x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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

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PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Consolidated Balance Sheet as of June 30, 2006 (unaudited) and December 31, 2005		1
		Consolidated Statement of Operations (unaudited) — For the Three and Six Months Ended June 30, 2006 and 2005		2
		Consolidated Statement of Changes in Net Assets (unaudited) — For the Six Months Ended June 30, 2006 and 2005		3
		Consolidated Statement of Cash Flows (unaudited) — For the Six Months Ended June 30, 2006 and 2005		4
		Consolidated Statement of Investments as of June 30, 2006 (unaudited)		5
		Consolidated Statement of Investments as of December 31, 2005		15
		Notes to Consolidated Financial Statements		25
		Report of Independent Registered Public Accounting Firm		52
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			56
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			88
	Item 4. Controls and Procedures			88
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			89
	Item 1A. Risk Factors			90
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			96
	Item 3. Defaults Upon Senior Securities			97
	Item 4. Submission of Matters to a Vote of Security Holders			98
	Item 5. Other Information			98
	Item 6. Exhibits			98
	Signatures			103

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					June 30,				December 31,
					2006				2005
(in thousands, except per share amounts)					(unaudited)
ASSETS
Portfolio at value:
	Private finance
		Companies more than 25% owned (cost: 2006-$1,282,768; 2005-$1,489,782)			$	1,188,131			$	1,887,651
		Companies 5% to 25% owned (cost: 2006-$371,550; 2005-$168,373)				371,156				158,806
		Companies less than 5% owned (cost: 2006-$1,933,932; 2005-$1,448,268)				1,901,139				1,432,833
			Total private finance (cost: 2006-$3,588,250; 2005-$3,106,423)			3,460,426				3,479,290
	Commercial real estate finance (cost: 2006-$127,748; 2005-$131,695)					133,051				127,065
			Total portfolio at value (cost: 2006-$3,715,998; 2005-$3,238,118)			3,593,477				3,606,355
U.S. Treasury bills						125,940				100,305
Investments in money market and other securities						97,810				121,967
Deposits of proceeds from sales of borrowed Treasury securities						17,156				17,666
Accrued interest and dividends receivable						49,270				60,366
Other assets						124,448				87,858
Cash						3,106				31,363
			Total assets		$	4,011,207			$	4,025,880
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
	Notes payable and debentures (maturing within one year: 2006-$150,000; 2005-$175,000)				$	1,207,137			$	1,193,040
	Revolving line of credit					1,750				91,750
	Obligations to replenish borrowed Treasury securities					17,156				17,666
	Accounts payable and other liabilities					95,145				102,878
			Total liabilities			1,321,188				1,405,334
Commitments and contingencies
Shareholders’ equity:
	Common stock, $0.0001 par value, 200,000 shares authorized; 140,312 and 136,697 shares issued and outstanding at June 30, 2006, and December 31, 2005, respectively					14				14
	Additional paid-in capital					2,284,117				2,177,283
	Common stock held in deferred compensation trust					(24,003	)			(19,460	)
	Notes receivable from sale of common stock					(3,370	)			(3,868	)
	Net unrealized appreciation (depreciation)					(136,929	)			354,325
	Undistributed earnings					570,190				112,252
			Total shareholders’ equity			2,690,019				2,620,546
			Total liabilities and shareholders’ equity		$	4,011,207			$	4,025,880
Net asset value per common share					$	19.17			$	19.17

1

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					For the Three Months								For the Six Months
					Ended June 30,								Ended June 30,
					2006				2005				2006				2005
(in thousands, except per share amounts)
					(unaudited)								(unaudited)
Interest and Related Portfolio Income:
	Interest and dividends
		Companies more than 25% owned			$	23,419			$	30,199			$	53,565			$	58,450
		Companies 5% to 25% owned				11,419				5,597				17,069				11,518
		Companies less than 5% owned				60,595				35,534				113,680				86,307
			Total interest and dividends			95,433				71,330				184,314				156,275
	Loan prepayment premiums
		Companies more than 25% owned				134				—				5,094				—
		Companies 5% to 25% owned				—				—				—				—
		Companies less than 5% owned				1,611				853				1,937				2,530
			Total loan prepayment premiums			1,745				853				7,031				2,530
	Fees and other income
		Companies more than 25% owned				5,515				7,877				12,642				12,758
		Companies 5% to 25% owned				1,282				55				3,998				125
		Companies less than 5% owned				6,481				6,092				13,482				9,438
			Total fees and other income			13,278				14,024				30,122				22,321
			Total interest and related portfolio income			110,456				86,207				221,467				181,126
Expenses:
	Interest					21,607				19,154				45,907				39,379
	Employee					20,398				22,877				41,826				38,333
	Stock options					4,597				—				8,203				—
	Administrative					9,861				23,048				21,380				43,802
			Total operating expenses			56,463				65,079				117,316				121,514
Net investment income before income taxes						53,993				21,128				104,151				59,612
Income tax expense, including excise tax						3,798				5,861				12,656				5,593
Net investment income						50,195				15,267				91,495				54,019
Net Realized and Unrealized Gains (Losses):
	Net realized gains (losses)
		Companies more than 25% owned				95,212				(17,884	)			528,399				(17,485	)
		Companies 5% to 25% owned				(74	)			4,711				(417	)			4,708
		Companies less than 5% owned				5,102				220,669				5,093				230,558
			Total net realized gains			100,240				207,496				533,075				217,781
	Net change in unrealized appreciation or depreciation					(116,706	)			89,122				(491,254	)			159,706
			Total net gains (losses)			(16,466	)			296,618				41,821				377,487
Net increase in net assets resulting from operations					$	33,729			$	311,885			$	133,316			$	431,506
Basic earnings per common share					$	0.24			$	2.33			$	0.96			$	3.23
Diluted earnings per common share					$	0.24			$	2.29			$	0.94			$	3.17
Weighted average common shares outstanding — basic						140,024				133,701				139,395				133,493
Weighted average common shares outstanding — diluted						143,213				136,381				142,466				135,982

2

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				For the Six Months
				Ended June 30,
				2006				2005
(in thousands, except per share amounts)
				(unaudited)
Operations:
	Net investment income			$	91,495			$	54,019
	Net realized gains				533,075				217,781
	Net change in unrealized appreciation or depreciation				(491,254	)			159,706
		Net increase in net assets resulting from operations			133,316				431,506
Shareholder distributions:
	Common stock dividends				(166,632	)			(152,329	)
		Net decrease in net assets resulting from shareholder distributions			(166,632	)			(152,329	)
Capital share transactions:
	Sale of common stock				82,970				—
	Issuance of common stock for portfolio investments				—				7,200
	Issuance of common stock in lieu of cash distributions				7,199				4,163
	Issuance of common stock upon the exercise of stock options				8,226				12,689
	Stock option expense				8,439				—
	Net decrease in notes receivable from sale of common stock				498				200
	Purchase of common stock held in deferred compensation trust				(4,649	)			(3,976	)
	Distribution of common stock held in deferred compensation trust				106				—
	Other				—				2,056
		Net increase in net assets resulting from capital share transactions			102,789				22,332
		Total increase in net assets			69,473				301,509
Net assets at beginning of period					2,620,546				1,979,778
Net assets at end of period				$	2,690,019			$	2,281,287
Net asset value per common share				$	19.17			$	17.01
Common shares outstanding at end of period					140,312				134,131

3

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					For the Six Months Ended
					June 30,
					2006				2005
(in thousands)
					(unaudited)
Cash flows from operating activities:
	Net increase in net assets resulting from operations				$	133,316			$	431,506
	Adjustments:
		Portfolio investments				(1,071,243	)			(647,248	)
		Principal collections related to investment repayments or sales				769,598				1,090,813
		Change in accrued or reinvested interest and dividends				9,064				3,567
		Amortization of discounts and fees				(3,094	)			(3,334	)
		Redemption of (investments in) U.S. Treasury bills				(22,875	)			—
		Redemption of (investments in) money market securities				25,581				(74,200	)
		Stock option expense				8,439				—
		Changes in other assets and liabilities				(1,410	)			8,136
		Depreciation and amortization				870				963
		Realized gains from the receipt of notes and other securities as consideration from sale of investments, net of collections				(217,086	)			(916	)
		Realized losses				4,405				41,643
		Net change in unrealized (appreciation) or depreciation				491,254				(159,706	)
			Net cash provided by (used in) operating activities			126,819				691,224
Cash flows from financing activities:
	Sale of common stock					82,970				—
	Sale of common stock upon the exercise of stock options					8,226				12,689
	Collections of notes receivable from sale of common stock					498				200
	Borrowings under notes payable and debentures					50,000				—
	Repayments on notes payable and debentures					(37,000	)			(76,700	)
	Net borrowings under (repayments on) revolving line of credit					(90,000	)			(112,000	)
	Purchase of common stock held in deferred compensation trust					(4,649	)			(3,976	)
	Other financing activities					(1,590	)			(1,958	)
	Common stock dividends and distributions paid					(163,531	)			(150,826	)
			Net cash provided by (used in) financing activities			(155,076	)			(332,571	)
Net increase (decrease) in cash						(28,257	)			358,653
Cash at beginning of period						31,363				57,160
Cash at end of period					$	3,106			$	415,813

4

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					June 30, 2006
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Companies More Than 25% Owned
Acme Paging, L.P.(4)			Senior Loan (6.0%, Due 12/07)(6)		$	3,750			$	3,750			$	—
	(Telecommunications)		Subordinated Debt (10.0%, Due 1/08)(6)			881				881				—
			Common Stock (23,513 shares)							27				—
Alaris Consulting, LLC			Senior Loan (16.5%, Due 12/05 – 12/07)(6)			27,055				27,018				—
	(Business Services)		Equity Interests							5,305				—
			Guaranty ($1,100)
American Healthcare Services, Inc.			Senior Loan (0.7%, Due 12/04 – 12/05)(6)			4,997				4,599				4,329
	and Affiliates
	(Healthcare Services)
Avborne, Inc.(7)			Preferred Stock (12,500 shares)							658				773
	(Business Services)		Common Stock (27,500 shares)							—				—
Avborne Heavy Maintenance, Inc.(7)			Preferred Stock (1,568 shares)							2,401				—
	(Business Services)		Common Stock (2,750 shares)							—				—
			Guaranty ($2,401)
Business Loan Express, LLC			Class A Equity Interests			64,427				64,427				64,427
	(Financial Services)		Class B Equity Interests							119,436				130,890
			Class C Equity Interests							109,301				121,900
			Guaranty ($149,162 — See Note 3)
			Standby Letters of Credit ($32,000 —   See Note 3)
Callidus Capital Corporation			Senior Loan (12.0%, Due 12/06)			1,650				1,650				1,650
	(Financial Services)		Subordinated Debt (18.0%, Due 10/08)			5,276				5,276				5,276
			Common Stock (10 shares)							2,058				12,093
Cambridge Capital Partners(5)			Senior Loan (8.0%, Due 5/09)(6)			250				250				250
	(Financial Services)		Equity Interests							1,751				1,751
CR Brands, Inc.			Subordinated Debt (16.6%, Due 2/13)			38,898				38,712				38,712
	(Consumer Products)		Common Stock (37,200,551 shares)							33,321				37,431
Diversified Group Administrators, Inc.			Preferred Stock (1,000,000 shares)							700				728
	(Business Services)		Preferred Stock (1,451,380 shares)							841				841
			Common Stock (1,451,380 shares)							—				322
Financial Pacific Company			Subordinated Debt (17.4%, Due 2/12 – 8/12)			70,878				70,630				70,630
	(Financial Services)		Preferred Stock (10,964 shares)							10,276				14,460
			Common Stock (14,735 shares)							14,819				44,418
ForeSite Towers, LLC			Equity Interests							7,620				12,818
	(Tower Leasing)

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.
(7)		Avborne, Inc. and Avborne Heavy Maintenance, Inc. are affiliated companies.

5

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					June 30, 2006
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Global Communications, LLC			Senior Loan (10.7%, Due 9/02 – 11/07)(6)		$	15,957			$	15,957			$	15,957
	(Business Services)		Subordinated Debt (17.0%, Due 12/03 – 9/05)(6)			11,339				11,336				9,648
			Preferred Equity Interest							14,067				—
			Options							1,639				—
Gordian Group, Inc.			Senior Loan (10.0%, Due 6/06 – 12/08)(6)			11,792				11,812				—
	(Business Services)		Common Stock (1,000 shares)							6,762				—
Healthy Pet Corp.			Senior Loan (9.5%, Due 8/10)			15,938				15,938				15,938
	(Consumer Services)		Subordinated Debt (15.0%, Due 8/10)			43,286				43,125				43,125
			Common Stock (30,142 shares)							30,142				28,152
HMT, Inc.			Preferred Stock (554,052 shares)							2,637				2,637
	(Energy Services)		Common Stock (300,000 shares)							3,000				7,942
			Warrants							1,155				3,058
Impact Innovations Group, LLC			Equity Interests in Affiliate							—				870
	(Business Services)
Insight Pharmaceuticals Corporation			Subordinated Debt (16.1%, Due 9/12)			59,284				59,067				59,067
	(Consumer Products)		Preferred Stock (25,000 shares)							25,000				26,249
			Common Stock (620,000 shares)							6,325				218
Jakel, Inc.			Subordinated Debt (15.5%, Due 3/08)(6)			14,442				14,442				2,533
	(Industrial Products)		Preferred Stock (6,460 shares)							6,460				—
			Common Stock (158,061 shares)							9,347				—
Legacy Partners Group, LLC			Senior Loan (14.0%, Due 5/09)(6)			7,646				7,646				5,048
	(Financial Services)		Subordinated Debt (18.0%, Due 5/09)(6)			2,952				2,952				—
			Equity Interests							4,248				—
Litterer Beteiligungs-GmbH(4)			Subordinated Debt (8.0%, Due 3/07)			658				658				658
	(Business Services)		Equity Interest							1,809				1,615
Mercury Air Centers, Inc.			Subordinated Debt (16.0%, Due 4/09 –
	(Business Services)		11/12)			48,369				48,198				48,198
			Common Stock (57,970 shares)							35,053				93,188
			Standby Letters of Credit ($1,968)
MVL Group, Inc.			Senior Loan (12.0%, Due 10/07 – 7/09)			26,498				26,324				26,324
	(Business Services)		Subordinated Debt (14.5%, Due 6/09)			34,354				33,921				33,921
			Common Stock (648,661 shares)							643				1,262
Powell Plant Farms, Inc.			Senior Loan (15.0%, Due 12/06)			30,490				21,642				21,642
	(Consumer Products)		Subordinated Debt (20.0%, Due 6/03)(6)			19,291				19,223				—
			Preferred Stock (1,483 shares)							—				—
			Warrants							—				—

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.

6

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					June 30, 2006
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Service Champ, Inc.			Subordinated Debt (15.5%, Due 4/12)		$	27,384			$	27,260			$	27,260
	(Business Services)		Common Stock (63,888 shares)							13,662				16,322
Staffing Partners Holding			Subordinated Debt (13.5%, Due 1/07)(6)			5,987				5,987				1,160
	Company, Inc.		Preferred Stock (439,600 shares)							4,968				—
	(Business Services)		Common Stock (69,773 shares)							50				—
			Warrants							10				—
			Guaranty ($1,300)
Startec Global Communications			Senior Loan (10.0%, Due 5/07 – 5/09)			21,926				21,926				21,926
	Corporation		Common Stock (19,180,000 shares)							37,255				6,480
	(Telecommunications)
Triview Investments, Inc.(8)			Senior Loan (9.4%, Due 6/07)			14,325				14,301				14,301
	(Broadcasting & Cable/		Subordinated Debt (15.0%, Due 7/12)			37,877				37,687				37,687
	Consumer Products)		Subordinated Debt (16.8%, Due 7/08 –
			7/12)(6)			19,600				19,520				19,520
			Common Stock (202 shares)							93,907				32,526
			Guaranty ($800)
			Standby Letter of Credit ($200)
Total companies more than 25% owned									$	1,282,768			$	1,188,131
Companies 5% to 25% Owned
Advantage Sales & Marketing, Inc.			Subordinated Debt (12.0%, Due 3/14)		$	150,775			$	150,056			$	150,056
	(Business Services)		Equity Interests							2,048				15,000
Air Medical Group Holdings LLC			Senior Loan (8.7%, Due 3/11 – 3/12)			1,584				1,512				1,512
	(Healthcare Services)		Subordinated Debt (14.0%, Due 11/12)			34,646				34,590				34,590
			Equity Interests							3,470				4,200
Amerex Group, LLC			Subordinated Debt (12.0%, Due 1/13)			8,400				8,400				8,400
	(Consumer Products)		Equity Interests							3,583				3,583
BB&T Capital Partners/Windsor
	Mezzanine Fund, LLC(5)		Equity Interests							5,867				5,867
	(Private Equity Fund)
Becker Underwood, Inc.			Subordinated Debt (14.5%, Due 8/12)			23,939				23,850				23,850
	(Industrial Products)		Common Stock (5,073 shares)							5,813				2,400
BI Incorporated			Subordinated Debt (13.5%, Due 2/14)			30,000				29,856				29,856
	(Business Services)		Common Stock (40,000 shares)							4,000				4,000

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.
(8)		Triview Investments, Inc. holds investments in Longview Cable & Data, LLC (Broadcasting & Cable) with a cost of $66.5 million and value of $14.3 million and Triax Holdings, LLC (Consumer Products) with a cost of $98.9 million and a value of $89.7 million. The guaranty and standby letter of credit relate to Longview Cable & Data, LLC.

