UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-05739
Name of Fund: BlackRock MuniEnhanced Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock 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: (800) 882-0052
Date of fiscal year end: 01/31/08
Date of reporting period: 02/01/07 - 07/31/07
Item 1 - Report to Stockholders
EQUITIES FIXED INCOME REAL ESTATE
LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS
BlackRock MuniEnhanced BLACKROCK
Fund, Inc. (MEN)
SEMI-ANNUAL REPORT
JULY 31, 2007 | (UNAUDITED)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock MuniEnhanced Fund, Inc.
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 stable level of dividend distributions, 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.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial advisor to enroll. Please note that not all
investment advisers, banks or brokerages may offer this service.
2 BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007
A Letter to Shareholders
Dear Shareholder
As the July reporting period closed, financial markets were rattled by ongoing
problems in the credit markets, particularly those associated with the subprime
mortgage industry. While this has been an issue for much of 2007, recent
headlines and some high-profile credit collapses reignited concerns that credit
problems could spill over into the broader economy and derail global financial
markets. Although volatility has reared its head throughout the year, the
fundamental market and economic backdrop has been little changed. U.S. economic
activity has decelerated, led by a slowdown in the housing market, but economies
outside the United States remain robust, which has been a boon for U.S. exports.
Through July, the Federal Reserve Board had kept the target short-term interest
rate on hold at 5.25%.
For the most part, equities continued to find support in robust
merger-and-acquisition activity, a healthy global economy, tame inflation,
relatively low interest rates, still-positive earnings growth and attractive
valuations. These tailwinds generally prevailed over such headwinds as the
weakening U.S. economy, slowing housing market, escalating geopolitical concerns
and high energy prices, leading the Standard & Poor's (S&P) 500 Index and the
Dow Jones Industrial Average to post new record highs in mid-July before
succumbing to the latest market correction.
Meanwhile, mixed economic signals and the credit market debacle have made for a
volatile backdrop for fixed income, with investors fleeing from bonds associated
with the housing and credit markets in favor of higher-quality Treasury bonds.
As a result, the 10-year Treasury yield, which touched 5.30% in June (its
highest level in five years), fell to nearly 4.75% by period-end. Prices
correspondingly rose, reflecting the investor flight to quality. Against this
backdrop, financial markets posted mixed results for the six-month period ended
July 31, 2007, but continued to exhibit relative strength when measured over the
past year:
Total Returns as of July 31, 2007 6-month 12-month
===============================================================================================================
U.S. equities (S&P 500 Index) +2.10% +16.13%
---------------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) -2.47 +12.12
---------------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +8.38 +23.91
---------------------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers U.S. Aggregate Bond Index) +1.86 + 5.58
---------------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +1.17 + 4.27
---------------------------------------------------------------------------------------------------------------
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index) -1.75 + 6.44
---------------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future results. Index performance shown for
illustrative purposes only. You cannot invest directly in an index.
We expect market volatility to linger through the remainder of 2007. As you
navigate the uncertainties, we encourage you to review your investment goals
with your financial professional and to make portfolio changes, as needed. For
more market insight, we invite you to visit www.blackrock.com/funds. We thank
you for entrusting BlackRock with your investment assets, and we look forward to
continuing to serve you in the months and years ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
Fund President and Director
BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007 3
The Benefits and Risks of Leveraging
BlackRock 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, net of dividends to Preferred Stock, 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 of July 31, 2007, the Fund's leverage amount, due to Auction Market Preferred
Stock, was 36.02% of total net assets, before the deduction of Preferred Stock.
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. (See Note 1(c) to Financial Statements for details
of municipal bonds held in trust.)
Swap Agreements
The Fund may 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. Swap agreements involve the risk that the party with whom the
Fund has entered into the swap will default on its obligation to pay the Fund
and the risk that the Fund will not be able to meet its obligations to pay the
other party to the agreement.
4 BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007
Fund Summary as of July 31, 2007 (Unaudited)
Fund Information
Symbol on New York Stock Exchange ............................. MEN
Initial Offering Date ......................................... March 2, 1989
Yield on Closing Market Price as of 7/31/07 ($10.24)* ......... 5.04%
Current Monthly Distribution per share of Common Stock** ...... $.043
Current Annualized Distribution per share of Common Stock** ... $.516
Leverage as of 7/31/07*** ..................................... 36.02%
--------------------------------------------------------------------------------
* Yield on closing market price is calculated by dividing the current
annualized distribution per share by the closing market price.
Past performance does not guarantee future results.
** The distribution is not constant and is subject to change.
*** As a percentage of managed assets, which is the total assets of the Fund
(including any assets attributable to any borrowing that may be
outstanding) minus the sum of accrued liabilities (other than debt
representing financial leverage).
The table below summarizes the changes in the Fund's market price and net asset
value per share:
--------------------------------------------------------------------------------
7/31/07 1/31/07 Change High Low
--------------------------------------------------------------------------------
Market Price ........ $10.24 $10.77 (4.92%) $11.10 $10.23
Net Asset Value ..... $11.31 $11.55 (2.08%) $11.74 $11.13
--------------------------------------------------------------------------------
The following charts show the Fund's portfolio composition and credit quality
allocations of the Fund's long-term investments:
Portfolio Composition
Sector 7/31/07 1/31/07
--------------------------------------------------------------------------------
Transportation ........................................... 23% 24%
City/County/State ........................................ 20 20
Sales Tax ................................................ 10 10
Lease Revenue ............................................ 10 9
Hospital ................................................. 8 8
School ................................................... 8 9
Water/Sewer .............................................. 7 7
IDR/PCR .................................................. 4 5
Power .................................................... 4 5
Housing .................................................. 3 2
Tobacco .................................................. 3 1
--------------------------------------------------------------------------------
Credit Quality Allocations*
Credit Rating 7/31/07 1/31/07
--------------------------------------------------------------------------------
AAA/Aaa .................................................. 89% 88%
AA/Aa .................................................... 5 5
A/A ...................................................... 6 7
BBB/Baa .................................................. --** --**
--------------------------------------------------------------------------------
* Using the highest of S&P's and Moody's ratings.
