Grammatical Replication and Borrowability in Language Contact 9783110271973, 9783110270099

Citation preview

Grammatical Replication and Borrowability in Language Contact

Trends in Linguistics Studies and Monographs 242

Editor

Volker Gast Founding Editor

Werner Winter Editorial Board

Walter Bisang Hans Henrich Hock Heiko Narrog Matthias Schlesewsky Niina Ning Zhang Editor responsible for this volume

Walter Bisang

De Gruyter Mouton

Grammatical Replication and Borrowability in Language Contact edited by

Björn Wiemer Bernhard Wälchli Björn Hansen

De Gruyter Mouton

ISBN 978-3-11-027009-9 e-ISBN 978-3-11-027197-3 ISSN 1861-4302 Library of Congress Cataloging-in-Publication Data A CIP catalog record for this book has been applied for at the Library of Congress. Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at http://dnb.dnb.de. ” 2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston Printing: Hubert & Co. GmbH & Co. KG, Göttingen 앝 Printed on acid-free paper 앪 Printed in Germany www.degruyter.com

3UHIDFH

 7KH LGHD RI FRPSRVLQJ D YROXPH GHYRWHG WR JUDPPDWLFDO UHSOLFDWLRQ DQG ERUURZDELOLW\LQODQJXDJHFRQWDFWZDVERUQDVHDUO\DVDWWKHDQQXDO PHHWLQJ RI WKH 6RFLHWDV /LQJXLVWLFDH (XURSDHD GXULQJ D ZRUNVKRS RUJDQ L]HGE\%M|UQ:LHPHUDQG%M|UQ+DQVHQ%RWKWKLVZRUNVKRSDQGWKLVYRO XPHKDYHEHHQSDUWLFXODUO\LQVSLUHGE\WKHLGHDVRI%HUQG+HLQHDQG7DQLD .XWHYD 7KH IDFW WKDW LW WRRN D FRXSOH RI \HDUV WR ILQLVK WKLV YROXPH KDV EHHQ FRQGLWLRQHG E\ WKH QHHGV RI D PDWXUDWLRQ SURFHVV QRW RQO\ LQ WKH WHFKQLFDOVHQVHLQWURGXFHGLQWRJUDPPDWLFDOL]DWLRQWKHRU\E\g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

  

&RQWHQWV    3UHIDFH«««««««««««««««««««««««« Y  $GGUHVVHVRIFRQWULEXWRUV«««««««««««««« [L  $,QWURGXFWLRQ   &RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH'LYHUVHSKHQRPHQD GLYHUVHSHUVSHFWLYHV«««««««««««««««   %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL  %6XUYH\RQJUDPPDWLFDOL]DWLRQDQGODQJXDJHFRQWDFWLQ 6ODYLFODQJXDJHV   $VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ LQ6ODYRQLF«««««««««««   %M|UQ:LHPHUDQG%M|UQ+DQVHQ  &*HQHUDOLVVXHV   $QLQWHJUDWLYHPRGHORIJUDPPDWLFDOL]DWLRQ«««««   7DQLD.XWHYDDQG%HUQG+HLQH   3URFHVVHVRIJUDPPDWLFDOLVDWLRQDQGµERUURZLQJWKH XQERUURZDEOH¶&RQWDFWLQGXFHGFKDQJHDQGWKHLQWHJUDWLRQ DQGJUDPPDWLFDOLVDWLRQRIERUURZHGWHUPVIRUVRPHFRUH JUDPPDWLFDOFRQVWUXFWLRQW\SHV«  $QWKRQ\3*UDQW   *UDPPDWLFDOL]DWLRQFOLQHVLQVSDFH=RRPLQJLQRQV\QFKURQLF WUDFHVRIGLIIXVLRQSURFHVVHV«««««««««««  %HUQKDUG:lOFKOL    

YLLL

&RQWHQWV

'1RXQSKUDVH   7KHJUDPPDWLFDOL]DWLRQRIDQLQGHILQLWHDUWLFOHLQ6ODYLF PLFURODQJXDJHV«««««««««««««  :DOWHU%UHX   2QWKHJUDPPDWLFDOL]DWLRQRIWKHGHILQLWHDUWLFOHLQ &ROORTXLDO8SSHU6RUELDQ&86 «««««««««« /HQND6FKRO]H  (0RGDOLW\DQGHYLGHQWLDOLW\   7KHJUDPPDWLFDOL]DWLRQRIHYLGHQWLDOPDUNHUVLQ*DULIXQD«« *HQHYLqYH(VFXUH   :KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶"([DPSOHVIURP 0D\DQDQG0L[H=RTXHDQODQJXDJHV«««« 9RONHU*DVWDQG-RKDQYDQGHU$XZHUD  7KHW@KHPRYH IURP WKH JOREDO VDPSOH WR DUHDO VXEVDPSOHV LV PRUH SUREOHPDWLF WKDQ LV RIWHQ DVVXPHG   WKH FULWHULD IRU UHSUHVHQWDWLYHQHVV  FDQQRW EH WUDQV IHUUHGWRWKHLQGLYLGXDODUHDV ,WLVQRWDWDOOFOHDUZKDWDµUHSUHVHQWD WLYH¶VDPSOHRIWKHODQJXDJHVLQDJHRJUDSKLFDODUHDVKRXOGORRNOLNHLIWKH LGHD PDNHV VHQVH LQ WKH ILUVW SODFH´ 3XW GLIIHUHQWO\ WKH DUHDO W\SRORJLFDO PHWKRGRISURYLQJVLJQLILFDQWGLIIHUHQFHVEHWZHHQODQJXDJHSRSXODWLRQVRI ODUJHDUHDVFDQQRWEHDSSOLHGWRWKHFRPSDULVRQRIPLFURDUHDV

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



 2I DOOWKUHH FURVVOLQJXLVWLF DSSURDFKHV WKH DUHDO DSSURDFK KDV SURYHQ WKHPRVWLQQRYDWLYHLQUHFHQW\HDUVDVIDUDVVDPSOLQJLVFRQFHUQHG7KLVLV GXH WR D ODFN RI ULJLG PHWKRGRORJLFDO UHVWULFWLRQV FKDUDFWHULVWLF RI WKH JHQHDORJLFDO DQG ± WR D OHVVHU H[WHQW ±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

 

%M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

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µ6$(IHDWXUHV¶ DQG LQYHVWLJDWHG V\VWHPDWLFDOO\ E\ +DVSHOPDWK D  KDVEURXJKWWROLJKWFRQYHUJHQWJUDPPDWLFDOSDWWHUQV7KHVHDWOHDVW SDUWO\UHSUHVHQWSDUDGLJPFDVHVRIJUDPPDWLFDOL]DWLRQVWXGLHVHJDX[LOLD UL]DWLRQ RI +$9( UHODWLYH QH[XV E\ SURQRXQV GHILQLWH DQG LQGHILQLWH DUWL FOHV DQGWKHLUHVWDEOLVKPHQWFDQE\QRPHDQVEHH[SODLQHGVROHO\E\LQWHU QDO RU XQLYHUVDO WHQGHQFLHV ZLWKRXWUHFRXUVH WRORQJODVWLQJ FRQWDFWV EH WZHHQVSHDNHUSRSXODWLRQV 5HFHQWO\ WKH SHUVSHFWLYH RQ WKH LQWHUUHODWLRQ EHWZHHQ DUHDOO\ GLVWLQ JXLVKDEOH IHDWXUHV ELDVHV  DQG JUDPPDWLFDOL]DWLRQ KDV EHHQ PDGH PRUH VSHFLILF+HLQHDQG.XWHYDDQG.XWHYDDQG+HLQHWKLVYROXPH  DUJXHWKDWFRQWDFWLQGXFHGFKDQJHDQGJUDPPDWLFDOL]DWLRQSURFHVVHVDUHLQ QRZD\PXWXDOO\H[FOXVLYHVHH± +HLQHDQG.XWHYD¶VDSSURDFKFDQ EHFRQVLGHUHGDVWKHILUVWJHQHUDODWWHPSWWREULGJHVWXGLHVLQJUDPPDWLFDOL ]DWLRQDQGODQJXDJHFRQWDFWDQGLWVLPSDFWRQODQJXDJHFKDQJH+HLQHDQG .XWHYD KRZHYHU UHIUDLQHG IURP H[DPLQLQJ ERUURZLQJ PRUH H[SOLFLWO\ µPDWHULDOERUURZLQJ¶0$7 LQWKHVHQVHRI0DWUDVDQG6DNHOD UH IHUUHGWRDERYH7KLVQHJOHFWRIERUURZHGLWHPVFDQEHJHQHUDOO\DSSOLHGWR DOOUHVHDUFKFRQFHUQHGZLWKWKHUHODWLRQRIJUDPPDWLFDOFKDQJHLQSDUWLFX ODUJUDPPDWLFDOL]DWLRQ DUHDOFRQYHUJHQFHDQGODQJXDJHFRQWDFW2QO\YHU\

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



UHFHQWO\KDYHOLQJXLVWVVWDUWHGWRJLYHGXHDWWHQWLRQWRWKHUROHRIERUURZLQJ LQJUDPPDWLFDOFKDQJHVHHVHFWLRQV±  $IXUWKHULVVXHLVFRQQHFWHGWRWKHTXHVWLRQRIZKLFKYDULHWLHVRUSRSX ODWLRQV  KDYH IRUPHG WKH EDVLV IRU LQYHVWLJDWLRQV DQG JHQHUDOL]DWLRQV GH ULYHGIURPWKHP VWDQGDUGRUQRQVWDQGDUGYDULHWLHV":KLFKRIWKHPKDYH EHHQFKRVHQIRUFRPSDULVRQZLWKRQHDQRWKHU"1RQVWDQGDUGYDULHWLHVERWK UXUDODQGXUEDQ PRUHRIWHQWKDQQRWODFNKDELWVDQGQRUPVRIZULWLQJ8Q FRGLILHG YDULHWLHV RIWHQ GHPRQVWUDWH D FRQVLGHUDEOH QXPEHU RI FRQWDFW LQGXFHG VWUXFWXUDO SURSHUWLHV ZKLFK VKRZ XS LQ XQHPEHOOLVKHG SUDJPDWL FDOO\³ORDGHG´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³HFRORJLFDO´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

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

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µUHFRQVWUXFWLRQ¶ UHIHUV WR WKH VWDJH EHIRUHODQJXDJHVHQWHUHGLQWRFRQWDFW$WUDGLWLRQDOUHVHDUFKTXHVWLRQRIWKH UHFRQVWUXFWLRQSHUVSHFWLYHLVIRULQVWDQFHZKHWKHUVWUXFWXUDOVLPLODULW\EH WZHHQQHLJKERULQJODQJXDJHVLVGXHWRFRQWDFWRUJHQHDORJLFDOUHODWLRQVKLS $ YROXPH IRFXVLQJ RQ WKH UHFRQVWUXFWLRQ SHUVSHFWLYH LV $LNKHQYDOG DQG 'L[RQHGV ,W³FRQVLVWVRIVWXGLHVRIWKHUHODWLRQVKLSEHWZHHQDUHDO GLIIXVLRQ DQG WKH JHQHWLF GHYHORSPHQW RI ODQJXDJHV´ $LNKHQYDOG DQG 'L[RQ    DQG H[SORUHV DPRQJ RWKHU WKLQJV ZKHWKHU VLPLODULW\ LQ ODQJXDJHV LV EHVW H[SODLQHG LQWHUPV RI XQLYHUVDOWHQGHQFLHVFKDQFH ERU URZLQJ RU GLIIXVLRQ JHQHDORJLFDO UHWHQWLRQ RU SDUDOOHO GHYHORSPHQW $V DUJXHG E\ :DWNLQV    DUHDO OLQJXLVWLFV LV EDVLFDOO\ SDUW RI WKH FRPSDUDWLYH PHWKRG ZKRVH DLP LW LV WR VRUW RXW JHQHDORJLFDO DQG DUHDO VLPLODULWLHV ,Q WKLV VHQVH JHQHDORJLFDO DIILOLDWLRQ DQG DUHDO GLIIXVLRQ DUH DOWHUQDWLYHKLVWRULFDOPRGHOVDVH[HPSOLILHGLQ+EVFKPDQQ¶V FODV VLFDO VWXG\ ZKLFK SURYHG WKDW $UPHQLDQ LV D VHSDUDWH EUDQFK RI ,QGR (XURSHDQ DQG QRW D YDULHW\ RI ,UDQLDQ EXW ZLWK PDVVLYH ERUURZLQJ IURP ,UDQLDQ 7KH UHFRQVWUXFWLRQ SHUVSHFWLYH DV YLHZHG KHUH LV EURDGHU WKDQ +HLQH DQG .XWHYD¶V    KLVWRULFDO JRDO ZKLFK LV PRUH QDUURZO\ GHILQHG DV DQ DSSURDFK LQ ZKLFK ³W\SRORJLFDO VLPLODULW\ LV HVVHQWLDOO\ LP PDWHULDO´ 7KH UHFRQVWUXFWLRQ SHUVSHFWLYH LV FUXFLDO LQ :HLVV¶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

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



DERXWWKHH[DFWLPSDFWRIFRQWDFWLQGXFHGFKDQJHWKHµLQWHJUDOUHVXOWSHU VSHFWLYH¶  DQG RQH ZKLFK WULHV WR DVVHVV WKH H[DFW FRPSRQHQW RI FRQWDFW LQGXFHG FKDQJH LQ ODQJXDJH VWUXFWXUH WKH µGLIIHUHQWLDO UHVXOW SHUVSHF WLYH¶   7KHGLIIHUHQWLDOUHVXOWSHUVSHFWLYHPXVWIRFXVRQFOHDUFDVHVRIWUDQV IHU VLQFH LW QHFHVVDULO\ UHOLHV RQ FOHDU GHFLVLRQV ZKHWKHU RU QRW VWUXFWXUDO HOHPHQWV DUH GXH WR FRQWDFW ,W LV QRW HDVLO\ FRPSDWLEOH ZLWK WKH LGHD WKDW LQWHUQDOGHYHORSPHQWVDQGWUDQVIHUFDQFRQVSLUH±DQLGHDZKLFKLVHPSKD VL]HGE\.XWHYDDQG+HLQHWKLVYROXPH 7KHLQWHJUDODSSURDFKKRZHYHU LVXVXDOO\FXPXODWLYH,IZHRQO\DVVHPEOHHQRXJKIHDWXUHVLQDVXEVWDQWLDO QXPEHURIODQJXDJHVDQGWKHJHQHDORJLFDOIDFWRUFDQEHH[FOXGHG WKHHI IHFWRIFRQWDFWZLOOEHGLVWLQJXLVKDEOHIURPFKDQFHLIQRWLQHYHU\HOHPHQW RI WKH VWUXFWXUH DW OHDVW LQ WKH SDWWHUQ DV D ZKROH 7KLV DSSURDFK KDV WKH DGYDQWDJHRIDOORZLQJPL[HGFDVHVRILQWHUQDOGHYHORSPHQWZLWKDQDGPL[ WXUHRIFRQWDFWHYHQLQFDVHVLQZKLFKLWLVPRUHGLIILFXOWWRSURYHWKDWFRQ WDFWLVDFDXVDWLYHIDFWRUFI:l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¶V TXHVWLRQ³:KDWKDSSHQHG"´QRU WKHPRUHEDVLFTXHVWLRQRIZKHWKHUDJLYHQVWUXFWXUDOSDUDOOHOLVWKHUHVXOWRI ERUURZLQJRUQRWDQGLILWLVZKRERUURZHGIURPZKRP,QVWHDGVKHHP SKDVL]HVWKHLPSRUWDQFHRIWKHSDUDOOHOVEHWZHHQZKROHVXEV\VWHPVRIODQ JXDJHV ZKLFK RIWHQ DUH RYHUORRNHG ZKHQ WKH IRFXV LV RQ LQGLYLGXDO SKH QRPHQD DQG WKHLU KLVWRULHV 7KHLPSRUWDQFH RIVXEV\VWHPV LV DOVR HPSKD VL]HGE\*DVWDQGYDQGHU$XZHUD>WKLVYROXPH@7KLVEULQJV1DX¶VSRVL WLRQFORVHWRDQDUHDOVXUYH\DSSURDFKDQGSODFHVLWLQRSSRVLWLRQWRWKDWRI 'ULQNDWKLVYROXPH ZKRFOHDUO\DGYRFDWHVWKHQHHGWRH[SODLQZKDW KDS SHQHGDQGZK\,QWKLVUHVSHFW'ULQND¶VFRQWULEXWLRQUHPLQGVXVRI&DPS EHOO¶VFRQFHUQ+RZHYHUVLQFHVKHLVHDJHUWRJLYHDQDFFRXQWRIVRFLROLQ JXLVWLFIDFWRUVWKDWSOD\HGDUROHLQWKHVSUHDGRIWKHSHULSKUDVWLFSHUIHFWLQ WKH %DONDQV DQG (XURSH RQ WKH ZKROH  KHU UHVHDUFK DOVR DVSLUHV WR DLPV FKDUDFWHULVWLFRIWKHVHWWLQJDSSURDFKVHHEHORZ ,QDVHQVHWKHVDPHDS SOLHVWR%LVDQJ ZKRVHJRDOLWLVWRFRPELQH³FRQFHSWVVLPLODUWR

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

JHRJUDSKLFDO GLDOHFW FRQWLQXD ZLWK VRFLRKLVWRULFDO DQG FRJQLWLYH PRWLYD WLRQV ZLWKRXW DVNLQJ WKH KLJKO\ SUREOHPDWLF TXHVWLRQ RI ZKDW D OLQJXLVWLF DUHD PD\ EH´ %LVDQJ    +HUH DQRWKHU LVVXH FRPHV WR WKH IRUH QDPHO\ WKDW PHWKRGV NQRZQ IURP GLDOHFW JHRJUDSK\ FDQ DQG VKRXOG EH IUXLWIXOO\ LQWHJUDWHG LQWR UHVHDUFK WKDW LV LQWHUHVWHG LQ WKH ³KRZV´ DQG ³ZK\V´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lOFKOLWKLVYROXPH DERXWWKHDUHDOFOLQHRIUH VXOWDWLYHFRQVWUXFWLRQVLQWKHGRPDLQRIVHFRQGDU\SRVLWLRQDOVWDWHVZKHUH )LQQLF DQG *HUPDQLF ODQJXDJHV DW WKH QHJDWLYH SROHRI WKH (XUDVLDQ FOLQH ODFNUHVXOWDWLYHFRQVWUXFWLRQVIRUGLIIHUHQWUHDVRQV 7KH SURFHVV SHUVSHFWLYH DJDLQ FRPHV LQ WZR IRUPV GHSHQGLQJ RQ ZKHWKHUWKHUHLVDIRFXVRQWKHVHWWLQJRIWKHVRFLDODQGSV\FKRORJLFDOFRQ GLWLRQVRIGLVFRXUVHLQDFRQWDFWVLWXDWLRQ±WKLVLVDNLQGRIPLFURSURFHVV SHUVSHFWLYH±RUZKHWKHUWKHHQWUHQFKPHQWRIDFRQWDFWLQGXFHGFKDQJHLQD ODQJXDJHV\VWHPLVDWVWDNH7KLVPDFURSURFHVVLVUHIHUUHGWRDVFKDQJHRI VWDWH SHUVSHFWLYH KHUH 6LQFH WKH PDLQ IRFXV RI WKLV YROXPH LV FRQWDFW LQGXFHG JUDPPDWLFDOL]DWLRQ ZKLFK LV D SURFHVV RXU PDLQ LQWHUHVW LV WKH SURFHVVSHUVSHFWLYHDQGZHDUHPRUHLQWHUHVWHGLQWKHFKDQJHRIVWDWHSHU VSHFWLYHWKDQWKHVHWWLQJSHUVSHFWLYH$FOHDULQVWDQFHRIWKHFKDQJHRIVWDWH

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



SHUVSHFWLYH LV +HLQH DQG .XWHYD¶V    QRWLRQ RI JUDPPDWLFDOL]D WLRQ DUHD ³D JURXS RI JHRJUDSKLFDOO\ FRQWLJXRXV ODQJXDJHV WKDW KDYH XQ GHUJRQH WKH VDPH JUDPPDWLFDOL]DWLRQ SURFHVV´ $ VLPLODU WHUP PRUH RUL HQWHGWRZDUGWKHUHVXOWSHUVSHFWLYHKRZHYHULV'DKO¶VQRWLRQRIJUDPIDP LO\'DKOE  :KDWFKDUDFWHUL]HVGLIIHUHQWDSSURDFKHVLQWKHSURFHVVSHUVSHFWLYHLVQRW VR PXFK ZKHWKHU D VHWWLQJ RU D FKDQJHRIVWDWH SHUVSHFWLYH LV DGRSWHG ± XVXDOO\ERWKRIWKHPDUHWDNHQLQWRDFFRXQW±EXWUDWKHUZKHWKHUFKDQJHRI VWDWHLQODQJXDJHVWUXFWXUHLVPRGHOHGLQWKHVDPHZD\DVVSRQWDQHRXVLQ WHUIHUHQFH LQ ELOLQJXDO GLVFRXUVH VLWXDWLRQV 7KH GRPLQDQW YLHZ LV WKDW FKDQJHRIVWDWHFDQEHPRGHOHGYHU\PXFKLQWKHVDPHZD\DVVHWWLQJDQG WKLVLVSUREDEO\GXHWRWKHVXVWDLQDEOHLQIOXHQFHRI:HLQUHLFK¶V LQ IOXHQWLDO VWUXFWXUDOLVW WKHRU\ RI ODQJXDJHV LQ FRQWDFW ,Q :HLQUHLFK¶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

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

RIJUDPPDWLFDOL]DWLRQLVPRVWOLNHO\WREHDWKLUGKDQGSKHQRPHQRQLQWKH VHQVHRI.HOOHU 7KLVZLOOEHIXUWKHUHODERUDWHGLQVHFWLRQ   :KDWLVDOLQJXLVWLFDUHD"  5HJDUGOHVV RI ZKHWKHU µOLQJXLVWLF DUHDV¶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± EXWWKH6SUDFKEXQGFRQFHSW KDVRIWHQEHHQRYHUORDGHGZLWKPHDQLQJEH\RQGOLQJXLVWLFFRQWHQWVXFKDV DSULPDU\LQWHUHVWLQWKHKLVWRU\DQGHWKQRJUDSK\RIWKHUHJLRQRUDQRYHU HPSKDVLVRQOLVWLQJVKDUHGSURSHUWLHVRIODQJXDJHVLQFHUWDLQDUHDV&DPS EHOOHWDO¶V³FLUFXPVWDQWLDOLVWDSSURDFK´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

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



UDWKHU RQ WKH LQWHJUDWHG UHVXOW 9DQ GHU $XZHUD GHPRQVWUDWHV WKDW LVR JORVVHVGRQRWDOZD\VQHDWO\FRRFFXUUDWKHUDUHDVDUHPRUHDFFXUDWHO\GH VFULEDEOH LQ WHUPV RI LVRSOHWK EXQGOHV 7KLV DSSURDFK KDV SURYHQ KLJKO\ XVHIXO DW OHDVW IRU 6WDQGDUG $YHUDJH (XURSHDQ WKH ³&KDUOHPDJQH DUHD´  WKH %DONDQV DQG 0HVRDPHULFD $ SDUWLFXODU NLQG RI IX]]\ DUHD LV WKH JUDPPDWLFDOL]DWLRQ FOLQH 'DKO  :lOFKOL WKLV YROXPH  $V 'DKO  SXWVLWJUDPPDWLFDOL]DWLRQFOLQHVDUH³DSRVVLELOLW\RIVHHLQJ WKH V\QFKURQLF WUDFHV RI VSHFLILF GLIIXVLRQ SURFHVVHV´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µFRQWDFWVXSHUSRVLWLRQ]RQH¶ZDVFRLQHGE\.RSWMHYVNDMD7DPP DQG :l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µPHWDW\S\¶±DWHUPFRLQHGE\5RVV ± LH WKH QHW UHVXOW RI D ³ZKROHVDOH UHVWUXFWXULQJ´ RI ODQJXDJHV ZLWK ORQJ ODVWLQJ FRQWDFWV LQ D FRKHUHQW DUHD 6XFK ODQJXDJHV DOVR ³VKDUH WKH VDPH RUJDQL]DWLRQRIVHPDQWLFVWUXFWXUH´WKDWLVRIJUDPPDWLFDOFDWHJRUL]DWLRQ  DQG EHWUD\ SHUVLVWHQW DQG YHU\ H[DFW HTXLYDOHQFH UHODWLRQV DPRQJ HDFK RWKHUWRDQH[WHQWWKDWWKHWDVNRIWKHODQJXDJHXVHU³LVFRQILQHGWRLQVHUWLQJ WKHDSSURSULDWHOH[LFDODQGJUDPPDWLFDOIRUPVWRPRYHIURPRQHODQJXDJH RI WKH DUHD WR DQRWKHU´ +HLQH DQG .XWHYD    ,Q +HLQH DQG .X WHYD¶V RSLQLRQ WKH GLIIHUHQFH EHWZHHQ PHWDW\S\ DQG 6SUDFKEXQG LV RQO\

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

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lOFKOL WKLV YROXPH  $UHDO W\SRORJ\ 'U\HU  1LFKROV  'DKO KDVDQHQWLUHO\GLIIHUHQWDSSURDFKWROLQJXLVWLFDUHDVWKDQWUDGL WLRQDODUHDOOLQJXLVWLFV([WHUQDOLQGHSHQGHQFHUDWKHUWKDQQRQWULYLDOLQWHU QDOVLPLODULW\LVWKHJRDO    $ OLQJXLVWLF DUHD LV DQ DUELWUDULO\ GHILQHG DUHDO VXEVDPSOH RI WKH JOREDOVDPSOHWKDWFDQEHVKRZQWRGHYLDWHVLJQLILFDQWO\IURPRWKHU DUHDOVXEVDPSOHVRUWKHJOREDOVDPSOH  ,Q 1DX¶V WKLV YROXPH  WHUPV DUHDO W\SRORJ\ RSHUDWHV ZLWK ³FRQVWUXFWHG´ DUHDV  $ TXHVWLRQ RI PDMRU LQWHUHVWLV KRZ VSHFWDFXODUDUHDO GLIIXVLRQ LV ,V LW WKHH[FHSWLRQ±LQZKLFKFDVHLWPDNHVPRUHVHQVHWRSRVWXODWHDIHZDUHDV LQWKHVHQVHRI RU ±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

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



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¶VQRWLRQRIJUDPPDWLFDOL]DWLRQDUHDFDQEHVXEVXPHG XQGHU 7KHQRWLRQµJUDPPDWLFDOL]DWLRQDUHD¶LQWHQWLRQDOO\RYHUODSVZLWK µ6SUDFKEXQG¶ LI WKH ODWWHU LV XQGHUVWRRG LQ LWV PHUHO\ OLQJXLVWLF DVSHFWV  :H VKRXOG KRZHYHU EHDU LQ PLQG WKDW QRW DOO IHDWXUHV ZKLFK KDYH EHHQ GLVFXVVHG LQ FRQQHFWLRQ IRU LQVWDQFH ZLWK WKH %DONDQ 6SUDFKEXQG FDQ XQDQLPRXVO\ EH FRQVLGHUHG DV FDQRQLFDO H[DPSOHV RI JUDPPDWLFDOL]DWLRQ FI :LHPHU DQG +DQVHQ WKLV YROXPH  $V VKRZQ E\ 1DX WKLV YROXPH  DOOHJHG FDVHV RI JUDPPDWLFDOL]DWLRQ FDQ WXUQ RXW WR EH OH[LFDOL]DWLRQV RQ FORVHULQVSHFWLRQ,QDVLPLODUDQG\HWOHVVREYLRXVYHLQ*UDQW¶VFRQVLGHUD WLRQVWKLVYROXPH SRLQWLQWKHVDPHGLUHFWLRQKHDVNVZKHWKHUERUURZHG OH[HPHVPHDQLQJµEH¶µKDYH¶RUµQRQRW¶VKRXOG³FRXQWDVLWHPVRIµJUDP PDU¶RULWHPVRIOH[LFRQLQWKHILUVWSODFH´DQGVKRZVWKDWLQPDQ\FDVHVLW LVVHPDQWLFH[SDQVLRQZKLFKLVVROHO\UHVSRQVLEOHIRUDVKLIWWRZDUGJUDP PDU$VZHZLOODUJXHLQVHPDQWLFH[SDQVLRQLVE\QRPHDQVDQH[FOX VLYHSURSHUW\RIJUDPPDWLFDOL]DWLRQEXWLQKHUHQWWRRWKHUNLQGVRIOLQJXLV WLFFKDQJHDVZHOO $V +HLQH DQG .XWHYD SXW LW WKH ³FRQWULEXWLRQ WKDW WKH VWXG\ RI JUDP PDWLFDOL]DWLRQ FDQ PDNH WR GHILQLQJ DUHDO UHODWLRQVKLS LV D PRGHVW RQH´  ,PSRUWDQWUHDVRQVIRUWKHTXHVWLRQDEOHVLJQLILFDQFHRIµJUDP PDWLFDOL]DWLRQDUHDV¶IRUDUHDOOLQJXLVWLFVVHHPWROLHQRWRQO\LQWKHIDFWWKDW +HLQHDQG.XWHYDGHILQHJUDPPDWLFDOL]DWLRQDUHDVQRWE\ZKROHEXQGOHVRI IHDWXUHVVRWKDWIRUWKHPHYHQDVLQJOHIHDWXUHVXIILFHVWRFRQVWLWXWHVXFKDQ

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

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l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áRZLF]¶V GHILQLWLRQWKDW JUDPPDWLFDOL]DWLRQ LPSOLHV ³D PRUSKHPH DGYDQFLQJ IURP D OH[LFDO WR D JUDPPDWLFDO RU IURP D OHVV JUDPPDWLFDO WR D PRUH JUDPPDWLFDO VWDWXV´ ZKHUH DFFRUGLQJ WR PDQ\ DXWKRUV ³PRUSKHPH´ FDQ DOVR EH UHSODFHG E\ ³FRQVWUXFWLRQ´ RU ³FDWHJRU\´ 7KLV GHILQLWLRQ KRZHYHU GRHV QRW VD\ DQ\ WKLQJ DERXW WKH UDLVRQ G¶rWUH RI JUDPPDWLFDOL]DWLRQ DQG GRHV QRW DGGUHVV WKHIDFWWKDWLWLVQRWDOZD\VSRVVLEOHWRGLVWLQJXLVKOH[LFDOIURPJUDPPDWL FDORUOHVVJUDPPDWLFDOIURPPRUHJUDPPDWLFDOFDWHJRULHV

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



 7KHRULHV RI WKH PRWLYDWLRQ RI JUDPPDWLFDOL]DWLRQ FDQ EH GLYLGHG URXJKO\ LQWR WKUHH JURXSV H[SUHVVLYLW\ FRJQLWLRQ DQG SUDJPDWLFV ([SUHVVLYLW\ DV D GULYLQJ IRUFH KDV EHHQ DUJXHG IRU E\ 0HLOOHW   )RU 0HLOOHW JUDPPDWLFDOL]DWLRQ LV GULYHQ E\ WKH VSHDNHU¶V LQWHQWLRQ WR VSHDN ZLWK SRZHU $V WKH HUVWZKLOH H[SUHVVLYH IRUP LV XVHG PRUHRIWHQEOHDFKLQJRIPHDQLQJHURVLRQRIIRUPDQGHVSHFLDOO\ORVVRI H[SUHVVLYHSRZHU³YDOHXUH[SUHVVLYH´ RFFXUV7KHH[SUHVVLYHPRWLYDWLRQ IRU JUDPPDWLFDOL]DWLRQ OHDGV WR F\FOLF GHYHORSPHQWV VXFK DV -HVSHUVHQ¶V F\FOHRIQHJDWLRQRUWKHF\FOLFUHQRYDWLRQRISHUIHFWVYLDUHVXOWDWLYHVFI 0DVORY FIDOVRYDQ*HOGHUHQHG  6LPLODU YLHZV RI JUDPPDWLFDOL]DWLRQ LQ PRUH UHFHQW OLWHUDWXUH KDYH EHHQ SXW IRUZDUG SDUWLFXODUO\ E\ +DVSHOPDWK   DQG 'DKO  ±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

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

*ULFH'DKO $FFRUGLQJWR%\EHHHWDO LQIHU HQFH±ZKLFKLVWKHLUWHUPIRUFRQYHQWLRQDOL]DWLRQRILPSOLFDWXUHV±LVWKH PRVWLPSRUWDQWPHFKDQLVPRIJUDPPDWLFDOL]DWLRQ,QWKLVPHFKDQLVPWKHUH LV QRW RQO\ EOHDFKLQJ EXWDOVR VWUHQJWKHQLQJ RI LQIRUPDWLYHQHVV 7UDXJRWW DQG.|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³SDUDPHWHUV´ VLQFH /HKPDQQ¶V    UHQRZQHG ZRUN:KLOH/HKPDQQ SUHVHQWVDSULQFLSOHGDQGV\VWHPDWLFFDWHJRU\ WDEOHRIuSDUDPHWHUVZKLFKDOOSHUWDLQWRDJUDGXDOORVVRIDXWRQRP\RI OLQJXLVWLFVLJQV+DVSHOPDWKE +HLQHDQG.XWHYD DQG .XWHYDDQG+HLQHWKLVYROXPH XVHWKHIROORZLQJVLPSOHUFRQYHQLHQFHOLVW    3DUDPHWHUVRIJUDPPDWLFDOL]DWLRQ D  H[WHQVLRQE\FRQWH[WLQGXFHGUHLQWHUSUHWDWLRQ  ŠORVVRIFROORFDWLRQUHVWULFWLRQV  E  GHVHPDQWLFL]DWLRQJHQHUDOL]DWLRQRIPHDQLQJ 

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



F  GHFDWHJRULDOL]DWLRQORVVRIPRUSKRV\QWDFWLFSURSHUWLHV  G  HURVLRQORVVRISKRQHWLFVXEVWDQFH   1HLWKHU+HLQHDQG.XWHYDQRURWKHUDXWKRUVZRUNLQJRQJUDPPDWLFDOL]DWLRQ DUHH[SOLFLWDVWRZKHWKHUWKHVHSDUDPHWHUVKDYHWRRFFXUMRLQWO\RUZKHWKHU LWLVVXIILFLHQWWKDWRQHRUWZRDUHSUHVHQW3XWGLIIHUHQWO\SDUDPHWHUVGRQRW VHHPWREHQHFHVVDU\DQGRUVXIILFLHQWFULWHULDIRUJUDPPDWLFDOL]DWLRQ)RU VRPHSDUDPHWHUVHVSHFLDOO\JHQHUDOL]DWLRQ±.XWHYDDQG+HLQH¶VH[WHQVLRQ E\FRQWH[WLQGXFHGUHLQWHUSUHWDWLRQ±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¶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³FDWHJRULDOL]DWLRQ´GRHVQRWILJXUHDVDPDMRUWRSLFLQJUDPPDWLFDOL ]DWLRQWKHRU\  $ PDMRU PRWLYDWLRQ IRU JUDPPDWLFDOL]DWLRQ WKHRU\ LV WKH FODLP WKDW JUDPPDWLFDOL]DWLRQLVLUUHYHUVLEOHDWOHDVWLQWKHVHQVHWKDWGHYHORSPHQWVLQ WKHRSSRVLWHGLUHFWLRQDUHYHU\UDUH&RQWHQWZRUGVWXUQLQWRIXQFWLRQZRUGV DQG IXUWKHU LQWRDIIL[HVEXW QRW WKH RWKHU ZD\ URXQG DWOHDVW QRW XVXDOO\ +DVSHOPDWK   H[SODLQV LUUHYHUVLELOLW\ E\ H[WUDYDJDQF\ ZKLFK LV KLV WHUPIRUH[SUHVVLYLW\$QRWKHULPSRUWDQWWKHRUHWLFDOIUDPHZRUNIRUH[SODLQ

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

LQJ LUUHYHUVLELOLW\ LV /GWNH¶V   QRWLRQ RI TXDQWLWDWLYH ODQJXDJH FKDQJH DFFRUGLQJ WR ZKLFK UHGXQGDQF\ PDQDJHPHQW LQ GLVFRXUVH IRUFHV VSHDNHUVWRXVHVOLJKWO\PRUHSKRQHWLFXQLWVDQGVOLJKWO\PRUHPRUSKRORJL FDOVHJPHQWVWKDQDEVROXWHO\QHFHVVDU\IRUFRPSUHKHQVLRQ:KLOHWKHSKR QHWLFSKRQRORJLFDOOHYHOLVOLPLWHGE\DPD[LPXP±RQHFDQQRWSURQRXQFH SKRQHPHVLQILQLWHO\PRUHGLVWLQFWO\±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¶V > @ LVRPRUSKLVP K\SRWKHVLV  7UDGLWLRQDO VHPDQWLF PDSV DUH JHRPHWULFDO UHSUHVHQWDWLRQV RI IXQFWLRQV LQ µFRQFHS WXDOVHPDQWLFVSDFH¶WKDWDUHOLQNHGE\FRQQHFWLQJOLQHV6HPDQWLFPDSVDUH D WRRO IRU JUDPPDWLFDOL]DWLRQ UHVHDUFK ILUVW RI DOO LQ WKDW WKH\ SUHGLFW WKDW VRPHFKDQJHVSUHVXSSRVHRWKHUV³)RUH[DPSOHJLYHQWKHPLQLPDSµGLUHF WLRQ  UHFLSLHQW  SUHGLFDWLYH SRVVHVVRU¶LW LV SUHGLFWHG WKDW LI D GLUHFWLRQ PDUNHULVH[WHQGHGWRDGGLWLRQDOIXQFWLRQVDQGFRPHVWRH[SUHVVSUHGLFDWLYH SRVVHVVLRQLWPXVWKDYHEHHQH[WHQGHGWRµUHFLSLHQW¶EHIRUH´+DVSHOPDWK  ,QRWKHUZRUGVJUDPVFDQQRWDUELWUDULO\MXPSWRDVHPDQWLFDOO\

