MuniEnhanced
Fund, Inc.
FUND LOGO
Annual Report
January 31, 1995
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
potentially higher rate of return. Leverage creates risks for Common
Stock shareholders, including the likelihood of greater volatility
of net asset value and market price of shares of the Common Stock,
and the risk that fluctuations in the short-term dividend rates of
the Preferred Stock may affect the yield to Common Stock
shareholders.
MuniEnhanced
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
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.
To illustrate these concepts, assume a fund's Common Stock
capitalization of $100 million and the issuance of Preferred Stock
for an additional $50 million, creating a total value of $150
million available for investment in long-term municipal bonds. If
prevailing short-term interest rates are approximately 3% and long-
term interest rates are approximately 6%, the yield curve has a
strongly positive slope. The fund pays dividends on the $50 million
of Preferred Stock based on the lower short-term interest rates. At
the same time, the fund's total portfolio of $150 million earns the
income based on long-term interest rates. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
In this case, the dividends paid to Preferred Stock shareholders are
significantly lower than the income earned on the fund's long-term
investments, and therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if short-term
interest rates rise, narrowing the differential between short-term
and long-term interest rates, the incremental yield pick-up on the
Common Stock will be reduced or eliminated completely. 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>
DEAR SHAREHOLDERS
For the six-month period ended January 31, 1995, the Common Stock of
MuniEnhanced Fund, Inc. earned $0.428 per share income dividends,
which includes earned and unpaid dividends of $0.062. This
represents a net annualized yield of 7.59%, based on a month-end per
share net asset value of $11.17. Over the same period, total
investment return on the Fund's Common Stock was -0.09%, based on a
change in per share net asset value from $11.76 to $11.17, and
assuming reinvestment of $0.432 per share income dividends and
$0.077 per share capital gains distributions.
For the year ended January 31, 1995, the Common Stock of
MuniEnhanced Fund, Inc. earned $0.823 per share income dividends,
representing a net annualized yield of 7.37%, based on a month-end
per share net asset value of $11.17. Over the same period, total
investment return on the Fund's Common Stock was -6.27%, based on a
change in per share net asset value from $12.99 to $11.17, and
assuming reinvestment of $0.830 per share income dividends and
$0.077 per share capital gains distributions.
For the six-month period ended January 31, 1995, the Fund's
Preferred Stock had an average dividend yield as follows: Series A,
3.215%; Series B, 3.635%; and Series C, 3.430%.
The Environment
The combination of heightened inflationary concerns, anticipation of
further tightening of monetary policy by the Federal Reserve Board
and the turmoil of the Mexican currency crisis all exerted negative
influences on the US financial markets during the January quarter.
On the positive side, increasing signs that the US economy may be
losing momentum suggested that most of the interest rate increases
for this economic cycle may be behind us. As a result of these
economic crosscurrents, the US stock and bond markets continued to
be volatile during the period.
The manufacturing sector proved to be the driving force behind the
US economy through the final quarter of 1994, making an important
contribution to the substantial increase in corporate earnings. US
companies have been successful at containing labor costs, which are
an important component of the inflation outlook. Growth in the
economy has not been translated into higher wages and benefits for
US workers. Consumer spending is growing at a slower pace than in
previous economic recoveries, but households are nonetheless
spending more than saving, as the personal savings rate fell to an
all-time annual low in 1994.
<PAGE>
In the weeks ahead, investors will continue to assess economic data
and inflationary trends in order to gauge whether further increases
in short-term interest rates are likely as 1995 unfolds. Despite the
widespread concerns about rising prices for raw materials and
incipient inflationary pressures, 1994's inflation results were as
positive as those in 1993, creating the best sustained inflation
performance in 30 years. However, it is not likely that such
positive inflation results will be duplicated in 1995. Investors
will also focus on the progress that the new Congress makes on both
reducing spending and the Federal budget deficit and passing tax
cuts that promote savings and investment. Legislative progress,
combined with continued indications of moderate and sustainable
levels of economic growth, would be positive for the US capital
markets. However, the lagged effects of higher interest rates could
slow the economy sharply and with it, the growth of corporate
profits.
The Municipal Market
The municipal bond market continued to exhibit considerable interest
rate volatility during the three months ended January 31, 1995.
Yields on A-rated municipal revenue bonds continued to rise
throughout November to a high of 7.37% as measured by the Bond Buyer
Revenue Bond Index. The tax-exempt bond market improved dramatically
for the remainder of the quarter, and yields fell by approximately
60 basis points (0.60%) to a four-month low of 6.78%. However, the
Index failed to capture much of the rally that occurred at the end
of January as market yields declined a further ten basis points into
the 6.65% range. Municipal bond prices have now recaptured most of
their declines of the last six months.
