MuniEnhanced
Fund, Inc.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
July 31, 1999
<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.
As a part of its investment strategy, the Fund may invest in certain securities
whose potential income return is inversely related to changes in a floating
interest rate ("inverse floaters"). In general, income on inverse floaters will
decrease when short-term interest rates increase and increase when short-term
interest rates decrease. Investments in inverse floaters may be characterized as
derivative securities and may subject the Fund to the risks of reduced or
eliminated interest payments and losses on invested principal. In addition,
inverse floaters have the effect of providing investment leverage and, as a
result, the market value of such securities will generally be more volatile than
that of fixed rate, tax-exempt securities. To the extent the Fund invests in
inverse floaters, the market value of the Fund's portfolio and the net asset
value of the Fund's shares may also be more volatile than if the Fund did not
invest in these securities.
<PAGE>
MuniEnhanced Fund, Inc., July 31, 1999
TO OUR SHAREHOLDERS
For the six-month period ended July 31, 1999, the Common Stock of MuniEnhanced
Fund, Inc. earned $0.314 per share income dividends, which included earned and
unpaid dividends of $0.053. This represents a net annualized yield of 5.66%,
based on a month-end per share net asset value of $11.20. Over the same period,
total investment return on the Fund's Common Stock was -4.44%, based on a change
in per share net asset value from $12.06 to $11.20, and assuming reinvestment of
$0.318 per share income dividends.
For the six-month period ended July 31, 1999, the Fund's Preferred Stock had an
average dividend yield as follows: Series A, 3.41%; Series B, 2.93%; and Series
C, 3.07%.
The Municipal Market Environment
During the six months ended July 31, 1999, long-term bond yields rose
significantly. Steady US economic growth combined with improvement in foreign
economies, most notably Japan and Brazil, as well as an inflation scare in early
May put upward pressure on bond yields throughout the period. Continued strong
US employment growth, particularly the decline in the US unemployment rate to
4.2% in early June, was among the reasons the Federal Reserve Board cited for
raising short-term interest rates in late June. US Treasury bond yields reacted
by climbing above 6.15% by late June before improving some-what to 6.10% by July
31, 1999. During the last six months, yields on long-term US Treasury securities
increased approximately 100 basis points (1.00%).
Long-term tax-exempt bond yields also rose during the last six months. Until
early May, the municipal bond market had been able to withstand much of the
upward pressure on bond yields. However, investor concerns regarding ongoing US
economic strength and the fear of additional moves by the Federal Reserve Board
eventually pushed municipal bond yields higher throughout June and July. During
the period, yields on long-term tax-exempt revenue bonds rose almost 50 basis
points to 5.65%, as measured by the Bond Buyer Revenue Bond Index.
The ability of the tax-exempt bond market to withstand much of the recent upward
pressure on long-term fixed-income bond yields has been a reflection of the
continued strong technical position the municipal bond market has enjoyed in
recent quarters. During the last six months, more than $120 billion in long-term
munic-ipal bonds was underwritten, a decrease of more than 20% compared to the
same period a year ago. During the past three months, more than $60 billion in
municipal bonds was underwritten. This quarterly issuance represents a decline
of nearly 25% compared to the same three-month period in 1998.
Recently, the municipal supply position deteriorated even further. Total
issuance in July 1999 of $16.5 billion was more than 30% lower than July 1998
levels. Additionally, in June and July, investors received more than $40 billion
in coupon income and proceeds from bond maturities and early bond redemptions.
These proceeds have generated significant retail investor interest, easily
absorbing the recent diminished supply. This very favorable supply/demand
position has allowed the tax-exempt bond market to outperform its taxable
counterpart in recent months.
However, the recent relative outperformance of the municipal bond market has
somewhat reduced the very attractive tax-exempt bond yield ratios that were
available at the end of 1998. In December 1998, long-term, uninsured municipal
bond yields were higher than those of their taxable counterparts. Historically,
long-term tax-exempt bond yields have been approximately 82%-85% of long-term US
Treasury bond yields. Municipal bond yields rose at a lower rate in recent
months than US Treasury bond yields, causing the yield ratio to decline. At July
31, 1999, long-term municipal bond yields were approximately 92% of their
taxable counterparts. Current ratios, while lower than those available at the
end of 1998, still represent historically attractive levels. We expect the
municipal bond market to maintain its strong technical position for the
remainder of 1999. Consequently, there appears to be little reason for the
tax-exempt bond market to underperform the taxable US Treasury bond market. This
suggests that the present bond yield ratio is likely to be stable in the coming
months and a return to a ratio in excess of 100% of taxable Treasury securities
is improbable.
Looking ahead, it appears to us that long-term municipal bond yields will trade
in a relatively tight range near current levels. Strong US economic performance
is being balanced by nearly negligible inflation readings, as well as
improvements in productivity in both manufacturing and service industries.
Future moves by the Federal Reserve Board have largely been discounted by the
bond markets and are to a great extent reflected in present bond yields.
