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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)

| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------



For the quarterly period ended June 30, 2010



OR



| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



Commission file number 814-00149



LOGO



AMERICAN CAPITAL, LTD.



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 52-1451377                          
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)



2 Bethesda Metro Center

14th Floor

Bethesda, Maryland 20814

(Address of principal executive offices)

(301) 951-6122

(Registrants telephone number, including area code)



Securities registered pursuant to Section 12(b) of
the Act:



|                                        |  |                                                          
|--------------------------------------- |  | ---------------------------------------------------------
|Title of each class                     |  | Name of each exchange
on which registered                
|Common Stock, $0.01 par value per share |  | The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
|                                       



Securities registered pursuant to section 12(g) of the Act: NONE



Indicate by check mark whether the registrant (1) has
filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter earlier period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.    Yes  x    No   ̈



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈



Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of
the Act.



|                           |  |                                               |  |                             
|-------------------------- |  | --------------------------------------------- |  | ----------------------------
|Large accelerated filer  x |  |                                               |  | Accelerated filer   ̈        
|Non-accelerated filer   ̈   |  | (Do not check if a smaller reporting company) |  | Smaller Reporting Company   ̈



Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No.  x



The number of shares of the issuers common stock,
$0.01 par value, outstanding as of July 30, 2010, was 340,724,954.







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AMERICAN CAPITAL, LTD.



TABLE OF CONTENTS



|                              |  |                                                                                       |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Financial Statements                                                                  |  | 3 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations |  | 56
|Item 3.                       |  | Quantitative and Qualitative Disclosure About Market Risk                             |  | 79
|Item 4.                       |  | Controls and Procedures                                                               |  | 79
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 80
|Item 1A.                      |  | Risk Factors                                                                          |  | 80
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 92
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 92
|Item 4.                       |  | [Removed and Reserved]                                                                |  | 92
|Item 5.                       |  | Other Information                                                                     |  | 92
|Item 6.                       |  | Exhibits                                                                              |  | 93
|Signatures                    |  | 95                                                                                   



2



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##### Table of Contents

Item 1.Financial Statements



AMERICAN CAPITAL, LTD.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)



|                                                                                                                               |  |              |        |   |                  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------ | - | ---------------- | - | ------ | -
|                                                                                                                               |  | June 30,2010 |        |   | December 31,2009 |  
|                                                                                                                               |  | (unaudited)  |        |   |                  |  
|Assets                                                                                                                         |  |              |        |   |                  |   |        |  
|Investments at fair value (cost of $8,439 and $9,158, respectively)                                                            |  |              |        |   |                  |   |        |  
|Non-Control/Non-Affiliate investments (cost of $4,409 and $4,839, respectively)                                                |  | $            | 3,035  |   |                  | $ | 3,036  |  
|Affiliate investments (cost of $300 and $251, respectively)                                                                    |  |              | 216    |   |                  |   | 204    |  
|Control investments (cost of $3,730 and $4,068, respectively)                                                                  |  |              | 2,443  |   |                  |   | 2,335  |  
|                                                                                                                               |  |              |        |   |                  |   |        |  
|Total investments at fair value                                                                                                |  |              | 5,694  |   |                  |   | 5,575  |  
|Cash and cash equivalents                                                                                                      |  |              | 176    |   |                  |   | 835    |  
|Restricted cash and cash equivalents                                                                                           |  |              | 185    |   |                  |   | 96     |  
|Interest receivable                                                                                                            |  |              | 32     |   |                  |   | 38     |  
|Derivative agreements at fair value                                                                                            |  |              | 3      |   |                  |   | 1      |  
|Other                                                                                                                          |  |              | 131    |   |                  |   | 127    |  
|                                                                                                                               |  |              |        |   |                  |   |        |  
|Total assets                                                                                                                   |  | $            | 6,221  |   |                  | $ | 6,672  |  
|                                                                                                                               |  |              |        |   |                  |   |        |  
|Liabilities and Shareholders Equity                                                                                           |  |              |        |   |                  |   |        |  
|Debt ($275 and $2,666 due within one year, respectively)                                                                       |  | $            | 2,924  |   |                  | $ | 4,142  |  
|Derivative agreements at fair value                                                                                            |  |              | 120    |   |                  |   | 102    |  
|Other                                                                                                                          |  |              | 64     |   |                  |   | 99     |  
|                                                                                                                               |  |              |        |   |                  |   |        |  
|Total liabilities                                                                                                              |  |              | 3,108  |   |                  |   | 4,343  |  
|                                                                                                                               |  |              |        |   |                  |   |        |  
|Commitments and contingencies                                                                                                  |  |              |        |   |                  |   |        |  
|Shareholders equity:                                                                                                          |  |              |        |   |                  |   |        |  
|Undesignated preferred stock, $0.01 par value, 5.0 shares authorized, 0 issued and outstanding                                 |  |              |       |   |                  |   |       |  
|Common stock, $0.01 par value, 1,000.0 shares authorized, 351.5 and 292.9 issued and 340.1 and 280.9 outstanding, respectively |  |              | 3      |   |                  |   | 3      |  
|Capital in excess of par value                                                                                                 |  |              | 7,051  |   |                  |   | 6,735  |  
|Distributions in excess of net realized earnings                                                                               |  |              | (1,077 | ) |                  |   | (709   | )
|Net unrealized depreciation of investments                                                                                     |  |              | (2,864 | ) |                  |   | (3,700 | )
|                                                                                                                               |  |              |        |   |                  |   |        |  
|Total shareholders equity                                                                                                     |  |              | 3,113  |   |                  |   | 2,329  |  
|                                                                                                                               |  |              |        |   |                  |   |        |  
|Total liabilities and shareholders equity                                                                                     |  | $            | 6,221  |   |                  | $ | 6,672  |  
|                                                                                                                               |  |              |        |   |                  |   |        |  
|Net Asset Value Per Common Share                                                                                               |  | $            | 9.15   |   |                  | $ | 8.29   |  
|                                                                                                                               |  |              |        |   |                  |   |        |  



See accompanying notes.



3



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AMERICAN CAPITAL, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except per share data)



|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|--------------------------------------------------------------------------------------- |  | -------------------------- | ----- | - | ------------------------ | - | ----- | ---- |  | - | ----- | - |  | - | ------ | -
|                                                                                        |  | Three MonthsEnded June 30, |       |   | Six MonthsEnded June 30, |  
|                                                                                        |  | 2010                       |       |   | 2009                     |   |       | 2010 |  |   | 2009  |  
|Operating Income                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Interest and dividend income                                                            |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Non-Control/Non-Affiliate investments                                                   |  | $                          | 74    |   |                          | $ | 71    |      |  | $ | 167   |   |  | $ | 195    |  
|Affiliate investments                                                                   |  |                            | 7     |   |                          |   | 13    |      |  |   | 15    |   |  |   | 22     |  
|Control investments                                                                     |  |                            | 57    |   |                          |   | 43    |      |  |   | 106   |   |  |   | 89     |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Total interest and dividend income                                                      |  |                            | 138   |   |                          |   | 127   |      |  |   | 288   |   |  |   | 306    |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Fee income                                                                              |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Non-Control/Non-Affiliate investments                                                   |  |                            | 4     |   |                          |   | 4     |      |  |   | 8     |   |  |   | 8      |  
|Control investments                                                                     |  |                            | 9     |   |                          |   | 9     |      |  |   | 19    |   |  |   | 21     |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Total asset management and other fee income                                             |  |                            | 13    |   |                          |   | 13    |      |  |   | 27    |   |  |   | 29     |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Total operating income                                                                  |  |                            | 151   |   |                          |   | 140   |      |  |   | 315   |   |  |   | 335    |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Operating Expenses                                                                      |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Interest                                                                                |  |                            | 56    |   |                          |   | 60    |      |  |   | 113   |   |  |   | 112    |  
|Salaries, benefits and stock-based compensation                                         |  |                            | 34    |   |                          |   | 47    |      |  |   | 68    |   |  |   | 100    |  
|General and administrative                                                              |  |                            | 15    |   |                          |   | 17    |      |  |   | 35    |   |  |   | 40     |  
|Debt refinancing costs                                                                  |  |                            | 17    |   |                          |   | 7     |      |  |   | 21    |   |  |   | 10     |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Total operating expenses                                                                |  |                            | 122   |   |                          |   | 131   |      |  |   | 237   |   |  |   | 262    |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Net Operating Income Before Income Taxes                                                |  |                            | 29    |   |                          |   | 9     |      |  |   | 78    |   |  |   | 73     |  
|Benefit for income taxes                                                                |  |                            |      |   |                          |   | 11    |      |  |   |      |   |  |   | 11     |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Net Operating Income                                                                    |  |                            | 29    |   |                          |   | 20    |      |  |   | 78    |   |  |   | 84     |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Net gain on extinguishment of debt                                                      |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   | 12     |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Net realized (loss) gain on investments                                                 |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Non-Control/Non-Affiliate investments                                                   |  |                            | (230  | ) |                          |   | (71   | )    |  |   | (270  | ) |  |   | (69    | )
|Affiliate investments                                                                   |  |                            | 7     |   |                          |   |      |      |  |   | 7     |   |  |   | (5     | )
|Control investments                                                                     |  |                            | (68   | ) |                          |   | (237  | )    |  |   | (135  | ) |  |   | (313   | )
|Foreign currency transactions                                                           |  |                            | 1     |   |                          |   |      |      |  |   | (2    | ) |  |   | (2     | )
|Derivative and option agreements                                                        |  |                            | (30   | ) |                          |   | (18   | )    |  |   | (46   | ) |  |   | (68    | )
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Total net realized loss on investments                                                  |  |                            | (320  | ) |                          |   | (326  | )    |  |   | (446  | ) |  |   | (457   | )
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Net unrealized appreciation (depreciation) of investments                               |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Portfolio company investments                                                           |  |                            | 695   |   |                          |   | (311  | )    |  |   | 1,052 |   |  |   | (836   | )
|Foreign currency translation                                                            |  |                            | (125  | ) |                          |   | 66    |      |  |   | (212  | ) |  |   | (3     | )
|Derivative and option agreements and other                                              |  |                            | 2     |   |                          |   | 4     |      |  |   | (4    | ) |  |   | 106    |  
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Total net unrealized appreciation (depreciation) of investments                         |  |                            | 572   |   |                          |   | (241  | )    |  |   | 836   |   |  |   | (733   | )
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Total net gain (loss) on investments                                                    |  |                            | 252   |   |                          |   | (567  | )    |  |   | 390   |   |  |   | (1,190 | )
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Net Increase (Decrease) in Net Assets Resulting from Operations (Net Earnings (Loss)) |  | $                          | 281   |   |                          | $ | (547  | )    |  | $ | 468   |   |  | $ | (1,094 | )
|                                                                                        |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Net Operating Income Per Common Share                                                   |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Basic                                                                                   |  | $                          | 0.09  |   |                          | $ | 0.09  |      |  | $ | 0.25  |   |  | $ | 0.40   |  
|Diluted                                                                                 |  | $                          | 0.09  |   |                          | $ | 0.09  |      |  | $ | 0.25  |   |  | $ | 0.40   |  
|Net Earnings (Loss) Per Common Share                                                    |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Basic                                                                                   |  | $                          | 0.85  |   |                          | $ | (2.52 | )    |  | $ | 1.52  |   |  | $ | (5.16  | )
|Diluted                                                                                 |  | $                          | 0.84  |   |                          | $ | (2.52 | )    |  | $ | 1.50  |   |  | $ | (5.16  | )
|Weighted Average Shares of Common Stock Outstanding                                     |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |        |  
|Basic                                                                                   |  |                            | 330.9 |   |                          |   | 217.0 |      |  |   | 307.4 |   |  |   | 211.9  |  
|Diluted                                                                                 |  |                            | 335.7 |   |                          |   | 217.0 |      |  |   | 311.0 |   |  |   | 211.9  |  
|Dividends Declared Per Common Share                                                     |  | $                          |      |   |                          | $ | 1.07  |      |  | $ |      |   |  | $ | 1.07   |  



See accompanying notes.



4



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AMERICAN CAPITAL, LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)

(in millions, except per share data)



|                                                                                              |  |                          |       |   |      |   |        |  
|--------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ------ | -
|                                                                                              |  | Six MonthsEnded June 30, |      
|                                                                                              |  | 2010                     |       |   | 2009 |  
|Operations                                                                                    |  |                          |       |   |      |   |        |  
|Net operating income                                                                          |  | $                        | 78    |   |      | $ | 84     |  
|Net gain on extinguishment of debt                                                            |  |                          |      |   |      |   | 12     |  
|Net realized loss on investments                                                              |  |                          | (446  | ) |      |   | (457   | )
|Net unrealized appreciation (depreciation) of investments                                     |  |                          | 836   |   |      |   | (733   | )
|                                                                                              |  |                          |       |   |      |   |        |  
|Net earnings (loss)                                                                           |  |                          | 468   |   |      |   | (1,094 | )
|                                                                                              |  |                          |       |   |      |   |        |  
|Shareholder Distributions                                                                     |  |                          |       |   |      |   |        |  
|Common stock dividends from net operating income                                              |  |                          |      |   |      |   | (84    | )
|Common stock dividends in excess of net operating income and net realized gain on investments |  |                          |      |   |      |   | (147   | )
|                                                                                              |  |                          |       |   |      |   |        |  
|Net decrease in net assets resulting from shareholder distributions                           |  |                          |      |   |      |   | (231   | )
|                                                                                              |  |                          |       |   |      |   |        |  
|Capital Share Transactions                                                                    |  |                          |       |   |      |   |        |  
|Issuance of common stock                                                                      |  |                          | 296   |   |      |   | 25     |  
|Stock-based compensation                                                                      |  |                          | 20    |   |      |   | 34     |  
|Other                                                                                         |  |                          |      |   |      |   | 1      |  
|                                                                                              |  |                          |       |   |      |   |        |  
|Net increase in net assets resulting from capital share transactions                          |  |                          | 316   |   |      |   | 60     |  
|                                                                                              |  |                          |       |   |      |   |        |  
|Total increase (decrease) in net assets                                                       |  |                          | 784   |   |      |   | (1,265 | )
|Net assets at beginning of period                                                             |  |                          | 2,329 |   |      |   | 3,155  |  
|                                                                                              |  |                          |       |   |      |   |        |  
|Net assets at end of period                                                                   |  | $                        | 3,113 |   |      | $ | 1,890  |  
|                                                                                              |  |                          |       |   |      |   |        |  
|Net asset value per common share                                                              |  | $                        | 9.15  |   |      | $ | 8.76   |  
|                                                                                              |  |                          |       |   |      |   |        |  
|Common shares outstanding at end of period                                                    |  |                          | 340.1 |   |      |   | 215.7  |  
|                                                                                              |  |                          |       |   |      |   |        |  



See accompanying notes.



5



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AMERICAN CAPITAL, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)



|                                                                                           |  |                          |        |   |      |   |        |  
|------------------------------------------------------------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                           |  | Six MonthsEnded
June 30, |       
|                                                                                           |  | 2010                     |        |   | 2009 |  
|Operating Activities                                                                       |  |                          |        |   |      |   |        |  
|Net earnings (loss)                                                                        |  | $                        | 468    |   |      | $ | (1,094 | )
|Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |  |                          |        |   |      |   |        |  
|Net unrealized (appreciation) depreciation of investments                                  |  |                          | (836   | ) |      |   | 733    |  
|Net realized loss on investments                                                           |  |                          | 446    |   |      |   | 457    |  
|Net gain on extinguishment of debt                                                         |  |                          |       |   |      |   | (12    | )
|Accrued payment-in-kind interest and dividends on investments                              |  |                          | (82    | ) |      |   | (14    | )
|Amortization of deferred finance costs, premiums and discounts                             |  |                          | 6      |   |      |   | 7      |  
|Depreciation of property and equipment                                                     |  |                          | 9      |   |      |   | 6      |  
|Stock-based compensation                                                                   |  |                          | 20     |   |      |   | 34     |  
|Decrease (increase) in interest receivable                                                 |  |                          | 4      |   |      |   | (8     | )
|Decrease (increase) in other assets                                                        |  |                          | 4      |   |      |   | (5     | )
|Decrease in other liabilities                                                              |  |                          | (38    | ) |      |   | (14    | )
|Other                                                                                      |  |                          | (2     | ) |      |   | (1     | )
|                                                                                           |  |                          |        |   |      |   |        |  
|Net cash (used in) provided by operating activities                                        |  |                          | (1     | ) |      |   | 89     |  
|                                                                                           |  |                          |        |   |      |   |        |  
|Investing Activities                                                                       |  |                          |        |   |      |   |        |  
|Purchases of investments                                                                   |  |                          | (120   | ) |      |   | (97    | )
|Repayments from (fundings on) portfolio company revolving credit facility investments, net |  |                          | 18     |   |      |   | (36    | )
|Principal repayments                                                                       |  |                          | 378    |   |      |   | 102    |  
|Proceeds from loan syndications and loan sales                                             |  |                          | 15     |   |      |   | 29     |  
|Collection of payment-in-kind notes and dividends and accreted loan discounts              |  |                          | 27     |   |      |   | 5      |  
|Proceeds from sales of equity investments                                                  |  |                          | 94     |   |      |   | 68     |  
|Capital expenditures for property and equipment                                            |  |                          | (2     | ) |      |   | (1     | )
|Termination of European Capital Limited put option agreement                               |  |                          |       |   |      |   | (65    | )
|Other                                                                                      |  |                          | (33    | ) |      |   | (32    | )
|                                                                                           |  |                          |        |   |      |   |        |  
|Net cash provided by (used in) investing activities                                        |  |                          | 377    |   |      |   | (27    | )
|                                                                                           |  |                          |        |   |      |   |        |  
|Financing Activities                                                                       |  |                          |        |   |      |   |        |  
|Payments on unsecured borrowings                                                           |  |                          | (1,030 | ) |      |   |       |  
|Payments on notes payable from asset securitizations                                       |  |                          | (186   | ) |      |   | (87    | )
|Increase in deferred financing costs                                                       |  |                          | (26    | ) |      |   |       |  
|Issuance of common stock                                                                   |  |                          | 296    |   |      |   |       |  
|(Increase) decrease in debt service escrows                                                |  |                          | (89    | ) |      |   | 16     |  
|Other                                                                                      |  |                          |       |   |      |   | (17    | )
|                                                                                           |  |                          |        |   |      |   |        |  
|Net cash used in financing activities                                                      |  |                          | (1,035 | ) |      |   | (88    | )
|                                                                                           |  |                          |        |   |      |   |        |  
|Net decrease in cash and cash equivalents                                                  |  |                          | (659   | ) |      |   | (26    | )
|Cash and cash equivalents at beginning of period                                           |  |                          | 835    |   |      |   | 209    |  
|                                                                                           |  |                          |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                                 |  | $                        | 176    |   |      | $ | 183    |  
|                                                                                           |  |                          |        |   |      |   |        |  
|Non-cash Investing and Financing Activities                                                |  |                          |        |   |      |   |        |  
|Debt investment received from the sale of equity investments                               |  | $                        | 33     |   |      | $ |       |  
|Issuance of common stock in conjunction with acquisition of European Capital 
Limited      |  | $                        |       |   |      | $ | 25     |  



See accompanying notes.



6



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED FINANCIAL HIGHLIGHTS

(unaudited)

(in millions, except per share data)



|                                                                               |  |                          |       |   |      |   |       |  
|------------------------------------------------------------------------------ |  | ------------------------ | ----- | - | ---- | - | ----- | -
|                                                                               |  | Six MonthsEnded June 30, |      
|                                                                               |  | 2010                     |       |   | 2009 |  
|Per Share Data                                                                 |  |                          |       |   |      |   |       |  
|Net asset value at beginning of the period                                     |  | $                        | 8.29  |   |      | $ | 15.41 |  
|                                                                               |  |                          |       |   |      |   |       |  
|Net operating income(1)                                                        |  |                          | 0.25  |   |      |   | 0.40  |  
|Net gain on extinguishment of debt(1)                                          |  |                          |      |   |      |   | 0.05  |  
|Net realized loss on investments(1)                                            |  |                          | (1.45 | ) |      |   | (2.15 | )
|Net unrealized appreciation (depreciation) on investments(1)                   |  |                          | 2.72  |   |      |   | (3.46 | )
|                                                                               |  |                          |       |   |      |   |       |  
|Net earnings (loss)(1)                                                         |  |                          | 1.52  |   |      |   | (5.16 | )
|Issuance of common stock(2)                                                    |  |                          | (0.56 | ) |      |   | (0.70 | )
|Shareholder distributions                                                      |  |                          |      |   |      |   | (1.07 | )
|Other, net(3)                                                                  |  |                          | (0.10 | ) |      |   | 0.28  |  
|                                                                               |  |                          |       |   |      |   |       |  
|Net asset value at end of period                                               |  | $                        | 9.15  |   |      | $ | 8.76  |  
|                                                                               |  |                          |       |   |      |   |       |  
|Ratio/Supplemental Data                                                        |  |                          |       |   |      |   |       |  
|Per share market value at end of period                                        |  | $                        | 4.82  |   |      | $ | 3.21  |  
|Total investment return(4)                                                     |  |                          | 97.54 | % |      |   | 32.00 | %
|Shares outstanding at end of period                                            |  |                          | 340.1 |   |      |   | 215.7 |  
|Net assets at end of period                                                    |  | $                        | 3,113 |   |      | $ | 1,890 |  
|Average net assets(5)                                                          |  | $                        | 2,656 |   |      | $ | 2,566 |  
|Average debt outstanding(6)                                                    |  | $                        | 4,013 |   |      | $ | 4,371 |  
|Average debt outstanding per common share(1)                                   |  | $                        | 13.05 |   |      | $ | 20.63 |  
|Ratio of operating expenses to average net assets(7)                           |  |                          | 17.99 | % |      |   | 20.59 | %
|Ratio of operating expenses, net of interest expense, to average net assets(7) |  |                          | 9.41  | % |      |   | 11.79 | %
|Ratio of interest expense to average net assets(7)                             |  |                          | 8.58  | % |      |   | 8.80  | %
|Ratio of net operating income to average net assets(7)                         |  |                          | 5.92  | % |      |   | 6.60  | %



|(1) | Weighted average basic per share data.
|--- | --------------------------------------

|(2) | For the six months ended June 30, 2009, represents the issuance of common stock in conjunction with the acquisition of European Capital Limited (European
Capital).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents the impact of (i) the other components in the changes in net assets, including other capital transactions such as the issuance of common stock through a
shareholder distribution, the purchase of common stock held in deferred compensation trusts, stock-based compensation, income tax deductions related to the exercise of stock options and distribution of stock awards in excess of GAAP expense credited
to additional paid-in capital, repayments of notes receivable from the sale of common stock and the purchase of treasury stock and (ii) the different share amounts used in calculating per share data as a result of calculating certain per share
data based upon the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Total investment return is based on the change in the market value of our common stock taking into account dividends reinvested in accordance with the terms of our
dividend reinvestment plan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Based on the average of net assets as of the beginning and end of each period presented.
|--- | ----------------------------------------------------------------------------------------

|(6) | Based on a daily weighted average balance of debt outstanding during the period.
|--- | --------------------------------------------------------------------------------

|(7) | Ratios are annualized.
|--- | ----------------------



See accompanying notes.



7



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2010

(unaudited)

(in millions, except share data)



|                                        |  |                                  |  |                                   |  |                  |   |  |                  |  |                          |  |           |       |      |   |           |  |   |      
|--------------------------------------- |  | -------------------------------- |  | --------------------------------- |  | ---------------- | - |  | ---------------- |  | ------------------------ |  | --------- | ----- | ---- | - | --------- |  | - | -----
|Company (4)                             |  | Industry                         |  | Investments                       |  | InterestRate (5) |   |  | Maturity    Date |  | # of
shares/
units
owned |  | Principal |       | Cost |   | FairValue
|                                        |  |                                  |  |                                   |  |                 
|NON-CONTROL / NON-AFFILIATE INVESTMENTS |  |                                  |  |                                   |  |                  |   |  |                  |  |                          |  |           |       |      |  
|AFA Investment Inc.                     |  | Food Products                    |  | Senior Debt                       |  | 12.5             | % |  | 2/15             |  |                          |  | $         | 5.0   |      | $ | 4.2       |  | $ | 4.2  
|Affordable Care Holding Corp.           |  | Health Care Providers &          |  | Subordinated Debt(7)              |  | 15.0             | % |  | 11/13-11/14      |  |                          |  |           | 67.6  |      |   | 67.0      |  |   | 67.6 
|                                        |  | Services                         |  | Convertible Preferred Stock(7)    |  |                  |   |  |                  |  | 70,752                   |  |           |       |      |   | 94.7      |  |   | 103.1
|                                        |  |                                  |  | Common Stock(1)(7)                |  |                  |   |  |                  |  | 17,687,156               |  |           |       |      |   | 17.7      |  |   | 19.8 
|                                        |  |                                  |  |                                   |  |                  |   |  |                  |  |                          |  |           |       |      |   | 179.4     |  |   | 190.5
|Algoma Holding Company                  |  | Building Products                |  | Subordinated Debt(7)              |  | 12.7             | % |  | 4/13             |  |                          |  |           | 15.4  |      |   | 15.3      |  |   | 15.1 
|American Acquisition, LLC               |  | Capital Markets                  |  | Senior Debt(7)                    |  | 13.9             | % |  | 12/12            |  |                          |  |           | 17.2  |      |   | 17.0      |  |   | 15.7 
|AmWins Group, Inc.                      |  | Insurance                        |  | Senior Debt(7)                    |  | 6.0              | % |  | 6/14             |  |                          |  |           | 18.5  |      |   | 18.6      |  |   | 14.1 
|Avalon Laboratories Holding             |  | Health Care Equipment &          |  | Senior Debt(7)                    |  | 11.0             | % |  | 1/14             |  |                          |  |           | 17.5  |      |   | 17.4      |  |   | 17.5 
|Corp.                                   |  | Supplies                         |  | Subordinated Debt(7)              |  | 18.6             | % |  | 1/15             |  |                          |  |           | 24.5  |      |   | 24.3      |  |   | 24.5 
|                                        |  |                                  |  | Convertible Preferred Stock(1)(7) |  |                  |   |  |                  |  | 148,742                  |  |           |       |      |   | 24.3      |  |   | 5.7  
|                                        |  |                                  |  | Common Stock(1)(7)                |  |                  |   |  |                  |  | 7,829                    |  |           |       |      |   | 1.3       |  |   |     
|                                        |  |                                  |  |                                   |  |                  |   |  |                  |  |                          |  |           |       |      |   | 67.3      |  |   | 47.7 
|Avanti Park Place LLC                   |  | Real Estate                      |  | Senior Debt(7)                    |  | 6.8              | % |  | 6/13             |  |                          |  |           | 4.8   |      |   | 4.8       |  |   | 4.4  
|BBB Industries, LLC                     |  | Auto Components                  |  | Senior Debt(7)                    |  | 9.3              | % |  | 6/14             |  |                          |  |           | 21.2  |      |   | 21.2      |  |   | 19.4 
|Berry-Hill Galleries, Inc.              |  | Distributors                     |  | Senior Debt(7)                    |  | 13.9             | % |  | 8/10             |  |                          |  |           | 8.3   |      |   | 8.3       |  |   | 7.9  
|Blue Wolf Capital Fund II, L.P.         |  | Capital Markets                  |  | Limited Partnership Interest      |  |                  |   |  |                  |  |                          |  |           |       |      |   | 2.5       |  |   | 2.5  
|CAMP Systems International, Inc.        |  | Air Freight & Logistics          |  | Senior Debt(7)                    |  | 6.2              | % |  | 9/14             |  |                          |  |           | 30.0  |      |   | 29.8      |  |   | 22.4 
|Carestream Health, Inc.                 |  | Health Care Equipment & Supplies |  | Senior Debt(7)                    |  | 5.6              | % |  | 10/13            |  |                          |  |           | 15.0  |      |   | 15.0      |  |   | 12.6 
|CIBT Travel Solutions, LLC              |  | Commercial Services &            |  | Senior Debt(7)                    |  | 9.5              | % |  | 1/13             |  |                          |  |           | 46.6  |      |   | 46.2      |  |   | 46.6 
|                                        |  | Supplies                         |  | Subordinated Debt(7)              |  | 15.0             | % |  | 1/15-1/16        |  |                          |  |           | 55.4  |      |   | 55.0      |  |   | 55.4 
|                                        |  |                                  |  | Redeemable Preferred Stock(7)     |  |                  |   |  |                  |  | 15,000                   |  |           |       |      |   | 19.2      |  |   | 19.4 
|                                        |  |                                  |  | Convertible Preferred Stock(1)(7) |  |                  |   |  |                  |  | 776,800                  |  |           |       |      |   | 77.7      |  |   | 50.0 
|                                        |  |                                  |  | Common Stock(1)(7)                |  |                  |   |  |                  |  | 194,200                  |  |           |       |      |   | 19.4      |  |   |     
|                                        |  |                                  |  |                                   |  |                  |   |  |                  |  |                          |  |           |       |      |   | 217.5     |  |   | 171.4
|Cinelease Holdings, LLC                 |  | Electronic Equipment,            |  | Senior Debt(7)                    |  | 11.9             | % |  | 3/12-4/13        |  |                          |  |           | 54.6  |      |   | 54.2      |  |   | 51.4 
|                                        |  | Instruments &                    |  | Common Stock(1)                   |  |                  |   |  |                  |  | 583                      |  |           |       |      |   | 0.6       |  |   | 0.6  
|                                        |  | Components                       |  |                                   |  |                  |   |  |                  |  |                          |  |           |       |      |   | 54.8      |  |   | 52.0 
|Contec, LLC                             |  | Household Durables               |  | Subordinated Debt(7)              |  | 14.0             | % |  | 9/15-9/16        |  |                          |  |           | 135.0 |      |   | 133.9     |  |   | 123.4
|Delsey Holding(3)                       |  | Textiles, Apparel & Luxury Goods |  | Senior Debt(7)                    |  | 7.0              | % |  | 2/14             |  |                          |  |           | 20.5  |      |   | 20.5      |  |   | 11.9 
|DelStar, Inc.                           |  | Building Products                |  | Subordinated Debt(7)              |  | 14.0             | % |  | 12/12            |  |                          |  |           | 19.3  |      |   | 19.2      |  |   | 19.3 
|                                        |  |                                  |  | Redeemable Preferred Stock(7)     |  |                  |   |  |                  |  | 26,613                   |  |           |       |      |   | 20.7      |  |   | 37.7 
|                                        |  |                                  |  | Convertible Preferred Stock(7)    |  |                  |   |  |                  |  | 29,569                   |  |           |       |      |   | 3.6       |  |   | 3.6  



8



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                         |  |                                |  |                                   |   |                  |      |  |                  |  |                          |  |           |  |       |  |          
|---------------------------------------- |  | ------------------------------ |  | --------------------------------- | - | ---------------- | ---- |  | ---------------- |  | ------------------------ |  | --------- |  | ----- |  | ---------
|Company (4)                              |  | Industry                       |  | Investments                       |   | InterestRate (5) |      |  | Maturity    Date |  | # of
shares/
units
owned |  | Principal |  | Cost  |  | FairValue
|                                         |  |                                |  | Common Stock Warrants(1)(7)       |   |                  |      |  |                  |  | 89,020                   |  |           |  | 16.9  |  | 5.8      
|                                         |  |                                |  |                                   |   |                  |      |  |                  |  |                          |  |           |  | 60.4  |  | 66.4     
|Direct Marketing International LLC       |  | Media                          |  | Subordinated Debt(7)              |   | 15.2             | %    |  | 7/12             |  |                          |  | 30.8      |  | 30.6  |  | 28.0     
|Dyno Holding Corp.                       |  | Auto Components                |  | Senior Debt(7)                    |   | 11.7             | %    |  | 11/13-11/15      |  |                          |  | 41.5      |  | 41.2  |  | 41.5     
|                                         |  |                                |  | Subordinated Debt(6)(7)           |   | 3.7              | %    |  | 11/16            |  |                          |  | 27.5      |  | 25.6  |  | 9.5      
|                                         |  |                                |  | Convertible Preferred Stock(1)(7) |   |                  |      |  |                  |  | 389,759                  |  |           |  | 40.5  |  |         
|                                         |  |                                |  | Common Stock(1)(7)                |   |                  |      |  |                  |  | 97,440                   |  |           |  | 10.1  |  |         
|                                         |  |                                |  |                                   |   |                  |      |  |                  |  |                          |  |           |  | 117.4 |  | 51.0     
|Easton Bell Sports, LLC                  |  | Leisure Equipment &            |  | Redeemable Preferred Stock        |   |                  |      |  |                  |  | 1,171                    |  |           |  | 1.4   |  | 1.4      
|                                         |  | Products                       |  | Common Units(1)                   |   |                  |      |  |                  |  | 3,830,068                |  |           |  | 0.7   |  | 2.5      
|                                         |  |                                |  |                                   |   |                  |      |  |                  |  |                          |  |           |  | 2.1   |  | 3.9      
|FAMS Acquisition, Inc.                   |  | Diversified Financial          |  | Subordinated Debt(7)              |   | 14.0             | %    |  | 11/13            |  |                          |  | 14.3      |  | 14.3  |  | 14.3     
|                                         |  | Services                       |  | Subordinated Debt(6)(7)           |   | 15.5             | %    |  | 11/14            |  |                          |  | 15.0      |  | 11.8  |  | 2.3      
|                                         |  |                                |  | Redeemable Preferred Stock(1)(7)  |   |                  |      |  |                  |  | 919                      |  |           |  | 0.9   |  |         
|                                         |  |                                |  | Convertible Preferred Stock(1)(7) |   |                  |      |  |                  |  | 861,364                  |  |           |  | 20.9  |  |         
|                                         |  |                                |  |                                   |   |                  |      |  |                  |  |                          |  |           |  | 47.9  |  | 16.6     
|FCC Holdings, LLC                        |  | Commercial Banks               |  | Subordinated Debt(7)              |   | 15.2             | %    |  | 12/12            |  |                          |  | 50.0      |  | 49.8  |  | 49.8     
|Ford Motor Company(2)                    |  | Automobiles                    |  | Senior Debt(7)                    |   | 3.4              | %    |  | 12/13            |  |                          |  | 7.9       |  | 7.7   |  | 7.7      
|Fountainhead Estate Holdings Corp.(2)(3) |  | Internet Software & Services   |  | Senior Debt(7)                    |   | 9.6              | %    |  | 8/10-6/14        |  |                          |  | 30.8      |  | 29.0  |  | 29.0     
|FPI Holding Corporation                  |  | Food Products                  |  | Senior Debt(7)                    |   | 9.1              | %    |  | 11/10-1/12       |  |                          |  | 21.4      |  | 21.4  |  | 21.4     
|                                         |  |                                |  | Senior Debt(6)(7)                 |   | 14.0             | %    |  | 5/13-6/15        |  |                          |  | 22.0      |  | 20.9  |  | 3.5      
|                                         |  |                                |  | Subordinated Debt(6)(7)           |   | 21.6             | %    |  | 6/15-5/16        |  |                          |  | 25.9      |  | 17.4  |  |         
|                                         |  |                                |  | Redeemable Preferred Stock(1)(7)  |   |                  |      |  |                  |  | 4,469                    |  |           |  | 39.1  |  |         
|                                         |  |                                |  | Convertible Preferred Stock(1)(7) |   |                  |      |  |                  |  | 21,715                   |  |           |  | 23.3  |  |         
|                                         |  |                                |  | Common Stock(1)(7)                |   |                  |      |  |                  |  | 5,429                    |  |           |  | 5.8   |  |         
|                                         |  |                                |  |                                   |   |                  |      |  |                  |  |                          |  |           |  | 127.9 |  | 24.9     
|Golden Key US LLC                        |  | Diversified Financial Services |  | Commercial Paper(1)(7)            |   | 5.3              | %    |  | 1/14             |  |                          |  | 7.3       |  | 7.3   |  | 3.9      
|HMSC Corporation                         |  | Insurance                      |  | Senior Debt(6)(7)                 |   | 5.8              | %    |  | 10/14            |  |                          |  | 3.3       |  | 3.3   |  | 1.1      
|Hoppy Holdings, Corp.                    |  | Auto Components                |  | Subordinated Debt(7)              |   | 15.1             | %    |  | 7/12             |  |                          |  | 39.7      |  | 39.5  |  | 40.2     
|                                         |  |                                |  | Redeemable Preferred Stock(7)     |   |                  |      |  |                  |  | 2,915                    |  |           |  | 7.5   |  | 7.5      
|                                         |  |                                |  |                                   |   |                  |      |  |                  |  |                          |  |           |  | 47.0  |  | 47.7     
|Infiltrator Systems, Inc.                |  | Building Products              |  | Senior Debt(7)                    |   | 16.5             | %    |  | 10/13            |  |                          |  | 40.8      |  | 40.5  |  | 40.8     
|Innova-Extel Acquisition Holdings, Inc.  |  | Software                       |  | Senior Debt(7)                    |   | 7.9              | %    |  | 4/13             |  |                          |  | 11.5      |  | 11.4  |  | 11.5     
|                                         |  | Subordinated Debt(7)           |  | 15.0                              | % |                  | 3/14 |  |                  |  | 18.4                     |  | 18.3      |  | 18.4 
|                                         |  |                                |  | Convertible Preferred Stock(7)    |   |                  |      |  |                  |  | 14,283                   |  |           |  | 24.3  |  | 29.4     
|                                         |  |                                |  |                                   |   |                  |      |  |                  |  |                          |  |           |  | 54.0  |  | 59.3     
|Intergraph Corporation                   |  | Software                       |  | Senior Debt(7)                    |   | 10.3             | %    |  | 12/14            |  |                          |  | 3.0       |  | 3.0   |  | 2.8      



9



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                        |  |                         |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  |       |  |          
|--------------------------------------- |  | ----------------------- |  | --------------------------------- |  | ---------------- | - |  | ---------------- |  | ------------------------ | - |  | --------- |  | ----- |  | ---------
|Company (4)                             |  | Industry                |  | Investments                       |  | InterestRate (5) |   |  | Maturity    Date |  | # of
shares/
units
owned |   |  | Principal |  | Cost  |  | FairValue
|iTradeNetwork, Inc.                     |  | IT Services             |  | Senior Debt(7)                    |  | 11.5             | % |  | 12/13            |  |                          |   |  | 25.0      |  | 24.8  |  | 25.0     
|JHCI Acquisition, Inc.                  |  | Air Freight & Logistics |  | Senior Debt(7)                    |  | 5.9              | % |  | 12/14            |  |                          |   |  | 19.0      |  | 19.1  |  | 13.7     
|Jones Stephens Corp.(8)                 |  | Building Products       |  | Subordinated Debt(6)(7)           |  | 13.0             | % |  | 9/13             |  |                          |   |  | 11.6      |  | 11.1  |  | 7.0      
|KIK Custom Products, Inc.(3)            |  | Household Products      |  | Senior Debt(6)(7)                 |  | 5.3              | % |  | 12/14            |  |                          |   |  | 19.4      |  | 19.4  |  | 12.4     
|LabelCorp Holdings, Inc                 |  | Paper & Forest          |  | Senior Debt(7)                    |  | 8.1              | % |  | 8/13-8/14        |  |                          |   |  | 3.3       |  | 3.1   |  | 3.0      
|                                        |  | Products                |  | Subordinated Debt(7)              |  | 14.0             | % |  | 8/15-8/16        |  |                          |   |  | 45.0      |  | 44.6  |  | 39.7     
|                                        |  |                         |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 47.7  |  | 42.7     
|LCW Holdings, LLC                       |  | Real Estate             |  | Senior Debt(7)                    |  | 11.0             | % |  | 10/12            |  |                          |   |  | 15.4      |  | 15.1  |  | 14.0     
|                                        |  |                         |  | Warrant(1)                        |  |                  |   |  |                  |  | 12.5                     | % |  |           |  | 0.8   |  | 3.5      
|                                        |  |                         |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 15.9  |  | 17.5     
|LJVH Holdings Inc.(3)                   |  | Beverages               |  | Senior Debt(7)                    |  | 6.0              | % |  | 1/15             |  |                          |   |  | 28.5      |  | 28.5  |  | 27.1     
|LN Acquisition Corp.                    |  | Machinery               |  | Senior Debt(7)                    |  | 6.1              | % |  | 1/15             |  |                          |   |  | 21.5      |  | 21.6  |  | 16.3     
|Mirion Technologies, Inc.               |  | Electrical Equipment    |  | Senior Debt(7)                    |  | 5.4              | % |  | 6/11-11/11       |  |                          |   |  | 127.5     |  | 127.2 |  | 127.4    
|                                        |  |                         |  | Subordinated Debt(7)              |  | 13.8             | % |  | 7/11-5/12        |  |                          |   |  | 53.9      |  | 53.7  |  | 53.9     
|                                        |  |                         |  | Convertible Preferred Stock(7)    |  |                  |   |  |                  |  | 435,724                  |   |  |           |  | 57.8  |  | 87.9     
|                                        |  |                         |  | Common Stock(1)(7)                |  |                  |   |  |                  |  | 208,276                  |   |  |           |  | 2.8   |  | 2.9      
|                                        |  |                         |  | Common Stock Warrants(1)(7)       |  |                  |   |  |                  |  | 222,156                  |   |  |           |  | 18.5  |  | 26.0     
|                                        |  |                         |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 260.0 |  | 298.1    
|Mitchell International, Inc.            |  | IT Services             |  | Senior Debt(7)                    |  | 5.8              | % |  | 3/15             |  |                          |   |  | 5.0       |  | 5.0   |  | 3.4      
|National Processing Company Group, Inc. |  | IT Services             |  | Senior Debt(7)                    |  | 10.8             | % |  | 9/14             |  |                          |   |  | 53.0      |  | 52.8  |  | 46.5     
|NBD Holdings Corp.                      |  | Diversified Financial   |  | Subordinated Debt(7)              |  | 14.0             | % |  | 8/13             |  |                          |   |  | 47.4      |  | 47.0  |  | 47.4     
|                                        |  | Services                |  | Convertible Preferred Stock(1)    |  |                  |   |  |                  |  | 84,174                   |   |  |           |  | 8.7   |  | 8.7      
|                                        |  |                         |  | Common Stock(1)                   |  |                  |   |  |                  |  | 633,408                  |   |  |           |  | 0.1   |  | 1.5      
|                                        |  |                         |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 55.8  |  | 57.6     
|Net1 Las Colinas Manager, LLC           |  | Real Estate             |  | Senior Debt(7)                    |  | 7.7              | % |  | 10/15            |  |                          |   |  | 4.2       |  | 4.3   |  | 3.7      
|Nivel Holdings, LLC                     |  | Distributors            |  | Senior Debt(7)                    |  | 11.2             | % |  | 10/12-10/13      |  |                          |   |  | 59.0      |  | 58.7  |  | 59.0     
|Orchard Brands Corporation              |  | Internet & Catalog      |  | Senior Debt(7)                    |  | 7.5              | % |  | 4/13-4/14        |  |                          |   |  | 179.1     |  | 177.9 |  | 136.9    
|                                        |  | Retail                  |  | Senior Debt(6)(7)                 |  | 10.1             | % |  | 4/14             |  |                          |   |  | 166.6     |  | 118.6 |  | 29.8     
|                                        |  |                         |  | Subordinated Debt(6)(7)           |  | 9.9              | % |  | 4/14             |  |                          |   |  | 69.7      |  | 49.9  |  |         
|                                        |  |                         |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 346.4 |  | 166.7    
|Pan Am International Flight             |  | Professional Services   |  | Subordinated Debt(6)(7)           |  | 18.0             | % |  | 7/13             |  |                          |   |  | 36.3      |  | 24.8  |  | 20.9     
|Academy, Inc.                           |  |                         |  | Convertible Preferred Stock(1)(7) |  |                  |   |  |                  |  | 8,234                    |   |  |           |  | 8.2   |  |         
|                                        |  |                         |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 33.0  |  | 20.9     
|PaR Systems, Inc.                       |  | Machinery               |  | Senior Debt(7)                    |  | 3.4              | % |  | 7/13             |  |                          |   |  | 3.7       |  | 3.6   |  | 3.3      
|Parts Holding Coörperatief U.A(3)       |  | Distributors            |  | Membership Entitlements(1)(7)     |  |                  |   |  |                  |  | 173,060                  |   |  |           |  | 6.4   |  |         
|Phillips & Temro Industries, Inc.       |  | Auto Components         |  | Senior Debt(7)                    |  | 13.0             | % |  | 12/13            |  |                          |   |  | 24.3      |  | 24.3  |  | 24.6     
|                                        |  |                         |  | Subordinated Debt(7)              |  | 18.0             | % |  | 12/13            |  |                          |   |  | 21.5      |  | 21.5  |  | 21.7     
|                                        |  |                         |  | Common Stock Warrants(1)(7)       |  |                  |   |  |                  |  | 5,000,000                |   |  |           |  |      |  | 4.9      
|                                        |  |                         |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 45.8  |  | 51.2     



10



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                             |  |                                                |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  |       |  |          
|---------------------------- |  | ---------------------------------------------- |  | --------------------------------- |  | ---------------- | - |  | ---------------- |  | ------------------------ | - |  | --------- |  | ----- |  | ---------
|Company (4)                  |  | Industry                                       |  | Investments                       |  | InterestRate (5) |   |  | Maturity    Date |  | # of
shares/
units
owned |   |  | Principal |  | Cost  |  | FairValue
|Qioptiq S.A.R.L.(3)          |  | Electronic Equipment, Instruments & Components |  | Subordinated Debt(7)              |  | 10.1             | % |  | 3/18             |  |                          |   |  | 31.7      |  | 31.5  |  | 31.2     
|Ranpak Acquisition Company   |  | Containers & Packaging                         |  | Senior Debt(7)                    |  | 6.9              | % |  | 12/13-12/14      |  |                          |   |  | 20.4      |  | 20.1  |  | 16.3     
|RDR Holdings, Inc.           |  | Household Durables                             |  | Subordinated Debt(7)              |  | 16.2             | % |  | 10/14-11/15      |  |                          |   |  | 102.1     |  | 101.5 |  | 102.1    
|                             |  |                                                |  | Convertible Preferred Stock(1)(7) |  |                  |   |  |                  |  | 1,541                    |   |  |           |  | 156.1 |  | 40.2     
|                             |  |                                                |  | Common Stock(1)(7)                |  |                  |   |  |                  |  | 15,414                   |   |  |           |  | 1.5   |  |         
|                             |  |                                                |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 259.1 |  | 142.3    
|RoarkMoney Mailer, LLC      |  | Media                                          |  | Common Membership Units(1)        |  |                  |   |  |                  |  | 3.5                      | % |  |           |  | 0.9   |  | 0.6      
|Scanner Holdings Corporation |  | Computers &                                    |  | Subordinated Debt(7)              |  | 14.0             | % |  | 6/14             |  |                          |   |  | 17.2      |  | 17.1  |  | 17.2     
|                             |  | Peripherals                                    |  | Convertible Preferred Stock(1)(7) |  |                  |   |  |                  |  | 77,640,000               |   |  |           |  | 7.8   |  | 17.1     
|                             |  |                                                |  | Common Stock(1)(7)                |  |                  |   |  |                  |  | 78,242                   |   |  |           |  | 0.1   |  |         
|                             |  |                                                |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 25.0  |  | 34.3     
|Seroyal Holdings, L.P.(3)    |  | Pharmaceuticals                                |  | Redeemable Preferred Units        |  |                  |   |  |                  |  | 32,462                   |   |  |           |  | 0.8   |  | 1.0      
|                             |  |                                                |  | Common Units(1)                   |  |                  |   |  |                  |  | 95,280                   |   |  |           |  | 0.8   |  | 1.5      
|                             |  |                                                |  | Common Unit Warrants(1)           |  |                  |   |  |                  |  | 41,661                   |   |  |           |  | 0.1   |  | 0.5      
|                             |  |                                                |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 1.7   |  | 3.0      
|Soil Safe Holdings, LLC      |  | Professional Services                          |  | Senior Debt(7)                    |  | 9.7              | % |  | 8/13-8/14        |  |                          |   |  | 40.6      |  | 40.3  |  | 39.1     
|                             |  |                                                |  | Subordinated Debt(7)              |  | 15.5             | % |  | 8/15-8/16        |  |                          |   |  | 39.6      |  | 39.3  |  | 35.1     
|                             |  |                                                |  | Subordinated Debt(6)(7)           |  | 17.5             | % |  | 8/17             |  |                          |   |  | 25.9      |  | 20.6  |  | 20.3     
|                             |  |                                                |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 100.2 |  | 94.5     
|SPL Acquisition Corp.        |  | Pharmaceuticals                                |  | Senior Debt(7)                    |  | 11.0             | % |  | 6/14             |  |                          |   |  | 58.1      |  | 57.7  |  | 58.1     
|                             |  |                                                |  | Subordinated Debt(7)              |  | 15.3             | % |  | 6/15-6/16        |  |                          |   |  | 52.4      |  | 52.0  |  | 52.4     
|                             |  |                                                |  | Convertible Preferred Stock(1)(7) |  |                  |   |  |                  |  | 84,043                   |   |  |           |  | 40.7  |  | 31.3     
|                             |  |                                                |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 150.4 |  | 141.8    
|Swank Audio Visuals, LLC     |  | Commercial Services &                          |  | Senior Debt(7)                    |  | 6.9              | % |  | 8/14             |  |                          |   |  | 12.1      |  | 12.0  |  | 12.1     
|                             |  | Supplies                                       |  | Senior Debt(6)(7)                 |  | 7.5              | % |  | 8/14             |  |                          |   |  | 35.9      |  | 35.6  |  | 18.6     
|                             |  |                                                |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 47.6  |  | 30.7     
|T&H Group Inc.               |  | Insurance                                      |  | Redeemable Preferred Stock        |  |                  |   |  |                  |  | 376                      |   |  |           |  | 0.5   |  | 0.5      
|The Tensar Corporation       |  | Construction &                                 |  | Senior Debt(7)                    |  | 8.3              | % |  | 5/13             |  |                          |   |  | 82.0      |  | 81.4  |  | 60.3     
|                             |  | Engineering                                    |  | Subordinated Debt(6)(7)           |  | 17.5             | % |  | 10/13            |  |                          |   |  | 55.6      |  | 38.3  |  | 41.4     
|                             |  |                                                |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 119.7 |  | 101.7    
|ThreeSixty Sourcing, Inc.(3) |  | Commercial Services & Supplies                 |  | Common Stock Warrants(1)(7)       |  |                  |   |  |                  |  | 35                       |   |  |           |  | 4.1   |  |         
|TransFirst Holdings, Inc.    |  | Commercial Services & Supplies                 |  | Senior Debt(7)                    |  | 7.1              | % |  | 6/15             |  |                          |   |  | 53.7      |  | 53.3  |  | 40.4     
|triVIN Holdings, Inc.        |  | IT Services                                    |  | Subordinated Debt(7)              |  | 15.0             | % |  | 6/14-6/15        |  |                          |   |  | 20.7      |  | 20.6  |  | 20.7     
|                             |  |                                                |  | Convertible Preferred Stock(7)    |  |                  |   |  |                  |  | 247,000,000              |   |  |           |  | 31.6  |  | 31.6     
|                             |  |                                                |  | Common Stock(1)(7)                |  |                  |   |  |                  |  | 6,319,923                |   |  |           |  | 6.3   |  | 1.3      
|                             |  |                                                |  |                                   |  |                  |   |  |                  |  |                          |   |  |           |  | 58.5  |  | 53.6     



