UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number: 811-21793

Name of Fund: BlackRock Enhanced Government Fund, Inc. (EGF)

Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809

Name and address of agent for service: John M. Perlowski, Chief Executive Officer, BlackRock Enhanced Government Fund, Inc., 55 East 52^nd Street, New York, NY 10055

Registrant’s telephone number, including area code: (800) 882-0052, Option 4

Date of fiscal year end: 12/31/2018

Date of reporting period: 03/31/2018

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Item 1 – Schedule of Investments

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Schedule of Investments  (unaudited) March 31, 2018		BlackRock Enhanced Government Fund, Inc. (EGF) (Percentages shown are based on Net Assets)

 

 

 

			1

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Schedule of Investments  (unaudited) (continued) March 31, 2018		BlackRock Enhanced Government Fund, Inc. (EGF) (Percentages shown are based on Net Assets)

 

(a)	Variable rate security. Rate shown is the rate in effect as of period end.

(b)	Variable or floating rate security, which interest rate adjusts periodically based on changes in current interest rates and prepayments on the underlying pool of assets. Rate shown is the rate in effect as of period end.

(c)	Variable rate security. Security may be issued at a fixed coupon rate, which converts to a variable rate at a specified date. Rate shown is the rate in effect as of period end.

(d)	All or a portion of the security has been pledged as collateral in connection with outstanding reverse repurchase agreements.

(e)	Annualized 7-day yield as of period end.

(f)	During the period ended March 31, 2018, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliated		Shares Held at 12/31/17				Net Activity				Shares Held at 03/31/18				Value at 03/31/18				Income				Net Realized Gain (Loss) (a)				Change in Unrealized Appreciation (Depreciation)
BlackRock Liquidity Funds, T-Fund, Institutional Class			1,981,656				(998,441	)			983,215			$	983,215			$	5,365			$	—			$	—

 

(a)

Includes net capital gain distributions, if applicable.

Reverse Repurchase Agreements

 

Counterparty

Interest Rate

Trade Date

Maturity Date (a)

Face Value

Face Value Including Accrued Interest

Type of Non-Cash Underlying Collateral

Remaining Contractual Maturity of the Agreements (a)

Credit Suisse Securities (USA) LLC

1.91

%

12/28/17

Open

$

13,365,000

$

13,414,673

U.S. Treasury Obligations

Open/Demand

 

(a)

Certain agreements have no stated maturity and can be terminated by either party at any time.

Portfolio Abbreviations

LIBOR — London Interbank Offered Rate

 

 

2

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Schedule of Investments  (unaudited) (continued) March 31, 2018		BlackRock Enhanced Government Fund, Inc. (EGF)

 

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

 

Description		Number of Contracts				Expiration Date				Notional Amount (000)				Value / Unrealized Appreciation (Depreciation)
Short Contracts
5-Year U.S. Treasury Note			5				06/29/18			$	572			$	(1,636	)

Forward Foreign Currency Exchange Contracts

 

Currency Purchased						Currency Sold						Counterparty		Settlement Date				Unrealized Appreciation (Depreciation)
JPY			81,033,750			AUD			945,000			Goldman Sachs International			04/23/18			$	36,623
CAD			767,988			AUD			760,000			HSBC Bank PLC			06/20/18				13,149
CAD			403,362			EUR			250,000			Royal Bank of Canada			06/20/18				4,182
CAD			801,349			NZD			850,000			HSBC Bank PLC			06/20/18				8,770
CHF			230,000			NOK			1,870,968			JPMorgan Chase Bank N.A.			06/20/18				2,893
EUR			500,000			CHF			584,837			Bank of America N.A.			06/20/18				2,987
EUR			240,000			GBP			210,062			JPMorgan Chase Bank N.A.			06/20/18				1,326
JPY			32,377,692			SEK			2,500,000			Standard Chartered Bank			06/20/18				4,735
NOK			2,330,049			EUR			240,000			Bank of America N.A.			06/20/18				979
NZD			428,573			EUR			250,000			Bank of America N.A.			06/20/18				290
NZD			430,000			JPY			32,716,120			Bank of America N.A.			06/20/18				1,627
																			77,561
AUD			380,000			JPY			33,288,570			Citibank N.A.			04/23/18				(21,346	)
AUD			245,000			JPY			20,954,318			Goldman Sachs International			04/23/18				(8,983	)
AUD			305,000			JPY			26,190,075			Morgan Stanley & Co. International PLC			04/23/18				(12,162	)
CHF			292,461			EUR			250,000			Credit Suisse International			04/23/18				(1,633	)
EUR			250,000			CAD			404,073			Bank of America N.A.			06/20/18				(4,734	)
NOK			1,871,396			CHF			230,000			Royal Bank of Canada			06/20/18				(2,838	)
NOK			2,257,291			GBP			210,000			Bank of America N.A.			06/20/18				(6,913	)
SEK			4,932,346			EUR			490,000			Deutsche Bank AG			06/20/18				(12,251	)
SEK			1,918,286			USD			240,000			Barclays Bank PLC			07/25/18				(8,288	)
SEK			1,967,395			USD			240,000			Barclays Bank PLC			07/25/18				(2,356	)
SEK			2,894,779			USD			365,000			Goldman Sachs International			07/25/18				(15,336	)
																			(96,840	)
																		$	(19,279	)