This improvement in municipal bond prices during the January quarter
was largely the result of significant positive change in investor
sentiment. The series of interest rate increases engineered during
1994 have gone a long way in confirming the Federal Reserve Board's
anti-inflationary resolve. Additionally, the recent signs of a
weakening domestic economy, as well as the negative near-term impact
of the Kobe earthquake and Mexican currency situation, have allowed
investors to become more comfortable with the concept that the vast
majority of the recent rise in fixed-income rates has already
occurred and that yields during 1995 are more likely to remain
stable or decline than they are to significantly rise again.
Consequently, current yield levels are being viewed as attractive to
long-term investors.
In addition to this more positive outlook, the ongoing strong
technical position of the municipal bond market has only fostered
the increase in tax-exempt bond prices seen in recent months. Over
$25 billion in bond proceeds became available to investors at year-
end 1994 from bond maturities, coupon payments and early
redemptions. However, during the recent January quarter, new bond
issuance was less than $25 billion, down 50% from the January 1994
quarter. In January 1995, less than $7 billion in long-term
municipal securities were issued, making this past January's
issuance the lowest monthly total since the mid-1980s. Investor
demand has easily surpassed supply, causing bond prices to rise
rapidly. Also, as 1995 annual issuance is expected to be below the
recent historically low 1994 levels, this positive technical
environment should continue to support the recent improvements in
municipal bond prices into the coming quarters.
<PAGE>
Portfolio Strategy
During the three-month period ended January 31, 1995, we adopted a
somewhat more defensive stance by modestly altering the composition
of the portfolio. We focused on the sale of deeply discounted
securities that were purchased to enhance the performance of the
Fund when our view was more optimistic on lower interest rates. We
replaced these securities with current coupon and premium income-
oriented securities which are less subject to volatility and are
likely to perform relatively well in the current market environment.
Within this framework, we also concentrated on increasing the Fund's
holdings of high-tax state issues because we believe that their
present yield ratio to other municipal bonds will decline in 1995
and 1996, given an expected reduction in municipal issuance in
combination with continued early redemption of bonds. These actions,
combined with the Fund's existing higher coupon holdings, should
insulate the Fund's net asset value to some degree from negative
market moves.
We have been reluctant to increase our cash position by selling long-
term holdings because of the negative consequence on the dividend to
Common Stock shareholders. Therefore, we have kept cash reserves at
a minimum amount in order to take advantage of the steep yield
spread between short-term and long-term interest rates. This
positive spread has continued 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 yield of
the Fund. (See page 1 of this report to shareholders for a complete
explanation of the benefits and risks of leveraging.)
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
<PAGE>
March 3, 1995
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 below and at
right.
ACES SM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Authority
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
IRS Inverse Rate Securities
PCR Pollution Control Revenue Bonds
RAW Revenue Anticipation Warrants
RIB Residual Interest Bonds
SAVRS Select Auction Variable Rate Securities
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
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--0.5% AAA Aaa $2,500 Huntsville, Alabama, Health Care Authority, Health Care Facil-
ities Revenue Bonds, Series B, 6.625% due 6/01/2023 (c) $ 2,518
Alaska--1.8% A+ Aal 3,000 Alaska State Housing Finance Corporation, Revenue Refunding
Bonds (Insured Mortgage Program), First Series, 7.75% due
12/01/2014 3,128
AA- A1 5,000 Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Sohio
Pipeline), 7.125% due 12/01/2025 5,114
<PAGE>
Arizona--0.0% A- P1 100 Coconino County, Arizona, Pollution Control Corporation, Arizona
Public Service Revenue Bonds (Navajo Project), VRDN, AMT, Series
A, 4.45% due 10/01/2029 (a) 100
California--14.3% NR* P1 800 California Pollution Control Financing Authority, Resource
Recovery Revenue Refunding Bonds (Ultra Power Rocklin Project),