7

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					June 30, 2006
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
MedBridge Healthcare, LLC			Senior Loan (4.0%, Due 8/09)(6)		$	7,164			$	7,164			$	6,595
	(Healthcare Services)		Subordinated Debt (10.0%, Due 8/14)(6)			5,184				5,184				—
			Convertible Subordinated Debt (2.0%, Due 8/14)(6)			2,970				984				—
			Equity Interests							1,306				—
Nexcel Synthetics, LLC			Subordinated Debt (14.5%, Due 6/09)			10,805				10,781				10,781
	(Consumer Products)		Equity Interests							1,742				1,730
Pres Air Trol LLC			Unitranche Debt (12.0%, Due 4/10)(6)			5,911				5,593				3,312
	(Industrial Products)		Equity Interests							1,361				—
Progressive International			Subordinated Debt (16.0%, Due 12/09)			7,476				7,454				7,454
	Corporation		Preferred Stock (500 shares)							500				920
	(Consumer Products)		Common Stock (197 shares)							13				500
			Warrants							—				—
Regency Healthcare Group, LLC			Senior Loan (11.1%, Due 6/12)			1,000				980				980
	(Healthcare Services)		Unitranche Debt (11.1%, Due 6/12)			20,000				19,900				19,900
			Equity Interests							1,500				1,500
SGT India Private Limited(4)			Common Stock (109,524 shares)							3,608				3,608
	(Business Services)
Soteria Imaging Services, LLC			Subordinated Debt (11.7%, Due 11/10)			16,500				15,505				15,505
	(Healthcare Services)		Equity Interests							2,163				2,400
Universal Environmental Services, LLC			Unitranche Debt (13.5%, Due 2/09)			10,989				10,956				10,956
	(Business Services)		Equity Interests							1,811				1,701
Total companies 5% to 25% owned									$	371,550			$	371,156
Companies Less Than 5% Owned
3SI Security Systems, Inc.			Senior Loan (10.9%, Due 2/12 – 2/13)		$	1,650			$	1,640			$	1,640
	(Consumer Products)		Subordinated Debt (14.4%, Due 8/13)			26,377				26,252				26,252
Anthony, Inc.			Subordinated Debt (13.2%, Due 8/11 –
	(Industrial Products)		9/12)			14,743				14,688				14,688
Benchmark Medical, Inc.			Warrants							18				—
	(Healthcare Services)
Border Foods, Inc.			Subordinated Debt (13.0%, Due 12/10)(6)			13,428				12,721				—
	(Consumer Products)		Preferred Stock (140,214 shares)							2,893				—
			Common Stock (1,810 shares)							45				—
			Warrants							910				—
Broadcast Electronics, Inc.			Senior Loan (8.9%, Due 7/12)			4,988				4,953				4,953
	(Business Services)

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.

8

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					June 30, 2006
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
C&K Market, Inc.			Subordinated Debt (14.0%, Due 12/08)		$	25,744			$	25,651			$	25,651
	(Retail)
Callidus Debt Partners
	CDO Fund I, Ltd.(4)(9)		Class C Notes (12.9%, Due 12/13)			18,800				18,962				18,962
	(Senior Debt Fund)		Class D Notes (17.0%, Due 12/13)			9,400				9,481				9,481
Callidus Debt Partners
	CLO Fund III, Ltd. (4)(9)		Preferred Shares (23,600,000 shares)							23,804				23,804
	(Senior Debt Fund)
Callidus Debt Partners
	CLO Fund IV, Ltd.(4)(9)		Income Notes							12,883				12,883
	(Senior Debt Fund)
Callidus MAPS CLO Fund I LLC(9)			Class E Notes (10.9%, Due 12/17)			17,000				17,000				17,000
	(Senior Debt Fund)		Income Notes							50,584				50,584
Camden Partners Strategic Fund II,
	L.P.(5)		Limited Partnership Interest							2,142				3,273
	(Private Equity Fund)
Carlisle Wide Plank Floors, Inc.			Unitranche Debt (10.5%, Due 6/11)			14,000				13,889				13,889
	(Consumer Products)		Preferred Stock (400,000 Shares)							400				400
Catterton Partners V, L.P.(5)			Limited Partnership Interest							3,065				3,150
	(Private Equity Fund)
Centre Capital Investors IV, LP(5)			Limited Partnership Interest							1,753				1,655
	(Private Equity Fund)
Commercial Credit Group, Inc.			Subordinated Debt (14.8%, Due 2/11)			5,000				4,954				4,954
	(Financial Services)		Preferred Stock (32,500 shares)							3,900				3,900
			Warrants							—				—
Community Education Centers, Inc.			Subordinated Debt (16.0%, Due 12/10)			33,643				33,540				33,540
	(Education Services)
Component Hardware Group, Inc.			Preferred Stock (18,000 shares)							2,605				3,000
	(Industrial Products)		Common Stock (2,000 shares)							200				3,001
Cook Inlet Alternative Risk, LLC			Unitranche Debt (10.5%, Due 4/12)			74,800				74,412				74,412
	(Business Services)		Equity Interests							2,000				2,000
Cooper Natural Resources, Inc.			Subordinated Debt (0%, Due 11/07)			559				559				866
	(Industrial Products)		Preferred Stock (6,316 shares)							1,424				20
			Warrants							830				—
Coverall North America, Inc.			Subordinated Debt (14.6%, Due 2/11)			27,664				27,621				27,621
	(Business Services)		Preferred Stock (6,500 shares)							6,500				7,073
			Warrants							2,950				3,890
Deluxe Entertainment Services Group, Inc.			Subordinated Debt (13.7%, Due 7/11)			30,000				30,000				30,000
	(Business Services)

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.
(9)		The fund is managed by Callidus Capital, a portfolio company of Allied Capital.

9

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					June 30, 2006
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Distant Lands Trading Co.			Senior Loan (9.2%, Due 1/11)		$	500			$	477			$	477
	(Consumer Products)		Unitranche Debt (10.3%, Due 1/11)			25,000				24,888				24,888
			Common Stock (1,500 shares)							1,500				1,500
Drilltec Patents & Technologies			Subordinated Debt (18.0%, Due 8/06)			4,119				4,119				4,119
	Company, Inc.		Subordinated Debt (10.0%, Due 8/06)(6)			10,994				10,918				16,018
	(Energy Services)
DVS VideoStream, LLC			Unitranche Debt (11.0%, Due 2/12)			19,529				19,413				19,413
	(Business Services)		Convertible Subordinated Debt (10.0%, Due 2/16)			3,551				3,534				3,534
Dynamic India Fund IV(4)(5)			Equity Interests							3,850				3,850
	(Private Equity Fund)
eCentury Capital Partners, L.P.(5)			Limited Partnership Interest							5,649				194
	(Private Equity Fund)
Elexis Beta GmbH(4)			Options							426				50
	(Industrial Products)
Event Rentals, Inc. (Consumer Services)			Senior Loan (10.8%, Due 11/11)			23,739				23,631				23,631
Farley’s & Sathers Candy Company, Inc.			Subordinated Debt (11.6%, Due 3/11)			20,000				19,905				19,905
	(Consumer Products)
Frozen Specialties, Inc.			Warrants							435				320
	(Consumer Products)
Garden Ridge Corporation (Retail)			Subordinated Debt (7.0%, Due 5/12)(6)			22,500				22,500				8,455
Geotrace Technologies, Inc.			Subordinated Debt (10.0%, Due 6/09)			24,844				23,235				23,235
	(Energy Services)		Warrants							2,350				2,100
Ginsey Industries, Inc.			Subordinated Debt (12.5%, Due 3/07)			3,225				3,225				3,225
	(Consumer Products)
Grant Broadcasting Systems II			Subordinated Debt (5.0%, Due 6/09)			2,896				2,896				2,896
	(Broadcasting & Cable)
Grotech Partners, VI, L.P.(5)			Limited Partnership Interest							8,279				5,695
	(Private Equity Fund)
Havco Wood Products LLC			Senior Loan (11.3%, Due 8/11)			2,000				1,978				1,978
	(Industrial Products)		Unitranche Debt (10.7%, Due 8/11)			24,054				22,950				22,950
			Equity Interests							1,049				1,800
Haven Eldercare of New England, LLC (10)			Subordinated Debt (12.0%, Due 8/09)(6)			3,573				3,573				3,573
	(Healthcare Services)
Haven Healthcare Management, LLC(10)			Subordinated Debt (18.0%, Due 4/07)(6)			76				160				125
	(Healthcare Services)
HealthASPex Services Inc.			Senior Loan (4.0%, Due 7/08)			500				500				468
	(Business Services)

	(1)			Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
	(2)			Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
	(3)			Public company.
	(4)			Non-U.S. company or principal place of business outside the U.S.
	(5)			Non-registered investment company.
	(6)			Loan or debt security is on non-accrual status and therefore is considered non-income producing.
	(10)			Haven Eldercare of New England, LLC and Haven Healthcare Management, LLC are affiliated companies.

10

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					June 30, 2006
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
The Hillman Companies, Inc.(3)			Subordinated Debt (10.0%, Due 9/11)		$	44,496			$	44,327			$	44,327
	(Consumer Products)
Homax Holdings, Inc.			Subordinated Debt (12.0%, Due 8/11)			14,000				13,110				13,110
	(Consumer Products)		Preferred Stock (89 shares)							89				77
			Common Stock (28 shares)							6				6
			Warrants							1,106				1,261
Hot Stuff Foods, LLC			Senior Loan (8.7%, Due 2/11-2/12)			47,080				47,080				47,080
	(Consumer Products)		Subordinated Debt (13.9%, Due 8/12 – 2/13)			72,967				72,688				72,688
			Common Stock (375,000 shares)(11)							37,445				8,791
			Warrants							—				—
Integrity Interactive Corporation			Unitranche Debt (10.5%, Due 2/12)			30,000				29,795				29,795
	(Business Services)
International Fiber Corporation			Subordinated Debt (14.0%, Due 6/12)			21,764				21,685				21,685
	(Industrial Products)		Preferred Stock (25,000 shares)							2,500				2,100
Kodiak Fund LP(5)			Equity Interests							4,975				4,975
	(Private Equity Fund)
Line-X, Inc.			Senior Loan (9.0%, Due 8/11)			3,000				2,978				2,978
	(Consumer Products)		Unitranche Debt (10.0% Due 8/11)			50,225				50,001				50,001
			Standby Letter of Credit ($1,500)
MedAssets, Inc.			Preferred Stock (227,865 shares)							2,049				3,485
	(Business Services)		Warrants							—				200
Meineke Car Care Centers, Inc.			Senior Loan (8.8%, Due 6/11)			28,000				27,877				27,877
	(Consumer Services)		Subordinated Debt (11.9%, Due 6/12 – 6/13)			72,000				71,705				71,705
			Common Stock (10,696,308 shares)(11)							26,985				23,152
			Warrants							—				—
MHF Logistical Solutions, Inc.			Subordinated Debt (13.2%, Due 6/12 – 6/13)			45,075				44,853				44,853
	(Business Services)		Common Stock (21,425 shares)(11)							21,425				21,425
			Warrants							—				—
Mid-Atlantic Venture Fund IV, L.P.(5)			Limited Partnership Interest							6,600				2,908
	(Private Equity Fund)
Mogas Energy, LLC			Subordinated Debt (9.5%, Due 3/12 – 4/12)			16,570				15,259				15,259
	(Energy Services)		Warrants							1,774				2,900
Network Hardware Resale, Inc.			Unitranche Debt (10.5%, Due 12/11)			38,060				38,283				38,283
	(Business Services)		Convertible Subordinated Debt (9.8%, Due 12/15)			12,000				12,072				12,072
N.E.W. Customer Service Companies, Inc.			Subordinated Debt (11.6%, Due 7/12)			40,000				40,013				40,013
	(Business Services)
Norwesco, Inc.			Subordinated Debt (12.6%, Due 1/12 – 7/12)			82,271				81,925				81,925
	(Industrial Products)		Common Stock (559,603 shares)(11)							38,313				55,992
			Warrants							—				—
Novak Biddle Venture Partners III, L.P.(5)			Limited Partnership Interest							1,595				1,700
	(Private Equity Fund)

	(1)			Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
	(2)			Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
	(3)			Public company.
	(4)			Non-U.S. company or principal place of business outside the U.S.
	(5)			Non-registered investment company.
	(6)			Loan or debt security is on non-accrual status and therefore is considered non-income producing.
	(11)			Common stock is non-voting. In addition to non-voting stock ownership, the Company has an option to acquire a majority of the voting securities of the portfolio company at fair market value.

11

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					June 30, 2006
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Oahu Waste Services, Inc.			Stock Appreciation Rights						$	239			$	1,200
	(Business Services)
Odyssey Investment Partners Fund III,
	LP(5)		Limited Partnership Interest							1,832				1,688
	(Private Equity Fund)
Opinion Research Corporation(3)			Warrants							996				166
	(Business Services)
Oriental Trading Company, Inc.			Common Stock (13,820 shares)							—				6,995
	(Consumer Products)
Palm Coast Data, LLC			Senior Loan (8.5%, Due 8/10)		$	15,569				15,501				15,501
	(Business Services)		Subordinated Debt (15.5%, Due 8/12 – 8/15)			30,126				29,997				29,997
			Common Stock (21,743 shares)(11)							21,743				19,003
			Warrants							—				—
Passport Health
	Communications, Inc.		Subordinated Debt (14.0%, Due 4/12)			10,000				9,952				9,952
	(Healthcare Services)		Preferred Stock (651,381 shares)							2,000				2,000
Performant Financial Corporation			Common Stock (478,816 shares)							734				150
	(Business Services)
Pro Mach, Inc.			Subordinated Debt (13.8%, Due 6/12)			14,471				14,396				14,396
	(Industrial Products)		Equity Interests							1,500				2,650
Promo Works, LLC			Senior Loan (9.1%, Due 12/11)			3,000				2,953				2,953
	(Business Services)		Unitranche Debt (10.3%, Due 12/11)			31,000				30,751				30,751
			Guaranty ($1,500)
Red Hawk Industries, LLC			Unitranche Debt (11.0%, Due 4/11)			56,342				56,088				56,088
	(Business Services)
S.B. Restaurant Company			Unitranche Debt (10.3%, Due 4/11)			33,501				33,088				33,088
	(Retail)		Preferred Stock (54,125 shares)							135				135
			Warrants							619				1,200
			Standby Letters of Credit ($2,611)
SBBUT, LLC			Equity Interests							—				—
	(Consumer Products)
Soff-Cut Holdings, Inc.			Preferred Stock (300 shares)							300				300
	(Industrial Products)		Common Stock (2,000 shares)							200				114
SPP Mezzanine Fund, L.P.(5)			Limited Partnership Interest							2,594				2,675
	(Private Equity Fund)
STS Operating, Inc.			Subordinated Debt (15.0%, Due 1/13)			30,000				29,854				29,854
	(Industrial Products)

	(1)			Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
	(2)			Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
	(3)			Public company.
	(4)			Non-U.S. company or principal place of business outside the U.S.
	(5)			Non-registered investment company.
	(6)			Loan or debt security is on non-accrual status and therefore is considered non-income producing.
	(11)			Common stock is non-voting. In addition to non-voting stock ownership, the Company has an option to acquire a majority of the voting securities of the portfolio company at fair market value.

