Edgar Filing: BlackRock Enhanced Government Fund, Inc.

See Notes to Financial Statements.

BLACKROCK ENHANCED GOVERNMENT FUND, INC.

JUNE 30, 2017

BlackRock Enhanced Government Fund, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

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: 12/31/2017

Date of reporting period: 06/30/2017



Item 1 –		Report to Stockholders

JUNE 30, 2017

SEMI-ANNUAL REPORT (UNAUDITED)

BlackRock Enhanced Government Fund, Inc. (EGF)

Not FDIC Insured • May Lose Value • No Bank Guarantee

The Markets in Review

Dear Shareholder,

In the 12 months ended June 30, 2017, risk assets, such as stocks and high-yield bonds, delivered strong performance. These markets showed great resilience during a period with big surprises, including the aftermath of the U.K.’s vote to leave the European Union and the outcome of the U.S. presidential election, which brought only brief spikes in equity market volatility. However, interest rates rose, which worked against high-quality assets with more interest rate sensitivity. Aside from the shortest-term Treasury bills, most U.S. Treasuries posted negative returns, as rising energy prices, modest wage increases and steady job growth led to expectations of higher inflation and anticipation of interest rate increases by the U.S. Federal Reserve (the “Fed”).

The global reflationary theme — rising nominal growth, wages and inflation — was the dominant driver of asset returns during the period, outweighing significant political upheavals and economic uncertainty. Reflationary expectations accelerated after the U.S. election in November 2016 and continued into the beginning of 2017, stoked by expectations that the new administration’s policies would provide an extra boost to U.S. growth.

The Fed has responded to these positive developments by increasing interest rates three times in the last six months, setting expectations for additional interest rate increases and moving toward normalizing monetary policy. For its part, the European Central Bank also began to signal its intent to wind down asset purchases and begin the long move toward policy normalization, contingent upon further improvement in economic growth.

In recent months, growing skepticism about the near-term likelihood of significant U.S. tax reform and infrastructure spending has tempered enthusiasm around the reflation trade. Similarly, renewed concern about oversupply has weighed on energy prices. Nonetheless, financial markets — and to an extent the Fed — have adopted a “wait-and-see” approach to the economic data and potential fiscal stimulus. Although uncertainty has persisted, benign credit conditions, modest inflation and the outlook for economic growth have kept markets relatively tranquil.

In the fifth edition of our Global Investor Pulse Survey, we heard from 28,000 individuals across 18 countries, including more than 4,000 respondents from the United States. While retirement remains the single most important issue for American investors, only a third of respondents feel confident that they will have enough retirement income, and nearly 40% of respondents have yet to begin saving for retirement. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.

Sincerely,

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

LOGO

Rob Kapito

President, BlackRock Advisors, LLC


Total Returns as of June 30, 2017
	6-month			12-month
U.S. large cap equities (S&P 500^® Index)		9.34	%		17.90	%
U.S. small cap equities (Russell 2000^® Index)		4.99			24.60
International equities (MSCI Europe, Australasia, Far East Index)		13.81			20.27
Emerging market equities (MSCI Emerging Markets Index)		18.43			23.75
3-month Treasury bills (BofA Merrill Lynch 3-Month U.S. Treasury Bill Index)		0.31			0.49
U.S. Treasury securities (BofA Merrill Lynch 10-Year U.S. Treasury Index)		2.08			(5.58	)
U.S. investment grade bonds (Bloomberg Barclays U.S. Aggregate Bond Index)		2.27			(0.31	)
Tax-exempt municipal bonds (S&P Municipal Bond Index)		3.26			(0.28	)
U.S. high yield bonds (Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index)		4.92			12.69
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.



2		THIS PAGE NOT PART OF YOUR FUND REPORT

Section 19(a) Notice

BlackRock Enhanced Government Fund, Inc.’s (EGF) (the “Fund”) amounts and sources of distributions reported are estimates and are being provided to you pursuant to regulatory requirements and are not being provided for tax reporting purposes. The actual amounts and sources for tax reporting purposes will depend upon the Fund’s investment experience during the remainder of the fiscal year and may be subject to changes based on tax regulations. The Fund will provide a Form 1099-DIV each calendar year that will tell you how to report these distributions for U.S. federal income tax purposes.


June 30, 2017
	Total Cumulative Distributions for the Fiscal Year-to-Date								% Breakdown of the Total Cumulative Distributions for the Fiscal Year-to-Date
	Net Investment Income		Net Realized Capital Gains		Return of Capital		Total Per Common Share		Net Investment Income		Net Realized Capital Gains		Return of Capital		Total Per Common Share
EGF	$	0.150774		—	$	0.054226	$	0.205000		74%		0%		26%		100%

The Fund estimates that it has distributed more than its income and net-realized capital gains in the current fiscal year; therefore, a portion of your distribution may be a return of capital. A return of capital may occur, for example, when some or all of the shareholder’s investment is paid back to the shareholder. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with ‘yield’ or ‘income’. When distributions exceed total return performance, the difference will reduce the Fund’s net asset value per share.

Section 19(a) notices for the Fund, as applicable, are available on the BlackRock website http://www.blackrock.com.

Section 19(b) Disclosure

The Fund, acting pursuant to a U.S. Securities and Exchange Commission (“SEC”) exemptive order and with the approval of the Fund’s Board of Directors (the “Board”), has adopted a plan, consistent with its investment objectives and policies to support a level distribution of income, capital gains and/or return of capital (the “Plan”). In accordance with the Plan, the Fund currently distributes fixed amounts of $0.0410 per share on a monthly basis.

The fixed amounts distributed per share are subject to change at the discretion of the Fund’s Board. Under its Plan, the Fund will distribute all available investment income to its shareholders, consistent with its primary investment objectives and as required by the Internal Revenue Code of 1986, as amended (the “Code”). If sufficient investment income is not available on a monthly basis, the Fund will distribute long-term capital gains and/or return of capital to shareholders in order to maintain a level distribution. Each monthly distribution to shareholders is expected to be at the fixed amount established by the Board, except for extraordinary distributions and potential distribution rate increases or decreases to enable the Fund to comply with the distribution requirements imposed by the Code.

Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the Plan. The Fund’s total return performance on net asset value is presented in its financial highlights table.

The Board may amend, suspend or terminate the Fund’s Plan at any time without prior notice to the Fund’s shareholders if it deems such actions to be in the best interests of the Fund or its shareholders. The suspension or termination of the Plan could have the effect of creating a trading discount (if the Fund’s stock is trading at or above net asset value) or widening an existing trading discount. The Fund is subject to risks that could have an adverse impact on its ability to maintain a level distribution. Examples of potential risks include, but are not limited to, economic downturns impacting the markets, decreased market volatility, companies suspending or decreasing corporate dividend distributions and changes in the Code.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	3


Table of Contents


	Page
The Markets in Review		2
Section 19(a) Notice		3
Section 19(b) Disclosure		3
Semi-Annual Report:
Option Over-Writing		5
Fund Summary		6
Derivative Financial Instruments		8
The Benefits and Risks of Leveraging		9
Financial Statements:
Schedule of Investments		10
Statement of Assets and Liabilities		17
Statement of Operations		18
Statements of Changes in Net Assets		19
Statement of Cash Flows		20
Financial Highlights		21
Notes to Financial Statements		22
Disclosure of Investment Advisory Agreement		31
Officers and Directors		35
Additional Information		36



4	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Option Over-Writing

In general, the goal of the Fund is to provide shareholders with current income and gains. The Fund seeks to pursue this goal primarily by investing in a portfolio of U.S. Government and U.S. Government Agency securities and utilizing an option over-writing strategy in an effort to enhance the Fund’s distribution rate and total return performance. However, these objectives cannot be achieved in all market conditions.

The Fund writes call options on individual U.S. Government and U.S. Government Agency securities or on baskets of such securities or on interest rate swaps (“swaptions”), and may write call options on other debt securities. When writing (selling) a call option, the Fund grants the counterparty the right to buy an underlying reference security or enter into a defined transaction (e.g., a swap contract, in the case of the swaption) at an agreed-upon price (“strike price”) within an agreed upon time period. The Fund receives cash premiums from the counterparties upon writing (selling) the option or swaption, which along with net investment income and net realized gains, if any, are generally available to support current or future distributions paid by the Fund. During the option term, the counterparty may elect to exercise the option if the market value of the underlying reference security or underlying contract rises above the strike price, and the Fund is obligated to sell the security or contract to the counterparty at the strike price, realizing a gain or loss. If the option remains unexercised upon its expiration, the Fund realizes gains equal to the premiums received.

Writing call options and swaptions entails certain risks, which include but are not limited to, the following: an increase in the value of the underlying security above the strike price can result in the exercise of a written option (sale by the Fund to the counterparty) when the Fund might not otherwise have sold the security; exercise of the option by the counterparty may result in a sale below the current market value and in a gain or loss realized by the Fund; writing call options and swaptions limits the potential appreciation on the underlying interest rate swap or security and the yield on the Fund could decline; if current market interest rates fall below the strike price, the counterparty could exercise a written swaption when the Fund might not otherwise have entered into an interest rate swap; the Fund is bound by the terms of the underlying interest rate swap agreement upon exercise of the option by the counterparty which can result in a loss to the Fund in excess of the premium received. As such, an option over-writing strategy may outperform the general fixed income market in rising or flat interest rate environments (when bond prices are steady or falling) but underperform in a falling interest rate environment (when bond prices are rising).

The Fund employs a plan to support a level distribution of income, capital gains and/or return of capital. The goal of the plan is to provide shareholders with consistent and predictable cash flows by setting distribution rates based on expected long-term returns of the Fund. Such distributions, under certain circumstances, may exceed the Fund’s total return performance. When total distributions exceed total return performance for the period, the difference reduces the Fund’s total assets and net asset value per share (“NAV”) and, therefore, could have the effect of increasing the Fund’s expense ratio and/or reducing the amount of assets the Fund has available for long-term investment. In order to make these distributions, the Fund may have to sell portfolio securities at less than opportune times.

The final tax characterization of distributions is determined after the fiscal year and is reported in the Fund’s annual report to shareholders. Distributions can be characterized as ordinary income, capital gains and/or return of capital. The Fund’s taxable net investment income or net realized capital gains (“taxable income”) may not be sufficient to support the level of distributions paid. To the extent that distributions exceed the Fund’s current and accumulated earnings and profits, the excess may be treated as a non-taxable return of capital. Distributions that exceed the Fund’s taxable income but do not exceed the Fund’s current and accumulated earnings and profits may be classified as ordinary income, which is taxable to shareholders.

A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.” A return of capital is a return of a portion of an investor’s original investment. A return of capital is not taxable, but it reduces a shareholder’s tax basis in his or her shares, thus reducing any loss or increasing any gain on a subsequent disposition by the shareholder of his or her shares. It is possible that a substantial portion of the distributions paid during a calendar year may ultimately be classified as return of capital for income tax purposes when the final determination of the source and character of the distributions is made.

The Fund intends to write call options and swaptions to varying degrees depending upon market conditions. Please refer to the Schedule of Investments and the Notes to Financial Statements for details of written call options and swaptions.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	5


Fund Summary as of June 30, 2017


Fund Overview

BlackRock Enhanced Government Fund, Inc.’s (EGF) (the “Fund”) investment objective is to provide shareholders with current income and gains. The Fund seeks to achieve its investment objective by investing primarily in a portfolio of U.S. Government securities and U.S. Government Agency securities, including U.S. Government mortgage-backed securities, that pay interest in an attempt to generate current income, and by employing a strategy of writing (selling) call options on individual or baskets of U.S. Government securities, U.S. Government Agency securities or other debt securities held by the Fund in an attempt to generate gains from option premiums.

No assurance can be given that the Fund’s investment objective will be achieved.


Performance and Portfolio Management Commentary

Returns for the six months ended June 30, 2017 were as follows:


	Returns Based On
	Market Price			Net Asset Value
EGF^1,2		2.40	%		3.01	%
BofA Merrill Lynch 1-3 Year US Treasury Index		N/A			0.43	%
Citigroup Government/Mortgage Index		N/A			1.65	%

All returns reflect reinvestment of dividends and/or distributions at actual reinvestment prices.

