UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY
Investment Company Act File number 811-21793
Name of Fund: Enhanced Government Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Enhanced Government Fund, Inc., 800 Scudders Mill Road,
Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton,
NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 12/31/2005
Date of reporting period: 01/01/06 - 03/31/06
Item 1 - Schedule of Investments
Enhanced Government Fund, Inc.
Schedule of Investments as of March 31, 2006 (in U.S. dollars)
Face Interest Maturity
Issue Amount Rate Date(s) Value
Government & Agency Obligations - 27.5%
Fannie Mae $ 5,000,000 2.375 % 2/15/2007 $ 4,884,115
3,500,000 5.25 4/15/2007 3,503,839
5,250,000 6.375 6/15/2009 5,439,751
2,000,000 6.625 9/15/2009 2,092,242
3,000,000 6.00 5/15/2011 3,110,163
Federal Farm Credit Bank 3,500,000 4.55 6/08/2020 3,194,793
Federal Home Loan Bank System 1,000,000 4.125 10/19/2007 985,588
Freddie Mac 1,500,000 5.875 3/21/2011 1,534,610
1,500,000 5.00 7/15/2014 1,479,769
1,000,000 6.25 7/15/2032 1,129,194
U.S. Treasury Bonds 789,000 8.125 8/15/2019 1,023,851
2,720,000 8.50 2/15/2020 3,647,776
2,500,000 6.25 5/15/2030 2,921,680
1,500,000 4.50 2/15/2036 1,407,421
U.S. Treasury Notes 8,000,000 6.50 10/15/2006 8,066,560
11,500,000 3.625 6/30/2007 11,326,603
1,990,000 3.00 2/15/2008 1,924,937
1,445,000 3.50 2/15/2010 1,377,491
4,800,000 8.75 5/15/2020 6,576,000
Total Government & Agency Obligations (Cost - $66,629,029) - 27.5% 65,626,383
Government Agency Mortgage-Backed Obligations** - 65.4%
Fannie Mae Guaranteed Pass-Through Certificates 9,731,241 4.50 4/01/2020 - 11/01/2020 9,308,664
1,974,901 4.66 7/01/2010 1,918,889
6,646,771 4.681 2/01/2013 6,501,464
6,314,000 5.14 1/01/2016 6,176,607
2,216,898 5.25 2/01/2016 2,187,658
9,440,362 5.324 10/01/2035 (a) 9,356,963
22,838,997 5.50 11/01/2020 - 11/01/2035 22,348,001
2,866,884 5.707 2/01/2012 2,947,411
2,658,424 6.00 10/01/2035 2,659,367
5,731,921 6.60 1/01/2011 5,944,177
Freddie Mac Mortgage Participation Certificates 1,127,127 4.50 5/01/2034 1,044,284
7,601,161 5.00 5/01/2020 7,410,281
18,730,796 5.00 11/01/2035 17,826,151
4,814,820 5.01 10/01/2035 (a) 4,721,533
715,231 5.50 10/01/2035 698,541
13,941,839 6.00 10/01/2035 13,950,948
6,140,520 6.50 9/01/2035 - 10/01/2035 6,259,858
Freddie Mac Multiclass Certificates Series 2958 Class MD 5,000,000 5.50 1/15/2031 4,923,400
Government Agency Mortgage-Backed Obligations
Ginnie Mae MBS Certificates 3,260,715 5.00 11/15/2035 3,159,598
3,679,797 5.50 11/15/2035 3,645,187
Ginnie Mae Trust Series 2005-87 Class C 10,000,000 5.328 9/16/2034 (a) 9,810,979
Ginnie Mae Trust Series 2006-3 Class C 10,000,000 5.235 4/16/2039 (a) 9,535,502
Ginnie Mae Trust Series 2006-5 Class A 3,992,771 4.241 7/16/2029 3,860,091
Total Government Agency Mortgage-Backed Obligations (Cost - $158,539,481) - 65.4% 156,195,554
Non-Government Agency Mortgage-Backed Securities** - 6.4%
JPMorgan Chase Commercial Mortgage Securities Co.
