Allied Capital Rejects Greenlight Capital's Charges.

Business Editors

WASHINGTON--(BUSINESS WIRE)--June 19, 2002

Allied Capital Corporation (NYSE: ALD) today rejected Greenlight Capital's accusations made in a press release issued June 17, 2002, and stated that it was yet another element of the ongoing disinformation campaign against Allied Capital for personal profit.

William L. Walton, Chairman and Chief Executive Officer, stated, "We believe that Allied Capital has been the victim of a systematic campaign by short-sellers to use misinformation for personal profit. Transparency goes both ways. It's time for Greenlight Capital and our other accusers to be held accountable, in the light of day, for the misinformation they are circulating. It is unfortunate that some of our investors have been misled by these baseless accusations."

Greenlight has implied that the SEC agreed with its critique of Allied Capital, but in fact the SEC official was not specifically commenting on Allied Capital when he spoke with David Einhorn, Greenlight's Portfolio Manager. Joan Sweeney, Chief Operating Officer of Allied Capital, stated, "Today I met with Douglas Scheidt, Chief Counsel and Associate Director of the Division of Investment Management at the SEC. He confirmed to me that in his conversation with Mr. Einhorn he was not commenting on Allied Capital. He was only answering specific questions asked. Allied Capital does not believe that the questions asked of Mr. Scheidt address Allied Capital's valuation policies and procedures. Mr. Scheidt informed me that he told Mr. Einhorn that he was not specifically commenting on Allied Capital."

Allied Capital pointed out that the following undisputed facts contradict the accusations made by Greenlight that the company is not fairly valuing its portfolio consistent with established rules and polices of the SEC, AICPA and SBA.

Fact: Allied Capital has not "mismarked" its investment portfolio. The company employs an appropriate fair value methodology that has been consistently applied. Contrary to Greenlight's assertions that Allied Capital has systematically over-valued its portfolio companies, over the past five years, net realized gains exceeded Allied Capital's fair value at the time of exit. By year, net gains exceeded the carrying value by $7.6 million in the first quarter of 2002; $3.1 million in 2001; $20.0 million in 2000; $16.2 million in 1999; $18.0 million in 1998; and $12.6 million in 1997.

Fact: Allied Capital's valuation policies for determining the fair value for a private finance investment are appropriate, consistent, well documented and executed in good faith by the board of the directors.

Fact: Allied Capital's valuation policies are consistent with the rules of the SEC. The company's valuation methodology is outlined in the Company's Form N-2 shelf registration statement, which is filed every quarter with the SEC, and the SEC has consistently found these filings satisfactory.

Fact: Allied Capital's valuation policies are consistent with the American Institute of Certified Public Accountants Audit and Accounting Guide for Audits of Investment Companies.

Fact: Allied Capital's valuation policies are consistent with the SBA's published valuation guidelines for Small Business Investment Companies, which also invest in illiquid securities in private companies. Our SBIC subsidiary is the oldest operating SBIC license in the country and has elected to be a BDC.

Fact: Allied Capital's valuation policies are consistent with the fair value practices used by other BDCs, based upon a review of the disclosure of other public BDCs.

Fact: Despite Greenlight's implications, "fire sale pricing" is not an appropriate method for valuing illiquid companies contained in Allied's portfolio. "Mark to market" and "fair value" are NOT the same thing. It has been falsely stated that the appropriate valuation method to be used is a rigid "mark to market" or "fire sale" price. The experts do not agree. Fair value is a regulatory concept that includes the concept of "current sale" which is not the same thing as "fire sale." The term is defined by the AICPA Guide and means an "orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale."

"Anyone who takes the time to look at the facts will conclude that Allied Capital remains a solid company with a demonstrated record of growth and integrity," said Mr. Walton. He further remarked, "Over the last five years, including the shock of the collapse of the dot.coms and the recent impact of 9/11, Allied Capital has generated an average annual total return, up until this recent short attack, of over 20%. A $10,000 investment in Allied Capital in 1960 at the time of its IPO, with all dividends reinvested, would have been worth $12.5 million by the end of 2001, representing an 18.5% average annual total return for our shareholders over the 42 years. We are proud of that record - and no disinformation campaign can alter the facts."

