For The Quarterly Period Ended March 31, 2005		Commission File Number: 0-22832

Maryland (State or Jurisdiction of Incorporation or Organization)		52-1081052 (IRS Employer Identification No.)

---

 

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Consolidated Balance Sheet as of March 31, 2005 (unaudited) and December 31, 2004		1
		Consolidated Statement of Operations (unaudited) — For the Three Months Ended March 31, 2005 and 2004		2
		Consolidated Statement of Changes in Net Assets (unaudited) — For the Three Months Ended March 31, 2005 and 2004		3
		Consolidated Statement of Cash Flows (unaudited) — For the Three Months Ended March 31, 2005 and 2004		4
		Consolidated Statement of Investments as of March 31, 2005 (unaudited)		5
		Notes to Consolidated Financial Statements		15
		Report of Independent Registered Public Accounting Firm		38
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			39
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			74
	Item 4. Controls and Procedures			74
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			75
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			75
	Item 3. Defaults Upon Senior Securities			76
	Item 4. Submission of Matters to a Vote of Security Holders			76
	Item 5. Other Information			76
	Item 6. Exhibits			77
	Signatures			80

---

 

					March 31,				December 31,
					2005				2004
(in thousands, except share and per share amounts)					(unaudited)
ASSETS
Portfolio at value:
	Private finance
		Companies more than 25% owned (cost: 2005-$1,426,861; 2004-$1,389,342)			$	1,437,474			$	1,359,641
		Companies 5% to 25% owned (cost: 2005-$196,842; 2004-$194,750)				187,459				188,902
		Companies less than 5% owned (cost: 2005-$786,607; 2004-$800,828)				753,537				753,543
			Total private finance (cost: 2005-$2,410,310; 2004-$2,384,920)			2,378,470				2,302,086
	Commercial real estate finance (cost: 2005-$809,613; 2004-$722,612)					816,536				711,325
			Total portfolio at value (cost: 2005-$3,219,923; 2004-$3,107,532)			3,195,006				3,013,411
Deposits of proceeds from sales of borrowed Treasury securities						98,741				38,226
Accrued interest and dividends receivable						81,937				79,489
Other assets						77,783				72,712
Cash and cash equivalents						51,087				57,160
			Total assets		$	3,504,554			$	3,260,998
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
	Notes payable and debentures (maturing within one year: 2005-$165,000; 2004-$169,000)				$	1,033,135			$	1,064,568
	Revolving line of credit					263,250				112,000
	Obligations to replenish borrowed Treasury securities					98,741				38,226
	Accounts payable and other liabilities					76,280				66,426
			Total liabilities			1,471,406				1,281,220
Commitments and contingencies
Shareholders’ equity:
	Common stock, $0.0001 par value, 200,000,000 shares authorized; 133,562,534 and 133,098,807 shares issued and outstanding at March 31, 2005, and December 31, 2004, respectively					13				13
	Additional paid-in capital					2,106,106				2,094,421
	Common stock held in deferred compensation trust					(15,389	)			(13,503	)
	Notes receivable from sale of common stock					(5,420	)			(5,470	)
	Net unrealized appreciation (depreciation) on portfolio					(37,183	)			(107,767	)
	Undistributed (distributions in excess of) earnings					(14,979	)			12,084
			Total shareholders’ equity			2,033,148				1,979,778
			Total liabilities and shareholders’ equity		$	3,504,554			$	3,260,998
Net asset value per common share					$	15.22			$	14.87

1

---

 

					For the Three Months
					Ended March 31,
					2005				2004
(in thousands, except per share amounts)
					(unaudited)
Interest and Related Portfolio Income:
	Interest and dividends
		Companies more than 25% owned			$	28,251			$	15,952
		Companies 5% to 25% owned				5,921				5,986
		Companies less than 5% owned				50,773				51,601
			Total interest and dividends			84,945				73,539
	Loan prepayment premiums
		Companies more than 25% owned				—				—
		Companies 5% to 25% owned				—				—
		Companies less than 5% owned				1,677				950
			Total loan prepayment premiums			1,677				950
	Fees and other income
		Companies more than 25% owned				4,881				4,489
		Companies 5% to 25% owned				70				347
		Companies less than 5% owned				3,346				2,440
			Total fees and other income			8,297				7,276
			Total interest and related portfolio income			94,919				81,765
Expenses:
	Interest					20,225				19,113
	Employee					15,456				12,355
	Administrative					20,754				5,827
			Total operating expenses			56,435				37,295
Net investment income before income taxes						38,484				44,470
Income tax expense (benefit)						(268	)			(75	)
Net investment income						38,752				44,545
Net Realized and Unrealized Gains (Losses):
	Net realized gains (losses)
		Companies more than 25% owned				399				146,683
		Companies 5% to 25% owned				(3	)			4,628
		Companies less than 5% owned				9,889				(3,461	)
			Total net realized gains			10,285				147,850
	Net change in unrealized appreciation or depreciation					70,584				(172,087	)
			Total net gains (losses)			80,869				(24,237	)
Net increase in net assets resulting from operations					$	119,621			$	20,308
Basic earnings per common share					$	0.90			$	0.16
Diluted earnings per common share					$	0.88			$	0.15
Weighted average common shares outstanding — basic						133,283				128,314
Weighted average common shares outstanding — diluted						135,579				131,968

2

---

 

				For the Three Months
				Ended March 31,
				2005				2004
(in thousands, except per share amounts)
				(unaudited)
Operations:
	Net investment income			$	38,752			$	44,545
	Net realized gains				10,285				147,850
	Net change in unrealized appreciation or depreciation				70,584				(172,087	)
		Net increase in net assets resulting from operations			119,621				20,308
Shareholder distributions:
	Common stock dividends				(76,100	)			(73,357	)
	Preferred stock dividends				—				(45	)
		Net decrease in net assets resulting from shareholder distributions			(76,100	)			(73,402	)
Capital share transactions:
	Issuance of common stock for portfolio investments				7,200				—
	Issuance of common stock upon the exercise of stock options				2,618				11,782
	Issuance of common stock in lieu of cash distributions				1,418				1,484
	Net decrease in notes receivable from sale of common stock				50				5,192
	Purchase of common stock held in deferred compensation trust				(1,886	)			—
	Other				449				29
		Net increase in net assets resulting from capital share transactions			9,849				18,487
		Total increase (decrease) in net assets			53,370				(34,607	)
Net assets at beginning of period					1,979,778				1,914,577
Net assets at end of period				$	2,033,148			$	1,879,970
Net asset value per common share				$	15.22			$	14.60
Common shares outstanding at end of period					133,563				128,761

3

---

 

					For the Three Months
					Ended March 31,
					2005				2004
(in thousands)
					(unaudited)
Cash flows from operating activities:
	Net increase in net assets resulting from operations				$	119,621			$	20,308
	Adjustments
		Portfolio investments				(257,957	)			(170,597	)
		Principal collections related to investment repayments or sales				158,262				237,161
		Change in accrued or reinvested interest and dividends				(10,534	)			(13,098	)
		Amortization of discounts and fees				(1,772	)			(1,573	)
		Changes in other assets and liabilities				8,158				3,376
		Depreciation and amortization				486				409
		Realized gains from the receipt of notes and other securities as consideration from sale of investments, net of collections				152				(48,318	)
		Realized losses				4,418				8,152
		Net change in unrealized (appreciation) or depreciation				(70,584	)			172,087
			Net cash provided by (used in) operating activities			(49,750	)			207,907
Cash flows from financing activities:
	Sale of common stock upon the exercise of stock options					2,618				11,782
	Collections of notes receivable from sale of common stock					50				5,192
	Borrowings under notes payable and debentures					—				15,212
	Repayments on notes payable and debentures					(31,000	)			(7,000	)
	Net borrowings under (repayments on) revolving line of credit					151,250				—
	Purchase of common stock held in deferred compensation trust					(1,886	)			—
	Other financing activities					(12	)			(110	)
	Common stock dividends and distributions paid					(77,343	)			(71,873	)
			Net cash provided by (used in) financing activities			43,677				(46,797	)
Net increase (decrease) in cash and cash equivalents						(6,073	)			161,110
Cash and cash equivalents at beginning of period						57,160				214,167
Cash and cash equivalents at end of period					$	51,087			$	375,277

4

---

 

					March 31, 2005
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Companies More Than 25% Owned
Acme Paging, L.P.(4)			Loan (6.8%, Due 12/07 – 1/08)(6)		$	4,631			$	4,631			$	—
	(Telecommunications)		Equity Interests							13,274				—
			Common Stock (4,656 shares)							27				—
Advantage Sales & Marketing, Inc.			Loan (12.0%, Due 9/09)			60,000				59,743				59,743
	(Business Services)		Debt Securities (18.5%, Due 12/09)			126,621				126,621				126,621
			Common Stock (18,957,011 shares)							73,932				167,044
Alaris Consulting, LLC			Loan (16.3%, Due 12/05 – 12/07)(6)			24,025				24,068				4,719
	(Business Services)		Equity Interests							5,165				—
			Guaranty ($1,100)
American Healthcare Services, Inc.			Loan (1.0%, Due 12/04 – 12/05)(6)			5,200				4,801				4,212
	and Affiliates
	(Healthcare Services)
Avborne, Inc.(7)			Preferred Stock (12,500 shares)							7,014				881
	(Business Services)		Common Stock (27,500 shares)							—				—
Avborne Heavy Maintenance, Inc.(7)			Preferred Stock (1,568 shares)							—				—
	(Business Services)		Common Stock (2,750 shares)							—				—
Business Loan Express, LLC			Class A Equity Interests			55,494				55,494				55,494
	(Financial Services)		Class B Equity Interests							117,436				140,523
			Class C Equity Interests							109,301				134,696
			Guaranty ($104,574 — See Note 3)
			Standby Letters of Credit ($35,550 —   See Note 3)
Callidus Capital Corporation			Loan (5.2%, Due 12/05)			54,854				54,854				54,854
	(Financial Services)		Loan (12.0%, Due 12/06)			1,300				1,300				1,300
			Debt Securities (18.0%, Due 10/08)			4,234				4,234				4,234
			Common Stock (10 shares)							1,867				4,100
Fairchild Industrial Products			Loan (8.5%, Due 7/09)			6,668				6,668				6,668
	Company		Debt Securities (12.1%, Due 7/09)			3,729				3,729				3,729
	(Industrial Products)		Common Stock (1,000 shares)							2,841				6,233
(1) Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2) Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3) Public company.
(4) Non-U.S. company or principal place of business outside the U.S.
(5) Non-registered investment company.
(6) Loan or debt security is on non-accrual status and therefore is considered non-income producing.
(7) Avborne, Inc. and Avborne Heavy Maintenance, Inc. are affiliated companies.