** Amount is less than 1%.
BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007 5
Schedule of Investments as of July 31, 2007 (Unaudited) (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
Alabama -- 1.6%
Jefferson County, Alabama, Limited Obligation School
Warrants, Series A:
$ 2,750 5.50% due 1/01/2022 $ 2,943
2,200 4.75% due 1/01/2025 2,218
===============================================================================
California -- 27.9%
Alameda Corridor Transportation Authority, California,
Capital Appreciation Revenue Refunding Bonds,
Subordinate Lien, Series A (a)(m):
10,000 5.464% due 10/01/2024 8,240
6,000 5.495% due 10/01/2025 4,940
950 Anaheim, California, Public Financing Authority,
Electric System Distribution Facilities Revenue Bonds,
Series A, 5% due 10/01/2031 (d) 982
5,000 Anaheim, California, Public Financing Authority, Lease
Revenue Bonds (Public Improvements Project),
Senior Series A, 6% due 9/01/2024 (d) 5,889
1,600 Arcadia, California, Unified School District, Capital
Appreciation, GO (Election of 2006), Series A, 4.96%
due 8/01/2039 (d)(m) 312
2,400 Cabrillo, California, Community College District, GO
(Election of 2004), Series B, 5.20%
due 8/01/2037 (f)(m) 516
California State, GO, Refunding:
2,350 5.25% due 9/01/2010 (g) 2,452
4,940 5.125% due 6/01/2011 (g) 5,186
20 5.125% due 6/01/2027 21
60 5.125% due 6/01/2031 62
1,900 California State Public Works Board, Lease Revenue
Bonds (Department of Corrections), Series C, 5%
due 6/01/2025 1,949
2,600 California State University, Systemwide Revenue Bonds,
Series A, 5% due 11/01/2035 (b) 2,680
8,490 California State, Various Purpose, GO, 5.50%
due 11/01/2033 9,076
2,750 Chabot-Las Positas, California, Community College
District, GO (Election of 2004), Series B, 4.812%
due 8/01/2025 (a)(m) 1,140
850 Chino Valley, California, Unified School District, GO
(Election of 2002), Series C, 5.25% due 8/01/2030 (f) 902
1,600 East Side Union High School District, California, Santa
Clara County, GO (Election of 2002), Series D, 5%
due 8/01/2026 (c) 1,667
900 Fresno, California, Unified School District, GO (Election
of 2001), Series E, 5% due 8/01/2030 (d) 939
Golden State Tobacco Securitization Corporation of
California, Tobacco Settlement Revenue Bonds,
Series B (g):
2,835 5.50% due 6/01/2013 (c) 3,067
3,000 5.625% due 6/01/2013 (k) 3,265
5,300 Los Angeles, California, Department of Water and
Power, Waterworks Revenue Bonds, Series C, 5%
due 7/01/2029 (f) 5,488
Metropolitan Water District of Southern California,
Waterworks Revenue Bonds, Series B-1 (b):
2,965 5% due 10/01/2029 3,074
1,655 5% due 10/01/2036 1,705
5,000 Norco, California, Redevelopment Agency, Tax
Allocation Refunding Bonds (Norco Redevelopment
Project -- Area Number 1), 5.125%
due 3/01/2030 (f) 5,163
7,455 Orange County, California, Sanitation District, COP, 5%
due 2/01/2033 (b) 7,637
1,750 Poway, California, Redevelopment Agency, Tax
Allocation Refunding Bonds (Paguay Redevelopment
Project), 5.125% due 6/15/2033 (a) 1,803
3,850 Sacramento, California, Unified School District, GO
(Election of 2002), 5% due 7/01/2030 (f) 4,003
6,145 Stockton, California, Public Financing Authority, Lease
Revenue Bonds (Parking & Capital Projects), 5.125%
due 9/01/2030 (b) 6,364
1,600 Tamalpais, California, Union High School District, GO
(Election of 2001), 5% due 8/01/2028 (d) 1,653
2,325 Ventura County, California, Community College District,
GO (Election of 2002), Series B, 5% due 8/01/2030 (f) 2,417
===============================================================================
Colorado -- 8.3%
2,135 Boulder County, Colorado, Hospital Development
Revenue Bonds (Longmont United Hospital Project),
5.75% due 12/01/2010 (g)(i) 2,259
55 Colorado HFA, Revenue Bonds (S/F Program), AMT,
Senior Series A-1, 7.40% due 11/01/2027 56
560 Colorado HFA, Revenue Refunding Bonds (S/F Program),
AMT, Senior Series A-2, 7.50% due 4/01/2031 576
Colorado Health Facilities Authority Revenue Bonds:
1,200 (Catholic Health Initiatives), Series A, 5.50%
due 3/01/2032 (h) 1,272
1,200 (Covenant Retirement Communities Inc.), Series A,
5.50% due 12/01/2027 (i) 1,245
675 (Covenant Retirement Communities Inc.), Series A,
5.50% due 12/01/2033 (i) 696
3,875 Colorado Water Resources and Power Development
Authority, Clean Water Revenue Bonds, Series A,
6.25% due 9/01/2010 (g) 4,150
2,000 Denver, Colorado, City and County Airport Revenue
Refunding Bonds, AMT, Series A, 6%
due 11/15/2018 (a) 2,104
5,450 El Paso County, Colorado, School District Number 49,
Falcon, GO, Series A, 6% due 12/01/2009 (d)(g) 5,968
Portfolio Abbreviations
To simplify the listings of BlackRock MuniEnhanced Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
S/F Single-Family
6 BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
Colorado (concluded)
$ 7,900 Northwest Parkway, Colorado, Public Highway Authority,
Capital Appreciation Revenue Bonds, Senior
Convertible, Series C, 5.345% due 6/15/2011 (d)(m) $ 7,195
1,900 Northwest Parkway, Colorado, Public Highway Authority
Revenue Bonds, Series A, 5.50% due 6/15/2021 (a) 2,026
===============================================================================
District of Columbia -- 0.5%
1,600 District of Columbia, GO, Series A, 4.75%
due 6/01/2036 (b) 1,606
===============================================================================
Florida -- 2.3%
1,400 Highlands County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Adventist Health System),
Series C, 5.25% due 11/15/2036 1,415
2,000 Highlands County, Florida, Health Facilities Authority,
