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 52nd Street, New York, NY 10055
Registrant’s telephone number, including area code: (800) 882-0052, Option 4
Date of fiscal year end: 12/31/2011
Date of reporting period: 09/30/2011
Item 1 – Schedule of Investments
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Schedule of Investments September 30, 2011 (Unaudited) |
BlackRock Enhanced Government Fund, Inc (EGF) |
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(Percentages shown are based on Net Assets) |
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Asset-Backed Securities (a) |
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Par |
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Value |
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First Franklin Mortgage Loan |
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$ |
3,220 |
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$ |
2,715,690 |
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GSAA Home Equity Trust, Series |
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83 |
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82,564 |
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Securitized Asset-Backed Receivables |
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Series
2005-0P1, Class M2, |
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2,000 |
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1,380,132 |
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Series
2005-OP2, Class M1, |
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1,025 |
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601,909 |
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Soundview Home Equity Loan |
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2,500 |
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1,296,560 |
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Total Asset-Backed Securities – 3.2% |
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6,076,855 |
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Non-Agency Mortgage-Backed |
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Collateralized
Mortgage |
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Bank of America Mortgage |
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284 |
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265,537 |
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Bear Stearns Alt-A Trust, Series |
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389 |
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337,920 |
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Countrywide Alternative Loan |
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878 |
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589,546 |
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Homebanc Mortgage Trust, Series |
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1,579 |
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1,023,383 |
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Thornburg Mortgage Securities |
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Series
2006-6, Class A1, |
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1,321 |
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1,314,064 |
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Series
2007-2, Class A2A, |
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868 |
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839,521 |
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WaMu Mortgage Pass-Through |
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67 |
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66,270 |
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4,436,241 |
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Non-Agency Mortgage-Backed |
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Par |
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Value |
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Commercial
Mortgage-Backed |
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Commercial Mortgage Pass- |
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$ |
3,164 |
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$ |
3,187,099 |
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Credit Suisse Mortgage Capital |
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3,340 |
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3,393,596 |
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LB-UBS Commercial Mortgage |
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1,575 |
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1,581,331 |
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8,162,026 |
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Interest
Only Collateralized |
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CitiMortgage Alternative Loan |
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489 |
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94,537 |
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Total
Non-Agency Mortgage-Backed |
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12,692,804 |
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Preferred Securities |
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Capital Trusts |
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Diversified Financial Services — 1.1% |
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JPMorgan Chase Capital XXII, |
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2,000 |
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1,992,372 |
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Electric Utilities — 1.0% |
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PPL Capital Funding, 6.70%, |
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2,000 |
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1,910,000 |
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Insurance — 0.2% |
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ZFS Finance (USA) Trust V, 6.50%, |
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504 |
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435,960 |
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Total Capital Trusts – 2.3% |
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4,338,332 |
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Portfolio Abbreviations |
To simplify the listings of portfolio holdings in the Schedule of Investments, the names and descriptions of many of the securities have been abbreviated according to the following list:
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GO |
General Obligation Bonds |
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LIBOR |
London Interbank Offered Rate |
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TBA |
To Be Announced |
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BLACKROCK ENHANCED GOVERNMENT FUND, INC |
SEPTEMBER 30, 2011 |
1 |
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Schedule of Investments (continued) |
BlackRock Enhanced Government Fund, Inc (EGF) |
