Q1 2010 Quarterly Investment Review

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QUARTERLY INVESTMENT UPDATE FIRST QUARTER 2010 Crestline Capital, LLC CC

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Crestline Capital- Q1 2010 Quarterly Investment Review

Transcript of Q1 2010 Quarterly Investment Review

Page 1: Q1 2010 Quarterly Investment Review

QUARTERLYINVESTMENTUPDATEFIRSTQUARTER2010

Crestline Capital, LLCCC

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USLargeCompaniesStocks

USSmallCompanyStocks

USREITStocks

Interna?onalDevelopedStocks

USBondMarket

USTreasuryOneMonthTreasuryBills

+5.39% +8.85% +9.81% +0.87% +1.53% +0.01%

Marketsegment(Indexrepresenta?on)asfollows:USLargeCompanyStocks(S&P500Index);USSmallCompanyStocks(Russell2000Index),USValueStocks(Russell1000ValueIndex).USRealEstateMarket(DowJonesUSSelectREITIndex),Interna?onalDeveloped(MSCIEAFEIndex(netdiv.)),EmergingMarkets(MSCIEmergingMarketsIndex(grossdiv)),USBondMarket(BarclaysCapitalUSAggregateBondIndex),andTreasury(One‐MonthUSTreasuryBills).TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla?ondata©Stocks,Bonds,Bills,andInfla?onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield).

MarketsUpdate:AQuarterinReviewFirstQuarter2010

EmergingMarketsStocks

+2.45%

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BONDSSTOCKS

USValueStocks

+6.79%

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MarketsUpdate:AQuarterinReviewFirstQuarter2010

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•   TheUSequitymarketcon?nueditsstrongperformanceinthefirstquarterof2010,thefourthconsecu?vequarterwithabove‐averagereturns.ThebroadUSmarketgainedabout6%inthequarter,withallassetclassesdeliveringsolidgainsagain.Performanceinotherdevelopedmarketsaroundtheworldwasmixed.

•   Europeanmarketsasawholehadnega?vereturnsforthequarter,withSpain,Greece,andPortugalallsufferingdouble‐digit losses.On the other hand, developedmarkets in theAsia Pacific region, led by Japan,which had an outstandingquarter,generallyfaredmuchbeler.TheUSdollargainedgroundagainstmostmajorcurrencies,especiallytheeuroandthepound,whichhurtthedollar‐denominatedreturnsofdevelopedmarketequi?es.

•   Aner being the top‐performing asset class for the past four quarters, emergingmarkets cooled off in the first quarter,although returns were s?ll solidly posi?ve. As in the case of developed markets, there was much dispersion in theperformanceofdifferentemergingmarketsandassetclasses.Mostemergingmarketsexperiencedsolidlyposi?vereturnsinthefirstquarter,butsomeofthelargermarketssuchasBrazil,China,andTaiwanhadnega?vereturns.TheUSdollarlostgroundagainstthemainemergingmarketcurrenciesinthefirstquarter,whichcontributedtothedollar‐denominatedreturnsofemergingmarketequi?es.

•   Valuestocksoutperformedgrowthstocksacrossallmarketcapitaliza?onsegmentsintheUS,whiletheoppositewastrueinotherdevelopedmarkets.Inemergingmarkets,largecapvaluestockstrailedlargecapgrowthstocks,whilesmallcapvaluestocksoutperformedsmallcapgrowthstocks.

•   Alongthemarketcapitaliza?ondimension,smallcapsoutperformedlargecapsintheUS,inotherdevelopedmarkets,andinemergingmarkets.

•   Realestatesecuri?eswereamongthe topperformers in thefirstquarter in theUS,but theyhadaflatperformance inotherdevelopedmarkets.

•   Fixedincomesecuri?eshadposi?vereturnsinthefirstquarter.Longer‐termsecuri?estendedtohavebelerperformancethanshort‐termones.

