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 September 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 of 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
    Large
    accelerated
    filer x
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   12b-2 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
    September 30, 2009 (unaudited) and
    December 31, 2008

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

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

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

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

5Consolidated Statement of Investments as of
    December 31, 2008

17Notes to Consolidated Financial Statements

31Report of Independent Registered Public
    Accounting Firm

66Item 2. Managements Discussion
    and Analysis of Financial Condition and Results of Operations

70Item 3. Quantitative and Qualitative
    Disclosures About Market Risk

107Item 4. Controls and Procedures

107PART II. OTHER INFORMATIONItem 1. Legal Proceedings

108Item 1A. Risk Factors

109Item 2. Unregistered Sales of Equity
    Securities and Use of Proceeds

118Item 3. Defaults Upon Senior
    Securities

118Item 4. Submission of Matters to a Vote
    of Security Holders

118Item 5. Other Information

118Item 6. Exhibits

118Signatures

124EX-10.51Ex-15Ex-31.1Ex-31.2Ex-31.3Ex-31.4Ex-32.1Ex-32.2Ex-32.3Ex-32.4




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##### 



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


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

2009


2008(unaudited)ASSETSPortfolio at value:Private financeCompanies more than 25% owned (cost: 2009-$2,025,850;
    2008-$2,167,020)

$
1,032,018


$
1,187,722Companies 5% to 25% owned (cost: 2009-$219,671; 2008-$392,516)


178,253



352,760Companies less than 5% owned (cost: 2009-$1,948,748;
    2008-$2,317,856)


1,232,400



1,858,581Total private finance (cost: 2009-$4,194,269; 2008-$4,877,392)


2,442,671



3,399,063Commercial real estate finance (cost: 2009-$74,066; 2008-$85,503)


68,523



93,887Total portfolio at value (cost: 2009-$4,268,335;
    2008-4,962,895)


2,511,194



3,492,950Accrued interest and dividends receivable


49,953



55,638Other assets


125,653



122,909Investments in money market and other securities


90,020



287Cash and cash equivalents


62,737



50,402Restricted cash


659



Total assets

$
2,840,216


$
3,722,186LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Notes payable (principal amount: 2009-$1,586,513;
    2008-$1,895,000) (maturing within one year: 2009-$253,745;
    2008-$1,015,000)

$
1,543,867


$
1,895,000Bank term debt (former revolver)


50,000



50,000Accounts payable and other liabilities


45,084



58,786Total liabilities


1,638,951



2,003,786Commitments and contingenciesShareholders equity:Common stock, $0.0001 par value, 400,000 shares
    authorized; 179,362 and 178,692 shares issued and
    outstanding at September 30, 2009, and December 31,
    2008, respectively


18



18Additional paid-in capital


3,037,718



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


(680
)


(1,089
)Net unrealized appreciation (depreciation)


(1,883,617
)


(1,503,089
)Undistributed earnings


47,826



184,715Total shareholders equity


1,201,265



1,718,400Total liabilities and shareholders equity

$
2,840,216


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

$
6.70


$
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 NineMonths Ended


Months EndedSeptember 30,


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

2009


2008


2009


2008(unaudited)


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

$
24,737


$
29,699


$
72,941


$
85,167Companies 5% to 25% owned


4,775



9,864



25,123



31,587Companies less than 5% owned


36,118



72,644



131,953



249,325Total interest and dividends


65,630



112,207



230,017



366,079Fees and other income:Companies more than 25% owned


6,063



6,130



18,648



22,638Companies 5% to 25% owned


13



342



223



411Companies less than 5% owned


732



1,983



3,362



11,056Total fees and other income


6,808



8,455



22,233



34,105Total interest and related portfolio income


72,438



120,662



252,250



400,184Expenses:Interest


42,421



35,949



129,023



109,974Employee


10,905



21,443



32,939



57,439Employee stock options


392



1,477



2,369



9,531Administrative


7,205



14,138



25,509



36,100Impairment of long-lived asset










2,873



Total operating expenses


60,923



73,007



192,713



213,044Net investment income before income taxes


11,515



47,655



59,537



187,140Income tax expense (benefit), including excise tax


1,930



2,060



4,205



8,141Net investment income


9,585



45,595



55,332



178,999Net Realized and Unrealized Gains (Losses):Net realized gains (losses):Companies more than 25% owned


(12,681
)


1,098



(89,643
)


1,967Companies 5% to 25% owned


(824
)


7,234



(54,963
)


(6,569
)Companies less than 5% owned


8,415



53,710



(13,649
)


51,932Total net realized gains (losses)


(5,090
)


62,042



(158,255
)


47,330Net change in unrealized appreciation or depreciation


(27,681
)


(425,899
)


(380,528
)


(687,506
)Total net gains (losses)


(32,771
)


(363,857
)


(538,783
)


(640,176
)Gain on repurchase of debt










83,532



Loss on extinguishment of debt


(117,497
)






(117,497
)


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

$
(140,683
)

$
(318,262
)

$
(517,416
)

$
(461,177
)Basic earnings (loss) per common share

$
(0.79
)

$
(1.78
)

$
(2.89
)

$
(2.70
)Diluted earnings (loss) per common share

$
(0.79
)

$
(1.78
)

$
(2.89
)

$
(2.70
)Weighted average common shares outstanding  basic


179,054



178,692



178,815



171,084Weighted average common shares outstanding  diluted


179,054



178,692



178,815



171,084   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 Nine MonthsEnded September 30,(in thousands, except per share
    amounts)

2009


2008(unaudited)Operations:Net investment income

$
55,332


$
178,999Net realized gains (losses)


(158,255
)


47,330Net change in unrealized appreciation (depreciation)


(380,528
)


(687,506
)Gain on repurchase of debt


83,532



Loss on extinguishment of debt


(117,497
)


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


(517,416
)


(461,177
)Shareholder distributions:Common stock dividends






(340,381
)Net decrease in net assets resulting from shareholder
    distributions






(340,381
)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


489



Stock option expense


2,438



9,655Net decrease in notes receivable from sale of common stock


409



841Purchase of common stock held in deferred compensation trusts






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






27,335Cancellation of stock options


(3,055
)


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


280



443,117Total increase (decrease) in net assets


(517,135
)


(358,441
)Net assets at beginning of period


1,718,400



2,771,847Net assets at end of period

$
1,201,265


$
2,413,406Net asset value per common share

$
6.70


$
13.51Common shares outstanding at end of period


179,362



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 Nine MonthsEnded September 30,(in thousands)

2009


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

$
(517,416
)

$
(461,177
)Adjustments:Portfolio investments


(118,095
)


(1,019,750
)Principal collections related to investment repayments or sales


479,815



878,229Collections of notes and other consideration received from sale
    of investments


171,030



16,316Realized gains from the receipt of notes and other consideration
    from sale of investments


(577
)


(1,886
)Realized losses


194,152



87,867Gain on repurchase of debt


(83,532
)


Redemption of (investments in) money market and other securities


(89,733
)


187,838Payment-in-kind
    interest and dividends, net of cash collections


(24,352
)


(35,947
)Change in accrued interest and dividends


4,577



835Net collection (amortization) of discounts and fees


(4,875
)


(10,176
)Stock option expense


2,438



9,655Impairment of long-lived asset


2,873



Changes in other assets and liabilities


(95,823
)


(42,537
)Depreciation and amortization


1,169



1,752Net change in unrealized (appreciation) or depreciation


380,528



687,506Net cash provided by (used in) operating activities


302,179



298,525Cash flows from financing activities:Sale of common stock






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


489



Collections of notes receivable from sale of common stock


408



841Borrowings under notes payable






193,000Repurchase or repayment of notes payable


(224,357
)


(153,000
)Net borrowings under (repayments on) revolver/bank term debt






(197,250
)Purchase of common stock held in deferred compensation trusts






(943
)Net change in restricted cash


(659
)


Deferred financing costs


(65,725
)


(8,611
)Other financing activities






(35
)Common stock dividends and distributions paid






(336,630
)Net cash provided by (used in) financing activities


(289,844
)


(100,150
)Net increase (decrease) in cash


12,335



198,375Cash at beginning of period


50,402



3,540Cash at end of period

$
62,737


$
201,915   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



September 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





$
665


$
417(Private Equity Fund)

Total Investment






665



417AllBridge Financial, LLC

Senior Loan (6.6%, Due 12/09)

$
1,311



1,311



1,311(Asset Management)

Equity Interests






40,118



15,523Total Investment






41,429



16,834Allied 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



Border Foods, Inc.

Senior Loan (12.9%, Due 3/12)


34,876



29,495



34,876(Consumer Products)

Preferred Stock (100,000 shares)






12,721



16,585Common Stock (260,467 shares)






3,847



Total Investment






46,063



51,461Calder Capital Partners,
    LLC(5)

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


4,496



4,496



1,100(Asset Management)

Equity Interests






2,453



Total Investment






6,949



1,100Callidus Capital Corporation

Subordinated Debt (18.0%, Due 8/13)


20,939



20,939



15,165(Asset Management)

Common Stock (100 shares)










Total Investment






20,939



15,165Guaranty ($3,189)  (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.(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



September 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


$
102,232(Financial Services)

Class B Equity Interests






119,436



Class C Equity Interests






109,097



Total Investment






547,564



102,232Guaranty ($5,000  See Note 3)CitiPostal Inc.

Senior Loan (3.7%, Due 12/13)


692



683



683(Business Services)

Unitranche Debt (12.0%, Due 12/13)


51,180



51,001



51,001Subordinated Debt (16.0%, Due 12/15)


10,265



10,265



10,265Common Stock (37,024 shares)






12,726



1,124Total Investment






74,675



63,073Coverall North America, Inc.

Unitranche Debt (12.0%, Due 7/11)


31,627



31,565



31,565(Business Services)

Subordinated Debt (15.0%, Due 7/11)


5,563



5,553



5,553Common Stock (763,333 shares)






14,362



21,261Total Investment






51,480



58,379CR Holding, Inc.

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


40,623



40,510



10,271(Consumer Products)

Common Stock (32,090,696 shares)






28,744



Total Investment






69,254



10,271Crescent 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)


32,202



32,112



4,203Common Stock (174 shares)






82,730



Total Investment






115,275



4,636Guaranty ($900)Direct Capital Corporation

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


8,175



8,175



8,573(Financial Services)

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


55,671



55,496



7,139Common Stock (2,317,020 shares)






25,732



Total Investment






89,403



15,712Financial Pacific Company

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


68,967



68,870



41,417(Financial Services)

Preferred Stock (9,458 shares)






8,865



Common Stock (12,711 shares)






12,783



Total Investment






90,518



41,417  (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



September 30, 2009Portfolio Company



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

Investment(1)(2)

Principal


Cost


ValueHot Light Brands, Inc.

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

$
30,572


$
30,572


$
10,471(Retail)

Common Stock (93,500 shares)






5,151



Total Investment






35,723



10,471Hot Stuff Foods, LLC

Senior Loan (3.7%, Due 2/11-2/12)


45,417



45,310



45,417(Consumer Products)

Subordinated Debt (12.3%, Due
    8/12-2/13)(6)


83,692



83,387



49,801Common Stock (1,147,453 shares)






56,187



Total Investment






184,884



95,218Huddle House, Inc.

