UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-7083
Name of Fund: MuniYield Arizona Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
MuniYield Arizona Fund, Inc., 800 Scudders Mill Road, Plainsboro,
NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-
9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 10/31/04
Date of reporting period: 11/01/03 - 04/30/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
MuniYield Arizona
Fund, Inc.
Semi-Annual Report
April 30, 2004
MuniYield Arizona Fund, Inc. seeks to provide shareholders with as
high a level of current income exempt from Federal and Arizona
income 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 and
intends to remain leveraged 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.
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is
available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com;
and (3) on the Securities and Exchange Commission's website at
http://www.sec.gov.
MuniYield Arizona Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
(GO PAPERLESS LOGO)
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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,
net of dividends to Preferred Stock, 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. As of April 30,
2004, the percentage of the Fund's total net assets invested in
inverse floaters was 13.18%.
Swap Agreements
The Fund may also invest in swap agreements, which are over-the-
counter contracts in which one party agrees to make periodic
payments based on the change in market value of a specified bond,
basket of bonds, or index in return for periodic payments based on a
fixed or variable interest rate or the change in market value of a
different bond, basket of bonds or index. Swap agreements may be
used to obtain exposure to a bond or market without owning or taking
physical custody of securities.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
A Letter From the President
Dear Shareholder
For the six-month and 12-month periods ended April 30, 2004, the
Lehman Brothers Municipal Bond Index posted returns of +1.19% and
+2.68%, respectively. Its taxable counterpart, the Lehman Brothers
Aggregate Bond Index, had returns of +1.25% and +1.82% for the same
periods. Amid considerable month-to-month volatility, tax-exempt
bond yields rose over the past year, although not to the same extent
as 10-year U.S. Treasury yields. In all, tax-exempt securities
continued to be an attractive fixed income investment alternative.
As of April month-end, the Federal Reserve Board maintained its
accommodative policy stance, although a better-than-expected
employment report for the month of March prompted speculation that
an interest rate increase could come sooner than many had expected.
On April 2, 2004, the good news on the employment front - previously
the one dim spot in an otherwise bright economic picture - helped
prompt the yield on the 10-year Treasury bond to spike nearly 25
basis points (.25%), from 3.91% to 4.15%. Market watchers continue
to monitor the economic data and Federal Reserve Board language for
indications of interest rate direction. If economic growth maintains
its recent pace and employment figures continue to improve, many
believe it is just a matter of time before interest rates move
upward.
Equity markets, in the meantime, gleaned support from the improving
economic environment and provided attractive returns. For the
six-month and 12-month periods ended April 30, 2004, the Standard &
Poor's 500 Index returned +6.27% and +22.88%, respectively.
Significant fiscal and monetary stimulus in 2003, including low
interest rates and tax cuts, has opened the door to consumer
spending, capital spending, increases in exports and long-awaited
job growth. As expected, these developments have led the way to
improvements in corporate earnings - a positive for stock markets.
The events and efforts of the past year leave us with a much
stronger economy today. Of course, markets will always fluctuate,
and there are many uncertainties - not the least of which are
geopolitical in nature - which can translate into negative market
movements. Keeping this in mind, we encourage you to revisit your
portfolio and your asset allocation strategy to ensure you are well
positioned to take advantage of the opportunities that lie ahead.
Importantly, your financial advisor can help you develop a strategy
most suitable for your circumstances through all types of market and
economic cycles.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
A Discussion With Your Fund's Portfolio Manager
Given the still uncertain interest rate environment, we maintained a
defensive stance throughout the period, seeking to protect the
Fund's net asset value and enhance current yield for our
shareholders.
Describe the recent market environment relative to municipal bonds.
For much of the six-month period, a positive economic backdrop
helped bond prices to move higher as yields, which typically move
opposite of prices, declined. In early April, however, a
surprisingly strong monthly employment report triggered fears that
the long-accommodative Federal Reserve Board might raise interest
rates sooner than many had expected. As a result, bond yields rose
(prices fell) sharply for the remainder of the period. At the end of
April, long-term U.S. Treasury bond yields had climbed to 5.13%,
representing an increase of approximately 15 basis points (.15%)
over the past six months. Ten-year U.S. Treasury note yields stood
at 4.30% as of period-end, an increase of more than 20 basis points.