Hospital Revenue Refunding Bonds (Adventist
Health System), Series G, 5.125% due 11/15/2032 2,012
4,200 Orange County, Florida, Sales Tax Revenue Refunding
Bonds, Series B, 5.125% due 1/01/2032 (b) 4,351
===============================================================================
Georgia -- 12.6%
17,355 Atlanta, Georgia, Airport General Revenue Refunding
Bonds, Series B, 5.25% due 1/01/2033 (d) 18,236
Atlanta, Georgia, Water and Wastewater
Revenue Bonds:
2,900 5% due 11/01/2034 (d) 2,996
1,000 Series A, 5% due 11/01/2033 (f) 1,028
4,250 Series A, 5% due 11/01/2039 (f) 4,348
2,300 Augusta, Georgia, Water and Sewer Revenue Bonds,
5.25% due 10/01/2039 (d) 2,416
2,500 Fulton County, Georgia, Water and Sewer Revenue
Bonds, 5.25% due 1/01/2035 (b) 2,620
7,725 Georgia Municipal Electric Authority, Power Revenue
Refunding Bonds, Series EE, 7% due 1/01/2025 (a) 10,150
===============================================================================
Illinois -- 14.8%
Chicago, Illinois, O'Hare International Airport Revenue
Bonds, Third Lien, AMT, Series B-2:
5,670 5.75% due 1/01/2023 (d) 6,133
2,500 6% due 1/01/2029 (c) 2,752
2,460 Cook County, Illinois, Capital Improvement, GO,
Series C, 5.50% due 11/15/2012 (a)(g) 2,654
Illinois Sports Facilities Authority, State Tax Supported
Revenue Bonds (a):
20,120 5.341% due 6/15/2030 (m) 18,686
4,500 5% due 6/15/2032 4,610
2,000 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds
(McCormick Place Expansion Project), Series B,
5.75% due 6/15/2023 (f) 2,156
10,115 Regional Transportation Authority, Illinois, Revenue
Bonds, Series A, 7.20% due 11/01/2020 (a) 12,248
===============================================================================
Indiana -- 1.4%
4,250 Indiana Transportation Finance Authority, Highway
Revenue Bonds, Series A, 5.25% due 6/01/2014 (b)(g) 4,591
===============================================================================
Louisiana -- 8.2%
4,500 Lafayette, Louisiana, Utilities Revenue Bonds, 5%
due 11/01/2028 (f) 4,657
3,600 Louisiana Local Government Environmental Facilities
and Community Development Authority, Revenue
Bonds (Capital Projects and Equipment Acquisition),
Series A, 6.30% due 7/01/2030 (a) 4,197
2,035 Louisiana State Citizens Property Insurance
Corporation, Assessment Revenue Bonds, Series B,
5% due 6/01/2023 (a) 2,119
4,950 Louisiana State, Gas and Fuels Tax Revenue Bonds,
Series A, 4.75% due 5/01/2039 (d) 4,957
3,735 Louisiana State Transportation Authority, Senior Lien
Toll Revenue Capital Appreciation Bonds, Series B,
5.31% due 12/01/2027 (a)(m) 1,303
4,650 New Orleans, Louisiana, Ernest N. Morial Exhibit Hall
Authority, Special Tax, Sub-Series A, 5.25%
due 7/15/2028 (a) 4,843
3,650 Rapides Financing Authority, Louisiana, Revenue Bonds
(Cleco Power LLC Project), AMT, 4.70%
due 11/01/2036 (a) 3,509
1,400 Terrebonne Parish, Louisiana, Hospital Service District
Number 1, Hospital Revenue Bonds (Terrebonne
General Medical Center Project), 5.50%
due 4/01/2033 (a) 1,494
===============================================================================
Massachusetts -- 7.4%
2,600 Massachusetts Bay Transportation Authority, Sales Tax
Revenue Refunding Bonds, Senior Series A-2,
5.12% due 7/01/2035 (m) 641
1,600 Massachusetts State, HFA, S/F Housing Revenue Bonds,
AMT, Series 128, 4.80% due 12/01/2027 (d) 1,566
8,800 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A, 5%
due 8/15/2030 (d) 9,154
11,300 Massachusetts State Special Obligation Dedicated Tax
Revenue Bonds, 5.25% due 1/01/2014 (b)(g) 12,132
950 Massachusetts State Water Resource Authority,
General Revenue Refunding Bonds, Series B,
5.125% due 8/01/2027 (f) 988
===============================================================================
Michigan -- 3.7%
1,900 Detroit, Michigan, Sewage Disposal System, Second
Lien Revenue Bonds, Series B, 5% due 7/01/2036 (b) 1,963
1,700 Michigan Higher Education Student Loan Authority,
Student Loan Revenue Refunding Bonds, AMT,
Series XVII-G, 5.20% due 9/01/2020 (a) 1,745
Michigan State Strategic Fund, Limited Obligation
Revenue Refunding Bonds (Detroit Edison Company
Pollution Control Project), AMT (c):
1,300 Series A, 5.50% due 6/01/2030 1,375
2,500 Series C, 5.65% due 9/01/2029 2,618
4,300 Series C, 5.45% due 12/15/2032 (c) 4,496
===============================================================================
BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007 7
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
Minnesota -- 0.9%
$ 3,093 Dakota County, Minnesota, Community Development
Agency, S/F Mortgage Revenue Bonds (Mortgage-
Backed Securities Program), Series B, 5.15%
due 12/01/2038 (n)(o) $ 3,110
===============================================================================
Mississippi -- 0.8%
2,400 Walnut Grove, Mississippi, Correctional Authority, COP,
6% due 11/01/2009 (a)(g) 2,558
===============================================================================
Nebraska -- 0.5%
1,700 Washington County, Nebraska, Wastewater Facilities
Revenue Bonds (Cargill Inc. Project), AMT, 5.90%
due 11/01/2027 1,825
===============================================================================
Nevada -- 3.9%
3,100 Carson City, Nevada, Hospital Revenue Bonds (Carson-
Tahoe Hospital Project), Series A, 5.50%
due 9/01/2033 (i) 3,210
Clark County, Nevada, Airport System Subordinate
Lien Revenue Bonds, Series A-2 (b):
1,500 5% due 7/01/2030 1,542
3,200 5% due 7/01/2036 3,279
5,060 Clark County, Nevada, IDR (Southwest Gas Corp.