11



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                                                  |  |                                                |  |                                                     |  |                  |   |  |                  |  |                          |  |           |       |      |   |           |  |   |      
|----------------------------------------------------------------- |  | ---------------------------------------------- |  | --------------------------------------------------- |  | ---------------- | - |  | ---------------- |  | ------------------------ |  | --------- | ----- | ---- | - | --------- |  | - | -----
|Company (4)                                                       |  | Industry                                       |  | Investments                                         |  | InterestRate (5) |   |  | Maturity    Date |  | # of
shares/
units
owned |  | Principal |       | Cost |   | FairValue
|Tyden Cayman HoldingsCorp.(3)                                     |  | Electronic Equipment, Instruments & Components |  | Common Stock(1)                                     |  |                  |   |  |                  |  | 3,072,494                |  |           |       |      |   | 3.5       |  |   | 4.1  
|WRH, Inc.                                                         |  | Life Sciences Tools &                          |  | Senior Debt(7)                                      |  | 4.3              | % |  | 9/13-9/14        |  |                          |  |           | 4.0   |      |   | 3.9       |  |   | 4.0  
|                                                                  |  | Services                                       |  | Subordinated Debt(7)                                |  | 14.6             | % |  | 7/14-9/15        |  |                          |  |           | 93.1  |      |   | 92.6      |  |   | 89.3 
|                                                                  |  |                                                |  | Convertible Preferred Stock(1)(7)                   |  |                  |   |  |                  |  | 2,008,575                |  |           |       |      |   | 210.0     |  |   | 50.3 
|                                                                  |  |                                                |  | Common Stock(1)(7)                                  |  |                  |   |  |                  |  | 502,144                  |  |           |       |      |   | 49.8      |  |   |     
|                                                                  |  |                                                |  |                                                     |  |                  |   |  |                  |  |                          |  |           |       |      |   | 356.3     |  |   | 143.6
|WWC Acquisitions, Inc.                                            |  | Professional Services                          |  | Senior Debt(7)                                      |  | 7.1              | % |  | 12/11-12/13      |  |                          |  |           | 34.0  |      |   | 33.7      |  |   | 29.6 
|                                                                  |  |                                                |  |                                                     |  |                 
|CMBS INVESTMENTS                                                  |  |                                                |  |                                                     |  |                  |   |  |                  |  |                          |  |           |       |      |  
|Banc of America Commercial Mortgage Trust 2007-1                  |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 5.9              | % |  | 2/17-2/18        |  |                          |  | $         | 12.4  |      | $ | 4.8       |  | $ | 0.9  
|CD 2007-CD4 Commercial Mortgage Trust                             |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 5.9              | % |  | 4/17             |  |                          |  |           | 14.0  |      |   | 8.7       |  |   |     
|CD 2007-CD5 Mortgage Trust                                        |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 6.4              | % |  | 12/17            |  |                          |  |           | 14.8  |      |   | 10.6      |  |   | 0.7  
|Citigroup Commercial Mortgage Securities Trust 2007-C6            |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 5.7              | % |  | 7/17             |  |                          |  |           | 112.5 |      |   | 68.4      |  |   | 9.4  
|COBALT CMBS Commercial Mortgage Trust 2007-C3                     |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 5.2              | % |  | 10/17            |  |                          |  |           | 11.1  |      |   | 8.4       |  |   | 0.7  
|Countrywide Commercial Mortgage Trust 2007-MF1                    |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 6.3              | % |  | 11/37-12/37      |  |                          |  |           | 12.8  |      |   | 6.4       |  |   | 0.3  
|Credit Suisse Commercial Mortgage Trust Series2007-C4             |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 6.0              | % |  | 8/17             |  |                          |  |           | 20.8  |      |   | 12.9      |  |   | 3.1  
|GE Commercial Mortgage Corporation, Series 2007-C1                |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 5.6              | % |  | 12/19            |  |                          |  |           | 37.0  |      |   | 30.8      |  |   |     
|GS Mortgage Securities Trust 2006-GG10                            |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(1)(7) |  | 5.7              | % |  | 7/17             |  |                          |  |           | 44.8  |      |   | 36.7      |  |   |     
|J.P. Morgan Chase Commercial Mortgage Securities Trust 2007-LDP11 |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 5.7              | % |  | 7/17             |  |                          |  |           | 87.2  |      |   | 55.6      |  |   | 0.5  
|LB-UBS Commercial Mortgage Trust 2007-C6                          |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 6.5              | % |  | 8/17             |  |                          |  |           | 36.6  |      |   | 23.2      |  |   | 0.9  
|LB-UBS Commercial Mortgage Trust 2008-C1                          |  | Real Estate                                    |  | Commercial Mortgage Pass-Through Certificates(7)    |  | 6.3              | % |  | 7/23-7/24        |  |                          |  |           | 19.4  |      |   | 7.6       |  |   | 0.7  



12



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                                         |  |                                |  |                                                    |  |                  |   |  |                  |  |                          |  |           |      |      |   |           |  |   |     
|-------------------------------------------------------- |  | ------------------------------ |  | -------------------------------------------------- |  | ---------------- | - |  | ---------------- |  | ------------------------ |  | --------- | ---- | ---- | - | --------- |  | - | ----
|Company (4)                                              |  | Industry                       |  | Investments                                        |  | InterestRate (5) |   |  | Maturity    Date |  | # of
shares/
units
owned |  | Principal |      | Cost |   | FairValue
|ML-CFC Commercial Mortgage Trust 2007-6                  |  | Real Estate                    |  | Commercial Mortgage Pass-ThroughCertificates(7)    |  | 6.0              | % |  | 4/17             |  |                          |  |           | 9.8  |      |   | 3.3       |  |   |    
|ML-CFC Commercial Mortgage Trust 2007-8                  |  | Real Estate                    |  | Commercial Mortgage Pass-ThroughCertificates(7)    |  | 6.2              | % |  | 8/17             |  |                          |  |           | 32.8 |      |   | 19.8      |  |   | 2.8 
|Wachovia Bank Commercial Mortgage Trust 2007-C31         |  | Real Estate                    |  | Commercial Mortgage Pass-ThroughCertificates(1)(7) |  | 6.0              | % |  | 5/17             |  |                          |  |           | 20.0 |      |   | 12.2      |  |   | 0.1 
|Wachovia Bank Commercial Mortgage Trust, Series 2007-C32 |  | Real Estate                    |  | Commercial Mortgage Pass-ThroughCertificates(7)    |  | 5.8              | % |  | 10/17            |  |                          |  |           | 85.1 |      |   | 57.0      |  |   | 5.0 
|Wachovia Bank Commercial Mortgage Trust, Series 2007-C34 |  | Real Estate                    |  | Commercial Mortgage Pass-ThroughCertificates(7)    |  | 5.3              | % |  | 10/17-9/24       |  |                          |  |           | 96.2 |      |   | 42.9      |  |   | 4.7 
|Wachovia Bank Commercial Trust 2006-C28                  |  | Real Estate                    |  | Commercial Mortgage Pass-ThroughCertificates(7)    |  | 6.2              | % |  | 11/16            |  |                          |  |           | 5.0  |      |   | 3.2       |  |   |    
|                                                         |  |                                |  |                                                    |  |                  |   | 
|CLO INVESTMENTS                                          |  |                                |  |                                                    |  |                  |   |  |                  |  |                          |  |           |      |      |   |           |  |   |     
|ACAS CLO 2007-1, Ltd.                                    |  | Diversified Financial          |  | Secured Notes(7)                                   |  |                  |   |  |                  |  |                          |  | $         | 8.5  |      | $ | 8.4       |  | $ | 4.3 
|                                                         |  | Services                       |  | Subordinated Notes(7)                              |  |                  |   |  |                  |  |                          |  |           | 25.9 |      |   | 20.2      |  |   | 15.1
|                                                         |  |                                |  |                                                    |  |                  |   |  |                  |  |                          |  |           |      |      |   | 28.6      |  |   | 19.4
|Ares IIIR/IVR CLO Ltd.                                   |  | Diversified Financial Services |  | Subordinated Notes(7)                              |  |                  |   |  |                  |  |                          |  |           | 20.0 |      |   | 18.3      |  |   | 7.2 
|Ares VIII CLO, Ltd.                                      |  | Diversified Financial Services |  | Preference Shares(7)                               |  |                  |   |  |                  |  | 6,241                    |  |           |      |      |   | 4.8       |  |   | 1.7 
|Avalon Capital Ltd. 3                                    |  | Diversified Financial Services |  | Preferred Securities(7)                            |  |                  |   |  |                  |  | 13,796                   |  |           |      |      |   | 5.6       |  |   | 5.2 
|Babson CLO Ltd. 2006-II                                  |  | Diversified Financial Services |  | Income Notes(7)                                    |  |                  |   |  |                  |  |                          |  |           | 15.0 |      |   | 13.4      |  |   | 9.9 
|BALLYROCK CLO2006-2 LTD.                                 |  | Diversified Financial Services |  | Deferrable Notes(7)                                |  |                  |   |  |                  |  |                          |  |           | 2.0  |      |   | 1.6       |  |   | 1.0 
|Cent CDO 12 Limited                                      |  | Diversified Financial Services |  | Income Notes(7)                                    |  |                  |   |  |                  |  |                          |  |           | 26.4 |      |   | 19.2      |  |   | 15.4
|Centurion CDO 8 Limited                                  |  | Diversified Financial Services |  | Subordinated Notes(7)                              |  |                  |   |  |                  |  |                          |  |           | 5.0  |      |   | 2.9       |  |   | 2.5 
|Champlain CLO                                            |  | Diversified Financial Services |  | Preferred Securities(7)                            |  |                  |   |  |                  |  | 1,000,000                |  |           |      |      |   | 0.7       |  |   | 0.4 
|CoLTs 2005-1 Ltd.(3)                                     |  | Diversified Financial Services |  | Preference Shares(1)(7)                            |  |                  |   |  |                  |  | 360                      |  |           |      |      |   | 6.7       |  |   | 0.4 
|CoLTs 2005-2 Ltd.(3)                                     |  | Diversified Financial Services |  | Preference Shares(7)                               |  |                  |   |  |                  |  | 34,170,000               |  |           |      |      |   | 24.4      |  |   | 7.8 
|CREST Exeter Street Solar 2004-2                         |  | Diversified Financial Services |  | Preferred Securities(7)                            |  |                  |   |  |                  |  | 3,089,177                |  |           |      |      |   | 3.0       |  |   | 0.5 
|Eaton Vance CDO X PLC(3)                                 |  | Diversified Financial Services |  | Secured Subordinated Income Notes(7)               |  |                  |   |  |                  |  |                          |  |           | 15.0 |      |   | 13.7      |  |   | 2.9 
|Essex Park CDO Ltd.                                      |  | Diversified Financial Services |  | Preferred Securities(7)                            |  |                  |   |  |                  |  | 5,750,000                |  |           |      |      |   | 2.3       |  |   | 2.0 



13



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                                                                          |  |                                  |  |                                  |   |                  |   |   |                  |  |                          |  |           |      |      |   |           |  |   |     
|----------------------------------------------------------------------------------------- |  | -------------------------------- |  | -------------------------------- | - | ---------------- | - | - | ---------------- |  | ------------------------ |  | --------- | ---- | ---- | - | --------- |  | - | ----
|Company (4)                                                                               |  | Industry                         |  | Investments                      |   | InterestRate (5) |   |   | Maturity    Date |  | # of
shares/
units
owned |  | Principal |      | Cost |   | FairValue
|Flagship CLO V                                                                            |  | Diversified Financial            |  | Deferrable Notes(7)              |   |                  |   |   |                  |  |                          |  |           | 1.7  |      |   | 1.3       |  |   | 0.9 
|                                                                                          |  | Services                         |  | Subordinated Securities(7)       |   |                  |   |   |                  |  | 15,000                   |  |           |      |      |   | 11.6      |  |   | 6.9 
|                                                                                          |  |                                  |  |                                  |   |                  |   |   |                  |  |                          |  |           |      |      |   | 12.9      |  |   | 7.8 
|Galaxy III CLO, Ltd                                                                       |  | Diversified Financial Services   |  | Subordinated Notes(1)(7)         |   |                  |   |   |                  |  |                          |  |           | 4.0  |      |   | 2.3       |  |   | 0.3 
|LightPoint CLO IV, LTD                                                                    |  | Diversified Financial Services   |  | Income Notes(7)                  |   |                  |   |   |                  |  |                          |  |           | 6.7  |      |   | 7.4       |  |   | 1.6 
|LightPoint CLO VII, Ltd.                                                                  |  | Diversified Financial Services   |  | Subordinated Notes(7)            |   |                  |   |   |                  |  |                          |  |           | 9.0  |      |   | 6.8       |  |   | 4.8 
|LightPoint CLO VIII, Ltd.                                                                 |  | Diversified Financial Services   |  | Deferrable Notes(1)(7)           |   |                  |   |   |                  |  |                          |  |           | 7.0  |      |   | 6.6       |  |   | 3.9 
|Mayport CLO Ltd.                                                                          |  | Diversified Financial Services   |  | Income Notes(7)                  |   |                  |   |   |                  |  |                          |  |           | 14.0 |      |   | 12.6      |  |   | 5.5 
|NYLIM Flatiron CLO 2006-1 LTD.(3)                                                         |  | Diversified Financial Services   |  | Subordinated Securities(7)       |   |                  |   |   |                  |  | 10,000                   |  |           |      |      |   | 7.2       |  |   | 5.4 
|Octagon Investment Partners VII, Ltd.                                                     |  | Diversified Financial Services   |  | Preferred Securities(7)          |   |                  |   |   |                  |  | 5,000,000                |  |           |      |      |   | 1.8       |  |   | 1.5 
|Sapphire Valley CDO I, Ltd.                                                               |  | Diversified Financial Services   |  | Subordinated Notes(7)            |   |                  |   |   |                  |  |                          |  |           | 14.0 |      |   | 14.6      |  |   | 1.6 
|Vitesse CLO, Ltd.                                                                         |  | Diversified Financial Services   |  | Preferred Securities(7)          |   |                  |   |   |                  |  | 20,000,000               |  |           |      |      |   | 15.3      |  |   | 8.3 
|Subtotal Non-Control / Non-Affiliate Investments (53% of total
investments at fair value) |  |                                  |  |                                  | $ | 4,409.2          |   | $ | 3,035.2         
|                                                                                          |  |                                  |  |                                  |   |                 
|AFFILIATE INVESTMENTS                                                                     |  |                                  |  |                                  |   |                  |   |   |                  |  |                          |  |           |      |      |  
|American Capital Agency Corp(2)                                                           |  | Real Estate Investment Trusts    |  | Common Stock(7)                  |   |                  |   |   |                  |  | 2,500,100                |  |           |      |      | $ | 50.0      |  | $ | 66.1
|Anchor Drilling Fluids USA, Inc.                                                          |  | Energy Equipment &               |  | Senior Debt(7)                   |   | 11.3             | % |   | 12/13            |  |                          |  | $         | 6.5  |      |   | 6.5       |  |   | 5.4 
|                                                                                          |  | Services                         |  | Redeemable PreferredStock(1)(7)  |   |                  |   |   |                  |  | 859                      |  |           |      |      |   | 1.6       |  |   | 0.5 
|                                                                                          |  |                                  |  | Common Stock(1)(7)               |   |                  |   |   |                  |  | 3,061                    |  |           |      |      |   | 5.0       |  |   |    
|                                                                                          |  |                                  |  |                                  |   |                  |   |   |                  |  |                          |  |           |      |      |   | 13.1      |  |   | 5.9 
|Comfort Co., Inc.                                                                         |  | Household Durables               |  | Senior Debt(7)                   |   | 11.5             | % |   | 3/12-3/15        |  |                          |  |           | 12.6 |      |   | 12.6      |  |   | 11.1
|                                                                                          |  |                                  |  | Common Stock(1)(7)               |   |                  |   |   |                  |  | 110,365                  |  |           |      |      |   | 11.7      |  |   | 9.4 
|                                                                                          |  |                                  |  |                                  |   |                  |   |   |                  |  |                          |  |           |      |      |   | 24.3      |  |   | 20.5
|Egenera, Inc.                                                                             |  | Computers & Peripherals          |  | Subordinated Debt(6)             |   | 15.0             | % |   | 12/10            |  |                          |  |           | 4.1  |      |   | 3.2       |  |   | 1.4 
|                                                                                          |  |                                  |  | Redeemable PreferredStock(1)(7)  |   |                  |   |   |                  |  | 523,040                  |  |           |      |      |   | 0.4       |  |   |    
|                                                                                          |  |                                  |  | Common Stock(1)(7)               |   |                  |   |   |                  |  | 8,046,865                |  |           |      |      |   | 25.0      |  |   |    
|                                                                                          |  |                                  |  |                                  |   |                  |   |   |                  |  |                          |  |           |      |      |   | 28.6      |  |   | 1.4 
|HALT Medical, Inc.                                                                        |  | Health Care Equipment & Supplies |  | Convertible PreferredStock(1)(7) |   |                  |   |   |                  |  | 5,592,367                |  |           |      |      |   | 8.9       |  |   | 10.3
|IEE Holding 1 S.A.(3)                                                                     |  | Auto Components                  |  | Common Stock(1)                  |   |                  |   |   |                  |  | 250,000                  |  |           |      |      |   | 4.5       |  |   |    
|IS Holdings I, Inc.                                                                       |  | Software                         |  | Redeemable PreferredStock(1)(7)  |   |                  |   |   |                  |  | 1,297                    |  |           |      |      |   | 1.8       |  |   | 1.8 
|                                                                                          |  |                                  |  | Common Stock(1)(7)               |   |                  |   |   |                  |  | 1,165,930                |  |           |      |      |   |          |  |   | 9.0 
|                                                                                          |  |                                  |  |                                  |   |                  |   |   |                  |  |                          |  |           |      |      |   | 1.8       |  |   | 10.8



14



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                                                       |  |                                  |       |                                     |   |                  |      |  |                  |  |                          |   |      |           |      |      |   |           |     |   |     
|---------------------------------------------------------------------- |  | -------------------------------- | ----- | ----------------------------------- | - | ---------------- | ---- |  | ---------------- |  | ------------------------ | - | ---- | --------- | ---- | ---- | - | --------- | --- | - | ----
|Company (4)                                                            |  | Industry                         |       | Investments                         |   | InterestRate (5) |      |  | Maturity    Date |  | # of
shares/
units
owned |   |      | Principal |      | Cost |   | FairValue
|LTM Enterprises, Inc.                                                  |  | Personal Products                |       | Senior Debt(6)(7)                   |   | 17.3             | %    |  | 11/11            |  |                          |   |      |           | 22.0 |      |   | 18.4      |     |   | 17.4
|Narus, Inc.                                                            |  | Internet Software & Services     |       | Convertible PreferredStock(1)(7)    |   |                  |      |  |                  |  | 31,835,900               |   |      |           |      |      |   | 9.2       |     |   | 11.9
|                                                                       |  |                                  |       | Preferred StockWarrants(1)(7)       |   |                  |      |  |                  |  | 9,567,232                |   |      |           |      |      |   | 0.1       |     |   | 2.0 
|                                                                       |  |                                  |       |                                     |   |                  |      |  |                  |  |                          |   |      |           |      |      |   | 9.3       |     |   | 13.9
|Primrose Holding Corporation                                           |  | Diversified Consumer Services    |       | Common Stock(1)(7)                  |   |                  |      |  |                  |  | 4,213                    |   |      |           |      |      |   | 2.7       |     |   | 3.8 
|Qualitor Component Holdings,                                           |  | Auto Components                  |       | Subordinated Debt(7)                |   | 17.1             | %    |  | 7/13             |  |                          |   |      |           | 37.9 |      |   | 37.7      |     |   | 37.8
|LLC                                                                    |  |                                  |       | Redeemable Preferred Units(1)       |   |                  |      |  |                  |  | 3,150,000                |   |      |           |      |      |   | 3.2       |     |   |    
|                                                                       |  |                                  |       | Common Units(1)                     |   |                  |      |  |                  |  | 350,000                  |   |      |           |      |      |   | 0.3       |     |   |    
|                                                                       |  |                                  |       |                                     |   |                  |      |  |                  |  |                          |   |      |           |      |      |   | 41.2      |     |   | 37.8
|Radar Detection Holdings Corp.                                         |  | Household Durables               |       | Senior Debt(7)                      |   | 13.0             | %    |  | 11/12            |  |                          |   |      |           | 16.2 |      |   | 15.6      |     |   | 14.0
|                                                                       |  |                                  |       | Convertible PreferredStock(1)       |   |                  |      |  |                  |  | 7,075                    |   |      |           |      |      |   | 0.7       |     |   | 1.2 
|                                                                       |  |                                  |       | Common Stock(1)                     |   |                  |      |  |                  |  | 40,688                   |   |      |           |      |      |   | 0.6       |     |   |    
|                                                                       |  |                                  |       |                                     |   |                  |      |  |                  |  |                          |   |      |           |      |      |   | 16.9      |     |   | 15.2
|Small Smiles HoldingCompany, LLC                                       |  | Health Care Providers & Services |       | Senior Debt(7)                      |   | 3.9              | %    |  | 2/15             |  |                          |   |      |           | 10.3 |      |   | 7.1       |     |   | 5.3 
|                                                                       |  | Subordinated Debt(6)(7)          |       | 11.0                                | % |                  | 2/17 |  |                  |  |                          |   | 27.1 |           |      | 19.0 |   |           | 5.4
|                                                                       |  |                                  |       | Redeemable MembershipInterest(1)(7) |   |                  |      |  |                  |  | 12.8                     | % |      |           |      |      |   | 37.8      |     |   |    
|                                                                       |  |                                  |       | Common MembershipInterest(1)(7)     |   |                  |      |  |                  |  |                          |   |      |           |      |      |   | 13.8      |     |   |    
|                                                                       |  |                                  |       |                                     |   |                  |      |  |                  |  |                          |   |      |           |      |      |   | 77.7      |     |   | 10.7
|WFS Holding, LLC                                                       |  | Software                         |       | Preferred Interest(1)               |   |                  |      |  |                  |  | 20,403,772               |   |      |           |      |      |   | 3.0       |     |   | 2.6 
|Subtotal Affiliate Investments (4% of total investments at fair
value) |  | $                                | 300.4 |                                     | $ | 216.4           
|                                                                       |  |                                  |       |                                     |   |                 
|CONTROL INVESTMENTS                                                    |  |                                  |       |                                     |   |                  |      |  |                  |  |                          |   |      |           |      |      |  
|ACAS Equity Holdings Corp.                                             |  |                                  |       | Common Stock(1)(7)                  |   |                  |      |  |                  |  | 589                      |   |      |           |      |      | $ | 15.1      |     | $ | 1.8 
|ACAS Real Estate Holdings                                              |  | Real Estate                      |       | Subordinated Debt(6)(7)             |   | 15.0             | %    |  | 5/16             |  |                          |   |      | $         | 4.4  |      |   | 3.7       |     |   | 4.1 
|Corporation                                                            |  |                                  |       | Common Stock(1)(7)                  |   |                  |      |  |                  |  | 100                      | % |      |           |      |      |   | 11.5      |     |   | 0.6 
|                                                                       |  |                                  |       |                                     |   |                  |      |  |                  |  |                          |   |      |           |      |      |   | 15.2      |     |   | 4.7 
|American Capital, LLC                                                  |  | Capital Markets                  |       | Common Membership Interest(7)       |   |                  |      |  |                  |  | 100                      | % |      |           |      |      |   | 70.8      |     |   | 65.9
|American Driveline Systems, Inc.                                       |  | Diversified Consumer             |       | Subordinated Debt(7)                |   | 14.0             | %    |  | 12/14-12/15      |  |                          |   |      |           | 42.7 |      |   | 42.2      |     |   | 42.7
|                                                                       |  | Services                         |       | Redeemable Preferred Stock(7)       |   |                  |      |  |                  |  | 403,357                  |   |      |           |      |      |   | 34.0      |     |   | 49.7
|                                                                       |  |                                  |       | Common Stock(1)(7)                  |   |                  |      |  |                  |  | 128,681                  |   |      |           |      |      |   | 10.8      |     |   | 2.9 
|                                                                       |  |                                  |       | Common Stock Warrants(1)(7)         |   |                  |      |  |                  |  | 204,663                  |   |      |           |      |      |   | 17.3      |     |   | 4.6 
|                                                                       |  |                                  |       |                                     |   |                  |      |  |                  |  |                          |   |      |           |      |      |   | 104.3     |     |   | 99.9



15



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                               |  |                                          |  |                                  |  |                  |   |  |                  |  |                          |  |           |  |       |  |          
|------------------------------ |  | ---------------------------------------- |  | -------------------------------- |  | ---------------- | - |  | ---------------- |  | ------------------------ |  | --------- |  | ----- |  | ---------
|Company (4)                    |  | Industry                                 |  | Investments                      |  | InterestRate (5) |   |  | Maturity    Date |  | # of
shares/
units
owned |  | Principal |  | Cost  |  | FairValue
|Aptara, Inc.                   |  | IT Services                              |  | Senior Debt(7)                   |  | 11.5             | % |  | 2/11             |  |                          |  | 3.0       |  | 3.0   |  | 3.0      
|                               |  |                                          |  | Subordinated Debt(7)             |  | 17.0             | % |  | 2/11             |  |                          |  | 59.4      |  | 59.2  |  | 61.4     
|                               |  |                                          |  | Redeemable PreferredStock(1)(7)  |  |                  |   |  |                  |  | 15,107                   |  |           |  | 14.1  |  | 21.0     
|                               |  |                                          |  | Convertible PreferredStock(1)(7) |  |                  |   |  |                  |  | 2,549,410                |  |           |  | 8.7   |  |         
|                               |  |                                          |  | Preferred StockWarrants(1)(7)    |  |                  |   |  |                  |  | 230,681                  |  |           |  | 1.0   |  |         
|                               |  |                                          |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 86.0  |  | 85.4     
|Capital.com, Inc.              |  | Diversified Financial Services           |  | Common Stock(1)(7)               |  |                  |   |  |                  |  | 8,500,100                |  |           |  | 0.9   |  |         
|CH Holding Corp.               |  | Leisure Equipment &                      |  | Senior Debt(6)(7)                |  | 7.3              | % |  | 5/13             |  |                          |  | 17.7      |  | 16.3  |  | 17.7     
|                               |  | Products                                 |  | Redeemable PreferredStock(1)(7)  |  |                  |   |  |                  |  | 21,215                   |  |           |  | 42.8  |  |         
|                               |  |                                          |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 59.1  |  | 17.7     
|CMX Inc.                       |  | Construction & Engineering               |  | Senior Debt(6)(7)                |  | 3.6              | % |  | 5/11             |  |                          |  | 6.5       |  | 6.4   |  | 1.5      
|Contour Semiconductor, Inc.    |  | Semiconductors & Semiconductor Equipment |  | Convertible PreferredStock(1)(7) |  |                  |   |  |                  |  | 11,532,842               |  |           |  | 12.4  |  | 21.6     
|Core Financial Holdings, LLC   |  | Diversified Financial                    |  | Subordinated Debt(7)             |  | 13.7             | % |  | 4/14-5/15        |  |                          |  | 37.8      |  | 37.5  |  | 37.5     
|                               |  | Services                                 |  | Common Units(1)(7)               |  |                  |   |  |                  |  | 57,940,360               |  |           |  | 54.4  |  | 16.3     
|                               |  |                                          |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 91.9  |  | 53.8     
|Creditcards.com, Inc.          |  | Internet Software &                      |  | Senior Debt(7)                   |  | 14.0             | % |  | 6/13-10/13       |  |                          |  | 81.5      |  | 81.1  |  | 81.5     
|                               |  | Services                                 |  | Subordinated Debt(7)             |  | 19.0             | % |  | 10/14            |  |                          |  | 17.0      |  | 17.0  |  | 17.0     
|                               |  |                                          |  | Redeemable PreferredStock(1)(7)  |  |                  |   |  |                  |  | 257,510                  |  |           |  | 53.6  |  | 48.8     
|                               |  |                                          |  | Common Stock(1)(7)               |  |                  |   |  |                  |  | 176,430,690              |  |           |  | 2.5   |  |         
|                               |  |                                          |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 154.2 |  | 147.3    
|ECA Acquisition Holdings, Inc. |  | Health Care Equipment &                  |  | Subordinated Debt(7)             |  | 16.5             | % |  | 12/14            |  |                          |  | 13.7      |  | 13.6  |  | 13.7     
|                               |  | Supplies                                 |  | Common Stock(1)(7)               |  |                  |   |  |                  |  | 583                      |  |           |  | 11.1  |  | 15.2     
|                               |  |                                          |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 24.7  |  | 28.9     
|eLynx Holdings, Inc.           |  | IT Services                              |  | Senior Debt(7)                   |  | 8.8              | % |  | 7/13             |  |                          |  | 9.5       |  | 9.5   |  | 9.5      
|                               |  |                                          |  | Subordinated Debt(6)(7)          |  | 9.0              | % |  | 7/13             |  |                          |  | 16.7      |  | 13.4  |  | 3.2      
|                               |  |                                          |  | Redeemable PreferredStock(1)(7)  |  |                  |   |  |                  |  | 21,113                   |  |           |  | 9.0   |  |         
|                               |  |                                          |  | Convertible PreferredStock(1)(7) |  |                  |   |  |                  |  | 7,929                    |  |           |  | 6.0   |  |         
|                               |  |                                          |  | Common Stock(1)(7)               |  |                  |   |  |                  |  | 11,261                   |  |           |  | 1.1   |  |         
|                               |  |                                          |  | Common StockWarrants(1)(7)       |  |                  |   |  |                  |  | 1,078,792                |  |           |  | 13.1  |  |         
|                               |  |                                          |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 52.1  |  | 12.7     



16



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AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                |  |                                |  |                                 |  |                  |   |  |                  |  |                          |  |           |  |         |  |          
|------------------------------- |  | ------------------------------ |  | ------------------------------- |  | ---------------- | - |  | ---------------- |  | ------------------------ |  | --------- |  | ------- |  | ---------
|Company (4)                     |  | Industry                       |  | Investments                     |  | InterestRate (5) |   |  | Maturity    Date |  | # of
shares/
units
owned |  | Principal |  | Cost    |  | FairValue
|European Capital Limited(3)     |  | Diversified Financial Services |  | Subordinated Debt(7)            |  | 7.4              | % |  | 9/10             |  |                          |  | 53.9      |  | 53.7    |  | 53.9     
|                                |  | Ordinary Shares(1)(7)          |  |                                 |  |                  |   |  | 431,895,528      |  |                          |  | 1,267.3   |  | 408.8  
|                                |  |                                |  |                                 |  |                  |   |  |                  |  |                          |  |           |  | 1,321.0 |  | 462.7    
|European Touch, LTD. II         |  | Leisure Equipment &            |  | Senior Debt(7)                  |  | 8.3              | % |  | 8/11-1/12        |  |                          |  | 0.5       |  | 0.5     |  | 0.5      
|                                |  | Products                       |  | SubordinatedDebt(6)(7)          |  | 16.0             | % |  | 1/11             |  |                          |  | 20.5      |  | 13.5    |  | 1.8      
|                                |  |                                |  | Redeemable PreferredStock(1)(7) |  |                  |   |  |                  |  | 263                      |  |           |  | 0.3     |  |         
|                                |  |                                |  | Common Stock(1)(7)              |  |                  |   |  |                  |  | 1,688                    |  |           |  | 0.9     |  |         
|                                |  |                                |  | Common StockWarrants(1)(7)      |  |                  |   |  |                  |  | 7,105                    |  |           |  | 3.7     |  |         
|                                |  |                                |  |                                 |  |                  |   |  |                  |  |                          |  |           |  | 18.9    |  | 2.3      
|EXPL Pipeline Holdings LLC      |  | Oil, Gas & Consumable          |  | Senior Debt(7)                  |  | 8.0              | % |  | 1/17             |  |                          |  | 45.6      |  | 45.3    |  | 45.6     
|                                |  | Fuels                          |  | Common MembershipUnits(1)(7)    |  |                  |   |  |                  |  | 58,297                   |  |           |  | 44.5    |  | 7.8      
|                                |  |                                |  |                                 |  |                  |   |  |                  |  |                          |  |           |  | 89.8    |  | 53.4     
|FL Acquisitions Holdings, Inc.  |  | Computers & Peripherals        |  | Senior Debt(7)                  |  | 8.4              | % |  | 10/12-10/13      |  |                          |  | 40.0      |  | 39.8    |  | 40.0     
|                                |  |                                |  | Subordinated Debt(7)            |  | 18.5             | % |  | 4/14-10/14       |  |                          |  | 32.4      |  | 32.2    |  | 32.4     
|                                |  |                                |  | SubordinatedDebt(6)(7)          |  | 22.5             | % |  | 10/14            |  |                          |  | 14.8      |  | 8.7     |  | 6.1      
|                                |  |                                |  | Redeemable PreferredStock(1)    |  |                  |   |  |                  |  | 583,000                  |  |           |  | 0.6     |  |         
|                                |  |                                |  | Common Stock(1)                 |  |                  |   |  |                  |  | 129,514                  |  |           |  | 15.6    |  |         
|                                |  |                                |  |                                 |  |                  |   |  |                  |  |                          |  |           |  | 96.9    |  | 78.5     
|Formed Fiber Technologies, Inc. |  | Auto Components                |  | Common Stock(1)(7)              |  |                  |   |  |                  |  | 31,250                   |  |           |  | 8.1     |  | 4.4      
|Fosbel Global Services (LUXCO)  |  | Commercial Services &          |  | Subordinated Debt(7)            |  | 18.6             | % |  | 12/13-12/14      |  |                          |  | 49.5      |  | 49.4    |  | 49.3     
|S.C.A.(3)                       |  | Supplies                       |  | Redeemable PreferredStock(1)    |  |                  |   |  |                  |  | 18,449,456               |  |           |  | 18.5    |  | 1.6      
|                                |  |                                |  | Convertible PreferredStock(1)   |  |                  |   |  |                  |  | 1,519,368                |  |           |  | 3.0     |  |         
|                                |  |                                |  | Common Stock(1)                 |  |                  |   |  |                  |  | 108,526                  |  |           |  | 0.2     |  |         
|                                |  |                                |  |                                 |  |                  |   |  |                  |  |                          |  |           |  | 71.1    |  | 50.9     
|FreeConference.com, Inc.        |  | Diversified                    |  | Senior Debt(7)                  |  | 8.5              | % |  | 5/11             |  |                          |  | 10.5      |  | 10.5    |  | 10.5     
|                                |  | Telecommunication              |  | Subordinated Debt(7)            |  | 15.0             | % |  | 5/12             |  |                          |  | 10.5      |  | 9.2     |  | 7.4      
|                                |  | Services                       |  | Redeemable PreferredStock(1)(7) |  |                  |   |  |                  |  | 14,042,095               |  |           |  | 12.8    |  |         
|                                |  |                                |  | Common Stock(1)(7)              |  |                  |   |  |                  |  | 6,088,229                |  |           |  | 2.3     |  |         
|                                |  |                                |  |                                 |  |                  |   |  |                  |  |                          |  |           |  | 34.8    |  | 17.9     
|Future Food, Inc.               |  | Food Products                  |  | Senior Debt(7)                  |  | 5.4              | % |  | 8/10             |  |                          |  | 17.0      |  | 17.0    |  | 11.8     
|                                |  |                                |  | Common Stock(1)(7)              |  |                  |   |  |                  |  | 64,917                   |  |           |  | 13.0    |  |         
|                                |  |                                |  | Common StockWarrants(1)(7)      |  |                  |   |  |                  |  | 6,500                    |  |           |  | 1.3     |  |         
|                                |  |                                |  |                                 |  |                  |   |  |                  |  |                          |  |           |  | 31.3    |  | 11.8     



17



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                   |  |                                  |                                  |                                  |      |                  |   |       |                  |        |                          |   |      |           |      |      |      |          
|---------------------------------- |  | -------------------------------- | -------------------------------- | -------------------------------- | ---- | ---------------- | - | ----- | ---------------- | ------ | ------------------------ | - | ---- | --------- | ---- | ---- | ---- | ---------
|Company (4)                        |  | Industry                         |                                  | Investments                      |      | InterestRate (5) |   |       | Maturity    Date |        | # of
shares/
units
owned |   |      | Principal |      | Cost |      | FairValue
|Group Montana, Inc.                |  | Textiles, Apparel &              |                                  | Senior Debt(7)                   |      | 10.9             | % |       | 1/11-10/11       |        |                          |   |      | 16.5      |      | 16.4 |      | 16.5     
|                                   |  | Luxury Goods                     |                                  | Senior Debt(6)(7)                |      | 12.8             | % |       | 10/11            |        |                          |   |      | 5.6       |      | 4.7  |      | 3.5      
|                                   |  |                                  |                                  | SubordinatedDebt(6)(7)           |      | 24.5             | % |       | 10/12            |        |                          |   |      | 14.0      |      | 6.8  |      |         
|                                   |  |                                  |                                  | Convertible PreferredStock(1)(7) |      |                  |   |       |                  |        | 4,000                    |   |      |           |      | 1.0  |      |         
|                                   |  |                                  |                                  | Common Stock(1)(7)               |      |                  |   |       |                  |        | 2.5                      | % |      |           |      | 0.7  |      |         
|                                   |  |                                  |                                  |                                  |      |                  |   |       |                  |        |                          |   |      |           |      | 29.6 |      | 20.0     
|Halex Holdings, Inc.               |  | Construction Materials           |                                  | Senior Debt(6)(7)                |      | 7.1              | % |       | 9/11             |        |                          |   |      | 11.4      |      | 9.8  |      | 6.0      
|                                   |  |                                  |                                  | Redeemable PreferredStock(1)(7)  |      |                  |   |       |                  |        | 23,737,746               |   |      |           |      | 30.8 |      |         
|                                   |  |                                  |                                  |                                  |      |                  |   |       |                  |        |                          |   |      |           |      | 40.6 |      | 6.0      
|Hartstrings Holdings Corp.         |  | Textiles, Apparel & Luxury Goods |                                  | Senior Debt(6)(7)                |      | 4.6              | % |       | 12/10            |        |                          |   |      | 8.8       |      | 8.8  |      | 6.1      
|                                   |  |                                  | Convertible PreferredStock(1)(7) |                                  |      |                  |   |       |                  | 10,196 |                          |   |      |           | 2.9  |      |    
|                                   |  |                                  |                                  | Common Stock(1)(7)               |      |                  |   |       |                  |        | 14,250                   |   |      |           |      | 4.8  |      |         
|                                   |  |                                  |                                  |                                  |      |                  |   |       |                  |        |                          |   |      |           |      | 16.5 |      | 6.1      
|J-Pac, LLC                         |  | Health Care Equipment & Supplies |                                  | Senior Debt(7)                   |      | 11.0             | % |       | 1/12-1/14        |        |                          |   |      | 3.0       |      | 3.0  |      | 3.0      
|                                   |  |                                  | Senior Debt(6)(7)                |                                  | 12.3 | %                |   | 1/14  |                  |        |                          |   | 11.7 |           | 11.6 |      | 0.3 
|                                   |  |                                  |                                  | SubordinatedDebt(6)(7)           |      | 18.9             | % |       | 1/14             |        |                          |   |      | 12.7      |      | 8.7  |      |         
|                                   |  |                                  |                                  | Preferred UnitWarrants(1)(7)     |      |                  |   |       |                  |        | 263,158                  |   |      |           |      | 0.2  |      |         
|                                   |  |                                  |                                  |                                  |      |                  |   |       |                  |        |                          |   |      |           |      | 23.5 |      | 3.3      
|Kingway Inca Clymer Holdings, Inc. |  | Building Products                |                                  | Subordinated Debt(6)(7)          |      | 12.2             | % |       | 4/12             |        |                          |   |      | 2.3       |      |     |      | 1.1      
|                                   |  |                                  |                                  | Redeemable PreferredStock(1)     |      |                  |   |       |                  |        | 13,709                   |   |      |           |      | 9.2  |      |         
|                                   |  |                                  |                                  |                                  |      |                  |   |       |                  |        |                          |   |      |           |      | 9.2  |      | 1.1      
|Lifoam Holdings, Inc.              |  | Leisure Equipment & Products     |                                  | Senior Debt(7)                   |      | 10.5             | % |       | 12/14            |        |                          |   |      | 18.9      |      | 18.9 |      | 18.9     
|                                   |  |                                  | Subordinated Debt(7)             |                                  | 8.0  | %                |   | 12/14 |                  |        |                          |   | 41.5 |           | 41.3 |      | 41.5
|                                   |  |                                  |                                  | Redeemable PreferredStock(1)(7)  |      |                  |   |       |                  |        | 6,160                    |   |      |           |      | 4.2  |      | 7.4      
|                                   |  |                                  |                                  | Convertible PreferredStock(1)(7) |      |                  |   |       |                  |        | 15,797                   |   |      |           |      | 12.3 |      |         
|                                   |  |                                  |                                  | Common Stock(1)(7)               |      |                  |   |       |                  |        | 14,000                   |   |      |           |      | 1.4  |      |         
|                                   |  |                                  |                                  | Common StockWarrants(1)(7)       |      |                  |   |       |                  |        | 464,242                  |   |      |           |      | 2.9  |      |         
|                                   |  |                                  |                                  |                                  |      |                  |   |       |                  |        |                          |   |      |           |      | 81.0 |      | 67.8     
|LLSC Holdings Corporation          |  | Personal Products                |                                  | Senior Debt(7)                   |      | 6.4              | % |       | 8/12             |        |                          |   |      | 4.2       |      | 4.2  |      | 4.2      
|                                   |  |                                  |                                  | Subordinated Debt(7)             |      | 12.0             | % |       | 9/13             |        |                          |   |      | 5.5       |      | 5.5  |      | 5.5      
|                                   |  |                                  |                                  | Convertible PreferredStock(1)(7) |      |                  |   |       |                  |        | 7,496                    |   |      |           |      | 8.1  |      | 4.7      
|                                   |  |                                  |                                  |                                  |      |                  |   |       |                  |        |                          |   |      |           |      | 17.8 |      | 14.4     
|LVI Holdings, LLC                  |  | Professional Services            |                                  | Senior Debt(7)                   |      | 7.4              | % |       | 8/10             |        |                          |   |      | 2.7       |      | 2.7  |      | 3.0      
|                                   |  |                                  |                                  | SubordinatedDebt(6)(7)           |      | 18.0             | % |       | 2/13             |        |                          |   |      | 12.5      |      | 8.9  |      | 5.0      
|                                   |  |                                  |                                  |                                  |      |                  |   |       |                  |        |                          |   |      |           |      | 11.6 |      | 8.0      
|Medical Billing Holdings, Inc.     |  | IT Services                      |                                  | Subordinated Debt(7)             |      | 15.0             | % |       | 9/13             |        |                          |   |      | 11.1      |      | 11.0 |      | 11.1     
|                                   |  |                                  |                                  | Convertible PreferredStock(1)(7) |      |                  |   |       |                  |        | 13,199,000               |   |      |           |      | 13.2 |      | 9.2      
|                                   |  |                                  |                                  | Common Stock(1)(7)               |      |                  |   |       |                  |        | 3,299,582                |   |      |           |      | 3.3  |      |         
|                                   |  |                                  |                                  |                                  |      |                  |   |       |                  |        |                          |   |      |           |      | 27.5 |      | 20.3     



18



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                              |  |                                |  |                                  |  |                  |   |  |                  |  |                          |  |           |  |       |  |          
|----------------------------- |  | ------------------------------ |  | -------------------------------- |  | ---------------- | - |  | ---------------- |  | ------------------------ |  | --------- |  | ----- |  | ---------
|Company (4)                   |  | Industry                       |  | Investments                      |  | InterestRate (5) |   |  | Maturity    Date |  | # of
shares/
units
owned |  | Principal |  | Cost  |  | FairValue
|Montgomery Lane, LLC          |  | Diversified Financial Services |  | Common MembershipUnits(1)(7)     |  |                  |   |  |                  |  | 100                      |  |           |  | 7.9   |  | 5.0      
|Montgomery Lane, LTD(3)       |  | Diversified Financial Services |  | Common MembershipUnits(1)        |  |                  |   |  |                  |  | 50,000                   |  |           |  | 6.4   |  | 0.2      
|MW Acquisition Corporation    |  | Health Care Providers &        |  | Subordinated Debt(7)             |  | 16.3             | % |  | 2/13-2/14        |  |                          |  | 26.3      |  | 26.1  |  | 26.3     
|                              |  | Services                       |  | Redeemable PreferredStock(7)     |  |                  |   |  |                  |  | 2,485                    |  |           |  | 1.1   |  | 1.0      
|                              |  |                                |  | Convertible PreferredStock(1)(7) |  |                  |   |  |                  |  | 38,192                   |  |           |  | 13.5  |  | 17.9     
|                              |  |                                |  | Common Stock(1)(7)               |  |                  |   |  |                  |  | 51,521                   |  |           |  |      |  | 0.2      
|                              |  |                                |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 40.7  |  | 45.4     
|NECCO Holdings, Inc.          |  | Food Products                  |  | Senior Debt(6)(7)                |  | 18.0             | % |  | 11/13            |  |                          |  | 9.9       |  | 9.1   |  | 1.6      
|                              |  |                                |  | Common Stock(1)(7)               |  |                  |   |  |                  |  | 782,609                  |  |           |  | 0.1   |  |         
|                              |  |                                |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 9.2   |  | 1.6      
|NECCO Realty Investments, LLC |  | Real Estate                    |  | Senior Debt(6)(7)                |  | 14.0             | % |  | 12/17            |  |                          |  | 40.7      |  | 37.9  |  | 38.6     
|                              |  |                                |  | Common MembershipUnits(1)(7)     |  |                  |   |  |                  |  | 7,450                    |  |           |  | 4.8   |  |         
|                              |  |                                |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 42.7  |  | 38.6     
|Paradigm Precision Holdings,  |  | Aerospace & Defense            |  | Subordinated Debt(7)             |  | 17.0             | % |  | 8/14             |  |                          |  | 61.3      |  | 61.0  |  | 61.3     
|LLC                           |  |                                |  | SubordinatedDebt(6)(7)           |  | 20.0             | % |  | 8/14-10/14       |  |                          |  | 74.6      |  | 53.9  |  | 0.6      
|                              |  |                                |  | Common MembershipUnits(1)(7)     |  |                  |   |  |                  |  | 478,488                  |  |           |  | 17.5  |  |         
|                              |  |                                |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 132.4 |  | 61.9     
|PHC Sharp Holdings, Inc.      |  | Commercial Services &          |  | Senior Debt(7)                   |  | 6.0              | % |  | 12/11-12/12      |  |                          |  | 16.5      |  | 16.3  |  | 14.3     
|                              |  | Supplies                       |  | SubordinatedDebt(6)(7)           |  | 17.0             | % |  | 12/14            |  |                          |  | 10.5      |  | 7.3   |  |         
|                              |  |                                |  | Common Stock(1)(7)               |  |                  |   |  |                  |  | 367,881                  |  |           |  | 4.2   |  |         
|                              |  |                                |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 27.8  |  | 14.3     
|PHI Acquisitions, Inc.        |  | Internet & Catalog Retail      |  | Subordinated Debt(7)             |  | 15.2             | % |  | 3/16             |  |                          |  | 27.4      |  | 27.2  |  | 27.4     
|                              |  |                                |  | Redeemable PreferredStock(7)     |  |                  |   |  |                  |  | 36,267                   |  |           |  | 30.3  |  | 41.9     
|                              |  |                                |  | Common Stock(1)(7)               |  |                  |   |  |                  |  | 40,295                   |  |           |  | 3.9   |  | 5.6      
|                              |  |                                |  | Common StockWarrants(1)(7)       |  |                  |   |  |                  |  | 116,065                  |  |           |  | 11.6  |  | 16.2     
|                              |  |                                |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 73.0  |  | 91.1     
|Sixnet Holdings, LLC          |  | Electronic Equipment,          |  | Senior Debt(7)                   |  | 11.1             | % |  | 6/12-6/13        |  |                          |  | 37.1      |  | 36.9  |  | 36.4     
|                              |  | Instruments & Components       |  | Convertible PreferredStock(1)(7) |  |                  |   |  |                  |  | 94                       |  |           |  | 0.5   |  | 0.5      
|                              |  |                                |  | MembershipUnits(1)(7)            |  |                  |   |  |                  |  | 446                      |  |           |  | 5.6   |  | 1.2      
|                              |  |                                |  |                                  |  |                  |   |  |                  |  |                          |  |           |  | 43.0  |  | 38.1     