Subordinated Debt (15.0%, Due 12/15)


19,544



19,494



19,494(Retail)

Common Stock (358,428 shares)






36,348



7,651Total Investment






55,842



27,145IAT 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



9,948(Industrial Products)

Total Investment






13,500



15,948Impact Innovations Group, LLC

Equity Interests in Affiliate










322(Business Services)

Total Investment










322Insight Pharmaceuticals Corporation

Subordinated Debt (15.0%, Due 9/12)


54,167



54,100



52,098(Consumer Products)

Common Stock (155,000 shares)






40,413



10,419Total Investment






94,513



62,517Jakel, 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 (9.5%, Due 1/22)


18,700



18,700



11,160(CLO)

Income Notes
    (13.3%)(11)






38,746



22,640Total Investment






57,446



33,800Knightsbridge CLO
    2008-1
    Ltd.(4)

Class C Notes (7.8%, Due 6/18)


12,800



12,800



12,246(CLO)

Class D Notes (8.8%, Due 6/18)


8,000



8,000



7,080Class E Notes (5.3%, Due 6/18)


13,200



11,081



9,798Income Notes
    (21.2%)(11)






21,327



20,112Total Investment






53,208



49,236  (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



September 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



41,402



36,021Subordinated Debt (8.0%, Due
    7/12)(6)


144



139



Common Stock (560,716 shares)






555



Total Investment






67,352



61,277Penn Detroit Diesel Allison, LLC

Equity Interests






20,081



13,870(Business Services)

Total Investment






20,081



13,870Senior Secured Loan Fund LLC

Subordinated Certificates (8.4%)






165,248



165,000(Private Debt Fund)

Equity Interests






1



Total Investment






165,249



165,000Service Champ, Inc.

Subordinated Debt (15.5%, Due 4/12)


27,566



27,515



27,515(Business Services)

Common Stock (55,112 shares)






11,785



28,321Total Investment






39,300



55,836Stag-Parkway, Inc.

Subordinated Debt (10.0%, Due 7/12)


19,044



19,000



19,000(Business Services)

Common Stock (25,000 shares)






32,686



7,359Total Investment






51,686



26,359Startec Equity, LLC

Equity Interests






211



(Telecommunications)

Total Investment






211



Total
    companies more than 25% owned





$
2,025,850


$
1,032,018Companies 5% to 25% Owned10th

    Street, LLC

Subordinated Debt (13.0%, Due 11/14)

$
22,100


$
22,004


$
22,100(Business Services)

Equity Interests






422



485Option






25



25Total Investment






22,451



22,610Air Medical Group Holdings LLC

Senior Loan (4.3%, Due 3/11)


4,665



4,642



4,456(Healthcare Services)

Equity Interests






2,993



20,000Total Investment






7,635



24,456BB&T Capital Partners/WindsorMezzanine Fund,
    LLC(5)

Equity Interests






11,789



10,009(Private Equity Fund)

Total Investment






11,789



10,009  (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.
 8




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##### 



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



September 30, 2009Portfolio Company



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

Investment(1)(2)

Principal


Cost


ValueDriven Brands, Inc.

Subordinated Debt (16.6%, Due 7/15)

$
89,838


$
89,477


$
86,398(Consumer Services)

Common Stock (3,772,098 shares)






9,516



2,500Total Investment






98,993



88,898Multi-Ad Services, Inc.

Unitranche Debt (11.3%, Due 11/11)


2,508



2,491



2,488(Business Services)

Equity Interests






1,737



1,206Total Investment






4,228



3,694Pendum 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



15,308(Industrial Products)

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


23,953



23,868



Equity Interests






2,174



Total Investment






60,918



15,308Progressive International

Preferred Stock (500 shares)






500



5,847Corporation

Common Stock (197 shares)






13



153(Consumer Products)

Warrants










Total Investment






513



6,000Regency Healthcare Group, LLC

Equity Interests






1,302



1,841(Healthcare Services)

Total Investment






1,302



1,841SGT India Private
    Limited(4)

Common Stock (150,596 shares)






4,158



(Business Services)

Total Investment






4,158



Soteria Imaging Services, LLC

Subordinated Debt (11.3%, Due 11/10)


4,250



4,204



4,154(Healthcare Services)

Equity Interests






1,881



1,283Total Investment






6,085



5,437Universal Environmental Services, LLC

Equity Interests






1,599



(Business Services)

Total Investment






1,599



Total companies 5% to 25% owned







$
219,671


$
178,253Companies Less Than 5% Owned3SI Security Systems, Inc.

Subordinated Debt (16.6%, Due
    8/13)(6)

$
29,548


$
29,473


$
14,865(Consumer Products)

Total Investment






29,473



14,865Augusta Sportswear Group, Inc.

Common Stock (2,500 shares)






2,500



1,523(Consumer Products)

Total Investment






2,500



1,523  (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



September 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



2,380BenefitMall Holdings Inc.

Subordinated Debt (18.0%, Due 6/14)


40,326



40,250



40,250(Business Services)

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






39,274



73,729Warrants(12)










Total Investment






79,524



113,979Broadcast Electronics, Inc.

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


4,875



4,847



340(Business Services)

Preferred Stock (2,044 shares)










Total Investment






4,847



340Bushnell, Inc.

Subordinated Debt (6.8%, Due 2/14)


41,325



40,161



30,204(Consumer Products)

Total Investment






40,161



30,204Callidus Debt Partners
    CDO Fund I,
    Ltd.(4)(10)

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


19,420



19,527



2,935(CDO)

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


9,400



9,454



Total Investment






28,981



2,935Callidus Debt Partners
    CLO Fund III,
    Ltd.(4)(10)

Preferred Shares (23,600,000 shares)






20,138



2,199(CLO)

Total Investment






20,138



2,199Callidus Debt Partners
    CLO Fund IV,
    Ltd.(4)(10)

Class D Notes (5.1%, Due 4/20)


3,000



2,160



1,653(CLO)

Income Notes
    (0.0%)(11)






14,868



4,366Total Investment






17,028



6,019Callidus Debt Partners
    CLO Fund V,
    Ltd.(4)(10)

Income Notes
    (2.6%)(11)






13,521



4,625(CLO)

Total Investment






13,521



4,625Callidus Debt Partners
    CLO Fund VI,
    Ltd.(4)(10)

Class D Notes (6.5%, Due 10/21)


9,325



7,602



3,833(CLO)

Income Notes
    (0.0%)(11)






29,144



4,155Total Investment






36,746



7,988Callidus Debt Partners
    CLO Fund VII,
    Ltd.(4)(10)

Income Notes
    (0.0%)(11)






24,824



5,431(CLO)

Total Investment






24,824



5,431  (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



September 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 (5.8%, Due 12/17)

$
17,000


$
17,000


$
11,400(CLO)

Income Notes
    (0.0%)(11)






41,176



13,662Total Investment






58,176



25,062Callidus MAPS CLO Fund II,
    Ltd.(4)(10)

Class D Notes (4.8%, Due 7/22)


7,700



3,785



3,068(CLO)

Income Notes
    (0.9%)(11)






18,109



4,819Total Investment






21,894



7,887Carlisle Wide Plank Floors, Inc.

Unitranche Debt (12.0%, Due 6/11)


1,644



1,637



1,533(Consumer Products)

Common Stock (345,056 Shares)






345



Total Investment






1,982



1,533Catterton Partners VI,
    L.P.(5)

Limited Partnership Interest






3,287



1,789(Private Equity Fund)

Total Investment






3,287



1,789Commercial 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



6,212Warrants










Total Investment






37,513



28,182Community Education Centers, Inc.

Subordinated Debt (19.5%, Due 11/13)


36,654



36,602



36,501(Education Services)

Total Investment






36,602



36,501Component Hardware Group, Inc.

Subordinated Debt (13.5%, Due 1/13)


18,921



18,876



16,587(Industrial Products)

Total Investment






18,876



16,587Cook Inlet Alternative Risk, LLC

Unitranche Debt (10.8%, Due 4/13)


87,600



87,286



69,000(Business Services)

Equity Interests






552



Total Investment






87,838



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

Limited Partnership Interest






6,572



3,812(Private Equity)

Total Investment






6,572



3,812  (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



September 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)

$
13,203


$
13,155


$
12,825(Business Services)

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


4,894



4,883



4,883Total Investment






18,038



17,708DirectBuy Holdings, Inc.

Subordinated Debt (16.0%, Due 5/13)


76,389



76,139



60,287(Consumer Products)

Equity Interests






8,000



Total Investment






84,139



60,287Distant Lands Trading Co.

Senior Loan (6.3%, Due 11/11)


6,800



6,781



6,358(Consumer Products)

Unitranche Debt (11.0%, Due 11/11)


43,581



43,499



41,967Common Stock (3,451 shares)






3,451



1,147Total Investment






53,731



49,472Diversified Mercury

Senior Loan (4.5%, Due 3/13)


2,814



2,803



2,525Communications, LLC

Total Investment






2,803



2,525(Business Services)Dryden XVIII Leveraged

Class B Notes (5.0%, Due
    10/19)(6)


9,092



7,872



2,355Loan 2007
    Limited(4)

Income Notes
    (0.0%)(11)






23,164



2,415(CLO)

Total Investment






31,036



4,770Dynamic India
    Fund IV(4)(5)

Equity Interests






9,350



7,982(Private Equity Fund)

Total Investment






9,350



7,982EarthColor, 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



(Private Equity Fund)

Total Investment






7,274



eInstruction Corporation

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


36,069



35,951



32,708(Education Services)

Common Stock (2,406 shares)






2,500



750Total Investment






38,451



33,458Farleys & Sathers Candy Company, Inc.

Subordinated Debt (8.3%, Due 3/11)


2,500



2,496



2,492(Consumer Products)

Total Investment






2,496



2,492  (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



September 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


$
7,804(Private Equity Fund)

Total Investment






12,828



7,804Freedom Financial Network, LLC

Subordinated Debt (13.5%, Due 2/14)

$
6,000



5,953



6,000(Financial Services)

Total Investment






5,953



6,000Geotrace Technologies, Inc.

Warrants






2,027



2,300(Energy Services)

Total Investment






2,027



2,300Gilchrist & Soames, Inc.

Subordinated Debt (13.4%, Due 10/13)


25,304



25,186



23,101(Consumer Products)

Total Investment






25,186



23,101Havco 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



53,129



53,129(Business Services)

Common Stock
    (23,695 shares)(12)






23,695



12,355Warrant(12)










Total Investment






76,824



65,484The Homax Group, Inc.