Project), AMT, Series A, 4.75% due 9/01/2036 (b) 4,945
===============================================================================
New Hampshire -- 2.3%
7,390 New Hampshire Health and Education Facilities
Authority Revenue Bonds (Dartmouth-Hitchcock
Obligation Group), 5.50% due 8/01/2027 (d) 7,826
===============================================================================
New Jersey -- 7.6%
New Jersey EDA, Cigarette Tax Revenue Bonds:
700 5.50% due 6/15/2031 732
1,165 5.75% due 6/15/2034 1,235
New Jersey EDA, Motor Vehicle Surcharge Revenue
Bonds, Series A (f):
2,600 5% due 7/01/2029 2,691
9,325 5.25% due 7/01/2031 9,861
5,200 5.25% due 7/01/2033 5,496
4,960 New Jersey EDA, School Facilities Construction
Revenue Bonds, Series O, 5.125% due 3/01/2028 5,160
===============================================================================
New York -- 1.4%
2,250 Metropolitan Transportation Authority, New York,
Transportation Revenue Bonds, Series A, 5%
due 11/15/2032 (b) 2,322
2,400 Tobacco Settlement Financing Corporation of New York
Revenue Bonds, Series A-1, 5.25% due 6/01/2022 (a) 2,523
===============================================================================
Ohio -- 0.7%
2,550 Ohio State Air Quality, Development Authority Revenue
Bonds (Dayton Power and Light Company Project),
4.80% due 9/01/2036 (b) 2,512
===============================================================================
Pennsylvania -- 4.7%
5,500 Pennsylvania State Public School Building Authority,
School Lease Revenue Bonds (The School District of
Philadelphia Project), 5% due 6/01/2013 (d)(g) 5,819
6,500 Philadelphia, Pennsylvania, Authority for Industrial
Development, Lease Revenue Bonds, Series B,
5.50% due 10/01/2020 (d) 6,918
2,650 Philadelphia, Pennsylvania, Gas Works Revenue
Refunding Bonds, 1998 General Ordinance,
7th Series, 5% due 10/01/2032 (a) 2,746
===============================================================================
Rhode Island -- 2.5%
4,345 Providence, Rhode Island, Public Building Authority,
General Revenue Bonds, Series A, 6.25%
due 12/15/2020 (d) 4,698
3,355 Rhode Island State Economic Development Corporation,
Airport Revenue Bonds, Series B, 6.50%
due 7/01/2010 (b)(g) 3,633
===============================================================================
South Carolina -- 4.8%
3,800 Berkeley County, South Carolina, School District,
Installment Lease Revenue Bonds (Securing Assets
for Education Project), 5.125% due 12/01/2030 3,935
2,365 Kershaw County, South Carolina, Public Schools
Foundation, Installment Power Revenue Refunding
Bonds, 5% due 12/01/2029 (k) 2,438
9,200 Scago Educational Facilities Corporation for Pickens
County School District, South Carolina, Revenue
Bonds, 5% due 12/01/2031 (d) 9,526
===============================================================================
South Dakota -- 1.9%
6,180 South Dakota State Health and Educational Facilities
Authority Revenue Refunding Bonds, Series A,
7.625% due 1/01/2008 (f)(g) 6,277
===============================================================================
Tennessee -- 1.1%
6,500 Knox County, Tennessee, Health, Educational and
Housing Facilities Board, Hospital Facilities Revenue
Refunding Bonds (Covenant Health), Series A,
5.039% due 1/01/2038 (m) 1,282
2,280 Tennessee HDA, Revenue Refunding Bonds
(Homeownership Program), AMT, Series 1, 5.95%
due 7/01/2012 (f) 2,313
===============================================================================
Texas -- 7.2%
1,615 Bexar, Texas, Metropolitan Water District, Waterworks
System Revenue Refunding Bonds, 6.35%
due 5/01/2025 (f) 1,618
Leander, Texas, Independent School District, Capital
Appreciation, GO, Refunding (School Building) (m):
9,345 5.49% due 8/15/2029 (b) 2,946
10,000 5.58% due 8/15/2035 2,218
4,475 Lewisville, Texas, Independent School District, Capital
Appreciation and School Building, GO, Refunding,
4.67% due 8/15/2024 (b)(m) 1,934
5,820 North Harris County, Texas, Regional Water Authority,
Senior Lien Revenue Bonds, 5.125%
due 12/15/2035 (f) 6,006
900 North Texas Thruway Authority, Dallas North Thruway
System Revenue Bonds, Series A, 5%
due 1/01/2035 (d) 925
1,599 Texas State Affordable Housing Corporation, S/F
Mortgage Revenue Bonds (Professional Educators
Home Loan Program), AMT, Series A-1, 5.50%
due 12/01/2039 (n)(o) 1,678
6,250 Texas State Turnpike Authority, Central Texas Turnpike
System Revenue Bonds, First Tier, Series A, 5.50%
due 8/15/2039 (a) 6,613
===============================================================================
Vermont -- 0.9%
3,100 Vermont HFA, S/F Housing Revenue Bonds, AMT,
Series 27, 4.85% due 11/01/2032 (d) 3,011
===============================================================================
Virginia -- 5.4%
10,000 Fairfax County, Virginia, EDA, Resource Recovery Revenue
Refunding Bonds, AMT, Series A, 6.10%
due 2/01/2010 (a) 10,510
8 BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007
Schedule of Investments (continued) (in Thousands)
Face
Amount Municipal Bonds Value
===============================================================================
Virginia (concluded)
$ 2,300 Halifax County, Virginia, IDA, Exempt Facility Revenue
Refunding Bonds (Old Dominion Electric Cooperative
Project), AMT, 5.625% due 6/01/2028 (a) $ 2,465
5,000 Stafford County, Virginia, EDA,
Hospital Facilities Revenue Bonds
(MediCorp Health System), 5.25% due 6/15/2037 5,081
===============================================================================
Washington -- 0.6%
2,000 Snohomish County, Washington, Public Utility District
Number 001, Electric Revenue Refunding Bonds,
5.375% due 12/01/2009 (d)(g) 2,089
-------------------------------------------------------------------------------
Total Municipal Bonds
(Cost -- $434,613) -- 135.9% 451,571