"Our portfolio quality remains strong and will continue to support our healthy dividend payout," he said.

Allied Capital June 17 Investor Conference Call

The following are excerpts from the remarks made on the June 17 conference call, which was conducted by Chairman and CEO William Walton, and provides extensive and detailed refutation of the allegations made by Greenlight and other critics of Allied.

Portfolio Valuation

Now I'd like to discuss the various specific securities that our critics have pointed to that they believe demonstrates a "systemic overstatement of asset values." As you will see, close factual scrutiny demonstrates that in every single instance, their allegations are baseless. Let me offer examples of the most egregious examples.

First, we invest primarily in private companies and as such they did not agree to be subject to the standards of public reporting. We are going to provide additional data today about certain portfolio companies that is not usual to provide in order to demonstrate how wrong our critics are. We will establish standards for future disclosure above what is required when we issue our second quarter financials.

And, I'd also like to put this discussion of individual assets into perspective. This is a large and diverse portfolio with 133 separate private finance investments, plus the size and diversity of the CMBS portfolio with over 4,000 commercial mortgage loans as collateral. The benefit of such size and diversity is that, apart from our larger control deals, losses in any one investment will not have a material effect on our overall long-term financial performance. The focus and attention that has been given to several individual assets is totally out of proportion to the effect any valuation change on these assets would have had on Allied Capital's overall performance.

Finally, on the topic of appropriate valuation methodology consistently applied, we asked KPMG to issue a review report regarding their review of our first quarter results for 2002, in order to clarify that, as our newly appointed auditors, KPMG had completed a timely quarterly review of our financial results, and no changes to the financial statements were required. We encourage everyone to read the review report, which was included in our amended 10-Q which was filed on June 12, 2002.

1. Business Loan Express

Business Loan Express, or BLX, is the second largest SBA 7(a) lender in the country and is 95% owned by Allied Capital. BLX has 34 offices throughout the country and is a Preferred Lender in 67 markets.

The criticism from the shorts seems to be centered on two allegations. First, they say that Allied is taking excessive money from BLX in interest payments and fees. Second, they claim that we have chosen not to consolidate BLX's financial statements for reasons, with the insinuation that BLX is really nothing more than a sham company reminiscent of Enron's off-balance sheet special purpose entities. These allegations are totally baseless.

Let's look at the facts:

Fact: BLX is a successful and financially sound company. For the nine months ended March 31, 2002, BLX had earnings before interest, taxes and management fees of $32 million on revenues of $60 million. BLX's fiscal year end is June 30. BLX is current on its debt, and has not violated a bank covenant since we made our investment, and has consistently achieved its targets as set out in its business plan.

Fact: The delinquencies in BLX's SBA portfolio at March 31, 2002 were 10.1%, exactly within the SBA's average expected delinquency range of 8-12%. Because of collateral protection, however, BLX's actual loan losses have been minimal, with cumulative losses since 1994 of 79 basis points of total originations.

Fact: BLX was recently audited by the SBA and received the highest rating for a Preferred Lender.

Fact: As the majority owner of BLX, Allied Capital performs substantial consulting services on behalf of BLX, including loan systems integration, marketing, HR, website development, and board recruitment to name a few, which more than justify the management fees it pays to us.

Fact: Allied Capital has invested in both subordinated debt and preferred stock of BLX, in addition to owning a majority of the common equity. While the sub debt carries a 25% interest rate, which is at the high end of the range for a typical sub debt investment, our preferred stock investment has no current return at all. The combination of our sub debt and preferred stock investment generates an effective current return of 18%, which is a market rate for this type of financing.

