $ 6,358,758
=========== ===========
As of October 31, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $6,358,758, of which $6,415,917
related to appreciated securities and $57,159 related to depreciated
securities. The aggregate cost of investments at October 31, 1998
for Federal income tax purposes was $85,172,638.
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 year ended October 31, 1998
increased by 3,007 as a result of dividend reinvestment and during
the year ended October 31, 1997 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.05 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yields in effect at October
31, 1998 were as follows: Series A, 2.75% and Series B, 3.23%.
Shares issued and outstanding during the years ended October 31,
1998 and October 31, 1997 remained constant.
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 year ended
October 31, 1998, Merrill Lynch, Pierce, Fenner & Smith Inc., an
affiliate of FAM, earned $37,078 as commissions.
5. Capital Loss Carryforward:
At October 31, 1998, the Fund had a net capital loss carryforward of
approximately $4,364,000, of which $3,111,000 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 November 5, 1998, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.061321 per share, payable on November 27, 1998 to shareholders
of record as of November 20, 1998.
MuniYield Arizona Fund, Inc.
October 31, 1998
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MuniYield Arizona Fund, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments of MuniYield
Arizona Fund, Inc. as of October 31, 1998, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at October
31, 1998 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
MuniYield Arizona Fund, Inc. as of October 31, 1998, the results of
its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 7, 1998
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield
Arizona Fund, Inc. during its taxable year ended October 31, 1998
qualify as tax-exempt interest dividends for Federal income tax
purposes. Additionally, there were no capital gains distributed by
the Fund during the year.
Please retain this information for your records.
MuniYield Arizona Fund, Inc.
October 31, 1998
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 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.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert L. 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
Phillip 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