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TimelineofEvents:AQuarterinReviewFirstQuarter2010

EarthquakehitsHai?andinoneofthemostdevasta?ngnaturaldisastersofthepast20years

USquarterlyGDPgrowthisstrongestinsixyears

GoogleclosesitsChinasearchwebsiteinagrowingcontroversyovercensorship

AkioToyoda,ToyotaMotorCorpora?on’sCEO,tes?fiesbeforeCongressregardingrecentsafetyproblems

Jan12 Feb12 Feb27 Mar4 Mar23

2010WinterOlympicskickoffinVancouver,Canada

Oneofthestrongestearthquakeeverrecordedstrikessouth‐centralChile

Greece’sdebtcrisisescalatesleadingtoanIMF/EuropeanUnionbailoutpackage

Feb24

PresidentObamasignslandmarkhealthcarereformlegisla?on

Jan19

KranbuysCadburyinoneofthelargesttransna?onaltakeoverssincethecreditcrunch

Jan29

AppleintroducesnewiPadtablet

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Annualized(%)

Index1YearEnding12/31/2009

3YearsEnding12/31/2009

5YearsEnding12/31/2009

10YearsEnding12/31/2009

20YearsEnding12/31/2009

SinceIncep?on(Incep?ondate)

USLargeCompanyStocksS&P500Index 49.77 ‐4.17 1.92 ‐0.65 8.66 9.85

(01/1926)

USSmallCapStocksRussell2000Index 62.76 ‐3.99 3.36 3.68 8.93 11.47

(01/1979)

USValueStocksRussell1000ValueIndex 53.56 ‐7.33 1.05 3.10 9.36 12.21

(01/1979)

USRealEstateInvestmentTrustStocksDowJonesUSSelectREITIndex 113.47 ‐11.99 3.38 11.38 9.51 12.31

(01/1978)

Interna?onalStocksMSCIEAFEForeignStockIndex 54.44 ‐7.02 3.75 1.27 5.25 9.45

(01/1970)

MSCIEmergingMarketsIndex 81.55 5.46 16.00 10.11 11.12 13.79(01/1988)

BondsSBBILong‐TermCorporateBonds 19.43 5.30 4.92 7.55 8.09 5.83

(01/1926)

SBBIOne‐MonthUSTreasuryBills 0.08 1.71 2.73 2.63 3.75 3.65(01/1926)

BeyondtheQuarter:SurveyofLongTermPerformanceAsofMarch31,2010

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TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla?ondata©Stocks,Bonds,Bills,andInfla?onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield). Indexesarenotavailablefordirect investment. Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.

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Q1 2010

ChangeinValueof$10,000InvestedinVariousMarketsApril1,2009–March31,2010

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CHANGEINVALUEOF$1

AssetClass Index 1Year 5Years 10Years 20YearsUSLargeCompanyStocks S&P500 $1.50 $1.10 $0.94 $5.26USSmallCapStocks Russell2000 $1.63 $1.18 $1.44 $5.53USValueStocks Russell1000Value $1.54 $1.05 $1.36 $5.98USRealEstateInvestmentTrustStocks DowJonesUSSelectREIT $2.13 $1.18 $2.94 $6.15Interna?onalDevelopedStocks MSCIEAFE $1.54 $1.20 $1.13 $2.78EmergingMarketStocks MSCIEmergingMarkets $1.82 $2.10 $2.62 $8.24FixedIncomeCorporateBonds Long‐TermCorporateBonds $1.19 $1.27 $2.07 $4.74ShortTermGovernmentBonds One‐MonthUSTreasuryBills $1.00 $1.14 $1.30 $2.09

TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla?ondata©Stocks,Bonds,Bills,andInfla?onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield). Indexesarenotavailablefordirect investment. Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.

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ValueofStockMarketsAroundtheWorldJanuary1990–March2010

•   Globalmarketcapitaliza?onweightsarenotsta?c,theychangeacross?me.

Developedmarkets’securi?esandcommodi?esdataprovidedbyBloomberg.EmergingMarkets’dataprovidedbyInterna?onalFinanceCorpora?on.TheRussell3000IndexisusedastheproxyfortheUSmarket.Theproxiesforthenon‐USdevelopedandemergingmarketsaretherespec?vedevelopedcountryandemergingcountrypor?onsfromtheMSCIAllCountryWorldIMIexUSAIndex.TheproxiesfortheUK,Canada,andAustraliaaretherelevantsubsetsofthedevelopedmarketproxy.

