<PAGE>   1
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                                 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, 1995
                                       OR
/ /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                          COMMISSION FILE NO. 814-97

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

               MARYLAND                                 53-0245085
     (STATE OR OTHER JURISDICTION                    (I.R.S. EMPLOYER
           OF INCORPORATION)                        IDENTIFICATION NO.)
                                                    
   C/O ALLIED CAPITAL ADVISERS, INC.                
   1666 K STREET, N.W., NINTH FLOOR                        20006
           WASHINGTON, D.C.                             (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)             

      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 by
non-affiliates of the registrant as of March 22, 1996 was approximately
$77,268,993 based upon the average bid and asked price for the registrant's
common stock on that date.  As of March 22, 1996 there were 6,891,836 shares of
the registrant's common stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Annual Report to Stockholders for the year ended
December 31, 1995 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 6, 1996 are incorporated by reference
into Part III of this Report.

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<PAGE>   2
                                     PART I


ITEM 1.   BUSINESS

         Allied Capital Corporation (the "Company") was incorporated under the
laws of the District of Columbia in 1958 and was reorganized as a Maryland
corporation in 1991.  It is a closed-end management investment company that
elected in 1991 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
("Allied Investment") and Allied Capital Financial Corporation ("Allied
Financial").  Allied Investment and Allied Financial are Maryland corporations
registered under the 1940 Act as closed-end management investment companies.
Allied Investment 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 (an "SBIC"), and Allied Financial is licensed
by the SBA as a specialized small business investment company under Section
301(d) of the Small Business Investment Act of 1958 (an "SSBIC").  As described
below, the Company also has a significant ownership interest in Allied Capital
Lending Corporation ("Allied Lending"), a closed-end management investment
company that has elected to be regulated as a BDC and is an SBA-approved small
business lending company.  Allied Capital Advisers, Inc. ("Advisers") serves as
the investment adviser to the Company under an investment advisory agreement.

         The investment objective of the Company is to provide a high level of
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.  This objective may be changed by the Board of Directors of the
Company without a "vote of a majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Company.  To achieve its investment objective,
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, leveraged buyouts of such companies, for note
purchases and loan restructurings, and for special situations, such as
acquisitions, buyouts, recapitalizations, and bridge financings 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's emphasis is on low- to medium-technology businesses, such as
broadcasting, manufacturing, environmental concerns, wholesale distribution,
commodities storage, 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.





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         Historically, all of the investments of the Company have been made in
domestic small businesses.  However, the Company recently established a $20
million credit facility with the Overseas Private Investment Corporation
("OPIC"), pursuant to which it anticipates making investments in businesses
that engage, in whole or in part, in overseas operations, usually in countries
representing the world's emerging markets.  OPIC is a self-sustaining federal
agency the purpose of which is to promote economic growth in developing
countries by encouraging U.S. private investment in those nations.  Under OPIC
regulations, investments generally may be made only in companies that have some
affiliation with a U.S.-based business entity.  The Company's first
OPIC-related investment was made in February 1996 and consisted of an
investment in a wireless communications company expanding operations into Latin
America; that investment involved borrowing $5 million from the OPIC credit
facility.

         In January 1996, the Company registered 885,448 shares of its stock to
be offered in connection with a rights offering to its existing shareholders.
Pursuant to the rights offering, the Company issued to the common stockholders
at the close of business on January 22, 1996, (the "Record Date"), one
non-transferable subscription right ("Subscription Right") for each share held
which entitled each record date stockholder to subscribe for and purchase from
the Company up to one authorized, but theretofore unissued share of the
Company's common stock for each seven Subscription Rights held (the "Primary
Subscription").  Stockholders who fully exercised their Subscription Rights
were entitled to the additional privilege of subscribing for shares from the
offering not acquired by exercise of Subscription Rights (the
"Over-Subscription Privilege").  In addition, the Company increased the number
of shares subject to subscription by 15%, or 132,817 shares, for an aggregate
total of 1,018,265 shares available under the offering.

