MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Semi-Annual Report
April 30, 2000
MuniYield Arizona Fund, Inc. seeks to provide shareholders with as
high a level of current income exempt from Federal and Arizona taxes
as is consistent with its investment policies and prudent investment
management by investing primarily in a portfolio of long-term,
investment-grade municipal obligations the interest on which, in the
opinion of bond counsel to the issuer, is exempt from Federal and
Arizona income taxes.
This report, including the financial information herein, is
transmitted to shareholders of MuniYield Arizona Fund, Inc. for
their information. It is not a prospectus. Past performance results
shown in this report should not be considered a representation of
future performance. The Fund has leveraged its Common Stock by
issuing Preferred Stock to provide the Common Stock shareholders
with a potentially higher rate of return. Leverage creates risks for
Common Stock shareholders, including the likelihood of greater
volatility of net asset value and market price of shares of the
Common Stock, and the risk that fluctuations in the short-term
dividend rates of the Preferred Stock may affect the yield to Common
Stock shareholders. Statements and other information herein are as
dated and are subject to change.
MuniYield Arizona Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MUNIYIELD ARIZONA FUND, INC.
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., April 30, 2000
TO OUR SHAREHOLDERS
For the six months ended April 30, 2000, the Common Stock of
MuniYield Arizona Fund, Inc. earned $0.341 per share income
dividends, which included earned and unpaid dividends of $0.057.
This represents a net annualized yield of 5.46%, based on a month-
end per share net asset value of $12.55. Over the same period, the
total investment return on the Fund's Common Stock was +3.30%, based
on a change in per share net asset value from $12.54 to $12.55, and
assuming reinvestment of $0.342 per share income dividends.
For the six-month period ended April 30, 2000, the Fund's Auction
Market Preferred Stock had an average yield of 3.84% for Series A
and 3.90% for Series B.
The Municipal Market Environment
Since October 1999 through mid-January 2000, fixed-income bond
yields rose steadily higher. US economic growth, in part intensified
by Year 2000 preparations, grew at a 7.3% rate in the fourth quarter
of 1999 and at a 4.2% annual rate for all of 1999. Initial estimates
for the first quarter of 2000 were reported at 5.4%. However,
despite these significant growth rates, no price measure indicator
has shown any considerable signs of future price pressures at the
consumer level, despite the lowest unemployment rates since January
1970. Given no signs of an economic slowdown, the Federal Reserve
Board continued to raise short-term interest rates in November 1999
and again in February and March 2000. In each instance, the Federal
Reserve Board cited both the continued growth of US employment and
the impressive strength of the US equity markets as reasons for
attempting to moderate US economic growth before inflationary price
increases are realized. By mid-January 2000, US Treasury bond yields
rose 60 basis points (0.60%) to 6.75%. Similarly, as measured by the
Bond Buyer Revenue Bond Index, long-term tax-exempt bond yields rose
approximately 20 basis points to 6.35%.
Since mid-January, fixed-income markets have largely ignored strong
economic fundamentals and concentrated on very positive technical
supply factors. Declining bond issuance, both current, and more
importantly, expected future issuance, helped push bond yields lower
from mid-January to mid-April 2000. In late January and early
February 2000, the US Treasury announced its intention to reduce the
number of issues to be auctioned in the quarterly Treasury note and
bond auctions. Furthermore, budgetary surpluses would allow the US
Treasury to repurchase outstanding, higher-couponed Treasury issues,
primarily in the 15-year and longer-term maturity sectors. Both
these actions would result in a significant reduction in the
outstanding supply of long-term US Treasury debt. Domestic and
international investors quickly began to accumulate what was
expected to become a scarce commodity and bond prices quickly rose.
By mid-April 2000, US Treasury bond yields had declined over 100
basis points to 5.67%. However, bond yields rose somewhat during the
last two weeks of the period as economic statistics were released,
indicating that the economic strength seen in late 1999 was
continuing into early 2000. The decline in long-term US Treasury
bond yields resulted in an inverted taxable yield curve as short-
term and intermediate-term interest rates have not fallen
proportionately since the Federal Reserve Board is expected to
continue to raise short-term interest rates. The current inversion
has had much more to do with debt reduction and Treasury buybacks
than with investor expectations of slower economic growth. Over the
last six months, long-term US Treasury bond yields have fallen
almost 20 basis points to close the six-month period ended April 30,
2000 at 5.96%.