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(Percentages shown are based on Net Assets) |
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Trust Preferreds |
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Shares |
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Value |
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Capital Markets — 0.9% |
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Morgan Stanley Capital Trust VIII, |
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80,000 |
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$ |
1,744,000 |
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Media — 1.1% |
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Comcast Corp., 6.63%, 5/15/56 |
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80,000 |
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2,096,000 |
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Total Trust Preferreds – 2.0% |
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3,840,000 |
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Total Preferred Securities – 4.3% |
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8,178,332 |
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Taxable Municipal Bonds |
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Par |
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State of California, GO, Various Purpose |
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$ |
1,220 |
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1,295,518 |
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Total Taxable Municipal Bonds – 0.7% |
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1,295,518 |
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US Government Sponsored |
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Agency Obligations — 14.4% |
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Fannie Mae: |
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5.25%, 8/01/12 (c) |
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2,460 |
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2,561,554 |
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4.00%, 2/01/41 |
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19,729 |
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20,705,022 |
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Federal Farm Credit Bank, 4.55%, |
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3,500 |
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4,077,419 |
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27,343,995 |
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Collateralized
Mortgage |
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Ginnie Mae Mortgage-Backed |
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Series
2005-87, 5.21%, |
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10,000 |
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10,789,900 |
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Series
2006-3, 5.24%, |
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10,000 |
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11,714,810 |
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22,504,710 |
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Interest
Only Collateralized |
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Fannie Mae Mortgage-Backed |
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4,173 |
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671,244 |
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Ginnie Mae Mortgage-Backed |
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6,293 |
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204,813 |
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876,057 |
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US Government Sponsored |
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Par |
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Value |
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Mortgage-Backed Securities — 74.8% |
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Fannie Mae Mortgage-Backed |
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3.50%, 8/01/26 - 9/01/26 |
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$ |
14,930 |
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$ |
15,612,422 |
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4.00%, 4/01/24 - 2/01/41 |
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16,516 |
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17,456,143 |
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4.50%, 10/01/41(d)(e) |
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42,951 |
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45,775,878 |
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4.96%, 2/01/13 |
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5,018 |
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5,145,141 |
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5.00%, 11/01/33 - 2/01/40 (c) |
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18,367 |
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19,879,218 |
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5.24%, 4/01/12 (c) |
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7,939 |
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7,935,924 |
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5.50%, 7/01/17 – 10/25/40 (c) |
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20,095 |
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21,949,760 |
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6.00%, 2/01/36 – 10/01/36 |
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5,081 |
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5,590,940 |
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6.20%, 2/01/12 |
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1,459 |
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1,458,156 |
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Freddie Mac Mortgage-Backed |
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780 |
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830,351 |
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Ginnie Mae Mortgage-Backed |
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27 |
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29,650 |
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141,663,583 |
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Total US
Government Sponsored Agency |
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192,388,345 |
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US Treasury Obligations |
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US Treasury Bonds (d): |
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6.63%, 2/15/27 |
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4,000 |
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6,112,500 |
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3.88%, 8/15/40 |
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12,000 |
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14,257,500 |
