<PAGE>   1





               -------------------------------------------------





                           ALLIED CAPITAL CORPORATION
                            (a Maryland corporation)





                               ------------------

                                     BYLAWS

                               ------------------




    As adopted by the Board of Directors on December 21, 1990 and as amended
          by the Board of Directors on May 7, 1992, October 19, 1994,
                       November 8, 1995 and May 1, 1997.
<PAGE>   2
                               TABLE OF CONTENTS


<TABLE>
<S>                                                                                                            <C>
ARTICLE I        OFFICES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
         Section 1.  Office  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
                     ------                                                                                      
         Section 2.  Additional Offices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
                     ------------------                                                                          

ARTICLE II       MEETINGS OF STOCKHOLDERS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
         Section 1.  Time and Place  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
                     --------------                                                                              
         Section 2.  Annual Meeting  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
                     --------------                                                                              
         Section 3.  Notice of Annual Meeting  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
                     ------------------------                                                                    
         Section 4.  Special Meetings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
                     ----------------                                                                            
         Section 5.  Notice of Special Meeting   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
                     -------------------------                                                                   
         Section 6.  General Powers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
                     --------------                                                                              
         Section 7.  Presiding Officer   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
                     -----------------                                                                           
         Section 8.  Quorum.  Adjournments   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
                     ---------------------                                                                       
         Section 9.  Voting  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
                     ------                                                                                      
         Section 10.  Action by Consent  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
                      -----------------                                                                         

ARTICLE III      DIRECTORS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
         Section 1.  General Powers; Number; Tenure  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
                     ------------------------------                                                              
         Section 2.  Matters for Which Action of the Entire Board is Required  . . . . . . . . . . . . . . . .  4
                     --------------------------------------------------------                                    
         Section 3.  Vacancies   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
                     ---------                                                                                   
         Section 4.  Removal; Resignation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
                     --------------------                                                                        
         Section 5.  Place of Meetings   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
                     -----------------                                                                           
         Section 6.  Annual Meeting  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
                     --------------                                                                              
         Section 7.  Regular Meetings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
                     ----------------                                                                            
         Section 8.  Special Meetings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
                     ----------------                                                                            
         Section 9.  Quorum; Adjournments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
                     --------------------                                                                        
         Section 10.  Compensation   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
                      ------------                                                                              
         Section 11.  Action by Consent  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
                      -----------------                                                                         
         Section 12.  Meetings by Telephone or Similar Communications  . . . . . . . . . . . . . . . . . . . .  6
                      -----------------------------------------------                                           

ARTICLE IV       COMMITTEES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
         Section 1.  Executive Committee   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
                     -------------------                                                                         
         Section 2.  Nominating Committee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
                     --------------------                                                                        
         Section 3.  Compensation Committee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
                     ----------------------                                                                      
         Section 4.  Audit Committee   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
                     ---------------                                                                             
         Section 5.  Advisory Committee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
                     ------------------                                                                          
         Section 6.  Other Committees  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7
                     ----------------                                                                            
         Section 7.  Procedure; Notice; Meetings   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
                     ---------------------------                                                                 
         Section 8.  Quorum; Vote  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
                     ------------                                                                                
         Section 9.  Appointments; Vacancies; Changes; Discharges  . . . . . . . . . . . . . . . . . . . . . .  8
                     --------------------------------------------                                                
</TABLE>





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<TABLE>
<S>                                                                                                            <C>
         Section 10.  Tenure   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
                      ------                                                                                    
         Section 11.  Compensation   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
                      ------------                                                                              
         Section 12.  Action by Consent  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
                      -----------------                                                                         
         Section 13.  Meetings by Telephone or Similar Communications  . . . . . . . . . . . . . . . . . . . .  9
                      -----------------------------------------------                                           

ARTICLE V        NOTICES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
         Section 1.  Form; Delivery  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
                     --------------                                                                              
         Section 2.  Waiver  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
                     ------                                                                                      

ARTICLE VI       OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
         Section 1.  Designations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
                     ------------                                                                                 
         Section 2.  Term of Office; Removal  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
                     -----------------------                                                                      
         Section 3.  Compensation   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
                     ------------                                                                                 
         Section 4.  The Chairman of the Board    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
                     -------------------------                                                                    
         Section 5.  The President    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
                     -------------                                                                                
         Section 6.  The Managing Directors   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
                     ----------------------                                                                       
         Section 7.  Principals   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                     ----------                                                                                   
         Section 8.  Vice Presidents    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                     ---------------                                                                              
         Section 9.  The Secretary    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                     -------------                                                                                
         Section 10.  The Assistant Secretary   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                      -----------------------                                                                    
         Section 11. Associates   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                     ----------                                                                                   
         Section 12.  The Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                      -------------                                                                              
         Section 13.  The Assistant Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
                      -----------------------                                                                    

ARTICLE VII      INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND 
                 AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
         Section 1.  Generally    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
                     ---------                                                                                    
         Section 2.  Limitation for Disabling Conduct   . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
                     --------------------------------                                                             
         Section 3.  Advisory Committee Members   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
                     --------------------------                                                                   

ARTICLE VIII     STOCK CERTIFICATES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         Section 1.  Form of Signatures; Statements   . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
                     ------------------------------                                                               
         Section 2.  Registration of Transfer   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
                     ------------------------                                                                     
         Section 3.  Registered Stockholders    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
                     -----------------------                                                                      
         Section 4.  Location of Stock Ledger   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
                     ------------------------                                                                     
         Section 5.  Record Date    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
                     -----------                                                                                  
         Section 6.  Lost, Stolen or Destroyed Certificates   . . . . . . . . . . . . . . . . . . . . . . . .  17
                     --------------------------------------                                                       