19



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                  |  |                         |  |                                            |  |                  |   |  |                  |  |                          |   |  |           |  |       |  |          
|--------------------------------- |  | ----------------------- |  | ------------------------------------------ |  | ---------------- | - |  | ---------------- |  | ------------------------ | - |  | --------- |  | ----- |  | ---------
|Company (4)                       |  | Industry                |  | Investments                                |  | InterestRate (5) |   |  | Maturity    Date |  | # of
shares/
units
owned |   |  | Principal |  | Cost  |  | FairValue
|SMG Holdings, Inc.                |  | Hotels, Restaurants &   |  | Senior Debt(7)                             |  | 3.3              | % |  | 7/14             |  |                          |   |  | 5.8       |  | 5.8   |  | 5.8      
|                                  |  | Leisure                 |  | Subordinated Debt(7)                       |  | 12.5             | % |  | 6/15             |  |                          |   |  | 127.4     |  | 126.6 |  | 127.6    
|                                  |  |                         |  | Convertible PreferredStock(1)(7)           |  |                  |   |  |                  |  | 1,101,673                |   |  |           |  | 133.8 |  | 130.3    
|                                  |  |                         |  | Common Stock(1)(7)                         |  |                  |   |  |                  |  | 275,419                  |   |  |           |  | 27.6  |  |         
|                                  |  |                         |  |                                            |  |                  |   |  |                  |  |                          |   |  |           |  | 293.8 |  | 263.7    
|Specialty Brands of America, Inc. |  | Food Products           |  | Subordinated Debt(7)                       |  | 14.0             | % |  | 5/14             |  |                          |   |  | 35.2      |  | 34.9  |  | 35.2     
|                                  |  |                         |  | Redeemable PreferredStock(7)               |  |                  |   |  |                  |  | 122,017                  |   |  |           |  | 9.9   |  | 15.6     
|                                  |  |                         |  | Common Stock(1)(7)                         |  |                  |   |  |                  |  | 128,175                  |   |  |           |  | 2.3   |  | 18.0     
|                                  |  |                         |  | Common StockWarrants(1)(7)                 |  |                  |   |  |                  |  | 56,819                   |   |  |           |  | 1.4   |  | 7.9      
|                                  |  |                         |  |                                            |  |                  |   |  |                  |  |                          |   |  |           |  | 48.5  |  | 76.7     
|Spring Air International, LLC     |  | Household Durables      |  | Common MembershipUnits(1)(7)               |  |                  |   |  |                  |  | 49                       | % |  |           |  | 2.7   |  | 0.4      
|TestAmerica Environmental         |  | Commercial Services &   |  | Senior Debt(7)                             |  | 6.3              | % |  | 12/11            |  |                          |   |  | 3.8       |  | 3.7   |  | 3.5      
|Services, LLC                     |  | Supplies                |  | Senior Debt(6)(7)                          |  | 6.5              | % |  | 12/12            |  |                          |   |  | 21.4      |  | 15.7  |  | 17.5     
|                                  |  |                         |  | Preferred Units(1)(7)                      |  |                  |   |  |                  |  | 20,000                   |   |  |           |  | 19.3  |  |         
|                                  |  |                         |  | Common Unit(1)(7)                          |  |                  |   |  |                  |  | 490,000                  |   |  |           |  | 2.0   |  |         
|                                  |  |                         |  |                                            |  |                  |   |  |                  |  |                          |   |  |           |  | 40.7  |  | 21.0     
|UFG Real Estate Holdings, LLC     |  | Real Estate             |  | Common Membership(1)(7)                    |  |                  |   |  |                  |  |                          |   |  |           |  |      |  | 1.0      
|Unique Fabricating Incorporated   |  | Auto Components         |  | Senior Debt(7)                             |  | 10.0             | % |  | 10/10-2/12       |  |                          |   |  | 6.1       |  | 6.0   |  | 6.1      
|                                  |  |                         |  | Redeemable PreferredStock(1)(7)            |  |                  |   |  |                  |  | 301,556                  |   |  |           |  | 7.9   |  | 1.4      
|                                  |  |                         |  | Common StockWarrants(1)(7)                 |  |                  |   |  |                  |  | 6,862                    |   |  |           |  | 0.2   |  |         
|                                  |  |                         |  |                                            |  |                  |   |  |                  |  |                          |   |  |           |  | 14.1  |  | 7.5      
|Unwired Holdings, Inc.            |  | Household Durables      |  | Senior Debt(7)                             |  | 8.9              | % |  | 6/11-6/12        |  |                          |   |  | 15.9      |  | 15.8  |  | 15.9     
|                                  |  |                         |  | SubordinatedDebt(1)(7)                     |  | 14.5             | % |  | 6/12             |  |                          |   |  | 18.2      |  |      |  | 10.1     
|                                  |  |                         |  | Redeemable PreferredStock(1)               |  |                  |   |  |                  |  | 14,630                   |   |  |           |  | 14.6  |  |         
|                                  |  |                         |  | Common Stock(1)                            |  |                  |   |  |                  |  | 126,001                  |   |  |           |  | 1.3   |  |         
|                                  |  |                         |  |                                            |  |                  |   |  |                  |  |                          |   |  |           |  | 31.7  |  | 26.0     
|VP Acquisition Holdings, Inc.     |  | Health Care Equipment & |  | Subordinated Debt(7)                       |  | 14.5             | % |  | 10/13-10/14      |  |                          |   |  | 20.3      |  | 20.1  |  | 20.3     
|                                  |  | Supplies                |  | Common Stock(1)(7)                         |  |                  |   |  |                  |  | 19,780                   |   |  |           |  | 24.7  |  | 50.6     
|                                  |  |                         |  |                                            |  |                  |   |  |                  |  |                          |   |  |           |  | 44.8  |  | 70.9     
|Warner Power, LLC                 |  | Electrical Equipment    |  | Subordinated Debt(7)                       |  | 14.0             | % |  | 1/12             |  |                          |   |  | 2.2       |  | 2.2   |  | 2.2      
|                                  |  |                         |  | Subordinated Debt(6)(7)                    |  | 15.0             | % |  | 1/12             |  |                          |   |  | 3.5       |  | 3.1   |  | 1.9      
|                                  |  |                         |  | Redeemable PreferredMembership Units(1)(7) |  |                  |   |  |                  |  | 3,796,269                |   |  |           |  | 3.0   |  |         
|                                  |  |                         |  | Common MembershipUnits(1)(7)               |  |                  |   |  |                  |  | 27,400                   |   |  |           |  | 1.9   |  |         
|                                  |  |                         |  |                                            |  |                  |   |  |                  |  |                          |   |  |           |  | 10.2  |  | 4.1      



20



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AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                                                      |  |                                |  |                               |  |                  |   |  |              |  |                          |   |         |           |   |         |         |           |   |        
|--------------------------------------------------------------------- |  | ------------------------------ |  | ----------------------------- |  | ---------------- | - |  | ------------ |  | ------------------------ | - | ------- | --------- | - | ------- | ------- | --------- | - | -------
|Company (4)                                                           |  | Industry                       |  | Investments                   |  | InterestRate (5) |   |  | MaturityDate |  | # of
shares/
units
owned |   |         | Principal |   | Cost    |         | FairValue
|WIS Holding Company, Inc.                                             |  | Commercial Services &          |  | Subordinated Debt(7)          |  | 14.9             | % |  | 1/14-1/15    |  |                          |   |         | 112.0     |   |         | 111.3   |           |   | 112.0  
|                                                                      |  | Supplies                       |  | Convertible PreferredStock(7) |  |                  |   |  |              |  | 703,406                  |   |         |           |   |         | 92.9    |           |   | 157.3  
|                                                                      |  |                                |  | Common Stock(1)(7)            |  |                  |   |  |              |  | 175,852                  |   |         |           |   |         | 17.6    |           |   | 33.7   
|                                                                      |  |                                |  |                               |  |                  |   |  |              |  |                          |   |         |           |   |         | 221.8   |           |   | 303.0  
|WSACS RR Holdings, LLC                                                |  | Real Estate                    |  | Common MembershipUnits(1)(7)  |  |                  |   |  |              |  | 3,384,615                |   |         |           |   |         | 3.4     |           |   |       
|CDO/ CLO INVESTMENTS                                                  |  |                                |  |                               |  |                  |   |  |              |  |                          |   |         |           |   |         |         |          
|ACAS Wachovia Investments, L.P.                                       |  | Diversified Financial Services |  | Partnership Interest          |  |                  |   |  |              |  | 90                       | % |         |           |   | $       | 12.5    |           | $ | 2.2    
|Subtotal Control Investments (43% of total investments at fair value) |  |                                |  |                               |  |                  |   |  |              |  |                          | $ | 3,729.6 |           | $ | 2,442.8
|Total Investment Assets                                               |  |                                |  |                               |  |                  |   |  |              |  |                          |   |         |           |   | $       | 8,439.2 |           | $ | 5,694.4



|                                 |  |                                                            |  |                  |   |  |                    |  |               |  |          |   |      |   |           |   |       |  
|-------------------------------- |  | ---------------------------------------------------------- |  | ---------------- | - |  | ------------------ |  | ------------- |  | -------- | - | ---- | - | --------- | - | ----- | -
|Counterparty                     |  | Instrument                                                 |  | InterestRate (5) |   |  | ExpirationDate (5) |  | # ofcontracts |  | Notional |   | Cost |   | FairValue |  
|DERIVATIVE AGREEMENTS            |  |                                                            |  |                  |   |  |                    |  |               |  |          |   |      |   |           |  
|Wells Fargo Bank, N.A            |  | Balance Differential Swap - Pay Fixed/ Receive Floating(7) |  | LIBOR/5.1        | % |  | 8/19               |  | 1             |  | 18.4     |   |      |  |           |   | 2.8   |  
|Subtotal Derivative Assets       |  |                                                            |  |                  |   |  |                    |  |               |  |          |   | $    |  |           | $ | 2.8   |  
|                                 |  |                                                            |  |                  |   | 
|DERIVATIVE AGREEMENTS            |  |                                                            |  |                  |   |  |                    |  |               |  |          |   |      |   |           |  
|Citibank, N.A.                   |  | Interest Rate SwapPay Fixed/ Receive Floating(7)          |  | 4.8%/LIBOR       |   |  | 4/12-11/19         |  | 4             |  | 426.0    |   |      |  |           |   | (29.1 | )
|BMO Financial Group              |  | Interest Rate SwapPay Fixed/ Receive Floating(7)          |  | 5.4%/LIBOR       |   |  | 2/13-8/17          |  | 5             |  | 343.9    |   |      |  |           |   | (38.6 | )
|Wells Fargo Bank, N.A            |  | Interest Rate Swap Pay Fixed/ Receive Floating(7)         |  | 4.9%/LIBOR       |   |  | 1/14-8/19          |  | 3             |  | 302.6    |   |      |  |           |   | (30.9 | )
|UniCredit Group                  |  | Interest Rate SwapPay Fixed/ Receive Floating(7)          |  | 5.7%/LIBOR       |   |  | 7/17               |  | 1             |  | 66.0     |   |      |  |           |   | (12.6 | )
|Citibank, N.A.                   |  | Balance Differential SwapPay Fixed/ Receive Floating(7)   |  | 5.2%/LIBOR       |   |  | 11/19              |  | 1             |  | 47.8     |   |      |  |           |   | (4.0  | )
|Fortis Financial Services LLC    |  | Interest Rate SwapPay Fixed/ Receive Floating(7)          |  | 5.7%/LIBOR       |   |  | 7/17               |  | 1             |  | 22.3     |   |      |  |           |   | (4.4  | )
|Citibank, N.A.                   |  | Foreign Exchange SwapPay Euros/ Receive GBP(7)            |  |                  |   |  | 2/11               |  | 1             |  |          |   |      |  |           |   | (0.6  | )
|Subtotal Derivative Liabilities  |  |                                                            |  |                  |   |  |                    |  |               |  | $        |  |      | $ | (120.2    | )
|Total Derivative Agreements, Net |  |                                                            |  |                  |   |  |                    |  |               |  | $        |  |      | $ | (117.4    | )



21



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AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

June 30, 2010

(unaudited)

(in millions, except share data)



|                                                                       |  |      |      |           |   |     
|---------------------------------------------------------------------- |  | ---- | ---- | --------- | - | ----
|Funds                                                                  |  | Cost |      | FairValue
|MONEY MARKET FUNDS(7)(9)                                               |  |      |      |           |   |     
|Dreyfus Cash Advantage Fund                                            |  | $    | 5.0  |           | $ | 5.0 
|Federated INV PRM CSH OBL-I                                            |  |      | 5.0  |           |   | 5.0 
|Fidelity Institutional Money Market FundsMoney Market Portfolio       |  |      | 5.0  |           |   | 5.0 
|Fidelity Institutional Money Market FundsPrime Money Market Portfolio |  |      | 5.0  |           |   | 5.0 
|Dreyfus Cash managementINST                                           |  |      | 2.5  |           |   | 2.5 
|DWS Money Market SeriesINST                                           |  |      | 2.5  |           |   | 2.5 
|Federated Tax-Free Obligations Fund                                    |  |      | 2.5  |           |   | 2.5 
|First American Government Obligations Fund                             |  |      | 1.0  |           |   | 1.0 
|First American Prime Obligations Fund                                  |  |      | 1.0  |           |   | 1.0 
|BlackRock Cash FundsPrime                                             |  |      | 0.5  |           |   | 0.5 
|BlackRock Liquidity Funds TempFund Portfolio                           |  |      | 0.5  |           |   | 0.5 
|Dreyfus Institutional Reserves Money Fund                              |  |      | 0.5  |           |   | 0.5 
|Goldman Sachs Financial Square FundMoney Market Fund                  |  |      | 0.5  |           |   | 0.5 
|Goldman Sachs Financial Square FundsPrime Obligations Fund            |  |      | 0.5  |           |   | 0.5 
|Total Money Market Funds                                               |  | $    | 32.0 |           | $ | 32.0



|(1) | Non-income producing.
|--- | ---------------------

|(2) | Publicly traded company or a consolidated subsidiary of a public company.
|--- | -------------------------------------------------------------------------

|(3) | International investment.
|--- | -------------------------

|(4) | Certain of the securities are issued by affiliate(s) of the listed portfolio company.
|--- | -------------------------------------------------------------------------------------

|(5) | Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by the nature of indebtedness by a single
issuer. The maturity dates represent the earliest and the latest maturity dates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Loan is on non-accrual status and therefore considered non-income producing.
|--- | ----------------------------------------------------------------------------

|(7) | All or a portion of the investments or instruments are pledged as collateral under various secured financing arrangements.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(8) | Portfolio company has filed for reorganization under Chapter 11 of the United States Code.
|--- | ------------------------------------------------------------------------------------------

|(9) | Included in cash and cash equivalents on our Consolidated Balance Sheets.
|--- | -------------------------------------------------------------------------



22



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AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2009

(in millions, except share data)



|                                        |  |                                                |                               |                                |      |                  |      |                  |        |                       |      |           |       |      |      |           |      |      |      
|--------------------------------------- |  | ---------------------------------------------- | ----------------------------- | ------------------------------ | ---- | ---------------- | ---- | ---------------- | ------ | --------------------- | ---- | --------- | ----- | ---- | ---- | --------- | ---- | ---- | -----
|Company (4)                             |  | Industry                                       |                               | Investments                    |      | InterestRate (5) |      | Maturity    Date |        | # ofshares/unitsowned |      | Principal |       | Cost |      | FairValue
|NON-CONTROL / NON-AFFILIATE INVESTMENTS |  |                                                |                               |                                |      |                  |      |                  |        |                       |     
|Affordable Care Holding Corp.           |  | Health Care Providers & Services               |                               | Subordinated Debt(7)           |      | 15.0%            |      | 11/13-11/14      |        |                       |      | $         | 66.6  |      | $    | 65.9      |      | $    | 66.6 
|                                        |  | Convertible Preferred Stock                    |                               |                                |      |                  |      | 70,752           |        |                       |      |           |       | 91.0 |      |           | 99.4
|                                        |  |                                                |                               | Common Stock(1)                |      |                  |      |                  |        | 17,687,156            |      |           |       |      |      | 17.7      |      |      | 19.8 
|                                        |  |                                                |                               |                                |      |                  |      |                  |        |                       |      |           |       |      |      | 174.6     |      |      | 185.8
|Algoma Holding Company                  |  | Building Products                              |                               | Subordinated Debt(7)           |      | 12.6%            |      | 4/13             |        |                       |      |           | 15.2  |      |      | 15.1      |      |      | 14.9 
|American Acquisition, LLC               |  | Capital Markets                                |                               | Senior Debt                    |      | 14.2%            |      | 12/12            |        |                       |      |           | 15.7  |      |      | 15.4      |      |      | 13.5 
|AmWins Group, Inc.                      |  | Insurance                                      |                               | Senior Debt(7)                 |      | 5.8%             |      | 6/14             |        |                       |      |           | 18.5  |      |      | 18.6      |      |      | 12.1 
|Anchor Drilling Fluids USA, Inc.        |  | Energy Equipment & Services                    |                               | Senior Debt(7)                 |      | 11.3%            |      | 4/13             |        |                       |      |           | 7.9   |      |      | 7.8       |      |      | 6.3  
|                                        |  | Subordinated Debt(6)(7)                        |                               | 14.7%                          |      | 4/15             |      |                  |        |                       | 5.2  |           |       | 5.0  |      |           |    
|                                        |  |                                                |                               |                                |      |                  |      |                  |        |                       |      |           |       |      |      | 12.8      |      |      | 6.3  
|Aspect Software                         |  | IT Services                                    |                               | Senior Debt(7)                 |      | 7.3%             |      | 7/12             |        |                       |      |           | 20.0  |      |      | 19.9      |      |      | 16.6 
|Avalon Laboratories Holding Corp.       |  | Health Care Equipment & Supplies               |                               | Senior Debt(7)                 |      | 11.0%            |      | 1/14             |        |                       |      |           | 17.7  |      |      | 17.6      |      |      | 17.7 
|                                        |  | Subordinated Debt(7)                           |                               | 18.0%                          |      | 1/15             |      |                  |        |                       | 22.9 |           |       | 21.7 |      |           | 20.6
|                                        |  |                                                |                               | Convertible Preferred Stock(1) |      |                  |      |                  |        | 148,742               |      |           |       |      |      | 24.3      |      |      |     
|                                        |  |                                                |                               | Common Stock(1)                |      |                  |      |                  |        | 7,829                 |      |           |       |      |      | 1.3       |      |      |     
|                                        |  |                                                |                               |                                |      |                  |      |                  |        |                       |      |           |       |      |      | 64.9      |      |      | 38.3 
|Avanti Park Place LLC                   |  | Real Estate                                    |                               | Senior Debt                    |      | 8.3%             |      | 6/10             |        |                       |      |           | 5.7   |      |      | 5.8       |      |      | 5.8  
|BBB Industries, LLC                     |  | Auto Components                                |                               | Senior Debt(7)                 |      | 5.7%             |      | 6/14             |        |                       |      |           | 21.2  |      |      | 21.2      |      |      | 15.9 
|Berry-Hill Galleries, Inc.              |  | Distributors                                   |                               | Senior Debt                    |      | 13.7%            |      | 3/10             |        |                       |      |           | 7.9   |      |      | 7.9       |      |      | 7.9  
|Blue Wolf Capital Fund II, L.P.         |  | Capital Markets                                |                               | Limited Partnership Interest   |      |                  |      |                  |        |                       |      |           |       |      |      | 2.5       |      |      | 2.5  
|CAMP Systems International, Inc.        |  | Air Freight & Logistics                        |                               | Senior Debt(7)                 |      | 6.4%             |      | 9/14             |        |                       |      |           | 30.0  |      |      | 29.8      |      |      | 20.6 
|Carestream Health, Inc.                 |  | Health Care Equipment & Supplies               |                               | Senior Debt(7)                 |      | 5.5%             |      | 10/13            |        |                       |      |           | 15.0  |      |      | 15.0      |      |      | 11.6 
|CH Holding Corp.                        |  | Leisure Equipment & Products                   |                               | Senior Debt(6)                 |      | 7.2%             |      | 5/11             |        |                       |      |           | 16.2  |      |      | 13.0      |      |      | 13.7 
|                                        |  |                                                | Redeemable Preferred Stock(1) |                                |      |                  |      |                  | 21,215 |                       |      |           |       |      | 42.7 |           |      |    
|                                        |  |                                                |                               |                                |      |                  |      |                  |        |                       |      |           |       |      |      | 55.7      |      |      | 13.7 
|Cinelease Holdings, LLC                 |  | Electronic Equipment, Instruments & Components |                               | Senior Debt(7)                 |      | 7.7%             |      | 3/12-4/13        |        |                       |      |           | 47.9  |      |      | 47.6      |      |      | 41.3 
|                                        |  |                                                | Senior Debt(6)(7)             |                                | 8.3% |                  | 4/13 |                  |        |                       |      | 10.4      |       |      | 10.4 |           |      | 7.1 
|                                        |  |                                                | Common Stock(1)               |                                |      |                  |      |                  | 583    |                       |      |           |       |      | 0.5  |           |      |    
|                                        |  |                                                |                               |                                |      |                  |      |                  |        |                       |      |           |       |      |      | 58.5      |      |      | 48.4 
|Compusearch Holdings Company, Inc.      |  | Software                                       |                               | Subordinated Debt(7)           |      | 12.0%            |      | 7/12             |        |                       |      |           | 12.6  |      |      | 12.5      |      |      | 12.6 
|                                        |  | Convertible Preferred Stock(1)                 |                               |                                |      |                  |      | 23,342           |        |                       |      |           |       | 0.9  |      |           | 2.7 
|                                        |  |                                                |                               |                                |      |                  |      |                  |        |                       |      |           |       |      |      | 13.4      |      |      | 15.3 
|Contec, LLC                             |  | Household Durables                             |                               | Subordinated Debt(7)           |      | 14.0%            |      | 9/15-9/16        |        |                       |      |           | 135.0 |      |      | 133.8     |      |      | 114.6
|Delsey Holding(3)                       |  | Textiles, Apparel & Luxury Goods               |                               | Senior Debt                    |      | 7.2%             |      | 2/12             |        |                       |      |           | 20.5  |      |      | 20.5      |      |      | 15.0 
|DelStar, Inc.                           |  | Building Products                              |                               | Subordinated Debt(7)           |      | 14.0%            |      | 12/12            |        |                       |      |           | 19.1  |      |      | 19.0      |      |      | 19.1 
|                                        |  |                                                | Redeemable Preferred Stock    |                                |      |                  |      |                  | 26,613 |                       |      |           |       |      | 19.4 |           |      | 36.7
|                                        |  |                                                |                               | Convertible Preferred Stock(1) |      |                  |      |                  |        | 29,569                |      |           |       |      |      | 3.0       |      |      |     
|                                        |  |                                                |                               | Common Stock Warrants(1)       |      |                  |      |                  |        | 89,020                |      |           |       |      |      | 16.9      |      |      |     
|                                        |  |                                                |                               |                                |      |                  |      |                  |        |                       |      |           |       |      |      | 58.3      |      |      | 55.8 
|Direct Marketing International LLC      |  | Media                                          |                               | Subordinated Debt(7)           |      | 15.2%            |      | 7/12             |        |                       |      |           | 30.3  |      |      | 30.1      |      |      | 26.8 



23



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                        |  |                                  |                            |                                              |       |                  |       |                  |       |                       |      |           |      |          |      |          
|--------------------------------------- |  | -------------------------------- | -------------------------- | -------------------------------------------- | ----- | ---------------- | ----- | ---------------- | ----- | --------------------- | ---- | --------- | ---- | -------- | ---- | ---------
|Company (4)                             |  | Industry                         |                            | Investments                                  |       | InterestRate (5) |       | Maturity    Date |       | # ofshares/unitsowned |      | Principal |      | Cost     |      | FairValue
|Dyno Holding Corp.                      |  | Auto Components                  |                            | Senior Debt(7)                               |       | 11.7%            |       | 11/13-11/15      |       |                       |      | 41.6      |      | 41.3     |      | 41.6     
|                                        |  |                                  | Subordinated Debt(6)(7)    |                                              | 3.7%  |                  | 11/16 |                  |       |                       | 27.0 |           | 25.6 |          | 9.9 
|                                        |  |                                  |                            | Convertible Preferred Stock(1)               |       |                  |       |                  |       | 389,759               |      |           |      | 40.5     |      |         
|                                        |  |                                  |                            | Common Stock(1)                              |       |                  |       |                  |       | 97,440                |      |           |      | 10.1     |      |         
|                                        |  |                                  |                            |                                              |       |                  |       |                  |       |                       |      |           |      | 117.5    |      | 51.5     
|Easton Bell Sports, LLC                 |  | Leisure Equipment & Products     |                            | Redeemable Preferred Stock
Common Units(1)   |       |                  |       |                  |       | 1,1713,830,068        |      |           |      | 1.30.7   |      | 1.32.0   
|                                        |  |                                  |                            |                                              |       |                  |       |                  |       |                       |      |           |      | 2.0      |      | 3.3      
|FAMS Acquisition, Inc.                  |  | Diversified Financial Services   |                            | Subordinated Debt(7)
Subordinated Debt(6)(7) |       | 14.0%15.5%       |       | 11/1311/14       |       |                       |      | 13.113.6  |      | 13.011.8 |      | 13.13.1  
|                                        |  |                                  |                            | Redeemable Preferred Stock(1)                |       |                  |       |                  |       | 919                   |      |           |      | 0.9      |      |         
|                                        |  |                                  |                            | Convertible Preferred Stock(1)               |       |                  |       |                  |       | 861,364               |      |           |      | 20.9     |      |         
|                                        |  |                                  |                            |                                              |       |                  |       |                  |       |                       |      |           |      | 46.6     |      | 16.2     
|FCC Holdings, LLC                       |  | Commercial Banks                 |                            | Subordinated Debt                            |       | 15.1%            |       | 12/12            |       |                       |      | 75.0      |      | 74.6     |      | 67.7     
|Ford Motor Company(2)                   |  | Automobiles                      |                            | Senior Debt                                  |       | 3.4%             |       | 12/13            |       |                       |      | 21.2      |      | 20.6     |      | 18.3     
|FPI Holding Corporation                 |  | Food Products                    |                            | Senior Debt                                  |       | 7.6%             |       | 11/10-5/11       |       |                       |      | 7.4       |      | 7.3      |      | 7.4      
|                                        |  |                                  |                            | Senior Debt(6)                               |       | 13.9%            |       | 5/13-6/15        |       |                       |      | 24.0      |      | 23.2     |      | 5.7      
|                                        |  |                                  |                            | Subordinated Debt(6)                         |       | 21.6%            |       | 6/15-5/16        |       |                       |      | 23.2      |      | 17.3     |      |         
|                                        |  |                                  |                            | Redeemable Preferred Stock(1)                |       |                  |       |                  |       | 4,469                 |      |           |      | 39.1     |      |         
|                                        |  |                                  |                            | Convertible Preferred Stock(1)               |       |                  |       |                  |       | 21,715                |      |           |      | 23.3     |      |         
|                                        |  |                                  |                            | Common Stock(1)                              |       |                  |       |                  |       | 5,429                 |      |           |      | 5.8      |      |         
|                                        |  |                                  |                            |                                              |       |                  |       |                  |       |                       |      |           |      | 116.0    |      | 13.1     
|Genband Inc.                            |  | Communications Equipment         |                            | Common Stock(1)                              |       |                  |       |                  |       | 3,407,419             |      |           |      | 14.7     |      | 0.2      
|Golden Key US LLC                       |  | Diversified Financial Services   |                            | Commercial Paper(1)                          |       | 5.3%             |       | 1/14             |       |                       |      | 7.3       |      | 7.3      |      | 3.9      
|HMSC Corporation                        |  | Insurance                        |                            | Senior Debt(6)(7)                            |       | 5.8%             |       | 10/14            |       |                       |      | 3.4       |      | 3.4      |      | 1.2      
|Hoppy Holdings, Corp.                   |  | Auto Components                  |                            | Subordinated Debt(7)                         |       | 15.3%            |       | 7/12             |       |                       |      | 39.0      |      | 38.8     |      | 38.4     
|                                        |  |                                  | Redeemable Preferred Stock |                                              |       |                  |       |                  | 2,915 |                       |      |           | 7.0  |          | 6.8 
|                                        |  |                                  |                            |                                              |       |                  |       |                  |       |                       |      |           |      | 45.8     |      | 45.2     
|Infiltrator Systems, Inc.               |  | Building Products                |                            | Senior Debt(7)                               |       | 16.5%            |       | 10/13            |       |                       |      | 39.5      |      | 39.1     |      | 38.5     
|Innova-Extel Acquisition Holdings, Inc. |  | Software                         |                            | Senior Debt(7)                               |       | 7.7%             |       | 4/13             |       |                       |      | 11.5      |      | 11.4     |      | 11.5     
|                                        |  |                                  | Subordinated Debt(7)       |                                              | 15.0% |                  | 3/14  |                  |       |                       | 18.2 |           | 18.0 |          | 18.2
|                                        |  |                                  |                            | Convertible Preferred Stock                  |       |                  |       |                  |       | 14,283                |      |           |      | 23.3     |      | 28.9     
|                                        |  |                                  |                            |                                              |       |                  |       |                  |       |                       |      |           |      | 52.7     |      | 58.6     
|Inovis International, Inc.              |  | Software                         |                            | Senior Debt(7)                               |       | 16.0%            |       | 6/10             |       |                       |      | 89.2      |      | 89.0     |      | 89.0     
|Intergraph Corporation                  |  | Software                         |                            | Senior Debt(7)                               |       | 6.3%             |       | 12/14            |       |                       |      | 3.0       |      | 3.0      |      | 2.8      
|iTradeNetwork, Inc.                     |  | IT Services                      |                            | Senior Debt(7)                               |       | 11.5%            |       | 12/13            |       |                       |      | 25.0      |      | 24.8     |      | 25.0     
|JHCI Acquisition, Inc.                  |  | Air Freight & Logistics          |                            | Senior Debt(7)                               |       | 5.7%             |       | 12/14            |       |                       |      | 19.0      |      | 19.1     |      | 12.1     
|Jones Stephens Corp.(8)                 |  | Building Products                |                            | Subordinated Debt(6)(7)                      |       | 13.5%            |       | 9/13-9/14        |       |                       |      | 23.5      |      | 22.1     |      | 13.2     
|J-Pac, LLC                              |  | Health Care Equipment & Supplies |                            | Senior Debt(7)                               |       | 11.0%            |       | 1/14             |       |                       |      | 3.1       |      | 3.0      |      | 3.1      
|                                        |  |                                  | Senior Debt(6)(7)          |                                              | 12.3% |                  | 1/14  |                  |       |                       | 11.9 |           | 11.8 |          | 1.2 
|                                        |  |                                  |                            | Subordinated Debt(6)                         |       | 18.9%            |       | 1/14             |       |                       |      | 11.6      |      | 8.7      |      |         
|                                        |  |                                  |                            | Common Unit Warrants(1)                      |       |                  |       |                  |       | 500,000               |      |           |      | 0.2      |      |         
|                                        |  |                                  |                            |                                              |       |                  |       |                  |       |                       |      |           |      | 23.7     |      | 4.3      
|KIK Custom Products, Inc.(3)            |  | Household Products               |                            | Senior Debt(6)                               |       | 5.3%             |       | 12/14            |       |                       |      | 20.0      |      | 20.0     |      | 12.3     
|LabelCorp Holdings, Inc                 |  | Paper & Forest Products          |                            | Senior Debt                                  |       | 8.2%             |       | 8/13-8/14        |       |                       |      | 2.5       |      | 2.2      |      | 2.3      
|                                        |  |                                  |                            | Subordinated Debt(7)                         |       | 14.0%            |       | 8/15-8/16        |       |                       |      | 44.5      |      | 44.2     |      | 39.2     
|                                        |  |                                  |                            |                                              |       |                  |       |                  |       |                       |      |           |      | 46.4     |      | 41.5     



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                          |  |                                                |                                |                             |       |                  |      |                  |            |                       |      |       |           |       |       |      |          
|----------------------------------------- |  | ---------------------------------------------- | ------------------------------ | --------------------------- | ----- | ---------------- | ---- | ---------------- | ---------- | --------------------- | ---- | ----- | --------- | ----- | ----- | ---- | ---------
|Company (4)                               |  | Industry                                       |                                | Investments                 |       | InterestRate (5) |      | Maturity    Date |            | # ofshares/unitsowned |      |       | Principal |       | Cost  |      | FairValue
|LCW Holdings, LLC                         |  | Real Estate                                    |                                | Senior Debt                 |       | 6.7%             |      | 10/12            |            |                       |      |       | 32.2      |       | 31.4  |      | 30.3     
|                                          |  |                                                |                                | Warrant(1)                  |       |                  |      |                  |            | 12.5                  | %    |       |           |       | 0.9   |      | 3.5      
|                                          |  |                                                |                                |                             |       |                  |      |                  |            |                       |      |       |           |       | 32.3  |      | 33.8     
|LJVH Holdings Inc.(3)                     |  | Beverages                                      |                                | Senior Debt(7)              |       | 5.8%             |      | 1/15             |            |                       |      |       | 28.5      |       | 28.5  |      | 21.0     
|LN Acquisition Corp.                      |  | Machinery                                      |                                | Senior Debt(7)              |       | 6.0%             |      | 1/15             |            |                       |      |       | 21.5      |       | 21.6  |      | 14.4     
|Logex Corporation                         |  | Road & Rail                                    |                                | Subordinated Debt(6)        |       | 0.0%             |      | 3/10             |            |                       |      |       | 1.1       |       | 0.9   |      | 1.0      
|MagnaCare Holdings, Inc.                  |  | Health Care Providers & Services               |                                | Subordinated Debt(7)        |       | 14.8%            |      | 1/13             |            |                       |      |       | 14.3      |       | 14.2  |      | 14.2     
|Medical Billing Holdings, Inc.            |  | IT Services                                    |                                | Subordinated Debt(7)        |       | 15.0%            |      | 9/13             |            |                       |      |       | 11.0      |       | 10.9  |      | 11.0     
|                                          |  |                                                | Convertible Preferred Stock(1) |                             |       |                  |      |                  | 13,199,000 |                       |      |       |           | 13.2  |       | 10.0
|                                          |  |                                                |                                | Common Stock(1)             |       |                  |      |                  |            | 3,299,582             |      |       |           |       | 3.3   |      |         
|                                          |  |                                                |                                |                             |       |                  |      |                  |            |                       |      |       |           |       | 27.4  |      | 21.0     
|Mirion Technologies, Inc.                 |  | Electrical Equipment                           |                                | Senior Debt(7)              |       | 5.3%             |      | 6/11-11/11       |            |                       |      |       | 127.7     |       | 127.4 |      | 129.1    
|                                          |  |                                                |                                | Subordinated Debt(7)        |       | 13.8%            |      | 7/11-5/12        |            |                       |      |       | 52.9      |       | 52.6  |      | 52.9     
|                                          |  |                                                |                                | Convertible Preferred Stock |       |                  |      |                  |            | 435,724               |      |       |           |       | 54.6  |      | 104.1    
|                                          |  |                                                |                                | Common Stock(1)             |       |                  |      |                  |            | 24,503                |      |       |           |       | 2.8   |      | 3.6      
|                                          |  |                                                |                                | Common Stock Warrants(1)    |       |                  |      |                  |            | 222,156               |      |       |           |       | 18.5  |      | 31.8     
|                                          |  |                                                |                                |                             |       |                  |      |                  |            |                       |      |       |           |       | 255.9 |      | 321.5    
|Mitchell International, Inc.              |  | IT Services                                    |                                | Senior Debt(7)              |       | 5.6%             |      | 3/15             |            |                       |      |       | 5.0       |       | 5.0   |      | 3.3      
|National Processing Company Group, Inc.   |  | IT Services                                    |                                | Senior Debt(7)              |       | 10.8%            |      | 9/14             |            |                       |      |       | 53.0      |       | 52.8  |      | 43.6     
|NBD Holdings Corp.                        |  | Diversified Financial Services                 |                                | Subordinated Debt(7)        |       | 14.0%            |      | 8/13             |            |                       |      |       | 46.8      |       | 46.4  |      | 46.8     
|                                          |  |                                                | Convertible Preferred Stock    |                             |       |                  |      |                  | 84,174     |                       |      |       |           | 11.3  |       | 11.3
|                                          |  |                                                |                                | Common Stock(1)             |       |                  |      |                  |            | 633,408               |      |       |           |       | 0.1   |      | 1.5      
|                                          |  |                                                |                                |                             |       |                  |      |                  |            |                       |      |       |           |       | 57.8  |      | 59.6     
|Net1 Las Colinas Manager, LLC             |  | Real Estate                                    |                                | Senior Debt                 |       | 7.7%             |      | 10/15            |            |                       |      |       | 4.5       |       | 4.6   |      | 3.9      
|Nivel Holdings, LLC                       |  | Distributors                                   |                                | Senior Debt(7)              |       | 10.8%            |      | 10/12-10/13      |            |                       |      |       | 61.6      |       | 61.1  |      | 58.6     
|Orchard Brands Corporation                |  | Internet & Catalog Retail                      |                                | Senior Debt(7)              |       | 7.3%             |      | 4/13-4/14        |            |                       |      |       | 174.4     |       | 173.2 |      | 138.8    
|                                          |  |                                                | Senior Debt(6)                 |                             | 10.0% |                  | 4/14 |                  |            |                       |      | 158.5 |           | 118.6 |       | 33.1
|                                          |  |                                                |                                | Subordinated Debt(6)        |       | 9.7%             |      | 4/14             |            |                       |      |       | 66.4      |       | 49.9  |      |         
|                                          |  |                                                |                                |                             |       |                  |      |                  |            |                       |      |       |           |       | 341.7 |      | 171.9    
|Pan Am International Flight Academy, Inc. |  | Professional Services                          |                                | Subordinated Debt(6)(7)     |       | 18.0%            |      | 7/13             |            |                       |      |       | 33.4      |       | 25.0  |      | 14.2     
|                                          |  | Convertible Preferred Stock(1)                 |                                |                             |       |                  |      | 8,234            |            |                       |      |       | 8.2       |       |     
|                                          |  |                                                |                                |                             |       |                  |      |                  |            |                       |      |       |           |       | 33.2  |      | 14.2     
|PaR Systems, Inc.                         |  | Machinery                                      |                                | Senior Debt                 |       | 3.6%             |      | 7/13             |            |                       |      |       | 4.1       |       | 3.9   |      | 3.4      
|Parts HoldingCoörperatief U.A(3)          |  | Distributors                                   |                                | Membership Entitlements(1)  |       |                  |      |                  |            | 173,060               |      |       |           |       | 6.4   |      |         
|Phillips & Temro Industries, Inc.         |  | Auto Components                                |                                | Senior Debt(7)              |       | 13.0%            |      | 12/13            |            |                       |      |       | 24.1      |       | 24.1  |      | 24.1     
|                                          |  | Subordinated Debt(7)                           |                                | 18.0%                       |       | 12/13            |      |                  |            |                       | 18.4 |       | 18.3      |       | 17.0 
|                                          |  |                                                |                                |                             |       |                  |      |                  |            |                       |      |       |           |       | 42.4  |      | 41.1     
|Qioptiq S.A.R.L.(3)                       |  | Electronic Equipment, Instruments & Components |                                | Subordinated Debt           |       | 10.0%            |      | 3/18             |            |                       |      |       | 30.9      |       | 30.7  |      | 29.3     
|Ranpak Acquisition Company                |  | Containers & Packaging                         |                                | Senior Debt(7)              |       | 6.7%             |      | 12/13-12/14      |            |                       |      |       | 20.8      |       | 20.4  |      | 16.9     



25



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       |       |      |          
|--------------------------------------- |  | ---------------------------------------------- | ------------------------------ | ------------------------------ | ----- | ---------------- | ----------- | --------- | ---------------- | ---------- | --------------------- | ---- | ---- | --------- | ----- | ----- | ---- | ---------
|Company (4)                             |  | Industry                                       |                                | Investments                    |       | InterestRate (5) |             |           | Maturity    Date |            | # ofshares/unitsowned |      |      | Principal |       | Cost  |      | FairValue
|RDR Holdings, Inc.                      |  | Household Durables                             |                                | Subordinated Debt(7)           |       | 16.1%            |             |           | 10/14-11/15      |            |                       |      |      | 98.1      |       | 97.4  |      | 98.1     
|                                        |  |                                                | Convertible Preferred Stock(1) |                                |       |                  |             |           |                  | 1,541      |                       |      |      |           | 165.6 |       | 56.7
|                                        |  |                                                |                                | Common Stock(1)                |       |                  |             |           |                  |            | 15,414                |      |      |           |       | 1.6   |      |         
|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       | 264.6 |      | 154.8    
|Roark - Money Mailer, LLC               |  | Media                                          |                                | Common Membership Units(1)     |       |                  |             |           |                  |            | 3.5                   | %    |      |           |       | 0.9   |      |         
|Scanner Holdings Corporation            |  | Computers & Peripherals                        |                                | Subordinated Debt(7)           |       | 14.0%            |             |           | 6/14             |            |                       |      |      | 19.1      |       | 18.9  |      | 19.1     
|                                        |  |                                                | Convertible Preferred Stock(1) |                                |       |                  |             |           |                  | 77,640,000 |                       |      |      |           | 7.8   |       | 13.7
|                                        |  |                                                |                                | Common Stock(1)                |       |                  |             |           |                  |            | 78,242                |      |      |           |       | 0.1   |      |         
|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       | 26.8  |      | 32.8     
|Seroyal Holdings, L.P.(3)               |  | Pharmaceuticals                                |                                | Redeemable Preferred Units     |       |                  |             |           |                  |            | 32,462                |      |      |           |       | 0.7   |      | 0.9      
|                                        |  |                                                | Common Units(1)                |                                |       |                  |             |           |                  | 95,280     |                       |      |      |           | 0.8   |       | 1.6 
|                                        |  |                                                |                                | Common Unit Warrants(1)        |       |                  |             |           |                  |            | 41,661                |      |      |           |       | 0.1   |      | 0.1      
|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       | 1.6   |      | 2.6      
|Small Smiles Holding Company, LLC       |  | Health Care Providers & Services               |                                | Senior Debt                    |       | 5.3%             |             |           | 9/12             |            |                       |      |      | 12.1      |       | 8.1   |      | 6.1      
|                                        |  | Subordinated Debt(6)                           |                                | 14.5%                          |       |                  | 9/13        |           |                  |            |                       | 77.2 |      | 70.6      |       |     
|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       | 78.7  |      | 6.1      
|Soil Safe Holdings, LLC                 |  | Professional Services                          |                                | Senior Debt                    |       | 9.6%             |             |           | 8/13-8/14        |            |                       |      |      | 40.8      |       | 40.5  |      | 38.4     
|                                        |  |                                                | Subordinated Debt(7)           |                                | 16.3% |                  |             | 8/15-8/17 |                  |            |                       |      | 62.7 |           | 62.2  |       | 52.6
|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       | 102.7 |      | 91.0     
|SPL Acquisition Corp.                   |  | Pharmaceuticals                                |                                | Senior Debt                    |       | 6.7%             |             |           | 10/12-10/13      |            |                       |      |      | 58.5      |       | 57.9  |      | 58.5     
|                                        |  |                                                | Subordinated Debt(7)           |                                | 15.3% |                  |             | 8/14-8/15 |                  |            |                       |      | 51.6 |           | 51.1  |       | 51.6
|                                        |  |                                                |                                | Convertible Preferred Stock(1) |       |                  |             |           |                  |            | 84,043                |      |      |           |       | 40.8  |      | 31.1     
|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       | 149.8 |      | 141.2    
|Swank Audio Visuals, LLC                |  | Commercial Services & Supplies                 |                                | Senior Debt(7)                 |       | 6.7%             |             |           | 8/14             |            |                       |      |      | 12.1      |       | 12.0  |      | 12.1     
|                                        |  | Senior Debt(6)(7)                              |                                | 7.4%                           |       |                  | 8/14        |           |                  |            |                       | 35.9 |      | 35.6      |       | 3.7  
|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       | 47.6  |      | 15.8     
|Tanenbaum-Harber Co. Holdings, Inc.     |  | Insurance                                      |                                | Redeemable Preferred Stock     |       |                  |             |           |                  |            | 376                   |      |      |           |       | 0.5   |      | 0.5      
|TestAmerica Environmental Services, LLC |  | Commercial Services & Supplies                 |                                | Senior Debt(7)                 |       | 5.3%             |             |           | 12/11            |            |                       |      |      | 7.5       |       | 7.4   |      | 6.9      
|                                        |  | Senior Debt(6)(7)                              |                                | 7.2%                           |       |                  | 12/12-12/13 |           |                  |            |                       | 43.3 |      | 37.3      |       | 12.6 
|                                        |  |                                                | Preferred Units(1)             |                                |       |                  |             |           |                  | 11,659,298 |                       |      |      |           | 6.9   |       |    
|                                        |  |                                                |                                | Preferred Unit Warrants(1)     |       |                  |             |           |                  |            | 1,998,961             |      |      |           |       | 4.8   |      |         
|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       | 56.4  |      | 19.5     
|The Tensar Corporation                  |  | Construction & Engineering                     |                                | Senior Debt(7)                 |       | 8.2%             |             |           | 5/13             |            |                       |      |      | 82.0      |       | 81.3  |      | 57.0     
|                                        |  |                                                | Subordinated Debt(6)           |                                | 17.5% |                  |             | 10/13     |                  |            |                       |      | 51.2 |           | 39.9  |       | 36.3
|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       | 121.2 |      | 93.3     
|ThreeSixty Sourcing, Inc.(3)            |  | Commercial Services & Supplies                 |                                | Common Stock Warrants(1)       |       |                  |             |           |                  |            | 35                    |      |      |           |       | 4.1   |      |         
|TransFirst Holdings, Inc.               |  | Commercial Services & Supplies                 |                                | Senior Debt(7)                 |       | 7.0              | %           |           | 6/15             |            |                       |      |      | 51.8      |       | 51.4  |      | 36.6     
|triVIN, Holdings, Inc.                  |  | IT Services                                    |                                | Subordinated Debt(7)           |       | 15.0%            |             |           | 6/14-6/15        |            |                       |      |      | 20.4      |       | 20.3  |      | 20.4     
|                                        |  |                                                |                                | Convertible Preferred Stock    |       |                  |             |           |                  |            | 247,000,000           |      |      |           |       | 28.9  |      | 24.4     
|                                        |  |                                                |                                | Common Stock(1)                |       |                  |             |           |                  |            | 6,319,923             |      |      |           |       | 6.3   |      |         
|                                        |  |                                                |                                |                                |       |                  |             |           |                  |            |                       |      |      |           |       | 55.5  |      | 44.8     
|Tyden Cayman Holdings Corp.             |  | Electronic Equipment, Instruments & Components |                                | Common Stock(1)                |       |                  |             |           |                  |            | 3,072,494             |      |      |           |       | 3.5   |      | 3.7      



26



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                                                  |  |                                |                      |                                                  |       |                  |           |                  |  |                       |  |           |       |      |      |           |  |      |      
|----------------------------------------------------------------- |  | ------------------------------ | -------------------- | ------------------------------------------------ | ----- | ---------------- | --------- | ---------------- |  | --------------------- |  | --------- | ----- | ---- | ---- | --------- |  | ---- | -----
|Company (4)                                                       |  | Industry                       |                      | Investments                                      |       | InterestRate (5) |           | Maturity    Date |  | # ofshares/unitsowned |  | Principal |       | Cost |      | FairValue
|WRH, Inc.                                                         |  | Life Sciences Tools & Services |                      | Senior Debt(7)                                   |       | 4.0%             |           | 9/13-9/14        |  |                       |  |           | 4.0   |      |      | 3.9       |  |      | 4.0  
|                                                                  |  |                                | Subordinated Debt(7) |                                                  | 14.6% |                  | 7/14-9/15 |                  |  |                       |  | 87.8      |       |      | 87.2 |           |  | 88.3
|                                                                  |  |                                |                      | Convertible Preferred Stock(1)                   |       |                  |           |                  |  | 2,008,575             |  |           |       |      |      | 214.7     |  |      | 77.6 
|                                                                  |  |                                |                      | Common Stock(1)                                  |       |                  |           |                  |  | 502,144               |  |           |       |      |      | 49.9      |  |      |     
|                                                                  |  |                                |                      |                                                  |       |                  |           |                  |  |                       |  |           |       |      |      | 355.7     |  |      | 169.9
|WWC Acquisitions, Inc.                                            |  | Professional Services          |                      | Senior Debt(7)                                   |       | 7.0%             |           | 12/11-12/13      |  |                       |  |           | 34.0  |      |      | 33.6      |  |      | 26.3 
|CMBS AND REAL ESTATE CDO INVESTMENTS                              |  |                                |                      |                                                  |       |                  |           |                  |  |                       | 
|ACAS CRE CDO 2007-1, Ltd                                          |  | Real Estate                    |                      | Class C through Class K Notes(1)                 |       | 2.7%             |           | 11/31            |  |                       |  | $         | 345.5 |      | $    | 170.5     |  | $    | 0.5  
|Banc of America Commercial Mortgage Trust 2007-1                  |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 5.7%             |           | 2/17-2/18        |  |                       |  |           | 12.4  |      |      | 4.8       |  |      | 1.3  
|CD 2007-CD4 Commercial Mortgage Trust                             |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates(1) |       | 5.7%             |           | 4/17             |  |                       |  |           | 14.0  |      |      | 8.9       |  |      |     
|CD 2007-CD5 Mortgage Trust                                        |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 6.4%             |           | 12/17            |  |                       |  |           | 14.8  |      |      | 10.5      |  |      | 1.8  
|Citigroup Commercial Mortgage Securities Trust 2007-C6            |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 5.5%             |           | 7/17             |  |                       |  |           | 112.5 |      |      | 82.9      |  |      | 10.9 
|COBALT CMBS Commercial Mortgage Trust 2007-C3                     |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 5.2%             |           | 10/17            |  |                       |  |           | 11.1  |      |      | 8.6       |  |      | 0.7  
|Countrywide Commercial Mortgage Trust 2007-MF1                    |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 6.1%             |           | 11/37-11/40      |  |                       |  |           | 12.8  |      |      | 8.7       |  |      | 1.0  
|Credit Suisse Commercial Mortgage Trust 2007-C3                   |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates(1) |       | 5.6%             |           | 7/17             |  |                       |  |           | 13.2  |      |      | 10.7      |  |      |     
|Credit Suisse Commercial Mortgage Trust Series 2007-C4            |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 5.8%             |           | 8/17             |  |                       |  |           | 20.8  |      |      | 12.6      |  |      | 5.4  
|GE Commercial Mortgage Corporation, Series 2007-C1                |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 5.5%             |           | 12/19            |  |                       |  |           | 37.0  |      |      | 31.2      |  |      | 2.6  
|GS Mortgage Securities Trust 2007-GG10                            |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates(1) |       | 5.7%             |           | 7/17             |  |                       |  |           | 63.7  |      |      | 52.7      |  |      |     
|J.P. Morgan Chase Commercial Mortgage Securities Trust 2007-LDP11 |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 5.6%             |           | 7/17             |  |                       |  |           | 87.2  |      |      | 55.8      |  |      | 1.3  
|LB-UBS Commercial Mortgage Trust 2007-C6                          |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 6.2%             |           | 8/17             |  |                       |  |           | 36.6  |      |      | 22.9      |  |      | 4.7  
|LB-UBS Commercial Mortgage Trust 2008-C1                          |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 6.1%             |           | 7/23-7/24        |  |                       |  |           | 19.4  |      |      | 7.4       |  |      | 2.0  
|ML-CFC Commercial Mortgage Trust 2007-6                           |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates(1) |       | 5.8%             |           | 4/17             |  |                       |  |           | 9.8   |      |      | 3.3       |  |      | 0.2  
|ML-CFC Commercial Mortgage Trust 2007-8                           |  | Real Estate                    |                      | Commercial Mortgage Pass-Through Certificates    |       | 6.0%             |           | 8/17             |  |                       |  |           | 32.8  |      |      | 20.0      |  |      | 3.6  



