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 811-05739
Name of Fund: BlackRock MuniEnhanced Fund, Inc. (MEN)
Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809
Name and address of agent for service: Donald C. Burke, 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, Option 4
Date of fiscal year end: 01/31/2008
Date of reporting period: 02/01/2007 - 01/31/2008
Item 1 - Report to Stockholders
EQUITIES FIXED INCOME REAL ESTATE
LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS
BlackRock MuniEnhanced BLACKROCK
Fund, Inc. (MEN)
ANNUAL REPORT | JANUARY 31, 2008
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
Table of Contents
================================================================================
Page
--------------------------------------------------------------------------------
A Letter to Shareholders ................................................. 3
Annual Report:
Fund Summary ............................................................. 4
The Benefits and Risks of Leveraging ..................................... 5
Swap Agreements .......................................................... 5
Financial Statements:
Schedule of Investments ................................................ 6
Statement of Assets and Liabilities .................................... 12
Statement of Operations ................................................ 12
Statements of Changes in Net Assets .................................... 13
Financial Highlights ..................................................... 14
Notes to Financial Statements ............................................ 15
Report of Independent Registered Public Accounting Firm .................. 19
Important Tax Information (Unaudited) .................................... 19
Automatic Dividend Reinvestment Plan ..................................... 20
Officers and Directors ................................................... 21
Additional Information ................................................... 25
2 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
A Letter to Shareholders
Dear Shareholder
Financial markets weathered intense bouts of volatility in 2007, only to enter
the new year with no relief. While most major market indexes managed to post
positive returns in 2007, January proved to be a trying month as fears of an
economic recession swelled.
The Federal Reserve Board (the "Fed"), after cutting interest rates 100 basis
points (1%) between September 2007 and year-end, more than matched those cuts in
January alone. The Fed, responding to a slowing economy and continued fallout
from the subprime mortgage crisis, cut interest rates 75 basis points in a rare
unscheduled session on January 22, and quickly followed with another
50-basis-point cut at its regular meeting on January 30. This brought the target
short-term interest rate to 3% as of the conclusion of this reporting period. In
a statement accompanying its action, the central bank cited "a deepening housing
contraction" and "considerable stress in the credit markets."
To be sure, subprime mortgage woes dominated headlines for much of 2007,
spawning a widespread liquidity and credit crisis with ramifications across
global markets. The reverberations continue to be felt as stocks grapple with
recession fears, heightened volatility and weakening earnings growth. Small-cap
and value-oriented stocks suffered most in 2007, while large-cap and
growth-oriented stocks fared better. International markets, which outperformed
the U.S. in 2007, generally experienced greater declines in January as investors
grew increasingly risk averse.
The reaction has been similar in fixed income markets, with fears related to the
economic slowdown, housing collapse and subprime fallout prompting a flight to
quality. Investors have largely shunned bonds associated with the housing and
credit markets in favor of higher-quality government issues. The yield on
10-year Treasury issues, which touched 5.30% in June 2007 (its highest level in
five years), fell to 4.04% by year-end and to 3.67% by the end of January, while
prices correspondingly rose. The tax-exempt bond market set a new-issuance
record in 2007, but has struggled with additional concerns around the
creditworthiness of bond insurers.
Against this volatile backdrop, the major benchmark indexes posted mixed results
for the current reporting period:
Total Returns as of January 31, 2008 6-month 12-month
===========================================================================================================
U.S. equities (S&P 500 Index) -4.32% -2.31%
-----------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) -7.51 -9.79
-----------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) -7.52 +0.22
-----------------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers U.S. Aggregate Bond Index) +6.82 +8.81
-----------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +3.71 +4.93
-----------------------------------------------------------------------------------------------------------
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Capped Index) +1.34 -0.44
-----------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future results. Index performance shown for
illustrative purposes only. You cannot invest directly in an index.
As you navigate the current uncertainties, we encourage you to review your
investment goals with your financial professional and to make portfolio changes,
as needed. For more up-to-date commentary on the economy and financial markets,
we invite you to visit www.blackrock.com/funds. As always, 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/ Rob Kapito
Rob Kapito
President, BlackRock Advisors, LLC
3
THIS PAGE NOT PART OF YOUR FUND REPORT
Fund Summary as of January 31, 2008
Investment Objective
BlackRock MuniEnhanced Fund, Inc. (MEN) 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.
Performance
For the 12 months ended January 31, 2008, the Fund returned +3.92% based on
market price, with dividends reinvested. The Fund's return based on net asset
value (NAV) was +1.44%, with dividends reinvested. For the same period, the
Lipper Insured Municipal Debt Funds (leveraged) category posted an average
return of +1.76% on a NAV basis. Fund performance was impacted by three key
factors: exposure to the long end of the municipal yield curve, which
underperformed as the curve steepened; a widening in credit spreads, which
negatively impacted uninsured credits in the portfolio; and pressure on
municipal bond insurers, which affected the entire insured municipal
marketplace.
Fund Information
Symbol on New York Stock Exchange ............................... MEN
Initial Offering Date ........................................... March 2, 1989
Yield on Closing Market Price as of January 31, 2008 ($10.66)* .. 4.84%
Tax Equivalent Yield** .......................................... 7.45%
Current Monthly Distribution per share of Common Stock*** ....... $.043
Current Annualized Distribution per share of Common Stock*** .... $.516
Leverage as of January 31, 2008**** ............................. 36%
--------------------------------------------------------------------------------
* 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.
** Tax equivalent yield assumes the maximum federal tax rate of 35%.
*** 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 Auction Market Preferred Stock
("Preferred Stock") 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:
--------------------------------------------------------------------------------
1/31/08 1/31/07 Change High Low
--------------------------------------------------------------------------------
Market Price .......... $10.66 $10.77 (1.02%) $11.10 $ 9.70
Net Asset Value ....... $11.16 $11.55 (3.38%) $11.74 $10.81
--------------------------------------------------------------------------------
The following charts show the portfolio composition and credit quality
allocations of the Fund's long-term investments:
Portfolio Composition
1/31/08 1/31/07
--------------------------------------------------------------------------------
Transportation ......................................... 21% 24%
City/County/State ...................................... 21 20
Tax Revenue ............................................ 10 10
Lease Revenue .......................................... 9 9
Hospital ............................................... 8 8
Industrial & Pollution Control ......................... 8 5
Education .............................................. 6 9
Water/Sewer ............................................ 6 7
Power .................................................. 5 5
Housing ................................................ 5 2
Tobacco ................................................ 1 1
--------------------------------------------------------------------------------
Credit Quality Allocations*
Credit Rating 1/31/08 1/31/07
--------------------------------------------------------------------------------
AAA/Aaa ................................................ 87% 88%
AA/Aa .................................................. 6 5
A/A .................................................... 7 7
--------------------------------------------------------------------------------
* Using the higher of Standard & Poor's and Moody's Investors Service
ratings.
4 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
The Benefits and Risks of Leveraging
BlackRock MuniEnhanced Fund, Inc. utilizes leverage 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 January 31, 2008, the Fund's leverage amount, due to Preferred Stock, was
36% 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 of the Notes to Financial Statements for
details of municipal bonds transferred to tender option bond trusts.)
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.
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 5
Schedule of Investments as of January 31, 2008
(Percentages shown are based on Net Assets)
====================================================================================
Par Amount
(000) Municipal Bonds Value
====================================================================================
Alabama -- 2.0%
Jefferson County, Alabama, Limited Obligation
School Warrants, Series A:
$ 2,750 5.50% due 1/01/2022 $ 2,968,322
2,200 4.75% due 1/01/2025 2,208,932
1,400 University of Alabama, General Revenue Bonds,
Series A, 5% due 7/01/2034 (f) 1,422,204
------------
6,599,458
====================================================================================
Arizona -- 0.7%
2,640 Salt Verde Financial Corporation, Arizona, Senior
Gas Revenue Bonds, 5% due 12/01/2037 2,425,685
====================================================================================
California -- 32.4%
Alameda Corridor Transportation Authority,
California, Capital Appreciation Revenue
Refunding Bonds, Subordinate Lien,
Series A (a)(m):
10,000 5.464% due 10/01/2024 8,433,800
6,000 5.495% due 10/01/2025 5,035,020
950 Anaheim, California, Public Financing Authority,
Electric System Distribution Facilities Revenue
Bonds, Series A, 5% due 10/01/2031 (d) 987,610
5,000 Anaheim, California, Public Financing Authority,
Lease Revenue Bonds (Public Improvements
Project), Senior Series A, 6% due 9/01/2024 (d) 6,102,700
600 Antelope Valley, California, Community College
District, GO (Election of 2004), Series B, 5.25%
due 8/01/2039 (f) 640,068
1,600 Arcadia, California, Unified School District,
Capital Appreciation, GO (Election of 2006),
Series A, 4.96% due 8/01/2039 (d)(m) 302,720
2,400 Cabrillo, California, Community College District,
GO (Election of 2004), Series B, 5.20%
due 8/01/2037 (f)(m) 476,808
1,200 California State, GO, 5% due 11/01/2037 (c) 1,201,740
California State, GO, Refunding:
2,350 5.25% due 9/01/2010 (g) 2,522,067
4,940 5.125% due 6/01/2011 (g) 5,371,410
20 5.125% due 6/01/2027 20,301
60 5.125% due 6/01/2031 60,608
4,400 5.25% due 2/01/2033 (i) 4,492,972
4,300 5% due 6/01/2037 (c) 4,306,063
1,900 California State Public Works Board, Lease
Revenue Bonds (Department of Corrections),
Series C, 5% due 6/01/2025 1,908,455
2,600 California State University, Systemwide Revenue
Bonds, Series A, 5% due 11/01/2035 (b) 2,618,902
8,490 California State, Various Purpose, GO, 5.50%
due 11/01/2033 8,960,516
Chino Valley, California, Unified School District,
GO (Election of 2002), Series C, 5.25%
due 8/01/2030 (f) 901,297
1,600 East Side Union High School District, California,
Santa Clara County, GO (Election of 2002),
Series D, 5% due 8/01/2026 (c) 1,632,080
900 Fresno, California, Unified School District, GO
(Election of 2001), Series E, 5%
due 8/01/2030 (d) 941,202
Golden State Tobacco Securitization Corporation
of California, Tobacco Settlement Revenue
Bonds, Series B (g):
2,835 5.50% due 6/01/2013 (c) 3,184,017
3,000 5.625% due 6/01/2013 (k) 3,387,690
5,300 Los Angeles, California, Department of Water and
Power, Waterworks Revenue Bonds, Series C,
5% due 7/01/2029 (f) 5,463,929
Metropolitan Water District of Southern California,
Waterworks Revenue Bonds, Series B-1 (b):
2,965 5% due 10/01/2029 3,059,198
1,655 5% due 10/01/2036 1,700,049
5,000 Norco, California, Redevelopment Agency, Tax
Allocation Refunding Bonds (Norco
Redevelopment Project -- Area Number 1),
5.125% due 3/01/2030 (f) 5,045,400
Orange County, California, Sanitation District, COP:
7,455 5% due 2/01/2033 (b) 7,519,187
1,500 Series B, 5% due 2/01/2030 (d) 1,544,925
900 Series B, 5% due 2/01/2031 (d) 926,289
1,750 Poway, California, Redevelopment Agency, Tax
Allocation Refunding Bonds (Paguay
Redevelopment Project), 5.125%
due 6/15/2033 (a) 1,759,258
400 Rancho Cucamonga, California, Redevelopment
Agency, Tax Allocation Refunding Bonds
(Rancho Redevelopment Project), Series A,
5% due 9/01/2034 (f) 400,800
3,850 Sacramento, California, Unified School District,
GO (Election of 2002), 5% due 7/01/2030 (f) 3,997,147
1,100 Southern California Public Power Authority,
Natural Gas Project Number 1 Revenue Bonds,
Series A, 5% due 11/01/2028 1,073,545
6,145 Stockton, California, Public Financing Authority,
Lease Revenue Bonds (Parking & Capital
Projects), 5.125% due 9/01/2030 (b) 6,232,075
1,600 Tamalpais, California, Union High School District,
GO (Election of 2001), 5% due 8/01/2028 (d) 1,669,184
2,325 Ventura County, California, Community College
District, GO (Election of 2002), Series B, 5%
due 8/01/2030 (f) 2,414,792
------------
106,293,824
====================================================================================
Portfolio Abbreviations
To simplify the listings of BlackRock MuniEnhanced Fund, Inc.'s portfolio
holdings in the Schedule of Investments, the names of many of the securities
have been abbreviated according to the list on the right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
S/F Single-Family
See Notes to Financial Statements.