ARTICLE IX       GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
         Section 1.  Dividends    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
                     ---------                                                                                    
         Section 2.  Reserves   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
                     --------                                                                                     
         Section 3.  Fiscal Year    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
                     -----------                                                                                  
         Section 4.  Seal   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
                     ----                                                                                         
</TABLE>





                                       ii
<PAGE>   4
<TABLE>
<S>          <C>                                                                                           <C>
ARTICLE X    AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18

CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
</TABLE>





                                      iii
<PAGE>   5
                                     BYLAWS

                                   ARTICLE I

                                    OFFICES

         Section 1.  Office.  The principal office of the Corporation shall be
at: CSC-Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore,
Maryland 21202, in the City of Baltimore, County of Baltimore, State of
Maryland.  The Corporation also shall have an office at 1666 K Street, N.W.,
Washington, D.C. 20006-2803.

         Section 2.  Additional Offices.  The Corporation may also have offices
at such other places, both within and without the State of Maryland, as the
stockholders may from time to time determine or as the business of the
Corporation may require.


                                   ARTICLE II

                            MEETINGS OF STOCKHOLDERS

         Section 1.  Time and Place.  Meetings of stockholders for any purpose
may be held at such time and place in the United States as the Board of
Directors may fix from time to time and as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.

         Section 2.  Annual Meeting.  Annual meetings of stockholders shall be
held during the month of May in each year on a date and at the time set by the
Board of Directors.  At the Annual Meeting, the stockholders shall elect a
Board of Directors and transact such other business as may properly be brought
before the meeting.

         Section 3.  Notice of Annual Meeting.  Written notice of the annual
meeting, stating the place, date and time thereof, shall be given by the
Secretary of the Corporation to each stockholder entitled to vote at such
meeting or to notice thereof not less than 10 (unless a longer period is
required by law) nor more than 90 days prior to the meeting.

         Section 4.  Special Meetings.  Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the Chairman of the Board or the
President and shall be called by the Chairman of the Board, the President or
the Secretary at the request in writing of a majority of the Board of
Directors. Unless otherwise prescribed by statute or by the Articles of
Incorporation, and except as expressly set forth below, the Secretary shall
call a Special Meeting at the request in writing of stockholders entitled to
cast not less than a majority of all the votes entitled to be cast at such
meeting.  Such request by stockholders shall state the purpose or purposes of
such meeting and the matters to be acted on thereat.  If the request is made by
a majority of the stockholders





                                       1
<PAGE>   6
entitled to cast votes at a meeting, the Secretary shall inform such
stockholders of the reasonably estimated cost of preparing and mailing such
notice of the meeting, and, upon payment to the Corporation of such costs by
such stockholders, the Secretary shall give notice stating the purpose or
purposes of the meeting, as required by these Bylaws, to all stockholders
entitled to notice of such meeting.

         Section 5.  Notice of Special Meeting.  Written notice of a special
meeting, stating the place, date and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting or to notice thereof not less than 10 (unless a longer
period is required by law) nor more than 90 days prior to the meeting.

         Section 6.  General Powers.  The business and affairs of the
Corporation shall be managed by its stockholders, which may exercise all powers
of the Corporation and perform all lawful acts and things on behalf of the
Corporation.

         Section 7.  Presiding Officer.  Meetings of stockholders shall be
presided over by the Chairman of the Board or, if he or she is not present, by
the President, or, if he or she is not present, by a Vice President, or, if he
or she is not present, by such person as may have been chosen by the Board of
Directors, or if none of such persons is present, by a chairman to be chosen by
the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy.  The Secretary of the
Corporation, or, if he or she is not present, an Assistant Secretary, or, if he
or she is not present, such person as may be chosen by the Board of Directors,
or if none of such persons is present, then such person as may be chosen by the
stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy shall act as secretary of the
meeting.

         Section 8.  Quorum.  Adjournments.  The presence in person or by proxy
of stockholders entitled to cast a majority of the votes thereat shall be
necessary to, and shall constitute a quorum for, the transaction of business at
all meetings of the stockholders, except as otherwise provided by statute or by
the Articles of Incorporation.  If, however, a quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power
to adjourn the meeting from time to time, without notice of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken, until a quorum shall be present or represented.  Even if
a quorum shall be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time for good
cause, without notice of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken, until a date
which is not more than 30 days after the date of the original meeting.  At any
such adjourned meeting, at which a quorum shall be present in person or
represented by proxy, any business may be transacted which might have been
transacted at the meeting as originally called.





                                       2
<PAGE>   7
If the adjournment is for more than 30 days, or, if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting or entitled to notice thereof.

         Section 9.  Voting.

                (a)      At any meeting of stockholders, every stockholder
having the right to vote shall be entitled to vote in person or by proxy.
Except as otherwise provided by law or the Articles of Incorporation, each
stockholder of record shall be entitled to one vote for each share of capital
stock registered in his, her or its name on the books of the Corporation, on
each matter submitted to a vote at a meeting of stockholders, except that no
stockholder shall be entitled to vote in respect of any shares of capital stock
if any installment payable thereon is overdue and unpaid.