5

---

 

					March 31, 2005
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Financial Pacific Company			Loan (17.4%, Due 2/12 – 8/12)		$	69,132			$	68,828			$	68,828
	(Financial Services)		Preferred Stock (9,950 shares)							9,950				10,945
			Common Stock (14,735 shares)							14,819				36,250
ForeSite Towers, LLC			Equity Interests							18,703				20,802
	(Tower Leasing)
GAC Investments, Inc.			Common Stock (107 shares)							57,350				7,049
	(Broadcasting & Cable)		Guaranty ($800)
			Standby Letter of Credit ($200)
Global Communications, LLC			Loan (14.5%, Due 12/03 – 12/06)			6,393				6,393				6,393
	(Business Services)		Debt Securities (13.0%, Due 9/02 – 9/05)			18,321				18,318				18,318
			Preferred Equity Interest							14,067				14,723
			Options							1,639				—
Gordian Group, Inc.			Loan (10.0%, Due 12/05 – 12/08)(6)			11,392				11,434				5,698
	(Business Services)		Common Stock (1,000 shares)							5,820				—
HealthASPex, Inc.			Preferred Stock (1,000,000 shares)							700				700
	(Business Services)		Preferred Stock (1,451,380 shares)							4,900				1,507
			Common Stock (1,451,380 shares)							4				—
HMT, Inc.			Debt Securities (13.3%, Due 12/08)			10,000				9,349				9,349
	(Energy Services)		Preferred Stock (554,052 shares)							2,637				2,637
			Common Stock (300,000 shares)							3,000				4,260
			Warrants							1,155				1,640
Housecall Medical Resources, Inc.			Loan (16.8%, Due 11/07 – 11/09)			15,757				15,704				15,704
	(Healthcare Services)		Common Stock (864,000 shares)							86				34,032
Impact Innovations Group, LLC (Business Services)			Equity Interests in Affiliate							—				772
Insight Pharmaceuticals Corporation			Senior Loan (8.3%, Due 12/07)			66,470				66,146				66,146
	(Consumer Products)		Loan (15.0%, Due 12/09)			57,500				57,237				57,237
			Preferred Stock (25,000 shares)							25,000				25,500
			Common Stock (6,200 shares)							6,325				6,325
Jakel, Inc.			Loan (15.5%, Due 3/08)(6)			5,412				5,412				—
	(Industrial Products)		Debt Securities (15.5%, Due 3/08)(6)			8,330				8,330				—
			Preferred Stock (6,460 shares)							6,460				—
			Common Stock (158,061 shares)							9,347				—
Legacy Partners Group, LLC			Loan (14.0%, Due 5/09)(6)			7,147				7,147				6,047
	(Financial Services)		Debt Securities (18.0%, Due 5/09)(6)			2,952				2,952				—
			Equity Interests							2,729				—
(1) Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2) Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3) Public company.
(4) Non-U.S. company or principal place of business outside the U.S.
(5) Non-registered investment company.
(6) Loan or debt security is on non-accrual status and therefore is considered non-income producing.

6

---

 

					March 31, 2005
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Litterer Beteiligungs-GmbH(4)			Debt Securities (8.0%, Due 3/07)		$	677			$	677			$	677
	(Business Services)		Equity Interest							1,756				3,431
Maui Body Works, Inc.			Common Stock (100 shares)							2,500				—
	(Healthcare Services)
Mercury Air Centers, Inc.			Senior Loan (10.0%, Due 4/09)			23,500				23,500				23,500
	(Business Services)		Loan (16.0%, Due 4/09)			38,540				38,356				38,356
			Common Stock (57,068 shares)							33,723				33,723
			Standby Letters of Credit ($1,322)
MVL Group, Inc.			Loan (12.3%, Due 10/07 – 7/09)			15,030				14,618				14,618
	(Business Services)		Debt Securities (14.4%, Due 7/09)			18,153				17,661				17,661
			Common Stock (648,661 shares)							643				6,082
Norstan Apparel Shops, Inc.			Loan (16.0%, Due 12/07)(6)			500				500				—
	(Retail)		Debt Securities (17.8%, Due 12/07 – 9/08)(6)			13,588				12,960				—
			Common Stock (29,663 shares)							4,790				—
			Warrants							655				—
Pennsylvania Avenue Investors, L.P. (5)			Equity Interests							1,289				880
	(Private Equity Fund)
Powell Plant Farms, Inc.			Loan (15.0%, Due 12/05)			37,790				28,942				28,942
	(Consumer Products)		Debt Securities (20.0%, Due 6/03)(6)			19,291				19,224				11,571
			Preferred Stock (1,483 shares)							—				—
			Warrants							—				—
Redox Brands, Inc.			Preferred Stock (2,726,444 shares)							7,903				11,655
	(Consumer Products)		Warrants							584				481
			Guaranty ($125)
Staffing Partners Holding			Loan (13.5%, Due 10/06)(6)			974				974				974
	Company, Inc.		Debt Securities (13.5%, Due 10/06)(6)			5,906				5,906				5,906
	(Business Services)		Preferred Stock (439,600 shares)							4,968				187
			Common Stock (69,773 shares)							50				—
			Warrants							10				—
Startec Global Communications			Loan (10.0%, Due 5/07 – 5/09)			16,518				16,518				16,518
	Corporation		Common Stock (19,180,000 shares)							37,255				5,015
	(Telecommunications)
STS Operating, Inc.			Loan (15.3%, Due 3/12)			8,436				8,436				8,436
	(Industrial Products)		Common Stock (3,000,000 shares)							3,522				12,948
			Options							—				—
Total companies more than 25% owned									$	1,426,861			$	1,437,474
Companies 5% to 25% Owned
Air Evac Lifeteam			Debt Securities (12.9%, Due 7/10)		$	41,493			$	41,322			$	41,322
	(Healthcare Services)		Equity Interests							3,000				1,654

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

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

(3) Public company.

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

(5) Non-registered investment company.

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

7

---

 

					March 31, 2005
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Aspen Pet Products, Inc.			Loans (19.0%, Due 6/08)		$	19,165			$	19,073			$	19,073
	(Consumer Products)		Preferred Stock (2,763 shares)							2,154				917
			Common Stock (1,400 shares)							140				—
			Warrants							—				—
Becker Underwood, Inc.			Loan (14.5%, Due 8/12)			23,197				23,090				23,090
	(Industrial Products)		Common Stock (4,364 shares)							5,000				3,400
Border Foods, Inc.			Loan (13.0%, Due 12/10)			3,000				3,000				3,000
	(Consumer Products)		Debt Securities (13.0%, Due 12/10)			10,000				9,525				9,525
			Preferred Stock (50,919 shares)							2,000				982
			Common Stock (1,810 shares)							45				—
			Warrants							665				—
The Debt Exchange Inc.			Preferred Stock (921,875 shares)							1,250				1,839
	(Business Services)
MasterPlan, Inc.			Loan (12.0%, Due on demand)			959				959				1,204
	(Business Services)		Common Stock (1,350 shares)							42				3,300
MedBridge Healthcare, LLC			Loan (5.1%, Due 8/09 – 8/14)			11,447				11,447				11,447
	(Healthcare Services)		Convertible Debenture (2.0%, Due 8/14) (6)			3,000				1,015				—
MortgageRamp, Inc.			Common Stock (772,000 shares)							3,860				306
	(Business Services)
Nexcel Synthetics, LLC			Loan (14.5%, Due 6/09)			10,340				10,305				10,305
	(Consumer Products)		Equity Interests							1,690				559
Packaging Advantage Corporation			Debt Securities (18.5%, Due 4/08)			15,439				14,731				14,731
	(Business Services)		Common Stock (232,168 shares)							2,386				1,384
			Warrants							963				559
Pres Air Trol LLC			Debt Securities (12.0%, Due 4/10)			6,307				5,988				5,988
	(Industrial Products)		Equity Interests							1,323				371
Progressive International			Loan (16.0%, Due 12/09)			7,290				7,260				7,260
	Corporation		Preferred Stock (500 shares)							500				832
	(Consumer Products)		Common Stock (197 shares)							13				182
			Warrants							—				—
Soteria Imaging Services, LLC			Loan (12.5%, Due 11/10)			9,500				8,380				8,380
	(Healthcare Services)		Equity Interests							2,114				2,114
Universal Environmental Services,			Loan (13.5%, Due 2/09)			12,150				12,102				12,102
	LLC		Equity Interests							1,500				1,633
	(Business Services)
Total companies 5% to 25% owned									$	196,842			$	187,459
Companies Less Than 5% Owned
Anthony, Inc.			Loan (11.4%, Due 9/11 – 9/12)		$	14,561			$	14,494			$	14,494
	(Industrial Products)

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

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

(3) Public company.

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

(5) Non-registered investment company.