         The subscription price per common share was $13.11, which equaled 95%
of the average of the last reported sale price of a share of common stock on
the Nasdaq National Market on February 27, 1996 (the expiration date of the
rights offering) and each of the four preceding business days.  Stockholders
participating in the offering subscribed for 404,767 shares through the Primary
Subscription and 251,903 shares through the Oversubscription Privilege for a
total of 656,670 shares.  The  Company received net proceeds of $8.2 million
from the rights offering after estimated expenses of $458,000, including a 2.5%
commission paid to eligible broker/dealers on each share sold as a result of
their soliciting efforts.  In the registration statement relating to the rights
offering, the Company retained the right to offer and sell any unsubscribed-for
shares through a subsequent offering.  Any such subsequent offering may be made
only through the use of a prospectus included in a post-effective amendment to
the registration statement.

The Company's Operation as a BDC

         As a BDC, the Company may not acquire any 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 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, which 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 and Allied Financial are
         Qualifying Assets, but its investment in Allied Lending, which is
         neither wholly owned nor an SBIC, is not) and (c) does not have any
         class of publicly traded securities with respect to which a broker may
         extend margin credit.

(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





                                       2
<PAGE>   4
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.  Managerial assistance is made
available to the portfolio companies by the Company's directors and officers,
who are employees of Advisers, which manages the Company's investments.  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 highly 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, except for the disposition of its ownership
interest in Allied Lending, as described below, which is not a change that
results in the Company ceasing to be a BDC.  As a BDC, the Company is entitled
to borrow money and issue senior securities representing indebtedness as long
as 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 II, Allied Venture Partnership,
and Allied Technology Partnership

         In accordance with the conditions of several 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 II ("Allied II").  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 II 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, 1995, Allied II had total consolidated
assets of $107,169,000, compared to the Company's total consolidated assets of
$148,268,000 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 II or its wholly owned subsidiaries and the
Company to the extent proportionate to their respective consolidated total
assets.  Securities purchased by the Company or its wholly owned subsidiaries
in a co-investment transaction with any of Allied II 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 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 II,
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 II 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

          Allied Investment, 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 seeks collateral for its loans, but its
security interest is usually subordinated to the security interest of other
institutional lenders.





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<PAGE>   5
         As an SBIC, Allied Investment 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 and Allied
Financial would be deemed to be "associates" of one another and both may be
deemed to be "associates" of Allied Investment Corporation II ("Allied
Investment II"), which is also an SBIC and is a subsidiary of Allied II.  As a
group, Allied Investment and Allied Financial have received $68,300,000 in
subordinated debenture and preferred stock investments from the SBA as of
December 31, 1995; as a result, this combined ability to apply for additional
leverage from the SBA will be limited to $21,700,000 due to the $90 million
limit.  This combined ability to obtain additional leverage assumes that Allied
Investment II does not obtain any SBA leverage.  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
or Allied Financial will be able to obtain additional SBA leverage beyond what
is currently held.

         Allied Investment provides managerial assistance to its portfolio
companies by arranging syndicated financings, 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

         Allied Financial, 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.

         An SSBIC may sell preferred stock or long-term subordinated debt to
the SBA in an amount of up to 200% of its private capital.  Beginning with the
SBA's 1996 fiscal year commencing on October 1, 1995, Congress has discontinued
subsidized funding for the SBA's SSBIC program.  Prior to this change, an SSBIC
was able to sell preferred stock and debentures which were issued with a rate
reduction or subsidy.  Preferred stock sold to the SBA after November 1989 pays
dividends at an annual rate of four percent (4%) of par value and must be
redeemed within 15 years of issuance; preferred stock sold to the SBA before
November 1989 pays dividends at an annual rate of three percent (3%) of par
value and has no required redemption date.  In addition to preferred stock, the
SBA had provided leverage to SSBICs at a reduced rate through the purchase or
guarantee of debentures.  As of December 31, 1995, Allied Financial had
unsubsidized capital in the aggregate amount of $2,000,000 and subsidized
capital in the aggregate amount of $23,950,000, consisting of subordinated
debentures to the SBA in the amount of $16,950,000, 3% preferred stock of
$6,000,000 and 4% preferred stock of $1,000,000.

