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: 12/31/2015

 

Date of reporting period: 03/31/2015

 

Item 1 –

Schedule of Investments

Schedule of Investments March 31, 2015 (Unaudited)	BlackRock Enhanced Government Fund, Inc. (EGF)
	(Percentages shown are based on Net Assets)

 

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

Notes to Schedule of Investments
(a)	Variable rate security. Rate shown is as of report date.
(b)	Represents or includes a TBA transaction. Unsettled TBA transactions as of March 31, 2015 were as follows:

 

	Counterparty		Value			Unrealized Appreciation/Depreciation
	Bank of America N.A.		$	112,672	$	484
	Credit Suisse Securities (USA) LLC		$	2,672	$	(183)
	Goldman Sachs & Co.		$	(5,633,594)	$	(25,000)

 

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

Schedule of Investments (continued)	BlackRock Enhanced Government Fund, Inc. (EGF)

(d)	Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors.
(e)	Rates shown are discount rates or a range of discount rates paid at the time of purchase.

 

•	During the period ended March 31, 2015, 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:

 

Affiliate		Shares Held at December 31, 2014	Net Activity	Shares Held at March 31, 2015	Income
BlackRock Liquidity Funds, TempFund, Institutional Class		1,848,337	(1,848,337)	—	$572

 

Portfolio Abbreviation
LIBOR	London Interbank Offer Rate
OTC	Over-The-Counter
TBA	To Be Annouced
USD	U.S. Dollar

 

•

As of March 31, 2015, reverse repurchase agreements outstanding were as follows:

 

Counterparty		Interest Rate	Trade Date	Maturity Date1		Face Value		Face Value Including Accrued Interest
Credit Suisse Securities (USA) LLC		0.28%	2/27/15	Open	$	4,072,500	$	4,073,135
Credit Suisse Securities (USA) LLC		0.28%	12/18/14	Open		13,804,000		13,810,334
Credit Suisse Securities (USA) LLC		0.28%	3/2/15	Open		9,458,750		9,460,011
Merrill Lynch, Pierce, Fenner & Smith, Inc.		0.30%	3/31/15	Open		7,141,875		7,141,935
Total					$	34,477,125	$	34,485,415

 

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

 

•

As of March 31, 2015, financial futures contracts outstanding were as follows:

 

Contracts Long	Issue	Exchange	Expiration	Notional Value	Unrealized Appreciation
37	5-Year U.S. Treasury Note	Chicago Board of Trade	June 2015	$4,447,805	$8,284

 

•

As of March 31, 2015, OTC interest rate swaptions written were as follows:

 

Description

Counterparty

Put/ Call

Exercise  Rate

Pay/Receive Exercise Rate

Floating Rate Index

Expiration Date

Notional Amount (000)

Market Value

2-Year Interest Rate Swap

Deutsche Bank AG

Call

0.87%

Pay

3-Month Libor

4/29/15

$ 37,500

$

(51,690)

5-Year Interest Rate Swap

Deutsche Bank AG

Call

1.60%

Pay

3-Month Libor

4/29/15

37,500

(197,066)

10-Year Interest Rate Swap

Deutsche Bank AG

Call

2.07%

Pay

3-Month Libor

4/29/15

32,500

(320,917)

30-Year Interest Rate Swap

Deutsche Bank AG

Call

2.40%

Pay

3-Month Libor

4/29/15

21,300

(456,376)

Total

$

(1,026,049)

Schedule of Investments (continued)	BlackRock Enhanced Government Fund, Inc. (EGF)

 

•	Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. 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. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:
	•	Level 1 — unadjusted quoted prices 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)
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. 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, 2015, the following tables summarize the Fund's investments and derivative financial instruments categorized in the disclosure hierarchy:

 

		Level 1			Level 2		Level 3		Total
Assets:
Investments:
Long-Term Investments:
	Asset-Backed Securities		—	$	2,661,436		—	$	2,661,436
	Corporate Bonds		—		2,100,777		—		2,100,777
	Non-Agency Mortgage-Backed Securities		—		1,437,348		—		1,437,348
	Preferred Securities	$	2,019,167		2,464,460		—		4,483,627
	U.S. Government Sponsored Agency Securities		—		93,304,302		—		93,304,302
	U.S. Treasury Obligations		—		48,847,617		—		48,847,617
Short-Term Securities:
	U.S. Treasury Obligations		—		3,992,962		—		3,992,962
Liabilities:
Investments:
	TBA Sale Commitments		—		(7,771,688)		—		(7,771,688)
Total		$	2,019,167	$	147,037,214		—	$	149,056,381

 

Schedule of Investments (concluded)	BlackRock Enhanced Government Fund, Inc. (EGF)

 

	Level 1			Level 2		Level 3		Total
Derivative Financial Instruments 1
Assets:
Interest rate contracts	$	8,284		—		—	$	8,284
Liabilities:
Interest rate contracts		—	$	(1,026,049)		—		(1,026,049)
Total	$	8,284	$	(1,026,049)		—	$	(1,017,765)

 

1	Derivative financial instruments are financial futures contracts and options written, which are valued at the unrealized appreciation/depreciation on the instrument and options written are shown at value.

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount or face value, including accrued interest, for financial reporting purposes. As of March 31, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

 

		Level 1		Level 2			Level 3		Total
Assets:
	Cash pledged as collateral for OTC derivatives	$	1,560,000		—		—	$	1,560,000
	Cash pledged as collateral for reverse repurchase agreements		—		—		—		—
	Foreign currency at value		295		—		—		295
Liabilities:
	Bank overdraft		—	$	(173,924)		—		(173,924)
	Cash received for financial futures contracts		—		(34,000)		—		(34,000)
	Cash received as collateral for reverse repurchase agreements		—		(1,710,000)		—		(1,710,000)
	Reverse repurchase agreements		—		(34,485,415)		—		(34,485,415)
Total		$	1,560,295	$	(36,403,339)		—	$	(34,843,044)

 

During the period ended March 31, 2015, there were no transfers between levels.

 

 

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
	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 22, 2015
	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 22, 2015
	By:	/s/ Neal J. Andrews
		Neal J. Andrews
		Chief Financial Officer (principal financial officer) of
		BlackRock Enhanced Government Fund, Inc.
	Date: May 22, 2015