UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21506
Name of Fund: BlackRock Enhanced Capital and Income 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, BlackRock Enhanced Capital and Income 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: (800) 882-0052
Date of fiscal year end: 12/31/07
Date of reporting period: 01/01/07 - 06/30/07
Item 1 - Report to Stockholders
EQUITIES FIXED INCOME REAL ESTATE LIQUIDITY ALTERNATIVES
BLACKROCK SOLUTIONS
BlackRock Enhanced Capital
and Income Fund, Inc.
SEMI-ANNUAL REPORT
JUNE 30, 2007 (UNAUDITED)
(BLACKROCK logo)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Enhanced Capital and Income Fund, Inc. seeks to provide shareholders
with current income and capital appreciation. The Fund seeks to achieve its
investment objectives by investing in a portfolio of equity and debt
securities of U.S. and foreign issuers.
This report, including the financial information herein, is transmitted to
shareholders of BlackRock Enhanced Capital and Income Fund, Inc. for their
information. It is not a prospectus. The Fund leverages its Common Stock to
provide Common Stock shareholders with a potentially higher rate of return.
Leverage creates risk for Common Stock shareholders, including the likelihood
of greater volatility of net asset value and market price of Common Stock
shares, and the risk that fluctuations in short-term interest rates may reduce
the Common Stock's yield. Past performance results shown in this report should
not be considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available (1)
without charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web
site at http://www.sec.gov. 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 (1) at www.blackrock.com and (2) on
the Securities and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Enhanced Capital and Income Fund, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
(GO PAPERLESS... logo)
It's Fast, Convenient, & Timely!
BlackRock Enhanced Capital and Income Fund, Inc.
The Benefits and Risks of Leveraging
BlackRock Capital and Income Strategies Fund, Inc. utilizes leveraging through
borrowings or issuance of short-term debt securities or shares of Preferred
Stock. The concept of leveraging is based on the premise that the cost of
assets to be obtained from leverage will be based on short-term interest or
dividend rates, which normally will be lower than the income earned by the
Fund on its longer-term portfolio investments. 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 Common Stock shareholders
are the beneficiaries of the incremental yield.
Leverage creates risks for holders of Common Stock including the likelihood of
greater net asset value and market price volatility. In addition, there is the
risk that fluctuations in interest rates on borrowings (or in the dividend
rates on any Preferred Stock, if the Fund were to issue the Preferred Stock)
may reduce the Common Stock's yield and negatively impact its net asset value
and market price. If the income derived from securities purchased with assets
received from leverage exceeds the cost of leverage, the Fund's net income
will be greater than if leverage had not been used. Conversely, if the income
from the securities purchased is not sufficient to cover the cost of leverage,
the Fund's net income will be less than if leverage had not been used, and
therefore the amount available for distribution to Common Stock shareholders
will be reduced.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
A Letter to Shareholders
Dear Shareholder
At the mid-point of 2007, investor sentiment appeared quite buoyant,
notwithstanding some undertones of caution. For equity markets, positive
momentum as the year began was interrupted by a notable but transitory
set-back at the end of February. Markets resumed their ascent through May,
but entered a trading range in June as investors began to question the
sustainability of the rally. For the most part, equities found support in
robust merger-and-acquisition activity, healthy global economies, tame
inflation, relatively low interest rates, still-positive earnings growth and
attractive valuations. These tailwinds prevailed over such headwinds as a
weakening U.S. economy, slowing housing market, credit-related lending
problems, escalating geopolitical concerns and high energy prices, leading
the Standard & Poor's (S&P) 500 Index to a new record high in May.
Meanwhile, turmoil in the subprime mortgage market and generally mixed
economic signals weighed on bonds. In June, bond prices dropped precipitously
as long-term yields rose to their highest levels in five years. The 10-year
Treasury yield, which began 2007 at 4.68%, reached nearly 5.30% in mid-June
before retracing to 5.03% by month's end. Notably, this year has brought some
re-steepening of the yield curve, which had been flat to inverted throughout
2006. Still, at the end of June, yields along the curve remained below the
federal funds rate of 5.25%, the level at which the Federal Reserve Board (the
Fed) has left it since first pausing in August 2006. While first-quarter gross
domestic product growth of 0.7% represented the slowest rate of expansion
since 2002, the Fed reiterated that inflation, not a slowing economy, remains
its primary concern. Many observers interpreted the Fed's reaction to mean
that the economy has hit its low and is bound for renewed strength, thereby
reducing the likelihood of an interest rate cut in the near future.
Against this backdrop, the major equity market indexes posted strong returns
for the annual and semi-annual periods ended June 30, 2007, while fixed income
assets were more mixed:
Total Returns as of June 30, 2007 6-month 12-month
U.S. equities (S&P 500 Index) + 6.96% +20.59%
Small cap U.S. equities (Russell 2000 Index) + 6.45 +16.43
International equities (MSCI Europe, Australasia, Far East Index) +10.74 +27.00
Fixed income (Lehman Brothers U.S. Aggregate Bond Index) + 0.98 + 6.12
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.14 + 4.69
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index) + 2.96 +11.22
We expect market volatility to linger throughout the second half of 2007. As
you navigate the uncertainties, we encourage you to review your investment
goals with your financial professional and to make portfolio changes, as
needed. For more market insight, we invite you to view "What's Ahead in 2007:
The Second-Quarter Update" and "Are You Prepared for Volatility?" at
www.blackrock.com/funds. We thank you for entrusting BlackRock with your
investment assets, and we look forward to continuing to serve you in the
months and years ahead.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
Fund President and Director
THIS PAGE NOT PART OF YOUR FUND REPORT
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Fund Summary as of June 30, 2007 (Unaudited)
BlackRock Enhanced Capital and Income Fund, Inc.
