<PAGE>   1
===============================================================================

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.
                                   FORM 10-K

                                   --------

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                          COMMISSION FILE NO. 0-18016

                         ALLIED CAPITAL CORPORATION II
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

                                   --------
                                      
                MARYLAND                                    52-1628801    
      (STATE OR OTHER JURISDICTION                      (I.R.S. EMPLOYER 
           OF INCORPORATION)                           IDENTIFICATION NO.)
                                                       
   C/O ALLIED CAPITAL ADVISERS, INC.
     1666 K STREET, NW, NINTH FLOOR
            WASHINGTON, D.C.                                  20006   
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                     (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (202) 331-1112

                                   --------

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                       NAME OF EACH EXCHANGE
       TITLE OF EACH CLASS                              ON WHICH REGISTERED 
       -------------------                              ------------------- 
               NONE                                             NONE        

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                         COMMON STOCK, $1.00 PAR VALUE
                                (TITLE OF CLASS)

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

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

The aggregate market value of the registrant's common stock held other than by
directors and officers of the registrant and officers of its investment adviser
as of March 19, 1997 was approximately $151,980,013 based upon the average
bid and asked price for the registrant's common stock on that date. As of March
19, 1997 there were 7,604,016 shares of the registrant's common stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Annual Report to Shareholders for the year ended
December 31, 1996 are incorporated by reference into Parts II and IV of this
Report. Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 2, 1997 are incorporated by reference
into Part III of this Report.

===============================================================================

<PAGE>   2


                                     PART I


ITEM 1.   BUSINESS.

         Allied Capital Corporation II (the "Company") was incorporated in
Maryland in 1989. The Company is a closed-end management investment company
that has elected to be regulated as a business development company ("BDC")
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Company has two active wholly owned subsidiaries, Allied Investment Corporation
II ("Allied Investment II") and Allied Financial Corporation II ("Allied 
Financial II"). Allied Investment II and Allied Financial II are Maryland
corporations that are registered under the 1940 Act as closed-end management
investment companies. Allied Investment II is licensed by the U.S. Small
Business Administration (the "SBA") as a small business investment company
under Section 301(C) of the Small Business Investment Act of 1958, as amended
("SBIC") and Allied Financial II is licensed by the SBA as a specialized small
business investment company under Section 301(d) of the Small Business
Investment Act of 1958, as amended ("SSBIC"). Allied Capital Advisers, Inc.
("Advisers") serves as the investment adviser of the Company under an
investment advisory agreement.

         The Company seeks to provide current income and long-term growth in
the value of its net assets by providing debt, mezzanine, and equity financing
primarily for small, privately owned companies. The Company invests primarily
in and lends primarily to small businesses, both directly and through its
wholly owned subsidiaries (unless otherwise indicated, all further references
herein to investments made by the Company include those made by its
subsidiaries). The investments made by the Company include providing financing
for growth, for leveraged buyouts of such companies, for note purchases and
loan restructurings, and for special situations, such as acquisitions, buyouts,
recapitalizations, and bridge financing of such companies.

         The Company's investments generally take the form of loans with equity
features, such as warrants or conversion privileges, that entitle the Company
to acquire a portion of the equity in the entity in which the investment is
made. The typical maturity of such a loan made by the Company is seven years,
with interest-only payments in the early years and payments of both principal
and interest in the later years, although loan maturities and principal
amortization schedules vary. The Company also makes senior loans without equity
features. Loans generally bear interest at a fixed rate that the Company
believes is competitive in the venture capital marketplace. Current income is
derived primarily from interest earned on the loan element of the Company's
investments. Generally, long-term growth in net asset value and realized
capital gains, if any, from portfolio companies are achieved through the equity
obtained as a result of the Company's growth financing and leveraged buyout
activity. The Company seeks to structure its investments so that approximately
one-half of the potential return is earned in the form of monthly or quarterly
interest payments and the balance is derived from capital gains. The Company's
investments may be secured by the assets of the entity in which the investment
is made, which collateral interests may be subordinated in certain instances to
institutional lenders, such as banks. The Company makes available significant
managerial assistance to its portfolio companies. Pending investment of its
assets, the Company's funds are generally invested in repurchase agreements
fully collateralized by U.S. government securities.