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

8

---

 

					March 31, 2005
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Apogen Technologies, Inc.			Debt Securities (13.0%, Due 1/10)		$	5,000			$	4,983			$	4,983
	(Business Services)		Preferred Stock (270,008 shares)							2,700				3,252
			Common Stock (1,256,452 shares)							50				2,295
			Warrants							—				462
Aviation Technologies, Inc.			Loan (17.0%, Due 5/11)			21,341				21,264				21,264
	(Industrial Products)
Benchmark Medical, Inc.			Debt Securities (14.0%, Due 12/08)			13,752				13,695				13,695
	(Healthcare Services)		Warrants							18				18
BI Incorporated			Loan (14.0%, due 2/12)			16,000				15,921				15,921
	(Business Services)
C&K Market, Inc.			Loan (13.0%, due 12/08)			14,444				14,372				14,372
	(Retail)
Callidus Debt Partners			Preferred Shares (23,600,000 shares)							24,392				24,392
	CLO Fund III, LTD (4)
	(Senior Debt CLO Fund)
Camden Partners Strategic Fund II, L.P.(5)			Limited Partnership Interest							2,142				2,871
	(Private Equity Fund)
Catterton Partners V, L.P.(5)			Limited Partnership Interest							2,340				2,109
	(Private Equity Fund)
CBS Personnel Holdings, Inc.			Loan (15.5%, Due 12/09)			20,181				20,090				20,090
	(Business Services)
Colibri Holding Corporation			Debt Securities (12.5%, Due 9/08)			3,750				3,513				3,513
	(Consumer Products)		Preferred Stock (459 shares)							523				826
			Common Stock (3,362 shares)							1,250				584
			Warrants							290				136
Community Education Centers, Inc.			Loan (15.0%, Due 12/10)			23,813				23,718				23,718
	(Education Services)
Component Hardware Group, Inc.			Preferred Stock (18,000 shares)							2,605				2,709
	(Industrial Products)		Common Stock (2,000 shares)							200				600
Cooper Natural Resources, Inc.			Debt Securities (0%, Due 11/07)			1,335				1,335				1,300
	(Industrial Products)		Preferred Stock (6,316 shares)							1,424				—
			Warrants							830				—
Coverall North America, Inc.			Loan (14.6%, Due 2/11)			26,899				26,844				26,844
	(Business Services)		Preferred Stock (6,500 shares)							6,500				6,561
			Warrants							2,950				2,950

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

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

(3) Public company.

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

(5) Non-registered investment company.

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

9

---

 

					March 31, 2005
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
CTT Holdings			Loan (0%, Due 3/10)(6)		$	1,125			$	1,125			$	563
	(Consumer Products)
DCS Business Services, Inc.			Common Stock (478,816 shares)							734				2,000
	(Business Services)
Drilltec Patents & Technologies			Loan (10.0%, Due 8/06)(6)			10,994				10,918				—
	Company, Inc.		Debt Securities (15.5%, Due 8/06)(6)			1,500				1,500				—
	(Energy Services)
eCentury Capital Partners, L.P.(5)			Limited Partnership Interest							5,024				424
	(Private Equity Fund)
EDM Consulting, LLC			Loan (5.8%, Due 12/06)			100				100				100
	(Business Services)
Elexis Beta GmbH(4)			Options							426				50
	(Industrial Products)
E-Talk Corporation			Preferred Stock (133 shares)							10,009				1,468
	(Business Services)		Common Stock (8,656 shares)							—				500
Frozen Specialties, Inc.			Warrants							435				435
	(Consumer Products)
Garden Ridge Corporation (Retail)			Debt Securities (12.9%, Due 12/05 – 12/07)(6)			27,271				27,271				12,722
			Preferred Stock (1,130 shares)							1,130				—
			Common Stock (847,800 shares)							613				—
Geotrace Technologies, Inc.			Debt Securities (12.0%, Due 6/09)			18,400				16,380				16,380
(Energy Services)			Warrants							2,350				2,350
Ginsey Industries, Inc.			Loans (12.5%, Due 3/06)			4,307				4,307				4,307
	(Consumer Products)		Convertible Debentures (12.5%, Due 3/06)			500				500				697
			Warrants							—				2,103
Grant Broadcasting Systems II			Loan (5.0%, Due 6/09)			2,756				2,756				2,756
	(Broadcasting & Cable)
Grotech Partners, VI, L.P.(5)			Limited Partnership Interest							6,329				4,115
	(Private Equity Fund)
Haven Eldercare of New England, LLC (8)			Loans (9.3%, Due 10/05)			46,671				46,669				46,669
	(Healthcare Services)
Haven Healthcare Management, LLC(8)			Loan (18.0% Due 8/06)			6,000				6,000				6,000
	(Healthcare Services)
The Hillman Companies, Inc.(3)			Loan (13.5%, Due 9/11)			43,265				43,057				43,057
	(Consumer Products)

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

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

(3) Public company.

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

(5) Non-registered investment company.

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

(8) Haven Eldercare of New England, LLC and Haven Healthcare Management, LLC are affiliated companies.

10

---

 

					March 31, 2005
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Homax Holdings, Inc.			Debt (12.0%, Due 8/11)		$	14,000			$	12,958			$	12,958
	(Consumer Products)		Preferred Stock (89 shares)							89				85
			Common Stock (28 shares)							6				6
			Warrants							1,106				1,377
Icon International, Inc.			Common Stock (25,707 shares)							76				—
	(Business Services)
Interline Brands, Inc.(3)			Common Stock (152,371 shares)							2,294				2,850
	(Business Services)
International Fiber Corporation			Debt Securities (14.0%, Due 6/12)			21,222				21,127				21,127
	(Industrial Products)		Preferred Stock (25,000 shares)							2,500				2,500
MedAssets, Inc.			Preferred Stock (227,865 shares)							2,049				2,765
	(Business Services)		Warrants							136				45
Mid-Atlantic Venture Fund IV, L.P. (5)			Limited Partnership Interest							6,600				3,012
	(Private Equity Fund)
Mogas Energy, LLC (Energy Services)			Debt Securities (9.5%, Due 3/12 – 4/12)			17,476				15,988				15,988
			Warrants							1,774				2,800
Nobel Learning Communities,			Preferred Stock (1,214,356 shares)							2,764				2,764
	Inc.(3)		Warrants							575				861
	(Education)
Norwesco, Inc.			Loan (14.0%, Due 12/11)			15,000				14,928				14,928
	(Industrial Products)
Novak Biddle Venture Partners III, L.P.(5)			Limited Partnership Interest							1,189				1,299
	(Private Equity Fund)
Oahu Waste Services, Inc.			Stock Appreciation Rights							239				400
	(Business Services)
Onyx Television GmbH (4)			Preferred Units							201				—
	(Broadcasting & Cable)
Opinion Research Corporation(3)			Warrants							996				600
	(Business Services)
Oriental Trading Company, Inc.			Common Stock (13,820 shares)							—				5,900
	(Consumer Products)
Pro Mach, Inc.			Loan (13.8%, Due 6/12)			19,000				18,909				18,909
	(Industrial Products)		Equity Interests							1,500				1,500
RadioVisa Corporation			Loan (15.5%, Due 12/08)			26,189				26,080				26,080
	(Broadcasting & Cable)
Resun Leasing, Inc.			Loan (15.5%, Due 11/07)			30,000				30,000				30,000
	(Business Services)
S.B. Restaurant Company			Debt Securities (15.0%, Due 11/08)			17,796				17,271				17,271
	(Retail)		Preferred Stock (54,125 shares)							135				135
			Warrants							619				525

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

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

(3) Public company.

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

(5) Non-registered investment company.

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

11

---

 

					March 31, 2005
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
SBBUT, LLC			Equity Interests						$	85			$	85
	(Consumer Products)
Soff-Cut Holdings, Inc.			Preferred Stock (300 shares)							300				—
	(Industrial Products)		Common Stock (2,000 shares)							200				—
SPP Mezzanine Fund, L.P.(5)			Limited Partnership Interest							1,663				1,553
	(Private Equity Fund)
SunStates Refrigerated Services,			Loan (8.3%, Due 1/05)(6)		$	30				30				25
	Inc.
	(Warehouse Facilities)
Tradesmen International, Inc.			Debt Securities (12.0%, Due 12/09)			15,000				14,226				14,226
	(Business Services)		Warrants							710				710
United Site Services, Inc.			Loan (12.7%, Due 6/10 – 12/10)			53,918				53,649				53,649
	(Business Services)		Common Stock (160,588 shares)							1,000				1,000
Universal Tax Systems, Inc.			Loan (14.5%, Due 7/11)			18,711				18,628				18,628
	(Business Services)
Updata Venture Partners II, L.P.(5)			Limited Partnership Interest							4,375				4,233
	(Private Equity Fund)
Venturehouse-Cibernet Investors, LLC			Equity Interest							34				34
	(Business Services)
Venturehouse Group, LLC(5)			Equity Interest							598				403
	(Private Equity Fund)
VICORP Restaurants, Inc.(3)			Warrants							33				742
	(Retail)
Walker Investment Fund II, LLLP(5)			Limited Partnership Interest							1,330				728
	(Private Equity Fund)
Wear Me Apparel Corporation			Debt Securities (17.0%, Due 12/10)			45,000				44,056				44,056
	(Consumer Products)		Warrants							1,219				700
Weston Solutions, Inc.			Loan (17.3%, Due 6/10)			7,350				7,323				7,323
	(Business Services)
Wilshire Restaurant Group, Inc.			Debt Securities (20.0%, Due 6/07)(6)			19,107				18,566				18,884
	(Retail)		Warrants							735				735
Wilton Industries, Inc.			Loan (19.3%, Due 6/08)			7,200				7,200				7,200
	(Consumer Products)
Woodstream Corporation			Loan (12.6%, Due 8/12 – 2/13)			30,970				30,919				30,919
	(Consumer Products)		Common Stock (180 shares)							673				3,500
Other companies			Other investments			862				870				864
			Guaranty ($226)
Total companies less than 5% owned									$	786,607			$	753,537
Total private finance (116 portfolio companies)									$	2,410,310			$	2,378,470

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

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

(3) Public company.

