10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2006

OR

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

Commission file number 814-00149

AMERICAN CAPITAL STRATEGIES, 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 to be registered pursuant to Section 12(b) of the Act: Not Applicable

Securities registered pursuant to section 12(g) 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)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨.    No þ.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes ¨.        No þ.

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 þ.        No ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x        Accelerated filer ¨        Non-accelerated filer ¨.

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

As of June 30, 2006, the aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant was approximately $4.6 billion based upon a closing price of the Registrant’s common stock of $33.48 per share as reported on The NASDAQ Global Select Market on that date. (For this computation, the registrant has excluded the market value of all shares of its common stock reported as beneficially owned by executive officers and directors of the registrant and certain other stockholders; such an exclusion shall not be deemed to constitute an admission that any such person is an “affiliate” of the registrant.)

As of January 31, 2007, there were 153,162,889 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE. The Registrant’s definitive proxy statement for the 2007 Annual Meeting of Stockholders is incorporated by reference into certain sections of Part III herein.

Certain exhibits previously filed with the Securities and Exchange Commission are incorporated by reference into Part IV of this report.

AMERICAN CAPITAL STRATEGIES, LTD.

TABLE OF CONTENTS

PART I.
Item 1.	Business	3
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	25
Item 3.	Legal Proceedings	26
Item 4.	Submission of Matters to a Vote of Security Holders	26
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	31
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	63
Item 8.	Financial Statements and Supplementary Data	64
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	134
Item 9A.	Controls and Procedures	134
Item 9B.	Other Information	134
PART III.
Item 10.	Directors and Executive Officers of the Registrant	135
Item 11.	Executive Compensation	135
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	135
Item 13.	Certain Relationships and Related Transactions	135
Item 14.	Principal Accountant Fees and Services	135
PART IV.
Item 15.	Exhibits and Financial Statement Schedules	135
Signatures		139

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PART I

Item 1. Business

General

American Capital Strategies, Ltd. (which is referred throughout this report as “American Capital”, “we” and “us”) is the largest business development company (“BDC”) and is the second largest U.S. publicly traded alternative asset manager. We, both directly and through our global asset management business, are an investor in management and employee buyouts, private equity buyouts and early stage and mature private and public companies. Our primary business objectives are to increase our taxable income, net operating income and net asset value by investing in senior debt, subordinated debt and equity of private and public companies with attractive current yields and/or potential for equity appreciation and realized gains and by investing in our alternative asset manager business. Our business consists of two primary segments—our investment portfolio and our alternative asset management business.

American Capital Fund

American Capital is a Delaware corporation, which was incorporated in 1986. On August 29, 1997, we completed an initial public offering (“IPO”) of our common stock and became a non-diversified, closed end investment company and have elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). On October 1, 1997, we began operations 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. As a RIC, we are not subject to federal income tax on the portion of our taxable income and capital gains we distribute to our stockholders.

American Capital provides investment capital to middle market companies, which we generally consider to be companies with sales between $10 million and $750 million. We invest in and sponsor management and employee buyouts, invest in private equity sponsored buyouts and provide capital directly to early stage and mature private and small public companies. In addition, we invest in commercial mortgage backed securities (“CMBS”) and collateralized debt obligation (“CDO”) securities and invest in investment funds managed by us. We invest primarily in senior and mezzanine (subordinated) debt and equity of companies in need of capital for buyouts, growth, acquisitions and recapitalizations. Our ability to fund the entire capital structure is an advantage in completing many middle market transactions. Currently, we will invest up to $750 million in a single middle market transaction in North America. Our largest investment at cost as of December 31, 2006, excluding investment funds, was $247 million. Our largest investment in an investment fund at cost as of December 31, 2006, was $654 million. As of December 31, 2006, our average investment size, at fair value, was $43 million, or 0.5% of total assets.

Historically, a majority of our financings have been to assist in the funding of change of control management buyouts, and we expect that trend to continue. Capital that we provide directly to private and small public companies is used for growth, acquisitions or recapitalizations. From our IPO in 1997, through December 31, 2006, we invested over $3 billion in equity securities and over $10 billion in debt securities of middle market companies as well as CMBS and CDO securities, including approximately $446 million in funds committed but undrawn under credit facilities and equity commitments. Our loans typically range from $5 million to $100 million, mature in five to ten years, and require monthly or quarterly interest payments at fixed rates or variable rates generally based on the London Interbank offered rate (“LIBOR”) rate, plus a margin. We price our debt and equity investments based on our analysis of each transaction. As of December 31, 2006, the weighted average effective interest rate on our debt securities was 12.3%.

We will invest in the equity capital of portfolio companies that we purchase through an American Capital sponsored buyout. We also may acquire minority equity interests in the companies from which we have provided debt financing with the goal of enhancing our overall return. As of December 31, 2006, we had a fully-diluted weighted average ownership interest of 41% in our private finance portfolio companies with a total equity investment at fair value of over $2.8 billion.

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We often sponsor One-Stop Buyouts^™ in which we provide most if not all of the senior debt, subordinated debt and equity financing in the transaction. In certain occasions, we may initially fund all of the senior debt at closing and syndicate it to third party lenders post closing. We have a loan syndications group that arranges to have all or part of the senior loans syndicated to other third party lenders.

The opportunity to be repaid or exit our investments may occur if a portfolio company refinances our loans, is sold in a change of control transaction, sells its equity in a public offering or if we exercise our put rights. Since our IPO in 1997, through December 31, 2006, we have realized $635 million in gross realized gains and $420 million in gross realized losses resulting in $215 million in cumulative net gains, excluding net losses attributable to periodic interest settlements of interest rate swap agreements and taxes on net gains. We have had 164 exits and repayments of over $4.7 billion of our originally invested capital, representing 35% of our total capital committed since our IPO, earning a 17% compounded annual return on these investments from the interest, dividends and fees over the life of the investments.

As a BDC, we are required by law to make significant managerial assistance available to certain of our portfolio companies. Such assistance typically involves closely monitoring its operations, advising the portfolio company’s board on matters such as the business plan and the hiring and termination of senior management, providing financial guidance and participating on a portfolio company’s board of directors. As of December 31, 2006, we had board seats at 95 out of 188 portfolio companies and had board observation rights on 32 of our remaining portfolio companies. We also have an operations team, including ex-CEOs with significant turnaround and bankruptcy experience, which provides intensive operational and managerial assistance. Providing assistance to our portfolio companies serves as an opportunity for us to maximize their value.

We also invest in non-investment grade tranches of CMBS and CDO securities, which means that nationally recognized statistical rating organizations rate them below the top four investment-grade rating categories (i.e., “AAA” through “BBB”). Non-investment grade CMBS and CDO securities have a higher risk of loss but usually provide a higher yield than do investment grade securities. Through December 31, 2006, we had made $494 million and $192 million of CMBS and CDO investments, respectively.

Public Manager of Funds of Alternative Assets

We are a leading global alternative asset manager with $9.8 billion in assets under management as of December 31, 2006, including $2.5 billion under management of third party funds. In addition to managing American Capital’s assets and providing management services to portfolio companies of American Capital, we have successfully launched our initiative to be a publicly traded alternative asset manager of additional third party funds. During 2005 and 2006, we launched our first three alternative asset funds in addition to American Capital—European Capital Limited (“ECAS”), American Capital Equity I, LLC (“ACE I”) and ACAS CLO 2007-1, Ltd. (“ACAS CLO”). We manage these funds either through consolidated operating subsidiaries or wholly-owned portfolio companies. We refer to the asset management business throughout this report to include both the asset management conducted by both our consolidated operating subsidiaries and our wholly-owned asset management portfolio companies.

Through our asset management business, we earn base management fees based on the size of our funds and incentive income based on the performance of our funds. In addition, we may invest directly into our alternative asset funds and earn investment income from our principal investments in those funds. We intend to grow our existing funds, while continuing to create innovative products to meet the increasing demand of sophisticated investors for superior risk-adjusted investment returns.

We expect to continue to develop our asset management business as a publicly traded manager of funds of alternative assets. Our corporate development team and marketing department conduct market research and due diligence to identify industry and geographic sectors of alternative assets that have attractive investment attributes and where we can create an alternative asset fund with attractive return prospects. In addition to

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alternative asset funds focused on a specific industry or geographic location, we will also identify potential alternative asset funds that will investment in a specific security type such as first lien debt, second lien debt, real estate loans or equity securities. As particular funds are selected, we hire investment professionals with experience in the proposed asset class for the alternative asset fund. American Capital may make initial investments directly in the assets of a proposed alternative asset fund. Those assets may either be sold or contributed to the proposed alternative asset fund upon formation of the fund. It is expected that separate alternative asset funds would then be established, which would raise capital, a portion of which could be funded by us. We would expect to enter into asset management agreements with the alternative asset fund either by a wholly-owned consolidated operating subsidiary or a wholly-owned portfolio company. The following additional alternative asset funds are in various stages of development as of December 31, 2006:

• American Capital Real Estate

• European Capital Equity I

• American Capital Equity II

• American Capital Financial

• American Capital Special Situations

• American Capital Energy

• American Capital Technology

We expect to continue developing the alternative asset funds listed above in 2007 and 2008. We also have identified other alternative asset funds to develop that we will begin the early stages of development in 2007.

We have established an extensive referral network comprised of investment bankers, private equity and mezzanine funds, commercial bankers and business and financial brokers. We have a marketing department dedicated to maintaining contact with members of the referral network and receiving opportunities for us to consider. Our marketing department has developed an extensive proprietary database of reported middle market transactions. Based on the data we have gathered, we believe that the middle market is highly fragmented and we are the leader in the market with a 3% market share. According to our data, no other competitor had more than a 2% market share. Based on our data, more than two hundred firms did not close a transaction during 2006 and approximately 45% of the transactions that closed were closed by firms that only completed one or two transactions during 2006. Our marketing department and our various offices received information concerning several thousand transactions for consideration. Most of those transactions did not meet our criteria for initial consideration, but the opportunities that met those criteria were directed to our principals for further review and consideration. We have also developed an internet website that provides an efficient tool to businesses for learning about American Capital and our capabilities.

Corporate Information

Our executive offices are located at 2 Bethesda Metro Center, 14^th Floor, Bethesda, Maryland 20814 and our telephone number is (301) 951-6122. In addition to our executive offices, we maintain offices in New York, San Francisco, Los Angeles, Philadelphia, Chicago, Dallas, Palo Alto, London and Paris.

Our corporate website is located at www.AmericanCapital.com. We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

Lending and Investment Decision Criteria

We review certain criteria in order to make investment decisions. The list below represents a general overview of the criteria we have used in making our lending and investment decisions. Not all criteria are

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required to be favorable in order for us to make an investment. Follow-on investments for growth, acquisitions or recapitalizations are based on the same general criteria. Follow-on investments in distress situations are based on the same general criteria but are also evaluated on the potential to preserve prior investments.

Operating History. We generally focus on middle market companies that have been in business over 10 years and have an attractive operating history, including generating positive cash flow. We generally target companies with significant market share in their products or services relative to their competitors. In addition, we consider factors such as customer concentration, performance during recessionary periods, competitive environment and ability to sustain margins. As of December 31, 2006, our current portfolio companies had an average age of 33 years with 2006 average sales of $132 million and 2006 average adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $24 million.

Growth. We consider a target company’s ability to increase its cash flow. Anticipated growth is a key factor in determining the value ascribed to any warrants and equity interests acquired by us.

Liquidation Value of Assets. Although we do not operate as an asset-based lender, liquidation value of the assets collateralizing our loans is a factor in many credit decisions. Emphasis is placed both on tangible assets such as accounts receivable, inventory, plant, property and equipment as well as intangible assets such as brand recognition, market reputation, customer lists, networks, databases and recurring revenue streams.

Experienced Management Team. We consider the quality of senior management to be extremely important to the long-term performance of most companies. Therefore, we consider it important that senior management be experienced and properly incentivized through meaningful ownership interest in the company.

Exit Strategy. Most of our investments consist of securities acquired directly from their issuers in private transactions. Generally, there are not public markets on which these securities are traded, thus limiting their liquidity. Therefore, we consider it important that a prospective portfolio company have at least one or several methods in which our financing can be repaid and our equity interest purchased. These methods would typically include the sale or refinancing of the business or the ability to generate sufficient cash flow to repurchase our equity securities and repay our debt securities.

CMBS and CDO Criteria. We receive extensive underwriting information regarding the mortgage loans and other securities comprising a CMBS or CDO pool from the issuer. We then work with the issuer, the investment bank, and the rating agencies to underwrite the collateral securing our investment. For instance, when we re-underwrite the underlying commercial mortgage loans securing a CMBS transaction, we visit the underlying property, analyze the estimate of cash flow and debt service coverage, assess the collateral value and loan-to-value ratios, and review the loan documents and third party reports such as appraisals and environmental reports. We study the local real estate market trends and form an opinion as to whether the loan as originally underwritten by the issuer is sound. Based on the findings of our diligence procedures, we may reject certain mortgage loans from inclusion in the pool.

American Capital Investment Portfolio

We generally invest in domestic, privately-held middle market companies; however, we also invest in portfolio companies that have securities registered under the Securities Act of 1933, as amended (the “Securities Act”), or in securities of foreign issuers. Also, an existing portfolio company may undergo a public offering and register its securities under the Securities Act, subsequent to our initial investment. Our investments in middle market companies are generally in senior and subordinated debt and in preferred and common equity securities. We also invest in unrated bonds and equity tranches of CMBS and CDOs. We maintain a diversified investment portfolio, investing in a broad range of industries as well as limiting the amount of our investment concentration in any one portfolio company. As of December 31, 2006, we had investments in 188 portfolio companies.

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The composition summaries of our investment portfolio as of December 31, 2006 and 2005 at cost and fair value as a percentage of total investments, excluding derivative agreements, are shown in the following table:

	December 31, 2006		December 31, 2005
COST
Senior debt	32.8	%	29.3	%
Subordinated debt	28.2	%	36.9	%
Preferred equity	15.1	%	17.1	%
Common equity	12.5	%	9.7	%
CMBS & CDO securities	8.5	%	2.2	%
Equity warrants	2.9	%	4.8	%
	December 31, 2006		December 31, 2005
FAIR VALUE
Senior debt	31.1	%	29.5	%
Subordinated debt	26.3	%	35.2	%
Preferred equity	15.2	%	15.2	%
Common equity	15.1	%	12.0	%
CMBS & CDO securities	8.3	%	2.3	%
Equity warrants	4.0	%	5.8	%

We use the Global Industry Classification Standards for classifying the industry groupings of our portfolio companies. The following table shows the portfolio composition by industry grouping at cost and at fair value as a percentage of total investments, excluding derivative agreements:

	December 31, 2006		December 31, 2005
COST
Commercial Services & Supplies	14.3	%	12.9	%
Diversified Financial Services	13.2	%	6.5	%
Real Estate	6.6	%	1.6	%
Healthcare Providers & Services	6.1	%	2.1	%
Food Products	5.8	%	6.0	%
Healthcare Equipment & Supplies	4.7	%	3.8	%
Electrical Equipment	4.2	%	7.4	%
Diversified Consumer Services	4.0	%	—
Construction & Engineering	3.9	%	3.7	%
Containers & Packaging	3.8	%	7.2	%
Auto Components	3.8	%	5.0	%
Household Durables	3.7	%	1.7	%
Leisure Equipment & Products	3.1	%	6.1	%
Building Products	2.8	%	6.1	%
Internet & Catalog Retail	2.8	%	2.1	%
IT Services	1.7	%	2.5	%
Software	1.6	%	2.5	%
Pharmaceuticals	1.5	%	—
Energy Equipment & Services	1.5	%	0.4	%
Oil, Gas & Consumable Fuels	1.5	%	—
Textiles, Apparel & Luxury Goods	1.2	%	2.9	%
Computers & Peripherals	1.2	%	2.1	%
Personal Products	1.2	%	1.8	%
Electronic Equipment & Instruments	0.8	%	3.1	%

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	December 31, 2006		December 31, 2005
Construction Materials	0.8	%	1.5	%
Road & Rail	0.7	%	1.7	%
Distributors	0.6	%	1.0	%
Machinery	0.5	%	3.2	%
Diversified Telecommunication Services	0.5	%	—
Chemicals	0.4	%	2.5	%
Household Products	0.4	%	0.7	%
Media	0.4	%	0.5	%
Aerospace & Defense	0.1	%	1.1	%
Other	0.6	%	0.3	%
	December 31, 2006		December 31, 2005
FAIR VALUE
Commercial Services & Supplies	14.6	%	14.4	%
Diversified Financial Services	14.3	%	6.5	%
Real Estate	6.4	%	1.6	%
Healthcare Providers & Services	6.0	%	1.9	%
Food Products	5.2	%	5.4	%
Electrical Equipment	5.0	%	7.3	%
Healthcare Equipment & Supplies	4.9	%	4.0	%
Diversified Consumer Services	4.1	%	—
Containers & Packaging	4.0	%	7.2	%
Construction & Engineering	3.8	%	3.8	%
Auto Components	3.6	%	5.5	%
Household Durables	3.0	%	1.7	%
Building Products	2.7	%	5.7	%
Internet & Catalog Retail	2.7	%	2.1	%
Oil, Gas & Consumable Fuels	2.7	%	—
Leisure Equipment & Products	2.5	%	5.7	%
Energy Equipment & Services	1.8	%	0.4	%
IT Services	1.7	%	2.6	%
Software	1.6	%	2.5	%
Computers & Peripherals	1.4	%	1.8	%
Pharmaceuticals	1.3	%	—
Textiles, Apparel & Luxury Goods	0.9	%	3.1	%
Electronic Equipment & Instruments	0.8	%	3.8	%
Distributors	0.6	%	1.0	%
Diversified Telecommunication Services	0.6	%	—
Personal Products	0.5	%	1.0	%
Road & Rail	0.4	%	1.4	%
Construction Materials	0.4	%	1.4	%
Machinery	0.4	%	2.5	%
Media	0.4	%	0.5	%
Aerospace & Defense	0.4	%	1.1	%
Household Products	0.3	%	0.8	%
Chemicals	0.2	%	2.7	%
Other	0.8	%	0.6	%

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The following table shows the portfolio composition by geographic location at cost and at fair value as a percentage of total investments, excluding CDOs, CMBS and derivative agreements. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

	December 31, 2006		December 31, 2005
COST
Southwest	25.3	%	22.7	%
Southeast	18.1	%	14.9	%
Mid-Atlantic	17.3	%	21.2	%
International	11.0	%	7.9	%
Northeast	10.9	%	13.3	%
South-Central	9.6	%	6.0	%
North-Central	7.1	%	13.2	%
Northwest	0.7	%	0.8	%
	December 31, 2006		December 31, 2005
FAIR VALUE
Southwest	24.2	%	21.6	%
Mid-Atlantic	17.8	%	22.6	%
Southeast	17.4	%	14.7	%
International	11.7	%	7.3	%
South-Central	10.7	%	5.2	%
Northeast	10.2	%	13.1	%
North-Central	7.4	%	14.7	%
Northwest	0.6	%	0.8	%

The following table summarizes our unrealized appreciation, depreciation, gains and losses on our investments for the year ended December 31, 2006 and for the period from our IPO of August 29, 1997 through December 31, 2006 (in millions):

	Year Ended December 31, 2006			For period from IPO through December 31, 2006
Gross unrealized appreciation of portfolio company investments	$	785		$	620
Gross unrealized depreciation of portfolio company investments		(381	)		(377	)
Subtotal		404			243
Net realized gains of portfolio company investments		175			215
Reversal of prior period net unrealized appreciation upon a realization		(128	)		—
Subtotal		451			458
Net unrealized (depreciation) appreciation of interest rate derivatives		(11	)		5
Net unrealized appreciation for foreign currency translation		32			32
Net realized gain (loss) of interest rate derivatives		15			(12	)
Taxes on realized gains		(17	)		(17	)
Total net gain on investments	$	470		$	466

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Assets under Management Investment Portfolio

We are a leading global alternative asset manager. Currently, through our asset management business, we will invest up to $750 million in a single middle market transaction in North America and up to €400 million in Europe. As of December 31, 2006 and 2005, our assets at fair value under management were as follows (in millions):

	December 31, 2006		December 31, 2005
American Capital Strategies, Ltd. (1)	$	7,305	$	4,923
European Capital Limited		1,423		213
American Capital Equity I, LLC		803		—
ACAS CLO 2007-1, Ltd.		268		—
Total	$	9,799	$	5,136

(1) Excludes our 2006 and 2005 investment in ECAS of $751 million and $178 million, respectively.

During 2005, we launched our first alternative asset fund in addition to American Capital—ECAS, a company incorporated in Guernsey. ECAS is a private equity 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. ECAS has €750 million of equity commitments that were fully funded as of December 31, 2006 and has a €900 million multi-currency revolving secured credit facility. We provided €521 million of the equity commitments and third party institutional investors provided the €229 million of remaining equity commitments.

Our wholly-owned consolidated operating subsidiary, European Capital Financial Services (Guernsey) Limited (“ECFS”) manages ECAS for a management fee equal to 1.25% of the greater of ECAS’ weighted average gross assets or €750 million. In addition, ECAS reimburses ECFS for all costs and expenses incurred by ECFS during the term of the agreement. Also pursuant to the investment management agreement, ECFS received 18.75 million warrants to purchase preferred shares of ECAS representing 20% of ECAS’ preferred shares on a fully-diluted basis. The initial exercise price of the warrants is €10 per share, which is the same per share price that the original investors purchased their preferred shares in the initial offering. The per share exercise price on the warrants has been reduced by dividends declared on the preferred shares and will be reduced to reflect the amount of any future dividends on the preferred shares. In the event that ECAS issues additional preferred shares, ECFS will receive additional warrants to purchase preferred shares in ECAS so that at all times the warrants issued to ECFS as manager are not less than 20% of ECAS’ preferred shares on a fully-diluted basis. In the event that ECAS undertakes an initial public offering and legal requirements effectively prevent ECAS from being able to issue additional warrants to ECFS, then ECAS will pay ECFS an incentive management fee in cash. The incentive management fee would be subject to a cumulative hurdle rate of 2% per quarter of ECAS’ pre-incentive fee net income as a return on quarterly average net asset value, determined on a cumulative basis through the end of quarter. The incentive management fee, if any, would be earned and payable as follows: (i) no incentive management fee in any calendar quarter in which ECAS’ pre-incentive fee net income does not exceed the cumulative hurdle rate or (ii) 100% of the amount of ECAS’ pre-incentive management fee net income, if any, that exceeds the cumulative hurdle rate but is less than 2.5% per quarter, plus 20% of the amount of ECAS’ pre-incentive fee net income, if any, that is equal to or exceeds 2.5%.

As of December 31, 2006, ECAS has made forty investments totaling approximately $1.8 billion. As of December 31, 2006, ECFS has opened offices in London and Paris and hired staff of 54 investment professionals and support personnel.

ACE I is a newly established private equity fund with $1 billion of equity commitments. On October 1, 2006, we entered into a purchase and sale agreement with ACE I for the sale of approximately 30% of our equity investments (other than warrants issued with debt investments) in 96 portfolio companies for $671 million. ACE I will co-invest with American Capital in an amount equal to 30% of our future equity investments until the

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$329 million remaining commitment is exhausted. As of December 31, 2006, ACE I had $243 million of unfunded equity commitments outstanding. American Capital Equity Management LLC (“ACEM”), a wholly-owned portfolio company, manages ACE I in exchange for a 2% annual management fee on the net cost basis of ACE I and a 10% to 30% carried interest in the net profits of ACE I, subject to certain hurdles. Subsequent to its initial purchase of $671 million of investments from American Capital, ACE I made investments totaling $86 million through December 31, 2006.

ACAS CLO is a fund that is in a “warehouse” stage as of December 31, 2006, that invests in middle market senior loans. It is expected to complete a securitization at either the end of the first quarter or beginning of the second quarter of 2007. American Capital Asset Management, LLC (“ACAM”), a wholly-owned portfolio company, is the manager of ACAS CLO during the “warehouse” stage. We expect ACAM to be appointed as the manager of ACAS CLO post-securitization. The fees earned by ACAM during the warehouse stage are not significant. We may invest in the non-rated equity tranche of ACAS CLO upon its securitization.

We consolidate a controlled company that manages a fund if it is determined that all or substantially all of the services being provided to the fund are also being indirectly provided to American Capital through our ownership interest in the fund. We do not consolidate a controlled company that manages a fund if it does not provide all or substantially all of its services directly or indirectly to American Capital. If we have wholly-owned management portfolio companies, we would expect that these portfolio companies would pay dividends to us each quarter to the extent of their earnings, if any. Our wholly-owned management portfolio companies do not have employees. American Capital employees provide the services to these wholly-owned management portfolio companies to enable them to carry out their asset management responsibilities in return for a fee based on the cost of the services provided.

The following table sets forth certain information with respect to our funds under management as of December 31, 2006.

	American Capital	ECAS	ACE I	ACAS CLO
Fund type	Public Alternative Asset Manager and Fund	Private Fund	Private Fund	Private Fund
Established	1986	2005	2006	2006
Assets under management	$7.3 Billion(1)	$1.4 Billion	$0.8 Billion	$0.3 Billion
Investment types	Senior & Subordinated Debt, Equity, CMBS and CDO	Senior & Subordinated Debt and Equity	Equity	Senior Debt
Capital type	Permanent	Permanent	Finite Life	Finite Life

(1) Excludes our investment in ECAS of $751 million.

Operations

Marketing, Origination and Approval Process: To source buyout and financing opportunities, we have a dedicated marketing department, which targets an extensive referral network comprised of investment banks, private equity and mezzanine funds, commercial banks, and business and financial brokers. Our marketing department developed and maintains an extensive proprietary database of reported middle market transactions, which enables us to monitor and evaluate the middle market investing environment. Our financial professionals review thousands of financing memorandums and private placement memorandums sourced from this extensive referral network in search of potential buyout or financing opportunities. Those that pass an initial screen are then evaluated by a team led by one of our financial principals. The financial principal and his or her team, with the assistance from our Financial Accounting and Compliance Team (“FACT”) and our operations team, along with the oversight of our investment committee, are responsible for structuring, negotiating, pricing and closing the transaction.

As of December 31, 2006, we have a group of 267 professionals actively engaged in the origination and approval process of our investing activities, including our 182-member investment team (“Investment Team”),

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our 25-member operations team (“Operations Team”) and our 60-member FACT group. Our Operations Team assists in initial operational due diligence in addition to providing managerial assistance to portfolio companies, particularly those that are underperforming. FACT is our team of certified public accountants and valuation and accounting professionals, who assist in initial accounting due diligence of prospective portfolio companies, portfolio monitoring and quarterly valuations of our portfolio assets. Our Investment Team along with our Operations Team and FACT conduct extensive due diligence of each target company that passes the initial screening process. This includes one or more on-site visits, a review of the target company’s historical and prospective financial information, identifying and confirming pro-forma financial adjustments, interviews with and assessments of management, employees, customers and vendors, review of the adequacy of the target company’s systems, background investigations of senior management and research on the target company’s products, services and industry. We often engage professionals such as environmental consulting firms, accounting firms, law firms, risk management companies and management consulting firms with relevant industry expertise to perform elements of the due diligence.

Upon completion of our due diligence, our Investment Team, FACT and Operations Team as well as any consulting firms prepare and present an extensive investment committee report containing the due diligence information to our investment committee for review. Our investment committee, which includes various of our senior officers depending on the nature of the proposed investment generally must approve each investment. Investments exceeding a certain size or meeting certain other criteria must also be approved by our Board of Directors. Our investment committee is supported by a dedicated staff that focuses on the due diligence and other research done with regard to each proposed investment.

Portfolio Management: In addition to the extensive due diligence at the time of the original investment decision, we seek to preserve and enhance the performance of our portfolio companies under management through our active involvement with the portfolio companies. Also as a BDC, we are required by law to offer significant managerial assistance to certain of our portfolio companies. This generally includes attendance at portfolio company board meetings, management consultation and monitoring of the financial performance including covenant compliance. Our Investment Team and FACT regularly review portfolio company monthly financial statements to assess performance and trends, periodically conduct on-site financial and operational reviews and evaluate industry and economic issues that may affect the portfolio company.

Operations Team: The Operations Team is led by a managing director and includes seasoned ex-senior managers with extensive operational experience and accounting and financial professionals, who generally work with our portfolio companies that are under performing. Portfolio companies that are performing below plan generally require more extensive assistance with enhancing their business plans, marketing strategies, product positioning, evaluating cost structures and recruiting management personnel. The Operations Team works closely with the portfolio company and, in certain instances, members of the Operations Team will assist the portfolio company with day-to-day operations.

Finance and Treasury Group: Our Finance and Treasury Group, which had 39 employees as of December 31, 2006, is principally responsible for raising debt and equity capital to fund our investments. Through December 31, 2006, we had completed 24 follow-on equity offerings since our IPO. With regard to debt financing, this group had primary responsibility for initiating and administering our eight term debt securitizations of loan and debt investments and our various other revolving and term debt facilities. In addition, our Finance and Treasury Group is responsible for investor relations and financial planning and budgeting.

Syndications Team: Our six-person Syndications Team is responsible for arranging syndications of senior debt of our portfolio companies either at closing or subsequent to the closing of a senior financing transaction. They perform a variety of functions relating to the marketing and completing of such transactions.

Financial Accounting and Reporting Staff: Our Financial and Reporting Staff, which had 50 employees as of December 31, 2006, is responsible for the accounting of our financial performance, including financial reporting to our stockholders and regulatory bodies. Among its tasks are loan and investment accounting and billing, accounts payable, tax compliance and controller functions.

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Legal, Compliance and Internal Audit Staffs: Our Legal Department provides extensive legal support to our capital raising and investing activities, is involved in our stockholder and regulatory reporting and manages the outside law firms that provide transactional, litigation and regulatory services to us. We also have an internal audit function, which reports directly to the Audit and Compliance Committee of our Board of Directors. In addition, as required by the Securities and Exchange Commission, or SEC, we have appointed a chief compliance officer, who is responsible for administering our code of ethics and conduct and our legal compliance activities. As of December 31, 2006, a total of 26 employees worked on these staffs.

Human Resource Department: Our Human Resources Department, which had 20 employees as of December 31, 2006, assists in recruiting, hiring, reviewing and establishing and administering compensation programs for our employees. In addition, the Human Resources Department is available to the Investment Team and the Operations Group to assist with executive management and other human resources issues at portfolio companies.

Information Technology Department: Our Information Technology Department, which had 28 employees as of December 31, 2006, assists in implementing and maintaining communication and technological resources for our operations.

Corporate Development Staff: Our Corporate Development Staff is responsible for researching and developing acquisition opportunities and new business initiatives, including developing new alternative asset funds.

Portfolio Valuation

FACT, with the assistance of our Investment Team, and subject to the oversight of senior management and the Audit and Compliance Committee, prepares a quarterly valuation of each of our portfolio company investments. Our Board of Directors approves our portfolio valuations as required by the 1940 Act. We have also engaged the independent financial advisory firm of Houlihan Lokey Howard & Zukin Financial Advisory, Inc. to assist in this process by reviewing each quarter a selection of our portfolio companies and to report their conclusions to the Audit and Compliance Committee. Annually, Houlihan Lokey reviews all of the portfolio companies that have been portfolio companies for at least one year and that have a fair value in excess of $10 million. For more information regarding our portfolio valuation policies and procedures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies.”

Competition

We compete with hundreds of private equity and mezzanine funds and other financing sources, including traditional financial services companies such as finance companies and commercial banks. Some of our competitors are substantially larger and have considerably greater financial resources than we do. Our competitors may have a 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 addition, because 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.

Employees

As of December 31, 2006, we had 484 employees. We believe that our relations with our employees are excellent.

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Business Development Company Requirements

Qualifying Assets

As a business development company, we may not acquire any asset other than qualifying assets, as defined by the 1940 Act (“Qualifying Assets”), unless, at the time the acquisition is made, the value of our qualifying assets represent at least 70% of the value of our total assets. The principal categories of qualifying assets relevant to our business are the following:

• securities purchased in transactions not involving any public offering from:

a) an issuer that (i) is organized and has its principal place of business in the United States, (ii) is not an investment company other than a small business investment company wholly owned by the business development company, and (iii) does not have any class of securities listed on a national securities exchange; or

b) an issuer that satisfies the criteria set forth in clauses (a) (i) and (ii) above but not clause (a)(iii), so long as, at the time of purchase, we own at least 50% of (i) the greatest amount of equity securities of the issuer, including securities convertible into such securities and (ii) the greatest amount of certain debt securities of such issuer, held by us at any point in time during the period when such issuer was an eligible portfolio company, except that options, warrants, and similar securities which have by their terms expired and debt securities which have been converted, or repaid or prepaid in the ordinary course of business or incident to a public offering of securities of such issuer, shall not be considered to have been held by us, and we are one of the 20 largest holders of record of such issuer’s outstanding voting securities;

• securities received in exchange for or distributed with respect to securities described above, or pursuant to the exercise of options, warrants or rights relating to such securities; and

• cash, cash items, government securities, or high quality debt securities maturing in one year or less from the time of investment.

We may not change the nature of our business so as to cease to be, or withdraw our election as, a business development company unless authorized by vote of the holders of the majority, as defined in the 1940 Act, of our outstanding voting securities.

Since we made our business development company election, we have not made any substantial change in our structure or in the nature of our business.

To include certain securities above as qualifying assets for the purpose of the 70% test, a business development company must make available to the issuer of those securities significant managerial assistance, such as providing significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company or making loans to a portfolio company. We offer to provide significant managerial assistance to each of our portfolio companies.

Temporary Investments

Pending investment in other types of Qualifying Assets, we may invest our otherwise uninvested cash in cash, cash items, government securities, agency paper or high quality debt securities maturing in one year or less from the time of investment in such high quality debt investments, referred to as temporary investments, so that at least 70% of our assets are Qualifying Assets. Typically, we invest in U.S. treasury bills. Additionally, we may invest in repurchase obligations of a “primary dealer” in government securities (as designated by the Federal Reserve Bank of New York) or of any other dealer whose credit has been established to the satisfaction of our Board of Directors. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed upon future date and at a price

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which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. Such interest rate is effective for the period of time during which the investor’s money is invested in the arrangement and is related to current market interest rates rather than the coupon rate on the purchased security. We require the continual maintenance by our custodian or the correspondent in its account with the Federal Reserve/Treasury Book Entry System of underlying securities in an amount at least equal to the repurchase price. If the seller were to default on its repurchase obligation, we might suffer a loss to the extent that the proceeds from the sale of the underlying securities were less than the repurchase price. A seller’s bankruptcy could delay or prevent a sale of the underlying securities.

Leverage

For the purpose of making investments and to take advantage of favorable interest rates, we have issued, and intend to continue to issue, senior debt securities and other evidences of indebtedness, up to the maximum amount permitted by the 1940 Act, which currently permits us, as a BDC, to issue senior debt securities and preferred stock, together defined as senior securities in the 1940 Act, in amounts such that our asset coverage, as defined in the 1940 Act, is at least 200% after each issuance of senior securities. Such indebtedness may also be incurred for the purpose of effecting share repurchases. As a result, we are exposed to the risks of leverage. Although we have no current intention to do so, we have retained the right to issue preferred stock. As permitted by the 1940 Act, we may, in addition, borrow amounts up to 5% of our total assets for temporary purposes. As of December 31, 2006, our asset coverage was 211%.

Regulated Investment Company Requirements

We operate so as to qualify as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). If we qualify as a regulated investment company and annually distribute to our stockholders in a timely manner at least 90% of our investment company taxable income, we will not be subject to federal income tax on the portion of our taxable income and capital gains we distribute to our shareholders. Taxable income generally differs from net income as defined by generally accepted accounting principles due to temporary and permanent timing differences in the recognition of income and expenses, returns of capital and net unrealized appreciation or depreciation.

Generally, in order to maintain our status as a regulated investment company, we must: a) continue to qualify as a business development company; b) distribute to our shareholders in a timely manner, at least 90% of our investment company taxable income, as defined by the Code; c) derive in each taxable year at least 90% of our gross investment company income from dividends, interest, payments with respect to securities loans, gains from the sale of stock or other securities or other income derived with respect to our business of investing in such stock or securities as defined by the Internal Revenue Code; and d) meet investment diversification requirements. The diversification requirements generally require us at the end of each quarter of the taxable year to have (i) at least 50% of the value of our assets consist of cash, cash items, government securities, securities of other regulated investment companies and other securities if such other securities of any one issuer do not represent more than 5% of our assets and 10% of the outstanding voting securities of the issuer; and (ii) no more than 25% of the value of our assets invested in the securities of one issuer (other than U.S. government securities and securities of other RICs), or of two or more issuers that are controlled by us and are engaged in the same or similar or related trades or businesses.

In addition, with respect to each calendar year, if we distribute or have treated as having distributed (including amounts retained but designated as deemed distributed) in a timely manner 98% of our capital gain net income for each one-year period ending on October 31, and distribute 98% of our investment company net ordinary income for such calendar year (as well as any ordinary income not distributed in prior years), we will not be subject to the 4% nondeductible federal excise tax imposed with respect to certain undistributed income of regulated investment companies. We may elect to not distribute all of our investment company taxable income and pay the excise tax on the undistributed amount.

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If we fail to satisfy the 90% distribution requirement or otherwise fail to qualify as a regulated investment company in any taxable year, we will be subject to tax in such year on all of our taxable income, regardless of whether we make any distribution to our stockholders. In addition, in that case, all of our distributions to our shareholders will be characterized as ordinary income (to the extent of our current and accumulated earnings and profits). We have distributed and currently intend to distribute sufficient dividends to eliminate our investment company taxable income.

Our wholly-owned consolidated subsidiaries, American Capital Financial Services, Inc. (“ACFS”) and ECFS, are corporations subject to corporate level federal, state or other local income tax in their respective tax jurisdictions.

Investment Objectives

Our primary business objectives as a BDC are to increase our taxable income, net operating income and net asset value by investing in senior debt, subordinated debt and equity of middle market companies with attractive current yields and/or potential for equity appreciation and realized gains. Our investment objectives provide that:

• We will at all times conduct our business so as to retain our status as a BDC. In order to retain that status, we may not acquire any assets (other than non-investment assets necessary and appropriate to our operations as a BDC) if after giving effect to such acquisition the value of our qualifying assets amounts to less than 70% of the value of our total assets. For a summary definition of qualifying assets, see “Business Development Company Requirements.” We believe most of the securities we will acquire (provided that we control, or through our officers or other participants in the financing transaction, make significant managerial assistance available to the issuers of these securities), as well as temporary investments, will generally be qualifying assets. Securities of public companies, other than OTC and pink sheet stocks, on the other hand, are generally not qualifying assets unless they were acquired in a distribution, in exchange for or upon the exercise of a right relating to securities that were qualifying assets.

• We may invest up to 100% of our assets in securities acquired directly from issuers in privately-negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act. We may invest up to 50% of our assets to acquire securities of issuers for the purpose of acquiring control (up to 100% of the voting securities) of such issuers. We will not concentrate our investments in any particular industry or group of industries. Therefore, we will not acquire any securities (except upon the exercise of a right related to previously acquired securities) if, as a result, 25% or more of the value of our total assets consists of securities of companies in the same industry.

• We may issue senior securities to the extent permitted by the 1940 Act for the purpose of making investments, to fund share repurchases, or for temporary or emergency purposes. As a BDC, we may issue senior securities up to an amount so that the asset coverage, as defined in the 1940 Act, is at least 200% immediately after each issuance of senior securities.

• We will not (a) act as an underwriter of securities of other issuers (except to the extent that we may (i) be deemed an “underwriter” of securities purchased by us that must be registered under the Securities Act before they may be offered or sold to the public or (ii) underwrite securities to be distributed to or purchased by stockholders of us in connection with offerings of securities by companies in which we are a stockholder); (b) sell securities short (except with regard to managing risks associated with publicly traded securities issued by portfolio companies); (c) purchase securities on margin (except to the extent that we may purchase securities with borrowed money); (d) write or buy put or call options (except (i) to the extent of warrants or conversion privileges in connection with our acquisition financing or other investments, and rights to require the issuers of such investments or their affiliates to repurchase them under certain circumstances, or (ii) with regard to managing risks associated with publicly traded securities issued by portfolio companies); (e) engage in the purchase or sale of commodities or

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commodity contracts, including futures contracts (except where necessary in working out distressed loan or investment situations); or (f) acquire more than 3% of the voting stock of, or invest more than 5% of our total assets in any securities issued by, any other investment company (as defined in the 1940 Act), except as they may be acquired as part of a merger, consolidation or acquisition of assets. With regard to that portion of our investments in securities issued by other investment companies it should be noted that such investments may subject our shareholders to additional expenses.

The percentage restrictions set forth above, other than the restriction pertaining to the issuance of senior securities, as well as those contained elsewhere herein, apply at the time a transaction is effected, and a subsequent change in a percentage resulting from market fluctuations or any cause other than an action by us will not require us to dispose of portfolio securities or to take other action to satisfy the percentage restriction.

The above investment objectives have been set by our Board of Directors and do not require stockholder consent to be changed.

Investment Advisor

We have no investment advisor and are internally managed by our executive officers under the supervision of our Board of Directors.

Item 1A. Risk Factors

You should carefully consider the risks described below and all other information contained in this annual report on Form 10-K, including our consolidated 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.

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

We invest in and lend to 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 these businesses. The portfolio companies in which we invest 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 effected 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. Deterioration in a portfolio company’s financial condition and prospects may be accompanied by deterioration in the collateral for the loan. We also make unsecured, subordinated loans and invest 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 loans.

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, portfolio 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.

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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.

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 loans and to recover any of the loan balance through a foreclosure of collateral.

There is uncertainty regarding the value of our privately held securities

All or substantially all of our portfolio securities are not publicly traded. We value these securities based on a determination of their fair value made in good faith by our Board of Directors. Due to the uncertainty inherent in valuing securities that are not publicly traded, as set forth in our financial statements, our determinations of fair value may differ materially from the values that would exist if a ready market for these securities 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 interest income recognition. Our net asset value could be materially affected 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 have a limited operating and investment history in certain segments of our business

Since our IPO in 1997, we have primarily been an investor in domestic, privately-held middle market companies, which we consider to be companies with sales between $10 million and $750 million. We have begun, or have announced plans to begin, investing in other investment categories, including CMBS, CDOs, earlier stage technology companies, special situation companies and, through our investment in ECAS, in European-based businesses. We have limited or no operating history in making such investments. We have also begun, or announced plans to begin, our new business of managing other alternative asset funds in addition to the investments on our balance sheet. We are conducting this business through either consolidated operating subsidiaries or newly created wholly-owned portfolio companies. There can be no assurances that these new business initiatives will be profitable in future periods, nor can we offer investors any assurances that we will successfully implement these new strategies.

Investment in non-investment grade commercial mortgage-backed securities and collateralized debt obligations may be illiquid, may have a higher risk of default, and may not produce current returns

The CMBS and CDO securities in which we invest are not investment grade, which means that nationally recognized statistical rating organizations 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 CMBS and CDO bonds and preferred shares tend to be less liquid, may have a higher risk of default and may be more difficult to value. Non-investment grade securities usually provide a higher yield than do investment grade securities, but with the higher return comes greater risk of default. In addition, the fair value of these securities may change as interest rates change over time. 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 principle and interest in accordance with the terms of their issue is not ensured.

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We may not realize gains from our equity investments

When we sponsor the buyout of a portfolio company, we invest in the equity securities of the portfolio company. Also, when we make a loan, we may receive warrants to acquire stock issued by the borrower, and we may make direct equity investments. Our goal ultimately is to dispose of these equity interests and realize gains. These equity interests may not appreciate in value and, in fact, may depreciate in value. Accordingly, we may not be able to realize gains from our equity interests.

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 (including in some instances legal restrictions) or otherwise are less liquid than public securities. 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 have limited public information regarding the companies in which we invest

Consistent with our operation as a BDC, our portfolio consists primarily of securities issued by privately held companies. There is generally little or no publicly available information about such companies, and we must rely on the diligence of our employees and the consultants we hire to obtain the information necessary for our decision to invest in them. There can be no assurance that our diligence efforts will uncover all material information about the privately held business necessary to make a fully informed investment decision.

Our portfolio companies may be highly leveraged

Leverage may have important adverse consequences to these companies and to us as an investor. These companies 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, these companies’ 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.

Our business is dependent on external financing

Our business requires a substantial amount of cash to operate. We historically have obtained the cash required for operations through the sale of debt by special purpose affiliates to which we have contributed loan assets originated by us, borrowings by us and the sale of our equity. Our ability to continue to rely on such sources or other sources of capital depends on numerous legal, economic, structural and other factors.

We or our affiliates have issued, and intend to continue to issue, debt securities and other evidences of indebtedness, up to the maximum amount permitted by the 1940 Act. We have also retained the right to issue preferred stock. As a BDC, the 1940 Act permits us to issue debt securities and preferred stock (collectively, “Senior Securities”) in amounts such that our asset coverage, as defined in the 1940 Act, is at least 200% after each issuance of Senior Securities. As a result, we are exposed to the risks of leverage. As permitted by the 1940 Act, we may, in addition, borrow amounts up to five percent of our total assets for temporary purposes.

A failure to renew our existing credit facilities, to continue short-term financings, to increase our capacity under our existing facilities, to sell additional term debt notes or to add new or replacement debt facilities could have a material adverse effect on our business, financial condition and results of operations. See the description of the term debt notes and the debt facilities under “Management’s Discussion and Analysis of Financial Condition And Results of Operations—Financial Condition, Liquidity and Capital Resources.”

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The following table is designed to illustrate the effect on return to a holder of our common stock of the leverage created by our use of borrowing, at the weighted average interest rate 6.28% for the year ended December 31, 2006, and assuming hypothetical annual returns on our portfolio of minus 15 to plus 15 percent. As can be seen, leverage generally increases the return to stockholders 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 Stockholders(2)	–34.8	%	–25.4	%	–15.9	%	–6.5	%	2.9	%	12.3	%	21.7	%

(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 Stockholders,” 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 stockholders. The return available to stockholders 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 Stockholders.”

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. We are restricted to issuing equity at prices equal to or above our net asset value at the time of issuance. There can be no assurances that we can issue equity when necessary. If additional funds are raised through the issuance of our common stock or debt securities convertible into or exchangeable for our common stock, the percentage ownership of our stockholders at the time would decrease and they may experience additional dilution. In addition, any convertible or exchangeable securities may have rights, preferences and privileges more favorable than those of our common stock.

A change in interest rates may adversely affect our profitability

Because we fund a portion of our investments with borrowings, our profitability is affected by the spread between the rate at which we invest and the rate at which we borrow. We attempt 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 also enter into interest rate 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 revolving debt funding facilities and asset securitizations.

An increase 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. In addition, a change in interest rates could also have an impact on the fair 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—Qualitative and Quantitative Disclosures About Market Risk” and Note 12 to our consolidated financial statements for additional information on interest rate swap agreements.

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A change in foreign exchange rates may adversely affect our profitability

We may invest in debt securities that are denominated in currencies other than the U.S. dollar. In addition, we may invest 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 portfolio company ECAS is the Euro, and ECAS has investments in other European currencies, including the British Pound. An adverse change in foreign currency exchange rates may have a material adverse impact on our business, financial condition and results of operations.

An economic downturn could affect our operating results

An economic downturn may adversely affect middle market businesses, which are our primary market for investments. Such a downturn could also adversely affect our ability to obtain capital to invest in such companies. These results could have a material adverse effect on our business, financial condition and results of operations.

Our debt facilities impose certain limitations on us

We have two revolving credit facilities, one of which is a commercial paper conduit securitization facility (the “AFT I Facility”) and the other of which is an unsecured revolving line of credit (the “Revolving Facility”). Collectively, the AFT I Facility and Revolving Facility are referred to as the Debt Facilities.

Our AFT I Facility is a line of credit administered by Wachovia Capital Markets, LLC that currently has an aggregate commitment of $1.3 billion as of December 31, 2006. Our AFT I Facility is secured by loans to our portfolio companies, which have been contributed to a separate affiliated trust. This affiliated trust is consolidated in our financial statements. While we have not guaranteed the repayment of the AFT I Facility, we must repurchase the loans if certain representations are breached. The AFT I Facility contains customary default provisions, as well as the following default provisions: a cross-default on our debt of $2.5 billion or more, a minimum net worth requirement of $1 billion plus seventy-five percent (75%) of any new equity and subordinated debt and a default triggered by a change of control.

Our Revolving Facility is a $900 million unsecured revolving line of credit administered by Wachovia that may be expanded through new or additional commitments up to $1.2 billion in accordance with the terms and conditions set forth in the related agreement. The Revolving Facility contains customary default provisions as well as the following default provisions: a cross-default on our debt of $5 billion or more, a minimum net worth requirement of $1.8 billion plus seventy-five percent (75%) of any new equity and subordinated debt and a default in the event of a change of control.

Trusts affiliated with us have issued term debt securities (“Term Debt Notes”) to institutional investors with an outstanding balance of $1.7 billion as of December 31, 2006. These affiliated trusts are consolidated in our financial statements. 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.

The occurrence of an event of default under our debt facilities could lead to termination of those facilities

Our Debt Facilities contain certain default provisions, some of which are described in the immediately preceding paragraphs. An event of default under our Debt Facilities could result, among other things, in termination of further funds availability under that facility, an accelerated maturity date for all amounts outstanding under that facility and the disruption of all or a portion of the business financed by that facility. This could reduce our revenues and, by delaying any cash payment allowed to us under our facility until the lender has been paid in full, reduce our liquidity and cash flow.

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We may incur additional debt that could increase your investment risks

We or our 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 affiliates that are senior to the claims of our stockholders and, thus, our lenders have preference over our stockholders with respect to these assets. In particular, the assets that our affiliates have pledged to lenders under certain of our Debt Facilities were sold or contributed to a separate affiliated statutory trust prior to such pledge. While we own a beneficial interest in these trusts, these assets are property of the trust, available to satisfy the debts of the trust, and would only become available for distribution to our stockholders to the extent specifically permitted under the agreements governing those Debt Facilities. See “Risk Factors—Our Debt Facilities impose certain limitations on us.”

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 net asset value 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 would be restricted if asset coverage is not equal to at least twice our indebtedness. If the value of our assets declines, we might be unable to satisfy that test. If this happens, we may be required to sell some of our investments and repay a portion of our indebtedness at a time when a sale may be disadvantageous. See “Risk Factors—Our business is dependent on external financing.”

We may experience fluctuations in our quarterly results

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

We have operated since October 1, 1997, 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 you and other stockholders 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, 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. If we fail to qualify to be taxed as a RIC or to distribute our income to stockholders on a current basis, we would be subject to corporate level taxes which would significantly reduce the amount of income available for distribution to stockholders. The loss of our current tax treatment could have a material adverse effect on the total return, if any, obtainable from an investment in our common stock. See “Business—Business Development Company Requirements” and “Business—Regulated Investment Company Requirements.”

There is a risk that you may not receive dividends

Since our initial public offering, we have distributed more than 90% of our investment company taxable income, including 90% of our net realized short-term capital gains to our stockholders. Our current intention is to continue these distributions to our stockholders. Net realized long-term capital gains may be retained and treated as a distribution for federal tax purposes, to supplement our equity capital and support growth in our portfolio, unless our Board of Directors determines in certain cases to make a distribution. 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.

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Our financial condition and results of operations will depend on our ability to manage effectively any future growth

We have grown significantly since our IPO in August 1997. Our ability to sustain continued growth depends on our ability to identify, evaluate, finance and invest in suitable investments that meet our investment criteria. Accomplishing such a result on a cost-effective basis is largely a function of our marketing capabilities, our management of the investment process, our ability to provide competent, attentive and efficient services, our access to financing sources on acceptable terms and the capabilities of our technology platform. As we grow, we will also be required to hire, train, supervise and manage new employees. Failure to manage effectively any future growth could have a material adverse effect on our business, financial condition and results of operations.

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

We are dependent for the final selection, structuring, closing and monitoring of our investments on the diligence and skill of our senior management and other management members. Our future success depends to a significant extent on the continued service and coordination of our senior management team. The departure of any of our 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 a large number of private equity funds and mezzanine funds, investment banks and other equity and non-equity based investment funds, and other sources of financing, including traditional financial services companies such as commercial banks. 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. Also, 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.

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

Our Second 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 stockholders 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 stockholders, and also could have the effect of delaying or preventing a change in control.

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. 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 BDCs.

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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. The misappropriation of proprietary information could expose us to a risk of loss or litigation.

Failure to deploy new capital effectively may reduce our return on equity

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

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 regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;

• changes in earnings or variations in operating results;

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

• 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.

Supplemental provisions contained in forward sale agreements subject us to certain risks

We periodically complete public offerings where shares of our common stock are sold in which a portion of the shares are offered directly by us and a portion of the shares are sold by third parties, or forward purchasers, in

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connection with agreements to purchase common stock from us for future delivery dates pursuant to forward sale agreements. As of December 31, 2006, there were no forward sale agreements outstanding. Under forward sale agreements that we may enter into, each forward purchaser would have the right to accelerate its forward sale agreement and require us to physically settle on a date specified by such forward purchaser if certain events occur, such as (1) in its judgment, it is unable to continue to borrow a number of shares of our common stock equal to the number of shares to be delivered by us under its forward sale agreement or the cost of borrowing the common stock has increased above a specified amount, (2) we declare any dividend or distribution on shares of our common stock payable in (i) excess of a specified amount, (ii) securities of another company, or (iii) any other type of securities (other than shares of our common stock), rights, warrants or other assets for payment at less than the prevailing market price in such forward purchaser’s judgment, (3) the net asset value per share of our outstanding common stock exceeds a specified percentage of the then applicable forward sales price, (4) our Board of Directors votes to approve a merger or takeover of us or similar transaction that would require our shareholders to exchange their shares for cash, securities, or other property, or (5) certain other events of default or termination events occur. Such forward purchaser’s decision to exercise its right to require us to settle its forward sale agreement will be made irrespective of our need for capital. In addition, upon certain events of bankruptcy, insolvency or reorganization relating to us, each forward sale agreement would terminate without further liability of either party. Following any such termination, we would not issue any shares and we would not receive any proceeds pursuant to the forward sale agreements.

We have experienced rapid growth, which may be difficult to sustain and which may place significant demands on our administrative, operational and financial resources

Our assets under management have grown significantly from approximately $0.9 billion as of December 31, 2001 to $9.8 billion as of December 31, 2006. Our rapid growth has caused, and if it continues will continue to cause, significant demands on our legal, accounting and operational infrastructure, and increased expenses. The complexity of these demands, and the expense required to address them, is a function not simply of the amount by which our assets under management have grown, but of significant differences in the investing strategies of our different funds and portfolio companies. In addition, we are required to continuously develop our systems and infrastructure in response to the increasing sophistication of the investment management market and legal, accounting and regulatory developments.

Our future growth will depend, among other things, on our ability to maintain an operating platform and management system sufficient to address our growth and will require us to incur significant additional expenses and to commit additional senior management and operational resources. As a result, we face significant challenges:

• in maintaining adequate financial and business controls,

• implementing new or updated information and financial systems and procedures, and

• in training, managing and appropriately sizing our work force and other components of our business on a timely and cost-effective basis.

There can be no assurance that we will be able to manage our expanding operations effectively or that we will be able to continue to grow, and any failure to do so could adversely affect our ability to generate revenue and control our expenses.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We do not own any real estate or other physical properties materially important to our operation. We lease office space in ten locations for terms ranging up to fifteen years.

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Item 3. Legal Proceedings

Neither we, nor any of our consolidated subsidiaries, are currently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us or any consolidated subsidiary, other than routine litigation and administrative proceedings arising in the ordinary course of business. Such proceedings are not expected to have a material adverse effect on the business, financial conditions, or results of our operations.

Item 4. Submission of Matters to a Vote of Security Holders

During the fourth quarter of 2006, there were no matters submitted to a vote of our security holders through the solicitation of proxies or otherwise.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Since we became a RIC, we have distributed, and currently intend to continue to distribute in the form of dividends, a minimum of 90% of our investment company taxable income, on a quarterly basis to our shareholders. We intend to retain long-term capital gains and treat them as deemed distributions for tax purposes. We report the estimated tax characteristics of each dividend when declared while the actual tax characteristics of dividends are reported annually to each stockholder on Form 1099DIV. All of our dividends declared through December 31, 2006, have been distributions of ordinary income for tax purposes. For our dividends declared in 2006 of $3.33 per share, $3.25 were non-qualifying dividends and $0.08 were qualifying dividends. There is no assurance that we will achieve investment results or maintain a tax status that will permit any specified level of cash distributions or year-to-year increases in cash distributions.

For our tax year ended September 30, 2006, we retained and did not distribute our taxable long-term capital gains and paid a federal income tax thereon on behalf of our stockholders. Stockholders of record as of September 30, 2006, should report their share of such capital gain and their share of the federal income tax paid for our tax year ending September 30, 2006. Stockholders must include on their income tax return for 2006 their share of our taxable net long-term capital gain and may take a credit for the tax paid on that gain by us on the stockholder’s behalf. Stockholders should increase the tax basis of their investment in American Capital stock by the excess of their share of the taxable net long–term capital gain over the amount of the federal income tax paid on their behalf. The total taxable net long-term capital gain realized and retained by us for our tax year ending September 30, 2006, was $0.29 per share, and the tax credit was at a 35% rate, which is equivalent to $0.10 per share. The increase in the stockholder’s tax basis in our stock is equivalent to $0.19 per share, and to the extent a stockholder’s capital gains tax rate is less than 35%, the tax credit may reduce other taxes owed or be refunded. See “Risk Factors-We may fail to continue to qualify for our pass-through tax treatment” and “Business-Regulated Investment Company Requirements.”

Our stock transfer agent, registrar and dividend reinvestment plan administrator is Computershare Investor Services. Information request for Computershare Investor Services can be sent to P.O. Box 43010, Providence, RI 02940 and their telephone number is 1-800-733-5001.

At the option of a holder of record of common stock, all cash distributions can be reinvested automatically under our dividend reinvestment plan in additional whole and fractional shares. A stockholder whose shares are held in the name of a broker or other nominee should contact the broker or other nominee regarding participation in our dividend reinvestment plan on the stockholder’s behalf.

Pursuant to our dividend reinvestment plan, a stockholder whose shares are registered in his own name may “opt’ in to the plan and elect to reinvest all or a portion of their dividends in shares of our common stock by providing the required enrollment notice to Computershare Investor Services. Stockholders whose shares are held in the name of a broker or the nominee of a broker may have distributions reinvested only if such service is provided by the broker or the nominee, or if the broker or the nominee permits participation in our dividend reinvestment plan. Stockholders whose shares are held in the name of a broker or other nominee should contact the broker or nominee for details. When we declare a dividend, stockholders who are participants in our dividend reinvestment plan receive the equivalent of the amount of the dividend or distribution in shares of our common stock. Our dividend reinvestment plan administrator buys shares in the open market, on The NASDAQ Global Select Market or elsewhere. Shares will generally be purchased from us as a newly issued or treasury shares at a 5% discount from the market value. You can find out more information about this plan by reading our Second Amended and Restated Dividend Reinvestment Plan.

Our common stock historically trades at prices above our net asset value per share. There can be no assurance, however, that such premium to net asset value will continue. For the last three fiscal years ended December 31, 2006, we have not sold any equity securities that were not registered under the Securities Act.

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Quarterly Stock Prices and Dividend Declarations

Our common stock is quoted on The NASDAQ Global Select Market under the symbol ACAS. As of February 14, 2007, we had 951 shareholders of record. Most of the shares of our common stock are held by brokers and other institutions on behalf of stockholders. We believe that there are currently over 257,000 additional beneficial holders of our common stock. The following table sets forth the range of high and low sales prices of our common stock as reported on The NASDAQ Global Select Market and our dividends declared for the fiscal years ended December 31, 2005 and 2006.

	Sale Price
	High		Low		Dividend Declared
2005
First Quarter	$	35.70	$	29.51	$	0.73
Second Quarter	$	36.49	$	31.01	$	0.75
Third Quarter	$	39.61	$	34.24	$	0.78
Fourth Quarter	$	39.10	$	34.65	$	0.82	(1)
2006
First Quarter	$	37.80	$	34.40	$	0.80
Second Quarter	$	35.50	$	29.65	$	0.82
Third Quarter	$	39.74	$	33.04	$	0.83
Fourth Quarter	$	46.45	$	38.72	$	0.88

(1) Includes extra dividend of $0.03.

Equity Compensation Plan Information

The following table summarizes information, as of December 31, 2006, relating to our equity compensation plans pursuant to which grants of options or other rights to acquire shares of our common stock may be granted from time to time. See “Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements” for a description of our equity compensation plans.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
	(in millions, except per share amounts)
Equity compensation plans approved by security holders(1)	14.5	$	32.94	3.2
Equity compensation plans not approved by security holders(1)	—		—	—

(1) All of our equity compensation plans have been approved by our stockholders.

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Purchases of Equity Securities

The following table provides information for the year ended December 31, 2006, regarding shares of our common stock that were purchased under a non-qualified deferred compensation plan, which is administered by a third party trustee. Our Compensation and Corporate Governance Committee of our Board of Directors is the administrator of the plan. The purpose of this plan is to grant bonus awards to our employees. The Compensation and Corporate Governance Committee determines cash bonus awards, including vesting schedules. The cash bonus awards are invested by the trust in shares of our common stock that are purchased in the open market.

	Total number of shares purchased	Weighted-average price paid per share
	(in millions, except per share amounts)
1/1/2006 - 1/31/2006	—	$	—
2/1/2006 - 2/28/2006	—		—
3/1/2006 - 3/31/2006	—		—
4/1/2006 - 4/30/2006	—		—
5/1/2006 - 5/31/2006	2.2		34.03
6/1/2006 - 6/30/2006	0.5		34.08
7/1/2006 - 7/31/2006	—		—
8/1/2006 - 8/31/2006	0.1		36.16
9/1/2006 - 9/30/2006	—		—
10/1/2006 - 10/31/2006	—		—
11/1/2006 - 11/30/2006	0.5		42.17
12/1/2006 - 12/31/2006	—		—
	3.3	$	35.32

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Item 6. Selected Financial Data

AMERICAN CAPITAL STRATEGIES, LTD.

Consolidated Selected Financial Data

(in millions, except per share data)

The selected financial data should be read in conjunction with our consolidated financial statements and notes thereto.

	Year Ended December 31,
	2006			2005			2004			2003			2002
Total operating income(1)	$	860		$	555		$	336		$	206		$	147
Total operating expenses(2)(3)		424			228			114			65			44
Operating income before income taxes		436			327			222			141			103
Income tax provision		(11	)		(13	)		(2	)		—			—
Net operating income		425			314			220			141			103
Net realized gain (loss) on investments(1)		173			36			(38	)		22			(21	)
Net realized earnings(1)		598			350			182			163			82
Net unrealized appreciation (depreciation) of investments(1)		297			15			99			(45	)		(62	)
Cumulative effect of accounting change(3)		1			—			—			—			—
Net increase in net assets resulting from operations	$	896		$	365		$	281		$	118		$	20
Per share data:
Net operating income:
Basic	$	3.15		$	3.16		$	2.88		$	2.58		$	2.60
Diluted	$	3.11		$	3.10		$	2.83		$	2.56		$	2.57
Net earnings:
Basic	$	6.63		$	3.68		$	3.69		$	2.16		$	0.51
Diluted	$	6.55		$	3.60		$	3.63		$	2.15		$	0.50
Dividends declared	$	3.33		$	3.08		$	2.91		$	2.79		$	2.57
Balance sheet data:
Total assets	$	8,609		$	5,449		$	3,491		$	2,068		$	1,351
Total debt	$	3,926		$	2,467		$	1,561		$	840		$	620
Total shareholders’ equity	$	4,342		$	2,898		$	1,872		$	1,176		$	688
Other data (unaudited):
Number of portfolio companies at period end		188			141			117			86			69
New investments(4)	$	5,136		$	3,714		$	2,018		$	1,083		$	574
Equity investment sale proceeds and loan investment sales and repayments(5)	$	3,447		$	1,455		$	712		$	390		$	119
Net operating income return on average equity at cost(6)		12.0	%		13.6	%		14.1	%		13.5	%		14.7	%
Earnings return on average equity(7)		24.6	%		15.9	%		18.0	%		11.3	%		2.9	%
Assets under management	$	9,799		$	5,136		$	3,220		$	1,935		$	1,281

(1) In 2004, we adopted a new accounting method related to the income statement classification of periodic interest rate derivative settlements. In prior periods, we recorded the payments and accrual of periodic interest settlements of interest rate derivative agreements in interest income. Beginning in 2004, we record the accrual of the periodic interest rate settlements of interest rate derivatives in net unrealized appreciation (depreciation) of investments and subsequently record the amount as a realized gain (loss) on investments on the interest settlement date.

(2) In 2003, we adopted Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation, to account for stock-based compensation plans for all stock options granted in 2003 and forward as permitted under FASB Statement No. 148.

(3) In 2006, we adopted FASB Statement No. 123 (revised 2004), Share-Based Payment, a revision to FASB Statement No. 123. We adopted FASB Statement No. 123(R) using the “modified prospective” method. Under the modified prospective method, the consolidated financial statements for prior fiscal years do not reflect any restated amounts. When recognizing compensation cost under FASB Statement No. 123, we elected to adjust the compensation costs for forfeitures when the unvested awards were actually forfeited. However, under FASB Statement No. 123(R), we are required to estimate forfeitures of unvested awards when recognizing compensation cost. Upon the adoption of FASB Statement 123(R) on January 1, 2006, we recorded a cumulative effect of a change in accounting principle, net of related tax effects, to adjust compensation cost for the difference in compensation costs recognized in prior periods had forfeitures been estimated during those periods of $1 million, or $0.01 per basic share and $0.01 per diluted share.

(4) Amount of new investments includes amounts as of the investment dates that are committed but unfunded.

(5) Principal amount of loan repayments includes the collection of payment-in-kind notes, payment-in-kind dividends and accreted loan discounts.

(6) Calculated before the effect of net appreciation, depreciation gains and losses of investments. Average equity is calculated based on the quarterly shareholders’ equity balances.

(7) Return represents net increase in net assets resulting from operations, which includes the effect of net appreciation, depreciation, gains and losses of investments. Average equity is calculated based on the quarterly shareholders’ equity balances.

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ITEM 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operation

(in millions, except per share data)

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 substantially 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 for which 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 grow our business; (vii) our ability to retain key management personnel; (viii) an economic downturn or recession could 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 we maintain an asset coverage of at least 200%, which may affect returns to our shareholders; (xii) we may fail to continue to qualify for our pass-through treatment as a regulated investment company which could have an affect on shareholder return; (xiii) our common stock price may be volatile; (xiv) our strategy of becoming an asset manager of funds of alternative assets may not be successful and therefore have a negative impact on our results of operation and (xv) general business and economic conditions and other risk factors described in our reports filed from time to time with the Securities and Exchange Commission. 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.

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.

American Capital Portfolio Composition

We are a publicly traded buyout and mezzanine fund that provides investment capital to middle market companies. We invest primarily in senior and subordinated debt and equity of companies in need of capital for buyouts, growth, acquisitions and recapitalizations. We also invest in non-investment grade CMBS and CDO securities. The total portfolio value of our investments was $8.1 billion and $5.1 billion as of December 31, 2006 and 2005, respectively. During the years ended December 31, 2006, 2005, and 2004, we made new investments totaling $5.1 billion, $3.7 billion and $2.0 billion, including $372 million, $784 million and $130 million, respectively, in funds committed but undrawn under credit facilities and subscription agreements at the date of the investment. The weighted average effective interest rate on our debt securities was 12.3%, 12.8% and 12.9%, at December 31, 2006, 2005 and 2004, respectively.

We invest in and sponsor management and employee buyouts, invest in private equity sponsored buyouts, provide capital directly to early stage and mature private and small public companies, invest in CMBS and CDO securities and invest in investment funds managed by us. We provide senior debt, mezzanine debt and equity to fund buyouts, growth, acquisitions and recapitalizations. We also provide capital directly to private and small public companies for buyouts, growth, acquisitions and recapitalizations.

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

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returns for our investment. Add-on financings fund (i) strategic acquisitions by the portfolio company of either a complete business or specific lines of a business that are related to the portfolio company’s business, (ii) recapitalization at the portfolio company, (iii) growth at the portfolio company such as product development or plant expansions, or (iv) working capital for portfolio companies, sometimes in distressed situations, that need capital to fund operating costs, debt service, or growth in receivables or inventory.

The type and aggregate dollar amount of our new investments during the years ended December 31, 2006, 2005 and 2004 were as follows (in millions):

	Year Ended December 31,
	2006		2005		2004
American Capital Sponsored Buyouts	$	2,200	$	1,588	$	689
Financing for Private Equity Buyouts		1,043		701		875
Direct Investments		263		218		10
Investments in Managed Funds		—		617		—
CMBS Investments		414		81		—
CDO/CLO Investments		146		19		27
Add-On Financing for Acquisitions		584		157		121
Add-On Financing for Recapitalization		442		266		255
Add-On Financing for Growth		2		5		5
Add-On Financing for Working Capital in Distressed Situations		21		15		18
Add-On Financing for Working Capital		21		47		18
Total	$	5,136	$	3,714	$	2,018

During the years ended December 31, 2006, 2005 and 2004, we received cash proceeds from exits and repayments of portfolio investments, excluding repayments of bridge notes and accrued payment-in-kind (“PIK”) interest from ECAS, as follows (in millions):

	Year Ended December 31,
	2006		2005		2004
Principal Prepayments	$	1,223	$	688	$	382
Senior Loan Syndications		456		340		217
Scheduled Principal Amortization		64		57		37
Payment of Accrued PIK Interest and Dividends and Original Issue Discount		73		34		18
Sale of Equity Investments		1,102		195		58
Total	$	2,918	$	1,314	$	712

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP’). The preparation of the financial statements in accordance with GAAP requires the use of estimates and assumptions that could affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the consolidated financial statements are prepared. Actual results could differ from these estimates. A summary of our significant accounting policies is presented in Note 2 to our consolidated financial statements. Management believes that the following accounting policies are the most affected by judgments, estimates and assumptions. Management has reviewed these critical accounting policies and related disclosures with our independent auditor and the Audit and Compliance Committee of our Board of Directors.

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Valuation of Investments

We value our investment portfolio each quarter. Our FACT group prepares the portfolio company valuations each quarter using the most recent portfolio company financial statements and forecasts. The FACT group will consult with the respective members of our Investment Team who are managing the portfolio company to obtain further updates on the portfolio company performance, including information such as industry trends, new product development, and other operational issues. The valuations are reviewed by our senior management and the Audit and Compliance Committee of our Board of Directors and presented to the Board of Directors, which reviews and approves the portfolio valuations in accordance with the following valuation policy.

Investments are carried at fair value, as determined in good faith by our Board of Directors. Unrestricted securities that are publicly traded are valued at the closing price on the valuation date. For debt and equity securities of companies that are not publicly traded, or for which we have various degrees of trading restrictions, we prepare an analysis consisting of traditional valuation methodologies to estimate the enterprise value of the portfolio company issuing the securities. The methodologies consist of valuation estimates based on: valuations of comparable public companies, recent sales of comparable companies, discounting the forecasted cash flows of the portfolio company, the liquidation or collateral value of the portfolio company’s assets, third party valuations of the portfolio company, third party sale offers, potential strategic buyer analysis and the value of recent investments in the equity securities of the portfolio company. We weight some or all of the above valuation methods in order to conclude on our estimate of value. In valuing convertible debt, equity or other securities, we value our equity investment based on our pro rata share of the residual equity value available after deducting all outstanding debt from the estimated enterprise value. We value non-convertible debt securities at cost plus amortized original issue discount (“OID”) to the extent that the estimated enterprise value of the portfolio company exceeds the outstanding debt of the portfolio company. If the estimated enterprise value is less than the outstanding debt of the company, we reduce the value of our debt investment beginning with the junior most debt such that the enterprise value less the value of the outstanding debt is zero. If there is sufficient enterprise value to cover the face amount of a debt security that has been discounted due to detachable equity warrants received with that security, that detachable equity warrant will be valued such that the sum of the discounted debt security and the detachable equity warrant equal the face value of the debt security. For CMBS and CDO securities, we prepare a fair value analysis that is based on a discounted cash flow model that utilizes prepayment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow and comparable yields for similar securities, when available.

Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have been used had a ready market for the securities 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.

Consolidation

Under the investment company rules and regulations pursuant to Article 6 of Regulation S-X and the AICPA Audit and Accounting Guide for Investment Companies, we are precluded from consolidating any entity other than another investment company. An exception to this general principle occurs if the investment company has an investment in an operating company that provides services to the investment company. Our consolidated financial statements include the accounts of our operating companies, ACFS and ECFS, as either all or substantially all of the services provided by these operating companies are to us or portfolio companies in which we have a significant interest. If our ownership interest in a portfolio company that a consolidated operating subsidiary manages or provides services to were to decrease, the operating subsidiary may no longer provide all or substantially all of its services directly or indirectly to us, resulting in the deconsolidation of such operating subsidiary at that time. For example, if our ownership interest in ECAS were to decrease, we may have to deconsolidate ECFS at that time. Our investments in other investment companies or funds are recorded as investments in the accompanying consolidated financial statements and are not consolidated. We also have wholly-owned affiliated statutory trusts that were established to facilitate secured borrowing arrangements

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whereby assets were transferred to the affiliated statutory trusts and notes were sold by the trusts. These transfers of assets to the trusts are treated as secured borrowing arrangements in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, and our consolidated financial statements include the accounts of our affiliated statutory trusts established for secured financing arrangements. We also have established trusts to fund deferred compensation plans for employees. Our consolidated financial statements include the accounts of these trusts. All intercompany accounts have been eliminated in consolidation.

Interest and Dividend Income Recognition

Interest income is recorded on the accrual basis to the extent that such amounts are expected to be collected. OID is accreted into interest income using the effective interest method. OID initially represents the value of detachable equity warrants obtained in conjunction with the acquisition of debt securities and loan origination fees that represent yield enhancement. Dividend income is recognized on the ex-dividend date for common equity securities and on an accrual basis for preferred equity securities to the extent that such amounts are expected to be collected or realized. In determining the amount of dividend income to recognize, if any, from cash distributions on common equity securities, we will assess many factors including a portfolio company’s cumulative undistributed income and operating cash flow. Cash distributions from common equity securities received in excess of such undistributed amounts are recorded first as a reduction of our investment and then as a realized gain on investment. We stop accruing interest or dividends on our investments when it is determined that the interest or dividend is not collectible. We assess the collectibility of the interest and dividends based on many factors including the portfolio company’s ability to service our loan based on current and projected cash flows as well as the current valuation of the enterprise. For investments with PIK interest and dividends, we base income and dividend accruals on the valuation of the PIK notes or securities received from the borrower. If the portfolio company valuation indicates a value of the PIK notes or securities that is not sufficient to cover the contractual interest or dividend, we will not accrue interest or dividend income on the notes or securities. For CMBS and CDO securities, we recognize income using the effective interest method, using the anticipated yield over the projected life of the investment.

A change in the portfolio company valuation assigned by us could have an effect on the amount of loans on non-accrual status. Also, a change in a portfolio company’s operating performance and cash flows can impact a portfolio company’s ability to service our debt and therefore could impact our interest recognition.

Asset Management and Other Fee Income Recognition

Fees primarily include portfolio company management, asset management, transaction structuring, financing and prepayment fees. Portfolio company management fees, which are generally recurring in nature, represent amounts received for providing advice and analysis to our middle market portfolio companies. Asset management fees represent fees for providing investment advisory services to investment funds. Portfolio company management and asset management fees are recognized as earned provided collection is probable. Transaction structuring and financing fees represent amounts received for structuring, financing and executing transactions and are generally payable only if the transaction closes and are recognized as earned when the transaction is completed. Prepayment fees are recognized as they are received.

Stock-based Compensation

In 2003, we adopted FASB Statement No. 123, Accounting for Stock-Based Compensation, to account for stock-based compensation plans for all shares granted in 2003 and forward as permitted under FASB Statement No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—An Amendment to FASB Statement No. 123. In applying FASB Statement No. 123 to all stock options granted in 2003 and forward, the estimated fair value of the stock options are expensed pro rata over the vesting period of the options and are included on the accompanying consolidated statements of operations in “Salaries, benefits and stock-based compensation.” In accordance with FASB Statement No. 123, we elected to continue to apply the provisions of

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Accounting Principle Board Opinion No. 25 Accounting for Stock Issued to Employees to all stock options granted prior to January 1, 2003 and provide pro forma disclosure of our consolidated net operating income and net increase in net assets resulting from operations calculated as if compensation costs were computed in accordance with FASB Statement No. 123.

In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment, a revision to FASB Statement No. 123. FASB Statement No. 123(R) also supersedes APB Opinion No. 25 and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in FASB Statement No. 123(R) is similar to the approach described in FASB Statement No. 123. However, FASB Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. In the first quarter of 2006, we adopted FASB Statement No. 123(R) using the “modified prospective” method. Under the modified prospective method, the consolidated financial statements for prior year interim periods and fiscal years will not reflect any restated amounts.

All of our stock options granted prior to January 1, 2003 that were accounted for under APB Opinion No. 25 and not expensed in our consolidated statements of operations were fully vested as of December 31, 2005 and therefore, no additional stock compensation costs for those stock option grants will be recorded subsequent to the adoption of FASB Statement No. 123(R). When recognizing compensation cost under FASB Statement No. 123, we elected to adjust the compensation costs for forfeitures when the unvested awards were actually forfeited. However, under FASB Statement No. 123(R), we are required to estimate forfeitures of unvested awards when recognizing compensation cost. Upon the adoption of FASB Statement 123(R) on January 1, 2006, we recorded a cumulative effect of a change in accounting principle, net of related tax effects, to adjust compensation cost for the difference in compensation costs recognized in prior periods had forfeitures been estimated during those periods of $1 million, or $0.01 per basic and diluted share. We calculated the compensation costs that would have been recognized in prior periods and for the fiscal year 2006 using an estimated annual forfeiture rate of 6.7%.

The following table reflects the weighted average fair value per option granted during 2006, 2005 and 2004, as well as the weighted average assumptions used in determining those fair values using the Black-Scholes pricing model.

	Year ended December 31,
	2006			2005			2004
Options granted (in millions)		7.1			4.2			2.7	(1)
Fair value on grant date	$	2.93		$	4.95		$	11.49
Dividend yield		8.8	%		9.1	%		0.7	%
Expected volatility		22	%		34	%		38	%
Risk-free interest rate		4.6	%		4.0	%		3.7	%
Expected life (years)		5.1			5.0			5.9

(1) During the year ended December 31, 2004, the fair value of 0.2 million stock option grants was estimated using a dividend yield assumption of 10.7% and the fair value of the remaining 2.5 million stock option grants was estimated using a dividend yield assumption of 0%.

For our stock option plans approved by our shareholders in 2003 and forward, the plans provide that unless the Compensation and Corporate Governance Committee of our Board of Directors determines otherwise, the exercise price of the stock options will be automatically reduced by the amount of any cash dividends paid on our common stock after the option is granted but before it is exercised. Beginning in 2005, the Compensation and Corporate Governance Committee determined that it would no longer reduce the exercise price of the stock options by the amount of any cash dividends paid on our common stock. Prior to 2005, in determining the fair value of the options under these plans on the date of grant, we assumed that the exercise price of the stock options would be automatically reduced by the amount of any cash dividends paid on our common stock until it is exercised. To incorporate the value of this feature within the fair value of a stock option grant in a

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Black-Scholes option pricing model, the dividend yield was assumed to be 0%. However, the fair value of these stock options granted in 2004 determined on the date of grant has not been adjusted for this change in the dividend yield assumption in accordance with FASB Statement No. 123(R).

As of December 31, 2006, the total compensation cost related to non-vested stock option awards not yet recognized was $53 million that has a weighted average period to be recognized of 3.3 years. For the year ended December 31, 2006, we recorded stock-based compensation expense of $16 million attributable to our stock options.

Deferred Compensation Plans

In the first quarter of 2006, we established a non-qualified deferred compensation plan (the “Plan”) for the purpose of granting bonus awards to our domestic employees. The Plan does not permit diversification and must be settled by the delivery of a fixed number of shares of our common stock. The awards under the Plan are accounted for as a grant of unvested stock. We record stock-based compensation expense based on the fair market value of our stock on the date of grant. The compensation cost for awards with service conditions is recognized using the straight-line attribution method over the requisite service period. The compensation cost for awards with performance and service conditions are recognized using the accelerated attribution method over the requisite service period.

For the year ended December 31, 2006, we recorded stock-based compensation expense of $19 million attributable to the Plan. As of December 31, 2006, the total compensation cost related to non-vested bonus awards not yet recognized was $95 million that has a weighted average period to be recognized of 4.1 years.

Derivative Financial Instruments

We use derivative financial instruments primarily to manage interest rate risk and also to fulfill our obligation under the terms of our revolving credit facilities and asset securitizations. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for speculative purposes. 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 these instruments 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.

Our derivatives are considered economic hedges that do not qualify for hedge accounting under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. We record the accrual of the periodic interest settlements of interest rate derivatives in net unrealized appreciation or (depreciation) of investments and subsequently record the amount as a realized gain or loss on investments on the interest settlement date.

Results of Operations

Our consolidated financial performance, as reflected in our consolidated statements of operations, is composed of three primary elements. The first element is “Net operating income,” which is primarily the interest, dividends and prepayment fees earned from investing in debt and equity securities and the fees we earn from portfolio company management, asset management, financing and transaction structuring activities, 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 settlements of derivatives. The third element is “Net unrealized appreciation (depreciation) of investments,” which is the net change in the estimated fair values of our investments and the change in the estimated fair value of the future payment streams 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. Our net realized earnings is comprised of our net operating income and net realized gain (loss) on investments.

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The consolidated operating results for the years ended December 31, 2006, 2005 and 2004 are as follows (in millions):

	Year Ended December 31,
	2006			2005			2004
Operating income	$	860		$	555		$	336
Operating expenses		424			228			114
Operating income before income taxes		436			327			222
Provision for income taxes		(11	)		(13	)		(2	)
Net operating income		425			314			220
Net realized gain (loss) on investments		173			36			(38	)
Net realized earnings		598			350			182
Net unrealized appreciation of investments		297			15			99
Cumulative effect of accounting change		1			—			—
Net increase in net assets resulting from operations	$	896		$	365		$	281

Fiscal Year 2006 Compared to Fiscal Year 2005

Operating Income

Total operating income is comprised of two components: interest and dividend income and asset management and other fee income. For the year ended December 31, 2006, total operating income increased $305 million, or 55%, over the year ended December 31, 2005.

Interest and dividend income consisted of the following for the years ended December 31, 2006 and 2005 (in millions):

	Year Ended December 31,
	2006		2005
Interest income on debt securities	$	531	$	383
Interest income on bank deposits and employee loans		8		4
Dividend income on equity securities		130		39
Total interest and dividend income	$	669	$	426

Interest income on debt securities increased by $148 million, or 39%, to $531 million for 2006 from $383 million for 2005, primarily due to an increase in our debt investments, which was partially offset by a decline in the daily weighted average interest rate on our debt investments. Our daily weighted average debt investments at cost increased from $2,949 million in 2005 to $4,274 million in 2006 resulting from new loan originations net of loan repayments during the year ended December 31, 2006.

The daily weighted average effective interest rate on debt investments decreased to 12.4% in 2006 from 13.0% in 2005 due primarily to an increase in our investment in CMBS securities, an increase in total senior loans as a percentage of our total loan portfolio and a contraction of the spreads over LIBOR for our new loan originations due to increased competition in the marketplace. Our weighted average investments in CMBS securities was $248 million in 2006; we made our first investment in CMBS securities at the end of December 2005. Our overall effective interest rate on our CMBS investments is lower than our overall effective interest rate on our total senior and subordinated loans to our portfolio companies. Our senior loans as a percentage of our total loans at cost, excluding CMBS securities, increased to 54% as of December 31, 2006 from 44% as of December 31, 2005. Our senior loans generally yield lower rates than our subordinated loans, but they are typically variable rate based loans, which do not require the use of interest rate basis swap agreements thereby reducing our overall interest swap costs. We attempt to match-fund our liabilities and assets by financing floating

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rate assets with floating rate liabilities and fixed rate assets with fixed rate liabilities or equity. We enter into interest rate 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 revolving debt funding facilities and asset securitizations. Excluding the impact of the interest rate swap agreements, our daily weighted average effective interest rate for 2006 decreased 60 basis points to 12.4% as compared to 13.0% in the prior year. However, including the impact of interest rate basis swap agreements, our daily weighted average effective interest rate for 2006 decreased only 10 basis points to 12.6% as compared to 12.7% in the prior year.

Our derivatives are considered economic hedges that do not qualify for hedge accounting under FASB Statement No. 133. We record the accrual of the periodic interest settlements of interest rate derivatives in net unrealized appreciation (depreciation) of investments and subsequently record the amount as a net realized gain (loss) on investments on the interest settlement date. In 2006 and 2005, the total interest benefit (cost) of interest rate derivative agreements included in both net realized gain (loss) on investments and unrealized appreciation (depreciation) of investments was $6 million and ($9 million), respectively. The favorable change from interest rate derivative agreements is due primarily to the increase in the average LIBOR rate in 2006.

Dividend income on equity securities increased by $91 million to $130 million for 2006 from $39 million for 2005, due primarily to an increase in preferred stock investments and an increase in dividends from common equity investments. We have grown our investments in equity securities, excluding CMBS and CDO securities, to a fair value of $2.8 billion as of December 31, 2006, a 64% increase over the prior year. Although these investments do not produce a significant amount of current income, we expect to experience future net realized gains from these equity investments if they continue to appreciate in value. In addition, we received cash dividends from common equity investments of $34 million from ten portfolio companies in 2006 compared to $2 million from three portfolio companies in 2005. Included in the $34 million of dividend income from common equity investments in 2006 was $20 million of dividends from our investment in ECAS.

Our daily weighted average total debt and equity investments at cost increased from $4,056 million in 2005 to $6,427 million in 2006. The daily weighted average yield on total debt and equity investments decreased from 10.4% in 2005 to 10.3% in 2006 due primarily to the decreases in our weighted average interest rate on debt investments discussed above. Including the interest benefit (cost) of interest rate derivative agreements that are included in net realized gain (loss) on investments and net unrealized appreciation (depreciation) of investments on the consolidated statements of operations, our daily weighted average yield on total debt and equity investments increased 20 basis points to 10.4% in 2006 as compared to the prior year in part due to the higher dividends on common equity securities in 2006.

Asset management and other fee income consisted of the following for the years ended December 31, 2006 and 2005 (in millions):

	Year Ended December 31,
	2006		2005
Asset management fees and reimbursements	$	43	$	14
Transaction structuring fees		38		28
Equity financing fees		29		25
Portfolio company management and administrative fees		24		19
Loan financing fees		24		18
Prepayment fees		10		11
Other		23		14
Asset management and other fee income	$	191	$	129

Asset management fees and reimbursements primarily represent fees recognized for providing advisory and management services to ECAS pursuant to investment management and services agreements that commenced in

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the fourth quarter of 2005. In connection with these agreements with ECAS, we recognized $13 million of management fees and $28 million for reimbursements of costs and expenses in 2006 for salaries, employee benefits and general and administrative expenses compared to $3 million for management fees and $11 million for reimbursements of costs and expenses in 2005.

In 2006, we recorded $38 million in transaction structuring fees for 17 American Capital sponsored buyout investments and three add-on financings for acquisitions totaling $2,298 million of American Capital financing. In 2005, we recorded $28 million in transaction structuring fees for 18 buyout investments and two add-on financings for acquisitions totaling $1,662 million of American Capital financing. The transaction structuring fees were 1.7% of American Capital financing in both 2006 and 2005, respectively.

Equity financing fees for the year ended December 31, 2006 increased $4 million over the comparable period in 2005. The increase in equity financing fees was attributable to an increase in new equity investments from $760 million in 2005 to $1,048 million in 2006. Equity financing fees were 2.8% and 3.3% of equity financing in 2006 and 2005, respectively.

Portfolio company management and administrative fees for the year ended December 31, 2006 increased $5 million, or 26%, over the comparable period in 2005. The increase in management and administrative fees is attributable primarily to the increase in the number of portfolio companies under management.

Loan financing fees for the year ended December 31, 2006 increased $6 million, or 33%, over the comparable period in 2005. The increase in the loan financing fees was attributable to an increase in new debt investments from $2,257 million in 2005 to $3,527 million in 2006. The loan financing fees were 0.7% and 0.8% of loan originations in 2006 and 2005, respectively. Loan fees we receive that are representative of additional yield are deferred as a discount and accreted into interest income and are not recorded as fee income.

The prepayment fees of $10 million in 2006 are the result of the prepayment by 26 portfolio companies of loans totaling $486 million compared to prepayment fees of $11 million in 2005 as the result of the prepayment by 20 portfolio companies of loans totaling $445 million. Prepayment fees were 2.0% and 2.5% in 2006 and 2005, respectively, of loans that contained prepayment fee provisions.

Operating Expenses

Total operating expenses for 2006 increased $196 million, or 86%, over 2005. Our operating leverage was 2.0% and 1.9% for December 31, 2006 and 2005, respectively. Operating leverage is our operating expenses, excluding stock-based compensation, interest expense and operating expenses reimbursed under management agreements, divided by our total assets at period end.

Interest expense increased from $101 million for 2005 to $190 million for 2006. The increase in interest expense is due both to an increase in our weighted average borrowings from $1,892 million for 2005 to $3,021 million for 2006 and to an increase in our weighted average interest rate on outstanding borrowings, including amortization of deferred finance costs, from 5.32% for 2005 to 6.28% for 2006. As discussed above, the increase in the weighted average interest rate is primarily due to an increase in the average LIBOR rates in 2006.

Salaries, benefits and stock-based compensation expense increased 87% from $86 million for 2005 to $161 million in the comparable period in 2006. Salaries, benefits and stock-based compensation consisted of the following for the years ended December 31, 2006 and 2005 (in millions):

	Year Ended December 31,
	2006		2005
Salaries	$	109	$	64
Benefits		13		8
Stock-based compensation		39		14
Total salaries, benefits and stock-based compensation	$	161	$	86

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The total increase is due primarily to an increase in employees from 308 at December 31, 2005 to 484 at December 31, 2006 and annual salary rate increases. The increase in the number of employees is due to our growth as we have added investment professionals and administrative staff as we continue to build our investment platform and our asset management business, including the opening of one new office during 2006 and two new offices during 2005.

General and administrative expenses increased from $41 million for 2005 to $73 million for 2006 primarily due to additional overhead attributable to the increase in the number of employees and the opening of new offices, including higher employee recruiting costs and rent expense. In addition, we experienced higher legal and accounting fees and board of director fees due primarily to a new board of director retention plan implemented in 2006.

Provision for Income Taxes

We operate to qualify to be taxed as a RIC under the Code. Generally, a RIC is entitled to deduct dividends it pays to its shareholders from its income to determine taxable income. We have distributed and currently intend to distribute sufficient dividends to eliminate our investment company taxable income. However, we are subject to a nondeductible federal excise tax of 4% on our undistributed investment company taxable income if we do not distribute at least 98% of our investment company ordinary taxable income in any calendar year, 98% of our capital gain net income for each one-year period ending on October 31 and any shortfall in distributing taxable income from the prior calendar year. For calendar years 2006 and 2005, we retained $108 million and $48 million of our investment company ordinary taxable income, respectively, and accrued a federal excise tax of $4 million and $2 million, respectively, which is included in our provision for income taxes.

Our consolidated operating subsidiaries, ACFS and ECFS, are subject to corporate level federal, state and local income tax in their respective jurisdictions. For 2006 and 2005, we recorded a tax provision of $7 million and $11 million, respectively, attributable to our operating subsidiaries.

Net Realized Gains (Losses)

Our net realized gains (losses) for 2006 and 2005 consisted of the following (in millions):

	Year Ended December 31,
	2006		2005
Sale to American Capital Equity I, LLC	$	59	$	—
KAC Holdings, Inc.		47		—
WWC Acquisitions, Inc.		38		—
Iowa Mold Tooling Co., Inc.		36		—
3SI Acquisition Holdings, Inc.		27		—
ASC Industries, Inc.		25		—
Jones Stephens Corp.		25		—
Bankruptcy Management Solutions, Inc.		22		—
Network for Medical Communication & Research, LLC		22		—
Aeriform Corporation		6		—
Escort, Inc.		6		52
PaR Nuclear Holding Company		5		—
BC Natural Foods, LLC		5		1
Edge Products, LLC		4		—
American Driveline Systems, Inc.		3		—
Alemite Holdings, Inc.		2		—
Dynisco Parent, Inc.		2		—

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	Year Ended December 31,
	2006			2005
Roadrunner Freight Systems, Inc.		—			26
CIVCO Holding, Inc.		—			13
Automatic Bar Controls, Inc.		1			12
The Tensar Corporation		—			11
Chronic Care Solutions, Inc.		1			6
HMS Healthcare, Inc.		—			6
Vigo Remittance Corp.		—			4
Cycle Gear, Inc.		—			4
The Lion Brewery, Inc.		—			2
Bumble Bee Seafoods, L.P.		—			2
Kelly Aerospace, Inc.		—			2
ACS PTI, Inc.		—			2
Other, net		20			4
Total gross realized portfolio gains	$	356		$	147
Flexi-Mat Holdings, Inc.		(31	)		—
Weber Nickel Technologies, Ltd.		(29	)		—
Stravina Holdings, Inc.		(19	)		(1	)
American Decorative Surfaces International, Inc.		(16	)		(23	)
UAV Corporation		(15	)		—
nSpired Holdings, Inc.		(14	)		—
Halex Holdings, Inc.		(11	)		—
Precitech, Inc.		(8	)		—
Auxi Health, Inc.		(8	)		—
Logex Corporation		(7	)		—
S-Tran Holdings, Inc.		(7	)		(22	)
Optima Bus Corporation		(6	)		(14	)
KIC Holdings, Inc.		(5	)		(15	)
Euro-Caribe Packing Company, Inc.		(5	)		—
Hartstrings LLC		—			(8	)
MBT International, Inc.		—			(6	)
Aeriform Corporation		—			(4	)
Euro-Pro Operating LLC		—			(2	)
Other, net		—			(7	)
Total gross realized portfolio losses	$	(181	)	$	(102	)
Total net realized portfolio gains		175			45
Interest rate derivative periodic receipts (payments), net		6			(10	)
Interest rate derivative termination receipts, net		9			1
Taxes on net realized gains		(17	)		—
Total net realized gains	$	173		$	36

On October 1, 2006, we entered into a purchase and sale agreement with ACE I for the sale of approximately 30% of our equity investments (other than warrants issued with debt investments) in 96 portfolio companies. ACE I is a newly established private equity fund with $1 billion of equity commitments. The aggregate purchase price was $671 million, subject to certain adjustments. ACE I will co-invest with us in an amount equal to 30% of our future equity investments until the $329 million remaining commitment is exhausted. A wholly-owned portfolio company, ACEM, will manage ACE I in exchange for a 2% annual management fee on the net cost basis of ACE I and a 10% to 30% carried interest in the net profits of ACE I, subject to certain hurdles. We recorded a total net realized gain of $59 million upon the sale of the $671 million

41

of investments. In accordance with FASB Statement No. 140, we included in our sale proceeds the fair value of the management agreement associated with the $671 million of investments sold. The fair value of this portion of the contract was determined to be $16 million and was treated as being contributed to ACEM as our cost basis in our investment in ACEM. As a result, our $59 million of net realized gain on the transaction includes $16 million of a realized gain for the value of a portion of the management agreement received as sale proceeds.

During 2006, we received full repayment of our remaining $23 million subordinated debt investment in KAC Holdings, Inc. and sold all of our common and preferred equity investment for $65 million in proceeds realizing a total gain of $47 million offset by a reversal of unrealized appreciation of $49 million. The gain that we recognized includes escrowed proceeds of $5 million, which we expect to receive.

During 2006, we received full repayment of our $33 million senior and subordinated debt investment in WWC Acquisitions, Inc. and sold all of our common equity investment for $51 million in proceeds realizing a total gain of $38 million offset by a reversal of unrealized appreciation of $42 million. The gain that we recognized includes escrowed proceeds of $2 million, which we expect to receive. We provided the purchasers with $96 million of new senior debt financing at market terms.

During 2006, we received full repayment of our remaining $16 million subordinated debt investment in Iowa Mold Tooling Co., Inc. and sold all of our common and preferred equity for $78 million in proceeds realizing a total gain of $36 million offset by a reversal of unrealized appreciation of $21 million. The gain that we recognized includes escrowed proceeds of $5 million, which we expect to receive.

During 2006, we received full repayment of our remaining $40 million subordinated debt investment in 3SI Acquisition Holdings, Inc. and sold all of our common equity for $53 million in proceeds realizing a total gain of $27 million offset by a reversal of unrealized appreciation of $28 million. The gain that we recognized includes escrowed proceeds of $4 million, which we expect to receive.

During 2006, we received full repayment of our $21 million subordinated debt investment in ASC Industries, Inc. and sold all of our equity investments for $35 million in proceeds realizing a total gain of $25 million offset by a reversal of unrealized appreciation of $19 million.

During 2006, we received full repayment of our $23 million subordinated debt investment in Jones Stephens Corp. and sold all of our common and preferred equity for $38 million in proceeds realizing a total gain of $25 million offset by a reversal of unrealized appreciation of $31 million. The gain that we recognized includes escrowed proceeds of $5 million, which we expect to receive. We provided $22 million of subordinated debt financing to the purchasers of Jones Stephens.

During 2006, we received full repayment of our remaining $47 million senior and subordinated debt investments in Bankruptcy Management Solutions, Inc. and sold all of our common equity for $21 million in proceeds realizing a total gain of $22 million offset by a reversal of unrealized appreciation of $21 million.

During 2006, we received full repayment of our remaining $10 million subordinated debt investment in Network for Medical Communication & Research, LLC and sold all of our common equity warrants for $22 million in proceeds realizing a total gain of $22 million offset by a reversal of unrealized appreciation of $23 million. The gain that we recognized includes escrowed proceeds of $1 million, which we expect to receive.

During 2006, we surrendered all of our equity securities and a portion of our debt securities in Flexi-Mat Holdings, Inc. that we believe did not have any fair value on the date of transfer. We recorded a realized loss of $31 million offset by a reversal of unrealized depreciation of $20 million. We continue to own a senior debt investment in Flex-Mat.

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During 2006, Weber Nickel Technologies, Ltd. filed for bankruptcy protection in Canada under the Companies’ Creditors Arrangement Act. Although we are pursuing our claims, we do not expect to receive any proceeds from our subordinated debt or equity investment in Weber. We deemed our investments to be worthless and recognized a realized loss of $29 million fully offset by a reversal of unrealized depreciation.

During 2006, we sold a portion of our equity investment in Stravina Holdings, Inc. for nominal proceeds resulting in a realized loss of $19 million fully offset by a reversal of unrealized depreciation.

During 2006, American Decorative Surfaces International, Inc. ceased business operations and a receiver was appointed to liquidate its remaining assets. Although we are pursuing our claims in the receivership, we do not expect to receive any additional proceeds from the liquidation. Our remaining subordinated debt and equity investments were deemed worthless and we recognized a realized loss of $16 million offset by the reversal of unrealized depreciation of $19 million.

During 2006, we sold our senior subordinated debt investment in UAV Corporation for nominal proceeds realizing a loss of $15 million offset by a reversal of unrealized depreciation of $12 million.

During 2006, we sold a portion of our equity investments in five portfolio companies—nSpired Holdings, Inc., Halex Holdings, Inc., Logex Corporation, KIC Holdings, Inc. and Euro-Caribe Packing Company—in one transaction for nominal proceeds resulting in a total realized loss of $42 million offset by a reversal of unrealized depreciation of $42 million.

During 2005, we received full repayment of our $27 million senior and subordinated debt investments in Escort, Inc. and sold all of preferred equity and a portion of common equity for $62 million in proceeds realizing a total gain of $52 million offset by a reversal of unrealized appreciation of $49 million. We retained a 9% fully diluted common equity interest in the newly capitalized Escort, renamed Radar Detection Holdings Corp., and provided $13 million of senior debt financing to the purchasers for the transaction. The gain that we recognized included escrowed proceeds of $1 million.

During 2005, we received full repayment of our remaining $5 million subordinated debt investments in Roadrunner Freight Systems, Inc. and sold all of our equity investments in Roadrunner Freight consisting of our common stock and common stock warrants for $42 million in proceeds realizing a total gain of $26 million offset by a reversal of unrealized appreciation of $24 million. We provided $24 million of subordinated bridge debt financing to the purchasers for which we subsequently received full repayment in 2005.

During 2005, we received full repayment of our $29 million of subordinated debt investments in CIVCO Holding, Inc. and sold all of our remaining equity investments in CIVCO consisting of our common stock and common stock warrants for $15 million in proceeds realizing a total gain of $13 million offset by a reversal of unrealized appreciation of $7 million. The gain that we recognized included escrowed proceeds of $1 million.

During 2005, we received full repayment of our $26 million of remaining senior and subordinated debt investments in Automatic Bar Controls, Inc. and sold all of our equity investments in Automatic Bar consisting of our common stock and common stock warrants for $19 million in proceeds realizing a total gain of $12 million offset by a reversal of unrealized appreciation of $14 million.

During 2005, we received full repayment of our $25 million of subordinated debt investments in The Tensar Corporation and sold all of our minority equity investments in Tensar consisting of preferred stock, common stock warrants and common stock for $18 million in proceeds realizing a total gain of $11 million offset by a reversal of unrealized appreciation of $11 million. We provided $104 million in senior and subordinated debt financing to the purchasers in the transaction.

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During 2005, we sold our common stock investment and a portion of our preferred stock and common stock warrant investments in American Decorative Surfaces International, Inc. for nominal proceeds resulting in a realized loss of $23 million offset by a reversal of unrealized depreciation of $23 million.

During 2005, S-Tran Holdings, Inc. filed for Chapter 11 bankruptcy. We do not expect to receive any proceeds from the liquidation of S-Tran for our common stock investment in S-Tran. Our common stock investment was deemed worthless and was written off resulting in a realized loss of $22 million offset by a reversal of unrealized depreciation of $22 million.

During 2005, we sold a portion of our preferred stock investments in KIC Holdings, Inc. for nominal proceeds resulting in a realized loss of $15 million offset by a reversal of unrealized depreciation of $15 million.

During 2005, we sold our common stock warrant investment and a portion of our preferred stock investments in Optima Bus Corporation for nominal proceeds resulting in a realized loss of $14 million offset by a reversal of unrealized depreciation of $14 million.

For our tax year ended September 30, 2006, we had net long-term capital gains of $43 million. We elected to retain such capital gains and pay a federal tax on behalf of our shareholders of $15 million, which is included in our net realized gains. For the tax year ended September 30, 2005, to the extent we had capital gains, they were fully offset by either capital losses or capital loss carry forwards. In addition, for the one-year period ending on October 31, 2006, we did not distribute at least 98% of our taxable net capital gains and recorded an excise tax expense of $2 million, which is also included in our net realized gains.

We record the accrual of the periodic interest settlements of interest rate derivatives in net unrealized appreciation (depreciation) of investments and subsequently record the amount as a realized gain (loss) on investments on the interest settlement date. We recorded a net realized gain of $6 million and a net realized loss of $10 million, during 2006 and 2005, respectively, for the interest rate derivative periodic settlements. The favorable periodic interest settlements in 2006 as compared to the prior year are due primarily to the increase in the average LIBOR in 2006 as compared to 2005. In 2006 and 2005, we also terminated interest rate derivative agreements prior to their maturity resulting in a net cash settlement payment and net realized gain to us of $9 million and $1 million, respectively.

Unrealized Appreciation and Depreciation of Investments

The net unrealized appreciation and depreciation of investments is based on portfolio asset valuations determined by management and approved by our Board of Directors. The following table itemizes the change in net unrealized appreciation (depreciation) of investments for 2006 and 2005 ($ in millions):

	Year Ended December 31, 2006				Year Ended December 31, 2005
	Number of Companies	Amout			Number of Companies	Amount
Gross unrealized appreciation of portfolio company investments	68	$	785		43	$	243
Gross unrealized depreciation of portfolio company investments	53		(381	)	34		(222	)
Reversal of prior period net unrealized appreciation upon a realization			(128	)			(38	)
Net unrealized appreciation (depreciation) of portfolio company investments			276				(17	)
Foreign currency translation			32				—
Derivative agreements			(11	)			32
Net unrealized appreciation of investments		$	297			$	15

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The fair value of the derivative agreements represents the estimated net present value of the future cash flows using a forward interest rate yield curve in effect at the end of the period. A negative fair value would represent an amount we would have to pay the other party and a positive fair value would represent an amount we would receive from the other party to terminate the agreement. The fair value of the derivative agreements appreciate or depreciate based on relative market interest rates and the remaining term to maturity. The net unrealized depreciation of interest rate derivative agreements in 2006 is due primarily to the reversal of unrealized appreciation for interest rate derivative agreements that were terminated in 2006 prior to their maturity that resulted in the recognition of net realized gains of $9 million.

We have a limited amount of investments in portfolio companies, including ECAS, 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. During 2006, the foreign currency translation adjustment recorded in our consolidated statements of operations was unrealized appreciation of $32 million primarily as a result of the Euro appreciating against the U.S. dollar for our ECAS investment.

Our Board of Directors is responsible for determining the fair value of our portfolio investments on a quarterly basis. In that regard, the board has retained Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (“Houlihan Lokey”) to assist it by having Houlihan Lokey regularly review a designated percentage of our fair value determinations. Houlihan Lokey is a leading valuation firm in the U.S., engaged in approximately 1,000 valuation assignments per year for clients worldwide. Each quarter, Houlihan Lokey reviewed our determination of the fair value of approximately 25% of American Capital’s portfolio company investments that had been portfolio companies for at least one year and that had a fair value in excess of $10 million.

In 2006 and 2005, Houlihan Lokey reviewed our valuations of 96 and 99 portfolio company investments, having an aggregate $4,949 million and $3,113 million in fair value, respectively, as reflected in our consolidated financial statements of the respective period ends. In addition, Houlihan Lokey representatives attend our quarterly valuation meetings and provide periodic reports and recommendations to the Audit and Compliance Committee of our Board of Directors. For those portfolio company investments that Houlihan Lokey has reviewed during the applicable period using the scope of review set forth by our board, our board has made a fair value determination that is within the aggregate range of fair value for such investments as determined by Houlihan Lokey. Houlihan Lokey has been engaged, or may in the future be engaged, directly by us or our portfolio companies to provide investment banking services.

In February 2006, we entered into a commitment to provide $85 million of mezzanine and equity financing to ASAlliances Biofuels, LLC, through our investment in ACSAB, LLC, to fund its development of three large scale ethanol production facilities. Construction of all facilities has commenced and are projected to be in operation in late 2007. In October 2006, we sold 30% of our equity investment in ACSAB, LLC realizing a gain of $18 million as part of the sale transaction to ACE I. As of December 31, 2006, our cost basis in ACSAB, LLC was $60 million, which represents a 30% diluted ownership interest in ACSAB, LLC. Our investment has appreciated $99 million as of December 31, 2006 to a fair value of $159 million. The increase in the valuation is driven in part by developments in the ethanol and energy markets and market comparables subsequent to our original investment in February 2006. In addition to our standard valuation procedures, we engaged Houlihan Lokey to review the value of ACSAB, LLC as of December 31, 2006 due to the significant increase in fair value in the first year of our investment. The fair value of this investment, as determined by our Board of Directors, is within the range of fair value for the investment as determined by Houlihan Lokey. In addition to the prices of ethanol, the valuation of this investment is highly dependent on the pricing of agricultural commodities, such as corn, which is a raw material used in the production of ethanol, as well as the selling prices of petroleum products, such as the prices of unleaded gasoline and diesel fuel for which ethanol is considered to be a substitute. Therefore, significant fluctuations in the price of ethanol, corn commodities or crude oil could result in a significant effect on the valuation of our investment in ACSAB, LLC. The valuation of this investment is also dependent upon the stock prices of other comparable public companies. Subsequent to December 31, 2006, the prices of corn commodities have increased, the prices of ethanol and crude oil have decreased and the stock prices of comparable public companies have declined, and if such trends continue, this could result in a decrease in the fair value of our investment in ACSAB, LLC in subsequent periods.

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As part of our sale transaction of 30% of our equity securities to ACE I on October 1, 2006, our wholly-owned portfolio company, ACEM, will manage ACE I in exchange for a 2% annual management fee on the net cost basis of ACE I and a 10% to 30% carried interest in the net profits of ACE I, subject to certain hurdles. As of December 31, 2006, ACEM’s sole asset consists of this management agreement. As of December 31, 2006, we determined the total fair value of ACEM to be $36 million. In addition to our standard valuation procedures, we engaged Houlihan Lokey to review the value of ACEM as of December 31, 2006. The fair value of this investment, as determined by our Board of Directors, is within the range of fair value for the investment as determined by Houlihan Lokey.

Fiscal Year 2005 Compared to Fiscal Year 2004

Operating Income

Total operating income is comprised of two components: interest and dividend income and asset management and other fee income. For the year ended December 31, 2005, total operating income increased $219 million, or 65%, over the year ended December 31, 2004. Interest and dividend income consisted of the following for the years ended December 31, 2005 and 2004 (in millions):

	Year Ended December 31,
	2005		2004
Interest income on debt securities	$	383	$	243
Interest income on bank deposits and employee loans		4		1
Dividend income on equity securities		39		27
Total interest and dividend income	$	426	$	271

Interest income on debt securities increased by $140 million, or 58%, to $383 million for 2005 from $243 million for 2004, primarily due to an increase in our debt investments, which was partially offset by a decline in the daily weighted average interest rate on our debt investments. Our daily weighted average debt investments at cost increased from $1,804 million in 2004 to $2,949 million in 2005 resulting from new loan originations net of loan repayments during the year ended December 31, 2005.

The daily weighted average effective interest rate on debt investments decreased to 13.0% in 2005 from 13.5% in 2004 due primarily to an increase in the total senior loans as a percentage of our total loan portfolio. Our senior loans as a percentage of our total loans at cost increased to 44% as of December 31, 2005 from 35% as of December 31, 2004. The impact on our daily weighted average effective interest rate of the increase in the percentage of our senior debt investments is partially offset by an increase in interest rates on our variable rate based loans as the weighted average monthly LIBOR rate increased from 1.55% in 2004 to 3.47% in 2005. Our senior loans generally yield lower rates than our subordinated loans, but they are typically variable rate based loans, which do not require the use of interest rate basis swap agreements thereby reducing our overall interest swap costs. We attempt 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 enter into interest rate swap agreements to match the interest rate basis of our assets and liabilities and to reduce our interest rate risk, 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 revolving debt funding facilities and asset securitizations. Excluding the impact of the interest rate swap agreements, our daily weighted effective interest rate for 2005 decreased 50 basis points to 13.0% as compared to 13.5% for the prior year. However, including the impact of interest rate basis swap agreements, our daily weighted average effective interest rate for 2005 increased 40 basis points to 12.7% as compared to 12.3% for the prior year.

However, our derivatives are considered economic hedges that do not qualify for hedge accounting under FASB Statement No. 133. We record the accrual of the periodic interest settlements of interest rate derivatives in net unrealized appreciation (depreciation) of investments and subsequently record the amount as a net realized

46

gain (loss) on investments on the interest settlement date. In 2005 and 2004, the total interest rate cost of interest rate derivative agreements included in both net realized gain (loss) on investments and unrealized appreciation (depreciation) of investments was $7 million and $21 million, respectively.

Dividend income on equity securities increased by $12 million to $39 million for 2005 from $27 million for 2004 due primarily to an increase in preferred stock investments. We have grown our investments in equity securities to a fair value of $1,722 million as of December 31, 2005, an 89% increase over the prior year. Although these investments do not produce a significant amount of current income, we expect to experience future net realized gains from these equity investments if they continue to appreciate in value. In addition, we received cash dividends from common equity investments, of $2 million from three portfolio companies in 2005 compared to $9 million from six portfolio companies in 2004.

Our daily weighted average total debt and equity investments at cost increased from $2,443 million in 2004 to $4,056 million in 2005. The daily weighted average yield on total debt and equity investments decreased from 11.1% in 2004 to 10.4% in 2005 due to the reasons discussed above including an overall increase in equity investments in 2005 that do not produce a current yield. Including the cost of interest rate basis swap agreements that are included net realized gain (loss) on investments and net unrealized appreciation (depreciation) of investments on the consolidated statements of operations, our daily weighted average yield would have been 10.2% in both 2004 and 2005.

Asset management and other fee income consisted of the following for the years ended December 31, 2005 and 2004 (in millions):

	Year Ended December 31,
	2005		2004
Transaction structuring fees	$	28	$	14
Equity financing fees		25		10
Portfolio company management and administrative fees		19		10
Loan financing fees		18		15
Fund management fees and reimbursements		14		—
Prepayment fees		11		7
Other		14		9
Total asset management and other fee income	$	129	$	65

Asset management and other fee income increased by $64 million, or 98%, to $129 million in 2005 from $65 million in 2004. In 2005, we recorded $28 million in transaction structuring fees for eighteen buyout investments and two add-on financings for acquisitions totaling $1,662 million of American Capital financing. In 2004, we recorded $14 million in transaction structuring fees for thirteen buyout investments totaling $689 million of American Capital financing. The transaction structuring fees were 1.7% and 2.1% of American Capital financing in 2005 and 2004, respectively.

Equity financing fees for the year ended December 31, 2005 increased $15 million over the comparable period in 2004. The increase in equity financing fees was attributable to an increase in new equity investments from $339 million in 2004 to $760 million in 2005. Equity financing fees were 3.3% and 2.9% of equity financing in 2005 and 2004, respectively.

Portfolio company management and administrative fees for the year ended December 31, 2005 increased $9 million, or 90%, over the comparable period in 2004. The increase in portfolio company management and administrative fees is attributable primarily to the increase in the number of portfolio companies under management.

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Loan financing fees for the year ended December 31, 2005 increased $3 million, or 20%, over the comparable period in 2004. The increase in the loan financing fees was attributable to an increase in new debt investments from $1,679 million in 2004 to $2,257 million in 2005. The loan financing fees were 0.8% and 0.9% of loan originations in 2005 and 2004, respectively. Loan fees that we receive that are representative of additional yield are deferred as a discount and accreted into interest income and are not recorded as fee income.

Fund management fees and reimbursements represent fees recognized for providing investment advisory and management services to ECAS pursuant to investment management and services agreements. We recognized $3 million of management fees and $11 million for reimbursements of costs and expenses in 2005.

The prepayment fees of $11 million in 2005 are the result of the prepayment by twenty portfolio companies of loans totaling $445 million compared to prepayment fees of $7 million in 2004 as the result of the prepayment by seventeen portfolio companies of loans totaling $267 million. Prepayment fees were 2.5% in both 2005 and 2004, respectively, of loans that contained prepayment fee provisions.

Operating Expenses

Operating expenses for 2005 increased $114 million, or 100%, over 2004. Our operating leverage was 1.9% for both 2005 and 2004. Operating leverage is our operating expenses, excluding stock-based compensation, interest expense and operating expenses reimbursed under management agreements divided by our total assets at period end.

