Company at a Glance

Tortoise Energy Capital Corp. is a closed-end investment company investing primarily in equity securities of publicly-traded Master Limited Partnerships (MLPs) operating energy infrastructure assets.

Investment Goals: Yield, Growth and Quality

We seek a high level of total return with an emphasis on current distributions paid to stockholders.

In seeking to achieve yield, we target distributions to our stockholders that are roughly equal to the underlying yield on a direct investment in MLPs. In order to accomplish this, we maintain our strategy of investing primarily in energy infrastructure companies with attractive current yields and growth potential.

Tortoise Capital achieves distribution growth as revenues of our underlying companies grow with the economy, with the population and through rate increases. This revenue growth leads to increased operating profits, and when combined with internal expansion projects and acquisitions, is expected to provide attractive growth in distributions to Tortoise Capital. We also seek distribution growth through capital market strategies involving timely debt and equity offerings by Tortoise Capital that are typically invested in MLP issuer direct placements.

We seek to achieve quality by investing in companies operating energy infrastructure assets that are critical to the U.S. economy. Often these assets would be difficult to replicate. We also back experienced management teams with successful track records. By investing in Tortoise Capital, our stockholders have access to a portfolio that is diversified through geographic regions and across product lines, including natural gas, natural gas liquids, crude oil and refined products.

About Master Limited Partnerships

MLPs are limited partnerships whose units trade on public exchanges such as the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and NASDAQ. Buying MLP units makes an investor a limited partner in the MLP. There are currently more than 70 MLPs in the market, mostly in industries related to energy and natural resources.

Tortoise Capital invests primarily in MLPs and their affiliates in the energy infrastructure sector. Energy infrastructure MLPs are engaged in the transportation, storage and processing of crude oil, natural gas and refined products from production points to the end users. Our investments are primarily in mid-stream (mostly pipeline) operations, which typically produce steady cash flows with less exposure to commodity prices than many alternative investments in the broader energy industry. With the growth potential of this sector along with our disciplined investment approach, we endeavor to generate a predictable and increasing distribution stream for our investors.

A Tortoise Capital Investment Versus a Direct Investment in MLPs

Tortoise Capital provides its stockholders an alternative to investing directly in MLPs and their affiliates. A direct MLP investment potentially offers an attractive distribution with a significant portion treated as return of capital, and a historically low correlation to returns on stocks and bonds. However, the tax characteristics of a direct MLP investment are generally undesirable for tax-exempt investors such as retirement plans. Tortoise Capital is structured as a C Corporation — accruing federal and state income taxes, based on taxable earnings and profits. Because of this innovative structure, pioneered by Tortoise Capital Advisors, institutions and retirement accounts are able to join individual stockholders as investors in MLPs.

Additional features of Tortoise Capital include:

  • One Form 1099 per stockholder at the end of the year, thus avoiding multiple K-1s and multiple state filings for individual partnership investments;
     
  • A professional management team, with nearly 100 years combined investment experience, to select and manage the portfolio on your behalf;
     
  • The ability to access investment grade credit markets to enhance stockholder return; and
     
  • Access to direct placements and other investments not available through the public markets.




October 13, 2008

D EAR F ELLOW S TOCKHOLDERS,

Recent Events
The MLP sector has traded down dramatically since the end of our quarter along with the broader market. Since the beginning of that quarter through today, the Wachovia MLP Total Return Index declined by 31 percent, compared to the S&P 500 decline of 28 percent. We believe this sell-off of MLPs is a consequence of broader financial market issues which led to investors unwinding leveraged MLP investment portfolios. This unwind was most noticeable during the first ten days of October, when MLP prices declined 28 percent, with no fundamental news driving trading volumes.

The decline in market prices of our MLP units impacted the coverage ratio cushion we have historically targeted for our use of leverage. In order to pay distributions to common stockholders, the Investment Company Act of 1940 requires us to have minimum debt and total leverage (debt and preferred) asset coverage of 300 percent and 200 percent, respectively. In other words, the Act requires $3 of assets for each $1 of debt and $2 of assets for each $1 of total leverage. In this difficult environment, we are actively monitoring our portfolio positions and leverage to continue to meet our asset coverage ratio expectations with respect to debt and total leverage.

While volatile market conditions continue, we are providing weekly updates to our leverage ratios on our website for interested investors.

Third Quarter Performance Review
For the quarter ended Aug. 31, 2008, our total return based on market value, including the reinvestment of distributions, was 4.46 percent. Our recent distribution of $0.43 per common share ($1.72 annualized) was our 9th consecutive distribution increase since full investment of initial public offering proceeds. This reflects a 4.9 percent increase over the distribution paid in the same quarter of the prior year and a 2.4 percent increase over the prior quarter. This distribution represented an annualized yield of 6.8 percent based on the closing price of $25.31 on Aug. 29, 2008, or a 17.6 percent annualized yield based on today’s closing stock price of $9.75. We expect a significant portion of this distribution to be return of capital for income tax purposes, although the ultimate determination of its character will not be made until determination of our earnings and profits after our year-end.

2008 3rd Quarter Report     1


Leverage Review
We continue to reduce our exposure to the 7- or 28-day auction rate securities market through the redemption of auction rate securities. During the quarter ended Aug. 31, 2008, we redeemed our $30 million Series A auction rate notes with proceeds from our $90 million issuance of fixed rate senior notes. Subsequent to quarter-end, we redeemed $15 million of our auction rate preferred stock from portfolio sales proceeds.

On Aug. 31, 2008, our total leverage was 38.7 percent of total assets, above our long-term target of 33 percent. Going forward, we will continue to actively manage our leverage position with the goal of providing an attractive return to our stockholders. We believe our current leverage structure supports our focus on being a long-term provider of capital to the MLP sector.

Master Limited Partnership Investment Overview and Outlook
The Wachovia MLP Total Return Index for our quarter ending Aug. 31, 2008 reflected a total return of -5.2 percent, compared to a total return of 1.2 percent for the quarter ending May 31, 2008 and -5.8 percent for the quarter ending Aug. 31, 2007. These returns are based on market value including the reinvestment of quarterly dividends.

The Atlantic Asset Management MLP Energy Index yield on Aug. 31, 2008 was 8.0 percent compared to the Oct. 13, 2008 yield of 10.8 percent. We believe the current yield will help to insulate investors in MLPs during periods of market decline.

Investors should examine whether the elevated yields of the MLP Index represents the market’s pricing of investment risk. If fundamental risk has changed, or market pricing of risk has changed, then these yields may be appropriate for the business conducted by MLPs. However, we are of the view that market prices of MLPs reflect a temporary dislocation from transitory MLP ownership by highly leveraged funds to more permanent investors who seek the long term benefits of dividend stability with modest growth.

The MLP sector has achieved 4.3 percent distribution growth for the first two quarters of 2008, (1) and is on track to deliver growth consistent with the sector’s past five years’ annualized average of more than ten percent. Over the past week, seven of our portfolio companies announced third quarter distributions, and most were higher than initial estimates.

 

(1) Wachovia Capital Markets, LLC MLP Monthly Report, May 2008 and August 2008

2     Tortoise Energy Capital Corp.


MLP companies have delivered distribution growth despite numerous disruptive risk factors associated with business operations including the recession of 2000 - 2001, terrorist attacks on U.S. soil, foreign supply disruption, ravaging hurricanes, financial market turmoil and extreme energy commodity price volatility. The resiliency of the business model of energy infrastructure companies has not only survived these events, but has allowed equity distribution growth far in excess of what might be available in similarly risked assets such as REITs or utilities.

Demand growth, infrastructure build-out projects and modest asset acquisition activity should continue to support attractive MLP distribution growth. Energy demand, a fundamental growth driver for energy infrastructure companies, has seen little disruption over the past quarter. The Energy Information Administration projects the long term average annual energy demand growth rate will be just less than one percent. We’ve seen increases in crude and natural gas production, which offers long-term support for MLP distribution growth. We’ve also seen recent weakness with refined products, specifically gasoline and jet fuel, related to higher commodity prices and a weak economy. While demand weakness leads to reduced transport volumes by MLPs, the revenue impact of these declines is mitigated by the automatic PPI price inflation protection escalator which many pipelines receive for delivery of products.

MLPs are also expected to grow from internal organic growth projects. We estimate MLPs will need to raise about $25 billion to fund new pipeline and storage tank construction, as well as existing facility expansion between the remainder of 2008 through 2010. Risks related to these projects include construction and operation costs increases and financing concerns. Generally, we believe MLPs have adequate debt capacity to continue to build internal growth projects; however, the current market conditions have increased MLPs’ cost of capital and could inhibit incremental growth projects should the current conditions persist. Nonetheless, projects which were initiated in the past two years are contributing to distribution growth that we expect to enjoy for the next several years.

2008 3rd Quarter Report     3


Conclusion
We believe that recent pricing weakness in the MLP sector, and in our own stock, was the result of forced selling as investors are transitioning in the sector, not the result of fundamental weakness of issuers. In periods of tightening liquidity, where market dislocations cause investors to reexamine the basis for decisions, we like investing capital in providers of essential services such as energy infrastructure master limited partnerships.

Thank you for investing in our company.

Sincerely,

The Managing Directors
Tortoise Capital Advisors, L.L.C.
The adviser to Tortoise Energy Capital Corp.

H. Kevin Birzer   Zachary A. Hamel Kenneth P. Malvey  
     

 
Terry Matlack   David J. Schulte    

 

 

 

…Steady Wins ®

4     Tortoise Energy Capital Corp.


S UMMARY F INANCIAL I NFORMATION (Unaudited)

     Nine Months Ended
August 31, 2008
Market value per share $   25.31
Net asset value per share 23.51
Total net assets 409,175,224
Net unrealized depreciation of investments (excluding interest
     rate swap contracts) before income taxes (87,218,675 )
Net unrealized depreciation of investments and interest
     rate swap contracts after income taxes (45,000,481 )
Net investment loss   (9,914,761 )
Net realized gain on investments and interest rate swaps after income taxes 7,016,787
Total investment return based on market value (1) 4.46 %

(1)   See footnote 7 to the Financial Highlights on page 26 for further disclosure.

 

Allocation of Portfolio Assets
August 31, 2008 (Unaudited)

(Percentages based on total investment portfolio)



2008 3rd Quarter Report     5


K EY F INANCIAL D ATA (Unaudited)
(dollar amounts in thousands unless otherwise indicated)

The information presented below regarding Distributable Cash Flow and Selected Operating Ratios is supplemental non-GAAP financial information, which we believe is meaningful to understanding our operating performance. The Selected Operating Ratios are the functional equivalent of EBITDA for non-investment companies, and we believe they are an important supplemental measure of performance and promote comparisons from period-to-period. Supplemental non-GAAP measures should be read in conjunction with our full financial statements.