The Fund’s discount to NAV widened during the period, which accounts for the difference between performance based on price and performance based on NAV.

N/A — Not applicable as the index does not have a market price

Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.

The following discussion related to the Fund’s absolute performance based on NAV:

What factors influenced performance?

•

Performance is reviewed on an absolute basis due to the Fund’s unique strategy, which entails writing call options on individual or baskets of U.S. government securities or interest rates. The index returns listed above are for reference purposes only, as these indices do not reflect an option writing strategy.

•

The Fund’s underweight in U.S. Treasuries and exposure to agency mortgage-backed securities, including 30-year and 15-year pass-throughs, contributed to performance. Allocations to capital securities, commercial mortgage-backed securities (“CMBS”) and non-agency mortgage-backed securities also added value.

•

The Fund utilized interest rate swaptions as a means to manage risk against long U.S. Treasury positions and to manage duration, spread exposure and yield curve positioning. (Swaptions are options to enter into interest rate swaps.) The use of swaptions continues to be an efficient interest rate management tool, and they should be viewed in the context of their overall contribution to risk reduction as well as performance. The use of swaptions contributed to the Fund’s six-month performance.

Describe recent portfolio activity.

•

The Fund purchased U.S. Treasury securities and used swaptions to generate incremental yield during the first half of 2017. The Fund also slightly reduced its allocations to asset-backed securities and CMBS, and it rotated into investment-grade corporate securities and agency mortgages.

Describe portfolio positioning at period end.

•

The Fund continued to employ an options writing strategy as a way to manage duration and generate incremental yield. The Fund remained overweight in high-coupon agency mortgage-backed securities.

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.



6	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Fund Information


Symbol on New York Stock Exchange (“NYSE”)		EGF
Initial Offering Date		October 31, 2005
Current Distribution Rate on Closing Market Price as of June 30, 2017 ($13.31)¹		3.70%
Current Monthly Distribution per Common Share²		$0.0410
Current Annualized Distribution per Common Share²		$0.4920
Economic Leverage as of June 30, 2017³		14%

Current Distribution Rate on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. The current distribution rate consists of income, net realized gains and/or a return of capital. See the Section 19(a) Notice on page 2 for the estimated actual sources and character of distributions. Past performance does not guarantee future results.

The distribution rate is not constant and is subject to change. A portion of the distribution may be deemed a return of capital or net realized gain.

Represents reverse repurchase agreements as a percentage of total managed assets, which is the total assets of the Fund, including any assets attributable to reverse repurchase agreements, minus the sum of liabilities (other than borrowings representing financial leverage). For a discussion of leveraging techniques utilized by the Fund, please see The Benefits and Risks of Leveraging on page 9.

Market Price and Net Asset Value Per Share Summary


	6/30/17		12/31/16		Change			High		Low
Market Price	$	13.31	$	13.20		0.83	%	$	13.38	$	13.03
Net Asset Value	$	14.08	$	13.88		1.44	%	$	14.12	$	13.84

Market Price and Net Asset Value History For the Past Five Years

LOGO



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	7

Overview of the Fund’s Total Investments


Portfolio Composition	6/30/17			12/31/16
U.S. Government Sponsored Agency Securities		55	%		57	%
U.S. Treasury Obligations		39			36
Preferred Securities		2			2
Asset-Backed Securities		2			2
Non-Agency Mortgage-Backed Securities		1			1
Short-Term Securities		1			3
Options Purchased		—	¹		—
Options Written		(—	)¹		(1	)

Representing less than 1% of the Fund’s total investments.


Credit Quality Allocation^2,3	6/30/17			12/31/16
AAA/Aaa⁴		97	%		97	%
BBB/Baa		1			2
BB/Ba		2			1

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s (“S&P”) or Moody’s Investors Service (“Moody’s”) if ratings differ. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.

Excludes Preferred Securities, Short-Term Securities and Options Written.

⁴

The investment adviser evaluates the credit quality of not-rated investments based upon certain factors including, but not limited to, credit ratings for similar investments and financial analysis of sectors, individual investments and/or issuer. Using this approach, the investment adviser has deemed U.S. Government Sponsored Agency Securities and U.S. Treasury Obligations as AAA/Aaa.


Derivative Financial Instruments

The Fund may invest in various derivative financial instruments. These instruments are used to obtain exposure to a security, commodity, index, market, and/or other asset without owning or taking physical custody of securities, commodities and/or other referenced assets or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage and involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the

transaction or illiquidity of the instrument. The Fund’s successful use of a derivative financial instrument depends on the investment adviser’s ability to predict pertinent market movements accurately, which cannot be assured. The use of these instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments, if any, are discussed in detail in the Notes to Financial Statements.



8	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


The Benefits and Risks of Leveraging

The Fund may utilize leverage to seek to enhance the distribution rate on, and net asset value (“NAV”) of, their common shares (“Common Shares”). However, these objectives cannot be achieved in all interest rate environments.

In general, the concept of leveraging is based on the premise that the financing cost of leverage, which is based on short-term interest rates, is normally lower than the income earned by the Fund on its longer-term portfolio investments purchased with the proceeds from leverage. To the extent that the total assets of the Fund (including the assets obtained from leverage) are invested in higher-yielding portfolio investments, the Fund’s shareholders benefit from the incremental net income. The interest earned on securities purchased with the proceeds from leverage is paid to shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share NAV.

To illustrate these concepts, assume the Fund’s capitalization is $100 million and it utilizes leverage for an additional $30 million, creating a total value of $130 million available for investment in longer-term income securities. If prevailing short-term interest rates are 3% and longer-term interest rates are 6%, the yield curve has a strongly positive slope. In this case, the Fund’s financing costs on the $30 million of proceeds obtained from leverage are based on the lower short-term interest rates. At the same time, the securities purchased by the Fund with the proceeds from leverage earn income based on longer-term interest rates. In this case, the Fund’s financing cost of leverage is significantly lower than the income earned on the Fund’s longer-term investments acquired from such leverage proceeds, and therefore the holders of Common Shares (“Common Shareholders”) are the beneficiaries of the incremental net income.

However, in order to benefit shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other costs of leverage exceed the Fund’s return on assets purchased with leverage proceeds, income to shareholders is lower than if the Fund had not used leverage. Furthermore, the value of the Fund’s portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. In contrast, the value of the

Fund’s obligations under its leverage arrangement generally does not fluctuate in relation to interest rates. As a result, changes in interest rates can influence the Fund’s NAVs positively or negatively. Changes in the future direction of interest rates are very difficult to predict accurately, and there is no assurance that the Fund’s intended leveraging strategy will be successful.

The use of leverage also generally causes greater changes in the Fund’s NAV, market price and dividend rates than comparable portfolios without leverage. In a declining market, leverage is likely to cause a greater decline in the NAV and market price of the Fund’s shares than if the Fund were not leveraged. In addition, the Fund may be required to sell portfolio securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of leverage instruments, which may cause the Fund to incur losses. The use of leverage may limit the Fund’s ability to invest in certain types of securities or use certain types of hedging strategies. The Fund incurs expenses in connection with the use of leverage, all of which are borne by shareholders and may reduce income to the shareholders. Moreover, to the extent the calculation of the Fund’s investment advisory fees includes assets purchased with the proceeds of leverage, the investment advisory fees payable to the Fund’s investment adviser will be higher than if the Fund did not use leverage.

The Fund may utilize leverage through reverse repurchase agreements as described in the Notes to Financial Statements.

Under the Investment Company Act of 1940, as amended (the “1940 Act”), the Fund is permitted to issue debt up to 33¹/₃% of its total managed assets. The Fund may voluntarily elect to limit its leverage to less than the maximum amount permitted under the 1940 Act.

If the Fund segregates or designates on its books and records cash or liquid assets having a value not less than the value of the Fund’s obligations under the reverse repurchase agreement (including accrued interest), then such transaction is not considered a senior security and is not subject to the foregoing limitations and requirements imposed by the 1940 Act.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	9


Schedule of Investments June 30, 2017 (Unaudited)		(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, 1.89%, 1/25/35	$	737	$	717,016
Series 2005-OP2, Class M1, 1.65%, 10/25/35		1,025		997,710
Total Asset-Backed Securities — 1.9%				1,714,726



Non-Agency Mortgage-Backed Securities
Collateralized Mortgage Obligations — 0.9%
Bank of America Mortgage Trust, Series 2003-J, Class 2A1, 3.47%, 11/25/33 (a)		86		86,144
Bear Stearns ALT-A Trust, Series 2004-13, Class A1, 1.96%, 11/25/34 (a)		96		94,371
HomeBanc Mortgage Trust, Series 2005-4, Class A1, 1.29%, 10/25/35 (a)		628		610,604

				791,119
Interest Only Collateralized Mortgage Obligations — 0.0%
CitiMortgage Alternative Loan Trust, Series 2007-A5, Class 1A7, 6.00%, 5/25/37		195		43,998
Total Non-Agency Mortgage-Backed Securities — 0.9%				835,117



Preferred Securities

Capital Trusts — 2.1%
Electric Utilities — 2.1%
PPL Capital Funding, Inc., Series A, 3.96%, 3/30/67 (a)		2,000		1,927,500
Total Preferred Securities — 2.1%				1,927,500



U.S. Government Sponsored Agency Securities
Agency Obligations — 4.2%
Federal Farm Credit Bank, 4.55%, 6/08/20		3,500		3,786,898
Collateralized Mortgage Obligations — 6.3%
Fannie Mae Mortgage-Backed Securities, Series 2014-28, Class BD, 3.50%, 8/25/43		1,272		1,329,907
Freddie Mac Mortgage-Backed Securities, Series 4480, Class ZX, 4.00%, 11/15/44		677		715,143
Ginnie Mae Mortgage-Backed Securities, Series 2006-3, Class C, 5.24%, 4/16/39 (a)		3,707		3,738,006

				5,783,056
Interest Only Collateralized Mortgage Obligations — 1.5%
Fannie Mae Mortgage-Backed Securities:
Series 2012-96, Class DI, 4.00%, 2/25/27		1,198		100,168
Series 2012-M9, Class X1, 4.14%, 12/25/17 (a)		1,322		11,184
Series 2012-47, Class NI, 4.50%, 4/25/42		1,311		291,311
Ginnie Mae Mortgage-Backed Securities (a):
Series 2006-30, Class IO, 2.16%, 5/16/46		387		26,041
Series 2009-78, Class SD, 4.99%, 9/20/32		1,299		212,923
Series 2009-116, Class KS, 5.30%, 12/16/39		389		58,891
Series 2011-52, Class NS, 5.50%, 4/16/41		3,643		658,561

				1,359,079


U.S. Government Sponsored Agency Securities	Par (000)		Value
Mortgage-Backed Securities — 51.6%
Fannie Mae Mortgage-Backed Securities:
2.50%, 4/01/28	$	5,152	$	5,211,100
3.00%, 6/01/42 - 4/01/43		6,278		6,307,863
3.50%, 8/01/26 - 8/01/44		10,747		11,133,627
4.00%, 4/01/24 - 2/01/41		9,220		9,736,910
4.50%, 4/01/39 - 8/01/40		6,456		6,988,197
5.00%, 11/01/33 - 2/01/40		3,435		3,778,782
5.50%, 10/01/23 - 9/01/36		2,910		3,254,589
6.00%, 2/01/36 - 3/01/38		528		600,965
Freddie Mac Mortgage-Backed Securities, 4.50%, 5/01/34		154		164,909
Ginnie Mae Mortgage-Backed Securities, 5.00%, 11/01/35		5		5,442

				47,182,384
Total U.S. Government Sponsored Agency Securities — 63.6%				58,111,417



U.S. Treasury Obligations
U.S. Treasury Bonds, 4.38%, 5/15/41		5,100		6,537,364
U.S. Treasury Notes:
1.38%, 4/30/20 (b)		13,500		13,439,358
1.50%, 5/31/20 (b)		1,300		1,298,071
3.13%, 5/15/21		6,500		6,838,708
2.00%, 11/30/22		3,500		3,507,382
2.00%, 2/15/25		6,000		5,917,734
2.25%, 11/15/25		2,800		2,800,655
1.63%, 2/15/26		900		855,352
Total U.S. Treasury Obligations — 45.0%				41,194,624
Total Long-Term Investments (Cost — $101,448,522) — 113.5%				103,783,384



Short-Term Securities	Shares
BlackRock Liquidity Funds, T-Fund, Institutional Class, 0.84% (c)(d)		1,275,205		1,275,205
Total Short-Term Securities (Cost — $1,275,205) — 1.4%				1,275,205
Options Purchased (Cost — $180,510) — 0.2%				137,878
Total Investments Before Options Written (Cost — $102,904,237) — 115.1%				105,196,467
Options Written (Premiums Received — $460,872) — (0.4)%				(356,739	)
Total Investments, Net of Options Written (Cost — $102,443,365) — 114.7%				104,839,728
Liabilities in Excess of Other Assets — (14.7)%				(13,397,410	)

Net Assets — 100.0%			$	91,442,318


Portfolio Abbreviations


AUD	Australian Dollar	GBP	British Pound	NZD	New Zealand Dollar
CAD	Canadian Dollar	LIBOR	London Interbank Offered Rate	SEK	Swedish Krona
CHF	Swiss Franc	NOK	Norwegian Krone	USD	U.S. Dollar
EUR	Euro

See Notes to Financial Statements.