Any improvement in bond prices is likely to be contingent upon weakening in both
US employment growth and consumer spending. The 100 basis point rise in US
Treasury bond yields seen thus far this year is likely to negatively affect US
economic growth. The US housing market will be among the first sectors likely to
be affected, as some declines have already been evidenced because of higher
mortgage rates. We believe it is also unrealistic to expect double-digit returns
in US equity markets to continue indefinitely. Much of the US consumer's wealth
is tied to recent stock market appreciation. Any slowing in these incredible
growth rates is likely to reduce consumer spending. We believe that these
factors suggest that the worst of the recent increase in bond yields has passed
and stable, if not slightly improving, bond prices may be expected.
Portfolio Strategy
Throughout the six months ended July 31, 1999, we adopted a more defensive
position toward the bond market. We believed that the robust domestic economy
would continue to be offset by anemic global growth and very low inflation.
While this in fact did happen, fear of future inflation plagued the market and
drove interest rates higher. The Federal Reserve Board raised interest rates
twice in recent months, and we expect that interest rates may rise at least one
more time this year.
We increased cash reserves while exposure to longer duration securities was
reduced in order to seek to limit any volatility in the Fund's net asset value.
We intend to keep a defensive position until signs of slower domestic economic
growth emerge. We will continue to pursue market opportunities in an effort to
enhance our return to shareholders.
In Conclusion
We appreciate your ongoing interest in MuniEnhanced Fund, Inc., and we look
forward to assisting you with your financial needs in the months and years
ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President
/s/ Vincent R. Giordano
Vincent R. Giordano
Senior Vice President
/s/ Hugh T. Hurley III
Hugh T. Hurley III
Vice President and Portfolio Manager
September 13, 1999
2 & 3
<PAGE>
MuniEnhanced Fund, Inc., July 31, 1999
PROXY RESULTS
During the six-month period ended July 31, 1999, MuniEnhanced Fund, Inc.'s
Common Stock shareholders voted on the following proposals. Proposals 1 and 2
were approved at a shareholders' meeting on May 26, 1999; proposal 3 was
approved by shareholders at the adjourned meeting held on July 21, 1999. The
description of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For from Voting
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn 19,571,697 396,607
James H. Bodurtha 19,564,536 403,767
Robert R. Martin 19,538,305 429,999
Joseph L. May 19,566,729 401,575
Arthur Zeikel 19,551,889 416,414
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's independent
auditors for the current fiscal year. 19,599,514 118,521 250,268
- --------------------------------------------------------------------------------------------------------------------------
3. To approve an amendment to the Articles Supplementary of the Fund. 11,933,288 1,003,518 795,964
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the six-month period ended July 31, 1999, MuniEnhanced Fund, Inc.'s
Preferred Stock shareholders (Series A, B and C) voted on the following
proposals. Proposals 1 and 2 were approved at a shareholders' meeting on May 26,
1999; proposal 3 was approved by shareholders at the adjourned meeting held on
July 21, 1999. The description of each proposal and number of shares voted are
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For from Voting
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn, James H. Bodurtha,
Herbert I. London, Robert R. Martin, Joseph L. May, Andre F. Perold and
Arthur Zeikel as follows:
Series A 1,312 42
Series B 1,794 2
Series C 1,872 73
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's independent
auditors for the current fiscal year as follows:
Series A 1,355 0 0
Series B 1,794 2 0
Series C 1,883 58 4
- --------------------------------------------------------------------------------------------------------------------------
3. To approve an amendment to the Articles Supplementary of the Fund
(for Series A, B and C): 4,034 1,010 51
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Alabama--4.2% A1 VMIG1+ $ 4,600 Columbia, Alabama, IDB, PCR, Refunding (Alabama Power Company
Project), VRDN, Series A, 3.25% due 5/01/2022 (h) $ 4,600
AAA Aaa 2,500 Huntsville, Alabama, Health Care Authority, Health Care Facilities
Revenue Bonds, Series B, 6.625% due 6/01/2004 (e)(f)(i) 2,781
AAA NR* 13,715 Jefferson County, Alabama, Sewer Revenue Bonds, RIB, Series 124,
7.24% due 2/01/2036 (b)(g) 12,595
===================================================================================================================================
Alaska--5.9% AAA Aaa 12,965 Alaska Energy Authority, Power Revenue Refunding Bonds (Bradley
Lake), Fifth Series, 5% due 7/01/2021 (d) 12,036
Valdez, Alaska, Marine Terminal Revenue Refunding Bonds:
A1+ VMIG1+ 3,600 (Exxon Pipeline Company Project), VRDN, Series A, 3.25% due
12/01/2033 (h) 3,600
A1+ VMIG1+ 3,100 (Exxon Pipeline Company Project), VRDN, Series B, 3.25% due
12/01/2033 (h) 3,100
A1+ VMIG1+ 4,200 (Exxon Pipeline Company Project), VRDN, Series C, 3.25% due
12/01/2033 (h) 4,200
AA+ NR* 5,000 (Sohio Pipeline--British Petroleum Oil), 7.125% due 12/01/2025 5,415
===================================================================================================================================
Arizona--0.1% AA Aaa 400 Salt River Project, Arizona, Agricultural Improvement and Power
District, Electric System Revenue Refunding Bonds, Series A, 6.50%
due 1/01/2001 (f) 422
===================================================================================================================================
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniEnhanced Fund, Inc.'s portfolio holdings in the
Schedule of Investments, we have abbreviated the names of many of the securities
according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
