<PAGE> 1
As filed with the Securities and Exchange Commission on November 29, 1995
File No. 33-
-------
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
/x/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No. ____
/ / Post-Effective Amendment No. ____
ALLIED CAPITAL CORPORATION
---------------------------
Exact name of Registrant as Specified in Charter
c/o Allied Capital Advisers, Inc.
1666 K Street, N.W., 9th Floor
Washington, D.C. 20006-2803
----------------------------
Address of Principal Executive Offices
(Number, Street, City, State, Zip Code)
(202) 331-1112
--------------
Registrant's Telephone Number, including Area Code
David Gladstone, Chairman and Chief Executive Officer
Allied Capital Advisers, Inc.
1666 K Street, N.W., 9th Floor
Washington, D.C. 20006-2803
------------------------------------------------------
Name and Address of Agent for Service
(Number, Street, City, State, Zip Code)
Copy to:
Steven B. Boehm, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the registration statement.
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment plan,
check the following box: / /
It is proposed that this filing will become effective (check appropriate box)
/x/ when declared effective pursuant to section 8(c)
/ / This form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, and the Securities
Act registration statement number of the earlier effective registration
statement for the same offering is - .
------------------
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Per Aggregate Offering Amount of
Being Registered Registered Share (1) Price (1) Registration Fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00
par value 883,665 shares $13.0625 $11,542,874 $3,980.31
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated for purposes of calculating the registration fee pursuant to Rule
457(c) under the Securities Act of 1933, as amended, based on the average of the
high and low prices per share on November 27, 1995 on the Nasdaq National
Market.
- --------------------------------------------------------------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE> 3
CROSS REFERENCE SHEET
Pursuant to Rule 495(a) under the Securities Act of 1933
Showing the Location of Information Required by Form N-2
in Part A (Prospectus) and Part B (Statement of Additional Information) and
Part C (Other Information) of the Registration Statement
<TABLE>
<CAPTION>
ITEM OF FORM N-2 CAPTION OR LOCATION IN PROSPECTUS
- ---------------- ---------------------------------
PART A: INFORMATION REQUIRED IN A PROSPECTUS
<S> <C> <C>
1. Outside Front Cover Outside Front Cover Page
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis Summary; Fees and Expenses
4. Financial Highlights Financial Highlights
5. Plan of Distribution Plan of Distribution
6. Selling Shareholders (Not Applicable)
7. Use of Proceeds Use of Proceeds
8. General Description of the Registrant The Company; Summary
9. Management Management
10. Capital Stock, Long-Term Debt, and Other Authorized Classes of Securities; Description of Common
Securities Stock
11. Defaults and Arrears on Senior Securities (Not Applicable)
12. Legal Proceedings Legal Matters
13. Table of Contents of the Statement of Table of Contents of the Statement of Additional
Additional Information Information
</TABLE>
<TABLE>
<CAPTION>
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<S> <C> <C>
14. Cover Page Cover Page
15. Table of Contents Table of Contents
16. General Information and History The Company in the Prospectus; Summary in the
Prospectus
17. Investment Objective and Policies Investment Objectives and Policies
18. Management Management
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
19. Control Persons and Principal Holders of Control Persons and Principal Holders of Securities
Securities
20. Investment Advisory and Other Services Investment Advisory and Other Services
21. Brokerage Allocation and Other Practices Brokerage Allocation and Other Practices
22. Tax Status Tax Status
23. Financial Statements (Not Applicable)
</TABLE>
<TABLE>
<CAPTION>
PART C: OTHER INFORMATION
<S> <C> <C>
24. Financial Statements and Exhibits Financial Statements and Exhibits
25. Marketing Arrangements (Not Applicable)
26. Other Expenses of Issuance and Other Expenses of Issuance and Distribution
Distribution
27. Persons Controlled by or Under Common Persons Controlled by or Under Common Control
Control
28. Number of Holders of Securities Number of Holders of Securities
29. Indemnification Indemnification
30. Business and Other Connections of Business and Other Connections of Investment Adviser
Investment Adviser
31. Location of Accounts and Records Locations of Accounts and Records
32. Management Services Management Services
33. Undertakings Undertakings
</TABLE>
<PAGE> 5
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 6
SUBJECT TO COMPLETION: THE DATE OF ISSUANCE OF THIS PRELIMINARY PROSPECTUS IS
, 1995
- ----------- --
PROSPECTUS
883,665 SHARES
ALLIED CAPITAL CORPORATION
COMMON STOCK
-----------------------------
Allied Capital Corporation (the "Company") is affording to the
beneficial holders of record of the outstanding shares of its common stock at
the close of business on ___________, 199_ ("the Record Date"), the right to
subscribe for and purchase from the Company (the "subscription rights") up to
one (1) authorized but heretofore unissued share of its common stock for each
seven (7) outstanding shares owned by them on the Record Date (the "Offer").
Subscription rights are not transferrable under any circumstances except
through additional subscriptions; only persons who were stockholders of the
Company on the Record Date may subscribe. A stockholder may subscribe for all
of the shares which such stockholder has a right to purchase. Beneficial
owners whose shares are held of record by Cede & Co., nominee for The
Depository Trust Company ("DTC"), or by any other depository or nominee are
also eligible to participate. THE SUBSCRIPTION PRICE PER SHARE IS EQUAL TO
[INSERT FORMULA OR PRICE]. The subscription rights Offer may dilute the voting
power of the common stock owned by stockholders who do not fully exercise their
subscription rights. Stockholders who do not fully exercise their subscription
rights should expect, upon completion of the Offer, to own a smaller
proportional interest in the Company than before the Offer.
THE OFFER WILL EXPIRE AT 5:00 P.M. EASTERN STANDARD TIME, ON _______ __,
199__.
Allied Capital Corporation (the "Company"), a Maryland corporation, is a
closed-end, management investment company that has elected to operate as a
business development company. The Company seeks to achieve a high level of
current income as well as long-term growth in the value of the Company's net
assets by providing debt, mezzanine and equity financing, primarily to small,
privately owned growth companies. The Company's investment adviser is Allied
Capital Advisers, Inc. ("Advisers"), a registered investment adviser whose
principal office is located at 1666 K Street, N.W., Ninth Floor, Washington,
D.C. 20006-2803. Advisers' telephone number is (202) 331-1112.
The Company uses a leveraged capital structure by issuing senior
securities representing either indebtedness (i.e., borrowings from banks, other
institutional lenders, or government agencies) or preferred stock. FOR THE
RISKS OF LEVERAGE, SEE "THE COMPANY--RISK FACTORS--LEVERAGE."
The outstanding shares of the Company are quoted on the Nasdaq National
Market (symbol: ALLC).
This Prospectus sets forth concisely the information about the Company
that a prospective investor ought to know before investing. It should be
retained for future reference. Additional information on the Company has been
filed with the U.S. Securities and Exchange Commission (the "Commission") and
is available without charge upon written or oral request to the attention of
Investor Relations at the address or telephone number listed above. As
indicated at some points in this Prospectus, certain of the information in the
Statement of Additional Information is incorporated in this Prospectus by
reference. See page 28 of this Prospectus for the table of contents of the
Statement of Additional Information.
<PAGE> 7
<TABLE>
<CAPTION>
=========================================================================================================
Underwriting Discounts Proceeds to
Price to Public(1) and Commissions(2) the Company(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share . . . . . . . $ __.__ None $__.__
- ---------------------------------------------------------------------------------------------------------
Total . . . . . . . . . $___,___,___ None $___,___,___
=========================================================================================================
</TABLE>
(1) The common stock will be offered at a price to be determined by
reference to, and at a discount from, the market price on or about the
date of sale. On December ___, 1995, the latest practicable date, the
last sale price of a share of Allied I reported on the Nasdaq National
Market was $__.__.
(2) This table contemplates only a direct offering of shares to certain
members of the public. In the event that shares to which this
Prospectus relates are sold to or through underwriters, the
corresponding Supplement to this Prospectus will disclose the applicable
sales load (i.e., underwriting discounts and commissions).
(3) Before deduction of estimated offering costs related to this offering,
payable by the Company, aggregating $___________.
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus and of the Statement of Additional Information is
__________ __, 199_.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OF QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
2
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 6
PUBLIC TRADING AND NET ASSET VALUE INFORMATION . . . . . . . . . . . . 10
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Subscription Period . . . . . . . . . . . . . . . . . . . . . . 12
Purpose of the Offer . . . . . . . . . . . . . . . . . . . . . . 12
Dilutive Effect . . . . . . . . . . . . . . . . . . . . . . . . 12
How to Subscribe . . . . . . . . . . . . . . . . . . . . . . . . 12
Closing and Delivery . . . . . . . . . . . . . . . . . . . . . . 14
Institutional Investors . . . . . . . . . . . . . . . . . . . . 14
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Organization . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Business of the Company . . . . . . . . . . . . . . . . . . . . 15
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 19
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . 24
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . 24
AUTHORIZED CLASSES OF SECURITIES . . . . . . . . . . . . . . . . . . . 26
DESCRIPTION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . 26
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Dividends and Distributions . . . . . . . . . . . . . . . . . . 26
Reinvestment Plan . . . . . . . . . . . . . . . . . . . . . . . 27
REPORTS AND INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . 27
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR . . . . . . 27
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION . . . . . . . 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 28
Liquidity and Capital Resources . . . . . . . . . . . . . . . . 28
Results of Operations . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
3
<PAGE> 9
SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus.
<TABLE>
<S> <C>
THE COMPANY Allied Capital Corporation (the
"Company") provides subordinated debt
financing for developing companies,
mezzanine financing for leveraged buyout
situations, and other types of loans for
small, privately owned business. The
Company is a closed-end management
investment company which has elected to
be regulated as a business development
company (a "BDC") and is managed by
Allied Capital Advisers, Inc.
("Advisers"). See "Investment Adviser,"
page 25.
INVESTMENT OBJECTIVE The investment objective of the Company
OF THE COMPANY is to provide a high level of current
income and long-term growth on the
value of its net assets by providing
debt, mezzanine, and equity financing
primarily for small, privately owned
growth companies. The Company and its
two active small business investment
company subsidiaries seek to achieve
this objective by making long-term
investments, which typically are made
in the form of debt securities combined
with equity features such as conversion
privileges, options, or warrants to
acquire shares of the issuer. See "The
Company - Business of the Company,"
page 15.
INVESTMENT CONSIDERATIONS As a BDC, the Company's consolidated
portfolio includes primarily securities
issued by small, privately held
developing companies that involve a high
degree of business and financial risk.
The investments of the Company and its
subsidiaries as a whole, however, are
highly diversified. A large number of
entities and individuals compete for the
same kinds of venture capital investment
opportunities as the Company. Both the
Company and its subsidiaries borrow
funds from the U.S. Small Business
Administration (the "SBA") and other
lenders (and one such subsidiary has
placed preferred stock with the SBA) to
make investments in and loans to small
businesses. As a result, the Company is
exposed to the risks of leverage, which
may be considered a speculative
investment technique. See "The Company
-- Risk Factors," page 19.
SECURITIES OFFERED AND SUMMARY OF 883,665 shares of common stock, $1.00
DISTRIBUTION par value, are being offered by the
Company to beneficial owners of shares
of such stock outstanding on the Record
Date, at the rate of one (1) share for
each seven (7) shares so beneficially
owned, at a price of $__.__ per share.
The rights to subscribe for and
purchase such shares are not
transferrable under any circumstances
(although Additional Subscriptions may
be available) and will expire on
_____________, 199_. Any stockholder
may subscribe for any whole number of
shares up to the number for which each
stockholder has the right to
subscribe. The Company may offer
and sell to institutional investors or
others any number of the offered shares
that are not subscribed for by
stockholders either through the Basic
Subscription or the Additional
Subscription. See "The Offering," page
11.
PRINCIPAL TRADING MARKET Nasdaq National Market (symbol: ALLC).
See "Public Trading and Net Asset Value
Information," page 10.
</TABLE>
4
<PAGE> 10
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price) (1)
Dividend Reinvestment Plan Fees none(2)
ANNUAL EXPENSES (as a percentage of consolidated net assets attributable to common
shares(3))
Investment Advisory Fees 5.95%(4)
Interest Payments on Borrowed Funds 11.35%(5)
Other Expenses 2.12%(6)
-------
Total Annual Expenses 19.42%(7)
======
</TABLE>
- -------------------
(1) In the event that shares to which this Prospectus relates are sold to or
through underwriters, the corresponding Supplement to this Prospectus
will disclose the applicable sales load.
(2) The expenses of the Dividend Reinvestment Plan are included in stock
record expenses, a component of "Other Expenses." The Company has no
cash purchase plan.
(3) After giving effect to the anticipated net proceeds of the present
offering.
(4) The fees payable pursuant to the investment advisory agreement (see
"Management--Investment Adviser") are 0.625% per quarter (2.5% per
annum) of the quarter-end value of the Company's consolidated total
assets, less the value of the shares of Allied Capital Lending
Corporation owned by the Company, Interim Investments (i.e., short-term
U.S. government/agency securities or repurchase agreements
collateralized thereby), and cash and cash equivalents. The percentage
in the table assumes that none of the Company's consolidated total
assets is in the form of Interim Investments or cash and cash
equivalents. Investment advisory fees are payable with respect to
Interim Investments and cash and cash equivalents at 0.125% per quarter
(0.5% per annum) of the quarter-end value of Interim Investments and
cash and cash equivalents. At September 30, 1995, 14% of the Company's
consolidated total assets were in the form of Interim Investments and
cash and cash equivalents, so that Investment Advisory Fees were payable
at an annual rate of 4.62% of consolidated net assets attributable to
common shares. See "The Company--Business of the Company."
(5) The Company had outstanding borrowings of $81.3 million at September 30,
1995, and at the date of this Prospectus.
(6) Other Expenses are based on estimated amounts for the year ending
December 31, 1995.
(7) Annual Expenses are higher than Annual Expenses of most closed-end
management investment companies due to the Company's consolidated
outstanding borrowings of $81.3 million and consolidated outstanding
preferred stock of $7 million which significantly reduce the
consolidated net assets attributable to common shares on which the
Annual Expenses percentage is calculated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
You would pay the following expenses over the indicated period
on a $1,000 investment, assuming a 5% annual return $ 194 $ 498 $ 715 $1,025
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES,
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the above table, including the example, is to assist the
investor in understanding the various costs that an investor in the Company
will bear either directly or indirectly.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement under
the Securities Act of 1933, as amended (the "1933 Act"), with respect to the
shares of common stock offered by this Prospectus, which includes this
Prospectus plus additional information. The Company also files reports, proxy
statements and other information with the Commission under the Securities
Exchange Act of 1934. Such reports, proxy statements, and other
5
<PAGE> 11
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at certain of the Commission's Regional Offices located in
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661, and Suite 1300, 7
World Trade Center, New York, New York 10006. Copies of these materials can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
The Company also furnishes annual reports to stockholders, which include
annual financial information that has been audited and reported on, with an
opinion expressed, by independent public accountants, and quarterly reports
including unaudited financial information. See "Reports and Independent Public
Accountants," page 27.
FINANCIAL HIGHLIGHTS
The following condensed consolidated financial information of the
Company should be read in conjunction with the consolidated financial
statements and notes thereto included in this Prospectus. Such consolidated
financial statements as of and for the years ended December 31, 1990, 1991,
1992, 1993 and 1994 have been audited by the firm of Matthews, Carter and
Boyce, independent public accountants, whose opinion thereon appears at page
F-26 below. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations," page 28.
SUMMARY BALANCE SHEET INFORMATION (In Thousands)
<TABLE>
<CAPTION>
December 31 Sept. 30
--------------------------------------------------------- --------
1990* 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
ASSETS (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Investments, at value $112,139 $ 73,480 $ 78,470 $ 94,630 $115,026 $121,819
Cash and cash equivalents 4,956 24,015 40,554 24,358 6,609 10,963
U.S. government securities 0 0 0 12,202 10,210 9,872
Other assets 3,597 6,788 5,799 3,416 3,672 2,936
-------- -------- -------- -------- -------- --------
Total assets $120,692 $104,283 $124,823 $134,606 $135,517 $145,590
======== ======== ======== ======== ======== ========
LIABILITIES
Debentures and notes payable $ 68,350 $ 52,561 $ 69,800 $ 69,800 $ 77,005 $ 81,300
Dividends and distributions payable 206 3,232 3,387 3,580 3,910 165
Accrued interest payable 1,015 784 1,256 1,283 1,393 1,976
Other liabilities 2,752 1,892 3,389 758 2,222 1,911
------- ------- ------- -------- ------- --------
Total liabilities 72,323 58,469 77,832 75,421 84,530 85,352
------- ------- ------- -------- ------- --------
Redeemable preferred stock 1,000 1,000 1,000 1,000 1,000 1,000
------- ------- ------ ------- ------- --------
SHAREHOLDERS' EQUITY
Preferred stock 6,000 6,000 6,000 6,000 6,000 6,000
Common stock and paid-in capital 48,187 46,648 47,513 47,714 47,113 47,518
Notes receivable from sale of common stock (1,478) (1,115) (812) (766) (816) (401)
Net unrealized appreciation (depreciation) on
investments (4,611) (6,451) (5,757) 6,406 1,110 7,661
Distributions in excess of accumulated earnings (729) (268) (953) (1,169) (3,420) (1,540)
-------- -------- -------- -------- -------- --------
Total shareholders' equity 47,369 44,814 45,991 58,185 49,987 59,238
-------- -------- -------- -------- -------- --------
Total liabilities and shareholders' equity $120,692 $104,283 $124,823 $134,606 $135,517 $145,590
======== ======== ======== ======== ======== ========
</TABLE>
6
<PAGE> 12
SUMMARY INCOME STATEMENT INFORMATION (In Thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31 Ended September 30
---------------------------------------------- ------------------
1990(1) 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
INVESTMENT INCOME (unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest and dividends $13,945 $13,143 $ 8,913 $10,270 $12,147 $ 7,760 $ 9,724
Premium and other income 135 149 2,422 2,114 69 59 618
------- ------- ------ ------- ------- ------ ------
Total investment income 14,080 13,292 11,335 12,384 12,216 7,819 10,342
------ ------ ------ ------ ------ ----- ------
EXPENSES
Interest expense 5,554 5,683 5,131 6,346 6,333 4,673 4,994
Investment advisory fee 0 2,717 2,099 2,285 2,356 1,698 2,077
Other operating expenses 2,100 754 1,050 1,453 1,401 594 987
------ ------- ------- ------- ------- ------- -------
Total expenses 7,654 9,154 8,280 10,084 10,090 6,965 8,058
------ ------- ------- ------- ------- ------- -------
Net investment income 6,426 4,138 3,055 2,300 2,126 854 2,284
Loss from operations of distributed investment
advisory subsidiary, plus spin-off related expenses (278) 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- -------
Net investment income 6,148 4,138 3,055 2,300 2,126 854 2,284
Net realized gains on investments 1,962 2,834 4,507 5,943 3,394 2,024 3,584
------- ------- ------- ------- ------- ------- -------
Net investment income before net unrealized
appreciation (depreciation) on investments 8,110 6,972 7,562 8,243 5,520 2,878 5,868
Net unrealized appreciation (depreciation) on investments (5,376) (1,840) 694 12,163 (5,296) 460 6,551
------- ------- ------- ------- ------- ------- -------
Net increase in net assets resulting from operations $2,734 $5,132 $8,256 $20,406 $ 224 $3,338 $12,419
======= ======= ======= ======== ======= ======= =======
PER COMMON SHARE AMOUNTS(2)
Net investment income $ 1.02 $ 0.68 $ 0.50 $ 0.37 $ 0.34 $ 0.14 $ 0.37
Net realized and unrealized gains (losses) on investments $(0.56) $ 0.16 $ 0.85 $ 2.94 $(0.31) $ 0.40 $ 1.63
Net increase in net assets resulting from operations(3) $ 0.42 $ 0.80 $ 1.31 $ 3.28 $ 0.00 $ 0.51 $ 1.97
Net asset value(4) $ 6.83 $ 6.41 $ 6.53 $ 8.49 $ 7.11 $ 8.41 $ 8.61
Dividends declared(5) $ 4.02(6) $ 1.30 $ 1.32 $ 1.35 $ 1.40 $ 0.60 $ 0.62
</TABLE>
- --------------------------
(1) Numbers have been adjusted for the distribution of Allied Capital
Advisers, Inc. common shares on December 31, 1990.
(2) All per common share figures have been computed assuming that all
issuances of the Company's common stock in connection with the
Company's dividend reinvestment plan are outstanding for all periods
presented.
(3) Net increase in net assets resulting from operations is reduced by
preferred stock dividends of $203,000 for 1990, $220,000 for 1991,
1992, 1993 and 1994 and $165,000 for the nine months ended September
30, 1995 and 1994 for the purpose of calculating the per common share
amount.
(4) Total shareholders' equity is reduced by $6 million of preferred stock
for the purpose of calculating the per common share amount.
(5) Amount represents the total of the quarterly dividends and the
year-end extra distribution declared by the Company based on the
actual shares outstanding on the record date for each dividend paid.
(6) Includes a $2.75 per common share distribution of shares in Allied
Capital Advisers, Inc. on December 31, 1990.
7
<PAGE> 13
QUARTERLY FINANCIAL HIGHLIGHTS (In Thousands)
(unaudited)
<TABLE>
<CAPTION>
1993 1994 1995
----------------------------- ----------------------------- -------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C>
Total investment
income $2,406 $3,425 $3,759 $2,794 $2,594 $2,507 $2,718 $4,397 $3,549 $3,229 $3,564
Net investment income
(loss) $131 $885 $1,303 $(19) $204 $131 $518 $1,273 $881 $504 $899
Net increase
(decrease) in net
assets resulting from
operations $282 $ (889) $2,156 $18,857 $752 $2,641 $(55) $(3,114) $2,134 $7,196 $3,089
Preferred stock
dividends $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 $55
Net increase
(decrease) in net
assets resulting from
operations available
to common shareholders $227 $ (944) $ 2,101 $18,802 $697 $2,586 $(110) $(3,169) $2,079 $7,141 $3,034
Per common share $0.04 $(0.15) $0.34 $3.06 $0.11 $0.42 $(0.02) $(0.52) $0.34 $1.16 $0.49
</TABLE>
SENIOR SECURITIES (at end of year, consolidated)
Certain information about the various classes of senior securities
issued by the Company and its consolidated subsidiaries is set forth in the
following table. The shaded areas indicate information which the Commission
expressly does not require to be disclosed for certain types of senior
securities.
<TABLE>
<CAPTION>
Involuntary
Total Amount Outstanding Liquidating
Exclusive of Treasury Asset Coverage Preference Per Average Market Value
Class and Year Securities(4) Per Unit(5) Unit(6) Per Unit(7)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SENIOR NOTES
1986(1) $ 0 $ 0 -- N/A
1986(2) 0 0 -- N/A
1987 0 0 -- N/A
1988 0 0 -- N/A
1989 0 0 -- N/A
1990 0 0 -- N/A
1991 0 0 -- N/A
1992 20,000,000 30,675 -- N/A
1993 20,000,000 33,850 -- N/A
1994 20,000,000 30,711 -- N/A
1995(3) 20,000,000 32,285 -- N/A
</TABLE>
8
<PAGE> 14
<TABLE>
<CAPTION>
Involuntary
Total Amount Outstanding Liquidating
Exclusive of Treasury Asset Coverage Preference Per Average Market Value
Class and Year Securities(4) Per Unit(5) Unit(6) Per Unit(7)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BANK LOAN
(REVOLVING LINE OF CREDIT)
1986(1) $ 0 $ 0 -- N/A
1986(2) 0 0 -- N/A
1987 2,000,000 3,369 -- N/A
1988 5,000,000 8,507 -- N/A
1989 0 0 -- N/A
1990 0 0 -- N/A
1991 0 0 -- N/A
1992 0 0 -- N/A
1993 0 0 -- N/A
1994 2,205,000 3,386 -- N/A
1995(3) 0 0 -- N/A
SUBORDINATED DEBENTURES
1986(1) $ 12,500,000 $ 20,519 -- --
1986(2) 11,300,000 22,714 -- --
1987 13,700,000 23,080 -- --
1988 24,350,000 41,431 -- --
1989 25,350,000 45,667 -- --
1990 40,450,000 63,988 -- --
1991 49,800,000 84,021 -- --
1992 49,800,000 76,380 -- --
1993 49,800,000 84,287 -- --
1994 54,800,000 84,147 -- --
1995(3) 61,300,000 98,953 -- --
REDEEMABLE CUMULATIVE PREFERRED STOCK
1986(1)
1986(2) $ 0 $ 0 $ 0.00 N/A
1987 0 0 0.00 N/A
1988 0 0 0.00 N/A
1989 0 0 0.00 N/A
1990 0 0 0.00 N/A
1991 1,000,000 158.19 100.00 N/A
1992 1,000,000 168.72 100.00 N/A
1993 1,000,000 153.37 100.00 N/A
1994 1,000,000 169.25 100.00 N/A
1995(3) 1,000,000 153.55 100.00 N/A
1,000,000 161.42 100.00 N/A
</TABLE>
9
<PAGE> 15
<TABLE>
<CAPTION>
Involuntary
Total Amount Outstanding Liquidating
Exclusive of Treasury Asset Coverage Preference Per Average Market Value
Class and Year Securities(4) Per Unit(5) Unit(6) Per Unit(7)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NON-REDEEMABLE CUMULATIVE PREFERRED
STOCK
1986(1) $ 1,000,000 $ 164.15 $ 100.00 N/A
1986(2) 2,000,000 201.01 100.00 N/A
1987 2,000,000 168.46 100.00 N/A
1988 5,000,000 170.15 100.00 N/A
1989 6,000,000 180.15 100.00 N/A
1990 6,000,000 158.19 100.00 N/A
1991 6,000,000 168.72 100.00 N/A
1992 6,000,000 153.37 100.00 N/A
1993 6,000,000 169.25 100.00 N/A
1994 6,000,000 153.55 100.00 N/A
1995(3) 6,000,000 161.48 100.00 N/A
</TABLE>
NOTE: Table does not include government agency guaranteed loans sold under
agreements to repurchase held by Allied Lending Capital Corporation, a wholly
owned subsidiary of the Company until November 23, 1993, for the years 1986
through 1993. This information is omitted as the Company no longer uses this
type of senior security to finance its operations and has no intention of
resuming this practice in the foreseeable future.