12

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					June 30, 2006
Private Finance
Portfolio Company					(unaudited)
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
The Step2 Company, LLC			Unitranche Debt (10.5%, Due 4/12)		$	68,000			$	67,517			$	67,517
	(Consumer Products)		Equity Interests							2,000				2,000
Tradesmen International, Inc.			Subordinated Debt (12.0%, Due 12/09)			15,000				14,393				14,393
	(Business Services)		Warrants							710				2,900
TransAmerican Auto Parts, LLC			Subordinated Debt (14.0%, Due 11/12)			12,818				12,760				12,760
	(Consumer Products)		Equity Interests							1,190				1,039
TransTechnology Corporation(3)			Senior Loan (9.9%, Due 4/11)			10,000				10,000				10,000
	(Industrial Products)
Universal Air Filter Company			Unitranche Debt (11.0%, Due 11/11)			19,617				19,518				19,518
	(Industrial Products)
Universal Tax Systems, Inc.			Subordinated Debt (14.5%, Due 10/13)			19,310				19,243				19,243
	(Business Services)
Updata Venture Partners II, L.P.(5)			Limited Partnership Interest							5,077				4,898
	(Private Equity Fund)
Venturehouse-Cibernet Investors, LLC			Equity Interest							42				42
	(Business Services)
Venturehouse Group, LLC(5)			Equity Interest							598				407
	(Private Equity Fund)
VICORP Restaurants, Inc.(3)			Warrants							33				33
	(Retail)
Walker Investment Fund II, LLLP(5)			Limited Partnership Interest							1,330				521
	(Private Equity Fund)
Wear Me Apparel Corporation			Subordinated Debt (15.0%, Due 12/10)			40,000				39,190				39,190
	(Consumer Products)		Warrants							1,219				2,900
Wilton Industries, Inc.			Subordinated Debt (16.0%, Due 6/08)			4,800				4,800				4,800
	(Consumer Products)
Woodstream Corporation			Subordinated Debt (13.4%, Due 11/12 – 5/13)			52,753				52,617				52,617
	(Consumer Products)		Common Stock (180 shares)							673				3,352
			Warrants							—				2,348
York Insurance Services Group, Inc.			Subordinated Debt (14.5%, Due 10/13)			19,000				18,907				18,907
	(Business Services)		Common Stock (10,000 shares)							1,000				1,000
Other companies			Other debt investments(6)			453				453				334
			Other equity investments							8				—
			Guaranty ($159)
Total companies less than 5% owned									$	1,933,932			$	1,901,139
Total private finance (131 portfolio companies)									$	3,588,250			$	3,460,426

	(1)			Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
	(2)			Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
	(3)			Public company.
	(4)			Non-U.S. company or principal place of business outside the U.S.
	(5)			Non-registered investment company.
	(6)			Loan or debt security is on non-accrual status and therefore is considered non-income producing.

13

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Commercial Real Estate Finance
(in thousands, except number of loans)

											June 30, 2006
			Interest				Number of				(unaudited)
			Rate Ranges				Loans				Cost				Value
Commercial Mortgage Loans
				Up to 6.99%				3			$	20,314			$	19,481
				7.00%–8.99%				25				48,798				49,024
				9.00%–10.99%				3				21,781				21,781
				11.00%–14.99%				1				2,291				2,291
			15.00% and above					2				3,970				3,970
	Total commercial mortgage loans(12)							34			$	97,154			$	96,547
Real Estate Owned											$	13,090			$	14,553
Equity Interests(2) — Companies more than 25% owned (Guarantees — $6,871)											$	17,504			$	21,951
	Total commercial real estate finance										$	127,748			$	133,051
Total portfolio											$	3,715,998			$	3,593,477

				Yield				Cost				Value
Liquidity Portfolio
	U.S. Treasury bills (Due October 2006)				4.9%			$	24,996			$	25,067
	U.S. Treasury bills (Due December 2006)				4.9%				100,004				100,873
	SEI Daily Income Tr Prime Obligation Fund(13)				5.0%				55,292				55,292
	Certificate of Deposit (Due September 2006)(13)				5.6%				20,000				20,000
		Total liquidity portfolio						$	200,292			$	201,232
Other Investments in Money Market Securities(13)
	Columbia Treasury Reserves Money Market Fund				5.2%			$	19,280			$	19,280
	PNC Bank Corporate Money Market Deposit Account				4.8%			$	524			$	524
	Columbia Money Market Reserves				5.0%			$	2,714			$	2,714

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

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

(3)       Public company.

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

(5)       Non-registered investment company.

(12)       Commercial mortgage loans totaling $15.7 million at value were on non-accrual status and therefore were considered non-income producing.

(13)       Included in investments in money market and other securities on the accompanying Consolidated Balance Sheet.

14

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					December 31, 2005
Private Finance
Portfolio Company
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Companies More Than 25% Owned
Acme Paging, L.P.(4)			Senior Loan (6.0%, Due 12/07)(6)		$	3,750			$	3,750			$	—
	(Telecommunications)		Subordinated Debt (10.0%, Due 1/08)(6)			881				881				—
			Common Stock (23,513 shares)							27				—
Advantage Sales & Marketing, Inc.			Subordinated Debt (10.5%, Due 9/09)			60,000				59,787				59,787
	(Business Services)		Subordinated Debt (18.5%, Due 12/09)			124,000				124,000				124,000
			Common Stock (18,924,976 shares)							73,932				476,578
Alaris Consulting, LLC			Senior Loan (15.8%, Due 12/05 – 12/07) (6)			27,055				27,050				—
	(Business Services)		Equity Interests							5,305				—
			Guaranty ($1,100)
American Healthcare Services, Inc.			Senior Loan (0.7%, Due 12/04 – 12/05) (6)			4,999				4,600				4,097
	and Affiliates
	(Healthcare Services)
Avborne, Inc.(7)			Preferred Stock (12,500 shares)							658				892
	(Business Services)		Common Stock (27,500 shares)							—				—
Avborne Heavy Maintenance, Inc.(7)			Preferred Stock (1,568 shares)							2,401				—
	(Business Services)		Common Stock (2,750 shares)							—				—
			Guaranty ($2,401)
Business Loan Express, LLC			Subordinated Debt (6.9%, Due 4/06)			10,000				10,000				10,000
	(Financial Services)		Class A Equity Interests			60,693				60,693				60,693
			Class B Equity Interests							119,436				146,910
			Class C Equity Interests							109,301				139,521
			Guaranty ($135,437 — See Note 3)
			Standby Letters of Credit ($34,050 —   See Note 3)
Callidus Capital Corporation			Senior Loan (12.0%, Due 12/06)			600				600				600
	(Financial Services)		Subordinated Debt (18.0%, Due 10/08)			4,832				4,832				4,832
			Common Stock (10 shares)							2,049				7,968
Diversified Group Administrators, Inc.			Preferred Stock (1,000,000 shares)							700				728
	(Business Services)		Preferred Stock (1,451,380 shares)							841				841
			Common Stock (1,451,380 shares)							—				502
Financial Pacific Company (Financial Services)			Subordinated Debt (17.4%, Due 2/12 – 8/12)			70,175				69,904				69,904
			Preferred Stock (10,964 shares)							10,276				13,116
			Common Stock (14,735 shares)							14,819				44,180
ForeSite Towers, LLC			Equity Interests							7,620				9,750
	(Tower Leasing)

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.
(7)		Avborne, Inc. and Avborne Heavy Maintenance, Inc. are affiliated companies.

15

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					December 31, 2005
Private Finance
Portfolio Company
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Global Communications, LLC			Senior Loan (10.7%, Due 9/02 – 11/07) (6)		$	15,957			$	15,957			$	15,957
	(Business Services)		Subordinated Debt (17.0%, Due 12/03 – 9/05)(6)			11,201				11,198				11,198
			Preferred Equity Interest							14,067				4,303
			Options							1,639				—
Gordian Group, Inc.			Senior Loan (10.0%, Due 6/06 – 12/08) (6)			11,392				11,421				4,161
	(Business Services)		Common Stock (1,000 shares)							6,542				—
Healthy Pet Corp.			Senior Loan (10.1%, Due 8/10)			4,086				4,086				4,086
	(Consumer Services)		Subordinated Debt (15.0%, Due 8/10)			38,716				38,535				38,535
			Common Stock (25,766 shares)							25,766				25,766
HMT, Inc.			Preferred Stock (554,052 shares)							2,637				2,637
	(Energy Services)		Common Stock (300,000 shares)							3,000				5,343
			Warrants							1,155				2,057
Impact Innovations Group, LLC (Business Services)			Equity Interests in Affiliate							—				742
Insight Pharmaceuticals Corporation			Subordinated Debt (16.1%, Due 9/12)			58,534				58,298				58,298
	(Consumer Products)		Preferred Stock (25,000 shares)							25,000				26,791
			Common Stock (6,200 shares)							6,325				236
Jakel, Inc.			Subordinated Debt (15.5%, Due 3/08)(6)			13,742				13,742				—
	(Industrial Products)		Preferred Stock (6,460 shares)							6,460				—
			Common Stock (158,061 shares)							9,347				—
Legacy Partners Group, LLC			Senior Loan (14.0%, Due 5/09)(6)			7,646				7,646				5,029
	(Financial Services)		Subordinated Debt (18.0%, Due 5/09)(6)			2,952				2,952				—
			Equity Interests							4,229				—
Litterer Beteiligungs-GmbH(4)			Subordinated Debt (8.0%, Due 3/07)			621				621				621
	(Business Services)		Equity Interest							1,810				2,226
Mercury Air Centers, Inc.			Senior Loan (10.0%, Due 4/09)			31,720				31,720				31,720
	(Business Services)		Subordinated Debt (16.0%, Due 4/09)			46,703				46,519				46,519
			Common Stock (57,970 shares)							35,053				88,898
			Standby Letters of Credit ($1,397)
MVL Group, Inc.			Senior Loan (12.1%, Due 7/09)			27,519				27,218				27,218
	(Business Services)		Subordinated Debt (14.4%, Due 7/09)			32,905				32,417				32,417
			Common Stock (648,661 shares)							643				3,211
Pennsylvania Avenue Investors, L.P. (5)			Equity Interests							2,576				1,864
	(Private Equity Fund)
Powell Plant Farms, Inc.			Senior Loan (15.0%, Due 12/05 - 12/06)			32,640				23,792				23,792
	(Consumer Products)		Subordinated Debt (20.0%, Due 6/03)(6)			19,291				19,224				7,364
			Preferred Stock (1,483 shares)							—				—
			Warrants							—				—

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.

16

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					December 31, 2005
Private Finance
Portfolio Company
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Redox Brands, Inc.			Preferred Stock (2,726,444 shares)						$	7,903			$	12,097
	(Consumer Products)		Warrants							584				500
Service Champ, Inc.			Subordinated Debt (15.5%, Due 4/12)		$	27,041				26,906				26,906
	(Business Services)		Common Stock (63,888 shares)							13,662				13,319
Staffing Partners Holding			Subordinated Debt (13.5%, Due 1/07)(6)			6,343				6,343				6,343
	Company, Inc.		Preferred Stock (439,600 shares)							4,968				1,812
	(Business Services)		Common Stock (69,773 shares)							50				—
			Warrants							10				—
Startec Global Communications			Senior Loan (10.0%, Due 5/07 – 5/09)			25,226				25,226				21,685
	Corporation		Common Stock (19,180,000 shares)							37,255				—
	(Telecommunications)
STS Operating, Inc.			Subordinated Debt (15.3%, Due 3/12)			6,593				6,593				6,593
	(Industrial Products)		Common Stock (3,000,000 shares)							3,522				64,963
			Options							—				560
Triview Investments, Inc.(8)			Senior Loan (8.6%, Due 12/06)			7,449				7,449				7,449
	(Broadcasting & Cable/		Subordinated Debt (15.0%, Due 7/12)			31,000				30,845				30,845
	Consumer Products)		Subordinated Debt (16.8%, Due 7/08 –
			7/12)(6)			19,600				19,520				19,520
			Common Stock (202 shares)							93,889				29,171
			Guaranty ($800)
			Standby Letter of Credit ($200)
Total companies more than 25% owned									$	1,489,782			$	1,887,651
Companies 5% to 25% Owned
Air Evac Lifeteam			Subordinated Debt (13.8%, Due 7/10)		$	42,414			$	42,267			$	42,267
	(Healthcare Services)		Equity Interests							3,941				4,025
Aspen Pet Products, Inc.			Subordinated Debt (19.0%, Due 6/08)			20,051				19,959				19,959
	(Consumer Products)		Preferred Stock (2,935 shares)							2,154				1,638
			Common Stock (1,400 shares)							140				17
			Warrants							—				—
Becker Underwood, Inc.			Subordinated Debt (14.5%, Due 8/12)			23,639				23,543				23,543
	(Industrial Products)		Common Stock (5,073 shares)							5,813				2,200
The Debt Exchange Inc.			Preferred Stock (921,875 shares)							1,250				3,219
	(Business Services)

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.
(8)		Triview Investments, Inc. (formerly GAC Investments, Inc.) holds investments in Longview Cable & Data, LLC (Broadcasting & Cable) with a cost of $66.5 million and value of $16.0 million and Triax Holdings, LLC (Consumer Products) with a cost of $85.2 million and a value of $71.0 million. The guaranty and standby letter of credit relate to Longview Cable & Data, LLC.

17

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					December 31, 2005
Private Finance
Portfolio Company
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
MedBridge Healthcare, LLC			Senior Loan (4.0%, Due 8/09)		$	7,093			$	7,093			$	7,093
	(Healthcare Services)		Subordinated Debt (10.0%, Due 8/14)(6)			4,809				4,809				534
			Convertible Subordinated Debt (2.0%, Due 8/14)(6)			2,970				984				—
			Equity Interests							800				—
Nexcel Synthetics, LLC			Subordinated Debt (14.5%, Due 6/09)			10,617				10,588				10,588
	(Consumer Products)		Equity Interests							1,708				1,367
Pres Air Trol LLC			Unitranche Debt (12.0%, Due 4/10)			6,138				5,820				5,820
	(Industrial Products)		Equity Interests							1,356				318
Progressive International			Subordinated Debt (16.0%, Due 12/09)			7,401				7,376				7,376
	Corporation		Preferred Stock (500 shares)							500				884
	(Consumer Products)		Common Stock (197 shares)							13				13
			Warrants							—				—
Soteria Imaging Services, LLC			Subordinated Debt (11.8%, Due 11/10)			14,500				13,447				13,447
	(Healthcare Services)		Equity Interests							2,153				2,308
Universal Environmental Services, LLC			Unitranche Debt (15.5%, Due 2/09)			10,900				10,862				10,862
	(Business Services)		Equity Interests							1,797				1,328
Total companies 5% to 25% owned									$	168,373			$	158,806
Companies Less Than 5% Owned
Advanced Circuits, Inc.			Senior Loans (10.1%, Due 9/11 – 3/12)		$	18,732			$	18,642			$	18,642
	(Industrial Products)		Common Stock (40,000 shares)							1,000				1,000
Anthony, Inc. (Industrial Products)			Subordinated Debt (12.9%, Due 9/11 – 9/12)			14,670				14,610				14,610
Benchmark Medical, Inc.			Warrants							18				190
	(Healthcare Services)
BI Incorporated			Subordinated Debt (14.0%, Due 2/12)			16,203				16,133				16,133
	(Business Services)
Border Foods, Inc. (Consumer Products)			Subordinated Debt (13.0%, Due 12/10)(6)			13,428				12,721				—
			Preferred Stock (140,214 shares)							2,893				—
			Common Stock (1,810 shares)							45				—
			Warrants							910				—

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.

18

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					December 31, 2005
Private Finance
Portfolio Company
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
C&K Market, Inc.			Subordinated Debt (13.0%, Due 12/08)		$	14,694			$	14,638			$	14,638
	(Retail)
Callidus Debt Partners			Class C Notes (12.9%, Due 12/13)			18,800				18,973				18,973
	CDO Fund I, Ltd.(4)(9)		Class D Notes (17.0%, Due 12/13)			9,400				9,487				9,487
	(Senior Debt Fund)
Callidus Debt Partners			Preferred Shares (23,600,000 shares)							24,233				24,233
	CLO Fund III, Ltd. (4)(9)
	(Senior Debt Fund)
Callidus MAPS CLO Fund I LLC(9)			Class E Notes (9.7%, Due 12/17)			17,000				17,000				17,000
	(Senior Debt Fund)		Income Notes							48,108				48,108
Camden Partners Strategic Fund II, L.P.(5)			Limited Partnership Interest							2,142				2,726
	(Private Equity Fund)
Catterton Partners V, L.P.(5)			Limited Partnership Interest							2,650				2,691
	(Private Equity Fund)
CBS Personnel Holdings, Inc. (Business Services)			Subordinated Debt (14.5%, Due 12/09)			20,617				20,541				20,541
Community Education Centers, Inc.			Subordinated Debt (16.0%, Due 12/10)			32,852				32,738				32,738
	(Education Services)
Component Hardware Group, Inc.			Preferred Stock (18,000 shares)							2,605				2,783
	(Industrial Products)		Common Stock (2,000 shares)							200				700
Cooper Natural Resources, Inc.			Subordinated Debt (0%, Due 11/07)			840				840				840
	(Industrial Products)		Preferred Stock (6,316 shares)							1,424				20
			Warrants							830				—
Coverall North America, Inc.			Subordinated Debt (14.6%, Due 2/11)			27,309				27,261				27,261
	(Business Services)		Preferred Stock (6,500 shares)							6,500				6,866
			Warrants							2,950				3,100

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.
(9)		The fund is managed by Callidus Capital, a portfolio company of Allied Capital.