2007
       Q3 (1)
Total Distributions Received from Investments
     Distributions received from master limited partnerships $   11,950
     Dividends paid in stock 2,181
     Dividends from common stock 37
     Short-term interest and dividend income 6  
          Total from investments 14,174
Operating Expenses Before Leverage Costs and Current Taxes
     Advisory fees 2,333
     Other operating expenses   362  
2,695  
     Distributable cash flow before leverage costs and current taxes   11,479
     Leverage costs (2) 4,389
     Current income tax expense 44  
          Distributable Cash Flow (3) $   7,046  
Distributions paid on common stock $   7,119
Distributions paid on common stock per share 0.4100
Payout percentage for period (4) 101.0 %
Net realized gain (loss), net of income taxes 3,315
Total assets, end of period 934,774
Average total assets during period (5) 980,979
Leverage (Long-Term Debt Obligations, Preferred Stock and Short-Term Borrowings) (6)   324,200  
Leverage as a percent of total assets 34.7 %
Unrealized appreciation net of income taxes, end of period 147,655
Net assets, end of period 506,598
Average net assets during period (7) 536,508
Net asset value per common share 29.18
Market value per share 30.00
Shares outstanding 17,363,802
 
Selected Operating Ratios (8)  
As a Percent of Average Total Assets
     Total distributions received from investments   5.73 %
     Operating expenses before leverage costs and current taxes 1.09 %
     Distributable cash flow before leverage costs and current taxes 4.64 %
As a Percent of Average Net Assets
     Distributable Cash Flow (3) 5.21 %

(1)   Q1 is the period from December through February. Q2 is the period from March through May. Q3 is the period from June through August. Q4 is the period from September through November.
(2) Leverage costs include interest expense, recurring auction agent fees, interest rate swap expenses and distributions to preferred stockholders.
(3) “Net investment income (loss), before income taxes” on the Statement of Operations is adjusted as follows to reconcile to Distributable Cash Flow (DCF): increased by the return of capital on MLP distributions, the value of paid-in-kind distributions, non-recurring auction agent fees and amortization of debt issuance costs; and decreased by distributions to preferred stockholders, current taxes paid, and realized and unrealized gains (losses) on interest rate swap settlements.

6     Tortoise Energy Capital Corp.



2007 2008
Q4 (1) Q1 (1) Q2 (1) Q3 (1)
 
$ 12,171 $ 13,103 $ 12,818 $ 12,914
2,364 2,388 2,124 2,202
20 16 16 16
7 308 54 46
14,562 15,815 15,012 15,178
 
2,145 2,164 1,990 1,889
287 281 308 272
2,432 2,445 2,298 2,161
12,130 13,370 12,714 13,017
5,134 6,068 5,719 4,949
62 165 165 165
$ 6,934 $ 7,137 $ 6,830 $ 7,903
$ 7,224 $ 7,267 $ 7,311 $ 7,485
0.4150 0.4175 0.4200 0.4300
104.2 % 101.8 % 107.0 % 94.7 %
9,144 4,408 4,201 (1,592 )
910,806 875,529 852,998 776,015
919,414 930,626 850,874 807,580
324,700 313,550 302,650   300,000
35.6 %     35.8 % 35.5 % 38.7 %
127,118 110,033   113,404 82,118
484,645   458,181   453,390   409,175
496,416 469,388 443,559   409,884
27.84 26.32 26.05   23.51
25.47 25.59 25.77 25.31
17,406,086 17,406,086 17,406,086 17,406,086
 
 
 
6.35 % 6.83 % 7.02 % 7.48 %
1.06 % 1.06 % 1.07 % 1.06 %
5.29 % 5.77 % 5.95 % 6.42 %
 
5.60 % 6.12 % 6.13 % 7.67 %

(4) Distributions paid as a percentage of Distributable Cash Flow.
(5) Computed by averaging month-end values within each period.
(6) There were no outstanding borrowings on the short-term credit facility as of August 31, 2008.
(7) Computed by averaging daily values within each period.
(8)   Annualized for periods less than one full year. Operating ratios contained in our Financial Highlights are based on net assets as required by GAAP, and include current and deferred income tax expense and leverage costs.

2008 3rd Quarter Report     7


M ANAGEMENT’S D ISCUSSION

The information contained in this section should be read in conjunction with our Financial Statements and the Notes thereto. In addition, this report contains certain forward-looking statements. These statements include the plans and objectives of management for future operations and financial objectives and can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” or “continue” or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are set forth in the “Risk Factors” section of our public filings with the SEC.

Overview
Tortoise Capital’s goal is to provide a growing distribution stream to our investors. We seek to provide our stockholders with an efficient vehicle to invest in the energy infrastructure sector. While we are a registered investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), we are not a “regulated investment company” for federal tax purposes. Our distributions do not generate unrelated business taxable income (UBTI) and our stock may therefore be suitable for holding by pension funds, IRAs and mutual funds, as well as taxable accounts.

We invest primarily in MLPs through private and public market purchases. MLPs are publicly traded partnerships whose equity interests are traded in the form of units on public exchanges, such as the NYSE or NASDAQ. Our private purchases principally involve financing directly to an MLP through equity investments, which we refer to as direct placements. MLPs typically use this financing to fund growth, acquisitions, recapitalizations, debt repayments and bridge financings. We generally invest in companies that are publicly reporting, but for which a private financing offers advantages. These direct placement opportunities generally arise from our long-term relationships with energy infrastructure MLPs and our expertise in origination, structuring, diligence and investment oversight.

Critical Accounting Policies
The financial statements are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex, or subjective judgments. Our critical accounting policies are those applicable to the valuation of investments and certain revenue recognition matters as discussed in Note 2 in the Notes to Financial Statements.

8     Tortoise Energy Capital Corp.


M ANAGEMENT'S D ISCUSSION
(Continued)

Determining Distributions To Stockholders
Our portfolio generates cash flow from which we pay distributions to stockholders. Our Board of Directors considers our distributable cash flow (“DCF”) in determining distributions to stockholders. Our Board of Directors reviews the distribution rate quarterly, and may adjust the quarterly distribution throughout the year. Our goal is to declare what we believe to be sustainable increases in our regular quarterly distributions. We have targeted to pay at least 95 percent of DCF on an annualized basis.

Determining DCF
DCF is simply distributions received from investments less expenses. The total distributions received from our investments include the amount received by us as cash distributions from MLPs, paid-in-kind distributions, and dividend and interest payments. The total expenses include current or anticipated operating expenses, leverage costs and current income taxes on our operating income. Each are summarized for you in the table on pages 6 and 7 and are discussed in more detail below.

The key financial data table discloses the calculation of DCF. The difference between distributions received from investments in the DCF calculation and total investment income as reported in the Statement of Operations, is reconciled as follows: (1) the Statement of Operations, in conformity with U.S. generally accepted accounting principles (GAAP), recognizes distribution income from MLPs and common stock on their ex-dates, whereas the DCF calculation reflects distribution income on their pay dates; (2) GAAP recognizes that a significant portion of the cash distributions received from MLPs are treated as a return of capital and therefore excluded from investment income, whereas the DCF calculation includes the return of capital; and (3) distributions received from investments in the DCF calculation include the value of dividends paid-in-kind (additional stock or MLP units), whereas such amounts are not included as income for GAAP purposes. The treatment of expenses in the DCF calculation also differs from what is reported in the Statement of Operations. In addition to the total operating expenses as disclosed in the Statement of Operations, the DCF calculation reflects interest expense, recurring auction agent fees, distributions to preferred stockholders and realized and unrealized gains (losses) on interest rate swap settlements as leverage costs, as well as current taxes paid.

Distributions Received from Investments
Our ability to generate cash is dependent on the ability of our portfolio of investments to generate cash flow from their operations. In order to maintain and grow our distributions to our stockholders, we evaluate each holding based upon its contribution to our investment income, our expectation for its growth rate, and its risk relative to other potential investments.

2008 3rd Quarter Report     9


M ANAGEMENT'S D ISCUSSION
(Continued)

We concentrate on MLPs we believe can expect an increasing demand for services from economic and population growth. We seek well-managed businesses with hard assets and stable recurring revenue streams.

Our focus remains primarily on investing in fee-based service providers that operate long-haul, interstate pipelines. We further diversify among issuers, geographies and energy commodities to seek a distribution payment which approximates an investment directly in energy infrastructure MLPs. In addition, most energy infrastructure companies are regulated and utilize an inflation escalator index that factors in inflation as a cost pass-through. So, over the long-term, we believe MLPs’ distributions will outpace inflation and interest rate increases, and produce positive returns.

Total distributions received from our investments for the 3rd quarter 2008 was approximately $15.2 million, representing a 7 percent increase as compared to 3rd quarter 2007 and a 1 percent increase as compared to 2nd quarter 2008. This change for the 2nd quarter 2008 reflects the results of recent portfolio activity and distribution increases from our MLP investments.

Expenses
We incur two types of expenses: (1) operating expenses, consisting primarily of the advisory fee; and (2) leverage costs. On a percentage basis, operating expenses before leverage costs and current taxes were an annualized 1.06 percent of average total assets for the 3rd quarter 2008 as compared to 1.09 percent for the 3rd quarter 2007 and 1.07 percent for the 2nd quarter 2008. Advisory fees for the 3rd quarter 2008 decreased 5 percent from 2nd quarter 2008, as a result of reduced average managed assets.

Leverage costs consist of four major components: (1) the direct interest expense on our Tortoise Notes and short-term credit facility; (2) the auction agent fees, which are the marketing costs for the auction rate leverage; (3) the realized and unrealized gain or loss on our interest rate swap settlements; and (4) distributions to preferred stockholders.

Total leverage costs for DCF purposes was approximately $4.95 million for the 3rd quarter 2008 as compared to $4.39 million for the 3rd quarter 2007 and $5.72 million for the 2nd quarter 2008, as detailed below.

     3Q 07      2Q 08      3Q 08
Interest expense $ 2,894,113 $ 2,943,691 $ 2,961,101
Auction agent fees 204,888 74,125 28,369
Net realized and unrealized (gain)/loss      
     on interest rate swap settlements (221,854 )   1,129,490 583,760
Distributions to preferred stockholders   1,511,772 1,571,595   1,375,865
     Total leverage costs $ 4,388,919 $ 5,718,901 $ 4,949,095
Average outstanding leverage (in millions) $ 317.5 $ 322.6 $ 319.1

10     Tortoise Energy Capital Corp.


M ANAGEMENT'S D ISCUSSION
(Continued)

The average annualized total cost of leverage (total leverage costs divided by average outstanding leverage) was 6.17 percent for the 3rd quarter 2008 as compared to 7.03 percent for the 2nd quarter 2008, and 5.48 percent for 3rd quarter 2007. The decrease of 86 basis points from 2nd quarter 2008 to 3rd quarter 2008 partially reflects the various steps we’ve completed in restructuring our leverage, although we remain subject to changes in LIBOR on our $110 million of auction rate preferred stock.