- ----------------------
(1) For the fiscal year ended March 31, 1986.
(2) In 1986, the Company changed its fiscal year end from March 31 to
December 31. This data is as of December 31, 1986.
(3) 1995 figures are as of September 30.
(4) Total amount of each class of senior securities outstanding at the end
of the fiscal year.
(5) Asset coverage per unit is the ratio of the value of the Company's total
consolidated assets, less all liabilities and indebtedness not
represented by senior securities, to the aggregate amount of senior
securities representing indebtedness. Asset coverage per unit is
expressed in terms of dollar amounts per $1,000 of indebtedness in the
case of indebtedness, or per share in the case of preferred stock.
(6) The amount to which such class of senior security would be entitled upon
the voluntary liquidation of the issuer in preference to any security
junior to it.
(7) Not applicable as senior securities are not registered for public
trading.
PUBLIC TRADING AND NET ASSET VALUE INFORMATION
Shares of the Company are traded on the Nasdaq National Market (symbol:
ALLC). The following table sets forth, for the periods indicated, high and low
bid prices and average net asset values per common share. The Nasdaq bid
quotations represent prices between dealers, do not include retail markups,
markdowns or commissions, and may not represent actual transactions. As the
table below indicates, shares of the Company have historically traded at a
price substantially in excess of net asset value.
10
<PAGE> 16
<TABLE>
<CAPTION>
Bid Price Premium to
Average Net Asset Value
Average Net Asset Per Common Share
Fiscal Year Bid Price Range Value Per Common During Period
Ended --------------- Share During -----------------------
December 31 High Low Period High Low
----------- ---- --- -------------------- ---- ---
<S> <C> <C> <C> <C> <C>
1993
1st Quarter $15.50 $11.75 $6.55 136% 79%
2nd Quarter $14.50 $11.75 $6.77 114% 66%
3rd Quarter $15.50 $13.25 $7.20 115% 84%
4th Quarter $15.75 $13.25 $7.91 99% 68%
1994
1st Quarter $14.00 $12.25 $8.48 65% 44%
2nd Quarter $14.25 $13.25 $9.03 58% 47%
3rd Quarter $14.50 $13.25 $9.54 52% 39%
4th Quarter $15.50 $12.75 $8.29 87% 54%
1995
1st Quarter $13.50 $11.50 $7.22 87% 59%
2nd Quarter $12.00 $11.125 $7.79 54% 43%
3rd Quarter $13.75 $11.25 $8.45 63% 33%
</TABLE>
The last sale price for a share of the Company's common stock in Nasdaq
on September 29, 1995 was $13.00. The consolidated net asset value per share
on that date was $8.61. The premium was 51%.
THE OFFERING
The Company is affording to each beneficial owner of the outstanding
shares of its common stock (a "stockholder") at the close of business on
_____________ __, 199_ (the "Record Date"), the right to subscribe for and
purchase from the Company up to one (1) authorized but heretofore unissued
share of its common stock for each seven (7) outstanding shares owned by such
stockholder on the Record Date ("Subscription Rights"). A stockholder who
elects to subscribe for any such number of shares does so as part of the "Basic
Subscription." Each stockholder may also subscribe provisionally to purchase
from the Company additional authorized but heretofore unissued shares of its
common stock in an amount up to once again the number of shares for which that
stockholder is entitled to subscribe under the Basic Subscription. A
stockholder who elects to subscribe provisionally for any such number of
additional shares does so as part of the "Additional Subscription." The Basic
Subscription and the Additional Subscription collectively comprise the "Offer."
If the Offer is not fully subscribed pursuant to the Basic Subscription, the
remaining shares will be allocated pro rata to and for purchase by, those
stockholders who elect to subscribe pursuant to the Additional Subscription.
The Subscription Rights of the Offer must be exercised no later than
_______________ __, 199_. Subscription rights are not transferable under any
circumstances; only persons who were stockholders of the Company on the Record
Date may subscribe. Beneficial owners whose shares are held of record by Cede
and Co., the nominee for The Depository Trust Company ("DTC"), or by any other
depository or nominee, are eligible to participate on a similar basis with
beneficial owners whose shares are held of record directly with the Company.
As summarized above, if some stockholders do not exercise all their
Subscription Rights, any shares for which subscriptions have not been received
will be offered through the Additional Subscription to the stockholders who have
exercised their full Subscription Rights, and who wish to purchase more than
the number of shares for which they are eligible under the Basic Subscription.
Stockholders must indicate on the subscription form, which must be submitted in
order for them to participate in the Offer, the number of shares they want
to purchase as part of the Additional Subscription. If sufficient shares
remain as a result of unexercised Subscription Rights, all requests for
additional shares will be honored in full. If sufficient shares are not
available to honor all requests for
11
<PAGE> 17
additional shares, the available shares will be allocated among those who
request additional shares pro rata based on the number of shares to which their
Subscription Rights entitle them.
The subscription price per share (the "Subscription Price") for the
shares to be issued pursuant to the Subscription Rights is $__________.
All valid stockholder subscriptions (i.e., those made pursuant either to
the Basic Subscription or the Additional Subscription) received by the Company
are irrevocable. A subscription will be disregarded as invalid if it is not
signed or accompanied by a check for the total subscription price. A
subscription will also be disregarded as invalid if the accompanying check is
dishonored or if the subscription form, though properly completed and timely
mailed, is not actually received by the Subscription Agent (see below) prior to
5:00 p.m. on the Expiration Date.
SUBSCRIPTION PERIOD
The offer to stockholders commences on __________ __, 19__, will remain
open for 30 days, and expires at 5:00 p.m., Eastern Standard Time, on
_______________ __, 199_.
The Company has, as required by the Commission's registration form,
undertaken to suspend the Offer until it amends this Prospectus if subsequent
to the effective date of the Company's registration statement, the Company's
net asset value declines more than 10% from its consolidated net asset value
last determined prior to the effective date. Accordingly, the Company will
notify stockholders of any such decline. A stockholder subscribing under
either the Basic Subscription or the Additional Subscription will have no right
to cancel such subscriptions or rescind a purchase after the Subscription Agent
has received payment, except that subscription forms received during any period
that the Offer is suspended as described above will be returned to the
stockholder for resubmission once such suspension has ended.
PURPOSE OF THE OFFER
The Board of Directors of the Company has concluded that additional
capital should be raised for the Company through an offering of its common
stock. The Company has determined that new investment opportunities exist, but
the Company lacks the liquidity to take full advantage of them. This
additional capital will permit the Company to continue to grow by increasing
its equity base, which will allow the Company to leverage against this
additional common equity.
DILUTIVE EFFECT
The Company expects that there will be no dilution of the net asset
value of the Company's common stock because the stock has historically traded,
and continues to trade as of the date of this Prospectus, at a price that
represents a premium over net asset value. See "Public Trading and Net Asset
Value Information." Any stockholder that chooses not to participate in the
Offer, however, should expect to own a smaller proportional interest in the
Company following the conclusion of the Offer.
HOW TO SUBSCRIBE
Accompanying this Prospectus is a subscription form and return envelope.
The form should be completed by any stockholder wishing to subscribe for and
purchase shares offered by this Prospectus as follows:
1. Determine the number of shares for which you are entitled to
subscribe by dividing seven (7) into the number of shares that you owned as of
the Record Date, as indicated on the subscription form enclosed with this
Prospectus. (If the number of shares that you own is not evenly divided by
seven (7), you must drop the fraction.)
12
<PAGE> 18
2. Fill in the first blank of the form with the number of shares that
you desire to subscribe for and purchase pursuant to the Basic Subscription,
which may not exceed the number of shares determined pursuant to step 1 above.
3. Fill in the second blank on the subscription form with the number of
shares you want to purchase pursuant to the Additional Subscription, which may
not exceed the number of shares you are entitled to purchase pursuant to the
Basic Subscription.
4. Fill in the third blank of the form with the total subscription
price, calculated by multiplying the total number of shares for which you are
subscribing by $______, the Subscription Price.
5. Sign and date the form. By signing the form, you confirm that you
are the beneficial owner of the number of shares shown on the label beside the
signature block and that you have received a copy of this Prospectus.
6. Fill in the address to which certificates should be mailed and your
Social Security or other tax identification number.
Assume, for example, that you currently own 1,000 shares of the Company.
Dividing that number by seven (7) and dropping the fraction would give you 142.
In the first blank of the subscription form, you could then enter any number up
to 142, which would be your Basic Subscription. If you choose to subscribe for
shares under the Additional Subscription, you would enter that number of
shares, up to 142 shares in this example, in the second blank. Assuming you
decided to purchase 100 shares as part of the Additional Subscription, you
would then enter in the second blank 100. You would then multiply the total
number of shares you want to purchase, 242 in this example, by $____, the
Subscription Price, and enter the total amount in the third blank. After
otherwise completing and signing the form, you would send it to the
Subscription Agent along with your payment of $_______.
Stockholders should mail or deliver the form, together with a check made
to the order of "Allied Capital Corporation," in the amount of the total
subscription price, to American Stock Transfer & Trust Company ("AST"), the
Subscription Agent, at the following address:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Telephone: (212) 936-5100
Shareholder Communication Corporation ("SCC") will act as the
Information Agent for the Offer, and as such, will distribute materials and be
available to answer questions any stockholders may have regarding the Offer.
SCC may be contacted at:
Shareholder Communication Corporation
17 State Street, 27th and 28th Floors
New York, New York 10004
Telephone: (212) 805-7000
Forms and payments should be mailed or delivered to the Subscription
Agent in time to be received no later than 5:00 p.m. on __________ __, 199_,
the expiration date. Stockholders who would prefer to remit payment other than
by mail should contact SCC for further instructions.
For acting as Subscription Agent for the Offer, AST will receive a fee
estimated at $______ and will be reimbursed for all out-of-pocket expenses in
connection with this offering.
For acting as Information Agent for the Offer, SCC will receive a fee
estimated at $_______ and will be reimbursed for all of its out-of-pocket
expenses in connection with this offering. Stockholders wishing to subscribe
13
<PAGE> 19
under the Offer should also consult, as appropriate, their brokers or nominees,
which will generally subscribe on behalf of their clients.
The Company is requesting brokers and other nominees, collectively
"nominees," to transmit a copy of this Prospectus and of the subscription form,
with a return envelope, to each person who is a beneficial owner of shares
of the common stock held of record by such nominees as of the Record Date.
Such nominees will be responsible for tabulating subscriptions received from
such beneficial owners, and remitting to the Subscription Agent one
subscription form and the total aggregate subscription price of all shares for
which a nominee's beneficial owners are subscribing. The Company will pay such
nominees their usual and customary charges for transmitting issuer
communications to stockholders.
CLOSING AND DELIVERY
The Subscription Agent will accept any and all valid subscriptions from
stockholders for a number of shares equal to or less than 883,665 shares, the
total number of shares eligible to be purchased pursuant to the Offer.
If any stockholders have validly entered Additional Subscriptions, the
Company will accept such Additional Subscriptions to the extent of the number,
in the aggregate, of shares not subscribed for pursuant to Basic Subscriptions.
If the number of shares not subscribed for pursuant to Basic Subscriptions is
smaller than the total number of Additional Shares subscribed for, the Company
will allocate such unsubscribed shares, pro rata among the Additional
Subscriptions and accept all Additional Subscriptions to the extent of the
number, adjusted to the next smaller integral number, of shares resulting from
such pro-ration.
In the above example, the Company would in any event accept your Basic
Subscription to the extent of 142 shares, or $______. Depending on the number
of shares subscribed for by other stockholders, the Company would also accept
your subscription to the extent of the additional 100 shares for which you have
subscribed or some smaller number, possibly as small as zero. If your
Additional Subscription has been accepted for some smaller number of shares,
the Company would, promptly after the close of the subscription period, send
you a check for the amount, without interest, of your subscription in excess
of the amount for which your subscription has been accepted. You will then,
in due course, receive a certificate for the number of shares for which your
subscription has been accepted.
The Company will mark "cancelled" and return to subscribers any
subscription forms and checks, if any, or return funds, corresponding to
subscriptions which have been disregarded as invalid.
The Company will also promptly mail to all subscribers for shares
pursuant to the Additional Subscription, a check for the amount, if any,
corresponding to Additional Subscriptions that have not been accepted as a
result of pro-ration.
All stockholder subscriptions will be accepted as of the close of
business on the expiration date of the offering. Share certificates are
expected to be mailed by the Subscription Agent, American Stock Transfer &
Trust Company, within thirty days thereafter.
In the event that all shares from the Offer are not fully subscribed for
after allocating shares pursuant to the Additional Subscription, the Company
expects to offer the remaining shares to institutional investors.
INSTITUTIONAL INVESTORS
During the Subscription Period, the Company may, by means of this
Prospectus, offer shares to and solicit indications of interest from banks,
insurance companies, pension funds and other institutional investors and to
certain individuals in any state in which the offering and sale to such
institutional investors is exempt from registration or qualification under the
laws of such state. On the day after the expiration date of the stockholder
offering, the Company may solicit and accept telephonic subscriptions from any
institutional investors who have theretofore indicated interest for any shares
offered hereby which were not validly subscribed for by stockholders. Subject
to
14
<PAGE> 20
prompt payment, certificates for shares so subscribed for by institutions will
be mailed or delivered contemporaneously with the mailing of share certificates
to stockholder subscribers.
EXPENSES
NO COMMISSIONS OR OTHER REMUNERATION WILL BE PAID BY THE COMPANY TO ANY
BROKER, DEALER OR OTHER PERSON FOR SOLICITING SUBSCRIPTIONS OR OTHERWISE IN
CONNECTION WITH THIS OFFERING. The Company will pay all other applicable
expenses. Included in such expenses will be the normal charges of brokers and
other nominees which are shareholders of record for transmitting offering
materials, which will include Prospectuses, subscription warrants and return
envelopes, to the beneficial owners of the shares held by them of record.
USE OF PROCEEDS
The Company anticipates that proceeds of the offering will be used in
accordance with the Company's investment objective, to make new investments to
small, private growth companies in the form of subordinated debt, mezzanine and
equity financings as well as to fund leveraged buyouts, bridge loans, and
acquisitions.
THE COMPANY
ORGANIZATION
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"), which represented 47.6% and 30.1%, respectively, of the Company's
consolidated total assets as of September 30, 1995. 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 ("SBIC") under Section 301(c) of the Small Business
Administration Act of 1958, as amended ("SBIA"), and Allied Financial is
licensed by the SBA as a specialized small business investment company
("SSBIC") under Section 301(d) of the SBIA. 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 of
the Company under an investment advisory agreement.
BUSINESS OF THE COMPANY
The investment objective of the Company is to provide a high level of
current income and long-term growth on the value of its net assets by providing
debt, mezzanine, and equity financing primarily for small, privately owned
growth 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). The Company generally invests in and lends to
small businesses directly and through its wholly owned subsidiaries, and also
provides financing for 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 also provides financing to private and small public companies through
its origination of loans with equity features.
Historically, all of the investments of the Company and its subsidiaries
(all further references to investments by the Company include those made by its
subsidiaries unless otherwise indicated) have been made in domestic small
businesses. However, the Company currently intends to begin making investments
in conjunction with the Overseas Private Investment Corporation ("OPIC"), which
would typically involve investments in businesses that engage, in whole or in
part, in overseas operations. Generally, the OPIC-related investments to be
made by the Company will
15
<PAGE> 21
require that the portfolio company have some affiliation with a U.S.-based
business entity. OPIC-related investments ordinarily will be made in countries
representing the world's emerging markets. Investments in such countries
involve special risks. See "The Company -- Risk Factors -- Foreign
Investments," page __.
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
payments of interest only in the early years and payments of principal and
interest in the later years, although loan maturities and principal
amortization schedules vary. The Company also makes senior loans without
equity features. Senior 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 participations acquired 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 short-term securities issued or guaranteed by the U.S. government
or an agency or instrumentality thereof, the value of which generally
fluctuates with prevailing levels of interest rates, or in repurchase
agreements fully collateralized by such securities.
The Company usually invests in privately held companies that 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, packaging manufacturers,
specialty 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.
For the first three quarters of 1995, the Company invested approximately
$18 million into small private businesses. In the year ended 1994, the Company
invested approximately $36 million, which represented a 50% increase from the
$24 million that the Company invested in 1993. The invested assets of the
Company at September 30, 1995 were $122 million, a 6% increase over December
31, 1994. December 31, 1994 invested assets were approximately $115 million, a
22% increase from the approximately $95 million in invested assets of the
Company at December 31, 1993. The Company also restructured several
non-performing investments in 1994, with the result that the non-performing
assets (valued at cost) decreased 36% from $15.7 million at December 31, 1993
to $10.1 million at December 31, 1994. At September 31, 1995, the Company's
non-performing assets at cost were $9.5 million, a 6% decrease from December
31, 1994.
The Company's Operation as a BDC
As a BDC, the Company may not acquire any asset 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 as 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 a small
business investment company 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, a BDC which
is not wholly owned, is not), and (c) does not have any class of
publicly traded securities with respect to which a broker may extend
margin credit.
16
<PAGE> 22
(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 count securities described in (1) and (2) above as a
Qualifying Asset for the purpose of the 70% test, a BDC must make available to
the issuer of those securities significant managerial assistance. Making
available significant managerial assistance means, among other things, (i) any
arrangement whereby the BDC, through its directors, officers, or employees,
offers to provide, and, if accepted, does provide, significant guidance and
counsel concerning the management, operations, or business objectives and
policies of a portfolio company or (ii) in the case of a small business
investment company, 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 Allied 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 directors and officers 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 its indebtedness has asset
coverage to the extent of at least 200%. This limitation is not applicable to
the borrowings of the Company's SBIC and SSBIC subsidiaries. In 1992, the
Company, Allied Investment, and Allied Financial, together borrowed $20,000,000
from an insurance company on terms requiring the payment of interest at 9.15%
per annum and repayment of principal in equal annual installments in the five
years 1998 through 2002. At December 31, 1994, the Company had borrowed
$2,205,000 under its revolving line of credit agreement, which permits the
Company to borrow up to $10 million at the London Inter-Bank Offered Rate
("LIBOR") plus 1.15 percentage points through November 30, 1995. At September
30, 1995, there were no borrowings under this line of credit. The Company
anticipates renewing this line of credit for a three-year period under somewhat
less favorable terms (i.e., at a higher interest rate). As of September 30,
1995, Allied Investment and Allied Financial had issued subordinated debentures
in the aggregate principal amount of $61,300,000 to the SBA that bear interest
from 6.875% to 10.35% per annum and require principal payments commencing in
1997 through 2005.
Co-Investment with Allied II, Allied Venture, and Allied Technology
In accordance with the conditions of several exemptive orders of 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"), private venture capital partnerships managed by Allied
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 Allied Advisers serves as its investment adviser. At
September 30, 1995 and December 31, 1994, Allied II had total consolidated
assets of $108,684,000 and $101,934,000, respectively, compared to the
Company's total consolidated assets of $145,590,000 and $135,517,000,
respectively.
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,
17
<PAGE> 23
that would be suitable for Allied II or its wholly owned subsidiaries and the
Company or its wholly owned subsidiaries to the extent proportionate to the
companies' 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
stock. 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 by a note or debenture that is accompanied
by an option or warrant to purchase, 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.
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 owned and controlled
by socially or economically disadvantaged persons. To determine whether the
owners of a small business are socially or economically disadvantaged, the SBA
relies on a composite of factors. Business owners who are members of the
following groups, among others, are considered socially disadvantaged: African
Americans, Hispanic Americans, Native Americans and Asian Pacific Americans.
In determining whether the owners of a small business are economically
disadvantaged, consideration may be given to factors such as levels of income,
location (for instance, urban ghettos, depressed rural areas and areas of high
unemployment or underemployment), education level, physical or other special
handicap, inability to compete in the marketplace because of prevailing or past
restrictive practices or Vietnam-era service in the armed forces, or any other
factors that may have contributed to disadvantaged conditions.
Allied Financial 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 that it would 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.
Accordingly, the Company declared an extra dividend
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<PAGE> 24
in December 1994 and distributed in early January 1995 an aggregate of 335,086
Allied Lending shares, which reduced its ownership of Allied Lending shares to
1,244,914 shares, or 28.5% of the Allied Lending shares then outstanding.
In December 1994, in a move unexpected by Allied Lending or the Company,
the SBA altered its regulations concerning the 7(a) guaranteed loan program and
announced that it would reduce the maximum loan size that it would guarantee
under the 7(a) guaranteed loan program from $1 million to $500,000. The
Company believes that the significant decline in the market price of Allied
Lending shares during December 1994 resulted from the SBA's actions. As Allied
Lending had registered, at the Company's expense, 490,000 Allied Lending shares
owned by the Company in December 1994 for sale or distribution, the Company
chose to distribute a substantial portion of those Allied Lending shares to its
stockholders at the end of December 1994 rather than sell those shares at
depressed prices. Although the Company recognized a gain on the portion of the
Allied Lending shares which were held for sale or distribution, the amount of
gain was significantly less than the Company expected due to the decreased
market value of the Allied Lending shares at the end of 1994. In addition,
because of the decline in the market value of the Allied Lending shares, the
Company's unrealized appreciation in this investment at year-end 1994 declined
by $4.1 million as compared to the unrealized appreciation in this investment
at year end 1993, which negatively affected the Company's net asset value per
common share.
In mid-October 1995, federal legislation was enacted which removed the
$500,000 loan size limit and restored 75% guarantees on loans up to $1 million.
In addition, the guaranteed loan program fees were restructured to redirect
some of the program's expenses to the participant lenders and participant
borrowers. Overall, management expects these changes to be favorable for
Allied Lending.
Until 1995, the business of Allied Lending consisted solely of making
small business loans which are partially guaranteed under the SBA's Guaranteed
Loan Program (so-called "7(a) loans"). Allied Lending has been one of the most
active non-bank lenders in the 7(a) loan program. Most of the loans made by
Allied Lending during 1994 were 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 was 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 product line to include, in addition to 7(a)
guaranteed loans, loans that are made in conjunction with guaranteed loans, as
well as other types of loans.
RISK FACTORS
The purchase of the shares offered by this Prospectus involves a number
of significant risk and other factors relating to the structure and investment
objective of the Company. As a result, there can be no assurance that the
Company will achieve its investment objective. AN INVESTMENT IN THE SHARES
WILL NOT BE SUITABLE FOR PERSONS WHO DO NOT INTEND, OR HAVE THE RESOURCES, TO
HOLD THEM AS A LONG-TERM INVESTMENT.
Nature of Investments
Consistent with its operation as a BDC, the Company's portfolio is
expected to consist primarily of securities issued by small and developing
privately held companies. There is generally little or no publicly available
information about such companies, and the Company must rely on the diligence of
Allied Advisers to obtain the information necessary for the Company's decision
to invest in them. Typically, such companies depend for their success on the
management talents and efforts of one person or a small group of persons, so
that the death, disability or resignation of such person or persons could have
a materially adverse impact on them. Moreover, smaller companies frequently
have narrower product lines and smaller market shares than larger companies and
therefore may be more vulnerable to competitor's actions and market conditions,
as well as general economic downturns. Because these companies will generally
have highly leveraged capital structures, reduced cash flow resulting from an
adverse competitive development, shift in customer preferences, or an economic
downturn may adversely affect the return on, or the recovery of, the Company's
investment in them. Investment in such companies therefore
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<PAGE> 25
involves a high degree of business and financial risk, which can result in
substantial losses and accordingly should be considered speculative.
