1. Direct Lending Fund General Fund Presentation V2

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Direct Lending Fund Presentation for Accredited Investors Only

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1. Direct Lending Fund General Fund Presentation V2

  1. 1. DIRECT LENDING Generating Monthly Cash Income From Fully Amortizing Consumer Term Loans as of July 2012
  2. 2. REPLACING LOST YIELD Interest Rates are at Historical Lows ar ar ar ar ar ye ye Ye ye ye 10 30 1 3 5 US Treasuries 0.17% 0.32% 0.64% 1.53% 2.61% Munis 0.20% 0.45% 0.61% 1.62% 2.77% Bank CDs 0.72% 1.30% 1.41% n/a n/a AA Corporate 0.30% 0.42% 1.40% 2.64% 4.00% Source: Bloomberg July 2012 Investors are being forced to make difficult decisions ⁺ Accept historically low interest rates on short duration investments ⁺ Take duration risk by tying up capital for longer periods ⁺ Accept volatility risk or loss of principal if rates rise in the future We went looking for a better alternative All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 2
  3. 3. OUR TARGET 9% - 11% Interest Provide investors with consistent cash income without taking significant principal risk ⁺ 9% - 11% interest income net of all fees and expenses ⁺ Average duration of 30 months ⁺ Highly diversified portfolio ⁺ No leverage Where did we find these qualities? All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 3
  4. 4. THE YIELD ON CONSUMER CREDIT REMAINS HIGH 1981 2012 16% 14% Over the past 30 years, cash yields on most 12% investments have 10% declined while interest rates on consumer loans 8% and credit cards have 6% remained high 4% 2% 0% T-bills 10 yr T- 10 yr 30 yr T- 30 yr Consumer Notes Munis Bonds Munis Credit “Credit spreads on unsecured consumer credit are attractive on both a relative and absolute basis and have proven durable over a variety of interest rate cycles” Source: Federal Reserve All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 4
  5. 5. PRIME & SUPER-PRIME BORROWERS Dominant Loan Purpose is Credit Card Pay-Offs Loan Purpose Borrower Credit Profile Credit Card Pay-Off Average Personal Credit Score Business 712 Home Target Loans Other Prime Super-Prime 500 - 509 510 - 519 520 - 529 530 - 539 540 - 549 550 - 559 560 - 569 570 - 579 560 - 569 570 - 579 580 - 589 590 - 599 600 - 609 610 - 619 620 - 629 630 - 639 640 - 649 650 - 659 660 - 669 670 - 679 680 - 689 690 - 699 700 - 709 710 - 719 720 - 729 730 - 739 740 - 749 750 - 759 760 - 769 770 - 779 780 - 789 780 - 789 790 - 799 <500 800+ WEAK MODERATE STRONG EXCELLENT All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 5
  6. 6. CONSUMER CREDIT – GOOD LOANS TO GOOD PEOPLEBanks have abandoned their historical foundation of making small loans⁺ Bank’s with high cost infrastructure can no longer make small loans profitably⁺ Huge unmet consumer demand - 60% of loans are to pay-off credit cards due to high interest rates and reduction in available credit Ed the Electrician + Lives in Indiana + Has had the same job for 10+ years + Makes $86,000 a year + Has a FICO score of 718 + Hasn’t had a delinquent payment in at least 5 years + Owns his own home + Wants to borrow $7,000 to pay-off all his credit card debt + His local banker “doesn’t make installment loans anymore” All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 6
