<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1999
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, For Use of the Com-
mission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[X] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MUNIENHANCED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Same as above
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registrations statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
<PAGE> 2
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
2
<PAGE> 3
MUNIENHANCED FUND, INC.
April 20, 1999
Dear Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
MuniEnhanced Fund, Inc. (the "Fund") to be held at the offices of Merrill Lynch
Asset Management, L.P., on May 26, 1999, at 11:00 A.M.
At the meeting, in addition to electing Directors and ratifying auditors,
you are being asked to consider and approve an amendment to the Articles
Supplementary of the Fund. THE FUND'S BOARD OF DIRECTORS BELIEVES ALL THE
PROPOSALS ARE IN THE BEST INTERESTS OF STOCKHOLDERS AND RECOMMENDS A VOTE "FOR"
ALL PROPOSALS. Please read the entire proxy statement, which discusses these
proposals in greater detail.
Regardless of the number of shares you own, it is important that they be
represented and voted. PLEASE TAKE THE TIME TO READ THE ENCLOSED PROXY AND SIGN,
DATE AND MAIL THE PROXY CARD AS SOON AS POSSIBLE. Your prompt response will help
save the Fund expenses related to additional solicitation. IF YOU HAVE BEEN
PROVIDED WITH THE OPPORTUNITY ON YOUR PROXY CARD OR VOTING INSTRUCTION FORM TO
PROVIDE VOTING INSTRUCTIONS VIA TELEPHONE OR THE INTERNET, PLEASE TAKE ADVANTAGE
OF THESE PROMPT AND EFFICIENT VOTING OPTIONS.
If you have any questions regarding the enclosed proxy material or need
assistance in voting your shares, please contact our proxy solicitor, D.F. King
& Co., Inc. at 1-800-859-8508.
We appreciate the time and consideration that you can give to this matter.
Sincerely,
ALICE A. PELLEGRINO
Secretary
<PAGE> 4
MUNIENHANCED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
MAY 26, 1999
------------------------
TO THE STOCKHOLDERS OF
MUNIENHANCED FUND, INC.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders (the
"Meeting") of MuniEnhanced Fund, Inc. (the "Fund") will be held at the offices
of Merrill Lynch Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New
Jersey, on Wednesday, May 26, 1999 at 11:00 a.m. for the following purposes:
(1) To elect a Board of Directors to serve for the ensuing year;
(2) To consider and act upon a proposal to ratify the selection of
Deloitte & Touche LLP to serve as independent auditors of the Fund for its
current fiscal year;
(3) To consider and act upon a proposal to approve an amendment to the
Articles Supplementary of the Fund; and
(4) To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 31, 1999 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting or any adjournment thereof.
A complete list of the stockholders of the Fund entitled to vote at the
Meeting will be available and open to the examination of any stockholder of the
Fund for any purpose germane to the Meeting during ordinary business hours from
and after May 12, 1999, at the offices of the Fund, 800 Scudders Mill Road,
Plainsboro, New Jersey. You are cordially invited to attend the Meeting.
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE
ENVELOPE PROVIDED FOR THIS PURPOSE. The enclosed proxy is being solicited on
behalf of the Board of Directors of the Fund.
By Order of the Board of Directors
ALICE A. PELLEGRINO
Secretary
Plainsboro, New Jersey
Dated: April 20, 1999
<PAGE> 5
PROXY STATEMENT
---------------------------
MUNIENHANCED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY, 08543-9011
---------------------------
1999 ANNUAL MEETING OF STOCKHOLDERS
MAY 26, 1999
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of MuniEnhanced Fund, Inc., a
Maryland corporation (the "Fund"), to be voted at the 1999 Annual Meeting of
Stockholders of the Fund (the "Meeting"), to be held at the offices of Merrill
Lynch Asset Management, L.P. ("MLAM"), 800 Scudders Mill Road, Plainsboro, New
Jersey, on Wednesday, May 26, 1999, at 11:00 a.m. The approximate mailing date
of this Proxy Statement is April 22, 1999.
All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein. Unless instructions to the contrary are marked, proxies
will be voted for the election of the Board of Directors to serve for the
ensuing year, for the ratification of the selection of independent auditors to
serve for the Fund's current fiscal year and for the amendment to the Articles
Supplementary of the Fund. Any proxy may be revoked at any time prior to the
exercise thereof by giving written notice to the Secretary of the Fund at the
Fund's address indicated above or by voting in person at the Meeting.
The Board of Directors has fixed the close of business on March 31, 1999,
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of and to vote at the Meeting and at any adjournment thereof.