On June 17, 2008, we issued $90 million aggregate amount of Series E and Series F Notes, proceeds of which were used to refinance auction rate securities. As a result of this fixed-rate financing, our effective cost of leverage as of August 31, 2008 was 5.63 percent including the Series D, E and F Notes, $110 million notional amount of outstanding auction rate securities, and auction agent fees. This is a 54 basis point decrease as compared to the 3rd quarter 2008. This rate will vary as our auction rate securities are reset every 7 or 28 days.

Earlier this year, our auctions, like most others, began resetting at their maximum rate, which in our case has been 200 percent of the applicable LIBOR. Additional information on our leverage and restructuring is included in the Liquidity and Capital Resources section below.

While historically we utilized interest rate swap contracts in an attempt to reduce a portion of the interest risk arising from our auction rate leverage, we have now terminated all of our swap contracts as a result of changes in our leverage structure. Information on our swap contracts is outlined in Note 12 in our Notes to Financial Statements.

Distributable Cash Flow
For 3rd quarter 2008, our DCF was approximately $7.9 million, an increase of 12 percent as compared to 3rd quarter 2007 and 16 percent as compared to 2nd quarter 2008. We paid a distribution of $7.5 million, or 95 percent of DCF, during the quarter. On a per share basis, we declared a $0.43 distribution on August 11, 2008, for an annualized run-rate of $1.72. This is an increase of 4.9 percent as compared to 3rd quarter 2007 and 2.4 percent as compared to 2nd quarter 2008.

Taxation of our Distributions
We invest in partnerships which generally have larger distributions of cash than the accounting income which they generate. Accordingly, the distributions include a return of capital component for accounting and tax purposes. Distributions declared and paid by Tortoise Capital in a year generally differ from taxable income for that year, as such distributions may include the distribution of current year taxable income or return of capital.

The taxability of the distribution you receive depends on whether Tortoise Capital has annual earnings and profits. If so, those earnings and profits are first allocated to the preferred shares and then to the common shares.

2008 3rd Quarter Report      11


M ANAGEMENT'S D ISCUSSION
(Continued)

In the event Tortoise Capital has earnings and profits, all or a portion of our distribution would be taxable at the 15 percent Qualified Dividend Income (“QDI”) rate, assuming various holding requirements are met by the stockholder. The portion of our distribution that is taxable may vary for either of two reasons: first, the characterization of the distributions we receive from MLPs could change annually based upon the K-1s we receive and become less return of capital and more in the form of income. Second, we could sell an MLP investment in which Tortoise Capital has a gain at any time. The unrealized gain we have in the portfolio is reflected in the Statement of Assets and Liabilities. At August 31, 2008, Tortoise Capital’s investments at value are $775 million, with an adjusted cost of $640 million. The $135 million difference reflects gain that would be realized if those investments were sold at those values. A sale could give rise to earnings and profits in that period and make all or a portion of the distributions taxable qualified dividends. Note, however, that the Statement of Assets and Liabilities reflects as a deferred tax liability the possible future tax liability we would pay if all investments were liquidated at their indicated value. It is for these reasons that we inform you of the tax treatment after the close of each year because the ultimate result is undeterminable and difficult to predict until the year is over. For tax purposes, distributions to stockholders for the fiscal year ended 2007 were comprised of approximately 95 percent return of capital and 5 percent qualified dividend income (presuming a stockholder held the shares for the requisite holding period). We currently expect that a portion of our 2008 distributions will consist of return of capital, although the ultimate determination will not be made until January 2009, after determining our earnings and profits.

Liquidity And Capital Resources
Tortoise Capital had total assets of $776 million at quarter-end. Our total assets reflect the value of our investments, which are itemized in the Schedule of Investments. It also reflects cash, interest and other receivables and any expenses that may have been prepaid. During 3rd quarter 2008, total assets decreased from $853 million to $776 million, a decrease of $77 million or 9 percent. This change was primarily the result of unrealized depreciation of investments and net portfolio sales during the quarter.

Since August 2007, we have been executing on a plan to maintain financial flexibility and eliminate our current exposure to the auction rate markets. During 3rd quarter 2008, we issued $90 million of fixed rate senior notes ($25 million Series E and $65 million Series F). These proceeds were used to pay down our revolving credit facility and fund the redemption of our $30 million Series A Notes on July 18, 2008. Subsequent to quarter end, we redeemed $10 million of our MMP I preferred stock and $5 million of our MMP II preferred stock from portfolio sales proceeds. Details of these transactions are disclosed in Note 10 and Note 15 in our Notes to Financial Statements.

12     Tortoise Energy Capital Corp.


M ANAGEMENT'S D ISCUSSION
(Continued)

In addition, we closed-out our remaining interest rate swap contracts during the quarter. Additional information is included in Note 12 in our Notes to Financial Statements.

Total leverage outstanding at August 31, 2008 of $300 million is comprised of $190 million in senior notes and $110 million in preferred shares. Total leverage represented 38.7 percent of total assets at August 31, 2008.

Tortoise Capital has used leverage to acquire MLPs consistent with our investment philosophy. The terms of Tortoise Capital’s leverage are governed by regulatory and contractual asset coverage requirements that arise from the use of leverage. Under the 1940 Act, we may not pay distributions to our common stockholders if we do not meet a 300 percent asset coverage ratio for debt and 200 percent asset coverage ratio for debt and preferred shares after payment of the distribution, and we may not pay distributions on our preferred shares if we fail to meet a 200 percent asset coverage ratio on our debt. Under the agreement with our bank lenders, if portfolio values decline such that we no longer meet the asset coverage ratios under the 1940 Act, we must repay a portion of our bank line until we meet the coverage requirement. Further, under the terms of our institutional senior notes and preferred shares, if we fail to meet basic maintenance ratios as of any valuation date (generally Fridays) or fail to satisfy the 1940 Act asset coverage as of the last business day of any month, we could be subject to mandatory redemption of the senior notes or preferred shares if such failure is not waived or cured. In some cases we may be delayed in paying common stock or preferred share distributions until such coverage ratios can be met. The cure period is 10 business days for our auction rate senior notes and preferred shares and 30 days for our institutionally placed senior notes.

As disclosed in Section 18 of the 1940 Act, the 300 percent asset coverage ratio for debt is equal to total assets less all liabilities and indebtedness not represented by debt divided by debt. The 200 percent asset coverage ratio for preferred shares is equal to the same numerator as the 300 percent test divided by the sum of debt and preferred shares.

Recent Events
Beginning in early September, the market values of MLP equity securities, along with many other equity securities, have been experiencing substantial declines as a result of the ongoing financial crisis. From September 1, 2008, through October 13, 2008, the Wachovia MLP Total Return Index declined by 28 percent. We believe this decline has not been driven by fundamental weakness in the energy infrastructure sector; rather, we believe the unwinding of leverage and liquidity concerns in the broader financial market have driven a sell-off of

2008 3rd Quarter Report     13


M ANAGEMENT'S D ISCUSSION
(Continued)

MLPs. In response to these events, we have selectively liquidated portfolio holdings, and are seeking to redeem portions of our leverage in order to provide increased flexibility in volatile financial markets and maintain coverage ratios allowing common and preferred stock distributions. In the future, other factors could favorably impact our ratios, including increases in MLP values to historical norms, issuance of equity and delaying or deferring cash distributions on common or preferred stock thereby allowing us to invest the proceeds or maintain existing investments that otherwise might need to be sold to meet covenant ratios. As of the close of business on October 13, 2008, Tortoise Capital was in compliance with its covenants and rating agency guidelines.

14     Tortoise Energy Capital Corp.


S CHEDULE OF I NVESTMENTS (Unaudited)

  August 31, 2008
        Shares         Fair Value
Common Stock — 0.1% (1)        
Shipping — 0.1% (1)        
Republic of the Marshall Islands — 0.1% (1)        
Capital Product Partners L.P. (Cost $466,550) 21,700 $ 337,869
           
Master Limited Partnerships and      
      Related Companies — 186.3% (1)        
Crude/Refined Products Pipelines — 84.4% (1)        
United States — 84.4% (1)        
Buckeye Partners, L.P. 223,000   9,658,130
Enbridge Energy Partners, L.P. 860,700   41,778,378
Enbridge Energy Partners, L.P. (2)(3)   314,632     15,014,238
Global Partners LP 128,200   1,593,526
Holly Energy Partners, L.P. 49,215   1,659,038
Kinder Morgan Management, LLC (3)   1,588,570   88,165,635
Magellan Midstream Partners, L.P. 744,400   27,676,792
NuStar Energy L.P. 704,600   34,779,056
NuStar GP Holdings, LLC 73,009   1,542,680
Plains All American Pipeline, L.P. 1,123,150   53,518,098
SemGroup Energy Partners, L.P. 436,774   4,542,450
Sunoco Logistics Partners L.P. 843,905   41,047,539
TEPPCO Partners, L.P. 634,650   20,365,918
TransMontaigne Partners L.P. 153,000   3,869,370
      345,210,848
Natural Gas/Natural Gas Liquids Pipelines — 54.4% (1)        
United States — 54.4% (1)        
Boardwalk Pipeline Partners, LP 753,600   18,515,952
El Paso Pipeline Partners, L.P. 886,300   16,369,961
Energy Transfer Equity, L.P.   486,400   14,032,640
Energy Transfer Partners, L.P. 851,260   37,881,070
Enterprise GP Holdings L.P. 360,644   10,718,340
Enterprise Products Partners L.P. 2,085,600   61,420,920
ONEOK Partners, L.P. 261,400   15,697,070
Spectra Energy Partners, LP 256,165   5,896,918
TC PipeLines, LP 933,000   31,880,610
Williams Pipeline Partners L.P. 599,400   10,303,686
      222,717,167

2008 3rd Quarter Report       15


S CHEDULE OF I NVESTMENTS (Unaudited)
(Continued)