Senior Loan (6.3%, Due 10/12)


10,116



10,072



9,168(Consumer Products)

Subordinated Debt (14.5%, Due 4/14)


14,159



13,619



4,945Preferred Stock (76 shares)






76



Common Stock (24 shares)






5



Warrants






954



Total Investment






24,726



14,113Ideal Snacks Corporation

Senior Loan (8.5%, Due 6/10)


1,084



1,084



1,068(Consumer Products)

Total Investment






1,084



1,068Kodiak
    Fund LP(5)

Equity Interests






9,332



900(Private Equity Fund)

Total Investment






9,332



900Market Track Holdings, LLC

Senior Loan (8.0%, Due 6/14)


2,500



2,450



2,392(Business Services)

Subordinated Debt (15.9%, Due 6/14)


24,600



24,504



23,166Total Investment






26,954



25,558NetShape Technologies, Inc.

Senior Loan (4.0%, Due 2/13)


875



875



368(Industrial Products)

Total Investment






875



368  (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



September 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)

$
16,330


$
16,382


$
16,330(Business Services)

Convertible Subordinated Debt


15,953



16,000



16,000(9.8%, Due 12/15)Total Investment






32,382



32,330Novak Biddle Venture Partners III, L.P.(5)

Limited Partnership Interest






2,018



1,037(Private Equity Fund)

Total Investment






2,018



1,037Oahu Waste Services, Inc.

Stock Appreciation Rights






206



406(Business Services)

Total Investment






206



406Pangaea CLO
    2007-1
    Ltd.(4)

Class D Notes (5.3%, Due 1/21)


15,000



11,985



7,795(CLO)

Total Investment






11,985



7,795PC Helps Support, LLC

Senior Loan (4.3%, Due 12/13)


8,299



8,210



7,763(Business Services)

Subordinated Debt (12.8%, Due 12/13)


27,121



27,013



25,572Total Investment






35,223



33,335Performant Financial Corporation

Common Stock (478,816 shares)






734



920(Business Services)

Total Investment






734



920Promo Works, LLC

Unitranche Debt (12.3%, Due 12/11)


23,111



22,994



20,312(Business Services)

Total Investment






22,994



20,312Reed Group, Ltd.

Senior Loan (6.4%, Due 12/13)


12,060



11,929



9,530(Healthcare Services)

Subordinated Debt (15.8%, Due 12/13)


19,076



19,013



14,924Equity Interests






1,800



Total Investment






32,742



24,454S.B. Restaurant Company

Unitranche Debt (9.8%, Due 4/11)


38,327



38,184



33,606(Retail)

Preferred Stock (46,690 shares)






117



Warrants






534



Total Investment






38,835



33,606SPP Mezzanine Funding II, L.P.(5)

Limited Partnership Interest






7,605



6,987(Private Equity Fund)

Total Investment






7,605



6,987STS Operating, Inc.

Subordinated Debt (11.0%, Due 1/13)


30,386



30,313



27,305(Industrial Products)

Total Investment






30,313



27,305Summit Energy Services, Inc.

Common Stock (415,982 shares)






1,861



2,150(Business Services)

Total Investment






1,861



2,150  (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.
 14




---



##### 



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



September 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


$
4,515(Business Services)

Common Stock
    (12,940 shares)(12)






2,043



Warrant(12)










Total Investment






24,291



4,515The Step2 Company, LLC

Unitranche Debt (11.0%, Due 4/12)


94,602



94,396



89,550(Consumer Products)

Equity Interests






2,156



1,528Total Investment






96,552



91,078Tradesmen International, Inc.

Subordinated Debt (12.0%, Due 12/12)


40,000



39,793



18,347(Business Services)

Total Investment






39,793



18,347TransAmerican Auto Parts, LLC

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


24,561



24,409



(Consumer Products)

Equity Interests






1,033



Total Investment






25,442



Trover Solutions, Inc.

Subordinated Debt (12.0%, Due 11/12)


56,676



56,510



52,568(Business Services)

Total Investment






56,510



52,568United Road Towing, Inc.

Subordinated Debt (11.8%, Due 1/14)


19,060



18,988



18,792(Consumer Services)

Total Investment






18,988



18,792Venturehouse-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



71,345d/b/a Wear Me Apparel

Common Stock (86 shares)






39,549



(Consumer Products)

Total Investment






178,108



71,345Webster Capital II,
    L.P.(5)

Limited Partnership Interest






1,338



809(Private Equity Fund)

Total Investment






1,338



809Woodstream Corporation

Subordinated Debt (12.0%, Due 2/15)


90,000



89,678



74,221(Consumer Products)

Common Stock (6,960 shares)






6,961



2,000Total Investment






96,639



76,221Other companies

Other debt investments


37



(151
)


(151
)Other equity investments






41



8Total Investment






(110
)


(143
)Total companies less than 5% owned





$
1,948,748


$
1,232,400Total private finance (113 portfolio investments)





$
4,194,269


$
2,442,671  (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)
  September 30, 2009(unaudited)Stated Interest

Number ofRate Ranges

Loans

Cost

ValueCommercial Mortgage LoansUp to 6.99%



3


$
32,143


$
31,0067.00%8.99%



2



1,876



1,8649.00%10.99%



1



6,476



6,47611.00%12.99%



1



10,479



6,31915.00% and above



2



3,970



4,848Total commercial mortgage
    loans(13)









$
54,944


$
50,513Real Estate Owned









$
5,937


$
6,179Equity
    Interests(2) 

    Companies more than 25% owned





$
13,185


$
11,831Total commercial real estate finance









$
74,066


$
68,523Total portfolio









$
4,268,335


$
2,511,194   Yield

Cost

ValueInvestments in Money Market and Other SecuritiesFirst American Treasury Obligations Fund






$
90,020


$
90,020Total






$
90,020


$
90,020  (2)

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

Commercial mortgage loans totaling $9.2 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




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##### 



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




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##### 



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




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##### 



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

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


18,800



18,907



10,116(CDO)

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


9,400



9,454



Total Investment






28,361



10,116Callidus Debt Partners
    CLO Fund III,
    Ltd.(4)(10)

Preferred Shares (23,600,000 shares)






20,138



5,402(CLO)

Total Investment






20,138



5,402Callidus Debt Partners
    CLO Fund IV,
    Ltd.(4)(10)

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


3,000



2,045



1,445(CLO)

Income Notes
    (13.2%)(11)






14,591



10,628Total Investment






16,636



12,073Callidus Debt Partners
    CLO Fund V,
    Ltd.(4)(10)

Income Notes
    (16.4%)(11)






13,388



10,331(CLO)

Total Investment






13,388



10,331Callidus Debt Partners
    CLO Fund VI,
    Ltd.(4)(10)

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


9,000



7,144



3,929(CLO)

Income Notes
    (17.8%)(11)






28,314



23,090Total Investment






35,458



27,019Callidus Debt Partners
    CLO Fund VII,
    Ltd.(4)(10)

Income Notes
    (11.4%)(11)






24,026



15,361(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




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##### 



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



2,948(CLO)

Income Notes
    (13.3%)(11)






18,393



12,626Total 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.

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
    Communications, LLC

Senior Loan (4.5%, Due 3/13)

$
2,972


$
2,958


$
2,692(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

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


9,000



7,728



4,535Loan 2007
    Limited(4)

Income Notes
    (16.0%)(11)






22,080



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.

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.

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.

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
  Note 1.
    Organization      Consolidations
    Note 2.
    Summary
    of Significant Accounting Policies    The FASB Accounting Standards Codification and the
    Hierarchy of Generally Accepted Accounting Principles, Generally Accepted Accounting Standards.
   31




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 2.
    Summary of Significant Accounting Policies, continued        Financial Instruments  Fair Value
    Measurements.
     32




---



##### 



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




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 2.
    Summary of Significant Accounting Policies, continued  and/or security-by-security
    Net
    Realized Gains or Losses and Net Change in Unrealized
    Appreciation or Depreciation
    Interest
    and Dividend Income
  payment-in-kind payment-in-kind payment-in-kind
   34




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 2.
    Summary of Significant Accounting Policies, continued      and/or
    Fee
    Income
    Cash
    and Cash Equivalents
   35




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 2.
    Summary of Significant Accounting Policies, continued  Guarantees
  Guarantees
  Financing
    Costs
    Dividends
    to Shareholders
    Stock
    Compensation Plans
  Share-Based Payment Compensation  Stock Compensation
 36




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 2.
    Summary of Significant Accounting Policies, continued    For the Three Months Ended September 30,

For the Nine Months Ended September 30,($ in millions, except per share
    amounts)

2009

2008

2009

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


$


$


$


$3.9Options granted on or after January 1, 2006


0.4


1.5


2.4


5.6Total employee stock option expense


$0.4


$1.5


$2.4


$9.5Per basic share


$0.00


$0.01


$0.01


$0.06Per diluted share


$0.00


$0.01


$0.01


$0.06   Options Granted.
  For the Three Months Ended September 30,


For the Nine Months Ended September 30,2009


2008


2009


2008Expected term (in years)






5.0



3.0



5.0Risk-free interest rate






3.4
%


1.3
%


2.8
%Expected volatility






32.8
%


105.0
%


27.8
%Dividend yield






8.5
%


32.5
%


8.5
%Weighted average fair value per option






$1.81



$0.21



$2.18      37




---



##### 



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
   38




---



##### 



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.
    Determining
    the Fair Value of a Financial Asset When the Market for That
    Asset Is Not Active (FSP 157-3),
    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),
   39




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 2.
    Summary of Significant Accounting Policies, continued  The Fair Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of FASB Statement
    No. 115,
    Subsequent Events
    Accounting for Transfers of Financial Assets
    Amendments to FASB Interpretation No. 46(R) Consolidation
  The FASB Accounting Standards Codification and the Hierarchy
    of Generally Accepted Accounting Principles The
    Hierarchy of Generally Accepted Accounting Principles
 40




---



##### 



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

$
553.1


$
289.4



4.8%


$
556.9


$
306.3



5.6%Unitranche
    debt(2)


424.9



374.7



12.2%



527.5



456.4



12.0%Subordinated
    debt(3)


1,770.9



1,182.9



13.4%



2,300.1



1,829.1



12.9%Total loans and debt
    securities(4)


2,748.9



1,847.0



11.8%



3,384.5



2,591.8



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


245.0



84.4



12.1%



248.2



179.2



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


165.2



165.0



14.0%



125.4



125.4



12.0%Other equity securities


1,035.2



346.3







1,119.3



502.7Total equity securities


1,445.4



595.7







1,492.9



807.3Total

$
4,194.3


$
2,442.7






$
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
    September 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 $102.2 million and $104.9 million at
    value, respectively, which was placed on non-accrual status on
    the purchase date.   (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 $2,775.9 million and $3,418.0 million
    at September 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
    $27.0 million and $33.5 million at September 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.     41




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 3.
    Portfolio,
    continued  payment-in-kind
    and/or
  Ciena Capital LLC.
  debtor-in-possession
   42




---



##### 



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


December 31, 2008($ in millions)

Cost


Value


Cost


ValueSenior Loan

$
319.0


$
102.2


$
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


$
102.2


$
547.8


$
104.9   (1)
    At September 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.         43




---



##### 



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


$
2.9



%


$
28.4


$
10.1



39.4%Callidus Debt Partners CLO Fund IV, Ltd.


