UNITEDSTATES
SECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549

FORM N-CSR

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. (CII)

Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809

Name and address of agent for service: Anne F. Ackerley, Chief Executive Officer, BlackRock
Enhanced Capital and Income 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: 10/31/2010

Date of reporting period: 10/31/2010

Item 1 – Report to Stockholders

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Annual Report

BlackRock Enhanced Capital and Income Fund, Inc. (CII)

October 31, 2010

Not FDIC Insured • No Bank Guarantee • May Lose Value

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Section 19(b) Disclosure

BlackRock Enhanced Capital and Income Fund, Inc. (CII) (the “Fund”), acting pursuant to a 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 the
following fixed amount per share on a quarterly basis:

 

The fixed amount distributed per share is subject to change at the discretion of the Fund’s Board. Under the 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 quarterly basis, the Fund will distribute long-term capital gains and/or
return of capital to shareholders in order to maintain a level distribution. Each quarterly 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 without prior notice if it deems such action to be in the best interest 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 level
distributions. Examples of potential risks include, but are not limited to, economic downturns impacting the markets, decreased market volatility, com-
panies suspending or decreasing corporate dividend distributions and changes in the Code. Please refer to the Fund’s prospectus for a more complete
description of its risks.

Please refer to Additional Information for a cumulative summary of the Section 19(a) notices for the Fund’s current fiscal period. Section 19(a) notices
for the Fund, as applicable, are available on the BlackRock website www.blackrock.com.

2 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Dear Shareholder

The global economic recovery that began in 2009 has continued on its choppy course this year, delivering mixed but slowly improving economic data
and gradual if uneven improvement of investor sentiment. The risks of a double-dip recession continue to recede, but the economy remains mired in
a slow-growth environment. In the United States, the National Bureau of Economic Research declared that the “Great Recession” ended in June 2009.
Spanning December 2007 to June 2009, this marked the longest reported recession since the Great Depression. Structural problems of ongoing
deleveraging and weak spending among businesses and households weigh heavily on the pace of economic growth. The unemployment rate remains
stubbornly high in the face of sluggish job gains in the private sector. The US dollar, along with other developed market currencies, has experienced
devaluation resulting from aggressively easy monetary and fiscal policies. Given these long-standing conditions, the Federal Reserve Board has
announced that additional policy action will be taken to combat deflation and unemployment and promote economic growth.

The high levels of volatility experienced in global equity markets throughout 2009 continued into 2010 as mixed economic data and lingering credit
issues caused stocks to trade in both directions, but by the end of the first quarter, most markets had managed to post gains. The second quarter,
in contrast, brought higher levels of volatility and a “flight to quality” as investor sentiment was dominated by fears of a double-dip recession. Global
equity markets saw negative quarterly returns — and for many markets, the first significant downturn since the bull market began in March 2009. In
the third quarter, economic data turned less negative and strong corporate earnings reports became increasingly consistent. These factors, along
with attractive valuations and expectations for additional quantitative easing, drove equity markets higher, with most markets recapturing their second
quarter losses. Stocks continued their rally into the beginning of the fourth quarter, closing out the 12-month period in positive territory. International
equities posted gains on both a six- and 12-month basis. In the United States, both large and small cap equities posted robust gains for the
12-month period, while on a six-month basis, large cap stocks remained relatively flat and small caps turned slightly negative.

In fixed income markets, yields fluctuated but declined significantly over the past 12 months amid heightened uncertainty. Weak economic data,
lingering credit problems and, near the end of the period, the expectation of additional quantitative easing drove interest rates lower and bond prices
higher. Treasuries rallied over the period, modestly outperforming the credit spread sectors of the market. Corporate credit spreads benefited from the
low interest rate environment and high yield fixed income became increasingly attractive due to declining default rates and better-than-expected
results on European bank stress tests. Tax-exempt municipal bonds performed well over the 12-month period, driven primarily by technical factors
including favorable supply-and-demand dynamics.

Cash investments, as represented by the 3-month Treasury bill, returned only a fraction over 0% for the 12-month period as short-term interest rates
remained low. Yields on money market securities remain near all-time lows.

 

Past performance is no guarantee of future results. Index performance shown for illustrative purposes only. You cannot invest directly in an index.

As global economic conditions continue to improve, investors across the world continue to face uncertainty about the future of economic growth.
Through periods of uncertainty, as ever, BlackRock’s full resources are dedicated to the management of our clients’ assets. For additional market
perspective and investment insight, visit www.blackrock.com/shareholdermagazine, where you’ll find the most recent issue of our award-winning
Shareholder® magazine, as well as its quarterly companion newsletter, Shareholder Perspectives. As always, we thank you for entrusting BlackRock
with your investments, and we look forward to your continued partnership in the months and years ahead.

THIS PAGE NOT PART OF YOUR FUND REPORT

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Fund Summary as of October 31, 2010

BlackRock Enhanced Capital and Income Fund, Inc.

Fund Overview

BlackRock Enhanced Capital and Income Fund, Inc.’s (CII) (the “Fund”) investment objective is to provide investors with a combination of current
income and capital appreciation. The Fund seeks to achieve its investment objective by investing in a portfolio of equity and debt securities of US and
foreign issuers. The Fund may invest directly in such securities or synthetically through the use of derivatives. The Trust utilizes an option writing (selling)
strategy to enhance current gains.
No assurance can be given that the Fund’s investment objective will be achieved.

Performance

For the 12 months ended October 31, 2010, the Fund returned 24.73% based on market price and 15.22% based on net asset value (“NAV”). For
the same period, the benchmark S&P 500 Value Index returned 15.54%. All returns reflect reinvestment of dividends. The Fund moved from a discount
to NAV to a premium by period end, which accounts for the difference between performance based on price and performance based on NAV. The fol-
lowing discussion relates to performance based on NAV. The main detractor from Fund performance relative to the S&P 500 Value Index was an over-
weight in the information technology sector. Stock selection within consumer staples also hindered returns, most notably due to holdings of LSI Corp.,
Nucor Corp. and Unilever NV. Contributing positively to performance was the Fund’s underweight and stock selection in the financials sector. An over-
weight and stock selection in telecommunication services also had a positive impact, as did stock selection in health care. On an individual security
basis, an underweight position in Bank of America Corp. proved beneficial, while overweight positions in Qwest Communications International, Inc.,
Limited Brands, Inc. and ACE Ltd. boosted returns. In addition, earnings generated through the Trust’s option writing strategy enhanced performance for
the period
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.

 

¹ 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.
² 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.

 

The following charts show the ten largest holdings and sector allocations of the Fund’s long-term investments:

 

 

For Fund compliance purposes, the Fund’s sector classifications refer to any one
or more of the sector 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 sec-
tor sub-classifications for reporting ease.

4 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Derivative Financial Instruments

The Fund may invest in various derivative instruments, including options,
as specified in Note 2 of the Notes to Financial Statements, which con-
stitute forms of economic leverage. Such instruments are used to obtain
exposure to a market without owning or taking physical custody of secu-
rities or to hedge market and/or equity risks. Such derivative instruments
involve risks, including the imperfect correlation between the value of a
derivative instrument and the underlying asset, possible default of the
counterparty to the transaction or illiquidity of the derivative instrument.
The Fund’s ability to successfully use a derivative instrument depends on
the investment advisor’s ability to accurately predict pertinent market

movements, which cannot be assured. The use of derivative instruments
may result in losses greater than if they had not been used, may require
the Fund to sell or purchase portfolio investments at inopportune times
or for distressed values, may limit the amount of appreciation the Fund
can realize on an investment or may cause a Fund to hold an investment
that they might otherwise sell. The Fund’s investments in these instru-
ments are discussed in detail in the Notes to Financial Statements.