         The Company usually invests in privately held companies or small
public companies that are thinly traded and generally lack access to capital.
These companies generally have been in business for at least one year, have a
commercially proven product or service, and seek capital to finance expansion
or ownership changes. The Company generally requires that the companies in
which it invests demonstrate sales growth, positive cash flow, and
profitability, although turnaround situations are also considered. The Company
invests in businesses operating in a variety of different industries, such as
broadcasting, manufacturing, environmental technologies, wholesale
distribution, and retail operations. The Company emphasizes the quality of
management of the companies in which it invests, and seeks experienced
entrepreneurs with a management track record, relevant industry experience, and
high integrity.




The Company's Operation as a BDC

         As a BDC, the Company may not acquire any investment assets other than
"Qualifying Assets" unless, at the time the acquisition is made, Qualifying
Assets represent at least 70% of the value of the Company's total investment

                                       1

<PAGE>   3



assets (the "70% test"). The principal categories of Qualifying Assets relevant
to the business of the Company are the following:

(1)      Securities purchased in transactions not involving any public offering
         from the issuer of such securities, an affiliated person of the
         issuer, or any other person (subject to Securities and Exchange
         Commission rule-making), provided the issuer is an eligible portfolio
         company. An eligible portfolio company is defined to include any
         issuer that (a) is organized and has its principal place of business
         in the United States, (b) is not an investment company other than an
         SBIC wholly owned by the BDC (the Company's investments in and
         advances to Allied Investment II and Allied Financial II are
         Qualifying Assets) and (C) either (I) does not have any class of
         publicly traded securities with respect to which a broker may extend
         margin credit or (ii) is controlled by the BDC.

(2)      Securities received in exchange for or distributed with respect to
         securities described in (1) above, or pursuant to the exercise of
         options, warrants or rights relating to such securities.

(3)      Cash, cash items, government securities, or high quality debt
         securities (within the meaning of the 1940 Act) maturing in one year
         or less from the time of investment.

         In addition, to treat securities described in (1) and (2) above as
Qualifying Assets for the purpose of the 70% test, a BDC must make available to
the issuer of those securities significant managerial assistance. Making
available significant managerial assistance means, among other things, (i) any
arrangement whereby the BDC, through its directors, officers or employees,
offers to provide, and, if accepted, does provide, significant guidance and
counsel concerning the management, operations or business objectives and
policies of a portfolio company or (ii) in the case of an SBIC, making loans to
a portfolio company. The Company makes available managerial assistance to its
portfolio companies through the Company's directors and officers, who are
employees of Advisers, the Company's investment adviser. Each portfolio company
is assigned for monitoring purposes to an investment officer and its principals
are contacted and counseled if the portfolio company appears to be encountering
business or financial difficulties. The Company also provides managerial
assistance on a continuing basis to any portfolio company that requests it,
whether or not difficulties are perceived. The Company's officers and directors
are experienced in providing managerial assistance to small businesses.

         The Company may not change the nature of its business so as to cease
to be, or withdraw its election as, a BDC unless authorized by vote of a
"majority of the outstanding voting securities," as defined in the 1940 Act, of
the Company. Since the Company made its BDC election, it has not in practice
made any substantial change in its structure or, on a consolidated basis, in
the nature of its business. As a BDC, the Company is entitled to borrow money
and issue senior securities representing indebtedness as long as its senior
securities representing indebtedness have asset coverage of at least 200%. This
limitation is not applicable to classes of senior securities representing
indebtedness of the Company's SBIC and SSBIC subsidiaries.