Tax-exempt bond yields generally mimicked the movement of their
taxable counterparts, although volatility in the municipal market
was more subdued. Long-term revenue bond yields, as measured by the
Bond Buyer Revenue Bond Index, rose just four basis points over the
past six months. For the same period, yields on AAA-rated issues
maturing in 30 years rose approximately 10 basis points to 4.93%
while yields on 10-year, AAA-rated issues increased more than 16
basis points to nearly 4%, according to Municipal Market Data. The
more marked increase in 10-year bond yields may be attributed to
the fact that recent issuance has been heavily concentrated in the
10-year - 20-year range. The resulting supply imbalance prompted
higher intermediate bond yields (and lower prices). Longer-maturity
and lower-rated issues continued to benefit from more favorable
supply/demand factors and, therefore, have seen less price
depreciation. For the six-month period as a whole, municipal bond
supply declined approximately 5% compared to the same period a
year ago.
While investor enthusiasm for stocks has taken some attention
away from fixed income markets, overall demand for tax-exempt
municipal bonds has remained positive. Recent Federal Reserve Board
statistics showed that U.S. household holdings of municipal
securities increased by more than $25 billion during the fourth
quarter of 2003 to approximately $680 billion. In addition, data
from the Investment Company Institute indicates that, in just the
first three months of 2004, tax-exempt bond funds have seen net new
cash flows of almost $640 million.
Describe conditions in the State of Arizona during the period.
Economic indicators for the State of Arizona continue to improve.
Specifically, state general fund collections were above forecast and
approximately 7% above year-ago levels as of March 2004. Sales tax
collections also have improved markedly since one year ago.
Further evidence of improving economic conditions is illustrated in
the state's unemployment rate, which fell to 4.9% as of March 2004,
the lowest level since August 2001 and significantly below the
national level of 5.7%. A vibrant construction industry played a
significant role in these positive economic developments.
How did the Fund perform during the period in light of the existing
market conditions?
For the six-month period ended April 30, 2004, the Common Stock of
MuniYield Arizona Fund, Inc. had net annualized yields of 6.36% and
6.70%, based on a period-end per share net asset value of $14.45 and
a per share market price of $13.70, respectively, and $.458 per
share income dividends. Over the same period, the total investment
return on the Fund's Common Stock was +1.79%, based on a change in
per share net asset value from $14.64 to $14.45, and assuming
reinvestment of $.456 per share ordinary income dividends.
For the six-month period ended April 30, 2004, the Fund's Auction
Market Preferred Stock (AMPS) had an average yield of .76% for
Series A and .81% for Series B.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
A significant amount of Fund holdings were redeemed during the
period, which detracted from performance results. Overall, we
maintained a conservative positioning throughout the period as
interest rates remained volatile. Although this hampered performance
modestly as the market rallied during the period, it began to
benefit Fund results late in the period as yields began to rise and
prices fall. Additionally, the Fund has continued to provide an
above-average income stream for shareholders.
For a description of the Fund's total investment return based on a
change in the per share market value of the Fund's Common Stock (as
measured by the trading price of the Fund's shares on the American
Stock Exchange), and assuming reinvestment of dividends, please
refer to the Financial Highlights section included in this report.
As a closed-end fund, the Fund's shares may trade in the secondary
market at a premium or discount to the Fund's net asset value. As a
result, total investment returns based on changes in the market
value of the Fund's Common Stock can vary significantly from total
investment return based on changes in the Fund's net asset value.
What changes were made to the portfolio during the period?
Changes to the Fund's portfolio during the period were relatively
minor. We selectively purchased a number of new higher-yielding
credits in an effort to enhance the Fund's yield. We also continued
to favor premium-coupon bonds and, when available, preferred
maturities in the 20-year - 25-year range. The municipal yield curve
flattened out past this range; therefore, there was no significant
yield to be gained by extending out further.
We generally maintained the Fund's fully invested position
throughout the period, seeking to enhance shareholder income. With
short-term interest rates at historic lows, the cost of holding cash
reserves would have been relatively high in terms of its effect on
performance.