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4.38%, 5/15/41 |
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10,000 |
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12,918,800 |
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3.75%, 8/15/41 |
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12,000 |
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13,970,640 |
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US Treasury Notes (d): |
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0.13%, 8/31/13 |
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375 |
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374,077 |
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1.00%, 8/31/16 |
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1,175 |
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1,177,938 |
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3.13%, 5/15/21 |
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15,000 |
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16,648,800 |
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2.13%, 8/15/21 |
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2,000 |
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2,035,320 |
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Total US Treasury Obligations – 35.7% |
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67,495,575 |
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Total
Long-Term Investments |
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288,127,429 |
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Short-Term Securities |
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Shares |
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BlackRock Liquidity Funds, |
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3,353,157 |
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3,353,157 |
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Total
Short-Term Securities |
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3,353,157 |
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Total
Investments Before TBA Sale Commitments |
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291,480,586 |
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BLACKROCK ENHANCED GOVERNMENT FUND, INC |
SEPTEMBER 30, 2011 |
2 |
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Schedule of Investments (continued) |
BlackRock Enhanced Government Fund, Inc (EGF) |
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(Percentages shown are based on Net Assets) |
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TBA Sale Commitments |
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Par |
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Value |
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Fannie Mae Mortgage-Backed |
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$ |
21,500 |
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$ |
(22,830,801 |
) |
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Total TBA Sale Commitments |
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(22,830,801 |
) |
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Options Written |
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Notional
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Over-the-Counter Call Swaptions — (0.3)% |
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Pay a fixed rate of 0.50% and receive a |
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50,000 |
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(23,450 |
) |
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Pay a fixed rate of 1.20% and receive a |
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50,000 |
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(90,040 |
) |
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Pay a fixed rate of 2.10% and receive a |
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20,000 |
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(200,876 |
) |
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Pay a fixed rate of 2.70% and receive a |
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5,000 |
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(162,923 |
) |
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Total
Options Written |
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(477,289 |
) |
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Total
Investments, Net of TBA Sale Commitments |
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268,172,496 |
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Liabilities in Excess of Other Assets – (41.6)% |
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(78,851,980 |
) |
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Net Assets – 100.0% |
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$ |
189,320,516 |
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* |
The cost and unrealized appreciation (depreciation) of investments as of September 30, 2011, as computed for federal income tax purposes, were as follows: |
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Aggregate cost |
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$ |
279,681,638 |
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Gross unrealized appreciation |
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$ |
15,549,755 |
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Gross unrealized depreciation |
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(3,750,807 |
) |
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Net unrealized appreciation |
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$ |
11,798,948 |
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(a) |
Variable rate security. Rate shown is as of report date and maturity shown is the date the principal owed can be recovered through demand. |
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(b) |
Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. |
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(c) |
All or a portion of security has been pledged as collateral in connection with swaps. |
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(d) |
All or a portion of security has been pledged as collateral in connection with open reverse repurchase agreements. |
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(e) |
Represents or includes a TBA transaction. Unsettled TBA transactions as of report date were as follows: |
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Counterparty |
|
Value |
|
Unrealized
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||
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JPMorgan Chase Bank NA |
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|
— |
|
$ |
(138,348 |
) |
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Morgan Stanley & Co., Inc. |
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— |
|
$ |
(140,484 |
) |
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(f) |
Investments in companies considered to be an affiliate of the Fund during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows: |