Stockholders on the Record Date will be entitled to one vote for each share
held, with no shares having cumulative voting rights. As of the Record Date, the
Fund had outstanding 29,369,874 shares of common stock, par value $.10 per share
("Common Stock"), and 6,000 shares of auction market preferred stock, par value
$.025 per share and liquidation preference of $25,000 per share plus an amount
equal to accumulated but unpaid dividends thereon ("AMPS"). To the knowledge of
the Fund, as of the Record Date, no person is the beneficial owner of more than
five percent of the outstanding shares of Common Stock or five percent of the
outstanding AMPS.
The Board of Directors of the Fund knows of no business other than that
mentioned in Items 1, 2 and 3 of the Notice of Meeting that will be presented
for consideration at the Meeting. If any other matter is properly presented, it
is the intention of the persons named in the enclosed proxy to vote in
accordance with their best judgment.
<PAGE> 6
ITEM 1. ELECTION OF DIRECTORS
At the Meeting, the Board of Directors will be elected to serve until the
next Annual Meeting of Stockholders and until their successors are elected and
qualified. It is intended that all properly executed proxies will be voted
(unless such authority has been withheld in the proxy) as follows:
(1) All such proxies of the holders of AMPS, voting separately as a
class, in favor of the two (2) persons designated as Directors to be
elected by holders of AMPS; and
(2) All such proxies of the holders of Common Stock and AMPS, voting
together as a single class, in favor of the five (5) persons designated as
Directors to be elected by holders of Common Stock and AMPS.
The Board of Directors of the Fund knows of no reason why any of these
nominees will be unable to serve, but in the event of any such unavailability,
the proxies received will be voted for such substitute nominee or nominees as
the Board of Directors may recommend.
Certain information concerning the nominees, including their designated
classes, is set forth as follows:
TO BE ELECTED BY HOLDERS OF AMPS, VOTING SEPARATELY AS A CLASS:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AT
THE RECORD DATE
PRINCIPAL OCCUPATIONS ---------------
DURING PAST FIVE YEARS DIRECTOR COMMON
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS(1) SINCE STOCK AMPS
- ---------------------------------- --- ------------------------------------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Herbert I. London(1)(2)........... 60 John M. Olin Professor of Humanities, 1989 0 0
2 Washington Square Village New York University since 1993 and
New York, New York 10012 Professor since 1980; President,
Hudson Institute since 1997 and
Trustee thereof since 1980; Dean,
Gallatin Division of New York
University from 1976 to 1993;
Distinguished Fellow, Herman Kahn
Chair, Hudson Institute from 1984 to
1985; Director, Damon Corp. from 1991
to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993; Limited
Partner, Hypertech LP in 1996.
Andre F. Perold(1)(2)............. 46 Professor, Harvard Business School 1989 0 0
Morgan Hall since 1989 and Associate Professor
Solders Field from 1983 to 1989; Trustee, The
Boston, Massachusetts 02163 Common Fund since 1989; Director,
Quantec Limited since 1991, TIBCO
from 1994 to 1996 and Genbel
Securities Limited and Genbel Bank
since 1999.
</TABLE>
(Footnotes on page 4)
2
<PAGE> 7
TO BE ELECTED BY HOLDERS OF COMMON STOCK AND AMPS, VOTING TOGETHER AS A SINGLE
CLASS:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AT
THE RECORD DATE
PRINCIPAL OCCUPATIONS ---------------
DURING PAST FIVE YEARS DIRECTOR COMMON
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS(1) SINCE STOCK AMPS
- ---------------------------------- --- ------------------------------------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
James H. Bodurtha(1)(2)........... 55 Director and Executive Vice 1995 0 0
36 Popponesset Road President, The China Business Group,
Cotuit, Massachusetts 02635 Inc. since 1996; Chairman and Chief
Executive Officer, China Enterprise
Management Corporation from 1993 to
1996; Chairman, Berkshire Corporation
since 1980; Partner, Squire, Sanders
& Dempsey from 1980 to 1993.
Terry K. Glenn(1)*)............... 58 Executive Vice President of MLAM and 1999 0 0
P.O. Box 9011 Fund Asset Management, L.P. ("FAM")
Princeton, New Jersey 08543-9011 (which terms as used herein include
their corporate predecessors) since
1983; Executive Vice President and
Director of Princeton Services, Inc.
("Princeton Services") since 1993;
President of Princeton Funds
Distributor, Inc. ("PFD") since 1986
and Director thereof since 1991;
President of Princeton
Administrators, L.P. since 1988.
Robert R. Martin(1)(2)............ 72 Chairman and Chief Executive Officer, 1993 0 0
513 Grand Hill Kinnard Investments, Inc. from 1990
St. Paul, Minnesota 55103 to 1993; Executive Vice President,
Dain Bosworth from 1974 to 1989;
Director, Carnegie Capital Management
from 1977 to 1985 and Chairman
thereof in 1979; Director, Securities
Industry Association from 1981 to
1982 and Public Securities
Association from 1979 to 1980;
Chairman of the Board, WTC
Industries, Inc. in 1994; Trustee,
Northland College since 1992.
