MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Annual Report
October 31, 1999
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, 1999, the Common Stock of MuniYield
Arizona Fund, Inc. earned $0.725 per share income dividends, which
included earned and unpaid dividends of $0.058. This represents a
net annualized yield of 5.78%, based on a month-end net asset value
of $12.54 per share. Over the same period, the total investment
return on the Fund's Common Stock was -6.34%, based on a change in
per share net asset value from $14.14 to $12.54, and assuming
reinvestment of $0.729 per share income dividends.
For the six-month period ended October 31, 1999, the total
investment return on the Fund's Common Stock was -7.40%, based on a
change in per share net asset value from $13.93 to $12.54, and
assuming reinvestment of $0.361 per share income dividends.
For the six-month period ended October 31, 1999, the Fund's Auction
Market Preferred Stock had an average yield of 3.08% for Series A
and 2.96% for Series B.
The Municipal Market Environment
The combination of steady strong domestic economic growth,
improvement in foreign economies (most notably in Japan) and
increasing investor concerns regarding potential increases in US
inflation put upward pressure on bond yields throughout the 12-month
period ended October 31, 1999. Continued strong US employment
growth, particularly the decline in the US unemployment rate to 4.2%
in early June, was among the reasons the Federal Reserve Board cited
for raising short-term interest rates in late June and again in late
August. US Treasury bond yields reacted by climbing above 6.375% by
late October. However, by October 31, 1999, economic indicators were
released suggesting that despite strong economic and employment
growth in the third fiscal quarter of 1999, inflationary pressures
have remained extremely well-contained. This resulted in a
significant rally in the US Treasury bond market, pushing US
Treasury bond yields downward to approximately 6.15% by October 31,
1999. During the last six months, yields on 30-year US Treasury
bonds increased more than 50 basis points (0.50%).
Long-term tax-exempt bond yields also rose during the six months
ended October 31, 1999. Until early May, the municipal bond market
was able to withstand much of the upward pressure on bond yields.
However, investor concerns of additional moves by the Federal
Reserve Board to moderate US economic growth and, more importantly,
the loss of the strong technical support that the tax-exempt market
enjoyed in early 1999 helped push municipal bond yields
significantly higher for the remainder of the period. The yields on
long-term tax-exempt revenue bonds rose almost 90 basis points to
6.18% by October 31, 1999, as measured by the Bond Buyer Revenue
Bond Index.
In recent months, the significant decline in new tax-exempt bond
issuance has remained a positive factor within the municipal bond
market, as it had been for much of the past year. During the last
six months, more than $110 billion in long-term municipal bonds was
issued, a decline of almost 20% compared to the same period a year
ago. During the past three months, $55 billion in municipal bonds
was underwritten, representing a decline of nearly 10% compared to
the corresponding period in 1998. Additionally, in June and July,
investors received more than $40 billion in coupon income and
proceeds from bond maturities and early bond redemptions. These
proceeds have generated considerable retail investor interest, which
has helped absorb the recent diminished supply.
Although tax-exempt bond yields are at their highest level in over
two years and have attracted significant retail investor interest,
institutional demand has declined sharply. Long-term municipal
mutual funds have seen consistent outflows in recent months as the
yields of individual securities have risen faster than those of
larger, more diverse mutual funds. In addition, the demand from
property/casualty insurance companies has weakened as a result of
the losses, and anticipated losses, incurred as a result of the
series of damaging storms across much of the eastern United States.
Additionally, many institutional investors who were attracted to the
municipal bond market in recent years by historically attractive tax-
exempt bond yield ratios of over 90% have found other asset classes
even more attractive. Even with a reduced supply position, tax-
exempt issuers have been forced to repeatedly raise municipal bond
yields in the attempt to attract adequate demand.
MuniYield Arizona Fund, Inc.
October 31, 1999
The recent relative underperformance of the municipal bond market
has resulted in an opportunity for long-term investors to purchase
tax-exempt issues whose yields are nearly identical to taxable US
Treasury securities. At October 31, 1999, long-term uninsured
municipal revenue bond yields were 100% of comparable US Treasury
securities. In recent months, many taxable asset classes, such as
corporate bonds, mortgage-backed securities and US agency debt, have
all accelerated debt issuance. This acceleration was initiated
largely to avoid issuing securities at year-end and to minimize any
associated Year 2000 (Y2K) problems that may develop. However, this
increased issuance has also resulted in higher yield levels in the
various asset classes as lower bond prices became necessary to
attract sufficient investor demand. Going forward, it is believed
that the pace of non-US Government debt issuance is likely to slow
significantly. As the supply of this debt declines, we would expect
many institutional investors to return to the municipal bond market
and the attractive yield ratios available.