                (b)      Except as otherwise provided by law or the Articles of
Incorporation, a majority of the votes cast at a meeting of stockholders at
which a quorum is present, shall be sufficient to take or authorize action upon
any matter which may properly come before such meeting.

         Section 10.  Action by Consent.  Any action required or permitted to
be taken by law or the Articles of Incorporation at any meeting of stockholders
may be taken without a meeting, without prior notice and without a vote, if a
written consent, setting forth such action, is signed by all the stockholders
entitled to vote on the subject matter thereof and any other stockholders
entitled to notice of a meeting of stockholders (but not to vote thereat) have
waived in writing any rights which they may have to dissent from such action,
and such consent and waiver are filed with the records of stockholders'
meetings.



                                  ARTICLE III

                                   DIRECTORS

         Section 1.  General Powers; Number; Tenure.  The business and affairs
of the Corporation shall be managed under the direction of its Board of
Directors, which may exercise all powers of the Corporation and perform all
lawful acts and things which are not by law, the Articles of Incorporation or
these Bylaws directed or required to be exercised or performed by, or are
conferred upon or reserved to, the stockholders.  The number of directors shall
be that provided in the Articles of Incorporation until increased or decreased
pursuant to the following provisions, but shall never be fewer than three
unless otherwise permitted by law.  A majority of the entire Board of Directors
may, at any time and from time to time, increase or decrease the number of
directors of the Corporation as set forth in the Articles of Incorporation,
subject to the foregoing limitation.  The tenure of office of a director shall
not be affected by any decrease in





                                       3
<PAGE>   8
the number of directors so made by the Board.  The directors shall be elected,
by a majority  of all the votes cast at the annual meeting of the stockholders,
except as provided in Section 3 of this Article, and each director elected
shall hold office until the next succeeding annual meeting or until his or her
successor is elected and shall qualify.  Directors need not be stockholders.

         Section 2.  Matters for Which Action of the Entire Board is Required.
Notwithstanding anything to the contrary in these Bylaws, the following actions
shall require the approval by the affirmative vote of a majority of the entire
Board of Directors:

                (a)      appointing any director to a committee of the Board of
Directors pursuant to Article IV of these Bylaws;

                (b)      appointing any employee, officer, or director of the
Corporation, or any person who is to become an employee, officer, or director
of the Corporation, to serve as an officer at the level of principal or above;
and

                (c)      altering, amending or repealing these Bylaws or
adopting new bylaws.

         Section 3.  Vacancies.  Any vacancy occurring in the Board of
Directors for any cause other than by reason of an increase in the number of
directors may, unless otherwise provided in these Bylaws, be filled by a
majority of the remaining members of the Board of Directors, although such
majority is less than a quorum.  Any vacancy occurring by reason of an increase
in the number of the directors may, unless otherwise provided in these Bylaws,
be filled by action of a majority of the directors constituting the entire
Board of Directors.  A director elected by the Board of Directors to fill a
vacancy shall be elected to hold office until the next annual meeting of the
stockholders or until his or her successor is elected and shall qualify.  If
there are no directors in office, any officer or stockholder may call a special
meeting of stockholders in accordance with the provisions of the Articles of
Incorporation or these Bylaws, at which meeting such vacancies shall be filled.

         Section 4.  Removal; Resignation.

                (a)      Except as otherwise provided by law or the Articles of
Incorporation, at any meeting of stockholders at which a quorum is present, the
stockholders may, by the affirmative vote of the holders of a majority of the
votes entitled to be cast thereon, remove any director or directors from office
with or without cause and may elect a successor or successors to fill any
resulting vacancy or vacancies for the unexpired terms of any removed director
or directors.

                (b)      Any director may resign at any time by giving written
notice to the Board of Directors, the Chairman of the Board, the President or
the Secretary of the Corporation.  Unless otherwise specified in such written
notice, a resignation shall take effect upon delivery





                                       4
<PAGE>   9
thereof to the Board of Directors or the designated officer.  It shall not be
necessary for a resignation to be accepted before it becomes effective.

         Section 5.  Place of Meetings.  The Board of Directors may hold
meetings, annual, regular or special, either within or without the State of
Maryland.

         Section 6.  Annual Meeting.  The annual meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present.

         Section 7.  Regular Meetings.  Additional regular meetings of the
Board of Directors may be held without notice, at such time and place as may
from time to time be determined by the Board of Directors.

         Section 8.  Special Meetings.  Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on at
least two days' notice to each director, if such notice is delivered personally
or sent by messenger, telegram, telecopy, facsimile transmission, or mail.
Special meetings shall be called by the Chairman of the Board, the President or
the Secretary in like manner and on like notice on the written request of two
or more of the number of directors then in office.  Except as otherwise
provided by law, the Articles of Incorporation or Article X of these Bylaws,
any such notice need not state the purpose or purposes of such meeting.

         Section 9.  Quorum; Adjournments.  At all meetings of the Board of
Directors, a majority of the number of directors then in office shall
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by law, the Articles of Incorporation or these Bylaws.  If a quorum is not
present at any meeting of the Board of Directors, the directors present may
adjourn the meeting from time to time until a quorum shall be present, provided
that an announcement is made at such meeting, and notice is provided to any
directors not present at such meeting, of the time and place of the next
meeting.

         Section 10.  Compensation.  Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors.  The compensation of directors (if
any) may be on such basis as is determined by the Board of Directors.  Any
director may waive compensation for any meeting.  Any director receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and receiving compensation and reimbursement
for reasonable expenses for such other services.