</TABLE>
(Footnotes on page 4)
3
<PAGE> 8
TO BE ELECTED BY HOLDERS OF COMMON STOCK AND AMPS, VOTING TOGETHER AS A SINGLE
CLASS (CONTINUED):
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AT
THE RECORD DATE
PRINCIPAL OCCUPATIONS ---------------
DURING PAST FIVE YEARS DIRECTOR COMMON
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS(1) SINCE STOCK AMPS
- ---------------------------------- --- ------------------------------------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Joseph L. May(1)(2)............... 69 Attorney in private practice since 1989 1,000 0
424 Church Street 1984; President, May and Athens
Suite 2000 Hosiery Mills Division, Wayne-
Nashville, Tennessee 37219 Gossard Corporation from 1954 to
1983: Vice President, Wayne-Gossard
Corporation from 1972 to 1983;
Chairman, The May Corporation
(personal holding company) from 1972
to 1983; Director, Signal Apparel Co.
from 1972 to 1989.
Arthur Zeikel(1)*)................ 66... Chairman of FAM and MLAM from 1997 to 1989 0 0
300 Woodland Avenue 1999; President of FAM and MLAM from
Westfield, New Jersey 07090 1977 to 1997; Chairman of Princeton
Services from 1997 to 1999, Director
thereof from 1993 to 1999 and
President thereof from 1993 to 1997;
Executive Vice President of Merrill
Lynch & Co., Inc. ("ML&Co.") from
1990 to 1999.
</TABLE>
- ---------------
(1) Each of the nominees is a director, trustee or member of an advisory board
of certain other investment companies for which FAM or MLAM acts as
investment adviser. See "Compensation of Directors."
(2) Member of the Audit Committee of the Board.
* Interested person, as defined in the Investment Company Act, as amended, of
the Fund.
Committee and Board of Directors' Meetings. The Board of Directors has a
standing Audit Committee, which consists of the Directors who are not
"interested persons" of the Fund within the meaning of the Investment Company
Act of 1940, as amended (the "Investment Company Act"). The principal purpose of
the Audit Committee is to review the scope of the annual audit conducted by the
Fund's independent auditors and the evaluation by such auditors of the
accounting procedures followed by the Fund. The non-interested Directors have
retained independent legal counsel to assist them in connection with these
duties. The Board of Directors does not have a nominating committee.
During the fiscal year ended January 31, 1999, the Board of Directors held
four meetings and the Audit Committee held four meetings. Each of the Directors
then serving attended at least 75% of the aggregate of the total number of
meetings of the Board of Directors and, if a member, the total number of
meetings of the Audit Committee held during the period for which he served.
Compliance with Section 16(a) of the Securities Exchange Act of
1934. Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Fund's officers, directors and persons who own
more than ten percent of a registered class of the Fund's equity securities, to
file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission ("SEC") and
4
<PAGE> 9
the New York Stock Exchange. Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish the Fund with copies of
all Forms 3, 4 and 5 they file.
Based solely on the Fund's review of the copies of such forms, and
amendments thereto, furnished to it during or with respect to its most recent
fiscal year, and written representations from certain reporting persons that
they were not required to file Form 5 with respect to the most recent fiscal
year, the Fund believes that all of its officers, directors, greater than ten
percent beneficial owners and other persons subject to Section 16 of the
Exchange Act because of the requirements of Section 30 of the Investment Company
Act (i.e., any advisory board member, investment adviser or affiliated person of
the Fund's investment adviser) have complied with all filing requirements
applicable to them with respect to transactions during the Fund's most recent
fiscal year.
Interested Persons. The Fund considers Messrs. Zeikel and Glenn to be
"interested persons" of the Fund within the meaning of Section 2(a)(19) of the
Investment Company Act because of the positions each holds or has held with FAM
and its affiliates and/or due to their ownership of securities issued by ML &
Co. Mr. Glenn is the President of the Fund.
Compensation of Directors. FAM, the Fund's investment adviser, pays all
compensation of all officers of the Fund and all Directors of the Fund who are
affiliated with ML & Co. or its subsidiaries. The Fund pays each Director not
affiliated with FAM (each a "non-affiliated Director") a fee of $5,000 per year
plus $500 per meeting attended, together with such Director's actual
out-of-pocket expenses relating to attendance at meetings. The Fund also pays
each member of its Audit Committee, which consists of all of the non-affiliated
Directors, a fee of $1,000 per year plus $250 per meeting attended, together
with such Director's out-of-pocket expenses relating to attendance at meetings.
