MuniEnhanced
Fund, Inc.
FUND LOGO
Annual Report January 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.
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.
<PAGE>
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 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
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.
Important Tax Information
All of the net investment income distributions paid monthly by
MuniEnhanced Fund, Inc. during its taxable year ended January 31,
1994 qualify as tax-exempt interest dividends for Federal income
tax purposes.
Additionally, the following taxable capital gains distribution
was paid by the Fund to Common Stock shareholders during the
Fund's fiscal year:
Record Payable Long-Term Short-Term
Date Date Capital Gains Capital Gains
12/20/93 12/30/93 $0.329263 $0.102285
Please retain this information for your records.
TO OUR SHAREHOLDERS
For the six-month period ended January 31, 1994, the Common Stock
of MuniEnhanced Fund, Inc. earned $0.528 per share income
dividends, representing a net annualized yield of 8.06%, based on
a month-end per share net asset value of $12.99. Over the same
period, total investment return on the Fund's Common Stock was
+7.43%, based on a change in per share net asset value from
$12.91 to $12.99, and assuming reinvestment of $0.529 per share
income dividends and $0.329 per share capital gains distributions.
<PAGE>
For the year ended January 31, 1994, the Common Stock of
MuniEnhanced Fund, Inc. earned $0.947 per share income dividends,
representing a net annualized yield of 7.29%, based on a month-
end per share net asset value of $12.99. Over the same period,
total investment return on the Fund's Common Stock was +16.61%,
based on a change in per share net asset value from $12.29 to
$12.99, and assuming reinvestment of $0.948 per share income
dividends and $0.329 per share capital gains distributions.
For the six-month period ended January 31, 1994, the Fund's
Preferred Stock had an average dividend yield as follows:
Series A, 2.46%; Series B, 2.45%; and Series C, 2.34%.
The Environment
As 1993 drew to a close, the US economy showed signs of strong
improvement. The initial estimate for gross domestic product
(GDP) growth in the final quarter of 1993 was +5.9% in real
terms, the strongest quarterly performance since the fourth
quarter of 1987. GDP growth was led by interest rate-sensitive
sectors, such as housing, durable goods orders and business
investment in capital equipment. Consumer confidence also
improved after remaining lackluster throughout most of 1993.
While the exceptionally robust rate of growth may not be
sustainable in the first quarter of 1994 (especially considering
the harsh winter weather experienced by virtually half of the
country in January), this strong showing suggests that the US
economy may at last be gaining momentum. This was supported by
the December increase in the Index of Leading Economic
Indicators, the fifth monthly rise in this indicator of future
economic activity.
At the same time, the rate of inflation remains in check.
Nevertheless, concerns arose late in 1993 that the rate of
business activity might increase inflationary pressures, which
were reflected in an upturn of longer-term interest rates. In
January, Federal Reserve Board Chairman Alan Greenspan indicated
in Congressional testimony that continued strong expansion of
economic activity would lead the central bank to tighten monetary
policy in an effort to contain inflation. On February 4, 1994,
the central bank broke with tradition and publicly announced an
increase in short-term interest rates. In the weeks ahead,
investors will continue to gauge the pace of the economic
expansion and watch for signs of an overheating economy that
could prompt successive Federal Reserve Board actions to raise
short-term interest rates.
The Municipal Market
Yields on tax-exempt securities generally declined over the three
months ended January 31, 1994. Long-term revenue bond yields, as
measured by the Bond Buyer Revenue Bond Index, declined an additional
six basis points (0.06%) to end the quarter at 5.50%. US Treasury
bond yields, however, rose approximately 25 basis points to end the
period at approximately 6.20%. This outperformance by municipal
securities is likely to be the dominant theme for much of 1994.
<PAGE>
During the January quarter, taxable yields remained volatile in
reaction to the inherent conflicts between the extremely strong
economic recovery seen during the last quarter of 1993 and
continued low inflationary pressures. Tax-exempt bond yields,
however, reflected very positive technical factors. During the 12
months ended January 31, 1994, municipalities issued more than
$288 billion in securities, an increase of more than 21% versus
one year ago. As we have discussed in earlier reports to
shareholders, much of this increase has been the result of
municipalities refinancing existing higher-couponed debt. At
current yield levels, few of these issues remain to be refunded.