Weights

NumberofCountries

NumberofStocks TotalValue March31,2009

ChangeFromPreviousQuarter

01/90‐3/10Average

UnitedStates 1 2,949 12.64Trillion 43.21% 0.93% 44.69%DevelopedMarkets 22 3,503 12.82Trillion 43.83% ‐0.86% 50.64%EmergingMarkets 22 2,551 3.79Trillion 12.96% ‐0.07% 4.67%Total 45 9,003 29.25Trillion 100.00%

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TheRandomnessofQuarterlyReturns

Q42006

Q12007

Q22007

Q32007

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Q12010

Q22010

17.64 4.01 15.05 14.52 3.66 2.14 0.58 4.78 23.36 1.02 34.84 35.44 9.18 9.81 ?

Russell 2000 10.12 3.74 6.98 2.71 1.97 0.52 0.53 0.43 0.20 0.03 31.46 21.04 8.58 8.85 ?

8.90 2.35 6.28 2.56 0.93 ‐1.13 ‐0.80 ‐1.12 ‐21.15 ‐11.01 25.86 19.36 6.04 6.79 ?

div.) 8.85 1.95 4.93 2.03 ‐1.62 ‐8.69 ‐1.17 ‐6.11 ‐21.94 ‐12.43 20.68 19.28 4.22 5.39 ?

) 8.00 1.26 4.42 1.42 ‐3.33 ‐8.72 ‐2.49 ‐8.37 ‐22.18 ‐13.14 16.69 18.24 3.88 2.45 ?

REIT 6.70 1.24 1.26 1.14 ‐4.58 ‐9.45 ‐2.72 ‐8.54 ‐26.12 ‐14.95 15.93 15.61 2.44 1.53 ?

1.35 0.64 ‐1.88 ‐0.24 ‐5.80 ‐9.90 ‐5.32 ‐20.67 ‐27.56 ‐16.77 8.24 11.09 0.01 1.35 ?

1.24 ‐0.02 ‐9.36 ‐3.09 ‐13.54 ‐10.92 ‐5.39 ‐26.86 ‐39.95 ‐33.92 0.02 0.03 ‐2.17 0.01 ?

TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.USlong‐termbonds,bills,andinfla?ondata©Stocks,Bonds,Bills,andInfla?onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield). Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.

Highest Return

Lowest Return

Thistableshowsfromtoptobolomthe highest returning asset classeseachyearover the last14quarters.Each asset class is color codedbasedonthelegendbelow.

Thelackofapalernindicatesthatpickingwhichassetclasseswillbethebestorworstperformersisvirtuallyimpossible.

InQ42008,forexample,theMSCIEmergingMarketsIndexwasthesecondtoworstperformingassetclass.Aquarterlateritwasrightupatthetop.

Porsolioscombiningthesevariousinvestmentswillavoidextremereturns.

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S&P500

Russell2000

Russell1000Value

MSCIWorldexUSA

MSCIEmergingMarkets(grossdiv.)

DowJonesUSSelectREIT

One‐MonthUSTreasuryBills

Long‐TermCorporateBonds

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ReturnsofGloballyDiversifiedPorsoliosAsofMarch31,2010

GlobalStocksrepresentedbyMSCIAllCountryWorldIndex(grossdiv.)andTreasuryBillsrepresentedbyUSOne‐MonthTreasuryBills.DatacopyrightMSCI2010,allrightsreserved.©Stocks,Bonds,Bills,andInfla?onYearbook™,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield).Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.

