AMERICAN CAPITAL POSTS 125% TOTAL SHAREHOLDER RETURN SINCE IPO,
62% INCREASE IN FIRST QUARTER NEW INVESTMENTS

Table of Contents

New Portfolio Investments
    62% Growth in First Quarter New Investments
    $20 Million in Kelly Aerospace
    $9 Million to Acquire Two Storage Tank Companies
    $12 Million to Acquire Contract Manufacturers
    $8 million in Chance Coach New Bus Rollout
    $3 Million to Roll Out New Technology at Chromas
    $3.6 Million in Confluence to Finance Growth
    $4.5 Million in Decorative Surfaces International
    Westwind Restructuring
    $2 Million to Assist Acquisition by TransCore

125% Total Return to Shareholders

Corporate News
    New Board Member
    $225 Million Credit Facility Renewed - Advance Rate Increased to 75%
    New York Deal Team Continues to Grow

» American Capital Posts 125% Total Shareholder Return Since IPO,
     62% Increase In First Quarter New Investments

Dollar volume of first quarter new investments increased 62% over 2000 and total shareholder return since the Company's August 1997 IPO stood at 124.5% at the end of the quarter.

» 62% Growth in First Quarter New Investments

» $20 Million in Kelly Aerospace

In February American Capital invested $20 million in Kelly Aerospace Inc. in the form of $10 million of senior notes and $10 million of senior subordinated debt with warrants. Kelly is the leading designer, manufacturer and marketer of turbocharger system products and electrical and fuel system components for both general aviation OEM airframe manufacturers and the general aviation aftermarket with revenues in excess of $40 million. They also manufacture related turbocharger products for the performance automotive market. They are using the investment proceeds to recapitalize outstanding debt and to complete the acquisitions of the Garrett aviation turbocharger line from Honeywell International (NYSE: HON) and Spearco Performance Products, a leading producer of intercoolers for automotive turbocharger applications.

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» $9 Million to Acquire Two Storage Tank Companies

In January American Capital invested $9 million of subordinated debt to fund the acquisition of Columbian Steel Tank Company and Engineered Stored Products by CST Industries, Inc. to create the largest steel bolted tank manufacturer in the country. Equity financing was provided by George K. Baum Merchant Banc and Don Wagner, CEO of CST. The acquired businesses manufacture and install storage tanks for municipal, industrial and agricultural markets.

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» $12 Million to Acquire Contract Manufacturers

In January Sunvest Industries LLC, a platform holding company American Capital has established to acquire contract manufacturers, completed the purchase of Dyna-Fab Inc. and Advanced Fabrication Technologies Inc. In December 2000, American Capital invested $12 million in Sunvest in the form of senior term debt, senior subordinated debt with warrants and equity. LaSalle Bank provided a revolving line of credit. Sunvest management's extensive network of industry contacts and M&A experience make them excellent investment partners for American Capital. Dyna-Fab, located in Rockland, Mass., primarily serves the semiconductor and specialty OEM markets. AFT, of Hayward, Calif., primarily serves medical and pharmaceutical customers as well as semi-conductor and specialty consumer products OEM markets. They are Sunvest's first acquisitions.

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» $8 million in Chance Coach New Bus Rollout

Chance Coach is the pre-eminent U.S. manufacturer of heavy-duty vintage streetcar replicas and a leader in municipal transit busses under thirty feet in length. We first invested in Chance in 1998. A new $7.5 million revolving line of credit will help Chance roll out the Opus, a transit bus offering easier access, lower fuel costs, simplified maintenance and longer service life than any other vehicle in its class. Chance has approximately 15 months of production backlog of the new Opus bus. American Capital's total investment in Chance is now $17 million.

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» $3 Million to Roll Out New Technology at Chromas

We invested $3 million in subordinated debt at portfolio company Chromas Technologies. Chromas is a leading supplier of analog flexographic printing presses to the global packaging and labeling industry, and has recently introduced a unique digital press aimed at the same market. Our investment supported product development and working capital at the company. Chromas was acquired by American Capital in September 2000. Our total investment now stands at $25 million.

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» $3.6 Million in Confluence to Finance Growth

We invested $3.6 million in subordinated debt at Confluence Holdings Corp., holding company for Wilderness Systems, Inc. and Mad River Canoe Co., the 3^rd largest kayak and 2^nd largest canoe manufacturer in the US. American Capital's subordinated debt was made alongside of $1.75 million in additional equity from a group led by Westbury Equity Partners, the original transaction sponsors. The companies manufacture recreational and touring kayaks and canoes; the additional capital was used to fund growth and to reduce the company's outstanding senior debt in line with current bank market conditions. American Capital financed the combination of these two companies in September 1998 and our total investment is now $16 million.