                                       5
<PAGE>   10
         Section 11.  Action by Consent.  Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a
meeting if a written consent to such action is signed by all members of the
Board of Directors and such written consent is filed with the minutes of the
proceedings of the Board (except for those instances where the Investment
Company Act of 1940 (the "1940 Act") requires actions be taken by the
Corporation's Board of Directors in person, including without limitation the
selection of independent auditors and the approval of an Investment
Agreement.).

         Section 12.  Meetings by Telephone or Similar Communications.  The
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment by means of which all directors
participating in the meeting can hear each other at the same time, and
participation by such means shall be conclusively deemed to constitute presence
in person at such meeting (except for those instances where the 1940 Act
requires actions be taken by the Corporation's Board of Directors in person,
including without limitation the selection of independent auditors and the
approval of an Investment Agreement.).


                                   ARTICLE IV

                                   COMMITTEES

         Section 1.  Executive Committee.   The Board of Directors may appoint
an Executive Committee consisting of not fewer than three members, one of whom
shall be designated as Chairman of the Executive Committee.  The Chairman of
the Board and the President shall be elected members of the Executive
Committee.  The Executive Committee shall have and may exercise those rights,
powers and authority of the Board of Directors as may from time to time be
granted to it by the Board of Directors subject to any limitations imposed by
law and may authorize the seal of the Corporation to be affixed to all papers
which may require the same.

         Section 2.  Nominating Committee.  The Board of Directors shall
appoint a Nominating Committee consisting of not fewer than three members, one
of whom shall be designated as Chairman of the Nominating Committee.  A
majority of members of the Nominating Committee shall not be officers of the
Corporation.  The Nominating Committee shall have and may exercise those
rights, powers and authority of the Board of Directors as may from time to time
be granted to it by the Board of Directors; provided, however, that in addition
to any such rights, powers or authority, the Nominating Committee shall have
the exclusive right to recommend candidates for election as directors to the
Board of Directors.

         Section 3.  Compensation Committee.  The Board of Directors may
appoint from its membership a Compensation Committee consisting of not fewer
than three members, one of whom shall be designated as Chairman of the
Compensation Committee.  None of the members of the Compensation Committee
shall be officers of the Corporation.  The Compensation





                                       6
<PAGE>   11
Committee shall have and may exercise those rights, powers and authority of the
Board of Directors as may from time to time be granted to it by the Board of
Directors.

         Section 4.  Audit Committee.  The Board of Directors may appoint from
its membership an Audit Committee consisting of not fewer than three members,
one of whom shall be designated as Chairman of the Audit Committee.  A majority
of members of the Audit Committee shall not be officers of the Corporation.
The Audit Committee shall have and may exercise those rights, powers and
authority of the Board of Directors as may from time to time be granted to it
by the Board of Directors; provided, however, that in addition to any such
rights, powers or authority, the Audit Committee shall: (i) issue instructions
to and receive reports from outside accounting firms and to serve as the
liaison between the Corporation and the said firms; and (ii) review all
potential conflict-of-interest situations arising in respect of the
Corporation's affairs and involving the Corporation's affiliates or employees,
and to make a report, verbal or written, to the full Board of Directors with
recommendations for their resolutions.

         Section 5.  Advisory Committee.

                (a)  The Board of Directors may appoint individuals of its
selection to an Advisory Committee to assist the Board of Directors in the
conduct of its duties and responsibilities.  The Advisory Committee may meet in
conjunction with meetings of the Board of Directors and shall serve as advisers
and counselors to the Board of Directors as the members thereof shall determine
best serves the Corporation's interests.

                (b)  The Board of Directors, by resolutions adopted by a
majority of the whole Board, may appoint an Advisory Committee complying with
the terms of Section 2(a)(i) of the 1940 Act and the regulations promulgated
thereunder, to provide advice and counsel in respect to investment and loan
transactions entered or contemplated by the Corporation or its subsidiaries.
The Advisory Committee may be composed of up to five persons, who shall not be
directors, officers, employees or agents of the Corporation or any subsidiary
or investment adviser thereof.  Advisory Committee members shall be entitled to
indemnification under Article VII below.  The Advisory Committee and its
members will have no voting power and no authority, as agent or otherwise, to
act on behalf of the Corporation, in respect of any matter; and directors shall
be under no obligation to accept or reject any particular item of advice or
counsel provided thereby.  The Advisory Committee may be invited to hold
meetings jointly with meetings of directors.  Any one or more members of the
Advisory Committee may be invited to attend meetings of the directors and may
be offered access to the same information and materials otherwise provided only
to directors.  The Advisory Committee may render its advice in written or
verbal form, and the same may or may not be recorded.

         Section 6.  Other Committees.  The Board of Directors, by resolutions
adopted by a majority of the entire Board, may appoint a committee or
committees, as it shall deem advisable and impose upon such committee or
committees such functions and duties, and grant such rights, powers and
authority, as the Board of Directors shall prescribe (except the power to
declare





                                       7
<PAGE>   12
dividends or distributions on stock, to issue stock except to the extent
permitted by law, to recommend to stockholders any action requiring
stockholders' approval, to amend these Bylaws or to approve any merger or share
exchange which does not require stockholders' approval).

