MUNIYIELD
ARIZONA
FUND, INC.
FUND LOGO
Annual Report
October 31, 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., October 31, 2000
DEAR SHAREHOLDER
For the year ended October 31, 2000, the Common Stock of MuniYield
Arizona Fund, Inc. earned $0.741 per share income dividends, which
included earned and unpaid dividends of $0.057. This represents a
net annualized yield of 5.65%, based on a month-end net asset value
of $13.11 per share. During the same period, the total investment
return on the Fund's Common Stock was +11.26%, based on a change in
per share net asset value from $12.54 to $13.11, and assuming
reinvestment of $0.684 per share income dividends.
For the six-month period ended October 31, 2000, the total
investment return on the Fund's Common Stock was +7.71%, based on a
change in per share net asset value from $12.55 to $13.11, and
assuming reinvestment of $0.342 per share income dividends.
For the six-month period ended October 31, 2000, the Fund's Auction
Market Preferred Stock had an average yield of 4.22% for Series A
and 3.95% for Series B.
The Municipal Market Environment
During the six months ended October 31, 2000, long-term US Treasury
bond yields generally drifted lower. A number of economic
indicators, particularly employment, new home sales and consumer
spending, have suggested that US economic growth, while still
strong, has moderated from 1999's robust levels. Preliminary
estimates for third-quarter 2000 US gross domestic product growth
were recently released at 2.7%, well below the first-quarter 2000
rate of 4.8% and the second-quarter 2000 rate of 5.6%. This decline
in economic growth suggests to some analysts that the Federal
Reserve Board has finished raising interest rates for its current
interest rate cycle. The Federal Reserve Board increased short-term
interest rates at its May meeting and has since kept monetary policy
steady at its subsequent meetings. Given the potential for stable
short-term interest rates in the coming months, investor emphasis
focused on the continuing US Treasury debt reduction program and
forecasts of sizeable Federal budgetary surpluses going forward.
Many investors have concluded that there will be a significant
future shortage of longer-dated maturity US Treasury securities. By
late August, US Treasury bond yields declined 30 basis points
(0.30%) to 5.66%, their lowest level in more than a year.
However, for the remainder of the period, bond yields were unable to
maintain their earlier gains. Rising oil prices were the major focus
behind the decline in bond prices, as many investors feared that
higher oil prices would result in increased inflationary pressures.
Additionally, US corporations issued large amounts of taxable debt
in order to take advantage of the current low interest rate
environment. During the last three months, US corporations issued
more than $100 billion in investment-grade securities, offering
yields in the 7.25% - 9% range. Many investors found these taxable
issues an attractive and more plentiful alternative to US Treasury
bonds. As the demand for US Treasury issues weakened, US bond yields
rose. Although US Treasury bond yields rose to 5.78% by the end of
October 2000, overall they declined almost 20 basis points during
the last six months.
The six-month period ended October 31, 2000 was one of the few
periods in recent years in which the tax-exempt bond market
outperformed its taxable counterpart, the US Treasury bond market.
While municipal bond yields followed the similar seesaw pattern of
Treasury bond yields, tax-exempt bond price volatility was
significantly reduced. Municipal bond yields traded in a relatively
narrow range during much of October 2000. Overall investor demand
for municipal bonds remained strong, allowing tax-exempt bond
yields, as measured by the Bond Buyer Revenue Bond Index, to decline
30 basis points to end the period at 5.75%.
In the past three months, new long-term municipal bond issuance has
continued to decline, albeit at a slower rate than earlier this
year. During this period, more than $53 billion in new long-term
municipal bonds was issued, a decline of 3% compared to the same
three-month period in 1999. During the last six months, more than
$105 billion in tax-exempt bonds was underwritten, a decline of 8%
compared to the same six-month period in 1999. Just under $200
billion in new municipal securities was marketed during the past
year, a decline of more than 16% compared to the same 12-month
period in 1999.