Co-Investment with Allied Capital Corporation, Allied Venture Partnership and
Allied Technology Partnership

         In accordance with the conditions of exemptive orders of the
Securities and Exchange Commission (the "Commission") permitting co-investments
(the "Co-investment Guidelines"), most of the Company's acquisitions and
dispositions of investments are made in participation with Allied Capital
Corporation ("Allied I"). In the past, the Company also acquired certain
investments in participation with Allied Venture Partnership ("Allied Venture")
and Allied Technology Partnership ("Allied Technology"), both private venture
capital partnerships managed by Advisers, neither of which is now making new
investments. Allied I is a closed-end management investment company that has
elected to be regulated as a BDC and for which Advisers serves as its
investment adviser. At December 31, 1996, Allied I had total consolidated
assets of $165,751,000, compared to the Company's total consolidated assets of
$106,908,000 at that date.

         The Co-investment Guidelines generally provide that the Company and
its wholly owned subsidiaries must be offered the opportunity to invest in any
investment, other than in interim investments or marketable securities, that
would be suitable for Allied I or its wholly owned subsidiaries and the Company
to the extent proportionate to the companies' respective consolidated total
assets. Securities purchased by the Company or its wholly owned subsidiaries in
a coinvestment transaction with any of Allied I or its wholly owned
subsidiaries, Allied Venture or Allied Technology, will consist of the same
class of securities, will have the same registration rights, if any, and other
rights related thereto, and will be purchased for the same unit consideration.
Any such co-investment transaction must be approved by the

                                       2

<PAGE>   4



Company's Board of Directors, including a majority of its independent
directors. The Company will not make any investment in the securities of any
issuers in which Allied I, Allied Venture or Allied Technology, but not the
Company, has previously invested. The Co-investment Guidelines also provide
that the Company will have the opportunity to dispose of any securities in
which the Company or its wholly owned subsidiaries and any of Allied I or its
wholly owned subsidiaries, Allied Venture or Allied Technology, have invested
in proportion to their respective holdings of such securities, and that, in any
such disposition, the Company will be required to bear no more than its
proportionate share of the transaction costs.

Allied Investment II

          Allied Investment II, as an SBIC, provides capital to privately owned
small businesses primarily through loans, generally with equity features, and,
to a lesser extent, through the purchase of common or convertible preferred
shares. Loans with equity features are generally evidenced by a note or
debenture that is convertible into common stock, requiring the holder to make a
choice, prior to the loan's maturity, between accepting repayment and
maintaining its equity position, or purchasing, frequently for a nominal
consideration, common stock of the issuer even after the loan is repaid.
Wherever possible, Allied Investment II seeks collateral for its loans, but its
security interest is usually subordinated to the security interest of other
institutional lenders.

         As an SBIC, Allied Investment II currently has the opportunity to sell
to the SBA subordinated debentures with a maturity of up to ten years up to an
aggregate principal amount determined by a formula which applies a multiple to
its private capital, but not in excess of $90 million (the "$90 million
limit"). The $90 million limit generally applies to all financial assistance
provided by the SBA to any licensee and its "associates," as that term is
defined in SBA regulations. For this purpose, Allied Investment II and Allied
Financial II would be deemed to be "associates" of one another and both may be
deemed to be "associates" of Allied Investment Corporation ("Allied
Investment") and Allied Capital Financial Corporation ("Allied Financial"),
which are SBIC and SSBIC subsidiaries of Allied I. As of December 31, 1996,
Allied Investment and Allied Financial had sold debentures and preferred stock
to the SBA in the aggregate principal amount of $68,300,000; as a result, the
combined ability of Allied Investment II, Allied Financial II, Allied
Investment and Allied Financial to apply for additional leverage from the SBA
may be limited to $21,700,000 due to the $90 million limit. The Company is
unable to predict the SBA's ability to meet demands for leverage on an ongoing
basis, as such funding may be affected if Congress reduces appropriations for
the SBA, which may compel the SBA to allocate leverage or to reduce the current
limits on available leverage. Therefore, there is no guaranty that Allied
Investment II or Allied Financial II will be able to obtain SBA leverage.

         Allied Investment II provides managerial assistance to its portfolio
companies by arranging syndicated financing, advising on major business
decisions, furnishing one of its executives to serve as a director or otherwise
participating in board meetings and assisting portfolio companies when they are
having operating difficulties.