2.1



1.6



20.9%



2.0



1.4



26.9%Callidus Debt Partners CLO Fund VI, Ltd.


7.6



3.8



21.4%



7.1



3.9



26.1%Callidus MAPS CLO Fund I LLC


17.0



11.4



8.6%



17.0



9.8



12.2%Callidus MAPS CLO Fund II LLC


3.8



3.1



25.1%



3.6



3.0



30.2%Dryden XVIII Leveraged Loan 2007 Limited


7.9



2.4



%



7.7



4.5



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


18.7



11.2



15.9%



18.7



14.9



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


31.9



29.1



11.3%



31.4



31.4



10.2%Pangaea CLO
    2007-1
    Ltd.


12.0



7.8



16.8%



11.8



7.1



25.0%Total bonds


130.0



73.3



12.7%



127.7



86.1



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


20.1



2.2



%



20.1



5.4



%Callidus Debt Partners CLO Fund IV, Ltd.


14.9



4.4



%



14.6



10.6



18.1%Callidus Debt Partners CLO Fund V, Ltd.


13.5



4.6



7.6%



13.4



10.3



21.3%Callidus Debt Partners CLO Fund VI, Ltd.


29.1



4.2



%



28.3



23.1



21.8%Callidus Debt Partners CLO Fund VII, Ltd.


24.8



5.4



%



24.0



15.4



17.9%Callidus MAPS CLO Fund I LLC


41.2



13.7



%



45.1



27.8



6.5%Callidus MAPS CLO Fund II, Ltd.


18.1



4.8



3.4%



18.4



12.6



19.3%Dryden XVIII Leveraged Loan 2007 Limited


23.2



2.4



%



22.1



17.5



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


38.8



22.6



22.8%



40.9



35.2



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


21.3



20.1



22.5%



21.3



21.3



16.6%Total preferred shares/income notes


245.0



84.4



12.1%



248.2



179.2



16.4%Total

$
375.0


$
157.7






$
375.9


$
265.3  44




---



##### 



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

2009


2008Bonds

$
232.3


$
268.3Syndicated loans


4,387.2



4,477.3Cash(1)


107.9



89.6Total underlying collateral assets at
    cost(2)

$
4,727.4


$
4,835.2   (1)
    Includes undrawn liability amounts.(2)
    At September 30, 2009, and December 31, 2008, the
    total cost basis of defaulted obligations was
    $139.6 million and $95.0 million, respectively, or
    approximately 3.0% and 2.0% respectively, of the total
    underlying collateral assets. 45




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 3.
    Portfolio,
    continued   Loans and Debt Securities on Non-Accrual
    Status.
  ($ in millions)

2009


2008Loans and debt securitiesCompanies more than 25% owned

$
194.2


$
176.1Companies 5% to 25% owned


15.3



Companies less than 5% owned


96.3



151.8Total

$
305.8


$
327.9   Industry and Geographic
    Compositions.
  2009


2008IndustryBusiness services


32
%


36
%Consumer products


28



24Private debt funds


8



6Financial services


8



5CLO/CDO(1)


6



8Consumer services


5



5Industrial products


3



5Retail


2



5Healthcare services


2



2Other


6



4Total


100
%


100
%Geographic
    Region(2)Mid-Atlantic


42
%


41
%Midwest


30



28Southeast


15



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. 46




---



##### 



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


2008($ in millions)

Cost


Value


Yield(1)


Cost


Value


Yield(1)Commercial mortgage loans

$
54.9


$
50.5



6.9%


$
52.5


$
53.5



7.4%Real estate owned


5.9



6.2







18.2



20.8Equity interests


13.2



11.8







14.8



19.6Total

$
74.0


$
68.5






$
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.
   47




---



##### 



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


2008Property TypeHospitality


54
%


52
%Recreation


30



22Office


14



15Retail






9Other


2



2Total


100
%


100
%Geographic RegionSoutheast


46
%


43
%West


32



26Midwest


13



22Northeast


9



9Mid-Atlantic






Total


100
%


100
%   Fair
    Value Measurements
      
    Level 1  Quoted prices (unadjusted) in active
    markets for identical assets
    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   48




---



##### 



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


Quoted Prices in


Significant Other


SignificantMeasurement


Active Markets for


Observable


Unobservableas of September 30,


Identical Assets


Inputs


Inputs($ in millions)

2009


(Level 1)


(Level 2)


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

$
1,847.0


$



$



$
1,847.0Preferred shares/income notes of CLOs


84.4











84.4Subordinated certificates in Senior Secured Loan Fund LLC


165.0











165.0Other equity securities


346.3











346.3Commercial real estate finance


68.5











68.5Total portfolio

$
2,511.2


$



$



$
2,511.2     Private FinancePreferred


SubordinatedLoans and


Shares/


Certificates in


Other


CommercialDebt


Income Notes


Senior Secured


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)


(116.5
)


11.7







(40.9
)


(3.7
)


(149.4
)Net change in unrealized appreciation or
    depreciation(2)


(109.2
)


(91.5
)


(0.2
)


(72.3
)


(13.9
)


(287.1
)Purchases, issuances, repayments and exits,
    net(3)


(519.1
)


(15.0
)


39.8



(43.2
)


(7.8
)


(545.3
)Transfers in and/or out of level 3






















Balance at September 30, 2009

$
1,847.0


$
84.4


$
165.0


$
346.3


$
68.5


$
2,511.2Net unrealized appreciation (depreciation) during the period
    relating to assets still held at the reporting
    date(2)

$
(205.0
)

$
(91.5
)

$
(0.2
)

$
(89.9
)

$
(15.3
)

$
(401.9
)   (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. The net change in unrealized appreciation or
    depreciation in the consolidated statement of operations also
    includes the change in value of escrow and other receivables
    from portfolio companies that are included in other assets on
    the consolidated balance sheet.(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).  Managed
    Funds
   49




---



##### 



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

September 30,


December 31,


ManagementName of Fund

2009


2008


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

$
921.2


$
789.8



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


351.4



412.9



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


500.7



500.6



0.600
%Knightsbridge CLO
    2008-1
    Ltd.


304.6



304.8



0.600
%Emporia Preferred Funding I, Ltd.


419.8







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


355.7







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


406.1







0.650
%(1)AGILE Fund I, LLC


83.5



99.3




(1)Total Assets

$
3,343.0


$
2,107.4   (1)
    In addition to the management fees, 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. In October 2009, the Company
    sold its investment, including the outstanding commitments and
    the provision of management services, in the Senior Secured Loan
    Fund LLC. See Note 14. Subsequent Events.  2007-1 2008-1
   50




---



##### 



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



September 30, 2009


December 31, 2008Name of Fund

Investment Description

Cost


Value


Cost


ValueSenior Secured Loan
    Fund LLC(1)

Subordinated Certificates and Equity Interests

$
165.2


$
165.0


$
125.4


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

Equity interests


31.8



33.0



31.8



31.8Knightsbridge CLO
    2007-1
    Ltd.

Class E Notes and Income Notes


57.4



33.8



59.6



50.1Knightsbridge CLO
    2008-1
    Ltd.

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


53.2



49.2



52.7



52.7AGILE Fund I, LLC

Equity Interests


0.7



0.4



0.7



0.5Total



$
308.3


$
281.4


$
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. In October 2009, the Company sold
    its investment, including the outstanding commitments and the
    provision of management services, in the Senior Secured Loan
    Fund LLC. See Note 14. Subsequent Events. 51




---



##### 



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


2008Annual






AnnualFacility

Amount


Interest


Facility

Amount

InterestAmount

Drawn at par


Cost(1)


Amount

Drawn at par

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

$
841.0

$
841.0
(6)


13.8
%

$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


1,586.5


1,586.5



10.5
%

1,895.0

1,895.0


7.3
%Bank secured term debt (former
    revolver)(4)


50.0


50.0



17.0
%(2)

632.5

50.0


4.3
%(2)Total debt

$
1,636.5

$
1,636.5



10.7
%(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 the annual amortization of commitment fees,
    other facility fees and amortization of debt financing costs and
    original issue discount that are recognized into interest
    expense over the contractual life of the respective borrowings,
    divided by (b) debt outstanding on the balance sheet date.(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 $4.3 million at September 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 bank term
    debt 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)
    During the three months ended
    September 30, 2009, the commitments under the facility were
    reduced to $50.0 million subsequent to the funding of
    $46.0 million to Ciena securitizations in lieu of draws
    under letters of credit issued under the facility.(5)
    In the third quarter of 2009, the
    Company completed the restructuring of its private notes.(6)
    The notes payable on the
    consolidated balance sheet are shown net of OID of approximately
    $42.6 million as of September 30, 2009.  Debt
    Restructure
       52




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 4. Debt, continued
          53




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 4. Debt, continued
     ($ in millions)Previously deferred unamortized costs

$
11.3Fees paid to Noteholders/Lenders


145.9Advisory and other fees paid


26.0Costs deferred and amortizing into interest expense


(20.3
)OID recorded and amortizing into interest expense


(45.4
)Loss on extinguishment of debt

$
117.5   Privately Issued Notes Payable.
    Annual Stated


Annual Stated


Annual Stated


Annual StatedInterest Rate


Interest Rate


Interest Rate


Interest RateThrough


Beginning


Beginning


BeginningPrincipal


Maturity

December 31,


January 1,


January 1,


January 1,($ in millions)

Amount


Dates

2009(1)


2010(1)


2011(1)


2012(1)Series A

$
253.8


June 15, 2010


8.50
%


9.25
%


N/A



N/ASeries B

$
253.8


June 15, 2011


9.00
%


9.50
%


9.75
%


N/ASeries C

$
333.5


March 31 & April 1, 2012


9.50
%


10.00
%


10.25
%


10.75
%    (1)

    The Notes generally require payment of interest quarterly.    Bank Facility. and/or
   54




---



##### 



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


Publicly Issued($ in millions)

Bank Secured Term


Secured Notes


Unsecured NotesYear

Debt


Payable


Payable


Total2009

$



$



$



$
2010


50.0



253.7







303.72011






253.8



319.9



573.72012






333.5



195.6



529.12013














Thereafter










230.0



230.0Total

$
50.0


$
841.0


$
745.5


$
1,636.5  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

$
9.1


$
5.0


$
3.2


$



$
0.1


$



$
0.8Standby letters of
    credit(1)


























Total

$
9.1


$
5.0


$
3.2


$



$
0.1


$



$
0.8    (1)
     56




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 6. Shareholders
    Equity
         Note 7. Earnings
    Per Common Share
    For the Three


For the NineMonths Ended


Months EndedSeptember 30,


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

2009


2008


2009

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

$
(140.7
)

$
(318.3
)

$
(517.4)

$
(461.2
)Weighted average common shares outstanding  basic


179.1



178.7



178.8


171.1Dilutive options outstanding













Weighted average common shares outstanding  diluted


179.1



178.7



178.8


171.1Basic earnings (loss) per common share

$
(0.79
)

$
(1.78
)

$
(2.89)

$
(2.70
)Diluted earnings (loss) per common share

$
(0.79
)