  August 31, 2008
        Shares       Fair Value
Natural Gas Gathering/Processing — 40.2% (1)      
United States — 40.2% (1)      
Copano Energy, L.L.C. 989,886 $ 31,310,094
Crosstex Energy, L.P. 1,253,600 31,929,192
Crosstex Energy, L.P. (2)(4)   581,301 13,544,313
DCP Midstream Partners, LP 302,075 7,400,837
Duncan Energy Partners L.P. 322,100 5,836,452
Exterran Partners, L.P. 218,462 4,849,856
MarkWest Energy Partners, L.P. 1,418,656 48,858,513
Regency Energy Partners LP 146,100 3,640,812
Targa Resources Partners LP 97,783 2,337,014
Western Gas Partners LP 155,530 2,374,943
Williams Partners L.P. 416,539   12,637,793
      164,719,819
Propane Distribution — 3.8% (1)      
United States — 3.8% (1)      
Inergy, L.P. 583,700   15,386,332
Shipping — 3.5% (1)      
Republic of the Marshall Islands — 0.6% (1)      
Teekay LNG Partners L.P. 111,000 2,525,250
United States — 2.9% (1)      
K-Sea Transportation Partners L.P. 361,410 9,273,781
OSG America L.P. 208,145   2,497,740
      11,771,521
      14,296,771
Total Master Limited Partnerships and      
      Related Companies (Cost $627,756,170)         762,330,937

16       Tortoise Energy Capital Corp.


S CHEDULE OF I NVESTMENTS (Unaudited)
(Continued)

  August 31, 2008
       Shares      Fair Value
Short-Term Investment — 3.0% (1)        
United States Investment Company — 3.0% (1)        
First American Government Obligations Fund —        
     Class Y, 1.89% (5) (Cost $12,224,457)   12,224,457   $ 12,224,457  
Total Investments — 189.4% (1)        
     (Cost $640,447,177)       774,893,263  
Long-Term Debt Obligations — (46.4%) (1)       (190,000,000 )
Liabilities in Excess of Cash and Other Assets — (16.1%) (1)       (65,718,039 )
Preferred Shares at Redemption Value — (26.9%) (1)       (110,000,000 )
Total Net Assets Applicable to        
      Common Stockholders — 100.0% (1)         $ 409,175,224  

(1) Calculated as a percentage of net assets applicable to common stockholders.
(2)   Restricted securities have a total fair value of $28,558,551 which represents 7.0% of net assets. See Note 7 to the financial statements for further disclosure.
(3) Security distributions are paid-in-kind.
(4) Non-income producing.
(5) Rate indicated is the 7-day effective yield as of August 31, 2008.

See accompanying Notes to Financial Statements.

2008 3rd Quarter Report       17


S TATEMENT OF A SSETS & L IABILITIES (Unaudited)

  August 31, 2008
Assets            
      Investments at fair value (cost $640,447,177)   $ 774,893,263  
      Cash     232,875  
      Receivable for investments sold     19,234  
      Dividend receivable     9,763  
      Prepaid expenses and other assets     860,136  
           Total assets     776,015,271  
Liabilities      
      Payable to Adviser     1,240,622  
      Distributions payable to common stockholders     7,484,617  
      Distributions payable to preferred stockholders     203,745  
      Accrued expenses and other liabilities     8,793,048  
      Current tax liability     597,472  
      Deferred tax liability     48,520,543  
      Long-term debt obligations     190,000,000  
           Total liabilities     256,840,047  
Preferred Stock      
      $25,000 liquidation value per share applicable to 4,400 outstanding      
           shares (4,400 shares authorized)     110,000,000  
                Net assets applicable to common stockholders   $ 409,175,224  
 
Net Assets Applicable to Common Stockholders Consist of:      
      Capital stock, $0.001 par value; 17,406,086 shares issued and outstanding      
           (100,000,000 shares authorized)   $ 17,406  
      Additional paid-in capital     326,499,122  
      Accumulated net investment loss, net of income taxes     (28,112,445 )
      Undistributed realized gain, net of income taxes     28,653,590  
      Net unrealized gain on investments, net of income taxes     82,117,551  
                Net assets applicable to common stockholders   $ 409,175,224  
 
      Net Asset Value per common share outstanding (net assets applicable      
           to common stock, divided by common shares outstanding)   $ 23.51  

See accompanying Notes to Financial Statements.

18       Tortoise Energy Capital Corp.


S TATEMENT OF O PERATIONS (Unaudited)

  Period from
  December 1, 2007
  through
        August 31, 2008
Investment Income    
      Distributions from master limited partnerships    
           (including $774,647 from affiliate)   $ 38,540,693  
      Less return of capital on distributions (including $774,647 from affiliate)     (34,825,358 )
      Net distributions from master limited partnerships   3,715,335  
      Dividends from common stock   47,055  
      Dividends from money market mutual funds   407,770  
      Other income   295,000  
           Total Investment Income   4,465,160  
Operating Expenses    
      Advisory fees   6,043,842  
      Administrator fees   266,882  
      Professional fees   216,039  
      Directors’ fees   91,165  
      Custodian fees and expenses   76,281  
      Reports to stockholders   58,438  
      Fund accounting fees   51,213  
      Registration fees   41,998  
      Stock transfer agent fees   7,230  
      Other expenses   51,385  
           Total Operating Expenses   6,904,473  
      Interest expense   9,667,601  
      Auction agent fees   289,410  
      Amortization of debt issuance costs   2,364,098  
           Total Interest, Auction Agent and Debt Issuance Costs   12,321,109  
           Total Expenses   19,225,582  
Net Investment Loss, before Income Taxes   (14,760,422 )
      Current tax expense   (285,171 )
      Deferred tax benefit   5,130,832  
           Income tax benefit, net   4,845,661  
Net Investment Loss       (9,914,761 )

2008 3rd Quarter Report       19


S TATEMENT OF O PERATIONS (Unaudited)
(Continued)

Period from
December 1, 2007
through
     August 31, 2008
Realized and Unrealized Gain (Loss) on Investments      
      and Interest Rate Swaps  
      Net realized gain on investments $ 27,225,983
      Net realized loss on interest rate swap settlements     (2,107,552 )
      Net realized loss on termination of interest rate swap contracts (13,594,721 )
           Net realized gain, before income taxes 11,523,710
                Current tax expense (1,934,863 )
                Deferred tax expense (2,572,060 )
                     Income tax expense (4,506,923 )
                          Net realized gain on investments and interest rate swaps 7,016,787
      Net unrealized depreciation of investments (87,218,675 )
      Net unrealized appreciation of interest rate swap contracts 13,314,124
           Net unrealized depreciation, before income taxes (73,904,551 )
                Current tax expense (4,311,980 )
                Deferred tax benefit 33,216,050
                     Income tax benefit, net 28,904,070  
                          Net unrealized depreciation of investments and interest
                               rate swap contracts (45,000,481 )
Net Realized and Unrealized Loss on Investments and Interest Rate Swaps (37,983,694 )
Distributions to Preferred Stockholders (4,718,159 )
Net Decrease in Net Assets Applicable to Common Stockholders  
      Resulting from Operations $ (52,616,614 )

See accompanying Notes to Financial Statements.

20       Tortoise Energy Capital Corp.


S TATEMENT OF C HANGES IN N ET A SSETS

  Period from    
  December 1, 2007    
  through Year Ended
  August 31, 2008 November 30, 2007
  (Unaudited)    
Operations                    
      Net investment loss   $ (9,914,761 ) $ (11,684,059 )
      Net realized gain on investments        
           and interest rate swaps   7,016,787     18,999,522  
      Net unrealized appreciation (depreciation) of        
           investments and interest rate swap contracts   (45,000,481 )   39,957,483  
      Distributions to preferred stockholders   (4,718,159 )   (5,557,282 )
           Net increase (decrease) in net assets applicable to        
                common stockholders resulting from operations   (52,616,614 )   41,715,664  
Distributions to Common Stockholders        
      Net investment income   —     —  
      Return of capital   (22,062,214 )   (27,780,545 )
           Total distributions to common stockholders   (22,062,214 )   (27,780,545 )
Capital Stock Transactions        
      Proceeds from shelf offering of 1,350,000        
           common shares   —     42,997,500  
      Underwriting discounts and offering expenses associated        
           with the issuance of common stock   —     (2,033,577 )
      Underwriting discounts and offering expenses associated        
           with the issuance of preferred stock   (14,000 )   (497,910 )
      Issuance of 42,284 common shares from reinvestment        
           of distributions to stockholders   —     1,233,873  
      Net increase (decrease) in net assets,        
           applicable to common stockholders, from        
           capital stock transactions   (14,000 )   41,699,886  
      Total increase (decrease) in net assets applicable to        
           common stockholders   (74,692,828 )   55,635,005  
Net Assets        
      Beginning of period (Note 5)   483,868,052      429,009,899  
      End of period   $ 409,175,224   $ 484,644,904  
 
      Accumulated net investment loss, net of        
           income taxes, at the end of period     $ (28,112,445 )   $ (17,420,832 )

See accompanying Notes to Financial Statements.

2008 3rd Quarter Report       21


S TATEMENT OF C ASH F LOWS (Unaudited)

  Period from  
  December 1, 2007  
  through  
        August 31, 2008  
Cash Flows From Operating Activities      
      Distributions received from master limited partnerships   $   38,540,693  
      Interest and dividend income received     449,142  
      Other income received     295,000  
      Purchases of long-term investments     (49,179,080 )  
      Proceeds from sales of long-term investments     99,663,839  
      Purchases of short-term investments, net     (12,087,882 )  
      Payments on interest rate swaps, net     (15,702,273 )  
      Interest expense paid     (8,228,533 )  
      Income taxes paid     (466,765 )  
      Operating expenses paid     (7,306,518 )  
           Net cash provided by operating activities     45,977,623  
Cash Flows From Financing Activities      
      Advances from revolving line of credit     169,200,000  
      Repayments on revolving line of credit     (193,900,000 )  
      Issuance of long-term debt obligations     190,000,000  
      Redemption of long-term debt obligations     (190,000,000 )  
      Preferred stock issuance costs     (14,000 )  
      Debt issuance costs     (650,915 )  
      Distributions paid to common stockholders     (15,801,222 )  
      Distributions paid to preferred stockholders     (4,858,864 )  
           Net cash used in financing activities     (46,025,001 )  
      Net decrease in cash     (47,378 )  
      Cash — beginning of period     280,253  
      Cash — end of period     $   232,875  

22       Tortoise Energy Capital Corp.


S TATEMENT OF C ASH F LOWS (Unaudited)
(Continued)

  Period from
  December 1, 2007
  through
  August 31, 2008
Reconciliation of net decrease in net assets applicable to      
     common stockholders resulting from operations to net      
     cash provided by operating activities      
     Net decrease in net assets applicable to common stockholders      
          resulting from operations   $ (52,616,614 )  
     Adjustments to reconcile net decrease in net assets applicable      
          to common stockholders resulting from operations to net cash      
          provided by operating activities:        
               Purchases of long-term investments     (49,179,080 )  
               Return of capital on distributions received     34,825,358  
               Proceeds from sales of long-term investments     93,305,398  
               Purchases of short-term investments, net     (12,087,882 )  
               Deferred tax benefit     (35,774,822 )  
               Effect of FIN 48 adoption     (776,852 )  
               Net unrealized depreciation of investments and interest      
                    rate swap contracts     73,904,551  
               Net realized gain on investments     (27,225,983 )  
               Amortization of debt issuance costs     2,364,098  
               Distributions to preferred stockholders     4,718,159  
               Changes in operating assets and liabilities:      
                    Increase in interest, dividend and distribution receivable     (5,683 )  
                    Decrease in receivable for investments sold     6,358,441  
                    Increase in prepaid expenses and other assets     (166,930 )  
                    Increase in current tax liability     597,472  
                    Decrease in payable to Adviser     (193,375 )  
                    Increase in accrued expenses and other liabilities     7,931,367  
                         Total adjustments     98,594,237  
     Net cash provided by operating activities   $ 45,977,623  
 
See accompanying Notes to Financial Statements.      