This has led to estimates of municipal bond issuance declining to
approximately $175 billion for all of 1994. More than $290
billion in long-term tax-exempt securities was issued
in 1993.
In addition to this dramatic decline in issuance, investor demand
is expected to increase in the coming year. Greater demand should
be generated by a number of factors, with the recent increases in
marginal Federal income tax rates the most important. Also, bond
calls and early redemptions are expected to increase significantly
in the coming quarters and last into early 1995, at least. The
combination of declining new-issue volume and increasing numbers of
bonds redeemed prior to their stated maturities will eventually lead
to a net decline in the number of bonds outstanding. In such a scenario,
investor demand rises as bondholders are forced to continually purchase
new municipal bonds to replace their previous holdings.
The outlook for the municipal bond market is very favorable.
While the historic declines in yields seen over the last year are
unlikely to be repeated, the strong technical framework within
the tax-exempt market would support further modest declines in
tax-exempt yields. At the very least, should interest rates rise
in response to continued strong economic growth and a resurgence
in inflationary pressures, we believe that municipal bond price
deterioration will be limited in comparison to any taxable
investment alternatives.
Portfolio Strategy
The Fund's investment strategy during the period ended January 31,
1994 emphasized acquiring high-quality, current-coupon income-oriented
issues and performance-oriented issues in specific high tax states.
These issues offered the best overall value in the municipal market.
The Fund was able to take profits in prerefunded bonds with approaching
call dates and selected issues we deemed to be fully valued in relation
to the market.
<PAGE>
Our outlook for long-term municipal interest rates remains basically
positive, and municipal securities are offering very attractive yields
compared to alternative investments. 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 shareholders as a result of the
leveraging of the 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 "The Benefits and Risks of Leveraging"
section on page 1 of this report to shareholders for a complete
explanation.)
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
March 4, 1994
Officers and Directors
Arthur Zeikel, President and Director
Kenneth S. Axelson, Director
Herbert I. London, 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 Square
Boston, Massachusetts 02110
NYSE Symbol
MEN
<PAGE>
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Square
Boston, Massachusetts 02110
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
PER SHARE INFORMATION (unaudited)
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Dividends/Distributions
Net Unrealized ----------------------------------
Investment Realized Gains Net Investment Income Capital
For the Quarter Income Gains (Losses) Common Preferred Gains
<S> <C> <C> <C> <C> <C> <C>
February 1, 1992 to April 30, 1992 $.27 $.04 $ (.14) $.23 $.04 --
May 1, 1992 to July 31, 1992 .27 .04 .93 .23 .04 --
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
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
February 1, 1992 to April 30, 1992 $11.94 $11.73 $13.25 $12.25 3,540
May 1, 1992 to July 31, 1992 12.92 11.87 13.50 12.50 2,373
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
<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>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
