N-Q 1 d58630dnq.htm BLACKROCK ENHANCED GOVERNMENT FUND, INC. BlackRock Enhanced Government Fund, Inc.

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: 12/31/2015

Date of reporting period: 09/30/2015

Item 1 – Schedule of Investments

Schedule of Investments September 30, 2015 (Unaudited)

   

BlackRock Enhanced Government Fund, Inc. (EGF)

(Percentages shown are based on Net Assets)

 

 

Asset-Backed Securities   Par
(000)		     Value  

Securitized Asset Backed Receivables LLC Trust (a):

    

Series 2005-OP1, Class M2, 0.87%, 1/25/35

   $ 1,209      $ 1,136,940   

Series 2005-OP2, Class M1, 0.62%, 10/25/35

     1,025        902,300   

Total Asset-Backed Securities - 1.8%

             2,039,240   
   
                 

Corporate Bonds

    

Diversified Telecommunication Services — 1.8%

    

Verizon Communications, Inc., 2.50%, 9/15/16

     2,057        2,085,263   
   
                 

Non-Agency Mortgage-Backed Securities

                

Collateralized Mortgage Obligations — 1.1%

    

Bank of America Mortgage Securities, Inc., Series 2003-J, Class 2A1, 2.82%, 11/25/33 (a)

     133        133,239   

Bear Stearns Alt-A Trust, Series 2004-13, Class A1, 0.93%, 11/25/34 (a)

     185        182,768   

Homebanc Mortgage Trust, Series 2005-4, Class A1, 0.46%, 10/25/35 (a)

     1,025        945,983   
   

 

 

  
              1,261,990   

Interest Only Collateralized Mortgage Obligations — 0.1%

  

  

CitiMortgage Alternative Loan Trust, Series 2007-A5, Class 1A7, 6.00%, 5/25/37

     270        72,182   

Total Non-Agency Mortgage-Backed Securities - 1.2%

  

     1,334,172   
   
                 

U.S. Government Sponsored Agency Securities

  

        

Agency Obligations — 3.4%

  

  

Federal Farm Credit Bank, 4.55%, 6/08/20

     3,500        3,974,365   

Collateralized Mortgage Obligations — 5.9%

    

Fannie Mae Mortgage-Backed Securities, Series 2014-28, Class BD, 3.50%, 8/25/43

     1,679        1,787,555   

Ginnie Mae Mortgage-Backed Securities, Series 2006-3, Class C, 5.24%, 4/16/39 (a)

     5,034        5,116,017   
   

 

 

  
              6,903,572   
U.S. Government Sponsored Agency Securities   Par
(000)		     Value  

Interest Only Collateralized Mortgage Obligations — 2.0%

  

  

Fannie Mae Mortgage-Backed Securities:

    

Series 2012-96, Class DI, 4.00%, 2/25/27

   $ 2,028      $ 193,932   

Series 2012-M9, Class X1, 4.19%, 12/25/17 (a)

     4,892        319,832   

Series 2012-47, Class NI, 4.50%, 4/25/42

     1,811        329,687   

Ginnie Mae Mortgage-Backed Securities (a):

  

  

Series 2006-30, Class IO, 1.47%, 5/16/46

     675        47,609   

Series 2009-78, Class SD, 5.98%, 9/20/32

     1,839        364,291   

Series 2009-116, Class KS, 6.26%, 12/16/39

     634        110,501   

Series 2011-52, Class NS, 6.46%, 4/16/41

     4,916        901,166   
   

 

 

  
              2,267,018   

Mortgage-Backed Securities — 62.3%

    

Fannie Mae Mortgage-Backed Securities:

    

2.50%, 4/01/28

     6,876        7,075,364   

3.00%, 6/01/42 - 4/01/43

     7,736        7,867,075   

3.50%, 8/01/26 - 8/01/44

     14,988        15,780,681   

4.00%, 4/01/24 - 2/01/41

     13,620        14,564,839   

4.50%, 4/01/39 - 8/01/40

     9,139        10,010,309   

5.00%, 11/01/33 - 2/01/40

     5,193        5,764,554   

5.50%, 10/01/23 - 10/01/45 (b)