Looking ahead, it appears to us that long-term municipal bond yields
will remain under pressure, trading in a broad range centered near
current levels. Investors are likely to remain concerned about
future action by the Federal Reserve Board. Y2K considerations may
prohibit any further Federal Reserve Board moves through the end of
the year and the beginning of 2000. Any improvement in bond prices
will probably be contingent upon weakening in both US employment
growth and consumer spending. The 100 basis point rise in US
Treasury bond yields seen thus far this year may negatively affect
US economic growth. The US housing market will be among the first
sectors likely to be affected, as some declines have already been
evidenced in response to higher mortgage rates. We believe that it
is also unrealistic to expect double-digit returns in US equity
markets to continue indefinitely. Much of the US consumer's wealth
is tied to recent stock market appreciation. Any slowing in these
incredible growth rates is likely to reduce consumer spending. We
believe that these factors suggest that the worst of the recent
increase in bond yields has passed and stable, if not slightly
improving, bond prices may be expected.
Portfolio Strategy
For the six-month period ended October 31, 1999, we remained
defensively positioned in the municipal bond market. We remained
concerned about the bond market because domestic growth failed to
slow and since the Federal Reserve Board has seen the need to raise
short-term interest rates by 50 basis points (0.50%) as well as
maintain a tightening bias. Moreover, just after the close of the
period on November 16, 1999, the Federal Reserve Board raised
interest rates again with another 25 basis point increase.
To be defensive, we raised the Fund's cash reserve position during a
portion of the October period. We also sold longer-duration
municipal bonds to buy shorter-duration, less-volatile municipal
bonds in an effort to protect the Fund's net asset value for our
shareholders. We continue to remain focused on high-quality bonds
with approximately 80% of its holdings in bonds rated A or better by
at least one of the major rating agencies. Should the economy start
to slow or the Federal Reserve Board enter a cycle of not raising
interest rates, we will put our remaining cash to work to
participate in any bond market rally. We believe that following this
strategy will allow us to re-enter the marketplace at higher yield
levels, which would benefit the Fund's shareholders. (For a complete
explanation of the benefits and risks of leveraging, see page 4 of
this report to shareholders.)
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,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
(Hugh T. Hurley III)
Hugh T. Hurley III
Vice President and Portfolio Manager
December 2, 1999
MuniYield Arizona Fund, Inc.
October 31, 1999
<TABLE>
PROXY RESULTS
<CAPTION>
During the six-month period ended October 31, 1999, MuniYield
Arizona Fund, Inc.'s Common Stock shareholders voted on the
following proposal. Proposal 1 was not approved at a shareholders'
meeting on June 23, 1999. A description of the proposal and number
of shares voted are as follows:
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <C> <C> <C>
1. To approve an amendment to the Articles Supplementary of the Fund. 2,259,776 221,032 141,662
<CAPTION>
During the six-month period ended October 31, 1999, MuniYield
Arizona Fund, Inc.'s Preferred Stock shareholders voted on the
following proposal. Proposal 1 was not approved at a shareholders'
meeting on June 23, 1999. A description of the proposal and number
of shares voted are as follows:
Shares Shares Voted Shares Voted
Voted For Against Abstain
<S> <S> <C> <C> <C>
1. To approve an amendment to the Articles Supplementary
of the Fund as follows: Series A 98 50 1
Series B 151 85 6
</TABLE>
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.
MuniYield Arizona Fund, Inc.
October 31, 1999
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.
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, income 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 these securities.
MuniYield Arizona Fund, Inc.