Foreign Investments
As noted above, the Company intends to make investments with the
proceeds of its OPIC loans, see page 22. These investments ordinarily will be
made in countries representing the world's emerging or developing markets.
Special risks generally are involved in investments in foreign countries, and
these risks are often heightened for investments in emerging or developing
markets.
In general, foreign investments involve risks not ordinarily associated
with domestic investing, including: (1) changes in currency exchange rates;
(2) possible imposition of market controls or currency exchange controls; (3)
possible imposition of withholding taxes on dividends and interest; (4)
possible seizure, expropriation or nationalization of assets; (5) more limited
financial information or difficulty in interpreting such information because of
foreign regulations and accounting standards; (6) lower liquidity and higher
volatility in certain foreign markets; (7) the impact of political, social or
diplomatic events; (8) the difficulty of evaluating some foreign economic
trends; and (9) the possibility that a foreign government could restrict the
ability of an entity in which the Company has invested from meeting its
obligations under borrowings or other arrangements.
The risks noted above often increase in emerging or developing
countries. For example, emerging countries may have more unstable governments
than developed countries, and their economies may be based on only a few
industries. In addition, foreign investments may be subject to a variety of
special restrictions.
The Company intends to take steps to reduce or eliminate certain of the
above risks. Thus, for example, with respect to a currency risk, the Company
may engage in foreign currency transactions. These transactions will be
entered into solely to hedge currency risks associated with foreign
investments, and not for speculation. The Company also intends to diversify
its OPIC-related investments by country and type of business.
Long-term Character of Investments
It is expected that investments made in accordance with the Company's
investment objective will usually yield a high current return from the time
they are made but will generally produce a profit, if any, from an accompanying
equity feature only after a further five to eight years. There can be no
assurance that either a high current return or capital gains will actually be
achieved.
Illiquidity
Most of the investments of the Company consist of securities acquired
directly from the issuers in private transactions. They are usually subject to
restrictions on resale or otherwise illiquid. There is usually no established
trading market for such securities into which they could be sold. In addition,
most of the securities are not eligible for sale to the public without
registration under the 1933 Act, which involves delay and expense.
Market Price Disparities
Shares of closed-end investment companies frequently trade at a discount
from net asset value, but there are examples of companies, including the
Company, Allied Lending, and Allied II, the shares of which have historically
traded at a premium to net asset value. This characteristic of shares of
closed-end investment companies is separate and distinct from the risk that a
company's net asset value per share will decline. It is not possible to
predict whether the shares offered hereby will trade at, above, or below net
asset value.
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<PAGE> 26
Competition
A large number of entities and individuals compete for the opportunity
to make the kinds of investments proposed to be made by the Company. Many of
these entities and individuals have greater financial resources than the
combined resources of the Company, Allied II, and their respective
subsidiaries. As a result of this competition, the Company may from time to
time be precluded from making otherwise attractive investments on terms
considered by Advisers to be prudent in light of the risks to be assumed.
Leverage
The Company (including its two small business investment company
subsidiaries) intends to continue to borrow funds from and issue senior debt
securities to banks, insurance companies, or other lenders and to raise capital
from the SBA or other investors up to the limit permitted by the 1940 Act.
Such additional borrowings, unless fully offset by redemptions or repurchases
of the Company's outstanding senior securities, will cause the Company to be
further leveraged with respect to its common stock. When such borrowings
occur, the providers of these funds will have fixed dollar claims on the
Company's consolidated assets superior to the claims of the holders of the
Company's common stock. Any increase in the value of the Company's
consolidated investments would cause its consolidated net asset value
attributable to common shares to increase more than it would had the borrowings
or preferred stock financings not occurred. Decreases in the value of the
consolidated investments below their value at the time of acquisition, however,
would cause the Company's consolidated net asset value attributable to common
shares to decline more sharply than it would if the senior funds had not been
borrowed or otherwise obtained. Similarly, any increase in the Company's rate
of income in excess of consolidated interest payable on the borrowed funds or
dividends payable on the preferred stock would cause its net income to increase
more than it would without the leverage, while any decrease in consolidated
rate of income would cause net income to decline more sharply than it would had
the funds not been borrowed or otherwise obtained for investment. Leverage is
thus generally considered a speculative investment technique. Conversely,
however, the ability of the Company to achieve its investment objective may
depend in part on its ability to achieve additional leverage on favorable terms
by borrowing from the SBA, banks, or insurance companies and there can be no
assurance that such additional leverage can in fact be achieved.
Allied Investment as an SBIC, and Allied Financial, as an SSBIC,
currently have 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.
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 September 30, 1995 and December 31, 1994, respectively, Allied
Investment and Allied Financial had outstanding debentures sold to the SBA in
the aggregate principal amounts of $61,300,000 and $54,800,000, respectively.
At these respective dates, Allied Financial had $7,000,000 of outstanding
preferred stock issued to the SBA-$6,000,000 of 3% preferred stock and
$1,000,000 of 4% preferred stock. Allied Investment II has not obtained any
financial assistance from the SBA to date.
As a group, Allied Investment and Allied Financial have received
$68,300,000 in leverage and preferred stock investment from the SBA as of
September 30, 1995, and as a result, this combined ability to apply for
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<PAGE> 27
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.
On April 10, 1995, the Company entered into a loan agreement with the
Overseas Private Investment Corporation ("OPIC") under which the Company may
borrow up to $20 million to provide financing for international projects
involving qualifying U.S. small businesses. Loans under this agreement bear
interest at the U.S. Treasury Rate plus 0.5% and have a ten year maturity from
the date of disbursement. In addition, OPIC is entitled to receive from the
Company a contingent fee at maturity of the loan based on five percent (5%) of
the return generated by the OPIC-related investments in excess of seven percent
(7%). There are no required principal payments until this loan matures ten
years from the date of the first disbursement under this loan. The loan
agreement expires on the earlier of the first date on which the amount of the
loan(s) equal $20 million or April 10, 1998. As of September 30, 1995, there
were no outstanding borrowings under this loan agreement. The loan documents
require that the Company make representations and covenants about its
operations and financial condition as are customary for commercial loans of
this type.
The Company had outstanding the following sources of financing as of
September 30, 1995:
<TABLE>
<CAPTION>
Annual Portfolio
Return to Cover
Amount Interest or
Outstanding Annual Rate of Interest Dividend
Class (in thousands) or Dividend Payments Payments
----- -------------- ---------------------- -----------------
Initial Current
------- -------
<S> <C> <C> <C>
Senior notes $20,000 9.15% 9.15% 1.50%
OPIC loan $0 --- --- 0.00%
Bank loan (revolving line of
credit) $0 6.213% 7.025% 0.00%
Subordinated debentures $61,300 5.5%-10.35% 6.08%-10.35% 4.57%
Redeemable preferred stock $1,000 4% 4% 0.03%
Non-redeemable preferred $6,000 3% 3% 0.01%
stock
</TABLE>
Senior Notes
As of September 30, 1995, the Company, together with Allied Investment
and Allied Financial, had $20 million of 10-year senior notes outstanding to an
insurance company, with interest payable semi-annually at the fixed rate of
9.15% per annum. The senior notes are scheduled to mature over a five-year
period commencing in 1998, with annual principal payments of $4 million. The
senior notes restrict the Company's ability to declare or pay any dividends,
purchase, redeem or retire any shares of capital stock, or make any payment or
distribution in respect to its capital stock, if after giving effect thereto
(i) any default or event of default has occurred or (ii) the total debt of the
Company has asset coverage of less than 200%. The senior notes require the
Company to maintain a minimum consolidated shareholders' equity of $30 million
and a minimum consolidated subordinated debt of $35 million at all times. The
Company must also meet the following financial ratios at the end of each fiscal
quarter:
<TABLE>
<S> <C>
(a) Consolidated Net Income Available for Interest Charges = at least 1.50 to 1
------------------------------------------------------
Consolidated Interest Charges
(b) Consolidated Total Debt = Not exceeding 2.5 to 1
----------------------------------
Consolidated Shareholders' Equity
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C>
(c) Consolidated Senior Debt = Not exceeding 1.5 to 1
----------------------------------
Consolidated Shareholders' Equity
</TABLE>
The Company must remain the beneficial owner of 100% of the voting stock
of Allied Investment and Allied Financial and will not, or will not permit a
consolidated subsidiary to, consolidate with or be a party to a merger with any
other corporation.
The senior notes permit the Company to incur additional debt as long as
the financial covenants above are met and the new debt is junior to the
insurance company, and do not restrict the Company's ability to issue
additional securities. The terms of the senior notes may be amended with the
consent of the insurance company.
OPIC Loan. The Company has entered into a loan agreement with OPIC for
the Company to make up to $20 million in international investments involving
OPIC-qualifying United States small businesses. The terms of this loan provide
that the Company may borrow at variable interest rates based on the U.S.
Department of Treasury interest rates plus fifty basis points (0.50%) for the
applicable period of borrowing by the Company.
Bank Loan. The Company currently has a revolving line of credit
agreement with a commercial bank under which it may borrow up to $10 million
with interest payable monthly at the variable rate of 115 basis points (1.15
percentage points) per annum above the 30-day London Inter-Bank Offered Rate
("LIBOR"), reset daily. There are no required principal payments until this
loan matures on November 30, 1995. As of September 30, 1995, there were no
borrowings under this agreement. The Company is in the process of negotiating
to replace this revolving line of credit with a similar one for a three-year
term and a higher interest rate.
This line of credit agreement requires the Company to have tangible net
worth in excess of total liabilities at all times and to have a ratio of
current assets to current liabilities of at least 2 to 1 at all times. The
line of credit agreement will not permit the Company or any subsidiary to merge
or consolidate with another entity, except that the Company may merge with a
subsidiary or any subsidiary may merge with another subsidiary. The current
line of credit agreement also does not restrict the Company's ability to issue
additional securities or incur additional debt, and permits the modification of
its terms upon consent of the lender.
Subordinated Debentures. As of September 30, 1995, the Company, through
Allied Investment and Allied Financial, had outstanding $61.3 million of
10-year subordinated debentures payable to the SBA, with interest payable
semi-annually at various fixed interest rates ranging from 6.08% to 10.35%.
The subordinated debentures are scheduled to mature over a 10-year period
commencing in 1997, with annual principal payments ranging from $1 million to
$8 million. The subordinated debentures also permit the Company to issue
additional securities or incur additional debt.
Preferred Stock. As of September 30, 1995, the Company, through Allied
Financial, has outstanding $1 million of redeemable 4 percent cumulative
preferred stock, and $6 million of non-redeemable 3 percent cumulative
preferred stock, both issued to the SBA. The redeemable 4 percent cumulative
preferred stock must be redeemed by the Company in 2005, and the non-redeemable
3 percent cumulative preferred stock has no required redemption date.
Nevertheless, the Company has the option to redeem the non-redeemable 3 percent
cumulative preferred stock in whole or in part by paying the SBA the par value
of the securities to be redeemed and any dividends accumulated and unpaid to
the date of redemption. The cumulative preferred stock also permits the
Company to issue additional securities or incur additional debt.
Illustration. The following table is provided to assist the investor in
understanding the effects of leverage. The figures appearing in the table are
hypothetical, and the actual return may be greater or less than those appearing
in the table.
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<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Assumed return on -12% -10% -5% 0% 5% 10% 12%
portfolio (net of
expenses)
Corresponding -18.45% -16.34% -11.06% -5.78% -0.05% 4.79% 6.90%
return to common
stockholders
</TABLE>
Loss of Pass-Through Tax Treatment
The Company may cease to qualify for pass-through tax treatment if it is
unable to comply with the diversification requirements contained in Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). The Company
may also cease to qualify for pass-through treatment, or be subject to a 4%
excise tax, if it fails to make certain distributions. Under the 1940 Act, the
Company will not be permitted to make distributions to stockholders unless it
meets certain asset coverage requirements with respect to money borrowed and
senior securities issued. See "Tax Status" in the Statement of Additional
Information. Non-availability of pass- through tax treatment would have a
materially adverse effect on the total return, if any, obtainable from an
investment in the Company's shares.
MANAGEMENT
BOARD OF DIRECTORS
The business of the Company is managed under the supervision of its
Board of Directors. For details concerning the persons who make up the Board
of Directors at the date of the Prospectus, see the Statement of Additional
Information under the caption "Management - Board of Directors." Three of the
members of the Board of Directors are also officers of the Company as well as
of its investment adviser; and five are non-interested persons, as that term is
defined in the 1940 Act (such persons are hereinafter referred to as
"non-interested directors").
The responsibilities of the Board of Directors include, among other
things, the approval of every loan and other investment to be made by the
Company, the quarterly valuation of the Company's assets, and the approval of
the terms of the Company's borrowing or other leverage arrangements.
The Board, and particularly the non-interested directors, must also, at
least annually, approve the investment advisory agreement with the Company's
investment adviser and, annually and subject to stockholder ratification,
appoint the Company's auditors.
The audit and stock option committees of the Board of Directors,
comprised exclusively of non-interested directors, respectively review with the
auditors the scope of the annual audit and the contents of the audited
financial statements and determine option awards to the officers under the
Company's incentive stock option plan. Under that plan, options on a total of
1,350,000 shares may be granted. Of the authorized options, the stock option
plan committee has to date awarded a number of options, of which a total of
789,387 options are currently outstanding and a total of 518,578 options are
currently exercisable. For details of the stock option plan, see the Statement
of Additional Information under the caption "Management--Stock Options."
The members of the Board of Directors are compensated by fees at the
rate of $1,000 per meeting of the Board of the Company or its wholly owned
subsidiaries or each separate (i.e., not held on the same day as a full Board
meeting) meeting of a committee of such Board which the member attends unless
such separate meeting occurs on the same day as a Board meeting, in which case
directors receive $500 for attendance at such meeting. There is no duplication
of directors' fees and expenses even if some directors also take action on
behalf of the Company's wholly owned subsidiaries. The Company's stockholders
have approved, subject to further approval by the Commission, a grant to each
member of the Board of Directors who is not an employee of the investment
adviser a 10-year option to purchase, at the market price on the date of grant,
10,000 shares of the Company.
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<PAGE> 30
Application has been made to the Commission for such approval, and if such
approval is granted, these options will be priced on the date of such approval.
INVESTMENT ADVISER
Advisers, the principal business address of which is 1666 K Street,
N.W., Ninth Floor, Washington, D.C. 20006-2803, serves as the investment
adviser for the Company pursuant to an investment advisory agreement. Under
that agreement, Advisers manages the investments of the Company and each of the
Company's wholly owned subsidiaries, subject to the supervision and control of
the Board of Directors of the Company or the respective subsidiary, and
identifies, evaluates, structures, closes, and monitors the investments made by
the Company and such subsidiaries. Neither the Company nor any such subsidiary
will make any investments that have not been recommended by Advisers. Except
as to those investment decisions that require specific approval or ratification
by the Company's Board, Advisers has the authority to effect purchases and
sales of assets for the Company's account. Advisers also serves as the
investment adviser of Allied II, Allied Capital Commercial Corporation ("Allied
Commercial") and Business Mortgage Investors, Inc. ("BMI"), both real estate
investment trusts ("REITs"), Allied Lending, Allied Venture, and Allied
Technology. Some of the directors and officers of Advisers are also directors
and officers of the Company.
G. Cabell Williams III is the Company's portfolio manager, a position he
has held since 1991. From 1981 to 1991, Mr. Williams III held positions of
increasing responsibility with Advisers and the Company.
The Company pays all of the operating expenses of itself and its wholly
owned subsidiaries, except those specifically required to be borne by Advisers.
The expenses paid by Advisers include the compensation of its investment
officers and the cost of office space, equipment and other personnel necessary
for day-to-day operations. The expenses that are paid by the Company include
its share of transaction costs incident to the acquisition and disposition of
investments, regular legal and auditing fees and expenses, the fees and
expenses of the Company's directors, costs of printing and distributing proxy
statements and other communications 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, rather than Advisers, pays expenses
associated with litigation and other extraordinary or non-recurring expenses
with respect to its operations and investments, as well as expenses of required
and optional insurance and bonding. All fees that may, to the extent permitted
under SBA regulations, be paid to Advisers by any person in connection with an
investment transaction in which the Company participates or proposes to
participate are paid over to the Company. Advisers may, however, retain for
its own account any fees paid by or for the account of a 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
follow-on managerial assistance. If the Company uses the services of certain
professionals on the staff of Advisers for the Company's corporate purposes,
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.
As compensation for its services to and the expenses paid for the
account of the Company, Advisers is entitled to be paid quarterly, in arrears,
a fee equal to 0.625% per quarter of the quarter-end value of the Company's
total consolidated assets (other than the Company's investment in Allied
Lending and Interim Investments and cash). On an annual basis, such fees are
equivalent to 2.5% of the Company's total consolidated assets (other than the
Company's investment in Allied Lending and Interim Investments and cash) and
0.5% on Interim Investments and cash. For the purposes of calculating the fee,
the values of the Company's assets are determined as of the end of each
calendar quarter. The quarterly fee is paid as soon as practicable after the
values have been determined. The current advisory agreement, which was
approved by stockholders in May 1995, is substantially similar to the prior
advisory agreement between the Company and Advisers, and it is anticipated
that the advisory fee payable by the Company under the existing agreement will
be comparable to the fees paid under the prior agreement.
The fee provided for in the investment advisory agreement is
substantially higher than that paid by most investment companies because of the
efforts and resources devoted by Advisers to identifying, structuring, closing
and monitoring the types of private investments in which the Company will
specialize. Other entities managed by
25
<PAGE> 31
Advisers, however, pay fees on comparable bases and the Company understands
that the fee is not in excess of that frequently paid by private investment
funds engaged in similar types of investment, in addition to the substantial
participation in profits that such private funds also typically allocate to
management.
For further details of the compensation of Advisers and the expenses
paid respectively by Advisers and the Company, see the Statement of Additional
Information under the caption "Investment Advisory and Other Services."
AUTHORIZED CLASSES OF SECURITIES
Pursuant to the Company's Articles of Incorporation, the following are
the authorized classes of securities of the Company and its wholly owned
subsidiaries as of September 30, 1995:
<TABLE>
<CAPTION>
(4)
(3) Amount Outstanding
(2) Amount Held by Exclusive of
(1) Amount Registrant for Amounts Shown
Title of Class Authorized Its Account Under (3)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALLIED I:
Common Stock 10,000,000 0 6,185,660
ALLIED INVESTMENT:
Common Stock 100 0 50.36
ALLIED FINANCIAL:
Common Stock 19,800,000 0 131.00
Preferred Stock 200,000 0
Non-Redeemable 3%
Cumulative Preferred Stock 60,000 0 60,000.00
Redeemable 4% 10,000 0 10,000.00
Cumulative Preferred Stock
ALLIED DEVELOPMENT*: 100 0 10.00
</TABLE>
____________________________
* Allied Development Corporation is an inactive wholly owned subsidiary of the
Company with total assets of less than $35,000.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company is ten million (10,000,000)
shares of common stock, $1 par value, of which 6,185,660 shares are outstanding
as of the date of this Prospectus. All shares of common stock have equal
rights as to earnings, assets, dividends, and voting privileges and, when
issued, will be fully paid and nonassessable. Shares of common stock have no
preemptive, conversion, or redemption rights and are freely transferable. In
the event of liquidation, each share of common stock is entitled to its
proportion of the Company's assets after debts and expenses. Each share is
entitled to one vote and does not have cumulative voting rights, which means
that holders of a majority of the shares, if they so choose, could elect all of
the Directors, and holders of less than a majority of the shares would, in that
case, be unable to elect any Director. The Company holds annual stockholders'
meetings.
26
<PAGE> 32
DIVIDENDS AND DISTRIBUTIONS
The Company intends to distribute substantially all of its net
investment income and net realized short-term capital gains to stockholders
quarterly, generally on the last day of March, June, September and December of
each year. The Company distributed an in-kind dividend, in the form of shares
of Allied Lending at a rate equal to $0.60 per share of the Company's common
stock (based on Allied Lending's then-market value of $11.00 per share) on
January 6, 1995 to the Company's stockholders of record on December 31, 1994.
Since then, quarterly dividends were declared in February, May, and August 1995
and paid on March 29, June 28, and September 29, 1995, respectively, at a rate
of $0.20, $0.20, and $0.22, respectively, per share, and a dividend of $0.24
per share was declared on November 8, 1995 for payment on December 29, 1995.
The Company may also declare in October, November, or December of any year, for
payment during the following January, an additional dividend to distribute any
net investment income and short-term capital gains (and long-term capital
gains, if any) realized by the Company during the year that had not already
been distributed through the quarterly dividends. If the Company's investments
do not generate sufficient income to make distributions or dividend payments as
determined by the Board of Directors, then the Company may determine to
liquidate a portion of its portfolio to fund the distribution. Such payments
may include a return of capital to the stockholder, which, in turn, would
reduce the stockholder's cost basis in the investment and have other tax
consequences. Stockholders should consult their tax advisers for further
guidance.
REINVESTMENT PLAN
The Company has adopted a reinvestment plan pursuant to which the
Company's transfer agent, acting as reinvestment plan agent, will reinvest all
distributions in additional whole and fractional shares for the account of all
stockholders of record who inform the Company or the transfer agent of their
preference to participate in this plan before the record date of the
distribution. Stockholders may change enrollment status in the reinvestment
plan at any time by contacting either the plan agent or the Company. A
stockholder's ability to participate in the reinvestment plan may be limited
according to how the stockholder's shares are registered. Beneficial owners
holding shares in street name may be precluded from participation by the
nominee. Stockholders who would like to participate in the reinvestment plan
usually must have the shares registered in their own name.
Shares issued under the reinvestment plan may be newly issued shares
unless the market price of the outstanding shares is less than 110% of their
contemporaneous net asset value. The transfer agent may also, as agent for the
participant, buy shares in the market. Newly issued shares for reinvestment
plan purposes will be valued at the average of the reported closing bid prices
of the outstanding shares on the last five trading days prior to the payment
date of the distribution, but not less than 95% of the opening bid price on
such date. The price in the case of shares bought in the market will be the
average actual cost of such shares, including any brokerage commissions. There
are no other charges payable in connection with the reinvestment plan. Any
distributions reinvested under the plan will nevertheless remain taxable to the
stockholders.
Any stockholder who has questions about the reinvestment plan may call
the Company at (202) 973-6334 and ask for Investor Relations, or contact
American Stock Transfer & Trust Company, the plan agent, 40 Wall Street, New
York, New York 10005, telephone (800) 937-5449.
REPORTS AND INDEPENDENT PUBLIC ACCOUNTANTS
The Company provides unaudited quarterly consolidated financial
statements and audited annual consolidated financial statements to its
stockholders. For the year ended December 31, 1995, the independent accountant
engaged to audit the Company's consolidated financial statements is the firm of
Matthews, Carter and Boyce, which has been the Company's auditors since
inception. The selection of independent auditors by the Company's directors
will be subject to annual ratification by stockholders at the Company's annual
meeting. The consolidated financial statements of the Company included in this
Prospectus are included in reliance on the authority of Matthews, Carter and
Boyce as experts in auditing and accounting.
27
<PAGE> 33
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
The Company's investments are held under a custodian agreement by The
Riggs National Bank of Washington, D.C. at 808 17th Street, N.W., Washington,
D.C. 20006, which also provides recordkeeping services. American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005, acts as the
Company's transfer, dividend paying, and reinvestment plan agent and registrar.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . B-3
Directors and Officers . . . . . . . . . . . . . B-3
Compensation . . . . . . . . . . . . . . . . . . B-4
Compensation Table . . . . . . . . . . . . . . . B-6
Stock Options . . . . . . . . . . . . . . . . . . B-6
SUMMARY COMPENSATION TABLE . . . . . . . . . . . . . . . B-7
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . B-7
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . B-8
Investment Advisory Agreement . . . . . . . . . B-8
Accounting Services . . . . . . . . . . . . . . . B-10
BROKERAGE ALLOCATION AND OTHER PRACTICES . . . . . . . . B-11
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . B-11
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Total investments increased by $6.8 million or 5.9% to $121.8 million at
September 30, 1995 from $115.0 million at December 31, 1994. This increase was
primarily due to valuation changes in the portfolio resulting in net unrealized
appreciation of $6.6 million for the nine month period. In the first nine
months of 1995, the Company invested approximately $17.8 million in small
business concerns, and received repayments and early payoffs from other small
businesses of approximately $17.5 million. Cash and cash equivalents increased
$4.4 million primarily due to net cash provided by operating activities.