VRDN, AMT, Series A, 2.30% due 6/01/2017 (a) 800
A1+ VMIG1++ 600 California Pollution Control Financing Authority, Solid Waste
Disposal Revenue Bonds (Shell Oil Co.--Martinez Project), VRDN,
AMT, Series A, 4% due 10/01/2024 (a) 600
AA Aa 2,500 California State Department of Water Resources, Revenue Refunding
Bonds (Central Valley Project), Series L, 5.70% due 12/01/2016 2,282
California State Public Works Board, Lease Revenue Bonds (Various
University of California Projects):
A- A 9,750 Refunding, Series A, 5.50% due 6/01/2021 8,205
AAA Aaa 2,000 Series A, 6.40% due 12/01/2016 (d) 2,013
A- A1 2,500 Series B, 6.625% due 12/01/2019 2,492
AAA Aaa 2,500 California State, RAW, Series C, 5.75% due 4/25/1996 (b) 2,516
AAA Aaa 5,000 Central Coast Water Authority, California, Revenue Bonds (State
Water Project Regional Facilities), 6.60% due 10/01/2022 (d) 5,078
AAA Aaa 4,450 Compton, California, Community Redevelopment Agency, Tax Alloca-
tion Refunding Bonds (Walnut Industrial Park), Series A, 7.50%
due 8/01/2013 (d) 4,794
A+ A1 2,500 Contra Costa County, California, COP, 6.50% due 8/01/2019 2,420
AAA Aaa 4,000 East Bay, California, Municipal Utilities District, Wastewater
Treatment System Revenue Bonds, 6.375% due 6/01/2021 (d) 4,006
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) 2,171
AAA Aaa 5,000 Los Angeles, California, Wastewater System Revenue Refunding
Bonds, Series D, 5.20% due 11/01/2021 (b) 4,175
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) 2,597
AAA Aaa 8,235 Los Angeles County, California, Transportation Commission, Sales
Tax Revenue Refunding Bonds, AMT, Series B, 6.50% due 7/01/2015
(b) 8,325
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) 1,517
AAA Aaa 1,500 Northern California Transmission Revenue Bonds (California-Oregon
Transmission Project), Series A, 6.50% due 5/01/2016 (c) 1,521
SP1+ MIG1++ 1,900 San Diego, California, Local Government, COP, TRAN, 4.50% due
6/30/1995 (c) 1,898
AAA Aaa 4,210 San Francisco, California, City and County Airports, Commission
International Airport Revenue Bonds, AMT, Second-Series, Issue 6,
6.60% due 5/01/2024 (d) 4,233
AAA Aaa 2,000 Santa Clara County, California, Financing Authority Lease Revenue
Bonds (VMC Facility Replacement Project), Series A, 6.75% due
11/15/2020 (d) 2,059
NR* Aa 5,000 University of California, COP, Refunding (UCLA Center Chiller/
Cogen Project), 5.60% due 11/01/2020 4,201
<PAGE>
Colorado--0.7% AAA Aaa 3,250 Douglas County, Colorado, School District No. 1 (Douglas and
Elbert Counties Improvement Project), Series A, 6.50% due
12/15/2016 (c) 3,334
Connecticut--1.3% A1+ VMIG1++ 800 Connecticut State Development Authority, PCR, Refunding
(Connecticut Light & Power Co. Project), VRDN, Series A, 4.10%
due 9/01/2028 (a) 800
AA- A1 2,000 Connecticut State Health and Educational Facilities Authority
Revenue Bonds (Nursing Home Program), 7.125% due 11/01/2024 2,073
AAA Aaa 3,500 Connecticut State Split Tax Obligation Revenue Bonds, GO, Series
B, 6.25% due 10/01/2014 (b) 3,514
Delaware--0.5% AAA Aaa 2,000 Delaware Transportation Service Authority Revenue Bonds, GO, 7%
due 7/01/2013 (b) 2,128
District of AAA Aaa 3,000 District of Columbia, UT, Series B, 6.10% due 6/01/2011 (c) 2,912
Columbia--0.6%
Florida--0.7% A1+ VMIG1++ 700 Dade County, Florida, Water and Sewer System Revenue Bonds, VRDN,
2.70% due 10/05/2022 (a)(b) 700
AA Aa 1,465 Florida, HFA, S/F Mortgage, Refunding, AMT, Series B, 6.55%
due 7/01/2017 1,471
A1 VMIG1++ 1,200 Volusia County, Florida, Health Facilities Authority Revenue
Bonds (Pooled Hospital Loan Program), VRDN, ACES, 2.90% due
11/01/2015 (a)(b) 1,200
Georgia--4.2% AAA Aaa 7,725 Georgia Municipal Electric Authority, Power Revenue Bonds, Series
EE, 7% due 1/01/2025 (d) 8,415
AAA Aaa 3,500 Metropolitan Atlanta Rapid Transport Authority, Georgia, Sales Tax
Revenue Bonds, Second Indenture, Series A, 6.90% due 7/01/2020 (c) 3,647
Municipal Electric Authority, Georgia, Project 1, Sub-Series A(d):
AAA Aaa 4,000 6.25% due 1/01/2014 4,003
AAA Aaa 3,000 6.50% due l/01/2026 3,009
AAA Aaa 1,000 Municipal Electric Authority, Georgia, Split Obligation, Third
Crossover, 6.60% due 1/01/2018 (c) 1,030
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Hawaii--3.9% AA Aaa $11,250 Hawaii State Airport System Revenue Bonds, AMT, Second Series,
7.50% due 7/01/2020 (b) $ 11,876
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) 6,395
<PAGE>
Illinois--8.2% AAA Aaa 4,500 Chicago, Illinois, Wastewater Transmission Revenue Bonds,
6.375% due 1/01/2024 (c) 4,409
AAA Aaa 2,240 Cook County, Illinois, Chicago Community College District No.