Interest expense increased from $37 million for 2004 to $101 million for 2005. The increase in interest expense is due both to an increase in our weighted average borrowings from $1,000 million for 2004 to $1,892 million for 2005 and to an increase in our weighted average interest rate on outstanding borrowings, including amortization of deferred finance costs, from 3.69% for 2004 to 5.32% for 2005. The increase in the weighted average interest rate is primarily due to an increase in the average monthly LIBOR rate from 1.55% in 2004 to 3.47% in 2005.

Salaries, benefits and stock-based compensation expense increased 69% from $51 million for 2004 to $86 million for 2005. Salaries, benefits and stock-based compensation consisted of the following for the years ended December 31, 2005 and 2004 (in millions):

	Year Ended December 31,
	2005		2004
Salaries	$	64	$	36
Benefits		8		5
Stock-based compensation		14		10
Total salaries, benefits and stock-based compensation	$	86	$	51

The total increase is due primarily to an increase in employees from 191 at December 31, 2004 to 308 at December 31, 2005, increases in incentive compensation, and annual salary rate increases. The increase in number of employees is due to our growth as we have added investment professionals and administrative staff in our efforts to build our investment platform, including the opening of two offices in London and Paris. The incentive compensation accrued as a percentage of the maximum amount of incentive compensation available increased in 2005 as compared to the prior year as a result of meeting certain performance criteria in 2005. In 2003, we adopted FASB Statement No. 123 to account for stock-based compensation plans for all stock options granted in 2003 and forward as permitted under FASB Statement No. 148. Accordingly, stock-based compensation is higher in 2005 since it includes the pro-rata vested expense for stock options granted over the past three years compared to the pro-rata vested expense for stock options granted over the past two years in 2004.

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General and administrative expenses increased from $26 million for 2004 to $41 million for 2005 primarily due to additional overhead attributable to the increase in the number of employees and the opening of two new offices in London and Paris, including higher employee recruiting costs and rent expense.

Provision for Income Taxes

We are subject to a nondeductible federal excise tax of 4% on our undistributed investment company taxable income if we do not distribute at least 98% of our investment company ordinary taxable income in any calendar year, 98% of our capital gain net income for each one-year period ending on October 31 and any shortfall in distributing taxable income from the prior calendar year. For 2005, we retained $48 million of our investment company taxable income and accrued a federal excise tax of $2 million, which is included in our provision for income taxes.

Our consolidated taxable operating subsidiaries, ACFS and ECFS, are subject to corporate level federal, state and local income tax in their respective jurisdictions. For the years ended December 31, 2005 and 2004, we recorded a tax provision of $11 million and $2 million, respectively, attributable to our taxable operating subsidiaries. The increase in the tax provision in 2005 as compared to 2004 is due primarily to the increase in fee income earned by ACFS in 2005 as result of an increase in American Capital sponsored buyout transactions structured by ACFS. The 2004 income tax provision also benefited from the full utilization of a fully reserved net operating loss carry forward and the reversal of a valuation allowance on deferred tax assets.

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Net Realized Gains (Losses)

Our net realized gains (losses) for 2005 and 2004 consisted of the following (in millions):

	Year Ended December 31,
	2005			2004
Escort, Inc.	$	52		$	—
Roadrunner Freight Systems, Inc.		26			2
CIVCO Holding, Inc.		13			2
Automatic Bar Controls, Inc.		12			—
The Tensar Corporation		11			4
Chronic Care Solutions, Inc.		6			—
HMS Healthcare, Inc.		6			—
Vigo Remittance Corp.		4			1
Cycle Gear, Inc.		4			—
The Lion Brewery, Inc.		2			—
Bumble Bee Seafoods, L.P.		2			—
Kelly Aerospace, Inc.		2			—
ACS PTI, Inc.		2			—
TransCore Holdings, Inc.		—			20
Texstars, Inc.		—			11
ACAS Acquisitions (PaR Systems), Inc.		—			10
Bankruptcy Management Solutions, Inc.		—			3
Other		5			6
Total gross realized portfolio gains	$	147		$	59
American Decorative Surfaces International, Inc.		(23	)		—
S-Tran Holdings, Inc.		(22	)		—
KIC Holdings, Inc.		(15	)		—
Optima Bus Corporation		(14	)		—
Hartstrings LLC		(8	)		—
MBT International, Inc.		(6	)		—
Aeriform Corporation		(4	)		—
Euro-Pro Operating LLC		(2	)		—
Chromas Technologies Corp.		—			(32	)
Fulton Bellows & Components, Inc.		—			(14	)
Academy Events Services, LLC		—			(14	)
Sunvest Industries, Inc.		—			(14	)
Baran Group, Ltd.		—			(2	)
ThreeSixty Sourcing, Ltd.		—			(2	)
Other		(8	)		(1	)
Total gross realized portfolio losses	$	(102	)	$	(79	)
Total net realized portfolio gains (losses)		45			(20	)
Interest rate derivative periodic interest payments, net		(10	)		(18	)
Interest rate derivative termination receipts, net		1			—
Total net realized gains (losses)	$	36		$	(38	)

See “Fiscal Year 2006 Compared to Fiscal Year 2005” for discussion on the net realized gains (losses) for the year ended December 31, 2005.

During 2004, we received full repayment of our $27 million subordinated debt investments in TransCore Holdings, Inc. and sold all of our equity investments in TransCore consisting of our redeemable preferred stock,

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convertible preferred stock and common stock warrants for $26 million in proceeds realizing a total gain of $20 million offset by the reversal of unrealized appreciation of $19 million. The sale proceeds we recognized included proceeds we expect to receive held in escrow of $2 million.

During 2004, we received full repayment of our $21 million senior and subordinated debt investments in Texstars, Inc. and sold all of our equity investments in Texstars consisting of common stock and common stock warrants for $13 million in proceeds realizing a total gain of $11 million offset by the reversal of unrealized appreciation of $10 million. The gain that we recognized included escrowed proceeds of $2 million.

During 2004, we received full repayment of our $23 million subordinated debt investment in ACAS Acquisitions (PaR Systems), Inc. and received a $11 million liquidating dividend on our common equity interest as a result of PaR’s sale of an 81% interest in its nuclear equipment and service business, recognizing a total gain of $10 million. We retained an 11% diluted ownership interest in ACAS Acquisitions (PaR Systems), Inc., which was renamed PaR Nuclear Holding Co., Inc. The non-nuclear business segment of ACAS Acquisitions (PaR Systems), Inc. was contributed to a newly created company, PaR Systems, Inc., shares of which were distributed to the existing shareholders. We provided $5 million in subordinated debt financing to, and retained a 51% diluted ownership in, PaR Systems, Inc.

During 2004, Chromas Technologies Corp. entered into an asset purchase agreement whereby substantially all of the assets were sold to and certain of the liabilities were assumed by a purchaser. The net cash proceeds were used to repay a portion of our outstanding loans. All of Chromas’ remaining assets including its right to receive the deferred payment were conveyed to us. Our remaining subordinated debt and equity investments in Chromas were deemed worthless and we recognized a realized loss of $32 million offset by the reversal of unrealized depreciation of $30 million.

During 2004, we sold our senior subordinated debt investment in Fulton Bellows & Components, Inc. for nominal proceeds and recognized a realized loss of $7 million offset by the reversal of unrealized depreciation of $7 million. In a subsequent transaction in 2004, Fulton’s assets were sold under Section 363 of the Bankruptcy Code, and we received proceeds of $6 million for partial repayment of our remaining senior debt investments. We recognized a realized loss of $7 million from the write off of our remaining senior debt investments and common stock warrants partially offset by a reversal of unrealized depreciation of $7 million.

During 2004, Academy Event Services, LLC filed for Chapter 11 bankruptcy and the court conducted an auction for the sale of all of its assets during the quarter. We did not receive any proceeds from the auction sale held through the bankruptcy proceedings. Our subordinated debt and equity investments were deemed worthless and we recognized a realized loss of $14 million offset by the reversal of unrealized depreciation of $8 million.

Sunvest Industries, Inc. was a holding company with two wholly-owned operating subsidiaries—Dyna-Fab LLC and Advanced Fabrication Technology LLC (AFT). In the fourth quarter of 2003, Dyna-Fab entered into an asset purchase agreement whereby substantially all of the assets of Dyna-Fab were sold. In the first quarter of 2004, AFT entered into an asset purchase agreement whereby substantially all of the assets of AFT were sold. During 2004, we foreclosed on Sunvest’s and its subsidiaries’ remaining assets including any rights to future payments under the asset purchase agreements. The remaining senior and subordinated debt and equity investments in Sunvest were deemed worthless and we recognized a realized loss of $14 million offset by the reversal of unrealized depreciation of $14 million in 2004.

We record the accrual of the periodic interest settlements of interest rate derivatives in net unrealized appreciation (depreciation) of investments and subsequently record the amount as a realized gain (loss) on investments on the interest settlement date. During 2005 and 2004, we recorded net realized losses of $10 million and $18 million, respectively, for the interest rate derivative periodic settlements. The decrease in cost is due primarily to the increase in average LIBOR in 2005 as compared to 2004.

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Unrealized Appreciation and Depreciation of Investments

The net unrealized appreciation and depreciation of investments is based on portfolio asset valuations determined by management and approved by our Board of Directors. The following table itemizes the change in net unrealized appreciation (depreciation) of investments for 2005 and 2004 ($ in millions):

	Year Ended December 31, 2005				Year Ended December 31, 2004
	Number of Companies	Amount			Number of Companies	Amount
Gross unrealized appreciation of portfolio company investments	43	$	243		34	$	192
Gross unrealized depreciation of portfolio company investments	34		(222	)	31		(135	)
Reversal of prior period unrealized (appreciation) depreciation upon a realization			(38	)			34
Net unrealized (depreciation) appreciation of portfolio company investments			(17	)			91
Derivative agreements			32				8
Net unrealized appreciation of investments		$	15			$	99

The increase in the fair value of our interest rate derivative agreements in 2005 is due primarily to the increase in average LIBOR in 2005 and a resulting increase in the forward interest rate yield curve.

Financial Condition, Liquidity and Capital Resources

As of December 31, 2006, we had $77 million in cash and cash equivalents and $233 million of restricted cash. Our restricted cash 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, those funds are generally distributed each quarter to pay interest and principal on the securitized debt. As of December 31, 2006, we had availability of $588 million under our revolving credit facilities (excluding standby letters of credit of $7 million). We had no forward equity sale agreements outstanding as of December 31, 2006. During 2006, we principally funded investments using draws on the revolving credit facilities, proceeds from asset securitizations, unsecured debt issuances and equity offerings, including forward equity sale agreements, as well as proceeds from syndications of senior loans, repayments of loans and sales of equity investments.

We expect to continue to raise new capital in order to fund our investment objectives by issuing both debt and equity securities in the future. In 2006, we achieved an investment grade credit rating. Moody’s Investors Service assigned us a Baa2 long-term issuer rating, Standard & Poor’s Ratings Service assigned us a BBB counterparty credit rating and Fitch Ratings assigned our long-term default rating and senior unsecured debt rating at BBB. As a result of these improved credit ratings, we may be able to obtain more favorable pricing on future debt issuances and we may also look to access the public markets for future debt issuances. However, the terms of any future debt and equity issuances cannot be determined and there can be no assurances that the debt or equity markets will be available to us on terms we deem favorable.

As a regulated investment company, we are required to distribute annually 90% or more of our investment company taxable income. We provide shareholders with the option of reinvesting their dividends in American Capital. In 2006, 2005 and 2004, shareholders reinvested $29 million, $38 million and $7 million, respectively, in dividends. Since our IPO through December 31, 2006, shareholders have reinvested $78 million of dividends in American Capital. In August 2004, we amended our dividend reinvestment plan to provide a 5% discount on shares purchased through the reinvested dividends, effective for dividends paid in December 2004 and thereafter, subject to terms of the plan.

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We are currently in compliance with the requirements to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and to qualify as a business development company under the Investment Company Act of 1940, as amended. As a business development company, our asset coverage, as defined in the Investment Company Act of 1940, must be at least 200% after each issuance of senior securities. As of December 31, 2006 and 2005, our asset coverage was 211% and 217%, respectively.

Equity Capital Raising Activities

On June 23, 2006, we filed a shelf registration statement with the Securities and Exchange Commission, with respect to our debt and equity securities. The shelf registration statement allows us to sell our registered debt or equity securities on a delayed or continuous basis in an amount up to $3 billion. As of December 31, 2006, our remaining capacity under the shelf registration statement was $1.9 billion.

Forward Sale Agreements

We periodically complete public offerings where shares of our common stock are sold in which a portion of the shares are offered directly by us and a portion of the shares are sold by third parties, or forward purchasers, in connection with agreements to purchase common stock from us for future delivery dates pursuant to forward sale agreements. The shares of common stock sold by the forward purchasers are borrowed from third party market sources. Pursuant to the forward sale agreements, we are required to sell to the forward purchasers shares of our common stock generally at such times as we elect over a one-year period. The forward sale agreements provide for settlement date or dates to be specified at our discretion within a one-year period. On a settlement date, we issue and sell shares of our common stock to the forward purchaser at the then applicable forward sale price. The forward sale price is initially the public offering price of shares of our common stock less the underwriting discount. The forward sale agreements provide that the initial forward sale price per share is subject to daily adjustment based on a floating interest factor equal to the federal funds rate, less a spread, and also is subject to specified decreases on certain dates during the duration of the agreement. The forward sale price is also subject to decrease if the cost to the forward purchasers of borrowing our common stock exceeds a specified amount.

Each forward purchaser under a forward sale agreement has the right to accelerate its forward sale agreement and require us to physically settle on a date specified by such forward purchaser if certain events occur, such as (1) in its judgment, it is unable to continue to borrow a number of shares of our common stock equal to the number of shares to be delivered by us under its forward sale agreement or the cost of borrowing the common stock has increased above a specified amount, (2) we declare any dividend or distribution on shares of our common stock payable in (i) excess of a specified amount, (ii) securities of another company, or (iii) any other type of securities (other than shares of our common stock), rights, warrants or other assets for payment at less than the prevailing market price in such forward purchaser’s judgment, (3) the net asset value per share of our outstanding common stock exceeds a specified percentage of the then applicable forward sales price, (4) our Board of Directors votes to approve a merger or takeover of us or similar transaction that would require our shareholders to exchange their shares for cash, securities, or other property, or (5) certain other events of default or termination events occur.

In accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, the forward sale agreements are considered equity instruments and the shares of common stock are not considered outstanding until issued. Also, in accordance with EITF Issue No. 03-06, Participating Securities and the Two-Class Method Under FASB Statement No. 128, the forward sale agreements are not considered participating securities for the purpose of determining basic earnings per share under FASB Statement No. 128, Earnings per Share. However, the dilutive impact of the shares issuable under the forward sale agreements is included in our diluted weighted average shares under the treasury stock method based on the forward sale price deemed to be most advantageous to the counterparties.

As of December 31, 2006 all forward sale agreements have been fully settled.

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Our objective with the use of forward sale agreements is to allow us to manage more efficiently our debt to equity ratio, considering applicable statutory requirements and our capital needs associated with funding our investment activities. As a BDC, we are able to issue debt securities and preferred stock in an amount such that our asset coverage is at least 200% of the amount of our outstanding debt securities and preferred stock. Because we do not currently have any preferred stock outstanding, this provision of the 1940 Act effectively limits our ratio of debt to equity at this time to 1:1. However, as a practical matter, in order to provide sufficient flexibility to fund our projected investments and a cushion, we generally keep our debt to equity ratio somewhat below 1:1. For example, as of December 31, 2006, our ratio of debt to equity was 0.90:1.

A principal consideration in keeping our debt to equity ratio at less than 1:1 is that given the nature and variability of the equity capital markets, it is not practical to raise equity in frequent small increments, which would match in amount and timing our needs for investment funds. Thus, we are required to raise equity in larger increments than may be immediately invested and therefore we repay advances on our credit facilities with the proceeds of such equity issuances. We then make investments and manage our cash needs by drawing on our credit facilities. The funding sequence of issuing equity, repaying our credit facilities and then drawing on the credit facilities to fund new investments causes our average debt to equity ratio to be materially below 1:1. Moreover, because we cannot be assured that access to equity markets will be available whenever we may need equity capital to make a new investment, we must generally keep our credit availability somewhat higher and our debt to equity ratio materially lower than what would otherwise be if we were more readily assured access to equity capital.

The use of forward sale contracts is expected to allow us to deliver common stock and receive cash at our election to the extent covered by outstanding contracts, without undertaking a new offering of common stock. Because we would be more assured of access to equity capital, we expect to be in a position to allow our debt to equity ratio to be closer to 1:1 than without the use of forward sale agreements. For example, the use of the forward sale agreements beginning in 2004 has enabled us to increase our debt to equity ratio from 0.71 as of December 31, 2003 to 0.90 as of December 31, 2006. During periods in which we have reported earnings, having a higher debt to equity ratio should have a beneficial effect on our overall cost of capital, which could result in increased earnings.

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Equity Offerings

For fiscal years 2006, 2005 and 2004, we completed several public offerings of our common stock and entered into several forward sale agreements. The following table summarizes the total shares sold, including shares sold directly by us, including shares sold pursuant to the underwriters’ over-allotment options and through forward sale agreements, and the proceeds we received, excluding issuance costs, for the public offerings of our common stock for the fiscal years 2006, 2005 and 2004 (in millions, except per share data):

	Shares Sold	Proceeds, Net of Underwriters’ Discount		Average Price per Share
Issuances under September 2006 forward sale agreement	3.0	$	110	$	36.75
July 2006 public offering	3.0		100		32.78
Issuances under April 2006 forward sale agreements	4.0		133		33.38
April 2006 public offering	9.8		333		33.99
February 2006 public offering	1.0		36		36.10
Issuances under January 2006 forward sale agreements	4.0		137		34.31
January 2006 public offering	0.6		21		34.84
Issuances under November 2005 forward sale agreements	3.5		125		35.66
Issuances under September 2005 forward sale agreements	0.8		26		34.82
Total for the year ended December 31, 2006	29.7	$	1,021	$	34.38
Issuances under November 2005 forward sale agreements	1.5	$	55	$	36.25
November 2005 public offering	3.0		113		36.94
Issuances under September 2005 forward sale agreements	4.8		167		35.23
September 2005 public offering	2.0		72		35.72
Issuances under March 2005 forward sale agreements	8.0		235		29.42
March 2005 public offering	2.0		60		30.11
Issuances under September 2004 forward sale agreements	6.3		178		28.53
Total for the year ended December 31, 2005	27.6	$	880	$	31.93

In January 2007, we completed a public offering in which 6.3 million shares of our common stock, excluding an underwriters’ over-allotment of 0.9 million shares, were sold at a public offering price of $45.83 per share. Of those shares, 4.3 million were offered directly by us and 2.0 million shares were sold by third parties in connection with agreements to purchase common stock from us for future delivery dates pursuant to forward sale agreements (the “January 2007 Forward Sales Agreements”). Upon completion of the offering, we received proceeds, net of the underwriters’ discount and closing costs, of $231 million in exchange for 5.2 million shares of common stock which includes the underwriter’s over-allotment of 0.9 million shares.

The remaining 2.0 million shares of common stock were borrowed from third party market sources by the counterparties, or forward purchasers, of the January 2007 Forward Sale Agreement who then sold the shares to the public. Pursuant to the January 2007 Forward Sale Agreements, we must sell to the forward purchasers 2.0 million shares of our common stock generally at such times as we elect over a one-year period. The January 2007 Forward Sale Agreements provides for settlement date or dates to be specified at our discretion within the duration of the January 2007 Forward Sale Agreements through termination in January 2008. On a settlement date, we will issue shares of our common stock to the applicable forward purchaser at the then applicable forward sale price. The forward sale price was initially $44.11 per share, which was the public offering price of shares of

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our common stock less the underwriting discount. The January 2007 Forward Sale Agreements provide that the initial forward sale price per share will be subject to daily adjustment based on a floating interest factor equal to the federal funds rate, less a spread, and will be subject to a decrease by $0.89, $0.91, $0.92, and $0.96 on each of March 2, 2007, June 1, 2007, September 7, 2007 and December 7, 2007, respectively. The forward sale price will also be subject to decrease if the cost to the forward purchasers of borrowing our common stock exceeds a specified amount.

Debt Capital Raising Activities

Our debt obligations consisted of the following as of December 31, 2006 and 2005 (in millions):

	December 31,
Debt	2006		2005
Secured revolving credit facility, $1,250 million commitment	$	669	$	593
Unsecured revolving credit facility, $900 million commitment		893		163
Unsecured debt due through September 2011		167		167
Unsecured debt due August 2010		126		126
Unsecured debt due October 2020		75		75
Unsecured debt due February 2011		24		—
TRS Facility, $350 million commitment		296		110
ACAS Business Loan Trust 2002-2 asset securitization		—		6
ACAS Business Loan Trust 2003-1 asset securitization		—		23
ACAS Business Loan Trust 2003-2 asset securitization		—		32
ACAS Business Loan Trust 2004-1 asset securitization		410		410
ACAS Business Loan Trust 2005-1 asset securitization		830		762
ACAS Business Loan Trust 2006-1 asset securitization		436		—
Total	$	3,926	$	2,467

The weighted average debt balance for the years ended December 31, 2006 and 2005 was $3,021 million and $1,892 million, respectively. The weighted average interest rate on all of our borrowings, including amortization of deferred financing costs, for the years ended December 31, 2006, 2005 and 2004 was 6.28%, 5.32% and 3.69%, respectively. We believe that we are currently in compliance with all of our debt covenants. As of December 31, 2006 and 2005, the fair value of the above borrowings was $3,928 million and $2,466 million, respectively. The fair value of fixed rate debt instruments is based upon market interest rates. The fair value of variable rate debt instruments is assumed to equal cost as the interest rates are considered to be at market.

Revolving Debt-Funding Facilities

We, through a consolidated affiliated statutory trust, have a secured revolving credit facility. In October 2006, we amended the secured revolving credit facility to extend the liquidity purchase termination date to October 2007 and increased the commitment to $1,250 million. As amended, our ability to make draws under the facility expires one business day before the liquidity purchase termination date. If the facility is not extended before the liquidity purchase termination date, any principal amounts then outstanding will be amortized over a 24-month period through the commitment termination date in October 2009. As of December 31, 2006, this facility was collateralized by loans and assets from our portfolio companies with a principal balance of $1,008 million. Interest on borrowings under this facility is paid monthly and is charged at either a one-month LIBOR or a commercial paper rate plus a spread of 0.75%. We are also charged an unused commitment fee of 0.13%. The facility contains covenants that, among other things, require us to maintain a minimum net worth and restrict the loans securing the facility to certain dollar amounts, concentrations in certain geographic regions and industries, certain loan grade classifications, certain security interests, and interest payment terms.

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We also have an unsecured revolving credit facility with a syndication of lenders. In January 2006, we expanded the committed amount of the facility from $255 million to $310 million as a result of new lender commitments. In May 2006, the facility was amended and restated to add additional new lenders and to increase the available commitments to $900 million. The facility may be expanded through new or additional commitments up to $1,150 million in accordance with the terms and conditions set forth in the related agreement. The facility expires in May 2008 unless extended for an additional 364-day period with the consent of the lenders. Interest on borrowings under the facility is charged at either (i) LIBOR plus the applicable percentage at such time or (ii) the greater of the lender prime rate or the federal funds effective rate plus 50 basis points. We are also charged an unused commitment fee of 0.15%. The amended agreement contains various covenants including limits on annual corporate capital expenditures, maintaining certain unsecured debt ratings and a minimum net worth.

In October 2006, we terminated the $125 million secured revolving credit facility. There were no amounts outstanding under this facility as of December 31, 2005.

Unsecured Debt

In February 2006, we entered into a note purchase agreement to issue €14 million and £3 million of senior unsecured five-year notes to institutional investors in a private placement offering ($24 million at December 31, 2006). The €14 million Series 2006-A Notes have a fixed interest rate of 5.177% and the £3 million Series 2006-B Notes have a fixed interest rate of 6.565%. Each series matures in February 2011. The note purchase agreement contains customary default provisions.

In September 2005, we entered into a note purchase agreement to issue $75 million of senior unsecured fifteen-year notes to accredited investors in a private placement offering. The unsecured notes have a fixed interest rate of 6.923% through the interest payment date in October 2015 and at the rate of LIBOR plus 2.65% thereafter and mature in October 2020.

In August 2005, we entered into a note purchase agreement to issue an aggregate of $126 million of long-term unsecured five-year notes to institutional investors in a private placement offering. The unsecured notes have a fixed interest rate of 6.14% and mature in August 2010.

In September 2004, we sold an aggregate $167 million of long-term unsecured five- and seven-year notes to institutional investors in a private placement offering pursuant to a note purchase agreement. The unsecured notes consist of $82 million of senior notes, Series A and $85 million of senior notes, Series B. The Series A notes have a fixed interest rate of 5.92% and mature in September 2009. The Series B notes have a fixed interest rate of 6.46% and mature in September 2011.

Asset Securitizations

In July 2006, we completed a $500 million asset securitization. In connection with the transaction, ACAS Business Loan Trust 2006-1 (“BLT 2006-1”), an indirect consolidated subsidiary, issued $291 million Class A notes, $37 million Class B notes, $73 million Class C notes, $36 million Class D notes and $64 million Class E notes (collectively, the “2006-1 Notes”). The Class A notes, Class B notes, Class C notes and Class D notes were sold to institutional investors and the Class E notes were retained by us. The 2006-1 Notes are secured by loans originated or acquired by us and sold to a wholly-owned consolidated subsidiary, which in turn sold such loans to BLT 2006-1. Through August 2009, BLT 2006-1 may also generally use principal collections from the underlying loan pool to purchase additional loans to secure the 2006-1 Notes. After such time, principal payments on the 2006-1 Notes will generally be applied pro rata to each class of 2006-1 Notes outstanding until the aggregate outstanding principal balance of the loan pool is less than $250 million or the occurrence of certain other events. Payments will then be applied sequentially to the Class A notes, the Class B notes, the Class C notes, the Class D notes and the Class E notes. Subject to continuing compliance with certain conditions, we will remain as servicer of the loans. The Class A notes have an interest rate of three-month LIBOR plus 23 basis points, the Class B notes have an interest rate of three-month LIBOR plus 36 basis points, the Class C notes have

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an interest rate of three-month LIBOR plus 65 basis points and the Class D notes have an interest rate of three-month LIBOR plus 125 basis points. The loans are secured by loans and assets from our portfolio companies with a principal balance of $500 million as of December 31, 2006. The 2006-1 Notes contain customary default provisions and mature in November 2019 unless redeemed or repaid prior to such date.

In October 2005, we completed a $1,000 million asset securitization. In connection with the transaction, ACAS Business Loan Trust 2005-1 (“BLT 2005-1”), an indirect consolidated subsidiary, issued $435 million Class A-1 notes, $150 million Class A-2A notes, $50 million Class A-2B notes, $50 million Class B notes, $145 million Class C notes, $90 million Class D notes and $80 million Class E notes (collectively, the “2005-1 Notes”). The Class A-1 notes, Class A-2A notes, Class A-2B notes, Class B notes and Class C notes were issued to institutional investors and the Class D notes and Class E notes were retained by us. The 2005-1 Notes are secured by loans originated or acquired by us and sold to a wholly-owned consolidated subsidiary, which in turn sold such loans to BLT 2005-1. Of the $150 million Class A-2A notes, $82 million was drawn upon in 2005 and the balance of $68 million was drawn upon in 2006. Through January 2009, BLT 2005-1 may reinvest any principal collections of its existing loans into purchases of additional loans to secure the 2005-1 Notes. After such time, principal payments on the 2005-1 Notes will be applied first to the Class A-1 notes, Class A-2A notes and Class A-2B notes, next to the Class B notes and then to the Class C notes. Subject to continuing compliance with certain conditions, we will remain as servicer of the loans. The Class A-1 notes have an interest rate of three-month LIBOR plus 25 basis points, the Class A-2A notes have an interest rate of three-month LIBOR plus 20 basis points, the Class A-2B notes have an interest rate of three-month LIBOR plus 35 basis points, the Class B notes have an interest rate of three-month LIBOR plus 40 basis points, and the Class C notes have an interest rate of three-month LIBOR plus 85 basis points. The loans are secured by loans and assets from our portfolio companies with a principal balance of $1,000 million as of December 31, 2006. The 2005-1 Notes contain customary default provisions and mature in July 2019 unless redeemed or repaid prior to such date.

In December 2004, we completed a $500 million asset securitization. In connection with the transaction, ACAS Business Loan Trust 2004-1 (“BLT 2004-1”), an indirect consolidated subsidiary, issued $302 million Class A notes, $34 million Class B notes, $74 million Class C notes, $50 million Class D notes, and $40 million Class E notes (collectively, the “2004-1 Notes”). The Class A notes, Class B notes, and Class C notes were issued to institutional investors and the Class D and Class E notes were retained by us. The 2004-1 Notes are secured by loans originated or acquired by us and sold to a wholly-owned consolidated subsidiary, which in turn sold such loans to BLT 2004-1. Through January 2007, BLT 2004-1 has the option to reinvest any principal collections of its existing loans into purchases of new loans. After such time, payments are first applied to the Class A notes, then to the Class B notes and then to the Class C notes. The Class A notes have an interest rate of three-month LIBOR plus 32 basis points, the Class B notes have an interest rate of three-month LIBOR plus 50 basis points, and the Class C notes have an interest rate three-month LIBOR plus 100 basis points. Subject to continuing compliance with certain conditions, we will remain as servicer of the loans. The loans are secured by loans and assets from our portfolio companies with a principal balance of $500 million as of December 31, 2006. The 2004-1 Notes contain customary default provisions and mature in October 2017 unless redeemed or repaid prior to such date.

In December 2003, we completed a $398 million asset securitization. In connection with the transaction, ACAS Business Loan Trust 2003-2 (“BLT 2003-2”), an indirect consolidated subsidiary issued $258 million Class A notes, $40 million Class B notes, $20 million Class C notes, $40 million Class D notes, and $40 million of Class E notes (collectively, the “2003-2 Notes”). The Class A notes, Class B notes and Class C notes were issued to institutional investors and the Class D notes and Class E notes were retained by us. The 2003-2 Notes were secured by loans originated or acquired by us and sold to a wholly-owned consolidated subsidiary, which in turn sold such loans to BLT 2003-2. Early payments were first applied to the Class A notes, then to the Class B notes and then to the Class C notes. The Class A notes carried an interest rate of one-month LIBOR plus 48 basis points, the Class B notes carried an interest rate of one-month LIBOR plus 95 basis points, and the Class C notes carried an interest rate of one-month LIBOR plus 175 basis points. As of December 31, 2006, there are no notes outstanding and BLT 2003-2 was terminated in June 2006.

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In May 2003, we completed a $308 million asset securitization. In connection with the transaction, ACAS Business Loan Trust 2003-1 (“BLT 2003-1”), an indirect consolidated subsidiary, issued $185 million Class A notes, $31 million Class B notes, $23 million Class C notes and $69 million Class D notes (collectively, the “2003-1 Notes”). The Class A notes, Class B notes and Class C notes were issued to institutional investors and the Class D notes were retained by us. The 2003-1 Notes were secured by loans originated or acquired by us and sold to a wholly-owned consolidated subsidiary, which in turn sold such loans to BLT 2003-1. Early payments were first applied to the Class A notes, then to the Class B notes and then to the Class C notes. The Class C notes consisted of a $17 million tranche of floating rate notes and a $6 million tranche of fixed rate notes. The Class A notes carried an interest rate of one-month LIBOR plus 55 basis points and the Class B notes carried an interest rate of one-month LIBOR plus 120 basis points. The floating rate tranche of the Class C notes carried an interest rate of one-month LIBOR plus 225 basis points and the fixed rate tranche carried an interest rate of 5.14%. As of December 31, 2006, there were notes outstanding and BLT 2003-1 was terminated in May 2006.

Total Return Swap Facility

We have a total return swap facility (the “TRS Facility”) with Wachovia Bank, N.A. (“Wachovia”) under which we pledge certain of our investments to Wachovia from time to time in exchange for financing. Subject to the terms and conditions of the TRS Facility, we may generally repay and reborrow proceeds and are required to make payments to Wachovia on outstanding borrowings at a rate equal to one-month LIBOR plus 125 basis points. We must also repay all or a portion of any funded amount upon the occurrence of certain events. The TRS Facility commitment was increased from $250 million to $350 million effective December 2006 and is scheduled to terminate in December 2007. We have accounted for the TRS Facility as a secured financing arrangement under FASB Statement No. 140 with the outstanding borrowed amount included as a debt obligation on the accompanying consolidated balance sheets.

A summary of our contractual payment obligations as of December 31, 2006 are as follows (in millions):

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Revolving credit facilities	$	1,562	$	29	$	1,533	$	—	$	—
Notes payable		1,676		28		207		380		1,061
Unsecured debt		392		—		82		235		75
TRS facility		296		296		—		—		—
Interest payments on debt obligations(1)		823		223		306		172		122
Operating leases		105		13		28		25		39
Total	$	4,854	$	589	$	2,156	$	812	$	1,297

(1) For variable rate debt, future interest payments are based on the interest rate as of December 31, 2006.

To the extent that we receive unscheduled prepayments on our debt investments that securitize our debt obligations, we are required to apply those proceeds to our outstanding debt obligations.

Off Balance Sheet Arrangements

We have non-cancelable operating leases for office space and office equipment. The leases expire over the next fifteen years and contain provisions for certain annual rental escalations.

As of December 31, 2006, we had commitments under loan and financing agreements to fund up to $446 million to 56 portfolio companies. 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. The terms of the borrowings and financings subject to commitment are comparable to the terms of other debt and equity securities in our portfolio.

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A summary of our loan and equity commitments as of December 31, 2006 is as follows:

	Amount of Commitment Expiration by Period
	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Loan and Equity Commitments	$	446	$	96	$	79	$	194	$	77

Portfolio Credit Quality

Loan Performance

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 December 31, 2006, loans on non-accrual status for fourteen portfolio companies were $183 million, calculated as the cost plus unamortized OID, and had a fair value of $54 million. These loans include a total of $169 million with PIK interest features. As of December 31, 2005, loans on non-accrual status for fourteen portfolio companies were $132 million, calculated as the cost plus unamortized OID, and had a fair value of $48 million.

At December 31, 2006 and 2005, loans on accrual status past due and loans on non-accrual status were as follows ($ in millions):

	December 31, 2006				December 31, 2005
Days Past Due	Number of Portfolio Companies	Amount			Number of Portfolio Companies	Amount
Current	118	$	4,623		111	$	3,286
One Month Past Due			—				8
Two Months Past Due			—				11
Three Months Past Due			—				—
Greater than Three Months Past Due			12				35
Loans on Non-accrual Status			183				132
Subtotal	14		195		14		186
Total	132	$	4,818		125	$	3,472
Past Due and Non-accruing Loans as a Percent of Total Loans			4.0	%			5.4	%

The loan balances above reflect our cost basis of the debt, excluding CMBS securities, plus unamortized OID. We believe that debt service collection is probable for our loans that are past due.

In the third quarter of 2006, we recapitalized one portfolio company by contributing our subordinated debt with a cost basis and fair value of $22 million into our existing common equity. Prior to the recapitalization, the subordinated notes were accruing loans.

In the third quarter of 2006, we recapitalized one portfolio company by exchanging our subordinated debt investment into convertible preferred stock and contributing our remaining subordinated debt investments into our existing common equity that had a total cost basis of $8 million and a fair value of zero. Prior to the recapitalization, the subordinated notes were non-accruing loans.

In the third quarter of 2006, we recapitalized one portfolio company by exchanging our subordinated debt with a cost basis of $15 million and a fair value of $2 million into preferred and common equity. Prior to the recapitalization, the subordinated notes were non-accruing loans.

In the third quarter of 2006, we recapitalized one portfolio company by contributing our subordinated debt with a cost basis $19 million and a fair value of zero into our existing common equity. Prior to the recapitalization, the subordinated notes were non-accruing loans.

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In the second quarter of 2006, we recapitalized one portfolio company by contributing our subordinated debt with a cost basis of $4 million and a fair value of $3 million into our existing common equity. Prior to the recapitalization, the subordinated note was a non-accruing loan.

In the second quarter of 2006, we recapitalized one portfolio company by exchanging our junior subordinated debt with a cost basis of $6 million and a fair value of $3 million into redeemable preferred stock. Prior to the recapitalization, the junior subordinated note was an accruing loan.

In the second quarter of 2006, we recapitalized one portfolio company by contributing our senior subordinated debt with a cost basis of $9 million and a fair value of $4 million into our existing common equity. Prior to the recapitalization, the senior subordinated note was a non-accruing loan.

In the second quarter of 2006, we recapitalized one portfolio company by exchanging our subordinated debt with a cost basis of $7 million and a fair value of zero into redeemable preferred stock. Prior to the recapitalization, the subordinated note was a non-accruing loan.

In the fourth quarter of 2005, we recapitalized one portfolio company by exchanging our subordinated debt with a cost basis of $2 million and a fair value of $1 million into convertible preferred stock. Prior to the recapitalization, the subordinated note was a non-accruing loan.

In the fourth quarter of 2005, we recapitalized one portfolio company by exchanging subordinated debt notes with a cost basis of $4 million and a fair value of zero into redeemable preferred stock. Prior to the recapitalization, a portion of the subordinated notes were non-accruing loans.

In the fourth quarter of 2005, one of our portfolio companies was recapitalized whereby the senior lenders restructured their senior loans in exchange for an 80% equity interest in the portfolio company and we exchanged our subordinated debt investment with a cost basis of $17 million for a 20% equity interest in the portfolio company. Prior to the recapitalization, the subordinated note was a non-accruing loan.

In the second quarter of 2005, we recapitalized one portfolio company by exchanging our senior subordinated debt with a cost basis and fair value of $6 million into redeemable preferred stock. Prior to the recapitalization, the senior subordinated note was an accruing loan.

In the second quarter of 2005, we recapitalized another portfolio company. As part of the recapitalization, we exchanged junior subordinated debt with a cost basis of $5 million and a fair value of zero into redeemable preferred stock. Prior to the recapitalization, the junior subordinated notes were non-accruing loans.

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 require portfolio companies to provide annual audited and monthly unaudited financial statements. Using these statements, we calculate the statistics described above. Buyout and mezzanine funds typically adjust

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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 the portfolio companies, we make certain adjustments to EBITDA to reflect the pro forma results of a company consistent with a change of control transaction. We evaluate portfolio companies using an adjusted EBITDA measurement. 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.

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-1999 static pool consists of the investments made from the time of our IPO through the year ended December 31, 1998. The following table contains a summary of portfolio statistics as of and for the year ended December 31, 2006:

Portfolio Statistics(1) ($ in millions):	Static Pool
	Pre-1999			1999			2000			2001			2002			2003			2004			2005			2006			Pre-1999 - 2006 Aggregate			2001  - 2006 Aggregate
Internal Rate of Return(2)		10.2	%		8.7	%		8.2	%		21.0	%		9.8	%		22.8	%		19.2	%		21.6	%		37.5	%		16.8	%		20.2	%
Original Investments and Commitments	$	380		$	380		$	395		$	370		$	944		$	1,370		$	2,246		$	3,354		$	4,099		$	13,538		$	12,383
Total Exits and Prepayments of Original Investments	$	194		$	233		$	261		$	268		$	589		$	926		$	956		$	908		$	347		$	4,682		$	3,994
Total Interest, Dividends and Fees Collected	$	167		$	136		$	104		$	168		$	241		$	304		$	369		$	349		$	209		$	2,047		$	1,640
Total Net Realized (Loss) Gain on Investments	$	(27	)	$	(42	)	$	(37	)	$	43		$	(11	)	$	137		$	85		$	30		$	37		$	215		$	321
Current Cost of Investments	$	117		$	84		$	135		$	83		$	322		$	434		$	1,226		$	2,325		$	3,053		$	7,779		$	7,443
Current Fair Value of Investments	$	108		$	63		$	131		$	55		$	251		$	477		$	1,255		$	2,526		$	3,190		$	8,056		$	7,754
Net Unrealized Appreciation/(Depreciation)	$	(9	)	$	(21	)	$	(4	)	$	(28	)	$	(71	)	$	43		$	29		$	201		$	137		$	277		$	311
Non-Accruing Loans at Face	$	—		$	17		$	—		$	31		$	49		$	24		$	5		$	57		$	—		$	183		$	166
Non-Accruing Loans at Fair Value	$	—		$	7		$	—		$	10		$	13		$	9		$	—		$	15		$	—		$	54		$	47
Equity Interest at Fair Value(3)	$	44		$	10		$	2		$	23		$	36		$	187		$	217		$	1,362		$	885		$	2,766		$	2,710
Debt to EBITDA(4)(5)(6)		3.0			5.8			6.1			4.2			6.0			5.4			4.7			4.5			4.8			4.8			4.8
Interest Coverage(4)(6)		2.5			1.7			1.8			2.4			1.8			1.7			2.4			2.3			2.0			2.1			2.1
Debt Service Coverage(4)(6)		1.8			1.0			1.7			1.1			1.5			1.3			1.8			1.6			1.8			1.7			1.7
Average Age of Companies(6)		43 yrs			56 yrs			22 yrs			32 yrs			38 yrs			34 yrs			36 yrs			33 yrs			30 yrs			33 yrs			33 yrs
Ownership Percentage(3)		61	%		73	%		1	%		62	%		46	%		55	%		23	%		51	%		36	%		41	%		41	%
Average Sales(6)(7)	$	143		$	69		$	159		$	139		$	75		$	137		$	97		$	110		$	166		$	132		$	132
Average EBITDA(6)(8)	$	9		$	5		$	57		$	14		$	12		$	24		$	24		$	28		$	22		$	24		$	24
Average EBITDA Margin(6)(8)		6.3	%		7.2	%		35.8	%		10.1	%		16.0	%		17.5	%		24.7	%		25.5	%		13.3	%		18.2	%		18.2	%
Total Sales(6)(7)	$	508		$	357		$	300		$	1,709		$	477		$	1,588		$	2,970		$	3,603		$	6,045		$	17,557		$	16,392
Total EBITDA(6)(8)	$	40		$	27		$	83		$	138		$	52		$	223		$	617		$	635		$	964		$	2,779		$	2,629
% of Senior Loans(6)(9)		47	%		24	%		73	%		44	%		66	%		56	%		64	%		39	%		57	%		54	%		54	%
% of Loans with Lien(6)(9)		54	%		43	%		76	%		100	%		100	%		98	%		90	%		86	%		88	%		88	%		89	%

(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. Investments in government securities and interest rate derivative agreements are excluded.

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

(3) Excludes investments in CMBS and CDOs.

(4) These amounts do not include investments in which the American Capital owns only equity.

(5) For portfolio companies with a nominal EBITDA amount, the portfolio company’s maximum debt leverage is limited to 15 times EBITDA.

(6) Excludes investments in CMBS, CDOs and ECAS.

(7) Sales of the most recent twelve months, or when appropriate, the forecasted twelve months.

(8) EBITDA of the most recent twelve months, or when appropriate, the forecasted twelve months.

(9) As a percentage of American Capital’s total debt investments.

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Impact of Inflation

We believe that inflation can influence the value of our investments through the impact it may have on interest rates, the capital markets, the valuations of business enterprises and the relationship of the valuations to underlying earnings.

Item 7a. Qualitative and Quantitative Disclosures About Market Risk

We consider our principal market risks to be the fluctuations of interest rates, foreign currency exchange rates and the valuations of our investment portfolio.

Interest Rate Risk

Because we fund a portion of our investments with borrowings, our net increase in net assets from operations is affected by the spread between the rate at which we invest and the rate at which we borrow. We attempt 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 enter 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 revolving credit facilities and asset securitizations. However, our derivatives are considered economic hedges that do not qualify for hedge accounting under FASB Statement No. 133. See footnote 12 to our consolidated financial statements for additional information on the accounting treatment of our interest rate derivative agreements.

As a result of our use of interest rate swaps, at December 31, 2006, approximately 26% of our interest bearing assets provided fixed rate returns and approximately 74% of our interest bearing assets provided floating rate returns. Adjusted for the effect of interest rate swaps, at December 31, 2006, we had floating rate investments in debt securities, tied primarily to LIBOR, with a face amount of $3,868 and had total borrowings outstanding of $3,534 that have a variable rate of interest based on LIBOR or a commercial paper rate. Assuming no changes to our consolidated balance sheet at December 31, 2006, a hypothetical increase or decrease in LIBOR by 100 basis points would increase or decrease our net assets resulting from operations by $3 million, or 0.37%, over the next twelve months compared to our 2006 net increase in net assets resulting from operations.

Under our interest rate swap agreements, we generally pay a fixed rate and receive a floating interest rate based on LIBOR. We also have interest rate swaption agreements, where, if exercised, we receive a fixed rate and pay a floating rate based on LIBOR. We may enter into interest rate cap agreements that entitle us to receive an amount, if any, by which our interest payments on our variable rate debt exceed specified interest rates. For those investments contributed to the term securitizations, the interest swaps enable us to lock in the spread between the asset yield on the investments and the cost of the borrowings under the term securitizations. One-month LIBOR increased from 4.39% at December 31, 2005 to 5.33% at December 31, 2006 while the three-month LIBOR increased from 4.53% at December 31, 2005 to 5.36% at December 31, 2006.

A summary of our interest rate derivative agreements are included in our schedule of investments in the accompanying consolidated financial statements.

Foreign Currency Risks

We have a limited number of investments in portfolio companies, including ECAS, 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. During the year ended December 31, 2006, the foreign currency translation adjustment recorded in our consolidated statements of operations was unrealized appreciation of $32 million, primarily as a result of the Euro appreciating against the U.S. dollar.

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Portfolio Valuation

Investments are carried at fair value, as determined in good faith by our Board of Directors. Unrestricted securities that are publicly traded are valued at the closing price on the valuation date. For debt and equity securities of companies that are not publicly traded, or for which we have various degrees of trading restrictions, we prepare an analysis consisting of traditional valuation methodologies to estimate the enterprise value of the portfolio company issuing the securities. The methodologies consist of valuation estimates based on: valuations of comparable public companies, recent sales of comparable companies, discounting the forecasted cash flows of the portfolio company, the liquidation or collateral value of the portfolio company’s assets, third party valuations of the portfolio company, third party sale offers, potential strategic buyer analysis and the value of recent investments in the equity securities of the portfolio company. We weight some or all of the above valuation methods in order to conclude on our estimate of value. In valuing convertible debt, equity or other securities, we value our equity investment based on our pro rata share of the residual equity value available after deducting all outstanding debt from the estimated enterprise value. We value non-convertible debt securities at cost plus amortized OID to the extent that the estimated enterprise value of the portfolio company exceeds the outstanding debt of the portfolio company. If the estimated enterprise value is less than the outstanding debt of the company, we reduce the value of our debt investment beginning with the junior most debt such that the enterprise value less the value of the outstanding debt is zero. If there is sufficient enterprise value to cover the face amount of a debt security that has been discounted due to the detachable equity warrants received with that security, that detachable equity warrant will be valued such that the sum of the discounted debt security and the detachable equity warrant equal the face value of the debt security. For CMBS and CDO securities, we prepare a fair value analysis which is based on a discounted cash flow model that utilizes prepayment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for similar securities, when available.

Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have been used had a ready market for the securities 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.

Item 8. Financial Statements and Supplementary Data

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2006 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.

64

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Shareholders of American Capital Strategies, Ltd.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that American Capital Strategies, Ltd. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). American Capital Strategies, Ltd.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that American Capital Strategies, Ltd. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, American Capital Strategies, Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of American Capital Strategies, Ltd., including the consolidated schedules of investments, as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2006, and the consolidated financial highlights for each of the five years in the period ended December 31, 2006, and our report dated February 27, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

McLean, Virginia

February 27, 2007

65

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of American Capital Strategies, Ltd.

We have audited the accompanying consolidated balance sheets of American Capital Strategies, Ltd., including the consolidated schedules of investments, as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2006, and the consolidated financial highlights for each of the five years in the period ended December 31, 2006. These financial statements and the financial highlights are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included verification by examination or confirmation of securities held by the custodian at December 31, 2006. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the consolidated financial position of American Capital Strategies, Ltd. at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, and its consolidated financial highlights for each of the five years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of American Capital Strategies, Ltd.’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

McLean, Virginia

February 27, 2007

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AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)

	December 31,
	2006			2005
Assets
Investments at fair value (cost of $7,781 and $5,134, respectively)
Non-Control/Non-Affiliate investments (cost of $4,827 and $2,156, respectively)	$	4,869		$	2,136
Affiliate investments (cost of $536 and $420, respectively)		576			449
Control investments (cost of $2,416 and $2,558, respectively)		2,611			2,516
Derivative agreements (cost of $2 and $0, respectively)		20			18
Total investments at fair value		8,076			5,119
Cash and cash equivalents		77			97
Restricted cash		233			122
Interest receivable		44			33
Other		179			78
Total assets	$	8,609		$	5,449
Liabilities and Shareholders’ Equity
Debt (maturing within one year of $353 and $181, respectively)	$	3,926		$	2,467
Derivative agreements		13			2
Accrued dividends payable		130			3
Other		198			79
Total liabilities		4,267			2,551
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, 200.0 shares authorized, 151.6 and 119.1 issued and 147.6 and 118.9 outstanding, respectively		1			1
Capital in excess of par value		3,980			2,943
Notes receivable from sale of common stock		(7	)		(7	)
Undistributed (distributions in excess of) net realized earnings		88			(22	)
Net unrealized appreciation (depreciation) of investments		280			(17	)
Total shareholders’ equity		4,342			2,898
Total liabilities and shareholders’ equity	$	8,609		$	5,449
Net asset value per share	$	29.42		$	24.37

See accompanying notes.

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AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

	Year Ended December 31,
	2006			2005			2004
OPERATING INCOME:
Interest and dividend income
Non-Control/Non-Affiliate investments	$	385		$	185		$	114
Affiliate investments		51			58			36
Control investments		233			183			121
Total interest and dividend income		669			426			271
Asset management and other fee income
Non-Control/Non-Affiliate investments		104			38			22
Affiliate investments		5			11			6
Control investments		82			80			37
Total asset management and other fee income		191			129			65
Total operating income		860			555			336
OPERATING EXPENSES:
Interest		190			101			37
Salaries, benefits and stock-based compensation		161			86			51
General and administrative		73			41			26
Total operating expenses		424			228			114
OPERATING INCOME BEFORE INCOME TAXES		436			327			222
Provision for income taxes		(11	)		(13	)		(2	)
NET OPERATING INCOME		425			314			220
Net realized gain (loss) on investments
Non-Control/Non-Affiliate investments		17			36			14
Affiliate investments		41			7			3
Control investments		117			2			(37	)
Taxes on net realized gain		(17	)		—			—
Derivative agreements		15			(9	)		(18	)
Total net realized gain (loss) on investments		173			36			(38	)
NET REALIZED EARNINGS		598			350			182
Net unrealized appreciation (depreciation) of investments
Portfolio company investments		276			(17	)		91
Foreign currency translation		32			—			—
Derivative agreements		(11	)		32			8
Total net unrealized appreciation of investments		297			15			99
Total net gain on investments		470			51			61
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE		895			365			281
Cumulative effect of accounting change, net of tax		1			—			—
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	896		$	365		$	281
NET OPERATING INCOME PER COMMON SHARE:
Basic	$	3.15		$	3.16		$	2.88
Diluted	$	3.11		$	3.10		$	2.83
NET EARNINGS PER COMMON SHARE:
Basic	$	6.63		$	3.68		$	3.69
Diluted	$	6.55		$	3.60		$	3.63
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic		135.1			99.3			76.4
Diluted		136.8			101.4			77.6
DIVIDENDS DECLARED PER COMMON SHARE	$	3.33		$	3.08		$	2.91

See accompanying notes.

68

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(in millions, except per share data)

	Year Ended December 31,
	2006			2005
Operations:
Net operating income	$	425		$	314
Net realized gain on investments		173			36
Net unrealized appreciation of investments		297			15
Cumulative effect of accounting change, net of tax		1			—
Net increase in net assets resulting from operations		896			365
Shareholder distributions:
Common stock dividends from net operating income		(425	)		(310	)
Common stock dividends in excess of net operating income		(29	)		—
Net decrease in net assets resulting from shareholder distributions		(454	)		(310	)
Capital share transactions:
Issuance of common stock		1,020			877
Issuance of common stock under stock option plans		44			45
Issuance of common stock under dividend reinvestment plan		29			38
Purchase of common stock held in deferred compensation trusts		(124	)		(8	)
Stock-based compensation		35			15
Other		(2	)		4
Net increase in net assets resulting from capital share transactions		1,002			971
Total increase in net assets		1,444			1,026
Net assets at beginning of period		2,898			1,872
Net assets at end of period	$	4,342		$	2,898
Net asset value per common share	$	29.42		$	24.37
Common shares outstanding at end of period		147.6			118.9

See accompanying notes.

69

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

	Year Ended December 31,
	2006			2005			2004
Operating activities:
Net increase in net assets resulting from operations	$	896		$	365		$	281
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Net unrealized appreciation of investments		(297	)		(15	)		(99	)
Net realized (gain) loss on investments		(173	)		(36	)		38
Accretion of loan discounts		(11	)		(13	)		(13	)
Increase in accrued payment-in-kind interest and dividends		(145	)		(79	)		(50	)
Collection of loan origination fees		46			30			19
Amortization of deferred finance costs and net debt premium		7			10			8
Stock-based compensation		35			14			10
Increase in interest receivable		(16	)		(11	)		(7	)
Increase in other assets		(55	)		(3	)		(3	)
Increase in other liabilities		115			37			13
Other		4			3			1
Net cash provided by operating activities		406			302			198
Investing activities:
Purchases of investments		(5,773	)		(3,181	)		(1,842	)
Fundings on revolving credit facility investments, net		(52	)		(72	)		(40	)
Principal repayments		1,812			886			418
Proceeds from sale of senior debt investments		456			340			217
Collection of payment-in-kind notes and dividends		68			29			10
Collection of accreted loan discounts		9			5			8
Proceeds from sale of equity investments		1,102			195			58
Purchase of government securities		—			(100	)		(100	)
Sale of government securities		—			100			100
Interest rate derivative receipts (payments), net		14			(9	)		(18	)
Capital expenditures of property and equipment		(25	)		(8	)		(2	)
Other		—			—			2
Net cash used in investing activities		(2,389	)		(1,815	)		(1,189	)
Financing activities:
Proceeds from asset securitizations		504			762			410
Draws on revolving credit facilities, net		806			133			507
Repayment of notes payable for asset securitizations		(61	)		(271	)		(393	)
Proceeds from unsecured debt issuance		22			201			167
Proceeds from TRS facility, net		186			81			29
Increase in deferred financing costs		(9	)		(14	)		(13	)
(Increase) decrease in debt service escrows		(111	)		20			(66	)
Issuance of common stock		1,064			922			613
Purchase of common stock held in deferred compensation trusts		(124	)		(8	)		—
Distributions paid		(298	)		(274	)		(213	)
Payment of federal income tax for deemed capital gain distribution		(15	)		—			—
Other		(1	)		—			—
Net cash provided by financing activities		1,963			1,552			1,041
Net (decrease) increase in cash and cash equivalents		(20	)		39			50
Cash and cash equivalents at beginning of period		97			58			8
Cash and cash equivalents at end of period	$	77		$	97		$	58
Supplemental Disclosures:
Cash paid for interest	$	175		$	74		$	24
Cash paid for taxes	$	21		$	11		$	3
Non-cash financing activities:
Issuance of common stock in conjunction with dividend reinvestment plan	$	29		$	38		$	7

See accompanying notes.

70

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED FINANCIAL HIGHLIGHTS

(in millions, except per share data)

	Year Ended December 31,
	2006			2005			2004			2003			2002
Per Share Data:
Net asset value at beginning of the period	$	24.37		$	21.11		$	17.83		$	15.82		$	16.84
Net operating income(1)(2)		3.15			3.16			2.88			2.58			2.60
Net realized gain (loss) on investments(1)(2)		1.28			0.37			(0.49	)		0.40			(0.52	)
Net unrealized appreciation (depreciation) of investments(1)(2)		2.20			0.15			1.30			(0.82	)		(1.57	)
Net increase in net assets resulting from operations(1)		6.63			3.68			3.69			2.16			0.51
Issuance of common stock		1.96			2.67			2.42			2.56			0.80
Other, net(3)		(0.21	)		(0.01	)		0.08			0.08			0.24
Distribution of net investment income		(3.33	)		(3.08	)		(2.91	)		(2.79	)		(2.57	)
Net asset value at end of period	$	29.42		$	24.37		$	21.11		$	17.83		$	15.82
Ratio/Supplemental Data:
Per share market value at end of period	$	46.26		$	36.21		$	33.35		$	29.73		$	21.59
Total return (loss)(4)		40.00	%		18.98	%		22.94	%		53.50	%		(15.21	)%
Shares outstanding at end of period		147.6			118.9			88.7			65.9			43.4
Net assets at end of period	$	4,342		$	2,898		$	1,872		$	1,176		$	688
Average net assets	$	3,643		$	2,297		$	1,498		$	916		$	643
Average debt outstanding	$	3,021		$	1,892		$	1,000		$	582		$	417
Average debt outstanding per common share(1)	$	22.36		$	19.05		$	13.09		$	10.66		$	10.57
Ratio of operating expenses, net of interest expense, to average net assets		6.42	%		5.55	%		5.14	%		5.14	%		4.69	%
Ratio of interest expense to average net assets		5.22	%		4.38	%		2.46	%		2.02	%		2.22	%
Ratio of operating expenses to average net assets		11.64	%		9.93	%		7.60	%		7.16	%		6.91	%
Ratio of net operating income to average net assets		11.67	%		13.67	%		14.69	%		15.36	%		15.94	%

(1) Weighted average basic per share data.

(2) In 2004, we adopted a new accounting method for interest rate derivative agreements. If we had adopted this accounting method in 2002 and accounted for our interest rate derivative agreements in 2003 and 2002 under the new accounting method, net operating income per share would have increased $0.32 per share and $0.28 per share, respectively, net realized gain (loss) on investments would have decreased $0.31 per share and $0.23 per share, respectively, and net unrealized appreciation (depreciation) of investments would have decreased $0.01 per share and $0.05 per share, respectively.

(3) Represents the impact of (i) the other components in the changes in net assets, including other capital transactions such as the purchase of common stock held in deferred compensation trusts, income tax deductions related to the exercise of stock options in excess of GAAP expense credited to additional paid-in capital, repayments of notes receivable from the sale of common stock and the issuance of non-recourse notes to purchase common 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 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, which includes a 5% discount on shares purchased through the reinvested dividends effective for dividends paid on or after December 30, 2004.

See accompanying notes.

71

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS
Aerus, LLC	Household Durables	Common Membership Warrants (250,000 units)(1)			$	0.2	$	—
Affordable Care Holding	Health Care Providers &	Senior Debt (8.6%, Due 11/11 – 11/12)	$	92.1		90.7		90.7
Corp.	Services	Subordinated Debt (15%, Due 11/13 – 11/14)(7)		51.2		50.4		50.4
		Convertible Preferred Stock (84,952 shares)(1)				85.0		85.0
		Common Stock (21,238,000 shares)(1)				21.2		21.2
						247.3		247.3
A.H. Harris & Sons, Inc.	Distributors	Common Stock Warrants (2,004 shares)(1)				0.5		5.0
Algoma Holding Company	Building Products	Subordinated Debt (16.0%, Due 4/13)(7)		7.7		7.6		7.6
		Convertible Preferred Stock (28,000 shares)(1)				2.8		8.8
						10.4		16.4
Aspect Software	IT Services	Senior Debt (12.4%, Due 7/12)		20.0		19.8		19.8
Astrodyne Corporation	Electrical Equipment	Senior Debt (13.4%, Due 4/11)(7)		6.5		6.4		6.4
		Subordinated Debt (12.0%, Due 4/12)(7)		11.0		10.9		10.9
		Redeemable Preferred Stock (1 share)(1)				—		—
		Convertible Preferred Stock (386,894 shares)				7.8		8.9
						25.1		26.2
Avanti Park Place LLC	Real Estate	Senior Debt (8.3%, Due 6/10)(7)		6.5		6.5		6.5
Axygen Holdings Corporation	Health Care Equipment &	Senior Debt (8.9%, Due 9/12)		8.0		7.9		7.9
	Supplies	Subordinated Debt (14.5%, Due 9/14)(7)		58.5		57.6		57.6
		Redeemable Preferred Stock (246,400 shares)				43.2		43.2
		Convertible Preferred Stock (58,520 shares)				15.4		15.4
		Common Stock (3,080 shares)(1)				0.3		0.3
		Common Stock Warrants (246,400 shares)(1)				23.0		23.0
						147.4		147.4
BarrierSafe Solutions	Commercial Services &	Senior Debt (13.9%, Due 9/10)(7)		13.7		13.6		13.6
International, Inc.	Supplies	Subordinated Debt (16.0%, Due 9/11 – 9/12)(7)		53.6		53.1		53.1
						66.7		66.7
Barton Cotton Holding	Commercial Services &	Senior Debt (8.9%, Due 4/11 – 4/12)(7)		39.4		38.7		38.7
Corporation	Supplies	Subordinated Debt (14.0%, Due 9/13)(7)		29.3		28.8		28.8
		Redeemable Preferred Stock (33,936 shares)(1)				20.1		20.1
		Convertible Preferred Stock (80,640 shares)(1)				8.1		8.1
		Common Stock Warrants (150,827 shares)(1)				15.1		7.5
						110.8		103.2
BBB Industries, LLC	Auto Components	Senior Debt (11.2%, Due 6/12 – 6/13)(7)		99.9		98.4		98.4
Beacon Hospice, Inc.	Health Care Providers & Services	Subordinated Debt (14.5%, Due 2/12)(7)		10.5		10.4		10.4
Berry-Hill Galleries, Inc.	Distributors	Senior Debt (15.9%, Due 5/07)		20.2		20.0		20.0
BLI Partners, LLC	Personal Products	Common Membership Interest(1)				17.3		—

72

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
Breeze Industrial Products	Auto Components	Senior Debt (11.9%, Due 8/13)(7)	19.0	18.7	18.7
Corporation		Subordinated Debt (14.3%, Due 8/13 – 8/15)(7)	33.4	33.0	33.0
				51.7	51.7
Bushnell Performance Optics	Leisure Equipment & Products	Subordinated Debt (12.5%, Due 8/12 – 8/13)(7)	118.6	117.1	117.1
Butler Animal Health Supply, LLC	Health Care Providers & Services	Senior Debt (11.4%, Due 7/12)(7)	5.5	5.5	5.5
CH Holding Corp.	Leisure Equipment &	Senior Debt (12.4%, Due 5/11)	14.0	13.8	13.8
	Products	Redeemable Preferred Stock (20,837 shares)(1)		40.9	8.0
		Convertible Preferred Stock (665,000 shares)(1)		—	—
		Common Stock (1 share)(1)		—	—
				54.7	21.8
CIBT Global Inc.	Commercial Services & Supplies	Senior Debt (11.2%, Due 5/12)	65.9	64.8	64.8
CL Holding Inc.	Textiles, Apparel & Luxury	Subordinated Debt (13.8%, Due 3/10)(7)	16.6	15.2	15.2
	Goods	Redeemable Preferred Stock (8,295 shares)(1)		0.3	0.3
		Common Stock (8,295 shares)(1)		—	—
		Preferred Stock Warrants (1,095 shares)(1)		—	—
		Common Stock Warrants (197,322 shares)(1)		5.4	1.4
				20.9	16.9
Clifford Sheffield, LLC	Real Estate	Senior Debt (6.0%, Due 1/16)(7)	1.7	1.2	1.2
Compusearch Holdings	Software	Subordinated Debt (12.0%, Due 6/12)(7)	12.5	12.3	12.3
Company, Inc.		Convertible Preferred Stock (28,027 shares)		1.1	1.1
				13.4	13.4
Corrpro Companies, Inc.	Construction & Engineering	Subordinated Debt (12.5%, Due 3/11)(7)	14.0	11.7	11.7
		Redeemable Preferred Stock (1,400,000 shares)		1.4	1.4
		Common Stock Warrants (5,240,521 shares)(1)		3.6	6.6
				16.7	19.7
DelStar, Inc.	Building Products	Senior Debt (8.9%, Due 3/12)	5.0	5.0	5.0
		Subordinated Debt (14.0%, Due 12/12)(7)	18.0	17.7	17.7
		Redeemable Preferred Stock (31,955 shares)		14.4	14.4
		Convertible Preferred Stock (35,505 shares)		3.7	8.1
		Common Stock Warrants (106,891 shares)(1)		20.3	25.6
				61.1	70.8
Direct Marketing International LLC	Media	Subordinated Debt (14.2%, Due 7/12)(7)	27.8	27.5	27.5
EAG Acquisition, LLC	Commercial Services &	Senior Debt (9.4%, Due 9/10)(7)	64.2	63.2	63.2
	Supplies	Subordinated Debt (16.0%, Due 9/11)(7)	25.5	25.2	25.2
		Redeemable Preferred Stock (4,900,000 shares)		5.4	5.4
		Common stock warrents (4,900,000 shares)(1)		—	9.1
				93.8	102.9

73

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
Easton Bell Sports LLC	Leisure Equipment & Products	Common Units (2,386,549 units)(1)		0.9	5.1
Edline, LLC	Software	Subordinated Debt (12.0%, Due 7/11)(7)	5.0	3.4	3.4
		Membership Warrants (2,121,212 units)(1)		1.8	3.4
				5.2	6.8
Euro-Caribe Packing	Food Products	Senior Debt (10.4%, Due 3/10 – 5/10)	8.3	8.2	8.2
Company, Inc.		Subordinated Debt (11.0%, Due 3/11)	4.2	3.9	3.9
		Convertible Preferred Stock (182,034 shares)(1)		4.0	—
				16.1	12.1
FAMS Acquisition, Inc.	Diversified Financial	Senior Debt (11.9%, Due 8/10 – 8/11)(7)	27.9	27.6	27.6
	Services	Subordinated Debt (14.8%, Due 8/12 – 8/13)(7)	24.9	24.5	24.5
		Convertible Preferred Stock (1,034,290 shares)(1)		25.1	27.6
				77.2	79.7
FCC Holdings, LLC	Commercial Banks	Senior Debt (13.1%, Due 8/09)(7)	25.0	24.8	24.8
Forest Alaska Operating LLC	Oil, Gas & Consumable Fuels	Senior Debt (11.9%, Due 12/11)	37.5	37.5	37.5
Formed Fiber Technologies,	Auto Components	Subordinated Debt (15.0%, Due 8/11)(6)(7)	15.3	13.4	8.6
Inc.		Common Stock Warrants (122,397 shares)(1)		0.1	—
				13.5	8.6
FPI Holding Corporation	Food Products	Senior Debt (8.9%, Due 5/11 – 5/12)	53.5	52.6	52.6
		Subordinated Debt (15.0%, Due 5/13)(7)	38.7	38.1	38.1
		Convertible Preferred Stock (26,074 shares)		29.3	29.3
		Common Stock (6,518 shares)(1)		7.0	7.0
				127.0	127.0
FreeConferenceroom.com, Inc.	Diversified	Senior Debt (11.9%, Due 4/11)(7)	17.8	17.6	17.6
	Telecommunication Services	Subordinated Debt (15.0%, Due 5/12)(7)	9.5	9.3	9.3
		Redeemable Preferred Stock (5,860,400 shares)		9.4	9.4
		Convertible Preferred Stock (2,930,200 shares)		1.2	3.4
		Common Stock (2,930,200 shares)(1)		1.2	4.6
				38.7	44.3
Haband Company, Inc.	Internet & Catalog Retail	Senior Debt (8.8%, Due 10/11 – 10/12)	31.0	30.4	30.4
		Subordinated Debt (13.1%, Due 10/13)	29.1	28.6	28.6
				59.0	59.0
H-Cube, LLC(3)	IT Services	Redeemabl Preferred Stock (1,051 shares)(1)		1.1	1.1
		Common Units (196,773 shares)(1)		—	—
				1.1	1.1
HomeAway, Inc.	Diversified Consumer	Senior Debt (11.1%, Due 10/12)	59.6	58.7	58.7
	Services	Convertible Preferred Stock (1,411,200 shares)		7.2	7.2
				65.9	65.9

74

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
Hopkins Manufacturing	Auto Components	Subordinated Debt (14.8%, Due 7/12)(7)	32.1	31.8	31.8
Corporation		Redeemable Preferred Stock (3,500 shares)		5.2	5.2
				37.0	37.0
HP Evenflo Acquisition Co.	Household Durables	Senior Debt (11.9%, Due 8/10)(7)	18.4	18.2	18.2
Infiltrator Systems, Inc.	Building Products	Senior Debt (12.4%, Due 10/13)(7)	52.2	51.4	51.4
Innova Holdings, Inc.	Energy Equipment &	Senior Debt (12.9%, Due 3/13)	13.5	13.3	13.3
	Services	Subordinated Debt (15.0%, Due 3/14)(7)	17.2	16.9	16.9
		Convertible Preferred Stock (17,150 shares)		18.3	26.1
				48.5	56.3
Inovis International, Inc.	Software	Senior Debt (11.8%, Due 5/10)(7)	90.0	88.9	88.9
Intergraph Corporation	Software	Senior Debt (11.4%, Due 12/14)	3.0	3.0	3.0
Johnny Appleseed’s Inc.	Internet & Catalog Retail	Subordinated Debt (14.5%, Due 2/12)(7)	18.3	18.0	18.0
Jones Stephens Corp.	Building Products	Subordinated Debt (13.5%, Due 9/13 – 9/14)(7)	22.5	22.1	22.1
Kempwood Partners, Ltd.	Real Estate	Senior Debt (6.5%, Due 5/16)(7)	1.3	1.2	1.2
Lakeshore Drive in Plaza, LLC	Real Estate	Senior Debt (6.1%, Due 4/16)(7)	1.3	1.3	1.3
LTM Enterprises, Inc.	Personal Products	Senior Debt (14.0%, Due 5/11 – 11/11)	12.5	12.4	12.4
Maritime Logistics US	Road & Rail	Common Stock (1,119,132 shares)(1)		1.0	1.0
Holdings, Inc.		Common Stock Warrants (19,800 shares)(1)		—	—
				1.0	1.0
Medical Billing Holdings, Inc.	Commercial Services &	Senior Subordinated Debt (15.0%, Due 9/13)	10.1	10.0	10.0
	Supplies	Convertible Preferred Stock (15,848 shares)		16.3	19.2
		Common Stock (3,962,000 shares)(1)		4.0	4.8
				30.3	34.0
Milton’s Fine Foods, Inc.	Food Products	Subordinated Debt (14.5%, Due 4/11)(7)	8.5	8.4	8.4
Mirion Technologies	Electrical Equipment	Senior Debt (9.9%, Due 5/08 – 11/11)(7)	113.2	112.2	112.8
		Subordinated Debt (15.1%, Due 9/09 – 5/12)(7)	47.0	46.6	46.6
		Convertible Preferred Stock (523,203 shares)		45.2	60.2
		Common Stock (29,422 shares)(1)		3.3	9.5
		Common Stock Warrants (266,245 shares)(1)		22.3	58.7
				229.6	287.8
MTS Group, LLC	Textiles, Apparel & Luxury	Senior Debt (11.8%, Due 10/08 – 10/11)(7)	19.9	19.7	19.7
	Goods	Subordinated Debt (15.0%, Due 10/12)(7)	16.7	16.4	16.4
		Common Stock (558,214 shares)(1)		0.7	0.7
				36.8	36.8
Net1 Las Colinas Manager, LLC	Real Estate	Senior Debt (7.7%, Due 10/15)(7)	6.1	6.1	6.1

75

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
Nursery Supplies, Inc.	Containers & Packaging	Senior Subordinated Debt (13.0%, Due 7/08)(7)	10.2	10.2	10.2
		Junior Subordinated Debt (15.0%, Due 7/08)(6)(7)	10.5	9.5	7.8
				19.7	18.0
Pan Am International Flight	Commercial Services &	Senior Debt (9.4%, Due 7/12)(7)	21.5	21.2	21.2
Academy, Inc.	Supplies	Senior Subordinated Debt (16.0%, Due 7/13)(7)	21.9	21.6	21.6
		Convertible Preferred Stock (9,888 shares)(1)		9.9	9.9
				52.7	52.7
PHC Acquisition, Inc.	Diversified Consumer	Subordinated Debt (14.7%, Due 3/12 – 3/13)(7)	24.4	24.1	24.1
	Services	Convertible Preferred Stock (7,872 shares)(1)		0.3	0.4
		Common Stock (635,384 shares)(1)		27.7	37.5
				52.1	62.0
Phillips & Temro Industries,	Auto Components	Senior Debt (11.8%, Due 12/10 – 12/11)(7)	26.1	26.0	26.0
Inc.		Subordinated Debt (15.0%, Due 12/12)(7)	16.9	16.9	16.9
				42.9	42.9
Plastech Engineered Products, Inc.	Auto Components	Common Stock Warrants (2,145 shares)(1)		2.6	4.7
Retriever Acquisition Co.	Diversified Financial Services	Senior Debt (11.8%, Due 9/14)	50.0	49.8	49.8
Roarke – Money Mailer, LLC	Media	Common Membership Units (24,500 shares)(1)	—	1.1	2.8
Rocky Shoes & Boots, Inc.(2)	Textiles, Apparel & Luxury Goods	Senior Debt (13.9%, Due 1/11)(7)	10.0	9.9	9.9
RTL Acquisition Corp.	Health Care Providers &	Senior Debt (9.1%, Due 2/11 – 2/12)(7)	5.6	5.5	5.5
	Services	Subordinated Debt (14.0%, Due 2/13)(7)	16.3	16.1	16.1
		Redeemable Preferred Stock (71,377 shares)		9.0	9.0
		Convertible Preferred Stock (155,013 shares)(1)		7.0	6.3
		Common Stock (8,159 shares)(1)		0.4	—
		Common Stock Warrants (71,377 shares)(1)		3.2	3.2
				41.2	40.1
Safemark Acquisitions, Inc.	Commercial Services &	Senior Debt (11.6%, Due 7/09 – 6/10)(7)	22.1	21.8	21.8
	Supplies	Subordinated Debt (14.5%, Due 6/11 – 6/12)(7)	13.1	12.9	12.9
		Redeemable Preferred Stock (7,700 shares)(1)		4.8	4.8
		Convertible Preferred Stock (2,100 shares)(1)		0.2	0.2
		Preferred Stock Warrants (35,522 shares)(1)		3.5	0.9
				43.2	40.6
Sanda Kan (Cayman I) Holdings Company Limited(3)	Leisure Equipment & Products	Common Stock (67,973 shares)(1)		4.6	1.9
Sanlo Holdings, Inc.	Electrical Equipment	Subordinated Debt (13.9%, Due 7/11 – 7/12)(7)	10.5	10.0	10.0
		Common Stock Warrants (5,187 shares)(1)		0.5	0.5
				10.5	10.5

76

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
SDP Consulting, Inc.	Construction & Engineering	Senior Debt (10.7%, Due 5/11 – 5/12)(7)	138.4	136.6	136.6
		Common Stock (35,000 shares)(1)		0.1	0.1
				136.7	136.7
Soff-Cut Holdings, Inc.	Machinery	Senior Debt (12.0%, Due 8/09 – 8/12)(7)	22.3	22.1	22.1
Specialty Brands of America,	Food Products	Senior Debt (11.1%, Due 12/07 – 5/11)(7)	19.2	19.0	19.0
Inc.		Subordinated Debt (13.4%, Due 9/08 – 5/14)(7)	40.1	39.9	39.9
		Redeemable Preferred Stock (146,513 shares)		11.7	11.7
		Convertible Preferred Stock (130,165 shares)		13.7	17.1
		Common Stock (23,741shares)(1)		2.4	2.9
		Common Stock Warrants (68,255 shares)(1)		6.8	8.4
				93.5	99.0
SPL Acquisition Corp.	Pharmaceuticals	Senior Debt (12.0%, Due 8/12 – 8/13)	43.0	42.4	42.4
		Senior Subordinated Debt (15.3%, Due 8/14 – 8/15)(7)	39.8	39.2	39.2
		Convertible Preferred Stock (68,065 shares)(1)		32.8	26.0
		Common Stock (68,065 shares)(1)		—	—
				114.4	107.6
SSH Acquisition, Inc.	Commercial Services &	Senior Debt (12.4%, Due 9/12)(7)	12.5	12.3	12.3
	Supplies	Subordinated Debt (14.0%, Due 9/13)(7)	19.0	18.8	18.8
		Convertible Preferred Stock (357,700 shares)		27.3	50.2
				58.4	81.3
STB Holdings, Inc.	Commercial Services and	Senior Debt (8.8%, Due 6/12)	6.0	5.9	5.9
	Supplies	Subordinated Debt (14.0%, Due 6/13 – 6/14)(7)	84.9	83.8	83.8
		Convertible Preferred Stock (92,400 shares)		96.5	96.5
		Common Stock (23,100,000 shares)(1)		23.1	16.5
				209.3	202.7
Stein World, LLC	Household Durables	Senior Debt (13.3%, Due 10/11)	8.7	8.6	8.6
		Subordinated Debt (19.3%, Due 10/12 – 10/13)(6)	25.2	22.4	4.2
				31.0	12.8
Supreme Corq Holdings, LLC	Household Products	Senior Debt (8.9%, Due 6/09)	4.3	4.2	4.2
		Subordinated Debt (12.0%, Due 6/12)(6)	5.0	4.1	—
		Common membership Warrants (3,359 shares)(1)		0.4	—
				8.7	4.2
Tanenbaum-Harber Co.	Insurance	Senior Debt (9.4%, Due 3/12)(7)	2.8	2.8	2.8
Holdings, Inc.		Subordinated Debt (13.0%, Due 3/13)(7)	8.9	8.8	8.8
		Redeemable Preferred Stock (315 shares)		0.3	0.3
		Common Stock (3,500 shares)(1)		—	—
				11.9	11.9
TestAmerica Environmental	Commercial Services &	Senior Debt (9.6%, Due 12/11 – 12/13)(7)	180.5	177.6	177.6
Services, LLC	Supplies	Subordinated Debt (14.0%, Due 12/14)(7)	40.0	39.4	39.4
		Preferred Unit (14,000,000 units)(1)		8.3	8.3
		Preferred Unit Warrants (2,400,269 units)(1)		5.7	5.7
				231.0	231.0
Technical Concepts Holdings, LLC	Building Products	Common Membership Warrants (792,149 shares)(1)		1.7	4.5

77

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
The Tensar Corporation	Construction & Engineering	Senior Debt (12.6%, Due 4/13)(7)	84.0	82.9	82.9
		Subordinated Debt (17.5%, Due 10/13)	31.4	31.0	31.0
				113.9	113.9
ThreeSixty Sourcing, Inc. (3)	Commercial Services &	Senior Debt (13.4%, Due 9/08)	6.0	6.0	6.0
	Supplies	Common Stock Warrants (35 shares)(1)		4.1	—
				10.1	6.0
TransFirst Holdings, Inc.	Commercial Services & Supplies	Senior Debt (11.6%, Due 8/13)(7)	54.0	53.7	53.7
Trigeant, Ltd.	Oil, Gas & Consumable Fuels	Senior Debt (14.4%, Due 12/11)	22.0	21.7	21.7
Tyden Caymen Holdings	Electronic Equipment &	Senior Debt (12.8%, Due 5/10 – 11/11)(7)	12.2	12.1	12.1
Corp.	Instruments	Subordinated Debt (13.8%, Due 5/12)(7)	14.5	14.3	14.3
		Common Stock (1,400,000 shares)(1)		1.4	3.0
				27.8	29.4
TZ Holdings, Inc.	Diversified Telecommunication Services	Common Stock (12,281 shares)(1)		0.7	—
UFG Holding Corp.	Food Products	Senior Debt (9.1%, Due 5/12)	4.8	4.8	4.8
		Subordinated Debt (15.0%, Due 5/15 – 5/16)(7)	52.9	52.2	52.2
		Redeemable Preferred Stock (24,737 shares)		26.1	25.2
		Convertible Preferred Stock (30,921 shares)(1)		3.1	—
		Common Stock (30,921 shares)(1)		3.1	—
				89.3	82.2
Unique Fabricating	Auto Components	Senior Debt (13.9%, Due 2/10 – 2/12)(7)	6.5	6.4	6.4
Incorporated		Subordinated Debt (17.0%, Due 2/13)(7)	7.1	7.1	7.1
		Redeemable Preferred Stock (1,750 shares)(1)		1.8	1.8
		Common Stock Warrants (4,445 shares)(1)		0.2	0.2
				15.5	15.5
Varel Holdings, Inc.	Energy Equipment &	Senior Debt (11.5%, Due 10/11)	40.0	39.4	39.4
	Services	Subordinated Debt (14.0%, Due 4/12)	10.3	9.4	9.4
		Common Stock Warrants (22,256 shares)(1)		0.8	0.8
				49.6	49.6
Venus Swimwear, Inc.	Internet & Catalog Retail	Senior Debt (8.8%, Due 12/11 – 12/12)(7)	33.5	32.9	32.9
		Subordinated Debt (14.0%, Due 12/13)(7)	20.1	19.8	19.8
				52.7	52.7
Visador Holding Corp.	Building Products	Subordinated Debt (15.0%, Due 2/10)(7)	10.8	10.5	10.5
		Common Stock Warrants (4,284 shares)(1)		0.5	0.4
				11.0	10.9
Whisperwood Limited Partnership	Real Estate	Senior Debt (5.1%, Due 9/15)(7)	4.6	4.3	4.3
WIL Research Holding Company, Inc.	Biotechnology	Convertible Preferred Stock (862,323 shares)		0.6	1.5
WWC Acquisitions, Inc.	Commercial Services & Supplies	Senior Debt (9.9%, Due 12/11 – 12/13)(7)	95.8	94.3	94.3

78

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/   Notional	Cost	Fair Value
CMBS INVESTMENTS
Banc of America Commercial Mortgage Trust 2006-3	Real Estate	Commercial Mortgage Pass-Through Certificates (5.5%, Due 7/16 – 8/16)(7)	55.5	30.2	30.8
Banc of America Commercial Mortgage Trust 2006-4	Real Estate	Commercial Mortgage Pass-Through Certificates (5.4%, Due 9/16)(7)	13.4	10.9	11.0
Citigroup Commercial Mortgage Securites Trust 2006-C5	Real Estate	Commercial Mortgage Pass-Through Certificates (5.1%, Due 11/16)(7)	11.7	9.5	9.5
Credit Suisse Commercial Mortgage Trust 2006-C5	Real Estate	Commercial Mortgage Pass-Through Certificates (5.1%, Due 12/16)(7)	14.7	11.7	11.7
GE Commercial Mortgage Corporation, Series 2006-C1	Real Estate	Commercial Mortgage Pass-Through Certificates (5.3%, Due 3/16)(7)	8.9	7.3	7.4
GS Morgtage Securities Trust 2006-GG8	Real Estate	Commercial Mortgage Pass-Through Certificates (5.3%, Due 10/16)(7)	18.6	15.2	15.2
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP5	Real Estate	Commercial Mortgage Pass-Through Certificates (5.0%, Due 12/15)(7)	136.2	78.5	78.2
J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-CIBC17	Real Estate	Commercial Mortgage Pass-Through Certificates (5.2%, Due 11/16)(7)	62.1	28.6	28.6
J.P. Morgan Chase Commercial Mortgage Securities Trust 2006-LDP7	Real Estate	Commercial Mortgage Pass-Through Certificates (5.7%, Due 6/15 – 5/17)(7)	16.3	13.0	13.3
J.P. Morgan-CIBC Commercial Mortgage-Backed Securities Trust 2006-RR1	Real Estate	Commercial Mortgage Pass-Through Certificates (5.6%, Due 10/17 – 8/20)(7)	11.8	7.6	7.9
LB-UBS Commercial Mortgage Trust 2006-C4	Real Estate	Commercial Mortgage Pass-Through Certificates (5.7%, Due 6/16 – 5/21)(7)	48.5	26.1	25.8
LB-UBS Commercial Mortgage Trust 2006-C7	Real Estate	Commercial Mortgage Pass-Through Certificates (5.1%, Due 11/16)(7)	53.1	25.2	25.2
Merrill Lynch Mortgage Trust 2006-C1	Real Estate	Commercial Mortgage Pass-Through Certificates (5.6%, Due 5/16 – 12/25)(7)	71.6	40.4	41.5
ML-CFC Commercial Mortgage Trust 2006-C2	Real Estate	Commercial Mortgage Pass-Through Certificates (5.6%, Due 6/16 – 7/17)(7)	57.5	32.0	32.8
ML-CFC Commercial Mortgage Trust 2006-C4	Real Estate	Commercial Mortgage Pass-Through Certificates (4.9%, Due 12/16)(7)	11.1	17.5	17.5
Wachovia Bank Commercial Mortgage Trust, Series 2006-C28	Real Estate	Commercial Mortgage Pass-Through Certificates (5.3%, Due 10/16)(7)	92.5	47.1	47.1
Wachovia Bank Commercial Mortgage Trust, Series 2006-C26	Real Estate	Commercial Mortgage Pass-Through Certificates (5.7%, Due 6/16 – 8/16)(7)	46.7	23.9	24.6

79

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
Wachovia Bank Commercial Mortgage Trust, Series 2006-C23	Real Estate	Commercial Mortgage Pass-Through Certificates (5.1%, Due 2/16 – 11/28)(7)	130.0	63.4	63.3
CDO INVESTMENTS
Ares VIII CLO, Ltd.	Diversified Financial Services	Preference Shares (5,000 shares)		4.1	4.6
Babson CLO Ltd. 2006-II	Diversified Financial Services	Income Notes (15,000 shares)		14.4	14.4
CoLTs 2005-1 Ltd.	Diversified Financial Services	Preference Shares (360 shares)		6.6	7.8
CoLTs 2005-2 Ltd.	Diversified Financial Services	Preference Shares (34,170,000 shares)		33.1	32.4
Flagship CLO V	Diversified Financial Services	Preference Shares (15,000 shares)		14.8	14.8
LightPoint CLO IV, LTD	Diversified Financial Services	Income Notes (6,700,000 shares)		6.5	7.5
Mayport CLO Ltd.	Diversified Financial Services	Income Notes (14,000 shares)		13.1	13.1
NYLIM Flatiron CLO 2006-1 LTD.	Diversified Financial Services	Preference Shares (10,000 shares)		10.1	10.1
Vitesse CLO, Ltd.	Diversified Financial Services	Preference Shares (15,00,000 shares)		15.1	14.6
Cent CDO 12 Limited	Diversified Financial Services	Income Notes (26,355,270 shares)		23.8	23.8
Sapphire Valley CDO I, Ltd.	Diversified Financial Services	Income Notes (14,000,000 shares)		12.8	12.8
Subtotal Non-Control / Non-Affiliate Investments (60% of total investment assets and liabilities at fair value)				4,827.0	4,869.1
AFFILIATE INVESTMENTS
CCCI Holdings, Inc.	Diversified Consumer	Senior Debt (11.4%, Due 12/12)	75.0	73.8	73.8
	Services	Convertible Preferred Stock (876,269 shares)(1)		5.7	5.7
				79.5	79.5
Coghead, Inc.	Internet Software & Services	Convertible Preferred Stock (6,591,750 shares)(1)		3.2	3.2
IS Holdings I, Inc.	Software	Senior Debt (12.1%, Due 10/12)	8.0	7.9	7.9
		Redeemable Preferred Stock (2,772 shares)		2.8	2.8
		Common Stock (1,400,000 shares)(1)		—	—
				10.7	10.7
Kirby Lester Holdings, LLC	Health Care Equipment &	Senior Debt (11.8%, Due 9/10 – 9/12)(7)	12.2	12.0	12.0
	Supplies	Subordinated Debt (16.0%, Due 9/13)(7)	12.1	11.7	11.9
				23.7	23.9
Marcal Paper Mills, Inc.	Household Products	Common Stock Warrants (209,255 shares)(1)		—	—
		Common Stock (146,478 shares)(1)		—	—
				—	—

80

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
Narus, Inc.	Internet Software & Services	Convertible Preferred Stock (15,086,208 shares)(1)		8.8	8.8
NBD Holdings Corp.	Diversified Financial	Subordinated Debt (14.0%, Due 8/13)(7)	43.4	42.8	42.8
	Services	Convertible Preferred Stock (101,072 shares)(1)		10.8	10.8
		Common Stock (760,570 shares)(1)		0.1	0.1
				53.7	53.7
Nivel Holdings, LLC	Distributors	Senior Debt (8.8%, Due 4/11 – 4/12)(7)	5.7	5.6	5.6
		Subordinated Debt (14.9%, Due 4/13 – 4/14)(7)	16.8	16.5	16.5
				22.1	22.1
NPC Holdings, Inc.	Building Products	Senior Debt (12.3%, Due 6/12)(7)	4.5	4.4	4.4
		Subordinated Debt (15.0%, Due 6/13)(7)	8.3	8.2	8.2
		Redeemable Preferred Stock (9,293 shares)		7.4	7.4
		Convertible Preferred Stock (9,583 shares)		1.0	1.0
		Preferred Stock Warrants (30,647 shares)(1)		3.1	3.1
		Common Stock (56 shares)(1)		—	—
				24.1	24.1
Qualitor Component Holdings,	Auto Components	Subordinated Debt (17.0%, Due 12/12)(7)	30.1	29.7	29.7
LLC		Redeemable Preferred Stock (3,150,000shares)(1)		3.1	0.7
		Common Units (350,000 units)(1)		0.4	—
				33.2	30.4
Radar Detection Holdings	Household Durables	Senior Debt (12.6%, Due 11/12)(7)	13.0	13.0	13.0
Corp		Common Stock (48,857 shares)(1)		0.7	5.9
				13.7	18.9
Roadrunner Dawes, Inc.	Road & Rail	Subordinated Debt (14.0%, Due 9/12)(7)	18.1	17.9	17.9
		Common Stock (7,000 shares)(1)		7.0	2.7
				24.9	20.6
Seroyal Holdings, L.P.(3)	Health Care Equipment &	Senior Debt (16.3%, Due 12/10)(7)	3.1	3.0	3.0
	Supplies	Subordinated Debt (14.5%, Due 12/11)(7)	9.3	8.9	8.9
		Redeemable Preferred Partnership Units (40,000 units)(1)		0.5	0.6
		Partnership Units (114,406 units)(1)		1.0	2.0
				13.4	14.5
Small Smiles Holding Company, LLC	Health Care Providers & Services	Subordinated Debt (14.9%, Due 9/13 – 9/14)(7)	90.2	88.9	88.9
TechBooks, Inc.	IT Services	Subordinated Debt (15.5%, Due 8/09)(7)	50.8	50.2	50.2
		Convertible Preferred Stock (3,061,225 shares)(1)		10.5	28.6
				60.7	78.8
The Hygenic Corporation	Health Care Equipment &	Senior Debt (12.4%, Due 10/12)(7)	18.0	17.8	17.8
	Supplies	Redeemable Preferred Stock (6,510 shares)		8.0	8.0
		Common Stock (143,907 shares)(1)		0.8	21.2
				26.6	47.0

81

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
Tymphany Corporation	Electronic Equipment & Instruments	Convertible Preferred Stock (5,711,416 shares)(1)		9.1	9.1
WIS International	Commercial Services &	Convertible Preferred Stock (296,000 shares)(1)		29.6	29.6
	Supplies	Common Stock (74,000 shares)(1)		7.4	7.4
				37.0	37.0
WFS Holding, Inc.	Software	Convertible Preferred Stock (24.500,000 shares)(1)		2.4	4.5
Subtotal Affiliate Investments (7% of total investment assets and liabilities at fair value)				535.7	575.7
CONTROL INVESTMENTS
ACAS Equity Holdings Corp.	Diversified Financial Services	Common Units (700 shares)(1)		19.4	22.8
ACAS Wachovia Investments, L.P.	Diversified Financial Services	Partnership Interest, 90% of L.P.		22.4	21.3
ACSAB, LLC	Oil, Gas & Consumable	Subordinated Debt (16.6%, Due 9/07 – 2/15)	31.0	30.4	30.4
	Fuels	Common Units (30,328 units)(1)		29.4	128.2
				59.8	158.6
Aeriform Corporation	Chemicals	Subordinated Debt (0.0%, Due 5/09)(1)	7.2	6.1	2.7
American Capital Asset Management, LLC	Diversified Financial Services	Common Membership (100% membership interest)		—	—
American Capital Equity Management, LLC	Diversified Financial Services	Common Membership (100% membership interest)		16.0	36.0
American Driveline Systems,	Commercial Services &	Senior Debt (8.9%, Due 8/12)	5.3	5.3	5.3
Inc.	Supplies	Subordinated Debt (14.0%, Due 8/13 – 8/14)(7)	40.5	39.8	39.8
		Redeemable Preferred Stock (484,334 shares)		31.2	31.2
		Common Stock(154,515 shares)(1)		13.0	17.6
		Common Stock Warrants (244,205 shares)(1)		20.9	27.8
				110.2	121.7
Auxi Health, Inc.	Health Care Providers &	Senior Debt (12.4%, Due 12/07)	5.3	5.3	5.3
	Services	Subordinated Debt (14.0%, Due 1/07 – 3/09)	15.1	5.8	5.8
		Subordinated Debt (14.0%, Due 3/09)(6)	6.1	7.3	5.9
		Convertible Preferred Stock (9,310,910 shares)(1)		1.9	—
				20.3	17.0
BPWest, Inc.	Energy Equipment &	Senior Debt (8.6%, Due 8/11)(7)	8.0	7.9	7.9
	Services	Subordinated Debt (15.0%, Due 7/12)(7)	8.2	8.1	8.1
		Redeemable Preferred Stock (6,203 shares)		6.6	6.2
		Common Stock (620,362 shares)(1)		—	21.1
				22.6	43.3
Bridgeport International, LLC(3)	Machinery	Common membership units (100 units)(1)		2.6	—
Capital.com, Inc.	Diversified Financial Services	Common Stock (8,500,100 shares)(1)		1.5	0.4
Consolidated Utility Services,	Commercial Services &	Subordinated Debt (15.0%, Due 5/10)(7)	6.9	6.8	6.8
Inc.	Supplies	Redeemable Preferred Stock (2,537,500 shares)		3.0	3.0
		Common Stock (41,234 shares)(1)		—	6.6
				9.8	16.4

82

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
DanChem Technologies, Inc.	Chemicals	Senior Debt (11.3%, Due 12/10)	14.4	14.4	14.4
		Redeemable Preferred Stock (9,067 shares)(1)		7.6	3.3
		Common Stock (299,403 shares)(1)		1.8	—
		Common Stock Warrants (401,622 shares)(1)		2.2	—
				26.0	17.7
ECA Acquisition Holdings,	Health Care Equipment &	Senior Debt (13.9%, Due 4/10 – 4/12)(7)	14.8	14.5	14.5
Inc.	Supplies	Subordinated Debt (16.5%, Due 4/14)(7)	10.1	10.0	10.0
		Common Stock (700 shares)(1)		13.3	18.8
				37.8	43.3
eLynx Holdings, Inc.	IT Services	Senior Debt (11.7%, Due 9/09 – 9/12)(7)	16.8	16.6	16.6
		Subordinated Debt (15.0%, Due 12/10 – 12/11)(7)	9.0	8.8	8.8
		Redeemable Preferred Stock (21,114 shares)(1)		9.0	10.1
		Common Stock (11,261 shares)(1)		1.1	—
		Common Stock Warrants (131,281 shares)(1)		13.1	0.7
				48.6	36.2
ETG Holdings, Inc.	Containers & Packaging	Senior Debt (12.9%, Due 5/11)(7)	7.4	7.3	7.3
		Subordinated Debt (16.8%, Due 5/12 – 5/13)(7)	11.5	11.4	11.4
		Convertible Preferred Stock (233,202 shares)(1)		11.4	2.3
				30.1	21.0
European Capital Limited(3)	Diversified Financial	Participating Preferred Shares (52,074,548 shares)(1)		653.7	728.9
	Services	Ordinary Shares (100 shares)(1)		—	—
		Participating Preferred Warrants (18,750,000 shares)(1)		—	22.1
				653.7	751.0
European Touch, LTD. II	Commercial Services &	Subordinated Debt (12.4%, Due 5/07)(7)	15.6	15.6	15.6
	Supplies	Redeemable Preferred Stock (315 shares)		0.4	0.4
		Common Stock (2,027 shares)(1)		1.1	4.4
		Common Stock Warrants (7,105 shares)(1)		3.7	13.8
				20.8	34.2
Flexi-Mat Holding, Inc.	Textiles, Apparel & Luxury Goods	Senior Debt (18.5%, Due 2/07 – 11/09)(6)	5.5	5.0	—
Fosbel Global Services	Commercial Services &	Senior Debt (9.3%, Due 7/10 – 7/11)(7)	43.5	43.0	43.0
(LUXCO) S.C.A(3)	Supplies	Subordinated Debt (14.3%, Due 7/12 – 7/13)(7)	24.8	24.5	24.5
		Redeemable Preferred Stock (22,153,338 shares)(1)		22.1	19.8
		Convertible Preferred Stock (1,824,393 shares)(1)		3.6	—
		Common Stock (130,313 shares)(1)		0.3	—
				93.5	87.3
Future Food, Inc.	Food Products	Senior Debt (13.3%, Due 7/10)(7)	9.8	9.7	9.7
		Subordinated Debt (12.4%, Due 7/11 – 7/12)(7)	14.0	12.8	12.8
		Common Stock (64,917 shares)(1)		13.0	6.7
		Common Stock Warrants (6,500 shares)(1)		1.3	1.0
				36.8	30.2

83

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CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
FutureLogic, Inc.	Computers & Peripherals	Senior Debt (13.1%, Due 2/10 – 2/12)(7)	47.7	47.3	47.3
		Subordinated Debt (15.0%, Due 2/13)(7)	30.7	30.3	30.3
		Common Stock (155,513 shares)(1)		18.6	31.0
				96.2	108.6
Halex Holdings Corp.	Construction Materials	Senior Debt (12.3%, Due 7/08 – 10/08)	21.8	21.7	21.7
		Subordinated Debt (15%, Due 8/10)(6)	14.1	12.9	10.2
		Redeemable Preferred Stock (16,113,132 shares)(1)		25.1	—
		Common Stock (36,338,814 shares)(1)		—	—
		Common Stock Warrants (18,750,000 shares)(1)		—	—
				59.7	31.9
Hartstrings Holdings Corp.	Textiles, Apparel & Luxury	Senior Debt (11.0%, Due 12/10)	8.5	8.4	8.4
	Goods	Senior Debt (13.3%, Due 12/10)(6)	3.8	3.4	0.6
		Convertible Preferred Stock (10,194 shares)(1)		3.0	—
		Common Stock (14,250 shares)(1)		4.8	—
				19.6	9.0
Hospitality Mints, Inc.	Food Products	Senior Debt (13.3%, Due 11/10)(7)	7.4	7.3	7.3
		Subordinated Debt (12.4%, Due 11/11 – 11/12)(7)	18.5	18.2	18.2
		Convertible Preferred Stock (66,639 shares)		13.4	19.8
		Common Stock Warrants (86,817 shares)(1)		0.1	1.0
				39.0	46.3
KIC Holdings Corp.	Building Products	Senior Debt (12.5%, Due 9/10)	7.5	7.5	7.5
		Subordinated Debt (12.0%, Due 9/11)	12.4	12.0	12.0
		Redeemable Preferred Stock (21,249 shares)(1)		11.5	0.8
		Common Stock (9,397 shares)(1)		—	—
		Common Stock Warrants (147,216 shares)(1)		3.1	—
				34.1	20.3
Lifoam Holdings, Inc.	Leisure Equipment &	Senior Debt (10.6%, Due 6/07 – 6/10)(7)	35.7	35.5	35.5
	Products	Subordinated Debt (14.3%, Due 6/11 – 6/12)(7)	22.7	22.4	22.4
		Redeemable Preferred Stock (6,160 shares)(1)		4.2	1.4
		Common Stock (14,000 shares)(1)		1.4	—
		Common Stock Warrants (29,304 shares)(1)		2.9	—
				66.4	59.3
Logex Corporation	Road & Rail	Subordinated Debt (12.6%, Due 7/08)(6)	36.7	29.7	9.7
		Redeemable Preferred Stock (416 shares)(1)		2.3	—
		Common Stock (487,019 shares)(1)		0.5	—
				32.5	9.7
LVI Holdings, LLC	Commercial Services &	Senior Debt (10.9%, Due 2/10)(7)	3.4	3.3	3.3
	Supplies	Subordinated Debt (18.0%, Due 2/13)(7)	10.1	10.0	10.0
				13.3	13.3
MBT International, Inc.	Distributors	Senior Subordinated Debt (13.0%, Due 5/09)	1.0	0.8	0.8
		Junior Subordinated Debt (9.0%, Due 5/09)(6)	6.4	4.1	1.8
				4.9	2.6

84

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
MW Acquisition Corporation	Health Care Providers &	Senior Debt (8.9%, Due 12/12)(7)	9.0	9.0	9.0
	Services	Subordinated Debt (16.1%, Due 2/13 – 2/14)(7)	24.1	23.8	23.8
		Convertible Preferred Stock (45,647 shares)		16.2	16.2
		Common Stock (61,864 shares)(1)		—	12.3
				49.0	61.3
New Piper Aircraft, Inc.	Aerospace & Defense	Senior Debt (9.5%, Due 6/09)	10.0	9.4	9.4
		Subordinated Debt (8.0%, Due 7/13)	0.6	0.1	0.6
		Common Stock (574,917 shares)(1)		0.1	25.2
				9.6	35.2
New Starcom Holdings, Inc.	Construction & Engineering	Subordinated Debt (12.1%, Due 12/08 - 12/09)(7)	31.7	27.9	27.9
		Convertible Preferred Stock (22,430 shares)(1)		8.0	10.8
		Common Stock (70 shares)(1)		—	—
				35.9	38.7
Nspired Holdings, Inc.	Food Products	Senior Debt (9.6%, Due 12/08)	16.6	16.5	16.5
		Senior Debt (10.0%, Due 12/09)(6)	5.5	5.1	0.5
		Redeemable Preferred Stock (17,150 shares)(1)		17.1	—
		Common Stock (11,712,947shares)(1)		3.5	—
				42.2	17.0
PaR Systems, Inc.	Machinery	Subordinated Debt (14.9%, Due 2/10)(7)	9.1	9.1	9.1
		Common Stock (238,855 shares)(1)		0.8	1.4
		Common Stock Warrants (20,444 shares)(1)		—	0.1
				9.9	10.6
Pasternack Enterprises, Inc.	Electrical Equipment	Senior Debt (8.9%, Due 5/12)(7)	4.0	3.6	3.6
		Subordinated Debt (14.8%, Due 12/13 – 12/14)(7)	28.1	27.8	27.8
		Common Stock (69,159 shares)(1)		13.6	28.6
				45.0	60.0
PHC Sharp Holdings, Inc.	Commercial Services & Supplies	Senior Debt (11.3%, Due 12/11 – 12/12)(7)	16.5	16.3	16.3
		Subordinated Debt (15.0%, Due 12/14)(7)	15.0	14.8	14.8
		Convertible Preferred Stock (240,984 shares)		2.9	2.9
		Common Stock (60,246 shares)(1)		0.7	0.7
				34.7	34.7
PHI Acquisitions, Inc.	Internet & Catalog Retail	Senior Debt (12.3%, Due 6/12)(7)	10.0	9.9	9.9
		Subordinated Debt (14.1%, Due 6/13)(7)	23.0	22.7	22.7
		Redeemable Preferred Stock (43,547 shares)		35.3	35.3
		Common Stock (48,384 shares)(1)		4.6	4.6
		Common Stock Warrants (139,367 shares)(1)		13.9	13.9
				86.4	86.4
Precitech Holdings, Inc.	Machinery	Junior Subordinated Debt (17.0%, Due 12/12)(6)	8.0	4.7	2.2
Ranpak Acquisition, Inc.	Containers & Packaging	Senior Debt (7.9%, Due 12/11)	2.7	2.7	2.7
		Subordinated Debt (13.6%, Due 12/12-12/13)(7)	104.7	103.3	103.3
		Redeemable Preferred Stock (114,117 shares)		86.2	86.2
		Common Stock (126,797shares)(1)		12.7	17.4
		Common Stock Warrants (379,379 shares)(1)		37.9	72.0
				242.8	281.6

85

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional	Cost	Fair Value
Reef Point Systems, Inc.	Communications Equipment	Convertible Preferred Stock (46,666,666 shares)(1)		8.4	7.9
SAV Holdings, Inc.	Commercial Services &	Senior Debt (12.3%, Due 11/11)(7)	17.0	16.6	16.6
	Supplies	Subordinated Debt (14.0%, Due 11/12)(7)	12.3	12.1	12.1
		Redeemable Preferred Stock (18,144 shares)		19.9	19.9
		Common Stock (2,016,000 shares)(1)		2.0	34.0
				50.6	82.6
Sixnet, LLC	Electronic Equipment &	Senior Debt (10.4%, Due 6/10)(7)	9.0	8.9	8.9
	Instruments	Subordinated Debt (17.0%, Due 6/13)(7)	9.8	9.7	9.7
		Membership Units (339 units)(1)		4.2	8.6
				22.8	27.2
Stravina Holdings, Inc.	Personal Products	Senior Debt (10.0%, Due 01/10 – 4/11)	31.1	31.2	27.9
		Senior Debt (14.0%, Due 01/10 – 4/11)(6)	23.7	21.4	—
		Subordinated Debt (18.5%, Due 2/11)(6)	5.9	3.2	—
		Redeemable Preferred Stock (7,564,822 shares)(1)		5.0	—
		Common Stock (76,300 shares)(1)		—	—
				60.8	27.9
UFG Real Estate Holdings, LLC	Real Estate	Common Membership (70 shares)(1)		3.5	3.5
Unwired Holdings, Inc.	Household Durables	Senior Debt (9.3%, Due 6/10 – 6/11)	0.1	0.1	0.1
		Senior Debt (12.8%, Due 6/11)(6)	8.2	7.5	2.9
		Subordinated Debt (15.0%, Due 6/12 – 6/13)(6)	17.2	14.8	—
		Redeemable Preferred Stock (12,740 shares)(1)		12.7	—
		Preferred Stock Warrants (39,690 shares)(1)		—	—
		Common Stock (126,001 shares)(1)		1.3	—
		Common Stock Warrants (439,205 shares)(1)		—	—
				36.4	3.0
VP Acquisitions Holdings,	Health Care Equipment &	Subordinated Debt (14.5%, Due 10/13 – 10/14)(7)	18.6	18.2	18.2
Inc.	Supplies	Common Stock (23,750 shares)(1)		29.7	35.3
		Common Stock Warrants (2,720 shares)(1)		—	—
				47.9	53.5
Warner Power, LLC	Electrical Equipment	Senior Debt (12.3%, Due 12/07)	6.3	6.3	6.3
		Subordinated Debt (12.6%, Due 12/07)	5.0	4.8	4.8
		Redeemable Preferred Stock (4,558,400 units)(1)		3.6	3.6
		Common Membership Units (33,175 units)(1)		2.3	0.6
				17.0	15.3
Subtotal Control Investments (32% of total investment assets and liabilities at fair value)				2,416.3	2,610.7

86

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional		Cost		Fair Value
DERIVATIVE AGREEMENTS
Wachovia Bank, N.A.	Interest Rate Swap—Pay Fixed/ Receive Floating	2 Contracts (4.6%, Expiring 1/14 – 12/15)		272.0		—		8.2
Bank Of America, N.A.	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (4.7%, Expiring 8/15)		37.0		0.5		0.6
BMO Financial Group	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (5.1%, Expiring 11/16)		13.0		—		0.1
Bayerische Hypo-Und Vereinsbank AG, NY	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (5.1%, Expiring 12/16)		11.0		—		0.1
Citibank, N.A.	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (4.6%, Expiring 4/12)		530.0		—		8.2
Credit Suisse International	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (4.7%, Expiring 9/15)		73.0		1.0		1.3
HSBC Bank USA, National Association	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (4.7%, Expiring 8/15)		37.0		0.5		0.6
PNC Bank, N.A.	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (5.2%, Expiring 11/16)		27.0		—		0.1
WestLB AG	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (4.9%, Expiring 12/16)		17.0		—		0.4
Citibank, N.A.	Foreign Exchange Forward—Pay Euros / Receive GBP	1 Contract (Expiring 2/11)		—		—		0.2
Citibank, N.A.	Interest Rate Swaption—Pay Floating/ Receive Fixed	1 Contract (4.6%, Expiring 4/12)		40.0		—		0.3
BMO Financial Group	Interest Rate Swaption—Pay Floating/ Receive Fixed	1 Contract (5.5%, Expiring 2/13)		23.0		—		0.2
Subtotal Derivative Agreements (less than 1% of total investment assets and liabilities at fair value)						2.0		20.3
Total Investment Assets					$	7,781.0	$	8,075.8
DERIVATIVE AGREEMENTS
Wachovia Bank, N.A.	Interest Rate Swap—Pay Fixed/ Receive Floating	5 Contracts (5.3%, Expiring 2/16 – 6/16)	$	78.0	$	—	$	(1.6	)
Citibank, N.A.	Interest Rate Swap—Pay Fixed/ Receive Floating	4 Contracts (5.6%, Expiring 5/16 – 6/20)		44.0		—		(1.6	)
Bayerische Hypo-Und Vereinsbank AG, NY	Interest Rate Swap—Pay Fixed/ Receive Floating	3 Contracts (5.7%, Expiring 6/16 – 7/16)		55.0		—		(2.6	)
BMO Financial Group	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (5.4%, Expiring 2/13)		286.0		—		(6.5	)
PNC Bank, N.A.	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (5.7%, Expiring 6/16)		26.0		—		(1.0	)
Total Investment Liabilities (less than 1% of total investment assets and liabilities at fair value)					$	—	$	(13.3	)

87

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2006

(in millions, except share data)

(1) Non-income producing.

(2) Publicly traded 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) Debt security is on non-accrual status and therefore considered non-income producing.