Fund Information
Symbol on New York Stock Exchange CII
Initital Offering Date April 30, 2004
Yield on Closing Market Price as of 6/30/07 ($22.08)* 8.79%
Current Quarterly Distribution per share of Common Stock** $0.485
Current Annualized Distribution per share of Common Stock** $1.94
* Yield on closing market price is calculated by dividing the current
annualized distribution per share by the closing market price.
Past performance does not guarantee future results.
** The distribution is not constant and is subject to change. A portion of the
distribution may be deemed a tax return of capital or net realized gain at
fiscal year end.
The table below summarizes the changes in the Fund's market price and
net asset value:
6/30/07 12/31/06 Change High Low
Market Price $22.08 $20.41 8.18% $23.19 $19.70
Net Asset Value $23.87 $22.91 4.19% $24.45 $22.23
The following chart shows the portfolio composition of the Fund's long-term
investments:
Portfolio Composition
6/30/07 12/31/06
Common Stocks 98% 60%
Preferred Stocks 2 19
Foreign Government Obligations -- 10
Corporate Bonds -- 7
Capital Trusts -- 2
Trust Preferreds -- 1
Municipal Bonds -- 1
Real Estate Investments Trusts -- --*
* Amount is less than 0.1%.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Schedule of Investments as of June 30, 2007 (Unaudited) (in U.S. dollars)
Shares
Industry Preferred Stocks Held Value
Food Products--1.4%
General Mills, Inc., 4.50% (d) 2,000 $ 2,010,100
H.J. Heinz Finance Co., 6.226% (e) 20 2,053,750
Total Preferred Stocks
(Cost--$4,107,447)--1.4% 4,063,850
Common Stocks
Aerospace & Defense--4.8%
Honeywell International, Inc. 57,100 3,213,588
Lockheed Martin Corp. 30,000 2,823,900
Northrop Grumman Corp. 51,900 4,041,453
Raytheon Co. 72,100 3,885,469
-------------
13,964,410
Automobiles--0.2%
Honda Motor Co., Ltd. (a) 16,800 609,672
Beverages--1.2%
Coca-Cola Enterprises, Inc. 150,100 3,602,400
Capital Markets--3.4%
The Bank of New York Co., Inc. (d) 125,000 5,180,000
Morgan Stanley 56,600 4,747,608
-------------
9,927,608
Chemicals--1.0%
E.I. du Pont de Nemours & Co. 57,400 2,918,216
Commercial Banks--1.0%
Wells Fargo & Co. 82,600 2,905,042
Communications Equipment--0.9%
Alcatel SA (a) 175,300 2,454,200
Computers & Peripherals--4.3%
Hewlett-Packard Co. 55,800 2,489,796
International Business Machines
Corp. 76,600 8,062,150
Sun Microsystems, Inc. (d) 383,900 2,019,314
-------------
12,571,260
Diversified Financial Services--6.7%
Bank of America Corp. 82,727 4,044,523
Citigroup, Inc. 153,390 7,867,373
JPMorgan Chase & Co. 158,772 7,692,503
-------------
19,604,399
Diversified Telecommunication
Services--3.9%
AT&T Inc. 116,370 4,829,355
Qwest Communications
International Inc. (d) 199,200 1,932,240
Verizon Communications, Inc. 107,400 4,421,658
-------------
11,183,253
Electric Utilities--2.4%
FPL Group, Inc. 60,800 3,449,792
The Southern Co. 100,900 3,459,861
-------------
6,909,653
Shares
Industry Common Stocks Held Value
Energy Equipment & Services--3.4%
BJ Services Co. 90,600 $ 2,576,664
GlobalSantaFe Corp. 72,200 5,216,450
Halliburton Co. 60,700 2,094,150
-------------
9,887,264
Food & Staples Retailing--0.3%
Wal-Mart Stores, Inc. 19,600 942,956
Food Products--3.7%
General Mills, Inc. 77,500 4,527,550
Kraft Foods, Inc. 34,000 1,198,500
Unilever NV (a) 159,300 4,941,486
-------------
10,667,536
Health Care Equipment & Supplies--1.0%
Baxter International, Inc. 54,100 3,047,994
Hotels, Restaurants & Leisure--0.9%
McDonald's Corp. 50,700 2,573,532
Household Durables--0.8%
Koninklijke Philips Electronics NV 58,000 2,454,560
Household Products--1.3%
Kimberly-Clark Corp. 58,600 3,919,754
IT Services--1.3%
Unisys Corp. (d) 413,300 3,777,562
Industrial Conglomerates--3.6%
General Electric Co. 114,200 4,371,576
Tyco International Ltd. (d) 182,500 6,166,675
-------------
10,538,251
Insurance--5.6%
American International Group, Inc. 88,900 6,225,667
Hartford Financial Services Group, Inc. (f) 31,600 3,112,916