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



GLVWDQWIXQFWLRQEXWPXVWEHH[WHQGHGVWHSE\VWHS7KHVHPDQWLFPDSDS SURDFKLVFUXFLDOLQ*DVWDQGYDQGHU$XZHUD¶VWKLVYROXPH PRGHORIFRQ WDFWLQGXFHGJUDPPDWLFDOL]DWLRQDVZHZLOOVHHEHORZ   &RQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ&,*   &RQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQKHQFHIRUWK&,* LVQRUHFHQWGLVFRY HU\,QGLVFXVVLQJWKHSHUIHFW!SDVWGHYHORSPHQW0HLOOHW  SRLQWVRXWWKDWWKH*HUPDQLF +$9(SHUIHFWLVFHUWDLQO\DQLPLWDWLRQRIWKH /DWLQ PRGHO KDEHR GLFWXP µ, KDYH VDLG¶ ³VDQV GRXWH SDU XQH LPLWDWLRQ G¶XQHPDQLqUHGHGLUHODWLQHTXLVHPEODLWIUDSSDQWHHWFRPPRGH´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¶V DQG 0HLOOHW¶V SRVLWLRQV DUH QRW LQFRPSDWLEOH 7KH HVWDEOLVKPHQW RI JUDPPDWLFDOL]DWLRQ SDWKV GRHV QRW QHFHVVDULO\ UHTXLUH DUHDOO\ LQGHSHQGHQW LQVWDQFHV RI WKH

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

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µRQH¶ LQWR DQ LQGHILQLWH DUWLFOH LQ 6ODYLF PLFURODQJXDJHV LV DQ\WKLQJ EXW D VLPSOH SKHQRPHQRQ 7KHUH DUH PDQ\ PLQRU IXQFWLRQV WKDW WKH QXPHUDO RU WKH DUWLFOH FDQ KDYH VXFKDVSOXUDOIRUPXVHGZLWKSOXUDOLDWDQWXP³MXGJHPHQWDO´IXQFWLRQILUVW HOHPHQWLQµRQHVRWKHUV¶DQGµVXFKD¶:lOFKOLWKLVYROXPH SURSRVHVWR PRGHO JUDPPDWLFDOL]DWLRQ SURFHVVHV DV WZRGLPHQVLRQDO YHFWRUV 2QH GL PHQVLRQLVWKHUHFXUUHQWFRPSRQHQWRIWKHGHYHORSPHQWWKHVHFRQGGLPHQ VLRQVXEVXPHVDOOWKHLGLRV\QFUDWLFEHKDYLRUZKLFKFDQQRWEHFDSWXUHGE\ XQLYHUVDOFRQVLGHUDWLRQV:HPD\ZLVKWRGHYHORSWKLVIXUWKHULQWRDWKUHH GLPHQVLRQDO PRGHO ZLWK D XQLYHUVDO DQ DUHDO DQG D ODQJXDJHSDUWLFXODU FRPSRQHQW  0DQ\ WHUPV DQG FRQFHSWV LQ WKH FRQWHPSRUDU\ OLWHUDWXUH RQ DUHDO OLQ JXLVWLFV JR EDFN WR :HLQUHLFK¶V   LQIOXHQWLDO VWUXFWXUDOLVW WKHRU\ RI ODQJXDJHVLQFRQWDFW)RUKLVDSSURDFKLWLVFKDUDFWHULVWLFWKDWKHFRQVLGHUV ERWK VHWWLQJ DQG FKDQJHRIVWDWH SHUVSHFWLYH DW WKH VDPH WLPH DQG WUHDWV WKHPYHU\PXFKLQWKHVDPHZD\7KHZD\ELOLQJXDOLQGLYLGXDOVVSHDNKDV GLUHFW DQG ODUJHO\ SUHGLFWDEOH FRQVHTXHQFHV RQ KRZ ODQJXDJH V\VWHPV LQ FRQWDFW FKDQJH $ FRUH QRWLRQ LQ :HLQUHLFK¶V DSSURDFK LV LGHQWLILFDWLRQ ³,I WKH ELOLQJXDO LGHQWLILHV D PRUSKHPH RU JUDPPDWLFDO FDWHJRU\ RI ODQ JXDJH$ZLWKRQHLQODQJXDJH%KHPD\DSSO\WKH%IRUPLQJUDPPDWLFDO IXQFWLRQV ZKLFK KH GHULYHV IURP WKH V\VWHP RI $´ :HLQUHLFK    )RULQVWDQFHVSHDNHUVRIWKHIRUPHUORFDOGLDOHFWVRI3ROLVKLQ6LOHVLDLGHQ WLILHGWKH3ROLVKIRUPVRIWKLUGSHUVRQSOXUDOZLWKWKH*HUPDQIRUPVRIWKH WKLUGSHUVRQSOXUDOZKLFK³OHGWRWKHXQH[SHFWHGXVHFRPSOHWHO\XQNQRZQ LQ 3ROLVK RI WKH WKLUG SHUVRQ SOXUDO IRU SROLWH DGGUHVV´ :HLQUHLFK  +HLQHDQG.XWHYD   7KHPDLQUHDVRQZK\&,*KDVEHFRPHDFRUHLVVXHLQPRGHUQOLQJXLVWLF WKHRU\ LV +HLQH DQG.XWHYD¶V  LPSUHVVLYH PRQRJUDSK WKDW QRW RQO\ SUHVHQWVDFRKHUHQWWKHRU\RI&,*EXWDOVRGUDZVRQDODUJHERG\RIHDUOLHU OLWHUDWXUHHJ1DX+DDVH+HLQHDQG.XWHYD +HLQHDQG .XWHYD FODLPWKDWJUDPPDWLFDOL]DWLRQWKHRU\KDVWKHVDPHLPSRUWDQW UROHWRSOD\LQFRQWDFWLQGXFHGFKDQJHVRIJUDPPDWLFDOVWUXFWXUHDVLQ³RU

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



GLQDU\´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µJUDPPDWLFDO  UHSOLFDWLRQ¶    $ SUHFRQGLWLRQ IRU WKH LQFLSLHQW VWDJH RI WKLV SURFHVV VHHPV WR EH WKDW UHSOLFDWLRQ³UHTXLUHVDSSURSULDWHGLVFRXUVHSDWWHUQVLQWKHUHSOLFDODQJXDJH WRWDNHSODFH´ 2IWHQWKLVDPRXQWVWRWKHH[LVWHQFHRI DQ LQIUHTXHQW PDUNHG V\QWDFWLF RUGLVFRXUVH SDWWHUQ ZKLFK WKHQ EHFRPHV PRUH IUHTXHQW DQG WKHUHE\ H[WHQGV LWV OH[LFDO EDVLV DQGRU V\QWDFWLF FRQWH[W 2IWHQ WKLV NLQG RI UHSHWLWLRQ RI 0¶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

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

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üµEHFRPH¶DVDQLQFKRDWLYHDX[LOLDU\DIWHUWKHODWWHUKDGXQGHUJRQHD IXQFWLRQDOVZLWFKµUHPDLQ!EHFRPH¶ZKLFKZDVWULJJHUHGE\FRQWDFWZLWK 0LGGOH/RZ*HUPDQWKWKF DQGZKLFKWKHQH[SDQGHGWRLWVSDUWLFL SOHV +HUH GLIIHUHQW VWDJHV RQ D JUDPPDWLFDOL]DWLRQ FOLQH FRUUHVSRQG WR FRQWDFWZLWKGLIIHUHQWYDULHWLHVRI*HUPDQDWGLIIHUHQWSHULRGV,WLVDWWKH VDPHWLPHXQFOHDUZKHWKHUWKHLQWHUYHQLQJFDWHJRULDOH[SDQVLRQWRSDUWLFL SOHVDV QRPLQDO SDUWV RI WKH DQDO\WLF SDVVLYH  RFFXUUHG ZLWK RU ZLWKRXWD *HUPDQPRGHO  7KH DVVXPSWLRQV XQGHUO\LQJ +HLQH DQG .XWHYD¶V    PRGHO DUH FULWLFL]HG DPRQJ RWKHUV E\ *DVW DQG YDQ GHU $XZHUD WKLV YROXPH  7KH\DUJXH³DJDLQVWWKHDVVXPSWLRQ WKDWSURFHVVHVRIJUDPPDWLFDOL]D WLRQPD\WKHPVHOYHVEHWUDQVIHUUHGIURPRQHODQJXDJHWRDQRWKHU´WKDWLV WR VD\ WKH\ TXHVWLRQ WKH H[LVWHQFH RI UHSOLFD JUDPPDWLFDOL]DWLRQ DV VXFK 5DWKHUJUDPPDWLFDOL]DWLRQLQFRQWDFWVLWXDWLRQVVKRXOGEHVHHQDVWKHUHVXOW RI³LQWHUOLQJXDOLGHQWLILFDWLRQRIIRUPPHDQLQJSDLULQJV´VXSSOHPHQWHGE\ WKH ³LQWHUOLQJXDO LGHQWLILFDWLRQ RI OLQJXLVWLF VXEV\VWHPV´ 7KLV PHFKDQLVP GRHV QRW UHTXLUH PHWDNQRZOHGJH RU LQWHQWLRQDOLW\ ,W UHVWV RQ µVHPDQWLF PDSDVVLPLODWLRQ¶ZKLFKFRPSULVHVSRO\VHP\FRS\LQJVHHEHORZ DVD VXEW\SH )LQDOO\ LW FDQ H[SODLQ ZK\ JUDPPDWLFDOL]DWLRQ SURFHVVHV LQ 5 VRPHWLPHV JR IXUWKHU WKDQ LQ WKH UHVSHFWLYH 0 ± D SKHQRPHQRQ ZKLFK ZRXOG DSSHDU WR FRXQWHU WKH FODLPV PDGH LQ +HLQH DQG .XWHYD¶V RULJLQDO IUDPHZRUN  7KHFODLPWKDWOLQJXLVWVVKRXOGLGHQWLI\VXEV\VWHPVLVDNLQWR1DX¶VWKLV YROXPH FODLPWKDWZHVKRXOGFRPSDUH³QRWRQO\LQGLYLGXDOPHDQVRIH[ SUHVVLRQEXWDOVRV\VWHPGHILQLQJSULQFLSOHV´LQODQJXDJHFRQWDFWWKLVLP SOLHV ³VHW>V@ RI H[SUHVVLRQ PHDQV IRU D VHPDQWLF ILHOG WKHLU FKDUDFWHULVWLF

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH





IHDWXUHV UHODWLYH LPSRUWDQFH DQG PXWXDO RSSRVLWLRQV´ $ VLPLODU SRLQW LV PDGHE\+DQVHQDQG%LU]HUWKLVYROXPH ZKRVKRZWKDWWKHFRUUHFWLRQ@ KHDO >FRUUHFWLRQ@ FRQFRUG RI OLIH >KHVLWDWLRQ@¶ EHIRUH FRQWLQXLQJ WR VSHDN /LYRQLDQZLWKRXWKDYLQJPDQDJHGWRWUDQVODWHWKHIRUPVKHZDQWHGWRWUDQV ODWHDQGZHOODZDUHWKDWVKHKDGQRWVXFFHHGHG:HKDYHKHUHDWUDQVIHURI WKHSDWWHUQ>DGMHFWLYHµGD\¶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± DV LQFDVH RIWKH *HUPDQ WRXULVW ±LL  SULPLQJ VWURQJHU DFWLYDWLRQ  RI VWUXFWXUHV IURP WKH FRQWDFW ODQJXDJH ± DV LQ WKH /DWYLDQ/LYRQLDQ H[DPSOH ± LLL  H[SUHVVLYLW\ ± DV LQ 0HLOOHW¶V H[DPSOH ± DQGLY GHOLEHUDWHFKRLFHWRPDNHFRPPXQLFDWLRQHDVLHU±DVLQ0DWUDVDQG 6DNHO¶VPRGHO7KLVOLVWLVXQOLNHO\WREHH[KDXVWLYHEXWWKHPRVWLPSRUWDQW SRLQWWRPDNHKHUHLVWKDWWKHUHDUHGLIIHUHQWGULYLQJIRUFHVDWZRUNDQGZH KDYHKDUGO\EHJXQWRXQGHUVWDQGWKHHIIHFWLYHFRQWULEXWLRQRIHDFKRIWKHP

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

WRWKHSKHQRPHQRQRI&,*,QRQHUHVSHFWKRZHYHUDOOH[DPSOHVSRLQWLQ WKH VDPH GLUHFWLRQ ,W VHHPV WKDW SDWWHUQ DQG PDWWHU DUH TXLWH GLIIHUHQWO\ RUJDQL]HGLQWKHELOLQJXDOVSHDNHUV¶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µRU¶WRWKDWRIDQLQWHU URJDWLYH SDUWLFOH LQ SRODU TXHVWLRQV RQ WKH PRGHO RI %DOWLF ODQJXDJHV /LWKXDQLDQDUµ,17RU¶FI.RSWMHYVNDMD7DPPDQG:lOFKOLIRU PDQ\PRUHFDVHVRIWUDQVIHUVXSHUSRVLWLRQLQWKHGRPDLQRISRODUTXHVWLRQ SDUWLFOHVLQWKH&LUFXP%DOWLFODQJXDJHV   :KHUHQRPRGHOODQJXDJHFDQEHLGHQWLILHGVRPHDXWKRUVVSHDNRISDU DOOHO JUDPPDWLFDOL]DWLRQ :lOFKOL D *LJHU WKLV YROXPH  7KHUH DUH WZR YDULDQWV RI WKH QRWLRQ D EURDGHU RQH D  ZKHUH WKH SURFHVV LV FDOOHG SDUDOOHO EHFDXVH WKHUH LV QRW HQRXJK HYLGHQFH WR LGHQWLI\ WKH PRGHO ODQ JXDJHDQGDQDUURZHURQHE ZKHUHWKHUHLVQRPRGHOODQJXDJHEXWWKH

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



SURFHVVGHYHORSVVLPXOWDQHRXVO\LQVHYHUDOODQJXDJHV:HXQGHUVWDQGSDU DOOHO JUDPPDWLFDOL]DWLRQ PDLQO\ LQ WKH QDUURZHU VHQVH 3DUDOOHO JUDPPDWL FDOL]DWLRQ LV FRPSDWLEOH ZLWK +HLQH DQG .XWHYD¶V    QRWLRQ RI JUDPPDWLFDOL]DWLRQDUHDVHYHQWKRXJKWKH\WKHPVHOYHVUHVWULFWWKHLUPRGHO WR FDVHV ZKHUH WKHUH LV D PRGHO DQG D UHSOLFD ODQJXDJH 6HYHUDO FDVHV RI SDUDOOHOJUDPPDWLFDOL]DWLRQFDQEHIRXQGIRUH[DPSOHLQWKH(DVWHUQSDUW RI WKH &LUFXP %DOWLFDUHD$ SDUDOOHO LQQRYDWLRQ RI (VWRQLDQ DQG /DWYLDQ IRU LQVWDQFH LV WKH JUDPPDWLFDOL]DWLRQ RI UHSRUWLYH HYLGHQWLDOLW\ :lOFKOL D   $QRWKHU H[DPSOH LV WKH JUDPPDWLFDOL]DWLRQ RI WKH VHFRQG VLQJXODU LP SHUDWLYHRIWKHYHUE³OHW´±/DWYLDQODLG!ODL/LYRQLDQODVN!OD]±LQWRD PDUNHURISXUSRVLYHFODXVHV:lOFKOLE 7KHGHYHORSPHQWLQWKHWZR ODQJXDJHVIROORZVWKHVDPHJUDPPDWLFDOL]DWLRQSDWK±µOHW¶!DGKRUWDWLYH! LQGLUHFW FRPPDQG ! SXUSRVLYH ± EXW IXOO LVRPRUSKLVP GRHV QRW UHVXOW ,Q )LQQLF WKHUH LV D WKLUG SHUVRQ LPSHUDWLYH IRUP DQG QRW XQH[SHFWHGO\ /LYRQLDQOD]FRPELQHVZLWKWKHLPSHUDWLYHIRUPRIWKHWKLUGSHUVRQLQWKH DGKRUWDWLYH GRPDLQ OD] WD WXOƗJ µOHW VKH120 FRPH,036*  OHW KLP FRPH¶ 7KH QHZO\ JUDPPDWLFDOL]HG DGKRUWDWLYH PDUNHU LV WKXV LQWHJUDWHG LQWRWKHLPSHUDWLYHSDUDGLJP,WLVUHVWULFWHGWRWKHDIILUPDWLYHKRZHYHU,Q WKHQHJDWLYHWKHUHLVDSURKLELWLYHDX[LOLDU\ERWKDX[LOLDU\DQGYHUEDUHLQ IOHFWHGIRULPSHUDWLYH DOJ}WDWXOƗJ 352+,036* µVKHFRPH,036*¶ 7KHJUDPPDWLFDOL]DWLRQRI/LYRQLDQOD]WKXVKDVWKHVLGHHIIHFWRISXVKLQJ WKH )LQQLF SURKLELWLYH DX[LOLDU\ LQWR WKH IXQFWLRQ RI D FRPSOHPHQWL]HU 7KHUH LV QRWKLQJ RI WKLV NLQG LQ /DWYLDQ +RZHYHU /DWYLDQ GHYHORSV DQ RWKHU VSOLW GHSHQGLQJ RQ PRRG :KLOH /LYRQLDQ OD] LV DOZD\V FRPELQHG ZLWK WKH LPSHUDWLYH PRRG /DWYLDQ XVHV WZR GLIIHUHQW FRQVWUXFWLRQV ±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

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

 7KHUHLVDFOHDUFDVHRIFRQWDFWLQGXFHGFKDQJHEXWQRSDWWHUQLVWUDQV IHUUHG7KHUHLVMXVWDQRQJRLQJJUDPPDWLFDOL]DWLRQSURFHVVWKDWGRHV QRWVWRSDWODQJXDJHERXQGDULHV7KHVSHDNHUVRIDOOYDULHWLHVRIDQDUHD XQGHUJRWKHVDPHJUDPPDWLFDOL]DWLRQSURFHVVLQDOOODQJXDJHYDULHWLHV WKH\VSHDN  ,GHQWLILFDWLRQSLYRWPDWFKLQJ FDQQRW EH H[FOXGHG EXW GRHV QRW SOD\ DQ\PDMRUUROHDQ\ZKHUHLQWKHSURFHVV  7KHUHLVQRHYLGHQFHWKDWV\QFUHWL]DWLRQLVD³KLJKHUJRDO´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¶VUHSOLFDJUDPPDWLFDOL]DWLRQZKHUHVSHDNHUVDUHFODLPHGWR³UHSOLFDWH DJUDPPDWLFDOL]DWLRQSURFHVVWKH\DVVXPHWRKDYHWDNHQSODFHLQODQJXDJH 0´+HLQHDQG.XWHYD ZKLFKKDVEHHQFULWLFL]HGE\*DVWDQGYDQ GHU$XZHUDWKLVYROXPH DPRQJRWKHUVIRUDVFULELQJWRRPXFKOLQJXLVWLF PHWDNQRZOHGJH WR VSHDNHUV )RU SDUDOOHO JUDPPDWLFDOL]DWLRQ WKHUH LV QR PHWDNQRZOHGJHUHTXLUHGDWDOO  7KHQRWLRQRISDUDOOHOJUDPPDWLFDOL]DWLRQLVFRPSDWLEOHZLWK'DKO¶VHSL GHPLF PHWDSKRU ³JUDPPDWLFDOL]DWLRQ LV KLJKO\ FRQWDJLRXV´ ³ZKLOH WKH FKDQFHWKDWDFHUWDLQPRUSKHPHRUFRQVWUXFWLRQLQDODQJXDJHZLOOXQGHUJR D SDUWLFXODU NLQG RI JUDPPDWLFDOL]DWLRQ LV RQ WKH ZKROH UDWKHU VPDOO WKH SUREDELOLW\LQFUHDVHVGUDPDWLFDOO\LIDQHLJKERULQJODQJXDJHXQGHUJRHVWKH SURFHVVLQTXHVWLRQ´'DKO   

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



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± ZKDW NLQGV RI 0$7 FDQ EH ERUURZHG DQG LL  D OHVV WUDGLWLRQDO RQH±DVDFDUULHURIZKDWNLQGRI3$7FDQDERUURZHGLWHPVHUYH",QWHUPV RI -RKDQVRQ¶V E  IUDPHZRUN WKH TXHVWLRQ LV ZKHWKHU JUDPPDWLFDO ERUURZLQJLVJOREDOFRS\LQJ±DXQLWZLWKLWVHQWLUHEORFNRISURSHUWLHVLV WUDQVIHUUHG±RUVHOHFWLYHFRS\LQJ±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

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

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³7KHFRPSOH[ 7XUNLFYHUEIRUPV« GRQRWLQYLWHFRS\LQJ« 7KHPDQ\ERXQG7XUNLF PRUSKHPHVHJIRUWKHFDXVDWLYHWKHSDVVLYHSRVVLELOLW\QHJDWLRQPRRG DQGLQWHUURJDWLRQFRUUHVSRQGWRIUHHXQLWVLQWKHFRQWDFWODQJXDJHVVRWKDW WKHH[LVWHQFHRIW\SRORJLFDOO\HTXLYDOHQWVXEVWUXFWXUHVLVLPSUREDEOH(YHQ ODQJXDJHV RWKHUZLVH SDUWLFLSDWLQJ LQ WKH FRS\LQJ SURFHVV H[KLELW OLWWOH FRPPRQ JURXQG KHUH´ D  FI DOVR -RKDQVRQ   ,Q JHQHUDO ERWKERXQGDQGIUHHPRUSKHPHVDSSHDUWREH³FRSLDEOH´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ü  6ZHGLVK KDV D ERUURZLQJ EOLYD  FI *LJHU WKLV YROXPH IRU DQDORJRXVFDVHV ,WLVYHU\XQOLNHO\WKDWWKH6ZHGLVKFDVHVKRXOGEHFRQ VLGHUHGDVDSXUHO\DFFLGHQWDOFRPELQDWLRQRIWZRXQUHODWHGHYHQWVRIWUDQV IHUL ERUURZLQJDQGLL &,*  ,WPD\DOVRRFFXUWKDWERUURZLQJDQG&,*FRQVSLUHWRIRUPDSDUDGLJP 7RWKHH[WHQWWKDWJUDPPDWLFDOL]DWLRQLVSDUDGLJPDWLFL]DWLRQ±RQHRI/HK PDQQ¶V SDUDPHWHUV±WKLVZRXOGWKHQEHUHOHYDQWIRUJUDPPDWLFDOL ]DWLRQ ,Q /LYRQLDQ WKH FRPSDUDWLYH RI DGMHFWLYHV LV IRUPHG DQDO\WLFDOO\

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



ZLWKWKHSUHSRVHGSDUWLFOHMXRERUURZHGIURP&XURQLDQGLDOHFWVRI/DWYLDQ 7KH VXSHUODWLYH KRZHYHU LV IRUPHG ZLWK LQKHULWHG PDWHULDO DPD VnjU µDOO>*(16*@ELJ WKHELJJHVW¶7KLV³ELJRIDOO´FRQVWUXFWLRQLVDSDUDOOHO JUDPPDWLFDOL]DWLRQRI/DWYLDQ/LYRQLDQDQG(VWRQLDQSDUDOOHOH[WHQVLRQRI DPLQRUXVHSDWWHUQFI.RSWMHYVNDMD7DPPDQG:lOFKOL $Q RWKHUH[DPSOHIRUSDUDGLJPDWLFL]DWLRQRIIRUPVRIGLIIHUHQWRULJLQVDUHWKH HYLGHQWLDOPDUNHUVLQ*DULIXQD(VFXUHWKLVYROXPH   ,QGLVFXVVLQJ6SDQLVKERUURZLQJVLQ&KDPRUUR6WRO] VKRZVWKDW ERUURZLQJQHHGQRWHQWDLOH[DFWFRSLHVLQWKHUHSOLFDODQJXDJHEXWFDQOHDG WRWKHGHYHORSPHQWRIQHZFDWHJRULHV7KH6SDQLVKERUURZLQJPiVLVXVHG ERWK LQ FRPSDUDWLYH DQG VXSHUODWLYH FRQVWUXFWLRQV ,Q WKH IRUPHU LW LV RS WLRQDO LQ WKH ODWWHU REOLJDWRU\ 7KH &KDPRUUR FRPSDUDWLYH FRQVWUXFWLRQ LV K\EULG,WFRQWDLQVREOLJDWRULO\DQLQKHULWHGFRPSDUDWLYHPRUSKHPHxDDQG DERUURZHG6SDQLVKSDUWLFOHNL6SDQLVKTXHµWKDQ¶DOWHUQDWLYHO\GLIURP 6SDQLVKGHµIURP¶ 7KH6SDQLVKFRPSDUDWLYHPDUNHUPDVLVRSWLRQDO    &KDPRUUR6WRO]7RSSLQJ   PHWJRWxD L NDED\XPDV  NL L JD¶ODJX  VWURQJ&203 '())2& KRUVH PRUH WKDQ '())2& GRJ  µ7KHKRUVHLVVWURQJHUWKDQWKHGRJ¶  ,QWHUHVWLQJO\ WKLV H[DPSOH LV ZHOO LQ OLQH ZLWK /GWNH¶V TXDQWLWDWLYH ODQ JXDJHFKDQJHGLVFXVVHGLQDERYH/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¶V   VXUYH\ RI 6SDQLVK IXQFWLRQ ZRUG ERUURZLQJ LQ 0HVRDPHULFDQ ODQJXDJHV 7KH\FRLQWKH*HUPDQWHUP'RSSHOVHW]XQJIRUWKHSKHQRPHQRQDQGVHHLW DVDQLQVWDQFHRI+HLQHHWDO¶V RYHUODSPRGHOLQJUDPPDWLFDOL ]DWLRQ  $FFRUGLQJWR/GWNH¶VPRGHOLWKDVDOVRWREHDVVXPHGWKDWJUDPPDWL FDOL]LQJ PRUSKHPHV ZLOO IXVH ZLWK HDFK RWKHU VR WKDW LW FDQ EH SUHGLFWHG

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

WKDWWKHUHZLOOEHFDVHVRIERUURZHGPRUSKHPHVIXVLQJZLWKLQKHULWHGPRU SKHPHV6XFKDQH[DPSOHLVWKHSRWHQWLDOFRQGLWLRQDOVL¶LJDLQ0HFD\DSDQ 1DKXDWOFRQVLVWLQJRI6SDQLVKVLDQGWKH0HFD\DSDQ1DKXDWOVXERUGLQDWRU LJD µWKDW¶ ZKLFK ZDV IXUWKHU SDVVHG LQWR 6LHUUD 3RSROXFD DV D VLQJOH XQLW VL¶LJD*XWLpUUH]0RUDOHVWKLVYROXPH   $FFRUGLQJ WR 6WRO] DQG 6WRO]   ERUURZHG HOHPHQWV RFFXUULQJ LQ WKHVDPHFRQVWUXFWLRQZLWKLQKHULWHGHOHPHQWVVWDUWZLWKKDYLQJWKHIXQFWLRQ RIHPSKDVLV,Q$WDWODKXD0L[WHFWKH6SDQLVKSUHSRVLWLRQFRQWUDµDJDLQVW¶ FDQRFFXUWRJHWKHUZLWKWKHLQKHULWHGSUHSRVLWLRQDQGUHODWLRQDOQRXQVӝTXӝ µRQRYHUDJDLQVWIRUEDFNRITXDGUXSHGV¶7KHORDQSUHSRVLWLRQDOORZVIRU D GLIIHUHQWLDWLRQ LW LV OHVVSRO\VHPRXV WKDQ WKHLQKHULWHG SUHSRVLWLRQ  DQG KHQFH LWV XVH PD\ EH GULYHQ E\ WKH QHHGIRU GLIIHUHQWLDWLRQ7KDWWKH ERU URZHGHOHPHQWLVOHVVJUDPPDWLFDOL]HGZKHQLQWURGXFHGWKDQWKHLQKHULWHG SUHSRVLWLRQFDQEHVHHQIURPWKHIDFWWKDWLWLVPRUHGLVWDQWIURPWKHJRY HUQHG QRXQ FRQWUD VӝTXӝ JRELHUQR µDJDLQVW WKH JRYHUQPHQW¶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³JDSV´ LLL LQKHUHQWVHPDQWLF SUDJPDWLFRUVWUXFWXUDOSURSHUWLHVRIDIIHFWHGFDWHJRULHV,QRUGHUWRH[SORUH LLL  0DWUDV DQG 6DNHO D  XVH D FURVVOLQJXLVWLF DSSURDFK WUDFNLQJ FDVHVRIERUURZLQJZLWKLQDODUJHQXPEHURIJUDPPDWLFDOGRPDLQVDFURVV GLIIHUHQWODQJXDJHV  7KH RYHUDOO LPSUHVVLRQ WKDW JRRG H[DPSOHV RI FRPELQHG 0$73$7 WUDQVIHUVDUHUDWKHUGLIILFXOWWRFRPHE\KDUPRQL]HVZLWKDJHQHUDOFRQFOX VLRQGUDZQE\0DWUDVDQG6DNHOEDQGSDVVLP QDPHO\WKDW3$7 ³RSHUDWHVXQGHUWKHFRQVWUDLQWRIWKHH[FOXVLRQRUDYRLGDQFHRIGLUHFWUHSOL FDWLRQRIPDWWHUIURPWKHPRGHOODQJXDJH´$PRQJ SRVVLEOHGHWHUPLQDQWV RIVXFKDYRLGDQFHRUWKHFKRLFHEHWZHHQ0$7DQG3$7 WKHDXWKRUVDG GXFH ERWK LQWHUQDO VWUXFWXUDO  UHDVRQV DQG H[WHUQDO FRQVLGHUDWLRQV DULVLQJ IURPRFFDVLRQDORUKDELWXDO FRPPXQLFDWLYHVHWWLQJVDQGRUQRUPDWLYHEH KDYLRUFRQGLWLRQHGE\WKHYDOXHVDQGUHODWLYHSUHVWLJHDVVLJQHGWRWKHFRQ WDFWLQJ YDULHWLHV $V FRQFHUQV VWUXFWXUDO UHDVRQV WKHVH VFKRODUV SRLQW RXW

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



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pUUH]0RUDOHVWKLVYROXPH   'LIIHUHQWGRPDLQVKDYHGLIIHUHQWSURSHQVLWLHVIRUERUURZLQJDQGZLWKLQ GRPDLQVWKHUHDUHERUURZLQJKLHUDUFKLHV)RULQVWDQFHERWKFRQQHFWRUVDQG PRGDOLW\DUHGRPDLQVLQZKLFKERUURZLQJLVYHU\FRPPRQDQGZLWKLQWKHVH GRPDLQVWKHIROORZLQJERUURZLQJKLHUDUFKLHV0DWUDV KDYHEHHQSRV WXODWHGµEXW¶!µRU¶!µDQG¶DQGREOLJDWLRQ!QHFHVVLW\!SRVVLELOLW\!DELO LW\ ! GHVLUH 0DWUDV   GLVFXVVHV ZKHWKHU VRPH RI WKHVH KLHUDUFKLHV PLJKWEHVWULFWLPSOLFDWLRQDOKLHUDUFKLHV8QIRUWXQDWHO\DVVRRQDVLPSOLFD WLRQDOKLHUDUFKLHVDUHSRVWXODWHGWKHGLVFXVVLRQXVXDOO\WXUQVLQWRIUXLWOHVV FRQVLGHUDWLRQV RI ZKHWKHU SRWHQWLDO FRXQWHUH[DPSOHV FDQ EH H[SODLQHG DZD\$WOHDVWIRUVRPHSRVWXODWHGXQLYHUVDOVWKHUHDUHFOHDUFDVHVRIFRXQ WHUH[DPSOHV)RULQVWDQFH/DWYLDQYLRODWHVWKHFRQQHFWRUERUURZLQJKLHUDU FK\/DWYLDQXQµDQG¶LVERUURZHGIURP0LGGOH/RZ *HUPDQYDLµRU¶LV ERUURZHG IURP /LYRQLDQ EXW EHW µEXW¶ LV LQKHULWHG +RZHYHU ZH IXOO\ DJUHHZLWK0DWUDVWKDW³>W@KHIDFWWKDWFRXQWHUH[DPSOHVFDQEHIRXQGGRHV QRWLQYDOLGDWHWKHRYHUDOOREVHUYDWLRQWKDWFRQWUDVWLVDVHPDQWLFSUDJPDWLF IHDWXUHWKDWIDFLOLWDWHVERUURZLQJ´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µFRPSDQLRQSHRSOH¶IURP*HUPDQLFPXVWSUHFHGH WKHJUDPPDWLFDOL]DWLRQRIIRUPVRIWKLVOH[HPHE\ZD\RISRVWSRVLWLRQVLQWR

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

FDVHPDUNHUVLQ(VWRQLDQJDDQG/LYRQLDQNVZLWKWKHLUSDUWLFXODUFRPLWD WLYHLQVWUXPHQWDO SRO\VHP\ FKDUDFWHULVWLF RI 6WDQGDUG $YHUDJH (XURSHDQ ODQJXDJHV6WRO]:lOFKOL   $IXUWKHUTXHVWLRQLVWRZKDWH[WHQWJUDPPDWLFDOERUURZLQJFRQVLVWVRI LQGLYLGXDOHYHQWVRUZKHWKHUGLIIHUHQWLQVWDQFHVRIERUURZLQJPD\GHSHQG RQ HDFK RWKHU *XWLpUUH] 0RUDOHV WKLV YROXPH  DUJXHV WKDW D ILUVW GHHSO\ HPEHGGHGERUURZLQJLQ6LHUUD3RSROXFDRIDFRPSOHPHQWL]HUIURPDYDUL HW\ RI 1DKXDWO SDYHG WKH ZD\ IRU RWKHU VLPLODU ERUURZLQJV WKLV FRXOG EH WHUPHG ³7URMDQ KRUVH´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± OLNHDQ\FKDQJHV±PXVWILUVWEHLQWURGXFHGVSRQWDQHRXVO\EHIRUHWKH\FDQ EHUHLWHUDWHGE\IXUWKHUVSHDNHUVDQGVSUHDGLQDFRPPXQLW\RUEHUHMHFWHG DQGIDGHDZD\ ,ILQWXUQWKH\DUHDFFHSWHGDQGEHFRPHPRUHDQGPRUH FRQYHQWLRQDOL]HG WKH\ FDQ UHPDLQ SDUW RI QRQVWDQGDUG VSHHFK RU LQ FDVH WKH ODQJXDJH LQ TXHVWLRQ KDV EHHQ FRGLILHG EH JUDGXDOO\ HQWUHQFKHG LQ D VWDQGDUG JUDPPDU :H WKXV QHHG WR GLVWLQJXLVKLQQRYDWLRQ IURP SURSDJD WLRQVSUHDG DQGHQWUHQFKPHQWRQWKHODWWHUFI:LHPHUDQG+DQVHQWKLV

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



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³QRLVH´ GLVWXUELQJ DQ RWKHUZLVH UDWKHU QHDW SLFWXUH RI ³ODZV´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pVRUOLQ JXDH IUDQFDH  RQ WKH VSUHDG RI JUDPPDWLFDO IHDWXUHV EXW D ZHDOWK RI GDWDDQGFUXFLDOREVHUYDWLRQVRQSURFHVVHVDQGPHFKDQLVPVRIFKDQJH ZLOOHVFDSHRXUVFUXWLQ\LIZHLJQRUHWKDWFRQWDFWILUVWDQGIRUHPRVWRF