Fact: The consolidation issue is absolutely black and white. Since Allied Capital is a BDC, the SEC rules for accounting for investment companies is quite clear. No investment company may consolidate the financial results of its portfolio companies into its own. Nevertheless, if Allied could consolidate BLX's results, our reported earnings would have been higher, not lower.

BLX is a stand-alone company with its own financial results. For the nine-months ended March 31, 2002, BLX originated over $400 million in new loans and is now managing a $1.2 billion small business loan portfolio secured by commercial real estate.

For the year ended June 30, 2001, total revenues were $51 million and earnings before interest, taxes and management fees were $26.8 million for BLX, including six months of pre-merger operating results for Allied Capital Express.

Fact: The fact that we guaranteed BLX's bank debt means nothing about the quality of BLX. Many companies routinely guarantee the bank lines of majority-owned entities because it lowers the borrowing company's cost of capital and acts as credit enhancement. This is a common practice.

2. The Hillman Companies, Inc.

Hillman is a dominant manufacturer and distributor of hardware items throughout North America, and is a recognized leader in its niche market. We first became aware of Hillman in 2000 when we provided a $30 million subordinated loan to the company's predecessor, SunSource, Inc. As we built our relationship with Hillman, we determined with management that an opportunity existed to purchase the common equity from the public in a "going private" transaction. In September of 2001, we completed the acquisition of Hillman's common equity for $72 million. We then sold a division of Hillman called STS, and recapitalized the new company whereby we reduced our investment from $113 million to $97 million in total, consisting of $40 million of subordinated debt and $57 million of common equity. Hillman also has a $105 million senior debt facility and $105 million of trust preferred stock outstanding.

Our critics claim, among other things, that we have overvalued our investment in Hillman. Our critics have also mischaracterized our acquisition of Hillman as an attempt to cover up a bad $30 million mezzanine loan.

Fact: We saw a real opportunity in Hillman to jettison a non-core subsidiary from the company, and then recapitalize and rationalize its balance sheet to prepare it to grow and flourish. It would have been irrational to spend the time and money to take a public company private, spin off a division, and recapitalize the remaining company, simply to cover up a "bad" deal. Also, taking a public company private is a very "public" process that involves SEC review, fairness and valuation opinions, as well as shareholder votes. If you were trying to hide a bad deal, this would not have been a preferred strategy.

Although this investment is still new to our portfolio, the early results for Hillman are quite good.

Our critics support their overvaluation charge by pointing to a small loss in the first quarter of 2002.

Fact: The first quarter of Hillman's year is typically their seasonal low quarter. Hillman is above plan for the year and is projected to achieve sales of $276 million this year, and profits before tax of $7 million. Their earnings before interest, depreciation, amortization and management fees are projected to be $50 million for the year. Revenue growth this year is expected to be 11%.

Hillman is current on all of its debt obligations and is in compliance with all debt covenants. Its total assets at March 31, 2002 were $348 million and its senior debt owed to banks totaled $94 million.

The critics also support their overvaluation charge by reference to a footnote in Hillman's 2001 10-K, which states that the fair value of the senior debt is $13 million below face value under SFAS 107, which implies that our sub debt and equity investments could not be valued at cost.

Fact: Hillman's footnote disclosure was a mistake. The appropriate fair value of floating rate senior debt should be equal to its cost basis. Hillman's current CFO has confirmed that the fair value presented in the 10-K was a mistake, as has Hillman's outside accountants, PriceWaterhouseCoopers, and the footnote disclosure will be corrected with their next filing.

Fact: Another simple way to assess the market's value of Hillman is to look at the fact that at March 31, 2002, Hillman's trust preferred stock, which trades in a liquid public market on the AMEX, traded at its par value of $25. Since the trust preferred is subordinate to all of Hillman's other debt obligations, it is reasonable to conclude that its debt is not impaired.

3. Velocita

We have been criticized for using overly optimistic judgment concerning the liquidation value of our investment in this fiber-optic network, which recently filed for bankruptcy. We've also been critiqued for not monitoring this closely enough. Velocita is one of only two companies in our entire portfolio where we purchased high yield bonds, where we did not have the opportunity to structure the investment as we would with a mezzanine loan.

