UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5739
Name of Fund: MuniEnhanced Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, MuniEnhanced
Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing
address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 01/31/03
Date of reporting period: 02/01/02 - 1/31/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers
Annual Report
January 31, 2003
MuniEnhanced
Fund, Inc.
www.mlim.ml.com
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 pickup 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.
Swap
Agreements
The Fund may also invest in swap agreements, which are over-the-counter
contracts in which one party agrees to make periodic payments based on the
change in market value of a specified bond, basket of bonds, or index in return
for periodic payments based on a fixed or variable interest rate or the change
in market value of a different bond, basket of bonds or index. Swap agreements
may be used to obtain exposure to a bond or market without owning or taking
physical custody of securities.
MuniEnhanced Fund, Inc., January 31, 2003
TO OUR SHAREHOLDERS
For the year ended January 31, 2003, the Common Stock of MuniEnhanced Fund, Inc.
had a net annualized yield of 5.99%, based on a year-end per share net asset
value of $11.65 and $.698 per share income dividends. Over the same period, the
total investment return on the Fund's Common Stock was +8.62%, based on a change
in per share net asset value from $11.43 to $11.65, and assuming reinvestment of
$.696 per share ordinary income dividends. For the six months ended January 31,
2003, the Fund's Common Stock had a total investment return of +3.61%, based on
change in per share net asset value from $11.61 to $11.65, and assuming
reinvestment of $.348 per share income dividends.
For the six-month period ended January 31, 2003, the Fund's Preferred Stock had
an average dividend yield as follows: Series A, 1.34%; Series B, 2.03%; and
Series C, 1.26%.
The Municipal Market Environment
During the six-month period ended January 31, 2003, long-term fixed income
interest rates continued to move lower. As they had in 2002, declining U.S.
equity markets and escalating worldwide political tensions easily overshadowed
the incipient U.S. economic recovery, allowing bond yields to fall to recent
historical lows. Economic releases, such as national employment and purchasing
manager surveys, were generally weak early in the period. Additionally, at its
August 2002 meeting, the Federal Reserve Board indicated that concerns about
future economic weakness outweighed those of rising inflation. This signaled
that the Federal Reserve Board was more likely to continue to lower short-term
interest rates to boost economic activity rather than to raise them to reduce
inflationary pressures. These factors combined to generate a very favorable
fixed income environment during August and September 2002. The dramatic decline
in equity values in late August and September triggered a significant fixed
income rally as investors sought the safe-haven status of U.S. Treasury issues.
By the end of September, U.S. Treasury bond yields had fallen to 4.65%.
Bolstered by an unexpected decline in the national unemployment rate to 5.6% in
early October, U.S. equity markets staged a strong rally throughout much of the
month. The Standard & Poor's 500 (S&P 500) Index rose over 8% for October,
triggered by stronger-than-expected earnings reports from a large number of
companies, such as General Electric Company, International Business Machines
Corporation and Microsoft Corporation. As they have throughout most of the
period, bond prices traded in an inverse relationship to equity prices.
Consequently, as stocks rallied, bond yields rose in October, despite generally
weak economic releases. During October, the U.S. housing sector remained quite
robust, but retail sales and industrial production slowed. Fixed income bond
yields remained under pressure in November as U.S. equity markets continued to
strengthen. During November, the S&P 500 Index rose an additional 5.5%. Equity
prices were supported by further signs of U.S. economic recovery, especially
improving labor market activity. By the end of November, third quarter gross
domestic product growth was 4%. Financial conditions were also strengthened by a
larger-than-expected reduction in short-term interest rates by the Federal
Reserve Board in early November. The Federal Funds target rate was lowered 50
basis points (.50%) to 1.25%, its lowest level since the 1960s. Recent action by
the Federal Reserve Board was largely viewed as being taken to bolster the
sputtering U.S. economic recovery. Rebounding U.S. equity markets and the
prospects for a more substantial U.S. economic recovery pushed long-term U.S.
Treasury yield levels to 5.10% by late November.
In December 2002 and January 2003, softer equity prices and renewed investor
concerns about potential military action against Iraq and nuclear tensions in
North Korea again pushed bond prices higher. The S&P 500 Index declined more
than 5% in December on disappointing earnings reports and anticipated weak
holiday retail sales. During January, the S&P 500 Index declined an additional
2.5% as businesses tried to scale back analysts' expectations of future
earnings. In early 2003, investors again sought the safety of U.S. Treasury
securities. U.S. Treasury bond yields declined more than 25 basis points in
December and January to end the period at approximately 4.85%. Over the last six
months, U.S. Treasury bond yields fell more than 45 basis points.
For the six-month period ended January 31, 2003, tax-exempt bond prices also
generally rose. In recent months, municipal bond yields have declined in
response to the positive fixed income environment engendered by falling equity
valuations. Price advances in tax-exempt issues have not been able to keep pace
with U.S. Treasury bond price improvement as municipal bonds cannot offer
foreign investors the safe-haven status U.S. Treasury obligations enjoy in
periods of economic and political instability. Additionally, tax-exempt bond
issuance increased dramatically in the last half of 2002, removing some of the
positive technical support the municipal bond market enjoyed earlier in 2002. At
the end of January 2003, long-term municipal bond yields, as measured by the
Bond Buyer Revenue Bond Index, stood at 5.34%, a decline of approximately 15
basis points during the last six months.
Investor demand for tax-exempt products remained positive throughout the period.
In addition to the approximately $75 billion investors received from June to
August 2002 from bond maturities, coupon income and proceeds from early
redemptions, investors also received approximately $30 billion from these
sources in January 2003. The Investment Company Institute reported that in 2002
municipal bond funds net cash flows were very positive at more than $16 billion,
an increase of over 40% compared to 2001. However, these positive demand factors
have not been able to offset the increase in tax-exempt new-issue supply that
has resulted in the underperformance seen in recent months. This price
underperformance served to make municipal bonds a particularly attractive
purchase relative to their taxable counterparts. Throughout most of the yield
curve, municipal bonds have been available for purchase at yields near or
exceeding those of comparable U.S. Treasury issues. Compared to their recent
historical averages of 82% - 88% of U.S. Treasury yields, municipal bond yield
ratios in their current 95% - 105% range are likely to prove attractive to
long-term investors.
Continued uncertainty regarding the pace of the current U.S. economic recovery
as well as the resolution of the U.N./Iraq confrontation are likely to keep
interest rates near their present levels for the immediate future. Equity market
declines over the past three years have helped push interest rates lower than
economic fundamentals alone would support. When U.S. business conditions improve
and equity markets stabilize, any associated interest rate increases should not
be extreme. Inflationary pressures are negligible and any move by the Federal
Reserve Board to raise short-term interest rates is unlikely before late 2003.
As equity valuations are likely to only gradually improve, the U.S. economic
recovery is also likely to be a moderate process. This suggests that the pace of
any interest rate increases will also be gradual. As the municipal bond market's
strong technical position can be expected to remain supportive in the coming
months, future tax-exempt interest rate increases should be more restrained than
their taxable counterparts.
Portfolio Strategy
For the six-month period ended January 31, 2003, we maintained the Fund's fully
invested position and strong credit profile in an effort to seek to enhance
shareholder income. Our strategy focused on remaining in a modestly defensive
structure by investing primarily in premium coupon issues and intermediate
maturities. We concentrated new purchases on premium coupon bonds in the 20-year
- 25-year maturity range. These maturities offered approximately 95% of maximum
yield available in the entire municipal yield curve with less interest rate
volatility than that associated with longer maturity bonds. Because of the
steepness of the municipal bond yield curve, purchases of shorter maturity bonds
would result in a significant yield sacrifice. We adopted this strategy in
recognition of relatively low nominal municipal yields against a backdrop of a
cautious economic environment. At the end of the six-month period, 98.4% of the
Fund's assets were invested in securities rated A or better and more than 85% of
the Fund's assets were invested in securities insured by AAA-rated municipal
bond insurers.