These fees and expenses aggregated $45,647 for the fiscal year ended January 31,
1999.
The following table sets forth for the fiscal year ended January 31, 1999
compensation paid by the Fund to the non-affiliated Directors and, for the
calendar year ended December 31, 1998, the aggregate compensation paid by all
registered investment companies advised by FAM and its affiliate, MLAM ("FAM/
MLAM advised funds"), to the non-affiliated Directors.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
PENSION OR RETIREMENT FROM FUND AND
COMPENSATION BENEFITS ACCRUED AS PART FAM/MLAM ADVISED
NAME OF DIRECTOR FROM FUND OF FUND EXPENSES FUNDS PAID TO DIRECTORS
- ----------------------------------------- ------------ ------------------------ -----------------------
<S> <C> <C> <C>
James H. Bodurtha........................ $9,000 None $163,500
Herbert I. London........................ $9,000 None $163,500
Robert R. Martin......................... $9,000 None $163,500
Joseph L. May............................ $9,000 None $163,500
Andre F. Perold.......................... $9,000 None $163,500
</TABLE>
- ---------------
(1) The Directors serve on the boards of FAM/MLAM advised funds as follows: Mr.
Bodurtha (28 registered investment companies consisting of 46 portfolios);
Mr. London (28 registered investment companies consisting of 46 portfolios);
Mr. Martin (28 registered investment companies consisting of 46 portfolios);
Mr. May (28 registered investment companies consisting of 46 portfolios);
and Mr. Perold (28 registered investment companies consisting of 46
portfolios).
5
<PAGE> 10
Officers of the Fund. The Board of Directors has elected six officers of
the Fund. The following sets forth information concerning each of these
officers:
<TABLE>
<CAPTION>
OFFICER
NAME AND BIOGRAPHY AGE OFFICE SINCE
- ---------------------------------------------------------- --- --------------------- -------
<S> <C> <C> <C>
Terry K. Glenn............................................ 58 President 1989*
Executive Vice President of MLAM and FAM since 1983;
Executive Vice President and Director of Princeton
Services since 1993; President of PFD since 1986 and
Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
Vincent R. Giordano....................................... 54 Senior Vice President 1989
Senior Vice President of FAM and MLAM since 1984;
Portfolio Manager of FAM and MLAM since 1977; Senior Vice
President of Princeton Services since 1993.
Kenneth A. Jacob.......................................... 48 Vice President 1989
First Vice President of MLAM since 1997; Vice President of
MLAM from 1984 to 1997; Vice President of FAM since 1984.
Donald C. Burke........................................... 38 Vice President 1993
Senior Vice President and Treasurer of MLAM and FAM since Treasurer 1999
1999; Senior Vice President and Treasurer of Princeton
Services since 1999; Vice President of PFD since 1999;
First Vice President of MLAM from 1997 to 1999; Vice
President of MLAM from 1990 to 1997; Director of Taxation
of MLAM since 1990.
Hugh T. Hurley, III....................................... 34 Vice President 1995
Vice President of MLAM since 1993.
Alice A. Pellegrino....................................... 39 Secretary 1999
Vice President of MLAM since 1999; Attorney with MLAM
since 1997; Associate with Kirkpatrick & Lockhart LLP from
1992 to 1997.
</TABLE>
- ---------------
* Mr. Glenn was elected President of the Fund in 1999. Prior to that he served
as Executive Vice President of the Fund.
Stock Ownership. At the Record Date, the Directors and officers of the
Fund as a group (12 persons) owned an aggregate of less than 1% of the Common
Stock of the Fund outstanding at such date and owned none of the AMPS
outstanding at such date. At such date, Mr. Zeikel, a Director of the Fund, Mr.
Glenn, an officer and a Director of the Fund, and the other officers of the Fund
owned an aggregate of less than 1% of the outstanding shares of common stock of
ML & Co.
ITEM 2. RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of the Fund, including a majority of the Directors
who are not interested persons of the Fund, has selected the firm of Deloitte &
Touche LLP ("D&T"), independent auditors, to examine the financial statements of
the Fund for the current fiscal year. The Fund knows of no direct or indirect
financial interest of such firm in the Fund. Such appointment is subject to
ratification or rejection by the stockholders of the Fund. Unless a contrary
specification is made, the accompanying proxy will be voted in favor of
ratifying the selection of such auditors.
D&T also acts as independent auditors for ML & Co. and all of its
subsidiaries and for most other investment companies for which FAM or MLAM acts
as an investment adviser. The fees received by D&T
6
<PAGE> 11
from these other entities are substantially greater, in the aggregate, than the
fees received by it from the Fund. The Board of Directors of the Fund considered
the fact that D&T has been retained as the independent auditors for such other
entities in its evaluation of the independence of D&T with respect to the Fund.