Fact: Allied Capital made an investment of $15 million in Velocita bonds in 2000. We are currently carrying that investment as of March 31, 2002, at $4.3 million or 28 cents on the dollar.

Velocita bonds are not traded in a liquid market. In the absence of a readily ascertainable market quotation, in our judgment - based on an estimate of liquidation value - our investment value was 28 cents on the dollar. That judgment is now being Monday-morning-quarterbacked by our critics. They compare it to the judgment of one of the companies' major investors, Cisco Systems.

We can find no basis in fact for the assertion that Cisco has fully written off its Velocita investment. But even if Cisco wrote off its entire investment - what does that prove? There is certainly no basis to allege that our 28 cents-on-the-dollar judgment -- as compared to at least one bondholder, whom we know made a 75 cents judgment, another 20 cents, and still another 2 cents - is evidence of a "systemic pattern" of inflated valuations. In fact, the SEC recognizes that different investors may arrive at different values based on a good faith judgment.

Now, let's look at the valuation of some other portfolio companies that the shorts have questioned, so that we can provide the facts.

4. Wilmar Industries (which is also known as Interline Brands)

Wilmar is a national distributor of janitorial supplies to major property managers, including apartments, hospitals and office buildings. We have heard from our critics that the "industry rumor" is that Wilmar has violated bank covenants and has been unable to pay its interest on its sub debt for some time.

Fact: Wilmar's financial results were solid in 2001 and continue to be in 2002 - their revenues and EBITDA were strong and they are current on their interest payments and in compliance with debt covenants.

Our short-seller critics allege that Allied's valuation of its sub debt is inflated, citing the decision by one senior note holder, Franklin Templeton Floating Rate Trust, to discount its senior debt.

Fact: The accusation of inflation is false. We believe that Fleet Securities is the only desk that trades Wilmar's debt, and one of its traders confirmed that even if the decision by a senior note holder to discount its debt is sound, that has little to do with the underlying value of the subordinated debt. Our contact at Fleet has confirmed that he cannot trade the subordinated debt, such as Allied's, at less than par.

Fact: Where bank loans are valued frequently has little to do with whether the mezzanine securities are impaired. Many bank loans made in the last few years have been priced at very thin spreads over LIBOR -- which is now about 2.0% -- and seldom have equity kickers. By contrast, mezzanine debt carries current yields in the mid-teens and does have equity kickers.

5. Startec Global Communications

Allegation: "Allied's initial investment in Startec was pari passu with Startec's publicly traded senior notes." Because the company is in bankruptcy, Allied's debt investment must be worthless.

Fact: This is wrong. We wrote off the portion of debt that remained pari passu with the publicly traded debt. All of our now remaining debt is at the operating company level, which continues to have cash flow sufficient to support debt service. Moreover, $22.8 million of our investment is super priority debtor-in-possession financing, which would be paid out first in any liquidation, and the balance of $10.3 million is secured by accounts receivable.

6. The Loewen Group (now known as Alderwoods Group)

Allegation: "Allied Capital did not appropriately "mark to market" its investment in these high-yield bonds as it operated in, and was to emerge from, Chapter 11."

Fact: The fact is that our valuation of Loewen was quite close to the ultimate value that we received. We originally bought $18.6 million worth of bonds for $15 million. As part of the reorganization, we received ultimate proceeds, in the form of cash, debt and publicly traded equity, of $12 million for our $15 million investment, or 80% of our original cost basis; we valued it at $13.6 million at September 30, 2001, which was the last valuation period before it was announced what we would receive in the reorganization. Of course, by December 31, 2001 we had perfect knowledge of the assets to be received and it was so valued.

7. United Pet and Polaris Pool

Allegation: "Allied Capital purchased existing sub debt in each of these companies at a discount. We have heard from industry sources these companies are "problem credits."