 %M|UQ:LHPHUDQG%HUQKDUG:lOFKOL

FXUVLQGLUHFWFRPPXQLFDWLRQDWDIDFHWRIDFHOHYHODQGLVQRWXVXDOO\ JXLGHGE\FRGLILHGQRUPV  7KHDFFXPXODWLRQRIVPDOOHUFKDQJHVIUHTXHQWO\UHVXOWVLQ³QHWHIIHFWV´ VKRZLQJXSLQDUHDOELDVHV8VXDOO\WKLVFDQEHVHHQRQO\IURPDQDUHDO PDFURSHUVSHFWLYH ZKLFK E\ QHFHVVLW\ IRFXVHV RQ IHDWXUHV WKDW KDYH DOUHDG\ XQGHUJRQH VRPH GHJUHH RI  SURSDJDWLRQ +RZHYHU PDQ\ PHFKDQLVPVRFFXUULQJWRSRSXODWLRQVRIVSHDNHUVFDQRQO\EHREVHUYHG DQGDQDO\]HGRQDPLFUROHYHO  $OWKRXJK 3$7 DQG 0$7 DUH XQHYHQO\ GLVWULEXWHG DPRQJ SURFHVVHV OHDGLQJWRJUDPPDWLFDOFKDQJH±DVLWVHHPVERWKLQWHUPVRIIUHTXHQF\ DQG LQ WHUPV RI GLVWULEXWLRQ RYHU PRUSKRV\QWDFWLF DQG IXQFWLRQDO GR PDLQV±DFRPSUHKHQVLYHFODVVLILFDWLRQRIFRQWDFWLQGXFHGJUDPPDWLFDO FKDQJH FDQ RQO\ EH GHYLVHG LI ZH DOVR IXOO\ DFFRXQW IRU 0$7EDVHG SURFHVVHV6RIDULWUHPDLQVDQRSHQTXHVWLRQDVWRZKDWH[WHQWW\SHV RI 0$7YV3$7EDVHGJUDPPDWLFDOFKDQJHPLUURUHDFKRWKHU   1RWHV   0H\HUKRII   HODERUDWHV RQ D WULSDUWLWH VFDOH RI UHSOLFDWLRQ  WUDQVIHU  FDOTXHZLWKLQFUHDVLQJIURPOHIWWRULJKW VWUXFWXUDODQGGLVWULEXWLRQDOHTXLYD OHQFHEHWZHHQFRQWDFWYDULHWLHV7KHGHJUHHRQWKLVVFDOHLVHPSLULFDOO\YHULIL DEOH,QSDUWLFXODULWLVEDFNHGE\PXOWLYDULDWHDQDO\VHVRIVWUXFWXUDOYDULDEOHV DQG WKHLU RIWHQ KLGGHQ  FRQVWUDLQWV 7KLV QRWLRQ RI µUHSOLFDWLRQ¶ LV PRUH SUH FLVHLQVRIDUDVDQDWWHPSWLVPDGHDWTXDQWLI\LQJGLIIHUHQFHVLQVLPLODULW\EH WZHHQ FRQWDFW YDULHWLHV HYHQ WKRXJK 0H\HUKRII GLG QRW LQWHQG WR SURYLGH D FOHDUFXW GLVWLQFWLRQ EHWZHHQ JUDPPDWLFDO DQG OH[LFDO FKDQJH QRU EHWZHHQ JUDPPDWLFDOL]DWLRQDQGRWKHUNLQGVRIJUDPPDWLFDOFKDQJH  ,WKDVWREHHPSKDVL]HGWKDWWKLVFRQYHQWLRQLVMXVWRQHRIPDQ\GLIIHUHQWRS WLRQV7KHUHDUHHTXDOO\JRRGUHDVRQVWRDGRSWDFRPSOHWHO\GLIIHUHQWWHUPLQR ORJLFDOSUDFWLFHIRULQVWDQFHWKHRQHIROORZHGLQ-RKDQVRQ¶VE LQWHJUD WLYHDSSURDFKWRZDUGGHVFULELQJPDWHULDODQGVWUXFWXUDOWUDQVIHUIURPDPRGHO WR D UHSOLFD ODQJXDJH FHQWHULQJ DURXQG WKH QRWLRQ RI ³FRGH FRS\LQJ´ ,W HP EUDFHV DQ\ NLQG RI ³LQVHUWLRQ RI HOHPHQWV FRSLHG IURP RQH FRGH ZLWKLQ WKH FRQWH[W RI DQRWKHU FRGH ZLWKRXW VSHFLI\LQJ WKH GHJUHH RI DFFHSWDELOLW\ DW D JLYHQ VWDJH RI GHYHORSPHQW´ -RKDQVRQ E   &RGH FRS\LQJ GRHV QRW GLVWLQJXLVK EHWZHHQ GLIIHUHQW GHJUHHV RI ODQJXDJH FKDQJH LW UDQJHV IURP D VSRQWDQHRXV DFW RI LQQRYDWLRQ WR DQ\ VWDJH RI SURSDJDWLRQ ZLWKLQ DQG DFFHS WDQFH E\ D VSHHFK FRPPXQLW\ ³IURP LQGLYLGXDO PRPHQWDU\ FRS\LQJ XS WR FRPSOH[FDVHVRIODQJXDJHFKDQJHRYHUWLPH´E   ,WLVKRZHYHUQRWUHTXLUHGWKDWWKHLQLWLDOSDWWHUQLQ5EHWRWDOO\LGHQWLFDOWRLWV PRGHOLQ0QRUWKDWWKHRXWFRPHLQ5FRLQFLGHZLWKWKHSDWWHUQLQ0

&RQWDFWLQGXFHGJUDPPDWLFDOFKDQJH



 $VSRLQWHGRXWLQ*UDQWWKLVYROXPH DGLVWLQFWLRQEHWZHHQµWUDQVIHURISDW WHUQ¶DQGµWUDQVIHURIIDEULF¶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¶WHUPLV µFURVVERUURZLQJ¶ ZKLFKLVQRWDGRSWHGKHUH VLQFH ZHUHVWULFW ERUURZLQJWR0$7WUDQVIHU  /LYRQLDQ GLIIHUV IURP /DWYLDQ LQ XVLQJ WKH JHQLWLYH VLQJXODU RI WKH TXDQWLILHU UDWKHUWKDQWKHJHQLWLYHSOXUDOZKLFKVSHDNVLQIDYRURISDUDOOHOJUDPPDWLFDOL ]DWLRQUDWKHUWKDQFDOTXH

  5HIHUHQFHV 

$LNKHQYDOG$OH[DQGUDPXVW@\RXVWLOOUHPDLQ"¶  7KH µKDYH¶EDVHG IXWXUH H[SUHVVLRQV LQ ERWK GLDOHFWDO ,WDOLDQ DQG 0ROLVH 6ODYRQLF DUH VWLOO EHWWHU FKDUDFWHUL]HG DV PRGDO REOLJDWLRQDO  FRQVWUXF WLRQV ZKHUHDV WKH 0ROLVH 6ODYRQLF GHYROLWLYH IXWXUH GLVSOD\V HSLVWHPLF DQGJHQXLQHIXWXUHXVDJH,WWKXVIXQFWLRQDOO\FRUUHVSRQGVWRWKHEHKDYLRXU RIERWKGLDOHFWDO,WDOLDQGRYHUHDQGWKHGHYROLWLYHIXWXUHZLWKWKHFRJQDWH PRUSKHPH LQ 6RXWK 6ODYRQLF LQ WKH %DONDQV $V VWUHVVHG E\ %UHX   WKH0ROLVH6ODYRQLFGHYROLWLYHIXWXUHSURYHVWRKDYHUHVLVWHG³LQWUX VLRQ´DQGUHSODFHPHQWE\µPXVW¶DIDFWZKLFKLVFHUWDLQO\FRQGLWLRQHGE\ LWVDJHUHDFKLQJEDFNLQWRFRPPRQ6RXWK6ODYRQLFWLPHVSULRUWRFRQWDFW RQ WKH $SSHQLQH SHQLQVXODU  ZKHUHDV WKH µKDYH¶IXWXUH FOHDUO\ EHKDYHV OLNHDFRS\RILWVPRGHOLQ,WDOLDQGLDOHFWV:HWKLQNKRZHYHUWKDWEH\RQG



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

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²EDFNJURXQG UHODWLRQ EHFRPHV UHYHUVHG EHFDXVHQRZWKHVSHDNHUXVHVWKHVDPHSHUIHFWIRUPVWRPDUNDQLQIHUHQFH PDGHE\KLPKHUVHOIDWPRPHQW6ZLWKUHJDUGWRDQDQWHULRUVLWXDWLRQ6 VHHH[ 7KLVIXQFWLRQZDVWKHQE\DQDORJ\WUDQVIHUUHGWRWKHSUHVHQW WHQVHDQGVLWXDWLRQVVLPXOWDQHRXVWRWKHPRPHQWRIVSHHFKVHHH[ WKH H[DPSOHVDUHWDNHQIURP*XHQWFKpYD     %XOJDULDQ  7RMSDN ]DYHO GHOR YV]DYHGH   KH DJDLQ LQFLWH/B(9,'06* SURFHVV LQFLWH$256*  µ$SSDUHQWO\KHDJDLQKDVLQVWLJDWHGDSURFHVV¶    %XOJDULDQ  ,YDQ VSMDO YVVSL   ,YDQ VOHHS/B(9,'06* VOHHS3566*  µ$SSDUHQWO\,YDQLVVOHHSLQJ¶  )RUWKLVPHWRQ\P\OLNHWXUQRYHUEHWZHHQIRUHDQGEDFNJURXQGHGSDUWVRI PHDQLQJ 7XUNLVK KDV VXUHO\ SOD\HG WKH UROH RI D WULJJHU WKH VDPH IXQF WLRQDO VZLWFK LV DWWHVWHG IRU WKH 7XUNLVK P,úVXIIL[ ZKLFK OLNHZLVH FDQ VWLOOEHXVHGERWKDVPDUNHURIWKHSHUIHFWDQGDVJHQHUDOPDUNHURIµQRQ FRQILUPDWLYLW\¶ )ULHGPDQ¶V WHUP  RU µLQGLUHFWLYLW\¶ -RKDQVRQ¶V WHUP  1RWHWKDWZKDWHYHUPD\EHWKHGHWDLOVRIWKHIXQFWLRQDOFRUUHVSRQGHQFHV EHWZHHQWKH7XUNLVKDQGWKH%DONDQ6ODYRQLFSHUIHFWVLIWKH7XUNLVKSHU IHFW±HYLGHQWLDOLW\SRO\VHP\ZDVDPRGHOIRUWKH%DONDQ6ODYRQLFHYLGHQ

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF 



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µLQGLUHFW¶µQRQFRQILUPDWLYH¶ IXQFWLRQVWKDWLVDQDJJOXWLQDWHGVXIIL[ P,ú 7KH%DONDQ6ODYRQLFSHUIHFWLVPDUNHGZLWKDQDJJOXWLQDWHGVXIIL[ O  WRR EXW LW LV FRPELQHG ZLWK D IUHH DX[LOLDU\ RU FRSXOD  µEH¶ $O WKRXJK LW KDV UHSHDWHGO\ EHHQ FODLPHG WKDW LQ HYLGHQWLDO µQRQ FRQILUPDWLYH¶ UHDGLQJWKHSHUIHFWORVHVWKLVXQERXQGPRUSKHPHWKLVGLI IHUHQFHEHWZHHQµFRQILUPDWLYH¶DQGµQRQFRQILUPDWLYH¶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µPDWHULDO¶ ZD\ EXW RQO\ µLPLWDWHG¶ WKH UDQJH RI IXQFWLRQV RI WKH 7XUNLVK PDUNLQJ GHYLFH   $UWLFOHV  'HILQLWHDUWLFOHV  $QRWKHU ODQJXDJH FKDQJH FKDUDFWHULVWLF RI WKH %DONDQ DUHD LV WKH ULVH RI QHZDUWLFOHV%XOJDULDQDQG0DFHGRQLDQGHYHORSHGDGHILQLWHDUWLFOHZKLFK RFFXSLHVWKH:DFNHUQDJHOSRVLWLRQLQWKHQRXQSKUDVHDQGFOLWLFL]HVZLWK WKHSUHFHGLQJHOHPHQWEXWGRHVQRWIXVHZLWKLW 



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

D  %XOJDULDQ  þDQWLWH  EDJ3/'()$573/  µWKHEDJV¶  E  %XOJDULDQ  [XEDYLWH þHUQL NRåHQL þDQWL  QLFH3/'()$573/ EODFN3/ OHDWKHUQ3/ EDJ3/  µWKHQLFHEODFNOHDWKHUEDJV¶  :HDUHGHDOLQJZLWKWKHWUDQVLWLRQRIDGHLFWLFSURQRXQ2OG&KXUFK6OD YRQLF Wă  LQWR D IXOO\IOHGJHG GHILQLWHQHVV PDUNHU FRQVWLWXWLQJ DQRWKHU WH[WERRNFDVHRIDJUDPPDWLFDOL]DWLRQSURFHVVIRXQGLQDODUJHQXPEHURI ODQJXDJHV$VLPLODU±WKRXJKQRWLGHQWLFDO±V\VWHPRISRVWSRVHGDUWLFOHV LVIRXQGLQ$OEDQLDQFIPLNµIULHQG¶±PLNXµWKHIULHQG¶ DQGLQ5RPD QLDQFIIHFLRUµER\¶±IHFLRUXOµWKHER\¶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ă VHH DERYH IRU 2&6  WRZDUG D GHILQLWHQHVV PDUNHULQYDULHWLHVRI:HVW6ODYRQLFDQGLQ1RUWKHUQ5XVVLDQ$VFRQFHUQV WKHODWWHUVRPHVFKRODUVKROGWKDWWKHIUHTXHQWSRVWSRVLWLRQRIWKLVHQFOLWLF SURQRXQ UHVXOWHG IURP YHU\ HDUO\ WKWK F  LQIOXHQFH H[HUWHG RQ (DVW 6ODYRQLF E\ VSHDNHUV RI 2OG 6FDQGLQDYLDQ WKH 9DUDQJLDQV ZKR DUH DV VXPHGWRKDYHEHHQQRWRQO\WUDGHUVEXWDOVRUXOHUVLQWKH.LHYDQ5XV¶  $OWKRXJK WKLV K\SRWKHVLV ZRXOG H[SODLQ WKH SRVWSRVLWLRQ RI D GHPRQVWUD WLYHHOHPHQWWRQRXQVSUHFLVHO\LQWKH³6FDQGLQDYLDQZD\´FRPSDUHHJ

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF 



6ZHG KXVHW µKRXVH'()$57¶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¶ãHWR QH VDåDOL  FXFXPEHU$&&3/ HDUOLHU37& 1(* SODQW,3)93673/  µ(DUOLHU37&QRERG\SODQWHGFXFXPEHUVKHUH ¶    GLDOHFWDO5XVVLDQ  âNROHWR RWRSOHQLH QDGR  VFKRRO'$7)37& KHDWLQJ120$&&QHHGHG$8;,1'(&/   QX MD L Y]MDODVMD  37& ,120 37& WDNHBLQLWLDWLYH3)93676*)  µ7KHVFKRRO37&QHHGHGKHDWLQJVR,WRRNWKHLQLWLDWLYH¶  2QWKLVEDVLVDOUHDG\6HOLãþHY DVVXPHGDFORVHIXQFWLRQDODQGJH QHWLFOLQNEHWZHHQWKHDUWLFOHOLNHGLDOHFWDOHQFOLWLFVDQGWKHVWDQGDUG5XV VLDQ SRVWSRVHG PRUSKHPH WR $FFRUGLQJ WR KLP LQ QHLWKHU FDVH GR WKH



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

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³RXWGLVWDQFHV´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µSUDJPDWLF GHILQLWHQHVV¶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yQ01206* KDVQRW\HWWRWDOO\JUDPPDWLFDOL]HGVLQFHLW LV H[FOXGHG IURP JHQHULF UHIHUHQFH FI 6FKRO]H   WKLV YROXPH  7KLV FOHDUO\ GLVWLQJXLVKHV WKH &ROORTXLDO 8SSHU 6RUELDQ FDVH IURP WKH GHILQLWHDUWLFOHLQ%DONDQ6ODYRQLF,IKRZHYHUZHDELGHE\WKHGLYLVLRQ EHWZHHQ SUDJPDWLF DQG VHPDQWLF GHILQLWHQHVV LQWURGXFHG LQ %UHX   WKH &ROORTXLDO 8SSHU 6RUELDQ SURQRXQ RXJKW WR EH JUDQWHG D VXIILFLHQWO\ JUDPPDWLFDOL]HG VWDWXV DV D GHILQLWH DUWLFOH 3UDJPDWLF GHILQLWHQHVV UHOLHV RQWKHUHIHUHQW¶VXQLTXHLGHQWLILDELOLW\EDVHGRQWKHGLVFRXUVHWH[W RUWKH VSHHFK VLWXDWLRQ WKLV LQFOXGHV DQDSKRULF DQG DVVRFLDWLYHDQDSKRULF UHIHU

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF 



HQFH $V IRU WKH ODWWHU VHH WKH IROORZLQJ H[DPSOH TXRWHG IURP 6FKRO]H      FROORTXLDO8SSHU6RUELDQ  MD WĜ\OLP QD MHQ  ,120 VKRRW,3)93566* DW RQH$&&6*0  ãDOSORWHQãSLORU GyNHMã PL  UHFRUGSOD\HU$&&6*0 EHFDXVH PH'$7  WD PX]LND  '()$571206*) PXVLF1206*)  QD QHUI GĨR  DW QHUYH$&& JR,3)96* µ,¶PVKRRWLQJDWDUHFRUGSOD\HUEHFDXVHWKHPXVLFLVJHWWLQJRQP\ QHUYHV¶  3UDJPDWLFDOO\GHILQLWH13VDUHDOZD\VPDUNHGZLWKWyQ %\ FRQWUDVW VHPDQWLF GHILQLWHQHVV DSSOLHV WR UHIHUHQWV ZKLFK DUH XQLTXHO\ LGHQWLILDEOH E\ YLUWXH RI WKHLU LQKHUHQW FKDUDFWHULVWLFV VXFK DV HJLQDOLHQDEO\SRVVHVVHGREMHFWVERG\SDUWVFORWKHV RUUHODWLYHXQLTXH HQWLWLHV OLNH QDPHV RI FORVH UHODWLYHV RUQDPHVRIREMHFWVRWKHUZLVHFRP PRQO\NQRZQWRPHPEHUVRIDGLVWLQFWVSHHFKFRPPXQLW\HJWKHFKXUFK RU PD\RU RI D JLYHQ YLOODJH WKH QHLJKERXU¶V FDW WKH VXQ PRRQ RU HDUWK WKH3RSHHWF 6HPDQWLFDOO\GHILQLWH13VXVXDOO\UHPDLQZLWKRXWWyQDO WKRXJKLWKDVEHJXQWRILQGLWVZD\LQWRWKLVGRPDLQWRR+HUHZHFDQDU JXHIRUDQRQJRLQJSURFHVVRIFRQWLQXHG&,*,WLVFHUWDLQO\FRQGLWLRQHGE\ WKH*HUPDQPRGHODOWKRXJKQRUHOLDEOHVWDWHPHQWFDQEHPDGHDVIRUWKH H[DFW RU HYHQ UHODWLYH FKURQRORJ\ RI UHSOLFDWLRQ IRU GHWDLOV FI 6FKRO]H WKLVYROXPH  2WKHU YDULHWLHV IURP WKH ZHVWHUQ 6ODYRQLFVSHDNLQJ ³KHPLVSKHUH´ LQ ZKLFK WKH FRQWDFWLQGXFHG HYROXWLRQ GHPRQVWUDWLYH SURQRXQ ! GHILQLWH DUWLFOH KDV SURFHHGHG FRQVLGHUDEO\ DUH WKH )ULXOLDQ 5HVLDQ  GLDOHFWV RI 6ORYHQHQRUWKHDVWHUQ,WDO\ FI%HQDFFKLR $QLQFUHDVH LQWKHXVHRIWKHDWWULEXWLYHGHPRQVWUDWLYH WăSURQRXQDVDPDUNHURIGHIL QLWH13VFDQEHREVHUYHGLQSUDFWLFDOO\DOOQRQVWDQGDUGYDULHWLHVRI:HVW 6ODYRQLF DQG 6ORYHQH ZKLFK KDYH EHHQ LQ FORVH FRQWDFW ZLWK *HUPDQ RU ,WDOLDQRUERWK )RUDQRYHUYLHZFI%D\HU ZKRVHLQYHV WLJDWLRQ RI 6ORYHQH DQG &URDWLDQ YDULHWLHV LQ $XVWULD DOVR FRUURERUDWHV %UHX¶V ILQGLQJ WKDW WKH PDUNLQJ RI VHPDQWLF GHILQLWHQHVV FRPHV DIWHU SUDJPDWLF GHILQLWHQHVV LI DW DOO  FI %D\HU    1RZKHUH KRZHYHUKDVLWUHDFKHGWKHVWDJHRIDIXOO\IOHGJHGGHILQLWHDUWLFOH



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

5HJDUGOHVVRIWKHHPSLULFDOSUREOHPVZLWKGLDFKURQLFUHVHDUFKDOOXGHG WR DERYH WKHUH LV DQRWKHU UHPDUNDEOH GHWDLO ZRUWK QRWLQJ VLQFH LW EHDUV GLUHFWO\RQDVVXPSWLRQVRQ&,*%HQDFFKLR QRWLFHGWKDWLQ WKH HDUOLHVWDYDLODEOHWH[WIURP)ULXOLDQ5HVLDQ 6ORYHQHDQWKFFDWH FKLVPWKHXVHRIWKHSURFOLWLFGHPRQVWUDWLYH WăSURQRXQWKRXJKLQPDQ\ UHVSHFWVIROORZLQJTXLWHVWULFWO\WKHUXOHVRIDUWLFOHXVHLQ,WDOLDQVWDQGDUG DQG GLDOHFWV  GLVSOD\HG VHYHUDO XVDJHV ZKLFK KDYH EHHQ HQWLUHO\ DW\SLFDO IRU WKLV FRQWDFW ODQJXDJH QDPHO\ WKH SURFOLWLF GHPRQVWUDWLYH EHLQJ XVHG ZLWKYRFDWLYH DQGZLWKSUHGLFDWLYH13V     )ULXOLDQ6ORYHQH  WD GROþ QDãD ãSHUDQþD  GHP)6*120 VRIW RXU)6*120 KRSH)6*120  µ\RX WKLVRXUPLOGTXLHW" KRSH¶    )ULXOLDQ6ORYHQH  Y\ VWH WD  \RX3/ &233563/ '(0)6*120  GXEUXWD LQILQLW  JRRGQHVV)6*120 ERXQGOHVV  µ WKDWRQHL@\HWEHFDXVHLW¶VYHU\KDUG¶  8QGHUPRUHVSRQWDQHRXVFLUFXPVWDQFHVVXFKDVLQRUDOHQFRXQWHUVDWWKH PDUNHWSODFH HYHQ EDUH LQGHILQLWHV FDQ EHFRPH WKH WDUJHW RI REMHFW GRX EOLQJ6HHDQH[DPSOHIURPDQRUDOFRUSXVZLWKDJHQHULFREMHFW13FLWHG IURP)ULHGPDQLELG     %XOJDULDQ  %DQDQL QH RELþDP GD JRL  EDQDQD6*0 1(* OLNH,3)93566* &203 KLP$&&  MDP  HDW,3)93566* µ,GRQ¶WOLNHWRHDWEDQDQDVL¶LHµ%DQDQDLVDIUXLW,GRQ¶WOLNHWR HDW¶   7KHUHDVRQIRUWKLVH[WHQVLRQRIFOLWLFGRXEOLQJEH\RQGWKHUXOHVDFNQRZO HGJHGLQWKHVWDQGDUG PRVWSUREDEO\OLHVLQWKHLPSOLFLWRSSRVLWLRQRIED QDQDV ± DV D FHUWDLQ VRUW RI IUXLW ± DJDLQVW RWKHU NLQGV RI IUXLW RU RWKHU IRRG RQHOLNHVRUGLVOLNHV )URPWKHIRXUIDFWRUVOLVWHGDERYHLWIROORZVWKDWPRVWHOXFLGDWLYHDUH FDVHVZLWKLQGHILQLWHGLUHFWREMHFWVH[SUHVVHGE\IXOO13V,Q0DFHGRQLDQ VXFKREMHFWVQRUPDOO\WULJJHUFOLWLFGRXEOLQJLIWKHUHIHUHQWLVWRSLFDODQG QRWHZRUWK\ IRU VRPH UHDVRQ  7KLV FDQ EH VHHQ IURP D FRPSDULVRQEH WZHHQ DQ LQGHILQLWH VSHFLILF D  DQG DQ LQGHILQLWH QRQVSHFLILF E  REMHFWFLWHGIURP)ULHGPDQ  



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

D  0DFHGRQLDQ  6DNDP GD JRL SOXNQDP  ZDQW,3)93566* &203 KH$&& VSLW3)93566*  >HGHQ þRYHN NRM EHãH YþHUD  RQH6*0 PDQ6*0 5(/6*0 LV,03)&6*\HVWHUGD\  NDM WHEH@L  DW \RX6*   µ,ZDQWWRVSLWRQ>DPDQZKRZDVDW\RXUSODFH\HVWHUGD\@L¶  E  0DFHGRQLDQ  6DNDP GD  JRL  SOXNQDP ZDQW,3)93566* &203 KH$&& VSLW3)93566* >HGHQ þRYHN QR QH ]QDP NRJR@L  RQH6*0 PDQ6*0EXW 1(* NQRZ,3)93566* ZKR$&&  µ,ZDQWWRVSLWRQ>DPDQEXW,GRQ¶WNQRZZKR@L¶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µKDQJLQJWRSLFV¶RUµOHIWGLVORFDWLRQ¶FRPSDUH    >7KHZLQHLQWKDWUHVWDXUDQW@L,GRQ¶WOLNHLWL  7KH GLIIHUHQFH EHWZHHQ FRQVWUXFWLRQV OLNH   DQG REMHFW GRXEOLQJ FRQ VLVWVLQWKHIDFWWKDWLQWKHODWWHUL WKHUHVXPSWLYHSURQRXQLVQRWVHWRII IURPWKHUHVWRIWKHXWWHUDQFHE\DSURVRGLFEUHDNSDXVH LL WKHSURQRXQ FDQDOVRSUHFHGHLWVFRUHIHUHQWLDO13VHHH[DQGD LLL LWLVREOLJD WRU\LQFHUWDLQZHOOGHILQHGFRQWH[WV7KHVHGLIIHUHQFHVDPRXQWWRWKHIDFW WKDWWKHUHGRXEOLQJFOLWLFKDVEHFRPHDQLQWHJUDOSDUWRIWKHFODXVHDQGLV QRZ WUHDWHG DV D FRUH DUJXPHQW ,Q RWKHU ZRUGV DQ RSWLRQDO GLVFRXUVH SUDJPDWLFGHYLFHKDVWXUQHGLQWRDPDQGDWRU\FRQVWUXFWLRQRIFODXVDOV\Q WD[ 

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF 



  13L>>SURQL²1XFOHXV@&RUH@&ODXVH !   >>13L±SURQL±1XFOHXV@&RUH@&ODXVH  7KLV LV D FOHDU FDVH RI V\QWDFWLF WLJWKHQLQJ LOOXVWUDWLQJ *LYyQ¶V IDPRXV VD\LQJ³@ ,WLVDOVRXQQHFHVVDU\WRDVVXPHWKDW1HZ7HVWDPHQW*UHHN KDGDVSHFLDOLPSDFWRQWKHULVHRIFOLWLFGRXEOLQJLQ2OG&KXUFK6ODYRQLF ZKHUHZHILQGILUVWDWWHVWDWLRQVRIWKLVSKHQRPHQRQDVHDUO\DVHJLQWKH &RGH[ 6XSUDVOLHQVLV WK FHQWXU\  FI 'LPLWURYD9XOFKDQRYD DQG 9XOFKDQRY IURPZKHUHH[ LVTXRWHG 



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

  2OG&KXUFK6ODYRQLF >Y¶VČNRr UD]JRr QH WYRUĊãWRMr Rr SORGD@L L]\PHW MRrL L >Y¶VČNRr WYRUĊãWRr SORG@NRWUČELWMRrN µ>(YHU\ EUDQFK WKDW  GRHVQ¶W JLYH IUXLW@L KH ZLOO  WDNH DZD\ DQG >HYHU\RQHWKDW JLYHVIUXLW@NKHZLOO FOHDQ¶  7KHDXWKRUVVWDWHWKDWH[DPSOHVRIFOLWLFGRXEOLQJRFFXUUHGLQ2&6GRFX PHQWV DW SODFHV ZKHUH WKH *UHHN VRXUFH WH[W GLG QRW KDYH LW 'LPLWURYD 9XOFKDQRYDDQG9XOFKDQRY 7KLVLVUHPDUNDEOHLQYLHZRIWKH IDFWRIRWKHUZLVHVWURQJLQIOXHQFHVRQWR2&6V\QWD[IURP1HZ7HVWDPHQW *UHHN IURP ZKLFK YLUWXDOO\ DOO DQFLHQW 2&6 WH[WV ZHUH WUDQVODWHG ,I ,OLHYVNL¶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

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF 



FRXQWIRUWKHIDFWWKDWWKHKLJKHVWGHJUHHRIJUDPPDWLFDOL]DWLRQSHUWDLQVWR VRXWKZHVWHUQ0DFHGRQLDVHHDERYH LHDUHJLRQZKHUHGLDOHFWDOYDULHWLHV RIQRWFORVHO\UHODWHG,(ODQJXDJHJURXSVKDYHEHHQVSRNHQIRUFHQWXULHV $OO WKHVH FRQVLGHUDWLRQV FRUURERUDWH DQ DVVXPSWLRQ IRUPXODWHG E\ 7RSR OLĔVND LQKHUYLHZ³WKHSULPDU\FDQGLGDWHVIRUJUDPPDWLFDOL ]DWLRQDUHDOOWKRVHVLJQDOVWKDWZLOOJXDUDQWHHVXFFHVVIXOUHIHUHQFH³&OLWLF GRXEOLQJ FDQ WKHQ EH YLHZHG DV D SDUDGLJP H[DPSOH RI WHFKQLTXHV E\ ZKLFKVSHDNHUVLQPXOWLOLQJXDOVHWWLQJVRIDSULPDULO\RUDOFXOWXUHDWWHPSW WRDFKLHYHWKHPRVWUHOLDEOHGHJUHHRIPXWXDOLQWHOOLJLELOLW\  +RZFDQZHUHODWHFOLWLFGRXEOLQJWR&,*"7KHUHLVOLWWOHGRXEWWKDWWKH V\QWDFWLFWLJKWHQLQJRIREMHFWGRXEOLQJE\FOLWLFVKDVUHVXOWHGIURPPXWXDO LQIOXHQFHDPRQJODQJXDJHVRIWKHVRFDOOHG%DONDQ6SUDFKEXQGLQSDUWLFX ODULWV³FRUHPHPEHUV´LHYDULHWLHVORFDWHGLQWKHUHJLRQRI/DNH2KULG %XWDJDLQVXFKFRQYHUJHQFHLVDKLQGHUDQFHUDWKHUWKDQKHOSIXOLQPDN LQJ SUHFLVH ZKHUH WKLV GHYHORSPHQW VWDUWHG $IWHU DOO LW PD\ QRW PDNH VHQVHWRDVNZKHWKHUWKHUHLVRQHVLQJOH³VRXUFHYDULHW\³&OLWLFGRXEOLQJ DSSHDUV WR EH VWURQJO\ PRWLYDWHG E\ WKH VXSSRVHGO\ XQLYHUVDO  QHHG IRU VSHDNHUV WR RUJDQL]H WKH LQIRUPDWLRQ VWUXFWXUH RI WKHLU PHVVDJHV 2XU DV VHVVPHQWRIKRZUXOHVRIFOLWLFGRXEOLQJKDYHVSUHDGJHWVHYHQPRUHWURX EOHVRPHLIZHDGPLWWKDWWKLVVSUHDGZDVSUREDEO\IDYRXUHGE\IDFHWRIDFH FRPPXQLFDWLRQ LQ ORQJODVWLQJ PXOWLOLQJXDO VHWWLQJV )LQDOO\ DQG LQGH SHQGHQWO\RIIDYRXUDEOHODQJXDJHFRQWDFWLQRUGHUWR³FRQVWUXFW´DJUDP PDWLFDOL]DWLRQFOLQHIRUFOLWLFGRXEOLQJRQHPXVWDOVRFODULI\KRZWKHIRXU IDFWRUVDGGXFHGDWWKHEHJLQQLQJRIWKLVVXEVHFWLRQDUHLQWHUWZLQHGLQWKHLU UHODWLYH LPSRUWDQFH DQG FKURQRORJ\ $W SUHVHQW ZH DSSDUHQWO\ GR QRW NQRZ YHU\ SUHFLVHO\ KRZ WKHVH IDFWRUV LQWHUDFW ZLWK HDFK RWKHU ZKLFK FRPHV ILUVW ZKLFK ODWHU HWF 7KLV NLQG RI FODULILFDWLRQ VHHPV KRZHYHU PDQGDWRU\LIZHDUHWRGLVFHUQZKDWD³QRUPDOFOLQH´IURPSXUHDQGSUDJ PDWLFDOO\GULYHQGLVORFDWLRQRIWRSLFDOFRQVWLWXHQWVWRWLJKWUXOHVRIREMHFW GRXEOLQJE\FOLWLFVORRNVOLNH )LQDOO\ZHVKRXOGDGGWKDWVRPHVRUWRIFOLWLFGRXEOLQJLVDWWHVWHGDOVR LQ0ROLVH6ODYRQLFWKH)ULXOLDQGLDOHFWVRI6ORYHQHDQGLQWKH,VWULDQGLD OHFWVRI&URDWLDQ%HQDFFKLR 0RVWREYLRXVO\WKHVHYDULH WLHVKDYHEHHQLQIOXHQFHGE\VRPHYDULHW\RURWKHURI,WDOLDQVHHDQH[DP SOHIURPWKH)ULXOLDQGLDOHFWRI1DWLVRQH    )ULXOLDQ6ORYHQH  0Oɺ WR PL SODåD  PH'$7121&/,7,& WKLV1 PH'$7&/,7,& SOHDVH3566*  µ,WSOHDVHVPH¶FRPSDUH,WDOLDQ$PHPLSLDFH 



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

,Q)ULXOLDQFOLWLFGRXEOLQJKDVGHYHORSHGDOVRRQWKHVXEMHFW13DIHDWXUH W\SLFDO IRU 1RUWKHUQ ,WDOLDQ GLDOHFWV 6LJQLILFDQWO\ µVXEMHFW GRXEOLQJ¶ LV ODFNLQJ LQ GLDOHFWV WKDW DGKHUH PRUH FORVHO\ WR WKH VWDQGDUG QRUP RI6OR YHQH %HQDFFKLR    7KH LQLWLDO QRQFOLWLF SURQRXQ RU IXOO 13 LVV\QWDFWLFDOO\LQWHJUDWHGLQWRWKHFODXVH5%HQDFFKLRSF 5HJDUG OHVVRIWKHGHJUHHRIJUDPPDWLFDOL]DWLRQLQWKHDERYHPHQWLRQHGYDULHWLHV ZHFDQQRWVD\ZLWKFHUWDLQW\ZKHWKHUWKHJHQHVLVRIFOLWLFGRXEOLQJLQWKHVH 6ODYRQLFDQG,WDOLDQGLDOHFWVLVLGHQWLFDODQGKLVWRULFDOO\FRQQHFWHGWRWKH ³VWRU\RIREMHFWGRXEOLQJ´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tP 3HWUD WDQþLW VHH6* 3HWU6*$&& GDQFH,1)  E  *HUPDQ ,FK VHKH 3HWHU WDQ]HQ , VHH6* 3HWU6*$&& GDQFH,1) µ,VHH3HWUGDQFLQJ¶ 

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF 



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µIRU¶FDPHWRJRYHUQDQLQILQLWLYHZKLFKLVDVVXPHG WR KDYH GHYHORSHG XQGHU WKH LQIOXHQFH RI WKH *HUPDQ ]XLQILQLWLYH FI 3RSRYLü    7KH QHZ LQILQLWLYDO SKUDVH FDQ EH XVHG LQ GLIIHUHQW W\SHVRIFRQVWUXFWLRQVZKLFKZHZLOOQRWEHDEOHWRGLVFXVVKHUHLQGHWDLO LQ&URDWLDQOLQJXLVWLFVRQHRIWKHPLVFDOOHGWKHµLQILQLWLYHFRQVHTXHQWLDO FRQVWUXFWLRQ¶ ,QILQLWLYQD SRVOMHGLþQD NRQVWUXNFLMD 9XNRMHYLü   ZKHUHWKHDFWLRQLVFRQVWUXHGDVWKHFRQVHTXHQFHRIDVSHFLILFSURSHUW\RI WKHVXEMHFW  D  &URDWLDQ  7R MH ]D XPULMHW RG VPLMHKD  WKLV EH3566* IRU GLH,1) IURP ODXJKWHU*(16*  E  *HUPDQ  'DV LVW ]XP 7RWODFKHQ  WKLV EH3566* WR'()$57 GHDGODXJK,1)  µ,WLVVRWKDW\RXFRXOGGLHODXJKLQJ¶  D  &URDWLDQ  /LMHSD MH ]D SRãL]LW9XNRMHYLü  EHDXWLIXO120)6* EH3566* IRU JHWFUD]\,1)



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

E  *HUPDQ  6LH LVW ]XP 9HUUFNWZHUGHQ  VKH EH3566* IRU'()$57'$76* JHWFUD]\,1)  VFK|Q  EHDXWLIXO120)6* µ6KHLVVREHDXWLIXO\RXFRXOGJRFUD]\¶  $FFRUGLQJWR9XNRMHYLü VHQWHQFHD FDQEHSDUDSKUDVHGE\ µVKHLVVREHDXWLIXOWRVXFKDQH[WHQWWKDWKHUEHDXW\PLJKWFDXVHDSHUVRQ WRJHWFUD]\¶$QRWKHUFRQVWUXFWLRQVKDUHVIHDWXUHVZLWKEXWLVQRWLGHQWLFDO WR ZKDW LQ IRUPDO V\QWDFWLF DSSURDFKHV LV FDOOHG REMHFWWRVXEMHFW UDLVLQJ FRQVWUXFWLRQZKHUHWKHVHFRQGDUJXPHQWRIWKHLQILQLWLYDOYHUELVV\QWDFWL FDOO\UHDOLVHGDVWKHVXUIDFHVXEMHFW  D  &URDWLDQ  >DQHNDGQRVLPLEDQDQH@ MHU VX   EHFDXVH EH3563/  SUDNWLþQH ]D MHVWL  µKDQG\1203/ WR HDW,1)¶  E  *HUPDQ  >XQGPDQFKPDOKDEHLFK%DQDQHQGDEHL@ GHQQ GLH VLQG SUDNWLVFK ]X HVVHQ EHFDXVH WKLV1203/ EH3563/ KDQG\1203/ WR HDW,1) µ>DQG VRPHWLPHV , EULQJ DORQJ EDQDQDV@ EHFDXVH WKH\ DUH KDQG\ WR HDW¶  D  9RMYRGLDQ6HUELDQ,YLüHWDO   GD YLGL LPD O ãWRJRÿ ]D MHVWL &203 VHH6* KDYH6* 4 DQ\WKLQJ120 WR HDW,1)  E  *HUPDQ  XP ]XVHKHQ RE HV HWZDV ]X HVVHQ JLEW &203 WRVHH,1) 4 LW VRPHWKLQJ WR HDW,1) KDYH6*  µ« WRVHHLIWKHUHLVDQ\WKLQJWRHDW¶  7KHVH FRQVWUXFWLRQVDUHPRGHOOHGRQWKH*HUPDQLQILQLWLYHIRUPSOXVWKH PRUSKHPH]XZKLFKKLVWRULFDOO\JRHVEDFNWRWKHVSDWLDOSUHSRVLWLRQZLWK WKHPHDQLQJµWRLQWKHGLUHFWLRQRI¶7KHULVHRIWKHQHZSDWWHUQµSUHSRVL WLRQ SOXV LQILQLWLYH¶ LQYROYHV QRW RQO\ WKH H[SDQVLRQ RI WKH XVH RI WKH