Representatives of D&T are expected to be present at the Meeting and will
have the opportunity to make a statement if they so desire and to respond to
questions from stockholders.
ITEM 3. PROPOSED AMENDMENT TO ARTICLES SUPPLEMENTARY
At a meeting held January 25, 1999, the Board of Directors of the Fund
approved amendments to Section 5(c) of the Articles Supplementary of the Fund.
The proposed amendment of Section 5(c) will affect issued and outstanding AMPS.
The Fund has three series of AMPS (A, B and C), each created under Articles
Supplementary dated July 10, 1989. The proposed amendment is described below and
a form of amended Section 5(c) for the Fund is attached as Exhibit A to this
Proxy Statement. The Board of Directors of the Fund has declared the amendment
advisable and has directed that the proposed amendment be submitted to the
stockholders of the Fund for approval at the Meeting. The Board recommends that
the stockholders of the Fund approve the proposed amendment to the Fund's
Articles Supplementary.
Currently, the Articles Supplementary of the Fund require the approval of a
majority of the Fund's outstanding shares of AMPS in order to issue any
additional shares of AMPS or any other preferred stock. The proposed amendment
would delete this requirement and permit the Fund, upon the approval of the
Board of Directors, to issue additional shares of preferred stock, including
AMPS, without obtaining stockholder approval, provided that such additional
preferred stock does not rank prior to the AMPS or any other outstanding
preferred stock in the Fund's capital structure.
The proposed amendment provides the Board and the Fund with greater
flexibility to adjust the Fund's leverage in response to market conditions. The
proposed amendment permits the Board of Directors to authorize the Fund to issue
additional AMPS in order to maintain the Fund's targeted level of financial
leverage without the time delays and costs involved with seeking stockholder
approval each time the Fund wishes to issue additional AMPS.
The issuance of additional AMPS may provide holders of Common Stock with a
potentially higher yield. The use of leverage, however, involves certain risks
for holders of Common Stock, including higher volatility of both the net asset
value and the market value of the Common Stock. Leverage also creates the risk
that the investment return on the Fund's Common Stock will be reduced to the
extent the dividends paid on preferred stock and other expenses of the preferred
stock exceed the income earned by the Fund on its investments. If the Fund is
liquidated, preferred stockholders will be entitled to receive liquidating
distributions before any distribution is made to holders of Common Stock.
The fee paid to FAM for investment advisory and management services is
based on the Fund's average weekly net assets, including assets acquired from
the sale of preferred stock. Therefore, the fee paid to FAM will increase as a
result of any issuance of additional AMPS or other preferred stock.
Any issuance of additional shares of preferred stock by the Fund must be in
compliance with the 200% asset coverage requirement of Section 18 of the
Investment Company Act. Also, the Fund currently anticipates that any additional
shares of preferred stock to be issued would also be AMPS and that any such AMPS
would be rated by nationally recognized statistical rating organizations
("NRSROs") as are all
7
<PAGE> 12
currently outstanding AMPS. These NRSROs, in rating the additional AMPS, will
impose their own asset coverage requirements on the additional AMPS.
If additional AMPS or other shares of preferred stock are issued by the
Fund, except as indicated below and as otherwise required by applicable law,
holders of shares of any newly issued AMPS or other preferred stock will have
equal voting rights with outstanding Common Stock and AMPS (one vote per share)
and will vote together with holders of outstanding Common Stock and AMPS as a
single class.
In connection with the election of the Fund's Directors, holders of shares
of any newly issued AMPS or other preferred stock along with holders of
outstanding AMPS, voting together as a separate class, will be entitled to elect
two of the Fund's Directors, and the remaining Directors will be elected by the
holders of Common Stock and AMPS, voting together as a single class. If at any
time dividends on shares of the Fund's preferred stock shall be unpaid in an
amount equal to two full years' dividends thereon, the holders of any newly
issued AMPS or other preferred stock and outstanding AMPS, voting together as a
separate class, will be entitled to elect a majority of the Fund's Directors
until all dividends in default have been paid or declared and set apart for
payment. Also, the affirmative vote of the holders of any newly issued AMPS or
other preferred stock and the outstanding AMPS, voting together as a separate
class, will be required to approve any plan of reorganization adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the Investment Company Act, including any vote to convert the
Fund to an open-end investment company or to change the Fund's fundamental
investment policies.
Stockholders will not be entitled to appraisal rights under Maryland law.