         Allied Financial provides managerial assistance to its portfolio
companies by arranging syndicated financings, 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.

The Company's Interest in Allied Lending

         The Company owned 2,380,000 shares, or all of the outstanding capital
stock, of Allied Lending prior to consummation of the initial public offering
of Allied Lending's common stock in November 1993.  As a result of that initial
public offering, the Company's ownership of Allied Lending's common stock was
reduced to 1,580,000 shares, or 36.2% of the Allied Lending shares outstanding
at December 31, 1993.  The Company has agreed to





                                       4
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divest itself of all shares of Allied Lending by December 31, 1998 by public
offerings, private placements, distributions to the Company's stockholders or
otherwise.  As part of this divestiture, the Company declared an extra
distribution in December 1994 and distributed in early January 1995 an
aggregate of 335,086 Allied Lending shares, which reduced its ownership of
Allied Lending to 1,244,914 shares, or 28% of the Allied Lending common stock
then outstanding.

         Until 1995, the business of Allied Lending consisted solely of making
small business loans which are partially guaranteed under the SBA's 7(a) Loan
Program ("7(a) guaranteed loans").  Allied Lending has been an active non-bank
lender in the 7(a) Loan Program.  Most of the loans made by Allied Lending
historically have been made for the purpose of allowing portfolio companies to
acquire real estate-related assets, such as factories, workshops, or retail
premises, or to refinance outstanding loans made to acquire such real estate; a
smaller proportion of such loans has been made for the purpose of allowing
portfolio companies to purchase or refinance machinery and equipment.  Allied
Lending, pursuant to stockholder approval at a Special Meeting of Stockholders
on November 9, 1995, expanded its ability to make loans to include, in addition
to 7(a) guaranteed loans, loans that are made in conjunction with 7(a)
guaranteed loans, and loans pursuant to the SBA 504 program.

Investment Adviser

         Advisers is the investment adviser to the Company pursuant to an
investment advisory agreement.  In May 1995, the Company's stockholders
approved a new investment advisory agreement (the "current agreement").  The
current 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 current 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, as so
defined, and will terminate automatically in the event of its assignment.

         The terms of the current agreement are virtually identical to those of
the investment advisory agreement between the Company and Advisers that it
replaced (the "former agreement") except as to the calculation of the
investment advisory fee and to the extent clarifying changes were made
regarding the nature of professional or technical fees and expenses to be paid
by the Company.  The terms of the current agreement regarding calculation of
the investment advisory fee are intended to reflect Advisers' practice of
generally imposing a significantly lower fee on the Company's cash and cash
equivalents and Interim Investments (i.e., U.S. government securities) than the
fee applicable to the Company's invested assets, which Advisers has
historically effected by waiving portions of the investment advisory fee
applicable to the Company's cash and cash equivalents and Interim Investments.
In the current agreement the provisions of the former agreement concerning the
transaction costs to acquire or dispose of an investment were clarified to
describe the nature of professional or technical fees and expenses to be paid
by the Company and to provide that those fees and expenses included items such
as credit reports, title searches, fees of accountants or industry-specific
technical experts, and transaction-specific travel expenses.  The effect of
those clarifications and the replacement of the former agreement does not
result in the imposition of any new fee or expense to be paid by the Company or
its stockholders.  Replacement of the former agreement with the current
agreement is expected to result in an advisory fee that is lower than that
provided under the former agreement (absent waiver by Advisers of any portion
of its fee) and approximately the same as that provided in recent practice when
Advisers waived a portion of its fee annually.  The terms of the current
agreement are summarized below.