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF 



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µPDQFODXVHV¶7KHVHFRQGW\SHRI FKDQJHLVIRXQGLQODQJXDJHVZKHUHGHPRQVWUDWLYHVDQGWKHQXPHUDOµRQH¶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³KLJKHU´



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

HYHQWKDQPRGDOV)RUWKHVDPHUHDVRQHYLGHQWLDOIXQFWLRQVOLNHZLVHGRQRW ILWLQWRDQ\RIWKHFODXVHOHYHOGRPDLQVSUHVHQWHGLQ7DEOH7KLVRXWO\LQJ FDWHJRULDO FKDUDFWHULVWLF RI HYLGHQWLDO H[WHQVLRQV RI RWKHUZLVH ZHOO HVWDEOLVKHG70$FDWHJRULHVLVSDUDOOHOOHGE\LWVWURXEOHVRPHFKDUDFWHUL]D WLRQ LQ WHUPV RI &,* DQG RI JUDPPDWLFDOL]DWLRQ LQ JHQHUDO  VLQFH WKH IXQFWLRQDO H[WHQVLRQV FRQILUPDWLYH  SHUIHFW o HYLGHQWLDO QRQFRQILU PDWLYH  DQG QHFHVVLW\ o HYLGHQWLDO KDYH YLUWXDOO\ UHPDLQHG ZLWKRXW DQ\ PRUSKRV\QWDFWLFFKDQJHVLQGLFDWLYHRIJUDPPDWLFDOL]DWLRQ 7DEOH  VKRZV D VWULNLQJ GRPLQDQFH RI DQDO\WLFDO FRQVWUXFWLRQV LQ ZKLFK WKH OH[LFDO HOHPHQWV DIIHFWHG E\ JUDPPDWLFDOL]DWLRQ UHWDLQ WKHLU VWDWXV RI PRUSKRV\QWDFWLFDOO\ DXWRQRPRXV ZRUGV µPDQ¶FRQVWUXFWLRQV FRPSOH[ SUHGLFDWHV ZLWK YHUEDO QRXQV DQG ZLWK WZR ILQLWH YHUEV SRVVHV VLYH UHVXOWDWLYHV $F, DQG SUHSRVLWLRQDO LQILQLWLYH FRQVWUXFWLRQV  RU LQ ZKLFK RQO\ WKH SDWWHUQ RI D PRGHO ODQJXDJH KDV EHHQ FRSLHG DEVHQWLYH SUHGLFDWLYHSRVVHVVLRQ$F,DQGSUHSRVLWLRQDOLQILQLWLYHFRQVWUXFWLRQVHYL GHQWLDO SHUIHFW  7KHVH FDVHV PDNH LW GLIILFXOW WR GLVWLQJXLVK EHWZHHQ JUDPPDWLFDOL]DWLRQZKHUHE\DSURFHVV5\!5[KDVWDNHQSODFHVHH7D EOHV DQGSRO\VHP\FRS\LQJZKHUHE\DSDWWHUQIURPDPRGHOODQJXDJH KDVEHHQHVWDEOLVKHG³DWRQFH´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µIXOOYHUE!DX[LOLDU\!FOLWLF!DIIL[¶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

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF 



YRQLFLQGHILQLWHDUWLFOHLWVVKRUWIRUPV DQGDUJXDEO\ZLWKREMHFWGRXEOLQJ FOLWLFV LQ 0DFHGRQLDQ 5HPDUNDEO\ DOO WKHVH FDVHV RFFXU LQ YDULHWLHV RI 6ODYRQLF WKDW EHORQJ WR DUHDV LQ ZKLFK FOLWLFV DUH SURPLQHQW DQ\ZD\ DQG XQGHUOLHTXLWHULJLGUXOHVµVSHFLDOFOLWLFV¶ 6XFKFDVHVDUHYLUWXDOO\DEVHQW LQ WKH 1RUWKHDVWHUQ SDUW RI WKH 6ODYRQLFVSHDNLQJ WHUULWRU\ ZKLFK LV QRW SURQHWRVSHFLDOFOLWLFVRUFOLWLFVDWDOODVIRU(DVW6ODYRQLF   7DEOH 6\QRSVLV RI FRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ LQ 6ODYRQLF LQFOXGLQJ DUJXDEOHFDVHV  *UDPPDWLFDOGRPDLQV 9HUEDOFRPSOH[ 

&RQVWUXFWLRQV DEVHQWLYHFRQVWUXFWLRQ PRGDOLQILQLWLYDOFRQVWUXFWLRQV HYLGHQWLDOLQILQLWLYDOFRQVWUXFWLRQ  

IXWXUHFRQVWUXFWLRQV  FRPSOH[SUHGLFDWHVZLWKYHUEDOQRXQV FRPSOH[ SUHGLFDWHV FRQVLVWLQJ RI WZR ILQLWH YHUEVZLWKDIRUPHUFRPSOHPHQWL]HU  HYLGHQWLDOH[WHQVLRQRISHUIHFW  1RXQSKUDVH

GHILQLWHDUWLFOHV 

LQGHILQLWHDUWLFOHV 3URQRPLQDOHOHPHQWV µPDQ¶FRQVWUXFWLRQV &ODXVHOHYHOUHODWLRQV SUHGLFDWLYHSRVVHVVLRQ SRVVHVVLYHUHVXOWDWLYH

REMHFWGRXEOLQJFRQVWUXFWLRQ  SDVVLYHFRQVWUXFWLRQV PRGDOSDVVLYHFRQVWUXFWLRQ &RPSOH[FODXVHOHYHO $F,FRQVWUXFWLRQ  SUHSRVLWLRQDOLQILQLWLYHFRQVWUXFWLRQ

VXEMHFWWRSDUWLDO PRUSKRORJL]DWLRQLQDWOHDVWRQH6ODYRQLFYDULHW\ 

 7KHVHILQGLQJVFRQFHUQLQJRQHODQJXDJHIDPLO\DOORZXVWRGUDZDVSHFLILF SURILOHRI&,*ZKLFKZHFDQXVHWRFRQWUDVW&,*ZLWKRWKHUW\SHVRIODQ JXDJH FKDQJH ,W VHHPV REYLRXV WKDW &,* ± FRQVLGHULQJ WKRVH FDVHV LQ ZKLFKJUDPPDWLFDOL]DWLRQGRHVQRWUHDFKIXUWKHUWKDQWKHSKUDVHOHYHO±LV LQGHSHQGHQW RI WKH FKDQJHV ZH XVXDOO\ FDOO PRUSKRORJLFDO GULIW QRU FDQ ZH VWDWH WKDW D GULIW WRZDUGV DQDO\WLFLW\ VKRXOG IDFLOLWDWH IXUWKHU JRLQJ JUDPPDWLFDOL]DWLRQ $OO 6ODYRQLF ODQJXDJHV KDYH XQGHUJRQH SURFHVVHV RI WKH ORVV RI PRUSKRORJLFDO IRUPV OHDGLQJ WR WKH UHGXFWLRQ RI YHUEDO DQG QRPLQDOSDUDGLJPV6RPHODQJXDJHVDUHPRUHSURJUHVVLYHZLWKUHVSHFWWR QRPLQDO SDUDGLJPV %XOJDULDQ 0DFHGRQLDQ  ZKLOH RWKHUV DUH PRUH FRQ VHUYDWLYHHJ&]HFK3ROLVK ZLWKYHUEDOSDUDGLJPVWKHUHODWLRQEHFRPHV



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

LQYHUWHGVHHEHJLQQLQJRIVHFWLRQDQG:LHPHUVHFWLRQ :HVHH WKDWIRUHDFKRIWKHVH³GRPDLQV´SURFHVVHVRI&,*DIIHFWERWKSURJUHVVLYH DQG FRQVHUYDWLYH ODQJXDJHV LQ VLPLODU ZD\V )RU LQVWDQFH PRGDO DX[L OLDULHV DUH PRUH GLYHUVLILHG LQ WKH ZHVWHUQ µKHPLVSKHUH¶RI 6ODYRQLF VHH  DQGWKHUHZHDOVRILQGEHWWHUFDQGLGDWHVRIJHQHUDOL]HGSURQRXQVLQ LQFLSLHQWµLPSHUVRQDO¶FRQVWUXFWLRQVRIWKH*HUPDQµPDQ¶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³WKDWSKUDVHOHYHOERUURZLQJZLOOEHPRUHLQWHQVHWKDQZRUGOHYHO ERUURZLQJ´0DWUDV 6HFRQGLQVHFWLRQZHSRLQWHGRXWWKDW ZLWKLQ WKH VHPDQWLF VSDFH RI PRGDOLW\ WKH QRWLRQ RI µQHFHVVLW\¶ LV PRUH SURQHWR&,*WKDQµSRVVLELOLW\¶ZKLFKLVLQOLQHZLWK0DWUDV¶LPSOLFDWLRQDO KLHUDUFK\µQHFHVVLW\¶!µSRVVLELOLW\¶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

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF 



:HZRXOGOLNHWRFRQWLQXHWKLVOLQHRIDUJXPHQWE\XVLQJWKHGDWDSUH VHQWHGLQRUGHUWRWU\WRDVVHVV+ .¶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µEHFRPH¶SDVVLYHV ZH VDZ QR GLIIHUHQFH EHWZHHQ 3ROLVK]RVWDüDQG6ZHGLVKEOLYHQWKHIRUPHUEHLQJDFDOTXH3$7 RQ/RZ *HUPDQEOLYDQDQGWKHODWWHUD0$7ERUURZLQJVHH $QDQDORJRXV LVVXH UHPDLQV WR EH LQYHVWLJDWHG IRU WKH DX[LOLDULHV RI UHFLSLHQW SDVVLYHV VHH %RWKFRQVWUXFWLRQW\SHVUHSUHVHQWLQVWDQWLDWLRQVRIDOUHDG\H[ LVWLQJPRUSKRV\QWDFWLFFRQVWUXFWLRQVDQGVKRZDSRO\VHP\SDWWHUQPRUHRU OHVV LGHQWLFDO WR WKH *HUPDQ PRGHO FRQVWUXFWLRQV )XUWKHUPRUH WKH GDWD VKRZ WKDW 0$7 ERUURZLQJV FDQ XQGHUJR WKH VDPH JUDPPDWLFDOL]DWLRQ SURFHVVHVLQWKHWDUJHWODQJXDJHDVWKH3$7ERUURZLQJV 7KLUGZHDJUHHZLWK*DVWDQGYDQGHU$XZHUDWKLVYROXPH ZKRFULWL FL]H WKH DVVXPSWLRQ RI µFRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ¶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µRUGLQDU\¶DQGµUHSOLFD&,*¶XQWHQDEOH  ,QFRQQHFWLRQZLWKWKLVOHWXVUHFRQVLGHUWKHFRQFHSWRI&,*LQWRWRLQ SDUWLFXODU WKH XQGHUO\LQJ DVVXPSWLRQV DERXW FRJQLWLYH SURFHVVHV LQ WKH PLQGVRIELRUPXOWLOLQJXDOLQGLYLGXDOV&XULRXVO\HQRXJKWKHUHDUHFDVHV LQ ZKLFK D KLJK GHJUHH RI ELPXOWLOLQJXDOLVP SUHYHQWV FRQWDFWLQGXFHG JUDPPDWLFDOFKDQJHIURPKDSSHQLQJ5HPHPEHUIRULQVWDQFHWKHIDFWWKDW VSHDNHUV RI 0ROLVH 6ODYRQLF KDYH QRW JUDPPDWLFDOL]HG D GHILQLWH DUWLFOH



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

DOWKRXJKWKH\KDYHGHYHORSHGDQLQGHILQLWHDUWLFOHRXWRIWKHQXPHUDOµRQH¶ VHH   4XLWH SDUDGR[LFDOO\ WKH UHDVRQ ZK\ QR H[SOLFLW PDUNHU RI GHILQLWHQHVVKDVDULVHQLQ0ROLVH6ODYRQLFVHHPVWRUHVLGHLQWKHH[WUHPH FRQWDFW FRQGLWLRQV DQG DV\PPHWULF UHODWLRQ WR ,WDOLDQ 7KLV VLWXDWLRQ ID YRXUVSRO\VHP\FRS\LQJPXFKPRUHWKDQUHSOLFDWLRQRIJUDPPDWLFDORSSR VLWLRQVEHFDXVHWKHVSHDNHUVRIWKHPLQRULW\ODQJXDJHDVLWZHUHFDQQRW ³VHH´WKHRSWLRQRIGHYHORSLQJDGHILQLWHQHVVPDUNHURXWRIDQDXWRFKWKR QRXV GHPRQVWUDWLYH VLQFH WKH\ KDYH JRWWHQ XVHG WR LQWHUQDOL]LQJ SDWWHUQV RISRO\VHP\RUSRO\IXQFWLRQDOLW\ :KHUHWKHVHSDWWHUQVDUHODFNLQJLQWKH FRQWDFW ODQJXDJH 0ROLVH 6ODYRQLF VSHDNHUV GR QRW µLPLWDWH¶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¶VPRGHO&RQVLGHUIRULQVWDQFH3RODELDQ VSHDNHUVZKRLPLWDWHG*HUPZHUGHQERWKDVSDVVLYHDQGDVIXWXUHDX[LO LDU\E\XVLQJ E·G·VHH ,QWKLVFDVHVSHDNHUVRIDPLQRULW\YDULHW\ WXUQHG RXW WR EH µEOLQG¶WRWKHLURZQUHVRXUFHVFDSDEOHRIEHLQJXVHGIRU UHSOLFDWLRQRISDVVLYHFRQVWUXFWLRQVDVH[SOLFDWHGLQ  7KLVLQVWDQFHLVLQNHHSLQJZLWKDPRUHJHQHUDOREVHUYDWLRQFRQFHUQLQJ URXJKO\WKHVDPHDUHDRIORQJODVWLQJLQWHQVHODQJXDJHFRQWDFWZLWKDV\P PHWULF:HVW6ODYRQLF*HUPDQELOLQJXDOLVPVSHDNHUVRIFROORTXLDO8SSHU 6RUELDQREYLRXVO\KDYHFRSLHGFROORTXLDO*HUPHLQHUµRQH¶DVDJHQHULF QRQVSHFLILFSURQRXQVHH 7KH\KDYHDOVRFRSLHGWKHUHFLSLHQWSDV VLYH FRQVWUXFWLRQ IURP VXUURXQGLQJ *HUPDQ GLDOHFWV LQ FRQWUDVW WR DQ HTXLYDOHQWFRQVWUXFWLRQLQ&]HFKVHH EXWWKH\KDYHQRWLQWHJUDWHG ERUURZHGKRGZDü*HUPZHUGHQµEHFRPH¶ LQWRWKHDVSHFWRSSRVLWLRQ ZKLOH VLPXOWDQHRXVO\ XVLQJ LWHYHQZLWKLQWUDQVLWLYHYHUEVOLNH*HUPDQ  FRQWUDU\WRZKDWZHVHHZLWK3RO]RVWDüVHH $OOWKHVHGHWDLOVLQGL FDWHWKDWJUDPPDWLFDOFKDQJHVJXLGHGE\WKHSDWWHUQRIDPRGHOODQJXDJH GRQRWDOZD\VUHTXLUHUHSOLFDWLRQLQWKHVWULFWVHQVHRIDSURFHVV $QGLWLV QRWHZRUWK\ WKDW OHVV GLVSXWDEOH FDVHV RI SRO\VHP\ FRS\LQJ DV WKRVH MXVW PHQWLRQHG  RFFXU LQ KLJKO\ LQWHQVH ORQJODVWLQJ DQG DV\PPHWULF FRQWDFW VLWXDWLRQV &RQWUDU\ WR WKLV LQ WKH VDPH JUDPPDWLFDO GRPDLQV &]HFK DQG 3ROLVK ZKLFK KDYH EHHQ VXEMHFW WR OHVV LQWHQVH FRQWDFW ZLWK YDULHWLHV RI

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF 



*HUPDQ DSSHDU WR KDYH FDOTXHG *HUPDQ SDWWHUQV E\ SURFHVVHV ZKLFK PXFKPRUHUHVHPEOH+ .¶VFRPSRQHQWVRI&,* )LQDOO\ ZH FDQ DGGUHVV +HLQH DQG .XWHYD¶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¶V FODLP WKDW LQ &,* WKH UHSOLFD ³ODJV EHKLQG´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lOFKOLWKLVYROXPH ,QRXURSLQLRQIURPWKLVODWWHUSURFHVV LW LV UHDVRQDEOH WR GLVWLQJXLVK DQRWKHUW\SHRISURFHVVZKLFKZHZLOOFDOO µHQWUHQFKPHQW¶DQGZKLFKFRPHVLQWRSOD\RQO\DIWHUSURSDJDWLRQKDVEH JXQ (QWUHQFKPHQW UHIHUV WR WKH GHJUHH WR ZKLFK WKH JLYHQ FRQVWUXFWLRQ IRUP EHFRPHVXVXDO±DQGHYHQWXDOO\XQPDUNHG±LQDVSHHFKFRPPXQLW\ 7KXVIURPDPRQJWKHFDVHVGLVFXVVHGLQVHFWLRQZHFDQSRLQWWRWKRVH ZKHUH WKH UHSOLFD LV OHVV IUHTXHQW DQG WKXV OHVV IXOO\ HQWUHQFKHG LQ WKH



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

ODQJXDJH V\VWHP WKDQ WKH PRGHO FRQVWUXFWLRQ LQ WKH VHQVH WKDW LW LV UH VWULFWHG WR VSHFLILF UHJLVWHUV WKLV KROGV HJ IRU WKH HYLGHQWLDO IXQFWLRQ RI &]HFK PtW PRGHOOHG RQ *HUPDQ VROOHQ $QRWKHU LQWHUHVWLQJ FDVH LV WKH YDULDWLRQRIWKHXVDJHRIWKH3ROLVKPRGDOSRWU]HERZDüZKHUHZHILQGD FHUWDLQ GLVFUHSDQF\ EHWZHHQ WKH FRGLILHG ODQJXDJH QRUP SUHVFULELQJ LWV H[FOXVLYH XVH ZLWK QHJDWLRQ DQG WKH WHQGHQF\ RI VRPH VSHDNHUV WR XVH LW PRUHEURDGO\DOVRLQQRQQHJDWLYHFRQWH[WV$QRWKHUH[DPSOHLVWKHGLIIHU HQFHEHWZHHQþáRZMHNµPDQ¶DQGMHQµRQH¶XVHGDVDJHQHUDOL]HGSURQRXQ LQ GLIIHUHQW UHJLVWHUV YDULHWLHV  RI 8SSHU 6RUELDQ WKH IRUPHU LV XVHG LQ WKLV IXQFWLRQ RQO\ LQ WKH OLWHUDU\ YDULHW\ ZKLOH WKH ODWWHU LV DFFHSWHG LQ FROORTXLDO VSHHFK WKLV GLVWULEXWLRQFRLQFLGHVZLWKWKHVRFLROLQJXLVWLFSDW WHUQLQWKHPRGHOODQJXDJH*HUPDQVHH   VRPHSHRSOHVRPHERG\@KDYHFRPH DQ\ERG\@FDQJHWFUD]\ &RPSDUH DQ H[DPSOH IURP âRáüLF    7\ SRQ ] QLPL QDMHQPyO VHUEVFH UČþLã µ7KHQ \RX VSHDN 6RUELDQ ZLWK WKHP >DW OHDVW@ RQFH¶ LH | µ8QGHU WKHVH FLUFXPVWDQFHVHYHU\ERG\ZRXOGVSHDNWRWKHP6RUELDQDWOHDVWRQFH¶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·G·ZDVUHODWHGGLUHFWO\WRE\WLµWREH¶RURQO\LQGLUHFWO\ YLD EăVWƱ µWR EHFRPH  DZDNH DOHUW¶ RU LWV FDXVDWLYH HTXLYDOHQW EăGLWƱ µWR PDNHDZDNHDOHUW¶ DQGZKHWKHULWRULJLQDOO\LQ,( PHDQWDQLQFKRDWLYHHYHQW IRUDEULHIVXUYH\FI:HUQHU %\WKHWLPHRI2&6DQGVWDJHVLPPHGL



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

DWHO\SUHFHGLQJWKHILUVWGRFXPHQWHGVWDJHVRIRWKHU6ODYRQLFODQJXDJHVLQWHU DOLD&]HFK  E·G·!EXGXKDGEDVLFDOO\ORVWLWVLQFKRDWLYHIODYRXUFI.UlPHU HVSQRWH  &I'DKOE 7KLVSURSHQVLW\FRLQFLGHVZLWKWKHµIXWXUHOHVV¶DUHDLQ1RUWK HUQ(XURSHFIDOVR'DKOD  ,W LV DQRWKHU TXHVWLRQ ± EH\RQG WKH VFRSH RI WKLV FRQWULEXWLRQ ± DV WR ZKDW FRXQWVDVµPRUHJUDPPDWLFDOL]HG¶WKHORVVRILQIOHFWLRQDOWRJHWKHUĺSURFOLWLF SDUWLFOH LQ %XOJDULDQ DQG 0DFHGRQLDQ  RU WKH YDULDEOH FOLWLF²DJJOXWLQDWHG VWDWXVRIVWLOOLQIOHFWHGPRUSKHPHVĺ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|QLJ   8VLQJ-RKDQVRQ¶VWHUPVZHFRXOGSHUKDSVVSHDNRIµVHOHFWLYHFRS\LQJ¶RIWKH IXQFWLRQDODQGFRPELQDWLRQDOSURSHUWLHVRIWKHSDUDGLJPVDVDZKROHEXWWKLVLV QRWZKDWLVXVXDOO\XQGHUVWRRGE\µFDOTXLQJ¶FI:LHPHUDQG:lOFKOLWKLVYRO XPHVHFWLRQV  &I)ULHGPDQ :LHPHU IRUDEULHIDVVHVVPHQWDQGUHIHU HQFHV +HUH ZH FDQ GLVUHJDUG DUJXPHQWV LQ IDYRXU RI DQ DIIL[DO EHKDYLRXU RI WKHVH DWWDFKHGPRUSKHPHV6XFKDUJXPHQWVKDYHEHHQGHYHORSHGLQUHFHQWJHQHUDWLYH OLWHUDWXUHRQ%DONDQPRUSKRV\QWD[6KRZLQJWKDWFOLWLFVKDYHEHHQDFTXLULQJDI IL[DOVWDWXVLVWDQWDPRXQWWRGHPRQVWUDWLQJWKDWPRUSKRORJLFDOVWUHQJWKHQLQJLV DWZRUNZKLFKDFFRUGLQJWR/HKPDQQ¶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yQDFURVVGLIIHUHQWVXE GRPDLQV RIGHILQLWHQHVVUHODWLRQVKDVQRWEHHQXQLGLUHFWLRQDOLQVRIDUDVLWVXVDJHKDVLQ VRPHUHVSHFWVUHFHGHGFRPSDUHGZLWKLWVXVHLQROGHUGLDOHFWDOVWDJHVFI%HU JHU  ([DPSOHTXRWHGE\:HLVVIURP3RYDUQLFLQD  ([DPSOHPRGLILHGIURP:HLVV E\FRXUWHV\RI(3HWURVND

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF   &LWHG DIWHU )ULHGPDQ    &I DOVR 'LPLWURYD9XOFKDQRYD DQG 9XOFKDQRY RQ%XOJDULDQ3HWURVND RQ0DFHGRQLDQ 1RWHWKDWQRWHZRUWKLQHVVRIVSHFLILFUHIHUHQWVSURYHGWREHDNLQGRIOLWPXVWHVW DOVR IRU HGHQ µRQH¶ HYROYLQJ LQWR DQ LQGHILQLWH DUWLFOH VHH   ,W GRHV QRW VHHPPHUHO\FRLQFLGHQWDOWKDWLQERWKFDVHVWKDWLVWKHJUDPPDWLFDOL]DWLRQRI µRQH¶ LQWR DQ LQGHILQLWH DUWLFOH DQG WKH JUDPPDWLFDOL]DWLRQ RI REMHFW GRXEOLQJ WKH DERYHPHQWLRQHG LQGHILQLWH EXW VSHFLILF UHIHUHQWV IRUP D VRUW RI SLYRWDO SRLQW &I )ULHGPDQ     ZKRVH FRPSUHKHQVLYH DUWLFOH FDQ EH UHFRP PHQGHGDVSUREDEO\WKHEHVWV\QWKHWLFDQGZHOOLQIRUPHGXSWRGDWHVXUYH\RQ WKH JUDPPDWLFDOL]DWLRQ RI FOLWLF GRXEOLQJ LWV GLDFKURQ\ DQG DUHDO EDFNJURXQG RQWKH%DONDQV7KHKLHUDUFK\LQ ZDVILUVWVXJJHVWHGE\/RSDãRY  7KHREVHUYDWLRQWKDWFOLWLFGRXEOLQJLVORRVHQLQJWKHVSHFLILFLW\FRQGLWLRQRQLWV RFFXUUHQFHKDVEHHQLQWHUSUHWHGDOVRE\0LãHVND7RPLü DVDV\PS WRPIRUWKHVHFOLWLFVWRDFTXLUHWKHIXQFWLRQRIPHUHFDVHPDUNHUV,QKHURSLQ LRQWKLVSDUWLFXODUO\FRQFHUQVWKHGDWLYHFOLWLF &I %HQDFFKLR    ZKR DGPLWV WKDW FOLWLF REMHFWV SUHVHQW XV ZLWK D GLVWULEXWLRQZKLFKLV³ZHOOGLIIXVHG´LQVSRNHQ,WDOLDQLIQRWLQDOOLWVYDULHWLHV´ ÄDPSLDPHQWHGLIIXVDQHOO¶LWDOLDQRSDUODWRVLSXzGLUHLQWXWWHOHVXHYDULHWj³  ³ ZKHUHYHUWKHUHLVVXIILFLHQWHYLGHQFHLWWXUQVRXWWKDWWKHUHSOLFDFRQVWUXF WLRQLVOHVVJUDPPDWLFDOL]HGWKDQWKHFRUUHVSRQGLQJPRGHOFRQVWUXFWLRQ´+HLQH DQG.XWHYD   

5HIHUHQFHV  %D\HU0DUNXV   6SUDFKNRQWDNW GHXWVFKVODYLVFK (LQH NRQWUDVWLYH ,QWHUIHUHQ]VWXGLH DP%HLVSLHOGHV2EHUXQG1LHGHUVRUELVFKHQ.lUQWQHUVORYHQLVFKHQ XQG%XUJHQODQGNURDWLVFKHQ )UDQNIXUW0HWF/DQJ %HQDFFKLR5RVDQQD   .YRSURVXRERSUHGHOHQQRPDUWLNOHYVODYMDQVNL[MD]\ND[UH]¶MDQVNLM JRYRU>2QWKHDOOHJHGGHILQLWHDUWLFOHLQ6ODYRQLFODQJXDJHV@,Q-D ]\NLPDO\HLERO¶ãLH,QPHPRULDPDFDG1LNLWD,7ROVWRL >6PDOODQG ELJ ODQJXDJHV@ $OHNVDQGU ' 'XOLþHQNR HG   6ODYLFD 7DU WXHQVLD ,9  7DUWX 8QLYHUVLWDV 7DUWXHQVLV 5HYLVHG YHUVLRQ RI /¶DUWLFROR GHO GLDOHWWR UHVLDQR VXOOD TXHVWLRQH GHOOD GHWHUPLQDWH]]D QHOOHOLQJXHVODYH,Q'HWHUPLQDWH]]DHLQGHWHUPLQDWH]]DQHOOHOLQJXH VODYH5RVDQQD%HQDFFKLR)UDQFHVFD)LFLDQG/XF\QD*HEHUWHGV  3UREOHPLGLPRUIRVLQWDVVLGHOOHOLQJXHVODYH 3DGRYD8QL SUHVV %HQDFFKLR5RVDQQD   /¶LQIOXVVR GHOO¶LWDOLDQR VXOOH SDUODWH GHOOH PLQRUDQ]H VORYHQH GHO )ULXOL ,Q /¶LQIOXVVR GHOO¶LWDOLDQR VXOOD JUDPPDWLFD GHOOH OLQJXH PL



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

QRULWDULH3UREOHPLGLPRUIRORJLDHVLQWDVVL :DOWHU%UHXHG  5HQGH8QLYHUVLWjGHOOD&DODEULD %HQDFFKLR5RVDQQD   ,OFRQWDWWRVODYRURPDQ]RQHOFURDWRGHO0ROLVHHQHLGLDOHWWLVORYHQL GHO)ULXOL,Q9RQ=XVWlQGHQ'\QDPLNXQG9HUlQGHUXQJEHL3\JPl HQ XQG *LJDQWHQ )HVWVFKULIW IU :DOWHU %UHX ]X VHLQHP  *H EXUWVWDJ  /HQND 6FKRO]H DQG %M|UQ :LHPHU HGV   'L YHUVLWDV/LQJXDUXP %RFKXP%URFNPH\HU %HUJHU7LOPDQ   'DV 6\VWHP GHU WVFKHFKLVFKHQ 'HPRQVWUDWLYSURQRPLQD 7H[WJUDP PDWLVFKH XQG VWLOVSH]LILVFKH *HEUDXFKVEHGLQJXQJHQ  0QFKHQ /08 XQSXEO SRVWGRFWRUDO WKHVLV  KWWSKRPHSDJHV XQL WXHELQJHQGHWLOPDQEHUJHU7H[WHWH[WHKWPO %HUJHU7LOPDQ   'LH *HEUDXFKVEHGLQJXQJHQ GHV EHVWLPPWHQ $UWLNHOV LP lOWHUHQ 2EHUVRUELVFKHQ/ČWRSLV:RVHELW\]HãLZN %HUJHU7LOPDQ   'HXWVFKH(LQIOVVHDXIGDVJUDPPDWLVFKH6\VWHPGHV7VFKHFKLVFKHQ ,Q 6WXGLHQ ]XU KLVWRULVFKHQ *UDPPDWLN GHV 7VFKHFKLVFKHQ %RKH PLVWLVFKH %HLWUlJH ]XU .RQWDNWOLQJXLVWLN 7LOPDQ %HUJHU  0QFKHQ/LQFRP %HUJHU7LOPDQ   (LQLJH %HPHUNXQJHQ ]XP WVFKHFKLVFKHQ $EVHQWLY ,Q 9RQ JUDP PDWLVFKHQ.DWHJRULHQXQGVSUDFKOLFKHQ:HOWELOGHUQ'LH6ODYLDYRQ GHU 6SUDFKJHVFKLFKWH ELV ]XU 3ROLWVSUDFKH  )HVWVFKULIW IU 'DQLHO :HLVV ]XP  *HEXUWVWDJ 7LOPDQ %HUJHU HW DO HGV   0Q FKHQ2WWR6DJQHU %HVWHUV'LOJHU-XOLDQH   0RGDOLWlW LP 6SUDFKNRQWDNW 'LH XNUDLQLVFKH Ä3URVWD PRYD³  +lOIWH-K ,Q0RGDOLW\LQ6ODYRQLF/DQJXDJHV1HZSHUVSHFWLYHV %M|UQ +DQVHQ DQG 3HWU .DUOtN HGV   6ODYROLQJXLVWLFD   0QFKHQ2WWR6DJQHU %UHX:DOWHU   $OEDQLVFKHV XQG PDNHGRQLVFKHV 9HUEDOV\VWHP LQ NRQWUDVWLYHU *H JHQEHUVWHOOXQJ%DONDQ$UFKLY1HXH)ROJH %UHX:DOWHU   'DVLWDORNURDWLVFKH9HUEV\VWHP]ZLVFKHQVODYLVFKHP(UEHXQGNRQ WDNWEHGLQJWHU(QWZLFNOXQJ,Q6ODYLVWLVFKH/LQJXLVWLN7LOPDQQ 5HXWKHUHG 0QFKHQ2WWR6DJQHU %UHX:DOWHU   'HU)DNWRU6SUDFKNRQWDNWLQHLQHUG\QDPLVFKHQ7\SRORJLHGHV6ODYL VFKHQ,Q6ODYLVWLVFKH/LQJXLVWLN+DQV5REHUW0HKOLJHG  0QFKHQ2WWR6DJQHU

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF   %UHX:DOWHU   5RPDQLVFKHV $GVWUDW LP 0ROLVHVODYLVFKHQ 'LH :HOW GHU 6ODYHQ ;/,,, %UHX:DOWHU   'HU GHILQLWH $UWLNHOLQGHUREHUVRUELVFKHQ8PJDQJVVSUDFKH,Q 6OD YLVWLVFKH /LQJXLVWLN  0DULRQ .UDXVH DQG &KULVWLDQ 6DSSRN HGV 0QFKHQ2WWR6DJQHU %UHX:DOWHU   5D]YLWLH VLVWHP DUWLNOHM Y VODYMDQVNL[ PLNURMD]\ND[ Y DEVROMXWQRP MD]\NRYRPNRQWDNWH>7KHGHYHORSPHQWRIWKHDUWLFOHV\VWHPLQ6OD YRQLFPLFURODQJXDJHVXQGHUDEVROXWHODQJXDJHFRQWDFW@,Q'HXWVFKH %HLWUlJH ]XP  ,QWHUQDWLRQDOHQ 6ODYLVWHQNRQJUHVV 2KULG  6HEDVWLDQ .HPSJHQ .DUO *XWVFKPLGW 8OULNH -HNXWVFK DQG /XGJHU 8GROSKHGV 0QFKHQ2WWR6DJQHU %U]H]LQD0DULD   3UyED QRUPDW\ZQHM RFHQ\ NRQVWUXNFML µSRWU]HERZDü ] EH]RNROLF] QLNLHP¶>$QDWWHPSWWRHYDOXDWHWKHQRUPDWLYLW\RIWKHFRQVWUXFWLRQ µSRWU]HERZDü¶SOXVLQILQLWLYH@-Ċ]\N3ROVNL/;,,,± %XEHQLN9LW   0RUSKRORJLFDODQG6\QWDFWLF&KDQJHLQ0HGLHYDO*UHHNDQG6RXWK 6ODYLF/DQJXDJHV0QFKHQ/LQFRP(XURSD %\EHH-RDQ5HYHUH3HUNLQVDQG:LOOLDP3DJOLXFD   7KH HYROXWLRQ RI JUDPPDU 7HQVH DVSHFW DQG PRGDOLW\ LQ WKH ODQ JXDJHV RI WKH ZRUOG &KLFDJR /RQGRQ 7KH 8QLYHUVLW\ RI &KLFDJR 3UHVV 'DKOgVWHQ  D 7KH JUDPPDU RI IXWXUH WLPH UHIHUHQFH LQ (XURSHDQ ODQJXDJHV ,Q 7HQVH DQG $VSHFW LQ WKH /DQJXDJHV RI (XURSH gVWHQ 'DKO HG  %HUOLQ1HZ7KHLQIRUPDWLRQVWUXFWXUH DQG WKHGRXEOLQJRIWKHREMHFWLQ0DFHGRQLDQLQD%DONDQFRQWH[W@ ,Q ;;;,9 1DXþQD .RQIHUHQFLMD QD ;/ PHƧXQDURGHQ VHPLQDU ]D PDNHGRQVNL MD]LN OLWHUDWXUD L NXOWXUD 2FKULG  9,,,   /LQJYLVWLND >;;;,9WK 6FLHQWLILF &RQIHUHQFH DW WKH ;/WK LQWHUQDWLRQDO ZRUNVKRS RQ WKH 0DFHGRQLDQ ODQJXDJH OLWHUDWXUH DQG FXOWXUH@6NRSMH8QLYHU]LWHWÄ6Y.LULOL0HWRGLM³ 3LVDUNRZD.U\VW\QD   +LVWRULD VNáDGQL MĊ]\ND SROVNLHJR >+LVWRULFDO 6\QWD[ RI 3ROLVK@ :URFáDZ2VVROLQHXP 3RSRYLü,YDQ   *HVFKLFKWHGHUVHUERNURDWLVFKHQ6SUDFKH:LHVEDGHQ+DUUDVVRZLW] 3RUiN-DURVODY   0RGDOYHUEHQ LP 7VFKHFKLVFKHQ XQG 'HXWVFKHQ ,Q 'HXWVFK WVFKHFKLVFKH %H]LHKXQJHQ LP %HUHLFK GHU 6SUDFKH XQG .XOWXU %R