  7. 7. ONLINE LENDING – A NEW PARADIGMNew consumer lending platforms allow investors to “be the bank” BANKS LENDING PLATFORMS All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 7
  8. 8. INVESTING THROUGH LENDING PLATFORMS A powerful new alternative to the traditional banking model for credit origination ⁺ Over $1 billion lent across 114,000 loans through May 2012 ⁺ Currently $56 million per month growing 5% month over month ⁺ Over 5,000 new loans each month ⁺ Fully amortizing unsecured consumer loans ⁺ Short Duration: Combination of 3 & 5 year loans ⁺ Loan level transparency (publicly available data) ⁺ Disruptive Internet-based lending model is more efficient than traditional banking, using technology to: ⁺ lower the cost of loan origination ⁺ build broadly diversified loan portfolio by geography, Be the borrower credit, loan size, and loan type ⁺ Automated credit scoring and credit verification Bank ⁺ Growing number of Lending Platforms All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 8
  9. 9. FRACTIONAL OWNERSHIP PROVIDESGREATER BORROWER DIVERSIFICATION One borrower Multiple lenders More borrowers means further diversification by geography, employers, and other The Fund holds a fraction of any single borrower characteristics loan, for example $2,000 of a $6,000 loan. Fractional ownership permits broader diversification – each invested dollar participates in more loans All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 9
  10. 10. DIRECT LOAN ORIGINATION PROCESS LOAN ORIGINATED + DLF does independent credit analysis and portfolio BORROWER optimization INQUIRY + DLF makes buy/pass decision DATA + Institutional DVP COLLECTION+ Referred to CREDIT + Loan and Note in separate SPV Website by: SCORING + Affiliates + Borrower DATA Partners completes + Advertising detailed online VERIFICATION + Lending LOAN COLLECTIONS+ Borrower questionnaire Platforms utilize SERVICING & DEFAULTS answers 6 basic + Data collected proprietary + Borrower questions to from IRS credit scoring provides pre-qualify database models based requested + Serviced by + Lending Platforms (90% fail) + Data collected on FICO and physical data originating actively call to collect from ADP heuristic credit including W-2; Lending Platform in the 1st 30 days and/or Paychex variables tax returns; pay + ACH Collections + 31 – 120 days past + Data collected + Loan is Rated & stubs from FICO due collected by 3rd Priced (APR) + Payment providers + Lending party collection firms confirmation and + Lending Platforms reporting to + 120 day charge-off Platform does perform manual investors policy manual credit and automated verification as random data + Cash paid to + Ongoing collection necessary verifications investor accounts after default All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 10
  11. 11. STRONG INTERNAL CREDIT CRITERIA Strong Risk Analysis & Credit Scoring Process ⁺ Minimum FICO Score We evaluate over 4,000 ⁺ Absolute amount of income loans per month ⁺ Size of requested loan amount ⁺ Delinquencies and charge-offs ⁺ Utilization of aggregate credit limit We look for: ⁺ Size of revolving credit line • Ability to pay ⁺ Job consistency • Willingness to pay ⁺ Type of employment / occupation • Likelihood to pay ⁺ Employer ⁺ Length of credit history ⁺ Education All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 11
  12. 12. DIRECT LENDING FUND I, L.P. Generating Monthly Cash Income All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby.