2 & 3
MuniEnhanced Fund, Inc., January 31, 2003
During the period, the Fund's borrowing costs were very low, at approximately
1.5%. These levels, in combination with a steep tax-exempt yield curve, provided
a generous income benefit to the Common Stock shareholders from the leveraging
of the Preferred Stock. Further material declines in short-term interest rates
would require significant easing of monetary policy by the Federal Reserve
Board. While such action is not expected, neither is a material increase in
short-term interest rates. We believe that the Fund's short-term borrowing costs
should remain at current levels for the foreseeable future. However, should the
spread between short-term and long-term interest rates narrow, the benefits of
leveraging will decline and, as a result, reduce the yield on the Fund's Common
Stock. (For a more complete explanation of the benefits and risks of leveraging,
see page 1 of this report to shareholders.)
Despite significant monetary and fiscal stimuli, the U.S. economy is facing
considerable uncertainty. International economic weakness has also contributed,
with the potential conflict in Iraq weighing on the domestic economy and future
fiscal considerations. Consequently, we expect to retain the Fund's current
stance for the immediate future. Looking ahead, we intend to remain essentially
fully invested and maintain the Fund's current high credit quality profile. We
will continue to seek opportunities in the new-issue market to purchase premium
coupon issues. However, should the economic outlook brighten, we will adjust the
portfolio to become more defensive.
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 and Director
/s/ Kenneth A. Jacob
Kenneth A. Jacob
Senior Vice President
/s/ John M. Loffredo
John M. Loffredo
Senior Vice President
/s/ Michael Kalinoski
Michael Kalinoski
Vice President and Portfolio Manager
March 5, 2003
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face
STATE Ratings+ Ratings+ Amount Issue Value
==================================================================================================================================
Alabama--1.7% AAA NR* $ 3,000 Birmingham, Alabama, Capital Improvement Warrants,
GO, Series A, 5.55% due 8/01/2021 (f) $ 3,220
AAA Aaa 2,500 Huntsville, Alabama, Health Care Authority, Health
Care Facilities Revenue Bonds, Series B, 6.625%
due 6/01/2004 (f)(g) 2,729
==================================================================================================================================
Alaska--2.6% AAA Aaa 3,285 Alaska Energy Authority, Power Revenue Refunding
Bonds (Bradley Lake), Fourth Series, 6% due 7/01/2016 (d) 3,820
AA+ NR* 5,000 Valdez, Alaska, Marine Terminal Revenue Refunding
Bonds (Sohio Pipeline--British Petroleum Oil), 7.125%
due 12/01/2025 5,222
==================================================================================================================================
California--6.1% AAA Aaa 5,000 Anaheim, California, Public Financing Authority, Lease
Revenue Bonds (Public Improvements Project),
Senior-Series A, 6% due 9/01/2024 (d) 5,757
AAA NR* 3,755 California Rural Home Mortgage Finance Authority,
S/F Mortgage Revenue Bonds, AMT, Series D, 7.10%
due 6/01/2031 (c) 4,244
BBB+ A3 1,800 California State, Department of Water Resources,
Power Supply Revenue Bonds, Series A, 5.375%
due 5/01/2022 1,833
A A1 3,000 Golden State Tobacco Securitization Corporation,
California, Tobacco Settlement Revenue Bonds,
Series 2003-A-1, 6.75% due 6/01/2039 2,921
AAA Aaa 1,595 San Diego, California, Unified School District,
Election 1998, GO, Series D, 5.25% due 7/01/2024 (b) 1,657
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) 4,533
==================================================================================================================================
Colorado--18.0% AAA Aaa 400 Adams County, Colorado, School District Number 12,
GO (Adams 12 Five Star Schools), Series A, 5.50%
due 12/15/2022 (d) 429
Boulder County, Colorado, Hospital Development
Revenue Bonds (Longmont United Hospital Project) (l):
AA NR* 2,705 5.60% due 12/01/2015 2,880
AA NR* 2,135 5.75% due 12/01/2020 2,257
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
DRIVERS Derivative Inverse Tax-Exempt Receipts
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
4 & 5
MuniEnhanced Fund, Inc., January 31, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings+ Ratings+ Amount Issue Value
==================================================================================================================================
Colorado AAA NR* $ 2,130 Boulder County, Colorado, Sales and Use Tax, Open
(concluded) Space Revenue Bonds, Series A, 6% due 12/15/2019 (b) $ 2,419
AAA Aaa 500 Broomfield, Colorado, COP, Refunding, 5.75%
due 12/01/2024 (a) 539
NR* Aa2 865 Colorado HFA, Revenue Bonds (S/F Program),
AMT, Senior Series A-1, 7.40% due 11/01/2027 878
Colorado HFA, Revenue Refunding Bonds (S/F Program):
NR* Aa2 3,665 AMT, Senior Series A-2, 7.50% due 4/01/2031 3,934
AA Aa2 3,155 AMT, Series D-2, 6.90% due 4/01/2029 3,492
NR* Aa2 3,300 Senior Series A-3, 6.05% due 10/01/2016 3,486
Colorado Health Facilities Authority Revenue Bonds,
Series A:
AA Aa2 1,800 (Catholic Health Initiatives), 5.50% due 3/01/2032 1,823
AA NR* 1,200 (Covenant Retirement Communities), 5.50%
due 12/01/2027 1,215
AA NR* 675 (Covenant Retirement Communities), 5.50% due
12/01/2033 (l) 681
NR* Aa2 7,025 Colorado Housing and Finance Authority Revenue Bonds,
DRIVERS, AMT, Series 251, 12.10% due 4/01/2030 (h) 8,001
AAA Aaa 4,280 Colorado Water Resource Power Development Authority,
Clean Water Revenue Bonds, Series A, 6.25% due 9/01/2016 4,999
AAA Aaa 11,000 Denver, Colorado, City and County Airport Revenue Bonds,
AMT, Series D, 7.75% due 11/15/2013 (f) 13,829
AAA Aaa 2,000 Denver, Colorado, City and County Airport Revenue
Refunding Bonds, AMT, Series A, 6% due 11/15/2018 (a) 2,192
AAA Aaa 5,450 El Paso County, Colorado, School District Number 49,
Falcon, GO, Series A, 6% due 12/01/2018 (d) 6,391
AAA Aaa 1,900 Northwest Parkway, Colorado, Public Highway Authority
Revenue Bonds, Series A, 5.50% due 6/15/2021 (a) 2,051
==================================================================================================================================
Connecticut--1.1% AAA Aaa 3,500 Connecticut State Special Tax Obligation Revenue Bonds,
6.25% due 10/01/2004 (b)(g) 3,823
==================================================================================================================================
Delaware--0.7% AAA Aaa 2,000 Delaware Transportation Authority, Transportation System
Revenue Bonds, 7% due 7/01/2004 (b)(g) 2,202
==================================================================================================================================
District of AAA Aaa 5,150 District of Columbia, GO, Refunding, DRIVERS, Series 152,
Columbia--1.8% 9.527% due 6/01/2013 (d)(h) 6,180
==================================================================================================================================
Georgia--5.2% AAA Aaa 1,500 Atlanta, Georgia, Airport Revenue Refunding Bonds,
Series A, 5.60% due 1/01/2030 (b) 1,582
Georgia Municipal Electric Authority, Power Revenue
Refunding Bonds:
AAA Aaa 7,725 Series EE, 7% due 1/01/2025 (a) 9,976
AAA Aaa 340 Series V, 6.60% due 1/01/2018 (f)(i) 420
AAA Aaa 940 Series W, 6.60% due 1/01/2018 (f) 1,163
AAA Aaa 60 Series W, 6.60% due 1/01/2018 (f)(i) 75
AAA NR* 700 Series Z, 5.50% due 1/01/2020 (f) 785
AAA Aaa 3,500 Metropolitan Atlanta, Georgia, Rapid Transit Authority,
Sales Tax Revenue Bonds, Second Indenture, Series A,
6.90% due 7/01/2004 (f)(g) 3,848
==================================================================================================================================
Hawaii--0.3% AAA Aaa 1,105 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 (f) 1,134
==================================================================================================================================
Illinois--14.2% NR* Aaa 5,125 Chicago, Illinois, Board of Education, GO, RIB, Series 467,
10.06% due 12/01/2027 (a)(h) 5,906
AAA Aaa 3,750 Chicago, Illinois, Gas Supply Revenue Refunding Bonds
(People's Gas, Light & Coke), Series A, 6.10%
due 6/01/2025 (a) 4,138
AAA NR* 4,550 Chicago, Illinois, O'Hare International Airport Revenue