10	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Schedule of Investments (continued)


Notes to Schedule of Investments

(a)

Variable rate security. Rate as of period end.

(b)

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

(c)

Current yield as of period end.

(d)

During the six months ended June 30, 2017, 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, 2016		Net Activity			Shares Held at June 30, 2017		Value at June 30, 2017		Income		Realized Gain (Loss)		Change in Unrealized Appreciation (Depreciation)
BlackRock Liquidity Funds, T-Fund, Institutional Class		3,730,899		(2,455,694	)		1,275,205	$	1,275,205	$	19,242		—		—


Reverse Repurchase Agreements
Counterparty	Interest Rate			Trade Date		Maturity Date¹		Face Value		Face Value Including Accrued Interest		Type of Non-Cash Underlying Collateral	Remaining Contractual Maturity of the Agreements¹
BNP Paribas Securities Corp.		0.55	%		12/19/16		Open	$	993,750	$	998,007	U.S. Treasury Obligations	Open/Demand
Credit Suisse Securities (USA) LLC		0.58	%		12/29/16		Open		13,415,625		13,465,498	U.S. Treasury Obligations	Open/Demand
Total								$	14,409,375	$	14,463,505

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

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

Contracts
Short

Issue

Expiration

Notional
Value

Unrealized
Appreciation

)

5-Year U.S. Treasury Note

September 2017

$353,508

723


Forward Foreign Currency Exchange Contracts
Currency Purchased		Currency Sold		Counterparty	Settlement Date		Unrealized Appreciation (Depreciation)
SEK	2,008,769	NOK	1,960,000	Barclays Bank PLC		7/03/17	$	3,672
SEK	2,014,600	NOK	1,960,000	Barclays Bank PLC		7/03/17		4,364
SEK	4,822,087	NOK	4,700,000	Citibank N.A.		7/03/17		9,416
SEK	29,691,425	NOK	29,370,000	Credit Suisse International		7/03/17		6,438
SEK	2,025,732	NOK	1,960,000	Goldman Sachs International		7/03/17		5,686
SEK	19,226,176	NOK	18,735,000	Morgan Stanley & Co. International PLC		7/03/17		38,071
EUR	325,000	AUD	478,409	Bank of America N.A.		7/10/17		3,613
GBP	180,000	CAD	302,171	Barclays Bank PLC		7/24/17		1,486
GBP	210,000	CAD	353,940	Deutsche Bank AG		7/24/17		648
CAD	153,385	AUD	152,951	Barclays Bank PLC		7/27/17		804
CAD	308,731	AUD	305,000	Barclays Bank PLC		7/27/17		3,813
CAD	308,905	AUD	305,000	Barclays Bank PLC		7/27/17		3,947
CAD	313,927	AUD	305,000	Barclays Bank PLC		7/27/17		7,822
CAD	883,460	AUD	882,049	Morgan Stanley & Co. International PLC		7/27/17		3,793
CAD	315,837	NZD	330,000	BNP Paribas S.A.		8/14/17		2,069
CAD	248,902	NZD	260,000	Barclays Bank PLC		8/14/17		1,676
CAD	314,422	NZD	330,000	Barclays Bank PLC		8/14/17		976
CAD	317,420	NZD	330,000	Barclays Bank PLC		8/14/17		3,290
CAD	320,074	NZD	330,000	Barclays Bank PLC		8/14/17		5,338
CAD	371,627	NZD	385,000	Barclays Bank PLC		8/14/17		4,845
CAD	42,791	NZD	44,904	Citibank N.A.		8/14/17		138
CAD	149,022	NZD	155,000	Citibank N.A.		8/14/17		1,492
CAD	168,253	NZD	175,000	Citibank N.A.		8/14/17		1,686
CAD	271,666	NZD	285,096	Citibank N.A.		8/14/17		865
NZD	330,000	CAD	311,828	Barclays Bank PLC		8/14/17		1,025
NZD	330,000	CAD	308,600	Deutsche Bank AG		8/14/17		3,517

See Notes to Financial Statements.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	11


Schedule of Investments (continued)


Forward Foreign Currency Exchange Contracts (continued)
Currency Purchased		Currency Sold			Counterparty	Settlement Date		Unrealized Appreciation (Depreciation)
NZD	330,000		CAD	310,444	Deutsche Bank AG		8/14/17	$	2,094
NZD	330,000		CAD	308,286	Goldman Sachs International		8/14/17		3,758
NZD	330,000		CAD	307,898	Morgan Stanley & Co. International PLC		8/14/17		4,058
NZD	330,000		CAD	308,567	Morgan Stanley & Co. International PLC		8/14/17		3,542
NZD	400,000		CAD	373,608	Morgan Stanley & Co. International PLC		8/14/17		4,611
CAD	645,195		EUR	430,000	Citibank N.A.		9/12/17		5,198
CHF	154,410		USD	161,608	Bank of America N.A.		9/12/17		122
CHF	154,410		USD	161,608	Bank of America N.A.		9/12/17		122
CHF	65,340		USD	68,392	Citibank N.A.		9/12/17		45
CHF	65,340		USD	68,392	Citibank N.A.		9/12/17		45
EUR	430,000		CHF	467,264	Citibank N.A.		9/12/17		3,470
GBP	180,000		USD	233,187	Bank of America N.A.		9/12/17		1,746

									149,301

NOK	15,700,000		SEK	16,095,405	Bank of America N.A.		7/03/17		(29,981	)
NOK	1,960,000		SEK	1,998,322	Barclays Bank PLC		7/03/17		(2,432	)
NOK	1,960,000		SEK	1,999,678	Barclays Bank PLC		7/03/17		(2,593	)
NOK	1,960,000		SEK	2,008,222	Barclays Bank PLC		7/03/17		(3,607	)
NOK	1,960,000		SEK	2,016,223	Barclays Bank PLC		7/03/17		(4,557	)
NOK	1,960,000		SEK	1,990,676	Credit Suisse International		7/03/17		(1,525	)
NOK	1,960,000		SEK	2,028,216	Credit Suisse International		7/03/17		(5,981	)
AUD	478,250		EUR	325,000	Bank of America N.A.		7/05/17		(3,616	)
EUR	325,000		AUD	483,724	Barclays Bank PLC		7/05/17		(592	)
AUD	302,951		EUR	205,000	Barclays Bank PLC		7/10/17		(1,368	)
CAD	303,427		GBP	180,000	Barclays Bank PLC		7/24/17		(517	)
CAD	303,427		GBP	180,000	Barclays Bank PLC		7/24/17		(517	)
CAD	50,338		GBP	30,000	HSBC Bank USA N.A.		7/24/17		(266	)
AUD	305,000		CAD	305,777	Barclays Bank PLC		7/27/17		(1,535	)
AUD	305,000		CAD	306,446	Barclays Bank PLC		7/27/17		(2,051	)
AUD	305,000		CAD	307,090	Barclays Bank PLC		7/27/17		(2,548	)
AUD	305,000		CAD	308,808	Barclays Bank PLC		7/27/17		(3,873	)
AUD	305,000		CAD	311,352	Credit Suisse International		7/27/17		(5,835	)
AUD	425,000		CAD	425,897	HSBC Bank USA N.A.		7/27/17		(1,995	)
CAD	311,609		NZD	330,000	Barclays Bank PLC		8/14/17		(1,194	)
CAD	312,926		NZD	330,000	Barclays Bank PLC		8/14/17		(178	)
CAD	313,109		NZD	330,000	Barclays Bank PLC		8/14/17		(37	)
CAD	309,080		NZD	330,000	Deutsche Bank AG		8/14/17		(3,146	)
CAD	309,477		NZD	330,000	Deutsche Bank AG		8/14/17		(2,839	)
CAD	309,635		NZD	330,000	Deutsche Bank AG		8/14/17		(2,717	)
CAD	311,372		NZD	330,000	Deutsche Bank AG		8/14/17		(1,377	)
NZD	155,000		CAD	148,570	Barclays Bank PLC		8/14/17		(1,143	)
NZD	260,000		CAD	248,016	Barclays Bank PLC		8/14/17		(993	)
NZD	330,000		CAD	313,509	Barclays Bank PLC		8/14/17		(272	)
NZD	1,195,000		CAD	1,154,322	Barclays Bank PLC		8/14/17		(15,677	)
NZD	330,000		CAD	316,304	Citibank N.A.		8/14/17		(2,429	)
NZD	285,000		CAD	275,677	Deutsche Bank AG		8/14/17		(4,031	)
NOK	1,560,111		CAD	245,000	JPMorgan Chase Bank N.A.		8/28/17		(2,029	)
NOK	1,922,682		CAD	310,000	JPMorgan Chase Bank N.A.		8/28/17		(8,723	)
CHF	466,167		EUR	430,000	Bank of America N.A.		9/12/17		(4,618	)
NOK	3,900,000		SEK	4,005,507	Citibank N.A.		9/12/17		(9,518	)
SEK	3,915,042		NOK	3,900,000	BNP Paribas S.A.		9/12/17		(1,262	)
USD	230,000		CHF	220,920	Citibank N.A.		9/12/17		(1,391	)
USD	460,000		CHF	442,877	State Street Bank and Trust Co.		9/12/17		(3,869	)
USD	229,687		GBP	180,000	BNP Paribas S.A.		9/12/17		(5,246	)
USD	225,510		NZD	310,000	BNP Paribas S.A.		9/12/17		(1,373	)
GBP	179,409		EUR	205,000	Barclays Bank PLC		9/26/17		(895	)

									(150,346	)
Net Unrealized Depreciation								$	(1,045	)

See Notes to Financial Statements.



12	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017

Schedule of Investments (continued)

OTC Options Purchased

Description

Put/
Call

Counterparty

Expiration
Date

Strike
Price

Notional
Amount
(000)

Value

GBP Currency

Call

Barclays Bank PLC

7/03/17

CAD

1.82

GBP

705

—

AUD Currency

Call

Barclays Bank PLC

7/13/17

NZD

1.07

AUD

2,430

605

AUD Currency

Call

Barclays Bank PLC

7/13/17

NZD

1.05

AUD

2,430

7,519

GBP Currency

Call

HSBC Bank USA N.A.

7/20/17

CAD

1.68

GBP

1,085

16,808

NOK Currency

Call

Goldman Sachs International

8/03/17

SEK

1.04

NOK

15,340

2,378

NZD Currency

Call

Morgan Stanley & Co. International PLC

8/10/17

CAD

0.95

NZD

2,625

18,763

CAD Currency

Call

JPMorgan Chase Bank N.A.