508, COP, UT, 8.75% due 1/01/2007 (b) 2,776
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) 3,088
AAA Aaa 2,000 Cook County, Illinois, GO, UT, Series A, 6.50% due 11/15/2010 (c) 2,051
Illinois Health Facilities Authority Revenue Bonds:
AAA Aaa 1,000 (Ingalls Health System Project), 6.25% due 5/15/2024 (c) 956
AA Aa 5,000 Refunding (Northwestern Memorial Hospital), Series A, 6% due
8/15/2024 4,534
AAA Aaa 3,500 (Servantcor Project), Capital Guaranty, Series A, 6.375% due
8/15/2021 3,385
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) 2,831
Regional Transportation Authority, Illinois, GO, Series A (d):
AAA Aaa 9,115 7.20% due 11/01/2020 10,040
AAA Aaa 5,000 6.125% due 6/01/2022 4,780
Indiana--0.6% NR* Aaa 2,770 Indiana State HFA, S/F Mortgage Revenue Bonds (Home Mortgage
Program), AMT, Series B-2, 7.80% due 1/01/2022 (g) 2,896
Iowa--0.8% NR* Aaa 3,525 Iowa Finance Authority, S/F Mortgage Revenue Bonds, AMT, Series
A, 7.90% due 11/01/2022 (g) 3,697
Kansas--1.7% AAA Aaa 5,500 Burlington, Kansas, PCR, Refunding (Kansas Gas and Electric
Company Project), 7% due 6/01/2031 (c) 5,691
AAA Aaa 2,500 Wamego, Kansas, PCR, Refunding (Kansas Gas and Electric Company
Project), 7% due 6/01/2031 (c) 2,595
Kentucky--2.2% A1+ VMIG1++ 300 Daviess County, Kentucky, Solid Waste Disposal Facility Revenue
Bonds (Scott Paper Company Project), VRDN, AMT, Series A, 4.35%
due 12/01/2023 (a) 300
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) 4,894
AAA Aaa 5,000 Louisville and Jefferson County, Kentucky, Metropolitan Sewer
District, Sewer and Drain System Revenue Bonds, Series A, 6.50%
due 5/15/2024 (d) 5,061
Louisiana--1.8% Louisiana Public Facilities Authority Revenue Bonds:
AAA Aaa 4,000 (General Health Inc. Project), 6.375% due 11/01/2024 (c) 3,939
AAA Aaa 4,340 Refunding (Jefferson Parish Eastbank Project), 7.70% due
8/01/2010 (b) 4,718
<PAGE>
Maine--0.6% AA- A1 3,000 Maine State Housing Authority, Mortgage Purchase Revenue
Bonds, AMT, Series C-2, 6.875% due 11/15/2023 2,972
Maryland--1.0% AAA Aaa 5,000 Maryland State Transportation Authority, Special Obligation
Revenue Bonds (Baltimore/Washington International Airport
Project), AMT, Series A, 6.25% due 7/01/2014 (b) 4,950
Massachusetts-- AAA Aaa 3,000 Massachusetts Bay Transportation Authority, COP, Series A,
3.7% 7.65% due 8/01/2015 (f) 3,259
A+ A1 3,500 Massachusetts Bay Transportation Authority Revenue Bonds (Massa-
chusetts General Transportation System), Series B, 5.90% due
3/01/2024 3,248
AAA Aaa 4,300 Massachusetts State, HFA, Housing Revenue Refunding Bonds
(Insured-Rental), AMT, Series A, 6.75% due 7/01/2028 (d) 4,317
AAA Aaa 2,500 Massachusetts State Port Authority Revenue Bonds, AMT, Series
A, 7.50% due 7/01/2020 (b) 2,639
AAA Aaa 4,000 Massachusetts State Water Resource Authority, GO, Series A, 6%
due 8/01/2024 (c) 3,814
Michigan--3.3% A- A 1,500 Michigan State Hospital Finance Authority, Revenue Refunding
Bonds (Detroit Medical Center--Obligation Group), Series A,
6.50% due 8/15/2018 1,422
AAA Aaa 5,000 Michigan State Trunk Line Bonds, Series A, 5.75% due 11/15/2020 (b) 4,586
AAA Aaa 3,000 Monroe County, Michigan, PCR (Collateral--Detroit Edison Company
Project), AMT, Series 1, 7.65% due 9/01/2020 3,202
AAA Aaa 6,250 West Ottawa, Michigan, Public School District, UT, Refunding, 6%
due 5/01/2020 (b) 5,983