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AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                                         |  |                                |                         |                                               |  |                  |   |  |                  |        |                       |  |           |      |      |      |           |  |      |     
|-------------------------------------------------------- |  | ------------------------------ | ----------------------- | --------------------------------------------- |  | ---------------- | - |  | ---------------- | ------ | --------------------- |  | --------- | ---- | ---- | ---- | --------- |  | ---- | ----
|Company (4)                                              |  | Industry                       |                         | Investments                                   |  | InterestRate (5) |   |  | Maturity    Date |        | # ofshares/unitsowned |  | Principal |      | Cost |      | FairValue
|Wachovia Bank Commercial Mortgage Trust 2007-C31         |  | Real Estate                    |                         | Commercial Mortgage Pass-Through Certificates |  | 5.8              | % |  | 5/17             |        |                       |  |           | 20.0 |      |      | 11.9      |  |      | 2.9 
|Wachovia Bank Commercial Mortgage Trust, Series 2007-C32 |  | Real Estate                    |                         | Commercial Mortgage Pass-Through Certificates |  | 5.7              | % |  | 10/17            |        |                       |  |           | 85.1 |      |      | 75.2      |  |      | 6.7 
|Wachovia Bank Commercial Mortgage Trust, Series 2007-C34 |  | Real Estate                    |                         | Commercial Mortgage Pass-Through Certificates |  | 5.3              | % |  | 10/17-9/24       |        |                       |  |           | 70.3 |      |      | 43.4      |  |      | 6.0 
|Wachovia Bank Commercial Trust 2006-C28                  |  | Real Estate                    |                         | Commercial Mortgage Pass-Through Certificates |  | 6.0              | % |  | 11/16            |        |                       |  |           | 5.0  |      |      | 3.1       |  |      | 0.4 
|CLO INVESTMENTS                                          |  |                                |                         |                                               |  |                  |   |  |                  |        |                      
|ACAS CLO 2007-1, Ltd.                                    |  | Diversified Financial Services |                         | Secured Notes                                 |  |                  |   |  |                  |        |                       |  | $         | 8.5  |      | $    | 8.4       |  | $    | 4.0 
|                                                         |  |                                | Subordinated Notes      |                                               |  |                  |   |  |                  |        |                       |  | 25.9      |      |      | 21.5 |           |  | 13.4
|                                                         |  |                                |                         |                                               |  |                  |   |  |                  |        |                       |  |           |      |      |      | 29.9      |  |      | 17.4
|Ares IIIR/IVR CLO Ltd.                                   |  | Diversified Financial Services |                         | Subordinated Notes                            |  |                  |   |  |                  |        |                       |  |           | 20.0 |      |      | 18.3      |  |      | 7.2 
|Ares VIII CLO, Ltd.                                      |  | Diversified Financial Services |                         | Preference Shares                             |  |                  |   |  |                  |        | 6,241                 |  |           |      |      |      | 4.7       |  |      | 1.4 
|Avalon Capital Ltd.(3)                                   |  | Diversified Financial Services |                         | Preferred Securities                          |  |                  |   |  |                  |        | 13,796                |  |           |      |      |      | 5.2       |  |      | 4.1 
|Babson CLO Ltd. 2006-II                                  |  | Diversified Financial Services |                         | Income Notes                                  |  |                  |   |  |                  |        |                       |  |           | 15.0 |      |      | 14.4      |  |      | 8.8 
|BALLYROCK CLO 2006-2 LTD.                                |  | Diversified Financial Services |                         | Deferrable Notes                              |  |                  |   |  |                  |        |                       |  |           | 2.0  |      |      | 1.6       |  |      | 1.0 
|Cent CDO 12 Limited                                      |  | Diversified Financial Services |                         | Income Notes                                  |  |                  |   |  |                  |        |                       |  |           | 26.4 |      |      | 19.9      |  |      | 14.0
|Centurion CDO 8 Limited                                  |  | Diversified Financial Services |                         | Subordinated Notes                            |  |                  |   |  |                  |        |                       |  |           | 5.0  |      |      | 3.1       |  |      | 2.2 
|Champlain CLO                                            |  | Diversified Financial Services |                         | Preferred Securities                          |  |                  |   |  |                  |        | 1,000,000             |  |           |      |      |      | 0.7       |  |      | 0.3 
|CoLTs 2005-1 Ltd.(3)                                     |  | Diversified Financial Services |                         | Preference Shares(1)                          |  |                  |   |  |                  |        | 360                   |  |           |      |      |      | 6.7       |  |      | 2.2 
|CoLTs 2005-2 Ltd.(3)                                     |  | Diversified Financial Services |                         | Preference Shares                             |  |                  |   |  |                  |        | 34,170,000            |  |           |      |      |      | 24.5      |  |      | 9.7 
|CREST Exeter Street Solar 2004-2                         |  | Diversified Financial Services |                         | Preferred Securities                          |  |                  |   |  |                  |        | 3,089,177             |  |           |      |      |      | 2.9       |  |      | 0.9 
|Eaton Vance CDO X PLC(3)                                 |  | Diversified Financial Services |                         | Secured Subordinated Income Notes             |  |                  |   |  |                  |        |                       |  |           | 15.0 |      |      | 13.9      |  |      | 4.7 
|Essex Park CDO Ltd.                                      |  | Diversified Financial Services |                         | Preferred Securities                          |  |                  |   |  |                  |        | 5,750,000             |  |           |      |      |      | 2.1       |  |      | 1.8 
|Flagship CLO V                                           |  | Diversified Financial Services |                         | Deferrable Notes                              |  |                  |   |  |                  |        |                       |  |           | 1.7  |      |      | 1.3       |  |      | 0.6 
|                                                         |  |                                | Subordinated Securities |                                               |  |                  |   |  |                  | 15,000 |                       |  |           |      |      | 12.1 |           |  | 7.7 
|                                                         |  |                                |                         |                                               |  |                  |   |  |                  |        |                       |  |           |      |      |      | 13.4      |  |      | 8.3 
|Galaxy III CLO, Ltd                                      |  | Diversified Financial Services |                         | Subordinated Notes                            |  |                  |   |  |                  |        |                       |  |           | 4.0  |      |      | 2.5       |  |      | 0.3 
|LightPoint CLO IV, LTD                                   |  | Diversified Financial Services |                         | Income Notes                                  |  |                  |   |  |                  |        |                       |  |           | 6.7  |      |      | 6.8       |  |      | 1.5 



28



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AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                                                                          |  |                                  |                             |                                                    |   |                  |   |   |                  |           |                       |  |           |      |      |     |           |  |     |        
|----------------------------------------------------------------------------------------- |  | -------------------------------- | --------------------------- | -------------------------------------------------- | - | ---------------- | - | - | ---------------- | --------- | --------------------- |  | --------- | ---- | ---- | --- | --------- |  | --- | -------
|Company (4)                                                                               |  | Industry                         |                             | Investments                                        |   | InterestRate (5) |   |   | Maturity    Date |           | # ofshares/unitsowned |  | Principal |      | Cost |     | FairValue
|LightPoint CLO VII, Ltd.                                                                  |  | Diversified Financial Services   |                             | Subordinated Notes                                 |   |                  |   |   |                  |           |                       |  |           | 9.0  |      |     | 7.5       |  |     | 3.8    
|LightPoint CLO VIII, Ltd.                                                                 |  | Diversified Financial Services   |                             | Deferrable Notes                                   |   |                  |   |   |                  |           |                       |  |           | 7.0  |      |     | 6.4       |  |     | 3.7    
|Mayport CLO Ltd.                                                                          |  | Diversified Financial Services   |                             | Income Notes                                       |   |                  |   |   |                  |           |                       |  |           | 14.0 |      |     | 12.7      |  |     | 4.9    
|NYLIM Flatiron CLO 2006-1 LTD.(3)                                                         |  | Diversified Financial Services   |                             | Subordinated Securities                            |   |                  |   |   |                  |           | 10,000                |  |           |      |      |     | 7.6       |  |     | 5.2    
|Octagon Investment Partners VII, Ltd.                                                     |  | Diversified Financial Services   |                             | Preferred Securities                               |   |                  |   |   |                  |           | 5,000,000             |  |           |      |      |     | 2.0       |  |     | 1.3    
|Sapphire Valley CDO I, Ltd.                                                               |  | Diversified Financial Services   |                             | Subordinated Notes                                 |   |                  |   |   |                  |           |                       |  |           | 14.0 |      |     | 13.8      |  |     | 0.8    
|Vitesse CLO, Ltd.                                                                         |  | Diversified Financial Services   |                             | Preferred Securities                               |   |                  |   |   |                  |           | 20,000,000            |  |           |      |      |     | 15.5      |  |     | 7.8    
|Subtotal Non-Control / Non-Affiliate Investments (54% of total
investments at fair value) |  |                                  |                             |                                                    | $ | 4,838.8          |   | $ | 3,036.2         
|                                                                                          |  |                                  |                             |                                                   
|AFFILIATE INVESTMENTS                                                                     |  |                                  |                             |                                                    |   |                  |   |   |                  |           |                      
|American Capital Agency Corp(2)                                                           |  | Real Estate Investment Trusts    |                             | Common Stock                                       |   |                  |   |   |                  |           | 2,500,100             |  |           |      |      | $   | 50.0      |  | $   | 66.4   
|Comfort Co., Inc.                                                                         |  | Household Durables               |                             | Senior Debt(6)(7)                                  |   | 11.5%            |   |   | 3/12-3/15        |           |                       |  | $         | 12.1 |      |     | 11.1      |  |     | 8.7    
|                                                                                          |  |                                  |                             | Common Stock(1)                                    |   |                  |   |   |                  |           | 110,365               |  |           |      |      |     | 11.8      |  |     |       
|                                                                                          |  |                                  |                             |                                                    |   |                  |   |   |                  |           |                       |  |           |      |      |     | 22.9      |  |     | 8.7    
|Egenera, Inc.                                                                             |  | Computers & Peripherals          |                             | Subordinated Debt                                  |   | 15.0%            |   |   | 12/10            |           |                       |  |           | 3.9  |      |     | 3.7       |  |     | 2.5    
|                                                                                          |  |                                  |                             | Redeemable Preferred Stock(1)                      |   |                  |   |   |                  |           | 523,040               |  |           |      |      |     | 0.4       |  |     |       
|                                                                                          |  |                                  |                             | Common Stock(1)                                    |   |                  |   |   |                  |           | 8,046,865             |  |           |      |      |     | 25.0      |  |     |       
|                                                                                          |  |                                  |                             |                                                    |   |                  |   |   |                  |           |                       |  |           |      |      |     | 29.1      |  |     | 2.5    
|HALT Medical, Inc.                                                                        |  | Health Care Equipment & Supplies |                             | Convertible Preferred Stock(1)                     |   |                  |   |   |                  |           | 5,592,367             |  |           |      |      |     | 8.9       |  |     | 9.6    
|IEE Holding 1 S.A.(3)                                                                     |  | Auto Components                  |                             | Common Stock(1)                                    |   |                  |   |   |                  |           | 250,000               |  |           |      |      |     | 4.5       |  |     |       
|IS Holdings I, Inc.                                                                       |  | Software                         |                             | Senior Debt(7)                                     |   | 6.2%             |   |   | 6/14             |           |                       |  |           | 20.0 |      |     | 19.9      |  |     | 18.2   
|                                                                                          |  |                                  |                             | Redeemable Preferred Stock(1)                      |   |                  |   |   |                  |           | 1,297                 |  |           |      |      |     | 1.7       |  |     | 1.9    
|                                                                                          |  |                                  |                             | Common Stock(1)                                    |   |                  |   |   |                  |           | 1,165,930             |  |           |      |      |     |          |  |     | 6.4    
|                                                                                          |  |                                  |                             |                                                    |   |                  |   |   |                  |           |                       |  |           |      |      |     | 21.6      |  |     | 26.5   
|LTM Enterprises, Inc.                                                                     |  | Personal Products                |                             | Senior Debt(6)(7)                                  |   | 17.3             | % |   | 11/11            |           |                       |  |           | 20.1 |      |     | 18.5      |  |     | 5.5    
|Narus, Inc.                                                                               |  | Internet Software & Services     |                             | Convertible Preferred Stock(1)                     |   |                  |   |   |                  |           | 31,835,900            |  |           |      |      |     | 9.2       |  |     | 6.8    
|                                                                                          |  |                                  | Preferred Stock Warrants(1) |                                                    |   |                  |   |   |                  | 9,567,232 |                       |  |           |      |      | 0.1 |           |  | 2.2
|                                                                                          |  |                                  |                             |                                                    |   |                  |   |   |                  |           |                       |  |           |      |      |     | 9.3       |  |     | 9.0    
|Primrose Holding Corporation                                                              |  | Diversified Consumer Services    |                             | Common Stock(1)                                    |   |                  |   |   |                  |           | 4,213                 |  |           |      |      |     | 2.7       |  |     | 3.3    
|Qualitor Component Holdings, LLC                                                          |  | Auto Components                  |                             | Subordinated Debt(7)
Redeemable Preferred Units(1) |   | 17.1%            |   |   | 7/13             |           | 3,150,000             |  |           | 36.2 |      |     | 36.03.1   |  |     | 36.0  
|                                                                                          |  |                                  |                             | Common Units(1)                                    |   |                  |   |   |                  |           | 350,000               |  |           |      |      |     | 0.4       |  |     |       
|                                                                                          |  |                                  |                             |                                                    |   |                  |   |   |                  |           |                       |  |           |      |      |     | 39.5      |  |     | 36.0   
|Radar Detection Holdings Corp.                                                            |  | Household Durables               |                             | Senior Debt(7)
Common Stock(1)                     |   | 9.5%             |   |   | 11/12            |           | 40,688                |  |           | 13.0 |      |     | 13.00.6   |  |     | 10.51.0
|                                                                                          |  |                                  |                             |                                                    |   |                  |   |   |                  |           |                       |  |           |      |      |     | 13.6      |  |     | 11.5   
|Roadrunner Dawes, Inc.                                                                    |  | Road & Rail                      |                             | Subordinated Debt(7)                               |   | 18.5%            |   |   | 8/12             |           |                       |  |           | 20.5 |      |     | 20.4      |  |     | 20.5   
|                                                                                          |  |                                  |                             | Common Stock(1)                                    |   |                  |   |   |                  |           | 7,000                 |  |           |      |      |     | 7.0       |  |     | 0.9    
|                                                                                          |  |                                  |                             |                                                    |   |                  |   |   |                  |           |                       |  |           |      |      |     | 27.4      |  |     | 21.4   



29



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AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                                                       |  |                                          |                      |                                      |       |                  |           |            |                  |       |                       |   |      |           |      |      |      |           |      |      |         
|---------------------------------------------------------------------- |  | ---------------------------------------- | -------------------- | ------------------------------------ | ----- | ---------------- | --------- | ---------- | ---------------- | ----- | --------------------- | - | ---- | --------- | ---- | ---- | ---- | --------- | ---- | ---- | --------
|Company (4)                                                            |  | Industry                                 |                      | Investments                          |       | InterestRate (5) |           |            | Maturity    Date |       | # ofshares/unitsowned |   |      | Principal |      | Cost |      | FairValue
|WFS Holding, LLC                                                       |  | Software                                 |                      | Preferred Interest                   |       |                  |           |            |                  |       | 20,403,772            |   |      |           |      |      |      | 3.0       |      |      | 3.7     
|Subtotal Affiliate Investments (4% of total investments at fair
value) |  |                                          |                      |                                      |       | $                | 251.0     |            | $                | 204.1
|                                                                       |  |                                          |                      |                                     
|CONTROL INVESTMENTS                                                    |  |                                          |                      |                                      |       |                  |           |            |                  |       |                       |  
|ACAS Equity Holdings Corp.                                             |  | Diversified Financial Services           |                      | Common Stock(1)                      |       |                  |           |            |                  |       | 589                   |   |      |           |      |      | $    | 14.8      |      | $    | 1.4     
|ACAS Real Estate Holdings Corporation                                  |  | Real Estate                              |                      | Subordinated Debt(6)
Common Stock(1) |       | 15.0%            |           |            | 5/16             |       | 100                   | % |      | $         | 3.9  |      |      | 3.511.5   |      |      | 3.90.6  
|                                                                       |  |                                          |                      |                                      |       |                  |           |            |                  |       |                       |   |      |           |      |      |      | 15.0      |      |      | 4.5     
|American Capital, LLC                                                  |  | Capital Markets                          |                      | Senior Debt                          |       | 5.7%             |           |            | 9/12             |       |                       |   |      |           | 7.4  |      |      | 7.3       |      |      | 7.5     
|                                                                       |  |                                          |                      | Common Membership Interest           |       |                  |           |            |                  |       | 100                   | % |      |           |      |      |      | 82.0      |      |      | 41.6    
|                                                                       |  |                                          |                      |                                      |       |                  |           |            |                  |       |                       |   |      |           |      |      |      | 89.3      |      |      | 49.1    
|American Driveline Systems, Inc.                                       |  | Diversified Consumer Services            |                      | Subordinated Debt(7)                 |       | 14.0%            |           |            | 12/14-12/15      |       |                       |   |      |           | 42.3 |      |      | 41.9      |      |      | 42.3    
|                                                                       |  | Redeemable Preferred Stock               |                      |                                      |       |                  |           |            | 403,357          |       |                       |   |      |           |      | 32.1 |      |           | 47.8
|                                                                       |  |                                          |                      | Common Stock(1)                      |       |                  |           |            |                  |       | 128,681               |   |      |           |      |      |      | 10.7      |      |      | 1.4     
|                                                                       |  |                                          |                      | Common Stock Warrants(1)             |       |                  |           |            |                  |       | 204,663               |   |      |           |      |      |      | 17.3      |      |      | 2.2     
|                                                                       |  |                                          |                      |                                      |       |                  |           |            |                  |       |                       |   |      |           |      |      |      | 102.0     |      |      | 93.7    
|Aptara, Inc.                                                           |  | IT Services                              |                      | Senior Debt                          |       | 11.5%            |           |            | 2/11             |       |                       |   |      |           | 3.0  |      |      | 3.0       |      |      | 3.0     
|                                                                       |  |                                          |                      | Subordinated Debt(7)                 |       | 16.9%            |           |            | 2/11             |       |                       |   |      |           | 58.0 |      |      | 57.8      |      |      | 60.0    
|                                                                       |  |                                          |                      | Redeemable Preferred Stock(1)        |       |                  |           |            |                  |       | 15,107                |   |      |           |      |      |      | 14.1      |      |      | 21.0    
|                                                                       |  |                                          |                      | Convertible Preferred Stock(1)       |       |                  |           |            |                  |       | 2,549,410             |   |      |           |      |      |      | 8.7       |      |      |        
|                                                                       |  |                                          |                      | Preferred Stock Warrants(1)          |       |                  |           |            |                  |       | 230,681               |   |      |           |      |      |      | 1.0       |      |      |        
|                                                                       |  |                                          |                      |                                      |       |                  |           |            |                  |       |                       |   |      |           |      |      |      | 84.6      |      |      | 84.0    
|Capital.com, Inc.                                                      |  | Diversified Financial Services           |                      | Common Stock(1)                      |       |                  |           |            |                  |       | 8,500,100             |   |      |           |      |      |      | 0.9       |      |      |        
|CIBT Travel Solutions, LLC                                             |  | Commercial Services & Supplies           |                      | Senior Debt(7)                       |       | 9.5%             |           |            | 1/13             |       |                       |   |      |           | 49.8 |      |      | 49.4      |      |      | 49.9    
|                                                                       |  | Subordinated Debt(7)                     |                      | 15.0%                                |       |                  | 1/15-1/16 |            |                  |       |                       |   | 54.6 |           |      | 54.2 |      |           | 54.6
|                                                                       |  |                                          |                      | Redeemable Preferred Stock           |       |                  |           |            |                  |       | 15,000                |   |      |           |      |      |      | 17.6      |      |      | 17.7    
|                                                                       |  |                                          |                      | Convertible Preferred Stock(1)       |       |                  |           |            |                  |       | 776,800               |   |      |           |      |      |      | 77.7      |      |      | 14.2    
|                                                                       |  |                                          |                      | Common Stock(1)                      |       |                  |           |            |                  |       | 194,200               |   |      |           |      |      |      | 19.4      |      |      |        
|                                                                       |  |                                          |                      |                                      |       |                  |           |            |                  |       |                       |   |      |           |      |      |      | 218.3     |      |      | 136.4   
|CMX Inc.                                                               |  | Construction & Engineering               |                      | Senior Debt(6)(7)                    |       | 5.2              | %         |            | 5/12             |       |                       |   |      |           | 19.3 |      |      | 19.2      |      |      | 16.1    
|Contour Semiconductor, Inc.                                            |  | Semiconductors & Semiconductor Equipment |                      | Convertible Preferred Stock(1)       |       |                  |           |            |                  |       | 11,532,842            |   |      |           |      |      |      | 12.4      |      |      | 19.6    
|Core Financial Holdings, LLC                                           |  | Diversified Financial Services           |                      | Subordinated Debt
Common Stock(1)    |       | 13.6%            |           |            | 4/14-5/15        |       | 57,940,360            |   |      |           | 37.8 |      |      | 37.554.4  |      |      | 37.523.7
|                                                                       |  |                                          |                      |                                      |       |                  |           |            |                  |       |                       |   |      |           |      |      |      | 91.9      |      |      | 61.2    
|Creditcards.com, Inc.                                                  |  | Internet Software & Services             |                      | Senior Debt(7)                       |       | 13.9%            |           |            | 6/13-10/13       |       |                       |   |      |           | 79.9 |      |      | 79.5      |      |      | 79.9    
|                                                                       |  |                                          | Subordinated Debt(7) |                                      | 19.0% |                  |           | 6/14-10/14 |                  |       |                       |   |      | 15.5      |      |      | 15.4 |           |      | 15.5
|                                                                       |  |                                          |                      | Redeemable Preferred Stock(1)        |       |                  |           |            |                  |       | 257,510               |   |      |           |      |      |      | 53.6      |      |      | 11.8    
|                                                                       |  |                                          |                      | Common Stock(1)                      |       |                  |           |            |                  |       | 176,430,690           |   |      |           |      |      |      | 2.5       |      |      |        
|                                                                       |  |                                          |                      |                                      |       |                  |           |            |                  |       |                       |   |      |           |      |      |      | 151.0     |      |      | 107.2   
|ECA AcquisitionHoldings, Inc                                           |  | Health Care Equipment & Supplies         |                      | Subordinated Debt(7)                 |       | 16.5%            |           |            | 12/14            |       |                       |   |      |           | 13.5 |      |      | 13.3      |      |      | 13.5    
|                                                                       |  | Common Stock(1)                          |                      |                                      |       |                  |           |            | 583              |       |                       |   |      |           |      | 11.1 |      |           | 12.8
|                                                                       |  |                                          |                      |                                      |       |                  |           |            |                  |       |                       |   |      |           |      |      |      | 24.4      |      |      | 26.3    



30



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      |           |      |         |      |          
|---------------------------------------- |  | -------------------------------------- | ----------------------------- | ------------------------------ | ----- | ---------------- | ---------- | ---------------- | ---------- | --------------------- | ---- | ---- | --------- | ---- | ------- | ---- | ---------
|Company (4)                              |  | Industry                               |                               | Investments                    |       | InterestRate (5) |            | Maturity    Date |            | # ofshares/unitsowned |      |      | Principal |      | Cost    |      | FairValue
|eLynx Holdings, Inc.                     |  | IT Services                            |                               | Senior Debt                    |       | 8.7%             |            | 7/13             |            |                       |      |      | 9.6       |      | 9.6     |      | 9.7      
|                                         |  |                                        |                               | Subordinated Debt              |       | 8.5%             |            | 7/13             |            |                       |      |      | 4.0       |      | 4.0     |      | 4.0      
|                                         |  |                                        |                               | Subordinated Debt(6)           |       | 9.2%             |            | 7/13             |            |                       |      |      | 12.1      |      | 10.0    |      | 4.3      
|                                         |  |                                        |                               | Redeemable Preferred Stock(1)  |       |                  |            |                  |            | 21,113                |      |      |           |      | 8.9     |      |         
|                                         |  |                                        |                               | Convertible Preferred Stock(1) |       |                  |            |                  |            | 7,929                 |      |      |           |      | 6.0     |      |         
|                                         |  |                                        |                               | Common Stock(1)                |       |                  |            |                  |            | 11,261                |      |      |           |      | 1.1     |      |         
|                                         |  |                                        |                               | Common Stock Warrants(1)       |       |                  |            |                  |            | 1,078,792             |      |      |           |      | 13.1    |      |         
|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      |           |      | 52.7    |      | 18.0     
|Endeavor Fund I, LP                      |  | Thrifts & Mortgage Finance             |                               | Partnership Interest           |       |                  |            |                  |            | 100                   | %    |      |           |      | 18.2    |      | 17.0     
|ETG Holdings, Inc.                       |  | Containers & Packaging                 |                               | Senior Debt(6)                 |       | 8.7%             |            | 5/11             |            |                       |      |      | 15.6      |      | 11.6    |      |         
|                                         |  |                                        |                               | Convertible Preferred Stock(1) |       |                  |            |                  |            | 233,201               |      |      |           |      | 11.4    |      |         
|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      |           |      | 23.0    |      |         
|European Capital Limited(3)              |  | Diversified Financial Services         |                               | Subordinated Debt              |       | 7.3%             |            | 2/11             |            |                       |      |      | 25.3      |      | 25.0    |      | 25.8     
|                                         |  | Ordinary Shares(1)                     |                               |                                |       |                  |            | 431,895,528      |            |                       |      |      | 1,267.3   |      | 243.1  
|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      |           |      | 1,292.3 |      | 268.9    
|European Touch, LTD. II                  |  | Leisure Equipment & Products           |                               | Senior Debt                    |       | 6.8%             |            | 8/11-1/12        |            |                       |      |      | 0.4       |      | 0.3     |      | 0.4      
|                                         |  |                                        | Subordinated Debt(6)          |                                | 16.0% |                  | 1/11       |                  |            |                       |      | 18.9 |           | 13.5 |         | 1.8 
|                                         |  |                                        |                               | Redeemable Preferred Stock(1)  |       |                  |            |                  |            | 263                   |      |      |           |      | 0.3     |      |         
|                                         |  |                                        |                               | Common Stock(1)                |       |                  |            |                  |            | 1,688                 |      |      |           |      | 0.9     |      |         
|                                         |  |                                        |                               | Common Stock Warrants(1)       |       |                  |            |                  |            | 7,105                 |      |      |           |      | 3.7     |      |         
|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      |           |      | 18.7    |      | 2.2      
|EXPL Pipeline Holdings LLC               |  | Oil, Gas & Consumable Fuels            |                               | Senior Debt                    |       | 8.0%             |            | 1/17             |            |                       |      |      | 43.9      |      | 43.6    |      | 43.9     
|                                         |  | Common Membership Units(1)             |                               |                                |       |                  |            | 58,297           |            |                       |      |      | 44.5      |      | 12.1   
|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      | 88.1      |      | 56.0   
|FL Acquisitions Holdings, Inc.           |  | Computers & Peripherals                |                               | Senior Debt(7)                 |       | 8.3%             |            | 10/12-10/13      |            |                       |      |      | 40.0      |      | 39.8    |      | 40.0     
|                                         |  |                                        | Subordinated Debt(7)          |                                | 18.5% |                  | 4/14-10/14 |                  |            |                       |      | 30.8 |           | 30.6 |         | 30.8
|                                         |  |                                        |                               | Subordinated Debt(6)(7)        |       | 22.5%            |            | 10/14            |            |                       |      |      | 13.4      |      | 8.8     |      | 8.6      
|                                         |  |                                        |                               | Redeemable Preferred Stock(1)  |       |                  |            |                  |            | 583,000               |      |      |           |      | 0.6     |      |         
|                                         |  |                                        |                               | Common Stock(1)                |       |                  |            |                  |            | 129,514               |      |      |           |      | 15.6    |      |         
|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      |           |      | 95.4    |      | 79.4     
|Formed Fiber Technologies, Inc.          |  | Auto Components                        |                               | Common Stock(1)                |       |                  |            |                  |            | 31,250                |      |      |           |      | 8.1     |      | 0.5      
|Fosbel Global Services (LUXCO) S.C.A.(3) |  | Commercial Services & Supplies         |                               | Subordinated Debt              |       | 17.3%            |            | 12/13            |            |                       |      |      | 23.6      |      | 23.4    |      | 23.6     
|                                         |  | Subordinated Debt(6)                   |                               | 20.0%                          |       | 12/14            |            |                  |            |                       | 21.6 |      | 15.1      |      | 5.6    
|                                         |  |                                        |                               | Redeemable Preferred Stock(1)  |       |                  |            |                  |            | 18,449,456            |      |      |           |      | 18.5    |      |         
|                                         |  |                                        |                               | Convertible Preferred Stock(1) |       |                  |            |                  |            | 1,519,368             |      |      |           |      | 3.0     |      |         
|                                         |  |                                        |                               | Common Stock(1)                |       |                  |            |                  |            | 108,526               |      |      |           |      | 0.2     |      |         
|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      |           |      | 60.2    |      | 29.2     
|Fountainhead Estate Holding Corp.(3)     |  | Internet Software & Services           |                               | Senior Debt                    |       | 4.0%             |            | 10/13            |            |                       |      |      | 21.0      |      | 21.0    |      | 21.0     
|                                         |  | Redeemable Preferred Stock             |                               |                                |       |                  |            | 115,538          |            |                       |      |      | 15.5      |      | 15.5   
|                                         |  |                                        |                               | Convertible Preferred Stock(1) |       |                  |            |                  |            | 59,250                |      |      |           |      | 59.2    |      | 16.9     
|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      |           |      | 95.7    |      | 53.4     
|FreeConference.com, Inc.                 |  | Diversified Telecommunication Services |                               | Senior Debt(7)                 |       | 6.7%             |            | 4/11-5/11        |            |                       |      |      | 11.9      |      | 11.8    |      | 11.9     
|                                         |  |                                        | Subordinated Debt             |                                | 15.0% |                  | 5/12       |                  |            |                       |      | 10.4 |           | 10.3 |         | 10.4
|                                         |  |                                        | Redeemable Preferred Stock(1) |                                |       |                  |            |                  | 14,042,095 |                       |      |      |           | 12.8 |         | 4.0 
|                                         |  |                                        |                               | Common Stock(1)                |       |                  |            |                  |            | 6,088,229             |      |      |           |      | 2.3     |      |         
|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      |           |      | 37.2    |      | 26.3     
|Future Food, Inc.                        |  | Food Products                          |                               | Senior Debt                    |       | 5.2%             |            | 8/10             |            |                       |      |      | 17.1      |      | 17.1    |      | 13.5     
|                                         |  |                                        |                               | Common Stock(1)                |       |                  |            |                  |            | 64,917                |      |      |           |      | 13.0    |      |         
|                                         |  |                                        |                               | Common Stock Warrants(1)       |       |                  |            |                  |            | 6,500                 |      |      |           |      | 1.3     |      |         
|                                         |  |                                        |                               |                                |       |                  |            |                  |            |                       |      |      |           |      | 31.4    |      | 13.5     



31



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AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                   |  |                                  |                                |                                |       |                  |       |                  |        |                       |   |      |           |      |      |      |          
|---------------------------------- |  | -------------------------------- | ------------------------------ | ------------------------------ | ----- | ---------------- | ----- | ---------------- | ------ | --------------------- | - | ---- | --------- | ---- | ---- | ---- | ---------
|Company (4)                        |  | Industry                         |                                | Investments                    |       | InterestRate (5) |       | Maturity    Date |        | # ofshares/unitsowned |   |      | Principal |      | Cost |      | FairValue
|FV Holdings Corporation            |  | Food Products                    |                                | Subordinated Debt(7)           |       | 14.5%            |       | 6/15             |        |                       |   |      | 23.7      |      | 23.7 |      | 23.7     
|                                   |  |                                  |                                | Convertible Preferred Stock(1) |       |                  |       |                  |        | 292,000               |   |      |           |      | 14.3 |      | 20.9     
|                                   |  |                                  |                                | Common Stock(1)                |       |                  |       |                  |        | 125,000               |   |      |           |      | 6.1  |      | 8.9      
|                                   |  |                                  |                                |                                |       |                  |       |                  |        |                       |   |      |           |      | 44.1 |      | 53.5     
|Group Montana, Inc.                |  | Textiles, Apparel & Luxury Goods |                                | Senior Debt(7)                 |       | 10.0%            |       | 10/10-10/11      |        |                       |   |      | 15.9      |      | 15.8 |      | 15.9     
|                                   |  |                                  | Senior Debt(6)(7)              |                                | 12.5% |                  | 10/11 |                  |        |                       |   | 5.4  |           | 4.8  |      | 3.7 
|                                   |  |                                  |                                | Subordinated Debt(6)           |       | 24.5%            |       | 10/12            |        |                       |   |      | 12.3      |      | 6.8  |      |         
|                                   |  |                                  |                                | Convertible Preferred Stock(1) |       |                  |       |                  |        | 4,000                 |   |      |           |      | 1.0  |      |         
|                                   |  |                                  |                                | Common Membership Interest(1)  |       |                  |       |                  |        | 2.5                   | % |      |           |      | 0.7  |      |         
|                                   |  |                                  |                                |                                |       |                  |       |                  |        |                       |   |      |           |      | 29.1 |      | 19.6     
|Halex Holdings, Inc.               |  | Construction Materials           |                                | Senior Debt(6)                 |       | 7.0%             |       | 9/11             |        |                       |   |      | 11.0      |      | 9.8  |      | 6.8      
|                                   |  |                                  |                                | Redeemable Preferred Stock(1)  |       |                  |       |                  |        | 23,504,546            |   |      |           |      | 30.6 |      |         
|                                   |  |                                  |                                |                                |       |                  |       |                  |        |                       |   |      |           |      | 40.4 |      | 6.8      
|Hartstrings Holdings Corp.         |  | Textiles, Apparel & Luxury Goods |                                | Senior Debt(6)                 |       | 4.5%             |       | 12/10            |        |                       |   |      | 9.3       |      | 9.3  |      | 6.6      
|                                   |  |                                  | Convertible Preferred Stock(1) |                                |       |                  |       |                  | 10,196 |                       |   |      |           | 2.9  |      |    
|                                   |  |                                  |                                | Common Stock(1)                |       |                  |       |                  |        | 14,250                |   |      |           |      | 4.8  |      |         
|                                   |  |                                  |                                |                                |       |                  |       |                  |        |                       |   |      |           |      | 17.0 |      | 6.6      
|Kingway Inca Clymer Holdings, Inc. |  | Building Products                |                                | Subordinated Debt(6)           |       | 12.2%            |       | 4/12             |        |                       |   |      | 2.1       |      |     |      | 1.1      
|                                   |  |                                  | Redeemable Preferred Stock(1)  |                                |       |                  |       |                  | 13,709 |                       |   |      |           | 9.2  |      |    
|                                   |  |                                  |                                |                                |       |                  |       |                  |        |                       |   |      |           |      | 9.2  |      | 1.1      
|Lifoam Holdings, Inc.              |  | Leisure Equipment & Products     |                                | Senior Debt                    |       | 10.5%            |       | 12/14            |        |                       |   |      | 19.1      |      | 19.1 |      | 19.1     
|                                   |  |                                  | Subordinated Debt              |                                | 8.0%  |                  | 12/14 |                  |        |                       |   | 39.8 |           | 39.7 |      | 39.8
|                                   |  |                                  |                                | Redeemable Preferred Stock(1)  |       |                  |       |                  |        | 6,160                 |   |      |           |      | 4.2  |      | 7.4      
|                                   |  |                                  |                                | Convertible Preferred Stock(1) |       |                  |       |                  |        | 15,797                |   |      |           |      | 12.2 |      |         
|                                   |  |                                  |                                | Common Stock(1)                |       |                  |       |                  |        | 14,000                |   |      |           |      | 1.4  |      |         
|                                   |  |                                  |                                | Common Stock Warrants(1)       |       |                  |       |                  |        | 464,242               |   |      |           |      | 2.9  |      |         
|                                   |  |                                  |                                |                                |       |                  |       |                  |        |                       |   |      |           |      | 79.5 |      | 66.3     
|LLSC Holdings Corporation          |  | Personal Products                |                                | Senior Debt(7)                 |       | 6.2%             |       | 8/12             |        |                       |   |      | 4.5       |      | 4.5  |      | 4.5      
|                                   |  |                                  | Subordinated Debt(7)           |                                | 12.0% |                  | 9/13  |                  |        |                       |   | 5.5  |           | 5.5  |      | 5.5 
|                                   |  |                                  |                                | Convertible Preferred Stock(1) |       |                  |       |                  |        | 7,496                 |   |      |           |      | 8.1  |      | 4.8      
|                                   |  |                                  |                                |                                |       |                  |       |                  |        |                       |   |      |           |      | 18.1 |      | 14.8     
|LVI Holdings, LLC                  |  | Professional Services            |                                | Senior Debt(7)                 |       | 7.2%             |       | 2/10             |        |                       |   |      | 2.7       |      | 2.7  |      | 2.7      
|                                   |  |                                  |                                | Subordinated Debt(6)(7)        |       | 18.0%            |       | 2/13             |        |                       |   |      | 12.1      |      | 10.2 |      | 11.0     
|                                   |  |                                  |                                |                                |       |                  |       |                  |        |                       |   |      |           |      | 12.9 |      | 13.7     
|Montgomery Lane, LLC               |  | Diversified Financial Services   |                                | Common Membership Units(1)     |       |                  |       |                  |        | 100                   |   |      |           |      | 8.6  |      | 4.9      
|Montgomery Lane, LTD(3)            |  | Diversified Financial Services   |                                | Common Membership Units(1)     |       |                  |       |                  |        | 50,000                |   |      |           |      | 6.9  |      | 0.5      
|MW Acquisition Corporation         |  | Health Care Providers & Services |                                | Subordinated Debt(7)           |       | 16.2%            |       | 2/13-2/14        |        |                       |   |      | 25.5      |      | 25.3 |      | 25.5     
|                                   |  | Redeemable Preferred Stock       |                                |                                |       |                  |       | 2,485            |        |                       |   |      | 1.0       |      | 1.0 
|                                   |  |                                  |                                | Convertible Preferred Stock(1) |       |                  |       |                  |        | 38,016                |   |      |           |      | 13.4 |      | 8.5      
|                                   |  |                                  |                                |                                |       |                  |       |                  |        |                       |   |      |           |      | 39.7 |      | 35.0     



32



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AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       |       |       |          
|--------------------------------- |  | ---------------------------------------------- | -------------------------- | ------------------------------ | ----- | ---------------- | ---------- | ---------------- | ------- | --------------------- | - | ----- | --------- | ----- | ----- | ----- | ---------
|Company (4)                       |  | Industry                                       |                            | Investments                    |       | InterestRate (5) |            | Maturity    Date |         | # ofshares/unitsowned |   |       | Principal |       | Cost  |       | FairValue
|NECCO Holdings, Inc.              |  | Food Products                                  |                            | Senior Debt                    |       | 13.5%            |            | 12/12            |         |                       |   |       | 4.4       |       | 4.4   |       | 4.4      
|                                  |  |                                                |                            | Common Stock(1)                |       |                  |            |                  |         | 760,869               |   |       |           |       | 0.1   |       |         
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       | 4.5   |       | 4.4      
|NECCO Realty Investments, LLC     |  | Real Estate                                    |                            | Senior Debt(7)                 |       | 14.0%            |            | 12/17            |         |                       |   |       | 40.0      |       | 39.3  |       | 40.0     
|                                  |  |                                                | Common Membership Units(1) |                                |       |                  |            |                  | 7,000   |                       |   |       |           | 4.9   |       | 8.0  
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       | 44.2  |       | 48.0     
|Paradigm Precision Holdings, LLC  |  | Aerospace & Defense                            |                            | Subordinated Debt              |       | 17.0%            |            | 8/14             |         |                       |   |       | 57.0      |       | 56.6  |       | 57.0     
|                                  |  |                                                | Subordinated Debt(6)       |                                | 20.0% |                  | 8/14-10/14 |                  |         |                       |   | 68.4  |           | 54.1  |       | 0.8  
|                                  |  |                                                |                            | Common Membership Units(1)     |       |                  |            |                  |         | 478,488               |   |       |           |       | 17.5  |       |         
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       | 128.2 |       | 57.8     
|PHC Sharp Holdings, Inc.          |  | Commercial Services & Supplies                 |                            | Senior Debt(7)                 |       | 5.9%             |            | 12/11-12/12      |         |                       |   |       | 16.9      |       | 16.8  |       | 12.5     
|                                  |  |                                                | Subordinated Debt(6)       |                                | 17.0% |                  | 12/14      |                  |         |                       |   | 9.8   |           | 7.3   |       |     
|                                  |  |                                                |                            | Common Stock(1)                |       |                  |            |                  |         | 367,881               |   |       |           |       | 4.2   |       |         
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       | 28.3  |       | 12.5     
|PHI Acquisitions, Inc.            |  | Internet & Catalog Retail                      |                            | Senior Debt(7)                 |       | 12.0%            |            | 6/12             |         |                       |   |       | 10.2      |       | 10.2  |       | 10.3     
|                                  |  |                                                |                            | Subordinated Debt(7)           |       | 17.7%            |            | 6/13             |         |                       |   |       | 24.5      |       | 24.3  |       | 24.6     
|                                  |  |                                                |                            | Redeemable Preferred Stock     |       |                  |            |                  |         | 36,267                |   |       |           |       | 40.6  |       | 52.2     
|                                  |  |                                                |                            | Common Stock(1)                |       |                  |            |                  |         | 40,295                |   |       |           |       | 3.9   |       | 3.0      
|                                  |  |                                                |                            | Common Stock Warrants(1)       |       |                  |            |                  |         | 116,065               |   |       |           |       | 11.6  |       | 8.6      
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       | 90.6  |       | 98.7     
|Resort Funding Holdings, Inc.     |  | Diversified Financial Services                 |                            | Senior Debt                    |       | 8.2%             |            | 4/10             |         |                       |   |       | 8.8       |       | 8.8   |       | 7.7      
|                                  |  | Common Stock(1)                                |                            |                                |       |                  |            | 583              |         |                       |   |       | 20.5      |       |     
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       | 29.3  |       | 7.7      
|Sixnet Holdings, LLC              |  | Electronic Equipment, Instruments & Components |                            | Senior Debt(7)                 |       | 11.1%            |            | 6/12-6/13        |         |                       |   |       | 37.3      |       | 37.1  |       | 36.2     
|                                  |  |                                                | Membership Units(1)        |                                |       |                  |            |                  | 446     |                       |   |       |           | 5.6   |       | 2.6  
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           | 42.7  |       | 38.8 
|SMG Holdings, Inc.                |  | Hotels, Restaurants & Leisure                  |                            | Senior Debt(7)                 |       | 3.4%             |            | 7/14             |         |                       |   |       | 5.9       |       | 5.9   |       | 5.9      
|                                  |  |                                                | Subordinated Debt(7)       |                                | 12.5% |                  | 6/15       |                  |         |                       |   | 124.6 |           | 123.8 |       | 124.8
|                                  |  |                                                |                            | Convertible Preferred Stock(1) |       |                  |            |                  |         | 1,101,673             |   |       |           |       | 124.2 |       | 105.6    
|                                  |  |                                                |                            | Common Stock(1)                |       |                  |            |                  |         | 275,419               |   |       |           |       | 27.5  |       |         
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       | 281.4 |       | 236.3    
|Specialty Brands of America, Inc. |  | Food Products                                  |                            | Subordinated Debt(7)           |       | 14.0%            |            | 5/14             |         |                       |   |       | 34.8      |       | 34.6  |       | 34.8     
|                                  |  |                                                | Redeemable Preferred Stock |                                |       |                  |            |                  | 122,017 |                       |   |       |           | 9.3   |       | 15.0 
|                                  |  |                                                |                            | Common Stock(1)                |       |                  |            |                  |         | 128,175               |   |       |           |       | 2.3   |       | 12.1     
|                                  |  |                                                |                            | Common Stock Warrants(1)       |       |                  |            |                  |         | 56,819                |   |       |           |       | 1.4   |       | 5.3      
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       | 47.6  |       | 67.2     
|Spring Air International, LLC     |  | Household Durables                             |                            | Common Membership Units(1)     |       |                  |            |                  |         | 49                    | % |       |           |       | 2.8   |       | 0.5      
|UFG Member, LLC                   |  | Food Products                                  |                            | Subordinated Debt(6)           |       | 16.5%            |            | 5/15             |         |                       |   |       | 36.4      |       | 30.4  |       | 26.9     
|                                  |  |                                                |                            | Common Stock(1)                |       |                  |            |                  |         | 937                   |   |       |           |       | 64.7  |       |         
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       | 95.1  |       | 26.9     
|UFG Real Estate Holdings, LLC     |  | Real Estate                                    |                            | Common Membership(1)           |       |                  |            |                  |         |                       |   |       |           |       |      |       | 0.9      
|Unique Fabricating Incorporated   |  | Auto Components                                |                            | Senior Debt                    |       | 5.1%             |            | 10/10-2/11       |         |                       |   |       | 1.0       |       | 1.0   |       | 1.0      
|                                  |  |                                                | Senior Debt(6)             |                                | 10.7% |                  | 2/12       |                  |         |                       |   | 5.0   |           | 4.2   |       | 0.9  
|                                  |  |                                                |                            | Redeemable Preferred Stock(1)  |       |                  |            |                  |         | 301,556               |   |       |           |       | 7.9   |       |         
|                                  |  |                                                |                            | Common Stock Warrants(1)       |       |                  |            |                  |         | 6,862                 |   |       |           |       | 0.2   |       |         
|                                  |  |                                                |                            |                                |       |                  |            |                  |         |                       |   |       |           |       | 13.3  |       | 1.9      



33



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AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                                                      |  |                                  |  |                                          |  |                  |   |                  |  |                       |         |  |           |      |      |       |           |   |      
|--------------------------------------------------------------------- |  | -------------------------------- |  | ---------------------------------------- |  | ---------------- | - | ---------------- |  | --------------------- | ------- |  | --------- | ---- | ---- | ----- | --------- | - | -----
|Company (4)                                                           |  | Industry                         |  | Investments                              |  | InterestRate (5) |   | Maturity    Date |  | # ofshares/unitsowned |         |  | Principal |      | Cost |       | FairValue
|Unwired Holdings, Inc.                                                |  | Household Durables               |  | Senior Debt                              |  | 5.0%             |   | 6/10             |  |                       |         |  | 1.6       |      |      | 1.6   |           |   | 1.6  
|                                                                      |  |                                  |  | Senior Debt(6)                           |  | 8.5%             |   | 6/11             |  |                       |         |  | 11.4      |      |      | 7.6   |           |   | 8.1  
|                                                                      |  |                                  |  | Redeemable Preferred Stock(1)            |  |                  |   |                  |  | 14,630                |         |  |           |      |      | 14.6  |           |   |     
|                                                                      |  |                                  |  | Common Stock(1)                          |  |                  |   |                  |  | 126,001               |         |  |           |      |      | 1.3   |           |   |     
|                                                                      |  |                                  |  |                                          |  |                  |   |                  |  |                       |         |  |           |      |      | 25.1  |           |   | 9.7  
|VP Acquisition Holdings, Inc.                                         |  | Health Care Equipment & Supplies |  | Subordinated Debt(7)                     |  | 14.5%            |   | 10/13-10/14      |  |                       |         |  | 20.0      |      |      | 19.8  |           |   | 20.0 
|                                                                      |  | Common Stock(1)                  |  |                                          |  |                  |   | 19,780           |  |                       |         |  |           | 24.7 |      |       | 37.4     
|                                                                      |  |                                  |  |                                          |  |                  |   |                  |  |                       |         |  |           |      |      | 44.5  |           |   | 57.4 
|Warner Power, LLC                                                     |  | Electrical Equipment             |  | Subordinated Debt(6)(7)                  |  | 12.6%            |   | 11/10            |  |                       |         |  | 5.0       |      |      | 5.0   |           |   | 1.7  
|                                                                      |  |                                  |  | Redeemable Preferred Membership Units(1) |  |                  |   |                  |  | 3,796,269             |         |  |           |      |      | 3.0   |           |   |     
|                                                                      |  |                                  |  | Common Membership Units(1)               |  |                  |   |                  |  | 27,400                |         |  |           |      |      | 1.9   |           |   |     
|                                                                      |  |                                  |  |                                          |  |                  |   |                  |  |                       |         |  |           |      |      | 9.9   |           |   | 1.7  
|WIS Holding Company, Inc.                                             |  | Commercial Services & Supplies   |  | Subordinated Debt(7)                     |  | 14.8%            |   | 1/14-1/15        |  |                       |         |  | 109.1     |      |      | 108.4 |           |   | 109.1
|                                                                      |  | Convertible Preferred Stock      |  |                                          |  |                  |   | 703,406          |  |                       |         |  |           | 89.2 |      |       | 137.2    
|                                                                      |  |                                  |  | Common Stock(1)                          |  |                  |   |                  |  | 175,852               |         |  |           |      |      | 17.6  |           |   | 29.6 
|                                                                      |  |                                  |  |                                          |  |                  |   |                  |  |                       |         |  |           |      |      | 215.2 |           |   | 275.9
|WSACS RR Holdings, LLC                                                |  | Real Estate                      |  | Common Membership Units(1)               |  |                  |   |                  |  | 3,384,615             |         |  |           |      |      | 3.4   |           |   |     
|                                                                      |  |                                  |  |                                         
|CDO/ CLO INVESTMENTS                                                  |  |                                  |  |                                          |  |                  |   |                  |  |                       |        
|ACAS Wachovia Investments, L.P.                                       |  | Diversified Financial Services   |  | Partnership Interest                     |  |                  |   |                  |  | 90                    | %       |  |           |      | $    | 12.0  |           | $ | 2.0  
|Subtotal Control Investments (42% of total investments at fair value) |  |                                  |  |                                          |  |                  | $ | 4,068.4          |  | $                     | 2,335.0
|Total Investment Assets                                               |  |                                  |  |                                          |  |                  | $ | 9,158.2          |  | $                     | 5,575.3

|                                 |  |                                                         |   |                  |   |                      |  |               |     |          |       |      |   |           |  |   |       
|-------------------------------- |  | ------------------------------------------------------- | - | ---------------- | - | -------------------- |  | ------------- | --- | -------- | ----- | ---- | - | --------- |  | - | ------
|Counterparty                     |  | Instrument                                              |   | InterestRate (5) |   | Expiration  Date (5) |  | # ofcontracts |     | Notional |       | Cost |   | FairValue
|                                 | 
|DERIVATIVE AGREEMENTS            |  |                                                        
|Wachovia Bank, N.A.              |  | Balance Differential Swap - Pay Fixed/ Receive Floating |   | LIBOR/5.1%       |   | 8/19                 |  | 1             |     | $        | 22.5  |      | $ |          |  | $ | 0.9   
|Subtotal Derivative Agreements   |  |                                                         |   |                  |   |                     |  |               | 0.9
|Total Derivative Assets          |  | $                                                       |  |                  | $ | 0.9                 
|DERIVATIVE AGREEMENTS            |  |                                                        
|BMO Financial Group              |  | Interest Rate Swap - Pay Fixed/ Receive Floating        |   | 5.4%/LIBOR       |   | 2/13-8/17            |  | 5             |     | $        | 391.4 |      | $ |          |  | $ | (30.2)
|Citibank, N.A.                   |  | Interest Rate Swap - Pay Fixed/ Receive Floating        |   | 4.8%/LIBOR       |   | 4/12-11/19           |  | 4             |     |          | 524.0 |      |   |          |  |   | (30.7)
|Wachovia Bank, N.A.              |  | Interest Rate Swap - Pay Fixed/ Receive Floating        |   | 4.9%/LIBOR       |   | 1/14-8/19            |  | 3             |     |          | 323.3 |      |   |          |  |   | (25.7)
|Citibank, N.A.                   |  | Balance Differential Swap - Pay Fixed/ Receive Floating |   | 5.2%/LIBOR       |   | 11/19                |  | 1             |     |          | 30.5  |      |   |          |  |   | (2.5) 
|UniCredit Group                  |  | Interest Rate Swap - Pay Fixed/ Receive Floating        |   | 5.7%/LIBOR       |   | 7/17                 |  | 1             |     |          | 66.0  |      |   |          |  |   | (8.8) 
|Fortis Financial Services LLC    |  | Interest Rate Swap - Pay Fixed/ Receive Floating        |   | 5.7%/LIBOR       |   | 7/17                 |  | 1             |     |          | 22.3  |      |   |          |  |   | (3.0) 
|Citibank, N.A.                   |  | Foreign Exchange Swap - Pay Euros/ Receive GBP          |   |                  |   | 2/11                 |  | 1             |     |          |       |      |   |          |  |   | (1.2) 
|Total Derivative
Liabilities     |  | $                                                       |  |                  | $ | (102.1)             
|Total Derivative Agreements, Net |  | $                                                       |  |                  | $ | (101.2)             



34



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##### Table of Contents

AMERICAN CAPITAL, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

December 31, 2009

(in millions, except share data)



|                                                                         |  |   |       |  |   |       |  |  |  |  |  |      |      |           |   |     
|------------------------------------------------------------------------ |  | - | ----- |  | - | ----- |  |  |  |  |  | ---- | ---- | --------- | - | ----
|Fund                                                                     |  |   |       |  |   |       |  |  |  |  |  | Cost |      | FairValue
|MONEY MARKET FUNDS(9)                                                    |  |   |      
|Federated Government Obligations Fund                                    |  |   |       |  |   |       |  |  |  |  |  | $    | 57.6 |           | $ | 57.6
|Fidelity Institutional Money Market Funds - Money Market Portfolio       |  |   |       |  |   |       |  |  |  |  |  |      | 48.5 |           |   | 48.5
|Fidelity Institutional Money Market Funds - Prime Money Market Portfolio |  |   |       |  |   |       |  |  |  |  |  |      | 47.1 |           |   | 47.1
|Dreyfus Cash Advantage Fund                                              |  |   |       |  |   |       |  |  |  |  |  |      | 47.0 |           |   | 47.0
|Federated Tax-Free Obligations Fund                                      |  |   |       |  |   |       |  |  |  |  |  |      | 46.9 |           |   | 46.9
|First American Prime Obligations Fund                                    |  |   |       |  |   |       |  |  |  |  |  |      | 45.7 |           |   | 45.7
|BlackRock Liquidity Funds TempFund Portfolio                             |  |   |       |  |   |       |  |  |  |  |  |      | 44.9 |           |   | 44.9
|Goldman Sachs Financial Square Funds - Prime Obligations Fund            |  |   |       |  |   |       |  |  |  |  |  |      | 44.7 |           |   | 44.7
|Federated Prime Cash Obligations Fund                                    |  |   |       |  |   |       |  |  |  |  |  |      | 39.0 |           |   | 39.0
|Goldman Sachs Financial Square Fund - Money Market Fund                  |  |   |       |  |   |       |  |  |  |  |  |      | 38.7 |           |   | 38.7
|AIM STIT - Liquid Assets Portfolio                                       |  |   |       |  |   |       |  |  |  |  |  |      | 37.5 |           |   | 37.5
|Dreyfus Institutional Reserves Money Fund                                |  |   |       |  |   |       |  |  |  |  |  |      | 37.4 |           |   | 37.4
|BlackRock Cash Funds - Prime                                             |  |   |       |  |   |       |  |  |  |  |  |      | 34.1 |           |   | 34.1
|Dreyfus Government Cash Management                                       |  |   |       |  |   |       |  |  |  |  |  |      | 31.5 |           |   | 31.5
|Goldman Sachs Financial Square Funds - Government Fund                   |  |   |       |  |   |       |  |  |  |  |  |      | 28.3 |           |   | 28.3
|AIM STIT-STIC Prime Portfolio                                            |  |   |       |  |   |       |  |  |  |  |  |      | 25.0 |           |   | 25.0
|Federated Prime Obligations Fund                                         |  |   |       |  |   |       |  |  |  |  |  |      | 25.0 |           |   | 25.0
|Fidelity Institutional Money Market Funds - Government Portfolio         |  |   |       |  |   |       |  |  |  |  |  |      | 10.2 |           |   | 10.2
|First American Government Obligations Fund                               |  |   |       |  |   |       |  |  |  |  |  |      | 5.7  |           |   | 5.7 
|Total Money Market
Funds                                                 |  | $ | 694.8 |  | $ | 694.8



|(1) | Non-income producing.
|--- | ---------------------

|(2) | Publicly traded company or a consolidated subsidiary of a public company.
|--- | -------------------------------------------------------------------------

|(3) | International investment.
|--- | -------------------------

|(4) | Certain of the securities are issued by affiliate(s) of the listed portfolio company.
|--- | -------------------------------------------------------------------------------------

|(5) | Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by the nature of indebtedness by a single
issuer. The maturity dates represent the earliest and the latest maturity dates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Loan is on non-accrual status and therefore considered non-income producing.
|--- | ----------------------------------------------------------------------------

|(7) | All or a portion of the loans are pledged as collateral under various secured financing arrangements.
|--- | -----------------------------------------------------------------------------------------------------

|(8) | Portfolio Company has filed for reorganization under Chapter 11 of the United States Code.
|--- | ------------------------------------------------------------------------------------------

|(9) | Included in Cash and cash equivalents on our Consolidated Balance Sheets.
|--- | -------------------------------------------------------------------------



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(in millions, except per share data)



Note 1. Unaudited Interim Consolidated Financial Statements



Interim consolidated financial statements of American
Capital, Ltd. (which is referred throughout this report as American Capital, the Company, we, us and our) are prepared in accordance with accounting principles generally accepted in the
United States (GAAP) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in
accordance with GAAP are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of financial statements for the interim periods have been included. The current
periods results of operations are not necessarily indicative of results that ultimately may be achieved for the year. The unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 2009, as filed with the Securities and Exchange Commission (SEC) on Form 8-K on July 1, 2010 and our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010, as filed with the SEC on May 10, 2010.



