FORM 10-Q
  UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 WASHINGTON, DC 20549
  x
    Quarterly Report Pursuant to
    Section 13 or 15(d) of the Securities Exchange Act
    of 1934  For
    The Quarterly Period
 Ended June 30,
    2009
  o
    Transition Report Pursuant to
    Section 13 or 15(d) of the Securities Exchange Act of
    1934  Commission File
    Number:
 0-22832
  ALLIED CAPITAL
    CORPORATION
 (Exact Name of Registrant as
    Specified in its Charter)
  Maryland(State or Jurisdiction of
    Incorporation or Organization)

52-1081052(IRS Employer
    Identification No.)   1919 Pennsylvania Avenue,
    N.W.
 Washington, DC 20006
 (Address of Principal Executive
    Offices)
  Registrants telephone number, including area code:
    (202) 721-6100
    x o
  Regulation S-T o o
  Rule 12b-2
  Large
    accelerated
    filer x
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   o x




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##### 





ALLIED
    CAPITAL CORPORATION
  FORM 10-Q TABLE OF CONTENTS
  
  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheet as of June 30,
    2009 (unaudited) and
    December 31, 2008

1Consolidated Statement of Operations (unaudited)
     For the Three and Six Months Ended June 30, 2009 and
    2008

2Consolidated Statement of Changes in Net Assets
    (unaudited)  For the Six Months Ended June 30, 2009
    and 2008

3Consolidated Statement of Cash Flows (unaudited)
     For the Six Months Ended June 30, 2009 and 2008

4Consolidated Statement of Investments as of
    June 30, 2009
    (unaudited)

5Consolidated Statement of Investments as of
    December 31, 2008

17Notes to Consolidated Financial Statements

31Report of Independent Registered Public
    Accounting Firm

65Item 2. Managements Discussion
    and Analysis of Financial Condition and Results of Operations

69Item 3. Quantitative and Qualitative
    Disclosures About Market Risk

105Item 4. Controls and Procedures

106PART II. OTHER INFORMATIONItem 1. Legal Proceedings

107Item 1A. Risk Factors

108Item 2. Unregistered Sales of Equity
    Securities and Use of Proceeds

117Item 3. Defaults Upon Senior
    Securities

117Item 4. Submission of Matters to a Vote
    of Security Holders

117Item 5. Other Information

117Item 6. Exhibits

118Signatures

123




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##### 



PART I:
    FINANCIAL INFORMATION Item
    1.  Financial Statements  ALLIED
    CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEET
  June 30,


December 31,(in thousands, except per share
    amounts)

2009


2008(unaudited)ASSETSPortfolio at value:Private financeCompanies more than 25% owned (cost:
    2009-$2,037,757;
    2008-$2,167,020)

$
1,014,871


$
1,187,722Companies 5% to 25% owned (cost:
    2009-$213,498;
    2008-$392,516)


161,368



352,760Companies less than 5% owned (cost:
    2009-$2,000,141;
    2008-$2,317,856)


1,300,053



1,858,581Total private finance (cost:
    2009-$4,251,396;
    2008-$4,877,392)


2,476,292



3,399,063Commercial real estate finance (cost:
    2009-$73,663;
    2008-$85,503)


73,738



93,887Total portfolio at value (cost:
    2009-$4,325,059;
    2008-$4,962,895)


2,550,030



3,492,950Accrued interest and dividends receivable


44,600



55,638Other assets


130,504



122,909Investments in money market and other securities


415,025



287Cash


68,985



50,402Total assets

$
3,209,144


$
3,722,186LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Notes payable (maturing within one year:
    2009-$1,015,000;
    2008-$1,015,000)

$
1,760,544


$
1,895,000Revolving line of credit


50,000



50,000Accounts payable and other liabilities


57,271



58,786Total liabilities


1,867,815



2,003,786Commitments and contingenciesShareholders equity:Common stock, $0.0001 par value, 400,000 shares authorized;
    179,012 and 178,692 shares issued and outstanding at
    June 30, 2009, and December 31, 2008, respectively


18



18Additional paid-in capital


3,037,223



3,037,845Notes receivable from sale of common stock


(805
)


(1,089
)Net unrealized appreciation (depreciation)


(1,855,936
)


(1,503,089
)Undistributed earnings


160,829



184,715Total shareholders equity


1,341,329



1,718,400Total liabilities and shareholders equity

$
3,209,144


$
3,722,186Net asset value per common share

$
7.49


$
9.62   The accompanying notes are an
    integral part of these consolidated financial statements.
 1




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##### 



ALLIED
    CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENT OF OPERATIONS
  For the Three


For the SixMonths Ended


Months EndedJune 30,


June 30,(in thousands, except per share
    amounts)

2009


2008


2009


2008(unaudited)


(unaudited)Interest and Related Portfolio Income:Interest and dividendsCompanies more than 25% owned

$
22,851


$
26,844


$
48,204


$
55,468Companies 5% to 25% owned


9,212



9,049



20,348



21,723Companies less than 5% owned


43,594



83,319



95,835



176,681Total interest and dividends


75,657



119,212



164,387



253,872Fees and other incomeCompanies more than 25% owned


7,309



11,043



12,585



16,508Companies 5% to 25% owned


193



16



210



69Companies less than 5% owned


1,471



4,307



2,630



9,073Total fees and other income


8,973



15,366



15,425



25,650Total interest and related portfolio income


84,630



134,578



179,812



279,522Expenses:Interest


43,117



36,465



86,602



74,025Employee


10,964



13,344



22,034



35,996Employee stock options


1,204



3,859



1,977



8,054Administrative


8,459



12,943



18,304



21,962Impairment of long-lived asset










2,873



Total operating expenses


63,744



66,611



131,790



140,037Net investment income before income taxes


20,886



67,967



48,022



139,485Income tax expense (benefit), including excise tax


2,653



4,112



2,275



6,081Net investment income


18,233



63,855



45,747



133,404Net Realized and Unrealized Gains (Losses):Net realized gains (losses)Companies more than 25% owned


(72,912
)


1,172



(76,962
)


869Companies 5% to 25% owned


(24,044
)


(15,046
)


(54,139
)


(13,803
)Companies less than 5% owned


(29,100
)


(3,981
)


(22,064
)


(1,778
)Total net realized gains (losses)


(126,056
)


(17,855
)


(153,165
)


(14,712
)Net change in unrealized appreciation or depreciation


(2,777
)


(148,203
)


(352,847
)


(261,607
)Total net gains (losses)


(128,833
)


(166,058
)


(506,012
)


(276,319
)Gain on repurchase of debt


81,537







83,532



Net increase (decrease) in net assets resulting from operations

$
(29,063
)

$
(102,203
)

$
(376,733
)

$
(142,915
)Basic earnings (loss) per common share

$
(0.16
)

$
(0.59
)

$
(2.11
)

$
(0.85
)Diluted earnings (loss) per common share

$
(0.16
)

$
(0.59
)

$
(2.11
)

$
(0.85
)Weighted average common shares outstanding  basic


178,695



172,968



178,694



167,238Weighted average common shares outstanding  diluted


178,695



172,968



178,694



167,238   The accompanying notes are an
    integral part of these consolidated financial statements.
 2




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##### 



ALLIED
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED STATEMENT OF CHANGES IN NET
    ASSETS
  For the Six MonthsEnded June 30,(in thousands, except per share
    amounts)

2009


2008(unaudited)Operations:Net investment income

$
45,747


$
133,404Net realized gains (losses)


(153,165
)


(14,712
)Net change in unrealized appreciation or depreciation


(352,847
)


(261,607
)Gain on repurchase of debt


83,532



Net increase (decrease) in net assets resulting from operations


(376,733
)


(142,915
)Shareholder distributions:Common stock dividends






(224,231
)Net decrease in net assets resulting from shareholder
    distributions






(224,231
)Capital share transactions:Sale of common stock






402,478Issuance of common stock in lieu of cash distributions






3,751Issuance of common stock upon exercise of stock options


233



Stock option expense


2,046



8,180Net decrease in notes receivable from sale of common
    stock


284



275Purchase of common stock held in deferred compensation
    trusts






(943
)Distribution of common stock held in deferred compensation trusts






27,335Other


(2,901
)


Net increase (decrease) in net assets resulting
    from capital share transactions


(338
)


441,076Total increase (decrease) in net assets


(377,071
)


73,930Net assets at beginning of period


1,718,400



2,771,847Net assets at end of period

$
1,341,329


$
2,845,777Net asset value per common share

$
7.49


$
15.93Common shares outstanding at end of period


179,012



178,692   The accompanying notes are an
    integral part of these consolidated financial statements.
 3




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##### 






ALLIED
    CAPITAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CASH FLOWS
  For the Six MonthsEnded June 30,(in thousands)

2009


2008(unaudited)Cash flows from operating activities:Net increase (decrease) in net assets resulting from operations

$
(376,733
)

$
(142,915
)Adjustments:Portfolio investments


(98,734
)


(593,959
)Principal collections related to investment repayments or sales


416,283



597,577Collections of notes and other consideration received from sale
    of investments


171,030



10,455Realized gains from the receipt of notes and other consideration
    from sale of investments






(1,886
)Realized losses


174,524



52,395Gain on repurchase of debt


(83,532
)


Redemption of (investments in) U.S. Treasury bills, money market
    and other securities


(414,738
)


101,173Payment-in-kind interest and dividends, net of cash collections


(18,531
)


(24,497
)Change in accrued interest and dividends


9,928



(5,942
)Net collection (amortization) of discounts and fees


(4,506
)


(7,635
)Stock option expense


2,046



8,180Impairment of long-lived asset


2,873



Changes in other assets and liabilities


(65,152
)


(58,377
)Depreciation and amortization


787



1,143Net change in unrealized (appreciation) or depreciation


352,847



261,607Net cash provided by (used in) operating activities


68,392



197,319Cash flows from financing activities:Sale of common stock






402,478Sale of common stock upon the exercise of stock options


233



Collections of notes receivable from sale of common stock


284



275Borrowings under notes payable






193,000Repurchase or repayment of notes payable


(50,326
)


(153,000
)Net borrowings under (repayments on) revolving line of credit






(286,750
)Purchase of common stock held in deferred compensation trusts






(943
)Other financing activities






(6,658
)Common stock dividends and distributions paid






(220,480
)Net cash provided by (used in) financing activities


(49,809
)


(72,078
)Net increase (decrease) in cash


18,583



125,241Cash at beginning of period


50,402



3,540Cash at end of period

$
68,985


$
128,781   The accompanying notes are an
    integral part of these consolidated financial statements.
 4




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ALLIED
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENT OF INVESTMENTS
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueCompanies More Than 25% OwnedAGILE Fund I,
    LLC(5)

Equity Interests





$
678


$
426(Private Equity Fund)

Total Investment






678



426AllBridge Financial, LLC

Senior Loan (7.2%, Due 12/09)

$
398



398



398(Asset Management)

Equity Interests






34,865



8,047Total Investment






35,263



8,445Standby Letter of Credit ($15,000)Allied Capital Senior Debt Fund,
    L.P.(5)

Limited Partnership Interests






31,800



33,044(Private Debt Fund)

Total Investment






31,800



33,044Avborne,
    Inc.(7)

Preferred Stock (12,500 shares)










904(Business Services)

Common Stock (27,500 shares)










Total Investment










904Avborne Heavy Maintenance,
    Inc.(7)

Common Stock (2,750 shares)










(Business Services)

Total Investment










Aviation Properties Corporation

Common Stock (100 shares)






93



(Business Services)

Total Investment






93



Standby Letters of Credit ($1,000)Border Foods, Inc.

Senior Loan (12.9%, Due 3/12)


34,876



29,199



34,876(Consumer Products)

Preferred Stock (100,000 shares)






12,721



11,461Common Stock (260,467 shares)






3,847



Total Investment






45,767



46,337Calder Capital Partners,
    LLC(5)

Senior Loan (12.5%, Due
    5/09)(6)


4,496



4,496



980(Asset Management)

Equity Interests






2,453



Total Investment






6,949



980Callidus Capital Corporation

Subordinated Debt (18.0%, Due 8/13)


16,927



16,927



16,927(Asset Management)

Common Stock (100 shares)










21,012Total Investment






16,927



37,939Guaranty ($6,447)  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(7)

Avborne, Inc. and Avborne Heavy Maintenance, Inc. are affiliated
    companies.   The accompanying notes are an
    integral part of these consolidated financial statements.
 5




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ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueCiena Capital LLC

Senior Loan (5.5%,
    Due 3/09)(6)

$
319,031


$
319,031


$
93,043(Financial Services)

Class B Equity Interests






119,436



Class C Equity Interests






109,097



Total Investment






547,564



93,043Guaranty ($5,000  See Note 3)Standby Letters of Credit ($46,000  
      See Note 3)CitiPostal Inc.

Senior Loan (3.8%, Due 12/13)


692



682



682(Business Services)

Unitranche Debt (12.0%, Due 12/13)


51,559



51,369



51,369Subordinated Debt (16.0%, Due 12/15)


9,866



9,866



9,866Common Stock (37,024 shares)






12,726



Total Investment






74,643



61,917Coverall North America, Inc.

Unitranche Debt (12.0%, Due 7/11)


31,627



31,556



31,556(Business Services)

Subordinated Debt (15.0%, Due 7/11)


5,563



5,552



5,552Common Stock (763,333 shares)






14,362



22,610Total Investment






51,470



59,718CR Holding, Inc.

Subordinated Debt (16.6%, Due
    2/13)(6)


40,623



40,510



10,710(Consumer Products)

Common Stock (32,090,696 shares)






28,744



Total Investment






69,254



10,710Crescent Equity
    Corp.(8)

Senior Loan (10.0%, Due 6/10)


433



433



433(Business Services)

Subordinated Debt (11.0%, Due
    9/11  6/17)(6)


32,305



32,216



4,378Common Stock (174 shares)






83,194



Total Investment






115,843



4,811Guaranty ($900)Direct Capital Corporation

Senior Loan (8.0%, Due
    1/14)(6)


8,175



8,175



8,405(Financial Services)

Subordinated Debt (16.0%, Due
    3/13)(6)


55,671



55,496



7,109Common Stock (2,317,020 shares)






25,732



Total Investment






89,403



15,514Financial Pacific Company

Subordinated Debt (17.4%, Due 2/12  8/12)


68,967



68,860



49,696(Financial Services)

Preferred Stock (9,458 shares)






8,865



Common Stock (12,711 shares)






12,783



Total Investment






90,508



49,696  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(8)

Crescent Equity Corp. holds investments in Crescent
    Hotels & Resorts, LLC and affiliates.   The accompanying notes are an
    integral part of these consolidated financial statements.
 6




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ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueGlobal Communications, LLC

Senior Loan (10.0%, Due
    9/02)(6)

$
1,335


$
1,335


$
992(Business Services)

Total Investment






1,335



992Hot Light Brands, Inc.

Senior Loan (9.0%, Due
    2/11)(6)


30,572



30,572



12,010(Retail)

Common Stock (93,500 shares)






5,151



Total Investment






35,723



12,010Hot Stuff Foods, LLC

Senior Loan (3.8%, Due 2/11-2/12)


50,777



50,658



50,658(Consumer Products)

Subordinated Debt (12.4%, Due
    8/12-2/13)(6)


83,692



83,387



16,143Common Stock (1,147,453 shares)






56,187



Total Investment






190,232



66,801Huddle House, Inc.

Subordinated Debt (15.0%, Due 12/15)


19,473



19,429



19,429(Retail)

Common Stock (358,428 shares)






36,348



18,411Total Investment






55,777



37,840IAT Equity, LLC and Affiliates

Subordinated Debt (9.0%, Due 6/14)


6,000



6,000



6,000d/b/a Industrial Air Tool

Equity Interests






7,500



9,250(Industrial Products)

Total Investment






13,500



15,250Impact Innovations Group, LLC

Equity Interests in Affiliate










322(Business Services)

Total Investment










322Insight Pharmaceuticals Corporation

Subordinated Debt (15.0%, Due 9/12)


54,124



54,050



54,050(Consumer Products)

Common Stock (155,000 shares)






40,413



11,033Total Investment






94,463



65,083Jakel, Inc.

Subordinated Debt (15.5%, Due
    3/08)(6)


748



748



374(Industrial Products)

Total Investment






748



374Knightsbridge CLO 2007-1
    Ltd.(4)

Class E Notes (10.1%, Due 1/22)


18,700



18,700



11,341(CLO)

Income Notes
    (13.6%)(11)






39,556



25,858Total Investment






58,256



37,199Knightsbridge CLO
    2008-1
    Ltd.(4)

Class C Notes (8.1%, Due 6/18)


12,800



12,800



12,173(CLO)

Class D Notes (9.1%, Due 6/18)


8,000



8,000



6,985Class E Notes (5.6%, Due 6/18)


13,200



10,879



8,896Income Notes
    (17.3%)(11)






21,230



18,279Total Investment






52,909



46,333  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(11)

Represents the effective interest yield earned on the cost basis
    of these preferred equity investments and income notes. The
    yield is included in interest income in the consolidated
    statement of operations.   The accompanying notes are an
    integral part of these consolidated financial statements.
 7




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##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueMVL Group, Inc.

Senior Loan (12.0%, Due 7/12)

$
25,260


$
25,256


$
25,256(Business Services)

Subordinated Debt (14.5%, Due 7/12)


41,434



41,399



33,843Subordinated Debt (8.0%, Due
    7/12)(6)


144



139



Common Stock (560,716 shares)






555



Total Investment






67,349



59,099Penn Detroit Diesel Allison, LLC

Equity Interests






20,081



20,005(Business Services)

Total Investment






20,081



20,005Senior Secured Loan Fund LLC

Subordinated Certificates (8.9%)






166,293



154,200(Private Debt Fund)

Equity Interests






1



Total Investment






166,294



154,200Service Champ, Inc.

Subordinated Debt (15.5%, Due 4/12)


27,393



27,337



27,337(Business Services)

Common Stock (55,112 shares)






11,785



22,676Total Investment






39,122



50,013Stag-Parkway, Inc.

Subordinated Debt (10.0%, Due 7/12)


19,044



18,997



18,997(Business Services)

Common Stock (25,000 shares)






32,686



5,950Total Investment






51,683



24,947Startec Equity, LLC

Equity Interests






211



(Telecommunications)

Total Investment






211



Worldwide Express Operations, LLC

Subordinated Debt (14.0%, Due
    2/14)(6)


2,827



2,684



919(Business Services)

Equity Interests






11,084



Warrants






144



Total Investment






13,912



919Total
    companies more than 25% owned





$
2,037,757


$
1,014,871Companies 5% to 25% Owned10th

    Street, LLC

Subordinated Debt (13.0%, Due 11/14)

$
21,877


$
21,777


$
21,877(Business Services)

Equity Interests






422



505Option






25



25Total Investment






22,224



22,407Air Medical Group Holdings LLC

Senior Loan (4.3%, Due 3/11)










(Healthcare Services)

Equity Interests






2,966



12,473Total Investment






2,966



12,473BB&T Capital Partners/Windsor

Equity Interests






11,789



9,680Mezzanine Fund,
    LLC(5)(Private Equity Fund)

Total Investment






11,789



9,680  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.   The accompanying notes are an
    integral part of these consolidated financial statements.
 8




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##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal

Cost

ValueDriven Brands, Inc.

Subordinated Debt (16.5%, Due 7/15)

$
87,800


$
87,424


$
84,032(Consumer Services)

Common Stock (3,772,098 shares)






9,516



2,200Total Investment






96,940



86,232Multi-Ad Services, Inc.

Unitranche Debt (11.3%, Due 11/11)


2,516



2,497



2,453(Business Services)

Equity Interests






1,737



1,247Total Investment






4,234



3,700Pendum Acquisition, Inc.

Common Stock (8,872 shares)










(Business Services)

Total Investment










Postle Aluminum Company, LLC

Senior Loan (6.0%, Due
    10/12)(6)


35,000



34,876



14,369(Industrial Products)

Subordinated Debt (3.0%, Due
    10/12)(6)


23,953



23,868



Equity Interests






2,174



Total Investment






60,918



14,369Progressive International

Preferred Stock (500 shares)






500



1,171Corporation

Common Stock (197 shares)






13



3,900(Consumer Products)

Warrants










Total Investment






513



5,071Regency Healthcare Group, LLC

Equity Interests






1,302



1,817(Healthcare Services)

Total Investment






1,302



1,817SGT India Private
    Limited(4)

Common Stock (150,596 shares)






4,142



(Business Services)

Total Investment






4,142



Soteria Imaging Services, LLC

Subordinated Debt (11.3%, Due 11/10)


4,250



4,192



4,095(Healthcare Services)

Equity Interests






1,881



1,515Total Investment






6,073



5,610Triax Holdings, LLC

Equity Interests






798



9(Consumer Products)

Total Investment






798



9Universal Environmental Services, LLC

Equity Interests






1,599



(Business Services)

Total Investment






1,599



Total
    companies 5% to 25% owned





$
213,498


$
161,368Companies Less Than 5% Owned3SI Security Systems, Inc.

Subordinated Debt (16.0%, Due 8/13)

$
20,500


$
20,443


$
17,869(Consumer Products)

Subordinated Debt (18.0%, Due
    8/13)(6)


9,048



9,030



Total Investment






29,473



17,869Augusta Sportswear Group, Inc.

Common Stock (2,500 shares)






2,500



1,400(Consumer Products)

Total Investment






2,500



1,400  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.   The accompanying notes are an
    integral part of these consolidated financial statements.
 9




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal

Cost

ValueAxium Healthcare Pharmacy, Inc.

Subordinated Debt (8.0%, Due 3/15)

$
2,975


$
2,975


$
2,380(Healthcare Services)

Total Investment






2,975



2,380Baird Capital Partners IV
    Limited(5)

Limited Partnership Interest






3,636



2,413(Private Equity Fund)

Total Investment






3,636



2,413BenefitMall Holdings Inc.

Subordinated Debt (18.0%, Due 6/14)


40,326



40,246



40,246(Business Services)

Common Stock (39,274,290
    shares)(12)






39,274



74,761Warrants(12)










Total Investment






79,520



115,007Broadcast Electronics, Inc.

Senior Loan (8.8%, Due
    11/11)(6)


4,882



4,855



630(Business Services)

Preferred Stock (2,044 shares)










Total Investment






4,855



630Bushnell, Inc.