Given the historically low short-term interest rates, the Fund's
borrowing costs remained at attractive levels of around 1%. These
levels, in combination with a positively sloped yield curve,
provided a generous income benefit to the Common Stock shareholder
from the leveraging of Preferred Stock. We believe the Fund's
borrowing costs should remain at relatively low levels for the
foreseeable future. While the timing is questionable, the Federal
Reserve Board's next move likely will be to raise short-term
interest rates. The increase, however, is expected to be gradual and
should not have a material impact on the positive advantage leverage
has had on the Fund's Common Stock yield. However, should the spread
between short-term and long-term interest rates narrow, the benefits
of leveraging will decline and, as a result, reduce the yield on the
Fund's Common Stock. At the end of the period, the Fund's leverage
amount, due to AMPS, was 31.96% of total assets. (For a more
complete explanation of the benefits and risks of leveraging, see
page 2 of this report to shareholders.)
How would you characterize the Fund's position at the close of the
period?
The portfolio essentially remained fully invested, which we believe
should continue to provide a material benefit to the Common Stock
shareholder as short-term interest rates remain near their historic
lows. We maintained our defensive market stance at the close of the
period in recognition of improving economic conditions. We believe
this positioning prepares the Fund for relative outperformance once
interest rates inevitably begin to rise. Finally, we remained
overweight in premium-coupon bonds and continued to favor maturities
in the 25-year range.
Michael A. Kalinoski
Vice President and Portfolio Manager
May 12, 2004
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Schedule of Investments (In Thousands)
S&P Moody's Face
Ratings Ratings Amount Municipal Bonds Value
Arizona--126.3%
NR* NR* $ 1,650 Arizona Educational Loan Marketing Corporation, Educational
Loan Revenue Refunding Bonds, AMT, Junior Sub-Series, 6.30%
due 12/01/2008 $ 1,685
AAA NR* 835 Arizona HFA, Revenue Bonds (Tucson Pima), AMT, IDA, Series 2A,
5.50% due 1/01/2035 (i) 842
Arizona Health Facilities Authority, Hospital System Revenue
Refunding Bonds (John C. Lincoln Health Network):
BBB NR* 500 6.875% due 12/01/2020 543
BBB NR* 625 7% due 12/01/2025 672
BBB+ Baa1 1,785 Arizona Health Facilities Authority Revenue Bonds (Catholic
Healthcare West), Series A, 6.625% due 7/01/2020 1,960
AAA Aaa 3,000 Arizona School Facilities Board, State School Improvement Revenue
Bonds, 5.50% due 7/01/2017 3,264
Arizona State University Revenue Bonds (e):
AAA Aaa 1,500 5.75% due 7/01/2027 1,612
AAA NR* 4,335 DRIVERS, Series 270, 9.631% due 7/01/2021 (l) 5,048
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 3,489
NR* Aaa 1,000 Senior Series A-1, 5.90% due 5/01/2024 1,045
Arizona Tourism and Sports Authority, Tax Revenue Bonds:
NR* Baa1 1,000 (Baseball Training Facilities Project), 5% due 7/01/2016 1,005
NR* Aaa 2,000 (Multi-Purpose Stadium Facility), Series A, 5.375% due 7/01/2023 (j) 2,110
AAA NR* 500 Glendale, Arizona, Development Authority, Educational Facilities
Revenue Refunding Bonds (American Graduate School International),