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

88

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS
Aerus, LLC	Household Durables	Common Membership Warrants (250,000 units)(1)			$	0.2	$	—
A.H. Harris & Sons, Inc.	Distributors	Subordinated Debt (12.0%, Due 12/06)(7)	$	10.0		9.9		9.9
		Common Stock Warrants (2,004 shares)(1)				0.5		3.0
						10.4		12.9
Alemite Holdings, Inc.	Machinery	Common Stock Warrants (146,250 shares)(1)				0.1		2.4
AmSan, LLC	Distributors	Senior Debt (11.7%, Due 8/10)(7)		25.0		24.7		24.7
Astrodyne Corporation	Electrical Equipment	Senior Debt (12.2%, Due 4/11)(7)		6.5		6.4		6.4
		Subordinated Debt (12.0%, Due 4/12)(7)		11.0		10.8		10.8
		Redeemable Preferred Stock (1 share)(1)				—		—
		Convertible Preferred Stock (552,705 shares)				10.8		10.8
						28.0		28.0
BarrierSafe Solutions	Commercial Services &	Senior Debt (12.8%, Due 9/10)(7)		15.0		14.9		14.9
International, Inc.	Supplies	Subordinated Debt (16.0%, Due 9/11 – 9/12)(7)		52.0		51.4		51.4
						66.3		66.3
BBB Industries, LLC	Auto Components	Senior Debt (13.8%, Due 5/11)(7)		20.0		19.8		19.8
		Subordinated Debt (17.5%, Due 11/11)(7)		5.3		5.2		5.2
						25.0		25.0
BC Natural Foods, LLC	Food Products	Subordinated Debt (17.0%, Due 9/10)(7)		15.4		14.9		14.9
		Common Membership Warrants (15.2% membership interest)(1)				3.3		8.6
						18.2		23.5
Beacon Hospice, Inc.	Health Care Providers &	Senior Debt (11.4%, Due 2/08 – 2/11)(7)		9.4		9.2		9.2
	Services	Subordinated Debt (14.5%, Due 2/12)(7)		10.2		10.1		10.1
						19.3		19.3
BLI Partners, LLC	Personal Products	Common Membership Interest(1)				17.3		—
Breeze Industrial Products Corporation	Auto Components	Subordinated Debt (14.5%, Due 9/12 – 8/13)(7)		13.3		13.2		13.2
Bushnell Performance Optics	Leisure Equipment & Products	Subordinated Debt (12.5%, Due 8/12 – 8/13)(7)		117.4		115.7		115.7
Butler Animal Health Supply, LLC	Health Care Providers & Services	Senior Debt (9.7%, Due 7/12)(7)		3.0		3.0		3.0
CH Holding Corp.	Leisure Equipment &	Senior Debt (11.3%, Due 5/11)(7)		14.0		13.8		13.8
	Products	Subordinated Debt (14.7%, Due 5/12)(7)		37.5		28.8		37.7
		Redeemable Preferred Stock (20,119 shares)(1)				18.6		0.1
		Convertible Preferred Stock (950,000 shares)(1)				—		—
		Common Stock (1 share)(1)				—		—
						61.2		51.6

89

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
CL Holding, Inc.	Textiles, Apparel & Luxury	Subordinated Debt (13.7%, Due 3/10)(7)	24.6	21.6	21.7
	Goods	Common Stock Warrants (197,322 shares)(1)		5.4	2.9
		Common Stock (11,850 shares)(1)		—	—
		Preferred Stock Warrants (1,564 shares)(1)		—	—
		Redeemable Preferred Stock (11,850 shares)(1)		0.5	0.2
				27.5	24.8
Corporate Benefit Services of	Commercial Services &	Subordinated Debt (16.0%, Due 7/10)(7)	15.8	15.2	15.2
America, Inc.	Supplies	Common Stock Warrants (6,828 shares)(1)		0.7	0.7
				15.9	15.9
Corrpro Companies, Inc.	Construction & Engineering	Subordinated Debt (12.5%, due 3/11)(7)	14.0	11.3	11.3
		Common Stock Warrants (5,799,187 shares)(1)		3.9	3.8
		Redeemable Preferred Stock (2,000 shares)		1.6	1.6
				16.8	16.7
DelStar, Inc.	Building Products	Senior Debt (8.0%, Due 12/10-12/11)(7)	40.0	39.3	39.3
		Subordinated Debt (14.0%, Due 12/12)(7)	17.6	17.4	17.4
		Convertible Preferred Stock (50,722 shares)		5.1	5.1
		Redeemable Preferred Stock (45,650 shares)		16.9	16.9
		Common Stock Warrants (152,701 shares)(1)		29.0	29.0
				107.7	107.7
Direct Marketing International LLC	Media	Subordinated Debt (14.3%, Due 7/12)(7)	24.2	23.9	23.9
Dynisco Parent, Inc.	Electronic Equipment &	Common Stock (10,000 shares)(1)		0.7	0.7
	Instruments	Common Stock Warrants (2,115 shares)(1)		0.1	0.1
				0.8	0.8
EAG Acquisition, LLC	Commercial Services &	Senior Debt (8.3%, Due 1/06 – 9/10)(7)	13.7	13.4	13.4
	Supplies	Subordinated Debt (16.0%, Due 9/11)	11.7	11.5	11.5
		Common Stock Warrants (7,000,000 shares)(1)		—	—
		Redeemable Preferred Stock (7,000,000 shares)		7.2	7.2
				32.1	32.1
Edline, LLC	Software	Senior Debt (11.3%, Due 7/10)(7)	2.8	2.8	2.8
		Subordinated Debt (12.0%, Due 7/11)(7)	5.0	3.2	3.2
		Membership Warrants (2,121,212 units)(1)		1.8	1.8
				7.8	7.8
FAMS Acquisition, Inc.	Diversifed Financial Services	Senior Debt (10.8%, Due 8/10 – 8/11)(7)	32.1	31.6	31.6
		Subordinated Debt (14.8%, Due 8/12 – 8/13)(7)	24.2	23.9	23.9
		Convertible Preferred Stock (1,477,557 shares)(1)		35.9	35.9
				91.4	91.4
Formed Fiber Technologies,	Auto Components	Subordinated Debt (15.0%, Due 8/11)(7)	14.8	14.6	14.6
Inc.		Common Stock Warrants (122,397 shares)(1)		0.1	1.3
				14.7	15.9

90

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
Gibson Guitar Corp.	Leisure Equipment & Products	Senior Debt (11.0%, Due 8/10)(7)	32.5	31.7	31.7
H-Cube, LLC(3)	IT Services	Senior Debt (17.3%, Due 5/11)(7)	47.5	46.8	46.8
		Common Units (265,565 units)(1)		—	—
		Preferred Units (1,330 units)(1)		1.4	1.4
				48.2	48.2
Hopkins Manufacturing Corporation	Auto Components	Subordinated Debt (14.8%, Due 7/12)(7) Redeemable Preferred Stock (5,000 shares)	31.0	30.7 6.3	30.7 6.3
				37.0	37.0
HP Evenflo Acquisition Co.	Household Durables	Senior Debt (12.8%, Due 8/10)(7)	23.0	22.8	22.8
		Common Stock (250,000 shares)(1)		2.5	2.5
				25.3	25.3
Infiltrator Systems, Inc.	Building Products	Subordinated Debt (14.0%, Due 9/13)(7)	29.1	28.6	28.6
Inovis International, Inc.	Software	Senior Debt (10.9%, Due 5/10)	90.0	88.7	88.7
IPC Acquisition Corp.	Communications Equipment	Senior Debt (11.7%, Due 8/12)(7)	8.0	8.0	8.0
Milton’s Fine Foods, Inc.	Food Products	Subordinated Debt (14.5%, Due 4/11)(7)	8.6	8.5	8.5
Mirion Technologies	Electrical Equipment	Senior Debt (8.8%, Due 5/06 – 11/11)(7)	104.8	103.6	103.3
		Subordinated Debt (14.7%, Due 9/09 – 5/12)(7)	45.3	44.7	44.7
		Convertible Preferred Stock (747,431 shares)		57.5	57.5
		Common Stock (42,032 shares)(1)		4.8	4.8
		Common Stock Warrants (279,262 shares)(1)		31.8	31.8
				242.4	242.1
MTS Group, LLC	Textiles, Apparel & Luxury	Senior Debt (11.3%, Due 10/11)(7)	16.8	16.5	16.5
	Goods	Subordinated Debt (14.0%, Due 10/12)(7)	16.3	16.1	16.1
		Common Stock (797,448 shares)(1)		1.0	1.0
				33.6	33.6
Nailite International, Inc.	Building Products	Subordinated Debt (14.3%, Due 4/10)(7)	9.6	8.7	8.7
		Common Stock Warrants (247,368 shares)(1)		1.2	1.9
				9.9	10.6
NewQuest, Inc.	Health Care Providers & Services	Subordinated Debt (15.0%, Due 3/12)(7)	35.9	35.4	35.4
Nursery Supplies, Inc.	Containers & Packaging	Subordinated Debt (14.0%, Due 5/13)(7)	20.2	19.9	19.9
Pelican Products, Inc.	Containers & Packaging	Senior Debt (11.5%, Due 10/11)(7)	15.0	14.8	14.8
Phillips & Temro Industries, Inc.	Auto Components	Senior Debt (10.7%, Due 12/10 – 12/11)(7)	26.1	26.0	26.0
		Subordinated Debt (15.0%, Due 12/12)(7)	16.9	16.9	16.9
				42.9	42.9
Plastech Engineered Products, Inc.	Auto Components	Common Stock Warrants (2,145 shares)(1)		2.6	7.3
Retriever Acquisition Co.	Diversified Financial Services	Subordinated Debt (15.0%, Due 6/12)(7)	26.7	26.4	26.4
Rocky Shoes & Boots, Inc.(2)	Textiles, Apparel & Luxury Goods	Senior Debt (12.3%, Due 1/11)(7)	30.0	29.6	29.6

91

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
Safemark Acquisitions, Inc.	Commercial Services &	Senior Debt (12.2%, Due 6/06 – 6/10)(7)	5.2	5.2	5.2
	Supplies	Subordinated Debt (14.4%, Due 6/11 – 6/12)(7)	12.6	12.3	12.3
		Convertible Preferred Stock (3,000 shares)(1)		0.3	0.3
		Redeemable Preferred Stock (11,000 shares)(1)		6.8	6.8
		Convertible Preferred Stock Warrants (50,175 shares)(1)		5.0	1.3
				29.6	25.9
Sanda Kan (Cayman I) Holdings Company Limited(3)	Leisure Equipment & Products	Common Stock (97,104 shares)(1)		6.6	5.8
Sanlo Holdings, Inc.	Electrical Equipment	Subordinated Debt (13.9%, Due 7/11 – 7/12)(7)	10.5	9.9	9.9
		Common Stock Warrants (5,187 shares)(1)		0.5	0.5
				10.4	10.4
SDP Consulting, Inc.	Construction & Engineering	Senior Debt (11.7%, Due 8/09 – 8/11)(7)	30.9	30.6	30.6
		Common Stock (50,000 shares)(1)		0.5	0.5
				31.1	31.1
Selig Sealing Products, Inc.	Containers & Packaging	Senior Debt (10.7%, Due 4/12)(7)	14.5	14.3	14.3
SmithBucklin Corporation	Commercial Services &	Senior Debt (11.2%, Due 6/11)(7)	10.0	9.9	9.9
	Supplies	Subordinated Debt (14.5%, Due 6/12)(7)	7.1	7.0	7.0
				16.9	16.9
Soff-Cut Holdings, Inc.	Machinery	Senior Debt (10.9%, Due 8/09-8/12)(7)	22.6	22.4	22.4
SSH Acquisition, Inc.	Commercial Services &	Senior Debt (11.3%, Due 9/12)(7)	12.5	12.3	12.3
	Supplies	Subordinated Debt (14.0%, Due 9/13)(7)	18.6	18.3	18.4
		Convertible Preferred Stock (511,000 shares)		51.9	61.6
				82.5	92.3
Stein World, LLC	Household Durables	Senior Debt (12.3%, Due 10/11)(7)	8.7	8.5	8.5
		Subordinated Debt (16.0%, Due 10/12 – 10/13)(7)	23.3	23.0	23.0
				31.5	31.5
Supreme Corq Holdings, LLC	Household Products	Senior Debt (7.8%, Due 6/09)	3.8	3.7	3.7
		Subordinated Debt (12.0%, Due 6/12)(7)	5.0	4.6	4.6
		Common Membership Warrants (3,359 shares)(1)		0.4	0.4
				8.7	8.7
Technical Concepts Holdings,	Building Products	Senior Debt (10.4%, Due 2/08 – 2/10)(7)	13.4	13.4	13.4
LLC		Subordinated Debt (12.3%, Due 2/11 – 2/12)(7)	15.0	13.6	13.6
		Common Membership Warrants (792,149 shares)(1)		1.7	1.7
				28.7	28.7
The Hilsinger Company	Health Care Equipment &	Senior Debt (11.5%, Due 5/10)(7)	17.2	17.0	17.0
	Supplies	Subordinated Debt (14.5%, Due 5/12)(7)	13.0	12.9	12.9
				29.9	29.9

92

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
The Tensar Corporation	Construction & Engineering	Senior Debt (11.5%, Due 4/13)(7)	84.0	82.7	82.7
		Subordinated Debt (17.5%, Due 10/13)	20.6	20.3	20.3
				103.0	103.0
Three Sixty Asia, Ltd.(3)	Commercial Services &	Senior Debt (12.3%, Due 9/08)	7.0	7.0	7.0
	Supplies	Common Equity(1)		4.1	—
				11.1	7.0
TransFirst Holdings, Inc.	Commercial Services &	Senior Debt (12.1%, Due 3/11)(7)	13.0	12.9	12.9
	Supplies	Subordinated Debt (15.0%, Due 4/12)(7)	16.4	16.3	16.3
				29.2	29.2
Tyden Caymen Holdings	Electronic Equipment &	Senior Debt (11.8%, Due 11/11)(7)	12.0	11.8	11.8
Corp.	Instruments	Subordinated Debt (13.8%, Due 5/12)(7)	14.5	14.3	14.3
		Common Stock (2,000,000 shares)(1)		2.0	3.2
				28.1	29.3
TZ Holdings, Inc.	Diversified Telecommunication Services	Common Stock (17,544 shares)(1)		1.0	1.0
UAV Corporation	Leisure Equipment &	Junior Subordinated Debt (11.2%, Due 5/10)	9.0	8.9	8.9
	Products	Senior Subordinated Debt (16.3%, Due 5/10)(6)	15.5	14.7	2.6
				23.6	11.5
Unique Fabricating	Auto Components	Senior Debt (11.8%, Due 2/10 – 2/12)(7)	5.9	5.8	5.8
Incorporated		Subordinated Debt (14.9%, Due 2/13)(7)	6.9	6.8	6.8
		Redeemable Preferred Stock (2,500 shares)		2.4	2.4
		Common Stock Warrants (6,350 shares)(1)		0.3	0.3
				15.3	15.3
Vector Products, Inc.	Electronic Equipment & Instruments	Senior Debt (11.8%, Due 9/10)(7)	35.0	34.5	34.5
Visador Holding Corp.	Building Products	Subordinated Debt (15.0%, Due 2/10)(7)	10.6	10.2	10.2
		Common Stock Warrants (4,284 shares)(1)		0.5	1.6
				10.7	11.8
WIL Research Holding	Biotechnology	Subordinated Debt (13.8%, Due 9/11)(7)	15.6	15.4	15.4
Company, Inc.		Redeemable Preferred Stock (5,000,000 shares)		6.0	6.0
		Convertible Preferred Stock (1,210,086 shares)		1.3	1.3
				22.7	22.7
CMBS INVESTMENTS
J.P. Morgan Chase Commercial Mortgage Securities Corp. Series 2005-LDP5	Real Estate	Commercial Mortgage Pass-Through Certificates, (5.0%, Due 12/15)(7)	136.2	78.6	78.6

93

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
CDO INVESTMENTS
Colts 2005-1 Ltd.	Diversified Financial Services	Preferrence Shares (360 shares)		11.0	12.8
Subtotal Non-Control / Non-Affiliate Investments (42% of total investment assets and liabilities at fair value)				2,156.1	2,135.8
AFFILIATE INVESTMENTS
Bankruptcy Management	Commercial Services &	Senior Debt (12.9%, Due 12/10)(7)	18.0	17.7	17.7
Solutions, Inc.	Supplies	Subordinated Debt (15.5%, Due 12/12)(7)	28.0	27.6	27.6
		Common Stock (281,534 shares)(1)		—	6.1
		Common Stock Warrants (101,179 shares)(1)		—	2.2
				45.3	53.6
Compusearch Holdings Company, Inc.	Software	Subordinated Debt (12.0%, Due 6/12)(7)	12.5	12.3	12.3
		Convertible Preferred Stock (40,039 shares)		1.6	1.6
				13.9	13.9
Continental Structural Plastics,	Auto Components	Subordinated Debt (14.0%, Due 2/13)(7)	11.2	11.0	11.0
Inc.		Common Stock (3,000 shares)(1)		0.3	0.3
		Redeemable Preferred Stock (2,700 shares)		2.9	2.9
				14.2	14.2
Edge Products, LLC	Auto Components	Senior Debt (9.3%, Due 3/10)(7)	10.9	10.7	10.7
		Subordinated Debt (12.4%, Due 3/13)(7)	13.6	13.5	13.5
		Common Membership Units (7,620 units)(1)		1.8	2.3
		Common Membership Warrants (13,780 units)(1)		—	1.8
				26.0	28.3
FMI Holdco I, LLC	Road & Rail	Subordinated Debt (13.0%, Due 4/10)(7)	13.5	12.6	12.6
		Common Units (626,085 units)(1)		2.7	2.4
		Preferred Units (410,778 units)(1)		1.7	1.7
				17.0	16.7
Kirby Lester Holdings, LLC	Health Care Equipment &	Senior Debt (10.8%, Due 9/10 – 9/12)(7)	11.8	11.5	11.5
	Supplies	Subordinated Debt (16.0%, Due 9/13)	11.7	11.6	11.6
		Preferred Units (375 units)(1)		0.4	0.4
				23.5	23.5
Marcal Paper Mills, Inc.	Household Products	Common Stock Warrants (209,255 shares)(1)		—	3.5
		Common Stock (209,254 shares)(1)		—	3.5
				—	7.0
Nivel Holdings, LLC	Distributors	Subordinated Debt (14.6%, Due 2/11 – 2/12)(7)	8.8	8.7	8.7
		Preferred Units (900 units)(1)		0.9	0.9
		Common Units (100,000 units)(1)		0.1	0.4
		Common Membership Warrants (41,360 units)(1)		—	0.1
				9.7	10.1

94

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
NPC Holdings, Inc.	Building Products	Senior Debt (11.2%, Due 6/12)(7)	4.5	4.4	4.4
		Subordinated Debt (15.0%, Due 6/13)(7)	8.1	8.0	8.0
		Common Stock (80 shares)(1)		—	—
		Redeemable Preferred Stock (13,275 shares)		9.4	9.4
		Convertible Preferred Stock (13,690 shares)		1.4	1.4
		Convertible Preferred Stock Warrants (43,782 shares)(1)		4.4	4.4
				27.6	27.6
NWCC Acquisitions, LLC	Containers & Packaging	Common Units (309,904 units)(1)		0.3	—
		Redeemable Preferred Units (2,777,419 units)(1)		2.6	2.6
				2.9	2.6
PaR Nuclear Holding Company	Machinery	Common Stock (341,222 shares)(1)		1.1	5.2
Qualitor Component Holdings,	Auto Components	Subordinated Debt (15.0%, Due 12/12)(7)	28.8	28.4	28.4
LLC		Common Units (500,000 units)(1)		0.5	—
		Preferred Units (4,500,000 units)(1)		4.5	3.3
				33.4	31.7
Radar Detection Holdings	Household Durables	Senior Debt (11.5%, Due 11/12)(7)	13.0	13.0	13.0
Corp		Common Stock (69,795 shares)(1)		1.0	9.8
				14.0	22.8
Riddell Holdings, LLC	Leisure Equipment & Products	Common Units (3,044,491 units)(1)		3.1	5.9
Roadrunner Dawes, Inc.	Road & Rail	Subordinated Debt (14.0%, Due 9/12)(7)	17.7	17.5	17.5
		Common Stock (10,000 shares)(1)		10.0	10.0
				27.5	27.5
Roarke—Money Mailer, LLC	Media	Common Membership Interest (6% membership interest)(1)		1.5	3.9
Seroyal Holdings, L.P.(3)	Health Care Equipment &	Senior Debt (15.4%, Due 12/10)(7)	5.8	5.7	5.7
	Supplies	Subordinated Debt (14.5%, Due 12/11)(7)	9.1	8.7	8.7
		Partnership Units (144,552 units)(1)		1.3	1.3
		Redeemable Preferred Partnership Units (57,143 units)(1)		0.7	0.7
				16.4	16.4
TechBooks, Inc.	IT Services	Subordinated Debt (16.3%, Due 8/09)(7)	30.5	30.1	30.0
		Convertible Preferred Stock (4,373,178 shares)(1)		15.0	16.9
				45.1	46.9
The Hygenic Corporation	Health Care Equipment &	Subordinated Debt (15.5%, Due 1/12)(7)	11.0	10.9	10.9
	Supplies	Common Stock (200,000 shares)(1)		1.0	7.0
		Redeemable Preferred Stock (9,000 shares)		10.3	10.3
				22.2	28.2
Trinity Hospice, Inc.	Health Care Providers &	Senior Debt (11.4%, Due 6/06 – 6/07)(7)	16.2	16.1	16.0
	Services	Common Stock (131,399 shares)(1)		—	—
		Redeemable Preferred Stock (131,399 shares)(1)		4.0	—
				20.1	16.0

95

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
Unwired Holdings, Inc.	Household Durables	Senior Debt (12.2%, Due 6/10 – 6/11)(7)	7.6	7.3	7.3
		Subordinated Debt (15.0%, Due 6/12 – 6/13)(7)	15.2	15.0	15.0
		Common Stock (100 shares)(1)		—	—
		Preferred Stock (16,200 shares)(1)		16.2	9.1
		Convertible Preferred Stock (179,901 shares)(1)		1.8	—
				40.3	31.4
WFS Holding, Inc.	Software	Subordinated Debt (14.0%, Due 2/12)(7)	12.2	12.1	12.1
		Convertible Preferred Stock (35,000,000 shares)(1)		3.5	3.5
				15.6	15.6
Subtotal Affiliate Investments (9% of total investment assets and liabilities at fair value)				420.4	449.0
CONTROL INVESTMENTS
3SI Acquisition Holdings, Inc.	Electronic Equipment &	Subordinated Debt (14.8%, Due 10/10 – 11/11)(7)	39.7	39.3	39.3
	Instruments	Common Stock (855 shares)(1)		27.3	55.3
				66.6	94.6
ACAS Wachovia Investments, L.P.	Diversified Financial Services	Partnership Interest, 90% of L.P.		24.2	24.8
Aeriform Corporation	Chemicals	Senior Debt (9.3%, Due 6/08 – 7/08)	23.0	23.0	23.0
		Senior Subordinated Debt (14.0%, Due 5/09)	0.5	0.4	0.4
		Junior Subordinated Debt (0.0%, Due 5/09)(1)	46.2	35.0	1.2
		Common Stock Warrants (1,991,246 shares)(1)		—	—
		Redeemable Preferred Stock (10 shares)(1)		0.1	—
				58.5	24.6
American Decorative Surfaces	Building Products	Senior Debt (8.7%, Due 5/06)(6)	0.4	0.4	—
International, Inc.		Subordinated Debt (7.0%, Due 5/11)(6)	12.1	10.1	—
		Common Stock Warrants (64,868 shares)(1)		—	—
		Convertible Preferred Stock (55,000 shares)(1)		8.2	—
				18.7	—
ASC Industries, Inc.	Auto Components	Subordinated Debt (12.4%, Due 10/10 – 10/11)(7)	20.5	18.7	18.7
		Common Stock Warrants (74,888 shares)(1)		6.5	25.7
		Redeemable Preferred Stock (72,000 shares)		5.1	5.1
				30.3	49.5
Auxi Health, Inc.	Health Care Providers &	Senior Debt (11.3%, Due 12/07)	5.3	5.3	5.3
	Services	Subordinated Debt (13.9%, Due 9/06 – 3/09)	18.6	15.7	15.8
		Subordinated Debt (14.0%, Due 3/09)(6)	8.3	3.2	0.5
		Common Stock Warrants (4,268,905 shares)(1)		2.6	1.8
		Convertible Preferred Stock (13,301,300 shares)(1)		2.7	—
				29.5	23.4
Biddeford Real Estate	Real Estate	Senior Debt (8.0%, Due 5/14)(7)	3.6	3.0	3.0
Holdings, Inc.		Common Stock (100 shares)(1)		0.5	0.5
				3.5	3.5
BPWest, Inc.	Energy Equipment &	Senior Debt (11.8%, Due 7/11)(7)	7.0	6.9	6.9
	Services	Subordinated Debt (15.0%, Due 7/12)(7)	6.1	6.0	6.0
		Redeemable Preferred Stock (7,800 shares)		8.1	8.1
		Common Stock (780,000 shares)(1)		—	—
				21.0	21.0

96

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
Bridgeport International,	Machinery	Senior Debt (12.0%, Due 11/10)	4.6	0.2	0.2
LLC(3)		Common membership units (100 units)(1)		7.0	4.8
				7.2	5.0
Capital.com, Inc.	Diversified Financial Services	Common Stock (8,500,100 shares)(1)		1.5	0.4
Consolidated Utility Services,	Commercial Services &	Subordinated Debt (15.0%, Due 5/10)(7)	6.7	6.6	6.6
Inc.	Supplies	Common Stock (58,906 shares)(1)		—	2.6
		Redeemable Preferred Stock (3,625,000 shares)		3.9	3.9
				10.5	13.1
Cottman Acquisitions, Inc.	Commercial Services &	Subordinated Debt (14.3%, Due 9/11 – 9/12)(7)	15.0	14.2	14.2
	Supplies	Redeemable Preferred Stock (252,020 shares)		18.5	18.5
		Common Stock Warrants (111,965 shares)(1)		11.2	11.1
		Common Stock (65,000 shares)(1)		6.5	3.1
				50.4	46.9
DanChem Technologies, Inc.	Chemicals	Senior Debt (10.3%, Due 12/10)	12.9	12.9	12.9
		Common Stock (427,719 shares)(1)		2.5	—
		Redeemable Preferred Stock (12,953 shares)(1)		10.9	0.9
		Common Stock Warrants (401,622 shares)(1)		2.2	—
				28.5	13.8
ECA Acquisition Holdings,	Health Care Equipment &	Senior Debt (12.6%, Due 4/10 – 4/12)(7)	16.5	16.2	16.2
Inc.	Supplies	Subordinated Debt (16.5%, Due 4/14)(7)	9.8	9.6	9.6
		Common Stock (1,000 shares)(1)		19.0	19.0
				44.8	44.8
eLynx Holdings, Inc.	IT Services	Senior Debt (11.3%, Due 12/09)(7)	8.9	8.8	8.8
		Subordinated Debt (15.0%, Due 12/10 – 12/11)(7)	8.7	8.6	8.6
		Common Stock (9,326 shares)(1)		0.9	0.9
		Redeemable Preferred Stock (17,488 shares)		8.1	8.1
		Common Stock Warrants (108,735 shares)(1)		10.9	10.9
				37.3	37.3
ETG Holdings, Inc.	Containers & Packaging	Senior Debt (11.8%, Due 5/11)(7)	7.4	7.3	7.3
		Subordinated Debt (15.7%, Due 5/12 – 5/13)(7)	11.3	11.1	11.1
		Convertible Preferred Stock (333,145 shares)		16.2	16.2
				34.6	34.6
Euro-Caribe Packing	Food Products	Senior Debt (9.4%, Due 5/06 – 3/08)(7)	8.1	8.1	8.1
Company, Inc.		Subordinated Debt (11.0%, Due 3/08)(6)(7)	7.8	7.7	7.3
		Common Stock Warrants (31,897 shares)(1)		1.1	—
		Convertible Preferred Stock (260,048 shares)(1)		5.7	—
				22.6	15.4

97

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
European Capital Limited(3)	Diversified Financial	Senior Debt (5.5%, Due 3/06)	24.9	24.9	24.9
	Services	Ordinary Shares (100 shares)(1)(8)		—	—
		Participating Preferred Shares (52,074,548 shares)(1)		153.3	153.3
				178.2	178.2
European Touch, LTD. II	Commercial Services &	Senior Debt (9.0%, Due 11/06)(7)	2.3	2.3	2.3
	Supplies	Subordinated Debt (12.4%, Due 11/06)(7)	15.6	14.5	14.5
		Common Stock (2,895 shares)(1)		1.5	6.3
		Redeemable Preferred Stock (450 shares)		0.6	0.5
		Common Stock Warrants (7,105 shares)(1)		3.7	16.2
				22.6	39.8
Flexi-Mat Holding, Inc.	Textiles, Apparel & Luxury	Senior Debt (17.7%, Due 11/09)(7)	4.5	4.5	4.5
	Goods	Subordinated Debt (14.9%, Due 11/10 – 11/11)(7)	12.5	12.4	12.4
		Common Stock (970,583 shares)(1)		9.7	22.2
		Redeemable Preferred Stock (145,000 shares)		11.2	11.2
				37.8	50.3
Fosbel Global Services	Commercial Services &	Senior Debt (8.2%, Due 7/10 – 7/11)(7)	39.5	38.8	38.8
(LUXCO) S.C.A(3)	Supplies	Subordinated Debt (14.3%, Due 7/12 – 7/13)(7)	24.2	23.9	23.9
		Redeemable Preferred Stock (31,647,625 shares)(1)		31.6	34.1
		Convertible Preferred Stock (2,606,275 shares)(1)		5.2	0.1
		Common Stock (186,161 shares)(1)		0.4	—
				99.9	96.9
Future Food, Inc.	Food Products	Senior Debt (12.2%, Due 7/10)(7)	9.9	9.8	9.8
		Subordinated Debt (12.4%, Due 7/11 – 7/12)(7)	14.0	12.7	12.7
		Common Stock (92,738 shares)(1)		18.5	16.5
		Common Stock Warrants (6,500 shares)(1)		1.3	1.2
				42.3	40.2
FutureLogic, Inc.	Computers & Peripherals	Senior Debt (12.0%, Due 2/10 – 2/12)(7)	50.3	49.6	49.6
		Subordinated Debt (15.0%, Due 2/13)(7)	29.8	29.3	29.3
		Common Stock (221,672 shares)(1)		26.7	15.2
				105.6	94.1
Halex Holdings, Inc.	Construction Materials	Senior Debt (11.1%, Due 7/08 – 10/08)(7)	24.4	24.2	24.2
		Subordinated Debt (17.1%, Due 8/10)(7)	29.4	29.2	29.2
		Common Stock (163,083 shares)(1)		6.8	1.0
		Redeemable Preferred Stock (1,000 shares)		14.6	14.6
		Convertible Preferred Stock (145,996 shares)(1)		1.6	1.8
				76.4	70.8
Hartstrings Holdings Corp.	Textiles, Apparel & Luxury	Senior Debt (10.5%, Due 12/10)(7)	14.2	13.9	13.9
	Goods	Subordinated Debt (16.0%, Due 12/10)(7)	5.3	4.9	4.9
		Subordinated Debt (19.0%, Due 12/10)(6)	3.8	3.2	1.5
				22.0	20.3

98

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CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
Hospitality Mints, Inc.	Food Products	Senior Debt (12.2%, Due 11/10)(7)	7.4	7.4	7.4
		Subordinated Debt (12.4%, Due 11/11 – 11/12)(7)	18.5	18.2	18.2
		Convertible Preferred Stock (95,198 shares)		22.3	28.0
		Common Stock Warrants (86,817 shares)(1)		—	0.6
				47.9	54.2
Iowa Mold Tooling Co., Inc.	Machinery	Subordinated Debt (13.0%, Due 10/08)(7)	16.3	15.8	15.9
		Common Stock (426,205 shares)(1)		4.8	2.0
		Redeemable Preferred Stock (23,803 shares)		20.2	29.3
		Common Stock Warrants (530,000 shares)(1)		5.9	4.3
				46.7	51.5
Jones Stephens Corp.	Building Products	Subordinated Debt (16.1%, Due 10/10 – 10/11)(7)	22.5	22.2	22.2
		Common Stock (8,750 shares)(1)		3.5	15.4
		Redeemable Preferred Stock (1,000 shares)(1)		7.0	7.0
		Convertible Preferred Stock (8,750 shares)(1)		3.5	15.0
				36.2	59.6
KAC Holdings, Inc.	Chemicals	Subordinated Debt (16.6%, Due 2/11 – 2/12)(7)	22.8	22.6	22.6
		Common Stock (1,550,100 shares)(1)		1.6	61.0
		Redeemable Preferred Stock (13,950 shares)		16.2	16.2
				40.4	99.8
KIC Holdings, Inc.	Building Products	Senior Debt (12.5%, Due 9/07)(7)	7.5	7.4	7.4
		Subordinated Debt (11.8%, Due 9/08)(7)	3.9	3.7	3.7
		Subordinated Debt (18.3%, Due 9/08)(6)	7.8	7.5	2.8
		Redeemable Preferred Stock (30,356 shares)(1)		16.5	—
		Common Stock (3,761 shares)(1)		5.1	—
		Common Stock Warrants (156,613 shares)(1)		3.1	—
				43.3	13.9
Lifoam Holdings, Inc.	Leisure Equipment &	Senior Debt (9.1%, Due 6/07 – 6/10)(7)	35.4	35.1	35.1
	Products	Subordinated Debt (14.2%, Due 6/11 – 6/12)(7)	22.3	21.9	21.9
		Common Stock (20,000 shares)(1)		2.0	1.0
		Redeemable Preferred Stock (8,800 shares)		6.0	6.0
		Common Stock Warrants (41,164 shares)(1)		4.1	3.3
				69.1	67.3
Logex Corporation	Road & Rail	Senior Subordinated Debt (12.0%, Due 7/08)(7)	23.2	22.1	22.1
		Junior Subordinated Debt (14.0%, Due 7/08)(6)	6.5	4.7	4.1
		Common Stock Warrants (137,839 shares)(1)		7.5	—
		Redeemable Preferred Stock (695 shares)(1)		3.9	—
				38.2	26.2
LVI Holdings, LLC	Commercial Services &	Senior Debt (9.8%, Due 2/10)(7)	4.6	4.5	4.5
	Supplies	Subordinated Debt (18.0%, Due 2/13)(7)	9.5	9.4	9.4
		Preferred Units (800 units)(1)		11.0	15.3
				24.9	29.2
MBT International, Inc.	Distributors	Senior Subordinated Debt (13.0%, Due 5/09)	1.0	0.8	0.8
		Junior Subordinated Debt (9.0%, Due 5/09)(6)	6.3	4.1	3.2
				4.9	4.0

99

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CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
Network for Medical	Commercial Services &	Subordinated Debt (13.0%, Due 12/06)(7)	10.4	9.9	9.9
Communication & Research, LLC	Supplies	Common Membership Warrants (50,128 units)(1)		2.1	25.2
				12.0	35.1
New Piper Aircraft, Inc.	Aerospace & Defense	Senior Debt (9.3%, Due 6/06 – 8/23)	55.0	54.2	54.2
		Subordinated Debt (8.0%, Due 7/13)	0.6	0.1	0.6
		Common Stock (771,839 shares)(1)		0.1	0.9
				54.4	55.7
New Starcom Holdings, Inc.	Construction & Engineering	Subordinated Debt (12.1%, Due 12/08 – 12/09)(7)	33.0	27.9	28.0
		Common Stock (100 shares)(1)		—	—
		Convertible Preferred Stock (32,043 shares)(1)		11.5	17.1
				39.4	45.1
Nspired Holdings, Inc.	Food Products	Senior Debt (9.5%, Due 12/08 – 12/09)	17.4	17.3	17.3
		Subordinated Debt (18.0%, Due 8/07 )(6)(7)	9.6	9.1	4.2
		Common Stock (169,018 shares)(1)		5.0	—
		Redeemable Preferred Stock (29,500 shares)(1)		29.5	—
				60.9	21.5
Optima Bus Corporation	Machinery	Senior Debt (9.2%, Due 6/06 – 1/08)	5.5	5.5	5.5
		Subordinated Debt (10.0%, Due 5/11)(6)	3.8	2.3	2.3
		Common Stock (20,464 shares)(1)		1.9	—
		Convertible Preferred Stock (1,913,015 shares)(1)		16.8	—
				26.5	7.8
PaR Systems, Inc.	Machinery	Subordinated Debt (12.9%, Due 2/10)(7)	4.6	4.6	4.6
		Common Stock (341,222 shares)(1)		1.1	6.6
		Common Stock Warrants (29,205 shares)(1)		—	0.5
				5.7	11.7
Pasternack Enterprises, Inc.	Electrical Equipment	Senior Debt (10.2%, Due 12/09 – 8/11)(7)	34.1	33.6	33.6
		Subordinated Debt (17.4%, Due 5/10 – 8/11)(7)	26.8	26.5	26.4
		Common Stock (98,799 shares)(1)		20.5	20.6
				80.6	80.6
PHI Acquisitions, Inc.	Internet & Catalog Retail	Senior Debt (11.2%, Due 6/12)(7)	10.0	9.9	9.9
		Subordinated Debt (13.7%, Due 6/13)(7)	24.7	24.3	24.3
		Common Stock (69,120 shares)(1)		6.6	6.6
		Redeemable Preferred Stock (62,210 shares)		45.1	45.1
		Common Stock Warrants (199,095 shares)(1)		19.9	19.9
				105.8	105.8
Precitech Holdings, Inc.	Machinery	Senior Debt (11.1%, Due 12/09 – 12/10)(7)	5.3	5.3	5.3
		Senior Subordinated Debt (16.0%, Due 12/11)	2.1	2.1	2.1
		Junior Subordinated Debt (17.0%, Due 12/12)(6)	7.1	5.0	5.3
		Redeemable Preferred Stock (35,807 shares)(1)		7.2	—
		Common Stock (22,040 shares)(1)		2.2	—
		Common Stock Warrants (22,783 shares)(1)		2.3	0.7
				24.1	13.4

100

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/ Notional	Cost	Fair Value
Ranpak Acquisition, Inc.	Containers & Packaging	Senior Subordinated Debt (13.6%, Due 12/12 –12/13)(7)	102.6	101.1	101.1
		Redeemable Preferred Stock (163,025 shares)		109.5	109.5
		Common Stock (181,139 shares)(1)		18.1	18.1
		Common Stock Warrants (541,970 shares)(1)		54.2	54.2
				282.9	282.9
SAV Holdings, Inc.	Commercial Services &	Senior Debt (11.2%, Due 11/11)	17.0	16.5	16.5
	Supplies	Subordinated Debt (14.0%, Due 11/12)	12.0	11.9	11.9
		Redeemable Preferred Stock (26,370 shares)		26.1	26.1
		Common Stock (2,930,000 shares)(1)		2.9	2.9
				57.4	57.4
Sixnet, LLC	Electronic Equipment &	Senior Debt (9.3%, Due 6/10)(7)	11.3	11.2	11.2
	Instruments	Subordinated Debt (17.0%, Due 6/13)(7)	10.0	9.9	9.9
		Membership Units (760 units)(1)		9.5	11.2
				30.6	32.3
Specialty Brands of America,	Food Products	Senior Debt (10.0%, Due 12/06 – 5/11)(7)	25.3	25.1	25.1
Inc.		Subordinated Debt (15.4%, Due 9/08 – 5/13)(7)	22.0	21.8	21.8
		Redeeemable Preferred Stock (209,303 shares)		14.7	14.7
		Convertible Preferred Stock (336,000 shares)		35.2	35.2
		Common Stock (33,916 shares)(1)		3.4	3.4
		Common Stock Warrants (97,464 shares)(1)		9.7	9.7
				109.9	109.9
S-Tran Holdings, Inc.	Road & Rail	Subordinated Debt (12.5%, Due 12/09)(6)	7.5	6.3	1.2
Stravina Holdings, Inc.	Personal Products	Senior Debt (12.2%, Due 1/10 – 4/11)	47.3	47.0	47.0
		Subordinated Debt (17.4%, Due 4/13)(6)	34.5	26.2	4.5
		Common Stock (1,000 shares)(1)		—	—
				73.2	51.5
VP Acquisition Holdings, Inc.	Health Care Equipment &	Senior Debt (8.3%, Due 10/11)(7)	0.5	0.5	0.5
	Supplies	Subordinated Debt (14.5%, Due 10/13 – 10/14)	18.1	17.8	17.8
		Common Stock (33,928 shares)(1)		42.4	42.4
				60.7	60.7
Warner Power, LLC	Electrical Equipment	Senior Debt (11.2%, Due 12/07)	6.6	6.6	6.6
		Subordinated Debt (12.6%, Due 12/06 – 12/07)(7)	5.0	4.5	4.5
		Common Membership Units (47,000 units)(1)		1.6	—
		Common Membership Warrants (916 units)(1)		1.1	0.2
		Redeeemable Preferred Stock (5,012,000 units)(1)		4.2	—
				18.0	11.3
Weber Nickel Technologies,	Machinery	Subordinated Debt (17.7%, Due 2/06 – 9/12)(6)(7)	16.8	16.0	8.5
Ltd.(3)		Common Stock (44,834 shares)(1)		1.2	—
		Redeemable Preferred Stock (14,796 shares)(1)		11.8	—
				29.0	8.5

101

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

December 31, 2005

(in millions, except share data)

Company(4)	Industry	Investments(5)	Principal/  Notional		Cost		Fair Value
WWC Acquisitions, Inc.	Commercial Services &	Senior Debt (11.2%, Due 12/11)(7)		11.4		11.2		11.2
	Supplies	Subordinated Debt (14.2%, Due 12/12 – 12/13)(7)		22.4		22.1		22.1
		Common Stock (4,826,476 shares)(1)(7)				21.2		41.6
						54.5		74.9
Subtotal Control Investments (49% of total investment assets and liabilities at fair value)						2,558.0		2,516.3
INTEREST RATE DERIVATIVE AGREEMENTS
Wachovia Bank, N.A.	Interest Rate Swap—Pay Fixed/ Receive Floating	27 Contracts (4.2%, Expiring 6/06 – 1/14)		817.1		—		12.3
BMO Financial Group	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (4.1%, Expiring 6/10)		10.0		—		0.3
Citibank, N.A.	Interest Rate Swap—Pay Fixed/ Receive Floating	1 Contract (4.6%, Expiring 4/12)		530.0		—		4.4
Wachovia Bank, N.A.	Interest Rate Swaption—Pay Floating/ Receive Fixed	2 Contracts (4.4%, Expiring 4/11 – 2/12)		7.1		—		0.1
Citibank, N.A.	Interest Rate Swaption—Pay Floating/ Receive Fixed	1 Contract (4.6%, Expiring 4/12)		40.0		—		0.5
Wachovia Bank, N.A.	Interest Rate Caps	5 Contracts (Expiring 1/06 - 2/11)		25.4		—		0.5
Subtotal Interest Rate Derivative Agreements (less than 1% of total investment assets and liabilities at fair value)						—		18.1
Total Investment Assets					$	5,134.4	$	5,119.2
INTEREST RATE DERIVATIVE AGREEMENTS
Wachovia Bank, N.A.	Interest Rate Swap—Pay Fixed/ Receive Floating	8 Contracts (5.6%, Expiring 9/07 – 8/09)	$	96.0	$	—	$	(2.0	)
Wachovia Bank, N.A.	Interest Rate Swap—Pay Floating/ Receive Floating	5 Contracts (LIBOR + 2.7%, Expiring 3/06 – 12/09)		106.7		—	$	(0.1	)
Total Investment Liabilities (less than 1% of total investment assets and liabilities at fair value)					$	—	$	(2.1	)

(1) Non-income producing.

(2) Publicly traded 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) Debt security is on non-accrual status and therefore considered non-income producing.

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

(8) As of December 31, 2005, we had funded €128,467 ($153,328) of our equity commitment and had a remaining unfunded equity commitment of €392,278 ($464,614). See Note 15.

102

AMERICAN CAPITAL STRATEGIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except per share data)

Note 1. Organization

American Capital Strategies, Ltd. (which is referred throughout this report as “American Capital”, “we” and “us”) was incorporated in 1986. On August 29, 1997, we completed an initial public offering (“IPO”) and became 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”). On October 1, 1997, we began operations 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 invest in and sponsor management and employee buyouts, invest in private equity sponsored buyouts, provide capital directly to early stage and mature private and small public companies, invest in commercial mortgage backed securities (“CMBS”) and collateralized debt obligation (“CDO”) securities and invest in investment funds managed by us. We are also a publicly traded alternative asset manager. Our primary business objectives are to increase our taxable income, net operating income and net asset value by investing in senior debt, subordinated debt and equity of private and public companies with attractive current yields and/or potential for equity appreciation and realized gains and by investing in our alternative asset manager business.

We are the parent and sole shareholder of American Capital Financial Services, Inc. (“ACFS”) and through ACFS provide advisory, management and other services to businesses, principally our portfolio companies. We are also the parent and sole shareholder of European Capital Financial Services (Guernsey) Limited (“ECFS”), a company incorporated in Guernsey. ECFS is the sole shareholder of European Capital Financial Services Limited, a company incorporated in the United Kingdom. These companies provide fund management services to a European investment fund, which is one of our portfolio companies.

We are headquartered in Bethesda, Maryland, and have offices in New York, San Francisco, Los Angeles, Philadelphia, Chicago, Dallas, Palo Alto, London and Paris.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

Consolidation

Under the investment company rules and regulations pursuant to Article 6 of Regulation S-X and the AICPA Audit and Accounting Guide for Investment Companies, we are precluded from consolidating any entity other than another investment company. An exception to this general principle occurs if the investment company has an investment in a controlled operating company that provides services to the investment company. Our consolidated financial statements include the accounts of controlled operating companies if all or substantially all of the services provided by these operating companies are to us or to portfolio companies in which we have a significant interest. ACFS and ECFS are consolidated operating companies as they are considered to provide all or substantially all of their services to American Capital. If our ownership interest in a portfolio company that a consolidated operating company manages or provides services to were to decrease, the operating subsidiary may no longer provide substantially all of its services directly or indirectly to us, resulting in the deconsolidation of such operating subsidiary at that time. Our investments in other investment companies or funds are recorded as investments in the accompanying consolidated financial statements and are not consolidated.

We also have wholly-owned affiliated statutory trusts that were established to facilitate secured borrowing arrangements whereby assets were transferred to the affiliated statutory trusts and notes were sold by the trusts.

103

AMERICAN CAPITAL STRATEGIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

These transfers of assets to the trusts are treated as secured borrowing arrangements in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, and our consolidated financial statements include the accounts of our affiliated statutory trusts established for secured financing arrangements. We also have established trusts to fund deferred compensation plans for employees. Our consolidated financial statements include the accounts of these trusts. All intercompany accounts have been eliminated in consolidation.

Valuation of Investments

Investments are carried at fair value, as determined in good faith by our Board of Directors. Unrestricted securities that are publicly traded are valued at the closing price on the valuation date. For debt and equity securities of companies that are not publicly traded, or for which we have various degrees of trading restrictions, we prepare an analysis consisting of traditional valuation methodologies to estimate the enterprise value of the portfolio company, including an investment company that is a portfolio company, issuing the securities. The methodologies consist of valuation estimates based on: valuations of comparable public companies, recent sales of comparable companies, discounting the forecasted cash flows of the portfolio company, the liquidation or collateral value of the portfolio company’s assets, third party valuations of the portfolio company, third party sale offers, potential strategic buyer analysis and the value of recent investments in the equity securities of the portfolio company. We weight some or all of the above valuation methods in order to conclude on our estimate of value. In valuing convertible debt, equity or other securities, we value our equity investment based on our pro rata share of the residual equity value available after deducting all outstanding debt from the estimated enterprise value. We value non-convertible debt securities at cost plus amortized original issue discount (“OID”) to the extent that the estimated enterprise value of the portfolio company exceeds the outstanding debt of the portfolio company. If the estimated enterprise value is less than the outstanding debt of the company, we reduce the value of our debt investment beginning with the junior most debt such that the enterprise value less the value of the outstanding debt is zero. If there is sufficient enterprise value to cover the face amount of a debt security that has been discounted due to detachable equity warrants received with that security, that detachable equity warrant will be valued such that the sum of the discounted debt security and the detachable equity warrant equal the face value of the debt security.

For CMBS and CDO securities, we prepare a fair value analysis which is based on a discounted cash flow model that utilizes prepayment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow and comparable yields for similar securities, when available.

Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have been used had a ready market for the securities 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. As of December 31, 2006 and 2005, we did not have any investments that were publicly traded or for which we had various degrees of trading restrictions and therefore all of our investments were determined in good faith by our Board of Directors.

Investment Classification

As required by the 1940 Act, we classify our investments by level of control. As defined in the 1940 Act, “Control Investments” are investments in those companies that we are deemed to “Control”. “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of us, as defined in the 1940 Act, other than Control Investments. “Non-Control/Non-Affiliate Investments” are those that are neither Control

104

AMERICAN CAPITAL STRATEGIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

Investments nor Affiliate Investments. Generally, under the 1940 Act, we are deemed to control a company in which we have invested if we own more than 25% of the voting securities of such company or have greater than 50% representation on its board. We are deemed to be an affiliate of a company in which we have invested if we own between 5% and 25% of the voting securities of such company.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits and highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at cost which approximates fair value.

Restricted Cash

Cash accounts restricted per our credit agreements for collection of interest and principal payments on loans that are securitized and are required to be used to pay interest and principal on securitized debt are classified as restricted cash. In addition, cash accounts restricted as reserves per our credit agreements are classified as restricted cash. Restricted cash is carried at cost which approximates fair value.

Interest and Dividend Income Recognition

Interest income is recorded on the accrual basis to the extent that such amounts are expected to be collected. OID is accreted into interest income using the effective interest method. OID initially represents the value of detachable equity warrants obtained in conjunction with the acquisition of debt securities and loan origination fees that represent yield enhancement. Dividend income is recognized on the ex-dividend date for common equity securities and on an accrual basis for preferred equity securities to the extent that such amounts are expected to be collected or realized. In determining the amount of dividend income to recognize, if any, from cash distributions on common equity securities, we will assess many factors including a portfolio company’s cumulative undistributed income and operating cash flow. Cash distributions from common equity securities received in excess of such undistributed amounts are recorded first as a reduction of our investment and then as a realized gain on investment. We stop accruing interest or dividends on our investments when it is determined that the interest or dividend is not collectible. We assess the collectibility of the interest and dividends based on many factors including the portfolio company’s ability to service our loan based on current and projected cash flows as well as the current valuation of the enterprise. For investments with payment-in-kind (“PIK”) interest and dividends, we base income and dividend accruals on the valuation of the PIK notes or securities received from the borrower. If the portfolio company valuation indicates a value of the PIK notes or securities that is not sufficient to cover the contractual interest or dividend, we will not accrue interest or dividend income on the notes or securities. For CMBS and CDO securities, we recognize income using the effective interest method, using the anticipated yield over the projected life of the investment.

Asset Management and Other Fee Income Recognition

Fees primarily include asset management, portfolio company management, transaction structuring, financing and prepayment fees. Asset management fees represent fees for providing investment advisory services to investment funds. Portfolio company management fees, which are generally recurring in nature, represent amounts received for providing advice and analysis to our middle market portfolio companies. Asset management and portfolio company management fees are recognized as earned provided collection is probable. Transaction structuring and financing fees represent amounts received for structuring, financing and executing transactions and are generally payable only if the transaction closes and are recognized as earned when the transaction is completed. Prepayment fees are recognized as they are received.

105

AMERICAN CAPITAL STRATEGIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments

Realized gain or loss is recorded at the disposition of an investment and is the difference between the net proceeds from the sale and the cost basis of the investment using the specific identification method. We include the fair value of all financial assets received in our net sale proceeds in determining the realized gain or loss at disposition, including anticipated sale proceeds held in escrow at the time of sale. Unrealized appreciation or depreciation reflects the difference between the Board of Directors’ valuation of the investments and the cost basis of the investments. For portfolio investments denominated in a functional currency other than the U.S. dollar, our investment is translated at the exchange rate in effect at the balance sheet date. The resulting translation adjustment is recorded as “Foreign currency translation” in our consolidated statements of operations.

Derivative Financial Instruments

We use derivative financial instruments primarily to manage interest rate risk and also to fulfill our obligation under the terms of our revolving credit facilities and asset securitizations. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for speculative purposes. 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 these instruments 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.

Our derivatives are considered economic hedges that do not qualify for hedge accounting under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. We record the accrual of the periodic interest settlements of interest rate derivatives in net unrealized appreciation or depreciation of investments and subsequently record the amount as a realized gain or loss on investments on the interest settlement date.

Distributions to Shareholders

Distributions to shareholders are recorded on the ex-dividend date.

Income Taxes

We operate to qualify to be taxed as a RIC under the Internal Revenue Code. Generally, a RIC is entitled to deduct dividends it pays to its shareholders from its income to determine “taxable income.” Dividends paid up to one year after the current tax year can be carried back to the prior tax year for determining the dividends paid in such tax year. We have distributed and currently intend to distribute sufficient dividends to eliminate taxable income. We are also subject to a nondeductible federal excise tax if we do not distribute at least 98% of our investment company taxable income in any calendar year and 98% of our capital gain net income for each one-year period ending on October 31.

Our consolidated operating subsidiaries, ACFS and ECFS, are subject to federal, state and local income tax in their respective jurisdictions. We use the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using statutory tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

106

AMERICAN CAPITAL STRATEGIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ from those estimates.

Property and Equipment

Property and equipment are carried at cost and depreciated using the straight-line method over the estimated useful lives of the related assets ranging from three to seven years, or the shorter of the estimated useful life or lease term for leasehold improvements.

Deferred Financing Costs

Financing costs related to long-term debt obligations are deferred and amortized over the life of the debt using either the effective interest method or straight-line method.

Asset Securitizations

The transfer of assets to the affiliated statutory trusts and the related sale of notes by our trusts have been treated as secured borrowing financing arrangements by us under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

Stock-Based Compensation

In 2003, we adopted FASB Statement No. 123, Accounting for Stock-Based Compensation, to account for stock-based compensation plans for all shares granted in 2003 and forward as permitted under FASB Statement No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—An Amendment to FASB Statement No. 123. In applying FASB Statement No. 123 to all stock options granted in 2003 and forward, the estimated fair value of the stock options are expensed pro rata over the vesting period of the options and are included on the accompanying consolidated statements of operations in “Salaries, benefits and stock-based compensation.” In accordance with FASB Statement No. 123, we elected to continue to apply the provisions of Accounting Principle Board Opinion No. 25 Accounting for Stock Issued to Employees to all stock options granted prior to January 1, 2003 and provide pro forma disclosure of our consolidated net operating income and net increase in net assets resulting from operations calculated as if compensation costs were computed in accordance with FASB Statement No. 123.

In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment, a revision to FASB Statement No. 123. FASB Statement No. 123(R) also supersedes APB Opinion No. 25 and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in FASB Statement No. 123(R) is similar to the approach described in FASB Statement No. 123. However, FASB Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. In the first quarter of 2006, we adopted FASB Statement No. 123(R) using the “modified prospective” method. Under the modified prospective method, the consolidated financial statements for prior year interim periods and fiscal years will not reflect any restated amounts.

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(in millions, except per share data)

All of our stock options granted prior to January 1, 2003 that were accounted for under APB Opinion No. 25 and not expensed in our consolidated statements of operations were fully vested as of December 31, 2005 and therefore, no additional stock compensation costs for those stock option grants will be recorded subsequent to the adoption of FASB Statement No. 123(R). When recognizing compensation cost under FASB Statement No. 123, we elected to adjust the compensation costs for forfeitures when the unvested awards were actually forfeited. However, under FASB Statement No. 123(R), we are required to estimate forfeitures of unvested awards when recognizing compensation cost. Upon the adoption of FASB Statement 123(R) on January 1, 2006, we recorded a cumulative effect of a change in accounting principle, net of related tax effects, to adjust compensation cost for the difference in compensation costs recognized in prior periods had forfeitures been estimated during those periods of $1 million, or $0.01 per basic and diluted share. We calculated the compensation costs that would have been recognized in prior periods and for the fiscal year 2006 using an estimated annual forfeiture rate of 6.7%.

The following table summarizes the pro forma effect of stock options granted prior to January 1, 2003 on consolidated net operating income and the net increase in net assets resulting from operations:

	Year Ended December 31,
	2005			2004
Net operating income:
As reported	$	314		$	220
Stock-based compensation, net of tax		(1	)		(3	)
Pro forma	$	313		$	217
Net operating income per common share:
Basic as reported	$	3.16		$	2.88
Basic pro forma	$	3.16		$	2.85
Diluted as reported	$	3.10		$	2.83
Diluted pro forma	$	3.09		$	2.80
Net increase in net assets resulting from operations:
As reported	$	365		$	281
Stock-based compensation, net of tax		(1	)		(3	)
Pro forma	$	364		$	278
Net increase in net assets resulting from operations per common share:
Basic as reported	$	3.68		$	3.69
Basic pro forma	$	3.67		$	3.65
Diluted as reported	$	3.60		$	3.63
Diluted pro forma	$	3.59		$	3.59

The effects of applying FASB Statement No. 123 for pro forma disclosures are not likely to be representative of the effects on reported consolidated net operating income and net increase in net assets resulting from operations for future years.

In November 2005, the FASB issued Staff Position No. 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards (“FSP 123R-3”). We have elected to adopt the alternative

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(in millions, except per share data)

transition method for calculating the tax effects of share-based compensation pursuant to FSP 123R-3. The alternative transition method includes a simplified method to establish the beginning balance of the additional paid-in capital pool related to the effects of employee share-based compensation, which is available to absorb tax deficiencies recognized subsequent to the adoption of FASB Statement No. 123(R).

Concentration of Credit Risk

We place our cash and cash equivalents with major financial institutions and, at times, cash held in checking accounts may exceed the Federal Deposit Insurance Corporation insured limit. Our interest rate derivative agreements are with multiple large commercial financial institutions.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. FASB Statement No. 157 provides enhanced guidance for using fair value to measure assets and liabilities. FASB Statement No. 157 also provides guidance regarding the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. FASB Statement No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. FASB Statement No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. FASB Statement No. 157 is not expected to have a material impact on our consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108 (“SAB 108”). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 requires registrants to quantify misstatements using both the balance sheet and income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 does not change the SEC’s previous guidance in SAB No. 99, Materiality, on evaluating the materiality of misstatements. A registrant applying the new guidance for the first time that identifies material errors in existence at the beginning of the first fiscal year ending after November 15, 2006, may correct those errors through a one-time cumulative effect adjustment to beginning-of-year retained earnings. The cumulative effect alternative is available only if the application of the new guidance results in a conclusion that a material error exists as of the beginning of the first fiscal year ending after November 15, 2006, and those misstatements were determined to be immaterial based on a proper application of the registrant’s previous method for quantifying misstatements. The adjustment should not include amounts related to changes in accounting estimates. The adoption of this bulletin did not have a material impact on our consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Statement shall be effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2006. We will adopt this Interpretation during the first quarter of 2007 as required. The effect of adoption of FIN No. 48 is not expected to have a material impact on our consolidated financial statements.

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(in millions, except per share data)

Note 3. Investments

Investments consist of securities issued by publicly- and privately-held companies consisting of senior debt, subordinated debt, equity warrants, preferred and common equity securities and interest rate derivative agreements. Our debt securities are payable in installments with final maturities generally from 5 to 10 years and are generally collateralized by assets of the borrower. We also make investments in securities that 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 invest in non-investment grade CMBS and CDO securities.

As of December 31, 2006, loans on non-accrual status were $183 million, calculated as the cost plus unamortized OID. As of December 31, 2006, loans, excluding loans on non-accrual status, with a principal balance of $12 million were greater than three months past due. As of December 31, 2005, loans on non-accrual status were $132 million, calculated as the cost plus unamortized OID. As of December 31, 2005, loans, excluding loans on non-accrual status, with a principal balance of $34 million were greater than three months past due.

The composition summaries of our investment portfolio as of December 31, 2006 and 2005 at cost and fair value as a percentage of total investments, excluding derivative agreements, are shown in the following table:

	December 31, 2006		December 31, 2005
COST
Senior debt	32.8	%	29.3	%
Subordinated debt	28.2	%	36.9	%
Preferred equity	15.1	%	17.1	%
Common equity	12.5	%	9.7	%
CMBS & CDO securities	8.5	%	2.2	%
Equity warrants	2.9	%	4.8	%
	December 31, 2006		December 31, 2005
FAIR VALUE
Senior debt	31.1	%	29.5	%
Subordinated debt	26.3	%	35.2	%
Preferred equity	15.2	%	15.2	%
Common equity	15.1	%	12.0	%
CMBS & CDO securities	8.3	%	2.3	%
Equity warrants	4.0	%	5.8	%

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(in millions, except per share data)

We use the Global Industry Classification Standards for classifying the industry groupings of our portfolio companies. The following table shows the portfolio composition by industry grouping at cost and at fair value as a percentage of total investments, excluding derivative agreements:

	December 31, 2006		December 31, 2005
COST
Commercial Services & Supplies	14.3	%	12.9	%
Diversified Financial Services	13.2	%	6.5	%
Real Estate	6.6	%	1.6	%
Healthcare Providers & Services	6.1	%	2.1	%
Food Products	5.8	%	6.0	%
Healthcare Equipment & Supplies	4.7	%	3.8	%
Electrical Equipment	4.2	%	7.4	%
Diversified Consumer Services	4.0	%	—
Construction & Engineering	3.9	%	3.7	%
Containers & Packaging	3.8	%	7.2	%
Auto Components	3.8	%	5.0	%
Household Durables	3.7	%	1.7	%
Leisure Equipment & Products	3.1	%	6.1	%
Building Products	2.8	%	6.1	%
Internet & Catalog Retail	2.8	%	2.1	%
IT Services	1.7	%	2.5	%
Software	1.6	%	2.5	%
Pharmaceuticals	1.5	%	—
Energy Equipment & Services	1.5	%	0.4	%
Oil, Gas & Consumable Fuels	1.5	%	—
Textiles, Apparel & Luxury Goods	1.2	%	2.9	%
Computers & Peripherals	1.2	%	2.1	%
Personal Products	1.2	%	1.8	%
Electronic Equipment & Instruments	0.8	%	3.1	%
Construction Materials	0.8	%	1.5	%
Road & Rail	0.7	%	1.7	%
Distributors	0.6	%	1.0	%
Machinery	0.5	%	3.2	%
Diversified Telecommunication Services	0.5	%	—
Chemicals	0.4	%	2.5	%
Household Products	0.4	%	0.7	%
Media	0.4	%	0.5	%
Aerospace & Defense	0.1	%	1.1	%
Other	0.6	%	0.3	%

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(in millions, except per share data)

	December 31, 2006		December 31, 2005
FAIR VALUE
Commercial Services & Supplies	14.6	%	14.4	%
Diversified Financial Services	14.3	%	6.5	%
Real Estate	6.4	%	1.6	%
Healthcare Providers & Services	6.0	%	1.9	%
Food Products	5.2	%	5.4	%
Electrical Equipment	5.0	%	7.3	%
Healthcare Equipment & Supplies	4.9	%	4.0	%
Diversified Consumer Services	4.1	%	—
Containers & Packaging	4.0	%	7.2	%
Construction & Engineering	3.8	%	3.8	%
Auto Components	3.6	%	5.5	%
Household Durables	3.0	%	1.7	%
Building Products	2.7	%	5.7	%
Internet & Catalog Retail	2.7	%	2.1	%
Oil, Gas & Consumable Fuels	2.7	%	—
Leisure Equipment & Products	2.5	%	5.7	%
Energy Equipment & Services	1.8	%	0.4	%
IT Services	1.7	%	2.6	%
Software	1.6	%	2.5	%
Computers & Peripherals	1.4	%	1.8	%
Pharmaceuticals	1.3	%	—
Textiles, Apparel & Luxury Goods	0.9	%	3.1	%
Electronic Equipment & Instruments	0.8	%	3.8	%
Distributors	0.6	%	1.0	%
Diversified Telecommunication Services	0.6	%	—
Personal Products	0.5	%	1.0	%
Road & Rail	0.4	%	1.4	%
Construction Materials	0.4	%	1.4	%
Machinery	0.4	%	2.5	%
Media	0.4	%	0.5	%
Aerospace & Defense	0.4	%	1.1	%
Household Products	0.3	%	0.8	%
Chemicals	0.2	%	2.7	%
Other	0.8	%	0.6	%

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(in millions, except per share data)

The following table shows the portfolio composition by geographic location at cost and at fair value as a percentage of total investments, excluding CDO and CMBS investments and derivative agreements. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

	December 31, 2006		December 31, 2005
COST
Southwest	25.3	%	22.7	%
Southeast	18.1	%	14.9	%
Mid-Atlantic	17.3	%	21.2	%
International	11.0	%	7.9	%
Northeast	10.9	%	13.3	%
South-Central	9.6	%	6.0	%
North-Central	7.1	%	13.2	%
Northwest	0.7	%	0.8	%

	December 31, 2006		December 31, 2005
FAIR VALUE
Southwest	24.2	%	21.6	%
Mid-Atlantic	17.8	%	22.6	%
Southeast	17.4	%	14.7	%
International	11.7	%	7.3	%
South-Central	10.7	%	5.2	%
Northeast	10.2	%	13.1	%
North-Central	7.4	%	14.7	%
Northwest	0.6	%	0.8	%

Note 4. Borrowings

Our debt obligations consisted of the following as of December 31, 2006 and 2005:

Debt	December 31, 2006		December 31, 2005
Secured revolving credit facility, $1,250 million commitment	$	669	$	593
Unsecured revolving credit facility, $900 million commitment		893		163
Unsecured debt due through September 2011		167		167
Unsecured debt due August 2010		126		126
Unsecured debt due October 2020		75		75
Unsecured debt due February 2011		24		—
TRS Facility, $350 million commitment		296		110
ACAS Business Loan Trust 2002-2 asset securitization		—		6
ACAS Business Loan Trust 2003-1 asset securitization		—		23
ACAS Business Loan Trust 2003-2 asset securitization		—		32
ACAS Business Loan Trust 2004-1 asset securitization		410		410
ACAS Business Loan Trust 2005-1 asset securitization		830		762
ACAS Business Loan Trust 2006-1 asset securitization		436		—
Total	$	3,926	$	2,467

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

The weighted average debt balance for the years ended December 31, 2006 and 2005 was $3,021 million and $1,892 million, respectively. The weighted average interest rate on all of our borrowings, including amortization of deferred financing costs, for the years ended December 31, 2006, 2005 and 2004 was 6.28%, 5.32% and 3.69%, respectively. We are currently in compliance with all of our debt covenants. As of December 31, 2006 and 2005, the fair value of the above borrowings was $3,928 million and $2,466 million, respectively. The fair value of fixed rate debt instruments is based upon market interest rates. The fair value of variable rate debt instruments is assumed to equal cost as the interest rates are considered to be at market.

The expected maturities of our debt obligations as of December 31, 2006 were as follows:

2007	$	353
2008		974
2009		848
2010		311
2011		304
Thereafter		1,136
Total	$	3,926

Revolving Credit Facilities

We, through a consolidated affiliated statutory trust, have a secured revolving credit facility. In October 2006, we amended the secured revolving credit facility to extend the liquidity purchase termination date to October 2007 and increased the commitment to $1,250 million. As amended, our ability to make draws under the facility expires one business day before the liquidity purchase termination date. If the facility is not extended before the liquidity purchase termination date, any principal amounts then outstanding will be amortized over a 24-month period through the commitment termination date in October 2009. As of December 31, 2006, this facility was collateralized by loans and assets from our portfolio companies with a principal balance of $1,008 million. Interest on borrowings under this facility is paid monthly and is charged at either a one-month LIBOR or a commercial paper rate plus a spread of 0.75%. We are also charged an unused commitment fee of 0.13%. The facility contains covenants that, among other things, require us to maintain a minimum net worth and restrict the loans securing the facility to certain dollar amounts, concentrations in certain geographic regions and industries, certain loan grade classifications, certain security interests, and interest payment terms.

We also have an unsecured revolving credit facility with a syndication of lenders. In January 2006, we expanded the committed amount of the facility from $255 million to $310 million as a result of new lender commitments. In May 2006, the facility was amended and restated to add additional new lenders and to increase the available commitments to $900 million. The facility may be expanded through new or additional commitments up to $1,150 million in accordance with the terms and conditions set forth in the related agreement. The facility expires in May 2008 unless extended for an additional 364-day period with the consent of the lenders. Interest on borrowings under the facility is charged at either (i) LIBOR plus the applicable percentage at such time or (ii) the greater of the lender prime rate or the federal funds effective rate plus 50 basis points. We are also charged an unused commitment fee of 0.15%. The amended agreement contains various covenants including limits on annual corporate capital expenditures, maintaining certain unsecured debt ratings and a minimum net worth.

In October 2006, we terminated the $125 million secured revolving credit facility. There were no amounts outstanding under this facility as of December 31, 2005.

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(in millions, except per share data)

Unsecured Debt

In February 2006, we entered into a note purchase agreement to issue €14 million and £3 million of senior unsecured five-year notes to institutional investors in a private placement offering ($24 million as of December 31, 2006). The €14 million Series 2006-A Notes have a fixed interest rate of 5.177% and the £3 million Series 2006-B Notes have a fixed interest rate of 6.565%. Each series matures in February 2011. The note purchase agreement contains customary default provisions.

In September 2005, we entered into a note purchase agreement to issue $75 million of senior unsecured fifteen-year notes to accredited investors in a private placement offering. The unsecured notes have a fixed interest rate of 6.923% through the interest payment date in October 2015 and bear interest at the rate of LIBOR plus 2.65% thereafter and mature in October 2020.

In August 2005, we entered into a note purchase agreement to issue an aggregate of $126 million of long-term unsecured five-year notes to institutional investors in a private placement offering. The unsecured notes have a fixed interest rate of 6.14% and mature in August 2010.

In September 2004, we sold an aggregate $167 million of long-term unsecured five- and seven-year notes to institutional investors in a private placement offering pursuant to a note purchase agreement. The unsecured notes consist of $82 million of senior notes, Series A and $85 million of senior notes, Series B. The Series A notes have a fixed interest rate of 5.92% and mature in September 2009. The Series B notes have a fixed interest rate of 6.46% and mature in September 2011.

Asset Securitizations

In July 2006, we completed a $500 million asset securitization. In connection with the transaction, ACAS Business Loan Trust 2006-1 (“BLT 2006-1”), an indirect consolidated subsidiary, issued $291 million Class A notes, $37 million Class B notes, $73 million Class C notes, $36 million Class D notes and $64 million Class E notes (collectively, the “2006-1 Notes”). The Class A notes, Class B notes, Class C notes and Class D notes were sold to institutional investors and the Class E notes were retained by us. The 2006-1 Notes are secured by loans originated or acquired by us and sold to a wholly-owned consolidated subsidiary, which in turn sold such loans to BLT 2006-1. Through August 2009, BLT 2006-1 may also generally use principal collections from the underlying loan pool to purchase additional loans to secure the 2006-1 Notes. After such time, principal payments on the 2006-1 Notes will generally be applied pro rata to each class of 2006-1 Notes outstanding until the aggregate outstanding principal balance of the loan pool is less than $250 million or the occurrence of certain other events. Payments will then be applied sequentially to the Class A notes, the Class B notes, the Class C notes, the Class D notes and the Class E notes. Subject to continuing compliance with certain conditions, we will remain as servicer of the loans. The Class A notes have an interest rate of three-month LIBOR plus 23 basis points, the Class B notes have an interest rate of three-month LIBOR plus 36 basis points, the Class C notes have an interest rate of three-month LIBOR plus 65 basis points and the Class D notes have an interest rate of three-month LIBOR plus 125 basis points. The loans are secured by loans and assets from our portfolio companies with a principal balance of $500 million as of December 31, 2006. The 2006-1 Notes contain customary default provisions and mature in November 2019 unless redeemed or repaid prior to such date.

In October 2005, we completed a $1,000 million asset securitization. In connection with the transaction, ACAS Business Loan Trust 2005-1 (“BLT 2005-1”), an indirect consolidated subsidiary, issued $435 million Class A-1 notes, $150 million Class A-2A notes, $50 million Class A-2B notes, $50 million Class B notes, $145 million Class C notes, $90 million Class D notes and $80 million Class E notes (collectively, the “2005-1

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(in millions, except per share data)

Notes”). The Class A-1 notes, Class A-2A notes, Class A-2B notes, Class B notes and Class C notes were issued to institutional investors and the Class D notes and Class E notes were retained by us. The 2005-1 Notes are secured by loans originated or acquired by us and sold to a wholly-owned consolidated subsidiary, which in turn sold such loans to BLT 2005-1. Of the $150 million Class A-2A notes, $82 million was drawn upon in 2005 and the balance of $68 million was drawn upon in 2006. Through January 2009, BLT 2005-1 may reinvest any principal collections of its existing loans into purchases of additional loans to secure the 2005-1 Notes. After such time, principal payments on the 2005-1 Notes will be applied first to the Class A-1 notes, Class A-2A notes and Class A-2B notes, next to the Class B notes and then to the Class C notes. Subject to continuing compliance with certain conditions, we will remain as servicer of the loans. The Class A-1 notes have an interest rate of three-month LIBOR plus 25 basis points, the Class A-2A notes have an interest rate of three-month LIBOR plus 20 basis points, the Class A-2B notes have an interest rate of three-month LIBOR plus 35 basis points, the Class B notes have an interest rate of three-month LIBOR plus 40 basis points, and the Class C notes have an interest rate of three-month LIBOR plus 85 basis points. The loans are secured by loans and assets from our portfolio companies with a principal balance of $1,000 million as of December 31, 2006. The 2005-1 Notes contain customary default provisions and mature in July 2019 unless redeemed or repaid prior to such date.

In December 2004, we completed a $500 million asset securitization. In connection with the transaction, ACAS Business Loan Trust 2004-1 (“BLT 2004-1”), an indirect consolidated subsidiary, issued $302 million Class A notes, $34 million Class B notes, $74 million Class C notes, $50 million Class D notes, and $40 million Class E notes (collectively, the “2004-1 Notes”). The Class A notes, Class B notes, and Class C notes were issued to institutional investors and the Class D and Class E notes were retained by us. The 2004-1 Notes are secured by loans originated or acquired by us and sold to a wholly-owned consolidated subsidiary, which in turn sold such loans to BLT 2004-1. Through January 2007, BLT 2004-1 has the option to reinvest any principal collections of its existing loans into purchases of new loans. After such time, payments are first applied to the Class A notes, then to the Class B notes and then to the Class C notes. The Class A notes have an interest rate of three-month LIBOR plus 32 basis points, the Class B notes have an interest rate of three-month LIBOR plus 50 basis points, and the Class C notes have an interest rate three-month LIBOR plus 100 basis points. Subject to continuing compliance with certain conditions, we will remain as servicer of the loans. The loans are secured by loans and assets from our portfolio companies with a principal balance of $500 million as of December 31, 2006. The 2004-1 Notes contain customary default provisions and mature in October 2017 unless redeemed or repaid prior to such date.

In December 2003, we completed a $398 million asset securitization. In connection with the transaction, ACAS Business Loan Trust 2003-2 (“BLT 2003-2”), an indirect consolidated subsidiary issued $258 million Class A notes, $40 million Class B notes, $20 million Class C notes, $40 million Class D notes, and $40 million of Class E notes (collectively, the “2003-2 Notes”). The Class A notes, Class B notes and Class C notes were issued to institutional investors and the Class D notes and Class E notes were retained by us. The 2003-2 Notes were secured by loans originated or acquired by us and sold to a wholly-owned consolidated subsidiary, which in turn sold such loans to BLT 2003-2. Early payments were first applied to the Class A notes, then to the Class B notes and then to the Class C notes. The Class A notes carried an interest rate of one-month LIBOR plus 48 basis points, the Class B notes carried an interest rate of one-month LIBOR plus 95 basis points, and the Class C notes carried an interest rate of one-month LIBOR plus 175 basis points. As of December 31, 2006, there are no notes outstanding and BLT 2003-2 was terminated in June 2006.

In May 2003, we completed a $308 million asset securitization. In connection with the transaction, ACAS Business Loan Trust 2003-1 (“BLT 2003-1”), an indirect consolidated subsidiary, issued $185 million Class A notes, $31 million Class B notes, $23 million Class C notes and $69 million Class D notes (collectively, the

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(in millions, except per share data)

“2003-1 Notes”). The Class A notes, Class B notes and Class C notes were issued to institutional investors and the Class D notes were retained by us. The 2003-1 Notes were secured by loans originated or acquired by us and sold to a wholly-owned consolidated subsidiary, which in turn sold such loans to BLT 2003-1. Early payments were first applied to the Class A notes, then to the Class B notes and then to the Class C notes. The Class C notes consisted of a $17 million tranche of floating rate notes and a $6 million tranche of fixed rate notes. The Class A notes carried an interest rate of one-month LIBOR plus 55 basis points and the Class B notes carried an interest rate of one-month LIBOR plus 120 basis points. The floating rate tranche of the Class C notes carried an interest rate of one-month LIBOR plus 225 basis points and the fixed rate tranche carried an interest rate of 5.14%. As of December 31, 2006, there were no notes outstanding and BLT 2003-1 was terminated in May 2006.

Total Return Swap Facility

We have a total return swap facility (the “TRS Facility”) with Wachovia Bank, N.A. (“Wachovia”) under which we pledge certain of our investments to Wachovia from time to time in exchange for financing. Subject to the terms and conditions of the TRS Facility, we may generally repay and reborrow proceeds and are required to make payments to Wachovia on outstanding borrowings at a rate equal to one-month LIBOR plus 125 basis points. We must also repay all or a portion of any funded amount upon the occurrence of certain events. The TRS Facility commitment was increased from $250 million to $350 million effective December 2006 and is scheduled to terminate December 2007, unless extended. We have accounted for the TRS Facility as a secured financing arrangement with the outstanding borrowed amount included as a debt obligation on the accompanying consolidated balance sheets.

Note 5. Stock Options

We have stock option plans, which provide for the granting of options to employees and non-employee directors to purchase shares of common stock at a price of not less than the fair market value of the common stock on the date of grant.

Employee Stock Option Plans for 2003 to 2006

For our stock option plans approved by our shareholders from 2003 and forward, the plans provide that unless the compensation and corporate governance committee of the Board of Directors determines otherwise, the exercise price of the stock options will be automatically reduced by the amount of any cash dividends paid on our common stock after the option is granted but before it is exercised. Beginning in the second quarter of 2005, the compensation and corporate governance committee determined that it will no longer reduce the exercise price for these stock options by the amount of any cash dividends paid on our common stock unless it receives confirmation from the staff of the Securities and Exchange Commission (“SEC”) that we may do so. Stock options granted under these plans vest over a five-year period and may be exercised for a period of no more than ten years from the date of grant. All of the stock options granted under these plans are non-qualified options. As of December 31, 2006, there are 2.8 million shares available to be granted under these stock option plans.

Employee Stock Option Plans for 2002 and Earlier

Stock options under these plans vest over a three-year period and may be exercised for a period of no more than ten years from the date of grant. Options granted under these plans may be either incentive stock options within the meaning of Section 422 of the Code or non-qualified stock options. As of December 31, 2006, there are 0.1 million shares available to be granted under these stock option plans.

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(in millions, except per share data)

Non-Employee Director Option Plans

Our shareholders approved non-employee director plans in 1998 and 2000, and we subsequently received orders from the SEC authorizing such plans. Our stock option plan approved by our shareholders in 2006 for employees also includes 0.3 million shares available for grant to non-employee directors. However, no such options can be granted until the SEC issues the necessary order authorizing the plan. We filed an application for such an order in June 2006, but we have not received such order as of December 31, 2006. As of December 31, 2006, there have been no stock option grants to non-employee directors under the 2006 plan. Options granted under the director plans are non-qualified stock options. Stock options granted under the director option plans vest over a three-year period and may be exercised for a period of no more than ten years from the date of grant.

Non-Recourse Stock Loans

In 2006, we issued $7 million in non-recourse notes to employees of ECFS to purchase our common stock. The notes bear interest at an applicable federal rate, mature in nine years and are secured by the common stock purchased. Any dividends received on the common stock are required to be applied to interest and principal on the notes. The shares of common stock vest to the employee pro rata over a five year period. We accounted for the issuance of the non-recourse notes as if they were stock option grants. The issuance of the non-recourse notes was recorded as a reduction to capital in excess of par value on the accompanying consolidated balance sheets.

Fair Value Disclosures

The following table reflects the weighted average fair value per option granted during 2006, 2005 and 2004, as well as the weighted average assumptions used in determining those fair values using the Black-Scholes pricing model.

	Year ended December 31,
	2006			2005			2004
Options granted (in millions)		7.1			4.2			2.7	(1)
Fair value on grant date	$	2.93		$	4.95		$	11.49
Dividend yield		8.8	%		9.1	%		0.7	%
Expected volatility		22	%		34	%		38	%
Risk-free interest rate		4.6	%		4.0	%		3.7	%
Expected life (years)		5.1			5.0			5.9

(1) During the year ended December 31, 2004, the fair value of 0.2 million stock option grants was estimated using a dividend yield assumption of 10.7% and the fair value of the remaining 25 million stock option grants was estimated using a dividend yield assumption of 0%.

For our stock option plans approved by our shareholders in 2003 and forward, the plans provide that unless our Compensation and Compliance Committee of the Board of Directors determines otherwise, the exercise price of the stock options will be automatically reduced by the amount of any cash dividends paid on our common stock after the option is granted but before it is exercised. Beginning in 2005, our Compensation and Corporate Governance Committee determined that it would no longer reduce the exercise price of the stock options by the amount of any cash dividends paid on our common stock. Prior to 2005, in determining the fair value of the options under these plans on the date of grant, we assumed that the exercise price of the stock options would be automatically reduced by the amount of any cash dividends paid on our common stock until it is exercised. To incorporate the value of this feature within the fair value of a stock option grant in a Black-Scholes option pricing model, the dividend yield was assumed to be 0%. However, the fair value of these stock options granted in 2004 determined on the date of grant has not been adjusted for this change in the dividend yield assumption in accordance with FASB Statement No. 123(R).

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(in millions, except per share data)

In prior periods, we determined our expected volatility using the Black-Scholes option pricing model based on our historical volatility during the expected term of the option. Beginning in 2006, we determined our expected volatility based on a combination of our historical volatility during the expected term of the option and our implied volatility based on the market prices of traded options of our stock.

Stock Option Activity

A summary of the status of all of our stock option plans as of and for the years ended December 31, 2006 and 2005 is as follows:

	Year Ended December 31, 2006				Year Ended December 31, 2005
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Options outstanding, beginning of year	10.1		$	28.71	7.8		$	24.42
Granted	7.1		$	36.76	4.2		$	36.12
Exercised	(1.8	)	$	24.24	(1.7	)	$	25.67
Canceled and expired	(0.9	)	$	33.23	(0.2	)	$	26.38
Options outstanding, end of year	14.5		$	32.94	10.1		$	28.71
Options exercisable at end of year	2.5		$	28.17	2.4		$	24.68

As of December 31, 2006, the total compensation cost related to non-vested stock option awards not yet recognized was $53 million that has a weighted average period to be recognized of 3.3 years. The intrinsic value of stock options outstanding and exercisable was $192 million and $46 million, respectively, as of December 31, 2006.

As of December 31, 2005 the total compensation cost related to non-vested stock option awards not yet recognized was $59 million that has a weighted average period to be recognized of 3.6 years. The intrinsic value of stock options outstanding and exercisable was $77 million and $28 million, respectively, as of December 31, 2005.

For the years ended December 31, 2006, 2005 and 2004, we recorded stock-based compensation expense attributable to our stock options of $16 million, $14 million and $10 million, respectively. For the years ended December 31, 2006, 2005 and 2004, the intrinsic value of stock options exercised was $29 million, $19 million and $11 million, respectively.

The following table summarizes information about our stock options outstanding at December 31, 2006:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
$17.72 to $21.62	1.1	6.5	$	18.42	0.4	6.5	$	18.51
$21.63 to $26.39	1.7	6.7	$	23.77	0.7	5.9	$	24.29
$26.40 to $32.20	1.4	6.8	$	29.03	0.7	6.2	$	29.15
$32.21 to $38.66	8.5	9.0	$	35.25	0.7	8.8	$	36.13
$38.67 to $44.97	1.8	9.9	$	43.33	—	—	$	—
	14.5	8.4	$	32.94	2.5	6.9	$	28.17

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(in millions, except per share data)

Note 6. Deferred Compensation Plans

In the first quarter of 2006, we established a non-qualified deferred compensation plan (the “Plan”) for the purpose of granting bonus awards to our domestic employees. The Compensation and Corporate Governance Committee of our Board of Directors is the administrator of the Plan. The Plan is funded through a trust (the “Trust”) which is administered by a third-party trustee. The Compensation and Corporate Governance Committee determines cash bonus awards to be granted under the Plan and the terms of such awards, including vesting schedules. The cash bonus awards are invested by the Trust in our common stock by purchasing shares of our common stock on the open market. Awards may vest contingent on the employee’s continued employment and the achievement of performance goals, if any, as determined by the Compensation and Corporate Governance Committee. The Trust provides certain protections of its assets from events other than claims against our assets in the case of bankruptcy.

The Plan does not permit diversification and the cash bonus awards must be settled by the delivery of a fixed number of shares of our common stock. The awards under the Plan are accounted for as a grant of unvested stock. We record stock-based compensation expense based on the fair market value of our stock on the date of grant. The compensation cost for awards with service conditions is recognized using the straight-line attribution method over the requisite service period. The compensation cost for awards with performance and service conditions is recognized using the accelerated attribution method over the requisite service period. The assets and liabilities of the Trust are consolidated in the accompanying consolidated financial statements. Shares of our common stock held by the Trust are accounted for as treasury stock in the accompanying consolidated balance sheets. During the year ended December 31, 2006, we granted awards to employees totaling $122 million. We contributed approximately $115 million of cash to the Trust to acquire 3.3 million shares of our common stock on the open market and 0.1 million canceled shares were reallocated to plan participants to fund a portion of the awards. For the year ended December 31, 2006, we recorded stock-based compensation expense of $19 million attributable to the Plan. As of December 31, 2006, the total compensation cost related to non-vested bonus awards not yet recognized was $95 million and has a weighted average period to be recognized of 4.1 years. We calculated the compensation expense recognized during the year ended December 31, 2006 using an estimated annual forfeiture rate of 6.7%.

A summary of our bonus awards under the Plan as of and for the year ended December 31, 2006 is as follows:

	Shares		Weighted Average Grant Date Fair Value
Non-vested, beginning of period	—		$	—
Granted	3.4		$	35.54
Shares earned under dividend reinvestment plan	0.1		$	35.67
Vested	—		$	—
Canceled and expired	(0.2	)	$	34.13
Non-vested, end of period	3.3		$	35.65

We also have a deferred compensation plan for the benefit of certain European-based employees of ECFS funded through a separate trust (the “European Trust”) administered by a third-party trustee. The European Trust uses the funds provided by us to purchase shares of our common stock on the open market which will vest to the employee pro rata over a five-year period. During the year ended December 31, 2006, the European Trust purchased 0.4 million shares of our common stock on the open market. The expected payment of the deferred compensation liability is recorded as compensation cost pro rata over the requisite service period. The deferred

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(in millions, except per share data)

compensation liability is classified as a liability in our accompanying consolidated balance sheets and is adjusted through compensation cost to reflect changes in the fair value of our common stock of the awards that are vested. Our common stock held by the European Trust is accounted for as treasury stock in the accompanying consolidated balance sheets.

Note 7. Employee Stock Ownership Plan

We maintain an employee stock ownership plan (“ESOP”), in which all our domestic employees participate and which is fully funded on a pro rata basis by us. The plan provides for participants to receive employer contributions of at least 3% of total annual employee compensation, up to certain statutory limitations. Plan participants are fully vested in the employer contributions. For the years ended December 31, 2006, 2005 and 2004, we accrued $2 million, $1 million and $1 million, respectively, in contributions to the ESOP.

We sponsor an employee stock ownership trust to act as the depository of employer contributions to the ESOP as well as to administer and manage the actual trust assets that are deposited into the ESOP.

Note 8. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2006, 2005 and 2004:

	Year Ended December 31,
	2006		2005		2004
Numerator for basic and diluted net operating income per share	$	425	$	314	$	220
Numerator for basic and diluted earnings per share	$	896	$	365	$	281
Denominator for basic weighted average shares		135.1		99.3		76.4
Employee stock options and awards		1.5		1.0		1.0
Shares issuable under forward sale agreements		0.2		1.1		0.2
Denominator for diluted weighted average shares		136.8		101.4		77.6
Basic net operating income per common share	$	3.15	$	3.16	$	2.88
Diluted net operating income per common share	$	3.11	$	3.10	$	2.83
Basic earnings per common share	$	6.63	$	3.68	$	3.69
Diluted earnings per common share	$	6.55	$	3.60	$	3.63

Stock options and unvested stock of approximately 7.2 million, 1.0 million and 0.5 million were not included in the computation of diluted earnings per share for 2006, 2005 and 2004, respectively, either because the respective exercise prices are greater than the average market value of the underlying stock or their inclusion would have been antidilutive.

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(in millions, except per share data)

Note 9. Segment and Geographic Data

Reportable segments are identified by management based on our organizational structure and the business activities from which we earn income. We have determined that we have two primary lines of business: Investing and Asset Management and Advisory.

We derive the majority of our income and net operating income from our Investing segment which primarily invests in senior and subordinated debt and equity of private and public companies with attractive current yields and/or potential for equity appreciation and realized gains. Our Asset Management and Advisory segment provides management services to our portfolio company investments and our alternative asset funds which is conducted through our consolidated operating subsidiaries and certain of our wholly-owned portfolio companies. The results for this segment also include the realized gains and unrealized appreciation of such wholly-owned portfolio companies.

Financial information for our two operating segments is presented in the table below for the years ended December 31, 2006, 2005 and 2004:

	Year ended December 31, 2006
	Investing			Asset Management and Advisory			Consolidated
Interest and dividend income	$	667		$	2		$	669
Asset management other fee income		22			169			191
Total operating income		689			171			860
Interest		190			—			190
Salaries, benefits and stock-based compensation		53			108			161
General and administrative		31			42			73
Total operating expenses		274			150			424
Operating income before income taxes		415			21			436
Provision for income taxes		(4	)		(7	)		(11	)
Net operating income		411			14			425
Net realized gain on investments		157			16			173
Net unrealized appreciation of investments		255			42			297
Cumulative effect of accounting change, net of tax		1			—			1
Net increase in net assets resulting from operations	$	824		$	72		$	896
Total assets	$	8,460		$	149		$	8,609

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(in millions, except per share data)

	Year ended December 31, 2005
	Investing			Asset Management and Advisory			Consolidated
Interest and dividend income	$	426			—		$	426
Asset management other fee income		19			110			129
Total operating income		445			110			555
Interest		101			—			101
Salaries, benefits and stock-based compensation		29			57			86
General and administrative		14			27			41
Total operating expenses		144			84			228
Operating income before income taxes		301			26			327
Provision for income taxes		(2	)		(11	)		(13	)
Net operating income		299			15			314
Net realized gain on investments		36			—			36
Net unrealized appreciation of investments		15			—			15
Net increase in net assets resulting from operations	$	350		$	15		$	365
Total assets	$	5,404		$	45		$	5,449
	Year ended December 31, 2004
	Investing			Asset Management and Advisory			Consolidated
Interest and dividend income	$	271			—		$	271
Asset management other fee income		8			57			65
Total operating income		279			57			336
Interest		37			—			37
Salaries, benefits and stock-based compensation		16			35			51
General and administrative		12			14			26
Total operating expenses		65			49			114
Operating income before income taxes		214			8			222
Provision for income taxes		—			(2	)		(2	)
Net operating income		214			6			220
Net realized loss on investments		(38	)		—			(38	)
Net unrealized appreciation of investments		99			—			99
Net increase in net assets resulting from operations	$	275		$	6		$	281
Total assets	$	3,473		$	18		$	3,491

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(in millions, except per share data)

The following table presents operating income and assets for the years ended December 31, 2006, 2005 and 2004 by geographic location. The geographic location of a portfolio investment is determined by the location of the corporate headquarters of the portfolio company.

	Year Ended December 31,
	2006		2005		2004
Operating income
United States	$	808	$	515	$	323
International		52		40		13
Total operating income	$	860	$	555	$	336
Assets
United States	$	7,731	$	5,063	$	3,347
International		878		386		144
Total assets	$	8,609	$	5,449	$	3,491

Note 10. Commitments

As of December 31, 2006, we had commitments under loan and financing agreements to fund up to $446 million to 56 portfolio companies. 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. The terms of the borrowings and financings subject to commitment are comparable to the terms of other debt and equity securities in our portfolio.

We have non-cancelable operating leases for office space and office equipment. The leases expire over the next fifteen years and contain provisions for certain annual rental escalations. Rent expense for operating leases for the years ended December 31, 2006, 2005 and 2004 was approximately $10 million, $4 million and $3 million, respectively.

Future minimum lease payments under non-cancelable operating leases at December 31, 2006 were as follows:

2007	$	13
2008		14
2009		14
2010		13
2011		12
Thereafter		39
Total	$	105

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

Note 11. Shareholders’ Equity

Our common share activity for the years ended December 31, 2006 and 2005 was as follows:

	Year ended December 31,
	2006		2005
Common shares outstanding at beginning of period	118.9		88.7
Issuance of common stock	29.7		27.6
Issuance of common stock under stock option plans	1.8		1.7
Issuance of common stock under dividend reinvestment plan	0.9		1.1
Purchase of common stock held in deferred compensation trusts	(3.7	)	(0.2	)
Common shares outstanding at end of period	147.6		118.9

Forward Sale Agreements

We periodically complete public offerings where shares of our common stock are sold in which a portion of the shares are offered directly by us and a portion of the shares are sold by third parties, or forward purchasers, in connection with agreements to purchase common stock from us for future delivery dates pursuant to forward sale agreements. The shares of common stock sold by the forward purchasers are borrowed from third party market sources. Pursuant to the forward sale agreements, we are required to sell to the forward purchasers shares of our common stock generally at such times as we elect over a one-year period. On a settlement date, we issue and sell shares of our common stock to the forward purchaser at the then applicable forward sale price. The forward sale price is initially the public offering price of shares of our common stock less the underwriting discount. The forward sale agreements provide that the initial forward sale price per share is subject to daily adjustment based on a floating interest factor equal to the federal funds rate, less a spread, and also is subject to specified decreases on certain dates during the duration of the agreement. The forward sale prices are also subject to decrease if the total cost to the forward purchasers of borrowing our common stock exceeds a specified amount.

Each forward purchaser under a forward sale agreement has the right to accelerate its forward sale agreement and require us to physically settle on a date specified by such forward purchaser if certain events occur, such as (1) in its judgment, it is unable to continue to borrow a number of shares of our common stock equal to the number of shares to be delivered by us under its forward sale agreement, or the cost of borrowing the common stock has increased above a specified amount, (2) we declare any dividend or distribution on shares of our common stock payable in (i) excess of a specified amount, (ii) securities of another company, or (iii) any other type of securities (other than shares of our common stock), rights, warrants or other assets for payment at less than the prevailing market price in such forward purchaser’s judgment, (3) the net asset value per share of our outstanding common stock exceeds a specified percentage of the then applicable forward sales price, (4) our Board of Directors votes to approve a merger or takeover of us or similar transaction that would require our shareholders to exchange their shares for cash, securities, or other property, or (5) certain other events of default or termination events occur.

In accordance with Emerging Issues Task Force (EITF) Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, the forward sale agreements are considered equity instruments that are initially measured at a fair value of zero and reported in permanent equity. Subsequent changes in the fair value are not recognized. The shares of common stock are not considered outstanding until issued. Also, in accordance with EITF Issue No. 03-06, Participating Securities and the Two-Class Method Under FASB Statement No. 128, the forward sale agreements are not considered

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(in millions, except per share data)

participating securities for the purpose of determining basic earnings per share under FASB Statement No. 128, Earnings per Share. However, the dilutive impact of the shares issuable under the forward sale agreements is included in our diluted weighted average shares under the treasury stock method based on the forward sale price deemed to be most advantageous to the counterparties.

As of December 31, 2006, all forward sale agreements have been fully settled.

Equity Offerings

For fiscal years 2006 and 2005, we completed several public offerings of our common stock and entered into several forward sale agreements. The following table summarizes the total shares sold, including shares sold pursuant to the underwriters’ over-allotment options and through forward sale agreements, and the proceeds we received, excluding issuance costs, for the public offerings of our common stock for fiscal years 2006 and 2005:

	Shares Sold	Proceeds, Net of Underwriters’ Discount		Average Price per Share
Issuances under September 2006 forward sale agreement	3.0	$	110	$	36.75
July 2006 public offering	3.0		100		32.78
Issuances under April 2006 forward sale agreements	4.0		133		33.38
April 2006 public offering	9.8		333		33.99
February 2006 public offering	1.0		36		36.10
Issuances under January 2006 forward sale agreements	4.0		137		34.31
January 2006 public offering	0.6		21		34.84
Issuances under November 2005 forward sale agreements	3.5		125		35.66
Issuances under September 2005 forward sale agreements	0.8		26		34.82
Total for the year ended December 31, 2006	29.7	$	1,021	$	34.38
Issuances under November 2005 forward sale agreements	1.5	$	55	$	36.25
November 2005 public offering	3.0		113		36.94
Issuances under September 2005 forward sale agreements	4.8		167		35.23
September 2005 public offering	2.0		72		35.72
Issuances under March 2005 forward sale agreements	8.0		235		29.42
March 2005 public offering	2.0		60		30.11
Issuances under September 2004 forward sale agreements	6.3		178		28.53
Total for the year ended December 31, 2005	27.6	$	880	$	31.93

Undistributed (Distributions in Excess of) Net Realized Earnings

As of December 31, 2006 and 2005, our undistributed (distributions in excess of) net realized earnings determined in accordance with generally accepted accounting principles as reflected on our consolidated balance sheets were comprised of the following:

	December 31, 2006			December 31, 2005
Distributions in excess of net operating income	$	(67	)	$	(34	)
Undistributed net realized gains		155			12
Undistributed (distributions in excess of) net realized earnings	$	88		$	(22	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

Note 12. Interest Rate Derivatives

We use interest rate derivative financial instruments to manage interest rate risk and also to fulfill our obligation under the terms of our revolving credit facilities and asset securitizations. We have established policies and procedures for the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for speculative purposes. 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 these instruments 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.

We have interest rate swap agreements where we generally pay a fixed rate and receive a floating rate based on LIBOR. We also have interest rate swaption agreements where, if exercised, we pay a floating rate based on LIBOR and receive a fixed rate. The fair value and notional amounts of our interest rate derivative agreements are included in the accompanying consolidated schedule of investments.

Periodically, an interest rate swap agreement will also be amended. 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 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.

Note 13. 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 based on our tax fiscal year to our shareholders in a timely manner at least 90% of our investment company taxable income. A RIC is not subject to federal income tax on the portion of the investment company taxable income and capital gains that are distributed to its shareholders. We have distributed and currently intend to distribute sufficient dividends to eliminate investment company taxable income for our tax fiscal years. If we fail to qualify as a RIC in any taxable year, we would be subject to 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. Investment company taxable income differs from net income as defined by generally accepted accounting principles due primarily to temporary and permanent differences in interest and dividend income recognition, fee income recognition, stock-based compensation and other expense recognition, returns of capital and net unrealized appreciation or depreciation. For the fiscal year ended December 31, 2006, we reclassified $4 million of permanent differences from our undistributed net realized earnings to capital in excess of par value.

We are also subject to a nondeductible federal excise tax of 4% if we do not distribute at least 98% of our investment company taxable income in any calendar year and 98% of our taxable capital gains for each one-year period ending on October 31. For the calendar years ended December 31, 2006 and 2005, we did not distribute at least 98% of our investment company taxable income and recorded an excise tax expense of $4 million and $2 million, respectively, which is included in our provision for income taxes on the accompanying consolidated statements of operations. In addition, for the one-year period ending on October 31, 2006, we did not distribute at least 98% of our taxable net long-term capital gains and recorded an excise tax expense of $2 million, which is included in net realized gains on the accompanying consolidated statements of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

We declared dividends of $454 million, $310 million and $222 million, or $3.33, $3.08 and $2.91 per share for the years ended December 31, 2006, 2005 and 2004, respectively. For income tax purposes, our distributions to shareholders were composed of ordinary income for each of the years ended December 31, 2006, 2005 and 2004, respectively.

For the tax year ended September 30, 2006, we had net long-term capital gains of $43 million. We elected to retain such capital gains and pay a federal tax on behalf of our shareholders of $15 million, which is included in net realized gains on the accompanying consolidated statements of operations. For income tax purposes, the $43 million is treated as a deemed distribution to our shareholders. We reclassified the deemed distribution, net of tax, from our undistributed net realized earnings to capital in excess of par value. For the tax years ended September 30, 2005 and 2004, to the extent we had capital gains, they were fully offset by either capital losses or capital loss carry forwards.

The aggregate gross unrealized appreciation of our investments over cost for federal income tax purposes was $633 million and $299 million as of December 31, 2006 and 2005, respectively. The aggregate gross unrealized depreciation of our investments under cost for federal income tax purposes was $441 million and $382 million at December 31, 2006 and 2005, respectively. The net unrealized appreciation over cost was $192 million as of December 31, 2006 and net unrealized depreciation under cost was $83 million at December 31, 2005. The aggregate cost of securities for federal income tax purposes was $7,871 million and $5,200 million as of December 31, 2006 and 2005, respectively.

We obtained a ruling in April 1998 from the IRS which we had requested to clarify the tax consequences of the conversion from taxation under subchapter C to subchapter M of the Code. This ruling was sought by us to avoid incurring a tax liability associated with the unrealized appreciation of assets whose fair market value exceeded their basis immediately prior to conversion. Under the terms of the ruling, we elected to be subject to rules similar to the rules of Section 1374 of the Internal Revenue Code with respect to any unrealized gain inherent in its assets, upon its conversion to RIC status (built-in gain). Generally, this treatment allows deferring recognition of the built-in gain. If we were to divest ourselves of any assets in which we had built-in gains before the end of a ten-year recognition period, we would then be subject to tax on our built-in gain.

Our consolidated taxable operating subsidiaries, ACFS and ECFS, are subject to federal, state and local income tax in their respective jurisdictions. For the fiscal years ended December 31, 2006, 2005 and 2004, the provision for income taxes was comprised of the following:

	Year Ended December 31,
	2006			2005			2004
Current tax expense:
Federal	$	10		$	10		$	6
State		3			3			1
Foreign		1			—			—
Total current tax expense		14			13			7
Deferred tax benefit:
Federal		(5	)		(2	)		(4	)
State		(2	)		—			(1	)
Total deferred tax benefit		(7	)		(2	)		(5	)
Excise tax		4			2			—
Total provision for income taxes	$	11		$	13		$	2

128

AMERICAN CAPITAL STRATEGIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

A reconciliation between the taxes computed at the federal statutory rate and our effective tax rate for our taxable operating subsidiaries for the fiscal years ended December 31, 2006, 2005 and 2004 is as follows:

	Year Ended December 31,
	2006		2005		2004
Federal statutory tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal tax benefit	6.3	%	6.3	%	5.0	%
Valuation allowance for deferred tax assets	2.3	%	0.0	%	(14.2	)%
Foreign tax rate differences	(12.8	)%	(5.0	)%	—	%
Non-deductible compensation	7.3	%	4.1	%	—	%
Permanent differences in revenue recognition	8.8	%	—	%	—	%
Other, net	0.1	%	1.9	%	1.3	%
Effective income tax rate	47.0	%	42.3	%	27.1	%

Deferred income tax balances for our taxable operating subsidiaries reflect the impact of temporary differences between the carrying amount of assets and liabilities and their taxes bases and are stated at tax rates expected to be in effect when taxes are actually paid or recovered. The components of our deferred tax assets and liabilities for our taxable operating subsidiaries as of December 31, 2006 and 2005 were as follows:

	December 31, 2006			December 31, 2005
Deferred tax assets:
Stock-based compensation	$	10		$	6
Allowance for doubtful accounts		3			2
Other		2			—
Total deferred tax assets		15			8
Deferred tax liabilities:
Property & equipment		(1	)		—
Total deferred tax liabilities		(1	)		—
Net deferred taxes	$	14		$	8

Note 14. Related Party Transactions

We have provided loans to employees for the exercise of options under the employee stock option plans. The loans require the current payment of interest at a market rate, have varying terms not exceeding nine years and have been recorded as a reduction of shareholders’ equity. The loans are evidenced by full recourse notes that are due upon maturity or 60 days following termination of employment, and the shares of common stock purchased with the proceeds of the loan are posted as collateral. Interest is charged and paid on such loans at a market rate of interest. If the value of the common stock drops to less than the loan balance, the loan maturity will be accelerated and the collateral foreclosed upon. The employee may avoid acceleration and foreclosure by delivering additional collateral to us. Notes receivable from the sale of common stock were $7 million as of December 31, 2006 and 2005, respectively, and are included in shareholders’ equity in the accompanying consolidated balance sheets.

129

AMERICAN CAPITAL STRATEGIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

Note 15. Investment in European Capital Limited

On September 30, 2005, European Capital Limited (“ECAS”), a company incorporated in Guernsey, closed on an offering of €750 million of equity commitments. We provided €521 million of the equity commitments and third party institutional investors provided €229 million of the remaining equity commitments. ECAS, through its subsidiary, European Capital S.A. SICAR (“ECAS SICAR”), 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. As of December 31, 2006, we have fully funded our equity commitment in the amount of €521 million ($654 million). During 2006 and 2005, we also provided ECAS with senior bridge loan financing of $501 million and $167 million, respectively, which was fully repaid as of December 31, 2006 and 2005, respectively. Our total investment in ECAS at fair value as of December 31, 2006 and 2005 of $751 million and $178 million, respectively, is included as a portfolio investment in our accompanying consolidated balance sheets. As of December 31, 2006, we had a receivable of $20 million due from ECAS for a €0.29 dividend that was declared in December 2006, which is included in other assets in the accompanying consolidated balance sheets.

Our wholly-owned subsidiary ECFS, entered into a services agreement with ECAS and an investment management agreement with ECAS SICAR. Pursuant to the investment management agreement and services agreement, we provide investment advisory and management services to ECAS SICAR and receive a management fee equal to 1.25% of the greater of ECAS SICAR’s weighted average gross assets or €750 million. In addition, ECAS SICAR and ECAS will reimburse us for all costs and expenses incurred by ECFS during the term of the agreement, subject to certain exclusions, including all cost and expenses incurred by us and ECFS for the organization and formation of ECAS SICAR, ECAS and ECFS. For the years ended December 31, 2006 and 2005, we recorded $41 million and $14 million of revenue from these agreements, respectively, consisting of $13 million and $3 million, respectively of management fees and $28 million and $11 million, respectively, for reimbursements of costs and expenses. As of December 31, 2006 and 2005, we had a receivable of $5 million and $10 million, respectively, due from ECAS SICAR and ECAS for management fees and reimbursements of costs and expenses, which is included in other assets in the accompanying consolidated balance sheets.

Also pursuant to the investment management agreement, ECFS received 18.75 million warrants to purchase preferred shares of ECAS representing 20% of ECAS’ preferred shares on a fully-diluted basis. The initial exercise price of the warrants is €10 per share, which is the same per share price that the original investors purchased their preferred shares in the initial offering. The per share exercise price on the warrants has been reduced by dividends declared on the preferred shares and will be reduced to reflect the amount of any future dividends on the preferred shares. In the event that ECAS issues additional preferred shares, ECFS will receive additional warrants to purchase preferred, shares in ECAS SICAR so that at all times the warrants issued to ECFS as manager are not less than 20% of ECAS’ preferred shares on a fully-diluted basis. In the event that ECAS undertakes an initial public offering and legal requirements effectively prevent ECAS from being able to issue additional warrants to ECFS, then ECAS will pay ECFS an incentive management fee in cash. The incentive management fee would be subject to a cumulative hurdle rate of 2% per quarter of ECAS SICAR’s pre-incentive fee net income as a return on quarterly average net asset value, determined on a cumulative basis through the end of quarter. The incentive management fee, if any, would be earned and payable as follows: (i) no incentive management fee in any calendar quarter in which ECAS SICAR’s pre-incentive fee net income does not exceed the cumulative hurdle rate or (ii) 100% of the amount of ECAS SICAR’s pre-incentive management fee net income, if any, that exceeds the cumulative hurdle rate but is less than 2.5% per quarter, plus 20% of the amount of ECAS SICAR’s pre-incentive fee net income, if any, that is equal to or exceeds 2.5%.

130

AMERICAN CAPITAL STRATEGIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

ECAS intends to provide liquidity opportunities to its minority shareholders. In order to provide its minority shareholders with liquidity, the minority shareholders may have the right, in the event that a liquidity event has not been provided within three years of the initial close, to put, subject to applicable law, 50% of their preferred shares to ECAS at fair market value. In the event that a liquidity event has not been provided within four years of the initial close, the minority shareholders may put, subject to applicable law, 100% of their preferred shares to ECAS at fair market value. If ECAS is unable to fulfill its obligations to redeem the shares, then (i) ECAS will suspend all future dividends to us until such shares are redeemed, (ii) minority investors other than us will have the right to designate a substantial minority of the board of directors of ECAS, and (iii) in the event that ECAS does not redeem such shares by the second put date then the minority investors other than us will have the right to designate a majority of the board of directors of ECAS.

Note 16. Sale of Investments to American Capital Equity I, LLC

On October 1, 2006, we entered into a purchase and sale agreement with American Capital Equity I, LLC (“ACE I”) for the sale of 30% of our equity investments (other than warrants issued with debt investments) in 96 portfolio companies to ACE I. ACE I is a newly established private equity fund with $1 billion of equity commitments from third party investors. The aggregate purchase price was $671 million, subject to certain adjustments. ACE I will co-invest with us in an amount equal to 30% of our future equity investments until the $329 million remaining commitment is exhausted.

A wholly-owned portfolio company, American Capital Equity Management, LLC (“ACEM”) will manage ACE I in exchange for a 2% annual management fee on the net cost basis of ACE I and a 10% to 30% carried interest in the net profits of ACE I, subject to certain hurdles. ACEM does not have any employees and all services of ACEM are conducted by our employees in exchange for a fee that is paid by ACEM.

We recorded a total net realized gain of $59 million upon the sale of the $671 million of investments. In accordance with FASB Statement No. 140, we included in our sale proceeds the estimated fair value of the management agreement associated with the $671 million of investments sold. The fair value of this portion of the contract was estimated to be $16 million and was treated as being contributed to ACEM and established our cost basis in our investment in ACEM. As a result, our $59 million of net realized gain on the transaction includes $16 million of a realized gain for the value of a portion of the management agreement received as sale proceeds.

We do not have an economic interest in ACE I. We have provided ACE I with a $60 million bridge loan facility for temporary financing purposes. As of December 31, 2006, there are no amounts outstanding under the bridge loan facility.

131

AMERICAN CAPITAL STRATEGIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

Note 17. Selected Quarterly Data (Unaudited)

The following tables present our quarterly financial information for the fiscal years ended December 31, 2006 and 2005:

	Three Months Ended								Year Ended December 31, 2006
	March 31, 2006		June 30, 2006		September 30, 2006		December 31, 2006
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Total operating income	$	173	$	212	$	231	$	244	$	860
Net operating income (“NOI”)	$	93	$	109	$	110	$	113	$	425
Net increase in net assets resulting from operations	$	162	$	290	$	132	$	312	$	896
NOI per common share, basic	$	0.77	$	0.82	$	0.78	$	0.78	$	3.15
NOI per common share, diluted	$	0.77	$	0.81	$	0.77	$	0.76	$	3.11
Earnings per common share, basic	$	1.35	$	2.18	$	0.93	$	2.15	$	6.63
Earnings per common share, diluted	$	1.34	$	2.16	$	0.92	$	2.10	$	6.55
Basic shares outstanding		119.9		133.3		141.6		145.2		135.1
Diluted shares outstanding		121.1		134.2		143.3		148.4		136.8
	Three Months Ended								Year Ended December 31, 2005
	March 31, 2005		June 30, 2005		September 30, 2005		December 31, 2005
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Total operating income	$	101	$	132	$	149	$	173	$	555
NOI	$	64	$	73	$	86	$	91	$	314
Net increase in net assets resulting from operations	$	112	$	79	$	94	$	80	$	365
NOI per common share, basic	$	0.71	$	0.78	$	0.84	$	0.82	$	3.16
NOI per common share, diluted	$	0.70	$	0.76	$	0.82	$	0.80	$	3.10
Earnings per common share, basic	$	1.25	$	0.84	$	0.92	$	0.72	$	3.68
Earnings per common share, diluted	$	1.22	$	0.82	$	0.90	$	0.71	$	3.60
Basic shares outstanding		89.5		93.9		102.4		111.0		99.3
Diluted shares outstanding		91.4		96.7		104.5		112.6		101.4

132

AMERICAN CAPITAL STRATEGIES, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions, except per share data)

Note 18. Subsequent Event

In January 2007, we completed a public offering in which 6.3 million shares of our common stock, excluding an underwriters’ over-allotment of 0.9 million shares, were sold at a public offering price of $45.83 per share. Of those shares, 4.3 million were offered directly by us and 2.0 million shares were sold by third parties in connection with agreements to purchase common stock from us for future delivery dates pursuant to forward sale agreements (the “January 2007 Forward Sale Agreements”). Upon completion of the offering, we received proceeds, net of the underwriters’ discount and closing costs, of $231 million in exchange for 5.2 million shares of common stock which includes the underwriter’s over-allotment of 0.9 million shares.

The remaining 2.0 million shares of common stock were borrowed from third party market sources by the counterparties, or forward purchasers, of the January 2007 Forward Sale Agreement who then sold the shares to the public. Pursuant to the January 2007 Forward Sale Agreements, we must sell to the forward purchasers 2.0 million shares of our common stock generally at such times as we elect over a one-year period. The January 2007 Forward Sale Agreements provides for settlement date or dates to be specified at our discretion within the duration of the January 2007 Forward Sale Agreements through termination in January 2008. On a settlement date, we will issue shares of our common stock to the applicable forward purchaser at the then applicable forward sale price. The forward sale price was initially $44.11 per share, which was the public offering price of shares of our common stock less the underwriting discount. The January 2007 Forward Sale Agreements provide that the initial forward sale price per share will be subject to daily adjustment based on a floating interest factor equal to the federal funds rate, less a spread, and will be subject to a decrease by $0.89, $0.91, $0.92, and $0.96 on each of March 2, 2007, June 1, 2007, September 7, 2007 and December 7, 2007, respectively. The forward sale price will also be subject to decrease if the cost to the forward purchasers of borrowing our common stock exceeds a specified amount.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. 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 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 SEC Act of 1934, 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.

We, 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 December 31, 2006. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Management’s Report on Internal Control over Financial Reporting is included in “Item 8.—Financial Statements and Supplementary Data”.

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 year ended December 31, 2006.

ITEM 9B. OTHER INFORMATION

None.

134

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information in response to this Item is incorporated herein by reference to the information provided in our Proxy Statement for our 2007 Annual Meeting of Stockholders (the “2007 Proxy Statement”) under the headings “PROPOSAL 1: ELECTION OF DIRECTORS”, “REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE”, “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” and “CODE OF ETHICS AND CONDUCT”.

ITEM 11. EXECUTIVE COMPENSATION

Information in response to this Item is incorporated herein by reference to the information provided in the 2007 Proxy Statement under the heading “COMPENSATION OF DIRECTORS AND NAMED EXECUTIVE OFFICERS”.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information in response to this Item is incorporated herein by reference to the information provided in the 2007 Proxy Statement under the heading “SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS”.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in response to this Item is incorporated herein by reference to the information provided in the 2007 Proxy Statement under the heading “CERTAIN TRANSACTIONS”.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information in response to this Item is incorporated herein by reference to the information provided in the 2007 Proxy Statement under the heading “REPORT OF AUDIT AND COMPLIANCE COMMITTEE” and “PROPOSAL 6: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS”.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) List of documents filed as part of this report:

(1) The following financial statements are filed herewith:

• Consolidated Balance Sheets as of December 31, 2006 and 2005

• Consolidated Statements of Operations for the Fiscal Years Ended December 31, 2006, 2005 and 2004

• Consolidated Statements of Changes in Net Assets for the Fiscal Years Ended December 31, 2006 and 2005

• Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2006, 2005 and 2004

• Consolidated Financial Highlights for the Fiscal Years Ended December 31, 2006, 2005, 2004, 2003 and 2002

• Consolidated Schedule of Investments as of December 31, 2006 and 2005

135

(2) The following financial statement schedules are filed herewith:

• Schedule 12-14 Investments in and Advances to Affiliates

(3) The following exhibits are filed herewith or incorporated herein by reference

Exhibit	Description
*3.1.	American Capital Strategies, Ltd. Second Amended and Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 2.a of the Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 filed on August 12, 1997 (File No. 333-29943), as amended by a certain Certificate of Amendment, incorporated herein by reference to Exhibit 3.1 of Form 10-K for the year ended December 31, 1999, filed March 29, 2000, as further amended by a Certificate of Amendment No. 2 in the form filed as Appendix I to the Definitive Proxy Statement for the 2000 Annual Meeting filed on April 5, 2000 and as further amended by a Certificate of Amendment No. 3 dated as of May 4, 2004, incorporated herein by reference to Exhibit 2.a of the Pre-Effective Amendment to the Registration Statement on Form N-2 (File No. 333-113859), filed on May 6, 2004.
*3.2.	American Capital Strategies, Ltd. Second Amended and Restated Bylaws, incorporated herein by reference to Exhibit 2.b of the Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-29943), filed on August 12, 1997.
*4.1.	Instruments defining the rights of holders of securities: See Article IV of our Second Amended and Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 2.a of the Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-29943), filed on August 12, 1997.
*4.2.	Instruments defining the rights of holders of securities: See Section I of our Second Amended and Restated Bylaws, incorporated herein by reference to Exhibit 2.b of the Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-29943), filed on August 12, 1997.
*10.1.	Underwriting Agreement, dated January 5, 2006, between American Capital Strategies, Ltd. and Wachovia Capital Markets, LLC, incorporated by reference herein to Exhibit 1.0 of Form 8-K dated January 11, 2006.
*10.2.	Forward Sale Agreement, dated January 5, 2006 by and among American Capital Strategies, Ltd. and Wachovia Bank, National Association and its affiliate, Wachovia Capital Markets, LLC, solely as agent for Wachovia Bank, National Association, incorporated by reference herein to Exhibit 1.1 of Form 8-K dated January 11, 2006.
*10.3.	Note Purchase Agreement by and among American Capital Strategies, Ltd., The Prudential Assurance Company Limited (PAC), Panther CDO III B.V. and Panther CDO I B.V., dated February 9, 2006, incorporated by reference herein to Exhibit 10.1 of Form 8-K dated February 15, 2006.
*10.4.	Fixed Rate Senior Note, Series 2006-A, due February 9, 2011 in the principal amount of 10,000,000 Euro made by American Capital Strategies, Ltd. in favor of The Prudential Assurance Company Limited (PAC), dated February 9, 2006, incorporated by reference herein to Exhibit 10.2 of Form 8-K dated February 15, 2006.
*10.5.	Fixed Rate Senior Note, Series 2006-A, due February 9, 2011 in the principal amount of 4,000,000 Euro made by American Capital Strategies, Ltd. in favor of Panther CDO III B.V., dated February 9, 2006, incorporated herein by reference to Exhibit 10.3of Form 8-K dated February 15, 2006.
*10.6.	Fixed Rate Senior Note, Series 2006-B, due February 9, 2011 in the principal amount of 3,000,000 Sterling made by American Capital Strategies, Ltd. in favor of Panther CDO I B.V., dated February 9, 2006, incorporated herein by reference to Exhibit 10.4 of Form 8-K dated February 15, 2006.