On September 27, 1995, the Company had $7.5 million in SBA debentures
that matured. The Company obtained new SBA debentures totaling $14.0 million
on September 27, 1995. Proceeds from these new debentures were used to repay
the matured debentures.
During the third quarter of 1995, the Company applied for a forward
commitment from the SBA to provide for up to $6 million in financing to its
SSBIC subsidiary. The Company will be able to draw $1.3 million from the SBA
for this financing; however, the Company must first submit an application to
draw on the committed funds and receive SBA approval of that application.
The Company has a revolving line of credit for $10 million which expires
November 30, 1995. The Company anticipates renewing this line of credit for a
three-year term at a higher rate.
28
<PAGE> 34
The Company has secured a credit facility with the Overseas Private
Investment Corporation ("OPIC") for up to $20 million in financing for
international projects involving small businesses.
At September 30, 1995, outstanding commitments for future financings
were $14 million. Given the availability of the SBA commitment, the OPIC
facility, current cash and government securities available at September 30,
1995, and its available line of credit, the Company believes that it has
adequate capital to continue to satisfy its operating needs, commitments and
other future investment opportunities that may arise throughout the remainder
of the year. The Company continues to explore obtaining new debt or equity
capital sources as well.
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994. The net increase
in net assets resulting from operations increased 272% to $12.4 million for the
nine months ended September 30, 1995 as compared to $3.3 million for the same
period in 1994. Earnings per common share for the nine months increased to
$1.97 per common share from $0.51 per common share for the same period in 1994.
Total investment income increased 32% from $7.8 million to $10.3 million
compared with the first nine months of last year. Interest income increased
due to a reduction in the Company's non-performing assets since the end of 1994
and an increase in loans and debt securities outstanding. The Company also
received a prepayment penalty on the early payoff of a debt in the third
quarter of 1995 totaling $60,000. Other income consists primarily of $327,000
of litigation costs from prior periods recovered during the first nine months
of 1995 and $130,000 of income from an equity participation in one portfolio
company.
Expenses increased 16% from $7.0 million to $8.1 million compared with
the corresponding period in 1994. Investment advisory fee expense increased
due to an increase in investments and other assets upon which the investment
advisory fee is based.
Net realized gains on investments increased 77% from $2.0 million to
$3.6 million for the nine-month periods ended September 30, 1995 and 1994,
respectively. The increase in net realized gains resulted from the disposition
or early payoff of investments. A few of the early payoffs were due to
portfolio companies being sold. Net realized gains are unpredictable; however,
the Company exits transactions when it believes the realized gains can be
maximized.
YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO DECEMBER 31, 1993. Net
increase in net assets resulting from operations was $224,000 or approximately
breakeven on a per common share basis, as compared to $20.4 million or $3.28
per common share for the year ended December 31, 1993.
In December 1994, in a move unexpected by Allied Lending or the Company,
the SBA altered its regulations concerning the 7(a) guaranteed loan program and
announced that it would place a loan size cap of $500,000 on the loans that it
would guarantee under the 7(a) guaranteed loan program. The Company believes
that because of the changes in the SBA's guaranteed loan program that were
announced in December 1994, the market price of the Company's investment in
Allied Lending declined to $10.38 per share at December 31, 1994. At December
31, 1993, the market price for this stock was $15.75 per share. This decline
in market value at December 31, 1994 reduced 1994's net increase in net assets
resulting from operations by $4.1 million or $0.66 per common share. In
mid-October 1995, federal legislation was passed which removed the $500,000
loan size limit and restored 75% guarantees on loans of up to $1 million. In
addition, the guaranteed loan program fees were restructured to redirect some
of the programs' expenses to the participant lenders and participant borrowers.
Overall, these changes are expected to be favorable for Allied Lending. During
1993, the Company recorded realized gains of approximately $9 million and
unrealized appreciation of approximately $15 million, resulting from the 1993
initial public offering of the stock of Allied Lending, formerly a wholly owned
subsidiary of the Company.
29
<PAGE> 35
Investment income remained relatively constant in 1994, even though
there was significant growth in invested assets. This is primarily due to the
fact that 1993 investment income included approximately $3 million,
representing eleven months of Allied Lending's interest income and gains on
sales of guaranteed loans, while Allied Lending was a wholly owned subsidiary
of the Company. Instead, in 1994, the Company received $1.7 million in
dividend income from its residual 36% interest in Allied Lending. As a result,
the Company replaced approximately $1.3 million in investment income with
income from increased investments in the portfolio.
Expenses also remained relatively constant in 1994 as compared to 1993.
Interest expense remained stable because the Company's borrowings of $7.0
million occurred late in 1994 and were at interest rates below the level of
other borrowings of the Company. The investment advisory fee stayed constant
even given the growth in invested assets as the Company was not charged a fee
on its investment of approximately $14.9 million in Allied Lending, as was
agreed to in conjunction with Allied Lending's 1993 initial public offering.
During 1993, the Company was charged an investment advisory fee on the assets
of Allied Lending for the approximate eleven months that it was a wholly owned
subsidiary. Legal and audit fees and other operating expenses remained
constant in total; however, the Company continued to incur legal expenses
related to various matters. The Company has now successfully settled most of
these matters.
For the year ended December 31, 1994, net investment income before net
unrealized appreciation (depreciation) on investments, which includes ordinary
investment income and realized capital gains and losses but excludes the effect
of unrealized appreciation and depreciation, was $5.5 million or $0.89 per
share, a 33% decrease from $8.2 million or $1.34 per share in 1993. Realized
gains of $3.4 million in 1994 were below expectations, again primarily due to
the unexpected decline in the market value of Allied Lending stock.
During the fourth quarter of 1994, the Company chose to distribute
shares of Allied Lending to its stockholders rather than sell these shares at
depressed prices. The gain that was recognized on this transaction reflects
the decreased market value at the end of the year, and as a result, depressed
the Company's net investment income before net unrealized appreciation
(depreciation) on investments.
Distributions to stockholders for 1994 were $1.40 per share and were
comprised of $1.23 in taxable ordinary and capital gain income and $0.17 per
share in a return of capital. The Company's taxable income of $1.26 per share
differed significantly from its net investment income before unrealized
appreciation (depreciation) on investments of $0.89 per share due to timing
differences in the recognition of income for tax purposes versus book purposes.
The $0.17 per share return of capital was an unexpected result, again due to
the decline of value of Allied Lending stock and its effect on the gain
recognition from dividends.
YEAR ENDED DECEMBER 31, 1993 AS COMPARED TO DECEMBER 31, 1992.
Investment income increased by $1.0 million primarily due to the increase in
new investments in 1993. Interest expense increased by $1.2 million, primarily
due to the effect of a full year of interest expense experienced on the $20.0
million debt financing secured in 1992. Investment advisory fees increased due
to continued growth of the Company's assets on which the advisory fee is based.
Legal and audit fees increased by $0.4 million due to the increased cost of
litigation. These changes had the net effect of decreasing net investment
income by $0.8 million.
Net realized gains on investments of $5.9 million in 1993 increased over
1992 due to the gain of $9.2 million from the November 1993 sale of 800,000
shares of Allied Lending, net of losses on and write-offs of investments of
$3.3 million. Net investment income before net unrealized appreciation
(depreciation) on investments increased to $8.2 million in 1993, an increase of
$0.7 million or 9% over 1992.
Net unrealized appreciation on investments in 1993 of $12 million
resulted principally from the appreciation of the Allied Lending stock retained
by the Company, net of the appreciation or depreciation of other investments in
the portfolio. The net unrealized appreciation added to what was disclosed in
prior years as net realized income resulted in a net increase in net assets
resulting from operations of $20.4 million, an increase of 147% over the
previous year.
30
<PAGE> 36
Distributions paid to stockholders in 1993 of $8.2 million approximate
the net investment income before net unrealized appreciation (depreciation) on
investments. The distributions were comprised solely of capital gain income.
YEAR ENDED DECEMBER 31, 1992 AS COMPARED TO DECEMBER 31, 1991. In 1990,
Allied Lending, which was then a wholly owned subsidiary of the Company, held
100% of its loan balances and used the guaranteed portion of its loans as
collateral to obtain financing. During 1991, Allied Lending began selling the
guaranteed portion of SBA loans in order to finance further origination, which
significantly reduced the Company's consolidated investments at December 31,
1992 as compared to December 31, 1991, and simultaneously, decreased investment
income by $2.0 million primarily due to a decline in interest income resulting
from non-performing loans, offset by the increase in the gain on sales of
SBA-guaranteed loans sold by Allied Lending. Total expenses decreased by $0.9
million, primarily due to a decrease in advisory fees. The decline in total
assets resulting from Allied Lending's changes in operations caused a
corresponding reduction in investment advisory fees when comparing 1991 to
1992. As a result, net investment income decreased by approximately $1.1
million.
Net realized gains on investments increased to $4.5 million from $2.8
million in the previous year primarily due to the sale of one investment,
Environmental Air Control, Inc. The change in net unrealized appreciation
(depreciation) on investments resulted in a minimal decrease in unrealized
depreciation of $0.7 million. Increases in realized and unrealized gains
offset the decrease in investment income for an overall net increase in net
assets resulting from operations of $8.2 million in 1992, an increase of $3.1
million or 61% over the previous year.
31
<PAGE> 37
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Statement of Financial Position -- September 30, 1995 (unaudited) and December 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F - 2
Consolidated Statement of Operations -- For the Nine Months Ended September 30, 1995 and 1994
(unaudited) and the Years Ended December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . F - 3
Consolidated Statement of Changes in Net Assets -- For the Nine Months Ended September 30,
1995 and 1994 (unaudited) and the Years Ended December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . F - 4
Consolidated Statement of Cash Flows -- For the Nine Months Ended September 30, 1995 and 1994
(unaudited) and the Years Ended December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . F - 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F - 6
Consolidated Statement of Loans to and Investments in Small Business Concerns -- September 30,
1995 (unaudited) and December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F - 15
Notes to Consolidated Statement of Loans to and Investments in Small Business Concerns . . . . . . . . . . . F - 24
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F - 26
</TABLE>
F - 1
<PAGE> 38
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in thousands, except number of shares)
<TABLE>
<CAPTION>
September 30, December 31,
------------- ----------------------
1995 1994 1993
---- ---- ----
(unaudited)
<S> <C> <C> <C>
ASSETS
Investments at Value:
Loans and debt securities . . . . . . . . . . . . . $ 89,209 $ 84,949 $ 64,248
Equity securities . . . . . . . . . . . . . . . . . 31,517 28,225 27,675
Other investment assets . . . . . . . . . . . . . . 1,093 1,852 2,707
------- ------- -------
Total investments . . . . . . . . . . . . . 121,819 115,026 94,630
Cash and cash equivalents . . . . . . . . . . . . . . 10,963 6,609 24,358
U.S. government securities . . . . . . . . . . . . . 9,872 10,210 12,202
Other assets . . . . . . . . . . . . . . . . . . . . 2,936 3,672 3,416
------- ------- -------
Total Assets . . . . . . . . . . . . . . . . $145,590 $135,517 $134,606
======= ======= =======
LIABILITIES
Revolving line of credit . . . . . . . . . . . . . . $ -- $ 2,205 $ --
Debentures and notes payable . . . . . . . . . . . . 81,300 74,800 69,800
Accrued interest payable . . . . . . . . . . . . . . 1,976 1,393 1,283
Investment advisory fee payable . . . . . . . . . . . 731 658 409
Dividends and distributions payable . . . . . . . . . 165 3,910 3,580
Other liabilities . . . . . . . . . . . . . . . . . . 1,180 1,564 349
-------- -------- -------
Total Liabilities . . . . . . . . . . . . . 85,352 84,530 75,421
-------- -------- -------
Redeemable preferred stock . . . . . . . . . . . . . 1,000 1,000 1,000
-------- -------- -------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Preferred stock of wholly owned subsidiary, $100
par value; 60,000 shares authorized, issued and
outstanding at 9/30/95, 12/31/94 and 12/31/93 . 6,000 6,000 6,000
Common stock, $1 par value; 10,000,000 shares
authorized; 6,185,660, 6,152,703 and 6,108,809
share issued and outstanding at 9/30/95,
12/31/94 and 12/31/93, respectively . . . . . . 6,186 6,153 6,109
Additional paid-in capital . . . . . . . . . . . . . 41,332 40,960 41,605
Notes receivable from sale of common stock . . . . . (401) (816) (766)
Net unrealized appreciation on investments . . . . . 7,661 1,110 6,406
Distributions in excess of accumulated earnings . . . (1,540) (3,420) (1,169)
------- ------- -------
Total Shareholders' Equity . . . . . . . . 59,238 49,987 58,185
------- ------- -------
Total Liabilities and Shareholders' Equity $145,590 $135,517 $134,606
======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F - 2
<PAGE> 39
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
September 30, December 31,
------------------------ -------------------------------------
(unaudited)
1995 1994 1994 1993 1992
----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest . . . . . . . . . . . $ 8,645 $ 6,545 $ 10,401 $ 10,100 $ 8,890
Dividends . . . . . . . . . . . 1,079 1,215 1,746 170 23
Premium and other income . . . 618 59 69 2,114 2,422
------- ------- -------- -------- -------
Total investment income . . . 10,342 7,819 12,216 12,384 11,335
------- ------- -------- -------- -------
Expenses:
Interest expense . . . . . . . 4,994 4,673 6,333 6,346 5,131
Investment advisory fee . . . . 2,077 1,698 2,356 2,285 2,099
Legal and audit fees . . . . . 499 310 977 1,109 680
Other operating expenses . . . 488 284 424 344 370
------- ------- -------- -------- -------
Total expenses . . . . . . . 8,058 6,965 10,090 10,084 8,280
------- ------- -------- -------- -------
Net investment income . . . . . . 2,284 854 2,126 2,300 3,055
Net realized gains on investments 3,584 2,024 3,394 5,943 4,507
------- ------- -------- -------- -------
Net investment income before net
unrealized appreciation
(depreciation) on investments 5,868 2,878 5,520 8,243 7,562
Net unrealized appreciation
(depreciation) on investments 6,551 460 (5,296) 12,163 694
------- ------ -------- -------- -------
Net increase in net assets
resulting from
operations . . . . . . . . . . $ 12,419 $ 3,338 $ 224 $ 20,406 $ 8,256
====== ====== ======= ======= =======
Earnings per common share . . . . $ 1.97 $ 0.51 $ 0.00 $ 3.28 $ 1.31
====== ====== ======= ======= =======
Weighted average number of
common shares and common share
equivalents outstanding. . . 6,207 6,188 6,187 6,161 6,144
====== ====== ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F - 3
<PAGE> 40
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
September 30, December 31,
-------------------------- ------------------------------
(unaudited)
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Increase in net assets resulting $ 2,284 $ 854 $ 2,126 $ 2,300 $ 3,055
from operations:
Net investment income . . . .
Net realized gains on
investments . . . . . . . . . 3,584 2,024 3,394 5,943 4,507
Net unrealized appreciation
(depreciation) on investments 6,551 460 (5,296) 12,163 694
-------- -------- -------- ------- -------
Net increase in net assets
resulting from operations . . 12,419 3,338 224 20,406 8,256
-------- -------- -------- ------- -------
Distributions to shareholders
from:
Net Investment Income . . . . . (2,119) (689) (705) -- (2,703)
Excess of net investment income -- (959) (1,216) -- --
Net realized gains . . . . . . (1,704) (2,024) (4,595) (8,239) (5,324)
Excess of net realized gains . -- -- (1,035) -- --
Return of capital (tax) . . . . -- -- (1,044) -- --
Preferred stock dividends . . . (165) (165) (220) (220) (220)
-------- -------- -------- ------- -------
Net decrease in net assets
resulting from distributions to
shareholders . . . . . . . . . . (3,988) (3,837) (8,815) (8,459) (8,247)
-------- -------- -------- ------- -------
Capital share transactions:
Net (increase) decrease in
notes receivable from sale of
common stock . . . . . . . . 415 (49) (50) 46 303
Issuance of common shares upon
the exercise of stock options -- 200 200 201 741
Common shares issued in lieu of
cash distributions . . . . . . 405 121 243 -- 124
-------- -------- ------- ------- -------
Net increase in net assets
resulting from capital share
transactions . . . . . . . . . . 820 272 393 247 1,168
-------- -------- ------- ------- -------
Net increase (decrease) in net
assets . . . . . . . . . . . . . 9,251 (227) (8,198) 12,194 1,177
Net assets at beginning of the
period . . . . . . . . . . . . . 49,987 58,185 58,185 45,991 44,814
-------- -------- ------- ------- -------
Net assets at the end of period . 59,238 57,958 49,987 58,185 45,991
Preferred stock of wholly owned
subsidiary . . . . . . . . . . . 6,000 6,000 6,000 6,000 6,000
-------- -------- ------- ------- -------
Net asset value available to
common shareholders . . . . . . . $ 53,238 $ 51,958 $ 43,987 $ 52,185 $ 39,991
======== ======== ======= ======= =======
Net asset value per common share $ 8.61 $ 8.41 $ 7.11 $ 8.50 $ 6.53
======== ======== ======= ======= =======
Common shares outstanding at end
of period . . . . . . . . . . . . 6,186 6,176 6,186 6,142 6,123
======== ======== ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F - 4
<PAGE> 41
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
September 30, December 31,
------------------------- ----------------------------
(unaudited)
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net increase in net assets resulting
from operations . . . . . . . . . . . . $ 12,419 $3,338 $224 $20,406 $8,256
Adjustments to reconcile net increase in
net assets resulting from operations to
net cash provided by operating
activities:
Net unrealized depreciation
(appreciation) on investments . . . (6,551) (460) 5,296 (12,163) (694)
Net realized gains on investments . . (3,584) (2,024) (3,394) (5,943) (4,507)
Interest . . . . . . . . . . . . . . -- -- (1,159) -- --
Changes in assets and liabilities:
Other assets . . . . . . . . . . . . 736 356 (255) 697 685
Accrued interest payable . . . . . . 583 467 110 27 472
Investment advisory fee payable . . . 73 186 249 (125) 26
Other liabilities . . . . . . . . . . (384) 445 1,215 (2,192) 1,819
------- ------- ------ ------- -------
Net cash provided by operating
activities . . . . . . . . . . . . 3,292 2,308 2,286 707 6,057
------- ------- ------ ------- -------
Cash Flows From Investing Activities:
Net increase (decrease) in investments (350) (11,344) (21,135) 3,318 167
Net redemption (purchase) of U.S.
government securities . . . . . . . 338 (1,150) 1,992 (12,202) --
U.S. government securities sold under
agreements to repurchase . . . . . -- -- -- -- (2,761)
Payments on notes receivable . . . . 415 16 150 247 1,044
------- ------- ------ ------- -------
Net cash provided by (used in)
investing activities . . . . . . . 403 (12,478) (18,993) (8,637) (1,550)
------- ------- ------ ------- --------
Cash Flow From Financing Activities:
Common stock distributions paid . . . (3,416) (7,139) (8,027) (8,046) (7,748)
Preferred stock distributions paid . (220) (220) (220) (220) (220)
Proceeds from the issuance of
debentures . . . . . . . . . . . . 14,000 7,000 7,000 -- 20,000
Payment of debentures . . . . . . . . (7,500) (2,000) (2,000) -- --
Net borrowings (payments on)
revolving line of credit . . . . . (2,205) -- 2,205 -- --
------- ------- ------ ------- -------
Net cash provided by (used in)
financing activities . . . . . . . 659 (2,359) (1,042) (8,266) 12,032
------- ------- ------ ------- -------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . 4,354 (12,529) (17,749) (16,196) 16,539
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . 6,609 24,358 24,358 40,554 24,015
------- ------- ------ ------- -------
Cash and cash equivalents, end of
period . . . . . . . . . . . . . . $ 10,963 $ 11,829 $ 6,609 $ 24,358 $ 40,554
======= ======= ====== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F - 5
<PAGE> 42
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 1995 and 1994 (unaudited)
and for the years ended December 31, 1994, 1993, and 1992
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. The Company is a closed-end management investment
company that has elected to be regulated as a business development company
under the Investment Company Act of 1940. The Company's objective is to
achieve a high level of current income by providing debt, mezzanine and equity
financing, primarily for small privately owned growth companies and through
long-term growth on the value of its net assets. The Company has two wholly
owned, regulated investment company subsidiaries, Allied Investment and Allied
Financial. Allied Investment and Allied Financial are licensed under the Small
Business Investment Act of 1958 as a Small Business Investment Company (SBIC)
and a Specialized Small Business Investment Company (SSBIC), respectively.
The Company has an investment advisory agreement with Allied Advisers, whereby
Advisers manages the investments of the Company subject to the supervision and
control of the Company's board of directors. Certain directors and officers of
Advisers are also directors and officers of the Company.
Co-investments. Investments made by the Company are made in participation with
a separately organized public closed-end management investment company and two
private venture capital partnerships, which are also managed by the Company's
investment adviser, in accordance with various exemptive orders issued to the
Company by the Securities and Exchange Commission permitting co-investments.
Principles of consolidation. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries after elimination of
intercompany balances and transactions.
Valuation of investments. Investments are carried at value, as determined by
the Board of Directors. Investments in companies whose securities are publicly
traded are generally valued at their quoted market price, less a discount to
reflect the effects of restrictions on the sale of such securities. U.S.
government securities are carried at cost which approximates fair value.
Interest income. Interest income is recorded on the accrual basis to the
extent that such amounts will be collected.
Realized and unrealized gains or losses on investments. Realized gains or
losses are measured by the difference between the proceeds of sale and the cost
basis of the investment without regard to unrealized gains or losses previously
recognized, and include securities written off during the year, net of
recoveries. Unrealized gains or losses reflect the difference between cost and
value.
Distributions to shareholders. Distributions to shareholders are recorded on
the ex-dividend date.
Federal income taxes. The Company and its wholly owned subsidiaries' policies
are to comply with the requirements of the Internal Revenue Code of 1986, as
amended, that are applicable to regulated investment companies. The Company and
its wholly owned subsidiaries annually distribute all of their taxable income
to their shareholders; therefore, a federal income tax provision is not
required.
Additionally, no provision for deferred income taxes has been made for
unrealized gains on securities since the Company and its wholly owned
subsidiaries intend to continue to annually distribute all of their taxable
realized capital gains.
F - 6
<PAGE> 43
Dividends declared by the Company in October, November or December which are
payable to shareholders of record on a specified date in such months, but are
paid during January of the following year, may be treated as if the dividends
were received by the shareholder on December 31 of the year declared.
Earnings Per Common Share. Earnings are defined as the net investment income
and realized and unrealized gains or losses on investments and are reduced by
the preferred stock dividend requirements. The computation of earnings per
common share are based on the weighted average number of common shares and
common share equivalents outstanding. Common share equivalents included in the
computation represent shares issuable upon assumed exercise of stock options
which would have a dilutive effect in years where there are earnings. In
addition, earnings per share is computed assuming that all issuances of the
Company's common stock in connection with its dividend reinvestment plan are
outstanding for all periods presented. During 1995, the Company has issued
32,957 shares of common stock pursuant to the dividend reinvestment plan. The
weighted average number of shares and share equivalents outstanding for the
three and nine months ended September 30, 1994 have been restated to include
the 1996 common stock issuances under the dividend reinvestment plan. In
addition, the computation of net assets per common share as of September 30,
1994 has been restated to reflect the issuance of common stock pursuant to the
dividend reinvestment plan during 1995.
Cash and Cash Equivalents. The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(in thousands) September 30, December 31,
------------- -------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Cash $ 8,904 $ 4,707 $ 6,083
Repurchase agreements 2,059 1,902 18,275
--------- --------- ---------
Total $ 10,963 $ 6,609 $ 24,358
========= ========= =========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Reclassifications. Certain reclassifications have been made to the 1994, 1993,
and 1992 financial statements to conform with the 1995 financial statement
presentation.
NOTE 2. INVESTMENT ADVISORY AGREEMENT
The Company has an investment advisory agreement with Advisers that is approved
at least annually by the Board of Directors or by vote of the holders of a
majority of the outstanding shares of the Company. The agreement may be
terminated at any time on sixty days' notice, without penalty, by the Company's
Board of Directors or by vote of the holders of a majority of the Company's
outstanding shares and will terminate automatically in the event of its
assignment.