4 & 5
<PAGE>
MuniEnhanced Fund, Inc., July 31, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
California--7.5% AAA Aaa $ 5,250 Anaheim, California, Public Financing Authority, Lease Revenue
Bonds (Public Improvements Project), Senior-Series A, 6% due
9/01/2024 (d) $ 5,718
AAA Aaa 2,500 California State Public Works Board, Lease Revenue Bonds (Various
University of California Projects), Series B, 6.625% due 12/01/2004
(f) 2,832
NR* A1 2,500 Contra Costa County, California, COP, 6.50% due 8/01/2004 (f) 2,798
AAA Aaa 4,045 Los Angeles, California, Wastewater System Revenue Refunding Bonds,
Series A, 4.50% due 6/01/2017 (b) 3,614
AAA Aaa 8,235 Los Angeles County, California, Transportation Commission, Sales
Tax Revenue Refunding Bonds, Series B, 6.50% due 7/01/2015 (b) 8,729
AAA Aaa 1,500 M-S-R Public Power Agency, California, Revenue Bonds (San Juan
Project), Series E, 6.50% due 7/01/2017 (e) 1,590
AAA Aaa 1,500 Northern California Transmission Revenue Bonds (California-Oregon
Transmission Project), Series A, 6.50% due 5/01/2016 (e) 1,604
AAA Aaa 4,210 San Francisco, California, City and County Airport Commission,
International Airport Revenue Bonds, AMT, Second Series, Issue 6,
6.60% due 5/01/2024 (a) 4,564
AAA Aaa 2,280 San Francisco, California, City and County Airport Commission,
International Airport Revenue Refunding Bonds, Second Series, Issue
20, 4.50% due 5/01/2017 (e) 2,038
AAA Aaa 2,000 Santa Clara County, California, Financing Authority, Lease Revenue
Bonds (VMC Facility Replacement Project), Series A, 6.75% due
11/15/2004 (a)(f) 2,276
===================================================================================================================================
Colorado--10.7% Colorado HFA, Revenue Bonds, S/F Program, AMT:
NR* Aa2 2,625 Senior Series A-1, 7.40% due 11/01/2027 2,923
NR* Aa2 12,000 Senior Series B-2, 6.80% due 4/01/2030 13,154
AA+ Aa2 2,000 Colorado HFA, Revenue Refunding Bonds, M/F Insured Mortgage, Series
C3, 5.65% due 10/01/2015 (c) 2,057
NR* Aa2 4,000 Colorado HFA, Revenue Refunding Bonds, S/F Program, Senior Series
A-3, 6.05% due 10/01/2016 4,299
NR* Aa2 16,415 Colorado Springs, Colorado, Utilities Revenue Refunding Bonds,
RITR, Series 19, 7.095% due 11/15/2026 (g) 15,654
NR* Aaa 12,025 Denver, Colorado, City and County Airport Revenue Refunding Bonds,
RITR, Series 13, 6.92% due 11/15/2023 (e)(g) 11,067
AAA Aaa 1,720 Douglas County, Colorado, School District No. 1, Douglas and Elbert
Counties, GO, 5.25% due 12/15/2016 (b) 1,704
AAA Aaa 600 Moffat County, Colorado, COP (Public Safety Center Project), 5.125%
due 6/01/2023 (a) 574
===================================================================================================================================
Connecticut--1.3% AA- A1 2,000 Connecticut State Health and Educational Facilities Authority,
Revenue Refunding Bonds (Nursing Home Program--AHF/Hartford),
7.125% due 11/01/2004 (f) 2,281
AAA Aaa 3,500 Connecticut State Special Tax Obligation Revenue Bonds, 6.25% due
10/01/2004 (b)(f) 3,826
===================================================================================================================================
Delaware--0.5% AAA Aaa 2,000 Delaware Transportation Authority, Transportation System Revenue
Bonds, 7% due 7/01/2004 (b)(f) 2,259
===================================================================================================================================
District of Columbia-- District of Columbia, GO, Refunding, Series B (d):
5.3% AAA Aaa 5,000 5.50% due 6/01/2013 5,074
AAA Aaa 5,000 5.50% due 6/01/2014 5,047
AAA Aaa 17,350 Washington, D.C., Convention Center Authority, Dedicated Tax
Revenue Bonds, Senior Lien, 4.75% due 10/01/2028 (a) 15,107
===================================================================================================================================
Georgia--3.7% Georgia Municipal Electric Authority, Power Revenue Refunding Bonds:
AAA Aaa 7,725 Series EE, 7% due 1/01/2025 (a) 9,361
AAA Aaa 1,000 Series W, 6.60% due 1/01/2018 (e) 1,145
AAA Aaa 3,500 Metropolitan Atlanta, Georgia, Rapid Transit Authority, Sales Tax
Revenue Bonds, Second Indenture, Series A, 6.90% due 7/01/2004
(e)(f) 3,943
AAA Aaa 3,000 Municipal Electric Authority of Georgia, Revenue Refunding Bonds
(Project 1), Sub-Series A, 6.50% due 1/01/2004 (a)(f) 3,302
===================================================================================================================================
Hawaii--1.3% AAA Aaa 6,070 Hawaii State Department of Budget and Finance, Special Purpose
Mortgage Revenue Bonds (Hawaiian Electric Company, Inc. Project),
AMT, Series C, 7.375% due 12/01/2020 (e) 6,420
===================================================================================================================================
Illinois--7.2% A1+ VMIG1+ 4,800 Chicago, Illinois, Midway Airport Revenue Bonds, Second Lien, VRDN,
AMT, Series B, 3.40% due 1/01/2029 (e)(h) 4,800
AAA Aaa 2,240 Cook County, Illinois, Community College District No. 508, Chicago,
COP, Refunding, 8.75% due 1/01/2007 (b) 2,772
Illinois Development Finance Authority Revenue Bonds (Bradley
University Project) (a):
AAA NR* 1,810 5.375% due 8/01/2019 1,773
AAA NR* 1,795 5.375% due 8/01/2024 1,736
Illinois Health Facilities Authority, Revenue Refunding Bonds:
AAA Aaa 3,000 (Servantcor Project), Series A, 6.375% due 8/15/2006 (d)(f)(i) 3,311
A1+ VMIG1+ 7,755 (University of Chicago Hospitals), VRDN, 3.30% due 8/01/2026
(e)(h) 7,755
AAA Aaa 10,115 Regional Transportation Authority, Illinois, Revenue Bonds, Series
A, 7.20% due 11/01/2020 (a) 12,297
===================================================================================================================================
Indiana--5.4% AAA NR* 2,500 Brownsburg, Indiana, School Building Corporation Revenue Bonds,
First Mortgage (Brownsburg Community School), 5.55% due 2/01/2024
(e) 2,474
Hammond, Indiana, Multi-School Building Corporation, Revenue
Refunding Bonds, First Mortgage (e):
AAA Aaa 3,150 5.75% due 1/15/2017 3,222
AAA Aaa 1,360 6.125% due 7/15/2019 1,432
