<PAGE> 1
[MATTHEWS, CARTER AND BOYCE LETTERHEAD]
Board of Directors
Allied Capital Corporation
1666 K Street, N.W., Suite 901
Washington, D.C. 20006
In compliance with Rule 17f-2 promulgated under the Investment Company Act
of 1940, we have made an examination of the investment accounts shown by the
books and records of Allied Capital Financial Corporation as of December 30,
1997 (Investment Company Act File Number 811-3811). Our examination was made in
accordance with generally accepted auditing standards.
Securities owned as of the close of business on December 30, 1997, shown
by the books and records examined by us which were accounted for by count and
inspection thereof, were located in the vault of Riggs Bank, Washington, D.C.,
except for those which related to recently disbursed loans or which were out for
transfer on that date, which were accounted for by other means.
/s/ MATTHEWS, CARTER AND BOYCE
May 29, 1998
