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

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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

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

COMMISSION FILE NO. 0-18016

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

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MARYLAND 52-1628801
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)

C/O ALLIED CAPITAL ADVISERS, INC.
1666 K STREET, N.W., NINTH FLOOR 20006
WASHINGTON, D.C. (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

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

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

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

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

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

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

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

The aggregate market value of the registrant's common stock held other than by
directors and officers of the registrant and officers of its investment adviser
as of March 18, 1996 was approximately $119,081,924 based upon the average bid
and asked price for the registrant's common stock on that date. As of March
18, 1996 there were 7,158,937 shares of the registrant's common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Annual Report to Stockholders for the year ended
December 31, 1995 are incorporated by reference into Parts II and IV of this
Report. Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 10, 1996 are incorporated by
reference into Part III of this Report.

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PART I

ITEM 1. BUSINESS.

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

The investment objective of the Company is to provide a high level of
current income and long-term growth in the value of its net assets by providing
debt, mezzanine, and equity financing primarily for small, privately owned
companies. This objective may be changed by the Board of Directors of the
Company without "a vote of a majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Company. To achieve its investment objective,
the Company invests primarily in and lends primarily to small businesses, both
directly and through its wholly owned subsidiaries (unless otherwise indicated,
all further references herein to investments by the Company include those made
by its subsidiaries). The investments made by the Company include providing
financing for growth, leveraged buyouts of such companies, for note purchases
and loan restructurings, and for special situations, such as acquisitions,
buyouts, recapitalizations, and bridge financings of such companies.

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

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

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The Company's Operation as a BDC

As a BDC, the Company may not acquire any assets other than
"Qualifying Assets" unless, at the time the acquisition is made, Qualifying
Assets represent at least 70% of the value of the Company's total assets (the
"70% test"). The principal categories of Qualifying Assets relevant to the
business of the Company are the following:

(1) Securities purchased in transactions not involving any public offering
from the issuer of such securities, which issuer is an eligible
portfolio company. An eligible portfolio company is defined to
include any issuer that (a) is organized and has its principal place
of business in the United States, (b) is not an investment company
other than an SBIC wholly owned by the BDC (the Company's investment
in and advances to Allied Investment II is a Qualifying Asset, but its
investment in Allied Financial II is not until Allied Financial II is
licensed as an SSBIC) and (c) does not have any class of publicly
traded securities with respect to which a broker may extend margin
credit.

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

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

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

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

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

In accordance with the conditions of exemptive orders of the
Securities and Exchange Commission (the "Commission") permitting co-investments
(the "Co-investment Guidelines"), most of the Company's acquisitions and
dispositions of investments are made in participation with Allied Capital
Corporation ("Allied I"). In the past, the Company also acquired certain
investments in participation with Allied Venture Partnership ("Allied Venture")
and Allied Technology Partnership ("Allied Technology"), both private venture
capital partnerships managed by Advisers, neither of which is now making new
investments. Allied I is a closed-end management investment company that has
elected to be regulated as a BDC and for which Advisers serves as its
investment adviser. At December 31, 1995, Allied I had total consolidated
assets of $148,268,000, compared to the Company's total consolidated assets of
$107,169,000 at that date.

The Co-investment Guidelines generally provide that the Company and
its wholly owned subsidiaries must be offered the opportunity to invest in any
investment, other than in interim investments or marketable securities,

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that would be suitable for Allied I or its wholly owned subsidiaries and the
Company to the extent proportionate to the companies' respective consolidated
total assets. Securities purchased by the Company or its wholly owned
subsidiaries in a co-investment transaction with any of Allied I or its wholly
owned subsidiaries, Allied Venture or Allied Technology, will consist of the
same class of securities, will have the same registration rights, if any, and
other rights related thereto, and will be purchased for the same unit
consideration. Any such co-investment transaction must be approved by the
Company's Board of Directors, including a majority of its independent
directors. The Company will not make any investment in the securities of any
issuers in which Allied I, Allied Venture or Allied Technology, but not the
Company, has previously invested. The Co-investment Guidelines also provide
that the Company will have the opportunity to dispose of any securities in
which the Company or its wholly owned subsidiaries and any of Allied I or its
wholly owned subsidiaries, Allied Venture or Allied Technology, have invested
in proportion to their respective holdings of such securities, and that, in
any such disposition, the Company will be required to bear no more than its
proportionate share of the transaction costs.