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

(5) Non-registered investment company.

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

12

---

 

								March 31, 2005
				Stated
				Interest				Face (un				audited)				Value
Commercial Real Estate Finance
(in thousands, except number of issuances)
Commercial Mortgage-Backed Securities
	Mortgage Capital Funding, Series 1998-MC3				5.5	%		$	51,105			$	35,925			$	31,436
	Morgan Stanley Capital I, Series 1999-RM1				6.4	%			27,936				9,138				9,138
	COMM 1999-1				5.7	%			50,032				28,525				27,677
	Morgan Stanley Capital I, Series 1999-FNV1				6.1	%			20,168				10,060				7,575
	DLJ Commercial Mortgage Trust 1999-CG2				6.1	%			39,165				13,333				14,176
	Commercial Mortgage Acceptance Corp., Series 1999-C1				6.8	%			18,173				4,582				4,844
	LB Commercial Mortgage Trust, Series 1999-C2				6.7	%			11,151				1,520				1,733
	Chase Commercial Mortgage Securities Corp., Series 1999-2				6.5	%			20,576				5,027				9,254
	FUNB CMT, Series 1999-C4				6.5	%			18,587				7,688				6,876
	Heller Financial, HFCMC Series 2000 PH-1				6.6	%			23,536				8,440				8,500
	SBMS VII, Inc., Series 2000-NL1				7.2	%			7,924				4,323				3,464
	DLJ Commercial Mortgage Trust, Series 2000-CF1				7.0	%			24,793				11,370				8,953
	Deutsche Bank Alex. Brown, Series Comm 2000-C1				6.9	%			12,290				3,286				2,441
	LB-UBS Commercial Mortgage Trust, Series 2000-C4				6.9	%			13,841				2,575				1,092
	Credit Suisse First Boston Mortgage Securities Corp., Series 2001-CK1				5.9	%			16,861				4,123				5,074
	JP Morgan-CIBC-Deutsche 2001				5.8	%			20,528				6,872				3,384
	Lehman Brothers-UBS Warburg 2001-C2				6.4	%			22,203				6,426				8,977
	SBMS VII, Inc., Series 2001-C1				6.1	%			10,637				2,148				1,576
	GE Capital Commercial Mortgage Securities Corp., Series 2001-2				6.1	%			18,446				6,867				6,867
	Credit Suisse First Boston Mortgage Securities Corp., Series 2001-CKN5				5.2	%			16,881				5,098				3,486
	JP Morgan Chase Commercial Mortgage Securities Corp., Series 2001-C1				5.6	%			21,141				5,791				5,791
	SBMS VII, Inc., Series 2001-C2				6.2	%			21,735				5,703				5,703
	FUNB CMT, Series 2002-C1				6.0	%			17,181				7,305				6,517
	GE Capital Commercial Mortgage Corp., Series 2002-1				6.2	%			25,965				7,127				8,393
	GMAC Commercial Mortgage Securities, Inc., Series 2002-C2				5.8	%			23,053				7,614				7,614
	GE Capital Commercial Mortgage Corp., Series 2002-3				5.1	%			27,796				6,298				6,298
	Morgan Stanley Dean Witter Capital I Trust 2002-IQ3				6.0	%			12,508				1,775				1,775
	LB-UBS Commercial Mortgage Trust 2003-C1				4.6	%			23,999				3,944				3,944
	GS Mortgage Securities Corporation II Series 2003-C1				4.7	%			20,147				5,592				5,592
	Credit Suisse First Boston Mortgage Securities Corp., Series 2003-CK2				4.9	%			32,170				12,502				12,862
	COMM 2003-LNB1				4.4	%			20,094				3,216				3,216
	Wachovia Bank Commercial Mortgage Trust, Series 2003-C5				4.3	%			34,527				8,098				8,098
	GMAC Commercial Mortgage Securities, Inc., Series 2003-C2				5.5	%			30,654				6,670				6,670
	Wachovia Bank Commercial Mortgage Trust, Series 2003-C9				5.3	%			28,737				8,981				8,981
	GE Commercial Mortgage Corporation, Series 2004-C1				5.0	%			27,083				7,168				7,168
	LB-UBS Commercial Mortgage Trust 2004-C1				4.9	%			21,365				5,832				5,832
	MezzCapp Commercial Mortgage Trust, Series 2004-C1				10.0	%			1,990				813				813
	COMM 2004-LNB3				5.3	%			26,708				9,670				9,670
	GMAC Commercial Mortgage Securities, Inc. Series 2004-C1				5.3	%			23,035				10,608				10,507
	GS Mortgage Securities Corporation II, Series 2004-C1				4.6	%			20,076				8,294				8,294
	J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2004-LN2				5.3	%			29,590				9,345				9,345
	Wachovia Bank Commercial Mortgage Trust, Series 2004-C14				5.3	%			21,947				5,299				5,299
	COMM 2004-LNB4				4.7	%			43,033				20,963				21,168
	Credit Suisse First Boston Mortgage Security Corp., Series 2004-C5				4.7	%			12,125				9,491				9,411
	ACGS, 2004-1				5.4	%			9,292				9,224				9,086
	ACGS, 2004-1, LLC Interests								21,700				17,188				17,188
	GE Capital Commercial Mortgage Corp., Series 2005-C1				4.7	%			11,279				8,758				8,789
	LB-UBS Commercial Mortgage Trust, Series 2005-C1				4.7	%			50,737				28,368				28,243
	Wachovia Bank Commercial Mortgage Trust, Series 2005-C17				5.1	%			98,520				56,564				57,270
		Total commercial mortgage-backed securities (48 issuances)						$	1,203,020			$	475,527			$	466,060

13

---

 

				March 31, 2005
				(unaudited)
				Cost				Value
Commercial Real Estate Finance
(in thousands, except number of loans)
Collateralized Debt Obligations
	Crest 2001-1, Ltd.(4)			$	21,853			$	23,190
	Crest 2002-1, Ltd.(4)				24,807				28,076
	Crest 2002-IG, Ltd.(4)				3,997				4,949
	Crest Clarendon Street 2002-1, Ltd.(4)				914				1,053
	Crest 2003-1, Ltd.(4)				94,731				101,171
	Crest 2003-2, Ltd.(4)				26,560				27,894
	TIAA Real Estate CDO 2003-1, Ltd.(4)				937				1,050
	Crest Exeter Street Solar 2004-1, Ltd.(4)				1,636				1,770
	Fairfield Street Solar 2004-1, Ltd.(4)				5,957				5,964
	Crest 2004-1, Ltd.(4)				32,096				32,035
		Total collateralized debt obligations (10 issuances)		$	213,488			$	227,152

				Interest				Number of
				Rate Ranges				Loans
Commercial Mortgage Loans
					Up to 6.99%				10			$	27,555			$	25,663
					7.00%–8.99%				16				31,035				30,590
					9.00%–10.99%				4				19,093				18,784
					11.00%–12.99%				3				8,497				8,054
					13.00%–14.99%				2				2,617				2,617
				15.00% and above					2				3,970				3,970
		Total commercial mortgage loans(9)							37			$	92,767			$	89,678
Real Estate Owned												$	15,369			$	18,443
Equity Interests(2)
Companies more than 25% owned (Guarantees — $2,681)												$	12,462			$	12,655
	Companies less than 5% owned												—				2,548
		Total equity interests										$	12,462			$	15,203
		Total commercial real estate finance										$	809,613			$	816,536
Total portfolio												$	3,219,923			$	3,195,006

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

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

(3) Public company.

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

(5) Non-registered investment company.

(9) Commercial mortgage loans totaling $22.9 million were on non-accrual status and therefore were considered non-income producing.

14

---

 

15

---

 

	Valuation Of Portfolio Investments

	Loans and Debt Securities

16

---

 

	Equity Securities

17

---

 

	Commercial Mortgage-Backed Securities (“CMBS”) and Collateralized Debt Obligations (“CDO”)

	Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

	Fee Income

	Guarantees

18

---

 

	Financing Costs

	Cash and Cash Equivalents

	Dividends to Shareholders

	Stock Compensation Plans

19

---

 

			For the Three
			Months Ended
			March 31,
			2005				2004
(in thousands, except per share amounts)
Net increase in net assets resulting from operations as reported			$	119,621			$	20,308
Less total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects				(2,856	)			(3,052	)
Pro forma net increase in net assets resulting from operations				116,765				17,256
Less preferred stock dividends				—				(45	)
Pro forma net income available to common shareholders			$	116,765			$	17,211
Basic earnings per common share:
	As reported		$	0.90			$	0.16
	Pro forma		$	0.88			$	0.13
Diluted earnings per common share:
	As reported		$	0.88			$	0.15
	Pro forma		$	0.86			$	0.13

		For the Three
		Months Ended
		March 31,
		2005(1)				2004
Risk-free interest rate			—	%			2.7	%
Expected life			—				5.0
Expected volatility			—	%			37.0	%
Dividend yield			—	%			8.7	%
Weighted average fair value per option		$	—			$	4.25

(1)	The Company did not grant any options during the three months ended March 31, 2005.