Refunding Bonds, DRIVERS, AMT, Series 250, 10.01%
due 1/01/2021 (f)(h) 5,123
AAA Aaa 3,000 Cook County, Illinois, Capital Improvement, GO, Series C,
5.50% due 11/15/2026 (a) 3,174
AAA Aaa 2,240 Cook County, Illinois, Community College District No. 508,
Chicago, COP, Refunding, 8.75% due 1/01/2007 (b) 2,759
AAA Aaa 3,000 Illinois Health Facilities Authority, Revenue Refunding
Bonds (Servantcor Project), Series A, 6.375%
due 8/15/2006 (d)(g) 3,457
NR* Aaa 4,505 McHenry County, Illinois, Community Consolidated School
District Number 047, Crystal Lake, GO, Refunding, 5.75%
due 2/01/2019 (d) 4,932
AAA Aaa 3,000 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds (McCormick
Place Expansion), Series B, 5.75% due 6/15/2023 (f) 3,297
Ogle Lee and De Kalb Counties, Illinois, Township High
School District Number 212, GO (f):
NR* Aaa 1,000 6% due 12/01/2016 1,140
NR* Aaa 1,340 6% due 12/01/2019 1,513
AAA Aaa 10,115 Regional Transportation Authority, Illinois, Revenue Bonds,
Series A, 7.20% due 11/01/2020 (a) 13,211
==================================================================================================================================
Indiana--2.5% AAA Aaa 2,500 Brownsburg, Indiana, School Building Corporation, First
Mortgage Revenue Bonds (Brownsburg Community School),
5.55% due 2/01/2024 (f) 2,632
AAA Aaa 4,080 Hammond, Indiana, Multi-School Building Corporation,
First Mortgage Revenue Refunding Bonds, 6.125%
due 7/15/2019 (f) 4,647
AAA Aaa 1,000 New Albany, Floyd County, Indiana, First Mortgage
Revenue Bonds (School Building Corporation), 5.75%
due 7/15/2020 (b) 1,106
==================================================================================================================================
Kansas--9.3% NR* Aaa 14,740 Kansas City, Kansas, Utility System, Revenue Refunding
Bonds, RITR, Series 1, 11.12% due 9/01/2023 (b)(h) 17,518
NR* Aaa 1,715 Kansas State Development Finance Authority Revenue
Bonds (Public Water Supply Revolving Loan), Series
2, 5.75% due 4/01/2015 (a) 1,919
Sedgwick and Shawnee Counties, Kansas, S/F Revenue
Bonds, AMT (e):
NR* Aaa 1,985 (Mortgage-Backed Securities Program), Series A-2,
7.60% due 12/01/2031 (f) 2,261
NR* Aaa 2,480 Series A-1, 6.875% due 12/01/2026 2,815
AAA Aaa 4,125 Series A-1, 6.875% due 12/01/2026 (f) 4,682
AAA Aaa 2,500 Wamego, Kansas, PCR, Refunding (Kansas Gas and
Electric Company Project), 7% due 6/01/2031 (f) 2,548
==================================================================================================================================
Louisiana--2.1% AAA Aaa 6,000 Louisiana Local Government, Environmental Facilities,
Community Development Authority Revenue Bonds
(Capital Projects and Equipment Acquisition), Series A,
6.30% due 7/01/2030 (a) 7,133
==================================================================================================================================
Massachusetts--0.9% AAA Aaa 850 Massachusetts State, GO, Refunding, Consolidated Loan,
Series D, 5.375% due 8/01/2022 (f) 900
AAA Aaa 1,970 Massachusetts State Port Authority, Special Facilities
Revenue Bonds (Delta Air Lines Inc. Project), AMT,
Series A, 5.50% due 1/01/2019 (a) 2,024
==================================================================================================================================
6 & 7
MuniEnhanced Fund, Inc., January 31, 2003
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
S&P Moody's Face
STATE Ratings+ Ratings+ Amount Issue Value
==================================================================================================================================
Michigan--3.1% AAA NR* $ 2,200 Michigan Higher Education Student Loan Authority,
Student Loan Revenue Refunding Bonds, AMT, Series
XVII-G, 5.20% due 9/01/2020 (a) $ 2,234
Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds (Detroit Edison Company
Project) (m):
AAA Aaa 1,500 5.45% due 9/01/2029 1,555
AAA Aaa 2,500 AMT, Series C, 5.65% due 9/01/2029 2,578
AAA Aaa 4,300 AMT, Series C, 5.45% due 12/15/2032 4,358
==================================================================================================================================
Minnesota--2.7% AAA NR* 5,840 Minneapolis and St. Paul, Minnesota, Metropolitan
Airports Commission, Airport Revenue Bonds, DRIVERS,
AMT, Series 203, 10.01% due 1/01/2012 (b)(h) 6,996
Minnesota State Retirement System, Building Revenue
Bonds:
AAA Aaa 1,100 5.80% due 6/01/2020 1,220
AAA Aaa 1,000 5.875% due 6/01/2022 1,101
==================================================================================================================================
Mississippi--0.8% AAA Aaa 2,400 Walnut Grove, Mississippi, Correctional Authority, COP,
6% due 11/01/2019 (a) 2,740
==================================================================================================================================
Missouri--1.5% AAA Aaa 3,000 Kansas City, Missouri, Airport Revenue Bonds, General
Improvement, Series B, 6.875% due 9/01/2004 (d)(g) 3,294
AAA NR* 1,560 Missouri State Housing Development Commission, S/F
Mortgage Revenue Bonds (Homeowner Loan), AMT,
Series C-1, 7.15% due 3/01/2032 (c) 1,714
==================================================================================================================================
Montana--0.7% AAA Aaa 2,185 Forsyth, Montana, PCR, Refunding (Puget Sound Power
and Light Company), AMT, 7.25% due 8/01/2021 (a) 2,232
==================================================================================================================================
Nebraska--0.5% A+ A1 1,700 Washington County, Nebraska, Wastewater Facilities
Revenue Bonds (Cargill Inc. Project), AMT, 5.90%
due 11/01/2027 1,701
==================================================================================================================================
Nevada--4.3% AAA Aaa 750 Director of State, Nevada, Department of Business and
Industry Revenue Bonds (Las Vegas Monorail Company
Project), First Tier, 5.625% due 1/01/2032 (a) 793
AAA Aaa 10,450 Washoe County, Nevada, Gas and Water Facilities
Revenue Refunding Bonds (Sierra Pacific Power
Company), 6.30% due 12/01/2014 (a) 10,801
AAA Aaa 3,000 Washoe County, Nevada, Water Facility Revenue
Bonds (Sierra Pacific Power Company), AMT, 6.65%
due 6/01/2017 (f) 3,120
==================================================================================================================================
New Hampshire--3.1% AAA Aaa 7,390 New Hampshire Health and Education Facilities Authority
Revenue Bonds (Dartmouth-Hitchcock Obligation Group),
5.50% due 8/01/2027 (d) 7,809
AAA Aaa 2,650 New Hampshire State Business Finance Authority, PCR,
Refunding (Public Service Company of New Hampshire
Project), Series C, 5.45% due 5/01/2021 (f) 2,824
==================================================================================================================================
New Jersey--1.8% AAA Aaa 2,590 New Jersey State Housing and Mortgage Finance Agency,
Home Buyer Revenue Bonds, AMT, Series K, 6.375%
due 10/01/2026 (f) 2,680
AAA Aaa 1,440 New Jersey State Transportation Trust Fund Authority,
Transportation System Revenue Refunding Bonds,
Series B, 6% due 12/15/2011 (g) 1,703
A A1 2,000 Tobacco Settlement Financing Corporation, New Jersey,
Asset-Backed Revenue Refunding Bonds, 6.125%
due 6/01/2042 1,779
==================================================================================================================================
New Mexico--0.7% AAA Aaa 2,300 Santa Fe, New Mexico, Revenue Bonds, 6.30% due
6/01/2004 (a)(g) 2,455
==================================================================================================================================
New York--8.7% New York City, New York, GO:
AAA A2 1,500 DRIVERS, Series 194, 10.06% due 2/01/2015 (d)(h) 1,802
AAA Aaa 1,000 Series E, 5.875% due 8/01/2013 (m) 1,127
AAA Aaa 3,290 Series E, 5.75% due 5/15/2018 (m) 3,605
AAA Aaa 1,000 Series G, 6% due 10/15/2016 (m) 1,141
AAA Aaa 4,000 Series I, 6.25% due 4/15/2027 (m) 4,467
New York City, New York, GO, Refunding:
AAA Aaa 4,000 Series A, 6.375% due 5/15/2013 (b) 4,690
AAA Aaa 3,995 Series A, 6.375% due 5/15/2014 (b) 4,689
AAA Aaa 5,000 Series A, 6.375% due 5/15/2015 (b) 5,834
AAA Aaa 2,000 Series L, 5.75% due 8/01/2013 (m) 2,255
