MuniEnhanced
Fund, Inc.
FUND LOGO
Semi-Annual Report July 31, 1994
This report, including the financial information herein, is
transmitted to the shareholders of MuniEnhanced Fund, Inc.
for their information. It is not a prospectus, circular or
representation intended for use in the purchase of shares
of the Fund or any securities mentioned in the report. Past
performance results shown in this report should not be
considered a representation of future performance. The Fund
has leveraged its Common Stock by issuing Preferred Stock
to provide the Common Stock shareholders with a poten-
tially 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.
MuniEnhanced Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniEnhanced Fund, Inc.
<PAGE>
The Benefits and
Risks of
Leveraging
MuniEnhanced 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.
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 share-
holders 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 pick-up on the Common Stock will be reduced. At the same
time, the market value on the fund's Common Stock (that is, its
price as listed on the New York 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.
<PAGE>
TO OUR SHAREHOLDERS
For the six-month period ended July 31, 1994, the Common Stock
of MuniEnhanced Fund, Inc. earned $0.395 per share income divi-
dends, representing a net annualized yield of 6.78%, based on a
month-end per share net asset value of $11.76. Over the same per-
iod, total investment return on the Fund's Common Stock was -6.18%,
based on a change in per share net asset value from $12.99 to
$11.76, and assuming reinvestment of $0.398 per share income
dividends.
For the six-month period ended July 31, 1994, the Fund's
Preferred Stock had an average dividend yield as follows:
Series A, 2.61%; Series B, 2.67%; and Series C, 2.59%.
The Environment
The expectation of increasing inflationary pressures and higher
interest rates initially heightened investor concerns and
increased financial market volatility during the July quarter.
However, as the quarter progressed, it was the weakness of the
US dollar in foreign exchange markets that dominated the finan-
cial news and prolonged stock and bond market declines. Although
the US dollar had strengthened slightly by July quarter-end, which
may have improved investor confidence in the stock and bond
markets, the possibility of continued tightening by the Federal
Reserve Board resurfaced following Chairman Alan Greenspan's
recent congressional testimony. Nevertheless, as the quarter
drew to a close, a lower-than-expected rate of growth reported
for the US economy during the second calendar quarter allayed
investor concerns and led to stock and bond market rallies.
During the July quarter, the US dollar's weakness relative to
other major currencies reflected the deteriorating US trade
deficit and widening net long-term capital outflows. In 1993, an
expanding US economy and recession in other industrial countries
led to a higher level of imports and weaker export growth, widening
the US trade deficit further. In addition, global investors favored
non-US dollar denominated assets throughout 1993, which has further
depressed the dollar's value. This trend is not improving signif-
icantly thus far in 1994 since foreign inflows into US capital
markets continue to decline, although US investors are investing
outside of the United States to a lesser degree.
<PAGE>
Over the longer term, if the economies of United States' major
trading partners expand (improving the prospects for US export
growth), the outlook for the US dollar is likely to improve. In
the near term, central banks have attempted to reverse the dollar's
decline through currency market intervention. These efforts have
met with limited success thus far, giving rise to the concern
that the Federal Reserve Board will be forced to continue to raise
short-term interest rates to attract investment capital back to
the United States and bolster the dollar's value. However, further
interest rate increases may jeopardize the US economic expansion.
Despite evidence of a moderating trend in the US economy, Federal
Reserve Board Chairman Alan Greenspan indicated in his July Humphrey-
Hawkins testimony that the central bank would prefer to err on
the side of too much monetary tightening rather than too little.
In the weeks ahead, investors will continue to assess economic
data and inflationary trends as they focus on the US dollar in
order to gauge whether further increases in short-term interest
rates are imminent. Continued indications of moderate and
sustainable levels of economic growth would be positive for the
US capital markets.
The Municipal Market
The municipal bond market's performance over the last six months
has largely been dominated by reactions to repeated interest rate
increases by the Federal Reserve Board. After the initial move by
the Federal Reserve Board in February, municipal bond yields quickly
rose in anticipation of additional tightenings. By early March,
long-term tax-exempt bond yields, as measured by the Bond Buyer
Revenue Bond Index, had risen over 50 basis points (0.50%) to
6.07%. Further Federal Reserve Board moves and a strengthening
economy combined to push tax-exempt yields to a yearly high of
6.60% by mid-May. As evidence of a weakening economy accumulated,
yields declined somewhat for the remainder of the period with the
Reserve Bond Index falling to approximately 6.45% at the end of
July. Long-term US Treasury bonds ended the July reporting
period yielding approximately 7.40%, rising over 120 basis points
in the last six months.
The tax-exempt bond market has continued to be very volatile with
yields fluctuating by as much as 15 basis points from week to
week. This continued volatility is mainly a reflection of the
same lack of conviction regarding the near-term direction of
interest rates which has prevailed for much of 1994. Over the
past six months, the municipal bond market had been unable to
maintain a consensus regarding either the potential strength of
the current economic recovery or the resultant response by the
Federal Reserve Board. However, a number of economic indicators
released in late July began to suggest that the robust pace of
recent economic growth was slowing. This promoted a more positive
market environment toward the end of July.