The Company pays all operating expenses, except those specifically required to
be borne by Advisers. The expenses paid by Advisers include the compensation
of the Company's investment 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 audit 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 shareholders, 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 a company, including a portfolio company, for
F - 7
<PAGE> 44
special investment banking or consulting work performed for that company which
is not related to such investment transaction. As compensation for its
services to and the expenses paid for the account of the Company, Advisers is
paid a fee, quarterly in arrears. Beginning in the second quarter of 1995, a
fee was paid equal to 0.625 percent 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 interim investments (i.e., U.S. government
securities) and cash and cash equivalents, plus 0.125 percent per quarter of
the quarter-end value of interim investments, cash and cash equivalents. In
the first quarter of 1995, and in 1994, 1993 and 1992, a fee was paid equal to
0.625 percent 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 (subsequent to Allied Lending's public offering in November
1993) and cash and cash equivalents in excess of $2,000,000 in working capital.
NOTE 3. DIVIDENDS AND DISTRIBUTIONS
The Company's Board of Directors declared and the Company paid a $0.22 per
share dividend for the third quarter and a $0.20 per share dividend each for
the first and second quarters of 1995.
The components of the cash dividends and distributions of taxable income
declared by the Board of Directors for 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1994 1993 1992
--------------------- -------------------- --------------------
Per Per Per
Amount Share Amount Share Amount Share
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Ordinary income $ 1,921 $ 0.31 $ $ - $ 2,703 $ 0.45
-
Long-term capital gains 5,630 0.92 8,239 1.35 5,324 0.87
Return of capital (tax) 1,044 0.17 - - - -
------- ------ -------- ------ -------- ------
Totals $ 8,595 $ 1.40 $ 8,239 $ 1.35 $ 8,027 $ 1.32
======= ====== ======== ====== ======== ======
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The 1994 distributions of $1.40 per common share were comprised of cash
payments, issuance of the Company's common shares pursuant to the Company's
dividend reinvestment plan, and the issuance of shares of Allied Lending in the
amounts of $0.76, $0.04, and $0.60, respectively. The 1993 and 1992
distributions of $1.35 and $1.32 per common share, respectively, were paid in
cash. Amount represents the total of the quarterly dividends and the year-end
extra distribution declared by the Company based on the actual shares
outstanding on the record date for each dividend paid.
The following represents a reconciliation from taxable income to income for
financial reporting purposes for the years ended December 31:
F - 8
<PAGE> 45
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(in thousands, except per share 1994 1993 1992
amounts) --------------------- ---------------------- ---------------------
Per Per Per
Amount Share Amount Share Amount Share
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Taxable income $ 7,771 $ 1.26 $ 8,239 $ 1.35 $ 8,027 $ 1.31
Market discount amortization (807) (0.13) - - - -
Realized gains (1,049) (0.17) - - (465) (0.08)
Unrealized gains (losses) (5,296) (0.86) 12,163 1.97 694 0.11
Other (395) (0.06) 4 - - -
-------- ------- ------ ----- ------- ------
Financial statement income 224 0.04 20,406 3.32 8,256 1.34
Preferred stock dividends (220) (0.04) (220) (0.04) (220) (0.03)
-------- ------- -------- ------- --------- -------
Amount available for common
shareholders $ 4 $ 0.00 $ 20,186 $ 3.28 $ 8,036 $ 1.31
======= ====== ======== ====== ======== ======
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4. DEBT
Line of Credit. The Company has a revolving line of credit agreement with a
bank under which it may borrow up to $10,000,000, which bears interest at the
thirty-day LIBOR rate plus 1.15 percent and expires November 30, 1995. As of
September 30, 1995, the Company has available $10,000,000 under the revolving
line of credit agreement.
Senior Notes. The Company has $20,000,000 of senior notes outstanding to an
insurance company. These notes bear interest at a rate of 9.15 percent per
annum, payable semi-annually. The senior notes are scheduled to mature over a
five-year period commencing in 1998 through 2002 with annual principal payments
of $4,000,000.
Subordinated Debentures. Subordinated debentures are payable to the Small
Business Administration (SBA) and represent amounts due to the SBA as a result
of borrowings made pursuant to the Small Business Investment Act of 1958. The
debentures require semi-annual interest payments at various interest rates with
the entire principal balance due at maturity. Principal payments required on
these debentures at September 30, 1995 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year Ending December Amount
31, (in thousands) Interest Rates
-------------------- -------------- --------------
<S> <C> <C>
1997 $ 7,000 7.95% - 10.35%
1998 6,650 8.875% - 9.80%
2000 17,300 8.70% - 9.60%
Thereafter 30,350 6.875% - 9.08%
----------
Total $ 61,300
==========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F - 9
<PAGE> 46
OPIC Facility. On April 10, 1995, the Company entered into a loan
agreement with the Overseas Private Investment Corporation under which the
Company may borrow up to $20 million to provide financing for international
projects involving qualifying U.S. small businesses. Loans under this
agreement bear interest at the U.S. Treasury Rate plus 0.5% and have a ten year
maturity from the date of disbursement. The loan agreement expires on the
earlier of the first date on which the amount of the loan(s) equal $20 million
or April 10, 1998. At September 30, 1995, there were no outstanding borrowings
under the loan agreement.
NOTE 5. PREFERRED STOCK
As of September 30, 1995, the Company's subsidiary, Allied Capital Financial
Corporation, had outstanding a total of 60,000 shares of $100 par value, 3
percent cumulative preferred stock and 10,000 shares of $100 par value, 4
percent redeemable cumulative preferred stock issued to the SBA pursuant to
Section 303(c) of the Small Business Investment Act of 1958, as amended. The 3
percent cumulative preferred stock does not have a required redemption date.
Allied Capital Financial Corporation has the option to redeem in whole or in
part the preferred stock by paying the SBA the par value of such securities and
any dividends accumulated and unpaid to the date of redemption. The 4 percent
redeemable cumulative preferred stock has a required redemption date of June 4,
2005.
NOTE 6. SHAREHOLDERS' EQUITY
During 1994, the Company paid $1,044,000 in distributions that represented a
return of capital for tax purposes. This has been charged to additional paid-in
capital.
The Company has a dividend reinvestment plan (the "Plan"). Shareholders of
record may enroll in the Plan at any time. The Company instructs the stock
transfer agent to buy shares in the open market or to issue new shares. When
the Company issues new shares, the price is equal to the average of the closing
sales prices reported for the shares for the five days on which trading in the
shares takes place immediately prior to the dividend payment date. During the
nine month period ended September 30, 1995, the Company issued 32,957 shares at
an average price of $12.30 per share. During 1994, the Company issued 18,513
shares at an average price of $13.13 per share.
The Company has an incentive stock option plan which allows the granting of
options to the Company's officers. Under the plan as amended, a maximum of
1,350,000 options may be granted at a price not less than the market value on
the date of grant and may be exercisable over a ten year period. In May 1994,
the option plan was amended to permit grants to non-officer directors and each
non-officer director of the Company (five in total) received a one-time grant
to purchase 10,000 shares at the then current market price, which grants are
subject to SEC approval of the Company's application for an exemptive order to
permit such grants.
Holders of ten percent or more of the Company's stock must exercise their
options within a five-year period.
Officers of the Company may borrow from the Company the funds necessary to
exercise vested stock options. The loans have varying terms not exceeding ten
years and bear interest generally at the applicable federal interest rate in
effect at the date of issue. A summary of the activity in the plan is as
follows:
F - 10
<PAGE> 47
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Nine months ended
September 30, Year ended December 31,
------------- ---------------------------------------------------------------
1995 1994 1993 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Options outstanding at 701,473 686,847 496,285 494,809
beginning of period
Options granted 282,800 50,000 336,101 86,228
Options exercised - (25,382) (19,169) (59,007)
Options cancelled (194,886) (9,992) (126,370) (25,745)
--------- --------- ---------- ---------
Options outstanding at
end of period 789,387 701,473 686,847 496,285
========= ========= ========== =========
Options available for
grant at end of
period 212,136 300,050 3,967 138,248
Options exercisable at
end of period 518,578 521,487 422,362 457,899
Option price per share:
Granted $12.38 $14.13 $13.00 $18.00
Exercised - $7.34 - $8.53 $9.00 - $12.00 $12.00 - $16.50
Cancelled $12.05 - $16.50 $14.00 - $16.50 $14.00 - $18.00 $14.00 - $18.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7. SUPPLEMENTAL CASH FLOW INFORMATION
The consolidated statement of cash flows excludes the effects of certain
noncash investing and financing activities relating to restructuring of
investments and the issuance of common shares as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) Nine months ended
September 30, Year ended December 31,
---------------- -------------------------------------------
1995 1994 1993 1992
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Issuance of common shares in exchange for
notes receivable $ - $ 200 $ 201 $ 741
Issuance of common shares in lieu of cash
dividends $ 405 $ 243 $ - $ 124
Issuance of Allied Capital Lending
Corporation shares in lieu of cash
dividends $ 3,906 $ - $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition, the Company paid interest in the amount of $4,411,000 for the nine
months ended September 30, 1995 and $6,223,000, $6,319,000 and $4,659,000
during 1994, 1993, and 1992, respectively.
F - 11
<PAGE> 48
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company had commitments outstanding at September 30, 1995 to various
prospective portfolio companies totaling $13.6 million.
At September 30, 1995, the Company had standby letters of credit and third
party guarantees outstanding totaling $1.4 million. The letters of credit have
been issued by a financial institution on behalf of the Company to guarantee
performance of certain portfolio companies to third parties. Repurchase
agreements of $0.9 million have been used as collateral for the letters of
credit and guarantees.
The Company is party to certain lawsuits in connection with investments it has
made to small businesses. While the outcome of these legal proceedings cannot
at this time be predicted with certainty, management does not expect that these
actions will have a material effect upon the financial position of the Company.
Allied Lending, formerly a wholly owned subsidiary, originates loans which are
70%-90% guaranteed by the SBA. Lending then sells the guaranteed portion of
these loans in the secondary market. The Internal Revenue Service may assert
that these transactions subject Allied Lending to a liability for income taxes
of up to $845,000 for the year ended December 31, 1992. The Company has agreed
to indemnify Allied Lending for this potential liability. Management believes
that the Company has valid defenses for the position that such transactions do
not subject Allied Lending to a liability for additional income taxes.
NOTE 9. CONCENTRATIONS OF CREDIT RISK
The Company and its subsidiaries place their cash in financial institutions and
at times, cash held in checking accounts may be in excess of the FDIC insurance
limit. As of September 30, 1995, the Company had invested in repurchase
agreements collateralized by U.S. government securities. These repurchase
agreements mature within seven days.
Investments in U.S. government securities at September 30, 1995 have maturities
from December 1995 to December 1996 with interest rates ranging from 4.25
percent to 6.875 percent.
NOTE 10. DISPOSITION OF SUBSIDIARY
The Company owned all of the outstanding capital stock of Allied Capital
Lending Corporation ("Allied Lending") prior to consummation of the initial
public offering of Allied Lending shares in November 1993. As a result of that
intial public offering, the Company's ownership of Allied Lending shares was
reduced to 1,580,000 shares, or approximately 36% of the Allied Lending shares
outstanding at December 31, 1993. The Company has agreed that it would divest
itself of all shares of Allied Lending by December 31, 1998 by public
offerings, private placements, distributions to the Company's shareholders or
otherwise. The Company declared an extra dividend in December 1994 and
distributed on January 8, 1995 an aggregate of 335,086 Allied Lending shares,
which reduced its ownership of Allied Lending shares to 1,244,914 shares, or
approximately 28% of the Allied Lending shares then outstanding.
F - 12
<PAGE> 49
NOTE 11. QUARTERLY FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
(in thousands, except per share information) 1995
------------------------------------------------
Qtr 1 Qtr 2 Qtr 3
---------- ----------- ----------
<S> <C> <C> <C>
Total investment income $ 3,549 $ 3,229 $ 3,564
Net investment income $ 881 $ 504 $ 899
Net increase in net assets resulting
from operations $ 2,134 $ 7,196 $ 3,089
Preferred stock dividends $ 55 $ 55 $ 55
Net increase in net assets resulting
from operations available to
common shareholders $ 2,079 $ 7,141 $ 3,034
Per common share $ 0.34 $ 1.16 $ 0.49
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1994
----------------------------------------------------------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4(1)
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Total investment income $ 2,594 $ 2,507 $ 2,718 $ 4,397
Net investment income $ 204 $ 131 $ 518 $ 1,273
Net increase (decrease) in net assets
resulting from operations $ 752 $ 2,641 $ (55) $ (3,114)
Preferred stock dividends $ 55 $ 55 $ 55 $ 55
Net increase (decrease) in net assets
resulting from operations
available to common
shareholders $ 697 $ 2,586 $ (110) $ (3,169)
Per common share $ 0.11 $ 0.42 $ (0.02) $ (0.52)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F - 13
<PAGE> 50
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1993
----------------------------------------------------------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Total investment income $ 2,406 $ 3,425 $ 3,759 $ 2,794
Net investment income (loss) $ 131 $ 885 $ 1,303 $ (19)
Net increase (decrease) in net assets
resulting from operations $ 282 $ (889) $ 2,156 $ 18,857
Preferred stock dividends $ 55 $ 55 $ 55 $ 55
Net increase (decrease) in net assets
resulting from operations
available to common
shareholders $ 227 $ (944) $ 2,101 $ 18,802
Per common share $ 0.04 $ (0.15) $ 0.34 $ 3.06
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in the 1994 fourth quarter income was $0.7 million in interest
income resulting from the restructuring of certain non-performing loans that
had not been accrued into income in prior periods.
Quarterly amounts for 1993 and 1994 have been reclassified to conform with
classifications used in the financial statements for 1995.
F - 14
<PAGE> 51
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF LOANS TO AND INVESTMENTS IN SMALL BUSINESS CONCERNS
(dollars in thousands)
SEPTEMBER 30, 1995 DECEMBER 31, 1994
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AGPAL BROADCASTING, INC. (OR) Loans and Debt Securities $930 $930 $933 $933
(radio stations) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIED CAPITAL LENDING CORPORATION (MD)(1,3,5) Common Stock (1,244,914 shares) 2,996 11,951 3,802 14,906
(small business lender)
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIED WASTE INDUSTRIES, INC. (AZ)(1) Loans and Debt Securities 0 0 0 0
(solid waste collection & removal) Warrants 92 1,038 92 92
- ------------------------------------------------------------------------------------------------------------------------------------
AMERICAN BARBECUE & GRILL (KS) Loans and Debt Securities 1,790 1,790 926 926
(restaurant) Warrants 71 71 71 71
- ------------------------------------------------------------------------------------------------------------------------------------
ARNOLD MOVING CO. (KY) Loans and Debt Securities 298 298 297 297
(moving/storage firm) Warrants 11 11 11 11
- ------------------------------------------------------------------------------------------------------------------------------------
ASW HOLDING CORPORATION (IL) Loans and Debt Securities 831 831 829 829
(steel wool manufacturer) Warrants 53 53 53 53
- ------------------------------------------------------------------------------------------------------------------------------------
ATLANTIC HOMES DEVELOPMENT CORP. (VA) Loans and Debt Securities 0 0 320 320
(real estate development) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
BELLEFONTE LIME CO. (PA)(3) Common Stock (2,869 shares) 16 533 16 104
(mineral quarry & production)
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCAST HOLDINGS, INC. (DC)(3) Loans and Debt Securities 3,039 2,900 3,215 2,166
(radio station)
- ------------------------------------------------------------------------------------------------------------------------------------
CELEBRITIES, INC. (FL) Loans and Debt Securities 414 414 428 428
(radio station) Warrants 12 12 12 12
- ------------------------------------------------------------------------------------------------------------------------------------
CENTENNIAL MEDIA CORP. (CO)(2) Loans and Debt Securities 2,078 725 2,078 900
(telephone directories) Common Stock (1,803 shares) 948 0 948 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGPAL BROADCASTING, INC. (OR) Loans and Debt Securities $935 $935
(radio stations) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIED CAPITAL LENDING CORPORATION (MD)(1,3,5) Common Stock (1,244,914 shares) 3,757 18,960
(small business lender)
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIED WASTE INDUSTRIES, INC. (AZ)(1) Loans and Debt Securities 1,630 1,630
(solid waste collection & removal) Warrants 92 92
- ------------------------------------------------------------------------------------------------------------------------------------
AMERICAN BARBECUE & GRILL (KS) Loans and Debt Securities 0 0
(restaurant) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
ARNOLD MOVING CO. (KY) Loans and Debt Securities 295 295
(moving/storage firm) Warrants 11 11
- ------------------------------------------------------------------------------------------------------------------------------------
ASW HOLDING CORPORATION (IL) Loans and Debt Securities 1,362 1,362
(steel wool manufacturer) Warrants 53 53
- ------------------------------------------------------------------------------------------------------------------------------------
ATLANTIC HOMES DEVELOPMENT CORP. (VA) Loans and Debt Securities 0 0
(real estate development) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
BELLEFONTE LIME CO. (PA)(3) Common Stock (2,869 shares) 16 150
(mineral quarry & production)
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCAST HOLDINGS, INC. (DC)(3) Loans and Debt Securities 3,302 2,200
(radio station)
- ------------------------------------------------------------------------------------------------------------------------------------
CELEBRITIES, INC. (FL) Loans and Debt Securities 437 437
(radio station) Warrants 12 12
- ------------------------------------------------------------------------------------------------------------------------------------
CENTENNIAL MEDIA CORP. (CO)(2) Loans and Debt Securities 1,645 0
(telephone directories) Common Stock (1,803 shares) 948 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company; (2) Interest not being accrued as of September 30, 1995;
(3) May be considered an affiliate; (4) Share information as of September 30,
1995; (5) Non-qualifying asset for BDC purposes as of September 30, 1995.
F - 15
<PAGE> 52
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(UNAUDITED) DECEMBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CERATECH CORPORATION (IL) Loans and Debt Securities 1,180 1,180 1,180 1,180
(ceramic plate manufacturer) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
CHERRY TREE TOYS, INC. (OH) Loans and Debt Securities 1,091 1,091 1,146 1,146
(direct marketer of woodcrafts) Common Stock (117 shares) 1 0 1 0
- ------------------------------------------------------------------------------------------------------------------------------------
CITIPOSTAL, INC. (NY)(2) Loans and Debt Securities 0 0 216 216
(courier network) Preferred Stock Series A 0 0 177 177
Convertible Preferred Stock Series B 289 0 289 0
Common Stock (27 shares) 71 0 173 103
Warrants 0 0 7 7
- ------------------------------------------------------------------------------------------------------------------------------------
COAST GAS, INC. (CA) Loans and Debt Securities 2,168 2,168 2,159 2,159
(courier network) Warrants 124 124 124 124
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER HEALTH SERVICES, INC. (CO) Convertible Preferred Stock (234,583 shares) 116 0 180 54
(medical/dental consumer info. service) Common Stock (127,940 shares) 64 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
CONTEMPORARY MEDIA (ID) Loans and Debt Securities 586 586 602 602
(radio stations) Warrants 204 204 204 204
- ------------------------------------------------------------------------------------------------------------------------------------
DEH PRINTED CIRCUITS, INC. (IL) Loans and Debt Securities 2,307 2,307 2,287 2,287
(circuit board manufacturer) Warrants 133 133 133 133
- ------------------------------------------------------------------------------------------------------------------------------------
DEVLIEG-BULLARD INC. (CT)(1) Loans and Debt Securities 2,134 2,134 2,104 2,104
(tool manufacturer) Warrants 275 400 275 275
- ------------------------------------------------------------------------------------------------------------------------------------
DMI FURNITURE, INC. (KY)(1) Convertible Preferred Stock (399,840 shares) 500 279 500 576
(furniture manufacturer)
- ------------------------------------------------------------------------------------------------------------------------------------
DOGLOO, INC. (CA) Loans and Debt Securities 3,335 3,335 3,307 3,307
(pet products manufacturer) Warrants 0 0 265 265
- ------------------------------------------------------------------------------------------------------------------------------------
EDWARDS HEATING & AIR CONDITIONING (GA) Loans and Debt Securities 2,306 441 2,306 911
(heating & air conditioning Warrants 29 0 29 0
dealer/contractor)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CERATECH CORPORATION (IL) Loans and Debt Securities 0 0
(ceramic plate manufacturer) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
CHERRY TREE TOYS, INC. (OH) Loans and Debt Securities 1,022 1,022
(direct marketer of woodcrafts) Common Stock (117 shares) 23 23
- ------------------------------------------------------------------------------------------------------------------------------------
CITIPOSTAL, INC. (NY)(2) Loans and Debt Securities 216 216
(courier network) Preferred Stock Series A 177 177
Convertible Preferred Stock Series B 289 31
Common Stock (27 shares) 173 75
Warrants 7 7
- ------------------------------------------------------------------------------------------------------------------------------------
COAST GAS, INC. (CA) Loans and Debt Securities 0 0
(courier network) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER HEALTH SERVICES, INC. (CO) Convertible Preferred Stock (234,583 shares) 180 54
(medical/dental consumer info. service) Common Stock (127,940 shares) 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
CONTEMPORARY MEDIA (ID) Loans and Debt Securities 0 0
(radio stations) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
DEH PRINTED CIRCUITS, INC. (IL) Loans and Debt Securities 0 0
(circuit board manufacturer) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
DEVLIEG-BULLARD INC. (CT)(1) Loans and Debt Securities 0 0
(tool manufacturer) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
DMI FURNITURE, INC. (KY)(1) Convertible Preferred Stock (399,840 shares) 500 1,040
(furniture manufacturer)
- ------------------------------------------------------------------------------------------------------------------------------------
DOGLOO, INC. (CA) Loans and Debt Securities 0 0
(pet products manufacturer) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
EDWARDS HEATING & AIR CONDITIONING (GA) Loans and Debt Securities 1,776 1,312
(heating & air conditioning Warrants 29 0
dealer/contractor)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company; (2) Interest not being accrued as of September 30, 1995;
(3) May be considered an affiliate; (4) Share information as of September 30,
1995; (5) Non-qualifying asset for BDC purposes as of September 30, 1995.
F - 16
<PAGE> 53
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1995 DECEMBER 31, 1994
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ENVIRCO CORP. (NJ) Loans and Debt Securities 0 0 32 188
(clean room equipment manufacturer) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
ENVIROPLAN, INC. (NJ) Loans and Debt Securities 2,443 1,890 2,425 2,425
(emissions monitoring equipment mfg.) Warrants 119 0 120 204
- ------------------------------------------------------------------------------------------------------------------------------------
ESQUIRE COMMUNICATIONS, LTD. (NY)(1) Loans and Debt Securities 2,397 2,397 2,397 2,397
(court reporters) Warrants 3 36 3 3
- ------------------------------------------------------------------------------------------------------------------------------------
FOUNTAINHEAD TECHNOLOGIES, INC. (RI) Loans and Debt Securities 1,180 1,180 1,180 1,180
(non-chlorine water purification sys.) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
GARDEN RIDGE CORP. (TX) Loans and Debt Securities 0 0 3,302 3,302
(home decorating and craft products) Common Stock (61,241 shares) 687 3,469 761 1,236
Warrants 112 1,455 112 145
- ------------------------------------------------------------------------------------------------------------------------------------
GATEWAY HEALTHCARE CORP. (VA) Loans and Debt Securities 853 853 853 853
(medical/supplies distributor) Convertible Preferred Stock
(10,725 shares) 497 42 497 42
Warrants 2 0 2 0
- ------------------------------------------------------------------------------------------------------------------------------------
GENOA MINE ACQUISITION CORP. (OH)(3) Capital Stock (20 shares) 44 533 44 44
(limestone mining)
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL SOFTWARE INC. (NC) Loans and Debt Securities 1,664 1,664 1,662 1,662
(accounting software development) Warrants 19 626 19 19
- ------------------------------------------------------------------------------------------------------------------------------------
GRANT BROADCASTING SYSTEMS II (FL) Loans and Debt Securities 1,072 1,072 1,064 1,064
(television stations) Warrants 78 448 78 78
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH PLAINS CABLEVISION (TX) Loans and Debt Securities 0 0 129 129
(cable television) Warrants 0 0 14 14
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSTON FOODS COMPANY (IL) Loans and Debt Securities 0 0 0 0
(seasonal gift packages) Convertible Preferred Stock 0 0 0 0
Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENVIRCO CORP. (NJ) Loans and Debt Securities 700 700
(clean room equipment manufacturer) Warrants 32 32
- ------------------------------------------------------------------------------------------------------------------------------------
ENVIROPLAN, INC. (NJ) Loans and Debt Securities 1,906 1,906
(emissions monitoring equipment mfg.) Warrants 60 60
- ------------------------------------------------------------------------------------------------------------------------------------
ESQUIRE COMMUNICATIONS, LTD. (NY)(1) Loans and Debt Securities 0 0
(court reporters) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
FOUNTAINHEAD TECHNOLOGIES, INC. (RI) Loans and Debt Securities 0 0
(non-chlorine water purification sys.) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
GARDEN RIDGE CORP. (TX) Loans and Debt Securities 1,821 1,821
(home decorating and craft products) Common Stock (61,241 shares) 387 387
Warrants 112 112
- ------------------------------------------------------------------------------------------------------------------------------------
GATEWAY HEALTHCARE CORP. (VA) Loans and Debt Securities 701 692
(medical/supplies distributor) Convertible Preferred Stock
(10,725 shares) 650 199
Warrants 2 0
- ------------------------------------------------------------------------------------------------------------------------------------
GENOA MINE ACQUISITION CORP. (OH)(3) Capital Stock (20 shares) 44 0
(limestone mining)
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL SOFTWARE INC. (NC) Loans and Debt Securities 0 0
(accounting software development) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
GRANT BROADCASTING SYSTEMS II (FL) Loans and Debt Securities 1,045 1,045
(television stations) Warrants 78 78
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH PLAINS CABLEVISION (TX) Loans and Debt Securities 142 142
(cable television) Warrants 14 14
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSTON FOODS COMPANY (IL) Loans and Debt Securities 126 126
(seasonal gift packages) Convertible Preferred Stock 7 152
Warrants 3 89
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company; (2) Interest not being accrued as of September 30, 1995;
(3) May be considered an affiliate; (4) Share information as of September 30,
1995; (5) Non-qualifying asset for BDC purposes as of September 30, 1995.