6 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
====================================================================================
Par Amount
(000) Municipal Bonds Value
====================================================================================
Colorado -- 5.7%
$ 2,135 Boulder County, Colorado, Hospital Development
Revenue Bonds (Longmont United Hospital
Project), 5.75% due 12/01/2010 (g)(i) $ 2,328,047
25 Colorado HFA, Revenue Bonds (S/F Program),
AMT, Senior Series A-1, 7.40%
due 11/01/2027 25,464
530 Colorado HFA, Revenue Refunding Bonds (S/F
Program), AMT, Senior Series A-2, 7.50%
due 4/01/2031 550,675
Colorado Health Facilities Authority
Revenue Bonds:
1,200 (Catholic Health Initiatives), Series A,
5.50% due 3/01/2032 (h) 1,285,824
1,200 (Covenant Retirement Communities Inc.),
Series A, 5.50% due 12/01/2027 (i) 1,229,016
675 (Covenant Retirement Communities Inc.),
Series A, 5.50% due 12/01/2033 (i) 684,652
3,875 Colorado Water Resources and Power
Development Authority, Clean Water Revenue
Bonds, Series A, 6.25% due 9/01/2010 (g) 4,253,277
2,000 Denver, Colorado, City and County Airport
Revenue Refunding Bonds, AMT, Series A, 6%
due 11/15/2018 (a) 2,086,180
5,450 El Paso County, Colorado, School District
Number 49, Falcon, GO, Series A, 6%
due 12/01/2009 (d)(g) 6,089,176
------------
18,532,311
====================================================================================
District of Columbia -- 0.5%
1,600 District of Columbia, GO, Series A, 4.75%
due 6/01/2036 (b) 1,556,176
====================================================================================
Florida -- 5.7%
2,300 Duval County, Florida, School Board, COP
(Master Lease Program), 5%
due 7/01/2033 (d) 2,355,453
3,600 Highlands County, Florida, Health Facilities
Authority, Hospital Revenue Bonds (Adventist
Health System), Series C, 5.25%
due 11/15/2036 3,635,028
2,000 Highlands County, Florida, Health Facilities
Authority, Hospital Revenue Refunding Bonds
(Adventist Health System), Series G, 5.125%
due 11/15/2032 2,004,760
9,900 Miami-Dade County, Florida, Aviation Revenue
Refunding Bonds (Miami International Airport),
AMT, 5% due 10/01/2040 (c) 9,814,266
820 Miami, Florida, Special Obligation Revenue
Bonds (Street and Sidewalk Improvement
Program), 5% due 1/01/2037 (f) 827,626
------------
18,637,133
====================================================================================
Georgia -- 13.6%
17,355 Atlanta, Georgia, Airport General Revenue
Refunding Bonds, Series B, 5.25%
due 1/01/2033 (d) 17,945,764
3,000 Atlanta, Georgia, Airport Passenger Facility
Charge and Subordinate Lien General Revenue
Bonds, Series J, 5% due 1/01/2034 (d) 3,061,380
Atlanta, Georgia, Water and Wastewater
Revenue Bonds:
2,900 5% due 11/01/2034 (d) 2,983,404
1,000 Series A, 5% due 11/01/2033 (f) 1,014,830
4,250 Series A, 5% due 11/01/2039 (f) 4,303,210
2,300 Augusta, Georgia, Water and Sewer Revenue
Bonds, 5.25% due 10/01/2039 (d) 2,430,180
2,500 Fulton County, Georgia, Water and Sewer Revenue
Bonds, 5.25% due 1/01/2035 (b) 2,574,100
7,725 Georgia Municipal Electric Authority, Power
Revenue Refunding Bonds, Series EE, 7%
due 1/01/2025 (a) 10,191,283
------------
44,504,151
====================================================================================
Illinois -- 15.3%
Chicago, Illinois, O'Hare International Airport
Revenue Bonds, Third Lien, AMT, Series B-2:
5,670 5.75% due 1/01/2023 (d) 6,070,812
2,500 6% due 1/01/2029 (c) 2,639,650
2,460 Cook County, Illinois, Capital Improvement, GO,
Series C, 5.50% due 11/15/2012 (a)(g) 2,772,445
Illinois Sports Facilities Authority, State Tax
Supported Revenue Bonds (a):
20,120 5.341% due 6/15/2030 (m) 19,256,651
4,500 5% due 6/15/2032 4,601,790
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) 2,172,620
10,115 Regional Transportation Authority, Illinois,
Revenue Bonds, Series A, 7.20%
due 11/01/2020 (a) 12,619,980
------------
50,133,948
====================================================================================
Indiana -- 0.6%
2,100 Indiana Municipal Power Agency, Power Supply
System Revenue Bonds, Series A, 5%
due 1/01/2037 (f) 2,125,536
====================================================================================
Louisiana -- 7.5%
4,500 Lafayette, Louisiana, Utilities Revenue Bonds,
5% due 11/01/2028 (f) 4,600,485
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) 4,080,060
2,035 Louisiana State Citizens Property Insurance
Corporation, Assessment Revenue Bonds,
Series B, 5% due 6/01/2023 (a) 2,050,039
4,950 Louisiana State, Gas and Fuels Tax Revenue
Bonds, Series A, 4.75% due 5/01/2039 (d) 4,949,653
3,735 Louisiana State Transportation Authority, Senior
Lien Toll Revenue Capital Appreciation Bonds,
Series B, 5.31% due 12/01/2027 (a)(m) 1,313,301
2,800 New Orleans, Louisiana, Aviation Board Revenue
Bonds, AMT, Series A, 5% due 1/01/2038 (d) 2,791,264
3,650 Rapides Financing Authority, Louisiana, Revenue
Bonds (Cleco Power LLC Project), AMT, 4.70%
due 11/01/2036 (a) 3,416,145
See Notes to Financial Statements.
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 7
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
====================================================================================
Par Amount
(000) Municipal Bonds Value
====================================================================================
Louisiana (concluded)
$ 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) $ 1,484,952
------------
24,685,899
====================================================================================
Massachusetts -- 4.2%
2,600 Massachusetts Bay Transportation Authority,
Sales Tax Revenue Refunding Bonds, Senior
Series A-2, 5.12% due 7/01/2035 (m) 621,452
1,600 Massachusetts State, HFA, S/F Housing Revenue
Bonds, AMT, Series 128, 4.80%
due 12/01/2027 (d) 1,543,728
2,000 Massachusetts State Health and Educational
Facilities Authority Revenue Bonds (Lahey
Clinic Medical Center), Series D, 5.25%
due 8/15/2037 2,019,380
7,500 Massachusetts State Special Obligation
Dedicated Tax Revenue Bonds, 5.25%
due 1/01/2014 (b)(g) 8,447,400
950 Massachusetts State Water Resource Authority,
General Revenue Refunding Bonds, Series B,
5.125% due 8/01/2027 (f) 982,708
------------
13,614,668
====================================================================================
Michigan -- 3.6%
1,900 Detroit, Michigan, Sewage Disposal System,
Second Lien Revenue Bonds, Series B, 5%
due 7/01/2036 (b) 1,891,355
1,700 Michigan Higher Education Student Loan Authority,
Student Loan Revenue Refunding Bonds, AMT,
Series XVII-G, 5.20% due 9/01/2020 (a) 1,764,685
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 1,329,146
2,500 Series C, 5.65% due 9/01/2029 2,562,050
4,300 Series C, 5.45% due 12/15/2032 4,361,533
------------
11,908,769
====================================================================================
Minnesota -- 0.9%
3,049 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) 3,002,744
====================================================================================
Mississippi -- 0.8%
2,400 Walnut Grove, Mississippi, Correctional Authority,
COP, 6% due 11/01/2009 (a)(g) 2,605,320
====================================================================================
Nebraska -- 0.6%
1,700 Washington County, Nebraska, Wastewater
Facilities Revenue Bonds (Cargill Inc. Project),
AMT, 5.90% due 11/01/2027 1,812,132
====================================================================================
Nevada -- 4.0%
3,100 Carson City, Nevada, Hospital Revenue Bonds
(Carson-Tahoe Hospital Project), Series A,
5.50% due 9/01/2033 (i) 3,150,406
Clark County, Nevada, Airport System Subordinate
Lien Revenue Bonds, Series A-2 (b):
1,500 5% due 7/01/2030 1,504,830
3,200 5% due 7/01/2036 3,190,240
Clark County, Nevada, IDR (Southwest Gas Corp.
Project), AMT (b):
4,020 Series A, 4.75% due 9/01/2036 3,797,815
1,300 Series D, 5.25% due 3/01/2038 1,305,590
------------
12,948,881
====================================================================================
New Hampshire -- 2.4%
7,390 New Hampshire Health and Education Facilities
Authority Revenue Bonds (Dartmouth-Hitchcock
Obligation Group), 5.50% due 8/01/2027 (d) 7,901,979
====================================================================================
New Jersey -- 7.6%
New Jersey EDA, Cigarette Tax Revenue Bonds:
700 5.50% due 6/15/2031 678,125
1,165 5.75% due 6/15/2034 1,158,802
New Jersey EDA, Motor Vehicle Surcharge
Revenue Bonds:
2,600 Series A, 5% due 7/01/2029 (f) 2,687,750
9,325 Series A, 5.25% due 7/01/2031 (f) 9,658,089
5,200 Series A, 5.25% due 7/01/2033 (f) 5,374,096
4,960 New Jersey EDA, School Facilities Construction
Revenue Bonds, Series O, 5.125%
due 3/01/2028 5,188,904
------------
24,745,766
====================================================================================
New York -- 1.5%
2,250 Metropolitan Transportation Authority, New York,
Transportation Revenue Bonds, Series A, 5%
due 11/15/2032 (b) 2,292,840
2,400 Tobacco Settlement Financing Corporation of
New York Revenue Bonds, Series A-1, 5.25%
due 6/01/2022 (a) 2,558,088
------------
4,850,928
====================================================================================
Pennsylvania -- 2.6%
1,500 Pennsylvania HFA, S/F Mortgage Revenue
Refunding Bonds, AMT, Series 99A, 5.25%
due 10/01/2032 1,504,035
4,000 Philadelphia, Pennsylvania, Authority for
Industrial Development, Lease Revenue Bonds,
Series B, 5.50% due 10/01/2011 (d)(g) 4,458,800
2,650 Philadelphia, Pennsylvania, Gas Works Revenue
Refunding Bonds, 1998 General Ordinance,
7th Series, 5% due 10/01/2032 (a) 2,651,828
------------
8,614,663
====================================================================================
Rhode Island -- 2.6%
4,345 Providence, Rhode Island, Public Building
Authority, General Revenue Bonds, Series A,
6.25% due 12/15/2010 (d)(g) 4,852,452
3,355 Rhode Island State Economic Development
Corporation, Airport Revenue Bonds, Series B,
6.50% due 7/01/2010 (b)(g) 3,713,549
------------
8,566,001
====================================================================================
See Notes to Financial Statements.