136

Exhibit	Description
*10.7.	Underwriting Agreement, dated March 29, 2006, by and among American Capital Strategies, Ltd., Citigroup Global Markets Inc. and Wachovia Capital Markets, LLC as representatives of the several underwriters listed on Exhibit A attached thereto, incorporated herein by reference to Exhibit 1.0 of Form 8-K dated April 4, 2006.
*10.8.	Forward Sale Agreement, dated March 29, 2006, by and between American Capital Strategies, Ltd. and Citigroup Global Markets Inc., incorporated herein by reference to Exhibit 1.1 of Form 8-K dated April 4, 2006.
*10.9.	Forward Sale Agreement, dated March 29, 2006, by and among American Capital Strategies, Ltd. and Wachovia Bank, National Association and its affiliate, Wachovia Capital Markets, LLC, solely as agent for Wachovia Bank, National Association, incorporated herein by reference to Exhibit 1.2 of Form 8-K dated April 4, 2006.
*†10.10.	Employment Agreement between American Capital Strategies, Ltd. and Brian Graff, dated as of April 19, 2006, incorporated by reference to Exhibit 10.9 of Form 10-Q filed on May 10, 2006.
*10.11.	First Amended and Restated Credit Agreement, dated May 25, 2006, by and among American Capital Strategies, Ltd., Wachovia Bank, National Association, Branch Banking and Trust Company, Wachovia Capital Markets, LLC, BB&T Capital Markets, Citicorp North America, Inc., JPMorgan Chase Bank, N.A., Bank of Montreal, Fortis Capital Corp., Dresdner Bank AG, New York and Cayman Island Branches, Credit Suisse, Cayman Islands Branch, HSBC Bank USA, N.A., Bank of America, N.A., UBS Loan Finance LLC, WestLB AG, New York Branch, Bayerische Hypo-Und Vereinsbank AG, Royal Bank of Canada, Calyon Americas, Bear Stearns Corporate Lending Inc., PNC Bank, National Association, Fifth Third Bank, Union Bank of California, N.A., Regions Bank, Wells Fargo Bank, N.A., Chevy Chase Bank, Societe Generale and Sovereign Bank, incorporated herein by reference to Exhibit 10.1 of Form 8-K dated June 1, 2006.
*10.12.	Form of American Capital Strategies, Ltd. 2006 Employee Stock Option Plan incorporated by reference to Exhibit I to the Definitive Proxy Statement for the 2006 Annual Meeting, filed on April 11, 2006.
*10.13.	Form of Amended and Restated American Capital Incentive Bonus Plan incorporated by reference to Exhibit II to the Definitive Proxy Statement for the 2006 Annual Meeting, filed on April 11, 2006.
*10.14.	Amendment No. 2 to Third Amended and Restated Loan Funding and Servicing Agreement, dated as of August 7, 2006, incorporated herein by reference to Exhibit 10.1 of Form 10-Q filed on November 9, 2006.
*10.15.	Amended and Restated Trust Agreement by and among ACAS Business Loan LLC, 2006-1, as the Trust Depositor, M&T Trust Company of Delaware, as the Owner Trustee, Certificate Registrar, and Paying Agent, and American Capital Strategies, Ltd., as the Servicer, dated July 28, 2006, incorporated herein by reference to Exhibit 10.2 of Form 10-Q filed on November 9, 2006.
*10.16.	ACAS Transfer Agreement between American Capital Strategies, Ltd., as the Originator, and ACAS Business Loan LLC, 2006-1, as the Trust Depositor, dated July 28, 2006, incorporated herein by reference to Exhibit 10.3 of Form 10-Q filed on November 9, 2006.
*10.17.	Transfer and Servicing Agreement by and among ACAS Business Loan Trust 2006-1, as the Issuer, ACAS Business Loan LLC, 2006-1, as the Trust Depositor, American Capital Strategies, Ltd., as the Originator and Servicer, and Wells Fargo Bank, National Association, as the Indenture Trustee and the Backup Servicer, dated July 28, 2006, incorporated herein by reference to Exhibit 10.4 of Form 10-Q filed on November 9, 2006.
*10.18.	Indenture, by and between ACAS Business Loan Trust 2006-1, as the Issuer, and Wells Fargo Bank, National Association, as the Indenture Trustee, dated July 28, 2006, incorporated herein by reference to Exhibit 4.5 of Form 10-Q filed on November 9, 2006.

137

Exhibit	Description
*10.19.	American Capital Strategies, Ltd. Disinterested Director Retention Plan, incorporated herein by reference to Exhibit 10.1 of Form 8-K dated August 2, 2006.
*10.20.	Purchase and Sale Agreement, dated October 1, 2006, by and among American Capital Strategies, Ltd. and American Capital Equity I, LLC, incorporated herein by reference to Exhibit 10.1 of Form 8-K, dated October 5, 2006.
10.21.	Amendment No. 3 to Third Amended and Restated Loan Funding and Servicing Agreement among ACS Funding Trust I, American Capital Strategies, Ltd., Variable Funding Capital Corporation, Citigroup Global Markets Realty Corp., Wachovia Capital Markets, LLC, YC SUSI Trust, Bank of America, National Association, JPMorgan Chase Bank, N.A., Wachovia Bank, National Association, and Wells Fargo Bank, National Association, dated October 5, 2006, filed herewith.
*10.22.	Amended, Restated and Substituted Swingline Note in the amount of $31,000,000 made by American Capital Strategies, Ltd. in favor of Wachovia Bank, National Association, dated as of January 6, 2006, incorporated herein by reference to Exhibit 10.21 of Form 10-K, filed March 13, 2006.
*14.0.	American Capital Strategies, Ltd. Code of Ethics and Conduct, incorporated herein by reference to Exhibit 2.r of the Registration Statement on Form N-2 (File No. 333-113859), filed March 23, 2004 and American Capital Strategies, Ltd. Personal Investments Code, incorporated herein by reference to Exhibit 2.r of Pre-Effective Amendment No. 1 to Registration Statement on Form N-2 (File No. 333-125278), filed July 29, 2005.
21.	Subsidiaries of the Company and jurisdiction of incorporation:
	1) American Capital Financial Services, Inc., a Delaware corporation
	2) ACS Funding Trust I, a Delaware statutory trust
	3) ACS Funding Trust II, a Delaware statutory trust
	4) ACAS Business Loan LLC, 2004-1, a Delaware limited liability company
	5) ACAS Business Loan Trust 2004-1, a Delaware statutory trust
	6) ACAS Business Loan LLC, 2005-1, a Delaware limited liability company
	7) ACAS Business Loan Trust 2005-1, a Delaware statutory trust
	8) ACAS Business Loan LLC, 2006-1, a Delaware limited liability company
	9) ACAS Business Loan Trust 2006-1, a Delaware statutory trust
	10) European Capital Financial Services (Guernsey) Limited, a Guernsey holding company
	11) European Capital Financial Services Limited, a private limited company incorporated in the United Kingdom
23.	Consent of Ernst & Young LLP, filed herewith
24.	Powers of Attorneys of directors and officers, filed herewith
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

† Management contract or compensatory plan

(b) Exhibits

See the exhibits filed herewith.

(c) Additional financial statement schedules

NONE

138

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 STRATEGIES, LTD.
By:	/s/    JOHN R. ERICKSON
	John R. Erickson
	Executive Vice President and Chief Financial Officer

Date: March 1, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
* Malon Wilkus	Chairman, President and Chief Executive Officer	March 1, 2007
/s/    JOHN R. ERICKSON         John R. Erickson	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 1, 2007
* Mary C. Baskin	Director	March 1, 2007
* Neil M. Hahl	Director	March 1, 2007
* Philip R. Harper	Director	March 1, 2007
* John A. Koskinen	Director	March 1, 2007
* Stan Lundine	Director	March 1, 2007
* Kenneth D. Peterson, Jr.	Director	March 1, 2007
* Alvin N. Puryear	Director	March 1, 2007

*By:	/s/    JOHN R. ERICKSON
	John R. Erickson Attorney-in-fact

139

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of American Capital Strategies, Ltd.

We have audited the consolidated financial statements of American Capital Strategies, Ltd. as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2006, and the consolidated financial highlights for each of the five years in the period ended December 31, 2006, and have issued our report thereon dated February 27, 2007 (included elsewhere in the Form 10-K). Our audits also included the schedule 12-14. The schedule 12-14 is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.

In our opinion, the schedule 12-14 referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

McLean, Virginia

February 27, 2007

140

Schedule 12-14

AMERICAN CAPITAL STRATEGIES, LTD.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(in millions)

Company (1)	Investments	Amount of Interest or Dividends			December 31, 2005 Value		Gross Additions (4)		Gross Reductions (5)		December 31, 2006 Value
		Credited to Income (2)		Other(3)
CONTROL INVESTMENTS
3SI Acquisition Holdings, Inc.	Subordinated Debt	$	—		$	39.3	$	0.2	$	39.5	$	—
	Common Stock		—			55.3		—		55.3		—
			—			94.6		0.2		94.8		—
ACAS Equity Holdings Corp.	Common Units		—			—		22.8		—		22.8
ACAS Wachovia Investments, L.P.	Partnership Interest		3.6			24.8		3.5		7.0		21.3
ACSAB, LLC	Subordinated Debt		2.3			—		30.4		—		30.4
	Convertible Preferred Membership Units		—			—		140.0		11.8		128.2
			2.3			—		170.4		11.8		158.6
Aeriform Corporation	Senior Debt		1.5			23.0		0.3		23.3		—
	Subordinated Debt		3.6			1.6		36.9		35.8		2.7
	Redeemable Preferred Stock		—			—		0.1		0.1		—
	Common Stock Warrants		—			—		—		—		—
			5.1			24.6		37.3		59.2		2.7
American Capital Asset Management, LLC	Common Membership		—			—		—		—		—
American Capital Equity Management, LLC	Common Membership		1.7			—		36.0		—		36.0
American Driveline Systems,	Senior Debt		1.6			—		66.3		61.0		5.3
Inc.	Subordinated Debt		4.8			14.2		57.7		32.1		39.8
	Redeemable Preferred Stock		5.1			18.5		45.1		32.4		31.2
	Common Stock		—			3.1		20.1		5.6		17.6
	Common Stock Warrants		—			11.1		25.2		8.5		27.8
			11.5			46.9		214.4		139.6		121.7
American Decorative Surfaces	Senior Debt		—			—		0.4		0.4		—
International, Inc.	Subordinated Debt		—			—		10.1		10.1		—
	Convertible Preferred Stock		—			—		8.2		8.2		—
	Common Stock Warrants		—			—		—		—		—
			—			—		18.7		18.7		—
ASC Industries, Inc.	Subordinated Debt		1.2			18.7		—		18.7		—
	Redeemable Preferred Stock		0.2			5.1		0.3		5.4		—
	Common Stock Warrants		—			25.7		—		25.7		—
			1.4			49.5		0.3		49.8		—

141

Company (1)	Investments	Amount of Interest or Dividends			December 31, 2005 Value	Gross Additions (4)	Gross Reductions (5)	December 31, 2006 Value
		Credited to Income (2)	Other(3)
Auxi Health, Inc.	Senior Debt	0.8	$	—	5.3	—	—	5.3
	Subordinated Debt	1.0		0.7	16.3	3.1	7.7	11.7
	Convertible Preferred Stock	—		—	—	1.1	1.1	—
	Common Stock Warrants	—		—	1.8	0.8	2.6	—
		1.8		0.7	23.4	5.0	11.4	17.0
Biddeford Real Estate	Senior Debt	0.1			3.0	—	3.0	—
Holdings, Inc.	Common Stock	—			0.5	—	0.5	—
		0.1			3.5	—	3.5	—
BPWest, Inc.	Senior Debt	1.5			6.9	35.9	34.9	7.9
	Subordinated Debt	1.2			6.0	2.1	—	8.1
	Common Stock	2.4			—	21.1	—	21.1
	Redeemable Preferred Stock	0.6			8.1	2.1	4.0	6.2
		5.7			21.0	61.2	38.9	43.3
Bridgeport International, LLC	Senior Debt	0.2			0.2	—	0.2	—
	Common Membership Units	—			4.8	—	4.8	—
		0.2			5.0	—	5.0	—
Capital.com, Inc.	Common Stock	—			0.4	—	—	0.4
Consolidated Utility Services,	Subordinated Debt	1.0			6.6	0.2	—	6.8
Inc.	Redeemable Preferred Stock	0.3			3.9	0.3	1.2	3.0
	Common Stock	—			2.6	4.0	—	6.6
		1.3			13.1	4.5	1.2	16.4
DanChem Technologies, Inc.	Senior Debt	1.5			12.9	1.5	—	14.4
	Redeemable Preferred Stock	—			0.9	9.6	7.2	3.3
	Common Stock	—			—	0.8	0.8	—
	Common Stock Warrants	—			—	—	—	—
		1.5			13.8	11.9	8.0	17.7
ECA Acquisition Holdings,	Senior Debt	2.1			16.2	—	1.7	14.5
Inc.	Subordinated Debt	1.7			9.6	0.4	—	10.0
	Common Stock	—			19.0	5.5	5.7	18.8
		3.8			44.8	5.9	7.4	43.3
eLynx Holdings, Inc.	Senior Debt	1.3			8.8	10.3	2.5	16.6
	Subordinated Debt	1.4			8.6	0.2	—	8.8
	Redeemable Preferred Stock	0.8			8.1	12.3	10.3	10.1
	Common Stock	—			0.9	0.6	1.5	—
	Common Stock Warrants	—			10.9	7.8	18.0	0.7
		3.5			37.3	31.2	32.3	36.2
ETG Holdings, Inc.	Senior Debt	1.0			7.3	—	—	7.3
	Subordinated Debt	1.9			11.1	0.3	—	11.4
	Convertible Preferred Stock	0.2			16.2	0.3	14.2	2.3
		3.1			34.6	0.6	14.2	21.0

142

Company (1)	Investments	Amount of Interest or Dividends		December 31, 2005 Value	Gross Additions (4)	Gross Reductions (5)	December 31, 2006 Value
		Credited to Income (2)	Other(3)
Euro-Caribe Packing	Senior Debt	—		8.1	—	8.1	—
Company, Inc.	Subordinated Debt	—		7.3	8.9	16.2	—
	Common Stock Warrants	—		—	4.7	4.7	—
	Convertible Preferred Stock	—		—	2.7	2.7	—
		—		15.4	16.3	31.7	—
European Capital Limited	Senior Debt	3.2		24.9	503.7	528.6	—
	Participating Preferred Shares	19.8		153.3	575.6	—	728.9
	Ordinary Shares	—		—	—	—	—
	Participating Preferred Warrants	—		—	22.1	—	22.1
		23.0		178.2	1,101.4	528.6	751.0
European Touch, LTD. II	Senior Debt	0.1		2.3	—	2.3	—
	Subordinated Debt	3.1		14.5	1.1	—	15.6
	Redeemable Preferred Stock	0.1		0.5	—	0.1	0.4
	Common Stock	—		6.3	—	1.9	4.4
	Common Stock Warrants	—		16.2	—	2.4	13.8
		3.3		39.8	1.1	6.7	34.2
Flexi-Mat Holding, Inc.	Senior Debt	0.4		4.5	5.8	10.3	—
	Subordinated Debt	—		12.4	1.9	14.3	—
	Redeemable Preferred Stock	—		11.2	6.7	17.9	—
	Common Stock	—		22.2	—	22.2	—
		0.4		50.3	14.4	64.7	—
Fosbel Global Services	Senior Debt	3.8		38.8	6.7	2.5	43.0
(LUXCO) S.C.A	Subordinated Debt	3.7		23.9	0.6	—	24.5
	Redeemable Preferred Stock	—		34.1	5.7	20.0	19.8
	Convertible Preferred Stock	—		0.1	1.4	1.5	—
	Common Stock	—		—	0.1	0.1	—
		7.5		96.9	14.5	24.1	87.3
Future Food, Inc.	Senior Debt	1.3		9.8	—	0.1	9.7
	Subordinated Debt	1.9		12.7	0.1	—	12.8
	Common Stock	—		16.5	—	9.8	6.7
	Common Stock Warrants	—		1.2	—	0.2	1.0
		3.2		40.2	0.1	10.1	30.2
FutureLogic, Inc.	Senior Debt	6.3		49.6	0.2	2.5	47.3
	Subordinated Debt	4.8		29.3	1.0	—	30.3
	Common Stock	—		15.2	23.8	8.0	31.0
		11.1		94.1	25.0	10.5	108.6
Halex Holdings, Inc.	Senior Debt	2.9		24.2	3.8	6.3	21.7
	Subordinated Debt	1.6		29.2	—	19.0	10.2
	Redeemable Preferred Stock	—		14.6	16.1	30.7	—
	Convertible Preferred Stock	—		1.8	0.1	1.9	—
	Common Stock	—		1.0	10.6	11.6	—
		4.5		70.8	30.6	69.5	31.9

143

Company (1)	Investments	Amount of Interest or Dividends		December 31, 2005 Value	Gross Additions (4)	Gross Reductions (5)	December 31, 2006 Value
		Credited to Income (2)	Other(3)
Hartstrings Holdings Corp.	Senior Debt	1.3	0.2	13.9	3.5	8.4	9.0
	Subordinated Debt	—	—	6.4	3.0	9.4	—
	Convertible Preferred Stock	—	—	—	3.0	3.0	—
	Common Stock	—	—	—	4.8	4.8	—
		1.3	0.2	20.3	14.3	25.6	9.0
Hospitality Mints, Inc.	Senior Debt	1.0		7.4	—	0.1	7.3
	Subordinated Debt	2.4		18.2	—	—	18.2
	Convertible Preferred Stock	1.7		28.0	2.4	10.6	19.8
	Common Stock Warrants	0.4		0.6	0.4	—	1.0
		5.5		54.2	2.8	10.7	46.3
Iowa Mold Tooling Co., Inc.	Subordinated Debt	1.5		15.9	—	15.9	—
	Redeemable Preferred Stock	11.9		29.3	6.9	36.2	—
	Common Stock	—		2.0	2.8	4.8	—
	Common Stock Warrants	—		4.3	1.6	5.9	—
		13.4		51.5	11.3	62.8	—
Jones Stephens Corp.	Subordinated Debt	2.7		22.2	23.0	45.2	—
	Redeemable Preferred Stock	—		7.0	—	7.0	—
	Convertible Preferred Stock	—		15.0	—	15.0	—
	Common Stock	—		15.4	—	15.4	—
		2.7		59.6	23.0	82.6	—
KAC Holdings, Inc.	Subordinated Debt	2.1		22.6	0.5	23.1	—
	Redeemable Preferred Stock	0.7		16.2	0.7	16.9	—
	Common Stock	—		61.0	—	61.0	—
		2.8		99.8	1.2	101.0	—
KIC Holdings, Inc.	Senior Debt	0.4		7.4	8.7	8.6	7.5
	Subordinated Debt	3.3		6.5	7.2	1.7	12.0
	Redeemable Preferred Stock	—		—	5.7	4.9	0.8
	Common Stock	—		—	5.1	5.1	—
	Common Stock Warrants	—		—	—	—	—
		3.7		13.9	26.7	20.3	20.3
Lifoam Holdings, Inc.	Senior Debt	3.7		35.1	11.3	10.9	35.5
	Subordinated Debt	3.4		21.9	0.5	—	22.4
	Redeemable Preferred Stock	—		6.0	1.9	6.5	1.4
	Common Stock	—		1.0	—	1.0	—
	Common Stock Warrants	—		3.3	—	3.3	—
		7.1		67.3	13.7	21.7	59.3
Logex Corporation	Subordinated Debt	0.1		26.2	2.9	19.4	9.7
	Redeemable Preferred Stock	—		—	3.8	3.8	—
	Common Stock	—		—	0.9	0.9	—
	Common Stock Warrants	—		—	7.5	7.5	—
		0.1		26.2	15.1	31.6	9.7

144

Company (1)	Investments	Amount of Interest or Dividends			December 31, 2005 Value	Gross Additions (4)	Gross Reductions (5)	December 31, 2006 Value
		Credited to Income (2)		Other(3)
LVI Holdings, LLC	Senior Debt	0.4			4.5	—	1.2	3.3
	Subordinated Debt	1.8			9.4	0.6	—	10.0
	Preferred units	—			15.3	—	15.3	—
		2.2			29.2	0.6	16.5	13.3
MBT International, Inc.	Subordinated Debt	0.2			4.0	—	1.4	2.6
MW Acquisition Corporation	Senior Debt	2.7			—	65.0	56.0	9.0
	Subordinated Debt	3.4			—	23.8	—	23.8
	Redeemable Preferred Stock	2.0			—	33.3	33.3	—
	Convertible Preferred Stock	—			—	16.2	—	16.2
	Common Stock	0.7			—	12.3	—	12.3
		8.8			—	150.6	89.3	61.3
Network for Medical	Subordinated Debt	—			9.9	—	9.9	—
Communication & Research, LLC	Common Membership Warrants	—			25.2	—	25.2	—
		—			35.1	—	35.1	—
New Piper Aircraft, Inc.	Senior Debt	3.7			54.2	11.2	56.0	9.4
	Subordinated Debt	0.2			0.6	—	—	0.6
	Common Stock	—			0.9	24.3	—	25.2
		3.9			55.7	35.5	56.0	35.2
New Starcom Holdings, Inc.	Subordinated Debt	5.4			28.0	1.2	1.3	27.9
	Convertible Preferred Stock	—			17.1	—	6.3	10.8
	Common Stock	—			—	—	—	—
		5.4			45.1	1.2	7.6	38.7
Nspired Holdings, Inc.	Senior Debt	0.9		0.1	17.3	5.1	5.4	17.0
	Subordinated Debt	0.8		—	4.2	5.9	10.1	—
	Redeemable Preferred Stock	—		—	—	15.4	15.4	—
	Common Stock	—		—	—	16.4	16.4	—
		1.7		0.1	21.5	42.8	47.3	17.0
Optima Bus Corporation	Senior Debt	0.4			5.5	4.1	9.6	—
	Subordinated Debt	1.3			2.3	—	2.3	—
	Common Stock	—			—	1.9	1.9	—
	Convertible Preferred Stock	(0.1	)		—	22.4	22.4	—
		1.6			7.8	28.4	36.2	—
PaR Systems, Inc.	Subordinated Debt	1.0			4.6	4.5	—	9.1
	Common Stock	—			6.6	—	5.2	1.4
	Common Stock Warrants	—			0.5	—	0.4	0.1
		1.0			11.7	4.5	5.6	10.6
Pasternack Enterprises, Inc.	Senior Debt	3.3			33.6	32.1	62.1	3.6
	Subordinated Debt	4.9			26.4	29.2	27.8	27.8
	Common Stock	2.8			20.6	15.0	7.0	28.6
		11.0			80.6	76.3	96.9	60.0

145

Company (1)	Investments	Amount of Interest or Dividends		December 31, 2005 Value	Gross Additions (4)	Gross Reductions (5)	December 31, 2006 Value
		Credited to Income (2)	Other(3)
PHC Sharp Holdings, Inc.	Senior Debt	—		—	16.3	—	16.3
	Subordinated Debt	—		—	14.8	—	14.8
	Convertible Preferred Stock	—		—	2.9	—	2.9
	Common Stock	—		—	0.7	—	0.7
		—		—	34.7	—	34.7
PHI Acquisitions, Inc.	Senior Debt	1.2		9.9	—	—	9.9
	Subordinated Debt	3.4		24.3	0.4	2.0	22.7
	Redeemable Preferred Stock	5.0		45.1	10.9	20.7	35.3
	Common Stock	—		6.6	—	2.0	4.6
	Common Stock Warrants	—		19.9	—	6.0	13.9
		9.6		105.8	11.3	30.7	86.4
Precitech, Inc.	Senior Debt	0.6		5.3	1.6	6.9	—
	Subordinated Debt	0.3		7.4	0.1	5.3	2.2
	Redeemable Preferred Stock	—		—	9.5	9.5	—
	Common Stock	—		—	2.2	2.2	—
	Common Stock Warrants	—		0.7	1.6	2.3	—
		0.9		13.4	15.0	26.2	2.2
Ranpak Acquisition, Inc.	Senior Debt	0.2		—	3.0	0.3	2.7
	Subordinated Debt	14.4		101.1	2.2	—	103.3
	Redeemable Preferred Stock	12.6		109.5	28.8	52.1	86.2
	Common Stock	—		18.1	4.7	5.4	17.4
	Common Stock Warrants	—		54.2	34.1	16.3	72.0
		27.2		282.9	72.8	74.1	281.6
Reef Point Systems, Inc.	Convertible Preferred Stock	—		—	12.0	4.1	7.9
SAV Holdings, Inc.	Senior Debt	2.1		16.5	0.1	—	16.6
	Subordinated Debt	1.8		11.9	0.2	—	12.1
	Redeemable Preferred Stock	2.0		26.1	2.1	8.3	19.9
	Common Stock	—		2.9	32.0	0.9	34.0
		5.9		57.4	34.4	9.2	82.6
Sixnet, LLC	Senior Debt	1.0		11.2	1.1	3.4	8.9
	Subordinated Debt	1.8		9.9	0.5	0.7	9.7
	Membership Units	—		11.2	2.7	5.3	8.6
		2.8		32.3	4.3	9.4	27.2
Specialty Brands of America,	Senior Debt	0.6		25.1	1.0	26.1	—
Inc.	Subordinated Debt	0.9		21.8	18.1	39.9	—
	Redeemable Preferred Stock	1.2		14.7	4.7	19.4	—
	Convertible Preferred Stock	—		35.2	5.1	40.3	—
	Common Stock	—		3.4	0.5	3.9	—
	Common Stock Warrants	—		9.7	1.5	11.2	—
		2.7		109.9	30.9	140.8	—
S-Tran Holdings, Inc.	Subordinated Debt	—		1.2	5.1	6.3	—

146

Company (1)	Investments	Amount of Interest or Dividends				December 31, 2005 Value		Gross Additions (4)		Gross Reductions (5)		December 31, 2006 Value
		Credited to Income (2)		Other(3)
Stravina Holdings, Inc.	Senior Debt		2.4				47.0		35.8		54.9		27.9
	Subordinated Debt		—				4.5		34.2		38.7		—
	Redeemable Preferred Stock		—				—		7.6		7.6		—
	Common Stock		—				—		27.7		27.7		—
			2.4				51.5		105.3		128.9		27.9
UFG Real Estate Holdings,	Senior Debt		0.1				—		20.0		20.0		—
LLC	Common Membership		—				—		3.5		—		3.5
			0.1				—		23.5		20.0		3.5
Unwired Holdings, Inc (6)	Senior Debt		—				—		3.0		—		3.0
	Subordinated Debt		—				—		—		—		—
	Redeemable Preferred Stock		—				—		—		—		—
	Convertible Preferred Stock		—				—		—		—		—
	Preferred Stock Warrants		—				—		—		—		—
	Common Stock		—				—		—		—		—
	Common Stock Warrants		—				—		—		—		—
			—				—		3.0		—		3.0
VP Acquisition Holdings, Inc.	Senior Debt		—				0.5		—		0.5		—
	Subordinated Debt		2.7				17.8		0.4		—		18.2
	Common Stock		—				42.4		5.6		12.7		35.3
	Common Stock Warrants		—				—		—		—		—
			2.7				60.7		6.0		13.2		53.5
Warner Power, LLC	Senior Debt		0.8				6.6		—		0.3		6.3
	Subordinated Debt		0.7				4.5		0.3		—		4.8
	Redeemable Preferred Stock		—				—		5.7		2.1		3.6
	Common Membership Units		—				—		1.1		0.5		0.6
	Common Membership Warrants		—				0.2		0.9		1.1		—
			1.5				11.3		8.0		4.0		15.3
Weber Nickel Technologies,	Subordinated Debt		—				8.5		9.9		18.4		—
Ltd.	Common Stock		—				—		1.2		1.2		—
	Redeemable Preferred Stock		—				—		12.6		12.6		—
			—				8.5		23.7		32.2		—
WWC Acquisitions, Inc.	Senior Debt		1.4				11.2		0.2		11.4		—
	Subordinated Debt		3.3				22.1		0.4		22.5		—
	Common Stock		—				41.6		—		41.6		—
			4.7				74.9		0.6		75.5		—
Subtotal Control Investments		$	232.5	$	1.0	$	2,516.3	$	2,665.9	$	2,571.5	$	2,610.7
AFFILIATE INVESTMENTS
Bankruptcy Management	Senior Debt	$	1.4			$	17.7	$	0.3	$	18.0	$	—
Solutions, Inc.	Subordinated Debt		2.6				27.6		0.6		28.2		—
	Common Stock		1.0				6.1		—		6.1		—
	Common Stock Warrants		—				2.2		—		2.2
			5.0				53.6		0.9		54.5		—

147

Company (1)	Investments	Amount of Interest or Dividends		December 31, 2005 Value	Gross Additions (4)	Gross Reductions (5)	December 31, 2006 Value
		Credited to Income (2)	Other(3)
CCCI Holdings, Inc.	Senior Debt	1.5		—	73.8	—	73.8
	Convertible Preferred Stock	0.1		—	5.7	—	5.7
		1.6		—	79.5	—	79.5
Compusearch Holdings	Subordinated Debt	1.2		12.3	—	12.3	—
Company, Inc.	Convertible Preferred Stock	—		1.6	—	1.6	—
		1.2		13.9	—	13.9	—
Coghead, Inc.	Convertible Preferred Stock	—		—	3.2	—	3.2
Continental Structural Plastics,	Subordinated Debt	0.9		11.0	0.1	11.1	—
Inc.	Common Stock	—		0.3	—	0.3	—
	Redeemable Preferred Stock	—		2.9	—	2.9	—
		0.9		14.2	0.1	14.3	—
Edge Products, LLC	Senior Debt	—		10.7	0.2	10.9	—
	Subordinated Debt	—		13.5	0.1	13.6	—
	Common Membership Units	—		2.3	—	2.3	—
	Common Membership Warrants	—		1.8	—	1.8	—
		—		28.3	0.3	28.6	—
FMI Holdco I, LLC	Subordinated Debt	1.7		12.6	—	12.6	—
	Common Units	—		2.4	0.3	2.7	—
	Preferred Units	—		1.7	1.4	3.1	—
		1.7		16.7	1.7	18.4	—
IS Holdings I, Inc	Senior Debt	0.2		—	7.9	—	7.9
	Redeemable Preferred Stock	—		—	2.8	—	2.8
	Common Stock	—		—	—	—	—
		0.2		—	10.7	—	10.7
Kirby Lester Holdings, LLC	Senior Debt	1.5		11.5	3.4	2.9	12.0
	Subordinated Debt	1.8		11.6	0.3	—	11.9
	Preferred Units	—		0.4	—	0.4	—
		3.3		23.5	3.7	3.3	23.9
Marcal Paper Mills, Inc.	Common Stock Warrants	—		3.5	—	3.5	—
	Common Stock	—		3.5	—	3.5	—
		—		7.0	—	7.0	—
Narus, Inc.	Convertible Preferred Stock	—		—	8.8	—	8.8
NBD Holdings Corp.	Subordinated Debt	2.4		—	42.8	—	42.8
	Convertible Preferred Stock	0.4		—	15.3	4.5	10.8
	Common Stock	—		—	0.1	—	0.1
		2.8		—	58.2	4.5	53.7

148

Company (1)	Investments	Amount of Interest or Dividends		December 31, 2005 Value	Gross Additions (4)	Gross Reductions (5)	December 31, 2006 Value
		Credited to Income (2)	Other(3)
Nivel Holdings, LLC	Senior Debt	0.8		—	31.0	25.4	5.6
	Subordinated Debt	2.0		8.7	16.7	8.9	16.5
	Preferred Units	—		0.9	—	0.9	—
	Common Units	—		0.4	0.1	0.5	—
	Common Membership Warrants	—		0.1	0.1	0.2	—
		2.8		10.1	47.9	35.9	22.1
NPC Holdings, Inc.	Senior Debt	0.5		4.4	—	—	4.4
	Subordinated Debt	1.3		8.0	0.2	—	8.2
	Common Stock	—		—	—	—	—
	Redeemable Preferred Stock	1.1		9.4	2.3	4.3	7.4
	Convertible Preferred Stock	—		1.4	—	0.4	1.0
	Convertible Preferred Stock Warrants	—		4.4	—	1.3	3.1
		2.9		27.6	2.5	6.0	24.1
NWCC Acquisitions, LLC	Common Units	—		—	0.3	0.3	—
	Redeemable Preferred Units	—		2.6	—	2.6	—
		—		2.6	0.3	2.9	—
PaR Nuclear Holding	Common Stock	—		5.2	—	5.2	—
Company
Qualitor Component Holdings,	Subordinated Debt	4.9		28.4	1.3	—	29.7
LLC	Common Units	—		—	0.2	0.2	—
	Redeemable Preferred Stock	—		3.3	—	2.6	0.7
		4.9		31.7	1.5	2.8	30.4
Radar Detection Holdings	Senior Debt	1.6		13.0	—	—	13.0
Corp	Common Stock	—		9.8	—	3.9	5.9
		1.6		22.8	—	3.9	18.9
Riddell Holdings, LLC	Common Units	—		5.9	2.1	8.0	—
Roadrunner Dawes, Inc.	Subordinated Debt	2.5		17.5	0.4	—	17.9
	Common Stock	—		10.0	—	7.3	2.7
		2.5		27.5	0.4	7.3	20.6
Roarke—Money Mailer, LLC	Common Membership Interest	—		3.9	—	3.9	—
Seroyal Holdings, L.P.	Senior Debt	0.7		5.7	—	2.7	3.0
	Subordinated Debt	1.4		8.7	0.2	—	8.9
	Partnership Units	—		1.3	1.0	0.3	2.0
	Redeemable Preferred Partnership Units	—		0.7	0.3	0.4	0.6
		2.1		16.4	1.5	3.4	14.5
Small Smiles Holding	Subordinated Debt	3.5		—	88.9	—	88.9
Company, LLC
TechBooks, Inc.	Subordinated Debt	6.1		30.0	20.2	—	50.2
	Convertible Preferred Stock	—		16.9	16.2	4.5	28.6
		6.1		46.9	36.4	4.5	78.8

149

Company (1)	Investments	Amount of Interest or Dividends				December 31, 2005 Value		Gross Additions (4)		Gross Reductions (5)		December 31, 2006 Value
		Credited to Income (2)		Other(3)
The Hygenic Corporation	Senior Debt		1.5				—		23.8		6.0		17.8
	Subordinated Debt		0.6				10.9		0.1		11.0		—
	Common Stock		—				7.0		14.6		0.4		21.2
	Redeemable Preferred Stock		0.7				10.3		1.1		3.4		8.0
			2.8				28.2		39.6		20.8		47.0
Trinity Hospice, Inc.	Senior Debt		1.3				16.0		0.1		16.1		—
	Redeemable Preferred Stock		0.2				—		4.2		4.2		—
	Common Stock		0.5				—		—		—		—
			2.0				16.0		4.3		20.3		—
Tymphany Corporation	Convertible Preferred Stock		—				—		13.0		3.9		9.1
Unwired Holdings, Inc (6)	Senior Debt		0.5	$	—		7.3		7.2		14.5		—
	Subordinated Debt		0.8		0.3		15.0		0.9		15.9		—
	Redeemable Preferred Stock		—		—		9.1		2.8		11.9		—
	Preferred Stock Warrants		—		—		—		—		—		—
	Convertible Preferred Stock		—		—		—		1.8		1.8		—
	Common Stock		—		—		—		1.8		1.8		—
	Common Stock Warrants		—		—		—		—		—		—
			1.3		0.3		31.4		14.5		45.9		—
WFS Holding, Inc.	Subordinated Debt		1.8				12.1		0.2		12.3		—
	Convertible Preferred Stock		—				3.5		2.0		1.0		4.5
			1.8				15.6		2.2		13.3		4.5
WIS International	Convertible Preferred Stock		—				—		29.6		—		29.6
	Common Stock		—				—		7.4		—		7.4
			—				—		37.0		—		37.0
Subtotal Affiliate Investments		$	51.0	$	0.3	$	449.0	$	459.2	$	332.5	$	575.7
Total Control and Affiliate Investments		$	283.5	$	1.3	$	2,965.3	$	3,125.1	$	2,904.0	$	3,186.4

(1) Certain of the securities are issued by affiliate(s) of the listed portfolio company.

(2) Represents the total amount of interest or dividends credited to income for the portion of the year an investment was included in Control or Affiliate categories, respectively.

(3) Other includes interest, dividend or other income which was applied to the principal of the investment and therefore reduced the total investment. These reductions are also included in the gross reductions for the investments, as applicable.

(4) Gross additions include increases in the cost basis of investments resulting from new portfolio investments, accrued PIK interest or dividends, the amortization of discounts and closing fees and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation.

(5) Gross reductions include 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. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation.

(6) As of December, 31, 2005, the portfolio company was classified as an Affiliate Investment. As of December, 31 2006, we have a controlling interest of more than 25% of the portfolio company and is therefore classified as a Control Investment.

** Information related to the amount of equity in the net profit and loss for the period for the investments listed has not been included in this schedule. This information is not considered to be meaningful due to the complex capital structures of the portfolio companies, with different classes of equity securities outstanding with different preferences in liquidation. These investments are not consolidated, nor are they accounted for under the equity method of accounting.

150

EX-10.21

EXHIBIT 10.21

AMENDMENT NO. 3 TO

THIRD AMENDED AND RESTATED

LOAN FUNDING AND SERVICING AGREEMENT

(ACS Funding Trust I)

THIS AMENDMENT NO. 3 TO THIRD AMENDED AND RESTATED LOAN FUNDING AND SERVICING AGREEMENT, dated as of October 5, 2006 (this “Amendment”), is entered into by and among ACS FUNDING TRUST I, as the borrower (in such capacity, the “Borrower”), AMERICAN CAPITAL STRATEGIES, LTD., as the servicer (in such capacity, the “Servicer”), VARIABLE FUNDING CAPITAL COMPANY LLC, as a conduit lender (in such capacity, a “Conduit Lender”), WACHOVIA CAPITAL MARKETS, LLC, as the deal agent (in such capacity, the “Deal Agent”), WACHOVIA BANK, NATIONAL ASSOCIATION, as an institutional lender (in such capacity, an “Institutional Lender”), as the swingline lender (in such capacity, the “Swingline Lender”) and as a hedge counterparty (in such capacity, a “Hedge Counterparty”), JPMORGAN CHASE BANK, N.A. (“JPMorgan Chase Bank”), as an institutional lender (in such capacity, an “Institutional Lender”) and as a hedge counterparty (in such capacity, a “Hedge Counterparty”), CITIGROUP GLOBAL MARKETS REALTY CORP., as an institutional lender (in such capacity, an “Institutional Lender”), YC SUSI TRUST, as a conduit lender (in such capacity, a “Conduit Lender”), BANK OF AMERICA, NATIONAL ASSOCIATION, as an institutional lender (in such capacity, an “Institutional Lender”) and as the lender agent for YC SUSI TRUST (in such capacity, a “Lender Agent”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as the backup servicer (in such capacity, the “Backup Servicer”) and as the collateral custodian (in such capacity, the “Collateral Custodian”). Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Agreement (as defined below).

RECITALS

WHEREAS, the parties hereto are parties to that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended by Amendment No. 1, dated as of November 30, 2005 and Amendment No. 2, dated as of August 7, 2006, the “Agreement”);

WHEREAS, the parties hereto desire to amend the Agreement in certain respects as provided herein, pursuant to and in accordance with Section 12.1(a) of the Agreement;

NOW, THEREFORE, based upon the above Recitals, the mutual premises and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

SECTION 1. Amendments.

(a) Upon satisfaction of the conditions set forth in Section 5 below, the Agreement, including all Exhibits thereto, is hereby deemed to be amended and restated in its entirety in the form attached hereto as Exhibit A.

SECTION 2. INCREASE IN FACILITY AMOUNT AND AMOUNTS OF NOTES.

Upon this Amendment becoming effective, the Facility Amount shall be increased to $1,250,000,000 in accordance with the definition of “Facility Amount” in Section 1.1 of the Agreement; provided, that each Lender shall have first received an executed version of an amended and substituted Structured Notes, attached to this Amendment as Exhibit B-1 and Exhibit B-2 (the “New Structured Notes”). Upon this Amendment becoming effective, the Swingline Commitment shall be increased to $100,000,000 in accordance with the definition of “Swingline Commitment” in Section 1.1 of the Agreement; provided, that the Swingline Lender shall have first received an executed version of an amended and substituted Swingline Note, attached to this Amendment as Exhibit C (the “New Swingline Note” and, collectively with the New Structured Notes, the “New Notes”). Each such New Note shall replace and supersede any Structured Note or Swingline Note, as applicable, previously executed by the Borrower pursuant to the Agreement (collectively, the “Replaced Notes”). Each such New Note evidences the same indebtedness, and is secured by the same Collateral as each Replaced Note.

Upon this Amendment becoming effective, the Alternative Currency Swingline Amount shall be added in accordance with the definition of “Alternative Currency Swingline Amount” in Section 1.1 of the Agreement; provided, that the Alternative Currency Swingline Lender shall have first received an executed version of an Alternative Currency Swingline Note, attached to this Amendment as Exhibit D (the “Alternative Currency Swingline Note”).

SECTION 3. AGREEMENT IN FULL FORCE AND EFFECT AS AMENDED.

Except as specifically amended hereby, all provisions of the Agreement shall remain in full force and effect. After this Amendment becomes effective, all references to the Agreement, the “Loan Funding and Servicing Agreement,” “hereof,” “herein,” or words of similar effect referring to the Agreement shall be deemed to mean the Agreement as amended hereby. This Amendment shall not constitute a novation of the Agreement, but shall constitute an amendment and waiver thereof. This Amendment shall not be deemed to expressly or impliedly waive, amend or supplement any provision of the Agreement other than as expressly set forth herein.

SECTION 4. REPRESENTATIONS.

Each of the Borrower and Servicer represent and warrant as of the date of this Amendment as follows:

(a) it is duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization;

- 2 -

(b) the execution, delivery and performance by it of this Amendment are within its powers, have been duly authorized, and do not contravene (i) its charter, by-laws, or other organizational documents, or (ii) any Applicable Law;

(c) no consent, license, permit, approval or authorization of, or registration, filing or declaration with any governmental authority, is required in connection with the execution, delivery, performance, validity or enforceability of this Amendment by or against it;

(d) this Amendment has been duly executed and delivered by it;

(e) this Amendment constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by general principles of equity;

(f) it is not in default under the Agreement; and

(g) there is no Termination Event, Unmatured Termination Event, or Servicer Termination Event.

SECTION 5. CONDITIONS TO EFFECTIVENESS.

The effectiveness of this Amendment is conditioned upon: (i) payment of the outstanding fees and disbursements of Dechert LLP, as counsel to the Deal Agent and the Lenders; (ii) delivery of executed signature pages by all parties hereto to the Deal Agent; (iii) the delivery and execution of the Global Fee Letter by the parties thereto; (iv) delivery of each New Structured Note, New Swingline Note and the Alternative Currency Swingline Note to the relevant Lender; (v) delivery of a legal opinion of counsel to the Borrower and Servicer, reasonably acceptable to the Deal Agent and its counsel, with respect to certain corporate and enforceability matters; (vi) delivery of a reliance letter by counsel to the Servicer relating to certain previously delivered opinions and (vii) delivery of an assumption agreement in the form of Exhibit E hereto by Wachovia Bank, N.A., London Branch.

SECTION 6. MISCELLANEOUS.

(a) This Amendment may be executed in any number of counterparts (including by facsimile), and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument but all of which together shall constitute one and the same agreement.

(b) The descriptive headings of the various sections of this Amendment are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

- 3 -

(c) This Amendment may not be amended or otherwise modified except as provided in the Agreement.

(d) The failure or unenforceability of any provision hereof shall not affect the other provisions of this Amendment.

(e) Whenever the context and construction so require, all words used in the singular number herein shall be deemed to have been used in the plural, and vice versa, and the masculine gender shall include the feminine and neuter and the neuter shall include the masculine and feminine.

(f) This Amendment represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements between the parties. There are no unwritten oral agreements between the parties.

(g) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

[Remainder of Page Intentionally Left Blank]

- 4 -

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.

ACS FUNDING TRUST I, as Borrower
By:	/s/ Malon Wilkus
Name:	Malon Wilkus
Title:	Beneficiary Trustee
AMERICAN CAPITAL STRATEGIES, LTD., as Servicer
By:	/s/ Samuel A. Flax
Name:	Samuel A. Flax
Title:	Executive VP & General Counsel

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

3^rd Amendment to 3^rd Amended and Restated Loan Funding

and Servicing Agreement

VARIABLE FUNDING CAPITAL COMPANY LLC, as a Conduit Lender
By:	Wachovia Capital Markets, LLC, as attorney-in-fact
By:	/s/ Douglas R. Wilson, Sr.
Name:	Douglas R. Wilson, Sr.
Title:	Vice President

WACHOVIA CAPITAL MARKETS, LLC, as the Deal Agent
By:	/s/ Andrew Phelps
Name:	Andrew Phelps
Title:	Vice President

WACHOVIA BANK, NATIONAL ASSOCIATION, as Swingline Lender and as an Institutional Lender
By:	/s/ Michael Romanzo, CFA
Name:	Michael Romanzo, CFA
Title:	Vice President

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Hedge Counterparty
By:	/s/ Kim V. Farr
Name:	Kim V. Farr
Title:	Director

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

3^rd Amendment to 3^rd Amended and Restated Loan Funding

and Servicing Agreement

JPMORGAN CHASE BANK, N.A., as an Institutional Lender and as a Hedge Counterparty
By:	/s/ Julie C. Kraft
Name:	Julie C. Kraft
Title:	Vice President

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

3^rd Amendment to 3^rd Amended and Restated Loan Funding

and Servicing Agreement

CITIGROUP GLOBAL MARKETS REALTY CORP., as an Institutional Lender
By:	/s/ John Pawlowski
Name:	John Pawlowski
Title:	Authorized Signer

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

3^rd Amendment to 3^rd Amended and Restated Loan Funding

and Servicing Agreement

YC SUSI TRUST, as a Conduit Lender
By:	Bank of America, National Association, as Administrative Trustee and SUSI Trustee
By:	Robert R. Wood
Name:	/s/ Robert R. Wood
Title:	Principal
BANK OF AMERICA, NATIONAL ASSOCIATION, as a Lender Agent and as an Institutional Lender
By:	/s/ Robert R. Wood
Name:	Robert R. Wood
Title:	Principal

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

3^rd Amendment to 3^rd Amended and Restated Loan Funding

and Servicing Agreement

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Backup Servicer and Collateral Custodian
By:	/s/ Jeanine C. Casey
Name:	Jeanine C. Casey
Title:	Assistant Vice President

3^rd Amendment to 3^rd Amended and Restated Loan Funding

and Servicing Agreement

Exhibit A

FORM OF THIRD AMENDED AND RESTATED

LOAN FUNDING AND SERVICING AGREEMENT

THIRD AMENDED AND RESTATED

LOAN FUNDING AND SERVICING AGREEMENT

by and among

ACS FUNDING TRUST I,

as the Borrower

AMERICAN CAPITAL STRATEGIES, LTD.,

as the Servicer and as the Originator

EACH OF THE CONDUIT LENDERS AND INSTITUTIONAL LENDERS

FROM TIME TO TIME PARTY HERETO,

as Lenders

EACH OF THE LENDER AGENTS

FROM TIME TO TIME PARTY HERETO,

as Lender Agents

WACHOVIA CAPITAL MARKETS, LLC,

as the Deal Agent

WACHOVIA BANK, NATIONAL ASSOCIATION,

as the Swingline Lender

WACHOVIA BANK, N.A., LONDON BRANCH,

as the Alternative Currency Swingline Lender

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as the Backup Servicer and as the Collateral Custodian

Dated as of September 23, 2005

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS		3
Section 1.1.	Certain Defined Terms	3
Section 1.2.	Other Terms	46
Section 1.3.	Computation of Time Periods	46
Section 1.4.	Interpretation	46
Section 1.5.	Section References	47
Section 1.6.	Calculations	47
ARTICLE II PURCHASE OF THE STRUCTURED NOTES		48
Section 2.1.	The Structured Notes	48
Section 2.2A	Procedures for Swingline Advances	52
Section 2.2B	Procedures for Alternative Currency Swingline Advances	53
Section 2.3.	Procedures for Advances by the Conduit Lenders and Institutional Lenders	55
Section 2.4.	Optional Changes in Facility Amount; Prepayments	56
Section 2.5.	Reimbursement of Swingline Advances and Alternative Currency Swingline Advances	58
Section 2.6.	Notations on the Structured Notes	58
Section 2.7.	Principal Repayments	59
Section 2.8.	Interest Payments	60
Section 2.9.	Settlement Procedures	61
Section 2.10.	Collections and Allocations	64
Section 2.11.	Payments, Computations, Etc	66
Section 2.12.	[Reserved]	67
Section 2.13.	Fees	67
Section 2.14.	Increased Costs; Capital Adequacy; Illegality	67
Section 2.15.	Taxes	69
Section 2.16.	Assignment of the Purchase Agreement	71
Section 2.17.	Lien Release Dividend	71
Section 2.18.	Appointment of Registrar and Duties	74
Section 2.19.	Substitution of Loans; Repurchase or Substitutions of Ineligible Loans	75

-i-

TABLE OF CONTENTS

(continued)

Section 2.20.	Non-Receipt of Funds by the Deal Agent	78
ARTICLE III CLOSING; CONDITIONS OF CLOSING AND ADVANCES		79
Section 3.1.	Conditions to Closing and Initial Advances	79
Section 3.2.	Conditions Precedent to All Advances, Swingline Advances and Alternative Currency Swingline Advances	80
ARTICLE IV REPRESENTATIONS AND WARRANTIES		82
Section 4.1.	Representations and Warranties of the Borrower	82
Section 4.2.	Representations and Warranties of the Borrower Relating to the Agreement and the Loans	90
ARTICLE V GENERAL COVENANTS OF THE BORROWER		91
Section 5.1.	Covenants of the Borrower	91
Section 5.2.	Hedging Agreement	96
Section 5.3.	Delivery of Loan Files	97
ARTICLE VI PERFECTION OF TRANSFER AND PROTECTION OF SECURITY INTERESTS		98
Section 6.1.	Custody of Transferred Loans	98
Section 6.2.	Filing	98
Section 6.3.	Changes in Name, Corporate Structure or Location	98
Section 6.4.	Chief Executive Office	99
Section 6.5.	Costs and Expenses	99
Section 6.6.	Sale Treatment	99
Section 6.7.	Separateness from the Borrower	99
ARTICLE VII ADMINISTRATION AND SERVICING OF LOANS		100
Section 7.1.	Appointment of the Servicer	100
Section 7.2.	Duties and Responsibilities of the Servicer	100
Section 7.3.	Authorization of the Servicer	101
Section 7.4.	Collection of Payments	102
Section 7.5.	Servicer Advances	105
Section 7.6.	Realization Upon Defaulted Loans or Charged-Off Loans	106
Section 7.7.	Maintenance of Insurance Policies	106
Section 7.8.	Representations and Warranties of the Servicer	106

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TABLE OF CONTENTS

(continued)

		Page
Section 7.9.	Covenants of the Servicer	108
Section 7.10.	The Collateral Custodian	111
Section 7.11.	Representations and Warranties of the Collateral Custodian	114
Section 7.12.	Covenants of the Collateral Custodian	115
Section 7.13.	The Backup Servicer	116
Section 7.14.	Representations and Warranties of the Backup Servicer	119
Section 7.15.	Covenants of the Backup Servicer	120
Section 7.16.	Payment of Certain Expenses by the Servicer and the Borrower	120
Section 7.17.	Reports	121
Section 7.18.	Annual Statement as to Compliance	121
Section 7.19.	Annual Independent Public Accountant’s Servicing Reports	122
Section 7.20.	Limitation on Liability of the Servicer and Others	122
Section 7.21.	The Servicer, the Backup Servicer and the Collateral Custodian Not to Resign	123
Section 7.22.	Access to Certain Documentation and Information Regarding the Loans	123
Section 7.23.	[Reserved]	124
Section 7.24.	Identification of Records	124
Section 7.25.	Servicer Termination Events	124
Section 7.26.	Appointment of Successor Servicer	125
Section 7.27.	Market Servicing Fee	127
ARTICLE VIII SECURITY INTEREST		127
Section 8.1.	Grant of Security Interest	127
Section 8.2.	Release of Lien on Loans	128
Section 8.3.	[Reserved]	128
Section 8.4.	Further Assurances	128
Section 8.5.	Remedies	129
Section 8.6.	Waiver of Certain Laws	129
Section 8.7.	Power of Attorney	129
ARTICLE IX TERMINATION EVENTS		130
Section 9.1.	Termination Events	130

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TABLE OF CONTENTS

(continued)

ARTICLE X INDEMNIFICATION		132
Section 10.1.	Indemnities by the Borrower	132
Section 10.2.	Indemnities by the Servicer	135
ARTICLE XI THE DEAL AGENT AND LENDER AGENTS		136
Section 11.1.	The Deal Agent	136
Section 11.2.	The Lender Agents	138
ARTICLE XII MISCELLANEOUS		140
Section 12.1.	Amendments and Waivers	140
Section 12.2.	Notices, Etc	141
Section 12.3.	Liabilities to Obligors	142
Section 12.4.	No Waiver, Rights and Remedies	142
Section 12.5.	Binding Effect	143
Section 12.6.	Term of this Agreement	143
Section 12.7.	GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF OBJECTION TO VENUE	143
Section 12.8.	WAIVER OF JURY TRIAL	143
Section 12.9.	Costs, Expenses and Taxes	143
Section 12.10.	No Proceedings	144
Section 12.11.	Recourse Against Certain Parties	145
Section 12.12.	Protection of Security Interest; Appointment of Deal Agent as Attorney-in-Fact	146
Section 12.13.	Confidentiality	147
Section 12.14.	Third Party Beneficiaries	148
Section 12.15.	Execution in Counterparts; Severability; Integration	148
Section 12.16.	Waiver of Setoff	148
Section 12.17.	Assignments by the Lenders	148
Section 12.18.	Heading and Exhibits	150
Section 12.19.	Sharing of Payments on Transferred Loans Subject to the Retained Interest Provisions	150
Section 12.20.	Non-Confidentiality of Tax Treatment	151
Section 12.21.	Conduit Lender as Institutional Lender	151

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TABLE OF CONTENTS

(continued)

		Page
Section 12.22.	Institutional Lenders and Conduit Lenders	151
Section 12.23.	YC SUSI Trust Additional Institutional Lender Provisions	152
Section 12.24.	Judgment Currency	152

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TABLE OF CONTENTS

(continued)

		Page
ANNEXES
Annex A	Notice Information
Annex B	Commitments
Annex C	YC SUSI Trust Additional Institutional Lender Provisions
Annex D	Collection Account Information
EXHIBITS
EXHIBIT A-1	Borrower Notice (Funding Request)
EXHIBIT A-2-a	Borrower Notice (Swingline Funding Request)
EXHIBIT A-2-b	Borrower Notice (Alternative Currency Swingline Funding Request)
EXHIBIT A-3	Borrower Notice (Reduction of Advances Outstanding and Reduction of Facility Amount)
EXHIBIT B-1-a	Form of Structured Note (Dollars)
EXHIBIT B-1-b	Form of Structured Note (Alternative Currency)
EXHIBIT B-2	Form of Swingline Note
EXHIBIT B-3	Form of Alternative Currency Swingline Note
EXHIBIT C	Form of Amended and Restated Trust Agreement
EXHIBIT D	Form of Assignment and Acceptance
EXHIBIT E	Form of Monthly Report
EXHIBIT F	Form of Servicer’s Certificate
EXHIBIT G	Credit and Collection Policy
EXHIBIT H-1	Form of Hedging Agreement (Wachovia) (including Schedule)
EXHIBIT H-2	Form of Hedging Agreement (JPMorgan Chase) (including Schedule)
EXHIBIT I	Form of Certificate of Borrower’s Counsel
EXHIBIT J	Form of Trust Receipt and Initial Certification
EXHIBIT K	Form of Trust Receipt and Final Certification
EXHIBIT L	Form of Request for Release of Loan Documents and Receipt
EXHIBIT M	[Reserved]
EXHIBIT N	Form of Reinvestment Certification
EXHIBIT O-1	Officer’s Certificate as to Solvency from Originator
EXHIBIT O-2	Officer’s Certificate as to Solvency from Borrower
EXHIBIT P-1	Officer’s Closing Certificate from Originator
EXHIBIT P-2	Officer’s Closing Certificate from Borrower
EXHIBIT Q-1	Power of Attorney from Servicer
EXHIBIT Q-2	Power of Attorney from Borrower
EXHIBIT R	Form of Notice and Request for Consent
EXHIBIT S	[Reserved]
EXHIBIT T	Form of Agent and Intercreditor Provisions for Agented Notes
EXHIBIT U	[Reserved]
EXHIBIT V	Form of Transferee Letter
EXHIBIT W	Form of Joinder Supplement

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TABLE OF CONTENTS

(continued)

SCHEDULES

		Page
SCHEDULE I	Schedule of Documents
SCHEDULE II	[Reserved]
SCHEDULE III	[Reserved]
SCHEDULE IV	Loan List
SCHEDULE V	Location of Loan Files
SCHEDULE VI	Form of Loan Checklist
SCHEDULE VII	Vintage Date Reset Schedule

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PREAMBLE

THIS THIRD AMENDED AND RESTATED LOAN FUNDING AND SERVICING AGREEMENT (such agreement as amended, modified, waived, supplemented or restated from time to time, the “Agreement”) is made as of this 23^rd day of September, 2005, by and among:

(1) ACS FUNDING TRUST I, a Delaware statutory trust, as the borrower (together with its successors and assigns in such capacity, the “Borrower”);

(2) AMERICAN CAPITAL STRATEGIES, LTD., a Delaware corporation (individually, “American Capital”, as the originator, the “Originator” and as servicer and together with its successors and assigns in such capacity, the “Servicer”);

(3) EACH OF THE CONDUIT LENDERS FROM TIME TO TIME PARTY HERETO, as a Conduit Lender;

(4) EACH OF THE INSTITUTIONAL LENDERS FROM TIME TO TIME PARTY HERETO, as an Institutional Lender;

(5) EACH OF THE LENDER AGENTS FROM TIME TO TIME PARTY HERETO, as a Lender Agent;

(6) WACHOVIA CAPITAL MARKETS, LLC, a Delaware limited liability company (“WCM”), as the deal agent (together with its successors and assigns in such capacity, the “Deal Agent”);

(7) WACHOVIA BANK, NATIONAL ASSOCIATION, as the swingline lender (in such capacity, the “Swingline Lender”);

(8) WACHOVIA BANK, NATIONAL ASSOCIATION, LONDON BRANCH, as the swingline lender for Alternative Currencies (in such capacity, the “Alternative Currency Swingline Lender” and, together with the Swingline Lender, each Conduit Lender and each Institutional Lender, a “Lender”); and

(9) WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (“Wells Fargo”), not in its individual capacity, but solely as the backup servicer (together with its successors and assigns in such capacity, the “Backup Servicer”) and as the collateral custodian (together with its successors and assigns in such capacity, the “Collateral Custodian”).

RECITALS

WHEREAS, the Borrower, the Servicer, Variable Funding Capital Company LLC (“VFCC”), as a Conduit Lender, WCM, JPMorgan Chase Bank, N.A., as an Institutional Lender and as the Swingline Lender, the Backup Servicer, and the Collateral Custodian have heretofore executed and delivered the Second Amended and Restated Loan Funding and Servicing Agreement, dated as of August 10, 2004 (the “Second Amended and Restated Agreement”)

providing for the purchase from time to time by VFCC and JPMorgan Chase Bank, N.A. of Structured Notes representing an undivided ownership interest in the Collateral purchased by such Lenders;

WHEREAS, pursuant to the Joinder Supplement, dated August 27, 2004, Citigroup Global Markets Realty Corp. became a party to the Second Amended and Restated Agreement as an Institutional Lender;

WHEREAS, pursuant to the Joinder Supplement, dated November 15, 2004, YC SUSI Trust became a party to the Second Amended and Restated Agreement as a Conduit Lender and Bank of America, National Association became a party to the Second Amended and Restated Agreement as an Institutional Lender;

WHEREAS, the Second Amended and Restated Agreement was amended by Amendment No. 1, dated as of August 27, 2004, Amendment No. 2, dated as of November 15, 2004, Amendment No. 3, dated as of January 28, 2005, Amendment No. 4, dated as of April 21, 2005, Amendment No. 5, dated as of August 3, 2005 and Amendment No. 6, dated as of September 15, 2005 (the Second Amended and Restated Agreement, as so amended, the “Existing Loan Funding and Servicing Agreement”);

WHEREAS, Section 12.1 of the Existing Loan Funding and Servicing Agreement provides that no Material Amendment (as defined in the Existing Loan Funding and Servicing Agreement) shall be effective without the written agreement of the Borrower, the Deal Agent and each of the Lenders;

WHEREAS, Section 12.1(b) of the Existing Loan Funding and Servicing Agreement provides that no amendment affecting the rights of any Hedge Counterparty or having a material effect on the rights or obligations of the Collateral Custodian or the Backup Servicer shall be effective without the written agreement of such Person;

WHEREAS, the Borrower, the Deal Agent, each of the Lenders, the Backup Servicer, the Collateral Custodian and the Hedge Counterparty hereby desire to amend and restate the Existing Loan Funding and Servicing Agreement to make such changes as are necessary or in the interests of the parties;

WHEREAS, each of the Borrower, the Deal Agent, the Lenders, the Backup Servicer, the Collateral Custodian and the Hedge Counterparty consents to the amendments to the Existing Loan Funding and Servicing Agreement effected by this Agreement; and

WHEREAS, all other conditions precedent to the execution of this Agreement have been complied with;

NOW, THEREFORE, based upon the foregoing Recitals, the mutual premises and agreements contained herein, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

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ARTICLE I

DEFINITIONS

Section 1.1. Certain Defined Terms.

(a) Certain capitalized terms used throughout this Agreement are defined above or in this Section 1.1.

(b) As used in this Agreement and its schedules, exhibits and other attachments, unless the context requires a different meaning, the following terms shall have the following meanings:

“1940 Act”: The Investment Company Act of 1940, as amended.

“ACAS Business Loan Trust Securities”: Collectively, collateralized loan obligations issued by special purpose vehicles managed or serviced by the Servicer or the Servicer’s affiliates that entitle the holder to receive payments that depend on the cash flow from a portfolio consisting primarily of middle market business loans substantially similar to the loans acquired by the Borrower under the Purchase Agreement, and for which the following two conditions have been met: (i) such securities are endorsed in the name of Wachovia Capital Markets, LLC, as Deal Agent for the Secured Parties and (ii) the Deal Agent has received emailed or other written confirmation from the Collateral Custodian of receipt of such securities by the Collateral Custodian; provided for avoidance of doubt that ACAS Business Loan Trust Securities shall not include any security primarily secured by commercial mortgage backed securities or commercial real estate loans.

“Accreted Interest”: The accrued interest on a PIK Loan that is added to the principal amount of such PIK Loan instead of being paid as it accrues.

“Accrual Period”: (a) With respect to each Advance (other than an Advance in an Alternative Currency) or portion thereof (i) with respect to the first Payment Date, the period from and including the Closing Date to and including the last day of the calendar month in which the Closing Date occurs, and (ii) with respect to any subsequent Payment Date, the calendar month immediately preceding the month in which the Payment Date occurs; (b) with respect to each Swingline Advance and each Alternative Currency Swingline Advance, the period from and including the date of such Swingline Advance or Alternative Currency Swingline Advance, as applicable, to and including the day on which such Swingline Advance or Alternative Currency Swingline Advance, as applicable, is reimbursed pursuant to Section 2.5, or (c) with respect to each Advance in an Alternative Currency (i) with respect to the first Payment Date for such Advance, the period from and including the date of such Advance to and including the last day of the calendar month in which such initial Advance is made and (ii) with respect to any subsequent Payment Date, each period commencing on the last day of the immediately preceding Accrual Period for such Advance and ending one month thereafter, provided that each Advance in an Alternative Currency bearing interest at the LIBOR Rate shall be continued for consecutive additional Accrual Periods of one month without the requirement of further notice from the Borrower; provided, further, that the foregoing provisions relating to Advances in an Alternative Currency are subject to the following:

(i) if any Accrual Period pertaining to an Advance in an Alternative Currency would otherwise end on a day that is not a Business Day, such Accrual Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Accrual Period into another calendar month in which event such Accrual Period shall end on the immediately preceding Business Day;

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(ii) any Accrual Period pertaining to an Advance in an Alternative Currency that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Accrual Period) shall end on the last Business Day of the next calendar month;

(iii) any Accrual Period in respect of any Advance in an Alternative Currency that would otherwise extend beyond the Commitment Termination Date shall end on the Commitment Termination Date; and

(iv) no more than four Advances in an Alternative Currency and Alternative Currency Swingline Advances, collectively, may be in effect at any time, except that new Advances and continuations and extensions of Advances may at the option of the Borrower be combined at the end of an existing Accrual Period to constitute a new Advance for a single Accrual Period.

“Add-On Loan”: Any additional loan or extension of credit made subsequent to any Loan made by the Originator or one of its Subsidiaries to the Obligor of such Loan in accordance with the Credit and Collection Policy.

“Adjusted LIBOR Rate”: For any Accrual Period for any Advance in Dollars or an Alternative Currency, an interest rate per annum equal to a fraction, expressed as a percentage and rounded upwards (if necessary), to the nearest 1/100 of 1%, (i) the numerator of which is equal to the LIBOR Rate for such Currency for such Accrual Period and (ii) the denominator of which is equal to 100% minus the Eurocurrency Reserve Percentage for such Accrual Period.

“Advance”: Defined in Section 2.1(b).

“Advance Rate”: On any day, (i) with respect to Loans (excluding ACAS Business Loan Trust Securities), 75%, (ii) with respect to ACAS Business Loan Trust Securities that have a rating of “BBB” or higher by Fitch (or the equivalent by any other rating agency that rates such securities, provided, that, if such securities are rated by more than one rating agency and such ratings are not equivalent, the lowest rating shall be used for the purposes hereof), 70% and (iii) with respect to ACAS Business Loan Trust Securities that have a rating below “BBB” by Fitch (or the equivalent by any other rating agency that rates such securities, provided, that, if such securities are rated by more than one rating agency and such ratings are not equivalent, the lowest rating shall be used for the purposes hereof), 0%; provided, that, with respect to ACAS Business Loan Trust Securities, the applicable Advance Rate shall be applied to the lower of (A) the Fair Market Value of such ACAS Business Loan Trust Securities and (B) the outstanding principal balance of such ACAS Business Loan Trust Securities.

4

“Advances Outstanding”: On any day, the aggregate principal amount of Advances outstanding, Swingline Advances outstanding and Alternative Currency Swingline Advances outstanding on such day, after giving effect to all repayments of Advances, Swingline Advances and Alternative Currency Swingline Advances and makings of new Advances, Swingline Advances and Alternative Currency Swingline Advances on such day; provided, that, the “Advances Outstanding” under and as defined in the Existing Loan Funding and Servicing Agreement on and as of the Closing Date shall be deemed to be Advances Outstanding under and for all purposes of this Agreement; provided, further, that the principal amount of any Advance in an Alternative Currency or Alternative Currency Swingline Advance shall be computed using the Dollar Equivalent of such Advance or Alternative Currency Swingline Advance on such day.

“Affected Party”: The Deal Agent, each Lender Agent, each Conduit Lender, YC SUSI Trust, the YC SUSI Conduit Lender, each Institutional Lender, the Swingline Lender, the Alternative Currency Swingline Lender, each Liquidity Bank, all assignees and participants of the Lenders including any Conduit Assignee, each Liquidity Bank, any successor to WCM as Deal Agent and any sub-agent of the Deal Agent.

“Affiliate”: With respect to a Person, means any other Person controlling, controlled by or under common control with such Person. For purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” or “controlled” have meanings correlative to the foregoing; provided, that in the case of the Servicer or any Subsidiary, “Affiliate” shall not include any Person that is a Portfolio Investment.

“Agented Notes”: One or more promissory notes issued by an Eligible Obligor wherein (a) the note(s) are originated in accordance with the Credit and Collection Policy as a part of a syndicated loan transaction, (b) upon an assignment of the note to the Borrower under the Purchase Agreement and the grant of a security interest in such note under this Agreement, the original note will be endorsed either in blank or to the Deal Agent on behalf of the Secured Parties, and held by the Collateral Custodian on behalf of the Secured Parties, (c) the Borrower, as assignee of the note, will have all of the rights (but none of the obligations) of the Originator with respect to such note and the Related Property, including all rights, either directly or through the agent described in item (e), to receive and collect payments in its own name and to enforce its rights against the Obligor thereof, (d) the note is secured by an undivided interest in the Related Property that also secures and is shared by, on a pro rata basis, all other holders of such Obligor’s notes of equal priority issued under the related loan agreements and (e) the Originator (or American Capital Financial Services, Inc., a wholly-owned Subsidiary of the Originator) is the agent for all holders of loans made to such Obligor under the related loan agreements; provided, that Agented Notes shall not include (1) the obligations, if any, of any agents under the Loan Documents evidencing such Agented Notes, and (2) the interests, rights and obligations under the Loan Documents evidencing such Agented Notes that are retained by the Originator or are owned or owed by other noteholders.

“Aggregate Net Mark to Market Amount”: As of each Determination Date, the sum of all Net Mark to Market Amounts for such date for all Hedge Counterparties, provided, however, that if such sum shall be a negative number, the Aggregate Net Mark to Market Amount shall be deemed to be zero.

5

“Aggregate Outstanding Loan Balance”: As of any date of determination, the sum of the Outstanding Loan Balances of all Eligible Loans included as part of the Collateral on such date minus the Outstanding Loan Balance of all Charged-Off Loans included as part of the Collateral on such date.

“Agreement”: Defined in the Preamble.

“Allocation Adjustment Event”: With respect to each Transferred Loan subject to the Retained Interest provisions of this Agreement, the occurrence of any one or more of the following under and as defined in any Permitted Transfer rated by the Rating Agencies, as applicable: (i) a “Servicer Termination Event” or (ii) a “Termination Event”.

“Alternative Currency”: (i) With respect to Advances, at any time, any of Canadian Dollars, English Pounds Sterling, Euro and, with the agreement of each Lender, any other Foreign Currency or (ii) with respect to Alternative Currency Swingline Advances, at any time, any of Canadian Dollars, English Pounds Sterling and Euro, so long as, in respect of any such specified Currency or other Foreign Currency, at such time (a) such Currency is dealt with in the London (or, in the case of English Pounds Sterling, Paris) interbank deposit market, (b) such Currency is freely transferable and convertible into Dollars in the London foreign exchange market and (c) no central bank or other governmental authorization in the country of issue of such Currency (including, in the case of the Euro, any authorization by the European Central Bank) is required to permit use of such Currency by any Lender for making an Advance or Alternative Currency Swingline Advance hereunder or to permit the Borrower to borrow and repay the principal thereof and to pay the interest thereon, unless such authorization has been obtained and is in full force and effect.

“Alternative Currency Sub-Limit”: With respect to each Institutional Lender and each Conduit Lender, the commitment of such Lender to make Advances in one or more Alternative Currencies in accordance herewith in an amount not to exceed (a) prior to the Termination Date, the amount set forth opposite such Lender’s name on Annex B hereto and (b) on and after the Termination Date, the outstanding Advances of such Lender in all Alternative Currencies plus such Lender’s Pro-Rata Share of all outstanding Alternative Currency Swingline Advances. The Alternative Currency Sub-Limit of each Institutional Lender or Conduit Lender is part of, and not in addition to, its Commitment hereunder.

“Alternative Currency Swingline Advance”: Defined in Section 2.1(c).

“Alternative Currency Swingline Amount”: With respect to the Alternative Currency Swingline Lender, the commitment of such Lender to make Alternative Currency Swingline Advances in English Pounds Sterling, Canadian Dollars or Euro in accordance herewith in an amount not to exceed (a) prior to the Termination Date, the amount set forth opposite such Lender’s name on Annex B hereto and (b) on and after the Termination Date, the outstanding Alternative Currency Swingline Advances of such Lender in English Pounds Sterling, Canadian Dollars or Euro. The Alternative Currency Swingline Amount is subject to the Alternative Currency Sub-Limit.

6

“Alternative Currency Swingline Funding Request”: Defined in Section 2.1(c).

“Alternative Currency Swingline Lender”: Defined in the Preamble.

“Alternative Currency Swingline Note”: Defined in Section 2.1(a).

“Alternative Rate”: An interest rate per annum equal to the Adjusted LIBOR Rate; provided, however, that the Alternative Rate shall be the Base Rate if a Eurocurrency Disruption Event occurs.

“American Capital”: Defined in the Preamble.

“Amortization Period”: The period beginning on the Termination Date and ending on the Collection Date.

“Applicable Law”: For any Person or property of such Person, all existing and future applicable laws, rules, regulations (including proposed, temporary and final income tax regulations), statutes, treaties, codes ordinances, permits, certificates, orders and licenses of and interpretations by any Governmental Authority (including, without limitation, usury laws, predatory lending laws, the Federal Truth in Lending Act, and Regulation Z and Regulation B of the Federal Reserve Board), and applicable judgments, decrees, injunctions, writs, orders, or line action of any court, arbitrator or other administrative, judicial, or quasi-judicial tribunal or agency of competent jurisdiction.

“Approved Country”: Austria, Belgium, Canada, the Channel Islands, Denmark, Finland, France, Germany, Republic of Ireland, Italy, Liechtenstein, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, the United States and any other member of the European Economic and Monetary Union having a foreign currency issuer credit rating of at least AA by S&P or Aa2 by Moody’s.

“Assignment”: The Assignment entered into between the Originator and the Borrower in substantially the form of Exhibit A to the Purchase Agreement.

“Assignment of Mortgage”: As to each Transferred Loan secured by an interest in real property, one or more assignments, notices of transfer or equivalent instruments, each in recordable form and sufficient under the laws of the relevant jurisdiction to reflect the transfer of the related mortgage, deed of trust, security deed or similar security instrument and all other documents related to such Loan and to the Borrower and to grant a perfected lien thereon by the Borrower in favor of the Deal Agent, on behalf of the Secured Parties; provided, however, that, with respect to Agented Notes and all other loans where a collateral agent has been appointed under the related loan agreement to hold a security interest in the Collateral securing such loan, Assignment of Mortgage shall mean such documents, including assignments, notices of transfer or equivalent instruments, each in recordable form as necessary, as are sufficient under the laws of the relevant jurisdiction to reflect the transfer to the collateral agent for all holders of notes issued by the Obligor under the related loan agreements that rank pari passu in terms of security

7

interest, of the related mortgage, deed of trust, security deed or other similar instrument securing such notes and all other documents relating to such notes and to grant a perfected lien thereon by the Obligor in favor of the collateral agent for all such noteholders.

“Availability”: At any time, an amount equal to the excess, if any, of (i) the lesser of (a) the Facility Amount and (b) the Maximum Availability over (ii) the sum of (a) the Advances Outstanding on such day plus (b) the Aggregate Net Mark to Market Amount; provided, however, that, for all purposes of this Agreement, during the Amortization Period, the Availability shall be $0.

“Available Funds”: With respect to any Payment Date, all amounts received in the Collection Accounts (including, without limitation, any Collections on any of the Collateral) as of the later of (i) the immediately preceding Determination Date or (ii) the date of the calculations set forth in the most recent Borrower Notice.

“Backup Servicer”: Defined in the Preamble.

“Backup Servicer Expenses”: The reasonable out-of-pocket expenses to be paid to the Backup Servicer under and in accordance with the Backup Servicer and Collateral Custodian Fee Letter.

“Backup Servicer Fee”: The fee to be paid to the Backup Servicer under the terms of the Backup Servicer and Collateral Custodian Fee Letter.

“Backup Servicer and Collateral Custodian Fee Letter”: The Amended and Restated Backup Servicer and Collateral Custodian Fee Letter, dated as of the date hereof, among the Servicer, the Borrower, the Backup Servicer, the Collateral Custodian and the Deal Agent.

“Bank of America”: Bank of America, National Association, a national banking association.

“Bank of England”: The central bank of the United Kingdom, and any successor thereto.

“Bankruptcy Code”: The United States Bankruptcy Reform Act of 1978 (11 U.S.C. §§ 101, et seq.), as amended from time to time.

“Base Rate”: On any date, (a) with respect to Advances or Swingline Advances in Dollars, a fluctuating rate of interest per annum equal to the higher of (i) the Prime Rate and (ii) the Federal Funds Rate, plus 1.0% per annum or (b) with respect to Advances or Alternative Currency Swingline Advances in (i) English Pounds Sterling, the base rate as set by the Monetary Policy Committee of the Bank of England plus 0.50% per annum, (ii) Euro, the main refinancing rate as set by the European Central Bank plus 0.50% per annum and (iii) an Alternative Currency (other than English Pounds Sterling or Euro), the rate determined by the Deal Agent in its discretion from time to time, and notified to the Borrower and each Lender, as the rate generally used by prime banks in the country of such Currency as the benchmark rate against which such prime banks price short term or day to day loans in such Currency.

8

“Benefit Plan”: Any employee benefit plan as defined in Section 3.1(3) of ERISA in respect of which the Borrower or any ERISA Affiliate of the Borrower is, or at any time during the immediately preceding six years was, an “employer” as defined in Section 3.1(5) of ERISA.

“Borrower”: Defined in the Preamble.

“Borrowing Base”: On any date of determination, an amount equal to (i) the Aggregate Outstanding Loan Balance on such date plus (ii) the Outstanding Loan Balance of all Eligible Loans to become included as part of the Collateral on such date minus (iii) the amount (calculated without duplication) by which the Eligible Loans included in the determinations made in clauses (i) and (ii) together exceed any applicable Concentration Limits minus (iv) the Outstanding Loan Balance of any Defaulted Loans.

“Borrowing Base Certificate”: A certificate of a Responsible Officer of the Servicer setting forth the current Borrowing Base as of the date set forth in such certificate and the manner of calculation thereof, to be delivered to the parties and at the times specified herein.

“Borrower Notice”: A written notice, in the form of Exhibit A-1, A-2-a, A-2-b or A-3, as applicable, to be used for each Advance, Swingline Advance or Alternative Currency Swingline Advance, repayment of each Advance, Swingline Advance or Alternative Currency Swingline Advance or termination or reduction of the Facility Amount or Prepayments of Advances, Swingline Advances or Alternative Currency Swingline Advances.

“Breakage Costs”: Any amount or amounts as shall compensate a Lender for any loss, cost or expense incurred by such Lender (as reasonably determined by the applicable Lender Agent on behalf of such Lender) as a result of (i) a prepayment by the Borrower of Advances Outstanding (including Advances Outstanding in an Alternative Currency) or Interest prior to the end of an Accrual Period, (and, for purposes hereof, an Accrual Period ending on the last day of a calendar month in which an initial Advance in an Alternative Currency is made, shall be deemed to have ended on the date one week after the commencement of such Accrual Period and not on such last day of such calendar month) or (ii) solely in the case of a Conduit Lender, the excess, if any, of the CP Rate over the Adjusted LIBOR Rate. All Breakage Costs shall be due and payable upon demand. The determination by the applicable Lender Agent of the amount of any such loss or expense shall be set forth in a written notice to the Borrower and shall be conclusive absent manifest error.

“Business Day”: Any day of the year other than a Saturday or a Sunday on which (a) banks are not required or authorized to be closed in New York, New York, Minneapolis, Minnesota, Charlotte, North Carolina and Baltimore, Maryland, (b) if the term “Business Day” is used in connection with the Adjusted LIBOR Rate, means the foregoing only if such day is also a day of year on which dealings in United States dollar deposits are carried on in the London interbank market, and (c) if the term “Business Day” is used in connection with an Advance or Alternative Currency Swingline Advance denominated in (i) any Alternative Currency other than Euro, means the foregoing only if such day is also a day of year on which commercial banks and the London foreign exchange market settle payments in the Principal Financial Center for such Alternative Currency and (ii) Euro, means any TARGET Day that is also a day on which dealings in deposits are conducted by and between banks in the London interbank market.

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“Canadian Dollars”: The lawful currency of Canada.

“Change-in-Control”: The date on which (a) any Person or “group” acquires any “beneficial ownership” (as such terms are defined under Rule 13d-3 of, and Regulation 13D under the Exchange Act), either directly or indirectly, of stock or other equity interests or any interest convertible into any such interest in the Originator or Servicer having more than fifty percent (50%) of the voting power for the election of directors of the Originator, or Servicer, if any, under ordinary circumstances, or (b) (except in connection with any Permitted Transfer) the Originator or Servicer sells, transfers, conveys, assigns or otherwise disposes of all or substantially all of the assets of the Originator or Servicer.

“Charged-Off Loan”: Any Transferred Loan: (i) that is 180 days or more past due (without giving effect to any Servicer Advance thereon) with respect to any interest or principal payment, (ii) for which an Insolvency Event has occurred with respect to the related Obligor, (iii) for which the related Obligor has suffered any Material Adverse Change, (iv) that is or should be written off as uncollectible by the Servicer in accordance with the Credit and Collection Policy, (v) that has been placed on non-accrual status by the Servicer in accordance with the Credit and Collection Policy, (vi) all or any portion of which has been converted into or exchanged for an Equity Security or (vii) has been sold for less than its Outstanding Loan Balance upon foreclosure or upon exercise of remedies, provided, that, only the portion of the Transferred Loan not recouped in such sale shall be deemed to be “charged-off’ for purposes of clause (vii).

“Charged-Off Portfolio Loan”: Any Portfolio Loan: (i) that is 180 days or more past due (without giving effect to any Servicer Advance thereon) with respect to any interest or principal payment, (ii) for which an Insolvency Event has occurred with respect to the related Obligor, (iii) for which the related Obligor has suffered any Material Adverse Change, (iv) that is or should be written off as uncollectible by the Servicer in accordance with the Credit and Collection Policy, (v) that has been placed on non-accrual status by the Servicer in accordance with the Credit and Collection Policy, (vi) all or any portion of which has been converted into or exchanged for an Equity Security or (vii) has been sold for less than its Portfolio Outstanding Loan Balance upon foreclosure or upon exercise of remedies, provided, that, only the portion of the Portfolio Loan not recouped in such sale shall be deemed to be “charged-off” for purposes of clause (vii).

“Charged-Off Ratio”: With respect to any Collection Period, the percentage equivalent of a fraction, calculated as of the Determination Date for such Collection Period, (a) the numerator of which is equal to the aggregate Outstanding Loan Balance of all Transferred Loans that became Charged-Off Loans during such Collection Period and (b) the denominator of which is equal to the decimal equivalent of a fraction (x) the numerator of which is equal to the sum of (A) the Aggregate Outstanding Loan Balance as of the first day of such Collection Period plus (B) the Aggregate Outstanding Loan Balance as of the last day of such Collection Period and (y) the denominator of which is 2.

“Citigroup”: Citigroup Global Markets Realty Corp., a New York corporation.

“Closing Date”: September 23, 2005.

“Code”: The Internal Revenue Code of 1986, as amended.

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“Collateral”: All right, title and interest, whether now owned or hereafter acquired or arising, and wherever located, of the Borrower in and to the property described in clauses (i) through (xii) below and all accounts, cash and currency, chattel paper, tangible chattel paper, electronic chattel paper, copyrights, copyright licenses, equipment, fixtures, contract rights, general intangibles, instruments, certificates of deposit, certificated securities, uncertificated securities, financial assets, securities entitlements, commercial tort claims, deposit accounts, inventory, investment property, letter-of-credit rights, software, supporting obligations, accessions, and other property consisting of, arising out of, or related to any of the following (in each case excluding the Retained Interest and the Excluded Amounts):

(i) the Transferred Loans, and all monies due or to become due in payment of such Transferred Loans on and after the related Cut-Off Date, including but not limited to all Collections and all obligations owed to the Originator in connection with such Loans;

(ii) any Related Property securing or purporting to secure the Transferred Loans (to the extent the Originator, other than solely in its capacity as collateral agent under any loan agreement with an Obligor, has been granted a Lien thereon) including the related Liens granted by the Obligor under such Transferred Loans and all proceeds from any sale or other disposition of such Related Property;

(iii) all security interests, liens, guaranties, warranties, letters of credit, accounts, bank accounts, mortgages or other encumbrances and property subject thereto from time to time purporting to secure payment of any Transferred Loan, together with all UCC financing statements or similar filings relating thereto;

(iv) all claims (including “claims” as defined in Bankruptcy Code § 101(5)), suits, causes of action, and any other right of the Originator, whether known or unknown, against the related Obligors, if any, or any of their respective Affiliates, agents, representatives, contractors, advisors, or any other Person that in any way is based upon, arises out of or is related to any of the foregoing, including, to the extent permitted to be assigned under applicable law, all claims (including contract claims, tort claims, malpractice claims, and claims under any law governing the purchase and sale of, or indentures for, securities), suits, causes of action, and any other right of the Originator against any attorney, accountant, financial advisor, or other Person arising under or in connection with the related Loan Documents;

(v) all cash, securities, or other property, and all setoffs and recoupments, received or effected by or for the account of the Originator under such Transferred Loans (whether for principal, interest, fees, reimbursement obligations, or otherwise) after the related Cut-Off Date, including all distributions obtained by or through redemption, consummation of a plan of reorganization, restructuring, liquidation, or otherwise of any related Obligor or the related Loan Documents, and all cash, securities, interest, dividends, and other property that may be exchanged for, or distributed or collected with respect to, any of the foregoing;

(vi) all Insurance Policies;

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(vii) the Loan Documents with respect to such Transferred Loans;

(viii) each Collection Account, each Lock-Box and the Lock-Box Account, together with all funds held in or credited to such accounts, and all certificates and instruments, if any, from time to time representing or evidencing each of the foregoing or such funds;

(ix) any Hedging Agreement and any payment from time to time due thereunder;

(x) the Purchase Agreement and the assignment to the Deal Agent of all UCC financing statements filed by the Borrower against the Originator under or in connection with the Purchase Agreement;

(xi) the “Collateral” under, and as defined in, the Existing Loan Funding and Servicing Agreement; and

(xii) the proceeds of each of the foregoing.

“Collateral Custodian”: Defined in the Preamble.

“Collateral Custodian Expenses”: The reasonable out-of-pocket expenses to be paid to the Collateral Custodian under and in accordance with the Backup Servicer and Collateral Custodian Fee Letter.

“Collateral Custodian Fee”: The fee to be paid to the Collateral Custodian under the terms of the Backup Servicer and Collateral Custodian Fee Letter, including the “Collateral Custodian Fee” and “Administration Fee,” each as defined in the Backup Servicer and Collateral Custodian Fee Letter.

“Collection Account”: Each Collection Account set forth on Annex D as amended from time to time.

“Collection Date”: The date following the Termination Date on which the Obligations have been reduced to zero and indefeasibly paid in full other than contingent indemnification obligations.

“Collection Period”: Each calendar month, except in the case of the first Collection Period, the period beginning on the Closing Date to and including the last day of the calendar month in which the Closing Date occurs.

“Collections”: (a) All cash collections or other cash proceeds received by the Borrower or by the Servicer or Originator on behalf of the Borrower from any source in payment of any amounts owed in respect of a Transferred Loan, including, without limitation, Interest Collections, Principal Collections, Deemed Collections, Insurance Proceeds, interest earnings in the Collection Accounts, and all Recoveries, (b) all amounts received by the Borrower pursuant to Section 2.19(b) in connection with the repurchase by the Originator of Ineligible Loans pursuant to the Purchase Agreement, (c) any other funds received by or on behalf of the

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Borrower with respect to any Transferred Loan or Related Property, and (d) all payments received pursuant to any Hedging Agreement or Hedge Transaction, but excluding, in the case of (a), (b) or (c), as applicable, amounts in respect of any Retained Interest and Excluded Amounts.

“Commercial Paper Notes”: On any day, any short-term promissory notes issued by any Conduit Lender (or its related commercial paper issuer if the Conduit Lender does not itself issue commercial paper) in the commercial paper market.

“Commitment”: With respect to each Conduit Lender and each Institutional Lender, the commitment (without duplication) of such Lender to make Advances in accordance herewith in an amount not to exceed (a) prior to the Termination Date, the amount set forth opposite such Lender’s name on Annex B hereto and (b) on and after the Termination Date, except to the extent set forth in Section 2.5, the outstanding Advances of such Lender.

“Commitment Termination Date”: October 1, 2009, or such later date as the Deal Agent and each Lender Agent shall notify the Borrower of in writing in accordance with Section 2.1(d).

“Computer Records”: The computer records generated by the Servicer or any subservicer that provide information relating to the Loans and that were used by the Originator in selecting the Loans in the Collateral.

“Concentration Limits”: On any day, each of the following (calculated on the basis of a percentage of the Aggregate Outstanding Loan Balance (except with respect to clause (l) hereof), such Aggregate Outstanding Loan Balance in each case excluding ACAS Business Loan Trust Securities unless otherwise indicated), provided, that, each reference to Eligible Loans excludes ACAS Business Loan Trust Securities unless otherwise indicated:

(a) the sum of the Outstanding Loan Balances of Eligible Loans included in the Collateral to Obligors whose chief executive office is in any one state in the United States shall not exceed 35%;

(b) the sum of the Outstanding Loan Balances of Eligible Loans included in the Collateral to Obligors which are in the same Industry shall not exceed 10%;

(c) the sum of the Outstanding Loan Balances of Eligible Loans included in the Collateral to any one Obligor shall not exceed the greater of $45,000,000 and 7%;

(d) the sum of the Outstanding Loan Balances of Eligible Loans included in the Collateral the Obligors of which are Grade 2 Obligors shall not exceed the greater of $30,000,000 and 7.5%;

(e) the sum of the Outstanding Loan Balances of Eligible Loans included in the Collateral that have interest due and payable monthly shall not be less than 50%;

(f) the sum of the Outstanding Loan Balances of Eligible Loans included in the Collateral that have at least a portion of the monthly or quarterly interest that is due under such Loans payable on a current basis by the Obligors thereof in cash (or such Obligors shall have other Loans included as part of the Collateral that pay current monthly or quarterly interest on a current basis in cash) shall not be less than 100%;

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(g) the sum of the Outstanding Loan Balances of each Eligible Loan included in the Collateral which is a PIK Loan and which is either (a) a Fixed Rate Loan having a Loan Rate of less than 11% per annum or (b) a Floating Rate Loan having a Loan Rate of less than 8% per annum shall not exceed 0%;

(h) the sum of the Outstanding Loan Balances of Eligible Loans included in the Collateral principally secured by real property shall not exceed 40%;

(i) the sum of the Outstanding Loan Balances of all Eligible Loans included in the Collateral which have been included as part of the Collateral for 12 months or more shall not exceed $75,000,000 (provided, that, (1) if a Loan or portion thereof has been transferred, sold, contributed or otherwise conveyed as part of a Permitted Transfer of the type set forth in clause (a) of the definition thereof, such sum shall be calculated by treating any Loans to the related Obligor remaining in the Collateral as if such Loans were first included in the Collateral as of the date of such Permitted Transfer and (2) for Loans set forth on Schedule VII hereto, which schedule may be amended, modified or supplemented from time to time with the consent of the Deal Agent, such sum shall be calculated by treating such Loans as if they were first included in the Collateral as of the date specified on such schedule);

(j) the sum of the Outstanding Loan Balances of Eligible Loans included in the Collateral that are Loans to Obligors organized, or with a principal office located in, France shall not exceed $75,000,000;

(k) the sum of the Outstanding Loan Balances of Eligible Loans included in the Collateral minus all amounts in excess of Concentration Limits (a) through (j) divided by the number of Obligors shall not exceed the greater of $12,000,000 and 4%; and

(l) the sum of the Outstanding Loan Balances of all ACAS Business Loan Trust Securities shall not exceed 20% of the Facility Amount.

“Conduit Assignee”: Any special purpose entity that finances its activities directly or indirectly through the issuance of asset backed commercial paper and is administered by a Lender Agent or any Affiliate thereof and is designated by a Lender Agent from time to time to accept an assignment from a Conduit Lender of all or a portion of such Conduit Lender’s Advances.

“Conduit Lender”: VFCC, YC SUSI Trust and each other special purpose entity that finances its activities directly or indirectly through asset backed commercial paper as may from time to time become a Lender hereunder by executing and delivering a Joinder Supplement to the Deal Agent and the Borrower as contemplated by Section 2.1(e); provided, however that each Conduit Lender shall be a party to a Liquidity Purchase Agreement pursuant to which a financial institution is committed to make Advances hereunder in the event that such Conduit Lender opts not to make any Advances requested hereunder.

“Consents”: Defined in Section 7.11(e).

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“Consolidated Subsidiary”: With respect to any Obligor, as of any date of determination, any Subsidiary or other Person the accounts of which would be consolidated with those of the Obligor in its consolidated financial statements if such statements were prepared as of such date.

“Contractual Obligation”: With respect to any Person, means any provision of any securities issued by such Person or any indenture, mortgage, deed of trust, contract, undertaking, agreement, instrument or other document to which such Person is a party or by which it or any of its property is bound or is subject.

“CP Rate”: For any Accrual Period, the per annum rate equivalent to the weighted average of the per annum rates paid or payable by a Conduit Lender (or, with respect to YC SUSI Trust, the YC SUSI Conduit Lender) from time to time as interest on or otherwise (by means of interest rate hedges or otherwise taking into consideration any incremental carrying costs associated with short-term promissory notes issued by such Conduit Lender or with respect to YC SUSI Trust, the YC SUSI Conduit Lender, maturing on dates other than those certain dates on which such Conduit Lender or, with respect to YC SUSI Trust, the YC SUSI Conduit Lender, is to receive funds) in respect of the Commercial Paper Notes issued by such Conduit Lender (or, with respect to YC SUSI Trust, the YC SUSI Conduit Lender) that are allocated, in whole or in part, by the applicable Lender Agent (on behalf of such Conduit Lender or, with respect to YC SUSI Trust, the YC SUSI Conduit Lender) to fund or maintain the Advances Outstanding during such period, as determined by the applicable Lender Agent (on behalf of such Conduit Lender or, with respect to YC SUSI Trust, the YC SUSI Conduit Lender) and reported to the Borrower and the Servicer, which rates shall reflect and give effect to (i) the commissions of placement agents and dealers in respect of such promissory notes, to the extent such commissions are allocated, in whole or in part, to such promissory notes by the applicable Lender Agent (on behalf of such Conduit Lender or, with respect to YC SUSI Trust, the YC SUSI Conduit Lender) and (ii) other borrowings by such Conduit Lender (or, with respect to YC SUSI Trust, the YC SUSI Conduit Lender), including, without limitation, borrowings to fund small or odd dollar amounts that are not easily accommodated in the commercial paper market; provided, however, that if any component of such rate is a discount rate, in calculating the CP Rate, the applicable Lender Agent shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum.

“Credit and Collection Policy”: Those credit, collection, customer relation and service policies: (a) determined by the Borrower, the Originator and the initial Servicer as of the date hereof relating to the Loans and related Loan Documents, described in Exhibit G, as the same may be amended or modified from time to time in accordance with Section 7.9(g); and (b) with respect to any Successor Servicer, the collection procedures and policies of such person (as approved by the Required Lenders) at the time such Person becomes Successor Servicer.

“Currency”: Dollars or any Foreign Currency.

“Cut-Off Date”: With respect to each Transferred Loan, the Purchase Date of such Transferred Loan, on and after which Collections on such Transferred Loan become included as part of the Collateral.

“Deal Agent”: Defined in the Preamble.

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“Deal Agent’s Accounts”: The accounts set forth on Annex D.

“Deemed Collection”: Defined in Section 2.4(c).

“Defaulted Loan”: Any Transferred Loan (that is not a Charged-Off Loan): (i) with respect to any Loan (other than an ACAS Business Loan Trust Security) (a) that is 60 days or more past due with respect to any interest or principal payments or (b) that is or otherwise should be considered a Defaulted Loan by the Servicer in accordance with the Credit and Collection Policy; and (ii) with respect to any ACAS Business Loan Trust Security (a) that is more than 5 days past due with respect to any interest or principal payments or (b) that is or otherwise should be considered a Defaulted Loan by the Servicer in accordance with the Credit and Collection Policy.

“Defaulted Portfolio Loan”: Any Portfolio Loan (that is not a Charged-Off Portfolio Loan): (i) with respect to any Loan (other than an ACAS Business Loan Trust Security) (a) that is 60 days or more past due with respect to any interest or principal payments or (b) that is or otherwise should be considered a Defaulted Portfolio Loan by the Servicer in accordance with the Credit and Collection Policy; and (ii) with respect to any ACAS Business Loan Trust Security (a) that is more than 5 days past due with respect to any interest or principal payments or (b) that is or otherwise should be considered a Defaulted Portfolio Loan by the Servicer in accordance with the Credit and Collection Policy.

“Default Ratio”: With respect to any Collection Period, the percentage equivalent of a fraction, calculated as of the Determination Date for such Collection Period, (a) the numerator of which is equal to the aggregate Outstanding Loan Balance of all Defaulted Loans (excluding Charged-Off Loans) and (b) the denominator of which is equal to the decimal equivalent of a fraction the numerator of which is equal to the sum of (i) the Aggregate Outstanding Loan Balance as of the first day of such Collection Period and (ii) the Aggregate Outstanding Loan Balance as of the last day of such Collection Period and the denominator of which is 2.

“Delinquent”: On any day with respect to any Loan, and any specified time period, (i) any payment, or portion thereof, due with respect thereto, has not been made by the Obligor of such Loan for the specified time period from the due date of such payment or (ii) other than with respect to any PIK Loans, the related Obligor is not paying any of the accrued and unpaid interest thereon on a current basis.

“Derivatives”: Any exchange-traded or over-the-counter (a) forward, future, option, swap, cap, collar, floor, foreign exchange contract, any combination thereof, whether for physical delivery or cash settlement, relating to any interest rate, interest rate index, currency, currency exchange rate, currency exchange rate index, debt instrument, debt price, debt index, depository instrument, depository price, depository index, equity instrument, equity price, equity index, commodity, commodity price or commodity index, (b) any similar transaction, contract, instrument, undertaking or security, or (c) any transaction, contract, instrument, undertaking or security containing any of the foregoing.

“Determination Date”: The last day of each Collection Period.

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“Dollar Equivalent”: On any day, with respect to the amount of any Foreign Currency, the amount of Dollars that would be required to purchase such amount of Foreign Currency on such day; provided, that,

(a) the Deal Agent shall calculate the Dollar Equivalent of all Alternative Currency Swingline Advances by using the spot selling rate at which the Deal Agent offers to sell such Foreign Currency for Dollars in the London foreign exchange market at approximately 11:00 a.m., London time for delivery on the day on which the related Alternative Currency Swingline Funding Request is received or deemed received, and such spot selling rate shall be applicable to the related Alternative Currency Swingline Advance until the Alternative Currency Swingline Lender has been reimbursed in accordance with Section 2.5; and

(b) the Deal Agent shall calculate the Dollar Equivalent of each Advance in an Alternative Currency on the day which is two Business Days prior to the related Funding Date by using the spot selling rate at which the Deal Agent offers to sell such Foreign Currency for Dollars in the London foreign exchange market at approximately 11:00 a.m., London time for delivery two Business Days later, and such spot selling rate shall be applicable to the related Advance in an Alternative Currency for the related Accrual Period;

provided, further, that, on any day, the Deal Agent may calculate the Dollar Equivalent of all Advances outstanding in Alternative Currencies and all Alternative Currency Swingline Advances by using the spot selling rate at which the Deal Agent offers to sell such Foreign Currency for Dollars in the London foreign exchange market at approximately 11:00 a.m., London time for delivery on the same day.

“Dollars”: Means, and the conventional “$” signifies, the lawful currency of the United States of America.

“Eligible Loan”: On any day, (i) any ACAS Business Loan Trust Security that has a rating of not less than “BBB” by Fitch or the equivalent by any other rating agency that rates such securities, provided, that, if such securities are rated by more than one rating agency and such ratings are not equivalent, the lowest rating shall be used for the purposes hereof and (ii) any Loan that satisfies each of the following requirements:

(i) the Loan is evidenced by Loan Documents that have been duly authorized and are in full force and effect and constitute the legal, valid and binding obligation of the Obligor of such Loan to pay the stated amount of the Loan and interest thereon, and the related Loan Documents are enforceable against such Obligor in accordance with their respective terms;

(ii) the Loan was originated or purchased in accordance with the terms of the Credit and Collection Policy and arose in the ordinary course of the Originator’s business from the loaning of money to the Obligor thereof;

(iii) as of the date such Loan is first included in the Collateral, the Loan is not a Defaulted Loan or a Charged-Off Loan, and, for purposes of the initial Advance, Swingline Advance or Alternative Currency Swingline Advance made with respect to such Loan, no payment or portion thereof is more than ten days Delinquent;

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(iv) the Obligor of such Loan has executed all appropriate documentation required by the Originator, as required by, and in accordance with, the Credit and Collection Policy;

(v) the Loan (other than a Loan denominated in an Alternative Currency), together with the Loan Documents related thereto, is a “general intangible”, an “instrument”, a “payment intangible”, an “account”, or “chattel paper” within the meaning of the UCC of all jurisdictions that govern the perfection of the security interest granted therein;

(vi) all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given in connection with the making of such Loan have been duly obtained, effected or given and are in full force and effect;

(vii) any applicable taxes in connection with the transfer of such Loan have been paid and the Obligor has been given any assurances (including with respect to the payment of transfer taxes and compliance with securities laws) required by the Loan Documents in connection with the transfer of the Loan;

(viii) the Loan is denominated and payable only in (i) Dollars in the United States or (ii) one specific Alternative Currency in an Approved Country, and the related Loan Documents do not permit such Loan to be repaid in any Currency other than the Currency in which such Loan was made;

(ix) the Loan bears some current interest, which is due and payable monthly or quarterly;

(x) the Loan, together with the Loan Documents related thereto, was originated in accordance with, and does not contravene in any material respect any Applicable Laws (including, without limitation, laws, rules and regulations relating to usury, predatory lending, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Loan Documents related thereto is in material violation of any such Applicable Laws;

(xi) the Loan, together with the related Loan Documents, is fully assignable, (and, if such Loan is secured by an interest in real property, an Assignment of Mortgage has been delivered to the Collateral Custodian);

(xii) the Loan was documented and closed in accordance with the Credit and Collection Policy, and there is only one current original promissory note (other than with respect to a Noteless Loan), which has been delivered to the Collateral Custodian, duly endorsed as collateral;

(xiii) the Loan, (i) (together with the Collections, Related Property and all other Collateral related thereto) has been the subject of a grant by the Borrower in favor of the Deal Agent, on behalf of the Secured Parties, of a first priority perfected security interest,

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and (ii) the Borrower’s interest in all Related Property are free of any Liens, except for Permitted Liens and all filings and other actions required to (1) with respect to a Loan denominated in Dollars, perfect the security interest of (a) the Deal Agent, as agent for the Secured Parties, in the Loan and Related Property have been made or taken and (b) with respect to an Agented Note denominated in Dollars, the collateral agent, as agent for all holders of indebtedness of the related Obligor under the related Loan Documents, in the Related Property, have been made or taken and (2) (a) with respect to a Loan denominated in an Alternative Currency, grant a valid and effective security interest (subject to any filing, registration or notarization (including registration of a debenture necessary to perfect such security interest and make such security interest enforceable)) to the Deal Agent, as agent for the Secured Parties, in the Loan and Related Property and (b) with respect to an Agented Note denominated in an Alternative Currency, grant a valid and effective security interest (subject to any filing, registration or notarization (including registration of a debenture necessary to perfect such security interest and make such security interest enforceable)) to the collateral agent, as agent for all holders of indebtedness of the related Obligor under the related Loan Documents, in the Related Property;

(xiv) the Loan has an original term to maturity of no more than 120 months, and is either fully amortizing in installments (which installments need not be in identical amounts) over such term or the principal amount thereof is due in a single installment at the end of such term;

(xv) no right of rescission, set off, counterclaim, defense or other material dispute has been asserted with respect to such Loan;

(xvi) any Related Property with respect to such Loan is insured in accordance with the Credit and Collection Policy;

(xvii) the Loan Documents with respect to such Loan are complete in accordance with the Credit and Collection Policy and are in the English language;

(xviii) the Obligor with respect to such Loan is an Eligible Obligor;

(xix) the Loan does not represent payment obligations relating to “put” rights;

(xx) the Loan does not by its terms permit the payment obligation of the Obligor thereunder to be converted into or exchanged for equity capital of such Obligor;

(xxi) payments of interest (or any equivalent thereof) on the Loan are not subject to any withholding or similar tax imposed by any Governmental Authority unless the Obligor is required under the Loan Documents to pay an additional amount with respect to such payments such that the amount actually received by the Borrower after deduction or withholding for or on account of such tax is not less than the amount the Borrower would have received had no such deduction or withholding been deducted or withheld;

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(xxii) if such Loan is originated on or after December 1, 2000, the Obligor of such Loan has waived all rights of set-off and/or counterclaim against the Originator of the Loan and all assignees thereof;

(xxiii) with respect to Agented Notes, the related Loan Documents (a) shall include a loan agreement or a note purchase agreement containing provisions relating to the appointment and duties of a payment agent and a collateral agent and intercreditor and (if applicable) subordination provisions substantially similar to the forms provided to and approved by the Deal Agent and attached hereto as Exhibit T, and (b) are duly authorized, fully and properly executed and are the valid, binding and unconditional payment obligation of the Obligor thereof;

(xxiv) with respect to Agented Notes, the Originator (or American Capital Financial Services, Inc., a wholly owned Subsidiary of the Originator) has been appointed the collateral agent of the security and the payment agent for all such notes prior to such Agented Note becoming a part of the Collateral;

(xxv) with respect to Agented Notes, if the entity serving as the collateral agent of the security for all syndicated notes issued under the related loan agreement or note purchase agreement of the Obligor has or will change from the time of the origination of the notes, all appropriate assignments of the collateral agent’s rights in and to the collateral on behalf of the noteholders have been executed and filed or recorded as appropriate prior to such Agented Note becoming a part of the Collateral;

(xxvi) with respect to Agented Notes, all required notifications, if any, have been given to the collateral agent, the payment agent and any other parties required by the Loan Documents, and all required consents, if any, have been obtained with respect to, the Originator’s assignment of the Agented Notes and the Originator’s right, title and interest in the Related Property to the Borrower and the Deal Agent’s security interest therein on behalf of the Secured Parties;

(xxvii) with respect to Agented Notes, the right to control certain actions of and to replace the collateral agent and/or the paying agent of the syndicated notes is by the holders of the indebtedness evidencing not less than a majority of the outstanding amount of all such indebtedness issued by the Obligor under the Loan Documents for such Agented Notes that is ranked pari passu in terms of priority of payment and/or security interest; and

(xxviii) with respect to Agented Notes, all syndicated notes of the Obligor of the same priority are cross-defaulted, the Related Property securing such notes is held by the collateral agent for the benefit of all holds of the syndicated notes and all holders of such notes (a) have an undivided interest in the collateral securing such notes, (b) share in the proceeds of the sale or other disposition of such collateral on a pro rata basis and (c) may transfer or assign their right, title and interest in the Related Property.

(xxix) all information on the Loan List delivered to the Deal Agent with respect to such Loan is true and correct.

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“Eligible Obligor”: On any day, any Obligor that satisfies each of the following requirements at all times:

(i) such Obligor is not in the gaming, nuclear waste, bio-tech, natural resource exploration or production or construction finance industries;

(ii) such Obligor is not a natural person and is a legal operating entity, duly organized and validly existing under the laws of its jurisdiction of organization;

(iii) the business being financed by such Obligor has an Operating History of at least 60 months from the date of its incorporation or formation;

(iv) such Obligor is not the subject of any Insolvency Event (and, as of the Funding Date on which such Loan became part of the Collateral, such Obligor has not experienced a Material Adverse Change);

(v) such Obligor is not an Affiliate of any other Obligor hereto (other than as a result of being an Affiliate of the Originator);

(vi) no other Loan of such Obligor is Delinquent for more than 30 days;

(vii) such Obligor is not a Governmental Authority;

(viii) such Obligor is in compliance with all material terms and conditions of its Loan Documents;

(ix) such Obligor is organized in, or has a principal office in, and all or substantially all of the Related Property is located in, the United States or any territory of the United States or in an Approved Country;

(x) such Obligor is not organized in, and does not have a principal office in, and the Related Property is not located in, the Province of Quebec, Canada;

(xi) such Obligor is not organized in, and does not have a principal office in, any jurisdiction in which the transfer of such Loan to the Borrower would result in a conflict with or breach or violation of any provision of any Loan Document or the laws of such jurisdiction (including, if such Obligor is organized in The Netherlands, a breach or violation of the law of The Netherlands requiring that such Obligor may only have indebtedness for borrowed money outstanding to professional market parties (as defined from time to time in the Ministerial Regulation dated 26^th June 2002 pursuant to the Act of the Supervision of Credit Institutions 1992)); and

(xii) such Obligor has an Eligible Risk Rating.

“Eligible Risk Rating”: As of any date of determination, with respect to a designated Obligor, a risk rating of “Grade 2,” “Grade 3,” or “Grade 4.”

“English Pounds Sterling”: The lawful currency of the United Kingdom.

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“Equity Security”: Any equity security or other obligation or security that does not entitle the holder thereof to receive periodic payments of interest and one or more installments of principal.

“ERISA”: The U.S. Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

“ERISA Affiliate”: (a) Any corporation that is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower; (b) a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) with the Borrower or (c) a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Borrower, any corporation described in clause (a) above or any trade or business described in clause (b) above.

“Euro”: The lawful currency of the Participating Member States.

“Eurocurrency Disruption Event”: With respect to any Currency, the occurrence of any of the following: (a) the Swingline Lender, the Alternative Currency Swingline Lender, any Institutional Lender or any Liquidity Bank, as applicable, shall have notified the Deal Agent of a determination by such Swingline Lender, Alternative Currency Swingline Lender, Institutional Lender or Liquidity Bank or any of their respective assignees or participants, as applicable, that it would be contrary to law or to the directive of any central bank or other Governmental Authority (whether or not having the force of law) to obtain such Currency in the London interbank market to fund any Advance, Swingline Advance or Alternative Currency Swingline Advance, (b) the Swingline Lender, Institutional Lender or Liquidity Bank, as applicable, shall have notified the Deal Agent of the inability, for any reason, of such Swingline Lender, Institutional Lender, Liquidity Bank or any of their respective assignees or participants, as applicable, to determine the Adjusted LIBOR Rate for such Currency, (c) any Swingline Lender, Alternative Currency Swingline Lender, Institutional Lender or Liquidity Bank, as applicable, shall have notified the Deal Agent of a determination by such Swingline Lender, Alternative Currency Swingline Lender, Institutional Lender, Liquidity Bank or any of their respective assignees or participants, as applicable, that the rate at which deposits of such Currency are being offered to such Swingline Lender, Alternative Currency Swingline Lender, Institutional Lender or Liquidity Bank or any of their respective assignees or participants, as applicable, in the London interbank market does not accurately reflect the cost to such Swingline Lender, Alternative Currency Swingline Lender, Institutional Lender or Liquidity Bank, such assignee or such participant, as applicable, of making, funding or maintaining any Advance, Swingline Advance or Alternative Currency Swingline Advance or (d) the Swingline Lender, the Alternative Currency Swingline Lender, any Institutional Lender or any Liquidity Bank, as applicable, shall have notified the Deal Agent of the inability of such Swingline Lender, Alternative Currency Swingline Lender, Institutional Lender, Liquidity Bank or any of their respective assignees or participants, as applicable, to obtain such Currency in the London interbank market to make, fund or maintain any Advance, Swingline Advance or Alternative Currency Swingline Advance.

“Eurocurrency Liabilities”: Defined in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.

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“Eurocurrency Reserve Percentage”: For any period, means the reserve percentage (expressed as a decimal, rounded upward to the next 1/100^th of one percent (0.01%)), if any, applicable during such period (or, if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any basic, emergency, supplemental, marginal or other reserve requirements) with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term of one month.

“European Central Bank”: The central bank for the Euro, and any successor thereto.

“Exchange Act”: The Securities Exchange Act of 1934, as amended.

“Excluded Amounts”: Any Collections received with respect to Repurchased Loans, Replaced Loans or Loans which are the subject of a Lien Release Dividend to the extent such Collections are attributable to a time after the effective date of such repurchase, substitution or Lien Release Dividend.

“Existing Loan Funding and Servicing Agreement”: Defined in the Recitals.

“Existing Purchase Agreement”: The Second Amended and Restated Purchase and Sale Agreement, dated as of August 10, 2004, by and between the Originator and the Borrower.

“Facility Amount”: The aggregate Commitments of the Conduit Lenders and the Institutional Lenders then in effect (excluding, for the avoidance of doubt, any Swingline Commitment or the Alternative Currency Swingline Amount); provided, that, such amount may not at any time exceed $1,500,000,000 without the written agreement of the parties hereto; provided, further, that, on or after the Termination Date, the Facility Amount shall be $0.

“Facility Fee”: The Facility Fee as defined in the Global Fee Letter.

“Fair Market Value”: With respect to (i) each Eligible Loan included in the Collateral (other than the ACAS Business Loan Trust Securities), if such Eligible Loan has been reduced in value on such date of determination below the original principal amount (other than as a result of the allocation of a portion of the original principal amount to warrants) the fair market value of such Eligible Loan as required by, and in accordance with, the 1940 Act and any orders of the Securities and Exchange Commission issued to the Originator, to be determined by the Board of Directors of the Originator and reviewed by its auditors, and (ii) the ACAS Business Loan Trust Securities (if any), the fair market value of such ACAS Business Loan Trust Securities as determined by the Servicer, from time to time (including, without limitation, on the date of any Funding Request and any Monthly Report), provided, that, from and after the occurrence of an “event of default” under the indenture pursuant which any ACAS Business Loan Trust Security has been issued, the fair market value of such ACAS Business Loan Trust Security shall equal $0.

“FATF”: Defined in Section 4.1(hh).

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“Federal Funds Rate”: With respect to any Lender, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the federal funds rates as quoted by the applicable Lender Agent (in the case of any Conduit Lender or Institutional Lender) or the Swingline Lender (in the case of the Swingline Lender) and confirmed in Federal Reserve Board Statistical Release H.15 (519) or any successor or substitute publication selected by each Lender Agent or the Swingline Lender, as applicable (or, if such day is not a Business Day, for the preceding Business Day), or, if, for any reason, such rate is not available on any day, the rate determined, in the sole opinion of each Lender Agent or the Swingline Lender, as applicable, to be the rate at which federal funds are being offered for sale in the national federal funds market at 9:00 a.m. Charlotte, North Carolina time.

“Federal Reserve Board”: The Board of Governors of the Federal Reserve System.

“Fitch”: Means Fitch, Inc. or any successor thereto.

“Fixed Rate Loan”: A Transferred Loan that is other than a Floating Rate Loan.

“Fixed Rate Loan Percentage”: As of any date of determination, the percentage equivalent of a fraction (i) the numerator of which is equal to the sum of the Outstanding Loan Balances of all Fixed Rate Loans as of such date and (ii) the denominator of which is equal to the Aggregate Outstanding Loan Balance as of such date.

