Total 2001 New Investments $389MM, Up 41% Over 2000

  $244MM Raised in Equity Offerings, Capital Resources Now Exceed $1 Billion

American Capital's three equity offerings this year raised approximately $244MM. The June offering was underwritten by Salomon Smith Barney, First Union Securities Inc., A.G. Edwards & Sons Inc. and Robertson Stephens and raised $132MM. First Union Securities underwrote our $59MM offering in September. In December, we raised $53MM in an offering underwritten by Salomon Smith Barney, Ferris Baker Watts and Legg Mason Inc.

Investors in the June offering would have earned a 28% annualized return if they had sold at the offering price at the time of the December offering. Click here for information about our most recent offering.

  $2.30 in Dividends Paid and Declared in 2001, $7.76 Since IPO

American Capital paid and declared $2.30 in dividends in 2001, and has paid and declared $7.76 in dividends since our August 1997 IPO. In addition, $10,000 invested in American Capital in August 1997 would have grown to $26,643 on December 31, 2001, a 25% annualized return.

Click here for more information about American Capital's dividends.

  $25MM in Foodservice Equipment Acquisition

In December, we invested $25MM to fund The Middleby Corporation's (Nasdaq: MIDD) acquisition of G.S. Blodgett Corporation from Maytag Corporation (NYSE: MYG). The investment took the form of senior and junior subordinated debt with warrants. Middleby has been a leading designer, manufacturer, marketer and distributor of cooking and warming equipment for over 100 years. Blodgett manufactures commercial cooking products under the Blodgett, Pitco Frialator, MagiKitch'n and Blodgett Combi brands. The acquisition will approximately double Middleby's size and combines two strong brands.

Click here for more information about Middleby.
Email Gordon O'Brien, Managing Director and Principal, or call him at (312) 697-4919 in our Chicago office.

$38.5MM in Marcal Paper Mills Inc.

In December, we invested $38.5MM in Marcal Paper Mills, Inc., a manufacturer and supplier of towel, tissue and napkin products in the northeast U.S. American Capital's investment is in the form of a senior term loan, senior subordinated debt with warrants and a first mortgage loan facility.

Marcal products are sold throughout the northeast. The company has seen sales grow over the past several years through increased penetration of the metropolitan New York grocery market, including such well known stores as Acme, Pathmark, Stop 'n Shop and Shop Rite. It also produces private label brands for many well-established chain supermarkets and drug retailers. Marcal enjoys significant national market share in the office superstores market, selling to Staples, Office Max and Office Depot. Notably, Marcal has manufactured tissue with 100% recycled paper since the 1950s.

Click here for more information about Marcal.
Email Ken Jones, Principal, or call him at (215) 546-9600 in our Philadelphia office.

$31MM in Leading Pneumatic Valve Manufacturer

In November, we invested $31MM in the senior debt of Numatics Inc., a leading manufacturer of pneumatic valves, air filters, regulators, lubricators and motion control products. Numatics refinanced existing senior debt. Revenues at Highland, MI-based Numatics have increased at a compounded annual growth rate in excess of 7% over the past 10 years.

Click here for more information about Numatics.

$30MM in Plastech Engineered Products

In November, we invested $30MM of senior subordinated notes in Plastech Engineered Products Inc., a leading designer and manufacturer of interior and exterior automotive components and systems supplying original equipment manufacturers and tier one suppliers in the automotive industry. Plastech is one of the largest minority owned suppliers of automotive components in the United States. American Capital's investment funds, in part, a component sourcing agreement with Johnson Controls (NYSE: JCI), a manufacturer of automotive systems. The agreement should more than double Plastech's annual revenues.

Click here for more information about Plastech.
Email Roland Cline, Managing Director and Principal, or call him at (415) 591-0120 in our San Francisco office.

$26MM Buyout of Leading Salon Appliance Manufacturer

In November, we invested $26 million in the buyout of European Touch Ltd. II, a premier designer, manufacturer and marketer of high quality pedicure appliances and complementary salon furnishings. American Capital was the equity sponsor of the transaction and funded a senior term loan, senior and junior subordinated notes and common equity. ACAS acquired European Touch from Styling Technology Corporation.

Click here for more information about European Touch.
Email Gordon O'Brien, Managing Director and Principal, or call him at (312) 697-4919 in our Chicago office.

$2.5MM Acquisition Financing in Portfolio Company Fulton Bellows

We invested $2.5MM to support portfolio company Fulton Bellows' acquisition of the metal bellows division of Standard Thomson, an automotive parts manufacturer. The acquisition will enable Fulton to increase sales volume in its existing plant with minimal overhead increasesand acquire new customers by combining complementary product lines as well as consolidate the two companies' best practices. Our investment takes the form of preferred equity in addition to an investment by the current management team in this transaction.

American Capital financed the acquisition of Fulton in March 2000. Fulton manufactures bellows, and also consists of an automotive products line producing products having temperature and pressure regulating applications similar to the bellows, and a metal stamping and machining operation. Our total investment in Fulton is now $30.8MM.

Click here for more information about Fulton.
Email John Freal, Managing Director and Principal, or call him at (301) 951-6122 in our Bethesda office.

$600K Acquisition Financing in Portfolio Company IMT

We invested $600,000 of senior subordinated debt to partially finance IMT's acquisition of Stedt Hydraulic Crane Corp. ("Stetco"). Stetco designs, manufactures and distributes a proprietary line of catch basin and sewer cleaning equipment and is a distributor of material handling equipment. The acquisition allows IMT to expand its distribution network, sell a new product, consolidate production of the new product line within existing facilities, and leverage the strengths of Stetco's strong sales and management team.