LEGAL PROCEEDINGS
On June 21, 1996, a putative class action titled Green v. Fund Asset
Management, L.P. was filed in the United States District Court for the District
of Massachusetts. Among the named defendants in the action are seven of the
leveraged closed-end municipal bond funds (including the Fund) for which FAM
serves as the investment adviser (two of the seven named funds have merged since
the commencement of the litigation). In addition to the named defendants,
plaintiffs also purport to assert claims against a defendant class consisting of
all other publicly traded, closed-end investment companies for which FAM serves
as investment adviser and which, among other things, have issued AMPS. The named
plaintiffs, who claim to be investors in the seven named funds, purport to bring
the action on behalf of a class consisting of all holders of the common stock of
the subject funds.
Plaintiffs allege that FAM and other affiliated defendants received
excessive compensation for managing the funds. Plaintiffs claim, among other
things, that the registration statements, annual reports and other documents
filed by the funds with the SEC were misleading because such documents allegedly
failed to disclose that proceeds arising from the issuance of AMPS would be
included in a fund's net assets for the purposes of calculating the investment
advisory fee payable to FAM. In addition, plaintiffs allege that a conflict of
interest existed because it would always be in the defendants' interest to keep
the funds fully leveraged to maximize the advisory fees and collateral
compensation notwithstanding adverse market conditions. Plaintiffs also allege
an additional conflict of interest arising from the receipt by such affiliates
of underwriting discounts, or other revenues in connection with the sale of the
AMPS by the funds. The complaint also attempted to assert claims under Sections
8(e), 34(b), 36(a) and 36(b) of the Investment Company Act and common law.
Plaintiffs seek unspecified monetary damages as well as injunctive relief.
8
<PAGE> 13
On August 27, 1996, defendants moved to transfer the action to the United
States District Court for the District of New Jersey. By order dated June 10,
1997, the District Court Judge granted defendants' motion. Plaintiffs objected
to the District Court Judge's order and moved for reconsideration. By order
dated July 16, 1997, the District Court Judge ordered the case transferred to
the District of New Jersey.
On September 17, 1997, defendants moved to dismiss plaintiffs' complaint on
the ground that plaintiffs had failed to state a claim upon which relief could
be granted. On February 23, 1998, the Court granted defendants' motion in
substantial part and dismissed plaintiffs' claims under Sections 8(e), 34(b) and
36(a) of the Investment Company Act with prejudice, but declined to dismiss
plaintiffs' claims under Section 36(b) and state law. Defendants filed an Answer
on April 30, 1998, denying the substantive allegations in the First Amended
Complaint. Defendants also have moved for judgment on the pleadings dismissing
the state law claims. That motion is pending. The parties have commenced fact
discovery with respect to the allegations remaining in the action.
The defendants believe that plaintiffs' allegations are without merit and
intend to defend the action vigorously. FAM has agreed to indemnify the named
defendant funds (including the Fund) for any liabilities or expenses that they
may incur in connection with this litigation.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy and accompanying Notice and Proxy Statement will be borne by the Fund. The
Fund will reimburse banks, brokers and others for their reasonable expenses in
forwarding proxy solicitation material to the beneficial owners of the shares of
the Fund.
In order to obtain the necessary quorum at the Meeting (i.e., a majority of
the shares of each class of the Fund's securities entitled to vote at the
Meeting, present in person or by proxy), supplementary solicitation may be made
by mail, telephone, telegraph or personal interview by officers of the Fund. The
Fund has retained D.F. King & Co., Inc. to assist in the solicitation of proxies
at a cost to the Fund of approximately $5,000 plus out-of-pocket expenses.
All shares represented by properly executed proxies, unless such proxies
have previously been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated, the shares will be
voted "FOR" the Director nominees, "FOR" the ratification of D&T as independent
auditors and "FOR" the amendment to the Articles Supplementary.
With respect to Item 1, "Election of Directors," holders of AMPS, voting
separately as a class, are entitled to elect the two Directors designated above
and holders of Common Stock and AMPS, voting together as a single class, are
entitled to elect the remaining Directors. Assuming a quorum is present, (i)
election of the two Directors to be elected by the holders of AMPS, voting
separately as a class, will require a plurality of the votes cast by the holders
of AMPS, represented at the Meeting and entitled to vote; and (ii) election of
the remaining Directors will require a plurality of the votes cast by the
holders of Common Stock and AMPS represented at the Meeting and entitled to
vote, voting together as a single class.
With respect to Item 2, "Ratification of the Selection of Independent
Auditors," assuming a quorum is present, approval will require the affirmative
vote of a majority of the votes cast by the holders of Common Stock and AMPS
represented at the Meeting and entitled to vote, voting together as a single
class.
