<PAGE>   1
                                                                   EXHIBIT 10.11



                         ALLIED CAPITAL ADVISERS, INC.
                          INCENTIVE STOCK OPTION PLAN


1.  PURPOSE OF THE PLAN
The purpose of this Incentive Stock Option Plan ("the Plan") is to advance the
interests of Allied Capital Advisers, Inc. ("the Company") by providing
directors and officers who have substantial responsibility for the direction
and management of the Company with additional incentives to exert their best
efforts on behalf of the Company, to increase their proprietary interest in the
success of the Company, to reward outstanding performance and to provide a
means to attract and retain persons of outstanding ability to the service of
the Company.  It is recognized that the Company cannot attract or retain these
officers without this compensation.

2.  EFFECTIVE DATE OF THE PLAN
This Plan shall become effective upon (1) approval of the plan by the
shareholders of the Company and (2) adoption by the Board of Directors.

3.  ADMINISTRATION
The Plan is administered by the Compensation Committee (the "Committee")
consisting of two or more "disinterested" members of the Company's Board of
Directors in accordance with the provisions of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act").  The Committee
shall interpret the Plan, and to the extent and in the manner contemplated
herein, it shall exercise the discretion reserved to it hereunder.  The
Committee may prescribe, amend and rescind rules and regulations relating to
the Plan and make all other determinations necessary for its administration.
The decision of the Committee on any matter affecting the Plan or the rights
and obligations arising under the Plan or any option granted thereunder shall
be final and binding upon all persons.

4.  SHARES SUBJECT TO THE PLAN
The shares subject to option and the other provisions of this Plan are shares
of the Company's common stock, par value $.001 per share ("shares").  Subject
to the provisions hereof concerning adjustment, the total number of shares that
may be purchased upon the exercise or surrender of stock options granted under
this Plan shall not exceed 1,999,580 shares, which amount includes 1,649,580
shares on which options previously have been granted.  In the event any option
shall cease to be exercisable in whole or in part for any reason, the shares
which were covered by such option, but as to which the option had not been
exercised, shall again be available under the Plan.  Shares may be made
available from authorized unissued or reacquired stock or partly from each.

5.  PARTICIPANTS
The Committee shall determine and designate from time to time those key
officers of the Company, and those directors who are not officers of the
Company or employees of the Company's investor adviser ("non-officer
directors"), who shall be eligible to participate in the Plan.

6.  AWARDS UNDER THE PLAN
(a) Generally.  The Committee may award at any time an incentive stock option
(within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code")) or a nonqualified stock option to a participant under the
plan; provided, however, that only nonqualified stock options may beawarded to
non-officer directors.

(b) Awards to Officers.  The Committee shall determine the number of shares to
be offered from time to time to each optionee who is an officer of the Company.
In making these determinations, the Committee shall take into account the past
service of the optionee to the Company, that officer's present and potential
contributions to the success of the Company and such other factors as the
Committee shall deem relevant
<PAGE>   2
in connection with accomplishing the purposes of the Plan. The options shall
contain such terms and conditions as the Committee shall deem advisable,
including but not limited to being exercisable only in such installments as the
Committee may determine.  Options granted to different optionees or at
different times need not contain similar provisions.

(c)  Awards to Non-Officer Directors.  Each non-officer director, upon his or
her election as a director of the Company, shall receive a one-time grant of an
option to purchase thirteen thousand three hundred and thirty three (13,333)
shares.  A non-officer director shall receive no other award under this Plan.

(d) Option Price.  The price at which a share may be purchased upon the
exercise of an option shall be equal to the current fair market value of the
shares at the time an option is granted; provided, however, that with respect
to incentive stock options granted to any holder of 10% or more of the
Company's shares, the price shall not be less than 110% of such current fair
market value.  The day on which the Committee approves the granting of an
option shall be considered the date on which such option is granted.

(e) Option Period.  Each stock option shall state the period or periods of time
within which the option may be exercised, in whole or in part, by the optionee,
which shall be such period or periods of time as may be determined by the
Committee.  Notwithstanding the foregoing, the option period of each option
shall end, and the option shall cease to be exercisable, on the earliest of
(i) the date specified in the option grant, (ii) ten years (or, in the case of
incentive stock options awarded to a holder of 10% or more of the Company's
shares, five years) from the date the option is granted, (iii) the last day of
the three-month period beginning on the date on which the optionee ceases to be
an officer or director of the Company for any cause other than death or total
and permanent disability, or (iv) the first anniversary of the date on which
the optionee ceases to be an officer or director of the Company as a result of
the optionee's death or total and permanent disability.

(f) Payment for Shares.  Full payment for shares purchased shall be made at the
time of exercising the option in whole or in part.  Payment of the purchase
price shall be made in cash (including check, bank draft or money order) or, if
authorized by the Committee pursuant to paragraph 6(h) hereof, by a loan from
the Company in accordance with paragraph 6(h).

(g) Transferability of Options.  Options shall not be transferable other than
by will or the laws of descent and distribution and during an optionee's
lifetime shall be exercisable only by the optionee.