Mississippi--0.5% AAA Aaa 2,000 Mississippi Hospital Equipment and Facilities Authority Revenue
Bonds (Mississippi Baptist Medical Center), Series A, 7.50%
due 5/01/2012(c) 2,129
Missouri--0.8% AAA Aaa 3,000 Kansas City, Missouri, Airport Revenue Bonds (General Improvement
Project), Capital Guaranty, Series B, 6.875% due 9/01/2014 3,146
NR* VMIGl++ 300 Missouri Higher Education Loan Authority, Student Loan Revenue
Bonds, VRDN, AMT, Series A, 2.90% due 6/01/2017 (a) 300
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) 2,289
Nevada--3.1% AAA Aaa 9,000 Clark County, Nevada, Passenger Facility Revenue Bonds (Las Vegas
McCarran International Airport), Series A, 6% due 7/01/2022 (d) 8,537
AAA Aaa 3,500 Washoe County, Nevada, Gas and Water Facilities, Revenue Refunding
Bonds (Sierra Pacific), 6.30% due 12/01/2014 (d) 3,488
AAA Aaa 3,000 Washoe County, Nevada, Water Facility Revenue Bonds (Sierra
Pacific Power), AMT, 6.65% due 6/01/2017 (c) 3,019
<PAGE>
New Hampshire-- AAA Aaa 3,800 New Hampshire, Higher Educational and Health Facilities Authority
0.7% Revenue Bonds (University Systems of New Hampshire), 5.75% due
7/01/2024 (c) 3,442
New Jersey--3.6% 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) 2,394
New Jersey State Housing and Mortgage Finance Agency, Home Buyer
Revenue Bonds, AMT (c):
AAA Aaa 3,605 Series B, 7.90% due 10/01/2022 3,838
AAA Aaa 5,930 Series D, 7.70% due 10/01/2029 6,244
AAA Aaa 5,000 Series K, 6.375% due 10/01/2026 4,851
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (In Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New Mexico--1.0% AAA Aaa $2,375 Albuquerque, New Mexico, Airport Revenue Bonds, GO, AMT,
Series A, 6.60% due 7/01/2016 (d) $ 2,385
AAA Aaa 2,300 Santa Fe, New Mexico, Revenue Bonds, Series A, 6.30% due
6/01/2024 (d) 2,300
New York--7.9% AAA Aaa 5,200 Metropolitan Transportation Authority, New York, Commuter
Facilities Revenue Bonds, Series A, 6.375% due 7/01/2018 (c) 5,214
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) 2,135
New York City, New York, GO, UT:
A- Baa1 3,235 Series B, 8.25% due 6/01/2002 3,579
A- Baa1 3,000 Series D, 9.50% due 8/01/2002 3,530
A1+ NR* 100 New York City, New York, IDA, IDR (Japan Airlines Company Ltd.
Project), VRDN, AMT, 4.10% due 11/01/2015 (a) 100
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/l5/2012 (c)(i) 10,598
New York State Dormitory Authority Revenue Bonds, Series A:
BBB+ Baa1 4,450 (Court Facilities Lease), 5.25% due 5/15/2021 3,524
BBB+ Baa1 2,600 Refunding (State University Educational Facilities), 5.875%
due 5/15/2017 2,305
AAA Aaa 4,710 New York State Medical Care Facilities Finance Agency Revenue
Bonds (Saint Francis Hospital Project), Series A, 7.625% due
11/01/2021 (b) 5,056
BBB Baa1 1,500 New York State Urban Development Corporation, State Facilities
Revenue Bonds, 7.50% due 4/01/2020 1,561
<PAGE>
North Dakota-- AAA Aaa 3,000 Bismarck, North Dakota, Hospital Revenue Refunding and Improvement
0.7% Bonds (Medical Center One, Inc.), 7.50% due 5/01/2013 (e) 3,171
Ohio--1.0% AAA Aaa 2,500 North Canton, Ohio, City School District, Improvement Bonds,
UT, 6.70% due 12/01/2019 (d) 2,595
AAA Aaa 2,150 Ohio State Air Quality Development Authority, PCR, Refunding
(Ohio-Edison), Series A, 7.45% due 3/01/2016 (b) 2,293
Oklahoma--0.2% AAA Aaa 1,005 Muskogee County, Oklahoma, Home Financing Authority, S/F Mortgage