AAA Aaa 2,500 Indiana Municipal Power Agency, Power Supply System, Revenue
Refunding Bonds, Series A, 5.30% due 1/01/2023 (e) 2,378
AAA Aaa 17,950 Marion County, Indiana, Convention and Recreational Facilities
Authority, Excise Tax Revenue Bonds, Lease Rental, Sub-Series A,
5% due 6/01/2027 (e) 16,439
===================================================================================================================================
Kansas--5.4% AAA Aaa 5,500 Burlington, Kansas, PCR, Refunding (Kansas Gas and Electric Company
Project), 7% due 6/01/2031 (e) 5,846
NR* Aaa 14,740 Kansas City, Kansas, Utility System Revenue Refunding Bonds, RITR,
Series 1, 9.17% due 9/01/2004 (b)(f)(g) 17,383
AAA Aaa 2,500 Wamego, Kansas, PCR, Refunding (Kansas Gas and Electric Company
Project), 7% due 6/01/2031 (e) 2,655
===================================================================================================================================
Maine--0.6% AA Aa2 2,660 Maine State Housing Authority, Mortgage Purchase Revenue Bonds,
AMT, Series C-2, 6.875% due 11/15/2023 2,842
===================================================================================================================================
</TABLE>
6 & 7
<PAGE>
MuniEnhanced Fund, Inc., July 31, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Massachusetts--5.6% AAA Aaa $ 1,915 Massachusetts State Port Authority Revenue Bonds, AMT, Series A,
7.50% due 7/01/2020 (b) $ 2,008
AAA Aaa 25,020 Massachusetts State Turnpike Authority, Western Turnpike Revenue
Refunding Bonds, Series A, 5.55% due 1/01/2017 (e) 25,120
===================================================================================================================================
Michigan--2.9% AAA Aaa 10,000 Michigan State Building Authority, Revenue Refunding Bonds, Series
I, 6.25% due 10/01/2020 (e) 10,570
AAA Aaa 3,000 Monroe County, Michigan, PCR (Detroit Edison Company Project), AMT,
Series 1, 7.65% due 9/01/2020 (b) 3,163
===================================================================================================================================
Missouri--0.7% AAA Aaa 3,000 Kansas City, Missouri, Airport Revenue Bonds, General Improvement,
Series B, 6.875% due 9/01/2004 (d)(f) 3,360
===================================================================================================================================
Montana--0.5% AAA Aaa 2,185 Forsyth, Montana, PCR, Refunding (Puget Sound Power and Light
Company), AMT, 7.25% due 8/01/2021 (a) 2,329
===================================================================================================================================
Nevada--7.4% AAA Aaa 11,410 Clark County, Nevada, GO, Refunding (Flood Control), 4.50% due
11/01/2018 (b) 9,954
AAA Aaa 18,695 Clark County, Nevada, School District, GO, Refunding, 4.75% due
6/15/2018 (d) 16,917
BBB+ Baa1 5,000 Henderson, Nevada, Health Care Facilities Revenue Bonds (Catholic
Healthcare West), 5.375% due 7/01/2026 4,404
Washoe County, Nevada, Water Facility Revenue Bonds (Sierra Pacific
Power Company Project), AMT:
AAA Aaa 3,000 6.65% due 6/01/2017 (e) 3,212
A1+ P1 1,200 VRDN, 3.40% due 12/01/2020 (h) 1,200
===================================================================================================================================
New Jersey--1.2% A1+ NR* 1,495 New Jersey EDA, Economic Development Revenue Refunding Bonds
(Foreign Trade Zone Project), VRDN, 3.20% due 12/01/2007 (h) 1,495
AAA Aaa 4,000 New Jersey State Housing and Mortgage Finance Agency Revenue Bonds,
Home Buyer, AMT, Series K, 6.375% due 10/01/2026 (e) 4,227
===================================================================================================================================
New Mexico--1.1% A1+ P1 3,000 Farmington, New Mexico, PCR, Refunding (Arizona Public Service
Company), VRDN, Series A, 3.30% due 5/01/2024 (h) 3,000
AAA Aaa 2,300 Santa Fe, New Mexico, Revenue Bonds, 6.30% due 6/01/2004 (a)(f) 2,489
===================================================================================================================================
New York--3.2% A- A3 2,000 New York City, New York, GO, Refunding, Series L, 5.75% due
8/01/2013 2,060
A1+ VMIG1+ 2,450 New York City, New York, Municipal Water Finance Authority, Water
and Sewer System Revenue Refunding Bonds, VRDN, Series G, 3.30% due
6/15/2024 (b)(h) 2,450
AAA NR* 2,750 New York City, New York, Transitional Finance Authority Revenue
Bonds, Future Tax Secured, Series B, 4.75% due 11/15/2018 (b) 2,506
AAA NR* 1,795 New York State Dormitory Authority Revenue Bonds (Northeast Parent
and Child), Series D, 5.50% due 7/01/2018 (a) 1,807
Port Authority of New York and New Jersey, Special Obligation
Revenue Refunding Bonds (Versatile Structure Obligation), VRDN (h):
NR* VMIG1+ 2,200 AMT, Series 6, 3.20% due 12/01/2017 2,200
A1+ VMIG1+ 4,200 Series 2, 3.10% due 5/01/2019 4,200
===================================================================================================================================
North Carolina--0.2% A1+ NR* 1,000 Raleigh Durham, North Carolina, Airport Authority, Special Facility
Revenue Refunding Bonds (American Airlines), VRDN, Series B, 3.35%
due 11/01/2015 (h) 1,000
===================================================================================================================================
Ohio--1.6% A1+ VMIG1+ 2,250 Cuyahoga County, Ohio, Hospital Revenue Bonds (The Cleveland
Clinic), VRDN, Series D, 3.30% due 1/01/2026 (h) 2,250
AAA Aaa 2,500 North Canton, Ohio, City School District, GO, 6.70% due 12/01/2004
(a)(f) 2,813
AAA Aaa 2,150 Ohio State Air Quality Development Authority, PCR, Refunding (Ohio
Edison Company), Series A, 7.45% due 3/01/2016 (b) 2,234
A1+ VMIG1+ 300 Ohio State Solid Waste Revenue Bonds (BP Exploration and Oil Inc.
Project), VRDN, AMT, 3.40% due 2/01/2033 (h) 300
===================================================================================================================================
Pennsylvania--2.2% A1+ NR* 3,600 Pennsylvania State Higher Educational Facilities Authority, Revenue