9
<PAGE> 14
With respect to Item 3, "Proposed Amendment to Articles Supplementary,"
assuming a quorum is present, approval of amendment of the Articles
Supplementary will require the affirmative vote of (i) the holders representing
a majority of the outstanding Common Stock and AMPS, voting together as a single
class, and (ii) the holders representing a majority of the outstanding AMPS of
all series of the Fund, voting together as a single class.
Broker-dealer firms, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), holding Fund shares in "street name" for the benefit of
their customers and clients will request the instructions of such customers and
clients on how to vote their shares on each Item before the Meeting. The Fund
understands that, under the rules of the New York Stock Exchange, such
broker-dealer firms may, without instructions from their customers and clients,
grant authority to the proxies designated to vote on the election of Directors
(Item 1) and ratification of the selection of independent auditors (Item 2) if
no instructions have been received prior to the date specified in the
broker-dealer firm's request for voting instructions. With respect to Common
Stock, broker-dealer firms, including MLPF&S, will not be permitted to grant
voting authority without instructions with respect to amending the Articles
Supplementary (Item 3). Shares of AMPS held in "street name," however, may be
voted under certain conditions by broker-dealer firms with respect to Item 3 and
counted for purposes of establishing a quorum if no instructions are received
one business day before the Meeting, or, if adjourned, one business day before
the day to which the Meeting is adjourned. These conditions include, among
others, that (i) at least 30% of the AMPS outstanding have voted on Item 3, (ii)
less than 10% of the AMPS outstanding have voted against Item 3, and (iii)
holders of Common Stock have voted to approve Item 3. In such instances, the
broker-dealer firm will vote those shares of AMPS on Item 3 in the same
proportion as the votes cast by all holders of AMPS who voted on Item 3. The
Fund will include shares held of record by broker-dealers as to which such
authority has been granted in its tabulation of the total number of votes
present for purposes of determining whether the necessary quorum of stockholders
exists. Proxies that are returned but that are marked "abstain" or on which a
broker-dealer has declined to vote on any proposal ("broker non-votes") will be
counted as present for purposes of a quorum. MLPF&S has advised the Fund that it
intends to vote shares held in its name for which no instructions are received
except as limited by agreement or applicable law, on Items 1 and 2 (with respect
to Common Stock and AMPS) and 3 (with respect to AMPS only) in the same
proportion as the votes received from beneficial owners of those shares for
which instructions have been received, whether or not held in nominee name.
Abstentions and broker non-votes will not be counted as votes cast. Abstentions
and broker non-votes, therefore, will not have an effect on the vote on Item 1
or Item 2. Abstentions and broker non-votes will have the same effect as a vote
against Item 3.
ADDRESS OF INVESTMENT ADVISER
The principal office of FAM is located at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
ANNUAL REPORT DELIVERY
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT FOR THE
FISCAL YEAR ENDED JANUARY 31, 1999 TO ANY STOCKHOLDER UPON REQUEST. Such
requests should be directed to MuniEnhanced Fund, Inc., P.O. Box 9011,
Princeton, New Jersey 08543-9011, Attention: Alice A. Pellegrino, Secretary or
to 1-800-456-4587 ext. 123.
10
<PAGE> 15
STOCKHOLDER PROPOSALS
It is currently intended that the 2000 Annual Meeting of Stockholders of
the Fund will be held in May, 2000. If a stockholder intends to present a
proposal at the 2000 Annual Meeting of Stockholders of the Fund, and desires to
have the proposal included in the Fund's proxy statement and form of proxy for
that meeting, the stockholder must deliver the proposal to the offices of the
Fund by December 21, 1999.
By Order of the Board of Directors
ALICE A. PELLEGRINO
Secretary
Dated: April 20, 1999
11
<PAGE> 16
EXHIBIT A
PROPOSED AMENDMENT TO ARTICLES SUPPLEMENTARY OF
MUNIENHANCED FUND, INC., SERIES A, B, C
Section 5(c) of the Articles Supplementary is revised to read, as
follows (the underlined text indicates language added; brackets indicate
language deleted):
Right to Vote with Respect to Certain Other Matters. So long as any
shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of the Preferred
Stock Outstanding at the time, voting separately as one class: (i) authorize,
create or issue [, or increase the authorized or issued amount of,] any class or
series of stock ranking prior to the AMPS or [on a parity with] any other series
of Preferred Stock with respect to payment of dividends or the distribution of
assets on liquidation, [or increase the authorized amount of AMPS or any other
Preferred Stock,] or (ii) amend, alter or repeal the provisions of the Charter,
whether by merger, consolidation or otherwise, so as to adversely affect any of
the contract rights expressly set forth in the Charter of holders of shares of
AMPS or any other Preferred Stock. To the extent permitted under the 1940 Act,
in the event shares of more than one series of AMPS are outstanding, the
Corporation shall not approve any of the actions set forth in clause (i) or (ii)
which adversely affects the contract rights expressly set forth in the Charter
of a Holder of shares of a series of AMPS differently than those of a Holder of
shares of any other series of AMPS without the affirmative vote of the holders
of at least a majority of the shares of AMPS of each series adversely affected
and outstanding at such time (each such adversely affected series voting
separately as a class). The Corporation shall notify Moody's and S&P 10 Business
Days prior to any such vote described in clause (i) or (ii). Unless a higher
percentage is provided for under the Charter, the affirmative vote of the
holders of a majority of the outstanding shares of Preferred Stock including
AMPS, voting together as a single class, will be required to approve any plan of
reorganization (including bankruptcy proceedings) adversely affecting such
shares or any action requiring a vote of security holders under Section 13(a) of
the 1940 Act. The class vote of holders of shares of Preferred Stock, including
AMPS, described above will in each case be in addition to a separate vote of the
requisite percentage of shares of Common Stock and shares of Preferred Stock,
including AMPS, voting together as a single class necessary to authorize the
action in question.