<PAGE>
The municipal bond market's technical position has remained
supportive. Approximately $85 billion in long-term securities
were issued during the six months ended July 31, 1994. This
represents a decline of over 44% versus the July period from a
year ago. As discussed in earlier reports, this reduction in new-
issue supply has minimized the selling pressure by larger insti-
tutional investors who fear being unable to purchase sizable
amounts of securities in the future. Such a significant decline
in issuance would normally be expected to trigger a decline in
yields as investors chase a commodity in scarce supply. Investor
demand, however, has also diminished somewhat in recent months as
net flows into long-term municipal bond funds have dramatically
slowed or, in some instances, reversed. Consequently, the supply/
demand relationship within the municipal bond market has remained
in balance, promoting the overall stability in yield levels seen
in the past months.
With after-tax equivalents in excess of 10%, long-term tax-exempt
bonds continue to represent considerable value relative to other
investment alternatives. We continue to anticipate municipal bond
yields will decline further in late 1994 and into 1995. The
economic impact of the significant interest rate increases
experienced since early February have yet to be totally realized.
The resultant drag on the economy should provide the foundation
for further interest rate declines. Under such a scenario, current
tax-exempt bond yields may prove to represent considerable value.
Portfolio Strategy
During the six months ended July 31, 1994, the Fund's structure
and strategy basically were unchanged. We believe long-term
interest rates are likely to remain at present levels for the
near term and continue to be subject to spurts of market
volatility because of conflicting indications of economic
strength. Our focus is on relative value in the municipal bond
market. Within this context the Fund engaged in the sale of
prerefunded bonds with approaching call dates and particular
issues we regarded to be fully valued in relation to the market
as a whole. Emphasis was put on the purchase of high-quality,
current coupon, income-oriented issues in specific high tax
states because they offered the best overall value in the insured
sector of the municipal market. The Fund's cash reserves have
been kept at a minimum to take advantage of the steep yield
spread between short-term and long-term interest rates, which
continue to generate positive benefits to Common Stock share-
holders because of the leveraging of Preferred Stock. However,
if the yield curve were to flatten, the benefits of leverage
would decline and reduce the overall performance of the Fund.
(See page 1 of this report to shareholders for a complete ex-
planation of the risks and benefits of leveraging.)
<PAGE>
In Conclusion
We appreciate your ongoing interest in MuniEnhanced Fund, Inc.,
and we look forward to assisting you with your financial needs
in the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
August 25, 1994
PER SHARE INFORMATION
<TABLE>
Per Share Selected
Quarterly Financial
Data*
<CAPTION>
Net Realized Unrealized Dividends/Distributions
Investment Gains Gains Net Investment Income Capital
For the Quarter Income (Losses) (Losses) Common Preferred Gains
<S> <C> <C> <C> <C> <C> <C>
August 1, 1992 to October 31, 1992 $.26 $ .23 $(1.02) $.23 $.03 --
November 1, 1992 to January 31, 1993 .26 .02 .58 .22 .04 $.35
February 1, 1993 to April 30, 1993 .26 .12 .33 .21 .03 --
May 1, 1993 to July 31, 1993 .25 .19 .05 .21 .03 --
August 1, 1993 to October 31, 1993 .25 .11 .31 .22 .03 --
November 1,1993 to January 31,1994 .25 .07 .01 .21 .03 .43
February 1, 1994 to April 30, 1994 .23 .12 (1.47) .20 .03 --
May 1, 1994 to July 31, 1994 .24 (.13) .25 .20 .04 --
<PAGE>
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
August 1, 1992 to October 31, 1992 $12.79 $11.98 $13.875 $12.00 2,669
November 1, 1992 to January 31, 1993 12.58 12.05 13.50 12.375 1,811
February 1, 1993 to April 30, 1993 13.04 12.29 13.625 12.75 1,497
May 1, 1993 to July 31, 1993 13.09 12.68 13.125 12.375 1,806
August 1, 1993 to October 31, 1993 13.56 12.92 13.625 12.75 1,760