==================================================================================================================================
North Carolina--2.4% AAA Aaa 7,000 North Carolina, Eastern Municipal Power Agency,
Power System Revenue Refunding Bonds, Series B,
6.125% due 1/01/2009 (f) 8,079
==================================================================================================================================
Ohio--0.8% AAA Aaa 2,500 North Canton, Ohio, City School District GO, 6.70%
due 12/01/2004 (a)(g) 2,795
==================================================================================================================================
Pennsylvania--4.4% AAA Aaa 600 Allegheny County, Pennsylvania, Sanitation Authority,
Sewer Revenue Bonds, 5.50% due 12/01/2030 (f) 632
AAA Aaa 6,500 Philadelphia, Pennsylvania, Authority for Industrial
Development, Lease Revenue Bonds, Series B, 5.50%
due 10/01/2020 (d) 7,010
AAA Aaa 4,500 Philadelphia, Pennsylvania, School District, GO, Series B,
5.625% due 8/01/2020 (b)(k) 4,913
AAA Aaa 2,250 Washington County, Pennsylvania, Capital Funding
Authority Revenue Bonds (Capital Projects and
Equipment Program), 6.15% due 12/01/2029 (a) 2,611
==================================================================================================================================
Rhode Island--2.7% AAA Aaa 4,345 Providence, Rhode Island, Public Building Authority,
General Revenue Bonds, Series A, 6.25% due 12/15/2020 (d) 5,050
AAA Aaa 3,355 Rhode Island State Economic Development Corporation,
Airport Revenue Bonds, Series B, 6.50% due 7/01/2015 (b) 3,999
==================================================================================================================================
South Carolina--2.4% A A2 3,000 Lexington County, South Carolina, Health Services
District Inc., Hospital Revenue Refunding and Improvement
Bonds, 5.75% due 11/01/2028 3,053
AA NR* 3,440 South Carolina Educational Facilities Authority for Private
Nonprofit Institutions Revenue Bonds (The Benedict
College), 5.625% due 7/01/2031 (l) 3,580
NR* Aaa 1,265 South Carolina Housing Finance and Development
Authority, Mortgage Revenue Refunding Bonds, AMT,
Series A-2, 5.875% due 7/01/2009 (d) 1,381
==================================================================================================================================
South Dakota--2.5% AAA NR* 7,000 South Dakota State Health and Educational Facilities
Authority, Revenue Refunding Bonds, Series A, 7.625%
due 7/01/2014 (f) 8,531
==================================================================================================================================
Tennessee--5.7% AAA Aaa 8,500 Metropolitan Government of Nashville and Davidson
County, Tennessee, Water and Sewer Revenue Refunding
Bonds (Cab Converter), 7.70% due 1/01/2012 (b) 10,817
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 (f)(g) 6,350
AAA Aaa 2,280 Tennessee HDA, Revenue Refunding Bonds
(Homeownership Program), AMT, Series 1, 5.95%
due 7/01/2012 (f) 2,455
==================================================================================================================================
Texas--6.8% Bell County, Texas, Health Facilities Development
Corporation, Revenue Refunding Bonds (Scott & White
Memorial Hospital), Series A (f):
AAA Aaa 1,555 6.25% due 8/15/2011 1,781
AAA Aaa 1,650 6.25% due 8/15/2012 1,873
AAA Aaa 1,615 Bexar, Texas, Metropolitan Water District, Waterworks
System Revenue Refunding Bonds, 6.35% due 5/01/2025 (f) 1,800
8 & 9
MuniEnhanced Fund, Inc., January 31, 2003
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face
STATE Ratings+ Ratings+ Amount Issue Value
==================================================================================================================================
Texas AAA Aaa $ 1,000 Gregory Portland, Texas, Independent School District,
(concluded) GO, 5.75% due 8/15/2015 (f) $ 1,114
Houston, Texas, Airport System Revenue Refunding
Bonds, Sub-Lien (d):
AAA Aaa 1,000 AMT, Series A, 5.50% due 7/01/2023 1,025
AAA Aaa 900 Series B, 5.50% due 7/01/2030 936
AA NR* 3,200 Sam Rayburn, Texas, Municipal Power Agency Revenue
Refunding Bonds, 5.75% due 10/01/2021 (l) 3,402
San Antonio, Texas, Airport System, Improvement
Revenue Bonds (Passenger Facility), AMT, Sub-Lien (b):
AAA Aaa 1,465 5.75% due 7/01/2016 1,605
AAA Aaa 1,550 5.75% due 7/01/2017 1,687
AA+ Aa2 1,000 San Antonio, Texas, General Improvement, GO, 6%
due 2/01/2020 1,122
AAA Aaa 5,200 Travis County, Texas, Health Facilities Development
Corporation Revenue Refunding Bonds, RITR, Series 4,
10.218% due 11/15/2024 (a)(h) 5,941
AAA Aaa 1,000 University of Houston, Texas, University Revenue Bonds,
5.50% due 2/15/2030 (f) 1,041
==================================================================================================================================
Utah--1.7% AAA NR* 5,000 Salt Lake County, Utah, Hospital Revenue Bonds,
DRIVERS, Series 186, 9.54% due 5/15/2014 (a)(h) 5,894
==================================================================================================================================
Virginia--5.9% AAA Aaa 10,000 Fairfax County, Virginia, EDA, Resource Recovery
Revenue Refunding Bonds, AMT, Series A,
6.10% due 2/01/2010 (a) 11,433
AAA Aaa 2,300 Halifax County, Virginia, IDA, Exempt Facility Revenue
Refunding Bonds (Old Dominion Electric Cooperative
Project), AMT, 5.625% due 6/01/2028 (a) 2,423
AAA Aaa 6,000 Loudoun County, Virginia, COP, 6.80% due 3/01/2014 (d) 6,463
==================================================================================================================================
Washington--10.2% AAA NR* 5,000 Energy Northwest, Washington, Electric Revenue Bonds,
DRIVERS, Series 242, 10.04% due 7/01/2017 (f)(h) 6,146
Franklin County, Washington, Public Utility District
Number 001, Electric Revenue Refunding Bonds (f):
AAA Aaa 1,505 5.625% due 9/01/2019 1,639
AAA Aaa 1,585 5.625% due 9/01/2020 1,717
AAA Aaa 1,375 5.625% due 9/01/2021 1,497
AAA Aaa 2,150 King County, Washington, Sewer Revenue Refunding
Bonds, Series B, 5.50% due 1/01/2027 (d) 2,263
AAA Aaa 1,500 Port Seattle, Washington, Revenue Bonds, AMT, Series B,
5.625% due 4/01/2016 (b) 1,612
NR* Aaa 5,000 Snohomish County, Washington, Arlington School District
Number 016, GO, 6.50% due 12/01/2015 (b) 5,948
AAA Aaa 450 Snohomish County, Washington, Public Utility District
Number 001, Electric Revenue Bonds, 5.50%
due 12/01/2023 (d) 478
AAA Aaa 2,000 Snohomish County, Washington, Public Utility District
Number 001, Electric Revenue Refunding Bonds,
5.375% due 12/01/2024 (d) 2,077
Washington State, GO:
AAA Aaa 3,000 Series 2000 A, 5.625% due 7/01/2021 (d) 3,190
AAA Aaa 7,000 Series A and AT-6, 6.25% due 2/01/2011 (f) 8,231
==================================================================================================================================
Wisconsin--0.5% NR* Aaa 1,650 Osceola, Wisconsin, School District, GO, School Building,
Series A, 5.50% due 5/01/2019 (b) 1,783
==================================================================================================================================
Total Municipal Bonds (Cost--$446,941)--140.4% 480,129
==================================================================================================================================
Shares
Held Common Stock
==================================================================================================================================
7,901 Merrill Lynch Institutional Tax-Exempt Fund (j) 7,901
==================================================================================================================================
Total Common Stock (Cost--$7,901)--2.3% 7,901
==================================================================================================================================
Total Investments (Cost--$454,842)--142.7% 488,030
Variation Margin on Financial Futures Contracts**--0.0% (28)
Other Assets Less Liabilities--1.2% 4,062
Preferred Stock, at Redemption Value--(43.9%) (150,050)
--------
Net Assets Applicable to Common Stock--100.0% $342,014
========
==================================================================================================================================
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FNMA/GNMA Collateralized.
(d) FSA Insured.