Series 2006-CB14 Class A2 1,400,000 5.437 12/12/2044 1,400,220
JPMorgan Mortgage Trust Series 2005-A2 Class 4A1 4,423,347 5.211 4/25/2035 (a) 4,301,033
LB-UBS Commercial Mortgage Trust Series 2004-C6 Class A3 10,000,000 4.547 8/15/2029 9,628,372
Total Non-Government Agency Mortgage-Backed Securities (Cost - $15,544,940) - 6.4% 15,329,625
Beneficial
Interest
Short-Term Securities - 0.1%
$ 333,541 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I, 4.56% (a)(b) 333,541
Total Short-Term Securities (Cost - $333,541) - 0.1% 333,541
Total Investments (Cost - $241,046,991) - 99.4% 237,485,103
Number of
Contracts Options Written
Call Options Written - (0.0%)
1,500 FNMA, expiring April 2006 at USD 95.703, Broker Goldman Sachs (1,950)
1,200 FNMA, expiring April 2006 at USD 96.125, Broker Lehman Brothers Special Finance (4,872)
1,450 FNMA, expiring April 2006 at USD 97.875, Broker Goldman Sachs (7,642)
2,800 FNMA, expiring April 2006 at USD 97.89, Broker Goldman Sachs (11,732)
2,300 FNMA, expiring April 2006 at USD 100.09, Broker Goldman Sachs (12,834)
6 + Pay fixed rate of 5.159% and receive a floating rate based on 3-month LIBOR, expiring April 2006,
Broker JPMorgan Chase Bank (c) (3,564)
11 + Pay fixed rate of 5.17% and receive a floating rate based on 3-month LIBOR, expiring April 2006,
Broker Lehman Brothers Special Finance (c) (4,290)
6 + Pay fixed rate of 5.179% and receive a floating rate based on 3-month LIBOR, expiring April 2006,
Broker JPMorgan Chase Bank (c) (5,310)
2 + Pay fixed rate of 5.24% and receive a floating rate based on 3-month LIBOR, expiring April 2006,
Broker Lehman Brothers Special Finance (c) (2,947)
Call Options Written
1 + Pay fixed rate of 5.297% and receive a floating rate based on 3-month LIBOR, expiring April 2006,
Broker, JPMorgan Chase Bank (c) (1,943)
Total Options Written (Premiums Received - $427,238) - (0.0%) (57,084)
Total Investments, Net of Options Written (Cost - $240,619,753*) - 99.4% 237,428,019
Other Assets Less Liabilities - 0.6% 1,369,216
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Net Assets - 100.0% $ 238,797,235
==============
* The cost and unrealized appreciation (depreciation) of investments, net of options written,
as of March 31, 2006, as computed for federal income tax purposes, were as follows:
Aggregate cost $ 240,619,753
==================
Gross unrealized appreciation $ 370,153
Gross unrealized depreciation (3,561,887)
------------------
Net unrealized depreciation $ (3,191,734)
==================
** Mortgage-Backed Securities are subject to principal paydowns. As a result of prepayments
or refinancing of the underlying mortgage instruments, the average life may be substantially
less than the original maturity.
+ One contract represents a notional amount of $1,000,000.
(a) Floating rate note.
(b) Investments in companies considered to be an affiliate of the Fund, for purposes of
Section 2(a)(3) of the Investment Company Act of 1940, were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ (1,586,709) $ 96,990
Merrill Lynch Liquidity Series, LLC
Money Market Series $ (36,383,750) $ 5,047
(c) This European style swaption, which can be exercised only on the expiration date,
represents a standby commitment whereby the writer of the option is obligated to
enter into a predetermined interest rate swap contract upon exercise of swaption.
o Financial futures contracts sold as of March 31, 2006 were as follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Appreciation
39 Five-Year
U.S. Treasury Note June 2006 $ 4,092,473 $ 19,410
Item 2 - Controls and Procedures
2(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the
registrant's disclosure controls and procedures are effective based
on our evaluation of these controls and procedures as of a date
within 90 days prior to the filing date of this report.
2(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal quarter of
the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 3 - Exhibits
Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Enhanced Government Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.
Chief Executive Officer
Enhanced Government Fund, Inc.
Date: May 22, 2006
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/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.
Chief Executive Officer
Enhanced Government Fund, Inc.
Date: May 22, 2006
By: /s/ Donald C. Burke
-------------------
Donald C. Burke
Chief Financial Officer
Enhanced Government Fund, Inc.
Date: May 22, 2006