         Section 7.  Procedure; Notice; Meetings.  Each committee shall fix its
own rules of procedure and shall meet at such times and at such place or places
as may be provided by such rules or as the members of such committee shall
provide.  Committee meetings may be called by the Chairman of the Board, the
President, the Chairman of the Committee, if any, or any two or more committee
members on at least twenty-four (24) hours notice, if such notice is delivered
personally or sent by messenger, telegram, telecopy, facsimile transmission, or
mail.  Each committee shall keep regular minutes of its meetings and deliver
such minutes to the Board of Directors.  The Chairman of each committee, or, in
his or her absence, a member of such committee chosen by a majority of the
members of such committee present, shall preside at the meetings of such
committee, and another member thereof, or any other person, chosen by such
committee shall act as Secretary of such committee, or in the capacity of
Secretary for purposes of such meeting.

         Section 8.  Quorum; Vote.  With respect to each committee, a majority
of its members shall constitute a quorum for the transaction of business, and
the affirmative vote of a majority of the members thereof shall be required for
any action of such committee.

         Section 9.  Appointments; Vacancies; Changes; Discharges.  The Board
of Directors shall have the exclusive power at any time, through the approval
by the affirmative vote of a majority of the entire Board of Directors, to
appoint directors to, fill vacancies in, change the membership of, or discharge
any committee.

         Section 10.  Tenure.  Each member of a committee shall continue as a
member thereof until the expiration of his or her term as a director, or his or
her earlier resignation as a member of such committee or as a director, unless
sooner removed as a member of such committee by a vote of a majority of the
entire Board of Directors or as a director in accordance with these Bylaws.

         Section 11.  Compensation.  Members of any committee shall be entitled
to such compensation for their services as members of any such committee and to
such reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors.  The
compensation (if any) of members of any committee may be on such basis as is
determined by the Board of Directors.  Any member may waive compensation for
any meeting.  Any committee member receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and from receiving compensation and reimbursement of reasonable
expenses for such other services.

         Section 12.  Action by Consent.  Any action required or permitted to
be taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written





                                       8
<PAGE>   13
consent to such action is signed by all members of the committee and such
written consent is filed with the minutes of its proceedings.

         Section 13.  Meetings by Telephone or Similar Communications.  The
members of any committee which is designated by the Board of Directors may
participate in a meeting of such committee by means of a conference telephone
or similar communications equipment by means of which all members participating
in the meeting can hear each other at the same time, and participation by such
means shall be conclusively deemed to constitute presence in person at such
meeting.


                                   ARTICLE V

                                    NOTICES

         Section 1.  Form; Delivery.  Whenever, under the provisions of law,
the Articles of Incorporation or these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean exclusively
personal notice unless otherwise specifically provided, but such notice may be
given in writing, by mail, addressed to such director or stockholder, provided,
in the case of a stockholder, such notice is addressed to his, her or its post
office address as such address appears on the records of the Corporation, with
postage thereon prepaid.  Any such notice shall be deemed to have been given at
the time it is deposited in the United States mail.  Notice to a director also
may be given personally or sent by messenger, telegram, telecopy or facsimile
transmission.

         Section 2.  Waiver.  Whenever any notice is required to be given under
the provisions of law, the Articles of Incorporation or these Bylaws, a written
waiver thereof, signed by the person or persons entitled to said notice and
filed with the records of the meeting, whether before or after the time stated
therein, shall be conclusively deemed to be equivalent to such notice.  In
addition, any stockholder who attends a meeting of stockholders in person, or
is represented at such meeting by proxy, without protesting at the commencement
of the meeting the lack of notice thereof to him or her, or any director who
attends a meeting of the Board of Directors without protesting at the
commencement of the meeting such lack of notice, shall be conclusively deemed
to have waived notice of such meeting.


                                   ARTICLE VI

                                    OFFICERS





                                       9
<PAGE>   14
         Section 1.  Designations.  From and after the date of adoption of
these Bylaws, the officers of the Corporation shall be a Chairman of the Board,
President, Secretary and Treasurer.  The officers of the Corporation also may
include one or more Managing Directors, Principals, Vice Presidents, Associates
and such other officers and/or agents as deemed necessary or appropriate,
provided, however, that a person may hold the position of Associate without
being designated an officer of the Corporation.  All officers of the
Corporation shall exercise such powers and perform such duties as shall from
time to time be determined by the Board of Directors and permitted by law or
these Bylaws.  Any number of offices may be held by the same person, unless the
Articles of Incorporation or these Bylaws otherwise provide, and no person
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law, the Articles of Incorporation or these
Bylaws to be executed, acknowledged or verified by two or more officers.

         Section 2.  Term of Office; Removal.  The Board of Directors shall
choose a Chairman of the Board, President and one or more Managing Directors.
The Chairman, President and any  Managing Director shall have the authority to
appoint a Secretary, Treasurer, and one or more Principals, Vice Presidents
and/or Associates who are officers of the Corporation, and such other officers
and agents as they shall deem necessary or appropriate.  The officers of the
Corporation shall hold office until their successors are chosen and shall
qualify or until any such officer's resignation.  Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors then in office when, in their
judgment, the best interests of the Corporation will be served thereby.  Any
officer appointed other than by the Board of Directors may be removed by the
Board of Directors or the Chairman of the Board at any time.  Such removal by
the Board or by the Chairman shall not prejudice the contractual rights, if
any, of the person so removed.  Any vacancy occurring in any office of the
Corporation may be filled for the unexpired portion of the term by the Board of
Directors, where such office was held by an officer elected or appointed by the
Board, or by the Chairman, the President and any Managing Director, where such
office was held by their appointee.