AnnualizedReturns(%)

Percent Q12010 OneYear ThreeYears FiveYears TenYears TwentyYears

100%GlobalStocks 3.24 56.31 ‐3.84 4.48 1.09 7.1575/25 2.48 40.35 ‐1.97 4.40 1.77 6.5450/50 1.69 25.71 ‐0.41 4.07 2.25 5.7725/75 0.87 12.31 0.81 3.51 2.53 4.83100%TreasuryBills 0.01 0.08 1.71 2.73 2.63 3.75

Posi?vevs.Nega?veMonths:January1988–March2010,Total267months

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USStockReturnsAsofMarch31,2010

Russelldatacopyright©Russell InvestmentGroup1995‐2010,allrightsreserved.Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.

Returns(%)

AssetClass Index Q12010 OneYearThreeYearsAnnualized

Marketwide Russell3000 5.95 52.44 ‐3.99LargeCap S&P500 5.39 49.77 ‐4.17LargeCap Russell1000 5.70 51.57 ‐3.98LargeCapValue Russell1000Value 6.79 53.56 ‐7.33LargeCapGrowth Russell1000Growth 4.65 49.75 ‐0.78SmallCap Russell2000 8.85 62.76 ‐3.99SmallCapValue Russell2000Value 10.03 65.06 ‐5.71SmallCapGrowth Russell2000Growth 7.61 60.31 ‐2.42

•   Alookatthedeterminantsofequityperformance—rela?vepriceandmarketcapitaliza?on—providessomeinsightintothesourcesofreturns.

•  Historically,valuestocks,asmeasuredbythera?oofbook‐to‐marketequity(BtM),haveoutperformedgrowthstocks,andthatwasindeedthecaseinthefirstquarter.

•  Historically,smallstockshaveexperiencedhigherreturnsthanlargestocks,andthatwasindeedthecaseinthefirstquarter.

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Interna?onalStockReturnsAsofMarch31,2010 Returns(%)

AssetClass Index Q12010 OneYearThreeYearsAnnualized

Marketwide MSCIAllCountryWorldexUSA 1.58 60.93 ‐4.17DevelopedLargeCap MSCIEAFE 0.87 54.44 ‐7.02DevelopedSmallCap MSCIEAFESmall 4.76 70.02 ‐8.27DevelopedValue MSCIEAFEValue ‐0.24 58.52 ‐8.40DevelopedGrowth MSCIEAFEGrowth 1.96 50.61 ‐5.70EmergingMarketsLargeCap MSCIEmergingMarkets 2.40 81.08 5.16EmergingMarketsSmallCap MSCIEmergingMarketsSmall 5.07 118.10 7.44EmergingMarketsValue MSCIEmergingMarketsValue 2.35 83.89 8.00EmergingMarketsGrowth MSCIEmergingMarketsGrowth 2.45 78.32 2.32

MSCIdatacopyrightMSCI2010,allrightsreserved.Interna?onaldevelopedrepresentedbyMSCIEAFEindexandEmergingMarketsbyMSCIEmergingMarketsIndex.Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.

IMPACTOFCURRENCYFLUCTUATIONSONRETURNSFORINVESTORSINUSDOLLARSOneYearReturnsinUSDollarsandLocalCurrency ThreeYearAnnualizedReturnsinUSDollarsandLocalCurrency

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MSCICountryReturnsinUSDollarsandLocalCurrencyAsofMarch31,2010

12MSCIdatacopyrightMSCI2010,allrightsreserved.

TENYEARPERFORMANCERANKINGOFMARKETSAROUNDTHEWORLDINUSDOLLARSASOFDECEMBER31,2009

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RealEstateInvestmentTrusts(REIT)StocksAsofMarch31,2010

NumberofREITstocksandtotalvaluebasedonthetwoindices.DowJonesUSSelectREITIndexdataprovidedbyDowJones©.S&PGlobalexUSREITIndexdataprovidedbyStandardandPoor’s©.Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.