The Stetco transaction is an example of American Capital's ability to grow the value of its portfolio companies through strategic acquisitions.

We acquired IMT, a leading manufacturer of service vehicles, material handling systems and specialty cranes in October 2000. Our total investment in IMT is now $29.6MM.

Click here for more information about IMT.
Email David Steinglass, Principal, or call him at (301) 951-6122 in our Bethesda office.

$1.9MM in Portfolio Company Chromas

We invested $1.9MM in Chromas Technologies, Inc., a manufacturer of digital and analog printing presses for the packaging and labeling industry. Our investment, in the form of equity, helps fund Chromas' move and consolidation into a new facility. American Capital's total investment in Chromas is now approximately $27.9MM.

Click here for more information about Chromas.
Email Gordon O'Brien, Managing Director and Principal, or call him at (312) 697-4919 in our Chicago office.

27% Compounded Annual Return on All Exits Since IPO;
Two Q4 Exits Earn 18% and 22% Return.

Since our IPO, we have realized a compounded annual return of 27% on senior debt, subordinated debt and equity in all of our exited investments. We exited 5 investments in 2001, and have exited 8 investments IPO to date. Click here for more information about these exits.

In the fourth quarter we exited our investment in BIW Connector Systems LLC, earning an 18% compounded annual return, and in Cornell Companies Inc., earning a 22% compounded annual return.

BIW is a manufacturer of specialized electrical connectors primarily for the oil field and aircraft industries. American Capital invested in BIW in December 1997 with a $3.9 million senior note and a $7 million senior subordinated note with warrants. BIW has been purchased by ITT Industries.

Cornell is one of the leading private sector providers of correctional, juvenile detention, pre-release and treatment services in the United States. In July 2000, American Capital invested $30 million in Cornell in the form of seven year senior subordinated debt with warrants. Cornell's recent public offering of its common stock allowed it to repay the remaining principal balance outstanding on the senior subordinated notes, along with accrued interest and prepayment fees and American Capital sold its remaining warrant position.

American Capital Exits, IPO to Date
8 Gains Totaling $11.7MM

  New Principals in New York, Los Angeles, Chicago, Washington, D.C.

Robert Klein has joined American Capital as a Principal in the New York office. He has led private equity transactions involving, in the aggregate, more than $1.3 billion. Prior to joining American Capital, he was a Principal at American Securities Capital Partners. Before that, Robert spent eight years at American Industrial Partners, where he was Managing Director. He previously worked in the Mergers and Acquisitions groups of First Boston and Morgan Stanley, where he was an Associate and an Analyst, respectively, focusing on media and telecommunications projects. Robert was also a Summer Associate for Acadia Partners, L.P., the private equity affiliate of the Robert M. Bass Group. He is a Professional Fellow of the New York University Center for Law and Business.

Robert was Phi Beta Kappa and received a B.A. degree summa cum laude in History of Art from Yale University. He also received a J.D. degree with Distinction from the Stanford University Law School.

Email Robert or call him at (212) 213-2009.

Frank Do has joined American Capital as a Principal in the Los Angeles office with over eleven years of private equity experience and total invested capital of over $200 million. Prior to joining American Capital, Frank was a General Partner at Westar Capital, a buyout firm based in Southern California, where he was involved with investments in consumer products, industrial, semi-conductor capital equipment and motion picture post-production. From 1990 to 1996, he was a Principal at the former Chase Capital Partners in its New York and Los Angeles offices, where he engaged in traditional venture capital investments, leveraged recapitalizations and middle market buyouts. His industry experience while at Chase included transactions in healthcare services and devices, information services, specialty retailing, consumer products, and manufacturing.

Frank holds a B.A. in Economics and International Relations from Claremont McKenna College and an M.B.A from Harvard Business School.

Email Frank or call him at (818) 676-1222.

Tom Gregory has joined American Capital as a Principal in the Chicago office. He has over a decade's experience in private equity and, prior to that, performed extensive work in leveraged lending. Before joining American Capital, Tom had been a Founding, Managing Member of Catalyst Equity Partners, LLC, a $100 million private equity fund focused on control equity investments in middle market companies. While at Catalyst, he established and managed their Chicago office. From 1991 to 1996, he was at Heller Investments, Inc., where he advanced to Senior Vice President and Principal, leading the origination and management of equity investments. Tom's other experience includes work in Citicorp North America's Leveraged Capital Division and as a commercial banking officer at Centerre Bank, N.A.

Tom holds a B.S.B.A. in Finance from the University of Missouri and an M.B.A. in Finance, Management Policy and Managerial Economics from the J.L. Kellogg Graduate School of Management, Northwestern University.

Email Tom or call him at (312) 697-4919.

Bob Sharp has joined American Capital as a Principal. From 1998 to 2000 he was Chief Operating Officer and Executive Vice President of ENTHONE OMI, a global specialty chemicals firm serving the electronics, telecommunications, automotive, aerospace, jewelry, hardware, and plumbing industries. Bob was responsible for worldwide operations and directed operations in 34 countries. Prior to his tenure at ENTHONE OMI, he was a vice president at Allied Signal's North American Laminates division. Before joining Allied Signal Bob was a senior manager at E I DuPont. Bob has extensive experience in acquisitions, joint ventures, turnarounds and restructurings. His work at American Capital includes working with portfolio companies to increase revenues and profitability.

Bob holds a Bachelor of Science degree from the Georgia Institute of Technology.

Email Bob or call him at (301) 951-6122.

This newsletter contains forward-looking statements. The statements regarding expected results of American Capital Strategies are subject to various factors and uncertainties, including the uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional or national economic conditions, or changes in the conditions of the industries in which American Capital has made investments.