5.875% due 7/01/2015 (c) 535
AAA Aaa 1,000 Goodyear, Arizona, Community Facilities Utilities District No. 1, GO,
5.20% due 7/15/2025 (j) 1,015
BBB Baa1 2,405 Maricopa County, Arizona, Hospital Revenue Refunding Bonds (Sun Health
Corporation), 6.125% due 4/01/2018 2,507
AAA Aaa 2,400 Maricopa County, Arizona, IDA, Hospital Facility Revenue Refunding
Bonds (Samaritan Health Services), Series A, 7% due 12/01/2016 (d)(j) 2,983
Maricopa County, Arizona, IDA, M/F Housing Revenue Bonds:
AAA Aaa 1,000 (Metro Gardens--Mesa Ridge Apartments Project), Series 1999A,
5.15% due 7/01/2029 (j) 1,005
AAA NR* 2,395 (Place Five and Greenery Apartments), Series A, 6.625% due
1/01/2027 (d) 2,745
AAA NR* 955 Maricopa County, Arizona, IDA, S/F Mortgage Revenue Bonds, AMT,
Series 1B, 6.25% due 9/01/2032 (f)(i) 981
Maricopa County, Arizona, Pollution Control Corporation, PCR,
Refunding, Series A:
BB+ Ba1 1,000 (El Paso Electric Company Project), 6.25% due 5/01/2037 1,039
BBB Baa2 500 (Public Service Company of New Mexico Project), 5.75% due 11/01/2022 501
BBB Baa2 1,485 (Public Service Company of New Mexico Project), 6.30% due 12/01/2026 1,528
AAA NR* 2,250 Maricopa County, Arizona, Public Finance Corporation, Lease Revenue
Bonds, RIB, Series 511X, 9.63% due 7/01/2014 (a)(l) 2,682
AA Aa2 1,825 Maricopa County, Arizona, Scottsdale Unified School District
Number 48, GO, 6.60% due 7/01/2012 2,181
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)
DRIVERS Derivative Inverse Tax-Exempt Receipts
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Schedule of Investments (continued) (In Thousands)
S&P Moody's Face
Ratings Ratings Amount Municipal Bonds Value
Arizona (concluded)
AAA Aaa $ 500 Maricopa County, Arizona, Tempe Elementary Unified School District
Number 3, GO, Refunding, 7.50% due 7/01/2010 (e) $ 612
NR* Baa2 1,000 Maricopa County, Arizona, Unified School District Number 090,
School Improvement, GO (Saddle Mountain), Series A, 5% due 7/01/2014 1,022
Mesa, Arizona, IDA, Revenue Bonds (Discovery Health Systems),
Series A (j):
AAA Aaa 1,000 5.875% due 1/01/2014 1,110
AAA Aaa 1,500 5.625% due 1/01/2015 1,635
AAA Aaa 1,000 Mesa, Arizona, Utility System Revenue Bonds, 6.125% due
7/01/2007 (e)(k) 1,125
NR* NR* 1,000 Navajo County, Arizona, IDA, IDR (Stone Container Corporation Project),
AMT, 7.40% due 4/01/2026 1,007
AAA Aaa 4,500 Northern Arizona University System Revenue Bonds, 5.50% due
6/01/2034 (e) 4,770
AAA Aaa 2,500 Phoenix, Arizona, Civic Improvement Corporation, Water System Revenue
Refunding Bonds, Junior Lien, 5.50% due 7/01/2020 (e) 2,686
AA+ NR* 1,750 Phoenix, Arizona, GO, Refunding, DRIVERS, Series 173, 13.61% due
7/01/2008 (l) 2,397
NR* Aaa 2,500 Phoenix, Arizona, IDA, Revenue Bonds (Camelback Crossing), 6.35%
due 9/20/2035 (i) 2,676
AAA NR* 775 Phoenix, Arizona, IDA, S/F Mortgage Revenue Bonds, AMT, Series 1A,
6.25% due 9/01/2032 (f)(i) 796
Pima County, Arizona, IDA, Education Revenue Bonds (Arizona Charter
Schools Project), Series C:
NR* Baa3 750 6.70% due 7/01/2021 764
NR* Baa3 1,000 6.75% due 7/01/2031 1,008
AAA Aaa 1,000 Pima County, Arizona, IDA, Revenue Refunding Bonds (Health Partners),
Series A, 5.625% due 4/01/2014 (j) 1,088
AAA NR* 705 Pima County, Arizona, IDA, S/F Mortgage Revenue Refunding Bonds, AMT,