Allied Financial II

         Allied Financial II, as an SSBIC, operates as a small business
investment company specializing in the financing of small businesses controlled
by socially or economically disadvantaged persons. To determine whether the
owners of a small business are socially or economically disadvantaged, the SBA
relies on a composite of factors. Business owners who are members of the
following groups, among others, are considered socially disadvantaged: African
Americans, Hispanic Americans, Native Americans and Asian Pacific Americans. In
determining whether the owners of a small business are economically
disadvantaged, consideration may be given to factors such as levels of income,
location (for instance, urban ghettos, depressed rural areas and areas of high
unemployment or underemployment), education level, physical or other special
handicap, inability to compete in the marketplace because of prevailing or past
restrictive practices or Vietnam-era service in the armed forces, or any other
factors that may have contributed to disadvantaged conditions.

         Allied Financial II provides managerial assistance to its portfolio
companies by arranging syndicated financing, advising on major business
decisions, furnishing one of its executives to serve as a director or otherwise
participating in board meetings and assisting portfolio companies when they are
having operating difficulties. Prior to September 1996, when Allied Financial
II received its SSBIC license, the investment activity of Allied Financial II
was minimal. Total assets of Allied Financial II at December 31, 1996 were $3.6
million, of which $2.7 million was invested in cash and cash equivalents.

                                       3

<PAGE>   5



Competition

         A large number of entities and individuals compete for the opportunity
to make the kinds of investments made by the Company. Many of these entities
and individuals have greater financial resources than the combined resources of
the Company. As a result of this competition, the Company may from time to time
be precluded from making otherwise attractive investments on terms considered
to be prudent in light of the risks to be assumed.

Investment Adviser

         Advisers is the investment adviser of the Company pursuant to an
investment advisory agreement. The advisory agreement will remain in effect
from year to year as long as its continuance is approved at least annually by
the Board of Directors, including a majority of the disinterested directors, or
by the "vote of a majority of the outstanding voting securities" (as defined in
the 1940 Act) of the Company. The advisory agreement may, however, be
terminated at any time on (60) sixty days' notice, without the payment of any
penalty, by the Board of Directors or by "vote of a majority of the Company's
outstanding voting securities," and will terminate automatically in the event
of its assignment.

         Under the agreement, Advisers manages the investments of the Company,
subject to the supervision and control of the Board of Directors. Specifically,
Advisers identifies, evaluates, structures, closes and monitors the investments
made by the Company. The Company will not make any investments that have not
been recommended by Advisers as long as the advisory agreement remains in
effect. Advisers has the authority to effect acquisitions and dispositions for
the Company's account, subject to approval by the Company's Board of Directors.

         The advisory agreement provides that the Company will pay all of its
own operating expenses, except those specifically required to be borne by
Advisers. The expenses paid by Advisers include the compensation of its
officers and the cost of office space, equipment and other personnel required
for the Company's day-to-day operations. The expenses that are paid by the
Company include the Company's share of transaction costs incident to the
acquisition and disposition of investments, legal and accounting fees, the fees
and expenses of the Company's independent directors and the fees of its
officer-directors, the costs of printing and mailing proxy statements and
reports to stockholders, costs associated with promoting the Company's stock,
and the fees and expenses of the Company's custodian and transfer agent. The
Company is also required to pay expenses associated with litigation and other
extraordinary or non-recurring expenses, as well as expenses of required and
optional insurance and bonding. All fees paid by or for the account of an
actual or prospective portfolio company in connection with an investment
transaction in which the Company participates are treated as commitment fees or
management fees and are received by the Company, pro rata to its participation
in such transaction, rather than by Advisers. Advisers is entitled to retain
for its own account any fees paid by or for the account of any company,
including a portfolio company, for special investment banking or consulting
work performed for that company which is not related to such investment
transaction or management assistance. Advisers will report to the Board of
Directors not less often than quarterly all fees received by Advisers from any
source whatever and whether, in its opinion, any such fee is one that Advisers
is entitled to retain under the provisions of the advisory agreement. In the
event that any member of the Board of Directors should disagree, the matter
will be conclusively resolved by a majority of the Board of Directors,
including a majority of the independent directors.