Subordinated Debt (7.1%, Due 2/14)


41,325



40,106



29,901(Consumer Products)

Total Investment






40,106



29,901Callidus Debt Partners

Class C Notes (12.9%, Due
    12/13)(6)


19,420



19,527



4,926CDO Fund I,
    Ltd.(4)(10)

Class D Notes (17.0%, Due
    12/13)(6)


9,400



9,454



(CDO)Total Investment






28,981



4,926Callidus Debt Partners

Preferred Shares (23,600,000 shares)






20,138



1,492CLO Fund III,
    Ltd.(4)(10)(CLO)

Total Investment






20,138



1,492Callidus Debt Partners

Class D Notes (5.7%, Due 4/20)


3,000



2,116



1,649CLO Fund IV,
    Ltd.(4)(10)

Income Notes
    (0.0%)(11)






14,979



4,166(CLO)Total Investment






17,095



5,815Callidus Debt Partners

Income Notes
    (0.7%)(11)






13,698



4,594CLO Fund V,
    Ltd.(4)(10)(CLO)

Total Investment






13,698



4,594Callidus Debt Partners

Class D Notes (7.1%, Due 10/21)


9,160



7,388



3,751CLO Fund VI,
    Ltd.(4)(10)

Income Notes
    (0.0%)(11)






29,144



5,629(CLO)Total Investment






36,532



9,380Callidus Debt Partners

Income Notes
    (0.0%)(11)






24,824



4,772CLO Fund VII,
    Ltd.(4)(10)(CLO)

Total Investment






24,824



4,772  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(10)

The fund is managed by Callidus Capital, a portfolio company of
    Allied Capital.(11)

Represents the effective interest yield earned on the cost basis
    of these preferred equity investments and income notes. The
    yield is included in interest income in the consolidated
    statement of operations.(12)

Common stock is non-voting. In addition to non-voting stock
    ownership, the Company has an option to acquire a majority of
    the voting securities of the portfolio company at fair market
    value.   The accompanying notes are an
    integral part of these consolidated financial statements.
 10




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueCallidus MAPS CLO Fund I
    LLC(10)

Class E Notes (6.1%, Due 12/17)

$
17,000


$
17,000


$
10,200(CLO)

Income Notes
    (0.0%)(11)






42,492



12,388Total Investment






59,492



22,588Callidus MAPS CLO Fund II,
    Ltd.(4)(10)

Class D Notes (5.4%, Due 7/22)


7,700



3,696



3,037(CLO)

Income Notes
    (0.0%)(11)






18,300



4,164Total Investment






21,996



7,201Carlisle Wide Plank Floors, Inc.

Senior Loan (4.2%, Due 6/11)


500



498



409(Consumer Products)

Unitranche Debt (12.8%, Due 6/11)


3,161



3,143



2,585Preferred Stock (345,056 Shares)






345



Total Investment






3,986



2,994Catterton Partners VI,
    L.P.(5)

Limited Partnership Interest






2,952



1,521(Private Equity Fund)

Total Investment






2,952



1,521Centre Capital Investors V,
    L.P.(5)

Limited Partnership Interest






2,798



1,715(Private Equity Fund)

Total Investment






2,798



1,715CK Franchising, Inc.
    (Consumer Services)

Senior Loan (5.5%, Due 7/12)


300



286



286Subordinated Debt (12.3%, Due 7/12  7/17)


21,152



21,090



21,090Preferred Stock (1,281,887 shares)






1,282



1,710Common Stock (7,585,549 shares)






7,586



16,497Total Investment






30,244



39,583Commercial Credit Group, Inc.

Subordinated Debt (15.0%, Due 6/15)


22,000



21,970



21,970(Financial Services)

Preferred Stock (64,679 shares)






15,543



8,783Warrants










Total Investment






37,513



30,753Community Education Centers, Inc.

Subordinated Debt (19.5%, Due 11/13)


35,972



35,916



35,972(Education Services)

Total Investment






35,916



35,972Component Hardware Group, Inc.

Subordinated Debt (13.5%, Due 1/13)


18,851



18,802



16,303(Industrial Products)

Total Investment






18,802



16,303Cook Inlet Alternative Risk, LLC

Unitranche Debt (10.8%, Due 4/13)


87,600



87,264



69,000(Business Services)

Equity Interests






552



Total Investment






87,816



69,000Cortec Group Fund IV,
    L.P.(5)

Limited Partnership Interest






4,970



2,717(Private Equity)

Total Investment






4,970



2,717  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(5)

Non-registered investment company.(10)

The fund is managed by Callidus Capital, a portfolio company of
    Allied Capital.(11)

Represents the effective interest yield earned on the cost basis
    of these preferred equity investments and income notes. The
    yield is included in interest income in the consolidated
    statement of operations.   The accompanying notes are an
    integral part of these consolidated financial statements.
 11




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueDigital VideoStream, LLC

Unitranche Debt (11.0%, Due 2/12)

$
13,676


$
13,622


$
13,478(Business Services)

Convertible Subordinated Debt (10.0%, Due 2/16)


4,775



4,764



4,764Total Investment






18,386



18,242DirectBuy Holdings, Inc.

Subordinated Debt (14.5%, Due 5/13)


76,389



76,122



59,663(Consumer Products)

Equity Interests






8,000



Total Investment






84,122



59,663Distant Lands Trading Co.

Senior Loan (6.3%, Due 11/11)


10,000



9,979



9,240(Consumer Products)

Unitranche Debt (11.0%, Due 11/11)


43,499



43,408



41,571Common Stock (3,451 shares)






3,451



1,077Total Investment






56,838



51,888Diversified Mercury

Senior Loan (4.5%, Due 3/13)


2,960



2,948



2,593Communications, LLC

Total Investment






2,948



2,593(Business Services)Dryden XVIII Leveraged
    Loan 2007
    Limited(4)

Class B Notes (5.6%, Due
    10/19)(6)Income Notes
    (0.0%)(11)


9,092



7,872
    23,164



2,271
    773(CLO)

Total Investment






31,036



3,044Dynamic India Fund
    IV(4)(5)

Equity Interests






9,350



9,540(Private Equity Fund)

Total Investment






9,350



9,540EarthColor, Inc.

Subordinated Debt (15.0%, Due
    11/13)(6)


123,819



123,385



(Business Services)

Common Stock
    (63,438 shares)(12)






63,438



Warrants(12)










Total Investment






186,823



eCentury Capital Partners,
    L.P.(5)

Limited Partnership Interest






7,274



112(Private Equity Fund)

Total Investment






7,274



112eInstruction Corporation

Subordinated Debt (12.1%, Due 7/14-1/15)


35,328



35,204



31,981(Education Services)

Common Stock (2,406 shares)






2,500



850Total Investment






37,704



32,831Farleys & Sathers Candy Company, Inc.

Subordinated Debt (8.3%, Due 3/11)


2,500



2,495



2,393(Consumer Products)

Total Investment






2,495



2,393  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(11)

Represents the effective interest yield earned on the cost basis
    of these preferred equity investments and income notes. The
    yield is included in interest income in the consolidated
    statement of operations.(12)

Common stock is non-voting. In addition to non-voting stock
    ownership, the Company has an option to acquire a majority of
    the voting securities of the portfolio company at fair market
    value.   The accompanying notes are an
    integral part of these consolidated financial statements.
 12




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueFidus Mezzanine Capital,
    L.P.(5)

Limited Partnership Interest





$
12,828


$
8,325(Private Equity Fund)

Total Investment






12,828



8,325Freedom Financial Network, LLC

Subordinated Debt (13.5%, Due 2/14)

$
8,000



7,950



8,000(Financial Services)

Total Investment






7,950



8,000Geotrace Technologies, Inc.

Warrants






2,027



2,335(Energy Services)

Total Investment






2,027



2,335Gilchrist & Soames, Inc.
    (Consumer Products)

Subordinated Debt (13.4%, Due 10/13)


25,304



25,179



23,079Total Investment






25,179



23,079Havco Wood Products LLC

Equity Interests






910



(Industrial Products)

Total Investment






910



Higginbotham Insurance Agency, Inc.

Subordinated Debt (13.7%, Due 8/13  8/14)


53,305



53,109



53,109(Business Services)

Common Stock
    (23,695 shares)(12)






23,695



14,190Warrant(12)










Total Investment






76,804



67,299The Homax Group, Inc.

Senior Loan (6.4%, Due 10/12)


10,194



10,150



9,110(Consumer Products)

Subordinated Debt (14.5%, Due 4/14)


14,159



13,589



6,986Preferred Stock (76 shares)






76



Common Stock (24 shares)






5



Warrants






954



Total Investment






24,774



16,096Ideal Snacks Corporation

Senior Loan (7.3%, Due 6/10)


1,333



1,333



1,290(Consumer Products)

Total Investment






1,333



1,290Kodiak Fund
    LP(5)

Equity Interests






9,350



900(Private Equity Fund)

Total Investment






9,350



900Market Track Holdings, LLC

Senior Loan (8.0%, Due 6/14)


2,500



2,450



2,483(Business Services)

Subordinated Debt (15.9%, Due 6/14)


24,600



24,499



23,306Total Investment






26,949



25,789NetShape Technologies, Inc.

Senior Loan (4.1%, Due 2/13)


875



875



445(Industrial Products)

Total Investment






875



445  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(5)

Non-registered investment company.(12)

Common stock is non-voting. In addition to non-voting stock
    ownership, the Company has an option to acquire a majority of
    the voting securities of the portfolio company at fair market
    value.   The accompanying notes are an
    integral part of these consolidated financial statements.
 13




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueNetwork Hardware Resale, Inc.

Unitranche Debt (12.8%, Due 12/11)

$
16,618


$
16,676


$
16,618(Business Services)

Convertible Subordinated Debt (9.8%, Due 12/15)


15,953



16,002



16,002Total Investment






32,678



32,620Novak Biddle Venture Partners III,
    L.P.(5)

Limited Partnership Interest






2,018



1,221(Private Equity Fund)

Total Investment






2,018



1,221Oahu Waste Services, Inc.

Stock Appreciation Rights






206



385(Business Services)

Total Investment






206



385Pangaea CLO 2007-1
    Ltd.(4)

Class D Notes (5.9%, Due 1/21)


15,000



11,919



6,190(CLO)

Total Investment






11,919



6,190PC Helps Support, LLC

Senior Loan (3.6%, Due 12/13)


8,417



8,328



7,795(Business Services)

Subordinated Debt (12.8%, Due 12/13)


27,507



27,393



25,948Total Investment






35,721



33,743Performant Financial Corporation

Common Stock (478,816 shares)






734



560(Business Services)

Total Investment






734



560Promo Works, LLC

Unitranche Debt (12.3%, Due 12/11)


23,111



22,980



17,566(Business Services)

Total Investment






22,980



17,566Reed Group, Ltd.

Senior Loan (7.0%, Due 12/13)


12,338



12,206



10,946(Healthcare Services)

Subordinated Debt (15.8%, Due 12/13)


18,897



18,830



16,383Equity Interests






1,800



245Total Investment






32,836



27,574S.B. Restaurant Company

Unitranche Debt (9.8%, Due 4/11)


38,327



38,160



34,036(Retail)

Preferred Stock (46,690 shares)






117



117Warrants






534



Total Investment






38,811



34,153Snow Phipps Group,
    L.P.(5)

Limited Partnership Interest






5,850



4,308(Private Equity Fund)

Total Investment






5,850



4,308SPP Mezzanine Funding II,
    L.P.(5)

Limited Partnership Interest






9,097



7,949(Private Equity Fund)

Total Investment






9,097



7,949STS Operating, Inc.

Subordinated Debt (11.0%, Due 1/13)


30,386



30,307



27,378(Industrial Products)

Total Investment






30,307



27,378Summit Energy Services, Inc.

Common Stock (415,982 shares)






1,861



2,100(Business Services)

Total Investment






1,861



2,100  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.   The accompanying notes are an
    integral part of these consolidated financial statements.
 14




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private Finance



June 30, 2009Portfolio Company



(unaudited)(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueTappan Wire & Cable Inc.

Unitranche Debt (15.0%, Due
    8/14)(6)

$
22,346


$
22,248


$
6,961(Business Services)

Common Stock
    (12,940 shares)(12)






2,043



Warrant(12)










Total Investment






24,291



6,961The Step2 Company, LLC

Unitranche Debt (11.0%, Due 4/12)


94,843



94,616



89,432(Consumer Products)

Equity Interests






2,156



1,376Total Investment






96,772



90,808Tradesmen International, Inc.

Subordinated Debt (12.0%, Due 12/12)


40,000



39,723



34,413(Business Services)

Total Investment






39,723



34,413TransAmerican Auto Parts, LLC

Subordinated Debt (18.3%, Due
    11/12)(6)


24,561



24,409



(Consumer Products)

Equity Interests






1,034



Total Investment






25,443



Trover Solutions, Inc.

Subordinated Debt (12.0%, Due 11/12)


56,676



56,496



53,019(Business Services)

Total Investment






56,496



53,019United Road Towing, Inc.

Subordinated Debt (11.8%, Due 1/14)


19,060



18,984



18,641(Consumer Services)

Total Investment






18,984



18,641Venturehouse-Cibernet Investors, LLC

Equity Interest










(Business Services)

Total Investment










WMA Equity Corporation and Affiliates

Subordinated Debt (16.8%, Due
    4/13-4/14)(6)


139,455



138,559



60,000d/b/a Wear Me Apparel

Common Stock (86 shares)






39,635



(Consumer Products)

Total Investment






178,194



60,000Webster Capital II,
    L.P.(5)

Limited Partnership Interest






1,929



1,649(Private Equity Fund)

Total Investment






1,929



1,649Woodstream Corporation

Subordinated Debt (12.0%, Due 2/15)


90,000



89,663



73,064(Consumer Products)

Common Stock (6,960 shares)






6,961



1,100Total Investment






96,624



74,164Other companies

Other debt investments


37



(147
)


(147
)Other equity investments






41



8Total Investment






(106
)


(139
)Total companies less than 5% owned





$
2,000,141


$
1,300,053Total private finance (120 portfolio investments)





$
4,251,396


$
2,476,292  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(12)

Common stock is non-voting. In addition to non-voting stock
    ownership, the Company has an option to acquire a majority of
    the voting securities of the portfolio company at fair market
    value.   The accompanying notes are an
    integral part of these consolidated financial statements.
 15




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Commercial
    Real Estate Finance
    (in thousands, except number of loans)
  June 30, 2009(unaudited)Stated Interest

Number ofRate Ranges

Loans

Cost

ValueCommercial Mortgage LoansUp to 6.99%



3


$
31,385


$
30,0977.00%8.99%



2



1,946



1,9299.00%10.99%



1



6,472



6,47211.00%12.99%



1



10,475



9,05115.00% and above



2



3,970



5,485Total commercial mortgage
    loans(13)









$
54,248


$
53,034Real Estate Owned









$
5,920


$
6,579Equity
    Interests(2) 

    Companies more than 25% owned





$
13,495


$
14,125Guarantees ($6,871)Total commercial real estate finance









$
73,663


$
73,738Total portfolio









$
4,325,059


$
2,550,030   Yield

Cost

ValueInvestments in Money Market and Other SecuritiesFirst American Treasury Obligations Fund






$
415,020


$
415,020SEI Daily Income Tr Prime Obligation Money Market Fund


0.3

%


5



5Total






$
415,025


$
415,025  (2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(13)

Commercial mortgage loans totaling $9.8 million at value
    were on non-accrual status and therefore were considered
    non-income producing.   The accompanying notes are an
    integral part of these consolidated financial statements.
 16




---



##### 



ALLIED
    CAPITAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENT OF INVESTMENTS
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueCompanies More Than 25% OwnedAGILE Fund I,
    LLC(5)

Equity Interests





$
694


$
497(Private Equity Fund)

Total Investment






694



497AllBridge Financial, LLC

Equity Interests






33,294



10,960(Asset Management)

Total Investment






33,294



10,960Standby Letter of Credit ($15,000)Allied Capital Senior Debt Fund,
    L.P.(5)

Limited Partnership Interests






31,800



31,800(Private Debt Fund)

Total Investment






31,800



31,800Avborne,
    Inc.(7)

Preferred Stock (12,500 shares)










942(Business Services)

Common Stock (27,500 shares)










Total Investment










942Avborne Heavy Maintenance,
    Inc.(7)

Common Stock (2,750 shares)










(Business Services)

Total Investment










Aviation Properties Corporation

Common Stock (100 shares)






93



(Business Services)

Total Investment






93



Standby Letters of Credit ($1,000)Border Foods, Inc.

Senior Loan (12.6%, Due 12/09  3/12)

$
33,027



26,860



33,027(Consumer Products)

Preferred Stock (100,000 shares)






12,721



11,851Common Stock (260,467 shares)






3,847



Total Investment






43,428



44,878Calder Capital Partners,
    LLC(5)

Senior Loan (10.5%, Due
    5/09)(6)


4,496



4,496



953(Asset Management)

Equity Interests






2,453



Total Investment






6,949



953Callidus Capital Corporation

Subordinated Debt (18.0%, Due 8/13  2/14)


16,068



16,068



16,068(Asset Management)

Common Stock (100 shares)










34,377Total Investment






16,068



50,445Guaranty ($6,447)  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(7)

Avborne, Inc. and Avborne Heavy Maintenance, Inc. are affiliated
    companies.   The accompanying notes are an
    integral part of these consolidated financial statements.
 17




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueCiena Capital LLC

Senior Loan (5.5%,
    Due 3/09)(6)

$
319,031


$
319,031


$
104,883(Financial Services)

Class B Equity Interests






119,436



Class C Equity Interests






109,301



Total Investment






547,768



104,883Guaranty ($5,000  See Note 3)Standby Letters of Credit ($102,600  
      See Note 3)CitiPostal Inc.

Senior Loan (4.0%, Due 12/13)


692



681



681(Business Services)

Unitranche Debt (12.0%, Due 12/13)


51,758



51,548



51,548Subordinated Debt (16.0%, Due 12/15)


9,114



9,114



9,114Common Stock (37,024 shares)






12,726



8,616Total Investment






74,069



69,959Coverall North America, Inc.

Unitranche Debt (12.0%, Due 7/11)


32,035



31,948



31,948(Business Services)

Subordinated Debt (15.0%, Due 7/11)


5,563



5,549



5,549Common Stock (763,333 shares)






14,361



17,968Total Investment






51,858



55,465CR Holding, Inc.

Subordinated Debt (16.6%, Due
    2/13)(6)


39,307



39,193



17,360(Consumer Products)

Common Stock (32,090,696 shares)






28,744



Total Investment






67,937



17,360Crescent Equity
    Corp.(8)

Senior Loan (10.0%, Due 1/09)


433



433



433(Business Services)

Subordinated Debt (11.0%, Due 9/11 6/17)


22,312



22,247



14,283Subordinated Debt (11.0%, Due
    1/12  9/12)(6)


10,097



10,072



4,331Common Stock (174 shares)






81,255



4,580Total Investment






114,007



23,627Guaranty ($900)Standby Letters of Credit ($200)Direct Capital Corporation

Subordinated Debt (16.0%, Due
    3/13)(6)


55,671



55,496



13,530(Financial Services)

Common Stock (2,317,020 shares)






25,732



Total Investment






81,228



13,530Financial Pacific Company

Subordinated Debt (17.4%, Due 2/12  8/12)


68,967



68,840



62,189(Financial Services)

Preferred Stock (9,458 shares)






8,865



Common Stock (12,711 shares)






12,783



Total Investment






90,488



62,189  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(8)

Crescent Equity Corp. holds investments in Crescent
    Hotels & Resorts, LLC and affiliates.   The accompanying notes are an
    integral part of these consolidated financial statements.
 18




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueForeSite Towers, LLC

Equity Interest





$



$
889(Tower Leasing)

Total Investment










889Global Communications, LLC

Senior Loan (10.0%, Due
    9/02)(6)

$
1,335



1,335



1,335(Business Services)

Total Investment






1,335



1,335Hot Light Brands, Inc.

Senior Loan (9.0%, Due
    2/11)(6)


30,522



30,522



13,678(Retail)

Common Stock (93,500 shares)






5,151



Total Investment






35,673



13,678Standby Letter of Credit ($105)Hot Stuff Foods, LLC

Senior Loan (4.0%, Due 2/11-2/12)


53,597



53,456



42,378(Consumer Products)

Subordinated Debt (12.4%, Due
    8/12-2/13)(6)


83,692



83,387



Common Stock (1,147,453 shares)






56,187



Total Investment






193,030



42,378Huddle House, Inc.

Subordinated Debt (15.0%, Due 12/12)


57,244



57,067



57,067(Retail)

Common Stock (358,428 shares)






35,828



20,922Total Investment






92,895



77,989IAT Equity, LLC and Affiliates

Subordinated Debt (9.0%, Due 6/14)


6,000



6,000



6,000d/b/a Industrial Air Tool

Equity Interests






7,500



8,860(Industrial Products)

Total Investment






13,500



14,860Impact Innovations Group, LLC

Equity Interests in Affiliate










321(Business Services)

Total Investment










321Insight Pharmaceuticals Corporation

Subordinated Debt (15.0%, Due 9/12)


45,827



45,738



45,827(Consumer Products)

Subordinated Debt (19.0%, Due
    9/12)(6)


16,177



16,126



17,532Preferred Stock (25,000 shares)






25,000



4,068Common Stock (620,000 shares)






6,325



Total Investment






93,189



67,427Jakel, Inc.

Subordinated Debt (15.5%, Due
    3/08)(6)


748



748



374(Industrial Products)

Total Investment






748



374Knightsbridge CLO 2007-1
    Ltd.(4)

Class E Notes (13.8%, Due 1/22)


18,700



18,700



14,866(CLO)

Income Notes
    (14.9%)(11)






40,914



35,214Total Investment






59,614



50,080  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(11)

Represents the effective interest yield earned on the cost basis
    of these preferred equity investments and income notes. The
    yield is included in interest income in the consolidated
    statement of operations.   The accompanying notes are an
    integral part of these consolidated financial statements.
 19




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueKnightsbridge CLO
    2008-1
    Ltd.(4)

Class C Notes (9.3%, Due 6/18)

$
12,800


$
12,800


$
12,800(CLO)

Class D Notes (10.3%, Due 6/18)


8,000



8,000



8,000Class E Notes (6.8%, Due 6/18)


13,200



10,573



10,573Income Notes
    (16.6%)(11)






21,315



21,315Total Investment






52,688



52,688MHF Logistical Solutions, Inc.