(e) GNMA Collateralized.
(f) MBIA Insured.
(g) Prerefunded.
(h) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at January 31, 2003.
(i) Escrowed to maturity.
(j) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
(in Thousands)
--------------------------------------------------------------------------------
Net Share Net Dividend
Affiliate Activity Cost Income
--------------------------------------------------------------------------------
Merrill Lynch Institutional
Tax-Exempt Fund 7,901 $7,901 $31
--------------------------------------------------------------------------------
(k) All or a portion of security held as collateral in connection with open
financial futures contracts.
(l) Radian Insured.
(m) XL Capital Insured.
+ Ratings of issues shown are unaudited.
* Not Rated.
** Financial futures contracts sold as of January 31, 2003 were as follows:
(in Thousands)
--------------------------------------------------------------------------
Number of Expiration
Contracts Issue Date Value
--------------------------------------------------------------------------
295 U.S. Treasury Bonds March 2003 $33,672
--------------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$33,303) $33,672
=======
--------------------------------------------------------------------------
See Notes to Financial Statements.
Quality Profile
(unaudited)
The quality ratings of securities in the Fund as of January 31, 2003 were as
follows:
--------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Total Investments
--------------------------------------------------------------------------------
AAA/Aaa .................................................... 87.5%
AA/Aa ...................................................... 8.6
A/A ........................................................ 2.3
Other* ..................................................... 1.6
--------------------------------------------------------------------------------
* Temporary investments in short-term securities.
10 & 11
MuniEnhanced Fund, Inc., January 31, 2003
STATEMENT OF NET ASSETS
As of January 31, 2003
===================================================================================================================================
Assets: Investments, at value (identified cost--$454,842,143) ....................... $488,029,502
Receivables:
Interest .................................................................. $ 7,416,201
Securities sold ........................................................... 41,191
Dividends ................................................................. 31,329 7,488,721
-----------
Prepaid expenses ............................................................ 62,655
------------
Total assets ................................................................ 495,580,878
------------
===================================================================================================================================
Liabilities: Payables:
Securities purchased ...................................................... 2,903,490
Investment adviser ........................................................ 235,300
Dividends to Common Stock shareholders .................................... 200,302
Variation margin .......................................................... 27,656 3,366,748
-----------
Accrued expenses and other liabilities ...................................... 150,181
------------
Total liabilities ........................................................... 3,516,929
------------
===================================================================================================================================
Preferred Stock: Preferred Stock, at redemption value, par value $.025 per share (2,000
Series A shares, 2,000 Series B shares and 2,000 Series C shares of
AMPS* issued and outstanding at $25,000 per share liquidation preference) ... 150,050,260
------------
===================================================================================================================================
Net Assets Net assets applicable to Common Stock ....................................... $342,013,689
Applicable to ============
Common Stock:
===================================================================================================================================
Analysis of Net Common Stock, par value $.10 per share (29,369,874 shares issued and
Assets Applicable to outstanding) ................................................................ $ 2,936,987
Common Stock: Paid-in capital in excess of par ............................................ 323,104,599
Undistributed investment income--net ........................................ $ 4,581,841
Accumulated realized capital losses on investments--net ..................... (21,428,347)
Unrealized appreciation on investments--net ................................. 32,818,609
-----------
Total accumulated earnings--net ............................................. 15,972,103
------------
Total--Equivalent to $11.65 net asset value per share of Common Stock
(market price--$10.62) ...................................................... $342,013,689
============
===================================================================================================================================
* Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Year Ended January 31, 2003
====================================================================================================================================
Investment Income: Interest .................................................................... $ 27,809,015
Dividends ................................................................... 31,329
------------
Total income ................................................................ 27,840,344
------------
===================================================================================================================================
Expenses: Investment advisory fees .................................................... $ 2,458,363
Commission fees ............................................................. 414,454
Accounting services ......................................................... 163,853
Transfer agent fees ......................................................... 101,863
Professional fees ........................................................... 89,627
Printing and shareholder reports ............................................ 51,035
Directors' fees and expenses ................................................ 32,170
Custodian fees .............................................................. 28,769
Listing fees ................................................................ 28,293
Pricing fees ................................................................ 22,088
Other ....................................................................... 32,909
-----------
Total expenses before reimbursement ......................................... 3,423,424
Reimbursement of expenses ................................................... (5,085)
-----------
Total expenses after reimbursement .......................................... 3,418,339
------------
Investment income--net ...................................................... 24,422,005
------------
===================================================================================================================================
Realized & Realized loss on investments--net ........................................... (2,307,740)
Unrealized Gain (Loss) Change in unrealized appreciation on investments--net ....................... 7,101,055
On Investments--Net: ------------
Total realized and unrealized gain on investments--net ...................... 4,793,315
------------
===================================================================================================================================
Dividends to Investment income--net ...................................................... (2,373,840)
Preferred Stock ------------
Shareholders: Net Increase in Net Assets Resulting from Operations ........................ $ 26,841,480
============
===================================================================================================================================
See Notes to Financial Statements.