$
(1.78
)

$
(2.89)

$
(2.70
)    Note 8. Employee
    Compensation Plans
    57




---



##### 



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

For the NineMonths Ended

Months EndedSeptember 30,

September 30,($ in millions)

2009

2008

2009

2008IPA

$


$
2.0

$


$
6.6IPA mark to market expense (benefit)











(4.1
)Total IPA expense

$


$
2.0

$


$
2.5Total IPB expense

$


$
2.4

$


$
6.8    Note 9. Stock
    Option Plan
      58




---



##### 



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

September 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


(0.7
)

$
0.73Forfeited


(5.8
)

$
21.65Options outstanding at September 30, 2009


24.7


$
16.48

5.10

$
21.3Exercisable at September 30,
    2009(2)


15.2


$
22.25

4.53

$
6.8Exercisable and expected to be exercisable at September 30,
    2009(3)


23.3


$
16.77

5.05

$
19.7   (1)
    Represents the difference between
    the market value of the options at September 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 September 30, 2009, is calculated based
    on an estimate of expected forfeitures.     Note 10. Dividends
    and Distributions and Taxes
      59




---



##### 



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
       60




---



##### 



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


for theNine Months Ended


Year EndedSeptember 30,


December 31,2009(1)


2008


2008Per Common Share DataNet asset value, beginning of period

$
9.62


$
17.54


$
17.54Net investment
    income(2)


0.31



1.04



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


(0.89
)


0.28



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


(0.58
)


1.32



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


(2.13
)


(4.02
)


(6.49
)Gain on repurchase of debt


0.47







Loss on extinguishment of debt


(0.65
)






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


(2.89
)


(2.70
)


(6.01
)Net decrease in net assets from shareholder distributions






(1.95
)


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


(0.03
)


0.62



0.69Net asset value, end of period

$
6.70


$
13.51


$
9.62Market value, end of period

$
3.07


$
10.80


$
2.69Total
    return(4)


14.1
%


(43.3
)%


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

$
1,201.3


$
2,413.4


$
1,718.4Common shares outstanding at end of period


179.4



178.7



178.7Diluted weighted average common shares outstanding


178.8



171.1



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


4.32
%


3.80
%


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


13.69
%


7.85
%


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


0.30
%


0.30
%


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


3.93
%


6.59
%


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


(36.76
)%


(16.99
)%


(41.34
)%Portfolio turnover
    rate(5)


4.12
%


19.38
%


24.00
%Average debt outstanding

$
1,833.3


$
2,072.8


$
2,091.6Average debt per
    share(2)

$
10.25


$
12.12


$
12.09   (1)
    The results for the nine months ended September 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, if
    any, for the periods presented.(5)
    The ratios for the nine months ended September 30, 2009 and
    2008, do not represent annualized results.(6)
    Includes 0.20% for the effect of the impairment of long-lived
    asset during the nine months ended September 30, 2009. 61




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 13. Litigation
        Rule 10b-5
 62




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 13. Litigation,
    continued
        Note 14.
    Subsequent
    Events      in-the-money
   63




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 14.
    Subsequent
    Events, continued            Hart-Scott-Rodino
   64




---



##### 



ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 14.
    Subsequent
    Events, continued     65




---



##### 





Report of
    Independent Registered Public Accounting Firm  The Board of Directors and
    Shareholders
 Allied Capital
    Corporation:
          
  Washington, D.C.
 November 6, 2009
 66




---



##### 





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,





September 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


$
(114
)

$
417(Private Equity Fund)AllBridge Financial, LLC

Senior Loan

$
21











1,311







1,311(Asset Management)

Equity Interests










10,960



6,926



(2,363
)


15,523Allied 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


4,162







33,027



2,637



(788
)


34,876(Consumer Products)

Preferred Stock










11,851



4,734







16,585Common Stock






















Calder Capital Partners, LLC

Senior
    Loan(5)










953



147







1,100(Asset Management)

Equity Interests






















Callidus Capital Corporation

Subordinated Debt


2,321







16,068



4,872



(5,775
)


15,165(Asset Management)

Common Stock










34,377







(34,377
)


Ciena Capital LLC

Senior
    Loan(5)










104,883







(2,651
)


102,232(Financial Services)

Class B Equity Interests














3,504



(3,504
)


Class C Equity Interests






















CitiPostal Inc.

Senior Loan


23







681



2







683(Business Services)

Unitranche Debt


4,734







51,548



424



(971
)


51,001Subordinated Debt


1,198







9,114



1,151







10,265Common Stock










8,616







(7,492
)


1,124Coverall North America, Inc.

Unitranche Debt


2,911







31,948



25



(408
)


31,565(Business Services)

Subordinated Debt


646







5,549



4







5,553Common Stock










17,968



3,293







21,261CR Holding, Inc.

Subordinated
    Debt(5)










17,360



1,316



(8,405
)


10,271(Consumer Products)

Common Stock






















Crescent Equity Corp.

Senior Loan


33







433











433(Business Services)

Subordinated
    Debt(5)


58


$
166



18,614



83



(14,494
)


4,203Common Stock










4,580



2,165



(6,745
)


Direct Capital Corporation

Senior
    Loan(5)














8,573







8,573(Financial Services)

Subordinated
    Debt(5)










13,530







(6,391
)


7,139Common Stock






















Financial Pacific Company

Subordinated Debt


8,084







62,189



30



(20,802
)


41,417(Financial Services)

Preferred Stock


10



















Common Stock






















ForeSite Towers, LLC

Equity Interest










889







(889
)


(Tower Leasing)Global Communications, LLC

Senior Loan










1,335







(1,335
)


(Business Services)Hot Light Brands, Inc.

Senior
    Loan(5)










13,678



50



(3,257
)


10,471(Retail)

Common Stock






















Hot Stuff Foods, LLC

Senior Loan


1,526







42,378



11,219



(8,180
)


45,417(Consumer Products)

Subordinated
    Debt(5)














49,801







49,801Common Stock






















Huddle House, Inc.

Subordinated Debt


4,918







57,067



962



(38,535
)


19,494(Retail)

Common Stock










20,922







(13,271
)


7,651IAT Equity, LLC and Affiliates

Subordinated Debt


410







6,000











6,000d/b/a Industrial Air Tool

Equity Interests










8,860



1,088







9,948(Industrial Products)  See related footnotes at the end of
    this schedule.
 67




---



##### 



PRIVATE FINANCE



Amount of Interest or Dividends

December 31,





September 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 Affiliate









$
321


$
1


$



$
322(Business Services)Insight Pharmaceuticals

Subordinated Debt

$
5,619







63,359



8,960



(20,221
)


52,098Corporation (Consumer Products)

Preferred Stock










4,068



20,932



(25,000
)


Common Stock














34,088



(23,669
)


10,419Jakel, Inc.

Subordinated
    Debt(5)










374











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

Class E Notes


1,442







14,866







(3,706
)


11,160(CLO)

Income Notes


2,838







35,214



2,837



(15,411
)


22,640Knightsbridge CLO
    2008-1
    Ltd.

Class C Notes


842







12,800







(554
)


12,246(CLO)

Class D Notes


587







8,000







(920
)


7,080Class E Notes


1,126







10,573



508



(1,283
)


9,798Income Notes


2,924







21,315



2,924



(4,127
)


20,112MHF Logistical Solutions, Inc.

Subordinated Debt














49,633



(49,633
)


(Business Services)

Preferred Stock






















Common Stock














20,942



(20,942
)


MVL Group, Inc.

Senior Loan


2,433







30,663



70



(5,477
)


25,256(Business Services)

Subordinated Debt


3,842







40,994



42,123



(47,096
)


36,021Subordinated
    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



(8,492
)


13,870Senior Secured Loan Fund LLC

Subordinated Certificates


11,782


$
7,548



125,423



47,373



(7,796
)


165,000(Private Debt Fund)

Equity Interests










1







(1
)


Service Champ, Inc.

Subordinated Debt


3,235







26,984



531







27,515(Business Services)

Common Stock










21,156



7,165







28,321Stag-Parkway, Inc.

Subordinated Debt


1,362











19,001



(1
)


19,000(Business Services)

Unitranche Debt


170







17,962



418



(18,380
)


Common Stock










6,968



391







7,359Startec Equity, LLC

Equity Interests










332







(332
)


(Telecommunications)Worldwide Express Operations, LLC

Subordinated Debt






38



2,032



694



(2,726
)


(Business Services)

Equity Interests














11,384



(11,384
)


Warrants














144



(144
)


Total companies more than 25% owned











$
1,187,722










$
1,032,018Companies 5% to 25% Owned10th Street, LLC

Subordinated Debt

$
2,148






$
21,439


$
676


$
(15
)

$
22,100(Business Services)

Equity Interests










975







(490
)


485Option










25











25Advantage Sales & Marketing, Inc.

Subordinated Debt


2,286







135,000







(135,000
)


(Business Services)

Equity Interests










5,000







(5,000
)


Air Medical Group Holdings LLC

Senior Loan


100







3,139



13,947



(12,630
)


4,456(Healthcare Services)

Equity Interests










10,800



9,200







20,000Alpine 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 Partners/Windsor
    Mezzanine Fund, LLC

Equity Interests










11,063







(1,054
)


10,009(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


11,021







83,698



5,780



(3,080
)


86,398(Consumer Services)

Common Stock










4,855







(2,355
)


2,500Hilden America, Inc.

Common Stock










76



378



(454
)


(Consumer Products)  See related footnotes at the end of
    this schedule.
 68




---



##### 



PRIVATE FINANCE



Amount of Interest or Dividends

December 31,





September 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

$
234







2,941



56



(509
)


2,488(Business Services)

Equity Interests










1,782







(576
)


1,206Pendum Acquisition, Inc.