8/24/17

NOK

6.48

CAD

1,230

9,994

EUR Currency

Call

Barclays Bank PLC

9/22/17

GBP

0.90

EUR

1,685

12,973

EUR Currency

Put

Credit Suisse International

7/03/17

AUD

1.47

EUR

1,635

EUR Currency

Put

Barclays Bank PLC

7/06/17

AUD

1.45

EUR

1,635

EUR Currency

Put

Barclays Bank PLC

7/12/17

NOK

9.35

EUR

1,640

478

GBP Currency

Put

HSBC Bank USA N.A.

7/20/17

CAD

1.68

GBP

1,085

7,996

AUD Currency

Put

Citibank N.A.

7/25/17

CAD

1.00

AUD

1,820

14,962

EUR Currency

Put

Barclays Bank PLC

7/26/17

CAD

1.49

EUR

1,635

16,984

EUR Currency

Put

Barclays Bank PLC

7/26/17

CAD

1.46

EUR

1,635

5,423

NZD Currency

Put

Morgan Stanley & Co. International PLC

8/10/17

CAD

0.95

NZD

2,625

22,879

EUR Currency

Put

UBS AG

8/14/17

USD

1.03

EUR

860

—

Total

137,878

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

1.62

Pay

3-Month LIBOR

7/28/17

USD

35,000

(23,260

)

5-Year Interest Rate Swap

Citibank N.A.

Call

1.94

Pay

3-Month LIBOR

7/28/17

USD

30,000

(71,630

)

10-Year Interest Rate Swap

Citibank N.A.

Call

2.26

Pay

3-Month LIBOR

7/28/17

USD

15,000

(73,588

)

30-Year Interest Rate Swap

Citibank N.A.

Call

2.52

Pay

3-Month LIBOR

7/28/17

USD

5,000

(57,251

)

Total

(225,729

)

OTC Options Written

Description

Put/
Call

Counterparty

Expiration
Date

Strike
Price

Notional
Amount
(000)

Value

GBP Currency

Call

Credit Suisse International

7/03/17

CAD

1.82

GBP

705

—

AUD Currency

Call

Barclays Bank PLC

7/13/17

NZD

1.06

AUD

4,865

(4,809

)

GBP Currency

Call

Deutsche Bank AG

7/20/17

CAD

1.68

GBP

1,085

(16,966

)

NZD Currency

Call

Barclays Bank PLC

8/10/17

CAD

0.95

NZD

2,625

(21,533

)

NZD Currency

Call

Citibank N.A.

9/27/17

USD

0.74

NZD

1,890

(16,808

)

EUR Currency

Put

Barclays Bank PLC

7/03/17

AUD

1.47

EUR

1,635

(77

)

GBP Currency

Put

Deutsche Bank AG

7/20/17

CAD

1.68

GBP

1,085

(7,935

)

AUD Currency

Put

Morgan Stanley & Co. International PLC

7/25/17

CAD

1.00

AUD

1,820

(14,882

)

EUR Currency

Put

Barclays Bank PLC

7/26/17

CAD

1.48

EUR

3,275

(22,309

)

NZD Currency

Put

Barclays Bank PLC

8/10/17

CAD

0.95

NZD

2,625

(22,029

)

CAD Currency

Put

JPMorgan Chase Bank N.A.

8/24/17

NOK

6.25

CAD

1,850

(3,662

)

Total

(131,010

)

See Notes to Financial Statements.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	13

Schedule of Investments (continued)

Transactions in Options Written for the Six Months Ended June 30, 2017


	Calls																					Puts
	Notional (000)																					Notional (000)
	AUD			EUR			GBP			NOK			NZD			USD			Premiums Received			AUD			CAD			EUR			GBP			NOK			NZD			USD			Premiums Received
Outstanding options, beginning of period		—			—			—			—			—			85,000		$	385,000			—			—			—			—			—			—			—			—
Options written		11,205			13,210			3,265			19,200			7,655			512,050			2,163,179			6,320			3,700			14,350			2,195			36,925			4,520			685		$	168,392
Options exercised		(3,915	)		(5,120	)		—			—			—			—			(24,316	)		(1,200	)		—			(4,385	)		—			(31,225	)		—			—			(37,660	)
Options expired		(2,425	)		(8,090	)		(1,475	)		(7,805	)		(1,895	)		(207,050	)		(773,373	)		(3,300	)		—			(5,055	)		(1,110	)		—			—			(685	)		(28,990	)
Options closed		—			—			—			(11,395	)		(1,245	)		(305,000	)		(1,375,992	)		—			(1,850	)		—			—			(5,700	)		(1,895	)		—			(15,368	)

Outstanding options, end of period		4,865			—			1,790			—			4,515			85,000		$	374,498			1,820			1,850			4,910			1,085			—			2,625			—		$	86,374

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statement of Assets and Liabilities were as follows:


Assets — Derivative Financial Instruments		Commodity Contracts		Credit Contracts		Equity Contracts		Foreign Currency Exchange Contracts		Interest Rate Contracts		Other Contracts		Total
Futures contracts	Net unrealized appreciation¹		—		—		—		—	$	723		—	$	723
Forward foreign currency exchange contracts	Unrealized appreciation on forward foreign currency exchange contracts		—		—		—	$	149,301		—		—		149,301
Options purchased	Investments at value — unaffiliated²		—		—		—		137,878		—		—		137,878

Total					—		—	$	287,179	$	723		—	$	287,902


Liabilities — Derivative Financial Instruments
Forward foreign currency exchange contracts	Unrealized depreciation on forward foreign currency exchange contracts		—		—		—	$	150,346		—		—	$	150,346
Options written	Options written at value		—		—		—		131,010	$	225,729		—		356,739

Total					—		—	$	281,356	$	225,729		—	$	507,085

¹Includes cumulative appreciation (depreciation) on futures contracts, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.
²Includes options purchased at value as reported in the Schedule of Investments.

For the six months ended June 30, 2017, the effect of derivative financial instruments in the Statement of Operations was as follows:


Net Realized Gain (Loss) from:	Commodity Contracts		Credit Contracts		Equity Contracts		Foreign Currency Exchange Contracts			Interest Rate Contracts			Other Contracts		Total
Futures contracts		—		—		—		—		$	(3,066	)		—	$	(3,066	)
Forward foreign currency exchange contracts		—		—		—	$	69,420			—			—		69,420
Options purchased¹		—		—		—		(81,746	)		—			—		(81,746	)
Options written		—		—		—		93,141			452,730			—		545,871

Total		—		—		—	$	80,815		$	449,664			—	$	530,479


Net Change in Unrealized Appreciation (Depreciation) on:
Futures contracts		—		—		—		—		$	(117	)		—	$	(117	)
Forward foreign currency exchange contracts		—		—		—	$	(72,013	)		—			—		(72,013	)
Options purchased		—		—		—		(42,632	)		—			—		(42,632	)
Options written		—		—		—		19,863			345,597			—		365,460

Total		—		—		—	$	(94,782	)	$	345,480			—	$	250,698

¹Options purchased are included in net realized gain (loss) from investments.

See Notes to Financial Statements.



14	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017

Schedule of Investments (continued)

Average Quarterly Balances of Outstanding Derivative Financial Instruments


Futures contracts:
Average notional value of contracts — short	$	353,344
Forward foreign currency exchange contracts:
Average amounts purchased — in USD	$	15,312,870
Average amounts sold — in USD	$	14,970,904
Options:
Average value of option contracts purchased	$	93,645
Average value of option contracts written	$	81,957
Average notional value of swaption contracts written	$	85,000,000

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Derivatives Financial Instruments — Offsetting as of Period End

The Fund’s derivative assets and liabilities (by type) were as follows:


	Assets			Liabilities
Derivative Financial Instruments:
Forward foreign currency exchange contracts	$	149,301		$	150,346
Futures contracts		516			—
Options		137,878	¹		356,739

Total derivative assets and liabilities in the Statement of Assets and Liabilities	$	287,695		$	507,085

Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”)		(516	)		—

Total derivative assets and liabilities subject to an MNA	$	287,179		$	507,085

¹Includes options purchased at value which is included in Investments at value—unaffiliated in the Statement of Assets and Liabilities and reported in the Schedule of Investments.

The following table presents the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund:


Counterparty	Derivative Assets Subject to an MNA by Counterparty		Derivatives Available for Offset¹			Non-cash Collateral Received		Cash Collateral Received		Net Amount of Derivative Assets²
Bank of America N.A.	$	5,603	$	(5,603	)		—		—		—
Barclays Bank PLC		87,081		(87,081	)		—		—		—
BNP Paribas S.A.		2,069		(2,069	)		—		—		—
Citibank N.A.		37,317		(37,317	)		—		—		—
Credit Suisse International		6,513		(6,513	)		—		—		—
Deutsche Bank AG		6,259		(6,259	)		—		—		—
Goldman Sachs International		11,822		—			—		—	$	11,822
HSBC Bank USA N.A.		24,804		(2,261	)		—		—		22,543
JPMorgan Chase Bank N.A.		9,994		(9,994	)		—		—		—
Morgan Stanley & Co. International PLC		95,717		(14,882	)		—		—	$	80,835

Total	$	287,179	$	(171,979	)		—		—	$	115,200


Counterparty	Derivative Liabilities Subject to an MNA by Counterparty		Derivatives Available for Offset¹			Non-cash Collateral Pledged		Cash Collateral Pledged		Net Amount of Derivative Liabilities³
Bank of America N.A.	$	38,215	$	(5,603	)		—		—	$	32,612
Barclays Bank PLC		117,336		(87,081	)		—		—		30,255
BNP Paribas S.A.		7,881		(2,069	)		—		—		5,812
Citibank N.A.		255,875		(37,317	)		—		—		218,558
Credit Suisse International		13,341		(6,513	)		—		—		6,828
Deutsche Bank AG		39,011		(6,259	)		—		—		32,752
HSBC Bank USA N.A.		2,261		(2,261	)		—		—		—
JPMorgan Chase Bank N.A.		14,414		(9,994	)		—		—		4,420
Morgan Stanley & Co. International PLC		14,882		(14,882	)		—		—		—
State Street Bank and Trust Co.		3,869		—			—		—		3,869

Total	$	507,085	$	(171,979	)		—		—	$	335,106

¹The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA.
²Net amount represents the net amount receivable from the counterparty in the event of default.
³Net amount represents the net amount payable due to counterparty in the event of default. Net amount may be offset further by the options written receivable/payable on the Statement of Assets and Liabilities.

See Notes to Financial Statements.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	15

Schedule of Investments (concluded)

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of investments and derivative financial instruments. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to the Notes to Financial Statements.

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		—	$	1,714,726			—	$	1,714,726
Non-Agency Mortgage-Backed Securities		—		835,117			—		835,117
Preferred Securities		—		1,927,500			—		1,927,500
U.S. Government Sponsored Agency Securities		—		58,111,417			—		58,111,417
U.S. Treasury Obligations		—		41,194,624			—		41,194,624
Short-Term Securities	$	1,275,205		—			—		1,275,205
Options Purchased:
Foreign currency exchange contracts		—		137,878			—		137,878

Total	$	1,275,205	$	103,921,262			—	$	105,196,467

Derivative Financial Instruments¹
Assets:
Foreign currency exchange contracts		—	$	149,301			—	$	149,301
Interest rate contracts	$	723		—			—		723
Liabilities:
Foreign currency exchange contracts		—		(281,356	)		—		(281,356	)
Interest rate contracts		—		(225,729	)		—		(225,729	)

Total	$	723	$	(357,784	)		—	$	(357,061	)

¹Derivative 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 assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of period end, reverse repurchase agreements of $14,463,505 are categorized as Level 2 within the disclosure hierarchy.

During the six months ended June 30, 2017, there were no transfers between levels.

See Notes to Financial Statements.