19

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					December 31, 2005
Private Finance
Portfolio Company
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Drilltec Patents & Technologies Company, Inc.			Subordinated Debt (17.0%, Due 8/06)(6)		$	1,500			$	1,500			$	1,500
	(Energy Services)		Subordinated Debt (10.0%, Due 8/06)(6)			10,994				10,918				9,792
eCentury Capital Partners, L.P.(5)			Limited Partnership Interest							5,649				83
	(Private Equity Fund)
Elexis Beta GmbH(4)			Options							426				50
	(Industrial Products)
Event Rentals, Inc.			Senior Loans (9.9%, Due 11/11)			18,341				18,244				18,244
	(Consumer Services)
Frozen Specialties, Inc.			Warrants							435				470
	(Consumer Products)
Garden Ridge Corporation (Retail)			Subordinated Debt (7.0%, Due 5/12)(6)			22,500				22,500				22,500
Geotrace Technologies, Inc.			Subordinated Debt (10.0%, Due 6/09)			25,618				23,875				23,875
(Energy Services)			Warrants							2,350				2,500
Ginsey Industries, Inc.			Subordinated Debt (12.5%, Due 3/07)			3,680				3,680				3,680
	(Consumer Products)
Grant Broadcasting Systems II			Subordinated Debt (5.0%, Due 6/09)			2,756				2,756				2,756
	(Broadcasting & Cable)
Grotech Partners, VI, L.P.(5)			Limited Partnership Interest							6,914				4,161
	(Private Equity Fund)
Havco Wood Products LLC			Unitranche Debt (10.4%, Due 8/11)			33,000				31,794				31,794
	(Industrial Products)		Equity Interests							1,048				1,048
Haven Eldercare of New England, LLC(10)			Subordinated Debt (12.0%, Due 8/09)(6)			4,320				4,320				4,320
	(Healthcare Services)
Haven Healthcare Management, LLC(10)			Subordinated Debt (18.0% Due 4/07)(6)			1,319				1,319				485
	(Healthcare Services)
HealthASPex Services Inc.			Senior Loans (4.0%, Due 7/08)			500				500				500
	(Business Services)
The Hillman Companies, Inc.(3)			Subordinated Debt (13.5%, Due 9/11)			44,000				43,815				43,815
	(Consumer Products)
Homax Holdings, Inc.			Subordinated Debt (12.0%, Due 8/11)			14,000				13,039				13,039
	(Consumer Products)		Preferred Stock (89 shares)							89				92
			Common Stock (28 shares)							6				6
			Warrants							1,106				1,492
Icon International, Inc.			Common Stock (25,707 shares)							76				16
	(Business Services)
International Fiber Corporation			Subordinated Debt (14.0%, Due 6/12)			21,546				21,460				21,460
	(Industrial Products)		Preferred Stock (25,000 shares)							2,500				1,900
Line-X, Inc.			Senior Loan (8.1%, Due 8/11)			4,134				4,111				4,111
	(Consumer Products)		Unitranche Debt (10.0% Due 8/11)			51,475				51,229				51,229
			Standby Letter of Credit ($1,500)

	(1)			Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
	(2)			Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
	(3)			Public company.
	(4)			Non-U.S. company or principal place of business outside the U.S.
	(5)			Non-registered investment company.
	(6)			Loan or debt security is on non-accrual status and therefore is considered non-income producing.
	(10)			Haven Eldercare of New England, LLC and Haven Healthcare Management, LLC are affiliated companies.

20

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					December 31, 2005
Private Finance
Portfolio Company
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
MedAssets, Inc.			Preferred Stock (227,865 shares)						$	2,049			$	2,893
	(Business Services)		Warrants							136				180
Meineke Car Care Centers, Inc.			Senior Loan (8.0%, Due 6/11)		$	28,000				27,865				27,865
	(Consumer Services)		Subordinated Debt (11.9%, Due 6/12 – 6/13)			72,000				71,675				71,675
			Common Stock (10,696,308 shares)(11)							26,985				26,629
			Warrants							—				—
MHF Logistical Solutions, Inc.			Unitranche Debt (10.0%, Due 5/11)			22,281				22,177				22,177
	(Business Services)		Preferred Stock (431 shares)							431				455
			Common Stock (1,438 shares)							144				211
Mid-Atlantic Venture Fund IV, L.P. (5)			Limited Partnership Interest							6,600				3,339
	(Private Equity Fund)
Mogas Energy, LLC			Subordinated Debt (9.5%, Due 3/12 – 4/12)			16,855				15,472				15,472
	(Energy Services)		Warrants							1,774				3,550
Network Hardware Resale, Inc.			Unitranche Debt (10.5%, Due 12/11)			38,500				38,743				38,743
	(Business Services)		Convertible Subordinated Debt (9.8%, Due 12/15)			12,000				12,076				12,076
N.E.W. Customer Service Companies, Inc.			Subordinated Debt (11.0%, Due 7/12)			40,000				40,016				40,016
	(Business Services)
Nobel Learning Communities,			Preferred Stock (1,214,356 shares)							2,764				2,343
	Inc.(3)		Warrants							575				1,296
	(Education)
Norwesco, Inc. (Industrial Products)			Subordinated Debt (12.6%, Due 1/12 – 7/12)			82,061				81,683				81,683
			Common Stock (559,603 shares)(11)							38,313				38,313
			Warrants							—				—
Novak Biddle Venture Partners III, L.P.(5)			Limited Partnership Interest							1,669				1,809
	(Private Equity Fund)
Oahu Waste Services, Inc.			Stock Appreciation Rights							239				1,000
	(Business Services)
Opinion Research Corporation(3)			Warrants							996				45
	(Business Services)
Oriental Trading Company, Inc.			Common Stock (13,820 shares)							—				5,200
	(Consumer Products)
Palm Coast Data, LLC			Senior Loan (7.6%, Due 8/10)			16,100				16,024				16,024
	(Business Services)		Subordinated Debt (15.5%, Due 8/12 – 8/15)			29,600				29,461				29,461
			Common Stock (21,743 shares)(11)							21,743				21,743
			Warrants							—				—
Performant Financial Corporation			Common Stock (478,816 shares)							734				2,500
	(Business Services)
Pro Mach, Inc.			Subordinated Debt (13.8%, Due 6/12)			19,275				19,193				19,193
	(Industrial Products)		Equity Interests							1,500				1,200

	(1)			Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
	(2)			Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
	(3)			Public company.
	(4)			Non-U.S. company or principal place of business outside the U.S.
	(5)			Non-registered investment company.
	(6)			Loan or debt security is on non-accrual status and therefore is considered non-income producing.
	(11)			Common stock is non-voting. In addition to non-voting stock ownership, the Company has an option to acquire a majority of the voting securities of the portfolio company at fair market value.

21

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					December 31, 2005
Private Finance
Portfolio Company
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Promo Works, LLC			Senior Loan (8.5%, Due 12/11)		$	900			$	851			$	851
	(Business Services)		Unitranche Debt (10.3%, Due 12/11)			31,000				30,728				30,728
			Guaranty ($1,650)
RadioVisa Corporation			Unitranche Debt (15.5%, Due 12/08)			27,093				26,993				26,993
	(Broadcasting & Cable)
Red Hawk Industries, LLC			Unitranche Debt (11.0%, Due 4/11)			56,343				56,063				56,063
	(Business Services)
S.B. Restaurant Company (Retail)			Subordinated Debt (14.6%, Due 11/08 – 12/09)			29,085				28,615				28,615
			Preferred Stock (54,125 shares)							135				135
			Warrants							619				700
SBBUT, LLC			Equity Interests							—				—
	(Consumer Products)
Soff-Cut Holdings, Inc.			Preferred Stock (300 shares)							300				300
	(Industrial Products)		Common Stock (2,000 shares)							200				37
SPP Mezzanine Fund, L.P.(5)			Limited Partnership Interest							3,007				2,969
	(Private Equity Fund)
Tradesmen International, Inc.			Subordinated Debt (12.0%, Due 12/09)			15,000				14,323				14,323
	(Business Services)		Warrants							710				1,700
TransAmerican Auto Parts, LLC			Subordinated Debt (14.0%, Due 11/12)			10,000				9,951				9,951
	(Consumer Products)		Equity Interests							889				889
United Site Services, Inc.			Subordinated Debt (12.4%, Due 8/11)			49,712				49,503				49,503
	(Business Services)		Common Stock (160,588 shares)							1,000				1,200
Universal Air Filter Company			Senior Loans (7.9%, Due 11/11)			400				390				390
	(Industrial Products)		Unitranche Debt (11.0%, Due 11/11)			19,867				19,768				19,768
Universal Tax Systems, Inc.			Subordinated Debt (14.5%, Due 7/11)			19,068				18,995				18,995
	(Business Services)
Updata Venture Partners II, L.P.(5)			Limited Partnership Interest							4,977				4,686
	(Private Equity Fund)
Venturehouse-Cibernet Investors, LLC			Equity Interest							42				42
	(Business Services)
Venturehouse Group, LLC(5)			Equity Interest							598				397
	(Private Equity Fund)
VICORP Restaurants, Inc.(3)			Warrants							33				691
	(Retail)
Walker Investment Fund II, LLLP(5)			Limited Partnership Interest							1,330				676
	(Private Equity Fund)

	(1)			Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
	(2)			Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
	(3)			Public company.
	(4)			Non-U.S. company or principal place of business outside the U.S.
	(5)			Non-registered investment company.
	(6)			Loan or debt security is on non-accrual status and therefore is considered non-income producing.
	(11)			Common stock is non-voting. In addition to non-voting stock ownership, the Company has an option to acquire a majority of the voting securities of the portfolio company at fair market value.

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					December 31, 2005
Private Finance
Portfolio Company
(in thousands, except number of shares)			Investment(1)(2)		Principal				Cost				Value
Wear Me Apparel Corporation			Subordinated Debt (15.0%, Due 12/10)		$	40,000			$	38,992			$	38,992
	(Consumer Products)		Warrants							1,219				2,000
Wilshire Restaurant Group, Inc. (Retail)			Subordinated Debt (20.0%, Due 6/07)(6)			22,471				21,930				21,930
			Warrants							735				538
Wilton Industries, Inc.			Subordinated Debt (19.3%, Due 6/08)			4,800				4,800				4,800
	(Consumer Products)
Woodstream Corporation (Consumer Products)			Subordinated Debt (13.2%, Due 11/12 – 5/13)			52,397				52,251				52,251
			Common Stock (180 shares)							673				3,336
			Warrants							—				2,365
Other companies			Other debt investments			382				382				382
			Other debt investments(6)			470				470				348
			Other equity investments							8				—
			Guaranty ($135)
Total companies less than 5% owned									$	1,448,268			$	1,432,833
Total private finance (118 portfolio companies)									$	3,106,423			$	3,479,290

(1)		Interest rates represent the weighted average annual stated interest rate on loans and debt securities, which are presented by nature of indebtedness for a single issuer. The maturity dates represent the earliest and the latest maturity dates.
(2)		Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted.
(3)		Public company.
(4)		Non-U.S. company or principal place of business outside the U.S.
(5)		Non-registered investment company.
(6)		Loan or debt security is on non-accrual status and therefore is considered non-income producing.

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Commercial Real Estate Finance
(in thousands, except number of loans)

											December 31, 2005
			Interest				Number of
			Rate Ranges				Loans				Cost				Value
Commercial Mortgage Loans
				Up to 6.99%				5			$	23,121			$	21,844
				7.00%–8.99%				24				48,156				48,156
				9.00%–10.99%				5				25,999				25,967
				11.00%–12.99%				1				338				338
				13.00%–14.99%				1				2,294				2,294
			15.00% and above					2				3,970				3,970
	Total commercial mortgage loans(12)							38			$	103,878			$	102,569
Real Estate Owned											$	14,240			$	13,932
Equity Interests(2) — Companies more than 25% owned (Guarantees — $7,054)											$	13,577			$	10,564
	Total commercial real estate finance										$	131,695			$	127,065
Total portfolio											$	3,238,118			$	3,606,355

				Yield				Cost				Value
Liquidity Portfolio
	U.S. Treasury bills (Due June 2006)				4.25%			$	100,000			$	100,305
	SEI Daily Income Tr Prime Obligation Fund(13)				4.11%				100,000				100,000
		Total liquidity portfolio						$	200,000			$	200,305
Other Investments in Money Market Securities(13)
	PNC Bank Corporate Money Market Deposit Account				4.15%			$	21,967			$	21,967

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

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

(3)       Public company.

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

(5)       Non-registered investment company.

(12)       Commercial mortgage loans totaling $20.8 million at value were on non-accrual status and therefore were considered non-income producing.

(13)       Included in investments in money market securities on the accompanying Consolidated Balance Sheet.

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25

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	Valuation Of Portfolio Investments

	Loans and Debt Securities

26

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	Equity Securities

27

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	Collateralized Debt Obligations (“CDO”) and Collateralized Loan Obligations (“CLO”)

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

	Fee Income

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	Guarantees

	Financing Costs

	Dividends to Shareholders

	Stock Compensation Plans

				For the Three				For the Six
				Months Ended				Months Ended
				June 30,				June 30,
				2006				2006
($ in millions, except per share amounts)
Employee Stock Option Expense:
	Previously awarded, unvested options as of January 1, 2006			$	3.3			$	6.7
	Options granted on or after January 1, 2006				1.3				1.5
		Total stock option expense		$	4.6			$	8.2
		Per basic share		$	0.03			$	0.06
		Per diluted share		$	0.03			$	0.06

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			For the Three				For the Six
			Months Ended				Months Ended
			June 30,				June 30,
			2005				2005
($ in millions, except per share amounts)
Net increase in net assets resulting from operations as reported			$	311.9			$	431.5
Less total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects				(4.1	)			(7.0	)
Pro forma net increase in net assets resulting from operations available to common shareholders			$	307.8			$	424.5
Basic earnings per common share:
	As reported		$	2.33			$	3.23
	Pro forma		$	2.30			$	3.18
Diluted earnings per common share:
	As reported		$	2.29			$	3.17
	Pro forma		$	2.26			$	3.12

		For the Three								For the Six
		Months Ended								Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Risk-free interest rate			5.0	%			4.1	%			4.8	%			4.1	%
Expected life (in years)			5.0				5.0				5.0				5.0
Expected volatility			29.6	%			35.5	%			29.6	%			35.5	%
Dividend yield			9.0	%			9.0	%			9.0	%			9.0	%
Weighted average fair value per option		$	3.65			$	3.87			$	3.54			$	3.87

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	Federal and State Income Taxes and Excise Tax

	Per Share Information

31

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	Use of Estimates in the Preparation of Financial Statements

	Private Finance

				2006												2005
				Cost				Value				Yield(1)				Cost				Value				Yield(1)
($ in thousands)
Loans and debt securities:
	Senior loans			$	322,041			$	275,874				9.5	%		$	284,680			$	239,838				9.5	%
	Unitranche debt(2)				517,287				515,006				10.7	%			294,201				294,201				11.4	%
	Subordinated debt				1,769,369				1,700,324				13.9	%			1,610,228				1,560,851				13.8	%
		Total loans and debt securities(3)			2,608,697				2,491,204				12.7	%			2,189,109				2,094,890				13.0	%
Equity securities					979,553				969,222								917,314				1,384,400
		Total		$	3,588,250			$	3,460,426							$	3,106,423			$	3,479,290

(1)	The weighted average yield on loans and debt securities is computed as the (a) annual stated interest plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debt securities less the annual amortization of loan origination costs, divided by (b) total loans and debt securities at value. At June 30, 2006, and December 31, 2005, the cost and value of subordinated debt include the Class A equity interests in BLX and the guaranteed dividend yield on these equity interests is included in interest income. The weighted average yield is computed as of the balance sheet date.
(2)	Unitranche debt is a single debt investment that is a blend of senior and subordinated debt terms.
(3)	The total principal balance outstanding on loans and debt securities was $2,637.0 million and $2,216.3 million at June 30, 2006, and December 31, 2005, respectively. The difference between principal and cost is represented by unamortized loan origination fees and costs, original issue discounts, and market discounts totaling $28.3 million and $27.2 million at June 30, 2006, and December 31, 2005, respectively.