2008 3rd Quarter Report      23


F INANCIAL H IGHLIGHTS
 

  Period from
  December 1, 2007
  through
  August 31, 2008
  (Unaudited)
Per Common Share Data (2)      
     Net Asset Value, beginning of period   $ 27.84  
          Public offering price     —  
          Underwriting discounts and offering costs on issuance      
               of common and preferred stock (3)     —  
          Premiums less underwriting discounts and offering costs      
               on offering of common stock (4)     —  
     Income (loss) from Investment Operations:      
          Net investment income (loss) (5)(6)     (0.61 )  
          Net realized and unrealized gains (losses) on investments and      
               interest rate swap contracts (5)(6)     (2.18 )  
                    Total increase (decrease) from investment operations     (2.79 )  
     Less Distributions to Preferred Stockholders:      
          Net investment income     —  
          Return of capital     (0.27 )  
                    Total distributions to preferred stockholders     (0.27 )  
     Less Distributions to Common Stockholders:      
          Net investment income     —  
          Return of capital     (1.27 )  
                    Total distributions to common stockholders     (1.27 )  
     Net Asset Value, end of period   $ 23.51  
     Per common share market value, end of period   $ 25.31  
     Total Investment Return Based on Market Value (7)     4.46 %  
Supplemental Data and Ratios      
     Net assets applicable to common stockholders, end of period (000’s)   $ 409,175  
     Ratio of expenses (including net current and deferred income tax      
          (benefit) expense) to average net assets (8)(9)(10)     (3.02 )%
     Ratio of expenses (excluding net current and deferred income tax      
          (benefit) expense) to average net assets (8)(10)(11)     5.80 %  
     Ratio of net investment income (loss) to average net assets      
          (including net current and deferred income tax      
          (benefit) expense) (8)(9)(10)     4.37 %  
     Ratio of net investment income (loss) to average net assets      
          (excluding net current and deferred income tax      
          (benefit) expense) (8)(10)(11)     (4.45 )%
     Portfolio turnover rate (8)     7.76 %  

24     Tortoise Energy Capital Corp.


 

              Period from
    May 31, 2005 (1)
Year Ended Year Ended through     
November 30, 2007 November 30, 2006 November 30, 2005
 
 
$ 26.79   $ 23.23   $  —  
—   —   25.00  
 
(0.03 )     (0.06 )   (1.18 )  
  
(0.12 )   —     —  
 
(0.64 )     (0.36 )   0.04  
 
3.80   5.68     (0.05 )  
3.16   5.32   (0.01 )  
 
—   —   —  
(0.33 )   (0.19 )   —  
(0.33 )   (0.19 )   —  
 
—   —   (0.03 )  
  (1.63 )       (1.51 )       (0.55 )  
  (1.63 )       (1.51 )       (0.58 )  
$ 27.84   $ 26.79   $ 23.23  
$ 25.47   $ 26.50   $ 22.09  
1.73 %   27.67 %   (8.33 )%
  
$ 484,645   $ 429,010   $ 370,455  
 
10.51 %   17.38 %   1.29 %  
 
4.46 %   3.47 %   1.39 %  
 
 
(9.84 )% (16.31 )% 0.60 %  
 
 
(3.79 )% (2.40 )% 0.50 %  
  9.90 %       5.56 %       0.08 %  


2008 3rd Quarter Report     25


F INANCIAL H IGHLIGHTS
(Continued)

  Period from
  December 1, 2007
  through
  August 31, 2008
  (Unaudited)
Short-Term Borrowings, end of period (000’s)   $ —  
Long-Term Debt Obligations, end of period (000’s)   $ 190,000  
Preferred Stock, end of period (000’s)   $ 110,000  
Per common share amount of long-term debt obligations      
      outstanding, at end of period   $ 10.91  
Per common share amount of net assets, excluding long-term debt      
      obligations, at end of period   $ 34.42  
Asset coverage, per $1,000 of principal amount of long-term debt      
      obligations and short-term borrowings (12)   $ 3,733  
Asset coverage ratio of long-term debt obligations and short-term borrowings (12)     373 %
Asset coverage, per $25,000 liquidation value per share of preferred stock (13)   $ 117,994  
Asset coverage, per $25,000 liquidation value per share of preferred stock (14)   $ 59,098  
Asset coverage ratio of preferred stock (14)     236 %

(1)   Commencement of Operations.
(2) Information presented relates to a share of common stock outstanding for the entire period.
(3) Represents the issuance of preferred stock for the years ended November 30, 2007 and 2006. Represents the issuance of common stock for the period from May 31, 2005 through November 30, 2005.
(4) Represents the premium on the shelf offering of less than $0.01 per share, less the underwriting and offering costs of $0.13 per share.
(5) The per common share data for the periods ended November 30, 2007, 2006 and 2005 do not reflect the change in estimate of investment income and return of capital, for the respective period. See Note 2C to the financial statements for further disclosure.
(6) The per common share data for the period from December 1, 2007 through August 31, 2008 reflects the cumulative effect of adopting FIN 48, which was a $776,852 decrease to the beginning balance of accumulated net investment loss, or $(0.04) per share. See Note 5 to the financial statements for further disclosure.
(7) Not annualized. Total investment return is calculated assuming a purchase of common stock at the beginning of period (or initial public offering price) and a sale at the closing price on the last day of the period reported (excluding brokerage commissions). The calculation also assumes reinvestment of distributions at actual prices pursuant to the Company’s dividend reinvestment plan.
(8) Annualized for periods less than one full year.

26     Tortoise Energy Capital Corp.


 

      Period from
                   May 31, 2005 (1)
Year Ended Year Ended through
November 30, 2007 November 30, 2006 November 30, 2005
 
$ 24,700   $ 28,000   —  
$ 190,000     $ 120,000   $ 120,000  
$ 110,000   $ 70,000       —  
 
$ 10.92   $ 7.49   $ 7.52  
 
$ 38.76   $ 34.28   $ 30.75  
 
$ 3,770   $ 4,372   $ 4,087  
377 %     437 %   409 %  
$ 135,147   $ 178,218   —  
$ 62,315   $ 74,198   —  
249 %     297 %   —  

(9)   For the period from December 1, 2007 through August 31, 2008, the Company accrued $6,532,014 for current tax expense and $35,774,822 for net deferred income tax benefit. The Company accrued $30,376,674 and $54,292,114 for the years ended November 30, 2007 and 2006, respectively, for current and deferred income tax expense. For the period from May 31, 2005 through November 30, 2005, the Company accrued $192,462 in net deferred income tax benefit.
(10) The expense ratios and net investment income (loss) ratios do not reflect the effect of distributions to preferred stockholders.
(11) This ratio excludes the impact of current and deferred income taxes.
(12) Represents value of total assets less all liabilities and indebtedness not represented by long-term debt obligations, short-term borrowings and preferred stock at the end of the period divided by long-term debt obligations and short-term borrowings outstanding at the end of the period.
(13) Represents value of total assets less all liabilities and indebtedness not represented by preferred stock at the end of the period divided by preferred stock outstanding at the end of the period, assuming the retirement of all long-term debt obligations and short-term borrowings.
(14) Represents value of total assets less all liabilities and indebtedness not represented by long-term debt obligations, short-term borrowings and preferred stock at the end of the period divided by the sum of long-term debt obligations, short-term borrowings and preferred stock outstanding at the end of the period.

See accompanying Notes to Financial Statements.

2008 3rd Quarter Report     27


N OTES TO F INANCIAL S TATEMENTS (Unaudited)
August 31, 2008

1. Organization
Tortoise Energy Capital Corporation (the “Company”) was organized as a Maryland corporation on March 4, 2005, and is a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s investment objective is to seek a high level of total return with an emphasis on current distributions to stockholders. The Company seeks to provide its stockholders with an efficient vehicle to invest in the energy infrastructure sector. The Company received the proceeds of its initial public offering and commenced operations on May 31, 2005. The Company’s stock is listed on the New York Stock Exchange under the symbol “TYY.”

2. Significant Accounting Policies

A. Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

B. Investment Valuation
The Company owns securities that are listed on a securities exchange. The Company values those securities at their last sale price on that exchange on the valuation date. If the security is listed on more than one exchange, the Company uses the price of that exchange that it considers to be the principal exchange on which the stock is traded. Securities listed on the NASDAQ will be valued at the NASDAQ Official Closing Price, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on such day, the security will be valued at the mean between bid and ask price on such day.

The Company may invest up to 50 percent of its total assets in restricted securities. Restricted securities are subject to statutory or contractual restrictions on their public resale, which may make it more difficult to obtain a valuation and may limit the Company’s ability to dispose of them. Investments in restricted securities and other securities for which market quotations are not readily available will be valued in good faith by using fair value procedures approved by the Board of Directors. Such fair value procedures consider factors such as discounts to publicly traded issues, time until conversion date, securities with similar yields, quality, type of issue, coupon, duration and rating. If events occur that affect the value of the Company’s portfolio securities before the net asset value has been calculated (a “significant event”), the portfolio securities so affected will generally be priced using a fair value procedure.

An equity security of a publicly traded company acquired in a direct placement transaction may be subject to restrictions on resale that can affect the security’s liquidity (and hence its fair value). Such securities that are convertible into or otherwise will become freely tradable will be valued based on the market value of the freely tradable security less an applicable discount. Generally, the discount

28     Tortoise Energy Capital Corp.


N OTES TO F INANCIAL S TATEMENTS (Unaudited)
(Continued)

will initially be equal to the discount at which the Company purchased the securities. To the extent that such securities are convertible or otherwise become freely tradable within a time frame that may be reasonably determined, an amortization schedule may be determined for the discount. 

The Company generally values short-term debt securities at prices based on market quotations for such securities, except those securities purchased with 60 days or less to maturity are valued on the basis of amortized cost, which approximates market value.

The Company generally values its interest rate swap contracts using industry-accepted models which discount the estimated future cash flows based on the stated terms of the interest rate swap agreement by using interest rates currently available in the market, or based on dealer quotations, if available.