	Federal and State Income Taxes

20

---

 

	Per Share Information

	Use of Estimates in the Preparation of Financial Statements

	Recent Accounting Pronouncements

21

---

 

	Private Finance

			2005												2004
			Cost				Value				Yield(1)				Cost				Value				Yield(1)
($ in thousands)
Loans and debt securities (2)			$	1,653,393			$	1,556,359				13.8	%		$	1,679,855			$	1,602,869				13.9	%
Equity interests				756,917				822,111								705,065				699,217
	Total		$	2,410,310			$	2,378,470							$	2,384,920			$	2,302,086

(1)	The weighted average yield on loans and debt securities is computed as the (a) annual stated interest plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debt securities less the annual amortization of loan origination costs, divided by (b) total loans and debt securities at value. At March 31, 2005, and December 31, 2004, the cost and value of loans and debt securities include the Class A equity interests in BLX and the guaranteed dividend yield on these equity interests is included in interest income. The weighted average yield is computed as of the balance sheet date.
(2)	The principal balance outstanding on loans and debt securities was $1.7 billion and $1.7 billion at March 31, 2005, and December 31, 2004, respectively. The difference between principal and cost is represented by unamortized loan origination fees and costs, original issue discounts, and market discounts totaling $27.2 million and $29.8 million at March 31, 2005, and December 31, 2004, respectively.

22

---

 

23

---

 

	•	a partial repayment of $8.2 million of the Company’s investment in Avborne, Inc. (Avborne) as a result of the sale of Avborne’s assets during the first quarter of 2005;

24

---

 

	•	additional fundings of $41.8 million on Callidus Capital Corporation’s revolving line of credit related to its middle market underwriting and syndication facility. Callidus repaid borrowings under this facility totaling $27.9 million during the quarter, for net additional borrowings under the facility during the quarter of $13.9 million;

	•	the contribution of existing debt securities of GAC Investments, Inc. with a cost basis of $11.0 million to capital, resulting in an increase in the Company’s common stock cost basis;
	•	an additional loan of $2.0 million to Gordian Group, Inc.;
	•	an additional $9.5 million debt and equity investment in Mercury Air Centers, Inc. to finance its acquisition of Corporate Wings;
	•	additional fundings of $5.8 million on Powell Plant Farms, Inc.’s revolving credit facility for working capital;
	•	the repayment of the Company’s debt investment of $14.0 million in Redox Brands, Inc.; and
	•	an additional debt investment of $8.4 million in STS Operating, Inc. (STS) to support the recapitalization of STS. In connection, with the recapitalization, STS redeemed the Company’s preferred stock investment.

25

---

 

				2005				2004
($ in thousands)
Loans and debt securities in workout status (classified as Grade 4 or 5)
	Companies more than 25% owned			$	26,200			$	34,374
	Companies less than 5% owned				13,309				16,550
Loans and debt securities not in workout status
	Companies more than 25% owned				12,927				29,368
	Companies 5% to 25% owned				—				678
	Companies less than 5% owned				18,885				15,864
		Total		$	71,321			$	96,834

			2005				2004
Industry
Business services				34	%			32	%
Financial services				22				21
Consumer products				18				20
Healthcare services				8				8
Industrial products				7				8
Retail				3				2
Energy services				2				2
Broadcasting and cable				1				2
Other				5				5
	Total			100	%			100	%
Geographic Region(1)
Mid-Atlantic				38	%			40	%
West				32				30
Midwest				15				16
Southeast				10				10
Northeast				5				4
	Total			100	%			100	%

(1)	The geographic region for the private finance portfolio depicts the location of the headquarters for the Company’s portfolio companies. The portfolio companies may have a number of other locations.

26

---

 

	Commercial Real Estate Finance

			2005												2004
			Cost				Value				Yield(1)				Cost				Value				Yield(1)
($ in thousands)
CMBS bonds			$	475,527			$	466,060				13.0%			$	383,310			$	373,805				14.6%
CDO bonds and preferred shares				213,488				227,152				15.8%				212,590				212,573				16.8%
Commercial mortgage loans				92,767				89,678				6.4%				99,373				95,056				6.8%
Real estate owned				15,369				18,443								16,170				16,871
Equity interests				12,462				15,203								11,169				13,020
	Total		$	809,613			$	816,536							$	722,612			$	711,325

(1)

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

27

---

 

			2005				2004
Property Type
Hospitality				50	%			49	%
Retail				20				21
Office				17				17
Housing				6				5
Other				7				8
	Total			100	%			100	%
Geographic Region
Mid-Atlantic				29	%			20	%
Midwest				27				30
Southeast				22				26
West				15				16
Northeast				7				8
	Total			100	%			100	%

				2005												2004
												Annual												Annual
				Facility				Amount				Interest				Facility				Amount				Interest
				Amount				Drawn				Cost(1)				Amount				Drawn				Cost(1)
($ in thousands)
Notes payable and debentures:
	Unsecured notes payable			$	980,935			$	980,935				6.5	%		$	981,368			$	981,368				6.5	%
	SBA debentures				53,800				46,500				7.8	%			84,800				77,500				8.2	%
	OPIC loan				5,700				5,700				6.6	%			5,700				5,700				6.6	%
		Total notes payable and debentures			1,040,435				1,033,135				6.6	%			1,071,868				1,064,568				6.6	%
Revolving line of credit					587,500				263,250				5.7	%(2)			552,500				112,000				6.3	%(2)
	Total debt			$	1,627,935			$	1,296,385				6.4	%(2)		$	1,624,368			$	1,176,568				6.6	%(2)

(1)	The weighted average annual interest cost is computed as the (a) annual stated interest on the debt plus the annual amortization of commitment fees and other facility fees that are recognized into interest expense over the contractual life of the respective borrowings, divided by (b) debt outstanding on the balance sheet date.
(2)	The stated interest rate payable on the revolving line of credit was 4.4% and 4.7% at March 31, 2005, and December 31, 2004, respectively, which excluded the annual cost of commitment fees and other facility fees of $3.3 million and $1.8 million, respectively. The annual cost of commitment fees and other facility fees of $3.3 million at March 31, 2005, includes the extension fee of $1.8 million that the Company paid on April 18, 2005, as discussed below. The annual interest cost for total debt includes the annual cost of commitment fees and other facility fees on the revolving line of credit regardless of the amount drawn on the facility as of the balance sheet date.

28

---

 

Year			Amount Maturing
			($ in thousands)
2005			$	165,000
2006				180,700
2007				—
2008				153,000
2009				268,435
Thereafter				266,000
	Total		$	1,033,135

	Revolving Line of Credit

29

---

 

	Covenant Compliance

30

---

 

			Total				2005				2006				2007				2008				2009				After 2009
(in millions)
Guarantees			$	109.5			$	0.3			$	0.9			$	104.6			$	0.1			$	2.5			$	1.1
Standby letters of credit(1)				37.1				—				37.1				—				—				—				—
	Total		$	146.6			$	0.3			$	38.0			$	104.6			$	0.1			$	2.5			$	1.1

(1)

Standby letters of credit are issued under the Company’s revolving line of credit that was set to expire in April 2005 and has been extended under substantially similar terms for one additional year at the Company’s option, for an assumed maturity of April 2006. Therefore, unless a standby letter of credit is set to expire at an earlier date, it is assumed that the standby letters of credit will expire contemporaneously with the expiration of the Company’s line of credit in April 2006.

		For the Three
		Months
		Ended March 31,
		2005				2004
(in thousands, except per share amounts)
Shares issued			55				50
Average price per share		$	25.65			$	29.65

31

---

 

		For the Three Months
		Ended March 31,
		2005				2004
(in thousands, except per share amounts)
Net increase in net assets resulting from operations		$	119,621			$	20,308
Less preferred stock dividends			—				(45	)
Income available to common shareholders		$	119,621			$	20,263
Weighted average common shares outstanding — basic			133,283				128,314
Dilutive options outstanding to officers			2,296				3,654
Weighted average common shares outstanding — diluted			135,579				131,968
Basic earnings per common share		$	0.90			$	0.16
Diluted earnings per common share		$	0.88			$	0.15

32

---

 

33

---

 

34

---

 

($ in thousands)
Description of Issue			2005				2004
5-year Treasury securities, due December 2009			$	—			$	533
10-year Treasury securities, due February 2013				3,776				3,908
10-year Treasury securities, due February 2014				4,550				4,709
10-year Treasury securities, due August 2014				14,235				14,743
10-year Treasury securities, due November 2014				42,120				14,333
10-year Treasury securities, due February 2015				34,060				—
	Total		$	98,741			$	38,226

35

---

 

			At and for the
			Three Months Ended								At and for the
			March 31,								Year Ended
											December 31,
			2005(1)				2004				2004
Per Common Share Data(2)
Net asset value, beginning of period			$	14.87			$	14.94			$	14.94
	Net investment income			0.29				0.34				1.52
	Net realized gains(3)			0.07				1.12				0.88
	Net investment income plus net realized gains			0.36				1.46				2.40
	Net change in unrealized appreciation or depreciation (3)			0.52				(1.31	)			(0.52	)
Net increase in net assets resulting from operations				0.88				0.15				1.88
Net decrease in net assets from shareholder distributions				(0.57	)			(0.57	)			(2.30	)
Net increase in net assets from capital share transactions				0.04				0.08				0.35
Net asset value, end of period			$	15.22			$	14.60			$	14.87
Market value, end of period			$	26.10			$	30.29			$	25.84
Total return(4)				3	%			11	%			1	%

36

---

 

		At and for the
		Three Months Ended								At and for the
		March 31,								Year Ended
										December 31,
		2005(1)				2004				2004
Ratios and Supplemental Data ($ and shares in thousands, except per share amounts)
Ending net assets		$	2,033,148			$	1,879,970			$	1,979,778
Common shares outstanding at end of period			133,563				128,761				133,099
Diluted weighted average common shares outstanding			135,579				131,968				132,458
Employee and administrative expenses/average net assets			1.80	%			0.96	%			4.65	%
Total expenses/average net assets			2.81	%			1.97	%			8.58	%
Net investment income/average net assets			1.93	%			2.35	%			10.45	%
Net increase in net assets resulting from operations/ average net assets			5.96	%			1.07	%			12.97	%
Portfolio turnover rate			5.10	%			6.83	%			32.97	%
Average debt outstanding		$	1,125,007			$	952,986			$	985,616
Average debt per share(2)		$	8.30			$	7.22			$	7.44

(1)	The results for the three months ended March 31, 2005, are not necessarily indicative of the operating results to be expected for the full year.
(2)	Based on diluted weighted average number of common shares outstanding for the period.
(3)	Net realized gains and net change in unrealized appreciation or depreciation can fluctuate significantly from period to period. As a result, quarterly comparisons may not be meaningful.
(4)	Total return assumes the reinvestment of all dividends paid for the periods presented.