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 $ 3,197
Arizona--0.5%
AAA Aaa 1,650 Arizona State Power Authority, Power Resource Revenue Refunding Bonds (Hoover
Uprating Project), 5.25% due 10/01/2017 (c) 1,656
A1+ VMIG1 1,000 Maricopa County, Arizona, IDA, Hospital Facility Revenue Bonds (Samaritan Health
Service Hospital), VRDN, Series B-2, 2.15% due 12/01/2008 (a) 1,000
California--19.0%
A1+ VMIG1 1,000 California Health Facilities Financing Authority, Revenue Refunding Bonds (Saint
Joseph Health Systems), VRDN, Series A, 2.05% due 7/01/2013 (a) 1,000
AA Aa 2,500 California State Department of Water Resource, Revenue Refunding Bonds (Central Valley
Project), Series L, 5.70% due 12/01/2016 2,588
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) 2,224
A A1 8,000 Refunding, 5.50% due 6/01/2021 7,954
AAA Aaa 5,000 Central Coast Water Authority, California, Revenue Bonds (State Water Project Regional
Facilities), 6.60% due 10/01/2022 (d) 5,630
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) 5,219
Culver City, California, Redevelopment Finance Authority Revenue Bonds (Senior Lien
Project Loans), Series A (d):
AAA Aaa 2,300 6.75% due 11/01/1999 (i) 2,675
AAA Aaa 200 6.75% due 11/01/2015 224
AAA Aaa 4,000 East Bay, California, Municipal Utilities District, Wastewater Treatment System
Revenue Bonds, 6.375% due 6/01/2021 (d) 4,377
AAA Aaa 6,400 Fresno, California, Sewer Revenue Bonds, Series A-1, 6.25% due 9/01/2014 (d) 7,340
AAA Aaa 2,000 Irvine, California, Unified School District, Special Tax Community Facilities
(District No. 86-1), Series A, 8.10% due 11/15/2013 (c) 2,373
A1+ NR 3,900 Irvine Ranch, California, Water District Consolidated Bonds, DATES, Series C,
2.10% due 10/01/2010 (a) 3,900
Los Angeles, California, Wastewater System Revenue Bonds:
AAA Aaa 3,000 Refunding, Series D, 4.70% due 11/01/2017 (b) 2,796
AAA Aaa 6,950 Series B, 6% due 6/01/2022 (d) 7,418
AAA Aaa 3,000 Series D, 6.70% due 12/01/2000 (i) 3,528
AAA Aaa 2,875 Los Angeles County, California, Metropolitan Transportation Authority, Sales Tax
Revenue Refunding Bonds, Proposition A, Series A, 5.625% due 7/01/2018 (c) 2,967
AAA Aaa 8,235 Los Angeles County, California, Transportation Commission, Sales Tax Revenue
Refunding Bonds, Series B, 6.50% due 7/01/2015 (b) 9,140
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) 1,669
AA Aa 5,000 Metropolitan Water District, Southern California, Waterworks Revenue Bonds, 5.50%
due 7/01/2019 5,075
</TABLE>
<PAGE>
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
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Authority
IDA Industrial Development Authority
IRS Interest Residual Securities
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
SAVRS Select Auction Variable Rate Securities
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
California (concluded)
AAA Aaa $ 1,500 Northern California Transmission Revenue Bonds (California-Oregon Transmission
Project), Series A, 6.50% due 5/01/2016 (c) $ 1,671
AAA Aaa 2,985 San Francisco, California, City and County, GO (Various Purpose Projects), UT,
Series A, 10% due 12/15/2000 (c) 4,032
AAA Aaa 10,000 Southern California Public Power Authority, Transmission Project Revenue
Refunding Bonds, Sub-Series A, 5.25% due 7/01/2020 (c) 9,943
NR Aa 2,000 University of California, COP, Refunding (UCLA Center Chiller/Cogen Project),
5.60% due 11/01/2020 2,008
A NR 4,710 Upland, California, COP (San Antonio Community Hospital), 5% due 1/01/2018 4,311
Colorado--0.1%
NR VMIG1 500 Colorado, HFA, M/F Housing Revenue Bonds (Hampden & Estes), VRDN, 2.20% due