Refunding Bonds (Carnegie Mellon University), VRDN, Series C, 3.25%
due 11/01/2029 (h) 3,600
A1+ VMIG1+ 5,600 Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds (Children's Hospital
of Philadelphia Project), VRDN, Series A, 3.25% due 3/01/2027 (h) 5,600
A1+ NR* 1,400 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue
Refunding Bonds (Northeastern Power Company), VRDN, Series A, 3.25%
due 12/01/2022 (h) 1,400
===================================================================================================================================
South Dakota--1.7% AAA NR* 7,000 South Dakota State Health and Educational Facilities Authority,
Revenue Refunding Bonds, Series A, 7.625% due 7/01/2014 (e) 8,276
===================================================================================================================================
Tennessee--2.1% AAA Aaa 3,225 Metropolitan Nashville Airport Authority, Tennessee, Airport
Revenue Refunding Bonds, Series C, 6.60% due 7/01/2015 (b) 3,421
AAA Aaa 5,450 Mount Juliet, Tennessee, Public Building Authority Revenue Bonds
(Madison Suburban Utility District Loan), Series B, 7.80% due
2/01/2004 (e)(f) 6,650
===================================================================================================================================
Texas--3.5% Bexar, Texas, Metropolitan Water District, Waterworks System
Revenue Refunding Bonds (e):
AAA NR* 1,135 6.35% due 5/01/2005 (f) 1,259
AAA Aaa 1,615 6.35% due 5/01/2025 1,738
A1+ NR* 550 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital), VRDN, 3.30%
due 12/01/2025 (h) 550
A1+ Aaa 2,900 Harris County, Texas, Industrial Development Corporation, PCR,
VRDN, 3.25% due 3/01/2024 (h) 2,900
AAA Aaa 5,000 Houston, Texas, Water and Sewer System Revenue Bonds, Junior Lien,
Series C, 5.375% due 12/01/2027 (b) 4,868
AAA Aaa 4,700 Houston, Texas, Water and Sewer System, Revenue Refunding Bonds,
Junior Lien, 6.375% due 12/01/2017 (a) 4,981
A1+ VMIG1+ 500 Lubbock, Texas, Health Facilities Development Corporation, Revenue
Refunding Bonds (St. Joseph Health System), VRDN, 3.30% due
7/01/2013 (h) 500
===================================================================================================================================
Utah--3.4% AAA Aaa 2,500 Central Utah Water Conservancy District, GO, Refunding, Series D,
5% due 4/01/2027 (a) 2,290
AAA Aaa 5,055 Salt Lake City, Utah, Metropolitan Water District, Water Revenue
Bonds, 5.375% due 7/01/2029 (a) 4,876
Utah Water Finance Agency Revenue Bonds (Pooled Loan Financing
Program), Series A (a):
AAA Aaa 2,210 5.40% due 10/01/2024 2,156
AAA Aaa 7,135 5.50% due 10/01/2029 7,011
===================================================================================================================================
Virginia--1.4% AAA Aaa 6,000 Loudon County, Virginia, COP, 6.80% due 3/01/2014 (d) 6,564
===================================================================================================================================
</TABLE>
8 & 9
<PAGE>
MuniEnhanced Fund, Inc., July 31, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Washington--5.4% AAA Aaa $11,750 Snohomish County, Washington, Public Utility District Number 001,
Electric Revenue Refunding Bonds, 5.375% due 12/01/2024 (d) $ 11,378
AAA A2 14,895 Washington State Higher Education Facilities Authority, Revenue
Refunding Bonds (University of Puget Sound Project), 5.375% due
10/01/2030 (e) 14,339
===================================================================================================================================
Wyoming--0.9% AAA Aaa 2,500 Central Wyoming Regional Water System, Joint Powers Board, Revenue
Refunding Bonds, 5.25% due 6/01/2030 (d) 2,408
NR* P1 2,000 Unita County, Wyoming, PCR, Refunding (Chevron USA Inc. Project),
VRDN, 3.30% due 8/15/2020 (h) 2,000
===================================================================================================================================
Total Investments (Cost--$494,643)--104.1% 498,857
Variation Margin on Financial Futures Contracts**--0.1% 258
Liabilities in Excess of Other Assets--(4.2%) (20,134)
--------
Net Assets--100.0% $478,981
========
===================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FHA Insured.
(d) FSA Insured.
(e) MBIA Insured.
(f) Prerefunded.
(g) 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 July 31, 1999.
(h) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at July 31, 1999.
(i) All or a portion of security held as collateral in connection with
open financial futures contracts.
* Not Rated.
** Financial futures contracts sold as of July 31, 1999 were as
follows:
--------------------------------------------------------------------------
(in Thousands)
--------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
--------------------------------------------------------------------------
750 US Treasury Bonds September 1999 $86,226
--------------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$86,320) $86,226
=======
--------------------------------------------------------------------------
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
Quality Profile
The quality ratings of securities in the Fund as of July 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ........................................................... 79.0%
AA/Aa ............................................................. 10.1
A/A ............................................................... 1.0
BBB/Baa ........................................................... 0.9
Other+ ............................................................ 13.1
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of July 31, 1999
===================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$494,642,879) (Note 1a) ....................... $498,856,796
Cash .................................................................................. 81,495
Receivables:
Securities sold .................................................................... $ 8,344,496
Interest ........................................................................... 5,930,922
