MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Semi-Annual Report
April 30, 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 repre-
sentation 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 six months ended April 30, 1999, the Common Stock of
MuniYield Arizona Fund, Inc. earned $0.368 per share income
dividends, which included earned and unpaid dividends of $0.061.
This represents a net annualized yield of 5.32%, based on a month-
end per share net asset value of $13.93. Over the same period, the
total investment return on the Fund's Common Stock was +1.14%, based
on a change in per share net asset value from $14.14 to $13.93, and
assuming reinvestment of $0.368 per share income dividends.
For the six-month period ended April 30, 1999, the Fund's Auction
Market Preferred Stock had an average yield of 2.99% for Series A
and 2.98% for Series B.
The Municipal Market Environment
During the six months ended April 30, 1999, long-term bond yields
generally moved higher. From November 1998 through mid-January 1999,
long-term bond yields traded in a relatively narrow range. However,
during February, a number of economic indicators were released that
suggested that economic growth in the United States would likely
remain strong throughout most of 1999. Consequently, long-term US
Treasury bond yields rose more than 60 basis points (0.60%) to 5.70%
by early March. During the remainder of the six-month period, US
Treasury bond yields traded between 5.50% and 5.70% as the lack of
inflationary pressures offset much of the concerns generated by
continued strong economic growth. During most of the period, long-
term, uninsured tax-exempt bond yields exhibited far less volatility
and were largely stable. Also, long-term municipal bond yields rose
just 5 basis points to 5.29% at the end of April 1999, as measured
by the Bond Buyer Revenue Bond Index.
In recent months, the tax-exempt market was better able to withstand
much of the upward pressure on bond yields because of its stronger
technical position. While the continued positive inflationary
environment limited some of the recent increases in taxable bond
yields, a deteriorating supply/demand position helped push taxable
bond yields significantly higher than municipal bond yields. Much of
the US Treasury bond market's underperformance in recent months can
be attributed to the large amounts of taxable corporate issuance.
Large taxable corporate underwritings reduced the demand for US
Government securities in recent months, pushing US Treasury bond
yields higher.
On the other hand, the tax-exempt bond market enjoyed only limited
new-issue supply. During the six months ended April 30, 1999, more
than $123 billion in new long-term tax-exempt securities was
underwritten, a decline of 10% compared to the same period a year
ago. Municipalities issued less than $60 billion in long-term tax-
exempt securities during the three months ended April 30, 1999, a
decline of 25% compared to the April 30, 1998 quarter. More
recently, the rate of new tax-exempt issuance has declined even
further. During April 1999, just over $15 billion in long-term tax-
exempt securities was marketed, a decline of over 33% compared to
April 1998 levels. As municipal bond yields fell and stabilized in
recent quarters, the ability of municipalities to refinance existing
higher-couponed debt declined. This led to a significant decrease in
refunding issuance and an overall drop in new municipal bond supply.
When coupled with ongoing, moderate retail and institutional demand,
the tax-exempt bond market was able to avoid much of the yield
volatility exhibited by US Treasury securities.
Looking ahead, the expected combination of moderate economic growth
in the United States and continued negligible inflation suggests a
relatively stable interest rate environment. However, in recent
years, bond yields reached their annual peaks in early May and
declined for the remainder of the year. A meaningful decline in
fixed-income bond yields would require either evidence of a
significant slowdown in the US economy or the resumption of concerns
regarding renewed shocks to the world's economic system. Currently,
neither condition exists or seems likely in the immediate future. In
our opinion, this suggests a continuation of the narrow trading
ranges seen in recent months.
MuniYield Arizona Fund, Inc.
April 30, 1999
Portfolio Strategy
During the six-month period ended April 30, 1999, we shifted our
strategy to a neutral-to-defensive outlook toward the municipal bond
market. We changed our previously positive view because a domestic
slowdown did not materialize and the global economy appears to have
bottomed. We increased our cash position and moved to the sidelines
while we awaited further economic data. At April 30, 1999, we
maintained approximately 75% of the Fund's holdings in bonds rated A
or better by at least one of the major rating agencies.
Currently, inflation continues to be negligible and does not present
any problem. However, with a robust domestic economy and a global
economy showing signs of life, we are carefully monitoring the
environment for any signs of inflation. Should the domestic economy
cool, we would look for an opportunity to re-enter the municipal
bond marketplace at higher yield levels.