The Travelers Cos., Inc. 79,500 4,253,250
XL Capital Ltd. Class A 31,300 2,638,277
-------------
16,230,110
Machinery--1.1%
Deere & Co. 26,200 3,163,388
Media--4.5%
Citadel Broadcasting Corp. 6,942 44,776
Comcast Corp. Special Class A (d) 150,550 4,209,378
Time Warner, Inc. 267,600 5,630,304
Walt Disney Co. 90,400 3,086,256
-------------
12,970,714
Metals & Mining--2.1%
Alcan, Inc. 37,400 3,040,620
Alcoa, Inc. 73,400 2,974,902
-------------
6,015,522
Multi-Utilities--1.3%
Consolidated Edison, Inc. 47,200 2,129,664
Dominion Resources, Inc. 20,800 1,795,248
-------------
3,924,912
Office Electronics--1.2%
Xerox Corp. (d) 188,400 3,481,632
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Schedule of Investments (concluded) (in U.S. dollars)
Shares
Industry Common Stocks Held Value
Oil, Gas & Consumable
Fuels--7.2%
Anadarko Petroleum Corp. 69,000 $ 3,587,310
Chevron Corp. 43,600 3,672,864
Consol Energy, Inc. 22,800 1,051,308
Exxon Mobil Corp. 121,000 10,149,480
Peabody Energy Corp. 53,700 2,598,006
-------------
21,058,968
Pharmaceuticals--7.0%
Bristol-Myers Squibb Co. 100,700 3,178,092
GlaxoSmithKline Plc (a) 81,800 4,283,866
Johnson & Johnson 42,300 2,606,526
Pfizer, Inc. 195,600 5,001,492
Schering-Plough Corp. 105,200 3,202,288
Wyeth 36,000 2,064,240
-------------
20,336,504
Semiconductors & Semiconductor
Equipment--5.0%
Applied Materials, Inc. 69,700 1,384,939
Fairchild Semiconductor International,
Inc. (d) 171,900 3,321,109
Intel Corp. 162,200 3,853,872
LSI Logic Corp. (d) 430,100 3,230,051
Micron Technology, Inc. (d) 210,300 2,635,059
-------------
14,425,030
Thrifts & Mortgage Finance--0.6%
Fannie Mae 28,100 1,835,773
Wireless Telecommunication
Services--1.2%
Sprint Nextel Corp. 164,100 3,398,511
Total Common Stocks
(Cost--$195,085,956)--82.9% 241,300,586
Face
Short-Term Securities Amount Value
Time Deposits--0.0%
Brown Brothers Harriman & Co.,
4.64% due 7/02/2007 $ 6,490 $ 6,490
Beneficial
Interest
BlackRock Liquidity Series, LLC
Cash Sweep Series, 5.33% (b)(c) $46,750,887 46,750,887
Total Short-Term Securities
(Cost--$46,757,377)--16.1% 46,757,377
Total Investments
(Cost--$245,950,780)--100.4% 292,121,813
Number of
Options Written Contracts
Call Options Written--(0.3%)
Chevron Corp., expiring
January 2008 at USD 90 100 (38,000)
Comcast Corp. Special Class A,
expiring July 2007 at USD 28.333 438 (26,280)
International Business Machines Corp.,
expiring July 2007 at USD 100 110 (63,800)
S&P 500 Option, expiring
July 2007 at USD 1,535 1,055 (770,150)
Total Options Written
(Premiums Received--$1,008,526)--(0.3%) (898,230)
Total Investments, Net of Options Written
(Cost--$244,942,254*)--100.1% 291,223,583
Liabilities in Excess of Other Assets--(0.1%) (322,009)
-------------
Net Assets--100.0% $ 290,901,574
=============
* The cost and unrealized appreciation (depreciation) of investments,
net of options written, as of June 30, 2007, as computed for federal
income tax purposes, were as follows:
Aggregate cost $ 245,580,042
================
Gross unrealized appreciation $ 46,595,832
Gross unrealized depreciation (952,291)
----------------
Net unrealized appreciation $ 45,643,541
================
(a) Depositary receipts.
(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
BlackRock Liquidity Series, LLC
Cash Sweep Series $34,740,481 $516,640
(c) Represents the current yield as of June 30, 2007.
(d) Non-income producing security.
(e) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(f) All or portion of security held as collateral in connection with open
financial futures contracts.
o For Fund compliance purposes, the Fund's industry classifications refer
to any one or more of the industry sub-classifications used by one or
more widely recognized market indexes or ratings group indexes, and/or
as defined by Fund management. This definition may not apply for purposes
of this report, which may combine industry sub-classifications for
reporting ease. Industries are shown as a percent of net assets.