12 & 13
MuniEnhanced Fund, Inc., January 31, 2003
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended
January 31,
-------------------------------
Increase (Decrease) in Net Assets: 2003 2002+
===================================================================================================================================
Operations: Investment income--net ......................................................... $ 24,422,005 $ 23,493,595
Realized gain (loss) on investments--net ....................................... (2,307,740) 1,503,939
Change in unrealized appreciation on investments--net .......................... 7,101,055 (1,010,850)
Dividends to Preferred Stock shareholders ...................................... (2,373,840) (3,958,920)
------------- -------------
Net increase in net assets resulting from operations ........................... 26,841,480 20,027,764
------------- -------------
===================================================================================================================================
Dividends to Investment income--net ......................................................... (20,441,432) (18,714,484)
Common Stock ------------- -------------
Shareholders: Net decrease in net assets resulting from dividends to Common Stock shareholders (20,441,432) (18,714,484)
------------- -------------
===================================================================================================================================
Net Assets Total increase in net assets applicable to Common Stock ........................ 6,400,048 1,313,280
Applicable to Beginning of year .............................................................. 335,613,641 334,300,361
Common Stock: ------------- -------------
End of year* ................................................................... $ 342,013,689 $ 335,613,641
============= =============
===================================================================================================================================
* Undistributed investment income--net ........................................... $ 4,581,841 $ 2,693,575
============= =============
===================================================================================================================================
+ Certain prior year amounts have been reclassified to conform to current
year presentation.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended January 31,
----------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
===================================================================================================================================
Per Share Net asset value, beginning of year .................... $ 11.43 $ 11.38 $ 10.10 $ 12.06 $ 12.38
Operating -------- -------- -------- -------- --------
Performance:++ Investment income--net+ ............................... .83 .80 .80 .80 .85
Realized and unrealized gain (loss) on investments--net .17 .02 1.33 (1.95) .18
Dividends to Preferred Stock shareholders from
investment income--net ................................ (.08) (.13) (.21) (.17) (.18)
-------- -------- -------- -------- --------
Total from investment operations ...................... .92 .69 1.92 (1.32) .85
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net .............................. (.70) (.64) (.64) (.64) (.67)
Realized gain on investments--net ................... -- -- -- -- (.35)
In excess of realized gain on investments--net ...... -- -- -- -- (.15)
-------- -------- -------- -------- --------
Total dividends and distributions to Common Stock
shareholders .......................................... (.70) (.64) (.64) (.64) (1.17)
-------- -------- -------- -------- --------
Net asset value, end of year .......................... $ 11.65 $ 11.43 $ 11.38 $ 10.10 $ 12.06
======== ======== ======== ======== ========
Market price per share, end of year ................... $ 10.62 $ 11.05 $ 10.79 $ 9.1875 $ 12.00
======== ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on market price per share ....................... 2.43% 8.61% 25.36% (18.52%) 6.36%
Return:* ======== ======== ======== ======== ========
Based on net asset value per share .................... 8.62% 6.52% 20.27% (10.87%) 7.38%
======== ======== ======== ======== ========
===================================================================================================================================
Ratios Based on Total expenses, net of reimbursement** ................ 1.00% 1.00% 1.01% 1.00% .94%
Average Net Assets ======== ======== ======== ======== ========
Of Common Stock: Total expenses** ...................................... 1.00% 1.00% 1.01% 1.00% .94%
======== ======== ======== ======== ========
Total investment income--net** ........................ 7.17% 7.00% 7.44% 7.16% 6.93%
======== ======== ======== ======== ========
Amount of dividends to Preferred Stock shareholders ... .70% 1.18% 1.95% 1.52% 1.45%
======== ======== ======== ======== ========
Investment income--net, to Common Stock shareholders .. 6.47% 5.82% 5.49% 5.64% 5.48%
======== ======== ======== ======== ========
===================================================================================================================================
Ratios Based on Total expenses, net of reimbursement** ................ .70% .69% .69% .69% .66%
Average Net Assets ======== ======== ======== ======== ========
Of Common & Total expenses ........................................ .70% .69% .69% .69% .66%
Preferred Stock:** ======== ======== ======== ======== ========
Total investment income--net .......................... 4.97% 4.84% 5.04% 4.91% 4.88%
======== ======== ======== ======== ========
===================================================================================================================================
Ratios Based on Dividends to Preferred Stock shareholders ............. 1.57% 2.64% 4.10% 3.32% 3.43%
Average Net Assets ======== ======== ======== ======== ========
Of Preferred Stock:
===================================================================================================================================
Supplemental Net assets applicable to Common Stock, end of year
Data: (in thousands) ........................................ $342,014 $335,614 $334,300 $296,644 $353,603
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year (in thousands) $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover .................................... 31.35% 43.12% 70.39% 124.61% 144.46%
======== ======== ======== ======== ========
===================================================================================================================================
Leverage: Asset coverage per $1,000 ............................. $ 3,280 $ 3,237 $ 3,229 $ 2,978 $ 3,357
======== ======== ======== ======== ========
===================================================================================================================================
Dividends Per Share Series A--Investment income--net ...................... $ 350 $ 671 $ 1,017 $ 825 $ 862
On Preferred Stock ======== ======== ======== ======== ========
Outstanding: Series B--Investment income--net ...................... $ 510 $ 680 $ 1,036 $ 835 $ 868
======== ======== ======== ======== ========
Series C--Investment income--net ...................... $ 327 $ 628 $ 1,031 $ 829 $ 845
======== ======== ======== ======== ========
===================================================================================================================================
* 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.
++ Certain prior year amounts have been reclassified to conform to current
year presentation.
See Notes to Financial Statements.
14 & 15
MuniEnhanced Fund, Inc., January 31, 2003
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 conformity with accounting
principles generally accepted in the United States of America, which may require
the use of management accruals and estimates. 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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. 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.
o Forward interest rate swaps -- The Fund is allowed to enter into forward
interest rate swaps for the purpose of hedging the interest rate risk on
portfolio securities. In a forward interest rate swap, the Fund and the
counterparty agree to pay or receive interest on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. The value of the agreement is determined by quoted fair values received
daily by the Fund from the counterparty. When the agreement is closed, the Fund
records a realized gain or loss in an amount equal to the value of the
agreement.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(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.