         Section 3.  Compensation.  The salaries of all officers of the
Corporation (if any) shall be fixed from time to time by the Board of Directors
and no officer shall be prevented from receiving such salary by reason of the
fact that he or she is also a director of the Corporation.

         Section 4.  The Chairman of the Board.  The Chairman of the Board
shall be the chief executive officer of the Corporation and shall be
responsible for the overall strategic direction of the Corporation and, subject
to the direction of the Board of Directors, shall perform such executive,
supervisory and management functions and duties as may be assigned to him or
her from time to time by the Board.  He or she shall, if present, preside at
all meetings of the stockholders and of the Board of Directors.  The Chairman
of the Board shall execute in the corporate name all appropriate deeds,
mortgages, bonds, contracts or other instruments requiring a seal, under the
Seal of the Corporation, except in cases where such execution shall be
expressly delegated to another by the Board of Directors.  The Chairman of the
Board shall be a member of the Executive Committee and an ex-officio member of
each standing committee.





                                       10
<PAGE>   15
         Section 5.  The President.  The President, subject to the direction of
the Board of Directors and reporting to the Chairman of the Board, shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its officers and agents.  In general, he or she shall
perform all duties incident to the office of President, and shall see that all
orders and resolutions of the Board of Directors are carried into effect.  In
the absence of the Chairman of the Board, the President shall preside at all
meetings of the stockholders and of the Board of Directors.  The President
shall be a member of the Executive Committee and an ex-officio member of each
standing committee.  Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of stockholders of other corporations in
which the Corporation may hold securities.  At such meeting, the President
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities which the Corporation might have possessed and
exercised if it had been present.  The President shall execute in the corporate
name all appropriate deeds, mortgages, bonds, contracts or other instruments
requiring a seal of the Corporation, except in cases in which the signing or
execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the Corporation.  The Board of Directors may
from time to time confer like powers and authority upon any other person or
persons.

         Section 6.  The Managing Directors.  The Managing Directors, subject
to the direction of the Board of Directors and reporting to the Chairman of the
Board and President, shall assist in the general charge of the business of the
Corporation and general supervision over its officers and agents. In the
absence of the Chairman of the Board or President, at the direction of the
Board of Directors, a Managing Director may preside at all meetings of the
stockholders and of the Board of Directors.   Unless otherwise prescribed by
the Chairman of the Board or President, the Managing Directors shall have full
power and authority on behalf of the Corporation to attend, act and vote at any
meeting of stockholders of other corporations in which the Corporation may hold
securities.  At such meeting, the Managing Director shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities which the Corporation might have possessed and exercised if it had
been present.  At the direction of the Chairman of the Board or the President,
a Managing Director may execute in the corporate name all appropriate deeds,
mortgages, bonds, contracts or other instruments requiring a seal of the
Corporation, except in cases in which the signing or execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.  The Board of Directors may from time to time confer like
powers and authority upon any other person or persons.

         Section 7.  Principals.  The Principals, if any, shall, in the absence
of the President and all Managing Directors or in the event of the disabilities
of all such persons, perform the duties and exercise the powers of the
President or a Managing Director and shall generally assist the President and
any and all Managing Directors and perform such other duties and have such
other powers as may from time to time be prescribed by the Board of Directors.





                                       11
<PAGE>   16
         Section 8.  Vice Presidents.  The Vice Presidents, if any, shall
generally assist the President and any and all Managing Directors and/or the
Principals as directed by such officers and perform such other duties and have
such other powers as may from time to time be prescribed by the Board of
Directors.

         Section 9.  The Secretary.  The Secretary shall attend all meetings of
the Board of Directors and meetings of the stockholders and record all votes
and the proceedings of the meetings in a book to be kept for that purpose and
shall perform like duties for the Executive Committee or other committees, if
required.  He or she shall give, or cause to be given, notice of all meetings
of stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may from time to time be prescribed by the Board
of Directors, Chairman of the Board or the President, under whose supervision
he or she shall act; provided, however, that in addition to any such duties,
the Secretary shall: (i) provide each director with a copy of the Bylaws of the
Corporation upon his or her election as a director; and (ii) upon any amendment
to these Bylaws, provide each director with a copy of the Bylaws, as amended,
promptly after such Bylaws have been approved by the Board of Directors.  The
Secretary shall have custody of the seal of the Corporation, and he or she, or
an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it, and, when so affixed, the seal may be attested by his
or her signature or by the signature of such Assistant Secretary.  The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing thereof by his or her signature.

         Section 10.  The Assistant Secretary.  The Assistant Secretary, if any
(or, in the event there be more than one, the Assistant Secretaries in the
order designated, or, in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his or her
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.

         Section 11. Associates.  The Associates who are designated officers of
the Corporation, if any, shall assist the President, any and all Managing
Directors, Principals, and Vice Presidents of the Corporation as directed by
such officers and perform such other duties and have such other powers as may
from time to time be prescribed by the Board of Directors.

         Section 12.  The Treasurer.  The Treasurer shall have the custody of
the corporate funds and other valuable effects, including securities, and shall
keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories
as may from time to time be designated by the Board of Directors.  He or she
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board, the President and the Board of Directors, at regular
meetings of the Board of Directors, or whenever the Board of Directors





                                       12
<PAGE>   17
may require it, an account of all his or her transactions as Treasurer and of
the financial condition of the Corporation.

         Section 13.  The Assistant Treasurer.  The Assistant Treasurer, if any
(or in the event there shall be more than one, the Assistant Treasurers in the
order designated, or, in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of his or her
disability, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.