Subordinated Debt (13.0%, Due 6/12 
    6/13)(6)


49,841



49,633



(Business Services)

Preferred Stock (10,000 shares)










Common Stock (20,934 shares)






20,942



Total Investment






70,575



MVL Group, Inc.

Senior Loan (12.0%, Due 6/09  7/09)


30,674



30,663



30,663(Business Services)

Subordinated Debt (14.5%, Due 6/09  7/09)


41,074



40,994



40,994Subordinated Debt (3.0%, Due
    6/09)(6)


144



139



86Common Stock (560,716 shares)






555



Total Investment






72,351



71,743Old Orchard Brands, LLC

Subordinated Debt (18.0%, Due 7/14)


18,951



18,882



18,882(Consumer Products)

Equity Interests






16,857



27,763Total Investment






35,739



46,645Penn Detroit Diesel Allison, LLC

Subordinated Debt (15.5%, Due 8/13)


37,984



37,869



37,869(Business Services)

Equity Interests






18,873



21,100Total Investment






56,742



58,969Service Champ, Inc.

Subordinated Debt (15.5%, Due 4/12)


27,050



26,984



26,984(Business Services)

Common Stock (55,112 shares)






11,785



21,156Total Investment






38,769



48,140Stag-Parkway, Inc.

Unitranche Debt (14.0%, Due 7/12)


17,975



17,920



17,962(Business Services)

Common Stock (25,000 shares)






32,686



6,968Total Investment






50,606



24,930Startec Equity, LLC

Equity Interests






211



332(Telecommunications)

Total Investment






211



332Senior Secured Loan Fund LLC

Subordinated Certificates (12.0%)






125,423



125,423(Private Debt Fund)

Equity Interests






1



1Total Investment






125,424



125,424Worldwide Express Operations, LLC

Subordinated Debt (14.0%, Due
    2/14)(6)


2,865



2,722



2,032(Business Services)

Equity Interests






11,384



Warrants






144



Total Investment






14,250



2,032Total
    companies more than 25% owned





$
2,167,020


$
1,187,722  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(11)

Represents the effective interest yield earned on the cost basis
    of these preferred equity investments and income notes. The
    yield is included in interest income in the consolidated
    statement of operations.   The accompanying notes are an
    integral part of these consolidated financial statements.
 20




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueCompanies 5% to 25% Owned10th

    Street, LLC

Subordinated Debt (13.0%, Due 11/14)

$
21,439


$
21,329


$
21,439(Business Services)

Equity Interests






422



975Option






25



25Total Investment






21,776



22,439Advantage Sales & Marketing, Inc.

Subordinated Debt (12.0%, Due 3/14)


158,617



158,132



135,000(Business Services)

Equity Interests










5,000Total Investment






158,132



140,000Air Medical Group Holdings LLC

Senior Loan (3.3%, Due 3/11)


3,360



3,326



3,139(Healthcare Services)

Equity Interests






2,993



10,800Total Investment






6,319



13,939Alpine ESP Holdings, Inc.

Preferred Stock (701 shares)






701



(Business Services)

Common Stock (11,657 shares)






13



Total Investment






714



Amerex Group, LLC

Subordinated Debt (12.3%, Due 1/13)


8,789



8,784



8,784(Consumer Products)

Equity Interests






3,508



9,932Total Investment






12,292



18,716BB&T Capital Partners/Windsor

Equity Interests






11,789



11,063Mezzanine Fund,
    LLC(5)(Private Equity Fund)

Total Investment






11,789



11,063Becker Underwood, Inc.

Subordinated Debt (14.5%, Due 8/12)


25,503



25,450



25,502(Industrial Products)

Common Stock (4,376 shares)






5,014



2,267Total Investment






30,464



27,769Drew Foam Companies, Inc.

Preferred Stock (622,555 shares)






623



512(Business Services)

Common Stock (6,286 shares)






6



Total Investment






629



512Driven Brands, Inc.

Subordinated Debt (16.5%, Due 7/15)


84,106



83,698



83,698(Consumer Services)

Common Stock (3,772,098 shares)






9,516



4,855Total Investment






93,214



88,553Hilden America, Inc.

Common Stock (19 shares)






454



76(Consumer Products)

Total Investment






454



76Lydall Transport, Ltd.

Equity Interests






432



345(Business Services)

Total Investment






432



345Multi-Ad Services, Inc.

Unitranche Debt (11.3%, Due 11/11)


3,018



2,995



2,941(Business Services)

Equity Interests






1,737



1,782Total Investment






4,732



4,723  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(5)

Non-registered investment company.   The accompanying notes are an
    integral part of these consolidated financial statements.
 21




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal

Cost

ValueProgressive International

Preferred Stock (500 shares)





$
500


$
1,125Corporation

Common Stock (197 shares)






13



4,600(Consumer Products)

Warrants










Total Investment






513



5,725Regency Healthcare Group, LLC

Unitranche Debt (11.1%, Due 6/12)

$
10,901



10,855



10,825(Healthcare Services)

Equity Interests






1,302



2,050Total Investment






12,157



12,875SGT India Private
    Limited(4)

Common Stock (150,596 shares)






4,137



(Business Services)

Total Investment






4,137



Soteria Imaging Services, LLC

Subordinated Debt (11.3%, Due 11/10)


4,250



4,167



4,054(Healthcare Services)

Equity Interests






1,881



1,971Total Investment






6,048



6,025Triax Holdings, LLC

Subordinated Debt (21.0%, Due
    2/12)(6)


10,625



10,587



(Consumer Products)

Equity Interests






16,528



Total Investment






27,115



Universal Environmental Services, LLC

Equity Interests






1,599



(Business Services)

Total Investment






1,599



Total
    companies 5% to 25% owned





$
392,516


$
352,760Companies Less Than 5% Owned3SI Security Systems, Inc.

Subordinated Debt (14.6%, Due 8/13)

$
29,200


$
29,118


$
28,170(Consumer Products)

Total Investment






29,118



28,170Abraxas Corporation

Subordinated Debt (14.6%, Due 4/13)


36,822



36,662



36,170(Business Services)

Total Investment






36,662



36,170Augusta Sportswear Group, Inc.

Subordinated Debt (13.0%, Due 1/15)


53,000



52,825



52,406(Consumer Products)

Common Stock (2,500 shares)






2,500



1,400Total Investment






55,325



53,806Axium Healthcare Pharmacy, Inc.

Senior Loan (14.0%, Due 12/12)


3,750



3,724



3,654(Healthcare Services)

Unitranche Debt (14.0%, Due 12/12)


8,500



8,471



7,908Common Stock (22,860 shares)






2,286



100Total Investment






14,481



11,662  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.   The accompanying notes are an
    integral part of these consolidated financial statements.
 22




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal

Cost

ValueBaird Capital Partners IV
    Limited(5)

Limited Partnership Interest





$
3,636


$
2,978(Private Equity Fund)

Total Investment






3,636



2,978BenefitMall Holdings Inc.

Subordinated Debt (18.0%, Due 6/14)

$
40,326



40,238



40,238(Business Services)

Common Stock (39,274,290
    shares)(12)






39,274



91,149Warrants(12)










Total Investment






79,512



131,387Broadcast Electronics, Inc.

Senior Loan (8.8%, Due
    11/11)(6)


4,912



4,884



773(Business Services)

Preferred Stock (2,044 shares)










Total Investment






4,884



773Bushnell, Inc.

Subordinated Debt (8.0%, Due 2/14)


41,325



40,003



35,794(Consumer Products)

Total Investment






40,003



35,794Callidus Debt Partners

Class C Notes (12.9%, Due 12/13)


18,800



18,907



10,116CDO Fund I,
    Ltd.(4)(10)

Class D Notes (17.0%, Due 12/13)


9,400



9,454



(CDO)Total Investment






28,361



10,116Callidus Debt Partners

Preferred Shares (23,600,000 shares)






20,138



5,402CLO Fund III,
    Ltd.(4)(10)(CLO)

Total Investment






20,138



5,402Callidus Debt Partners

Class D Notes (9.1%, Due 4/20)


3,000



2,045



1,445CLO Fund IV,
    Ltd.(4)(10)

Income Notes
    (13.2%)(11)






14,591



10,628(CLO)Total Investment






16,636



12,073Callidus Debt Partners

Income Notes
    (16.4%)(11)






13,388



10,331CLO Fund V,
    Ltd.(4)(10)(CLO)

Total Investment






13,388



10,331Callidus Debt Partners

Class D Notes (9.8%, Due 10/21)


9,000



7,144



3,929CLO Fund VI,
    Ltd.(4)(10)

Income Notes
    (17.8%)(11)






28,314



23,090(CLO)Total Investment






35,458



27,019Callidus Debt Partners

Income Notes
    (11.4%)(11)






24,026



15,361CLO Fund VII,
    Ltd.(4)(10)(CLO)

Total Investment






24,026



15,361  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(10)

The fund is managed by Callidus Capital, a portfolio company of
    Allied Capital.(11)

Represents the effective interest yield earned on the cost basis
    of these preferred equity investments and income notes. The
    yield is included in interest income in the consolidated
    statement of operations.(12)

Common stock is non-voting. In addition to non-voting stock
    ownership, the Company has an option to acquire a majority of
    the voting securities of the portfolio company at fair market
    value.   The accompanying notes are an
    integral part of these consolidated financial statements.
 23




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueCallidus MAPS CLO Fund I
    LLC(10)

Class E Notes (7.0%, Due 12/17)

$
17,000


$
17,000


$
9,813(CLO)

Income Notes
    (4.0%)(11)






45,053



27,678Total Investment






62,053



37,491Callidus MAPS CLO Fund II,
    Ltd.(4)(10)

Class D Notes (8.8%, Due 7/22)


7,700



3,555



2,948Income Notes
    (13.3%)(11)






18,393



12,626(CLO)

Total Investment






21,948



15,574Carlisle Wide Plank Floors, Inc.

Senior Loan (6.1%, Due 6/11)


1,000



998



953(Consumer Products)

Unitranche Debt (14.5%, Due 6/11)


3,161



3,139



3,047Preferred Stock (345,056 Shares)






345



82Total Investment






4,482



4,082Catterton Partners VI,
    L.P.(5)

Limited Partnership Interest






2,812



2,356(Private Equity Fund)

Total Investment






2,812



2,356Centre Capital Investors V,
    L.P.(5)

Limited Partnership Interest






3,049



2,344(Private Equity Fund)

Total Investment






3,049



2,344CK Franchising, Inc.
    (Consumer Services)

Subordinated Debt (12.3%, Due 7/12  7/17)


21,000



20,912



20,912Preferred Stock (1,281,887 shares)






1,282



1,592Common Stock (7,585,549 shares)






7,586



10,600Total Investment






29,780



33,104Commercial Credit Group, Inc.

Subordinated Debt (15.0%, Due 6/15)


19,000



18,970



18,970(Financial Services)

Preferred Stock (64,679 shares)






15,543



9,073Warrants










Total Investment






34,513



28,043Community Education Centers, Inc.

Subordinated Debt (14.5%, Due 11/13)


35,548



35,486



34,056(Education Services)

Total Investment






35,486



34,056Component Hardware Group, Inc.

Subordinated Debt (13.5%, Due 1/13)


18,710



18,654



18,261(Industrial Products)

Total Investment






18,654



18,261Cook Inlet Alternative Risk, LLC

Unitranche Debt (10.8%, Due 4/13)


90,000



89,619



82,839(Business Services)

Equity Interests






552



Total Investment






90,171



82,839Cortec Group Fund IV,
    L.P.(5)

Limited Partnership Interest






4,647



3,445(Private Equity)

Total Investment






4,647



3,445  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(5)

Non-registered investment company.(10)

The fund is managed by Callidus Capital, a portfolio company of
    Allied Capital.(11)

Represents the effective interest yield earned on the cost basis
    of these preferred equity investments and income notes. The
    yield is included in interest income in the consolidated
    statement of operations.   The accompanying notes are an
    integral part of these consolidated financial statements.
 24




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueDiversified Mercury

Senior Loan (4.5%, Due 3/13)

$
2,972


$
2,958


$
2,692Communications, LLC(Business Services)

Total Investment






2,958



2,692Digital VideoStream, LLC

Unitranche Debt (11.0%, Due 2/12)


14,097



14,032



14,003(Business Services)

Convertible Subordinated Debt (10.0%, Due 2/16)


4,545



4,533



4,700Total Investment






18,565



18,703DirectBuy Holdings, Inc.

Subordinated Debt (14.5%, Due 5/13)


75,909



75,609



71,703(Consumer Products)

Equity Interests






8,000



3,200Total Investment






83,609



74,903Distant Lands Trading Co.

Senior Loan (7.5%, Due 11/11)


4,825



4,800



4,501(Consumer Products)

Unitranche Debt (12.3%, Due 11/11)


43,133



43,022



42,340Common Stock (3,451 shares)






3,451



984Total Investment






51,273



47,825Dryden XVIII Leveraged
    Loan 2007
    Limited(4)

Class B Notes (8.0%, Due 10/19)
    Income Notes
    (16.0%)(11)


9,000



7,728
    22,080



4,535
    17,477(CLO)

Total Investment






29,808



22,012Dynamic India Fund
    IV(4)(5)

Equity Interests






9,350



8,966(Private Equity Fund)

Total Investment






9,350



8,966EarthColor, Inc.

Subordinated Debt (15.0%, Due
    11/13)(6)


123,819



123,385



77,243(Business Services)

Common Stock
    (63,438 shares)(12)






63,438



Warrants(12)










Total Investment






186,823



77,243eCentury Capital Partners,
    L.P.(5)

Limited Partnership Interest






7,274



1,431(Private Equity Fund)

Total Investment






7,274



1,431eInstruction Corporation

Subordinated Debt (12.6%, Due 7/14-1/15)


33,931



33,795



31,670(Education Services)

Common Stock (2,406 shares)






2,500



1,700Total Investment






36,295



33,370Farleys & Sathers Candy Company, Inc.

Subordinated Debt (10.1%, Due 3/11)


2,500



2,493



2,365(Consumer Products)

Total Investment






2,493



2,365  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(11)

Represents the effective interest yield earned on the cost basis
    of these preferred equity investments and income notes. The
    yield is included in interest income in the consolidated
    statement of operations.(12)

Common stock is non-voting. In addition to non-voting stock
    ownership, the Company has an option to acquire a majority of
    the voting securities of the portfolio company at fair market
    value.   The accompanying notes are an
    integral part of these consolidated financial statements.
 25




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueFCP-BHI Holdings, LLC

Subordinated Debt (12.0%, Due 9/13)

$
27,284


$
27,191


$
25,640d/b/a Bojangles

Equity Interests






1,029



1,700(Retail)

Total Investment






28,220



27,340Fidus Mezzanine Capital,
    L.P.(5)

Limited Partnership Interest






9,597



6,754(Private Equity Fund)

Total Investment






9,597



6,754Freedom Financial Network, LLC

Subordinated Debt (13.5%, Due 2/14)


13,000



12,945



12,811(Financial Services)

Total Investment






12,945



12,811Geotrace Technologies, Inc.

Warrants






2,027



3,000(Energy Services)

Total Investment






2,027



3,000Gilchrist & Soames, Inc.
    (Consumer Products)

Subordinated Debt (13.4%, Due 10/13)


25,800



25,660



24,692Total Investment






25,660



24,692Havco Wood Products LLC

Equity Interests






910



400(Industrial Products)

Total Investment






910



400Higginbotham Insurance Agency, Inc.

Subordinated Debt (13.7%, Due 8/13  8/14)


53,305



53,088



53,088(Business Services)

Common Stock
    (23,695 shares)(12)






23,695



27,335Warrant(12)










Total Investment






76,783



80,423The Hillman Companies,
    Inc.(3)

Subordinated Debt (10.0%, Due 9/11)


44,580



44,491



44,345(Consumer Products)

Total Investment






44,491



44,345The Homax Group, Inc.

Senior Loan (7.2%, Due 10/12)


11,785



11,742



10,689(Consumer Products)

Subordinated Debt (14.5%, Due 4/14)


14,000



13,371



12,859Preferred Stock (76 shares)






76



Common Stock (24 shares)






5



Warrants






954



Total Investment






26,148



23,548Ideal Snacks Corporation

Senior Loan (5.3%, Due 6/10)


1,496



1,496



1,438(Consumer Products)

Total Investment






1,496



1,438  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(3)

Public company.(4)

Non-U.S. company
    or principal place of business outside the U.S.(5)

Non-registered investment company.(12)

Common stock is non-voting. In addition to non-voting stock
    ownership, the Company has an option to acquire a majority of
    the voting securities of the portfolio company at fair market
    value.   The accompanying notes are an
    integral part of these consolidated financial statements.
 26




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueKodiak Fund
    LP(5)

Equity Interests





$
9,422


$
900(Private Equity Fund)

Total Investment






9,422



900Market Track Holdings, LLC

Senior Loan (8.0%, Due 6/14)

$
2,500



2,450



2,352(Business Services)

Subordinated Debt (15.9%, Due 6/14)


24,600



24,488



23,785Total Investment






26,938



26,137NetShape Technologies, Inc.

Senior Loan (5.3%, Due 2/13)


382



382



346(Industrial Products)

Total Investment






382



346Network Hardware Resale, Inc.

Unitranche Debt (12.5%, Due 12/11)


18,734



18,809



18,703(Business Services)

Convertible Subordinated Debt (9.8%, Due 12/15)


14,533



14,585



14,585Total Investment






33,394



33,288Novak Biddle Venture Partners III,
    L.P.(5)

Limited Partnership Interest






2,018



1,349(Private Equity Fund)

Total Investment






2,018



1,349Oahu Waste Services, Inc.

Stock Appreciation Rights






206



750(Business Services)

Total Investment






206



750Pangaea CLO 2007-1
    Ltd.(4)

Class D Notes (9.2%, Due 10/21)


15,000



11,761



7,114(CLO)

Total Investment






11,761



7,114PC Helps Support, LLC

Senior Loan (4.8%, Due 12/13)


8,610



8,520



8,587(Business Services)

Subordinated Debt (13.3%, Due 12/13)


28,136



28,009



28,974Total Investment






36,529



37,561Performant Financial Corporation

Common Stock (478,816 shares)






734



200(Business Services)

Total Investment






734



200  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(4)

Non-U.S. company
    or principal place of business outside the U.S.(5)

Non-registered investment company.   The accompanying notes are an
    integral part of these consolidated financial statements.
 27




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValuePeter Brasseler Holdings, LLC

Equity Interests





$
3,451


$
2,900(Business Services)

Total Investment






3,451



2,900PharMEDium Healthcare Corporation

Senior Loan (4.3%, Due 10/13)

$
1,910



1,910



1,747(Healthcare Services)

Total Investment






1,910



1,747Postle Aluminum Company, LLC

Unitranche Debt (13.0%, Due
    10/12)(6)


58,953



58,744



9,978(Industrial Products)

Equity Interests






2,174



Total Investment






60,918



9,978Pro Mach, Inc.

Subordinated Debt (12.5%, Due 6/12)


14,616



14,573



14,089(Industrial Products)

Equity Interests






1,294



1,900Total Investment






15,867



15,989Promo Works, LLC

Unitranche Debt (12.3%, Due 12/11)


23,111



22,954



21,266(Business Services)

Total Investment






22,954



21,266Reed Group, Ltd.

Senior Loan (7.6%, Due 12/13)


12,893



12,758



11,502(Healthcare Services)

Subordinated Debt (13.8%, Due 12/13)


18,543



18,469



16,683Equity Interests






1,800



300Total Investment






33,027



28,485S.B. Restaurant Company

Unitranche Debt (9.8%, Due 4/11)


36,501



36,295



34,914(Retail)

Preferred Stock (46,690 shares)






117



117Warrants






534



Total Investment






36,946



35,031Standby Letters of Credit ($2,465)Snow Phipps Group,
    L.P.(5)

Limited Partnership Interest






4,785



4,374(Private Equity Fund)

Total Investment






4,785



4,374SPP Mezzanine Funding II,
    L.P.(5)

Limited Partnership Interest






9,362



9,269(Private Equity Fund)

Total Investment






9,362



9,269STS Operating, Inc.

Subordinated Debt (11.0%, Due 1/13)


30,386



30,296



29,745(Industrial Products)

Total Investment






30,296



29,745Summit Energy Services, Inc.
    (Business Services)

Subordinated  Debt (11.6%, Due 8/13)


35,730



35,547



32,113Common Stock (415,982 shares)






1,861



1,900Total Investment






37,408



34,013Tank Intermediate Holding Corp.
    (Industrial Products)

Senior Loan (7.1%, Due 9/14)


30,514



29,539



25,937Total Investment






29,539



25,937  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.   The accompanying notes are an
    integral part of these consolidated financial statements.
 28




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Private FinancePortfolio Company



December 31, 2008(in thousands, except number of shares)

Investment(1)(2)

Principal


Cost


ValueTappan Wire & Cable Inc.

Unitranche Debt (15.0%, Due 8/14)

$
22,346


$
22,248


$
15,625(Business Services)

Common Stock
    (12,940 shares)(12)






2,043



Warrant(12)










Total Investment






24,291



15,625The Step2 Company, LLC

Unitranche Debt (11.0%, Due 4/12)


95,083



94,816



90,474(Consumer Products)

Equity Interests






2,156



1,161Total Investment






96,972



91,635Tradesmen International, Inc.

Subordinated Debt (12.0%, Due 12/12)


40,000



39,586



37,840(Business Services)

Total Investment






39,586



37,840TransAmerican Auto Parts, LLC

Subordinated Debt (16.3%, Due
    11/12)(6)


24,561



24,409



(Consumer Products)

Equity Interests






1,034



Total Investment






25,443



Trover Solutions, Inc.

Subordinated Debt (12.0%, Due 11/12)


60,054



59,847



57,362(Business Services)

Total Investment






59,847



57,362United Road Towing, Inc.

Subordinated Debt (12.1%, Due 1/14)


20,000



19,915



20,000(Consumer Services)

Total Investment






19,915



20,000Venturehouse-Cibernet Investors, LLC

Equity Interest










(Business Services)

Total Investment










VICORP Restaurants, Inc.