Allied Investment II

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

As an SBIC, Allied Investment II currently has the opportunity to sell
to the SBA subordinated debentures with a maturity of up to ten years up to an
aggregate principal amount determined by a formula which applies a multiple to
its private capital, but not in excess of $90 million (the "$90 million
limit"). The $90 million limit generally applies to all financial assistance
provided by the SBA to any licensee and its "associates," as that term is
defined in SBA regulations. For this purpose, Allied Investment II may be
deemed to be an "associate" of Allied Investment Corporation ("Allied
Investment"), which is also an SBIC and is a subsidiary of Allied I, and Allied
Capital Financial Corporation ("Allied Financial"), an SSBIC that is a
subsidiary of Allied I. If Allied Financial II is licensed as an SSBIC, it
would be deemed to be an "associate" of Allied Investment II, and vice versa.
As of December 31, 1995, Allied Investment II had sold no debentures to the
SBA. As of that date, however, Allied Investment and Allied Financial had sold
debentures and preferred stock to the SBA in the aggregate principal amount of
$68,300,000; as a result, the combined ability of Allied Investment II, Allied
Investment and Allied Financial to apply for additional leverage from the SBA
may be limited to $21,700,000 due to the $90 million limit. The Company is
unable to predict the SBA's ability to meet demands for leverage on an ongoing
basis, as such funding may be affected if Congress reduces appropriations for
the SBA, which may compel the SBA to allocate leverage or to reduce the current
limits on available leverage. Therefore, there is no guaranty that Allied
Investment II or Allied Financial II, if and when licensed, will be able to
obtain SBA leverage.

Allied Investment II 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 II

Allied Financial II has applied to be licensed as an SSBIC, but cannot
predict when or if the SBA will act upon its application. An SSBIC is a small
business investment company specializing in the financing of small businesses
controlled by socially or economically disadvantaged persons. To determine
whether the owners of a small business are socially or economically
disadvantaged, the SBA relies on a composite of factors. Business owners who
are members of the following groups, among others, are considered socially
disadvantaged - African Americans, Hispanic Americans, Native Americans and
Asian Pacific Americans. In determining whether the owners of a small business
are economically disadvantaged, consideration may be given to factors such as
levels

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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. To date, the investment activity of Allied Financial II has been
minimal, pending receipt of its SSBIC license. Total assets of Allied
Financial II at December 31, 1995 were $3.6 million, of which $1.7 million was
invested in cash and cash equivalents.

Investment Adviser

Advisers is the investment adviser of the Company pursuant to an
investment advisory agreement. The advisory agreement will remain in effect
from year to year as long as its continuance is approved at least annually by
the Board of Directors, including a majority of the disinterested directors, or
by the "vote of a majority of the outstanding voting securities" (as defined in
the 1940 Act) of the Company. The 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," and will terminate automatically in the event of its
assignment.

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

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

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

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Prior to the second quarter of 1995 under a former advisory agreement
(the "former agreement"), as compensation for its services to and the expenses
paid for the account of the Company, Advisers was entitled to be paid
quarterly, in arrears, a fee equal to 0.625% per quarter of the quarter-end
value of the Company's consolidated total assets. Such fees on an annual basis
were approximately 2.5% of the Company's consolidated total assets. In
practice during the time in which the former agreement was in place, Advisers
waived a portion of its fees associated with the Company's consolidated Interim
Investments, cash and cash equivalents. Advisers waived its fee, except to the
extent of 0.125% per quarter, on the Company's consolidated Interim
Investments, cash and cash equivalents. As of December 31, 1994, the Company
had invested a substantial portion of such excess Interim Investments, cash and
cash equivalents and as a result, the Company amended its advisory agreement in
1995 to reflect the current fee structure that, in effect, provided for
advisory fees to be paid as they had historically been paid during the waived
periods. The new agreement and current fee structure were approved by
shareholders at the Company's 1995 annual meeting. For purposes of calculating
the fee, the values of the Company's consolidated 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 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 I. The Company also
understands that the fee to Advisers provided for by the current agreement is
not in excess of that frequently paid by private investment funds engaged in
similar types of investments. Such private funds also typically allocate to
management a substantial participation in profits.

Employees

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

ITEM 2. PROPERTIES.

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

ITEM 3. LEGAL PROCEEDINGS.

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

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

None.

EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth the names, ages and positions of the
executive officers of the Company as of March 1, 1996, as well as certain other
information with respect to those persons:

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

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

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

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

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

Jon A. DeLuca 33 Executive Vice President, Employed by Advisers since 1994.
Treasurer and Chief Executive Vice President, Treasurer and
Financial Officer Chief Financial Officer of Allied I,
Allied Commercial, Allied Lending, BMI,
Allied Mortgage and Advisers; Manager
of Entrepreneurial Services at Coopers
& Lybrand from 1986 to 1994.

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

PART II

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

Information in response to this Item is incorporated by reference to
the "Investor Information" section of, and to Notes 4 and 6 of the Notes to
Consolidated Financial Statements contained in, the Company's Annual Report to
Stockholders for the year ended December 31, 1995 (the "1995 Annual Report").