Revenue Refunding Bonds, Series A, 7.60% due 12/01/2010 (b) 1,063
Oregon--0.5% A+ A1 2,400 Portland, Oregon, Sewer System Revenue Bonds, Series A, 6.25%
due 6/01/2015 2,404
Pennsylvania-- AAA Aaa 4,000 Pennsylvania State Higher Education Assistance Agency, Student
0.9% Loan Revenue Bonds, Linked RIB and SAVRS, AMT, 7.437% due
3/01/2020 (c) 4,202
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) 9,019
South Carolina-- AAA Aaa 2,500 South Carolina Public Service Authority, Revenue Refunding
0.5% Bonds, Series A, 5.50% due 7/01/2021 (c) 2,183
South Dakota-- AAA Aaa 8,000 South Dakota State Health and Educational Facilities Authority,
1.8% Revenue Refunding Bonds (McKennan Hospital), Series A, 7.625%
due 7/01/2014 (c) 8,508
Tennessee--3.6% AAA Aaa 2,250 Chattanooga-Hamilton County, Tennessee, Hospital Authority,
Revenue Refunding Bonds (Erlanger Medical Center), 5.50%
due 10/01/2013 (f) 2,020
AAA Aaa 7,835 Metropolitan Nashville Airport Authority, Tennessee, Airport
Revenue Bonds, Series B, 7.75% due 7/01/2001 (b)(h) 8,865
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) 6,314
<PAGE>
Texas--5.1% AAA Aaa 3,900 Austin, Texas, Utility System Revenue Refunding Bonds, Prior
Lien, 5.75% due 11/15/2016 (d) 3,612
AAA Aaa 3,000 Brazos River Authority, Texas, Revenue Refunding Bonds
(Collateral--Houston Light and Power Company Project),
Series C, 8.10% due 5/01/2019 (e) 3,266
A1+ NR* 1,000 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Methodist Hospital),
VRDN, 3.75% due 12/01/2025 (a) 1,000
AAA Aaa 5,000 Houston, Texas, Water and Sewer System Revenue Refunding
Bonds (Junior Lien), Series C, 6.375% due 12/01/2017 (d) 5,031
AAA Aaa 10,475 Texas Water Resource Finance Authority Revenue Bonds, 7.50%
due 8/15/2013 (d) 10,951
Utah--1.1% AA Aa 5,000 Intermountain Power Agency, Utah, Power Supply Revenue Bonds,
Series B, 7% due 7/01/2021 5,116
Vermont--1.5% AAA Aaa 6,635 Vermont HFA, Home Mortgage Purchase Revenue Bonds, AMT, Series
B, 7.60% due 12/01/2024 (c) 6,974
Virginia--4.4% AAA Aaa 7,400 Chesapeake Bay Bridge Tunnel, Virginia, Commission District
Revenue Refunding Bonds, 5.75% due 7/01/2025 (c) 6,782
AAA Aaa 6,000 Loudoun County, Virginia, COP, GO, 6.80% due 3/01/2014 (f) 6,212
AAA Aaa 3,500 Prince Williams County, Virginia, Service Authority Water
and Sewer Systems Revenue Bonds, 6% due 7/01/2029 (b) 3,334
AA+ Aa 5,000 Virginia State, HDA, Commonwealth Mortgage, AMT, Series B,
Sub-Series B-3, 6.75% due 7/01/2021 4,885
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) 4,893
AAA Aaa 3,440 (Nuclear Project No. 3), Series A, 6% due 7/01/2018 (e) 3,223
AAA Aaa 4,000 (Nuclear Project No. 3), Series C, 7.50% due 7/01/2008 (c) 4,449
Wisconsin--0.6% AAA Aaa 2,750 Wisconsin State Health and Educational Facilities Authority,
Revenue Refunding Bonds (Wheaton Franciscan Services), 6.50%
due 8/15/2011 (c) 2,784
Wyoming--0.0% NR* P1 100 Unita County, Wyoming, PCR, Refunding (Chevron USA Inc.
Project), VRDN, 4% due 2/01/95 (a) 100
Total Investments (Cost--$454,750)--96.9% 459,516
Other Assets Less Liabilities--3.1% 14,606
--------
Net Assets--100.0% $474,122
========
<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, 1995.
(b)FGIC Insured.
(c)MBIA Insured.
(d)AMBAC Insured.
(e)BIG Insured.
(f)FSA Insured.
(g)FNMA/GNMA Collateralized.
(h)Prerefunded.