32

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33

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			For the Three								For the Six
			Months Ended								Months Ended
			June 30,								June 30,
			2006				2005				2006				2005
($ in millions)
Interest income on subordinated debt and Class A equity interests			$	4.0			$	3.5			$	7.8			$	6.9
Dividend income on Class B equity interests				—				3.0				—				5.0
Fees and other income				2.0				2.3				4.3				4.7
	Total interest and related portfolio income		$	6.0			$	8.8			$	12.1			$	16.6

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35

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36

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			2006								2005
			Cost				Value				Cost				Value
($ in millions)
Callidus Debt Partners CDO Fund I, Ltd.			$	28.4			$	28.4			$	28.5			$	28.5
Callidus Debt Partners CLO Fund III, Ltd.				23.8				23.8				24.2				24.2
Callidus Debt Partners CLO Fund IV, Ltd.				12.9				12.9				—				—
Callidus MAPS CLO Fund I LLC				67.6				67.6				65.1				65.1
	Total		$	132.7			$	132.7			$	117.8			$	117.8

			2006				2005
($ in millions)
Bonds			$	242.8			$	230.7
Syndicated Loans				1,304.9				704.0
Cash(1)				126.0				238.4
	Total underlying collateral assets		$	1,673.7			$	1,173.1

(1)	Includes undrawn liability amounts.

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				2006				2005
($ in thousands)
Loans and debt securities in workout status (classified as Grade 4 or 5)
	Companies more than 25% owned			$	17,670			$	15,622
	Companies 5% to 25% owned				3,312				—
	Companies less than 5% owned				24,598				11,417
Loans and debt securities not in workout status
	Companies more than 25% owned				40,775				58,047
	Companies 5% to 25% owned				6,595				534
	Companies less than 5% owned				3,922				49,458
		Total		$	96,872			$	135,078

			2006				2005
Industry
Business services				31	%			42	%
Consumer products				24				14
Financial services				14				14
Industrial products				9				10
Consumer services				7				6
Healthcare services				3				2
Retail				2				3
Energy services				2				2
Other(1)				8				7
	Total			100	%			100	%

(1)	Includes investments in senior debt CDO and CLO funds. These funds invest in senior debt representing a variety of industries.

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Geographic Region(1)
Mid-Atlantic				34	%			29	%
Midwest				26				21
West				20				34
Southeast				16				12
Northeast				4				4
	Total			100	%			100	%

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

	Commercial Real Estate Finance

			2006												2005
			Cost				Value				Yield(1)				Cost				Value				Yield(1)
($ in thousands)
Commercial mortgage loans			$	97,154			$	96,547				8.1%			$	103,878			$	102,569				7.6%
Real estate owned				13,090				14,553								14,240				13,932
Equity interests				17,504				21,951								13,577				10,564
	Total		$	127,748			$	133,051							$	131,695			$	127,065

(1)

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

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			2006				2005
Property Type
Hospitality				36	%			37	%
Housing				27				30
Office				18				11
Retail				15				16
Other				4				6
	Total			100	%			100	%
Geographic Region
Mid-Atlantic				33	%			31	%
Southeast				30				25
West				16				18
Midwest				15				21
Northeast				6				5
	Total			100	%			100	%

				2006												2005
												Annual												Annual
				Facility				Amount				Interest				Facility				Amount				Interest
				Amount				Drawn				Cost(1)				Amount				Drawn				Cost(1)
($ in thousands)
Notes payable and debentures:
	Unsecured notes payable			$	1,190,637			$	1,190,637				6.2	%		$	1,164,540			$	1,164,540				6.2	%
	SBA debentures				16,500				16,500				7.4	%			28,500				28,500				7.5	%
		Total notes payable and debentures			1,207,137				1,207,137				6.2	%			1,193,040				1,193,040				6.3	%
Revolving line of credit					922,500				1,750				6.4	%(2)			772,500				91,750				5.6	%(2)
	Total debt			$	2,129,637			$	1,208,887				6.6	%(3)		$	1,965,540			$	1,284,790				6.5	%(3)

(1)	The weighted average annual interest cost is computed as the (a) annual stated interest on the debt plus the annual amortization of commitment fees, other facility fees and amortization of debt financing costs that are recognized into interest expense over the contractual life of the respective borrowings, divided by (b) debt outstanding on the balance sheet date.
(2)	The annual interest cost reflects the interest rate payable for borrowings under the revolving line of credit. In addition to the current interest rate payable, there were annual costs of commitment fees, other facility fees and amortization of debt financing costs of $3.8 million and $3.3 million at June 30, 2006, and December 31, 2005, respectively.
(3)	The annual interest cost for total debt includes the annual cost of commitment fees, other facility fees and amortization of debt financing costs on the revolving line of credit regardless of the amount outstanding on the facility as of the balance sheet date.

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Year			Amount Maturing
			($ in thousands)
2006			$	150,000
2007				—
2008				153,000
2009				268,137
2010				408,000
Thereafter				228,000
	Total		$	1,207,137

	Revolving Line of Credit

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	Covenant Compliance

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			Total				2006				2007				2008				2009				2010				After 2010
(in millions)
Guarantees			$	163.3			$	2.5			$	0.7			$	3.0			$	151.6			$	—			$	5.5
Standby letters of credit(1)				38.3				0.1				—				38.2				—				—				—
	Total		$	201.6			$	2.6			$	0.7			$	41.2			$	151.6			$	—			$	5.5

(1)	Standby letters of credit are issued under the Company’s revolving line of credit that expires in September 2008. Therefore, unless a standby letter of credit is set to expire at an earlier date, it is assumed that the standby letters of credit will expire contemporaneously with the expiration of the Company’s line of credit in September 2008.

			2006				2005(1)
(in thousands)
Number of common shares				3,000				—
Gross proceeds			$	87,750			$	—
Less costs, including underwriting fees				4,780				—
	Net proceeds		$	82,970			$	—

(1)	The Company did not sell any common stock during the six months ended June 30, 2005.

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		For the Six Months
		Ended June 30,
		2006				2005
(in thousands, except per share amounts)
Shares issued			243				151
Average price per share		$	29.63			$	27.58

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2006				2005				2006				2005
(in thousands, except per share amounts)
Net increase in net assets resulting from operations available to common shareholders		$	33,729			$	311,885			$	133,316			$	431,506
Weighted average common shares outstanding — basic			140,024				133,701				139,395				133,493
Dilutive options outstanding			3,189				2,680				3,071				2,489
Weighted average common shares outstanding — diluted			143,213				136,381				142,466				135,982
Basic earnings per common share		$	0.24			$	2.33			$	0.96			$	3.23
Diluted earnings per common share		$	0.24			$	2.29			$	0.94			$	3.17

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			For the Three								For the Six
			Months Ended								Months Ended
			June 30,								June 30,
			2006				2005				2006				2005
($ in millions)
IPA contributions			$	2.1			$	1.9			$	3.8			$	3.8
IPA mark to market expense (benefit)				(1.5	)			1.8				(0.6	)			1.9
	Total IPA expense		$	0.6			$	3.7			$	3.2			$	5.7

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						Weighted				Weighted
						Average				Average				Aggregate
						Exercise				Contractual				Intrinsic Value
						Price Per				Remaining				at June 30,
		Shares				Share				Term (Years)				2006(1)
(in thousands, except per share amounts)
Options outstanding at January 1, 2006			22,259			$	24.52
Granted			1,505			$	29.75
Exercised			(373	)		$	22.09
Forfeited			(277	)		$	27.68
Outstanding at June 30, 2006			23,114			$	24.86				6.78			$	92,792
Exercisable at June 30, 2006			16,848			$	23.71				6.11			$	86,399
Exercisable and expected to be exercisable at June 30, 2006(2)			22,442			$	24.77				6.73			$	92,101

(1)	Represents the difference between the market value of the options at June 30, 2006, and the cost for the option holders to exercise the options.
(2)	The amount of options expected to be exercisable at June 30, 2006, is calculated based on an estimate of expected forfeitures.

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	•	a note received as consideration from the sale of the Company’s equity investment in Advantage of $150.0 million;
	•	a note received as consideration from the sale of the Company’s equity investment in STS Operating, Inc. of $30.0 million;
	•	the exchange of existing debt securities and accrued interest of S.B. Restaurant Company with a cost basis of $29.2 million for new debt securities; and
	•	the exchange of existing preferred stock and common stock of Redox Brands, Inc. with a cost basis of $10.2 million for common stock in CR Brands, Inc.

	•	the exchange of existing subordinated debt securities and accrued interest of BLX with a cost basis of $44.8 million for additional Class B equity interests;
	•	the exchange of debt securities and accrued interest of Coverall North America, Inc. with a cost basis of $24.2 million for new debt securities and warrants with a total cost basis of $26.8 million;
	•	the exchange of debt securities of Garden Ridge Corporation with a cost basis of $25.0 million for a new loan with a cost basis of $22.5 million; and
	•	the contribution to capital of existing debt securities of GAC Investments, Inc. (GAC) with a cost basis of $11.0 million, resulting in a decrease in the Company’s debt cost basis and an increase in the Company’s common stock cost basis in GAC. During the third quarter of 2005, GAC changed its name to Triview Investments, Inc.

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($ in thousands)
Description of Issue		2006				2005
5-year Treasury securities, due April 2010		$	17,156			$	17,666

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			At and for the
			Six Months Ended								At and for the
			June 30,								Year Ended
											December 31,
			2006(1)				2005				2005
Per Common Share Data
Net asset value, beginning of period			$	19.17			$	14.87			$	14.87
	Net investment income(2)			0.64				0.40				1.00
	Net realized gains(2)(3)			3.74				1.60				1.99
	Net investment income plus net realized gains(2)			4.38				2.00				2.99
	Net change in unrealized appreciation or depreciation (2)(3)			(3.44	)			1.17				3.37
Net increase in net assets resulting from operations (2)				0.94				3.17				6.36
Net decrease in net assets from shareholder distributions				(1.19	)			(1.14	)			(2.33	)
Net increase in net assets from capital share transactions(2)				0.25				0.11				0.27
Net asset value, end of period			$	19.17			$	17.01			$	19.17
Market value, end of period			$	28.77			$	29.11			$	29.37
Total return(4)				1.9	%			17.4	%			23.5	%
Ratios and Supplemental Data ($ and shares in thousands, except per share amounts)
Ending net assets			$	2,690,019			$	2,281,287			$	2,620,546
Common shares outstanding at end of period				140,312				134,131				136,697
Diluted weighted average common shares outstanding				142,466				135,982				137,274
Employee, stock option and administrative expenses/average net assets				2.66	%			3.91	%			6.58	%
Total operating expenses/average net assets				4.38	%			5.79	%			9.99	%
Net investment income/average net assets				3.41	%			2.57	%			6.08	%
Net increase in net assets resulting from operations/ average net assets				4.97	%			20.57	%			38.68	%
Portfolio turnover rate				21.20	%			21.76	%			47.72	%
Average debt outstanding			$	1,395,791			$	1,097,851			$	1,087,118
Average debt per share(2)			$	9.80			$	8.07			$	7.92

(1)	The results for the six months ended June 30, 2006, are not necessarily indicative of the operating results to be expected for the full year.
(2)	Based on diluted weighted average number of common shares outstanding for the period.
(3)	Net realized gains and net change in unrealized appreciation or depreciation can fluctuate significantly from period to period. As a result, quarterly comparisons may not be meaningful.
(4)	Total return assumes the reinvestment of all dividends paid for the periods presented.

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					Amount of Interest or
					Dividends
PRIVATE FINANCE
Portfolio Company					Credited								December 31, 2005				Gross				Gross				June 30, 2006
(in thousands)			Investment(1)		to Income(6)				Other(2)				Value				Additions(3)				Reductions(4)				Value
Companies More Than 25% Owned
Acme Paging, L.P.			Senior Loan(5)										$	—			$	—			$	—			$	—
	(Telecommunications)		Subordinated Debt(5)											—				—				—				—
			Common Stock											—				—				—				—
Advantage Sales &			Subordinated Debt		$	1,712								59,787				213				(60,000	)			—
	Marketing, Inc.(7)		Subordinated Debt			5,555								124,000				374				(124,374	)			—
	(Business Services)		Common Stock											476,578				—				(476,578	)			—
Alaris Consulting, LLC			Senior Loan(5)			(32	)							—				32				(32	)			—
	(Business Services)		Equity Interests											—				—				—				—
American Healthcare Services,   Inc. and Affiliates			Senior Loan(5)						$	1				4,097				328				(96	)			4,329
	(Healthcare Services)
Avborne, Inc.			Preferred Stock											892				—				(119	)			773
	(Business Services)		Common Stock											—				—				—				—
Avborne Heavy Maintenance,   Inc.			Preferred Stock											—				—				—				—
	(Business Services)		Common Stock											—				—				—				—
Business Loan Express, LLC			Subordinated Debt			38								10,000				15,000				(25,000	)			—
	(Financial Services)		Class A Equity
			Interests			7,807								60,693				3,734				—				64,427
			Class B Equity Interests											146,910				—				(16,020	)			130,890
			Class C Equity Interests											139,521				—				(17,621	)			121,900
Callidus Capital Corporation			Senior Loan			399								600				8,705				(7,655	)			1,650
	(Financial Services)		Subordinated Debt			464								4,832				444				—				5,276
			Common Stock											7,968				4,125				—				12,093
Cambridge Capital Partners			Senior Debt(5)											—				250				—				250
	(Financial Services)		Equity Interests											—				1,751				—				1,751
CR Brands, Inc.			Senior Loan			1,109								—				37,219				(37,219	)			—
	(Consumer Products)		Subordinated Debt			2,344								—				38,712				—				38,712
			Common Stock											—				37,431				—				37,431
Diversified Group			Preferred Stock			33								728				14				(14	)			728
	Administrators, Inc.		Preferred Stock											841				—				—				841
	(Business Services)		Common Stock			68								502				69				(249	)			322
Financial Pacific Company			Subordinated Debt			6,176								69,904				726				—				70,630
	(Financial Services)		Preferred Stock											13,116				1,344				—				14,460
			Common Stock											44,180				749				(511	)			44,418
ForeSite Towers, LLC			Equity Interests			161								9,750				3,068				—				12,818
	(Tower Leasing)
Global Communications, LLC			Senior Loan(5)											15,957				—				—				15,957
	(Business Services)		Subordinated Debt(5)											11,198				138				(1,688	)			9,648
			Preferred Equity
			Interest											4,303				—				(4,303	)			—
			Options											—				—				—				—
Gordian Group, Inc.			Senior Loan(5)			(10	)							4,161				400				(4,561	)			—
	(Business Services)		Common Stock											—				220				(220	)			—
Healthy Pet Corp.			Senior Loan			772								4,086				12,652				(800	)			15,938
	(Consumer Services)		Subordinated Debt			3,258								38,535				4,776				(186	)			43,125
			Common Stock											25,766				5,174				(2,788	)			28,152
HMT, Inc.			Preferred Stock											2,637				—				—				2,637
	(Energy Services)		Common Stock											5,343				2,599				—				7,942
			Warrants											2,057				1,001				—				3,058
Impact Innovations Group, LLC			Equity Interests in
	(Business Services)		Affiliate											742				128				—				870