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

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Schedule of Investments October 31, 2010

BlackRock Enhanced Capital and Income Fund, Inc. (CII)

(Percentages shown are based on Net Assets)

 

 

 

6 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Schedule of Investments (continued)

BlackRock Enhanced Capital and Income Fund, Inc. (CII)

(Percentages shown are based on Net Assets)

 

 

See Notes to Financial Statements.

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

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Schedule of Investments (concluded)

BlackRock Enhanced Capital and Income Fund, Inc. (CII)

(Percentages shown are based on Net Assets)

 

* The cost and unrealized appreciation (depreciation) of investments as of October
31, 2010, as computed for federal income tax purposes were as follows:

 

(a) Security, or a portion thereof, pledged/held as collateral for outstanding
options written.
(b) Non-income producing security.
(c) Investments in companies considered to be an affiliate of the Fund during the
year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as
amended, were as follows:

 

(d) Represents the current yield as of report date.
• 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 rec-
ognized market indexes or rating group indexes, and/or as defined by Fund
management. This definition may not apply for purposes of this report, which
may combine such industry sub-classifications for reporting ease.
• Fair Value Measurements — Various inputs are used in determining the fair value
of investments and derivatives, which are as follows:

• Level 1 — price quotations in active markets/exchanges for identical assets
and liabilities
• 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 liabili-
ties (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 (includ-
ing the Fund's own assumptions used in determining the fair value of invest-
ments and derivatives)

The inputs or methodologies used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. For information
about the Fund's policy regarding valuation of investments and other significant
accounting policies, please refer to Note 1 of the Notes to Financial Statements.
The following tables summarize the inputs used as of October 31, 2010 in deter-
mining the fair valuation of the Fund's investments and derivatives:

 

¹ See above Schedule of Investments for values in each industry.

 

² Derivative financial instruments are options, which are shown at value.

See Notes to Financial Statements.

8 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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See Notes to Financial Statements.

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

9

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See Notes to Financial Statements.

10 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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See Notes to Financial Statements.

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

11

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¹ Based on average shares outstanding.
² Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Where appli-
cable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
³ Aggregate total investment return.
⁴ Annualized.

See Notes to Financial Statements.

12 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Notes to Financial Statements

1. Organization and Significant Accounting Policies:

BlackRock Enhanced Capital and Income Fund, Inc. (“CII”) is registered
under the Investment Company Act of 1940, as amended (the “1940
Act”), as a diversified, closed-end management investment company. The
Fund is organized as a Maryland corporation. The Fund's financial state-
ments are prepared in conformity with accounting principles generally
accepted in the United States of America ("US GAAP"), which may
require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates. The Board of Directors of the
Fund, are referred to throughout this report as the “Board of Directors” or
the “Board.” The Fund determines and makes available for publication
the net asset value of its Common Shares on a daily basis.

Reorganization: The Board and the shareholders of each of BlackRock
Enhanced Equity Yield Fund, Inc. (“EEF”), BlackRock Enhanced Equity
Yield and Premium Fund, Inc. (“ECV”) (the “Target Funds”) and CII
approved the reorganization of each Target Fund into CII (the “Reorgan-
izations”). The Reorganizations were tax-free events and were effective as
of the opening for business of the New York Stock Exchange (“NYSE”) on
November 3, 2008.

 

Under the agreement and plan of reorganization between each Target
Fund and CII, the shares of each Target Fund (“Target Fund Shares”)
were exchanged for CII shares. The conversion ratios for the Target Fund
Shares were as follows:

 

The net assets of CII before and after the Reorganizations and CII
shares issued and Target Fund Shares redeemed in connection with
the Reorganizations were as follows:

 

Included in the net assets acquired by CII were the following
components:

 

The following is a summary of significant accounting policies followed by
the Fund:

Valuation: The Fund fair values its financial instruments at market value
using independent dealers or pricing services under policies approved

by the Board. Equity investments traded on a recognized securities
exchange or the NASDAQ Global Market System are valued at the last
reported sale price that day or the NASDAQ official closing price, if
applicable. For equity investments traded on more than one exchange,
the last reported sale price on the exchange where the stock is primarily
traded is used. Equity investments traded on a recognized exchange for
which there were no sales on that day are valued at the last available
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 such prior day’s price no longer reflects the fair value of the security.
Investments in open-end investment companies are valued at net asset
value each business day. Short-term securities with remaining maturities
of 60 days or less may be valued at amortized cost, which approximates
fair value.

Securities and other assets and liabilities denominated in foreign curren-
cies are translated into US dollars using exchange rates determined as
of the close of business on the New York Stock Exchange (“NYSE”).
Foreign currency exchange contracts are valued at the mean between
the bid and ask prices and are determined as of the close of business
on the NYSE. Interpolated values are derived when the settlement date
of the contract is an interim date for which quotations are not available.

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 val-
ued 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 are valued by an independ-
ent pricing service using a mathematical model which incorporates a
number of market data factors, such as the trades and prices of the
underlying instruments.

In the event that application of these methods of valuation results in
a price for an investment which is deemed not to be representative of
the market value of such investment or is not available, the investment
will be valued in accordance with a policy approved by the Board as
reflecting fair value (“Fair Value Assets”). When determining the price for
Fair Value Assets, the investment advisor and/or the sub-advisor seeks
to determine the price that the Fund might reasonably expect to receive
from the current sale of that asset in an arm’s-length transaction. Fair
value determinations shall be based upon all available factors that the
investment advisor and/or sub-advisor deems relevant. The pricing
of all Fair Value Assets is subsequently reported to the Board or a
committee thereof.

Generally, trading in foreign instruments is substantially completed
each day at various times prior to the close of business on the NYSE.
Occasionally, events affecting the values of such instruments may occur
between the foreign market close and the close of business on the

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

13

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Notes to Financial Statements (continued)

NYSE that may not be reflected in the computation of the Fund's net
assets. If events (for example, a company announcement, market volatil-
ity or a natural disaster) occur during such periods that are expected to
materially affect the value of such instruments, those instruments may
be Fair Value Assets and be valued at their fair values, as determined in
good faith by the investment advisor using a pricing service and/or
policies approved by the Board. Each business day, the Fund uses a
pricing service to assist with the valuation of certain foreign exchange-
traded equity securities and foreign exchange-traded and OTC options
(the “Systematic Fair Value Price”). Using current market factors, the
Systematic Fair Value Price is designed to value such foreign securities
and foreign options at fair value as of the close of business on the
NYSE, which follows the close of the local markets.

Foreign Currency Transactions: The Fund's books and records are main-
tained in US dollars. Purchases and sales of investment securities are
recorded at the rates of exchange prevailing on the date the transactions
are entered into. Generally, when the US dollar rises in value against a
foreign currency, the Fund's investments denominated in that currency
will lose value because its currency is worth fewer US dollars; the oppo-
site effect occurs if the US dollar falls in relative value.

The Fund reports foreign currency related transactions as components of
realized gain (loss) for financial reporting purposes, whereas such com-
ponents are treated as ordinary income for federal income tax purposes.

Segregation and Collateralization: In cases in which the 1940 Act and
the interpretive positions of the Securities and Exchange Commission
(“SEC”) require that the Fund either delivers collateral or segregates
assets in connection with certain investments (e.g., foreign currency
exchange contracts and options written), the Fund will, consistent with
SEC rules and/or certain interpretive letters issued by the SEC, segregate
collateral or designate on its books and records cash or other liquid
securities having a market value at least equal to the amount that would
otherwise be required to be physically segregated. Furthermore, based
on requirements and agreements with certain exchanges and third party
broker-dealers, each party has requirements to deliver/deposit securities
as collateral for certain investments.