“Floating Rate Loan”: A Transferred Loan where the interest rate payable by the Obligor thereof is based on the prime interest rate or other comparable daily rate or the London interbank offered rate (one-month, two-month, three-month, six-month or twelve-month rate), plus some specified interest percentage in addition thereto, and such Transferred Loan provides that such interest rate will reset upon the effective date of any change in the related prime interest rate or other comparable daily rate or London interbank offered rate.

“Foreign Currency”: Any Currency other than Dollars.

“Foreign Currency Equivalent”: On any day, with respect to any amount in Dollars, the amount of Foreign Currency that would be required to purchase such amount of Dollars on such day, based on the spot selling rate at which the Deal Agent offers to sell Dollars for such Foreign Currency in the London foreign exchange market at approximately 11:00 a.m., London time for delivery two Business Days later.

“Funding Date”: Any Business Day on which an Advance, Swingline Advance or Alternative Currency Swingline Advance is made.

“Funding Request”: A Borrower Notice requesting an Advance, Swingline Advance or Alternative Currency Swingline Advance and including the items required by Sections 2.2 and 2.3.

“GAAP”: Generally accepted accounting principles in the United States of America. All ratios and computations based on GAAP contained in this Agreement shall be computed in conformity with GAAP as in effect on the date hereof.

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“Global Fee Letter”: The Fee Letter, dated as of October 5, 2006, among the Borrower, the Servicer, the Swingline Lender, the Alternative Currency Swingline Lender and each Lender Agent, relating to this Agreement, as such letter may be amended, supplemented, modified, waived or restated from time to time.

“Governmental Authority”: Any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, any court or arbitrator and any accounting board or authority (whether or not a part of the government) which is responsible for the establishment or interpretation of national or international accounting principles.

“Grade 1 Obligor”: As of any date of determination, an Obligor of any Loan that the Servicer determines to be or, in accordance with the Credit and Collection Policy, should have determined to be, classified as “Grade 1.”

“Grade 2 Obligor”: As of any date of determination, an Obligor of any Loan that the Servicer determines to be or, in accordance with the Credit and Collection Policy and Section 7.9(l), should have determined to be, classified as “Grade 2.”

“Grade 3 Obligor”: As of any date of determination, any Obligor of any Loan that the Servicer determines to be or, in accordance with the Credit and Collection Policy, should have determined to be, classified as “Grade 3.”

“Grade 4 Obligor”: As of any date of determination, an Obligor of any Loan that the Servicer determines to be or, in accordance with the Credit and Collection Policy, should have determined to be, classified as “Grade 4.”

“Grant”: To grant, bargain, sell, warrant, alienate, remise, demise, release, convey, assign, transfer, mortgage, pledge, create and grant a security interest in and right of set-off against, deposit, set over and confirm. A Grant of any instrument, shall include all rights, powers and options (but none of the obligations) of the granting party thereunder, including without limitation, the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect thereof, and all other monies payable thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options, to bring any suit in equity, action at law or other judicial or administrative proceeding in the name of the granting party or otherwise, and generally to do and receive anything that the granting party may be entitled to do or receive thereunder or with respect thereto.

“H.15”: Federal Reserve Statistical Release H.15.

“Hedge Amount”: On any day, an amount equal to the product of (a) the product of (i) the Borrowing Base and (ii) the Fixed Rate Loan Percentage and (b) the Advances Outstanding divided by the Aggregate Outstanding Loan Balance.

“Hedge Breakage Costs”: With respect to each Hedge Counterparty upon the early termination of any Hedge Transaction with such Hedge Counterparty, the net amount, if any, payable by the Borrower to such Hedge Counterparty for the early termination of that Hedge Transaction or any portion thereof.

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“Hedge Collateral”: Defined in Section 5.2(b).

“Hedge Counterparty”: Means (a) Wachovia and JPMorgan Chase and (b) any other entity that (i) on the date of entering into any Hedge Transaction (x) is an interest rate swap dealer that has been approved in writing by (I) at any time when there are two or fewer Lenders party hereto (excluding the Swingline Lender and the Alternative Currency Swingline Lender), each Lender Agent, and (II) at any time when there are more than two Lenders party hereto (excluding the Swingline Lender and the Alternative Currency Swingline Lender), the Deal Agent (which approval shall not, in the case of either clause (I) or clause (II), be unreasonably withheld), and (y) has a long-term unsecured debt rating of not less than “A” by S&P, not less than “A-2” by Moody’s and not less than “A” by Fitch (if such entity is rated by Fitch) (the “Long-term Rating Requirement”) and a short-term unsecured debt rating of not less than “A-1” by S&P, not less than “P-1” by Moody’s and not less than F-1 by Fitch (if such entity is rated by Fitch) (the “Short-term Rating Requirement”), and (ii) in a Hedging Agreement (x) consents to the assignment of the Borrower’s rights under such Hedging Agreement to the Deal Agent on behalf of the Secured Parties pursuant to Section 5.2(b) and (y) agrees that in the event that Moody’s, S&P or Fitch reduces its long-term unsecured debt rating below the Long-term Rating Requirement or reduces it short-term debt rating below the Short-Term Rating Requirement, it shall either collateralize its obligations in a manner satisfactory to (I) at any time when there are two or fewer Lenders party hereto (excluding the Swingline Lender and the Alternative Currency Swingline Lender), each Lender Agent, and (II) at any time when there are more than two Lenders party hereto (excluding the Swingline Lender and the Alternative Currency Swingline Lender), the Deal Agent, or transfer its rights and obligations under each Hedging Agreement (excluding, however, any right to net payments or Hedge Breakage Costs under any Hedge Transaction, to the extent accrued to such date or to accrue thereafter and owing to the transferring Hedge Counterparty as of the date of such transfer) to another entity that meets the requirements of clauses (b)(i) and (b)(ii) hereof and has entered into a Hedging Agreement with the Borrower on or prior to the date of such transfer.

“Hedge Notional Amount”: The aggregate notional amount in effect on any day under all Hedge Transactions entered into pursuant to Section 5.2(a).

“Hedge Percentage”: On any day, with respect to Fixed Rate Loans, (a) if the sum of the Outstanding Loan Balances of all Floating Rate Loans on such date exceeds Advances Outstanding, the percentage in accordance with the table below:

the average Rolling Three-Month Portfolio Yield is greater than or equal to 8%	0	%
the average Rolling Three-Month Portfolio Yield is greater than or equal to 6% but less than 8%	50	%
the average Rolling Three-Month Portfolio Yield is less than 6%	100	%

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and (b) if the sum of the Outstanding Loan Balances of all Floating Rate Loans on such date does not exceed Advances Outstanding, the percentage in accordance with the table below:

the average Rolling Three-Month Portfolio Yield is greater than or equal to 8%	50	%
the average Rolling Three-Month Portfolio Yield is greater than or equal to 6% but less than 8%	75	%
the average Rolling Three-Month Portfolio Yield is less than 6%	100	%

“Hedge Transaction”: Each interest rate swap, index rate swap or interest rate cap transaction or comparable derivative arrangements as the Required Lenders may approve in their discretion between the Borrower and a Hedge Counterparty that is entered into pursuant to Section 5.2(a) and is governed by a Hedging Agreement.

“Hedging Agreement”: The agreement between the Borrower and a Hedge Counterparty that governs one or more Hedge Transactions entered into by the Borrower and such Hedge Counterparty pursuant to Section 5.2(a), which agreement shall consist of a “Master Agreement” in a form published by the International Swaps and Derivatives Association, Inc., together with a “Schedule” thereto substantially in the form of Exhibit H-1 hereto or Exhibit H-2 hereto or such other form as the Required Lenders shall approve in writing.

“Increased Costs”: Any amounts required to be paid by the Borrower to an Affected Party pursuant to Section 2.14.

“Indebtedness”: With respect to any Person as of any date, whether or not reflected on the balance sheet or comparable statement of financial position of such Person, (a) all indebtedness of such Person as well as any special purpose entity Subsidiaries of such Person for borrowed money or for the deferred purchase price of property or services (other than current liabilities incurred in the ordinary course of business and payable in accordance with customary trade practices) or that is evidenced by a note, bond, debenture or similar instrument, (including, without limitation, any note, bond, debenture or similar instrument issued in connection with a securitization transaction), (b) all obligations of such Person under capital leases, (b) all obligations of such Person under capital leases, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, and (e) all indebtedness, obligations or liabilities of that Person in respect of Derivatives, determined as of such date on a net mark-to-market basis in accordance with customary market practice and (f) obligations under direct or indirect guaranties in respect of obligation (contingent or otherwise) to purchase or otherwise acquire, or to otherwise assure a creditor against loss in respect of, clauses (a) through (e) above.

“Indemnified Amounts”: Defined in Section 10.1.

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“Indemnified Parties”: Defined in Section 10.1.

“Independent Trustee”: Defined in Section 4.1(t)(xxvii).

“Industry”: The industry of an Obligor as determined by reference to the four digit standard industry classification (SIC) codes.

“Ineligible Loan”: Defined in Section 2.19(b)(i).

“Initial Advance”: The first Advance made under the Third Amended and Restated Loan Funding and Servicing Agreement.

“Insolvency Event”: With respect to a specified Person, (a) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of such Person or any substantial part of its property in an involuntary case under any applicable Insolvency Law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or ordering the winding-up or liquidation of such Person’s affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (b) the commencement by such Person of a voluntary case under any applicable Insolvency Law now or hereafter in effect, or the consent by such Person to the entry of an order for relief in an involuntary case under any such law, or the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or the making by such Person of any general assignment for the benefit of creditors, or the failure by such Person generally to pay its debts as such debts become due, or the taking of action by such Person in furtherance of any of the foregoing.

“Insolvency Laws”: The Bankruptcy Code and the comparable laws of any other country, and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar debtor relief laws from time to time in effect affecting the rights of creditors generally.

“Insolvency Proceeding”: Any case, action or proceeding before any court or Governmental Authority relating to an Insolvency Event.

“Institutional Lender”: Each Lender designated as such on its signatures page hereto and each financial institution other than a commercial paper conduit which may from time to time become a Lender hereunder by executing and delivering a Joinder Supplement to the Deal Agent and the Borrower as contemplated by Section 2.1(e).

“Insurance Policy”: With respect to any Transferred Loan included in the Collateral, an insurance policy covering physical damage to or loss to any assets or Related Property of the Obligor securing such Transferred Loan.

“Insurance Proceeds”: Any amounts payable or any payments made to the Borrower or to the Servicer on its behalf under any Insurance Policy.

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“Intercreditor Agreement”: The Fourth Amended and Restated Intercreditor and Lockbox Administration Agreement, dated as of August 10, 2004, among Wells Fargo Bank, National Association, as the indenture trustee, Wachovia Capital Markets, LLC, as the conduit agent, Branch Banking and Trust Company, as the syndication agent, Harris Nesbitt Corp., as the Fairway agent thereunder, each securitization agent that from time to time executes a joinder thereto, and American Capital, as such agreement may be amended, modified, waived, supplemented or restated from time to time.

“Interest”: For each Accrual Period and each Advance, each Swingline Advance and each Alternative Currency Swingline Advance outstanding during such Accrual Period, the sum of the products (for each day during such Accrual Period) of:

where

IR	=	the Interest Rate applicable on such day;
P	=	the principal amount of such Advance, Swingline Advance or Alternative Currency Swingline Advance on such day; and
D	=	360 or, to the extent the Interest Rate is based on the Base Rate or an Advance or Alternative Currency Swingline Advance is denominated in English Pounds Sterling, 365 or 366 days, as applicable.

provided, however, that (i) no provision of this Agreement shall require or permit the collection of Interest in excess of the maximum permitted by Applicable Law and (ii) Interest shall not be considered paid by any distribution if at any time such distribution is rescinded or must otherwise be returned for any reason.

“Interest Collections”: Any and all amounts received on a Transferred Loan from or on behalf of any Obligors that are deposited into a Collection Account, or received by the Borrower or by the Servicer or Originator on behalf of the Borrower in respect of Transferred Loans, not constituting Principal Collections including in the case of any PIK Loans only the PIK Cash-Pay Interest on such PIK Loans and, solely for purposes of calculating the Portfolio Yield, any and all amounts received in respect of any fees (but only to the extent such fees are not part of the Retained Interest and were received during the related Collection Period) owed by any Obligor in respect of any Eligible Loan (net of any payment owed by the Borrower to, and including any receipts from, any Hedge Counterparties).

“Interest Rate”:

(a) For each Accrual Period and for each Advance outstanding by a Lender for each day during such Accrual Period, whether or not the applicable Lender has funded the Advance through the issuance of Commercial Paper Notes (whether directly or indirectly through such Lender’s funding source (which, with respect to YC SUSI Trust, is the YC SUSI Conduit

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Lender)), a rate equal to the Alternative Rate, plus, only in respect of Advances in English Pounds Sterling, the Mandatory Cost Rate; provided, that, with respect to any Advance by a Conduit Lender, the Interest Rate shall be the Base Rate for any Accrual Period for any Advance as to which the related Conduit Lender (or, with respect to YC SUSI Trust, the YC SUSI Conduit Lender) has funded the making or maintenance thereof by a sale of an interest therein to any Liquidity Bank under the Liquidity Purchase Agreement on any day other than the first day of such Accrual Period and without giving such Liquidity Bank at least two Business Days’ prior notice of such assignment;

(b) (i) for each Swingline Advance, the LIBOR Market Index Rate and (ii) for each Alternative Currency Swingline Advance in English Pounds Sterling, Canadian Dollars or Euro, the Base Rate;

provided, further, that the Interest Rate shall be the Base Rate for any Accrual Period for any Advance or Swingline Advance if the relevant Lender or Liquidity Bank shall have notified the Deal Agent that a Eurocurrency Disruption Event has occurred.

“Investment”: With respect to any Person, any direct or indirect loan, advance or investment by such Person in any other Person, whether by means of share purchase, capital contribution, loan or otherwise, excluding the acquisition of assets pursuant to the Purchase Agreement and excluding commission, travel and similar advances to officers, employees and directors made in the ordinary course of business.

“ISDA Definitions”: The 2000 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc.

“Joinder Supplement”: An agreement among the Borrower, a Lender, a Lender Agent and the Deal Agent in the form of Exhibit W to this Agreement (appropriately completed) delivered in connection with a Person becoming a Lender hereunder, as contemplated by Section 2.01(e).

“JPMorgan Chase”: JPMorgan Chase Bank, N.A.

“Lender”: Defined in the Preamble.

“Lender Agent”: With respect to (i) VFCC, the Deal Agent, (ii) YC SUSI Trust, Bank of America, National Association and (iii) each Conduit Lender which may from time to time become party hereto, the Person designated as the “Lender Agent” with respect to such Lender in the applicable Joinder Supplement; provided, that each Lender designated as an Institutional Lender on its signature page hereto and each other Institutional Lender which may from time to time become a party hereto, shall be deemed to be its own Lender Agent.

“LIBOR”: For any Currency, the rate at which deposits denominated in such Currency are offered to leading banks in the London interbank market (or, in the case of English Pounds Sterling, the Paris interbank market).

“LIBOR Market Index Rate”: For any day, the one-month rate for LIBOR for Dollar deposits as reported on the Telerate Service, Telerate page 3750 as of 11:00 A.M., London time,

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on such day, or if such day is not a Business Day, then the immediately preceding Business Day (or if not so reported, then as determined by the Swingline Lender from another recognized source for interbank quotation).

“LIBOR Rate”: For any Accrual Period for any Advance in any Currency, an interest rate per annum equal to:

(a) the rate appearing on the Screen as LIBOR for deposits in such Currency at approximately 11:00 a.m. (London time) on the second Business Day immediately preceding the applicable Funding Date (with respect to the initial Accrual Period for such Advance or Swingline Advance) and as of the second Business Day immediately preceding the first (1st) day of the applicable Accrual Period (with respect to all subsequent Accrual Periods for such Advance or Swingline Advance); or

(b) if no such rate appears on the Screen at such time and day, then the LIBOR Rate for such Currency shall be the rate determined by the Deal Agent (each such determination, absent manifest error, to be conclusive and binding on all parties hereto and their assignees) as LIBOR for deposits in such Currency offered or quoted by the Deal Agent to major banks in the applicable interbank market for such deposits at or about 11:00 a.m. (local time in such interbank market) on such day.

“Lien”: With respect to any Collateral, (a) any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Collateral, or (b) the interest of a vendor or lessor under any conditional sale agreement, financing Loan or other title retention agreement relating to such Collateral.

“Lien Release Dividend”: Defined in Section 2.17(a).

“Lien Release Dividend Date”: The date specified by the Borrower, which date may be any Business Day, provided written notice is given in accordance with Section 2.17(a).

“Liquidation Expenses”: With respect to any Defaulted Loan or Charged-Off Loan, the aggregate amount of all out-of-pocket expenses reasonably incurred by the Borrower or on behalf of the Borrower by the Servicer (including amounts paid to any subservicer) and reasonably allocated costs of counsel, if any, in connection with the repossession, refurbishing and disposition of any related assets securing such Defaulted Loan or Charged-Off Loan including the attempted collection of any amount owing pursuant to such Defaulted Loan or Charged-Off Loan.

“Liquidity Bank”: Any Person now or hereafter extending credit or having a commitment to extend credit to or for the account of, or to make purchases from, a Conduit Lender (or any related commercial paper issuer that finances such Conduit Lender) or issuing a letter of credit, surety bond or other instrument to support any obligations arising under or in connection with the Conduit Lender’s (or such related issuer’s) commercial paper program.

“Liquidity Purchase Agreement”: Any agreement entered into by any Liquidity Bank providing for the issuance of one or more letters of credit for the account of the Conduit Lender (or any related commercial paper issuer that finances the Conduit Lender), the issuance of one or

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more surety bonds for which the Conduit Lender (or such related issuer) is obligated to reimburse the applicable Liquidity Bank for any drawings thereunder, the sale or assignment by the Conduit Lender (or such related issuer) to any Liquidity Bank of any Advance (or portions thereof or participations therein) and/or the making of loans and/or other extensions of credit to the Conduit Lender (or such related issuer) in connection with its commercial paper program, together with any letter of credit, surety bond or other instrument issued thereunder.

“Loan”: (i) Any senior or subordinate loan in any Currency arising from the extension of credit to an Obligor in the ordinary course of the Originator’s business including, without limitation, all Add-On Loans, Revolving Loans, PIK Loans, Noteless Loans and Agented Notes and (ii) the ACAS Business Loan Trust Securities (if any), in each case including monies due and owing and all Interest Collections, Principal Collections and other amounts received from time to time with respect to such loan or note receivable and all Proceeds thereof.

“Loan Checklist”: With respect to each Loan File, one or more documents in the form of Schedule VI hereto accompanying and listing each Loan Document in such Loan File delivered to the Collateral Custodian.

“Loan Documents”: (a) For each Loan (other than the ACAS Business Loan Trust Securities), originals (except as otherwise indicated) of the following documents or instruments:

(i) other than in the case of a Noteless Loan, the original or, in the case of a lost note accompanied by an affidavit and indemnity, a copy of, Underlying Note, endorsed by the Obligor or the prior holder of record either in blank or to the Deal Agent (and evidencing an unbroken chain of endorsements from each prior holder thereof evidenced in the chain of endorsements to the Deal Agent), with any endorsement to the Deal Agent to be in the following form: “Wachovia Capital Markets, LLC, as Deal Agent for the Secured Parties”, (ii) in the case of a Noteless Loan, (x) a copy of each transfer document or instrument relating to such Loan evidencing the assignment of such Loan either (1) from the Originator to the Borrower and from the Borrower either to the Deal Agent or in blank, or (2) from the prior third party owner thereof directly to the Borrower (at the direction of the Originator) and from the Borrower either to the Deal Agent or in blank, and (y) a copy of the Loan Register with respect to such Loan (together with a copy of a certificate of a Responsible Officer of the Servicer certifying to the accuracy of such Loan Register as of the date such Loan is included as a part of the Collateral);

(ii) originals or copies of each of the following, to the extent applicable to the related Loan: any related loan agreement, credit agreement, note purchase agreement, guarantee, mortgage or deed of trust with evidence of recording thereon, assignment of leases and rents, security agreement, subordination agreement, intercreditor agreement or similar instrument, and UCC-1 Financing Statements (including amendments and continuation statements) with evidence of recording thereon, in each case together with any amendment or modification thereto, as set forth on the Loan Checklist;

(iii) if any Loan is secured by a mortgage or deed of trust, an Assignment of Mortgage (including any assignment of leases and rents) in recordable form executed by the mortgagee, beneficiary or prior holder of record, in blank or to the Deal Agent (and evidencing an unbroken chain of assignments from the prior holders of record to the Deal Agent), with any assignment to the Deal Agent to be in the following form: “Wachovia Capital Markets, LLC, as Deal Agent for the Secured Parties”;

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provided, that, with respect to any Loan denominated in an Alternative Currency, Loan Documents shall include any other documents and instruments required to be entered into in accordance with Applicable Law as set forth on the Loan Checklist; and

(b) for ACAS Business Loan Trust Securities (if any), duly executed originals of each of the ACAS Business Loan Trust Securities endorsed in the name of “Wachovia Capital Markets, LLC, as the Deal Agent for the Secured Parties”, as set forth on the Loan Checklist.

“Loan File”: With respect to any Loan, each of the Loan Documents related thereto.

“Loan List”: The Loan List provided by the Borrower to the Deal Agent and the Collateral Custodian in connection with each Advance, Swingline Advance or Alternative Currency Swingline Advance or as new Eligible Loans are added to the Collateral, initially as set forth in Schedule IV hereto (which shall set forth a description of each Transferred Loan, including, without limitation, the name of the borrower of each such Transferred Loan, the Loan number and the maturity date and type of each such Transferred Loan), as the same may be amended, modified or supplemented from time to time in accordance with the provisions hereof.

“Loan Rate”: For each Loan in a Collection Period, the current cash pay interest rate for such Loan in such period, as specified in the related Loan Documents.

“Loan Register”: Defined in Section 7.9(r).

“Lock-Box”: A post office box to which Collections in Dollars are remitted for retrieval by the Lock-Box Bank and deposited by such Lock-Box Bank into the Lock-Box Account.

“Lock-Box Account”: Account number 4000037515 maintained in the name of the Borrower for the purpose of receiving Collections in Dollars at the Lock-Box Bank.

“Lock-Box Agreement”: The Five Party Lockbox Agreement, dated as of August 8, 2002, by and among Wells Fargo Bank, National Association, Regulus West LLC, Wachovia Capital Markets, LLC (f/k/a Wachovia Securities, LLC), American Capital Strategies, Ltd. and ACS Funding Trust I, as such agreement may be amended, modified, waived, supplemented or restated from time to time.

“Lock-Box Bank”: Wells Fargo Bank, National Association.

“Mandatory Cost Rate”: With respect to any Advance or Alternative Currency Swingline Advance in English Pounds Sterling, for any Accrual Period, a rate per annum reflecting the cost to the Lenders of complying with all reserve, special deposit, capital adequacy, solvency, liquidity ratios, fees or other requirements of or imposed by the Bank of England, the Financial Services Authority of the United Kingdom, the European Central Bank or any other Governmental Authority for such Accrual Period attributable to such Advance or Alternative Currency Swingline Advance (rounded upwards, if necessary, to four decimal places), as conclusively determined by the Deal Agent.

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“Margin Stock”: Means “Margin Stock” as defined in Regulation U issued by the Board of Governors of the Federal Reserve System.

“Market Servicing Fee”: Defined in Section 7.27.

“Market Servicing Fee Differential”: On any date of determination, an amount equal to the excess, if any, of the Market Servicing Fee over the Servicing Fee.

“Material Adverse Change”: With respect to any Person, any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of such Person.

“Material Adverse Effect”: With respect to any event or circumstance, means a material adverse effect on, as applicable, (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Servicer, the Borrower, the Backup Servicer or the Collateral Custodian, (b) the validity, enforceability or collectibility of this Agreement or any other Transaction Document or the validity, enforceability or collectibility of the Loans, (c) the rights and remedies of the Deal Agent or any other Secured Party under this Agreement or any Transaction Document or (d) the ability of the Servicer, the Borrower, the Backup Servicer or the Collateral Custodian to perform its obligations under this Agreement or any other Transaction Document, or (e) the status, existence, perfection, priority, or enforceability of the Deal Agent’s or Secured Parties’ interest in the Collateral.

“Maximum Availability”: At any time, an amount equal to the sum of (a) the lesser of (i) the Borrowing Base minus the Required Equity Contribution and (ii) the product of the Borrowing Base and Weighted Average Advance Rate plus (b) the amount of Principal Collections on deposit in the Collection Accounts received in reduction of the Outstanding Loan Balance of any Loan; provided, however, that during the Amortization Period, the Maximum Availability shall be equal to the Advances Outstanding.

“Maximum Lawful Rate”: Defined in Section 2.8(c).

“Minimum Portfolio Yield”: (i) 6.0% and (ii) 5.0% after excluding the amount of interest deferred and accrued with respect to each PIK Loan.

“Monetary Policy Committee”: The committee of the Bank of England which sets interests rates for the Bank of England, and any successor committee thereto.

“Monthly Report”: Defined in Section 7.17(a).

“Moody’s”: Moody’s Investors Service, Inc., or any successor thereto.

“Multiemployer Plan”: A “multiemployer plan” as defined in Section 4001(a)(3) of ERISA that is or was at any time during the current year or the immediately preceding five years contributed to by the Borrower or any ERISA Affiliate on behalf of its employees.

“National Currency”: The currency, other than the Euro, of a Participating Member State.

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“Net Mark to Market Amount”: With respect to each Hedge Counterparty, as set forth on each Monthly Report for each Determination Date, the net amount that would be payable by the Borrower to such Hedge Counterparty if all Hedge Transactions of the Borrower with such Hedge Counterparty were being terminated as of such date, which amount (i) shall have been provided to the Servicer by such Hedge Counterparty for inclusion in each Monthly Report and (ii) shall have been determined by such Hedge Counterparty in good faith and in accordance with its usual business practices; provided, however, that such valuation will be based on a mid-market valuation of each such Hedge Transaction and as such is an indicative valuation calculation, it being understood that the net amount that would be payable in the event of any termination of any Hedge Transaction would be determined in accordance with the provisions of the applicable Hedging Agreement governing a termination due to an event of default or termination event and would be subject to market conditions at the time the applicable Hedge Transaction is terminated.

“Net Worth”: The total of stockholder’s equity (determined in accordance with GAAP) plus Subordinated Debt, less (i) the total amount of loans to officers, directors, or employees and (ii) the total amount of any intangible assets, including without limitation, deferred charges and goodwill.

“Noteless Loan”: A Loan (other than an ACAS Business Loan Trust Security) with respect to which the Loan Documents (i) do not require the Obligor to execute and deliver a promissory note to evidence the indebtedness created under such Loan or (ii) do not require any holder of the indebtedness created under such Loan to affirmatively request a promissory note from the related Obligor.

“Notes”: Defined in Section 2.1(a).

“Obligations”: All loans, advances, debts, liabilities and obligations, for monetary amounts owing by the Borrower to the Secured Parties, the Backup Servicer and the Collateral Custodian or any of their assigns, as the case may be, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties regarding such amounts, of any kind or nature, present or future, arising under or in respect of any of this Agreement, any fee letter (including, without limitation, the Global Fee Letter and the Backup Servicer and Collateral Custodian Fee Letter) delivered in connection with the transactions contemplated by this Agreement, any other Transaction Document (including any Hedging Agreement), as amended or supplemented from time to time, whether or not evidenced by any separate note, agreement or other instrument. This term Obligations includes, without limitation, all Advances Outstanding, Interest (including interest that accrues after the commencement against the Borrower of any action under the Bankruptcy Code), Breakage Costs, Hedge Breakage Costs, fees, including, without limitation, any and all arrangement fees, loan fees, facility fees, and any and all other fees, expenses, costs or other sums (including attorney costs) chargeable to the Borrower under any of the Transaction Documents (including under any Hedging Agreement).

“Obligor”: With respect to any Loan, the Person or Persons obligated to make payments pursuant to such Loan, including any guarantor thereof. For purposes of calculating, (i)(1) clauses (a), (b), (j) and (k) of the Concentration Limits and (2) clauses (i), (iv), (ix), (x) and (xi)

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of the definition of Eligible Obligor, the Person whose assets, cashflows or credit were the basis on which such Loan was principally underwritten by the Originator shall be treated as the sole Obligor of the Loan, and (ii) all other Concentration Limits, Loans included in the Collateral or to become part of the Collateral the Obligor of which is an Affiliate of another Obligor shall be aggregated with all Loans of such other Obligor; for example, if Corporation A is an Affiliate of Corporation B; and the aggregate Outstanding Loan Balance of all of Corporation A’s Loans in the Collateral constitutes 10% of the Aggregate Outstanding Loan Balance and the aggregate Outstanding Loan Balance of all Corporation B’s Loans in the Collateral constitute 10% of the Aggregate Outstanding Loan Balance, the Obligor concentration for Corporation A would be 20% and the Obligor concentration for Corporation B would be 20%.

“Officer’s Certificate”: A certificate signed by any officer of the Borrower or the Servicer, as the case may be, and delivered to the Backup Servicer and the Deal Agent.

“Operating History”: With respect to any specified Person, the time since the date of such Person’s incorporation or formation that it has continuously operated its business; provided, however, that the Operating History of any Person, newly formed as a result of a merger of two or more Persons or as a result of the acquisition of one or more Persons by a newly formed Person (“Merged Parties”) shall be based on the weighted average (by relative sales) of the Operating Histories of the Merged Parties (excluding for such purposes, entities that are created only for the purpose of being acquisition entities), for example, if Corporation A with sales of $10 million has an Operating History of four years and Corporation B with sales of $20 million has an Operating History of eight years, merge to form NEWCO, the Operating History of NEWCO will be 6.67 years.

“Opinion of Counsel”: A written opinion of external counsel, who may be external counsel for the Borrower or the Servicer, as the case may be, and who shall be reasonably acceptable to the Deal Agent.

“Originator”: American Capital Strategies, Ltd.

“Other Costs”: Defined in Section 12.9(c).

“Outstanding Loan Balance”: With respect to any Loan, as of any date of determination, the lesser of (i) the Fair Market Value of such Loan and (ii) the total remaining amounts of principal payable by the Obligor thereof exclusive of (a) interest payments and (b) Accreted Interest (it being understood that any principal previously covered by a Servicer Advance will be excluded from the principal amounts payable for purposes of this definition), provided, that, the Outstanding Loan Balance of any Loan denominated in an Alternative Currency shall be calculated by reference to the Dollar Equivalent of such amount on such date of determination.

“Parent”: Defined in Section 4.1(t)(xxvii).

“Participating Member State”: A member of the European Community that adopts or has adopted the Euro as its lawful currency in accordance with legislation of the European Economic Community relating to the Economic and Monetary Union.

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“Paying Agent”: American Capital in its capacity as Servicer and any Successor Servicer.

“Payment Date”: The fourteenth (14th) day of each calendar month or, if such day is not a Business Day, the next succeeding Business Day.

“Permitted Investments”: Means negotiable instruments or securities or other investments that, as of any date of determination, mature by their terms on or prior to the Business Day immediately preceding the next Payment Date immediately following such date of determination and which may include one or more of the following types of investments:

(a) marketable obligations of the United States, the full and timely payment of which are backed by the full faith and credit of the United States;

(b) marketable obligations, the full and timely payment of which are directly and fully guaranteed by the full faith and credit of the United States;

(c) bankers’ acceptances and certificates of deposit and other interest-bearing obligations denominated and payable in Dollars and issued by any domestic office of any commercial bank with capital, surplus and undivided profits aggregating at least $100,000,000 organized under the laws of the United States or any state thereof the short-term obligations of which are rated “A-1” by S&P and “P-1” by Moody’s; provided that such bankers’ acceptances, certificates of deposit and other interest-bearing obligations are held in a securities account (as defined in the UCC) located in the United States through which the Collateral Custodian can perfect a security interest therein;

(d) repurchase obligations for underlying securities of the types described in clauses (a), (b) and (c) above entered into with any bank of the type described in clause (c) above;

(e) commercial paper rated at least “A-1” by S&P and “P-1” by Moody’s;

(f) investments in money market funds rated in the highest investment category or otherwise approved in writing by S&P or Moody’s; and

(g) demand deposits, time deposits or certificates of deposit (having original maturities of no more than 365 days of depository institutions or trust companies incorporated under the laws of the United States or any state thereof, or domestic branches of any foreign bank) and subject to supervision and examination by banking or depository institution authorities; provided, however, that at the time such investment, or the commitment to make such investment, is entered into, the short-term debt rating of such depository institution or trust company shall be at least “A-1” by S&P and “P-1” by Moody’s.

Each of the Permitted Investments may be purchased by or through the Backup Servicer or Collateral Custodian or an Affiliate of the Backup Servicer or Collateral Custodian.

“Permitted Liens”: (a) With respect to the Loans, Liens in favor of the Deal Agent, as agent for the Secured Parties, created pursuant to this Agreement or the Purchase Agreement, and (b) with respect to the Borrower’s interest in the related Collateral, any of the following:

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(i) materialmen’s, warehousemen’s, mechanics’ and other liens arising by operation of law in the ordinary course of business for sums not due or sums that are being contested in good faith, (ii) Liens for state, municipal and other local taxes if such taxes are not at the time due and payable or if the Obligor shall currently be contesting the validity thereof in good faith by appropriate proceedings, (iii) purchase money security interests in equipment and, with respect to subordinated Loans made to an Obligor, Liens in favor of senior lenders to such Obligor and with respect to senior Loans made to an Obligor, Liens in favor of junior lenders to such Obligor, (iv) Liens created pursuant to this Agreement in favor of the Deal Agent, on behalf of the Secured Parties, (v) the rights of a Hedge Counterparty under its Hedging Agreement, and (vi) with respect to Agented Notes, Liens in favor of the collateral agent on behalf of all noteholders of the related Obligor.

“Permitted Transfer”: (a) Any financing transaction undertaken by the Borrower or an Affiliate of the Borrower or the Originator that is a whole loan sale or secured, directly or indirectly, by the Collateral or any portion thereof or interest therein, including any sale, lease, asset securitization, secured loan or other transfer or (b) any transfer by the Borrower to the Originator of Transferred Loans (other than in connection with a transaction of the type described in clause (a)).

“Person”: An individual, partnership, corporation (including a business or statutory trust), limited liability company, joint stock company, trust, unincorporated association, sole proprietorship, joint venture, government (or any agency or political subdivision thereof) or other entity.

“PIK Cash-Pay Interest”: As to any PIK Loan, the portion of the interest that accrues that is required to be paid in cash (and not permitted to be added to the balance of such PIK Loan or otherwise deferred and accrued) pursuant to the terms of the related Loan Documents.

“PIK Loan”: A Loan to an Obligor, which provides for a portion of the interest that accrues thereon to be added to the principal amount of such Loan for some period of the time prior to such Loan requiring the current cash payment of interest on a monthly or quarterly basis, which cash payment shall be treated as Interest Collections at the time it is received.

“Portfolio Aggregate Outstanding Loan Balance”: With respect to all Portfolio Loans, as of any date of determination, the sum of the Portfolio Outstanding Loan Balances of such Portfolio Loans on such date minus the Portfolio Outstanding Loan Balances of any Defaulted Portfolio Loans and Charged-Off Portfolio Loans on such date.

“Portfolio Investments”: Investments made by the Originator in the ordinary course of business and consistent with practices existing on December 31, 2003 (as the same may be updated from time to time) in a Person that is accounted for under GAAP as a portfolio investment of the Originator.

“Portfolio Loan”: Any Loan serviced by the Servicer, but excluding any Loan which the Servicer services for an unaffiliated third party or for a Portfolio Investment.

“Portfolio Outstanding Loan Balance”: With respect to any Portfolio Loan, as of any date of determination, the total remaining amounts of principal payable by the Obligor thereof

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(excluding interest payments and Accreted Interest); it being understood that any principal payment previously the subject of a Servicer Advance (of the type described in Section 7.5) will be excluded from the principal amounts payable for purposes of this definition.

“Portfolio Yield”: As of each Determination Date, the annualized percentage equivalent of a fraction (a) the numerator of which is equal to the sum of (x) all Interest Collections deposited in all Collection Accounts during the related Collection Period and (y) the product of 25% and the amount of interest deferred and accrued with respect to each PIK Loan during the related Collection Period minus the sum of (i) the Interest, (ii) the Servicing Fee, (iii) the Program Fee, (iv) the Facility Fee, (v) any Backup Servicer Fees and (vi) any Collateral Custodian Fees and (b) denominator of which is equal to the Aggregate Outstanding Loan Balance as of the first day of the related Collection Period; provided, that, the Portfolio Yield shall be calculated without giving effect to the foregoing clause (y) when calculating the Portfolio Yield in connection with determining the Hedge Percentage.

“Prepaid Loan”: Any Loan (other than a Charged-Off Loan) that was terminated or has been prepaid in full or in part prior to its scheduled maturity date.

“Pre-Positioned Loan”: Any Loan which will be funded at the closing of such Loan with the proceeds of an Advance, Swingline Advance or Alternative Currency Swingline Advance and which is designated by the Borrower (or the Servicer on the Borrower’s behalf) in writing to the Deal Agent as a “Pre-Positioned Loan” shall constitute a “Pre-Positioned Loan” for purposes of the conditions, obligations, certifications and delivery requirements (as applicable) provided for in Sections 2.2(b), 2.3(b), 2.3(c), 3.2(f), 4.1(u)(x), 5.3(a) and 7.10(a), and shall constitute a Transferred Loan for all other purposes under this Agreement, subject to the limitations set forth in Section 2.2(b)(iii) and Section 2.3(b)(ii).

“Prime Rate”: The rate announced by Wachovia from time to time as its prime rate in the United States, such rate to change as and when such designated rate changes. The Prime Rate is not intended to be the lowest rate of interest charged by Wachovia in connection with extensions of credit to debtors.

“Principal Collections”: Any and all amounts received in respect of any principal due and payable under any Transferred Loan from or on behalf of Obligors that are deposited into the Collection Accounts, or received by the Borrower or the Servicer or Originator on behalf of the Borrower in respect of Transferred Loans, in the form of cash, checks, wire transfers, electronic transfers or any other form of cash payment and applied to reduce the Outstanding Loan Balance of a Transferred Loan in accordance with the Credit and Collection Policy.

“Principal Financial Center”: In the case of any Currency, the principal financial center where such Currency is cleared and settled, as determined by the Deal Agent.

“Proceeds”: With respect to any Collateral, whatever is receivable or received when such Collateral is sold, collected, liquidated, foreclosed, exchanged, or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes all rights to payment with respect to any Insurance Policy relating to such Collateral.

“Program Fee”: The Program Fee as defined in the Global Fee Letter.

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“Pro Rata Share”: (a) With respect to each Advance (other than in an Alternative Currency), the percentage obtained for each Conduit Lender and each Institutional Lender by dividing each such Lender’s Commitment (in each case as determined under clause (a) of the definition of “Commitment”) by the aggregate Commitments of all Lenders and (b) with respect to each Advance in an Alternative Currency and each Alternative Currency Swingline Advance, the percentage obtained for each Lender by dividing such Lender’s portion of the Alternative Currency Sub-Limit (as set forth on Annex B) by the Alternative Currency Sub-Limit.

“Purchase Agreement”: The Third Amended and Restated Purchase and Sale Agreement, dated as of the date hereof, by and between the Originator and the Borrower, as such agreement may be amended, modified, waived, supplemented or restated from time to time.

“Purchase Date”: Defined in the Purchase Agreement.

“Qualified Institution”: Defined in Section 7.4(e).

“Rating Agency”: Each of S&P, Moody’s and any other rating agency that has issued a rating with respect to the Commercial Paper Notes issued by a Conduit Lender.

“Records”: With respect to any Loans, all documents, books, records and other information (including without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) maintained with respect to any item of Collateral and the related Obligors, other than the Loan Documents.

“Recoveries”: With respect to any Defaulted Loan or Charged-Off Loan, proceeds of the sale of any Related Property, proceeds of any related Insurance Policy, and any other recoveries with respect to such Loan and Related Property, and amounts representing late fees and penalties, net of Liquidation Expenses and amounts, if any, received that are required to be refunded to the Obligor on such Loan.

“Registrar”: Wachovia, not in its individual capacity but solely as Registrar, its successor or successors in interest and any Person which at any time may be selected by the Borrower upon the resignation of Wachovia to act as Registrar.

“Related Property”: With respect to any Loan, any property or other assets of the Obligor thereunder on which such Obligor has granted or purported to grant a Lien to secure the repayment of such Loan.

“Released Amounts”: With respect to any payment or Collection received with respect to any Transferred Loan on any Business Day (whether such payment or Collection is received by the Servicer, the Originator or the Borrower), an amount equal to that portion of such payment or Collection constituting Excluded Amounts or Retained Interest.

“Replaced Loan”: Defined in Section 2.19(a).

“Reporting Date”: The date that is four Business Days prior to each Payment Date.

“Repurchased Loan”: Defined in Section 2.4(c).

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“Required Advance Reduction Amount”: On any Payment Date, the amount of Advances Outstanding required to be repaid in order to cause the Availability to exceed $0.

“Required Equity Contribution”: As of any date of determination prior to the Termination Date, an amount equal to $115,000,000.

“Required Lenders”: The Conduit Lenders and/or Institutional Lenders representing an aggregate of more than 51% of the aggregate Commitments of the Conduit Lenders and the Institutional Lenders then in effect (excluding, for the avoidance of doubt, any Swingline Commitment and the Alternative Currency Swingline Amount); provided, however, that for the purposes of determining the Required Lenders, in the event that an Institutional Lender or a Conduit Lender (or its related Liquidity Bank on its behalf) fails to provide funding for an Advance hereunder for which all conditions precedent have been satisfied, such Institutional Lender or Conduit Lender, as applicable, shall not constitute a Required Lender hereunder (and the Commitment of such Institutional Lender or Conduit Lender, as applicable, shall be disregarded for purposes of determining whether the consent of the Required Lenders has been obtained).

“Required Reports”: Collectively, the Monthly Report, the Servicer’s Certificate and the quarterly financial statement of the Servicer required to be delivered to the Borrower, the Deal Agent, each Lender Agent, and the Backup Servicer pursuant to Section 7.17 hereof.

“Responsible Officer”: As to any Person, any officer of such Person with direct responsibility for the administration of this Agreement and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject.

“Restricted Payments”: Defined in Section 5.1(z).

“Retained Interest”: With respect to each Loan, the following interests, rights and obligations in such Loan and under the associated Loan Documents, which are being retained by the Originator: (a) all of the obligations, if any, to provide additional funding with respect to such Loan, (b) all of the rights and obligations, if any, of the agent(s) under the documentation evidencing such Loan, (c) the applicable portion of the interests, rights and obligations under the documentation evidencing such Loan that relate to such portion(s) of the indebtedness that is owned by another lender or is being retained by the Originator, (d) any unused, commitment or similar fees associated with the additional funding obligations that are not being transferred in accordance with clause (a) of this definition, (e) any agency or similar fees associated with the rights and obligations of the agent that are not being transferred in accordance with clause (b) of this definition and (f) any advisory, consulting or similar fees due from the Obligor associated with services provided by the agent that are not being transferred in accordance with clause (b) of this definition.

“Retransfer Price”: Defined in Section 2.19(b).

“Revolving Loan”: Any Loan that is a line of credit or other similar extension of credit by the Originator where the Originator’s commitment under such Loan is not fully funded and/or the proceeds of such Loan may be repaid and reborrowed.

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“Revolving Period”: The period commencing on the Closing Date and ending on the day immediately preceding the Termination Date.

“Rolling Three-Month Charged-Off Ratio”: As of any date, the percentage equivalent of a fraction (a) the numerator of which equals the sum of the Charged-Off Ratios for the three Collection Periods immediately preceding such date, and (b) the denominator of which equals three.

“Rolling Three-Month Default Ratio”: As of any date, the percentage equivalent of a fraction (a) the numerator of which equals the sum of the Default Ratios for the three Collection Periods immediately preceding such date, and (b) the denominator of which equals three.

“Rolling Three-Month Portfolio Yield”: As of any date, the percentage equivalent of a fraction (a) the numerator of which equals the sum of the Portfolio Yields for the three Collection Periods immediately preceding such date, and (b) the denominator of which equals three.

“Rolling Twelve-Month Portfolio Charged-Off Ratio”: As of any Determination Date, the percentage equivalent of a fraction (i) the numerator of which is equal to the sum of the Portfolio Outstanding Loan Balance of all Portfolio Loans that became Charged-Off Portfolio Loans during the Collection Period related to such Determination Date and each of 11 preceding Determination Dates, and (ii) the denominator of which is equal to a fraction, the numerator of which is equal to the sum of the Portfolio Aggregate Outstanding Loan Balance as of the first day of the Collection Period related to such Determination Date and each of the 11 preceding Determination Dates and the denominator of which is equal to 12.

“S&P”: Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

“Scheduled Payment”: On any Determination Date, with respect to any Loan, each monthly or quarterly payment (whether principal, interest or principal and interest) scheduled to be made by the Obligor thereof after such Determination Date under the terms of such Loan.

“Screen”: For any Currency, the relevant display page for LIBOR for such Currency (as determined by the Deal Agent) on the Telerate Service; provided that, if the Deal Agent determines that there is no such relevant display page for LIBOR for such Currency, “Screen” means the relevant display page for LIBOR for such Currency (as determined by the Deal Agent) on the Reuter Monitor Money Rates Service.

“Secured Party”: (a) Each Lender; (b) the Deal Agent; and (c) each Hedge Counterparty that, at the time of execution of the relevant Hedge Agreement, is a Lender, an Affiliate of such Lender or an Affiliate of the Deal Agent, that executes a counterpart of this Agreement or a Joinder Supplement hereto, as applicable, agreeing to be bound by the terms of this Agreement applicable to a Secured Party.

“Servicer”: Defined in the Preamble.

“Servicer Advance”: Defined in Section 7.5.

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“Servicer Termination Event”: Defined in Section 7.25.

“Servicer Termination Notice”: Defined in Section 7.25.

“Servicer’s Certificate”: Defined in Section 7.17(b).

“Servicing Duties”: Defined in Section 7.2.

“Servicing Fee”: For each Payment Date, an amount equal to the sum of the products, for each day during the related Collection Period, of (a) a fraction, the numerator of which is the sum of (i) the Aggregate Outstanding Loan Balance as of the first day of such Collection Period plus (ii) the Aggregate Outstanding Loan Balance as of the last day of such Collection Period, and the denominator of which is two, (b) the Servicing Fee Rate, and (c) a fraction, the numerator of which is 1 and the denominator of which is 360.

“Servicing Fee Rate”: A rate equal to 1.0% per annum.

“Servicing Records”: All documents, books, records and other information (including, without limitation, computer programs, tapes, disks, data processing software and related property rights) prepared and maintained by the Servicer with respect to the Loans and the related Obligors.

“Solvent”: As to any Person at any time, having a state of affairs such that all of the following conditions are met: (a) the fair value of the property owned by such Person is greater than the amount of such Person’s liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code; (b) the present fair salable value of the property owned by such Person in an orderly liquidation of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s property would constitute unreasonably small capital.

“Structured Note”: Defined in Section 2.1(a).

“Subordinated Debt”: Any debt that is subordinated in right of payment to the obligations of the Borrower under this Agreement.

“Subsidiary”: In the case of a company incorporated in England and Wales, a subsidiary within the meaning of Section 736 of the Companies Act 1985, as amended from time to time and with respect to any Person, means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such entity (irrespective of whether at the time capital stock of any other class or classes of such entity shall or might have voting power upon the occurrence of any contingency),

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(b) the interest in the capital or profits of such partnership, limited liability company or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, or such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries; provided that, with respect to the Originator and the Servicer, “Subsidiary” shall not include any Person that is a Portfolio Investment.

“Substitute Loan”: Defined in Section 2.19.

“Successor Servicer”: Defined in Section 7.26(a).

“Swingline Advance”: Defined in Section 2.1(c).

“Swingline Commitment”: With respect to the Swingline Lender, the commitment (without duplication) of such Lender to make Swingline Advances in accordance herewith in an amount not to exceed (a) prior to the Termination Date, the amount set forth opposite such Lender’s name on Annex B hereto and (b) on and after the Termination Date, except to the extent set forth in Section 2.5, the outstanding Swingline Advances of such Lender.

“Swingline Funding Request”: Defined in Section 2.1(c).

“Swingline Lender”: Defined in the Preamble.

“Swingline Note”: Defined in Section 2.1(a).

“Tape”: Defined in Section 7.13(b)(ii).

“TARGET Day”: A day on which the TARGET System is operating.

“TARGET System”: The Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System or any successor thereto.

“Taxes”: Any present or future taxes, levies, imposts, duties, charges, assessments or fees of any nature (including interest, penalties, and additions thereto) that are imposed by any Government Authority.

“Termination Date”: The earliest to occur of (a) the Business Day designated by the Borrower to the Deal Agent upon at least two Business Days’ prior written notice, (b) the date of the occurrence of a Termination Event pursuant to Section 9.1, (c) October 4, 2007, as the same may be extended as provided in Section 2.1(d) by all Lender Agents, (d) the date any Liquidity Purchase Agreement shall cease to be in full force and effect, and (e) the second Business Day prior to the Commitment Termination Date.

“Termination Event”: Defined in Section 9.1.

“Transaction Documents”: This Agreement, the Purchase Agreement, the Assignments, all Liquidity Purchase Agreements, all Hedging Agreements, the Intercreditor Agreement, the Lock-Box Agreement, the Notes, the Global Fee Letter, the Backup Servicer and Collateral Custodian Fee Letter, any UCC financing statements filed pursuant to the terms of this

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Agreement, and any additional document, letter, fee letter, certificate, opinion, agreement or writing the execution of which is necessary or incidental to carrying out the terms of the foregoing documents.

“Transferred Loans”: Each ACAS Business Loan Trust Security, each Loan that is acquired by the Borrower under the Purchase Agreement and all Loans received by the Borrower as a contribution to the capital of the Borrower; provided, that, the term Transferred Loan shall not include any Retained Interests, provided, further, that, for avoidance of doubt, the term Transferred Loan shall include each Transferred Loan acquired or received by the Borrower under the Existing Purchase Agreement and owned by the Borrower on the Closing Date.

“Transition Costs”: The reasonable costs and expenses incurred by the Backup Servicer in transitioning to Servicer; provided, however, that in no event shall such Transition Costs exceed $50,000.00 in the aggregate.

“UCC”: The Uniform Commercial Code as from time to time in effect in the specified jurisdiction.

“Underlying Note”: The promissory note of an Obligor evidencing a Loan.

“United States”: The United States of America.

“Unmatured Termination Event”: An event that, with the giving of notice or lapse of time, or both, would become a Termination Event.

“Unreimbursed Servicer Advances”: At any time, the amount of all previous Servicer Advances (or portions thereof) as to which the Servicer has not been reimbursed as of such time pursuant to Section 2.9(a)(1)(ii) and (b)(ii) and that the Servicer has determined in its sole discretion will not be recoverable from Collections with respect to the related Transferred Loan.

“U.S. Dollar Collection Account”: As set forth on Annex D.

“VFCC”: Defined in the Recitals.

“Wachovia”: Wachovia Bank, National Association.

“Warranty Event”: Occurs as to any Loan included as part of the Collateral, if any representation or warranty herein relating to such Loan was not true and correct in any material respect when made and such breach is not cured within the relevant cure period.

“Weighted Average Advance Rate”: With respect to Advances Outstanding, at any time, the weighted average of the Advance Rates applicable to the Eligible Loans and ACAS Business Loan Trust Securities backing such Advances, Swingline Advances or Alternative Currency Swingline Advances on such day, weighted according to the proportion of the Aggregate Outstanding Loan Balance that each type of Loan forming a part of the Collateral represents.

“Weighted Average Life”: At any date of determination, with respect to any Loan, is determined by: (a) multiplying the number of months from and including the month in which

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such date of determination falls to but excluding the month when each Scheduled Payment is to be received under such Loan, (b) summing said products, (c) dividing the sum total by the total amount of all Scheduled Payments to be received under the Loan, and (d) dividing the total by 12.

“Wells Fargo”: Defined in the Preamble.

“WCM”: Defined in the Preamble.

“YC SUSI Conduit Lender”: Yorktown Capital, LLC or any successor thereto including any assignee or Conduit Assignee thereof pursuant to the terms of the Agreement.

“YC SUSI Trust”: YC SUSI Trust, a Delaware statutory trust.

Section 1.2. Other Terms.

All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9.

Section 1.3. Computation of Time Periods.

Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding.”

Section 1.4. Interpretation.

In each Transaction Document, unless a contrary intention appears:

(i) the singular number includes the plural number and vice versa;

(ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by the Transaction Documents;

(iii) reference to any gender includes each other gender;

(iv) reference to day or days without further qualification means calendar days;

(v) unless otherwise stated, reference to any time means Charlotte, North Carolina time;

(vi) references to “writing” include printing, typing, lithography, electronic or other means of reproducing words in a visible form;

(vii) reference to any agreement (including any Transaction Document), document or instrument means such agreement, document or instrument as amended, modified, waived, supplemented or restated and in effect from time to time in accordance

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with the terms thereof and, if applicable, the terms of the other Transaction Documents and reference to any promissory note includes any promissory note that is an extension or renewal thereof or a substitute or replacement therefor; and

(viii) reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any Applicable Law means that provision of such Applicable Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision.

Section 1.5. Section References.

All Section references (including to the Recitals and the Preamble), unless otherwise indicated, shall be to Sections (and the Recitals and the Preamble) in this Agreement.

Section 1.6. Calculations.

Except as otherwise provided herein, all interest rate and basis point calculations hereunder will be made on the basis of a 360-day year and the actual days elapsed in the relevant period and will be carried out to at least three decimal places.

Section 1.7. Currencies Generally; Special Provisions Relating to Euro.

(a) Currencies Generally. At any time, any reference in the definition of the term “Alternative Currency” or in any other provision of this Agreement to the Currency of any particular nation means the lawful currency of such nation at such time whether or not the name of such Currency is the same as it was on the date hereof. For purposes of determining (i) whether the amount of any Advance, together with all other Advances, Swingline Advances and Alternative Currency Swingline Advances then outstanding or to be borrowed at the same time as such Advance, would exceed the Facility Amount, (ii) whether any Lender’s Pro Rata Share of any Advance, together with its Pro Rata Share of all other Advances, Swingline Advances and Alternative Currency Swingline Advances then outstanding or to be borrowed at the same time as such Advance, would exceed the amount of such Lender’s Commitment, and (iii) whether Advances Outstanding are required to be prepaid, the outstanding principal amount of any Advance or Alternative Currency Swingline Advance that is denominated in any Foreign Currency shall be deemed to be the Dollar Equivalent of such amount of Foreign Currency determined as of the date of such Advance or Alternative Currency Swingline Advance. Wherever in this Agreement in connection with an Advance or Alternative Currency Swingline Advance an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Advance or Alternative Currency Swingline Advance is denominated in a Foreign Currency, such amount shall be the relevant Foreign Currency Equivalent of such Dollar amount (rounded to the nearest 1,000 units of such Foreign Currency). In addition, for purposes of (A) complying with any requirement of this Agreement stated in Dollars and (B) calculating any ratio or other test set forth in this Agreement, the amount of any Loan that is denominated in a Foreign Currency shall be deemed to be the Dollar Equivalent of such amount of Foreign Currency determined as of the date of such calculation. Without limitation, the following defined

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terms used in this Agreement (together with any defined terms in which such defined terms are used) may require amounts denominated in a Foreign Currency to be calculated as the Dollar Equivalent of such amounts: “Aggregate Outstanding Loan Balance”, “Alternative Currency Sub-Limit”, “Borrowing Base”, “Concentration Limits”, “Fair Market Value”, “Hedge Percentage”, “Interest Collections”, “Outstanding Loan Balance”, “Permitted Investments”, “Portfolio Outstanding Loan Balance”, “Principal Collections”, “Scheduled Payment” and “Servicing Fee”.

(b) Special Provisions Relating to Euro. Each obligation hereunder of any party hereto that is denominated in the National Currency of a state that is not a Participating Member State on the date hereof shall, effective from the date on which such state becomes a Participating Member State, be redenominated in Euro in accordance with the legislation of the European Union applicable to the European Monetary Union; provided that, if and to the extent that any such legislation provides that any such obligation of any such party payable within such Participating Member State by crediting an account of the creditor can be paid by the debtor either in Euro or such National Currency, such party shall be entitled to pay or repay such amount either in Euro or in such National Currency. If the basis of accrual of interest or fees expressed in this Agreement with respect to an Alternative Currency of any country that becomes a Participating Member State after the date on which such currency becomes an Alternative Currency shall be inconsistent with any convention or practice in the interbank market for the basis of accrual of interest or fees in respect of the Euro, such convention or practice shall replace such expressed basis effective as of and from the date on which such state becomes a Participating Member State; provided that, with respect to any Advance denominated in such currency that is outstanding immediately prior to such date, such replacement shall take effect at the end of the Accrual Period therefor.

Without prejudice to the respective liabilities of the Borrower to the Lenders and the Lenders to the Borrower under or pursuant to this Agreement, each provision of this Agreement shall be subject to such reasonable changes of construction as the Deal Agent may from time to time, in consultation with the Borrower, reasonably specify to be necessary or appropriate to reflect the introduction or changeover to the Euro in any country that becomes a Participating Member State after the date hereof; provided that the Deal Agent shall provide the Borrower and each Lender Agent with prior notice of the proposed change with an explanation of such change in sufficient time to permit the Borrower and the Lenders an opportunity to respond to such proposed change.

ARTICLE II

PURCHASE OF THE STRUCTURED NOTES

Section 2.1. The Structured Notes.

(a) On the terms and conditions hereinafter set forth, on the Closing Date, the Borrower shall deliver to each Lender Agent, the Swingline Lender and the Alternative Currency Swingline Lender, as applicable, at the applicable address set forth on Annex A to this Agreement, with respect to Advances in Dollars, a duly executed structured note in substantially the form of Exhibit B-1-a and, with respect to Advances in an Alternative Currency, a duly

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executed structured note in substantially the form of Exhibit B-1-b, (each a “Structured Note”), Exhibit B-2 (the “Swingline Note”) and Exhibit B-3 (the “Alternative Currency Swingline Note”, and together with the Structured Notes and the Swingline Note, the “Notes”), as applicable, dated as of the date of this Agreement, each in a face amount equal to the applicable Lender’s Commitment, Swingline Commitment or Alternative Currency Swingline Amount as of the Closing Date and otherwise duly completed. Each Note evidences, and at all times on and after the date hereof shall continue to evidence each Lender’s ratable share of the security interest in the Collateral granted pursuant to Section 8.1 (and the Borrower hereby expressly affirms its prior grant of a security interest in the “Collateral” under the Existing Loan Funding and Servicing Agreement). Interest shall accrue, and each Note shall be payable, as described herein.

(b) During the Revolving Period, the Borrower may, at its option, request the Conduit Lenders and the Institutional Lenders to make advances of funds (each, an “Advance”), in Dollars or in any Alternative Currency under the Structured Notes, each such Funding Request to be substantially in the form of Exhibit A-1 hereto, in an aggregate amount up to the Availability and, in the case of Advances in Alternative Currencies, up to the Alternative Currency Sub-Limit, in each case as of the date of the proposed Advance. Following the receipt of a Funding Request, subject to the terms and conditions hereinafter set forth, during the Revolving Period, (x) the Conduit Lenders other than VFCC may at their option elect to fund such Advance and (y) VFCC and the Institutional Lenders (except to the extent an Advance has been funded by its related Conduit Lender, if any) shall fund such Advance; provided, that any Institutional Lender which shares a Commitment collectively with a related Conduit Lender as set forth on Annex B shall not be obligated to make Advances in any Currency in which its related Conduit is able to make Advances. Notwithstanding anything to the contrary contained herein, no Lender shall be obligated to provide the Deal Agent or the Borrower with aggregate funds in connection with an Advance that would exceed (i) such Lender’s unused Commitment then in effect, (ii) in the case of Advances in Alternative Currencies, such Lender’s unused Alternative Currency Sub-Limit then in effect, (iii) the aggregate unused Commitments then in effect, (iv) in the case of Advances in Alternative Currencies, the unused Alternative Currency Sub-Limit then in effect or (v) the Availability, in each case on the date such Advance is to be made. Each Advance made by a Lender hereunder is subordinated to the interests of the Hedge Counterparties under Sections 2.9(a)(1)(i) and (b)(i) of this Agreement. Each Advance shall be made entirely in one Currency having one Interest Rate. The proceeds of each Advance shall be used to fund Loans in the Currency of such Advance.

(c) (I) During the Revolving Period, the Borrower may, at its option, request the Swingline Lender to make advances of funds in Dollars, on an expedited basis under the Swingline Note (each such request, a “Swingline Funding Request”), each such Swingline Funding Request to be substantially in the form of Exhibit A-2-a hereto. Subject to the terms and conditions hereinafter set forth, during the Revolving Period, the Swingline Lender shall advance to the Borrower the amount requested under a Swingline Funding Request (each, a “Swingline Advance”). Notwithstanding anything to the contrary contained herein, the Swingline Lender shall not be obligated to provide the Borrower with aggregate funds that would exceed (i) the Swingline Lender’s unused Swingline Commitment then in effect, (ii) the aggregate unused Commitments then in effect or (iii) the Availability on the date such Swingline Advance is made. Each Swingline Advance made by the Swingline Lender hereunder is

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subordinated to the interests of the Hedge Counterparties under Sections 2.9(a)(1)(i) and (b)(i) of this Agreement. Each Swingline Advance shall be made entirely in Dollars having one Interest Rate. The proceeds of each Swingline Advance shall be used to fund Loans in Dollars.

(II) During the Revolving Period, the Borrower may, at its option, request the Alternative Currency Swingline Lender to make advances of funds in English Pounds Sterling, Canadian Dollars or Euro, on an expedited basis under the Alternative Currency Swingline Note (each such request, an “Alternative Swingline Currency Funding Request”), each such Alternative Currency Swingline Funding Request to be substantially in the form of Exhibit A-2-b hereto. Subject to the terms and conditions hereinafter set forth, during the Revolving Period, the Alternative Currency Swingline Lender shall advance to the Borrower the amount requested under an Alternative Currency Swingline Funding Request (each, an “Alternative Currency Swingline Advance”). Notwithstanding anything to the contrary contained herein, the Alternative Currency Swingline Lender shall not be obligated to provide the Borrower with aggregate funds that would exceed (i) the unused Alternative Currency Swingline Amount then in effect, (ii) the unused Alternative Currency Sub-Limit then in effect, (iii) the aggregate unused Commitments then in effect or (iv) the Availability on the date such Alternative Currency Swingline Advance is made. Each Alternative Currency Swingline Advance made by the Alternative Currency Swingline Lender hereunder is subordinated to the interests of the Hedge Counterparties under Sections 2.9(a)(1)(i) and (b)(i) of this Agreement. Each Alternative Currency Swingline Advance shall be made entirely in one Currency having one Interest Rate. The proceeds of each Alternative Currency Swingline Advance shall be used to fund Loans in the Currency of such Alternative Currency Swingline Advance.

(d) The Borrower may, within 60 days but not less than 45 days prior to the (x) the date on which each Liquidity Purchase Agreement is to expire in accordance with its terms, in the case of an extension of each Liquidity Purchase Agreement, (y) the Termination Date then in effect pursuant to clause (c) of the definition thereof, in the case of an extension of the Termination Date or (z) the Commitment Termination Date then in effect, in the case of an extension of this Agreement, request by written notice to (i) each Lender Agent with respect to a Conduit Lender for the applicable Liquidity Bank to extend the term of their Liquidity Purchase Agreement for an additional period of 364 days, (ii) each Lender Agent for each Lender, the Swingline Lender and the Alternative Currency Swingline Lender, as applicable, to extend the date set forth in clause (c) of the definition of Termination Date for an additional period of 364 days and (iii) each Lender Agent for each Lender, the Swingline Lender and the Alternative Currency Swingline Lender, as applicable, to extend the Commitment Termination Date for an additional period of 364 days. Each Lender Agent, the Swingline Lender and the Alternative Currency Swingline Lender, as applicable, will give prompt notice to the related Liquidity Bank or Lender, as applicable, of its receipt of such request, and each Liquidity Bank and each Lender shall make a determination, each in its respective sole discretion, not less than 15 days prior to the expiration of the related Liquidity Purchase Agreement or the Commitment Termination Date, as applicable, as to whether or not it will agree to the extension requested. The failure of a Lender or a Liquidity Bank to provide timely notice of its decision to the Borrower shall be deemed to constitute a refusal by the applicable Lender or Liquidity Bank to extend the Commitment Termination Date or the term of such Liquidity Bank’s Liquidity Purchase Agreement, as applicable. The Borrower confirms that each Liquidity Bank and each Lender, in their sole and absolute discretion, without regard to the value or performance of the Collateral or

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any other factor, may elect not to extend the term of such Liquidity Purchase Agreement, the date set forth in clause (c) of the definition of Termination Date or the Commitment Termination Date, as applicable.

(e) The Borrower may, with the written consent of the Deal Agent, request that (1) an existing Lender increase its Commitment in connection with a corresponding increase in the Facility Amount, (2) the Swingline Lender increase its Swingline Commitment, (3) the Alternative Currency Swingline Lender increase the Alternative Currency Swingline Amount or, (4) with the written consent of the Deal Agent, add additional Persons as Lenders; provided, that: (i) if the addition of any Lender or the increase of any Lender’s Commitment would cause the aggregate Commitments of the Conduit Lenders and the Institutional Lenders to exceed $1,500,000,000, such addition or increase may be effected only with the consent of the Deal Agent and each Lender Agent; (ii) a proposed increase shall not increase the amount of the Alternative Currency Sub-Limit without the consent of the Deal Agent and each Lender Agent; (iii) the Commitment of any Lender, the Swingline Commitment of the Swingline Lender or the Alternative Currency Swingline Amount of the Alternative Currency Swingline Lender may only be increased with the prior written consent of such Lender; (iv) if any Conduit Lender that is added as a new Lender is unable to make Advances in Alternative Currencies, an Institutional Lender able to make Advances in Alternative Currencies simultaneously shall become a party to this Agreement; and (v) upon any such increase of an existing Lender’s Commitment, Swingline Lender’s Swingline Commitment or Alternative Currency Swingline Lender’s Alternative Currency Swingline Amount or the addition of a new Lender, Annex B hereto shall be replaced with a revised Annex B reflecting the revised Commitments, Swingline Commitment, Alternative Currency Swingline Amount and/or Lenders. Each new Lender and Lender Agent shall become a party hereto by executing and delivering to the Deal Agent and the Borrower a Joinder Supplement.

(f) Notwithstanding anything to the contrary herein, each of the parties hereto hereby understands and agrees that:

(i) any outstanding “Advances” (under and as defined in the Existing Loan Funding and Servicing Agreement) of any Lender that exist as of the Closing Date hereof shall, subject to the remainder of this Section 2.1(f), be deemed to be Advances outstanding for all purposes of this Agreement and the other Transaction Documents;

(ii) any outstanding “Hedge Transactions” (under and as defined in the Existing Loan Funding and Servicing Agreement) of any Hedge Counterparty that exist as of the Closing Date hereof shall be deemed to be Hedge Transactions outstanding for all purposes of this Agreement and the other Transaction Documents; and

(iii) on the Closing Date and on each subsequent date on which a Lender shall become a party to this Agreement, the Borrower shall request Advances (including Advances in Alternative Currencies), on a non-pro rata basis, from each Lender becoming a party to this Agreement as of the Closing Date or such later date, as applicable, and shall use the proceeds of such Advances to reduce outstanding Advances (including Advances in Alternative Currencies) of each other Lender until (A) the respective outstanding Advances of each Lender equal such Lender’s Pro Rata Share of

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all Advances Outstanding and (B) the respective outstanding Advances of each Lender in Alternative Currencies equal such Lender’s Pro Rata Share of all Advances Outstanding denominated in Alternative Currencies.

Section 2.2A Procedures for Swingline Advances.

(a) Subject to the limitations set forth in Section 2.1, the Borrower may request a Swingline Advance from the Swingline Lender by delivering to the Deal Agent, the Swingline Lender and the Collateral Custodian the information and documents at the times set forth in this Section 2.2A.

(b) No later than 2:00 p.m. (Charlotte, North Carolina time) on the proposed Funding Date, the Borrower (or the Servicer on its behalf) shall deliver:

(i) to the Deal Agent, the Swingline Lender and the Collateral Custodian, a Swingline Funding Request;

(ii) to the Deal Agent (which shall promptly notify each Conduit Lender and Institutional Lender thereof), the Swingline Lender and the Collateral Custodian, a Funding Request substantially in the form of Exhibit A-1 hereto, for an Advance in Dollars in the same amount as or greater than the related Swingline Advance;

(iii) to the Deal Agent and the Collateral Custodian, a duly completed Borrowing Base Certificate and Tape updated to such date;

(iv) subject to the Borrower’s receipt of a written request from the Deal Agent, to the Deal Agent a transaction summary for each Pre-Positioned Loan to be funded with the proceeds of the proposed Swingline Advance, which shall include a description of such Loan and the proposed Loan transaction; provided, that no more than six Loans may be funded (in respect of all Advances Outstanding, including the proposed Swingline Advance) as Pre-Positioned Loans at any one time; and

(v) to the Deal Agent a certification substantially in the form of Exhibit I from outside counsel to the Borrower concerning the Collateral Custodian’s receipt of certain documentation relating to any Pre-Positioned Loan which is being funded with the proceeds of such Swingline Advance.

Each such Swingline Funding Request shall (i) specify the aggregate amount of the requested Swingline Advance, which shall be in an amount equal to at least $3,000,000 but less than $100,000,000, (ii) specify the proposed Funding Date of such requested Swingline Advance, (iii) specify the amount of Advances Outstanding (prior to giving effect to each requested Swingline Advance), (iv) include a representation that all conditions precedent for a funding have been met, (v) include a calculation of the Borrowing Base as of the date the Swingline Advance is requested and after giving effect to the Swingline Advance requested therein and the use of proceeds thereof, (vi) include a wire disbursement and authorization form and (vii) include an updated Loan List including each Pre-Positioned Loan that is subject to the requested Swingline Advance. Any Swingline Funding Request shall be irrevocable. If any Swingline Funding Request is received by the Deal Agent and Swingline Lender after 2:00 p.m.

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(Charlotte, North Carolina time) on the Business Day for which such Swingline Advance is requested or on a day that is not a Business Day, such Swingline Funding Request shall be deemed to be received by the Deal Agent and the Swingline Lender at 9:00 a.m. (Charlotte, North Carolina time) on the following Business Day.

(c) The Deal Agent shall notify the Swingline Lender of the amount of such Swingline Funding Request. On the Funding Date, the Swingline Lender shall, subject to the limitations set forth in Section 2.1, and upon satisfaction of the applicable conditions set forth in Article III, make available to the Deal Agent (and the Deal Agent shall make such amount available to the Borrower in same day funds, at such bank or other location reasonably designated by the Borrower in the Swingline Funding Request given pursuant to this Section 2.2A, an amount equal to the amount requested by the Borrower for such Swingline Advance, provided, that, after giving effect to such Swingline Advance, the aggregate funds in connection with such Swingline Advance would not exceed (i) the Swingline Lender’s unused Swingline Commitment then in effect, (ii) the aggregate unused Commitments then in effect or (iii) the Availability.

Section 2.2B Procedures for Alternative Currency Swingline Advances.

(a) Subject to the limitations set forth in Section 2.1, the Borrower may request an Alternative Currency Swingline Advance in English Pounds Sterling, Canadian Dollars or Euro from the Alternative Currency Swingline Lender by delivering to the Alternative Currency Swingline Lender and the Collateral Custodian (with a copy to the Deal Agent) the information and documents at the times set forth in this Section 2.2B. The Alternative Currency Swingline Lender may make any Alternative Currency Swingline Advance in English Pounds Sterling, Canadian Dollars or Euro by causing, at its option, any domestic or foreign branch or Affiliate of such Lender to make such Alternative Currency Swingline Advance.

(b) No later than 11:00 a.m. (London time) on the proposed Funding Date, the Borrower (or the Servicer on its behalf) shall deliver:

(i) to the Alternative Currency Swingline Lender and the Collateral Custodian (with a copy to the Deal Agent), an Alternative Currency Swingline Funding Request;

(ii) to the Deal Agent (which shall promptly notify each Conduit Lender funding in Alternative Currencies and each Institutional Lender thereof) and the Collateral Custodian, a Funding Request substantially in the form of Exhibit A-1 hereto, for an Advance in the same amount as or greater than, and in the same Currency as the related Alternative Currency Swingline Advance;

(iii) to the Alternative Currency Swingline Lender and the Collateral Custodian (with a copy to the Deal Agent) a duly completed Borrowing Base Certificate and Tape updated to such date;

(iv) subject to the Borrower’s receipt of a written request from the Alternative Currency Swingline Lender (or the Deal Agent on its behalf), to the Alternative Currency Swingline Lender a transaction summary for each Pre-Positioned Loan to be funded with

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the proceeds of the proposed Alternative Currency Swingline Advance, which shall include a description of such Loan and the proposed Loan transaction; provided, that no more than six Loans may be funded (in respect of all Advances Outstanding, including the proposed Alternative Currency Swingline Advance) as Pre-Positioned Loans at any one time; and

(v) to the Alternative Currency Swingline Lender (with a copy to the Deal Agent) a certification substantially in the form of Exhibit I from outside counsel to the Borrower concerning the Collateral Custodian’s receipt of certain documentation relating to any Pre-Positioned Loan which is being funded with the proceeds of such Alternative Currency Swingline Advance.

Each such Alternative Currency Swingline Funding Request for an Alternative Currency Swingline Advance in English Pounds Sterling, Canadian Dollars or Euro shall (i) specify the aggregate amount and Currency of the requested Alternative Currency Swingline Advance, which shall be in an amount equal to at least the Alternative Currency Equivalent of $3,000,000 but less than the Alternative Currency Equivalent of $50,000,000, (ii) specify the proposed Funding Date of such requested Alternative Currency Swingline Advance, (iii) specify the amount of Advances Outstanding (prior to giving effect to each requested Alternative Currency Swingline Advance), (iv) include a representation that all conditions precedent for a funding have been met, (v) include a calculation of the Borrowing Base as of the date the Alternative Currency Swingline Advance is requested and after giving effect to the Alternative Currency Swingline Advance requested therein and the use of proceeds thereof, (vi) include a wire disbursement and authorization form and (vii) include an updated Loan List including each Pre-Positioned Loan that is subject to the requested Alternative Currency Swingline Advance. If no election as to the Currency of an Alternative Currency Swingline Advance is specified, then the Alternative Currency Swingline Funding Request shall be deemed not to have been received by the Alternative Currency Swingline Lender. Any Alternative Currency Swingline Funding Request shall be irrevocable. If any Alternative Currency Swingline Funding Request for an Alternative Currency Swingline Advance is received by the Alternative Currency Swingline Lender after 11:00 a.m. (London time) on the Business Day for which such Alternative Currency Swingline Advance is requested or on a day that is not a Business Day, such Alternative Currency Swingline Funding Request shall be deemed to be received by the Alternative Currency Swingline Lender at 9:00 a.m. (London time) on the following Business Day.

(c) On the Funding Date, the Alternative Currency Swingline Lender shall, subject to the limitations set forth in Section 2.1, and upon satisfaction of the applicable conditions set forth in Article III, make available to the Deal Agent (and the Deal Agent shall make such amount available to the Borrower in same day funds, at such bank or other location reasonably designated by the Borrower in the Alternative Currency Swingline Funding Request given pursuant to this Section 2.2B), an amount equal to the amount requested by the Borrower for such Alternative Currency Swingline Advance, provided, that, after giving effect to such Alternative Currency Swingline Advance, the aggregate funds in connection with such Alternative Currency Swingline Advance would not exceed (i) the unused Alternative Currency Swingline Amount then in effect, (ii) the unused Alternative Currency Sub-Limit then in effect, (iii) the aggregate unused Commitments then in effect or (iv) the Availability.

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Section 2.3. Procedures for Advances by the Conduit Lenders and Institutional Lenders.

(a) Subject to the limitations set forth in Section 2.1, the Borrower may request an Advance in Dollars or in an Alternative Currency from the Conduit Lenders and the Institutional Lenders by delivering to the Deal Agent and the Collateral Custodian at certain times the information and documents set forth in this Section 2.3. Each Lender shall make Advances in an Alternative Currency by causing any domestic or foreign branch or Affiliate of such Lender to make such Advance or funding such Advance directly or though through its related Conduit Lender.

(b) No later than 3:00 p.m. (Charlotte, North Carolina time), one Business Day (or, in the case of Advances in an Alternative Currency, four Business Days) prior to the proposed Funding Date, the Borrower (or the Servicer on its behalf) shall deliver:

(i) to the Deal Agent (which shall promptly notify each Lender thereof) and the Collateral Custodian, a duly completed Funding Request substantially in the form of Exhibit A-1 hereto; and

(ii) subject to its receipt of a written request from the Deal Agent, to the Deal Agent a transaction summary for each Pre-Positioned Loan to be funded with the proceeds of the proposed Advance, which shall include a description of the Obligor and the proposed Loan transaction; provided, that no more than six Loans may be funded (in respect of all Advances Outstanding, including the proposed Advance) as Pre-Positioned Loans at any one time;

provided, that, in the event that a Funding Request is delivered to any Institutional Lender later than 11:00 a.m. (Charlotte, North Carolina time) with respect to Advances denominated in Dollars three Business Days prior to the proposed Funding Date, the Interest Rate for the related Advances funded by such Institutional Lender with respect to such Funding Request shall be the LIBOR Market Index Rate.

Each Funding Request shall (i) specify the aggregate amount and Currency of the requested Advance, which shall be in an amount equal to at least $3,000,000 or the Alternative Currency Equivalent thereof, (ii) specify the proposed Funding Date of the requested Advance, (iii) specify the amount of Advances Outstanding, (iv) include a representation that all conditions precedent for a funding have been met, (v) include a calculation of the Borrowing Base as of the date the Advance is requested, and after giving effect to the Advance requested therein and the use of proceeds thereof, and (vi) include an updated Loan List including each Pre-Positioned Loan to be funded with the proceeds of the requested Advance. If no election as to the Currency of an Advance is specified, then the requested Advance shall be denominated in Dollars. Any Funding Request shall be irrevocable. If any Funding Request is received by the Deal Agent after 3:00 p.m. (Charlotte, North Carolina time) on the Business Day that is one Business Day (or, in the case of Advances in an Alternative Currency, four Business Days) prior to the Business Day for which such Advance is requested or on a day that is not a Business Day, such Funding Request shall be deemed to be received by the Deal Agent at 9:00 a.m. (Charlotte, North Carolina time) on the next Business Day.

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(c) No later than 3:00 p.m. (Charlotte, North Carolina time) with respect to Advances in Dollars and 11:00 a.m. (Charlotte, North Carolina time) with respect to Advances in an Alternative Currency, on the proposed Funding Date, the Borrower (or the Servicer on its behalf) shall deliver to the Deal Agent and the Collateral Custodian a certification substantially in the form of Exhibit I from outside counsel to the Borrower concerning the Collateral Custodian’s receipt of certain documentation relating to each Pre-Positioned Loan to be funded with the proceeds of such Advance.

(d) On the Funding Date, each Conduit Lender other than VFCC may, and VFCC and each Institutional Lender (except to the extent that its related Conduit Lender, if any, has made its Pro Rata Share of the amounts described below available to the Deal Agent on such Funding Date) shall make available to the Deal Agent in same day funds an amount equal to such Lender’s Pro Rata Share of the lesser of (x) the amount requested by the Borrower for such Advance and (y) an amount equal to the Availability on such Funding Date; provided, that, if the Advance requested by the Borrower is an Advance in an Alternative Currency, each Lender shall make available to the Deal Agent an amount equal to such Lender’s Pro Rata Share of the lesser of (i) the amount requested by the Borrower and (ii) the difference between (A) the Alternative Currency Sub-Limit minus (B) the Dollar Equivalents of the amount of all Advances Outstanding in Alternative Currencies. The Deal Agent shall calculate each Lender’s Pro Rata Share of each such funding. Subject to the limitations set forth in Section 2.1, and upon satisfaction of the applicable conditions set forth in Article III, the Deal Agent shall make available to the Borrower in same day funds, at such bank or other location reasonably designated by the Borrower in the Funding Request given pursuant to this Section 2.3, the aggregate amount calculated as set forth above.

(e) On each Funding Date, the obligation of each Lender to remit its Pro Rata Share of any such Advance shall be several from that of each other Lender and the failure of a Lender to so make such amount available to the Deal Agent shall not relieve any other Lender of its obligation hereunder.

Section 2.4. Optional Changes in Facility Amount; Prepayments.

(a) The Borrower shall be entitled at its option, at any time prior to the occurrence of a Termination Event, to terminate in whole or reduce in part the portion of the Facility Amount that exceeds the Advances Outstanding; provided, that, the Borrower (or the Servicer on its behalf) shall give prior written notice in the form of Exhibit A-3 of such reduction to the Deal Agent as provided in Section 2.4(b) and that any partial reduction of the Facility Amount shall be in an amount equal to $5,000,000 or integral multiples thereof in a minimum of $500,000. Any request for a reduction or termination pursuant to this Section 2.4(a) shall be irrevocable. The Commitment and the Alternative Currency Sub-Limit of each Conduit Lender and each Institutional Lender, as applicable, shall be reduced by an amount equal to its Pro Rata Share (prior to giving effect to any reduction of Commitments hereunder) of the aggregate amount of any reduction under this Section 2.4(a). The Deal Agent shall calculate each Lender’s new Pro Rata Share of the Commitments and Alternative Currency Sub-Limit.

(b) Prior to the occurrence of a Termination Event, the Borrower may, upon one Business Day’s (or, in the case of an Advance in an Alternative Currency, four Business Days)

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prior written notice (such notice to be received by the Deal Agent and each applicable Hedge Counterparty no later than 3:00 p.m. (Charlotte, North Carolina time) on such day) to the Deal Agent and each applicable Hedge Counterparty, reduce the Advances Outstanding by remitting, to the Deal Agent, for payment to the respective Lenders (i) cash, in the Currency of such Advances, in an amount equal to such Advances Outstanding and Breakage Costs, if any, and (ii) instructions to reduce such Advances Outstanding and, with respect to Advances Outstanding in an Alternative Currency bearing Interest at the Alternative Rate, specifying which Alternative Rate contracts will be terminated in respect of such reduction; provided, that, no such reduction shall be given effect unless the Borrower has complied with the terms of any Hedging Agreement that may require that one or more Hedge Transactions be terminated in whole or in part as the result of any such reduction of the Advances Outstanding, and the Borrower has paid in full all Hedge Breakage Costs, if any, owing to the relevant Hedge Counterparty for any such termination. Any reduction of the Advances Outstanding (other than with respect to payments of the Required Advance Reduction Amount) shall be in a minimum amount of $1,000,000 (or the Alternative Currency Equivalent thereof) with integral multiples of $100,000 (or the Alternative Currency Equivalent thereof). Any such reduction will occur only if sufficient funds have been remitted to pay all such amounts in the succeeding sentence in full. Upon receipt of such amounts, the Deal Agent shall apply such amounts to the payment of any Hedge Breakage Costs and to the pro rata reduction of the Advances Outstanding to the respective Lenders by paying such amounts to the respective Lenders and to the payment of any Breakage Costs, if any. Any Advance so prepaid may, subject to the terms and conditions hereof, be reborrowed during the Revolving Period. Any Borrower Notice relating to any prepayment pursuant to this Section 2.4(b) shall be irrevocable.

(c) If on any day the Deal Agent, as agent for the Secured Parties, does not own or have (i) with respect to Transferred Loans denominated in Dollars, a valid and perfected first priority security interest in any such Transferred Loan and Related Property (subject to Permitted Liens) and (ii) with respect to Transferred Loans denominated in an Alternative Currency, a valid and effective security interest in any such Transferred Loan and Related Property (other than additional or “boot” collateral) relating to such Transferred Loan (subject to any filing, registration or notarization (including registration of a debenture necessary to perfect such security interest and make such security interest enforceable and effective)), upon the earlier of the Borrower’s receipt of notice from the Deal Agent or the Borrower becoming aware thereof and the Borrower’s failure to cure such breach within 30 days (if cure is reasonably possible and otherwise immediately upon receipt of such notice or upon the Borrower becoming aware), the Borrower shall be deemed to have received on such day a collection (a “Deemed Collection”) of such Loan in full and shall on such day pay to the Deal Agent, on behalf of the Secured Parties, an amount equal to (x) the Outstanding Loan Balance of such Loan in the Currency of such Loan, to be applied to the pro rata reduction of the principal of the Structured Notes, the Swingline Note and the Alternative Currency Swingline Note, plus (y) any Breakage Costs and Hedge Breakage Costs, if any, and any other payments owing to the applicable Hedge Counterparty in respect of the termination of any Hedge Transaction required as a result of the Deemed Collection, plus (z) any other costs and expenses related to the retransfer of, or release of Lien on, such Loan and any Related Property contemplated by this Section 2.4(c). In connection with any such Deemed Collection, the Deal Agent, as agent for the Secured Parties, shall automatically and without further action (unless otherwise necessary or requested by the Borrower or Servicer), be deemed to release the Lien on such Loan and any Related Property

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created by this Agreement in favor of the Deal Agent and transfer to the Borrower, free and clear of any Lien created by the Deal Agent, all of the right, title and interest of the Deal Agent, as agent for the Secured Parties, in, to, and under the Loan and any Related Property with respect to which the Deal Agent has received such Deemed Collection (such Loan a “Repurchased Loan”), but without any recourse, representation or warranty of any kind, express or implied.

(d) If on any day the Dollar Equivalent of the aggregate amount of all Advances Outstanding in Alternative Currencies shall exceed 105% of the Alternative Currency Sub-Limit based on the spot selling rate on such day, the Borrower shall, within five Business Days, prepay Advances Outstanding in Alternative Currencies in an amount sufficient to reduce the Dollar Equivalent of the aggregate amount of all Advances Outstanding in Alternative Currencies to no more than the Alternative Currency Sub-Limit. Upon receipt of such amounts, the Deal Agent shall apply such amounts to the pro rata reduction of the Advances Outstanding of the Lenders in the related Alternative Currencies by paying such amounts to the respective Lenders.

Section 2.5. Reimbursement of Swingline Advances and Alternative Currency Swingline Advances.

Notwithstanding Sections 2.3, 3.1 and 3.2, each Conduit Lender and each Institutional Lender hereby agrees that (a) if the Swingline Lender funds any Swingline Advance, each Conduit Lender other than VFCC may and VFCC and each Institutional Lender (except to the extent that its related Conduit Lender, if any, has reimbursed the Swingline Lender as described herein) shall reimburse the Swingline Lender for such Swingline Advance not later than one Business Day after the Swingline Lender funds such Swingline Advance and (b) if the Alternative Currency Swingline Lender funds any Alternative Currency Swingline Advance, each Conduit Lender funding Alternative Currencies and each Institutional Lender related to Conduit Lenders not funding Alternative Currencies or not having a related Conduit Lender shall reimburse the Alternative Currency Swingline Lender for such Alternative Currency Swingline Advance not later than four Business Days after the Alternative Currency Swingline Lender funds such Alternative Currency Swingline Advance, in the proportions described in the following sentence. Such reimbursement shall be accomplished by each Conduit Lender and each Institutional Lender, as applicable, remitting to the Deal Agent such Conduit Lender’s and such Institutional Lender’s Pro Rata Share of the Swingline Advance or Alternative Currency Swingline Advance, as applicable; provided, however, that clause (a) of the definition of Commitment shall be used to calculate the Commitment of each Conduit Lender and Institutional Lender for the purposes of any such reimbursement occurring after the Termination Date. The Deal Agent shall remit such amount to the Swingline Lender or Alternative Currency Swingline Lender, as applicable. The Borrower and the Servicer hereby authorize and instruct each Conduit Lender and each Institutional Lender to reimburse the Swingline Lender or the Alternative Currency Swingline Lender in the manner described in this Section 2.5.

Section 2.6. Notations on the Structured Notes.

(a) Each Lender Agent is hereby authorized to enter on a schedule attached to each Conduit Lender’s and each Institutional Lender’s Structured Note a notation (which may be computer generated) or to otherwise record in its internal books and records or computer system with respect to each Advance under such Structured Note made by the applicable Lender of:

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(i) the date and principal amount thereof and (ii) each payment and repayment of principal thereof. Any such recordation shall, absent manifest error, constitute prima facie evidence of the accuracy of the information so recorded. The failure of any Lender Agent to make any such notation on the schedule attached to the applicable Structured Note shall not limit or otherwise affect the obligation of the Borrower to repay the Advances under such Structured Note in accordance with the terms set forth herein.

(b) The Swingline Lender is hereby authorized to enter on a schedule attached to the Swingline Note a notation (which may be computer generated) or to otherwise record in its internal books and records or computer system with respect to each Swingline Advance under the Swingline Note made by the Swingline Lender of: (i) the date and principal amount thereof and (ii) each payment and repayment of principal thereof. Any such recordation shall, absent manifest error, constitute prima facie evidence of the accuracy of the information so recorded. The failure of the Swingline Lender to make any such notation on the schedule attached to the Swingline Note shall not limit or otherwise affect the obligation of the Borrower to repay the Swingline Advances under the Swingline Note in accordance with the terms set forth herein.

(c) The Alternative Currency Swingline Lender is hereby authorized to enter on a schedule attached to the Alternative Currency Swingline Note a notation (which may be computer generated) or to otherwise record in its internal books and records or computer system with respect to each Alternative Currency Swingline Advance under the Alternative Currency Swingline Note made by the Alternative Currency Swingline Lender of: (i) the date and principal amount thereof and (ii) each payment and repayment of principal thereof. Any such recordation shall, absent manifest error, constitute prima facie evidence of the accuracy of the information so recorded. The failure of the Alternative Currency Swingline Lender to make any such notation on the schedule attached to the Alternative Currency Swingline Note shall not limit or otherwise affect the obligation of the Borrower to repay the Alternative Currency Swingline Advances under the Alternative Currency Swingline Note in accordance with the terms set forth herein.

Section 2.7. Principal Repayments.

(a) Unless sooner prepaid pursuant to Section 2.4(b) or Section 9.1, the Advances Outstanding shall be repaid in full in the Currency of such Advances on the date that occurs twenty-four (24) months following the Termination Date. In addition, Advances Outstanding shall be repaid in the Currency of such Advances as and when necessary to cause the Availability to equal or exceed $0 and to cause all Advances Outstanding in Alternative Currencies not to exceed the Alternative Currency Sub-Limit. Any amount so repaid may, subject to the terms and conditions hereof, be reborrowed hereunder during the Revolving Period.

(b) Unless sooner reimbursed by the Conduit Lenders and the Institutional Lenders pursuant to Section 2.5, (i) Swingline Advances shall be repaid in full by the Borrower to the Deal Agent one Business Day following the date such Swingline Advance was funded and (ii) Alternative Currency Swingline Advances shall be repaid in full by the Borrower to the Deal Agent four Business Days following the date such Alternative Currency Swingline Advance was funded. The Deal Agent shall remit such amount to the Swingline Lender or Alternative Currency Swingline Lender, as applicable. Swingline Advances and Alternative Currency

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Swingline Advances shall be with full recourse to the Borrower, and if a Swingline Advance or Alternative Currency Swingline Advance is not paid, the Swingline Lender or Alternative Currency Swingline Lender, as applicable, will have the rights and remedies provided under the UCC of each applicable jurisdiction and other Applicable Law, which rights shall be cumulative.

(c) [Reserved].

(d) With respect to any Swingline Advances or Alternative Currency Swingline Advance, (i) all Interest accrued and unpaid on the amount repaid to (but excluding) the date of such repayment, and (ii) any and all Hedge Breakage Costs and any other amounts payable by the Borrower under or with respect to any Hedging Agreement, shall be paid to the Swingline Lender or Alternative Currency Swingline Lender, as applicable and any applicable Hedge Counterparty from the appropriate Collection Account on each Payment Date, monthly in arrears, in accordance with Sections 2.9(a)(1)(vi) and (vii) and Sections 2.9(b)(vi) and (vii).

Section 2.8. Interest Payments.

(a) Interest shall accrue on each Advance, Swingline Advance or Alternative Currency Swingline Advance, as applicable, during each Accrual Period at the applicable Interest Rate. The Borrower shall pay Interest on the unpaid principal amount of each Advance, Swingline Advance or Alternative Currency Swingline Advance, as applicable, for the period commencing on and including the Funding Date of such Advance, Swingline Advance or Alternative Currency Swingline Advance, as applicable, through but excluding the date that such Advance, Swingline Advance or Alternative Currency Swingline Advance, as applicable, shall be paid in full. Interest shall accrue during each Accrual Period and be payable on each Advance, each Swingline Advance and each Alternative Currency Swingline Advance on each Payment Date.

(b) The Deal Agent shall determine the Interest Rate and Interest (including unpaid Interest, if any, due and payable on a prior Payment Date) to be paid by the Borrower with respect to each Advance, each Swingline Advance and each Alternative Currency Swingline Advance on each Payment Date and shall advise each Lender Agent, the Swingline Lender, the Alternative Currency Swingline Lender and the Servicer on behalf of the Borrower thereof five Business Days prior to each Payment Date.

(c) Anything in this Agreement or the other Transaction Documents to the contrary notwithstanding, if at any time the rate of interest payable by any Person under this Agreement and the Transaction Documents exceeds the highest rate of interest permissible under Applicable Law (the “Maximum Lawful Rate”), then, so long as the Maximum Lawful Rate would be exceeded, the rate of interest under this Agreement and the Transaction Documents shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Agreement and the Transaction Documents is less than the Maximum Lawful Rate, such Person shall continue to pay interest under this Agreement and the Transaction Documents at the Maximum Lawful Rate until such time as the total interest received from such Person is equal to the total interest that would have been received had Applicable Law not limited the interest rate payable under this Agreement and the Transaction Documents. In no event shall the total interest received by a Lender under this Agreement and the Transaction Documents exceed the

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amount that such Lender could lawfully have received, had the interest due under this Agreement and the Transaction Documents been calculated since the Closing Date at the Maximum Lawful Rate.

Section 2.9. Settlement Procedures.

(a) (1) During the Revolving Period. On each Payment Date during the Revolving Period, the Deal Agent shall pay to the following Persons, pursuant to the Monthly Report, from amounts transferred by the Collateral Custodian from each Collection Account to the corresponding Deal Agent’s Account, to the extent of Available Funds in such Collection Account and subject to Section 2.10(d), the following amounts in the following order of priority:

(i) First, pro rata to each Hedge Counterparty, any amounts, including any Hedge Breakage Costs and any payments due in respect of the termination of any Hedge Transactions, owing to that Hedge Counterparty under its respective Hedging Agreement in respect of any Hedge Transaction(s), for the payment thereof;

(ii) Second, to the Servicer, to the extent of Collections received with respect to the specific Loans and Obligors for which such Servicer Advances were made, in an amount equal to any Unreimbursed Servicer Advances on such Loans, for the payment thereof;

(iii) Third, to the Servicer, in an amount equal to its accrued and unpaid Servicing Fees to the end of the preceding Collection Period, for the payment thereof;

(iv) Fourth, to the extent not paid by the Servicer, to the Backup Servicer, in an amount equal to any accrued and unpaid currently due Backup Servicer Fee, for the payment thereof;

(v) Fifth, to the extent not paid by the Servicer, to the Collateral Custodian in an amount equal to any accrued and unpaid currently due Collateral Custodian Fee, for the payment thereof;

(vi) Sixth, to each Lender Agent, the Swingline Lender and the Alternative Currency Swingline Lender, pro rata in accordance with the amount of Advances outstanding, Swingline Advances outstanding and Alternative Currency Swingline Advances outstanding hereunder, in an amount equal to any accrued and unpaid Interest and Breakage Costs, for the payment thereof;

(vii) Seventh, to each Lender Agent, the Swingline Lender and the Alternative Currency Swingline Lender, pro rata in accordance with the amount of Advances outstanding, Swingline Advances outstanding and Alternative Currency Swingline Advances outstanding hereunder, in an amount equal to any accrued and unpaid Program Fee and Facility Fee, for the payment thereof;

(viii) Eighth, to the Deal Agent, for the account of the applicable Affected Party, to be paid pro rata to such Affected Parties in accordance with the amount owed to such Person under this clause Eighth, in an amount equal to any unpaid Increased Costs, Taxes and any Other Costs, for the payment thereof;

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(ix) Ninth, to each Lender Agent, the Swingline Lender and the Alternative Currency Swingline Lender, if the Required Advance Reduction Amount is greater than zero, an amount necessary to reduce the Required Advance Reduction Amount to zero, pro rata in accordance with the amount of Advances Outstanding hereunder, for the payment thereof;

(x) Tenth, to the Deal Agent, the Swingline Lender, the Alternative Currency Swingline Lender, each Conduit Lender and each Institutional Lender, the Affected Parties and the Indemnified Parties, pro rata in accordance with the amount owed to such Person under this clause Tenth, all other amounts (other than Advances Outstanding) then due under this Agreement, for the payment thereof;

(xi) Eleventh, to the extent not paid by the Servicer, to the Backup Servicer, to the Collateral Custodian, and to any Successor Servicer, as applicable, pro rata in accordance with the amount owed to such Person under this clause Eleventh, in an amount equal to any accrued and unpaid Transition Costs, Backup Servicer Expenses, Collateral Custodian Expenses and Market Servicing Fee Differential, for the payment thereof;

(xii) Twelfth, to the Servicer, in an amount equal to any Unreimbursed Servicer Advances, to the extent not reimbursed pursuant to clause Second above, for the payment thereof; and

(xiii) Thirteenth, at the option of the Borrower, to be invested in additional Eligible Loans that become part of the Collateral within two Business Days of such date or distributed to the Borrower;

(2) On the terms and conditions hereinafter set forth, from time to time during the Revolving Period, the Servicer may, on behalf of the Borrower, to the extent of any Principal Collections on deposit in any Collection Account, and subject to Section 2.10(d):

(i) request that the Collateral Custodian release such funds to the Servicer for the purpose of reinvesting in additional Eligible Loans, provided the following conditions are satisfied:

a. all conditions precedent set forth in Section 3.2(a) have been satisfied;

b. the Servicer provides same day written notice to the Deal Agent and Collateral Custodian by facsimile (to be received no later than 2:00 p.m. (Charlotte, North Carolina time) on such day) of such request and the amount thereof;

c. the notice required in clause (b) above shall be accompanied by a Borrower Notice in the form of Exhibit A-3 and a Borrowing Base Certificate and the same are executed by the Borrower and at least one Responsible Officer of the Servicer;

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d. the Collateral Custodian provides to the Deal Agent by facsimile or email (to be received no later than 2:00 p.m. (Charlotte, North Carolina time) on that same date) a statement reflecting the total amount of Principal Collections on deposit on such day in such Collection Account; and

e. upon the satisfaction of the conditions set forth in clauses (a) through (d) above, and the Collateral Custodian’s confirmation of available funds, the Collateral Custodian shall release funds from such Collection Account to the Servicer in an amount not to exceed the lesser of (A) the amount requested by the Servicer and (B) the amount of Principal Collections on deposit in such Collection Account on such day; or

(ii) request that such funds be applied to make payments in respect of the Advances Outstanding at such time in accordance with and subject to the terms of Section 2.4(b), in which case the Collateral Custodian shall deposit such funds into the appropriate Deal Agent’s Account and the Deal Agent shall apply such funds in accordance with Section 2.4(b).

(b) During the Amortization Period. On each Payment Date during the Amortization Period, the Deal Agent shall pay to the following Persons, pursuant to the Monthly Report, from amounts transferred by the Collateral Custodian from each Collection Account to the corresponding Deal Agent’s Account, to the extent of Available Funds in such Collection Account and subject to Section 2.10(d), the following amounts in the following order of priority:

(i) First, pro rata to each Hedge Counterparty, any amounts, including any Hedge Breakage Costs and any payments due in respect of the termination of any Hedge Transactions owing to that Hedge Counterparty under its respective Hedging Agreement in respect of any Hedge Transaction(s), for the payment thereof;

(ii) Second, to the Servicer, to the extent of Collections received with respect to the specific Loans and Obligors for which such Servicer Advances were made, in an amount equal to any Unreimbursed Servicer Advances on such Loans, for the payment thereof;

(iii) Third, to the Servicer, in an amount equal to its accrued and unpaid Servicing Fees to the end of the preceding Collection Period, for the payment thereof;

(iv) Fourth, to the extent not paid by the Servicer, to the Backup Servicer, in an amount equal to any accrued and unpaid currently due Backup Servicer Fee, for the payment thereof;

(v) Fifth, to the extent not paid by the Servicer, to the Collateral Custodian in an amount equal to any accrued and unpaid currently due Collateral Custodian Fee, for the payment thereof;

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(vi) Sixth, to each Lender Agent, the Swingline Lender and the Alternative Currency Swingline Lender, pro rata in accordance with the amount of Advances outstanding, Swingline Advances outstanding and Alternative Currency Swingline Advances outstanding hereunder, in an amount equal to any accrued and unpaid Interest and Breakage Costs, for the payment thereof;

(vii) Seventh, to each Lender Agent, the Swingline Lender and the Alternative Currency Swingline Lender, pro rata in accordance with the amount of Advances outstanding, Swingline Advances outstanding and Alternative Currency Swingline Advances outstanding hereunder, in an amount equal to any accrued and unpaid Program Fee and Facility Fee, for the payment thereof;

(viii) Eighth, to the Deal Agent and each Lender Agent, for the account of the applicable Affected Party, to be paid pro rata to such Affected Parties in accordance with the amount owed to such Person under this clause Eighth, in an amount equal to any unpaid Increased Costs, Taxes and any Other Costs, for the payment thereof;

(ix) Ninth, to each Lender Agent, the Swingline Lender and the Alternative Currency Swingline Lender, pro rata in accordance with the amount of Advances outstanding, Swingline Advances outstanding and Alternative Currency Swingline Advances outstanding hereunder, for the account of the applicable Lender, in an amount necessary to reduce the Advances Outstanding and Obligations to zero, for the payment thereof;

(x) Tenth, to each Lender Agent, the Swingline Lender, the Alternative Currency Swingline Lender, the Lenders, the Affected Parties and the Indemnified Parties, pro rata in accordance with the amount owed to such Person under this clause Tenth, all other amounts (other than Advances Outstanding) then due under this Agreement, for the payment thereof;

(xi) Eleventh, to the extent not paid by the Servicer, to the Backup Servicer, to the Collateral Custodian, and to any Successor Servicer, as applicable, pro rata in accordance with the amount owed to such Person under this clause Eleventh, in an amount equal to any accrued and unpaid Transition Costs, Backup Servicer Expenses, Collateral Custodian Expenses and Market Servicing Fee Differential, for the payment thereof;

(xii) Twelfth, to each Person entitled thereto, pro rata, an amount equal to all outstanding Obligations owed to such Person; and

(xiii) Thirteenth, any remaining amounts shall be distributed to the Borrower.

Section 2.10. Collections and Allocations.

(a) The Borrower or the Servicer on behalf of the Borrower shall promptly (but in no event later than two Business Days after the receipt thereof) identify any Collections received by it as being Interest Collections or Principal Collections and deposit all such Interest Collections or Principal Collections received directly by it into the appropriate Collection Account. The Servicer on behalf of the Borrower shall make such deposits or payments on the date indicated by wire transfer, in immediately available funds.

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(b) Until the occurrence of a Termination Event, to the extent there are uninvested amounts deposited in the U.S. Dollar Collection Account, all amounts shall be invested in Permitted Investments selected by the Servicer on behalf of the Borrower; from and after the occurrence of a Termination Event, to the extent there are uninvested amounts deposited in the U.S. Dollar Collection Account, all amounts may be invested in Permitted Investments selected by the Deal Agent that mature no later than the next Business Day. Any earnings (and losses) thereon shall be for the account of the Lenders. Uninvested amounts denominated in Alternative Currencies may not be invested in Permitted Investments.

(c) Notwithstanding anything to the contrary contained herein or in any other Transaction Document, all payments required to be made by the Borrower hereunder shall be made by the Borrower through the Servicer acting as its Paying Agent. In addition, the Borrower authorizes the Servicer to execute on the Borrower’s behalf, all Funding Requests, Swingline Funding Requests, Alternative Currency Swingline Funding Requests, notices given pursuant to Section 2.4 and each Borrower’s certification to be delivered pursuant to Section 3.2(b)(ii).

(d) The Servicer shall allocate and apply Collections in each Collection Account to the payment of amounts payable in the Currency deposited into such Collection Account. To the extent that aggregate amounts payable or to become payable in any Currency exceed the amount of Collections denominated in such Currency on deposit in the Collection Account for such Currency and available for such payment, and Collections denominated in any other Currency on deposit in the Collection Account for such Currency are available for such payment, then the Servicer shall allocate such other Collections to the payment of such amount, and on the Payment Date the Servicer shall cause such other Collections to be converted to the Currency of payment using the spot selling rate as of the related Determination Date and shall apply the amounts so converted to the making of such payment.

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Section 2.11. Payments, Computations, Etc.

(a) Unless otherwise expressly provided herein, all amounts to be paid or deposited by the Borrower or the Servicer, on behalf of the Borrower, or which is deposited by the Collateral Custodian from the Collection Accounts shall be paid or deposited in accordance with the terms hereof no later than 10:00 a.m. (Charlotte, North Carolina time), or in the case of amounts to be deposited by the Collateral Custodian, 12:00 p.m. (noon) (Charlotte, North Carolina time) on the day when due in immediately available funds to the applicable Deal Agent’s Account. All amounts to be made available by any Lender, Lender Agent, the Swingline Lender or the Alternative Currency Swingline Lender to the Deal Agent in connection with the making of any Advance, Swingline Advance or Alternative Currency Swingline Advance, whether in Dollars or in an Alternative Currency, shall be sent to the Deal Agent on the date when due in immediately available funds to an account designated by the Deal Agent to each such Lender, Lender Agent, the Swingline Lender and the Alternative Currency Swingline Lender, which amounts, if in an Alternative Currency, shall be made available to the Deal Agent no later than 12:00 p.m. (noon) (Charlotte, North Carolina time) on the date when due. If, under any provisions of this Agreement, any Lender, Lender Agent, the Swingline Lender or the Alternative Currency Swingline Lender is owed any amount in respect of Breakage Costs, each such Lender shall send a statement to the Deal Agent listing each such amount. The Borrower shall, to the extent permitted by law, pay to the Secured Parties interest on all amounts not paid or deposited when due hereunder at 2% per annum above the Base Rate, and in the case of any amounts not paid or deposited under any Hedging Agreement, interest at the “rate” specified in the applicable Hedging Agreement, in each case, payable on demand; provided, however, that such interest rate shall not at any time exceed the Maximum Lawful Rate. All computations of interest and all computations of the Interest Rate and other fees hereunder shall be made on the basis of a year of 360 (other than calculations with respect to the Base Rate and Advances and Alternative Currency Swingline Advances denominated in English Pounds Sterling which shall be based on a year consisting of 365 or 366 days, as applicable) days for the actual number of days (including the first but excluding the last day) elapsed.

(b) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day (except as provided in the definition of Accrual Period), and such extension of time shall in such case be included in the computation of payment of Interest, other interest or any fee payable hereunder, as the case may be.

(c) All payments hereunder shall be made without set-off or counterclaim and in such Currency and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Agreement (after withholding for or on account of any Taxes). Promptly following the Collection Date, the Deal Agent, each Conduit Lender, each Institutional Lender, the Swingline Lender and the Alternative Currency Swingline Lender shall mark the Notes “Paid” and return them to the Borrower.

(d) Except to the extent otherwise provided herein or in any other Transaction Document, all amounts owing under this Agreement or under any such other Transaction Document are payable in Dollars, except for the principal of, and Interest on, any Advance denominated in any Alternative Currency or Alternative Currency Swingline Advance and

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Breakage Costs, Hedge Breakage Costs and Program Fees relating thereto, which are payable in such Alternative Currency. If the Borrower shall fail to pay any principal of, or any Interest on, any Advance, Swingline Advance or Alternative Currency Swingline Advance when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), the unpaid portion of such Advance, Swingline Advance or Alternative Currency Swingline Advance shall, if such Advance, Swingline Advance or Alternative Currency Swingline Advance is not denominated in Dollars, automatically be redenominated in Dollars on the due date thereof (or, if such due date is a day other than the last day of the Accrual Period therefor, on the last day of such Accrual Period) in an amount equal to the Dollar Equivalent thereof using the spot selling rate as of the related Determination Date.

Section 2.12. [Reserved].

Section 2.13. Fees.

(a) The Borrower shall pay to each Lender Agent, the Swingline Lender and the Alternative Currency Swingline Lender, to the extent of Available Funds, from the appropriate Collection Account on each Payment Date, monthly in arrears, in accordance with Section 2.9(a)(1)(vii) and Section 2.9(b)(vii), the Program Fee and Facility Fee.

(b) The Borrower shall pay to the Servicer, to the extent of Available Funds, from the U.S. Dollar Collection Account on each Payment Date, monthly in arrears, in accordance with Section 2.9(a)(1)(iii) and Section 2.9(b)(iii), the Servicing Fee, and, as applicable to any Successor Servicer, the Market Servicing Fee Differential.

(c) The Backup Servicer shall be entitled to receive, to the extent of Available Funds, from the U.S. Dollar Collection Account on each Payment Date, monthly in arrears, in accordance with Section 2.9(a)(1)(iv) and Section 2.9(b)(iv), the Backup Servicer Fee.

(d) The Collateral Custodian shall be entitled to receive, to the extent of Available Funds, from the U.S. Dollar Collection Account on each Payment Date, monthly in arrears, in accordance with Section 2.9(a)(1)(v) and Section 2.9(b)(v), the Collateral Custodian Fee.

(e) The Borrower shall pay to Dechert LLP, as counsel to the Deal Agent and the Lenders, in accordance with Section 12.9, (i) on the Closing Date, the estimated legal fees and itemized out-of-pocket expenses of such counsel as of such date, and (ii) all additional reasonable fees and out-of-pocket expenses of such counsel within 30 Business Days after receiving an invoice for such amounts; provided, however, that all such fees shall be broken down by time and hourly rates and not value billed.

(f) To the extent amounts in any Collection Account are not sufficient to pay the amounts to be paid under clauses (a) through (d) of this Section 2.13, amounts in the other Collection Accounts may be applied to pay such amounts in accordance with Section 2.10(d).

Section 2.14. Increased Costs; Capital Adequacy; Illegality.

(a) If either (i) the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of

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any Applicable Law or regulation or (ii) the compliance by an Affected Party with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), (A) shall subject an Affected Party to any Tax (except for Taxes on the overall net income of such Affected Party), duty or other charge with respect to an Advance, Swingline Advance or Alternative Currency Swingline Advance hereunder, or on any payment made hereunder or (B) shall impose, modify or deem applicable any reserve requirement (including, without limitation, any reserve requirement imposed by the Federal Reserve Board, but excluding any reserve requirement, if any, included in the determination of Interest), special deposit or similar requirement against assets of, deposits with or for the amount of, or credit extended by, any Affected Party or (C) shall impose any other condition affecting an Advance, Swingline Advance or Alternative Currency Swingline Advance or a Lender’s rights hereunder (or of maintaining a Lender’s obligation to make any such Advance, Swingline Advance or Alternative Currency Swingline Advance, as applicable), the result of which is to increase the cost to any Affected Party or to reduce the amount of any sum received or receivable by an Affected Party under this Agreement, then within ten days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis for such demand), the Borrower shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such additional or increased cost incurred or such reduction suffered.

(b) If either (i) the introduction of or any change in or in the interpretation of any Applicable Law, guideline, rule, regulation, directive or request or (ii) compliance by any Affected Party with any Applicable Law, guideline, rule, regulation, directive or request from any central bank or other Governmental Authority (whether or not having the force of law), including, without limitation, compliance by an Affected Party with any request or directive regarding capital adequacy, has or would have the effect of reducing the rate of return on the capital of any Affected Party or any Lender’s holding company as a consequence of its obligations hereunder or arising in connection herewith to a level below that which any such Affected Party or such Lender’s holding company could have achieved but for such introduction, change or compliance (taking into consideration the policies of such Affected Party or such Lender’s holding company with respect to capital adequacy) by an amount deemed by such Affected Party or such Lender’s holding company to be material, then from time to time, within ten days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis for such demand), the Borrower shall pay directly to such Affected Party or the Lender with respect to such holding company such additional amount or amounts as will compensate such Affected Party for such reduction. For avoidance of doubt, any interpretation of Accounting Research Bulletin No. 51 by the Financial Accounting Standards Board shall constitute an adoption, change, request or directive subject to this Section 2.14(b).

(c) If as a result of any event or circumstance similar to those described in Sections 2.14(a) and (b), any Affected Party is required to compensate a bank or other financial institution providing liquidity support, credit enhancement or other similar support to such Affected Party in connection with this Agreement or the funding or maintenance of Advances, Swingline Advances or Alternative Currency Swingline Advances hereunder, then within ten days after demand by such Affected Party, the Borrower shall pay to such Affected Party such additional amount or amounts as may be necessary to reimburse such Affected Party for any such amounts paid by it.

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(d) In determining any amount provided for in this Section 2.14, the Affected Party may use any reasonable averaging and attribution methods. Any Affected Party making a claim under this section shall submit to the Borrower a certificate as to such additional or increased cost or reduction, which certificate shall calculate in reasonable detail any such charges and shall be conclusive absent demonstrable error.

(e) If a Lender, the Swingline Lender or the Alternative Currency Swingline Lender shall notify the Deal Agent that a Eurocurrency Disruption Event as described in clause (a) of the definition of “Eurocurrency Disruption Event” has occurred, the Deal Agent shall in turn so notify the Borrower, whereupon all Advances in respect of which Interest accrues at the LIBOR Rate and Swingline Advances in respect of which Interest accrues at the LIBOR Market Index Rate shall immediately be converted into Advances and Swingline Advances in respect of which Interest accrues at the Base Rate.

(f) Failure or delay on the part of any Affected Party to demand compensation pursuant to this Section 2.14 shall not constitute a waiver of such Affected Party’s right to demand such compensation.

Section 2.15. Taxes.

(a) All payments made by the Borrower in respect of any Advance, Swingline Advance or Alternative Currency Swingline Advance and all payments made by the Borrower or the Servicer on behalf of the Borrower under this Agreement will be made free and clear of and without deduction or withholding for or on account of any Taxes, unless such withholding or deduction is required by law. In such event, the Borrower shall pay to the appropriate taxing authority any such Taxes required to be deducted or withheld and the amount payable to the Deal Agent and each other Secured Party (as the case may be) will be increased (such increase, the “Additional Amount”) such that every net payment made under this Agreement after deduction or withholding for or on account of any Taxes (including, without limitation, any Taxes on such increase) is not less than the amount that would have been paid had no such deduction or withholding been deducted or withheld. The foregoing obligation to pay Additional Amounts, however, will not apply with respect to, and the term “Additional Amount” shall be deemed not to include, net income or franchise taxes imposed on the Deal Agent or another Secured Party, respectively, with respect to payments required to be made by the Borrower or Servicer on behalf of the Borrower under this Agreement, by a taxing jurisdiction in which such Secured Party or the Deal Agent is organized, conducts business or is paying taxes as of the Closing Date (as the case may be). If the Deal Agent or another Secured Party pays any Taxes in respect of which the Borrower is obligated to pay Additional Amounts under this Section 2.15(a), the Borrower shall promptly reimburse such Secured Party or the Deal Agent, as applicable, in full.