(h) Loans by the Company.  Upon the exercise of any option, the Company may, at
the request of the officer-optionee and subject to the approval of the Board
of Directors, lend to such officer-optionee, as of the date of exercise, an
amount equal to the exercise price of such option, provided that such loan (i)
has a term of not more than ten years, (ii) becomes due within sixty days after
the recipient of the loan ceases to be an officer of the Company, (iii) bears
interest at a rate no less than the prevailing applicable federal rate at the
time the loan is made, and (iv) is fully collateralized at all times, which
collateral may include securities issued by the Company.  Loan terms and
conditions may be changed by the Committee to comply with applicable Internal
Revenue Service and Securities and Exchange Commission regulations.

(i) Effect of Change in Shares subject to the Plan.  In the event there is any
change in the shares of the Company through the declaration of stock dividends,
or through recapitalization resulting in stock splits, or combinations or
exchanges of shares, or otherwise, the number of shares available for option
and the shares subject to any option and the option prices shall be
appropriately adjusted.

(j) General Restriction.  Each option shall be subject to the requirement that,
if at any time the Committee shall determine, at its discretion, that the
listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such option or the issue
or purchase of the shares thereunder, such option may not be
<PAGE>   3
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Company.  Subject to the limitations of paragraph 6(e),
no option shall expire during any period when the rights reserved hereby are
invoked by the Committee, but shall be extended for such further period so as
to afford the optionee a reasonable opportunity to exercise his option.

7.  AMENDMENT AND TERMINATION
The Committee may modify, revise or terminate this Plan at any time and from
time to time provided, however, that no modification or revision of any
material provision of the Plan may be made without shareholder approval except
for such modifications or revisions which are necessary in order to ensure that
the options issued as incentive stock options under the Plan comply with
section 422 or any successor provision of the Code, or other applicable law.
The Plan shall terminate when the total amount of shares with respect to which
options may be granted shall have been issued upon the exercise of options or
by action of the Board of Directors pursuant to this paragraph, or on May 23,
2006, whichever shall occur first.

8.  MISCELLANEOUS PROVISIONS
(a) No optionee shall have rights as a shareholder with respect to shares
covered by his option until the date of exercise of his option.

(b) The granting of any option shall not impose upon the Company any obligation
to appoint or to continue to appoint as an officer any optionee, and the right
of the Company to terminate the employment of any officer or other employee
shall not be diminished or affected by reason of the fact that an option has
been granted to such optionee.

(c)  Options shall be evidenced by stock option agreements in such form and
subject to the terms and conditions of this Plan as the Committee shall approve
from time to time.  Such stock option agreements shall contain such other
provisions as the Committee in its discretion may deem advisable.

(d) For purposes of this Plan, the fair market value of the shares shall be the
average between the closing Bid and Asked price of the shares as quoted on the
Nasdaq National Market for the business day preceding the date on which the
option is awarded.  If the Company's shares are traded on a major exchange, the
price shall be the closing price of the Company's shares as reported in The
Wall Street Journal for the business day preceding the date on which the option
is awarded.

(e) All options issued pursuant to the Plan shall be granted within ten years
from the earlier of the date the amended Plan is adopted by the Board of
Directors and the date the amended Plan is approved by the shareholders of the
Company.

(f) The aggregate fair market value (determined at the time the option is
granted) of the shares with respect to which incentive stock options are
exercisable for the first time by any optionee during any calendar year (under
all incentive stock option plans of the Company, its parent and subsidiary
corporations) shall not exceed $100,000.

(g) No option may be issued if exercise of all warrants, options and rights of
the Company outstanding immediately after issuance of such option would result
in the issuance of voting securities in excess of 20% of the Company's
outstanding voting securities.

(h) Any notices given in writing shall be deemed given if delivered in person
or by certified mail; if given to the Company at Allied Capital Advisers, Inc.,
1666 K Street, NW, 9th floor, Washington, DC  20006; and, if to an optionee, in
care of the optionee at his or her last known address.

(i) This plan and all actions taken by those acting for the Plan shall be
governed by the laws of the State of
<PAGE>   4
of Maryland.

(j) If an incentive stock option is issued and does not meet the terms of this
plan, then it shall continue as a stock option but it will be a non-qualified
stock option.

(k) A leave of absence granted to an employee does not constitute an
interruption in continuous employment for purposes of the Plan as long as the
leave of absence does not extend beyond one year.

(l) All costs and expenses incurred in the operation and administration of the
Plan shall be borne by the Company.

9.  CHANGE OF CONTROL
In the event of a Change of Control (as hereinafter defined), all
then-outstanding options will become fully vested and exercisable as of the
Change of Control.  For purposes of the Plan, "Change of Control" means the
sale of substantially all of the Company's assets or the acquisition, whether
directly, indirectly, beneficially (within the meaning of Rule 13d-3 of the
1934 Act), or of record, of securities of the Company representing twenty
percent (20%) or more in the aggregate voting power of the Company's
then-outstanding Common Stock by any "person" (within the meaning of Sections
13(d) and 14(d) of the 1934 Act), including any corporation or group of
associated persons acting in concert, other than (i) the Company or its
subsidiaries and/or (ii) any employee pension benefit plan (within the meaning
of Section 3(2) of the Employee Retirement Income Security Act of 1974) of the
Company or its subsidiaries, including a trust established pursuant to any such
plan.