Warrants






33



(Retail)

Total Investment






33



WMA Equity Corporation and Affiliates

Subordinated Debt (16.8%, Due
    4/13-4/14)(6)


139,455



138,559



63,823d/b/a Wear Me Apparel

Common Stock (86 shares)






39,721



(Consumer Products)

Total Investment






178,280



63,823Webster Capital II,
    L.P.(5)

Limited Partnership Interest






1,702



1,481(Private Equity Fund)

Total Investment






1,702



1,481Woodstream Corporation

Subordinated Debt (12.0%, Due 2/15)


90,000



89,633



83,258(Consumer Products)

Common Stock (6,960 shares)






6,961



2,500Total Investment






96,594



85,758York Insurance Services Group, Inc.

Common Stock (12,939 shares)






1,294



1,700(Business Services)

Total Investment






1,294



1,700Other companies

Other debt investments


155



74



72Other equity investments






30



8Total Investment






104



80Total companies less than 5% owned





$
2,317,856


$
1,858,581Total private finance (138 portfolio investments)





$
4,877,392


$
3,399,063  (1)

Interest rates represent the weighted average annual stated
    interest rate on loans and debt securities, which are presented
    by nature of indebtedness for a single issuer. The maturity
    dates represent the earliest and the latest maturity dates.(2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(5)

Non-registered investment company.(6)

Loan or debt security is on non-accrual status and therefore is
    considered non-income producing.(12)

Common stock is non-voting. In addition to non-voting stock
    ownership, the Company has an option to acquire a majority of
    the voting securities of the portfolio company at fair market
    value.   The accompanying notes are an
    integral part of these consolidated financial statements.
 29




---



##### 



ALLIED CAPITAL CORPORATION AND
    SUBSIDIARIES
  CONSOLIDATED STATEMENT OF
    INVESTMENTS  (Continued)
  Commercial
    Real Estate Finance
    (in thousands, except number of loans)
  Stated Interest

Number of

December 31, 2008Rate Ranges

Loans

Cost

ValueCommercial Mortgage LoansUp to 6.99%



4


$
30,999


$
30,5377.00%8.99%



1



644



5809.00%10.99%



1



6,465



6,46511.00%12.99%



1



10,469



9,39115.00% and above



2



3,970



6,529Total commercial mortgage
    loans(13)









$
52,547


$
53,502Real Estate Owned









$
18,201


$
20,823Equity
    Interests(2) 

    Companies more than 25% owned





$
14,755


$
19,562Guarantees ($6,871)Standby Letter of Credit ($650)Total commercial real estate finance









$
85,503


$
93,887Total portfolio









$
4,962,895


$
3,492,950   Yield

Cost

ValueInvestments in Money Market and Other SecuritiesSEI Daily Income Tr Prime Obligation Money Market Fund


0.9%


$
5


$
5Columbia Treasury Reserves Fund






12



12Other Money Market Funds






270



270Total





$
287


$
287  (2)

Common stock, preferred stock, warrants, options, and equity
    interests are generally non-income producing and restricted.(13)

Commercial mortgage loans totaling $7.7 million at value
    were on non-accrual status and therefore were considered
    non-income producing.   The accompanying notes are an
    integral part of these consolidated financial statements.
 30




---



##### 



ALLIED
    CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS
 (Information at and for the three and six months ended
    June 30, 2009 and 2008 is unaudited)
  Note 1. Organization
      Regulation S-X,
    Events
    of Default, Liquidity and Operations
         31




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 1. Organization, continued
             Note 2. Summary
    of Significant Accounting Policies
  Basis
    of Presentation
   32




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 2. Summary of Significant Accounting Policies,
    continued
         Fair Value Measurements
   33




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 2. Summary of Significant Accounting Policies,
    continued
    of the portfolio companys
    equity securities, liquidation events, or other events. The
    Company allocates the enterprise value to these securities in
    order of the legal priority of the securities.
     34




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 2. Summary of Significant Accounting Policies,
    continued
    and/or security-by-security
  FSP 157-4 FSP 157-4.
  Net
    Realized Gains or Losses and Net Change in Unrealized
    Appreciation or Depreciation
    Interest
    and Dividend Income
   35




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 2. Summary of Significant Accounting Policies,
    continued
            Fee
    Income   36




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 2. Summary of Significant Accounting Policies,
    continued
    Guarantees
  Guarantors Accounting and
    Disclosure Requirements for Guarantees, Including Indirect
    Guarantees of Indebtedness of Others
  Financing
    Costs
    Dividends
    to Shareholders
    Stock
    Compensation Plans
  Share-Based Payment
 37




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 2. Summary of Significant Accounting Policies,
    continued
    For the Three

For the SixMonths Ended

Months EndedJune 30,

June 30,($ in millions, except per share
    amounts)

2009

2008

2009

2008Employee Stock Option Expense:Previously awarded, unvested options as of January 1, 2006


$


$2.1


$


$3.9Options granted on or after January 1, 2006


1.2


1.8


2.0


4.2Total employee stock option expense


$1.2


$3.9


$2.0


$8.1Per basic share


$0.01


$0.02


$0.01


$0.05Per diluted share


$0.01


$0.02


$0.01


$0.05   Options Granted.
  For the Three


For the SixMonths Ended


Months EndedJune 30,


June 30,2009


2008


2009


2008Expected term (in years)


3.0



5.0



3.0



5.0Risk-free interest rate


1.3
%


3.2
%


1.3
%


2.7
%Expected volatility


119.4
%


28.9
%


105.0
%


27.7
%Dividend yield


10.6
%


8.5
%


32.5
%


8.5
%Weighted average fair value per option


$1.26



$2.09



$0.21



$2.19      38




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 2. Summary of Significant Accounting Policies,
    continued
    Federal
    and State Income Taxes and Excise Tax
        Per
    Share Information
    Use of
    Estimates in the Preparation of Financial
    Statements
     39




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 2. Summary of Significant Accounting Policies,
    continued
    Recent
    Accounting Pronouncements
  Fair Value Measurements.
    The Fair Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of FASB Statement
    No. 115.
    Determining the Fair Value of a Financial Asset When the
    Market for That Asset Is Not Active
    Determining Fair Value When the Volume and Level of Activity
    for the Asset or Liability Have Significantly Decreased and
    Identifying Transactions That Are Not Orderly FSP 157-4,
 40




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Subsequent Events
    Accounting for Transfers of Financial Assets
    The FASB Accounting Standards Codification and the Hierarchy
    of Generally Accepted Accounting Principles The
    Hierarchy of Generally Accepted Accounting Principles
   41




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Note 3. Portfolio
  Private
    Finance
     2009


2008($ in millions)

Cost


Value


Yield(1)


Cost


Value


Yield(1)Loans and debt securities:Senior loans

$
558.8


$
287.1



4.9%


$
556.9


$
306.3



5.6%Unitranche
    debt(2)


427.6



376.7



12.2%



527.5



456.4



12.0%Subordinated
    debt(3)


1,787.5



1,186.6



13.8%



2,300.1



1,829.1



12.9%Total loans and debt
    securities(4)


2,773.9



1,850.4



12.1%



3,384.5



2,591.8



11.9%Equity securities:Preferred shares/income notes of
    CLOs(5)


247.5



82.1



11.1%



248.2



179.2



16.4%Subordinated certificates in Senior Secured Loan Fund
    LLC(5)


166.3



154.2



10.0%



125.4



125.4



12.0%Other equity securities


1,063.7



389.6







1,119.3



502.7Total equity securities


1,477.5



625.9







1,492.9



807.3Total

$
4,251.4


$
2,476.3






$
4,877.4


$
3,399.1   (1)

    The weighted average yield on loans and debt securities is
    computed as the (a) annual stated interest on accruing
    loans and debt securities plus the annual amortization of loan
    origination fees, original issue discount, and market discount
    on accruing loans and debt securities less the annual
    amortization of loan origination costs, divided by
    (b) total loans and debt securities at value. At
    June 30, 2009, and December 31, 2008, senior loans
    included the senior secured loan to Ciena totaling
    $319.0 million and $319.0 million at cost,
    respectively, and $93.0 million and $104.9 million at
    value, respectively, which was placed on non-accrual status on
    the purchase date. The weighted average yield on the
    preferred shares/income notes of CLOs is calculated as the
    (a) effective interest yield on the preferred shares/income
    notes of CLOs, divided by (b) total preferred shares/income
    notes of CLOs at value. The weighted average yields are computed
    as of the balance sheet date. The yield on the CLO assets
    represents the yield used for recording interest income. The
    market yield used in the valuation of the CLO assets may be
    different than the interest yields.
  The weighted average yield on the
    subordinated certificates in the Senior Secured Loan
    Fund LLC is computed as the (a) annual stated interest
    divided by (b) total investment at value.
  (2)
    Unitranche debt is an investment that combines both senior and
    subordinated financing, generally in a first lien position.(3)
    Subordinated debt includes bonds in CLOs and in a CDO.(4)
    The total principal balance outstanding on loans and debt
    securities was $2,802.2 million and $3,418.0 million
    at June 30, 2009, and December 31, 2008, respectively.
    The difference between principal and cost is represented by
    unamortized loan origination fees and costs, original issue
    discounts, and market discounts totaling $28.3 million and
    $33.5 million at June 30, 2009, and December 31,
    2008, respectively.(5)
    Investments in the preferred shares/income notes of CLOs and the
    subordinated certificates in Senior Secured Loan Fund LLC earn a
    current return that is included in interest income in the
    accompanying consolidated statement of operations.     42




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. Portfolio, continued
        Ciena Capital LLC.
  debtor-in-possession
   43




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. Portfolio, continued
    June 30, 2009


December 31, 2008($ in millions)

Cost


Value


Cost


ValueSenior Loan

$
319.0


$
93.0


$
319.0


$
104.9Class B Equity
    Interests(1)


119.5







119.5



Class C Equity
    Interests(1)


109.1







109.3



Total(2)

$
547.6


$
93.0


$
547.8


$
104.9   (1)
    At June 30, 2009 and December 31, 2008, the Company
    held 100% of the Class B equity interests and 94.9% of the
    Class C equity interests.(2)
    In addition to the Companys investment in Ciena included
    in the portfolio, the Company has amounts receivable from or
    related to Ciena that are included in other assets in the
    accompanying consolidated financial statements. See below.         44




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. Portfolio, continued
       45




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. Portfolio, continued
  Collateralized Loan Obligations (CLOs) and
    Collateralized Debt Obligations
    (CDOs).
  2009


2008($ in millions)

Cost


Value


Yield(1)


Cost


Value


Yield(1)Bonds(2):Callidus Debt Partners CDO Fund I, Ltd.

$
29.0


$
4.9



%


$
28.4


$
10.1



39.4%Callidus Debt Partners CLO Fund IV, Ltd.


2.1



1.6



21.4%



2.0



1.4



26.9%Callidus Debt Partners CLO Fund VI, Ltd.


7.4



3.8



22.7%



7.1



3.9



26.1%Callidus MAPS CLO Fund I LLC


17.0



10.2



10.2%



17.0



9.8



12.2%Callidus MAPS CLO Fund II LLC


3.7



3.0



25.9%



3.6



3.0



30.2%Dryden XVIII Leveraged Loan 2007 Limited


7.9



2.3



%



7.7



4.5



20.5%Knightsbridge CLO 2007-1
    Ltd.(3)


18.7



11.3



16.7%



18.7



14.9



17.4%Knightsbridge CLO 2008-1
    Ltd.(3)


31.7



28.1



12.0%



31.4



31.4



10.2%Pangaea CLO 2007-1 Ltd.


11.9



6.2



18.5%



11.8



7.1



25.0%Total bonds


129.4



71.4



13.2%



127.7



86.1



18.5%Preferred Shares/Income Notes:Callidus Debt Partners CLO Fund III, Ltd.


20.1



1.5



%



20.1



5.4



%Callidus Debt Partners CLO Fund IV, Ltd.


15.0



4.2



%



14.6



10.6



18.1%Callidus Debt Partners CLO Fund V, Ltd.


13.7



4.6



2.2%



13.4



10.3



21.3%Callidus Debt Partners CLO Fund VI, Ltd.


29.1



5.6



%



28.3



23.1



21.8%Callidus Debt Partners CLO Fund VII, Ltd.


24.8



4.8



%



24.0



15.4



17.9%Callidus MAPS CLO Fund I LLC


42.5



12.4



%



45.1



27.8



6.5%Callidus MAPS CLO Fund II, Ltd.


18.3



4.1



%



18.4



12.6



19.3%Dryden XVIII Leveraged Loan 2007 Limited


23.2



0.8



%



22.1



17.5



20.2%Knightsbridge CLO
    2007-1
    Ltd.(3)


39.6



25.8



20.7%



40.9



35.2



17.4%Knightsbridge CLO 2008-1
    Ltd.(3)


21.2



18.3



20.1%



21.3



21.3



16.6%Total preferred shares/income notes


247.5



82.1



11.1%



248.2



179.2



16.4%Total

$
376.9


$
153.5






$
375.9


$
265.3   (1)

    The weighted average yield is calculated as the (a) annual
    stated interest or the effective interest yield on the accruing
    bonds or the effective interest yield on the preferred
    shares/income notes, divided by (b) CLO and CDO assets at
    value.  The yield on these debt and equity securities is
    included in interest income in the accompanying consolidated
    statement of operations. The market yield used in the
    valuation of the CLO and CDO assets may be different than the
    interest yields shown above.
 (2)
    These securities are included in private finance subordinated
    debt.(3)
    These funds are managed by the Company through a wholly-owned
    subsidiary.     46




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. Portfolio, continued
      ($ in millions)

2009


2008Bonds

$
233.8


$
268.3Syndicated loans


4,456.8



4,477.3Cash(1)


99.4



89.6Total underlying collateral assets at
    cost(2)

$
4,790.0


$
4,835.2   (1)
    Includes undrawn liability amounts.(2)
    At June 30, 2009, and
    December 31, 2008, the total cost basis of defaulted
    obligations was $167.8 million and $95.0 million,
    respectively, or approximately 3.5% and 2.0% respectively, of
    the total underlying collateral assets.  Loans and Debt Securities on Non-Accrual
    Status.
  ($ in millions)

2009


2008Loans and debt securitiesCompanies more than 25% owned

$
155.0


$
176.1Companies 5% to 25% owned


14.4



Companies less than 5% owned


74.8



151.8Total

$
244.2


$
327.9  47




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. Portfolio, continued
  Industry and Geographic
    Compositions.
 2009


2008IndustryBusiness services


32
%


36
%Consumer products


25



24Financial services


8



6Private debt funds


8



5CLO/CDO(1)


6



8Consumer services


6



5Retail


3



5Industrial products


3



5Healthcare services


2



2Other


7



4Total


100
%


100
%Geographic
    Region(2)Mid-Atlantic


41
%


41
%Midwest


30



28Southeast


16



17West


12



13Northeast


1



1Total


100
%


100
%   (1)
    These funds primarily invest in senior corporate loans. Certain
    of these funds are managed by Callidus Capital, a portfolio
    company of Allied Capital.(2)
    The geographic region for the private finance portfolio depicts
    the location of the headquarters for the Companys
    portfolio companies. The portfolio companies may have a number
    of other locations in other geographic regions.  Commercial
    Real Estate Finance
   2009


2008Cost


Value


Yield(1)


Cost


Value


Yield(1)($ in millions)Commercial mortgage loans

$
54.3


$
53.0



6.5%


$
52.5


$
53.5



7.4%Real estate owned


5.9



6.6







18.2



20.8Equity interests


13.5



14.1







14.8



19.6Total

$
73.7


$
73.7






$
85.5


$
93.9   (1)

    The weighted average yield on the commercial mortgage loans is
    computed as the (a) annual stated interest on accruing
    loans plus the annual amortization of loan origination fees,
    original issue discount, and market discount on accruing loans
    less the annual amortization of origination costs, divided by
    (b) total interest-bearing investments at value. The
    weighted average yield is computed as of the balance sheet date.  Commercial Mortgage Loans and Equity
    Interests.
 48




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. Portfolio, continued
       2009


2008Property TypeHospitality


55
%


52
%Recreation


30



22Office


13



15Retail






9Other


2



2Total


100
%


100
%Geographic RegionSoutheast


46
%


43
%West


30



26Midwest


15



22Northeast


9



9Mid-Atlantic






Total


100
%


100
%   Fair
    Value Measurements
      
    Level 1  Quoted prices (unadjusted) in active
    markets for identical assets 49




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. Portfolio, continued
   
    Level 2  Inputs other than quoted prices that
    are observable to the market participant for the asset or quoted
    prices in a market that is not active
    Level 3  Unobservable inputs      Fair Value


Quoted Prices in


Significant Other


SignificantMeasurement


Active Markets for


Observable


Unobservableas of June 30,


Identical Assets


Inputs


Inputs($ in millions)

2009


(Level 1)


(Level 2)


(Level 3)Assets at Fair Value:PortfolioPrivate finance:Loans and debt securities

$
1,850.4


$



$



$
1,850.4Preferred shares/income notes of CLOs


82.1











82.1Subordinated certificates in Senior Secured Loan Fund LLC


154.2











154.2Other equity securities


389.6











389.6Commercial real estate finance


73.7











73.7Total portfolio

$
2,550.0


$



$



$
2,550.0     Private FinancePreferred


SubordinatedLoans and


Shares/


Certificates in


Other


CommercialDebt


Income Notes


Senior Secured Loan


Equity


Real Estate($ in millions)

Securities


of CLOs


Fund LLC


Securities


Finance


TotalBalance at December 31, 2008

$
2,591.8


$
179.2


$
125.4


$
502.7


$
93.9


$
3,493.0Total gains or lossesNet realized gains
    (losses)(1)


(116.1
)


9.5







(37.5
)


(3.7
)


(147.8
)Net change in unrealized appreciation or
    depreciation(2)


(130.7
)


(96.3
)


(12.1
)


(57.6
)


(8.3
)


(305.0
)Purchases, issuances, repayments and exits,
    net(3)


(494.6
)


(10.3
)


40.9



(18.0
)


(8.2
)


(490.2
)Transfers in and/or out of level 3






















Balance at June 30, 2009

$
1,850.4


$
82.1


$
154.2


$
389.6


$
73.7


$
2,550.0Net unrealized appreciation (depreciation) during the period
    relating to assets still held at the reporting
    date(2)

$
(224.4
)

$
(96.3
)

$
(12.1
)

$
(75.2
)

$
(10.9
)

$
(418.9
)   (1)
    Includes net realized gains
    (losses) (recorded as realized gains or losses in the
    accompanying consolidated statement of operations), and
    amortization of discounts and closing points (recorded as
    interest income in the accompanying consolidated statement of
    operations).(2)
    Included in change in net
    unrealized appreciation or depreciation in the accompanying
    consolidated statement of operations. Net change in unrealized
    appreciation or depreciation includes net unrealized
    appreciation (depreciation) resulting from changes in portfolio
    investment values during the reporting period and the reversal
    of previously recorded unrealized appreciation or depreciation
    when gains or losses are realized.
 (3)
    Includes interest and dividend
    income reinvested through the receipt of a debt or equity
    security
    (payment-in-kind
    income) (recorded as interest and dividend income in the
    accompanying consolidated statement of operations). 50




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. Portfolio, continued
   Managed
    Funds
  and/or
      Assets of Managed Funds($ in millions)

June 30,


December 31,


ManagementName of Fund

2009


2008


Fee(2)Senior Secured Loan Fund
    LLC(3)

$
945.4


$
789.8



0.375
%Allied Capital Senior Debt Fund, L.P.


359.7



412.9



1.625
%(1)(2)Knightsbridge CLO
    2007-1
    Ltd.


503.0



500.6



0.600
%Knightsbridge CLO
    2008-1
    Ltd.


306.7



304.8



0.600
%Emporia Preferred Funding I, Ltd.


420.8







0.625
%(1)Emporia Preferred Funding II, Ltd.


354.0







0.650
%(1)Emporia Preferred Funding III, Ltd.


407.1







0.650
%(1)AGILE Fund I, LLC


85.2



99.3




(1)Total Assets

$
3,381.9


$
2,107.4   (1)
    The Company is entitled to an incentive allocation subject to
    certain performance benchmarks. There can be no assurance that
    the incentive allocation will be earned.(2)
    Management fees are stated as a percent of assets except for the
    Allied Capital Senior Debt Fund, L.P. (ACSDF) which
    is stated as a percent of equity capital. The management fee
    paid by ACSDF was 2.000% at December 31, 2008 and was
    reduced to 1.625% effective January 1, 2009 for the 2009
    calendar year.(3)
    In June 2009, the Unitranche Fund LLC was renamed the Senior
    Secured Loan Fund LLC.  2007-1 2008-1
   51




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 3. Portfolio, continued
    Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of
    Liabilities, a replacement of FASB Statement 125
      ($ in millions)



June 30, 2009


December 31, 2008Name of Fund

Investment Description

Cost


Value


Cost


ValueSenior Secured Loan
    Fund LLC(1)

Subordinated Certificates and Equity Interests

$
166.3


$
154.2


$
125.4


$
125.4Allied Capital Senior Debt Fund, L.P.

Equity interests


31.8



33.1



31.8



31.8Knightsbridge CLO
    2007-1
    Ltd.

Class E Notes and Income Notes


58.3



37.2



59.6



50.1Knightsbridge CLO
    2008-1
    Ltd.