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

KXVODY +DYUiQHN DQG 5XGROI )LVFKHU +UVJ   %HUOLQ $ND GHPLHYHUODJ 3RYDUQLFLQD0DULQD   .RQ XSRWUHEDWD QD HGHQ NDNR SRND]DWHO QD QHRSUHGHOHQRVWD YR PD NHGRQVNLRWMD]LN>2QWKHXVHRIHGHQDVDPDUNHURILQGHILQLWHQHVVLQ 0DFHGRQLDQ@6WXGLD/LQJXLVWLFD3RORQR0HULGLDQRVODYLFD 5|VOHU.DUO   %HREDFKWXQJHQ XQG *HGDQNHQ EHU GDV DQDO\WLVFKH )XWXUXP LP 6ODYLVFKHQ:LHQHU6ODZLVWLVFKHV-DKUEXFK 6DNHO-HDQHWWH   7\SHV RI ORDQV 0DWWHU DQG SDWWHUQ ,Q *UDPPDWLFDO %RUURZLQJ LQ &URVVOLQJXLVWLF 3HUVSHFWLYH  /LQJXLVWLTXH EDONDQLTXH 3UREOqPHV HW UpVXOWDWV@ .¡EHQKDYQ %LDQFR/XQRV 6FKRO]H/HQND   'DV JUDPPDWLVFKH 6\VWHP GHU REHUVRUELVFKHQ 8PJDQJVVSUDFKH LP 6SUDFKNRQWDNW%DXW]HQ'RPRZLQD 6HOLãþHY$IDQDVLM0   2 MD]\NH VRYUHPHQQRM GHUHYQL >2Q WKH VSHHFK LQ WKH FRQWHPSRUDU\ FRXQWU\VLGH@7UXG\0,)/, 6WHHQZLMN+DQ   7KH 6ORYHQH GLDOHFW RI 5HVLD 6DQ *HRUJLR  $PVWHUGDP $WODQWD *$5RGRSL âRáüLF> 6FKRO]H@/HĔND   6\QWDNWLVNH ZRVHELWRVüH KRUQMRVHUEVNHMH ZREFKDGQHMH UČþH ,PSHU VRQDOQHNRQVWUXNFLMHDQMHZRVRERZ\SDVLZ >6\QWDFWLFSURSHUWLHVRI FROORTXLDO 8SSHU 6RUELDQ ,PSHUVRQDO FRQVWUXFWLRQV DQG WKH LPSHU VRQDOSDVVLYH @,Q'HXWVFKH%HLWUlJH]XP,QWHUQDWLRQDOHQ6ODY LVWHQNRQJUHVV 2KULG  6HEDVWLDQ .HPSJHQ .DUO *XWVFKPLGW 8OULNH-HNXWVFKDQG/XGJHU8GROSKHGV 0QFKHQ2WWR 6DJQHU âWtFKD)UDQWLãHN   ýHVNRQČPHFNi VURYQiYDFt JUDPDWLND >&]HFK*HUPDQ FRQWUDVWLYH *UDPPDU@3UDKD$UJR 7LPEHUODNH$ODQ   7KHQRPLQDWLYHREMHFWLQ6ODYLF%DOWLFDQG:HVW)LQQLF0QFKHQ 2WWR6DJQHU 7RRSV*DU\+   &DXVDWLYLW\ LQ &]HFK 7KH YHUEV GiYD W DQG QHFKiY DW &DQDGLDQ 6ODYRQLF3DSHUV ±

$VVHVVLQJWKHUDQJHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLQ6ODYRQLF   7RSROLQMVND> 7RSROLĔVND@=X]DQD   3ROVNLPDNHGRQVNL *UDPDWLþND NRQIURQWDFLMD  5D]YLWRN QD JUD PDWLþNLWH NDWHJRULL >3ROLVK0DFHGRQLDQ *UDPPDWLFDO FRQIURQWDWLRQ 7KHHYROXWLRQRIJUDPPDWLFDOFDWHJRULHV@6NRSMH0$18 7RSROLĔVND=X]DQQD   )DFWLYLW\ DV D JUDPPDWLFDO FDWHJRU\ LQ %DONDQ 6ODYLF DQG %DONDQ 5RPDQFH6ODYLD0HULGLRQDOLV 7UDXJRWW(OLVDEHWK&DQG(NNHKDUG.|QLJ   7KH VHPDQWLFVSUDJPDWLFV RI JUDPPDWLFDOL]DWLRQ UHYLVLWHG ,Q $S SURDFKHV WR JUDPPDWLFDOL]DWLRQ YRO  )RFXV RQ WKHRUHWLFDO DQG PHWKRGRORJLFDO LVVXHV (OLVDEHWK & 7UDXJRWW DQG %HUQG +HLQH HGV $PVWHUGDP3KLODGHOSKLD%HQMDPLQV 7URYHVL$QGUHD   /D JHQHVL GL DUWLFROL GHWHUPLQDWLYL 0RGDOLWj GL HVSUHVVLRQH GHOOD GHILQLWH]]D LQ FHFR VHUEROXVD]LDQR H VORYHQR  0LODQR )UDQFR DQJHOL 7UXELQVNLM9DOHQWLQ,   2 QRYRP UXVVNRP WUH[þOHQQRP SDVVLYH >2Q WKH QHZ WKUHHSDUWLWH SDVVLYH LQ 5XVVLDQ@ 6HYHUQRUXVVNLH JRYRU\   6DQNW 3HWHUEXUJ YDQGHU$XZHUD-RKDQ(ZD6FKDOOH\DQG-DQ1X\WV   (SLVWHPLFSRVVLELOLW\LQD6ODYRQLFSDUDOOHOFRUSXV±DSLORWVWXG\,Q 0RGDOLW\ LQ 6ODYRQLF ODQJXDJHV 1HZ SHUVSHFWLYHV %M|UQ +DQVHQ DQG3HWU.DUOtNHGV 0QFKHQ2WWR6DJQHU YDQGHU$XZHUD-RKDQ   5HYLVLWLQJWKH%DONDQDQG0HVR$PHULFDQOLQJXLVWLFDUHDV/DQJXDJH 6FLHQFHV 9HþHUND5DGRVODY   $OWNLUFKHQVODYLVFKH DOWEXOJDULVFKH  6\QWD[ ,, 'LH LQQHUH 6DW]VWUXNWXU)UHLEXUJL%U:HLKHU 9HHQNHU:ROIJDQJ   'LH )UDJH GHV ILQQRXJULVFKHQ 6XEVWUDWV LQ GHU UXVVLVFKHQ 6SUDFKH ,QGLDQD%ORRPLQJWRQ YRQ:DOGHQIHOV5XSUHFKW   7KH *UDPPDWLFDOL]DWLRQ RI µ*LYH¶ ZLWK ,QILQLWLYH &RPSOHPHQW LQ 5XVVLDQ3ROLVKDQG&]HFK3K'7KHVLV8QLYHUVLW\RI5HJHQVEXUJ 9XNRMHYLü/XND   ,QILQLWLYQH SRVOMHGLþQH NRQVWUXNFLMH >,QILQLWLYDO FRQVHTXHQWLDO FRQ VWUXFWLRQV@ 5DVSUDYH ,QVWLWXWD ]D KUYDWVNL MH]LN L MH]LNRVORYOMH   :HLVV'DQLHO   'HXWVFKSROQLVFKH /HKQEH]LHKXQJHQ LP %HUHLFK GHU 3DVVLYELOGXQJ ,Q /LWHUDWXU XQG 6SUDFKHQWZLFNOXQJ LQ 2VWHXURSD LP  -DKU KXQGHUW $XVJHZlKOWH %HLWUlJH ]XP =ZHLWHQ :HOWNRQJUH‰ IU 6RZ



%M|UQ:LHPHUDQG%M|UQ+DQVHQ

MHWXQG2VWHXURSDVWXGLHQ (EHUKDUG5HL‰QHUHG %HUOLQ %HUOLQYHUODJ :HLVV'DQLHO  D 3ROVNRQLHPLHFNLH SDUDOHOH Z ]DNUHVLH F]DVRZQLNyZ PRGDOQ\FK QD WOH LQQ\FK MĊ]\NyZ ]DFKRGQLRVáRZLDĔVNLFK  >3ROLVK*HUPDQ SD UDOOHOV LQ WKH PRGDO V\VWHP ± DJDLQVW WKH EDFNJURXQG RI RWKHU :HVW 6ODYRQLF ODQJXDJHV@ ,Q 6SUDFK XQG .XOWXUNRQWDNWH LP 3ROQLVFKHQ *HUG+HQWVFKHOHG 0QFKHQ2WWR6DJQHU :HLVV'DQLHO  E )XQNFMRQRZDQLH L SRFKRG]HQLH SROVNLFK NRQVWUXNFML W\SX µPDP FRĞ GR ]DáDWZLHQLD¶ µFRĞ MHVW GR ]DáDWZLHQLD¶ >8VDJH DQG RULJLQ RI WKH 3ROLVK FRQVWUXFWLRQV µPDP FRĞ GR ]DáDWZLHQLD¶ µFRĞ MHVW GR ]DáDWZLHQLD¶@ ,Q 'HXWVFKSROQLVFKH 6SUDFKNRQWDNWH $OHN 3RKO DQG $QGUp'H9LQFHQ]HGV :LHQ%|KODX :HLVV'DQLHO   .RQVWUXNFMH W\SX µPLHü FRĞ  GR ]DáDWZLHQLD E\ü GR ]DáDWZLHQLD¶ RUD] µGDü FRĞ  GR ]DáDWZLHQLD¶ VWRSLHĔ LFK VIUD]HRORJL]RZDQLD GDZQLHMLG]LĞ>7KHFRQVWUXFWLRQVµPLHüFRĞ GR]DáDWZLHQLD¶µFRĞ  MHVW GR ]DáDWZLHQLD¶ DQG µGDü FRĞ  GR ]DáDWZLHQLD¶ 7KH FKDQJH RI GHJUHH RI LGLRPDWL]DWLRQ@ ,Q = SUREOHPyZ IUD]HRORJLL SROVNLHM L VáRZLDĔVNLHM0LHF]\VáDZ%DVDMDQG'DQXWD5\WHOHGV  :HLVV'DQLHO   5XVVLVFK þHORYHN 9HUVXFK HLQHV UHIHUHQWLHOOHQ 3RUWUlWV ,Q 6ODYLVWL VFKH /LQJXLVWLN  3HWHU .RVWD DQG (ONH 0DQQ HGV   0QFKHQ6DJQHU :HLVV'DQLHO   7KH ULVH RI DQ LQGHILQLWH DUWLFOH 7KH FDVH RI 0DFHGRQLDQ HGHQ ,Q :KDW PDNHV *UDPPDWLFDOL]DWLRQ" $ /RRN IURP LWV )ULQJHV DQG LWV &RPSRQHQWV :DOWHU %LVDQJ 1LNRODXV 3 +LPPHOPDQQ DQG %M|UQ :LHPHU HGV   7UHQGV LQ /LQJXLVWLFV 6WXGLHVDQG0RQR JUDSKV %HUOLQ1HZNLWDE Õ DO DQ@ |÷UHQFL  ERRN $&& EX\ 35(7 VWXGHQW  µWKHVWXGHQWZKRERXJKWWKHERRN¶

$QLQWHJUDWLYHPRGHORIJUDPPDWLFDOL]DWLRQ



  7XUNLVK&RPULHDQG.XWHYD   >|÷UHQFL QLQ DO GÕ÷ Õ@ NLWDS  VWXGHQW *(1 EX\ 10= 6* ERRN  µWKHERRNZKLFKWKHVWXGHQWERXJKWµ  8QOLNH6WDQGDUG7XUNLVK%DONDQ7XUNLVKH[KLELWVDGLIIHUHQWUHODWLYHFODXVH FRQVWUXFWLRQ)LUVWLWHPSOR\VDZKIRUPQHµZKDW¶ZKLFKRULJLQDOO\FRXOG RQO\EHXVHGDVDQLQWHUURJDWLYHZRUGDQGKDVRQO\UHFHQWO\WDNHQRQWKH IXQFWLRQ RI D UHODWLYL]HU 6HFRQG XQOLNH WKH LQKHULWHG SUHSRVHG JHUXQGLDO FRQVWUXFWLRQVXVHGWRPDUNUHODWLYL]DWLRQLQ6WDQGDUG7XUNLVKWKHZKIRUP QH µZKDW¶ ZKHQ XVHG DV D UHODWLYH FODXVH PDUNHU LQ %DONDQ 7XUNLVK LV SRVWSRVHGMXVWOLNHZKZRUGVIXQFWLRQLQJDVUHODWLYHFODXVHSURQRXQVLQWKH RWKHU%DONDQ6SUDFKEXQGODQJXDJHVDQGRWKHU(XURSHDQODQJXDJHV 1RWH WKDWWKHZKUHODWLYL]DWLRQVWUDWHJ\FDQEHXVHGQRWRQO\IRUVXEMHFWUHODWLYL ]DWLRQEXWDOVRIRUREMHFWUHODWLYL]DWLRQDQGLQIDFW0DWUDV  SRLQWV RXWWKDW³UHODWLYH FODXVHV RFFXU QRQHWKHOHVV HYHQ DWORZHU OHYHOV RI WKH $FFHVVLELOLW\ +LHUDUFK\ IRU KHDG QRXQV .HHQDQ DQG &RPULH   WKXVDVVXPLQJDIXOOUDQJHRIVHPDQWLFIXQFWLRQV´  6XEMHFWUHODWLYL]DWLRQ   %DONDQ7XUNLVK0DWUDV   úX DUDED NLPLQGLU EXUD QH GXUX\RU"  WKDW FDU ZKR*(1&23 KHUH 5(/ VWDQG&2176*  µ:KRVHLVWKDWFDUWKDWLVSDUNHGKHUH"¶   2EMHFWUHODWLYL]DWLRQ   %DONDQ7XUNLVK0DWUDV   HVNL NRQXúPD QH RQODU NRQXúXUODU  ROG VSHHFK 5(/ 3/120 VSHDN+$%3/  µ,WLVDQROGODQJXDJHWKDWWKH\VSHDN¶  7KHH[FHSWLRQDOVLWXDWLRQRI%DONDQ7XUNLVKXVLQJDZKZRUGDVDUHODWLY L]HULVQRGRXEWWKHUHVXOWRIWKHODQJXDJHFRQWDFWWKDWWKLVGLDOHFWRI7XUN LVK KDV KDG ZLWKWKH %DONDQ 6SUDFKEXQG ODQJXDJHV RYHU FHQWXULHV DOO WKH PRUH VR WKDW ZKUHODWLYL]DWLRQ DSSHDUV WR EH DQ DUHDO W\SRORJLFDO IHDWXUH VSHFLILF WR (XURSH LI DWWHVWHG RXWVLGH (XURSH WKLV LV SULPDULO\ LQ QRQ (XURSHDQODQJXDJHVWKDWKDYHKDGVRPHKLVWRU\RIFRQWDFWZLWK(XURSHDQ ODQJXDJHV,QRWKHUZRUGVWKLVLVDQH[DPSOHZKHUHODQJXDJHFRQWDFWPXVW KDYHDFWHGDVDSURSHOOLQJIRUFHDVDWULJJHUIRUWKHJUDPPDWLFDOL]DWLRQRI WKHZKZRUGLQWRDUHODWLYHFODXVHPDUNHU

  7DQLD.XWHYDDQG%HUQG+HLQH

 1RWLFH WKDW WKH XQLYHUVDO PHFKDQLVPV RI FRQFHSWXDOLVDWLRQ DUH REOLJD WRU\IRUJUDPPDWLFDOL]DWLRQWRVWDUWZKLFKLVWKHUHDVRQZK\LWLVPDUNHGLQ EROGIDFHLQ)LJXUHODQJXDJHFRQWDFWRQWKHRWKHUKDQGLVRSWLRQDODVD WULJJHUKHQFHWKHODFNRIEROGIDFHPDUNLQJ  1RZLIODQJXDJHFRQWDFWWULJJHUVDJUDPPDWLFDOLQQRYDWLRQWKLVLQQRYD WLRQ±RQFHVHWLQPRWLRQ±ZLOOIROORZDUHJXODUFURVVOLQJXLVWLFDOO\LGHQWL ILDEOHJUDPPDWLFDOL]DWLRQSDWK$QG%DONDQ7XUNLVKFDQLQGHHGEHJLYHQDV DQH[DPSOHLQWKLVUHVSHFWWRR%HIRUHZHWDNHDORRNDWWKHGHYHORSPHQWRI WKH%DONDQ7XUNLVKZKIRUPQHµZKDW¶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µ6RPHRQHZKRLVLQORYHLVWREHGHSORUHG¶>LHµ:KRHYHULVLQORYH LVWREHGHSORUHG¶@  5HODWLYL]HU6WDJH   /DWLQ/H*RIILF   (DH  OLWWHUDHTXDV PLKL VFULSVLVWL PLKL MXFXQGLVVLPDH   WKHVH OHWWHUV ZKLFK PH \RXZURWH PH PRVWSOHDVDQWRQHV  IXHUXQW  ZHUH µ7KHOHWWHUVWKDW\RXZURWHPHZHUHYHU\SOHDVDQWWRPH¶  ,Q VRPH ODQJXDJH YDULHWLHV VRPH ZKZRUGV KDYH XQGHUJRQH WKH FRPSOH PHQWL]HUDQGWKHUHODWLYL]HUVWDJHHJ5RPDQFHODQJXDJHV LQRWKHUYDULH WLHVKRZHYHUZHFDQVD\WKDW±ZLWKUHVSHFWWRVRPHZKLQWHUURJDWLYHV± RQO\WKHFRPSOHPHQWL]HUVWDJHKDVEHHQUHDFKHG,QWKH6LOHVLDQGLDOHFWRI

$QLQWHJUDWLYHPRGHORIJUDPPDWLFDOL]DWLRQ



3ROLVKIRULQVWDQFHWKHZKIRUPIRUDQLPDWHVIWRµZKR¶FDQRQO\EHXVHG DVDQLQWHUURJDWLYHDQGDVFRPSOHPHQWL]HUEXWQRWDVDUHODWLYL]HU.RFXU    )DFWVOLNHWKHVHOHQGVXSSRUWLQIDYRXURIWKHDERYHSURSRVDOIRUDQLQ WHUURJDWLYHFRPSOHPHQWL]HUUHODWLYL]HU VHTXHQFH DV GLVWLQFW VWDJHV LQ WKH JUDPPDWLFDOL]DWLRQ GHYHORSPHQW RI ZKLQWHUURJDWLYHV LQWR UHODWLYH FODXVH PDUNHUV  2QWKHEDVLVRIWKHGDWDSURYLGHGLQ0DWUDV RQHFDQVD\ WKDWRQFHWKHFRQWDFWZLWKWKH%DONDQ6SUDFKEXQGODQJXDJHVWULJJHUHGWKH JUDPPDWLFDOL]DWLRQRIWKHLQWHUURJDWLYHIRUPQHµZKDW¶LQ%DONDQ7XUNLVK WKLV JUDPPDWLFDOL]LQJ VWUXFWXUH KDV FOHDUO\ XQGHUJRQH WKH FRPSOHPHQWL]HU VWDJH ZKLFK LV LQ IDFW LQGLFDWHG E\ XVHV JRLQJ EDFN WR 2WWRPDQ 7XUNLVK DQGKDVSDUDOOHOVLQPRGHUQ6WDQGDUG7XUNLVK   &RPSOHPHQWL]HU6WDJH   2WWRPDQ7XUNLVK0DWUDV   HNLP VL] GLOHUVHQ] HGHY]  ZKDW&21- 3/120 ZLVK&21'3/ GR2373/  µ:HVKDOOGRZKDWHYHU\RXZLVK¶  0RUHRYHU LW DSSHDUV WR KDYH HQWHUHG WKH UHODWLYL]HU VWDJH DV ZHOO IRU WKH IROORZLQJ UHDVRQV )LUVW LW FDQ EH XVHG DV D PDUNHU RI WKH UHODWLYH FODXVH FRQVWUXFWLRQ ZLWK KHDGHG UHODWLYH FODXVHV DV WKH H[DPSOHV LQ   DQG   DERYHLOOXVWUDWHFIDOVR  5HODWLYL]HU6WDJH   %DONDQ7XUNLVK0DWUDV   LNL \] HOOL o \] PDUN SDUD  WZR KXQGUHG ILIW\ WKUHH KXQGUHG PDUN PRQH\  DOÕUGÕ ELU PHNWXS QH RQH OHWWHU 5(/  WDNH+$%3$676*  J|QGHULUGL  VHQG+$%3$676* µ+H XVHG WR FKDUJH WZR KXQGUHG DQG ILIW\ WKUHH KXQGUHG PDUNV IRU HDFKOHWWHUWKDWKHVHQW¶  6HFRQGLWKDVEHFRPHDQREOLJDWRU\PDUNHURIUHODWLYL]DWLRQZLWKQRDOWHU QDWLYHUHODWLYHFRQVWUXFWLRQPDUNHULQWKH%DONDQ7XUNLVKGLDOHFW7KLUGLW KDVDOVRFRPHWRUHSODFH7XUNLVKFRQYHUEJHUXQGLDO FRQVWUXFWLRQVLQDG YHUELDOFODXVHVGUDZLQJRQWKHVDPHVHPDQWLFVSHFLILHUVDVWKHUHVSHFWLYH

  7DQLD.XWHYDDQG%HUQG+HLQH

LQWHUURJDWLYHVRQDQHODERUDWHVHWRIH[DPSOHVWKDWVKRZWKDWWKHQHFODXVHV DUHIXOO\LQWHJUDWHGLQ0DFHGRQLDQ7XUNLVKVHH0DWUDV 7XIDQ     %DONDQ7XUNLVK0DWUDV   EHQ QH NDGDU QH ELOLULP ELULQFL  6*120 5(/ PXFK 5(/ NQRZ+$%6* ILUVW  JHOGL L@ DV LQ VRPH 'DOPDWLQLDQ GLDOHFWV FRQWUDU\WR6WDQGDUG&URDWLDQ>MH@>LMH@DQG6WDQGDUG6HUELDQ>H@  )RUJHQHUDOLQIRUPDWLRQRQ&86DQGLWVUROHDPRQJWKH6RUELDQYDULHWLHVVHH %UHX± DQGâRáüLF   +HUH,FDQQRWGHDOZLWKJHQHUDOLQTXLULHVRQWKHMXVWLILFDWLRQRIWKHDVVXPSWLRQ RIDQLQGHILQLWHDUWLFOHLQ*HUPDQRU,WDOLDQ1RUFDQ,H[DPLQHWKHWKHRUHWLFDO

 :DOWHU%UHX TXHVWLRQRQWKHH[WHQWWRZKLFKRQHLVMXVWLILHGLQVHSDUDWLQJLQGHILQLWHDUWLFOH DQGTXDQWLILHUVVHHIRUH[DPSOH9DWHU DQG/\RQV±   ,QOLJKWRIWKHJHQHUDOWHUPLQRORJLFDOFRQIXVLRQWKHGHQRPLQDWLRQRIWKHQRQ JHQHULF IXQFWLRQV LV SDUWLFXODUO\ SUREOHPDWLF 7KH WHUP ³VSHFLILF´ FS +DUW PDQQ ZKLFKKDVEHHQXVHGQRZDQGWKHQIRUWKLVLVXQGHUVWRRGE\ RWKHUV LQ WKH VHQVH RI ³UHIHUHQWLDO´ IRU LQVWDQFH /\RQV    RU LQ WKH VHQVH RI ³SUDJPDWLF´ FS ,RXS   7KH WHUP ³LQGLYLGXDWLYH´ LQ FRQWUDVW DSSHDUVWRPHWREHXQHQFXPEHUHGDQGDOVRGLUHFWO\UHIOHFWVWKHUHIHUHQFHWRDQ LQGLYLGXDOZKLFKDOVRDSSOLHVLQWKHFDVHRIQRQUHIHUHQWLDOLW\XQNQRZQLQGL YLGXDOV   )RUWKHVDNHRIVLPSOLFLW\WKHPHWDIRUP21(ZLOOEHXVHGWRVXPPDUL]HWKH UHDOL]DWLRQV RI QXPHUDOV LQGHILQLWH SURQRXQV DQG WKH LQGHILQLWH DUWLFOH LQ WKH LQGLYLGXDOODQJXDJHV  , XVH WKH DEEUHYLDWLRQ ³6&5´ LQ WKH GXDO VHQVH RI ³6WDQGDUG &URDWLDQ´ DQG ³6HUER&URDWLDQ´ %RVQLDQ&URDWLDQ6HUELDQ   )RU PRUH RQ WKH SKRQRORJ\ RI 06/ DQG LQ SDUWLFXODU WKH WRQDO V\VWHP VHH %UHX   :KHQWKHSDUHQWKHVL]HGYRZHOVDUHDEVHQWWKHSURVRG\FKDQJHV,QWKHPDVFX OLQH VLQJXODU IRUP WKH ULVLQJ WRQH LV UHSODFHG E\ WKH IDOOLQJ LQLWLDO WRQH ZLWK DGGLWLRQDO YRZHO OHQJWKHQLQJ MHQJD MHQPX MHQPH ,Q WKH SOXUDO WKH FRQ WUDFWLRQDOZD\VWDNHVSODFH ZLWKRXWOHQJWKHQLQJDQGWKHULVLQJWRQHEHFRPHV RSWLRQDOMHQKLaMHQKLMHQPLaMHQPL  $V D UXOH WKH QHXWHU KDV EHFRPH DQ ³LPSHUVRQDO´ LQ 06/ ZKLFK FDQ QHYHU UHIHU WR D QRXQ EXW LQVWHDG RQO\ DSSHDUV ZLWK DGMHFWLYHV DGYHUEV YHUEV DQG SURQRXQV %UHX E  7DEOH LOOXVWUDWHV RQO\ WKH PRUH RU OHVV IUHTXHQWO\ XVHGQHXWHUIRUPVRIWKHQRPLQDWLYHDQGDFFXVDWLYH7KHREOLTXHFDVHVXVXDOO\ UHPDLQXQLQIOHFWHGRUDUHDYRLGHG2QO\LQWKHLQVWUXPHQWDOGRVRPHVSHDNHUV XVHWKHVSHFLDOIRUPMHQRP  6HH%UHXD IRUDQH[SOLFLWFRPSDULVRQZLWK:HLVV¶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µRQFH¶LQ&86 LQVWHDGRIWKH6WDQGDUGMyQXLQ06/QXYRWXLQVWHDGRI6&5MHGDQSXW  )RU DQ LPSOLFLW FRPSDULVRQ ZLWK 5XVVLDQ LQ WKLV DQG RWKHU FDVHV VHH %UHX   ZLWK DUWLFOHOHVV  5XVVLDQ WUDQVODWLRQV RI 06/ DQG &86 H[DPSOHV VKRZLQJDQLQGHILQLWHDUWLFOH  ,WVHHPVWKDWDQDWWULEXWHRUDUHODWLYHFODXVHPDNHV21(PRUHDFFHSWDEOHLQ 0DFHGRQLDQDQG%XOJDULDQ LQWKHQRQUHIHUHQWLDOUHDGLQJ:HLVV 





,QGHILQLWHDUWLFOHLQ6ODYLFPLFURODQJXDJHV 

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‘LVWKHQRUPLQWKLVODQJXDJHZLWKPDVVQRXQV  7R JLYH DQ HTXLYDOHQW WR *HUPDQ 21( LQ   VSHDNHUV RI &86 SURSRVHG DGGLQJWDMND µVXFKIHPLQLQH ¶)RU PRUHRQWKHSDUWLFXODU EHKDYLRXURIWDMNL µVXFK¶LQFRPELQDWLRQZLWKWKHLQGHILQLWHDUWLFOHVHHEHORZ  ,QVWHDG RI µVRIW¶   LV UHQGHUHG ZLWK IULãNDIUHVFD µIUHVK¶ LQ 06/,WDOLDQ EHFDXVH 06/ PHND µVRIW¶ ZDV UHMHFWHG IRU EHLQJ LQFRPSDWLEOH ZLWK WUDYD µJUDVV¶  ,Q*HUPDQGLDOHFWVKRZHYHUHVSHFLDOO\LQ%DYDULDQPDVVQRXQVDUHUHJXODUO\ OLQNHGZLWKLQGHILQLWHDUWLFOHVHJ,EUDXFKjJlHGjQVDQG ‘ µ,QHHGD  PRQH\D VDQG¶VHH*ODVHU± $OWRJHWKHUWKRXJKWKLVLVDW\ SRORJLFDOSHFXOLDULW\ZKLFKFRQWUDGLFWVWKHXQLYHUVDOQRIRUPHUO\  LQ WKH .RQVWDQ] ³8QLYHUVDOV $UFKLYH´ KWWSW\SRXQLNRQVWDQ]GH DU FKLYHLQWURLQGH[SKS  ,) WKH LQGHILQLWH DUWLFOH LV GHULYHG IURP WKH FDUGLQDO ³RQH´7+(1QRQQXPHUDEOHQRXQVFDQQRWWDNHDQLQGHILQLWHDUWLFOH  ,Q IDFW WKH VLWXDWLRQ LV D ELW PRUH FRPSOLFDWHG LQ ,WDOLDQ DV 21( LV DFWXDOO\ REOLJDWRU\ ZKHQXVLQJTXHVWDLHWKHGHPRQVWUDWLYHDJUHHLQJLQJHQGHU ZLWK LQIRUPD]LRQH2QWKHRWKHUKDQGLWLVPLVVLQJZKHQWKHQRQDJUHHLQJ³QHXWHU´ IRUPTXHVWRFRUUHVSRQGLQJWR06/WRLVXVHG4XHVWRqDQFKH‘LQIRUPD]L RQH  7KHGHILQLWHJHQHULFDUWLFOHPD\EHIRXQGLQ*HUPDQDVZHOOGDVJXWH6SLHO ]HXJ HYHQWKRXJKQRWDFFHSWHGE\DOOVSHDNHUV+HUHZHKDYHDPDUNHGUHIHU HQFH WR WKH ³FDWHJRU\ DV D ZKROH´ LQ FRQWUDVW WR WKH ³W\SLFDO UHSUHVHQWDWLYH´ IRUWKHLQGHILQLWHDUWLFOHDQGWRXQPDUNHGQHVVZLWKUHVSHFWWRWKLVGLIIHUHQWLD WLRQLQWKHFDVHRILQGHWHUPLQDWHQHVV  $VIRU06/VRPHLQIRUPDQWVDFFHSWHGDOVRWKHRPLVVLRQRI21(DQGHTXDWHG LWZLWKWKHXVHRILOEDPELQRLQ,WDOLDQZLWKDJHQHULFGHILQLWHDUWLFOH  7KH VSHDNHUV RI ERWK PLFURODQJXDJHV DYRLG JHQHULF VWDWHPHQWV RQ HQWLUH FODVVHVRILQGLYLGXDOVLQWKHVLQJXODUEXWLQVWHDGSUHIHUWKHLQGHWHUPLQDWHSOX UDO SRVVLEOH DOVR LQ *HUPDQ 7KH YDULDWLRQ ZLWK WKH JHQHULF GHILQLWH DUWLFOH ZKLFKH[LVWVLQWKH*HUPDQSOXUDO'HXWVFKHµ*HUPDQV¶GLH'HXWVFKHQµWKH *HUPDQV¶  LV KRZHYHU H[FOXGHG ZKLFK LQ WXUQ FRQFXUV ZLWK WKH K\SRWKHVLV WKDWWKH]HURDUWLFOHDOVRH[SUHVVHVWKHJHQHULFIXQFWLRQRIWKHGHILQLWHDUWLFOHLQ &86$VLQ,WDOLDQWKHGHILQLWHDUWLFOHLVREOLJDWRU\DOVRIRUJHQHULFVWDWHPHQWV

 :DOWHU%UHX LQWKHSOXUDOWKH06/]HURDUWLFOHLVFRQFHLYHGDVH[SUHVVLQJGHILQLWHQHVVE\ WKHELOLQJXDOVSHDNHUVLQWKLVFDVHWRR  2QH VKRXOG QRWH WKDW LQ ,WDOLDQ DQLPDOH FDQ EH XVHG QRW RQO\ DV D QRXQ EXW DOVRDVDQDGMHFWLYH ZKLFKFDQHYRNHDSDUDOOHOUHLQWHUSUHWDWLRQRIQLPDOGåD DPRQJDOZD\VELOLQJXDO 0ROLVLDQ6ODYV:KHQH[SUHVVLQJ ³TXDOLW\´WKHDG MHFWLYHDQGWKHJHQHULFQRXQDUHRIFRXUVHYHU\FORVHWRRQHDQRWKHU  &RPSDUH WKLV ZLWK WKH UHIHUHQWLDO VWDWHPHQW 7R MR MHQD ãWXGHQWND µ7KLV LV D VWXGHQWIHP ¶ZKHUH21(LVDOVRREOLJDWRU\LQ&86DQGLQ*HUPDQ  &RPSDUHWKH0DFHGRQLDQRSSRVLWLRQ0DUNRH‘XþLWHOµ0DUNLVDWHDFKHU¶YV 0DUNRHHGHQXþLWHORGPRHWRVHORµ0DUNLVDWHDFKHUIURPP\YLOODJH¶:HLVV    H[LVWLQJ LQ ERWK PLFURODQJXDJHV WRR 0DUNR MR ‘ ZXþHU YV 0DUNRMRMHQZXþHU]PRMHMZHVNL&86 0DUNMH‘SURIHVRUYV0DUNMHQD SURIHVRU ] PRJD JUDGD 06/  7KXV E\ PHDQV RI ‘  21( LQ WKH HOHPHQW SUHGLFDWLRQLQWKHVHODQJXDJHVDQRSSRVLWLRQEHWZHHQWKHXQPDUNHGUHIHUHQFH WR WKH HQWLUH FODVV TXDOLW\  DQG D PDUNHG UHIHUHQFH WR D VXEFODVV FDQ EH H[ SUHVVHG  ,Q 06/ 21( FDQ LQGHHG DOVR EH OHIW RXW KHUH EXW WRYDU ZRXOG WKHQ LQ WXUQ DVVXPHWKHFKDUDFWHURIDSUHGLFDWLYHDGMHFWLYHMXVWOLNHLWV,WDOLDQFRXQWHUSDUW VHL‘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³FRQWLJXRXV VHFWLRQV´ LQ *LYyQ    ZKLFK LPSO\ D XQLYHUVDO VHTXHQFHRI³QRQUHIHUHQWLDO´EHIRUH³JHQHULF´ ZKLFKREYLRXVO\FRQWUDGLFWV WKHVLWXDWLRQLQ0DFHGRQLDQ7KH³LQGHILQLWHDUWLFOH´LQ6WUHHW+HEUHZLQYHVWL JDWHG E\ *LYyQ   LV LQFLGHQWDOO\ OLPLWHG WR UHIHUHQWLDO DUWLFOH IXQFWLRQV DQGWKXVGRHVQRWDOORZIRUDQ\FRQFOXVLRQVRQWKHGLDFKURQLFVHTXHQFH  2WKHU ODQJXDJHV LQGHHG GR GHPRQVWUDWH SOXUDO IRUPV RI 21( IRU H[DPSOH 6SDQLVKXQRVDPLJRVXQDVDPLJDVµIULHQGV¶ DQGWKH\DUHQRWXQFRPPRQLQ *HUPDQGLDOHFWVHLWKHUFS%DYDULDQ}ƭEjPµWUHHV¶LQRSSRVLWLRQWRWKHVLQJX ODUjEjPµDWUHH¶FS*ODVHU±   $VIRU0DFHGRQLDQ:HLVV GHDOVYHU\EULHIO\ZLWKWKHSOXUDOIRUP HGQLZKLFKLVXVHGPXFKOHVVIUHTXHQWO\WKDQLWVVLQJXODUFRXQWHUSDUW  7KH 0VO SURQRXQV QLNH DQG NRMH FRUUHVSRQG ERWK WR WKH ,WDOLDQ FRQFHSWV RI DOFXQLµVHYHUDO¶DVZHOODVWKHSDUWLWLYHGHJOL  )RUPDOGXDOLDWDQWXPLHQRQVLQJXODULDVKRZLQJGXDOHQGLQJVGRQRWH[LVWLQ &86 7KXV WKHUH ZDV QR QHHG WR GHYHORS D GXDO IRUP RI 21( HLWKHU +RZ HYHU IRU QRXQV VXFK DV FKRORZ µWURXVHUV ¶ OLNH IRU +RVHQ  LQ *HUPDQ LW LV SRVVLEOH WR TXDQWLI\ WKHP ZLWK MHQ SRU FKRORZRZ µD SDLU RI WURXVHUV¶  MHQH