Variation margin (Note 1b) ......................................................... 257,813 14,533,231
------------
Prepaid expenses and other assets ..................................................... 21,809
------------
Total assets .......................................................................... 513,493,331
------------
===================================================================================================================================
Liabilities: Payables:
Securities purchased ............................................................... 33,879,944
Dividends to shareholders (Note 1e) ................................................ 349,688
Investment adviser (Note 2) ........................................................ 211,151 34,440,783
------------
Accrued expenses and other liabilities ................................................ 71,563
------------
Total liabilities ..................................................................... 34,512,346
------------
===================================================================================================================================
Net Assets: Net assets ............................................................................ $478,980,985
============
===================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.025 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 (29,369,874 shares issued and outstanding) .. $ 2,936,987
Paid-in capital in excess of par ...................................................... 323,386,133
Undistributed investment income--net .................................................. 3,801,604
Accumulated realized capital losses on investments--net ............................... (1,231,082)
Accumulated distributions in excess of realized capital gains on investments--net
(Note 1e) ............................................................................. (4,220,324)
Unrealized appreciation on investments--net ........................................... 4,307,667
------------
Total--Equivalent to $11.20 net asset value per share of Common Stock (market
price--$10.1875) ...................................................................... 328,980,985
------------
Total capital ......................................................................... $478,980,985
============
===================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
10 & 11
<PAGE>
MuniEnhanced Fund, Inc., July 31, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended July 31, 1999
===================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ........................ $ 13,337,433
Income (Note 1d):
===================================================================================================================================
Expenses: Investment advisory fees (Note 2) ............................................... $ 1,228,594
Commission fees (Note 4) ........................................................ 182,515
Transfer agent fees ............................................................. 63,174
Accounting services (Note 2) .................................................... 57,978
Professional fees ............................................................... 40,753
Directors' fees and expenses .................................................... 22,003
Listing fees .................................................................... 18,141
Custodian fees .................................................................. 15,684
Printing and shareholder reports ................................................ 12,845
Pricing fees .................................................................... 6,588
Other ........................................................................... 11,407
------------
Total expenses .................................................................. 1,659,682
------------
Investment income--net .......................................................... 11,677,751
------------
===================================================================================================================================
Realized & Realized loss on investments--net ............................................... (1,219,616)
Unrealized Loss on Change in unrealized appreciation on investments--net ........................... (24,000,311)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Decrease in Net Assets Resulting from Operations ............................ $(13,542,176)
============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
July 31, January 31,
Increase (Decrease) in Net Assets: 1999 1999
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .......................................................... $ 11,677,751 $ 24,669,565
Realized gain (loss) on investments--net ........................................ (1,219,616) 9,268,459
Change in unrealized appreciation on investments--net ........................... (24,000,311) (4,175,125)
------------ ------------
Net increase (decrease) in net assets resulting from operations ................. (13,542,176) 29,762,899
------------ ------------
===================================================================================================================================
Dividends & Investment income--net:
Distributions to Common Stock ................................................................. (9,337,689) (19,359,816)
Shareholders Preferred Stock .............................................................. (2,344,220) (5,149,880)
(Note 1e): Realized gain on investments to Common Stock shareholders--net .................. -- (10,288,926)
In excess of realized gain on investments to Common Stock shareholders--net ..... -- (4,220,324)
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders .................................................................... (11,681,909) (39,018,946)
------------ ------------
===================================================================================================================================