  13. 13. KEY INVESTOR BENEFITSMonthly Income with very low risk to Principal⁺ 9% - 11% interest income net of all fees and expenses⁺ Low risk and Low volatility ⁺ Diversification with participation in thousands of Prime and Super Prime consumer loans ⁺ No leverage ⁺ 30 month average duration⁺ Professional loan selection, portfolio management, & administration⁺ Negotiated Lender Incentives paid to the Fund which enhance the Fund’s performanceFlexible Cash Distribution & Withdrawal Options⁺ Reinvestment: Re-invest all monthly principal and interest income into new loans⁺ Monthly Cash Distributions – Fixed Amount: Request a fixed monthly payment per month and reinvest the balance of your pro rata Net Cash Flow⁺ Monthly Cash Distributions – Fixed Percentage: Request a monthly distribution calculated as a fixed percentage of your capital account and reinvest the balance⁺ Monthly Cash Distributions – Percent of Income: Request a monthly distribution calculated as a fixed percentage of your monthly income (up to 100%) and reinvest the balance⁺ Withdrawal: Request a monthly payment of all pro rata Net Cash Flow; Account pays out in no more than 36 months; The General Partner can accelerate these payments at its option All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 13
  14. 14. PROJECTED PERFORMANCE METRICS KEY PERFORMANCE METRICS PROJECTED PORTFOLIO PERFORMANCE 2 BY LOAN RISK RATING SEGMENTS BASED ON ALLOCATION BY LOAN RISK RATING Loan Gross Expected Gross Weighted Weighted Projected Risk Interest Default Loan Net % Interest Default Loan Annual 3 Rating Rate Rate Servicing Return Invested Rate Rate Servicing Return4 A 7.50% 1.25% 1.00% 5.25% 0% 0.00% 0.00% 0.00% 0.00% B 11.75% 3.00% 1.00% 7.75% 5% 0.59% 0.15% 0.00% 0.44% C 15.15% 4.40% 1.00% 9.75% 40% 6.06% 1.76% 0.00% 4.30% D 18.25% 5.75% 1.00% 11.50% 45% 8.21% 2.59% 0.00% 5.63% E 21.00% 7.25% 1.00% 12.75% 5% 1.05% 0.36% 0.00% 0.69% F 22.75% 8.60% 1.00% 13.15% 3% 0.68% 0.26% 0.00% 0.42% G 24.50% 9.50% 1.00% 14.00% 2% 0.49% 0.19% 0.00% 0.30% 100% 17.08% 5.31% 0.00% 11.77%1 This example is for sample purposes only and the Funds allocation among Risk Rating Segments will vary2 Before direct expenses of the Fund, Management and Acquisition Fees3 The General Partner has negotiated Lender Incentives with certain Lending Platforms that eliminate this fee4 Estimated 9% - 11% annual return to investors after all fees and expenses All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 14
  15. 15. EXPERIENCED TEAMHoward Freedland CFA, CIO & Portfolio Manager Simon Leach, Chief Operations Officer⁺ Previously CIO of F500 Advisory Services ⁺ COO of Mickelson Capital Consulting and⁺ Experienced Hedge Fund Manager member of the Investment Policy Committee⁺ Experienced Executive ⁺ Marketing Director of Office Depot’s Direct Business Division ⁺ CEO of National Water & Power ⁺ CFO of GE Capital – ResCom Rochelle Werrett-Allen, VP-Compliance & Operations ⁺ Managing Partner of Lido Capital ⁺ Manager of Compliance for Mickelson Capital Consulting ⁺ Head of Insurance OperationsDavid Mickelson ChFC, CEO⁺ Founder & Principal of Mickelson Capital Consulting and its affiliates Elizabeth Jordan, Office Manager⁺ RIA since 1995 ⁺ Oversees office operations⁺ Accredited Estate Planner and Chartered Financial Consultant with over 20 years experience providing sophisticated wealth management services to ultra-high net worth individuals and family offices and their trusted advisors All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 15
  16. 16. FUND STRUCTUREFUND STRUCTURE 3(c)(1) Delaware Limited Partnership SEC registered notes issued by specially formed trusts (“Notes”) secured with fullyASSETS amortizing consumer loans with three & five year terms Generate monthly cash income by investing in a highly diversified portfolio ofSTRATEGY Notes Purchase a large number of Notes laddered by acquisition date with variousDIVERSIFICATION characteristics such as risk categories based on likelihood of default, borrower characteristics, geographic location, and loan typeSUBSCRIPTIONS Monthly. $250,000 minimum investmentINVESTOR QUALIFICATIONS Each investor must be an “accredited investor” as defined by the SECWITHDRAWALS Monthly with 30 day advance notice. Since Notes are illiquid, withdrawals are treated as a separate Share Class and principal and interest are distributed as received. The Fund may purchase a withdrawing Partner’s Interest but is not obligated to do so 1. Reinvestment: Investors may elect to reinvest principal and interest earned or;DISTRIBUTION SUB-CLASSES 2. Distribution: Investors may elect to receive (a) a fixed payment per month; or (b) a percentage of their capital account All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 16