8 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
====================================================================================
Par Amount
(000) Municipal Bonds Value
====================================================================================
South Carolina -- 1.9%
$ 3,800 Berkeley County, South Carolina, School District,
Installment Lease Revenue Bonds (Securing
Assets for Education Project), 5.125%
due 12/01/2030 $ 3,844,156
2,365 Kershaw County, South Carolina, Public Schools
Foundation, Installment Power Revenue
Refunding Bonds, 5% due 12/01/2029 (k) 2,376,588
------------
6,220,744
====================================================================================
Tennessee -- 1.1%
6,000 Knox County, Tennessee, Health, Educational and
Housing Facilities Board, Hospital Facilities
Revenue Refunding Bonds (Covenant Health),
Series A, 5.04% due 1/01/2038 (m) 1,136,340
2,610 Tennessee Energy Acquisition Corporation, Gas
Bonds, Series A, 5.25% due 9/01/2026 2,583,326
------------
3,719,666
====================================================================================
Texas -- 7.5%
Leander, Texas, Independent School District,
Capital Appreciation, GO, Refunding (School
Building) (m):
9,345 5.49% due 8/15/2029 (b) 2,916,855
10,000 5.58% due 8/15/2035 2,217,800
4,475 Lewisville, Texas, Independent School District,
Capital Appreciation and School Building, GO,
Refunding, 4.67% due 8/15/2024 (b)(m) 1,924,429
2,500 Matagorda County, Texas, Navigation District
Number 1, PCR, Refunding (Central Power and
Light Company Project), AMT, 5.20%
due 5/01/2030 (f) 2,520,675
5,820 North Harris County, Texas, Regional Water
Authority, Senior Lien Revenue Bonds, 5.125%
due 12/15/2035 (f) 5,971,786
900 North Texas Thruway Authority, Dallas North
Thruway System Revenue Bonds, Series A, 5%
due 1/01/2035 (d) 927,540
1,592 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) 1,673,330
6,250 Texas State Turnpike Authority, Central Texas
Turnpike System Revenue Bonds, First Tier,
Series A, 5.50% due 8/15/2039 (a) 6,393,188
------------
24,545,603
====================================================================================
Vermont -- 0.9%
3,100 Vermont HFA, S/F Housing Revenue Bonds, AMT,
Series 27, 4.85% due 11/01/2032 (d) 2,946,364
====================================================================================
Virginia -- 5.5%
10,000 Fairfax County, Virginia, EDA, Resource Recovery
Revenue Refunding Bonds, AMT, Series A,
6.10% due 2/01/2010 (a) 10,638,900
2,300 Halifax County, Virginia, IDA, Exempt Facility
Revenue Refunding Bonds (Old Dominion
Electric Cooperative Project), AMT, 5.625%
due 6/01/2028 (a) 2,414,954
5,000 Stafford County, Virginia, EDA, Hospital Facilities
Revenue Bonds (MediCorp Health System),
5.25% due 6/15/2037 5,009,750
------------
18,063,604
====================================================================================
Washington -- 1.3%
2,190 Port of Tacoma, Washington, GO, AMT, Series B,
4.875% due 12/01/2038 (e) 2,140,309
2,000 Snohomish County, Washington, Public Utility
District Number 001, Electric Revenue
Refunding Bonds, 5.375%
due 12/01/2009 (d)(g) 2,135,260
------------
4,275,569
------------------------------------------------------------------------------------
Total Municipal Bonds
(Cost -- $421,480,509) -- 133.0% 435,837,522
====================================================================================
====================================================================================
Municipal Bonds Transferred to
Tender Option Bond Trusts (j)
====================================================================================
Connecticut -- 3.0%
10,000 Connecticut State, HFA, Housing Mortgage Financing
Program Revenue Bonds, AMT, Sub-Series B-2
Bonds, 5.10%, due 11/15/2038 (a) 9,741,600
====================================================================================
District of Columbia -- 3.0%
10,000 District of Columbia, Ballpark Revenue Bonds,
Series B-1, 5%, due 2/01/2031 (b) 10,013,100
====================================================================================
Florida -- 3.9%
8,900 Miami-Dade County, Florida, Aviation Revenue
Refunding Bonds (Miami International Airport),
AMT, Series A, 5%, due 10/01/2040 (c) 8,481,522
4,200 Orange County, Florida, Sales Tax Revenue
Refunding Bonds, Series B, 5.125%,
due 1/01/2032 (b) 4,292,190
------------
12,773,712
====================================================================================
Illinois -- 2.9%
9,100 Chicago, Illinois, O'Hare International Airport,
General Airport Revenue Refunding Bonds,
Third Lien, AMT, Series A, 5.75%,
due 1/1/2021 (f) 9,520,511
====================================================================================
Massachusetts -- 7.6%
5,600 Massachusetts State HFA, Housing Revenue
Bonds (Rental Mortgage), AMT, Series F,
5.25%, due 1/1/2046 (d) 5,509,224
Massachusetts State Port Authority, Special
Facilities Revenue Bonds (Delta Air Lines Inc.
Project), AMT, Series A (a):
3,100 5.50%, due 1/1/2016 3,227,348
4,000 5.50%, due 1/1/2018 4,164,320
2,870 5.50%, due 1/1/2019 2,987,900
8,800 Massachusetts State School Building Authority,
Dedicated Sales Tax Revenue Bonds, Series A,
5%, due 8/15/2030 (d) 9,141,176
------------
25,029,968
====================================================================================
See Notes to Financial Statements.
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 9
Schedule of Investments (continued) (Percentages shown are based on Net Assets)
====================================================================================
Par Amount Municipal Bonds Transferred to
(000) Tender Option Bond Trusts (j) Value
====================================================================================
New Jersey -- 6.5%
New Jersey EDA, Cigarette Tax Revenue Bonds (e):
$15,250 5.50%, due 6/15/2024 $ 15,940,673
5,000 5.50%, due 6/15/2031 5,299,600
------------
21,240,273
====================================================================================
South Carolina -- 5.1%
Charleston Educational Excellence Financing
Corporation, South Carolina, Revenue Bonds
(Charleston County School District) (e):
3,120 5.25%, due 12/1/2028 3,289,697
2,765 5.25%, due 12/1/2029 2,913,508
1,010 5.25%, due 12/1/2030 1,062,197
9,200 Pickens County South Carolina, Scago
Educational Facility Revenue Bonds, Federal
and State Tax-exempt, 5%, due 12/1/2031 (d) 9,396,696
------------
16,662,098
====================================================================================
Texas -- 7.9%
14,500 Dallas-Fort Worth, Texas, International Airport
Revenue Bonds, AMT, Series A, 5.50%,
due 11/1/2033 (f) 14,748,530
10,400 Travis County, Texas, Health Facilities
Development Corporation, Revenue Refunding
Bonds (Ascension Health Credit), Series A,
5.875%, due 11/15/2009 (a) 11,173,136
------------
25,921,666
------------------------------------------------------------------------------------
Total Municipal Bonds Transferred to
Tender Option Bond Trusts
(Cost -- $132,799,371) -- 39.9% 130,902,928
====================================================================================
Shares
(000) Short-Term Securities Value
====================================================================================
4,219 Merrill Lynch Institutional Tax-Exempt Fund,
2.47% (l)(p) $ 4,218,771
------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $4,218,771) -- 1.3% 4,218,771
====================================================================================
Total Investments (Cost -- $558,498,651*) -- 174.2% 570,959,221
Liability for Trust Certificates, Including Interest
Expense and Fees Payable -- (19.6%) (64,308,365)
Preferred Stock, at Redemption Value -- (57.1%) (187,169,666)
Other Assets Less Liabilities -- 2.5% 8,230,130
------------
Net Assets Applicable to Common Stock -- 100.0% $ 327,711,320
=============
* The cost and unrealized appreciation (depreciation) of investments as of
January 31, 2008, as computed for federal income tax purposes, were as
follows:
Aggregate cost ......................................... $ 493,898,620
=============
Gross unrealized appreciation .......................... $ 17,823,328
Gross unrealized depreciation .......................... (4,670,226)
-------------
Net unrealized appreciation ............................ $ 13,153,102
=============
(a) AMBAC Insured.
(b) FGIC Insured.
(c) XL Capital Insured.
(d) FSA Insured.
(e) Assured Guaranty Insured.
(f) MBIA Insured.
(g) This bond is prerefunded. U.S. government securities, held in escrow, are
used to pay interest on this security, as well as retire the bond in full
at the date indicated, typically at a premium to par.
(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 of
the Notes to Financial Statements for details of municipal bonds
transferred to tender option bond trusts.
(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
Activity Dividend
Affiliate (000) Income
--------------------------------------------------------------------------
Merrill Lynch Institutional Tax-Exempt Fund (1,099) $112,205
--------------------------------------------------------------------------
(m) Represents a step or zero coupon bond; the interest rate shown reflects
the effective yield at the time of purchase.
(n) FNMA/GNMA Collateralized.
(o) FHLMC Collateralized.
(p) Rate shown is the effective yield as of January 31, 2008.
See Notes to Financial Statements.
10 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
Schedule of Investments (concluded) (Percentages shown are based on Net Assets)
o interest rate swaps outstanding as of January 31, 2008 were as follows:
--------------------------------------------------------------------------
Notional
Amount Unrealized
(000) Depreciation
--------------------------------------------------------------------------
Pay a fixed rate of 4.279% and receive
a floating rate based on 3-month
USD LIBOR
Broker, JPMorgan Chase
Expires April 2018 $10,000 $ (11,720)
Pay a fixed rate of 3.7085% and receive
a floating rate based on 1-week
SIFMA Municipal Swap Index rate
Broker, JPMorgan Chase
Expires March 2023 $12,500 (254,088)
Pay a fixed rate of 3.99% and receive
a floating rate based on 1-week
SIFMA Municipal Swap Index rate
Broker, JPMorgan Chase
Expires February 2028 $10,000 (423,070)
Pay a fixed rate of 3.794% and receive
a floating rate based on 1-week
SIFMA Municipal Swap Index rate
Broker, CitiBank, NA
Expires March 2028 $ 7,500 (116,654)
--------------------------------------------------------------------------
Total $(805,532)
=========
See Notes to Financial Statements.