Common Stock






















(Business Services)Postle Aluminum Company, LLC

Senior
    Loan(5)














34,876



(19,568
)


15,308(Industrial Products)

Subordinated
    Debt(5)














23,868



(23,868
)


Equity Interest






















Progressive International Corporation

Preferred Stock










1,125



4,722







5,847(Consumer Products)

Common Stock










4,600







(4,447
)


153Warrants






















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







(209
)


1,841SGT India Private Limited

Common Stock














21



(21
)


(Business Services)Soteria Imaging Services, LLC

Subordinated Debt


396







4,054



100







4,154(Healthcare Services)

Equity Interests










1,971







(688
)


1,283Triax Holdings, LLC

Subordinated Debt














10,772



(10,772
)


(Consumer Products)

Equity Interests














16,528



(16,528
)


Universal Environmental Services, LLC

Equity Interests






















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











$
352,760










$
178,253    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 September 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 September 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. 69




---



##### 





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 Part II. Other Information, Item 1A.
    Risk Factors. 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
        September 30,


December 31,2009



2008


2008Private finance


97

%


97%



97%Commercial real estate finance


3

%


3%



3%    70




---



##### 



and/or
      PORTFOLIO AND
    INVESTMENT ACTIVITY
   At and for the


At and for the


At and for theThree Months Ended


Nine Months Ended


Year EndedSeptember 30,


September 30,


December 31,($ in millions)

2009


2008


2009


2008


2008Portfolio at value

$
2,511.2


$
4,208.5


$
2,511.2


$
4,208.5


$
3,493.0Investments funded

$
19.4


$
433.8


$
118.1


$
1,027.8


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

$
5.8


$
11.4


$
24.4


$
35.9


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

$
63.5


$
280.6


$
650.9


$
878.2


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


11.9
%


11.9
%


11.9
%


11.9
%


12.1
%   71




---



##### 



(1)
    Principal collections related to investment repayments or sales
    for the three and nine months ended September 30, 2009,
    included $0.0 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 nine months
    ended September 30, 2009 and 2008, and year ended
    December 31, 2008, included collections of
    $0.0 million, $274.9 million, $46.3 million,
    $352.7 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 effective stated interest yield 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.  Private
    Finance
    At and for the Three Months


At and for the Nine Months


At and for theEnded September 30,


Ended September 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

$
289.4



4.8%


$
434.9



4.2%


$
289.4



4.8%


$
434.9



4.2
%

$
306.3



5.6
%Unitranche debt


374.7



12.2%



579.3



12.0%



374.7



12.2%



579.3



12.0
%


456.4



12.0
%Subordinated debt


1,182.9



13.4%



2,062.6



13.1%



1,182.9



13.4%



2,062.6



13.1
%


1,829.1



12.9
%Total loans and debt securities


1,847.0



11.8%



3,076.8



11.7%



1,847.0



11.8%



3,076.8



11.7
%


2,591.8



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


84.4



12.1%



218.3



17.1%



84.4



12.1%



218.3



17.1
%


179.2



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


165.0



14.0%



114.3



10.3%



165.0



14.0%



114.3



10.3
%


125.4



12.0
%Other equity securities


346.3







692.5







346.3







692.5







502.7Total equity securities


595.7







1,025.1







595.7







1,025.1







807.3Total portfolio

$
2,442.7






$
4,101.9







2,442.7






$
4,101.9






$
3,399.1Investments funded

$
18.6
(4)





$
428.9






$
115.5
(4)





$
1,020.7






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

$
5.8






$
11.4






$
24.4






$
35.8






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

$
63.1






$
280.6






$
644.2






$
861.5






$
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) effective interest yield on the subordinated
    certificates 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 $0.0 million and $171.0 million,
    respectively, cash collections during the three and nine months
    ended September 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 $13.4 million, $77.6 million,
    $101.2 million, $225.4 million and
    $285.3 million, respectively, for the three and nine months
    ended September 30, 2009 and 2008, and for the year ended
    December 31, 2008. 72




---



##### 



(4)

    Includes $10.6 million and $38.7 million,
    respectively, funded under pre-existing commitments under
    revolving lines of credit during the three and nine months ended
    September 30, 2009. During the three and nine months ended
    September 30, 2009, a total of $10.1 million and
    $38.4 million, respectively, was repaid under these
    arrangements, which is included in principal collections related
    to investment repayments or sales.  and/or and/or
  Investment Activity.
  For the Nine Months Ended September 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

$
33.9



6.3%


$
14.3



2.8%


$
48.2



5.2%Unitranche debt


1.0



9.5%











1.0



9.5%Subordinated debt


3.0



15.0%



3.3



18.0%



6.3



16.5%Total loans and debt securities


37.9



7.0%



17.6



5.6%



55.5



6.6%Subordinated certificates in Senior Secured Loan
    Fund LLC(2)


47.4



8.4%











47.4



8.4%Equity


7.1







5.5







12.6Total

$
92.4






$
23.1






$
115.5   For the Nine Months Ended September 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

$
155.0



7.3%


$
12.6



6.0%


$
167.6



7.2%Senior secured loan to CienaCapital LLC










319.0



0.0%



319.0



0.0%Unitranche
    debt(3)


15.3



10.5%



0.5



6.6%



15.8



10.4%Subordinated debt


243.4
(4)


12.6%



50.5



15.2%



293.9



13.0%Total loans and debt securities


413.7



10.5%



382.6



2.2%



796.3



6.5%Preferred shares/income notes of
    CLOs(5)


35.6



18.6%











35.6



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


113.6



10.8%











113.6



10.8%Equity


37.7







37.5







75.2Total

$
600.6






$
420.1






$
1,020.7   73




---



##### 



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) effective interest
    yield on the subordinated certificates (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. In October 2009, we sold our
    investment, including our outstanding commitments and the
    provision of management services, in the Senior Secured Loan
    Fund. See  Recent Developments.(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.(4)
    Subordinated debt investments for the nine months ended
    September 30, 2008, and year ended December 31, 2008,
    included $43.8 million in investments in the bonds of
    collateralized loan obligations (CLOs). Certain of these CLOs
    are managed by Callidus Capital Corporation (Callidus), a wholly
    owned portfolio company. 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%.      (payment-in-kind
   74




---



##### 



Outstanding Investment Commitments.
  Companies





CompaniesMore Than


Companies 5%


Less Than($ in millions)

25%
    Owned(1)


to 25% Owned


5% Owned


TotalSenior loans

$
15.4


$
7.4


$
63.0


$
85.8Unitranche debt


3.0







11.6



14.6Subordinated debt


16.5



4.3







20.8Total loans and debt securities


34.9



11.7



74.6



121.2
(2)Senior Secured Loan Fund


352.2











352.2Equity securities


14.2



7.0



20.9



42.1
(3)Total

$
401.3


$
18.7


$
95.5


$
515.5   (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 $91.8 million in the
    form of revolving debt facilities to 22 companies.(3)
    Includes $26.7 million to 7
    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.
 75




---



##### 



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)

$
130.0


$
73.3



12.7%


$
127.7


$
86.1



18.5%Preferred shares/income notes of CLOs


245.0



84.4



12.1%



248.2



179.2



16.4%Total

$
375.0


$
157.7






$
375.9


$
265.3Percentage of total assets






5.6%











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.          ($ in millions)

2009


2008Bonds

$
232.3


$
268.3Syndicated loans


4,387.2



4,477.3Cash(1)


107.9



89.6Total underlying collateral assets at
    cost(2)

$
4,727.4


$
4,835.2   (1)
    Includes undrawn liability amounts.(2)
    At September 30, 2009, and December 31, 2008, the
    total cost basis of defaulted obligations was
    $139.6 million and $95.0 million, respectively, or
    approximately 3.0% and 2.0%, respectively, of the total
    underlying collateral assets.   76




---



##### 



Ciena Capital LLC.
  debtor-in-possession
      September 30, 2009


December 31, 2008($ in millions)

Cost


Value


Cost


ValueSenior Loan

$
319.0


$
102.2


$
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


$
102.2


$
547.8


$
104.9   (1)
    At September 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.   77




---



##### 



Commercial Real
    Estate Finance
    At and for theAt and for the Three Months


At and for the Nine Months


Year EndedEnded September 30,


Ended September 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

$
50.5



6.9%


$
51.4



7.4%


$
50.5



6.9%


$
51.4



7.4%


$
53.5



7.4
%Real estate owned


6.2







24.0







6.2







24.0







20.8Equity interests


11.8







31.2







11.8







31.2







19.6Total portfolio

$
68.5






$
106.6






$
68.5






$
106.6






$
93.9Investments funded

$
0.8






$
4.9






$
2.6






$
7.1






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

$







$







$







$
0.1






$
0.2Principal collections related to investment repayments or sales

$
0.4






$







$
6.0






$
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. 78




---



##### 



Managed
    Funds
  and/or
      Assets of Managed Funds($ in millions)

September 30,


December 31,


ManagementName of Fund

2009


2008


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

$
921.2


$
789.8



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


351.4



412.9



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


500.7



500.6



0.600
%Knightsbridge CLO
    2008-1
    Ltd.


304.6



304.8



0.600
%Emporia Preferred Funding I, Ltd.


419.8







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


355.7







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


406.1







0.650
%(1)AGILE Fund I, LLC


83.5



99.3




(1)Total Assets

$
3,343.0


$
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. In October 2009, we sold our
    investment, including our commitments and the provision of
    management services, in the Senior Secured Loan Fund LLC.
    See  Recent Developments.  2007-1 2008-1
   79




---



##### 



($ in millions)



September 30, 2009


December 31, 2008Name of Fund

Investment Description

Cost


Value


Cost


ValueSenior Secured Loan
    Fund LLC(1)

Subordinated Certificates andEquity Interests

$
165.2


$
165.0


$
125.4


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

Equity interests


31.8



33.0



31.8



31.8Knightsbridge CLO
    2007-1
    Ltd.

Class E Notes and Income Notes


57.4



33.8



59.6



50.1Knightsbridge CLO
    2008-1
    Ltd.

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


53.2



49.2



52.7



52.7AGILE Fund I, LLC

Equity Interests


0.7



0.4



0.7



0.5Total



$
308.3


$
281.4


$
270.2


$
260.5   (1)

    We have committed up to a total of $525.0 million of
    subordinated certificates to the Senior Secured Loan Fund. The
    Senior Secured Loan Fund will be capitalized as investment
    transactions are completed. In October 2009, we sold our
    investment, including our outstanding commitments and the
    provision of management services, in the Senior Secured Loan
    Fund LLC. See  Recent Developments.  PORTFOLIO ASSET
    QUALITY
  Loans and Debt Securities on Non-Accrual
    Status.
    ($ in millions)

2009


2008Private financeCompanies more than 25% owned

$
194.2



$176.1Companies 5% to 25% owned


15.3



Companies less than 5% owned


96.3



151.8Commercial real estate finance


9.2



7.7Total

$
315.0



$335.6Percentage of total portfolio


12.5
%


9.6
%    80




---



##### 



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

2009


2008Private finance

$
124.8



$106.6Commercial mortgage loans


4.3



1.4Total

$
129.1



$108.0Percentage of total portfolio


5.1
%


3.1
%     and payment-in-kind payment-in-kind payment-in-kind
 81




---



##### 



RESULTS OF
    OPERATIONS
  Comparison of the
    Three and Nine Months Ended September 30, 2009 and
    2008
    For the Three Months Ended September 30,


For the Nine Months Ended September 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

$
65,630


$
112,207


$
(46,577)



(41.5)
%

$
230,017


$
366,079


$
(136,062)



(37.2)
%Fees and other income


6,808



8,455



(1,647)



(19.5)
%


22,233



34,105



(11,872)



(34.8)
%Total interest and related portfolio income


72,438



120,662



(48,224)



(40.0)
%


252,250



400,184



(147,934)



(37.0)
%ExpensesInterest


42,421



35,949



6,472



18.0
%


129,023



109,974



19,049



17.3
%Employee


10,905



21,443



(10,538)



(49.1)
%


32,939



57,439



(24,500)



(42.7)
%Employee stock options


392



1,477



(1,085)



(73.5)
%


2,369



9,531



(7,162)



(75.1)
%Administrative


7,205



14,138



(6,933)



(49.0)
%


25,509



36,100



(10,591)