Note 2. Organization



We are a non-diversified, closed end investment company that has elected to be regulated as a business development company
(BDC) under the Investment Company Act of 1940, as amended (1940 Act). We operate so as to qualify to be taxed as a regulated investment company (RIC) as defined in Subtitle A, Chapter 1, under Subchapter M
of the Internal Revenue Code of 1986, as amended (the Code). As a BDC, we primarily invest in senior debt, subordinated debt and equity in the buyouts of private companies sponsored by us, the buyouts of private companies sponsored by
other private equity firms and directly to early stage and mature private and small public companies. We refer to these investments as our private finance portfolio. We also invest in structured financial product investments (Structured
Products) including commercial mortgage backed securities (CMBS), commercial collateralized loan obligation (CLO) securities and collateralized debt obligation (CDO) securities and invest in alternative
asset funds managed by us. Our primary business objectives are to increase our taxable income, net realized earnings and net asset value (NAV) by making investments with attractive current yields and/or potential for equity appreciation
and realized gains.



On June 30, 2010 we
merged our consolidated taxable operating subsidiary, American Capital Financial Services, Inc. (ACFS), into American Capital, Ltd. See Note 9 for additional disclosure regarding this merger.



Note 3. Investments



Our investments consist of loans and securities issued by
public and privately-held companies, including senior debt, subordinated debt, equity warrants and preferred and common equity securities. Certain of our investments do not produce current income. These investments typically consist of equity
warrants, common equity and preferred equity and are identified in the accompanying consolidated schedule of investments. We also have investments in both investment grade and non-investment grade Structured Products.



We fair value our investments in accordance with the 1940 Act
and Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) as determined in good faith by our Board of Directors.
When available, we base the fair value of our investments on directly observable market prices or on market data derived for comparable assets. For all other investments, inputs used to measure fair value reflect managements best estimate of
assumptions that would be used by market participants in pricing the investment in a hypothetical transaction. For these



36



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



investments, we estimate the fair value of our senior debt, subordinated debt, redeemable and convertible preferred equity, common equity and equity warrants using either an enterprise value
waterfall methodology or a market yield valuation methodology that generally combines market, income and cost approaches and our Structured Products using a market yield valuation methodology that combines market and income approaches.



Under the enterprise value waterfall methodology, we estimate
the enterprise value of a portfolio company and then waterfall the enterprise value over the portfolio companys securities in order of their preference relative to one another. To estimate the enterprise value of the portfolio company, we
prepare an analysis of traditional valuation methodologies including valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, estimating the
liquidation or collateral value the portfolio companys assets, third-party valuations of the portfolio company, offers from third-parties to buy the company, estimating the value to potential strategic buyers and considering the value of
recent investments in the equity securities of the portfolio company. Significant inputs in these valuation methodologies to estimate enterprise value include the historical or projected operating results of the portfolio company, discounts or
premiums to the prices of comparable companies and discount rates applied to the projected cash flows. The operating results of a portfolio company may be unaudited, projected or pro forma financial information and may require significant judgment
in its determination. In determining a discount or premium, if any, to prices of comparable companies, we use significant judgment for factors such as size, marketability and relative performance. In determining a discount rate to apply to projected
operating cash flows, we use significant judgment in the development of an appropriate discount rate including the evaluation of an appropriate risk premium.



For an investment in an investment fund that does not have a readily determinable fair value, we measure the fair value of our investment
predominately based on the NAV per share of the investment fund if the NAV of the investment fund is calculated in a manner consistent with the measurement principles of ASC Topic 946, Financial ServicesInvestments Companies, as of our
measurement date, including measurement of all or substantially all of the underlying investments of the investee in accordance with ASC 820. However, in determining the fair value of our investment, we may make adjustments to the NAV per share in
certain circumstances, based on our analysis of any restrictions on redemption of our shares of our investment as of the measurement date, comparisons of price to NAV per share of comparable publicly traded funds and trades or sales of comparable
private and publicly traded funds, recent actual sales or redemptions of shares of the investment fund, expected future cash flows available to equity holders or other uncertainties surrounding our ability to realize the full NAV per share of the
investment fund.



As of June 30, 2010 and
December 31, 2009, we had an investment in European Capital, a wholly-owned investment fund that invests in and sponsors management and employee buyouts, invests in private equity buyouts and provides capital directly to private and mid-sized
public companies primarily in Europe. It primarily invests in senior debt, subordinated debt and equity. We concluded that the fair value of our investment in European Capital should be less than the NAV of European Capital as of December 31,
2009 and June 30, 2010 due to the risks associated with European Capitals ability to realize the full fair value of its underlying assets for several reasons, including the yield and tenor of its credit facilities, comparable publicly
traded funds currently trading at a discount to NAV and recent sales of comparable funds at a discount to NAV and an implied required market return on equity by market participants. See Note 11 for unfunded commitments related to European Capital.



Significant inputs to the market yield valuation
methodology for senior debt, subordinated debt and redeemable preferred equity include third-party broker quotes, estimated remaining life, estimated market debt



37



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



leverage levels, current market yield and interest rate spreads of similar loans and securities as of the measurement date. We weight the use of third-party broker quotes, if any, in determining
fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer, depth and consistency of broker quotes and the correlation of changes
in broker quotes with underlying performance and other market indices. We estimate the remaining life based on pre-payment market data of the average life of similar loans. However, if we have information available to us that the loan is expected to
be repaid in the near term, we would use an estimated remaining life based on the expected repayment date. If there is a significant deterioration of the credit quality of a loan, we may consider other factors that a hypothetical market participant
would use to estimate fair value, including the proceeds that would be received in a liquidation analysis.



Significant inputs to the market yield valuation methodology for Structured Products include third-party broker quotes, sales of the same
or similar securities, and our cash flow forecasts subject to assumptions a market participant would use regarding the investments underlying collateral including, but not limited to, assumptions of default and recovery rates, reinvestment
spreads and prepayment rates, industry research reports and transactions of securities and indices with similar structure and risk characteristics. We weight the use of third-party broker quotes, if any, in determining fair value based on our
understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer, depth and consistency of broker quotes and the correlation of changes in broker quotes with
underlying performance and other market indices.



Due to the uncertainty inherent in the valuation process, estimates of fair value may differ significantly from the values that would have
been used had a ready market for our investments existed, and the differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses
ultimately realized on these investments to be different than the valuations currently assigned.



The levels of fair value inputs used to measure our investments are characterized in accordance with the fair value hierarchy established
by ASC 820. Where inputs for an asset or liability fall in more than one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest level input that is significant to that investments fair value
measurement. We use judgment and consider factors specific to the investment in determining the significance of an input to a fair value measurement. Our policy is to recognize transfers in and out of levels as of the beginning of each reporting
period. The three levels of the fair value hierarchy and investments that fall into each of the levels are described below:



| |  |  | Level 1: Level 1 inputs are unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities. We use Level 1 inputs for investments in publicly traded unrestricted securities. Such investments are valued at the closing price on the measurement date.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2: Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. We did not value any of our investments using Level 2 inputs as of June 30, 2010.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3: Level 3 inputs are unobservable and cannot be corroborated by observable market data. We use Level 3 inputs for measuring the
fair value of substantially all of our investments.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



38



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



The following fair value hierarchy tables set forth our assets and liabilities that are
measured at fair value on a recurring basis by level as of June 30, 2010 and December 31, 2009:



|                           |  |                   |    |         |   |         |  |   |       |   |  |   |       |  
|-------------------------- |  | ----------------- | -- | ------- | - | ------- |  | - | ----- | - |  | - | ----- | -
|                           |  | June 30, 2010     |   
|                           |  | Level 1           |    | Level 2 |   | Level 3 |  |   | Total |  
|Senior debt                |  | $                 |   |         | $ |        |  | $ | 1,692 |   |  | $ | 1,692 |  
|Subordinated debt          |  |                   |   |         |   |        |  |   | 1,933 |   |  |   | 1,933 |  
|Preferred equity           |  |                   |   |         |   |        |  |   | 1,084 |   |  |   | 1,084 |  
|Common equity              |  |                   | 66 |         |   |        |  |   | 699   |   |  |   | 765   |  
|Structured Products        |  |                   |   |         |   |        |  |   | 149   |   |  |   | 149   |  
|Equity warrants            |  |                   |   |         |   |        |  |   | 71    |   |  |   | 71    |  
|Derivative agreements, net |  |                   |   |         |   |        |  |   | (117  | ) |  |   | (117  | )
|                           |  |                   |    |         |   |         |  |   |       |   |  |   |       |  
|Total                      |  | $                 | 66 |         | $ |        |  | $ | 5,511 |   |  | $ | 5,577 |  
|                           |  |                   |    |         |   |         |  |   |       |   |  |   |       |  
|                           | 
|                           |  | December 31, 2009 |   
|                           |  | Level 1           |    | Level 2 |   | Level 3 |  |   | Total |  
|Senior debt                |  | $                 |   |         | $ |        |  | $ | 1,791 |   |  | $ | 1,791 |  
|Subordinated debt          |  |                   |   |         |   |        |  |   | 1,938 |   |  |   | 1,938 |  
|Preferred equity           |  |                   |   |         |   |        |  |   | 1,049 |   |  |   | 1,049 |  
|Common equity              |  |                   | 66 |         |   |        |  |   | 510   |   |  |   | 576   |  
|Structured Products        |  |                   |   |         |   |        |  |   | 167   |   |  |   | 167   |  
|Equity warrants            |  |                   |   |         |   |        |  |   | 54    |   |  |   | 54    |  
|Derivative agreements, net |  |                   |   |         |   |        |  |   | (113  | ) |  |   | (113  | )
|                           |  |                   |    |         |   |         |  |   |       |   |  |   |       |  
|Total                      |  | $                 | 66 |         | $ |        |  | $ | 5,396 |   |  | $ | 5,462 |  
|                           |  |                   |    |         |   |         |  |   |       |   |  |   |       |  



39



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



The following tables set forth the summary of changes in the fair value of investment
assets and liabilities measured using Level 3 inputs for the three months ended June 30, 2010 and 2009:



|                                                |  |                       |       |   |                           |   |      |                                                                     |  |   |                                             |   |  |                                                  |      |   |                            |   |                       |   |  |   |   |  |   |       |  
|----------------------------------------------- |  | --------------------- | ----- | - | ------------------------- | - | ---- | ------------------------------------------------------------------- |  | - | ------------------------------------------- | - |  | ------------------------------------------------ | ---- | - | -------------------------- | - | --------------------- | - |  | - | - |  | - | ----- | -
|                                                |  | Balances,April 1,2010 |       |   | RealizedGains(Losses) (1) |   |      | Reversal ofPrior Period(Appreciation)Depreciationon Realization (2) |  |   | UnrealizedAppreciation(Depreciation) (2)(3) |   |  | Purchases, Sales,Issuances &Settlements, Net (4) |      |   | TransfersIn &Out ofLevel 3 |   | Balances,June 30,2010 |  
|Senior debt                                     |  | $                     | 1,764 |   |                           | $ | (14  | )                                                                   |  | $ | 19                                          |   |  | $                                                | 26   |   |                            | $ | (103                  | ) |  | $ |  |  | $ | 1,692 |  
|Subordinated debt                               |  |                       | 1,995 |   |                           |   | (2   | )                                                                   |  |   |                                            |   |  |                                                  | 28   |   |                            |   | (88                   | ) |  |   |  |  |   | 1,933 |  
|Preferred equity                                |  |                       | 1,084 |   |                           |   | (32  | )                                                                   |  |   | 39                                          |   |  |                                                  | 62   |   |                            |   | (69                   | ) |  |   |  |  |   | 1,084 |  
|Common equity                                   |  |                       | 562   |   |                           |   | (12  | )                                                                   |  |   | 20                                          |   |  |                                                  | 149  |   |                            |   | (20                   | ) |  |   |  |  |   | 699   |  
|Structured Products                             |  |                       | 166   |   |                           |   | (231 | )                                                                   |  |   | 231                                         |   |  |                                                  | (15  | ) |                            |   | (2                    | ) |  |   |  |  |   | 149   |  
|Equity warrants                                 |  |                       | 63    |   |                           |   |     |                                                                     |  |   |                                            |   |  |                                                  | 8    |   |                            |   |                      |   |  |   |  |  |   | 71    |  
|Derivative agreements and other, net            |  |                       | (120  | ) |                           |   | (30  | )                                                                   |  |   | 27                                          |   |  |                                                  | (24  | ) |                            |   | 30                    |   |  |   |  |  |   | (117  | )
|                                                |  |                       |       |   |                           |   |      |                                                                     |  |   |                                             |   |  |                                                  |      |   |                            |   |                       |   |  |   |   |  |   |       |  
|Total                                           |  | $                     | 5,514 |   |                           | $ | (321 | )                                                                   |  | $ | 336                                         |   |  | $                                                | 234  |   |                            | $ | (252                  | ) |  | $ |  |  | $ | 5,511 |  
|                                                |  |                       |       |   |                           |   |      |                                                                     |  |   |                                             |   |  |                                                  |      |   |                            |   |                       |   |  |   |   |  |   |       |  
|                                                |  |                       |       |   |                           |   |     
|                                                |  | Balances,April 1,2009 |       |   | RealizedGains(Losses) (1) |   |      | Reversal ofPrior Period(Appreciation)Depreciation
onRealization (2) |  |   | UnrealizedAppreciation(Depreciation) (2)(3) |   |  | Purchases, Sales,Issuances &Settlements, Net (4) |      |   | TransfersIn &Out ofLevel 3 |   | Balances,June 30,2009 |  
|Senior debt                                     |  | $                     | 2,308 |   |                           | $ | (142 | )                                                                   |  | $ | 139                                         |   |  | $                                                | (50  | ) |                            | $ | (108                  | ) |  | $ |  |  | $ | 2,147 |  
|Subordinated debt                               |  |                       | 2,558 |   |                           |   | (195 | )                                                                   |  |   | 194                                         |   |  |                                                  | (90  | ) |                            |   | (326                  | ) |  |   |  |  |   | 2,141 |  
|Preferred equity                                |  |                       | 1,271 |   |                           |   | (3   | )                                                                   |  |   | 3                                           |   |  |                                                  | (131 | ) |                            |   | (21                   | ) |  |   |  |  |   | 1,119 |  
|Common equity                                   |  |                       | 418   |   |                           |   | 32   |                                                                     |  |   | (21                                         | ) |  |                                                  | (363 | ) |                            |   | 355                   |   |  |   |  |  |   | 421   |  
|Structured Products                             |  |                       | 143   |   |                           |   |     |                                                                     |  |   |                                            |   |  |                                                  | 37   |   |                            |   | (6                    | ) |  |   |  |  |   | 174   |  
|Equity warrants                                 |  |                       | 58    |   |                           |   |     |                                                                     |  |   |                                            |   |  |                                                  | 9    |   |                            |   | 1                     |   |  |   |  |  |   | 68    |  
|Derivative and option agreements and other, net |  |                       | (92   | ) |                           |   | (18  | )                                                                   |  |   |                                            |   |  |                                                  | 4    |   |                            |   | 19                    |   |  |   |  |  |   | (87   | )
|                                                |  |                       |       |   |                           |   |      |                                                                     |  |   |                                             |   |  |                                                  |      |   |                            |   |                       |   |  |   |   |  |   |       |  
|Total                                           |  | $                     | 6,664 |   |                           | $ | (326 | )                                                                   |  | $ | 315                                         |   |  | $                                                | (584 | ) |                            | $ | (86                   | ) |  | $ |  |  | $ | 5,983 |  
|                                                |  |                       |       |   |                           |   |      |                                                                     |  |   |                                             |   |  |                                                  |      |   |                            |   |                       |   |  |   |   |  |   |       |  



|(1) | Included in net realized loss on investments in the consolidated statements of operations. Excludes $1 million and $0 million in gains on realized foreign currency
transactions on American Capital assets and liabilities that are denominated in a foreign currency for the three months ended June 30, 2010 and 2009, respectively. Also excludes realized gains (losses) from Level 1 and 2 assets and liabilities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Included in net unrealized appreciation (depreciation) of investments in the consolidated statements of operations.
|--- | -------------------------------------------------------------------------------------------------------------------

|(3) | Excludes $0 million and $4 million of unrealized depreciation related to foreign currency translation for American Capital assets and liabilities not measured at fair
value that are denominated in a foreign currency for the three months ended June 30, 2010 and 2009, respectively. Also excludes unrealized appreciation (depreciation) from Level 1 and 2 assets and liabilities.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, premiums and
closing fees and the exchange of one or more existing securities for one or more new securities as well as decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities
for one or more new securities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



The following tables set forth the summary of changes in the fair value of investment
assets and liabilities measured using Level 3 inputs for the six months ended June 30, 2010 and 2009:



|                                                |  |                         |       |   |                           |   |      |                                                                     |  |   |                                             |   |  |                                                  |        |   |                            |   |                       |   |  |   |   |  |   |       |  
|----------------------------------------------- |  | ----------------------- | ----- | - | ------------------------- | - | ---- | ------------------------------------------------------------------- |  | - | ------------------------------------------- | - |  | ------------------------------------------------ | ------ | - | -------------------------- | - | --------------------- | - |  | - | - |  | - | ----- | -
|                                                |  | Balances,January 1,2010 |       |   | RealizedGains(Losses) (1) |   |      | Reversal ofPrior Period(Appreciation)Depreciationon Realization (2) |  |   | UnrealizedAppreciation(Depreciation) (2)(3) |   |  | Purchases, Sales,Issuances &Settlements, Net (4) |        |   | TransfersIn &Out ofLevel 3 |   | Balances,June 30,2010 |  
|Senior debt                                     |  | $                       | 1,791 |   |                           | $ | (15  | )                                                                   |  | $ | 25                                          |   |  | $                                                | 48     |   |                            | $ | (157                  | ) |  | $ |  |  | $ | 1,692 |  
|Subordinated debt                               |  |                         | 1,938 |   |                           |   | (24  | )                                                                   |  |   | 12                                          |   |  |                                                  | 95     |   |                            |   | (88                   | ) |  |   |  |  |   | 1,933 |  
|Preferred equity                                |  |                         | 1,049 |   |                           |   | (30  | )                                                                   |  |   | 39                                          |   |  |                                                  | 58     |   |                            |   | (32                   | ) |  |   |  |  |   | 1,084 |  
|Common equity                                   |  |                         | 510   |   |                           |   | (92  | )                                                                   |  |   | 98                                          |   |  |                                                  | 223    |   |                            |   | (40                   | ) |  |   |  |  |   | 699   |  
|Structured Products                             |  |                         | 167   |   |                           |   | (232 | )                                                                   |  |   | 233                                         |   |  |                                                  | (15    | ) |                            |   | (4                    | ) |  |   |  |  |   | 149   |  
|Equity warrants                                 |  |                         | 54    |   |                           |   | (5   | )                                                                   |  |   | 5                                           |   |  |                                                  | 17     |   |                            |   |                      |   |  |   |  |  |   | 71    |  
|Derivative agreements and other, net            |  |                         | (113  | ) |                           |   | (46  | )                                                                   |  |   | 41                                          |   |  |                                                  | (45    | ) |                            |   | 46                    |   |  |   |  |  |   | (117  | )
|                                                |  |                         |       |   |                           |   |      |                                                                     |  |   |                                             |   |  |                                                  |        |   |                            |   |                       |   |  |   |   |  |   |       |  
|Total                                           |  | $                       | 5,396 |   |                           | $ | (444 | )                                                                   |  | $ | 453                                         |   |  | $                                                | 381    |   |                            | $ | (275                  | ) |  | $ |  |  | $ | 5,511 |  
|                                                |  |                         |       |   |                           |   |      |                                                                     |  |   |                                             |   |  |                                                  |        |   |                            |   |                       |   |  |   |   |  |   |       |  
|                                                |  |                         |       |   |                           |   |     
|                                                |  | Balances,January 1,2009 |       |   | RealizedGains(Losses) (1) |   |      | Reversal ofPrior Period(Appreciation)Depreciation
onRealization (2) |  |   | UnrealizedAppreciation(Depreciation) (2)(3) |   |  | Purchases, Sales,Issuances &Settlements, Net (4) |        |   | TransfersIn &Out ofLevel 3 |   | Balances,June 30,2009 |  
|Senior debt                                     |  | $                       | 2,396 |   |                           | $ | (153 | )                                                                   |  | $ | 150                                         |   |  | $                                                | (187   | ) |                            | $ | (59                   | ) |  | $ |  |  | $ | 2,147 |  
|Subordinated debt                               |  |                         | 2,715 |   |                           |   | (222 | )                                                                   |  |   | 224                                         |   |  |                                                  | (216   | ) |                            |   | (360                  | ) |  |   |  |  |   | 2,141 |  
|Preferred equity                                |  |                         | 1,344 |   |                           |   | (32  | )                                                                   |  |   | 33                                          |   |  |                                                  | (220   | ) |                            |   | (6                    | ) |  |   |  |  |   | 1,119 |  
|Common equity                                   |  |                         | 601   |   |                           |   | 29   |                                                                     |  |   | (21                                         | ) |  |                                                  | (614   | ) |                            |   | 426                   |   |  |   |  |  |   | 421   |  
|Structured Products                             |  |                         | 186   |   |                           |   |     |                                                                     |  |   |                                            |   |  |                                                  | (10    | ) |                            |   | (2                    | ) |  |   |  |  |   | 174   |  
|Equity warrants                                 |  |                         | 74    |   |                           |   | (9   | )                                                                   |  |   | 7                                           |   |  |                                                  | 3      |   |                            |   | (7                    | ) |  |   |  |  |   | 68    |  
|Derivative and option agreements and other, net |  |                         | (213  | ) |                           |   | (68  | )                                                                   |  |   | 49                                          |   |  |                                                  | 57     |   |                            |   | 88                    |   |  |   |  |  |   | (87   | )
|                                                |  |                         |       |   |                           |   |      |                                                                     |  |   |                                             |   |  |                                                  |        |   |                            |   |                       |   |  |   |   |  |   |       |  
|Total                                           |  | $                       | 7,103 |   |                           | $ | (455 | )                                                                   |  | $ | 442                                         |   |  | $                                                | (1,187 | ) |                            | $ | 80                    |   |  | $ |  |  | $ | 5,983 |  
|                                                |  |                         |       |   |                           |   |      |                                                                     |  |   |                                             |   |  |                                                  |        |   |                            |   |                       |   |  |   |   |  |   |       |  



|(1) | Included in net realized loss on investments in the consolidated statements of operations. Excludes $2 million in losses on realized foreign currency transactions on
American Capital assets and liabilities that are denominated in a foreign currency for the six months ended June 30, 2010 and 2009. Also excludes realized gains (losses) from Level 1 and 2 assets and liabilities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Included in net unrealized appreciation (depreciation) of investments in the consolidated statements of operations.
|--- | -------------------------------------------------------------------------------------------------------------------

|(3) | Excludes $2 million of unrealized appreciation and $2 million of unrealized depreciation related to foreign currency translation for American Capital assets and
liabilities not measured at fair value that are denominated in a foreign currency for the six months ended June 30, 2010 and 2009, respectively. Also excludes unrealized appreciation (depreciation) from Level 1 and 2 assets and liabilities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, premiums and
closing fees and the exchange of one or more existing securities for one or more new securities as well as decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities
for one or more new securities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
of June 30, 2010 and December 31, 2009, loans on non-accrual status had a cost basis of $686 million and $811 million, respectively, and fair value of $308 million and $290 million, respectively. As of June 30, 2010 and
December 31, 2009, loans with a cost basis of $26 million and $50 million, respectively, were greater than 90 days due, excluding loans on non-accrual status.



41



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



The composition summaries of our investment portfolio at cost and fair value as a
percentage of total investments are shown in the following tables:



|                    |  |               |   |  |                   |  
|------------------- |  | ------------- | - |  | ----------------- | -
|                    |  | June 30, 2010 |   |  | December 31, 2009 |  
|COST                |  |               |   |  |                   |  
|                    |  |              
|Subordinated debt   |  | 25.6          | % |  | 24.8              | %
|Senior debt         |  | 23.7          | % |  | 24.0              | %
|Common equity       |  | 22.6          | % |  | 22.2              | %
|Preferred equity    |  | 19.2          | % |  | 18.1              | %
|Structured Products |  | 7.8           | % |  | 9.8               | %
|Equity warrants     |  | 1.1           | % |  | 1.1               | %
|                    |  |               |   |  |                   |  
|                    |  | 100.0         | % |  | 100.0             | %
|                    |  |               |   |  |                   |  
|FAIR VALUE          |  |               |   |  |                   |  
|                    |  |              
|Subordinated debt   |  | 33.9          | % |  | 34.8              | %
|Senior debt         |  | 29.7          | % |  | 32.1              | %
|Preferred equity    |  | 19.0          | % |  | 18.8              | %
|Common equity       |  | 13.5          | % |  | 10.3              | %
|Structured Products |  | 2.6           | % |  | 3.0               | %
|Equity warrants     |  | 1.3           | % |  | 1.0               | %
|                    |  |               |   |  |                   |  
|                    |  | 100.0         | % |  | 100.0             | %
|                    |  |               |   |  |                   |  



42



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



We use the Global Industry Classification Standards for classifying the industry
groupings of our portfolio companies. The following tables show the portfolio composition by industry grouping at cost and at fair value as a percentage of total investments. Our investments in European Capital and CLO and CDO securities are
excluded from the table below. Our investments in ACAS CRE CDO 2007-1, Ltd. and CMBS are classified in the Real Estate and Real Estate Investment Trusts category.



|                                                 |  |               |   |  |                   |  
|------------------------------------------------ |  | ------------- | - |  | ----------------- | -
|                                                 |  | June 30, 2010 |   |  | December 31, 2009 |  
|COST                                             |  |               |   |  |                   |  
|                                                 |  |              
|Commercial Services and Supplies                 |  | 10.0          | % |  | 8.9               | %
|Real Estate and Real Estate Investment Trusts    |  | 8.0           | % |  | 10.5              | %
|Household Durables                               |  | 6.8           | % |  | 6.1               | %
|Internet and Catalog Retail                      |  | 6.1           | % |  | 5.7               | %
|Life Sciences Tools and Services                 |  | 5.2           | % |  | 4.7               | %
|IT Services                                      |  | 4.5           | % |  | 4.2               | %
|Health Care Providers and Services               |  | 4.4           | % |  | 4.1               | %
|Auto Components                                  |  | 4.4           | % |  | 3.8               | %
|Hotels, Restaurants and Leisure                  |  | 4.3           | % |  | 3.7               | %
|Electrical Equipment                             |  | 3.9           | % |  | 3.5               | %
|Food Products                                    |  | 3.2           | % |  | 4.4               | %
|Diversified Financial Services                   |  | 3.2           | % |  | 3.3               | %
|Internet Software and Services                   |  | 2.8           | % |  | 3.4               | %
|Health Care Equipment and Supplies               |  | 2.7           | % |  | 2.4               | %
|Professional Services                            |  | 2.7           | % |  | 2.5               | %
|Leisure Equipment and Products                   |  | 2.3           | % |  | 2.0               | %
|Pharmaceuticals                                  |  | 2.2           | % |  | 2.0               | %
|Computers and Peripherals                        |  | 2.2           | % |  | 2.0               | %
|Building Products                                |  | 2.0           | % |  | 1.9               | %
|Electronic Equipment, Instruments and Components |  | 1.9           | % |  | 1.8               | %
|Aerospace and Defense                            |  | 1.9           | % |  | 1.7               | %
|Construction and Engineering                     |  | 1.8           | % |  | 1.8               | %
|Diversified Consumer Services                    |  | 1.6           | % |  | 1.4               | %
|Other                                            |  | 11.9          | % |  | 14.2              | %
|                                                 |  |               |   |  |                   |  
|                                                 |  | 100.0         | % |  | 100.0             | %
|                                                 |  |               |   |  |                   |  



43



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



|                                                 |  |               |   |  |                   |  
|------------------------------------------------ |  | ------------- | - |  | ----------------- | -
|                                                 |  | June 30, 2010 |   |  | December 31, 2009 |  
|FAIR VALUE                                       |  |               |   |  |                   |  
|                                                 |  |              
|Commercial Services and Supplies                 |  | 12.4          | % |  | 10.1              | %
|Household Durables                               |  | 6.4           | % |  | 5.8               | %
|Electrical Equipment                             |  | 5.9           | % |  | 6.2               | %
|Hotels, Restaurants and Leisure                  |  | 5.2           | % |  | 4.6               | %
|Internet and Catalog Retail                      |  | 5.0           | % |  | 5.2               | %
|IT Services                                      |  | 4.8           | % |  | 4.9               | %
|Health Care Providers and Services               |  | 4.8           | % |  | 4.6               | %
|Auto Components                                  |  | 4.3           | % |  | 3.7               | %
|Internet Software and Services                   |  | 3.7           | % |  | 3.3               | %
|Health Care Equipment and Supplies               |  | 3.4           | % |  | 2.8               | %
|Real Estate and Real Estate Investment Trusts    |  | 3.2           | % |  | 4.1               | %
|Professional Services                            |  | 3.0           | % |  | 2.8               | %
|Pharmaceuticals                                  |  | 2.8           | % |  | 2.8               | %
|Life Sciences Tools and Services                 |  | 2.8           | % |  | 3.3               | %
|Diversified Financial Services                   |  | 2.7           | % |  | 3.0               | %
|Building Products                                |  | 2.6           | % |  | 2.4               | %
|Electronic Equipment, Instruments and Components |  | 2.5           | % |  | 2.3               | %
|Food Products                                    |  | 2.3           | % |  | 3.4               | %
|Computers and Peripherals                        |  | 2.2           | % |  | 2.2               | %
|Diversified Consumer Services                    |  | 2.0           | % |  | 1.9               | %
|Construction and Engineering                     |  | 2.0           | % |  | 2.1               | %
|Leisure Equipment and Products                   |  | 1.8           | % |  | 1.7               | %
|Capital Markets                                  |  | 1.6           | % |  | 1.3               | %
|Software                                         |  | 1.5           | % |  | 3.8               | %
|Other                                            |  | 11.1          | % |  | 11.7              | %
|                                                 |  |               |   |  |                   |  
|                                                 |  | 100.0         | % |  | 100.0             | %
|                                                 |  |               |   |  |                   |  



44



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



The following tables show the portfolio composition by geographic location at cost and
at fair value as a percentage of total investments, excluding Structured Products. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.



|              |  |               |   |  |                   |  
|------------- |  | ------------- | - |  | ----------------- | -
|              |  | June 30, 2010 |   |  | December 31, 2009 |  
|COST          |  |               |   |  |                   |  
|              |  |              
|Southwest     |  | 20.5          | % |  | 21.1              | %
|International |  | 19.9          | % |  | 19.0              | %
|Mid-Atlantic  |  | 18.6          | % |  | 18.4              | %
|Northeast     |  | 13.8          | % |  | 13.5              | %
|South-Central |  | 11.9          | % |  | 11.6              | %
|Southeast     |  | 8.7           | % |  | 9.7               | %
|North-Central |  | 6.2           | % |  | 6.3               | %
|Northwest     |  | 0.4           | % |  | 0.4               | %
|              |  |               |   |  |                   |  
|              |  | 100.0         | % |  | 100.0             | %
|              |  |               |   |  |                   |  
|              |  |              
|              |  | June 30, 2010 |   |  | December 31, 2009 |  
|FAIR VALUE    |  |               |   |  |                   |  
|              |  |              
|Southwest     |  | 24.0          | % |  | 25.3              | %
|Mid-Atlantic  |  | 19.4          | % |  | 19.8              | %
|Northeast     |  | 15.1          | % |  | 14.9              | %
|South-Central |  | 12.2          | % |  | 12.5              | %
|International |  | 11.4          | % |  | 8.0               | %
|Southeast     |  | 10.0          | % |  | 11.2              | %
|North-Central |  | 7.5           | % |  | 7.8               | %
|Northwest     |  | 0.4           | % |  | 0.5               | %
|              |  |               |   |  |                   |  
|              |  | 100.0         | % |  | 100.0             | %
|              |  |               |   |  |                   |  



45



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



Note 4. Borrowings



Our debt obligations consisted of the following as of June 30, 2010 and December 31, 2009:



|                                                      |  |               |       |                   |   |      
|----------------------------------------------------- |  | ------------- | ----- | ----------------- | - | -----
|                                                      |  | June 30, 2010 |       | December 31, 2009
|Fixed rate private secured notes due December 2013    |  | $             | 502   |                   | $ |     
|Floating rate private secured loans due December 2013 |  |               | 277   |                   |   |     
|Fixed rate public secured notes due December 2013     |  |               | 524   |                   |   |     
|Floating rate public secured notes due December 2013  |  |               | 4     |                   |   |     
|Unsecured public debt due October 2012                |  |               | 11    |                   |   | 548  
|ACAS Business Loan Trust 2004-1 asset securitization  |  |               | 160   |                   |   | 170  
|ACAS Business Loan Trust 2005-1 asset securitization  |  |               | 629   |                   |   | 696  
|ACAS Business Loan Trust 2006-1 asset securitization  |  |               | 352   |                   |   | 377  
|ACAS Business Loan Trust 2007-1 asset securitization  |  |               | 250   |                   |   | 294  
|ACAS Business Loan Trust 2007-2 asset securitization  |  |               | 215   |                   |   | 255  
|Unsecured revolving credit facility                   |  |               |      |                   |   | 1,388
|Unsecured private debt due September 2009             |  |               |      |                   |   | 84   
|Unsecured private debt due August 2010                |  |               |      |                   |   | 134  
|Unsecured private debt due February 2011              |  |               |      |                   |   | 26   
|Unsecured private debt due September 2011             |  |               |      |                   |   | 95   
|Unsecured private debt due October 2020               |  |               |      |                   |   | 75   
|                                                      |  |               |       |                   |   |      
|Total                                                 |  | $             | 2,924 |                   | $ | 4,142
|                                                      |  |               |       |                   |   |      



The daily weighted average debt balance for the three months ended June 30, 2010 and 2009 was $3,950 million and $4,341 million,
respectively. The daily weighted average debt balance for the six months ended June 30, 2010 and 2009 was $4,013 million and $4,371 million, respectively. The weighted average interest rate on all of our borrowings, including amortization of
deferred financing costs, for the three months ended June 30, 2010 and 2009 was 5.7% and 5.5%, respectively. The weighted average interest rate on all of our borrowings, including amortization of deferred financing costs, for the six months
ended June 30, 2010 and 2009 was 5.6% and 5.1%, respectively.



As of June 30, 2010 and December 31, 2009, the aggregate fair value of the above borrowings was $2,844 million and $3,929
million, respectively. The fair values of our debt obligations are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants
at the measurement date under current market conditions. It assumes that the liability is transferred to a market participant at the measurement date and that the nonperformance risk relating to that liability is the same before and after the
transfer. Nonperformance risk refers to the risk that the obligation will not be fulfilled and affects the value at which the liability is transferred. The fair value of our debt obligations is based upon market interest rates for our own borrowings
or entities with similar credit risk, adjusted for nonperformance risk, if any, based on a quantitative and/or qualitative evaluation of our credit risk.



Refinancing Transaction



Unsecured Revolving Credit FacilityOn June 28, 2010, we amended and restated the credit agreement (Amended and
Restated Credit Agreement) for our $1.4 billion unsecured revolving credit facility, with Wells Fargo Bank, N.A. as administrative agent, pursuant to which $680 million of our outstanding loans were repaid



46



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



in cash, and our remaining loans were converted into (i) $277 million of new floating rate secured loans under the Amended and Restated Credit Agreement (Floating Rate Private Secured
Loans) and (ii) $430 million of new fixed rate secured notes (Fixed Rate Private Secured Notes) issued under a new indenture (the Indenture, and together with the Amended and Restated Credit Agreement, the
New Debt Agreements). We also paid a fee of $14 million, or 2% of the principal balance of the Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes, to the holders of such debt.



Unsecured Private DebtOn June 28, 2010, we
completed an exchange transaction with the noteholders of $336 million of our unsecured private notes for (i) an aggregate cash payment of $264 million, (ii) $72 million of Fixed Rate Private Secured Notes, and (iii) a fee of $1
million representing 2% of the principal balance of the Fixed Rate Private Secured Notes. We also repaid in full our remaining unsecured private notes for $75 million.



Unsecured Public DebtOn June 28, 2010, we completed an exchange transaction with the noteholders of $539
million of our unsecured public notes for (i) an aggregate cash payment of $11 million, (ii) $4 million of new call-protected floating rate secured notes (Floating Rate Public Secured Notes) and $524 million of new
call-protected fixed rate secured notes (Fixed Rate Public Secured Notes, and collectively with the Floating Rate Public Secured Notes, the New Secured Public Notes) issued under the Indenture, and (iii) a fee of $11
million representing 2% of the principal balance of the New Secured Public Notes. The remaining $11 million of the original $550 million of unsecured public notes were amended on June 28, 2010 pursuant to a Second Supplemental Indenture to the
indenture for the notes to remove substantially all material affirmative and negative covenants, other than the covenant to pay principal and interest on such notes, and to remove certain events of default. All other terms of such notes remain
unchanged.



The exchange transactions discussed
above are accounted for as a modification of debt in accordance with ASC 470-50, Modifications and Extinguishments. Accordingly, the aggregate fees of $26 million paid at closing to the lenders and noteholders were capitalized and will be
amortized into interest expense over the life of the notes and loans using the effective interest method, while fees paid to other third party advisors were expensed as incurred. As a result, we recognized $17 million of debt refinancing costs
during the three months ended June 30, 2010 consisting of fees paid to third party advisors and the writeoff of a portion of the existing unamortized deferred financing costs attributable to the unsecured debt that was repaid in cash.



Maturity Date and Optional
RedemptionThe Floating Rate Private Secured Loans, Fixed Rate Private Secured Notes and New Secured Public Notes (collectively, the New Secured Debt) have a final maturity date of December 31, 2013, unless earlier repaid.
The Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes may be repaid prior to maturity at our option in whole or in part from time to time at a price equal to 100% of the principal amount repaid, plus accrued and unpaid
interest to the payment date. Prior to August 1, 2012, the New Secured Public Notes may be redeemed at our option in whole or in part from time to time (so long as the Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes are
no longer outstanding) at a price equal to accrued and unpaid interest on the principal amount being redeemed plus the greater of (i) 100% of the principal amount being redeemed, and (ii) the sum of the present values of the remaining
scheduled payments of principal and interest on the principal amount being redeemed discounted to the redemption date on a semi-annual basis at the Adjusted Treasury Rate (as defined in the Indenture for the New Secured Public Notes), plus 30 basis
points. Notwithstanding the foregoing, prior to August 1, 2012, the New Secured Public Notes may also be redeemed at our option in whole or in part from time to time at a price equal to 100% of the principal amount being redeemed, plus accrued
and unpaid interest to the date of redemption, but without payment of any premium, with Realized Proceeds (as defined in the New Debt Agreements) so long as there are no Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes
outstanding.



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AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



Scheduled AmortizationThe following table sets forth the aggregate
scheduled amortization (Aggregate Scheduled Amortization Amounts) on the Floating Rate Private Secured Loans and the Fixed Rate Private Secured Notes. The New Secured Public Notes are not subject to amortization or other mandatory
redemptions. Under the terms of the New Debt Agreements, we may defer payment of up to $200 million of the Aggregate Scheduled Amortization Amounts prior to June 30, 2013, which payment deferral is reflected in the table below.



|                  |  |                                        |    
|----------------- |  | -------------------------------------- | ---
|Date              |  | Aggregate ScheduledAmortization Amount
|December 31, 2011 |  | $                                      |   
|June 30, 2012     |  | $                                      |   
|December 31, 2012 |  | $                                      | 120
|June 30, 2013     |  | $                                      | 500

|               |  |                    
|-------------- |  | -------------------
|Final Maturity |  | Outstanding Balance



The Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes are subject to mandatory redemptions including (i) 100%
of the net cash flow proceeds of certain debt incurred, (ii) 50% of the net cash flow proceeds of any capital stock issued after June 28, 2012, (iii) an applicable prepayment percentage of any Realized Proceeds, and (iv) an
applicable prepayment percentage of Excess Cash Flow (as defined in the New Debt Agreements). However, we are entitled to retain the first $580 million that would otherwise be payable from any cash flow proceeds from debt incurred, capital stock
issued, Realized Proceeds or Excess Cash Flow for new investments or other general corporate purposes. The applicable prepayment percentage is 50% if the aggregate outstanding principal amount of the New Secured Debt is greater than or equal to $950
million and 25% if it is less than $950 million. Any above mandatory redemptions will be applied to the payment of the Aggregate Scheduled Amortization Amounts in direct order of maturity.



InterestThe Floating Rate Private Secured Loans
and Floating Rate Public Secured Notes bear interest at a rate per annum equal to one, two, three or six-month LIBOR, subject to a LIBOR floor of 2% per annum, plus the Applicable Percentage, as defined below, in effect at such time. The Fixed
Rate Private Secured Notes and Fixed Rate Public Secured Notes bear interest at 2.46% per annum, plus the Applicable Percentage in effect at the time. The applicable percentage (Applicable Percentage) is 6.50% when the aggregate
outstanding amount of the New Secured Debt is greater than or equal to $1 billion and 5.50% when the aggregate outstanding amount is less than $1 billion.



In addition, the Applicable Percentage for the New Secured Debt will increase by an additional 0.50% per annum if we fail to pay any
of the minimum amortization amounts (Aggregate Penalty Amortization Amounts) on the Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes set forth in the table below when due (on a cumulative basis for each failure,
if applicable), for each succeeding day until any unpaid Aggregate Penalty Amortization Amounts have been paid.



|                  |  |                                      |    
|----------------- |  | ------------------------------------ | ---
|Date              |  | Aggregate PenaltyAmortization Amount
|December 31, 2011 |  | $                                    | 70 
|June 30, 2012     |  | $                                    | 100
|December 31, 2012 |  | $                                    | 300
|June 30, 2013     |  | $                                    | 350

|               |  |                    
|-------------- |  | -------------------
|Final Maturity |  | Outstanding Balance



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AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



The following table sets forth the interest rates on our outstanding secured borrowing
facilities as of June 30, 2010:



|                                                      |  |              |  
|----------------------------------------------------- |  | ------------ | -
|Facility                                              |  | InterestRate |  
|Fixed rate private secured notes due December 2013    |  | 8.96         | %
|Floating rate private secured loans due December 2013 |  | 8.50         | %
|Fixed rate public secured notes due December 2013     |  | 8.96         | %
|Floating rate public secured notes due December 2013  |  | 8.50         | %



FeesWe are required to pay an extension fee in an amount equal to 1% of the aggregate principal amount of the New Secured
Debt outstanding on each of December 30, 2011 and December 31, 2012, payable on such date.



Security and RankingThe New Secured Debt is a senior obligation of the company and is secured by a first priority lien
(subject to certain permitted liens) on substantially all of our existing and hereafter acquired unencumbered assets.



CovenantsThe financial covenants under the New Debt Agreements include (i) maintenance of a minimum ratio of adjusted
operating cash flow to interest expense and (ii) a minimum ratio of pledged assets to secured debt, tested on a quarterly basis. Additional covenants include (i) restrictions on the incurrence of certain additional debt,
(ii) restrictions on acquisitions and investments, and (iii) restrictions on the payments of dividends and other distributions. However, we are permitted under the New Debt Agreements to pay dividends to the extent necessary in order to
maintain our RIC status provided that such dividends are paid in additional shares of our common stock to the extent allowed by IRS Revenue Procedure 2010-12. There are no limitations in the New Debt Agreements on our payment of cash dividends
provided that (i) we maintain an asset coverage ratio of at least 200% as required by the 1940 Act, (ii) we are in pro forma compliance with all financial covenants under the New Debt Agreements, (iii) there are no defaults
outstanding under the New Debt Agreements, and (iv) the aggregate principal amount of the New Secured Debt outstanding is less than or equal to $1.4 billion.