Class C Notes, Class D Notes, Class E Notes and Income Notes


52.9



46.3



52.7



52.7AGILE Fund I, LLC

Equity Interests


0.7



0.4



0.7



0.5Total



$
310.0


$
271.2


$
270.2


$
260.5   (1)

    The Company has committed up to a total of $525.0 million
    of subordinated certificates to the Senior Secured Loan Fund.
    The Senior Secured Loan Fund will be capitalized as investment
    transactions are completed. Investments made by the Senior
    Secured Loan Fund must be approved by the investment committee
    of the Senior Secured Loan Fund, which includes a representative
    from the Company. Therefore, this commitment to the Senior
    Secured Loan Fund cannot be drawn without the Companys
    approval. 52




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Note 4. Debt
    2009


2008Annual






AnnualFacility

Amount


Interest


Facility

Amount

InterestAmount

Drawn


Cost(1)


Amount

Drawn

Cost(1)($ in millions)Notes payable:Privately issued unsecured notes
    payable(5)

$
1,015.0

$
1,015.0



9.7
%

$1,015.0

$1,015.0


7.8
%Publicly issued unsecured notes payable


745.5


745.5



6.7
%

880.0

880.0


6.7
%Total notes payable


1,760.5


1,760.5



8.4
%

1,895.0

1,895.0


7.3
%Revolving line of
    credit(4)


165.0


50.0



6.3
%(2)

632.5

50.0


4.3
%(2)Total debt

$
1,925.5

$
1,810.5



8.6
%(3)

$2,527.5

$1,945.0


7.7
%(3)   (1)
    The weighted average annual
    interest cost is computed as the (a) annual stated interest on
    the debt plus any applicable default interest, plus the annual
    amortization of commitment fees, other facility fees and
    amortization of debt financing costs that are recognized into
    interest expense over the contractual life of the respective
    borrowings, divided by (b) debt outstanding on the balance sheet
    date. Events of default have occurred and are continuing under
    the Revolving Line of Credit and Private Notes which have
    increased the interest rates by 2.00% in 2009 during the
    continuance of such events of default.(2)
    The annual interest cost reflects
    the interest rate payable for borrowings under the revolving
    line of credit in effect at the balance sheet date. In addition
    to the current interest payable, there were annual costs of
    commitment fees, other facility fees and amortization of debt
    financing costs of $4.6 million at June 30, 2009, and
    $8.5 million at December 31, 2008.(3)
    The annual interest cost for total
    debt includes the annual cost of commitment fees, other facility
    fees and amortization of debt financing costs on the revolving
    line of credit regardless of the amount outstanding on the
    facility as of the balance sheet date. The annual interest cost
    reflects the facilities in place on the balance sheet date.(4)
    At June 30, 2009,
    $62.0 million of the facility was committed for standby
    letters of credit issued under the credit facility. As of
    July 17, 2009, the commitments under the facility were
    reduced to $115.0 million. See discussion below.(5)
    In the third quarter of 2009, the
    Company repaid $100 million of its privately issued
    unsecured notes payable.  Notes
    Payable
  Revolving Line of Credit.
      Privately Issued Unsecured
    Notes Payable.
 53




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 4. Debt, continued
       Amendments to Revolving Line of Credit and Privately
    Issued Unsecured Notes Payable.
      Publicly Issued Unsecured Notes
    Payable.
  ($ in millions)

Amount

Maturity Date6.625% Notes due 2011

$319.9

July 15, 20116.000% Notes due 2012

195.6

April 1, 20126.875% Notes due 2047

230.0

April 15, 2047Total

$745.5  54




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 4. Debt, continued
         Scheduled Maturities.
 Amount MaturingPrivately Issued


Publicly Issued($ in millions)

Unsecured Notes


Unsecured NotesYear

Payable(1)


Payable


Total2009

$
1,015.0


$



$
1,015.02010










2011






319.9



319.92012






195.6



195.62013










Thereafter






230.0



230.0Total

$
1,015.0


$
745.5


$
1,760.5   (1)

    The Private Notes have stated contractual maturities as follows:
    2009  $252.5 million,
    2010  $408.0 million,
    2011  $72.5 million,
    2012  $89.0 million,
    2013  $140.5 million and
    thereafter  $52.5 million. In the third
    quarter of 2009, the Company repaid $100.0 million, which
    reduced each of the Private Notes on a pro rata basis. See below. 55




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 4. Debt, continued
      Fair
    Value of Debt
    Note 5. Guarantees
    and Commitments
      (in millions)

Total


2009


2010


2011


2012


2013


After 2013Guarantees

$
19.2


$
7.5


$
6.4


$
4.4


$
0.1


$



$
0.8Standby letters of credit


62.0



62.0



















Total

$
81.2


$
69.5


$
6.4


$
4.4


$
0.1


$



$
0.8    56




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 5. Guarantees and Commitments, continued
      Note 6. Shareholders
    Equity
       57




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Note 7. Earnings
    Per Common Share
     For the Three


For the SixMonths Ended


Months EndedJune 30,


June 30,(in millions, except per share
    amounts)

2009


2008


2009

2008Net increase (decrease) in net assets resulting from operations

$
(29.1
)

$
(102.2
)

$
(376.7)

$
(142.9
)Weighted average common shares outstanding  basic


178.7



173.0



178.7


167.2Dilutive options outstanding













Weighted average common shares outstanding  diluted


178.7



173.0



178.7


167.2Basic earnings (loss) per common share

$
(0.16
)

$
(0.59
)

$
(2.11)

$
(0.85
)Diluted earnings (loss) per common share

$
(0.16
)

$
(0.59
)

$
(2.11)

$
(0.85
)    Note 8. Employee
    Compensation Plans
        58




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 8. Employee Compensation Plans, continued
      For the Three

For the SixMonths Ended

Months EndedJune 30,

June 30,($ in millions)

2009

2008

2009

2008IPA

$


$
2.2

$


$
4.6IPA mark to market expense (benefit)











(4.1
)Total IPA expense

$


$
2.2

$


$
0.5Total IPB expense

$


$
2.6

$


$
4.3    Note 9. Stock
    Option Plan
        59




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 9. Stock Option Plan, continued
    Weighted

AggregateWeighted

Average

IntrinsicAverage

Contractual

Value atExercise Price

Remaining

June 30,(in millions, except per share
    amounts)

Shares


Per Share

Term (Years)

2009(1)Options outstanding at January 1, 2009


19.7


$
26.56Granted


11.5


$
0.88Exercised


(0.3
)

$
0.73Forfeited


(4.2
)

$
26.91Options outstanding at June 30, 2009


26.7


$
15.76

5.82

$
29.0Exercisable at June 30,
    2009(2)


15.7


$
21.73

5.49

$
9.0Exercisable and expected to be exercisable at
    June 30,
    2009(3)


24.8


$
15.88

5.82

$
27.1   (1)
    Represents the difference between
    the market value of the options at June 30, 2009, and the
    cost for the option holders to exercise the options.(2)
    Represents vested options.(3)
    The amount of options expected to
    be exercisable at June 30, 2009, is calculated based on an
    estimate of expected forfeitures.    Note 10. Dividends
    and Distributions and Taxes
        60




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Note 10. Dividends and Distributions and Taxes,
    continued
           Note 11. Supplemental
    Disclosure of Cash Flow Information
        61




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Note 12. Financial
    Highlights
 At andAt and for the


for theSix Months Ended


Year EndedJune 30,


December 31,2009(1)


2008


2008Per Common Share DataNet asset value, beginning of period

$
9.62


$
17.54


$
17.54Net investment
    income(2)


0.26



0.80



1.23Net realized gains
    (losses)(2)(3)


(0.86
)


(0.09
)


(0.75
)Net investment income plus net realized gains
    (losses)(2)


(0.60
)


0.71



0.48Net change in unrealized appreciation or
    depreciation(2)(3)


(1.97
)


(1.56
)


(6.49
)Gain on repurchase of debt


0.46







Net increase (decrease) in net assets resulting from
    operations(2)


(2.11
)


(0.85
)


(6.01
)Net decrease in net assets from shareholder distributions






(1.30
)


(2.60
)Net increase (decrease) in net assets from capital share
    transactions(2)


(0.02
)


0.54



0.69Net asset value, end of period

$
7.49


$
15.93


$
9.62Market value, end of period

$
3.48


$
13.89


$
2.69Total
    return(4)


29.4
%


(30.3
)%


(82.5
)%Ratios and Supplemental Data($ and shares in millions, except per share amounts)Ending net assets

$
1,341.3


$
2,845.8


$
1,718.4Common shares outstanding at end of period


179.0



178.7



178.7Diluted weighted average common shares outstanding


178.7



167.2



173.0Employee, employee stock option and administrative
    expenses/average net
    assets(5)


2.87
%


2.34
%


5.47
%Total operating expenses/average net
    assets(5)(6)


8.93
%


4.97
%


11.39
%Income tax expense (benefit), including excise tax/average net
    assets(5)


0.15
%


0.22
%


0.10
%Net investment income/average net
    assets(5)


3.10
%


4.74
%


8.47
%Net increase (decrease) in net assets resulting from
    operations/average net
    assets(5)


(25.52
)%


(5.08
)%


(41.34
)%Portfolio turnover
    rate(5)


3.31
%


12.81
%


24.00
%Average debt outstanding

$
1,903.6


$
2,126.2


$
2,091.6Average debt per
    share(2)

$
10.65


$
12.71


$
12.09   (1)
    The results for the six months ended June 30, 2009, are not
    necessarily indicative of the operating results to be expected
    for the full year.(2)
    Based on diluted weighted average number of common shares
    outstanding for the period.(3)
    Net realized gains (losses) and net change in unrealized
    appreciation or depreciation can fluctuate significantly from
    period to period. As a result, quarterly comparisons may not be
    meaningful.(4)
    Total return assumes the reinvestment of all dividends paid for
    the periods presented.(5)
    The ratios for the six months ended June 30, 2009 and 2008,
    do not represent annualized results.(6)
    Includes 0.19% for the effect of the impairment of long-lived
    asset during the six months ended June 30, 2009. 62




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Note 13. Litigation
        Rule 10b-5
 63




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Note 13. Litigation,
    continued
        Note 14.
    Subsequent Events
     64




---



##### 



Report of
    Independent Registered Public Accounting Firm  The Board
    of Directors and Shareholders
 Allied Capital Corporation:
            
    65




---



##### 





Schedule 12-14
  ALLIED
    CAPITAL CORPORATION AND SUBSIDIARIES
  SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES
  PRIVATE FINANCE



Amount of Interest or Dividends


December 31,








June 30,Portfolio Company



Credited





2008


Gross


Gross


2009(in thousands)

Investment(1)

to
    Income(6)


Other(2)


Value


Additions(3)


Reductions(4)


ValueCompanies More Than 25% OwnedAGILE Fund I, LLC

Equity Interests









$
497


$
34


$
(105
)

$
426(Private Equity Fund)AllBridge Financial, LLC

Senior Loan

$
6











398







398(Asset Management)

Equity Interests










10,960



1,673



(4,586
)


8,047Allied Capital Senior Debt Fund, L.P.
    (Private Debt Fund)

Limited Partnership
    Interests










31,800



1,244







33,044Avborne, Inc.

Preferred Stock










942







(38
)


904(Business Services)

Common Stock






















Avborne Heavy Maintenance, Inc.

Common Stock






















(Business Services)Aviation Properties Corporation

Common Stock






















(Business Services)Border Foods, Inc.

Senior Loan


2,704







33,027



2,340



(491
)


34,876(Consumer Products)

Preferred Stock










11,851







(390
)


11,461Common Stock






















Calder Capital Partners, LLC

Senior
    Loan(5)










953



27







980(Asset Management)

Equity Interests






















Callidus Capital Corporation

Subordinated Debt


1,474







16,068



859







16,927(Asset Management)

Common Stock










34,377







(13,365
)


21,012Ciena Capital LLC

Senior
    Loan(5)










104,883







(11,840
)


93,043(Financial Services)

Class B Equity Interests














3,504



(3,504
)


Class C Equity Interests






















CitiPostal Inc.

Senior Loan


16







681



1







682(Business Services)

Unitranche Debt


3,145







51,548



282



(461
)


51,369Subordinated Debt


778







9,114



752







9,866Common Stock










8,616







(8,616
)


Coverall North America, Inc.

Unitranche Debt


1,932







31,948



16



(408
)


31,556(Business Services)

Subordinated Debt


430







5,549



3







5,552Common Stock










17,968



4,642







22,610CR Holding, Inc.

Subordinated
    Debt(5)










17,360



1,316



(7,966
)


10,710(Consumer Products)

Common Stock






















Crescent Equity Corp.

Senior Loan


22







433











433(Business Services)

Subordinated
    Debt(5)


58


$
63



18,614







(14,236
)


4,378Common Stock










4,580



1,939



(6,519
)


Direct Capital Corporation

Senior
    Loan(5)














8,405







8,405(Financial Services)

Subordinated
    Debt(5)










13,530







(6,421
)


7,109Common Stock






















Financial Pacific Company

Subordinated Debt


5,373







62,189



20



(12,513
)


49,696(Financial Services)

Preferred Stock


10



















Common Stock






















ForeSite Towers, LLC

Equity Interest










889







(889
)


(Tower Leasing)Global Communications, LLC

Senior
    Loan(5)










1,335







(343
)


992(Business Services)Hot Light Brands, Inc.

Senior
    Loan(5)










13,678



50



(1,718
)


12,010(Retail)

Common Stock






















Hot Stuff Foods, LLC

Senior Loan


1,062







42,378



11,100



(2,820
)


50,658(Consumer Products)

Subordinated
    Debt(5)














16,143







16,143Common Stock






















Huddle House, Inc.

Subordinated Debt


4,185







57,067



897



(38,535
)


19,429(Retail)

Common Stock










20,922







(2,511
)


18,411IAT Equity, LLC and Affiliates

Subordinated Debt


272







6,000











6,000d/b/a Industrial Air Tool

Equity Interests










8,860



390







9,250(Industrial Products)  See related footnotes at the end of
    this schedule.
 66




---



##### 



PRIVATE FINANCE



Amount of Interest or Dividends


December 31,








June 30,Portfolio Company



Credited





2008


Gross


Gross


2009(in thousands)

Investment(1)

to
    Income(6)


Other(2)


Value


Additions(3)


Reductions(4)


ValueImpact Innovations Group, LLC

Equity Interests in(Business Services)

Affiliate









$
321


$
1


$



$
322Insight Pharmaceuticals

Subordinated Debt

$
3,536







63,359



8,910



(18,219
)


54,050Corporation

Preferred Stock










4,068



20,932



(25,000
)


(Consumer Products)

Common Stock














34,088



(23,055
)


11,033Jakel, Inc.

Subordinated
    Debt(5)










374











374(Industrial Products)Knightsbridge CLO 2007-1 Ltd.

Class E Notes


984







14,866







(3,525
)


11,341(CLO)

Income Notes


1,530







35,214



1,529



(10,885
)


25,858Knightsbridge CLO
    2008-1 Ltd.

Class C Notes


578







12,800







(627
)


12,173(CLO)

Class D Notes


402







8,000







(1,015
)


6,985Class E Notes


737







10,573



306



(1,983
)


8,896Income Notes


1,990







21,315



1,990



(5,026
)


18,279MHF Logistical Solutions, Inc.

Subordinated
    Debt(5)














49,633



(49,633
)


(Business Services)

Preferred Stock






















Common Stock














20,942



(20,942
)


MVL Group, Inc.

Senior Loan


1,669







30,663



70



(5,477
)


25,256(Business Services)

Subordinated Debt


2,552







40,994



42,120



(49,271
)


33,843Subordinated
    Debt(5)










86



144



(230
)


Common Stock






















Old Orchard Brands, LLC

Subordinated Debt


917







18,882



262



(19,144
)


(Consumer Products)

Equity Interests










27,763







(27,763
)


Penn Detroit Diesel Allison, LLC

Subordinated Debt


2,767







37,869



578



(38,447
)


(Business Services)

Equity Interests










21,100



1,262



(2,357
)


20,005Senior Secured Loan Fund LLC

Subordinated Certificates


5,896


$
6,503



125,423



47,373



(18,596
)


154,200(Private Debt Fund)

Equity Interests










1







(1
)


Service Champ, Inc.

Subordinated Debt


2,138







26,984



353







27,337(Business Services)

Common Stock










21,156



1,520







22,676Stag-Parkway, Inc.

Subordinated Debt


871











18,997







18,997(Business Services)

Unitranche Debt


170







17,962



418



(18,380
)


Common Stock










6,968







(1,018
)


5,950Startec Equity, LLC

Equity Interests










332







(332
)


(Telecommunications)Worldwide Express Operations, LLC

Subordinated
    Debt(5)






38



2,032



3



(1,116
)


919(Business Services)

Equity Interests














300



(300
)


Warrants






















Total companies more than 25% owned









$
1,187,722










$
1,014,871Companies 5% to 25% Owned10th Street, LLC

Subordinated Debt

$
1,424






$
21,439


$
448


$
(10
)

$
21,877(Business Services)

Equity Interests










975







(470
)


505Option










25











25Advantage Sales &

Subordinated Debt


2,286







135,000







(135,000
)


Marketing, Inc.

Equity Interests










5,000







(5,000
)


(Business Services)Air Medical Group Holdings LLC

Senior Loan


60







3,139



9,491



(12,630
)


(Healthcare Services)

Equity Interests










10,800



1,673







12,473Alpine ESP Holdings, Inc.

Preferred Stock














701



(701
)


(Business Services)

Common Stock














13



(13
)


Amerex Group, LLC

Subordinated Debt


1,993







8,784



5



(8,789
)


(Consumer Products)

Equity Interests


6,167







9,932







(9,932
)


BB&T Capital

Equity Interests










11,063







(1,383
)


9,680Partners/WindsorMezzanine Fund, LLC(Private Equity Fund)Becker Underwood, Inc.

Subordinated Debt


425







25,502



216



(25,718
)


(Industrial Products)

Common Stock










2,267



2,748



(5,015
)


Drew Foam Companies, Inc.

Preferred Stock










512



111



(623
)


(Business Services)

Common Stock














6



(6
)


Driven Brands, Inc.

Subordinated Debt


7,216







83,698



3,727



(3,393
)


84,032(Consumer Services)

Common Stock










4,855







(2,655
)


2,200Hilden America, Inc.

Common Stock










76



378



(454
)


(Consumer Products)  See related footnotes at the end of
    this schedule.
 67




---



##### 



PRIVATE FINANCE



Amount of Interest or Dividends


December 31,








June 30,Portfolio Company



Credited





2008


Gross


Gross


2009(in thousands)

Investment(1)

to
    Income(6)


Other(2)


Value


Additions(3)


Reductions(4)


ValueLydall Transport, Ltd.

Equity Interests









$
345


$
87


$
(432
)

$
(Business Services)Multi-Ad Services, Inc.

Unitranche Debt

$
159







2,941



13



(501
)


2,453(Business Services)

Equity Interests










1,782







(535
)


1,247Pendum Acquisition, Inc.

Common Stock






















(Business Services)Postle Aluminum Company, LLC

Senior
    Loan(5)














34,876



(20,507
)


14,369(Industrial Products)

Subordinated
    Debt(5)














23,868



(23,868
)


Equity Interest






















Progressive International Corporation

Preferred Stock










1,125



46







1,171(Consumer Products)

Common Stock










4,600







(700
)


3,900Warrants






















Regency Healthcare Group, LLC

Senior Loan


44











4,001



(4,001
)


(Healthcare Services)

Unitranche Debt


309







10,825



31



(10,856
)


Equity Interests










2,050







(233
)


1,817SGT India Private Limited

Common Stock














5



(5
)


(Business Services)Soteria Imaging Services, LLC

Subordinated Debt


265







4,054



41







4,095(Healthcare Services)

Equity Interests










1,971







(456
)


1,515Triax Holdings, LLC

Subordinated
    Debt(5)














10,772



(10,772
)


(Consumer Products)

Equity Interests














15,739



(15,730
)


9Universal Environmental

Equity Interests






















Services, LLC(Business Services)Total companies 5% to 25% owned









$
352,760










$
161,368   This schedule should be read in
    conjunction with the Companys consolidated financial
    statements, including the consolidated statement of investments
    and Note 3 to the consolidated financial statements.
    Note 3 includes additional information regarding activities
    in the private finance portfolio.
  (1)
    Common stock, preferred stock,
    warrants, options, and equity interests are generally non-income
    producing and restricted. The principal amount for loans and
    debt securities and the number of shares of common stock and
    preferred stock is shown in the consolidated statement of
    investments as of June 30, 2009.  (2)
    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 investment, as applicable.(3)
    Gross additions include increases in the cost basis of
    investments resulting from new portfolio investments,
    paid-in-kind
    interest or dividends, the amortization of discounts and closing
    fees, the exchange of one or more existing securities for one or
    more new securities and the movement of an existing portfolio
    company into this category from a different category. Gross
    additions also include net increases in unrealized appreciation
    or net decreases in unrealized depreciation.(4)
    Gross reductions include decreases in the cost basis of
    investments resulting from principal collections related to
    investment repayments or sales, the exchange of one or more
    existing securities for one or more new securities and the
    movement of an existing portfolio company out of this category
    into a different category. Gross reductions also include net
    increases in unrealized depreciation or net decreases in
    unrealized appreciation.(5)
    Loan or debt security is on non-accrual status at June 30,
    2009, and is therefore considered non-income producing. Loans or
    debt securities on non-accrual status at the end of the period
    may or may not have been on non-accrual status for the full
    period.(6)
    Represents the total amount of interest or dividends credited to
    income for the portion of the year an investment was included in
    the companies more than 25% owned or companies 5% to 25% owned
    categories, respectively. 68




---



##### 



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following analysis of the financial condition and results
    of operations of the Company should be read in conjunction with
    the Companys Consolidated Financial Statements and the
    Notes thereto included herein and in the Companys annual
    report on
    Form 10-K
    for the year ended December 31, 2008. In addition, this
    quarterly report on Form 10-Q contains certain forward-looking
    statements. These statements include the plans and objectives of
    management for future operations and financial objectives and
    can be identified by the use of forward-looking terminology such
    as may, will, expect,
    intend, anticipate,
    estimate, or continue or the negative
    thereof or other variations thereon or comparable terminology.
    These forward-looking statements are subject to the inherent
    uncertainties in predicting future results and conditions.
    Certain factors that could cause actual results and conditions
    to differ materially from those projected in these
    forward-looking statements are set forth below in the Risk
    Factors section. Other factors that could cause actual results
    to differ materially include:
  
    changes in the economy, including economic downturns or
    recessions;
    risks associated with possible disruption in our operations
    due to terrorism;
    future changes in laws or regulations or changes in
    accounting principles; and
    other risks and uncertainties as may be detailed from time to
    time in our public announcements and SEC filings.  Financial or other information presented for private finance
    portfolio companies has been obtained from the portfolio
    companies, and the financial information presented may represent
    unaudited, projected or pro forma financial information, and
    therefore may not be indicative of actual results. In addition,
    the private equity industry uses financial measures such as
    EBITDA or EBITDAM (Earnings Before Interest, Taxes,
    Depreciation, Amortization and, in some instances, Management
    fees) in order to assess a portfolio companys financial
    performance and to value a portfolio company. EBITDA and EBITDAM
    are not intended to represent cash flow from operations as
    defined by U.S. generally accepted accounting principles and
    such information should not be considered as an alternative to
    net income, cash flow from operations or any other measure of
    performance prescribed by U.S. generally accepted accounting
    principles.
  OVERVIEW
        June 30,