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 11
Statement of Assets and Liabilities
As of January 31, 2008
===============================================================================
Assets
-------------------------------------------------------------------------------
Investments at value -- unaffiliated
(identified cost -- $554,279,880) .......................... $ 566,740,450
Investments at value -- affiliated
(identified cost -- $4,218,771) ............................ 4,218,771
Cash ......................................................... 83,648
Investments sold receivable .................................. 3,002,207
Receivable for issuance of trust certificates ................ 4,600,000
Interest receivable .......................................... 6,182,493
Prepaid expenses and other assets ............................ 27,273
-------------
Total assets ................................................. 584,854,842
-------------
===============================================================================
Liabilities
-------------------------------------------------------------------------------
Trust certificates1 .......................................... 63,907,500
Unrealized depreciation on swaps ............................. 805,532
Investments purchased payable ................................ 3,244,691
Income dividends payable -- common shares .................... 1,262,905
Investment advisory fees payable ............................. 219,827
Interest expense and fees payable ............................ 400,865
Other affiliates payable ..................................... 3,157
Accrued expenses and other liabilities ....................... 129,379
-------------
Total liabilities ............................................ 69,973,856
-------------
===============================================================================
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) authorized, issued and outstanding
at $25,000 per share liquidation preference ................ 187,169,666
-------------
===============================================================================
Net Assets Applicable to Common Stock
-------------------------------------------------------------------------------
Net assets applicable to Common Stock ........................ $ 327,711,320
=============
===============================================================================
Composition 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 ............................. 322,080,169
Undistributed net investment income .......................... 2,111,950
Accumulated net realized capital losses ...................... (11,072,824)
Net unrealized appreciation .................................. 11,655,038
-------------
Total -- Equivalent to $11.16 net asset value per share of
Common Stock (market price -- $10.66) ...................... $ 327,711,320
=============
1 Represents short-term floating rate certificates issued by tender option
bond trusts.
Statement of Operations
For the Year Ended January 31, 2008
===============================================================================
Investment Income
-------------------------------------------------------------------------------
Interest ..................................................... $ 28,418,150
Dividends from affiliates .................................... 112,205
-------------
Total income ................................................. 28,530,355
-------------
===============================================================================
Expenses
-------------------------------------------------------------------------------
Investment advisory .......................................... 2,600,570
Interest expense and fees2 ................................... 2,111,878
Commissions for Preferred Stock .............................. 473,461
Accounting services .......................................... 152,431
Audit and legal .............................................. 91,821
Transfer agent ............................................... 90,675
Printing ..................................................... 52,205
Custodian .................................................... 29,001
Directors .................................................... 27,627
Pricing ...................................................... 21,217
Miscellaneous ................................................ 71,277
-------------
Total expenses before reimbursement .......................... 5,722,163
Less fees reimbursed by Advisor .............................. (6,609)
-------------
Total expenses after reimbursement ........................... 5,715,554
-------------
Net investment income ........................................ 22,814,801
-------------
===============================================================================
Net Realized & Unrealized Gain (Loss)
-------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments ................................................ 4,105,060
Forward interest rate swaps ................................ (479,496)
-------------
3,625,564
-------------
Net change in unrealized appreciation/depreciation on:
Investments ................................................ (14,637,710)
Forward interest rate swaps ................................ (1,238,497)
-------------
(15,876,207)
-------------
Total net realized and unrealized loss ....................... (12,250,643)
-------------
===============================================================================
Dividends to Preferred Stock Shareholders
-------------------------------------------------------------------------------
Net investment income ........................................ (6,935,161)
-------------
Net Increase in Net Assets Resulting from Operations ......... $ 3,628,997
=============
2 Related to tender option bond trusts.
See Notes to Financial Statements.
12 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
Statements of Changes in Net Assets
For the Year Ended
January 31,
-------------------------------
Increase (Decrease) in Net Assets: 2008 2007
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income .......................................................................... $ 22,814,801 $ 22,189,876
Net realized gain .............................................................................. 3,625,564 703,200
Net change in unrealized appreciation/depreciation ............................................. (15,876,207) 1,029,516
Dividends to Preferred Stock shareholders from net investment income ........................... (6,935,161) (6,335,868)
-------------------------------
Net increase in net assets resulting from operations ........................................... 3,628,997 17,586,724
-------------------------------
===================================================================================================================================
Dividends to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from dividends from net investment
income to Common Stock shareholders .......................................................... (15,154,855) (16,799,568)
-------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock ............................. (11,525,858) 787,156
Beginning of year .............................................................................. 339,237,178 338,450,022
-------------------------------
End of year .................................................................................... $ 327,711,320 $ 339,237,178
===============================
End of year undistributed net investment income ................................................ $ 2,111,950 $ 1,242,997
===============================
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 13
Financial Highlights
For the Year Ended January 31,
------------------------------------------------------------
2008 2007 2006 2005 2004
=================================================================================================================================
Per Common Share Operating Performance
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .............................. $ 11.55 $ 11.52 $ 11.85 $ 11.83 $ 11.65
------------------------------------------------------------
Net investment income1 .......................................... .78 .76 .77 .79 .81
Net realized and unrealized gain (loss) ......................... (.41) .06 (.22) .05 .15
Less dividends to Preferred Stock shareholders from net
investment income ............................................. (.24) (.22) (.16) (.07) (.06)
------------------------------------------------------------
Total from investment operations ................................ .13 .60 .39 .77 .90
------------------------------------------------------------
Less dividends to Common Stock shareholders from net
investment income ............................................. (.52) (.57) (.72) (.73) (.72)
Capital charges resulting from the issuance of Preferred Stock .. -- -- -- (.02) --
------------------------------------------------------------
Net asset value, end of year .................................... $ 11.16 $ 11.55 $ 11.52 $ 11.85 $ 11.83
============================================================
Market price, end of year ....................................... $ 10.66 $ 10.77 $ 11.03 $ 10.93 $ 11.22
============================================================
=================================================================================================================================
Total Investment Return2
---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ........................................ 1.44% 5.66% 3.63% 7.20% 8.46%
============================================================
Based on market price ........................................... 3.92% 2.90% 7.58% 4.25% 12.84%
============================================================
=================================================================================================================================
Ratios Based on Average Net Assets Applicable to Common Stock
---------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of reimbursement and excluding
interest expense and fees3, 4 ................................. 1.08% 1.08% 1.07% 1.01% .97%
============================================================
Total expenses, net of reimbursement3 ........................... 1.72% 1.69% 1.51% 1.32% 1.26%
============================================================
Total expenses3 ................................................. 1.69% 1.51% 1.32% 1.27%
============================================================
Total net investment income3 .................................... 6.85% 6.57% 6.63% 6.80% 6.95%
============================================================
Dividends to Preferred Stock shareholders ....................... 2.08% 1.88% 1.34% .59% .48%
============================================================
Net investment income to Common Stock shareholders .............. 4.77% 4.69% 5.29% 6.21% 6.47%
============================================================
=================================================================================================================================
Supplemental Data
---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of year (in thousands) $327,711 $339,237 $338,450 $348,027 $347,389
============================================================
Preferred Stock value outstanding, end of year (in thousands) ... $187,000 $187,000 $187,000 $187,000 $150,000
============================================================
Portfolio turnover .............................................. 31% 22% 33% 41%
Asset coverage per $1,000 ....................................... $ 2,752 $ 2,814 $ 2,810 $ 2,861 $ 3,316
============================================================
1 Based on average shares outstanding.
2 Total investment returns at market price, 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
brokerage commissions. Past performance is not a guarantee of future
results.
3 Does not reflect the effect of dividends to Preferred Stock shareholders.
4 Interest expense and fees relate to tender option bond trusts. See Note 1
of the Notes to Financial Statements for details of municipal bonds
transferred to tender option bond trusts.
See Notes to Financial Statements.
14 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
Notes to Financial Statements
1. Significant Accounting Policies:
BlackRock MuniEnhanced Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), 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. Actual results may differ from these
estimates. 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:
Valuation of Investments: Municipal investments (including commitments to
purchase such investments on a "when-issued" basis) are valued on the basis of
prices provided by dealers or pricing services selected under the supervision of
the Fund's Board of Directors (the "Directors" or the "Board"). In determining
the value of a particular investment, pricing services may use certain
information with respect to transactions in such investments, quotations from
bond dealers, market transactions in comparable investments and various
relationships between investments. Short-term securities may be valued at
amortized cost. Investments in open-end investment companies are valued at net
asset value each business day. In the event that application of these methods of
valuation results in a price for an investment which is deemed not to be
representative of the market value of such investment, the investment will be
valued by, under the direction of, or in accordance with, a method approved by
the Board as reflecting fair value ("Fair Value Assets"). When determining the
price for Fair Value Assets, the investment advisor and/or sub-advisor seeks to
determine the price that the Fund might reasonably expect to receive from the
current sale of that asset in an arm's-length transaction. Fair value
determinations shall be based upon all available factors that the advisor and/or
sub- advisor deems relevant. The pricing of all Fair Value Assets is
subsequently reported to the Board or a committee thereof.
Derivative Financial Instruments: The Fund may engage in various portfolio
investment strategies 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 if the value of the contract decreases due to an
unfavorable change in the price of the underlying security, or if the
counterparty does not perform under the contract.
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. Changes in the value of the forward interest rate swap are
recognized as unrealized gains and losses. When the agreement is closed,
the Fund records a realized gain or loss in an amount equal to the value
of the agreement. The Fund generally intends to close each forward
interest rate swap before the accrual date specified in the agreement and
therefore avoid entering into the interest rate swap underlying each
forward interest rate swap.
The Fund may utilize forward starting swaps for the purpose of reducing
the interest rate sensitivity of the portfolio and decreasing the Fund's
exposure to interest rate risk.
Municipal Bonds Transferred to Tender Option Bond Trusts: 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 Fund's transfer of the
municipal securities to a TOB is accounted for as a financing transaction,
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 TOB residuals 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 January 31, 2008, the aggregate value of
the underlying municipal securities transferred to TOBs was $130,902,928, the
related liability for trust certificates was $63,907,500 and the range of
interest rates on the liability for trust certificates was 2.250% to 3.788%.
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 net
investment income and dividends 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.
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 15
Notes to Financial Statements (continued)
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 liability for trust certificates reflected as a
result of the Fund's investment in TOB Residuals.
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.
Effective July 31, 2007, the Fund implemented Financial Accounting Standards
Board ("FASB") Interpretation No. 48,"Accounting for Uncertainty in Income Taxes
-- an interpretation of FASB Statement No. 109" ("FIN 48"). 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 investment companies, 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.
federal and various state and local tax returns. No income tax returns are
currently under examination. The statute of limitations on the Fund's U.S.
federal tax returns remains open for the years ended January 31, 2004 through
January 31, 2006. The statutes of limitations on the Fund's state and local tax
returns may remain open for an additional year depending upon the jurisdiction.
Investment Transactions and Investment Income: Investment 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.
Dividends and Distributions: Dividends to common shareholders from net
investment income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Dividends and distributions to Preferred
Stock shareholders are accrued and determined as described in Note 4.
Recent Accounting Pronouncements: 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. The impact on the Fund's financial
statement disclosures, if any, is currently being assessed.
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. 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. The impact on the Fund's financial statement disclosures, if any,
is currently being assessed.
Segregation: In cases in which the 1940 Act and the interpretive positions of
the Securities and Exchange Commission (the "SEC") require that the Fund
segregate assets in connection with certain investments (e.g., when-issued
securities or swap agreements), the Fund will, consistent with certain
interpretive letters issued by the SEC, designate on its books and records cash
or other liquid securities having a market value at least equal to the amount
that would otherwise be required to be physically segregated.
Other: Expenses that are directly related to the Fund is charged directly to the
Fund. Other operating expenses are generally pro-rated to the Fund on the basis
of relative net assets of all the BlackRock Closed-End Funds.
Reclassifications: U.S. generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, during the current year,
$507,513 has been reclassified between paid-in capital in excess of par and
accumulated net realized capital losses and $144,168 has been reclassified
between accumulated net realized capital losses and undistributed net investment
income as a result of permanent differences attributable to the expiration of
capital loss carryforwards and amortization methods on fixed income securities.