         As compensation for its services to and the expenses paid for the
account of the Company, Advisers is paid quarterly, in arrears, a fee equal to
0.625% per quarter of the quarter-end value of the Company's consolidated total
assets, less the Company's consolidated Interim Investments (i.e., U.S.
government securities), cash and cash equivalents, plus 0.125% per quarter of
the quarter-end value of consolidated Interim Investments, cash and cash
equivalents ("the current fee structure"). Such fees on an annual basis are
approximately 2.5% of the Company's consolidated total assets, less the
Company's consolidated Interim Investments, cash and cash equivalents, and 0.5%
of the Company's consolidated Interim Investments, cash and cash equivalents.

         The fee to Advisers is substantially higher than that paid by most
investment companies because of the efforts and resources devoted by Advisers
to identifying, evaluating, structuring, closing, and monitoring the types of
private investments in which the Company specializes. The rate of compensation
paid by the Company to Advisers is substantially the same as that paid by
Allied I. The Company also understands that the fee to Advisers provided for by
the advisory agreement is not in excess of that frequently paid by private
investment funds engaged in similar types of investments. Such private funds
also typically allocate to management a substantial participation in profits.


                                       4

<PAGE>   6



Change of Chairman and Chief Executive Officer

         After 22 years with the Allied Capital companies, David Gladstone
stepped down as Chairman and Chief Executive Officer of the Company in early
1997, and the Board appointed William L. Walton to be the Company's new
Chairman and Chief Executive Officer. Mr. Gladstone also resigned as a director
on March 19, 1997 and will not stand for election to the board of directors.
Mr. Walton has been affiliated with the Allied Capital companies for more than
ten years, both as a director of Advisers and as a past director of Allied
Capital Corporation. Mr. Walton's extensive experience in the investment
industry combined with his performance as an entrepreneur provide an excellent
mix of talent for the Company. He previously served as Managing Director of New
York-based Butler Capital Corporation and was the personal venture capital
advisor for William S. Paley, founder and Chairman of CBS. More recently, Mr.
Walton founded two private companies dedicated to improving education for
children with a focus on reading and languages. Mr. Walton has been a
commercial banker, an investment banker with Lehman Brothers Kuhn Loeb, a
private investor and an entrepreneur, and throughout his career has been
involved in the growth and finance of small business.

Employees

         The Company has no employees as all of its personnel are furnished by
Advisers.

ITEM 2.  PROPERTIES.

         The Company does not own or lease any properties or other tangible
assets.

ITEM 3.   LEGAL PROCEEDINGS.

         The Company is not a defendant in any material pending legal
proceeding, and no such material proceedings are known by the Company to be
contemplated.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         None.

EXECUTIVE OFFICERS OF THE REGISTRANT.

         The following table sets forth the names, ages and positions of the
executive officers of the Company as of March 1, 1997, as well as certain other
information with respect to those persons:


                                       5

<PAGE>   7




<TABLE>
<CAPTION>
                                                    Positions Currently                        Principal Occupations
Name                                  Age           Held with the Company                      During Past Five Years
----                                  ---           ---------------------                      ----------------------
<S>                                   <C>           <C>                             <C>
William L. Walton                      47           Chairman of the Board,          Employed by Advisers since 1997;
                                                    Chief Executive Officer         Chairman and Chief Executive Officer of
                                                    and President                   Allied I, Allied Capital Commercial
                                                                                    Corporation ("Allied Commercial"),
                                                                                    Allied Capital Lending Corporation
                                                                                    ("Allied Lending") and Advisers;
                                                                                    Manager of Allied Capital Midwest LLC
                                                                                    ("Allied Midwest"); Chief Executive
                                                                                    Officer of Success Lab, Inc. (children's
                                                                                    educational services) from 1993 to 1996;
                                                                                    Chief Executive Officer of Language
                                                                                    Odyssey (educational publishing and
                                                                                    services) from 1992 to 1996; and
                                                                                    Managing Director of Butler Capital
                                                                                    Corporation from 1987 to 1991.