ITEM 6. SELECTED FINANCIAL DATA.

Information in response to this Item is incorporated by reference to
the table in the "Consolidated Comparison of Financial Highlights" section of
the 1995 Annual Report.

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

Information in response to this Item is incorporated by reference to
the "Management's Discussion and Analysis" section of the 1995 Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Information in response to this Item is incorporated by reference to
the Consolidated Financial Statements, notes thereto and Report of Independent
Accountants thereon contained in the 1995 Annual Report.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information in response to this Item is incorporated by reference to
the identification of directors and nominees contained in the "Election of
Directors" section and the subsection captioned "Compliance with Reporting
Requirements of Section 16(a) of the Securities Exchange Act of 1934" of the
Company's definitive proxy statement in connection with its 1996 Annual Meeting
of Stockholders, scheduled to be held on May 10, 1996 (the "1996 Proxy
Statement"). Information in response to this Item also is included under the
caption "Executive Officers of the Registrant" included in Part I of this
Report.

ITEM 11. EXECUTIVE COMPENSATION.

Information in response to this Item is incorporated by reference to
the subsections captioned "Compensation of Executive Officers and Directors,"
"Incentive Stock Options" and "Compensation of Directors" of the 1996 Proxy
Statement.

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

Information in response to this Item is incorporated by reference to
the subsection captioned "Beneficial Ownership of Common Stock" of the 1996
Proxy Statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

PART IV

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

(a) Documents filed as part of this Report:

1. A. The following financial statements are incorporated by reference
to the 1995 Annual Report:

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

B. The Report of Independent Accountants with respect to the
financial statements listed in A. above is incorporated by reference
to the 1995 Annual Report.

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

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

3.1(1) Articles of Incorporation of the Company.

3.2* By-Laws of the Company, as amended.

4 Instruments defining rights of security holders -- See Exhibits 3.1
and 3.2.

10.1(2) Investment Advisory Agreement between the Company and Allied Capital
Advisers, Inc. dated May 11, 1995.

10.4(1) The Company's Dividend Reinvestment Plan.

10.5(3) The Company's Incentive Stock Option Plan, as amended.

10.6* Amended and Restated Credit Agreement by and between the Company and
NationsBank, N.A., dated September 28, 1995.

11* Statement re computation of per share earnings.

13(4)* 1995 Annual Report to Stockholders.

21 Subsidiaries of the Company and jurisdiction of incorporation:

Allied Investment Corporation II Maryland
Allied Financial Corporation II Maryland

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

27* Financial Data Schedule.

28* Financial Statements as of and for the year ended December 31, 1995
of Allied Investment Corporation II, in the form filed with the U.S.
Small Business Administration.

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* Filed herewith.

(1) Incorporated by reference to the Company's Registration Statement on Form
N-2 (No. 33-28818) filed May 9, 1989.

(2) Incorporated by reference to Exhibit A to the Company's definitive proxy
statement relating to the meeting of its stockholders held on May 11,
1995.

(3) Incorporated by reference to Exhibit A to the Company's definitive proxy
statement relating to the meeting of its stockholders held on May 12,
1994.

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

(b) Reports on Form 8-K.

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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 28, 1996.

/s/ DAVID GLADSTONE
-------------------------------------------------
David Gladstone
Chairman of the Board and Chief Executive Officer

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

Title
Signature (Capacity) Date
- --------- ---------- ----

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

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

/s/ WILLIAM F. DUNBAR Director and President March 28, 1996
- ---------------------------------------------
William F. Dunbar

/s/ LAWRENCE I. HEBERT Director March 28, 1996
- ---------------------------------------------
Lawrence I. Hebert

/s/ JOHN D. REILLY Director March 28, 1996
- ---------------------------------------------
John D. Reilly

/s/ SMITH T. WOOD Director March 28, 1996
- ---------------------------------------------
Smith T. Wood

/s/ JOHN I. LEAHY Director March 28, 1996
- ---------------------------------------------
John I. Leahy

/s/ JOHN D. FIRESTONE Director March 28, 1996
- ---------------------------------------------
John D. Firestone

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

12
EXHIBIT INDEX

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

3.2 By-Laws of the Company, as amended.

10.6 Amended and Restated Credit Agreement by and between the Company
and NationsBank, N.A., dated September 28, 1995.

11 Statement re computation of per share earnings.

13 1995 Annual Report to Stockholders.

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

27 Financial Data Schedule.

28 Financial Statements as of and for the year ended December 31, 1995
of Allied Investment Corporation II, as filed with the U.S. Small
Business Administration.