These reclassifications have no effect on net assets or net asset values per
share.
2. Investment Advisory Agreement and Other Transactions with Affiliates:
The Fund entered into an Investment Advisory Agreement with BlackRock Advisors,
LLC (the "Advisor"), an indirect, wholly owned subsidiary of BlackRock, Inc., to
provide investment advisory and administration services. Merrill Lynch & Co.,
Inc. ("Merrill Lynch") and The PNC Financial Services Group, Inc. are principal
owners of BlackRock, Inc.
The Advisor 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
16 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
Notes to Financial Statements (continued)
Fund pays the Advisor a monthly fee at an annual rate of .50% of the average
daily value of the Fund's net assets, including proceeds from the issuance of
Preferred Stock.
The Advisor has agreed to reimburse its advisory fees by the amount of
investment advisory fees the Fund pays to the Advisor indirectly through its
investment in affiliated money market funds. For the year ended January 31,
2008, the amount was $6,609.
In addition, the Advisor has entered into a separate sub-advisory agreement with
BlackRock Investment Management, LLC ("BIM"), an affiliate of the Advisor, under
which the Advisor pays BIM for services it provides, a monthly fee at an annual
rate that is a percentage of the management fee paid by the Fund to the Advisor.
For the year ended January 31, 2008, the Fund reimbursed the Advisor $9,630 for
certain accounting services, which are included in accounting services in the
Statement of Operations.
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
year ended January 31, 2008 were $104,081,751 and $120,607,039, respectively.
4. Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of stock, including Preferred
Stock, par value $.10 per share, all of which were initially classified as
Common Stock. The Board is authorized, however, to reclassify any unissued
shares of stock without approval of holders of Common Stock. Shares issued and
outstanding during the years ended January 31, 2008 and January 31, 2007
remained constant.
Preferred Stock
Preferred Stock of the Fund has a par value of $.025 per share on Series A,
Series B and Series C Shares and $.10 per share on Series D 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 periods. The yields in effect at January 31, 2008 were:
Series A, 3.04%; Series B, 3.69%; Series C, 3.20%; and Series D, 3.20%.
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, 2008, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, a wholly owned subsidiary of Merrill Lynch, earned $189,497
as commissions.
Dividends on seven-day Preferred Stock are cumulative at a rate which is reset
every seven days based on the results of an auction. Dividends on 28-day
Preferred Stock are cumulative at a rate which resets every 28 days based on the
results of an auction. If the Preferred Stock fails to clear the auction on the
auction date, the Fund is required to pay the maximum applicable rate on the
Preferred Stock to holders of such stock for successive dividend periods until
such time as the Preferred Stock is successfully auctioned. The maximum
applicable rate on the Preferred Stock for Series A, B and C is the higher of
110% of the AA commercial paper rate or 110% of 90% of the Kenny S&P 30-day High
Grade Index rate divided by 1.00 minus the marginal tax rate and for Series D
the higher of 110% plus or times (i) the Telerate/BBA LIBOR or (ii) 90% of the
Kenny S&P 30-day High Grade Index rate divided by 1.00 minus the marginal tax
rate. During the year ended January 31, 2008, the Preferred Stock of the Fund
was successfully auctioned at each auction date. The low, high and average
dividend ranges on the Preferred Stock for the Fund for the year ended January
31, 2008 were as follows:
--------------------------------------------------------------------------------
Low High Average
--------------------------------------------------------------------------------
Series A ........................................... 3.04% 4.05% 3.67%
Series B ........................................... 3.45 4.50 3.76
Series C ........................................... 3.20 4.60 3.72
Series D ........................................... 3.20 4.60 3.68
--------------------------------------------------------------------------------
The Fund may not declare dividends or make other distributions on Common Stock
or purchase any such stock if, at the time of the declaration, distribution or
purchase, asset coverage with respect to the outstanding Preferred Stock would
be less than 200%.
The Preferred Stock is redeemable at the option of the Fund, in whole or in
part, on any dividend payment date at $25,000 per share plus any accumulated
unpaid dividends whether or not declared. The Preferred Stock is also subject to
mandatory redemption at $25,000 per share plus any accumulated or unpaid
dividends, whether or not declared, if certain requirements relating to the
composition of the assets and liabilities of the Fund, as set forth in the
Fund's Articles of Incorporation/Articles Supplementary, are not satisfied.
The holders of Preferred Stock have voting rights equal to the holders of Common
Stock (one vote per share) and will vote together with holders of Common Stock
as a single class. However, holders of Preferred Stock, voting as a separate
class, are also entitled to elect two Directors for the Fund. In addition, the
1940 Act requires that along with approval by shareholders that might otherwise
be required, the approval of the holders of a majority of any outstanding
Preferred Stock, voting separately as a class would be required to (a) adopt any
plan of reorganization that would adversely affect the Preferred Stock, (b)
change a Fund's subclassification as a closed-end investment company or change
its fundamental investment restrictions or (c) change its business so as to
cease to be an investment company.
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 17
Notes to Financial Statements (concluded)
5. Distributions to Shareholders:
No provision is made for U.S. federal income taxes as it is the Fund's intention
to continue to qualify for and elect the tax treatment applicable to regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended, and to make the requisite distributions to their respective
shareholders, which will be sufficient to relieve them from federal income and
excise taxes.
The tax character of distributions paid during the fiscal years ended January
31, 2008 and January 31, 2007 was as follows:
--------------------------------------------------------------------------------
1/31/2008 1/31/2007
--------------------------------------------------------------------------------
Distributions paid from:
Tax-exempt income .............................. $22,090,016 $23,135,436
--------------------------
Total distributions .............................. $22,090,016 $23,135,436
==========================
As of January 31, 2008, the components of accumulated earnings on a tax basis
were as follows:
Undistributed tax-exempt income -- net ...................... $ 1,531,028
------------
Total undistributed earnings -- net ......................... 1,531,028
Capital loss carryforward ................................... (10,825,517)*
Unrealized gains -- net ..................................... 11,988,653**
------------
Total accumulated earnings -- net ........................... $ 2,694,164
============
* On January 31, 2008, the Fund had a net capital loss carryforward of
$10,825,517, of which $8,505,599 expires in 2009, $1,955,204 expires in
2011 and $364,714 expires in 2013. 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 wash sales, the
tax deferral of losses on straddles, the difference between book and tax
amortization methods for premiums and discounts on fixed income securities
and the difference between the book and tax treatment of residual interest
in tender option bonds.
6. Concentration Risk:
The Fund concentrates its investments in securities issued by state agencies and
other governmental entities. The Fund is more susceptible to adverse financial,
social, environmental, economic, regulatory and political factors that may
affect these state agencies and other governmental entities, which could
seriously affect the ability of these states and their municipal subdivisions to
meet continuing obligations for principal and interest payments and therefore
could impact the value of the Fund's investments and net asset value per share,
than if the Fund was not concentrated in securities issued by state agencies and
other governmental entities.
Many municipalities insure repayment of their obligations. Although bond
insurance reduces the risk of loss due to default by an issuer, such bonds
remain subject to the risk that market value may fluctuate for other reasons and
there is no assurance that the insurance company will meet its obligations.
These securities have been identified in the Schedule of Investments.
7. Subsequent Events:
Since February 13, 2008, the Preferred Stock of the Fund failed to clear any of
its auctions. As a result, the Preferred Stock dividend rates were reset to the
maximum applicable rate, which ranged from 3.32% to 5.20%. A failed auction is
not an event of default for the Fund but it is a liquidity event for the holders
of the Preferred Stock. Recent auction market liquidity problems have triggered
numerous failed auctions for many closed-end funds, including BlackRock. A
failed auction occurs when there are more sellers of a fund's auction rate
preferred stock than buyers. It is impossible to predict how long this imbalance
will last. An auction for the Fund's Preferred Stock may not occur for a long
period of time, if ever, and even if liquidity does resume, holders of the
Preferred Stock may not have the amount of liquidity they desire or the ability
to sell the Preferred Stock at par.
The Fund paid a tax-exempt income dividend to holders of Common Stock in the
amount of $.043000 on March 3, 2008 to shareholders of record on February 15,
2008.
The dividends declared on Preferred Stock for the period February 1, 2008 to
February 29, 2008 for the Fund were as follows:
--------------------------------------------------------------------------------
Series A ........................................................... $160,640
Series B ........................................................... $120,440
Series C ........................................................... $134,780
Series D ........................................................... $114,152
--------------------------------------------------------------------------------
18 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of BlackRock MuniEnhanced Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of BlackRock MuniEnhanced Fund, Inc., as of January
31, 2008, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The
Fund is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of January 31, 2008, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock MuniEnhanced Fund, Inc. as of January 31, 2008, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
March 25, 2008
Important Tax Information (Unaudited)
All of the net investment income distributions paid by BlackRock MuniEnhanced
Fund, Inc. during the taxable year ended January 31, 2008 qualify as tax-exempt
interest dividends for federal income tax purposes.
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 19
Automatic Dividend Reinvestment Plan
How the Plan Works -- The Fund offers a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by the Fund are
automatically reinvested in additional shares of Common Stock of the Fund. The
Plan is administered on behalf of the shareholders by Computershare Trust
Company, N.A. (the "Plan Agent"). Under the Plan, whenever the Fund declares a
dividend, participants in the Plan will receive the equivalent in shares of
Common Stock of the Fund. The Plan Agent will acquire the shares for the
participant's account either (i) through receipt of additional unissued but
authorized shares of the Fund ("newly issued shares") or (ii) by purchase of
outstanding shares of Common Stock on the open market on the New York Stock
Exchange or elsewhere. If, on the dividend payment date, the Fund's net asset
value per share is equal to or less than the market price per share plus
estimated brokerage commissions (a condition often referred to as a "market
premium"), the Plan Agent will invest the dividend amount in newly issued
shares. If the Fund's net asset value per share is greater than the market price
per share (a condition often referred to as a "market discount"), the Plan Agent
will invest the dividend amount by purchasing on the open market additional
shares. If the Plan Agent is unable to invest the full dividend amount in open
market purchases, or if the market discount shifts to a market premium during
the purchase period, the Plan Agent will invest any uninvested portion in newly
issued shares. The shares acquired are credited to each shareholder's account.
The amount credited is determined by dividing the dollar amount of the dividend
by either (i) when the shares are newly issued, the net asset value per share on
the date the shares are issued or (ii) when shares are purchased in the open
market, the average purchase price per share.
Participation in the Plan -- Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Fund unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by writing to the Plan Agent.
Benefits of the Plan -- The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Fund. The Plan
promotes a long-term strategy of investing at a lower cost. All shares acquired
pursuant to the Plan receive voting rights. In addition, if the market price
plus commissions of the Fund's shares is above the net asset value, participants
in the Plan will receive shares of the Fund for less than they could otherwise
purchase them and with a cash value greater than the value of any cash
distribution they would have received. However, there may not be enough shares
available in the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price on resale
may be more or less than the net asset value.
Plan Fees -- There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Fund. However, brokerage commissions may be
incurred when the Fund purchases shares on the open market and shareholders will
pay a pro rata share of any such commissions.