o Financial futures contracts purchased as of June 30, 2007 were as follows:
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
54 S&P 500 Index September 2007 $20,492,116 $ (34,216)
See Notes to Financial Statements.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Statement of Assets, Liabilities and Capital
As of June 30, 2007 (Unaudited)
Assets
Investments in unaffiliated securities, at value (identified cost--$199,199,893) $ 245,370,926
Investments in affiliated securities, at value (identified cost--$46,750,887) 46,750,887
Foreign cash (cost--$9,142) 9,151
Receivables:
Securities sold $ 1,456,806
Dividends 221,276
Variation margin 1,037 1,679,119
---------------
Prepaid expenses and other assets 45,260
---------------
Total assets 293,855,343
---------------
Liabilities
Options written, at value (premiums received--$1,008,526) 898,230
Bank overdraft 6,453
Payables:
Dividends to shareholders 1,086,919
Securities purchased 635,092
Investment adviser 211,580
Other affiliates 2,646
Interest on loans 2,364 1,938,601
---------------
Accrued expenses and other liabilities 110,485
---------------
Total liabilities 2,953,769
---------------
Net Assets
Net Assets $ 290,901,574
===============
Capital
Common Stock, $.10 par value; 200,000,000 shares authorized $ 1,218,874
Paid-in capital in excess of par 231,130,228
Accumulated distributions in excess of investment income--net $ (9,843,739)
Undistributed realized capital gains--net 22,149,090
Unrealized appreciation--net 46,247,121
---------------
Total accumulated earnings--net 58,552,472
---------------
Total capital--Equivalent to $23.87 per share based on 12,188,736 shares of capital stock
outstanding (market price--$22.08) $ 290,901,574
===============
See Notes to Financial Statements.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Statement of Operations
For the Six Months Ended June 30, 2007 (Unaudited)
Investment Income
Dividends (net of $28,744 foreign withholding tax) $ 3,753,861
Interest (including $516,640 from affiliates) 2,288,215
---------------
Total income 6,042,076
---------------
Expenses
Loan interest expense $ 2,174,821
Investment advisory fees 1,535,761
Asset securitization fees 77,415
Accounting services 62,535
Custodian fees 56,343
Professional fees 35,573
Printing and shareholder reports 22,740
Directors' fees and expenses 12,537
Pricing services 8,734
Transfer agent fees 7,979
Listing fees 4,751
Other 13,518
---------------
Total expenses 4,012,707
---------------
Investment income--net 2,029,369
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain on:
Investments--net 14,144,713
Options written--net 2,720,115
Financial futures contracts and swaps--net 95,278
Foreign currency transactions--net 4,975 16,965,081
---------------
Change in unrealized appreciation/depreciation on:
Investments--net 4,789,435
Options written--net (31,824)
Financial futures contracts--net (48,968)
Foreign currency transactions--net 8 4,708,651
--------------- ---------------
Total realized and unrealized gain--net 21,673,732
---------------
Net Increase in Net Assets Resulting from Operations $ 23,703,101
===============
See Notes to Financial Statements.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
June 30, 2007 December 31,
Increase (Decrease) in Net Assets: (Unaudited) 2006
Operations
Investment income--net $ 2,029,369 $ 4,707,078
Realized gain--net 16,965,081 16,379,925
Change in unrealized appreciation/depreciation--net 4,708,651 27,847,886
--------------- ---------------
Net increase in net assets resulting from operations 23,703,101 48,934,889
--------------- ---------------
Dividends & Distributions to Shareholders
Investment income--net (12,073,833)++ (4,463,881)
Realized gain--net -- (13,797,677)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions to shareholders (12,073,833) (18,261,558)
--------------- ---------------
Capital Stock Transactions
Shares redeemed in repurchase offer -- (12,039,454)
--------------- ---------------
Net decrease in net assets resulting from capital stock transactions -- (12,039,454)
--------------- ---------------
Net Assets
Total increase in net assets 11,629,268 18,633,877
Beginning of period 279,272,306 260,638,429
--------------- ---------------
End of period* $ 290,901,574 $ 279,272,306
=============== ===============
* Undistributed (accumulated distributions in excess of) investment income--net $ (9,843,739) $ 200,725
=============== ===============
++ A portion of the dividends from net investment income may be deemed a tax return of capital
or net realized gain at fiscal year end.
See Notes to Financial Statements.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Statement of Cash Flows
For the Six Months Ended June 30, 2007 (Unaudited)
Cash Provided by Operating Activities
Net increase in net assets resulting from operations $ 23,703,101
Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided by operating activities:
Decrease in receivables 1,958,456
Increase in other assets (39,826)
Decrease in other liabilities (197,732)
Realized and unrealized gain--net (21,673,732)
Realized and unrealized loss on financial futures contracts (17,625)
Amortization of premium and discount 445,438
Proceeds from sales and paydowns of long-term securities 241,926,020
Purchases of long-term securities (104,117,049)
Purchases of short-term investments (34,668,117)
Other investment related transactions 16,445
Premiums received from options written 6,566,685
Premiums paid on closing options written (3,299,511)
---------------
Cash provided by operating activities 110,602,553
---------------
Cash Used for Financing Activities
Cash receipts from borrowings 42,000,000
Cash payments from borrowings (142,000,000)
Dividends paid to shareholders (12,431,191)
Increase in bank overdraft 6,453
---------------
Cash used for financing activities (112,424,738)
---------------
Cash Impact From Foreign Exchange Fluctuations
Effect of exchange rate changes on cash 4,983
===============
Cash
Net decrease in cash (1,817,202)
Cash at beginning of period 1,826,353
---------------
Cash at end of period $ 9,151
===============
Cash Flow Information
Cash paid for interest $ 2,295,601
===============
See Notes to Financial Statements.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Financial Highlights
For the Six For the Period
Months Ended For the Year Ended April 30, 2004++
The following per share data and ratios have been derived June 30, 2007 December 31, to December 31,
from information provided in the financial statements. (Unaudited) 2006 2005 2004
Per Share Operating Performance
Net asset value, beginning of period $ 22.91 $ 20.31 $ 20.76 $ 19.10
------------ ------------ ------------ ------------
Investment income--net .17*** .37*** .46*** .46
Realized and unrealized gain--net 1.78 3.69 .29 1.84
------------ ------------ ------------ ------------
Total from investment operations 1.95 4.06 .75 2.30
------------ ------------ ------------ ------------
Less dividends and distributions:
Investment income--net (.99)++++ (.33) (.47) (.48)
Realized gain--net -- (1.13) (.73) (.11)
Tax return of capital -- -- -- (.01)
------------ ------------ ------------ ------------
Total dividends and distributions (.99) (1.46) (1.20) (.60)
------------ ------------ ------------ ------------