November 1, 1993 to January 31, 1994 13.33 12.74 13.375 12.375 2,084
February 1, 1994 to April 30, 1994 12.96 11.26 13.125 10.75 2,600
May 1, 1994 to July 31, 1994 12.05 11.32 11.125 10.50 2,603
<FN>
*Calculations are based upon shares of Common Stock outstanding
at the end of each quarter.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniEnhanced Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the
names of many of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Authority
IDR Industrial Development Revenue Bonds
IRS Interest Residual Securities
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
S/F Single-Family
TRAN Tax Revenue Anticipation Notes
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--2.0% AA Aa $10,000 Birmingham, Alabama, Waterworks and Sewer Board, Water and Sewer
Revenue Refunding Bonds, Series A, 6% due 1/01/2020 $ 9,884
<PAGE>
Alaska--0.6% A+ Aa1 3,000 Alaska State Housing Finance Corporation, Revenue Refunding Bonds
(Insured Mortgage Program), First Series, 7.75% due 12/01/2014 3,109
Arkansas--0.9% AAA Aaa 4,100 Fort Smith, Arkansas, Water and Sewer Construction, Revenue Refunding
Bonds, 6% due 10/01/2012(c) 4,148
California--18.8% AA Aa 2,500 California State Department of Water Resources, Revenue Refunding
Bonds (Central Valley Project), Series L, 5.70% due 12/01/2016 2,353
California State Public Works Board, Lease Revenue Bonds (Various
University of California Projects), Series A:
AAA Aaa 2,000 6.40% due 12/01/2016 (d) 2,038
A- A 8,000 Refunding, 5.50% due 6/01/2021 6,917
AAA Aaa 2,500 California State, RAN, Series C, 5.75% due 4/25/1996 (b) 2,542
AAA Aaa 5,000 Central Coast Water Authority, California, Revenue Bonds (State Water
Project Regional Facilities), 6.60% due 10/01/2022 (d) 5,177
AAA Aaa 4,450 Compton, California, Community Redevelopment Agency, Tax Allocation
Refunding Bonds (Walnut Industrial Park), Series A, 7.50% due 8/01/2013 (d) 4,975
AAA Aaa 4,000 East Bay, California, Municipal Utilities District, Wastewater Treatment
System Revenue Bonds, 6.375% due 6/01/2021 (d) 4,066
AAA Aaa 2,000 Irvine, California, Unified School District, Special Tax Community
Facilities Bonds (District No. 86-1), Series A, 8.10% due 11/15/2013
(c) 2,272
AA Aa 2,000 Los Angeles, California, Department of Water and Power, Electric Plant
Revenue Bonds, 5.30% due 2/15/2021 1,746
Los Angeles, California, Wastewater System Revenue Bonds:
AAA Aaa 3,000 Refunding, Series D, 4.70% due 11/01/2017 (b) 2,418
AAA Aaa 5,000 Refunding, Series D, 5.20% due 11/01/2021 (b) 4,311
AAA Aaa 6,950 Series B, 6% due 6/01/2022 (d) 6,848
Los Angeles County, California, Metropolitan Transportation Authority,
Sales Tax Revenue Bonds:
AAA Aaa 5,935 Proposition C, Series B, 4.75% due 7/01/2018 (d) 4,806
AAA Aaa 2,875 Refunding Proposition A, Series A, 5.625% due 7/01/2018 (c) 2,670
AAA Aaa 8,235 Los Angeles County, California, Transportation Commission, Sales Tax
Revenue Refunding Bonds, Series B, 6.50% due 7/01/2015 (b) 8,464
AAA Aaa 1,500 M-S-R Public Power Agency, California, Revenue Bonds (San Juan
Project), Series E, 6.50% due 7/01/2017 (c) 1,538
AA Aa 5,000 Metropolitan Water District, Southern California, Waterworks Revenue
Bonds, 5.50% due 7/01/2019 4,558
AAA Aaa 1,500 Northern California Transmission Revenue Bonds (California-Oregon Trans-
mission Project), Series A, 6.50% due 5/01/2016 (c) 1,552
SP1+ NR 4,000 San Diego, California, Area Local Government, COP, TRAN, 4.50% due
6/30/1995 4,013
AAA Aaa 2,985 San Francisco, California, City and County, GO (Various Purpose
Projects), UT, Series A, 10% due 12/15/2000 (c) 3,778
SP1+ MIG1++ 9,000 Santa Clara County, California, TRAN, UT, 4.25% due 7/07/1995 8,966
AAA Aaa 2,000 Southern California Public Power Authority, Transmission Project
Revenue Refunding Bonds, Sub-Series A, 4.875% due 7/01/2020 (c) 1,638
NR Aa 5,000 University of California, COP, Refunding (UCLA Center Chiller/Cogen
Project), 5.60% due 11/01/2020 4,523
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS(continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Colorado--0.5% A-1 Aa3 $ 1,100 Colorado, HFA, M/F Housing Revenue Bonds (Central Park, Coven &
Greenwood), VRDN, 2.85% due 5/01/1997 (a) $ 1,100
A-1 NR 1,100 Pitkin County, Colorado, IDR, Refunding (Aspen Skiing Co. Project),