Series A-1, 6.20% due 11/01/2030 (f)(g) 749
AAA Aaa 3,050 Pima County, Arizona, Unified School District Number 1, Tucson, GO,
Refunding, 7.50% due 7/01/2009 (e) 3,679
AAA Aaa 1,000 Scottsdale, Arizona, GO, 6.25% due 7/01/2009 (k) 1,153
BBB+ A3 2,250 Scottsdale, Arizona, IDA, Hospital Revenue Bonds (Scottsdale
Healthcare), 5.80% due 12/01/2031 2,334
AAA Aaa 1,500 South Campus Group LLC, Arizona Student Housing Revenue Bonds
(Arizona State University South Campus Project), Series 2003, 5.625%
due 9/01/2035 (j) 1,597
Tucson and Pima County, Arizona, IDA, S/F Mortgage Revenue Refunding
(Mortgage-Backed Securities Program), Bonds, AMT, Series A-1 (g):
AAA NR* 1,065 6% due 7/01/2021 (f) 1,092
AAA NR* 560 6.20% due 1/01/2034 562
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 (b) 1,613
NR* NR* 1,000 Vistancia, Arizona, Community Facilities District, GO, 6.75% due
7/15/2022 1,017
NR* Baa2 2,000 Yavapai County, Arizona, IDA, Hospital Facility Revenue Bonds
(Yavapai Regional Medical Center), Series A, 6% due 8/01/2033 2,022
Puerto Rico--13.2%
AAA Aaa 500 Puerto Rico Commonwealth, GO, Refunding, RITR, Class R, Series 3,
10.09% due 7/01/2016 (j)(l) 633
Puerto Rico Commonwealth, Highway and Transportation Authority,
Transportation Revenue Refunding Bonds:
A Baa1 1,000 Series D, 5.75% due 7/01/2041 1,056
A Aaa 1,000 Series J, 5.50% due 7/01/2023 1,054
AAA Aaa 695 Puerto Rico Electric Power Authority, Power Revenue Bonds, Trust
Receipts, Class R, Series 16 HH, 10.07% due 7/01/2013 (h)(l) 897
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Schedule of Investments (concluded) (In Thousands)
S&P Moody's Face
Ratings Ratings Amount Municipal Bonds Value
Puerto Rico (concluded)
NR* Aaa $ 750 Puerto Rico Electric Power Authority, Power Revenue Refunding
Bonds, RIB, Series 449X, 9.66% due 7/01/2016 (a)(l) $ 839
NR* Baa2 2,000 Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Revenue Bonds (Cogeneration
Facility--AES Puerto Rico Project), AMT, 6.625% due 6/01/2026 2,085
BBB+ Baa3 1,835 Puerto Rico Public Finance Corporation Revenue Bonds,
Commonwealth Appropriation, Series E, 5.70% due 8/01/2025 1,923
Virgin Islands--1.7%
BBB NR* 1,000 Virgin Islands Public Finance Authority, Revenue Refunding Bonds
(Gross Receipts Taxes Loan Note), Series A, 6.375% due 10/01/2019 1,113
Total Municipal Bonds (Cost--$86,848)--141.2% 91,091
Shares
Held Short-Term Securities
2,710 CMA Arizona Municipal Money Fund (m) 2,710
Total Short-Term Securities (Cost--$2,710)--4.2% 2,710
Total Investments (Cost--$89,558)--145.4% 93,801
Other Assets Less Liabilities--1.6% 1,008
Preferred Stock, at Redemption Value--(47.0%) (30,303)
---------
Net Assets Applicable to Common Stock--100.0% $ 64,506
=========
(a)AMBAC Insured.
(b)Radian Insured.
(c)Connie Lee Insured.
(d)Escrowed to maturity.
(e)FGIC Insured.
(f)FHLMC Collateralized.
(g)FNMA/GNMA Collateralized.
(h)FSA Insured.
(i)GNMA Collateralized.
(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 April 30, 2004.
(m)Investments in companies considered to be an affiliate of the
Fund (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as
follows:
(in Thousands)
Net Dividend
Affiliate Activity Income
CMA Arizona Municipal
Money Fund 1,908 $4
*Not Rated.