===============================================================================
===============================================================================
Municipal Bonds Held in Trust (j)
===============================================================================
California -- 1.4%
4,400 California State, GO, Refunding, 5.25% due 2/1/2033 (i) 4,623
===============================================================================
District of Columbia -- 3.1%
10,000 District of Columbia, Ballpark Revenue Bonds,
Series B-1, 5% due 2/01/2031 (b) 10,357
===============================================================================
Florida -- 2.7%
8,900 Miami-Dade County, Florida, Aviation Revenue Refunding
Bonds (Miami International Airport), AMT,
Series A, 5% due 10/01/2040 (c) 9,024
===============================================================================
Illinois -- 6.1%
10,250 Chicago, Illinois, Board of Education,
GO (Chicago School Reform Project),
5.75% due 12/01/2027 (a) 10,519
9,100 Chicago, Illinois, O'Hare International Airport,
General Airport Revenue Refunding Bonds,
Third Lien, AMT, Series A, 5.75% due 1/01/2021 (f) 9,595
===============================================================================
Massachusetts -- 4.8%
5,600 Massachusetts State, HFA, Housing Revenue Bonds
(Rental Mortgage), AMT, Series F, 5.25%
due 1/01/2046 (d) 5,668
Massachusetts State Port Authority, Special Facilities
Revenue Bonds (Delta Air Lines Inc. Project), AMT,
Series A (a):
3,100 5.50% due 1/01/2016 3,239
4,000 5.50% due 1/01/2018 4,180
2,870 5.50% due 1/01/2019 2,999
===============================================================================
New Jersey -- 6.5%
New Jersey EDA, Cigarette Tax Revenue Bonds (e):
15,250 5.50% due 6/15/2024 16,149
5,000 5.50% due 6/15/2031 5,384
===============================================================================
South Carolina -- 2.2%
Charleston Educational Excellence Financing
Corporation, South Carolina, Revenue Bonds
(Charleston County School District) (e):
3,120 5.25% due 12/01/2028 3,299
2,765 5.25% due 12/01/2029 2,919
1,010 5.25% due 12/01/2030 1,066
===============================================================================
Texas -- 9.2%
Dallas-Fort Worth, Texas, International Airport Revenue
Bonds, AMT, Series A:
4,000 6% due 11/01/2028 (b) 4,148
14,500 5.50% due 11/01/2033 (f) 15,306
10,400 Travis County, Texas, Health Facilities Development
Corporation, Revenue Refunding Bonds (Ascension
Health Credit), Series A, 5.875%
due 11/15/2009 (a)(g) 10,968
-------------------------------------------------------------------------------
Total Municipal Bonds Held in Trust
(Cost -- $118,425) -- 36.0% 119,443
===============================================================================
===============================================================================
Shares
Held Short-Term Securities
===============================================================================
2,208 Merrill Lynch Institutional Tax-Exempt
Fund, 3.47% (l)(p) 2,208
-------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $2,208) -- 0.7% 2,208
===============================================================================
Total Investments (Cost -- $555,246*) -- 172.6% 573,222
Other Assets Less Liabilities -- 1.1% 3,589
Liability for Trust Certificates, Including
Interest Expense Payable -- (17.3%) (57,496)
Preferred Stock, at Redemption Value -- (56.4%) (187,135)
---------
Net Assets Applicable to Common Stock -- 100.0% $ 332,180
=========
* The cost and unrealized appreciation (depreciation) of investments as of
July 31, 2007, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................... $ 497,996
=========
Gross unrealized appreciation ................................ $ 19,918
Gross unrealized depreciation ................................ (1,825)
---------
Net unrealized appreciation .................................. $ 18,093
=========
(a) AMBAC Insured.
(b) FGIC Insured.
(c) XL Capital Insured.
(d) FSA Insured.
(e) Assured Guaranty Insured.
(f) MBIA Insured.
(g) Prerefunded.
(h) Escrowed to maturity.
(i) Radian Insured.
(j) Securities represent underlying bonds transferred to a separate
securitization trust established in a tender option bond transaction in
which the Fund may have acquired the residual interest certificates. These
securities serve as collateral in a financing transaction. See Note 1(c)
to Financial Statements for details of municipal bonds held in trust.
(k) CIFG Insured.
(l) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Institutional
Tax-Exempt Fund (3,110) $59
--------------------------------------------------------------------------
BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007 9
Schedule of Investments (concluded) (in Thousands)
(m) Represents a zero coupon or step bond; the interest rate shown reflects
the effective yield at the time of purchase.
(n) FNMA/GNMA Collateralized.
(o) FHLMC Collateralized.
(p) Represents the current yield as of July 31, 2007.
o Forward interest rate swaps outstanding as of July 31, 2007 were as
follows:
-------------------------------------------------------------------------
Notional Unrealized
Amount Depreciation
-------------------------------------------------------------------------
Pay a fixed rate of 4.124% and receive
a floating rate based on 1-week Bond
Market Association rate
Broker, JPMorgan Chase
Expires September 2017 $16,500 $ (276)
Pay a fixed rate of 3.9415% and receive
a floating rate based on 1-week (SIFMA)
Municipal Swap Index rate
Broker, JPMorgan Chase
Expires October 2017 $15,000 (32)
-------------------------------------------------------------------------
Total $ (308)
=======
See Notes to Financial Statements.