12/01/2005 (a) 500
Florida--1.2%
AAA Aaa 2,000 Florida State Turnpike Authority Revenue Bonds, Series A, 9.50% due 7/01/2000 (d) 2,597
A1+ VMIG1 2,100 Hillsborough County, Florida, IDA, PCR, Refunding (Tampa Electric Company Project),
VRDN, 2.10% due 5/15/2018 (a) 2,100
A-1 VMIG1 1,600 Pinellas County, Florida, Health Facilities Authority, Revenue Refunding Bonds
(Pooled Hospital Loan Project), DATES, 2.25% due 12/01/2015 (a) 1,600
<PAGE>
Georgia--0.4%
A- A3 1,775 Burke County, Georgia, Development Authority, PCR (Georgia Power Company Plant--
Vogtle Project), AMT, 9.375% due 12/01/2017 2,115
Hawaii--3.8%
AAA Aaa 11,250 Hawaii State Airport System Revenue Bonds, AMT, Second Series, 7.50% due 7/01/2020 (b) 13,044
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) 7,017
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) 996
NR Aa 2,000 Idaho Housing Agency Refunding Bonds, S/F Mortgage, Series B, 5.70% due 7/01/2013 2,015
Illinois--7.6%
AAA Aaa 1,300 Chicago, Illinois, GO, Central Public Library, Revenue Bonds, Series C, 6.85% due
7/01/2002 (d) (i) 1,544
AAA Aaa 8,040 Chicago, Illinois, Public Building Commission, Building Revenue Bonds (Chicago Board
of Education), Series A, 7.75% due 1/01/1999 (b) (i) 9,557
AAA Aaa 2,240 Cook County, Illinois, Chicago Community College, District No. 508, COP, UT,
8.75% due 1/01/2007 (b) 3,085
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) 3,329
Cook County, Illinois, GO, UT, Series A (c):
AAA Aaa 2,000 6.50% due 11/15/2010 2,246
AAA Aaa 5,000 6.50% due 11/15/2012 5,612
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) 3,164
AAA Aaa 9,115 Regional Transportation Authority, Illinois, GO, Series A, 7.20% due 11/01/2020 (d) 11,716
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) 3,274
AAA Aaa 3,000 Indianapolis, Indiana, Airport Authority Revenue Bonds, AMT, 8.40% due 7/01/2008 (c) 3,556
Iowa--1.5%
NR Aaa 3,725 Iowa Finance Authority, S/F Mortgage Revenue Bonds, AMT, Series A, 7.90% due
11/01/2022 (g) 4,122
A1+ NR 4,000 Iowa Finance Authority, Solid Waste Disposal Revenue Bonds (Cedar River Paper Company
Project), VRDN, Series A, 2.25% due 7/01/2023 (a) 4,000
Kansas--1.2%
AAA Aaa 3,000 Burlington, Kansas, PCR, Refunding (Kansas Gas and Electric Company Project), 7% due
6/01/2031 (c) 3,453
AAA Aaa 2,500 Wamego, Kansas, PCR, Refunding (Kansas Gas and Electric Company Project), 7% due
6/01/2031 (c) 2,889
Kentucky--2.5%
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) 5,351
AAA Aaa 5,000 Kentucky State Turnpike Authority, Economic Development Road, Revenue Refunding Bonds
(Revitalization Projects), 5.50% due 7/01/2011 (d) 5,132
Owensboro, Kentucky, Electric Light and Power Revenue Bonds, Series B (d) (h):
AAA Aaa 5,300 5.80% due 1/01/2018 1,424
AAA Aaa 4,400 5.80% due 1/01/2019 1,117
<PAGE>
Louisiana--2.0%
AAA Aaa 4,340 Louisiana Public Facilities Authority, Revenue Refunding Bonds (Jefferson Parish
Eastbank Project), 7.70% due 8/01/2010 (b) 5,080
AAA Aaa 5,000 Louisiana State GO, Series A, 6.50% due 5/01/2011 (d) 5,572
Maine--0.3%
AAA Aaa 1,320 Maine Health and Higher Educational Facilities Authority, Hospital Revenue Bonds
(Central Maine Medical Center), 8% due 7/01/1995 (b) (i) 1,567
Massachusetts--3.3%
AAA Aaa 4,530 Boston, Massachusetts, GO, UT, Series A, 10% due 7/01/2000 (c) 5,997
AAA Aaa 3,000 Massachusetts Bay Transportation Authority, COP, Series A, 7.65% due 8/01/2015 (f) 3,584
A+ A 1,900 Massachusetts State Consolidated Loan, GO, UT, Series A, 5% due 1/01/2014 1,846