,QGHILQLWHDUWLFOHLQ6ODYLFPLFURODQJXDJHV 

FKRORZµDWURXVHU¶SOXUDOHGXDOHWDQWXP EXWQRWIRURWKHUWHUPVVXFKDVURWD µJDWH¶ SOXUDOH WDQWXP  06/ DOORZV IRU SDUD µSDLU¶ HYHQ ZKHQ TXDQWLI\LQJ SOXUDOLD WDQWXP QRW FRQFHSWXDOL]HG E\ PRGHUQ VSHDNHUV  DV SDLUV HJ GYD SDUDPRåGDQLµWZREUDLQV¶GYDSDUDYUDWµWZRGRRUV¶7KHIXQFWLRQRIDQLQ GHILQLWH SOXUDO FDQ RQO\ EH H[SUHVVHG H[SOLFLWO\ E\ QLNH 06/  DQG QČNRWUH &86 DOVRZLWKSOXUDOLDWDQWXP  &IWKHXVHRIDSOXUDORI21(ZLWKSOXUDOLDWDQWXPLQ5XVVLDQRGQLYRURWDµD JDWH¶RU0DFHGRQLDQHGQLQRåLFLµDSDLURIVFLVVRUV¶UHVWULFWHGWRLWVIXQFWLRQDV DQXPHUDOKRZHYHU  7KHRSWLRQDOSURQRXQFHUWXQLµVRPHFHUWDLQ¶SURSRVHGE\VSHDNHUVRI06/WR WUDQVODWHMHQHLQE LVVRPHZKDWDQWLTXDWHGLQ6WDQGDUG,WDOLDQ  $VVKRZQE\WKHIRUPQRPDORZKLFKLVXVHGE\FRQVHUYDWLYHVSHDNHUVDQGLQ JHQHUDO LQ WKH 0RQWHPLWUR GLDOHFW ZLWKRXW WKH IRUPDO PHUJHU RI WKH RULJLQDO ILQDORZLWKIHPLQLQHDDNDQMH ZHDUHGHDOLQJZLWKWKHQHXWHUJHQGHUKHUH  7KH IRUP QX KRPRSKRQRXV ZLWK WKH IHPLQLQH DFFXVDWLYH RI 21(  FRXOG LQGHHGEHXVHGLQ06/EXWLWZRXOGEHLQWHUSUHWHGDVWKHVKRUWIRUPRIRQX µWKDW $&&6*)(0 ¶ 21( LV QRW FRPSOHWHO\ H[FOXGHG KHUH LQ 06/ QD SR  EXWLQWKLVFDVHZHDUHGHDOLQJZLWKLWVPHDQLQJRI³DSSUR[LPDWHTXDQWLW\´LH µDERXWKDOIDGD\¶VHHEHORZ,QVWHDGRISRWKHVXEVWDQWLYHSRORYFDFRXOGDOVR EHXVHG6DUDELMD‘SRORYFXGDQDRQFHDJDLQZLWKWKHSRVVLELOLW\RIDQLQVHU WLRQRI21(LQWKHVHQVHRIDQDSSUR[LPDWHTXDQWLW\  )RU0DFHGRQLDQ:HLVV FLWHVHGQDWDNYDNXN̗DZLWKDQLQGHWHUPL QDWHDUWLFOHDVVXEVWDQGDUG  $6WDQGDUG,WDOLDQPRGHOIRUWKLVFDQQRWEHIRXQG7KHSRVWSRVLWLRQPLJKWEH DVVRFLDWHGZLWKGLDOHFWFRQVWUXFWLRQVRIWKHW\SHDOGXQΩµDQRWKHU¶ZKLFKFRQ VLVWV RI 27+(5  21( +RZHYHU WKHVH DUH RQO\ GRFXPHQWHG DV SURQRXQV ³FRQYDORUHGLVRVWDQWLYR´5RKOIV ,WLVLQWHUHVWLQJWKDWDOVRLQ2OG ,WDOLDQWKHLQGHILQLWHDUWLFOHXVXDOO\ZDVVWLOOQRWXVHGZLWKDOWURVHH3UHVVOLFK    7KLV XVDJH FDQ DOVR EH IRXQG LQ 6&5 MHGQR SHW JRGLQD µDSSUR[LPDWHO\ ILYH KRXUV¶  DQG LQ 0DFHGRQLDQ FI :HLVV    DQG VKRXOG WKHUHIRUH EH UDQNHGDPRQJWKHJHQXLQH6RXWK 6ODYLFUHOLFVRIWKHXVHRI21('XHWRWKH DNDQMHGHYHORSPHQW LQ $FTXDYLYD WKH IRUP LQ TXHVWLRQ FDQ RQFH DJDLQ RQO\ EHFOHDUO\GHWHFWHGDVQHXWHUDPRQJFRQVHUYDWLYHVSHDNHUVDQGLQWKHGLDOHFWRI 0RQWHPLWURQRGHVHWþHQGLPHWDU0RQWHPLWUR   7KH KRPRQ\P\ LV FOHDUO\ GLVDPELJXDWHG LQ IDYRXU RI WKH SOXUDO ZKHQ FRQ VWUXFWLRQV ZLWK RWKHU JUDPPDWLFDO FDVHV DUH WHVWHG HJ LQ WKH JHQLWLYH ZRW MHQ\FKGZHMRFKOLWURZµRIWZROLWUHV¶+RZHYHUVSHDNHUVDUHYHU\UHOXFWDQWWR DJUHHRQWKLVIRUPEHFDXVHWKHXVHRI21(RXWVLGHWKHQRPDFFWHQGVWREH DYRLGHGKHUH%XWWKH\LQVLVWDQ\ZD\RQWKHSOXUDOEHLQJWKHRQO\SRVVLELOLW\ KHUH  ,Q VRPH *HUPDQ GLDOHFWV (,1 DQG 0$1 DUH GLVWLQJXLVKHG DOVR LQ REOLTXH FDVHVHJLQ3DODWLQLDQ3IlO]LVFK GRIULHUWVlQHUGRIULHUWVlPΩ*HUIRU ERWKFDVHVGDIULHUWHVHLQHQ OLW³KHUHRQH$&&IUHH]HVLW´ZLWKWKHPHDQLQJV

 :DOWHU%UHX µVRPHERG\LVFROGLVIUHH]LQJKHUH¶µ\RXLPSHUVRQDO DUHFROGDUHIUHH] LQJKHUH¶FIlQHU µRQH$&&¶IRUPDOO\LGHQWLFDOWRWKHQRPLQDWLYHlQHU  lPΩ DFFXVDWLYHRILPSHUVRQDO PlU*HUPDQPDQ IRUPDOO\LGHQWLFDOWRWKH GDWLYHRIlQHUµRQH¶  :KDWLVLQWHUHVWLQJLVWKHSOXUDOXVHRI21(DVDSURQRXQLQWHUPVRIµVRPH VHYHUDO¶HJLQMHGQLSMHYDMXLRYDNRµVRPHVLQJDOVROLNHWKLV¶ZKLFKLVDEVR OXWHO\UXOHGRXWLQ06/$VGHVFULEHGDERYHWKH0ROLVLDQ6ODYLFSOXUDOIRUP MHGQHDVDSURQRXQFDQRQO\DSSHDUWRJHWKHUZLWKGUXJHµVRPHRWKHUV¶RUIRU VRPH  ZKHQ GRXEOHG RWKHUZLVH QLNH RU WKH LQGHILQLWH SURQRXQ NRMH PXVW EH XVHG 3HUKDSV WKLV XVH RI 21( ZDV EORFNHG LQ 06/ LQ FRPSOLDQFH ZLWK WKH ,WDOLDQIRUP  ,YLü¶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¶DUJHQWRqXQPHWDOOR ‘DUJHQWR  LQ FRQWUDVW WR (QJOLVK ‘ VLOYHU LV D PHWDO 7KDW LV ZK\ WKH ]HURDUWLFOH LQ ‘ VUHED MH QD PHWDO KDV WKH FKDUDFWHULVWLFV RI D GHILQLWH DUWLFOH IRU ELOLQJXDO 0ROLVH6ODYVWRR  *HQHULF FODVV UHIHUHQFH DQG QRQUHIHUHQWLDO LQGHILQLWHQHVV VHHP WR EH TXLWH FORVHWRRQHDQRWKHULQE KRZHYHU  7KH ³JUDPPDWLFDO GLDV\VWHP´ RU GLDJUDPPDU  RI ELOLQJXDOV LV D WKHRUHWLF PRGHOEDVHGRQWKHK\SRWKHVLVWKDWPXOWLOLQJXDOVSHDNHUVGRQRWVWULFWO\VHSD UDWHWKHJUDPPDUVRIWKHLUWZRRUPRUHODQJXDJHVEXWFRPELQHWKHPZLWKHDFK RWKHU LQ WKH PRVW HFRQRPLFDO PDQQHU SRVVLEOH ,W FRXOG EH FODLPHG WKDW WKH JUDPPDUV RI WKH LQGLYLGXDO ODQJXDJHV DUH GHULYHG IURP WKH FRPPRQ GLD JUDPPDUDVDSV\FKRORJLFDOUHDOLW\ E\VSHFLILFUXOHVWKHIHZHUWKHUXOHVWKH PRUH HFRQRPLF LV WKH PDQDJHPHQW RI WKH ODQJXDJHV ,Q VLWXDWLRQV RI ³DEVR OXWH´ ODQJXDJH FRQWDFW LQ ZKLFK DOO VSHDNHUV DUH ELOLQJXDO WKH UHGXFWLRQ RI ODQJXDJHVSHFLILF UXOHV VHHPV WR EH WKH PRVW LPSRUWDQW UHDVRQ IRU ODQJXDJH FKDQJH7KLVLVHVSHFLDOO\WUXHZLWKUHVSHFWWRPLQRULW\ODQJXDJHVDVWKHSUHV VXUH RI WKH ODQJXDJH FRPPXQLW\ WR SUHVHUYH WKHLU VSHFLILF UXOHV LV UHODWLYHO\ ZHDNJLYHQWKHKLJKSUHVWLJHRIWKHGRPLQDQWPDMRULW\ODQJXDJH)RUWKHQR WLRQRI³GLDV\VWHP´FI:HLQUHLFK   $Q H[SOLFLW FRQILUPDWLRQ IRU WKH DVVXPSWLRQ WKDW ELOLQJXDO VSHDNHUV RI 06/ SHUFHLYHWKHDEVHQFHRIDQLQGHILQLWHDUWLFOHDVDSV\FKRORJLFDOO\UHDO³GHILQLWH ]HURDUWLFOH´FDQEHIRXQGLQ WKH IDFWWKDWLQDQVZHULQJTXHVWLRQVOLNH ³:KDW GRHV åHQD PHDQ LQ ,WDOLDQ"´ WKH\ DOZD\V XVH WKH GHILQLWH DUWLFOH KHUH ³OD GRQQD´µWKHZRPDQ¶DQGQRWVLPSO\³‘GRQQD´





,QGHILQLWHDUWLFOHLQ6ODYLFPLFURODQJXDJHV 

 )RUPRUHGHWDLOHGDQDO\VHVRIWKHIXQFWLRQVRIWKHGHILQLWHDUWLFOHLQ&86VHH %UHX DQG6FKRO]HWKLVYROXPH   7KH WHUPLQRORJLFDO GLIIHUHQWLDWLRQ EHWZHHQ ³VHPDQWLF´ DQG ³SUDJPDWLF GHIL QLWHQHVV´ZDVLQWURGXFHGE\/|EQHU± :HILQGDQRSSRVLWLRQ EHWZHHQ D ³SUDJPDWLF´ DQG D ³VHPDQWLFJHQHULF´ GHILQLWH DUWLFOH IRU H[DPSOH DOVRLQ1RUWK)ULVLDQVHH(EHUW DQGLQ*HUPDQGLDOHFWVHJLQ5KHQLVK DQGLQ%DYDULDQ+DUWPDQQDQG%UHX± DOWKRXJKLQDOOWKHVH FDVHVWKHVHPDQWLFJHQHULFIXQFWLRQVDUHQRWH[SUHVVHGE\‘EXWE\DUHGXFHG IRUPRIWKHSUDJPDWLFGHILQLWHDUWLFOH  6HH%UHX± IRUDUHSURGXFWLRQRIWKLVSLFWXUHVWRU\ ZKLFKRULJL QDOO\ FRPHV IURP :HOW GHU :|UWHU    WRJHWKHU ZLWK WKH IXOO &86 WH[W  6HH%UHX IRUWKLVVSHFLDOW\SHRIJHQHULFXVHLQWKHZLGHUVHQVH   +HUH ZH DUH UHIHUULQJ WR WKH XQLYHUVDO QR  IRUPHUO\   LQ WKH .RQ VWDQ] ³8QLYHUVDOV $UFKLYH´ KWWSW\SRXQLNRQVWDQ]GHDUFKLYHLQWUR LQ GH[SKS  ZKLFK ZDVOHVVVWULQJHQWLQWKHRULJLQDOYHUVLRQ SURYLGHGE\ +HLQH  ³,IDODQJXDJHKDVDJUDPPDWLFDOL]HGLQGHILQLWHDUWLFOHLWLVOLNHO\ WR DOVR KDYH D GHILQLWH DUWLFOH ZKLOH WKH UHYHUVH GRHV QRW QHFHVVDULO\ KROG WUXH´ 7KLV JHQHUDOL]HG LPSOLFDWLRQ LV EDVHG RQ DQ DQDO\VLV RI  ODQJXDJH DQGLVVXSSRVHGWRDSSO\WRRIWKHP³$]WHF%DPEDUD*\SV\5RWXPDQ 6XQGDQHVH´ DUH FLWHG DV H[FHSWLRQV .UiPVNê  ±  OLVWV 7XUNLVK DQGDVHULHVRI,UDQLDQODQJXDJHVZKLFKDUHVXSSRVHGWRKDYHDQLQGHILQLWHEXW QR GHILQLWH DUWLFOH $V IRU 7XUNLVK WKRXJK KH GRZQSOD\V LWV DIILOLDWLRQ ZLWK WKLV JURXS EHFDXVH WKH GHILQLWH DFFXVDWLYH LV GLVWLQJXLVKHG IURP LQGHWHUPL QDWHQHVVE\PHDQVRIDVXIIL[KHUH)XUWKHUPRUHWKHXVHRIELUµRQH¶LVZLGHO\ RSWLRQDODQGDOVROLQNHGWRVSHFLDOIXQFWLRQVVXFKDVHPSKDVL]LQJWKHDGMHF WLYHLQWKHDWWULEXWLRQ :HLVV± FODLPVIRU0RGHUQ3HUVLDQDQ RWKHU FDQGLGDWH SRVVLEO\ YLRODWLQJ WKH XQLYHUVDO WKDW WKH XVH RI 21( LQ WKLV ODQJXDJHGRHVQRWVXSSRUWWKHDVVXPSWLRQRIDIXOO\GHYHORSHGLQGHILQLWHDUWL FOHVHHDOVR/\RQV± ZKRRQO\VSHDNVRIDXVH³OLPLWHGWRQRQ VSHFLILF´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³DGDSWDWLRQ RI WKH VHPDQWLF VWUXFWXUH´ , XQGHUVWDQG WKH DQDORJRXV UHSUR GXFWLRQRIWKHSRO\VHPLHVRI WKH PRGHO ODQJXDJH LQ WKHUHSOLFDODQJXDJH%\ WKLV SURFHGXUH ELOLQJXDOV DFKLHYH D VLPSOLILFDWLRQ RI WKHLU OH[LFDO DQG JUDP PDWLFDOV\VWHPLHWKHGLDV\VWHPIRUERWKWKHLUODQJXDJHV FU%UHXF 

 :DOWHU%UHX  7KLVGRHVQRW PHDQWKDWDFRQWDFWLQGHSHQGHQWGHYHORSPHQWRIWKHLQGHILQLWH DUWLFOH ZRXOG QRW DW DOO KDYH EHHQ SRVVLEOH LQ 06/ DQG &86  DV WKH JUDP PDWLFDOL]DWLRQSDWKIURPWKHQXPEHURQHWRDQLQGHILQLWHDUWLFOHLVUDWKHUFRP PRQLQWKHODQJXDJHVRIWKHZRUOG%XWFRQVLGHULQJWKHIDFWWKDWQR6ODYLFODQ JXDJHRXWVLGHWKHVWURQJFRQWDFWDUHDVKDVGHYHORSHGDIXOO\UDQJHGLQGHILQLWH DUWLFOHWKHIRUHLJQLQIOXHQFHLQWKH06/FRQWDFWVLWXDWLRQLQLWLDWHGRUDWOHDVW FRQVLGHUDEO\VSHHGHGXSWKHJUDPPDWLFDOL]DWLRQRI21(DVDQLQGHILQLWHDUWL FOH LQ WKLV 6ODYLF PLFURODQJXDJH IROORZLQJ WKH ZHOONQRZQ SDWK ,Q RWKHU ZRUGVZHPD\H[SHFWWKDWWKHGHYHORSPHQWRIDQLQGHILQLWHDUWLFOHZRXOGQRW KDYHKDSSHQHGLILWZHUHDEVHQWLQWKHFRQWDFWODQJXDJH  )RU PRUH RQ WKH GHYHORSPHQW RI WKH LQGHILQLWH DUWLFOH IURP WKH QXPHUDO LQ 6WDQGDUG,WDOLDQVHH3UHVVOLFK± ZKRSRLQWVRXWDPRQJRWKHU WKLQJVWKDWLWGHYHORSHGDWDODWHUSRLQWLQWLPHWKDQWKHGHILQLWHDUWLFOH  7KH VLWXDWLRQ LV IXUWKHU FRPSOLFDWHG E\ WKH IDFW WKDW LQ ERUURZHG H[SUHVVLRQV HYHQ FRQFUHWH DUWLFOH IRUPV FDQ EH ERUURZHG IURP WKH IRUHLJQ ODQJXDJH HJ QXNZDUWµDTXDUWHU¶ IURP0ROLVLDQ LWDOXQTXDUWR7KHIRUHLJQDUWLFOHDQG WKHQRXQDUHUHJDUGHGKHUHDVDQLQVHSDUDEOHXQLWWKRXJKMXVWOLNHHJWKHLQL WLDO OD LQ /DGåHUPDQLMD µ*HUPDQ\¶ GHULYHG IURP WKH GHILQLWH DUWLFOH LQ WKH GRPLQDQWODQJXDJHFS,WDOOD*HUPDQLD RUOXLQ/XEqOGåµ%HOJLXP¶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µWKDW¶ 7KXV D IRUPDO UHODWLRQVKLS EHWZHHQ WKHGHPRQVWUDWLYHDQGWKHGHILQLWHDUWLFOHQRORQJHUH[LVWVIRUVSHDNHUVRI,WDO LDQ DQG ELOLQJXDO 0ROLVH 6ODYV  LH TXHOOR  LO PDVF  TXHOOD  OD IHP  QRURIFRXUVHZLWKRWKHUGHPRQVWUDWLYHVVXFKDVTXHVWRµWKLV¶  ,Q 7DEOH  TXHOOR µWKDW¶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± IRUDK\SRWKHVLVWR





,QGHILQLWHDUWLFOHLQ6ODYLFPLFURODQJXDJHV 

H[SODLQWKHGLIIHUHQFHEHWZHHQWKHWZR6ODYLFPLQRULW\ODQJXDJHVLQWHUPVRI WKHLUFRQWDFWKLVWRULHV  

5HIHUHQFHV  %HQDFFKLR5RVDQQD   /¶DUWLFROR QHO GLDOHWWR UHVLDQR 6XOOD TXHVWLRQH GHOOD GHWHUPLQDWH]]D QHOODOLQJXHVODYH,Q'HWHUPLQDWH]]DHLQGHWHUPLQDWH]]DQHOOHOLQJXH VODYH5RVDQQD%HQDFFKLR)UDQFHVFD)LFLDQG/XF\QD*HEHUWHGV  ±3DGRYDXQLSUHVV %UHX:DOWHU   6SUDFKH XQG 6SUDFKYHUKDOWHQ LQ GHQ VODYLVFKHQ '|UIHUQ GHV 0ROLVH 6GLWDOLHQ  ,Q 6ODYLVWLVFKH /LQJXLVWLN  :DOWHU %UHX HG  ± 0QFKHQ2WWR6DJQHU %UHX:DOWHU   5RPDQLVFKHV $GVWUDW LP 0ROLVHVODYLVFKHQ 'LH :HOW GHU 6ODYHQ  ± %UHX:DOWHU   3KRQRORJLH XQG 9HUENRQMXJDWLRQ LP 0ROLVHVODYLVFKHQ ,Q 6ODYLVWL VFKH /LQJXLVWLN  5HQDWH 5DWKPD\U DQG :ROIJDQJ :HLWODQHU HGV ±0QFKHQ2WWR6DJQHU %UHX:DOWHU   'HU9HUEDODVSHNWLQGHUREHUVRUELVFKHQ8PJDQJVVSUDFKHLP5DKPHQ GHV,/$0RGHOOV,Q6ODYLVWLVFKH/LQJXLVWLN:DOWHU%UHXHG  ±0QFKHQ2WWR6DJQHU %UHX:DOWHU  D 'HU LQGHILQLWH $UWLNHO LQ VODYLVFKHQ 0LNURVSUDFKHQ *UDPPDWLND OLVLHUXQJ LP WRWDOHQ 6SUDFKNRQWDNW ,Q 6ODYLVWLVFKH /LQJXLVWLN  +ROJHU.X‰HHG ±0QFKHQ2WWR6DJQHU %UHX:DOWHU  E ,PSHUVRQDOHV1HXWUXPLP0ROLVHVODYLVFKHQ,Q5XVVLVWLND±6ODYLVWL ND±/LQJYLVWLND)HVWVFKULIWIU:HUQHU/HKIHOGW]XP*HEXUWVWDJ 6HEDVWLDQ.HPSJHQ8OULFK6FKZHLHUDQG7LOPDQ%HUJHUHGV ± 0QFKHQ2WWR6DJQHU %UHX:DOWHU  F %LOLQJXDOLVP DQG OLQJXLVWLF LQWHUIHUHQFH LQ WKH 6ODYLF5RPDQFH FRQ WDFWDUHDRI0ROLVH6RXWKHUQ,WDO\ ,Q:RUGVLQ7LPH5HJLQH(FN DUGW.ODXVYRQ+HXVLQJHUDQG&KULVWRSK6FKZDU]HHGV ± 7UHQGVLQ/LQJXLVWLFV6WXGLHVDQG0RQRJUDSKV %HUOLQDQG1HZ 6RUELDQ FROORTXLDOVSHHFKEHWZHHQVWDQGDUGDQGGLDOHFW@/ČWRSLV± 9DWHU+HLQ]   'HUÄXQEHVWLPPWH$UWLNHO³DOV4XDQWRU,Q6SUDFKWKHRULHXQG$QJH ZDQGWH/LQJXLVWLN:HUQHU:HOWHHG ±7ELQJHQ1DUU

 :DOWHU%UHX :$/6  

7KH :RUOG $WODV RI /DQJXDJH 6WUXFWXUHV 0DUWLQ +DVSHOPDWK 0DW WKHZ6'U\HU'DYLG*LO%HUQKDUG&RPULHHGV 2[IRUG8QLYHUVL W\3UHVV :HLQUHLFK8ULHO   ,VDVWUXFWXUDOGLDOHFWRORJ\SRVVLEOH":RUG :HLVV'DQLHO   'LH *HEXUW HLQHV $UWLNHOV ]XP 6WDWXV YRQ PDNHGRQLVFK HGHQ ,Q 6ODYLVWLVFKH /LQJXLVWLN  :ROIJDQJ *LUNH HG  ± 0Q FKHQ2WWR6DJQHU :HLVV'DQLHO   7KH ULVH RI DQ LQGHILQLWH DUWLFOH 7KH FDVH RI 0DFHGRQLDQ HGHQ ,Q :KDW PDNHV *UDPPDWLFDOL]DWLRQ" $ /RRN IURP LWV )ULQJHV DQG LWV &RPSRQHQWV :DOWHU %LVDQJ 1LNRODXV 3 +LPPHOPDQQ DQG %M|UQ :LHPHUHGV ±%HUOLQDQG1HZ@ KD QHMåOXUDQRSRQWHSRVOHQHNRQHãüHãLQGXa7Ï1a‘    µ$W RXU SODFH LW VWDUWV RQ )ULGD\ PRUQLQJ WKH ILUVW KRUVHV DUH IHWFKHG >@ DQG RQ 6XQGD\ PRUQLQJ WKHQ WKH ODVW KRUVHV VWLOO FRPH¶    F 7REXGĨDWHZH‘SUČQHMVNXSLQLZXNQüWDPa7Ï1    µ7KH\ZLOOOHDUQWKLVLQWKHILUVWJURXSWKHUH¶    G 7HSUČQHDFKWKXQGRUWPHWRUEXGĨHãW\WUHEDü]D$QODXIa‘    µ7KHILUVWHLJKWKXQGUHGPHWHUV\RXZLOOQHHGIRUWKHUXQXS¶  ,QDOOWKHVHFDVHVWKHYDULDWLRQEHWZHHQ7Ï1DQGLWVRPLVVLRQFDXVHVGLI IHUHQWVKDGHVRIPHDQLQJ-XVWOLNHLQWKHFDVHRIWKHVXSHUODWLYHWKHIRUPDO GHILQLWHDUWLFOH7Ï1UHIOHFWVDFDVHRISUDJPDWLFGHILQLWHQHVVE\VHOHFWLQJ WKHUHIHUHQWRIWKHQRXQSKUDVHIURPDJURXSRUE\FRQWUDVWLQJWKLVUHIHUHQW ZLWKRWKHUV:KHQ7Ï1LVRPLWWHGWKHQRXQSKUDVHUHIHUVWRDVHPDQWLFDOO\ GHILQLWHXQLW\FRQFHSWXDOL]HGDVXQVWUXFWXUHG  %UHX FODLPVWKDWWKHYDULDWLRQZLWKUHJDUGWRWKHGHILQLWHDUWL FOH LQ WKH FDVH RI VXSHUODWLYHV DQG RUGLQDO QXPEHUV LV WULJJHUHG E\ WKH WKHPHUKHPH VWUXFWXUH RI WKH VHQWHQFH ,Q WKH VWDQGDUG WKHPH SRVLWLRQ ZKLFK LV WKH SRVLWLRQ EHIRUH WKH YHUE WKH GHILQLWH DUWLFOH LV DOOHJHGO\ RS



7KHGHILQLWHDUWLFOHLQ&ROORTXLDO8SSHU6RUELDQ



WLRQDOZKLOHLQWKHUKHPHSRVLWLRQDIWHUWKHYHUE LWLVREOLJDWRU\+HJLYHV WKHIROORZLQJH[DPSOHV    D 7yQa‘SUČQLZHVQDQRVWDSRSĜHZUyüHEČNQH]5\þHU    µ7KHILUVWPD\RUDIWHUWKHUHXQLILFDWLRQZDV0LVWHU5\þHU¶    E .QH]5\þHUEČWyQSUČQLZHVQDQRVWDSRSĜHZUyüH ‘    µ0LVWHU5\þHUZDVWKHILUVWPD\RUDIWHUWKHUHXQLILFDWLRQ¶  1RZ OHW XV ORRN DW WKH IROORZLQJ QRXQV DWWULEXWHG E\ RUGLQDOV ZKLFK DUH YHU\VLPLODUWR%UHX¶VH[DPSOHV    D 1D‘SUČQLPPČVWQHEČ-DQQD‘GUXKLP+HOHQD 7Ï1    µ,QWKHILUVWSRVLWLRQWKHUHZDV-DQLQWKHVHFRQGRQH+HOHQD¶    E -DQEČQD‘SUČQLPPČVWQH+HOHQDQD‘GUXKLP 7Ï1    µ-DQZDVLQWKHILUVWSRVLWLRQ+HOHQDLQWKHVHFRQGRQH¶  ,QWKHVHH[DPSOHV7Ï1FDQEHXVHGQHLWKHULQWKHWKHPHSRVLWLRQD QRU LQWKHUKHPHSRVLWLRQE ZKLOHLQ*HUPDQWKHGHILQLWHDUWLFOHLVREOLJD WRU\LQERWKFDVHV7KHXVHRI7Ï1KHUHREYLRXVO\GRHVQRWGHSHQGRQWKH WKHPHRUUKHPHSRVLWLRQLQJRIWKHQRXQ$FORVHUORRNDWWKHH[DPSOHVLQ  VKRZVWKDWWKH\DUHDFWXDOO\GLIIHUHQWIURP%UHX¶VLQ LQWKDWWKH\ UHIHUWRDFRPSHWLWLRQ$QGRIFRXUVHSUČQHPČVWQRGUXMHPČVWQRµWKHILUVW SRVLWLRQWKHVHFRQGSRVLWLRQ¶HWFDUHVLWXDWLRQDOXQLTXHVLQDFRPSHWLWLRQ LHVHPDQWLFDOO\GHILQLWHEHFDXVHLQDFRPSHWLWLRQWKHUHLVW\SLFDOO\DILUVW SRVLWLRQDVHFRQGSRVLWLRQDQGVRRQ6RZHVHHWKDWVHYHUDOIDFWRUVGHWHU PLQHWKHXVHRI7Ï1ZLWKRUGLQDOVWKHWKHPHUKHPHVWUXFWXUHLVRQO\RQH RIWKHP  )XUWKHUH[DPSOHVZLWKVHPDQWLFDOO\GHILQLWHRUGLQDOQXPEHUVH[FOXGLQJ 7Ï1DUHJLYHQLQ     D 7DP KRGZH SRQ EHVDGRZDQH NDMND ZHVND MDNR ‘SUČQD KD ‘ SRVOHQD 7Ï1    µ7KHUH LW LV WKHQ WDONHG DERXW ZKLFK YLOODJH DV WKH ILUVW DQG >ZKLFK@DVWKHODVW¶    E âXODSRPHEHVWLPPWQD‘SUČQHPPČVWQHQHVWHM 7Ï1    µ6FKRROLVGHILQLWHO\QRWLQWKHILUVWSRVLWLRQIRUPH¶ 

 /HQND6FKRO]H 

+HUHDJDLQWKH]HURDUWLFOHV\PEROL]HVDQDWXUDOVHTXHQFHRISRVLWLRQVWKH ILUVWRQHWKHVHFRQGRQHDQGVRRQZKLFKDUHDOOVLWXDWLRQDOXQLTXHVLQWKH JLYHQVLWXDWLRQ,QWKHQH[WH[DPSOHKRZHYHUSUČQLµWKHILUVW¶LVGHWHUPLQHG E\WKHGHILQLWHDUWLFOH7Ï1:HKDYHKHUHDFOHDUFDVHRIDQDSKRULFUHIHU HQFHZLWKWKHQRXQSURJUDPWRZKLFKWKHQXPHUDOSUČQLUHIHUVRPLWWHG     3RQ VX HP WH VWXGHQWH KLFK SURJUDPX þLQHOL WyQ SUČQL MR VR PL QDMOČSHOXELáa‘   µ7KHQWKHVWXGHQWVPDGHWKHLUSURJUDPV>LWZDV@WKHILUVWRQH,OLNHG PRVW¶  1HYHUWKHOHVV7Ï1FRXOGDOVREHRPLWWHGLQ 6XFKDQRPLVVLRQZRXOG EH DFFRPSDQLHG E\ D FKDQJH WR VHPDQWLF GHILQLWHQHVV DV LQ WKH FDVHV GLV FXVVHGEHIRUH,QRWKHUZRUGVWKHDQDSKRULFUHIHUHQFHZRXOGQRWEHWDNHQ LQWR FRQVLGHUDWLRQ ZLWK WKH HIIHFW RI WKH QDWXUDO RUGHU RI SURJUDPV ³ILUVW VHFRQGDQGVRRQ´VKRZLQJXSRQWKHVXUIDFH,QFDVHVOLNH LWGHSHQGV PRUHRUOHVVRQWKHLQWHQWLRQRIWKHVSHDNHUZKLFKW\SHRIGHILQLWHQHVVVKH ZDQWV WR H[SUHVV ZKLOH LQ PRUH SURPLQHQW W\SHV RI SRVLWLRQV DV IRU LQ VWDQFHLQDFRPSHWLWLRQOLNHLQWKHDIRUHPHQWLRQHGH[DPSOHVWKHFKRLFHLV QRW IUHH ,W ZRXOG EH DQ LQWHUHVWLQJ WRSLF IRU IXWXUH VHPDQWLF UHVHDUFK WR LQYHVWLJDWHWKHGHJUHHRIRSWLRQDOLW\RI7Ï1ZLWKRUGLQDOVDQGVXSHUODWLYHV ZLWKUHJDUGWRWKHGLIIHUHQWFRQWH[WV%XWLWVKRXOGKDYHEHFRPHFOHDUWKDW DOVRLQWKHVHFDVHVWKHGHILQLWHDUWLFOHLQ&86LVQRWXVHGDUELWUDULO\EXWLQD FOHDUO\UHJXODUPDQQHULQZKLFKV\QWD[DQGVHPDQWLFVSOD\DUROH   'HILQLWHVRUWVDQGNLQGV  6RUWVDQGNLQGVRIUHIHUHQWVFDQEHVSHFLILHGE\SURSHUQDPHVRUVXERUGL QDWHFODXVHV%UHX FLWHVWKHIROORZLQJH[DPSOHVIRUWKHFDVH RI³VRUWDOQRXQSURSHUQRXQ´    D 7DOLþEDWĜLQDüãLQHVHQH]ERåR    µ7KHQXPEHUWKLUWHHQEULQJVEDGOXFN¶    E 7HOČWREČ]DPHMDUDZDåQH    µ7KH\HDUZDVIRUPHYHU\LPSRUWDQW¶  ,QWKHVHH[DPSOHVWKHVRUWDOQRXQVOLþEDµQXPEHU¶DQGOČWRµ\HDU¶DUHVSHFL ILHGE\WKHH[DFWQXPEHUDQGWKHH[DFW\HDUUHVSHFWLYHO\,Q WKLVUHOD



7KHGHILQLWHDUWLFOHLQ&ROORTXLDO8SSHU6RUELDQ



WLRQ LV SUHVHQWHG H[SOLFLWO\ E\ XVLQJ WKH GHILQLWH DUWLFOH +HUH SUDJPDWLF GHILQLWHQHVV RI WKH FDWDSKRULF W\SH VHHPV WR EH DW LVVXH %XW WKH ZKROH FRPELQDWLRQFRXOGDOVREHUHJDUGHGDVDVLQJOHWHUPLHQHJOHFWLQJLWVLQ WHUQDOVWUXFWXUH,QWKLVFDVHLWZRXOGEHXQLTXHLHVHPDQWLFDOO\GHILQLWH,Q WKLV FDVH WKH IRUPDO DUWLFOH 7Ï1 FDQ EH RPLWWHG LQ WKH FRQVWUXFWLRQV LQ TXHVWLRQDVIRUH[DPSOHLQ     ‘/LþEDWĜLQDüMRPDJLVND  µ7KHQXPEHUWKLUWHHQLVPDJLF¶  :KHQWKHVRUWDOQDPHLVFORVHO\VSHFLILHGE\DGHILQLQJFODXVHWKHGHILQLWH DUWLFOH LV UHDOO\ REOLJDWRU\ EHFDXVH WKH FDWDSKRULF IXQFWLRQ LV H[SOLFLW ,Q WKLV FDVH SUDJPDWLF GHILQLWHQHVV REOLJDWRULO\ GRPLQDWHV RYHU WKH VHPDQWLF GHILQLWHQHVVRIWKHZKROHFRPSOH[VHH%UHX¶VH[DPSOH    7yQIDNW]R-DQKDNOHMXWĜHãLQGĨHVRPLJRUQHOXEL ‘   µ7KHIDFWWKDW-DQFRPHVRQO\WRPRUURZ,GRQ¶WOLNHDWDOO¶  7KHUH DUH DOVR H[DPSOHV ZLWK D VXERUGLQDWH FODXVH LQ ZKLFK WKH DUWLFOH VHHPVWREHRSWLRQDODVLQ %XWDVRQHPLJKWH[SHFWDFFRUGLQJWRZKDW ZDVGHPRQVWUDWHGDERYHWKLVLVQRWDIUHHYDULDWLRQDVWKHPHDQLQJRIWKH VHQWHQFHZLWKDQGZLWKRXWWKHGHILQLWHDUWLFOHLVGLIIHUHQW    E  1D W\FK VUMHGĨQ\FK ãXODFK NDå SRQDV 3DQþLFDFK EXGĨD ZRQHQČNHWHMþČãüLQXKDSyOãüLQXþLQüa‘   µ$W WKH MXQLRU KLJK VFKRROV DV LQ RXUV DW 3DQVFKZLW] WKH\ ZLOO GR QRZDOVR&]HFKDQG3ROLVK¶  :KHQWKHGHILQLWHDUWLFOHLVXVHGWKHQRXQSKUDVHLVSUDJPDWLFDOO\GHILQLWH DVWKHVXERUGLQDWHFODXVHLVDGHILQLQJRQHLHLWVHOHFWVWKHVSHFLILFMXQLRU KLJK VFKRRO RI 3DQVFKZLW] IURP WKH JURXS RI DOO W\SHV RI  MXQLRU KLJK VFKRROV:LWKRXWWKHDUWLFOHWKHVXERUGLQDWHFODXVHLVDQRQGHILQLQJDSSR VLWLRQ DQG WKH ³MXQLRU KLJK VFKRROV´ KDYH D JHQHULF UHIHUHQFH LH DUH VH PDQWLFDOO\GHILQLWH

 /HQND6FKRO]H 

7KH³LQWURGXFWRU\VLWXDWLRQDOXVH´  $FFRUGLQJWR/|EQHU WKLVW\SHGHQRWHVGHILQLWHQRXQSKUDVHV ZLWK³DQLPSOLFLWGHLFWLFDUJXPHQW´DQDUJXPHQW³WKDWLVSURYLGHGE\WKH LPPHGLDWH SK\VLFDO HQYLURQPHQW´ &RQVLGHU WKH GHILQLWH QRXQ SKUDVH LQ  DVDQH[DPSOH    7RWDãRãHODNHMDPČQLP]DW\PNDMNHWHOXGĨLVX ‘   µ7KLVLVDOOGLIIHUHQW,WKLQNLWGHSHQGV RQKRZWKHSHRSOHDUH¶  7KLV VHQWHQFH ZDV DQ DQVZHU WR ³:KLFK ZHGGLQJV GR \RX OLNH PRVW"´ ³3HRSOH´DUHDW\SLFDOFRPSRQHQWRIDZHGGLQJ7KLVPHDQVWKDWLQ ZH DUHGHDOLQJZLWKWKHDVVRFLDWLYHDQDSKRULFIXQFWLRQLHRQHRIWKHFDVHVRI SUDJPDWLFGHILQLWHQHVV  7KLVLVRIFRXUVHFOHDUO\GLIIHUHQWIURPWKHJHQHULFXVHRIµSHRSOH¶LQ  ZLWKRXWWKHGHILQLWHDUWLFOH    7DãHFHQD‘OXGĨLKáXSHKODGD 7Ï1   µ6KHORRNVDOZD\VVWXSLGO\DWSHRSOH¶  ([DPSOH LVDQRWKHUFDVHRI³LQWURGXFWRU\VLWXDWLRQDOXVH´EXWKHUHWKH GHILQLWHDUWLFOHFDQEHRPLWWHG    7REyáRMHQRåZRWSRáVWDKDþGRãČãüGĨHVDüSRWRPãLãáDWD/3*a‘  µ7KLVZDVRQO\IURPILIW\XSWRVL[W\WKHQFDPHWKH/3*¶  7KHXVHRIWKHDUWLFOHGHSHQGVRQWKHUHIHUHQFHWRWKH/3*FROOHFWLYHIDUP  DVDVSHFLILFHQWLW\ZLWK7Ï1 RUDVDJHQHULFWHUPLHWKHLQVWLWXWLRQDV VXFK‘    7KHFRQILJXUDWLRQDOO\VHPDQWLFW\SH  $FFRUGLQJ WR /|EQHU  WKLV W\SH UHIHUVWR D FRQILJXUDWLRQ ZLWK WZR UHIHUHQWV RU REMHFWV LQ DQ DEVWUDFW VLWXDWLRQ 7KRXJK XQLTXH UHIHUHQWV DUHDWLVVXHKHUHWKHGHILQLWHDUWLFOHLVREOLJDWRU\    D 6\W\ZRW:yUãHWDKROFD" ‘    µ$UH\RX8UVXOD¶VGDXJKWHU"¶OLWHUDOO\³RI8UVXODWKHGDXJKWHU´ 