(i)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, 1995.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not yet been audited by Deloitte &
Touche LLP.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of January 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$454,749,952) (Note 1a) $459,515,556
Receivables:
Securities sold $ 27,541,652
Interest 7,505,303 35,046,955
------------
Prepaid expenses and other assets 31,820
------------
Total assets 494,594,331
------------
Liabilities: Payables:
Securities purchased 14,975,884
Dividends (Note 1f) 437,282
Investment adviser (Note 2) 204,867 15,618,033
------------
Accrued expenses and other liabilities 4,854,105
------------
Total liabilities 20,472,138
------------
<PAGE>
Net Assets: Net assets $474,122,193
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (6,000 shares of
AMPS* issued and outstanding at $25,000 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 3,751,156
Accumulated realized capital losses--net (4,704,707)
Accumulated distributions in excess of realized capital gains--net (1,692,768)
Unrealized appreciation on investments--net 4,765,604
------------
Total--Equivalent to $11.17 net asset value per share of Common
Stock (market price--$10.25) 324,122,193
------------
Total capital $474,122,193
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended January 31, 1995
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 31,216,889
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 2,412,763
Commission fees (Note 4) 391,335
Transfer agent fees 149,400
Professional fees 90,625
Accounting services (Note 2) 71,368
Printing and shareholder reports 63,376
Directors' fees and expenses 45,613
Custodian fees 37,675
Listing fees 33,927
Pricing fees 17,977
Amortization of organization expenses (Note 1e) 852
Other 20,193
------------
Total expenses 3,335,104
------------
Investment income--net 27,881,785
------------
<PAGE>
Realized & Realized loss on investments--net (4,704,132)
Unrealized Change in unrealized appreciation on investments--net (44,946,070)
Loss on ------------
Investments Net Decrease in Net Assets Resulting from Operations $(21,768,417)
--Net (Notes 1b, ============
1d & 3):
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: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 27,881,785 $ 29,038,208
Realized gain (loss) on investments--net (4,704,132) 13,988,460
Change in unrealized appreciation on investments--net (44,946,070) 17,230,790
------------ ------------
Net increase (decrease) in net assets resulting from operations (21,768,417) 60,257,458
------------ ------------
Dividends & Investment income--net:
Distributions to Preferred Stock (4,542,390) (3,568,270)
Shareholders Common Stock (22,948,395) (24,266,522)
(Note 1f): Realized gain on investments--net:
Common Stock (1,651,828) (12,392,997)
In excess of realized gain on investments--net:
Common Stock (1,692,768) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (30,835,381) (40,227,789)
============ ============
Common Stock Net increase in net assets derived from Common Stock
Transactions transactions -- 5,852,928
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (52,603,798) 25,882,597
Beginning of year 526,725,991 500,843,394
------------ ------------
End of year* $474,122,193 $526,725,991
============ ============
<FN>
*Undistributed investment income--net (Note 1g) $ 3,751,156 $ 3,359,581
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have
been derived from information provided in the
financial statements.
For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1995 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 .96 1.01 1.06 1.09 1.12
Realized and unrealized gain (loss) on
investments--net (1.71) 1.09 .68 .71 .30
-------- -------- -------- -------- --------
Total from investment operations (.75) 2.10 1.74 1.80 1.42
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.79) (.85) (.91) (.84) (.79)
Realized gain on investments--net (.06) (.43) (.35) (.20) --
In excess of realized gain on invest-
ments--net (.06) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders (.91) (1.28) (1.26) (1.04) (.79)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends to Preferred Stock shareholders:
Investment income--net (.16) (.12) (.15) (.25) (.33)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.16) (.12) (.15) (.25) (.33)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.17 $ 12.99 $ 12.29 $ 11.96 $ 11.45
======== ======== ======== ======== ========
Market price per share, end of period $ 10.25 $ 13.125 $ 13.25 $ 12.625 $ 11.375
======== ======== ======== ======== ========
Total Investment Based on market price per share (14.88%) 9.28% 16.27% 21.23% 13.72%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share (6.27%) 16.61% 13.84% 14.09% 10.36%
======== ======== ======== ======== ========
Ratios to Average Expenses .69% .68% .69% .70% .71%
Net Assets:** ======== ======== ======== ======== ========
Investment income--net 5.76% 5.54% 6.13% 6.41% 6.68%
======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands) $324,122 $376,726 $350,843 $335,268 $313,765
======== ======== ======== ======== ========
Preferred Stock outstanding, at end
of period (in thousands) $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover 60.88% 41.61% 34.42% 70.17% 116.42%
======== ======== ======== ======== ========
Dividends Series A--Investment income--net $ 752 $ 597 $ 749 $ 1,135 $ 1,504
Per Share On Series B--Investment income--net 764 608 733 1,085 1,504
Preferred Stock Series C--Investment income--net 755 580 735 1,095 1,486
Outstanding:++
<FN>
*Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
**Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Dividends per share have been adjusted to reflect a four-for-one
stock split.
