FOR IMMEDIATE RELEASE:
February 1, 2007

Contact
Tom McHale, Senior Vice President, Finance (301) 951-6122
Amanda Cuthbertson, Director, Investor Relations (301) 951-6122

AMERICAN CAPITAL ANNOUNCES CHARACTERIZATION OF 2006 DIVIDENDS

Bethesda, MD – February 1, 2007 – American Capital Strategies Ltd. (Nasdaq: ACAS) announced today that its 2006 dividends of $3.33 per share were a distribution of ordinary income.  American Capital also announced that of its 2006 ordinary dividends, $3.25 per share were non-qualifying dividends and $0.08 per share were qualified dividends. The $0.08 per share of qualified dividends reflect qualified dividend income received by American Capital in 2006.  Qualified dividend income is dividend income received from domestic corporations and qualified foreign corporations.  Qualified dividend income is taxed to stockholders at the rates that apply to net capital gains.

American Capital stockholders should receive IRS Form 1099-DIV containing this information from their brokers, transfer agents or other institutions.

American Capital must make certain distributions of its taxable income in order to maintain its tax status as a regulated investment company.  Investors can refer to the Company's most recent report on SEC Form 10-K for more information about its tax status.  American Capital reports the estimated tax characteristics of each dividend when announced, while the actual tax characteristics of each year's dividends are reported annually to stockholders on Form 1099-DIV.

Information on dividends paid by American Capital for 2006 is provided below.

* Excludes deemed capital gains distribution.

In addition, for its tax year ended September 30, 2006, American Capital retained and did not distribute its taxable net long–term capital gain on investments and paid a federal income tax thereon on behalf of its stockholders.  Stockholders of record as of September 30, 2006 should receive a 2005 Form 2439, which reports their share of such capital gain and their share of the federal income tax paid for American Capital's tax year ending September 30, 2006. Stockholders must include on their income tax return for 2006 their share of American Capital’s taxable net long-term capital gain for American Capital's tax year ending September 30, 2006, and stockholders on their 2006 return may take a credit for the tax paid on that gain by American Capital on the stockholder’s behalf.  Stockholders should increase the tax basis of their investment in American Capital stock by the excess of their share of the taxable net long–term capital gain over the amount of the federal income tax paid on their behalf. The total taxable net long-term capital gain realized and retained by American Capital for its tax year ending September 30, 2006, was $0.29 per share, and the tax credit is at a 35% rate, which is equivalent to $0.10 per share.  The increase in the stockholder’s tax basis in American Capital stock is equivalent to $0.19 per share, and to the extent a stockholder’s capital gains tax rate is less than 35%, the tax credit may reduce other taxes owed or be refunded.

For information on Form 2439, please visit American Capital’s website at www.AmericanCapital.com.  American Capital does not provide advice regarding a stockholder’s federal, state or local tax liability, and this notice does not constitute such advice. Please consult with your personal tax adviser regarding your Form 2439.

A summary of American Capital's dividend history follows.

ABOUT AMERICAN CAPITAL

American Capital is the largest U.S. publicly traded alternative asset manager with $12 billion in capital resources under management.  American Capital, both directly and through its global asset management business, is an investor in management and employee buyouts, private equity buyouts, and early stage and mature private and public companies.  American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions, recapitalizations and securitizations.  American Capital invests from $5 million to $500 million in North America and €5 million to €400 million in Europe.

As of January 31, 2007, American Capital shareholders have enjoyed a total return of 655% since the Company's IPO - an annualized return of 24%, assuming reinvestment of dividends. American Capital has paid a total of $1.4 billion in dividends and paid $22.44 in dividends per share since going public in August 1997 at $15 per share.

Companies interested in learning more about American Capital's flexible financing should contact Mark Opel, Senior Vice President, Business Development, at (800) 248-9340, or visit www.AmericanCapital.com or www.EuropeanCapital.com.

Performance data quoted above represents past performance of American Capital. Past performance does not guarantee future results and the investment return and principal value of an investment in American Capital will likely fluctuate. Consequently, an investor's shares, when sold, may be worth more or less than their original cost. Additionally, American Capital's current performance may be lower or higher than the performance data quoted above.

This press release contains forward-looking statements. The statements regarding expected results of American Capital 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, national or international economic conditions, or changes in the conditions of the industries in which American Capital has made investments.