Effective December 1, 2007, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is applicable in conjunction with other accounting pronouncements that require or permit fair value measurements, but does not expand the use of fair value to any new circumstances. More specifically, SFAS 157 emphasizes that fair value is a market based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority given to quoted prices in active markets and the lowest priority to unobservable inputs. The Company’s adoption of SFAS 157 did not have a material impact on its financial condition or results of operations. See Note 6 — Fair Value of Financial Instruments for further disclosure.

C. Security Transactions and Investment Income
Security transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis. Interest income is recognized on the accrual basis, including amortization of premiums and accretion of discounts. Dividend and distribution income is recorded on the ex-dividend date. Distributions received from the Company’s investments in master limited partnerships (“MLPs”) generally are comprised of ordinary income, capital gains and return of capital from the MLP. The Company records investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on historical information available from each MLP and other industry sources. These estimates may subsequently be revised based on information received from MLPs after their tax reporting periods are concluded, as the actual character of these distributions is not known until after the fiscal year-end of the Company.

For the period from December 1, 2006 through November 30, 2007, the Company estimated the allocation of investment income and return of capital for the distributions received from MLPs within the Statement of Operations. For this period, the Company had estimated approximately 13 percent as investment income and approximately 87 percent as return of capital.

2008 3rd Quarter Report      29


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(Continued)

Subsequent to November 30, 2007, the Company reclassified the amount of investment income and return of capital it recognized based on the 2007 tax reporting information received from the individual MLPs. This reclassification amounted to a decrease in pre-tax net investment income of approximately $1,026,000 or $0.059 per share ($624,000 or $0.036 per share, net of deferred tax benefit); an increase in unrealized appreciation of investments of approximately $691,000 or $0.040 per share ($420,000 or $0.024 per share, net of deferred tax expense) and an increase in realized gains on investments of approximately $335,000 or $0.019 per share ($204,000 or $0.012 per share, net of deferred tax expense) for the period from December 1, 2007 through August 31, 2008.

Subsequent to the period ended February 29, 2008, the Company reclassified the amount of investment income and return of capital reported in the current fiscal year based on its revised 2008 estimates. This reclassification amounted to a decrease in pre-tax net investment income of approximately $143,500 or $0.008 per share ($87,400 or $0.005 per share, net of deferred tax benefit); an increase in unrealized appreciation of investments of approximately $152,200 or $0.009 per share ($92,700 or $0.005 per share, net of deferred tax expense) and a decrease in realized gains on investments of approximately $8,700 or $0.000 per share ($5,300 or $0.000 per share, net of deferred tax benefit).

D. Distributions to Stockholders
Distributions to common stockholders are recorded on the ex-dividend date. The Company may not declare or pay distributions to its common stockholders if it does not meet asset coverage ratios required under the 1940 Act or the rating agency guidelines for the Notes and Preferred Stock following such distribution. The character of distributions to common stockholders made during the year may differ from their ultimate characterization for federal income tax purposes. For the year ended November 30, 2007 and the period ended August 31, 2008, the Company’s distributions for book purposes were comprised of 100 percent return of capital. For the year ended November 30, 2007, the Company’s distributions, for tax purposes, were comprised of 4.9 percent qualified dividend income and 95.1 percent return of capital. The tax character of distributions paid for the current year will be determined subsequent to November 30, 2008.

Distributions to preferred stockholders are based on variable rates set at auctions, normally held every 7 or 28 days unless a special rate period is designated. The Company may not declare or pay distributions to its preferred stockholders if it does not meet a 200 percent asset coverage ratio for the Notes or the rating agency basic maintenance amount for the Notes following such distribution. Distributions to preferred stockholders are accrued on a daily basis for the subsequent rate period at a rate determined on the auction date. Distributions to preferred stockholders are payable on the first day following the end of the rate period or the first day of month if the rate period is longer than one month. The character of distributions to preferred stockholders made during the year may differ from their ultimate characterization for federal income tax purposes. For the year ended November 30, 2007 for tax purposes, the Company determined the distributions to preferred stockholders were comprised entirely of qualified dividend income. The tax character of distributions paid for the current year will be determined subsequent to November 30, 2008.

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(Continued)

E. Federal Income Taxation
The Company, as a corporation, is obligated to pay federal and state income tax on its taxable income. Currently, the highest regular federal income tax rate for a corporation is 35 percent; however the Company anticipates a marginal effective rate of 34.5 percent due to expectations of the level of taxable income relative to the federal graduated tax rates, including the tax rate anticipated when temporary differences reverse. The Company may be subject to a 20 percent federal alternative minimum tax on its federal alternative minimum taxable income to the extent that its alternative minimum tax exceeds its regular federal income tax.

The Company invests its assets primarily in MLPs, which generally are treated as partnerships for federal income tax purposes. As a partner in the MLPs, the Company reports its allocable share of the MLP’s taxable income in computing its own taxable income. The Company’s tax expense or benefit is included in the Statement of Operations based on the component of income or gains (losses) to which such expense or benefit relates. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

On December 1, 2007, the Company adopted the provisions of the Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. For additional information regarding adoption of FIN 48, see Note 5 — Income Taxes.

F. Organization Expenses, Offering and Debt Issuance Costs
The Company is responsible for paying all organizational expenses, which were expensed as incurred. Offering costs related to the issuance of common and preferred stock is charged to additional paid-in capital when the stock is issued. Offering costs of $14,000 related to the issuance of preferred stock in April 2007 were charged to additional paid-in capital during the period ended August 31, 2008. Debt issuance costs related to the long-term debt obligations are capitalized and amortized over the period the debt is outstanding. The amounts of such capitalized cost for the Series D Notes issued in December 2007, Series E Notes issued in June 2008 and Series F Notes issued in June 2008 were $303,035, $103,402 and $248,846, respectively.

G. Derivative Financial Instruments
The Company uses derivative financial instruments (principally interest rate swap contracts) in an attempt to manage interest rate risk. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not hold or issue derivative financial instruments for speculative purposes. All derivative financial instruments are recorded at fair value with changes in fair value during the reporting period and amounts accrued under the derivative instruments included as unrealized gains or losses in the Statement of Operations. Monthly cash settlements under the terms of the

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(Continued)

derivative instruments and termination of such contracts are recorded as realized gains or losses in the Statement of Operations.

H. Indemnifications
Under the Company’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Company. In addition, in the normal course of business, the Company may enter into contracts that provide general indemnifications to other parties. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred, and may not occur. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

I. Recent Accounting Pronouncement
In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 161 (“SFAS 161”), Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133, which requires enhanced disclosures about an entity’s derivative and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Management is currently evaluating what impact the adoption of SFAS 161 will have on the Company’s financial statements and related disclosures.

3. Concentration of Risk
The Company’s investment objective is to seek a high level of total return with an emphasis on current distributions paid to its stockholders. Under normal circumstances, the Company will have at least 80 percent of its net assets, plus any borrowings for investment purposes, invested in equity securities of entities in the energy sector and at least 80 percent of its total assets in equity securities of MLPs and their affiliates in the energy infrastructure sector. The Company will not invest more than 15 percent of its total assets in any single issuer as of the time of purchase. The Company may invest up to 50 percent of its total assets in restricted securities, all of which may be illiquid securities. The Company may invest up to 20 percent of its total assets in debt securities, including securities rated below investment grade. In determining application of these policies, the term “total assets” includes assets obtained through leverage. Companies that primarily invest in a particular sector may experience greater volatility than companies investing in a broad range of industry sectors. The Company may, for defensive purposes, temporarily invest all or a significant portion of its assets in investment grade securities, short-term debt securities and cash or cash equivalents. To the extent the Company uses this strategy, it may not achieve its investment objective.

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(Continued)

4. Agreements
The Company has entered into an Investment Advisory Agreement with Tortoise Capital Advisors, L.L.C. (the “Adviser”). Under the terms of the agreement, the Company pays the Adviser a fee equal to an annual rate of 0.95 percent of the Company’s average monthly total assets (including any assets attributable to leverage) minus accrued liabilities (other than deferred income taxes, debt entered into for purposes of leverage and the aggregate liquidation preference of outstanding preferred stock) (“Managed Assets”), in exchange for the investment advisory services provided.

The Company has engaged U.S. Bancorp Fund Services, LLC to serve as the Company’s administrator. The Company pays the administrator a monthly fee computed at an annual rate of 0.04 percent of the first $1,000,000,000 of the Company’s Managed Assets, 0.03 percent on the next $1,000,000,000 of Managed Assets and 0.02 percent on the balance of the Company’s Managed Assets.

Computershare Trust Company, N.A. serves as the Company’s transfer agent, dividend paying agent, and agent for the automatic dividend reinvestment plan.

U.S. Bank, N.A. serves as the Company’s custodian. The Company pays the custodian a monthly fee computed at an annual rate of 0.015 percent on the first $100,000,000 of the Company’s portfolio assets and 0.01 percent on the balance of the Company’s portfolio assets.

5. Income Taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Company’s deferred tax assets and liabilities as of August 31, 2008, are as follows:

Deferred tax assets:
     Net operating loss carryforwards $ 19,807,834
     Deferred expense associated with interest rate swap terminations 1,610,600
     Organization costs 17,821
     Accrued expenses 2,154,377
  23,590,632
 
Deferred tax liabilities:
     Net unrealized gains on investment securities and interest rate swap contracts 49,775,855
     Basis reduction of investment in MLPs 22,335,320
  72,111,175
Total net deferred tax liability $ 48,520,543

At August 31, 2008, a valuation allowance was not recorded because the Company believes it is more likely than not that there is an ability to realize its deferred tax assets.

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(Continued)

Total income taxes differ from the amount computed by applying the federal statutory income tax rate of 34.5 percent to net investment loss and realized gains and unrealized loss on investments and interest rate swaps before taxes for the period from December 1, 2007 to August 31, 2008, as follows:

Application of statutory income tax rate $ (26,613,736 )
State income taxes, net of federal tax effect (3,556,212 )
Foreign tax, net of federal tax effect 1,064,272
Other (137,132 )
Total benefit $ (29,242,808 )

Total income taxes are computed by applying the federal statutory rate plus a blended state income tax rate. During the period, the Company re-evaluated its overall federal and state income tax rate, increasing it from 39.00 percent to 39.11 percent. The increase in tax rate resulted in a $279,105 decrease to deferred tax benefit. The cumulative effect of adopting FIN 48 was a $776,852 decrease to the beginning balance of accumulated net investment loss.