October 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona--91.3%
<S> <S> <C> <S> <C>
AAA Aaa $ 325 Arizona State Municipal Financing Program, COP, Series 34, 7.25% due
8/01/2009 (b) $ 368
AA+ Aa1 3,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds, 6.80% due 7/01/2002 (h) 3,233
NR* Aaa 1,000 Arizona Student Loan Acquisition Authority, Student Loan Revenue Refunding Bonds,
AMT, Senior-Series A-1, 5.90% due 5/01/2024 970
AAA Aaa 1,000 Chandler, Arizona, Water and Sewer Revenue Bonds, 6.50% due 7/01/2006 (g)(h) 1,100
Coconino County, Arizona, Pollution Control Corporation, PCR (Nevada
Power Co. Project), AMT:
BBB NR* 1,500 6.375% due 10/01/2036 1,433
BBB NR* 3,000 Series B, 5.80% due 11/01/2032 2,607
A1+ P1 1,400 Coconino County, Arizona, Pollution Control Corporation Revenue Bonds (Arizona
Public Service Co.-Navajo Project), VRDN, AMT, Series A, 3.55% due 10/01/2029 (j) 1,400
AAA Aaa 605 Gilbert, Arizona, GO (Projects of 1988), Series C, 8.50% due 7/01/2004 (g)(h) 706
Glendale, Arizona, Development Authority, Educational Facilities Revenue Refunding
Bonds (American Graduate School International) (c):
AAA NR* 500 7% due 7/01/2005 (h) 558
AAA NR* 500 7.125% due 7/01/2005 (h) 561
AAA NR* 500 5.875% due 7/01/2015 501
AAA Aaa 1,750 Glendale, Arizona, IDA, Revenue Refunding Bonds (Midwestern University),
Series A, 5.375% due 5/15/2028 (g) 1,608
AAA Aaa 2,920 Maricopa County, Arizona, Alhambra Elementary School District Number 68, GO,
Refunding, Series A, 6.80% due 7/01/2011 (a) 3,078
BBB Baa1 2,405 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun Health Corporation),
6.125% due 4/01/2018 2,330
Maricopa County, Arizona, IDA, Hospital Facility Revenue Refunding Bonds
(Samaritan Health Services), Series A (d)(g):
AAA Aaa 500 7% due 12/01/2013 523
AAA Aaa 2,400 7% due 12/01/2016 2,722
NR* Aaa 1,000 Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds (Arborwood Apartments
Project), Series A, 5.05% due 10/01/2029 (g) 856
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding
(Public Service Company of New Mexico Project), Series A:
BBB- Baa3 2,125 5.75% due 11/01/2022 1,889
BBB- Baa3 2,250 6.30% due 12/01/2026 2,137
</TABLE>
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
M/F Multi-Family
PCR Pollution Control Revenue Bonds
VRDN Variable Rate Demand Notes
YCN Yield Curve Notes
MuniYield Arizona Fund, Inc.
October 31, 1999
<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>
AAA Aaa $ 500 Maricopa County, Arizona, Unified School District Number 3, GO, Refunding
(Tempe Elementary), 7.50% due 7/01/2010 (e) $ 589
AAA Aaa 1,000 Maricopa County, Arizona, Unified School District Number 4, Mesa,
Project of 1995, GO, Series B, 5% due 7/01/2012 (e) 952
AAA Aaa 1,500 Maricopa County, Arizona, Unified School District Number 11, Peoria, GO,
Refunding, 6.10% due 7/01/2010 (a) 1,578
AA Aa2 1,825 Maricopa County, Arizona, Unified School District Number 48, Scottsdale, GO,
6.60% due 7/01/2012 2,023
Maricopa County, Arizona, Unified School District Number 80, Chandler, GO (e):
AAA Aaa 405 6.25% due 7/01/2011 440
AAA Aaa 595 6.25% due 7/01/2011 (d) 637
AAA Aaa 3,500 Mesa, Arizona, Utility System Revenue Bonds, 6.125% due 7/01/2007 (e)(h) 3,795