Tax Implications -- The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income tax that may
be payable (or required to be withheld) on such dividends. Therefore, income and
capital gains may still be realized even though shareholders do not receive
cash. Participation in the Plan generally will not affect the tax-exempt status
of exempt interest dividends paid by the Fund. If, when the Fund's shares are
trading at a market premium, the Fund issues shares pursuant to the Plan that
have a greater fair market value than the amount of cash reinvested, it is
possible that all or a portion of the discount from the market value (which may
not exceed 5% of the fair market value of the Fund's shares) could be viewed as
a taxable distribution. If the discount is viewed as a taxable distribution, it
is also possible that the taxable character of this discount would be allocable
to all the shareholders, including shareholders who do not participate in the
Plan. Thus, shareholders who do not participate in the Plan might be required to
report as ordinary income a portion of their distributions equal to their
allocable share of the discount.
Contact Information -- All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at Computershare
Trust Company, N.A., P.O. Box 43010, Providence, RI 02940-3010, Telephone: (800)
426-5523.
Other Information
From time to time in the future, the Fund may effect redemptions and/or
repurchases of its Preferred Stock as provided in the applicable constituent
instruments or as agreed upon by the Fund and holders of Preferred Stock. The
Fund would generally effect such redemptions and/or repurchases to the extent
necessary to maintain applicable asset coverage requirements.
20 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
Officers and Directors
Number of
Length of BlackRock-
Position(s) Time Advised Funds
Name, Address Held with Served as a and Portfolios Public
and Year of Birth Fund Director** Principal Occupation(s) During Past 5 Years Overseen Directorships
====================================================================================================================================
Non-Interested Directors*
------------------------------------------------------------------------------------------------------------------------------------
G. Nicholas Beckwith, III Director Since 2007 Chairman and Chief Executive Officer, Arch 112 Funds None
40 East 52nd Street Street Management, LLC (Beckwith Family 109 Portfolios
New York, NY 10022 Foundation) and various Beckwith property
1945 companies since 2005; Chairman of the Board
of Directors, University of Pittsburgh
Medical Center since 2002; Board of
Directors, Shady Side Hospital Foundation
since 1977; Board of Directors, Beckwith
Institute for Innovation In Patient Care
since 1991; Member, Advisory Council on
Biology and Medicine, Brown University since
2002; Trustee, Claude Worthington Benedum
Foundation (charitable foundation) since
1989; Board of Trustees, Chatham College
since 1981; Board of Trustees, University of
Pittsburgh since 2002; Emeritus Trustee,
Shady Side Academy since 1977; Formerly
Chairman and Manager, Penn West Industrial
Trucks LLC (sales, rental and servicing of
material handling equipment) from 2005 to
2007; Formerly Chairman, President and Chief
Executive Officer, Beckwith Machinery
Company (sales, rental and servicing of
construction and equipment) from 1985 to
2005; Formerly Board of Directors, National
Retail Properties (REIT) from 2006 to 2007.
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Cavanagh Director Since 2007 Trustee, Aircraft Finance Trust since 1999; 113 Funds Arch Chemical
40 East 52nd Street and Chairman Director, The Guardian Life Insurance 110 Portfolios (chemical and allied
New York, NY 10022 of the Board Company of America since 1998; Chairman and products)
1946 of Directors Trustee, Educational Testing Service since
1997; Director, The Fremont Group since
1996; Formerly President and Chief Executive
Officer of The Conference Board, Inc.
(global business research organization) from
1995 to 2007.
------------------------------------------------------------------------------------------------------------------------------------
Kent Dixon Director Since 2007 Consultant/Investor since 1988. 113 Funds None
40 East 52nd Street and Member 110 Portfolios
New York, NY 10022 of the Audit
1937 Committee
------------------------------------------------------------------------------------------------------------------------------------
Frank J. Fabozzi Director Since 2007 Consultant/Editor of The Journal of 113 Funds None
40 East 52nd Street and Member Portfolio Management since 2006; Professor 110 Portfolios
New York, NY 10022 of the Audit in the Practice of Finance and Becton
1948 Committee Fellow, Yale University, School of
Management, since 2006; Formerly Adjunct
Professor of Finance and Becton Fellow, Yale
University from 1994 to 2006.
------------------------------------------------------------------------------------------------------------------------------------
Kathleen F. Feldstein Director Since 2007 President of Economics Studies, Inc. 113 Funds The McClatchy
40 East 52nd Street (private economic consulting firm) since 110 Portfolios Company
New York, NY 10022 1987; Chair, Board of Trustees, McLean (publishing)
1941 Hospital since 2000; Member of the Board of
Partners Community Healthcare, Inc. since
2005; Member of the Board of Partners
HealthCare since 1995; Member of the Board
of Sherrill House (health care) since 1990;
Trustee, Museum of Fine Arts, Boston since
1992; Member of the Visiting Committee to
the Harvard University Art Museum since
2003; Trustee, The Committee for Economic
Development (research organization) since
1990; Member of the Advisory Board to the
International School of Business, Brandeis
University since 2002; Formerly Director of
Bell South (communications) from 1998 to
2006; Formerly Director of Ionics (water
purification) from 1992 to 2005; Formerly
Director of John Hancock Financial Services
from 1994 to 2003; Formerly Director of
Knight Ridder (media) from 1998 to 2006.
------------------------------------------------------------------------------------------------------------------------------------
James T. Flynn Director Since 2007 Formerly Chief Financial Officer of 112 Funds None
40 East 52nd Street and Member JPMorgan & Co., Inc. from 1990 to 1995. 109 Portfolios
New York, NY 10022 of the Audit
1939 Committee
------------------------------------------------------------------------------------------------------------------------------------
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 21
Officers and Directors (continued)
Number of
Length of BlackRock-
Position(s) Time Advised Funds
Name, Address Held with Served as a and Portfolios Public
and Year of Birth Fund Director** Principal Occupation(s) During Past 5 Years Overseen Directorships
===================================================================================================================================
Non-Interested Directors* (concluded)
-----------------------------------------------------------------------------------------------------------------------------------
Jerrold B. Harris Director Since 2007 Trustee, Ursinus College since 2000; 112 Funds BlackRock-Kelso
40 East 52nd Street Director, Troemner LLC (scientific 109 Portfolios Capital Corp.
New York, NY 10022 equipment) since 2000.
1942
-----------------------------------------------------------------------------------------------------------------------------------
R. Glenn Hubbard Director Since 2007 Dean of Columbia Business School since 2004; 113 Funds ADP (data and
40 East 52nd Street Columbia faculty member since 1988; Formerly 110 Portfolios information
New York, NY 10022 Co-Director of Columbia Business School's services);
1958 Entrepreneurship Program from 1997 to 2004; KKR Financial
Visiting Professor at the John F. Kennedy Corporation
School of Government at Harvard University (finance);
and the Harvard Business School since 1985 Duke Realty (real
and at the University of Chicago since 1994; estate);
Formerly Chairman of the U.S. Council of Metropolitan
Economic Advisers under the President of the Life Insurance
United States from 2001 to 2003. Company (insurance);
Information Services
Group (media/
technology)
------------------------------------------------------------------------------------------------------------------------------------
W. Carl Kester Director Since 2007 Mizuho Financial Group Professor of Finance, 112 Funds None
40 East 52nd Street and Member Harvard Business School; Deputy Dean for 109 Portfolios
New York, NY 10022 of the Audit Academic Affairs since 2006; Unit Head,
1951 Committee Finance, Harvard Business School from 2005
to 2006; Senior Associate Dean and Chairman
of the MBA Program of Harvard Business
School from 1999 to 2005; Member of the
faculty of Harvard Business School since
1981; Independent Consultant since 1978.
------------------------------------------------------------------------------------------------------------------------------------
Karen P. Robards Director Since 2007 Partner of Robards & Company, LLC (financial 112 Funds AtriCure, Inc.
40 East 52nd Street and advisory firm) since 1987; Co-founder and 109 Portfolios (medical devices);
New York, NY 10022 Chairperson Director of the Cooke Center for Learning Care Investment
1950 of the Audit and Development (a not-for-profit Trust, Inc. (health
Committee organization) since 1987; Formerly Director care REIT)
of Enable Medical Corp. from 1996 to 2005;
Formerly an investment banker at Morgan
Stanley from 1976 to 1987.
------------------------------------------------------------------------------------------------------------------------------------
Robert S. Salomon, Jr. Director Since 2002 Formerly Principal of STI Management LLC 112 Funds None
40 East 52nd Street and Member (investment adviser) from 1994 to 2005. 109 Portfolios
New York, NY 10022 of the Audit
1936 Committee
----------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in
which they turn 72.
** Following the combination of Merrill Lynch Investment Managers, L.P. ("MLIM") and BlackRock,
Inc. ("BlackRock") in September 2006, the various legacy MLIM and legacy BlackRock Fund boards
were realigned and consolidated into three new Fund boards in 2007. As a result, although the
chart shows certain directors as joining the Fund's board in 2007, those directors first became
a member of the board of directors of other legacy MLIM or legacy BlackRock Funds as follows: G.
Nicholas Beckwith, III since 1999; Richard E. Cavanagh since 1994; Kent Dixon since 1988; Frank
J. Fabozzi since 1988; Kathleen F. Feldstein since 2005; James T. Flynn since 1996; Jerrold B.
Harris since 1999; R. Glenn Hubbard since 2004; W. Carl Kester since 1998; Karen P. Robards
since 1998 and Robert S. Salomon, Jr. since 1996.
22 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
Officers and Directors (continued)
Number of
Length of BlackRock-
Position(s) Time Advised Funds
Name, Address Held with Served as a and Portfolios Public
and Year of Birth Fund Director Principal Occupation(s) During Past 5 Years Overseen Directorships
===================================================================================================================================
Interested Directors*
-----------------------------------------------------------------------------------------------------------------------------------
Richard S. Davis Director Since 2007 Managing Director, BlackRock, Inc. since 185 Funds None
40 East 52nd Street 2005; Formerly Chief Executive Officer, 292 Portfolios
New York, NY 10022 State Street Research & Management Company
1945 from 2000 to 2005; Formerly Chairman of the
Board of Trustees, State Street Research
Mutual Funds from 2000 to 2005; Formerly
Chairman, SSR Realty from 2000 to 2004.
-----------------------------------------------------------------------------------------------------------------------------------
Henry Gabbay Director Since 2007 Consultant, BlackRock, Inc. since 2007; 184 Funds None
40 East 52nd Street Formerly Managing Director, BlackRock, Inc. 291 Portfolios
New York, NY 10022 from 1989 to 2007; Formerly Chief
1947 Administrative Officer, BlackRock Advisors,
LLC from 1998 to 2007; Formerly President of
BlackRock Funds and BlackRock Bond
Allocation Target Shares from 2005 to 2007;
Formerly Treasurer of certain closed-end
funds in the BlackRock fund complex from
1989 to 2006.
----------------------------------------------------------------------------------------------------------
* Messrs. Davis and Gabbay are both "interested persons," as defined in the Investment Company
Act of 1940, of the Fund based on their positions with BlackRock, Inc. and its affiliates.
Directors serve until their resignation, removal or death, or until December 31 of the year in
which they turn 72.