7KHGHILQLWHDUWLFOHLQ&ROORTXLDO8SSHU6RUELDQ



  E $OHZRW=DáRåE\WyQ3ČWUMHZãČILUP\ZXS\WDá ‘    µ%XW3HWHUIURPWKHÄ=DáRåED´FKRVHDOOWKHILUPV¶    OLWHUDOO\³IURP=DORåED6RUELDQ)RXQGDWLRQ WKH3HWHU´  2EYLRXVO\ WKH LQWHUQDO VWUXFWXUH RI WKH FRPELQDWLRQ GRPLQDWHV RYHU WKH XQLTXHQHVVRIWKHUHIHUHQW$VDFRQVHTXHQFHWKHFRQILJXUDWLRQDOO\VHPDQ WLF W\SH FRUUHVSRQGV YHU\ PXFK WR WKH FDWDSKRULF W\SH RI SUDJPDWLF GHIL QLWHQHVVEXWZLWKWKHGHILQLQJWHUPEHIRUHWKHGHILQHGQRXQ7KHVHPDQWL FDOO\GHILQLWHFRQILJXUDWLRQDOW\SHLVWRDFHUWDLQGHJUHHVLPLODUWRWKHGHIL QLWHGHVFULSWLRQVZKLFKZLOOEHSUHVHQWHGLQWKHQH[WVHFWLRQ   'HILQLWHGHVFULSWLRQV  7KHXVHRI7Ï1LQGHILQLWHGHVFULSWLRQVDVLQ FDQDJDLQEHH[SODLQHG DV D UHVXOW RI WKH LQWHUQDO FDWDSKRULF VWUXFWXUH RI VXFK FRQVWUXFWLRQV %XW FRQWUDU\WRWKHFRQILJXUDWLRQDOW\SHWKHDUWLFOHFDQDOVREHRPLWWHGKHUHLH WKHXQLTXHQHVVRIWKHWHUPFDQGRPLQDWHRYHUWKHLQWHUQDOVWUXFWXUH    D UR]H]QDZDü PMH] WHM PáRGĨLQX NLå VR ZH 5DGZRUMX DQJDåXMH a‘    µWRGLVWLQJXLVKEHWZHHQWKH\RXQJZKRDUHDFWLYHLQ5DGLERU¶   E 1DMZyVRMãDSDMRWDZČåDZRW5yåHĔþDQVNHMF\UNZHa‘    µ7KHKLJKHVWRQH\HWLVWKHWRZHURIWKH5RVHQWKDOFKXUFK¶  ,QWKHH[DPSOHD WKHQRXQPáRGĨLQDµ\RXWK \RXQJSHRSOH¶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Ï1 ,QWKHFDVHRI³QRVWULILFDWLRQ´LHZKHQ

 /HQND6FKRO]H 

WKHSHUVRQLQTXHVWLRQKDVDZHOOGHILQHGSODFHLQWKHGLVFRXUVHZRUOGRIWKH VSHDNHUV\RXQJHUVSHDNHUVRIWHQRPLWWKHDUWLFOHKHUHWRR     ‘'LUHNWRUNDZRWJ\PQD]LMDMR]DZRáDáD   µ7KHKHDGPLVWUHVVRIWKHKLJKVFKRROKDVFDOOHG¶  :KHQ GHILQLWH GHVFULSWLRQV DUH XVHG JHQHULFDOO\ WKH PRGLILHU VKRZV WKH ]HURDUWLFOHZKLOHWKHSULPDU\ZRUGFDQDSSHDUZLWKRUZLWKRXW7Ï1VHH %UHX 7KLVLVRIFRXUVHRQFHDJDLQWKHUHVXOWRIWKHWZRSRVVL ELOLWLHVRIWDNLQJLQWRFRQVLGHUDWLRQWKHLQWHUQDOFDWDSKRULFVWUXFWXUHRIWKH WHUPZLWK7Ï1 RURIXQGHUVWDQGLQJLWVHPDQWLFDOO\DVVLQJOHXQVWUXFWXUHG JHQHULFUHIHUHQW    7H  PR]H ZRW ‘ þáyMHND QHMVX XQEHGLQJW ZHWãH KDþ ZRW ZRSLFRZ a‘ 7Ï1   µ7KH EUDLQ RI PDQ LV QRW QHFHVVDULO\ ELJJHU WKDQ WKDW RI WKH PRQ NH\V¶  ,QJHQHULFGHILQLWHGHVFULSWLRQVWKHDUWLFOHLVVWLOO³RSWLRQDO´IRUWKHVSHDNHUV RIWKH\RXQJHUJHQHUDWLRQWRR   *HQHULFQRXQVZLWKWKHGHILQLWHDUWLFOH  *HQHULFQRXQVFOHDUO\EHORQJWRWKHVSKHUHRIVHPDQWLFGHILQLWHQHVVFKDU DFWHUL]HGE\WKHDEVHQFHRI7Ï18QGHUFHUWDLQFRQGLWLRQV7Ï1FDQQHY HUWKHOHVVEHXVHGIRUH[DPSOH    D 7RVXSyMHGDOLNDVXZRQHMyZþČNDOLZRWW\FK5yVRZ   µ7KH\WROGXV KRZWKH\HVFDSHGIURPWKH5XVVLDQV¶  7KH³5XVVLDQV´DUHQRUPDOO\XQGHUVWRRGDVDJHQHULFWHUPUHIHUULQJWRWKH SHRSOHRI5XVVLDQQDWLRQDOLW\%XWWKHVSHDNHULVUHIHUULQJWR WKHVLWXDWLRQ DIWHU:RUOG:DU,,ZKHQVSHFLILFJURXSVRI5XVVLDQVZHUHLQWKH6RUELDQ DUHD7KHOLVWHQHUVDUHVXSSRVHGWRNQRZDERXWWKLVVLWXDWLRQ7KHGHILQLWH DUWLFOHWKXVH[SUHVVHVDVSHFLDOFDVHRIWKHDVVRFLDWLYHDQDSKRULFVXEW\SHRI SUDJPDWLFGHILQLWHQHVV,Q VXFKDGRPLQDQWVHFRQGDU\IHDWXUHRISUDJ PDWLFGHILQLWHQHVVLVDEVHQW



7KHGHILQLWHDUWLFOHLQ&ROORTXLDO8SSHU6RUELDQ



  E 7HWDQHMVXQLþRSUHþEUDOLNDM‘5yVH     µ7KH\GLGQ¶WWDNHDZD\DQ\WKLQJXQOLNHWKH5XVVLDQV¶  +HUHWKH³5XVVLDQV´DUHXQGHUVWRRGDVWKHÄFODVVRI5XVVLDQV´LH5yVHLV XVHG JHQHULFDOO\ QRW DV FRQFUHWH JURXSV RU LQGLYLGXDOV $GGLQJ 7Ï1 LQ   ZRXOG DFWXDOO\ DOVR EH SRVVLEOH EXW WKHQ WKLV VHQWHQFH ZRXOG DJDLQ UHIHU DQDSKRULFDOO\ WR VSHFLILF 5XVVLDQV 7KH GHILQLWH DUWLFOH LV RI FRXUVH QRWRSWLRQDOLQWKHWUXHVHQVHRIWKHZRUGDVLWVRPLVVLRQDIIHFWVWKHPHDQ LQJRIWKHVHQWHQFHE\FKDQJLQJWKHW\SHRIGHILQLWHQHVVIURPLQGLYLGXDOWR JHQHULF   ,PSOLFLWWKHPDWL]DWLRQ  7KHW\SHRIGHILQLWHQHVVFDOOHG³LPSOLFLWWKHPDWL]DWLRQ´E\%UHX   UHIHUV WRWKRVH FDVHVZKHUHVHPDQWLFDOO\ GHILQLWH QRXQV HJ DEVROXWH XQLTXHVDUHXVHGZLWKWKHGHILQLWHDUWLFOH7Ï1EHFDXVHWKH\DUHLPSOLFLWO\ XQGHUVWRRG DVWKHPDWLFLH DV DWKHPH WKDW LVLQWURGXFHG E\ D UKHPH WKDW H[LVWVRQO\LQWKHVSHDNHU¶VOLQHVRIWKRXJKW([DPSOHVDUHJLYHQLQ  ,QD WKHQRXQLVXVHGZLWKRXWWKHDUWLFOH7Ï1DVDQRUPDOVHPDQWLFDOO\ GHILQLWH XQLTXH LQ E  DQG F  WKH VDPH QRXQ LV XVHG ZLWK LPSOLFLW WKHPDWL]DWLRQ    D 'ĨHQVD‘ZČWĜLNGXMH 7Ï1    µ7RGD\WKHZLQGLVEORZLQJ¶    E 'ĨHQVDWyQZČWĜLNJDQãHMQGXMH ‘    µ7RGD\WKHZLQGLVEORZLQJYLROHQWO\¶    F 'ĨHQVDWyQZČWĜLNULWLKUXMH ‘    µ7RGD\WKHZLQGLVSURSHUO\KRZOLQJ¶  $OOQRXQSKUDVHVLQ DUHVHPDQWLFDOO\GHILQLWHDQGWKH\ZHUHQRWPHQ WLRQHGEHIRUH±GLUHFWO\RULQGLUHFWO\±LQWKHFRQWH[W7KLVPHDQVWKDWWKH GHILQLWHDUWLFOHLQWKHH[DPSOHVE DQGF LVQRWXVHGLQLWVSXUHDQD SKRULFQRULQLWVDVVRFLDWLYHDQDSKRULFIXQFWLRQ7KHVHVHQWHQFHVKRZHYHU GRQRWRQO\H[SUHVVWKHIDFWWKDWWKHZLQGEORZV±DQDFWLRQDVVRFLDWHGLQDO LHQDEO\ZLWKWKHZLQG±EXWDOVRWKHPDQQHULQZKLFKLWEORZV%\WKLVDGGL WLRQDO LPSOLFLW SUHGLFDWLRQ WKH ZLQG EHFRPHV D WKHPH UHTXLULQJ WKH GHIL QLWHDUWLFOH

 /HQND6FKRO]H 

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Ï1 LV RSWLRQDO RU UDWKHU LW GHSHQGV RQ WKH YLHZRIWKHVSHDNHU   6XPPDU\  ,QWKLVSDSHU,KDYHGLVFXVVHGWKHGLVWULEXWLRQRIWKHGHILQLWHDUWLFOH7Ï1LQ &ROORTXLDO 8SSHU 6RUELDQ &86  RQ WKH EDVLV RI D GLIIHUHQFH EHWZHHQ SUDJPDWLF DQG VHPDQWLF GHILQLWHQHVV 7KLV SUHVHQWDWLRQ ZDV EDVHG RQ WKH WKHRUHWLFDOVHWWLQJVJLYHQLQ%UHX EXWZLWKDGGLWLRQDOH[DPSOHVIURP HYHU\GD\VSHHFKDQGZLWKVRPHVSHFLILFSRLQWVGLVFXVVHGLQPRUHGHWDLO,Q WKHFDVHRISUDJPDWLFGHILQLWHQHVV7Ï1ZDVVKRZQWREHDEVROXWHO\REOLJD WRU\,WFDQWKHUHIRUHEHFODLPHGWREHIXOO\JUDPPDWLFDOL]HGHYHQPRUHVR DVLWKDVDPRUSKRORJLFDOSDUDGLJPZKLFKLVGLIIHUHQWIURPWKHGHPRQVWUD WLYHV LQ &86 2Q WKH RWKHU VLGH PRVW FDVHV RI VHPDQWLF GHILQLWHQHVV DUH DOVRYHU\VWDEOHLQQRWDOORZLQJIRUWKHXVHRI7Ï16RWKHDOOHJHGRSWLRQDO LW\RI7Ï1WKDWSUHYLRXVGHVFULSWLRQVRI6RUELDQGHVFULEHLVLQ&86FOHDUO\ UHVWULFWHGWRLQWHUQDOO\VWUXFWXUHGH[SUHVVLRQVRIVHPDQWLFGHILQLWHQHVVEHLW RQWKHIRUPDOOHYHOFRQVWUXFWLRQV RUQRW$QGHYHQKHUHZHPXVWUDWKHU VSHDNRIDOWHUQDWLRQVWKDQRIYDULDWLRQVDVDFRPSOHWHV\QRQ\P\LVQRWDW LVVXH7KH W\SH RI GHILQLWHQHVV FODVVLILHG KHUH DV³LPSOLFLW WKHPDWL]DWLRQ´ ZKLFKLVQRWEDVHGRQDWUDQVSDUHQWIRUPDOFRQVWUXFWLRQDVDEDVLVIRUWKH SUDJPDWLFUHDQDO\VLVLVRQHRIWKHPRVWLPSRUWDQWJDWHVWKURXJKZKLFKWKH GHILQLWHDUWLFOH7Ï1LVHQWHULQJPRUHDQGPRUHLQWRWKHVSKHUHRIWKH³GHIL QLWH]HURDUWLFOH´LQ&86LHWKRVHFDVHVRI‘ZKHUHWKH*HUPDQFRQWDFW ODQJXDJHKDVDGHILQLWHDUWLFOHDQGZKLFKWKHUHIRUHSOD\DQLPSRUWDQWUROH LQWKHJUDPPDWLFDOGLDV\VWHPRIELOLQJXDOV  7LPHZLOOWHOOLIWKHFDVHVRIWUXO\RSWLRQDO7Ï1LQWRDQREOLJDWRU\XVH DFFRPSDQLHG E\ D ORVV RI WKH IUHHGRP RI WKH VSHDNHU WR H[SUHVV FHUWDLQ QXDQFHV 6HPDQWLFDOO\ GHILQLWH H[SUHVVLRQV WKDW DUH VWUXFWXUHG LQWHUQDOO\ ZLOO SUREDEO\ PRYH PRUH TXLFNO\ LQ WKLV GLUHFWLRQ IROORZHG E\ LPSOLFLW WKHPDWL]DWLRQV ZKHUHDV XQLTXHV DQG HYHQ PRUH VR JHQHULF H[SUHVVLRQV



7KHGHILQLWHDUWLFOHLQ&ROORTXLDO8SSHU6RUELDQ



ZLWKRXWLQWHUQDOVWUXFWXUHZLOOFHUWDLQO\EHWKHODVWRIDOOWRIROORZWKHZD\ JLYHQ E\ WKH *HUPDQ FRQWDFWODQJXDJH ,W FRXOG KRZHYHUMXVWDV ZHOO EH WKDW &86 ZLOO QHYHU FRPSOHWHO\ FRS\ WKH *HUPDQ PRGHO LQ VSLWH RI WKH DGYDQWDJHVWKLVZRXOGKDYHLQWKHVHQVHRIWKHUHGXFWLRQRIWKHFRPSOH[LW\ RIWKHGLDV\VWHP  $VIRUWKHRULJLQRI7Ï1DQGWKHUROHRIODQJXDJHFRQWDFWLQWKHJUDP PDWLFDOL]DWLRQRIDGHILQLWHDUWLFOHLQ&86WKHUHLVQRGRXEWWKDWLWVURRWV FDQEHIRXQGLQWKHGHPRQVWUDWLYHSURQRXQ%XWWKHSXUHH[LVWHQFHRIGH PRQVWUDWLYHV±DQGRIWKHJUDPPDWLFDOL]DWLRQSDWKKDYLQJWKHPDVLWVVWDUW LQJSRLQW±LVQRWVXIILFLHQWWRH[SODLQWKHGHYHORSPHQWRI7Ï1DVDGHILQLWH DUWLFOH,WPXVWEHERUQHLQPLQGWKDWRWKHUZLVHDOO6ODYLFODQJXDJHVVKRXOG KDYHIROORZHGWKLVSDWKZKLOHDFWXDOO\RQO\WKRVHYDULHWLHVZKLFKKDYHRU KDGVWURQJFRQWDFWLQIOXHQFHGLGVR,QIDFWEHVLGHVWKH%DONDQ6ODYLFODQ JXDJHV RI %XOJDULDQ DQG0DFHGRQLDQ RQO\ &ROORTXLDO 8SSHU 6RUELDQ KDV DFWXDOO\ GHYHORSHG D JUDPPDWLFDOL]HG GHILQLWH DUWLFOH ± PRUH SUHFLVHO\ D UHJXODUO\XVHGSUDJPDWLFGHILQLWHDUWLFOHLQRSSRVLWLRQWRWKHVHPDQWLFGHIL QLWH]HURDUWLFOH±GXHWRLWVSHFXOLDUVLWXDWLRQRIWRWDOODQJXDJHFRQWDFWZLWK *HUPDQ   1RWHV   'HVFULSWLRQVRIVRPHIHDWXUHVRI&ROORTXLDO8SSHU6RUELDQDVLWLVXQGHUVWRRG LQWKLVSDSHUFDQEHIRXQGLQ%UHX âRáüLF DQG6FKRO]H   0RUH GHWDLOV DERXW WKH RULJLQ RI &86 LWV DUHD DQG LWV VWDWXV FDQ EH IRXQG LQ âRáüLF ZKLOH6FKRO]H JLYHVDQRYHUYLHZRILWVOLQJXLVWLFFKDUDF WHULVWLFVZLWKDVSHFLDOHPSKDVLVRQWKHUROHRIODQJXDJHFRQWDFW  6HH%HUJHU )D‰NH 6FKDDUVFKPLGW IRU6RUELDQDQG 9RQGUiN IRU&]HFKDQG6ORYHQLDQ2QWKHRWKHUKDQGFRQWDFW ZLWK 6ODYLF ODQJXDJHV FDQ EH WKH UHDVRQ IRU WKH UHYHUVH GHYHORSPHQW RI WKH ORVVRIDQDUWLFOHDVLQIRUH[DPSOHVRPH1RUWKHDVWHUQ5RPDQLGLDOHFWV3RO VND5RPD;DODGLFWD VHH0DWUDV   %UHX±DQG ZDVWKHILUVWWRVKRZWKDWWKHXVHRIWKHIRUPHU  GHPRQVWUDWLYHSURQRXQLQWKHVHQVHRIDGHILQLWHDUWLFOHLVQRWRSWLRQDODVHDU OLHUGHVFULSWLRQVRI8SSHU6RUELDQKDGDVVHUWHGIRULWVFROORTXLDOYDULHWLHVHJ )D‰NH 0LFKDON   /|W]VFK    EXW WKDW LW LV EDVHG RQ VWULFW UXOHV$SDUWIURPWKLV%UHX PDLQO\GHDOVZLWKWKHLQGHILQLWHDUWLFOHDQG LWVIXQFWLRQVLQ&86VHHDOVR%UHXWKLVYROXPH IRUWKLVWRSLF  $JUDPPDWLFDOGLDV\VWHPDVLWLVXQGHUVWRRGKHUHLVHTXDOWRDFRPELQDWLRQRI WKHJUDPPDUVRIWKHWZRODQJXDJHVRIELOLQJXDOVVHHDOVRWKHGHILQLWLRQRI³GL DV\VWHP´ LQ:HLQUHLFK ,WFDQEHFODLPHGWKDWGLDV\VWHPVDUH

 /HQND6FKRO]H  RUJDQL]HGLQWKHPRVWHFRQRPLFDOZD\SRVVLEOHZKLFKPHDQVWKDWSDUDOOHOVEH WZHHQWKHWZRODQJXDJHVDUHIRUPHG ZKHUHYHUWKLVLVSRVVLEOH,QWKHFDVHRI WKHGHILQLWHDUWLFOHWKLVPHDQVWKDWLQWKRVHFDVHVZKHUH*HUPDQXVHVWKHGHIL QLWH DUWLFOH EXW 6RUELDQ GRHV QRW VSHDNHUV RI &86 KDYH WKH LPSUHVVLRQ WKDW WKH\ DUH XVLQJ VRPHWKLQJ GLIIHUHQW UDWKHU WKDQ MXVW WKH DEVHQFH RI DQ DUWLFOH 7KLV LV H[DFWO\ WKH UHDOP RI WKH VRFDOOHG ³GHILQLWH ]HURDUWLFOH´ ZKLFK LV WKHUHIRUHDSV\FKRORJLFDOUHDOLW\IRUELOLQJXDO6RUELDQVSHDNHUVVHHDOVR%UHX    6HHDOVRWKHPRUHFRPPRQXVHRIWKHGHPRQVWUDWLYHSURQRXQLQROGHU8SSHU 6RUELDQLQFRPSDULVRQ ZLWKRWKHU6ODYLFDQGQRQ6ODYLFODQJXDJHVLQ%HUJHU    6HH%UHX IRUWKHSDUDGLJPRIWyQH  :KHQ XVHG LQGHSHQGHQWO\ WKH VDPH IRUPV VHUYH DV DQ DQDSKRULF SURQRXQ ZKLFKLVXVHGEHVLGHVWKHROGHUSURQRXQZyQµKH¶  ³9LULOLW\´ZKLFKFDQDOVREHIRXQGLQ3ROLVKDQGRWKHU6ODYLFODQJXDJHVLVD JUDPPHPHRIWKHJHQGHUFDWHJRU\UHIHUULQJWRPDOHSHUVRQV$QH[DPSOHIRU JUDPPDWLFDOYLULOLW\LQWKHQRPSOXUDOLQ6WDQGDUG8SSHU6RUELDQPLVVLQJLQ &86 LV WKH IROORZLQJ D üL GUX]\ PXåRMR QMHFKRGĨDFKX QD GĨČáR - %UČ]DQ )HOLNV +DQXã  µDQG WKH RWKHU PHQ GLG QRW JR WR ZRUN¶ 7KH QRQYLULOH IRUP FRUUHVSRQGLQJWRüLZRXOGEHWHDVLQ&86  )RURWKHUSDUWVRIVSHHFKHJWKHQRXQWKHVDPHUXOHVUHJDUGLQJDQLPDF\DQG YLULOLW\DSSO\VHH6FKRO]H   7KH IHPLQLQH DFFXVDWLYH RI WKH GHPRQVWUDWLYH SURQRXQ LQ 6WDQGDUG 8SSHU 6RUELDQLVWXZLWKRXWVXFKDKRPRQ\P\  )RU UHDVRQV RI VSDFH ZRUGE\ZRUG UHQGHULQJ DQG JUDPPDWLFDO WDJJLQJ DUH UHVWULFWHG WR DQ DEVROXWH PLQLPXP 7KH VWUXFWXUH RI WKH 6RUELDQ VHQWHQFHV VKRXOG KRZHYHU EH VXIILFLHQWO\ FOHDU IRU RXU SXUSRVHV WKH PRUH VR DV WKH (QJOLVKWUDQVODWLRQVZLOOEHOHIWZLWKWKHRULJLQDOZRUGRUGHUXQFKDQJHGDVIDU DVSRVVLEOH0RUHRYHUWKHGHILQLWHQRXQSKUDVHLVDOZD\VPDUNHGE\EROGW\SH ZKHUHDVWKHGHILQLWH]HURDUWLFOHLVUHSUHVHQWHGWKURXJKRXWE\³‘´  )RU HDUOLHU GHVFULSWLRQV RI WKH RSSRVLWLRQ EHWZHHQ SUDJPDWLFDOO\ GHILQLWH DQG VHPDQWLFDOO\GHILQLWHVHH+DZNLQV /|EQHU /\RQV ZLWK FHUWDLQGLIIHUHQFHVLQWKHGHWDLOV  8QLTXHV DUH RQH RI WKH FDVHV ZKHUH WKH XVH RI WKH GHILQLWH DUWLFOH LQ (QJOLVK DQG*HUPDQLVQRWLGHQWLFDO,FDQQRWGLVFXVVWKLVKHUHLQGHWDLOEXWRQHH[DP SOHRIWKLVLV³0DUV´UHTXLULQJWKHGHILQLWHDUWLFOHLQ*HUPDQ ZKLFKFDQDS SHDULQDUHGXFHGIRUPZKHQXVHGZLWKXQLTXHVDIWHUSUHSRVLWLRQVKHUH]XP ]XGHPµWRWKH¶ 7KHJHQHUDOUHIHUHQFHSRLQWIRUWKHGLVFXVVLRQRIWKHGHILQLWH DUWLFOHLQ&86LVRIFRXUVH*HUPDQDQGQRW(QJOLVK  7KLVH[DPSOHLVWDNHQIURP%UHX   7KHWHUP³JHQHULF´LVXVHGKHUHLQDZLGHVHQVHFI%UHX±   LQFOXGLQJ GHILQLWLRQV SUHGLFDWLRQV QRQVSHFLILHG LQGLYLGXDOV DQG VR RQ



7KHGHILQLWHDUWLFOHLQ&ROORTXLDO8SSHU6RUELDQ



 ,WFRXOGEHFODLPHGWKDWWKHUHDUHWZRGLIIHUHQWW\SHVRIJHQHULFXVHDQLQGL YLGXDOL]LQJWRNHQEDVHGRQHZKLFK±LQ*HUPDQ±LQWKHVLQJXODULVH[SUHVVHG E\WKHLQGHILQLWHDUWLFOHDQGLQWKHSOXUDOZLWKRXWDQDUWLFOHDVWKHUHLVQRSOX UDO IRUP RI WKH LQGHILQLWH DUWLFOH DQG D W\SHEDVHG RQH UHSUHVHQWHG E\ WKH GHILQLWHDUWLFOHLQ*HUPDQERWKLQWKHVLQJXODUDQGWKHSOXUDOVHH%UHX ± ,Q&86WKHRSSRVLWLRQLVH[SUHVVHGE\³LQGHILQLWHDUWLFOHYV‘´LQWKH VLQJXODU EXW WKHUH LV QR IRUPDO GLIIHUHQFH LQ WKH SOXUDO QR DUWLFOH LQ ERWK FDVHV   7KLVH[DPSOHLVWDNHQIURP%UHX   ,QP\H[SHULHQFH\RXQJHU*HUPDQVSHDNHUVDOVRDYRLGXVLQJWKHVLQJXODURI QRXQVH[SUHVVLQJHWKQLFRULJLQZLWKDJHQHULFIXQFWLRQ  ,Q D  SĜLþLQD µUHDVRQ¶ LV LQWURGXFHG E\ D UKHPDWLF SUHSRVLWLRQDO SKUDVH ZLWKRXWDQDUWLFOHLQE WKHUKHPHPXåµPDQ¶KDVWKHLQGHILQLWHDUWLFOHMHQ )RUWKHLQGHILQLWHDUWLFOHZKLFKFRQWUDU\WRPRVW6ODYLFVWDQGDUGODQJXDJHVLV IXOO\JUDPPDWLFDOL]HGLQ&86VHH%UHX   %UHX     WKRXJK GLVFXVVLQJ WKHVH WZR VXEW\SHV VHSDUDWHO\ DOVR WKLQNV WKH WUDQVLWLRQ EHWZHHQ GHILQLWH GHVFULSWLRQV DQG FDWDSKRULF XVH WR EH IOXLG  )RUWKLVGLIIHUHQWLDWLRQVHH%UHXI   6XSHUODWLYHV DUH QRUPDOO\ IRUPHG V\QWKHWLFDOO\ E\ D SUHIL[ DQG D VXIIL[  LQ &86HJQDMPRGHUQLãDLQE EXWWKHUHDUHDOVRH[DPSOHVRIDQDQDO\WL FDOIRUPDWLRQZLWKQDMEyOHµPRVW¶SRVLWLYHDVLQD   ,W KDV WR EH PHQWLRQHG WKDW LQ WKH 6RUELDQ H[DPSOH LQ D  WKH VXSHUODWLYH DGYHUEQDMEyOHµWKHPRVW¶VWDQGVEHIRUHWKHQXPHUDOGZDMDOWKRXJKLWUHIHUVWR WKHDGMHFWLYHJHQMDO7KHQRUPDOZRUGRUGHUZRXOGEHGZDMQDMEyOHJHQMDO  6HH DOVR :HLVV    ZKR VD\V WKDW WKH VXSHUODWLYH LV DFWXDOO\ ³SHU VH GHILQLWH´DQGEHFDXVHRIWKLVWKHGHILQLWHDUWLFOHLVUHGXQGDQW%XWLQRWKHUODQ JXDJHV WKH W\SLFDO IRUFLQJ RI WKH GHILQLWH DUWLFOH E\ VXSHUODWLYHV FDQ DOVR EH REVHUYHG  2UDV+LPPHOPDQQ VD\V³$IXUWKHUXVHIXOKHXULVWLFIRULGHQWLI\ LQJ DUWLFOHV LV REOLJDWRULQHVV LQ JUDPPDWLFDOO\ GHILQDEOH FRQWH[WV 6XFK FRQ WH[WVLQFOXGHVXSHUODWLYHV«´  7KH YDULDWLRQ ZLWK UHJDUG WR WKH DUWLFOH LV QRW SRVVLEOH LQ DOO FDVHV DV ZDV VKRZQLQ6FKRO]HH[D SRZyMQHWHSUČQHOČWD ‘µDIWHUWKH ZDUWKHILUVW\HDUV¶  7KLVW\SHZDVDOVRDOUHDG\GLVFXVVHGE\+DZNLQV   &RPSOH[FRPSRXQGQDPHVOLNH-DQNĜüHQLNµ-RKQWKHEDSWL]HU¶RU.RUODZXONL µ&KDUOHV WKH JUHDW &KDUOHPDJQH ¶ RULJLQDOO\ ZHUH GHILQLWH GHVFULSWLRQV WRR DQGKDGWKHGHILQLWHDUWLFOH7Ï1LQDQFLHQW6RUELDQVHH%HUJHU 7R GD\ WKH\ DUH WDNHQ DV SURSHU QDPHV ZLWKRXW DQ DUWLFOH FRQWUDU\ WR QRQ GHILQLQJDQGGHILQLQJDSSRVLWLRQVLVLQ%yKWyQNQH]µ*RGWKHORUG¶-XULMWyQ SOLQFµ-XULMWKHSDQFDNH¶ZKLFKDOZD\VKDYH7Ï1  7KHVSHFLILFFDVHVRIDQDSKRUDWLVVXHKHUHDUHGHVFULEHGE\%UHX DV IROORZV³0DQN|QQWHKLHUQlPOLFKHLQHQXULPSOL]LWJHJHEHQH5KHPDWLVLHUXQJ

 /HQND6FKRO]H  DQVHW]HQ VR]XVDJHQ GHQ JHGDQNOLFKHQ %H]XJ DXI HLQHQ ZHJJHODVVHQHQ 6DW] PLW H[SOL]LWHU 1HQQXQJ GHV VHPDQWLVFK EHVWLPPWHQ 6XEVWDQWLYV LPSOL]LW DQDSKRULVFK  RGHU HLQHV DQGHUHQ 7H[WDQNHUV LPSOL]LW DVVR]LDWLYDQDSKR ULVFK ´

  5HIHUHQFHV  %HUJHU7LOPDQ   'LH*HEUDXFKVEHGLQJXQJHQGHVEHVWLPPWHQ$UWLNHOVLPlOWHUHQ2EHU VRUELVFKHQ/ČWRSLV:RVHELW\]HãLZN %UHX:DOWHU   'HU9HUEDODVSHNWLQGHUREHUVRUELVFKHQ8PJDQJVVSUDFKHLP5DKPHQ GHV,/$0RGHOOV,Q6ODYLVWLVFKH/LQJXLVWLN:DOWHU%UHXHG  0QFKHQ2WWR6DJQHU %UHX:DOWHU   'HULQGHILQLWH$UWLNHOLQVODYLVFKHQ0LNURVSUDFKHQ*UDPPDWLNDOLVLH UXQJLPWRWDOHQ 6SUDFKNRQWDNW,Q6ODYLVWLVFKH/LQJXLVWLN +RO JHU.X‰HHG 0QFKHQ2WWR6DJQHU %UHX:DOWHU   'HUGHILQLWH$UWLNHOLQGHUREHUVRUELVFKHQ8PJDQJVVSUDFKH,Q6ODY LVWLVFKH/LQJXLVWLN&KULVWLDQ6DSSRNDQG0DULRQ.UDXVHHGV  0QFKHQ2WWR6DJQHU %UHX:DOWHU  WKLVYRO 7KH JUDPPDWLFDOL]DWLRQ RI DQ LQGHILQLWH DUWLFOH LQ 6ODYLF PLFUR ODQJXDJHV (EHUW.DUHQ   5HIHUHQ] 6SUHFKVLWXDWLRQ XQG GLH EHVWLPPWHQ $UWLNHO LQ HLQHP QRUGIULHVLVFKHQ 'LDOHNW )HULQJ  %UlLVW%UHGVWHGW 1RUGIULLVN ,QVWL WXXWGRFWRUDOWKHVLV.LHO  )D‰NH+HOPXW   6HPDQWLND D GLVWULEXFLMD GHPRQVWUDWLZQ\FK SURQRPHQRZ Z KRUQMR VHUEVNHMVSLVRZQHMUČþL>6HPDQWLFVDQGGLVWULEXWLRQRIGHPRQVWUDWLYH SURQRXQVLQZULWWHQ8SSHU6RUELDQ@/ČWRSLV$ )D‰NH+HOPXWXQWHU0LWDUEHLWYRQ60LFKDáN    *UDPPDWLNGHUREHUVRUELVFKHQ6FKULIWVSUDFKHGHU*HJHQZDUW0RU SKRORJLH%DXW]HQ9(%'RPRZLQD9HUODJ +DZNLQV-RKQ$   'HILQLWHQHVV DQG LQGHILQLWHQHVV $ VWXG\ LQ UHIHUHQFH DQG JUDPPDWL FDOLW\SUHGLFWLRQ/RQGRQ&URRP+HOP +LPPHOPDQQ1LNRODXV3   'HLNWLNRQ $UWLNHO 1RPLQDOSKUDVH =XU (PHUJHQ] V\QWDNWLVFKHU 6WUXNWXU7ELQJHQ1LHPH\HU



7KHGHILQLWHDUWLFOHLQ&ROORTXLDO8SSHU6RUELDQ



+LPPHOPDQQ1LNRODXV3   $UWLFOHV ,Q 6SUDFKW\SRORJLH XQG VSUDFKOLFKH 8QLYHUVDOLHQ +DQG EFKHUIU6SUDFKXQG.RPPXQLNDWLRQVZLVVHQVFKDIW%G 0DU WLQ+DVSHOPDWK(NNHKDUG.|QLJ:XOI2HVWHUUHLFKHUXQG :ROIJDQJ 5DLEOHHGV %HUOLQ1HZWKDW@ LQGLFDWHV FHUWDLQW\ RU DFFRPSOLVKHG DFWLRQ¶ DV LQPDPDWL EDUXUX µWKHUHLV QRSODQWDLQ¶>QHJDWLYH(9SODQWDLQ@DQGXDWLXWXµWKHUHLVQRILVK¶>QHJD WLYH H[LVWHQWLDO(9 ILVK@ 7KH YHU\ VDPH VHTXHQFHV DUH VWLOO REVHUYDEOH QRZ2EYLRXVO\WKHWKFHQWXU\YDULHW\KDGLQFRUSRUDWHGERWKWKH$UDZDN DQGWKH&DULEIRUPVDVZHOODVWKHVXIIL[WL  7KHH[LVWHQWLDOYDOXHRIWLHQWDLOVDQDVSHFWXDOQRWLRQRIFRPSOHWLRQ,Q KLVGHVFULSWLRQRI*DULIXQDDVVSRNHQLQ+RSNLQV%HOL]HLQWKHVKH UHIHUUHGWRWKLVYDULHW\DVµ&HQWUDO$PHULFDQ&DULE¶ 7D\ORUPDGHVHYHUDO UHIHUHQFHV WR D WL SDUWLFOH +H LQWHUSUHWHG WL DV DQ DVSHFWXDO PDUNHU RI µSXQFWXDO FRPSOHWLRQ¶ DGGLQJ WKDW µWKH KLJK IUHTXHQF\ RI WKLV DVSHFW RQ DGMHFWLYHV LVGXHWRWKHIDFWWKDWDGMHFWLYDOSDUWLFOHVDUHIRUWKHPRVWSDUW YHUEDOL]HG HYHQ ZKHUH WKH\ DUH QRW HPSOR\HG DWWULEXWLYHO\ HUHQJXDWL µLW ZDVVDLG¶EXLGLWXµKHLWLVJRRG¶¶7D\ORU   +RZHYHUDVLQGLFDWHGLQWKHSUHYLRXVVHFWLRQ WKHSDUWLFOHWLLVQRW UHVWULFWHG WR YHUEV DQG YHUEDO DGMHFWLYHV ,I WKLV UDSLG H[SDQVLRQ WR RWKHU OH[LFDOFDWHJRULHVFRQVWLWXWHVDUHFHQWGHYHORSPHQWVLQFHWKHWLPHRI 7D\ORU¶VREVHUYDWLRQVRIWKH+RSNLQVYDULHW\ LWUHLQIRUFHVWKHK\SRWKHVLV RIJUDPPDWLFDOL]DWLRQ$SRVVLEOHVFHQDULRLVGHOLQHDWHGEHORZ   WL HPHUJHV EHIRUH FRORQL]DWLRQ SRVVLEO\ DV WKH UHVXOW RI FRQWDFW EH WZHHQVSHDNHUVRIYDULRXV$PHULQGLDQODQJXDJHVVRPHRIWKHPKDYLQJ