Tax-exempt bond yields have also declined in recent months. The
decline has largely been in response to the rally in US Treasury
securities, as well as a continued positive technical supply
environment. States such as California and Maryland have announced
that their large current and anticipated future budget surpluses
will permit the cancellation or postponement of expected bond
issuance. Additionally, some issuers have also initiated tenders to
repurchase existing debt, reducing the supply of tax-exempt bonds in
the secondary market as well. Since their recent peak in January
2000, long-term municipal bond yields declined over 25 basis points
to finish the six-month period ended April 30, 2000 at 6.07%. During
the last six months, municipal bond yields declined just 10 basis
points overall.
The relative underperformance of the municipal bond market in recent
months has been especially disappointing given the strong technical
position the tax-exempt bond market enjoyed. The issuance of long-
term tax-exempt securities has dramatically declined. Over the last
year, $203 billion in new long-term municipal securities was issued,
a decline of almost 25% compared to the same period a year earlier.
For the six months ended April 30, 2000, approximately $90 billion
in new tax-exempt bonds was underwritten, a decline of more than 25%
compared to the same period in 1999. Although investors received
over $30 billion in coupon payments, bond maturities and the
proceeds from early bond redemptions, coupled with the highest
municipal bond yields in three years, overall investor demand has
diminished. Long-term municipal bond 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. Over the last four months, tax-exempt mutual funds
have had net redemptions of more than $8 billion. Also, the demand
from property and casualty insurance companies has weakened as a
result of the losses and anticipated losses incurred from a series
of damaging storms across much of the eastern United States.
Additionally, many institutional investors who have in recent years
been attracted to the municipal bond market by historically
attractive tax-exempt bond yield ratios of over 90% found other
asset classes even more attractive. Even with a favorable supply
position, tax-exempt municipal bond yields have underperformed their
taxable counterparts.
Any significantly lower municipal bond yields are still likely to
require weaker US employment growth and consumer spending. The
actions taken in recent months by the Federal Reserve Board should
eventually slow US economic growth. The recent declines in US home
sales are perhaps the first sign that consumer spending is being
slowed by higher interest rates. Until further signs develop, it is
likely that the municipal bond market's current favorable technical
position will dampen significant tax-exempt interest rate volatility
and provide a stable environment for eventual improvement in
municipal bond prices.
Portfolio Strategy
During the six-month period ended April 30, 2000, we maintained a
neutral position toward the municipal bond market. With tax-exempt
bonds offering some of the highest yields since mid-1996, we found
it advantageous to spend a portion of the Fund's cash reserves and
purchase bonds with attractive yields. Our portfolio strategy
focused on raising the Fund's current yield in an effort to increase
portfolio income and provide more stability to the Fund's net asset
value. We pursued this goal by generally selling lower-coupon bonds
in exchange for higher-coupon bonds. We implemented these measures
in part to offset the rise in short-term interest rate levels paid
to the Preferred Stock shareholders.
The Fund's cost of borrowing increased somewhat in recent months as
short-term tax-exempt interest rates rose along with the adjustment
evident in the taxable market. Long-term tax-exempt interest rates
have actually declined modestly, causing the municipal yield curve
to flatten. While this flattening has reduced the incremental yield
enhancement resulting from leveraging the Fund's Common Stock, it is
important to note that in contrast to the inverted shape of the US
Treasury yield curve, the municipal yield curve remained positively
sloped. (For a complete explanation of the benefits and risks of
leveraging, see page 1 of this report to shareholders.)
During the six-month period ended April 30, 2000, Arizona municipal
bonds did not trade as aggressively as previously experienced,
especially when compared to municipal bonds nationally. We believe
this occurred because of lax retail demand. Although a relatively
larger percentage of total municipal bond issuance originated in
Arizona during the period, Arizona municipal bond issuance dropped
21% during the period, as compared to 26% nationally.