37

---

 

38

---

 

39

---

 

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

	•	changes in the economy;
	•	risks associated with possible disruption in our operations due to terrorism;
	•	future changes in laws or regulations and conditions in our operating areas; and
	•	other risks and uncertainties as may be detailed from time to time in our public announcements and SEC filings.

40

---

 

		2005				2004
Private finance			74	%			76	%
Commercial real estate finance			26	%			24	%

		At and for the
		Three Months Ended								At and for the
		March 31,								Year Ended
										December 31,
		2005				2004				2004
($ in millions)
		(unaudited)
Portfolio at value		$	3,195.0			$	2,399.6			$	3,013.4
Investments funded		$	265.6			$	217.8			$	1,524.5
Change in accrued or reinvested interest and dividends		$	10.5			$	13.1			$	52.2
Principal collections related to investment repayments or sales		$	158.3			$	237.1			$	909.2
Yield on interest-bearing investments(1)			13.6	%			14.3	%			14.0	%

(1)

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

41

---

 

			At and for the
			Three Months Ended								At and for the
			March 31,								Year Ended
											December 31,
			2005				2004				2004
($ in millions)
			(unaudited)
Portfolio at value:
	Loans and debt securities		$	1,556.4			$	1,182.6			$	1,602.9
	Equity interests			822.1				503.0				699.2
Total portfolio			$	2,378.5			$	1,685.6			$	2,302.1
Investments funded(1)			$	168.2			$	157.7			$	1,140.8
Change in accrued or reinvested interest and dividends			$	7.9			$	11.1			$	45.6
Principal collections related to investment repayments or sales			$	151.2			$	204.8			$	551.9
Yield on interest-bearing investments(2)				13.8	%			14.4	%			13.9	%

(1)	Investments funded for the three months ended March 31, 2004, include a $47.5 million subordinated debt investment in The Hillman Companies, Inc. received in conjunction with the sale of Hillman as discussed below.
(2)	The weighted average yield on loans and debt securities is computed as the (a) annual stated interest plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debt securities less the annual amortization of loan origination costs, divided by (b) total loans and debt securities at value. The weighted average yield is computed as of the balance sheet date.

				Loans and
				Debt				Equity
				Securities				Interests				Total
($ in millions)
For the Three Months Ended March 31, 2005
	Companies more than 25% owned			$	65.8			$	6.3			$	72.1
	Companies 5% to 25% owned				—				—				—
	Companies less than 5% owned				87.9				8.2				96.1
		Total		$	153.7			$	14.5			$	168.2
For the Three Months Ended March 31, 2004
	Companies more than 25% owned			$	16.1			$	1.4			$	17.5
	Companies 5% to 25% owned				10.8				15.4				26.2
	Companies less than 5% owned				108.9				5.1				114.0
		Total		$	135.8			$	21.9			$	157.7

42

---

 

				Loans and
				Debt				Equity
				Securities				Interests				Total
($ in millions)
For the Year Ended December 31, 2004
	Companies more than 25% owned			$	445.4			$	171.2			$	616.6
	Companies 5% to 25% owned				112.0				14.4				126.4
	Companies less than 5% owned				351.5				46.3				397.8
		Total		$	908.9			$	231.9			$	1,140.8

	•	We have various commitments to Callidus Capital Corporation (Callidus), an asset management company that structures and manages collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), and other related investments. We own 80% of the equity of the management company. Our commitment to Callidus consists of the following:

											Amount
			Committed				Amount				Available
			Amount				Drawn				to be Drawn
($ in millions)
Subordinated debt to support warehouse facilities & warehousing activities(1)			$	50.0	(2)		$	—			$	50.0
Revolving line of credit for working capital				2.0				1.3				0.7
Revolving line of credit facility to support underwriting and syndication activities				150.0				54.9				95.1
	Total		$	202.0			$	56.2			$	145.8

	(1)	Callidus has a secured warehouse credit facility with a third party for up to $300 million, primarily to finance the acquisition of loans pending securitization through a CDO or CLO. In conjunction with this warehouse credit facility, we have agreed to designate up to $45 million of our $50 million subordinated debt commitment for Callidus to draw upon to provide first loss capital as needed to support the warehouse facility.
	(2)	Subsequent to March 31, 2005, Callidus obtained an additional secured warehouse credit facility with a third party for up to $400 million to finance the acquisition of loans pending securitization through a CDO or CLO. In conjunction with this warehouse credit facility, we increased our $50 million subordinated debt commitment to $85 million to provide Callidus with first loss capital to support outstanding warehouse facilities. We have agreed to designate this $85 million subordinated debt commitment for Callidus to draw upon to provide first loss capital as needed to support its warehouse facilities.

43

---

 

	In addition, we had a commitment to Callidus to purchase preferred equity in future CDO or CLO transactions of $44.4 million at March 31, 2005. Subsequent to March 31, 2005, we increased our commitment to purchase preferred equity securities in Callidus’ future CDO or CLO transactions to $76.8 million.

	•	$20.0 million in the form of a revolving credit facility to Business Loan Express, LLC (BLX) to provide working capital to the company. At March 31, 2005, BLX had no outstanding borrowings on the facility.
	•	$15.0 million in the form of debt of financing commitments to S.B. Restaurant Company.
	•	$17.1 million in the form of equity to eight private venture capital funds.
	•	$8.8 million in the form of equity to Pennsylvania Avenue Investors, L.P., a limited partnership controlled by us that invests in private buyout equity funds.

44

---

 

45

---

 

46

---

 

			At and for the
			Three Months Ended March 31,																At and for
																			the Year Ended
																			December 31,
			2005								2004								2004
			(unaudited)
			Value				Yield(1)				Value				Yield(1)				Value				Yield(1)
($ in millions)
Portfolio at value:
	CMBS bonds		$	466.1				13.0%			$	448.9				13.7%			$	373.8				14.6%
	CDO bonds and preferred shares			227.1				15.8%				171.4				17.6%				212.6				16.8%
	Commercial mortgage loans			89.7				6.4%				74.8				7.8%				95.0				6.8%
	Real estate owned			18.4								14.3								16.9
	Equity interests			15.2								4.6								13.0
Total portfolio			$	816.5							$	714.0							$	711.3
Investments funded			$	97.4							$	60.1							$	383.7
Change in accrued or reinvested interest			$	2.6							$	2.0							$	6.6
Principal collections related to investment repayments or sales			$	7.1							$	32.3							$	357.3

(1)

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

			Face								Amount
			Amount				Discount				Funded
($ in millions)
For the Three Months Ended March 31, 2005
CMBS bonds (3 new issuances)			$	160.6			$	(67.4	)		$	93.2
Commercial mortgage loans				4.1				(0.7	)			3.4
Equity interests				0.8				—				0.8
	Total		$	165.5			$	(68.1	)		$	97.4
For the Three Months Ended March 31, 2004
CMBS bonds (4 new issuances(1))			$	114.3			$	(54.9	)		$	59.4
Commercial mortgage loans				0.6				—				0.6
Equity interests				0.1				—				0.1
	Total		$	115.0			$	(54.9	)		$	60.1

47

---

 

			Face								Amount
			Amount				Discount				Funded
($ in millions)
For the Year Ended December 31, 2004
CMBS bonds (13 new issuances(1))			$	419.1			$	(183.7	)		$	235.4
CDO bonds and preferred shares (3 issuances)				40.5				(0.1	)			40.4
Commercial mortgage loans				112.1				(8.2	)			103.9
Equity interests				4.0				—				4.0
	Total		$	575.7			$	(192.0	)		$	383.7

(1)	CMBS investments also include investments in issuances in which we have previously purchased CMBS bonds.

48

---

 

		At March 31, 2005								At December 31, 2004
		Portfolio				Percentage of				Portfolio				Percentage of
Grade		at Value				Total Portfolio				at Value				Total Portfolio
($ in millions)
1		$	1,073.8				33.6	%		$	952.5				31.6	%
2			1,939.5				60.7				1,850.5				61.4
3			94.0				3.0				121.2				4.0
4			7.7				0.2				11.7				0.4
5			80.0				2.5				77.5				2.6
		$	3,195.0				100.0	%		$	3,013.4				100.0	%

				2005				2004
($ in millions)
Loans and debt securities in workout status (classified as Grade 4 or 5)(1)
	Private finance
		Companies more than 25% owned		$	26.2			$	34.4
		Companies less than 5% owned			13.3				16.5
	Commercial real estate finance				15.3				5.6
Loans and debt securities not in workout status
	Private finance
		Companies more than 25% owned			12.9				29.4
		Companies 5% to 25% owned			—				0.7
		Companies less than 5% owned			18.9				15.8
	Commercial real estate finance				7.7				12.5
		Total		$	94.3			$	114.9
		Percentage of total portfolio			3.0%				3.8%

(1)	Workout loans and debt securities exclude equity securities that are included in the total Grade 4 and 5 assets above.