F - 17
<PAGE> 54
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1995 DECEMBER 31, 1994
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INNOTECH, INC. (VA) Warrants 29 29 29 29
(bifocal lens manufacturer)
- ------------------------------------------------------------------------------------------------------------------------------------
ISOTECHNOLOGIES, INC. (NC) Convertible Debt Securities 602 602 609 609
(orthopedic equipment)
- ------------------------------------------------------------------------------------------------------------------------------------
JACKSON PRODUCTS, INC. (MI) Loans and Debt Securities 0 0 856 856
(safety equipment manufacturer) Common Stock 0 0 230 303
- ------------------------------------------------------------------------------------------------------------------------------------
JARAD BROADCASTING (NY) Loans and Debt Securities 0 0 0 0
(radio station) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
JUNE BROADCASTING (NJ) Loans and Debt Securities 0 0 0 0
(radio station) Warrants 58 1,680 58 582
- ------------------------------------------------------------------------------------------------------------------------------------
KIRKER ENTERPRISES (NJ) Loans and Debt Securities 2,131 2,131 0 0
(chemical manufacturer) Warrants 203 203 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
LOVE MORTGAGE CO. (DC) Loans and Debt Securities 736 736 736 736
(real estate mortgages) Convertible Debentures 0 0 0 0
Warrants 200 0 200 0
- ------------------------------------------------------------------------------------------------------------------------------------
MARKINGS & EQUIPMENT CORP. (FL)(2) Loans and Debt Securities 0 0 0 0
(highway striping) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
MASTER POWER, INC. (MD) Loans and Debt Securities 286 286 285 285
(power tool manufacturer) Preferred Stock (37,097 shares) 7 7 7 7
Warrants 4 4 4 4
- ------------------------------------------------------------------------------------------------------------------------------------
MAXTEC INTERNATIONAL CORP. (IL) Loans and Debt Securities 0 0 85 85
(electronic test instruments) Warrants 0 0 7 7
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIFIT OF AMERICA, INC. (NJ) Loans and Debt Securities 895 895 1,584 1,584
(physical rehabilitation) Warrants 93 0 93 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INNOTECH, INC. (VA) Warrants 29 29
(bifocal lens manufacturer)
- ------------------------------------------------------------------------------------------------------------------------------------
ISOTECHNOLOGIES, INC. (NC) Convertible Debt Securities 580 435
(orthopedic equipment)
- ------------------------------------------------------------------------------------------------------------------------------------
JACKSON PRODUCTS, INC. (MI) Loans and Debt Securities 839 839
(safety equipment manufacturer) Common Stock 173 173
- ------------------------------------------------------------------------------------------------------------------------------------
JARAD BROADCASTING (NY) Loans and Debt Securities 2,111 2,111
(radio station) Warrants 73 73
- ------------------------------------------------------------------------------------------------------------------------------------
JUNE BROADCASTING (NJ) Loans and Debt Securities 1,346 1,346
(radio station) Warrants 58 58
- ------------------------------------------------------------------------------------------------------------------------------------
KIRKER ENTERPRISES (NJ) Loans and Debt Securities 0 0
(chemical manufacturer) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
LOVE MORTGAGE CO. (DC) Loans and Debt Securities 732 732
(real estate mortgages) Convertible Debentures 197 197
Warrants 205 19
- ------------------------------------------------------------------------------------------------------------------------------------
MARKINGS & EQUIPMENT CORP. (FL)(2) Loans and Debt Securities 1,613 975
(highway striping) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
MASTER POWER, INC. (MD) Loans and Debt Securities 348 348
(power tool manufacturer) Preferred Stock (37,097 shares) 7 7
Warrants 4 4
- ------------------------------------------------------------------------------------------------------------------------------------
MAXTEC INTERNATIONAL CORP. (IL) Loans and Debt Securities 161 161
(electronic test instruments) Warrants 7 7
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIFIT OF AMERICA, INC. (NJ) Loans and Debt Securities 1,501 1,501
(physical rehabilitation) Warrants 93 93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company; (2) Interest not being accrued as of September 30, 1995;
(3) May be considered an affiliate; (4) Share information as of September 30,
1995; (5) Non-qualifying asset for BDC purposes as of September 30, 1995.
F - 18
<PAGE> 55
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MILL-IT STRIPING (FL) Loans and Debt Securities 125 125 125 125
(highway paint striping) Warrants 125 0 125 125
- ------------------------------------------------------------------------------------------------------------------------------------
MIDVIEW ASSOCIATES (VA) Loans and Debt Securities 282 282 0 0
(real estate development) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
MLX/SINTERMET CORP. (GA)(1) Common Stock (5,835 shares-MLX) 241 61 241 24
(friction materials manufacturer)
- ------------------------------------------------------------------------------------------------------------------------------------
MONTGOMERY TANK LINES (FL) Common Stock 0 0 0 0
(tank truck carrier) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
NOBEL EDUCATION DYNAMICS (PA)(1) Loans and Debt Securities 2,250 2,250 0 0
(education) Preferred Stock (398,936 shares) 750 1,047 0 0
Warrants 0 345 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
OLD MILL HOLDINGS, INC. (NY) Loans and Debt Securities 657 657 545 545
(custom embroidery of apparel) Warrants 45 0 35 35
- ------------------------------------------------------------------------------------------------------------------------------------
PALMER CORPORATION (NJ) Preferred Stock (200,000 shares) 200 100 200 100
(video stores)
- ------------------------------------------------------------------------------------------------------------------------------------
PIATL HOLDINGS, INC. (NJ)(3) Loans and Debt Securities 167 167 148 148
(environmental consulting) Preferred Stock (36 shares) 267 44 267 106
Common Stock (36 shares) 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
POLYFLEX/B & L HOLDINGS (MS) Loans and Debt Securities 529 533 665 665
(plastic bag manufacturer) Warrants 28 486 28 487
- ------------------------------------------------------------------------------------------------------------------------------------
PROVIDENTIAL CORPORATION (CA)(1) Common Stock (52,794 shares) 1,000 211 1,000 211
(shared appreciation reverse mortgages)
- ------------------------------------------------------------------------------------------------------------------------------------
RADIO ONE (GA) Loans and Debt Securities 2,280 2,280 0 0
(radio stations) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MILL-IT STRIPING (FL) Loans and Debt Securities 0 0
(highway paint striping) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
MIDVIEW ASSOCIATES (VA) Loans and Debt Securities 0 0
(real estate development) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
MLX/SINTERMET CORP. (GA)(1) Common Stock (5,835 shares-MLX) 241 31
(friction materials manufacturer)
- ------------------------------------------------------------------------------------------------------------------------------------
MONTGOMERY TANK LINES (FL) Common Stock 62 92
(tank truck carrier) Warrants 46 346
- ------------------------------------------------------------------------------------------------------------------------------------
NOBEL EDUCATION DYNAMICS (PA)(1) Loans and Debt Securities 0 0
(education) Preferred Stock (398,936 shares) 0 0
Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
OLD MILL HOLDINGS, INC. (NY) Loans and Debt Securities 0 0
(custom embroidery of apparel) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
PALMER CORPORATION (NJ) Preferred Stock (200,000 shares) 200 100
(video stores)
- ------------------------------------------------------------------------------------------------------------------------------------
PIATL HOLDINGS, INC. (NJ)(3) Loans and Debt Securities 293 393
(environmental consulting) Preferred Stock (36 shares) 266 0
Common Stock (36 shares) 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
POLYFLEX/B & L HOLDINGS (MS) Loans and Debt Securities 813 813
(plastic bag manufacturer) Warrants 28 506
- ------------------------------------------------------------------------------------------------------------------------------------
PROVIDENTIAL CORPORATION (CA)(1) Common Stock (52,794 shares) 1,000 277
(shared appreciation reverse mortgages)
- ------------------------------------------------------------------------------------------------------------------------------------
RADIO ONE (GA) Loans and Debt Securities 0 0
(radio stations) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company; (2) Interest not being accrued as of September 30, 1995;
(3) May be considered an affiliate; (4) Share information as of September 30,
1995; (5) Non-qualifying asset for BDC purposes as of September 30, 1995.
F - 19
<PAGE> 56
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
R-TEX DECORATIVES COMPANY, INC. (PA) Loans and Debt Securities 905 905 902 902
(decorative ribbon manufacturer) Warrants 32 0 32 32
- ------------------------------------------------------------------------------------------------------------------------------------
SALTON/MAXIM HOUSEWARES, INC. (IL)(1,2) Loans and Debt Securities 0 0 0 0
(small appliance distributor) Common Stock 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
SPA LENDING CORPORATION (DC)(3) Preferred Stock Series A (5,578 shares) 398 398 398 398
(health spas) Preferred Stock Series B (8,755 shares) 506 424 506 506
Preferred Stock Series C (14,092 shares) 1,680 0 1,680 632
Common Stock (6,208 shares) 413 0 413 0
- ------------------------------------------------------------------------------------------------------------------------------------
SUNSTATES REFRIGERATED SERVICES, INC. (GA)(3) Loans and Debt Securities 2,778 2,778 2,799 2,799
(cold food storage) Preferred Stock (43,884 shares) 193 193 204 204
Common Stock (163 shares) 145 145 145 137
- ------------------------------------------------------------------------------------------------------------------------------------
TACO TICO, INC. (KS)(2) Loans and Debt Securities 1,189 382 1,188 382
(Mexican fast food restaurant) Warrants 28 0 28 0
- ------------------------------------------------------------------------------------------------------------------------------------
TIMBERCREEK COMPANY (NY)(3) Loans and Debt Securities 2,248 2,248 1,537 1,537
(archery equipment) Common Stock 0 0 17 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FOAM, INC. (CT)(2,3) Loans and Debt Securities 1,744 174 1,744 174
(packaging systems) Common Stock (910 shares) 57 0 57 0
- ------------------------------------------------------------------------------------------------------------------------------------
TPG HOLDINGS, INC. (TX) Loans and Debt Securities 2,179 2,179 2,407 2,407
(commercial banking software development) Warrants 13 2,120 13 2,120
- ------------------------------------------------------------------------------------------------------------------------------------
TOWER BROADCASTING (MN) Loans and Debt Securities 0 0 0 0
(radio station) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
VISTECH CORPORATION (FL) Loans and Debt Securities 0 0 0 0
(computer vision products) Warrants 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
VISU-COM, INC. (MD)(3) Loans and Debt Securities 2,248 1,500 2,244 1,500
(visual communications products) Preferred Stock 0 0 0 0
Common Stock (270 shares) 277 0 277 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
R-TEX DECORATIVES COMPANY, INC. (PA) Loans and Debt Securities 0 0
(decorative ribbon manufacturer) Warrants 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
SALTON/MAXIM HOUSEWARES, INC. (IL)(1,2) Loans and Debt Securities 250 125
(small appliance distributor) Common Stock 0 118
- ------------------------------------------------------------------------------------------------------------------------------------
SPA LENDING CORPORATION (DC)(3) Preferred Stock Series A (5,578 shares) 0 0
(health spas) Preferred Stock Series B (8,755 shares) 0 0
Preferred Stock Series C (14,092 shares) 0 0
Common Stock (6,208 shares) 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
SUNSTATES REFRIGERATED SERVICES, INC. (GA)(3) Loans and Debt Securities 2,234 2,234
(cold food storage) Preferred Stock (43,884 shares) 0 0
Common Stock (163 shares) 35 0
- ------------------------------------------------------------------------------------------------------------------------------------
TACO TICO, INC. (KS)(2) Loans and Debt Securities 1,188 199
(Mexican fast food restaurant) Warrants 28 0
- ------------------------------------------------------------------------------------------------------------------------------------
TIMBERCREEK COMPANY (NY)(3) Loans and Debt Securities 762 762
(archery equipment) Common Stock 17 17
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FOAM, INC. (CT)(2,3) Loans and Debt Securities 1,570 369
(packaging systems) Common Stock (910 shares) 57 0
- ------------------------------------------------------------------------------------------------------------------------------------
TPG HOLDINGS, INC. (TX) Loans and Debt Securities 1,463 1,463
(commercial banking software development) Warrants 13 2,120
- ------------------------------------------------------------------------------------------------------------------------------------
TOWER BROADCASTING (MN) Loans and Debt Securities 358 358
(radio station) Warrants 19 19
- ------------------------------------------------------------------------------------------------------------------------------------
VISTECH CORPORATION (FL) Loans and Debt Securities 7 0
(computer vision products) Warrants 8 0
- ------------------------------------------------------------------------------------------------------------------------------------
VISU-COM, INC. (MD)(3) Loans and Debt Securities 2,239 1,270
(visual communications products) Preferred Stock 224 0
Common Stock (270 shares) 54 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company; (2) Interest not being accrued as of September 30, 1995;
(3) May be considered an affiliate; (4) Share information as of September 30,
1995; (5) Non-qualifying asset for BDC purposes as of September 30, 1995.
F - 20
<PAGE> 57
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
COMPANY'S NAME (STATE) INVESTMENTS (4) COST VALUE COST VALUE COST VALUE
(TYPE OF BUSINESS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WEATHERTECH DISTRIBUTING CO. (AL) Loans and Debt Securities 84 84 169 169 259 259
(HVAC wholesale distributor) Warrant 14 960 14 960 14 440
- ------------------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA RADIO CORP. (WV) Loans and Debt Securities 582 582 599 599 599 599
(radio station) Warrants 200 0 200 78 200 200
- ------------------------------------------------------------------------------------------------------------------------------------
WILLIAMS BROTHERS LUMBER (GA) Loans and Debt Securities 830 830 378 378 376 376
(builders' supply yards) Warrants 15 1,614 15 2,017 15 1,004
- ------------------------------------------------------------------------------------------------------------------------------------
WINCAPP BROADCASTING INC. (PA) Debt Securities 694 694 690 690 692 692
(radio station) Warrants 23 23 23 23 23 23
- ------------------------------------------------------------------------------------------------------------------------------------
Z-SPANISH RADIO NETWORK (CA) Loans and Debt Securities 2,983 2,983 2,606 2,606 0 0
(radio station) Warrants 3 3 2 2 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL $78,313 $87,984 $75,838 $81,773 $52,447 $61,962
====================================================================================================================================
</TABLE>
(1) Public company; (2) Interest not being accrued as of September 30, 1995;
(3) May be considered an affiliate; (4) Share information as of September 30,
1995; (5) Non-qualifying asset for BDC purposes as of September 30, 1995.
F - 21
<PAGE> 58
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF LOANS TO AND INVESTMENTS IN
SMALL BUSINESS CONCERNS
(dollars in thousands)
SEPTEMBER 30, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS WITH NO EQUITY COST VALUE COST VALUE COST VALUE
(TYPE OF BUSINESS) (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounting Services (1 Loan) $179 $179 $182 $182 $186 $186
- ------------------------------------------------------------------------------------------------------------------------------------
Adult Care Facility (2 Loans) 1,936 1,936 606 527 424 424
- ------------------------------------------------------------------------------------------------------------------------------------
Asbestos Removal 0 0 16 0 27 22
- ------------------------------------------------------------------------------------------------------------------------------------
Auto Repair Shops (11 Loans) 1,590 1,519 1,729 1,675 1,926 1,926
- ------------------------------------------------------------------------------------------------------------------------------------
Chemical Manufacturer (1 Loan) 6 6 4 4 7 7
- ------------------------------------------------------------------------------------------------------------------------------------
Clean Room Equipment Manufacturer (1 Loan) 66 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Coin Laundromats 0 0 77 77 92 92
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Hardware & Software Distributor 0 0 0 0 207 207
- ------------------------------------------------------------------------------------------------------------------------------------
Contract Nursing Agency (1 Loan) 159 50 0 0 159 79
- ------------------------------------------------------------------------------------------------------------------------------------
Doughnut Shops (4 Loans) 735 735 690 690 1,451 1,451
- ------------------------------------------------------------------------------------------------------------------------------------
Drycleaners (1 Loan) 133 133 149 149 252 252
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Government Contractors (1 Loan) 207 104 207 207 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Fried Chicken Restaurants (2 Loans) 1,436 1,436 1,563 1,563 1,712 1,712
- ------------------------------------------------------------------------------------------------------------------------------------
Gas Stations (1 Loan) 363 363 364 364 368 368
- ------------------------------------------------------------------------------------------------------------------------------------
Grocery Stores (1 Loan) 170 170 177 177 573 573
- ------------------------------------------------------------------------------------------------------------------------------------
Health Spas 0 0 0 0 2,333 988
- ------------------------------------------------------------------------------------------------------------------------------------
Hotels/Motels (6 Loans) 9,077 9,077 9,157 8,505 6,941 6,280
- ------------------------------------------------------------------------------------------------------------------------------------
Hotel In-room Services 0 0 0 0 685 685
- ------------------------------------------------------------------------------------------------------------------------------------
Limestone Mining (1 Loan) 834 1,310 939 939 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Liquor Store (1 Loan) 531 531 535 535 539 539
- ------------------------------------------------------------------------------------------------------------------------------------
Pizza Shops (24 Loans) 1,390 745 2,117 1,936 2,946 2,332
- ------------------------------------------------------------------------------------------------------------------------------------
Publishing Company 0 0 1,000 1,000 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Radio Stations (10 Loans) 11,408 11,408 10,786 10,749 9,905 9,836
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurants 0 0 0 0 28 28
- ------------------------------------------------------------------------------------------------------------------------------------
Retail Shops (1 Loan) 529 1,068 544 1,083 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Small Appliances Distributor (1 Loan) 250 250 250 250 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Telephone Directories (1 Loan) 1,000 1,000 0 0 50 50
- ------------------------------------------------------------------------------------------------------------------------------------
Television Station (1 Loan) 125 125 125 125 1,125 1,125
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Number of loans as of September 30, 1995.
F - 22
<PAGE> 59
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS WITH NO EQUITY COST VALUE COST VALUE COST VALUE
(TYPE OF BUSINESS) (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tobacco Shop 0 0 0 0 154 154
- ------------------------------------------------------------------------------------------------------------------------------------
Travel Agency (1 Loan) 138 69 138 69 138 138
- ------------------------------------------------------------------------------------------------------------------------------------
Video Store 0 0 0 0 18 18
- ------------------------------------------------------------------------------------------------------------------------------------
Warehouse 0 0 0 0 40 40
- ------------------------------------------------------------------------------------------------------------------------------------
Wholesale Food Distributor (1 Loan) 232 232 232 232 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Yogurt Shops (3 Loans) 296 296 363 363 449 449
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL $32,790 $32,742(b) $31,950 $31,401 $32,735 $29,961
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INVESTMENT ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Pledged repurchase agreements $865 $865 $1,217 $1,217 $1,342 $1,342
- ------------------------------------------------------------------------------------------------------------------------------------
Other investment assets 2,012 228 2,053 635 1,700 1,365
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL $2,877 $1,093 $3,270 $1,852 $3,042 $2,707
- ------------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL $113,980 $121,819 $111,058 $115,026 $88,224 $94,630
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Number of loans as of September 30, 1995; (b) Includes 3 loans totaling
$5,191 which are non-qualifying assets for BDC purposes at September 30, 1995.
F - 23
<PAGE> 60
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF LOANS TO
AND INVESTMENTS IN SMALL BUSINESS CONCERNS
As of September 30, 1995 (unaudited) and December 31, 1994 and 1993
A. COMPANIES HOLDING LOANS AND INVESTMENTS
The loans and other investments listed are held by the Company and its wholly
owned subsidiaries.
B. LOANS AND DEBT SECURITIES
The loans and debt securities included in investments bear interest at an
annual rate ranging from 4 percent to 16.75 percent, and are generally payable
in installments with final maturities from five to twenty years from date of
issue. At September 30, 1995, of the aggregate cost of investments of
$113,980,000, investments totaling approximately $9,519,000 are not accruing
interest.
C. VALUATION AS DETERMINED BY THE BOARD OF DIRECTORS
Loans and debt securities, which are not publicly traded, and warrants and
stocks for which there is no public market are valued based on collateral, the
ability to make payments, the earnings of the investee and other pertinent
factors. The values assigned are considered to be amounts which could be
realized in the normal course of business or from an orderly sale or other
disposition of the investments.
In the normal course of business, loans and debt securities are held to
maturity, and the amount realized, in addition to interest, is the face value,
which equals or exceeds cost.
Common stock investments that are traded on the over-the-counter market have
been valued at the prevailing bid price, less a discount where appropriate.
D. RESTRICTED SECURITIES
The portfolios of the Company and its subsidiaries consist primarily of
securities issued by privately held companies. The major portion of the assets
of the Company and its subsidiaries consists of securities that are subject to
restrictions on the resale or are otherwise illiquid. A majority of the
securities held by the Company cannot be sold to the public without
registration under the Securities Act of 1933.
In connection with the Company's investments in securities with publicly traded
companies, the securities held with the following companies are subject to
restrictions on their sale: Allied Capital Lending Corporation;
DeVlieg-Bullard, Inc.; DMI Furniture, Inc.; Garden Ridge Corporation;
MLX/SinterMet Corp.; Nobel Education Dynamics; Esquire Communications, Ltd. and
Providential Corporation.
F - 24
<PAGE> 61
E. DIVERSIFICATION OF LOANS AND INVESTMENTS
The following industries represent 5 percent or more of the total value of the
loans and investments outstanding at the dates indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
------------- -------------------------
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Restaurants * * * 7%
Hotels and Motels 7% 7% 7% 10%
Manufacturing 16% 12% 6% *
Pizza Shops * * * 5%
Radio Stations 20% 17% 20% 12%
Registered Investment Company 10% 13% 19% *
Software Development 5% 5% * *
* Less than 5%.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F. NET UNREALIZED APPRECIATION (DEPRECIATION)
The net unrealized appreciation (depreciation) for all securities based on cost
for Federal income tax purposes is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
(in thousands) 1995 1994
------------- ------------
<S> <C> <C>
Aggregate gross unrealized appreciation in which there is an excess of value over cost $ 22,625 $14,036
Aggregate gross unrealized depreciation in which there is an excess of cost over value (17,061) (15,191)
-------- --------
Net unrealized appreciation (depreciation) $ 5,564 $(1,155)
======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate cost of securities for federal income tax purposes was
$115,212,000 and $113,323,000 at September 30, 1995 and December 31, 1994,
respectively.
F - 25
<PAGE> 62
[AUDITORS OPINION TO BE PROVIDED BY AMENDMENT]
F - 26
<PAGE> 63
<TABLE>
<S> <C>
====================================================== ================================================
No dealer, salesman or other person has been
authorized to give any information or to make any 883,665 SHARES
representations not contained in this Prospectus in
connection with the offer contained herein, and, if
given or made, such information or representation ALLIED CAPITAL
must not be relied upon as having been authorized by CORPORATION
the Company, the Company's investment adviser or any
underwriter. This Prospectus does not constitute an COMMON STOCK
offer of any securities other than those to which it
relates or an offer to sell, or a solicitation of an
offer to buy, to any person in any jurisdiction
where such an offer or solicitation would be
unlawful.
-------------
PROSPECTUS
----------------------- ________ __, 199_
-------------
====================================================== ================================================
</TABLE>
<PAGE> 64
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 65
SUBJECT TO COMPLETION
Date of issuance of this preliminary SAI: November __, 1995
883,665 SHARES
ALLIED CAPITAL CORPORATION
COMMON STOCK
---------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. It
should be read with the prospectus dated ______________ ___, 1995 relating to
this offering (the "Prospectus"), which may be obtained by calling the Company
at (202) 331-1112 and asking for Investor Relations. Terms not defined herein
have the same meaning as given to them in the Prospectus.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
any offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information does not constitute
a prospectus.