 

 

			3

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Schedule of Investments  (unaudited) (continued) March 31, 2018		BlackRock Enhanced Government Fund, Inc. (EGF)

 

OTC Options Purchased

 

Description

Counterparty

Expiration Date

Exercise Price

Notional Amount (000)

Value

Call

EUR Currency

Morgan Stanley & Co. International PLC

04/23/18

CHF

1.19

EUR

1,995

$

2,504

CAD Currency

Credit Suisse International

05/15/18

CHF

0.75

CAD

3,135

13,834

USD Currency

Goldman Sachs International

07/23/18

SEK

8.40

USD

2,440

31,710

48,048

Put

AUD Currency

Goldman Sachs International

04/19/18

JPY

85.50

AUD

6,110

221,340

AUD Currency

Goldman Sachs International

04/19/18

JPY

84.00

AUD

6,110

141,056

AUD Currency

Morgan Stanley & Co. International PLC

04/23/18

NZD

1.09

AUD

2,815

46,536

AUD Currency

UBS AG

04/23/18

NZD

1.07

AUD

2,815

21,951

CHF Currency

Credit Suisse International

04/23/18

JPY

113.00

CHF

4,690

84,646

EUR Currency

Credit Suisse International

04/23/18

NZD

1.68

EUR

1,975

5,679

EUR Currency

Goldman Sachs International

04/23/18

NOK

9.60

EUR

3,900

20,255

GBP Currency

Goldman Sachs International

04/23/18

SEK

10.90

GBP

2,590

22

AUD Currency

UBS AG

05/15/18

NZD

1.06

AUD

2,815

15,943

EUR Currency

Goldman Sachs International

05/15/18

JPY

129.00

EUR

1,965

14,386

GBP Currency

Barclays Bank PLC

05/15/18

USD

1.38

GBP

3,445

22,301

594,115

$

642,163

OTC Interest Rate Swaptions Written

 

Description

Paid by the Fund

Received by the Fund

Counterparty

Expiration Date

Exercise Rate

Notional Amount (000)

Value

Rate

Frequency

Rate

Frequency

Call

10-Year Interest Rate Swap, 4/27/18

2.80

%

Quarterly

6-Month LIBOR, 2.45%

Quarterly

BNP Paribas S.A.

04/27/18

2.80

%

USD

15,000

$

(100,596

)

2-Year Interest Rate Swap, 4/27/18

2.60

Quarterly

6-Month LIBOR, 2.45%

Quarterly

BNP Paribas S.A.

04/27/18

2.60

USD

35,000

(39,659

)

30-Year Interest Rate Swap, 4/27/18

2.84

Quarterly

6-Month LIBOR, 2.45%

Quarterly

BNP Paribas S.A.

04/27/18

2.84

USD

5,000

(75,722

)

5-Year Interest Rate Swap, 4/27/18

2.72

Quarterly

6-Month LIBOR, 2.45%

Quarterly

BNP Paribas S.A.