49

---

 

				2005				2004
($ in millions)
Private finance				$	85.8			$	73.5
Commercial real estate finance
	CMBS bonds				55.3				49.0
	Commercial mortgage loans				13.7				10.1
		Total		$	154.8			$	132.6
		Percentage of total portfolio			4.8%				4.4%

				2005				2004
($ in millions)
Private finance				$	59.6			$	59.8
Commercial real estate finance
	CMBS and CDO bonds				21.3				18.9
	Commercial mortgage loans and other				1.0				0.8
		Total		$	81.9			$	79.5

50

---

 

51

---

 

52

---

 

				For the Three
				Months Ended
				March 31,
																Percentage
				2005				2004				Change				Change
($ in thousands, except per share amounts)
				(unaudited)
Interest and Related Portfolio Income
	Interest and dividends			$	84,945			$	73,539			$	11,406				16	%
	Loan prepayment premiums				1,677				950				727				77	%
	Fees and other income				8,297				7,276				1,021				14	%
		Total interest and related portfolio income			94,919				81,765				13,154				16	%
Expenses
	Interest				20,225				19,113				1,112				6	%
	Employee				15,456				12,355				3,101				25	%
	Administrative				20,754				5,827				14,927				256	%
		Total operating expenses			56,435				37,295				19,140				51	%
Net investment income before income taxes					38,484				44,470				(5,986	)			(13	)%
Income tax expense (benefit)					(268	)			(75	)			(193	)			**
Net investment income					38,752				44,545				(5,793	)			(13	)%
Net Realized and Unrealized Gains (Losses)
	Net realized gains (losses)				10,285				147,850				(137,565	)			*
	Net change in unrealized appreciation or depreciation				70,584				(172,087	)			242,671				*
		Total net gains			80,869				(24,237	)			105,106				*
Net income				$	119,621			$	20,308			$	99,313				489	%
Diluted earnings per common share				$	0.88			$	0.15			$	0.73				487	%
Weighted average common shares outstanding — diluted					135,579				131,968				3,611				3	%

*	Net realized gains (losses) and net change in unrealized appreciation or depreciation can fluctuate significantly from period to period. As a result, quarterly comparisons may not be meaningful.
**	Percentage change is not meaningful.

			2005				2004
($ in millions)
Interest			$	80.8			$	69.9
Dividends				4.1				3.6
	Total		$	84.9			$	73.5

53

---

 

		2005				2004
($ in millions)
Interest-bearing portfolio		$	2,357.7			$	1,892.0
Portfolio yield			13.6	%			14.3	%

			2005				2004
($ in millions)
Structuring and diligence			$	1.3			$	1.8
Transaction and other services provided to portfolio companies				1.2				0.8
Management services provided to portfolio companies, other advisory services and guaranty fees				4.8				4.4
Other income				1.0				0.3
	Total		$	8.3			$	7.3

54

---

 

		At and for the
		Three Months
		Ended
		March 31,
		2005				2004
($ in millions)
Total outstanding debt		$	1,296.4			$	962.4
Average outstanding debt		$	1,125.0			$	953.0
Weighted average cost(1)			6.4	%			7.5	%

(1)	The weighted average annual interest cost is computed as the (a) annual stated interest rate on the debt plus the annual amortization of commitment fees and other facility fees that are recognized into interest expense over the contractual life of the respective borrowings, divided by (b) debt outstanding on the balance sheet date.

55

---

 

56

---

 

		For the
		Three Months
		Ended
		March 31,
		2005				2004
($ in millions)
Realized gains		$	14.7			$	156.0
Realized losses			(4.4	)			(8.1	)
Net realized gains		$	10.3			$	147.9

			For the Three
			Months Ended
			March 31,
($ in millions)			2005				2004
Reversal of previously recorded unrealized appreciation associated with realized gains			$	(9.9	)		$	(142.8	)
Reversal of previously recorded unrealized depreciation associated with realized losses				4.8				7.7
	Total reversal		$	(5.1	)		$	(135.1	)

57

---

 

58

---

 

59

---

 

		2005(1)				2004(1)
($ in millions)
Net unrealized appreciation or depreciation		$	75.7			$	(37.0	)
Reversal of previously recorded unrealized appreciation associated with realized gains			(9.9	)			(142.8	)
Reversal of previously recorded unrealized depreciation associated with realized losses			4.8				7.7
Net change in unrealized appreciation or depreciation		$	70.6			$	(172.1	)

(1)	The net change in unrealized appreciation or depreciation can fluctuate significantly from period to period. As a result, quarterly comparisons may not be meaningful.

60

---

 

61

---

 

($ in millions)			2005				2004
Net cash provided by (used in) operating activities			$	(49.8	)		$	207.9
Add: portfolio investments funded				258.0				170.6
	Total cash provided by operating activities before new investments		$	208.2			$	378.5

62

---

 

($ in millions)		2005				2004
Total assets		$	3,504.6			$	3,261.0
Total debt outstanding		$	1,296.4			$	1,176.6
Total shareholders’ equity		$	2,033.1			$	1,979.8
Debt to equity ratio			0.64				0.59
Asset coverage ratio(1)			263	%			280	%

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

63

---

 

												Annual
				Facility				Amount				Interest
				Amount				Outstanding				Cost(1)
($ in millions)
Notes payable and debentures:
	Unsecured notes payable			$	980.9			$	980.9				6.5	%
	SBA debentures				53.8				46.5				7.8	%
	OPIC loan				5.7				5.7				6.6	%
		Total notes payable and debentures			1,040.4				1,033.1				6.6	%
Revolving line of credit					587.5				263.3				5.7	% (2)
		Total debt		$	1,627.9			$	1,296.4				6.4	%(2)

(1)	The weighted average annual interest cost is computed as the (a) annual stated interest on the debt plus the annual amortization of commitment fees and other facility fees that are recognized into interest expense over the contractual life of the respective borrowings, divided by (b) debt outstanding on the balance sheet date.
(2)	The current interest rate payable on the revolving line of credit was 4.4% at March 31, 2005, which excluded the annual cost of commitment fees and other facility fees of $3.3 million. The annual cost of commitment fees and other facility fees of $3.3 million at March 31, 2005, include the extension fee of $1.8 million that we paid on April 18, 2005, as discussed below. The annual interest cost for total debt includes the annual cost of commitment fees and other facility fees on the revolving line of credit regardless of the amount outstanding on the facility as of the balance sheet date.

64

---

 

								Payments Due By Year
																												After
				Total				2005				2006				2007				2008				2009				2009
($ in millions)
Notes payable and debentures:
	Unsecured long-term notes payable			$	980.9			$	165.0			$	175.0			$	—			$	153.0			$	268.4			$	219.5
	SBA debentures				46.5				—				—				—				—				—				46.5
	OPIC loan				5.7				—				5.7				—				—				—				—
Revolving line of credit(1)					263.3				—				263.3				—				—				—				—
Operating leases					33.5				4.6				4.5				4.4				4.4				4.6				11.0
		Total contractual obligations		$	1,329.9			$	169.6			$	448.5			$	4.4			$	157.4			$	273.0			$	277.0

(1)	As discussed above, we exercised our option to extend the maturity of the revolving line of credit to April 2006. At March 31, 2005, $287.2 million remained unused and available, net of amounts committed for standby letters of credit of $37.1 million issued under the credit facility.

							Amount of Commitment Expiration Per Year
																											After
			Total				2005				2006				2007				2008				2009				2009
($ in millions)
Guarantees			$	109.5			$	0.3			$	0.9			$	104.6			$	0.1			$	2.5			$	1.1
Standby letters of credit(1)				37.1				—				37.1				—				—				—				—
	Total commitments		$	146.6			$	0.3			$	38.0			$	104.6			$	0.1			$	2.5			$	1.1

(1)

Standby letters of credit are issued under our revolving line of credit. As discussed above, we exercised our option to extend the maturity of the revolving line of credit to April 2006. Therefore, unless a standby letter of credit is set to expire at an earlier date, we have assumed that the standby letters of credit will expire contemporaneously with the expiration of our line of credit in April 2006.

65

---

 

66

---

 

67

---

 

68

---

 

69

---

 

70

---

 

71

---

 

72

---

 

	•	price and volume fluctuations in the overall stock market from time to time;
	•	significant volatility in the market price and trading volume of securities of business development companies or other financial services companies;
	•	volatility resulting from trading in derivative securities related to our common stock including puts, calls, long-term equity anticipation securities, or LEAPs, or short trading positions;
	•	changes in regulatory policies or tax guidelines with respect to business development companies or regulated investment companies;
	•	actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts;
	•	general economic conditions and trends;
	•	loss of a major funding source; or
	•	departures of key personnel.

73

---

 

74

---

 

75

---

 

			Total Number
			of Shares				Average Price
			Purchased				Paid Per Share
DCP I(1)
	1/1/2005 to 1/31/2005			1			$	26.97
	2/1/2005 to 2/28/2005			—				—
	3/1/2005 to 3/31/2005			1,045			$	26.60
DCP II(2)
	1/1/2005 to 1/31/2005			375			$	26.43
	2/1/2005 to 2/28/2005			—				—
	3/1/2005 to 3/31/2005			69,398			$	26.63
Total				70,819			$	26.63

(1)	The DCP I is an unfunded plan, as defined by the Internal Revenue Code of 1986, that provides for the deferral of compensation by our directors, employees, and consultants. Our directors, employees, or consultants are eligible to participate in the plan at such time and for such period as designated by the Board of Directors. The DCP I is administered through a trust by an independent third-party trustee, and we fund this plan through cash contributions. Directors may choose to defer director’s fees through the DCP I, and may choose to invest such deferred income in shares of our common stock. To the extent a director elects to invest in our common stock, the trustee of the DCP I will be required to use such deferred director’s fees to purchase shares of our common stock in the market.
(2)	We have established a long-term incentive compensation program whereby we will generally determine an individual performance award for certain officers annually at the beginning of each year. In conjunction with the program, we instituted the DCP II, which is an unfunded plan (as defined by the Internal Revenue Code of 1986) that is administered through a trust by an independent third-party trustee. The individual performance awards will be deposited in the trust in four equal installments, generally on a quarterly basis in the form of cash and the DCP II requires the trustee to use the cash exclusively to purchase shares of our common stock in the market.