         Pursuant to the current 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 current agreement
remains in effect.  Advisers has the authority to effect acquisitions and
dispositions of investments for the Company's account, subject to approval by
the Company's Board of Directors.

         The current 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





                                       5
<PAGE>   7
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 current 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.  If the Company uses the
services of attorneys or paraprofessionals on the staff of Advisers for the
Company's corporate purposes in lieu of outside counsel, the Company will
reimburse Advisers for such services at hourly rates calculated to cover the
cost of such services, as well as for incidental disbursements by Advisers in
connection with such services.

         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 value of the shares of Allied Lending owned by the Company,
consolidated Interim Investments, cash and cash equivalents, plus 0.125% per
quarter of the quarter-end value of consolidated Interim Investments, cash and
cash equivalents.  The current agreement provides specifically that the fee to
Advisers will not apply to the Company's investment in Allied Lending, as
required by the Commission's 1993 exemptive order permitting the spinoff of
Allied Lending.  Such fees on an annual basis are approximately 2.5% of the
Company's consolidated total assets, less the Company's investment in Allied
Lending and 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 II, with which Advisers has also negotiated a new investment advisory
agreement during 1995.  The Company also understands that the fee to Advisers
provided for by the current 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.

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.





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<PAGE>   8
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, 1996, as well as certain other
information with respect to those persons:


<TABLE>
<CAPTION>
                                              Positions Currently
                                                 Held with the                     Principal Occupations
 Name                         Age                   Company                        During Past Five Years
 ----                         ---           ----------------------                 ----------------------
 <S>                          <C>      <C>                                    <C>
 David Gladstone               53      Chairman of the Board and Chief        Employed by the Company or
                                       Executive Officer                      Advisers since 1974; Chairman
                                                                              and Chief Executive Officer of
                                                                              Allied II, Allied Capital
                                                                              Commercial Corporation
                                                                              ("Allied Commercial"), Allied
                                                                              Lending and Advisers;
                                                                              Director, President and Chief
                                                                              Executive Officer of Business
                                                                              Mortgage Investors, Inc.
                                                                              ("BMI") and Allied Capital
                                                                              Mortgage Corporation ("Allied
                                                                              Mortgage"); Director of The
                                                                              Riggs National Corporation;
                                                                              Trustee of The George
                                                                              Washington University.

 George C. Williams           69       Vice Chairman of                       Employed by the Company or
                                       the Board                              Advisers since 1959; Vice
                                                                              Chairman of Allied II, Allied
                                                                              Commercial, Allied Lending and
                                                                              Advisers; Chairman of BMI and
                                                                              Allied Mortgage.  He is the
                                                                              father of G. Cabell Williams
                                                                              III.

 G. Cabell Williams III       41       President, and Chief                   Employed by the Company or
                                       Operating Officer                      Advisers since 1981.
                                                                              Executive Vice President of
                                                                              Allied II, Allied Commercial,
                                                                              Allied Lending, BMI and
                                                                              Advisers; Director of
                                                                              Environmental Enterprises
                                                                              Assistance Fund.  He is the
                                                                              son of George C. Williams.
</TABLE>





                                       7
<PAGE>   9
<TABLE>
 <S>                          <C>      <C>                                    <C>
 Jon A. DeLuca                33       Executive Vice President, Treasurer,   Employed by Advisers since
                                       and Chief Financial Officer            1994.  Executive Vice
                                                                              President, Treasurer and Chief
                                                                              Financial Officer of Allied
                                                                              II, Allied Commercial, Allied
                                                                              Lending, BMI, Allied Mortgage,
                                                                              and Advisers. Manager of
                                                                              Entrepreneurial Services at
                                                                              Coopers & Lybrand from 1986 to
                                                                              1994.

 William F. Dunbar            37       Executive Vice President               Employed by the Company or
                                                                              Advisers since 1987; President
                                                                              and Chief Operating Officer of
                                                                              Allied II; Executive Vice
                                                                              President of Allied
                                                                              Commercial, Allied Lending,
                                                                              BMI and Advisers.