VRDN, Series A, 2.85% due 4/01/2016 (a) 1,100
Connecticut--0.7% A-1 VMIG1 1,100 Connecticut State, Economic Recreation Notes, VRDN, Series B, 2.85%
due 6/01/1996 (a) 1,100
AA Aa 2,400 Connecticut State HFA, Housing Mortgage Finance Program, Sub-Series
B-1, 6.50% due 5/15/2018 2,437
District of AAA Aaa 3,000 District of Columbia, UT, Series B, 6.10% due 6/01/2011 (c) 3,010
Columbia--0.6%
Florida--1.5% AA Aa 1,500 Florida, HFA, S/F Mortgage, Refunding, Series B, 6.55% due 7/01/2017 1,506
AAA Aaa 4,000 Florida State Municipal Power Agency Revenue Bonds (Power Supply
Project), 5.10% due 10/01/2025 (d) 3,401
AAA Aaa 2,000 Florida State Turnpike Authority, Revenue Bonds, Series A, 9.50% due
7/01/2000 (d) 2,457
Georgia--2.2% A A2 1,775 Burke County, Georgia, Development Authority, PCR (Georgia Power
Company Plant--Vogtle Project), AMT, 9.375% due 12/01/2017 2,023
AAA Aaa 7,725 Georgia Municipal Electric Authority, Power Revenue Bonds, Series EE,
7% due 1/01/2025 (d) 8,811
Hawaii--3.9% AAA Aaa 11,250 Hawaii State Airport System Revenue Bonds, AMT, Second Series, 7.50%
due 7/01/2020 (b) 12,268
AAA Aaa 6,070 Hawaii State Department of Budget and Finance, Special Purpose
Mortgage Revenue Bonds (Hawaiian Electric Company), AMT, Series C,
7.375% due 12/01/2020 (c) 6,655
<PAGE>
Idaho--0.6% AAA Aaa 1,000 Idaho Health Facilities Authority, Health Care Corporation
Revenue Bonds (Saint Joseph Regional Medical Center), 5.25% due
7/01/2016 (c) 886
NR Aa 2,000 Idaho Housing Agency Refunding Bonds, S/F Mortgage, Series B, 5.70%
due 7/01/2013 1,845
Illinois--8.2% AAA Aaa 4,500 Chicago, Illinois, Wastewater Transmission Revenue Bonds, 6.375% due
1/01/2024 (c) 4,521
AAA Aaa 2,240 Cook County, Illinois, Chicago Community College District No. 508,
COP, UT, 8.75% due 1/01/2007 (b) 2,842
AAA Aaa 3,025 Cook County, Illinois, Community Consolidated School District No. 54
Revenue Bonds (Schaumburg Township), UT, Series A, 6.50% due 1/01/2010
(b) 3,140
Cook County, Illinois, GO, UT, Series A (c):
AAA Aaa 2,000 6.50% due 11/15/2010 2,082
AAA Aaa 5,000 6.50% due 11/15/2012 5,185
Illinois Health Facilities Authority Revenue Bonds:
AAA Aaa 1,000 (Ingalls Health System Project), Series A, 6.25% due 5/15/2024 987
AA Aa 5,000 Refunding (Northwestern Memorial Hospital), Series A, 6% due 8/15/2024 4,741
AAA Aaa 3,500 Illinois Health Facilities Authority Revenue Bonds (Servantcor Project),
Series A, 6.375% due 8/15/2021 3,462
AAA Aaa 3,025 Northwest Suburban Municipal Joint Action Water Agency, Illinois, Water
Supply System, Revenue Refunding Bonds, Series A, 5.90% due 5/01/2015 (c) 2,906
AAA Aaa 9,115 Regional Transportation Authority, Illinois, GO, Series A, 7.20% due
11/01/2020 (d) 10,457
Indiana--1.3% NR Aaa 2,990 Indiana State HFA, S/F Mortgage Revenue Bonds (Home Mortgage Program),
AMT Series B-2, 7.80% due 1/01/2022 (g) 3,141
AAA Aaa 3,000 Indianapolis, Indiana, Airport Authority Revenue Bonds, AMT, 8.40%
due 7/01/2008 (c) 3,378
Iowa--2.8% NR Aaa 3,700 Iowa Finance Authority, S/F Mortgage Revenue Bonds, AMT, Series A,
7.90% due 11/01/2022 (g) 3,846
Iowa Finance Authority, Solid Waste Disposal Revenue Bonds (Cedar
River Paper Company Project), VRDN, Series A (a):
A-1+ NR 2,500 2.90% due 7/01/2023 2,500
A-1+ NR 7,400 2.90% due 6/01/2024 7,400
Kansas--1.2% AAA Aaa 3,000 Burlington, Kansas, PCR, Refunding (Kansas Gas and Electric Company
Project), 7% due 6/01/2031 (c) 3,234
AAA Aaa 2,500 Wamego, Kansas, PCR, Refunding (Kansas Gas and Electric Company
Project), 7% due 6/01/2031 (c) 2,689
Kentucky--1.0% AAA Aaa 5,000 Kenton County, Kentucky, Airport Board, Airport Revenue Bonds
(Cincinnati/Northern Kentucky International Airport), AMT, Series A,
6.30% due 3/01/2015 (f) 5,017
<PAGE>
Louisiana--2.8% AAA Aaa 4,000 Louisiana Public Facilities Authority Revenue Bonds (General Health
Inc. Project), 6.375% due 11/01/2024 (c) 4,056
AAA Aaa 4,340 Louisiana Public Facilities Authority, Revenue Refunding Bonds
(Jefferson Parish Eastbank Project), 7.70% due 8/01/2010 (b) 4,890
AAA Aaa 4,700 Louisiana Stadium and Expo District, Hotel Revenue Refunding Bonds
(Occupancy Tax), Series A, 6% due 7/01/2024 (b) 4,579
Massachusetts-- AAA Aaa 4,530 Boston, Massachusetts, GO, UT, Series A, 10% due 7/01/2000 (c) 5,655