The Company also re-evaluated its anticipated state tax positions, resulting in a reclass of approximately $8 million from deferred tax liability to other liabilities related to anticipated rates at which state taxes are expected to be paid versus reserved. The Company’s policy is to record interest and penalties on uncertain tax positions as part of tax expense. The total amount of unrecognized tax benefits at November 30, 2007 was $7,890,713. No interest or penalties were accrued at such date. All such amounts would affect the effective tax rate if recognized. All tax years since inception remain open to examination by federal and state tax authorities. The Company does not expect the amount of unrecognized tax positions at November 30, 2007 to change significantly over the next twelve months from such date.

For the period from December 1, 2007 to August 31, 2008, the components of income tax expense include current foreign tax expense (net of federal tax benefit) of $1,064,272, current federal and state income taxes (net of federal tax benefit) of $4,697,796, and $769,946, respectively, and deferred federal and state income tax benefit (net of federal tax effect) of $31,448,664 and $4,326,158, respectively. As of November 30, 2007, the Company had a net operating loss for federal income tax purposes of approximately $37,408,000. This net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire as follows: $555,000, $18,479,000 and $18,374,000 in the years ending November 30, 2025, 2026 and 2027, respectively. The amount of the deferred tax asset for net operating losses at August 31, 2008 also includes an amount for the period from December 1, 2007 through August 31, 2008.

As of August 31, 2008, the aggregate cost of securities for federal income tax purposes was $580,097,757. At August 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of fair value over tax cost was $212,479,361, the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over fair value was $17,683,855 and the net unrealized appreciation was $194,795,506.

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6. Fair Value of Financial Instruments
Various inputs are used in determining the value of the Company’s investments. These inputs are summarized in the three broad levels listed below:

Level 1 —  

quoted prices in active markets for identical investments

     
Level 2 —

other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)

 
Level 3 —

significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following table provides the fair value measurements of applicable Company assets by level within the fair value hierarchy as of August 31, 2008. These assets are measured on a recurring basis.

Fair Value Measurements at Reporting Date Using
Quoted Prices in Significant
Active Markets for Significant Other Unobservable
  Fair Value at Identical Assets Observable Inputs Inputs
Description                August 31, 2008 (Level 1)                (Level 2)                (Level 3)
Investments   $ 774,893,263 $ 746,334,712   $ 15,014,238   $ 13,544,313

Fair Value Measurements Using Significant
Unobservable Inputs (Level 3) for Investments
For the three months ended
               February 29, 2008                May 31, 2008                August 31, 2008
Fair Value beginning balance   $ — $ —   $ —
Total unrealized gains (losses) included in net
     increase (decrease) in net assets applicable
     to common stockholders — — —
Net purchases, issuances and settlements — — —
Return of capital adjustments impacting cost
     basis of security — — —
Transfers into (out of) Level 3 — — 13,544,313
Fair value ending balance $ — $ — $ 13,544,313

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(Continued)

7. Restricted Securities
Certain of the Company’s investments are restricted and are valued as determined in accordance with procedures established by the Board of Directors as more fully described in Note 2. The table below shows the number of units held, acquisition date, acquisition cost, fair value per unit and percent of net assets which the securities comprise at August 31, 2008.

Fair
  Fair Value as
Value   Percent
Number   Acquisition   Acquisition     Per of Net
Investment Security of Units      Date      Cost        Unit      Assets
Crosstex Energy, L.P.      Series D Subordinated Units   581,301   3/23/07   $ 15,000,007   $ 23.30   3.3 %
Enbridge Energy Partners, L.P. Class C Common Units 314,632 4/02/07 15,000,000 47.72 3.7
$ 30,000,007 7.0 %

8. Investments in Affiliate
Investments representing 5 percent or more of the outstanding voting securities of a portfolio company result in that company being considered an affiliated company, as defined in the 1940 Act. There were no affiliate securities held by the Company as of August 31, 2008. A summary of affiliated transactions for the company which was an affiliate during the period from December 1, 2007 to August 31, 2008, is as follows:

Share Realized Gross August 31, 2008
Balance Gross Gross Gain   Distributions Share
     11/30/07      Additions      Reductions      (Loss)      Received      Balance      Fair Value
Crosstex Energy, L.P. (1) 1,269,913 $ — $ — $ — $   2,362,038 1,253,600   $ 31,929,192
Crosstex Energy, L.P.-
     Series D
     Subordinated Units (1) 581,301   —     —     —     —   581,301 13,544,313
$ — $ — $ — $ 2,362,036 $ 45,473,505

(1)  Not deemed an affiliate as of August 31, 2008; $1,587,391 non-affiliated distributions received.

9. Investment Transactions
For the period from December 1, 2007 to August 31, 2008, the Company purchased (at cost) and sold securities (at proceeds) in the amount of $49,179,080 and $93,305,398 (excluding short-term debt securities and interest rate swaps), respectively.

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10. Long-Term Debt Obligations
The Company has $190,000,000 aggregate principal amount of private senior notes, Series D, Series E and Series F (collectively, the “Notes”) outstanding. Estimated fair values of the Notes were calculated using the spread between the current rate and the U.S. Treasury rate with an equivalent maturity date. At August 31, 2008, the spread was applied to the equivalent U.S. Treasury rate for the series and future cash flows were discounted to determine the estimated fair value. The table below shows the issue date, maturity date, notional/carrying amount, estimated fair value, and fixed rate as of August 31, 2008 for each series of Notes outstanding at August 31, 2008.

Notional/Carrying Estimated Fixed
Series      Issue Date      Maturity Date      Amount      Fair Value      Rate
Series D   December 21, 2007 December 21, 2014   $ 100,000,000   $ 98,896,861   6.07 %
Series E June 17, 2008 June 17, 2011 25,000,000 25,002,059 5.56 %
Series F June 17, 2008 June 17, 2013 65,000,000 64,949,829 6.02 %
$ 190,000,000 $ 188,848,749

On January 22, 2008, the Company fully redeemed its Series B Notes in the amount of $60,000,000. The weighted-average interest rate for the period from December 1, 2007 through January 22, 2008 (date of redemption) was 6.19 percent. This rate does not include commissions paid to the auction agent which are included in auction agent fees in the accompanying Statement of Operations. The unamortized balance of capitalized costs was expensed and resulted in a loss on early redemption in the amount of $378,016 which is included in amortization of debt issuance costs in the accompanying Statement of Operations.

On February 1, 2008, April 25, 2008 and July 18, 2008, the Company partially redeemed its Series A Notes in the amount of $20,000,000, $10,000,000 and $30,000,000, respectively. The unamortized balance of allocated capitalized costs was expensed and resulted in a loss on early redemption in the amount of $254,375, $126,158 and $376,902, respectively, which is included in amortization of debt issuance costs in the accompanying Statement of Operations. The weighted-average interest rate for the period for December 1, 2007 through July 18, 2008 (date of redemption) was 5.58 percent. This rate does not include commissions paid to the auction agent which are included in auction agent fees in the accompanying Statement of Operations.

The Company partially redeemed its Series C Notes in the amount of $20,000,000 on February 5, 2008 and redeemed the remaining Series C Notes in the amount of $50,000,000 on April 29, 2008. The unamortized balance of allocated capitalized costs was expensed and resulted in a loss on early redemption in the amount of $215,635 and $552,399, respectively, which is included in amortization of debt issuance costs in the accompanying Statement of Operations. The weighted-average interest rate for the period from December 1, 2007 through April 29, 2008 (date of redemption) was 5.99 percent. This rate does not include commissions paid to the auction agent which are included in auction agent fees in the accompanying Statement of Operations.

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The Notes are redeemable in certain circumstances at the option of the Company. The Notes are also subject to a mandatory redemption if the Company fails to meet asset coverage ratios required under the 1940 Act or the rating agency guidelines if such failure is not waived or cured. At August 31, 2008, the Company was in compliance with asset coverage covenants and basic maintenance covenants for its senior notes. See Note 15 for additional information.

The Notes are unsecured obligations of the Company and, upon liquidation, dissolution or winding up of the Company, will rank: (1) senior to all the Company’s outstanding preferred stock; (2) senior to all of the Company’s outstanding common stock; (3) on a parity with any unsecured creditors of the Company and any unsecured senior securities representing indebtedness of the Company and (4) junior to any secured creditors of the Company.

11. Preferred Stock
The Company has 4,400 authorized shares of Money Market Preferred (“MMP”) Stock, of which all 4,400 shares are currently outstanding. The MMP Stock has rights determined by the Board of Directors. The MMP Stock has a liquidation value of $25,000 per share plus any accumulated, but unpaid distributions, whether or not declared. Holders of the MMP Stock are entitled to receive cash distribution payments at an annual rate that may vary for each rate period. At August 31, 2008, fair value of the MMP Stock approximates the carrying amount because the distribution rate fluctuates with changes in interest rates available in the current market. The table below shows the number of shares outstanding, aggregate liquidation preference, current rate as of August 31, 2008, the weighted-average rate for period from December 1, 2007 to August 31, 2008 and the typical rate period for each series of MMP Stock outstanding at August 31, 2008. The Company may designate a rate period that is different than the rate period indicated in the table below.

Aggregate Weighted-
Shares Liquidation Current Average
Series      Outstanding      Preference      Rate      Rate      Rate Period
MMP I Stock   2,800   $ 70,000,000   4.93%   5.71%   28 days
MMP II Stock 1,600 40,000,000 4.88% 5.45% 7 days
4,400 $ 110,000,000

The rates in the above table do not include commissions paid to the auction which are included in auction agent fees in the accompanying Statement of Operations. Under the Investment Company Act of 1940, the Company may not declare dividends or make other distributions on shares of common stock or purchases of such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding MMP Stock would be less than 200 percent.

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In the event that there are not enough bidders in the auction at rates below the maximum rate as prescribed by the terms of the Preferred Stock, the auction fails. When an auction fails, the rate paid to continuing or new bidders is set at the maximum rate. A failed auction does not cause a mandatory redemption or affect the security’s liquidation preference. In the event of a failed auction, distributions continue to be paid at the maximum rates and times determined in the articles supplementary. The maximum rate on Preferred Stock based on current ratings is 200 percent of the greater of: (i) the applicable AA Composite Commercial Paper Rate or the applicable Treasury Index Rate or (ii) the applicable LIBOR as of the date of the auction.

The Preferred Stock is redeemable in certain circumstances at the option of the Company. The Preferred Stock is also subject to a mandatory redemption if the Company fails to meet asset coverage ratios required under the 1940 Act or the rating agency guidelines if such failure is not waived or cured. At August 31, 2008, the Company was in compliance with asset coverage covenants and basic maintenance covenants for its Preferred Stock. See Note 15 for additional information.

The holders of MMP Stock have voting rights equal to the holders of common stock (one vote per MMP share) and will vote together with the holders of shares of common stock as a single class except on matters affecting only the holders of preferred stock or the holders of common stock.

