ICG Strategic Partnership Presentation to State of Connecticut Retirement Plans and Trust Funds (CRPTF)

PREPARED FOR CRPTF. PRIVATE AND CONFIDENTIAL. Certain Risk Factors and Potential Conflicts of Interest ICG USE OF LEVERAGE. AS DESCRIBED IN AND SUBJECT TO THE LIMITATIONS OF THE PARTNERSHIP AGREEMENT, THE GENERAL PARTNER MAY CAUSE THE FUND TO BORROW MONEY FROM ANY PERSON, TO GUARANTEE LOANS OR PROVIDE OTHER CREDIT SUPPORT, ON A JOINT, SEVERAL, JOINT AND SEVERAL OR CROSS-COLLATERALIZED BASIS OR OTHERWISE, INCLUDING FOR THE PURPOSE OF FINANCING ANY INVESTMENT-RELATED ACTIVITIES OF THE FUND, HEDGING AND TO PROVIDE INTERIM FINANCING TO CONSUMMATE THE PURCHASE OF INVESTMENTS PRIOR TO THE RECEIPT OF PERMANENT FINANCING OR CAPITAL CONTRIBUTIONS OR DISTRIBUTIONS (AS APPLICABLE) OR INCUR ANY OTHER OBLIGATION (INCLUDING OTHER EXTENSIONS OF CREDIT) FOR ANY PROPER PURPOSE RELATING TO THE ACTIVITIES OF THE FUND INCLUDING, WITHOUT LIMITATION, TO COVER FUND EXPENSES, TO MAKE, HOLD OR DISPOSE OF INVESTMENTS OR OTHERWISE IN CONNECTION WITH THE FUND'S INVESTMENT ACTIVITIES, TO PROVIDE FINANCING OR REFINANCING, TO PROVIDE FUNDS FOR THE PAYMENT OF AMOUNTS TO WITHDRAWING LIMITED PARTNERS, OR TO PROVIDE COLLATERAL TO SECURE OUTSTANDING LETTERS OF CREDIT; PROVIDED, THAT WITHOUT THE APPROVAL OF A MAJORITY IN INTEREST OF THE COMBINED LIMITED PARTNERS, THE FUND WILL NOT BORROW MONEY OTHER THAN (1) CASH BORROWING BY THE FUND WHICH SHALL BE REPAID WITHIN 12 MONTHS FOR THE PURPOSE OF COVERING WORKING CAPITAL OR BRIDGING CAPITAL CALLS, (II) BORROWINGS FOR THE PURPOSE OF HEDGING CURRENCY, INTEREST RATE AND OTHER SIMILAR RISKS, (III) ANY INDEBTEDNESS TO COVER FUND EXPENSES OR PAY MANAGEMENT FEES, AND (IV) ANY INDEBTEDNESS ATTRIBUTABLE TO SELLER FINANCING PROVIDED TO THE FUND IN CONNECTION WITH THE FUND'S ACQUISITION OF AN INVESTMENT; PROVIDED, FURTHER, THAT THE TOTAL AMOUNT OF ANY BORROWING AND GUARANTEES BY THE FUND AS DESCRIBED IN CLAUSE (1) ABOVE WILL NOT, AT THE TIME OF SUCH BORROWING, EXCEED 40% OF THE AGGREGATE CAPITAL COMMITMENTS OF THE PARTNERS. THE FUND AND/OR THE GENERAL PARTNER MAY ENTER INTO ONE OR MORE CREDIT FACILITIES OR GUARANTEES (OR PROVIDE OTHER CREDIT SUPPORT), AND IN CONNECTION THEREWITH, MAY PLEDGE THE ASSETS OF THE FUND AND MAY MAKE A COLLATERAL ASSIGNMENT TO ANY LENDER OR OTHER CREDIT PARTY OF THE FUND OF THE GENERAL PARTNER'S AND THE FUND'S RIGHTS TO ISSUE DRAW DOWN NOTICES AND OTHER RELATED RIGHTS, TITLES, INTERESTS, REMEDIES, POWERS, PRIVILEGES OF THE FUND AND/OR THE GENERAL PARTNER WITH RESPECT TO THE CAPITAL COMMITMENTS AND RIGHTS TO THE CAPITAL CONTRIBUTIONS