3.1% AAA Aaa 3,000 Massachusetts Bay Transportation Authority, COP, Series A, 7.65%
due 8/01/2015 (f) 3,371
A+ A 3,500 Massachusetts Bay Transportation Authority Revenue Bonds
(Massachusetts General Transportation System), Series B, 5.90%
due 3/01/2024 3,326
AAA Aaa 2,500 Massachusetts State Port Authority Revenue Bonds, AMT, Series A,
7.50% due 7/01/2020 (b) 2,749
Michigan--2.2% A- A 1,500 Michigan State Hospital Finance Authority, Hospital Revenue Refunding
Bonds (Detroit Medical Center), Series A, 6.50% due 8/15/2018 1,477
AAA Aaa 5,000 Michigan State Trunk Line Bonds, Series A, 5.75% due 11/15/2020 (b) 4,747
A-1 P1 1,100 Midland County, Michigan, Economic Development Corp., Limited
Obligation Revenue Bonds (Dow Chemical Co. Project), AMT, VRDN,
Series A, 3.15% due 12/01/2023 (a) 1,100
AAA Aaa 3,000 Monroe County, Michigan, PCR (Detroit Edison Company Project), AMT,
Series 1, 7.65% due 9/01/2020 (b) 3,320
Minnesota--0.6% A-1+ VMIG1 1,600 Duluth, Minnesota, Tax Increment Revenue Bonds (Lake Superior Paper),
VRDN, 2.75% due 4/01/2010 (a) 1,600
NR VMIG1 1,300 Minneapolis, Minnesota, Community Development Agency Revenue Bonds
(Riverplace Project-Pinnacle Apartments), VRDN, 3.10% due 2/01/2012 (a) 1,300
Mississippi--1.1% Mississippi Hospital Equipment and Facilities Authority Revenue Bonds:
AAA Aaa 2,000 (Mississippi Baptist Medical Center), Series A, 7.50% due 5/01/2012 (c) 2,199
AAA Aaa 3,400 Refunding and Improvement (North Mississippi Health Service),
Series 1, 5.25% due 5/15/2013 (d) 3,079
Missouri--1.9% AAA Aaa 7,545 Kansas City, Missouri, School District Building Corporation, Leasehold
Revenue Refunding Bonds (Capital Improvements Project), Series A, 10.50%
due 2/01/1999 (b) 9,190
NR VMIG1 300 Missouri Higher Education Loan Authority, Student Loan Revenue Bonds,
VRDN, AMT, Series A, 3% due 6/01/2017 (a) 300
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS(continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Montana--0.5% AAA Aaa $ 2,185 Forsyth, Montana, PCR, Refunding (Puget Sound Power and Light),
AMT, Series B, 7.25% due 8/01/2021 (d) $ 2,343
Nevada--0.7% AAA Aaa 3,500 Washoe County, Nevada, Gas and Water Facilities, Revenue Refunding
Bonds (Sierra Pacific), 6.30% due 12/01/2014 (d) 3,544
New Jersey--4.0% AAA Aaa 2,500 New Jersey State Health Care Facilities Financing Authority Revenue
Bonds (Newark Beth Israel Medical Center), 6% due 7/01/2024 (f) 2,442
New Jersey State Housing and Mortgage Finance Agency, Home Buyer
Revenue Bonds, AMT:
AAA Aaa 3,840 Series B, 7.90% due 10/01/2022 (c) 4,003
AAA Aaa 8,060 Series D, 7.70% due 10/01/2029 8,386
AAA Aaa 4,600 Salem County, New Jersey, Industrial Pollution Control Financing
Authority, Revenue Refunding Bonds (Public Service Electric & Gas
Company Project), Series B, 6.25% due 6/01/2031 (c) 4,607
New Mexico--0.5% AAA Aaa 2,300 Santa Fe, New Mexico, Revenue Bonds, Series A, 6.30% due 6/01/2024
(d) 2,318
New York--8.6% AAA Aaa 5,700 Metropolitan Transportation Authority, New York, Commuter Facilities
Revenue Bonds, Series A, 6.375% due 7/01/2018 (c) 5,792
AAA Aaa 2,000 Metropolitan Transportation Authority, New York, Service Contract
Revenue Refunding Bonds (Transportation Facilities), Series L, 7.50%
due 7/01/2017 (d) 2,207
New York City, New York, GO, UT:
A- NR 265 Series B, 8% due 6/01/2001 (i) 308
A- Baa1 3,235 Series B, 8.25% due 6/01/2002 3,749
A- Baa1 3,000 Series D, 9.50% due 8/01/2002 3,731
A- Baa1 1,600 Series H, 7.20% due 2/01/2015 1,708
A- Baa1 2,000 Series H, 7% due 2/01/2017 2,088
AAA Aaa 12,000 New York City, New York, Municipal Water Finance Authority, Water
and Sewer System Revenue Bonds, Registered IRS, 5.35% due 6/15/2012
(a) (c) 10,979
New York State Medical Care Facilities Financing Agency Revenue Bonds:
BBB+ Baa1 2,800 Refunding (Mental Health Services), Series F, 5.375% due 2/15/2014 2,474
AAA Aaa 5,250 (Saint Francis Hospital Project), Series A, 7.625% due 11/01/2021 (b) 5,840
A+ Aa 4,000 Triborough Bridge and Tunnel Authority, New York, General Purpose
Revenue Bonds, Series A, 5.20% due 1/01/2020 3,477
North Carolina-- AAA Aaa 1,000 Fayetteville, North Carolina, Public Works Commission Revenue
0.2% Refunding Bonds, 7% due 3/01/2000 (b) (h) 1,112
<PAGE>
North Dakota-- AAA Aaa 3,000 Bismarck, North Dakota, Hospital Revenue Refunding and Improvement Bonds