Common Stock Value of shares issued to Common Stock shareholders in reinvestment of dividends
Transactions and distributions ............................................................... 602,066 3,330,627
(Note 4): ------------ ------------
===================================================================================================================================
Net Assets: Total decrease in net assets .................................................... (24,622,019) (5,925,420)
Beginning of period ............................................................. 503,603,004 509,528,424
------------ ------------
End of period* .................................................................. $478,980,985 $503,603,004
============ ============
===================================================================================================================================
* Undistributed investment income--net ............................................ $ 3,801,604 $ 3,805,762
============ ============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
12 & 13
<PAGE>
MuniEnhanced Fund, Inc., July 31, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
The following per share data and ratios have been Six
derived from information provided in the financial Months
statements. Ended For the Year Ended January 31,+
July 31, ----------------------------------------
Increase (Decrease) in Net Asset Value: 1999+ 1999 1998 1997 1996
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period.................. $ 12.06 $ 12.38 $ 11.75 $ 12.40 $ 11.17
Operating -------- -------- -------- -------- --------
Performance: Investment income--net................................ .40 .85 .88 .90 .92
Realized and unrealized gain (loss) on investments--
net................................................... (.86) .18 .64 (.54) 1.23
-------- -------- -------- -------- --------
Total from investment operations...................... (.46) 1.03 1.52 .36 2.15
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net............................. (.32) (.67) (.71) (.72) (.72)
Realized gain on investments--net.................. -- (.35) -- -- --
In excess of realized gain on investments--net..... -- (.15) -- (.11) --
-------- -------- -------- -------- --------
Total dividends and distributions to Common Stock
shareholders.......................................... (.32) (1.17) (.71) (.83) (.72)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Investment income--net............................. (.08) (.18) (.18) (.18) (.20)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity.............. (.08) (.18) (.18) (.18) (.20)
-------- -------- -------- -------- --------
Net asset value, end of period........................ $ 11.20 $ 12.06 $ 12.38 $ 11.75 $ 12.40
======== ======== ======== ======== ========
Market price per share, end of period................. $10.1875 $ 12.00 $12.4375 $ 11.00 $ 11.375
======== ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on market price per share....................... (12.65%)+++ 6.36% 20.26% 4.28% 18.67%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share.................... (4.44%)+++ 7.38% 12.06% 2.18% 18.71%
======== ======== ======== ======== ========
===================================================================================================================================
Ratios Based on Total expenses***..................................... .97%* .94% .96% .95% .97%
Average Net Assets ======== ======== ======== ======== ========
Of Common Stock: Total investment income--net***....................... 6.81%* 6.93% 7.39% 7.55% 7.77%
======== ======== ======== ======== ========
Amount of dividends to Preferred Stock shareholders... 1.37%* 1.45% 1.55% 1.50% 1.68%
======== ======== ======== ======== ========
Investment income--net, to Common Stock shareholders.. 5.44%* 5.48% 5.84% 6.05% 6.09%
======== ======== ======== ======== ========
===================================================================================================================================
Ratios Based on Total expenses........................................ .67%* .66% .67% .67% .68%
Total Average ======== ======== ======== ======== ========
Net Assets:++*** Total investment income--net.......................... 4.74%* 4.88% 5.16% 5.27% 5.42%
======== ======== ======== ======== ========
===================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders............. 3.13%* 3.43% 3.57% 3.47% 3.85%
Average Net Assets ======== ======== ======== ======== ========
Of Preferred Stock:
===================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands)........................................ $328,981 $353,603 $359,528 $340,751 $359,763
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period (in
thousands)............................................ $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover.................................... 78.15% 144.46% 128.79% 138.12% 114.30%
======== ======== ======== ======== ========
===================================================================================================================================
Leverage: Asset coverage per $1,000............................. $ 3,193 $ 3,357 $ 3,397 $ 3,272 $ 3,398
======== ======== ======== ======== ========
===================================================================================================================================
Dividends Per Series A--Investment income--net...................... $ 425 $ 862 $ 891 $ 860 $ 961
Share on ======== ======== ======== ======== ========
Preferred Stock Series B--Investment income--net...................... $ 365 $ 868 $ 900 $ 865 $ 959
Outstanding: ======== ======== ======== ======== ========
Series C--Investment income--net...................... $ 383 $ 845 $ 889 $ 876 $ 971
======== ======== ======== ======== ========
===================================================================================================================================
</TABLE>
* Annualized.