  17. 17. SUMMARY OF TERMS NAV is calculated and reported on a tax (cash) basis. Each non-defaulted loan isNET ASSET VALUE carried at its currently amortized principal balance. Defaulted loans are written off immediately against the current month’s incomePARTNERSHIP EXPENSES Fund expenses including custodial expenses, third party administration, audit, tax and legal expenses are paid directly by the FundPURCHASER INDUCEMENTS The General Partner may negotiate purchaser inducements from loan platforms that originate Notes. All purchaser Inducements will be paid directly to the FundMANAGEMENT FEE 2% per annum paid monthly in arrears Negotiated rate for institutional investors, RIAs and FoHFsLOAN ACQUISITION FEE .25% one-time fee of Notes acquired in the prior 4 monthsPERFORMANCE FEE No performance feeREPORTING Monthly electronic/paper statements provided by the AdministratorCUSTODIAN Millennium Trust CompanyADMINISTRATOR Opus Fund ServicesAUDITOR Rothstein KassLEGAL COUNSEL Paul Hastings All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 17
  18. 18. POTENTIAL RISKS Reputation Risk + Government is increasing regulation on a wide range of consumer lenders + Loan collection procedures are a key area of concern Economic Risks + Limitations on maximum lending rates + Limitations on loan fees + Economy may worsen + Loan payments are influenced by the unemployment rate Tax Risks + Tax rates on earned income may rise significantly + Tax rates on passive income may rise significantly Please review the Direct Lending Fund I, L.P. placement memorandum for a more extensive discussion of potential risks All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 18
  19. 19. CONTACT INFO Direct Lending Advisors, LLC 301 Mission Avenue, Suite 209 Oceanside, CA 92054 (760) 804-8050 David Mickelson – CEO dm@mickcap.com (760) 804-8056 - Office Howard Freedland, CFA - CIO howard@mickcap.com (760) 804-8054 – Office (949) 813-5563 – Mobile Simon Leach sleach@mickcap.com (760) 804-8050 – Office (760) 710-7679 – Mobile All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 19
  20. 20. DISCLOSURE AND CONFIDENTIALITYDirect Lending Partners, LLC (“DLP”) and Direct Lending Advisors, LLC (“DLA”), both wholly-owned subsidiaries ofMickelson Capital Consulting (“MCC”), serve as the General Partner and Adviser of the Direct Lending Fund, L.P.and other associated investment vehicles discussed herein (the “Fund”). The Fund invests exclusively in consumerloans originated through various online lending exchanges. Any grades or credit scoring attached to loans areassigned by the lending exchanges.The materials and information contained and described herein are proprietary to DLP, DLA, MCC, and the Fundand may not be reproduced or distributed in any fashion without such parties’ written consent. These materialsdo not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument orparticipate in any particular trading or investment strategy and no representation or warranty is given withrespect to any future offer or sale. This information is not investment or tax advice or an investmentrecommendation.These materials have been prepared solely for informational purposes and are subject to change without notice.The information contained herein is generally believed to be reliable but no representation or warranty is givenwith respect to its accuracy or completeness. Investments may lose value over time and no return is guaranteed. All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 20
  21. 21. APPENDIX 1 Online Consumer Lending Exchanges All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 21
  22. 22. CURRENT LENDING PLATFORMS Signature Consumer Loans ⁺ Launched lending platform June 2007 ⁺ Began offering securitized SEC registered Notes with fractional interests 4Q08 ⁺ 3 and 5 year loans ⁺ Loans originated to date: $564 million (as of 3/2012) ⁺ Monthly origination volume: $38 million (as of 3/20112 ⁺ Investors include Foundation Capital, Morgathaler Ventures, Caanan Partners, Norwest Venture Partners, and the Thompson Family Signature Consumer Loans ⁺ Launched lending platform November 2005 ⁺ Began offering securitized SEC registered Notes with fractional interests 3Q09 ⁺ 1, 3, and 5 year loans ⁺ Loans originated to date: $320million (as of 3/2012) ⁺ Monthly origination volume: $11 million (as of 3/2012) ⁺ Investors include Accel Partners ,Draper Fisher Jurvetson, Fidelity Ventures, and Compucredit All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 22