Short-term tax-exempt yields exhibited considerable volatility in
recent months. Interest rates paid to the Fund's Preferred Stock
shareholders traded below 3% in December 1998, reflecting heightened
investor demand at year-end. Current short-term interest rate levels
reflect tax season-related pressures, which we expect to abate soon.
During the six-month period ended April 30, 1999, leveraging
generated a significant incremental yield to the Fund's Common Stock
shareholders. Because we believe that the Federal Reserve Board's
monetary policy is likely to remain in a narrow range for the
remainder of the year, we expect short-term tax-exempt interest
rates to remain at, or slightly below, current levels. However,
should the spread between short-term and long-term interest rates
narrow, the benefits of the leverage will decline and, as a result,
reduce the yield to the Fund's Common Stock. (For a complete
explanation of the benefits and risks of leveraging, see page 4 of
this report to shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniYield Arizona Fund, Inc.,
and we look forward to serving your investment needs in the months
and years to come.
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
June 4, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on MuniYield Arizona Fund, Inc.'s
Board of Directors. We are pleased to announce that Terry K. Glenn
has been elected President and Director of the Fund. Mr. Glenn has
held the position of Executive Vice President of MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
MuniYield Arizona Fund, Inc.
April 30, 1999
<TABLE>
PROXY RESULTS
<CAPTION>
During the six-month period ended April 30, 1999, MuniYield Arizona
Fund, Inc.'s Common Stock shareholders voted on the following
proposals. Proposals 1 and 2 were approved at a shareholders'
meeting on April 21, 1999. The meeting was adjourned with respect to
Proposal 3. The description of each proposal and number of shares
voted are as follows:
Shares Shares Withheld
Voted For From Voting
<C> <S> <C> <C>
1. To elect the Fund's Directors: Terry K. Glenn 4,280,149 60,007
James H. Bodurtha 4,276,047 64,109
Herbert I. London 4,278,847 61,309
Robert R. Martin 4,276,295 63,861
Arthur Zeikel 4,269,915 70,241
Shares Shares Voted Shares Voted
Voted For Against Abstain
2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 4,228,087 68,736 43,333
3. To approve an amendment to the Articles Supplementary
of the Fund. Adjourned Adjourned Adjourned
<CAPTION>
During the six-month period ended April 30, 1999, MuniYield Arizona
Fund, Inc.'s Preferred Stock shareholders voted on the following
proposals. Proposals 1 and 2 were approved at a shareholders'
meeting on April 21, 1999. The meeting was adjourned with respect to
Proposal 3. The description of each proposal and number of shares
voted are as follows:
<C> <S> <C> <S> <S>
Shares Shares Withheld
Voted For From Voting
1. To elect the Fund's Board of Directors:
Terry K. Glenn, James H. Bodurtha,
Herbert I. London, Robert R. Martin,
Joseph L. May, Andre F. Perold and
Arthur Zeikel as follows: Series A 504 0
Series B 623 5
Shares Shares Voted Shares Voted
Voted For Against Abstain
2. To ratify the selection of Deloitte &
Touche LLP as the Fund's independent
auditors for the current fiscal year
as follows: Series A 504 0 0
Series B 628 0 0
3.To approve an amendment to the Articles Supplementary
of the Fund. Adjourned Adjourned Adjourned
</TABLE>
MuniYield Arizona Fund, Inc.
April 30, 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.
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
PCR Pollution Control Revenue Bonds
VRDN Variable Rate Demand Notes
YCN Yield Curve Notes
MuniYield Arizona Fund, Inc.
April 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Arizona--91.5%
<S> <S> <C> <S> <C>
AAA Aaa $ 325 Arizona State Municipal Financing Program, COP, Series 34, 7.25% due 8/01/2009 (b) $ 394
AA+ Aa1 3,000 Arizona State Wastewater Management Authority, Wastewater Treatment Financial
Assistance Revenue Bonds, 6.80% due 7/01/2011 3,310
AAA Aaa 1,000 Chandler, Arizona, Water and Sewer Revenue Bonds, 6.50% due 7/01/2006 (g)(h) 1,153
Coconino County, Arizona, Pollution Control Corporation, PCR (Nevada Power Co.