** 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 charges.
*** Do not reflect the effect of dividends to Preferred Stock
shareholders.
+ Based on average shares outstanding.
++ Includes Common and Preferred Stock average net assets.
+++ Aggregate total investment return.
See Notes to Financial Statements.
14 & 15
<PAGE>
MuniEnhanced Fund, Inc., July 31, 1999
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's financial statements are prepared in accordance with generally accepted
accounting principles which may require the use of management accruals and
estimates. These unaudited financial statements reflect all adjustments, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period presented. All such adjustments are of a normal recurring
nature. 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 written or purchased are valued at the last sale price in the case of
exchange-traded options. In the case of options traded in the over-the-counter
market, valuation is the last asked price (options written) or the last bid
price (options purchased). 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, including valuations furnished
by a pricing service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Fund under the general supervision of the Board
of Directors.
(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.
o Financial futures contracts--The Fund may purchase or sell financial 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.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes 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 reflecting 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 expires (or the Fund enters into a closing
transaction), the Fund 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.
(e) Dividends and distributions--Dividends from net investment income are
declared daily 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 post-October losses.
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., Inc. ("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 .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, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended July 31, 1999 were $354,391,854 and $371,618,329, respectively.
Net realized gains (losses) for the six months ended July 31, 1999 and net
unrealized gains as of July 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ...................... $(4,570,241) $4,213,917
Financial futures contracts ................ 3,350,625 93,750
----------- ----------
Total ...................................... $(1,219,616) $4,307,667
=========== ==========
- --------------------------------------------------------------------------------
As of July 31, 1999, net unrealized appreciation for Federal income tax purposes
aggregated $4,213,917, of which $14,778,633 related to appreciated securities
and $10,564,716 related to depreciated securities. The aggregate cost of
investments at July 31, 1999 for Federal income tax purposes was $494,642,879.
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.
Common Stock
Shares issued and outstanding during the six months ended July 31, 1999 and the
year ended January 31, 1999 increased by 50,578 and 280,120, respectively, as a
result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.025 per share and a liquidation preference of
$25,000 per share, 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 July 31, 1999 were as follows: Series A, 3.27%; Series
B, 3.11%; and Series C, 3.15%.
Shares issued and outstanding during the six months ended July 31, 1999 and the
year ended January 31, 1999 remained constant.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .50%, calculated on the proceeds of each
auction. For the six months ended July 31, 1999, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, an affiliate of FAM, received $68,195 as commissions.
5. Subsequent Event:
On August 6, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.052500 per share,
payable on August 30, 1999 to shareholders of record as of August 23, 1999.
16 & 17
<PAGE>
MuniEnhanced Fund, Inc., July 31, 1999
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute substantially all of its net
investment income to its shareholders on a monthly basis. However, in order to
provide shareholders with a more consistent yield to the current trading price
of shares of Common Stock of the Fund, the Fund may at times pay out less than
the entire amount of net investment income earned in any particular month and
may at times in any particular month pay out such accumulated but undistributed
income in addition to net investment income earned in that month. As a result,
the dividends paid by the Fund for any particular month may be more or less than
the amount of net investment income earned by the Fund during such month. The
Fund's current accumulated but undistributed net investment income, if any, is
disclosed in the Statement of Assets, Liabilities and Capital, which comprises
part of the financial information included in this report.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Fund's management or other Fund
service providers do not properly address this problem before January 1, 2000.
The Fund's management expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Fund's management that they
also expect to resolve the Year 2000 Problem, and the Fund's management will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on securities in which the
Fund invests, and this could hurt the Fund's investment returns.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Robert R. Martin, Director
Herbert I. London, Director
Joseph L. May, Director
Andre F. Perold, Director
Arthur Zeikel, Director
Vincent R. Giordano, Senior Vice President
Hugh T. Hurley III, Vice President
Kenneth A. Jacob, Vice President
Donald C. Burke, Vice President and Treasurer
Alice A. Pellegrino, Secretary
- --------------------------------------------------------------------------------
Philip M. Mandel, Secretary of MuniEnhanced Fund, Inc. has recently retired. His
colleagues at Fund Asset Management, L.P. join the Fund's Board of Directors in
wishing Mr. Mandel well in his retirement.
- --------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company
225 Franklin Square
Boston, MA 02110
NYSE Symbol
MEN
Transfer Agents
Common Stock:
State Street Bank and Trust Company
225 Franklin Square
Boston, MA 02110
Preferred Stock:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
18 & 19
<PAGE>
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.
Statements and other information herein are as dated and are subject to change.
MuniEnhanced
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10874--7/99
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