<PAGE> 66
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-4
Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-6
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-6
SUMMARY COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-7
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . B-7
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-8
Investment Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-8
Custodian Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-10
Accounting Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-10
BROKERAGE ALLOCATION AND OTHER PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-11
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-11
</TABLE>
B - 2
<PAGE> 67
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company are listed below together
with their respective positions with the Company and a brief statement of their
principal occupations during the past five years and any positions held with
affiliates of the Company:
<TABLE>
<CAPTION>
Position(s) Held
Name, Address, and With the
Age Company Principal Occupation(s) During Past Five (5) Years
------------------------ --------------- --------------------------------------------------------------
<S> <C> <C>
David Gladstone* Chairman of the Employed by the Company or Advisers since 1974; Chairman and
(Age 53) Board and Chief Chief Executive Officer of Allied II, Allied Commercial,
Executive Allied Lending, and Advisers; Director, President, and Chief
Officer Executive Officer of BMI; Director of Riggs National
Corporation; Trustee of The George Washington University. He
has served as a director of the Company since 1976.
George C. Williams* Vice Chairman of Employed by the Company or Advisers since 1959; Vice Chairman
(Age 69) the Board of Allied II, Allied Commercial, Allied Lending, and
Advisers; Chairman of BMI. He has served as a director of
the Company since 1964. He is the father of G. Cabell
Williams III.
Joseph A. Clorety III Director President of Clorety & Company, Inc. (registered investment
(Age 53) adviser) for more than the past five years. He has served as
a director of the Company since 1984.
Michael I. Gallie Director Principal of The Millenium Group Inc. (financial and
(Age 49) management consulting firm) for the past five years;
President of Economic Development Finance Corporation from
1987 to 1990; Trustee and Chairman of Investment Committee of
the District of Columbia Retirement Board from 1991 to 1995.
He has served as a director of the Company since 1994.
Warren K. Montouri Director Private investor for more than the past five years; Director
(Age 66) of NationsBank, N.A. He has served as a director of the
Company since 1986.
Guy T. Steuart II Director Director and President of Steuart Investment Company
(Age 64) (manages, operates, and leases real and personal property and
holds stock in operating subsidiaries engaged in various
manufacturing and service businesses) for more than the past
five years; Trustee Emeritus of Washington and Lee
University. He has served as a director of the Company since
1984.
</TABLE>
B - 3
<PAGE> 68
<TABLE>
<CAPTION>
Position(s) Held
Name, Address, and With the
Age Company Principal Occupation(s) During Past Five (5) Years
------------------------ --------------- --------------------------------------------------------------
<S> <C> <C>
T. Murray Toomey Director Attorney in private practice for more than the past five
(Age 71) years; Director of The National Capital Bank of Washington;
Director of Federal Center Plaza Corporation; Director of The
Donohoe Companies, Inc.; Trustee of The Catholic University
of America. He has served as a director of the Company since
1959.
G. Cabell Williams III* Director, Executive Vice President of Allied II, Allied Commercial,
(Age 41) President, and Allied Lending Corporation, BMI, and Advisers; Director of
Chief Operating Environmental Enterprises Assistance Fund. Since 1981, he
Officer has held positions with the Company and with Advisers, Allied
II, Allied Commercial, Allied Lending, and BMI after their
inception. He has served as a director of the Company since
1993. He is the son of George C. Williams.
Jon A. DeLuca Senior Vice Employed by Advisers since 1994. Senior Vice President,
(Age 33) President, Treasurer, and Chief Financial Officer of Allied II, Allied
Treasurer, and Commercial, Allied Lending, BMI, and Advisers since 1994;
Chief Financial Manager of Entrepreneurial Services at Coopers & Lybrand from
Officer 1986 to 1994.
William F. Dunbar Executive Vice Employed by the Company or Advisers since 1987; President and
(Age 36) President Chief Operating Officer of Allied II; Executive Vice
President of Allied Commercial, Allied Lending, BMI, and
Advisers.
Thomas R. Salley General Counsel Employed by Advisers since 1988; General Counsel and
(Age 38) and Secretary Secretary of Allied II, Allied Lending, Allied Commercial,
BMI, and Advisers.
Joan M. Sweeney Executive Vice Employed by Advisers since 1993; President and Chief
(Age 36) President Operating Officer of Advisers; Executive Vice President of
Allied II, Allied Commercial, Allied Lending, and BMI; Senior
Manager at Ernst & Young from 1990 to 1993.
</TABLE>
* "Interested persons" as defined in the 1940 Act.
COMPENSATION
The Company has no employees and does not pay any cash compensation to
any of its officers, other than directors' fees to those of its officers who
are also directors. All of the Company's officers are employed by Allied
Advisers, the Company's investment adviser, which pays their cash compensation.
The Company, from time to time, grants stock options to its officers under the
Company's Stock Option Plan.
B - 4
<PAGE> 69
During 1994, each director received a fee of $1,000 for each meeting
of the Board of Directors of the Company and its wholly owned subsidiaries or
each separate committee meeting attended. There is no duplication of
directors' fees and expenses even though some directors also take action on
behalf of the Company's wholly owned subsidiaries. Aggregate directors' fees
for 1994 were $97,000. In addition, on May 5, 1994, the Company's stockholders
approved a one-time grant of options to each non-officer director to purchase
10,000 shares of the Company's common stock pursuant to the Company's Stock
Option Plan. Such grants are subject to Commission approval, and an
application for an exemptive order of the Commission permitting such grants has
been submitted to the Commission by the Company. If the exemptive order is
granted, the options will be priced at the then-current market value as of the
date of approval. As there can be no assurance that the Commission will
approve the Company's application for an exemptive order, such grants have not
been included in the following table. The following table sets forth certain
details of compensation paid to directors during 1994, as well as compensation
paid for serving as a director of the two other investment companies to which
the Company may be deemed to be related.
B - 5
<PAGE> 70
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Pension Or Estimated Total Compensation
Compensation From Retirement Benefits Annual From Company and
the Accrued as Part of Benefits Upon Related Companies
Name and Position Company(1) Company Expenses Retirement Paid to Directors(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David Gladstone $9,500 $0 $0 $28,000
Director
George C. Williams 12,000 0 0 29,000
Director
G. Cabell Williams III 10,000 0 0 10,000
Director
Joseph A. Clorety III 10,500 0 0 10,500
Director
Guy T. Steuart II 13,500 0 0 13,500
Director
Warren K. Montouri 10,500 0 0 10,500
Director
T. Murray Toomey 12,000 0 0 12,000
Director
Michael I. Gallie 8,000 0 0 8,000
Director
</TABLE>
- ------------------------------------
(1) Consists only of directors' fees.
(2) Includes amounts paid as compensation to directors by Allied II and
Allied Lending, the other companies in the fund complex.
STOCK OPTIONS
No stock options were granted during 1994. The following chart
summarizes the grant of options to directors during the past three fiscal years
including the securities underlying those options or stock appreciation rights
("SARs"), and any long term incentive payouts ("LTIP").
B - 6
<PAGE> 71
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------------
Awards Payouts
----------------------------------- -------------
Securities
Restricted Underlying
Names and Principal Position Year Stock Award(s) Options/SARs LTIP Payouts
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David Gladstone 1992 $0 0 $0
Director 1993 0 50,610 0
1994 0 0 0
George C. Williams 1992 $0 0 $0
Director 1993 0 5,556 0
1994 0 0 0
G. Cabell Williams III 1992 $0 0 $0
Director 1993 0 48,963 0
1994 0 0 0
Joseph A. Clorey III 1992 $0 0 $0
Director 1993 0 0 0
1994 0 0 0
Guy T. Steuart II 1992 $0 0 $0
Director 1993 0 0 0
1994 0 0 0
Warren K. Montouri 1992 $0 0 $0
Director 1993 0 0 0
1994 0 0 0
T. Murray Toomey 1992 $0 0 $0
Director 1993 0 0 0
1994 0 0 0
Michael I. Gallie 1992 $0 0 $0
Director 1993 0 0 0
1994 0 0 0
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September 30, 1995, there were 6,185,660 shares of the Company's
common stock outstanding. The Company knows of no person who owned
beneficially five percent or more of its shares at that date. At that date,
the Company's directors and officers as a group, 30 in number, beneficially
owned 1,166,373 shares, which includes for this purpose 602,906 shares
underlying unexercised stock options granted under the Company's Stock Option
Plan that would be exercisable within sixty days of that date. Those 1,166,373
shares represent 17.26% of the shares that would be outstanding if all of those
options were exercised.
B - 7
<PAGE> 72
INVESTMENT ADVISORY AND OTHER SERVICES
Subject to the supervision and control of its Board of Directors, the
investments of the Company are managed by Allied Capital Advisers, Inc., a
publicly owned investment adviser located at 1666 K Street, N.W., 9th Floor,
Washington, D.C. 20006-2803, telephone (202) 331-1112. Advisers is registered
with the Commission under the Investment Advisers Act of 1940. The shares of
Advisers are traded on the Nasdaq National Market (symbol: ALLA).
Advisers has thirty-eight (38) investment and other professionals, as
well as thirty-four (34) other employees. David Gladstone and George C.
Williams have 55 years of combined experience in making the types of
investments proposed to be made by the Company. Mr. Gladstone holds an MBA
degree from the Harvard Business School and worked for Price Waterhouse and ITT
Corporation before joining the Allied Capital organization in 1974. He is the
author of Venture Capital Handbook and Venture Capital Investing, both
published by Simon & Schuster/Prentice Hall. Mr. Williams is a past President
of the National Association of Small Business Investment Companies and has
lectured as a resident executive at the McIntyre School of Commerce at the
University of Virginia.
All investments of the Company must be approved by a credit committee
composed of the senior investment officers of Allied Advisers, including David
Gladstone, George C. Williams, and G. Caball Williams III. Additionally, the
Board of Directors reviews and approves every investment made by the Company.
David Gladstone, George C. Williams, and G. Cabell Williams III are
interested persons and affiliated persons, as those terms are defined in the
1940 Act, of the Company and its investment adviser.
Advisers is at this time a party to investment advisory agreements
with the Company and with Allied II and Allied Lending, both business
development companies which, directly or through one or more small business
investment company subsidiaries, specialize in loans with equity features to
and equity investments in small business concerns. Advisers is the general
partner of a private limited partnership which itself is the general partner of
two privately funded venture capital limited partnerships, Allied Venture and
Allied Technology, engaging in the same business as the Company and Allied II
but no longer making new investments. Advisers serves as the investment
adviser to those two limited partnerships. All of these entities co-invest
with one another. In addition, Advisers is the investment manager of Allied
Commercial, a publicly held real estate investment trust (a "REIT"), and the
co-manager of BMI, a privately held real estate investment trust. Allied
Commercial and BMI participate with one another in buying interest paying
business loans secured by real estate. At September 30, 1995, total assets
under Advisers' management approximated $639 million.
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 the holders of a majority, as
defined in the 1940 Act, of the outstanding voting securities 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
defined, and will terminate automatically in the event of its assignment.
B - 8
<PAGE> 73
The terms of the current agreement are virtually identical to those of
the investment advisory agreement between the Company and Advisers that it
replaced ("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 Interim
Investments than the fee applicable to the Company's invested assets, which
Advisers has effected by waiving portions of the investment advisory fee
applicable to the Company's cash 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 waives
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
investment officers and the cost of office space, equipment, and other
personnel necessary for day-to-day operations. The expenses that are paid by
the Company include the Company's share of transaction costs (including legal
and auditing) incident to the acquisition and disposition of investments,
regular legal and auditing fees and expenses, the fees and expenses of the
Company's directors, the costs of printing and distributing proxy statements
and other communications to stockholders, the costs of promoting the Company's
stock, and the fees and expenses of the Company's custodian and transfer agent.
The Company, rather than Advisers, is also required to pay expenses associated
with litigation and other extraordinary or non-recurring expenses with respect
to its operations and investments, as well as expenses of required and optional
insurance and bonding. Advisers is, however, 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 the Company's such investment
transaction or follow-on managerial 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 entitled to be paid quarterly, in arrears,
a fee equal to 0.625% per quarter of the quarter-end value of the Company's
B - 9
<PAGE> 74
consolidated total assets (less the Company's investment in Allied Lending and
the Company's consolidated Interim Investments and cash) and 0.125% per quarter
of the quarter-end value of the Company's Interim Investments and cash. 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 SEC's 1993
exemptive order permitting the stepwise spinoff of Allied Lending. Such fees
on an annual basis are equivalent to 2.5% of the Company's total consolidated
assets (less the Company's investment in Allied Lending and the Company's
consolidated Interim Investments and cash) and 0.5% of the Company's Interim
Investments and cash.
Pursuant to the terms of the former agreement, as compensation for its
services to and the expenses paid for the account of the Company, Allied
Advisers was entitled to be paid, quarterly in arrears, a fee equal to the sum
of 0.625% per quarter of each quarter-end value of the Company's consolidated
assets less the Company's investment in Allied Lending. Such fees on an annual
basis were equivalent to 2.5% of the Company's consolidated invested assets
less the Company's investment in Allied Lending. For the purposes of
calculating the fee, the values of the Company's assets are determined as of
the end of each calendar quarter. The quarterly fee was paid as soon as
practicable after the values had been determined. The total amounts paid to
Advisers under the former agreement for the last three fiscal years were
$2,125,000 for 1992, $2,160,000 for 1993, and $2,605,000 for 1994.
Under the former agreement, during 1992, 1993 and 1994, Advisers
waived most of its fee on the Company's consolidated Interim Investments
and cash, as the Company had excess Interim Investments and cash obtained with
debt capital. The total fees waived on Interim Investments and cash were:
$724,000 for 1992, $671,000 for 1993, and $527,000 for 1994.
The fee to Advisers provided for by the current agreement 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.
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.
CUSTODIAN SERVICES
Under a Custodian Agreement, The Riggs National Bank of Washington,
D.C., whose principal business address is 808 17th street, N.W., Washington,
D.C. 20006, holds all securities of the Company, provides recordkeeping
services, and serves as the Company's custodian.
ACCOUNTING SERVICES
The firm of Matthews, Carter and Boyce is the independent accountant
for the Company for the year ending December 31, 1995. Its business
address is: 8200 Greensboro Drive, Suite 1000, McLean, Virginia 22102-3864.
Their phone number is (703) 761-4600. Matthews, Carter and Boyce is also the
independent accountant for the Company's subsidiaries, Allied Investment
Corporation, Allied Capital Financial Corporation, and Allied Development
Corporation.
B - 10
<PAGE> 75
Matthews, Carter and Boyce, or its predecessor, has served as the
Company's independent accountants since its inception and has no financial
interest in the Company. The expense recorded during the fiscal year ended
December 31, 1994, for the professional services provided to the Company
by Matthews, Carter and Boyce consisted of fees for audit services (which
included the audit of the consolidated financial statements of the Company
and its subsidiaries and review of the filings by the Company of reports and
registration statements with the Commission, the SBA or other regulatory
authorities) and for non-audit services (the fees for the latter aggregating
approximately 17% of the fees for audit services). The non-audit services,
which were arranged for by management without prior consideration by the Board
of Directors, consisted of non-audit related consultation and the preparation
of tax returns for the Company and its subsidiaries.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Since the Company generally acquires and disposes of its investments
in privately negotiated transactions, it infrequently uses brokers.
TAX STATUS
The Company intends to qualify for and elect for each taxable year to
be treated as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). If the Company
qualifies as a regulated investment company and distributes to stockholders
annually in a timely manner at least 90% of its "investment company taxable
income," as defined in the Code (i.e., net investment income, including accrued
original issue discount, and net short-term capital gains) (the "90%
Distribution Requirement"), it will not be subject to federal income tax on the
portion of its investment company taxable income and net capital gains (net
long-term capital gain in excess of net short-term capital loss) distributed to
stockholders as required under the Code. In addition, if the Company
distributes in a timely manner 98% of its capital gain net income for each
one-year period ending on December 31, and distributes 98% of its net ordinary
income for each calendar year (as well as any income not distributed in prior
years), it will not be subject to the 4% nondeductible federal excise tax
imposed with respect to certain undistributed income of regulated investment
companies. If the Company qualifies as a regulated investment company as it
intends to do, it generally will endeavor to distribute to stockholders all of
its investment company taxable income and its net capital gain, if any, for
each taxable year so that the Company will not incur income and excise taxes on
its earnings.
In order to qualify as a regulated investment company for federal
income tax purposes, the Company must, among other things: (a) derive in each
taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale of stock or
securities, or other income derived with respect to its business of investing
in such stock or securities (the "90% Income Test"); (b) derive in each taxable
year less than 30% of its gross income from the sale of stock or securities
held for less than three months (the "30% Limitation"); and (c) diversify its
holdings so that at the end of each quarter of the taxable year (i) at least
50% of the value of the Company's assets consists of cash, cash items, U.S.
government securities, and other securities if such other securities of any one
issuer do not represent more than 5% of the Company's assets or 10% of the
outstanding voting securities of the issuer, and (ii) no more than 25% of the
value of the Company's assets is invested in the securities of one issuer
(other than U.S. government securities and securities of other regulated
investment companies) or of two or more issuers that are controlled (as
determined under applicable Code rules) by the Company and are engaged in the
same or similar trades or businesses.
Allied Lending, formerly a wholly owned subsidiary of the Company,
originates loans which are 70%-90% guaranteed by the SBA. Allied Lending then
sells the guaranteed portion of these loans in the secondary market.
B - 11
<PAGE> 76
The Internal Revenue Service may assert that these transactions subject Allied
Lending to a liability for income taxes of up to $845,000 for the year ended
December 31, 1992. The Company has agreed to indemnify Allied Lending for this
potential liability. Management believes that the Company has valid defenses
for the position that such transactions do not subject Allied Lending to a
liability for additional income taxes.
If the Company acquires or is deemed to have acquired debt obligations
that were issued originally at a discount or that otherwise are treated under
applicable tax rules as having original issue discount, it will be required to
include in income each year a portion of the original issue discount that
accrues over the life of the obligation regardless of whether cash representing
such income is received by the Company in the same taxable year and to make
distributions accordingly.
Although the Company presently does not expect to do so, it is
authorized to borrow funds and to sell assets in order to satisfy its
distribution requirements. However, under the 1940 Act, the Company will not
be permitted to make distributions to stockholders while the Company's debt
obligations and other senior securities are outstanding unless certain "asset
coverage" tests are met. Moreover, the Company's ability to dispose of assets
to meet its distribution requirements may be limited by other requirements
relating to its status as a regulated investment company, including the 30%
Limitation and the diversification requirements. If the Company disposes of
assets in order to meet its distribution requirements, it may make such
dispositions at times which, from an investment standpoint, are not
advantageous.
If the Company fails to satisfy the 90% Distribution Requirement or
otherwise fails to qualify as a regulated investment company in any taxable
year, it will be subject to tax in such year on all of its taxable income,
regardless of whether the Company makes any distributions to its stockholders.
In addition, in that case, all of the Company's distributions to its
stockholders will be characterized as ordinary income (to the extent of the
Company's current and accumulated earnings and profits). In contrast, as
explained below, if the Company qualifies as a regulated investment company, a
portion of its distributions may be characterized as long-term capital gain in
the hands of stockholders.
For any period during which the Company qualifies as a regulated
investment company for tax purposes, dividends to stockholders of the Company's
investment company taxable income will be taxable as ordinary income to
stockholders to the extent of the Company's current or accumulated earnings and
profits.
Distributions of the Company's net capital gain properly designated by
the Company as "capital gain dividends" will be taxable to stockholders as a
long-term capital gain regardless of the stockholder's holding period for his
or her shares.
To the extent that the Company retains any net capital gain, it may
designate such retained gain as "deemed distributions" and pay a tax thereon
for the benefit of its stockholders. In that event, the stockholders will be
required to report their share of retained net capital gain on their tax
returns as if it had been distributed to them and report a credit for the tax
paid thereon by the Company. The amount of the deemed distribution net of such
tax would be added to the stockholder's cost basis for his shares. Since the
Company expects to pay tax on net capital gain at the regular corporate tax
rate of 35% and the maximum rate payable by individuals on net capital gain is
28%, the amount of credit that individual stockholders may report would exceed
the amount of tax that they would be required to pay on net capital gain.
Stockholders who are not subject to federal income tax or tax on capital gains
should be able to file a Form 990T or an income tax return on the appropriate
form that allows them to recover the taxes paid on their behalf.
B - 12
<PAGE> 77
Any dividend declared by the Company in October, November, or December
of any calendar year, payable to stockholders of record on a specified date in
such a month and actually paid during January of the following year, will be
treated as if it had been received by the stockholders on December 31 of the
year in which the dividend was declared.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution. Even if the price of the shares includes
the amount of the forthcoming distribution, the stockholder generally will be
taxed upon receipt of the distribution and will not be entitled to offset the
distribution against the tax basis in his shares.
A stockholder may recognize taxable gain or loss if he sells or
exchanges his shares. Any gain arising from (or, in the case of distributions
in excess of earnings and profits, treated as arising from) the sale or
exchange of shares generally will be a capital gain or loss except in the case
of dealers or certain financial institutions. This capital gain or loss
normally will be treated as a long-term capital gain or loss if the stockholder
has held his shares for more than one year; otherwise, it will be classified as
short-term capital gain or loss. However, any capital loss arising from the
sale or exchange of shares held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
received with respect to such shares and, for this purpose, the special rules
of Section 246(c)(3) and (4) of the Code generally apply in determining the
holding period of shares. Net capital gain of noncorporate taxpayers is
currently subject to a maximum federal income tax rate of 28% while other
income may be taxed at rates as high as 39.6%. Corporate taxpayers are
currently subject to federal income tax on net capital gain at the maximum 35%
rate also applied to ordinary income. Tax rates imposed by states and local
jurisdictions on capital gain and ordinary income may differ.
The Company may be required to withhold U.S. federal income tax at the
rate of 31% of all taxable dividends and distributions payable to stockholders
who fail to provide the Company with their correct taxpayer identification
number or to make required certifications, or regarding whom the Company has
been notified by the Internal Revenue Service that they are subject to backup
withholding. Backup withholding is not an additional tax, and any amounts
withheld may be credited against a stockholder's U.S. federal income tax
liability.
Federal withholding taxes at a 30% rate (or a lesser treaty rate) may
apply to distributions to stockholders that are nonresident aliens or foreign
partnerships, trusts, or corporations. Foreign investors should consult their
tax advisors with respect to the possible U.S. federal, state, and local tax
consequences and foreign tax consequences of an investment in the Company.
The Company will send to each of the stockholders, as promptly as
possible after the end of each fiscal year, a notice detailing, on a per share
and per distribution basis, the amounts includible in such stockholder's
taxable income for such year as ordinary income and as long-term capital gain.
In addition, the federal tax status of each year's distributions generally will
be reported to the Internal Revenue Service. Distributions may also be subject
to additional state, local, and foreign taxes depending on each stockholder's
particular situation. Stockholders are advised to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Company, including the possible effect of any pending
legislation or proposed regulation.