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 23
Officers and Directors (concluded)
Position(s) Length of
Name, Address Held with Time
and Year of Birth the Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
------------------------------------------------------------------------------------------------------------------------------------
Donald C. Burke Fund Since 2007 Managing Director of BlackRock, Inc. since 2006; Formerly Managing Director of
40 East 52nd Street President Merrill Lynch Investment Managers, L.P. ("MLIM") and Fund Asset Management, L.P.
New York, NY 10022 and Chief ("FAM") in 2006; First Vice President thereof from 1997 to 2005; Treasurer
1960 Executive thereof from 1999 to 2006 and Vice President thereof from 1990 to 1997.
Officer
------------------------------------------------------------------------------------------------------------------------------------
Anne F. Ackerley Vice Since 2007 Managing Director of BlackRock, Inc. since 2000 and First Vice President and
40 East 52nd Street President Chief Operating Officer of Mergers and Acquisitions Group from 1997 to 2000;
New York, NY 10022 First Vice President and Chief Operating Officer of Public Finance Group thereof
1962 from 1995 to 1997; First Vice President of Emerging Markets Fixed Income
Research of Merrill Lynch & Co., Inc. from 1994 to 1995.
------------------------------------------------------------------------------------------------------------------------------------
Neal J. Andrews Chief Since 2007 Managing Director of BlackRock, Inc. since 2006; Formerly Senior Vice President
40 East 52nd Street Financial and Line of Business Head of Fund Accounting and Administration at PFPC Inc.
New York, NY 10022 Officer from 1992 to 2006.
1966
------------------------------------------------------------------------------------------------------------------------------------
Jay M. Fife Treasurer Since 2007 Managing Director of BlackRock, Inc. since 2007 and Director in 2006; Formerly
40 East 52nd Street Assistant Treasurer of the MLIM/FAM advised funds from 2005 to 2006; Director of
New York, NY 10022 MLIM Fund Services Group from 2001 to 2006.
1970
------------------------------------------------------------------------------------------------------------------------------------
Brian P. Kindelan Chief Since 2007 Chief Compliance Officer of the Funds since 2007; Managing Director and Senior
40 East 52nd Street Compliance Counsel thereof since 2005; Director and Senior Counsel of BlackRock Advisors,
New York, NY 10022 Officer Inc. from 2001 to 2004 and Vice President and Senior Counsel thereof from 1998
1959 to 2000; Senior Counsel of The PNC Bank Corp. from 1995 to 1998.
------------------------------------------------------------------------------------------------------------------------------------
Howard Surloff Secretary Since 2007 Managing Director of BlackRock, Inc. and General Counsel of U.S. Funds at
40 East 52nd Street BlackRock, Inc. since 2006; Formerly General Counsel (U.S.) of Goldman Sachs
New York, NY 10022 Asset Management, L.P. from 1993 to 2006.
1965
----------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
------------------------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and
Trust Company
Boston, MA 02101
Transfer Agents
Common Stock:
Computershare Trust Company, N.A.
Providence, RI 02940
Preferred Stock:
The Bank of New York Mellon
New York, NY 10286
Accounting Agent
State Street Bank and
Trust Company
Princeton, NJ 08540
Independent Registered Public
Accounting Firm
Deloitte & Touche LLP
Princeton, NJ 08540
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom LLP
New York, NY 10036
24 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
Additional Information
Proxy Results
During the six-month period ended January 31, 2008, the Common Stock and
Preferred Stock (Series A-D) shareholders of BlackRock MuniEnhanced Fund, Inc.
voted on the following proposal, which was approved at the annual shareholders'
meeting on August 16, 2007. This proposal was part of the reorganization of the
Fund's Board of Directors that took effect on November 1, 2007. A description of
the proposal and number of shares voted are as follows:
---------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
---------------------------------------------------------------------------------------------------------------------
To elect the Fund's Board of Directors: G. Nicholas Beckwith, III 25,708,238 1,056,188
Richard E. Cavanagh 25,709,459 1,054,967
Richard S. Davis 25,707,552 1,056,874
Kent Dixon 25,705,547 1,058,879
Kathleen F. Feldstein 25,705,820 1,058,606
James T. Flynn 25,710,433 1,053,993
Henry Gabbay 25,836,038 928,388
Jerrold B. Harris 25,707,186 1,057,240
R. Glenn Hubbard 25,701,615 1,062,811
Karen P. Robards 25,712,576 1,051,850
Robert S. Salomon, Jr. 25,711,207 1,053,219
---------------------------------------------------------------------------------------------------------------------
During the six-month period ended January 31, 2008, the Preferred Stock
shareholders (Series A-D) of BlackRock MuniEnhanced Fund, Inc., voted on the
following proposal, which was approved at the annual shareholders' meeting on
August 16, 2007. This proposal was part of the reorganization of the Fund's
Board of Directors that took effect on November 1, 2007. A description of the
proposal and number of shares voted are as follows:
---------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
---------------------------------------------------------------------------------------------------------------------
To elect the Fund's Board of Directors: Frank J. Fabozzi and W. Carl Kester 6,079 13
---------------------------------------------------------------------------------------------------------------------
BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008 25
Additional Information (concluded)
Fund Certification
The Fund is listed for trading on the New York Stock Exchange ("NYSE") and has
filed with the NYSE its annual chief executive officer certification regarding
compliance with the NYSE's listing standards. The Fund filed with the Securities
and Exchange Commission ("SEC") the certification of its chief executive officer
and chief financial officer required by section 302 of the Sarbanes-Oxley Act.
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 Assets and
Liabilities, 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 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 website at http://www.sec.gov and 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 (800) SEC-0330. The Fund's Forms N-Q may also be obtained upon request
and without charge by calling (800) 441-7762.
Electronic Delivery
Electronic copies of most financial reports are available on the Fund's website
or shareholders can sign up for e-mail notifications of quarterly statements and
annual and semi-annual reports by enrolling in the Fund's electronic delivery
program.
Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:
Please contact your financial advisor to enroll. Please note that not all
investment advisors, banks or brokerages may offer this service.
26 BLACKROCK MUNIENHANCED FUND, INC. JANUARY 31, 2008
General Information
The Fund does not make available copies of its Statements of Additional
Information because the Fund's shares are not continuously offered, which means
that the Statement of Additional Information of the Fund has not been updated
after completion of the Fund's offering and the information contained in the
Fund's Statement of Additional Information may have become outdated.
The Fund will mail only one copy of shareholder documents, including annual and
semi-annual reports and proxy statements, to shareholders with multiple accounts
at the same address. This practice is commonly called "householding" and it is
intended to reduce expenses and eliminate duplicate mailings of shareholder
documents. Mailings of your shareholder documents may be householded
indefinitely unless you instruct us otherwise. If you do not want the mailing of
these documents to be combined with those for other members of your household,
please contact the Fund at (800) 441-7762.
During the period, there were no material changes in the Fund's investment
objective or policies or to the Fund's character or by-laws that were not
approved by the shareholders or in the principal risk factors associated with
investment in the Fund. There have been no changes in the persons who are
primarily responsible for the day-to-day management of the Fund's portfolio.
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 websites.
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. JANUARY 31, 2008 27
This report is transmitted to shareholders only. 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,
which 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, currently set at the maximum reset rate as a result of failed
auctions, 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 (800) 441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's website
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 upon request and without charge (1) at
www.blackrock.com or by calling (800) 441-7762 and (2) on the Securities and
Exchange Commission's website at http://www.sec.gov.
BlackRock MuniEnhanced Fund, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
BLACKROCK
#10874-1/08
Item 2 - Code of Ethics - The registrant (or the "Fund") has adopted a code
of ethics, as of the end of the period covered by this report,
applicable to the registrant's principal executive officer,
principal financial officer and principal accounting officer, or
persons performing similar functions. During the period covered by
this report, there have been no amendments to or waivers granted
under the code of ethics. A copy of the code of ethics is available
without charge at www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors or trustees, as applicable (the "board of directors") has
determined that (i) the registrant has the following audit committee
financial experts serving on its audit committee and (ii) each audit
committee financial expert is independent:
Kent Dixon (term began effective November 1, 2007)
Frank J. Fabozzi (term began effective November 1, 2007)
James T. Flynn (term began effective November 1, 2007)
Joe Grills (term ended effective November 1, 2007)
W. Carl Kester (term began effective November 1, 2007)
Karen P. Robards (term began effective November 1, 2007)
Robert S. Salomon, Jr.
The registrant's board of directors has determined that W. Carl
Kester and Karen P. Robards qualify as financial experts pursuant to
Item 3(c)(4) of Form N-CSR.
Prof. Kester has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. Prof.
Kester has been involved in providing valuation and other financial
consulting services to corporate clients since 1978. Prof. Kester's
financial consulting services present a breadth and level of
complexity of accounting issues that are generally comparable to the
breadth and complexity of issues that can reasonably be expected to
be raised by the registrant's financial statements.
Ms. Robards has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. Ms.
Robards has been President of Robards & Company, a financial
advisory firm, since 1987. Ms. Robards was formerly an investment
banker for more than 10 years where she was responsible for
evaluating and assessing the performance of companies based on their
financial results. Ms. Robards has over 30 years of experience
analyzing financial statements. She also is a member of the audit
committee of one publicly held company and a non-profit
organization.
Under applicable securities laws, a person determined to be an audit
committee financial expert will not be deemed an "expert" for any
purpose, including without limitation for the purposes of Section 11
of the Securities Act of 1933, as a result of being designated or
identified as an audit committee financial expert. The designation
or identification as an audit committee financial expert does not
impose on such person any duties, obligations, or liabilities
greater than the duties, obligations, and liabilities imposed on
such person as a member of the audit committee and board of
directors in the absence of such designation or identification.
Item 4 - Principal Accountant Fees and Services
----------------------------------------------------------------------------------------------------------------------------------
(a) Audit Fees (b) Audit-Related Fees(1) (c) Tax Fees(2) (d) All Other Fees(3)
----------------------------------------------------------------------------------------------------------------------------------
Current Previous Current Previous Current Previous Current Previous
Fiscal Year Fiscal Fiscal Year Fiscal Fiscal Year Fiscal Fiscal Year Fiscal
Entity Name End Year End End Year End End Year End End Year End
----------------------------------------------------------------------------------------------------------------------------------
BlackRock
MuniEnhanced Fund,
Inc. $28,000 $28,500 $3,500 $3,500 $6,100 $6,100 $1,049 $0
----------------------------------------------------------------------------------------------------------------------------------
1 The nature of the services include assurance and related services
reasonably related to the performance of the audit of financial statements
not included in Audit Fees.
2 The nature of the services include tax compliance, tax advice and tax
planning.
3 The nature of the services include a review of compliance procedures and
attestation thereto.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to
the registrant's affiliated service providers that relate directly
to the operations and the financial reporting of the registrant.
Certain of these non-audit services that the Committee believes are
a) consistent with the SEC's auditor independence rules and b)
routine and recurring services that will not impair the independence
of the independent accountants may be approved by the Committee
without consideration on a specific case-by-case basis ("general
pre-approval"). The term of any general pre-approval is 12 months
from the date of the pre-approval, unless the Committee provides for
a different period. Tax or other non-audit services provided to the
registrant which have a direct impact on the operation or financial
reporting of the registrant will only be deemed pre-approved
provided that any individual project does not exceed $10,000
attributable to the registrant or $50,000 for all of the registrants
the Committee oversees. For this purpose, multiple projects will be
aggregated to determine if they exceed the previously mentioned cost
levels.
Any proposed services exceeding the pre-approved cost levels
will require specific pre-approval by the Committee, as will any
other services not subject to general pre-approval (e.g.,
unanticipated but permissible services). The Committee is informed
of each service approved subject to general pre-approval at the next
regularly scheduled in-person board meeting. At this meeting, an
analysis of such services is presented to the Committee for
ratification. The Committee may delegate to one or more of its
members the authority to approve the provision of and fees for any
specific engagement of permitted non-audit services, including
services exceeding pre-approved cost levels.