(b) The Borrower will indemnify the Deal Agent and each other Secured Party for the full amount of Taxes in respect of which the Borrower is required to pay Additional Amounts (including, without limitation, any Taxes imposed by any jurisdiction on such Additional Amounts) paid by the Deal Agent or such other Secured Party (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto; provided, however, that the Deal Agent or such other Secured Party, as appropriate, making a demand for indemnity payment, shall provide the Borrower, at its address set forth on Annex A

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hereto, with a certificate from the relevant taxing authority or from a Responsible Officer of the Deal Agent or such other Secured Party stating or otherwise evidencing that the Deal Agent or such other Secured Party has made payment of such Taxes and will provide a copy of or extract from documentation, if available, furnished by such taxing authority evidencing assertion or payment of such Taxes. This indemnification shall be made within ten days from the date the Deal Agent or such other Secured Party (as the case may be) makes written demand therefor.

(c) Within 30 days after the date of any payment by the Borrower of any Taxes, the Borrower will furnish to the Deal Agent, at its address set forth on Annex A hereto, appropriate evidence of payment thereof.

(d) If a Lender is not created or organized under the laws of the United States or a political subdivision thereof, such Lender shall, to the extent that it may then do so under Applicable Laws, deliver to the Borrower with a copy to the Deal Agent (i) within 15 days after the date hereof, or, if later, the date on which such Lender becomes a Lender hereunder two (or such other number as may from time to time be prescribed by Applicable Laws) duly completed copies of IRS Form W-8ECI or Form W-8BEN (or any successor forms or other certificates or statements that may be required from time to time by the relevant United States taxing authorities or Applicable Laws), as appropriate, to permit the Borrower to make payments hereunder for the account of such Lender, as the case may be, without deduction or withholding of United States federal income or similar Taxes and (ii) upon the obsolescence of or after the occurrence of any event requiring a change in, any form or certificate previously delivered pursuant to this Section 2.15(d), two copies (or such other number as may from time to time be prescribed by Applicable Laws) of such additional, amended or successor forms, certificates or statements as may be required under Applicable Laws to permit the Borrower to make payments hereunder for the account of such Lender, without deduction or withholding of United States federal income or similar Taxes.

(e) For any period with respect to which a Lender or the Deal Agent has failed to provide the Borrower with the appropriate form, certificate or statement described in Section 2.15(d) (other than if such failure is due to a change in law occurring after the date of this Agreement), the Deal Agent or such Lender, as the case may be, shall not be entitled to indemnification under clauses (a) or (b) of this Section 2.15 with respect to any Taxes.

(f) Within 30 days of the written request of the Borrower therefor, the Deal Agent and the Lenders, as appropriate, shall execute and deliver to the Borrower such certificates, forms or other documents that can be furnished consistent with the facts and that are reasonably necessary to assist the Borrower in applying for refunds of Taxes remitted hereunder; provided, however, that the Deal Agent and the Lenders shall not be required to deliver such certificates forms or other documents if in their respective sole discretion it is determined that the delivery of such certificate, form or other document would have a material adverse effect on the Deal Agent or Lenders; provided further, that the Borrower shall reimburse the Deal Agent or the Lenders for any reasonable expenses incurred in the delivery of such certificate, form or other document.

(g) If, in connection with an agreement or other document providing liquidity support, credit enhancement or other similar support to the Lenders in connection with this Agreement or the funding or maintenance of Advances, Swingline Advances or Alternative

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Currency Swingline Advances hereunder, the Lenders are required to compensate a bank or other financial institution in respect of Taxes under circumstances similar to those described in this Section 2.15, then within ten days after demand by the Lenders, the Borrower shall pay to the Lenders such additional amount or amounts as may be necessary to reimburse the Lenders for any amounts paid by them.

Section 2.16. Assignment of the Purchase Agreement.

The Borrower hereby assigns to the Deal Agent, for the ratable benefit of the Secured Parties hereunder, all of the Borrower’s right, and title and interest in and to (but none of its obligations under) the Purchase Agreement. In furtherance and not in limitation of the foregoing, the Borrower hereby assigns to the Deal Agent for the benefit of the Secured Parties, its right to Indemnification under Section 10.18(c) of the Purchase Agreement. The Borrower confirms that following a Termination Event the Deal Agent shall have the sole right to enforce the Borrower’s rights and remedies under the Purchase Agreement for the benefit of the Secured Parties, but without any obligation on the part of the Deal Agent, the Secured Parties or any of their respective Affiliates, to perform any of the obligations of the Borrower under the Purchase Agreement. The Borrower further confirms and agrees that such assignment to the Deal Agent shall terminate upon the Collection Date; provided, however, that the rights of the Deal Agent and the Secured Parties pursuant to such assignment with respect to rights and remedies in connection with any indemnities and any breach of any representation, warranty or covenants made by the Originator pursuant to the Purchase Agreement, which rights and remedies survive the termination of the Purchase Agreement, shall be continuing and shall survive any termination of such assignment.

Section 2.17. Lien Release Dividend.

(a) Notwithstanding any provision contained in this Agreement to the contrary, provided there is not then existing an Unmatured Termination Event, a Termination Event or a Servicer Termination Event, on a Lien Release Dividend Date, the Borrower may dividend to the Originator a portion of the Transferred Loans or portions thereof (each, a “Lien Release Dividend”), subject to the following terms and conditions:

(i) Except as set forth in clause (ix), the Borrower and the Originator shall have given the Deal Agent at least two Business Days’ prior written notice of their intent to effectuate a Lien Release Dividend, unless such notice is waived by the Deal Agent;

(ii) Any Lien Release Dividend shall only be in connection with a Permitted Transfer; provided, that, with respect to any Lien Release Dividend relating to a Permitted Transfer of the type set forth in clause (b) of the definition thereof, the requirements set forth in clause (ix) shall apply in addition to all of the other provisions of this Section 2.17;

(iii) After giving effect to the Lien Release Dividend on the Lien Release Dividend Date, (A) the Availability is greater than or equal to $0, (B) the representations and warranties contained in Sections 4.1 and 4.2 hereof shall continue to be correct in all material respects, except to the extent relating to an earlier date, (C) the eligibility of any

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Transferred Loan remaining as part of the Collateral after the Lien Release Dividend will be redetermined as of the Lien Release Dividend Date, (D) the Concentration Limits will be redetermined as of the Lien Release Dividend Date, (E) neither an Unmatured Termination Event, a Termination Event nor a Servicer Termination Event shall have resulted, (F) the amount of all Advances Outstanding in Alternative Currencies shall not exceed the Alternative Currency Sub-Limit, (G) no claim has been asserted or proceeding commenced challenging the enforceability or validity of any of the Loan Documents, (H) there shall have been no Material Adverse Change as to the Servicer or the Borrower, and (I) the Weighted Average Life of the Transferred Loans included in the Collateral (weighted based on Outstanding Loan Balances) will not exceed eight years;

(iv) Such Lien Release Dividend must be in compliance with Applicable Law and may not (A) be made with the intent to hinder, delay or defraud any creditor of the Borrower or (B) leave the Borrower, immediately after giving effect to the Lien Release Dividend, (i) insolvent, (ii) with insufficient funds to pay its obligations as and when they become due or (iii) with inadequate capital for its present and anticipated business and transactions;

(v) On or prior to the Lien Release Dividend Date, the Borrower shall have (A) delivered to the Deal Agent a list specifying all Transferred Loans or portions thereof to be transferred pursuant to such Lien Release Dividend and the Deal Agent shall have approved same in its sole discretion and (B) obtained all authorizations, consents and approvals required to effectuate the Lien Release Dividend;

(vi) A portion of a Transferred Loan may be transferred pursuant to a Lien Release Dividend provided that (A) such transfer does not have an adverse effect on the portion of such Transferred Loan remaining as a part of the Collateral, any other Collateral, the Lenders, the Deal Agent or the other Secured Parties, (B) the Loan Documents for such portion of the Transferred Loan remaining as a part of the Collateral have been amended to contain customary pro rata sharing, intercreditor and, if applicable, subordination provisions and (C) a new promissory note (other than with respect to a Noteless Loan) for the portion of the Transferred Loan remaining as a part of the Collateral has been executed, and the original thereof has been endorsed to the Deal Agent and delivered to the Collateral Custodian;

(vii) The Borrower shall deliver a Borrowing Base Certificate (including a calculation of the Borrowing Base after giving effect to such Lien Release Dividend) to the Deal Agent;

(viii) The Borrower shall have paid in full an aggregate amount equal to the sum of all amounts due and owing to the Deal Agent, the Lenders and any Hedge Counterparty, as applicable, under this Agreement and the other Transaction Documents, to the extent accrued to such date (including, without limitation, Breakage Costs and Hedge Breakage Costs) with respect to the Transferred Loans to be transferred pursuant to such Lien Release Dividend and incurred in connection with the transfer of such Transferred Loans pursuant to such Lien Release Dividend and the termination of any Hedge Transactions that may be required to be terminated, in whole or in part, in

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connection therewith and, with respect to Transferred Loans denominated in an Alternative Currency, instructions regarding which Alternative Rate contracts will be terminated in respect of such Lien Release Dividend; and

(ix) Any Lien Release Dividend relating to a Permitted Transfer of the type set forth in clause (b) of the definition of Permitted Transfer shall be subject to the following additional conditions:

(A) the Borrower and the Originator shall have given the Deal Agent and each Lender at least five Business Days’ prior written notice requesting that the Lenders consent to the effectuation of a Lien Release Dividend for such a Permitted Transfer, in the form of Exhibit R hereto (a “Notice and Request for Consent”);

(B) the Deal Agent shall have received executed responses to the Notice and Request for Consent indicating that the Required Lenders have consented to the requested Permitted Transfer no later than one Business Day prior to the Lien Release Dividend Date requested by the Borrower and the Originator, which consent shall be given in the sole and absolute discretion of each Lender;

(C) if a Lender shall not have responded to the Notice and Request for Consent by 11:00 A.M. on the day that is one Business Day prior to the proposed Lien Release Dividend Date, such Lender shall be deemed not to have given its consent;

(D) on any Lien Release Dividend Date no more than four Lien Release Dividends for such Permitted Transfers shall have been made during the 12 month period immediately preceding the proposed Lien Release Dividend Date; and

(E) with respect to any Lien Release Dividend relating to such a Permitted Transfer, the sum of the Outstanding Loan Balances of all Transferred Loans which were Defaulted Loans, Charged-Off Loans or Loans subject to a Warranty Event which were (x) included in Lien Release Dividends for all such Permitted Transfers or (y) replaced by the Borrower pursuant to Section 2.19, in each case during the 12-month period immediately preceding the proposed Lien Release Dividend Date for such Permitted Transfer, does not exceed 10% of the highest Aggregate Outstanding Loan Balance of any month during such 12-month period.

(b) In connection with the Lien Release Dividend, there shall be sold and assigned to the Borrower, without recourse, representation or warranty, all of the right, title and interest of the Deal Agent, on behalf of the Secured Parties, in, to and under the Transferred Loans or portions thereof so transferred (together with any related Collateral (provided that in the case of a transfer of a portion of a Transferred Loan, a pro rata interest in the Related Property and other related Collateral shall be released)) and such Transferred Loans or portions thereof so

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transferred (together with any related Collateral (provided that in the case of a transfer of a portion of a Transferred Loan, a pro rata interest in the Related Property and other related Collateral shall be released)) shall be released from the Lien of this Agreement (subject to the requirements of Section 2.17(a)(iii) above).

(c) The Borrower hereby agrees to pay the reasonable legal fees and expenses of the Deal Agent and the other Secured Parties in connection with any Lien Release Dividend (including, but not limited to, expenses incurred in connection with the release of the Lien of the Deal Agent, on behalf of the Secured Parties, and any other party having an interest in the Transferred Loans in connection with such Lien Release Dividend).

(d) In connection with any Lien Release Dividend, on the related Lien Release Dividend Date, the Deal Agent, on behalf of the Secured Parties, shall, at the expense of the Borrower (1) execute such instruments of release with respect to the Transferred Loans or portions thereof to be transferred to the Borrower (together with, in the case of the transfer of the Transferred Loans but not portions thereof, any related Collateral), in recordable form if necessary, in favor of the Borrower as the Borrower may reasonably request, (2) deliver any portion of the Transferred Loans or portions thereof to be transferred to the Borrower (together with, in the case of the transfer of the Transferred Loans but not portions thereof, any related Collateral) in its possession to the Borrower and (3) otherwise take such actions, and cause or permit the Collateral Custodian to take such actions, as are necessary and appropriate to release the Lien of the Deal Agent on behalf of the Secured Parties on the Transferred Loans or portions thereof to be transferred to the Borrower (together with, in the case of the transfer of the Transferred Loans but not portions thereof, any related Collateral) and release and deliver to the Borrower such Transferred Loans or portions thereof to be transferred to the Borrower (together with, in the case of the transfer of the Transferred Loans but not portions thereof, any related Collateral).

Section 2.18. Appointment of Registrar and Duties.

(a) Wachovia is hereby appointed to act as Registrar under this Agreement and hereby accepts such appointment and agrees to perform the duties and obligations with respect thereto set forth in the Agreement.

(b) As long as any Advances, Swingline Advances or Alternative Currency Swingline Advances remain outstanding under the Notes, the Borrower shall maintain a Registrar therefor.

(c) The Borrower shall cause to be kept a register (the “Note Register”) that contains an accurate and complete list of those Persons who from time to time shall be holders of the Structured Notes. The Note Register shall be maintained by the Registrar, and so long as Wachovia is the Registrar, the Registrar may not be removed by the Borrower. Upon the resignation of any Registrar, the Borrower shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Registrar. So long as Wachovia is the Registrar, the Note Register shall be kept at One Wachovia Center, Mail Code: NC0600, Charlotte, North Carolina 28288.

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(d) Upon the resignation of Wachovia as Registrar, the Borrower will give the Deal Agent prompt written notice of the appointment of a successor Registrar and of the location, and any change in the location, of the Note Register, and the Deal Agent shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof, and the Deal Agent shall have the right to rely upon a certificate executed on behalf of the Registrar by a Responsible Officer thereof as to the names and addresses of the holder(s) of the Notes and the principal amounts and the amounts and number of such Notes.

Section 2.19. Substitution of Loans; Repurchase or Substitutions of Ineligible Loans.

(a) Substitution of Loans. On any day prior to the occurrence of a Termination Event (and after the Termination Date at the discretion of the Required Lenders), the Borrower may, subject to the conditions set forth in this Section 2.19 and subject to the other restrictions contained herein, replace any Transferred Loan with one or more Eligible Loans (each, a “Substitute Loan”), provided that no such replacement shall occur unless each of the following conditions is satisfied as of the date of such replacement and substitution:

(i) the Borrower has recommended to the Deal Agent (with a copy to the Collateral Custodian) in writing that the Transferred Loan to be replaced should be replaced (each a “Replaced Loan”);

(ii) each Substitute Loan is an Eligible Loan on the date of substitution;

(iii) the aggregate Outstanding Loan Balance of such Substitute Loans shall be equal to or greater than the aggregate Outstanding Loan Balance of the Replaced Loans;

(iv) all representations and warranties of the Borrower contained in Sections 4.1 and 4.2 shall be true and correct as of the date of substitution of any such Substitute Loan;

(v) the substitution of any Substitute Loan does not cause a Termination Event or Unmatured Termination Event to occur;

(vi) as of any date of determination, the sum of the Outstanding Loan Balances of all Substitute Loans does not exceed 20% of the highest Aggregate Outstanding Loan Balance of any month during the 12 month period immediately preceding such date of determination;

(vii) as of any date of determination, the sum of the Outstanding Loan Balances of all Substitute Loans substituted for Defaulted Loans, Charged-Off Loans and Loans subject to a Warranty Event shall not exceed 10% of the highest Aggregate Outstanding Loan Balance of any month during the 12 month period immediately preceding such date of determination;

(viii) [reserved];

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(ix) the Weighted Average Life of all Loans included in the Collateral (weighted by Outstanding Loan Balances (excluding ACAS Business Loan Trust Securities)) does not increase by more than 0.25 years;

(x) no adverse selection procedures shall have been employed in the selection of such Substitute Loan from the Originator’s portfolio;

(xi) all actions or additional actions (if any) necessary to (a) with respect to Substitute Loans denominated in Dollars, perfect the security interest and assignment of such Substitute Loan and related Collateral to the Borrower and the Deal Agent and (b) with respect to Substitute Loans denominated in an Alternative Currency, grant a valid and effective security interest in such Substitute Loan and related Collateral (subject to any filing, registration or notarization (including registration of a debenture necessary to perfect such security interest and make such security interest enforceable and effective)) and assignment of such Substitute Loan and related Collateral to the Borrower and the Deal Agent, shall have been taken as of or prior to the Substitution Date;

(xii) the Eligible Risk Rating of the Obligor relating to the Substitute Loan is equal to or better than that of the Obligor relating to the Replaced Loan;

(xiii) the Loan Rate on the Substitute Loan is not less than the Loan Rate on the Loan to be replaced and reconveyed to the Originator in exchange for such Substitute Loan;

(xiv) the total interest rate (inclusive of any deferred interest component) of the Substitute Loan is greater than or equal to the total interest rate on the Loan to be replaced and reconveyed to the Originator in exchange for such Substitute Loan; and

(xv) the Borrower shall deliver to the Deal Agent on the date of such substitution (i) a certificate of a Responsible Officer certifying that each of the foregoing is true and correct as of such date and (ii) a Borrowing Base Certificate (including a calculation of Borrowing Base after giving effect to such substitution).

In addition, the Borrower shall in connection with such substitution deliver to the Collateral Custodian the related Loan Documents and shall pay to the Deal Agent, for the account of each Conduit Lender, each Institutional Lender and each Hedge Counterparty, as applicable, all Breakage Costs or Hedge Breakage Costs, if any, incurred in connection with the substitution of such Loan pursuant to this Section 2.19 and the termination of any Hedge Transactions, in whole or in part, in connection therewith. In connection with any such substitution, the Deal Agent, as agent for the Secured Parties, shall, automatically and without further action (unless otherwise necessary or requested by the Borrower or the Servicer), be deemed to transfer to the Borrower, free and clear of any Lien created by the Deal Agent, all of the right, title and interest of the Deal Agent, as agent for the Secured Parties, in, to and under such Replaced Loan, but without any representation and warranty of any kind, express or implied.

(b) Repurchase or Substitution of Ineligible Loans.

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(i) In the event of a breach of any representation or warranty set forth in Section 4.2 with respect to a Transferred Loan, Related Property and other related Collateral (each such Loan, Related Property and other related Collateral, an “Ineligible Loan”), no later than 30 days after the earlier of (x) knowledge of such breach on the part of the Borrower and (y) receipt by the Borrower of written notice thereof given by the Deal Agent, the Borrower shall either (1) repay Advances Outstanding in an amount equal to the aggregate Retransfer Price of such Ineligible Loan(s) to which such breach relates on the terms and conditions set forth below, or (2) substitute for such Ineligible Loan a Substitute Loan; provided, however, that no such repayment shall be required to be made with respect to such Ineligible Loan (and such Loan shall cease to be an Ineligible Loan) if, on or before the expiration of such 30 day period, the representations and warranties in Section 4.2 with respect to such Ineligible Loan shall be made true and correct in all material respects with respect to such Ineligible Loan as if such Ineligible Loan had become part of the Collateral on such day. Notwithstanding anything contained in this Section 2.19(b) to the contrary, in the event of a breach of any representation and warranty set forth in Section 4.2 with respect to each Transferred Loan, Related Property and other related Collateral having been (A) granted to the Deal Agent, on behalf of the Secured Parties, free and clear of any Lien of any Person claiming through or under the Borrower and its Affiliates and (B) in compliance, in all material respects, with all requirements of laws applicable to the Borrower, immediately upon the earlier to occur of the discovery of such breach by the Borrower or receipt by the Borrower of written notice of such breach given by the Deal Agent, the Borrower shall repay Advances Outstanding (and, with respect to Advances Outstanding in an Alternative Currency bearing interest at the Alternative Rate, instructions regarding which Alternative Rate contracts will be terminated in respect of such repayment) in an amount equal to the sum of (I) the aggregate Outstanding Loan Balance of such Ineligible Loan(s), (II) any outstanding Servicer Advances thereon, (III) all Hedge Breakage Costs owed to any relevant Hedge Counterparty for any termination of one or more Hedge Transactions, in whole or in part, as required by the terms of any Hedge Agreement and (IV) any Breakage Costs incurred in connection with the retransfer of such Loan pursuant to this Section 2.19(b) and the termination of any Hedge Transactions in whole or in part in connection therewith, (collectively, the “Retransfer Price”), and the Deal Agent on behalf of the Secured Parties shall release to Borrower any such Ineligible Loan(s) and relinquish any Lien created pursuant to this Agreement or otherwise, and the Secured Parties shall, in connection with such conveyance and without further action, be deemed to represent and warrant that they have the corporate authority and has taken all necessary corporate action to accomplish such release, but without any other representation or warranty, express or implied. In the foregoing instances, the Borrower shall make such repayment and on and after the date of such repayment, each Ineligible Loan so repaid shall not be included in the Collateral. In consideration of any such release by the Secured Parties, the Borrower shall, on the date of such repayment, remit to the Deal Agent, on behalf of the Secured Parties, in immediately available funds an amount equal to the Retransfer Price therefor. Upon each such repayment, the Deal Agent, on behalf of the Secured Parties, shall automatically and without further action be deemed to release to the Borrower all the right, title and interest of the Secured Parties in, to and under such Ineligible Loan(s) and all monies due or to become due with respect thereto, all proceeds thereof and all rights

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to security for any such Ineligible Loan, and all proceeds and products of the foregoing. The Deal Agent shall, at the sole expense of the Borrower, execute such documents and instruments of transfer as may be prepared by the Borrower and take such other actions as shall reasonably be requested by the Borrower to effect the transfer of such Ineligible Loan pursuant to this Section 2.19(b).

(ii) The Borrower hereby agrees that (x) if any real property collateral securing any Transferred Loan becomes the subject of any claims, proceedings, Liens or encumbrances with respect to any material violation or claimed material violation of any federal or state environmental laws or regulations or (y) in the event of a breach of the representation and warranty in Section 4.1(ee), such Transferred Loan shall for all purposes hereunder be, at and following the time of discovery by the Servicer of such fact, the Borrower, the Deal Agent or any other Secured Party, deemed an Ineligible Loan and the Borrower shall either repay Advances Outstanding in an amount equal to the aggregate Retransfer Price of such Ineligible Loan or substitute for such Ineligible Loan a Substitute Loan. Such Ineligible Loan shall otherwise be treated in accordance with Section 2.19(b) and shall be subject to the same remedial and recourse provisions hereunder as other Transferred Loans determined to be Ineligible Loans hereunder.

(c) If any Transferred Loan is replaced by one or more Substitute Loans pursuant to Section 2.19(a), such Substitute Loans shall be denominated in the same Currency as the Replaced Loan. If any Advance Outstanding required to be repaid pursuant to Section 2.19(b) is in an Alternative Currency, such Advance Outstanding shall be repaid in the same Alternative Currency. If any Ineligible Loan is replaced with one or more Substitute Loans pursuant to Section 2.19(b), such Substitute Loans shall be denominated in the same Currency as the Ineligible Loan.

Section 2.20. Non-Receipt of Funds by the Deal Agent.

(a) Except as provided in Section 2.20(c), unless the Deal Agent shall have been notified in writing by a Lender prior to the date an Advance is to be made by such Lender (which notice shall be effective upon receipt) that such Lender does not intend to make the proceeds of such Advance available to the Deal Agent, the Deal Agent may assume that such Lender has made such proceeds available to the Deal Agent on such date, and the Deal Agent may in reliance upon such assumption (but shall not be required to) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Deal Agent, the Deal Agent shall be able to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Deal Agent’s demand therefor, the Deal Agent will promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Deal Agent. The Deal Agent shall also be entitled to recover from such Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Deal Agent to the Borrower to the date such corresponding amount is recovered by the Deal Agent at a per annum rate equal to (i) from the Borrower at the Interest Rate applicable to the Advance requested pursuant to the related Funding Request and (ii) from a Lender at the Federal Funds Rate.

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(b) A certificate of the Deal Agent submitted to the Borrower or any Lender with respect to any amount owing under this Section 2.20 shall be conclusive in the absence of manifest error.

(c) On the date of any borrowing of an Advance in an Alternative Currency, the Deal Agent shall make available to the Borrower the proceeds of such borrowing only upon actual receipt by the Deal Agent from each Lender of such Lender’s pro rata portion of such borrowing in such Alternative Currency.

ARTICLE III

CLOSING; CONDITIONS OF CLOSING AND ADVANCES

Section 3.1. Conditions to Closing and Initial Advances.

No Lender shall be obligated to make any Advance, any Swingline Advance or any Alternative Currency Swingline Advance hereunder on the occasion of the Initial Advance, nor shall any Lender, the Deal Agent, the Backup Servicer or the Collateral Custodian be obligated to take, fulfill or perform any other action hereunder, until the following conditions have been satisfied, in the sole discretion of, or waived in writing by, the Deal Agent:

(a) This Agreement and all other Transaction Documents or counterparts hereof or thereof shall have been duly executed by, and delivered to, the parties hereto and thereto and the Deal Agent shall have received such other documents, instruments, agreements and legal opinions as the Deal Agent shall request in connection with the transactions contemplated by this Agreement, including all those listed in the Schedule of Documents, attached hereto as Schedule I, as due on the Closing Date, each in form and substance satisfactory to the Deal Agent and each Lender Agent.

(b) The Deal Agent shall have received (i) satisfactory evidence that the Originator, the Borrower and the Servicer have obtained all required consents and approvals of all Persons, including all requisite Governmental Authorities, and have all authority necessary to the execution, delivery and performance of this Agreement and other Transaction Documents to which each is a party and the consummation of the transactions contemplated hereby or thereby or (ii) an Officer’s Certificate from each of the Borrower and the Servicer in form and substance satisfactory to the Deal Agent and each Lender Agent affirming that no such consents or approvals are required.

(c) The Borrower and the Servicer shall each be in compliance in all material respects with all Applicable Laws.

(d) The Borrower shall have paid all fees required to be paid by it on the Closing Date, including all fees required hereunder and under the Global Fee Letter to be paid as of such date, and shall have reimbursed each Lender and the Deal Agent for all fees, costs and expenses of closing the transactions contemplated hereunder and under the other Transaction Documents, including the legal and other document preparation costs incurred by any Lender and the Deal Agent.

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Section 3.2. Conditions Precedent to All Advances, Swingline Advances and Alternative Currency Swingline Advances.

Each Advance (including the Initial Advance), each Swingline Advance, each Alternative Currency Swingline Advance and each reinvestment of Available Funds made pursuant to Section 2.9(a)(1)(xiii) or Section 2.9(a)(2) shall be subject to the further conditions precedent that:

(a) On the related Funding Date or date of reinvestment, the Borrower and the Servicer shall have certified in the related Borrower Notice that all conditions precedent to the requested Advance, Swingline Advance or Alternative Currency Swingline Advance have been satisfied and they shall thereby be deemed to have certified that:

(i) the representations and warranties set forth in Sections 4.1, 4.2 and 7.8 are true and correct in all material respects on and as of such date, before and after giving effect to such borrowing and to the application of the proceeds therefrom, as though made on and as of such date;

(ii) no event has occurred, or would result from such Advance, such Swingline Advance, such Alternative Currency Swingline Advance or from the application of the proceeds therefrom, that constitutes a Termination Event or Unmatured Termination Event;

(iii) [Reserved];

(iv) no event has occurred that constitutes a Servicer Termination Event;

(b) (i) with respect to the initial Funding Date, the Deal Agent and each Lender Agent shall have received all Transaction Documents listed on the Schedule of Documents, attached hereto as Schedule I, as due on the initial Funding Date, or counterparts thereof, each of which has been duly executed by, and delivered to, the parties hereto and each shall be in form and substance satisfactory to the Deal Agent and each Lender Agent and (ii) on any date on which Available Funds are reinvested pursuant to Section 2.9(a)(1)(xiii) or Section 2.9(a)(2), the Deal Agent shall have received a certification in the form of Exhibit N;

(c) the Termination Date shall not have occurred;

(d) (i) in the case of each Advance in Dollars, on and as of the applicable Funding Date, before and after giving effect to such Advance and to the application of proceeds therefrom, (A) the Availability is greater than $0 and (B) the amount of all Advances Outstanding does not exceed the aggregate Commitments then in effect;

(ii) in the case of an Advance in an Alternative Currency, on and as of the applicable Funding Date, before and after giving effect to such Advance and to the application of the proceeds therefrom, the amount of all Advances Outstanding in Alternative Currencies shall not exceed (A) the Alternative Currency Sub-Limit then in effect, (B) such Lender’s Pro-Rata Share of the Alternative Currency Sub-Limit or (C) the Availability on such Funding Date;

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(iii) in the case of each Swingline Advance, on and as of the applicable Funding Date, before and after giving effect to such Swingline Advance and to the application of proceeds therefrom, such Swingline Advance does not exceed (A) the aggregate unused Commitments then in effect, (B) the Swingline Lender’s unused Swingline Commitment then in effect or (C) the Availability on such Funding Date;

(iv) in the case of an Alternative Currency Swingline Advance, on and as of the applicable Funding Date, before and after giving effect to such Alternative Currency Swingline Advance, the amount of all Alternative Currency Swingline Advances shall not exceed (A) the unused Alternative Currency Swingline Amount then in effect, (B) the unused Alternative Currency Sub-Limit then in effect or (C) the Availability on such Funding Date.

(e) in the case of each Advance, Swingline Advance and Alternative Currency Swingline Advance, each Loan submitted by the Borrower for funding on the related Funding Date or date of reinvestment of Available Funds pursuant to Section 2.9(a)(1)(xiii) or Section 2.9(a)(2) is an Eligible Loan;

(f) with respect to each Pre-Positioned Loan that is funded with the proceeds of such Advance, Swingline Advance or Alternative Currency Swingline Advance, the Deal Agent, each Lender Agent and, as applicable, the Swingline Lender or Alternative Currency Swingline Lender, and the Collateral Custodian shall have received a faxed copy of the executed Underlying Note (other than in the case of a Noteless Loan), and the Certificate of Borrower in the form of Exhibit I, and, if requested in writing by the Deal Agent, the Deal Agent shall have received a copy of the investment committee report and summary for each such Pre-Positioned Loan.

(g) no claim has been asserted or proceeding commenced challenging enforceability or validity of any of the Loan Documents, excluding any instruments, certificates or other documents relating to Loans that were funded with the proceeds of prior Advances, Swingline Advances and Alternative Currency Swingline Advances;

(h) there shall have been no Material Adverse Change as to the Servicer or as to the Borrower since the preceding Advance, Swingline Advance or Alternative Currency Swingline Advance, as applicable;

(i) the Servicer and Borrower shall have taken such other action, including delivery of approvals, consents, opinions, documents, and instruments to the Secured Parties and the Deal Agent as each may reasonably request;

(j) after giving effect to the applicable Advance, Swingline Advance or Alternative Currency Swingline Advance or reinvestment of Available Funds, the Weighted Average Life of the Transferred Loans included in the Collateral (weighted based on Outstanding Loan Balances) will not exceed eight years;

(k) [reserved]; and

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(l) in the case of any Advance in an Alternative Currency or Alterative Currency Swingline Advance, the proceeds of any such Advance or Alternative Currency Swingline Advance shall be used by the Borrower solely to acquire Loans under the Purchase Agreement which are denominated in the same Alternative Currency.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.1. Representations and Warranties of the Borrower.

The Borrower represents and warrants as follows:

(a) Organization and Good Standing; Power and Authority. The Borrower is a Delaware statutory trust duly organized, validly existing, and in good standing under the laws of the jurisdiction of its formation, and has full trust power, authority and legal right to own or lease its properties and conduct its business as such business is presently conducted and to enter into and perform its obligations under this Agreement each other Transaction Document to which it is a party.

(b) Due Qualification. The Borrower is duly qualified to do business and is in good standing as a statutory trust, and has obtained or will obtain all necessary licenses and approvals, in each jurisdiction in which the nature of its business requires it to be so qualified.

(c) Due Authorization. The execution and delivery of this Agreement and each Transaction Document to which the Borrower is a party and the consummation of the transactions provided for herein and therein have been duly authorized by the Borrower by all necessary trust action on the part of the Borrower.

(d) No Conflict. The execution and delivery of this Agreement and each Transaction Document to which the Borrower is a party, the performance by the Borrower of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with or result in any breach of any of the material terms and provisions of, and will not constitute (with or without notice or lapse of time or both) a default under, the Borrower’s trust agreement or any Contractual Obligation of the Borrower.

(e) No Violation. The execution and delivery of this Agreement and each Transaction Document to which the Borrower is a party, the performance of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with or violate, in any material respect, any Applicable Law.

(f) No Proceedings. Except as previously disclosed to the Deal Agent and each Lender Agent in writing, there are no proceedings or investigations (formal or informal) pending or, to the best knowledge of the Borrower, threatened against the Borrower, before any Governmental Authority (i) asserting the invalidity of this Agreement or any Transaction Document to which the Borrower is a party, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any Transaction Document to which the Borrower is a party or (iii) seeking any determination or ruling that could reasonably be expected to have a Material Adverse Effect.

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(g) All Consents Required. All approvals, authorizations, consents, orders or other actions of any Person or of any Governmental Authority (if any) required in connection with the due execution, delivery and performance by the Borrower of this Agreement and any Transaction Document to which the Borrower is a party, have been obtained.

(h) Bulk Sales. The execution, delivery and performance of this Agreement do not require compliance with any “bulk sales” law by Borrower.

(i) Solvency. The transactions contemplated under this Agreement and each Transaction Document to which the Borrower is a party do not and will not render the Borrower not Solvent.

(j) Selection Procedures. No procedures believed by the Borrower to be materially adverse to the interests of the Secured Parties were utilized by the Borrower in identifying and/or selecting the Loans that are part of the Collateral.

(k) Taxes. The Borrower has filed or caused to be filed all Tax returns required to be filed by it. The Borrower has paid all Taxes and all assessments made against it or any of its property (other than any amount of Tax the validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in accordance with GAAP have been provided on the books of the Borrower), and no Tax lien has been filed and, to the Borrower’s knowledge, no claim is being asserted, with respect to any such Tax or other assessment.

(l) Agreements Enforceable. This Agreement and each Transaction Document to which the Borrower is a party constitute the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their respective terms, except as such enforceability may be limited by applicable Insolvency Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity).

(m) [Reserved].

(n) Reports Accurate. All Monthly Reports (if prepared by the Borrower, or to the extent that information contained therein is supplied by the Borrower), information, exhibit, financial statement, document, book, record or report furnished or to be furnished by the Borrower to the Deal Agent or any Lender in connection with this Agreement are true, complete and accurate.

(o) Location of Offices. The Borrower’s name is “ACS Funding Trust I” and its location (within the meaning of Article 9 of the UCC) is the State of Delaware. The Borrower has not changed its name, identity, structure, existence or state of formation, whether by amendment of its certificate of trust, by reorganization or otherwise, and has not changed its location (within the meaning of Article 9 of the UCC) within the four months preceding the Closing Date.

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(p) Tradenames. The Borrower has no trade names, fictitious names, assumed names or “doing business as” names or other names under which it has done or is doing business.

(q) Purchase Agreement. The Purchase Agreement is the only agreement pursuant to which the Borrower acquires Collateral (other than the Hedge Collateral).

(r) Value Given. The Borrower gave reasonably equivalent value to the Originator in consideration for the transfer to the Borrower of the Loans under the Purchase Agreement, no such transfer was made for or on account of an antecedent debt owed by the Originator to the Borrower, and no such transfer is voidable or subject to avoidance under any Insolvency Law.

(s) Special Purpose Entity. The trust agreement of the Borrower is in the form attached as Exhibit C hereto.

(t) Separate Entity. The Borrower has not and shall not:

(i) engaged in any business or activity other than the purchase and receipt of Loans and related Collateral from the Originator under the Purchase Agreement, the sale of Loans and related Collateral under the Transaction Documents, and such other activities as are incidental or related thereto;

(ii) acquired or owned any material assets other than (a) the Loans and related Collateral from the Originator under the Purchase Agreement and (b) incidental property as may be necessary for the operation of the Borrower;

(iii) merged into or consolidated with any Person or dissolved, terminated or liquidated in whole or in part, transferred or otherwise disposed of all or substantially all of its assets or changed its legal structure, without in each case first obtaining the consent of the Deal Agent and each Lender Agent;

(iv) failed to preserve its existence as an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization or formation, or without the prior written consent of the Deal Agent or each Lender Agent, amended, modified, terminated or failed to comply with the provisions of its trust agreement, or failed to observe statutory trust formalities;

(v) owned any Subsidiary or made any investment (other than the purchase of Loans pursuant to the Transaction Documents) in any Person without the consent of the Deal Agent and each Lender Agent;

(vi) except as permitted by this Agreement, the Lock-Box Agreement and the other Transaction Documents, commingled its assets with the assets of any of its Affiliates, or of any other Person;

(vii) incurred any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than (A) indebtedness to the Secured Parties hereunder or in conjunction with a repayment of all Advances, Swingline Advances and Alternative Currency Swingline Advances owed to any of the Lenders, (B) obligations in

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respect of Hedging Agreements, (C) trade payables in the ordinary course of its business and (D) other operating expenses; provided, that, such debt is not evidenced by a note and is paid when due;

(viii) become insolvent or failed to pay its debts and liabilities from its assets as the same shall have become due;

(ix) failed to maintain its records, books of account and bank accounts separate and apart from those of any other Person;

(x) entered into any contract or agreement with any Person other than as contemplated by the Transaction Documents, except upon terms and conditions that are commercially reasonable and intrinsically fair and substantially similar to those that would be available on an arms–length basis with third parties other than such Person;

(xi) sought its dissolution or winding up in whole or in part;

(xii) failed to correct any known misunderstandings regarding the separate identity of Borrower and the Originator or any principal or Affiliate thereof or any other Person;

(xiii) guaranteed, become obligated for, or held itself out to be responsible for the debt of another Person;

(xiv) made any loan or advances to any third party, including any principal or Affiliate, or held evidence of indebtedness issued by any other Person (other than Permitted Investments and the Loans);

(xv) failed either to hold itself out to the public as a legal entity separate and distinct from any other Person or to conduct its business solely in its own name in order not (a) to mislead others as to the identity with which such other party is transacting business, or (b) to suggest that it is responsible for the debts of any third party (including any of its principals or Affiliates);

(xvi) failed to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations;

(xvii) filed or consented to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or made an assignment for the benefit of creditors;

(xviii) except as may be required by the Code and regulations, shared any common logo with or held itself out as or been considered as a department or division of (a) any of its principals or Affiliates, (b) any Affiliate of a principal or (c) any other Person;

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(xix) permitted any transfer (whether in any one or more transactions) of any direct or indirect ownership interest in the Borrower to the extent it has the ability to control the same, unless the Borrower shall have delivered to the Deal Agent and each Lender Agent an acceptable non–consolidation opinion and the Deal Agent and each Lender Agent shall have consented to such transfer;

(xx) failed to maintain separate financial statements, showing its assets and liabilities separate and apart from those of any other Person; provided, however, the Borrower’s assets and liabilities maybe included in the consolidated financial statements of American Capital for reporting purposes so long as such consolidated financial statements provide in a footnote that the Borrower is a single purpose entity and the Borrower owns its own assets, which are not available to satisfy the liabilities of any affiliated party, and is liable only for its own liabilities and not for those of any other affiliated party;

(xxi) failed to pay its own liabilities and expenses only out of its own funds;

(xxii) failed to pay the salaries of its own employees in light of its contemplated business operations;

(xxiii) acquired the obligations or securities of its Affiliates or stockholders (except ACAS Business Loan Trust Securities);

(xxiv) failed to allocate fairly and reasonably any overhead expenses that are shared with an Affiliate, including paying for office space and services performed by any employee of an Affiliate;

(xxv) failed to use separate invoices and checks bearing its own name;

(xxvi) pledged its assets for the benefit of any other Person, other than with respect to payment of the indebtedness to the Secured Parties hereunder;

(xxvii) failed at any time to have at least one independent trustee (an “Independent Trustee”), which is not and, for the immediately preceding two year period, was not (a) a trustee (other than an Independent Trustee), officer of employee of the Trust; (b) a director, officer or employee of American Capital Strategies, Ltd. (the “Parent”) or any of its affiliates; (c) a supplier, independent contractor or any other person who derives more than 15% of its gross revenues from its activities with the Trust, the Parent and/or any affiliate of the foregoing; (d) a holder (directly or indirectly) of more than 5% of any voting securities of the Trust, the Parent or any affiliate of the foregoing; (e) a person controlling any such director, officer, employee, supplier, independent contractor, holder or any other person meeting the criteria set forth in clauses (a), (b), (c) or (d) of this Section 4.1(t)(xxvii) or (f) a member of the immediate family of any person meeting the criteria set fourth in clauses (a), (b), (c), (d) or (e) of this Section 4.1(t)(xxvii); provided, however, that such independent trustee may be an independent director, manager or trustee of another special purpose entity affiliated with the Originator;

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(xxviii) failed to provide that the unanimous consent of all trustees (including the consent of the Independent Trustee) is required for the Borrower to (a) dissolve or liquidate, in whole or part, or institute proceedings to be adjudicated bankrupt or insolvent, (b) institute or consent to the institution of bankruptcy or insolvency proceedings against it, (c) file a petition seeking or consent to reorganization or relief under any applicable federal or state law relating to bankruptcy or insolvency, (d) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for the Borrower, (e) make any assignment for the benefit of the Borrower’s creditors, (f) admit in writing its inability to pay its debts generally as they become due, or (g) take any action in furtherance of any of the foregoing; or

(xxix) taken or refrained from taking, as applicable, each of the activities specified in the non–consolidation opinion of Winston & Strawn LLP, dated as of the Closing Date, upon which the conclusions expressed therein are based.

(u) Security Interest.

(i) This Agreement creates a valid, continuing and enforceable security interest (as defined in the applicable UCC) in the Collateral in favor of the Deal Agent, on behalf of the Secured Parties, which security interest is prior to all other Liens (except for Permitted Liens), and is enforceable as such against creditors of and purchasers from the Borrower;

(ii) the Transferred Loans (other than Transferred Loans denominated in an Alternative Currency), along with the related Loan Files, constitute either a “general intangible,” an “instrument,” an “account,” “investment property,” or “chattel paper,” within the meaning of the applicable UCC;

(iii) the Borrower is the lawful owner of and has good and marketable title to the Transferred Loans and all related Collateral free and clear of any Lien (other than Permitted Liens);

(iv) the Borrower has received all consents and approvals required by the terms of the Collateral to the grant of a security interest in the Collateral hereunder to the Deal Agent, on behalf of the Secured Parties;

(v) the Borrower has caused the filing of all appropriate financing statements and other filings in the proper filing office and taken all other actions, in the appropriate jurisdictions under Applicable Law in order to (a) with respect to a Transferred Loan denominated in Dollars, perfect the security interest in such Collateral granted to the Deal Agent, on behalf of the Secured Parties under this Agreement and (b) with respect to a Transferred Loan denominated in an Alternative Currency, grant a valid and effective security interest in such Collateral (subject to any filing, registration or notarization (including registration of a debenture necessary to perfect such security interest and make such security interest enforceable)) to the Deal Agent, on behalf of the Secured Parties under this Agreement;

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(vi) other than the security interest granted to the Deal Agent, on behalf of the Secured Parties pursuant to this Agreement, the Borrower has not pledged, assigned, sold, granted a security interest in or otherwise conveyed any of such Collateral;

(vii) the Borrower has not authorized the filing of and is not aware of any financing statements against the Borrower that include a description of collateral covering such Collateral other than any financing statement (A) relating to the security interest granted to the Deal Agent, on behalf of the Secured Parties under this Agreement, or (B) that has been terminated;

(viii) the Borrower is not aware of the filing of any judgment or tax Lien filings against the Borrower;

(ix) other than in the case of Pre-Positioned Loans (and subject to Sections 3.2(f), 4.1(u)(x), 5.3(a) and 7.10(a) in the case of Pre-Positioned Loans) and Noteless Loans, all original executed Underlying Notes that constitute or evidence any Transferred Loans have been delivered to the Collateral Custodian;

(x) the Borrower has received a written acknowledgment from the Collateral Custodian that the Collateral Custodian or its bailee is holding the Underlying Notes that constitute or evidence the Transferred Loans solely on behalf of and for the benefit of the Secured Parties; provided, however, that, notwithstanding the foregoing, (1) with respect to any Pre-Positioned Loan to be funded with the proceeds of an Advance, Swingline Advance or Alternative Currency Swingline Advance, the Borrower shall have received a written acknowledgment from the Collateral Custodian (A) that the Collateral Custodian has received a faxed copy of the Underlying Note and (B) within two Business Days after such Funding Date, that the Collateral Custodian or its bailee is holding the Underlying Note that constitute or evidence the Loans included in the Collateral solely on behalf of the Deal Agent, as agent for the Secured Parties and (2) with respect to any Noteless Loan to be funded with the proceeds of an Advance, Swingline Advance or Alternative Currency Swingline Advance, the Borrower shall have received written acknowledgment from the Collateral Custodian that the Collateral Custodian has received a copy of the Loan Register for such Loan; and

(xi) none of the Underlying Notes or Loan Registers that constitute or evidence the Transferred Loans has any marks or notations indicating that it has been pledged, assigned or otherwise conveyed to any Person other than the Borrower and the Deal Agent.

(v) [Reserved].

(w) Investments. Except for ACAS Business Loan Trust Securities, the Borrower does not own or hold directly or indirectly, any capital stock or equity security of, or any equity interest in, any Person.

(x) Business. Since its formation, the Borrower has conducted no business other than the purchase and receipt of Loans and Related Property from the Originator under the Purchase Agreement, the borrowing of funds under this Agreement and such other activities as are incidental to the foregoing.

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(y) ERISA. The Borrower is in compliance with ERISA and has not incurred and does not expect to incur any liabilities (except for premium payments arising in the ordinary course of business) payable to the Pension Benefit Guaranty Corporation under ERISA.

(z) No Broker. No broker or finder acting on behalf of the Borrower was employed or utilized in connection with this Agreement or the other Transaction Documents or the transactions contemplated hereby or thereby and the Borrower has no obligation to any Person in respect of any finder’s or brokerage fees in connection therewith.

(aa) Investment Company Act.

(i) The Borrower is not an “investment company” within the meaning of the 1940 Act.

(ii) The Borrower represents and warrants that, if the Borrower operates in such a manner as to be an “investment company” within the meaning of the 1940 Act, the Borrower will register as an “investment company” under the 1940 Act immediately upon being required to do so under the 1940 Act and will conduct its business and other activities in compliance with the provisions of the 1940 Act and any rules, regulations or orders issued by the SEC thereunder.

(iii) The business and other activities of the Borrower, including but not limited to, the making of the Advances, Swingline Advances and Alternative Currency Swingline Advances by the Lenders, the application of the proceeds and repayment thereof by the Borrower and the consummation of the transactions contemplated by the Transaction Documents to which the Borrower is a party do not now and will not at any time result in any violations, with respect to the Borrower, of the provisions of the 1940 Act or any rules, regulations or orders issued by the SEC thereunder.

(bb) Accuracy of Representations and Warranties. Each representation or warranty by the Borrower contained herein or in any certificate or other document furnished by the Borrower pursuant hereto or in connection herewith is true and correct.

(cc) Government Regulations. The Borrower is not engaged in the business of extending credit for the purpose of “purchasing” or “carrying” any Margin Stock. The Borrower owns no Margin Stock, and no portion of the proceeds of any Advance, Swingline Advance or Alternative Currency Swingline Advance hereunder will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness that was originally incurred to purchase or carry any Margin Stock or for any other purpose that might cause any portion of such proceeds to be considered a “purpose credit” within the meaning of Regulation T, U or X of the Federal Reserve Board. The Borrower will not take or permit to be taken any action that might cause any Related Document to violate any regulation of the Federal Reserve Board.

(dd) [Reserved].

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(ee) Environmental. At the time of origination of any Transferred Loan and on the Cut-Off Date where real property that is material to the operations of the related business constitutes Related Property securing such Loan, the related mortgaged property was free of contamination from toxic substances or hazardous wastes requiring action under Applicable Law or is subject to ongoing environmental rehabilitation approved by the Servicer, and, as of the related Cut-Off Date of such Loan, the Borrower has no knowledge of any such contamination from toxic substances or hazardous waste material on any such real property unless such items are below action levels.

(ff) Material Adverse Change. Since the Closing Date, there has been no Material Adverse Change with respect to the Borrower.

(gg) Credit and Collection Policy. Since the Closing Date, there have been no material changes in any Credit and Collection Policy other than in accordance with this Agreement. Since such date, no Material Adverse Change has occurred in the overall collectibility of the Loans, and Borrower has at all times complied with the Credit and Collection Policy with respect to each Loan.

(hh) Coverage Requirement. The Availability is greater than or equal to $0.

(ii) No Termination Event. No event has occurred and is continuing and no condition exists, or would result from any Advance, Swingline Advance or Alternative Currency Swingline Advance or from the application of the proceeds therefrom, which constitutes or may be reasonably expected to constitute a Termination Event.

(jj) USA PATRIOT Act. Neither the Borrower nor any Affiliate of the Borrower is (i) a country, territory, organization, person or entity named on an OFAC list, (ii) a Person that resides or has a place of business in a country or territory named on such lists or which is designated as a Non-Cooperative Jurisdiction by the Financial Action Task Force on Money Laundering (“FATF”), or whose subscription funds are transferred from or through such a jurisdiction; (iii) a “Foreign Shell Bank” within the meaning of the USA PATRIOT Act, i.e., a foreign bank that does not have a physical presence in any country and that is not affiliated with a bank that has a physical presence and an acceptable level of regulation and supervision; or (iv) a person or entity that resides in or is organized under the laws of a jurisdiction designated by the United States Secretary of the Treasury under Section 311 or 312 of the USA PATRIOT Act as warranting special measures due to money laundering concerns.

The representations and warranties in Section 4.1 shall survive the termination of this Agreement.

Section 4.2. Representations and Warranties of the Borrower Relating to the Agreement and the Loans.

The Borrower hereby represents and warrants to the Deal Agent and each other Secured Party, as of the Closing Date and as of each Funding Date, that:

(a) Security Interest. This Agreement constitutes a Grant of a security interest by the Borrower in all Collateral to the Deal Agent, as agent for the Secured Parties. The Deal Agent,

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as agent for the Secured Parties, has a first priority perfected security interest in the Collateral subject to Permitted Liens. Neither the Borrower nor any Person claiming through or under the Borrower shall have any claim to or interest in any Collection Account, except for the interest of the Borrower in such property as a debtor for purposes of the UCC.

(b) Eligibility of Loans. As of the Closing Date, (i) the Loan List and the information contained in the Borrower Notice delivered pursuant to Sections 2.2 and 2.3 is an accurate and complete listing in all material respects of all the Loans that are part of the Collateral as of the Closing Date, and the information contained therein with respect to the identity of such Transferred Loans and the amounts owing thereunder is true and correct in all material respects as of such date, (ii) each such Transferred Loan is an Eligible Loan, (iii) each such Transferred Loan and the Related Property is free and clear of any Lien (other than Permitted Liens) and in compliance with all Applicable Laws and (iv) with respect to each such Loan, all consents, licenses, approvals or authorizations of or registrations or declarations with any Governmental Authority or other Person required to be obtained, effected or given by the Borrower in connection with the transfer of an interest in such Loan and the Related Property to the Deal Agent, as agent for the Secured Parties, have been duly obtained, effected or given and are in full force and effect. On each Funding Date, the Borrower shall be deemed to represent and warrant that (i) any additional Transferred Loan referenced on the related Borrower Notice delivered pursuant to Sections 2.2 and 2.3 is an Eligible Loan, (ii) each such Transferred Loan and the related Property is free and clear of any Lien (other than Permitted Liens) and in compliance with all Applicable Laws, (iii) with respect to each such Transferred Loan, all consents, licenses, approvals, authorizations, registrations or declarations with any Governmental Authority or other Person required to be obtained, effected or given by the Borrower in connection with the addition of such Transferred Loan and the Related Property to the Collateral have been duly obtained, effected or given and are in full force and effect and (iv) the representations and warranties set forth in Section 4.2(a) are true and correct with respect to each Loan transferred on such day as if made on such day.

(c) No Fraud. Each Loan was originated without any fraud or material misrepresentation by the Originator or, to the best of the Borrower’s knowledge, on the part of the Obligor.

ARTICLE V

GENERAL COVENANTS OF THE BORROWER

Section 5.1. Covenants of the Borrower.

The Borrower hereby covenants that:

(a) Compliance with Laws. The Borrower will comply in all material respects with all Applicable Laws, including those with respect to the Loans in the Collateral and any Related Property.

(b) Preservation of Corporate Existence. The Borrower will preserve and maintain its existence, rights, franchises and privileges in the jurisdiction of its formation, and qualify and

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remain qualified in good standing in each jurisdiction where the failure to maintain such existence, rights, franchises, privileges and qualification could reasonably be expected to have a Material Adverse Effect.

(c) Loans Not to Be Evidenced by Promissory Notes. The Borrower will not take any action to cause any Transferred Loan not originally evidenced by an Underlying Note to be evidenced by an instrument (as defined in the UCC), except in connection with the enforcement or collection of such Loan or to the extent required by Applicable Law to constitute a valid and enforceable obligation.

(d) Liens. Except as contemplated in this Agreement and except in the case of any Permitted Lien, the Borrower will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any part of the Collateral, whether now existing or hereafter transferred hereunder, or any interest therein. The Borrower will promptly notify the Deal Agent of the existence of any Lien on any part of the Collateral and the Borrower shall defend the right, title and interest of the Deal Agent as agent for the Secured Parties in, to and under any part of the Collateral, against all claims of third parties; provided, however, that nothing in this Section 5.1(d) shall prevent or be deemed to prohibit the Borrower from suffering to exist Permitted Liens upon any part of the Collateral.

(e) Delivery of Collections. The Borrower shall deposit into the Collection Accounts promptly (but in no event later than two Business Days after receipt) all Collections (including any Deemed Collections) received (or deemed received) by the Borrower in respect of the Loans that are part of the Collateral. Any such Collections denominated in Dollars shall be deposited into the U.S. Dollar Collection Account and any such Collections denominated in an Alternative Currency shall be deposited in the respective Collection Account for each such Alternative Currency.

(f) Activities of Borrower. The Borrower shall not engage in any business or activity of any kind, or enter into any transaction or indenture, mortgage, instrument, agreement, contract, Loan or other undertaking, which is not incidental to the transactions contemplated and authorized by this Agreement or the Purchase Agreement.

(g) Indebtedness. The Borrower shall not create, incur, assume or suffer to exist any Indebtedness or other liability whatsoever, except (i) obligations incurred under this Agreement, under any Hedging Agreement required by Section 5.2(a), or the Purchase Agreement, or (ii) liabilities incident to the maintenance of its existence in good standing.

(h) Guarantees. The Borrower shall not become or remain liable, directly or indirectly, in connection with any Indebtedness or other liability of any other Person, whether by guarantee, endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business), agreement to purchase or repurchase, agreement to supply or advance funds, or otherwise.

(i) Investments. The Borrower shall not make or suffer to exist any loans or advances to, or extend any credit to, or make any investments (by way of transfer of property, contributions to capital, purchase of stock or securities or evidences of indebtedness, acquisition

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of the business or assets, or otherwise) in, any Person except for purchases of Loans pursuant to the Purchase Agreement, or for investments in Permitted Investments in accordance with the terms of this Agreement.

(j) Merger; Sales. The Borrower shall not enter into any transaction of merger or consolidation, or liquidate or dissolve itself (or suffer any liquidation or dissolution), or acquire or be acquired by any Person, or convey, sell, loan or otherwise dispose of all or substantially all of its property or business, except as provided for in this Agreement.

(k) Distributions. Except as provided in Section 5.1(z), the Borrower may not declare or pay or make, directly or indirectly, any distribution (whether in cash or other property) with respect to the assets of the Borrower or any Person’s interest therein (collectively, a “Distribution”); provided, however, that, if no Termination Event has occurred or will occur as a result thereof, the Borrower may make Distributions.

(l) Agreements. The Borrower shall not become a party to, or permit any of its properties to be bound by, any indenture, mortgage, instrument, contract, agreement, loan or other undertaking, except the Transaction Documents or amend or modify the provisions of its trust agreement, without the consent of the Deal Agent and each Lender Agent, or issue any power of attorney except to the Deal Agent or the Servicer.

(m) Separate Existence. The Borrower shall not take any action or permit or acquiesce in any action to be taken which would have the effect, directly or indirectly, of causing (i) its representations and warranties made pursuant to Section 4.1(t)(i)-(xxix) to be inaccurate in any respect, or (ii) any breach of the covenants of the Borrower set forth in Section 4.01 of the Borrower’s trust agreement.

(n) ERISA Matters. The Borrower will not (a) engage or permit any ERISA Affiliate to engage in any prohibited transaction for which an exemption is not available or has not previously been obtained from the United States Department of Labor; (b) permit to exist any accumulated funding deficiency, as defined in Section 302(a) of ERISA and Section 412(a) of the Code, or funding deficiency with respect to any Benefit Plan other than a Multiemployer Plan; (c) fail to make any payments to a Multiemployer Plan that the Borrower or any ERISA Affiliate may be required to make under the agreement relating to such Multiemployer Plan or any law pertaining thereto; (d) terminate any Benefit Plan so as to result in any liability; or (e) permit to exist any occurrence of any reportable event described in Title IV of ERISA.

(o) Collateral Acquired from the Originator. With respect to each item of Collateral acquired from the Originator, the Borrower will (i) acquire such Collateral pursuant to and in accordance with the terms of the Purchase Agreement, (ii) take all action necessary to perfect, protect and more fully evidence the Borrower’s ownership of such Collateral, including, without limitation, (A) filing and maintaining, effective financing statements (Form UCC-1) naming the Originator as seller/debtor and the Borrower as purchaser/creditor in all necessary or appropriate filing offices, and filing continuation statements, amendments or assignments with respect thereto in such filing offices and (B) executing or causing to be executed such other instruments or notices as may be necessary or appropriate, including, without limitation, Assignments of Mortgage, and (iii) take all additional action that the Deal Agent may reasonably request to perfect, protect and more fully evidence the respective interests of the parties to this Agreement in the Collateral.

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(p) Transactions with Affiliates. The Borrower will not enter into, or be a party to, any transaction with any of its Affiliates, except (i) the transactions permitted or contemplated by this Agreement, the Purchase Agreement and any Hedging Agreements and (ii) other transactions (including, without limitation, transactions related to the use of office space or computer equipment or software by the Borrower to or from an Affiliate) (A) in the ordinary course of business, (B) pursuant to the reasonable requirements of the Borrower’s business, (C) upon fair and reasonable terms that are no less favorable to the Borrower than could be obtained in a comparable arm’s-length transaction with a Person not an Affiliate of the Borrower, and (D) not inconsistent with the factual assumptions set forth in the “substantive consolidation” legal opinion letter issued by Winston & Strawn LLP and delivered to the Deal Agent and each Lender Agent as a condition to the Initial Advance, as such assumptions may be modified in any subsequent opinion letters delivered to the Deal Agent and each Lender Agent pursuant to Section 3.2 or otherwise. It is understood that any compensation arrangement for any trustee shall be permitted under clause (ii)(A) through (C) above if such arrangement has been expressly approved by the trustees of the Borrower in accordance with the Borrower’s trust agreement.

(q) Change in the Transaction Documents. The Borrower shall provide notice of any proposed amendment, modification, waiver or termination of any terms or conditions of the Transaction Documents other than this Agreement to the Deal Agent and each Lender Agent. The Borrower will not amend, modify, waive or terminate any terms or conditions of any of the Transaction Documents other than this Agreement to which it is a party, without the prior written consent of the Deal Agent; provided, that, no such amendment shall be effective without the prior written consent of each Lender Agent, unless the opinions of counsel delivered pursuant to Section 3.1(a) with respect to (x) the creation, perfection and priority of the security interest of the Secured Parties in the Collateral, (y) the sale of the Transferred Loans and Related Property from American Capital to the Borrower constituting a true sale, and (z) the assets of the Borrower not constituting property of the estate of American Capital following an Insolvency Event with respect to American Capital can be confirmed, if so requested by any Lender Agent, after giving effect to the proposed amendment, modification, waiver or termination. For the avoidance of doubt, the amendment, modification or waiver of this Agreement is governed by Section 12.1.

(r) Credit and Collection Policy. The Borrower will (i) comply in all material respects with the Credit and Collection Policy in regard to each Transferred Loan and the Related Property included in the Collateral, and (ii) furnish to the Deal Agent and each Lender Agent, prior to its effective date, prompt notice of any changes in the Credit and Collection Policy. The Borrower will not agree to or otherwise permit (x) any change in the Credit and Collection Policy which would materially and adversely affect or impair the collectibility of any Transferred Loan, or (y) any material change in the Credit and Collection Policy, in each case without the prior written consent of the Deal Agent and each Lender Agent.

(s) Termination Events. The Borrower will furnish to the Deal Agent and each Lender Agent, as soon as possible and in any event within three Business Days after the occurrence of each Termination Event and each Unmatured Termination Event, a written statement setting forth the details of such event and the action that the Borrower proposes to take with respect thereto.

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(t) Extension or Amendment of Loans. The Borrower will not, except as otherwise permitted in Section 7.4(a), extend, amend or otherwise modify, or permit the Servicer on its behalf to extend, amend or otherwise modify, the terms of any Transferred Loan.

(u) Other. The Borrower will furnish to the Deal Agent or any Lender Agent such other information, documents, records or reports respecting the Transferred Loans or the condition or operations, financial or otherwise, of the Borrower or Originator as the Deal Agent or any Lender Agent may from time to time reasonably request in order to protect the interests of the Deal Agent or the other Secured Parties under or as contemplated by this Agreement.

(v) Notices Under the Purchase Agreement. The Borrower will promptly, but in no event later than two Business Days after its receipt furnish to the Deal Agent copies of any and all notices, certificates, documents, or reports delivered to it by the Originator under the Purchase Agreement.

(w) Inspection of Records. The Borrower will, at any time and from time to time during regular business hours, as requested by the Deal Agent and any Lender Agent, permit the Deal Agent and any Lender Agent, or its agents or representatives, (i) to examine and make copies of and take abstracts from all books, records and documents (including computer tapes and disks) relating to the Transferred Loans and the related Loan Documents and (ii) to visit the offices and properties of the Borrower, the Originator or the Servicer, as applicable, for the purpose of examining such materials described in clause (i), and to discuss matters relating to the Transferred Loans or the Borrower’s, the Originator ‘s or the Servicer’s performance hereunder, under the Loan Documents and under the other Transaction Documents to which such Person is a party with any of the officers, directors, employees or independent public accountants of the Borrower, the Originator or the Servicer, as applicable, having knowledge of such matters.

(x) Keeping of Records. The Borrower will maintain and implement administrative and operating procedures (including an ability to recreate records evidencing Transferred Loans and the related Loan Documents in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, computer tapes, disks, records and other information reasonably necessary or advisable for the collection of all Loans (including records adequate to permit the daily identification of each new Transferred Loan and all Collections of and adjustments to each existing Loan). The Borrower shall give the Deal Agent prompt notice of any material change in its administrative and operating procedures referred to in the previous sentence.

(y) Compliance with Loans. The Borrower will (i) at its own expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Transferred Loans and the related Loan Documents; and (ii) timely and fully comply in all material respects with the Credit and Collection Policy with respect to each Transferred Loan and the related Loan Documents.

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(z) Restricted Payments. The Borrower shall not (i) purchase or redeem any shares of its capital stock, (ii) prepay, purchase or redeem any Indebtedness, (iii) lend or advance any funds or (iv) repay any loans or advances to, for or from any of its Affiliates (the amounts described in clauses (i) through (iv) being referred to as “Restricted Payments”), except that the Borrower may (a) make Restricted Payments out of funds received pursuant to Article II and (b) make other Restricted Payments (including the payment of dividends and Lien Release Dividends) if, after giving effect thereto, no Termination Event shall have occurred and be continuing.

(aa) Notice of Litigation. The Borrower will promptly, but in no event later than two Business Days after any officer of the Borrower becoming aware thereof, deliver written notice to the Deal Agent regarding any claim, action, investigation or proceeding pending or threatened against the Borrower and shall provide copies of any and all notices, certificates or documents delivered to it in connection therewith.

Section 5.2. Hedging Agreement.

(a) On any date, the Borrower shall enter into or have in place one or more Hedge Transactions, provided that each such Hedge Transaction shall:

(i) be entered into with a Hedge Counterparty and governed by a Hedging Agreement;

(ii) have a schedule of periodic monthly (or quarterly, as applicable) calculation periods which match the calculation periods of the Fixed Rate Loans included in the Borrowing Base and the last of which ends on or after the date of the last Scheduled Payment due to occur on the Fixed Rate Loans included in the Borrowing Base;

(iii) have a notional amount such that the Hedge Notional Amount in effect on each day during the term of such Hedge Transactions shall be at least equal to the product of the Hedge Percentage and the Hedge Amount; and

(iv) provide, in the case of any interest rate swap, for two series of monthly (or quarterly, as applicable) payments to be netted against each other, one such series being payments to be made by the Borrower to a Hedge Counterparty by reference to a fixed rate for that Hedge Transaction, and the other such series being payments to be made by the applicable Hedge Counterparty at a floating rate equal to “USD-LIBOR-BBA” (as defined in the ISDA Definitions), the net amount of which shall be paid into the applicable Collection Account (if payable by such Hedge Counterparty) or, to the extent of Available Funds and from the applicable Collection Account under Sections 2.9(a)(1)(i) and 2.9(b)(i) of this Agreement (if payable by the Borrower).

(b) Subject to, and without limiting the provisions of, Article VIII of this Agreement, Borrower hereby assigns to the Deal Agent, as agent for the Secured Parties, all right, title and interest of Borrower in each Hedging Agreement, each Hedge Transaction, and all present and future amounts payable by a Hedge Counterparty to Borrower under or in connection with the respective Hedging Agreement and Hedge Transaction(s) with that Hedge Counterparty (the

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“Hedge Collateral”), and grants a security interest to the Deal Agent, as agent for the Secured Parties, in the Hedge Collateral. The Borrower acknowledges that, as a result of that assignment, Borrower may not, without the prior written consent of the Deal Agent, exercise any rights under any Hedging Agreement or Hedge Transaction, except for Borrower’s right under any Hedging Agreement to enter into Hedge Transactions in order to meet the Borrower’s obligations under Section 5.2(a) hereof. Nothing herein shall have the effect of releasing the Borrower from any of its obligations under any Hedging Agreement or any Hedge Transaction, nor be construed as requiring the consent of the Deal Agent or any Secured Party for the performance by Borrower of any such obligations.

(c) The Borrower shall, promptly upon execution thereof, provide to the Deal Agent and each Lender Agent, a copy of each Hedging Agreement entered into in connection with this Agreement.

Section 5.3. Delivery of Loan Files.

(a) Prior to each Funding Date, the Borrower, or the Servicer on its behalf, shall have delivered to the Collateral Custodian on behalf of the Deal Agent, as agent for the Secured Parties (x) a Loan File for each Loan to be transferred on such date identified on the related Loan List and (y) possession of all “instruments” (within the meaning of Article 9 of the UCC) not constituting part of “chattel paper” (within the meaning of Article 9 of the UCC) that evidence any such Loan (other than with respect to a Loan denominated in an Alternative Currency) set forth on such Loan List, including all Underlying Notes, in each case endorsed in blank without recourse; provided, however, that, notwithstanding the foregoing, (A) with respect to any Pre-Positioned Loan, the Borrower shall (i) have a copy of the executed Underlying Note faxed to the Collateral Custodian on such Funding Date, with the original to be received by the Collateral Custodian within two Business Days after such Funding Date and (ii) within ten Business Days of such Funding Date deliver all remaining portions of the Loan File for each such Loan and (B) with respect to any Noteless Loan, the Borrower shall deliver a copy of the Loan Register for such Loan, provided, that any Loan Documents that are filed or recorded with a Governmental Authority and are not available within such period of ten Business Days shall be delivered to the Collateral Custodian promptly after the Servicer’s receipt thereof. Beginning with each delivery of any Loan Document after September 30, 2005, the Borrower, or the Servicer on the Borrower’s behalf, shall include a Loan Checklist for each Loan File or any portion of a Loan File (including, without limitation, the delivery by fax of the Underlying Note for a Pre-Positioned Loan and the delivery of the Loan Register for a Noteless Loan) with each delivery of any Loan Documents to the Collateral Custodian, listing the contents of such delivery. Pursuant to Section 7.10, the Borrower is required to deliver such instruments, Loan Files and Loan Checklists to the Collateral Custodian for the benefit of the Deal Agent, as agent for the Secured Parties. Accordingly, the Borrower hereby authorizes and directs the Servicer to deliver possession of all such instruments, Loan Files and Loan Checklists to the Collateral Custodian on behalf of the Deal Agent, as agent for the Secured Parties, and agrees that such delivery shall satisfy the condition set forth in the first sentence of this Section 5.3(a). The Servicer shall also identify on the Loan List (including any amendment thereof), whether by attached schedule or marking or other effective identifying designation, all Transferred Loans that are not evidenced by such instruments.

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(b) Prior to the occurrence of a Termination Event or Servicer Termination Event, the Collateral Custodian shall not record the Assignments of Mortgage delivered pursuant to Section 5.3(a) and the definition of Loan Documents. Upon the occurrence of a Termination Event or a Servicer Termination Event, the Collateral Custodian shall cause to be recorded in the appropriate offices each Assignment of Mortgage delivered to it with respect to all Transferred Loans except those Transferred Loans covered by the proviso to the definition of Assignment of Mortgage. Each such recording shall be at the expense of the Servicer; provided, however, that, to the extent the Servicer does not pay such expenses, the Collateral Custodian shall be reimbursed pursuant to the provisions of Section 2.9.

ARTICLE VI

PERFECTION OF TRANSFER AND

PROTECTION OF SECURITY INTERESTS

Section 6.1. Custody of Transferred Loans.

The contents of each Loan File relating to a Transferred Loan shall be held in the custody of the Collateral Custodian under the terms of the Purchase Agreement and this Agreement for the benefit of the Deal Agent, as agent for the Secured Parties.

Section 6.2. Filing.

On or prior to the Closing Date, the Borrower and Servicer shall cause the UCC financing statement(s) referred to in Section 4.1(u)(v) hereof to be filed, and from time to time the Servicer shall take and cause to be taken such actions and execute such documents as are necessary or desirable or as the Deal Agent may reasonably request to perfect and protect the first priority perfected security interest of the Deal Agent, as agent for the Secured Parties, in the Collateral against all other Persons, including, without limitation, the filing of financing statements, amendments thereto and continuation statements, the execution of transfer instruments and the making of notations on or taking possession of all records or documents of title. Notwithstanding the obligations of the Borrower and the Servicer set forth in the preceding sentence, the Borrower and the Servicer hereby authorize the Deal Agent to prepare and file, at the expense of the Servicer, UCC financing statements (including but not limited to renewal, continuation or in lieu statements) and amendments or supplements thereto or other instruments as the Deal Agent may from time to time deem necessary or appropriate in order to perfect and maintain the security interest granted hereunder in accordance with the UCC.

Section 6.3. Changes in Name, Corporate Structure or Location.

(a) During the term of this Agreement, neither the Originator nor the Borrower shall change its name, identity, structure, existence or location (as defined in Article 9 of the UCC) without first giving at least 30 days’ prior written notice to the Deal Agent and each other Secured Party.

(b) If any change in either the Originator’s or the Borrower’s name, identity, structure, existence, location (as defined in Article 9 of the UCC) or other action would make any financing or continuation statement or notice of ownership interest or Lien relating to any

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Collateral seriously misleading within the meaning of applicable provisions of the UCC, the Servicer, no later than five Business Days after the effective date of such change, shall file such amendments as may be required or reasonably advisable to preserve and protect the security interest of the Deal Agent, as agent for the Secured Parties, in the Collateral and the proceeds thereof. Promptly after taking any of the foregoing actions, the Servicer shall deliver to the Deal Agent and each other Secured Party an Opinion of Counsel reasonably acceptable to the Deal Agent stating that, in the opinion of such counsel, all financing statements or amendments necessary to preserve and protect the security interest of the Deal Agent, as agent for the Secured Parties, in the Collateral have been filed, and reciting the details of such filing.

Section 6.4. Chief Executive Office.

During the term of this Agreement, and subject to the other terms and provisions herein relating to changes in location, the Originator will maintain its chief executive office in one of the States of the United States.

Section 6.5. Costs and Expenses.

The Servicer agrees to pay all reasonable costs and disbursements in connection with the perfection and the maintenance of perfection, as against all third parties, of the Borrower’s and the Deal Agent’s, as agent for the Secured Parties, right, title and interest in and to the Collateral (including, without limitation, the security interest in the Collateral related thereto and the security interests provided for herein).

Section 6.6. Sale Treatment.

The Borrower shall treat the acquisition of the Collateral under the Purchase Agreement for all purposes (other than for financial accounting purposes) as a sale and purchase on all of its relevant books, records, financial statements and other applicable documents.

Section 6.7. Separateness from the Borrower.

The Borrower agrees to take or refrain from taking or engaging in with respect to the Originator each of the actions or activities specified in the “substantive consolidation” opinion of Winston & Strawn LLP (including any certificates attached thereto), delivered on the Closing Date, upon which the conclusions therein are based.

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ARTICLE VII

ADMINISTRATION AND SERVICING OF LOANS

Section 7.1. Appointment of the Servicer.

The Borrower hereby appoints American Capital as the Servicer hereunder to service the Transferred Loans and to enforce its respective rights and interests in and under each Transferred Loan in accordance with the terms and conditions of this Article VII and to serve in such capacity until the termination of its responsibilities pursuant to Section 7.25. American Capital hereby accepts such appointment and agrees to perform the duties and obligations with respect thereto set forth herein. The Servicer and the Borrower hereby acknowledge that the Deal Agent and the other Secured Parties are third party beneficiaries of the obligations undertaken by the Servicer hereunder.

Section 7.2. Duties and Responsibilities of the Servicer.

(a) The Servicer shall conduct the servicing, administration and collection of the Transferred Loans and shall take, or cause to be taken, all such actions as may be necessary or advisable to service, administer and collect Transferred Loans from time to time on behalf of the Borrower and as the Borrower’s agent. The Servicer will service, administer and make collections on the Transferred Loans with reasonable care, using that degree of skill and attention that the Servicer exercises with respect to all comparable loans that it services for itself or others.

(b) The duties of the Servicer (the “Servicing Duties”), as the Borrower’s agent, shall include, without limitation:

(i) preparing and submitting claims to, and post-billing liaison with, Obligors on Transferred Loans;

(ii) maintaining all necessary Servicing Records with respect to the Transferred Loans and providing such reports to the Borrower and the Deal Agent and each Lender Agent in respect of the servicing of the Transferred Loans (including information relating to its performance under this Agreement) as may be required hereunder or as the Borrower or the Deal Agent may reasonably request;

(iii) maintaining and implementing administrative and operating procedures (including, without limitation, an ability to re-create Servicing Records evidencing the Transferred Loans in the event of the destruction of the originals thereof) and keeping and maintaining all documents, books, records and other information reasonably necessary or advisable for the collection of the Transferred Loans (including, without limitation, records adequate to permit the identification of each new Transferred Loan and all Collections of and adjustments to each existing Transferred Loan); provided, however, that any Successor Servicer shall only be required to re-create the Servicing Records of each prior Servicer to the extent such records have been delivered to it in a format reasonably acceptable to such Successor Servicer;

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(iv) promptly delivering to the Borrower, the Deal Agent and each Lender Agent and the Collateral Custodian, from time to time, such information and Servicing Records (including information relating to its performance under this Agreement) as the Borrower, the Deal Agent and the Collateral Custodian may from time to time reasonably request;

(v) identifying each Transferred Loan clearly and unambiguously in its Servicing Records to reflect that such Transferred Loan is owned by the Borrower and pledged to the Deal Agent, as agent for the Secured Parties;

(vi) complying in all material respects with the Credit and Collection Policy in regard to each Transferred Loan;

(vii) complying in all material respects with all Applicable Laws with respect to it, its business and properties and all Transferred Loans and Collections with respect thereto;

(viii) preserving and maintaining its existence, rights, licenses, franchises and privileges as a corporation in the jurisdiction of its organization, and qualifying and remaining qualified in good standing as a foreign corporation and qualifying to and remaining authorized and licensed to perform obligations as Servicer (including enforcement of collection of Transferred Loans on behalf of the Borrower, the Deal Agent and the Secured Parties) in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would materially adversely affect (A) the rights or interests of the Borrower, the Deal Agent and the other Secured Parties in the Transferred Loans, (B) the collectibility of any Transferred Loan, or (C) the ability of the Servicer to perform its obligations hereunder;

(ix) notifying the Borrower and the Deal Agent of any material action, suit, proceeding, dispute, offset, deduction, defense or counterclaim that (1) is or is threatened to be asserted by an Obligor with respect to any Transferred Loan; or (2) would reasonably be expected to have a Material Adverse Effect; and

(c) The Borrower and Servicer hereby acknowledge that none of the Deal Agent, any other Secured Party or the Collateral Custodian shall have any obligation or liability with respect to any Transferred Loans, nor shall any of them be obligated to perform any of the obligations of the Servicer hereunder.

Section 7.3. Authorization of the Servicer.

(a) Each of the Borrower and the Deal Agent, on behalf of the Secured Parties, hereby authorizes the Servicer (including any successor thereto) to take any and all reasonable steps in its name and on its behalf necessary or desirable and not inconsistent with the pledge of the Transferred Loans to the Secured Parties, in the determination of the Servicer, to collect all amounts due under any and all Transferred Loans, including, without limitation, endorsing any of their names on checks and other instruments representing Collections, executing and delivering any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Transferred Loans and, after

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the delinquency of any Transferred Loan and to the extent permitted under and in compliance with Applicable Law, to commence proceedings with respect to enforcing payment thereof, to the same extent as the Originator could have done if it had continued to own such Loan. The Borrower shall furnish the Servicer (and any successors thereto) with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder, and shall cooperate with the Servicer to the fullest extent in order to ensure the collectibility of the Transferred Loans. In no event shall the Servicer be entitled to make the Borrower, the Collateral Custodian, the Deal Agent or any other Secured Party a party to any litigation without such party’s express prior written consent, or to make the Borrower a party to any litigation (other than any routine foreclosure or similar collection procedure) without the Deal Agent’s consent.

(b) After a Termination Event has occurred and is continuing, at the Deal Agent’s direction, the Servicer shall take such action as the Deal Agent may deem necessary or advisable to enforce collection of the Transferred Loans; provided, however, that the Deal Agent may, at any time after a Termination Event has occurred and is continuing, notify any Obligor with respect to any Transferred Loans of the assignment of such Transferred Loans to the Deal Agent and direct that payments of all amounts due or to become due to the Borrower thereunder be made directly to the Deal Agent or any servicer, collection agent or lock-box or other account designated by the Deal Agent and, upon such notification and at the expense of the Borrower, the Deal Agent may enforce collection of any such Transferred Loans and adjust, settle or compromise the amount or payment thereof. The Deal Agent shall give written notice to any Successor Servicer of the Deal Agent’s actions or directions pursuant to this Section 7.3(b), and no Successor Servicer shall take any actions pursuant to this Section 7.3(b) that are outside of its Credit and Collection Policy.

Section 7.4. Collection of Payments.

(a) Collection Efforts, Modification of Loans. The Servicer will make reasonable efforts to collect all payments called for under the terms and provisions of the Transferred Loans as and when the same become due, and will follow those collection procedures which it follows with respect to all comparable Loans that it services for itself or others. The Servicer may not waive, modify or otherwise vary any provision of a Transferred Loan, except as may be in accordance with the provisions of the Credit and Collection Policy, which permits, among other things, the waiver of any late payment charge or any other fees that may be collected in the ordinary course of servicing any Loan included in the Collateral. Notwithstanding anything to the contrary contained herein, with respect to any collection efforts involving the sale of a Transferred Loan, if after giving effect to any such sale (1) the amount described in clause (ii) of the definition of Availability shall exceed the amount described in clause (i) of the definition of Availability or (2) an Unmatured Termination Event, a Termination Event or a Servicer Termination Event would occur then the Servicer prior to any such sale which would result in a loss to the Secured Parties based on the Outstanding Loan Balance plus accrued interest and other fees due and payable shall obtain the prior written consent of the Deal Agent.

(b) [Reserved].

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(c) Taxes and other Amounts. To the extent provided for in any Transferred Loan, the Servicer will use its best efforts to collect all payments with respect to amounts due for taxes, assessments and insurance premiums relating to such Transferred Loans or the Related Property and remit such amounts to the appropriate Governmental Authority or insurer on or prior to the date such payments are due.

(d) Payments to Lock-Box Account. On or before the Cut-Off Date with respect to each Transferred Loan denominated in Dollars, the Servicer shall have instructed the related Obligor to make all payments in respect of such Transferred Loan to a Lock-Box or directly to the Lock-Box Account. All proceeds in the Lock-Box Account shall be distributed into the U.S. Dollar Collection Account within two Business Days as provided in the Lock-Box Agreement and the Intercreditor Agreement. On or before the Cut-Off Date with respect to each Transferred Loan denominated in an Alternative Currency, the Servicer shall have instructed the related Obligor to make all payments in respect of such Transferred Loan to the Collection Account for such Alternative Currency.

(e) Establishment of the Collection Accounts. The Borrower or the Servicer on its behalf has previously caused the U.S. Dollar Collection Account to be established, and shall cause such account to be maintained at all times, in the name of the Borrower but under the control of the Deal Agent, as agent for the Secured Parties, with a Qualified Institution for the purpose of receiving Collections in Dollars from the Collateral. On or prior to the Closing Date, the Collateral Custodian shall cause to be established, with its Cayman Islands branch, three Collection Accounts, one for each Alternative Currency, for the purpose of receiving Collections in each such Alternative Currency from the Collateral. As of the Closing Date, each Collection Account is set forth on Annex D. Any changes to any Collection Account after the Closing Date shall be recorded on an amended Annex D. Each Collection Account at all times shall be maintained at a Qualified Institution and shall be in the name of the Collateral Custodian. “Qualified Institution” means, in the case of the U.S. Dollar Collection Account, a depository institution or trust company organized under the laws of the United States or any one of the States thereof or the District of Columbia (or any domestic branch of a foreign bank), or in the case of a Collection Account for any Alternative Currency, a depository institution located in London, England (including any London branch or affiliate of a domestic bank) or the Cayman Islands branch of a domestic bank, in each case (i) (A) that has either (1) a long-term unsecured debt rating of “A-” or better by S&P and “A-3” or better by Moody’s or (2) a short-term unsecured debt rating or certificate of deposit rating of “A-1” or better by S&P or “P-1” or better by Moody’s, (B) the parent corporation of which such depository institution is a Subsidiary has either (1) a long-term unsecured debt rating of “A-” or better by S&P and “A-3” or better by Moody’s or (2) a short-term unsecured debt rating or certificate of deposit rating of “A-1” or better by S&P and “P-1” or better by Moody’s or (C) is otherwise acceptable to the Deal Agent and (ii) whose deposits are insured by the Federal Deposit Insurance Corporation or a comparable Governmental Authority of an Approved Country and (iii) has either (x) agreed with the Borrower, the Servicer and the Deal Agent to comply with any and all orders, notices, requests and other instructions originated by the Deal Agent directing disposition of the funds in such Collection Account without any further consent from the Borrower or the Servicer or (y) is titled in the name of the Collateral Custodian.

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(f) In order to provide the Deal Agent with control over the U.S. Dollar Collection Account within the meaning of Section 9-104(a) of the UCC and any other applicable law, the Borrower and the Servicer hereby agree that the Deal Agent may at any time provide Wells Fargo or any successor Person that maintains the U.S. Dollar Collection Account with instructions as to the disposition of funds in the U.S. Dollar Collection Account or as to any other matters relating to the U.S. Dollar Collection Account without any further consent from the Borrower or the Servicer. Wells Fargo agrees with the Borrower, the Servicer and the Deal Agent to comply with any and all orders, notices, requests and other instructions originated by the Deal Agent directing disposition of the funds in the U.S. Dollar Collection Account without any further consent from the Borrower or the Servicer. In addition, the Borrower agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents, and take all actions, that may reasonably be necessary or desirable, or that the Deal Agent may reasonably request, to perfect, protect or more fully evidence the security interest of the Deal Agent, as agent for the Secured Parties, in each Collection Account (other than the U.S. Dollar Collection Account) and to enable the Deal Agent or the other Secured Parties to exercise and enforce their rights and remedies with respect to such Collection Accounts. On each Payment Date, the Collateral Custodian shall deposit into each Deal Agent’s Account from the corresponding Collection Account an amount, based on the Monthly Report, to the extent of Available Funds in each such Collection Account, to be applied by the Deal Agent to make the payments required by Section 2.9 on such Payment Date.

(g) Adjustments. If (i) the Servicer makes a deposit into any Collection Account in respect of a Collection of a Loan in the Collateral and such Collection was received by the Servicer in the form of a check that is not honored for any reason or (ii) the Servicer makes a mistake with respect to the amount of any Collection and deposits an amount that is less than or more than the actual amount of such Collection, the Servicer shall appropriately adjust the amount subsequently deposited into such Collection Account to reflect such dishonored check or mistake. Any Scheduled Payment in respect of which a dishonored check is received shall be deemed not to have been paid.

(h) Released Amounts. The Deal Agent and the other Secured Parties hereby agree to release to the Borrower, and the Borrower hereby agrees to release to the Originator, an amount equal to the Released Amounts immediately upon identification thereof and upon receipt of an Officer’s Certificate of the Servicer, which release shall be automatic and shall require no further act by the Deal Agent or the other Secured Parties; provided, that, the Deal Agent and the other Secured Parties shall execute and deliver such instruments of release and assignment, or otherwise confirm the foregoing release, as may reasonably be requested by the Originator in writing. Immediately upon the release to the Borrower by the Deal Agent and the other Secured Parties of the Released Amounts, the Borrower hereby irrevocably agrees to release to the Originator such Released Amounts, which release shall be automatic and shall require no further act by the Borrower; provided, that, the Borrower shall execute and deliver such instruments of release and assignment, or otherwise confirming the foregoing release of any Released Amounts, as may be reasonably requested by the Originator

(i) Securities Intermediary. The Collateral Custodian hereby agrees that, with respect to each Collection Account, it is also acting as “securities intermediary” hereunder. In such capacity, it agrees that at all times prior to the satisfaction and discharge of the Obligations

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in accordance with the terms thereof: (i) all matters relating to the Collection Accounts shall be governed by the laws of the State of New York and that for purposes of Article 8 of the New York UCC the State of New York is the “securities intermediary’s” jurisdiction; (ii) all property, including all cash and all Permitted Investments, held by it as “securities intermediary” on behalf of the Deal Agent and the Lenders in the Collection Accounts shall be treated as “financial assets” under and as defined in Article 8 of the New York UCC; (iii) the Collateral Custodian as “securities intermediary” will treat the Deal Agent as entitled to exercise the rights comprising the investments or other financial assets credited to the Collection Accounts and will at all times identify the Deal Agent on its records as the person having a security entitlement against it, as “securities intermediary”; (iv) the financial assets credited to the Collection Accounts shall not be registered in the name of, payable to the order of, or specially indorsed to the Collateral Custodian except in its capacity as “securities intermediary”; and (v) the “securities intermediary” will not comply with entitlement orders originated by any Person other than the Deal Agent with respect to the investments or financial assets held in the Collection Accounts.

Section 7.5. Servicer Advances.

(a) For each Collection Period, if the Servicer determines that any Scheduled Payment (or portion thereof) that was due and payable pursuant to a Loan included in the Collateral during such Collection Period was not received prior to the end of such Collection Period, the Servicer may, but shall not be obligated to, make an advance in the Currency of and in an amount up to the amount of such delinquent Scheduled Payment (or portion thereof) if the Servicer reasonably believes that the advance will be reimbursed by the related Obligor; in addition, if on any day there are not sufficient funds on deposit in any Collection Account to pay accrued Interest and Program Fees on any Advance, Swingline Advance or Alternative Currency Swingline Advance the Collection Period of which ends on such day, the Servicer may, but shall not be obligated to, make an advance in the Currency and in the amount necessary to pay such Interest and Program Fees if the Servicer reasonably believes that the advance will be reimbursed by the related Obligor (in either case, any such advance, a “Servicer Advance”). Notwithstanding the preceding sentence, any successor Servicer will not be obligated to make any Servicer Advances.

(b) The Servicer will deposit any Servicer Advances into the related Collection Account on or prior to, in the case of the U.S. Dollar Collection Account, 11:00 a.m. (Charlotte, North Carolina time) or, in the case of a Collection Account for an Alternative Currency, 11:00 a.m. (Cayman Islands time), on the related Payment Date, in immediately available funds. A Servicer Advance for a delinquent payment on a Loan will not constitute a reclassification of the delinquency status of such Loan for reporting purposes and the Delinquent payment with respect to such Loan will continue to age as if no payment has been made.

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Section 7.6. Realization Upon Defaulted Loans or Charged-Off Loans.

The Servicer will use its reasonable efforts to repossess or otherwise comparably convert the ownership of any Related Property with respect to a Defaulted Loan or Charged-Off Loan and will act as sales and processing agent for Related Property that it repossesses. The Servicer will follow the practices and procedures set forth in the Credit and Collection Policy in order to realize upon such Related Property. Without limiting the foregoing, the Servicer may sell any such Related Property with respect any Defaulted Loan or Charged-Off Loan to the Servicer or its Affiliates for a purchase price equal to the then fair market value thereof; any such sale to be evidenced by a certificate of a Responsible Officer of the Servicer delivered to the Deal Agent identifying the Defaulted Loan or Charged-Off Loan and the Related Property, setting forth the sale price of the Related Property and certifying that such sale price is the fair market value of such Related Property; provided, however, that if after giving effect to such sale (a) the Availability is greater than $0 or (b) an Unmatured Termination Event, a Termination Event or a Servicer Termination Event would occur, then the Servicer prior to selling any Related Property with respect a Defaulted Loan or Charged-Off Loan shall obtain the prior written consent of the Deal Agent. In any case in which any such Related Property has suffered damage, the Servicer will not expend funds in connection with any repair or toward the repossession of such Related Property unless it reasonably determines that such repair and/or repossession will increase the Recoveries by an amount greater than the amount of such expenses. The Servicer will remit to the appropriate Collection Account the Recoveries received in connection with the sale or disposition of Related Property with respect to a Defaulted Loan or Charged-Off Loan.

Section 7.7. Maintenance of Insurance Policies.

The Servicer will require that each borrower with respect to a Transferred Loan maintain an Insurance Policy with respect to each Transferred Loan and the Related Property in accordance with the Credit and Collection Policy. In connection with its activities as Servicer, the Servicer agrees to present, on behalf of the Borrower and the Deal Agent, as agent for the Secured Parties, with respect to the respective interests, claims to the insurer under each Insurance Policy, and to settle, adjust and compromise such claims, in each case, consistent with the terms of each related Loan.

Section 7.8. Representations and Warranties of the Servicer.

The Servicer hereby represents and warrants as follows:

(a) Organization and Good Standing; Power and Authority The Servicer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation with all requisite corporate power and authority to own its properties and to conduct its business as presently conducted and to enter into and perform its obligations pursuant to this Agreement and each other Transaction Document to which it is a party.

(b) Due Qualification. The Servicer is qualified to do business as a corporation, is in good standing, and has obtained all licenses and approvals as required under the laws of all jurisdictions in which the ownership or lease of its property and/or the conduct of its business

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and/or the performance of its obligations under the Transaction Documents to which it is a party requires such qualification, standing, license or approval, except to the extent that the failure to so qualify, maintain such standing or to obtain such license or approval would not reasonably be expected to have a Material Adverse Effect.

(c) Due Authorization. The Servicer has duly authorized the execution, delivery and performance of this Agreement by all requisite corporate action.

(d) No Violation. The consummation of the transactions contemplated by, and the fulfillment of the terms of, this Agreement by the Servicer (with or without notice or lapse of time) will not (i) conflict with, result in any breach of any of the terms or provisions of, or constitute a default under, the articles of incorporation or by-laws of the Servicer, or any Contractual Obligation to which the Servicer is a party or by which it or any of its property is bound, (ii) result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such Contractual Obligation (other than this Agreement or the Purchase Agreement), or (iii) violate any Applicable Law.

(e) No Consent. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any Governmental Authority having jurisdiction over the Servicer or any of its properties is required to be obtained by or with respect to the Servicer in order for the Servicer to enter into this Agreement or perform its obligations hereunder.

(f) Binding Obligation. This Agreement constitutes a legal, valid and binding obligation of the Servicer, enforceable against the Servicer in accordance with its terms, except as such enforceability may be limited by (i) applicable Insolvency Laws and (ii) general principles of equity (whether considered in a suit at law or in equity).

(g) No Proceedings. Except as previously disclosed to the Deal Agent in writing, there are no proceedings or investigations (formal or informal) pending or to the knowledge of the Servicer, threatened against the Servicer, before any Governmental Authority (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (iii) seeking any determination or ruling that would (in the reasonable judgment of the Servicer) be expected to have a Material Adverse Effect.

(h) Reports Accurate. All Servicer Certificates, information, exhibits, financial statements, documents, books, Servicer Records or reports furnished or to be furnished by the Servicer to the Deal Agent or any other Secured Party in connection with this Agreement are and will be accurate, true and correct.

(i) No Servicer Default. No event has occurred and is continuing and no condition exists, or would result from a purchase in respect of any Investment or from the application of the proceeds therefrom, which constitutes or may reasonably be expected to constitute a Servicer Default.

(j) Material Adverse Change. Since March 31, 2005, there has been no Material Adverse Change with respect to the initial Servicer.

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(k) Credit and Collection Policy. Since September 17, 2001, there has been no material change in any Credit and Collection Policy of the initial Servicer other than in accordance with this Agreement. Since such date, no Material Adverse Change has occurred in the overall collectibility of the Loans. It has at all times complied with the Credit and Collection Policy with respect to each Loan.

Section 7.9. Covenants of the Servicer.

The Servicer hereby covenants that:

(a) Compliance with Law. The Servicer will comply in all material respects with all Applicable Laws, including those with respect to the Transferred Loans, the Related Property and Loan Documents or any part thereof.

(b) Preservation of Corporate Existence. The Servicer will preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to maintain such existence, rights, franchises, privileges and qualification could reasonably be expected to have, a Material Adverse Effect.

(c) Obligations with Respect to Loans. The Servicer will duly fulfill and comply with all obligations on the part of the Borrower to be fulfilled or complied with under or in connection with each Loan and will do nothing to impair the rights of the Borrower or the Deal Agent, as agent for the Secured Parties, or of the Secured Parties in, to and under the Collateral.

(d) Preservation of Security Interest. The Servicer on behalf of the Borrower will file (or cause the filing of) such financing and continuation statements and any other documents and take such other actions that may be required by any law or regulation of any Governmental Authority to preserve and protect fully the interest of the Deal Agent, as agent for the Secured Parties, in, to and under the Collateral.

(e) [Reserved].

(f) Change of Name or Location; Records. The Servicer (i) shall not change its name, move the location of its principal executive office or change its jurisdiction of incorporation, without 30 days’ prior written notice to the Borrower and the Deal Agent, and (ii) shall not move, or consent to the Collateral Custodian moving the Loan Documents without 30 days’ prior written notice to the Borrower and the Deal Agent and (iii) will promptly take all actions required by each relevant jurisdiction in order to continue the first priority perfected security interest of the Deal Agent, as agent for the Secured Parties, in all Collateral including delivery of an Opinion of Counsel.

(g) Credit and Collection Policy. The initial Servicer will (i) comply in all material respects with the Credit and Collection Policy in regard to each Loan and the Related Property included in the Collateral, including, without limitation, performing the Transferred Loan grading and asset valuation functions specified in Sections IV(D) and V of the Credit and Collection Policy on a quarterly basis, and (ii) furnish to the Deal Agent, prior to its effective date, prompt notice of any change in the Credit and Collection Policy which would in any

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manner materially affect or impair the collectibility of any Transferred Loan or the interests of any Lender. The initial Servicer will not agree to or otherwise permit any change in the Credit and Collection Policy which would in any manner materially and adversely affect or impair the collectibility of any Transferred Loan or the interests of any Lender, in each case without the prior written consent of the Deal Agent and each Lender Agent.

(h) Termination Events. The Servicer will furnish to the Deal Agent, as soon as possible and in any event within three Business Days after the occurrence of each Termination Event or Unmatured Termination Event, a written statement setting forth the details of such event and the action that the Servicer proposes to take with respect thereto.

(i) Extension or Amendment of Loans. The Servicer will not, except as otherwise permitted in Section 7.4(a), extend, amend or otherwise modify the terms of any Transferred Loan.

(j) Other. The Servicer will furnish to the Borrower, the Deal Agent and any Lender Agent such other information, documents records or reports respecting the Transferred Loans or the condition or operations, financial or otherwise of the Servicer as the Borrower, the Deal Agent and any Lender Agent may from time to time reasonably request in order to protect the respective interests of the Borrower, the Deal Agent or the other Secured Parties under or as contemplated by this Agreement.

(k) Agented Notes. Except as provided in Section 7.4(a), the Servicer and the Originator covenant that they shall not without the prior written consent of the Deal Agent (i) make or consent to any amendment or alteration of the terms of any Agented Note or related Loan Documents, including without limitation the payments due thereunder, (ii) undertake to release or authorize or consent to the release of any collateral or security for the Agented Notes except for any such release that is permitted or required by the terms of the related Loan Documents, (iii) accelerate or extend the maturity of any Agented Note or (iv) waive any claim against the Obligor or any applicable guarantor thereof, where the effect of any of the foregoing would have a material adverse effect on the Collateral, the Deal Agent or any other Secured Party.

(l) Grade 2 Obligor. In the event that the Originator or an Affiliate thereof provides to any Obligor an Add-On Loan, the proceeds of which are intended to be used for the purpose of providing funds for the Obligor to make an interest and/or principal payment on an Eligible Loan issued to such Obligor, the Servicer shall designate such Obligor as a Grade 2 Obligor or a Grade 1 Obligor through the date that is one year after the date that such Add-On Loan is made; provided, that, this Section 7.9(l) shall not apply in connection with Add-On Loans that are part of a single plan of financing (regardless of when such plan of financing is actually funded) involving Add-On Loans to the Obligor by, in addition to the Originator, a Person who is neither the Originator nor an Affiliate thereof; provided, further, that, the restriction set forth in this Section 7.9(l) shall not apply after the date on which a subsequent Add-On Loan is made to the Obligor and neither the Originator nor an Affiliate thereof is a party to such subsequent Add-On Loan.

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(m) Inspection of Records. The Servicer will, at any time and from time to time during regular business hours, as requested by the Deal Agent or any Lender Agent, permit the Deal Agent or any Lender Agent, or its agents or representatives, (i) to examine and make copies of and take abstracts from all books, records and documents (including computer tapes and disks) relating to the Loans and the related Loan Documents and (ii) to visit the offices and properties of the Borrower, the Originator or the Servicer, as applicable, for the purpose of examining such materials described in clause (i), and to discuss matters relating to the Loans or the Borrower’s, the Originator’s or the Servicer’s performance hereunder, under the Loan Documents and under the other Transaction Documents to which such Person is a party with such officers, directors, employees or independent public accountants of the Borrower, the Originator or the Servicer, as applicable, as might reasonably be determined to have knowledge of such matters.

(n) Keeping of Records. The Servicer will maintain and implement administrative and operating procedures (including an ability to recreate records evidencing Loans and the related Loan Documents in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, computer tapes, disks, records and other information reasonably necessary or advisable for the collection of all Loans (including records adequate to permit the daily identification of each new Loan and all Collections of and adjustments to each existing Loan). The Borrower shall give the Deal Agent prompt notice of any material change in its administrative and operating procedures referred to in the previous sentence.

(o) Compliance with Loans. The Servicer will (i) at its own expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Loans and the related Loan Documents; and (ii) timely and fully comply in all material respects with the Credit and Collection Policy with respect to each Loan and the related Loan Document.

(p) Consolidation or Merger of the Servicer. The initial Servicer shall not consolidate or merge with or into, or sell, lease or transfer all or substantially all of its assets to, any other Person, unless, in the case of any such action (i) no Termination Event or Material Adverse Effect would occur or be reasonably likely to occur as a result of such transaction, (ii) the Deal Agent and each Lender Agent provides its prior written consent to such transaction and (iii) such Person executes and delivers to the Deal Agent an agreement by which such Person assumes the obligations of the Servicer hereunder and under the other Transaction Documents to which it is a party, or confirms that such obligations remain enforceable against it, together with such certificates and opinions of counsel as the Deal Agent may reasonably request.

(q) Compliance with Trust Agreement Accounting/Recordkeeping Requirements. The initial Servicer shall comply with, and not take any action, or permit or acquiesce in any action being taken which would have the effect, directly, or indirectly, of causing any breach of, the covenants of the initial Servicer set forth in Section 4.01(cc)-(gg) of the Borrower’s trust agreement. The Originator, individually and as the initial Servicer, agrees to take or refrain from taking or engaging in, with respect to the Borrower, each of the actions or activities specified in the “substantive consolidation” opinion of Winston & Strawn LLP (including any certificates attached thereto), delivered on the Closing Date, upon which the conclusions therein are based.

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(r) Loan Register.

(i) The Servicer shall maintain with respect to each Noteless Loan a register (each, a “Loan Register”) in which it will record (v) the amount and Currency of such Loan, (w) the amount of any principal or interest due and payable or to become due and payable from the Obligor thereunder, (x) the amount of any sum in respect of such Loan received from the Obligor and each lender’s ratable share thereof, (y) the date of origination of such Loan and (z) the maturity date of such Loan. The entries made in each Loan Register maintained pursuant to this Section 7.9(r) shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of the Servicer to maintain any such Loan Register or any error therein shall not in any manner affect the obligations of the Obligor to repay the related Loans in accordance with their terms or any lender’s interest therein.

(ii) At any time a Noteless Loan is included as part of the Collateral pursuant to this Agreement, the Servicer shall deliver to the Collateral Custodian a copy of the related Loan Register, together with a copy of a certificate of a Responsible Officer of the Servicer certifying to the accuracy of such Loan Register as of the date such Loan is included as part of the Collateral.

Section 7.10. The Collateral Custodian.

(a) Appointment; Custodial Duties. The Borrower and the Deal Agent each hereby appoints Wells Fargo to act as Collateral Custodian hereunder, for the benefit of the Borrower, the Deal Agent and the other Secured Parties, as provided herein. Wells Fargo hereby accepts such appointment and agrees to perform the duties and responsibilities with respect thereto set forth herein.

The Collateral Custodian shall take and retain custody of the Loan Files delivered by the Borrower or on its behalf pursuant to Section 5.3 hereof in accordance with the terms and conditions of this Agreement, all for the benefit of the Secured Parties and subject to the Lien thereon in favor of the Deal Agent, as agent for the Secured Parties. Promptly upon receipt of the first Loan Document with respect to any Loan File, the Collateral Custodian shall deliver to the Deal Agent a custodial receipt in form of Exhibit J hereto. Within five Business Days of its receipt of any Loan File, the Collateral Custodian shall review the related Loan Documents to verify that each Loan Document listed on the related Loan Checklists for each Loan File has been received, is executed and has no missing or mutilated pages and that each Underlying Note (other than with respect to a Noteless Loan) with respect to each Transferred Loan is in original form, and to confirm (in reliance on the related Loan number and Obligor name) that such Loan is referenced on the related Loan List and shall, on or prior to the expiration of such period, deliver to the Deal Agent a certification in the form of Exhibit K hereto. If the Collateral Custodian receives any Loan Documents not accompanied by a Loan Checklist, it may request that the Servicer provide such a Loan Checklist before beginning its review. Except as described in the preceding sentence with respect to Underlying Notes, the Collateral Custodian may fulfill its obligations hereunder by accepting and reviewing copies of all Loan Documents in a Loan File. In order to facilitate the foregoing review by the Collateral Custodian, in connection with each delivery of Loan Files hereunder to the Collateral Custodian, the Servicer shall provide to the Collateral Custodian an electronic file in a mutually acceptable electronic format that

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contains the related Loan List or that otherwise contains the Loan number and the name of the Obligor with respect to each related Loan. If, at the conclusion of such review, the Collateral Custodian shall determine that a Loan Document is not executed or in proper form on its face, that any Underlying Note is not in original form as required, that a Loan Document listed on a Loan Checklist for a Loan File is missing, that a Loan Document contained in the Loan File for a Loan is not referenced on any Loan Checklist for such Loan File, or that any promissory note or mortgage note is not endorsed in blank, the Collateral Custodian shall promptly notify the Borrower and the Deal Agent of such determination by providing an exception report to such Persons setting forth, with particularity, the lack of execution of such Loan Document(s), that such Loan Document(s) has missing or mutilated pages, that an original Underlying Note has not been delivered or the fact that such Loan was not referenced on the related Loan List, that a Loan Document listed on a Loan Checklist is missing or that a Loan Document contained in a Loan File was not referenced on a Loan Checklist for such Loan File or that any promissory note or mortgage note is not endorsed in blank. In addition, unless instructed otherwise in writing by the Borrower and the Deal Agent within ten days of the Collateral Custodian’s delivery of such report, the Collateral Custodian shall return any Loan File not referenced on such Loan List to the Borrower. Other than the foregoing, the Collateral Custodian shall not have any responsibility for reviewing any Loan File. On each Reporting Date, (or more frequently, at the request of the Deal Agent) the Collateral Custodian shall deliver to the Borrower and the Deal Agent a cumulative exception report listing all outstanding exceptions and indicating those exceptions which were removed since the last exception report.

In taking and retaining custody of the Loan Files, the Collateral Custodian shall be acting as the agent of the Deal Agent and the other Secured Parties; provided, that, the Collateral Custodian makes no representations as to the existence, perfection or priority of any Lien on the Loan Files or the instruments therein; provided, further, that, the Collateral Custodian’s duties as agent shall be limited to those expressly contemplated herein. All Loan Files shall be kept in fire-resistant vaults or cabinets at the locations specified on Schedule V attached hereto, or at such other office as shall be specified to the Deal Agent and the Borrower by the Collateral Custodian in a written notice delivered at least 45 days prior to such change. All Loan Files shall be segregated with an appropriate identifying label and maintained in such a manner so as to permit retrieval and access. All Loan Files shall be clearly segregated from any other documents or instruments maintained by the Collateral Custodian. The Collateral Custodian shall clearly indicate that such Loan Files are the sole property of Borrower, subject to the security interest of the Deal Agent, on behalf of the Secured Parties. In performing its duties, the Collateral Custodian shall use the same degree of care and attention as it employs with respect to similar loan files that it holds as collateral custodian for others.

(b) Concerning the Collateral Custodian.

(i) Except for its willful misconduct, gross negligence or bad faith, the Collateral Custodian may conclusively rely on and shall be fully protected in acting upon any certificate, instrument, opinion, notice, letter, telegram or other document delivered to it and that in good faith it reasonably believes to be genuine and that has been signed by the proper party or parties. Except for its willful misconduct, gross negligence or bad faith, the Collateral Custodian may rely conclusively on and shall be fully protected in acting upon the written instructions of any designated officer of the Deal Agent.

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(ii) The Collateral Custodian may consult counsel satisfactory to it and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the advice or opinion of such counsel.

(iii) The Collateral Custodian shall not be liable for any error of judgment, or for any act done or step taken or omitted by it, in good faith, or for any mistakes of fact or law, or for anything that it may do or refrain from doing in connection herewith except in the case of its willful misconduct, gross negligence or bad faith.

(iv) The Collateral Custodian makes no warranty or representation and shall have no responsibility (except as expressly set forth in this Agreement) as to the content, enforceability, completeness, validity, sufficiency, value, genuineness, ownership or transferability of the Loans or the Loan Documents, and will not be required to and will not make any representations as to the validity or value of any of the Loans. The Collateral Custodian shall not be obligated to take any legal action hereunder that might in its judgment involve any expense or liability unless it has been furnished with an indemnity reasonably satisfactory to it.

(v) The Collateral Custodian shall have no duties or responsibilities except such duties and responsibilities as are specifically set forth in this Agreement and no covenants or obligations shall be implied in this Agreement against the Collateral Custodian.

(vi) The Collateral Custodian shall not be required to expend or risk its own funds in the performance of its duties hereunder.

(vii) It is expressly agreed and acknowledged that the Collateral Custodian is not guaranteeing performance of or assuming any liability for the obligations of the other parties hereto or any parties to the Loans.

(c) Release for Servicing. From time to time and as appropriate for the enforcement or servicing of any of the Transferred Loans, the Collateral Custodian is hereby authorized, upon receipt from the Servicer on behalf of the Borrower, of a written request for release of documents and receipt in the form annexed hereto as Exhibit L and upon receipt from the Deal Agent of its written consent to such request and receipt, to release to the Servicer the related Loan File or the documents set forth in such request and receipt to the Servicer; provided, however, that, notwithstanding the foregoing or any other provision of this Agreement, upon its receipt of written instructions from the Deal Agent, the Collateral Custodian shall cease releasing documents to the Servicer. All documents so released to the Servicer on behalf of the Borrower shall be held by the Servicer in trust for the benefit of the Borrower, the Deal Agent and the other Secured Parties, with respect to their respective interests, in accordance with the terms of this Agreement. The Servicer, on behalf of the Borrower, shall return to the Collateral Custodian the Loan File or other such documents when the Servicer’s need therefor in connection with such foreclosure or servicing no longer exists, unless the Loan shall be liquidated, in which case, upon receipt of an additional request for release of documents and receipt certifying such liquidation from the Servicer to the Collateral Custodian in the form annexed hereto as Exhibit L, the

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Servicer’s request and receipt submitted pursuant to the first sentence of this Section 7.10(c) shall be released by the Collateral Custodian to the Servicer. Notwithstanding anything in this Section 7.10(c) to the contrary, in no event shall the Collateral Custodian release any Loan File or part thereof to the Servicer for any reason without the Deal Agent’s prior written consent.

(d) Release for Payment. Upon receipt by the Collateral Custodian of the Servicer’s request for release of documents and receipt in the form annexed hereto as Exhibit L (which certification shall include a statement to the effect that all amounts received in connection with such payment or repurchase have been credited to the appropriate Collection Account as provided in this Agreement), the Collateral Custodian shall promptly release the related Loan File to the Servicer, on behalf of the Borrower.

(e) Collateral Custodian Compensation. As compensation for its activities hereunder, the Collateral Custodian shall be entitled to a Collateral Custodian Fee from the Servicer. To the extent that such Collateral Custodian Fee is not paid by the Servicer, the Collateral Custodian shall be entitled to receive the unpaid balance of such Collateral Custodian Fee to the extent of funds available therefor pursuant to the provision of Sections 2.9(a)(1)(v) and 2.9(b)(v). The Collateral Custodian’s entitlement to receive the Collateral Custodian Fee (other than due and unpaid Collateral Custodian Fees owed through such date) shall cease on the earlier to occur of: (i) its removal as Collateral Custodian or (ii) the termination of this Agreement.

(f) Replacement of the Collateral Custodian. The Collateral Custodian may be replaced by the Borrower with the prior consent of the Deal Agent and each Lender Agent; provided, however, that no such replacement shall be effective until a replacement Collateral Custodian has been appointed, has agreed to act as Collateral Custodian hereunder and has received all Loan Files held by the previous Collateral Custodian.

(g) Release of Loan Documents Following a Lien Release Dividend. To the extent that portions of Transferred Loans are transferred pursuant to a Lien Release Dividend under Section 2.17 and such portions of Transferred Loans are part of a Permitted Transfer, the Collateral Custodian may, but only with the Deal Agent’s prior written consent, and upon terms and conditions satisfactory to the Deal Agent, including without limitation the execution by the servicer of such portions of such Transferred Loans of all such documents as the Deal Agent may require, release original Loan Documents (excluding the related original Underlying Note(s)) evidencing the portion of the Transferred Loan remaining as part of the Collateral) to the servicer of such portions of Transferred Loans for the purposes of enforcing or servicing such Loans in connection with a Permitted Transfer.

Section 7.11. Representations and Warranties of the Collateral Custodian.

The Collateral Custodian represents and warrants as follows:

(a) Organization and Good Standing. It is a national banking association duly organized, validly existing and in good standing under the laws of the United States with all requisite power and authority to own its properties and to conduct its business as presently conducted and to enter into and perform its obligations pursuant to this Agreement.

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(b) Due Qualification. It is duly qualified to do business as a national banking association and is in good standing, and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its property or the conduct of its business requires such qualification, licenses or approval except where the failure to so qualify or have such licenses or approvals has not had, and would not be reasonably expected to have, a Material Adverse Effect.

(c) Power and Authority. It has the power and authority to execute and deliver this Agreement and each other Transaction Document to which it is a party and to carry out their respective terms. It has duly authorized the execution, delivery and performance of this Agreement and each other Transaction Document to which it is a party by all requisite action.

(d) No Violation. The consummation of the transactions contemplated by, and the fulfillment of the terms of, this Agreement and each other Transaction Document to which it is a party by it will not (i) conflict with, result in any breach of any of the terms or provisions of, or constitute a default under, its articles of association, or any Contractual Obligation to which it is a party or by which it or any of its property is bound, (ii) result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any Contractual Obligation, or (iii) violate any Applicable Law.

(e) No Consents. No consent, approval, authorization, order, registration, filing, qualification, license or permit (collectively, the “Consents”) of or with any Governmental Authority having jurisdiction over it or any of its respective properties is required to be obtained in order for it to enter into this Agreement or perform its obligations hereunder.

(f) Binding Obligation. This Agreement constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as such enforceability may be limited by (i) applicable Insolvency Laws and (ii) general principles of equity (whether considered in a suit at law or in equity).

(g) No Proceedings. There are no proceedings or investigations pending or, to the best of its knowledge, threatened, against it before any Governmental Authority (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (iii) seeking any determination or ruling that might (in its reasonable judgment) have a Material Adverse Effect.

Section 7.12. Covenants of the Collateral Custodian.

The Collateral Custodian hereby covenants that:

(a) Compliance with Law. The Collateral Custodian will comply in all material respects with all Applicable Laws.

(b) Preservation of Existence. The Collateral Custodian will preserve and maintain its existence, rights, franchises and privileges as a national banking association in good standing under the laws of the United States.