16	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Statement of Assets and Liabilities


June 30, 2017 (Unaudited)

Assets
Investments at value — unaffiliated (cost — $101,629,032)	$	103,921,262
Investments at value — affiliated (cost — $1,275,205)		1,275,205
Cash pledged for futures contracts		3,000
Foreign currency at value (cost — $459,687)		478,029
Receivables:
Interest — unaffiliated		402,928
Options written		310,000
From affiliates		84,000
Dividends — affiliated		5,560
Variation margin on futures contracts		516
Unrealized appreciation on forward foreign currency exchange contracts		149,301
Prepaid expenses		5,872

Total assets		106,635,673


Liabilities
Cash received as collateral for reverse repurchase agreements		10,000
Options written at value (premiums received — $460,872)		356,739
Reverse repurchase agreements		14,463,505
Payables:
Investment advisory fees		51,156
Investments purchased		35,173
Professional fees		32,022
Printing fees		27,799
Transfer agent fees		23,826
Accounting fees		21,110
Income dividends		6,035
Options written		2,848
Officer’s and Directors’ fees		2,134
Other accrued expenses		10,662
Unrealized depreciation on forward foreign currency exchange contracts		150,346

Total liabilities		15,193,355

Net Assets	$	91,442,318


Net Assets Consist of
Paid-in capital	$	112,128,101
Distributions in excess of net investment income		(603,330	)
Accumulated net realized loss		(22,474,994	)
Net unrealized appreciation (depreciation)		2,392,541

Net Assets	$	91,442,318


Net Asset Value
Based on net assets of $91,442,318 and 6,495,180 shares outstanding, 200 million shares authorized, $0.10 par value	$	14.08


Statement of Operations


Six Months Ended June 30, 2017 (Unaudited)

Investment Income
Interest — unaffiliated	$	1,550,234
Dividends — affiliated		19,242

Total investment income		1,569,476


Expenses
Investment advisory		479,269
Professional		28,255
Printing		16,641
Repurchase offer		10,000
Accounting services		5,370
Officer and Directors		4,938
Transfer agent		4,720
Registration		4,610
Custodian		4,023
Miscellaneous		13,261

Total expenses excluding interest expense		571,087
Interest expense		90,313

Total expenses		661,400
Less fees waived by the Manager		(171,410	)

Total expenses after fees waived		489,990

Net investment income		1,079,486


Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — unaffiliated		(43,738	)
Futures contracts		(3,066	)
Forward foreign currency exchange contracts		69,420
Foreign currency transactions		8,092
Options written		545,871

		576,579

Net change in unrealized appreciation (depreciation) on:
Investments — unaffiliated		605,613
Futures contracts		(117	)
Forward foreign currency exchange contracts		(72,013	)
Foreign currency translations		3,674
Options written		365,460

		902,617

Net realized and unrealized gain		1,479,196

Net Increase in Net Assets Resulting from Operations	$	2,558,682


Statements of Changes in Net Assets


Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2017 (Unaudited)			Year Ended December 31, 2016

Operations
Net investment income	$	1,079,486		$	2,597,752
Net realized gain (loss)		576,579			(1,047,334	)
Net change in unrealized appreciation (depreciation)		902,617			(843,991	)

Net increase in net assets resulting from operations		2,558,682			706,427


Distributions to Shareholders¹
From net investment income		(1,331,512	)		(2,763,590	)
From return of capital		—			(1,046,194	)

Decrease in net assets resulting from distributions to shareholders		(1,331,512	)		(3,809,784	)


Capital Share Transactions
Redemption of shares resulting from a repurchase offer		—			(9,866,169	)²
Capital contributions — affiliated³		84,000			—

Net increase (decrease) in net assets derived from capital share transactions		84,000			(9,866,169	)


Net Assets
Total increase (decrease) in net assets		1,311,170			(12,969,526	)
Beginning of period		90,131,148			103,100,674

End of period	$	91,442,318		$	90,131,148

Distributions in excess of net investment income, end of period	$	(603,330	)	$	(351,304	)

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

Net of repurchase fees of $201,350.

See Note 10 of the Notes to Financial Statements.


Statement of Cash Flows


Six Months Ended June 30, 2017 (Unaudited)

Cash Provided by Operating Activities
Net increase in net assets resulting from operations	$	2,558,682
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Proceeds from sales of long-term investments and principal paydowns		6,020,855
Purchases of long-term investments		(351,490	)
Net proceeds from sales of short-term securities		2,455,694
Amortization of premium and accretion of discount on investments and other fees		418,013
Premiums paid on closing options written		(1,645,562	)
Premiums received from options written		2,021,571
Net realized gain on investments and options written		(564,109	)
Net unrealized gain on investments, foreign currency translations and options written		(899,060	)
(Increase) Decrease in Assets:
Receivables:
Interest — unaffiliated		30,651
From affiliates		(84,000	)
Dividends — affiliated		(4,475	)
Variation margin on futures contracts		(516	)
Prepaid expenses		(3,077	)
Increase (Decrease) in Liabilities:
Cash received:
Collateral — reverse repurchase agreements		10,000
Payables:
Investment advisory fees		(3,354	)
Interest expense		23,398
Officer’s and Directors’ fees		(17	)
Variation margin on futures contracts		(492	)
Professional fees		32,022
Printing fees		27,799
Transfer agent fees		23,826
Accounting fees		21,110
Other accrued expenses		(134,126	)

Net cash provided by operating activities		9,953,343


Cash Used for Financing Activities
Cash dividends paid to Common Shareholders		(1,591,779	)
Net borrowing of reverse repurchase agreements		(8,365,000	)
Capital contributions — affiliated¹		84,000

Net cash used for financing activities		(9,872,779	)


Cash Impact from Foreign Exchange Fluctuations
Cash impact from foreign exchange fluctuations	$	24,448


Cash and Foreign Currency
Net increase in cash and foreign currency at value		105,012
Cash and foreign currency at value at beginning of period		373,017

Cash and foreign currency at value at end of period	$	478,029


Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest expense	$	66,915

See Note 10 of the Notes to Financial Statements.


Financial Highlights


	Six Months Ended June 30, 2017 (Unaudited)			Year Ended December 31,
	Six Months Ended June 30, 2017 (Unaudited)			2016			2015			2014			2013			2012

Per Share Operating Performance
Net asset value, beginning of period	$	13.88		$	14.29		$	14.97		$	15.13		$	16.11		$	16.25

Net investment income¹		0.17			0.36			0.41			0.49			0.47			0.67
Net realized and unrealized gain (loss)		0.23			(0.24	)²		(0.47	)²		0.01	²		(0.69	)²		0.02	²

Net increase (decrease) from investment operations		0.40			0.12			(0.06	)		0.50			(0.22	)		0.69

Distributions:³
From net investment income		(0.21	)		(0.40	)		(0.42	)		(0.36	)		(0.37	)		(0.55	)
From return of capital		—			(0.13	)		(0.20	)		(0.30	)		(0.39	)		(0.28	)

Total distributions		(0.21	)		(0.53	)		(0.62	)		(0.66	)		(0.76	)		(0.83	)

Capital contribution⁴		0.01			—			—			—			—			—

Net asset value, end of period	$	14.08		$	13.88		$	14.29		$	14.97		$	15.13		$	16.11

Market price, end of period	$	13.31		$	13.20		$	13.65		$	14.26		$	13.95		$	15.63


Total Return⁵
Based on net asset value		3.01%	⁶		0.98%			(0.18)%			3.65%			(1.06)%			4.59%

Based on market price		2.40%	⁶		0.54%			0.10%			7.08%			(5.98)%			8.13%


Ratios to Average Net Assets
Total expenses		1.47%	⁷		1.46%			1.34%			1.43%			1.32%			1.43%

Total expenses after fees waived		1.09%	⁷		1.06%			1.04%			1.20%			1.25%			1.42%

Total expenses after fees waived and excluding interest expense		0.89%	⁷		0.92%			0.99%			1.16%			1.20%			1.35%

Net investment income		2.39%	⁷		2.53%			2.83%			3.22%			2.98%			4.15%


Supplemental Data
Net assets, end of period (000)	$	91,442		$	90,131		$	103,101		$	120,046		$	134,827		$	159,465

Borrowings outstanding, end of period (000)	$	14,464		$	22,805		$	30,319		$	57,458		$	52,142		$	66,410

Portfolio turnover rate⁸		—			63%			114%			86%			111%			142%

Based on average Common Shares outstanding.

Net realized and unrealized gain (loss) per share amounts include repurchase fees of $0.03 for each of the years ended December 31, 2016 through December 31, 2012.

Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

⁴

Payment received from affiliates related to certain shareholder transactions.

⁵

Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions at actual reinvestment prices.

⁶

Aggregate total return.

⁷

Annualized.

⁸

Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover rate is as follows:


	Six Months Ended June 30, 2017 (Unaudited)		Year Ended December 31,
	Six Months Ended June 30, 2017 (Unaudited)		2016		2015		2014		2013		2012
Portfolio turnover rate (excluding MDRs)		—		29%		68%		42%		57%		83%


Notes to Financial Statements (Unaudited)

1. Organization:

BlackRock Enhanced Government Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund is registered as a diversified, closed-end management investment company. The Fund is organized as a Maryland corporation. The Fund determines and makes available for publication the net asset value (“NAV”) of its Common Shares on a daily basis.

The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of closed-end funds referred to as the Closed-End Complex.

2. Significant Accounting Policies:

The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:

Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the “trade dates”). Realized gains and losses on investment transactions are determined on the identified cost basis. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on an accrual basis.

Foreign Currency Translation: The Fund’s books and records are maintained in U.S. dollars. Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of trading on the NYSE. Purchases and sales of investments are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the investments denominated in that currency will lose value; the opposite effect occurs if the U.S. dollar falls in relative value.

The Fund does not isolate the portion of the results of operations arising as a result of changes in the exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for U.S. federal income tax purposes.

Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., dollar rolls, futures contracts, forward foreign currency exchange contracts and options written) or certain borrowings (e.g., reverse repurchase transactions) that would be treated as “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid assets having a market value at least equal to the amount of its future obligations under such investments or borrowings. Doing so allows the investment or borrowing to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. Subject to the Fund’s level distribution plan, the Fund intends to make monthly cash distributions to shareholders, which may consist of net investment income, net options premium and net realized and unrealized gains on investments and/or return of capital.

Portions of return of capital distributions under U.S. GAAP may be taxed at ordinary income rates.

The character of distributions is determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP. The portion of distributions that exceeds the Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a non-taxable return of capital. Realized net capital gains can be offset by capital losses carried forward from prior years. However, the Fund has capital loss carryforwards from pre-2012 tax years that offset realized net capital gains but do not offset current earnings and profits. Consequently, if distributions in any tax year are less than the Fund’s current earnings and profits but greater than net investment income and net realized capital gains (taxable income), distributions in excess of taxable income are not treated as non-taxable return of capital, but rather may be taxable to shareholders at ordinary income rates. Under certain circumstances, taxable excess distributions could be significant.

Deferred Compensation Plan: Under the Deferred Compensation Plan (the “Plan”) approved by Fund’s Board, the independent Directors (“Independent Directors”) may defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of certain other BlackRock Closed-End Funds selected by the Independent Directors. This has the same economic effect for the Independent Directors as if the Independent Directors had invested the deferred amounts directly in certain other BlackRock Closed-End Funds.



22	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Notes to Financial Statements (continued)

The Plan is not funded and obligations thereunder represent general unsecured claims against the general assets of the Fund, if applicable. Deferred compensation liabilities are included in the officer’s and directors’ fees payable in the Statement of Assets and Liabilities and will remain as a liability of the Fund until such amounts are distributed in accordance with the Plan.

Recent Accounting Standards: In November 2016, the Financial Accounting Standards Board issued Accounting Standards Update “Restricted Cash” which will require entities to include the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the beginning and ending cash balances in the Statement of Cash Flows. The guidance will be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Management is evaluating the impact, if any, of this guidance on the Fund’s presentation in the Statement of Cash Flows.

In March 2017, the Financial Accounting Standards Board issued Accounting Standards Update “Premium Amortization of Purchased Callable Debt Securities” which amends the amortization period for certain purchased callable debt securities. Under the new guidance, the premium amortization of purchased callable debt securities that have explicit, non-contingent call features and are callable at fixed prices will be amortized to the earliest call date. The guidance will be applied on a modified retrospective basis and is effective for fiscal years, and their interim periods, beginning after December 15, 2018. Management is currently evaluating the impact of this guidance to the Fund.