                                  ARTICLE VII

          INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS

         Section 1.  Generally.  Reference is made to Section 2-418 (and any
other relevant provisions) of the Corporations and Associations Article of the
Annotated Code of Maryland (1993), as amended.  Particular reference is made to
the class of persons (hereinafter called "Indemnitees") who may be indemnified
by a Maryland corporation pursuant to the provisions of such Section 2-418,
namely, any entity (including the Corporation's investment adviser) or person
(or the heirs, executors or administrators of such person) who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, manager, partner, officer, trustee,
employee or agent or any similar title of another corporation, partnership,
joint venture, trust or other enterprise or employee benefit plan.

                (a)      The Corporation shall (and is hereby obligated to)
indemnify the Indemnitees, and each of them, in each and every situation where
the Corporation is obligated to make such indemnification pursuant to the
aforesaid statutory provisions.

                (b)      The Corporation shall indemnify the Indemnitees, and
each of them, in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless permitted or
empowered, to make such indemnification, if the Board of Directors determines
that such Indemnitee acted in good faith and in a manner such Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, in the case of any criminal action or proceeding, that such
Indemnitee had no reasonable cause to believe that such Indemnitee's conduct
was unlawful.

         Section 2.  Limitation for Disabling Conduct.

                (a)      Notwithstanding anything to the contrary in Section 1
hereof, the Corporation may not limit any liability, or indemnify any director
or officer of the Corporation





                                       13
<PAGE>   18
against any liability, to the Corporation or its stockholders to which such
director or officer might otherwise be subject by reason of "disabling
conduct," as hereinafter defined.  Accordingly, each determination required by
Section 1(b) hereof with respect to a director or officer of the Corporation
shall include a determination that the liability for which such indemnification
is sought did not arise by reason of such person's disabling conduct.  Such
determination may be based on:

                         (i)    a final decision on the merits by a court or
other body before whom the action, suit or proceeding was brought that the
person to be indemnified was not liable by reason of disabling conduct, or

                         (ii)   in the absence of such a decision, a reasonable
determination, based on a review of the facts, that the person to be
indemnified was not liable by reason of such person's disabling conduct by: (A)
the vote of a majority of a quorum of directors who are disinterested,
non-party directors; or (B) an independent legal counsel in a written opinion.
In making such determination, such disinterested, non-party directors or
independent legal counsel, as the case may be, may deem the dismissal for
insufficiency of evidence of any disabling conduct of either a court action or
an administrative proceeding against a person to be indemnified to provide
reasonable assurance that such person was not liable by reason of disabling
conduct.

                (b)      For the purpose of this Section:

                         (i)    "disabling conduct" of a director or officer
shall mean such person's willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office or any
other conduct prohibited under Section 17(h) of the 1940 Act or any other
applicable securities laws;

                         (ii)   "disinterested, non-party director" shall mean
a director of the Corporation who is neither an "interested person" of the
Corporation as defined in Section 2(a)(19) of the 1940 Act nor a party to the
action, suit or proceeding in connection with which indemnification is sought;

                         (iii)  "independent legal counsel" shall mean a member
of the Bar of the State of Maryland who is not, and not at least two (2) years
prior to his or her engagement to render the opinion in question has not been,
employed or retained by the Corporation, by any investment adviser to the
principal underwriter for the Corporation, or by any person affiliated with any
of the foregoing; and

                         (iv)   "the Corporation" shall include, in addition to
the resulting Corporation, any constituent Corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents.





                                       14
<PAGE>   19
                (c)      The Corporation may purchase insurance to cover the
payment of costs incurred in performing the Corporation's obligations under
Section 1 hereof, but it is understood that no insurance may be obtained for
the purpose of indemnifying any disabling conduct, as defined in Section 2(b)
hereof.

                (d)      The Corporation may advance legal fees and other
expenses pursuant to the indemnification rights set forth in Section 1 hereof
so long as, in addition to the other requirements therefor, the Corporation
either:

                         (i)    obtains security for the advance from the
Indemnitee;

                         (ii)   obtains insurance against losses arising by
reason of lawful advances; or

                         (iii)  it shall be determined, pursuant to the means
set forth in Section 2 (a)(ii) hereof, that there is reason to believe that the
Indemnitee ultimately will be found entitled to indemnification.

         Section 3.  Advisory Committee Members.  The Corporation shall
indemnify any person appointed to any Advisory Committee pursuant to Article
IV, Section 11 hereof (or the heirs, executors, or administrators of such
person) who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a member of the Advisory Committee of this Corporation, if the
Board of Directors determines that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of the Corporation, and in the case of any criminal action or
proceeding, that such person had no reasonable cause to believe that such
person's conduct was unlawful.





                                       15
<PAGE>   20
                                  ARTICLE VIII

                               STOCK CERTIFICATES

         Section 1.  Form of Signatures; Statements.

                (a)      Every stockholder in the Corporation shall be entitled
to have a certificate, signed by the Chairman of the Board or the President or
a Managing Director or a Principal and countersigned by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, exhibiting the number and class (and series, if any) of shares
owned by him, her or it, and bearing the seal of the Corporation.  Such
signatures and seal may be facsimile transmission.  In case any officer who has
signed, or whose facsimile signature was placed on, a certificate shall have
ceased to be such officer before such certificate is issued, it may
nevertheless be issued by the Corporation with the same effect as if he or she
were such officer at the date of its issue.