(29.3)
%Impairment of long-lived asset


















2,873







2,873



Total operating expenses


60,923



73,007



(12,084)



(16.6)
%


192,713



213,044



(20,331)



(9.5)
%Net investment income before income taxes


11,515



47,655



(36,140)



(75.8)
%


59,537



187,140



(127,603)



(68.2)
%Income tax expense (benefit), including excise tax


1,930



2,060



(130)



(6.3)
%


4,205



8,141



(3,936)



(48.3)
%Net investment income


9,585



45,595



(36,010)



(79.0)
%


55,332



178,999



(123,667)



(69.1)
%Net Realized and Unrealized Gains (Losses)Net realized gains (losses)


(5,090)



62,042



(67,132)



*



(158,255)



47,330



(205,585)



*Net change in unrealized appreciation or depreciation


(27,681)



(425,899
)


398,218



*



(380,528)



(687,506
)


306,978



*Total net gains (losses)


(32,771)



(363,857
)


331,086



*



(538,783)



(640,176
)


101,393



*Gain on repurchase of debt














*



83,532







83,532



*Loss on extinguishment of debt


(117,497)







(117,497)



*



(117,497)







(117,497)



*Net income (loss)

$
(140,683)


$
(318,262
)

$
177,579



55.8
%

$
(517,416)


$
(461,177
)

$
(56,239)



12.2
%Diluted earnings (loss) per common share

$
(0.79)


$
(1.78
)

$
1.00



55.9
%

$
(2.89)


$
(2.70
)

$
(0.19)



(7.3)
%Weighted average common shares outstanding  diluted


179,054



178,692



362



0.2
%


178,815



171,084



7,731



4.5
%   *

    Comparisons may not be meaningful. Net change in unrealized
    appreciation or depreciation and net gains (losses) can
    fluctuate significantly from period to period. 82




---



##### 



Interest and Related Portfolio Income.
  Interest and Dividends.
  For the NineFor the Three Months Ended September 30,

Months Ended September 30,($ in millions)

2009

2008

2009

2008InterestPrivate finance loans and debt securities

$
55.9

$
95.8

$
193.8

$
311.0Preferred shares/income notes of CLOs


2.3


9.4


11.7


24.8Subordinated certificates in Senior Secured Loan Fund LLC


5.9


2.9


11.8


4.5Commercial mortgage loans


0.9


0.9


2.7


3.1Cash, U.S. Treasury bills, money market and other securities


0.0


1.2


0.5


3.6Total interest


65.0


110.2


220.5


347.0Dividends


0.6


2.0


9.5


19.1Total interest and dividends

$
65.6

$
112.2

$
230.0

$
366.1     2009


2008($ in millions)

Value

Yield(1)


Value

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

$
289.4


4.8
%

$
434.9


4.2
%Unitranche debt


374.7


12.2
%


579.3


12.0
%Subordinated debt


1,182.9


13.4
%


2,062.6


13.1
%Equity securities:Preferred shares/income notes of CLOs


84.4


12.1
%


218.3


17.1
%Subordinated certificates in Senior Secured Loan Fund LLC


165.0


14.0
%


114.3


10.3
%Commercial real estate:7.4
%Commercial mortgage loans


50.5


6.9
%


51.4Total interest-bearing investments

$
2,146.9


11.9
%

$
3,460.8


11.9
%   (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) effective interest yield on the subordinated
    certificates 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.   83




---



##### 



Fees and Other Income.
   For the Three Months Ended


For the Nine Months EndedSeptember 30,


September 30,($ in millions)

2009


2008


2009


2008Fund management
    fees(1)

$
4.4


$
1.8


$
11.5


$
4.0Management, consulting and other services provided to portfolio
    companies


1.8



2.9



5.9



8.9Structuring and diligence


0.0



2.3



1.5



15.8Commitment, guaranty and other fees from portfolio companies


0.6



1.1



2.4



4.7Loan prepayment premiums






0.3



0.9



0.6Other income






0.1







0.1Total fees and other income

$
6.8


$
8.5


$
22.2


$
34.1   (1)
    See  Portfolio and Investment
    Activity  Managed Funds above.   84




---



##### 



Operating Expenses.
  Interest Expense.
  At and for the


At and for theThree Months Ended


Nine Months EndedSeptember 30,


September 30,($ in millions)

2009


2008


2009


2008Total outstanding debt at par

$
1,636.5


$
2,131.0


$
1,636.5


$
2,131.0Average outstanding debt

$
1,711.8


$
1,967.2


$
1,839.0


$
2,072.8Weighted average
    cost(1)


10.7%



6.8%



10.7%



6.8%   (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.     85




---



##### 



Employee Expense.
  For the Three


For the NineMonths Ended


Months EndedSeptember 30,


September 30,($ in millions)

2009


2008


2009


2008Salaries and employee benefits

$
10.0


$
17.0


$
27.5


$
48.1Bonuses and performance
    awards(1)


0.9







5.4Individual performance award (IPA)






2.0







6.6IPA mark to market expense (benefit)














(4.1
)Individual performance bonus (IPB)






2.4







6.8Total employee
    expense(2)

$
10.9


$
21.4


$
32.9


$
57.4Number of employees at end of period


112



155



112



155   (1)
    Amounts for the three and nine months ended September 30,
    2008, include the reversal of previously accrued bonuses.(2)
    Excludes employee stock options expense. See below.           86




---



##### 



Employee Stock Options Expense.
  For the Nine Months EndedFor the Three Months Ended September 30,


September 30,($ in millions)

2009


2008


2009


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

$



$



$



$
3.9Options granted on or after January 1, 2006


0.4



1.5



2.4



5.6Total employee stock option expense

$
0.4


$
1.5


$
2.4


$
9.5       Administrative Expense.
    Impairment of Long-Lived Asset.
  Loss on Extinguishment of Debt.
 87




---



##### 



($ in millions)Previously deferred unamortized costs

$
11.3Fees paid to Noteholders/Lenders


145.9Advisory and other fees paid


26.0Costs deferred and amortizing into interest expense


(20.3
)OID recorded and amortizing into interest expense


(45.4
)Loss on extinguishment of debt

$
117.5   Gain on Repurchase of Debt.
  Income Tax Expense (Benefit), Including Excise
    Tax.
  For the ThreeMonths Ended September 30,


For the Nine Months Ended September 30,($ in millions)

2009


2008


2009


2008Income tax expense (benefit)

$
1.9


$
1.2


$
4.2


$
3.0Excise tax
    expense(1)






0.9







5.1Income tax expense (benefit), including excise tax

$
1.9


$
2.1


$
4.2


$
8.1     (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


For the Nine Months EndedSeptember 30,


September 30,($ in millions)

2009


2008


2009


2008Realized gains

$
14.5


$
97.5


$
35.9


$
135.2Realized losses


(19.6
)


(35.5
)


(194.2
)


(87.9
)Net realized gains (losses)

$
(5.1
)

$
62.0


$
(158.3
)

$
47.3    88




---



##### 



For the Three Months Ended September 30,


For the Nine Months Ended September 30,($ in millions)

2009


2008


2009


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

$
(8.9
)

$
(80.4
)

$
(20.8
)

$
(115.1
)Reversal of previously recorded net unrealized appreciation
    associated with dividends received


(0.4
)


(1.6
)


(10.8
)


(15.1
)Reversal of previously recorded net unrealized depreciation
    associated with realized losses


18.0



34.8



151.3



80.2Total reversal

$
8.7


$
(47.2
)

$
119.7


$
(50.0
)     ($ in
    millions)
 2009Portfolio Company

AmountPrivate Finance:CK Franchising, Inc.

$
13.6Other


0.9Total private finance


14.5Commercial Real Estate:Other


Total commercial real estate


Total realized gains

$
14.5    2008Portfolio Company

AmountPrivate Finance:Norwesco, Inc.


$86.9BI Incorporated


7.4Passport Health Communications, Inc.


1.8Other


1.3Total private finance


97.4Commercial Real Estate:Other


0.1Total commercial real estate


0.1Total realized gains


$97.5      ($ in
    millions)
 2009Portfolio Company

AmountPrivate Finance:Worldwide Express Operations, LLC

$
13.0Baird Capital Partners IV Limited


2.0Snow Phipps Group, L.P.


1.6Centre Capital Investors V, L.P.


1.4Other


1.6Total private finance


19.6Commercial Real Estate:Real Estate Owned


Total commercial real estate


Total realized gains


19.6   2008Portfolio Company

AmountPrivate Finance:Pendum, Inc.


$34.0Other


1.5Total realized losses


$35.5  89




---



##### 



($ in
    million)
 2009Portfolio Company

AmountPrivate Finance:CK Franchising, Inc.

$
13.6Advantage Sales & Marketing, Inc.


6.9GC-Sun Holdings, LP


6.8Other


4.4Total private finance


31.7Commercial Real Estate:Real Estate Owned


4.1Other


0.1Total commercial real estate


4.2Total realized gains

$
35.9  2008Portfolio Company

AmountPrivate Finance:Norwesco, Inc.

$
97.6BI Incorporated


7.4BenefitMall, Inc.


4.9Advantage Sales & Marketing,
    Inc.(1)


3.4Mercury Air Centers, Inc.


3.3Financial Pacific Company


3.1Passport Health Communications, Inc.


1.8Service Champ, Inc.


1.7Penn Detroit Diesel Allison, LLC


1.4Coverall North America, Inc.


1.4Med Assets, Inc.


1.3CR Holdings, Inc.


1Other


6.5Total private finance


134.8Commercial Real Estate:Other


0.4Total commercial real estate


0.4Total realized gains

$
135.2      (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.
 90




---



##### 



($ in
    millions)
 2009Portfolio Company

AmountPrivate Finance:MHF Logistical Solutions, Inc.

$
70.7Advantage Sales & Marketing, Inc.


27.3Triax Holdings, LLC


22.7Worldwide Express Operations, LLC


13.0FCP-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.


2.8Baird Capital Partners IV Limited


2.0Penn Detroit Diesel Allison, LLC


1.7Snow Phipps Group, L.P.


1.6Centre Capital Investors V, L.P.


1.4Huddle House, Inc.


1.3Summit Energy Services, Inc.


1.3Other


5.3Total private finance


186.3Commercial Real Estate:Real Estate Owned


7.9Other


0.0Total commercial real estate


7.9Total realized losses

$
194.2  2008Portfolio Company

AmountPrivate Finance:Pendum, Inc.

$
34.0Creative Group, Inc.