     8,919        9,995,366   

6.00%, 2/01/36 - 3/01/38

     846        955,325   

Freddie Mac Mortgage-Backed Securities, 4.50%, 5/01/34

     265        286,415   

Ginnie Mae Mortgage-Backed Securities, 5.00%, 11/15/35

     7        8,162   
   

 

 

  
              72,308,090   

Total U.S. Government Sponsored Agency Securities - 73.6%

  

     85,453,045   
   
                 

U.S. Treasury Obligations

                

U.S. Treasury Bonds, 4.38%, 5/15/41 (c)

     6,000        7,734,372   

U.S. Treasury Notes (c):

    

1.38%, 4/30/20

     17,000        17,045,152   

1.50%, 5/31/20

     7,500        7,565,235   

3.13%, 5/15/21

     6,500        7,048,269   

2.00%, 2/15/25

     6,000        5,976,564   

Total U.S. Treasury Obligations - 39.1%

             45,369,592   

 

 

 

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

Schedule of Investments (continued)

   

BlackRock Enhanced Government Fund, Inc. (EGF)

 

 

Preferred Securities   Par
(000)		     Value  

Capital Trusts

                

Diversified Financial Services — 0.4%

    

ZFS Finance (USA) Trust V, 6.50%, 5/09/37 (a)(d)

   $ 504      $ 511,812   

Electric Utilities — 1.5%

    

PPL Capital Funding, Inc., 6.70%, 3/30/67 (a)

     2,000        1,705,000   

Total Capital Trusts – 1.9%

       2,216,812   
     
Trust Preferred – 1.7%   Shares         

Capital Markets — 1.7%

    

Morgan Stanley Capital Trust VIII, 6.45%, 4/15/67

     80,000        1,986,367   

Total Preferred Securities – 3.6%

             4,203,179   

Total Long-Term Investments

(Cost — $136,244,469) — 121.1%

             140,484,491   
   
                 
Short-Term Securities  

Par

(000)

         

U.S. Treasury Obligations — 3.4%

    

U.S. Treasury Bills, 0.21%, 2/04/16 (e)

     4,000        3,999,668   
Money Market Fund – 2.1%   Shares         

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.03% (f)(g)

     2,457,011        2,457,011   

Total Short-Term Securities

(Cost — $6,454,141) — 5.5%

             6,456,679   
            Value  

Total Investments Before TBA Sale Commitments and Options Written

(Cost — $142,698,610*) — 126.6%

           $ 146,941,170   
TBA Sale Commitments  

Par  

(000)

         

Fannie Mae Mortgage-Backed Securities (b):

    

5.50%, 10/1/45

   $ 4,400        (4,914,680 ) 

5.50%, 11/1/45

     4,300        (4,799,692 ) 

Total TBA Sale Commitments

(Proceeds — $9,721,122) — (8.4)%

             (9,714,372 ) 

Options Written

(Premiums Received — $421,000) — (0.5)%

             (581,531 ) 

Total Investments, Net of TBA Sale Commitments and Options Written

(Cost — $132,556,488) — 117.7%

       136,645,267   

Liabilities in Excess of Other Assets — (17.7)%

       (20,531,734 ) 

Net Assets — 100.0%

     $ 116,113,533   

 

*   As of period end, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:

 

Tax cost

   $ 142,698,610   

Gross unrealized appreciation

   $ 5,210,356   

Gross unrealized depreciation

     (967,796 ) 

Net unrealized depreciation

   $ 4,242,560   
 

 

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   

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

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   

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

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: 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.

 

By:      

/s/ John M. Perlowski

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

Date: November 23, 2015

 

By:      

/s/ Neal J. Andrews

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

Date: November 23, 2015