Fact: In the case of Polaris Pool Systems and United Pet Group, IBJ decided to discontinue its mezzanine operations and liquidate its fund at a discount. We were co-investors with IBJ in Polaris and United Pet. When we heard about their liquidation and the discounts they were willing to accept in order to effect their liquidation quickly, we made offers to purchase these two instruments, and ended up buying them at attractive discounts. Both of these investments are current in their payments to us and are in full compliance with their covenants. As a multiple of EBITDA, our last dollar of debt is in at multiples well within mezzanine industry norms. These are not problem credits.

8. Wyoming Technical Institute

Allegation: We will be unable to continue our earnings growth given that the gain generated by the sale of Wyotech has significantly contributed to the company's earnings in 2001 and 2002.

Fact: For decades, Allied Capital has realized capital gains from its portfolio. While each gain by itself is indeed a one-time event for that company, we have a portfolio of 133 companies from which to harvest gains, and a track record of successfully doing so. While it is true that capital gains from control portfolio companies have the potential to generate more significant gains, we intend to maintain a balance in the portfolio between traditional mezzanine investing, and control transactions. There are certainly other gains in the portfolio that we will harvest over time.

9. The CMBS Portfolio

Allegation: "Allied has not adequately reserved for the expected losses in its CMBS portfolio."

Fact: At March 31, 2002, our CMBS portfolio had a face value of $1.09 billion and we had unamortized discount of $583 million. We have set aside approximately $200 million of this discount from our yield to maturity amortization calculation to cushion the future losses and properly reflect fair value. We have an underlying collateral pool of approximately $22 billion. We closely monitor the underlying collateral pool, and as of March 31, 2002, we had identified actual future potential losses of $17.3 million, which are easily covered by our $200 million discount set aside. We suspect that our critics don't fully understand the dynamics of the CMBS market, or the underwriting that we perform before investing in the bonds.

Credit Quality and Earnings Quality

Non-accruals and PIK Income: We have heard that our critics assert that we are shifting our workout loans from cash paying interest to PIK interest in order to artificially inflate our income, and mask the quality of our portfolio. That is not true and is not supported by the facts, all of which are disclosed in our financial statements.

As we have previously stated, we do not accrue interest (cash or PIK) on workout loans or those in Grade 4 and 5. We only have one Grade 3 loan that accrues PIK.

At any given point in time, it is expected that a certain number of loans in the portfolio will be on non-accrual, and this will fluctuate over time depending on the economic climate and company-specific events that may impact a particular portfolio company. Our loans on non-accrual at value have increased over the past three years as follows:

                  Allied Capital Loans on Non-Accrual
                             (in millions)
                                 As of
March 31, 2002  December 31, 2001  December 31, 2000 December 31, 1999
--------------  -----------------  ----------------- -----------------
   $122               $109              $87                $48

If we were placing problem loans on PIK, as has been alleged, the increase in non-accrual loans would not be here. We try to be very conservative when determining when to place loans on non-accrual, because we don't want to overstate the yield on our portfolio. If we were using PIK as a mechanism to restructure our workouts, we wouldn't have the level of non-accruals that we do.

The yield on the private finance portfolio at March 31, 2002 was 14.3%. We compute this yield assuming that loans on non-accrual have an interest rate of zero. Thus, even with the amount of loans on non-accrual that we have, our portfolio yield on interest-bearing loan and debt securities remains strong.

In our business, we assume that we will have loans that go on non-accrual, and we price our loans to account for the fact that some loans will not perform over time.

We do not use PIK as a means of inflating our income or masking our portfolio's performance. We only accrue PIK if we believe that it is collectible and we reflect PIK income in the fair value of our investments. As soon as we think PIK may not be collectible, we stop accruing the PIK income. If we choose to accept PIK income, it is because we believe that it is in our best interest and in the best interest of our portfolio company. We do not flip loans to PIK simply to inflate earnings; it is simply a financing tool used commonly in the mezzanine finance space.