Securitizations



As of June 30, 2010, we were in compliance with all of
the covenants for our asset securitizations. Under the terms of each of our asset securitizations, if any loan collateral in each trust becomes a defaulted loan, as defined in each indenture, all interest and principal collections that would be
applied to the subordinated notes retained by us are paid sequentially to pay down the principal of the notes that are generally held by third party institutional investors in an amount equal to the principal amount of the defaulted loan collateral.
As of June 30, 2010, there was defaulted loan collateral in each of the asset securitization trusts and therefore all interest and principal collections that would have been applied to the subordinated notes retained by us will continue to be
applied sequentially to pay down the principal of the notes generally held by third party institutional investors in an amount equal to the principal amount of the defaulted loan collateral. Our asset securitizations are secured by portfolio
investments and assets with a fair value of approximately $2.2 billion as of June 30, 2010.



Note 5. Derivative Agreements



We enter into interest rate swap agreements to manage interest rate risk and also to fulfill our obligations under the terms of our asset
securitizations. We also enter into foreign exchange swap agreements to manage foreign currency risk. We do not hold or issue interest rate or foreign exchange swap agreements for speculative



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AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



purposes. We fair value our derivatives in accordance with the 1940 Act and ASC 820 as determined in good faith by our Board of Directors. All derivative financial instruments are recorded at
fair value with changes in value reflected in net unrealized appreciation or depreciation of investments during the reporting period. The fair value of our interest rate swap agreements is based on an income approach using a discounted cash flow
methodology. Significant inputs to the discounted future cash flow methodology include forward interest rate yield curves in effect as of the end of the measurement period and an evaluation of both our and our counterpartys credit risk that
consider collateral requirements, credit enhancements and the impact of netting arrangements.



We have interest rate swap agreements where we generally pay a fixed rate and receive a floating rate based on LIBOR. We may also enter
into interest rate swaption agreements where, if exercised, we pay a floating rate based on LIBOR and receive a fixed rate. The fair value of our interest rate derivative agreements are identified as separate items on our consolidated balance sheets
and are described in the accompanying consolidated schedules of investments.



We record the accrual of periodic interest settlements of interest rate swap agreements in net unrealized appreciation or depreciation of
investments and subsequently record the amount as a net realized gain or loss on investments on the interest settlement date. Cash payments received or paid for the termination of an interest rate derivative agreement are recorded as a realized gain
or loss upon termination in our consolidated statements of operations and are classified under investing activities in our consolidated statements of cash flows.



During the three and six months ended June 30, 2010, we
recorded $2 million of net unrealized appreciation and $4 million of net unrealized depreciation, respectively, from interest rate and foreign exchange swap agreements in the financial statement line item derivative and option agreements and other.
During the three and six months ended June 30, 2009, we recorded $4 million and $57 million of net unrealized appreciation from interest rate and foreign currency swap agreements. The net unrealized appreciation during the six months ended
June 30, 2009 was primarily due to a credit risk adjustment related to an adverse change in our credit rating. In addition, during the six months ended June 30, 2009, we recorded a $49 million reversal of prior period net unrealized
depreciation from the termination of the European Capital put option agreement in the financial statement line item derivative and option agreements and other.



During the three and six months ended June 30, 2010, we recorded $16 million and $32 million, respectively, of net realized loss from
interest rate swap agreements in the financial statement line item derivative and option agreements in our consolidated statements of operations for periodic interest settlements of interest rate swap agreements. During the three and six months
ended June 30, 2009, we recorded $18 million and $24 million, respectively, of net realized loss from interest rate swap agreements in the financial statement line item derivative and option agreements in our consolidated statements of
operations for periodic interest settlements of interest rate swap agreements. During the three and six months ended June 30, 2010, cash termination payments totaling $14 million were made to settle one interest rate swap agreement that was
terminated prior to maturity during the three months ended June 30, 2010 and one interest rate swap agreement that was terminated prior to maturity in the prior year, which are recorded as a net realized loss in the financial statement line
item derivative and options agreements in our consolidated statements of operations. During the three and six months ended June 30, 2009, we also recorded a realized loss of $44 million from the termination of the European Capital put option
agreement.



Periodically, an interest rate swap
agreement will also be amended whereby any underlying unrealized appreciation or depreciation associated with the original interest rate swap agreement at the time of amendment will be factored into the contractual interest terms of the amended
interest rate swap agreement. The contractual



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AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



terms of the amended interest rate swap agreement are set such that its estimated fair value is equivalent to the estimated fair value of the original interest rate swap agreement. No realized
gain or loss is recorded upon amendment when the estimated fair values of the original and amended interest rate swap agreement are substantially the same.



As of December 31, 2009, the counterparties under certain of our interest rate swap and foreign exchange agreements could declare an
early termination event primarily due to the then outstanding defaults under our primary unsecured debt arrangements which triggered certain cross-default and cross-acceleration events of default under certain of our interest rate swap and
foreign exchange agreements. As a result, the counterparties had the right to terminate these hedging agreements, which had a fair value of $36 million and a termination liability of $45 million as of December 31, 2009. As discussed in Note 4,
on June 28, 2010, we completed a refinancing of all of our primary unsecured arrangements and obtained a waiver from our respective creditors of such defaults. In addition, in connection with our refinancing transaction, we granted to the
counterparties under these interest rate swap and foreign exchange agreements a first priority lien (subject to certain permitted liens) on substantially all of our existing and hereafter acquired unencumbered assets pari passu with the New Secured
Debt, so long as the New Secured Debt is outstanding. As of June 30, 2010, we were not in default under any of our interest rate swap or foreign exchange agreements.



Credit Risk-Related Contingent Features



Certain of our interest rate swap
agreements contain an event of default that allows the counterparty to terminate transactions outstanding under the agreement following the occurrence of a cross default on certain of our other indebtedness in amounts equal to or greater than $5
million to $15 million, as applicable. Derivatives under these agreements in a liability position had a GAAP fair value liability of $44 million as of June 30, 2010. While none of our counterparties had the right to elect to terminate their
transactions with us as a result of this provision as of June 30, 2010, the termination liability would have been $53 million as of such date. The difference between the GAAP fair value liability and the termination liability represents an
adjustment for nonperformance risk of us and our counterparties.



Certain of our interest rate swap agreements also contain an event of default that allows the counterparty to terminate transactions
outstanding under the agreement if certain of our other indebtedness in amounts equal to or greater than $5 million or $15 million, as applicable, is accelerated. Derivatives under these agreements in a liability position had a GAAP fair value
liability of $10 million as of June 30, 2010. While none of our counterparties had the right to elect to terminate their transactions with us as a result of this provision as of June 30, 2010, the termination liability would have been $12
million as of such date. The difference between the GAAP fair value liability and the termination liability represents an adjustment for nonperformance risk of us and our counterparties.



Note 6. Earnings Per Share



In accordance with the provisions of FASB ASC Topic 260,
Earnings per Share (ASC 260), basic earnings per share (EPS) is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially
dilutive common shares, and the related impact to earnings, are considered when calculating EPS on a diluted basis.



In computing diluted EPS, only potential common shares that are dilutive, those that reduce earnings per share or increase loss per share,
are included. The effect of stock options, unvested employee stock awards and contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is



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AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



reported. The control number for determining whether including potential common shares in the diluted EPS computation would be anti-dilutive is net earnings (loss). As a result, if
there is a net loss, diluted EPS is computed using the same number of weighted average shares as used in computing basic EPS, even if we have positive net operating income. Therefore, basic EPS and diluted EPS are computed using the same number of
weighted average shares for the three and six months ended June 30, 2009 as we incurred a net loss. For the three and six months ended June 30, 2010, 4.8 million shares and 3.6 million shares, respectively, of employee stock
options and unvested employee stock awards are included in our diluted weighted average shares outstanding.



Stock options and unvested employee stock awards of 19.2 million and 20.2 million for the three and six months ended
June 30, 2010, respectively, were not included in the computation of diluted EPS either because the respective exercise prices are greater than the average market price of the underlying stock for the respective periods or their inclusion would
have been anti-dilutive. Stock options, unvested employee stock awards and contingently issuable shares of 51.2 million and 46.0 million for the three and six months ended June 30, 2009, respectively, were not included in the
computation of diluted EPS either because the respective exercise prices are greater than the average market price of the underlying stock for the respective periods or their inclusion would have been anti-dilutive.



Note 7. Commitments



As of June 30, 2010, we had commitments under loan and
financing agreements to fund up to $187 million to 38 portfolio companies, with $15 million of the commitments related to an undrawn revolving credit facility for European Capital (see Note 11). These commitments are primarily composed of
working capital credit facilities, acquisition credit facilities and subscription agreements. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and availability under borrowing base
thresholds. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio.



Note 8. Corporate Restructuring Costs



To better align our organization and cost structure with current economic conditions, we conducted strategic reviews of our business in
2008 and 2009 which resulted in the closing of several offices and the elimination of certain functions at other offices. As a result, we have recorded corporate restructuring charges for both severance and related employee costs and excess office
facilities costs. We did not incur any corporate restructuring chargess during the three months ended June 30, 2010 and 2009. We recorded corporate restructuring charges for excess office facilities costs of $4 million during each of the six
months ended June 30, 2010 and 2009. The excess office facilities costs are included in general and administrative in our consolidated statements of operations for the three and six months ended June 30, 2010 and 2009. The liability for
employee severance costs and excess office facilities is included in other liabilities in our consolidated balance sheets as of June 30, 2010 and December 31, 2009.



In determining our liability related to excess office
facilities, we are required to estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates. These estimates are reviewed quarterly based on known real estate market conditions and the credit-worthiness of
subtenants, and may result in revisions to the liability. Our remaining liability of $14 million as of June 30, 2010 related to excess office facilities represents gross lease commitments with agreements expiring at various dates through
2016 of approximately $46 million, net of committed and estimated sublease income of approximately $28 million and a present value factor of $4 million. We have entered into signed sublease arrangements for approximately
$11 million, with the remaining $17 million based on estimated future sublease income.



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AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



The following table summarizes the restructuring accrual activity during the three and
six months ended June 30, 2009 and 2010:



|                               |  |           |    |   |                         |   |    |       |  |   |    |  
|------------------------------ |  | --------- | -- | - | ----------------------- | - | -- | ----- |  | - | -- | -
|                               |  | Severance |    |   | Excess OfficeFacilities |   |    | Total | 
|Balance, December 31, 2008     |  | $         | 7  |   |                         | $ | 5  |       |  | $ | 12 |  
|Restructuring charges          |  |           |   |   |                         |   | 4  |       |  |   | 4  |  
|Cash payments                  |  |           | (5 | ) |                         |   | (1 | )     |  |   | (6 | )
|Accretion of net present value |  |           |   |   |                         |   | 1  |       |  |   | 1  |  
|                               |  |           |    |   |                         |   |    |       |  |   |    |  
|Balance, March 31, 2009        |  | $         | 2  |   |                         | $ | 9  |       |  | $ | 11 |  
|                               |  |           |    |   |                         |   |    |       |  |   |    |  
|Cash payments                  |  |           | (2 | ) |                         |   | (1 | )     |  |   | (3 | )
|                               |  |           |    |   |                         |   |    |       |  |   |    |  
|Balance, June 30, 2009         |  | $         |   |   |                         | $ | 8  |       |  | $ | 8  |  
|                               |  |           |    |   |                         |   |    |       |  |   |    |  
|                               |  |           |   
|                               |  | Severance |    |   | Excess OfficeFacilities |   |    | Total | 
|Balance, December 31, 2009     |  | $         | 7  |   |                         | $ | 13 |       |  | $ | 20 |  
|Restructuring charges          |  |           |   |   |                         |   | 4  |       |  |   | 4  |  
|Cash payments                  |  |           | (5 | ) |                         |   | (1 | )     |  |   | (6 | )
|                               |  |           |    |   |                         |   |    |       |  |   |    |  
|Balance, March 31, 2010        |  | $         | 2  |   |                         | $ | 16 |       |  | $ | 18 |  
|                               |  |           |    |   |                         |   |    |       |  |   |    |  
|Cash payments                  |  |           | (1 | ) |                         |   | (2 | )     |  |   | (3 | )
|                               |  |           |    |   |                         |   |    |       |  |   |    |  
|Balance, June 30, 2010         |  | $         | 1  |   |                         | $ | 14 |       |  | $ | 15 |  
|                               |  |           |    |   |                         |   |    |       |  |   |    |  



Note 9. Income Taxes



We operate to qualify as a RIC under Subchapter M of the
Code. In order to qualify as a RIC, we must annually distribute in a timely manner to our shareholders at least 90% of our taxable ordinary income of our investment company based on our tax fiscal year. Ordinary taxable income includes net
short-term capital gains but excludes net long-term capital gains. A RIC is not subject to federal income tax on the portion of its taxable ordinary income and long-term capital gains that are distributed to its shareholders, including deemed
distributions. As permitted by the Code, a RIC can designate dividends paid in the subsequent tax year as dividends of current year ordinary income and net long-term capital gains if those dividends are both declared by the extended due date
of the RICs federal income tax return and paid to shareholders by the last day of the subsequent tax year. We have distributed, or intend to distribute, sufficient dividends to eliminate taxable income for all of our tax fiscal years. However,
we may elect to not distribute sufficient dividends to eliminate all of our taxable income so long as we distribute at least 90% of our taxable ordinary income in order to maintain our qualification as a RIC. To the extent we maintain our
qualification as a RIC but do not distribute all of our taxable income, we would be subject to income tax on such undistributed amounts. If we fail to satisfy the 90% distribution requirement or otherwise fail to qualify as a RIC in any tax year, we
would be subject to income tax in such year on all of our taxable income, regardless of whether we made any distributions to our shareholders. We have a tax fiscal year that ends on September 30. We have distributed all of our taxable
ordinary income for all of our tax fiscal years including our tax fiscal year ended September 30, 2009. Also for the tax fiscal year ended September 30, 2009, we had $198 million of net long-term capital losses that may be used in the
current tax year or carried forward to offset long-term capital gains for up to eight years following the year recognized.



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



Our ordinary taxable income and net long-term capital gains comprise our investment
company taxable income which differs from net income as defined by GAAP due primarily to temporary and permanent differences in interest and dividend income recognition, stock-based compensation and other expense recognition and unrealized
appreciation or depreciation of investments. In addition, there are classification differences between GAAP and tax as it relates to what is characterized as net operating income for GAAP compared to ordinary taxable income for tax and what is
characterized as net realized gains or losses for GAAP compared to net long-term capital gains or losses for tax. These characterization differences between GAAP and tax include the characterization of realized losses for loans, interest receivable
write-offs for uncollectible accounts, periodic interest settlements for interest rate swap agreements and the holding period of capital investments.



As a RIC, we are also subject to a nondeductible federal excise tax of 4% if we do not distribute at least 98% of our ordinary income,
excluding net short-term capital gains, in any calendar year and 98% of our capital gains for each one-year period ending October 31, including any undistributed income from the prior excise tax year. For the six months ended June 30, 2010
and 2009, we did not accrue a federal excise tax because we distributed or intend to distribute sufficient dividends to eliminate any federal excise tax for the respective excise tax years.



In March 2010, The Patient Protection and Affordable Care Act
and The Health Care and Education Reconciliation Act were enacted. This legislation has not resulted in an income tax provision for American Capital or ACFS, our consolidated taxable operating subsidiary.



On June 30, 2010, we merged our consolidated taxable
operating subsidiary, ACFS, into American Capital, Ltd. For tax purposes, the merger will be treated as a tax-free liquidation of ACFS. Under Subchapter M, when a non-RIC corporation merges into a RIC, the RIC must distribute any accumulated
earnings and profits acquired through the merger of the non-RIC prior to the end of the RICs taxable year in which the merger occurs in order to maintain RIC status. As of the merger date, ACFS did not have any accumulated earnings and
profits. The merger should not adversely affect our qualification as a RIC. As a result of the merger, ACFS gross deferred tax asset and associated valuation allowance, which netted to zero as of the merger date, have been eliminated as of
June 30, 2010.



Note 10. Shareholders Equity



In April 2010, we completed a registered direct
offering of 58,300,000 shares of our common stock to a group of institutional investors at a price of $5.06 per share. Upon completion of the offering, we received gross proceeds of approximately $295 million.



Note 11. Investment in European Capital



In February 2008, we entered into a loan agreement to
provide a $400 million subordinated, unsecured revolving credit facility (the Term A Facility) to European Capital with an original maturity in February 2011. In June 2009, American Capital and European Capital entered into an agreement
whereby the outstanding borrowings under the Term A Facility of $319 million were exchanged for 325.1 million ordinary shares of European Capital and the Term A Facility commitment amount was reduced from $400 million to $87 million. In March
2010, we further amended the Term A Facility to further reduce the commitment amount from $87 million to $53 million, extend the maturity date to June 2012, and change the interest rate to LIBOR plus 7.00% payable in kind. As of June 30, 2010,
there was a $39 million outstanding balance under the Term A Facility.



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##### Table of Contents

AMERICAN CAPITAL, LTD.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(unaudited)

(in millions, except per share data)



In October 2008, we amended the loan agreement to extend an additional $250 million
subordinated, unsecured revolving credit facility (the Term B Facility) to European Capital. In November 2009, the loan agreement was amended to reduce the Term B Facility commitment of $250 million to an amount equal to the existing
standby letter of credit issued by us for the benefit of The Royal Bank of Scotland, plc, the agent under European Capitals unsecured multicurrency revolving facility. In March 2010, European Capital repaid in full and terminated its unsecured
multicurrency revolving facility, which resulted in the termination of the standby letter of credit. We also amended our loan agreement with European Capital at the same time to terminate the Term B Facility commitment.



In March 2010, we entered into another loan agreement with
European Capital under which we made a loan (the Bridge Loan) for $75 million to European Capital. The Bridge Loan bears interest at LIBOR plus 7.00% payable in kind and matures at the earlier of (i) the date on which all
obligations under the loan agreement are repaid in full and (ii) September 1, 2010. Under the loan agreement, European Capital may not pledge certain of its investments (the Deferred Assets). We also entered into a purchase
agreement with European Capital in March 2010 pursuant to which we agreed to purchase the Deferred Assets from European Capital by September 1, 2010 subject to certain conditions. We may pay the purchase price by setting off any outstanding
obligations then due and payable by European Capital to us, including under the Bridge Loan. European Capital used the $75 million of proceeds from the Bridge Loan to repay in full and terminate its unsecured multicurrency revolving facility, which
also resulted in the termination of the standby letter of credit that we issued in connection with the facility for the benefit of The Royal Bank of Scotland, plc. As of June 30, 2010, there was a $15 million outstanding balance under the
Bridge Loan. In July 2010, European Capital paid down the $15 million outstanding balance under the Bridge Loan and the Bridge Loan and the purchase agreement were terminated.



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##### Table of Contents

ITEM 2.Managements Discussion and Analysis of Financial
Condition and Results of Operations(in millions, except per share data)



Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a
reader of American Capitals financial statements with a narrative from the perspective of management. Our MD&A is presented in four sections:



| |  |  | Executive Overview
| | - |  | ------------------



| |  |  | Results of Operations
| | - |  | ---------------------



| |  |  | Financial Condition, Liquidity and Capital Resources
| | - |  | ----------------------------------------------------



| |  |  | Forward-Looking Statements
| | - |  | --------------------------



EXECUTIVE OVERVIEW



We are a publicly traded private equity firm and a global asset manager. Our $5.7 billion on-balance sheet investment portfolio consists
of investments in senior debt, subordinated debt and equity in controlled and non-controlled private and public companies, structured product investments (Structured Products) including commercial mortgage backed securities
(CMBS), commercial collateralized loan obligation (CLO) securities and collateralized debt obligation (CDO) securities. We are also an alternative asset manager with approximately $9 billion of third-party capital
resources under management across four third-party private and public funds that we manage.



In June 2010, we successfully completed a refinancing of our $2.3 billion of outstanding unsecured borrowings. Under the terms of the
refinancing, lenders and noteholders had the option of receiving either cash or new secured debt, in each case in the full principal amount of their pre-transaction debt. Lenders and noteholders holding $1,030 million of debt selected or otherwise
received 100% cash for their debt, while lenders and noteholders holding $1,307 million of debt, or 56% of pre-transaction debt, elected to receive new secured loans or notes of various series. As a result, we repaid $1,030 million of our unsecured
obligations and issued $1,307 million of fixed and floating rate secured loans or notes which will mature in December 2013 in exchange for the remaining obligations. We also granted a lien on substantially all of our existing and hereafter acquired
unencumbered assets as collateral for the newly issued loans and notes. See Note 4 to our consolidated interim financial statements included in this Form 10-Q for additional disclosures regarding the exchange transaction.



As a result of the economic recession and global financial
crisis during the past two years and the refinancing transaction discussed above, the current focus of our investment and capitalization strategy is to de-risk our investment portfolio and to continue to de-leverage our balance sheet.



Our investment strategy for the next few years will be
focused on providing mezzanine debt financing in the buyouts of private companies sponsored by other private equity firms. This strategy would generate a substantially higher proportion of debt to equity investments that should de-risk our
investment portfolio and position it for future on-balance sheet securitizations. Our investment strategy will also focus on making select follow-on equity investments in our existing portfolio companies with the goal of enhancing their values. We
would expect any future American Capital sponsored buyouts to be completed through, or for the benefit of, newly raised off-balance sheet third-party funds that we would manage.



Our capitalization strategy for the next few years will be to
continue to de-leverage our balance sheet by substantially reducing the outstanding balance of our borrowings. In the short-term, through the end of the current fiscal year, we expect to use our disposable cash flow to pay down our new secured debt
obligations to under $1 billion so that we can reduce our interest rate to the lowest level under the agreements. Our long term goal over the next few years will be to continue to reduce our leverage so that we operate with an average debt to equity
ratio of about 0.6 to 1.0.



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American Capital Investing
Activity



We provide investment capital to
middle market companies, which we generally consider to be companies with sales between $10 million and $750 million. We primarily invest in senior debt, subordinated debt and equity in the buyouts of private companies sponsored by us, the buyouts
of private companies sponsored by other private equity firms and provide capital directly to early stage and mature private and small public companies. Currently, we will invest up to $100 million in a single middle market transaction in North
America. We also have investments in Structured Products and alternative asset funds managed by us. For summary financial information by geographic area, see Note 3 to our consolidated interim financial statements in this Form 10-Q.



We seek to be a long-term partner with our portfolio
companies. As a long-term partner, we will invest capital in a portfolio company subsequent to our initial investment if we believe that it can achieve appropriate returns for our investment. Add-on financings fund (i) strategic acquisitions by
a portfolio company of either a complete business or specific lines of a business that are related to the portfolio companys business, (ii) recapitalization of a portfolio company to raise financing on better terms, buyout one or several
owners or to pay a dividend, (iii) growth of the portfolio company such as product development or plant expansions, or (iv) working capital for a portfolio company, sometimes in distressed situations, that need capital to fund operating
costs, debt service, or growth in receivables or inventory.



The total fair value of our investment portfolio was $5.7 billion and $5.6 billion as of June 30, 2010 and December 31, 2009,
respectively. During the three and six months ended June 30, 2010 and 2009, we generally limited our investment originations to providing funding to our existing portfolio companies for working capital or to recapitalize or refinance their
balance sheets, primarily to preserve our investments. Since our asset coverage ratio was below 200% and our NAV per share was greater than the trading price of our common stock during the three and six months ended June 30, 2010, regulatory
restrictions generally limited our ability to raise debt or equity capital during the quarter to be able to make significant new investments. As a result of appreciation in our investment portfolio during the first six months of 2010 and our June,
28 2010 refinancing transaction discussed in Note 4 to our consolidated interim financial statements in this Form 10-Q, our asset coverage ratio has improved to 206% as of June 30, 2010.



The type and aggregate dollar amount of our new investments
were as follows (in millions):



|                                                              |  |                            |    |                          |   |      |  |      |     |  |   |   
|------------------------------------------------------------- |  | -------------------------- | -- | ------------------------ | - | ---- |  | ---- | --- |  | - | --
|                                                              |  | Three Months EndedJune 30, |    | Six Months EndedJune 30,
|                                                              |  | 2010                       |    | 2009                     |   | 2010 |  | 2009
|Add-on financing for recapitalizations                        |  | $                          | 5  |                          | $ | 1    |  | $    | 80  |  | $ | 16
|Financing for private equity buyouts                          |  |                            | 35 |                          |   |     |  |      | 35  |  |   |  
|Add-on financing for working capital in distressed situations |  |                            | 12 |                          |   | 36   |  |      | 20  |  |   | 61
|Add-on financing for growth and working capital               |  |                            |   |                          |   | 2    |  |      | 1   |  |   | 2 
|                                                              |  |                            |    |                          |   |      |  |      |     |  |   |   
|Total                                                         |  | $                          | 52 |                          | $ | 39   |  | $    | 136 |  | $ | 79
|                                                              |  |                            |    |                          |   |      |  |      |     |  |   |   



The amounts of our new investments include both funded commitments and unfunded commitments as of the investment date. Included in the
add-on financing for recapitalizations of $80 million for the six months ended June 30, 2010 was a $75 million bridge loan issued to European Capital Limited (European Capital), the proceeds of which were utilized to repay in full
and terminate European Capitals unsecured multicurrency revolving facility. European Capital made payments of $60 million in April 2010 and $15 million in July 2010 to repay the bridge loan and the facility was terminated.



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We received cash proceeds from realizations and repayments of portfolio investments as
follows (in millions):



|                                                                          |  |                            |     |                          |   |      |  |      |     |  |   |    
|------------------------------------------------------------------------- |  | -------------------------- | --- | ------------------------ | - | ---- |  | ---- | --- |  | - | ---
|                                                                          |  | Three Months EndedJune 30, |     | Six Months EndedJune 30,
|                                                                          |  | 2010                       |     | 2009                     |   | 2010 |  | 2009
|Principal prepayments                                                     |  | $                          | 272 |                          | $ | 35   |  | $    | 362 |  | $ | 77 
|Sale of equity investments                                                |  |                            | 45  |                          |   | 53   |  |      | 94  |  |   | 68 
|Payment of accrued PIK interest and dividend and original issue discounts |  |                            | 25  |                          |   | 1    |  |      | 27  |  |   | 5  
|Scheduled principal amortization                                          |  |                            | 9   |                          |   | 15   |  |      | 16  |  |   | 25 
|Loan syndications and sales                                               |  |                            |    |                          |   | 21   |  |      | 15  |  |   | 29 
|                                                                          |  |                            |     |                          |   |      |  |      |     |  |   |    
|Total                                                                     |  | $                          | 351 |                          | $ | 125  |  | $    | 514 |  | $ | 204
|                                                                          |  |                            |     |                          |   |      |  |      |     |  |   |    



Public Manager of Funds of Alternative Assets



We are a global alternative asset manager of third-party funds. Our third-party alternative asset management business is conducted through
our wholly-owned portfolio company, American Capital, LLC. We refer to the asset management business throughout this report to include the asset management activities conducted by American Capital, LLC. In addition to managing American
Capitals assets and providing management services to portfolio companies of American Capital, we also manage European Capital, American Capital Agency Corp. (AGNC), American Capital Equity I, LLC (ACE I), American
Capital Equity II, LP (ACE II) and ACAS CLO 2007-1, Ltd. (ACAS CLO-1). As of June 30, 2010, our assets under management totaled $15 billion, including $9 billion under management in the third-party funds named above.



Through our asset management business, American
Capital, LLC generally earns base management fees based on the size of the funds and incentive income, if any, based on the performance of the funds it manages. In addition, we may invest directly into our alternative asset funds and earn investment
income from our direct investments in those funds.



The following table sets forth certain information with respect to our funds under management as of June 30, 2010:



|                        |  |                                                       |  |                                                       |  |                                            |  |              |  |              |  |             
|----------------------- |  | ----------------------------------------------------- |  | ----------------------------------------------------- |  | ------------------------------------------ |  | ------------ |  | ------------ |  | ------------
|                        |  | American Capital                                      |  | European Capital                                      |  | AGNC                                       |  | ACE I        |  | ACE II       |  | ACASCLO-1   
|Fund type               |  | Public Alternative AssetManager & Fund                |  | Private Fund                                          |  | Public REIT Fund -The NASDAQ Global Market |  | PrivateFund  |  | PrivateFund  |  | PrivateFund 
|Established             |  | 1986                                                  |  | 2005                                                  |  | 2008                                       |  | 2006         |  | 2007         |  | 2006        
|Assets under management |  | $6.2 Billion(1)                                       |  | $1.5 Billion(2)                                       |  | $7.8 Billion                               |  | $0.7 Billion |  | $0.4 Billion |  | $0.4 Billion
|Investment types        |  | Senior & SubordinatedDebt, Equity,Structured Products |  | Senior & SubordinatedDebt, Equity,Structured Products |  | Agency Securities                          |  | Equity       |  | Equity       |  | Senior Debt 
|Capital type            |  | Permanent                                             |  | Permanent                                             |  | Permanent                                  |  | Finite Life  |  | Finite Life  |  | Finite Life 



|(1) | Includes our investment in third-party funds that we manage.
|--- | ------------------------------------------------------------

|(2) | Excluded from our third-party funds under management as we own 100% of European Capital.
|--- | ----------------------------------------------------------------------------------------



Summary of Critical Accounting Policies



The preparation of our financial condition and results of
operations requires us to make judgments and estimates that may have a significant impact upon our financial results. We believe that of our significant accounting policies, the following require estimates and assumptions that require complex,
subjective judgments by management, which can materially impact reported results: valuation of investments; interest and dividend income recognition; stock-based compensation; and derivative financial instruments. All of our critical accounting
policies are fully described in Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2009.



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See Note 3 to our interim consolidated financial statements for further information
regarding the classification of our investment portfolio by levels of fair value inputs used to measure our investments as of June 30, 2010.



RESULTS OF OPERATIONS



The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial
statements and the notes thereto.



Our
consolidated financial performance, as reflected in our consolidated statements of operations, is composed of the following three primary elements:



| |  |  | The first element is Net operating income, which is primarily the interest, dividends, prepayment fees, finance and transaction fees and
portfolio company management fees earned from investing in debt and equity securities and the fees we earn from fund asset management, less our operating expenses and provision for income taxes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The second element is Net realized gain (loss) on investments, which reflects the difference between the proceeds from an exit of an
investment and the cost at which the investment was carried on our consolidated balance sheets and periodic interest settlements and termination receipts or payments on derivatives, foreign currency transaction gains or losses and income taxes on
realized gains.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The third element is Net unrealized appreciation (depreciation) of investments, which is the net change in the estimated fair value of our
portfolio investments and of our interest rate derivatives at the end of the period compared with their estimated fair values at the beginning of the period or their stated costs, as appropriate. In addition, our net unrealized depreciation of
investments includes the foreign currency translation from converting the cost basis of our assets and liabilities denominated in a foreign currency to the U.S. dollar.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The consolidated operating results for the three and six
months ended June 30, 2010 and 2009 were as follows (in millions):



|                                                          |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |        |  
|--------------------------------------------------------- |  | -------------------------- | ---- | - | ------------------------ | - | ---- | ---- |  | - | ---- | - |  | - | ------ | -
|                                                          |  | Three Months EndedJune 30, |      |   | Six Months EndedJune 30, |  
|                                                          |  | 2010                       |      |   | 2009                     |   |      | 2010 |  |   | 2009 |  
|Operating income                                          |  | $                          | 151  |   |                          | $ | 140  |      |  | $ | 315  |   |  | $ | 335    |  
|Operating expenses                                        |  |                            | 122  |   |                          |   | 131  |      |  |   | 237  |   |  |   | 262    |  
|                                                          |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |        |  
|Operating income before income taxes                      |  |                            | 29   |   |                          |   | 9    |      |  |   | 78   |   |  |   | 73     |  
|Benefit for income taxes                                  |  |                            |     |   |                          |   | 11   |      |  |   |     |   |  |   | 11     |  
|                                                          |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |        |  
|Net operating income                                      |  |                            | 29   |   |                          |   | 20   |      |  |   | 78   |   |  |   | 84     |  
|Net gain on extinguishment of debt                        |  |                            |     |   |                          |   |     |      |  |   |     |   |  |   | 12     |  
|Net realized loss on investments                          |  |                            | (320 | ) |                          |   | (326 | )    |  |   | (446 | ) |  |   | (457   | )
|                                                          |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |        |  
|Net realized loss                                         |  |                            | (291 | ) |                          |   | (306 | )    |  |   | (368 | ) |  |   | (361   | )
|                                                          |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |        |  
|Net unrealized appreciation (depreciation) of investments |  |                            | 572  |   |                          |   | (241 | )    |  |   | 836  |   |  |   | (733   | )
|                                                          |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |        |  
|Net earnings (loss)                                       |  | $                          | 281  |   |                          | $ | (547 | )    |  | $ | 468  |   |  | $ | (1,094 | )
|                                                          |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |        |  



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Operating Income



We derive the majority of our operating income by investing
in senior and subordinated debt and equity of middle market companies with attractive current yields and/or potential for equity appreciation and realized gains. We also derive operating income from investing in Structured Products. Operating income
consisted of the following for the three and six months ended June 30, 2010 and 2009 (in millions):



|                                                            |  |                            |     |                          |   |      |  |      |     |  |   |    
|----------------------------------------------------------- |  | -------------------------- | --- | ------------------------ | - | ---- |  | ---- | --- |  | - | ---
|                                                            |  | Three Months EndedJune 30, |     | Six Months EndedJune 30,
|                                                            |  | 2010                       |     | 2009                     |   | 2010 |  | 2009
|Interest income on debt and Structured Products investments |  | $                          | 136 |                          | $ | 119  |  | $    | 262 |  | $ | 278
|Dividend income                                             |  |                            | 1   |                          |   | 8    |  |      | 25  |  |   | 27 
|Interest income on bank deposits                            |  |                            | 1   |                          |   |     |  |      | 1   |  |   | 1  
|                                                            |  |                            |     |                          |   |      |  |      |     |  |   |    
|Interest and dividend income                                |  |                            | 138 |                          |   | 127  |  |      | 288 |  |   | 306
|                                                            |  |                            |     |                          |   |      |  |      |     |  |   |    
|Portfolio company advisory and administrative fees          |  |                            | 5   |                          |   | 6    |  |      | 11  |  |   | 11 
|Fund asset management fees and reimbursements               |  |                            | 4   |                          |   | 5    |  |      | 8   |  |   | 13 
|Other fees                                                  |  |                            | 4   |                          |   | 2    |  |      | 8   |  |   | 5  
|                                                            |  |                            |     |                          |   |      |  |      |     |  |   |    
|Fee income                                                  |  |                            | 13  |                          |   | 13   |  |      | 27  |  |   | 29 
|                                                            |  |                            |     |                          |   |      |  |      |     |  |   |    
|Total operating income                                      |  | $                          | 151 |                          | $ | 140  |  | $    | 315 |  | $ | 335
|                                                            |  |                            |     |                          |   |      |  |      |     |  |   |    



Interest and Dividend Income



The following table summarizes selected data for our debt and equity investments, at cost, for the three and six months ended
June 30, 2010 and 2009 (dollars in millions):



|                                                                       |  |                            |       |   |                          |   |        |      |  |   |       |   |  |   |        |  
|---------------------------------------------------------------------- |  | -------------------------- | ----- | - | ------------------------ | - | ------ | ---- |  | - | ----- | - |  | - | ------ | -
|                                                                       |  | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |  
|                                                                       |  | 2010                       |       |   | 2009                     |   |        | 2010 |  |   | 2009  |  
|Debt and Structured Products investments(1)                            |  | $                          | 5,101 |   |                          | $ | 6,908  |      |  | $ | 5,195 |   |  | $ | 7,041  |  
|Effective interest rate on debt and Structured Products investments(1) |  |                            | 10.6  | % |                          |   | 6.9    | %    |  |   | 10.1  | % |  |   | 7.9    | %
|Average monthly one-month LIBOR                                        |  |                            | 0.3   | % |                          |   | 0.4    | %    |  |   | 0.3   | % |  |   | 0.4    | %
|Average non-accrual debt investments at cost(2)                        |  | $                          | 678   |   |                          | $ | 1,028  |      |  | $ | 723   |   |  | $ | 960    |  
|Equity investments(1)                                                  |  | $                          | 3,714 |   |                          | $ | 3,635  |      |  | $ | 3,735 |   |  | $ | 3,578  |  
|Effective dividend yield on equity investments(1)                      |  |                            | 0.1   | % |                          |   | 0.8    | %    |  |   | 1.4   | % |  |   | 1.5    | %
|Debt, Structured Products and equity investments(1)                    |  | $                          | 8,815 |   |                          | $ | 10,543 |      |  | $ | 8,930 |   |  | $ | 10,619 |  
|Effective yield on debt, Structured Products and equity investments(1) |  |                            | 6.2   | % |                          |   | 4.8    | %    |  |   | 6.4   | % |  |   | 5.7    | %



|(1) | Monthly weighted average.
|--- | -------------------------

|(2) | Quarterly average.
|--- | ------------------



Interest income on debt and Structured Products investments increased by $17 million, or 14%, for the three months ended June 30,
2010 and decreased by $16 million, or 6%, for the six months ended June 30, 2010 over the comparable periods in 2009, due to a decrease in our monthly weighted average debt and Structured Products investments partially offset by an increase in
the weighted average effective interest rate.



Our
weighted average debt and Structured Products investments decreased from the three and six months ended June 30, 2009 to the three and six months ended June 30, 2010 primarily as a result of the repayment or sale of debt investments. We
chose to repay our debt obligations from the realization of proceeds from the exit of portfolio investments during the year ended December 31, 2009 and the six months ended June 30, 2010 to delever our balance sheet instead of reinvesting
the proceeds into new investments during those periods.



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The monthly weighted average effective interest rate on our debt and Structured Products
investments during the three and six months ended June 30, 2010 increased 370 basis points and 220 basis points, respectively, over the comparable periods in 2009 primarily due to (i) a greater negative impact of non-accrual debt
investments in the three and six months ended June 30, 2009 as compared to the current periods and (ii) an increase in the interest spreads on recent loan originations and modifications, partially offset by (iii) a 10 basis point
decrease in the average one-month LIBOR and (iv) a decline in interest income recognized from CMBS investments as compared to the prior period.



When a debt investment is placed on non-accrual, we record reserves on uncollected payment-in-kind (PIK) interest income
recorded in prior periods as a reduction of interest income in the current period. Conversely, when a debt investment is removed from non-accrual, we record interest income in the current period on prior period uncollected PIK interest income which
was reserved in prior periods. For the three months ended June 30, 2010, we recorded additional interest income of $7 million as a result of debt investments being removed from non-accrual during the period compared to a net reserve on
uncollected PIK interest income recorded in prior periods of $34 million during the three months ended June 30, 2009, which had an approximate 60 basis point positive impact on the weighted average effective interest rate for the three months
ended June 30, 2010 compared to an approximate 200 basis point negative impact for the three months ended June 30, 2009. For the six months ended June 30, 2010, we recorded additional interest income of $5 million as a result of debt
investments being removed from non-accrual during the period compared to a net reserve on uncollected PIK interest income recorded in prior periods of $54 million during the six months ended June 30, 2009, which had an approximate 20 basis
point positive impact on the weighted average effective interest rate for the six months ended June 30, 2010 compared to an approximate 150 basis point negative impact for the six months ended June 30, 2009.



The interest income we earn on our debt investments was
generally positively impacted by loans that were originated or modified during the last two years. These recent new loans originations and modifications have been priced at generally higher spreads as compared to loans that have been repaid during
this period as market spreads have increased during this period.



A portion of our debt investments, particularly our senior debt investments, accrue interest at LIBOR plus a spread. These debt
investments either have no LIBOR floor or may have a LIBOR floor that is generally around 2.0%. As a result, as LIBOR declines, our interest income generally will decline for our debt investments with interest rates that are based on LIBOR without a
LIBOR floor.



Dividend income decreased by $7
million, or 88%, and by $2 million, or 7%, for the three and six months ended June 30, 2010, respectively, over the comparable periods in 2009. As a result, the monthly weighted average effective dividend yield on equity investments was 0.1%
and 1.4% for the three and six months ended June 30, 2010, respectively, a 70 basis point and 10 basis point decrease from the comparable periods in 2009. This is primarily due to an increase in the amount of preferred equity investments on
non-accrual during the three and six months ended June 30, 2010 compared to the comparable periods in 2009. For the three months ended June 30, 2010, dividend income decreased by $23 million, or 96%, over the three months ended
March 31, 2010 primarily due to an increase in the amount of preferred equity investments placed on non-accrual during the second quarter of 2010.



When a preferred equity investment is placed on non-accrual, we record net reserves on uncollected accrued dividend income recorded in
prior periods as a reduction of dividend income in the current period. Conversely, when a preferred equity investment is removed from non-accrual, we record dividend income in the current period for prior period uncollected accrued dividend income
which was reserved in prior periods. For the three and six months ended June 30, 2010, we recorded reserves on uncollected accrued dividend income recorded in prior periods from private finance preferred stock investments of $15 million and $11
million, respectively. For the three and six months ended June 30, 2009, we recorded reserves on uncollected accrued dividend income recorded in prior periods from private finance preferred stock investments of $21 million and $25 million,
respectively.



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Fee Income



As of June 30, 2010, all of our third-party alternative asset fund management services are conducted through our wholly-owned
portfolio company, American Capital, LLC. Fund asset management fees and reimbursements revenue for the three months ended June 30, 2010 and 2009 represent fees of $4 million and $5 million, respectively, for providing advisory and
administrative services to American Capital, LLC. Fund asset management fees and reimbursements revenue for the six months ended June 30, 2010 and 2009 represent fees of $6 million and $11 million, respectively, for providing advisory and
administrative services to American Capital, LLC.



Our fee income includes financial advisory services provided to our portfolio company investments and includes both management fees for
providing managerial advice and analysis to our middle market portfolio companies, which can be recurring in nature, and transaction structuring and financing fees for structuring, financing and executing middle market portfolio transactions, which
may not be recurring in nature.



Operating Expenses



Operating expenses decreased $9 million, or 7%,
and $25 million, or 10% for the three and six months ended June 30, 2010, respectively, over the comparable periods in 2009. Operating expenses consisted of the following for the three and six months ended June 30, 2010 and 2009 (in
millions):



|                                                |  |                            |     |                          |   |      |  |      |     |  |   |    
|----------------------------------------------- |  | -------------------------- | --- | ------------------------ | - | ---- |  | ---- | --- |  | - | ---
|                                                |  | Three Months EndedJune 30, |     | Six Months EndedJune 30,
|                                                |  | 2010                       |     | 2009                     |   | 2010 |  | 2009
|Interest                                        |  | $                          | 56  |                          | $ | 60   |  | $    | 113 |  | $ | 112
|Salaries, benefits and stock-based compensation |  |                            | 34  |                          |   | 47   |  |      | 68  |  |   | 100
|General and administrative                      |  |                            | 15  |                          |   | 17   |  |      | 35  |  |   | 40 
|Debt refinancing costs                          |  |                            | 17  |                          |   | 7    |  |      | 21  |  |   | 10 
|                                                |  |                            |     |                          |   |      |  |      |     |  |   |    
|Total operating expenses                        |  | $                          | 122 |                          | $ | 131  |  | $    | 237 |  | $ | 262
|                                                |  |                            |     |                          |   |      |  |      |     |  |   |    



Interest



Interest expense for the three months ended June 30, 2010 decreased $4 million, or 7%, and increased $1 million, or 1%, for the six
months ended June 30, 2010, from the comparable periods in 2009. The decrease in interest expense was primarily attributable to an increase in interest rates for default interest and ratings downgrades in the first quarter of 2009, partially
offset by a decline in LIBOR and lower weighted average borrowings. The weighted average interest rate on all of our borrowings, including amortization of deferred financing costs, for the three and six months ended June 30, 2010 was 5.7% and
5.6%, respectively, compared to 5.5% and 5.1%, respectively, for the comparable periods in 2009. Our weighted average borrowings decreased to $3,950 million for the three months ended June 30, 2010 from $4,341 million for the comparable period
in 2009. Our weighted average borrowings decreased to $4,013 million for the six months ended June 30, 2010 from $4,371 million for the comparable period in 2009.



As a result of our debt refinancing and the associated pay down of $1,030 million of outstanding borrowings on June 28,
2010, we expect our quarterly interest expense to decrease for the remainder of 2010.



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Salaries, Benefits and Stock-based Compensation



Salaries, benefits and stock-based compensation consisted of
the following for the three and six months ended June 30, 2010 and 2009 (in millions):



|                                                      |  |                            |    |                          |   |      |  |      |    |  |   |    
|----------------------------------------------------- |  | -------------------------- | -- | ------------------------ | - | ---- |  | ---- | -- |  | - | ---
|                                                      |  | Three Months EndedJune 30, |    | Six Months EndedJune 30,
|                                                      |  | 2010                       |    | 2009                     |   | 2010 |  | 2009
|Base salaries                                         |  | $                          | 14 |                          | $ | 19   |  | $    | 28 |  | $ | 41 
|Incentive compensation                                |  |                            | 6  |                          |   | 9    |  |      | 13 |  |   | 18 
|Benefits                                              |  |                            | 3  |                          |   | 3    |  |      | 6  |  |   | 8  
|Stock-based compensation                              |  |                            | 11 |                          |   | 16   |  |      | 21 |  |   | 33 
|                                                      |  |                            |    |                          |   |      |  |      |    |  |   |    
|Total salaries, benefits and stock-based compensation |  | $                          | 34 |                          | $ | 47   |  | $    | 68 |  | $ | 100
|                                                      |  |                            |    |                          |   |      |  |      |    |  |   |    



Salaries, benefits and stock-based compensation for the three and six months ended June 30, 2010 decreased $13 million, or 28%, and
$32 million, or 32%, respectively, from the comparable periods in 2009 primarily due to (i) a decrease in the number of employees and (ii) lower stock-based compensation during the three and six months ended June 30, 2010 as a result
of the acceleration of stock-based compensation in the fourth quarter of 2009 from the completion of a tender offer for certain eligible employee stock options.



To better align our organization and cost structure with the current economic conditions, we undertook strategic reviews of our business
in 2009 and 2008. As a result of these reviews, we eliminated 160 and 72 positions during the 2008 and 2009 fiscal years, respectively. As of June 30, 2010, we had total employees of 249 compared to total employees of 360 as of June 30,
2009.



During the fourth quarter of 2009, we
completed a tender offer for certain eligible employee stock options. Pursuant to the tender offer, we offered employees a cash payment for the voluntary cancellation of certain eligible outstanding employee stock options. As a result of the tender
offer, unrecognized compensation cost of $21 million for the tendered unvested options expected to vest was accelerated and recorded as compensation expense in the fourth quarter of 2009. Accordingly, the stock-based compensation cost for the three
and six months ended June 30, 2010 is lower as compared to the comparable prior periods in part due to the positive impact of the accelerated employee stock options in future periods.



General and Administrative



General and administrative expenses decreased by $2 million,
or 12%, and by $5 million, or 13%, for the three and six months ended June 30, 2010, respectively, over the comparable periods in 2009 primarily due to fewer employees and offices.



Debt Refinancing Costs



During the six months ended June 30, 2010 and 2009, we
incurred non-recurring debt refinancing costs from both our and our unsecured creditors legal and financial advisors that were engaged in connection with our debt refinancing negotiations and the closing of our debt refinancing transaction in
June 2010. We do not anticipate any additional costs in future periods associated with our debt refinancing transaction.



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Net Realized (Loss) Gain on Investments



Our net realized (loss) gain on investments for the three
and six months ended June 30, 2010 and 2009 consisted of the following individual portfolio company realized gain (loss) greater than $15 million (in millions):



|                                                         |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  
|-------------------------------------------------------- |  | -------------------------- | ---- | - | ------------------------ | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                         |  | Three Months EndedJune 30, |      |   | Six Months EndedJune 30, |  
|                                                         |  | 2010                       |      |   | 2009                     |   |      | 2010 |  |   | 2009 |  
|Piper Aircraft, Inc.                                     |  | $                          |     |   |                          | $ | 31   |      |  | $ |     |   |  | $ | 31   |  
|Other, net                                               |  |                            | 10   |   |                          |   | 4    |      |  |   | 18   |   |  |   | 12   |  
|                                                         |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  
|Total gross realized portfolio gains                     |  | $                          | 10   |   |                          | $ | 35   |      |  | $ | 18   |   |  | $ | 43   |  
|                                                         |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  
|ACAS CRE CDO 2007-1, Ltd.                                |  |                            | (170 | ) |                          |   |     |      |  |   | (170 | ) |  |   |     |  
|UFG Member, LLC                                          |  |                            | (2   | ) |                          |   |     |      |  |   | (78  | ) |  |   |     |  
|Fountainhead Estate Holding Corp.                        |  |                            | (25  | ) |                          |   |     |      |  |   | (25  | ) |  |   |     |  
|ETG Holdings, Inc.                                       |  |                            | (22  | ) |                          |   |     |      |  |   | (22  | ) |  |   |     |  
|Wachovia Bank Commercial Mortgage Trust, Series 2007-C32 |  |                            | (19  | ) |                          |   |     |      |  |   | (19  | ) |  |   |     |  
|Resort Funding Holdings, Inc.                            |  |                            | (18  | ) |                          |   |     |      |  |   | (18  | ) |  |   |     |  
|GS Mortgage Securities Trust 2007-GG10                   |  |                            | (16  | ) |                          |   |     |      |  |   | (16  | ) |  |   |     |  
|Genband Inc.                                             |  |                            |     |   |                          |   |     |      |  |   | (15  | ) |  |   |     |  
|Consolidated Bedding, Inc.                               |  |                            |     |   |                          |   | (196 | )    |  |   |     |   |  |   | (196 | )
|Halex Holdings Corp.                                     |  |                            |     |   |                          |   | (30  | )    |  |   |     |   |  |   | (30  | )
|Venus Swimwear, Inc.                                     |  |                            |     |   |                          |   | (19  | )    |  |   |     |   |  |   | (19  | )
|Foamex, L.P.                                             |  |                            |     |   |                          |   | (18  | )    |  |   |     |   |  |   | (18  | )
|Small Smiles Holding Company, LLC                        |  |                            |     |   |                          |   | (17  | )    |  |   |     |   |  |   | (17  | )
|Barton-Cotton Holding Corporation                        |  |                            |     |   |                          |   |     |      |  |   |     |   |  |   | (74  | )
|Other, net                                               |  |                            | (29  | ) |                          |   | (63  | )    |  |   | (53  | ) |  |   | (76  | )
|                                                         |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  
|Total gross realized portfolio loss                      |  | $                          | (301 | ) |                          | $ | (343 | )    |  | $ | (416 | ) |  | $ | (430 | )
|                                                         |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  
|Total net realized portfolio loss                        |  | $                          | (291 | ) |                          | $ | (308 | )    |  | $ | (398 | ) |  | $ | (387 | )
|Interest rate derivative periodic interest payments, net |  |                            | (16  | ) |                          |   | (18  | )    |  |   | (32  | ) |  |   | (24  | )
|Interest rate derivative termination payments            |  |                            | (14  | ) |                          |   |     |      |  |   | (14  | ) |  |   |     |  
|European Capital put option agreement                    |  |                            |     |   |                          |   |     |      |  |   |     |   |  |   | (44  | )
|Foreign currency transactions                            |  |                            | 1    |   |                          |   |     |      |  |   | (2   | ) |  |   | (2   | )
|                                                         |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  
|Total net realized loss                                  |  | $                          | (320 | ) |                          | $ | (326 | )    |  | $ | (446 | ) |  | $ | (457 | )
|                                                         |  |                            |      |   |                          |   |      |      |  |   |      |   |  |   |      |  



The following are summary
descriptions of portfolio company realized gains or losses greater than $30 million.