SEC Reporting Modernization: The U.S. Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended other rules to enhance the reporting and disclosure of information by registered investment companies. As part of these changes, the SEC amended Regulation S-X to standardize and enhance disclosures in investment company financial statements. The compliance date for implementing the new or amended rules is August 1, 2017.

Indemnifications: In the normal course of business, the Fund enters into contracts that contain a variety of representations that provide general indemnification. The Fund’s maximum exposure under these arrangements is unknown because it involves future potential claims against the Fund, which cannot be predicted with any certainty.

Other: Expenses directly related to the Fund are charged to the Fund. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods.

Through May 31, 2016, the Fund had an arrangement with its custodian whereby credits were earned on uninvested cash balances, which could be used to reduce custody fees and/or overdraft charges. Credits previously earned have been utilized until December 31, 2016. Under current arrangements effective June 1, 2016, the Fund no longer earns credits on uninvested cash, and may incur charges on uninvested cash balances and overdrafts, subject to certain conditions.

3. Investment Valuation and Fair Value Measurements:

Investment Valuation Policies: The Fund’s investments are valued at fair value (also referred to as “market value” within the financial statements) as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments using various independent dealers or pricing services under policies approved by the Board of Directors of the Fund (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to oversee the pricing function for all financial instruments.

Fair Value Inputs and Methodologies: The following methods and inputs are used to establish the fair value of the Fund’s assets and liabilities:

•

Fixed-income securities for which market quotations are readily available are generally valued using the last available bid prices or current market quotations provided by independent dealers or third party pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more independent brokers or dealers as obtained from a third party pricing service. Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but a fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots often trade at lower prices than institutional round lots. The pricing services may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values, including transaction data (e.g., recent representative bids and offers), credit quality information, perceived market movements, news, and other relevant information. Certain fixed-income securities, including asset-backed and mortgage related securities may be valued based on valuation models that consider the estimated cash flows of each tranche of the entity, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. The amortized cost method of valuation may be used with respect to debt obligations with sixty days or less remaining to maturity unless the Manager determines such method does not represent fair value.

•

Investments in open-end U.S. mutual funds are valued at NAV each business day.

•

Futures contracts traded on exchanges are valued at their last sale price.

•

Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of trading on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	23


Notes to Financial Statements (continued)

•

Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options and options on swaps (“swaptions”) are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades and prices of the underlying instruments.

If events (e.g., a company announcement, market volatility or a natural disaster) occur that are expected to materially affect the value of such investments, or in the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global Valuation Committee include Market approach, Income approach and Cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and typically used in determining fair value. When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant and consistent with the principles of fair value measurement. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

Fair Value Hierarchy: 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 statement 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 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.

4. Securities and Other Investments:

Asset-Backed and Mortgage-Backed Securities: Asset-backed securities are generally issued as pass-through certificates or as debt instruments. Asset-backed securities issued as pass-through certificates represent undivided fractional ownership interests in an underlying pool of assets. Asset-backed securities issued as debt instruments, which are also known as collateralized obligations, are typically issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security will have the effect of shortening the maturity of the security. In addition, a fund may subsequently have to reinvest the proceeds at lower interest rates. If a fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.

For mortgage pass-through securities (the “Mortgage Assets”) there are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of



24	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Notes to Financial Statements (continued)

the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury.

Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.

Multiple Class Pass-Through Securities: Multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backed securities, may be issued by Ginnie Mae, U.S. Government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by a pool of residential or commercial mortgage loans or Mortgage Assets. The payments on these are used to make payments on the CMOs or multiple pass-through securities. Multiple class pass-through securities represent direct ownership interests in the Mortgage Assets. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages, the cash flow from which has been separated into interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than anticipated prepayments of principal, the Fund’s initial investment in the IOs may not fully recoup.

Stripped Mortgage-Backed Securities: Stripped mortgage-backed securities are typically issued by the U.S. Government, its agencies and instrumentalities. Stripped mortgage-backed securities are usually structured with two classes that receive different proportions of the interest (IOs) and principal (POs) distributions on a pool of Mortgage Assets. Stripped mortgage-backed securities may be privately issued.

Capital Securities and Trust Preferred Securities: Capital securities, including trust preferred securities, are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics. In the case of trust preferred securities, an affiliated business trust of a corporation issues these securities, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured with either a fixed or adjustable coupon that can have either a perpetual or stated maturity date. For trust preferred securities, the issuing bank or corporation pays interest to the trust, which is then distributed to holders of these securities as a dividend. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. These securities generally are rated below that of the issuing company’s senior debt securities and are freely callable at the issuer’s option.

Reverse Repurchase Agreements: Reverse repurchase agreements are agreements with qualified third party broker dealers in which the Fund sells securities to a bank or broker-dealer and agrees to repurchase the same securities at a mutually agreed upon date and price. The Fund receives cash from the sale to use for other investment purposes. During the term of the reverse repurchase agreement, the Fund continues to receive the principal and interest payments on the securities sold. Certain agreements have no stated maturity and can be terminated by either party at any time. Interest on the value of the reverse repurchase agreements issued and outstanding is based upon competitive market rates determined at the time of issuance. The Fund may utilize reverse repurchase agreements when it is anticipated that the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. Reverse repurchase agreements involve leverage risk. If the Fund suffers a loss on its investment of the transaction proceeds from a reverse repurchase agreement, the Fund would still be required to pay the full repurchase price. Further, the Fund remains subject to the risk that the market value of the securities repurchased declines below the repurchase price. In such cases, the Fund would be required to return a portion of the cash received from the transaction or provide additional securities to the counterparty.

Cash received in exchange for securities delivered plus accrued interest due to the counterparty is recorded as a liability in the Statement of Assets and Liabilities at face value including accrued interest. Due to the short-term nature of the reverse repurchase agreements, face value approximates fair value. Interest payments made by the Fund to the counterparties are recorded as a component of interest expense in the Statement of Operations. In periods of increased demand for the security, the Fund may receive a fee for the use of the security by the counterparty, which may result in interest income to the Fund.

For the six months ended June 30, 2017, the average amount of reverse repurchase agreements outstanding and the daily weighted average interest rate for the Fund were $22,733,690 and 0.80%, respectively.

Reverse repurchase transactions are entered into by the Fund under Master Repurchase Agreements (each, an “MRA”), which permit the Fund, under certain circumstances, including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables under the MRA with collateral held and/or posted to the counterparty and create one single net payment due to or from the Fund. With reverse repurchase transactions, typically the Fund and counterparty under an MRA are permitted to sell, re-pledge, or use the collateral associated with the transaction. Bankruptcy or insolvency laws



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	25


Notes to Financial Statements (continued)

of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Pursuant to the terms of the MRA, the Fund receives or posts securities as collateral with a market value in excess of the repurchase price to be paid or received by the Fund upon the maturity of the transaction. Upon a bankruptcy or insolvency of the MRA counterparty, the Fund is considered an unsecured creditor with respect to excess collateral and, as such, the return of excess collateral may be delayed.

As of period end, the following table is a summary of the Fund’s open reverse repurchase agreements by counterparty which are subject to offset under an MRA on a net basis:


Counterparty	Reverse Repurchase Agreements		Fair Value of Non-cash Collateral Pledged Including Accrued Interest¹			Cash Collateral Pledged/ Received¹		Net Amount²
BNP Paribas Securities Corp.	$	998,007	$	(998,007	)		—		—
Credit Suisse Securities (USA) LLC		13,465,498		(13,465,498	)		—		—

Total	$	14,463,505	$	(14,463,505	)		—		—

Net collateral, including accrued interest, with a value of $14,482,075 has been pledged/received in connection with open reverse repurchase agreements. Excess of net collateral pledged to the individual counterparty is not shown for financial reporting purposes.

Net amount represents the net amount payable due to the counterparty in the event of default.

In the event the counterparty of securities under an MRA files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds from the agreement may be restricted while the counterparty, or its trustee or receiver, determines whether or not to enforce the Fund’s obligation to repurchase the securities.

5. Derivative Financial Instruments:

The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage its exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other risks (e.g., inflation risk). Derivative financial instruments categorized by risk exposure are included in the Schedule of Investments. These contracts may be transacted on an exchange or OTC.

Futures Contracts: Futures contracts are purchased or sold to gain exposure to, or manage exposure to, changes in interest rates (interest rate risk), changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).

Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and on a specified date. Depending on the terms of a contract, it is settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash amount on the settlement date. Upon entering into a futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract.

Securities deposited as initial margin are designated in the Schedule of Investments and cash deposited, if any, is shown as cash pledged for futures contracts in the Statement of Assets and Liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts in the Statement of Assets and Liabilities. When the contract is closed, a realized gain or loss is recorded in the Statement of Operations equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of futures contracts involves the risk of an imperfect correlation in the movements in the price of futures contracts and interest, foreign currency exchange rates or underlying assets.

Forward Foreign Currency Exchange Contracts: Forward foreign currency exchange contracts are entered into to gain or reduce exposure to foreign currencies (foreign currency exchange rate risk).

A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a specified date. These contracts help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated and in some cases, may be used to obtain exposure to a particular market.

The contract is marked-to-market daily and the change in market value is recorded as unrealized appreciation (depreciation) in the Statement of Assets and Liabilities. When a contract is closed, a realized gain or loss is recorded in the Statement of Operations equal to the difference between the value at the time it was opened and the value at the time it was closed. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.

Options: The Fund purchases and writes call and put options to increase or decrease its exposure to the risks of underlying instruments, including equity risk, interest rate risk and/or commodity price risk and/or, in the case of options written, to generate gains from options premiums.



26	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Notes to Financial Statements (continued)

A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised) the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period.

Premiums paid on options purchased and premiums received on options written, as well as the daily fluctuation in market value, are included in investments at value — unaffiliated and options written at value, respectively, in the Statement of Assets and Liabilities. When an instrument is purchased or sold through the exercise of an option, the premium is offset against the cost or proceeds of the underlying instrument. When an option expires, a realized gain or loss is recorded in the Statement of Operations to the extent of the premiums received or paid. When an option is closed or sold, a gain or loss is recorded in the Statement of Operations to the extent the cost of the closing transaction exceeds the premiums received or paid. When the Fund writes a call option, such option is typically “covered,” meaning that it holds the underlying instrument subject to being called by the option counterparty. When the Fund writes a put option, such option is covered by cash in an amount sufficient to cover the obligation.

•

Swaptions — The Fund purchases and writes options on swaps (“swaptions”) primarily to preserve a return or spread on a particular investment or portion of the Fund’s holdings, as a duration management technique or to protect against an increase in the price of securities it anticipates purchasing at a later date. The purchaser and writer of a swaption is buying or granting the right to enter into a previously agreed upon interest rate or credit default swap agreement (interest rate risk and/or credit risk) at any time before the expiration of the option.

•

Foreign currency options — The Fund purchases and writes foreign currency options, foreign currency futures and options on foreign currency futures to gain or reduce exposure to foreign currencies (foreign currency exchange rate risk). Foreign currency options give the purchaser the right to buy from or sell to the writer a foreign currency at any time before the expiration of the option.

In purchasing and writing options, the Fund bears the risk of an unfavorable change in the value of the underlying instrument or the risk that it may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in the Fund purchasing or selling a security when it otherwise would not, or at a price different from the current market value.

Master Netting Arrangements: In order to define its contractual rights and to secure rights that will help it mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements. The result would cause the Fund to accelerate payment of any net liability owed to the counterparty.

Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.

Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Generally, the amount of collateral due from or to a counterparty is subject to a certain minimum transfer amount threshold before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the counterparty is not permitted to sell, re-pledge or use cash and non-cash collateral it receives. The Fund generally agrees not to use non-cash collateral that it receives but may, absent default or certain other circumstances defined in the underlying ISDA Master Agreement, be permitted to use cash collateral received. In such cases, interest may be paid pursuant to the collateral arrangement with the counterparty. To the extent amounts due to the Fund from its counterparties are not fully collateralized, it bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, it bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral. Based on the terms of agreements, collateral may not be required for all derivative contracts.