Given the current economic backdrop of generally rising Federal Fund
rates and unusually strong economic growth, we do not anticipate
moving to a more aggressive investment approach. Should the Federal
Reserve Board move dramatically to rein in the economy (as it did
when it raised interest rates on May 16, 2000, after the close of
the period), we would take steps to participate in any bond market
rally. We look to continue to focus on high-quality bonds. At April
30, 2000, 82.5% of the Fund's holdings were in bonds rated A or
better by at least one of the major rating agencies. Looking
forward, we expect to remain substantially invested in an effort to
enhance shareholder income.
MuniYield Arizona Fund, Inc., April 30, 2000
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
(Michael Kalinoski)
Michael Kalinoski
Vice President and Portfolio Manager
June 5, 2000
We are pleased to announce that Michael A. Kalinoski is responsible
for the day-to-day management of MuniYield Arizona Fund, Inc.
Mr. Kalinoski has been employed by Merrill Lynch Asset Management,
L.P. since 1999 as Portfolio Manager. Mr. Kalinoski was previously
employed from 1993 to 1999 as a municipal trader with Strong Capital
Management.
<TABLE>
PROXY RESULTS
<CAPTION>
During the six-month period ended April 30, 2000, MuniYield Arizona
Fund, Inc.'s Common Stock shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
April 27, 2000. The description of each proposal and number of
shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
<S> <S> <C> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn 2,665,268 50,050
James H. Bodurtha 2,658,268 57,050
Herbert I. London 2,664,458 50,850
Roberta Cooper Ramo 2,663,468 51,850
Arthur Zeikel 2,652,675 62,643
Shares Voted Shares Voted Shares Voted
For Against Abstain
2. To ratify the selection of Deloitte & Touche LLP as
the Fund's independent auditors for the current fiscal year. 2,646,327 16,330 52,661
<CAPTION>
During the six-month period ended April 30, 2000, MuniYield Arizona
Fund, Inc.'s Preferred Stock shareholders voted on the following
proposals. The proposals were approved at a shareholders' meeting on
April 27, 2000. The description of each proposal and number of
shares voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Board of Directors: Terry K. Glenn,
James H. Bodurtha, Herbert I. London, Joseph L. May,
Andre F. Perold, Roberta Cooper Ramo, and
Arthur Zeikel as follows: Series A 280 0
Series B 479 0
Shares Voted Shares Voted Shares 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 280 0 0
Series B 479 0 0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Arizona--92.6% Arizona Health Facilities Authority Revenue Bonds
(Catholic Healthcare West), Series A:
BBB+ Baa1 $ 750 6.125% due 7/01/2009 $ 736
BBB+ Baa1 1,000 6.625% due 7/01/2020 979
AAA Aaa 325 Arizona State Municipal Financing Program, COP,
Series 34, 7.25% due 8/01/2009 (b) 369
Arizona Student Loan Aquisition Authority,
Student Loan Revenue Refunding Bonds, AMT:
NR* A2 2,000 Junior Subordinated Series B-1, 6.15% due 5/01/2029 1,997