AAA Aaa 1,000 Mohave County, Arizona, IDA, Hospital System Revenue Bonds (Baptist Hospital),
5.50% due 9/01/2021 (g) 938
AAA Aaa 2,700 Navajo County, Arizona, Pollution Control Corporation, Revenue Refunding Bonds
(Arizona Public Service), Series A, 5.875% due 8/15/2028 (a) 2,672
AA- Aaa 1,000 Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue Bonds,
Junior Lien, 6% due 7/01/2006 (h) 1,065
Phoenix, Arizona, GO:
AA+ Aa1 2,655 4.50% due 7/01/2019 2,199
AA+ Aa1 8,020 4.50% due 7/01/2022 6,480
AA+ Aa1 1,485 Phoenix, Arizona, GO, Refunding, Series A, 6% due 7/01/2011 1,576
AAA NR* 500 Pima County, Arizona, IDA, M/F Housing Revenue Bonds (Ria Nova and Villa Projects),
5.125% due 12/20/2018 (k)(l) 450
AAA Aaa 1,000 Pima County, Arizona, IDA, Revenue Refunding Bonds (Healthpartners), Series A,
5.625% due 4/01/2014 (g) 980
AAA Aaa 3,050 Pima County, Arizona, Unified School District Number 1, Tucson, GO, Refunding,
7.50% due 7/01/2009 (e) 3,580
Pinal County, Arizona, IDA, PCR (Newmont Mining), DATES (j):
A1+ P1 1,200 3.50% due 12/01/2009 1,200
A1+ P1 1,000 Series A, 3.50% due 12/01/2009 1,000
AA Aa1 4,250 Scottsdale, Arizona, Water and Sewer Revenue Bonds (Project of 1989),
Series E, 4.50% due 7/01/2023 3,413
AA+ Aa1 825 Tempe, Arizona, GO, Refunding, Series A, 5.35% due 7/01/2010 831
Tempe, Arizona, Unified High School District Number 213, GO (e):
AAA Aaa 5,000 (Project of 1998), Series B, 5.125% due 7/01/2011 4,891
AAA Aaa 1,000 School Improvements, 7% due 7/01/2008 1,132
AAA Aaa 1,000 Tucson, Arizona, GO, Series A, 5.375% due 7/01/2017 (g) 947
AAA Aaa 1,375 Tucson, Arizona, Local Development Business, Development Finance Corporation,
Lease Revenue Refunding Bonds, 6.25% due 7/01/2012 (e) 1,447
Tucson, Arizona, Water Revenue Refunding Bonds:
A+ A1 1,430 6.50% due 7/01/2016 (a) 1,495
AAA Aaa 2,500 5.125% due 7/01/2021 (e) 2,234
AA A1 1,345 University of Arizona, University Revenue Refunding Bonds, 6.25% due 6/01/2011 1,418
</TABLE>
MuniYield Arizona Fund, Inc.
October 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Puerto Rico -- 7.1%
<S> <S> <C> <S> <C>
Puerto Rico Commonwealth, GO:
A Baa1 $1,250 5.40% due 7/01/2025 $ 1,142
AAA Aaa 2,000 Refunding, YCN, 8.282% due 7/01/2020 (f)(i) 2,000
A-1+ VMIG1++ 800 Puerto Rico Commonwealth, Highway and Transportation Authority, Transportation
Revenue Refunding Bonds, VRDN, Series A, 3.10% due 7/01/2028 (a)(j) 800
AAA Aaa 2,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
LEVRRS, 8.208% due 7/01/2002 (f)(h)(i) 2,190
Total Investments (Cost--$86,133)--98.4% 84,674
Other Assets Less Liabilities--1.6% 1,413
--------
Net Assets--100.0% $ 86,087
========
<FN>
(a)AMBAC Insured.
(b)BIG Insured.
(c)Connie Lee Insured.
(d)Escrowed to maturity.
(e)FGIC Insured.
(f)FSA Insured.
(g)MBIA Insured.
(h)Prerefunded.
(i)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, 1999.
(j)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, 1999.
(k)FHA Insured.
(l)GNMA Collateralized.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
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, 1999
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 53.5%
AA/Aa 24.6
A/A 3.1
BBB/Baa 12.1
Other++ 5.1
[FN]
++Temporary investments in short-term securities.
MuniYield Arizona Fund, Inc.