  23. 23. $1 BILLION IN CONSUMER TERM LOANS Source: Peter Renton, Social Lending Network May 29, 2012 All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 23
  24. 24. PEER TO PEER LENDING CROSSES $1 BILLIONWhy Peer-to-Peer Lending is Becoming so PopularBoth Lending Club and Prosper continue to see impressive growth as shown in this chart. What is behind this rapid growth?1. Investors can earn double-digit returnsAfter several years of low interest rates investors are actively seeking alternatives. Peer to peer lending offers returns in the 6-10% rangeand the possibility of even earning more than 10%. While there are risks most investors are earning far more at Lending Club and Prosperthan they are in traditional fixed income investments.2. Institutional investors are moving inLast year institutional investors started moving serious money into both Lending Club and Prosper. There is now over $100 million ininstitutional money invested at Lending Club and that number is growing all the time. Prosper has several large institutional investorsincluding one who has invested close to $30 million and pledged another $120 million in coming years.3. Consumers want to get out of credit card debtBy far the most common type of loan on both Lending Club and Prosper is debt consolidation. People are trying to dig themselves out ofcredit card debt where rates can routinely climb north of 25% if a borrower misses a payment. Someone with decent credit can get a 36-month peer-to-peer loan at 12%, pay off their high interest credit cards and become free of credit card debt in three years. It is a win-winfor the borrower and the investors who loan the money.4. Banks are still not lending freelyIt is not news that bank credit remains tight. Personal loans are very difficult to obtain and the popular form of borrowing last decade – thehome equity loan – was killed by the financial crisis. Small businesses are also feeling the pinch so business owners continue to look foralternative means of financing.5. The industry is gaining credibilityWhen one of the titans of Wall Street joins the board of a p2p lender, as John Mack (former CEO of Morgan Stanley) did recently at LendingClub, it provides a level of credibility that wasn’t there before. Prosper also announced this year that long time Goldman Sachs executiveEric Schwartz has joined their board. No longer could people write off p2p lending as a passing trend.Peer to peer lending is an idea whose time has come. Its rapid growth as it moves past $1 billion in originations reflects that. It providesadvantages for both borrowers and lenders, more so now than ever before. Peer to peer lending is only just getting started so don’t besurprised if the $2 billion mark is crossed very quickly, probably within the next 12 months.Source: Peter Renton, Social Lending Network May 29, 2012 All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 24
  25. 25. LOOKING FOR 10% YIELDS?GO ONLINE FOR PEER TO PEER LENDING CHRIS BARTH , FORBES STAFFThe following story appears in the June 25, 2012 Investment Guide issue of Forbes magazine.Years ago clipping coupons from bonds was the province and passion of people in retirement. Today a tidal wave of aging boomers want income, buttraditional sources are lacking. Ten-year Treasurys yield 1.6%. Safe-money bank CDs? 0.5%. Investment-grade corporate bonds are delivering 3.2%.So coupon clippers are seeking alternatives. That’s why dividend stocks and annuities are all the rage. But there’s another neat source of high yield thatrelatively few consider. Peer-to-peer lending, or making personal loans via the Internet using websites like LendingClub.com and Prosper.com.After six years of experience and some bumps, including a financial crisis and ensuing recession, peer-to-peer (P2P) lending has finally earned its place on anincome investor’s menu. The basic premise of these bank disintermediaries is that they harness the networking power of the Web to match people whohave excess cash with people in need of it or those who simply want to refinance