For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.

6. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	27


Notes to Financial Statements (continued)

Investment Advisory: The Fund entered into an Investment Advisory Agreement with the Manager, the Fund’s investment adviser, an indirect, wholly-owned subsidiary of BlackRock, to provide investment advisory and administrative services. The Manager is responsible for the management of the Fund’s portfolio and provides the personnel, facilities, equipment and certain other services necessary to the operations of the Fund.

For such services, the Fund pays the Manager a monthly fee at an annual rate equal to 0.85% of the average daily value of the Fund’s net assets, plus the proceeds of any debt securities or outstanding borrowings used for leverage. For purposes of calculating this fee, “net assets” mean the total assets of the Fund minus the sum of its accrued liabilities.

Expense Waivers: The Manager voluntarily agreed to waive a portion of the investment advisory fees equal to the annual rate of 0.30% of the Fund’s average daily net assets, plus the proceeds of any outstanding borrowings used for leverage. This amount is included in fees waived by the Manager in the Statement of Operations. During the six months ended June 30, 2017, the Manager waived $169,154 pursuant to this agreement.

The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”). This amount is included in fees waived by the Manager in the Statement of Operations. For the six months ended June 30, 2017, the amount waived was $2,256.

The Manager contractually agreed to waive its investment advisory fee with respect to any portion of the Fund’s assets invested in affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds that have a contractual management fee through June 30, 2018. The agreement can be renewed for annual periods thereafter, and may be terminated on 90 days’ notice, each subject to approval by a majority of the Fund’s Independent Directors. For the six months ended June 30, 2017, there were no fees waived by the Manager.

Officers and Directors: Certain officers and/or directors of the Fund are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Fund’s Chief Compliance Officer, which is included in Officer and Directors in the Statement of Operations.

7. Purchases and Sales:

For the six months ended June 30, 2017, sales of investments, including paydowns and excluding short-term securities, were $5,937,941. For the six months ended June 30, 2017, there were no purchases.

8. Income Tax Information:

It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of its taxable income to its shareholders. Therefore, no U.S. federal income tax provision is required.

The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns generally remains open for each of the four years ended December 31, 2016. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

Management has analyzed tax laws and regulations and their application to the Fund as of June 30, 2017, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.

As of December 31, 2016, the Fund had a capital loss carryforward available to offset future realized capital gains through the indicated expiration dates as follows:


Expires December 31,
No expiration date¹	$	21,013,529
2017		2,037,204

Total	$	23,050,733

Must be utilized prior to losses subject to expiration.

As of June 30, 2017, gross unrealized appreciation and depreciation based on cost for U.S. federal income tax purposes were as follows:


Tax cost	$	102,904,237

Gross unrealized appreciation		3,399,439
Gross unrealized depreciation		(1,107,209	)

Net unrealized appreciation	$	2,292,230

9. Principal Risks:

In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer to meet all its obligations, including the ability to pay principal and interest when due (issuer credit risk). The value of securities held



28	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Notes to Financial Statements (continued)

by the Fund may decline in response to certain events, including those directly involving the issuers of securities owned by the Fund. Changes arising from the general economy, the overall market and local, regional or global political and/or social instability, as well as currency, interest rate and price fluctuations, may also affect the securities’ value.

The Fund may be exposed to prepayment risk, which is the risk that borrowers may exercise their option to prepay principal earlier than scheduled during periods of declining interest rates, which would force the Fund to reinvest in lower yielding securities. The Fund may also be exposed to reinvestment risk, which is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds from matured, traded or called fixed-income securities at market interest rates that are below the Fund portfolio’s current earnings rate.

Counterparty Credit Risk: Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related to unsettled or open transactions. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is approximately their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.

A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.

The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by the Fund.

For OTC options purchased, the Fund bears the risk of loss in the amount of the premiums paid plus the positive change in market values net of any collateral held by the Fund should the counterparty fail to perform under the contracts. Options written by the Fund do not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty, to perform. The Fund may be exposed to counterparty credit risk with respect to options written to the extent the Fund deposits collateral with its counterparty to a written option.

With exchange-traded futures, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.

Concentration Risk: The Fund invests a significant portion of its assets in fixed-income securities and/or uses derivatives tied to the fixed-income markets. Changes in market interest rates or economic conditions may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as interest rates rise. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.

The Fund invests a significant portion of its assets in securities backed by commercial or residential mortgage loans or in issuers that hold mortgage and other asset-backed securities. Investment percentages in these securities are presented in the Schedule of Investments. Changes in economic conditions, including delinquencies and/or defaults on assets underlying these securities, can affect the value, income and/or liquidity of such positions.

10. Capital Share Transactions:

The Fund is authorized to issue 200 million shares, all of which were initially classified as Common Shares. The Board is authorized, however, to reclassify any unissued Common Shares without the approval of Common Shareholders.

On October 26, 2016, the Board approved the Fund’s participation in an open market share repurchase program (the “Share Repurchase Program”). The Fund is eligible to purchase, at prevailing market prices, up to 5% of its common shares outstanding as of the close of business on October 28, 2016, subject to certain conditions. Repurchases may be made through November 30, 2017. There is no assurance that the Fund will purchase shares in any particular amounts.

The Fund will make offers to purchase between 5% and 25% of its outstanding shares at approximate 12 month intervals. The amount of the repurchase offer is shown as redemptions of shares resulting from a repurchase offer in the Statement of Changes in Net Assets. The Fund may charge a repurchase fee of up to 2% of the value of the shares that are repurchased to compensate the Fund for expenses directly related to the repurchase offer, which is included in the capital share transactions in the Statement of the Changes in Net Assets. Costs directly related to the repurchase offer, primarily mailing and printing costs, are shown as repurchase offer in the Statement of Operations.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	29


Notes to Financial Statements (concluded)

Changes in Common Shares issued and outstanding for the six months ended June 30, 2017 and the year ended December 31, 2016 were as follows:

Six Months Ended
June 30,

2017

Year Ended
December 31,

2016

Repurchase offer

—

(721,686

)

During the six months ended June 30, 2017, the Fund received $84,000 from an affiliate, reflected as Capital contributions — affiliated in the Statements of Changes in Net Assets, to adjust paid-in capital related to dividend distributions.

11. Subsequent Events:

Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following items were noted:

The Fund paid a net investment income dividend in the amount of $0.041 per share on July 31, 2017 to Common shareholders of record on July 14, 2017.

Additionally, the Fund declared a net investment income dividend of $0.041 per share on August 1, 2017 payable to Common Shareholders of record on August 15, 2017.



30	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Disclosure of Investment Advisory Agreement

The Board of Directors (the “Board,” the members of which are referred to as “Board Members”) of BlackRock Enhanced Government Fund, Inc. (the “Fund”) met in person on April 27, 2017 (the “April Meeting”) and June 7-8, 2017 (the “June Meeting”) to consider the approval of the Fund’s investment advisory agreement (the “Agreement”) with BlackRock Advisors, LLC (the “Manager”), the Fund’s investment advisor. The Manager is also referred to herein as “BlackRock”.

Activities and Composition of the Board

On the date of the June Meeting, the Board consisted of eleven individuals, nine of whom were not “interested persons” of the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Chair of the Board is an Independent Board Member. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight Committee, and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, a fifth one-day meeting to consider specific information surrounding the consideration of renewing the Agreement and additional in-person and telephonic meetings as needed. In connection with this year-long deliberative process, the Board assessed, among other things, the nature, extent and quality of the services provided to the Fund by BlackRock, BlackRock’s personnel and affiliates, including, as applicable; investment management, administrative, and shareholder services; the oversight of fund service providers; marketing; risk oversight; compliance; and ability to meet applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Fund and its shareholders. BlackRock also furnished additional information to the Board in response to specific questions from the Board. This additional information is discussed further below in the section titled “Board Considerations in Approving the Agreement.” Among the matters the Board considered were: (a) investment performance for one-year, three-year, five-year, ten-year, and/or since inception periods, as applicable, against peer funds, applicable benchmarks, and performance metrics, as applicable, as well as senior management’s and portfolio managers’ analysis of the reasons for any over-performance or underperformance relative to its peers, benchmarks, and other performance metrics, as applicable; (b) fees, including advisory, administration, if applicable, paid to BlackRock and its affiliates by the Fund for services; (c) Fund operating expenses and how BlackRock allocates expenses to the Fund; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Fund’s investment objective, policies and restrictions, and meeting regulatory requirements; (e) the Fund’s adherence to its compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) execution quality of portfolio transactions; (j) BlackRock’s implementation of the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment mandates across the open-end fund, closed-end fund, sub-advised mutual fund, collective investment trust, and institutional separate account product channels, as applicable, and the similarities and differences between these products and the services provided as compared to the Fund; (l) BlackRock’s compensation methodology for its investment professionals and the incentives and accountability it creates, along with investment professionals’ investments in the fund(s) they manage; and (m) periodic updates on BlackRock’s business.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April Meeting, the Board requested and received materials specifically relating to the Agreement. The Board is continuously engaged in a process with its independent legal counsel and BlackRock to review the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April Meeting included (a) information independently compiled and prepared by Broadridge Financial Solutions, Inc. (“Broadridge”) on Fund fees and expenses as compared with a peer group of funds as determined by Broadridge (“Expense Peers”) and the investment performance of the Fund as compared with a peer group of funds as determined by Broadridge,¹ as well as the performance of the Fund as compared with its custom benchmark; (b) information on the profits realized by BlackRock and its affiliates pursuant to the Agreement and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees charged to other clients, such as institutional clients, sub-advised mutual funds, and open-end funds, under similar investment mandates, as applicable; (d) review of non-management fees; (e) the existence, impact and sharing of potential economies of scale; and (f) a summary of aggregate amounts paid by the Fund to BlackRock.

At the April Meeting, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April Meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	31

Funds are ranked by Broadridge in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable.


Disclosure of Investment Advisory Agreement (continued)

additional information. BlackRock responded to these requests with additional written information in advance of the June Meeting. Topics covered included: (a) fund repositionings and portfolio management changes, including additional information about the portfolio managers, research teams, organization and methods and historical track records of the teams, and the potential impact of such changes on fund performance and the costs of such changes; (b) scientific active equity management; (c) BlackRock’s option overwrite policy; (d) differences in services between closed-end funds and mutual funds; (d) market discount; and (e) adviser profitability.

At the June Meeting, the Board, including the Independent Board Members, unanimously approved the continuation of the Agreement between the Manager and the Fund for a one-year term ending June 30, 2018. In approving the continuation of the Agreement, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Fund; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Fund; (d) the Fund’s costs to investors compared to the costs of Expense Peers and performance compared to the relevant performance metrics as previously discussed; (e) the sharing of potential economies of scale; (f) fall-out benefits to BlackRock and its affiliates as a result of its relationship with the Fund; and (g) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock or its affiliates relating to securities lending and cash management, services related to the valuation and pricing of Fund portfolio holdings, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as determinative, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Fund. Throughout the year, the Board compared Fund performance to the performance of a comparable group of closed-end funds, relevant benchmark, and performance metrics, as applicable. The Board met with BlackRock’s senior management personnel responsible for investment activities, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing the Fund’s performance and the Fund’s investment objective, strategies and outlook.

The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and the Fund’s portfolio management team; BlackRock’s research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to investment advisory services, the Board considered the quality of the administrative and other non-investment advisory services provided to the Fund. BlackRock and its affiliates provide the Fund with certain administrative, shareholder, and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. In particular, BlackRock and its affiliates provide the Fund with administrative services including, among others: (i) preparing disclosure documents, such as the prospectus and the statement of additional information in connection with the initial public offering and periodic shareholder reports; (ii) preparing communications with analysts to support secondary market trading of the Fund; (iii) oversight of daily accounting and pricing; (iv) preparing periodic filings with regulators and stock exchanges; (v) overseeing and coordinating the activities of other service providers; (vi) organizing Board meetings and preparing the materials for such Board meetings; (vii) providing legal and compliance support; (viii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain closed-end funds; and (ix) performing other administrative functions necessary for the operation of the Fund, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, and legal & compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Fund and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Fund. In preparation for the April Meeting, the Board was provided with reports independently prepared by Broadridge, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Broadridge data that was prepared by BlackRock. In connection with its review, the Board received and reviewed information regarding the investment performance, based on net asset value (NAV), of the Fund as compared to other funds in its applicable Broadridge category and the performance of the Fund as compared with its custom benchmark. The Board was provided with a description of the methodology used by Broadridge to select peer funds and periodically meets with Broadridge representatives to review its methodology. The Board was provided with information on the composition of the Broadridge performance universes and expense universes. The Board and its Performance Oversight Committee regularly review, and meet with Fund management to discuss, the performance of the Fund throughout the year.