Offering costs resulting from the issuance of Common Stock -- -- -- (.04)
------------ ------------ ------------ ------------
Net asset value, end of period $ 23.87 $ 22.91 $ 20.31 $ 20.76
============ ============ ============ ============
Market price per share, end of period $ 22.08 $ 20.41 $ 17.21 $ 18.32
============ ============ ============ ============
Total Investment Return**
Based on net asset value per share 9.04%+++ 21.70% 4.69% 12.30%+++
============ ============ ============ ============
Based on market price per share 13.21%+++ 27.95% .52% (5.36%)+++
============ ============ ============ ============
Ratios to Average Net Assets
Expenses, net of waiver and excluding interest expense 1.30%* 1.42% 1.47% 1.20%*
============ ============ ============ ============
Expenses, net of waiver 2.83%* 3.54% 2.96% 1.96%*
============ ============ ============ ============
Expenses 2.83%* 3.54% 2.96% 2.19%*
============ ============ ============ ============
Investment income--net 1.43%* 1.75% 2.28% 3.52%*
============ ============ ============ ============
Leverage
Amount of borrowings outstanding (in thousands) -- $ 100,000 $ 109,000 $ 109,000
============ ============ ============ ============
Average amount of borrowings outstanding during the period
(in thousands) $ 78,220 $ 107,504 $ 109,000 $ 98,750
============ ============ ============ ============
Average amount of borrowings outstanding per share during
the period*** $ 6.42 $ 8.51 $ 8.50 $ 7.70
============ ============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 290,902 $ 279,272 $ 260,638 $ 266,345
============ ============ ============ ============
Portfolio turnover 30% 38% 61% 20%
============ ============ ============ ============
* Annualized.
** Total investment returns based on market price, which can be significantly greater or lesser than
the net asset value, may result in substantially different returns. Total investment returns exclude
the effects of sales charges.
*** Based on average shares outstanding.
++ Commencement of operations.
++++ A portion of the dividends from net investment income may be deemed a tax return of capital or
net realized gain at fiscal year end.
+++ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Notes to Financial Statements (Unaudited)
1. Significant Accounting Policies:
BlackRock Enhanced Capital and Income Fund, Inc. (formerly BlackRock Capital
and Income Strategies Fund, Inc.), (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Fund's financial statements are prepared in
conformity with U.S. generally accepted accounting principles, which may
require the use of management accruals and estimates. Actual results may
differ from these estimates. These unaudited financial statements reflect all
adjustments, which are, in the opinion of management, necessary to present a
fair statement of the results for the interim period. All such adjustments are
of a normal, recurring nature. The Fund determines and makes available for
publication the net asset value of its Common Stock on a daily basis. The
Fund's Common Stock shares are listed on the New York Stock Exchange ("NYSE")
under the symbol CII. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC markets or on the basis of values as obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general
direction of the Board of Directors. Such valuations and procedures will be
reviewed periodically by the Board of Directors of the Fund. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at
their closing prices as of the close of such exchanges. Options written or
purchased are valued at the last sale price in the case of exchange-traded
options. Options traded in the OTC market are valued at the last asked price
(options written) or the last bid price (options purchased). Swap agreements
are valued based upon quoted fair valuations received daily by the Fund from a
pricing service or counterparty. Repurchase agreements are valued at cost plus
accrued interest. The Fund employs pricing services to provide certain
securities prices for the Fund. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund,
including valuations furnished by the pricing services retained by the Fund,
which may utilize a matrix system for valuations.
Equity securities held by the Fund that are traded on stock exchanges or the
NASDAQ Global Market are valued at the last sale price or official close price
on the exchange, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price for long
positions, and at the last available asked price for short positions. In cases
where equity securities are traded on more than one exchange, the securities
are valued on the exchange designated as the primary market by or under the
authority of the Board of Directors of the Fund. Long positions traded in the
OTC markets, NASDAQ Capital Market or Bulletin Board are valued at the last
available bid price or yield equivalent obtained from one or more dealers or
pricing services approved by the Board of Directors of the Fund. Short
positions traded in the OTC markets are valued at the last available asked
price. Portfolio securities that are traded both in the OTC markets and on a
stock exchange are valued according to the broadest and most representative
market.
Generally, trading in foreign securities, as well as U.S. government
securities, money market instruments and certain fixed income securities, is
substantially completed each day at various times prior to the close of
business on the NYSE. The values of such securities used in computing the net
asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates will generally be determined as of the close of
business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they
are determined and the close of business on the NYSE that may not be reflected
in the computation of the Fund's net asset value. If events (for example, a
company announcement, market volatility or a natural disaster) occur during
such periods that are expected to materially affect the value of such
securities, those securities will be valued at their fair value as determined
in good faith by the Fund's Board of Directors or by BlackRock Advisors, LLC
(the "Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc.,
using a pricing service and/or procedures approved by the Fund's Board of
Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the
securities markets. Losses may arise due to changes in the value of the
contract resulting from an unfavorable price change in the underlying security
or index, or if the counterparty does not perform under the contract. The
counterparty for certain instruments may pledge cash or securities as
collateral.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Notes to Financial Statements (continued)
* Options--The Fund may write and purchase call and put options. When the Fund
writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such financial futures contracts. Financial futures
contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract,
the Fund deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. 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 value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss 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.