See Notes to Financial Statements.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Statement of Net Assets
As of April 30, 2004
Assets
Investments in unaffiliated securities, at value (identified cost--$86,848,467) $ 91,091,097
Investments in affiliated securities, at value (identified cost--$2,709,786) 2,709,786
Cash 31,772
Receivables:
Interest $ 1,844,758
Securities sold 239,700
Dividends from affiliates 32 2,084,490
---------------
Prepaid expenses 3,067
---------------
Total assets 95,920,212
---------------
Liabilities
Payables:
Securities purchased 1,030,579
Investment adviser 44,504
Dividends to Common Stock shareholders 31,757
Other affiliates 665 1,107,505
---------------
Accrued expenses 3,155
---------------
Total liabilities 1,110,660
---------------
Preferred Stock
Preferred Stock, at redemption value, par value $.10 per Share
(518 Series A Shares and 694 Series B Shares of AMPS* issued and
outstanding at $25,000 per share liquidation preference) 30,303,227
---------------
Net Assets Applicable to Common Stock
Net assets applicable to Common Stock $ 64,506,325
===============
Analysis of Net Assets Applicable to Common Stock
Common Stock, par value $.10 per share (4,463,687 shares issued and
outstanding) $ 446,369
Paid-in capital in excess of par 58,988,883
Undistributed investment income--net $ 1,244,629
Accumulated realized capital losses on investments--net (416,186)
Unrealized appreciation on investments--net 4,242,630
---------------
Total accumulated earnings--net 5,071,073
---------------
Total--Equivalent to $14.45 net asset value per share of Common Stock
(market price--$13.70) $ 64,506,325
===============
*Auction Market Preferred Stock.
See Notes to Financial Statements.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Statement of Operations
For the Six Months Ended April 30, 2004
Investment Income
Interest $ 2,581,024
Dividends from affiliates 4,007
---------------
Total income 2,585,031
---------------
Expenses
Investment advisory fees $ 241,371
Commission fees 36,606
Accounting services 27,243
Professional fees 22,156
Transfer agent fees 20,886
Printing and shareholder reports 18,137
Directors' fees and expenses 6,970
Pricing fees 3,512
Custodian fees 3,503
Listing fees 861
Other 11,949
---------------
Total expenses before reimbursement 393,194
Reimbursement of expenses (5,894)
---------------
Total expenses after reimbursement 387,300
---------------
Investment income--net 2,197,731
---------------
Realized & Unrealized Gain (Loss) on Investments--Net
Realized gain on investments--net 365,391
Change in unrealized appreciation on investments--net (1,261,621)
---------------
Total realized and unrealized loss on investments--net (896,230)
---------------
Dividends to Preferred Stock Shareholders
Investment income--net (119,327)
---------------
Net Increase in Net Assets Resulting from Operations $ 1,182,174
===============
See Notes to Financial Statements.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 2004 2003
Operations
Investment income--net $ 2,197,731 $ 4,464,649
Realized gain on investments--net 365,391 709,383
Change in unrealized appreciation on investments--net (1,261,621) (484,666)
Dividends to Preferred Stock shareholders (119,327) (278,512)
--------------- ---------------
Net increase in net assets resulting from operations 1,182,174 4,410,854
--------------- ---------------
Dividends to Common Stock Shareholders
Investment income--net (2,033,247) (3,910,556)
--------------- ---------------
Net decrease in net assets resulting from dividends to Common Stock
shareholders (2,033,247) (3,910,556)
--------------- ---------------
Common Stock Transactions
Value of shares issued to Common Stock shareholders in reinvestment of
dividends 123,724 34,457
--------------- ---------------
Net Assets Applicable to Common Stock
Total increase (decrease) in net assets applicable to Common Stock (727,349) 534,755
Beginning of period 65,233,674 64,698,919
--------------- ---------------
End of period* $ 64,506,325 $ 65,233,674
=============== ===============
*Undistributed investment income--net $ 1,244,629 $ 1,199,472
=============== ===============
See Notes to Financial Statements.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Financial Highlights
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: 2004 2003 2002 2001++ 2000++
Per Share Operating Performance
Net asset value, beginning of period $ 14.64 $ 14.53 $ 14.19 $ 13.11 $ 12.54
---------- ---------- ---------- ---------- ----------
Investment income--net .49+++++ 1.00+++++ .97 .94 .95
Realized and unrealized gain (loss) on
investments--net (.19) .05 .26 1.02 .57
Dividends to Preferred Stock shareholders
from investment income--net (.03) (.06) (.09) (.20) (.27)
---------- ---------- ---------- ---------- ----------
Total from investment operations .27 .99 1.14 1.76 1.25
---------- ---------- ---------- ---------- ----------
Less dividends to Common Stock shareholders
from investment income--net (.46) (.88) (.80) (.68) (.68)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 14.45 $ 14.64 $ 14.53 $ 14.19 $ 13.11
========== ========== ========== ========== ==========