Investment Transactions and Investment Income: For financial reporting
purposes, investment transactions are recorded on the dates the trans-
actions are entered into (the trade dates). Realized gains and losses on
investment transactions are determined on the identified cost basis.
Dividend income is recorded on the ex-dividend dates. Dividends from
foreign securities where the ex-dividend date may have passed are sub-
sequently recorded when the Fund has determined the ex-dividend date.
Under the applicable foreign tax laws, a withholding tax at various rates
may be imposed on capital gains, dividends and interest. Interest
income, including amortization and accretion of premiums and discounts
on debt securities, is recognized on the accrual basis.

Dividends and Distributions: Dividends and distributions paid by the
Fund are recorded on the ex-dividend dates. Subject to the Fund’s level
distribution plan, the Fund intends to make monthly cash dividends
and/or distributions to shareholders, which may consist of net invest-
ment income, net options premium and net realized and unrealized
gains on investments. The portion of dividends and distributions that
exceeds the Fund's current and accumulated earnings and profits,
which are measured on a tax basis, may be treated as a tax return of
capital. The character of dividends and distributions are determined in
accordance with federal income tax regulations, which may differ from
US GAAP.

Income Taxes: 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 federal income tax
provision is required.

The Fund files US federal and various state and local tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's US federal tax returns remains open for the
year ended December 31, 2007, the period ended October 31, 2008
and the two years ended October 31, 2010. The statutes of limitations
on the Fund's state and local tax returns may remain open for an addi-
tional year depending upon the jurisdiction. There are no uncertain tax
positions that require recognition of a tax liability.

Other: Expenses directly related to the Fund are charged to that Fund.
Other operating expenses shared by several funds are pro rated among
those funds on the basis of relative net assets or other appropriate
methods. The Fund has an arrangement with the custodian whereby fees
may be reduced by credits earned on uninvested cash balances, which
if applicable are shown as fees paid indirectly in the Statement of
Operations. The custodian imposes fees on overdrawn cash balances,
which can be offset by accumulated credits earned or may result in
additional custody charges.

2. Derivative Financial Instruments:

The Fund engages in various portfolio investment strategies using deriva-
tive contracts both to increase the return of the Fund and to economi-
cally hedge, or protect, its exposure to certain risks such as equity risk or
foreign currency exchange rate risk. These contracts may be transacted
on an exchange or OTC.

Losses may arise if the value of the contract decreases due to an unfa-
vorable change in the market rates or values of the underlying instru-
ment or if the counterparty does not perform under the contract. The
Fund's maximum risk of loss from counterparty credit risk on OTC
derivatives is generally the aggregate unrealized gain netted against any
collateral pledged by/posted to the counterparty. For OTC options pur-
chased, the Fund bears the risk of loss in the amount of the premiums

14 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Notes to Financial Statements (continued)

paid plus the positive change in market values net of any collateral
received on the options should the counterparty fail to perform under
the contracts. Options written by the Fund do not give rise to counter-
party credit risk, as options written obligate the Fund to perform and not
the counterparty. Counterparty risk related to exchange-traded options is
deemed to be minimal due to the protection against defaults provided
by the exchange on which these contracts trade.

The Fund may mitigate counterparty risk by procuring collateral and
through netting provisions included within an International Swaps and
Derivatives Association, Inc. (“ISDA”) Master Agreement implemented
between the Fund and each of its respective counterparties. The ISDA
Master Agreement allows the Fund to offset with each separate counter-
party certain derivative financial instrument’s payables and/or receiv-
ables with collateral held. The amount of collateral moved to/from
applicable counterparties is generally based upon minimum transfer
amounts of up to $500,000. To the extent amounts due to the Fund
from its counterparties are not fully collateralized contractually or other-
wise, the Fund bears the risk of loss from counterparty non-performance.
See Note 1 “Segregation and Collateralization” for information with
respect to collateral practices. In addition, the Fund manages counter-
party risk by entering into agreements only with counterparties that it
believes have the financial resources to honor its obligations and by
monitoring the financial stability of those counterparties.

Certain ISDA Master Agreements allow counterparties to OTC derivatives
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, which would cause the Fund to
accelerate payment of any net liability owed to the counterparty.

Options: The Fund purchases and writes call and put options to increase
or decrease its exposure to underlying instruments (including equity risk
and/or interest rate risk) and/or, in the case of options written, to gener-
ate gains from options premiums. A call option gives the purchaser of
the option the right (but not the obligation) to buy, and obligates the
seller to sell (when the option is exercised), the underlying instrument at
the exercise 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 price at any time
or at a specified time during the option period. When the Fund pur-
chases (writes) an option, an amount equal to the premium paid
(received) by the Fund is reflected as an asset (liability). The amount of
the asset (liability) is subsequently marked-to-market to reflect the cur-
rent market value of the option purchased (written). When an instrument
is purchased or sold through an exercise of an option, the related pre-
mium paid (or received) is added to (or deducted from) the basis of the
instrument acquired or deducted from (or added to) the proceeds of the
instrument sold. When an option expires (or the Fund enters into a clos-
ing 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 premiums received or paid).
When the Fund writes a call option, such option is “covered,” meaning
that the Fund 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.

The Fund also purchases or sells listed or OTC foreign currency options,
foreign currency futures and related options on foreign currency futures
as a short or long hedge against possible variations in foreign exchange
rates or to gain exposure to foreign currencies. When foreign currency is
purchased or sold through an exercise of a foreign currency option, the
related premium paid (or received) is added to (or deducted from) the
basis of the foreign currency acquired or deducted from (or added to)
the proceeds of the foreign currency sold. Such transactions may be
effected with respect to hedges on non-US dollar denominated instru-
ments owned by the Fund but not yet delivered, or committed or antici-
pated to be purchased by the Fund.

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

 

For the year ended October 31, 2010, the average quarterly balance of
outstanding derivative financial instruments was as follows:

 

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010 15

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Notes to Financial Statements (continued)

3. Investment Advisory Agreement and Other Transactions
with Affiliates:

The PNC Financial Services Group, Inc. ("PNC"), Bank of America
Corporation ("BAC") and Barclays Bank PLC ("Barclays") are the largest
stockholders of BlackRock, Inc. ("BlackRock"). Due to the ownership
structure, PNC is an affiliate of the Fund for 1940 Act purposes, but BAC
and Barclays are not.

The Fund entered into an Investment Advisory Agreement with BlackRock
Advisors, LLC (the “Manager”), the Fund's investment advisor, an indirect,
wholly owned subsidiary of BlackRock, to provide investment advisory
and administration services. The Manager is responsible for the manage-
ment of the Fund's portfolio and provides the necessary personnel, facil-
ities, 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 of 0.85% of an aggregate of the Fund’s average daily
net assets and the proceeds of borrowings used for leverage, if any.

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,
however the Manager does not waive its investment advisory fees by the
amount of investment advisory fees paid through the Fund's investment
in other affiliated investment companies, if any. This amount is included
in fees waived by advisor in the Statement of Operations.

The Manager entered into a sub-advisory agreement with BlackRock
Investment Management, LLC (“BIM”), an affiliate of the Manager.
The Manager pays BIM for services it provides, a monthly fee that is
a percentage of the investment advisory fees paid by the Fund to
the Manager.

For the year ended October 31, 2010, the Fund reimbursed the Manager
$12,017 for certain accounting services, which is included in accounting
services in the Statement of Operations.