The demand for municipal bonds came from a number of non-traditional
and conventional sources. Derivative/arbitrage programs and
insurance companies remained the dominant institutional buyers,
while individual retail purchases also remained strong. Traditional,
open-end tax-exempt mutual funds have continued to see significant
disintermediation. It was recently reported that thus far during the
2000 calendar year, long-term municipal bond mutual funds
experienced net cash outflows of more than $15 billion. Fortunately,
the combination of reduced new bond issuance and ongoing demand from
non-traditional sources has been able to more than offset the
decline in demand from tax-exempt mutual funds. This favorable
balance has fostered a significant decline in municipal bond yields
in recent months.
Currently, there is no reason to expect that the positive technical
position of the municipal bond market will significantly
deteriorate. The steeply positive yield curve and the relatively
high credit quality that the tax-exempt bond market offers should
continue to attract different classes of institutional buyers.
Strong state and local governmental financial conditions also
suggest that issuance should remain manageable into next year.
However, the results of the presidential election may affect the tax-
exempt bond market. Various tax and spending programs proposed by
both candidates have obvious implications for state and local
governments as well as corporate and individual taxpayers. Political
history has shown that the enactment of campaign promises, both
Republican and Democratic, has very often been a long, laborious
process. This suggests that over the next few months US economic
factors will most likely have a greater effect on bond yields than
political considerations.
Portfolio Strategy
During the six-month period ended October 31, 2000, we retained our
neutral position and the fully invested status we adopted during the
previous period. Limited portfolio activity occurred in part because
of the continuing decline, on a year-over-year period, of Arizona
municipal bond issuance. We thought it prudent to maintain this
investment position in anticipation of clearer signs detailing
future economic growth and inflation expectations. At October 31,
2000, the Fund had 84.3% of net assets in bonds rated A or better,
the majority of which were rated AAA, by at least one of the major
bond rating agencies. Additionally, we focused on maintaining and/or
increasing the amount of earned tax-exempt income, in part to offset
the heightened level of short-term interest rates experienced by our
leveraged portfolio. Despite the Fund's increased cost of borrowing,
the leveraging of the portfolio remains an important income-
generating vehicle for the Fund. (For a complete explanation of the
benefits and risks of leveraging, see page 1 of this report to
shareholders.)
Looking ahead, we expect to remain fully invested in the municipal
market in an effort to enhance shareholder income. We will look for
opportunities in the market provided by new Arizona municipal
issuance to structure the portfolio more favorably. We also expect
to retain our current position until we can better evaluate the
ramifications of the presidential and congressional elections and
their implications on economic growth, inflation expectations and
the municipal market.
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
November 29, 2000
MuniYield Arizona Fund, Inc., October 31, 2000
<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--90.9% Arizona Health Facilities Authority Revenue Bonds
(Catholic Healthcare West), Series A:
BBB+ Baa1 $ 750 6.125% due 7/01/2009 $ 758
BBB+ Baa1 1,000 6.625% due 7/01/2020 1,006
AAA Aaa 325 Arizona State Municipal Financing Program, COP,
Series 34, 7.25% due 8/01/2009 (b) 380
Arizona Student Loan Acquisition Authority, Student
Loan Revenue Refunding Bonds, AMT:
NR* A2 3,285 Junior Subordinated Series B-1, 6.15% due 5/01/2029 3,382