October 31, 1999
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets, Liabilities and Capital as of October 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$86,132,534) (Note 1a) $ 84,673,848
Cash 68,252
Interest receivable 1,490,776
Prepaid expenses and other assets 3,042
------------
Total assets 86,235,918
------------
Liabilities: Payables:
Dividends to shareholders (Note 1e) $ 53,778
Investment adviser (Note 2) 41,663 95,441
------------
Accrued expenses 53,072
------------
Total liabilities 148,513
------------
Net Assets: Net assets $ 86,087,405
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (1,212 shares
of AMPS* issued and outstanding at $25,000 per share $ 30,300,000
liquidation preference) Common Stock, par value $.10
per share (4,450,418 shares issued and outstanding) $ 445,042
Paid-in capital in excess of par 60,632,835
Undistributed investment income--net 260,651
Accumulated realized capital losses on investments--net (Note 5) (4,092,437)
Unrealized depreciation on investments--net (1,458,686)
------------
Total--Equivalent to $12.54 net asset value per share of
Common Stock (market price--$11.5625) 55,787,405
------------
Total capital $ 86,087,405
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
October 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1999
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 4,870,704
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 453,632
Commission fees (Note 4) 76,884
Professional fees 69,542
Transfer agent fees 43,096
Accounting services (Note 2) 32,550
Directors' fees and expenses 23,291
Printing and shareholder reports 20,099
Listing fees 8,500
Custodian fees 8,102
Pricing fees 7,252
Other 14,619
------------
Total expenses 757,567
------------
Investment income--net 4,113,137
------------
Realized & Realized gain on investments--net 704,489
Unrealized Change in unrealized appreciation/depreciation on investments--net (7,817,444)
Gain (Loss) on ------------
Investments--Net Net Decrease in Net Assets Resulting from Operations $ (2,999,818)
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
October 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 4,113,137 $ 4,245,525
Realized gain on investments--net 704,489 1,404,768
Change in unrealized appreciation/depreciation on
investments--net (7,817,444) 946,928
------------ ------------
Net increase (decrease) in net assets resulting from operations (2,999,818) 6,597,221
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (3,237,241) (3,211,182)
(Note 1e): Preferred Stock (905,157) (1,035,031)
------------ ------------
Net decrease in net assets resulting from dividends
to shareholders (4,142,398) (4,246,213)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends 250,108 42,519
(Note 4): ------------ ------------
Net Assets:
Total increase (decrease) in net assets (6,892,108) 2,393,527
Beginning of year 92,979,513 90,585,986
------------ ------------
End of year* $ 86,087,405 $ 92,979,513
============ ============
<FN>
*Undistributed investment income--net $ 260,651 $ 289,912
============ ============
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
October 31, 1999
<TABLE>
FINANCIAL INFORMATION (concluded)
<CAPTION>
Financial Highlights
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: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 14.14 $ 13.61 $ 13.06 $ 13.29 $ 11.33
Operating -------- ------- ------- ------- -------
Performance: Investment income--net .92 .95 .96 .98 1.03
Realized and unrealized gain (loss) on
investments--net (1.59) .53 .54 (.20) 2.01
-------- ------- ------- ------- -------
Total from investment operations (.67) 1.48 1.50 .78 3.04
-------- ------- ------- ------- -------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.73) (.72) (.72) (.76) (.77)
-------- ------- ------- ------- -------
Capital charge resulting from issuance of
Common Stock -- -- -- (.02) (.05)
-------- ------- ------- ------- -------
Effect of Preferred Stock activity:++++
Dividends and distributions to
Preferred Stock shareholders:
Investment income--net (.20) (.23) (.23) (.23) (.26)
-------- ------- ------- ------- -------
Total effect of Preferred Stock activity (.20) (.23) (.23) (.23) (.26)
-------- ------- ------- ------- -------
Net asset value, end of year $ 12.54 $ 14.14 $ 13.61 $ 13.06 $ 13.29
======== ======= ======= ======= =======
Market price per share, end of year $11.5625 $14.125 $12.875 $12.125 $ 11.75
======== ======= ======= ======= =======
Total Investment Based on market price per share (13.55%) 15.74% 12.46% 9.70% 21.04%
Return:* ======== ======= ======= ======= =======
Based on net asset value per share (6.34%) 9.61% 10.37% 4.47% 25.37%
======== ======= ======= ======= =======
Ratios Based on Total expenses, net of reimbursement** 1.25% 1.22% 1.29% 1.00% 1.01%
Average Net Assets ======== ======= ======= ======= =======
Of Common Stock: Total expenses** 1.25% 1.22% 1.35% 1.32% 1.75%
======== ======= ======= ======= =======
Total investment income--net** 6.78% 6.88% 7.16% 7.50% 9.85%
======== ======= ======= ======= =======
Amount of dividends to
Preferred Stock shareholders 1.49% 1.68% 1.74% 1.74% 2.44%
======== ======= ======= ======= =======
Investment income--net, to Common Stock
shareholders 5.29% 5.20% 5.42% 5.76% 7.41%