(f) Change in financial statement classification for Auction Market Preferred
Stock ("AMPS") -- In accordance with the provisions of the Financial Accounting
Standards Board's Emerging Issues Task Force D-98 ("EITF D-98"), "Classification
and Measurement of Redeemable Securities," effective for the current period, the
Fund has reclassified its AMPS outside of permanent equity in the Net Assets
section of the Statement of Net Assets. In addition, dividends to Preferred
Stock shareholders are now classified as a component of the "Net Increase in Net
Assets Resulting from Operations" on the Statements of Operations and Changes in
Net Assets and as a component of the "Total from investment operations" in the
Financial Highlights. Prior year amounts presented have been reclassified to
conform to this period's presentation. The application of EITF D-98 related
entirely to presentation and had no impact on net asset value or the allocation
of net investment income or net realized capital gains or losses to Common Stock
shareholders.
(g) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax difference of $281,533 has been
reclassified between paid-in capital in excess of par and undistributed net
investment income. This reclassification has no effect on net assets or net
asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., 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, including assets
acquired from the issuance of Preferred Stock. For the year ended January 31,
2003, FAM reimbursed the Fund in the amount of $5,085.
For the year ended January 31, 2003, the Fund reimbursed FAM $12,324 for certain
accounting services.
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
year ended January 31, 2003 were $155,747,671 and $149,711,302, respectively.
Net realized gains (losses) for the year ended January 31, 2003 and net
unrealized gains (losses) as of January 31, 2003 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
--------------------------------------------------------------------------------
Long-term investments ................ $ 3,680,390 $ 33,187,359
Financial futures contracts .......... (5,988,130) (368,750)
------------ ------------
Total ................................ $ (2,307,740) $ 32,818,609
============ ============
--------------------------------------------------------------------------------
16 & 17
MuniEnhanced Fund, Inc., January 31, 2003
As of January 31, 2003, net unrealized appreciation for Federal income tax
purposes aggregated $33,196,801, of which $34,200,039 related to appreciated
securities and $1,003,238 related to depreciated securities. The aggregate cost
of investments at January 31, 2003 for Federal income tax purposes was
$454,832,701.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of 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 stock
without the approval of the holders of Common Stock.
Common Stock
Shares issued and outstanding during the years ended January 31, 2003 and
January 31, 2002 remained constant.
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, plus accrued and unpaid
dividends, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend period for each series. The
yields in effect at January 31, 2003 were as follows: Series A, 1.05%; Series B,
2.00%; and Series C, 1.04%.
Shares issued and outstanding during the years ended January 31, 2003 and
January 31, 2002 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 year ended January 31, 2003, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, an affiliate of FAM, received $123,140 as commissions.
5. Distributions to Shareholders:
On February 6, 2003, a tax-exempt income dividend of $.060000 was declared. The
dividend was paid on February 27, 2003 to shareholders of record on February 14,
2003.
The tax character of distributions paid during the fiscal years ended January
31, 2003 and January 31, 2002 was as follows:
--------------------------------------------------------------------------------
1/31/2003 1/31/2002
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .................... $22,815,272 $22,673,404
----------- -----------
Total distributions .................... $22,815,272 $22,673,404
=========== ===========
--------------------------------------------------------------------------------
As of January 31, 2003, the components of accumulated earnings on a tax basis
were as follows:
-----------------------------------------------------------------------------
Undistributed tax-exempt income--net .................... $ 4,572,399
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... 4,572,399
Capital loss carryforward ............................... (17,065,033)*
Unrealized gains--net ................................... 28,464,737**
------------
Total accumulated earnings--net ......................... $ 15,972,103
============
-----------------------------------------------------------------------------
* On January 31, 2003, the Fund had a net capital loss carryforward of
$17,065,033, of which $6,604,230 expires in 2008, $8,505,599 expires in
2009 and $1,955,204 expires in 2011. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on straddles, the
realization for tax purposes of unrealized gains (losses) on certain
futures contracts, the difference between book and tax amortization
methods for premiums and discounts on fixed income securities and the
deferral of post-October capital losses for tax purposes.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MuniEnhanced Fund, Inc.:
We have audited the accompanying statement of net assets, including the schedule
of investments, of MuniEnhanced Fund, Inc., as of January 31, 2003, the related
statements of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years presented. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at January 31, 2003 by correspondence with the custodian and
broker; where a reply was not received from the broker, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniEnhanced Fund,
Inc. as of January 31, 2003, the results of its operations, the changes in its
net assets, and the financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
Princeton, New Jersey
March 12, 2003
18 & 19
MuniEnhanced Fund, Inc., January 31, 2003
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid by MuniEnhanced Fund, Inc.
during its taxable year ended January 31, 2003 qualify as tax-exempt interest
dividends for Federal income tax purposes.
Please retain this information for your records.
MANAGED DIVIDEND POLICY
The Fund's dividend policy is to distribute all or a portion of its net
investment income to its shareholders on a monthly basis. 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 Net Assets, which comprises part of the financial
information included in this report.
OFFICERS AND DIRECTORS
====================================================================================================================================
Number of Other
Portfolios in Director-
Position(s) Length Fund Complex ships
Held of Time Principal Occupation(s) Overseen by Held by
Name Address & Age with Fund Served During Past 5 Years Director Director
====================================================================================================================================
Interested Director
====================================================================================================================================
Terry K. Glenn* P.O. Box 9011 President 1999 to Chairman, Americas Region 117 Funds None
Princeton, NJ 08543-9011 and present since 2001 and Executive 162 Portfolios
Age: 62 Director and Vice President since 1983
1989 to of Fund Asset Management
present ("FAM") and Merrill Lynch
Investment Managers, L.P.
("MLIM"); President of
Merrill Lynch Mutual Funds
since 1999; Executive Vice
President and Director of
Princeton Services, Inc.
("Princeton Services")
since 1993; President of
Princeton Administrators,
L.P. since 1988; Director
of Financial Data Services,
Inc. since 1985.
==============================================================================================================================
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or
MLIM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of the
Fund based on his positions as Chairman (Americas Region) and Executive Vice President of FAM and MLIM; Executive Vice
President of Princeton Services; and President of Princeton Administrators, L.P. The Director's term is unlimited.
Directors serve until their resignation, removal or death, or until December 31, of the year in which they turn 72. As
Fund President, Mr. Glenn serves at the pleasure of the Board of Directors.
====================================================================================================================================
Number of Other
Portfolios in Director-
Position(s) Length Fund Complex ships
Held of Time Principal Occupation(s) Overseen by Held by
Name Address & Age with Fund Served* During Past 5 Years Director Director
====================================================================================================================================
Independent Directors
====================================================================================================================================
James H. P.O. Box 9095 Director 1995 to Director and Executive Vice 42 Funds None
Bodurtha Princeton, NJ 08543-9095 present President of The China 60 Portfolios
Age: 58 Business Group, Inc. since
1996; Chairman, Berkshire
Holding Corporation since
1980.