NR* Aaa 1,000 Senior-Series A-1, 5.90% due 5/01/2024 1,027
AAA Aaa 1,000 Chandler, Arizona, Water and Sewer Revenue Bonds, 6.50%
due 7/01/2006 (j)(k) 1,103
Coconino County, Arizona, Pollution Control Corporation,
PCR (Nevada Power Co. Project), AMT:
BBB NR* 2,000 6.375% due 10/01/2036 1,938
BBB NR* 2,500 Series B, 5.80% due 11/01/2032 2,214
AAA Aaa 605 Gilbert, Arizona, GO (Projects of 1988), Series C,
8.50% due 7/01/2004 (j)(k) 691
Glendale, Arizona, Development Authority, Educational
Facilities Revenue Refunding Bonds (American Graduate
School International) (c):
AAA NR* 500 7% due 7/01/2005 (k) 556
AAA NR* 500 7.125% due 7/01/2005 (k) 558
AAA NR* 500 5.875% due 7/01/2015 520
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 595 6.25% due 7/01/2011 662
AAA Aaa 405 6.25% due 7/01/2011 (d) 454
AAA Aaa 1,500 Maricopa County, Arizona, Gilbert Unified School
District Number 41, GO, 6.25% due 7/01/2015 (i) 1,614
BBB Baa1 2,405 Maricopa County, Arizona, Hospital Revenue Refunding
Bonds (Sun Health Corporation), 6.125% due 4/01/2018 2,334
Maricopa County, Arizona, IDA, Hospital Facility
Revenue Refunding Bonds (Samaritan Health Services),
Series A (d)(j):
AAA Aaa 500 7% due 12/01/2013 511
AAA Aaa 2,400 7% due 12/01/2016 2,826
AAA NR* 2,395 Maricopa County, Arizona, IDA, M/F Housing Revenue
Bonds (Place Five and Greenery Apartments),
Series A, 6.625% due 1/01/2027 (d) 2,552
AAA NR* 3,000 Maricopa County, Arizona, IDA, S/F Mortgage Revenue
Bonds, AMT, Series 1C, 6% due 12/01/2024 (g)(h) 3,337
AAA Aaa 1,500 Maricopa County, Arizona, Peoria Unified School
District Number 11, GO, Refunding, 6.10% due 7/01/2010 (a) 1,575
Maricopa County, Arizona, Pollution Control
Corporation, PCR, Refunding (Public Service
Company of New Mexico Project), Series A:
BBB- Baa3 1,375 5.75% due 11/01/2022 1,258
BBB- Baa3 2,250 6.30% due 12/01/2026 2,230
AA Aa2 1,825 Maricopa County, Arizona, Scottsdale Unified School
District Number 48, GO, 6.60% due 7/01/2012 2,103
AAA Aaa 500 Maricopa County, Arizona, Tempe Elementary Unified School
District Number 3, GO, Refunding, 7.50% due 7/01/2010 (e) 605
Mesa, Arizona, IDA, Revenue Bonds (Discovery Health
Systems), Series A:
AAA Aaa 1,000 5.875% due 1/01/2014 1,056
AAA Aaa 1,500 5.625% due 1/01/2015 (j) 1,540
Mesa, Arizona, Utility System Revenue Bonds:
AAA Aaa 3,500 6.125% due 7/01/2007 (e)(k) 3,829
AAA Aaa 1,000 6.50% due 7/01/2009 (j) 1,127
AAA Aaa 500 Phoenix, Arizona, Civic Improvement Corporation,
Wastewater System Revenue Bonds, Junior Lien,
6.50% due 7/01/2008 (j) 552
AA- AAA 1,000 Phoenix, Arizona, Civic Improvement Corporation,
Water System Revenue Bonds, Junior
Lien, 6% due 7/01/2006 (k) 1,071
NR* Aaa 2,500 Phoenix, Arizona, IDA, Revenue Bonds (Camelback
Crossing), 6.35% due 9/20/2035 (f) 2,598
Phoenix, Arizona, GO:
AA+ Aa1 2,655 4.50% due 7/01/2019 2,332
AA+ Aa1 3,020 4.50% due 7/01/2022 2,565
AAA Aaa 2,500 4.50% due 7/01/2022 (j) 2,132
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) 1,528
AAA Aaa 1,000 Pima County, Arizona, IDA, Revenue Refunding Bonds
(HealthPartners), Series A, 5.625% due 4/01/2014 (j) 1,029
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) 1,071
AAA Aaa 3,050 Pima County, Arizona, Unified School District Number 1,
Tucson, GO, Refunding, 7.50% due 7/01/2009 (e) 3,646
A1+ P1 500 Pinal County, Arizona, IDA, PCR (Newmont Mining), DATES,
4.55% due 12/01/2009 (m) 500
AA+ Aa1 1,000 Scottsdale, Arizona, GO, 6.25% due 7/01/2015 1,088
AA Aa1 4,250 Scottsdale, Arizona, Water and Sewer Revenue Bonds
(Project of 1989), Series E, 4.50% due 7/01/2023 3,611
AAA Aaa 1,000 Tempe, Arizona, Unified High School District Number 213,
School Improvements, GO, 7% due 7/01/2008 (e) 1,149
AAA Aaa 1,000 Tucson, Arizona, GO, Refunding, 6.40% due 7/01/2008 (e) 1,112
AA Aa2 1,000 Tucson, Arizona, GO, Series 1994-C, 7% due 7/01/2015 1,191
AA NR* 1,500 Tucson, Arizona, IDA, Senior Living Facilities
Revenue Bonds (Christian Care Tucson Inc.