======== ======= ======= ======= =======
Ratios Based on Total expenses, net of reimbursement .83% .82% .85% .66% .55%
Total Average ======== ======= ======= ======= =======
Net Assets:**++ Total expenses .83% .82% .89% .87% .95%
======== ======= ======= ======= =======
Total investment income--net 4.53% 4.63% 4.73% 4.93% 5.33%
======== ======= ======= ======= =======
Ratios Based on Dividends to Preferred Stock shareholders 2.99% 3.42% 3.38% 3.35% 2.89%
Average Net ======== ======= ======= ======= =======
Assets Of
Preferred Stock:
Supplemental Net assets, net of Preferred Stock, end of
Data: year (in thousands) $ 55,787 $62,680 $60,286 $57,857 $58,885
======== ======= ======= ======= =======
Preferred Stock outstanding, end of
year (in thousands) $ 30,300 $30,300 $30,300 $30,300 $30,300
======== ======= ======= ======= =======
Portfolio turnover 29.48% 39.58% 34.49% 31.75% 75.93%
======== ======= ======= ======= =======
Leverage: Asset coverage per $1,000 $ 2,841 $ 3,069 $ 2,990 $ 2,909 $ 2,943
======== ======= ======= ======= =======
Dividends Per Series A--Investment income--net $ 756 $ 842 $ 820 $ 824 $ 953
Share On ======== ======= ======= ======= =======
Preferred Stock Series B--Investment income--net $ 740 $ 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 charges.
**Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Includes Common and Preferred Stock average net assets.
++++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, 1999
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's financial statements are
prepared in accordance with generally accepted accounting
principles, which may require the use of management accruals and
estimates. 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
requiredby 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.
MuniYield Arizona Fund, Inc.
October 31, 1999
(e) 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 .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, 1999 were $25,138,350 and
$27,467,059, respectively.
Net realized gains for the year ended October 31, 1999 and net
unrealized losses as of October 31, 1999 were as follows:
Realized Unrealized
Gains Losses
Long-term investments $ 197,923 $(1,458,686)
Financial futures 506,566 --
---------- -----------
Total $ 704,489 $(1,458,686)
========== ===========
As of October 31, 1999, net unrealized depreciation for Federal
income tax purposes aggregated $1,458,686, of which $1,921,687
related to appreciated securities and $3,380,373 related to
depreciated securities. The aggregate cost of investments at October
31, 1999 for Federal income tax purposes was $86,132,534.
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 years ended October 31,
1999 and October 31, 1998 increased by 18,085 and 3,007,
respectively, as a result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.10 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, 1999 were as follows: Series A, 3.34% and Series B, 3.45%.
Shares issued and outstanding during the years ended October 31,
1999 and October 31, 1998 remained constant.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from .25% to .375%,
calculated on the proceeds of each auction. For the year ended
October 31, 1999, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $32,821 as commissions.
5. Capital Loss Carryforward:
At October 31, 1999, the Fund had a net capital loss carryforward of
approximately $3,836,000, of which $2,583,000 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 8, 1999, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.057870 per share, payable on November 29, 1999 to shareholders
of record as of November 22, 1999.
MuniYield Arizona Fund, Inc.
October 31, 1999
<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, 1999, 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, 1999 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, 1999, 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 9, 1999
</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, 1999
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, 1999
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to
designate years. These systems may not be able to distinguish the
Year 2000 from the Year 1900 (commonly known as the "Year 2000
Problem"). The Fund could be adversely affected if the computer
systems used by the Fund's management or other Fund service
providers do not properly address this problem before January 1,
2000. The Fund's management expects to have addressed this problem
before then, and does not anticipate that the services it provides
will be adversely affected. The Fund's other service providers have
told the Fund's management that they also expect to resolve the Year
2000 Problem, and the Fund's management will continue to monitor the
situation as the Year 2000 approaches. However, if the problem has
not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the
securities in which the Fund invests, and this could hurt the Fund's
investment returns.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert L. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, 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:
The Bank of New York
100 Church Street
New York, NY 10286
ASE Symbol
MZA