====================================================================================================================================
20 & 21
MuniEnhanced Fund, Inc., January 31, 2003
OFFICERS AND DIRECTORS (concluded)
====================================================================================================================================
Number of Other
Portfolios in Director-
Position(s) Length Fund Complex ships
Held of Time Principal Occupation(s) Overseen by Held by
Name Address & Age with Fund Served* During Past 5 Years Director Director
====================================================================================================================================
Independent Directors (concluded)
====================================================================================================================================
Joe Grills P.O. Box 9095 Director 2002 to Member of the Committee on 42 Funds Kimco
Princeton, NJ 08543-9095 present Investment of Employee 60 Portfolios Realty
Age: 67 Benefit Assets of the Corpora-
Association of Financial tion
Professionals ("CIEBA")
since 1986; Member of
CIEBA's Executive Committee
since 1988; Member of the
Investment Advisory
Committees of the State of
New York Common Retirement
Fund since 1989; Member of
the Investment Advisory
Committee of the Howard
Hughes Medical Institute
from 1997 to 2000; Director
of Duke Management Company
since 1992 and Vice
Chairman thereof since
1998; Director, LaSalle
Street Fund from 1995 to
2001; Member of the
Investment Advisory
Committee of the Virginia
Retirement System since
1998; Director, Montpelier
Foundation since 2000;
Member of the Investment
Committee of the Woodberry
Forest School since 2000;
Member of the Investment
Committee of the National
Trust for Historic
Preservation since 2000.
====================================================================================================================================
Herbert I. P.O. Box 9095 Director 1989 to John M. Olin 42 Funds None
London Princeton, NJ 08543-9095 present Professor of 60 Portfolios
Age: 63 Humanities, New York
University since 1993
and Professor thereof
since 1980; President
of Hudson Institute
since 1997 and
Trustee thereof since
1980.
====================================================================================================================================
Andre F. Perold P.O. Box 9095 Director 1989 to George Gund Professor 42 Funds None
Princeton, NJ 08543-9095 present of Finance and 60 Portfolios
Age: 50 Banking, Harvard
Business School since
2000 and a member of
the faculty since
1979; Director of
Stockback.com since
2002.
====================================================================================================================================
Roberta Cooper P.O. Box 9095 Director 1999 to Shareholder, Modrall, 42 Funds Cooper's,
Ramo Princeton, NJ 08543-9095 present Sperling, Roehl, 60 Portfolios Inc.;
Age: 60 Harris & Sisk, P.A. ECMC,
since 1993; Director, Inc.
Cooper's Inc. since
1999; Director, ECMC,
Inc. since 2001.
====================================================================================================================================
Robert S. P.O. Box 9095 Director 2002 to Principal of STI 42 Funds None
Salomon, Jr. Princeton, NJ 08543-9095 present Management since 60 Portfolios
Age: 66 1994; Trustee of
Commonfund from 1980
to 2002; Trustee and
Chairman of the
Investment Manage-
ment Workshop from
1978 to 2000;
Director of Rye
Country Day School
since 2001.
====================================================================================================================================
Stephen B. P.O. Box 9095 Director 2002 to Chairman of Fernwood 42 Funds Interna-
Swensrud Princeton, NJ 08543-9095 present Advisors since 1996; 60 Portfolios tional
Age: 69 Principal of Fernwood Mobile
Associates since Communi-
1975; Chairman of RPP cations,
Corporation since Inc.
1978; Director,
International Mobile
Communications, Inc.
since 1998.
==============================================================================================================================
* The Director's term is unlimited. Directors serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72.
====================================================================================================================================
Position(s) Length
Held of Time
Name Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
====================================================================================================================================
Donald C. Burke P.O. Box 9011 Vice 1993 to First Vice President of FAM and MLIM since
Princeton, NJ 08543-9011 President present 1997 and the Treasurer thereof since 1999;
Age: 42 and and Senior Vice President and Treasurer of
Treasurer 1999 to Princeton Services since 1999; Vice President
present of FAMD since 1999; Director of MLIM Taxation
since 1990.
====================================================================================================================================
Kenneth A. Jacob P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000 and First
Princeton, NJ 08543-9011 Vice present Vice President from 1997 to 2000.
Age: 51 President
====================================================================================================================================
John M. Loffredo P.O. Box 9011 Senior 2002 to Managing Director of MLIM since 2000 and First
Princeton, NJ 08543-9011 Vice present Vice President from 1997 to 2000.
Age: 39 President
====================================================================================================================================
Michael Kalinoski P.O. Box 9011 Vice 2000 to Vice President of MLIM since 1999; Municipal
Princeton, NJ 08543-9011 President present Bond Trader with Strong Capital Management
Age: 32 from 1993 to 1999.
====================================================================================================================================
Alice A. P.O. Box 9011 Secretary 1999 to Director (Legal Advisory) of MLIM since 2002;
Pellegrino Princeton, NJ 08543-9011 present Vice President of MLIM from 1999 to 2002;
Age: 42 Attorney associated with MLIM from 1997 to
1999.
==============================================================================================================================
* Officers of the Fund serve at the pleasure of the Board of Directors.
====================================================================================================================================
Transfer Agents
Common Stock:
EquiServe Trust Company, I.A.
P.O. Box 43011
Providence, RI 02940-3011
Preferred Stock:
The Bank of New York
100 Church Street
New York, NY 10286
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
NYSE Symbol
MEN
--------------------------------------------------------------------------------
Melvin R. Seiden, Director of MuniEnhanced Fund, Inc., has recently retired. The
Fund's Board of Directors wishes Mr. Seiden well in his retirement.
--------------------------------------------------------------------------------
22 & 23
[LOGO] Merrill Lynch Investment Managers
[GRAPHICS OMITTED]
MuniEnhanced Fund, Inc. seeks to provide shareholders with as high a level of
current income exempt from Federal income taxes as is consistent with its
investment policies by investing primarily in a portfolio of long-term,
investment-grade municipal obligations, the interest on which is exempt from
Federal income taxes in the opinion of the bond counsel to the issuer.
This report, including the financial information herein, is transmitted to
shareholders of MuniEnhanced Fund, Inc. for their information. It is not a
prospectus. Past performance results shown in this report should not be
considered a representation of future performance. The Fund has leveraged its
Common Stock and intends to remain leveraged 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
[RECYCLED LOGO] Printed on post-consumer recycled paper #10874--1/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request-- N/A (not answered until July 15, 2003 and only
annually for funds)
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -N/A (not answered until July
15, 2003 and only annually for funds)
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last two
fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's
annual financial statements or services that are
normally provided by the accountant in connection with
statutory and regulatory filings or engagements for
those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and related
services by the principal accountant that are
reasonably related to the performance of the
audit of the registrant's financial statements
and are not reported under paragraph (a) of this
Item. Registrants shall describe the nature of
the services comprising the fees disclosed under
this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services provided
by the principal accountant, other than the services
reported in paragraphs (a) through (c) of this Item.
Registrants shall describe the nature of the
services comprising the fees disclosed under this
category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of paragraphs
(b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Items 5-6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities. N/A.
Item 8 -- Reserved
Item 9(a) - Disclose the conclusions of the registrant's principal executive
officer or officers and principal financial officer or officers, or
persons performing similar functions, about the effectiveness of the
registrant's disclosure controls and procedures (as defined in Rule
30a-2(c) under the Act (17 CFR 270.30a-2(c))) based on their
evaluation of these controls and procedures as of a date within 90
days of the filing date of the report that includes the disclosure
required by this paragraph. N/A.
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications (4 in total pursuant to Sections 302 and 906 for
CEO/CFO). Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MuniEnhanced Fund, Inc.
By: /s/ Terry K. Glenn
-----------------------
Terry K. Glenn,
President of
MuniEnhanced Fund, Inc.
Date: March 17, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Terry K. Glenn
-----------------------
Terry K. Glenn,
President of
MuniEnhanced Fund, Inc.
Date: March 17, 2003
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
MuniEnhanced Fund, Inc.
Date: March 17, 2003