Market price per share, end of period $ 13.70 $ 14.13 $ 13.25 $ 13.19 $ 11.125
========== ========== ========== ========== ==========
Total Investment Return**
Based on market price per share (.01%)+++ 13.45% 6.54% 25.09% 2.40%
========== ========== ========== ========== ==========
Based on net asset value per share 1.79%+++ 7.19% 8.60% 14.20% 11.26%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common Stock
Total expenses, net of reimbursement*** 1.17%* 1.18% 1.28% 1.33% 1.26%
========== ========== ========== ========== ==========
Total expenses*** 1.18%* 1.19% 1.28% 1.33% 1.30%
========== ========== ========== ========== ==========
Total investment income--net*** 6.61%* 6.79% 6.86% 6.88% 7.55%
========== ========== ========== ========== ==========
Amount of dividends to Preferred Stock
shareholders .36%* .42% .61% 1.48% 2.13%
========== ========== ========== ========== ==========
Investment income--net, to Common Stock
shareholders 6.25%* 6.37% 6.25% 5.41% 5.42%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Common & Preferred Stock***
Total expenses, net of reimbursement .80%* .81% .86% .89% .82%
========== ========== ========== ========== ==========
Total expenses .81%* .81% .86% .89% .85%
========== ========== ========== ========== ==========
Total investment income--net 4.55%* 4.64% 4.63% 4.60% 4.91%
========== ========== ========== ========== ==========
Ratios Based on Average Net Assets of Preferred Stock
Dividends to Preferred Stock shareholders .79%* .91% 1.26% 2.97% 3.97%
========== ========== ========== ========== ==========
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Financial Highlights (concluded)
For the Six
Months Ended
The following per share data and ratios have been derived April 30, For the Year Ended October 31,
from information provided in the financial statements. 2004 2003 2002 2001++ 2000++
Supplemental Data
Net assets applicable to Common Stock,
end of period (in thousands) $ 64,506 $ 65,234 $ 64,699 $ 63,160 $ 58,364
========== ========== ========== ========== ==========
Preferred Stock outstanding, end of period
(in thousands) $ 30,300 $ 30,300 $ 30,300 $ 30,300 $ 30,300
========== ========== ========== ========== ==========
Portfolio turnover 13.58% 26.99% 42.51% 45.89% 46.71%
========== ========== ========== ========== ==========
Leverage
Asset coverage per $1,000 $ 3,129 $ 3,153 $ 3,135 $ 3,085 $ 2,926
========== ========== ========== ========== ==========
Dividends Per Share on Preferred Stock Outstanding
Series A--Investment income--net $ 95 $ 220 $ 305 $ 742 $ 1,011
========== ========== ========== ========== ==========
Series B--Investment income--net $ 101 $ 237 $ 324 $ 742 $ 984
========== ========== ========== ========== ==========
*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.
++Certain prior year amounts have been reclassified to conform to
current year presentation.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Notes to Financial Statements
1. Significant Accounting Policies:
MuniYield Arizona Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, 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. Actual results
may differ from these 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 last available
bid price in the over-the-counter market or on the basis of yield
equivalents as obtained by the Fund's pricing service from one or
more dealers that make markets in the 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). Swap
agreements are valued by quoted fair values received daily by the
Fund from the counterparty. Short-term investments with a remaining
maturity 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 both to increase the return of the
Fund and to hedge, or protect, its exposure to interest rate
movements and movements in the securities 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.
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 may 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.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Notes to Financial Statements (continued)
* Forward interest rate swaps--The Fund may enter into forward
interest rate swaps. In a forward interest rate swap, the Fund and
the counterparty agree to make periodic net payments on a specified
notional contract amount, commencing on a specified future effective
date, unless terminated earlier. When the agreement is closed, the
Fund records a realized gain or loss in an amount equal to the value
of the agreement.
(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). Realized gains and losses on security
transactions are determined on the identified cost basis. Dividend
income is recorded on the ex-dividend dates. Interest income is
recognized on the accrual basis. The Fund amortizes all premiums and
discounts on debt securities.
(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,
2004, FAM reimbursed the Fund in the amount of $5,894.
For the six months ended April 30, 2004, the Fund reimbursed FAM
$946 for certain accounting services.
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, 2004 were $12,619,881 and
$13,235,677, respectively.