32	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Disclosure of Investment Advisory Agreement (continued)

In evaluating performance, the Board recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results. Further, the Board recognized that it is possible that long-term performance can be adversely affected by even one period of significant underperformance so that a single investment decision or theme has the ability to affect long-term performance disproportionately.

The Board noted that for the one-, three- and five-year periods reported, the Fund exceeded, underperformed and underperformed, respectively, its customized benchmark. BlackRock believes that performance relative to the customized benchmark is an appropriate performance metric for the Fund. The Board and BlackRock reviewed the Fund’s underperformance during the three- and five-year periods. In further discussions with the Board, BlackRock noted that for the one-year period the Fund’s performance exceeded its customized benchmark, and that the Fund has a voluntary advisory fee waiver in place.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Fund: The Board, including the Independent Board Members, reviewed the Fund’s contractual management fee rate compared with the other funds in its Broadridge category. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared the Fund’s total expense ratio, as well as its actual management fee rate as a percentage of total assets, to those of other funds in its Broadridge category. The total expense ratio represents a fund’s total net operating expenses, excluding any investment related expenses. The total expense ratio gives effect to any expense reimbursements or fee waivers that benefit a fund, and the actual management fee rate gives effect to any management fee reimbursements or waivers that benefit a fund. The Board considered the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds (including mutual funds sponsored by third parties).

The Board received and reviewed statements relating to BlackRock’s financial condition. The Board reviewed BlackRock’s profitability methodology and was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Fund. The Board reviewed BlackRock’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2016 compared to available aggregate profitability data provided for the prior two years. The Board reviewed BlackRock’s profitability with respect to certain other U.S. fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, precision of expense allocations and business mix. As a result, calculating and comparing profitability at individual fund levels is difficult.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board reviewed BlackRock’s overall operating margin, in general, compared to that of certain other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

In addition, the Board considered the cost of the services provided to the Fund by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management of the Fund and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs of managing the Fund, to the Fund. The Board may receive and review information from independent third parties as part of its annual evaluation. The Board considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board. The Board further considered factors including but not limited to BlackRock’s commitment of time, assumption of risk, and liability profile in servicing the Fund in contrast to what is required of BlackRock with respect to other products with similar investment mandates across the open-end fund, closed-end fund, sub-advised mutual fund, collective investment trust, and institutional separate account product channels, as applicable.

The Board noted that the Fund’s contractual management fee rate ranked in the fourth quartile, and that the actual management fee rate and total expense ratio each ranked in the second quartile, relative to the Expense Peers. In addition, the Board noted that BlackRock had voluntarily agreed to waive a portion of the advisory fee payable by the Fund. This waiver was implemented on October 1, 2015. After discussions between the Board, including Independent Board Members, and BlackRock, the Board and BlackRock agreed to a continuation of the voluntary advisory fee waiver. This waiver may be discontinued at any time without notice.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Fund increase. The Board also considered the extent to which the Fund benefits from such economies in a variety of ways, and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable the Fund to more fully participate in these economies of scale. The Board considered the Fund’s asset levels and whether the current fee was appropriate.

Based on the Board’s review and consideration of the issue, the Board concluded that most closed-end funds do not have fund level breakpoints because closed-end funds generally do not experience substantial growth after the initial public offering. They are typically priced at scale at a fund’s inception.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	33


Disclosure of Investment Advisory Agreement (concluded)

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Fund, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Fund, including for administrative, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts.

In connection with its consideration of the Agreement, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.

The Board noted the competitive nature of the closed-end fund marketplace, and that shareholders are able to sell their Fund shares in the secondary market if they believe that the Fund’s fees and expenses are too high or if they are dissatisfied with the performance of the Fund.

The Board also considered the various notable initiatives and projects BlackRock performed in connection with its closed-end fund product line. These initiatives included the redemption of auction rate preferred securities (“AMPS”); developing equity shelf programs; efforts to eliminate product overlap with fund mergers; ongoing services to manage leverage that has become increasingly complex; periodic evaluation of share repurchases and other support initiatives for certain BlackRock funds; and continued communications efforts with shareholders, fund analysts and financial advisers. With respect to the latter, the Independent Board Members noted BlackRock’s continued commitment to supporting the secondary market for the common shares of its closed-end funds through a comprehensive secondary market communication program designed to raise investor and analyst awareness and understanding of closed-end funds. BlackRock’s support services included, among other things: continuing communications concerning the redemption efforts related to AMPS; sponsoring and participating in conferences; communicating with closed-end fund analysts covering the BlackRock funds throughout the year; providing marketing and product updates for the closed-end funds; and maintaining and enhancing its closed-end fund website.

Conclusion

The Board, including the Independent Board Members, unanimously approved the continuation of the Agreement between the Manager and the Fund for a one-year term ending June 30, 2018. Based upon its evaluation of all of the aforementioned factors in their totality, as well as other information, the Board, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at its decision to approve the Agreement, the Board did not identify any single factor or group of factors as, all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Fund reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.



34	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Officers and Directors

Richard E. Cavanagh, Chair of the Board and Director

Karen P. Robards, Vice Chair of the Board and Director

Michael J. Castellano, Director

Cynthia L. Egan, Director

Frank J. Fabozzi, Director

Jerrold B. Harris, Director

R. Glenn Hubbard, Director

W. Carl Kester, Director

Catherine A. Lynch, Director

Barbara G. Novick, Director

John M. Perlowski, Director, President and Chief Executive Officer

Jonathan Diorio, Vice President

Neal J. Andrews, Chief Financial Officer

Jay M. Fife, Treasurer

Charles Park, Chief Compliance Officer

Janey Ahn, Secretary



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	35


Additional Information

Fund Certification

The Fund is listed for trading on the NYSE and has filed with the NYSE its annual chief executive officer certification regarding compliance with the NYSE’s listing standards. The Fund filed with the Securities and Exchange Commission (“SEC”) the certification of its chief executive officer and chief financial officer required by section 302 of the Sarbanes-Oxley Act.

Dividend Policy

The Fund dividend policy is to distribute all or a portion of its net investment income to its shareholders on a monthly basis. In order to provide shareholders with a more stable level of dividend distributions, the distributions paid by the Fund for any particular month may be more or less than the amount of net investment income earned by the Fund during such month. The portion of distributions that exceeds the Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a nontaxable return of capital. Distributions in excess of the Fund’s taxable income and net capital gains, but not in excess of the Fund’s earnings and profits, will be taxable to shareholders as ordinary income and will not constitute a nontaxable return of capital. The Fund’s current accumulated but undistributed net investment income, if any, is disclosed in the Statement of Assets and Liabilities, which comprises part of the financial information included in this report.

General Information

The Fund does not make available copies of its Statement of Additional Information because the Fund’s shares are not continuously offered, which means that the Statement of Additional Information of the Fund has not been updated after completion of the Fund’s offerings and the information contained in the Fund’s Statement of Additional Information may have become outdated.

Except as described below, there were no material changes in the Fund’s investment objectives or policies or to the Fund’s charter or by-laws that would delay or prevent a change of control of the Fund that were not approved by the shareholders or in the principal risk factors associated with investment in the Fund. There have been no changes in the persons who are primarily responsible for the day-to-day management of the Fund’s portfolio.

On October 28, 2016, the Fund announced that it had divided its Board of Directors into three classes, with one class standing for election each year, and had adopted a voting standing of a majority of the outstanding shares for the election of directors in a contested election.

In accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Fund from time to time may purchase its common shares in the open market or in private transactions.

Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Fund may be found on BlackRock’s website, which can be accessed at http://www.blackrock.com. Any reference to BlackRock’s website in this report is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate BlackRock’s website into this report.

Electronic Delivery

Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual shareholder reports by enrolling in the electronic delivery program. Electronic copies of shareholder reports are available on BlackRock’s website.

To enroll in electronic delivery:

Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisers, banks or brokerages may offer this service.

Householding

The Fund will mail only one copy of shareholder documents, including annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call (800) 882-0052.



36	BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017


Additional Information (concluded)

General Information (concluded)

Availability of Quarterly Schedule of Investments

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room or how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Fund’s Forms N-Q may also be obtained upon request and without charge by calling (800) 882-0052.

Availability of Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available upon request and without charge (1) by calling (800) 882-0052; (2) at http://www.blackrock.com; and (3) on the SEC’s website at http://www.sec.gov.

Availability of Proxy Voting Record

Information about how the Fund voted proxies relating to securities held in the Fund’s portfolio during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 882-0052 and (2) on the SEC’s website at http://www.sec.gov.

Availability of Fund Updates

BlackRock will update performance and certain other data for the Fund on a monthly basis on its website in the “Closed-end Funds” section of http://www.blackrock.com as well as certain other material information as necessary from time to time. Investors and others are advised to check the website for updated performance information and the release of other material information about the Fund. This reference to BlackRock’s website is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate BlackRock’s website in this report.

BlackRock Privacy Principles

BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.

If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.

BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.

BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.

We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.



BLACKROCK ENHANCED GOVERNMENT FUND, INC.	JUNE 30, 2017	37

This report is intended for current holders. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. The Fund has leveraged its Common Shares, which creates risks for Common Shareholders, including the likelihood of greater volatility of net asset value and market price of the Common Shares, and the risk that fluctuations in short-term interest rates may reduce the Common Shares’ yield. Statements and other information herein are as dated and are subject to change.

LOGO


EGF-6/17-SAR



Item 2 –		Code of Ethics – Not Applicable to this semi-annual report

Item 3 –		Audit Committee Financial Expert – Not Applicable to this semi-annual report

Item 4 –		Principal Accountant Fees and Services – Not Applicable to this semi-annual report

Item 5 –		Audit Committee of Listed Registrants – Not Applicable to this semi-annual report

Item 6 –		Investments (a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form. (b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing.

Item 7 –		Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not Applicable to this semi-annual report

Item 8 –		Portfolio Managers of Closed-End Management Investment Companies (a) Not Applicable to this semi-annual report (b) Effective August 15, 2017, Stuart Spodek was removed as a portfolio manager to the Fund.

Item 9 –		Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers


Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs¹
January 1-31, 2017	N/A	N/A	N/A	360,843
February 1-28, 2017	N/A	N/A	N/A	360,843
March 1-31, 2017	N/A	N/A	N/A	360,843
April 1-30, 2017	N/A	N/A	N/A	360,843
May 1-31, 2017	N/A	N/A	N/A	360,843
June 1-30, 2017	N/A	N/A	N/A	360,843
Total:	N/A	N/A	N/A	360,843

¹ The Fund announced an open market share repurchase program on October 28, 2016 pursuant to which the Fund may repurchase, through November 30, 2017, up to 5% of its outstanding common shares based on common shares outstanding on October 28, 2016 (360,843 common shares), in open market transactions, subject to certain conditions.

The registrant may also conduct annual repurchases for between 5% and 25% of its outstanding shares pursuant to Rule 23c-3 under the Investment Company Act of 1940, as amended.



Item 10 –		Submission of Matters to a Vote of Security Holders – There have been no material changes to these procedures.

Item 11 –		Controls and Procedures (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.



		(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 second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12 –		Exhibits attached hereto (a)(1) – Code of Ethics – Not Applicable to this semi-annual report (a)(2) – Certifications – Attached hereto (a)(3) – Not Applicable (b) – 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: September 5, 2017

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: September 5, 2017



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

Date: September 5, 2017