credit card debt. The key to its success has been how the sites havemanaged the inherent riskiness of unsecured personal loans. Believe it or not, it is now possible to earn yields of 6% or more, making relatively safe loans tocomplete strangers.Los Angeles financial advisor Brendan Ross committed $300,000 of his own money to Lending Club in early 2011. Based on his quarterly interest paymentshe claims he has accrued about $40,000 in income to date. Annual yield: 10.2%. “I’d been tracking the P2P space pretty much since inception,” Ross says. “Iwas waiting to feel like its loan underwriting model had matured.”San Francisco’s Lending Club is the largest P2P lender, followed by its crosstown rival Prosper. There are also a host of microlending sites, but their loans aregenerally low-rate or non-interest-bearing, as they go to people in emerging economies. Lending Club and Prosper have loaned a total of more than $1billion since inception, in 112,000 loans. Lending Club currently issues about $45 million in loans a month versus Prosper’s $13 million per month. Prosperran afoul of the SEC in 2008 and temporarily shut down to revamp its risk-assessment model. At Lending Club, after a quick registration you can sortthrough hundreds of potential loans. Each loan has its own risk rating, term (either 36 or 60 months) and rate of return.Loans with the highest rating—based on the borrower’s FICO score and some proprietary analysis—pay in the 5% to 9% range—about the same as junkbonds. Interest rates on riskier loans range as high as 31%. Both companies also offer diversified funds of aggregated loans and IRA options. Lending Cluband Prosper vet thousands of loan applications, whittling down the pool to only those borrowers the company deems least likely to default.Renaud Laplanche, cofounder and CEO of Lending Club. says his firm declines about 90% of all borrower applications, focusing on the 10% of borrowerswith the best credit. Of course defaults happen. Lending Club’s top-rated three-year loans expect a default rate of around 1.4%, and the riskiest loans,offering rates as high as 25%, have a 9.8% default rate. By contrast junk bonds have an average default rate of 1.9%.It’s prudent to opt for the pools of hundreds of P2P loans both sites offer. That’s how advisor Ross is earning 10%, despite a handful of defaults on directloans he made. Indeed, Lending Club’s website prominently features the statistic that investors who have at least $20,000 spread over 800-plus loans havenever lost a dollar of their initial capital.John Mack, former chairman of Morgan Stanley, is a convert to P2P lending. After committing several million of his own capital to such loans, he joinedLending Club’s board in April. Says Mack: “Three-year Treasurys are about 40 basis points. Lending Club’s more conservative fund—three years, amortizingquarterly—is about 7%. Given where short-term rates are today, there’s a real opportunity here.” All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 25
  26. 26. APPENDIX 2 The Consumer Lending Market All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 26
  27. 27. CONSISTENT PROVEN PROFITABILITY 10.8% Federal Reserve Average Credit Card Net Return ⁺ Banks have earned an average of 10.8% per 18% year on average over the past 25 years (Source: Federal Reserve data; 1985 - 2010) 16% ⁺ Estimate of 181 million credit card holders in 14% 15.5% the United States (58% of population) 12% ⁺ Positive lending spread in 25 of 26 years 10% throughout volatile economic and interest 10.8% rate cycles. 8% ⁺ Analysis does not include additional fees 6% charged by banks 4% ⁺ Banks keep majority of consumer loans on 4.7% their balance sheets due to steady 2% profitability 0% Interest Rate Charge-Off Net Spread All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 27
  28. 28. HISTORICAL CONSUMER DEBT CHARGE-OFFS + 36 month average charge-offs are less volatile than nominal charge-offs + Investing over time further reduces charge-off risk All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 28
  29. 29. TRENDS IN CONSUMER CREDIT And unemployment continues to show steady improvement Source: American Bankruptcy Institute. Data as of 11/11. Source: US Bureau of Labor Statistics, 3/2012 All statements made herein are confidential and made for informational purposes only. No offering of securities is being made hereby. 29

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