10 BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007
Statement of Net Assets
As of July 31, 2007 (Unaudited)
===================================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost -- $553,037,418) . $ 571,013,389
Investments in affiliated securities, at value (identified cost -- $2,208,142) ..... 2,208,142
Cash ............................................................................... 144,005
Receivables:
Interest ....................................................................... $ 5,914,738
Securities sold ................................................................ 3,540 5,918,278
-------------
Prepaid expenses ................................................................... 9,777
-------------
Total assets ....................................................................... 579,293,591
-------------
===================================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Trust certificates ................................................................. 57,132,500
Unrealized depreciation on forward interest rate swaps ............................. 307,865
Payables:
Dividends to Common Stock shareholders ......................................... 1,262,905
Securities purchased ........................................................... 614,464
Interest expense ............................................................... 363,531
Investment adviser ............................................................. 219,141
Other affiliates ............................................................... 3,375 2,463,416
-------------
Accrued expenses ................................................................... 74,989
-------------
Total liabilities .................................................................. 59,978,770
-------------
===================================================================================================================================
Preferred Stock
-----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock, at redemption value, par value $.025 (2,000 Series A Shares,
2,000 Series B Shares, 2,000 Series C Shares) and $.10 per share
(1,480 Series D Shares) of AMPS* authorized, issued and outstanding at $25,000
per share liquidation preference ................................................. 187,134,946
-------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock .............................................. $ 332,179,875
=============
===================================================================================================================================
Analysis of Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.10 per share (29,369,874 shares issued and outstanding) .. $ 2,936,987
Paid-in capital in excess of par ................................................... 322,587,682
Undistributed investment income -- net ............................................. $ 2,009,820
Accumulated realized capital losses -- net ......................................... (13,022,720)
Unrealized appreciation -- net ..................................................... 17,668,106
-------------
Total accumulated earnings -- net .................................................. 6,655,206
-------------
Total -- Equivalent to $11.31 net asset value per share of Common Stock
(market price -- $10.24) ......................................................... $ 332,179,875
=============
* Auction Market Preferred Stock.
See Notes to Financial Statements.
BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007 11
Statement of Operations
For the Six Months Ended July 31, 2007 (Unaudited)
===================================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------------------
Interest ........................................................................... $ 14,493,018
Dividends from affiliates .......................................................... 58,811
-------------
Total income ....................................................................... 14,551,829
-------------
===================================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ........................................................... $ 1,299,249
Interest expense and fees .......................................................... 1,075,045
Commission fees .................................................................... 233,057
Accounting services ................................................................ 76,213
Transfer agent fees ................................................................ 46,713
Professional fees .................................................................. 39,549
Printing and shareholder reports ................................................... 27,801
Custodian fees ..................................................................... 14,613
Directors' fees and expenses ....................................................... 12,494
Pricing fees ....................................................................... 10,069
Listing fees ....................................................................... 5,044
Other .............................................................................. 34,077
-------------
Total expenses before reimbursement ................................................ 2,873,924
Reimbursement of expenses .......................................................... (3,277)
-------------
Total expenses after reimbursement ................................................. 2,870,647
-------------
Investment income -- net ........................................................... 11,681,182
-------------
===================================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
-----------------------------------------------------------------------------------------------------------------------------------
Realized gain on:
Investments -- net ............................................................. 1,275,067
Forward interest rate swaps -- net ............................................. 763,946 2,039,013
-------------
Change in unrealized appreciation/depreciation on:
Investments -- net ............................................................. (9,122,309)
Forward interest rate swaps -- net ............................................. (740,830) (9,863,139)
-------------------------------
Total realized and unrealized loss -- net .......................................... (7,824,126)
-------------
===================================================================================================================================
Dividends to Preferred Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ........................................................... (3,336,932)
-------------
Net Increase in Net Assets Resulting from Operations ............................... $ 520,124
=============
See Notes to Financial Statements.
12 BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007
Statements of Changes in Net Assets
For the Six
Months Ended For the
July 31, Year Ended
2007 January 31,
Increase (Decrease) in Net Assets: (Unaudited) 2007
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ........................................................... $ 11,681,182 $ 22,189,876
Realized gain -- net ............................................................... 2,039,013 703,200
Change in unrealized appreciation/depreciation -- net .............................. (9,863,139) 1,029,516
Dividends to Preferred Stock shareholders .......................................... (3,336,932) (6,335,868)
-------------------------------
Net increase in net assets resulting from operations ............................... 520,124 17,586,724
-------------------------------
===================================================================================================================================
Dividends to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ........................................................... (7,577,427) (16,799,568)
-------------------------------
Net decrease in net assets resulting from dividends to Common Stock shareholders ... (7,577,427) (16,799,568)
-------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock ................. (7,057,303) 787,156
Beginning of period ................................................................ 339,237,178 338,450,022
-------------------------------
End of period* ..................................................................... $ 332,179,875 $ 339,237,178
===============================
* Undistributed investment income -- net ....................................... $ 2,009,820 $ 1,242,997
===============================
See Notes to Financial Statements.
BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007 13
Financial Highlights
For the Six
Months Ended
The following per share data and ratios July 31, For the Year Ended January 31,
have been derived from information 2007 --------------------------------------------------------
provided in the financial statements. (Unaudited) 2007 2006 2005 2004 2003
===================================================================================================================================
Per Share Operating Performance
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........ $ 11.55 $ 11.52 $ 11.85 $ 11.83 $ 11.65 $ 11.43
----------------------------------------------------------------------
Investment income -- net*** ................. .40 .76 .77 .79 .81 .83
Realized and unrealized gain (loss) -- net .. (.27) .06 (.22) .05 .15 .17
Less dividends to Preferred Stock
shareholders from investment income -- net (.11) (.22) (.16) (.07) (.06) (.08)
----------------------------------------------------------------------
Total from investment operations ............ .02 .60 .39 .77 .90 .92
----------------------------------------------------------------------
Less dividends to Common Stock shareholders
from investment income -- net ............. (.26) (.57) (.72) (.73) (.72) (.70)
Offering and underwriting costs resulting
from the issuance of Preferred Stock ...... -- -- -- (.02) -- --
----------------------------------------------------------------------
Net asset value, end of period .............. $ 11.31 $ 11.55 $ 11.52 $ 11.85 $ 11.83 $ 11.65
======================================================================
Market price per share, end of period ....... $ 10.24 $ 10.77 $ 11.03 $ 10.93 $ 11.22 $ 10.62
======================================================================
===================================================================================================================================
Total Investment Return*
-----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .......... .30%++ 5.66% 3.63% 7.20% 8.46% 8.62%
======================================================================
Based on market price per share ............. (2.62%)++ 2.90% 7.58% 4.25% 12.84% 2.43%
======================================================================
===================================================================================================================================
Ratios Based on Average Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement and
excluding interest expense and fees** ..... 1.07%+ 1.08% 1.07% 1.01% .97% 1.00%
======================================================================
Total expenses, net of reimbursement** ...... 1.72%+ 1.69% 1.51% 1.32% 1.26% 1.29%
======================================================================
Total expenses** ............................ 1.72%+ 1.69% 1.51% 1.32% 1.27% 1.29%
======================================================================
Total investment income -- net** ............ 6.99%+ 6.57% 6.63% 6.80% 6.95% 7.17%
======================================================================
Amount of dividends to Preferred Stock
shareholders .............................. 2.00%+ 1.88% 1.34% .59% .48% .70%
======================================================================
Investment income -- net, to Common Stock
shareholders .............................. 4.99%+ 4.69% 5.29% 6.21% 6.47% 6.47%
======================================================================
===================================================================================================================================
Ratios Based on Average Net Assets Applicable to Preferred Stock
-----------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders ... 3.60%+ 3.39% 2.46% 1.22% 1.09% 1.57%
======================================================================
===================================================================================================================================
Supplemental Data
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock,
end of period (in thousands) .............. $332,180 $339,237 $338,450 $348,027 $347,389 $342,014
======================================================================
Preferred Stock outstanding, end of period
(in thousands) ............................ $187,000 $187,000 $187,000 $187,000 $150,000 $150,000
======================================================================
Portfolio turnover .......................... 8% 31% 22% 33% 41% 24%
======================================================================
===================================================================================================================================
Leverage
-----------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ................... $ 2,776 $ 2,814 $ 2,810 $ 2,861 $ 3,316 $ 3,280
======================================================================
===================================================================================================================================
Dividends Per Share on Preferred Stock Outstanding
-----------------------------------------------------------------------------------------------------------------------------------
Series A -- Investment income -- net ........ $ 435 $ 841 $ 603 $ 309 $ 233 $ 350
======================================================================
Series B -- Investment income -- net ........ $ 448 $ 854 $ 629 $ 289 $ 354 $ 510
======================================================================
Series C -- Investment income -- net ........ $ 452 $ 845 $ 610 $ 295 $ 227 $ 327
======================================================================
Series D -- Investment income -- net ........ $ 451 $ 848 $ 614 $ 156 -- --
======================================================================
* 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.
+ Annualized.
++ Aggregate total investment return.
See Notes to Financial Statements.
14 BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007
Notes to Financial Statements (Unaudited)
1. Significant Accounting Policies:
BlackRock MuniEnhanced Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company. The Fund's financial statements are prepared in
conformity with U.S. generally accepted accounting principles, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. These unaudited financial statements reflect all adjustments,
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim period. 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 daily basis. The Fund's Common Stock
shares are 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 ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general direction
of the Board of Directors. Such valuations and procedures are reviewed
periodically by the Board of Directors of the Fund. 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 OTC market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued by quoted fair valuations received daily by the Fund's pricing service.
Investments in open-end investment companies are valued at their net asset value
each business day. Securities and other 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. Such valuations and
procedures will be reviewed periodically by the Board of Directors of the Fund.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract due to an
unfavorable change in the underlying security or index, or if the counterparty
does not perform under the contract. The counterparty for certain instruments
may pledge cash or securities as collateral.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such financial futures contracts.
Financial 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 may write covered call options and purchase call and
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.
BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007 15
Notes to Financial Statements (continued)
o Forward interest rate swaps -- The Fund may enter into forward interest
rate swaps. In a forward interest rate swap, the Fund and the counterparty
agree to make periodic net payments on a specified notional contract
amount, commencing on a specified future effective date, unless terminated
earlier. When the agreement is closed, the Fund records a realized gain or
loss in an amount equal to the value of the agreement.
o Swaps -- The Fund may enter into swap agreements, which are OTC contracts
in which the Fund and a counterparty agree to make periodic net payments
on a specified notional amount. The net payments can be made for a set
period of time or may be triggered by a predetermined credit event. The
net periodic payments may be based on a fixed or variable interest rate;
the change in market value of a specified security, basket of securities,
or index; or the return generated by a security. These periodic payments
received or made by the Fund are recorded in the accompanying Statement of
Operations as realized gains or losses, respectively. Gains or losses are
also realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the
swap agreements.