Certain officers and/or directors of the Fund are officers and/or directors
of BlackRock or its affiliates. The Fund reimburses the Manager for com-
pensation paid to the Fund's Chief Compliance Officer.

4. Investments:

Purchases and sales of investments, excluding short-term securities
for the year ended October 31, 2010, were $1,295,938,902 and
$1,294,408,817, respectively.

Transactions in options written for the year ended October 31, 2010,
were as follows:

 

As of October 31, 2010, the value of portfolio securities subject to
covered call options written was $345,087,420.

5. Market and Credit Risk:

In the normal course of business, the Fund invests in securities and
enters into transactions where risks exist due to fluctuations in the mar-
ket (market risk) or failure of the issuer of a security to meet all its obli-
gations (issuer credit risk). The value of securities held by the Fund may
decline in response to certain events, including those directly involving
the issuers whose securities are owned by the Fund; conditions affecting
the general economy; overall market changes; local, regional or global
political, social or economic instability; and currency and interest rate
and price fluctuations. Similar to issuer credit risk, the Fund may be
exposed to counterparty credit risk, or the risk that an entity with which
the Fund has unsettled or open transactions may fail to or be unable to
perform on its commitments. The Fund manages counterparty credit risk
by entering into transactions only with counterparties that it 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
generally approximated by their value recorded in the Fund's Statement
of Assets and Liabilities, less any collateral held by the Fund.

6. Capital Share Transactions:

The Fund is authorized to issue 200 million of $0.10 par value shares,
all of which were initially classified as Common Shares.

16 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Notes to Financial Statements (concluded)

Common Shares
At October 31, 2010, 24,887 shares were owned by an affiliate of
the Manager.

For the years ended October 31, 2010 and 2009, shares issued and
outstanding increased by 800,970 and 221,870, respectively, as a
result of dividend reinvestment.

7. Income Tax Information:

The tax character of distributions paid during the fiscal years ended
October 31, 2010 and October 31, 2009, was as follows:

 

As of October 31, 2010 the tax components of accumulated losses were
as follows:

 

* The differences between book-basis and tax-basis net unrealized losses were
attributable primarily to the tax deferral of losses on wash sales.

As of October 31, 2010, the Fund had capital loss carryforwards
available to offset future realized capital gains through the indicated
expiration dates:

 

8. 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 has determined that there were
no subsequent events requiring adjustment or disclosures in the
financial statements.

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

17

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of
BlackRock Enhanced Capital and Income Fund, Inc.:

We have audited the accompanying statement of assets and liabilities
of BlackRock Enhanced Capital and Income Fund, Inc. (the “Fund”),
including the schedule of investments, as of October 31, 2010, and
the related statement of operations for the year then ended, the state-
ments of changes in net assets for each of the two years in the period
then ended, and the financial highlights for the year ended October 31,
2010, for the year ended October 31, 2009, for the period January 1,
2008 to October 31, 2008, and for each of the three years in the
period ended December 31, 2007. These financial statements and
financial highlights are the responsibility of the Fund’s management.
Our responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assur-
ance about whether the financial statements and financial highlights
are free of material misstatement. The Fund is not required to have, nor
were we engaged to perform, an audit of its internal control over finan-
cial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Fund’s internal control over

financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by manage-
ment, as well as evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of October
31, 2010, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing
procedures. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
BlackRock Enhanced Capital and Income Fund, Inc. as of October 31,
2010, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and
the financial highlights for the year ended October 31, 2010, for the year
ended October 31, 2009, for the period January 1, 2008 to October 31,
2008, and for each of the three years in the period ended December
31, 2007, in conformity with accounting principles generally accepted
in the United States of America.

Deloitte & Touche LLP
Princeton, New Jersey
December 23, 2010

Important Tax Information (Unaudited)

The following information is provided with respect to the ordinary income distributions paid by BlackRock Enhanced Capital and Income Fund, Inc.
during the taxable period ended October 31, 2010.

 

† The Fund hereby designates the percentages indicated above or the maximum amount allowable by law.
Represents the portion of taxable ordinary income dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

18 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement

The Board of Directors (the “Board,” the members of which are referred
to as “Board Members”) of BlackRock Enhanced Capital and Income
Fund, Inc. (the “Fund”) met on April 8, 2010 and May 13 – 14, 2010 to
consider the approval of the Fund’s investment advisory agreement (the
“Advisory Agreement”) with BlackRock Advisors, LLC (the “Manager”), the
Fund’s investment advisor. The Board also considered the approval of
sub-advisory agreements (collectively, the “Sub-Advisory Agreements”)
between the Manager and BlackRock Financial Management and
BlackRock Investment Management, LLC (the “Sub-Advisors”), with
respect to the Fund. The Manager and the Sub-Advisors are referred to
herein as “BlackRock.” The Advisory Agreement and the Sub-Advisory
Agreements are referred to herein as the “Agreements.”

Activities and Composition of the Board

The Board consists of ten individuals, eight of whom are not “interested
persons” of the Fund as defined in the Investment Company Act of
1940 (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 Chairman 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 composed of Independent Board Members
(except for the Executive Committee, which also has one interested
Board Member) and is chaired by an Independent Board Member.
The Board also has one ad hoc committee, the Joint Product Pricing
Committee, which consists of Independent Board Members and the
directors/trustees of the boards of certain other BlackRock-managed
funds, who are not “interested persons” of their respective funds.

The Agreements

Pursuant to the 1940 Act, the Board is required to consider the cont-
inuation of the Agreements on an annual basis. In connection with this
process, the Board assessed, among other things, the nature, scope
and quality of the services provided to the Fund by the personnel of
BlackRock and its affiliates, including investment management, admin-
istrative and shareholder services, oversight of fund accounting and
custody, marketing services and assistance in meeting applicable legal
and regulatory requirements.

From time to time throughout the year, the Board, acting directly and
through its committees, considered at each of its meetings factors
that are relevant to its annual consideration of the renewal of the
Agreements, including the services and support provided by BlackRock
to the Fund and its shareholders. Among the matters the Board consid-
ered were: (a) investment performance for one-, three- and five-year
periods, as applicable, against peer funds, and applicable benchmarks,

if any, as well as senior management’s and portfolio managers’ analysis
of the reasons for any over performance or underperformance against
its peers and/or benchmark, as applicable; (b) fees, including advisory
and other amounts paid to BlackRock and its affiliates by the Fund for
services such as call center and fund accounting; (c) Fund operating
expenses; (d) the resources devoted to and compliance reports relating
to the Fund’s investment objective, policies and restrictions; (e) the
Fund’s compliance with its Code of Ethics and 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;
(h) BlackRock’s implementation of the proxy voting policies approved
by the Board; (i) the use of brokerage commissions and execution
quality of portfolio transactions; (j) BlackRock’s implementation of the
Fund’s valuation and liquidity procedures; (k) an analysis of contractual
and actual management fees for products with similar investment
objectives across the open-end fund, closed-end fund and institutional
account product channels, as applicable; and (l) periodic updates on
BlackRock’s business.

Board Considerations in Approving the Agreements

The Approval Process: Prior to the April 8, 2010 meeting, the Board
requested and received materials specifically relating to the Agreements
The Board is engaged in a process with BlackRock to periodically review
the nature and scope of the information provided to better assist its
deliberations. The materials provided in connection with the April meet-
ing included (a) information independently compiled and prepared by
Lipper, Inc. (“Lipper”) on Fund fees and expenses, and the investment
performance of the Fund as compared with a peer group of funds as
determined by Lipper (collectively, “Peers”); (b) information on the prof-
itability of the Agreements to BlackRock and a discussion of fall-out
benefits to BlackRock and its affiliates and significant shareholders;
(c) a general analysis provided by BlackRock concerning investment
advisory fees charged to other clients, such as institutional clients and
open-end funds, under similar investment mandates; (d) the impact of
economies of scale; (e) a summary of aggregate amounts paid by the
Fund to BlackRock and (f) if applicable, a comparison of management
fees to similar BlackRock closed-end funds, as classified by Lipper.