Net realized gains for the six months ended April 30, 2004 and net
unrealized appreciation as of April 30, 2004 were as follows:
Realized Unrealized
Gains Appreciation
Long-term investments $ 365,391 $ 4,242,630
------------- -------------
Total $ 365,391 $ 4,242,630
============= =============
As of April 30, 2004, net unrealized appreciation for Federal income
tax purposes aggregated $4,234,380, of which $4,478,532 related
to appreciated securities and $244,152 related to depreciated
securities. The aggregate cost of investments at April 30, 2004 for
Federal income tax purposes was $89,566,503.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of 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 stock
without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended April 30,
2004 and the year ended October 31, 2003 increased by 8,236 and
2,294, respectively, as a result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock are redeemable shares of Preferred
Stock of the Fund, with a par value of $.10 per share and a
liquidation preference of $25,000 per share, plus accrued and unpaid
dividends, 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, 2004 were as follows: Series A,
1.00% and Series B, .97%.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Notes to Financial Statements (concluded)
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, 2004, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
an affiliate of FAM, earned $7,970 as commissions.
5. Capital Loss Carryforward:
On October 31, 2003, the Fund had a net capital loss carryforward of
$504,059, of which $437,250 expires in 2008 and $66,809 expires in
2009. This amount will be available to offset like amounts of any
future taxable gains.
6. Subsequent Event:
The Fund paid a tax-exempt income dividend to holders of Common
Stock in the amount of $.077000 per share on May 27, 2004 to
shareholders of record on May 14, 2004.
Proxy Results
During the six-month period ended April 30, 2004, MuniYield Arizona
Fund, Inc.'s Common Stock shareholders voted on the following
proposal. The proposal was approved at a shareholders' meeting on
April 27, 2004. A description of the proposal and number of shares
voted are as follows:
Shares Voted Shares Withheld
For From Voting
1. To elect the Fund's Directors: James H. Bodurtha 4,266,662 134,338
Joe Grills 4,264,662 136,338
Roberta Cooper Ramo 4,264,377 136,623
Robert S. Salomon, Jr. 4,262,850 138,150
Stephen B. Swensrud 4,257,266 143,734
During the six-month period ended April 30, 2004, MuniYield Arizona
Fund, Inc.'s Preferred Stock shareholders (Series A - B) voted on
the following proposal. The proposal was approved at a shareholders'
meeting on April 27, 2004. The description of the 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: James H. Bodurtha,
Joe Grills, Herbert I. London, Andre F. Perold,
Roberta Cooper Ramo, Robert S. Salomon, Jr. and
Stephen B. Swensrud 1,010 0
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Quality Profile
The quality ratings of securities in the Fund as of April 30, 2004
were as follows:
Percent of
Total
S&P Rating/Moody's Rating Investments
AAA/Aaa 58.2%
AA/Aa 6.6
A/A 7.3
BBB/Baa 19.9
BB/Ba 1.1
NR (Not Rated) 6.9
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 stable level of dividend
distributions, 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 particular 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 Net Assets, which comprises part of
the financial information included in this report.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Officers and Directors
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Joe Grills, Director
Herbert I. London, Director
Andre F. Perold, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Stephen B Swensrud, Director
Kenneth A. Jacob, Senior Vice President
John M. Loffredo, Senior Vice President
Michael A. Kalinoski, Vice President
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Custodian
The Bank of New York
100 Church 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
101 Barclay Street - 7 West
New York, NY 10286
AMEX Symbol
MZA
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Electronic Delivery
The Fund offers electronic delivery of communications to its
shareholders. In order to receive this service, you must
register your account and provide us with e-mail information.
To sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification
number (PIN). You will need this PIN should you wish to update your
e-mail address, choose to discontinue this service and/or make any
other changes to the service. This service is not available for
certain retirement accounts at this time.
MUNIYIELD ARIZONA FUND, INC., APRIL 30, 2004
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to
this semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to
this semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies - Not Applicable to this
semi-annual report
Item 8 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
10(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - Not Applicable to this semi-annual
report
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MuniYield Arizona Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
MuniYield Arizona Fund, Inc.
Date: June 18, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
MuniYield Arizona Fund, Inc.
Date: June 18, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
MuniYield Arizona Fund, Inc.
Date: June 18, 2004