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: 09/30/2015

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Item 1 – Schedule of Investments

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Schedule of Investments September 30, 2015 (Unaudited)		BlackRock Enhanced Government Fund, Inc. (EGF) (Percentages shown are based on Net Assets)

 

 

		BLACKROCK ENHANCED GOVERNMENT FUND, INC.		SEPTEMBER 30, 2015		1

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

 

 

 

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 September 30, 2015 were as follows:

 

Counterparty		Value				Unrealized Appreciation (Depreciation)
Barclays Bank PLC		$	(2,789,478	)		$	3,335
Goldman Sachs & Co.		$	(2,121,911	)		$	2,182
J.P. Morgan Securities Inc.		$	111,697			$	(37	)

 

(c)

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

 

(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 at the time of purchase.

 

(f)

Represents the current yield as of report date.

 

(g)

During the period ended September 30, 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:

 

2		BLACKROCK ENHANCED GOVERNMENT FUND, INC.		SEPTEMBER 30, 2015

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

 

 

Affiliate		Shares Held at December 31, 2014				Net Activity				Shares Held at September 30, 2015				Income
BlackRock Liquidity Funds, TempFund, Institutional Class			1,848,337				608,674				2,457,011			$	1,850

 

Portfolio Abbreviation

 

IO		Interest Only
LIBOR		London Interbank Offered Rate
OTC		Over-the-Counter
TBA		To Be Announced

Reverse Repurchase Agreements:

 

Counterparty		Interest Rate				Trade Date				Maturity Date1				Face Value				Face Value Including Accrued Interest
Credit Suisse Securities (USA) LLC			0.28	%			5/18/15				Open			$	5,962,500			$	5,966,642
Credit Suisse Securities (USA) LLC			0.33	%			6/3/15				Open				7,507,500				7,512,755
Deutsche Bank Securities, Inc.			0.15	%			6/19/15				Open				3,925,000				3,926,058
Deutsche Bank Securities, Inc.			0.15	%			8/25/15				Open				1,985,000				1,985,531
Deutsche Bank Securities, Inc.			0.15	%			9/4/15				Open				7,546,875				7,547,837
Total														$	26,926,875			$	26,938,823
1    Certain agreements have no stated maturity and can be terminated by either party at any time.

 

Derivative Financial Instruments Outstanding as of Period End

OTC Interest Rate Swaptions Written:

 

Description		Counterparty		Put/ Call				Exercise Rate				Pay/Receive Exercise Rate				Floating Rate Index				Expiration Date				Notional Amount (000)				Value
2-Year Interest Rate Swap		Citibank N.A.			Call				0.82	%			Pay				6-Month LIBOR				10/28/15			$	35,000			$	(55,516	)
5-Year Interest Rate Swap		Citibank N.A.			Call				1.48	%			Pay				6-Month LIBOR				10/28/15			$	40,000				(224,051	)
10-Year Interest Rate Swap		Citibank N.A.			Call				2.09	%			Pay				6-Month LIBOR				10/28/15			$	15,000				(169,927	)
30-Year Interest Rate Swap		Citibank N.A.			Call				2.58	%			Pay				6-Month LIBOR				10/28/15			$	5,000				(132,037	)
Total																												$	(581,531	)

 

		BLACKROCK ENHANCED GOVERNMENT FUND, INC.		SEPTEMBER 30, 2015		3

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

 

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 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 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. The significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments are typically categorized as level 3.

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, refer to the Fund’s most recent financial statements as contained in its semi-annual report.

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			—			$	2,039,240				—			$	2,039,240
Corporate Bonds			—				2,085,263				—				2,085,263
Non-Agency Mortgage-Backed Securities			—				1,334,172				—				1,334,172
U.S. Government Sponsored Agency Securities			—				85,453,045				—				85,453,045
U.S. Treasury Obligations			—				45,369,592				—				45,369,592
Preferred Securities		$	1,986,367				2,216,812				—				4,203,179
Short-Term Securities:
U.S. Treasury Obligations			—				3,999,668				—				3,999,668
Money Market Fund			2,457,011				—				—				2,457,011
Liabilities:
Investments:
TBA Sale Commitments			—				(9,714,372	)			—				(9,714,372	)
Total		$	4,443,378			$	132,783,420				—			$	137,226,798

 

4		BLACKROCK ENHANCED GOVERNMENT FUND, INC.		SEPTEMBER 30, 2015

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

 

 

		Level 1				Level 2				Level 3				Total
Derivative Financial Instruments1
Liabilities:
Interest rate contracts			—			$	(581,531	)			—			$	(581,531	)
1    Derivative financial instruments are swaptions written, which are shown at value.

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial reporting purposes. As of period end, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

 

		Level 1				Level 2				Level 3				Total
Assets:
Cash		$	421,000				—				—			$	421,000
Cash pledged for swaps			700,000				—				—				700,000
Foreign currency at value			272				—				—				272
Liabilities:
Reverse repurchase agreements			—			$	(26,938,823	)			—				(26,938,823	)
Total		$	1,121,272			$	(26,938,823	)			—			$	(25,817,551	)

During the period ended September 30, 2015, there were no transfers between levels.

 

		BLACKROCK ENHANCED GOVERNMENT FUND, INC.		SEPTEMBER 30, 2015		5

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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.

 

Date: November 23, 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.

 

Date: November 23, 2015

 

Date: November 23, 2015