G. Cabell Williams III                42            Executive Vice President        Employed by Advisers since 1981;
                                                                                    President and Chief Operating Officer of
                                                                                    Allied I; Executive Vice President of
                                                                                    Allied Commercial, Allied Lending,
                                                                                    Business Mortgage Investors, Inc.
                                                                                    ("BMI"), Allied Midwest and Advisers.

Joan M. Sweeney                       37            Executive Vice President        Employed by Advisers since 1993;
                                                                                    President and Chief Operating Officer of
                                                                                    Advisers; Executive Vice President of
                                                                                    Allied I, Allied Commercial, Allied
                                                                                    Lending, BMI, Allied Capital Mortgage,
                                                                                    LLC ("Allied Mortgage") and Allied
                                                                                    Midwest; Senior Manager at Ernst &
                                                                                    Young from 1990 to 1993.

Jon A. DeLuca                        34             Executive Vice President,       Employed by Advisers since 1994.
                                                    Treasurer and Chief             Executive Vice President, Treasurer and
                                                    Financial Officer               Chief Financial Officer of Allied I, Allied
                                                                                    Commercial, Allied Lending, BMI,
                                                                                    Allied Mortgage, Allied Midwest and
                                                                                    Advisers; Manager of Entrepreneurial
                                                                                    Services at Coopers & Lybrand from
                                                                                    1986 to 1994.
</TABLE>


                                       6

<PAGE>   8



                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Information in response to this Item is incorporated by reference to
the "Shareholder Information" and "Quarterly Stock Price and Distributions to
Shareholders" sections of, and to Notes 4 and 6 of the Notes to Consolidated
Financial Statements contained in, the Company's Annual Report to Shareholders
for the year ended December 31, 1996 (the "1996 Annual Report").

ITEM 6.   SELECTED FINANCIAL DATA.

         Information in response to this Item is incorporated by reference to
the table in the "Consolidated Comparison of Financial Highlights" section of
the 1996 Annual Report.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS.

         Information in response to this Item is incorporated by reference to
the "Management's Discussion and Analysis" section of the 1996 Annual Report.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         Information in response to this Item is incorporated by reference to
the Consolidated Financial Statements, notes thereto and Report of Independent
Accountants thereon contained in the 1996 Annual Report.

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

         None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Information in response to this Item is incorporated by reference to
the identification of directors and nominees contained in the "Election of
Directors" section and the subsection captioned "Compliance with Reporting
Requirements of Section 16(a) of the Securities Exchange Act of 1934" of the
Company's definitive proxy statement in connection with its 1997 Annual Meeting
of Stockholders, scheduled to be held on May 2, 1997 (the "1997 Proxy
Statement"). Information in response to this Item also is included under the
caption "Executive Officers of the Registrant" included in Part I of this
Report.

ITEM 11.   EXECUTIVE COMPENSATION.

         Information in response to this Item is incorporated by reference to
the subsections captioned "Compensation of Executive Officers and Directors,"
"Incentive Stock Options" and "Compensation of Directors" of the 1997 Proxy
Statement.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         Information in response to this Item is incorporated by reference to
the subsection captioned "Beneficial Ownership of Common Stock" of the 1997
Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Information in response to this Item is incorporated by reference to
the section captioned "Certain Transactions" of the 1997 Proxy Statement.


                                       7

<PAGE>   9



                                   PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)      Documents filed as part of this Report:

      1.   A.  The following financial statements are incorporated by reference
           to the 1996 Annual Report:

           Consolidated Balance Sheet at December 31, 1996 and 1995.
           Consolidated Statement of Operations for the years ended December
           31, 1996, 1995 and 1994. 
           Consolidated Statement of Changes in Net Assets for the years ended
           December 31, 1996, 1995 and 1994. 
           Consolidated Statement of Cash Flows for the years ended 
           December 31, 1996, 1995 and 1994. 
           Consolidated Statement of Loans and Investments as of December 31,
           1996. 
           Notes to Consolidated Financial Statements.
           
           B.  The Report of Independent Accountants with respect to the 
           financial statements listed in A. above is incorporated by reference
           to the 1996 Annual Report.

