Girl... if thats female body builder muscle.. I must be an iron pumping machine because my arms are way bigger than yours. In measurement, my arms are 14" around (my wife's arms are 11" around) so when you consider it, its not really that much... Ive seen girls who have bigger arms than both of us lol.
As for your initial question ~ I don't think i've been on 'mones long enough to see any muscle decrease, but I HAVE noticed my arms got smaller, my legs got smaller, and my shoulders have softened up greatly, my chest has also decreased in size. Its worth considering that a LOT of this is achievable by simply doing a lot of cardio. If you look it up; you'll notice that body builders don't do a lot of cardio because too much cardio starts to reduce muscle mass.
Seeing as I've been doing about 1 hour to an hour and a half of cardio 4 times a week, not including my very cardio-integrated workout with a PT, i'd venture a guess that this is true judging by the results in my muscle mass decrease. I honestly can't say how much of it is due to hormones and how much is due to workout, and i probably will never know if I continue to do my usual workout routine

I'd recommend putting some workout in your lifestyle, because as teeg said ~ it wont just happen on its own. Your muscles will shrink to some degree, but can shrink more if you put the energy into your body and lifestyle to make it so... even cisgirls who don't work out have large arms... and fat distribution (to my understanding) will only work in the sense of your body simply moving the fat it stores to different storage places... consider it like moving stuff from your basement to your attic

. The fat you eat will go to your butt/legs or boobs (if you're lucky) and cheeks, instead of the usual gut

but the fat that is already in the "male" places of common fat storage, wont really go anywhere on their own, you gotta kick em out and ask for their last month's rent LOL.
What i'm doing now (and seems to be working well) is eating healthy and working out mon-fri, and then having a cheat day on saturday or sunday, alternating workouts on weekends bi-weekly. That way, I'm getting my healthy week of weight and muscle loss, and still getting my bits of fat for proper femi-ness. As a result, I've seen a mild increase in breast tissue, my butt got slightly bigger, and my stomach has kept on reducing in size despite the cheat days. I've been lucky enough that my thighs have not been a home for fat (I made the assumption that as a male, it was a common place for it since my legs use to be really fat and I had a bit of a gut). So yeah, to put my unnecessarily long response simply: Put a little physical activity in your life, eat right, and don't feel bad about cheat days... just don't overdue it... like... don't eat 5 stacks of pancakes or anything :S