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Affiliate |
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Shares |
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Net |
|
Shares |
|
Income |
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||||
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BlackRock |
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13,611,942 |
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(10,258,785 |
) |
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3,353,157 |
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$ |
4,530 |
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(g) |
Represents the current yield as of report date. |
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BLACKROCK ENHANCED GOVERNMENT FUND, INC |
SEPTEMBER 30, 2011 |
3 |
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Schedule of Investments (continued) |
BlackRock Enhanced Government Fund, Inc (EGF) |
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• |
Reverse repurchase agreements outstanding as of September 30, 2011 were as follows: |
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Counterparty |
|
Interest |
|
Trade |
|
Maturity |
|
Net
Closing |
|
Face |
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||||
|
Merrill Lynch & Co., Inc. |
|
0.05 |
% |
|
8/18/11 |
|
|
Open |
|
$ |
16,557,262 |
|
$ |
16,556,250 |
|
|
Bank of America, NA |
|
(0.01 |
)% |
|
8/31/11 |
|
|
11/15/11 |
|
|
1,992,483 |
|
|
1,992,500 |
|
|
Credit Suisse Securities (USA) LLC |
|
0.04 |
% |
|
8/31/11 |
|
|
Open |
|
|
12,570,433 |
|
|
12,570,000 |
|
|
Credit Suisse Securities (USA) LLC |
|
0.00 |
% |
|
9/13/11 |
|
|
Open |
|
|
10,875,000 |
|
|
10,875,000 |
|
|
Deutsche Bank AG |
|
0.12 |
% |
|
9/13/11 |
|
|
Open |
|
|
3,990,239 |
|
|
3,990,000 |
|
|
Deutsche Bank AG |
|
0.10 |
% |
|
9/14/11 |
|
|
Open |
|
|
12,100,572 |
|
|
12,100,000 |
|
|
Deutsche Bank AG |
|
(0.15 |
)% |
|
9/14/11 |
|
|
Open |
|
|
374,510 |
|
|
374,532 |
|
|
Deutsche Bank AG |
|
0.14 |
% |
|
9/16/11 |
|
|
Open |
|
|
6,020,351 |
|
|
6,020,000 |
|
|
Deutsche Bank AG |
|
0.25 |
% |
|
9/23/11 |
|
|
10/13/11 |
|
|
3,299,688 |
|
|
3,299,505 |
|
|
BNP Paribas |
|
(0.06 |
)% |
|
9/30/11 |
|
|
10/03/11 |
|
|
2,307,496 |
|
|
2,307,500 |
|
|
Deutsche Bank AG |
|
0.03 |
% |
|
9/30/11 |
|
|
10/03/11 |
|
|
1,179,407 |
|
|
1,179,406 |
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
71,267,441 |
|
$ |
71,264,693 |
|
|
|
|
|
1 |
Certain agreements have no stated maturity and can be terminated by either party at any time. |
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|
• |
Interest rate swaps outstanding as of September 30, 2011 were as follows: |
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|
|
|
|
|
|
|
|
|
|
Fixed |
|
Floating |
|
Counterparty |
|
Expiration |
|
Notional |
|
Unrealized |
|
|||
|
5.96% 1 |
|
3-month LIBOR |
|
Deutsche Bank AG |
|
|
12/27/37 |
|
$ |
23,900 |
|
$ |
(15,139,127 |
) |
|
|
|
|
1 |
Pays fixed interest rate and receives floating rate. |
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|
• |
Fair Value Measurements - Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs are categorized in three broad levels for financial reporting purposes as follows: |
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• |
Level 1 — price quotations in active markets/exchanges for identical assets and liabilities |
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• |
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) |
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• |
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) |
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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 does not necessarily correspond to the Fund’s perceived risk of investing in those securities. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to the Fund’s most recent financial statements as contained in its semi-annual report. |
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BLACKROCK ENHANCED GOVERNMENT FUND, INC |
SEPTEMBER 30, 2011 |
4 |
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|
Schedule of Investments (concluded) |
BlackRock Enhanced Government Fund, Inc (EGF) |
The following tables summarize the inputs used as of September 30, 2011 in determining the fair valuation of the Fund’s investments and derivative financial instruments:
|
|
|
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|
|
|
|
|
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|
|
|
|
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Valuation Inputs |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
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|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities |
|
|
— |
|
$ |
6,076,855 |
|
|
— |
|
$ |
6,076,855 |
|
|
Non-Agency Mortgage-Backed Securities |
|
|
— |
|
|
12,692,804 |
|
|
— |
|
|
12,692,804 |
|
|
Preferred Securities |
|
$ |
3,840,000 |
|
|
4,338,332 |
|
|
— |
|
|
8,178,332 |
|
|
Taxable Municipal Bonds |
|
|
— |
|
|
1,295,518 |
|
|
— |
|
|
1,295,518 |
|
|
US Government Sponsored Agency Securities |
|
|
— |
|
|
192,388,345 |
|
|
— |
|
|
192,388,345 |
|
|
US Treasury Obligations |
|
|
— |
|
|
67,495,575 |
|
|
— |
|
|
67,495,575 |
|
|
Short-Term Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds |
|
|
3,353,157 |
|
|
— |
|
|
— |
|
|
3,353,157 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TBA Sale Commitments |
|
|
— |
|
|
(22,830,801 |
) |
|
— |
|
|
(22,830,801 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,193,157 |
|
$ |
261,456,628 |
|
|
— |
|
$ |
268,649,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Inputs |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
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||||
|
Derivative Financial Instruments1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
— |
|
$ |
(15,616,416 |
) |
|
— |
|
$ |
(15,616,416 |
) |
|
|
|
|
1 |
Derivative financial instruments are swaps and options written. Swaps are valued at the unrealized appreciation/depreciation on the instrument and options written are shown at value. |
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|
BLACKROCK ENHANCED GOVERNMENT FUND, INC |
SEPTEMBER 30, 2011 |
5 |
|
Item 2 – |
Controls and Procedures |
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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. |
||
|
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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. |
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Item 3 – |
Exhibits |
||
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|
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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. |
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|
|
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: November 23, 2011 | |||
| 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: November 23, 2011 | |||
| By: | /s/ Neal J. Andrews | ||
| Neal J. Andrews | |||
| Chief Financial Officer (principal financial officer) of | |||
| BlackRock Enhanced Government Fund, Inc. | |||
| Date: November 23, 2011 | |||