December 31,2009



2008


2008Private finance


97

%


98%



97%Commercial real estate finance


3

%


2%



3%      69




---



##### 



and/or
      PORTFOLIO AND
    INVESTMENT ACTIVITY
    At and for the


At and for the


At and for theThree Months Ended


Six Months Ended


Year EndedJune 30,


June 30,


December 31,($ in millions)

2009


2008


2009


2008


2008Portfolio at value

$
2,550.0


$
4,497.6


$
2,550.0


$
4,497.6


$
3,493.0Investments funded

$
62.1


$
318.9


$
98.7


$
594.0


$
1,078.2Payment-in-kind interest and dividends, net of cash collections

$
10.9


$
11.1


$
18.5


$
24.5


$
53.4Principal collections related to investment repayments
    or sales(1)

$
345.5


$
332.8


$
587.3


$
597.6


$
1,037.3Yield on interest-bearing portfolio
    investments(2)


11.8
%


12.7
%


11.8
%


12.7
%


12.1
%   (1)
    Principal collections related to investment repayments or sales
    for the three and six months ended June 30, 2009, included
    $38.8 million and $171.0 million, respectively, of
    cash collections related to notes and other receivables received
    from the sale of investments in portfolio companies in prior
    periods. Principal collections related to investment repayments
    or sales for the three and six months ended June 30, 2009
    and 2008, and year ended December 31, 2008, included
    collections of $9.7 million, $274.9 million, $9.7 million,
    $303.9 million and $383.0 million, respectively,
    related to the sale of loans to certain of our Managed Funds.(2)
    The weighted average yield on interest-bearing investments is
    computed as the (a) annual stated interest on accruing
    loans and debt securities plus the annual amortization of loan
    origination fees, original issue discount, and market discount
    on accruing loans and debt securities less the annual
    amortization of loan origination costs, plus the effective
    interest yield on the preferred shares/income notes of CLOs,
    plus the annual stated interest on the subordinated certificates
    in the Senior Secured Loan Fund LLC divided by
    (b) total interest-bearing investments at value. The
    weighted average yield is computed as of the balance sheet date. 70




---



##### 



Private
    Finance
    At and for the Three Months


At and for the Six Months


At and for theEnded June 30,


Ended June 30,


Year Ended December 31,2009


2008


2009


2008


2008($ in millions)

Value


Yield(1)


Value


Yield(1)


Value


Yield(1)


Value


Yield(1)


Value


Yield(1)Portfolio at value:Loans and debt securities:Senior loans

$
287.1



4.9%


$
330.9



6.4%


$
287.1



4.9%


$
330.9



6.4
%

$
306.3



5.6
%Unitranche debt


376.7



12.2%



627.6



12.2%



376.7



12.2%



627.6



12.2
%


456.4



12.0
%Subordinated debt


1,186.6



13.8%



2,292.0



13.7%



1,186.6



13.8%



2,292.0



13.7
%


1,829.1



12.9
%Total loans and debt securities


1,850.4



12.1%



3,250.5



12.6%



1,850.4



12.1%



3,250.5



12.6
%


2,591.8



11.9
%Equity securities:Preferred shares/income notes of
    CLOs(2)


82.1



11.1%



232.6



16.0%



82.1



11.1%



232.6



16.0
%


179.2



16.4
%Subordinated certificates in Senior Secured Loan
    Fund LLC(2)


154.2



10.0%



94.6



10.2%



154.2



10.0%



94.6



10.2
%


125.4



12.0
%Other equity securities


389.6







813.1







389.6







813.1







502.7Total equity securities


625.9







1,140.3







625.9







1,140.3







807.3Total portfolio

$
2,476.3






$
4,390.8






$
2,476.3






$
4,390.8






$
3,399.1Investments funded

$
61.3
(4)





$
317.2






$
96.9
(4)





$
591.8






$
1,068.1Payment-in-kind interest and dividends, net of cash collections

$
10.9






$
11.1






$
18.5






$
24.3






$
53.2Principal collections related to investment repayments or
    sales(3)

$
341.0






$
324.5






$
581.7






$
580.9






$
1,020.5   (1)
    The weighted average yield on loans and debt securities is
    computed as the (a) annual stated interest on accruing
    loans and debt securities plus the annual amortization of loan
    origination fees, original issue discount, and market discount
    on accruing loans and debt securities less the annual
    amortization of loan origination costs, divided by
    (b) total loans and debt securities at value. The weighted
    average yield on the preferred shares/income notes of CLOs is
    calculated as the (a) effective interest yield on the
    preferred shares/income notes of CLOs, divided by (b) preferred
    shares/income notes of CLOs at value. The weighted average yield
    on the subordinated certificates in the Senior Secured Loan
    Fund LLC is computed as the (a) annual stated interest
    divided by (b) total investment at value. The weighted
    average yields are computed as of the balance sheet date.(2)
    Investments in the preferred shares/income notes of CLOs and the
    subordinated certificates in the Senior Secured Loan Fund LLC
    earn a current return that is included in interest income in the
    consolidated statement of operations.(3)
    Includes $38.8 million and $171.0 million,
    respectively, cash collections during the three and six months
    ended June 30, 2009, related to notes and other receivables
    received from the sale of investments in prior periods. Also
    includes collections from the sale or repayment of senior loans
    totaling $39.0 million, $64.2 million,
    $75.6 million, $124.2 million and $285.3 million,
    respectively, for the three and six months ended June 30,
    2009 and 2008, and for the year ended December 31, 2008.(4)
    Includes $7.6 million and $28.1 million, respectively,
    funded under pre-existing commitments under revolving lines of
    credit during the three and six months ended June 30, 2009.
    During the three and six months ended June 30, 2009, a
    total of $12.5 million and $28.3 million,
    respectively, was repaid under these arrangements, which is
    included in principal collections related to investment
    repayments or sales.  and/or and/or
 71




---



##### 



Investment Activity.
  For the Six Months Ended June 30, 2009Debt Investments


Buyout Investments


TotalWeighted





Weighted





WeightedAverage





Average





Average($ in millions)

Amount


Yield(1)


Amount


Yield(1)


Amount


Yield(1)Loans and debt securities:Senior loans

$
27.0



6.6%


$
8.6



0.3%


$
35.6



5.1%Unitranche debt


1.0



9.5%











1.0



9.5%Subordinated debt


3.0



15.0%











3.0



15.0%Total loans and debt securities


31.0



7.5%



8.6



0.3%



39.6



5.9%Subordinated certificates in Senior Secured Loan Fund
    LLC(2)


47.4



8.4%











47.4



8.4%Equity


5.1







4.8







9.9Total

$
83.5






$
13.4






$
96.9   For the Six Months Ended June 30, 2008Debt Investments


Buyout Investments


TotalWeighted





Weighted





WeightedAverage





Average





Average($ in millions)

Amount


Yield(1)


Amount


Yield(1)


Amount


Yield(1)Loans and debt securities:Senior loans

$
111.8



7.0%


$
11.6



6.1%


$
123.4



6.9%Unitranche
    debt(3)


14.8



10.5%



0.5



6.6%



15.3



10.4%Subordinated debt


240.7
(4)


12.6%



31.3



14.2%



272.0



12.8%Total loans and debt securities


367.3



10.8%



43.4



12.0%



410.7



10.9%Preferred shares/income notes of
    CLOs(5)


27.2



17.8%











27.2



17.8%Subordinated certificates in Senior Secured Loan
    Fund LLC(2)


93.8



10.9%











93.8



10.9%Equity


29.5







30.6







60.1Total

$
517.8






$
74.0






$
591.8   For the Year Ended December 31, 2008Debt Investments


Buyout Investments


TotalWeighted





Weighted





WeightedAverage





Average





Average($ in millions)

Amount


Yield(1)


Amount


Yield(1)


Amount


Yield(1)Loans and debt securities:Senior loans

$
175.9



7.4%


$
13.9



5.4
%

$
189.8



7.2
%Senior secured loan to Ciena Capital LLC










319.0



0.0
%(6)


319.0



0.0
%(6)Unitranche
    debt(3)


15.3



10.5%



0.5



6.6
%


15.8



10.4
%Subordinated debt


246.4
(4)


12.6%



54.8



15.4
%


301.2



13.1
%Total loans and debt securities


437.6



10.4%



388.2



2.4
%


825.8



6.6
%(7)Preferred shares/income notes of
    CLOs(5)


35.6



18.6%











35.6



18.6
%Subordinated certificates in Senior Secured Loan
    Fund LLC(2)


124.7



10.9%











124.7



10.9
%Equity


40.5







41.5







82.0Total

$
638.4






$
429.7






$
1,068.1    (1)
    The weighted average yield on interest-bearing investments is
    computed as the (a) annual stated interest on accruing
    interest-bearing investments, divided by (b) total
    interest-bearing investments funded. The weighted average yield
    on the preferred shares/income notes of CLOs is calculated as
    the (a) effective interest yield on the preferred
    shares/income notes of CLOs, divided by (b) preferred
    shares/income notes of CLOs funded. The weighted average yield
    on the subordinated certificates in the Senior Secured Loan
    Fund LLC is computed as the (a) annual stated interest
    divided by (b) total investment at value. The weighted
    average yield is calculated using yields as of the date an
    investment is funded.(2)
    In June 2009, the Unitranche Fund LLC was renamed the
    Senior Secured Loan Fund LLC.(3)
    Unitranche debt is an investment that combines both senior and
    subordinated financing, generally in a first lien position. The
    yield on a unitranche investment reflects the blended yield of
    senior and subordinated debt. 72




---



##### 



(4)
    Subordinated debt investments for the six months ended
    June 30, 2008, and year ended December 31, 2008,
    included $41.1 million and $43.8 million,
    respectively, in investments in the bonds of collateralized loan
    obligations (CLOs). Certain of these CLOs are managed by
    Callidus Capital Corporation (Callidus), a portfolio company
    controlled by us. These CLOs primarily invest in senior
    corporate loans.(5)
    CLO equity investments included preferred shares/income notes of
    CLOs that primarily invest in senior corporate loans. Certain of
    these CLOs are managed by us or by Callidus.(6)
    The senior secured loan to Ciena Capital LLC was acquired on
    September 30, 2008, and was placed on non-accrual status on
    the purchase date.(7)
    Excluding the senior secured loan to Ciena, the weighted average
    yield on new investments for the year ended December 31,
    2008 was 10.8%.           73




---



##### 



Outstanding Investment Commitments.
  Companies





CompaniesMore Than


Companies 5%


Less Than($ in millions)

25%
    Owned(1)


to 25% Owned


5% Owned


TotalSenior loans

$
11.1


$
12.1


$
62.6


$
85.8Unitranche debt


3.0







11.6



14.6Subordinated debt


18.9



4.2







23.1Total loans and debt securities


33.0



16.3



74.2



123.5
(2)Senior Secured Loan Fund


352.2











352.2Equity securities


19.6



7.0



34.8



61.4
(3)Total

$
404.8


$
23.3


$
109.0


$
537.1   (1)
    Includes a $4.0 million
    revolving line of credit commitment for working capital to
    Callidus Capital Corporation (Callidus), a portfolio company
    controlled by us, which owns 100% of Callidus Capital
    Management, LLC, an asset management company that structures and
    manages collateralized loan obligations (CLOs), collateralized
    debt obligations (CDOs), and other related investments.(2)
    Includes $94.5 million in the
    form of revolving debt facilities to 22 companies.(3)
    Includes $40.7 million to 10
    private equity and venture capital funds. These fund commitments
    are generally drawn over a
    multi-year
    period of time as the funds make investments.      Net Unrealized Depreciation on Private Finance
    Portfolio.
  Investments in Collateralized Loan Obligations and
    Collateralized Debt Obligations (CLO/CDO
    Assets).
  2009


2008($ in millions)

Cost


Value


Yield(1)


Cost


Value


Yield(1)CLO/CDO
    bonds(2)

$
129.4


$
71.4



13.2%


$
127.7


$
86.1



18.5%Preferred shares/income notes of CLOs


247.5



82.1



11.1%



248.2



179.2



16.4%Total

$
376.9


$
153.5






$
375.9


$
265.3Percentage of total assets






4.8%











7.1%   (1)
    The weighted average yield is calculated as the (a) annual
    stated interest or the effective interest yield on the accruing
    bonds or the effective interest yield on the preferred
    shares/income notes, divided by (b) CLO and CDO assets at
    value. The market yield used in the valuation of the CLO and CDO
    assets may be different than the interest yields shown above.
    See discussion below.(2)
    Included in private finance subordinated debt. 74




---



##### 



($ in millions)

2009


2008Bonds

$
233.8


$
268.3Syndicated loans


4,456.8



4,477.3Cash(1)


99.4



89.6Total underlying collateral assets at
    cost(2)

$
4,790.0


$
4,835.2   (1)
    Includes undrawn liability amounts.(2)
    At June 30, 2009, and December 31, 2008, the total
    cost basis of defaulted obligations was $167.8 million and
    $95.0 million, respectively, or approximately 3.5% and
    2.0%, respectively, of the total underlying collateral assets.      Ciena Capital LLC.
 75




---



##### 



debtor-in-possession
      June 30, 2009


December 31, 2008($ in millions)

Cost


Value


Cost


ValueSenior Loan

$
319.0


$
93.0


$
319.0


$
104.9Class B Equity
    Interests(1)


119.5







119.5



Class C Equity
    Interests(1)


109.1







109.3



Total(2)

$
547.6


$
93.0


$
547.8


$
104.9   (1)
    At June 30, 2009 and December 31, 2008, we held 100%
    of the Class B equity interests and 94.9% of the
    Class C equity interests.(2)
    In addition to our investment in Ciena included in the
    portfolio, we have amounts receivable from or related to Ciena
    that are included in other assets in the accompanying
    consolidated financial statements. See below.         76




---



##### 



expenses that they may incur as a result of Cienas failure
    to perform any of its obligations as loan originator, loan
    seller or loan servicer under the warehouse securitizations.      Commercial Real
    Estate Finance
    At and for theAt and for the


At and for the


Year EndedThree Months Ended June 30,


Six Months Ended June 30,


December 31,2009


2008


2009


2008


2008($ in millions)

Value


Yield(1)


Value


Yield(1)


Value


Yield(1)


Value


Yield(1)


Value


Yield(1)Portfolio at value:Commercial mortgage loans

$
53.0



6.5%


$
47.4



7.8%


$
53.0



6.5%


$
47.4



7.8%


$
53.5



7.4
%Real estate owned


6.6







27.2







6.6







27.2







20.8Equity interests


14.1







32.2







14.1







32.2







19.6Total portfolio

$
73.7






$
106.8






$
73.7






$
106.8






$
93.9Investments funded

$
0.8






$
1.7






$
1.8






$
2.2






$
10.1Payment-in-kind interest, net of cash collections

$







$







$







$
0.2






$
0.2Principal collections related to investment repayments or sales

$
4.5






$
8.3






$
5.6






$
16.7






$
16.8   (1)

    The weighted average yield on the interest-bearing investments
    is computed as the (a) annual stated interest on accruing
    loans plus the annual amortization of loan origination fees,
    original issue discount, and market discount on accruing
    interest-bearing investments less the annual amortization of
    origination costs, divided by (b) total interest-bearing
    investments at value. The weighted average yield is computed as
    of the balance sheet date. Interest-bearing investments for the
    commercial real estate finance portfolio include all investments
    except for real estate owned and equity interests.    Managed
    Funds
  and/or
   77




---



##### 



Assets of Managed Funds($ in millions)

June 30,


December 31,


ManagementName of Fund

2009


2008


Fee(2)Senior Secured Loan Fund
    LLC(3)

$
945.4


$
789.8



0.375
%Allied Capital Senior Debt Fund, L.P.


359.7



412.9



1.625
%(1)(2)Knightsbridge CLO
    2007-1
    Ltd.


503.0



500.6



0.600
%Knightsbridge CLO
    2008-1
    Ltd.


306.7



304.8



0.600
%Emporia Preferred Funding I, Ltd.


420.8







0.625
%(1)Emporia Preferred Funding II, Ltd.


354.0







0.650
%(1)Emporia Preferred Funding III, Ltd.


407.1







0.650
%(1)AGILE Fund I, LLC


85.2



99.3




(1)Total Assets

$
3,381.9


$
2,107.4   (1)
    In addition to the management fees, we are entitled to an
    incentive allocation subject to certain performance benchmarks.
    There can be no assurance that the incentive allocation will be
    earned.(2)
    Management fees are stated as a percent of assets except for the
    Allied Capital Senior Debt Fund, L.P. (ACSDF) which
    is stated as a percent of equity capital. The management fee
    paid by ACSDF was 2.000% at December 31, 2008 and was
    reduced to 1.625% effective January 1, 2009 for the 2009
    calendar year.(3)
    In June 2009, the Unitranche Fund LLC was renamed the Senior
    Secured Loan Fund LLC.  2007-1 2008-1
     78




---



##### 



($ in millions)



June 30, 2009


December 31, 2008Name of Fund

Investment Description

Cost


Value


Cost


ValueSenior Secured Loan
    Fund LLC(1)

Subordinated Certificates and Equity Interests

$
166.3


$
154.2


$
125.4


$
125.4Allied Capital Senior Debt Fund, L.P.

Equity interests


31.8



33.1



31.8



31.8Knightsbridge CLO
    2007-1 Ltd.

Class E Notes and Income Notes


58.3



37.2



59.6



50.1Knightsbridge CLO
    2008-1 Ltd.

Class C Notes, Class D Notes, Class E Notes and Income Notes


52.9



46.3



52.7



52.7AGILE Fund I, LLC

Equity Interests


0.7



0.4



0.7



0.5Total



$
310.0


$
271.2


$
270.2


$
260.5   (1)

    We have committed up to a total of $525.0 million of
    subordinated certificates to the Senior Secured Loan Fund. The
    Senior Secured Loan Fund will be capitalized as investment
    transactions are completed. Investments made by the Senior
    Secured Loan Fund must be approved by the investment committee
    of the Senior Secured Loan Fund, which includes a representative
    from us. Therefore, our commitment to the Senior Secured Loan
    Fund cannot be drawn without our approval.  PORTFOLIO ASSET
    QUALITY
  Loans and Debt Securities on Non-Accrual
    Status.
    ($ in millions)

2009


2008Private financeCompanies more than 25% owned

$
155.0



$176.1Companies 5% to 25% owned


14.4



Companies less than 5% owned


74.8



151.8Commercial real estate finance


9.8



7.7Total

$
254.0



$335.6Percentage of total portfolio


10.0
%


9.6
%    79




---



##### 



Loans and Debt Securities Over 90 Days
    Delinquent.
  ($ in millions)

2009


2008Private finance

$
95.4



$106.6Commercial mortgage loans


1.3



1.4Total

$
96.7



$108.0Percentage of total portfolio


3.8
%


3.1
%     and payment-in-kind payment-in-kind payment-in-kind
 80




---



##### 



RESULTS OF
    OPERATIONS
  Comparison of the
    Three and Six Months Ended June 30, 2009 and 2008
    For the Three Months Ended June 30,


For the Six Months Ended June 30,Percent











Percent(in thousands, except per share amounts)

2009


2008


Change


Change


2009


2008


Change


Change(unaudited)








(unaudited)Interest and Related Portfolio IncomeInterest and dividends

$
75,657


$
119,212


$
(43,555)



(36.5)
%

$
164,387


$
253,872


$
(89,485)



(35.2)
%Fees and other income


8,973



15,366



(6,393)



(41.6)
%


15,425



25,650



(10,225)



(39.9)
%Total interest and related portfolio income


84,630



134,578



(49,948)



(37.1)
%


179,812



279,522



(99,710)



(35.7)
%ExpensesInterest


43,117



36,465



6,652



18.2
%


86,602



74,025



12,577



17.0
%Employee


10,964



13,344



(2,380)



(17.8)
%


22,034



35,996



(13,962)



(38.8)
%Employee stock options


1,204



3,859



(2,655)



(68.8)
%


1,977



8,054



(6,077)



(75.5)
%Administrative


8,459



12,943



(4,484)



(34.6)
%


18,304



21,962



(3,658)



(16.7)
%Impairment of long-lived asset














*



2,873







2,873



*Total operating expenses


63,744



66,611



(2,867)



(4.3)
%


131,790



140,037



(8,247)



(5.9)
%Net investment income before income taxes


20,886



67,967



(47,081)



(69.3)
%


48,022



139,485



(91,463)



(65.6)
%Income tax expense (benefit), including excise tax


2,653



4,112



(1,459)



(35.5)
%


2,275



6,081



(3,806)



(62.6)
%Net investment income


18,233



63,855



(45,622)



(71.4)
%


45,747



133,404



(87,657)



(65.7)
%Net Realized and Unrealized Gains (Losses)Net realized gains (losses)


(126,056)



(17,855
)


(108,201)



*



(153,165)



(14,712
)


(138,453)



*Net change in unrealized appreciation or depreciation


(2,777)



(148,203
)


145,426



*



(352,847)



(261,607
)


(91,240)



*Total net gains (losses)


(128,833)



(166,058
)


37,225



*



(506,012)



(276,319
)


(229,693)



*Gain on repurchase of debt


81,537







81,537



*



83,532







83,532



*Net income (loss)

$
(29,063)


$
(102,203
)

$
73,140



71.6
%

$
(376,733)


$
(142,915
)

$
(233,818)



(163.6)
%Diluted earnings (loss) per common share

$
(0.16)


$
(0.59
)

$
0.43



72.9
%

$
(2.11)


$
(0.85
)

$
(1.26)



(148.2)
%Weighted average common shares outstanding  diluted


178,695



172,968



5,727



3.3
%


178,694



167,238



11,456



6.9
%   *

    Comparisons may not be meaningful. Net change in unrealized
    appreciation or depreciation and net gains (losses) can
    fluctuate significantly from period to period. 81




---



##### 



Interest and Related Portfolio Income.
  Interest and Dividends.
  For the Three

For the SixMonths Ended

Months EndedJune 30,

June 30,($ in millions)