 Thomas R. Salley             38       General Counsel and Secretary          Employed by Advisers since
                                                                              1988; General Counsel and
                                                                              Secretary of Allied II, Allied
                                                                              Lending, Allied Commercial,
                                                                              BMI, Allied Mortgage and
                                                                              Advisers.

 Joan M. Sweeney              36       Executive Vice President               Employed by Advisers since
                                                                              1993; President and Chief
                                                                              Operating Officer of Advisers;
                                                                              Executive Vice President of
                                                                              Allied II, Allied Commercial,
                                                                              Allied Lending, BMI, and
                                                                              Allied Mortgage; Senior
                                                                              Manager at Ernst & Young from
                                                                              1990 to 1993.
</TABLE>

                                    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 "Investor Information" section of, and to Notes 4 and 7 of the Notes to
Consolidated Financial Statements contained in, the Company's Annual Report to
Stockholders for the year ended December 31, 1995 (the "1995 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 1995 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 1995 Annual Report.





                                       8
<PAGE>   10
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 1995 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 1996 Annual Meeting
of Stockholders, scheduled to be held on May 6, 1996 (the "1996 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 1996 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 1996
Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Information in response to this Item is incorporated by reference to
the subsections captioned "Certain Transactions" of the 1996 Proxy Statement.


                                    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
          from the 1995 Annual Report:

          Consolidated Balance Sheet at December 31, 1995 and 1994.
          Consolidated Statement of Operations for the years ended December 31,
           1995, 1994 and 1993.  
          Consolidated Statement of Changes in Net Assets for the years ended 
           December 31, 1995, 1994 and 1993.
          Consolidated Statement of Cash Flows for the years ended December 31,
           1995, 1994 and 1993.  
          Consolidated Statement of Loans to and Investments in Small Business 
           Concerns at December 31, 1995.  
          Notes to Consolidated Financial Statements.





                                       9
<PAGE>   11
          B.  Report of Independent Accountants with respect to the financial
          statements listed in A. above is incorporated by reference from the
          1995 Annual Report.

     2.   No financial statement schedules 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:


(3)(A)(1)       The Company's Articles of Incorporation.

(3)(B)(2)       The Company's By-Laws.

(4)(A)          Instruments Defining the Rights of Security holders.  See
                Exhibits 3(A) and 3(B).

(4)(D)(3)       Note Agreement between the Company and certain subsidiaries and
                Massachusetts Mutual Life Insurance Company, as amended, dated
                April 30, 1992.

(4)(E)(2)       Loan Agreement between the Company and Overseas Private
                Investment Corporation, dated April 10, 1995.

(4)(F)(2)       Unsecured Line of Credit Agreement between the Company and The
                Riggs National Bank of Washington, DC dated December 18, 1995.

(10)(A)(4)      Investment Advisory Agreement between the Company and Allied
                Capital Advisers, Inc. approved by the Company's stockholders on
                May 4, 1995.

(10)(B)(i)(5)   Letter Agreement dated November 16, 1993 among Allied Capital
                Lending Corporation, the Company and Lehman Brothers Inc.

(10)(B)(ii)(6)  Tax Indemnification Agreement dated November 12, 1993 between
                the Company and Allied Capital Lending Corporation.

(10)(C)(iii)(7) The Company's Dividend Reinvestment Plan.

(10)(E)(8)      The Company's Incentive Stock Option Plan, as amended.

(11)*           Statement re computation of per share earnings.

(13)(9)*        1995 Annual Report to Stockholders.

(21)            Subsidiaries of the Company and jurisdiction of incorporation.

<TABLE>
<CAPTION>
                    <S>                                           <C>
                    Allied Investment Corporation                 Maryland
                    Allied Capital Financial Corporation          Maryland
                    Allied Development Corporation                District of Columbia
</TABLE>

(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,
                1995 of Allied Investment Corporation and Allied Capital
                Financial Corporation, in the form filed with the Small Business
                Administration.