AAA Aaa 2,675 Massachusetts State Health and Educational Facilities Authority Revenue Bonds (Beverly
Hospital), Lot 2, Series D, 7.30% due 7/01/1999 (c) (i) 3,139
AAA Aaa 2,500 Massachusetts State Port Authority Revenue Bonds, AMT, Series A, 7.50% due 7/01/2020 (b) 2,914
Michigan--1.0%
A- A 1,500 Michigan State Hospital Finance Authority, Hospital Revenue Refunding Bonds (Detroit
Medical Center), Series A, 6.50% due 8/15/2018 1,630
AAA Aaa 3,000 Monroe County, Michigan, PCR (Detroit Edison Company Project), AMT, Series 1, 7.65%
due 9/01/2020 (b) 3,535
Minnesota--1.4%
AAA Aaa 7,500 Saint Cloud, Minnesota, Hospital Facilities Revenue Refunding Bonds (Saint Cloud
Hospital), Series C, 5.30% due 10/01/2020 (d) 7,545
Mississippi--1.8%
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) 2,335
AAA Aaa 5,000 Refunding and Improvement (North Mississippi Health Service), Series 1, 5.25%
due 5/15/2013 (d) 5,008
NR P1 2,000 Perry County, Mississippi, PCR, Refunding (Leaf River Forest Project), VRDN,
2.10% due 3/01/2002 (a) 2,000
Missouri--1.8%
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) 9,567
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) 2,550
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
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) $ 3,799
New Jersey--2.7%
New Jersey State Housing and Mortgage Finance Agency, Home Buyer Revenue Bonds, AMT (c):
AAA Aaa 3,840 Series B, 7.90% due 10/01/2022 4,131
AAA Aaa 9,325 Series D, 7.70% due 10/01/2029 10,305
New York--6.8%
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) 2,302
New York City, New York, GO, UT:
A- Baa1 265 Series B, 8% due 6/01/2001 (j) 328
A- Baa1 3,235 Series B, 8.25% due 6/01/2002 3,914
A- Baa1 3,000 Series D, 9.50% due 8/01/2002 3,896
A- Baa1 1,600 Series H, 7.20% due 2/01/2015 1,817
A- Baa1 2,000 Series H, 7% due 2/01/2017 2,239
New York City, New York, Municipal Water Finance Authority, Water and Sewer System
Revenue Bonds:
AAA Aaa 6,000 Registered IRS, 8.07% due 6/15/2012 (a) (c) 6,263
AAA Aaa 2,500 Series B, 5.375% due 6/15/2019 (d) 2,522
A1+ NR 2,100 New York State Energy Research and Development Authority, PCR (Niagara Power
Corporation Project), AMT, VRDN, Series B, 2.05% due 7/01/2027 (a) 2,100
New York State Medical Care Facilities Financing Agency Revenue Bonds:
BBB+ Baa1 4,300 Refunding (Mental Health Services), Series F, 5.375% due 2/15/2014 4,220
AAA Aaa 5,250 (Saint Francis Hospital Project), Series A, 7.625% due 11/01/2021 (b) 6,119
North Carolina--0.2%
AAA Aaa 1,000 Fayetteville, North Carolina, Public Works Commission Revenue Refunding Bonds, 7%
due 3/01/2000 (b) (i) 1,174
North Dakota--0.7%
AAA Aaa 3,000 Bismarck, North Dakota, Hospital Revenue Refunding and Improvement Bonds (Medical
Center One, Inc.), 7.50% due 5/01/2013 (e) 3,440
Ohio--0.5%
AAA Aaa 2,150 Ohio State Air Quality Development Authority, PCR, Refunding (Ohio-Edison), Series A,
7.45% due 3/01/2016 (b) 2,499
Oklahoma--0.7%
AAA Aaa 1,410 Muskogee County, Oklahoma, Home Financing Authority, S/F Mortgage Revenue Refunding
Bonds, Series A, 7.60% due 12/01/2010 (b) 1,539
AAA Aaa 2,500 Oklahoma State Municipal Power Authority, Power Supply System Revenue Refunding
Bonds, Series A, 4.75% due 1/01/2022 (b) 2,367
<PAGE>
Pennsylvania--2.9%
Berks County, Pennsylvania, GO, UT, Second Series (b)(h):
AAA Aaa 3,105 5.50% due 5/15/2013 1,090
AAA Aaa 3,345 5.55% due 5/15/2014 1,102
AAA Aaa 3,350 Pennsylvania Convention Center Authority Revenue Bonds, Series A,
6.70% due 9/01/2016 (b) 4,059
AAA Aaa 4,000 Pennsylvania State Higher Education Assistance Agency, Student Loan Revenue Bonds,