Project), Series A, 6.125% due 7/01/2024 1,512
</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
DATES Daily Adjustible 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
RITR Residual Interest Trust Receipts
S/F Single-Family
YCN Yield Curve Notes
MuniYield Arizona Fund, Inc., October 31, 2000
<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 $ 1,375 Tucson, Arizona, Local Development Business,
(concluded) Development Finance Corporation, Lease
Revenue Refunding Bonds, 6.25% due 7/01/2012 (e) $ 1,432
AAA Aaa 1,250 Tucson, Arizona, Street and Highway User Revenue
Bonds, Junior Lien, Series 1994-D, 6.60% due 7/01/2011 (j) 1,438
AAA Aaa 600 Tucson, Arizona, Water System Revenue Bonds,
Series D, 7.25% due 7/01/2009 (e) 708
AA A1 1,345 University of Arizona, University Revenue Refunding
Bonds, 6.25% due 6/01/2011 1,401
Puerto Rico--7.3% Puerto Rico Commonwealth, GO, Refunding (l):
AAAr Aaa 500 RITR, Class R, Series 3, 7.31% due 7/01/2016 (j) 542
AAA Aaa 2,000 YCN, 7.329% due 7/01/2020 (i) 2,068
NR* Aaa 695 Puerto Rico Electric Power Authority, Power Revenue
Bonds, Trust Receipts, Class R, Series 16-HH,
7.346% due 7/01/2013 (m) 783
AAA Aaa 2,900 Puerto Rico Electric Power Authority, Power
Revenue Refunding Bonds, LEVRRS, 7.378%
due 7/01/2002 (i)(k)(l) 3,118
Total Investments (Cost--$85,499)--98.2% 87,027
Other Assets Less Liabilities--1.8% 1,637
--------
Net Assets--100.0% $ 88,664
========
(a)AMBAC Insured.
(b)BIG Insured.
(c)Connie Lee Insured.
(d)Escrowed to maturity.
(e)FGIC Insured.
(f)GNMA Collateralized.
(g)FHLMC Collateralized.
(h)FNMA/GNMA Collateralized.
(i)FSA Insured.
(j)MBIA Insured.
(k)Prerefunded.
(l)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, 2000.
(m)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, 2000.
*Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of October 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$85,499,497) $ 87,026,968
Cash 79,856
Interest receivable 1,687,515
Prepaid expenses and other assets 28,952
------------
Total assets 88,823,291
------------
Liabilities: Payables:
Dividends to shareholders $ 41,136
Investment adviser 36,208 77,344
------------
Accrued expenses and other liabilities 81,905
------------
Total liabilities 159,249
------------
Net Assets: Net assets $ 88,664,042
============
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 278,789
Accumulated realized capital losses on investments--net (4,520,095)
Unrealized appreciation on investments--net 1,527,471
------------
Total--Equivalent to $13.11 net asset
value per share of Common Stock (market price--$11.125) 58,364,042
------------
Total capital $ 88,664,042
============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc., October 31, 2000
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended October 31, 2000
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 4,984,163
Income:
Expenses: Investment advisory fees $ 433,573
Commission fees 77,719
Professional fees 73,065
Transfer agent fees 42,690
Accounting services 32,065
Printing and shareholder reports 23,508
Directors' fees and expenses 16,072
Listing fees 9,917
Custodian fees 7,582
Pricing fees 7,392
Other 13,308
------------
Total expenses before reimbursement 736,891
Reimbursement of expenses (22,749)
------------
Total expenses after reimbursement 714,142
------------
Investment income--net 4,270,021
------------
Realized & Realized loss on investments--net (427,658)
Unrealized Change in unrealized appreciation/depreciation on investments--net 2,986,157
Gain (Loss) on ------------
Investments--Net: Net Increase in Net Assets Resulting from Operations $ 6,828,520
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year
Ended October 31,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income--net $ 4,270,021 $ 4,113,137
Realized gain (loss) on investments--net (427,658) 704,489
Change in unrealized appreciation/depreciation
on investments--net 2,986,157 (7,817,444)
------------ ------------
Net increase (decrease) in net assets resulting from operations 6,828,520 (2,999,818)
------------ ------------
Dividends to Investment income--net:
Shareholders: Common Stock (3,045,452) (3,237,241)
Preferred Stock (1,206,431) (905,157)
------------ ------------
Net decrease in net assets resulting from dividends
to shareholders (4,251,883) (4,142,398)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions: reinvestment of dividends -- 250,108
------------ ------------
Net Assets: Total increase (decrease) in net assets 2,576,637 (6,892,108)
Beginning of year 86,087,405 92,979,513
------------ ------------
End of year* $ 88,664,042 $ 86,087,405
============ ============
*Undistributed investment income--net $ 278,789 $ 260,651
============ ============
See Notes to Financial Statements.
</TABLE>
MuniYield Arizona Fund, Inc., October 31, 2000
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 12.54 $ 14.14 $ 13.61 $ 13.06 $ 13.29
Operating --------- -------- --------- -------- --------
Performance: Investment income--net .95 .92 .95 .96 .98
Realized and unrealized gain
(loss) on investments--net .57 (1.59) .53 .54 (.20)
--------- -------- --------- -------- --------
Total from investment operations 1.52 (.67) 1.48 1.50 .78
--------- -------- --------- -------- --------
Less dividends to Common Stock
shareholders from investment income--net (.68) (.73) (.72) (.72) (.76)
--------- -------- --------- -------- --------
Capital charge resulting from
issuance of Common Stock -- -- -- -- (.02)
--------- -------- --------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to
Preferred Stock shareholders:
Investment income--net (.27) (.20) (.23) (.23) (.23)
--------- -------- --------- -------- --------
Net asset value, end of year $ 13.11 $ 12.54 $ 14.14 $ 13.61 $ 13.06
========= ======== ========= ======== ========
Market price per share, end of year $ 11.125 $11.5625 $ 14.125 $ 12.875 $ 12.125
========= ======== ========= ======== ========
Total Investment Based on market price per share 2.40% (13.55%) 15.74% 12.46% 9.70%
Return:* ========= ======== ========= ======== ========
Based on net asset value per share 11.26% (6.34%) 9.61% 10.37% 4.47%
========= ======== ========= ======== ========
Ratios Based on Total expenses, net of reimbursement** 1.26% 1.25% 1.22% 1.29% 1.00%
Average Net ========= ======== ========= ======== ========
Assets of Total expenses** 1.30% 1.25% 1.22% 1.35% 1.32%
Common Stock: ========= ======== ========= ======== ========
Total investment income--net** 7.55% 6.78% 6.88% 7.16% 7.50%
========= ======== ========= ======== ========
Amount of dividends to Preferred Stock
shareholders 2.13% 1.49% 1.68% 1.74% 1.74%