We primarily structure PIK upfront -- when we get into a deal. We do this to lock in our return, especially if we think that the company was purchased at a rich valuation.

Our critics have argued that our PIK income has increased dramatically in the last few years as we have attempted to mask problem loans. In absolute dollars, PIK has increased, but as a percentage of the average private finance portfolio over the past three years, PIK income has not increased that much. PIK income as a percent of the private finance portfolio was 3.4% in 2001, 3.3% in 2000 and 2.0% in 1999. The increase in 2000 and 2001 reflects the fact that we opted to accept more PIK as contractual payment during 2000 when we priced our investments, because we believed that in many cases the future return we could expect from warrants was not as attractive as the contractual return of PIK, given the inflated multiples at which companies were trading at the time.

Now let's look at our uncollected PIK securities on a static pool basis for the last six years. Remember, it usually takes five to seven years to exit a private finance investment, and PIK is generally collected when we exit a deal:

                            Uncollected PIK
                             (in millions)
Vintage
 Origination Years         1996    1997    1998    1999    2000   2001
                           ----    ----    ----    ----    ----   ----
New investment
 originations              $66      $67    $236    $347    $601   $288
Uncollected PIK
 remaining                  $0       $3     $18     $19     $21     $4

The PIK remaining to be collected from any one vintage is less than the magnitude of a single typical private finance deal.

Cash Flow and Dividends

In recent publications, our critics speculated that Allied Capital doesn't generate enough cash from its operations to support the dividend, and that we are required to shrink the portfolio, or raise new equity capital to support the dividend.

Fact: Our statement of cash flows in the 2001 annual report shows that net cash used in operating activities was $344 million. However, this amount includes $675 million in cash used to fund new portfolio investments. New portfolio investments are funded with excess cash flow from operations and new debt and equity capital. Therefore, this amount has to be excluded from the net cash used in operating activities to show the cash available to pay our dividend and to fund other operating activities. In fact, cash flow before new investments was $330 million in 2001. We paid $180 million in dividends, leaving $150 million in excess cash flow. New equity and debt capital was used to grow the portfolio, not pay the dividend.

If you do the same math for 2000 and 1999, you will see that, after you subtract the cash required to pay the dividend, we have generated excess cash flow of $363 million in 2000 and $325 million in 1999. For the first quarter of 2002, excess cash flow, after paying the dividend, was $144 million.

Our business and portfolio generate significant amounts of cash. In fact, if we were to stop investing money altogether, we would still generate significant excess cash flow. We do not need to raise equity to pay the dividend.

But if anyone in the audience is unsatisfied with these facts, let me share some longer-term statistics. Allied Capital has paid $890 million in dividends to our shareholders since 1963. Since March 31, 1963, we have raised $1.4 billion in new equity. We've also raised debt capital and incurred liabilities of $1.0 billion. The new debt and equity capital has been used to increase our assets by $2.4 billion since that time. And during that time, we also paid $890 million in dividends to our shareholders. These statistics refute we believe definitively the accusation that we need new capital to pay our dividend.

Valuation of Allied Capital Stock

Fact: Allied Capital has been paying regular quarterly dividends since 1963. On an annual basis, the company has never cut total regular quarterly dividends paid to shareholders - regular quarterly dividends have either remained constant or increased every year since that time. Over the last 15 years, Allied Capital has traded at an average yield of 8.5%, with an average yield over that time on the high end of 10% and on the low end of 7%. Even during times of capital markets disruption, such as the Fall of 1998, when the stock price dropped as low as $12.50, or an 11.4% yield, our shareholders recognized that nothing had fundamentally changed at Allied Capital, and the yield was arbitraged away back to its historical average range. The recent selling pressure in our stock created by short selling activity has been a further testament to the belief that our investors value Allied Capital based on its dividend yield. Even on May 16, when more than 15 million shares of Allied Capital stock changed hands and the intraday low was $20 per share, the stock closed at $23.20, representing a 9.5% yield, which is still within our historical trading range.