NR* Aaa 1,000 Senior-Series A-1, 5.90% due 5/01/2024 982
AAA Aaa 1,000 Chandler, Arizona, Water and Sewer Revenue Bonds,
6.50% due 7/01/2006 (k)(l) 1,083
Coconino County, Arizona, Pollution Control
Corporation, PCR (Nevada Power Co. Project), AMT:
BBB NR* 2,500 6.375% due 10/01/2036 2,357
BBB NR* 3,000 Series B, 5.80% due 11/01/2032 2,568
A1+ P1 400 Coconino County, Arizona, Pollution Control Corporation
Revenue Bonds (Arizona Public Service Co.-Navajo Project),
VRDN, AMT, Series A, 5.05% due 10/01/2029 (n) 400
AAA Aaa 605 Gilbert, Arizona, GO (Projects of 1988), Series C,
8.50% due 7/01/2004 (k)(l) 689
Glendale, Arizona, Development Authority, Educational
Facilities Revenue Refunding Bonds (American Graduate
School International)(c):
AAA NR* 500 7% due 7/01/2005 (l) 547
AAA NR* 500 7.125% due 7/01/2005 (l) 550
AAA NR* 500 5.875% due 7/01/2015 508
</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 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
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
YCN Yield Curve Notes
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face
STATE Ratings Ratings Amount Issue Value
<S> <S> <S> <C> <S> <C>
Arizona AAA Aaa $ 1,250 Glendale, Arizona, IDA, Revenue Refunding Bonds
(concluded) (Midwestern University), Series A, 5.375% due 5/15/2028 (k) $ 1,161
AAA Aaa 2,920 Maricopa County, Arizona, Alhambra, Elementary School
District Number 68, GO, Refunding, Series A, 6.80%
due 7/01/2011 (a) 3,104
Maricopa County, Arizona, Chandler Unified School
District Number 80, GO (e):
AAA Aaa 405 6.25% due 7/01/2011 439
AAA Aaa 595 6.25% due 7/01/2011 (d) 645
AAA Aaa 1,500 Maricopa County, Arizona, Gilbert Unified School
District Number 41, GO, 6.25% due 7/01/2015 (i) 1,580
BBB Baa1 2,405 Maricopa County, Arizona, Hospital Revenue Refunding
Bonds (Sun Health Corporation), 6.125% due 4/01/2018 2,298
Maricopa County, Arizona, IDA, Hospital Facility
Revenue Refunding Bonds (Samaritan Health Services),
Series A (d)(k):
AAA Aaa 500 7% due 12/01/2013 517
AAA Aaa 2,400 7% due 12/01/2016 2,713
Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds:
NR* Aaa 750 (Arborwood Apartments Project), Series A, 5.05%
due 10/01/2029 (k) 638
AAA NR* 2,395 (Place Five and Greenery Apartments), Series A,
6.625% due 1/01/2027 (d) 2,517
AAA Aaa 1,000 Maricopa County, Arizona, Mesa Unified School
District Number 4, GO (Project of 1995), Series D,
6% due 7/01/2007 (e) 1,054
AAA Aaa 1,500 Maricopa County, Arizona, Peoria Unified School
District Number 11, GO, Refunding, 6.10% due 7/01/2010 (a) 1,559
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 1,888
BBB- Baa3 2,250 6.30% due 12/01/2026 2,160
AA Aa2 1,825 Maricopa County, Arizona, Scottsdale Unified
School District Number 48, GO, 6.60% due 7/01/2012 2,053
AAA Aaa 500 Maricopa County, Arizona, Tempe Elementary Unified
School District Number 3, GO, Refunding, 7.50% due
7/01/2010 (e) 590
AAA Aaa 1,500 Mesa, Arizona, IDA, Revenue Bonds (Discovery
Health Systems), Series A, 5.625% due 1/01/2015 (k) 1,498
Mesa, Arizona, Utility System Revenue Bonds:
AAA Aaa 3,500 6.125% due 7/01/2007 (e)(l) 3,740
AAA Aaa 1,000 6.50% due 7/01/2009 (k) 1,097
AAA Aaa 1,000 Mohave County, Arizona, IDA, Hospital System
Revenue Bonds (Baptist Hospital), 5.50% due 9/01/2021 (k) 953
AA- AAA 1,000 Phoenix, Arizona, Civic Improvement Corporation,
Water System Revenue Bonds, Junior Lien, 6% due 7/01/2006 (l) 1,050
Phoenix, Arizona, GO:
AA+ Aa1 2,655 4.50% due 7/01/2019 2,213
AAA Aaa 2,750 4.50% due 7/01/2022 2,233
AA+ Aa1 5,020 4.50% due 7/01/2022 (k) 4,066
AAA Aaa 1,350 Pima County, Arizona, Amphitheater Unified School
District Number 10, GO (Projects of 1994), Series D,
7% due 7/01/2007 (e) 1,501
AAA NR* 500 Pima County, Arizona, IDA, M/F Housing Revenue Bonds
(Ria Nova and Villa Projects), 5.125% due 12/20/2018 (f)(j) 451
AAA Aaa 1,000 Pima County, Arizona, IDA, Revenue Refunding Bonds
(HealthPartners), Series A, 5.625% due 4/01/2014 (k) 1,004
AAA NR* 1,000 Pima County, Arizona, IDA, S/F Mortgage Revenue
Refunding Bonds, AMT, Series A-1, 6.20% due
11/01/2030 (g)(h) 1,045
AAA Aaa 3,050 Pima County, Arizona, Unified School District
Number 1, Tucson, GO, Refunding, 7.50% due 7/01/2009 (e) 3,561
AA Aa2 1,500 Salt River Project, Arizona, Agriculture Improvement
and Power District, Electric System Revenue Refunding
Bonds, Series A, 5.75% due 1/01/2007 1,553
AA+ Aa1 1,000 Scottsdale, Arizona, GO, 6.25% due 7/01/2015 1,061
AA Aa1 4,250 Scottsdale, Arizona, Water and Sewer Revenue Bonds
(Project of 1989), Series E, 4.50% due 7/01/2023 3,416
AAA Aaa 1,000 Tempe, Arizona, Unified High School District Number
213, School Improvements, GO, 7% due 7/01/2008 (e) 1,124
AAA Aaa 1,000 Tucson, Arizona, GO, Refunding, 6.40% due 7/01/2008 (e) 1,087
AAA Aaa 1,000 Tucson, Arizona, GO, Series A, 5.375% due 7/01/2017 (k) 971
AAA Aaa 1,375 Tucson, Arizona, Local Development Business,
Development Finance Corporation, Lease Revenue
Refunding Bonds, 6.25% due 7/01/2012 (e) 1,423
AAA Aaa 1,250 Tucson, Arizona, Street and Highway User Revenue Bonds,
Junior Lien, Series 1994-D, 6.60% due 7/01/2011 (k) 1,405
Tucson, Arizona, Water Revenue Refunding Bonds:
A+ A1 1,430 6.50% due 7/01/2016 (a) 1,484
AAA Aaa 2,000 5.125% due 7/01/2021 (e) 1,812
AA A1 1,345 University of Arizona, University Revenue
Refunding Bonds, 6.25% due 6/01/2011 1,393
Puerto Rico--5.4% Puerto Rico Commonwealth, GO, Refunding (m):
AAA Aaa 500 RITR, Class R, Series 3, 6.47% due 7/01/2016 (k) 512
AAA Aaa 2,000 YCN, 8.196% due 7/01/2020 (i) 1,993
AAA Aaa 2,000 Puerto Rico Electric Power Authority, Power
Revenue Refunding Bonds, LEVRRS, 7.678% due
7/01/2002 (i)(l)(m) 2,150
Total Investments (Cost--$85,604)--98.0% 84,477
Other Assets Less Liabilities--2.0% 1,692
--------
Net Assets--100.0% $ 86,169
========
(a)AMBAC Insured.
(b)BIG Insured.
(c)Connie Lee Insured.
(d)Escrowed to maturity.
(e)FGIC Insured.
(f)FHA Insured.
(g)FHLMC Collateralized.
(h)FNMA/GNMA Collateralized.
(i)FSA Insured.
(j)GNMA Collateralized.
(k)MBIA Insured.
(l)Prerefunded.
(m)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, 2000.
(n)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, 2000.
*Not Rated.