At an in-person meeting held on April 8, 2010, the Board reviewed
materials relating to its consideration of the Agreements. As a result
of the discussions that occurred during the April 8, 2010 meeting, the
Board presented BlackRock with questions and requests for additional
information and BlackRock responded to these requests with additional
written information in advance of the May 13 – 14, 2010 Board meeting

At an in-person meeting held on May 13 – 14, 2010, the Board, in-
cluding the Independent Board Members, unanimously approved the
continuation of the Advisory Agreement between the Manager and the
Fund and the Sub-Advisory Agreements between the Manager and the

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

19

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Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (continued)

Sub-Advisors with respect to the Fund, each for a one-year term ending
June 30, 2011. In approving the continuation of the Agreements, the
Board considered: (a) the nature, extent and quality of the services pro-
vided by BlackRock; (b) the investment performance of the Fund and
BlackRock; (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) economies of scale; and (e) other factors deemed relevant
by the Board Members.

The Board also considered other matters it deemed important to the
approval process, such as services related to the valuation and pricing
of Fund portfolio holdings, direct and indirect benefits to BlackRock and
its affiliates and significant shareholders from their relationship with the
Fund 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 controlling, 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, and
the performance of a relevant benchmark, if any. The Board met with
BlackRock’s senior management personnel responsible for investment
operations, including the senior investment officers. The Board also
reviewed the materials provided by the Fund’s portfolio management
team discussing Fund performance and the Fund’s investment objective,
strategies and outlook.

The Board considered, among other factors, the number, education
and experience of BlackRock’s investment personnel generally and the
Fund’s portfolio management team, investments by portfolio managers
in the funds they manage, BlackRock’s portfolio trading capabilities,
BlackRock’s use of technology, BlackRock’s commitment to compliance,
BlackRock’s credit analysis capabilities, BlackRock’s risk analysis capa-
bilities and BlackRock’s approach to training and retaining portfolio
managers and other research, advisory and management personnel. The
Board also reviewed a general description 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.

In addition to advisory services, the Board considered the quality of the
administrative and non-investment advisory services provided to the
Fund. BlackRock and its affiliates and significant shareholders provide
the Fund with certain administrative 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
addition to investment advisory services, BlackRock and its affiliates
provide the Fund with other services, including (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) assisting with 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 com-
pliance support; and (viii) 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,
accounting, legal and 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 consid-
ered the performance history of the Fund. In preparation for the April 8,
2010 meeting, the Board was provided with reports, independently pre-
pared by Lipper, which included a comprehensive analysis of the Fund’s
performance. The Board also reviewed a narrative and statistical analysis
of the Lipper data that was prepared by BlackRock, which analyzed vari-
ous factors that affect Lipper’s rankings. In connection with its review,
the Board received and reviewed information regarding the investment
performance of the Fund as compared to a representative group of
similar funds as determined by Lipper and to all funds in the Fund’s
applicable Lipper category. The Board was provided with a description
of the methodology used by Lipper to select peer funds. The Board
regularly reviews the performance of the Fund throughout the year.

The Board noted that, in general, the Fund performed better than its
Peers in that the Fund’s performance was at or above the median of
its Lipper Performance Universe in two of the one-, three- and five-year
periods reported.

C. Consideration of the Advisory 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 advisory fee rate com-
pared with the other funds in its Lipper category. It also compared the
Fund’s total expenses, as well as actual management fees, to those of
other funds in its Lipper category. The Board considered the services
provided and the fees charged by BlackRock to other types of clients
with similar investment mandates, including separately managed
institutional accounts.

20 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (continued)

The Board received and reviewed statements relating to BlackRock’s
financial condition and profitability with respect to the services it
provided the Fund. The Board 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, 2009 com-
pared to available aggregate profitability data provided for the year
ended December 31, 2008. The Board reviewed BlackRock’s profitability
with respect to other fund complexes managed by the Manager and/or
its affiliates. The Board reviewed BlackRock’s assumptions and method-
ology 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 fac-
tors including, among other things, fee waivers and expense reimburse-
ments by the Manager, the types of funds managed, expense allocations
and business mix, and the difficulty of comparing profitability as a result
of those factors.

The Board noted that, in general, individual fund or product line prof-
itability of other advisors is not publicly available. Nevertheless, to the
extent such information was available, the Board considered BlackRock’s
overall operating margin, in general, compared to the operating margin
for leading investment management firms whose operations include
advising closed-end funds, among other product types. That data indi-
cates that operating margins for BlackRock with respect to its registered
funds are generally consistent with margins earned by similarly situated
publicly traded competitors. In addition, the Board considered, among
other things, certain third party data comparing BlackRock’s operating
margin with that of other publicly-traded asset management firms. That
third party data indicates that larger asset bases do not, in themselves,
translate to higher profit margins.

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 and distribution 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 to the manage-
ment of the Fund. The Board also considered whether BlackRock has the
financial resources necessary to attract and retain high quality invest-
ment management personnel to perform its obligations under the
Agreements and to continue to provide the high quality of services that
is expected by the Board.

The Board noted that the Fund’s contractual management fee rate was
lower than or equal to the median contractual management fee rate
paid by the Fund's Peers, in each case, before taking into account any
expense reimbursements or fee waivers.

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 and whether
there should be changes in the advisory fee rate or structure in order to
enable the Fund to participate in these economies of scale, for example
through the use of breakpoints in the advisory fee based upon the asset
level of the Fund.

The Board noted that most closed-end fund complexes do not have fund
level breakpoints because closed-end funds generally do not experience
substantial growth after the initial public offering and each fund is man-
aged independently consistent with its own investment objectives. The
Board noted that only one closed-end fund in the Fund Complex has
breakpoints in its fee structure. Information provided by Lipper also
revealed that only one closed-end fund complex with total closed-end
fund nets assets exceeding $10 billion, as of December 31, 2009,
used a complex level breakpoint structure.

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 and signifi-
cant shareholders 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, an
increase in BlackRock’s profile in the investment advisory community,
and the engagement of BlackRock’s affiliates and significant sharehold-
ers as service providers to the Fund, including for administrative and
distribution services. The Board also considered BlackRock’s overall
operations and its efforts to expand the scale of, and improve the qual-
ity of, its operations. The Board also noted that BlackRock may use and
benefit from third party research obtained by soft dollars generated by
certain mutual fund transactions to assist in managing all or a number
of its other client accounts. The Board further noted that BlackRock com-
pleted the acquisition of a complex of exchange-traded funds (“ETFs”)
on December 1, 2009, and that BlackRock’s funds may invest in such
ETFs without any offset against the management fees payable by the
funds to BlackRock.

In connection with its consideration of the Agreements, 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 market-
place, 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.

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

21

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Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (concluded)

Conclusion

The Board, including the Independent Board Members, unanimously
approved the continuation of the Advisory Agreement between the
Manager and the Fund for a one-year term ending June 30, 2011
and the Sub-Advisory Agreements between the Manager and the Sub-
Advisors, with respect to the Fund, for a one-year term ending June 30,
2011. As part of its approval, the Board considered the discussions of
BlackRock’s fee structure, as it applies to the Fund, being conducted by
the ad hoc Joint Product Pricing Committee. Based upon its evaluation
of all of the aforementioned factors in their totality, the Board, including
the Independent Board Members, was satisfied that the terms of the
Agreements were fair and reasonable and in the best interest of the
Fund and its shareholders. In arriving at a decision to approve the
Agreements, 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. Certain
aspects of the arrangements may be the subject of more attention in
some years than in others, and the Board Members’ conclusions may
be based in part on their consideration of these arrangements in
prior years.