(e)(2) None of the services described in each of Items 4(b) through
(d) were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable
(g) Affiliates' Aggregate Non-Audit Fees:
--------------------------------------------------------------------
Current Fiscal Previous Fiscal
Entity Name Year End Year End
--------------------------------------------------------------------
BlackRock MuniEnhanced Fund, Inc. $298,149 $3,060,933
--------------------------------------------------------------------
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any non-affiliated
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by the registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $287,500, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals
are members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
James H. Bodurtha (term ended effective November 1, 2007)
Kent Dixon (term began effective November 1, 2007)
Frank J. Fabozzi (term began effective November 1, 2007)
James T. Flynn (term began effective November 1, 2007)
Kenneth A. Froot (term ended effective November 1, 2007)
Joe Grills (term ended effective November 1, 2007)
W. Carl Kester (term began effective November 1, 2007)
Herbert I. London (term ended effective November 1, 2007)
Roberta Cooper Ramo (term ended effective November 1, 2007)
Karen P. Robards (term began effective November 1, 2007)
Robert S. Salomon, Jr.
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 - The registrant has delegated the
voting of proxies relating to Fund portfolio securities to its
investment adviser, BlackRock Advisors, LLC and its sub-adviser, as
applicable. The Proxy Voting Policies and Procedures of the adviser
and sub-adviser are attached hereto as Exhibit 99.PROXYPOL.
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 without charge (1) at www.blackrock.com
and (2) on the Commission's web site at http://www.sec.gov.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
as of January 31, 2008.
(a)(1) BlackRock MuniEnhanced Fund, Inc. is managed by a team of
investment professionals comprised of Michael A. Kalinoski, Director
at BlackRock, Theodore R. Jaeckel, Jr., CFA, Managing Director at
BlackRock, and Walter O'Connor, Managing Director at BlackRock. Each
is a member of BlackRock's municipal tax-exempt management group.
Mr. Jaeckel and Mr. O'Connor are responsible for setting the Fund's
overall investment strategy and overseeing the management of the
Fund. Mr. Kalinoski is the Fund's lead portfolio manager and is
responsible for the day-to-day management of the Fund's portfolio
and the selection of its investments. Messrs. Jaeckel and O'Connor
have been members of the Fund's management team since 2006 and Mr.
Kalinoski has been the Fund's portfolio manager since 2000.
Mr. Jaeckel joined BlackRock in 2006. Prior to joining BlackRock, he
was a Managing Director (Municipal Tax-Exempt Fund Management) of
Merrill Lynch Investment Managers, L.P. ("MLIM") from 2005 to 2006
and a Director of MLIM from 1997 to 2005. He has been a portfolio
manager with BlackRock or MLIM since 1991.
Mr. O'Connor joined BlackRock in 2006. Prior to joining BlackRock,
he was a Managing Director (Municipal Tax-Exempt Fund Management) of
MLIM from 2003 to 2006 and was a Director of MLIM from 1997 to 2002.
He has been a portfolio manager with BlackRock or MLIM since 1991.
Mr. Kalinoski joined BlackRock in 2006. Prior to joining BlackRock,
he was Director (Municipal Tax-Exempt Fund Management) of MLIM since
2006 and a Vice President from 1999 to 2006. He has been a portfolio
manager of BlackRock or MLIM since 1999.
(a)(2) As of January 31, 2008:
-----------------------------------------------------------------------------------------------------------------------
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
-----------------------------------------------------------------------------------------------------------------------
Other Other Other Other
(i) Name of Registered Pooled Registered Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
-----------------------------------------------------------------------------------------------------------------------
Michael A.
Kalinoski 5 0 0 0 0 0
-----------------------------------------------------------------------------------------------------------------------
$2,710,387,296 $0 $0 $0 $0 $0
-----------------------------------------------------------------------------------------------------------------------
Walter O'Connor 80 0 0 0 0 0
-----------------------------------------------------------------------------------------------------------------------
$28,320,424,734 $0 $0 $0 $0 $0
-----------------------------------------------------------------------------------------------------------------------
Theodore R.
Jaeckel, Jr. 80 1 0 0 1 0
-----------------------------------------------------------------------------------------------------------------------
$28,320,424,734 $21,386,902 $0 $0 $21,386,902 $0
-----------------------------------------------------------------------------------------------------------------------
(iv) Potential Material Conflicts of Interest
BlackRock, Inc. and its affiliates (collectively, herein
"BlackRock") has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address
the allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential
conflicts of interest that are designed to ensure that all client
accounts are treated equitably over time. Nevertheless, BlackRock
furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with
applicable law, make investment recommendations to other clients or
accounts (including accounts which are hedge funds or have
performance or higher fees paid to BlackRock, or in which portfolio
managers have a personal interest in the receipt of such fees),
which may be the same as or different from those made for the Fund.
In addition, BlackRock, its affiliates and any officer, director,
stockholder or employee may or may not have an interest in the
securities whose purchase and sale BlackRock recommends to the Fund.
BlackRock, or any of its affiliates, or any officer, director,
stockholder, employee or any member of their families may take
different actions than those recommended to the Fund by BlackRock
with respect to the same securities. Moreover, BlackRock may refrain
from rendering any advice or services concerning securities of
companies of which any of BlackRock's (or its affiliates') officers,
directors or employees are directors or officers, or companies as to
which BlackRock or any of its affiliates or the officers, directors
or employees of any of them has any substantial economic interest or
possesses material non-public information. Each portfolio manager
also may manage accounts whose investment strategies may at times be
opposed to the strategy utilized for a Fund. In this regard, it
should be noted that Mr. Jaeckel currently manages certain accounts
that are subject to performance fees. In addition, Mr. Jaeckel
assists in managing certain hedge funds and may be entitled to
receive a portion of any incentive fees earned on such funds and a
portion of such incentive fees may be voluntarily or involuntarily
deferred. Additional portfolio managers may in the future manage
other such accounts or funds and may be entitled to receive
incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated
in a manner consistent with its fiduciary duties. BlackRock attempts
to allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this
end, BlackRock has adopted a policy that is intended to ensure that
investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve
reasonable efficiency in client transactions and provide BlackRock
with sufficient flexibility to allocate investments in a manner that
is consistent with the particular investment discipline and client
base.
(a)(3) As of January 31, 2008:
Portfolio Manager Compensation Overview
BlackRock's financial arrangements with its portfolio managers, its
competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources.
Compensation may include a variety of components and may vary from
year to year based on a number of factors. The principal components
of compensation include a base salary, a discretionary bonus,
participation in various benefits programs and one or more of the
incentive compensation programs established by BlackRock such as its
Long-Term Retention and Incentive Plan.
Base compensation. Generally, portfolio managers receive base
compensation based on their seniority and/or their position with the
firm. Senior portfolio managers who perform additional management
functions within the portfolio management group or within BlackRock
may receive additional compensation for serving in these other
capacities.
Discretionary Incentive Compensation
Discretionary incentive compensation is a function of several
components: the performance of BlackRock, Inc., the performance of
the portfolio manager's group within BlackRock, the investment
performance, including risk-adjusted returns, of the firm's assets
under management or supervision by that portfolio manager relative
to predetermined benchmarks, and the individual's seniority, role
within the portfolio management team, teamwork and contribution to
the overall performance of these portfolios and BlackRock. In most
cases, including for the portfolio managers of the Fund, these
benchmarks are the same as the benchmark or benchmarks against which
the performance of the Fund or other accounts managed by the
portfolio managers are measured. BlackRock's Chief Investment
Officers determine the benchmarks against which the performance of
funds and other accounts managed by each portfolio manager are
compared and the period of time over which performance is evaluated.
With respect to the portfolio managers, such benchmarks include a
combination of market-based indices (e.g., Lehman Brothers Municipal
Bond Index), certain customized indices and certain fund industry
peer groups.
BlackRock's Chief Investment Officers make a subjective
determination with respect to each portfolio manager's compensation
based on the performance of the funds and other accounts managed by
each portfolio manager relative to the various benchmarks noted
above. Performance is measured on both a pre-tax and after-tax basis
over various time periods including 1, 3, 5 and 10-year periods, as
applicable.
Distribution of Discretionary Incentive Compensation
Discretionary incentive compensation is distributed to portfolio
managers in a combination of cash and BlackRock, Inc. restricted
stock units which vest ratably over a number of years. The
BlackRock, Inc. restricted stock units, if properly vested, will be
settled in BlackRock, Inc. common stock. Typically, the cash bonus,
when combined with base salary, represents more than 60% of total
compensation for the portfolio managers. Paying a portion of annual
bonuses in stock puts compensation earned by a portfolio manager for
a given year "at risk" based on the Company's ability to sustain and
improve its performance over future periods.
Other compensation benefits. In addition to base compensation and
discretionary incentive compensation, portfolio managers may be
eligible to receive or participate in one or more of the following:
Long-Term Retention and Incentive Plan ("LTIP") --The LTIP is
a long-term incentive plan that seeks to reward certain key
employees. Beginning in 2006, awards are granted under the LTIP in
the form of BlackRock, Inc. restricted stock units that, if properly
vested and subject to the attainment of certain performance goals,
will be settled in BlackRock, Inc. common stock. Messrs. Jaeckel and
O'Connor have received awards under the LTIP.
Deferred Compensation Program --A portion of the compensation
paid to eligible BlackRock employees may be voluntarily deferred
into an account that tracks the performance of certain of the firm's
investment products. Each participant in the deferred compensation
program is permitted to allocate his deferred amounts among various
options, including to certain of the firm's hedge funds and other
proprietary mutual funds. Each portfolio manager has participated in
the deferred compensation program.
Incentive Savings Plans -- BlackRock, Inc. has created a
variety of incentive savings plans in which BlackRock employees are
eligible to participate, including a 401(k) plan, the BlackRock
Retirement Savings Plan (RSP), and the BlackRock Employee Stock
Purchase Plan (ESPP). The employer contribution components of the
RSP include a company match equal to 50% of the first 6% of eligible
pay contributed to the plan capped at $4,000 per year, and a company
retirement contribution equal to 3% of eligible compensation, plus
an additional contribution of 2% for any year in which BlackRock has
positive net operating income. The RSP offers a range of investment
options, including registered investment companies managed by the
firm. Company contributions follow the investment direction set by
participants for their own contributions or absent, employee
investment direction, are invested into a balanced portfolio. The
ESPP allows for investment in BlackRock common stock at a 5%
discount on the fair market value of the stock on the purchase date.
Annual participation in the ESPP is limited to the purchase of 1,000
shares or a dollar value of $25,000. Each portfolio manager is
eligible to participate in these plans.
(a)(4) Beneficial Ownership of Securities. As of January 31, 2008,
none of Messrs. Kalinoski, Jaeckel or O'Connor beneficially
owned any stock issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable due to no such
purchases during the period covered by this report.
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating and Governance 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 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)
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 - See Item 2
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/ Donald C. Burke
-------------------
Donald C. Burke
Chief Executive Officer (principal executive officer) of
BlackRock MuniEnhanced Fund, Inc.
Date: March 24, 2008
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/ Donald C. Burke
-------------------
Donald C. Burke
Chief Executive Officer (principal executive officer) of
BlackRock MuniEnhanced Fund, Inc.
Date: March 24, 2008
By: /s/ Neal J. Andrews
-------------------
Neal J. Andrews
Chief Financial Officer (principal financial officer) of
BlackRock MuniEnhanced Fund, Inc.
Date: March 24, 2008