While we believe that the stock trades as a function of the dividend yield, this translates into a valuation for the company that reflects a premium to net asset value. Over the last 15 years, Allied Capital has traded at an average premium to net asset value of 201%, with a premium to NAV over that time on the high end of 334% and on the low end of 132%.

As you can see, there is no historical basis for the assessment that the company should trade at book value.

And why does the market value Allied Capital at a premium to net asset value? As we discussed in great length on our last conference call, an internally managed BDC is much more than a simple high-yield bond portfolio. It has an active management that identifies, structures, negotiates, closes and monitors its portfolio of privately held securities, and provides managerial assistance to its portfolio companies. There are no similarities to a bond fund that buys freely trading paper in a market. And there is no question that our company is worth more than the assets it is managing.

We understand that our CMBS investing activities are also being used by our critics to claim that the existence of CMBS in our portfolio means that we should not be trading at a premium to net asset value. We find this to be a baseless assertion considering that the yield on this portfolio has consistently ranged between 14% and 16% providing a consistent stream of recurring income and dividends for our shareholders. And, as we have discussed many times before and is outlined in detail on our web site, investing in non-investment grade CMBS is hardly a paper-buying exercise, but requires significant time and seasoned real estate expertise. This claim is without any merit.

Continuity of Management

One of the other issues that have been raised is that we've strayed from our historical investment disciplines. This is simply not the case.

Let's take a look at our 1991 annual report. On the first page it states that

"Allied Capital finances entrepreneurs and management in eight ways:

- Equity and Debt Capital for acquisitions and buyouts;

- Mezzanine Capital for growing companies;

- Venture Capital for emerging growth companies;

- Bridge capital for special situations;

- Convertible Debentures for public and private companies;

- Loans with Options for later stage mature businesses;

- Senior Loans without equity; and

- Straight loans for small businesses.

- Our objective is to help good management grow their companies."

That describes our private finance business today - nothing has changed.

Our merger in 1997, and the consolidation of our assets and our people into one company, has given us the opportunity to finance larger, safer and more well established companies. This, combined with our concentrated focus on less cyclical industries, are investment themes that are directly attributable to this management team and which have proven to be valuable in more difficult economic environments.

The continuity of our Board has allowed us to capitalize on their longevity and their business experience. The average tenure of Board members is 18 years, and ranges from 8 to 43 years. And, importantly, our board members are long-term shareholders and they, together with management are buyers, not sellers of Allied Capital's stock.

Update on Inclusion in Russell Indices

On June 7, the Frank Russell Company indicated that it was removing BDCs from the Russell indices. We spoke with them, and provided significant data to them, and the good news is that it now appears that they have reversed this position and will include all BDCs in the Russell indices that meet their quantitative criteria.

Update on the Second Quarter

As we near the completion of the second quarter, we'd like to give you an update on the business. Obviously, this short attack has been a distraction and certain non-recurring expenses will be reflected in our second quarter results. As we have consistently said, our quarterly results are always lumpy. The good news is that our team is energized, the pipeline is building and we believe we are currently on track to deliver a ten percent increase in the dividends per share for the year. Our guidance for the year remains unchanged.

Investor Conference - August 1, 2002

As promised, we will be hosting an Investor Conference on August 1 in Washington, DC. Details will follow shortly, and will be posted on our web site.

About Allied Capital

Allied Capital is the nation's largest business development company, and provides long-term investment capital to support the expansion of growing middle-market companies. The company provides mezzanine debt and equity financing, and also participates in the real estate capital markets as an investor in commercial mortgage-backed securities. The company is headquartered in Washington, DC. For more information, please visit the web site at www.alliedcapital.com, call Allied Capital Investor Relations toll-free at [phone], or e-mail us at [e-mail].

Forward-Looking Statements

The information contained in this press release contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements, and these factors are enumerated in the company's periodic filings with the Securities and Exchange Commission.