04/27/18

2.72

USD

30,000

(98,023

)

$

(314,000

)

OTC Options Written

 

Description

Counterparty

Expiration Date

Exercise Price

Notional Amount (000)

Value

Put

AUD Currency

Goldman Sachs International

04/19/18

JPY

$

84.00

AUD

6,110

$

(141,056

)

AUD Currency

Goldman Sachs International

04/19/18

JPY

85.50

AUD

6,110

(221,570

)

AUD Currency

Morgan Stanley & Co. International PLC

04/23/18

NZD

1.07

AUD

2,815

(21,951

)

 

 

4

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Schedule of Investments  (unaudited) (continued) March 31, 2018		BlackRock Enhanced Government Fund, Inc. (EGF)

 

OTC Options Written (continued)

 

Description		Counterparty				Expiration Date				Exercise Price								Notional Amount (000)								Value
Put
AUD Currency		UBS AG					04/23/18				NZD				1.09				AUD				2,815				(46,536	)
CHF Currency		Credit Suisse International					04/23/18				JPY				112.00				CHF				7,030				(79,161	)
EUR Currency		Credit Suisse International					04/23/18				NZD				1.65				EUR				2,965				(1,368	)
EUR Currency		Goldman Sachs International					04/23/18				NOK				9.50				EUR				5,845				(10,702	)
GBP Currency		Goldman Sachs International					04/23/18				SEK				10.70				GBP				3,885				—
AUD Currency		UBS AG					05/15/18				NZD				1.05				AUD				2,815				(6,064	)
EUR Currency		Goldman Sachs International					05/15/18				JPY				126.00				EUR				2,945				(7,617	)
GBP Currency		Barclays Bank PLC					05/15/18				USD				1.35				GBP				5,165				(10,080	)
USD Currency		Goldman Sachs International					07/23/18				SEK				7.50				USD				2,440				(1,435	)
																										$	(547,540	)

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial reporting purposes as follows:

 

•

Level 1 — Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

•

Level 2 — Other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

•

Level 3 — Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments classified within Level 3 have significant unobservable inputs used by the BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) in determining the price for Fair Valued Investments. Level 3 investments include equity or debt issued by privately held companies or funds. There may not be a secondary market, and/or there are a limited number of investors. Level 3 investments may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Global Valuation Committee in the absence of market information.

Changes in valuation techniques may result in transfers into or out of an assigned level within the hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investments and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to the Fund’s most recent financial statements as contained in its annual report.

As of March 31, 2018, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

 

 

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Schedule of Investments  (unaudited) (continued) March 31, 2018		BlackRock Enhanced Government Fund, Inc. (EGF)

 

 

		Level 1				Level 2				Level 3				Total
Assets:
Investments:
Long-Term Investments:
Asset-Backed Securities		$	—			$	1,589,104			$	—			$	1,589,104
Preferred Securities			—				1,987,500				—				1,987,500
Non-Agency Mortgage-Backed Securities			—				163,137				—				163,137
U.S. Government Sponsored Agency Securities			—				48,366,560				—				48,366,560
U.S. Treasury Obligations			—				40,198,816				—				40,198,816
Short-Term Securities			983,215				—				—				983,215
Options Purchased:
Forward foreign currency exchange contracts			—				642,163				—				642,163
Total		$	983,215			$	92,947,280			$	—			$	93,930,495
Derivative Financial Instruments(a)
Assets:
Foreign currency exchange contracts		$	—			$	77,561			$	—			$	77,561
Liabilities:
Foreign currency exchange contracts			—				(644,380	)			—				(644,380	)
Interest rate contracts			(1,636	)			(314,000	)			—				(315,636	)
Total		$	(1,636	)		$	(880,819	)		$	—			$	(882,455	)

 

(a)

Derivative financial instruments are futures contracts, forward foreign currency exchange contracts and options written. Futures contracts and forward foreign currency exchange contracts are valued at the unrealized appreciation (depreciation) on the instrument and options written are shown at value.

The Fund may hold liabilities in which the fair value approximates the carrying amount for financial reporting purposes. As of period end, reverse repurchase agreements of $13,414,673 are categorized as Level 2 within the disclosure hierarchy.

During the period ended March 31, 2018, there were no transfers between levels.

 

 

6

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Item 2 – Controls and Procedures

 

2(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.

 

2(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 registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 3 – Exhibits

Certifications – Attached hereto

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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 Enhanced Government Fund, Inc.

 

By:		/s/ John M. Perlowski
		John M. Perlowski
		Chief Executive Officer (principal executive officer) of
		BlackRock Enhanced Government Fund, Inc.

Date: May 21, 2018

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/ John M. Perlowski
		John M. Perlowski
		Chief Executive Officer (principal executive officer) of
		BlackRock Enhanced Government Fund, Inc.

Date: May 21, 2018

 

By:		/s/ Neal J. Andrews
		Neal J. Andrews
		Chief Financial Officer (principal financial officer) of
		BlackRock Enhanced Government Fund, Inc.

Date: May 21, 2018