Linked RIB and SAVRS, AMT, 7.437% due 3/01/2020 (c) (k) 4,410
AAA Aaa 4,590 Philadelphia, Pennsylvania, Water and Wastewater Revenue Refunding Bonds,
5% due 6/15/2017 (c) 4,430
Rhode Island--2.8%
Rhode Island Depositors Economic Protection Corporation, Special Obligation Bonds,
Series A (f):
AAA Aaa 1,700 6.625% due 8/01/2002 (i) 2,001
AAA Aaa 1,745 6.50% due 8/01/2007 2,023
AAA Aaa 10,000 Refunding, 5.75% due 8/01/2019 10,654
South Carolina--1.4%
Richland County, South Carolina, Hospital Facilities Revenue Refunding Bonds (South
Carolina Baptist Hospital), Series B (d):
AAA Aaa 1,515 10% due 8/01/1999 1,957
AAA Aaa 1,855 10% due 8/01/2000 2,468
AAA Aaa 2,440 South Carolina Public Service Authority Revenue Bonds (Santee Cooper), Series D,
6.50% due 7/01/2002 (d) (i) 2,838
South Dakota--1.8%
AAA Aaa 8,000 South Dakota State Health and Educational Facilities Authority, Revenue Refunding
Bonds (McKennan Hospital), Series A, 7.625% due 7/01/2014 (c) 9,262
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) 2,293
Metropolitan Nashville Airport Authority, Tennessee, Airport Revenue Bonds,
Series B (b):
AAA Aaa 7,350 7.75% due 7/01/2006 9,001
AAA Aaa 4,985 7.75% due 7/01/2007 6,062
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) 7,092
<PAGE>
Texas--8.7%
Austin, Texas, Utility System Revenue Refunding Bonds:
AAA Aaa 3,900 5.75% due 11/15/2016 (d) 4,036
AAA Aaa 3,770 Series B, 5.95% due 5/15/2009 (c) (h) 1,687
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) 3,477
AAA Aaa 4,700 Colorado River, Texas, Municipal Water District, Water Revenue Refunding Bonds,
6% due 1/01/2016 (d) 4,927
AAA Aaa 4,850 Harris County, Texas, Refunding Bonds (Toll Road Senior Lien), Series A,
6.50% due 8/15/2017 (d) 5,527
AAA Aaa 5,000 Houston, Texas, Water and Sewer System Revenue Refunding Bonds (Junior Lien),
Series C, 6.375% due 12/01/2017 (d) 5,481
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 3,348
AAA Aaa 4,000 Series D, 7.60% due 10/01/2019 4,629
North Texas Higher Education Authority Incorporated, Student Loan Revenue Refunding
Bonds, VRDN, AMT (a):
A1+ NR 500 2.25% due 3/01/2005 500
AAA VMIG1 600 Series C, 2.30% due 4/01/2020 (d) 600
AAA Aaa 10,485 Texas Water Resource Finance Authority Revenue Bonds, 7.50% due 8/15/2013 (d) 11,618
Utah--2.2%
AA Aa 5,000 Intermountain Power Agency, Utah, Power Supply Revenue Bonds, Series B,
7% due 7/01/2021 5,615
AA Aa 5,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC Hospitals Incorporated),
6.30% due 2/15/2015 5,818
Vermont--1.4%
AAA Aaa 6,635 Vermont HFA, Home Mortgage Purchase Revenue Bonds, AMT, Series B,
7.60% due 12/01/2024 (c) 7,176
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Washington--5.3%
AA Aa $ 5,000 Washington State, GO, Series A, 4.75% due 10/01/2013 $ 4,784
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) 5,414
AAA Aaa 7,500 (Nuclear Project No. 2), Series C, 7.625% due 1/01/2001 (i) 9,110
AAA Aaa 3,440 (Nuclear Project No. 3), Series A, 6% due 7/01/2018 (e) 3,640
AAA Aaa 4,000 (Nuclear Project No. 3), Series C, 7.50% due 7/01/2008 (c) 5,071
Wisconsin--2.4%
AAA Aaa 7,885 Wisconsin Public Power Incorporated, System Power Supply, System Revenue Bonds,
Series A, 7.40% due 7/01/2000 (d) (i) 9,516
AAA Aaa 2,750 Wisconsin State Health and Educational Facilities Authority, Revenue Refunding Bonds
(Wheaton Franciscan Services), 6.50% due 8/15/2011 (c) 3,037
Total Investments (Cost--$467,042)--98.2% 517,066
Other Assets Less Liabilities--1.8% 9,660
--------
Net Assets--100.0% $526,726
<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 January 31, 1994.
(b)FGIC Insured.