Project), AMT:
BBB NR* 1,750 6.375% due 10/01/2036 1,883
BBB NR* 3,000 Series B, 5.80% due 11/01/2032 3,029
A1+ P1 400 Coconino County, Arizona, Pollution Control Corporation Revenue Bonds (Arizona Public
Service-Navajo Project), VRDN, AMT, Series A, 4.25% due 10/01/2029 (j) 400
BBB- Baa3 4,000 Gila County, Arizona, IDA, Revenue Refunding Bonds (Environmental--Asarco Inc.),
5.55% due 1/01/2027 3,900
AAA Aaa 605 Gilbert, Arizona, GO (Projects of 1988), Series C, 8.50% due 7/01/2004 (g)(h) 737
Glendale, Arizona, Development Authority, Educational Facilities Revenue Refunding
Bonds (American Graduate School International) (c):
AAA NR* 500 7% due 7/01/2005 (h) 583
AAA NR* 500 7.125% due 7/01/2005 (h) 586
AAA NR* 500 5.875% due 7/01/2015 536
AAA Aaa 2,000 Glendale, Arizona, IDA, Revenue Refunding Bonds (Midwestern University), Series A,
5.375% due 5/15/2028 (g) 2,048
AAA Aaa 2,920 Maricopa County, Arizona, Elementary School District Number 68 (Alhambra), GO,
Series A, 6.80% due 7/01/2011 (a) 3,081
BBB Baa1 2,505 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun Health Corporation),
6.125% due 4/01/2018 2,671
AA+ NR* 3,000 Maricopa County, Arizona, IDA, Hospital Facility Revenue Bonds (Mayo Clinic Hospital),
5.25% due 11/15/2037 2,966
Maricopa County, Arizona, IDA, Hospital Facility Revenue Refunding Bonds (Samaritan
Health Services), Series A (g):
AAA Aaa 500 7% due 12/01/2013 535
AAA Aaa 2,400 7% due 12/01/2016 3,019
Maricopa County, Arizona, Pollution Control Corporation, PCR, Refunding, Series A:
BB+ Ba1 2,125 (Public Service Company), 5.75% due 11/01/2022 2,126
BB+ Ba1 2,500 (Public Service Company of New Mexico Project), 6.30% due 12/01/2026 2,625
</TABLE>
MuniYield Arizona Fund, Inc.
April 30, 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, School District Number 3 (Tempe Elementary), GO,
Refunding, 7.50% due 7/01/2010 (e) $ 629
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) 1,021
AAA Aaa 1,500 Maricopa County, Arizona, Unified School District Number 11 (Peoria),
GO, Refunding, 6.10% due 7/01/2010 (a) 1,643
AA Aa2 1,825 Maricopa County, Arizona, Unified School District Number 48 (Scottsdale),
GO, 6.60% due 7/01/2012 2,178
Maricopa County, Arizona, Unified School District Number 80 (Chandler), GO (e):
AAA Aaa 595 6.25% due 7/01/2011 683
AAA Aaa 405 6.25% due 7/01/2011 (d) 470
AAA Aaa 4,000 Mesa, Arizona, Utility System Revenue Bonds, 6.125% due 7/01/2007 (e)(h) 4,550
AAA Aaa 1,000 Mohave County, Arizona, IDA, Hospital System Revenue Bonds (Baptist Hospital),
5.50% due 9/01/2021 (g) 1,035
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) 2,896
AA- Aaa 1,000 Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue Bonds (Junior
Lien), 6% due 7/01/2006 (h) 1,115
Phoenix, Arizona, GO:
AA+ Aa1 2,655 4.50% due 7/01/2019 2,475
AA+ Aa1 8,020 4.50% due 7/01/2022 7,411
AA+ Aa1 1,485 Phoenix, Arizona, GO, Refunding, Series A, 6% due 7/01/2011 1,683
AAA Aaa 1,000 Pima County, Arizona, IDA, Revenue Refunding Bonds (Healthpartners),
Series A, 5.625% due 4/01/2014 (g) 1,066
AAA Aaa 3,050 Pima County, Arizona, Unified School District Number 1 (Tucson), GO,
Refunding, 7.50% due 7/01/2009 (e) 3,800
Pinal County, Arizona, IDA, PCR (Newmont Mining), DATES (j):
A1+ P1 2,500 4% due 12/01/2009 2,500
A1+ P1 2,100 Series A, 4% due 12/01/2009 2,100
AA Aa1 4,250 Scottsdale, Arizona, Water and Sewer Revenue Bonds (Project of 1989),
Series E, 4.50% due 7/01/2023 3,903
AA+ Aa1 825 Tempe, Arizona, GO, Refunding, Series A, 5.35% due 7/01/2010 885
AAA Aaa 1,000 Tempe, Arizona, Unified High School District Number 213 (School Improvements),
GO, 7% due 7/01/2008 (e) 1,196
AAA Aaa 1,000 Tucson, Arizona, GO, Series A, 5.375% due 7/01/2017 (g) 1,029
AAA Aaa 1,375 Tucson, Arizona, Local Development Business, Development Finance Corporation,
Lease Revenue Refunding Bonds, 6.25% due 7/01/2012 (e) 1,489
A+ A1 1,430 Tucson, Arizona, Water Revenue Refunding Bonds, 6.50% due 7/01/2016 (a) 1,536
AA A1 1,345 University of Arizona, University Revenue Refunding Bonds, 6.25% due 6/01/2011 1,458
</TABLE>
MuniYield Arizona Fund, Inc.