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





                                       10
<PAGE>   12
*    Filed herewith.

(1)  Incorporated by reference to Exhibit D to the Company's definitive proxy
     statement filed on April 11, 1991.

(2)  Incorporated by reference to such Exhibit on Pre-Effective Amendment No. 2
     filed with registration statement Form N-2 (File No.  33-64629) on January
     24, 1996.

(3)  Incorporated by reference to Exhibit (4)(D)(i) filed with the Company's
     Annual Report on Form 10-K for the year ended December 31, 1992.
     Amendments thereto are incorporated by reference to Exhibits (4)(D)(ii),
     (4)(D)(iii) and (4)(D)(iv) to the Company's Form 8-K filed on December 9,
     1993.

(4)  Incorporated by reference to Exhibit A to the Company's definitive proxy
     statement relating to the meeting of its stockholders held on May 4, 1995.

(5)  Incorporated by reference to an exhibit of the same number filed with the
     Company's Form 8-K dated November 19, 1993.

(6)  Incorporated by reference to an exhibit of the same number filed with the
     Company's Annual Report on Form 10-K for the year ended December 31, 1993.

(7)  Incorporated by reference to an exhibit of the same number filed with the
     Company's Annual Report on Form 10-K for the year ended December 31, 1992.

(8)  Incorporated by reference to Exhibit A to the Company's definitive proxy
     statement filed on March 30, 1994 with respect to an annual meeting of
     stockholders held on May 5, 1994.

(9)  Except to the extent that portions of this exhibit are incorporated herein
     by reference, this document shall not be deemed to have been filed
     pursuant to the Securities Exchange Act of 1934.

(b)  Reports on Form 8-K.

     No reports on Form 8-K have been filed for the three months ended December
     31, 1995.





                                       11
<PAGE>   13
                                   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 28, 1996.


                             /s/ DAVID GLADSTONE
                             -------------------------------------------------
                             David Gladstone
                             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/ DAVID GLADSTONE                                    Chairman and                        March 28, 1996
-------------------------------------------------      Chief Executive Officer                                                  
David Gladstone                                        (Principal Executive Officer)

/s/ GEORGE C. WILLIAMS                                 Vice Chairman of the Board          March 28, 1996
-------------------------------------------------                                                        
George C. Williams

/s/ G. CABELL WILLIAMS III                             Director and President              March 28, 1996
-------------------------------------------------      and Chief Operating Officer                                                  
G. Cabell Williams III                                 

/s/ T. MURRAY TOOMEY                                   Director                            March 28, 1996
-------------------------------------------------                                                        
T. Murray Toomey

/s/ JOSEPH A. CLORETY III                              Director                            March 28, 1996
-------------------------------------------------                                                        
Joseph A. Clorety III

/s/ GUY T. STEUART II                                  Director                            March 28, 1996
-------------------------------------------------                                                        
Guy T. Steuart II

/s/ WARREN K. MONTOURI                                 Director                            March 28, 1996
-------------------------------------------------                                                        
Warren K. Montouri 

/s/ MICHAEL I. GALLIE                                  Director                            March 28, 1996
-------------------------------------------------                                                        
Michael I. Gallie

/s/ JON A. DELUCA                                      Executive Vice                      March 28, 1996
-------------------------------------------------      President and Chief                                                  
Jon A. DeLuca                                          Financial Officer
                                                       (Principal Financial
                                                       and Accounting Officer)
</TABLE>





                                       12
<PAGE>   14
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number              Description
-------             -----------
<S>            <C>
(11)           Statement re computation of per share earnings.

(13)           1995 Annual Report to Stockholders.

(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, 1995 of Allied Investment Corporation and
               Allied Capital Financial Corporation, in the form filed with
               the Small Business Administration.
</TABLE>





                                       13