53

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					Amount of Interest or
					Dividends
PRIVATE FINANCE
Portfolio Company					Credited								December 31, 2005				Gross				Gross				June 30, 2006
(in thousands)			Investment(1)		to Income(6)				Other(2)				Value				Additions(3)				Reductions(4)				Value
Insight Pharmaceuticals			Subordinated Debt		$	4,790							$	58,298			$	769			$	—			$	59,067
	Corporation		Preferred Stock											26,791				1,473				(2,015	)			26,249
	(Consumer Products)		Common Stock											236				218				(236	)			218
Jakel, Inc.			Subordinated Debt(5)											—				2,533				—				2,533
	(Industrial Products)		Preferred Stock											—				—				—				—
			Common Stock											—				—				—				—
Legacy Partners Group, LLC			Senior Loan (5)											5,029				93				(74	)			5,048
	(Financial Services)		Subordinated Debt(5)											—				—				—				—
			Equity Interests											—				18				(18	)			—
Litterer Beteiligungs-GmbH			Subordinated Debt			21								621				37				—				658
	(Business Services)		Equity Interest											2,226				763				(1,374	)			1,615
Mercury Air Centers, Inc.			Senior Loan			1,231								31,720				4,000				(35,720	)			—
	(Business Services)		Subordinated Debt			4,028								46,519				4,679				(3,000	)			48,198
			Common Stock											88,898				4,702				(412	)			93,188
MVL Group, Inc.			Senior Loan			1,742								27,218				79				(973	)			26,324
	(Business Services)		Subordinated Debt			2,506								32,417				1,504				—				33,921
			Common Stock											3,211				—				(1,949	)			1,262
Pennsylvania Avenue			Equity Interests											1,864				1,193				(3,057	)			—
	Investors, L.P.
	(Private Equity Fund)
Powell Plant Farms, Inc.			Senior Loan			2,390								23,792				6,075				(8,225	)			21,642
	(Consumer Products)		Subordinated Debt(5)											7,364				1,093				(8,457	)			—
			Preferred Stock											—				—				—				—
			Warrants											—				—				—				—
Redox Brands, Inc.			Preferred Stock			363								12,097				1,708				(13,805	)			—
	(Consumer Products)		Warrants											500				84				(584	)			—
Service Champ, Inc.			Subordinated Debt			2,138								26,906				354				—				27,260
	(Business Services)		Common Stock											13,319				3,003				—				16,322
Staffing Partners Holding			Subordinated Debt(5)						$	355				6,343				—				(5,183	)			1,160
	Company, Inc.		Preferred Stock											1,812				—				(1,812	)			—
	(Business Services)		Common Stock											—				—				—				—
			Warrants											—				—				—				—
Startec Global Communications
	Corporation		Senior Loan			1,197								21,685				3,540				(3,299	)			21,926
	(Telecommunications)		Common Stock											—				6,480				—				6,480
STS Operating, Inc.			Subordinated Debt			328								6,593				123				(6,716	)			—
	(Industrial Products)		Common Stock											64,963				32,039				(97,002	)			—
			Options											560				292				(852	)			—
Triview Investments, Inc.			Senior Loan			587								7,449				6,852				—				14,301
	(Broadcasting & Cable/		Subordinated Debt			2,390								30,845				6,842				—				37,687
	Consumer Products)		Subordinated Debt(5)											19,520				—				—				19,520
			Common Stock											29,171				5,011				(1,656	)			32,526
Total companies more than 25% owned					$	53,565							$	1,887,651											$	1,188,131
Companies 5% to 25% Owned
Advantage Sales &			Subordinated Debt		$	4,732								—			$	150,056			$	—			$	150,056
	Marketing, Inc.(7)		Equity Interests											—				15,000				—				15,000
	(Business Services)
Air Medical Group Holdings LLC			Senior Loan			714								—				1,512				—				1,512
	(Healthcare Services)		Subordinated Debt			2,145								42,267				34,950				(42,627	)			34,590
			Equity Interests			1,694								4,025				2,372				(2,197	)			4,200
Amerex Group, LLC			Subordinated Debt			154								—				8,400				—				8,400
	(Consumer Products)		Equity Interests											—				3,583				—				3,583
Aspen Pet Products, Inc.			Subordinated Debt			1,130								19,959				399				(20,358	)			—
	(Consumer Products)		Preferred Stock			29								1,638				516				(2,154	)			—
			Common Stock											17				123				(140	)			—
			Warrants											—				—				—				—
BB&T Capital			Equity Interests											—				5,867				—				5,867
	Partners/Windsor
	Mezzanine Fund, LLC
	(Private Equity Fund)
Becker Underwood, Inc.			Subordinated Debt			1,747								23,543				307				—				23,850
	(Industrial Products)		Common Stock											2,200				900				(700	)			2,400

54

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					Amount of Interest or
					Dividends
PRIVATE FINANCE
Portfolio Company					Credited								December 31, 2005				Gross				Gross				June 30, 2006
(in thousands)			Investment(1)		to Income(6)				Other(2)				Value				Additions(3)				Reductions(4)				Value
wBI Incorporated			Senior Loan		$	125							$	—			$	15,000			$	(15,000	)		$	—
	(Business Services)		Subordinated Debt			1,390								—				29,856				—				29,856
			Common Stock											—				4,000				—				4,000
The Debt Exchange Inc.			Preferred Stock											3,219				—				(3,219	)			—
	(Business Services)
MedBridge Healthcare, LLC			Senior Loan(5)											7,093				1,512				(2,010	)			6,595
	(Healthcare Services)		Subordinated Debt(5)											534				1,364				(1,898	)			—
			Convertible
			Subordinated Debt(5)											—				—				—				—
			Equity Interests											—				501				(501	)			—
Nexcel Synthetics, LLC			Subordinated Debt			788								10,588				193				—				10,781
	(Consumer Products)		Equity Interests											1,367				363				—				1,730
Pres Air Trol LLC			Unitranche Debt(5)						$	184				5,820				10				(2,518	)			3,312
	(Industrial Products)		Equity Interests											318				11				(329	)			—
Progressive International
	Corporation		Subordinated Debt			603								7,376				78				—				7,454
	(Consumer Products)		Preferred Stock											884				36				—				920
			Common Stock											13				487				—				500
			Warrants											—				—				—				—
Regency Healthcare Group, LLC			Senior Loan											—				980				—				980
	(Healthcare Services)		Unitranche Debt											—				19,900				—				19,900
			Equity Interests											—				1,500				—				1,500
SGT India Private Limited			Common Stock											—				3,608				—				3,608
	(Business Services)
wSoteria Imaging Services, LLC			Subordinated Debt			959								13,447				2,058				—				15,505
	(Healthcare Services)		Equity Interests											2,308				92				—				2,400
Universal Environmental
	Services, LLC		Unitranche Debt			859								10,862				94				—				10,956
	(Business Services)		Equity Interests											1,328				651				(278	)			1,701
Total companies 5% to 25% owned					$	17,069							$	158,806											$	371,156

(1)	Common stock, preferred stock, warrants, options, and equity interests are generally non-income producing and restricted. The principal amount for loans and debt securities and the number of shares of common stock and preferred stock is shown in the consolidated statement of investments as of June 30, 2006.
(2)	Other includes interest, dividend, or other income which was applied to the principal of the investment and therefore reduced the total investment. These reductions are also included in the Gross Reductions for the investment, as applicable.
(3)	Gross additions include increases in the cost basis of investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and closing fees, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation.
(4)	Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation.
(5)	Loan or debt security is on non-accrual status at June 30, 2006, and is therefore considered non-income producing. Loans or debt securities on non-accrual status at the end of the period may or may not have been on non-accrual status for the full period.
(6)	Represents the total amount of interest or dividends credited to income for the portion of the year an investment was included in the companies more than 25% owned or companies 5% to 25% owned categories, respectively.
(7)	Included in the companies more than 25% owned category while the Company held a majority equity interest. On March 29, 2006, the Company sold its majority equity interest in Advantage. The Company’s investment in Advantage after the sale transaction is included in the companies 5% to 25% owned category. See Note 3 to the consolidated financial statements for further information.

55

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

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

56

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		June 30,
										December 31,
		2006				2005				2005
Private finance			96	%			95	%			96	%
Commercial real estate finance			4	%			5	%			4	%

		At and for the								At and for the								At and for the
		Three Months Ended								Six Months Ended								Year Ended
		June 30,								June 30,								December 31,
		2006				2005				2006				2005				2005
($ in millions)
Portfolio at value		$	3,593.5			$	2,714.3			$	3,593.5			$	2,714.3			$	3,606.4
Investments funded(1)		$	453.4			$	389.3			$	1,251.2			$	654.9			$	1,675.8
Change in accrued or reinvested interest and dividends(2)		$	(7.0	)		$	(14.1	)		$	(9.1	)		$	(3.6	)		$	6.6
Principal collections related to investment repayments or sales		$	429.2			$	932.6			$	769.6			$	1,090.8			$	1,503.4
Yield on interest-bearing investments(3)			12.6	%			13.2	%			12.6	%			13.2	%			12.8	%

(1)	Investments funded for the six months ended June 30, 2006, included a $150 million subordinated debt investment in Advantage Sales & Marketing, Inc. received in conjunction with the sale of Advantage and a $30 million subordinated debt investment in STS Operating, Inc. received in conjunction with the sale of STS. See discussion below.
(2)	Includes changes in accrued or reinvested interest of $0.6 million and $1.7 million for the three and six months ended June 30, 2006, respectively, related to our investments in money market securities.
(3)	The weighted average yield on interest-bearing investments is computed as the (a) annual stated interest plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing interest-bearing investments less the annual amortization of loan origination costs, divided by (b) total interest-bearing investments at value. The weighted average yield is computed as of the balance sheet date.

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					At and for the																At and for the																At and for the
					Three Months Ended																Six Months Ended																Year Ended
					June 30,																June 30,																December 31,
					2006								2005								2006								2005								2005
					Value				Yield(2)				Value				Yield(2)				Value				Yield(2)				Value				Yield(2)				Value				Yield(2)
($ in millions)
Portfolio at value:
	Loans and debt securities:
		Senior loans			$	275.9				9.5	%		$	203.3				10.0	%		$	275.9				9.5	%		$	203.3				10.0	%		$	239.8				9.5	%
		Unitranche debt				515.0				10.7	%			67.3				13.3	%			515.0				10.7	%			67.3				13.3	%			294.2				11.4	%
		Subordinated debt				1,700.3				13.9	%			1,362.4				14.2	%			1,700.3				13.9	%			1,362.4				14.2	%			1,560.9				13.8	%
			Total loans and debt securities		$	2,491.2				12.7	%		$	1,633.0				13.7	%		$	2,491.2				12.7	%		$	1,633.0				13.7	%		$	2,094.9				13.0	%
	Equity securities					969.2								937.5								969.2								937.5								1,384.4
Total portfolio					$	3,460.4							$	2,570.5							$	3,460.4							$	2,570.5							$	3,479.3
Investments funded(1)					$	441.5							$	298.0							$	1,237.3							$	466.3							$	1,462.3
Change in accrued or reinvested interest and dividends					$	(7.1	)						$	6.5							$	(11.3	)						$	14.4							$	24.6
Principal collections related to investment repayments or sales					$	415.7							$	178.8							$	752.4							$	330.0							$	703.9

(1)	Investments funded for the six months ended June 30, 2006, included a $150 million subordinated debt investment in Advantage Sales & Marketing, Inc. received in conjunction with the sale of Advantage and a $30 million subordinated debt investment in STS Operating, Inc. received in conjunction with the sale of STS. See discussion below.
(2)	The weighted average yield on loans and debt securities is computed as the (a) annual stated interest plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debt securities less the annual amortization of loan origination costs, divided by (b) total loans and debt securities at value. The weighted average yield is computed as of the balance sheet date.

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				For the Six Months Ended June 30, 2006
				Debt Investments								Buyout Investments								Total
								Weighted								Weighted								Weighted
								Average								Average								Average
				Amount				Yield(1)				Amount				Yield(1)				Amount				Yield(1)
($ in millions)
Loans and debt securities:
	Senior loans(4)			$	149.4				9.3	%		$	121.6				8.8	%		$	271.0				9.1	%
	Unitranche debt(2)				255.9				10.6	%			—				—				255.9				10.6	%
	Subordinated debt(3)				374.8				13.0	%			189.1				13.7	%			563.9				13.2	%
		Total loans and debt securities			780.1				11.5	%			310.7				11.8	%			1,090.8				11.5	%
Equity					54.6								91.9								146.5
	Total			$	834.7							$	402.6							$	1,237.3

				For the Six Months Ended June 30, 2005
				Debt Investments								Buyout Investments								Total
								Weighted								Weighted								Weighted
								Average								Average								Average
				Amount				Yield(1)				Amount				Yield(1)				Amount				Yield(1)
($ in millions)
Loans and debt securities:
	Senior loans			$	19.5				12.1	%		$	77.7				5.9	%		$	97.2				7.1	%
	Unitranche debt(2)				59.2				10.8	%			—				—				59.2				10.8	%
	Subordinated debt				140.0				12.9	%			110.6				13.2	%			250.6				13.0	%
		Total loans and debt securities			218.7				12.3	%			188.3				10.2	%			407.0				11.3	%
Equity					15.5								43.8								59.3
	Total			$	234.2							$	232.1							$	466.3

(1)	The weighted average yield on interest-bearing investments is computed as the (a) annual stated interest on accruing interest-bearing investments, divided by (b) total interest-bearing investments funded.
(2)	Unitranche debt is a single debt investment that is a blend of senior and subordinated debt terms. The yield on a unitranche investment reflects the blended yield of senior and subordinated debt combined.
(3)	Debt investments for the six months ended June 30, 2006, included a $150 million, 12.0% subordinated debt investment in Advantage Sales & Marketing, Inc. received in conjunction with the sale of Advantage and a $30 million, 15.0% subordinated debt investment in STS Operating, Inc. received in conjunction with the sale of STS. See discussion below.
(4)	Senior loans funded for the six months ended June 30, 2006, included $163.6 million that was repaid during the six months ended June 30, 2006.

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				For the Year Ended December 31, 2005
				Debt Investments								Buyout Investments								Total
								Weighted								Weighted								Weighted
								Average								Average								Average
				Amount				Yield(1)				Amount				Yield(1)				Amount				Yield(1)
($ in millions)
Loans and debt securities:
	Senior loans(3)			$	76.8				10.0	%		$	250.2				6.4	%		$	327.0				7.2	%
	Unitranche debt(2)				259.5				10.5	%			—				—				259.5				10.5	%
	Subordinated debt				296.9				12.3	%			330.9				12.5	%			627.8				12.4	%
		Total loans and debt securities			633.2				11.3	%			581.1				9.9	%			1,214.3				10.6	%
Equity					82.5								165.5								248.0
	Total			$	715.7							$	746.6							$	1,462.3

(1)	The weighted average yield on interest-bearing investments is computed as the (a) annual stated interest on accruing interest-bearing investments, divided by (b) total interest-bearing investments funded.
(2)	Unitranche debt is a single debt investment that is a blend of senior and subordinated debt terms. The yield on a unitranche investment reflects the blended yield of senior and subordinated debt combined.
(3)	Buyout senior loans funded included $174.9 million that was repaid during the year.

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	•	$88.3 million in the form of revolving senior debt facilities to nineteen companies.
	•	$50.7 million in the form of equity to fifteen private equity and venture capital funds.
	•	$24.2 million in the form of debt to Promo Works, LLC.
	•	$23.9 million in the form of debt to S.B. Restaurant Company.
	•	$9.0 million in the form of debt to Integrity Interactive Corp.
	•	$7.6 million in the form of debt to Carlisle Wide Plank Floors, Inc.
	•	$6.5 million in co-investment commitments to Pine Creek Equity Partners, LLC.
	•	We have various commitments to Callidus Capital Corporation (Callidus), which owns 80% (subject to dilution) of Callidus Capital Management, LLC, an asset management company that structures and manages collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), and other related investments. Our commitment to Callidus consisted of the following at June 30, 2006:

											Amount
			Committed				Amount				Available
			Amount				Drawn				to be Drawn
($ in millions)
Subordinated debt to support warehouse facilities & warehousing activities(1)			$	36.0			$	—			$	36.0
Revolving line of credit for working capital				4.0				1.6				2.4
	Total		$	40.0			$	1.6			$	38.4

	(1)	Callidus has a secured warehouse credit facility with a third party for up to $240 million. The facility is used primarily to finance the acquisition of loans pending securitization through a CDO or CLO. In conjunction with this warehouse credit facility, we have agreed to designate our $36 million subordinated debt commitment for Callidus to draw upon to provide first loss capital as needed to support the warehouse facility.

	In addition, at June 30, 2006, we had a commitment to Callidus to purchase preferred equity in future CLO transactions of $77.0 million.