========= ======== ========= ======== ========
Investment income--net, to Common Stock
shareholders 5.42% 5.29% 5.20% 5.42% 5.76%
========= ======== ========= ======== ========
Ratios Based Total expenses, net of reimbursement .82% .83% .82% .85% .66%
on Total ========= ======== ========= ======== ========
Average Net Total expenses .85% .83% .82% .89% .87%
Assets:**++ ========= ======== ========= ======== ========
Total investment income--net 4.91% 4.53% 4.63% 4.73% 4.93%
========= ======== ========= ======== ========
Ratios Based on Dividends to Preferred Stock shareholders 3.97% 2.99% 3.42% 3.38% 3.35%
Average Net ========= ======== ========= ======== ========
Assets of
Preferred Stock:
Supplemental Net assets, net of Preferred Stock,
Data: end of year (in thousands) $ 58,364 $ 55,787 $ 62,680 $ 60,286 $ 57,857
========= ======== ========= ======== ========
Preferred Stock outstanding,
end of year (in thousands) $ 30,300 $ 30,300 $ 30,300 $ 30,300 $ 30,300
========= ======== ========= ======== ========
Portfolio turnover 46.71% 29.48% 39.58% 34.49% 31.75%
========= ======== ========= ======== ========
Leverage: Asset coverage per $1,000 $ 2,926 $ 2,841 $ 3,069 $ 2,990 $ 2,909
========= ======== ========= ======== ========
Dividends Per Series A--Investment income--net $ 1,011 $ 756 $ 842 $ 820 $ 824
Share on ========= ======== ========= ======== ========
Preferred Stock Series B--Investment income--net $ 984 $ 740 $ 863 $ 865 $ 849
Outstanding: ========= ======== ========= ======== ========
*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.
See Notes to Financial Statements.
</TABLE>
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 conformity with accounting principles generally accepted
in the United States of America, 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 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.
MuniYield Arizona Fund, Inc., October 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 year ended October 31, 2000,
FAM earned fees of $433,573, of which $22,749 was 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 year ended October 31, 2000 were $41,399,013 and
$39,292,257, respectively.
Net realized losses for the year ended October 31, 2000 and net
unrealized gains as of October 31, 2000 were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (427,658) $ 1,527,471
------------ -----------
Total $ (427,658) $ 1,527,471
============ ===========
As of October 31, 2000, net unrealized appreciation for Federal
income tax purposes aggregated $1,527,471, of which $2,866,773
related to appreciated securities and $1,339,302 related to
depreciated securities. The aggregate cost of investments at October
31, 2000 for Federal income tax purposes was $85,499,497.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the year ended October 31, 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 October
31, 2000 were as follows: Series A, 4.13% and Series B, 4.13%.
Shares issued and outstanding during the years ended October 31,
2000 and 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 year ended
October 31, 2000, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, an affiliate of FAM, earned $31,362 as commissions.
5. Capital Loss Carryforward:
At October 31, 2000, the Fund had a net capital loss carryforward of
approximately $4,273,000, of which $2,583,000 expires in 2002,
$1,253,000 expires in 2003 and $437,000 expires in 2008. This amount
will be available to offset like amounts of any future taxable
gains.
6. Subsequent Event:
On November 8, 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 November 29, 2000, to shareholders
of record as of November 20, 2000.
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, 2000, 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 auditing standards
generally accepted in the United States of America. 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, 2000 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, 2000, the results of
its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
December 1, 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.
MuniYield Arizona Fund, Inc., October 31, 2000
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniYield
Arizona Fund, Inc. during its taxable year ended October 31, 2000
qualify as tax-exempt interest dividends for Federal income tax
purposes. Additionally, there were no capital gains distributions
paid by the Fund during the year.
Please retain this information for your records.
QUALITY PROFILE (unaudited)
The quality ratings of securities in the Fund as of October 31, 2000
were as follows:
Percent of
S&P Rating/Moody's Rating Net Assets
AAA/Aaa 62.7%
AA/Aa 17.8
A/A 3.8
BBB/Baa 13.3
Other++ 0.6
++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
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