22 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Automatic Dividend Reinvestment Plan

Pursuant to the Fund’s Dividend Reinvestment Plan (the “Reinvestment
Plan”), Common Shareholders are automatically enrolled to have all
distributions of dividends and capital gains reinvested by BNY Mellon
Shareowner Services (the “Plan Agent”) in the Fund’s shares pursuant
to the Reinvestment Plan. Shareholders who do not participate in the
Reinvestment Plan will receive all distributions in cash paid by check
and mailed directly to the shareholders of record (or if the shares are
held in street or other nominee name, then to the nominee) by the Plan
Agent, which serves as agent for the shareholders in administering
the Reinvestment Plan.

After the Fund declares a dividend or determine to make a capital gain
distribution, the Plan Agent will acquire shares for the participants’
accounts, depending upon the following circumstances, either
(i) through receipt of unissued but authorized shares from the Fund
(“newly issued shares”) or (ii) by purchase of outstanding shares on
the open market, on the Fund’s primary exchange (“open-market pur-
chases”). If, on the dividend payment date, the net asset value per
share (“NAV”) is equal to or less than the market price per share plus
estimated brokerage commissions (such condition often referred to
as a “market premium”), the Plan Agent will invest the dividend amount
in newly issued shares on behalf of the participants. The number of
newly issued shares to be credited to each participant’s account will
be determined by dividing the dollar amount of the dividend by the NAV
on the date the shares are issued. However, if the NAV is less than 95%
of the market price on the payment date, the dollar amount of the divi-
dend will be divided by 95% of the market price on the payment date.
If, on the dividend payment date, the NAV is greater than the market
value per share plus estimated brokerage commissions (such condition
often referred to as a “market discount”), the Plan Agent will invest the
dividend amount in shares acquired on behalf of the participants in
open-market purchases. If the Plan Agent is unable to invest the full
dividend amount in open market purchases, or if the market discount
shifts to a market premium during the purchase period, the Plan Agent
will invest any un-invested portion in newly issued shares.

Participation in the Reinvestment Plan is completely voluntary and
may be terminated or resumed at any time without penalty by notice
if received and processed by the plan a dministrator prior to the divi-
dend record date; otherwise such termination or resumption will
be effective with respect to any subsequently declared dividend or
other distribution.

The Plan Agent’s fees for the handling of the reinvestment of dividends
and distributions will be paid by the Fund. However, each participant
will pay a pro rata share of brokerage commissions incurred with
respect to the Plan Agent’s open market purchases in connection
with the reinvestment of dividends and distributions. The automatic
reinvestment of dividends and distributions will not relieve participants
of any federal income tax that may be payable on such dividends
or distributions.

The Fund reserves the right to amend or terminate the Reinvestment
Plan. There is no direct service charge to participants in the
Reinvestment Plan; however, the Fund reserves the right to amend
the Reinvestment Plan to include a service charge payable by the
participants. Participants that request a sale of shares through
BNY Mellon Shareowner Services are subject to a $0.02 per share
sold brokerage commission. All correspondence concerning the
Reinvestment Plan should be directed to the Plan Agent: BNY Mellon
Shareowner Services, P.0. Box 358035, Pittsburgh, PA 15252-8035,
Telephone: (866) 216-0242.

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

23

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24 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

---

 

³ Mr. Davis is an “interested person,” as defined in the 1940 Act, of the Fund based on his position with BlackRock, Inc. and its affiliates. Mr. Gabbay is
an “interested person” of the Fund based on his former positions with BlackRock, Inc. and its affiliates as well as his ownership of BlackRock, Inc. and
The PNC Financial Services Group, Inc. securities. Directors serve until their resignation, removal or death, or until December 31 of the year in which
they turn 72.

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

25

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Officers and Directors (concluded)

 

¹ Officers of the Fund serve at the pleasure of the Board.
² Ms. Ackerley has been President and Chief Executive Officer since 2009 and Vice President from 2007 to 2009.

 

26 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Additional Information

Proxy Results

The Annual Meeting of Shareholders was held on September 2, 2010 for shareholders of record on July 6, 2010, to elect director nominees for
BlackRock Enhanced Capital and Income Fund, Inc. There were no broker non-votes with regard to any non-routine matters for the Fund.

 

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

27

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Additional Information (continued)

General Information

The Fund does not make available copies of its Statements 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.

Electronic Delivery

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

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

Please contact your financial advisor to enroll. Please note that not all
investment advisors, 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 it is intended to reduce expenses and elimi-
nate 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
contact the Fund at (800) 441-7762.

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 quar-
ters 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, DC.
Information on the operation of the Public Reference Room 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) 441-7762.

Availability of Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to deter-
mine how to vote proxies relating to portfolio securities is available
(1) without charge, upon request, by calling toll-free (800) 441-7762;
(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) 441-7762
and (2) on the SEC’s website at http://www.sec.gov.

Availability of Fund Updates

BlackRock will update performance data for the Fund on a
monthly basis on its website in the “Closed-end Funds” section of
http://www.blackrock.com. Investors and others are advised to
periodically check the website for updated performance information
and the release of other material information about the Fund.

28 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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Additional Information (concluded)

Section 19(a) Notices

These reported amounts and sources of distributions are estimates 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 year and may be subject to changes based on
the tax regulations. The Fund will provide a Form 1099-DIV each calendar year that will explain the character of these dividends and distributions
for federal income tax purposes.

 

The Fund estimates that it has distributed more than the amount of earned income and net realized gains; therefore, a portion of the distribution
may be a return of capital. A return of capital may occur, for example, when some or all of the shareholder’s investment in the Fund is returned to the
shareholder. A return of capital does not necessarily reflect the Fund’s investment performance and should not be confused with ‘yield’ or ‘income’.

Fund Certification

The Fund is listed for trading on the New York Stock Exchange (“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 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’s dividend policy is to distribute all or a portion of its net invest-
ment income to its shareholders on a quarterly basis. In order to provide
shareholders with a more stable level of dividend distributions, the Fund
may at times pay out less than the entire amount of net investment
income earned in any particular quarter and may at times in any parti-
cular quarter pay out such accumulated but undistributed income in
addition to net investment income earned in that quarter. As a result,

the dividends paid by the Fund for any particular quarter may be more
or less than the amount of net investment income earned by the Fund
during such quarter. 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.

BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC.

OCTOBER 31, 2010

29

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Additional Information (concluded)

BlackRock Privacy Principles

BlackRock is committed to maintaining the privacy of its current and for-
mer fund investors and individual clients (collectively, “Clients”) and to
safeguarding their non-public personal information. The following infor-
mation 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 appli-
cations, forms or other documents; (ii) information about your transac-
tions 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 pro-
cedures relating to the proper storage and disposal of such information.

30 BLACKROCK ENHANCED CAPITAL AND INCOME FUND, INC. OCTOBER 31, 2010

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This report is transmitted to shareholders only. It is not a

prospectus. Past performance results shown in this report

should not be considered a representation of future per-

formance. Statements and other information herein are

as dated and are subject to change.

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Item 2 – Code of Ethics – The registrant (or the “Fund”) has adopted a code of ethics, as of the end
of the period covered by this report, applicable to the registrant’s principal executive officer,
principal financial officer and principal accounting officer, or persons performing similar
functions. During the period covered by this report, there have been no amendments to or
waivers granted under the code of ethics. A copy of the code of ethics is available without
charge at www.blackrock.com.