(c)MBIA Insured.
(d)AMBAC Insured.
(e)BIG Insured.
(f)FSA Insured.
(g)FNMA/GNMA Collateralized.
(h)Yield to Maturity.
(i)Prerefunded.
(j)Escrowed to Maturity.
(k)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
January 31, 1994.
Future contracts sold as of January 31, 1994 were as follows:
Number of Expiration Value
Contracts Issue Date (Note 1a)
250 US Treasury Bonds March, 1994 $28,019,531
Total Future Contracts (Total Contract Price--$27,707,031) $28,019,531
===========
Ratings of issues shown have not been audited by Deloitte & Touche.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of January 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$467,042,007) (Note 1a) $517,066,181
Cash 34,948
Receivables:
Interest $ 7,182,685
Securities sold 2,875,577
Variation margin (Note 1b) 27,344 10,085,606
------------
Deferred organization expenses (Note 1e) 852
Prepaid expenses and other assets 12,078
------------
Total assets 527,199,665
------------
Liabilities: Payables:
Investment adviser (Note 2) 221,608
Dividends to Preferred Stock shareholders (Note 1g) 105,615 327,223
------------
Accrued expenses and other liabilities 146,451
------------
Total liabilities 473,674
------------
Net Assets: Net assets $526,725,991
============
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 3,359,581
Undistributed realized capital gains--net 1,651,828
Unrealized appreciation on investments--net 49,711,674
------------
Total--Equivalent to $12.99 net asset value per share of Common Stock
(market price--$13.125) 376,725,991
------------
Total capital $526,725,991
============
<FN>
*Auction Market Preferred Stock.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended Ended January 31, 1994
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 32,589,437
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 2,624,002
Commission fees (Note 4) 379,080
Transfer agent fees 131,185
Professional fees 116,803
Printing and shareholder reports 65,749
Accounting services (Note 2) 64,026
Custodian fees 39,459
Directors' fees and expenses 38,667
Listing fees 32,438
Pricing fees 17,246
Amortization of organization expenses (Note 1e) 10,425
Other 32,149
------------
Total expenses 3,551,229
------------
Investment income--net 29,038,208
------------
Realized & Realized gain on investments--net 13,988,460
Unrealized Gain on Change in unrealized appreciation on investments--net 17,230,790
Investments--Net ------------
(Notes 1d & 3): Net Increase in Net Assets Resulting from Operations $ 60,257,458
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended January 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 29,038,208 $ 30,169,828
Realized gain on investments--net 13,988,460 9,097,562
Change in unrealized appreciation on investments--net 17,230,790 9,974,677
------------ ------------
Net increase in net assets resulting from operations 60,257,458 49,242,067
------------ ------------
<PAGE>
Dividends & Investment income--net:
Distributions to Preferred Stock (3,568,270) (4,431,915)
Shareholders Common Stock (24,266,522) (25,728,169)
(Note 1g): Realized gain on investments--net:
Common Stock (12,392,997) (10,032,017)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (40,227,789) (40,192,101)
------------ ------------
Common Stock Net increase in net assets derived from Common Stock transactions 5,852,928 6,525,311
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 25,882,597 15,575,277
Beginning of year 500,843,394 485,268,117
------------ ------------
End of year* $526,725,991 $500,843,394
============ ============
<FN>
*Undistributed investment income--net $ 3,359,581 $ 2,156,165
============ ============
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
Period
The following per share data and ratios have been derived March 2,
from information provided in the financial statements. 1989++ to
For the Year Ended January 31, Jan. 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.29 $ 11.96 $ 11.45 $ 11.15 $ 11.16
Operating -------- -------- -------- -------- --------
Performance: Investment income--net 1.01 1.06 1.09 1.12 .90
Realized and unrealized gain on investments--net 1.09 .68 .71 .30 .04
-------- -------- -------- -------- --------
Total from investment operations 2.10 1.74 1.80 1.42 .94
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.85) (.91) (.84) (.79) (.64)
Realized gain on investments--net (.43) (.35) (.20) -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (1.28) (1.26) (1.04) (.79) (.64)
-------- -------- -------- -------- --------
Capital charge resulting from the issuance of
Common Stock -- -- -- -- (.02)
-------- -------- -------- -------- --------
<PAGE>
Effect of Preferred Stock activity++++:
Dividends to Preferred Stock shareholders:
Investment income--net (.12) (.15) (.25) (.33) (.18)
Capital charge resulting from issuance of
Preferred Stock -- -- -- -- (.11)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.12) (.15) (.25) (.33) (.29)