			2006				2005
($ in millions)
Interest income			$	7.8			$	6.9
Dividend income				—				5.0
Fees and other income				4.3				4.7
	Total interest and related portfolio income		$	12.1			$	16.6

61

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62

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			At and for the																At and for the
			Three Months Ended June 30,																Six Months Ended June 30,																At and for
																																			the Year Ended
																																			December 31,
			2006								2005								2006								2005								2005
			Value				Yield(1)				Value				Yield(1)				Value				Yield(1)				Value				Yield(1)				Value				Yield(1)
($ in millions)
Portfolio at value:
	Commercial mortgage loans		$	96.5				8.1%			$	116.1				6.7%			$	96.5				8.1%			$	116.1				6.7%			$	102.6				7.6%
	Real estate owned			14.6								16.6								14.6								16.6								13.9
	Equity interests			22.0								11.1								22.0								11.1								10.6
Total portfolio			$	133.1							$	143.8							$	133.1							$	143.8							$	127.1
Investments funded			$	11.9							$	91.3							$	13.9							$	188.6							$	213.5
Change in accrued or reinvested interest			$	(0.5	)						$	(20.6	)						$	0.5							$	(18.0	)						$	(18.0	)
Principal collections related to investment repayments or sales(2)			$	13.5							$	753.8							$	17.2							$	760.8							$	799.5

(1)	The weighted average yield on the commercial mortgage loans is computed as the (a) annual stated interest plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing interest-bearing investments less the annual amortization of origination costs, divided by (b) total interest-bearing investments at value. The weighted average yield is computed as of the balance sheet date.
(2)	Principal collections related to investment repayments or sales for the year ended December 31, 2005, included $718.1 million related to the sale of our CMBS and CDO portfolio in May 2005.

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			Face								Amount
			Amount				Discount				Funded
($ in millions)
For the Six Months Ended June 30, 2006
Commercial mortgage loans			$	7.4			$	—			$	7.4
Equity interests				6.5				—				6.5
	Total		$	13.9			$	—			$	13.9
For the Six Months Ended June 30, 2005
CMBS bonds (4 new issuances)(1)			$	211.5			$	(90.5	)		$	121.0
Commercial mortgage loans				67.1				(0.9	)			66.2
Equity interests				1.4				—				1.4
	Total		$	280.0			$	(91.4	)		$	188.6
For the Year Ended December 31, 2005
CMBS bonds (4 new issuances)(1)			$	211.5			$	(90.5	)		$	121.0
Commercial mortgage loans				88.5				(0.8	)			87.7
Equity interests				4.8				—				4.8
	Total		$	304.8			$	(91.3	)		$	213.5

(1)	The CMBS bonds invested in during 2005 were sold on May 3, 2005.

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		2006								2005
		Portfolio				Percentage of				Portfolio				Percentage of
Grade		at Value				Total Portfolio				at Value				Total Portfolio
($ in millions)
1		$	1,241.2				34.5	%		$	1,643.0				45.6	%
2			2,177.8				60.6				1,730.8				48.0
3			93.1				2.6				149.1				4.1
4			27.4				0.8				26.5				0.7
5			54.0				1.5				57.0				1.6
		$	3,593.5				100.0	%		$	3,606.4				100.0	%

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				2006				2005
($ in millions)
Loans and debt securities in workout status (classified as Grade 4 or 5)(1)
	Private finance
		Companies more than 25% owned		$	17.7			$	15.6
		Companies 5% to 25% owned			3.3				—
		Companies less than 5% owned			24.6				11.4
	Commercial real estate finance				2.9				12.9
Loans and debt securities not in workout status
	Private finance
		Companies more than 25% owned			40.8				58.0
		Companies 5% to 25% owned			6.6				0.5
		Companies less than 5% owned			3.9				49.5
	Commercial real estate finance				12.8				7.9
		Total		$	112.6			$	155.8
		Percentage of total portfolio			3.1%				4.3%

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

			2006				2005
($ in millions)
Private finance			$	47.2			$	74.6
Commercial mortgage loans				3.7				6.1
	Total		$	50.9			$	80.7
	Percentage of total portfolio			1.4%				2.2%

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				For the Three Months																For the Six Months
				Ended June 30,																Ended June 30,
																Percentage																Percentage
				2006				2005				Change				Change				2006				2005				Change				Change
($ in thousands, except per share amounts)
				(unaudited)																(unaudited)
Interest and Related Portfolio Income
	Interest and dividends			$	95,433			$	71,330			$	24,103				34	%		$	184,314			$	156,275			$	28,039				18	%
	Loan prepayment premiums				1,745				853				892				105	%			7,031				2,530				4,501				178	%
	Fees and other income				13,278				14,024				(746	)			(5	)%			30,122				22,321				7,801				35	%
		Total interest and related portfolio income			110,456				86,207				24,249				28	%			221,467				181,126				40,341				22	%
Expenses
	Interest				21,607				19,154				2,453				13	%			45,907				39,379				6,528				17	%
	Employee				20,398				22,877				(2,479	)			(11	)%			41,826				38,333				3,493				9	%
	Stock options				4,597				—				4,597				100	%			8,203				—				8,203				100	%
	Administrative				9,861				23,048				(13,187	)			(57	)%			21,380				43,802				(22,422	)			(51	)%
		Total operating expenses			56,463				65,079				(8,616	)			(13	)%			117,316				121,514				(4,198	)			(3	)%
Net investment income before income taxes					53,993				21,128				32,865				156	%			104,151				59,612				44,539				75	%
Income tax expense, including excise tax					3,798				5,861				(2,063	)			(35	)%			12,656				5,593				7,063				126	%
Net investment income					50,195				15,267				34,928				229	%			91,495				54,019				37,476				69	%
Net Realized and Unrealized Gains (Losses)
	Net realized gains				100,240				207,496				(107,256	)			*				533,075				217,781				315,294				*
	Net change in unrealized appreciation or depreciation				(116,706	)			89,122				(205,828	)			*				(491,254	)			159,706				(650,960	)			*
		Total net gains			(16,466	)			296,618				(313,084	)			*				41,821				377,487				(335,666	)			*
Net income				$	33,729			$	311,885			$	(278,156	)			(89	)%		$	133,316			$	431,506			$	(298,190	)			(69	)%
Diluted earnings per common share				$	0.24			$	2.29			$	(2.05	)			(90	)%		$	0.94			$	3.17			$	(2. 23	)			(70	)%
Weighted average common shares outstanding — diluted					143,213				136,381				6,832				5	%			142,466				135,982				6,484				5	%

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

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				For the Three								For the Six
				Months Ended								Months Ended
				June 30,								June 30,
				2006				2005				2006				2005
($ in millions)
Interest
	Private finance loans and debt securities			$	88.6			$	53.1			$	171.2			$	109.9
	CMBS and CDO portfolio				—				7.3				—				29.4
	Commercial mortgage loans				2.1				2.0				4.8				3.5
	Cash and cash equivalents, U.S. Treasury bills and other				2.9				3.6				5.9				4.1
		Total interest			93.6				66.0				181.9				146.9
Dividends					1.8				5.3				2.4				9.4
		Total interest and dividends		$	95.4			$	71.3			$	184.3			$	156.3

			2006								2005
			Value				Yield(1)				Value				Yield(1)
($ in millions)
Private finance loans and debt securities			$	2,491.2				12.7	%		$	1,633.0				13.7	%
CMBS and CDO portfolio(2)				—				—				—				—
Commercial mortgage loans				96.5				8.1	%			116.1				6.7	%
	Total		$	2,587.7				12.6	%		$	1,749.1				13.2	%

(1)	The weighted average yield on loans and debt securities is computed as the (a) annual stated interest plus the annual amortization of loan origination fees, original issue discount, and market discount on accruing loans and debt securities less the annual amortization of loan origination costs, divided by (b) total loans and debt securities at value. The weighted average yield is computed as of the balance sheet date.
(2)	The CMBS and CDO portfolio was sold on May 3, 2005. See discussion above.

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			For the Three								For the Six
			Months Ended								Months Ended
			June 30,								June 30,
			2006				2005				2006				2005
($ in millions)
Structuring and diligence			$	8.0			$	7.5			$	19.0			$	8.9
Management, consulting and other services provided to portfolio companies				2.3				3.6				6.4				6.8
Commitment, guaranty, transaction and other fees from portfolio companies				2.9				2.0				4.6				4.8
Other income				0.1				0.9				0.1				1.8
	Total fees and other income		$	13.3			$	14.0			$	30.1			$	22.3

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		For the Three								For the Six
		Months Ended								Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
($ in millions)
BLX		$	6.0			$	8.8			$	12.1			$	16.6
Advantage(1)		$	—			$	9.4			$	14.1			$	18.5

(1)	Includes income from the period we held a majority equity interest only. See “—Portfolio and Investment Activity” above for further discussion.

		At and for the								At and for the
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
($ in millions)
Total outstanding debt		$	1,208.9			$	986.5			$	1,208.9			$	986.5
Average outstanding debt		$	1,301.1			$	1,071.0			$	1,395.8			$	1,097.9
Weighted average cost(1)			6.6	%			6.8	%			6.6	%			6.8	%

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

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			For the Three								For the Six
			Months Ended								Months Ended
			June 30,								June 30,
			2006				2005				2006				2005
($ in millions)
Salaries and employee benefits			$	17.6			$	11.7			$	35.0			$	23.5
Transition compensation, net				—				5.5				—				5.5
Individual performance award (IPA)				2.1				1.9				3.8				3.8
IPA mark to market expense (benefit)				(1.5	)			1.8				(0.6	)			1.9
Individual performance bonus (IPB)				2.2				2.0				3.6				3.6
	Total employee expense		$	20.4			$	22.9			$	41.8			$	38.3
Number of employees at end of period				166				152				166				152

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				For the Three				For the Six
				Months Ended				Months Ended
				June 30,				June 30,
($ in millions)				2006				2006
Employee Stock Option Expense:
	Previously awarded, unvested options as of January 1, 2006			$	3.3			$	6.7
	Options granted on or after January 1, 2006				1.3				1.5
		Total stock option expense		$	4.6			$	8.2

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			For the Three								For the Six
			Months Ending								Months Ending
			June 30,								June 30,
			2006				2005				2006				2005
($ in millions)
Administrative expenses			$	9.4			$	9.6			$	18.0			$	18.1
Investigation related costs				0.5				13.5				3.4				25.7
	Total administrative expenses		$	9.9			$	23.1			$	21.4			$	43.8

			For the Three								For the Six
			Months Ended								Months Ended
			June 30,								June 30,
			2006				2005				2006				2005
($ in millions)
Income tax expense, net			$	0.6			$	1.9			$	1.1			$	1.6
Excise tax expense				3.2				4.0				11.6				4.0
	Income tax expense, including excise tax		$	3.8			$	5.9			$	12.7			$	5.6

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		For the Three								For the Six
		Months Ended								Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
($ in millions)
Realized gains		$	101.0			$	244.7			$	537.5			$	259.4
Realized losses			(0.8	)			(37.2	)			(4.4	)			(41.6	)
Net realized gains		$	100.2			$	207.5			$	533.1			$	217.8

			For the Three								For the Six
			Months Ended								Months Ended
			June 30,								June 30,
($ in millions)			2006				2005				2006				2005
Reversal of previously recorded unrealized appreciation associated with realized gains			$	(95.6	)		$	(16.6	)		$	(489.2	)		$	(26.5	)
Reversal of previously recorded unrealized depreciation associated with realized losses				0.5				37.1				3.2				41.9
	Total reversal		$	(95.1	)		$	20.5			$	(486.0	)		$	15.4

2006
Portfolio Company			Amount
Private Finance:
STS Operating, Inc.			$	94.8
United Site Services, Inc.				3.3
MHF Logistical Solutions, Inc.				1.2
Advantage Sales & Marketing, Inc.				0.6
Other				1.1
	Total private finance			101.0
Total gross realized gains			$	101.0

2005
Portfolio Company			Amount
Private Finance:
Master Plan, Inc.			$	3.7
Ginsey Industries, Inc.				2.8
E-Talk Corporation				1.6
Professional Paint, Inc.				1.0
Other				1.0
	Total private finance			10.1
Commercial Real Estate:
CMBS/CDO asset net(1)				227.7
Other				6.9
	Total commercial real estate			234.6
Total gross realized gains			$	244.7

(1)	Net of net realized losses from related hedges of $0.7 million for the three months ended June 30, 2005.

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2006
Portfolio Company				Amount
Private Finance:
Other				$	0.3
	Total private finance				0.3
Commercial Real Estate:
Other					0.5
		Total commercial real estate			0.5
Total gross realized losses				$	0.8

2005
Portfolio Company			Amount
Private Finance:
Norstan Apparel Shops, Inc.			$	18.5
E-Talk Corporation				9.0
Garden Ridge Corporation				7.1
Other				0.3
	Total private finance			34.9
Commercial Real Estate:
Other				2.3
	Total commercial real estate			2.3
Total gross realized losses			$	37.2

2006
Portfolio Company			Amount
Private Finance:
Advantage Sales & Marketing, Inc.			$	433.7
STS Operating, Inc.				94.8
United Site Services, Inc.				3.3
Nobel Learning Communities, Inc.				1.5
MHF Logisitical Solutions, Inc.				1.2
The Debt Exchange, Inc.				1.1
Other				1.3
	Total private finance			536.9
Commercial Real Estate:
Other				0.6
	Total commercial real estate			0.6
Total gross realized gains			$	537.5

2005
Portfolio Company			Amount
Private Finance:
Polaris Pool System, Inc.			$	7.4
Master Plan, Inc.				3.7
U.S. Security Holdings, Inc.				3.3
Ginsey Industries, Inc.				2.8
E-Talk Corporation				1.6
Professional Paint, Inc.				1.0
Oriental Trading Company, Inc.				1.0
Other				3.5
	Total private finance			24.3
Commercial Real Estate:
CMBS/CDO assets, net(1)				227.7
Other				7.4
	Total commercial real estate			235.1
Total gross realized gains			$	259.4

(1)	Net of net realized losses from related hedges of $0.7 million for the six months ended June 30, 2005.

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2006
Portfolio Company				Amount
Private Finance:
Aspen Pet Products, Inc.				$	1.6
Nobel Learning Communities, Inc.					1.4
Other					0.6
	Total private finance				3.6
Commercial Real Estate:
Other					0.8
		Total commercial real estate			0.8
Total gross realized losses				$	4.4

2005
Portfolio Company			Amount
Private Finance:
Norstan Apparel Shops, Inc.			$	18.5
E-Talk Corporation				9.0
Garden Ridge Corporation				7.1
Alderwoods Group, Inc.				0.8
Other				0.7
	Total private finance			36.1
Commercial Real Estate:
Other				5.5
	Total commercial real estate			5.5
Total gross realized losses			$	41.6

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		2006								2005
		Q1				Q2				Q1				Q2
Number of private finance portfolio companies reviewed			78				78				36				72
Percentage of private finance portfolio reviewed at value			87.0	%			89.6	%			74.5	%			83.0	%

		For the Three								For the Six
		Months Ended								Months Ended
		June 30,								June 30,
		2006(1)				2005(1)				2006(1)				2005(1)
($ in millions)
Net unrealized appreciation or depreciation		$	(21.6	)		$	68.6			$	(5.3	)		$	144.3
Reversal of previously recorded unrealized appreciation associated with realized gains			(95.6	)			(16.6	)			(489.2	)			(26.5	)
Reversal of previously recorded unrealized depreciation associated with realized losses			0.5				37.1				3.2				41.9
Net change in unrealized appreciation or depreciation		$	(116.7	)		$	89.1			$	(491.3	)		$	159.7

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

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80

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($ in millions)		2006				2005
Liquidity portfolio (including money market and other securities: 2006-$75.3; 2005-$100.0)		$	201.2			$	200.3
Cash and investments in money market and other securities (including money market and other securities: 2006-$22.5; 2005-$22.0)		$	25.6			$	53.3
Total assets		$	4,011.2			$	4,025.9
Total debt outstanding		$	1,208.9			$	1,284.8
Total shareholders’ equity		$	2,690.0			$	2,620.5
Debt to equity ratio			0.45				0.49
Asset coverage ratio(1)			326	%			309	%

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

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			2006								2005
($ in millions)			Value				Yield				Value				Yield
U.S. Treasury bills(1)			$	125.9				4.9%			$	100.3				4.3%
Money market securities				55.3				5.0%				100.0				4.1%
Certificate of Deposit(1)				20.0				5.6%				—				—
	Total		$	201.2				5.0%			$	200.3				4.2%

(1)	The Treasury bills and certificate of deposit mature in 2006.