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc., April 30, 2000
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of April 30, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$85,604,142) $ 84,477,100
Cash 11,944
Receivables:
Interest $ 1,684,075
Securities sold 734,283 2,418,358
------------
Prepaid expenses and other assets 3,043
------------
Total assets 86,910,445
------------
Liabilities: Payables:
Securities purchased 620,910
Dividends to shareholders 48,765
Investment adviser 33,293 702,968
------------
Accrued expenses 38,116
------------
Total liabilities 741,084
------------
Net Assets: Net assets $ 86,169,361
============
Capital: Capital Stock (200,000,000 shares authorized):
Preferred Stock, par value $.10 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
(4,450,418 shares issued and outstanding) $ 445,042
Paid-in capital in excess of par 60,632,835
Undistributed investment income--net 267,109
Accumulated realized capital losses on investments--net (4,348,583)
Unrealized depreciation on investments--net (1,127,042)
------------
Total--Equivalent to $12.55 net asset value
per share of Common Stock (market price--$10.625) 55,869,361
------------
Total capital $ 86,169,361
============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended April 30, 2000
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 2,474,483
Income:
Expenses: Investment advisory fees $ 213,725
Commission fees 38,189
Professional fees 37,126
Transfer agent fees 18,692
Accounting services 16,596
Directors' fees and expenses 12,151
Printing and shareholder reports 11,093
Listing fees 4,872
Pricing fees 3,674
Custodian fees 3,672
Other 6,160
------------
Total expenses before reimbursement 365,950
Reimbursement of expenses (6,629)
------------
Total expenses after reimbursement 359,321
------------
Investment income--net 2,115,162
------------
Realized & Realized loss on investments--net (256,146)
Unrealized Change in unrealized depreciation on investments--net 331,644
Gain (Loss) on ------------
Investments--Net: Net Increase in Net Assets Resulting from Operations $ 2,190,660
============
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc., April 30, 2000
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 2,115,162 $ 4,113,137
Realized gain (loss) on investments--net (256,146) 704,489
Change in unrealized appreciation/depreciation
on investments--net 331,644 (7,817,444)
------------ ------------
Net increase (decrease) in net assets resulting
from operations 2,190,660 (2,999,818)
------------ ------------
Dividends to Investment income--net:
Shareholders: Common Stock (1,523,409) (3,237,241)
Preferred Stock (585,295) (905,157)
------------ ------------
Net decrease in net assets resulting from
dividends to shareholders (2,108,704) (4,142,398)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders
Transactions: in reinvestment of dividends -- 250,108
------------ ------------
Net Assets: Total increase (decrease) in net assets 81,956 (6,892,108)
Beginning of period 86,087,405 92,979,513
------------ ------------
End of period* $ 86,169,361 $ 86,087,405
============ ============
*Undistributed investment income--net $ 267,109 $ 260,651
============ ============
See Notes to Financial Statements.
</TABLE>
<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
April 30, For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.54 $ 14.14 $ 13.61 $ 13.06 $ 13.29
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .47 .92 .95 .96 .98
Realized and unrealized gain
(loss) on investments--net .01 (1.59) .53 .54 (.20)
-------- -------- -------- -------- --------
Total from investment operations .48 (.67) 1.48 1.50 .78
-------- -------- -------- -------- --------
Less dividends to Common Stock
shareholders from investment income--net (.34) (.73) (.72) (.72) (.76)
-------- -------- -------- -------- --------
Capital charge resulting from
issuance of Common Stock -- -- -- -- (.02)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:++++++
Dividends to Preferred Stock
shareholders:
Investment income--net (.13) (.20) (.23) (.23) (.23)
-------- -------- -------- -------- --------
Net asset value, end of period $ 12.55 $ 12.54 $ 14.14 $ 13.61 $ 13.06
======== ======== ======== ======== ========
Market price per share, end of period $ 10.625 $11.5625 $ 14.125 $ 12.875 $ 12.125
======== ======== ======== ======== ========
Total Investment Based on market price per share (5.15%)++ (13.55%) 15.74% 12.46% 9.70%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 3.30%++ (6.34%) 9.61% 10.37% 4.47%
======== ======== ======== ======== ========
Ratios Based on Total expenses, net of reimbursement*** 1.29%* 1.25% 1.22% 1.29% 1.00%
Average Net Assets ======== ======== ======== ======== ========
of Common Stock: Total expenses*** 1.32%* 1.25% 1.22% 1.35% 1.32%
======== ======== ======== ======== ========
Total investment income--net*** 7.62%* 6.78% 6.88% 7.16% 7.50%
======== ======== ======== ======== ========
Amount of dividends to Preferred Stock
shareholders 2.11%* 1.49% 1.68% 1.74% 1.74%
======== ======== ======== ======== ========