* Swaps--The Fund may enter into swap agreements, which are OTC contracts in
which the Fund and a counterparty agree to make periodic net payments on a
specified notional amount. The net payments can be made for a set period of
time or may be triggered by a predetermined credit event. The net periodic
payments may be based on a fixed or variable interest rate; the change in
market value of a specified security, basket of securities, or index; or the
return generated by a security. These periodic payments received or made by
the Fund are recorded in the accompanying Statement of Operations as realized
gains or losses, respectively. Gains or losses are realized upon termination
of the swap agreements. Swaps are marked-to-market and changes in value are
recorded as unrealized appreciation (depreciation). Risks include changes in
the returns of the underlying instruments, failure of the counterparties to
perform under the contracts' terms and the possible lack of liquidity with
respect to the swap agreements.
(c) Income taxes--It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the trans-actions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(e) Dividends and distributions--Dividends are declared and paid quarterly.
Distribution of capital gains are recorded on the ex-dividend dates. If the
total dividends and distributions made in any tax year exceeds net investment
income and accumulated realized capital gains, a portion of the total
distribution may be treated as a tax return of capital.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Notes to Financial Statements (continued)
(f) Securities lending--The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. The market
value of the loaned securities is determined at the close of business of the
Fund and any additional required collateral is delivered to the Fund on the
next business day. Where the Fund receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Fund typically
receives the income on the loaned securities but does not receive the income
on the collateral. Where the Fund receives cash collateral it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and
the borrower, after notice, is required to return the borrowed securities
within five business days. The Fund may pay reasonable finder's, lending
agent, administrative and custodial fees in connection with its loans. In the
event that the borrower defaults on its obligation to return borrowed
securities because of insolvency or for any other reason, the Fund could
experience delays and costs in gaining access to the collateral. The Fund also
could suffer a loss where the value of the collateral falls below the market
value of the borrowed securities, in the event of borrower default or in the
event of losses on investments made with cash collateral.
(g) Bank overdraft--The Fund recorded a bank overdraft which resulted from
management estimates of available cash.
(h) Recent accounting pronouncements--Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of
FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized
in the financial statements. Management has evaluated the application of FIN
48 to the Fund, and has determined that the adoption of FIN 48 does not have
a material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination. The statute of limitations on the Fund's tax returns remains
open for the years ended December 31, 2003 through December 31, 2006.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS
157 and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards
No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also
elects to apply the provisions of FAS 157. FAS 159 permits entities to choose
to measure many financial instruments and certain other items at fair value
that are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is
evaluating the implications of FAS 159 and its impact on the Fund's financial
statements, if any, has not been determined.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with the Manager.
Merrill Lynch & Co., Inc. ("Merrill Lynch") and The PNC Financial Services
Group, Inc. are the principal owners of BlackRock, Inc.
The Manager is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Fund. For such services, the Fund
pays a monthly fee at an annual rate of .85% of the Fund's average daily net
assets, including the proceeds of any outstanding borrowings used for
leverage. In addition, the Manager has entered into sub-advisory agreements
with BlackRock Investment Management, LLC ("BIM") and BlackRock Financial
Management, Inc., both affiliates of the Manager, under which the Manager pays
BIM for services it provides a fee that is a percentage of the management fee
paid by the Fund to the Manager.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Notes to Financial Statements (concluded)
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary
of Merrill Lynch, or its affiliates. Pursuant to that order, the Fund has
retained BIM as the securities lending agent for a fee based on a share of
the returns on investment of cash collateral. BIM may, on behalf of the Fund,
invest cash, collateral received by the Fund for such loans, among other
things, in a private investment company managed by the Manager or in
registered money market funds advised by the Manager or its affiliates.
In addition, MLPF&S received $12,942 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended
June 30, 2007.
For the six months ended June 30, 2007, the Fund reimbursed the Manager
$2,383 for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or directors
of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales (including paydowns) of investments, excluding short-term
securities, for the six months ended June 30, 2007 were $102,572,348 and
$240,746,375, respectively.
Transactions in options written for the six months ended June 30, 2007 were
as follows:
Number of Premiums
Call Options Written Contracts Received
Outstanding call options written,
beginning of period 2,806 $ 461,466
Options written 6,171 6,566,685
Options closed (4,906) (5,552,767)
Options expired (2,368) (466,858)
-------------- ---------------
Outstanding call options written,
end of period 1,703 $ 1,008,526
============== ===============
4. Capital Share Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, par value
$.10 per share, all of which were initially classified as Common Stock. The
Board of Directors is authorized, however, to reclassify any unissued shares
of stock without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended June 30, 2007
remained constant and for the year ended December 31, 2006 decreased by
641,500 as a result of a share repurchase offer.
5. Short-Term Borrowings:
On May 18, 2007, the Fund renewed its revolving credit and security agreement
funded by a commercial paper asset securitization program with Citicorp North
America, Inc. ("Citicorp") as Agent, certain secondary backstop lenders, and
certain asset securitization conduits as lenders (the "Lenders"). The
agreement was renewed for one year and has a maximum limit of $135,000,000.
Under the Citicorp program, the conduits will fund advances to the Fund
through the issuance of highly rated commercial paper. As security for its
obligations to the Lenders under the revolving securitization facility, the
Fund has granted a security interest in substantially all of its assets to and
in favor of the Lenders. The interest rate on the Fund's borrowings is based
on the interest rate carried by the commercial paper plus a program fee. The
Fund pays additional borrowing costs including asset securitization fees and a
backstop commitment fee.