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(c) No Bankruptcy Petition. With respect to any Conduit Lender, prior to the date that is one year and one day (or such longer preference period as shall then be in effect) after the payment in full of all amounts owing in respect of all outstanding Commercial Paper Notes issued by such Conduit Lender and, with respect to the Borrower, prior to the date that is one year and one day (or such longer preference period as shall then be in effect) after the Collection Date, it will not institute against the Borrower or any Conduit Lender, or join any other Person in instituting against the Borrower or any Conduit Lender, any Insolvency Proceedings or other similar proceedings under the laws of the United States or any state of the United States. This Section 7.12(c) will survive the termination of this Agreement.

(d) Loan Files. The Collateral Custodian will not dispose of any documents constituting the Loan Files in any manner that is inconsistent with the performance of its obligations as the Collateral Custodian pursuant to this Agreement and will not dispose of any Loan except as contemplated by this Agreement.

(e) Location of Loan Files. The Loan Files shall remain at all times in the possession of the Collateral Custodian at the address set forth on Annex A hereto unless notice of a different address is given in accordance with the terms hereof.

(f) No Changes in Collateral Custodian Fee. The Collateral Custodian will not make any changes to the Collateral Custodian Fee set forth in the Backup Servicer and Collateral Custodian Fee Letter without the prior written approval of the Deal Agent.

Section 7.13. The Backup Servicer.

(a) Appointment. The Borrower and the Deal Agent hereby appoint Wells Fargo to act as Backup Servicer for the benefit of the Borrower, the Deal Agent and the other Secured Parties in accordance with the terms of this Agreement. Wells Fargo hereby accepts such appointment and agrees to perform the duties and responsibilities with respect thereto set forth herein.

(b) Duties. On or before the initial Funding Date, and until the receipt by the Servicer of a Servicer Termination Notice, the Backup Servicer shall perform, on behalf of the Borrower and the Deal Agent and the other Secured Parties, the following duties and obligations:

(i) On or before the Closing Date, the Backup Servicer shall accept from the Servicer delivery of the information required to be set forth in the Monthly Reports in hard copy and in an agreed upon electronic format.

(ii) Not later than 12:00 noon (Charlotte, North Carolina time) on each Reporting Date, the Servicer shall provide to the Backup Servicer and the Backup Servicer shall accept delivery of tape in an agreed upon electronic format (the “Tape”) from the Servicer, which shall include but not be limited to the following information: (x) for each Transferred Loan, the name and number of the related borrower, the collection status, the Loan status, the date of each Scheduled Payment and the Outstanding Loan Balance and (y) the Aggregate Outstanding Loan Balance.

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(iii) Prior to the related Payment Date, the Backup Servicer shall review the Monthly Report to ensure that it is complete on its face and that the following items in such Monthly Report have been accurately calculated, if applicable, and reported: (A) the Availability and the unused portion of the Alternative Currency Sub-Limit, (B) the Aggregate Outstanding Loan Balance and the amount of such Aggregate Outstanding Loan Balance denominated in each Alternative Currency, (C) the Backup Servicer Fee, (D) the Loans that are 30 or more days Delinquent (other than Defaulted Loans and Charged-Off Loans), (E) the Defaulted Loans (other than Charged-Off Loans), (F) the Charged-Off Loans, (G) the Portfolio Yield, (H) the Rolling Three-Month Portfolio Yield, (I) the Rolling Three-Month Default Ratio, (J) the Rolling Three-Month Charged-Off Ratio and (K) the Rolling Twelve-Month Portfolio Charged-Off Ratio. The Backup Servicer shall notify the Deal Agent, the Borrower and the Servicer of any disagreements with the Monthly Report based on such review not later than the Business Day preceding such Payment Date.

(iv) If the Borrower or the Servicer disagrees with the report provided under Section 7.13(b)(iii) by the Backup Servicer or if the Borrower or the Servicer or any subservicer has not reconciled such discrepancy, the Backup Servicer agrees to confer with the Borrower or the Servicer to resolve such disagreement on or prior to the next succeeding Determination Date and shall settle such discrepancy with the Borrower or the Servicer if possible, and notify the Deal Agent of the resolution thereof. The Borrower and the Servicer hereby agree to cooperate at their own expense, with the Backup Servicer in reconciling any discrepancies herein. If within twenty (20) days after the delivery of the report provided under Section 7.13(b)(iii) by the Backup Servicer, such discrepancy is not resolved, the Backup Servicer shall promptly notify the Borrower and the Deal Agent of the continued existence of such discrepancy. Following receipt of such notice by the Deal Agent, the Servicer shall deliver to the Borrower, the Deal Agent, the Secured Parties and the Backup Servicer no later than the related Payment Date a certificate describing the nature and amount of such discrepancies and the actions the Servicer proposes to take with respect thereto.

With respect to the duties described in this Section 7.13(b), in the absence of bad faith or gross negligence, the Backup Servicer, in the performance of its duties and obligations hereunder, is entitled to rely conclusively, and shall be fully protected in so relying, on the contents of each Tape, including, but not limited to, the completeness and accuracy thereof, provided by the Servicer.

(c) Transition to Servicer Role. After the receipt by the Servicer of an effective Servicer Termination Notice, all authority, power, rights and responsibilities of the Servicer, under this Agreement, whether with respect to the Loans or otherwise, shall pass to and be vested in the Backup Servicer, subject to and in accordance with the provisions of Section 7.26, as long as the Backup Servicer is not prohibited by Applicable Law from fulfilling the same, as evidenced by an Opinion of Counsel; provided, however, that the Backup Servicer shall not assume any responsibilities of the Servicer with respect to any Loans of an Obligor located outside the United States.

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(d) Merger or Consolidation. Any Person (i) into which the Backup Servicer may be merged or consolidated, (ii) that may result from any merger or consolidation to which the Backup Servicer shall be a party, or (iii) that may succeed to the properties and assets of the Backup Servicer substantially as a whole, which Person in any of the foregoing cases executes an agreement of assumption to perform every obligation of the Backup Servicer hereunder, shall be the successor to the Backup Servicer under this Agreement without further act on the part of any of the parties to this Agreement.

(e) Backup Servicing Compensation. As compensation for its backup servicing activities hereunder, the Backup Servicer shall be entitled to receive the Backup Servicer Fee from the Servicer. To the extent such Backup Servicer Fee is not paid by the Servicer, the Backup Servicer shall be entitled to receive the unpaid balance of its Backup Servicer Fee to the extent of funds available therefor pursuant to the provision of Sections 2.9(a)(1)(iv) and 2.9(b)(iv). The Backup Servicer’s entitlement to receive the Backup Servicer Fee (other than due and unpaid Backup Servicer Fees owed through such date) shall cease on the earliest to occur of: (i) it becoming the Successor Servicer, (ii) its removal as Backup Servicer, or (iii) the termination of this Agreement.

(f) Backup Servicer Removal. The Backup Servicer may be removed with or without cause by the Deal Agent, or by the Borrower with the prior written approval of the Deal Agent by notice given in writing to the Backup Servicer. In the event of any such removal, a replacement Backup Servicer may be appointed by (i) the Borrower, acting with the written consent of the Deal Agent or (ii) if no such replacement is appointed within 30 days following such removal, by the Deal Agent.

(g) Scope of Backup Servicing Duties. The Backup Servicer undertakes to perform only such duties and obligations as are specifically set forth in this Agreement, it being expressly understood by all parties hereto that there are no implied duties or obligations of the Backup Servicer hereunder. Without limiting the generality of the foregoing, the Backup Servicer, except as expressly set forth herein, shall have no obligation to supervise, verify, monitor or administer the performance of the Servicer. The Backup Servicer may act through its agents, attorneys and custodians in performing any of its duties and obligations under this Agreement, it being understood by the parties hereto that the Backup Servicer will be responsible for any misconduct or negligence on the part of such agents, attorneys or custodians acting on the routine and ordinary day-to-day operations for and on behalf of the Backup Servicer. Neither the Backup Servicer nor any of its officers, directors, employees or agents shall be liable, directly or indirectly, for any damages or expenses arising out of the services performed under this Agreement other than damages or expenses that result from the gross negligence or bad faith of it or them or the failure to perform materially in accordance with this Agreement.

(h) Limitation on Liability. Except for its willful misconduct, gross negligence or bad faith, the Backup Servicer shall not be liable for any obligation of the Servicer contained in this Agreement or for any errors of the Servicer contained in any computer tape, certificate or other data or document delivered to the Backup Servicer hereunder or on which the Backup Servicer must rely in order to perform its obligations hereunder, and the Borrower, the Deal Agent, the Collateral Custodian, the Backup Servicer and the other Secured Parties each agree to look only to the Servicer to perform such obligations. Except for its willful misconduct, gross

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negligence or bad faith, the Backup Servicer shall have no responsibility and shall not be in default hereunder or incur any liability for any failure, error, malfunction or any delay in carrying out any of their respective duties under this Agreement if such failure or delay results from the Backup Servicer acting in accordance with information prepared or supplied by a Person other than the Backup Servicer or the failure of any such other Person to prepare or provide such information. Except for its gross negligence or bad faith, the Backup Servicer shall have no responsibility, shall not be in default and shall incur no liability for (i) any act or failure to act of any third party, including the Servicer (ii) any inaccuracy or omission in a notice or communication received by the Backup Servicer from any third party, (iii) the invalidity or unenforceability of any Loan or Loan Document under Applicable Law, (iv) the breach or inaccuracy of any representation or warranty made with respect to any Loan, or (v) the acts or omissions of any successor Backup Servicer.

Section 7.14. Representations and Warranties of the Backup Servicer.

The Backup Servicer hereby represents and warrants as follows:

(a) Organization and Good Standing. It is a national banking association duly organized, validly existing and in good standing under the laws of the United States with all requisite power and authority to own its properties and to conduct its business as presently conducted and to enter into and perform its obligations pursuant to this Agreement.

(b) Due Qualification. The Backup Servicer is duly qualified to do business as a national banking association and is in good standing, and have obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its property and the conduct of its business requires such qualification, licenses or approvals except where the failure to so qualify or have such licenses or approvals has not had, and would not be reasonably expected to have, a Material Adverse Effect.

(c) Power and Authority. It has the power and authority to execute and deliver this Agreement and to carry out its terms. It has duly authorized the execution, delivery and performance of this Agreement by all requisite action.

(d) No Violation. The consummation of the transactions contemplated by, and the fulfillment of the terms of, this Agreement by it will not (i) conflict with, result in any breach of any of the terms or provisions of, or constitute a default under, its articles of association or any Contractual Obligation by which it or any of its property is bound, (ii) result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any Contractual Obligation (other than the Agreement), or (iii) violate any Applicable Law.

(e) No Consents. No Consents of or with any Governmental Authority having jurisdiction over it or any of its respective properties is required to be obtained in order for it to enter into this Agreement or perform its obligations hereunder.

(f) Binding Obligation. This Agreement constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as such enforceability may be limited by (i) applicable Insolvency Laws and (ii) general principles of equity (whether considered in a suit at law or in equity).

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(g) No Proceedings. There are no proceedings or investigations pending or, to the best of its knowledge, threatened, against it before any Governmental Authority (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (iii) seeking any determination or ruling that might (in its reasonable judgment) have a Material Adverse Effect.

Section 7.15. Covenants of the Backup Servicer.

The Backup Servicer hereby covenants that:

(a) Compliance with Law. The Backup Servicer will comply in all material respects with all Applicable Laws.

(b) Preservation of Existence. The Backup Servicer will preserve and maintain its existence, rights, franchises and privileges as a national banking association in good standing under the laws of the United States.

(c) No Bankruptcy Petition. With respect to any Conduit Lender, prior to the date that is one year and one day (or such longer preference period as shall then be in effect) after the payment in full of all amounts owing in respect of all outstanding Commercial Paper Notes issued by such Conduit Lender and with respect to the Borrower, prior to the date that is one year and one day (or such longer preference period as shall then be in effect) after the Collection Date, the Backup Servicer will not institute against the Borrower or any Conduit Lender, or join any other Person in instituting against the Borrower or any Conduit Lender, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings under the laws of the United States or any state of the United States. This Section 7.15(c) will survive the termination of this Agreement.

(d) No Changes in Backup Servicer Fee. The Backup Servicer will not make any changes to Backup Servicer Fee set forth in the Backup Servicer and Collateral Custodian Fee Letter without the prior written approval of the Deal Agent.

Section 7.16. Payment of Certain Expenses by the Servicer and the Borrower.

(a) The Servicer will be required to pay all fees and expenses incurred by it in connection with the transactions and activities contemplated by this Agreement, including fees and disbursements of legal counsel and independent accountants, Taxes imposed on the Servicer, expenses incurred in connection with payments and reports pursuant to this Agreement, and all other fees and expenses not expressly stated under this Agreement for the account of the Borrower. In consideration for the payment by the Borrower of the Servicing Fee, the Servicer will be required to pay all reasonable fees and expenses owing to any bank or trust company in connection with the maintenance of the Collection Accounts and the Backup Servicer Fee and Collateral Custodian Fee pursuant to the Backup Servicer and Collateral Custodian Fee Letter. The Servicer shall be required to pay such expenses for its own account and shall not be entitled to any payment therefor other than the Servicing Fee.

(b) The Borrower will be required to pay all reasonable fees and expenses incurred by the Deal Agent in connection with the transactions and activities contemplated by this Agreement, including reasonable fees and disbursements of legal counsel and independent accountants.

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Section 7.17. Reports.

(a) Monthly Report. With respect to each Determination Date and the related Collection Period, the Servicer will provide to the Borrower, the Backup Servicer, the Deal Agent and each Lender Agent, on the related Reporting Date, a monthly statement (a “Monthly Report”), signed by a Responsible Officer of the Servicer and substantially in the form of Exhibit E. Except as otherwise set forth herein, the Backup Servicer shall have no obligation to review any information in the Monthly Report.

(b) Servicer’s Certificate. Together with each Monthly Report, the Servicer shall submit to the Borrower, the Backup Servicer, the Deal Agent and each Lender Agent a certificate substantially in the form of Exhibit F (a “Servicer’s Certificate”), signed by a Responsible Officer of the Servicer, which shall include a certification by such Responsible Officer that no Termination Event or Unmatured Termination Event has occurred and is continuing. Except as otherwise set forth herein, the Backup Servicer shall have no duty to review any information set forth in the Servicer’s Certificate.

(c) Financial Statements. The Servicer will submit to the Borrower, the Backup Servicer, the Deal Agent and each Lender Agent, within 45 days following the end of each of the Servicer’s fiscal quarters (other than the final fiscal quarter), commencing for the fiscal quarter ending on September 30, 2005, unaudited financial statements of the Servicer (including an analysis of delinquencies and losses for each fiscal quarter) as of the end of each such fiscal quarter. The Servicer shall submit to the Borrower, the Deal Agent and each Lender Agent, within 90 days following the end of the Servicer’s fiscal year, commencing with the fiscal year ending on December 31, 2005, annual audited financial statements as of the end of such fiscal year. Except as otherwise set forth herein, the Backup Servicer shall have no duty to review any of the financial information set forth in such financial statements.

Section 7.18. Annual Statement as to Compliance.

The Servicer will provide to the Borrower, the Backup Servicer, the Deal Agent and each Lender Agent, within 90 days following the end of each fiscal year of the Servicer, commencing with the fiscal year ending on December 31, 2005, an annual report signed by a Responsible Officer of the Servicer certifying that (a) a review of the activities of the Servicer, and the Servicer’s performance pursuant to this Agreement, for the period ending on the last day of such fiscal year has been made under such Responsible Officer’s supervision and (b) the Servicer has performed or has caused to be performed in all material respects all of its obligations under this Agreement throughout such year and no Servicer Termination Event has occurred and is continuing (or if a Servicer Termination Event has so occurred and is continuing, specifying each such event, the nature and status thereof and the steps necessary to remedy such event, and, if a Servicer Termination Event occurred during such year and no notice thereof has been given to the Deal Agent, specifying such Servicer Termination Event and the steps taken to remedy such event).

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Section 7.19. Annual Independent Public Accountant’s Servicing Reports.

The Servicer will cause a firm of nationally recognized independent public accountants (who may also render other services to the Servicer) to furnish to the Borrower, the Deal Agent and each Lender Agent (with a copy to the Backup Servicer), within 90 days following the end of each fiscal year of the Servicer, commencing with the fiscal year ending on December 31, 2005, (i) a report relating to such fiscal year to the effect that (A) such firm has reviewed certain documents and records relating to the servicing of the Transferred Loans, and (B) based on such examination, such firm is of the opinion that the Monthly Reports for such year were prepared in compliance with this Agreement, except for such exceptions as it believes to be immaterial and such other exceptions as will be set forth in such firm’s report and (ii) a report covering such fiscal year to the effect that such accountants have applied certain agreed-upon procedures (which procedures shall not be amended from those procedures in effect as of the Closing Date without the prior approval of the Borrower and the Deal Agent) to certain documents and records relating to the servicing of Transferred Loans under this Agreement, compared the information contained in the Monthly Reports and the Servicer’s Certificates delivered during the period covered by such report with such documents and records and that no matters came to the attention of such accountants that caused them to believe that such servicing was not conducted in compliance with this Article VI of this Agreement, except for such exceptions as such accountants shall believe to be immaterial and such other exceptions as shall be set forth in such statement.

Section 7.20. Limitation on Liability of the Servicer and Others.

Except as provided herein, neither the Servicer nor any of the directors or officers or employees or agents of the Servicer shall be under any liability to the Borrower, the Deal Agent, the other Secured Parties or any other Person for any action taken or for refraining from the taking of any action expressly provided for in this Agreement; provided, however, that this provision shall not protect the Servicer or any such Person against any liability that would otherwise be imposed by reason of its willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of its failure to perform materially in accordance with this Agreement.

The Servicer shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its duties to service the Loans in accordance with this Agreement that in its reasonable opinion may involve it in any expense or liability. The Servicer may, in its sole discretion, undertake any legal action relating to the servicing, collection or administration of Loans and the Related Property that it may reasonably deem necessary or appropriate for the benefit of the Borrower and the Secured Parties with respect to this Agreement and the rights and duties of the parties hereto and the respective interests of the Borrower and the Secured Parties hereunder.

Section 7.21. The Servicer, the Backup Servicer and the Collateral Custodian Not to Resign.

None of the Servicer, the Backup Servicer or the Collateral Custodian shall resign from the obligations and duties hereby imposed on such Person except upon such Person’s

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determination that (i) the performance of its duties hereunder is or becomes impermissible under Applicable Law and (ii) there is no reasonable action that such Person could take to make the performance of its duties hereunder permissible under Applicable Law. Any such determination permitting the resignation of the Servicer, the Backup Servicer or the Collateral Custodian shall be evidenced as to clause (i) above by an Opinion of Counsel to such effect delivered to the Borrower and the Deal Agent. No such resignation shall become effective until a successor shall have assumed the responsibilities and obligations of such Person in according with the terms of this Agreement.

Section 7.22. Access to Certain Documentation and Information Regarding the Loans.

The Borrower, the Servicer or the Collateral Custodian, as applicable, shall provide to the Deal Agent and each Lender Agent access to the Loan Documents and all other documentation regarding the Loans included as part of the Collateral and the Related Property in such cases where the Deal Agent and each Lender Agent is required in connection with the enforcement of the rights or interests of the Lenders, or by applicable statutes or regulations, to review such documentation, such access being afforded without charge but only (i) upon two Business Days’ prior written request, (ii) during normal business hours and (iii) subject to the Servicer’s and the Collateral Custodian’s normal security and confidentiality procedures. From and after the Closing Date and periodically thereafter at the discretion of the Deal Agent and each Lender Agent, the Deal Agent and each Lender Agent or their respective agents may review the Borrower’s and the Servicer’s collection and administration of the Transferred Loans in order to assess compliance by the Servicer with the Servicer’s written policies and procedures, as well as with this Agreement and may conduct an audit of the Loans, Loan Documents and Records in conjunction with such a review. Such review shall be reasonable in scope and shall be completed in a reasonable period of time. The Borrower shall bear the cost of such audits; provided, however, that prior to the date on which a Termination Event shall have occurred and be continuing, the Borrower shall not be required to bear the cost of more than two audits in any 12-month period; and provided, further, that each Lender Agent agrees to cooperate with the Deal Agent in coordinating the timing and scope of such audits.

Section 7.23. [Reserved].

Section 7.24. Identification of Records.

The Servicer shall clearly and unambiguously identify each Loan that is part of the Collateral and the Related Property in its computer or other records to reflect that the interest in such Loans and Related Property have been transferred to and are owned by the Borrower and that the Deal Agent, as agent for the Secured Parties, has the interest therein Granted by Borrower pursuant to this Agreement.

Section 7.25. Servicer Termination Events.

If any one of the following events (a “Servicer Termination Event”) shall occur and be continuing on any date:

(a) any failure by the Servicer to make any payment, transfer or deposit or to give instructions or notice to the Borrower, the Deal Agent or any Lender Agent as required by this Agreement, or to deliver any Required Reports hereunder on or before the date occurring two Business Days after the date such payment, transfer, deposit, instruction of notice or report is required to be made or given, as the case may be, under the terms of this Agreement;

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(b) any failure on the part of the Servicer duly to observe or perform in any material respect any other covenants or agreements of the Servicer set forth in this Agreement or any other Transaction Document to which it is a party as Servicer that continues unremedied for a period of 30 days after the first to occur of (i) the date on which written notice of such failure requiring the same to be remedied shall have been given to the Servicer by the Deal Agent or the Borrower and (ii) the date on which an officer of the Servicer becomes aware thereof;

(c) any representation, warranty or certification made by the Servicer in this Agreement or in any certificate delivered pursuant to this Agreement shall prove to have been incorrect when made in any material respect, and that continues to be unremedied for a period of 30 days after the first to occur of (i) the date on which written notice of such incorrectness requiring the same to be remedied shall have been given to the Servicer by the Deal Agent or the Borrower and (ii) the date on which the Servicer becomes aware thereof;

(d) the Servicer shall fail in any material respect to service the Transferred Loans in accordance with the Credit and Collection Policy;

(e) an Insolvency Event shall occur with respect to the Servicer or any of its Affiliates;

(f) the Servicer agrees to or otherwise permits any change in the Credit and Collection Policy which would in any manner materially and adversely affect or impair the collectibility of any Transferred Loan or the interests of any Lender without the prior written consent of the Deal Agent and each Lender Agent;

(g) any financial or asset information reasonably requested by the Deal Agent or the other Secured Parties as provided herein is not provided as requested within five Business Days of the receipt by the Servicer of such request;

(h) one or more judgments, orders, decrees or arbitration awards shall be entered against the Servicer involving in the aggregate a liability (to the extent not paid when due or covered by insurance) of $15,000,000 or more and all such judgments, orders, decrees or arbitration awards shall not have been paid and satisfied, vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof;

(i) the Servicer fails to make any payment of any principal of or any interest on any debt or other obligations when due (after giving effect to any periods of grace) which is outstanding in a principal amount of more than $15,000,000 in the aggregate, or any event or condition occurs that would permit acceleration of such debt or other obligations if such event or condition has not been waived;

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(j) the Servicer fails to maintain a minimum Net Worth of at least $1,000,000,000 plus seventy-five (75%) percent of any new equity and Subordinated Debt issued after March 31, 2004; or

(k) any Change-in-Control of the Servicer is made without the prior written consent of the Borrower and the Deal Agent; or

(l) the Servicer shall fail to maintain its status as a business development company or as a registered investment company under the 1940 Act;

then notwithstanding anything herein to the contrary, so long as any such Servicer Termination Events shall not have been remedied at the expiration of any applicable cure period, the Deal Agent, by written notice to the Servicer and the Backup Servicer (a “Servicer Termination Notice”), may, subject to the provisions of Section 7.26, terminate all of the rights and obligations of the Servicer as Servicer under this Agreement. The Borrower shall pay all reasonable set-up and conversion costs associated with the transfer of servicing rights to the Successor Servicer.

Section 7.26. Appointment of Successor Servicer.

(a) On and after the receipt by the Servicer of a Servicer Termination Notice pursuant to Section 7.25, the Servicer shall continue to perform all servicing functions under this Agreement until the date specified in the Servicer Termination Notice or otherwise specified by the Deal Agent to the Servicer and the Backup Servicer in writing. The Deal Agent may at the time described in the immediately preceding sentence, in its sole discretion, appoint the Backup Servicer as the Servicer hereunder, and the Backup Servicer shall on such date assume all obligations of the Servicer hereunder, and all authority and power of the Servicer under this Agreement shall pass to and be vested in the Backup Servicer; provided, however, that any successor Servicer shall not (i) be responsible or liable for any past actions or omissions of the outgoing Servicer or (ii) be obligated to make Servicer Advances or (iii) have any liability or obligation with respect to any Servicer indemnification obligations of any prior servicer including the initial Servicer. In the event that the Deal Agent does not so appoint the Backup Servicer, there is no Backup Servicer or the Backup Servicer is unwilling or unable to assume such obligations on such date, the Required Lenders shall as promptly as possible appoint a successor servicer (in such capacity, the “Successor Servicer”), and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Deal Agent. In the event that a Successor Servicer has not been appointed and has not accepted its appointment at the time when the Servicer ceases to act as Servicer, the Deal Agent shall petition a court of competent jurisdiction to appoint any established financial institution having a net worth of not less than U.S. $100,000,000 and whose regular business includes the servicing of Loans as the Successor Servicer hereunder.

(b) Upon its appointment as successor to the Servicer, the Backup Servicer (subject to Section 7.26(a)) or the Successor Servicer, as applicable, shall be the successor in all respects to the Servicer (except as otherwise expressly provided for herein) with respect to servicing functions under this Agreement, shall assume all Servicing Duties hereunder and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the

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terms and provisions hereof, and all references in this Agreement to the Servicer shall be deemed to refer to the Backup Servicer or the Successor Servicer, as applicable. Any Successor Servicer shall be entitled, with the prior consent of the Deal Agent, to appoint agents to provide some or all of its duties hereunder, provided that no such appointment shall relieve such Successor Servicer of the duties and obligations of the Successor Servicer pursuant to the terms hereof and that any such subcontract may be terminated upon the occurrence of a Servicer Termination Event.

(c) All authority and power granted to the Servicer under this Agreement shall automatically cease and terminate upon termination of the Servicer under this Agreement and shall pass to and be vested in the Successor Servicer, and, without limitation, the Successor Servicer is hereby authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Servicer agrees to cooperate with the Successor Servicer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing on the Collateral.

(d) Upon the Backup Servicer receiving notice that it is required to serve as the Servicer hereunder pursuant to the foregoing provisions of this Section 7.26, the Backup Servicer will promptly begin the transition to its role as Servicer.

(e) The Backup Servicer shall be entitled to receive its reasonable costs incurred in transitioning to Servicer.

(f) Notwithstanding anything contained in this Agreement to the contrary, any successor Servicer is authorized to accept and rely on all of the accounting, records (including computer records) and work of the prior Servicer relating to the Loans (collectively, the “Predecessor Servicer Work Product”) without any audit or other examination thereof, except, in all cases, where audit, examination or other inquiry would be required in the exercise of reasonable care or the degree of skill and attention the successor Servicer exercises with respect to all comparable loans that it services for itself and others, and the successor Servicer shall have no liability for the acts and omissions of the prior Servicer; provided, however, that if any successor Servicer discovers any error, inaccuracy, omission or incorrect or non-standard practice or procedure (collectively, “Errors”) in any Predecessor Servicer Work Product, then such successor Servicer shall use its best commercially reasonable efforts to correct such Errors. Wells Fargo agrees to use its best efforts to prevent further errors, inaccuracies or omissions relating to Errors (collectively, “Continued Errors”) previously discovered by the successor Servicer and shall, with the prior consent of the Deal Agent, use its best commercially reasonable efforts to reconstruct and reconcile such data to correct such Errors and Continued Errors and to prevent future Continued Errors. The successor Servicer shall be entitled to recover its costs incurred pursuant to this Section 7.26(f).

Section 7.27. Market Servicing Fee.

Notwithstanding anything to the contrary herein, in the event that a Successor Servicer is appointed, the Servicing Fee shall equal the market rate for comparable servicing duties to be

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fixed upon the date of such appointment by such Successor Servicer with the consent of the Deal Agent; in the event that the Backup Servicer becomes the Successor Servicer, the Backup Servicer shall solicit three bids, with a copy to the Borrower and the Deal Agent, from not less than three entities experienced in the servicing of loans similar to the Loans and that are not Affiliates of the Backup Servicer, the Servicer or the Borrower, and the Servicing Fee shall be equal to the average of the fees proposed as determined by the Backup Servicer with the consent of the Deal Agent (the “Market Servicing Fee”).

ARTICLE VIII

SECURITY INTEREST

Section 8.1. Grant of Security Interest.

(a) The parties hereto intend that this Agreement constitute a security agreement and the transactions effected hereby constitute secured loans by the Secured Parties to the Borrower under Applicable Law. For such purpose, the Borrower hereby Grants as of the Closing Date to the Deal Agent, as agent for the Secured Parties, a lien and continuing security interest in all of the Borrower’s right, title and interest in, to and under (but none of the obligations under) all Collateral (including any Hedging Agreements), whether now existing or hereafter arising or acquired by the Borrower, and wherever the same may be located, to secure the prompt, complete and indefeasible payment and performance in full when due, whether by lapse of time, acceleration or otherwise, of the Obligations of the Borrower arising in connection with this Agreement and each other Transaction Document, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent. The Grant of a security interest under this Section 8.1 does not constitute and is not intended to result in a creation or an assumption by the Deal Agent or any of the other Secured Parties of any obligation of the Borrower or any other Person in connection with any or all of the Collateral or under any agreement or instrument relating thereto. Anything herein to the contrary notwithstanding, (i) the Originator and the Borrower shall remain liable under the Transferred Loans and related Collateral to the extent set forth therein to perform all of their respective duties and obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Deal Agent, as agent for the Secured Parties, of any of its rights in the Collateral shall not release the Originator and the Borrower from any of its duties or obligations under the Transferred Loans and other Collateral, and (iii) none of the Deal Agent nor any other Secured Party shall have any obligations or liability under the Loans and other Collateral by reason of this Agreement, nor shall the Deal Agent or any other Secured Party be obligated to perform any of the obligations or duties of the Borrower thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

(b) The Borrower and the Deal Agent, on behalf of the Secured Parties, hereby acknowledge and agree that the security interest Granted hereby in the Collateral constitutes continuing collateral security for all of the Obligations, whether now existing or hereafter arising.

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Section 8.2. Release of Lien on Loans.

If no Termination Event or Unmatured Termination Event has occurred and is continuing, at the same time as (i) any Transferred Loan included in the Collateral expires by its terms and all amounts in respect thereof have been paid in full by the related Obligor and deposited in the appropriate Collection Account, (ii) any Transferred Loan becomes a Prepaid Loan and all amounts in respect thereof have been paid in full by the related Obligor and deposited in the appropriate Collection Account, (iii) such Transferred Loan is replaced in accordance with Section 2.19(a), (iv) such Transferred Loan is repurchased in accordance with Section 2.19(b) or 2.4(c), (v) such Transferred Loan is subject to a Lien Release Dividend in accordance with Section 2.17, or (vi) this Agreement terminates in accordance with Section 12.6, the Deal Agent, as agent for the Secured Parties, will be deemed to automatically release its interest in such Loan without representation or warranty express or implied. In connection with any such prepayment, release or substitution, the Deal Agent, as agent for the Secured Parties will, after the deposit by the Servicer of the Proceeds of such event into the appropriate Collection Account, at the sole expense of the Servicer, execute and deliver to the Servicer any assignments, bills of sale, termination statements and any other releases and instruments as the Servicer may reasonably request in order to effect the release and transfer of the Related Property if such Related Property is not also serving as Collateral to secure the repayment of another Transferred Loan; provided, that, the Deal Agent, as agent for the Secured Parties, will make no representation or warranty, express or implied, with respect to any such Related Property in connection with such prepayment, release or substitution. Nothing in this Section 8.2 shall diminish the Servicer’s obligations pursuant to Section 7.6 with respect to the Proceeds of any such sale.

Section 8.3. [Reserved].

Section 8.4. Further Assurances.

The provisions of Section 12.12 shall apply to the security interest granted under Section 8.1 as well as to the Advances, Swingline Advances and Alternative Currency Swingline Advances hereunder.

Section 8.5. Remedies.

Upon the occurrence of a Termination Event, the Deal Agent and the other Secured Parties shall have, with respect to the Collateral granted pursuant to Section 8.1, and in addition to all other rights and remedies available to the Deal Agent and the other Secured Parties under this Agreement or other Applicable Law, all rights and remedies of a secured party upon default under the UCC.

Section 8.6. Waiver of Certain Laws.

Each of the Borrower and the Servicer agrees, to the full extent that it may lawfully so agree, that neither it nor anyone claiming through or under it will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption law now or hereafter in force in any locality where any Collateral may be situated in order to prevent, hinder or delay the enforcement or foreclosure of this Agreement, or the absolute sale of any of the Collateral or any

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part thereof, or the final and absolute putting into possession thereof, immediately after such sale, of the Secured Parties thereof, and each of the Borrower and the Servicer, for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may be lawful so to do, the benefit of all such laws, and any and all right to have any of the properties or assets constituting the Collateral marshaled upon any such sale, and agrees that the Deal Agent or any court having jurisdiction to foreclose the security interests granted in this Agreement may sell the Collateral as an entirety or in such parcels as the Deal Agent or such court may determine.

Section 8.7. Power of Attorney.

Each of the Borrower and the Servicer, upon the occurrence and during the continuance of a Termination Event, hereby irrevocably appoints the Deal Agent its true and lawful attorney (with full power of substitution) in its name, place and stead and at its expense, in connection with the enforcement of the rights and remedies provided for in this Agreement, including without limitation the following powers: (a) to give any necessary receipts or acquittance for amounts collected or received hereunder, (b) to make all necessary transfers of the Collateral in connection with any such sale or other disposition made pursuant hereto, (c) to execute and deliver for value all necessary or appropriate bills of sale, assignments and other instruments in connection with any such sale or other disposition, the Borrower and the Servicer hereby ratifying and confirming all that such attorney (or any substitute) shall lawfully do hereunder and pursuant hereto, and (d) to sign any agreements, orders or other documents in connection with or pursuant to any Transaction Document (including any Hedging Agreement). Nevertheless, if so requested by the Deal Agent, the Borrower shall ratify and confirm any such sale or other disposition by executing and delivering to the Deal Agent all proper bills of sale, assignments, releases and other instruments as may be designated in any such request. The appointment by each of the Servicer and the Borrower of the Deal Agent as its attorney-in-fact shall be evidenced by its execution and delivery of a Power of Attorney substantially in the form of Exhibit Q-1 and Q-2, respectively.

ARTICLE IX

TERMINATION EVENTS

Section 9.1. Termination Events.

If any of the following events (each, a “Termination Event”) shall occur and be continuing:

(a) the Borrower shall default in the payment of any amount required to be made under the terms of this Agreement and such failure continues unremedied for a period of three Business Days after the due date set forth herein for such payment, or if no due date is specified, such failure continues for a period of twenty (20) days after written request for such payment has been made; or

(b) the amount described in clause (ii) of the definition of Availability shall exceed the amount described in clause (i) of the definition of Availability for more than three Business Days, or the aggregate amount of all Advances Outstanding in Alternative Currencies exceeds 105% of the Alternative Currency Sub-Limit, for more than five Business Days; or

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(c) (i) the Borrower shall fail to perform or observe in any material respect any other covenant or other agreement of the Borrower set forth in this Agreement or any other Transaction Document to which it is a party, or (ii) the Originator shall fail to perform or observe in any material respect any term, covenant or agreement of the Originator set forth in any Transaction Document to which it is a party, in each case when such failure continues unremedied for more than twenty (20) days after written notice thereof shall have been given by the Deal Agent or any other Secured Party to such Person; or

(d) any representation or warranty made or deemed made hereunder shall prove to be incorrect in any material respect as of the time when the same shall have been made, and such incorrect representation or warranty shall not have been eliminated or otherwise cured within a period of twenty (20) days after written notice thereof shall have been given by the Deal Agent or any other Secured Party to the Borrower; or

(e) an Insolvency Event shall occur with respect to the Borrower; or

(f) a Servicer Termination Event occurs; or

(g) any Change-in-Control of the Borrower or the Originator occurs; or

(h) the Borrower or the Originator fails to make any payment of any principal of or any interest on any debt or other obligations when due (after giving effect to any periods of grace) which is outstanding in a principal amount of more than $100,000 in the aggregate in the case of the Borrower or more than $15,000,000 in the aggregate in the case of the Originator, or any event or condition occurs that would permit acceleration of such debt or other obligations if such event or condition has not been waived; or

(i) the Deal Agent, as agent for the Secured Parties, shall fail for any reason to have a valid and perfected first priority security interest in any of the Collateral; or

(j) one or more judgments, orders, decrees or arbitration awards shall be entered against the Originator or the Borrower involving in the aggregate a liability (to the extent not paid when due or covered by insurance) of $15,000,000 or $100,000, respectively, or more and all such judgments, orders, decrees or arbitration awards shall not have been paid and satisfied, vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or

(k) the Borrower or the Servicer agrees or consents to, or otherwise permits to occur, any amendment, modification, change, supplement or recession of or to the Credit and Collection Policy in whole or in part that could have a material adverse effect upon the Loans or interest of any Lender, without the prior written consent of the Deal Agent and each Lender Agent; or

(l) on any day, either (i) the aggregate Hedge Notional Amount is less than the product of the Hedge Percentage on such day and the Hedge Amount on that day, or (ii) any Hedge Transaction fails to meet the requirements set forth in Section 5.2(a) and such failure continues and is not remedied within five (5) days after the next Reporting Date; or

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(m) the Aggregate Net Mark to Market Amount exceeds $15,000,000 for two consecutive Determination Dates; or

(n) on any Determination Date, the Rolling Three-Month Portfolio Yield does not equal or exceed Minimum Portfolio Yield and such failure continues for a period of 15 consecutive days; or

(o) the Rolling Three-Month Default Ratio shall exceed 5.0%; or

(p) the Rolling Three-Month Charged-Off Ratio shall exceed 2.5%; or

(q) as of any date a majority of the Board of Directors of the Originator consists of individuals who were not either (A) directors of the Originator as of the corresponding date of the previous year, (B) selected or nominated to become directors by the Board of Directors of the Originator of which a majority consisted of individuals described in clause (A), or (C) selected or nominated to become directors by the Board of Directors of the Originator of which a majority consisted of individuals described in clause (A) and individuals described in clause (B); or

(r) the Borrower shall become required to register as an “investment company” under the 1940 Act or the arrangements contemplated by the Transaction Documents shall require registration as an “investment company” within the meaning of the 1940 Act or any rules, regulations or orders issued by the SEC thereunder; or

(s) the business and other activities of the Borrower or the Originator, including but not limited to, the acceptance of the Advances, the Swingline Advances or Alternative Currency Swingline Advances by the Borrower made by the Lenders, the application and use of the proceeds thereof by the Borrower and the consummation and conduct of the transactions contemplated by the Transaction Documents to which the Borrower or the Originator is a party result in a violation by the Originator, the Borrower, or any other person or entity of the 1940 Act or the rules and regulations promulgated thereunder; or

(t) a Material Adverse Change in the operations of the Borrower shall occur; or

(u) a change in any binding law or any rule or regulation having the force of law shall occur, which would cause the legal conclusions made in the true sale, non-consolidation and perfection opinions delivered in connection with the Transaction Documents to be incorrect; or

(v) the Rolling Twelve-Month Portfolio Charged-Off Ratio shall exceed 12.0%;

then, and in any such event, the Deal Agent may, with the consent of the Required Lenders, and shall, at the direction of the Required Lenders, by notice to the Borrower, declare the Termination Date to have occurred, without demand, protest or future notice of any kind, all of which are hereby expressly waived by the Borrower, and all Obligations owing by the Borrower under this Agreement shall be accelerated and become immediately due and payable; provided, that, in the event that the Termination Event described in Section 9.1(e) herein has occurred, the Termination Date shall automatically occur, without demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. Upon any such declaration or automatic occurrence of the Termination Date, no Advances, Swingline Advances or Alternative

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Currency Swingline Advances will be made, and the Deal Agent and the other Secured Parties shall have, in addition to all other rights and remedies under this Agreement or otherwise, all rights and remedies provided under the UCC of each applicable jurisdiction and other Applicable Laws, including the right to sell the Collateral, which rights and remedies shall be cumulative. The aforementioned rights and remedies shall be without limitation, and shall be in addition to all other rights and remedies of the Deal Agent and the Secured Parties otherwise available under any provision of this Agreement by operation of law, at equity or otherwise, each of which are expressly preserved.

ARTICLE X

INDEMNIFICATION

Section 10.1. Indemnities by the Borrower.

(a) Without limiting any other rights that any such Person may have hereunder or under Applicable Law, the Borrower hereby agrees to indemnify the Deal Agent, the Backup Servicer, the Collateral Custodian, any other Secured Party or its assignee and each of their respective Affiliates and officers, directors, employees and agents thereof (collectively, the “Indemnified Parties”), forthwith on demand, from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys’ fees and disbursements (all of the foregoing being collectively referred to as “Indemnified Amounts”) awarded against or incurred by, any such Indemnified Party or other non-monetary damages of any such Indemnified Party arising out of or as a result of this Agreement, excluding, however, Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of any Indemnified Party. Without limiting the foregoing, the Borrower shall indemnify the Indemnified Parties for Indemnified Amounts relating to or resulting from:

(i) any Transferred Loan treated as or represented by the Borrower to be an Eligible Loan that is not at the applicable time an Eligible Loan;

(ii) reliance on any representation or warranty made or deemed made by the Borrower, the Servicer or any of their respective officers under or in connection with this Agreement, which shall have been false or incorrect in any material respect when made or deemed made or delivered;

(iii) the failure by the Borrower or the Servicer to comply with any term, provision or covenant contained in this Agreement or any agreement executed in connection with this Agreement, or with any Applicable Law with respect to any Transferred Loan comprising a portion of the Collateral, or the nonconformity of any Transferred Loan or any Related Property with any such Applicable Law or any failure by the Originator, the Borrower or any Affiliate thereof to perform its respective duties under the Transferred Loans included as a part of the Collateral;

(iv) the failure to vest and maintain vested in the Deal Agent, as agent for the Secured Parties, a first priority perfected security interest in the Collateral;

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(v) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other Applicable Laws with respect to any Collateral whether at the time of any Advance, Swingline Advance or Alternative Currency Swingline Advance or at any subsequent time and as required by the Transaction Documents;

(vi) any dispute, claim, offset or defense (other than the discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Transferred Loan included as part of the Collateral that is, or is purported to be, an Eligible Loan (including, without limitation, a defense based on the Transferred Loan not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms);

(vii) any failure of the Borrower or the Servicer (if the Originator or one of its Affiliates) to perform its duties or obligations in accordance with the provisions of this Agreement or any failure by the Originator, the Borrower or any Affiliate thereof to perform its respective duties under the Transferred Loans;

(viii) any products liability claim or environmental liability claim or personal injury or property damage suit or other similar or related claim or action of whatever sort arising out of or in connection with the Related Property, merchandise or services that are the subject of any Transferred Loan included as part of the Collateral or the Related Property included as part of the Collateral;

(ix) the failure by Borrower to pay when due any Taxes for which the Borrower is liable, including without limitation, sales, excise or personal property taxes payable in connection with the Collateral;

(x) any repayment by the Deal Agent or another Secured Party of any amount previously distributed in reduction of Advances Outstanding, the Swingline Advances outstanding, the Alternative Currency Swingline Advances outstanding or payment of Interest or any other amount due hereunder or under any Hedging Agreement, in each case which amount the Deal Agent or another Secured Party believes in good faith is required to be repaid;

(xi) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of Advances, Swingline Advances, Alternative Currency Swingline Advances or in respect of any Transferred Loan included as part of the Collateral or the Related Property included as part of the Collateral;

(xii) any failure by the Borrower to give reasonably equivalent value to the Originator in consideration for the transfer by the Originator to the Borrower of any Transferred Loan or the Related Property or any attempt by any Person to void or otherwise avoid any such transfer under any statutory provision or common law or equitable action, including, without limitation, any provision of the Bankruptcy Code;

(xiii) the failure of the Borrower, the Originator or any of their respective agents or representatives to remit to the Servicer or the Deal Agent, Collections on the Collateral remitted to the Borrower or any such agent or representative in accordance with the terms hereof or the commingling by the Borrower or any Affiliate of any collections;

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(xiv) the failure by the Borrower to comply with any of the covenants relating to the Hedging Agreements in accordance with the Transaction Documents; or

(xv) fluctuations in an Alternative Currency which a Lender may sustain as a consequence of the payment of any Advance Outstanding in an Alternative Currency (including as a result of any mandatory prepayment hereunder or the occurrence of a Termination Event or the Termination Date) other than in the Alternative Currency in which such Advance or Alternative Currency Swingline Advance was made, including, without limitation, in respect of conversions pursuant to Section 2.11(d).

(b) Any amounts subject to the indemnification provisions of this Section 10.1 shall be paid by the Borrower to the applicable Indemnified Party within two Business Days following such Person’s demand therefor.

(c) If for any reason the indemnification provided above in this Section 10.1 is unavailable to the Indemnified Party or is insufficient to hold an Indemnified Party harmless, then the Borrower, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and the Borrower, on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations.

(d) The obligations of the Borrower under this Section 10.1 shall survive the removal of the Deal Agent, the Backup Servicer or the Collateral Custodian and the termination of this Agreement.

(e) The parties hereto agree that the provisions of this Section 10.1 shall not be interpreted to provide recourse to the Borrower against loss by reason of the bankruptcy, insolvency or lack of creditworthiness of an Obligor on any Transferred Loan.

Section 10.2. Indemnities by the Servicer.

(a) Without limiting any other rights that any such Person may have hereunder or under Applicable Law, the Servicer hereby agrees to indemnify each Indemnified Party, forthwith on demand, from and against any and all Indemnified Amounts awarded against or incurred by any such Indemnified Party by reason of any acts, omissions or alleged acts or omissions of the Servicer, including, but not limited to (i) any representation or warranty made by the Servicer under or in connection with any Transaction Documents to which it is a party, any Monthly Report, Servicer’s Certificate or any other information or report delivered by or on behalf of the Servicer pursuant hereto, which shall have been false, incorrect or misleading in any material respect when made or deemed made, (ii) the failure by the Servicer to comply with any Applicable Law, (iii) the failure of the Servicer to comply with its duties or obligations in accordance with the Agreement, (iv) the failure by the Servicer to comply with any of the covenants relating to the Hedging Agreements in accordance with the Transaction Documents or (v) any litigation, proceedings or investigation against the Servicer, excluding, however, (a)

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Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party, and (b) under any Federal, state or local income or franchise taxes or any other Tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith) required to be paid by such Indemnified Party in connection herewith to any taxing authority. The provisions of this indemnity shall run directly to and be enforceable by the applicable Indemnified Party subject to the limitations hereof. If the Servicer has made any indemnity payment pursuant to this Section 10.2 and such payment fully indemnified the recipient thereof and the recipient thereafter collects any payments from others in respect of such Indemnified Amounts, the recipient shall repay to the Servicer an amount equal to the amount it has collected from others in respect of such indemnified amounts.

(b) Any amounts subject to the indemnification provisions of this Section 10.2 shall be paid by the Servicer within two Business Days following such Person’s demand therefor.

(c) If for any reason the indemnification provided above in this Section 10.2 is unavailable to the Indemnified Party or is insufficient to hold an Indemnified Party harmless, then Servicer shall contribute to the amount paid or payable to such Indemnified Party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and Servicer on the other hand but also the relative fault of such Indemnified Party as well as any other relevant equitable considerations.

(d) The obligations of the Servicer under this Section 10.2 shall survive the resignation or removal of the Deal Agent, the Backup Servicer or the Collateral Custodian and the termination of this Agreement.

(e) The parties hereto agree that the provisions of this Section 10.2 shall not be interpreted to provide recourse to the Servicer against loss by reason of the bankruptcy or insolvency (or other credit condition) of, or default by, related Obligor on, any Loan.

(f) Any indemnification pursuant to this Section 10.2 shall not be payable from the Collateral.

ARTICLE XI

THE DEAL AGENT AND LENDER AGENTS

Section 11.1. The Deal Agent.

(a) Authorization and Action. The Lenders hereby designate and appoint WCM as the Deal Agent hereunder, and authorize the Deal Agent to take such actions as agent on their behalf and to exercise such powers as are delegated to the Deal Agent by the terms of this Agreement together with such powers as are reasonably incidental thereto. The Deal Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with the Lenders, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Deal Agent shall be read into this Agreement or otherwise exist for the Deal Agent. In performing its functions and duties hereunder, the Deal

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Agent shall act solely as agent for the Lenders and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Borrower or any of its successors or assigns. The Deal Agent shall not be required to take any action that exposes the Deal Agent to personal liability or that is contrary to this Agreement, any other Transaction Document or Applicable Law. The appointment and authority of the Deal Agent hereunder shall terminate at the indefeasible payment in full of the Obligations.

(b) Delegation of Duties. The Deal Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Deal Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

(c) Exculpatory Provisions. Neither the Deal Agent nor any of its directors, officers, agents or employees shall be (i) liable for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement (except for its, their or such Person’s own gross negligence or willful misconduct or, in the case of the Deal Agent, the breach of its obligations expressly set forth in this Agreement), or (ii) responsible in any manner to the Lenders or the other Secured Parties for any recitals, statements, representations or warranties made by the Borrower contained in Article IV of this Agreement, any other Transaction Document or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement, or any other Transaction Document, for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other document furnished in connection herewith, for any failure of the Borrower to perform its obligations hereunder, or for the satisfaction of any condition specified in Article III. The Deal Agent shall not be under any obligation to the Lenders or the other Secured Parties to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, this Agreement or any other Transaction Document, or to inspect the properties, books or records of the Borrower. The Deal Agent shall not be deemed to have knowledge of any Unmatured Termination Event, Termination Event or Servicer Termination Event unless the Deal Agent has received notice from the Borrower or a Secured Party.

(d) Reliance. The Deal Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Deal Agent. The Deal Agent shall in all cases be fully justified in failing or refusing to take any action under this Agreement or any other document furnished in connection herewith unless it shall first receive such advice or concurrence of the Lenders, as it deems appropriate, or it shall first be indemnified to its satisfaction by the Lenders, provided that unless and until the Deal Agent shall have received such advice, the Deal Agent may take or refrain from taking any action as the Deal Agent shall deem advisable and in the best interests of the Lenders. The Deal Agent shall in all cases be fully protected in acting, or in refraining from acting, in accordance with a request of the Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Lenders.

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(e) Non-Reliance on Deal Agent. The Lenders expressly acknowledge that neither the Deal Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Deal Agent hereafter taken, including, without limitation, any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Deal Agent. Each Lender represents and warrants to the Deal Agent that it has and will, independently and without reliance upon the Deal Agent, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Borrower and made its own decision to enter into this Agreement and any Hedging Agreement, as the case may be.

(f) The Deal Agent in its Individual Capacity. The Deal Agent and any of its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower or any Affiliate of the Borrower as though the Deal Agent were not the Deal Agent hereunder. With respect to the Advances made pursuant to this Agreement, the Deal Agent and each of its Affiliates shall have the same rights and powers under this Agreement as the Purchasers and may exercise the same as though it were not the Deal Agent and in such context the terms “Lender” and “Lenders” shall include the Deal Agent in its individual capacity.

(g) Successor Deal Agent. The Deal Agent may, upon five days’ notice to the Borrower and each Lender, and the Deal Agent will, upon the direction of all Lenders, resign as Deal Agent. If the Deal Agent shall resign, then the Lenders, during such five day period, shall appoint a successor agent. If for any reason no successor Deal Agent is appointed by the Lenders during such five day period, then effective upon the expiration of such five day period, the Borrower or the Deal Agent, as applicable, shall make all payments it otherwise would have made to the Deal Agent in respect of the Obligations or under any fee letter delivered in connection herewith directly to the Lenders and for all purposes shall deal directly with the Lenders. After any retiring Deal Agent’s resignation hereunder as Deal Agent, the provisions of Article X and this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Deal Agent under this Agreement. Notwithstanding the resignation or removal of WCM as the Deal Agent, Wachovia, as the Swingline Lender and as a Hedge Counterparty and as an Institutional Lender, shall continue to be a Secured Party hereunder.

Section 11.2. The Lender Agents.

(a) Authorization and Action. Each Lender, respectively, hereby designates and appoints its applicable Lender Agent to act as its agent hereunder and under each other Transaction Document, and authorizes such Lender Agent to take such actions as agent on its behalf and to exercise such powers as are delegated to such Lender Agent by the terms of this Agreement and the other Transaction Documents together with such powers as are reasonably incidental thereto. Such Lender Agent shall not have any duties or responsibilities, except those expressly set forth herein or in any other Transaction Document, or any fiduciary relationship with its related Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of such Lender Agent shall be read into this Agreement or any other Transaction Document or otherwise exist for such Lender Agent. In performing its functions and duties hereunder and under the other Transaction Documents, such Lender Agent shall act solely as agent for its related Lender and does not assume nor shall be deemed to have assumed any

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obligation or relationship of trust or agency with or for the Borrower or the Servicer or any of the Borrower’s or the Servicer’s successors or assigns. Such Lender Agent shall not be required to take any action that exposes such Lender Agent to personal liability or that is contrary to this Agreement, any other Transaction Document or Applicable Law. The appointment and authority of such Lender Agent hereunder shall terminate upon the indefeasible payment in full of all Obligations. Each Lender, respectively, hereby authorizes the Deal Agent to execute each of the UCC financing statements on behalf of such Lender (the terms of which shall be binding on such Lender).

(b) Delegation of Duties. Each applicable Lender Agent, respectively, may execute any of its duties under this Agreement and each other Transaction Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Such Lender Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

(c) Exculpatory Provisions. Neither any applicable Lender Agent nor any of its directors, officers, agents or employees shall be (i) liable for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement or any other Transaction Document (except for its, their or such Person’s own gross negligence or willful misconduct), or (ii) responsible in any manner to its related Lender for any recitals, statements, representations or warranties made by the Borrower or the Servicer contained in Article IV, any other Transaction Document or any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or any other Transaction Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any other Transaction Document or any other document furnished in connection herewith or therewith, or for any failure of the Borrower or the Servicer to perform its obligations hereunder or thereunder, or for the satisfaction of any condition specified in this Agreement, or for the perfection, priority, condition, value or sufficiency of any collateral pledged in connection herewith. Such Lender Agent shall not be under any obligation to its related Lender to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, this Agreement or any other Transaction Document, or to inspect the properties, books or records of the Borrower or the Servicer. Such Lender Agent shall not be deemed to have knowledge of any Termination Event or Unmatured Termination Event unless such Lender Agent has received notice from the Borrower or its related Lender.

(d) Reliance by Lender Agents. Each applicable Lender Agent, respectively, shall in all cases be entitled to rely, and shall be fully protected in relying, upon any document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by such Lender Agent. Such Lender Agent shall in all cases be fully justified in failing or refusing to take any action under this Agreement or any other Transaction Document unless it shall first receive such advice or concurrence of its related Lender as it deems appropriate and it shall first be indemnified to its satisfaction by its Lender; provided, that, unless and until such Lender Agent shall have received such advice, such Lender Agent may take or refrain from taking any action, as such Lender Agent shall deem advisable and in the best interests of its related Lender.

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Each applicable Lender Agent, respectively, shall in all cases be fully protected in acting, or in refraining from acting, in accordance with a request of its related Lender, and such request and any action taken or failure to act pursuant thereto shall be binding upon its related Lender.

(e) Non-Reliance on Lender Agent. Each applicable Lender, respectively, expressly acknowledges that neither its related Lender Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by such Lender Agent hereafter taken, including, without limitation, any review of the affairs of the Borrower or the Servicer, shall be deemed to constitute any representation or warranty by such Lender Agent. Each applicable Lender, respectively, represents and warrants to its related Lender Agent that it has and will, independently and without reliance upon such Lender Agent, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Borrower and made its own decision to enter into this Agreement, the other Transaction Documents and all other documents related hereto or thereto.

(f) Lender Agents in their Respective Individual Capacities. Each applicable Lender Agent, respectively and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower or any Affiliate of the Borrower as though such Lender Agent were not a Lender Agent hereunder. With respect to Advances pursuant to this Agreement, such Lender Agent shall have the same rights and powers under this Agreement in its individual capacity as any Lender and may exercise the same as though it were not a Lender Agent, and in such context the terms “Lender,” and “Lenders,” shall include such Lender Agent in its individual capacity.

(g) Successor Lender Agents. Each applicable Lender Agent, respectively, may, upon five days’ notice to the Borrower and its related Lender, and such Lender Agent will, upon the direction of its related Lender (other than such Lender Agent, in its individual capacity) resign as the Lender Agent for such Lender. If such Lender Agent shall resign, then its related Lender during such five day period shall appoint a successor agent. If for any reason no successor agent is appointed by such Lender during such five day period, then effective upon the termination of such five day period, the Borrower shall make all payments in respect of the Obligations directly to such Lender, and for all purposes shall deal directly with such Lender. After any retiring Lender Agent’s resignation hereunder as a Lender Agent, the provisions of Articles XI and XII shall inure to its benefit with respect to any actions taken or omitted to be taken by it while it was a Lender Agent under this Agreement.

ARTICLE XII

MISCELLANEOUS

Section 12.1. Amendments and Waivers.

(a) Except as provided in this Section 12.1, no amendment, waiver or other modification (any such amendment, waiver or other modification being hereinafter referred to in this Section 12.1 as a “modification”) of any provision of this Agreement shall be effective

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without the written agreement of the Borrower, the Deal Agent, and the Required Lenders (and, with respect to any modification to Sections 2.1(c), 2.2A, 2.2B, the Swingline Lender and the Alternative Currency Swingline Lender); provided, that, any modification of this Agreement that is solely for the purpose of adding a Lender may be effected with the written consent of (x) the Deal Agent at any time when the aggregate Commitments of the Conduit Lenders and Institutional Lenders shall be less than or equal to $1,500,000,000 (after giving effect to the proposed Commitment of the Lender to be added), and (y) each Lender Agent at any time when the aggregate Commitments of the Conduit Lenders and Institutional Lenders shall be greater than $1,500,000,000 (after giving effect to the proposed Commitment of the Lender to be added); and provided, further, that (A) any modification to this Agreement that would (i) reduce or impair Collections or the payment of Interest or fees to the Lenders, (ii) modify any provisions of this Agreement relating to the timing of payments required to be made by the Borrower or the application of the proceeds of such payments, including, without limitation, any provisions of Section 2.9, (iii) release any Collateral from the Lien of this Agreement (other than as provided herein), (iv) increase the Facility Amount or extend the Commitment Termination Date or (v) make any modification to the definitions of “Advance”, “Advances Outstanding”, “Aggregate Net Mark to Market Amount”, “Alternative Currency”, “Approved Country”, “Availability”, “Borrowing Base”, “Concentration Limits”, “Eligible Loan”, “Eligible Obligor”, “Facility Amount”, “Fair Market Value”, “Maximum Availability”, “Pro Rata Share”, “Required Equity Contribution”, or “Termination Event” (each of the modifications described in clauses (i) through (v) of this proviso, a “Material Amendment”), shall not be effective without the written agreement of the Borrower, the Deal Agent and each of the Lenders, (B) any modification to this Agreement that would increase any Lender’s Commitment or Alternative Currency Sub-Limit shall not be effective without the written agreement of such Lender and (C) any modification to this Agreement that would increase the Swingline Lender’s Swingline Commitment or the Alternative Currency Swingline Lender’s Alternative Currency Swingline Amount shall not be effective without the written agreement of the Borrower, the Deal Agent, and the Swingline Lender or Alternative Currency Swingline Lender, as applicable; provided, further, that, no modification adversely affecting the rights or obligations of any Hedge Counterparty shall be effective without the written agreement of such Person.

(b) No amendment, waiver or other modification (i) affecting the rights or obligations of any Hedge Counterparty or (ii) having a material affect on the rights or obligations of the Collateral Custodian or the Backup Servicer (including any duties of the Servicer that the Backup Servicer would have to assume as Successor Servicer) shall be effective against such Person without the written agreement of such Person. The Borrower or the Servicer on its behalf will deliver a copy of all waivers and amendments to the Collateral Custodian and the Backup Servicer.

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Section 12.2. Notices, Etc.

All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy or other electronic communications as provided below), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) when delivered by hand on a Business Day, (b) when transmitted via telecopy (or other facsimile device) to the number set out herein (provided that, if the same shall be transmitted on a day other than a Business Day, such notice shall be deemed to have been given or made on the opening of business on the next following Business Day), (c) the Business Day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case, addressed as follows in the case of the Borrower, the Originator, the Servicer, the Collateral Custodian and the Deal Agent, and as set forth on Annex A in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes:

The Borrower	ACS Funding Trust I c/o American Capital Strategies Ltd. 2 Bethesda Metro Center, 14th Floor Bethesda, Maryland 20814 Attention: Compliance Officer and Legal Department Telecopier: (301) 654-6714 Telephone: (301) 951-6122
The Originator and the Servicer	American Capital Strategies Ltd. 2 Bethesda Metro Center, 14th Floor Bethesda, Maryland 20814 Attention: Compliance Officer and Legal Department Telecopier: (301) 654-6714 Telephone: (301) 951-6122
The Collateral Custodian and the Backup Servicer	Wells Fargo Bank, National Association Sixth Street and Marquette Avenue MAC N9311-161 Minneapolis, Minnesota 55479 Attention: Corporate Trust Services Asset-Backed Administration Telecopier: (612) 667-3539 Telephone: (612) 667-8058

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The Deal Agent	Wachovia Capital Markets, LLC One Wachovia Center, Mail Code: NC0600 Charlotte, North Carolina 28288-0608 Attention: Raj Shah Telecopier: (704) 715-0067 Telephone: (704) 374-6230 Email: scp.mmloans@wachovia.com
Syndication Agency Services	Wachovia Bank, National Association 201 South College Street NC0680/CP8 Charlotte, North Carolina 28288-0608 Attention: Syndication Agency Services Telecopier: (704) 383-0288 Telephone: (704) 715-1880 Email: tonya.rhynemccullough@wachovia.com

provided, that notices given by the Borrower pursuant to Article II hereof shall be effective only upon receipt thereof by the Deal Agent and notices given pursuant to Article XII shall only be effective upon receipt in the case of any notice sent by mail.

Section 12.3. Liabilities to Obligors.

No obligation or liability to any Obligor under any of the Transferred Loans is intended to be assumed by the Deal Agent and the other Secured Parties under or as a result of this Agreement and the transactions contemplated hereby.

Section 12.4. No Waiver, Rights and Remedies.

No failure on the part of the Deal Agent or any other Secured Party or any assignee of any Secured Party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies herein provided are cumulative and not exclusive of any rights and remedies provided by law.

Section 12.5. Binding Effect.

This Agreement shall be binding upon and inure to the benefit of the Borrower, the Deal Agent, the other Secured Parties and their respective successors and permitted assigns and, in addition, the provisions of Section 2.9(a)(1)(i) and Section 2.9(b)(i) shall inure to the benefit of each Hedge Counterparty, whether or not that Hedge Counterparty is a Secured Party.

Section 12.6. Term of this Agreement.

This Agreement, including, without limitation, the Borrower’s obligation to observe its covenants set forth in Article V and VI, and the Servicer’s obligation to observe its covenants set

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forth in Article VII, shall remain in full force and effect until the Collection Date; provided, however, that the rights and remedies with respect to any breach of any representation and warranty made or deemed made by the Borrower pursuant to Article IV and the indemnification and payment provisions of Article X and the provisions of Section 12.10 and Section 12.11 shall be continuing and shall survive any termination of this Agreement.

Section 12.7. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF OBJECTION TO VENUE.

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO AND EACH HEDGE COUNTERPARTY HEREBY AGREES TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO AND EACH HEDGE COUNTERPARTY HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.

Section 12.8. WAIVER OF JURY TRIAL.

TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO AND EACH HEDGE COUNTERPARTY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

Section 12.9. Costs, Expenses and Taxes.

(a) In addition to the rights of indemnification granted to the Deal Agent, the other Secured Parties, the Backup Servicer and the Collateral Custodian and its or their Affiliates and officers, directors, employees and agents thereof under Article X hereof, the Borrower agrees to pay on demand all reasonable costs and expenses of the Deal Agent and the other Secured Parties incurred in connection with the preparation, execution, delivery, administration (including periodic auditing), amendment or modification of, or any waiver or consent issued in connection with, this Agreement and the other documents to be delivered hereunder or in connection herewith, (including any Hedging Agreement) including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Deal Agent and the other Secured Parties with respect thereto and with respect to advising the Deal Agent and the other Secured Parties as to their respective rights and remedies under this Agreement and the other documents to be delivered hereunder or in connection herewith (including any Hedging Agreement) and all costs and expenses, if any (including reasonable counsel fees and expenses), incurred by the Deal Agent or the other Secured Parties in connection with the enforcement of this Agreement and the other documents to be delivered hereunder or in connection herewith (including any Hedging Agreement).

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(b) The Borrower shall pay on demand any and all stamp, sales, excise and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement, the other documents to be delivered hereunder or, with respect to any Conduit Lender, any agreement or other document providing liquidity support, credit enhancement or other similar support in connection with this Agreement or the funding or maintenance of Advances hereunder.

(c) The Borrower shall pay on demand all other costs, expenses and taxes (excluding income taxes) (“Other Costs”), including, without limitation, all reasonable costs and expenses incurred by the Deal Agent and each Lender Agent in connection with periodic audits of the Borrower’s or the Servicer’s books and records (subject to the limitations set forth in Section 7.22), the cost of rating each Conduit Lender’s commercial paper by independent financial rating agencies as may be agreed by the Borrower and such Conduit Lender, which are incurred as a result of the execution of this Agreement, and the amount of any taxes and insurance due and unpaid by an Obligor with respect to any Transferred Loan or Related Property.

Section 12.10. No Proceedings.

(a) Each of the parties hereto (other than each Conduit Lender) and each Hedge Counterparty hereby agrees that it will not institute against, or join any other Person in instituting against, any Conduit Lender any Insolvency Proceeding so long as any Commercial Paper Notes issued by such Conduit Lender shall be outstanding and there shall not have elapsed one year and one day (or such longer preference period as shall then be in effect) since the last day on which any such Commercial Paper Notes shall have been outstanding.

(b) Each of the parties hereto (other than the Deal Agent and the other Secured Parties) hereby agrees that it will not institute against, or join any other Person in instituting against the Borrower any Insolvency Proceeding so long as there shall not have elapsed one year and one day (or such longer preference period as shall then be in effect) since the Collection Date.

Section 12.11. Recourse Against Certain Parties.

(a) No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fees or any other obligations) of the Borrower contained in this Agreement or any other agreement, instrument or document entered into by it pursuant hereto or in connection herewith shall be had against the Borrower or any trustee, manager or administrator of the Borrower, or any incorporator, affiliate, stockholder, officer, employee or director of the Borrower or of any such manager or administrator, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise.

(b) The agreements of the Servicer, the Deal Agent, any Lender Agent, any Lender any other Secured Party, the Backup Servicer and the Collateral Custodian contained in this Agreement or any other agreement, instrument and document entered into by it pursuant hereto

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or in connection herewith are, in each case, solely the corporate obligations of such Person, and no personal liability whatsoever shall attach to or be incurred by any incorporator, stockholder, affiliate, officer, employee or director thereof under or by reason of any of the obligations, covenants or agreements of such Person contained in this Agreement or in any other such instruments, documents or agreements, or that are implied therefrom, and any and all personal liability of such Person and each incorporator, stockholder, affiliate, officer, employee or director thereof for breaches by such Person of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, by statute or constitution, or otherwise, is hereby expressly waived as a condition of and in consideration for the execution of this Agreement.

(c) Notwithstanding anything in this Agreement or any other Transaction Document to the contrary, no Conduit Lender shall have any obligation to pay any amount required to be paid by it hereunder or thereunder in excess of any amount available to such Conduit Lender after paying or making provision for the payment of its Commercial Paper Notes. All payment obligations of each Conduit Lender hereunder are contingent upon the availability of funds in excess of the amounts necessary to pay Commercial Paper Notes; and each of the Borrower, the Servicer, the Backup Servicer, the Collateral Custodian, the Deal Agent and the other Secured Parties agrees that they shall not have a claim under Section 101(5) of the Bankruptcy Code if and to the extent that any such payment obligation exceeds the amount available to any Conduit Lender to pay such amounts after paying or making provision for the payment of its Commercial Paper Notes.

(d) The provisions of this Section 12.11 shall survive the termination of this Agreement.

Section 12.12. Protection of Security Interest; Appointment of Deal Agent as Attorney-in-Fact.

(a) The Borrower shall, or shall cause the Servicer to, cause this Agreement, all amendments hereto and/or all financing statements and continuation statements and any other necessary documents covering the right, title and interest of the Deal Agent, as agent for the Secured Parties, and of the Secured Parties to the Collateral to be promptly recorded, registered and filed, and at all time to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Deal Agent, as agent for the Secured Parties, hereunder to all property comprising the Collateral. The Borrower shall deliver or, shall cause the Servicer to deliver, to the Deal Agent file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. The Borrower and the Servicer shall cooperate fully in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this Section 12.12.

(b) The Borrower agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents, and take all actions, that may reasonably be necessary or desirable, or that the Deal Agent may reasonably request, to perfect, protect or more fully evidence the security interest Granted to the Deal Agent, as agent for the Secured Parties, in the Collateral, or to enable the Deal Agent or the other Secured Parties to exercise and enforce their rights and remedies hereunder.

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(c) If the Borrower or the Servicer fails to perform any of its obligations hereunder after five Business Days’ notice from the Deal Agent or any other Secured Party, the Deal Agent and any other Secured Party may (but shall not be required to) perform, or cause performance of, such obligation; and the Deal Agent’s or Secured Party’s reasonable costs and expenses incurred in connection therewith shall be payable by the Borrower (if the Servicer that fails to so perform is the Borrower or an Affiliate thereof) as provided in Article X, as applicable. The Borrower irrevocably authorizes the Deal Agent and appoints the Deal Agent as its attorney-in-fact to act on behalf of the Borrower, (i) to execute on behalf of the Borrower as debtor and to file financing statements necessary or desirable in the Deal Agent’s sole discretion to perfect and to maintain the perfection and priority of the interest of the Secured Parties in the Collateral and (ii) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Collateral as a financing statement in such offices as the Deal Agent in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the interests of the Lenders in the Collateral. This appointment is coupled with an interest and is irrevocable.

(d) Without limiting the generality of the foregoing, Borrower will, on or prior to August 15 of each year unless the Collection Date shall have occurred, deliver or cause to be delivered to the Deal Agent an Opinion of Counsel for Borrower, in form and substance reasonably satisfactory to the Deal Agent, confirming and updating the opinion delivered pursuant to Section 3.1 with respect to perfection and otherwise to the effect that the Collateral hereunder continues to be subject to a perfected security interest in favor of the Deal Agent, as agent for the Secured Parties, subject to no other Liens of record except as provided herein or otherwise permitted hereunder, which opinion may contain usual and customary assumptions, limitations and exceptions.

Section 12.13. Confidentiality.

(a) Each of the Deal Agent, each other Secured Party and the Borrower shall maintain and shall cause each of its employees and officers to maintain the confidentiality of this Agreement and the other confidential proprietary information with respect to the other parties hereto and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein, except that each such party and its officers and employees may (i) disclose such information to its external accountants, investigators, auditors, attorneys, investors, potential investors or other agents engaged by such party in connection with any due diligence or comparable activities with respect to the transactions and Collateral contemplated herein and the agents of such Persons, as required to be publicly filed with the Securities and Exchange Commission, or as required by Applicable Law, (ii) disclose the existence of this Agreement, but not the financial terms thereof and (iii) disclose the Agreement and such information in any suit, action, proceeding or investigation (whether in law or in equity or pursuant to arbitration) involving any of the Transaction Documents (including any Hedging Agreement) for the purpose of defending itself, reducing its liability, or protecting or exercising any of its claims, rights, remedies, or interests under or in connection with any of the Transaction Documents (including any Hedging Agreement).

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(b) Anything herein to the contrary notwithstanding, the Borrower hereby consents to the disclosure of any nonpublic information with respect to it for use in connection with the transactions contemplated herein and in the Transaction Documents (i) to the Deal Agent or the other Secured Parties by each other, (ii) by the Deal Agent or the other Secured Parties to any prospective or actual Eligible Assignee or participant of any of them or (iii) by the Deal Agent or the Lenders to any Rating Agency, commercial paper dealer or provider of a surety, guaranty or credit or liquidity enhancement or first loss protection to a Lender and to any officers, directors, employees, outside accountants and attorneys of any of the foregoing (and, by such provider (1) to any federal or state regulatory authority having jurisdiction over such provider, as required by such authority, (2) to effect compliance with any law, rule, regulation or order applicable to such provider or (3) in response to any subpoena or other legal process), provided that each such Person is informed of the confidential nature of such information and agrees to be bound hereby. In addition, the Lenders, the Deal Agent and each Hedge Counterparty may disclose any such nonpublic information pursuant to any law, rule, regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings.

(c) The Borrower and the Servicer each agrees that it shall not (and shall not permit any of its Affiliates to) issue any news release or make any public announcement pertaining to the transactions contemplated by this Agreement and the other Transaction Documents without the prior written consent of the Deal Agent (which consent shall not be unreasonably withheld) unless such news release or public announcement is required by law, in which case the Borrower or the Servicer (unless prohibited by Applicable Law) shall consult with the Deal Agent prior to the issuance of such news release or public announcement. The Borrower and the Servicer each may, however, disclose the general terms of the transactions contemplated by this Agreement and the other Transaction Documents to trade creditors, suppliers and other similarly situated Persons so long as such disclosure is not in the form of a news release or public announcement.

Section 12.14. Third Party Beneficiaries.

Except as otherwise specifically provided herein, the parties hereto hereby manifest their intent that no third party, other than the Hedge Counterparties, shall be deemed a third party beneficiary of this Agreement, and specifically that the Obligors are not third party beneficiaries of this Agreement.

Section 12.15. Execution in Counterparts; Severability; Integration.

This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings other than any fee letter delivered to the Deal Agent and the Lenders.

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Section 12.16. Waiver of Setoff.

Each of the parties hereto (other than each Conduit Lender) hereby waives any right of setoff it may have or to which it may be entitled under this Agreement from time to time against any Conduit Lender or its assets.

Section 12.17. Assignments by the Lenders.

(a) With the prior written consent of the Borrower (which consent shall not be unreasonably withheld), each Lender may at any time assign, or grant a security interest or sell a participation interest in, any Advance (or portion thereof) to any Person; provided, that, (i) no such consent of the Borrower shall be required following the occurrence of a Termination Event, (ii) in the case of an assignment of the Structured Note with respect to such Lender, the assignee (other than any assignee described in the following provision) executes and delivers to the Servicer and the Deal Agent a fully-executed Assignment and Acceptance substantially in the form of Exhibit D hereto and a Transferee Letter substantially in the form of Exhibit V hereto, (iii) any Institutional Lender shall not need prior consent to at any time assign, or grant a security interest or sell a participation interest in, any Advance (or portion thereof) to an Affiliate of its related Lender Agent and (iv) any Conduit Lender shall not need prior consent (x) to at any time assign all of its right, title and interest in and to this Agreement and its Structured Note to a Liquidity Bank, Conduit Assignee or an Affiliate of its related Lender Agent or (y) to at any time assign, or grant a security interest or sell a participation interest in, any Advance (or portion thereof) to a Liquidity Bank, Conduit Assignee or an Affiliate of its related Lender Agent. The Swingline Lender may at any time assign, or grant a security interest or sell a participation in, any Swingline Advance (or any portion thereof) to any Person; provided, that, in the case of an assignment of the Swingline Note, the assignee executes and delivers to the Servicer and the Deal Agent a fully-executed Assignment and Acceptance substantially in the form of Exhibit D hereto and a Transferee Letter substantially in the form of Exhibit V hereto. The parties to any such assignment, grant or sale of a participation interest by a Lender shall execute and deliver to the Deal Agent, for its acceptance and recording in its books and records, such agreement or document as may be satisfactory to such parties and the Deal Agent. The Borrower shall not assign or delegate, or grant any interest in, or permit any Lien to exist upon, any of the Borrower’s rights, obligations or duties under this Agreement without the prior written consent of the Deal Agent and each Hedge Counterparty.

(b) Without limiting the foregoing, each Conduit Lender may, from time to time, with prior or concurrent notice to the Borrower and Servicer, in one transaction or a series of transactions, assign all or a portion of any Advance and its rights and obligations under this Agreement and any other Transaction Documents to which it is a party to a Conduit Assignee. Upon and to the extent of such assignment by the Conduit Lender to a Conduit Assignee, (i) such Conduit Assignee shall be the owner of the assigned portion of such Advance, (ii) the related administrator for such Conduit Assignee will act as the Lender Agent for such Conduit Assignee, with all corresponding rights and powers, express or implied, granted to a Lender Agent hereunder or under the other Transaction Documents, (iii) such Conduit Assignee (and any related commercial paper issuer, if such Conduit Assignee does not itself issue commercial paper) and their respective liquidity support provider(s) and credit support provider(s) and other related parties shall have the benefit of all the rights and protections provided to the Conduit

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Lender and its Liquidity Banks herein and in the other Transaction Documents (including any limitation on recourse against such Conduit Assignee or related parties, any agreement not to file or join in the filing of a petition to commence an insolvency proceeding against such Conduit Assignee, and the right to assign to another Conduit Assignee as provided in this paragraph), (iv) such Conduit Assignee shall assume all (or the assigned or assumed portion) of the Conduit Lender’s obligations, if any, hereunder or under any other Transaction Document, and the Conduit Lender shall be released from such obligations, in each case to the extent of such assignment, and the obligations of the Conduit Lender and such Conduit Assignee shall be several and not joint, (v) all distributions in respect of the Advances shall be made to the applicable agent or Lender Agent, as applicable, on behalf of the Conduit Lender and such Conduit Assignee on a pro rata basis according to their respective interests, (vi) the definition of the term “CP Rate” with respect to the portion of the Advances funded with commercial paper issued by the Conduit Lender (or the related commercial paper issuer, if such Conduit Assignee does not itself issue commercial paper) from time to time shall be determined in the manner set forth in the definition of “CP Rate” applicable to the Conduit Lender on the basis of the interest rate or discount applicable to commercial paper issued by such Conduit Assignee (rather than the Conduit Lender), (vii) the defined terms and other terms and provisions of this Agreement and the other Transaction Documents shall be interpreted in accordance with the foregoing, (viii) if such Conduit Assignee takes an assignment of all of the rights and obligations of the Conduit Lender, such Conduit Assignee shall become such “Conduit Lender” for purposes hereof and, if such Conduit Assignee takes an assignment of only a portion of the rights and obligations of the Conduit Lender, such Conduit Assignee shall, together with such Conduit Lender, each be a “Conduit Lender” and the Institutional Lender relating to each such Conduit Lender shall be the Institutional Lender paired with such Conduit Lender on Annex A for purposes hereof (including for purposes of Section 2.1(b)), and (ix) if requested by the Deal Agent or Lender Agent with respect to the Conduit Assignee, the parties will execute and deliver such further agreements and documents and take such other actions as the Deal Agent or such Lender Agent may reasonably request to evidence and give effect to the foregoing. No assignment by the Conduit Lender to a Conduit Assignee of all or any portion of any Advance shall in any way diminish the related Institutional Lenders’ obligation under Article II to fund any Advance not funded by the Conduit Lender or such Conduit Assignee.

(c) In the event that a Conduit Lender makes an assignment to a Conduit Assignee in accordance with clause (b) above, the Institutional Lenders for such Conduit Lender: (i) if requested by the applicable Lender Agent, shall terminate their participation in the applicable Liquidity Purchase Agreement to the extent of such assignment, (ii) if requested by the applicable Lender Agent, shall execute (either directly or through a participation agreement, as determined by the applicable Lender Agent) the program support agreement related to such Conduit Assignee, to the extent of such assignment, the terms of which shall be substantially similar to those of the participation or other agreement entered into by such Institutional Lender with respect to the applicable program support agreement (or which shall be otherwise reasonably satisfactory to the applicable Lender Agent and the applicable Institutional Lenders), (iii) if requested by such Conduit Lender, shall enter into such agreements as requested by such Conduit Lender pursuant to which they shall be obligated to provide funding to the Conduit Assignee on substantially the same terms and conditions as is provided for in this Agreement in respect of such Conduit Lender (or which agreements shall be otherwise reasonably satisfactory to such Conduit Lender and the Institutional Lenders), and (iv) shall take such actions as the Deal Agent shall reasonably request in connection therewith.

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Section 12.18. Heading and Exhibits.

The headings of the various Articles and Sections herein are for purposes of references only and shall not otherwise affect the meaning or interpretation of any provision hereof. The schedules and exhibits attached hereto and referred to herein shall constitute a part of this Agreement and are incorporated into this Agreement for all purposes.

Section 12.19. Sharing of Payments on Transferred Loans Subject to the Retained Interest Provisions.

(a) With respect to any Transferred Loan (including, without limitation, any Revolving Loan) subject to the Retained Interest provisions of this Agreement, the Borrower will own only the principal portion of such Transferred Loan outstanding as of the applicable Cut-off Date. Principal Collections received by the Servicer on any such Transferred Loan will be allocated first to the portion of such Transferred Loan owned by the Borrower, until the principal amount of such portion is reduced to zero, and then to the portion not owned by the Borrower; provided, however, that (i) if a payment with respect to such Transferred Loan is Delinquent beyond any applicable grace period or (ii) an Allocation Adjustment Event occurs, then Principal Collections received on (x) the applicable Transferred Loan (in the case of clause (i) above) or (y) all the Transferred Loans subject to the Retained Interest provisions of this Agreement (in the case of clause (ii) above) will be allocated between the portion owned by the Borrower and the portion not owned by the Borrower, pro rata based upon the outstanding principal amount of each such portion.

(b) With respect to any Transferred Loan (including, without limitation, any Revolving Loan) subject to the Retained Interest provisions of this Agreement, Interest Collections received by the Servicer on such Transferred Loan will be allocated between the portion not owned by the Borrower and the portion owned by the Borrower on a pro rata basis according to the outstanding principal amount of each such portion.

(c) Notwithstanding the foregoing or anything to the contrary contained herein or in any other Transaction Document, any payments made by any Hedge Counterparty pursuant to the terms of the Hedge Agreements shall be solely for the benefit of the Borrower, subject to the lien of the Deal Agent and the other Secured Parties, and shall not be subject to the pro rata sharing provisions of Section 12.19(a). In furtherance of the foregoing clause of this paragraph, the Originator hereby releases any right, title, or interest it may have in or to any payment made or to be made at any time by any Hedge Counterparty pursuant to the terms of any Hedge Agreement.

Section 12.20. Non-Confidentiality of Tax Treatment.

All parties hereto agree that each of them and each of their employees, representatives, and other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including, without limitation, opinions or other tax analyses) that are provided to any of them relating to such tax

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treatment and tax structure. “Tax treatment” and “tax structure” shall have the same meaning as such terms have for purposes of Treasury Regulation Section 1.6011-4; provided, however, that with respect to any document or similar item that in either case contains information concerning the tax treatment or tax structure of the transaction as well as other information, the provisions of this Section 12.20 shall only apply to such portions of the document or similar item that relate to the tax treatment or tax structure of the transactions contemplated hereby.

Section 12.21. Conduit Lender as Institutional Lender.

Notwithstanding anything herein to the contrary, a Conduit Lender may execute this Agreement as both a Conduit Lender and an Institutional Lender and, in such event, such Conduit Lender shall have the rights and obligations (without duplication) of both a Conduit Lender and an Institutional Lender set forth herein. In no event shall the foregoing prevent a Conduit Lender from exercising its rights to assign or transfer some or all of its Structured Note, Commitment or Advances to one or more Liquidity Banks.

Section 12.22. Institutional Lenders and Conduit Lenders.

(a) Notwithstanding anything herein to the contrary, an Institutional Lender may execute this Agreement without having a related Conduit Lender.

(b) Notwithstanding anything herein to the contrary, a Conduit Lender may not execute this Agreement without a related Institutional Lender concurrently executing this Agreement.

Section 12.23. YC SUSI Trust Additional Institutional Lender Provisions.

Notwithstanding anything to the contrary contained herein, the provisions of Annex C shall be solely applicable, and in the event of conflict with any of provisions of this Agreement or the other Transaction Documents shall be controlling, with respect to YC SUSI Trust, the YC SUSI Conduit Lender and the Institutional Lenders related to any of the foregoing.

Section 12.24. Judgment Currency.

This is an international loan transaction in which the specification of Dollars or any Foreign Currency, as the case may be (the “Specified Currency”), and payment in a specified city or country of the Specified Currency (the “Specified Place”) is of the essence, and the Specified Currency shall be the currency of account in all events relating to Advances, Swingline Advances or Alternative Currency Swingline Advances denominated in the Specified Currency. The payment obligations of the Borrower under this Agreement shall not be discharged or satisfied by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to the Specified Currency and transfer to the Specified Place under normal banking procedures does not yield the amount of the Specified Currency at the Specified Place due hereunder. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in the Specified Currency into another currency (the “Second Currency”), the rate of exchange that shall be applied shall be the rate at which in accordance with normal banking procedures the Deal Agent could purchase the Specified Currency with the Second Currency on the Business Day next

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preceding the day on which such judgment is rendered. The obligation of the Borrower in respect of any such sum due from it to the Deal Agent, any Lender or any other Person hereunder or under any other Transaction Document (in this Section called an “Entitled Person”) shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder in the Second Currency such Entitled Person may in accordance with normal banking procedures purchase and transfer to the Specified Place the Specified Currency with the amount of the Second Currency so adjudged to be due; and the Borrower hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in the Specified Currency, the amount (if any) by which the sum originally due to such Entitled Person in the Specified Currency hereunder exceeds the amount of the Specified Currency so purchased and transferred.

[The remainder of this page is intentionally left blank.]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto, duly authorized, as of the date first above written.

ACS FUNDING TRUST I, as the Borrower
By:	/s/ Malon Wilkus
Name:	Malon Wilkus
Title:	Beneficiary Trustee
AMERICAN CAPITAL STRATEGIES, LTD., as the Originator and as the initial Servicer
By:
Name:
Title:

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

VARIABLE FUNDING CAPITAL COMPANY LLC, as a Conduit Lender
By:	Wachovia Capital Markets, LLC, as attorney-in-fact
By:
Name:
Title:
WACHOVIA CAPITAL MARKETS, LLC, as the Deal Agent and as a Lender Agent
By:
Name:
Title:
WACHOVIA BANK, NATIONAL ASSOCIATION, as Swingline Lender and as an Institutional Lender
By:
Name:
Title:

Acknowledged and agreed as of the date above first written

WACHOVIA BANK, NATIONAL ASSOCIATION,

as a Hedge Counterparty

By:

Name:

Title:

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

JPMORGAN CHASE BANK, N.A., as an Institutional Lender and as Lender Agent

By:

Name:

Title:

CHARIOT FUNDING LLC, as a Conduit Lender

By:

Name:

Title:

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

CITIGROUP GLOBAL MARKETS REALTY CORP.

as an Institutional Lender

By:

Name:

Title:

CITIBANK N.A., LONDON BRANCH,

as an Institutional Lender

By:

Name:

Title:

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

3rd Amended and Restated Loan Funding and

Servicing Agreement

YC SUSI TRUST, as a Conduit Lender
By:	Bank of America, National Association, as Administrative Trustee and SUSI Trustee
By:
Name:
Title:

BANK OF AMERICA, NATIONAL ASSOCIATION, as a Lender Agent and as an Institutional Lender

By:

Name:

Title:

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

3rd Amended and Restated Loan Funding and

Servicing Agreement

HSBC SECURITIES (USA) INC.,

as Lender Agent

By:

Name:

Title:

HSBC BANK USA, NATIONAL ASSOCIATION,

as an Institutional Lender

By:

Name:

Title:

BRYANT PARK FUNDING, LLC,

as a Conduit Lender

By:

Name:

Title:

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

CREDIT SUISSE, NEW YORK BRANCH,

as an Institutional Lender and a Lender Agent

By:

Name:

Title:

ALPINE SECURITIZATION CORP.,

as a Conduit Lender

By:

Name:

Title:

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

WACHOVIA BANK, N.A., LONDON BRANCH, as Alternative Currency Swingline Lender

By:

Name:

Title:

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

Acknowledged and agreed as of the date above first written

WELLS FARGO BANK, NATIONAL ASSOCIATION, as the Backup Servicer and as the Collateral Custodian

By:

Name:

Title:

3rd Amended and Restated Loan Funding and

Servicing Agreement

Annex A

LENDERS DOMESTIC LENDING OFFICE AND FOREIGN LENDING OFFICE

LENDER	DOMESTIC LENDING OFFICE	FOREIGN LENDING OFFICE
Variable Funding Capital Company LLC, as Conduit Lender, and Wachovia Bank, National Association, as Institutional Lender and as Swingline Lender	201 South College Street NC0680/CP8 Charlotte, North Carolina 28288-0608 Attention: Syndication Agency Services	Wachovia Bank, NA London Branch 1 Plantation Place 30 Fenchurch Street London EC3M 3BD
Chariot Funding LLC, as Conduit Lender, and JPMorgan Chase Bank, N.A., as Institutional Lender	Asset Backed Securities – Conduit Chase Tower Suite IL1-0079 Chicago, IL 60670	Asset Backed Securities – Conduit Chase Tower Suite IL1-0079 Chicago, IL 60670
Citigroup Global Markets Realty Corp., as Institutional Lender for Dollar Advances, and Citibank N.A., London Branch, as Institutional Lender for Alternative Currency Advances	Citigroup Global Markets Realty Corp. 390 Greenwich Street, 8th Floor, New York, NY 10013 Attention: Asset Backed Finance Group	Citibank N.A., London Branch Citigroup Centre Canada Square Canary Wharf London E145LB
YC SUSI Trust, as Conduit Lender, and Bank of America, National Association, as Institutional Lender	214 N. Tryon Street YC SUSI: NC1-027-19-01 Charlotte, NC 28255 Attn: Robert Wood	214 N. Tryon Street YC SUSI: NC1-027-19-01 Charlotte, NC 28255 Attn: Robert Wood
Wachovia Bank, N.A., London Branch, as Alternative Currency Swingline Lender		Wachovia Bank, N.A., London Branch 1 Plantation Place 30 Fenchurch Street London EC3M 3BD
Alpine Securitization Corp., as Conduit Lender, and Credit Suisse, New York Branch, as Institutional Lender	11 Madison Avenue, 4th Floor New York, NY 10010 Attn: Joe Soave	11 Madison Avenue, 4th Floor New York, NY 10010 Attn: Joe Soave

Bryant Park Funding, LLC, as Conduit
Lender, HSBC Securities (USA) Inc., as
Lender Agent for Bryant Park Funding,
LLC, and HSBC Bank USA, National
Association, as Institutional Lender 452 Fifth Avenue New York, New York 10018 452 Fifth Avenue New York, New York 10018

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Annex B

COMMITMENTS

I. Overall Commitments

Lender	Commitment
Variable Funding Capital Company LLC, as a Conduit Lender and Wachovia Bank, National Association, as an Institutional Lender, collectively	$250,000,000
Chariot Funding LLC, as a Conduit Lender and JPMorgan Chase Bank, N.A., as an Institutional Lender, collectively	$200,000,000
Citigroup Global Markets Realty Corp., as an Institutional Lender and Citibank N.A., London Branch, collectively	$200,000,000
YC SUSI Trust, as a Conduit Lender and Bank of America, National Association, as an Institutional Lender, collectively	$200,000,000
Bryant Park Funding, LLC, as a Conduit Lender, and HSBC Bank USA, National Association, as an Institutional Lender, collectively	$200,000,000
Alpine Securitization Corp., as a Conduit Lender and Credit Suisse, New York Branch, as an Institutional Lender, collectively	$200,000,000
Facility Amount	$1,250,000,000

II. Swingline Commitment
Lender	Swingline
	Commitment
Wachovia Bank, National Association, as the Swingline Lender	$	100,000,000	*
Alternative Currency Swingline Amount
Lender
Wachovia Bank, N.A., London Branch, as the Alternative Currency Swingline Lender	$	50,000,000	**

* The sum of Advances of Variable Funding Capital Company LLC and Wachovia Bank, National Association outstanding under its Structured Note shall not exceed its Commitment as set forth in Part I.

** The Alternative Currency Swingline Amount is subject to the Alternative Currency Sub-Limit as set forth in Part III.

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III. Alternative Currency Sub-Limit

Lender	Amount of Sub-Limit***		Percentage
Wachovia Bank, National Association, as an Institutional Lender	$	40,000,000	20	%
Chariot Funding LLC, as a Conduit Lender, and JPMorgan Chase Bank, N.A., as an Institutional Lender, collectively		$32,000,000	16	%
Citibank N.A., London Branch, as an Institutional Lender		$32,000,000	16	%
Bank of America, National Association, as Institutional Lender		$32,000,000	16	%
HSBC Bank USA, National Association, as an Institutional Lender		$32,000,000	16	%
Alpine Securitization Corp., as a Conduit Lender, and Credit Suisse, New York Branch, as an Institutional Lender, collectively		$32,000,000	16	%
Total		$200,000,000	100	%

*** The sum of all Advances outstanding of any Institutional Lender in all Currencies shall not exceed the Commitment of such Lender (or such Lender’s related Conduit Lender or Affiliate) as set forth in Part I.

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Annex C

YC SUSI TRUST ADDITIONAL INSTITUTIONAL LENDER PROVISIONS

Section 1.1. Assignment to YC SUSI Institutional Lenders.

(a) YC SUSI Assignment Amounts. At any time on or prior to the Commitment Termination Date, if the YC SUSI Lender Agent on behalf of the YC SUSI Conduit Lender so elects, the Borrower hereby irrevocably requests and directs that the YC SUSI Conduit Lender assign, and the YC SUSI Conduit Lender does hereby assign, effective on the YC SUSI Assignment Date referred to below all or such portions as may be elected by the YC SUSI Conduit Lender of, its interest in its Advances outstanding and its Structured Note at such time to the YC SUSI Institutional Lenders pursuant to this Section 1.1 of this Annex C and the Borrower hereby agrees to pay the amounts described in Section 1.1(b) of this Annex C; provided, however, that unless such assignment is an assignment of all of the YC SUSI Conduit Lender’s interest in its Advances outstanding and the YC SUSI Structured Note in whole on or after the YC SUSI Conduit Investment Termination Date, no such assignment shall take place pursuant to this Section 1.1 of this Annex C if a Termination Event described in Section 9.1(b) of the Agreement or due to a breach of Section 4.1(hh) of the Agreement shall then exist; and provided, further, that no such assignment shall take place pursuant to this Section 1.1 of Annex C at a time when an Insolvency Event with respect to the YC SUSI Conduit Lender exists. No further documentation or action on the part of the YC SUSI Conduit Lender or the Borrower shall be required to exercise the rights set forth in the immediately preceding sentence, other than the giving of the notice by the YC SUSI Lender Agent on behalf of the YC SUSI Conduit Lender referred to in such sentence and the delivery by the YC SUSI Lender Agent of a copy of such notice to each YC SUSI Institutional Lender (the date of the receipt of any such notice being the “YC SUSI Assignment Date”). Each YC SUSI Institutional Lender hereby agrees, unconditionally and irrevocably and under all circumstances, without setoff, counterclaim or defense of any kind, to pay the full amount of its YC SUSI Assignment Amount on such YC SUSI Assignment Date to the YC SUSI Conduit Lender in immediately available funds to an account designated by the YC SUSI Lender Agent. Upon payment of its YC SUSI Assignment Amount, each YC SUSI Institutional Lender shall acquire an interest in the YC SUSI Structured Note and Advances outstanding of the YC SUSI Conduit Lender equal to its pro rata share (based on the outstanding portions of the Advances outstanding funded by it) of the YC SUSI Institutional Lender Percentage thereof. Upon any assignment in whole by the YC SUSI Conduit Lender to the YC SUSI Institutional Lenders on or after the YC SUSI Conduit Investment Termination Date as contemplated hereunder, the YC SUSI Conduit Lender shall cease to make any additional Advances under this Agreement. At all times prior to the YC SUSI Conduit Investment Termination Date, nothing herein shall prevent the YC SUSI Conduit Lender from making subsequent Advances under this Agreement, in its sole discretion, following any assignment pursuant to this Section 1.1 of this Annex C or from making more than one assignment pursuant to this Section 1.1 of this Annex C.

(b) Borrower’s Obligation to Pay Certain Amounts; Additional YC SUSI Assignment Amount. The Borrower shall pay to the YC SUSI Lender Agent, for the account of the YC SUSI Conduit Lender, in connection with any assignment by the YC SUSI Conduit Lender to the YC

SUSI Institutional Lenders pursuant to this Section 1.1 of this Annex C, on the Payment Date following the effective date of any such assignment, in accordance with Section 2.9 or Section 2.10 of the Agreement, as applicable, an aggregate amount equal to all Interest to accrue from the date of such assignment through the end of the current Accrual Period to the extent attributable to the portion of the Advances outstanding so assigned to the YC SUSI Institutional Lenders (as determined immediately prior to giving effect to such assignment and without duplication of any Interest payable to the YC SUSI Conduit Lender in respect of such Advances), plus all other Obligations (other than the Advances outstanding and other than any Interest not described above, without duplication of any amounts payable to the YC SUSI Conduit Lender in respect of such Obligations). If the Borrower fails to make payment of such amounts on the Payment Date following any such assignment by the YC SUSI Conduit Lender to the YC SUSI Institutional Lenders, such amount shall be paid by the YC SUSI Institutional Lenders (in accordance with their respective YC SUSI Institutional Lender’s Special Pro Rata Shares) to the YC SUSI Conduit Lender as additional consideration for the interests assigned to the YC SUSI Institutional Lenders and the amount of the Advances outstanding under the YC SUSI Structured Note held by the YC SUSI Institutional Lenders shall be increased by an amount equal to the additional amount so paid by the YC SUSI Institutional Lenders.

(c) Administration of Agreement after Assignment from YC SUSI Conduit Lender to YC SUSI Institutional Lenders following the YC SUSI Conduit Investment Termination Date. After any assignment in whole by the YC SUSI Conduit Lender to the YC SUSI Institutional Lenders pursuant to this Section 1.1 of this Annex C at any time on or after the YC SUSI Conduit Investment Termination Date (and the payment of all amounts owing to the YC SUSI Conduit Lender in connection therewith), all rights of the YC SUSI Lender Agent for the YC SUSI Conduit Lender set forth in this Annex C and the Agreement shall be given to the Lender Agent on behalf of the YC SUSI Institutional Lenders.

(d) Payments to Agent’s Account. After any assignment in whole by the YC SUSI Conduit Lender to the YC SUSI Institutional Lenders pursuant to this Section 1.1 of this Annex C at any time on or after the YC SUSI Conduit Investment Termination Date, all payments to be made under this Annex C and the Agreement by the Borrower or the Servicer to the YC SUSI Conduit Lender shall be made to the Lender Agent’s account for the YC SUSI Institutional Lenders as such account shall have been notified to the Borrower and the Servicer.

(e) Recovery of Advances. In the event that the aggregate of the YC SUSI Assignment Amounts paid by the YC SUSI Institutional Lenders pursuant to this Section 1.1 of this Annex C on any YC SUSI Assignment Date occurring on or after the YC SUSI Conduit Investment Termination Date is less than the aggregate Advances outstanding of the YC SUSI Conduit Lender on such YC SUSI Assignment Date, then to the extent Collections thereafter received by the Lender Agent for the YC SUSI Institutional Lenders hereunder in respect of the Advances outstanding exceed the aggregate of the unrecovered YC SUSI Assignment Amounts and Advances outstanding funded by the YC SUSI Institutional Lenders, such excess shall be remitted by the Lender Agent for the YC SUSI Institutional Lenders to the YC SUSI Conduit Lender (or to the YC SUSI Lender Agent on its behalf) for the account of the YC SUSI Conduit Lender.

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Section 1.2. Downgrade of YC SUSI Institutional Lenders.

(a) Downgrades Generally. If at any time on or prior to the Commitment Termination Date, the short term debt rating of any YC SUSI Institutional Lender shall be “A-2” or “P-2” with negative credit implications from S&P or Moody’s, respectively, such YC SUSI Institutional Lender, upon request of the YC SUSI Lender Agent, shall, within thirty (30) days of such request and with ten (10) Business Days’ prior notice to (but not consent of) the Borrower, assign its rights and obligations hereunder to another financial institution (which institution’s short term debt shall be rated at least “A-2” or “P-2” from S&P or Moody’s, respectively, and which shall not be so rated with negative credit implications and is acceptable to the YC SUSI Conduit Lender and the YC SUSI Lender Agent). If the short term debt rating of a YC SUSI Institutional Lender shall be “A-3” or “P-3”, or lower, from S&P or Moody’s, respectively (or such rating shall have been withdrawn by S&P or Moody’s), such YC SUSI Institutional Lender, upon request of the YC SUSI Lender Agent, shall, within five (5) Business Days of such request, assign its rights and obligations hereunder to another financial institution (which institution’s short term debt shall be rated at least “A-2” or “P-2”, from S&P or Moody’s, respectively, and which shall not be so rated with negative credit implications and which is acceptable to the YC SUSI Conduit Lender and the YC SUSI Lender Agent). In either such case, if any such YC SUSI Institutional Lender shall not have assigned its rights and obligations under this Agreement within the applicable time period described above (in either such case, the “YC SUSI Required Downgrade Assignment Period”), the YC SUSI Lender Agent shall have the right to require such YC SUSI Institutional Lender to pay upon one (1) Business Day’s notice at any time after the YC SUSI Required Downgrade Assignment Period (and each such YC SUSI Institutional Lender hereby agrees in such event to pay within such time) to the YC SUSI Lender Agent an amount equal to such YC SUSI Institutional Lender’s unused Commitment (a “YC SUSI Downgrade Draw”) for deposit by the YC SUSI Lender Agent into an account, in the name of the YC SUSI Lender Agent (a “YC SUSI Downgrade Collateral Account”), which shall be in satisfaction of such YC SUSI Institutional Lender’s obligations to make Advances and to pay its YC SUSI Assignment Amount upon an assignment from the YC SUSI Conduit Lender in accordance with Section 1.1 of this Annex C; provided, however, that if, during the YC SUSI Required Downgrade Assignment Period, such YC SUSI Institutional Lender delivers a written notice to the YC SUSI Lender Agent of its intent to deliver a direct pay irrevocable letter of credit pursuant to this proviso in lieu of the payment required to fund the YC SUSI Downgrade Draw, then such YC SUSI Institutional Lender will not be required to fund such YC SUSI Downgrade Draw. If any YC SUSI Institutional Lender gives the YC SUSI Lender Agent such notice, then such YC SUSI Institutional Lender shall, within one (1) Business Day after the YC SUSI Required Downgrade Assignment Period, deliver to the YC SUSI Lender Agent a direct pay irrevocable letter of credit in favor of the YC SUSI Lender Agent in an amount equal to the unused portion of such YC SUSI Institutional Lender’s Commitment, which letter of credit shall be issued through an United States office of a bank or other financial institution (i) whose short-term debt ratings by S&P and Moody’s are at least equal to the ratings assigned by such statistical rating organization to the Commercial Paper Notes issued by the commercial paper conduit providing funding for Advances by YC SUSI Trust under the Agreement and (ii) that is acceptable to the YC SUSI Conduit Lender and the YC SUSI Lender Agent. Such letter of credit shall provide that the YC SUSI Lender Agent may draw thereon for payment of any Advance or YC SUSI Assignment Amount payable by such YC SUSI Institutional Lender which is not paid hereunder when required, shall expire no earlier than the Commitment Termination Date and shall otherwise be in form and substance acceptable to the YC SUSI Lender Agent.

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(b) Application of Funds in YC SUSI Downgrade Collateral Account. If any YC SUSI Institutional Lender shall be required pursuant to Section 1.2(a) of this Annex C to fund a YC SUSI Downgrade Draw, then the YC SUSI Lender Agent shall apply the monies in the YC SUSI Downgrade Collateral Account applicable to such YC SUSI Institutional Lender’s Special Pro Rata Share of Advances required to be made by the YC SUSI Institutional Lenders, to any YC SUSI Assignment Amount payable by such YC SUSI Institutional Lender pursuant to Section 1.1 of this Annex C and to any purchase price payable by such YC SUSI Institutional Lender pursuant to Section 1.3(b) of this Annex C at the times, in the manner and subject to the conditions precedent set forth in this Annex C. The deposit of monies in such YC SUSI Downgrade Collateral Account by any YC SUSI Institutional Lender shall not constitute an Advance or the payment of any YC SUSI Assignment Amount (and such YC SUSI Institutional Lender shall not be entitled to interest on such monies except as provided below in this Section 1.2(b) of this Annex C, unless and until (and then only to the extent that) such monies are used to fund Advances or to pay any YC SUSI Assignment Amount or purchase price pursuant to Section 1.3(b) of this Annex C pursuant to the first sentence of this Section 1.2(b) of this Annex C. The amount on deposit in such YC SUSI Downgrade Collateral Account shall be invested by the YC SUSI Lender Agent in YC SUSI Eligible Investments and such YC SUSI Eligible Investments shall be selected by the YC SUSI Lender Agent in its sole discretion. The YC SUSI Lender Agent shall remit to such YC SUSI Institutional Lender, on the last Business Day of each month, the income actually received thereon. Unless required to be released as provided below in this subsection, Collections received by the YC SUSI Lender Agent in respect of such YC SUSI Institutional Lender’s portion of the Advances shall be deposited in the YC SUSI Downgrade Collateral Account for such YC SUSI Institutional Lender. Amounts on deposit in such YC SUSI Downgrade Collateral Account shall be released to such YC SUSI Institutional Lender (or the stated amount of the letter of credit delivered by such YC SUSI Institutional Lender pursuant to Section 1.2(a) of this Annex C may be reduced) within one Business Day after each Payment Date following the Termination Date to the extent that, after giving effect to the distributions made and received by the Lenders on such Payment Date, the amount on deposit in such YC SUSI Downgrade Collateral Account would exceed such YC SUSI Institutional Lender’s Special Pro Rata Share (determined as of the day prior to the Termination Date) of the sum of all portions of Advances then funded by the YC SUSI Conduit Lender, plus Interest thereon. All amounts remaining in such YC SUSI Downgrade Collateral Account shall be released to such YC SUSI Institutional Lender no later than the Business Day immediately following the earliest of (i) the effective date of any replacement of such YC SUSI Institutional Lender or removal of such YC SUSI Institutional Lender as a party to this Agreement, (ii) the date on which such YC SUSI Institutional Lender shall furnish the YC SUSI Lender Agent with confirmation that such YC SUSI Institutional Lender shall have short-term debt ratings of at least “A-2” or “P-2” from S&P and Moody’s, respectively, without negative credit implications, and (iii) the Commitment Termination Date (or if earlier, the Commitment Termination Date in effect prior to any renewal pursuant to Section 1.3 of this Annex C to which such YC SUSI Institutional Lender does not consent but only after giving effect to any required purchase pursuant to Section 1.3(b) of this Annex C). Nothing in this Section 1.2 of this Annex C shall affect or diminish in any way any such downgraded YC SUSI Institutional Lender’s Commitment to the Borrower or the YC SUSI Conduit Lender or such downgraded YC SUSI Institutional Lender’s other obligations and liabilities hereunder and under the other Transaction Documents.

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(c) Program Support Agreement Downgrade Provisions. Notwithstanding the other provisions of this Section 1.2, a YC SUSI Institutional Lender shall not be required to make a YC SUSI Downgrade Draw (or provide for the issuance of a letter of credit in lieu thereof) pursuant to Section 1.2(a) of this Annex C at a time when such YC SUSI Institutional Lender has a downgrade collateral account (or letter of credit in lieu thereof) established pursuant to the Liquidity Purchase Agreement relating to the transactions contemplated by this Agreement to which it is a party in an amount at least equal to its unused Commitment, and the YC SUSI Lender Agent may apply monies in such downgrade collateral account in the manner described in Section 1.3(b) of this Annex C as if such downgrade collateral account were a YC SUSI Downgrade Collateral Account.

Section 1.3. Non-Renewing YC SUSI Institutional Lenders.

(a) If at any time the Borrower requests that the YC SUSI Institutional Lenders renew their Commitments hereunder and some but less than all the YC SUSI Institutional Lenders consent to such renewal within 30 days of the Borrower’s request, the Borrower may arrange for an assignment to one or more financial institutions of all the rights and obligations hereunder of each such non-consenting YC SUSI Institutional Lender in accordance with Section 12.17 of the Agreement. Any such assignment shall become effective on the then-current Commitment Termination Date. Each YC SUSI Institutional Lender which does not so consent to any renewal shall cooperate fully with the Borrower in effectuating any such assignment.

(b) If at any time the Borrower requests that the YC SUSI Institutional Lenders extend the Commitment Termination Date hereunder and some but less than all the YC SUSI Institutional Lenders consent to such extension within 30 days after the Borrower’s request, and if none or less than all the Commitments of the non-renewing YC SUSI Institutional Lenders are assigned as provided in Section 1.3(a) of this Annex C, then (without limiting the obligations of all the YC SUSI Institutional Lenders to make Advances and pay any YC SUSI Assignment Amount prior to the Commitment Termination Date in accordance with the terms hereof) the YC SUSI Conduit Lender may sell to the non-renewing YC SUSI Institutional Lenders an interest in its Advances and the YC SUSI Structured Note hereunder for an aggregate purchase price equal to the lesser of (i) the maximum aggregate YC SUSI Assignment Amounts which would be payable if the YC SUSI Conduit Lender assigned its entire interest in the YC SUSI Structured Note at that time under Section 1.1 of this Annex C, and (ii) the aggregate available Commitments of the non-renewing YC SUSI Institutional Lenders, which purchase price shall be paid solely by the non-renewing YC SUSI Institutional Lenders, pro rata according to their respective Commitments. Following the payment of such purchase price, (i) the extended Commitment Termination Date shall be effective with respect to the renewing YC SUSI Institutional Lenders, (ii) the Facility Amount shall automatically be reduced by the aggregate of the Commitments of all non-renewing YC SUSI Institutional Lenders, and (iii) this Agreement and the Commitments of the renewing YC SUSI Institutional Lenders shall remain in effect in accordance with their terms notwithstanding the expiration of the Commitments of the non-renewing YC SUSI Institutional Lenders. Prior to the Termination Date, all amounts which, under the Agreement are to be applied in reduction of the Advances under the YC SUSI

C-5

Structured Note, up to the aggregate Advances sold to the non-renewing YC SUSI Institutional Lenders as described above in this subsection, shall be distributed to the non-renewing YC SUSI Institutional Lenders ratably according to the aggregate investments held by them, in reduction of such investments. On and after the Termination Date, each non-renewing YC SUSI Institutional Lender shall be entitled to receive distributions as otherwise provided in the Agreement, such that all distributions of Collections pursuant to the Agreement thereafter shall be allocated among the non-renewing YC SUSI Institutional Lenders and the other YC SUSI Institutional Lenders in accordance with each such YC SUSI Institutional Lender’s pro rata share (based on its Advances as of the Termination Date) of the YC SUSI Institutional Lender Percentage of the Advances. When (after the expiration of the Commitments of the non-renewing YC SUSI Institutional Lenders) the aggregate of the Advances under the YC SUSI Structured Note described above in this subsection shall have been reduced to zero and all accrued Interest allocable thereto and all other Obligations owing to such YC SUSI Institutional Lenders shall have been paid to such YC SUSI Institutional Lenders in full, then such Lender shall cease to be parties to this Agreement for any purpose

Section 1.4. YC SUSI Institutional Lender’s Commitment.

At no time will the YC SUSI Conduit Lender have any obligation to fund any Advance. At all times on and after the YC SUSI Conduit Investment Termination Date, all Advances shall be made by the Lender Agent on behalf of the YC SUSI Institutional Lenders. At any time when the YC SUSI Conduit Lender has rejected a request for an Advance, the YC SUSI Lender Agent shall so notify the YC SUSI Institutional Lenders and the YC SUSI Institutional Lenders shall make such Advance, on a pro rata basis, in accordance with their respective YC SUSI Institutional Lender’s Special Pro Rata Share. Notwithstanding anything contained elsewhere in the Agreement to the contrary, no YC SUSI Institutional Lender shall be obligated to provide the Deal Agent or the Borrower with funds in connection with an Advance in an amount that would result in the portion of the Advances then funded by it exceeding its Commitment then in effect (minus the unrecovered principal amount of such Institutional Investor’s investments in the YC SUSI Structured Note pursuant to the Liquidity Purchase Agreement to which it is a party). The obligation of each YC SUSI Institutional Lender to remit its YC SUSI Institutional Lender’s Special Pro Rata Share of any such Advance shall be several from that of each other YC SUSI Institutional Investor, and the failure of any YC SUSI Institutional Lender to so make such amount available to the Deal Agent shall not relieve any other YC SUSI Institutional Lender of its obligation hereunder.

For purposes of this Annex C, the following terms shall have the following meanings:

“YC SUSI Assignment Amount”: With respect to a YC SUSI Institutional Lender at the time of assignment pursuant to Section 1.1 of this Annex C, an amount equal to the least of (a) such YC SUSI Institutional Lender’s Special Pro Rata Share of the Advances requested by the YC SUSI Conduit Lender to be assigned at such time; (b) such YC SUSI Institutional Lender’s unused commitment (minus the unrecovered principal amount of such YC SUSI Institutional Lender’s investments in the YC SUSI Structured Note pursuant to the Liquidity Purchase Agreement to which it is a party); and (c) in the case of an assignment on or after the YC SUSI Conduit Investment Termination Date, the sum of the YC SUSI Institutional Lender’s Special Pro Rata Share of the YC SUSI Conduit Lender Percentage of (i) the Aggregate Outstanding

C-6

Loan Balance, plus (ii) all Collections received by the Servicer but not yet remitted by the Servicer to the applicable Lender Agent, plus (iii) any amounts in respect of Deemed Collections required to be paid by the Borrower at such time.

“YC SUSI Conduit Investment Termination Date”: The date of the delivery by the YC SUSI Conduit Lender to the Borrower of written notice that the YC SUSI Conduit Lender elects, in its sole discretion, to commence the amortization of the Advances outstanding funding by it or otherwise liquidate its interest in the YC SUSI Structured Note.

“YC SUSI Conduit Lender Percentage”: At any time, 100% less the YC SUSI Institutional Lender Percentage.

“YC SUSI Eligible Investments”: Highly rated short-term debt or other highly rated liquid investments in which the YC SUSI Conduit Lender is permitted to invest cash pursuant to its commercial paper program documents.

“YC SUSI Institutional Lender Percentage” At any time, a fraction, expressed as a percentage, the numerator of which is the portion of the Advances funded by the YC SUSI Institutional Lenders and the denominator of which is the Advances outstanding under the YC SUSI Structured Note at such time; provided that at all times on and after the first YC SUSI Assignment Date occurring on or after the YC SUSI Conduit Investment Termination Date, the YC SUSI Institutional Lender Percentage means 100%.