      2.   No financial statement schedules of the Company are filed herewith
           because (i) such schedules are not required or (ii) the information
           required has been presented in the aforementioned financial
           statements.

      3.   The following exhibits are filed herewith or incorporated by 
           reference as set forth below:


Exhibit
Number               Description
------               -----------

3(i)*                Articles of Incorporation

3(ii)*               By-Laws

4.1                  Instruments defining rights of security holders -- See 
                     Exhibits 3(i) and 3(ii).

10.1(1)              Amended and Restated Credit Agreement by and between the
                     Company and NationsBank, N.A., dated September 28, 1995.

10.2*                Investment Advisory Agreement between the Company and 
                     Allied Capital Advisers, Inc., dated May 11, 1995.

10.3*                Dividend Reinvestment Plan

10.4*                Stock Option Plan

11*                  Statement regarding computation of per share earnings.

13*                  Excerpts from the 1996 Annual Report to Shareholders

21                   Subsidiaries of the Company and jurisdiction of 
                     incorporation:

                          Allied Investment Corporation II           Maryland
                          Allied Financial Corporation II            Maryland

23*                  Consents of Matthews, Carter and Boyce, independent 
                     accountants.

27*                  Financial Data Schedule

                                       8

<PAGE>   10



28*                  Financial statements as of and for the year ended December 
                     31, 1996 of Allied Investment Corporation II and Allied
                     Financial Corporation II in the form filed with the U.S.
                     Small Business Administration.

--------------------


*     Filed herewith.

(1)   Incorporated by reference to an exhibit of the same name filed with the 
      Company's Annual Report on Form 10-K for the year ended December 31, 1995.



(b)   Reports on Form 8-K.

           The Company filed a Form 8-K disclosing the resignation of William
           F. Dunbar as a director on November 20, 1996.


                                       9

<PAGE>   11



                                   SIGNATURES


      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 27, 1997.


                             /s/ WILLIAM L. WALTON
                             --------------------------------------------------
                             William L. Walton
                             Chairman of the Board and Chief Executive Officer

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

<TABLE>
<CAPTION>
                                                 Title
Signature                                      (Capacity)                                Date
---------                                      ----------                                ----
<S>                                            <C>                                       <C>
/s/   WILLIAM L. WALTON                        Chairman, Chief Executive                 March 27, 1997
-------------------------------                Officer and President        
William L. Walton                              (Principal Executive Officer)
                                               


/s/ GEORGE C. WILLIAMS                         Director                                  March 27, 1997
-------------------------------
George C. Williams


/s/ LAWRENCE I. HEBERT                         Director                                  March 27, 1997
-------------------------------
Lawrence I. Hebert


/s/ JOHN D. REILLY                             Director                                  March 27, 1997
-------------------------------
John D. Reilly


/s/ SMITH T. WOOD                              Director                                  March 27, 1997
-------------------------------
Smith T. Wood


/s/ JOHN I. LEAHY                              Director                                  March 27, 1997
-------------------------------
John I. Leahy


/s/ JOHN D. FIRESTONE                          Director                                  March 27, 1997
-------------------------------
John D. Firestone


/s/ JON A. DELUCA                              Executive Vice President,                 March 27, 1997
-------------------------------                Treasurer and Chief Financial
Jon A. DeLuca                                  Officer (Principal Financial 
                                               and Accounting Officer)      
                                               
</TABLE>



<PAGE>   12



                                 EXHIBIT INDEX

Exhibit
Number          Description
------          -----------

3(i)            Articles of Incorporation

3(ii)           By-Laws

10.2            Investment Advisory Agreement between the Company and Allied 
                Capital Advisers, Inc., dated May 11, 1995.

10.3            Dividend Reinvestment Plan

10.4            Stock Option Plan

11              Statement regarding computation of per share earnings.

13              Excerpts from the 1996 Annual Report to Shareholders

23              Consents of Matthews, Carter and Boyce, independent 
                accountants.

27              Financial Data Schedule

28              Financial statements as of and for the year ended December 31, 
                1996 of Allied Investment Corporation II and Allied Financial
                Corporation II in the form filed with the U.S. Small Business
                Administration.