For the six months ended June 30, 2007, the average amount borrowed was
approximately $78,220,000 and the daily weighted average interest rate was
5.61%.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Managed Distribution Policy
The Fund has adopted a policy of paying regular distributions on its Common
Stock (the "Managed Distribution Policy"). The Fund's Board of Directors has
initially determined to pay quarterly distributions at an annualized rate of
6% of the initial public offering price per share ($.30 per share, per
quarter). The Fund's Board of Directors has determined to pay additional
distributions on an annual basis equal to any income earned by the Fund in
excess of the quarterly distributions as may be necessary to distribute
substantially all of the Fund's net investment company taxable income for that
year.
The Fund generally is not permitted to distribute net realized long-term
capital gains more than once per year without exemptive relief from the
Securities and Exchange Commission. As a result, the Fund has applied for an
exemptive order that will permit the Fund to make periodic distributions of
realized long-term capital gains to its shareholders. Until such time, if any,
as the exemptive relief is granted, the Fund intends to make distributions
from its net investment income on a quarterly basis and from its net realized
long-term capital gains, if any, on an annual basis. If such exemptive relief
is granted, the Fund intends to make distributions from its net investment
income and its realized long-term capital gains, if any, on a quarterly basis.
If the total distributions paid by the Fund to its shareholders for any
calendar year exceed the Fund's net investment company taxable income and net
realized capital gain for that year, the excess will generally be treated as a
tax-free return of capital up to the amount of a shareholder's tax basis in
his or her stock. Any distributions that constitute tax-free return of capital
will reduce a shareholder's tax basis in his or her stock. In effect, a return
of capital is the return of a shareholder's investment in the Fund and will
result in a corresponding decline in the Fund's net asset value. Return of
capital distributions also may have the effect of increasing the Fund's
operating expense ratio. Any amounts distributed to a shareholder in excess of
such shareholder's tax basis in his or her stock will generally be taxable to
the shareholder as capital gain.
The Fund currently expects that the amount of distributions made under the
Managed Distribution Policy generally will be independent of, and not
contingent upon, the Fund's performance in any of the first three quarters of
the Fund's fiscal year. Distribution rates under the Managed Distribution
Policy may be increased in the Fund's fourth fiscal quarter in light of the
Fund's performance for the fiscal year and to enable the Fund to comply with
the distribution requirements applicable to regulated investment companies.
It also is currently expected that the Fund's investment portfolio initially
will not produce sufficient dividend and interest income to fully fund
distributions under the Managed Distribution Policy. Consequently, if the Fund
does not realize sufficient short-term capital gains and long-term capital
gains to make up any shortfall, distributions to the Fund's Common Stock
shareholders will include returns of capital. Prior to receipt of the above-
referenced exemptive order, long-term capital gains will be available to make
up any shortfall in funding distributions only on an annual basis, thereby
increasing the likelihood that distributions will include returns of capital
to shareholders. The Fund is not required to maintain the Managed Distribution
Policy and such policy (including the amount of the quarterly distribution)
may be modified or terminated at any time without notice. Any such modification
or termination of the Managed Distribution Policy may have an adverse effect
on the market price of the Fund's Common Stock.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
Officers and Directors
Robert C. Doll, Jr., Fund President and Director
David O. Beim, Director
James T. Flynn, Director
W. Carl Kester, Director
Karen P. Robards, Director
Donald C. Burke, Vice President and Treasurer
Karen Clark, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Common Stock:
The Bank of New York
100 Barclay Street - 11 East
New York, NY 10286
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
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 Web sites.
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.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("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 Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial advisor to enroll. Please note that not all
investment advisers, banks or brokerages may offer this service.
BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. JUNE 30, 2007
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 - Schedule of Investments - The registrant's Schedule of Investments
is included as part of the Report to Stockholders filed under Item 1
of this form.
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 -
As of June 30, 2007 (b) Effective May 2, 2007, Mr. Jonathan Clark
joined the Registrant's portfolio management team. Messrs. Amero,
Martorelli, Burger, Chen and Hussain, each a member of the
Registrant's management team identified in response to paragraph (a)
of this item in the Registrant's most recent annual report, is no
longer responsible for the day-to-day management of the Registrant's
portfolio. Mr. Kevin Rendino, a member of the management team also
identified in the Registrant's most recent annual report, remains a
member of the Registrant's portfolio management team.
Mr. Clark has been a Director of and portfolio manager with
BlackRock since 2006. Before joining BlackRock, he was a Director of
MLIM and was a Vice President of MLIM from 1999 to 2005. Mr. Clark
has fifteen years' experience as a portfolio manager and trader.
Mr. Clark has been a member of the Fund's portfolio management team
since 2007.
(a)(2) As of June 30, 2007:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
Jonathan Clark 10 3 0 0 0 0
$3,638,062,329 $1,268,124,766 $0 $0 $0 $0
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address
the allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential
conflicts of interest that are designed to ensure that all client
accounts are treated equitably over time. Nevertheless, BlackRock
furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with
applicable law, make investment recommendations to other clients or
accounts (including accounts which are hedge funds or have
performance or higher fees paid to BlackRock, or in which portfolio
managers have a personal interest in the receipt of such fees),
which may be the same as or different from those made to the Fund.
In addition, BlackRock, its affiliates and any officer, director,
stockholder or employee may or may not have an interest in the
securities whose purchase and sale BlackRock recommends to the Fund.