April 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
Puerto Rico--6.3%
<S> <S> <C> <S> <C>
A Baa1 $1,250 Puerto Rico Commonwealth, GO, 5.40% due 7/01/2025 $ 1,283
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, Refunding, YCN, 7.982% due 7/01/2020 (f)(i) 2,255
AAA Aaa 2,000 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds,
LEVRRS, 5.9291% due 7/01/2002 (f)(h)(i) 2,298
Total Investments (Cost--$85,570)--97.8% 90,169
Variation Margin**--0.3% 230
Other Assets Less Liabilities--1.9% 1,792
--------
Net Assets--100.0% $ 92,191
========
<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 April 30, 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 April 30, 1999.
*Not Rated.
**Financial futures contracts sold as of April 30, 1999 were as
follows:
(in Thousands)
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
113 US Treasury Bonds June 1999 $ 13,581
Total Financial Futures Contracts Sold
(Total Contract Price--$13,820) $ 13,581
See Notes to Financial Statements.
</TABLE>
QUALITY PROFILE
The quality ratings of securities in the Fund as of
April 30, 1999 were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 43.2%
AA/Aa 28.5
A/A 3.1
BBB/Baa 12.5
BB/Ba 5.1
Other++ 5.4
[FN]
++Temporary investments in short-term securities.
MuniYield Arizona Fund, Inc.
April 30, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$85,570,169) (Note 1a) $ 90,168,630
Cash 297,283
Receivables:
Interest $ 1,574,026
Variation margin (Note 1b) 229,531 1,803,557
------------
Prepaid expenses and other assets 4,753
------------
Total assets 92,274,223
------------
Liabilities: Payables:
Investment adviser (Note 2) $ 40,422
Dividends to shareholders (Note 1e) 11,645 52,067
------------
Accrued expenses 30,827
------------
Total liabilities 82,894
------------
Net Assets: Net assets $ 92,191,329
============
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 (4,444,063
shares issued and outstanding) $ 444,406
Paid-in capital in excess of par 60,547,807
Undistributed investment income--net 291,986
Accumulated realized capital losses on investments--net (Note 5) (4,230,675)
Unrealized appreciation on investments--net 4,837,805
------------
Total--Equivalent to $13.93 net asset value per share of
Common Stock (market price--$14.375) 61,891,329
------------
Total capital $ 92,191,329
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
April 30, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six
Months Ended
April 30, 1999
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,469,884
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 230,916
Commission fees (Note 4) 40,047
Professional fees 36,720
Transfer agent fees 21,078
Accounting services (Note 2) 12,907
Directors' fees and expenses 12,033
Printing and shareholder reports 11,309
Custodian fees 4,514
Listing fees 4,427
Pricing fees 3,632
Other 6,569
------------
Total expenses 384,152
------------
Investment income--net 2,085,732
------------
Realized & Realized gain on investments--net 566,252
Unrealized Change in unrealized appreciation on investments--net (1,520,953)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 1,131,031
(Notes 1b, 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
April 30, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Asets
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 2,085,732 $ 4,245,525
Realized gain on investments--net 566,252 1,404,768
Change in unrealized appreciation on investments--net (1,520,953) 946,928
------------ ------------
Net increase in net assets resulting from operations 1,131,031 6,597,221
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (1,633,045) (3,211,182)
(Note 1e): Preferred Stock (450,613) (1,035,031)
------------ ------------
Net decrease in net assets resulting from
dividends to shareholders (2,083,658) (4,246,213)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders
Transactions in reinvestment of dividends 164,443 42,519
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (788,184) 2,393,527
Beginning of period 92,979,513 90,585,986
------------ ------------
End of period* $ 92,191,329 $ 92,979,513
============ ============
<FN>
*Undistributed investment income--net $ 291,986 $ 289,912
============ ============
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc.