(c) Municipal bonds held in trust -- The Fund invests in leveraged residual
certificates ("TOB Residuals") issued by tender option bond trusts ("TOBs"). A
TOB is established by a third party sponsor forming a special purpose entity,
into which the Fund, or an agent on behalf of the Fund, transfers municipal
securities. A TOB typically issues two classes of beneficial interests:
short-term floating rate certificates, which are sold to third party investors,
and residual certificates, which are generally issued to the Fund which made the
transfer or to affiliates of the Fund. The transfer of the municipal securities
to a TOB does not qualify for sale treatment under Statement of Financial
Accounting Standards No. 140 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," therefore the municipal
securities deposited into a TOB are presented in the Fund's schedule of
investments and the proceeds from the transaction are reported as a liability
for trust certificates of the Fund. Similarly, proceeds from residual
certificates issued to affiliates, if any, from the transaction are included in
the liability for trust certificates. Interest income from the underlying
security is recorded by the Fund on an accrual basis. Interest expense incurred
on the secured borrowing and other expenses related to remarketing,
administration and trustee services to a TOB are reported as expenses of the
Fund. The floating rate certificates have interest rates that generally reset
weekly and their holders have the option to tender certificates to the TOB for
redemption at par at each reset date. The residual interests held by the Fund
include the right of the Fund (1) to cause the holders of a proportional share
of the floating rate certificates to tender their certificates at par, and (2)
to transfer a corresponding share of the municipal securities from the TOB to
the Fund. At July 31, 2007, the aggregate value of the underlying municipal
securities transferred to TOBs was $119,443,408, the related liability for trust
certificates was $57,132,500 and the range of interest rates on the liability
for trust certificates was 5% to 6%.
Financial transactions executed through TOBs generally will underperform the
market for fixed rate municipal bonds in a rising interest rate environment, but
tend to outperform the market for fixed rate bonds when interest rates decline
or remain relatively stable. Should short-term interest rates rise, the Fund's
investment in TOB Residuals likely will adversely affect the Fund's investment
income -- net and distributions to shareholders. Fluctuations in the market
value of municipal securities deposited into the TOB may adversely affect the
Fund's net asset value per share.
While the Fund's investment policies and restrictions expressly permit
investments in inverse floating rate securities such as TOB Residuals, they
generally do not allow the Fund to borrow money for purposes of making
investments. The Fund's management believes that the Fund's restrictions on
borrowings do not apply to the secured borrowings deemed to have occurred for
accounting purposes.
(d) 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.
(e) 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.
16 BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007
Notes to Financial Statements (continued)
(f) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(g) Recent accounting pronouncement -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity, including mutual funds, before being measured
and recognized in the financial statements. Management has evaluated the
application of FIN 48 to the Fund, and has determined that the adoption of FIN
48 does not have a material impact on the Fund's financial statements. The Fund
files U.S. and various state tax returns. No income tax returns are currently
under examination. The statute of limitations on the Fund's tax returns remains
open for the years ended December 31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with BlackRock
Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc. Merrill Lynch & Co., Inc. ("Merrill Lynch") and The PNC
Financial Group, Inc. are principal owners of BlackRock, Inc.
The Manager 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 average daily value of the
Fund's net assets, including assets acquired from the issuance of Preferred
Stock. In addition, the Manager has entered into a sub-advisory agreement with
BlackRock Investment Management, LLC ("BIM"), an affiliate of the Manager, under
which the Manager pays BIM for services it provides a fee that is a percentage
of the management fee paid to the Manager. The Manager agreed to reimburse its
management fee by the amount of management fees the Fund pays to the Manager
indirectly through its investment in Merrill Lynch Institutional Tax-Exempt
Fund. For the six months ended July 31, 2007, the Manager reimbursed the Fund
$3,277.
For the six months ended July 31, 2007, the Manager reimbursed the Fund $5,029
for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or directors of
BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended July 31, 2007 were $46,036,894 and $46,182,622, respectively.
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.
BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007 17
Notes to Financial Statements (concluded)
Preferred Stock
Auction Market Preferred Stock are redeemable shares of Preferred Stock of the
Fund, with 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 periods. The yields in effect at July
31, 2007 were as follows: Series A, 3.55%; Series B, 3.55%; Series C, 3.62%; and
Series D, 3.58%.
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, 2007, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, a wholly owned subsidiary of Merrill Lynch, received $93,044
in commissions.
5. Capital Loss Carryforward:
On January 31, 2007, the Fund had a net capital loss carryforward of
$12,865,504, of which $1,939,484 expires in 2008, $8,632,426 expires in 2009,
$1,940,146 expires in 2011 and $353,448 expires in 2013. This amount will be
available to offset like amounts of any future taxable gains.
6. Subsequent Event:
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.043000 on September 4, 2007 to shareholders of record on August 15,
2007.
Officers and Directors
Robert C. Doll, Jr., Fund President and Director
James H. Bodurtha, Director
Kenneth A. Froot, Director
Joe Grills, Director
Herbert I. London, Director
Roberta Cooper Ramo, Director
Robert S. Salomon, Jr., Director
Donald C. Burke, Vice President and Treasurer
Karen Clark, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agents
Common Stock:
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
Preferred Stock:
The Bank of New York
101 Barclay Street -- 7 West
New York, NY 10286
18 BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their non-public personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to non-affiliated third parties any
non-public personal information about its Clients, except as permitted by law or
as is necessary to respond to regulatory requests or to service Client accounts.
These non-affiliated third parties are required to protect the confidentiality
and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to non-public
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the non-public
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
BLACKROCK MUNIENHANCED FUND, INC. JULY 31, 2007 19
BlackRock 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 BlackRock 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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how the Fund voted proxies relating to
securities held in the Fund's portfolio during the most recent 12-month period
ended June 30 is available (1) at www.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BlackRock MuniEnhanced Fund, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#10874-7/07
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - The registrant's Schedule of Investments
is included as part of the Report to Stockholders filed under Item 1
of this form.
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable to this semi-annual report
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send nominations
which include biographical information and set forth the
qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's principal executive and principal financial
officers or persons performing similar functions have concluded that
the registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) are effective as of a date within 90 days of the
filing of this report based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act and Rule
13a-15(b) under the Securities and Exchange Act of 1934, as amended.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that have materially affected,
or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - 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.
BlackRock MuniEnhanced Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer (principal executive officer) of
BlackRock MuniEnhanced Fund, Inc.
Date: September 20, 2007
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/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer (principal executive officer) of
BlackRock MuniEnhanced Fund, Inc.
Date: September 20, 2007
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke,
Chief Financial Officer (principal financial officer) of
BlackRock MuniEnhanced Fund, Inc.
Date: September 20, 2007