OF THE PARTNERS, INCLUDING ANY ACCOUNTS OF THE FUND IN WHICH CAPITAL CONTRIBUTIONS MAY BE DEPOSITED. IN CONNECTION WITH SUCH BORROWINGS OR OTHER SUCH OBLIGATIONS, LIMITED PARTNERS MAY BE REQUIRED TO ACKNOWLEDGE AND CONSENT TO THE ASSIGNMENT OF SUCH RIGHTS AND MAY BE SUBJECT TO CERTAIN REQUIREMENTS OR RESTRICTIONS AND LIMITATIONS, SUCH AS THE REQUIREMENT TO PROVIDE CERTAIN INFORMATION PERTAINING TO SUCH LIMITED PARTNERS. LIMITED PARTNERS MAY ALSO BE REQUIRED TO SUBORDINATE THEIR RIGHT TO DISTRIBUTIONS TO THE RIGHT OF A LENDER WITH RESPECT TO SUCH BORROWINGS OR OTHER SUCH OBLIGATIONS. IF THE GENERAL PARTNER CAUSES THE FUND TO BORROW FUNDS, ANY CORRESPONDING BORROWED BUT NOT REPAID AMOUNT WILL INCREASE THE MANAGEMENT FEE PAYABLE TO THE ADVISOR, AND ANY REPAYMENT OBLIGATIONS AND INTEREST EXPENSE ASSOCIATED WITH SUCH LEVERAGE OR BORROWING WILL NOT REDUCE THE MANAGEMENT FEE. THE GENERAL PARTNER AND/OR ADVISOR WILL THEREFORE BE INCENTIVIZED TO INCREASE SUCH BORROWING TO INCREASE THE MANAGEMENT FEE. ALTHOUGH BORROWINGS BY THE FUND HAVE THE POTENTIAL TO ENHANCE OVERALL RETURNS THAT EXCEED THE FUND'S COST OF FUNDS, THEY WILL FURTHER DIMINISH RETURNS (OR INCREASE LOSSES ON CAPITAL) TO THE EXTENT OVERALL RETURNS ARE LESS THAN THE FUND'S COST OF FUNDS. IF THE FUND DEFAULTS ON SECURED INDEBTEDNESS, THE LENDER MAY FORECLOSE AND THE FUND COULD LOSE ITS ENTIRE INVESTMENT IN THE SECURITY FOR SUCH LOAN. IN ADDITION, IN THE EVENT THAT THE LENDERS REQUIRE INVESTORS WHOSE CAPITAL COMMITMENTS HAVE BEEN PLEDGED TO FUND THEIR CAPITAL COMMITMENT TO REPAY INDEBTEDNESS, THE FAILURE OF CERTAIN OF THOSE INVESTORS TO HONOR THEIR CAPITAL COMMITMENTS COULD RESULT IN THE REMAINING INVESTORS' REPAYMENT OBLIGATIONS EXCEEDING THEIR PRO RATA SHARE OF THE INDEBTEDNESS. A CREDIT FACILITY AT THE FUND LEVEL MAY PLACE RESTRICTIONS ON PAYMENTS TO EQUITY HOLDERS, INCLUDING PROHIBITIONS ON PAYMENTS IN THE EVENT OF ANY DEFAULT (OR CONTINUANCE THEREOF) UNDER THE CREDIT FACILITY. IT IS POSSIBLE THAT THE FUND MAY DECIDE TO REPAY ANY LEVERAGE WITH FUNDS DRAWN FROM THE COMMITMENTS OF THE LIMITED PARTNERS OF THE FUND OR TO MAKE FUTURE INVESTMENTS WITH LITTLE OR NO CORRESPONDING LEVERAGE, WHICH MAY ADVERSELY AFFECT THE FUND'S RETURNS. CONVERSELY, THE ABILITY OF THE FUND TO ATTAIN ITS INVESTMENT OBJECTIVES DEPENDS IN PART ON ITS ABILITY TO BORROW MONEY ON FAVORABLE TERMS. TO THE EXTENT THE FUND DOES NOT EMPLOY LEVERAGE OR BORROWS ON LESS FAVORABLE TERMS, THE FUND'S INVESTMENT RETURNS MAY BE LOWER THAN THOSE THAT COULD HAVE BEEN ACHIEVED USING LEVERAGE ON FAVORABLE TERMS AND THERE ARE RISKS THAT THE FUND WILL NOT BE