Item 3 – Audit Committee Financial Expert – The registrant’s board of directors or trustees, as
applicable (the “board of directors”), has determined that (i) the registrant has the following
audit committee financial experts serving on its audit committee and (ii) each audit
committee financial expert is independent:
Kent Dixon (retired effective December 31, 2009)
Frank J. Fabozzi
James T. Flynn
W. Carl Kester
Karen P. Robards

The registrant’s board of directors has determined that W. Carl Kester and Karen P. Robards
qualify as financial experts pursuant to Item 3(c)(4) of Form N-CSR.

Prof. Kester has a thorough understanding of generally accepted accounting principles,
financial statements and internal control over financial reporting as well as audit committee
functions. Prof. Kester has been involved in providing valuation and other financial
consulting services to corporate clients since 1978. Prof. Kester’s financial consulting
services present a breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can reasonably be expected to be
raised by the registrant’s financial statements.

Ms. Robards has a thorough understanding of generally accepted accounting principles,
financial statements and internal control over financial reporting as well as audit committee
functions. Ms. Robards has been President of Robards & Company, a financial advisory
firm, since 1987. Ms. Robards was formerly an investment banker for more than 10 years
where she was responsible for evaluating and assessing the performance of companies based
on their financial results. Ms. Robards has over 30 years of experience analyzing financial
statements. She also is a member of the audit committee of one publicly held company and
a non-profit organization.

Under applicable securities laws, a person determined to be an audit committee financial
expert will not be deemed an “expert” for any purpose, including without limitation for the
purposes of Section 11 of the Securities Act of 1933, as a result of being designated or
identified as an audit committee financial expert. The designation or identification as an
audit committee financial expert does not impose on such person any duties, obligations, or
liabilities greater than the duties, obligations, and liabilities imposed on such person as a
member of the audit committee and board of directors in the absence of such designation or
identification. The designation or identification as an audit committee financial expert does
not affect the duties, obligations, or liability of any other member of the audit committee or
board of directors.

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1 The nature of the services include assurance and related services reasonably related to the performance of the audit of
financial statements not included in Audit Fees.
2 The nature of the services include tax compliance, tax advice and tax planning.
3 The nature of the services include a review of compliance procedures and attestation thereto.

(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The registrant’s audit committee (the “Committee”) has adopted policies and
procedures with regard to the pre-approval of services. Audit, audit-related and tax
compliance services provided to the registrant on an annual basis require specific pre-
approval by the Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the registrant’s affiliated
service providers that relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee believes are a) consistent
with the SEC’s auditor independence rules and b) routine and recurring services that will
not impair the independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis (“general pre-approval”).
The term of any general pre-approval is 12 months from the date of the pre-approval, unless
the Committee provides for a different period. Tax or other non-audit services provided to
the registrant which have a direct impact on the operation or financial reporting of the
registrant will only be deemed pre-approved provided that any individual project does not
exceed $10,000 attributable to the registrant or $50,000 per project. For this purpose,
multiple projects will be aggregated to determine if they exceed the previously mentioned
cost levels.

Any proposed services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject to general pre-
approval (e.g., unanticipated but permissible services). The Committee is informed of each
service approved subject to general pre-approval at the next regularly scheduled in-person
board meeting. At this meeting, an analysis of such services is presented to the Committee
for ratification. The Committee may delegate to the Committee Chairman the authority to
approve the provision of and fees for any specific engagement of permitted non-audit
services, including services exceeding pre-approved cost levels.

(e)(2) None of the services described in each of Items 4(b) through (d) were approved by
the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not Applicable

(g) Affiliates’ Aggregate Non-Audit Fees:

 

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(h) The registrant’s audit committee has considered and determined that the provision of
non-audit services that were rendered to the registrant’s investment adviser (not including
any non-affiliated sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by the registrant’s investment adviser), and any entity
controlling, controlled by, or under common control with the investment adviser that
provides ongoing services to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal
accountant’s independence.

Regulation S-X Rule 2-01(c)(7)(ii) – $10,777, 0%

Item 5 – Audit Committee of Listed Registrants

(a) The following individuals are members of the registrant’s separately-designated
standing audit committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(58)(A)):

Kent Dixon (retired effective December 31, 2009)
Frank J. Fabozzi
James T. Flynn
W. Carl Kester
Karen P. Robards

(b) Not Applicable

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 – The board of directors has delegated the voting of proxies for the
Fund securities to the Fund’s investment adviser (“Investment Adviser”) pursuant to the
Investment Adviser’s proxy voting guidelines. Under these guidelines, the Investment
Adviser will vote proxies related to Fund securities in the best interests of the Fund and its
stockholders. From time to time, a vote may present a conflict between the interests of the
Fund’s stockholders, on the one hand, and those of the Investment Adviser, or any affiliated
person of the Fund or the Investment Adviser, on the other. In such event, provided that the
Investment Adviser’s Equity Investment Policy Oversight Committee, or a sub-committee
thereof (the “Oversight Committee”) is aware of the real or potential conflict or material
non-routine matter and if the Oversight Committee does not reasonably believe it is able to
follow its general voting guidelines (or if the particular proxy matter is not addressed in the
guidelines) and vote impartially, the Oversight Committee may retain an independent
fiduciary to advise the Oversight Committee on how to vote or to cast votes on behalf of the
Investment Adviser’s clients. If the Investment Adviser determines not to retain an
independent fiduciary, or does not desire to follow the advice of such independent fiduciary,
the Oversight Committee shall determine how to vote the proxy after consulting with the
Investment Adviser’s Portfolio Management Group and/or the Investment Adviser’s Legal

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and Compliance Department and concluding that the vote cast is in its client’s best interest
notwithstanding the conflict. A copy of the Fund’s Proxy Voting Policy and Procedures are
attached as Exhibit 99.PROXYPOL. Information on how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is available
without charge, (i) at www.blackrock.com and (ii) on the SEC’s website at
http://www.sec.gov.

Item 8 – Portfolio Managers of Closed-End Management Investment Companies – as of October 31,
2010.

(a)(1) The registrant (or “Fund”) is managed by a team of investment professionals
comprised of Kevin Rendino, Managing Director at BlackRock, Inc., Kurt
Schansinger, Managing Director at BlackRock, Inc., Carrie King, Director and
associate portfolio manager and Kyle G. McClements, CFA, Managing Director at
BlackRock, Inc. Mr. Rendino is head of BlackRock, Inc.’s Basic Value Equity team.
Mr. Schansinger and Ms. King are members of BlackRock, Inc.’s Basic Value Equity
team. Mr. McClements is a member of BlackRock, Inc.’s Quantitative Investments
team. Messrs. Rendino, Schansinger and McClements and Ms. King are responsible
for the day-to-day management of the Fund’s portfolio and the selection of its
investments. Messrs. Rendino, and Schansinger and Ms. King have been members of
the Fund’s portfolio management team since 2004, 2008 and 2008, respectively. Mr.
McClements joined the registrant’s management team in 2009.

 

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(iv) Potential Material Conflicts of Interest

BlackRock, Inc. (individually and together with its affiliates, “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 significant shareholders 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 significant shareholders, 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’ or significant shareholders’) officers, directors or employees
are directors or officers, or companies as to which BlackRock or any of its affiliates or
significant shareholders 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 a fund. In this connection, it should be noted that a portfolio
manager may currently manage certain accounts that are subject to performance fees. In
addition, a portfolio manager may 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 October 31, 2010:

Portfolio Manager Compensation Overview
BlackRock’s financial arrangements with its portfolio managers, its competitive
compensation and its career path emphasis at all levels reflect the value senior management

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places on key resources. Compensation may include a variety of components and may vary
from year to year based on a number of factors. The principal components of compensation
include a base salary, a performance-based discretionary bonus, participation in various
benefits programs and one or more of the incentive compensation programs established by
BlackRock such as its Long-Term Retention and Incentive Plan.