2009

2008

2009

2008InterestPrivate finance loans and debt securities

$
65.0

$
108.0

$
143.1

$
215.0Preferred shares/income notes of CLOs


2.1


7.9


4.3


15.5Subordinated certificates in Senior Secured Loan Fund LLC


3.0


1.4


5.9


1.6Commercial mortgage loans


0.9


1.0


1.8


2.2Cash, U.S. Treasury bills, money market and other securities


0.4


0.7


0.4


2.5Total interest


71.4


119.0


155.5


236.8Dividends


4.3


0.2


8.9


17.1Total interest and dividends

$
75.7

$
119.2

$
164.4

$
253.9     2009


2008($ in millions)

Value

Yield(1)


Value

Yield(1)Private finance:Loans and debt securities:Senior loans

$
287.1


4.9
%

$
330.9


6.4
%Unitranche debt


376.7


12.2
%


627.6


12.2
%Subordinated debt


1,186.6


13.8
%


2,292.0


13.7
%Equity securities:Preferred shares/income notes of CLOs


82.1


11.1
%


232.6


16.0
%Subordinated certificates in Senior Secured Loan Fund LLC


154.2


10.0
%


94.6


10.2
%Commercial real estate:Commercial mortgage loans


53.0


6.5
%


47.4


7.8
%Total interest-bearing investments

$
2,139.7


11.8
%

$
3,625.1


12.7
%   (1)
    The weighted average yield on loans and debt securities is
    computed as the (a) annual stated interest on accruing
    loans and debt securities plus the annual amortization of loan
    origination fees, original issue discount, and market discount
    on accruing loans and debt securities less the annual
    amortization of loan origination costs, divided by
    (b) total interest-bearing investments at value. The
    weighted average yield on the preferred shares/income notes of
    CLOs is calculated as the (a) effective interest yield on
    the preferred shares/income notes of CLOs, divided by
    (b) preferred shares/income notes of CLOs at value. The
    weighted average yield on the subordinated certificates in the
    Senior Secured Loan Fund LLC is computed as the
    (a) annual stated interest rate divided by (b) total
    investment at value. This yield excludes any return from the
    potential future excess cash flows from portfolio earnings
    available to the subordinated certificate holders and from
    related structuring fees and management and sourcing fees. See
     Fees and Other Income below. The
    weighted average yields are computed as of the balance sheet
    date.   82




---



##### 



Fees and Other Income.
   For the Three Months Ended June 30,


For the Six Months Ended June 30,($ in millions)

2009


2008


2009


2008Fund management
    fees(1)

$
4.3


$
1.6


$
7.1


$
2.2Management, consulting and other services provided to portfolio
    companies


1.9



3.1



4.1



6.0Structuring and diligence


1.5



8.4



1.5



13.5Commitment, guaranty and other fees from portfolio companies


1.2



1.9



1.8



3.6Loan prepayment premiums


0.1



0.3



0.9



0.3Other income






0.1







0.1Total fees and other income

$
9.0


$
15.4


$
15.4


$
25.7   (1)
    See Portfolio and Investment Activity  Managed
    Funds above.     83




---



##### 



Operating Expenses.
  Interest Expense.
  At and for the


At and for theThree Months Ended


Six Months EndedJune 30,


June 30,($ in millions)

2009


2008


2009


2008Total outstanding debt

$
1,810.5


$
2,043.3


$
1,810.5


$
2,043.3Average outstanding debt

$
1,862.8


$
2,042.9


$
1,903.6


$
2,126.2Weighted average
    cost(1)


8.6%



6.9%



8.6%



6.9%   (1)
    The weighted average annual
    interest cost is computed as the (a) annual stated interest rate
    on the debt plus the annual amortization of commitment fees,
    other facility fees and debt financing costs that are recognized
    into interest expense over the contractual life of the
    respective borrowings, divided by (b) debt outstanding on
    the balance sheet date. Events of default have occurred and are
    continuing under the Revolving Line of Credit and Private Notes
    which have increased the interest rates by 2.00% in 2009 during
    the continuance of such events of default.     84




---



##### 



Employee Expense.
  For the SixMonths EndedFor the Three Months Ended June 30,


June 30,($ in millions)

2009


2008


2009


2008Salaries and employee benefits

$
8.7


$
12.3


$
17.5


$
24.7Bonuses and performance
    awards(2)


2.3



(3.8
)


4.5



6.5Individual performance award (IPA)






2.2







4.6IPA mark to market expense (benefit)














(4.1
)Individual performance bonus (IPB)






2.6







4.3Total employee
    expense(1)

$
11.0


$
13.3


$
22.0


$
36.0Number of employees at end of period


133



183



133



183   (1)
    Excludes employee stock options expense. See below.(2)
    Amounts for the three and six months ended June 30, 2008,
    include the reversal of previously accrued bonuses.           85




---



##### 



Employee Stock Options Expense.
 For the Three Months Ended June 30,


For the Six Months Ended June 30,($ in millions)

2009


2008


2009


2008Employee Stock Option Expense:Previously awarded, unvested options as of January 1, 2006

$



$
2.1


$



$
3.9Options granted on or after January 1, 2006


1.2



1.8



2.0



4.2Total employee stock option expense

$
1.2


$
3.9


$
2.0


$
8.1       Administrative Expense.
    Impairment of Long-Lived Asset.
  Gain on Repurchase of Debt.
 86




---



##### 



Income Tax Expense (Benefit), Including Excise
    Tax.
  For the ThreeMonths EndedJune 30,


For the Six Months Ended June 30,($ in millions)

2009


2008


2009


2008Income tax expense (benefit)

$
2.7


$
2.2


$
2.3


$
1.9Excise tax
    expense(1)






1.9







4.2Income tax expense (benefit), including excise tax

$
2.7


$
4.1


$
2.3


$
6.1     (1)
    While excise tax expense is
    presented in the consolidated statement of operations as a
    reduction to net investment income, excise tax relates to both
    net investment income and net realized gains (losses).      Realized Gains and Losses.
  For the Three Months Ended June 30,


For the Six Months Ended June 30,($ in millions)

2009


2008


2009


2008Realized gains

$
8.6


$
5.0


$
21.3


$
37.7Realized losses


(134.7
)


(22.9
)


(174.5
)


(52.4
)Net realized gains (losses)

$
(126.1
)

$
(17.9
)

$
(153.2
)

$
(14.7
)     For the Three


For the SixMonths Ended


Months EndedJune 30,


June 30,($ in millions)

2009


2008


2009


2008Reversal of previously recorded net unrealized appreciation
    associated with realized gains

$
(10.9
)

$
(2.2
)

$
(11.9
)

$
(34.7
)Reversal of previously recorded net unrealized appreciation
    associated with dividends received


(7.0
)






(10.4
)


(13.5
)Reversal of previously recorded net unrealized depreciation
    associated with realized losses


116.3



16.9



133.3



45.4Total reversal

$
98.4


$
14.7


$
111.0


$
(2.8
)  87




---



##### 



($ in
    millions)
 2009Portfolio Company

AmountPrivate Finance:Advantage Sales & Marketing, Inc.

$
6.9Other


1.6Total private finance


8.5Commercial Real Estate:Other


0.1Total commercial real estate


0.1Total realized gains

$
8.6    2008Portfolio Company

AmountPrivate Finance:Mercury Air Centers, Inc.


$2.6MedAssets, Inc.


1.3Havco Wood Products LLC


0.7Other


0.3Total private finance


4.9Commercial Real Estate:Other


0.1Total commercial real estate


0.1Total realized gains


$5.0      ($ in
    millions)
 2009Portfolio Company

AmountPrivate Finance:MHF Logistical Solutions, Inc.

$
70.7Triax Holdings, LLC


21.9FCP-BHI Holdings, LLC


8.2Augusta Sportswear Group, Inc


6.2The Hillman Companies, Inc.


5.7Abraxas Corporation


3.5Tank Intermediate Holding Corp.


2.0Penn Detroit Diesel Allison, LLC


1.7Huddle House, Inc.


1.3Summit Energy Services, Inc.


1.3Other


4.3Total private finance


126.8Commercial Real Estate:Real Estate Owned


7.9Total commercial real estate


7.9Total realized losses

$
134.7   2008Portfolio Company

AmountPrivate Finance:Creative Group, Inc.


$15.5Walker Investment Fund II, LLLP


1.3Other


4.0Total private finance


20.8Commercial Real Estate:Other


2.1Total commercial real estate


2.1Total realized losses


$22.9   88




---



##### 



($ in
    million)
 2009Portfolio Company

AmountPrivate Finance:Advantage Sales & Marketing, Inc.

$
6.9GC-Sun Holdings, LP


6.8Other


3.4Total private finance


17.1Commercial Real Estate:Real Estate Owned


4.1Other


0.1Total commercial real estate


4.2Total realized gains

$
21.3  2008Portfolio Company

AmountPrivate Finance:Norwesco, Inc.

$
10.7BenefitMall, Inc.


4.9Advantage Sales & Marketing,
    Inc.(1)


3.4Financial Pacific Company


3.1Mercury Air Centers, Inc.


2.6Service Champ, Inc.


1.7Penn Detroit Diesel Allison, LLC


1.4Coverall North America, Inc.


1.4MedAssets, Inc.


1.3CR Holding, Inc.


1.0Other


5.9Total private finance


37.4Commercial Real Estate:Other


0.3Total commercial real estate


0.3Total realized gains

$
37.7      (1) Includes
    an additional realized gain of $1.9 million related to the
    release of escrowed funds from the sale of our majority equity
    investment in 2006.
 89




---



##### 



($ in
    millions)
 2009Portfolio Company

AmountPrivate Finance:MHF Logistical Solutions, Inc.

$
70.7Advantage Sales & Marketing, Inc.


27.3Triax Holdings, LLC


21.9FCP-BHI Holdings, LLC


8.2Augusta Sportswear Group, Inc.


6.2The Hillman Companies, Inc.


5.7Old Orchard Brands, LLC


4.5Tank Intermediate Holding Corp.


4.2Abraxas Corporation


3.5Pro Mach, Inc.


2.9Becker Underwood, Inc.


2.8Penn Detroit Diesel Allison, LLC


1.7Huddle House, Inc.


1.3Summit Energy Services, Inc.


1.3Other


4.4Total private finance


166.6Commercial Real Estate:Real Estate Owned


7.9Other


0.0Total commercial real estate


7.9Total realized losses

$
174.5  2008Portfolio Company

AmountPrivate Finance:Creative Group, Inc.

$
15.5Crescent Equity Corp.  Longview Cable &
    Data, LLC


8.4Mid-Atlantic Venture Fund IV, L.P.


5.2WMA Equity Corporation and Affiliates


4.5Driven Brands, Inc.


1.9Direct Capital Corporation


1.7EarthColor, Inc.


1.7Sweet Traditions, Inc.


1.5Walker Investment Fund II, LLLP.


1.3Other


8.2Total private finance


49.9Commercial Real Estate:Other


2.5Total commercial real estate


2.5Total realized losses

$
52.4       Change in Unrealized Appreciation or
    Depreciation. Fair Value Measurements
 90




---



##### 



Valuation Methodology.
     91




---



##### 



and/or security-by-security
 92




---



##### 



FSP 157-4 FSP 157-4.
        2009


2008Q1


Q2


Q1


Q2Number of private finance portfolio companies reviewed


93



91



124



119Percentage of private finance portfolio reviewed at value


94.0
%


96.9
%


94.0
%


94.9
%    93




---



##### 



Net Change in Unrealized Appreciation or
    Depreciation.
  For the Three


For the SixMonths Ended


Months EndedJune 30,


June 30,($ in millions)

2009(1)


2008(1)


2009(1)


2008(1)Net unrealized appreciation (depreciation)

$
(101.2
)

$
(162.9
)

$
(463.8
)

$
(258.8
)Reversal of previously recorded unrealized appreciation
    associated with realized gains


(10.9
)


(2.2
)


(11.9
)


(34.7
)Reversal of previously recorded net unrealized appreciation
    associated with dividends received


(7.0
)






(10.4
)


(13.5
)Reversal of previously recorded unrealized depreciation
    associated with realized losses


116.3



16.9



133.3



45.4Net change in unrealized appreciation or depreciation

$
(2.8
)

$
(148.2
)

$
(352.8
)

$
(261.6
)   (1)
    The net change in unrealized
    appreciation or depreciation can fluctuate significantly from
    period to period. As a result, quarterly comparisons may not be
    meaningful.      Per Share Amounts.
  OTHER
    MATTERS
  Regulated Investment Company Status.
   94




---



##### 



payment-in-kind payment-in-kind
    DIVIDENDS AND
    DISTRIBUTIONS
       95




---



##### 



FINANCIAL
    CONDITION, LIQUIDITY AND CAPITAL RESOURCES
  Events of Default, Liquidity and
    Operations.
             96




---



##### 



($ in millions)

2009


2008Cash and investments in money market and other securities
    (including money market and other securities: 2009-$415.0;
    2008-$0.3)

$
484.0


$
50.7Total assets

$
3,209.1


$
3,722.2Total debt outstanding

$
1,810.5


$
1,945.0Total shareholders equity

$
1,341.3


$
1,718.4Debt to equity ratio


1.35



1.13Asset coverage
    ratio(1)


174
%


188
%    (1)
    As a business development company,
    we generally are required to maintain a minimum ratio of 200% of
    total assets to total borrowings.   97




---



##### 



($ in millions)

2009


2008Net cash provided by operating activities

$
68.4


$
197.3Add: portfolio investments funded


98.7



594.0Total cash provided by operating activities before new
    investments

$
167.1


$
791.3       2009


2008($ in millions)

Value


Yield


Value


YieldMoney market and other securities

$
415.0






$
0.3



1.7
%Cash


69.0



0.1
%


50.4



0.1
%Total

$
484.0



0.0
%

$
50.7



0.1
%          98




---



##### 



2009


2008Annual








AnnualFacility


Amount


Interest


Facility


Amount


Interest($ in millions)

Amount


Outstanding


Cost(1)


Amount


Outstanding


Cost(1)Notes payable:Privately issued unsecured notes
    payable(5)

$
1,015.0


$
1,015.0



9.7%


$
1,015.0


$
1,015.0



7.8%Publicly issued unsecured notes payable


745.5



745.5



6.7%



880.0



880.0



6.7%Total notes payable


1,760.5



1,760.5



8.4%



1,895.0



1,895.0



7.3%Revolving line of
    credit(4)


165.0



50.0



6.3%
(2)


632.5



50.0



4.3%
(2)Total debt

$
1,925.5


$
1,810.5



8.6%
(3)

$
2,527.5


$
1,945.0



7.7%
(3)   (1)
    The weighted average annual interest cost is computed as the
    (a) annual stated interest on the debt plus any applicable
    default interest, plus the annual amortization of commitment
    fees, other facility fees and the amortization of debt financing
    costs that are recognized into interest expense over the
    contractual life of the respective borrowings, divided by
    (b) debt outstanding on the balance sheet date. Events of
    default have occurred and are continuing under the revolving
    line of credit and private notes which have increased the
    interest rates by 2.00% in 2009 during the continuance of such
    events of default.(2)
    The annual interest cost reflects the interest rate payable for
    borrowings under the revolving line of credit. In addition to
    the current interest rate payable, annual costs of commitment
    fees, other facility fees and amortization of debt financing
    costs related to the line of credit are $4.6 million and
    $8.5 million, respectively, at both June 30, 2009, and
    December 31, 2008.(3)
    The annual interest cost for total debt includes the annual cost
    of commitment fees and the amortization of debt financing costs
    on the revolving line of credit and other facility fees
    regardless of the amount outstanding on the facility as of the
    balance sheet date.(4)
    At June 30, 2009 $62.0 million of the facility was
    committed for standby letters of credit issued under the credit
    facility. As of July 17, 2009, the commitments under the
    facility were reduced to $115.0 million.(5)
    During the third quarter of 2009, we repaid $100 million of
    our privately issued unsecured notes payable.  Revolving Line of Credit.
      Privately Issued Unsecured
    Notes Payable.
   99




---



##### 



Amendments to Revolving Line of Credit and Privately
    Issued Unsecured Notes Payable.
    Publicly Issued Unsecured Notes
    Payable.
  ($ in millions)

Amount


Maturity Date6.625% Notes due 2011

$
319.9



July 15, 20116.000% Notes due 2012


195.6



April 1, 20126.875% Notes due 2047


230.0



April 15, 2047Total

$
745.5        100




---



##### 



Contractual Obligations.
  Payments Due By YearAfter($ in millions)

Total


2009


2010


2011


2012


2013


2013Privately issued unsecured notes
    payable(1)

$
1,015.0


$
1,015.0


$



$



$



$



$
Publicly issued unsecured notes payable


745.5











319.9



195.6







230.0Revolving line of
    credit(2)


50.0



50.0



















Operating leases


13.0



2.3



4.4



1.7



1.7



1.7



1.2Total contractual obligations

$
1,823.5


$
1,067.3


$
4.4


$
321.6


$
197.3


$
1.7


$
231.2    (1)
    The private notes have stated contractual maturities as follows:
    2009  $252.5 million, 2010  $408.0
    million, 2011  $72.5 million, 2012 
    $89.0 million, 2013  $140.5 million and
    thereafter  $52.5 million. In the third quarter
    of 2009, we repaid $100.0 million, which reduced each of
    the private notes on a pro rata basis. See below.(2)
    At June 30, 2009, $50.0 million was borrowed on the
    revolving line of credit and $62.0 million of standby
    letters of credit were issued under the credit facility. In
    March 2009, the commitment under our unsecured revolving
    line of credit was reduced to $165.0 million, and in
    July 2009, the commitment under our unsecured revolving
    line of credit was reduced to $115.0 million. See
    Revolving Line of Credit above.    Off-Balance
    Sheet Arrangements
    Amount of Commitment Expiration Per YearAfter($ in millions)

Total


2009


2010


2011


2012


2013


2013Guarantees

$
19.2


$
7.5


$
6.4


$
4.4


$
0.1


$



$
0.8Standby letters of credit


62.0



62.0



















Total commitments

$
81.2


$
69.5


$
6.4


$
4.4


$
0.1


$



$
0.8    101




---



##### 



CRITICAL
    ACCOUNTING POLICIES
    Valuation of Portfolio
    Investments. Fair Value Measurements
     102




---



##### 



and/or security-by-security
  FSP 157-4
 103




---



##### 



FSP 157-4.
    Net Realized Gains or Losses and Net Change in Unrealized
    Appreciation or Depreciation.
  Interest and Dividend Income.
        Fee Income.
 104




---



##### 



Federal and State Income Taxes and Excise
    Tax.
      Recent Accounting
    Pronouncements. Determining Fair Value
    When the Volume and Level of Activity for the Asset or Liability
    Have Significantly Decreased and Identifying Transactions That
    Are Not Orderly (FSP 157-4). FSP 157-4, FSP 157-4
  FSP 157-4 FSP 157-4
  Fair Value Measurements.
    Subsequent Events
    Accounting for Transfers of Financial Assets year-end
    The FASB Accounting Standards Codification and the Hierarchy
    of Generally Accepted Accounting Principles The Hierarchy of Generally Accepted
    Accounting Principles
 105




---



##### 



Item 3.  Quantitative
    and Qualitative Disclosures About Market Risk   Item 4.  Controls
    and Procedures  Form 10-Q, Rules 13a-15 15d-15
   106




---



##### 



PART II.
    OTHER INFORMATION Item 1.  Legal
    Proceedings        Rule 10b-5
   107




---



##### 



Item 1A.
    Risk Factors.  Investing in Allied Capital involves a number of significant
    risks relating to our business and investment objective. As a
    result, there can be no assurance that we will achieve our
    investment objective.
  Risks
    Related to Liquidity
  Certain events of default have occurred under our revolving
    credit facility and our private notes and, as a result, these
    lenders are permitted to accelerate repayment of the outstanding
    obligations thereunder.
        Our independent registered public accounting firm has
    expressed substantial doubt about our ability to continue as a
    going concern.
 108




---



##### 



Our use of leverage magnifies the potential for gain or loss
    on amounts invested and may increase the risk of investing in
    us.
    Regulations governing our operation as a BDC affect our
    ability to, and the way in which we, raise additional debt and
    equity capital.
   109




---



##### 



Our credit ratings may change and may not reflect all risks
    of an investment in the debt securities.
  Risks
    Related to Current Economic and Market Conditions
  We are currently in a period of capital markets disruption
    and severe recession and we do not expect these conditions to
    improve in the near future. These market conditions have
    materially and adversely affected the debt and equity capital
    markets in the United States, which has had and could continue
    to have a negative impact on our business and
    operations.
  Economic recessions, including the current global recession,
    could impair our portfolio companies and harm our operating
    results.
  Risks
    Related to Asset Values
  Declining asset values and illiquidity in the corporate debt
    markets have adversely affected, and may continue to adversely
    affect, the fair value of our portfolio investments, reducing
    the value of our assets.
 110




---



##### 



Substantially all of our portfolio investments, which are
    generally illiquid, are recorded at fair value as determined in
    good faith by our Board of Directors and, as a result, there is
    uncertainty regarding the value of our portfolio
    investments.
      Risks
    Related to Our Portfolio
  Our portfolio of investments is illiquid.
    Investing in private companies involves a high degree of
    risk.
 111




---



##### 



Our borrowers may default on their payments, which may have a
    negative effect on our financial performance.
  We may be unable to fund our commitments to our portfolio
    companies as they become due, which may have a material adverse
    effect on our business.
  Our private finance investments may not produce current
    returns or capital gains.
  Our financial results could be negatively affected if a
    significant portfolio investment fails to perform as
    expected.
   112




---



##### 



We operate in a competitive market for investment
    opportunities.
  Risks
    Related to Regulation as a Business Development Company and
    Regulated Investment Company
  Loss of regulated investment company tax treatment could
    negatively impact our ability to service our debt and pay
    dividends.
  Failure to invest a sufficient portion of our assets in
    qualifying assets could preclude us from investing in accordance
    with our current business strategy.
 113




---



##### 



Changes in the law or regulations that govern us could have a
    material impact on us or our operations.
  Risks
    Related to Our Ability to Pay Dividends to Our
    Shareholders
  There is a risk that our common stockholders may not receive
    dividends or distributions.
  payment-in-kind payment-in-kind payment-in-kind
  Risks
    Related to Changes in Interest Rates
  Changes in interest rates may affect our cost of capital and
    net investment income.
  Risks
    Related to Asset Management Activities
  There are potential conflicts of interest between us and the
    funds managed by us.
 114




---



##### 



Our financial results could be negatively affected if our
    Managed Funds fail to perform as expected.
    Other
    Risks
  Our business depends on our key personnel.
  Results may fluctuate and may not be indicative of future
    performance.
  Our common stock price may be volatile.
 115