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												Annual
				Facility				Amount				Interest
				Amount				Outstanding				Cost(1)
($ in millions)
Notes payable and debentures:
	Unsecured notes payable			$	1,190.6			$	1,190.6				6.2%
	SBA debentures				16.5				16.5				7.4%
		Total notes payable and debentures			1,207.1				1,207.1				6.2%
Revolving line of credit					922.5				1.8				6.4%	(2)
		Total debt		$	2,129.6			$	1,208.9				6.6%	(3)

(1)	The weighted average annual interest cost is computed as the (a) annual stated interest on the debt plus the annual amortization of commitment fees, other facility fees and the amortization of debt financing costs that are recognized into interest expense over the contractual life of the respective borrowings, divided by (b) debt outstanding on the balance sheet date.
(2)	The annual interest cost reflects the interest rate payable for borrowings under the revolving line of credit. In addition to the current interest rate payable, there were annual costs of commitment fees, other facility fees and the amortization of debt financing costs of $3.8 million at June 30, 2006.
(3)	The annual interest cost for total debt includes the annual cost of commitment fees, other facility fees and the amortization of debt financing costs on the revolving line of credit regardless of the amount outstanding on the facility as of the balance sheet date.

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								Payments Due By Year
																												After
				Total				2006				2007				2008				2009				2010				2010
($ in millions)
Notes payable and debentures:
	Unsecured long-term notes payable			$	1,190.6			$	150.0			$	—			$	153.0			$	268.1			$	408.0			$	211.5
	SBA debentures				16.5				—				—				—				—				—				16.5
Revolving line of credit(1)					1.8				—				—				1.8				—				—				—
Operating leases					26.7				2.2				4.4				4.5				4.6				4.4				6.6
		Total contractual obligations		$	1,235.6			$	152.2			$	4.4			$	159.3			$	272.7			$	412.4			$	234.6

(1)	At June 30, 2006, $882.5 million remained unused and available, net of amounts committed for standby letters of credit of $38.3 million issued under the credit facility.

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							Amount of Commitment Expiration Per Year
																											After
			Total				2006				2007				2008				2009				2010				2010
($ in millions)
Guarantees			$	163.3			$	2.5			$	0.7			$	3.0			$	151.6			$	—			$	5.5
Standby letters of credit(1)				38.3				0.1				—				38.2				—				—				—
	Total commitments		$	201.6			$	2.6			$	0.7			$	41.2			$	151.6			$	—			$	5.5

(1)	Standby letters of credit are issued under our revolving line of credit that expires in September 2008. Therefore, unless a standby letter of credit is set to expire at an earlier date, we have assumed that the standby letters of credit will expire contemporaneously with the expiration of our line of credit in September 2008.

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87

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88

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89

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90

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91

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92

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93

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94

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95

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

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			Total Number
			of Shares				Average Price
			Purchased				Paid Per Share
2005 DCP I(1)
	4/1/2006 to 4/31/2006			78			$	30.31
	5/1/2006 to 5/28/2006			—			$	—
	6/1/2006 to 6/31/2006			—			$	—
2005 DCP II(2)
	4/1/2006 to 4/31/2006			14,149			$	30.31
	5/1/2006 to 5/28/2006			—			$	—
	6/1/2006 to 6/31/2006			70,500			$	29.75
Total				84,727			$	29.84

(1)	The 2005 DCP I is an unfunded plan, as defined by the Internal Revenue Code of 1986, that provides for the deferral of compensation by our directors, employees, and consultants. In addition, we may make contributions to 2005 DCP I on compensation deemed ineligible for a 401(k) contribution. Our directors, employees, or consultants are eligible to participate in the plan at such time and for such period as designated by the Board of Directors. The 2005 DCP I is administered through a trust by a third-party trustee, and we fund this plan through cash contributions. Directors may choose to defer director’s fees through the 2005 DCP I, and may choose to invest such deferred income in shares of our common stock. To the extent a director elects to invest in our common stock, the trustee of the 2005 DCP I will be required to use such deferred director’s fees to purchase shares of our common stock in the market.
(2)	We have established a long-term incentive compensation program whereby we will generally determine an individual performance award for certain officers annually at the beginning of each year. The Compensation Committee may adjust the individual performance awards as needed, or make new awards as new officers are hired. In conjunction with the program, we instituted the 2005 DCP II, which is an unfunded plan as defined by the Internal Revenue Code of 1986 that is administered through a trust by a third-party trustee. The individual performance awards are deposited in the trust in four equal installments, generally on a quarterly basis in the form of cash and the 2005 DCP II requires the trustee to use the cash exclusively to purchase shares of our common stock in the market. In addition, cash dividends received on the Allied Capital shares held in the trust are used by the trustee to purchase shares of our common stock in the open market.

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	1.	Election of Directors: Shareholders elected five directors of the Company, who will serve for three years, or until their successors are elected and qualified. Votes were cast as follows:

		For				Withheld
Ann Torre Bates			127,731,421				1,713,989
Edwin L. Harper			126,434,463				3,010,946
John I. Leahy			127,186,384				2,259,025
Alex J. Pollock			127,529,783				1,915,626
Guy T. Steuart II			127,424,088				2,021,321

	The following directors are continuing as directors of the Company for their respective terms — Brooks H. Browne, John D. Firestone, Anthony T. Garcia, Lawrence I. Hebert, Robert E. Long, Marc F. Racicot, Laura W. van Roijen, Joan M. Sweeney, and William L. Walton.

	2.	Ratification of the selection of KPMG LLP to serve as independent registered public accounting firm for the year ending December 31, 2006. Votes were cast as follows:

For				Against				Abstain
	127,953,628				739,269				752,510

	3.	Approval of the issuance of up to 2,500,000 shares of common stock in exchange for the cancellation of vested in-the-money options granted to certain officers and directors in connection with a stock ownership initiative. Votes were cast as follows:

For				Against				Abstain				Broker Non-Votes
	53,152,866				15,428,444				2,307,157				58,556,940

Exhibit
Number				Description
	3	.1		Restated Articles of Incorporation. (Incorporated by reference to Exhibit a.1 filed with Allied Capital’s Post-Effective Amendment No. 2 to registration statement on Form N-2 (File No. 333-67336) filed on March 22, 2002).
	3	.2		Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.1. filed with Allied Capital’s Form 8-K on January 24, 2006).

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Exhibit
Number				Description
	4	.1		Specimen Certificate of Allied Capital’s Common Stock, par value $0.0001 per share. (Incorporated by reference to Exhibit d. filed with Allied Capital’s registration statement on Form N-2 (File No. 333-51899) filed on May 6, 1998).
	4	.2		Form of debenture between certain subsidiaries of Allied Capital and the U.S. Small Business Administration. (Incorporated by reference to Exhibit 4.2 filed by a predecessor entity to Allied Capital on Form 10-K for the year ended December 31, 1996).
	4	.3		Form of Note under the Indenture relating to the issuance of debt securities. (Contained in Exhibit 4.4). (Incorporated by reference to Exhibit d.1 filed with Allied Capital’s Form N-2/ A (File No. 333-133755) filed on June 21, 2006).
	4	.4		Indenture by and between Allied Capital Corporation and The Bank of New York, dated June 16, 2006. (Incorporated by reference to Exhibit d.2 filed with Allied Capital’s Form N-2/ A (File No. 333-133755) filed on June 21, 2006).
	4	.5		Statement of Eligibility of Trustee on Form T-1. (Incorporated by reference to Exhibit d.3 filed with Allied Capital’s Form N-2 (File No. 333-133755) filed on May 3, 2006).
	4	.6		Form of First Supplemental Indenture by and between Allied Capital Corporation and the Bank of New York, dated as of July 25, 2006.(Incorporated by reference to Exhibit d.4 filed with Allied Capital’s Form N-2/A (File No. 333-133755) filed on July 25, 2006).
	4	.7		Form of 6.625% Note due 2011. (Incorporated by reference to Exhibit d.4 filed with Allied Capital’s Form N-2/A (File No. 333-133755) filed on July 25, 2006).
	10	.1		Dividend Reinvestment Plan, as amended. (Incorporated by reference to Exhibit e. filed with Allied Capital’s registration statement on Form N-2 (File No. 333-87862) filed on May 8, 2002).
	10	.2		Credit Agreement, dated September 30, 2005. (Incorporated by reference to Exhibit 10.1 filed with Allied Capital’s Form 8-K on October 3, 2005).
	10	.2(a)		First Amendment to Credit Agreement, dated November 4, 2005. (Incorporated by reference to Exhibit 10.2(a) filed with Allied Capital’s Form 10-Q for the period ended September 30, 2005).
	10	.2(b)		Second Amendment to Credit Agreement, dated May 11, 2006.(Incorporated by reference to Exhibit 10.1 filed with Allied Capital’s Form 8-K filed on May 12, 2006).
	10	.2(c)		Third Amendment to Credit Agreement, dated May 19, 2006. (Incorporated by reference to Exhibit 10.1 filed with Allied Capital’s Form 8-K filed on May 23, 2006).
	10	.3		Note Agreement, dated October 13, 2005. (Incorporated by reference to Exhibit 10.1 filed with Allied Capital’s Form 8-K on October 14, 2005).
	10	.4		Note Agreement, dated May 1, 2006. (Incorporated by reference to Exhibit 10.1 filed with Allied Capital’s Form 8-K on May 1, 2006).
	10	.12		Note Agreement, dated as of October 15, 2000. (Incorporated by reference to Exhibit 10.4b filed with Allied Capital’s Form 10-Q for the period ended September 30, 2000).

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Exhibit
Number				Description
	10	.13		Note Agreement, dated as of October 15, 2001. (Incorporated by reference to Exhibit f.10 filed with Allied Capital’s Post-Effective Amendment No. 1 to registration statement on Form N-2 (File No. 333-67336) filed on November 14, 2001).
	10	.15		Control Investor Guaranty Agreement, dated as of March 17, 2006, between Allied Capital and CitiBank, N.A. and Business Loan Express, LLC. (Incorporated by reference to Exhibit 10.1 filed with Allied Capital’s Post-Effective Amendment No. 3 to registration statement on Form 8-K filed on March 23, 2006).
	10	.17		The 2005 Allied Capital Corporation Non-Qualified Deferred Compensation Plan II. (Incorporated by reference to Exhibit 10.2 filed with Allied Capital’s Form 8-K filed on December 21, 2005).
	10	.17(a)		Amendment to The 2005 Allied Capital Corporation Non-Qualified Deferred Compensation Plan II, dated January 20, 2006. (Incorporated by reference to Exhibit 10.17(a) filed with Allied Capital’s Form 10-K for the year ended December 31, 2005).
	10	.18		The 2005 Allied Capital Corporation Non-Qualified Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.1 filed with Allied Capital’s Form 8-K filed on December 21, 2005).
	10	.18(a)		Amendment to The 2005 Allied Capital Corporation Non-Qualified Deferred Compensation Plan, dated January 20, 2006. (Incorporated by reference to Exhibit 10.18(a) filed with Allied Capital’s Form 10-K for the year ended December 31, 2005).
	10	.19		Amended Stock Option Plan. (Incorporated by reference to Exhibit B of Allied Capital’s definitive proxy statement for Allied Capital’s 2004 Annual Meeting of Stockholders filed on March 30, 2004).
	10	.20(a)		Allied Capital Corporation 401(k) Plan, dated September 1, 1999. (Incorporated by reference to Exhibit 4.4 filed with Allied Capital’s registration statement on Form S-8 (File No. 333-88681) filed on October 8, 1999).
	10	.20(b)		Amendment to Allied Capital Corporation 401(k) Plan, dated April 15, 2004. (Incorporated by reference to Exhibit 10.20(b) filed with Allied Capital’s Form 10-Q for the period ended June 30, 2004).
	10	.20(c)		Amendment to Allied Capital Corporation 401(k) plan, dated November 1, 2005. (Incorporated by reference to Exhibit 10.20(c) filed with Allied Capital’s Form 10-Q for the quarter ended September 30, 2005).
	10	.20(d)		Amendment to Allied Capital Corporation 401(k) plan, dated April 21, 2006. (Incorporated by reference to Exhibit i.4(c) filed with Allied Capital’s Form N-2 (File No. 333-133755) filed on May 3, 2006).
	10	.21		Employment Agreement, dated January 1, 2004, between Allied Capital and William L. Walton. (Incorporated by reference to Exhibit 10.21 filed with Allied Capital’s Form 10-K for the year ended December 31, 2003).
	10	.22		Employment Agreement, dated January 1, 2004, between Allied Capital and Joan M. Sweeney. (Incorporated by reference to Exhibit 10.22 filed with Allied Capital’s Form 10-K for the year ended December 31, 2003).
	10	.23		Recission of Retention Agreement, dated October 27, 2005, between Allied Capital and John M. Scheurer. (Incorporated by reference to Exhibit 10.1 filed with Allied Capital’s current report on Form 8-K filed on November 1, 2005).

100

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Exhibit
Number				Description
	10	.25		Form of Custody Agreement with Riggs Bank N.A., which was assumed by PNC Bank through merger. (Incorporated by reference to Exhibit j.1 filed with Allied Capital’s registration statement on Form N-2 (File No. 333-51899) filed on May 6, 1998).
	10	.26		Custodian Agreement with Chevy Chase Trust. (Incorporated by reference to Exhibit 10.26 filed with Allied Capital’s Form 10-K for the year ended December 31, 2005).
	10	.27		Custodian Agreement with Bank of America. (Incorporated by reference to Exhibit 10.27 filed with Allied Capital’s Form 10-K for the year ended December 31, 2005).
	10	.28		Code of Ethics. (Incorporated by reference to Exhibit 10.28 filed with Allied Capital’s Form 10-K for the year ended December 31, 2005).
	10	.29*		Custodian Agreement with Union Bank of California.
	10	.30*		Custodian Agreement with M&T Bank.
	10	.31		Note Agreement, dated as of May 14, 2003. (Incorporated by reference to Exhibit 10.31 filed with Allied Capital’s Form 10-Q for the quarter ended March 31, 2003).
	10	.32		Amendment, dated as of April 30, 2003, to Note Agreement, dated as of April 30, 1998. (Incorporated by reference to Exhibit 10.32 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2003).
	10	.33		Amendment, dated as of April 30, 2003, to Note Agreement, dated as of May 1, 1999. (Incorporated by reference to Exhibit 10.33 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2003).
	10	.35		Amendment, dated as of April 30, 2003, to Note Agreement, dated as of October 15, 2000. (Incorporated by reference to Exhibit 10.35 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2003).
	10	.36		Amendment, dated as of April 30, 2003, to Note Agreement, dated as of October 15, 2001. (Incorporated by reference to Exhibit 10.36 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2003).
	10	.37		Form of Indemnification Agreement between Allied Capital and its directors and certain officers. (Incorporated by reference to Exhibit 10.37 filed with Allied Capital’s Form 10-K for the year ended December 31, 2003).
	10	.38		Note Agreement, dated as of March 25, 2004. (Incorporated by reference to Exhibit 10.38 filed with Allied Capital’s Form 10-Q for the period ended March 31, 2004.)
	10	.39		Note Agreement, dated as of November 15, 2004. (Incorporated by reference to Exhibit 99.1 filed with Allied Capital’s current report on Form 8-K filed on November 18, 2004.)
	10	.40		Real Estate Securities Purchase Agreement. (Incorporated by reference to Exhibit 2.1 filed with Allied Capital’s Form 8-K filed on May 4, 2005.)
	10	.41		Platform Assets Purchase Agreement. (Incorporated by reference to Exhibit 2.2 filed with Allied Capital’s Form 8-K filed on May 4, 2005.)
	10	.42		Transition Services Agreement. (Incorporated by reference to Exhibit 10.1 filed with Allied Capital’s Form 8-K filed on May 4, 2005.)
	11			Statement regarding computation of per share earnings is included in Note 7 to Allied Capital’s Notes to the Consolidated Financial Statements.
	15	.*		Letter regarding Unaudited Interim Financial Information

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Exhibit
Number				Description
	31	.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
	31	.2*		Certification of Chief Financial Officer Pursuant Rule 13a-14 of the Securities Exchange Act of 1934.
	32	.1*		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
	32	.2*		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

102

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	ALLIED CAPITAL CORPORATION
	(Registrant)

Dated: August 9, 2006		/s/ William L. Walton   William L. Walton Chairman and Chief Executive Officer
		/s/ Penni F. Roll   Penni F. Roll Chief Financial Officer

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Exhibit
Number				Description
	10	.29*		Custodian Agreement with Union Bank of California.
	10	.30*		Custodian Agreement with M&T Bank.
	15	.*		Letter regarding Unaudited Interim Financial Information
	31	.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
	31	.2*		Certification of Chief Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.
	32	.1*		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
	32	.2*		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.