Base compensation. Generally, portfolio managers receive base compensation based on
their seniority and/or their position with the firm. Senior portfolio managers who perform
additional management functions within the portfolio management group or within
BlackRock may receive additional compensation for serving in these other capacities.

Discretionary Incentive Compensation for Messrs. Rendino and Schansinger and Ms.
King
Discretionary incentive compensation is based on a formulaic compensation program.
BlackRock’s formulaic portfolio manager compensation program includes: pre-tax
investment performance relative to appropriate competitors or benchmarks over 1-, 3- and
5-year performance periods and a measure of operational efficiency. If a portfolio
manager’s tenure is less than five years, performance periods will reflect time in position. In
most cases, including for the portfolio managers of the Fund, these benchmarks are the same
as the benchmark or benchmarks against which the performance of the Fund or other
accounts managed by the portfolio managers are measured. BlackRock’s Chief Investment
Officers determine the benchmarks against which the performance of funds and other
accounts managed by each portfolio manager is compared and the period of time over which
performance is evaluated. With respect to Messrs. Rendino and Schansinger and Ms. King,
such benchmarks include a combination of Lipper Large Cap Value and Multi-Cap Value
Funds classifications.

Portfolio managers who meet relative investment performance and financial management
objectives during a specified performance time period are eligible to receive an additional
bonus which may or may not be a large part of their overall compensation. A smaller
element of portfolio manager discretionary 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.

Discretionary Incentive Compensation for Mr. McClements
Discretionary incentive compensation is a function of several components: the performance
of BlackRock, Inc., the performance of the portfolio manager’s group within BlackRock,
the investment performance, including risk-adjusted returns, of the firm’s assets under
management or supervision by that portfolio manager relative to predetermined
benchmarks, and the individual’s seniority, role within the portfolio management team,
teamwork and contribution to the overall performance of these portfolios and BlackRock.
In most cases, including for the portfolio managers of the Fund, these benchmarks are the
same as the benchmark or benchmarks against which the performance of the Fund or other
accounts managed by the portfolio managers are measured. BlackRock’s Chief Investment
Officers determine the benchmarks against which the performance of funds and other
accounts managed by each portfolio manager is compared and the period of time over which
performance is evaluated. With respect to Mr. McClements, such benchmarks include a
combination of market-based indices (e.g., Mergent Dividend Achievers Index, The
S&P/Citigroup Global Broad Market Index, Lipper Health/Biotechnology Funds Index, The

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Russell 3000 Healthcare Index, NYSE Arca Tech 100 Index, MSCI World Index) and yield
component.

BlackRock’s Chief Investment Officers make a subjective determination with respect to the
portfolio manager’s compensation based on the performance of the funds and other accounts
managed by each portfolio manager relative to the various benchmarks noted above.
Performance is measured on a pre-tax basis over various time periods including 1, 3 and 5-
year periods, as applicable.

Distribution of Discretionary Incentive Compensation
Discretionary incentive compensation is distributed to portfolio managers in a combination
of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of
years. The BlackRock, Inc. restricted stock units, if properly vested, will be settled in
BlackRock, Inc. common stock. Typically, the cash bonus, when combined with base
salary, represents more than 60% of total compensation for the portfolio managers. Paying
a portion of annual bonuses in stock puts compensation earned by a portfolio manager for a
given year “at risk” based on BlackRock’s ability to sustain and improve its performance
over future periods.

Long-Term Retention and Incentive Plan (“LTIP”) — From time to time long-
term incentive equity awards are granted to certain key employees to aid in retention, align
their interests with long-term shareholder interests and motivate performance. Equity
awards are generally granted in the form of BlackRock, Inc. restricted stock units that, once
vested, settle in BlackRock, Inc. common stock. Messrs. Schansinger and McClements and
Ms. King have each received awards under the LTIP.

Deferred Compensation Program — A portion of the compensation paid to
eligible BlackRock employees may be voluntarily deferred into an account that tracks the
performance of certain of the firm’s investment products. Each participant in the deferred
compensation program is permitted to allocate his deferred amounts among the various
investment options. Messrs. Rendino, Schansinger and McClements and Ms. King have
each participated in the deferred compensation program.

Other compensation benefits. In addition to base compensation and discretionary
incentive compensation, portfolio managers may be eligible to receive or participate in one
or more of the following:

Incentive Savings Plans — BlackRock, Inc. has created a variety of incentive
savings plans in which BlackRock employees are eligible to participate, including a
401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee
Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a
company match equal to 50% of the first 6% of eligible pay contributed to the plan capped
at $4,000 per year, and a company retirement contribution equal to 3-5% of eligible
compensation. The RSP offers a range of investment options, including registered
investment companies managed by the firm. BlackRock contributions follow the investment
direction set by participants for their own contributions or, absent employee investment
direction, are invested into a balanced portfolio. The ESPP allows for investment in
BlackRock common stock at a 5% discount on the fair market value of the stock on the
purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares
or a dollar value of $25,000. Each portfolio manager is eligible to participate in these plans.

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(a)(4) Beneficial Ownership of Securities – As of October 31, 2010.

 

(b) Not Applicable

Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and
Affiliated Purchasers – Not Applicable due to no such purchases during the period covered
by this report.

Item 10 – Submission of Matters to a Vote of Security Holders – On September 17, 2010, the Board
of Directors of the Fund amended and restated in its entirety the bylaws of the Fund (the
"Amended and Restated Bylaws"). The Amended and Restated Bylaws were deemed
effective as of September 17, 2010 and set forth, among other things, the processes and
procedures that shareholders of the Fund must follow, and specifies additional information
that shareholders of the Fund must provide, when proposing director nominations at any
annual meeting or special meeting in lieu of an annual meeting or other business to be
considered at an annual meeting or special meeting.

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 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) 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 – See Item 2

12(a)(2) – Certifications – Attached hereto

12(a)(3) – Not Applicable

12(b) – Certifications – Attached hereto

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12(c) – Notices to the registrant’s common shareholders in accordance with 1940 Act Section 19(a)
and Rule 19a-1¹

¹ The Fund has received exemptive relief from the Securities and Exchange Commission permitting it to make periodic
distributions of long-term capital gains with respect to its outstanding common stock as frequently as twelve times each year,
and as frequently as distributions are specified by or in accordance with the terms of its outstanding preferred stock. This relief
is conditioned, in part, on an undertaking by the Fund to make the disclosures to the holders of the Fund’s common shares, in
addition to the information required by Section 19(a) of the 1940 Act and Rule 19a-1 thereunder. The Fund is likewise
obligated to file with the SEC the information contained in any such notice to shareholders and, in that regard, has attached
hereto copies of each such notice made during the period.

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Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

BlackRock Enhanced Capital and Income Fund, Inc.

By: /s/ Anne F. Ackerley
Anne F. Ackerley
Chief Executive Officer (principal executive officer) of
BlackRock Enhanced Capital and Income Fund, Inc.

Date: January 5, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.

By: /s/ Anne F. Ackerley
Anne F. Ackerley
Chief Executive Officer (principal executive officer) of
BlackRock Enhanced Capital and Income Fund, Inc.

Date: January 5, 2011

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

Date: January 5, 2011

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