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.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the last available
bid price in the over-the-counter market or on the basis of yield
equivalents as obtained by the Fund's pricing service from one or
more dealers that make markets in the securities. Financial futures
contracts and options thereon, which are traded on exchanges, are
valued at their closing prices as of the close of such exchanges.
Options, 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. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized
cost, which approximates market value. Securities and assets for
which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the
Board of Directors of the Fund.
<PAGE>
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts and options on such futures
contracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a
contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value at the time it
was closed.
* Options--When the Fund sells an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(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 charged to expense on a straight-line basis over a five-year
period, beginning with the commencement of operations of the Fund.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for futures transactions and post-October losses.
(g) Reclassifications--Generally accepted accounting principles
require that certain differences between undistributed net
investment income for financial reporting and tax purposes, if
permanent, be reclassified to accumulated net realized capital
losses. Accordingly, current year's permanent book/tax differences
of $575 have been reclassified from undistributed net investment
income to accumulated net realized capital losses. These
classifications have no effect on net assets or net asset values per
share.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 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, PSI, 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, 1995 were $279,944,330 and
$278,731,535, respectively.
Net realized and unrealized gains (losses) as of January 31, 1995
were as follows:
<PAGE>
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $(4,669,245) $ 4,783,955
Short-term investments (110,475) (18,351)
Financial futures contracts 75,588 --
----------- -----------
Total $(4,704,132) $ 4,765,604
=========== ===========
As of January 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $4,765,604, of which $11,562,086
related to appreciated securities and $6,796,482 related to
depreciated securities. The aggregate cost of investments at January
31, 1995 for Federal income tax purposes was $454,749,952.
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, 1995, shares issued and outstanding
remained constant at 29,007,770. At January 31,1995, 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. The yields in effect at January 31,
1995 were as follows: Series A, 3.66%; Series B, 4.19%; and Series
C, 3.49%.
A four-for-one stock split occurred on December 1, 1994. As a
result, for the year ended January 31, 1995, there were 6,000 AMPS
shares authorized, issued, and outstanding with a liquidation pref-
erence of $25,000 per share, plus accumulated and unpaid dividends
of $86,039. Prior to the stock split, there were 1,500 AMPS shares
outstanding with a liquidation preference of $100,000 per share.
The Fund pays commissions to certain broker-dealers at the end of
each auction at the annual rate of approximately one-quarter of 1%
calculated on the proceeds of each auction. For the year
ended January 31, 1995, MLPF&S, an affiliate of FAM, received
$304,609 as commissions.
<PAGE>
5. Subsequent Event:
On February 6, 1995, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.062457 per share, payable on February 27, 1995 to shareholders
of record as of February 17, 1995.
6. Capital Loss Carryforward:
At January 31, 1995, the Fund had a net capital loss carryforward of
approximately $614,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
<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, 1995, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and 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, 1995 by correspondence with the custodian and brokers. 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 the financial
highlights present fairly, in all material respects, the financial
position of MuniEnhanced Fund, Inc. as of January 31, 1995, 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.
<PAGE>
Deloitte & Touche LLP
Princeton, New Jersey
March 3, 1995
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
MuniEnhanced Fund, Inc. during its taxable year ended January 31,
1995 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
12/19/94 12/29/94 $ .076521 $ .038779
Please retain this information for your records.
PER SHARE INFORMATION (unaudited)
<TABLE>
Per Share
Selected Quarterly
Financial Data*
<CAPTION>
Dividends/Distributions
Net Realized Unrealized Net Investment
Investment Gains Gains Income Capital
For the Quarter Income (Losses) (Losses) Common Preferred Gains
<S> <C> <C> <C> <C> <C> <C>
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 (1.48) .20 .03 --
May 1, 1994 to July 31, 1994 .24 (.13) .25 .20 .04 --
August 1, 1994 to October 31, 1994 .25 .01 (.81) .20 .04 --
November 1, 1994 to January 31, 1995 .24 (.16) .49 .19 .05 .12
<PAGE>
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
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
August 1, 1994 to October 31, 1994 11.77 10.95 11.00 9.25 4,260
November 1, 1994 to January 31, 1995 11.17 10.28 10.375 8.75 7,462
<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>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Robert R. Martin, 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. Giordiano, 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
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Square
Boston, Massachusetts 02110
<PAGE>
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
NYSE Symbol
MEN