BlackRock, or any of its affiliates, or any officer, director,
stockholder, employee or any member of their families may take
different actions than those recommended to the Fund by BlackRock
with respect to the same securities. Moreover, BlackRock may refrain
from rendering any advice or services concerning securities of
companies of which any of BlackRock's (or its affiliates') officers,
directors or employees are directors or officers, or companies as to
which BlackRock or any of its affiliates or the officers, directors
and employees of any of them has any substantial economic interest
or possesses material non-public information. Each portfolio manager
also may manage accounts whose investment strategies may at times be
opposed to the strategy utilized for the Fund. In this connection,
it should be noted that certain portfolio managers currently manage
certain accounts that are subject to performance fees. In addition,
certain portfolio managers assist in managing certain hedge funds
and may be entitled to receive a portion of any incentive fees
earned on such funds and a portion of such incentive fees may be
voluntarily or involuntarily deferred. Additional portfolio managers
may in the future manage other such accounts or funds and may be
entitled to receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and
must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated
in a manner consistent with its fiduciary duties. BlackRock attempts
to allocate investments in a fair and equitable manner among client
accounts, with no account receiving preferential treatment. To this
end, BlackRock has adopted a policy that is intended to ensure that
investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve
reasonable efficiency in client transactions and provide BlackRock
with sufficient flexibility to allocate investments in a manner that
is consistent with the particular investment discipline and client
base.
(a)(3) As of June 30, 2007:
Portfolio Manager Compensation
Compensation Program
The elements of total compensation for portfolio managers on
BlackRock's Quantitative Investments team include a fixed base
salary, annual performance-based cash and stock compensation (cash
and stock bonus) and other benefits. BlackRock has balanced these
components of pay to provide these portfolio managers with a
powerful incentive to achieve consistently superior investment
performance. By design, compensation levels for these portfolio
managers fluctuate--both up and down--with the relative investment
performance of the portfolios that they manage.
Base compensation
Like that of many asset management firms, base salaries
represent a relatively small portion of a portfolio manager's total
compensation. This approach serves to enhance the motivational value
of the performance-based (and therefore variable) compensation
elements of the compensation program.
Performance-Based Compensation
BlackRock believes that the best interests of investors are
served by recruiting and retaining exceptional asset management
talent and managing their compensation within a consistent and
disciplined framework that emphasizes pay for performance in the
context of an intensely competitive market for talent. To that end,
BlackRock and its affiliates portfolio manager incentive
compensation is based on a formulaic compensation program.
BlackRock's formulaic portfolio manager compensation program
includes: investment performance over 1-, 3- and 5-year performance
periods and a measure of operational efficiency. Portfolio managers
are compensated based on the pre-tax performance of the products
they manage. If a portfolio manager's tenure is less than 5 years,
performance periods will reflect time in position. Portfolio
managers are compensated based on products they manage. A
discretionary element of portfolio manager compensation may include
consideration of: financial results, expense control, profit
margins, strategic planning and implementation, quality of client
service, market share, corporate reputation, capital allocation,
compliance and risk control, leadership, workforce diversity,
supervision, technology and innovation. All factors are considered
collectively by BlackRock management.
Long-Term Retention and Incentive Plan (LTIP)
The LTIP is a long-term incentive plan that seeks to reward
certain key employees. The plan provides for the grant of awards
that are expressed as an amount of cash that, if properly vested and
subject to the attainment of certain performance goals, will be
settled in cash and/or in BlackRock, Inc. common stock.
Cash Bonus
Performance-based compensation is distributed to portfolio
managers in a combination of cash and stock. Typically, the cash
bonus, when combined with base salary, represents more than 60% of
total compensation for portfolio managers.
Stock Bonus
A portion of the dollar value of the total annual
performance-based bonus is paid in restricted shares of BlackRock
stock. Paying a portion of annual bonuses in stock puts compensation
earned by a portfolio manager for a given year "at risk" based on
the company's ability to sustain and improve its performance over
future periods. The ultimate value of stock bonuses is dependent on
future BlackRock stock price performance. As such, the stock bonus
aligns each portfolio manager's financial interests with those of
the BlackRock shareholders and encourages a balance between short-
term goals and long-term strategic objectives. Management strongly
believes that providing a significant portion of competitive
performance-based compensation in stock is in the best interests of
investors and shareholders. This approach ensures that portfolio
managers participate as shareholders in both the "downside risk" and
"upside opportunity" of the company's performance. Portfolio
managers therefore have a direct incentive to protect BlackRock's
reputation for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance
and financial management objectives during a performance year are
eligible to participate in a deferred cash program. Awards under
this program are in the form of deferred cash that may be
benchmarked to a menu of BlackRock mutual funds (including their own
fund) during a five-year vesting period. The deferred cash program
aligns the interests of participating portfolio managers with the
investment results of BlackRock products and promotes continuity of
successful portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-
based plans offered generally to employees of BlackRock and its
affiliates, including broad-based retirement, 401(k), health, and
other employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of June 30, 2007,
Mr. Clark does not beneficially own any stock issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send nominations
which include biographical information and set forth the
qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these procedures.
Item 11 - Controls and Procedures
11(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 and Exchange Act of 1934, as amended.
11(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
(17 CFR 270.30a-3(d)) 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
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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 Capital and Income Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Enhanced Capital and Income Fund, Inc.
Date: August 20, 2007
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 of
BlackRock Enhanced Capital and Income Fund, Inc.
Date: August 20, 2007
By: /s/ Donald C. Burke
-------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Enhanced Capital and Income Fund, Inc.
Date: August 20, 2007