0.7% (Medical Center One, Inc.), 7.50% due 5/01/2013 (e) 3,325
Ohio--0.9% AAA Aaa 2,000 Ohio Municipal Electric Generation Agency, Joint Venture 5 Revenue Bonds,
5.375% due 2/15/2024 (d) 1,778
AAA Aaa 2,150 Ohio State Air Quality Development Authority, PCR, Refunding (Ohio-
Edison), Series A, 7.45% due 3/01/2016 (b) 2,384
Oklahoma--0.2% AAA Aaa 1,170 Muskogee County, Oklahoma, Home Financing Authority, S/F Mortgage Revenue
Refunding Bonds, Series A, 7.60% due 12/01/2010 (b) 1,202
Oregon--0.5% A+ A1 2,400 Portland, Oregon, Sewer System Revenue Bonds, Series A, 6.25% due
6/01/2015 2,418
Pennsylvania-- AAA Aaa 3,350 Pennsylvania Convention Center Authority Revenue Bonds, Series A, 6.70%
2.4% due 9/01/2016 (b) 3,674
AAA Aaa 4,000 Pennsylvania State Higher Education Assistance Agency, Student Loan
Revenue Bonds, AMT, 7.437% due 3/01/2020 (c) 4,248
AAA Aaa 4,590 Philadelphia, Pennsylvania, Water and Wastewater Revenue Refunding
Bonds, 5% due 6/15/2017 (c) 3,901
Rhode Island-- AAA Aaa 10,000 Rhode Island Depositors Economic Protection Corporation, Special
1.9% Obligation Refunding Bonds, Series A, 5.75% due 8/01/2019 (f) 9,444
South Carolina-- Richland County, South Carolina, Hospital Facilities Revenue Refunding
1.3% Bonds (South Carolina Baptist Hospital), Series B (d):
AAA Aaa 1,515 10% due 8/01/1999 1,854
AAA Aaa 1,855 10% due 8/01/2000 2,332
AAA Aaa 2,500 South Carolina Public Service Authority, Revenue Refunding Bonds,
Series A, 5.50% due 7/01/2021 (c) 2,257
South Dakota-- AAA Aaa 8,000 South Dakota State Health and Educational Facilities Authority, Revenue
1.8% Refunding Bonds (McKennan Hospital), Series A, 7.625% due 7/01/2014 (c) 8,890
Tennessee--4.6% AAA Aaa 2,250 Chattanooga--Hamilton County, Tennessee, Hospital Authority, Revenue
Refunding Bonds (Erlanger Medical Center), 5.50% due 10/01/2013 (f) 2,077
Metropolitan Nashville Airport Authority, Tennessee, Airport Revenue
Bonds, Series B (b):
AAA Aaa 7,350 7.75% due 7/01/2006 8,563
AAA Aaa 4,985 7.75% due 7/01/2007 5,808
AAA Aaa 5,450 Mount Juliet, Tennessee, Public Building Authority Revenue Bonds
(Madison Suburban Utility District Loan), Series B, 7.80% due
2/01/2019 (c) 6,420
<PAGE>
Texas--6.3% AAA Aaa 3,900 Austin, Texas, Utility System Revenue Refunding Bonds, 5.75% due
11/15/2016 (d) 3,707
AAA Aaa 3,000 Brazos River Authority, Texas, Revenue Refunding Bonds (Houston Light
and Power Company Project), Series C, 8.10% due 5/01/2019 (e) 3,358
AAA Aaa 5,000 Houston, Texas, Water and Sewer System Revenue Refunding Bonds (Junior
Lien), Series C, 6.375% due 12/01/2017 (d) 5,064
Matagorda County, Texas, Navigational District No. 1, PCR (Houston Power
and Light Company Project), AMT (b):
AAA Aaa 3,000 7.875% due 11/01/2016 3,257
AAA Aaa 4,000 Series D, 7.60% due 10/01/2019 4,416
AAA Aaa 10,485 Texas Water Resource Finance Authority Revenue Bonds, 7.50% due
8/15/2013 (d) 11,226
Utah--2.1% AA Aa 5,000 Intermountain Power Agency, Utah, Power Supply Revenue Bonds, Series B,
7% due 7/01/2021 5,274
AA Aa 5,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC Hospitals
Incorporated), 6.30% due 2/15/2015 5,182
Vermont--1.4% AAA Aaa 6,635 Vermont HFA, Home Mortgage Purchase Revenue Bonds, AMT, Series B, 7.60%
due 12/01/2024 (c) 6,916
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS(concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Washington--2.6% Washington State Public Power Supply System, Revenue Refunding Bonds:
AAA Aaa 5,000 (Nuclear Project No. 1), Series A, 6.25% due 7/01/2017 (c) $ 5,003
AAA Aaa 3,440 (Nuclear Project No. 3), Series A, 6% due 7/01/2018 (e) 3,380
AAA Aaa 4,000 (Nuclear Project No. 3), Series C, 7.50% due 7/01/2008 (c) 4,647
Wisconsin--2.4% AAA Aaa 7,885 Wisconsin Public Power Incorporated, System Power Supply, System Revenue
Bonds, Series A, 7.40% due 7/01/2020 (d) (i) 8,971
AAA Aaa 2,750 Wisconsin State Health and Educational Facilities Authority, Revenue
Refunding Bonds (Wheaton Franciscan Services), 6.50% due 8/15/2011 (c) 2,824
Total Investments (Cost--$487,008)--102.1% 501,283
Liabilities in Excess of Other Assets--(2.1%) (10,227)
--------
Net Assets--100.0% $491,056
========
<PAGE>
<FN>
(a)The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at July 31, 1994.