ABLE TO MAINTAIN A LEVERAGE FACILITY ON FAVORABLE TERMS, OR AT ALL. TAX-EXEMPT INVESTORS SHOULD NOTE THAT THE INCURRENCE OF INDEBTEDNESS BY THE FUND COULD CAUSE THE FUND TO GENERATE UBTI AND SHOULD REFER TO THE DISCUSSION IN SECTION XII: "CERTAIN REGULATORY, TAX AND ERISA CONSIDERATIONS-CERTAIN U.S. TAX CONSIDERATIONS." FINANCIAL MARKET AND INTEREST RATE FLUCTUATIONS. GENERAL FLUCTUATIONS IN THE MARKET PRICES OF SECURITIES AND INTEREST RATES MAY ADVERSELY AFFECT THE VALUE OF THE FUND'S INVESTMENTS. VOLATILITY AND INSTABILITY IN THE SECURITIES MARKETS MAY ALSO INCREASE THE RISKS INHERENT IN THE FUND'S INVESTMENTS. THE ABILITY OF COMPANIES OR BUSINESSES IN WHICH THE FUND MAY INVEST TO REFINANCE DEBT SECURITIES MAY DEPEND ON THEIR ABILITY TO SELL NEW SECURITIES IN THE HIGH YIELD DEBT OR BANK FINANCING MARKETS, WHICH AT CERTAIN POINTS OVER THE LAST SEVERAL YEARS HAVE BEEN EXTRAORDINARILY DIFFICULT TO ACCESS AT FAVORABLE RATES. INTEREST RATE CHANGES MAY AFFECT THE VALUE OF A DEBT INSTRUMENT INDIRECTLY (ESPECIALLY IN THE CASE OF FIXED RATE SECURITIES) AND DIRECTLY (ESPECIALLY IN THE CASE OF INSTRUMENTS WHOSE RATES ARE ADJUSTABLE). IN GENERAL, RISING INTEREST RATES WILL NEGATIVELY IMPACT THE PRICE OF A FIXED RATE DEBT INSTRUMENT AND FALLING INTEREST RATES WILL HAVE A POSITIVE EFFECT ON PRICE. ADJUSTABLE RATE INSTRUMENTS ALSO REACT TO INTEREST RATE CHANGES IN A SIMILAR MANNER ALTHOUGH GENERALLY TO A LESSER DEGREE (DEPENDING, HOWEVER, ON THE CHARACTERISTICS OF THE RESET TERMS, INCLUDING THE INDEX CHOSEN, FREQUENCY OF RESET AND RESET CAPS OR FLOORS, AMONG OTHER FACTORS). INTEREST RATE SENSITIVITY IS GENERALLY MORE PRONOUNCED AND LESS PREDICTABLE IN INSTRUMENTS WITH UNCERTAIN PAYMENT OR PREPAYMENT SCHEDULES. THE FUND MAY ALSO INVEST IN FLOATING-RATE DEBT SECURITIES, FOR WHICH DECREASES IN INTEREST RATES MAY HAVE A NEGATIVE EFFECT ON VALUE. ANY DETERIORATION OF THE GLOBAL DEBT MARKETS, ANY POSSIBLE FUTURE FAILURES OF CERTAIN FINANCIAL SERVICES COMPANIES AND ANY SIGNIFICANT RISE IN MARKET PERCEPTION OF COUNTERPARTY DEFAULT RISK WILL LIKELY SIGNIFICANTLY REDUCE INVESTOR DEMAND AND LIQUIDITY FOR INVESTMENT GRADE, HIGH-YIELD AND SENIOR BANK DEBT, WHICH IN TURN IS LIKELY TO LEAD SOME INVESTMENT BANKS AND OTHER LENDERS TO BE UNWILLING OR SIGNIFICANTLY LESS WILLING TO FINANCE NEW INVESTMENTS OR TO ONLY OFFER COMMITTED FINANCING FOR INVESTMENTS ON LESS FAVORABLE TERMS THAN HAD BEEN PREVAILING IN THE PAST. THE FUND'S ABILITY TO GENERATE ATTRACTIVE INVESTMENT RETURNS MAY BE ADVERSELY AFFECTED TO THE EXTENT THE FUND IS UNABLE TO OBTAIN FAVORABLE FINANCING TERMS FOR ITS INVESTMENTS. 21