                (b)      Every certificate representing stock issued by the
Corporation, if it is authorized to issue stock of more than one class, shall
set forth upon the face or back of the certificate, a full statement or summary
of the designations and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms
and conditions of redemptions of the stock of each class which the Corporation
is authorized to issue and, if the Corporation is authorized to issue any
preferred or special class of stock in series, the differences in the relative
rights and preferences between the shares of each series to the extent they
have been set and the authority of the Board of Directors to set the relative
rights and preferences of subsequent series.  In lieu of such full statement or
summary, there may be set forth upon the face or back of each certificate a
statement that the Corporation will furnish to the stockholder, upon request
and without charge, a full statement of such information.

                (c)      Every certificate representing shares which are
restricted as to transferability by the Corporation shall either (i) set forth
on the face or back of the certificate a full statement of such restriction or
(ii) state that the Corporation will furnish to the stockholder, upon request
and without charge, information about the restriction.

         Section 2.  Registration of Transfer.  Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the Corporation or
its transfer agent to issue a new certificate to the person entitled thereto,
to cancel the old certificate and to record the transaction upon its books.

         Section 3.  Registered Stockholders.

                (a)      Except as otherwise provided by law, the Corporation
shall be entitled to recognize the exclusive right of a person who is
registered on its books as the owner of shares of





                                       16
<PAGE>   21
its capital stock to receive dividends or other distributions, to vote as such
owner, and to hold liable for calls and assessments a person who is registered
on its books as the owner of shares of its capital stock.  The Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
such shares on the part of any other person except that the Board of Directors
may adopt by resolution a procedure by which a stockholder may certify in
writing to the Corporation that any shares of its capital stock registered in
the name of such stockholder are held for the account of a specified person
other than such stockholder are held for the account of a specified person
other than such stockholder.

                (b)      If a stockholder desires that notices and/or dividends
shall be sent to a name or address other than the name or address appearing on
the stock ledger maintained by the Corporation (or by the transfer agent or
registrar, if any), such stockholder shall have the duty to notify the
Corporation (or the transfer agent or registrar, if any), in writing, of such
desire.  Such written notice shall specify the alternate name or address to be
used.

         Section 4.  Location of Stock Ledger.  A copy of the Corporation's
stock ledger containing (i) the name and address of each stockholder, and (ii)
the number and shares of stock of each class which the stockholder holds shall
be maintained at the Corporation's office located at 1666 K Street, N.W.,
Washington, DC 20006-2803.

         Section 5.  Record Date.  In order that the Corporation may determine
the stockholders of record who are entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or the allotment of any rights, or to make a
determination with respect to stockholders of record for any other proper
purpose, the Board of Directors may, in advance, fix a date as the record date
for any such determination or meeting.  Such date shall not be more than 90 nor
less than 10 days before the date of any such meeting, nor more than 90 days
prior to the date any other determination is made with respect to stockholders.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting taken
pursuant to Section 8 of Article III; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.

         Section 6.  Lost, Stolen or Destroyed Certificates.  The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation which is claimed to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate to be lost, stolen or destroyed.  When
authorizing such issuance of a new certificate, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate to advertise the same
in such manner as it shall require and/or to give the Corporation a bond in
such sum or other security in such form, as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate claimed to have been lost, stolen or destroyed.





                                       17
<PAGE>   22
                                   ARTICLE IX

                               GENERAL PROVISIONS

         Section 1.  Dividends.  Except as otherwise provided by law or the
Articles of Incorporation, dividends upon the outstanding capital stock of the
Corporation may be declared by the Board of Directors at any annual, regular or
special meeting, and may be paid in cash, in property or in shares of the
Corporation's capital stock.

         Section 2.  Reserves.  The Board of Directors shall have full power,
subject to the provisions of law and the Articles of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available
for the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation.  The Board of Directors, in its sole
discretion, may fix a sum which may be set aside or reserved over and above the
paid-in capital of the Corporation for working capital or as a reserve for any
proper purpose, and may, from time to time, increase, diminish or vary such
fund or funds.

         Section 3.  Fiscal Year.  The fiscal year of the Corporation shall be
as determined from time to time by the Board of Directors.

         Section 4.  Seal.  The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Maryland."


                                   ARTICLE X

                                   AMENDMENTS

         The Board of Directors shall have the power to make, alter, amend and
repeal these Bylaws, and to adopt new bylaws, by an affirmative vote of a
majority of the entire Board of Directors, provided that notice of the proposal
to make, alter, amend or repeal these Bylaws, or to adopt new bylaws, was
included in the notice of the meeting of the Board of Directors at which such
action takes place.





                                       18
<PAGE>   23
                                  CERTIFICATE

         We, WILLIAM L. WALTON and TRICIA BENZ DANIELS, Chairman and Secretary,
respectively, of ALLIED CAPITAL CORPORATION (the "Corporation"), a Maryland
corporation, DO HEREBY CERTIFY that the foregoing is a true and correct copy of
the Corporation's Bylaws as amended and in effect the date hereof.

         IN WITNESS WHEREOF, we have hereunto set our hands and affixed the
corporate seal of the Corporation this 1st day of May, 1997.


                                  /s/ WILLIAM L. WALTON                     
                                --------------------------------------------
                                William L. Walton,
                                Chairman



                                  /s/ TRICIA BENZ DANIELS                   
                                --------------------------------------------
                                Tricia Benz Daniels, Secretary


[Corporate Seal]





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