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Returns(%)

Index Q12010 OneYearThreeYearsAnnualized

DowJonesUSSelectREITIndex 9.81 113.47 ‐11.99S&PGlobalexUSREITIndex(grossdiv.) ‐0.04 67.42 ‐15.91

NumberofREITStocks TotalValueofREITStocks

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BondReturnsAsofMarch31,2010

BarclaysCapitaldata,formerlyLehmanBrothers,providedbyBarclaysBankPLC.USlong‐termbonds,bills,infla?on,andfixedincomefactordata“Stocks,Bonds,Bills,andInfla?onYearbook”,IbbotsonAssociates,Chicago(annuallyupdatedworkbyRogerG.IbbotsonandRexA.Sinquefield).Ci?groupbondindexescopyright2010byCi?group.TheMerrillLynchIndicesareusedwithpermission;copyright2010MerrillLynch,Pierce,Fenner&Smith Incorporated;all rightsreserved. Indexesarenotavailable fordirect investment. Indexperformancedoesnotreflect theexpensesassociatedwiththemanagementofanactualporsolio.Pastperformanceisnotaguaranteeoffutureresults.

Returns(%)

Index Q12010OneYear

ThreeYearsAnnualized

SBBIOne‐MonthUSTreasuryBills 0.01 0.08 1.71BankofAmericaMerrillLynchThree‐MonthT‐Bills 0.01 0.17 1.99BankofAmericaMerrillLynchOne‐YearUSTreasuryNote 0.25 1.06 3.45Ci?groupWorldGovernmentBond1‐5Years(hedged) 0.76 2.29 4.85SBBIUSLongTermGovernmentBonds 1.12 ‐8.38 5.67BarclaysCapitalCorporateHighYield 4.62 56.18 6.65BarclaysCapitalMunicipalBonds 1.25 9.69 4.56BarclaysCapitalUSTIPSIndex 0.56 6.18 6.01

USTreasuryYieldCurve

Yields on short‐term Treasurybills rose in the first quarterrela?vetotheendof2009,while yields on long‐termTreasurysecuri?esfellinthefirstquarter.

As a result, the yield curveflalened slightly over thequarter. The difference in yieldbetween ten‐year Treasurybonds and one‐month USTreasury bills was 369 basispoints at the end of the firstquarter, compared to 381 basispointsattheendof2009.

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TheS&PdataareprovidedbyStandard&Poor'sIndexServicesGroup.Russelldatacopyright©RussellInvestmentGroup1995‐2010,allrightsreserved.MSCIdatacopyrightMSCI2010,allrightsreserved.DowJonesdata(formerlyDowJonesWilshire)providedbyDowJonesIndexes.Indexesarenotavailablefordirectinvestment.Indexperformancedoesnotreflecttheexpensesassociatedwiththemanagementofanactualporsolio.Diversifica?onneitherguaranteesaprofitnorpreventsaloss.Indexisnotavailablefordirectinvestment.Pastperformanceisnoguaranteeoffutureresults.

QuarterlyTopic:TheLostDecade,ForSome.Many in the popular financial media claim that 2000‐2009 was a dismal period for US investors. Some commentators aredescribing the tumult as the “Lost Decade” in stocks. From a narrow market perspec?ve, they are right. Investors whoconcentratedinUSlargecapstocksdidnotbreakeven:onedollarinvestedintheS&P500inJanuary2000turnedintoninety‐one cents over the next ten years. The results were even worse for investors who made concentrated bets on individualcompaniesthatul?matelyfailed.AmongthesearefamiliarnamessuchasAIG,Enron,MCI,CircuitCityandBearStearns.

However,fordisciplinedandgloballydiversifiedinvestors,thelasttenyearswerenotalostdecade. Assuggestedinthegraphbelow, investorswhodeployedtheircapitalacrossabroadmixofdomes?c,developed,andemergingmarketsweregenerallyrewardedwithposi?vereturns.Furthermore,investorswithgreaterneedforstabilitycouldhavebalancedtheriskofstockswiththelowervola?lityofbonds,andpoten?allyavoidedthelargefluctua?onsofthestockmarket.

So,whileitwasa“LostDecade”forsome,thosewhowalkedadisciplinedandbroadlydiversifiedpathwereshelteredfromtheworstofthestorm,reinforcingthemeritsofthisapproachtoinves?ng.

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MichaelMoore

1120CrestlineCourt•LakeOswego•OR97034

Telephone:503‐635‐4457

[email protected]

www.crestlinecapital.net

Crestline Capital, LLCCC