In the second quarter of 2010, we wrote off our entire remaining investment in our portfolio company ACAS CRE CDO 2007-1, Ltd. realizing a
total loss of $170 million offset by a reversal of unrealized depreciation of $170 million.



In the first quarter of 2010, our portfolio company UFG Member, LLC was sold. As part of the sale proceeds, we received a partial payment
on our remaining subordinated debt investment. The sale proceeds we received included a subordinated note from the purchaser, AFA Investments, Inc., that had a fair value of $4 million. We wrote off our remaining subordinated debt investment and our
equity investment in UFG Member, LLC realizing a total loss of $78 million offset by a reversal of unrealized depreciation of $68 million.



In the second quarter of 2009, we received full repayment of our remaining subordinated debt investment in Piper Aircraft, Inc. and sold
all of our equity interests for $31 million in total proceeds realizing a total gain of $31 million offset by a reversal of unrealized appreciation of $23 million. The gain that we recognized included escrowed proceeds that we expect to receive of
$1 million.



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In the second quarter of 2009, Consolidated Bedding, Inc. (Consolidated Bedding)
sold all of its remaining assets to several purchasers for total proceeds consisting of cash, a 49% equity interest in one of the purchasers, Spring Air International, LLC, and the future collection by one of the purchasers of certain accounts
receivable of Consolidated Bedding. The total fair value of the cash and non-cash proceeds received, including the present value of future payments expected to be collected, is $14 million, the proceeds of which were used to partially pay down our
debt investments. Subsequently, Consolidated Bedding filed for bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code. We do not expect to receive any further proceeds for our debt and equity investments in Consolidated Bedding, except
the collection of the remaining $14 million of total proceeds. We deemed our remaining investments to be worthless and recognized a realized loss of $196 million offset by a reversal of unrealized depreciation of $189 million.



In the first quarter of 2009, Barton-Cotton, Incorporated,
the wholly-owned operating subsidiary of Barton-Cotton Holding Corporation (Barton-Cotton), filed for bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code. Although we are pursuing our claims, we do not expect to receive any
proceeds for our subordinated debt or equity investments in Barton-Cotton. We deemed our investments to be worthless and recognized a realized loss of $74 million fully offset by a reversal of unrealized depreciation.



On November 19, 2008, we entered into a put option
agreement with European Capital under which European Capital could put some or all of certain investments to us at a predetermined put price. Under the terms of the agreement, the put option could be exercised at any time commencing on
January 1, 2010 and expiring on December 31, 2010. In consideration for entering into the put option agreement, European Capital paid us 16 million ($20 million). On March 30, 2009, we entered into a termination agreement
with European Capital to terminate the put option agreement. Under the terms of the termination agreement, we settled the put option obligation by paying European Capital the fair value of the put option obligation of $65 million (49 million).
As a result, we recognized a realized loss of $44 million offset by the reversal of unrealized depreciation of $49 million in our consolidated statements of operations.



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Net Unrealized Appreciation (Depreciation) of Investments



The following table itemizes the change in net unrealized
appreciation (depreciation) of investments for the three and six months ended June 30, 2010 and 2009 (in millions):



|                                                                                            |  |                            |      |   |                          |   |      |      |  |   |       |   |  |   |      |  
|------------------------------------------------------------------------------------------- |  | -------------------------- | ---- | - | ------------------------ | - | ---- | ---- |  | - | ----- | - |  | - | ---- | -
|                                                                                            |  | Three Months EndedJune 30, |      |   | Six Months EndedJune 30, |  
|                                                                                            |  | 2010                       |      |   | 2009                     |   |      | 2010 |  |   | 2009  |  
|Gross unrealized appreciation of private finance portfolio investments                      |  | $                          | 213  |   |                          | $ | 187  |      |  | $ | 385   |   |  | $ | 221  |  
|Gross unrealized depreciation of private finance portfolio investments                      |  |                            | (74  | ) |                          |   | (476 | )    |  |   | (135  | ) |  |   | (930 | )
|                                                                                            |  |                            |      |   |                          |   |      |      |  |   |       |   |  |   |      |  
|Net unrealized appreciation (depreciation) of private finance portfolio investments         |  |                            | 139  |   |                          |   | (289 | )    |  |   | 250   |   |  |   | (709 | )
|Net unrealized appreciation (depreciation) of European Capital investment                   |  |                            | 157  |   |                          |   | (355 | )    |  |   | 207   |   |  |   | (368 | )
|Net unrealized appreciation (depreciation) of European Capital foreign currency translation |  |                            | 94   |   |                          |   | (54  | )    |  |   | 163   |   |  |   | 2    |  
|Net unrealized appreciation of AGNC                                                         |  |                            | 2    |   |                          |   | 31   |      |  |   |      |   |  |   | 13   |  
|Net unrealized appreciation (depreciation) of American Capital, LLC                         |  |                            | 10   |   |                          |   | 4    |      |  |   | 36    |   |  |   | (158 | )
|Net unrealized (depreciation) appreciation of Structured Products investments               |  |                            | (16  | ) |                          |   | 37   |      |  |   | (16   | ) |  |   | (9   | )
|Reversal of prior period net unrealized depreciation upon realization                       |  |                            | 309  |   |                          |   | 315  |      |  |   | 412   |   |  |   | 393  |  
|                                                                                            |  |                            |      |   |                          |   |      |      |  |   |       |   |  |   |      |  
|Net unrealized appreciation (depreciation) of portfolio investments                         |  |                            | 695  |   |                          |   | (311 | )    |  |   | 1,052 |   |  |   | (836 | )
|Foreign currency translationEuropean Capital                                               |  |                            | (120 | ) |                          |   | 62   |      |  |   | (205  | ) |  |   | (3   | )
|Foreign currency translationOther                                                          |  |                            | (5   | ) |                          |   | 4    |      |  |   | (7    | ) |  |   |     |  
|Derivative and option agreements                                                            |  |                            | 2    |   |                          |   | 4    |      |  |   | (4    | ) |  |   | 57   |  
|Reversal of prior period net unrealized depreciation on option agreements upon realization  |  |                            |     |   |                          |   |     |      |  |   |      |   |  |   | 49   |  
|                                                                                            |  |                            |      |   |                          |   |      |      |  |   |       |   |  |   |      |  
|Net unrealized appreciation (depreciation) of investments                                   |  | $                          | 572  |   |                          | $ | (241 | )    |  | $ | 836   |   |  | $ | (733 | )
|                                                                                            |  |                            |      |   |                          |   |      |      |  |   |       |   |  |   |      |  



See our Investment
Valuation Policy in Note 3 in our Annual Report on Form 10-K for the year ended December 31, 2009 for a description of our valuation methodologies.



Private Finance Portfolio



Our private finance portfolio investments consist of loans and equity securities primarily to privately-held middle market companies.
There is generally no publicly available information about these companies and an active primary or secondary market for the trading of these privately issued loans and securities generally does not exist. Our investments have been historically
exited through normal repayment or a change in control transaction such as a sale or recapitalization of the portfolio company.



For the three and six months ended June 30, 2010, the $139 million and $250 million, respectively, of net unrealized appreciation on
our private finance portfolio investments was driven primarily by improved portfolio company performance, multiple expansion of comparable companies and narrowing investment spreads. The operating results for our private finance portfolio companies
have improved starting in the latter half of 2009 as the recent global economic recession appears to be ending.



For the three and six months ended June 30, 2009, the $289 million and $709 million, respectively, of net unrealized depreciation on
our private finance portfolio investments was driven primarily by declines in multiples of comparable companies and reduction of historic and projected cash flows of certain portfolio companies due to the global economic recession.



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European Capital



We recognized unrealized appreciation of $251 million and
$370 million on our investment in European Capital comprised of $157 million and $207 million of unrealized appreciation on our investment and $94 million and $163 million of unrealized appreciation from foreign currency translation of the
cumulative unrealized depreciation of European Capital for the three and six months ended June 30, 2010, respectively. As of June 30, 2010, our investment in European Capital consisted of an equity investment with a cost basis and fair
value of $1,267 million and $409 million, respectively, and a debt investment with a fair value and cost basis of $54 million.



European Capital is an investment fund that invests in and sponsors management and employee buyouts, invests in private equity buyouts and
provides capital directly to private and mid-sized public companies primarily in Europe. It primarily invests in senior debt, subordinated debt and equity. European Capitals underlying portfolio investments are recorded at fair value
determined in accordance with GAAP and by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820). In determining the
fair value of our investment in European Capital, we concluded that our wholly-owned equity investment should be less than the NAV of European Capital due to the risks associated with our ability to realize the full fair value of European
Capitals underlying assets for several reasons, including the yield and tenor of European Capitals credit facilities, recent comparable transactions and public comparables and an implied required market return on equity by market
participants, which indicate fair values at a discount to NAV. The unrealized appreciation on our investment of $157 million and $207 million during the three and six months ended June 30, 2010, respectively, excluding unrealized appreciation
on foreign currency, is due primarily to an increase in the NAV of European Capital and a reduction to the discount applied to NAV.



The following is a summary composition of European Capitals NAV and our equity investments implied discount to its NAV as of
June 30, 2010 and December 31, 2009 ( and $ in millions):



|                                                 |  |               |      |   |                   |   |       |  
|------------------------------------------------ |  | ------------- | ---- | - | ----------------- | - | ----- | -
|                                                 |  | June 30, 2010 |      |   | December 31, 2009 |  
|Debt investments at fair value                   |  |              | 985  |   |                   |  | 1,038 |  
|Equity investments at fair value                 |  |               | 194  |   |                   |   | 174   |  
|Other assets and liabilities, net                |  |               | 37   |   |                   |   | 94    |  
|Secured debt at cost                             |  |               | (472 | ) |                   |   | (569  | )
|Unsecured debt at cost                           |  |               | (115 | ) |                   |   | (191  | )
|Secured debt from American Capital at cost       |  |               | (13  | ) |                   |   |      |  
|Unsecured debt from American Capital at cost     |  |               | (32  | ) |                   |   | (18   | )
|                                                 |  |               |      |   |                   |   |       |  
|NAV (Euros)                                      |  |              | 584  |   |                   |  | 528   |  
|Exchange rate                                    |  |               | 1.22 |   |                   |   | 1.43  |  
|                                                 |  |               |      |   |                   |   |       |  
|NAV (U.S. dollars)                               |  | $             | 712  |   |                   | $ | 755   |  
|                                                 |  |               |      |   |                   |   |       |  
|Fair value of American Capital equity investment |  | $             | 409  |   |                   | $ | 243   |  
|                                                 |  |               |      |   |                   |   |       |  
|Implied discount to NAV                          |  |               | 42.6 | % |                   |   | 67.8  | %
|                                                 |  |               |      |   |                   |   |       |  



American Capital, LLC



American Capital, LLC, a wholly-owned portfolio
company of American Capital, is a holding company of wholly-owned third-party fund managers. During the three and six months ended June 30, 2010, we recognized $10 million and $36 million, respectively, of unrealized appreciation on our
investment in American Capital, LLC. The funds managed by American Capital, LLC are European Capital, AGNC, ACE I, ACE II and ACAS CLO-1. The appreciation in the fair value of American Capital, LLC for the three and six months ended June 30,
2010 is primarily due to improved performance of the funds that it manages and an increase in the size of the AGNC investment portfolio.



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Structured Products



American Capital has investments in Structured Products such
as investment and non-investment grade tranches of CMBS, CLO and CDO securities. During both the three and six months ended June 30, 2010, we recorded $16 million of net unrealized depreciation on our Structured Products investments. Our CMBS
portfolio experienced $19 million and $22 million of net unrealized depreciation during the three and six months ended June 30, 2010, respectively. Our CLO and CDO portfolios of commercial loans experienced $3 million and $6 million of net
unrealized appreciation during the three and six months ended June 30, 2010, respectively .



Foreign Currency Translation



We have a limited amount of investments in portfolio companies, including European Capital, for which the investment is denominated in a
foreign currency, primarily the Euro. We also have other assets and liabilities denominated in foreign currencies. Fluctuations in exchange rates therefore impact our financial condition and results of operations, as reported in U.S. dollars. For
the three and six months ended June 30, 2010, we recorded net unrealized depreciation of $125 million and $212 million, respectively, primarily as a result of the Euro depreciation against the U.S. dollar.



For foreign currency denominated investments recorded at fair
value, such as European Capital, the net unrealized appreciation or deprecation from foreign currency translation on the accompanying consolidated statements of operations represents the economic impact of translating the cost basis of the
investment from a foreign currency, such as the Euro, to the U.S. dollar. However, the economic impact of translating the cumulative unrealized appreciation or depreciation from a foreign currency to the U.S. dollar is not recorded as net unrealized
depreciation or appreciation from foreign currency translation but rather is in included as net unrealized appreciation or depreciation of portfolio company investments on the accompanying consolidated statements of operations. Accordingly, for the
three and six months ended June 30, 2010, we recorded unrealized depreciation for foreign currency translation of $120 million and $205 million, respectively, for our cost basis in our investment in European Capital (included in our total
unrealized depreciation for foreign currency translation of $125 million and $212 million, respectively), which was partially offset by unrealized appreciation of $94 million and $163 million, respectively, for the foreign currency translation of
our cumulative unrealized depreciation of our investment in European Capital which is included in our total net unrealized appreciation of portfolio investments.



Derivative and Option Agreements



During the three and six months ended June 30, 2010, we
recorded $2 million of net unrealized appreciation and $4 million of net unrealized depreciation, respectively, from derivative agreements, primarily interest rate swaps. Cumulatively, the fair value of the net liability for our derivative
agreements as of June 30, 2010 included a $17 million net reduction due to the incorporation of an adjustment for nonperformance risk of us and our counterparties.



During the three and six months ended June 30, 2009, we recorded $4 million and $106 million, respectively, of net
unrealized appreciation from derivative and option agreements. We recorded $4 million and $57 million of net unrealized appreciation from derivative agreements during the three and six months ended June 30, 2009, respectively, primarily
interest rate swaps. In addition, during the six months ended June 30, 2009, we recorded a $49 million reversal of prior period net unrealized depreciation from the termination of the European Capital put option agreement.



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Return on Shareholders Equity



The following table summarizes our returns on
shareholders equity for the last twelve months (LTM) and quarter ended June 30, 2010 and 2009:



|                                                                                 |  |                       |    |  |       |   
|-------------------------------------------------------------------------------- |  | --------------------- | -- |  | ----- | --
|                                                                                 |  | Period Ended June 30, |   
|                                                                                 |  | 2010                  |    |  | 2009  |   
|LTM net operating income return on average equity at cost                        |  | 2.1                   | %  |  | 4.3   | % 
|LTM realized loss return on average equity at cost                               |  | (11.3                 | )% |  | (3.3  | )%
|LTM earnings (loss) return on average equity                                     |  | 27.0                  | %  |  | (90.6 | )%
|Current quarter net operating income return on average equity at cost annualized |  | 2.0                   | %  |  | 1.3   | % 
|Current quarter realized loss return on average equity at cost annualized        |  | (19.5                 | )% |  | (19.3 | )%
|Current quarter earnings (loss) return on average equity annualized              |  | 39.8                  | %  |  | (96.2 | )%



Financial Condition, Liquidity and Capital Resources



The economic recession and crisis in the global credit markets during the past two years has adversely affected all industry sectors.
During the period, we suffered significant net depreciation, higher defaults and losses in many of our investments, and as a result became over levered and defaulted on our primary unsecured borrowing arrangements. In June 2010, we successfully
completed a refinancing of our $2.3 billion of outstanding unsecured borrowings. As a part of the refinancing, we repaid $1,030 million of our unsecured obligations and issued $1,307 million of fixed and floating rate secured loans or notes due
December 2013 in exchange for the remaining obligations. We also granted a lien on substantially all of our existing and hereafter acquired unencumbered assets as collateral for the newly issued loans and notes. The newly issued loans and notes do
not have any scheduled amortization requirements until December 31, 2012. See Note 4 to our consolidated interim financial statements included in this Form 10-Q for additional disclosures regarding the exchange transaction.



Additionally we believe that the economic recession and
global financial crisis has resulted in fewer firms interested in financing assets or businesses, tighter lending standards and reduced access to capital. The economic recession and global financial crisis has contributed to a decline in earnings
and/or decline in valuation multiples for our portfolio companies and widened the investment spreads on Structured Products and certain of our private finance debt investments causing decreases in the fair value of these investments during this
two-year period. Although we began to experience some signs of stabilization and improvement during the latter part of 2009 and the first half of 2010 in the earnings and valuation multiples of our portfolio companies and in the investments spreads
on our Structured Products and private finance debt investments, we may experience volatile market swings that could lead to a further decline in earnings and/or decline in valuation multiples for our portfolio companies or could lead to further
widening of investment spreads on Structured Products or private finance debt investments causing a further decrease in the fair value of these investments.



Currently, our primary sources of liquidity are our cash and cash equivalents and our portfolio investments. As of June 30, 2010, we
had $176 million of cash and cash equivalents and $185 million of restricted cash and cash equivalents Our restricted cash and cash equivalents consists primarily of collections of interest and principal payments on assets that are securitized. In
accordance with the terms of the related securitized debt agreements, based on current characteristics of the securitized loan portfolios, the restricted funds are generally used each quarter to pay interest and principal on the securitized debt and
are not distributed to us or available for our general operations. During the six months ended June 30, 2010, we received cash proceeds from the realizations of portfolio investments of $514 million. During the six months ended June 30,
2010, we principally funded our operations, including our investing activities, from (i) cash receipts from interest, dividend and fee income from our investment portfolio and (ii) cash proceeds from the realization of portfolio
investments through the repayments of loan investments and the sale of loan and equity investments.



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Operating and Investing Cash Flow



For the six months ended June 30, 2010, we used $1
million of cash flow from operations compared to $89 million of cash provided from operations during the comparable period in 2009. Our cash flow from operations for the six months ended June 30, 2010 was impacted in part by the non-recurring
third party fees incurred in connection with our debt refinancing and the early payment of accrued interest on the refinanced debt at the end of the second quarter. One of our other sources of liquidity is our investment portfolio. For the six
months ended June 30, 2010, we received net cash from investing activities totaling $377 million. Included in our cash from investing activities were cash proceeds from the realization of portfolio investments totaling $514 million for the six
months ended June 30, 2010. As of June 30, 2010, we had portfolio investments totaling $5.7 billion at fair value, including $3.6 billion in debt investments, $1.9 billion in equity investments and $0.2 billion in Structured Product
investments. Our investments are generally illiquid and no active primary or secondary market for the trading of these investments exists. We are generally repaid our investments upon a change of control event of the portfolio company such as sale
or recapitalization of the portfolio company. We currently have several portfolio companies in various stages of the sale process; however, there are no assurances that we will be able to realize proceeds from our investments in the future.



Due to the substantial decline in investing in
new portfolio investments and the successful efforts in realizing proceeds from many of our investments, our investment portfolio at cost decreased from $10.7 billion as of December 31, 2008 to $8.4 billion as of June 30, 2010. More
specifically, our private finance debt portfolio, which is the significant contributor to our operating income and our operating cash flows, decreased from $6.2 billion at cost as of December 31, 2008 to $4.2 billion at cost as of June 30,
2010. In addition, the weighted average interest rate on our outstanding borrowings increased to 5.6% for the six months ended June 30, 2010 as a result of default interest and ratings downgrades. As a result of the decrease in our private
finance debt portfolio, costs associated with our debt refinancing and the increase in our cost of capital during 2009 and the first half of 2010, our operating cash flows decreased from $89 million for the six months ended June 30, 2009 to
$(1) million for the six months ended June 30, 2010. Furthermore, for the three and six months ended June 30, 2010, approximately $63 million and $114 million, respectively, of interest income collected during the quarter was generated
from securitized assets and included in our cash flow from operations, all of which is currently required to be used to pay interest and principal on the outstanding notes in our securitizations which is included in our cash flow from financing
activities. We believe that we will continue to generate sufficient cash flow through the receipt of interest, dividend and fee payments from our investment portfolio, as well as the disposition of select portfolio investments, to allow us to
continue to service our debt, pay our operating costs and expenses, distribute dividends to maintain our status as a regulated investment company (RIC) and fund capital to our current portfolio companies. However, there is no certainty
that we will generate sufficient liquidity to meet our needs. In addition to liquidity generated from our investment portfolio, we may elect to raise new capital to generate liquidity to execute our current business strategy or for other corporate
purposes.



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Debt Capital



Our debt obligations consisted of the following as of June 30, 2010 and December 31, 2009 (in millions):



|                                                      |  |               |       |                   |   |      
|----------------------------------------------------- |  | ------------- | ----- | ----------------- | - | -----
|                                                      |  | June 30, 2010 |       | December 31, 2009
|Fixed rate private secured notes due December 2013    |  | $             | 502   |                   | $ |     
|Floating rate private secured loans due December 2013 |  |               | 277   |                   |   |     
|Fixed rate public secured notes due December 2013     |  |               | 524   |                   |   |     
|Floating rate public secured notes due December 2013  |  |               | 4     |                   |   |     
|Unsecured public debt due October 2012                |  |               | 11    |                   |   | 548  
|ACAS Business Loan Trust 2004-1 asset securitization  |  |               | 160   |                   |   | 170  
|ACAS Business Loan Trust 2005-1 asset securitization  |  |               | 629   |                   |   | 696  
|ACAS Business Loan Trust 2006-1 asset securitization  |  |               | 352   |                   |   | 377  
|ACAS Business Loan Trust 2007-1 asset securitization  |  |               | 250   |                   |   | 294  
|ACAS Business Loan Trust 2007-2 asset securitization  |  |               | 215   |                   |   | 255  
|Unsecured revolving credit facility                   |  |               |      |                   |   | 1,388
|Unsecured private debt due September 2009             |  |               |      |                   |   | 84   
|Unsecured private debt due August 2010                |  |               |      |                   |   | 134  
|Unsecured private debt due February 2011              |  |               |      |                   |   | 26   
|Unsecured private debt due September 2011             |  |               |      |                   |   | 95   
|Unsecured private debt due October 2020               |  |               |      |                   |   | 75   
|                                                      |  |               |       |                   |   |      
|Total                                                 |  | $             | 2,924 |                   | $ | 4,142
|                                                      |  |               |       |                   |   |      



The daily weighted average debt balance for the three months ended June 30, 2010 and 2009 was $3,950 million and $4,341 million,
respectively. The daily weighted average debt balance for the six months ended June 30, 2010 and 2009 was $4,013 million and $4,371 million, respectively The weighted average interest rate on all of our borrowings, including amortization of
deferred financing costs, for the three months ended June 30, 2010 and 2009 was 5.7% and 5.5%, respectively. The weighted average interest rate on all of our borrowings, including amortization of deferred financing costs, for the six months
ended June 30, 2010 and 2009 was 5.6% and 5.1%, respectively.



As a business development company (BDC), we are permitted to issue senior debt securities and preferred stock (collectively,
Senior Securities) in any amounts as long as immediately after such issuance our asset coverage is at least 200%, or equal to or greater than our asset coverage prior to such issuance, after taking into account the payment of debt with
proceeds from such issuance. Asset coverage is defined as the ratio which the value of the total assets, less all liabilities and indebtedness not represented by Senior Securities, bears to the aggregate amount of Senior Securities representing
indebtedness. However, if our asset coverage is below 200%, we may also borrow amounts up to 5% of our total assets for temporary purposes even if that would cause our asset coverage ratio to further decline. As of June 30, 2010, our asset
coverage was 206%. Prior to June 30, 2010, our asset coverage had been below 200% since December 31, 2008.



Refinancing Transaction



Unsecured Revolving Credit FacilityOn June 28, 2010, we amended and restated the credit agreement (Amended and
Restated Credit Agreement) for our $1.4 billion unsecured revolving credit facility, with Wells Fargo Bank, N.A. as administrative agent, pursuant to which $680 million of our outstanding loans were repaid in cash, and our remaining loans were
converted into (i) $277 million of new floating rate secured loans under the Amended and Restated Credit Agreement (Floating Rate Private Secured Loans) and (ii) $430 million of new fixed rate secured notes (Fixed Rate
Private Secured Notes) issued under a new indenture (the Indenture, and together with the Amended and Restated Credit Agreement, the New Debt Agreements). We also paid a fee of $14 million, or 2% of the principal
balance of the Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes, to the holders of such debt.



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Unsecured Private DebtOn June 28, 2010, we completed an exchange
transaction with the noteholders of $336 million of our unsecured private notes for (i) an aggregate cash payment of $264 million, (ii) $72 million of Fixed Rate Private Secured Notes, and (iii) a fee of $1 million representing 2% of
the principal balance of the Fixed Rate Private Secured Notes. We also repaid in full our remaining unsecured private notes for $75 million.



Unsecured Public DebtOn June 28, 2010, we completed an exchange transaction with the noteholders of $539 million of our
unsecured public notes for (i) an aggregate cash payment of $11 million, (ii) $4 million of new call-protected floating rate secured notes (Floating Rate Public Secured Notes) and $524 million of new call-protected fixed rate
secured notes (Fixed Rate Public Secured Notes, and collectively with the Floating Rate Public Secured Notes, the New Secured Public Notes) issued under the Indenture, and (iii) a fee of $11 million representing 2% of
the principal balance of the New Secured Public Notes. The remaining $11 million of the original $550 million of unsecured public notes were amended on June 28, 2010 pursuant to a Second Supplemental Indenture to the indenture for the notes to
remove substantially all material affirmative and negative covenants, other than the covenant to pay principal and interest on such notes, and to remove certain events of default. All other terms of such notes remain unchanged.



The exchange transactions discussed above are accounted for
as a modification of debt in accordance with ASC 470-50, Modifications and Extinguishments. Accordingly, the aggregate fees of $26 million paid at closing to the lenders and noteholders were capitalized and will be amortized into interest
expense over the life of the notes and loans using the effective interest method, while fees paid to other third parties were expensed as incurred. As a result, we recognized $17 million of debt refinancing cost during the three months ended
June 30, 2010 consisting of fees paid to third party advisors and the writeoff of a portion of the existing unamortized deferred financing costs attributable to the unsecured debt that was repaid in cash.



Maturity Date and Optional RedemptionThe
Floating Rate Private Secured Loans, Fixed Rate Private Secured Notes and New Secured Public Notes (collectively, the New Secured Debt) have a final maturity date of December 31, 2013, unless earlier repaid. The Floating Rate
Private Secured Loans and Fixed Rate Private Secured Notes may be repaid prior to maturity at our option in whole or in part from time to time at a price equal to 100% of the principal amount repaid, plus accrued and unpaid interest to the payment
date. Prior to August 1, 2012, the New Secured Public Notes may be redeemed at our option in whole or in part from time to time (so long as the Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes are no longer outstanding)
at a price equal to accrued and unpaid interest on the principal amount being redeemed plus the greater of (i) 100% of the principal amount being redeemed, and (ii) the sum of the present values of the remaining scheduled payments of
principal and interest on the principal amount being redeemed discounted to the redemption date on a semi-annual basis at the Adjusted Treasury Rate (as defined in the Indenture for the New Secured Public Notes), plus 30 basis points.
Notwithstanding the foregoing, prior to August 1, 2012, the New Secured Public Notes may also be redeemed at our option in whole or in part from time to time at a price equal to 100% of the principal amount being redeemed, plus accrued and
unpaid interest to the date of redemption, but without payment of any premium, with Realized Proceeds (as defined in the New Debt Agreements) so long as there are no Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes
outstanding.



Scheduled
AmortizationThe following table sets forth the aggregate scheduled amortization (Aggregate Scheduled Amortization Amounts) on the Floating Rate Private Secured Loans and the Fixed Rate Private Secured Notes. The New Secured
Public Notes are not subject to amortization or other mandatory redemptions. Under the terms of the New Debt Agreements, we may defer payment of up to $200 million of the Aggregate Scheduled Amortization Amounts prior to June 30, 2013, which
payment deferral is reflected in the table below (in millions).



|                  |  |                                       
|----------------- |  | --------------------------------------
|Date              |  | Aggregate ScheduledAmortization
Amount
|December 31, 2011 |  | $                                    
|June 30, 2012     |  | $                                    
|December 31, 2012 |  | $120                                  
|June 30, 2013     |  | $500                                  
|Final Maturity    |  | Outstanding Balance                   



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The Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes are subject to
mandatory redemptions including (i) 100% of the net cash flow proceeds of certain debt incurred, (ii) 50% of the net cash flow proceeds of any capital stock issued after June 28, 2012, (iii) an applicable prepayment percentage of
any Realized Proceeds, and (iv) an applicable prepayment percentage of Excess Cash Flow (as defined in the New Debt Agreements). However, we are entitled to retain the first $580 million that would otherwise be payable from any cash flow
proceeds from debt incurred, capital stock issued, Realized Proceeds or Excess Cash Flow for new investments or other general corporate purposes. The applicable prepayment percentage is 50% if the aggregate outstanding principal amount of the New
Secured Debt is greater than or equal to $950 million and 25% if it is less than $950 million. Any above mandatory redemptions will be applied to the payment of the Aggregate Scheduled Amortization Amounts in direct order of maturity.



InterestThe Floating Rate Private Secured Loans
and Floating Rate Public Secured Notes bear interest at a rate per annum equal to one, two, three or six-month LIBOR, subject to a LIBOR floor of 2% per annum, plus the Applicable Percentage, as defined below, in effect at such time. The Fixed
Rate Private Secured Notes and Fixed Rate Public Secured Notes bear interest at 2.46% per annum, plus the Applicable Percentage in effect at the time. The applicable percentage (Applicable Percentage) is 6.50% when the aggregate
outstanding amount of the New Secured Debt is greater than or equal to $1 billion and 5.50% when the aggregate outstanding amount is less than $1 billion.



In addition, the Applicable Percentage for the New Secured Debt will increase by an additional 0.50% per annum if we fail to pay any
of the minimum amortization amounts (Aggregate Penalty Amortization Amounts) on the Floating Rate Private Secured Loans and Fixed Rate Private Secured Notes set forth in the table below when due (on a cumulative basis for each failure,
if applicable), for each succeeding day until any unpaid Aggregate Penalty Amortization Amounts have been paid (in millions).



|                  |  |                                     
|----------------- |  | ------------------------------------
|Date              |  | Aggregate PenaltyAmortization Amount
|December 31, 2011 |  | $  70                               
|June 30, 2012     |  | $100                                
|December 31, 2012 |  | $300                                
|June 30, 2013     |  | $350                                
|Final Maturity    |  | Outstanding Balance                 



The following table sets forth the interest rates on our outstanding secured borrowing facilities as of June 30, 2010:



|                                                      |  |              |  
|----------------------------------------------------- |  | ------------ | -
|Facility                                              |  | InterestRate |  
|Fixed rate private secured notes due December 2013    |  | 8.96         | %
|Floating rate private secured loans due December 2013 |  | 8.50         | %
|Fixed rate public secured notes due December 2013     |  | 8.96         | %
|Floating rate public secured notes due December 2013  |  | 8.50         | %



FeesWe are required to pay an extension fee in an amount equal to 1% of the aggregate principal amount of the New Secured
Debt outstanding on each of December 30, 2011 and December 31, 2012, payable on such date.



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Security and RankingThe New Secured Debt is a senior obligation of the company
and is secured by a first priority lien (subject to certain permitted liens) on substantially all of our existing and hereafter acquired unencumbered assets. The cost basis and fair value of the investment collateral securing the New Secured Debt
consisted of the following as of June 30, 2010 (in millions):



|                            |  |            |       |            |   |      
|--------------------------- |  | ---------- | ----- | ---------- | - | -----
|                            |  | COST BASIS |       | FAIR VALUE
|Senior debt                 |  | $          | 1,024 |            | $ | 823  
|Subordinated debt           |  |            | 1,017 |            |   | 822  
|Preferred equity            |  |            | 1,547 |            |   | 1,061
|Common equity               |  |            | 1,871 |            |   | 749  
|Equity warrants             |  |            | 92    |            |   | 67   
|Structured Products         |  |            | 645   |            |   | 147  
|                            |  |            |       |            |   |      
|Total Investment Collateral |  | $          | 6,196 |            | $ | 3,669
|                            |  |            |       |            |   |      
|Investment Non-Collateral   |  |            | 2,243 |            |   | 2,025
|                            |  |            |       |            |   |      
|Total Investments           |  | $          | 8,439 |            | $ | 5,694
|                            |  |            |       |            |   |      



CovenantsThe financial covenants under the New Debt Agreements include (i) maintenance of a minimum ratio of adjusted
operating cash flow to interest expense and (ii) a minimum ratio of pledged assets to secured debt, tested on a quarterly basis. Additional covenants include (i) restrictions on the incurrence of certain additional debt,
(ii) restrictions on acquisitions and investments, and (iii) restrictions on the payments of dividends and other distributions. However, we are permitted under the New Debt Agreements to pay dividends to the extent necessary in order to
maintain our RIC status provided that such dividends are paid in additional shares of our common stock to the extent allowed by IRS Revenue Procedure 2010-12. There are no limitations in the New Debt Agreements on our payment of cash dividends
provided that (i) we maintain an asset coverage ratio of at least 200% as required by the 1940 Act, (ii) we are in pro forma compliance with all financial covenants under the New Debt Agreements, (iii) there are no defaults
outstanding under the New Debt Agreements, and (iv) the aggregate principal amount of the New Secured Debt outstanding is less than or equal to $1.4 billion.



Securitizations



As of June 30, 2010, we were in compliance with all of
the covenants for our asset securitizations. Under the terms of each of our asset securitizations, if any loan collateral in each trust becomes a defaulted loan, as defined in each indenture, all interest and principal collections that would be
applied to the subordinated notes retained by us are paid sequentially to pay down the principal of the notes that are generally held by third party institutional investors in an amount equal to the principal amount of the defaulted loan collateral.
As of June 30, 2010, there was defaulted loan collateral in each of the asset securitization trusts and therefore all interest and principal collections that would have been applied to the subordinated notes retained by us will continue to be
applied sequentially to pay down the principal of the notes generally held by third party institutional investors in an amount equal to the principal amount of the defaulted loan collateral. Our asset securitizations are secured by portfolio
investments and assets with a fair value of approximately $2.2 billion as of June 30, 2010.



Derivative Agreements



We enter into interest rate swap agreements to manage interest rate risk and also to fulfill our obligations under the terms of our asset
securitizations. We also enter into foreign exchange swap agreements to manage foreign currency risk. We do not hold or issue derivative financial instruments for speculative purposes. All interest rate and foreign currency swap agreements are
recorded at fair value with changes in value reflected in net unrealized appreciation or depreciation of investments during the reporting period. The fair value of the interest rate swap agreements is based on the estimated net present value of the
future cash flows using the forward interest rate yield curve in effect at the end of the period, adjusted for the nonperformance risk of us and our counterparties.



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We have interest rate swap agreements where we generally pay a fixed rate and receive a
floating rate based on LIBOR. We also may enter into interest rate swaption agreements where, if exercised, we pay a floating rate based on LIBOR and receive a fixed rate. The fair value of our interest rate and foreign currency swap agreements are
identified as separate items on our consolidated balance sheets and are described in the accompanying consolidated schedules of investments.



As of June 30, 2010, we have derivative agreements, primarily interest rate swap agreements, that have a net fair value liability of
$117 million. Certain of our interest rate swap agreements allow the counterparty to terminate the transactions under certain conditions. As of June 30, 2010, none of the counterparties had the right to terminate the agreements.



Equity Capital



As a BDC, we are generally not able to issue and sell our
common stock at a price below our NAV per share, exclusive of any distributing commission or discount, without either shareholder approval or providing all shareholders a right to participate in the issuance of stock below NAV. As of June 30,
2010, our NAV per share was $9.15 per share and our closing market price was $4.82 per share. On February 12, 2010, our shareholders approved a proposal to authorize us to sell shares of our common stock at prices below the NAV per share in one
or more offerings subject to certain limitations, including the prior approval of our Board of Directors. The authorization is effective for a twelve month period expiring on February 12, 2011 and the number of shares that may be issued below
NAV per share is limited to 58,324,930 shares of common stock, which was 20% of the number of shares outstanding as of the record date for the shareholder vote of the proposal, subject to adjustment for shares issued following the occurrence of
events such as stock splits, stock dividends, distributions and recapitalizations.



In April 2010, we completed a registered direct offering of 58,300,000 shares of our common stock to a group of institutional investors at
a price of $5.06 per share. Upon completion of the offering, we received gross proceeds of approximately $295 million. As such, except as noted above, we presently have the authority to only issue 24,930 additional shares of common stock below our
NAV per share.



Future Distribution Requirements



If we qualify as a RIC and annually distribute
to our shareholders in a timely manner at least 90% of our investment company taxable ordinary income, we will not be subject to federal income tax on the portion of our taxable ordinary income and long-term capital gains we distribute to our
shareholders. As permitted by the Code, a RIC can designate dividends paid in the subsequent tax year as dividends of current year ordinary income and net long-term gains if those dividends are both declared by the extended due date of the
RICs federal income tax return and paid to shareholders by the last day of the subsequent tax year. We have a tax fiscal year that ends on September 30. We intend to continue to distribute sufficient dividends to eliminate our taxable
income. However, we may elect to not distribute sufficient dividends to eliminate all of our taxable income so long as we distribute at least 90% of our taxable ordinary income in order to maintain our qualification as a RIC. To the extent we
maintain our qualification as a RIC but do not distribute all of our taxable income, we would be subject to federal income tax on such undistributed amounts. For our tax year ended September 30, 2009, we do not have any remaining undistributed
ordinary taxable income.



For any tax years ending
on or before December 31, 2011, we can fulfill our distribution requirements by distributing up to 90% of a declared dividend in the form of our common stock. In order to utilize this option, we must allow each shareholder to elect to receive
his or her entire distribution in either cash or our stock subject to a limitation on the aggregate amount of cash to be distributed to all shareholders, which must be at least 10% of the aggregate declared distribution. If too many shareholders
elect to receive cash, each shareholder electing to receive cash will receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any shareholder electing to receive cash receive less than 10% of his or
her entire distribution in cash.



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Commitments



As of June 30, 2010, we had commitments under loan and financing agreements to fund up to $187 million to 38
portfolio companies, with $15 million of the commitments related to undrawn revolving credit facilities for European Capital (see Note 11 to our consolidated interim financial statements in this Form 10-Q). These commitments are primarily composed
of working capital credit facilities, acquisition credit facilities and subscription agreements. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and availability under borrowing base
thresholds. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio.



Portfolio Credit Quality



We stop accruing interest on our investments when it is determined that interest is no longer collectible. Our valuation analysis serves
as a critical piece of data in this determination. A significant change in the portfolio company valuation assigned by us could have an effect on the amount of our loans on non-accrual status. As of June 30, 2010, loans on non-accrual status
for 32 portfolio companies had a cost basis of $686 million and had a fair value of $308 million.



As of June 30, 2010 and December 31, 2009, current loans, past due loans and loans on non-accrual status were as follows
(dollars in millions):



|                                                                           |  |               |       |   |                   |   |       |  
|-------------------------------------------------------------------------- |  | ------------- | ----- | - | ----------------- | - | ----- | -
|                                                                           |  | June 30, 2010 |       |   | December 31, 2009 |  
|Current                                                                    |  | $             | 3,416 |   |                   | $ | 3,572 |  
|                                                                           |  |               |       |   |                   |   |       |  
|0 - 30 days past due                                                       |  |               |      |   |                   |   | 38    |  
|31 - 60 days past due                                                      |  |               |      |   |                   |   |      |  
|61 - 90 days past due                                                      |  |               | 31    |   |                   |   |      |  
|Greater than 90 days past due                                              |  |               | 26    |   |                   |   | 50    |  
|                                                                           |  |               |       |   |                   |   |       |  
|Total past due loans at cost                                               |  |               | 57    |   |                   |   | 88    |  
|Non-accruing loans at cost                                                 |  |               | 686   |   |                   |   | 811   |  
|                                                                           |  |               |       |   |                   |   |       |  
|Total loans at cost                                                        |  | $             | 4,159 |   |                   | $ | 4,471 |  
|                                                                           |  |               |       |   |                   |   |       |  
|Non-accruing loans at fair value                                           |  | $             | 308   |   |                   | $ | 290   |  
|                                                                           |  |               |       |   |                   |   |       |  
|Total loans at fair value                                                  |  | $             | 3,625 |   |                   | $ | 3,729 |  
|                                                                           |  |               |       |   |                   |   |       |  
|Non-accruing loans at cost as a percent of total loans at cost             |  |               | 16.5  | % |                   |   | 18.1  | %
|                                                                           |  |               |       |   |                   |   |       |  
|Non-accruing loans at fair value as a percent of total loans at fair value |  |               | 8.5   | % |                   |   | 7.8   | %
|                                                                           |  |               |       |   |                   |   |       |  



We believe that debt service
collection is probable for our loans that are past due.



Non-accruing loans at cost decreased from December 31, 2009 to June 30, 2010 primarily due to loan write-offs, exits, improved
portfolio company performance and recapitalizations.



During the second quarter of 2010, no portfolio companies were recapitalized that involved exchanging our loans for equity securities.
During the first quarter of 2010, three portfolio companies were recapitalized that included exchanging our loans for preferred or common equity securities that had a cost basis of $77 million and a fair value of $6 million.



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Credit Statistics



We monitor several key credit statistics that provide
information about credit quality and portfolio performance. These key statistics include:



| |  |  | Debt to EBITDA Ratiothe sum of all debt with equal or senior security rights to our debt investments divided by the total adjusted earnings
before interest, taxes, depreciation and amortization, or EBITDA, of the most recent twelve months or, when appropriate, the forecasted twelve months.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest Coverage RatioEBITDA divided by the total scheduled cash interest payments required to have been made by the portfolio company during
the most recent twelve-month period, or when appropriate, the forecasted twelve months.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Debt Service Coverage RatioEBITDA divided by the total scheduled principal amortization and the total scheduled cash interest payments required
to have been made during the most recent twelve-month period, or when appropriate, the forecasted twelve months.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We generally require our portfolio companies to provide annual audited and monthly or quarterly unaudited financial statements. Using
these financial statements, we calculate the statistics described above. Buyout and subordinated funds typically adjust EBITDA due to the nature of change of control transactions. Such adjustments are intended to normalize and restate EBITDA to
reflect the pro forma results of a company in a change of control transaction. For purposes of analyzing the financial performance of our portfolio companies, we make certain adjustments to EBITDA to reflect the pro forma results of a company
consistent with a change of control transaction in addition to adjusting EBITDA for significant non-recurring, unusual or infrequent items. Adjustments to EBITDA may include anticipated cost savings resulting from a merger or restructuring, costs
related to new product development, compensation to previous owners, non-recurring revenues or expenses, and other acquisition or restructuring related items.