“YC SUSI Institutional Lenders”: Bank of America and any other financial institution that becomes a party to the Agreement as an Institutional Lender related to the YC SUSI Trust and YC SUSI Conduit Lender in accordance with Section 2.1(e) of the Agreement.

“YC SUSI Lender Agent”: Bank of America, in its capacity as Lender Agent for YC SUSI Trust, and any successor thereto appointed pursuant to the terms of the Agreement.

“YC SUSI Institutional Lender’s Special Pro Rata Share”: For a YC SUSI Institutional Lender, the Commitment of such YC SUSI Institutional Lender, divided by the sum of the Commitments of all YC SUSI Institutional Lenders (or, if the Commitments shall have been terminated, its pro rata share of the YC SUSI Institutional Lender Percentage of the Advances outstanding under the Structured Note of the YC SUSI Institutional Lenders.

“YC SUSI Structured Note”: The Structured Note issued by the Borrower to the YC SUSI Conduit Lender, as amended or assigned pursuant to the terms of the Agreement.]

C-7

Annex D

Collection Account Information

1. U.S. Dollar Collection Account

Wells Fargo Bank, National Association

Account Number 13517801

2. Euro Collection Account

Wells Fargo Bank, National Association, Cayman Islands Branch

Account Number 666540EUR

3. English Pounds Sterling Collection Account

Wells Fargo Bank, National Association, Cayman Islands Branch

Account Number 666540GBP

4. Canadian Dollar Collection Account

Wells Fargo Bank, National Association, Cayman Islands Branch

Account Number 666540CAD

D-1

Annex E

Deal Agent’s Accounts

For Amounts in US Dollars

Wachovia Bank, National Association

ABA: 053000219

Account Name: ACS Funding Trust I

Account Number: 5000000110005

For Amounts in Sterling

Royal Bank of Scotland, London

RBS SC:16-00-34

Direct SC:16-56-71

Account Number: 12251333

For Amounts in Euro

Lloyds Bank, London

SWIFT: LOYDGB2LXXX

Account Number: 59023107

For Amounts in Canadian Dollars

The Toronto-Dominion Bank, Toronto

SWIFT: TDOMCATTXXX

Account Number: 0360-01-2027713

D-1

EXHIBITS AND SCHEDULES TO THIRD AMENDED AND

RESTATED LOAN FUNDING AND SERVICING AGREEMENT

Dated as of September 23, 2005

EXHIBIT A-1	Borrower Notice (Funding Request)
EXHIBIT A-2-a	Borrower Notice (Swingline Funding Request)
EXHIBIT A-2-b	Borrower Notice (Alternative Currency Swingline Funding Request)
EXHIBIT A-3	Borrower Notice (Reduction of Advances Outstanding and Reduction of
	Facility Amount)
EXHIBIT B-1-a	Form of Structured Note (Dollars)
EXHIBIT B-1-b	Form of Structured Note (Alternative Currency)
EXHIBIT B-2	Form of Swingline Note
EXHIBIT B-3	Form of Alternative Currency Swingline Note
EXHIBIT C	Form of Amended and Restated Trust Agreement
EXHIBIT D	Form of Assignment and Acceptance
EXHIBIT E	Form of Monthly Report
EXHIBIT F	Form of Servicer’s Certificate
EXHIBIT G	Credit and Collection Policy
EXHIBIT H-1	Form of Hedging Agreement (Wachovia) (including Schedule)
EXHIBIT H-2	Form of Hedging Agreement (JPMorgan Chase) (including Schedule)
EXHIBIT I	Form of Certificate of Borrower’s Counsel
EXHIBIT J	Form of Trust Receipt and Initial Certification
EXHIBIT K	Form of Trust Receipt and Final Certification
EXHIBIT L	Form of Request for Release of Loan Documents and Receipt
EXHIBIT M	[Reserved]
EXHIBIT N	Form of Reinvestment Certification
EXHIBIT O-1	Officer’s Certificate as to Solvency from Originator
EXHIBIT O-2	Officer’s Certificate as to Solvency from Borrower
EXHIBIT P-1	Officer’s Closing Certificate from Originator
EXHIBIT P-2	Officer’s Closing Certificate from Borrower
EXHIBIT Q-1	Power of Attorney from Servicer
EXHIBIT Q-2	Power of Attorney from Borrower
EXHIBIT R	Form of Notice and Request for Consent
EXHIBIT S	[Reserved]
EXHIBIT T	Form of Agent and Intercreditor Provisions for Agented Notes
EXHIBIT U	[Reserved]
EXHIBIT V	Form of Transferee Letter
EXHIBIT W	Form of Joinder Supplement
SCHEDULE I	Schedule of Documents
SCHEDULE II	[Reserved]
SCHEDULE III	[Reserved]
SCHEDULE IV	Loan List
SCHEDULE V	Location of Loan Files
SCHEDULE VI	Form of Loan Checklist
SCHEDULE VII	Vintage Date Reset Schedule

EXHIBIT A-1

FORM OF BORROWER NOTICE

(Funding Request)

[            ] [    ], [        ]

ACS FUNDING TRUST I

Wachovia Bank, National Association 201 South College Street NC0680/CP8 Charlotte, North Carolina 28288-0608 Attention: Syndication Agency Services Telecopier: (704) 383-0288 Telephone: (704) 715-1880 via e-mail: tonya.rhynemccullough@wachovia.com	Wells Fargo Bank, National Association, as Collateral Custodian Sixth Street and Marquette Avenue MAC N9311-161 Minneapolis, Minnesota 55479 Attention: Corporate Trust Services Asset-Backed Administration Telecopier: (612) 667-3539 Telephone: (612) 667-8058
Wachovia Capital Markets, LLC, as Deal Agent One Wachovia Center, Mail Code: NC0600 Charlotte, North Carolina 28288-0608 Attention: Raj Shah Telecopier: (704) 715-0067 via e-mail: scp.mmloans@wachovia.com

Re: Third Amended and Restated Loan Funding and Servicing Agreement dated as of September 23, 2005

Ladies and Gentlemen:

This Borrower Notice is delivered to you under Section 2.3 of that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and among ACS Funding Trust I, as the borrower (the “Borrower”), American Capital Strategies, Ltd., as originator, and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian. All capitalized undefined terms used herein have the meaning assigned thereto in the Agreement.

Each of the undersigned, each being a duly elected officer of the Borrower and the Servicer, respectively, holding the office set forth below such officer’s name, hereby certifies as follows:

1. The Borrower hereby requests an Advance in the principal amount of                      in                      [specify Currency] [If not Dollars, specify Dollar Equivalent].

(A) The VFCC/Wachovia portion of such Advance is                     .

(B) The JPMorgan Chase Bank portion of such Advance is                     .

(C) The Citigroup portion of such Advance is                     .

(D) The YC SUSI Trust/Bank of America portion of such Advance is                     .

(E) The Bryant Park/HSBC Bank USA portion of such Advance is                     .

(F) The Alpine Securitization/Credit Suisse, NY Branch portion of such Advance is                     .

2. Check one below:

¨ The proceeds of such Advance should be delivered to the Swingline Lender.

¨ The proceeds of such Advance should be delivered to the Alternative Swingline Lender.

¨ The proceeds of such Advance should be delivered to the Servicer.

¨                      of such Advance should be delivered to the Alternative Currency Swingline Lender and                      of such Advance should be delivered to the Servicer.

¨                      of such Advance should be delivered to the Alternative Currency Swingline Lender and                      of such Advance should be delivered to the Servicer.

3. The Borrower hereby requests that such Advance be made on the following date:                     .

4. The amount of Advances Outstanding as of the date specified in Item 3 above will be $                    , after giving effect to the Advance request hereby. The Dollar Equivalent of the amount of Advances Outstanding which are denominated in an Alternative Currency as of the date specified in Item 3 above will be $                    , after giving effect to the Advance requested hereby.

A-1-2

5. Attached to this Borrower Notice is a true, correct and complete calculation of the Borrowing Base and all components thereof as of the date specified in Item 3 above and after giving effect to the Advance requested hereby.

6. Attached to this Borrower Notice is a true, correct and complete Loan List, reflecting all Loans which will become part of the Collateral on the date hereof, each Loan reflected thereon being an Eligible Loan.

7. All of the conditions precedent applicable to the Advance requested herein as set forth in the Agreement have been satisfied as of the date hereof and will remain satisfied to the date of such Advance, including those set forth in Section 3.2 of the Agreement.

[The Remainder Of This Page Is Intentionally Left Blank]

A-1-3

IN WITNESS WHEREOF, the undersigned has executed the Borrower Notice this [        ] day of [                ], [            ].

ACS FUNDING TRUST I
as the Borrower
By:	American Capital Strategies, Ltd., as Servicer
By:
Name:
Title:
AMERICAN CAPITAL STRATEGIES, LTD.,
as the Servicer
By:
Name:
Title:

[attach Borrowing Base Certificate and Loan List]

EXHIBIT A-2-a

FORM OF BORROWER NOTICE

(Swingline Funding Request)

[            ] [    ], [            ]

ACS FUNDING TRUST I

Wachovia Bank, National Association 201 South College Street NC0680/CP8 Charlotte, North Carolina 28288-0608 Attention: Syndication Agency Services Telecopier: (704) 383-0288 Telephone: (704) 715-1880 via e-mail: tonya.rhynemccullough@wachovia.com	Wells Fargo Bank, National Association, as Collateral Custodian Sixth Street and Marquette Avenue MAC N9311-161 Minneapolis, Minnesota 55479 Attention: Corporate Trust Services Asset-Backed Administration Telecopier: (612) 667-3539 Telephone.: (612) 667-8058
Wachovia Capital Markets, LLC as Deal Agent One Wachovia Center, Mail Code: NC0600 Charlotte, North Carolina 28288-0608 Attention: Raj Shah Telecopier: (704) 715-0067 via e-mail: scp.mmloans@wachovia.com

Re: Third Amended and Restated Loan Funding and Servicing Agreement dated as of September 23, 2005

Ladies and Gentlemen:

This Swingline Funding Request is delivered to you under Section 2.2A of that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and among ACS Funding Trust I, as the borrower (the “Borrower”), American Capital Strategies, Ltd., as originator, and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian. All capitalized undefined terms used herein have the meaning assigned thereto in the Agreement.

Each of the undersigned, each being a duly elected officer of the Borrower and the Servicer, respectively, holding the office set forth below such officer’s name, hereby certifies as follows:

1. The Borrower hereby requests a Swingline Advance in the principal amount of $            .

2. The Borrower hereby requests that such Swingline Advance be made on the following date:             .

3. Attached to this Swingline Funding Request is a true, correct and complete calculation of the Borrowing Base and all components thereof as of the date specified in Item 2 above and after giving effect to the Swingline Advance requested hereby.

4. Attached to this Swingline Funding Request is a true, correct and complete Loan List, reflecting all Loans which will become part of the Collateral on the date hereof, each Loan reflected thereon being an Eligible Loan.

5. All of the conditions applicable to the Swingline Advance requested herein as set forth in the Agreement have been satisfied as of the date hereof and will remain satisfied to the date of such Swingline Advance, including those set forth in Section 3.2 of the Agreement.

[The Remainder Of This Page Is Intentionally Left Blank]

A-2-a-2

IN WITNESS WHEREOF, the undersigned has executed the Borrower Notice this [    ] day of [            ], [        ].

ACS FUNDING TRUST I as the Borrower
By:	American Capital Strategies, Ltd., as Servicer
By:
Name:
Title:
AMERICAN CAPITAL STRATEGIES, LTD., as the Servicer
By:
Name:
Title:

[attach Borrowing Base Certificate and Loan List]

EXHIBIT A-2-b

FORM OF BORROWER NOTICE

(Alternative Currency Swingline Funding Request)

[                    ] [    ], [            ]

ACS FUNDING TRUST I

Wachovia Bank, N.A., London Branch 1 Plantation Place 30 Fenchurch Street London EC3M 3BD Attention: Michelle Clark/Ian King Telecopier: 0207 956 4310 / 16 Telephone: 0207 929 4645 via e-mail: loanadmin.london@wachovia.com Wells Fargo Bank, National Association, as Collateral Custodian Sixth Street and Marquette Avenue MAC N9311-161 Minneapolis, Minnesota 55479 Attention: Corporate Trust Services Asset-Backed Administration Telecopier: (612) 667-3539 Telephone.: (612) 667-8058

Re: Third Amended and Restated Loan Funding and Servicing Agreement dated as of September 23, 2005

Ladies and Gentlemen:

This Alternative Currency Swingline Funding Request is delivered to you under Section 2.2B of that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and among ACS Funding Trust I, as the borrower (the “Borrower”), American Capital Strategies, Ltd., as originator, and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian. All capitalized undefined terms used herein have the meaning assigned thereto in the Agreement.

Each of the undersigned, each being a duly elected officer of the Borrower and the Servicer, respectively, holding the office set forth below such officer’s name, hereby certifies as follows:

1. The Borrower hereby requests an Alternative Currency Swingline Advance in the principal amount of                 [specify Currency and Dollar Equivalent].

2. The Borrower hereby requests that such Alternative Currency Swingline Advance be made on the following date:             .

3. Attached to this Alternative Currency Swingline Funding Request is a true, correct and complete calculation of the Borrowing Base and all components thereof as of the date specified in Item 2 above and after giving effect to the Alternative Currency Swingline Advance requested hereby.

4. Attached to this Alternative Currency Swingline Funding Request is a true, correct and complete Loan List, reflecting all Loans which will become part of the Collateral on the date hereof, each Loan reflected thereon being an Eligible Loan.

5. All of the conditions applicable to the Alternative Currency Swingline Advance requested herein as set forth in the Agreement have been satisfied as of the date hereof and will remain satisfied to the date of such Alternative Currency Swingline Advance, including those set forth in Section 3.2 of the Agreement.

[The Remainder Of This Page Is Intentionally Left Blank]

A-2-b-2

IN WITNESS WHEREOF, the undersigned has executed the Borrower Notice this [            ] day of [                    ], [            ].

ACS FUNDING TRUST I
as the Borrower
By:	American Capital Strategies, Ltd., as Servicer
By:
Name:
Title:
AMERICAN CAPITAL STRATEGIES, LTD.,
as the Servicer
By:
Name:
Title:

[attach Borrowing Base Certificate and Loan List]

EXHIBIT A-3

FORM OF BORROWER NOTICE

(Reduction of Advances Outstanding and Reduction of Facility Amount)

[            ] [    ], 20[    ]

ACS FUNDING TRUST I

Wachovia Bank, National Association 201 South College Street NC0680/CP8 Charlotte, North Carolina 28288-0608 Attention: Syndication Agency Services Telecopier: (704) 383-0288 Telephone: (704) 715-1880 via e-mail: tonya.rhynemccullough@wachovia.com	Wells Fargo Bank, National Association, as Collateral Custodian Sixth Street and Marquette Avenue MAC N9311-161 Minneapolis, Minnesota 55479 Attention: Corporate Trust Services Asset-Backed Administration Telecopier: (612) 667-3539 Telephone: (612) 667-8058
Wachovia Capital Markets, LLC, as Deal Agent One Wachovia Center, Mail Code: NC0600 Charlotte, North Carolina 28288-0608 Attention: Raj Shah Telecopier: (704) 715-0067 via e-mail: scp.mmloans@wachovia.com

Re: Third Amended and Restated Loan Funding and Servicing Agreement dated as of September 23, 2005

Ladies and Gentlemen:

This Borrower Notice is delivered to you under Section 2.4 of that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and among ACS Funding Trust I, as the borrower (the “Borrower”), American Capital Strategies, Ltd., as originator, and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian. All capitalized undefined terms used herein have the meaning assigned thereto in the Agreement.

Each of the undersigned, each being a duly elected officer of the Borrower and the Servicer, respectively, holding the office set forth below such officer’s name, hereby certifies as follows:

1. Pursuant to Section 2.4 of the Agreement, the Servicer on behalf of the Borrower desires to reduce the Advances Outstanding (an “Advance Reduction”) by the amount of             [specify Currency] [If not Dollars, specify Dollar Equivalent]. [The Borrower hereby instructs the Deal Agent to terminate the following Alternative Rate contracts:              specify Amount, Maturity Date and Currency of each contract].

(A) The VFCC/Wachovia portion (reduction is pro rata based on Advances Outstanding) of such Advance Reduction is             .

(B) The JPMorgan Chase Bank portion (reduction is pro rata based on Advances Outstanding) of such Advance Reduction is             .

(C) The Citigroup portion (reduction is pro rata based on Advances Outstanding) of such Advance Reduction is             .

(D) The YC SUSI Trust/Bank of America portion (reduction is pro rata based on Advances Outstanding) of such Advance Reduction is             .

(E) The Bryant Park/HSBC Bank USA portion (reduction is pro rata based on Advances Outstanding) of such Advance Reduction is             .

(F) The Alpine Securitization/Credit Suisse, NY Branch portion (reduction is pro rata based on Advances Outstanding) of such Advance Reduction is             .

2. Pursuant to Section 2.4 of the Agreement, the Servicer on behalf of the Borrower desires to reduce the Facility Amount (a “Facility Reduction”) by the amount of $            .

3. The Servicer on behalf of the Borrower hereby requests that such Advance Reduction or Facility Reduction, as applicable, be made on the following date:             .

4. The Advances Outstanding as of the date specified in Item 3 above will be $            , after giving effect to the reduction requested hereby. The Advances Outstanding in an Alternative Currency as of the date specified in Item 3 above will be $            , after giving effect to the reduction requested hereby.

5. Attached to this Borrower Notice is a true, correct and complete calculation of the Borrowing Base and all components thereof as of the date specified in Item 3 above and after giving effect to the reduction requested hereby.

6. All of the conditions precedent applicable to the Advance Reduction or Facility Reduction requested herein as set forth in the Agreement have been satisfied as of the date hereof and will remain satisfied to the date of such Advance Reduction or Facility Reduction, including those set forth in Section 2.4 of the Agreement.

[The Remainder Of This Page Is Intentionally Left Blank]

A-3-2

IN WITNESS WHEREOF, the undersigned has executed the Borrower Notice this [            ] day of [                    ], [            ].

ACS FUNDING TRUST I
as the Borrower
By:	American Capital Strategies, Ltd., as Servicer
By:
Name:
Title:
AMERICAN CAPITAL STRATEGIES, LTD.,
as the Servicer
By:
Name:
Title:

[attach Borrowing Base Certificate]

EXHIBIT B-1-a

FORM OF STRUCTURED NOTE (DOLLARS)

$[____],000,000 October [5], 2006

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”) TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A “QIB”), PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN CERTIFICATED FORM TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (WITHIN THE MEANING OF RULE 501 (a)(1)–(3) OR (7) UNDER THE SECURITIES ACT) PURCHASING FOR INVESTMENT AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, IN EACH CASE, SUBJECT TO THE RECEIPT BY THE SERVICER AND THE DEAL AGENT OF A TRANSFERREE LETTER AND SUCH OTHER EVIDENCE ACCEPTABLE TO THE SERVICER AND THE DEAL AGENT THAT SUCH REOFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS OR IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND SECURITIES AND BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTION, (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (4) PURSUANT TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (5) PURSUANT TO A VALID REGISTRATION STATEMENT. THE PURCHASE OF THIS NOTE WILL BE DEEMED A REPRESENTATION BY THE ACQUIRER THAT EITHER: (I) IT IS NOT, AND IS NOT PURCHASING THIS NOTE FOR, ON BEHALF OF OR WITH THE ASSETS OF, AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT WHICH IS SUBJECT TO TITLE I OF ERISA AND/OR SECTION 4975 OF THE CODE, OR A GOVERNMENTAL PLAN (AS DEFINED IN SECTION 3(32) OF ERISA) OR A CHURCH PLAN (AS DEFINED IN SECTION 3(33) OF ERISA FOR WHICH NO ELECTION HAS BEEN MADE UNDER SECTION 410(d) OF THE CODE) THAT IS SUBJECT TO ANY FEDERAL, STATE, OR LOCAL LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF

SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR (II) PTCE 95–60, PTCE 96–23, PTCE 91–38, PTCE 90–1, PTCE 84–14 OR SOME OTHER PROHIBITED TRANSACTION EXEMPTION IS APPLICABLE TO THE PURCHASE, HOLDING AND DISPOSITION OF THIS NOTE BY THE ACQUIRER.

THIS NOTE IS NOT PERMITTED TO BE TRANSFERRED, ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE THIRD AMENDED AND RESTATED LOAN FUNDING AND SERVICING AGREEMENT REFERRED TO HEREIN.

THE PRINCIPAL AMOUNT OF THIS NOTE WILL VARY AS ADVANCES ARE MADE AND PAID DOWN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE MAXIMUM AMOUNT SHOWN ON THE FACE THEREOF.

FOR VALUE RECEIVED, ACS FUNDING TRUST I, a Delaware statutory trust (the “Borrower”), promises to pay to [[NAME OF LENDER AGENT] (“Lender Agent”), as the agent for [NAME OF CONDUIT LENDER] (“Conduit Lender”) or Conduit Lender’s successors or assigns]] [NAME OF INSTITUTIONAL LENDER], the principal sum of [CLOSING DATE COMMITMENT AMOUNT] DOLLARS ($[            ],000,000) or, if less, the unpaid principal amount of the aggregate loans (“Advances”) made by [Conduit Lender] [Institutional Lender] to the Borrower pursuant to the Third Amended and Restated Loan Funding and Servicing Agreement (as defined below), as set forth on the attached Schedule, on the dates specified in the Third Amended and Restated Loan Funding and Servicing Agreement, and to pay interest on the unpaid principal amount of each Advance on each day that such unpaid principal amount is outstanding at the applicable Interest Rate related to such Advance as provided in the Third Amended and Restated Loan Funding and Servicing Agreement on each Payment Date.

This Note is issued pursuant to the Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Third Amended and Restated Loan Funding and Servicing Agreement”), by and among the Borrower, American Capital Strategies, Ltd., as originator and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian. Capitalized terms used but not defined in this Note are used with the meanings ascribed to them in the Third Amended and Restated Loan Funding and Servicing Agreement.

Notwithstanding any other provisions contained in this Note, if at any time the rate of interest payable by the Borrower under this Note, when combined with any and all other charges provided for in this Note, in the Third Amended and Restated Loan Funding and Servicing Agreement or in any other document (to the extent such other charges would constitute interest for the purpose of any applicable law limiting interest that may be charged on this Note), exceeds the highest rate of interest permissible under applicable law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would be exceeded the rate of interest under this Note shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable

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under this Note is less than the Maximum Lawful Rate, the Borrower shall continue to pay interest under this Note at the Maximum Lawful Rate until such time as the total interest paid by the Borrower is equal to the total interest that would have been paid had applicable law not limited the interest rate payable under this Note. In no event shall the total interest received by [Conduit Lender] [Institutional Lender] under this Note exceed the amount which [Conduit Lender] [Institutional Lender] could lawfully have received had the interest due under this Note been calculated since the date of this Note at the Maximum Lawful Rate.

Payments of the principal of, and interest on, Advances represented by this Note shall be made by the Borrower to the holder hereof by wire transfer of immediately available funds in the manner and at the address specified for such purpose as provided in Article 2 of the Third Amended and Restated Loan Funding and Servicing Agreement, or in such manner or at such other address as the holder of this Note shall have specified in writing to the Borrower for such purpose, without the presentation or surrender of this Note or the making of any notation on this Note.

If any payment under this Note falls due on a day that is not a Business Day, then such due date shall be extended to the next succeeding Business Day (except as provided in the Third Amended and Restated Loan Funding and Servicing Agreement) and interest shall be payable on any principal so extended at the applicable Interest Rate.

If all or a portion of (i) the principal amount hereof or (ii) any interest payable thereon or (iii) any other amounts payable hereunder shall not be paid when due (whether at maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum that is equal to the Base Rate plus 2.0%, in each case from the date of such non-payment to (but excluding) the date such amount is paid in full.

Portions or all of the principal amount of the Note shall become due and payable at the time or times set forth in the Third Amended and Restated Loan Funding and Servicing Agreement. Any portion or all of the principal amount of this Note may be prepaid, together with interest thereon (and as set forth in the Third Amended and Restated Loan Funding and Servicing Agreement, certain costs and expenses of [Conduit Lender] [Institutional Lender]) at the time and in the manner set forth in, but subject to the provisions of, the Third Amended and Restated Loan Funding and Servicing Agreement.

Except as provided in the Third Amended and Restated Loan Funding and Servicing Agreement, the Borrower expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note.

All amounts evidenced by this Note, [Conduit Lender]’s [Institutional Lender]’s making such Advance and all payments and prepayments of the principal hereof and the respective dates and maturity dates thereof shall be endorsed by the [Lender Agent] [Institutional Lender] on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by the [Lender Agent] [Institutional Lender] in its internal records; provided, however, that the failure of the [Lender Agent] [Institutional Lender] to make such a notation shall not in any way limit or otherwise affect the obligations of the Borrower under this Note as provided in the Third Amended and Restated Loan Funding and Servicing Agreement.

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The holder hereof may sell, assign, transfer, negotiate, grant participations in or otherwise dispose of all or any portion of any Advances made by [Conduit Lender] [Institutional Lender] and represented by this Note and the indebtedness evidenced by this Note.

This Note is secured by the security interests granted pursuant to Section 8.1 of the Third Amended and Restated Loan Funding and Servicing Agreement. The holder of this Note[, as agent for [Conduit Lender],] is entitled to the benefits of the Third Amended and Restated Loan Funding and Servicing Agreement and may enforce the agreements of the Borrower contained in the Third Amended and Restated Loan Funding and Servicing Agreement and exercise the remedies provided for by, or otherwise available in respect of, the Third Amended and Restated Loan Funding and Servicing Agreement, all in accordance with, and subject to the restrictions contained in, the terms of the Third Amended and Restated Loan Funding and Servicing Agreement. If a Termination Event shall occur and be continuing, the unpaid balance of the principal of all Advances, together with accrued interest thereon, shall be declared, and become due and payable in the manner and with the effect provided in the Third Amended and Restated Loan Funding and Servicing Agreement.

This Note is one of the “Structured Notes” referred to in the Third Amended and Restated Loan Funding and Servicing Agreement. This Note shall be construed in accordance with and governed by the laws of the State of New York.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the undersigned has executed this Note as on the date first written above.

ACS FUNDING TRUST I, as the Borrower
By:
Name:
Title:	Beneficiary Trustee

SCHEDULE TO NOTE

Date of Advance or Repayment Principal Amount of Advance Principal Amount of Repayment Outstanding Principal Amount

EXHIBIT B-1-b

FORM OF STRUCTURED NOTE (ALTERNATIVE CURRENCY)

$[        ],000,000 October [5], 2006

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”) TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A “QIB”), PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN CERTIFICATED FORM TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (WITHIN THE MEANING OF RULE 501 (a)(1)–(3) OR (7) UNDER THE SECURITIES ACT) PURCHASING FOR INVESTMENT AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, IN EACH CASE, SUBJECT TO THE RECEIPT BY THE SERVICER AND THE DEAL AGENT OF A TRANSFERREE LETTER AND SUCH OTHER EVIDENCE ACCEPTABLE TO THE SERVICER AND THE DEAL AGENT THAT SUCH REOFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS OR IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND SECURITIES AND BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTION, (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (4) PURSUANT TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (5) PURSUANT TO A VALID REGISTRATION STATEMENT. THE PURCHASE OF THIS NOTE WILL BE DEEMED A REPRESENTATION BY THE ACQUIRER THAT EITHER: (I) IT IS NOT, AND IS NOT PURCHASING THIS NOTE FOR, ON BEHALF OF OR WITH THE ASSETS OF, AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT WHICH IS SUBJECT TO TITLE I OF ERISA AND/OR SECTION 4975 OF THE CODE, OR A GOVERNMENTAL PLAN (AS DEFINED IN SECTION 3(32) OF ERISA) OR A CHURCH PLAN (AS DEFINED IN SECTION 3(33) OF ERISA FOR WHICH NO ELECTION HAS BEEN MADE UNDER SECTION 410(d) OF THE CODE) THAT IS SUBJECT TO ANY FEDERAL, STATE, OR LOCAL LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF

SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR (II) PTCE 95–60, PTCE 96–23, PTCE 91–38, PTCE 90–1, PTCE 84–14 OR SOME OTHER PROHIBITED TRANSACTION EXEMPTION IS APPLICABLE TO THE PURCHASE, HOLDING AND DISPOSITION OF THIS NOTE BY THE ACQUIRER.

THIS NOTE IS NOT PERMITTED TO BE TRANSFERRED, ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE THIRD AMENDED AND RESTATED LOAN FUNDING AND SERVICING AGREEMENT REFERRED TO HEREIN.

THE PRINCIPAL AMOUNT OF THIS NOTE WILL VARY AS ADVANCES ARE MADE AND PAID DOWN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE MAXIMUM AMOUNT SHOWN ON THE FACE THEREOF.

FOR VALUE RECEIVED, ACS FUNDING TRUST I, a Delaware statutory trust (the “Borrower”), promises to pay to [[NAME OF LENDER AGENT] (“Lender Agent”), as the agent for [NAME OF CONDUIT LENDER] (“Conduit Lender”) or Conduit Lender’s successors or assigns]] [NAME OF INSTITUTIONAL LENDER] (“Institutional Lender”), the principal sum of [CLOSING DATE COMMITMENT AMOUNT] DOLLARS ($[            ],000,000) or, if less, the unpaid principal amount of the aggregate loans (“Advances”) in Alternative Currencies made by [Conduit Lender][Institutional Lender] to the Borrower pursuant to the Third Amended and Restated Loan Funding and Servicing Agreement (as defined below), as set forth on the attached Schedule, on the dates specified in the Third Amended and Restated Loan Funding and Servicing Agreement, and to pay interest on the unpaid principal amount of each Advance on each day that such unpaid principal amount is outstanding at the applicable Interest Rate related to such Advance as provided in the Third Amended and Restated Loan Funding and Servicing Agreement on each Payment Date.

This Note is issued pursuant to the Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Third Amended and Restated Loan Funding and Servicing Agreement”), by and among the Borrower, American Capital Strategies, Ltd., as originator and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian. Capitalized terms used but not defined in this Note are used with the meanings ascribed to them in the Third Amended and Restated Loan Funding and Servicing Agreement.

Notwithstanding any other provisions contained in this Note, if at any time the rate of interest payable by the Borrower under this Note, when combined with any and all other charges provided for in this Note, in the Third Amended and Restated Loan Funding and Servicing Agreement or in any other document (to the extent such other charges would constitute interest for the purpose of any applicable law limiting interest that may be charged on this Note), exceeds the highest rate of interest permissible under applicable law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would be exceeded the rate of interest under this Note

B-1-2

shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Note is less than the Maximum Lawful Rate, the Borrower shall continue to pay interest under this Note at the Maximum Lawful Rate until such time as the total interest paid by the Borrower is equal to the total interest that would have been paid had applicable law not limited the interest rate payable under this Note. In no event shall the total interest received by [Conduit Lender][Institutional Lender] under this Note exceed the amount which [Conduit Lender][Institutional Lender] could lawfully have received had the interest due under this Note been calculated since the date of this Note at the Maximum Lawful Rate.

Payments of the principal of, and interest on, Advances represented by this Note shall be made by the Borrower to the holder hereof by wire transfer of immediately available funds in the manner and at the address specified for such purpose as provided in Article 2 of the Third Amended and Restated Loan Funding and Servicing Agreement, or in such manner or at such other address as the holder of this Note shall have specified in writing to the Borrower for such purpose, without the presentation or surrender of this Note or the making of any notation on this Note.

If any payment under this Note falls due on a day that is not a Business Day , then such due date shall be extended to the next succeeding Business Day (except as provided in the Third Amended and Restated Loan Funding and Servicing Agreement) and interest shall be payable on any principal so extended at the applicable Interest Rate.

If all or a portion of (i) the principal amount hereof or (ii) any interest payable thereon or (iii) any other amounts payable hereunder shall not be paid when due (whether at maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum that is equal to the Base Rate plus 2.0%, in each case from the date of such non-payment to (but excluding) the date such amount is paid in full.

Portions or all of the principal amount of the Note shall become due and payable at the time or times set forth in the Third Amended and Restated Loan Funding and Servicing Agreement. Any portion or all of the principal amount of this Note may be prepaid, together with interest thereon (and as set forth in the Third Amended and Restated Loan Funding and Servicing Agreement, certain costs and expenses of [Conduit Lender] [Institutional Lender]) at the time and in the manner set forth in, but subject to the provisions of, the Third Amended and Restated Loan Funding and Servicing Agreement.

Except as provided in the Third Amended and Restated Loan Funding and Servicing Agreement, the Borrower expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note.

All amounts evidenced by this Note, [Conduit Lender][Institutional Lender]’s making such Advance and all payments and prepayments of the principal hereof and the respective dates and maturity dates thereof shall be endorsed by the [Conduit Lender][Institutional Lender] on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by the [Conduit Lender][Institutional Lender] in its internal records; provided, however, that the failure of the [Conduit Lender][Institutional Lender] to make such a notation shall not in any way limit or otherwise affect the obligations of the Borrower under this Note as provided in the Third Amended and Restated Loan Funding and Servicing Agreement.

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The holder hereof may sell, assign, transfer, negotiate, grant participations in or otherwise dispose of all or any portion of any Advances made by [Conduit Lender] [Institutional Lender] and represented by this Note and the indebtedness evidenced by this Note.

This Note is secured by the security interests granted pursuant to Section 8.1 of the Third Amended and Restated Loan Funding and Servicing Agreement. The holder of this Note is entitled to the benefits of the Third Amended and Restated Loan Funding and Servicing Agreement and may enforce the agreements of the Borrower contained in the Third Amended and Restated Loan Funding and Servicing Agreement and exercise the remedies provided for by, or otherwise available in respect of, the Third Amended and Restated Loan Funding and Servicing Agreement, all in accordance with, and subject to the restrictions contained in, the terms of the Third Amended and Restated Loan Funding and Servicing Agreement. If a Termination Event shall occur and be continuing, the unpaid balance of the principal of all Advances, together with accrued interest thereon, shall be declared, and become due and payable in the manner and with the effect provided in the Third Amended and Restated Loan Funding and Servicing Agreement.

This Note is one of the “Structured Notes” referred to in the Third Amended and Restated Loan Funding and Servicing Agreement. This Note shall be construed in accordance with and governed by the laws of the State of New York.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the undersigned has executed this Note as on the date first written above.

ACS FUNDING TRUST I, as the Borrower
By:
Name:
Title:	Beneficiary Trustee

SCHEDULE TO NOTE

Date of Advance or Repayment Principal
Amount and
Currency of
Advance Dollar
Equivalent Principal
Amount of
Repayment Dollar
Equivalent Outstanding
Principal
Amount Dollar
Equivalent

EXHIBIT B-2

FORM OF SWINGLINE NOTE

$100,000,000 October [5], 2006

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”) TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A “QIB“), PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN CERTIFICATED FORM TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (WITHIN THE MEANING OF RULE 501 (a)(1)–(3) OR (7) UNDER THE SECURITIES ACT) PURCHASING FOR INVESTMENT AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, IN EACH CASE, SUBJECT TO THE RECEIPT BY THE SERVICER AND THE DEAL AGENT OF SUCH OTHER EVIDENCE ACCEPTABLE TO THE SERVICER AND THE DEAL AGENT THAT SUCH REOFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS OR IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND SECURITIES AND BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTION, (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (4) PURSUANT TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (5) PURSUANT TO A VALID REGISTRATION STATEMENT. THE PURCHASE OF THIS NOTE WILL BE DEEMED A REPRESENTATION BY THE ACQUIRER THAT EITHER: (I) IT IS NOT, AND IS NOT PURCHASING THIS NOTE FOR, ON BEHALF OF OR WITH THE ASSETS OF, AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT WHICH IS SUBJECT TO TITLE I OF ERISA AND/OR SECTION 4975 OF THE CODE, OR A GOVERNMENTAL PLAN (AS DEFINED IN SECTION 3(32) OF ERISA) OR A CHURCH PLAN (AS DEFINED IN SECTION 3(33) OF ERISA FOR WHICH NO ELECTION HAS BEEN MADE UNDER SECTION 410(d) OF THE CODE) THAT IS SUBJECT TO ANY FEDERAL, STATE, OR LOCAL LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR (II) PTCE 95–60, PTCE 96–23, PTCE 91–38, PTCE 90–1, PTCE 84–14 OR SOME OTHER PROHIBITED TRANSACTION EXEMPTION IS APPLICABLE TO THE PURCHASE, HOLDING AND DISPOSITION OF THIS NOTE BY THE ACQUIRER.

THIS NOTE IS NOT PERMITTED TO BE TRANSFERRED, ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE THIRD AMENDED AND RESTATED LOAN FUNDING AND SERVICING AGREEMENT REFERRED TO HEREIN.

THE PRINCIPAL AMOUNT OF THIS NOTE WILL VARY AS ADVANCES ARE MADE AND PAID DOWN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE MAXIMUM AMOUNT SHOWN ON THE FACE THEREOF.

FOR VALUE RECEIVED, ACS FUNDING TRUST I, a Delaware statutory trust (the “Borrower”), promises to pay to WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as the swingline lender (the “Swingline Lender”), or its successors and assigns, the principal sum of ONE HUNDRED MILLION DOLLARS ($100,000,000) or, if less, the unpaid principal amount of the aggregate swingline loans (“Swingline Advances”) made by the Swingline Lender to the Borrower pursuant to the Third Amended and Restated Loan Funding and Servicing Agreement (as defined below), as set forth on the attached Schedule, on the dates specified in Section 2.7 of the Third Amended and Restated Loan Funding and Servicing Agreement, and to pay interest on the unpaid principal amount of each Swingline Advance on each day that such unpaid principal amount is outstanding at the applicable Interest Rate related to such Swingline Advance as provided in the Third Amended and Restated Loan Funding and Servicing Agreement on each Payment Date.

This Note is issued pursuant to the Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Third Amended and Restated Loan Funding and Servicing Agreement”), by and among the Borrower, American Capital Strategies, Ltd., as originator and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian. Capitalized terms used but not defined in this Note are used with the meanings ascribed to them in the Third Amended and Restated Loan Funding and Servicing Agreement.

Notwithstanding any other provisions contained in this Note, if at any time the rate of interest payable by the Borrower under this Note, when combined with any and all other charges provided for in this Note, in the Third Amended and Restated Loan Funding and Servicing Agreement or in any other document (to the extent such other charges would constitute interest for the purpose of any applicable law limiting interest that may be charged on this Note), exceeds the highest rate of interest permissible under applicable law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would be exceeded the rate of interest under this Note shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Note is less than the Maximum Lawful Rate, the Borrower shall continue to pay interest under this Note at the Maximum Lawful Rate until such time as the total interest paid by the Borrower is equal to the total interest that would have been paid had applicable law not limited the interest rate payable under this Note. In no event shall the total interest received by the Swingline Lender under this Note exceed the amount which the Swingline Lender could lawfully have received had the interest due under this Note been calculated since the date of this Note at the Maximum Lawful Rate.

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Payments of the principal of, and interest on, Swingline Advances represented by this Note shall be made by the Borrower to the holder hereof by wire transfer of immediately available funds in the manner and at the address specified for such purpose as provided in Article 2 of the Third Amended and Restated Loan Funding and Servicing Agreement, or in such manner or at such other address as the holder of this Note shall have specified in writing to the Borrower for such purpose, without the presentation or surrender of this Note or the making of any notation on this Note.

If any payment under this Note falls due on a day that is not a Business Day, then such due date shall be extended to the next succeeding Business Day (except as provided in the Third Amended and Restated Loan Funding and Servicing Agreement) and interest shall be payable on any principal so extended at the applicable Interest Rate.

If all or a portion of (i) the principal amount hereof or (ii) any interest payable thereon or (iii) any other amounts payable hereunder shall not be paid when due (whether at maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum that is equal to the Base Rate plus 2.0%, in each case from the date of such non-payment to (but excluding) the date such amount is paid in full.

Portions or all of the principal amount of the Note shall become due and payable at the time or times set forth in the Third Amended and Restated Loan Funding and Servicing Agreement. Any portion or all of the principal amount of this Note may be prepaid, together with interest thereon (and as set forth in the Third Amended and Restated Loan Funding and Servicing Agreement, certain costs and expenses of the Swingline Lender) at the time and in the manner set forth in, but subject to the provisions of, the Third Amended and Restated Loan Funding and Servicing Agreement.

Except as provided in the Third Amended and Restated Loan Funding and Servicing Agreement, the Borrower expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note.

All amounts evidenced by this Note, the Swingline Lender’s making such Swingline Advance and all payments and prepayments of the principal hereof and the respective dates and maturity dates thereof shall be endorsed by the Swingline Lender on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by the Swingline Lender in its internal records; provided, however, that the failure of the Swingline Lender to make such a notation shall not in any way limit or otherwise affect the obligations of the Borrower under this Note as provided in the Third Amended and Restated Loan Funding and Servicing Agreement.

The holder hereof may sell, assign, transfer, negotiate, grant participations in or otherwise dispose of all or any portion of any Swingline Advances made by the Swingline Lender and represented by this Note and the indebtedness evidenced by this Note.

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This Note is secured by the security interests granted pursuant to Section 8.1 of the Third Amended and Restated Loan Funding and Servicing Agreement. The holder of this Note is entitled to the benefits of the Third Amended and Restated Loan Funding and Servicing Agreement and may enforce the agreements of the Borrower contained in the Third Amended and Restated Loan Funding and Servicing Agreement and exercise the remedies provided for by, or otherwise available in respect of, the Third Amended and Restated Loan Funding and Servicing Agreement, all in accordance with, and subject to the restrictions contained in, the terms of the Third Amended and Restated Loan Funding and Servicing Agreement. If a Termination Event shall occur and be continuing, the unpaid balance of the principal of all Swingline Advances, together with accrued interest thereon, shall be declared, and become due and payable in the manner and with the effect provided in the Third Amended and Restated Loan Funding and Servicing Agreement.

This Note is the “Swingline Note” referred to in the Third Amended and Restated Loan Funding and Servicing Agreement. This Note shall be construed in accordance with and governed by the laws of the State of New York.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the undersigned has executed this Note as on the date first written above.

ACS FUNDING TRUST I
By:
Name:
Title:	Beneficiary Trustee

SCHEDULE TO NOTE

Date of Swingline Advance or Repayment Principal Amount of Swingline Advance Principal Amount of Repayment Outstanding Principal Amount

EXHIBIT B-3

FORM OF ALTERNATIVE CURRENCY SWINGLINE NOTE

$50,000,000 October [5], 2006

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”) TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A “QIB“), PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN CERTIFICATED FORM TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (WITHIN THE MEANING OF RULE 501 (a)(1)–(3) OR (7) UNDER THE SECURITIES ACT) PURCHASING FOR INVESTMENT AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, IN EACH CASE, SUBJECT TO THE RECEIPT BY THE SERVICER AND THE DEAL AGENT OF SUCH OTHER EVIDENCE ACCEPTABLE TO THE SERVICER AND THE DEAL AGENT THAT SUCH REOFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS OR IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND SECURITIES AND BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTION, (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (4) PURSUANT TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (5) PURSUANT TO A VALID REGISTRATION STATEMENT. THE PURCHASE OF THIS NOTE WILL BE DEEMED A REPRESENTATION BY THE ACQUIRER THAT EITHER: (I) IT IS NOT, AND IS NOT PURCHASING THIS NOTE FOR, ON BEHALF OF OR WITH THE ASSETS OF, AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT WHICH IS SUBJECT TO TITLE I OF ERISA AND/OR SECTION 4975 OF THE CODE, OR A GOVERNMENTAL PLAN (AS DEFINED IN SECTION 3(32) OF ERISA) OR A CHURCH PLAN (AS DEFINED IN SECTION 3(33) OF ERISA FOR WHICH NO ELECTION HAS BEEN MADE UNDER SECTION 410(d) OF THE CODE) THAT IS SUBJECT TO ANY FEDERAL, STATE, OR LOCAL LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR (II) PTCE 95–60, PTCE 96–23, PTCE 91–38, PTCE 90–1, PTCE 84–14 OR SOME OTHER PROHIBITED TRANSACTION EXEMPTION IS APPLICABLE TO THE PURCHASE, HOLDING AND DISPOSITION OF THIS NOTE BY THE ACQUIRER.

THIS NOTE IS NOT PERMITTED TO BE TRANSFERRED, ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE THIRD AMENDED AND RESTATED LOAN FUNDING AND SERVICING AGREEMENT REFERRED TO HEREIN.

THE PRINCIPAL AMOUNT OF THIS NOTE WILL VARY AS ADVANCES ARE MADE AND PAID DOWN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE MAXIMUM AMOUNT SHOWN ON THE FACE THEREOF.

FOR VALUE RECEIVED, ACS FUNDING TRUST I, a Delaware statutory trust (the “Borrower”), promises to pay to WACHOVIA BANK, N.A., LONDON BRANCH, a [national banking association], as the alternative currency swingline lender (the “Alternative Currency Swingline Lender”), or its successors and assigns, the principal sum of FIFTY MILLION DOLLARS ($50,000,000) or, if less, the unpaid principal amount of the aggregate alternative currency swingline loans (“Alternative Currency Swingline Advances”) made by the Alternative Currency Swingline Lender to the Borrower pursuant to the Third Amended and Restated Loan Funding and Servicing Agreement (as defined below), as set forth on the attached Schedule, on the dates specified in Section 2.7 of the Third Amended and Restated Loan Funding and Servicing Agreement, and to pay interest on the unpaid principal amount of each Alternative Currency Swingline Advance on each day that such unpaid principal amount is outstanding at the applicable Interest Rate related to such Alternative Currency Swingline Advance as provided in the Third Amended and Restated Loan Funding and Servicing Agreement on each Payment Date.

This Note is issued pursuant to the Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Third Amended and Restated Loan Funding and Servicing Agreement”), by and among the Borrower, American Capital Strategies, Ltd., as originator and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian. Capitalized terms used but not defined in this Note are used with the meanings ascribed to them in the Third Amended and Restated Loan Funding and Servicing Agreement.

Notwithstanding any other provisions contained in this Note, if at any time the rate of interest payable by the Borrower under this Note, when combined with any and all other charges provided for in this Note, in the Third Amended and Restated Loan Funding and Servicing Agreement or in any other document (to the extent such other charges would constitute interest for the purpose of any applicable law limiting interest that may be charged on this Note), exceeds the highest rate of interest permissible under applicable law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would be exceeded the rate of interest under this Note shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Note is less than the Maximum Lawful Rate, the Borrower shall continue to pay interest under this Note at the Maximum Lawful Rate until such time as the total interest paid by the Borrower is equal to the total interest that would have been paid had applicable law not

B-3-2

limited the interest rate payable under this Note. In no event shall the total interest received by the Alternative Currency Swingline Lender under this Note exceed the amount which the Alternative Currency Swingline Lender could lawfully have received had the interest due under this Note been calculated since the date of this Note at the Maximum Lawful Rate.

Payments of the principal of, and interest on, Alternative Currency Swingline Advances represented by this Note shall be made by the Borrower to the holder hereof by wire transfer of immediately available funds in the manner and at the address specified for such purpose as provided in Article 2 of the Third Amended and Restated Loan Funding and Servicing Agreement, or in such manner or at such other address as the holder of this Note shall have specified in writing to the Borrower for such purpose, without the presentation or surrender of this Note or the making of any notation on this Note.

If any payment under this Note falls due on a day that is not a Business Day, then such due date shall be extended to the next succeeding Business Day (except as provided in the Third Amended and Restated Loan Funding and Servicing Agreement) and interest shall be payable on any principal so extended at the applicable Interest Rate.

If all or a portion of (i) the principal amount hereof or (ii) any interest payable thereon or (iii) any other amounts payable hereunder shall not be paid when due (whether at maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum that is equal to the Base Rate plus 2.0%, in each case from the date of such non-payment to (but excluding) the date such amount is paid in full.

Portions or all of the principal amount of the Note shall become due and payable at the time or times set forth in the Third Amended and Restated Loan Funding and Servicing Agreement. Any portion or all of the principal amount of this Note may be prepaid, together with interest thereon (and as set forth in the Third Amended and Restated Loan Funding and Servicing Agreement, certain costs and expenses of the Alternative Currency Swingline Lender) at the time and in the manner set forth in, but subject to the provisions of, the Third Amended and Restated Loan Funding and Servicing Agreement.

Except as provided in the Third Amended and Restated Loan Funding and Servicing Agreement, the Borrower expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note.

All amounts evidenced by this Note, the Alternative Currency Swingline Lender’s making such Alternative Currency Swingline Advance and all payments and prepayments of the principal hereof and the respective dates and maturity dates thereof shall be endorsed by the Alternative Currency Swingline Lender on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by the Alternative Currency Swingline Lender in its internal records; provided, however, that the failure of the Alternative Currency Swingline Lender to make such a notation shall not in any way limit or otherwise affect the obligations of the Borrower under this Note as provided in the Third Amended and Restated Loan Funding and Servicing Agreement.

B-3-3

[The holder hereof may sell, assign, transfer, negotiate, grant participations in or otherwise dispose of all or any portion of any Alternative Currency Swingline Advances made by the Alternative Currency Swingline Lender and represented by this Note and the indebtedness evidenced by this Note.]

This Note is secured by the security interests granted pursuant to Section 8.1 of the Third Amended and Restated Loan Funding and Servicing Agreement. The holder of this Note is entitled to the benefits of the Third Amended and Restated Loan Funding and Servicing Agreement and may enforce the agreements of the Borrower contained in the Third Amended and Restated Loan Funding and Servicing Agreement and exercise the remedies provided for by, or otherwise available in respect of, the Third Amended and Restated Loan Funding and Servicing Agreement, all in accordance with, and subject to the restrictions contained in, the terms of the Third Amended and Restated Loan Funding and Servicing Agreement. If a Termination Event shall occur and be continuing, the unpaid balance of the principal of all Alternative Currency Swingline Advances, together with accrued interest thereon, shall be declared, and become due and payable in the manner and with the effect provided in the Third Amended and Restated Loan Funding and Servicing Agreement.

This Note is the “Alternative Currency Swingline Note” referred to in the Third Amended and Restated Loan Funding and Servicing Agreement. This Note shall be construed in accordance with and governed by the laws of the State of New York.

[Remainder of Page Intentionally Left Blank]

B-3-4

IN WITNESS WHEREOF, the undersigned has executed this Note as on the date first written above.

ACS FUNDING TRUST I
By:
Name:
Title:	Beneficiary Trustee

SCHEDULE TO NOTE

Date of Alternative Currency Swingline Advance or Repayment Principal
Amount and
Currency of
Alternative
Currency
Swingline
Advance Dollar
Equivalent Principal
Amount of
Repayment Dollar
Equivalent Outstanding
Principal
Amount Dollar
Equivalent

EXHIBIT C

FORM OF AMENDED AND RESTATED

TRUST AGREEMENT

[Intentionally Omitted]

EXHIBIT D

FORM OF ASSIGNMENT AND ACCEPTANCE

Dated: [            ] [    ], 200    

Reference is made to the Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”) among ACS Funding Trust I, as the borrower, American Capital Strategies, Ltd., as originator and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer. Terms defined in the Agreement are used herein with the same meaning. This Assignment and Acceptance is delivered pursuant to Section 12.17 of the Agreement.

                     (the “Assignor”) and                      (the “Assignee”) agree as follows:

1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor’s rights and obligations under the Agreement as of the date hereof which represents the percentage interest specified in Section 1 of Schedule 1 of all outstanding rights and obligations of the Assignor under the Agreement, including, without limitation, such interest in the Assignor’s Commitment and the Advances made by the Assignor. After giving effect to such sale and assignment, the Assignee’s Commitment and the amount of Advances made by the Assignee will be as set forth in Section 2 of Schedule 1.

2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; and (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement or any other instrument or document furnished pursuant thereto.

3. The Assignee (i) confirms that it has received a copy of the Agreement, together with copies of such financial statements and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Deal Agent or the Assignor, the Swingline Lender or any other Lender or Lender Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement; (iii) appoints and authorizes the Deal Agent to take such action as agent on its behalf and to exercise such powers under the Agreement as are delegated to the Deal Agent by the terms thereof, together

with such powers as are reasonably incidental thereto; and (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Agreement are required to be performed by it as a Lender.

4. Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, it will be delivered to the Deal Agent for acceptance and recording. The effective date of this Assignment and Acceptance (the “Transfer Date”) shall be the date of acceptance thereof by the Deal Agent, unless a later date is specified in Section 3 of Schedule 1.

5. Upon such acceptance and recording by the Deal Agent, as of the Transfer Date, (i) the Assignee shall be a party to the Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Agreement.

6. Upon such acceptance and recording by the Deal Agent, from and after the Transfer Date, the Deal Agent shall make, or cause to be made, all payments under the Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest, Program Fee and Facility Fee with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Agreement for periods prior to the Transfer Date directly between themselves.

7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of North Carolina.

[Remainder of Page Intentionally Left Blank]

D-2

IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed by their respective officers thereunto duly authorized, as of the date first above written, such execution being made on Schedule 1 hereto.

[ASSIGNOR]
By:
	Name:
	Title:
Address for notices
	[Address]
[ASSIGNEE]
By:
	Name:
	Title:
Address for notices
	[Address]

[Consented to:]¹

ACS Funding Trust I

By:
	Name:
	Title:	Beneficiary Trustee

¹ To be added if consent of the Borrower is required by Section 12.17 of the Agreement.

D-3

Schedule 1

to

Assignment and Acceptance

Dated             , 20    

Section 1.

Percentage Interest:                     %

Section 2.

Assignee’s Commitment:	$
Assignee’s Alternative Currency Sub-Limit:	$
Aggregate Outstanding Advances Owing to the Assignee:	$
Aggregate Outstanding Advances in an Alternative Currency Owing to the Assignee	$

Section 3.

Transfer Date:             , 20    

D-4

EXHIBIT E

FORM OF MONTHLY REPORT

[Intentionally Omitted]

EXHIBIT F

FORM OF SERVICER’S CERTIFICATE

This Servicer’s Certificate is delivered pursuant to the provisions of Section 7.17(b) of the Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005, by and among ACS Funding Trust I, as the borrower, American Capital Strategies, Ltd., as originator, and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer (hereinafter as such agreement may have been, or may from time to time be amended, supplemented or otherwise modified, the “Agreement”). This Servicer’s Certificate relates to the Collection Period and related Payment Date, to which the Monthly Report attached hereto as Schedule A relates.

A. Capitalized terms used and not otherwise defined herein have the meanings assigned them in the Agreement. References herein and in the attached Schedule A to certain subsections are to the applicable subsections of the Agreement.

B. The Servicer is the Servicer under the Agreement.

C. The undersigned hereby certifies to the Borrower, the Backup Servicer, the Deal Agent and each Lender Agent that:

1. all of the foregoing information and all of the information set forth in the Monthly Report attached as Schedule A is true and accurate in all material respects of the date hereof; and

2. as of the date hereof, no Termination Event or Unmatured Termination Event has occurred and is continuing.

IN WITNESS WHEREOF, the undersigned has caused this Servicer’s Certificate to be duly executed this [    ] day of [            ], [        ].

AMERICAN CAPITAL STRATEGIES, LTD.,

as the Servicer

By:

Name:

Title:

[attach Monthly Report]

EXHIBIT G

CREDIT AND COLLECTION POLICY

[Intentionally Omitted]

EXHIBIT H-1

FORM OF HEDGING AGREEMENT

(WACHOVIA)

[Intentionally Omitted]

EXHIBIT H-2

FORM OF HEDGING AGREEMENT

(JPMORGAN CHASE BANK)

[Intentionally Omitted]

EXHIBIT I

FORM OF CERTIFICATE OF BORROWER’S COUNSEL

[            ] [    ], [        ]

Wachovia Capital Markets, LLC,

as the Deal Agent

One Wachovia Center, Mail Code: NC0600

Charlotte, North Carolina 28288-0608

Attention: Raj Shah

Telecopier: (704) 715-0067

Wells Fargo Bank, National Association,

as the Collateral Custodian

MAC N9311-161

Sixth Street and Marquette Avenue

Minneapolis, Minnesota 55479

Re: Loans in the aggregate principal amount of                      made by American Capital Strategies, Ltd. (the “Originator”) and transferred to ACS Funding Trust I (the “Borrower”) in connection with [Obligor] (the “Obligor”) (collectively, the “Loan”)

To whom it may concern:

In connection with the Loan, the undersigned (i) acknowledges that the Originator has granted a security interest to Wachovia Capital Markets, LLC, as the deal agent for the Secured Parties (the “Deal Agent”) under the Third Amended Loan Funding and Servicing Agreement dated as of September 23, 2005 (the “Agreement”) in each of the items indicated on the closing checklist attached hereto (the “Checklist”), and (ii) certifies to you that as of the day of funding the Loan:

A. It has received, reviewed and approved the Checklist items, in the form and subject to those exceptions or matters indicated on the Checklist;

B. A copy of the executed promissory note or, with respect to a Noteless Loan, Loan Register with a certificate of the Servicer has been faxed to the Collateral Custodian. The original promissory note(s) and related indorsements or, with respect to a Noteless Loan, Loan Register with a certificate of the Servicer are in our possession and will be forwarded to Wells Fargo Bank, National Association, as the Collateral Custodian (the “Collateral Custodian”) or as otherwise directed

in writing to                     (hereinafter referred to as “Borrower’s Counsel”) by the Deal Agent, for receipt within two (2) business days after the funding date of the transaction;

C. Within ten (10) business days after the closing, all remaining Security Documents which are in our possession and indicated on Schedule 1 attached hereto, will be forwarded to the Collateral Custodian; and

D. Notwithstanding any contrary instruction from the Originator in the event the Loan is funded, it will follow the written direction of the Deal Agent with regard to the original promissory note(s) in its possession, provided that in the event it reasonably believes that a dispute exists as to custody of any Security Documents, it may deposit them with a court of competent jurisdiction and be relieved of its obligations hereunder with respect to any and all documents so deposited.

The Collateral Custodian, the Deal Agent, the Originator and Borrower’s Counsel acknowledge and agree that:

1. The security interest and the rights in the Security Documents granted to the Deal Agent, as agent for the Secured Parties, are paramount and superior to the rights of the Originator.

2. Borrower’s Counsel shall not be required to perform any duties other than the duties expressly set forth in this letter. No implied obligations or duties shall be inferred by any other agreement, written or verbal, or any representation made by any party.

3. Borrower’s Counsel is authorized to comply with and obey laws, orders, judgments, decrees and regulations of any governmental authority, court, tribunal, or arbitrator. If Borrower’s Counsel complies with any such law, order, judgment, decree, or regulation Borrower’s Counsel shall not be liable to the Collateral Custodian, the Deal Agent or the Originator or to any other person even if such law, order, judgment, decree or regulation is subsequently reversed, modified, annulled, set aside, vacated, found to have been entered without jurisdiction, or found to be in violation or beyond the scope of the law.

4. Borrower’s Counsel shall be responsible hereunder solely to hold the original promissory note(s) for the Deal Agent’s account and other documents for Collateral Custodian’s and the Originator’s account and to deliver the same in accordance with the terms of this letter.

5. Borrower’s Counsel may act relative hereto upon the advice of counsel in reference to any matter in connection herewith and shall not be liable for any mistakes of fact or errors of judgment, or for any acts or omissions of any kind unless caused by its own willful misconduct or gross negligence.

6. Borrower’s Counsel shall be entitled to rely or act upon any notice, direction, instrument or document believed by Borrower’s Counsel to be genuine and to be

I-2

executed and delivered by the proper person and shall have no obligation to verify any statements contained in any notice, instrument or document or the accuracy or due authorization of the execution of any notice, instrument or document.

7. Borrower’s Counsel shall not be responsible or liable in any manner whatsoever for (a) the sufficiency, correctness, genuineness or validity of any document, agreement or instrument delivered to it, (b) the form of execution of any such document, agreement or instrument, (c) the identity, authority or rights of any person executing or delivering any such document, agreement or instrument, or (d) the terms and conditions of any instrument pursuant to which the parties may act.

8. Borrower’s Counsel may serve and shall continue to serve as counsel to the Originator in connection with the transactions contemplated by the Loan and other matters, and notwithstanding anything herein to the contrary, may represent the Originator (or any affiliate) as its counsel in any action, suit or other proceeding in which Collateral Custodian, Deal Agent or Originator (or any affiliate) may be involved.

9. Borrower’s Counsel shall be deemed to have satisfied any delivery requirement set forth herein if it shall have deposited the relevant documents for uninsured overnight delivery (properly addressed) with Federal Express, UPS or other overnight courier of national standing.

Very truly yours,

By:

Name:

Title:

(Acceptance on following page)

I-3

ACCEPTED AND AGREED:

AMERICAN CAPITAL STRATEGIES, LTD.,

as the Originator

By:

Name:

Title:

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as the Collateral Custodian

By:

Name:

Title:

WACHOVIA CAPITAL MARKETS, LLC,

as the Deal Agent

By:

Name:

Title:

SCHEDULE 1

SECURITY DOCUMENTS

Security Documents are defined as the following documents:

(i) all Loans:

(a) original of promissory note executed in favor of Originator or Borrower and any reformation thereof or endorsed or assigned to Originator or Borrower (if purchased by such Person) and endorsed by Borrower without recourse in blank (along with any reformation thereof) or, in the case of a Noteless Loan, original Loan Register with a certificate of the Servicer;

(ii) in the case of Loans secured by real property:

(a) original file stamped recorded mortgages or deeds of trust or other security instrument (including a leasehold mortgage, if applicable) securing the above note; provided, that, in lieu of a recorded document, the Collateral Custodian may accept a copy certified by the records office or escrow or title company or Originator or Borrower, if applicable;

(b) if required by the Agreement, an original assignment in blank of the mortgage or deed of trust or other security instrument (including a leasehold mortgage, if applicable) by Borrower to the Collateral Custodian in recordable form and the original or a copy, certified by the records office or escrow or title company or Originator or Borrower (in the case of a copy), of a properly recorded assignment or assignments of the related mortgage or deed of trust or other instrument from the original holder, through any subsequent transferees, to Borrower or Originator;

(c) if any of the above items were executed pursuant to a power of attorney, a copy of such; and

(iii) in the case of Loans secured in part by personal property, the following, as and to the extent applicable in accordance with the terms of the Loan:

(a) copy of any guaranties, if any, and as identified on the closing checklist and certification;

(b) copy of executed security agreements relating to furnishings, fixtures and equipment securing each Loan;

(c) copies of all UCC filings (or similar filings or registrations with respect to a Loan denominated in an Alternative Currency) with respect to furnishings, fixtures and equipment securing each Loan; and

(d) if any of the above items were executed pursuant to a power of attorney, a copy of such.

I-5

EXHIBIT J

FORM OF TRUST RECEIPT AND INITIAL CERTIFICATION

[Delivery Date]

Wachovia Capital Markets, LLC,

as Deal Agent

One Wachovia Center, Mail Code: NC0600

Charlotte, North Carolina 28288-0608

Attention: Raj Shah

Telecopier: (704) 715-0067

Re: Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and among ACS Funding Trust I, as the borrower, American Capital Strategies, Ltd., as originator, and as the servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer.

Ladies and Gentlemen:

In accordance with the provisions of Section 7.10(a) of the above-referenced Agreement, the undersigned, as the Collateral Custodian, hereby certifies that it has received the Loan File or a portion of a Loan File for each Loan identified on the Loan List attached hereto as Exhibit I. The Collateral Custodian makes no representations as to (i) the validity, legality, enforceability, sufficiency, due authorization or genuineness of any of the documents contained in each Loan File or of any of the Loans or (ii) the collectability, insurability, effectiveness or suitability of any such Loan.

The Collateral Custodian hereby confirms that it is holding each such Loan Document as agent and bailee of, and custodian for the exclusive use and benefit, and subject to the sole direction, of the Deal Agent pursuant to the terms and conditions of the Agreement.

Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Agreement.

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as the Collateral Custodian

By

Name:

Title:

J-2

EXHIBIT K

FORM OF TRUST RECEIPT AND FINAL CERTIFICATION

Trust Receipt #                     

[Delivery Date]

Wachovia Capital Markets, LLC,

as Deal Agent

One Wachovia Center, Mail Code: NC0600

Charlotte, North Carolina 28288-0608

Attention: Raj Shah

Telecopier: (704) 715-0067

Re: Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and among ACS Funding Trust I, as the borrower, American Capital Strategies, Ltd., as originator and as the servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer.

Ladies and Gentlemen:

In accordance with the provisions of Section 7.10(a) of the above-referenced Agreement, the undersigned, as the Collateral Custodian, hereby certifies that it has reviewed the Loan File for each Loan listed on the Loan List dated             , 20    , and has determined (other than any Loan paid in full or any Loan listed on the attachment hereto) that (i) each Loan Document listed on the Loan Checklists for each Loan File is in its possession, is executed and has no missing or mutilated pages; (ii) each Loan Document has been reviewed by it and appears to be in proper form on its face; (iii) each Underlying Note with respect to each Loan (other than a Noteless Loan) is in original form; and (iv) as to each Loan that is evidenced by a promissory note or mortgage note, such note has been endorsed in blank. Except as listed on the attachment hereto, no Loan Document listed on any Loan Checklist is missing and all Loan Documents contained in a Loan File are listed on a Loan Checklist. The Collateral Custodian makes no representations as to (i) the validity, legality, enforceability, sufficiency, due authorization or genuineness of any of the documents contained in each Loan File or of any of the Loans or (ii) the collectability, insurability, effectiveness or suitability of any such Loan.

The Collateral Custodian hereby confirms that it is holding each such Loan File as agent and bailee of, and custodian for the exclusive use and benefit, and subject to the sole direction, of the Deal Agent pursuant to the terms and conditions of the Agreement.

Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Agreement.

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as the Collateral Custodian

By

Name:

Title:

K-2

EXHIBIT L

FORM OF REQUEST FOR RELEASE OF DOCUMENTS AND RECEIPT

[Delivery Date]

BY FACSIMILE: (612) 667-3539

Wells Fargo Bank, National Association,

MAC N9328-011

Suite ABS

751 Kasota Avenue

Minneapolis, MN 55414

Attn: Corporate Trust Services

Asset-Backed Administration

Re: Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and among ACS Funding Trust I, as the borrower, American Capital Strategies, Ltd., as originator and as the servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer.

Ladies and Gentlemen:

In connection with the administration of the Loans held by you as the Collateral Custodian on behalf of the Deal Agent under the Agreement, we request the release, and acknowledge receipt, of the Loan File for the Loan described below, for the reason indicated.

Obligor’s Name, Address & Zip Code:

Loan Number:

Reason for Requesting Documents (check one)

     1. Loan Paid in Full. (The Servicer hereby certifies that all amounts received in connection therewith have been credited to the account of the Deal Agent.)

     2. Loan Liquidated By                          (The Servicer hereby certifies that all proceeds of foreclosure, insurance, condemnation or other liquidation have been finally received and credited to the account of the Deal Agent.)

     3. Loan in Foreclosure.

     4. Other (explain).

If box 1 or 2 above is checked, and if all or part of the Loan File was previously released to us, please release to us our previous request and receipt on file with you, as well as any additional documents in your possession relating to the specified Loan.

If box 3 or 4 above is checked, upon our return of all of the above documents to you as the Collateral Custodian, please acknowledge your receipt by signing in the space indicated below, and returning this form.

Capitalized terms used but not defined herein have the meanings provided in the Agreement.

[SIGNATURES FOLLOW ON NEXT PAGE]

L-2

AMERICAN CAPITAL STRATEGIES, LTD.,

as the Servicer

By

Name:

Title:

Date:

Acknowledgment of Documents returned to the Collateral Custodian:

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as the Collateral Custodian

By

Name:

Title:

The Deal Agent hereby consents to the Collateral Custodian’s releasing the Loan File or a part thereof to the Servicer designated above:

WACHOVIA CAPITAL MARKETS, LLC,

as the Deal Agent

By

Name:

Title:

EXHIBIT M

[RESERVED]

EXHIBIT N

FORM OF REINVESTMENT CERTIFICATION

ACS FUNDING TRUST I

Wachovia Capital Markets, LLC,

as Deal Agent

One Wachovia Center, Mail Code: NC0600

Charlotte, North Carolina 28288-0608

Attention: Raj Shah

Telecopier: (704) 715-0067

via e-mail: scp.mmloans@wachovia.com

Ladies and Gentlemen:

This certification is delivered to you under Section 3.2 of that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and among ACS Funding Trust I, as the borrower, American Capital Strategies, Ltd., as originator and as the servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer.

Each of the undersigned, each being a duly elected officer of the Borrower and the Servicer, respectively, holding the office set forth below such officer’s name, hereby certifies as follows:

1. The Borrower hereby notifies you that on the date first written above it will use Principal Collections in amount of                      [Currency] [If not Dollars, also state Dollar Equivalent] to acquire additional Loans.

2. Attached to this certification is a true, correct and complete calculation of the Borrowing Base and all components thereof.

3. Attached to this Reinvestment Certification is a true, correct and complete Loan List, reflecting all Loans which will become part of the Collateral on the date hereof, each Loan reflected thereon being an Eligible Loan.

4. All of the conditions applicable to the reinvestment of Principal Collections requested herein as set forth in the Agreement have been satisfied as of the date hereof and will remain satisfied to the date of such reinvestment, including those set forth in Section 3.2.

IN WITNESS WHEREOF, the undersigned has executed the Reinvestment Certification this [    ] day of [            ], [        ].

ACS FUNDING TRUST I
as the Borrower
By:	American Capital Strategies, Ltd., as Servicer
By:
Name:
Title:

AMERICAN CAPITAL STRATEGIES, LTD.,

as the Servicer

By:

Name:

Title:

EXHIBIT O-1

OFFICER’S CERTIFICATE AS TO SOLVENCY

AMERICAN CAPITAL STRATEGIES, LTD.

The undersigned, a duly elected Vice President of American Capital Strategies, Ltd. (the “Corporation”), hereby certifies in connection with (i) that certain Third Amended and Restated Purchase and Sale Agreement (the “Purchase Agreement”), dated as of September 23, 2005, by and between the Corporation and ACS Funding Trust I, and (ii) that certain Third Amended and Restated Loan Funding and Servicing Agreement (the “Agreement”), dated as of September 23, 2005, by and among ACS Funding Trust I, as the borrower, the Corporation, as originator and as the servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer, for the benefit of the Seller, the Deal Agent and the Secured Parties and their respective successors and assigns, as follows:

1. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Purchase Agreement and the Agreement.

2. Both before and after giving effect to (a) the transactions contemplated by the Purchase Agreement and the other Transaction Documents and (b) the payment and accrual of all transaction costs in connection with the foregoing, the Corporation is and will be Solvent.

IN WITNESS WHEREOF, I have signed and delivered this Officer’s Certificate this      day of September, 2005.

By

Name:

Title:

EXHIBIT O-2

OFFICER’S CERTIFICATE AS TO SOLVENCY

ACS FUNDING TRUST I

The undersigned, a duly appointed Beneficiary Trustee of ACS Funding Trust I (the “Trust”), hereby certifies in connection with (i) that certain Third Amended and Restated Purchase and Sale Agreement (the “Purchase Agreement”), dated as of September 23, 2005, by and between the Trust and American Capital Strategies, Ltd., and (ii) that certain Third Amended and Restated Loan Funding and Servicing Agreement (the “Agreement”), dated as of September 23, 2005, by and among the Trust, as the borrower, American Capital Strategies, Ltd., as originator and as the servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer, for the benefit of the Seller, the Deal Agent and the Secured Parties and their respective successors and assigns, as follows:

1. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Purchase Agreement and the Agreement.

2. Both before and after giving effect to (a) the transactions contemplated by the Purchase Agreement and the other Transaction Documents and (b) the payment and accrual of all transaction costs in connection with the foregoing, the Trust is and will be Solvent.

IN WITNESS WHEREOF, I have signed and delivered this Officer’s Certificate this      day of September, 2005.

By
Name:
Title:	Beneficiary Trustee

EXHIBIT P-1

OFFICER’S CLOSING CERTIFICATE

AMERICAN CAPITAL STRATEGIES, LTD.

The undersigned, a duly elected Vice President of American Capital Strategies, Ltd. (the “Corporation”), hereby certifies in connection with (i) that certain Third Amended and Restated Purchase and Sale Agreement, dated as of September 23, 2005 (the “Purchase Agreement”), by and between the Corporation, as seller and ACS Funding Trust I, as buyer (the “Buyer”), (ii) that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (the “Agreement”), by and among the Buyer, as the borrower, the Corporation, as originator and as the servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer, and (iii) the other Transaction Documents, for the benefit of the Deal Agent and the Secured Parties, as follows:

1. Capitalized terms herein and not otherwise defined shall have the respective meanings ascribed to them in the Purchase Agreement and the Agreement.

2. Each of the representations and warranties of the Corporation contained in any of the Transaction Documents are true and correct on and as of the Closing Date as though made on and as of such date (except to the extent any such representation and warranty relates solely to an earlier date), and no event has occurred and is continuing, or would result from the transactions effected pursuant thereto as of the Closing Date, that constitutes or would constitute a Termination Event or default by the Servicer.

3. The Corporation is in material compliance with all federal, state, and local laws and regulations, including those relating to labor and environmental matters and ERISA.

4. Except as otherwise indicated on a schedule to a Transaction Document, or as otherwise consented to by the Deal Agent, the Corporation has delivered to the Deal Agent true and correct copies of all documents required to be delivered by it to the Deal Agent pursuant to the Transaction Documents, all such documents are complete and correct in all material respects on and as of the Closing Date, and each and every other condition precedent to the closing of the transactions contemplated by the Transaction Documents has been satisfied.

5. The Corporation has conveyed the Purchased Assets to the Buyer free and clear of all Liens.

IN WITNESS WHEREOF, I have signed and delivered this Officer’s Certificate this      day of September, 2005.

AMERICAN CAPITAL STRATEGIES, LTD.

By

Name:

Title:

P-1-2

EXHIBIT P-2

OFFICER’S CLOSING CERTIFICATE

ACS FUNDING TRUST I

The undersigned, a duly appointed trustee of ACS Funding Trust I (the “Trust”), hereby certifies in connection with that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (the “Agreement”), by and among the Trust, as the borrower, American Capital Strategies, Ltd., as originator and as the servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer, and the other Transaction Documents, for the benefit of the Deal Agent and the Secured Parties, as follows:

1. Capitalized terms herein and not otherwise defined shall have the respective meanings ascribed to them in the Agreement.

2. Each of the representations and warranties of the Trust contained in any of the Transaction Documents are true and correct on and as of the Closing Date as though made on and as of such date (except to the extent any such representation and warranty relates solely to an earlier date), and no event has occurred and is continuing, or would result from the transactions effected pursuant thereto as of the Closing Date, that constitutes or would constitute a Termination Event.

3. The Trust is in material compliance with all federal, state, and local laws and regulations, including those relating to labor and environmental matters and ERISA.

4. Except as otherwise indicated on a schedule to a Transaction Document or as otherwise consented to by the Deal Agent, the Trust has delivered to the Deal Agent true and correct copies of all documents required to be delivered to the Deal Agent pursuant to the Transaction Documents, all such documents are complete and correct in all material respects on and as of the Closing Date, and each and every other condition precedent to the closing of the transactions contemplated by the Transaction Documents has been satisfied.

5. No Liens have arisen or been granted with respect to the Collateral other than Permitted Liens.

IN WITNESS WHEREOF, I have signed and delivered this Officer’s Certificate this      day of September, 2005.

ACS FUNDING TRUST I
By
Name:
Title:	Beneficiary Trustee

P-2-2

EXHIBIT Q-1

POWER OF ATTORNEY

This Power of Attorney is executed and delivered by American Capital Strategies, Ltd., as originator and as the Servicer (the “Servicer”) pursuant to Section 8.7 of the Agreement (each as defined below), to Wachovia Capital Markets, LLC, as the Deal Agent under the Agreement (hereinafter referred to as “Attorney”), pursuant to that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (the “Agreement”), by and among ACS Funding Trust I, as the borrower, the Servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer, and the other Transaction Documents. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Agreement. No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall inquire into or seek confirmation from Servicer as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Servicer irrevocably waives any right to commence any suit or action, in law or equity, against any person or entity that acts in reliance upon or acknowledges the authority granted under this Power of Attorney. The power of attorney granted hereby is coupled with an interest and may not be revoked or canceled by Servicer until all Obligations of the Servicer under the Transaction Documents have been indefeasibly paid in full and Attorney has provided its written consent thereto.

Servicer hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in its place and stead and in its name or in Attorney’s own name, from time to time in Attorney’s discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, hereby grants to Attorney the power and right, on its behalf, without notice to or assent by it, upon the occurrence and during the continuance of any Termination Event, to do the following: (a) open mail for Servicer, and ask, demand, collect, give acquittances and receipts for, take possession of, or endorse and receive payment of, any checks, drafts, notes, acceptances, or other instruments for the payment of moneys due, and sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any of Servicer’s property; (b) effect any repairs to any of Servicer’s assets, or continue or obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, Liens, or other encumbrances levied or placed on or threatened against Servicer or Servicer’s property; (d) defend any suit, action or proceeding brought against Servicer if Servicer does not defend such suit, action or proceeding or if Attorney believes that it is not pursuing such defense in a manner that will maximize the

recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Servicer whenever payable and to enforce any other right in respect of Servicer’s property; (f) sell, transfer, pledge, make any agreement with respect to, or otherwise deal with, any of Servicer’s property, and execute, in connection with such sale or action, any endorsements, assignments or other instruments of conveyance or transfer in connection therewith; (g) cause the certified public accountants then engaged by Servicer to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney’s request, any reports required to be prepared by or on behalf of Servicer under the Agreement or any other Transaction Document; and (h) sign all agreements, orders or other documents in connection with or pursuant to any Transaction Document (including any Hedging Agreement), all as though Attorney were the absolute owner of its property for all purposes, and to do, at Attorney’s option and Servicer’s expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon its property or assets and the Liens of the Deal Agent as agent for the Secured Parties thereon, all as fully and effectively as it might do. Servicer hereby ratifies, to the extent permitted by law, all that said attorneys shall lawfully do or cause to be done by virtue hereof.

[Remainder of Page Left Intentionally Blank]

Q-1-2

IN WITNESS WHEREOF, this Power of Attorney is executed by Servicer, and Servicer has caused its seal to be affixed pursuant to the authority of its board of directors as of this      day of September, 2005.

	Very truly yours,
	AMERICAN CAPITAL STRATEGIES, LTD.
(CORPORATE SEAL)
	By
	Name:
	Title:

Sworn to and subscribed before

me this      day of September, 2005:

Notary Public

Q-1-3

EXHIBIT Q-2

POWER OF ATTORNEY

This Power of Attorney is executed and delivered by ACS Funding Trust I, as the Borrower (the “Borrower”) pursuant to Section 8.7 of the Agreement (each as defined below), to Wachovia Capital Markets, LLC, as the Deal Agent under the Agreement (hereinafter referred to as “Attorney”), pursuant to that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (the “Agreement”), by and among ACS Funding Trust I, as the borrower, American Capital Strategies, Ltd., as originator and as the servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as collateral custodian and as backup servicer, and the other Transaction Documents. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Agreement. No person to whom this Power of Attorney is presented, as authority for Attorney to take any action or actions contemplated hereby, shall inquire into or seek confirmation from Borrower as to the authority of Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to Attorney unconditionally the authority to take and perform the actions contemplated herein, and Borrower irrevocably waives any right to commence any suit or action, in law or equity, against any person or entity that acts in reliance upon or acknowledges the authority granted under this Power of Attorney. The power of attorney granted hereby is coupled with an interest and may not be revoked or canceled by Borrower until all Obligations of the Borrower under the Transaction Documents have been indefeasibly paid in full and Attorney has provided its written consent thereto.

Borrower hereby irrevocably constitutes and appoints Attorney (and all officers, employees or agents designated by Attorney), with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in its place and stead and in its name or in Attorney’s own name, from time to time in Attorney’s discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, hereby grants to Attorney the power and right, on its behalf, without notice to or assent by it, upon the occurrence and during the continuance of any Termination Event, to do the following: (a) open mail for Borrower, and ask, demand, collect, give acquittances and receipts for, take possession of, or endorse and receive payment of, any checks, drafts, notes, acceptances, or other instruments for the payment of moneys due, and sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with any of Borrower’s property; (b) effect any repairs to any of Borrower’s assets, or continue or obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, Liens, or other encumbrances levied or placed on or threatened against Borrower or Borrower’s property; (d) defend any suit, action or proceeding brought against Borrower if Borrower does not defend such suit, action or proceeding or if Attorney believes that it is not pursuing such defense in a manner that will

maximize the recovery to Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as Attorney may deem appropriate; (e) file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by Attorney for the purpose of collecting any and all such moneys due to Borrower whenever payable and to enforce any other right in respect of Borrower’s property; (f) sell, transfer, pledge, make any agreement with respect to, or otherwise deal with, any of Borrower’s property, and execute, in connection with such sale or action, any endorsements, assignments or other instruments of conveyance or transfer in connection therewith; (g) cause the certified public accountants then engaged by Borrower to prepare and deliver to Attorney at any time and from time to time, promptly upon Attorney’s request, any reports required to be prepared by or on behalf of Borrower under the Agreement or any other Transaction Document; and (h) sign all agreements, orders or other documents in connection with or pursuant to any Transaction Document (including any Hedging Agreement), all as though Attorney were the absolute owner of its property for all purposes, and to do, at Attorney’s option and Borrower’s expense, at any time or from time to time, all acts and other things that Attorney reasonably deems necessary to perfect, preserve, or realize upon its property or assets and the Liens of the Deal Agent as agent for the Secured Parties thereon, all as fully and effectively as it might do. Borrower hereby ratifies, to the extent permitted by law, all that said attorneys shall lawfully do or cause to be done by virtue hereof.

[Remainder of Page Left Intentionally Blank]

Q-2-2

IN WITNESS WHEREOF, this Power of Attorney is executed by Borrower, and Borrower has caused its seal to be affixed pursuant to the authority of its board of directors as of this      day of September, 2005.

	Very truly yours,
	ACS FUNDING TRUST I
(CORPORATE SEAL)
	By
	Name:
	Title:

Sworn to and subscribed before

me this      day of September, 2005:

Notary Public

Q-2-3

EXHIBIT R

FORM OF NOTICE AND REQUEST FOR CONSENT

[            ] [    ], 20[    ]

ACS FUNDING TRUST I

To Each Lender and the Collateral Custodian

Re: Third Amended and Restated Loan Funding and Servicing Agreement dated as of September 23, 2005

Ladies and Gentlemen:

This Notice and Request for Consent to Permitted Transfer (“this Notice”) is delivered to you under Section 2.17 of that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and among ACS Funding Trust I, as the borrower (the “Borrower”), American Capital Strategies, Ltd., as originator and as the servicer (the “Originator”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian. All capitalized undefined terms used herein have the meaning assigned thereto in the Agreement.

Each of the undersigned, each being a duly elected officer of the Borrower and the Originator, respectively, holding the office set forth below such officer’s name, hereby certifies as follows:

1. Pursuant to Section 2.17(a)(ix)(A) of the Agreement, the Borrower and the Originator request that the Lenders consent to a release of the Lenders’ lien on the Transferred Loans or portions thereof set forth on Annex 1 (together with, in the case of a transfer of the Transferred Loans but not portions thereof, any related Collateral) and to the distribution of such Transferred Loans and portions thereof as a dividend to the Originator (the “Permitted Transfer”).

2. The Borrower and the Originator hereby request that such Permitted Transfer be made on the following date:                      (the “Permitted Transfer Date”) which date is at least five Business Days after this Notice is received by the Lenders.

3. The Borrower and the Originator represent and warrant, as of the date hereof and as of the requested Permitted Transfer Date, as follows:

a) No Unmatured Termination Event, Termination Event or Servicer Termination Event is continuing.

b) The transaction for which consent is sought is a Permitted Transfer of the type set forth in clause (b) of the definition thereof.

c) After giving effect to the Permitted Transfer on the Permitted Transfer Date, (1) Availability will be greater than or equal to $0, (2) the representations and warranties contained in Sections 4.1 and 4.2 of the Agreement shall continue to be correct in all material respects, except to the extent relating to an earlier date, (3) neither an Unmatured Termination Event, a Termination Event nor a Servicer Termination Event shall have resulted, (4) the amount of all Advances Outstanding in Alternative Currencies shall not exceed the Alternative Currency Sub-Limit, (5) no claim shall have been asserted or proceeding commenced challenging the enforceability or validity of any of the Loan Documents, (6) the Weighted Average Life of the Transferred Loans included in the Collateral (weighted based on Outstanding Loan Balances) will not exceed eight years, and (7) after giving effect to the requested Permitted Transfer, no more than four Permitted Transfers of the type set forth in clause (b) of the definition thereof shall have occurred within the 12 month period ending on the Permitted Transfer Date.

4. Attached to this Notice is a Borrowing Base Certificate, including a calculation of the Borrowing Base after giving effect to such Permitted Transfer.

This Notice shall not be effective unless all of the conditions applicable to the Permitted Transfer requested herein set forth in the Agreement have been satisfied within the time periods set forth in Section 2.17 of the Agreement.

[The Remainder Of This Page Is Intentionally Left Blank]

R-2

IN WITNESS WHEREOF, the undersigned has executed the Notice and Request for Consent to Permitted Transfer this [    ] day of [                ], [        ].

ACS FUNDING TRUST I
as the Borrower
By:	American Capital Strategies, Ltd., as Servicer
By:
Name:
Title:

AMERICAN CAPITAL STRATEGIES, LTD.,

    as the Originator

By:

Name:

Title:

[attach Borrowing Base Certificate]

Please indicate your consent by signing and returning this signature page to the Notice and Request for Consent to the Deal Agent for receipt no later than the day which is one Business Day prior to the requested Permitted Transfer Date.

THE UNDERSIGNED LENDER CONSENTS

TO THE PERMITTED TRANSFER

TO BE MADE ON [                    ]

[NAME OF LENDER]

By:

Name:

Title:

Dated:                     

ANNEX 1

Transferred Loans to be Released by Lender and Transferred by Borrower to Originator

EXHIBIT S

[RESERVED]

EXHIBIT T

FORM OF AGENT AND INTERCREDITOR

PROVISIONS FOR AGENTED NOTES

[Intentionally Omitted]

EXHIBIT U

[RESERVED]

EXHIBIT V

FORM OF TRANSFEREE LETTER

[                    ] [    ], 20[    ]

American Capital Strategies, Ltd.,

as the Originator and the Servicer

2 Bethesda Metro Center, 14^th Floor

Bethesda, Maryland 20814

Attention: Compliance Officer

Wachovia Capital Markets, LLC,

as the Deal Agent

One Wachovia Center, Mail Code: NC0600

Charlotte, North Carolina 28288-0608

Attention: Raj Shah

Telecopier: (704) 715-0067

Re: ACS Funding Trust I Structured Note

Ladies and Gentlemen:

In connection with our acquisition of the above–captioned Note, we certify that (a) we understand that the Notes are not being registered under the Securities Act of 1933, as amended (the “Act”), or any state securities laws and are being transferred to us in a transaction that is exempt from the registration requirements of the Act and any such laws, (b) we are an institutional “Accredited Investor” as defined in Rule 501(a)(1)-(3) under the Act, and have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of investments in the Notes, (c) we have had the opportunity to ask questions of and receive answers from the Originator and the Servicer concerning the purchase of the Notes and all matters relating thereto or any additional information deemed necessary to our decision to purchase the Notes, (d) we are acquiring the Notes for investment for our own account and not with a view to any distribution of such Notes (but without prejudice to our right at all times to sell or otherwise dispose of the Notes in accordance with clause (f) below), (e) we have not offered or sold any Notes to, or solicited offers to buy any Notes from, any person, or otherwise approached or negotiated with any person with respect thereto, or taken any other action which would result in a violation of Section 5 of the Act, (f) we will not sell, transfer or otherwise dispose of any Notes unless (1) such sale, transfer or other disposition is made pursuant to an effective registration statement under the Act or is exempt from such registration requirements, and if requested, we will at our expense provide an opinion of counsel satisfactory to the addressees of this certificate that such sale, transfer or other disposition may be made pursuant to an exemption from the Act, (2) the purchaser or transferee of such Note has executed and delivered to you a certificate to substantially the same effect as this certificate if required by the Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Loan Funding and Servicing Agreement”), and (3) the purchaser or transferee has otherwise complied

with any conditions for transfer set forth in the Loan Funding and Servicing Agreement, (g) the purchaser is not acquiring a Note, directly or indirectly, for or on behalf of an employee benefit plan or other retirement arrangement subject to the Employee Retirement Income Security Act of 1974, as amended, and/or Section 4975 of the Internal Revenue Code of 1986, as amended, or any entity, the assets of which would be deemed plan assets under the Department of Labor regulations set forth at 29 C.F.R. §2510.3–101; unless Prohibited Transaction Class Exemption (“PTCE”) 84–14, PTCE 90–1, PTCE 91–38, PTCE 95–60 or PTCE 92–23 or some other applicable prohibited transaction exemption is applicable to the acquisition and holdings of such Note, (h) the purchaser is a U.S. Person, as such term is defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended.

Very truly yours,
Print Name of Transferee
By:
	Responsible Officer

V-2

EXHIBIT W

JOINDER SUPPLEMENT

JOINDER SUPPLEMENT, dated as of the date set forth in Item 1 of Schedule I hereto, among the Persons identified in Item 2 of Schedule I hereto, ACS Funding Trust I, as the borrower (the “Borrower”), the Lender Agent named in Item 5 of Schedule I hereto (the “Lender Agent”), and Wachovia Capital Markets, LLC, as Deal Agent (the “Deal Agent”).

W I T N E S S E T H:

WHEREAS, this Joinder Supplement is being executed and delivered under Section 2.1(e) of the Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005 (as amended, modified, waived, supplemented or restated from time to time, the “Agreement”), by and among the Borrower, American Capital Strategies, Ltd., as originator and as the servicer (the “Servicer”), the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, the Deal Agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian (all capitalized terms used but not defined herein have the meaning assigned thereto in the Agreement); and

WHEREAS, each Person set forth in Item 2 of Schedule I hereto (each a “Proposed Lender”) wishes to become a Lender party to the Agreement;

NOW, THEREFORE, the parties hereto hereby agree as follows:

(a) Upon receipt by the Deal Agent of an executed counterpart of this Joinder Supplement, to which is attached a fully completed Schedule I and Schedule II, each of which has been executed by each Proposed Lender, the Borrower, the Lender Agent and the Deal Agent, the Deal Agent will transmit to each Proposed Lender, the Borrower and the Lender Agent, a Joinder Effective Notice, substantially in the form of Schedule III to this Joinder Supplement (a “Joinder Effective Notice”). Such Joinder Effective Notice shall be executed by the Deal Agent and shall set forth, inter alia, the date on which the joinder effected by this Joinder Supplement shall become effective (the “Joinder Effective Date”). From and after the Joinder Effective Date, each Proposed Lender shall be a Lender designated as either a Conduit Lender or an Institutional Lender party to the Agreement for all purposes thereof.

(b) Each of the parties to this Joinder Supplement agrees and acknowledges that at any time and from time to time upon the written request of any other party, it will execute and deliver such further documents and do such further acts and things as such other party may reasonably request in order to effect the purposes of this Joinder Supplement.

(c) By executing and delivering this Joinder Supplement, each Proposed Lender confirms to and agrees with the Deal Agent, the Lender Agents and the other Lenders as follows: (i) none of the Deal Agent, the Lender Agents and the other Lenders makes any representation or warranty or assumes any responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement or any other instrument or

document furnished pursuant thereto, or with respect to any Structured Notes issued under the Agreement, or the Collateral (as defined under the Agreement) or the financial condition of the Originator, the Servicer or the Borrower, or the performance or observance by the Originator, the Servicer or the Borrower of any of their respective obligations under the Agreement, any other Transaction Document or any other instrument or document furnished pursuant thereto; (ii) such Proposed Lender confirms that it has received a copy of such documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Joinder Supplement; (iii) such Proposed Lender will, independently and without reliance upon the Deal Agent, the Lender Agents or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement; (iv) such Proposed Lender appoints and authorizes the Lender Agent to take such action as agent on its behalf and to exercise such powers under the Agreement as are delegated to the Lender Agent by the terms thereof, together with such powers as are reasonably incidental thereto, all in accordance with Article XI of the Agreement; (v) such Proposed Lender appoints and authorizes the Deal Agent to take such action as agent on its behalf and to exercise such powers under the Agreement as are delegated to the Deal Agent by the terms thereof, together with such powers as are reasonably incidental thereto, all in accordance with the Agreement; and (vi) such Proposed Lender agrees (for the benefit of the parties hereto and the other Lenders) that it will perform in accordance with their terms all of the obligations which by the terms of the Agreement are required to be performed by it as a Lender designated and (vii) if such Proposed Lender is a Conduit Lender, (A) such proposed Conduit Lender is a party to a Liquidity Purchase Agreement pursuant to which the Person set forth on Schedule I hereto is committed to make Advances should such Conduit Lender opt not to make a requested Advance and (B) Advances in an Alternative Currency shall be made by the Institutional Lender set forth on Schedule I hereto.

(d) Schedule II hereto sets forth administrative information with respect to each Proposed Lender.

(e) This Joinder Supplement shall be governed by, and construed in accordance with, the laws of the State of New York.

IN WITNESS WHEREOF, the parties hereto have caused this Joinder Supplement to be executed by their respective duly authorized officers on Schedule I hereto as of the date set forth in Item 1 of Schedule I hereto.

W-2

SCHEDULE I TO

JOINDER SUPPLEMENT

COMPLETION OF INFORMATION AND

SIGNATURES FOR JOINDER SUPPLEMENT

Re: Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005, among ACS Funding Trust I, as Borrower, the other parties thereto and Wachovia Capital Markets, LLC, as Deal Agent.

Item 1:	Date of Joinder Supplement:
Item 2:	Proposed Lenders:
Item 3:	Type of Lenders:	Conduit Lender: Name of Liquidity Purchase
		Agreement Purchaser
		Institutional Lender
Item 4:		Commitment - $
		*Alternative Currency Sub-Limit:$
		Commitment Termination Date:
Item 5:	Name of Lender Agent (if a Conduit Lender):
Item 6:	Signatures of Parties to Agreement:

                                         , as

Proposed Lender

By:

Name:

Title:

[                                         , as

Proposed Lender Agent

W-3

By:

Name:

Title:

* Alternative Currency Sub-Limit is a part of, and not in addition to, the Commitment

W-4

ACS FUNDING TRUST I, as Borrower,
By:
Name:
Title:	Beneficiary Trustee

WACHOVIA CAPITAL MARKETS, LLC,

as Deal Agent

By:

Name:

Title:

[NAME OF LENDER AGENT] [NAME

OF INSTITUTIONAL LENDER], as

[Lender Agent] [Institutional Lender]

By:

Name:

Title:

[NAME OF CONDUIT LENDER, as

Conduit Lender]

By:

Name:

Title:

SCHEDULE II TO

JOINDER SUPPLEMENT

ADDRESS FOR NOTICES

AND

WIRE INSTRUCTIONS

Address for Notices:
	Telephone:
	Facsimile:
	email:
	With a copy to:
	Telephone:
	Facsimile:
	email:
Wire Instructions:	Name of Bank:
	A/C No.:
	ABA No.
	Reference:

W-6

SCHEDULE III TO

JOINDER SUPPLEMENT

FORM OF

JOINDER EFFECTIVE NOTICE

To: [Name and address of the Borrower, Lender Agent and Proposed Lender]

The undersigned, as Deal Agent under the Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005, by and among the Borrower, American Capital Strategies, Ltd., as originator and as the servicer, the Conduit Lenders and Institutional Lenders from time to time party thereto, the Lender Agents from time to time party thereto, the Deal Agent, Wachovia Bank, National Association, as the swingline lender, and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian, acknowledges receipt of an executed counterpart of a completed Joinder Supplement. [Note: attach copies of Schedules I and II from such Agreement.] Terms defined in such Joinder Supplement are used herein as therein defined.

Pursuant to such Joinder Supplement, you are advised that the Joinder Effective Date for [Name of Proposed Lender(s)] will be                      and such Proposed Lender(s) will be a Lender designated as a[n] [Conduit Lender][Institutional Lender] with a Commitment of $            , of which $             constitutes such Proposed Lender[‘s][s’] Alternative Currency Sub-Limit.

Very truly yours,

WACHOVIA CAPITAL MARKETS, LLC,

as Deal Agent

By:

Name:

Title:

W-7

SCHEDULE I

Schedule of Documents

In addition to, and not in limitation of, the conditions specified in Section 3.1 of the Agreement described below, the following documents must be received by the Deal Agent in form and substance satisfactory to the Deal Agent on or prior to the Closing Date:

Borrower	-	ACS Funding Trust I
Originator	-	American Capital Strategies, Ltd.
Dechert	-	Dechert LLP, counsel to WCM and WBNA
WCM	-	Wachovia Capital Markets, LLC
WBNA	-	Wachovia Bank, National Association
A&P	-	Arnold & Porter, counsel to the Originator and Borrower
W&S	-	Winston & Strawn LLP, special counsel to the Originator
Backup Servicer and Collateral Custodian	-	Wells Fargo Bank, National Association

I. CLOSING DATE DELIVERIES

TRANSACTION DOCUMENTS

*Third Amended and Restated Loan Funding and Servicing Agreement

Exhibit A-1	(Borrower Notice – Funding Request)
Exhibit A-2	(Borrower Notice – Swingline Advance Request)
Exhibit A-3	(Borrower Notice – Reduction of Advances Outstanding and Reduction of Facility Amount)
Exhibit B-1	(Form of Structured Note)
Exhibit B-2	(Form of Swingline Note)
Exhibit C	(Trust Agreement)
Exhibit D	(Form of Assignment and Acceptance)
Exhibit E	(Form of Monthly Report)
Exhibit F	(Form of Servicer’s Certificate)
Exhibit G	(Credit and Collection Policy)
Exhibit H-1	(Form of Hedging Agreement (Wachovia)(including Schedule))
Exhibit H-2	(Form of Hedging Agreement (JPMorgan Chase)(including Schedule))
Exhibit I	(Form of Certificate of Borrower’s Counsel)
Exhibit J	(Form of Trust Receipt and Initial Certification of Custodian)
Exhibit K	(Form of Trust Receipt and Final Certification of Custodian)
Exhibit L	(Form of Request for Release of Loan Documents and Receipt)
Exhibit M	Form of Assignment of Mortgage
Exhibit N	(Form of Reinvestment Certification)
Exhibit O-1	(Officer’s Certificate as to Solvency from Originator)

Exhibit O-2	(Officer’s Certificate as to Solvency from Borrower)
Exhibit P-1	(Officer’s Closing Certificate from Originator)
Exhibit P-2	(Officer’s Closing Certificate from Borrower)
Exhibit Q-1	(Power of Attorney from Servicer)
Exhibit Q-2	(Power of Attorney from Borrower)
Exhibit R	(Form of Notice and Request for Consent)
Exhibit S	(Reserved)
Exhibit T	(Form of Agent and Intercreditor Provisions for Agented Notes)
Exhibit U	(Reserved)
Exhibit V	(Form of Transferee Letter)
Exhibit W	(Form of Joinder Supplement)
Schedule I	(Schedule of Documents)
Schedule II	(Reserved)
Schedule III	(Reserved)
Schedule IV	(Loan List)
Schedule V	(Location of Loan Files)
Schedule VI	(Form of Loan Checklist)
Schedule VII

*Replacement Structured Notes

*Replacement Swingline Note

*Third Amended and Restated Purchase and Sale Agreement

Originator to Borrower

Exhibit A (Form of Assignment)

Exhibit B (Notice of Sale)

Schedule I (Schedule of Purchased Assets)

Schedule II (Form of Checklist)

Hedge Agreement – Wachovia

(a)	Schedule to Master Agreement
	(i)	Exhibit A (Schedule to Master Agreement)
	(ii)	Exhibit B (Legal Opinion of counsel to Borrower)

Hedge Agreement – JPMorgan Chase

(a)	Schedule to Master Agreement
	(i)	Exhibit A (Schedule to Master Agreement)
	(ii)	Exhibit B (Legal Opinion of counsel to Borrower)

SI-2

CORPORATE DOCUMENTS

*Authority documents relating to Borrower

(a) Certified Copy of Certificate of Formation

(b) Trust Agreement

(c) Good Standing Certificates

*Secretary’s Certificate of Trustee of Borrower

(Certificate of Formation, Trust Agreement, Resolutions and Incumbency)

*Authority documents relating to Originator

(a) Certified Copy of Organizational Documents

(b) Bylaws

(c) Good Standing Certificates

*Secretary’s Certificate of Originator

(Certificate of Incorporation, Bylaws, Resolutions, and Incumbency)

*Officer’s Certificate of Borrower

(Bringdown of Representations and Warranties in Purchase and Sale Agreement and Loan Funding and Servicing Agreement)

*Officer’s Certificate of Originator

(Bringdown of Representations and Warranties in Purchase and Sale Agreement and Loan Funding and Servicing Agreement)

*Officer’s Certificate of Borrower

(Solvency)

*Officer’s Certificate of Originator

(Solvency)

*Power of Attorney of Borrower to WCM

*Power of Attorney of Originator to WCM

UCC FINANCING STATEMENTS

* UCC-3 Amendment - Originator to Borrower

(a) Delaware

* UCC-3 Amendment Borrower to WCM, as the Deal Agent

(a) Delaware

Pre-Closing UCC, tax lien and judgment search reports

(a) as to Borrower

(i) Delaware, Maryland, Minnesota

SI-3

(b) as to Originator

(i) Delaware, Maryland, Minnesota

Post-Closing UCC, tax lien and judgment search reports

(a) as to Borrower

(i) Delaware, Maryland, Minnesota

(b) as to Originator

(i) Delaware, Maryland, Minnesota

LEGAL OPINIONS

*Opinion of A&P, (Certain Incorporation, Authorization, Execution, and Enforceability as to Originator and Borrower)

*Opinion of W&S, as Counsel to Borrower and Originator (perfection and priority)

*Opinions of W&S, as Counsel to Borrower and Originator (true sale and non-consolidation)

Opinion of A&P, as Counsel to Borrower (Hedge Agreement)

*Opinion of RLF, as Counsel to Originator (Formation of the Trust)

*Opinion of Wells Fargo in-house Counsel (Incorporation, Authorization, Execution, and Enforceability)

*Opinions of RLF, as Counsel to the Borrower and Originator (UCC matters)

MISCELLANEOUS

Fee Letters

Backup Servicer and Collateral Custodian Fee Letter

Payment of Legal Fees

Such other consents, opinions, documents or instruments as the Deal Agent may request.

II. INITIAL FUNDING DATE DELIVERIES

Loan List

Borrower Notice for Initial Advance

Trust Receipt and Initial Certification

SI-4

Officer’s Certificate of Borrower

(Bringdown of Representations and Warranties in Purchase and Sale Agreement and Loan Funding and Servicing Agreement)

Officer’s Certificate of Originator

(Bringdown of Representations and Warranties in Purchase and Sale Agreement and Loan Funding and Servicing Agreement)

Officer’s Certificate of Borrower

(Solvency)

Officer’s Certificate of Originator

(Solvency)

Such other consents, opinions, documents or instruments as the Deal Agent may request.

* Indicates items delivered in connection with Third Amended and Restated Loan Funding and Servicing Agreement

SI-5

SCHEDULE II

[RESERVED]

SCHEDULE III

[RESERVED]

SCHEDULE IV

Loan List

[delivered in connection with the initial Advance]

SCHEDULE V

Locations of Loan Files

Wells Fargo Bank, National Association

Corporate Trust/Asset-Backed Securities

ABS Custody Vault

MAC # N9328-011

751 Kasota Avenue

Suite ABS

Minneapolis, MN 55414

SCHEDULE VI

[Form of Loan Checklist]

ACS Funding Trust I

Loan Checklist

Prepared by:

Date:

Obligor name:
Note date:
Note or Noteless:
Original Note Balance:
Loan ID No(s).:
Description:
[Senior Secured Loan]
[Senior Subordinated Loan]
Note Bifurcation (if applicable):	Loan ID No(s). above is being replaced by Loan ID No(s).

¨	Supplementary documents to an existing loan file
Documents enclosed herewith:
¨	Original Executed Promissory Note or Mortgage Note (as applicable) or, with respect to a Noteless Loan, a copy of the Loan Register with certificate of the Servicer
¨	For all loans with a note, an original assignment (which may be an allonge) in blank or, with respect to a Noteless Loan, a copy of each document evidencing the transfer of such Noteless Loan
¨	Loan Agreement	¨	Credit Agreement	¨	Note Purchase Agreement
¨	Security Agreement (if separate from any of the above)
¨	Mortgage (if applicable)		¨	Assignment of Mortgage (if applicable)
¨	Intercreditor agreement (if applicable)
¨	Subordination Agreement (if applicable)
¨	UCC financing statements (if applicable)
¨	UCC continuation statements (if applicable)
¨	Guaranty (if applicable)
¨	Other (Specify):	Legal Document 1
¨	Other (Specify)	Legal Document 1
¨	Other (Specify)	Legal Document 1
Comments

SCHEDULE VII

Obligor	Loan	Original Principal Balance	Current Balance (excluding any PIK amounts)	Date Included in Collateral
Cottman Transmission Systems, LL	Senior Subordinated Note - 03/31/04 - $10.0MM	2,500,000	2,500,000	11/30/2005
Directed Electronics, Inc.	Senior Subordinated Notes - 06/17/04 - $37MM	150,000	150,000	11/30/2005
	Senior Subordinated Notes - 06/17/04 - $37MM	7,500,000	7,500,000	11/30/2005
	Senior Subordinated Notes - 06/17/04 - $37MM	7,500,000	7,500,000	11/30/2005
	Senior Subordinated Notes - 06/17/04 - $37MM	7,000,000	7,000,000	11/30/2005
	Junior Subordinated Notes - 06/17/04 - $37MM	7,500,000	7,500,000	11/30/2005
	Junior Subordinated Notes - 06/17/04 - $37MM	6,500,000	6,500,000	11/30/2005
Dosimetry Acquisitions (U.S.), Inc	Senior Term B Note - 06/23/04 - $24.9MM	2,500,000	2,500,000	11/30/2005
	Senior Term B Note - 06/23/04 - $24.9MM	150,000	150,000	11/30/2005
	Senior Term B Note - 06/23/04 - $24.9MM	5,000,000	5,000,000	11/30/2005
	Senior Term B Note - 06/23/04 - $24.9MM	2,444,400	2,444,400	11/30/2005
	Senior Subordinated Note -06/23/04 -$12.2MM - MF	12,168,000	12,168,000	11/30/2005
	Junior Subordinated Note - 06/23/04 - $4.9MM	4,867,200	4,867,200	11/30/2005
	Revolving Loan Facility - 06/23/04 - $8.2MM	8,213,400	5,025,232	11/30/2005
Global Dosimetry Solutions, Inc.	Junior Subordinated Note B - 09/30/03 - $4.3MM	1,125,000	1,125,000	11/30/2005
	Senior Term Loan C - 11/10/04 - $4MM	4,000,000	4,000,000	11/30/2005
IST Acquisitions, Inc.	Junior Subordinated Note - 05/25/04 - $1.25MM	1,250,000	1,250,000	11/30/2005
	Senior Subordinated Note - 05/25/04 - $7.5MM	2,500,000	2,500,000	11/30/2005
	Senior Subordinated Note - 05/25/04 - $7.5MM	5,000,000	5,000,000	11/30/2005
	Senior Term Loan C - 10/29/04 - $4MM	4,000,000	4,000,000	11/30/2005
	Senior Term Loan B - 05/25/04 - $7.5MM	7,500,000	7,375,000	11/30/2005
KAC Holdings, Inc.	Senior Secured Subordinated Note - 02/13/04 - $15.0M	150,000	150,000	11/30/2005
	Junior Secured Subordinated Note - 02/13/04 - $6.0M	3,000,000	3,000,000	11/30/2005
	Junior Secured Subordinated Note - 02/13/04 - $6.0M	3,000,000	3,000,000	11/30/2005
Life-Like Holdings, Inc.	Senior Subordinated Note - 06/15/04 - $16.5MM	1,650,000	1,650,000	11/30/2005
	Senior Term Loan B - 06/15/04 - $9.0MM	5,000,000	4,925,000	11/30/2005
	Senior Term Loan B - 06/15/04 - $9.0MM	4,000,000	4,000,000	11/30/2005
	Revolving Loan Facility - 06/15/04 - $14.5MM	14,500,000		11/30/2005
	Junior Subordinated Note - 06/15/04 - $5MM	5,000,000	5,000,000	11/30/2005
	Senior Term Loan A - 06/15/04 - $20MM	15,000,000	13,555,328	11/30/2005
New Starcom Holdings, Inc.	Senior Subordinated Note B - 09/30/03 - $7.0MM	7,000,000	5,354,384	11/30/2005
	Senior Subordinated Note D - 09/30/03 - $7.0MM	7,000,000	7,000,000	11/30/2005
	Senior Subordinated Note E - 09/30/03 - $7.0MM	7,000,000	7,000,000	11/30/2005
	Senior Subordinated Note F - 09/30/03 - $6.8MM	6,870,701	6,870,701	11/30/2005
Safemark Acquisitions, Inc.	Junior Subordinated Note - 06/21/04 - $5.25MM	2,137,500	2,137,500	11/30/2005
Schoor DePalma Inc.	Senior Term A - 8/6/04 - $250K (GMAC as Servicer)	240,625	240,625	11/30/2005
	Senior Term A - 08/06/04 - $4.75M (GMAC as Servicer)	4,571,875	4,009,375	11/30/2005
	Senior Term C - 08/06/04 - $15.0MM	7,150,000	7,150,000	11/30/2005

SVII

Exhibit B-1

STRUCTURED NOTES (DOLLARS)

Exhibit B-2

STRUCTURED NOTES (ALTERNATIVE CURRENCY)

Exhibit C

SWINGLINE NOTE

Exhibit D

ALTERNATIVE CURRENCY SWINGLINE NOTE

Exhibit E

Form of Alternative Currency Swingline Lender Assumption Agreement

ALTERNATIVE CURRENCY SWINGLINE LENDER ASSUMPTION AGREEMENT

(ACS Funding Trust I)

WACHOVIA BANK, N.A., LONDON BRANCH, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby assumes all the rights and obligations of the Alternative Currency Swingline Lender as set forth in that certain Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005, by and among ACS Funding Trust I, as the borrower, American Capital Strategies, Ltd., as the servicer and as the originator, each of the conduit lenders and institutional lenders from time to time a party thereto, each of the lender agents from time to time a party thereto, Wachovia Capital Markets, LLC, as the deal agent, Wachovia Bank, National Association, as the swingline lender and Wells Fargo Bank, National Association, as the backup servicer and as the collateral custodian, as amended by Amendment No. 1, dated as of November 30, 2005, Amendment No. 2, dated as of August 7, 2006, and Amendment No. 3 dated as of the date hereof (such agreement as amended, modified, waived, supplemented or restated from time to time, the “Agreement”). Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Agreement.

Date: October 5, 2006

[Signature page to follow]

WACHOVIA BANK, N.A., LONDON BRANCH

By:

Name:

Title:

EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in (i) the Registration Statements (Form S-8 No. 333-124361, Form S-8 No. 333-60518, Form S-8 No. 333-34352, Form S-8 No. 333-93271, Form S-8 No. 333-68993, Form S-8 No.333-109026, Form S-8 No. 333-109024, and Form S-8 No. 333-135017) pertaining to the Employee Stock Option Plans of American Capital Strategies, Ltd., (ii) the Registration Statement (Form S-8 No. 333-135019) pertaining to the 2006 Stock Option Plan of American Capital Strategies, Ltd., (iii) the Registration Statement (Form S-8 No. 333-139965) pertaining to the Amended and Restated American Capital Incentive Bonus Plan, and (iv) the Registration Statement (Form S-3 No. 333-123340) and the related Prospectus pertaining to the Second Amended and Restated Dividend Reinvestment Plan of American Capital Strategies, Ltd. of our reports dated February 27, 2007, with respect to the consolidated financial statements, financial highlights and the schedule 12-14 of American Capital Strategies, Ltd., American Capital Strategies, Ltd. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of American Capital Strategies, Ltd., included in this Annual Report (Form 10-K) for the year ended December 31, 2006.

/s/ Ernst & Young LLP

McLean, Virginia

February 27, 2007

EX-24

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and officers of American Capital Strategies, Ltd., a corporation organized under the laws of the state of Delaware (the “Corporation”), hereby constitute and appoint John R. Erickson, Richard E. Konzmann, Samuel A. Flax and Cydonii V. Fairfax and each of them (with full power to each of them to act alone), his/her true and lawful attorneys-in-fact and agents for him/her and on his/her behalf and in his/her name, place and stead, in all cases with full power of substitution and resubstitution, in any hand and all capacities, to sign, execute and affix his/her seal to and file with the Securities and Exchange Commission (or any other governmental or regulatory authority) the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006 and all amendments or supplements thereto with all exhibits and any and all documents required to be filed with respect thereto, and grants to each of them full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully and to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned directors and/or officers has hereunto set his/her hand and seal, as of the date specified.

	AMERICAN CAPITAL STRATEGIES, LTD.
Dated: February 1, 2007	/s/    Malon Wilkus
	Malon Wilkus Chairman, Chief Executive Officer and President

Signature	Title	Date
/s/ Malon Wilkus Malon Wilkus	Director, Chairman, Chief Executive Officer and President (Principal Executive Officer)	February 1, 2007
/s/ John R. Erickson John R. Erickson	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	February 1, 2007
/s/ Mary C. Baskin Mary C. Baskin	Director	February 1, 2007
/s/ Neil M. Hahl Neil M. Hahl	Director	February 1, 2007
/s/ Philip R. Harper Philip R. Harper	Director	February 1, 2007
/s/ John A. Koskinen John A. Koskinen	Director	February 1, 2007
/s/ Stan Lundine Stan Lundine	Director	February 1, 2007
/s/ Kenneth D. Peterson Kenneth D. Peterson	Director	February 1, 2007
/s/ Alvin N. Puryear Alvin N. Puryear	Director	February 1, 2007

EX-31

Exhibit 31

CERTIFICATIONS

I, Malon Wilkus, certify that:

1. I have reviewed this annual report on Form 10-K of American Capital Strategies, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2007

/S/    MALON WILKUS

Malon Wilkus

Chairman of the Board,
Chief Executive Officer and President

Exhibit 31

I, John R. Erickson, certify that:

1. I have reviewed this annual report on Form 10-K of American Capital Strategies, Ltd.,

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entitles, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coved by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: March 1, 2007

/s/    JOHN R. ERICKSON

John R. Erickson

Executive Vice President and
Chief Financial Officer

EX-32

Exhibit 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

In connection with the Annual Report on Form 10-K of American Capital Strategies, Ltd. (the “Company”), for the fiscal year ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Malon Wilkus as Chief Executive Officer of the Company, and John R. Erickson, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, respectively, that:

1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    MALON WILKUS
Name:	Malon Wilkus
Title:	Chairman, Chief Executive Officer and President
Date:	March 1, 2007
/S/    JOHN R. ERICKSON
Name:	John R. Erickson
Title:	Executive Vice President and Chief Financial Officer
Date:	March 1, 2007

The certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.