B - 13
<PAGE> 78
PART C
OTHER INFORMATION
<PAGE> 79
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements
The following financial statements are included in the Prospectus (Part A of
this Registration Statement):
Consolidated Statement of Financial Position -- September 30,
1995 (unaudited) and December 31, 1994 and 1993
Consolidated Statement of Operations -- For the Nine Months
Ended September 30, 1995 and 1994 (unaudited) and the Years
Ended December 31, 1994, 1993 and 1992
Consolidated Statement of Changes in Net Assets -- For the
Nine Months Ended September 30, 1995 and 1994 (unaudited) and
the Years Ended December 31, 1994, 1993 and 1992
Consolidated Statement of Cash Flows -- For the Nine Months
Ended September 30, 1995 and 1994 (unaudited) and the Years
Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Consolidated Statement of Loans to and Investments in Small
Business Concerns -- September 30, 1995 (unaudited) and
December 31, 1994 and 1993
Notes to Consolidated Statement of Loans to and Investments in
Small Business Concerns
Report of Independent Accountants
2. Exhibits
a. Articles of Incorporation of the Registrant (1)
b. By-laws of the Registrant, as amended (2)
c. None
d. Specimen certificate of Registrant's Common Stock, par value
$1.00, the rights of holders of which are defined in Exhibits
a and b *
C - 1
<PAGE> 80
e. Registrant's dividend reinvestment plan (7)
f.1 Form of SBA subordinated debentures comprising the long-term
debt of Registrant's wholly-owned subsidiary, Allied
Investment Corporation *
f.2 Form of preferred stock agreement for 3 percent cumulative
preferred stock, $100 par value, of Allied Capital Financial
Corporation, the rights of the holder of which are defined in
Exhibit f.4 (9)
f.3 Form of preferred stock agreement for 4 percent preferred
stock, $100 par value, of Allied Capital Financial
Corporation, the rights of the holder of which are defined in
Exhibit f.4 (10)
f.4 Excerpts from Articles of Incorporation and By-laws of Allied
Capital Financial Corporation that define rights of holder of
preferred stock *
f.5 Form of SBA subordinated debentures comprising the long-term
debt of Registrant's wholly owned subsidiary, Allied Capital
Financial Corporation *
f.6 Note Agreement between Massachusetts Mutual Life Insurance
Company and the Registrant, Allied Investment Corporation, and
Allied Capital Financial Corporation dated April 30, 1992 and
amendments (3)
f.7 Loan Agreement between Overseas Private Investment Corporation
and Registrant, dated April 10, 1995 *
g. Investment Advisory Agreement between Registrant and Allied
Capital Advisers, Inc. (4)
h. None
i. Registrant's Incentive Stock Option Plan, as amended in May
1994 (8)
j.1. Custodian Agreement between The Riggs National Bank of
Washington, D.C., and the Registrant, dated June 27, 1989 *
j.2. Custodian Agreement between The Riggs National Bank of
Washington, D.C., and Allied Investment Corporation, dated
June 27, 1989 *
j.3 Custodian Agreement between The Riggs National Bank of
Washington, D.C., and Allied Capital Financial Corporation,
dated June 27, 1989 *
C - 2
<PAGE> 81
k.1. Tax Indemnification Agreement dated November 12, 1993 between
the Company and Allied Capital Lending Corporation (5)
k.2. Letter Agreement dated November 16, 1993 among Allied Capital
Lending Corporation, the Company and Lehman Brothers Inc. (6)
l. Opinion of the firm of Sutherland, Asbill & Brennan, as to the
legality of the common stock being registered, and Consent to
the use of such Opinion *
m. None
n. Consent of Matthews, Carter and Boyce, independent
accountants *
o. None
p. Non-Transferable Subscription Form *
q. None
r. Financial Data Schedule (11)
s. Powers of Attorney of certain signatories of this registration
statement **
- -----------
* To be filed by pre-effective amendment.
** 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 Exhibit E to the Company's definitive
proxy statement filed on April 11, 1991.
(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 filed on March 30, 1995.
(5) 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.
(6) Incorporated by reference to an exhibit of the same number filed with
the Company's Form 8-K dated November 19, 1993.
C - 3
<PAGE> 82
(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 with respect to an annual meeting of stockholders held
on May 5, 1994.
(9) Incorporated by reference to such Exhibit filed with Registration
Statement No. 33-22200.
(10) Incorporated by reference to such Exhibit filed with Registration
Statement No. 34501 or Pre-Effective Amendment No. 1 thereto.
(11) Incorporated by reference to the Exhibit filed with the Registrant's
quarterly report on Form 10-Q for the quarter ended September 30,
1995, filed on November 14, 1995.
ITEM 25. MARKETING ARRANGEMENTS
None.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the distribution of the securities
being offered hereby, other than underwriting discounts and commissions, are
estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee . . . . . . . . . . . . $3,980.31
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . .
Federal Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State Taxes and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Agent's and Registrar's Fees and Expenses . . . . . . . . . . . .
Expenses of Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Printing Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Auditor's Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $________
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
<TABLE>
<S> <C>
Allied Capital Corporation (the Registrant)* - Maryland
Subsidiaries:
------------
Allied Investment Corporation - Maryland 100%
Allied Capital Financial Corporation - Maryland 100%
Allied Development Corporation - District of Columbia 100%
</TABLE>
C - 4
<PAGE> 83
<TABLE>
<S> <C>
Allied Capital Corporation II* - Maryland
Subsidiaries:
------------
Allied Investment Corporation II - Maryland 100%
Allied Financial Corporation II - Maryland 100%
Allied Capital Commercial Corporation* - Maryland
Subsidiaries:
------------
Jasper Montgomery Holdings, Inc. - Maryland 100%
ALCC Acceptance Corporation - Maryland 100%
Allied Capital Lending Corporation* - Maryland
Subsidiary:
----------
ACLC Limited Partnership - Maryland 99%
Business Mortgage Investors, Inc.* - Maryland
Subsidiaries:
------------
BMI Holdings, Inc. - Maryland 100%
BMI Acceptance Corporation - Maryland 100%
Allied Capital Funding, L.L.C.** - Delaware
Allied Capital Mortgage Corporation* - Maryland
Allied Capital Advisers, Inc. - Maryland
Subsidiary:
----------
Allied Capital Property Corporation - Maryland 100%
</TABLE>
- -------------
* Each of these entities is, like the Registrant, advised by Allied
Capital Advisers, Inc. ("Advisers"). By so including these entities herein,
the Registrant does not concede, however, that it and such other entities are
controlled by Allied Advisers.
** The members of Allied Capital Funding, L.L.C. are ALCC Acceptance
Corporation and BMI Acceptance Corporation.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following table presents the number of record holders of each
class of securities of the Company outstanding as of September 30, 1995:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Common Stock 1,800*
Non-Redeemable 3% Cumulative Preferred Stock 1
(Allied Financial)
Redeemable 4% Cumulative Preferred Stock 1
(Allied Financial)
10-Year Subordinated Debentures 1
(Allied Investment and Allied Financial)
</TABLE>
C - 5
<PAGE> 84
<TABLE>
<S> <C>
LIBOR +1.15% Revolving Line of Credit 1
10-Year 9.15% Senior Notes 1
(The Company, Allied Investment and Allied Financial)
</TABLE>
--------------------
* Estimate. The Company also estimates that there are a total of 9,000
beneficial owners of its common stock.
ITEM 29. INDEMNIFICATION
The Annotated Code of Maryland, Corporations and Associations, Section
2-418 provides that a Maryland corporation may indemnify any director of the
corporation and any person who, while a director of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, or other enterprise or employee benefit
plan, made a party to any proceeding by reason of service in that capacity
unless it is established that the act or omission of the director was material
to the matter giving rise to the proceeding and was committed in bad faith or
was the result of active and deliberate dishonesty; or the director actually
received an improper personal benefit in money, property or services; or, in
the case of any criminal proceeding, the director had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements, and reasonable expenses
actually incurred by the director in connection with the proceeding, but if the
proceeding was one by or in the right of the corporation, indemnification may
not be made in respect of any proceeding in which the director shall have been
adjudged to be liable to the corporation. Such indemnification may not be made
unless authorized for a specific proceeding after a determination has been
made, in the manner prescribed by the law, that indemnification is permissible
in the circumstances because the director has met the applicable standard of
conduct. On the other hand, the director must be indemnified for expenses if
he has been successful in the defense of the proceeding or as otherwise ordered
by a court. The law also prescribes the circumstances under which the
corporation may advance expenses to, or obtain insurance or similar cover for,
directors.
The law also provides for comparable indemnification for corporate
officers and agents.
The Articles of Incorporation of the Company provide that its
directors and officers shall, and its agents in the discretion of the Board of
Directors may, be indemnified to the fullest extent permitted from time to time
by the laws of Maryland. The Company's Bylaws also, however, provide that the
Company may not indemnify any director or officer against liability to the
Registrant or its security holders to which he might otherwise be subject by
reason of such person's willful
C - 6
<PAGE> 85
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office unless a determination is made by final
decision of a court, by vote of a majority of a quorum of directors who are
disinterested, non-party directors or by independent legal counsel that the
liability for which indemnification is sought did not arise out of such
disabling conduct.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the provisions described above, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person in the successful defense of an action, suit or proceeding) is asserted
by a director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of the court of the issue.
The Registrant, in conjunction with its investment adviser and other
entities managed thereby, carries liability insurance for the benefit of its
directors and officers on a claims-made basis of up to $2,500,000, subject to a
$200,000 retention and the other terms thereof.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Allied Capital Advisers, Inc., the investment adviser of the
Registrant, is engaged in the business of identifying, evaluating, structuring,
closing, and monitoring the investments made by the Registrant as well as other
public and private entities engaged in small business finance. Certain
information about the activities of each director or executive officer of
Allied Capital Advisers, Inc., at any time during the past two fiscal years is
set forth below:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS*
OF EACH COMPANY WITH WHICH THE
NAMED PERSON HAS HAD ANY CONNECTION,
AND THE NATURE OF SUCH
NAME CONNECTION.
---- --------------------------------------
<S> <C>
David Gladstone Chairman of the Board and Chief Executive
Officer, Allied Capital Advisers, Inc.,
Allied Capital Corporation, Allied Capital
Corporation
</TABLE>
C - 7
<PAGE> 86
<TABLE>
<S> <C>
II, Allied Capital Lending Corporation, and
Allied Capital Commercial Corporation; Director,
President and Chief Executive Officer, Business
Mortgage Investors, Inc.; Director, Riggs National
Corporation, 808 17th Street, N.W., Washington,
DC 20006.
George C. Williams Vice Chairman of the Board, Allied Capital Advisers,
Inc., Allied Capital Corporation, Allied Capital
Corporation II, Allied Capital Lending Corporation,
and Allied Capital Commercial Corporation; Chairman,
Business Mortgage Investors, Inc.; Director, Golden
Eagle/Satellite Archery, Inc., 1111 Corporate Drive,
Farmington, NY 14425.
Brooks H. Browne Director, Allied Capital Advisers, Inc.; President,
Environmental Enterprises Assistance Fund, 1901
N. Moore Street, Suite 1004, Arlington, VA 22209
(since 1993).
Robert E. Long Director, Allied Capital Advisers, Inc.; Chairman
and Chief Executive Officer, Southern Starr
Broadcasting Group, Inc., 99 Canal Center Plaza,
Suite 220, Alexandria, VA 22314; Director, American
Heavy Lift Shipping Company, 365 Canal Street, New
Orleans, LA 70130, Global Travel, Inc., 1911 N.
Fort Meyer Drive, Arlington, VA 22209, CSC Scientific,
Inc., 8315 Lee Highway, Fairfax, VA 22031, Outer
Seal Building Products, Inc., 5114 College Avenue,
College Park, MD 20740, Business News Network, Inc.,
99 Canal Center Plaza, Suite 220, Alexandria, VA
22314, and Ambase Corporation, 51 Weavers Street,
Greenwich, CT 06831.
William L. Walton Director, Allied Capital Advisers, Inc.;
Director and President, Education Partners,
Inc.; Director, Odyssey Publishing Co.; Chairman,
Success Lab, Inc.; and President, Language Odyssey
(all located at 401 N. Michigan Avenue, Suite 3370,
Chicago, IL 60611).
Joan M. Sweeney Director, President, and Chief Operating Officer,
Allied Capital Advisers, Inc.; Executive Vice
President, Allied Capital Corporation, Allied
Capital Corporation
</TABLE>
C - 8
<PAGE> 87
<TABLE>
<S> <C>
II, Allied Capital Lending Corporation, Allied
Capital Commercial Corporation, and Business
Mortgage Investors, Inc.
William F. Dunbar Executive Vice President, Allied Capital
Advisers, Inc.; President and Chief Operating
Officer, Allied Capital Corporation II;
Executive Vice President, Allied Capital
Corporation, Allied Capital Commercial
Corporation, Allied Capital Lending
Corporation, and Business Mortgage Investors, Inc.
Katherine C. Marien Executive Vice President, Allied Capital Advisers,
Inc.; President and Chief Operating Officer,
Allied Capital Lending Corporation; Executive
Vice President, Allied Capital Corporation,
Allied Capital Corporation II, Allied Capital
Commercial Corporation, and Business Mortgage
Investors, Inc.
John M. Scheurer Executive Vice President, Allied Capital Advisers,
Inc.; President and Chief Operating Officer,
Allied Capital Commercial Corporation; Executive
Vice President, Allied Capital Corporation, Allied
Capital Corporation II, and Allied Capital
Lending Corporation; Executive Vice President
and Chief Operating Officer, Business Mortgage
Investors, Inc.
George Stelljes III Executive Vice President, Allied Capital Advisers,
Inc.; Senior Vice President, Allied Capital
Corporation, Allied Capital Corporation II, Allied
Capital Commercial Corporation, Allied Capital
Lending Corporation, and Business Mortgage
Investors, Inc.; Director, Total Foam, Inc., 80
Rowe Avenue, Unit B, Milford, CT 06460, Visu-Com,
Inc., 1207 Bernard Drive, Baltimore, MD 21203,
and Centennial Media Corporation, 6061 S. Willow
Drive, Suite 232, Englewood, CO 80111.
G. Cabell Williams III Executive Vice President, Allied Capital Advisers,
Inc.; President and Chief Operating Officer,
Allied Capital Corporation; Executive Vice President,
Allied Capital Corporation II, Allied Capital
Commercial Corporation, Allied Capital Lending
Corporation and Business
</TABLE>
C - 9
<PAGE> 88
<TABLE>
<S> <C>
Mortgage Investors, Inc. Director, President,
and Treasurer, Broadcast Holdings, Inc., 1025
Vermont Avenue, N.W., Suite 1030, Washington,
DC 20005 and Georgetown Broadcasting Company, Inc.,
1416 Highmarket Street, Georgetown, SC 29442;
Director, Garden Ridge Corporation, 19411 Atrium
Place, Suite 170, Houston, TX 77084; Director,
Environmental Enterprises Assistance Fund, 1901
N. Moore Street, Suite 1004, Arlington, VA 22209.
Jon A. DeLuca Senior Vice President, Treasurer and Chief
Financial Officer, Allied Capital Advisers,
Inc., Allied Capital Corporation, Allied Capital
Corporation II, Allied Capital Lending Corporation,
Allied Capital Commercial Corporation, and Business
Mortgage Investors, Inc. Manager, Entrepreneurial
Services, Coopers & Lybrand (1986-1994).
Thomas R. Salley General Counsel and Secretary, Allied Capital
Advisers, Inc., Allied Capital Corporation,
Allied Capital Corporation II, Allied Capital
Lending Corporation, Allied Capital Commercial
Corporation, and Business Mortgage Investors, Inc.
</TABLE>
- ----------------
* The business address of Allied Capital Advisers, Inc., Allied Capital
Corporation, Allied Capital Corporation II, Allied Capital Lending Corporation,
Allied Capital Commercial Corporation, and Business Mortgage Investors, Inc.,
is c/o Allied Capital Advisers, Inc., 1666 K Street, N.W., Ninth Floor,
Washington, D.C. 20006-2803.
ITEM 31. LOCATIONS OF ACCOUNTS AND RECORDS
All of the accounts and records of the Registrant, including all the
accounts, books and documents required to be maintained by Section 31(a) of the
1940 Act and the rules thereunder, are maintained by Allied Capital Advisers,
Inc., 1666 K Street, N.W., Ninth Floor, Washington, D.C. 20006-2803.
ITEM 32. MANAGEMENT SERVICES
Other than with its investment adviser, the Registrant is not a party
to any contract pursuant to which any person performs management-related
services to the Registrant.
C - 10
<PAGE> 89
ITEM 33. UNDERTAKINGS
1. The Registrant undertakes to suspend the offering of shares
until the Prospectus is amended if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than ten percent from
its net asset value as of the effective date of the Registration Statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the Prospectus.
2. Not Applicable.
3. The Registrant undertakes in the event that the securities
being registered are to be offered to existing shareholders pursuant to
warrants or rights and any securities are to be offered to the public, to
supplement the prospectus, after the expiration of the subscription period, to
set forth the results of the subscription offer, the transactions by
underwriters during the subscription period, the amount of unsubscribed
securities to be purchased by underwriters, and the terms of any subsequent
reoffering thereof. The Registrant further undertakes that if any public
offering by the underwriters of the securities being registered is to be made
on terms differing from those set forth on the cover page of the prospectus,
the Registrant shall file a post-effective amendment to set forth the terms of
such offering.
4. Not applicable.
5. a. The Registrant undertakes that, for the purpose of
determining any liability under the 1933 Act, the information omitted from the
form of Prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of Prospectus filed by the Registrant
under Rule 497(h) under the 1933 Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective;
b. The Registrant undertakes that for the purpose of
determining any liability under the 1933 Act, each post-effective amendment
that contains a form of Prospectus shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering
thereof.
6. The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional Information.
C - 11
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Washington, and District of Columbia, on the 27th day of November, 1995.
ALLIED CAPITAL CORPORATION
By: /s/ T.R. Salley
-----------------------------
Thomas R. Salley
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David Gladstone Chairman of the Board and Chief November 27, 1995
- ------------------- Executive Officer (Principal -------------------
David Gladstone Executive Officer) and Director
* Vice Chairman of the Board and
- ------------------ Director --------------------
George C. Williams
/s/ G. Cabell Williams President and Chief Operating November 27, 1995
- ---------------------- Officer and Director -------------------
G. Cabell Williams III
* Director
- --------------------- --------------------
Joseph A. Clorety III
* Director
- --------------------- --------------------
Michael I. Gallie
* Director
- --------------------- --------------------
Warren K. Montouri
* Director
- --------------------- --------------------
Guy T. Steuart II
* Director
- --------------------- --------------------
T. Murray Toomey
/s/ Jon A DeLuca Vice President, Treasurer and November 29, 1995
- ---------------- Chief Financial Officer -------------------
Jon A. DeLuca (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
* By: /s/ T.R. Salley
---------------
Thomas R. Salley, Attorney-in-Fact and Agent, on November 29, 1995,
pursuant to the Powers of Attorney filed herewith.
<PAGE> 91
EXHIBIT INDEX
Exhibit
Number Page
- ------- ----
(s) Powers of Attorney of certain signatories of this registration
statement
<PAGE> 1
Exhibit (s)
Powers of Attorney of certain signatories of this registration statement
<PAGE> 2
POWER OF ATTORNEY
The undersigned Director of Allied Capital Corporation, a Maryland
corporation (the "Company"), hereby constitutes and appoints G. Cabell
Williams III and Thomas R. Salley and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him and on his behalf and in his name,
place, and stead, to execute and file any of the documents referred to below
relating to: (i) registration under the Securities Act of 1933, as amended (the
"1933 Act"), of the offer and sale of shares of common stock newly issued or
reissued by the Company or (ii) registration under the 1933 Act of the offer
and purchase of units of other classes of outstanding securities previously
issued by the Company. Such documents shall include, but shall not be limited
to, registration statements on any form or forms under the 1933 Act, and any
and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this
21st day of November, 1995.
/s/ David Gladstone
-----------------------------
David Gladstone
<PAGE> 3
POWER OF ATTORNEY
The undersigned Director of Allied Capital Corporation, a Maryland
corporation (the "Company"), hereby constitutes and appoints David Gladstone,
G. Cabell Williams III, and Thomas R. Salley and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place, and stead, to execute and file any of the documents referred to
below relating to: (i) registration under the Securities Act of 1933, as
amended (the "1933 Act"), of the offer and sale of shares of common stock newly
issued or reissued by the Company or (ii) registration under the 1933 Act of
the offer and purchase of units of other classes of outstanding securities
previously issued by the Company. Such documents shall include, but shall not
be limited to, registration statements on any form or forms under the 1933 Act,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this
21st day of November, 1995.
/s/ George C. Williams
-----------------------------
George C. Williams
<PAGE> 4
POWER OF ATTORNEY
The undersigned Director of Allied Capital Corporation, a Maryland
corporation (the "Company"), hereby constitutes and appoints David Gladstone
and Thomas R. Salley and each of them (with full power to each of them to act
alone), his true and lawful attorney-in-fact and agent, with full power of
substitution to each, for him and on his behalf and in his name, place, and
stead, to execute and file any of the documents referred to below relating to:
(i) registration under the Securities Act of 1933, as amended (the "1933 Act"),
of the offer and sale of shares of common stock newly issued or reissued by the
Company or (ii) registration under the 1933 Act of the offer and purchase of
units of other classes of outstanding securities previously issued by the
Company. Such documents shall include, but shall not be limited to,
registration statements on any form or forms under the 1933 Act, and any and
all amendments and supplements thereto, with all exhibits and all instruments
necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this
21st day of November, 1995.
/s/ G. Cabell Williams
-----------------------------
G. Cabell Williams III
<PAGE> 5
POWER OF ATTORNEY
The undersigned Director of Allied Capital Corporation, a Maryland
corporation (the "Company"), hereby constitutes and appoints David Gladstone,
G. Cabell Williams III, and Thomas R. Salley and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place, and stead, to execute and file any of the documents referred to
below relating to: (i) registration under the Securities Act of 1933, as
amended (the "1933 Act"), of the offer and sale of shares of common stock newly
issued or reissued by the Company or (ii) registration under the 1933 Act of
the offer and purchase of units of other classes of outstanding securities
previously issued by the Company. Such documents shall include, but shall not
be limited to, registration statements on any form or forms under the 1933 Act,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this
21st day of November, 1995.
/s/ Joseph A. Clorety III
-----------------------------
Joseph A. Clorety III
<PAGE> 6
POWER OF ATTORNEY
The undersigned Director of Allied Capital Corporation, a Maryland
corporation (the "Company"), hereby constitutes and appoints David Gladstone,
G. Cabell Williams III, and Thomas R. Salley and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place, and stead, to execute and file any of the documents referred to
below relating to: (i) registration under the Securities Act of 1933, as
amended (the "1933 Act"), of the offer and sale of shares of common stock newly
issued or reissued by the Company or (ii) registration under the 1933 Act of
the offer and purchase of units of other classes of outstanding securities
previously issued by the Company. Such documents shall include, but shall not
be limited to, registration statements on any form or forms under the 1933 Act,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this
21st day of November, 1995.
/s/ Michael Gallie
-----------------------------
Michael I. Gallie
<PAGE> 7
POWER OF ATTORNEY
The undersigned Director of Allied Capital Corporation, a Maryland
corporation (the "Company"), hereby constitutes and appoints David Gladstone,
G. Cabell Williams III, and Thomas R. Salley and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place, and stead, to execute and file any of the documents referred to
below relating to: (i) registration under the Securities Act of 1933, as
amended (the "1933 Act"), of the offer and sale of shares of common stock newly
issued or reissued by the Company or (ii) registration under the 1933 Act of
the offer and purchase of units of other classes of outstanding securities
previously issued by the Company. Such documents shall include, but shall not
be limited to, registration statements on any form or forms under the 1933 Act,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this
21st day of November, 1995.
/s/ Warren K. Montouri
-----------------------------
Warren K. Montouri
<PAGE> 8
POWER OF ATTORNEY
The undersigned Director of Allied Capital Corporation, a Maryland
corporation (the "Company"), hereby constitutes and appoints David Gladstone,
G. Cabell Williams III, and Thomas R. Salley and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place, and stead, to execute and file any of the documents referred to
below relating to: (i) registration under the Securities Act of 1933, as
amended (the "1933 Act"), of the offer and sale of shares of common stock newly
issued or reissued by the Company or (ii) registration under the 1933 Act of
the offer and purchase of units of other classes of outstanding securities
previously issued by the Company. Such documents shall include, but shall not
be limited to, registration statements on any form or forms under the 1933 Act,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this
21st day of November, 1995.
/s/ Guy T. Steuart II
-----------------------------
Guy T. Steuart II
<PAGE> 9
POWER OF ATTORNEY
The undersigned Director of Allied Capital Corporation, a Maryland
corporation (the "Company"), hereby constitutes and appoints David Gladstone,
G. Cabell Williams III, and Thomas R. Salley and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place, and stead, to execute and file any of the documents referred to
below relating to: (i) registration under the Securities Act of 1933, as
amended (the "1933 Act"), of the offer and sale of shares of common stock newly
issued or reissued by the Company or (ii) registration under the 1933 Act of
the offer and purchase of units of other classes of outstanding securities
previously issued by the Company. Such documents shall include, but shall not
be limited to, registration statements on any form or forms under the 1933 Act,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this
21st day of November, 1995.
/s/ T. Murray Toomey
-----------------------------
T. Murray Toomey
<PAGE> 10
POWER OF ATTORNEY
The undersigned officer of Allied Capital Corporation, a Maryland
corporation (the "Company"), hereby constitutes and appoints David Gladstone,
G. Cabell Williams III, and Thomas R. Salley and each of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution to each, for him and on his behalf and in his
name, place, and stead, to execute and file any of the documents referred to
below relating to: (i) registration under the Securities Act of 1933, as
amended (the "1933 Act"), of the offer and sale of shares of common stock newly
issued or reissued by the Company or (ii) registration under the 1933 Act of
the offer and purchase of units of other classes of outstanding securities
previously issued by the Company. Such documents shall include, but shall not
be limited to, registration statements on any form or forms under the 1933 Act,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand, this
21st day of November, 1995.
/s/ Jon A DeLuca
-----------------------------
Jon A. DeLuca