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» $4.5 Million in Decorative Surfaces International

DSI has entered into an agreement with several parties to sell its under-performing Columbus, OH business lines and assets and will use the anticipated proceeds to retire over $17 million of its outstanding debt. DSI will continue to manufacture decorative paper and vinyl surfacing material for the home and industrial markets in its new St. Louis facility where it enjoys over $50 million in revenues. American Capital provided $1.5 million of senior debt secured by the proceeds of the sale of a joint venture asset, which is expected to be repaid shortly. American Capital provided an additional $3.0 million for working capital financing funded as a junior participation in the senior secured facility. American Capital's total investment in DSI is $22.4 million.

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» Westwind Restructuring

As part of a restructuring of portfolio company Westwind, American Capital collected the accrued interest on our note and then converted our subordinated note into preferred and Common stock. Together with other restructuring, this diminishes Westwind's debt load, substantially reducing the pressure on its cash flow and allowing it more operating flexibility within an improved capital structure.

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» $2 Million to Assist Acquisition by TransCore

In February American Capital continued its support of portfolio company TransCore, a leading competitor in the toll collection and intelligent transportation systems industry. American Capital invested $2 million in new convertible preferred stock in support of TransCore's acquisition of DAT Services, a provider of freight-exchange services in North America with significant market share in the freight-matching and logistics market. DAT operates an extensive electronic information exchange through which its customers match loads in need of shipment and trucks available for hire. This is American Capital's second add-on acquisition investment in TransCore, and our third overall, with KRG Capital Partners, LLC as equity sponsor.

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» 125% Total Return to Shareholders

$10,000 invested in American Capital on August 30, 1997 would have grown to $22,450 on March 31, 2001, assuming reinvestment of dividends, a 124.5% return.

Total Shareholder Return

                            Since IPO        3 years Ended        1 year Ended
                          (August 1997)      March 31, 2001      March 31, 2001


   American Capital*         124.5%              52.2%                 32.7%
   S&P 500                    29.0%               5.3%                -22.6%
   Nasdaq Composite           15.9%               0.2%                -59.8%    
   Nasdaq Financial 100       10.0%             -12.7%                 21.2%
   Russell 2000                6.4%              -6.3%                -16.4%
   Dow Jones 30 Industrials   29.6%              12.3%                 -9.6%


   * Data for American Capital assumes reinvestment of all dividends.
     Past performance does not guarantee future results.

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» New Board Member

Kenneth D. Peterson Jr., Chairman and CEO of Columbia Ventures Corporation, was elected to the American Capital Board of Directors in January. Ken is also director of the International Aluminum Corporation (NYSE: IAL) and the Washington Institute Foundation, a public policy organization advocating free markets.

"Having resurrected from closure one of the largest aluminum smelters in the US, Ken Peterson proceeded to start or acquire 15 additional companies over the following 15 years, reaping extraordinary returns as he sold off many of his holdings. He has recently completed the construction of the first aluminum smelter in Iceland," said American Capital Chairman and CEO Malon Wilkus. "He has an outstanding track record as an entrepreneur, and we look forward to his contribution to our Board."

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» $225 Million Credit Facility Renewed - Advance Rate Increased to 75%

First Union has renewed our $225 million Commercial Paper Conduit credit facility for an additional year. Our advance rate has increased from 50% to 75%, mirroring the advance rate on our $150 million investment grade term debt securitization. In addition, First Union reduced the interest rate on the facility from LIBOR plus 150 basis points to LIBOR plus 125 basis points. We were able to increase our advance partially due to the fact that the rating agencies' coverage of the term debt transaction provides increased transparency of our portfolio. The credit facility provides efficient capital that enables us to respond quickly to investment opportunities.

» New York Deal Team Continues to Grow

Leon Potok joined American Capital as a Principal in January, bringing the number of New York based Principals to four. In the prior ten years, Leon has served as an investment banker providing financial advisory and restructuring services, most recently as a principal and co-founder of a private firm. He focused on advisory services to employee groups on the financial viability and competitive position of employers, the restructuring of employer financial obligations and their access to capital markets, and employee buyout feasibility analyses. Leon previously worked as Senior Investment Analyst in the Risk Capital Group at New York Life Insurance Company. Over the course of nearly four years, he was involved in directing or monitoring more than $400 million in leveraged buy-out, venture capital and natural resource investments.

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This newsletter contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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.