Investment income--net, to Common Stock
shareholders 5.51%* 5.29% 5.20% 5.42% 5.76%
======== ======== ======== ======== ========
Ratios Based on Total expenses, net of reimbursement .84%* .83% .82% .85% .66%
Total Average Net ======== ======== ======== ======== ========
Assets:***++++ Total expenses .85%* .83% .82% .89% .87%
======== ======== ======== ======== ========
Total investment income--net 4.94%* 4.53% 4.63% 4.73% 4.93%
======== ======== ======== ======== ========
Ratios Based on Dividends to Preferred Stock shareholders 3.87%* 2.99% 3.42% 3.38% 3.35%
Average Net Assets ======== ======== ======== ======== ========
of Preferred Stock:
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands) $ 55,869 $ 55,787 $ 62,680 $ 60,286 $ 57,857
======== ======== ======== ======== ========
Preferred Stock outstanding,
end of period (in thousands) $ 30,300 $ 30,300 $ 30,300 $ 30,300 $ 30,300
======== ======== ======== ======== ========
Portfolio turnover 27.96% 29.48% 39.58% 34.49% 31.75%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 2,844 $ 2,841 $ 3,069 $ 2,990 $ 2,909
Dividends Per ======== ======== ======== ======== ========
Share on Preferred Series A--Investment income--net $ 409 $ 756 $ 842 $ 820 $ 824
Stock Outstanding: ======== ======== ======== ======== ========
Series B--Investment income--net $ 556 $ 740 $ 863 $ 865 $ 849
======== ======== ======== ======== ========
*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 charges.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Aggregate total investment return.
++++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., April 30, 2000
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 accounting principles generally accepted
in the United States of America, 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 investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. 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) 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. For the six months ended April 30,
2000, FAMearned fees of $213,275, of which $6,629 was voluntarily
waived.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 2000 were $26,913,492 and
$23,123,790, respectively.
Net realized losses for the six months ended April 30, 2000 and net
unrealized losses as of April 30, 2000 were as follows:
Realized Unrealized
Losses Losses
Long-term investments $ (256,146) $(1,127,042)
------------ -----------
Total $ (256,146) $(1,127,042)
------------ -----------
As of April 30, 2000, net unrealized depreciation for Federal income
tax purposes aggregated $1,127,042, of which $1,748,628 related to
appreciated securities and $2,875,670 related to depreciated
securities. The aggregate cost of investments at April 30, 2000 for
Federal income tax purposes was $85,604,142.
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,
2000 remained constant and during the year ended October 31, 1999
increased by 18,085 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 April
30, 2000 were as follows: Series A, 4.35% and Series B, 4.70%.
Shares issued and outstanding during the six months ended April 30,
2000 and the year ended October 31, 1999 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 six months ended
April 30, 2000, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
an affiliate of FAM, earned $17,794 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 May 5, 2000 the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.057000 per share, payable on May 30, 2000 to shareholders of
record as of May 16, 2000.
MuniYield Arizona Fund, Inc., April 30, 2000
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its
net investment income to its shareholders on a monthly basis. In
order to provide shareholders with a more consistent yield to the
current trading price of shares of Common Stock of the Fund, the
Fund may at times pay out less than the entire amount of net
investment income earned in any particular month and may at times in
any month pay out such accumulated but undistributed income in
addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more
or less than the amount of net investment income earned by the Fund
during such month. The Fund's current accumulated but undistributed
net investment income, if any, is disclosed in the Statement of
Assets, Liabilities and Capital, which comprises part of the
Financial Information included in this report.
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 2000
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 60.2%
AA/Aa 18.3
A/A 4.0
BBB/Baa 15.0
Other++ 0.5
++Temporary investments in short-term securities.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert L. London, Director
Joseph L. May, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Kenneth A. Jacob, Vice President
Michael A. Kalinoski, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
Robert R. Martin, Director of MuniYield Arizona Fund, Inc., has
recently retired. The Fund's Board of Directors wishes Mr. Martin
well in his retirement.
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
100Church Street
New York, NY 10286
ASE Symbol
MZA