76

---

 

Exhibit
Number				Description
	3	.1		Restated Articles of Incorporation. (Incorporated by reference to Exhibit a.1 filed with Allied Capital’s Post-Effective Amendment No. 2 to registration statement on Form N-2 (File No. 333-67336) filed on March 22, 2002).
	3	.2		Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.1. filed with Allied Capital’s Form 8-K on December 15, 2004).
	4	.1		Specimen Certificate of Allied Capital’s Common Stock, par value $0.0001 per share. (Incorporated by reference to Exhibit d. filed with Allied Capital’s registration statement on Form N-2 (File No. 333-51899) filed on May 6, 1998).
	4	.2		Form of debenture between certain subsidiaries of Allied Capital and the U.S. Small Business Administration. (Incorporated by reference to Exhibit 4.2 filed by a predecessor entity to Allied Capital on Form 10-K for the year ended December 31, 1996).
	10	.1		Dividend Reinvestment Plan, as amended. (Incorporated by reference to Exhibit e. filed with Allied Capital’s registration statement on Form N-2 (File No. 333-87862) filed on May 8, 2002).
	10	.2		Third Amended and Restated Credit Agreement, dated April 18, 2003. (Incorporated by reference to Exhibit 10.2 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2003).
	10	.2(a)		First Amendment to Credit Agreement, dated as of October 6, 2003.(Incorporated by reference to Exhibit 10.2(a) filed with Allied Capital’s Form 10-Q for the period ended September 30, 2003).
	10	.2(b)		Second Amendment to Credit Agreement, dated as of December 17, 2003. (Incorporated by reference to Exhibit 10.2(b) filed with Allied Capital’s Form 10-K for the year ended December 31, 2003).
	10	.2(c)		Third Amendment to Credit Agreement, dated May 28, 2004. (Incorporated by reference to Exhibit 10.2(c) filed with Allied Capital’s Form 10-Q for the period ended June 30, 2004).
	10	.2(d)		Fourth Amendment to Credit Agreement, dated March 29, 2005. (Incorporated by reference to Exhibit f.2(d) filed with Allied Capital’s registration statement on Form N-2 filed on April 7, 2005).
	10	.2(e)*		Fifth Amendment to Credit Agreement, dated April 15, 2005.
	10	.3		Note Agreement, dated as of April 30, 1998. (Incorporated by reference to Exhibit 10.2 filed with Allied Capital’s Form 10-Q for the period ended June 30, 1998).
	10	.4		Loan Agreement between a predecessor entity to Allied Capital and Overseas Private Investment Corporation, dated April 10, 1995. (Incorporated by reference to Exhibit f.7 filed by a predecessor entity to Allied Capital to Pre-Effective Amendment No. 2 to registration statement on Form N-2 (File No. 333-64629) filed on January 24, 1996). Letter, dated December 11, 1997, evidencing assignment of Loan Agreement from the predecessor entity of Allied Capital to Allied Capital. (Incorporated by reference to Exhibit 10.3 to Allied Capital’s Form 10-K for the year ended December 31, 1997).
	10	.5		Note Agreement, dated as of May 1, 1999. (Incorporated by reference to Exhibit 10.5 filed with Allied Capital Form 10-Q for the period ended June 30, 1999).
	10	.12		Note Agreement, dated as of October 15, 2000. (Incorporated by reference to Exhibit 10.4b filed with Allied Capital’s Form 10-Q for the period ended September 30, 2000).

77

---

 

Exhibit
Number				Description
	10	.13		Note Agreement, dated as of October 15, 2001. (Incorporated by reference to Exhibit f.10 filed with Allied Capital’s Post-Effective Amendment No. 1 to registration statement on Form N-2 (File No. 333-67336) filed on November 14, 2001).
	10	.15		Control Investor Guaranty Agreement, dated as of March 28, 2001, between Allied Capital and Fleet National Bank and Business Loan Express, Inc. (Incorporated by reference to Exhibit f.14 filed with Allied Capital’s Post-Effective Amendment No. 3 to registration statement on Form N-2 (File No. 333-43534) filed on May 15, 2001).
	10	.17		Non-Qualified Deferred Compensation Plan II. (Incorporated by reference to Exhibit A filed with Allied Capital’s Proxy Statement filed on March 30, 2004).
	10	.18		Amended and Restated Deferred Compensation Plan, dated January 30, 2004. (Incorporated by reference to Exhibit 10.16 filed with Allied Capital’s Form 10-K for the year ended December 31, 2003).
	10	.19		Amended Stock Option Plan. (Incorporated by reference to Exhibit B of Allied Capital’s definitive proxy statement for Allied Capital’s 2004 Annual Meeting of Stockholders filed on March 30, 2004).
	10	.20(a)		Allied Capital Corporation 401(k) Plan, dated September 1, 1999. (Incorporated by reference to Exhibit 4.4 filed with Allied Capital’s registration statement on Form S-8 (File No. 333-88681) filed on October 8, 1999).
	10	.20(b)		Amendment to Allied Capital Corporation 401(k) Plan, dated April 15, 2004. (Incorporated by reference to Exhibit 10.20(b) filed with Allied Capital’s Form 10-Q for the period ended June 30, 2004).
	10	.21		Employment Agreement, dated January 1, 2004, between Allied Capital and William L. Walton. (Incorporated by reference to Exhibit 10.21 filed with Allied Capital’s Form 10-K for the year ended December 31, 2003).
	10	.22		Employment Agreement, dated January 1, 2004, between Allied Capital and Joan M. Sweeney. (Incorporated by reference to Exhibit 10.22 filed with Allied Capital’s Form 10-K for the year ended December 31, 2003).
	10	.23		Retention Agreement, dated March 21, 2005, between Allied Capital and John M. Scheurer. (Incorporated by reference to Exhibit 99.1 filed with Allied Capital’s current report on Form 8-K filed on March 24, 2005).
	10	.25		Form of Custody Agreement with Riggs Bank N.A. (Incorporated by reference to Exhibit j.1 filed with Allied Capital’s registration statement on Form N-2 (File No. 333-51899) filed on May 6, 1998).
	10	.26		Form of Custody Agreement with LaSalle National Bank. (Incorporated by reference to Exhibit j.2 filed with Allied Capital’s registration statement on Form N-2 (File No. 333- 51899) filed on May 6, 1998).
	10	.27		Custodian Agreement with LaSalle National Bank Association dated July 9, 2001. (Incorporated by reference to Exhibit j.3 filed with Allied Capital’s registration statement on Form N-2 (File No. 333-67336) filed on August 10, 2001).
	10	.28		Code of Ethics. (Incorporated by reference to Exhibit 10.28 filed with Allied Capital’s Form 10-K for the year ended December 31, 2003.)
	10	.30		Agreement and Plan of Merger by and among Allied Capital, Allied Capital Lock Acquisition Corporation, and Sunsource, Inc dated June 18, 2001. (Incorporated by reference to Exhibit k.1 filed with Allied Capital’s registration statement on Form N-2 (File No. 333-67336) filed on August 10, 2001).
	10	.31		Note Agreement, dated as of May 14, 2003. (Incorporated by reference to Exhibit 10.31 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2003).

78

---

 

Exhibit
Number				Description
	10	.32		Amendment, dated as of April 30, 2003, to Note Agreement, dated as of April 30, 1998. (Incorporated by reference to Exhibit 10.32 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2003).
	10	.33		Amendment, dated as of April 30, 2003, to Note Agreement, dated as of May 1, 1999. (Incorporated by reference to Exhibit 10.33 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2003).
	10	.35		Amendment, dated as of April 30, 2003, to Note Agreement, dated as of October 15, 2000. (Incorporated by reference to Exhibit 10.35 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2003).
	10	.36		Amendment, dated as of April 30, 2003, to Note Agreement, dated as of October 15, 2001. (Incorporated by reference to Exhibit 10.36 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2003).
	10	.37		Form of Indemnification Agreement between Allied Capital and its directors and certain officers. (Incorporated by reference to Exhibit 10.37 filed with Allied Capital’s Form 10-K for the year ended December 31, 2003).
	10	.38		Note Agreement, dated as of March 25, 2004. (Incorporated by reference to Exhibit 10.38 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2004).
	10	.39		Note Agreement, dated as of November 15, 2004. (Incorporated by reference to Exhibit 99.1 filed with Allied Capital’s current report on Form 8-K filed on November 18, 2004).
	10	.40		Real Estate Securities Purchase Agreement. (Incorporated by reference to Exhibit 2.1 filed with Allied Capital’s Form 8-K filed on May 4, 2005.)
	10	.41		Platform Assets Purchase Agreement. (Incorporated by reference to Exhibit 2.2 filed with Allied Capital’s Form 8-K filed on May 4, 2005.)
	10	.42		Transition Services Agreement. (Incorporated by reference to Exhibit 10.1 filed with Allied Capital’s Form 8-K filed on May 4, 2005.)
	15	.*		Letter regarding Unaudited Interim Financial Information
	31	.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
	31	.2*		Certification of Chief Financial Officer Pursuant Rule 13a-14 of the Securities Exchange Act of 1934.
	32	.1*		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
	32	.2*		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

79

---

 

		ALLIED CAPITAL CORPORATION
		(Registrant)
Dated: May 9, 2005		/s/ William L. Walton
		William L. Walton Chairman and Chief Executive Officer
		/s/ Penni F. Roll
		Penni F. Roll Chief Financial Officer

80

---

 

Exhibit
Number				Description
	10	.2(e)*		Fifth Amendment to Credit Agreement, dated April 15, 2005.
	15	.*		Letter regarding Unaudited Interim Financial Information
	31	.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
	31	.2*		Certification of Chief Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
	32	.1*		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
	32	.2*		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.