A-1
<PAGE> 17
COMMON STOCK
MUNIENHANCED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn
and Philip M. Mandel as proxies, each with the power to appoint
his substitute, and hereby authorizes each of them to represent
and to vote, as designated on the reverse hereof, all the shares
of Common Stock of MuniEnhanced Fund, Inc. (the 'Fund') held of
record by the undersigned on March 31, 1999 at the annual
meeting of stockholders of the Fund to be held on May 26, 1999
or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
By signing and dating the reverse side of this card, you
authorize the proxies to vote each proposal as marked, or if not
marked, to vote "FOR" each proposal, and to use their discretion
to vote on any other matter as may properly come before the
meeting or any adjournment thereof. If you do not intend to
personally attend the meeting, please complete and return this
card at once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 18
PLEASE MARK BOXES M OR [X] IN BLUE OR BLACK INK.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS FOR all nominees listed below
(except as marked to the contrary below) [ ]
<CAPTION>
<S> <C>
WITHHOLD AUTHORITY
to vote for all nominees listed below [ ]
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
JAMES H. BODURTHA, TERRY K. GLENN, ROBERT R. MARTIN, JOSEPH L. MAY AND
ARTHUR ZEIKEL
2. Proposal to ratify the selection of Deloitte & Touche LLP as the
independent auditors of the Fund to serve for the current fiscal year.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to approve an amendment to the Articles Supplementary of the
Fund.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In the discretion of such proxies, upon such other business as may
properly come before the meeting or any adjournment thereof.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign.
When signing as attorney or
as executor, administrator,
trustee or guardian, please
give full title as such. If
a corporation, please sign
in full corporate name by
president or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.
Dated: , 1999
X ___________________________
Signature
X ___________________________
Signature, if held jointly
<PAGE> 19
AUCTION MARKET
PREFERRED STOCK
MUNIENHANCED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn
and Philip M. Mandel as proxies, each with the power to appoint
his substitute, and hereby authorizes each of them to represent
and to vote, as designated on the reverse hereof, all the shares
of Auction Market Preferred Stock of MuniEnhanced Fund, Inc.
(the 'Fund') held of record by the undersigned on March 31, 1999
at the annual meeting of stockholders of the Fund to be held on
May 26, 1999 or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
By signing and dating the reverse side of this card, you
authorize the proxies to vote each proposal as marked, or if not
marked, to vote "FOR" each proposal, and to use their discretion
to vote on any other matter as may properly come before the
meeting or any adjournment thereof. If you do not intend to
personally attend the meeting, please complete and return this
card at once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 20
PLEASE MARK BOXES M OR [X] IN BLUE OR BLACK INK.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS FOR all nominees listed below
(except as marked to the contrary below) [ ]
<CAPTION>
<S> <C>
WITHHOLD AUTHORITY
to vote for all nominees listed below [ ]
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
JAMES H. BODURTHA, TERRY K. GLENN, HERBERT I. LONDON, ROBERT R. MARTIN,
JOSEPH L. MAY, ANDRE F. PEROLD AND ARTHUR ZEIKEL
2. Proposal to ratify the selection of Deloitte & Touche LLP as the
independent auditors of the Fund to serve for the current fiscal year.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to approve an amendment to the Articles Supplementary of the
Fund.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In the discretion of such proxies, upon such other business as may
properly come before the meeting or any adjournment thereof.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign.
When signing as attorney or
as executor, administrator,
trustee or guardian, please
give full title as such. If
a corporation, please sign
in full corporate name by
president or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.
Dated: , 1999
X __________________________
Signature
X __________________________
Signature, if held jointly