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We track our portfolio investments on a static pool basis, including based on the statistics
described above. A static pool consists of the investments made during a given year. The static pool classification is based on the year the initial investment was made. Subsequent add-on investments are included in the static pool year of the
original investment. The Pre-2001 static pool consists of the investments made from the time of our initial public offering (IPO) through the year ended December 31, 2000. The following table contains a summary of portfolio
statistics as of and for the period ended June 30, 2010:



|                                                                            |  |                 |        |   |      |   |        |      |  |   |        |   |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |      |   |        |   |                          |   |        |                      |  |   |   |  |   |   |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------- |  | --------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---- | - | ------ | - | ------------------------ | - | ------ | -------------------- |  | - | - |  | - | - |  | - | ------ | - |  | - | ------ | -
|                                                                            |  | Static Pool (1) |       
|Portfolio Statistics ($ in millions, unaudited)                             |  | Pre-2001        |        |   | 2001 |   |        | 2002 |  |   | 2003   |   |  | 2004 |        |   | 2005 |   |        | 2006 |  |   | 2007   |   |  | 2008 |        |   | 2009 |   | 2010   |   | Pre-2001 - 2010Aggregate |   |        | 2005 - 2010Aggregate | 
|IRR at Fair Value of All Investments(2)                                     |  |                 | 8.0    | % |      |   | 18.1   | %    |  |   | 8.1    | % |  |      | 20.3   | % |      |   | 13.3   | %    |  |   | 5.5    | % |  |      | 8.3    | % |      |   | -9.5   | % |                          |   | 0.9    | %                    |  |   |  |  |   |  |  |   | 5.4    | % |  |   | 0.8    | %
|IRR of Exited Investments(5)                                                |  |                 | 8.6    | % |      |   | 20.3   | %    |  |   | 9.1    | % |  |      | 23.4   | % |      |   | 17.1   | %    |  |   | 21.7   | % |  |      | 9.8    | % |      |   | -9.6   | % |                          |   | -74.9  | %                    |  |   |  |  |   |  |  |   | 11.7   | % |  |   | 8.4    | %
|IRR at Fair Value of Equity Investments Only(2)(3)(4)                       |  |                 | 5.9    | % |      |   | 46.9   | %    |  |   | 11.5   | % |  |      | 27.2   | % |      |   | 27.5   | %    |  |   | -4.0   | % |  |      | 13.8   | % |      |   | -16.4  | % |                          |   | -1.3   | %                    |  |   |  |  |   |  |  |   | 3.8    | % |  |   | -2.6   | %
|IRR of Exited Equity Investments Only(3)(4)(5)                              |  |                 | 8.4    | % |      |   | 48.8   | %    |  |   | 18.3   | % |  |      | 32.2   | % |      |   | 43.0   | %    |  |   | 47.2   | % |  |      | 18.7   | % |      |   | 8.1    | % |                          |   | 69.0   | %                    |  |   |  |  |   |  |  |   | 26.4   | % |  |   | 27.9   | %
|Original Investments and Commitments                                        |  | $               | 1,065  |   |      | $ | 376    |      |  | $ | 962    |   |  | $    | 1,436  |   |      | $ | 2,266  |      |  | $ | 4,642  |   |  | $    | 5,181  |   |      | $ | 7,369  |   |                          | $ | 1,021  |                      |  | $ |  |  | $ |  |  | $ | 24,318 |   |  | $ | 18,213 |  
|Total Exits and Prepayments of Original Investments and Commitments         |  | $               | 998    |   |      | $ | 353    |      |  | $ | 757    |   |  | $    | 1,083  |   |      | $ | 1,831  |      |  | $ | 2,253  |   |  | $    | 3,297  |   |      | $ | 3,542  |   |                          | $ | 55     |                      |  | $ |  |  | $ |  |  | $ | 14,169 |   |  | $ | 9,147  |  
|Total Interest, Dividends and Fees Collected                                |  | $               | 404    |   |      | $ | 147    |      |  | $ | 327    |   |  | $    | 404    |   |      | $ | 618    |      |  | $ | 991    |   |  | $    | 936    |   |      | $ | 939    |   |                          | $ | 213    |                      |  | $ |  |  | $ |  |  | $ | 4,979  |   |  | $ | 3,079  |  
|Total Net Realized (Loss) Gain on Investments                               |  | $               | (128   | ) |      | $ | (4     | )    |  | $ | (90    | ) |  | $    | 142    |   |      | $ | 26     |      |  | $ | 280    |   |  | $    | (93    | ) |      | $ | (651   | ) |                          | $ | (50    | )                    |  | $ |  |  | $ |  |  | $ | (568   | ) |  | $ | (514   | )
|Current Cost of Investments                                                 |  | $               | 79     |   |      | $ | 23     |      |  | $ | 200    |   |  | $    | 336    |   |      | $ | 463    |      |  | $ | 2,110  |   |  | $    | 1,539  |   |      | $ | 2,892  |   |                          | $ | 797    |                      |  | $ |  |  | $ |  |  | $ | 8,439  |   |  | $ | 7,338  |  
|Current Fair Value of Investments                                           |  | $               | 23     |   |      | $ | 2      |      |  | $ | 142    |   |  | $    | 399    |   |      | $ | 351    |      |  | $ | 1,196  |   |  | $    | 1,312  |   |      | $ | 1,639  |   |                          | $ | 630    |                      |  | $ |  |  | $ |  |  | $ | 5,694  |   |  | $ | 4,777  |  
|Current Fair Value of Investments as a % of Total Investments at Fair Value |  |                 | 0.4    | % |      |   | 0.0    | %    |  |   | 2.5    | % |  |      | 7.0    | % |      |   | 6.2    | %    |  |   | 21.0   | % |  |      | 23.0   | % |      |   | 28.8   | % |                          |   | 11.1   | %                    |  |   |  |  |   |  |  |   | 100.0  | % |  |   | 83.9   | %
|Net Unrealized Appreciation (Depreciation)                                  |  | $               | (56    | ) |      | $ | (21    | )    |  | $ | (58    | ) |  | $    | 63     |   |      | $ | (112   | )    |  | $ | (914   | ) |  | $    | (227   | ) |      | $ | (1,253 | ) |                          | $ | (167   | )                    |  | $ |  |  | $ |  |  | $ | (2,745 | ) |  | $ | (2,561 | )
|Non-Accruing Loans at Cost                                                  |  | $               | 19     |   |      | $ | 14     |      |  | $ | 27     |   |  | $    |       |   |      | $ | 31     |      |  | $ | 59     |   |  | $    | 135    |   |      | $ | 377    |   |                          | $ | 24     |                      |  | $ |  |  | $ |  |  | $ | 686    |   |  | $ | 595    |  
|Non-Accruing Loans at Fair Value                                            |  | $               | 21     |   |      | $ | 2      |      |  | $ | 18     |   |  | $    |       |   |      | $ | 8      |      |  | $ | 49     |   |  | $    | 72     |   |      | $ | 114    |   |                          | $ | 24     |                      |  | $ |  |  | $ |  |  | $ | 308    |   |  | $ | 259    |  
|Equity Interest at Fair Value(3)                                            |  | $               |       |   |      | $ |       |      |  | $ | 5      |   |  | $    | 168    |   |      | $ | 75     |      |  | $ | 684    |   |  | $    | 492    |   |      | $ | 331    |   |                          | $ | 166    |                      |  | $ |  |  | $ |  |  | $ | 1,921  |   |  | $ | 1,673  |  
|Debt to EBITDA(6)(7)(8)                                                     |  |                 | 8.0    |   |      |   | NM     |      |  |   | 7.7    |   |  |      | 3.8    |   |      |   | 5.9    |      |  |   | 5.3    |   |  |      | 5.4    |   |      |   | 6.8    |   |                          |   | 6.0    |                      |  |   |  |  |   |  |  |   | 5.9    |   |  |   | 6.0    |  
|Interest Coverage(6)(8)                                                     |  |                 | 1.9    |   |      |   | NM     |      |  |   | 1.0    |   |  |      | 3.1    |   |      |   | 2.2    |      |  |   | 2.8    |   |  |      | 2.3    |   |      |   | 2.3    |   |                          |   | 1.6    |                      |  |   |  |  |   |  |  |   | 2.3    |   |  |   | 2.3    |  
|Debt Service Coverage(6)(8)                                                 |  |                 | 1.9    |   |      |   | NM     |      |  |   | 0.8    |   |  |      | 2.9    |   |      |   | 1.7    |      |  |   | 1.8    |   |  |      | 1.9    |   |      |   | 1.9    |   |                          |   | 1.4    |                      |  |   |  |  |   |  |  |   | 1.9    |   |  |   | 1.8    |  
|Average Age of Companies(8)                                                 |  |                 | 40 yrs |   |      |   | 25 yrs |      |  |   | 53 yrs |   |  |      | 40 yrs |   |      |   | 45 yrs |      |  |   | 29 yrs |   |  |      | 31 yrs |   |      |   | 29 yrs |   |                          |   | 25 yrs |                      |  |   |  |  |   |  |  |   | 32 yrs |   |  |   | 29 yrs |  
|Diluted Ownership Percentage(3)                                             |  |                 | 63     | % |      |   | 86     | %    |  |   | 37     | % |  |      | 52     | % |      |   | 45     | %    |  |   | 63     | % |  |      | 46     | % |      |   | 42     | % |                          |   | 36     | %                    |  |   |  |  |   |  |  |   | 47     | % |  |   | 47     | %
|Average Sales(8)(9)                                                         |  | $               | 44     |   |      | $ | 7      |      |  | $ | 49     |   |  | $    | 197    |   |      | $ | 98     |      |  | $ | 104    |   |  | $    | 127    |   |      | $ | 236    |   |                          | $ | 100    |                      |  | $ |  |  | $ |  |  | $ | 156    |   |  | $ | 162    |  
|Average EBITDA(8)(10)                                                       |  | $               | 4      |   |      | $ |       |      |  | $ | 9      |   |  | $    | 41     |   |      | $ | 25     |      |  | $ | 21     |   |  | $    | 32     |   |      | $ | 41     |   |                          | $ | 28     |                      |  | $ |  |  | $ |  |  | $ | 32     |   |  | $ | 33     |  
|Average EBITDA Margin                                                       |  |                 | 9.1    | % |      |   |       |      |  |   | 18.4   | % |  |      | 20.8   | % |      |   | 25.5   | %    |  |   | 20.2   | % |  |      | 25.2   | % |      |   | 17.4   | % |                          |   | 28.0   | %                    |  |   |  |  |   |  |  |   | 20.5   | % |  |   | 20.4   | %
|Total Sales(8)(9)                                                           |  | $               | 73     |   |      | $ | 291    |      |  | $ | 169    |   |  | $    | 1,303  |   |      | $ | 833    |      |  | $ | 1,315  |   |  | $    | 5,287  |   |      | $ | 8,145  |   |                          | $ | 1,221  |                      |  | $ |  |  | $ |  |  | $ | 18,637 |   |  | $ | 15,968 |  
|Total EBITDA(8)(10)                                                         |  | $               | 7      |   |      | $ | 4      |      |  | $ | 19     |   |  | $    | 192    |   |      | $ | 169    |      |  | $ | 245    |   |  | $    | 701    |   |      | $ | 1,567  |   |                          | $ | 244    |                      |  | $ |  |  | $ |  |  | $ | 3,148  |   |  | $ | 2,757  |  
|% of Senior Loans(8)(11)                                                    |  |                 | 77     | % |      |   | 21     | %    |  |   | 56     | % |  |      | 61     | % |      |   | 40     | %    |  |   | 32     | % |  |      | 39     | % |      |   | 62     | % |                          |   | 26     | %                    |  |   |  |  |   |  |  |   | 47     | % |  |   | 46     | %
|% of Loans with Lien(8)(11)                                                 |  |                 | 100    | % |      |   | 68     | %    |  |   | 100    | % |  |      | 100    | % |      |   | 90     | %    |  |   | 91     | % |  |      | 92     | % |      |   | 92     | % |                          |   | 60     | %                    |  |   |  |  |   |  |  |   | 90     | % |  |   | 88     | %



|(1) | Static pool classification is based on the year the initial investment was made. Subsequent add-on investments are included in the static pool year of the original
investment.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Assumes investments are exited at current fair value.
|--- | -----------------------------------------------------

|(3) | Excludes investments in Structured Products.
|--- | --------------------------------------------

|(4) | Excludes equity investments that are the result of conversions of debt and warrants received with the issuance of debt.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(5) | Includes exited securities of existing portfolio companies.
|--- | -----------------------------------------------------------

|(6) | These amounts do not include investments in which we own only equity.
|--- | ---------------------------------------------------------------------

|(7) | For portfolio companies with a nominal EBITDA amount, the portfolio companys maximum debt leverage is limited to 15 times EBITDA.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(8) | Excludes investments in Structured Products, managed funds and American Capital, LLC.
|--- | -------------------------------------------------------------------------------------

|(9) | Sales of the most recent twelve months, or when appropriate, the forecasted twelve months.
|--- | ------------------------------------------------------------------------------------------

|(10) | EBITDA of the most recent twelve months, or when appropriate, the forecasted twelve months.
|---- | -------------------------------------------------------------------------------------------

|(11) | As a percentage of our debt investments.
|---- | ----------------------------------------



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FORWARD-LOOKING STATEMENTS



All statements contained herein that are not historical
facts including, but not limited to, statements regarding anticipated activity are forward looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to
differ materially are the following: (i) changes in the economic conditions in which we operate negatively impacting our financial resources; (ii) certain of our competitors have greater financial resources than us reducing the number of
suitable investment opportunities offered to us or reducing the yield necessary to consummate the investment; (iii) there is uncertainty regarding the value of our privately held securities that require our good faith estimate of fair value,
and a change in estimate could affect our net asset value; (iv) our investments in securities of privately-held companies may be illiquid which could affect our ability to realize a gain; (v) our portfolio companies could default on their
loans or provide no returns on our investments which could affect our operating results; (vi) we are dependent on external financing to fund our business; (vii) our ability to retain key management personnel; (viii) a continued
economic downturn or recession could further impair our portfolio companies and therefore harm our operating results; (ix) our borrowing arrangements impose certain restrictions; (x) changes in interest rates may affect our cost of capital
and net operating income; (xi) we cannot incur additional indebtedness unless immediately after a debt issuance we maintain an asset coverage of at least 200%, or equal to or greater than our asset coverage prior to such issuance, which may
affect returns to our shareholder; (xii) we may fail to continue to qualify for our pass-through treatment as a RIC, which could have an affect on shareholder return; (xiii) our common stock price may be volatile;; and (xiv) general
business and economic conditions and other risk factors described in our reports filed from time to time with the SEC. We caution readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the
Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.



Item 3.Quantitative and Qualitative Disclosure About Market Risk



In the context of Item 3, market risk refers to the
risk of loss arising from adverse changes in financial and derivative instrument market rates and prices, such as fluctuations in interest rates and currency exchange rates. For a discussion of sensitivity analysis related to these types of
market risks, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended December 31, 2009. We believe that there have been no material changes in
these market risks since December 31, 2009.



Item 4.Controls and Procedures



Evaluation of Disclosure Controls and Procedures



We maintain disclosure controls and procedures
that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1943, as amended (the Exchange Act) reports is recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based
on the definition of disclosure controls and procedures as promulgated under the Exchange Act, as amended. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.



American Capital, including our
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2010. Based on the foregoing, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective.



Changes in Internal Control over Financial Reporting



There have been no significant changes in our internal controls over financial reporting or in other factors that could
significantly affect the internal controls over financial reporting during the second quarter of 2010.



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PART II. OTHER INFORMATION



Item 1.Legal Proceedings



We and certain of our executive
officers are defendants in a purported class action lawsuit in the United States District Court for the District of Maryland styled as Klugmann v. American Capital, Ltd., et al. The lawsuit was filed on behalf of the purchasers of our common
stock between October 31, 2007 and November 7, 2008, and alleges violations of Sections 10(b) and 20A of the Exchange Act and Rule 10b-5 promulgated thereunder, violations of Sections 11 and 12(a)(2) of the Securities Act of 1933, as
amended, and in the case of the individual defendants, the control person provisions of the Exchange Act. The factual assertions in the complaint consist primarily of the allegation that the defendants made incorrect statements related to our
dividend policy and our revision of that policy to suspend dividends for the fourth quarter of 2008. The complaint seeks unspecified damages, costs and expenses. On June 14, 2010, the court denied the defendants motion to dismiss the
matter, without prejudice. We intend to contest the matter vigorously.



Item 1A.Risk Factors



You should carefully consider the risks described below and
all other information contained in this quarterly report on Form 10-Q, including our interim financial statements and the related notes thereto before making a decision to purchase our securities. The risks and uncertainties described below are not
the only ones facing us. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance.



If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely affected. If that happens, the trading price of our securities could decline, and you may lose all or part of your investment. The description below includes any material
changes to, and supersedes the description of, the risk factors affecting our business previously disclosed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.



Risks Related to Our Business and Structure



We have been impacted by a period of credit and capital markets
disruption and recession



There have been
traumatic developments in the financial markets worldwide over the past two years which have led to a recession in the U.S. and other countries. We have been adversely affected by these conditions. The recession and global financial crisis has
limited our access to the debt and equity capital markets and resulted in significant depreciation of our investment portfolio and overleveraging of our balance sheet. The market disruption and liquidity crisis has also dramatically reduced the
volume of mergers and acquisitions in the market place affecting our ability to continue to generate additional liquidity through sales of portfolio investments. Thus, we expect to continue to face significant challenges and uncertainties that could
materially adversely affect our business, financial condition, and prospects.



Our business has significant capital requirements and may be adversely affected by a prolonged inability to access the capital markets or to sell
assets



Our business requires a
substantial amount of capital to operate. We historically have financed our operations, including the funding of new investments, through cash generated by our operating activities, secured and unsecured borrowings, the sale of investments, the sale
of debt by special purpose affiliates to which we have contributed loan assets originated by us, and the sale of our equity. Our ability to continue to rely on such sources or other sources of capital is affected by restrictions in the 1940 Act and
in certain of our debt agreements relating to the incurrence of additional indebtedness and the changes in the capital markets from the financial crisis. It is also affected by legal, structural and other factors. There can be no assurance that we
will be able to access the funds necessary for our liquidity requirements.



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The economic recession has adversely affected our business and a continuation of the adverse market
and economic conditions could cause further harm to our operating results



The economic recession had a significant negative impact on the fair value of our portfolio investments evidenced by the significant net
unrealized depreciation on our portfolio investments during 2008 and 2009. In addition, many of our portfolio companies are susceptible to the current economic downturn and may be unable to repay our debt investments, may be unable to be sold at a
price that we could recover our investment, or even continue to operate during such periods. As a result, our non-performing assets have increased and may continue to increase and the value of our portfolio has decreased and may continue to decrease
during an economic downturn. Our ability to obtain capital to invest in existing and new portfolio investments has also been impaired by the economic downturn. These results could have a material adverse effect on our business, financial condition
and results of operations.



We have loans to and investments
in middle market borrowers who may default on their loans or provide no return on our investments



We have invested in and made loans to privately-held, middle market businesses. There is generally no publicly available information about
these businesses. Therefore, we rely on our principals, associates, analysts and consultants to investigate and monitor these businesses. The portfolio companies in which we have invested may have significant variations in operating results, may
from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, may require substantial additional capital to support their operations, to finance expansion or to
maintain their competitive position, may otherwise have a weak financial position or may be adversely affected by changes in the business cycle. Our portfolio companies may not meet net income, cash flow and other coverage tests typically imposed by
senior lenders. Numerous factors may affect a portfolio companys ability to repay its loan, including the failure to meet its business plan, a downturn in its industry or negative economic conditions, such as the current recession.
Deterioration in a portfolio companys financial condition and prospects may be accompanied by deterioration in the collateral for the loan. We have also made unsecured, subordinated loans and invested in equity securities, which involve a
higher degree of risk than senior loans. In certain cases, our involvement in the management of our portfolio companies may subject us to additional defenses and claims from borrowers and third parties. These conditions may make it difficult for us
to obtain repayment of our investments.



Middle
market businesses typically have narrower product lines and smaller market shares than large businesses. They tend to be more vulnerable to competitors actions and market conditions, as well as general economic downturns. In addition, these
companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing, and other capabilities, and a larger number of qualified managerial and technical
personnel.



These businesses may also experience
substantial variations in operating results. Typically, the success of a middle market business also depends on the management talents and efforts of one or two persons or a small group of persons. The death, disability or resignation of one or more
of these persons could have a material adverse impact on us. In addition, middle market businesses often need substantial additional capital to expand or compete and will have borrowed money from other lenders with claims that are senior to us.



Our senior loans generally are secured by the
assets of our borrowers. Our subordinated loans may or may not be secured by the assets of the borrower; however, if a subordinated loan is secured, our rights to payment and our security interest are usually subordinated to the payment rights and
security interests of the senior lender. Therefore, we may be limited in our ability to enforce our rights to collect our subordinated loans and to recover any of the loan balance through a foreclosure of collateral.



There is uncertainty regarding the value of our portfolio investments



A substantial portion of our portfolio
investments are not publicly traded. As required by law, we fair value these investments in accordance with the 1940 Act and ASC 820 based on a determination made in good faith by



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our Board of Directors. Due to the uncertainty inherent in valuing investments that are not publicly traded, as set forth in our consolidated financial statements, our determinations of fair
value may differ materially from the values that would exist if a ready market for these investments existed. Our determinations of the fair value of our investments have a material impact on our net earnings through the recording of unrealized
appreciation or depreciation of investments as well as our assessment of income recognition. Thus, our NAV could be materially affected in the event of any changes in applicable law or accounting pronouncements governing how we currently fair value
assets, or if our determinations regarding the fair value of our investments are materially different from the values that would exist if a ready market existed for these securities.



We may fail to continue to qualify for our pass-through tax treatment



We operate so as to qualify to be taxed
as a RIC under Subchapter M of the Code and, provided we meet certain requirements under the Code, we can generally avoid corporate level federal income taxes on income distributed to our shareholders as dividends. We would cease to qualify for this
favorable pass-through tax treatment if we are unable to comply with the source of income, asset diversification or distribution requirements contained in Subchapter M of the Code, or if we cease to operate so as to qualify as a BDC under the 1940
Act. There is a risk that we will continue to sell select investments in order to delever our balance sheet over the next several years, and if so, a smaller investment portfolio may make it difficult for us to continue to meet the source of income
or asset diversification requirements in order to maintain our qualification as a RIC.



If we fail to qualify to be taxed as a RIC or to distribute our income to shareholders on a current basis, we would be subject to
corporate level taxes which would significantly reduce the amount of income available for distribution to our shareholders. The loss of our RIC qualification could have a material adverse effect on the total return, if any, obtainable from an
investment in our common stock.



A change in interest rates
may adversely affect our profitability



Because we have funded a portion of our investments with borrowings, our net increase in assets from operations is affected by the spread
between the rate at which we have invested and the rate at which we borrowed. We have attempted to match-fund our liabilities and assets by financing floating rate assets with floating rate liabilities and fixed rate assets with fixed rate
liabilities or equity. We have entered into interest rate basis swap agreements to match the interest rate basis of our assets and liabilities, thereby locking in the spread between our asset yield and the cost of our borrowings, and to fulfill our
obligations under the terms of our asset securitizations. However, our derivatives are considered economic hedges that do not qualify for hedge accounting under ASC Topic 815, Derivatives and Hedging (ASC 815).



Under our interest rate swap agreements, we generally pay a
fixed rate and receive a floating interest rate based on LIBOR. We may enter into interest rate swaption agreements where, if exercised, we would receive a fixed rate and pay a floating rate based on LIBOR. We may also enter into interest rate cap
agreements that would entitle us to receive an amount, if any, by which our interest payments on our variable rate debt exceed specified interest rates.



An increase or decrease in interest rates could reduce the spread between the rate at which we invest and the rate at which we borrow, and
thus, adversely affect our profitability, if we have not appropriately match-funded our liabilities and assets or hedged against such event. Alternatively, our interest rate hedging activities may limit our ability to participate in the benefits of
lower interest rates with respect to the hedged portfolio.



Also, the fair value of certain of our debt investments is based in part on the current market yields or interest rates of similar
securities. A change in interest rates could have a significant impact on our determination of the fair value of these debt investments. In addition, a change in interest rates could also have an impact on the fair



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value of our interest rate swap agreements that could result in the recording of unrealized appreciation or depreciation in future periods. For example, a decline, or a flattening, of the forward
interest rate yield curve will typically result in the recording of unrealized depreciation of our interest rate swap agreements.



Therefore, adverse developments resulting from changes in interest rates could have a material adverse effect on our business, financial
condition and results of operations. See Managements Discussion And Analysis Of Financial Condition And Results Of OperationsQuantitative and Qualitative Disclosures About Market Risk and Financial Statements and
Supplementary Data for additional information on interest rate swap agreements.



A change in currency exchange rates may adversely affect our profitability



We have or may make investments in debt instruments that are
denominated in currencies other than the U.S. dollar. In addition, we have or may make investments in the equity of portfolio companies whose functional currency is not the U.S. dollar. Our domestic portfolio companies may also transact a
significant amount of business in foreign countries and therefore their profitability may be impacted by changes in foreign currency exchange rates. The functional currency of our largest portfolio company, European Capital, is the Euro. European
Capital also has investments in other European currencies, including the British Pound. As a result, an adverse change in currency exchange rates may have a material adverse impact on our business, financial condition and results of operations.



We may experience fluctuations in our quarterly results



We have and could experience further
fluctuations in our quarterly operating results due to a number of factors including, among others, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our
markets, the ability to sell investments at attractive terms, the ability to fund and close suitable investments, the timing of the recognition of fee income from closing investment transactions and general economic conditions. As a result of these
factors, results for any period should not be relied upon as being indicative of performance in future periods. See Managements Discussion and Analysis of Financial Condition and Results of Operations.



We are dependent upon our key management personnel for our future
success



We are dependent on the
diligence and skill of our senior management and other members of management for raising capital and the selection, structuring, monitoring, restructuring/amendment and sale of our investments. Our future success depends to a significant extent on
the continued service and coordination of our senior management and other members of management. Due to such factors as limitations on our ability to raise capital for new investments or the uncertainty surrounding our ability to exist as a going
concern due to the default under certain of our debt obligations, it may be difficult to retain such individuals. The departure of certain executive officers or key employees could materially adversely affect our ability to implement our business
strategy. We do not maintain key man life insurance on any of our officers or employees.



We operate in a highly competitive market for investment opportunities



We compete with hundreds of private equity and subordinated
funds and other financing sources, including traditional financial services companies such as finance companies, commercial banks, investment banks and other equity and non-equity based investment funds. Some of our competitors are substantially
larger and have considerably greater financial resources than us. Competitors may have lower cost of funds and many have access to funding sources that are not available to us. In addition, certain of our competitors may have higher risk tolerances
or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships and build their market shares. There is no assurance that the competitive pressures we face will not have a material
adverse effect on our business, financial condition and results of operations. In



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addition, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time and there can be no assurance that we will be able to
identify and make investments that satisfy our investment objectives or that we will be able to meet our investment goals.



Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations may adversely affect our business



We and our portfolio companies are
subject to regulation by laws at the local, state, federal and foreign level, including with respect to securities laws, tax and accounting standards. These laws and regulations, as well as their interpretation, may be changed from time to time.
Accordingly, any change in these laws or regulations or the failure to comply with these laws or regulations could have a material adverse impact on our business. Certain of these laws and regulations pertain specifically to RICs or BDCs.



We could face losses and potential liability if intrusions,
viruses or similar disruptions to our technology jeopardize our confidential information or that of users of our technology



Although we have implemented, and will continue to implement, security measures, our technology platform is and will continue to be
vulnerable to intrusion, computer viruses or similar disruptive problems caused by transmission from unauthorized users. In addition, any misappropriation of proprietary information could expose us to a risk of loss or litigation.



Risks Related to Liquidity and Capital Resources



Our secured borrowing arrangements impose significant limitations on
us



New Secured Debt.As of
June 30, 2010, we had $277 million of floating rate secured loans under our term facility with Citicorp North America, Inc., as administrative agent (the Credit Facility), and $1,030 million of fixed and floating rate secured notes,
issued under an indenture with Wilmington Trust FSB, as trustee (collectively, the New Secured Debt). Certain tranches of the secured notes are call-protected and except under certain circumstances, may only be redeemed by us prior to
August 1, 2012 with a penalty. The remaining secured loans and notes have scheduled amortization and are subject to mandatory redemptions with proceeds from new debt and equity issuances, realized proceeds and excess cash flow. As a result, our
ability to utilize our excess cash flow, investment sale proceeds or capital raising proceeds for reinvestment purposes is limited.



Our New Secured Debt imposes additional covenants upon us, including a limitation on our ability to enter into new debt financing, pay
cash dividends, dispose of assets and fund new investments. In addition, we will have to maintain the following financial covenants: a minimum ratio of operating cash flow to interest expense and a minimum ratio of pledged assets to secured debt.
There can be no assurance that we will be able to maintain in compliance with any such covenants and a failure to do so could have a material adverse effect on our business, financial condition and results of operations.



Securitized Debt. As of June 30, 2010, we also
had $1.6 billion outstanding under secured private term debt (Term Debt Notes) issued by our consolidated trusts to institutional investors. Each of these borrowing arrangements is further described below. These securities contain
customary default provisions, as well as the following default provisions: a failure on our part, as the originator of the loans securing the Term Debt Notes or as the servicer of these loans, to make any payment or deposit required under related
agreements within two business days after the date the payment or deposit is required to be made, or if we alter or amend our credit and collection policy in a manner that could have a material adverse effect on the holders of the Term Debt Notes or
the voluntary or involuntary commencement of a case against us under Title eleven of the United States Code.



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As a BDC, the 1940 Act generally limits our ability to issue Senior Securities if our asset coverage
ratio does not exceed 200% immediately after each issuance of Senior Securities or remain equal to or greater than our asset coverage prior to such issuance.



As a BDC, the 1940 Act generally limits our ability to issue
Senior Securities if our asset coverage ratio does not exceed 200% immediately after each issuance of Senior Securities or remain equal to or greater than our asset coverage prior to such issuance. Asset coverage ratio is defined in the 1940 Act as
the ratio which the value of the total assets, less all liabilities and indebtedness not represented by Senior Securities, bears to the aggregate amount of Senior Securities representing indebtedness. From December 31, 2008 through
March 31, 2010, our asset coverage ratio was less than 200%, and we were prohibited from issuing any additional Senior Securities other than for the purpose of immediately repaying existing debt, until our asset coverage ratio exceeded 200%,
except for temporary borrowings that are repaid within 60 days and, limited to no more than 5% of our total assets. As of June 30, 2010, our asset coverage ratio was 206%. There are no assurances that we will be able to remain in compliance
with this requirement. Thus, our access to funding to operate our business may be prohibited again in the future, and may have a material adverse affect on our business operations.



As a BDC, the 1940 Act generally limits our ability to issue equity
below our NAV per share



Because we are
subject to regulatory restrictions on the amount of debt we can issue, we are dependent on the issuance of equity as a financing source. As a BDC, we are generally not able to issue and sell our common stock at a price below our NAV per share,
exclusive of any distributing commission or discount, without shareholder approval. Earlier this year, we received shareholder approval to sell a limited number of shares of our common stock at prices below our NAV per share in one or more offerings
subject to certain conditions, including the prior approval of our Board of Directors. We subsequently sold almost all of such shares in a public offering, and only have shareholder authorization until February 12, 2011 to sell up to the
remaining 24,930 shares at a price below our NAV per share. As of June 30, 2010, the closing price of our common stock was $4.82, which was significantly less than our NAV of $9.15 per share. If our common stock continues to trade at a discount
to NAV, this regulatory restriction could adversely affect our financial condition by impairing our ability to raise additional equity capital, which could help reduce our borrowing costs and strengthen our balance sheet. In addition, even if we
were to issue equity at a price below our NAV per share, it could result in a dilution in our NAV per share, which could result in a decline in the market price of our common stock.



Our interest rate swap agreements contain covenants that place
limitations on us



We enter into interest
rate swap agreements to manage interest rate risk and also to fulfill our obligations under the terms of our asset securitizations. Certain of our interest rate swap agreements contain an event of default that allows the counterparty to terminate
transactions outstanding under the agreement following the occurrence of a cross default on certain of our other indebtedness in amounts equal to or greater than $5 million to $15 million, as applicable. Certain of our interest rate swap agreements
also contain an event of default that allows a counterparty to terminate transactions outstanding under the agreement if certain of our other indebtedness in amounts equal to or greater than $5 million or $15 million, as applicable, is accelerated.
As of June 30, 2010, all of our existing interest rate swap agreements were secured by a first priority lien, subject to certain permitted liens, on substantially all of our non-securitized assets pari passu with our New Secured Debt. We
are prohibited under the terms of our New Secured Debt from collateralizing any new hedging agreements entered into after June 28, 2010.



As of June 30, 2010, we were in compliance with the above covenants for our interest rate swap agreements. However, there are no
assurances that we will be able to remain in compliance. In the event of a default under our interest rate swap agreements, if our counterparties elected to terminate their agreements with us, it could have a material adverse effect on our business,
financial condition and results of operations.



The lack of
liquidity of our privately-held securities may adversely affect our business



Most of our investments consist of securities acquired directly from their issuers in private transactions. Some of these securities are
subject to restrictions on resale or otherwise are less liquid than public securities.



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The illiquidity of our investments may make it difficult for us to obtain cash equal to the value at which we record our investments if the need arises.



We and certain of our executive officers are defendants in a purported
class action lawsuit



We and certain of
our executive officers were named as defendants in a purported class action lawsuit, filed on behalf of the purchasers of our common stock between October 31, 2007 and November 7, 2008. The complaint alleges certain securities law
violations relating to the revision of our dividend policy to suspend dividends for the fourth quarter of 2008. The complaint seeks unspecified damages, costs and expenses. While we cannot predict the outcome with any certainty, we do not expect
that it will materially affect our financial condition or results of operations. However, there can be no assurance whether this pending legal proceeding will have a material adverse effect on our financial condition or results of operations in any
future reporting period.



Risks Related to Our Investing and
Financing Strategy



We have and may incur additional
debt that could increase your investment risks



We or our consolidated affiliates borrow money or issue debt securities to provide us with additional funds to invest. Our lenders have
fixed dollar claims on our assets or the assets of our consolidated affiliates that are senior to the claims of our shareholders and, thus, our lenders have preference over our shareholders with respect to these assets. In particular, the assets
that our consolidated affiliates have pledged to lenders under the Term Debt Notes were sold or contributed to separate affiliated statutory trusts prior to such pledge. While we own a beneficial interest in these trusts, these assets are the
property of the respective trusts, available to satisfy the debts of the trusts, and would only become available for distribution to our shareholders to the extent specifically permitted under the agreements governing those Term Debt Notes. See
Risk FactorsOur secured borrowing arrangements impose certain limitations on us. Additionally, we have granted a security interest in substantially all of our other assets to the holders of our New Secured Debt.



The following table is designed to illustrate the effect on
returns to a holder of our common stock of the leverage created by our use of borrowing, at the weighted average interest rate of 6.2% for the twelve months ended June 30, 2010, and assuming hypothetical annual returns on our portfolio of minus
15% to plus 15%. As can be seen, leverage generally increases the return to shareholders when the portfolio return is positive and decreases return when the portfolio return is negative. Actual returns may be greater or less than those appearing in
the table.



|                                                 |  |       |   |  |       |   |  |      |   |  |     |   |  |      |   |  |      |   |  |      |  
|------------------------------------------------ |  | ----- | - |  | ----- | - |  | ---- | - |  | --- | - |  | ---- | - |  | ---- | - |  | ---- | -
|Assumed Return on Portfolio (Net of Expenses)(1) |  | -15.0 | % |  | -10.0 | % |  | -5.0 | % |  |    |   |  | 5.0  | % |  | 10.0 | % |  | 15.0 | %
|Corresponding Return to Common Shareholders(2)   |  | -21.7 | % |  | -11.7 | % |  | -1.7 | % |  | 8.3 | % |  | 18.2 | % |  | 28.2 | % |  | 38.2 | %



|(1) | The assumed portfolio return is required by regulation of the SEC and is not a prediction of, and does not represent, our projected or actual performance.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In order to compute the Corresponding Return to Common Shareholders, the Assumed Return on Portfolio is multiplied by the total value of our
assets at the beginning of the period to obtain an assumed return to us. From this amount, all interest expense accrued during the period is subtracted to determine the return available to shareholders. The return available to shareholders is then
divided by the total value of our net assets as of the beginning of the period to determine the Corresponding Return to Common Shareholders.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Although borrowing money for investment increases the
potential for gain, it also increases the risk of a loss. A decrease in the value of our investments will have a sharper impact on our NAV if we borrow money to make investments. Our ability to pay dividends could also be adversely impacted. In
addition, our ability to pay dividends or incur additional indebtedness is restricted if our asset coverage is not equal to at least twice our indebtedness and also by the terms of the New Secured Debt.



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We currently have a non-investment grade corporate credit rating and we could experience further
downgrades



As of June 30, 2010, our
corporate credit rating was B2, B- and B+ by Moodys Investor Services, Standard & Poors Ratings Services and Fitch Ratings, respectively, which represents a downgrade from Baa3, BBB and BBB, respectively, as of December 31,
2008. Any rating below BBB or Baa2 is considered non-investment grade. If these credit ratings were to not improve or even be further downgraded, our ability to refinance or raise additional debt, particularly at attractive rates, could be
negatively impacted. Any of these occurrences could have a material effect on our business, financial condition and results of operations.



Our credit ratings may not reflect all risks of an investment in our debt securities



Our credit ratings are an assessment by major debt rating
agencies of our ability to pay our obligations. Consequently, actual or expected changes in our credit ratings will likely affect the market value of our publicly issued debt securities. Our credit ratings, however, may not fully or accurately
reflect all of the credit and market risks associated with our publicly issued debt securities.



We have limitations on our ability to obtain liquidity by selling our investments at prices lower than our current fair values



We may need to generate liquidity in our portfolio in order
to meet principal amortization payments under the terms of certain of our indebtedness, including our New Secured Debt and remaining unsecured public notes. We may also need to generate liquidity to meet our current operating and financing costs or
to fund any cash dividend to our shareholders to maintain our qualification as a RIC. In order to generate current liquidity, we may need to sell our debt and/or equity investments at prices lower than our current fair values or at prices lower than
we could realize in future periods if we were to continue to hold the investments. We are prohibited though under the terms of our New Secured Debt from selling our portfolio investments below their fair market values. Thus, there can be no
assurances that we will be able to sell assets in our portfolio to generate sufficient liquidity when necessary.



We may not realize gains from our equity investments



We invest in equity interests with the goal to realize gains
from the disposition of the interests. Certain of our equity interests may not appreciate in value and, in fact, have depreciated in value. Accordingly, we may not be able to realize gains from our equity interests.



Failure to deploy capital effectively or obtain financing to make
additional investments may reduce our return on equity



If we fail to invest new capital effectively, or obtain additional funds to grow, our return on equity may be negatively impacted, which
could reduce the price of the securities that you own.



Our
portfolio companies may be highly leveraged



Leverage may have important adverse consequences to our portfolio companies and to us as an investor. Portfolio companies that are
leveraged may be subject to restrictive financial and operating covenants. The leverage may impair these companies ability to finance their future operations and capital needs. As a result, their flexibility to respond to changing business and
economic conditions and to business opportunities may be limited. A leveraged companys income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.



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Investment in non-investment grade Structured Products may be illiquid, may have a higher risk of
default, and may not produce current returns



Our investments in Structured Product securities are generally non-investment grade, which means that major rating agencies rate them
below the top four investment-grade rating categories (i.e., AAA through BBB), and are sometimes referred to as junk bonds. Non-investment grade Structured Product bonds and preferred shares tend to be less
liquid, may have a higher risk of default and may be more difficult to value. Economic recessions or downturns may cause defaults or losses on collateral securities to increase. Non-investment grade securities are considered speculative, and their
capacity to pay principal and interest in accordance with the terms of their issue is not certain.



Our assets include investments in Structured Products which are subordinate in right of payment to more senior securities



Our assets include subordinated CMBS, CLO and CDO securities
which are the most subordinate class of securities in a structure of securities secured by a pool of loans and accordingly are the first to bear the loss upon a restructuring or liquidation of the underlying collateral and the last to receive
payment of interest and principal. The economic recession has caused defaults on the underlying collateral to increase; therefore we do not expect to recover the full amount of our initial investment in such subordinated interests. Additionally,
estimated fair values of these subordinated interests tend to be more sensitive to changes in economic conditions than more senior securities. As a result, such subordinated interests generally are not actively traded and may not provide holders
thereof with liquid investments.



The trading market or
market value of our publicly issued debt securities may fluctuate



Our publicly issued debt securities do not have an established trading market. There is no assurance that a trading market for our
publicly issued debt securities will ever develop or be maintained if developed. Additionally, many factors may materially adversely affect the trading market for, and market value of, our publicly issued debt securities including, but not limited
to, the following:



| |  |  | future defaults under the securities;
| | - |  | -------------------------------------



| |  |  | our creditworthiness;
| | - |  | ---------------------



| |  |  | the time remaining to the maturity of these debt securities;
| | - |  | ------------------------------------------------------------



| |  |  | the outstanding principal amount of debt securities with terms identical to these debt securities;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | the supply of debt securities trading in the secondary market, if any;
| | - |  | ----------------------------------------------------------------------



| |  |  | the redemption or repayment features, if any, of these debt securities;
| | - |  | -----------------------------------------------------------------------



| |  |  | the level, direction and volatility of market interest rates generally; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | market rates of interest that are higher or lower than rates borne by the debt securities.
| | - |  | ------------------------------------------------------------------------------------------



There may also be a limited number of buyers when an investor
decides to sell its debt securities. This too may materially adversely affect the market value of the debt securities or the trading market for the debt securities.



If we fail to invest a sufficient portion of our assets in qualifying
assets, we could lose our BDC status



As
a BDC, we may not acquire any assets other than qualifying assets unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. Thus, we may be precluded from investing in
potentially attractive investments if such investments are not qualifying assets for purposes of



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the 1940 Act. If we fail to invest a sufficient portion of our assets in qualifying assets, we could lose our status as a BDC, which would have a material adverse effect on our business,
financial condition and results of operations. In addition, there is a risk that this restriction could prevent us from making additional investments in our existing portfolio companies, which could cause our position to be diluted. We could also be
forced to sell certain of our investments at to comply with the 1940 Act, which may result in us receiving significantly less than the current value of such investments.



Risks Related to Our Common Stock



There is a risk that you may not receive dividends



Since our IPO, we have distributed and currently intend to
distribute more than 90% of our investment company ordinary taxable income to our shareholders in order to continue to qualify as a RIC and have distributed and currently intend to distribute sufficient dividends to eliminate our investment company
taxable income and capital gains. However, due to the global financial and liquidity crisis, there can be no assurance that we will have sufficient liquidity to pay these amounts by the required dates to maintain our qualification as a RIC and to
eliminate all of our investment company ordinary taxable income.



Pursuant to applicable tax regulations, we are also required to include in taxable income certain amounts that have not yet been collected
in cash such as payment-in-kind interest or original issue discount accretion. Since we may be required to recognize taxable income before or without receiving cash representing such income, we may have difficulty meeting the requirement to
distribute at least 90% of our investment company ordinary taxable income to continue to qualify as a RIC.



As a RIC, we could elect to retain our net long-term capital gains and pay a federal income tax on such gains on behalf of our
shareholders treating them as a deemed distribution for tax purposes. In two of our last three tax years, we have elected to retain our long-term capital gains and pay the federal income tax on behalf of our shareholders instead of distributing the
net long-term capital gains as a cash dividend to our shareholders.



Historically, we have declared a dividend every quarter since our IPO through the third quarter of 2008. However, we have not declared a
dividend since the second quarter of 2009. There may be a risk that we will generate taxable income in future periods that is significantly lower than in prior periods or there may be a risk that we do not generate any taxable income in future
periods, which could result in significantly reduced dividends, if any, in future periods as compared to historical levels. We had a net capital loss carryforward of $198 million for our tax year ending September 30, 2009, which may be carried
forward for up to eight years. To the extent we generate future long-term taxable capital gains, our requirement to distribute those gains as dividends will be reduced by the amount of our net capital loss carryforward. We may also realize losses on
certain of our debt and CMBS investments that could qualify as taxable ordinary losses under Section 166 or Section 1221 of the Code. As of June 30, 2010, our total debt and CMBS investment portfolio had accumulated net unrealized
depreciation of $917 million. In future periods, we could realize losses on certain of these debt and CMBS investments that could qualify as taxable ordinary losses, which could significantly reduce our taxable ordinary income in future periods or
could even result in us incurring a taxable ordinary loss in future periods. To the extent our taxable ordinary income is reduced from ordinary losses on the realization of our debt investments, the amount of our taxable ordinary income that we are
required to distribute to our shareholders as dividends to maintain our qualification as a RIC or to eliminate our taxable income would be reduced.



We cannot assure you that we will achieve investment results or maintain a tax status that will allow any specified level of cash
distributions or year-to-year increases in cash distributions.



There is a risk that you may receive our stock as dividends



Under the 1940 Act, if a BDC has any senior debt investments outstanding that were publicly issued, the BDC must make
provision to prohibit the declaration of any dividend (except a dividend payable in the stock of



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the BDC) if its asset coverage ratio is below certain thresholds at the time of the distribution after deducting the amount of such dividend. We have received guidance from the staff of the SEC
that notwithstanding this provision of the 1940 Act, we are able to declare and pay dividends pursuant to a revenue procedure issued by the IRS. On January 7, 2009, the IRS issued Revenue Procedure 2009-15, which temporarily allows a RIC to
distribute its own stock as a dividend for the purpose of fulfilling its distribution requirements. Pursuant to this revenue procedure, we may treat a distribution of our stock as a dividend if (i) the stock is publicly traded on an established
securities market, (ii) the distribution is declared with respect to a taxable year ending on or before December 31, 2009, and (iii) each shareholder may elect to receive his or her entire distribution in either cash or our stock
subject to a limitation on the aggregate amount of cash to be distributed to all shareholders, which must be at least 10% of the aggregate declared distribution. If too many shareholders elect to receive cash, each shareholder electing to receive
cash will receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event would any shareholder electing to receive cash receive less than 10% of his or her entire distribution in cash. On December 23, 2009,
the IRS issued Revenue Procedure 2010-12, which extends under similar terms the temporary guidance provided by Revenue Procedure 2009-15. This new guidance applies to distributions by a RIC of its own stock declared by December 31, 2012 with
respect to RIC distribution requirements for taxable years ending on or before December 31, 2011. Future dividends with respect to a taxable year ending on or before December 31, 2011, if any, may be paid in shares of our common stock,
subject to the limitations discussed above.



As
noted above, our ability to pay cash dividends is also restricted under certain circumstances under the terms of our New Secured Debt. We are permitted to pay cash dividends only: (i) to the extent required to maintain our status as a RIC and
eliminate our taxable income so long as we pay a portion of such dividends in shares of our common stock to the maximum level permitted by applicable law, or (ii) if our asset coverage is at least 200% after giving effect to such cash dividends
and we are not in default under the agreements and the aggregate principal amount of the New Secured Debt is equal to or less than $1.4 billion.



Future equity financings may be on terms adverse to shareholder interests



We have issued, and may issue in the future, equity capital
to help fund our operations and to make investments. Our shareholders approved a proposal at a special meeting on February 12, 2010 that extended the authority we previously received in February 2009, allowing us to sell shares of common stock
below NAV per share subject to certain limitations. We issued shares of common stock below our NAV per share in the first quarter of 2010 to certain institutional investors, and in the first quarter of 2009 in connection with our acquisition of
those shares of European Capital that we did not own. If we issue any additional shares of common stock below our NAV per share, the interests of our existing shareholders may be further diluted.



The following table is designed to illustrate the dilutive
effect on NAV per share if we issue additional shares of common stock below our NAV per share. The table below reflects NAV per share diluted for the issuance of 50,000,000 shares of common stock, at hypothetical sales prices of 5%, 10%, 15%, 20%,
25% and 50% below the June 30, 2010 NAV of $9.15 per share.



|                                           |  |   |      |   |  |   |      |   |  |   |      |   |  |   |      |   |  |   |      |   |  |   |      |  
|------------------------------------------ |  | - | ---- | - |  | - | ---- | - |  | - | ---- | - |  | - | ---- | - |  | - | ---- | - |  | - | ---- | -
|Assumed Sales price per share below NAV(1) |  |   | -50  | % |  |   | -25  | % |  |   | -20  | % |  |   | -15  | % |  |   | -10  | % |  |   | -5   | %
|Diluted NAV per share                      |  | $ | 8.57 |   |  | $ | 8.86 |   |  | $ | 8.92 |   |  | $ | 8.98 |   |  | $ | 9.04 |   |  | $ | 9.09 |  
|% Dilution                                 |  |   | -6.4 | % |  |   | -3.2 | % |  |   | -2.6 | % |  |   | -1.9 | % |  |   | -1.3 | % |  |   | -0.6 | %



|(1) | The assumed sales price per share is assumed to be net of any applicable underwriting commissions or discounts.
|--- | ---------------------------------------------------------------------------------------------------------------



If we cannot meet NASDAQs continued listing requirements, NASDAQ
may delist our common stock, which would have an adverse impact on the liquidity and market price of our common stock



Our common stock is currently listed on The NASDAQ Global Select Market. Under NASDAQ rules, a stock can be delisted and not allowed to
trade on NASDAQ if the closing bid price of the stock over a 30



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consecutive trading-day period is less than $1.00 per share. Since the beginning of the financial markets crisis, we have and continue to experience significant volatility, including substantial
decreases, in the price of our common stock. For the year ended December 31, 2009, the low closing price of our common stock as reported on The NASDAQ Global Select Market was $0.58 per share and the closing price on December 31, 2009 was
$2.44 per share. As of June 30, 2010, our closing price was $4.82 per share. There is a risk that the share price of our common stock could decline further if the depressed state of the economy and credit and capital markets continue to impact
our operations. There could then be a risk that the share price of our common stock could fall below the minimum listing requirement again, and thus be delisted from NASDAQ. A delisting of our common stock could negatively impact us by reducing the
liquidity and market price of our common stock and the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing.



The market price of our common stock may fluctuate significantly



The market price and marketability of
shares of our securities may from time to time be significantly affected by numerous factors, including many over which we have no control and that may not be directly related to us. These factors include the following:



| |  |  | price and volume fluctuations in the stock market from time to time, which are often unrelated to the operating performance of particular companies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significant volatility in the market price and trading volume of securities of RICs, BDCs or other companies in our sector, which is not necessarily
related to the operating performance of these companies;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in laws, regulatory policies, tax guidelines or financial accounting standards, particularly with respect to RICs or BDCs;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in our dividend policy and earnings or variations in operating results;
| | - |  | -------------------------------------------------------------------------------



| |  |  | any shortfall in revenue or net income or any increase in losses from levels expected by securities analysts;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | decreases in our NAV per share;
| | - |  | -------------------------------



| |  |  | general economic trends and other external factors; and
| | - |  | -------------------------------------------------------



| |  |  | loss of a major funding source.
| | - |  | -------------------------------



Fluctuations in the trading price of our common stock may adversely affect the liquidity of the trading market for our common stock and,
in the event that we seek to raise capital through future equity financings, our ability to raise such equity capital.



Our common stock may be difficult to resell



Investors may not be able to resell shares of common stock at or above their purchase prices due to a number of factors, including:



| |  |  | actual or anticipated fluctuation in our operating results;
| | - |  | -----------------------------------------------------------



| |  |  | volatility in our common stock price;
| | - |  | -------------------------------------



| |  |  | changes in expectations as to our future financial performance or changes in financial estimates of securities analysts; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | departures of key personnel.
| | - |  | ----------------------------



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Provisions of our Third Amended and Restated Certificate of Incorporation and Second Amended and
Restated Bylaws could deter takeover attempts



Our Third Amended and Restated Certificate of Incorporation, as amended and Second Amended and Restated Bylaws and the Delaware General
Corporation Law contain provisions that may have the effect of discouraging and delaying or making more difficult a change in control. The existence of these provisions may negatively impact the price of our common stock and may discourage third
party bids. These provisions may reduce any premiums paid to our shareholders for shares of our common stock that they own. Furthermore, we are subject to Section 203 of the Delaware General Corporation Law. Section 203 governs business
combinations with interested shareholders, and also could have the effect of delaying or preventing a change in control.



Item 2.Unregistered Sales of Equity Securities and Use of Proceeds



None.



Item 3.Defaults Upon Senior
Securities



None.



Item 4.[Removed and Reserved]



Item 5.Other Information



None.



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##### Table of Contents

Item 6.Exhibits



(a) Exhibits



|       |  |                                                                                                                                                                                                                                                                                           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|*3.1.  |  | American Capital Strategies, Ltd. Third Amended and Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 2.a. of the Registration Statement on
Form N-2 (File No. 333-161421), filed August 19, 2009.                                                       
|       | 
|*3.2.  |  | American Capital Strategies, Ltd. Second Amended and Restated Bylaws, as amended, incorporated herein by reference to Exhibit 3.2 of Form 10-Q dated August 11,
2008.                                                                                                                     
|       | 
|*4.3.  |  | Indenture between American Capital, Ltd. and Wilmington Trust Company, as successor trustee, dated as of April 26, 2007, incorporated herein by reference to Exhibit 2.d.3.
of the Registration Statement on Form N-2 (File No. 333-142398), filed on April 26, 2007.                     
|       | 
|4.4.   |  | First Supplemental Indenture by and between American Capital, Ltd. and Wilmington Trust Company, as successor trustee, dated as of July 17, 2007.                                                                                                                                         
|       | 
|4.6.   |  | Second Supplemental Indenture between American Capital, Ltd. and Wilmington Trust Company, as Trustee, dated as of June 28, 2010.                                                                                                                                                         
|       | 
|4.7.   |  | Indenture between American Capital, Ltd. and Wilmington Trust FSB, as Trustee, dated as of June 28, 2010.                                                                                                                                                                                 
|       | 
|4.8.   |  | Senior Secured Non-Amortizing Call-Protected Adjustable Fixed Rate Dollar Unrestricted Global Note, No. B-1, CUSIP No. 02503YAF0, payable to Cede & Co., in the amount of
$500,000,000.                                                                                                   
|       | 
|4.9.   |  | Senior Secured Non-Amortizing Call-Protected Adjustable Fixed Rate Dollar Unrestricted Global Note, No. B-2, CUSIP No. 02503YAF0, payable to Cede & Co., in the amount of
$24,098,000.                                                                                                    
|       | 
|4.10.  |  | Senior Secured Non-Amortizing Call-Protected Floating Rate Dollar Unrestricted Global Note, No. C-1, CUSIP No. 02503YAE3, payable to Cede & Co., in the amount of
$4,300,000.                                                                                                             
|       | 
|4.11.  |  | Senior Secured Amortizing Adjustable Fixed Rate Dollar Rule 144A Global Note, No. D-1, CUSIP No. 02503YAC7, payable to Cede & Co., in the amount of
$500,000,000.                                                                                                                         
|       | 
|4.12.  |  | Senior Secured Amortizing Adjustable Fixed Rate Dollar Rule 144A Global Note, No. D-2, CUSIP No. 02503YAC7, payable to Cede & Co., in the amount of
$2,431,467.                                                                                                                           
|       | 
|4.13.  |  | Series 6.85% Senior Notes Due 2012, No. 1, CUSIP No. 024937AA2, payable to Cede & Co., in the amount of $500,000,000.                                                                                                                                                                     
|       | 
|4.14.  |  | Series 6.85% Senior Notes Due 2012, No. 2, CUSIP No. 024937AA2, payable to Cede & Co., in the amount of $50,000,000.                                                                                                                                                                      
|       | 
|*10.1. |  | Form of Subscription Agreement dated as of April 19, 2010, filed as Exhibit 10.1 to Form 8-K (file No. 814-00149) filed on April 22, 2010.                                                                                                                                                
|       | 
|*10.2. |  | Letter Agreement, dated as of April 30, 2010, by and between American Capital, Ltd. and Wells Fargo Bank, N.A., as Administrative Agent, filed as Exhibit 10.1 to Form 8-K (File
No. 814-00149), filed on May 3, 2010.                                                                    
|       | 
|10.3.  |  | Lock-Up Agreement, dated as of June 9, 2010, by and between American Capital, Ltd. and certain holders of the Companys unsecured public 6.85% Senior Notes due
August 1, 2012 (the Public Notes) who have represented that they own beneficially approximately 43% of the Public Notes.



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|      |  |                                                                                                                                                                                                                                                                                 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.4. |  | Amended and Restated Credit Agreement among American Capital, Ltd. as the Borrower, the lenders listed therein, and Wells Fargo Bank N.A., as the Administrative Agent, dated as
of June 28, 2010.                                                                              
|      | 
|10.5. |  | Collateral Trust and Intercreditor Agreement among American Capital, Ltd., Wells Fargo Bank, N.A., as Credit Agreement Representative, Wilmington Trust FSB, as Public Note
Representative and U.S. Bank National Association, as Collateral Trustee, dated as of June 28, 2010.
|      | 
|10.6. |  | Security Agreement made by American Capital, Ltd. in favor of U.S. Bank National Association, as Collateral Trustee, dated as of June 28, 2010.                                                                                                                                 
|      | 
|*10.7 |  | Resignation and Successor Agent Agreement, dated as of July 19, 2010 with Citicorp North America, Inc. and Wells Fargo Bank, N.A., filed as Exhibit 10.1 to Form 8-K (File No.
814-00149), filed on July 22, 2010.                                                              
|      | 
|31.   |  | Certification of CEO and CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                         
|      | 
|32.   |  | Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                          



|* | Fully or partly previously filed
|- | --------------------------------



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



AMERICAN CAPITAL, LTD.By:

/s/    RICHARD E. KONZMANNRichard E. Konzmann
Senior Vice President, Accounting




Date: August 6, 2010



95