15.6Crescent 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


1.4Other


9.5Total private finance


85.4Commercial Real Estate:Other


2.5Total commercial real estate


2.5Total realized losses

$
87.9       Change in Unrealized Appreciation or
    Depreciation. Fair Value
    Measurements
 91




---



##### 



Valuation Methodology.
     92




---



##### 



and/or
 93




---



##### 



security-by-security
          2009

2008Q1

Q2

Q3

Q1

Q2

Q3Number of private finance portfolio companies reviewed


93



91



78



124



119



128Percentage of private finance portfolio reviewed at value


94.0
%


96.9
%


97.8
%


94.0
%


94.9
%


97.2
%    94




---



##### 



Net Change in Unrealized Appreciation or
    Depreciation.
  For the Three


For the NineMonths September 30,


Months September 30,($ in millions)

2009(1)


2008(1)


2009(1)


2008(1)Net unrealized appreciation (depreciation)

$
(36.4
)

$
(378.7
)

$
(500.2
)

$
(637.5
)Reversal of previously recorded unrealized appreciation
    associated with realized gains


(8.9
)


(80.4
)


(20.8
)


(115.1
)Reversal of previously recorded net unrealized appreciation
    associated with dividends received


(0.4
)


(1.6
)


(10.8
)


(15.1
)Reversal of previously recorded unrealized depreciation
    associated with realized losses


18.0



34.8



151.3



80.2Net change in unrealized appreciation or depreciation

$
(27.7
)

$
(425.9
)

$
(380.5
)

$
(687.5
)   (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.
  payment-in-kind payment-in-kind
 95




---



##### 



DIVIDENDS AND
    DISTRIBUTIONS
          FINANCIAL
    CONDITION, LIQUIDITY AND CAPITAL RESOURCES
    ($ in millions)

2009


2008Cash and investments in money market and other securities
    (including money market and other securities: 2009-$90.0;
    2008-$0.3)

$
153.4


$
50.7Total assets

$
2,840.2


$
3,722.2Total debt outstanding

$
1,636.5


$
1,945.0Total shareholders equity

$
1,201.3


$
1,718.4Debt to equity ratio


1.33



1.13Asset coverage
    ratio(1)


175
%


188
%    (1)
    As a business development company,
    we generally are required to maintain a minimum ratio of 200% of
    total assets to total borrowings in order to incur additional
    indebtedness, declare dividends or other distributions or
    repurchase shares of our common stock.   96




---



##### 



($ in millions)

2009


2008Net cash provided by operating activities

$
302.2


$
298.5Add: portfolio investments funded


118.1



1,019.8Total cash provided by operating activities before new
    investments

$
420.3


$
1,318.3       2009


2008($ in millions)

Value


Yield


Value


YieldMoney market and other securities

$
90.0






$
0.3



1.7
%Cash and cash equivalents


62.7



0.1
%


50.4



0.1
%Total

$
152.7



0.0
%

$
50.7



0.1
%      97




---



##### 



2009


2008Amount


Annual





Amount


AnnualFacility


Outstanding


Interest


Facility


Outstanding


Interest($ in millions)

Amount


at Par


Cost(1)


Amount


at Par


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

$
841.0


$
841.0
(6)


13.8%


$
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


1,586.5



1,586.5



10.5%



1,895.0



1,895.0



7.3%Bank secured term debt (former
    revolver)(4)


50.0



50.0



17.0%
(2)


632.5



50.0



4.3%
(2)Total debt

$
1,636.5


$
1,636.5



10.7%
(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 the annual
    amortization of commitment fees, other facility fees and the
    amortization of debt financing costs and original issue discount
    that are recognized into interest expense over the contractual
    life of the respective borrowings, divided by (b) debt
    outstanding on the balance sheet date.(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 rate
    payable, there were annual costs of commitment fees, other
    facility fees and amortization of debt financing costs of
    $4.3 million at September 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 bank term debt 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)
    During the three months ended September 30, 2009, the
    commitments under the facility were reduced to
    $50.0 million subsequent to the funding of $46.0 million to
    Ciena securitizations in lieu of draws under letters of credit
    issued under the facility.(5)
    In the third quarter of 2009, the Company completed the
    restructuring of its private notes.(6)
    The notes payable on the consolidated balance sheet are shown
    net of OID of approximately $42.6 million as of
    September 30, 2009.  Debt
    Restructure
       98




---



##### 



($ in millions)Previously deferred unamortized costs

$
11.3Fees paid to Noteholders/Lenders


145.9Advisory and other fees paid


26.0Costs deferred and amortizing into interest expense


(20.3
)OID recorded and amortizing into interest expense


(45.4
)Loss on extinguishment of debt

$
117.5   Privately Issued Notes Payable.
 99




---



##### 



Annual Stated


Annual Stated


Annual Stated


Annual StatedInterest Rate


Interest Rate


Interest Rate


Interest RateThrough


Beginning


Beginning


BeginningPrincipal




December 31,


January 1,


January 1,


January 1,($ in millions)

Amount


Maturity Dates

2009(1)


2010(1)


2011(1)


2012(1)Series A

$
253.8


June 15, 2010


8.50
%


9.25
%


N/A



N/ASeries B

$
253.8


June 15, 2011


9.00
%


9.50
%


9.75
%


N/ASeries C

$
333.5


March 31 & April 1, 2012


9.50
%


10.00
%


10.25
%


10.75
%    (1)

    The Notes generally require payment of interest quarterly.    Bank Facility. and/or
    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 secured notes payable

$
841.0


$



$
253.7


$
253.8


$
333.5


$



$
Publicly issued unsecured notes payable


745.5











319.9



195.6







230.0Bank Term Debt (former
    revolver)(1)


50.0







50.0















Operating leases


11.8



1.2



4.4



1.7



1.7



1.7



1.1Total contractual obligations

$
1,648.3


$
1.2


$
308.1


$
575.4


$
530.8


$
1.7


$
231.1    (1)

    At September 30, 2009, $50.0 million was borrowed on
    the bank term debt and there were no outstanding standby letters
    of credit.  Off-Balance
    Sheet Arrangements
    Amount of Commitment Expiration Per YearAfter($ in millions)

Total


2009


2010


2011


2012


2013


2013Guarantees

$
9.1


$
5.0


$
3.2


$



$
0.1


$



$
0.8Standby letters of
    credit(1)


























Total commitments

$
9.1


$
5.0


$
3.2


$



$
0.1


$



$
0.8    (1)

    During the three months ended September 30, 2009, we funded
    $46.0 million of standyby letters of credit and the
    remaining standby letters of credit expired. As part of the debt
    restructure and subsequent to funding of $46.0 million
    under the standby letters of credit, the availability on the
    Bank Term Debt, which could be used to fund the then outstanding
    standby letters of credit, was reduced to zero.   101




---



##### 



RECENT
    DEVELOPMENTS
    in-the-money
         102




---



##### 



Hart-Scott-Rodino
      CRITICAL
    ACCOUNTING POLICIES
    Valuation of Portfolio
    Investments. Fair Value Measurements
   103




---



##### 



and/or security-by-security
 104




---



##### 



Net Realized Gains or Losses and Net Change in Unrealized
    Appreciation or Depreciation.
  Interest and Dividend Income. payment-in-kind payment-in-kind payment-in-kind
      and/or
 105




---



##### 



Fee Income.
  Federal and State Income Taxes and Excise
    Tax.
      Recent Accounting
    Pronouncements. Fair Value
    Measurements.
    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),
 106




---



##### 



Subsequent Events
    Accounting for Transfers of Financial Assets
  Amendments to FASB Interpretation No. 46(R) Consolidation
  The FASB Accounting Standards Codification and the Hierarchy
    of Generally Accepted Accounting Principles
    Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 4.
    Controls
    and Procedures  Form 10-Q, Rules 13a-15 15d-15
   107




---



##### 



PART II.
    OTHER INFORMATION Item 1.Legal
    Proceedings        Rule 10b-5
   108




---



##### 



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
  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.
  Our independent registered public accounting firm has
    expressed substantial doubt about our ability to continue as a
    going concern.
  Risks
    Related to the Merger Agreement
  On October 26, 2009, we entered into an Agreement and
    Plan of Merger with Ares Capital Corporation. The merger is
    subject to closing conditions, including stockholder approval,
    that, if not satisfied or waived, will result in the merger not
    being completed, which may result in material adverse
    consequences to our business and operations.
  Under certain circumstances, we are obligated to pay a
    termination fee or other amounts upon termination of the merger
    agreement.
 110




---



##### 



The merger agreement severely limits our ability to pursue
    alternatives to the merger.
  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.
 111




---



##### 



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.
 112




---



##### 



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.
   113




---



##### 



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.
 114




---



##### 



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.
 115




---



##### 



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.
  
    price and volume fluctuations in the overall stock market from
    time to time; 116




---



##### 




    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
   117




---



##### 



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    Item 5.
    Other
    Information   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). 118




---



##### 



ExhibitNumber

Description4.8

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).10.2

Amended and Restated Credit Agreement, dated as of
    August 28, 2009, by and among Allied Capital Corporation,
    Bank of America, N.A., as Administrative Agent, and the lenders
    party thereto. (Incorporated by reference to
    Exhibit 10.2 filed with Allied Capitals
    Form 8-K
    on September 1, 2009).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).10.3(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). 119




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##### 



ExhibitNumber

Description10.18(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).10.21

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). 120




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##### 



ExhibitNumber

Description10.23(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).10.31(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.) 121




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##### 



ExhibitNumber

Description10.41

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).10.45

Amended, Restated and Consolidated Note Agreement, dated as of
    August 28, 2009, among Allied Capital Corporation and
    certain noteholders party thereto. (Incorporated by reference
    to Exhibit 10.1 filed with Allied Capitals
    Form 8-K
    on September 1, 2009).10.46

Pledge, Assignment, and Security Agreement, dated as of
    August 28, 2009, among Allied Capital Corporation, certain
    of its Consolidated Subsidiaries and U.S. Bank National
    Association, as Collateral Agent for the Secured Parties.
    (Incorporated by reference to Exhibit 10.3 filed with
    Allied Capitals
    Form 8-K
    on September 1, 2009).10.47

Contribution Agreement, dated as of August 28, 2009, by and
    among Allied Capital Corporation, A.C. Corporation and certain
    of its Consolidated Subsidiaries. (Incorporated by reference
    to Exhibit 10.4 filed with Allied Capitals
    Form 8-K
    on September 1, 2009).10.48

Continuing Guaranty Agreement, dated as of August 28, 2009,
    by certain consolidated subsidiaries of Allied Capital
    Corporation in favor of U.S. Bank National Association, in its
    capacity as Collateral Agent. (Incorporated by reference to
    Exhibit 10.5 filed with Allied Capitals
    Form 8-K
    on September 1, 2009).10.49

Continuing Guaranty Agreement, dated as of August 28, 2009,
    by Allied Asset Holdings LLC in favor of U.S. Bank National
    Association, in its capacity as Collateral Agent.
    (Incorporated by reference to Exhibit 10.6 filed with
    Allied Capitals
    Form 8-K
    on September 1, 2009).10.50

Agreement and Plan of Merger. (Incorporated by reference to
    Exhibit 2.1 filed with Allied Capitals
    Form 8-K
    on October 30, 2009).10.51*

Form of Custody Agreement with PNC Bank, National Association.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.21

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. 122




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##### 



ExhibitNumber

Description32.4*

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. 123




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##### 



SIGNATURES       Dated: November 6, 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  124




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##### 



EXHIBIT INDEX
  ExhibitNumber

Description10
.51

From of Custody Agreement with PNC Bank, National Association.15


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.  125