(b)FGIC Insured.
(c)MBIA Insured.
(d)AMBAC Insured.
(e)BIG Insured.
(f)FSA Insured.
(g)FNMA/GNMA Collateralized.
(h)Prerefunded.
(i)Escrowed to Maturity.
++Highest short-term rating issued by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of July 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$487,007,725) (Note 1a) $501,282,960
Cash 4,115,046
Interest receivables 6,766,451
Deferred organization expenses (Note 1e) 852
Prepaid expenses and other assets 22,652
------------
Total assets 512,187,961
------------
Liabilities: Payables:
Securities purchased $ 20,227,300
Dividends 617,994
Investment adviser (Note 2) 192,487 21,037,781
------------
Accrued expenses and other liabilities 94,225
------------
Total liabilities 21,132,006
------------
Net Assets: Net assets $491,055,955
============
<PAGE>
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (1,500 shares
of AMPS* issued and outstanding at $100,000 per share
liquidation preference) $150,000,000
Common Stock, par value $.10 per share (29,007,770 shares
issued and outstanding) $ 2,900,777
Paid-in capital in excess of par 319,102,131
Undistributed investment income--net 3,531,299
Undistributed realized capital gains--net 1,246,513
Unrealized appreciation on investments--net 14,275,235
------------
Total--Equivalent to $11.76 net asset value per share of
Common Stock (market price--$11.125) 341,055,955
------------
Total capital $491,055,955
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended Ended July 31, 1994
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 15,317,420
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,211,668
Commission fees (Note 4) 188,935
Transfer agent fees 72,912
Professional fees 42,498
Printing and shareholder reports 33,951
Accounting services (Note 2) 29,891
Directors' fees and expenses 22,038
Custodian fees 20,114
Listing fees 16,384
Pricing fees 8,859
Amortization of organization expenses (Note 1e) 412
Other 12,389
------------
Total expenses 1,660,051
------------
Investment income--net 13,657,369
------------
<PAGE>
Realized & Realized loss on investments--net (405,315)
Unrealized Change in unrealized appreciation on investments--net (35,436,439)
Loss on ------------
Investments--Net Net Decrease in Net Assets Resulting from Operations $(22,184,385)
(Notes 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the Year
Months Ended Ended
Increase (Decrease) in Net Assets: July 31, 1994 Jan. 31, 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 13,657,369 $ 29,038,208
Realized gain (loss) on investments--net (405,315) 13,988,460
Change in unrealized appreciation on investments--net (35,436,439) 17,230,790
------------ ------------
Net increase (decrease) in net assets resulting from
operations (22,184,385) 60,257,458
------------ ------------
Dividends & Investment income--net:
Distributions to Preferred Stock (1,951,465) (3,568,270)
Shareholders Common Stock (11,534,186) (24,266,522)
(Note 1g): Realized gain on investments--net:
Common Stock -- (12,392,997)
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (13,485,651) (40,227,789)
------------ ------------
Common Stock Net increase in net assets derived from Common Stock transactions -- 5,852,928
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (35,670,036) 25,882,597
Beginning of period 526,725,991 500,843,394
------------ ------------
End of period* $491,055,955 $526,725,991
============ ============
<FN>
*Undistributed investment income--net $ 3,531,299 $ 3,359,581
============ ============
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios
have been derived from information For the Six
provided in the financial statements. Months Ended
July 31, For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1994 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.99 $ 12.29 $ 11.96 $ 11.45 $ 11.15
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .47 1.01 1.06 1.09 1.12
Realized and unrealized gain (loss) on
investments--net (1.23) 1.09 .68 .71 .30
-------- -------- -------- -------- --------
Total from investment operations (.76) 2.10 1.74 1.80 1.42
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.40) (.85) (.91) (.84) (.79)
Realized gain on investments--net -- (.43) (.35) (.20) --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.40) (1.28) (1.26) (1.04) (.79)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends to Preferred Stock shareholders:
Investment income--net (.07) (.12) (.15) (.25) (.33)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.07) (.12) (.15) (.25) (.33)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.76 $ 12.99 $ 12.29 $ 11.96 $ 11.45
======== ======== ======== ======== ========
Market price per share, end of period $ 11.125 $ 13.125 $ 13.25 $ 12.625 $ 11.375
======== ======== ======== ======== ========
Total Investment Based on market price per share (12.17%)+++ 9.28% 16.27% 21.23% 8.61%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share (6.18%)+++ 16.61% 13.84% 14.09% 5.40%
======== ======== ======== ======== ========
Ratios to Average Expenses .68%* .68% .69% .70% .71%
Net Assets:*** ======== ======== ======== ======== ========
Investment income--net 5.62%* 5.54% 6.13% 6.41% 6.68%
======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $341,056 $376,726 $350,843 $335,268 $313,765
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover 28.75% 41.61% 34.42% 70.17% 116.42%
======== ======== ======== ======== ========
Dividends Per Series A--Investment income--net $ 1,388 $ 2,388 $ 2,995 $ 4,539 $ 6,017
Share on Series B--Investment income--net 1,223 2,430 2,931 4,338 6,014
Preferred Stock Series C--Investment income--net 1,292 2,318 2,938 4,378 5,942
Outstanding:
<FN>
*Annualized.
**Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, result
in substantially different returns. Total investment returns
exclude the effects of sales loads.
***Do not reflect the effect of dividends to Preferred Stock Shareholders.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniEnhanced Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end
management investment company. 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 New
York Stock Exchange under the symbol MEN. The following is a
summary of significant accounting policies followed by the Fund.
<PAGE>
(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, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options, which are traded on exchanges, are
valued at their last sale price as of the close of such exchanges
or, lacking any sales, at the last available bid price.
Securities with remaining maturities of sixty days or less are
valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available
are valued at their fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
(b) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures con-
tracts 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.
(c) Income taxes--It is the Fund's policy to comply with the re-
quirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income
tax provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are
entered into (the trade dates). Interest income is recognized on
the accrual basis. Discounts and market premiums are amortized
into interest income. Realized gains and losses on security
transactions are determined on the identified cost basis.
<PAGE>
(e) Deferred organization expenses--Deferred organization
expenses are amortized on a straight-line basis over a five-year
period beginning with the commencement of operations of the Fund.
(f) Non-income producing investments--Written and purchased
options are non-income producing investments.
(g) 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., an indirect wholly-owned sub-
sidiary of Merrill Lynch & Co., Inc. ("ML & Co."). The limited
partners are ML & Co. and Fund Asset Management, Inc. ("FAMI"),
which is also an indirect wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and
certain other services necessary to the operations of the Fund.
For such services, the Fund pays a monthly fee at an annual rate
of 0.50% of the Fund's average weekly net assets.
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, FAMI, MLIM, Merrill Lynch, Pierce Fenner &
Smith Inc. ("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the six months ended July 31, 1994 were
$142,412,197 and $135,161,562, respectively.
<PAGE>
Net realized and unrealized gains (losses) as of July 31, 1994
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $(1,131,767) $14,351,153
Short-term investments (1,117) (75,918)
Financial futures contracts 727,569 --
----------- -----------
Total $ (405,315) $14,275,235
=========== ===========
As of July 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $14,275,235, of which $19,948,792
related to appreciated securities and $5,673,557 related to
depreciated securities. The aggregate cost of investments at July
31, 1994 for Federal income tax purposes was $487,007,725.
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of capital
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 the approval of the holders of Common Stock.
For the six months ended July 31, 1994, shares issued and
outstanding remained constant. At July 31, 1994, total paid-in
capital amounted to $322,002,908.
Preferred Stock
The Auction Market Preferred Stock ("AMPS") are shares of
Preferred Stock of the Fund that entitle their holders to receive
cash dividends at an annual rate that may vary for the successive
dividend period for each series.
In connection with the offering of AMPS, the Board of Directors
reclassified 1,500 shares of unissued Common Stock as AMPS. The
number of AMPS shares authorized, issued and outstanding for the
year ended January 31, 1994 was as follows:
Series A AMPS Series B AMPS Series C AMPS
500 500 500
Liquidation preference is $100,000 per share, plus accumulated
and unpaid dividends of $18,664.
<PAGE>
The yields in effect at July 31, 1994 were as follows: Series A,
2.875%; Series B, 2.80%; and Series C, 2.85%.
The Fund pays commissions to certain broker-dealers at the end of
each auction at the annual rate of one-quarter of 1% calculated
on the proceeds of each auction. For the six months ended July 31,
1994, MLPF&S, an affiliate of FAM, received $156,196 as commissions.
5. Subsequent Event:
On August 9, 1994, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the
amount of $.067131 per share, payable on August 30, 1994 to
shareholders of record as of August 19, 1994.
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Kenneth S. Axelson, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
NYSE Symbol
MEN
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
<PAGE>