---



##### 




    price and volume fluctuations in the overall stock market from
    time to time;
    significant volatility in the market price and trading volume of
    securities of business development companies or other financial
    services companies;
    volatility resulting from trading in derivative securities
    related to our common stock including puts, calls, long-term
    equity anticipation securities, or LEAPs, or short trading
    positions;
    the financial performance of the specific industries in which we
    invest on a recurring basis;
    changes in laws or regulatory policies or tax guidelines with
    respect to business development companies or regulated
    investment companies;
    actual or anticipated changes in our earnings or fluctuations in
    our operating results or changes in the expectations of
    securities analysts;
    general economic conditions and trends;
    loss of a major funding source; or
    departures of key personnel.  The trading market or market value of our publicly issued
    debt securities may be volatile.
  
    the time remaining to the maturity of these debt securities;
    the outstanding principal amount of debt securities with terms
    identical to these debt securities;
    the ratings assigned by national statistical ratings agencies;
    the general economic environment;
    the supply of debt securities trading in the secondary market,
    if any;
    the redemption or repayment features, if any, of these debt
    securities;
    the level, direction and volatility of market interest rates
    generally; and
    market rates of interest higher or lower than rates borne by the
    debt securities.    Our common stock could be delisted from the New York Stock
    Exchange if we trade below $1.00 or if we fail to meet other
    listing criteria. 30-day
 116




---



##### 



Item 2.  Unregistered
    Sales of Equity Securities and Use of Proceeds    Issuer
    Purchases of Equity Securities
     Item 3.  Defaults
    Upon Senior Securities   Item 4.  Submission
    of Matters to a Vote of Security Holders    1.
    Election of Directors: Shareholders elected five directors of
    the Company, who will serve for three years, or until their
    successors are elected and qualified. This item was approved.
    Votes were cast as follows:  For


WithheldAnn Torre Bates


151,075,194



10,345,534Edward J. Mathias


151,671,663



9,749,065Alex J. Pollock


151,727,150



9,693,578John M. Scheurer


151,958,000



9,462,728     2.
    Ratification of the selection of KPMG LLP to serve as
    independent registered public accounting firm for the year
    ending December 31, 2009. This item was approved. Votes
    were cast as follows:  For

Against

Abstain156,068,866



3,937,981



1,413,881  Item 5.  Other
    Information   117




---



##### 



Item 6.  Exhibits    ExhibitNumber

Description3.1

Restated Articles of Incorporation. (Incorporated by
    reference to Exhibit a.2 filed with Allied Capitals
    Post-Effective Amendment No. 1 to registration statement on
    Form N-2
    (File
    No. 333-141847)
    filed on June 1, 2007).3.2

Amended and Restated Bylaws. (Incorporated by reference to
    Exhibit 3.2 filed with Allied Capitals
    Form 10-K
    on March 2, 2009).4.1

Specimen Certificate of Allied Capitals Common Stock, par
    value $0.0001 per share. (Incorporated by reference to
    Exhibit d. filed with Allied Capitals registration
    statement on
    Form N-2
    (File
    No. 333-51899)
    filed on May 6, 1998).4.3

Form of Note under the Indenture relating to the issuance of
    debt securities. (Contained in Exhibit 4.4).
    (Incorporated by reference to Exhibit d.1 filed with Allied
    Capitals registration statement on
    Form N-2/A
    (File
    No. 333-133755)
    filed on June 21, 2006).4.4

Indenture by and between Allied Capital Corporation and The Bank
    of New York, dated June 16, 2006. (Incorporated by
    reference to Exhibit d.2 filed with Allied Capitals
    registration statement on
    Form N-2/A
    (File
    No. 333-133755)
    filed on June 21, 2006).4.5

Statement of Eligibility of Trustee on Form T-1.
    (Incorporated by reference to Exhibit d.3 filed with
    Allied Capitals registration statement on Form N-2
    (File No. 333-133755) filed on May 3, 2006).4.6

Form of First Supplemental Indenture by and between Allied
    Capital Corporation and the Bank of New York, dated as of
    July 25, 2006. (Incorporated by reference to
    Exhibit d.4 filed with Allied Capitals Post-Effective
    Amendment No. 1 to the registration statement on
    Form N-2/A
    (File No. 333-133755) filed on July 25, 2006).4.7

Form of 6.625% Note due 2011. (Incorporated by reference to
    Exhibit d.5 filed with Allied Capitals Post-Effective
    Amendment No. 1 to the registration statement on
    Form N-2/A (File No. 333-133755) filed on July 25,
    2006).4.8

Form of Second Supplemental Indenture by and between Allied
    Capital Corporation and The Bank of New York, dated as of
    December 8, 2006. (Incorporated by reference to
    Exhibit d.6 filed with Allied Capitals Post-Effective
    Amendment No. 2 to the registration statement on
    Form N-2/A
    (File
    No. 333-133755)
    filed on December 8, 2006).4.9

Form of 6.000% Notes due 2012. (Incorporated by reference to
    Exhibit d.7 filed with Allied Capitals Post-Effective
    Amendment No. 2 to the registration statement on
    Form N-2/A
    (File
    No. 333-133755)
    filed on December 8, 2006).4.10

Form of Third Supplemental Indenture by and between Allied
    Capital Corporation and The Bank of New York, dated as of
    March 28, 2007. (Incorporated by reference to
    Exhibit d.8 filed with Allied Capitals Post-Effective
    Amendment No. 3 to the registration statement on
    Form N-2/A
    (File
    No. 333-133755)
    filed on March 28, 2007).4.11

Form of 6.875% Notes due 2047. (Incorporated by
    reference to Exhibit d.9 filed with Allied Capitals
    Post-Effective Amendment No. 3 to the registration
    statement on
    Form N-2/A
    (File
    No. 333-133755)
    filed on March 28, 2007).4.11(a)

Form of 6.875% Notes due 2047. (Incorporated by
    reference to Exhibit d.9(a) filed with Allied
    Capitals Post-Effective Amendment No. 4 to the
    registration statement on
    Form N-2/A
    (File
    No. 333-133755)
    filed on April 2, 2007).10.1

Dividend Reinvestment Plan, as amended. (Incorporated by
    reference to Exhibit e. filed with Allied Capitals
    registration statement on
    Form N-2
    (File
    No. 333-87862)
    filed on May 8, 2002).10.2

Credit Agreement, dated April 9, 2008. (Incorporated by
    reference to Exhibit 10.1 filed with Allied Capitals
    Form 8-K
    on April 10, 2008).10.2(a)

First Amendment to Credit Agreement, dated December 30,
    2008. (Incorporated by reference to Exhibit 10.2 filed
    with Allied Capitals
    Form 8-K
    on December 31, 2008).10.3

Note Agreement, dated October 13, 2005. (Incorporated by
    reference to Exhibit 10.1 filed with Allied Capitals
    Form 8-K
    on October 14, 2005). 118




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##### 



ExhibitNumber

Description10.3(a)

Amendment dated February 29, 2008, to Note Agreement dated as of
    October 13, 2005. (Incorporated by reference to Exhibit
    f.3(a) filed with Allied Capitals Form N-2 (File No.
    333-150006) filed on April 1, 2008).10.4

Note Agreement, dated May 1, 2006. (Incorporated by
    reference to Exhibit 10.1 filed with Allied Capitals
    Form 8-K
    on May 1, 2006).10.4(a)

Amendment dated February 29, 2008, to Note Agreement dated as of
    May 1, 2006.  (Incorporated by reference to Exhibit f.11(a)
    filed with Allied Capitals Form N-2 (File No. 333-150006)
    filed on April 1, 2008).10.15

Second Amended and Restated Control Investor Guaranty, dated as
    of January 30, 2008, between Allied Capital and CitiBank,
    N.A., as Administrative Agent. (Incorporated by reference to
    Exhibit 10.1 filed with Allied Capitals Form 8-K
    filed on February 5, 2008).10.17

The 2005 Allied Capital Corporation
    Non-Qualified
    Deferred Compensation Plan II. (Incorporated by
    reference to Exhibit 10.2 filed with Allied Capitals
    Form 8-K
    filed on December 21, 2005).10.17(a)

Amendment to The 2005 Allied Capital Corporation Non-Qualified
    Deferred Compensation Plan II, dated January 20, 2006.
    (Incorporated by reference to Exhibit 10.17(a) filed
    with Allied Capitals Form 10-K for the year ended
    December 31, 2005).10.17(b)

Amendment to The 2005 Allied Capital Corporation Non-Qualified
    Deferred Compensation Plan II, dated December 14, 2007.
    (Incorporated by reference to Exhibit 10.2 filed with
    Allied Capitals
    Form 8-K
    filed on December 19, 2007).10.18

The 2005 Allied Capital Corporation Non-Qualified Deferred
    Compensation Plan. (Incorporated by reference to
    Exhibit 10.1 filed with Allied Capitals
    Form 8-K
    filed on December 21, 2005).10.18(a)

Amendment to The 2005 Allied Capital Corporation Non-Qualified
    Deferred Compensation Plan, dated January 20, 2006.
    (Incorporated by reference to Exhibit 10.18(a) filed
    with Allied Capitals Form 10-K for the year ended
    December 31, 2005).10.18(b)

Amendment to The 2005 Allied Capital Corporation Non-Qualified
    Deferred Compensation Plan, dated December 14, 2007.
    (Incorporated by reference to Exhibit 10.1 filed with
    Allied Capitals
    Form 8-K
    filed on December 19, 2007).10.19

Amended Stock Option Plan. (Incorporated by reference to
    Appendix B of Allied Capitals definitive proxy
    statement for Allied Capitals 2007 Annual Meeting of
    Stockholders filed on April 3, 2007).10.20(a)

Allied Capital Corporation 401(k) Plan, dated September 1,
    1999. (Incorporated by reference to Exhibit 4.4 filed
    with Allied Capitals registration statement on
    Form S-8
    (File
    No. 333-88681)
    filed on October 8, 1999).10.20(b)

Amendment to Allied Capital Corporation 401(k) Plan, dated
    April 15, 2004. (Incorporated by reference to
    Exhibit 10.20(b) filed with Allied Capitals
    Form 10-Q
    for the period ended June 30, 2004).10.20(c)

Amendment to Allied Capital Corporation 401(k) plan, dated
    November 1, 2005. (Incorporated by reference to Exhibit
    10.20(c) filed with Allied Capitals
    Form 10-Q
    for the quarter ended September 30, 2005).10.20(d)

Amendment to Allied Capital Corporation 401(k) plan, dated
    April 21, 2006. (Incorporated by reference to
    Exhibit i.4(c) filed with Allied Capitals
    Form N-2
    (File
    No. 333-133755)
    filed on May 3, 2006).10.20(e)

Amendment to Allied Capital Corporation 401(k) plan, adopted
    December 18, 2006. (Incorporated by reference to
    Exhibit 10.20(e) filed with Allied Capitals
    Form 10-K
    for the year ended December 31, 2006).10.20(f)

Amendment to Allied Capital Corporation 401(k) plan, dated
    June 21, 2007. (Incorporated by reference to Exhibit
    10.20(f) filed with Allied Capitals Form 10-Q for the
    quarter ended June 30, 2007).10.20(g)

Amendment to Allied Capital Corporation 401(k) plan, dated
    June 21, 2007. (Incorporated by reference to Exhibit
    10.20(g) filed with Allied Capitals Form 10-Q for the
    quarter ended June 30, 2007).10.20(h)

Amendment to Allied Capital Corporation 401(k) plan, dated
    September 14, 2007, with an effective date of
    January 1, 2008. (Incorporated by reference to
    Exhibit 10.20(h) filed with Allied Capitals
    Form 10-Q
    for the quarter ended September 30, 2007).10.20(i)

Amendment to Allied Capital Corporation 401(k) Plan.
    (Incorporated by reference to Exhibit 10.20(i) filed
    with Allied Capitals
    Form 10-Q
    for the period ended March 31, 2009). 119




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##### 



ExhibitNumber

Description10.21

Employment Agreement, dated January 1, 2004, between Allied
    Capital and William L. Walton. (Incorporated by
    reference to Exhibit 10.21 filed with Allied Capitals
    Form 10-K
    for the year ended December 31, 2003).10.21(a)

Amendment to Employment Agreement, dated March 29, 2007,
    between Allied Capital and William L. Walton.
    (Incorporated by reference to Exhibit 10.1 filed with
    Allied Capitals
    Form 8-K
    filed on April 3, 2007).10.21(b)

Second Amendment to Employment Agreement, dated
    December 15, 2008, between Allied Capital and William L.
    Walton. (Incorporated by reference to Exhibit 10.21(b)
    filed with Allied Capitals
    Form 10-K
    for the year ended December 31, 2008).10.21(c)

Third Amendment to Employment Agreement, dated February 26,
    2009, between Allied Capital and William L. Walton.
    (Incorporated by reference to Exhibit 10.21(c) filed
    with Allied Capitals
    Form 10-K
    for the year ended December 31, 2008).10.22

Employment Agreement, dated January 1, 2004, between Allied
    Capital and Joan M. Sweeney. (Incorporated by reference
    to Exhibit 10.22 filed with Allied Capitals
    Form 10-K
    for the year ended December 31, 2003).10.22(a)

Amendment to Employment Agreement, dated March 29, 2007,
    between Allied Capital and Joan M. Sweeney. (Incorporated by
    reference to Exhibit 10.2 filed with Allied Capitals
    Form 8-K
    filed on April 3, 2007).10.22(b)

Second Amendment to Employment Agreement, dated
    December 15, 2008, between Allied Capital and Joan M.
    Sweeney. (Incorporated by reference to Exhibit 10.22(b)
    filed with Allied Capitals
    Form 10-K
    for the year ended December 31, 2008).10.23

Employment Agreement, dated January 1, 2004, between Allied
    Capital and Penelope F. Roll. (Incorporated by reference to
    Exhibit 10.23 filed with Allied Capitals
    Form 10-K
    for the year ended December 31, 2006).10.23(a)

Amendment to Employment Agreement, dated March 29, 2007,
    between Allied Capital and Penelope F. Roll. (Incorporated by
    reference to Exhibit 10.3 filed with Allied Capitals
    Form 8-K
    filed on April 3, 2007).10.23(b)

Second Amendment to Employment Agreement, dated
    December 15, 2008, between Allied Capital and Penelope F.
    Roll. (Incorporated by reference to Exhibit 10.23(b)
    filed with Allied Capitals
    Form 10-K
    for the year ended December 31, 2008).10.23(c)

Third Amendment to Employment Agreement, dated May 5, 2009,
    between Allied Capital and Penelope F. Roll. (Incorporated by
    reference to Exhibit 10.23(c) filed with Allied
    Capitals
    Form 10-Q
    for the period ended March 31, 2009).10.24

Employment Agreement, dated May 5, 2009, between Allied
    Capital and John M. Scheurer. (Incorporated by reference to
    Exhibit 10.24 filed with Allied Capitals
    Form 10-Q
    for the period ended March 31, 2009).10.25

Form of Custody Agreement with Riggs Bank N.A., which was
    assumed by PNC Bank through merger. (Incorporated by
    reference to Exhibit j.1 filed with Allied Capitals
    registration statement on
    Form N-2
    (File
    No. 333-51899)
    filed on May 6, 1998).10.26

Custodian Agreement with Chevy Chase Trust. (Incorporated by
    reference to Exhibit 10.26 filed with Allied Capitals
    Form 10-K for the year ended December 31, 2005).10.27

Custodian Agreement with Bank of America. (Incorporated by
    reference to Exhibit 10.27 filed with Allied Capitals
    Form 10-K
    for the year ended December 31, 2005).10.28

Code of Ethics. (Incorporated by reference to
    Exhibit 10.28 filed with Allied Capitals
    Form 10-K
    for the year ended December 31, 2006).10.29

Custodian Agreement with Union Bank of California.
    (Incorporated by reference to Exhibit 10.29 filed with
    Allied Capitals
    Form 10-Q
    for the quarter ended June 30, 2006).10.30

Custodian Agreement with M&T Bank. (Incorporated by
    reference to Exhibit 10.30 filed with Allied Capitals
    Form 10-Q
    for the quarter ended June 30, 2006).10.31

Note Agreement, dated as of May 14, 2003. (Incorporated
    by reference to Exhibit 10.31 filed with Allied
    Capitals
    Form 10-Q
    for the quarter ended March 31, 2003). 120




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##### 



ExhibitNumber

Description10.31(a)

Amendment dated February 29, 2008, to Note Agreement dated as of
    May 14, 2003. (Incorporated by reference to Exhibit f.19(a)
    filed with Allied Capitals Form N-2 (File No. 333-150006)
    filed on April 1, 2008).10.32

Custodian Agreement with Branch Banking and Trust Company.
    (Incorporated by reference to Exhibit 10.32 filed with
    Allied Capitals
    Form 10-Q
    for the period ended March 31, 2009).10.33

Note Agreement, dated June 20, 2008. (Incorporated by
    reference to Exhibit 10.1 filed with Allied Capitals
    Form 8-K
    on June 23, 2008).10.34

Retention Agreement dated May 13, 2009, between Allied
    Capital and Joan M. Sweeney. (Incorporated by reference to
    exhibit 10.1 filed with Allied Capitals
    Form 8-K
    filed on May 19, 2009).10.37

Form of Indemnification Agreement between Allied Capital and its
    directors and certain officers. (Incorporated by reference to
    Exhibit 10.37 filed with Allied Capitals
    Form 10-K
    for the year ended December 31, 2003).10.38

Note Agreement, dated as of March 25, 2004.
    (Incorporated by reference to Exhibit 10.38 filed with
    Allied Capitals
    Form 10-Q
    for the period ended March 31, 2004.)10.38(a)

Amendment dated February 29, 2008, to Note Agreement dated as of
    March 25, 2004. (Incorporated by reference to Exhibit f.25(a)
    filed with Allied Capitals Form N-2 (File No. 333-150006)
    filed on April 1, 2008).10.38(b)

First Waiver and Second Amendment dated as of July 25,
    2008, to the Note Agreement dated as of March 25, 2004.
    (Incorporated by reference to Exhibit 10.38(b) filed
    with Allied Capitals
    Form 10-Q
    for the period ended June 30, 2008).10.39

Note Agreement, dated as of November 15, 2004.
    (Incorporated by reference to Exhibit 99.1 filed with
    Allied Capitals current report on
    Form 8-K
    filed on November 18, 2004.)10.39(a)

Amendment dated February 29, 2008, to Note Agreement dated as of
    November 15, 2004. (Incorporated by reference to Exhibit
    f.26(a) filed with Allied Capitals Form N-2 (File No.
    333-150006) filed on April 1, 2008).10.40

Real Estate Securities Purchase Agreement. (Incorporated by
    reference to Exhibit 2.1 filed with Allied Capitals
    Form 8-K filed on May 4, 2005.)10.41

Platform Assets Purchase Agreement. (Incorporated by
    reference to Exhibit 2.2 filed with Allied Capitals
    Form 8-K filed on May 4, 2005.)10.42

Transition Services Agreement. (Incorporated by reference to
    Exhibit 10.1 filed with Allied Capitals Form 8-K
    filed on May 4, 2005.)10.43

First Omnibus Waiver and Amendment to the Note Agreements, dated
    as of July 25, 2008. (Incorporated by reference to
    Exhibit 10.40 filed with Allied Capitals
    Form 10-Q
    for the period ended June 30, 2008).10.43(a)

Second Omnibus Amendment to the Note Agreements, dated as of
    December 30, 2008. (Incorporated by reference to
    Exhibit 10.1 filed with Allied Capitals
    Form 8-K
    December 31, 2008).10.44

Custodian Agreement, dated as of April 3, 2009 by and
    between Allied Capital Corporation and U.S. Bank National
    Association. (Incorporated by reference to Exhibit 10.44
    filed with Allied Capitals
    Form 10-Q
    for the period ended March 31, 2009).11

Statement regarding computation of per share earnings is
    included in Note 7 to Allied Capitals Notes to the
    Consolidated Financial Statements.15*

Letter regarding unaudited interim financial information. 121




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##### 



ExhibitNumber

Description21

Subsidiaries of Allied Capital and jurisdiction of
    incorporation/organization:A.C. Corporation

DelawareAllied Capital REIT, Inc.

MarylandAllied Capital Holdings, LLC

DelawareAllied Capital Beteiligungsberatung GmbH (inactive)

Germany31.1*

Certification of the Chairman of the Board pursuant to
    Rule 13a-14
    of the Securities Exchange Act of 1934.31.2*

Certification of the Chief Executive Officer pursuant to Rule
    13a-14 of the Securities Exchange Act of 1934.31.3*

Certification of the Chief Financial Officer pursuant to Rule
    13a-14 of the Securities Exchange Act of 1934.31.4*

Certification of the Chief Accounting Officer pursuant to
    Rule 13a-14
    of the Securities Exchange Act of 1934.32.1*

Certification of the Chairman of the Board pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350.32.2*

Certification of the Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
    Section 1350.32.3*

Certification of the Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
    Section 1350.32.4*

Certification of the Chief Accounting Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350.     *
    Filed herewith. 122




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##### 



SIGNATURES       Dated: August 10, 2009

/s/  William
    L. WaltonWilliam
    L. Walton
    Chairman of the Board/s/  John
    M. ScheurerJohn
    M. Scheurer
    Chief Executive Officer and President/s/  Penni
    F. RollPenni
    F. Roll
    Chief Financial Officer/s/  John
    C. WellonsJohn
    C. Wellons
    Chief Accounting Officer  123




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##### 



EXHIBIT
    INDEX
  ExhibitNumber

Description15


Letter regarding Unaudited Interim Financial Information.31
.1

Certification of the Chairman of the Board pursuant to
    Rule 13a-14
    of the Securities Exchange Act of 1934.31
.2

Certification of the Chief Executive Officer pursuant to Rule
    13a-14 of the Securities Exchange Act of 1934.31
.3

Certification of the Chief Financial Officer pursuant to Rule
    13a-14 of the Securities Exchange Act of 1934.31
.4

Certification of the Chief Accounting Officer pursuant to
    Rule 13a-14
    of the Securities Exchange Act of 1934.32
.1

Certification of the Chairman of the Board pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350.32
.2

Certification of the Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
    Section 1350.32
.3

Certification of the Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
    Section 1350.32
.4

Certification of the Chief Accounting Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350.  124