INVESTOR RELATIONS

Form 2439

TO STOCKHOLDERS OF RECORD ON SEPTEMBER 30, 2006:

For American Capital, Ltd.’s tax year ended September 30, 2006, the Company retained its taxable net long–term capital gain on investments and paid a federal income tax thereon on behalf of its stockholders.

Enclosed is a Form 2439 furnished under Section 852(b)(3)(D) of the U.S. Internal Revenue Code. Form 2439 reports your share of such capital gain and your share of the federal income tax paid. You must include on your income tax return for 2006 your share of the Company’s taxable net long-term capital gain and you may take a credit for the tax paid by the Company on your behalf. The amount of the credit may be more than your actual tax liability for those gains. You may take credit for the full amount of the federal income tax paid on your behalf and create a balance in your favor to offset other tax liabilities or to entitle you to a refund. You should increase the tax basis of your investment in the Company’s stock by the difference between your share of the taxable net long–term capital gain and the federal income tax paid on your behalf.

If you also owned shares on September 30, 2006 registered in the name of a broker or a nominee, you should receive a similar Form 2439 from the broker or nominee pertaining to such shares.

Line 1a of Form 2439 reports your share of the total taxable net long-term capital gain realized and retained by the Company for the period from October 1, 2005 through September 30, 2006 based on the total number of shares of the Company’s stock registered in your name on September 30, 2006. This amount is equivalent to $0.293745793 per share.

Line 2 of Form 2439 reports the federal income tax paid by the Company on your behalf on the gain shown on Line 1a. You may take a credit for the amount shown on Line 2 on your 2006 income tax return. It is equivalent to $0.102811028 per share.

You should increase the tax basis of your stock by the excess of Line 1a over Line 2 of Form 2439. This amount is equivalent to $0.190934766 per share.

Please refer to the instructions on the reverse side of Copies B and C of Form 2439. Your copy of Form 2439 should be retained as part of your records evidencing the increase in the tax basis of your investment in the Company’s stock.

Form 2439 applies only to your share of the portion of the taxable net long-term capital gains realized by the Company for the period from October 1, 2005 through September 30, 2006 and retained by the Company and the federal income tax paid thereon by the Company. All stockholders will also separately receive in January 2007 a Form 1099-DIV reporting all dividends paid in 2006 to the stockholder.

Note: The Company does not provide advice regarding a shareholder’s federal, state, or local tax liability and this notice does not constitute such advice. Please consult with your personal tax adviser regarding the enclosed Form 2439.