April 30, 1999
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the
April 30, 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 period $ 14.14 $ 13.61 $ 13.06 $ 13.29 $ 11.33
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .47 .95 .96 .98 1.03
Realized and unrealized gain (loss) on
investments--net (.21) .53 .54 (.20) 2.01
-------- -------- -------- -------- --------
Total from investment operations .26 1.48 1.50 .78 3.04
-------- -------- -------- -------- --------
Less dividends to Common Stock shareholders:
Investment income--net (.37) (.72) (.72) (.76) (.77)
-------- -------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock -- -- -- (.02) (.05)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income--net (.10) (.23) (.23) (.23) (.26)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.10) (.23) (.23) (.23) (.26)
-------- -------- -------- -------- --------
Net asset value, end of period $ 13.93 $ 14.14 $ 13.61 $ 13.06 $ 13.29
======== ======== ======== ======== ========
Market price per share, end of period $ 14.375 $ 14.125 $ 12.875 $ 12.125 $ 11.75
======== ======== ======== ======== ========
Total Investment Based on market price per share 4.48%+++ 15.74% 12.46% 9.70% 21.04%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 1.14%+++ 9.61% 10.37% 4.47% 25.37%
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .83%* .82% .85% .66% .55%
Net Assets:*** ======== ======== ======== ======== ========
Expenses .83%* .82% .89% .87% .95%
======== ======== ======== ======== ========
Investment income--net 4.51%* 4.63% 4.73% 4.93% 5.33%
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $ 61,891 $ 62,680 $ 60,286 $ 57,857 $ 58,885
======== ======== ======== ======== ========
Preferred Stock outstanding, end of
period (in thousands) $ 30,300 $ 30,300 $ 30,300 $ 30,300 $ 30,300
======== ======== ======== ======== ========
Portfolio turnover 17.33% 39.58% 34.49% 31.75% 75.93%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,043 $ 3,069 $ 2,990 $ 2,909 $ 2,943
======== ======== ======== ======== ========
Dividends Series A--Investment income--net $ 373 $ 842 $ 820 $ 824 $ 953
Per Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net $ 371 $ 863 $ 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, 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.
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 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.
MuniYield Arizona Fund, Inc.
April 30, 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 Transac-
tions 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, 1999 were $15,517,955 and
$19,432,237, respectively.
Net realized gains for the six months ended April 30, 1999 and net
unrealized gains as of April 30, 1999 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $ 566,252 $ 4,598,461
Financial futures -- 239,344
----------- -----------
Total $ 566,252 $ 4,837,805
=========== ===========
As of April 30, 1999, net unrealized appreciation for Federal income
tax purposes aggregated $4,598,461, of which $4,845,592 related to
appreciated securities and $247,131 related to depreciated
securities. The aggregate cost of investments at April 30, 1999 for
Federal income tax purposes was $85,570,169.
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,
1999 and the year ended October 31, 1998 increased by 11,730 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 $.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 April
30, 1999 were as follows: Series A, 3.55% and Series B, 3.50%.
Shares issued and outstanding during the six months ended April 30,
1999 and the year ended 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 0.25% to 0.375%,
calculated on the proceeds of each auction. For the six months ended
April 30, 1999, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
an affiliate of FAM, earned $16,563 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 May 6, 1999, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.061117 per share, payable on May 27, 1999 to shareholders of
record as of May 21, 1999.
MuniYield Arizona Fund, Inc.
April 30, 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.
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.
April 30, 1999
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
Gerald M. Richard, Treasurer and Philip M. Mandel, Secretary of
MuniYield Arizona Fund, Inc. have recently retired. Their colleagues
at Merrill Lynch Asset Management, L.P. join the Fund's Board of
Directors in wishing Mr. Richard and Mr. Mandel well in their
retirements.
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 Whitehall Bank & Trust Company
One State Street
New York, NY 10004
ASE Symbol
MZA