-------- -------- -------- -------- --------
Net asset value, end of period $ 12.99 $ 12.29 $ 11.96 $ 11.45 $ 11.15
======== ======== ======== ======== ========
Market price per share, end of period $ 13.125 $ 13.25 $ 12.625 $ 11.375 $ 10.75
======== ======== ======== ======== ========
Total Investment Based on market price per share 9.28% 16.27% 21.23% 8.61% (5.17%)+++
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 16.61% 13.84% 14.09% 5.40% 5.77%+++
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .68% .69% .70% .71% .63%*
Net Assets:*** ======== ======== ======== ======== ========
Expenses .68% .69% .70% .71% .66%*
======== ======== ======== ======== ========
Investment income--net 5.54% 6.13% 6.41% 6.68% 6.67%*
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) $376,726 $350,843 $335,268 $313,765 $305,633
======== ======== ======== ======== ========
Preferred Stock outstanding at end of period
(in thousands) $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover 41.61% 34.42% 70.17% 116.42% 30.44%
======== ======== ======== ======== ========
Dividends Per Share Series A--Investment income--net $ 2,388 $ 2,995 $ 4,539 $ 6,017 $ 3,432
On Preferred Stock Series B--Investment income--net 2,430 2,931 4,338 6,014 3,150
Outstanding: Series C--Investment income--net 2,318 2,938 4,378 5,942 3,450
<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.
++Commencement of Operations.
++++The Fund's Preferred Stock commenced operations on July 31, 1989.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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.
(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. 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. Original issue 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 and offering expenses--Deferred organi-
zation expenses are amortized on a straight-line basis over a
five-year period beginning with the commencement of operations of
the Fund. Direct expenses relating to the public offering of both
the Common Stock and the Auction Market Preferred Stock were
charged to capital at the time of issuance.
(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"). Effective January 1,
1994, the investment advisory business of FAM was reorganized
from a corporation to a limited partnership. Both prior to and
after the reorganization, ultimate control of FAM has rested with
Merrill Lynch & Co., Inc. ("ML & Co."). The general partner of
FAM is Princeton Services, Inc., an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and
Merrill Lynch Investment Management, Inc. ("MLIM"), 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, 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 year ended January 31, 1994 were $210,277,744
and $229,450,017, respectively.
Net realized and unrealized gains (losses) as of January 31, 1994
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $14,467,416 $50,024,174
Short-term investments 950 --
Financial future contracts on options (479,906) (312,500)
----------- -----------
Total $13,988,460 $49,711,674
=========== ===========
<PAGE>
As of January 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $50,018,054, of which $50,345,258
related to appreciated securities and $327,204 related to
depreciated securities. The aggregate cost of investments at
January 31, 1994 for Federal income tax purposes was $467,048,127
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 year ended January 31, 1994, shares issued and
outstanding increased by 454,416 to 29,007,770 as a result of
dividend reinvestment. At January 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 $41,657.
The yields in effect at January 31, 1994 were as follows: Series
A, 2.172%; Series B, 2.241%; and Series C, 2.05%.
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 year ended January 31,
1994, MLPF&S, an affiliate of FAM, received $295,760 as commissions.
5. Subsequent Event:
On February 4, 1994, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the
amount of $.069452 per share, payable on February 25, 1994 to
shareholders of record as of February 15, 1994.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MuniEnhanced Fund, Inc.:
We have audited the accompanying statement of assets, liabilities
and capital, including the schedule of investments, of MuniEnhanced
Fund, Inc. as of January 31, 1994, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the four-year period
then ended and the period March 2, 1989 (commencement of operations)
to January 31, 1990. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at January 31, 1994 by correspondence with the
custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of MuniEnhanced Fund, Inc. as of January 31,
1994, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting
principles.
Deloitte & Touche
Princeton, New Jersey
March 4, 1994
</AUDIT-REPORT>