12. Interest Rate Swap Contracts
The Company entered into interest rate swap contracts in an attempt to protect itself from increasing interest and dividend expense on its leverage resulting from increasing short-term interest rates. A decline in interest rates may result in a decline in the fair value of the swap contracts, which may result in a decline in the net assets of the Company. In addition, if the counterparty to the interest rate swap contracts defaults, the Company would not be able to use the anticipated receipts under the swap contracts to offset the interest payments on the Company’s leverage. At the time the interest rate swap contracts reach their scheduled termination, there is a risk that the Company would not be able to obtain a replacement transaction, or that the terms of the replacement would not be as favorable as on the expiring transaction. In addition, if the Company is required to terminate any swap contract early due to the Company failing to maintain a required 300 percent and 200 percent asset coverage of the liquidation value of the outstanding long-term and short-term debt obligations and preferred stock, respectively, or if the Company loses its credit rating on its long-term debt obligations or preferred stock, then the Company could be required to make a termination payment, in addition to redeeming all or some of the long-term debt obligations, short-term borrowings and preferred stock.

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The table below shows the notional amount at November 30, 2007, maturity date, fixed rate paid by the Company, floating rate received by the Company, termination date(s) and the realized loss on the termination of the interest rate swap contracts with U.S. Bank, N.A. for the period from December 1, 2007 through August 31, 2008. At August 31, 2008, the Company had no outstanding swap contracts.

Notional   Fixed Rate Floating Rate   Realized
Amount at Maturity Paid by Received by Termination Loss on
11/30/2007           Date           the Company           the Company           Date(s)           Termination
  $ 60,000,000   11/25/2015 5.11 % 1 month U.S. Dollar LIBOR 1/10/2008, $ (3,606,295 )
        6/18/2008  
     60,000,000 12/2/2015 5.11 % 1 month U.S. Dollar LIBOR 1/11/2008, (3,629,661 )
        6/18/2008  
     20,000,000 4/15/2013 5.03 % 1 month U.S. Dollar LIBOR 6/18/2008, (728,598 )
        7/25/2008  
     45,000,000   4/21/2012 4.99 % 1 month U.S. Dollar LIBOR   6/18/2008 (1,430,984 )
     20,000,000 2/15/2013 4.95 % 1 month U.S. Dollar LIBOR 7/25/2008   (766,428 )
     20,000,000 3/1/2018 4.99 % 1 month U.S. Dollar LIBOR 7/25/2008 (646,434 )
     15,000,000 2/28/2017 5.05 % 1 month U.S. Dollar LIBOR 7/25/2008     (624,395 )
     15,000,000 2/28/2015   5.01 %   1 month U.S. Dollar LIBOR 7/25/2008 (601,653 )
     33,000,000 4/21/2014 5.06 % 1 month U.S. Dollar LIBOR 7/25/2008 (1,560,273 )
          $ (13,594,721 )

13. Common Stock
The Company has 100,000,000 shares of capital stock authorized and 17,406,086 shares outstanding at August 31, 2008. Transactions in common stock for the year ended November 30, 2007 and the period ended August 31, 2008, were as follows:

Shares at November 30, 2006   16,013,802
Shares sold through shelf offering    1,350,000
Shares issued through reinvestment of distributions    42,284
Shares at November 30, 2007 and August 31, 2008    17,406,086

14. Credit Facility
On March 22, 2007, the Company entered into an agreement establishing a $150,000,000 unsecured credit facility maturing on March 21, 2008. On March 20, 2008, the Company entered into an extension of its unsecured credit facility. The amended credit agreement provides for a revolving credit facility of up to $92,500,000 that can be increased to $160,000,000 if certain conditions are met. The amended credit facility terminates on March 20, 2009. Under the terms of the credit facility, U.S. Bank, N.A. serves as a lender and the lending syndicate agent on behalf of other lenders participating in the credit facility. Outstanding balances generally will accrue interest at a variable annual rate equal to one-month LIBOR plus 0.75 percent.

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The Company must maintain asset coverage required under the 1940 Act. If the Company fails to maintain the required coverage, it may be required to repay a portion of the outstanding balance until the coverage requirement has been met.

The average principal balance and interest rate for the period during which the credit facility was utilized during the period ended August 31, 2008 was approximately $36,000,000 and 3.74 percent, respectively. At August 31, 2008, the Company had no outstanding borrowings under the credit facility.

15. Subsequent Events
On September 2, 2008, the Company paid a distribution in the amount of $0.43 per common share, for a total of $7,484,617. Of this total, the dividend reinvestment amounted to $1,525,365.

The Company partially redeemed $10,000,000 of MMP I Stock on October 7, 2008 and $5,000,000 of MMP II Stock on October 2, 2008.

Due to the market volatility subsequent to August 31, 2008, the Company determined that at the close of business on October 10, 2008, the Company was not in compliance with its basic maintenance covenants for preferred stock. The covenants were cured the following business day. As of the close of business on October 13, 2008, the Company was not in violation of any 1940 Act asset coverage covenants or basic maintenance covenants for its senior notes, preferred stock and credit facility.

2008 3rd Quarter Report      41


A DDITIONAL I NFORMATION (Unaudited)

Director and Officer Compensation
The Company does not compensate any of its directors who are interested persons nor any of its officers. For the period ended August 31, 2008, the aggregate compensation paid by the Company to the independent directors was $114,000. The Company did not pay any special compensation to any of its directors or officers.

Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the Securities Act of 1933. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect the Company’s actual results are the performance of the portfolio of investments held by it, the conditions in the U.S. and international financial, petroleum and other markets, the price at which shares of the Company will trade in the public markets and other factors discussed in filings with the SEC.

Proxy Voting Policies
A description of the policies and procedures that the Company uses to determine how to vote proxies relating to portfolio securities owned by the Company and information regarding how the Company voted proxies relating to the portfolio of securities during the 12-month period ended June 30, 2008 are available to stockholders (i) without charge, upon request by calling the Company at (913) 981-1020 or toll-free at (866) 362-9331 and on the Company’s Web site at www.tortoiseadvisors.com; and (ii) on the SEC’s Web site at www.sec.gov.

Form N-Q
The Company files its complete schedule of portfolio holdings for the first and third quarters of each fiscal year with the SEC on Form N-Q. The Company’s Form N-Q is available without charge upon request by calling the Company at (866) 362-9331 or by visiting the SEC’s Web site at www.sec.gov. In addition, you may review and copy the Company’s Form N-Q at the SEC’s Public Reference Room in Washington D.C. You may obtain information on the operation of the Public Reference Room by calling (800) SEC-0330.

The Company’s Form N-Qs are also available on the Company’s Web site at www.tortoiseadvisors.com.

Statement of Additional Information
The Statement of Additional Information (“SAI”) includes additional information about the Company’s directors and is available upon request without charge by calling the Company at (866) 362-9331 or by visiting the SEC’s Web site at www.sec.gov.

Certifications
The Company’s Chief Executive Officer has submitted to the New York Stock Exchange the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual.

The Company has filed with the SEC the certification of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act.

42     Tortoise Energy Capital Corp.


A DDITIONAL I NFORMATION (Unaudited)
(Continued)

Privacy Policy
In order to conduct its business, the Company collects and maintains certain nonpublic personal information about its stockholders of record with respect to their transactions in shares of the Company’s securities. This information includes the stockholder’s address, tax identification or Social Security number, share balances, and distribution elections. We do not collect or maintain personal information about stockholders whose share balances of our securities are held in “street name” by a financial institution such as a bank or broker.

We do not disclose any nonpublic personal information about you, the Company’s other stockholders or the Company’s former stockholders to third parties unless necessary to process a transaction, service an account, or as otherwise permitted by law.

To protect your personal information internally, we restrict access to nonpublic personal information about the Company’s stockholders to those employees who need to know that information to provide services to our stockholders. We also maintain certain other safeguards to protect your nonpublic personal information.

2008 3rd Quarter Report      43





















44      Tortoise Energy Capital Corp.


Office of the Company and   ADMINISTRATOR  
of the Investment Adviser   U.S. Bancorp Fund Services, LLC  
Tortoise Capital Advisors, L.L.C.   615 East Michigan St.  
11550 Ash Street, Suite 300   Milwaukee, Wis. 53202  
Leawood, Kan. 66211    
(913) 981-1020   CUSTODIAN  
(913) 981-1021 (fax)   U.S. Bank, N.A.  
www.tortoiseadvisors.com   1555 North Rivercenter Drive, Suite 302  
  Milwaukee, Wis. 53212  
Managing Directors of    
Tortoise Capital Advisors, L.L.C.   TRANSFER, DIVIDEND DISBURSING  
H. Kevin Birzer   AND REINVESTMENT AGENT  
Zachary A. Hamel   Computershare Trust Company, N.A.  
Kenneth P. Malvey   P.O. Box 43078  
Terry Matlack   Providence, R.I. 02940-3078  
David J. Schulte   (312) 588-4990  
  www.computershare.com  
Board of Directors of    
Tortoise Energy Capital Corp.   LEGAL COUNSEL  
  Husch Blackwell Sanders LLP  
H. Kevin Birzer, Chairman   4801 Main St.  
Tortoise Capital Advisors, L.L.C.   Kansas City, Mo. 64112  
 
Terry Matlack  
Tortoise Capital Advisors, L.L.C.  
 
Conrad S. Ciccotello  
Independent  
 
John R. Graham  
Independent  
 
Charles E. Heath  
Independent   		INVESTOR RELATIONS  
(866) 362-9331  
info@tortoiseadvisors.com  
 
STOCK SYMBOL  
Listed NYSE Symbol: TYY  
 
This report is for stockholder information.  
This is not a prospectus intended for use in  
the purchase or sale of fund shares. Past  
performance is no guarantee of future  
results and your investment may be  
worth more or less at the time you sell.  
 
Tortoise Capital Advisors’ Public Investment Companies
 
        Total Assets  
  Ticker/   Primary Target   Investor   as of 8/31/08  
Name   Inception Date   Investments   Suitability   ($ in millions)  
Tortoise Energy Capital Corp.   TYY   U.S. Energy Infrastructure   Retirement Accounts      $776  
  May 2005     Pension Plans    
      Taxable Accounts    
 
Tortoise Energy Infrastructure Corp.   TYG   U.S. Energy Infrastructure   Retirement Accounts   $1,152  
  Feb. 2004     Pension Plans    
      Taxable Accounts    
   
Tortoise North American Energy Corp.   TYN   Canadian and U.S.   Taxable Accounts      $175  
  Oct. 2005   Energy Infrastructure      
 
Tortoise Capital Resources Corp.   TTO   U.S. Energy Infrastructure   Retirement Accounts      $162  
  Dec. 2005   Private and Micro Cap   Pension Plans    
  (Feb. 2007 – IPO)   Public Companies   Taxable Accounts    



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