*HQHYLqYH(VFXUH

JUDPPDWLFDO HYLGHQWLDO DIIL[HV 7KLV SDUWLFOH ZDV MXVW RQH RI VHYHUDO HSLVWHPLFLQGLFDWRUVRIWKHVSHDNHU¶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¶VDVVHVVPHQWRIWKHHYHQWVSUH VHQWHGDQG,EHOLHYHWKDWLWPD\DOVREHDQHFHVVDU\SDUWRIWKHUKHWRULFDO VWUXFWXUH RI *DULIXQD ,Q WKLV VHQVH WKHUH LV FOHDUO\ DQ LQWHUIDFH RI WKH VHPDQWLFDQGWKHSUDJPDWLFOHYHOV   )XQFWLRQVDQGVRXUFHVRIEZH  7KHVHFRQGHYLGHQWLDOLVMXVWDVIUHTXHQWDVWLEXWLVDVVRFLDWHGZLWKDUHOD WLYH XQFHUWDLQW\ 7KH VRXUFH RI LQIRUPDWLRQ LV YDJXH KHDUVD\ RU UHSRUWHG DQGLWVHHPVWRFKDUDFWHUL]HWKHOLNHOLKRRGRIDQHYHQWUDWKHUWKDQDQDFWXDO IDFW)RUH[DPSOHWKHOLWHUDOJORVVRIGD¡JXEZHLQ ±DQDEEUHYLDWLRQRI DGD¡UDJXEZH±LVQRWMXVWµZHDUGUHVVDV¶EXWµPLJKWZHDU¶DQGOLGDQEZH WLQDLVQRWMXVWµLQDWXE¶EXWµLQDVRUWRIWXE¶7KHIROORZLQJVHQWHQFHVLO OXVWUDWHWKHVSHFLDOPRGDOLW\DVVRFLDWHGZLWKWKLVSDUWLFOH 

(YLGHQWLDOLW\LQ*DULIXQD 

  6D PDV OLGDQEZH OLGDQEZHQH DJLD FKLFKD"  :KDW PRUH 6*0LQ(9 6*0LQ(937 WKHUH FKLFKD  µ:KDWHOVHPLJKWWKHUHEHLQWKHUH"&RXOGWKHUHEHFKLFKDLQWKHUH"¶  D /DQ¡J¡ QH OLOXEXUX VXUXVLD OXQ ODOLKDQL  6*0EULQJ 37 6*0ERRN GRFWRU 6*0WR 6*0UHDG37  OXQ ODGHLUXQL  6*0WR 6*0OHDUQ37  E DOLKDODDQ VDQGLOH OXDJXEZH  UHDG37 VLFN6*0 6*0DERXW(9 µ7KH GRFWRU EULQJV KLV ERRN WR ILJXUH RXW ZKDW NLQG RI VLFNQHVV KH PLJKWKDYH¶    /H LFKLJXEZH EXQ EDJXUX OXDJX  7KDW JLYH(9 6*WR 6*WRXFK 6*0DERXW  PLFKLJXEZH VLDQWL EDJXUXOH  1HJJLYH(9 FDQQRW(9 6*WRXFK6*0 µ:KDW WKH\ PD\ JLYH \RX \RX FDQ WRXFK EXW ZKDW WKH\ PLJKW QRW JLYH\RX\RXFDQ¶WWRXFK¶    PLGLQJXEZHED xLHKHQ DKHLQ PDEXVHEXEZH EDWXQ  QRWJR37(937 WKHUH LI 1HJZDQW6*(9 6*GULQN37  µ,W PLJKW EH EHWWHU QRW WRJR WKHUHLIE\ FKDQFH  \RX GRQ¶W ZDQW WR GULQN¶    KRXJXEZHKD PDPDEZH ODQLQD DKHQKDODQLQD VLDQWL  HDW(93/ QHJ3(9 6*0RZQLI37 6*RZQFDQQRW(9  µH@LQVXOD µDOPRVWLVODQG¶  FDQ EH UHJDUGHGDVWKHWUDQVIHURIDOH[LFDOPRUSKRORJLFDOUXOH:KLOHQHLWKHUSDUW RI WKH FRPSRXQG KDV EHHQ µSK\VLFDOO\¶ FRSLHG WKH WDUJHW ODQJXDJH KHUH )UHQFK KDV³LPSRUWHGDSDUWLFXODUVWUXFWXUDOSDWWHUQYL]WKHFRPELQDWLRQ RIWKHWZRFRQVWLWXHQWVLQWRDFRPSRXQGH[SUHVVLRQZLWKDQHZPHDQLQJRI LWVRZQQRWGHULYDEOHE\DVLPSOHDGGLWLRQRIWKHWZRSDUWV´+DXJHQ   $ PRUH UHFHQW LQVLJKW RI FRQWDFW OLQJXLVWLFV SURPLQHQWO\ SXW RQ WKH DJHQGDE\+HLQHDQG.XWHYD LVWKDWODQJXDJHFRQWDFWPD\QRW RQO\OHDGWRWUDQVIHURUUHSOLFDWLRQRIPDWWHURUSDWWHUQVLWFDQDOVRWULJJHU LQWHUQDOFKDQJHVLQDODQJXDJHXQGHUFRQWDFWLQIOXHQFH7KHWHUPµFRQWDFW LQGXFHGJUDPPDWLFDOL]DWLRQ¶LVQRZZLGHO\XVHGIRUWKLVSURFHVV&RQWDFW LQGXFHGJUDPPDWLFDOL]DWLRQLVLQWLPDWHO\UHODWHGWRDQGLQIDFWGLIILFXOWWR GLVWLQJXLVKIURPSDWWHUQUHSOLFDWLRQ)RUH[DPSOHWKHµKRWQHZVSHUIHFW¶RI ,ULVK(QJOLVK+H¶VDIWHUJRLQJ VHHPVWREHPRGHOHGRQWKHFRUUHVSRQGLQJ ,ULVKFRQVWUXFWLRQFI6HFWLRQ ,QDGGLWLRQWRSDWWHUQWUDQVIHUDSURFHVV RI JUDPPDWLFDOL]DWLRQ KDV WDNHQ SODFH HJ LQ VR IDU DV WKH QHZO\ FUHDWHG



9RONHU*DVWDQG-RKDQYDQGHU$XZHUD

WHQVHµKRWQHZVSHUIHFW¶ KDVEHHQLQWHJUDWHGLQWRWKH7$0V\VWHPRI,ULVK (QJOLVK7KHJUDPPDWLFDOL]DWLRQRIWKLVFDWHJRU\LQ,ULVK(QJOLVKZDVWKXV µLQGXFHG¶E\ODQJXDJHFRQWDFWZLWK,ULVK :KLOHWKHH[LVWHQFHRIERWKµSDWWHUQUHSOLFDWLRQ¶DQGVRPHW\SHRIµFRQ WDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶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µUHSOLFDJUDPPDWLFDOL]DWLRQ¶ZKHUHJUDPPDWLFDOL]DWLRQLVLWVHOI WKHREMHFWRIWUDQVIHU7KLVDVVXPSWLRQKDVQRQWULYLDODQGSUREDEO\FRQWUR YHUVLDO FRQVHTXHQFHV QRW RQO\ IRU RXU XQGHUVWDQGLQJ RI ODQJXDJH FKDQJH EXWDOVRIRUWKHW\SHRIOLQJXLVWLFLQIRUPDWLRQWKDWLVDVVXPHGWREHDFFHVVL EOHWRVSHDNHUV,QSDUWLFXODUµUHSOLFDJUDPPDWLFDOL]DWLRQ¶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µLQQRYDWLRQ¶DQGµSURSDJDWLRQ¶DSDUWFIDOVR0DWUDVDQG6DNHO ,QD VLWXDWLRQRIODQJXDJHFRQWDFWLQQRYDWLRQRIWHQUHVXOWVIURPWKHµLQWHUOLQJXDO LGHQWLILFDWLRQ¶ RI REMHFWV IURP GLIIHUHQW ODQJXDJHV :H GLVWLQJXLVK WZR RUWKRJRQDOW\SHVRILQWHUOLQJXDOLGHQWLILFDWLRQLHL LQWHUOLQJXDOLGHQWLILFD WLRQRIOLQJXLVWLFVLJQVDQGLL LQWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFFDWH JRULHV,QWHUOLQJXDOLGHQWLILFDWLRQRIVLJQVRUFDWHJRULHVPD\OHDGWRLQQRYD WLRQVZKLFKPD\VXEVHTXHQWO\H[WHQGWKHLUGLVWULEXWLRQDQGEHFRQYHQWLRQ DOL]HGLHXQGHUJRJUDPPDWLFDOL]DWLRQ:HDUJXHWKDWLQWHUOLQJXDOLGHQWLIL FDWLRQRIOLQJXLVWLFVLJQVDQGVXEVHTXHQWµGLVWULEXWLRQDODVVLPLODWLRQ¶W\SL

:KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶"



FDOO\ EXW QRW QHFHVVDULO\ ZRUNV LQ WKH GLUHFWLRQ RI µPRUH JUDPPDWLFDO¶ ,QWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFFDWHJRULHVDQGVXEVHTXHQWµFDWHJRU\ DVVLPLODWLRQ¶ LQYDULDEO\ LQWURGXFHV QHZ JUDPPDWLFDO FDWHJRULHV LQWR WKH WDUJHWODQJXDJH,QWKLVVHQVHFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLVXQGHU VWRRGDVDSURFHVVRIGLVWULEXWLRQDOJHQHUDOL]DWLRQDQGFRQYHQWLRQDOL]DWLRQ IROORZLQJWKHFRQWDFWLQGXFHGLQWURGXFWLRQRIDQHZJUDPPDWLFDOFDWHJRU\ RUPDUNHULQWRWKHWDUJHWODQJXDJH :HVWDUWLQ6HFWLRQZLWKDVKRUWUHYLHZRI+HLQHDQG.XWHYD¶V  PRGHORIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ,Q6HFWLRQZHSUH VHQW RXU RZQ YLHZ DFFRUGLQJ WR ZKLFK FRQWDFWLQGXFHG JUDPPDWLFDOL]D WLRQLVDFRQVHTXHQFHRIWKHLQWHUOLQJXDOLGHQWLILFDWLRQRIVLJQVRUFDWHJRULHV ZKLOH QRW LWVHOI EHLQJ WKH REMHFW RI WUDQVIHU 6HFWLRQV  DQG  GLVFXVV LQ VWDQFHV RI VWUXFWXUDO FRQYHUJHQFH LQ 0D\DQ DQG 0L[H=RTXHDQ ODQJXDJHV ZKLFK TXDOLI\ DV FDQGLGDWHV IRU FRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ ZLWK 6HFWLRQJLYLQJVRPHEDFNJURXQGLQIRUPDWLRQDQGWKHGDWDDQG6HFWLRQ SURYLGLQJDQDQDO\VLVRIWKHGDWDLQWHUPVRIWKHPRGHOSUHVHQWHGLQ6HFWLRQ 6HFWLRQFRQWDLQVDIHZFRQFOXGLQJUHPDUNV   *UDPPDWLFDOUHSOLFDWLRQDFFRUGLQJWR+HLQHDQG.XWHYD  3RO\VHP\FRS\LQJDQGGLVWULEXWLRQDODVVLPLODWLRQ  2QHRIWKHPRVWEDVLFSURFHVVHVLQODQJXDJHFRQWDFWWUDGLWLRQDOO\UHJDUGHG DVDW\SHRILQWHUIHUHQFHFI:HLQUHLFK LVDFKDQJHLQWKHGLVWULEX WLRQRUPHDQLQJRIDOLQJXLVWLFVLJQZKLFKUHVXOWVIURPWKHLQWHUOLQJXDOLGHQ WLILFDWLRQRIWKDWVLJQZLWKDQHOHPHQWIURPVRPHFRQWDFWODQJXDJH,WFDQ EH LOOXVWUDWHG ZLWK DQ H[DPSOH GLVFXVVHG E\ +HLQH DQG .XWHYD    $V LV ZHOO NQRZQ PDQ\ (XURSHDQ ODQJXDJHV XVH ZKSURQRXQV DV UHODWLYL]HUVFI+DVSHOPDWK 7KLVW\SHRISRO\VHP\KDVH[WHQGHGLWV WHUULWRU\ QRW RQO\ WR WKH PRUH µSHULSKHUDO¶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



9RONHU*DVWDQG-RKDQYDQGHU$XZHUD

WKHFRQWDFWODQJXDJHRUSHUKDSVORVLQJVRPHRIWKHLURULJLQDOXVHV+HLQH DQG .XWHYD    VSHDN RI µSRO\VHP\ FRS\LQJ¶ LQ VXFK FDVHV FI +HLQHDQG.XWHYD :HZLOOFDOOWKLVSURFHVV µGLVWULEXWLRQDODVVLPLODWLRQ¶'LVWULEXWLRQDODVVLPLODWLRQLVEDVLFDOO\HTXLYD OHQW WR +HLQH DQG .XWHYD¶V    µSRO\VHP\ FRS\LQJ¶ EXW GLIIHUV IURP WKH ODWWHU SURFHVV LQ WKDW LW PD\ LPSO\ FKDQJHV LQ ERWK RI WKH ODQ JXDJHV LQYROYHG ZKLOH WKH QRWLRQ µFRS\LQJ¶ VXJJHVWV DV\PPHWULFDO WUDQV IHU  'LVWULEXWLRQDO DVVLPLODWLRQ FDQ EH LOOXVWUDWHG XVLQJ WKH VHPDQWLF PDS PRGHOFI+DVSHOPDWKYDQGHU$XZHUDDQG3OXQJLDQYDQGHU $XZHUDDQG*DVWDPRQJPDQ\RWKHUV $WDILUVWVWDJHWZRPDUNHUV IURPGLIIHUHQWODQJXDJHVKDYHRYHUODSSLQJIXQFWLRQVRURQHRIWKHPDUNHUV LVPRUHVSHFLILFWKDQWKHRWKHU8VLQJWKHVHPDQWLFPDSPRGHOWKHVHVLWXD WLRQVFDQEHUHSUHVHQWHGDVLQ ZKHUHWKHµFRQFHSWXDOQRGHV¶Q±QVWDQG IRUVSHFLILF PHDQLQJV RU IXQFWLRQVLQD VHPDQWLF PDS IUDPHZRUN DQG WKH URXQGHG UHFWDQJOHV LQGLFDWH WKH UDQJH RI IXQFWLRQV DVVRFLDWHG ZLWK WZR PDUNHUVIURPGLIIHUHQWODQJXDJHV  

D

 

Q 

Q 

Q

E

Q 

Q

Q 

Q 

Q 

Q



Q 

Q

Q 

$V D FRQVHTXHQFH RI ODQJXDJH FRQWDFW RQH RU ERWK RI WKH PDUNHUV PD\ FKDQJH WKHLU UDQJH RI PHDQLQJV $FFRUGLQJO\ WKH IXQFWLRQV RI WKH WZR PDUNHUVPD\EHµDVVLPLODWHG¶LHWKHLUGLVWULEXWLRQVPD\EHFRPHPRUHRU OHVVLGHQWLFDODVLVLOOXVWUDWHGLQ    D    

 Q

 Q 

 Q

E 

Q 

Q

Q 

Q

Q 

Q



Q 

Q

Q 

'LVWULEXWLRQDO DVVLPLODWLRQ LV LQ SULQFLSOH LQGLIIHUHQW WR WKH GHJUHH RI JUDPPDWLFDOL]DWLRQ H[KLELWHG E\ HLWKHU OLQJXLVWLF VLJQ LQYROYHG 6WLOO LW VHHPVWRZRUNLQWKHPDMRULW\RIFDVHVLQWKHGLUHFWLRQRIµPRUHJUDPPDWL

:KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶"



FDO¶7KLVPD\EHGXHWRWKHIDFWWKDWWUDQVODWLRQDOHTXLYDOHQFHLVW\SLFDOO\ HVWDEOLVKHGDWWKHPRUHFRQFUHWHHQGRIWKHµVHPDQWLFVSDFH¶FRYHUHGE\D OLQJXLVWLFVLJQ³7KHPRUHFRQFUHWHOH[LFDOPHDQLQJRIWKHZRUGDOORZVLW WR EH LGHQWLILHG ZLWK D FRUUHVSRQGLQJ ZRUG LQ WKH UHSOLFD ODQJXDJH 7KLV ZRUG LQ WXUQ WKHQ DGRSWV WKH PRUH DEVWUDFW JUDPPDWLFDO PHDQLQJ DOVR IRXQG LQ WKH PRGHO ODQJXDJH´ 0DWUDV DQG 6DNHO   UHIHUULQJ WR +DDVHDQG1DX +RZHYHUGLVWULEXWLRQDOH[WHQVLRQLQWKHGLUHF WLRQRIµOHVVJUDPPDWLFDOPHDQLQJV¶VHHPVWREHDWWHVWHGDVZHOOFI0DWUDV DQG6DNHO 'LVWULEXWLRQDODVVLPLODWLRQWKXVDSSHDUVWREHHPSLULFDOO\ EXWQRWLQKHUHQWO\DVVRFLDWHGZLWKWKHDFTXLVLWLRQRIPRUHUDWKHUWKDQOHVV JUDPPDWLFDOPHDQLQJVE\WKHVLJQLQWKHWDUJHWODQJXDJH 7KH SURFHVV RI GLVWULEXWLRQDO DVVLPLODWLRQ DV GHVFULEHG DERYH LV LQWXL WLYHO\YHU\VLPSOHDQGFDQFHUWDLQO\DFFRXQWIRUPDQ\FDVHVRIJUDPPDWLFDO FRQYHUJHQFH7KHH[DPSOHRITXHVWLRQSURQRXQVEHLQJXVHGDVUHODWLYL]HUV LQ 7DULDQD FDQ HDVLO\ EH DFFRPPRGDWHG ZLWKLQ WKLV PRGHO 7KH QDWLYH  HOHPHQW RI WKH WDUJHW RU µUHSOLFD¶ ODQJXDJH ± LQ WKH FDVH RI 7DULDQD WKH TXHVWLRQZRUGNZDQD±H[WHQGVLWVWHUULWRU\RQWKHVHPDQWLFPDSWKXVFRY HULQJ URXJKO\ WKH VHPDQWLF VSDFH FRUUHVSRQGLQJ WR WKH PRUH JHQ HUDOSRO\VHPRXV 3RUWXJXHVHSURQRXQTXH   &RQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ

 $V D JODQFH DW WKH UHOHYDQW OLWHUDWXUH VKRZV QRW DOO LQVWDQFHV RI JUDP PDWLFDO FRQYHUJHQFH FDQ EH H[SODLQHG DV HDVLO\ DV WKH 7DULDQD H[DPSOH +HLQH DQG .XWHYD    FODLP WKDW PRUH RIWHQ WKDQ QRW JUDP PDWLFDO FRQYHUJHQFH LV WKH UHVXOW RI FRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ 7KH\ GLVWLQJXLVK WZR W\SHV RI FRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ µRUGL QDU\FRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶DQGµUHSOLFDJUDPPDWLFDOL]DWLRQ¶ µ2UGLQDU\FRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶LVGHVFULEHGDVIROORZVFI +HLQHDQG.XWHYD     2UGLQDU\FRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ

 D 6SHDNHUV QRWLFH WKDW LQ ODQJXDJH 0 >WKH PRGHO ODQJXDJH RU VRXUFHODQJXDJH@WKHUHLVDJUDPPDWLFDOFDWHJRU\0[ E 7KH\FUHDWHDQHTXLYDOHQWFDWHJRU\5[LQODQJXDJH5>WKHUHSOLFD ODQJXDJH RU WDUJHW ODQJXDJH@ RQ WKH EDVLV RI WKH XVH SDWWHUQV DYDLODEOHLQ5



9RONHU*DVWDQG-RKDQYDQGHU$XZHUD

F 7R WKLV HQG WKH\ GUDZ RQ XQLYHUVDO VWUDWHJLHV RI JUDPPDWL FDOL]DWLRQXVLQJFRQVWUXFWLRQ5\LQRUGHUWRGHYHORS5[ G 7KH\JUDPPDWLFDOL]H5\WR5[  +HLQH DQG .XWHYD    SURYLGH WKH H[DPSOH RI WKH )UHQFKEDVHG FUHROH7D\RZKLFKKDVVXSSRVHGO\ µUHSOLFDWHG¶DGXDORQWKHPRGHORIWKH 0HODQHVLDQFRQWDFWODQJXDJHV'UXEpDDQG&qPXKL7KHUHOHYDQWPDUNHU±D µSURQRPLQDOVXIIL[GH¶±KDVEHHQGHULYHGIURPDQXPHUDOPHDQLQJµWZR¶ FIWKHQXPHUDOGHX[RIWKHOH[LILHUODQJXDJH)UHQFK 7KXVDQHZYDOXH µGXDO¶ IRUDQH[LVWLQJFDWHJRU\µQXPEHU¶ KDVEHHQLQWURGXFHGLQWR7D\R JUDPPDU XQGHU FRQWDFW LQIOXHQFH EXW QR SDWWHUQ RI SRO\VHP\ DVVRFLDWHG ZLWKDQ\VSHFLILFPDUNHUKDVEHHQWUDQVIHUUHGVLQFHWKHµPRGHOODQJXDJHV¶ 'UXEpD &qPXKL  GR QRW XVH D QXPHUDO µWZR¶ DV D GXDO PDUNHU QHLWKHU GRHV)UHQFKLQ'UXEpDDQG&qPXKLQRGXDOVXIIL[FDQEHLVRODWHGDWDOO  7KHUHVXOWRIWKLVSURFHVVLVFRQYHUJHQFHDWWKHOHYHORISURQRPLQDOSDUD GLJP DUFKLWHFWXUH HYHQ WKRXJK WKH UHOHYDQW HOHPHQWV LQ WKH FRQWDFW ODQ JXDJHVDUHIRUPDOO\FRPSOHWHO\GLIIHUHQWWKHLUSURQRPLQDOSDUDGLJPVKDYH FHOOVZLWKLGHQWLFDOIHDWXUHYDOXHV  7KHVHFRQGW\SHRIFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQLVFDOOHGµUHSOLFD JUDPPDWLFDOL]DWLRQ¶ E\ +HLQH DQG .XWHYD    ,Q WKLV FDVH WKH SURFHVVRIJUDPPDWLFDOL]DWLRQLQWKHUHSOLFDODQJXDJHLVQRWRQO\WULJJHUHG E\WKHFRQWDFWODQJXDJHWKHUHOHYDQWODQJXDJHVDOVRXVHWKHVDPHXQGHUO\ LQJ VRXUFH PHDQLQJ LHUDWKHU WKDQ ³GUDZ>LQJ@ RQ XQLYHUVDO VWUDWHJLHVRI JUDPPDWLFDOL]DWLRQ´ FI F DERYH  WKH UHSOLFD ODQJXDJH DGRSWV WKH VDPH JUDPPDWLFDOL]DWLRQSDWKWKDWZDVDOVRWDNHQE\WKHVRXUFHODQJXDJHµ5HS OLFD JUDPPDWLFDOL]DWLRQ¶LV GHVFULEHG DV IROORZV +HLQH DQG.XWHYD       5HSOLFDJUDPPDWLFDOL]DWLRQ  D 6SHDNHUVQRWLFHWKDWLQODQJXDJH0WKHUHLVDJUDPPDWLFDOFDWH JRU\0[ E 7KH\FUHDWHDQHTXLYDOHQWFDWHJRU\5[LQODQJXDJH5XVLQJPD WHULDODYDLODEOHLQ5 F 7RWKLVHQGWKH\UHSOLFDWHDJUDPPDWLFDOL]DWLRQSURFHVVWKH\DV VXPHWRKDYHWDNHQSODFHLQODQJXDJH0XVLQJDQDQDORJLFDO IRUPXODRIWKHNLQG>0\!0[@>5\!5[@ G 7KH\JUDPPDWLFDOL]H5\WR5[ 

:KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶"



$VDQH[DPSOHRIWKLV+HLQHDQG.XWHYD PHQWLRQWKHµKRWQHZV SHUIHFW¶ZKLFK,ULVK(QJOLVKKDVDGRSWHGIURP,ULVKXVLQJDFRQVWUXFWLRQRI WKHIRUPµ[LVDIWHU9LQJ¶HJ+H¶VDIWHUJRLQJFRUUHVSRQGLQJWR,ULVK7i Vp >WDU pLV@ LPHDFKW OLW µLV KH DIWHU JRLQJ¶ FI *UHHQH   3LHWVFK  $VLQWKH7D\RFDVHGLVFXVVHGDERYHµRUGLQDU\FRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ¶ DQHZYDOXHµKRWQHZVSHUIHFW¶ IRUDQH[LVWLQJFDWH JRU\ µWHQVHDVSHFW¶  LV LQWURGXFHG LQWR WKH WDUJHW ODQJXDJH EXW XQOLNH LQ WKH 7D\R FDVH LW LV ± SUHVXPDEO\ ± QRW WKH UHVXOW RI WKH SURFHVV WKDW KDV EHHQFRSLHGIURPRQHODQJXDJHWRDQRWKHUEXWWKHSURFHVVLWVHOI³>L@QWKLV SURFHVV >UHSOLFD JUDPPDWLFDOL]DWLRQ@ LW LV QRW D JUDPPDWLFDO FRQFHSW EXW UDWKHUDJUDPPDWLFDOL]DWLRQSURFHVVWKDWLVWUDQVIHUUHGIURPWKHPRGHO0  WRWKHUHSOLFDODQJXDJH5 ´+HLQHDQG.XWHYD 7KHGLIIHUHQFH EHWZHHQWKHµWUDQVIHURIOLQJXLVWLF REMHFWV¶DQGWKHµWUDQVIHURIKLVWRULFDO  SURFHVVHV¶LVVKRZQLQDVLPSOLILHGZD\LQ µ0[¶µ5[¶VWDQGVIRUµOLQ JXLVWLF REMHFW [ RI PRGHO ODQJXDJH 0UHSOLFD ODQJXDJH 5¶ FI  DQG  DERYH     D7UDQVIHURIOLQJXLVWLFREMHFWV E7UDQVIHURIKLVWRULFDOSURFHVVHV 0[







0[



0\

  5[    5[  5\  +HLQH DQG .XWHYD¶V    FRQFHSW RI UHSOLFD JUDPPDWLFDOL]DWLRQ HQWDLOVDQXPEHURIUDWKHUVWURQJFODLPVVRPHRIZKLFKDUHDWYDULDQFHZLWK FRQWHPSRUDU\PRGHOVRIODQJXDJHFKDQJHHJ&URIW ,QSDUWLFXODULW DWWULEXWHVD FRQVLGHUDEOHGHJUHH RIOLQJXLVWLF PHWDNQRZOHGJH WR VSHDNHUV ZKR DUH UHJDUGHG DV KDYLQJ QRW RQO\ DQ DFWLYH NQRZOHGJH RI ZKDW LV D JUDPPDWLFDOFDWHJRU\DQGZKDWLVQRW³>V@SHDNHUVQRWLFHWKDWLQODQJXDJH 0 WKHUH LV D JUDPPDWLFDO FDWHJRU\ 0[´  ± DV ZHOO DV WKH ZLOO WR FUHDWH JUDPPDWLFDOFDWHJRULHVLQRQHRIWKHLUODQJXDJHV±EXWDOVRDQDZDUHQHVVRI SURFHVVHV RI JUDPPDWLFDOL]DWLRQ ³WKH\ UHSOLFDWH D JUDPPDWLFDOL]DWLRQ SURFHVV WKH\ DVVXPH WR KDYH WDNHQ SODFH LQ ODQJXDJH 0´  (YHQ WKRXJK +HLQHDQG.XWHYD H[SOLFLWO\GHQ\WKDWVSHDNHUVKDYHKLVWRULFDO NQRZOHGJH DERXW DQ\ RI WKHLU ODQJXDJHV WKH\ GR KROG WKH YLHZ WKDW VXFK GLDFKURQLFSURFHVVHVDUHLQVRPHZD\µDFFHVVLEOH¶WRVSHDNHUV:LWKUHVSHFW WRWKHGHYHORSPHQWRIWKLUGSHUVRQSOXUDOSURQRXQVLQWRSROLWHVHFRQGSHU VRQ VLQJXODU SURQRXQV LQ WKH 6LOHVLDQ GLDOHFW RI 3ROLVK ± SUHVXPDEO\ DQ



9RONHU*DVWDQG-RKDQYDQGHU$XZHUD

LQVWDQFH RI µUHSOLFD JUDPPDWLFDOL]DWLRQ¶ XQGHU WKH LQIOXHQFH RI *HUPDQ ± WKH\UHPDUN  ³0RVW OLNHO\ WKHVH 3ROLVK VSHDNHUV ZHUH XQIDPLOLDU ZLWK WKH KLVWRULFDO IDFWRUVWKDWZHUHUHVSRQVLEOHIRUWKHJUDPPDWLFDOL]DWLRQLQ*HUPDQVWLOO IURP WKH VRFLROLQJXLVWLF SUDJPDWLF DQG JUDPPDWLFDO LQIRUPDWLRQ WKDW ZDVDFFHVVLEOHWRWKHPWKH\KDGHQRXJKLQIRUPDWLRQIRUUHSOLFDWLRQ2E YLRXVO\ UHSOLFDWLRQ GLG QRW PHDQ WKDW WKH 3ROLVK VSHDNHUV UHSHDWHG WKH KLVWRU\RIWKH*HUPDQ6LHFRQVWUXFWLRQKRZHYHUUHSOLFDWLRQZDVQRWFRQ ILQHG WR VLPSO\ FRS\LQJ D SRO\VHP\ SDWWHUQ >«@ WKDW WKH\ IRXQG LQ WKH PRGHO ODQJXDJH EXW UDWKHU LQYROYHG D SURFHVV WKDW ZDV VWUXFWXUDOO\ QRW XQOLNH WKH RQH VSHDNHUV RI WKH PRGHO ODQJXDJH KDG XQGHUJRQH FHQWXULHV HDUOLHU´+HLQHDQG.XWHYD  

7KH DVVXPSWLRQ WKDW VSHDNHUV DW OHDVW KDYH DFFHVV WR LQIRUPDWLRQ DERXW GLDFKURQLFSURFHVVHVRIFKDQJHLQWKHµPRGHOODQJXDJH¶VHHPVWREHQHFHV VDU\ LI RQH ZDQWV WR PDLQWDLQ WKH LGHD RI µUHSOLFD JUDPPDWLFDOL]DWLRQ¶ DV GHVFULEHGLQ WKRXJKQRWLQWKHFDVHRIµRUGLQDU\FRQWDFWLQGXFHGJUDP PDWLFDOL]DWLRQ¶,QHLWKHUFDVHLWVHHPVQHFHVVDU\WRDVVXPHFROOHFWLYHDQG FURVVJHQHUDWLRQDO DFWLRQ VLQFH DV +HLQH DQG .XWHYD    SXW LW ODQJXDJHFKDQJH³GRHVQRWKDSSHQRYHUQLJKWDQGPD\LQYROYHVHYHUDOJHQ HUDWLRQVRIVSHDNHUV´ :H ZLOO WU\ WR VKRZ WKDW WKHUH LV ZD\ RI PRGHOLQJ FRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ WKDW GRHV QRW UHTXLUH WKH DVVXPSWLRQ RI FROOHFWLYH FURVVJHQHUDWLRQDO DFWLRQ WDUJHWLQJ VSHFLILF JUDPPDWLFDO FDWHJRULHV ,Q NHHSLQJZLWKZLGHO\DFFHSWHGPRGHOVRIODQJXDJHFKDQJHHJ&URIW  ZH DVVXPH WKDW FRQWDFWLQGXFHG FKDQJH OLNH DQ\ RWKHU W\SH RI ODQJXDJH FKDQJH LV EHVW XQGHUVWRRG LI WKH SURFHVVHV RI µLQQRYDWLRQ¶ DQG µSURSDJD WLRQ¶DUHNHSWDSDUWFIDOVR0DWUDVDQG6DNHO ,QQRYDWLRQVDUHLQWUR GXFHGE\LQGLYLGXDOVSHDNHUVLQWRWKHµXWWHUDQFHSRRO¶RIDODQJXDJH ,WLV RQO\ DV D UHVXOW RI SURSDJDWLRQ D SURFHVV ODUJHO\ GHWHUPLQHG E\ VRFLROLQ JXLVWLFIDFWRUVWKDWLQQRYDWLRQVVSUHDGDFURVVDVSHHFKFRPPXQLW\,QRXU YLHZJUDPPDWLFDOL]DWLRQLPSOLHVFRQYHQWLRQDOL]DWLRQDQGLVWKXVDFRQVH TXHQFH RI SURSDJDWLRQ 6WLOO LQGLYLGXDO LQQRYDWLRQV H[KLELW GLUHFWLRQDOLW\ ZLWKUHVSHFWWRWKHLUGHJUHHRIJUDPPDWLFDOL]DWLRQ$VSRLQWHGRXWLQ6HF WLRQ  WKH GLVWULEXWLRQDO DVVLPLODWLRQ RI VLJQV IURP GLIIHUHQW ODQJXDJHV W\SLFDOO\WKRXJKSUREDEO\QRWQHFHVVDULO\ ZRUNVLQWKHGLUHFWLRQRIµPRUH JUDPPDWLFDO¶0RUHRYHUWKHLQWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFFDWHJR ULHVQHFHVVDULO\LPSOLHVJUDPPDWLFDOL]DWLRQDVDQHZYDOXHIRUDQH[LVWLQJ FDWHJRU\LVFUHDWHG

:KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶"



:H EHOLHYH WKDW WKH NH\ WR FRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ OLHV LQ WKHSURFHVVRIµFRQWDFWLQGXFHGLQQRYDWLRQ¶DVWKLVLVEDVLFDOO\ZKDWGLVWLQ JXLVKHV FRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ IURP HQGRJHQRXV JUDP PDWLFDOL]DWLRQ 7KLV LV QRW WR GHQ\ WKDW WKH SURSDJDWLRQ DQG FRQYHQ WLRQDOL]DWLRQRIDQLQQRYDWLRQPD\EHLQIOXHQFHG±LQSDUWLFXODUDFFHOHUDWHG ± E\ ODQJXDJH FRQWDFW HVSHFLDOO\ LQ GLJORVVLF VRFLHWLHV ,W VHHPV WR XV KRZHYHU WKDW FRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ LV PRVW IUXLWIXOO\ DS SURDFKHG IURP WKH SHUVSHFWLYH RI ³WKH V\QFUHWLVDWLRQ RI SURFHVVLQJ RSHUD WLRQVLQWKHWZRODQJXDJHV´DV0DWUDVDQG6DNHO SXWLW,QRXU YLHZ LW LV WKH FRH[LVWHQFH RI GLIIHUHQW OLQJXLVWLF V\VWHPV LQ LQGLYLGXDO VSHDNHUVWKDWDFWVDVDGULYLQJIRUFHDQGFDWDO\VWRILQQRYDWLRQVVSHFLILFWR WKH W\SH RI OLQJXLVWLF FKDQJH XQGHU GLVFXVVLRQ LQ WKLV YROXPH DQG WKDW LV WKXV WKH PRVW GLVWLQFWLYH IHDWXUH RI FRQWDFWLQGXFHG ± DV RSSRVHG WR HQ GRJHQRXV±JUDPPDWLFDOL]DWLRQ   ,QWHUOLQJXDOLGHQWLILFDWLRQRIVLJQVDQGFDWHJRULHV  :HFDQGLVWLQJXLVKWZRWULJJHUVRIFRQWDFWLQGXFHGLQQRYDWLRQL LQWHUOLQ JXDO LGHQWLILFDWLRQ RI OLQJXLVWLF VLJQV DQG LL  LQWHUOLQJXDO LGHQWLILFDWLRQ RI OLQJXLVWLF FDWHJRULHV ,Q WKH ILUVW FDVH WZR IRUPPHDQLQJ SDLULQJV VXFK DV PRUSKHPHVRUFRQVWUXFWLRQVIURPGLIIHUHQWODQJXDJHVDUHHTXDWHGLQWHUPV RIWKHLUIXQFWLRQRUGLVWULEXWLRQ,QWKHVHFRQGFDVHGRPDLQVRIJUDPPDWL FDO RUJDQL]DWLRQ DUH LQWHUOLQJXDOO\ LGHQWLILHG DQG VSHFLILF W\SHV RI µURX WLQHV¶RUFDWHJRU\YDOXHVDUHWUDQVIHUUHGIURPRQHODQJXDJHWRDQRWKHU7KH WZR SURFHVVHV DUH RUWKRJRQDO WR HDFK RWKHU VR WKDW WKH\ PD\ RFFXU HLWKHU VHSDUDWHO\ RULQ FRPELQDWLRQ $FFRUGLQJO\ ZH FDQ GLVWLQJXLVK WKUHHW\SHV RI FRQWDFWLQGXFHG LQQRYDWLRQ LQ WKH IRXUWK SRVVLEOH FRPELQDWLRQ ± QR LQWHUOLQJXDOLGHQWLILFDWLRQRIHLWKHUFDWHJRULHVRUVLJQV±QRWKLQJKDSSHQV   L  µLQWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFVLJQV¶ZLWKRXWµLQWHUOLQ JXDOLGHQWLILFDWLRQRIOLQJXLVWLFFDWHJRULHV¶6HFWLRQ  LL  µLQWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFFDWHJRULHV¶ZLWKRXWµLQWHU OLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFVLJQV¶6HFWLRQ DQG LLL  µLQWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFFDWHJRULHV¶SOXVµLQWHUOLQ JXDOLGHQWLILFDWLRQRIOLQJXLVWLFVLJQV¶6HFWLRQ   7KHVHPHFKDQLVPVRIFRQWDFWLQGXFHGLQQRYDWLRQDUHFORVHO\UHODWHGWRWKH WKUHHSURFHVVHVRIJUDPPDWLFDOUHSOLFDWLRQGLVWLQJXLVKHGE\+HLQHDQG.X WHYD    W\SH L  FRUUHVSRQGV WR µSRO\VHP\ FRS\LQJ¶ W\SH LL 



9RONHU*DVWDQG-RKDQYDQGHU$XZHUD

PD\ OHDG WR µRUGLQDU\ FRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ¶ DQG W\SH LLL  FRYHUVFDVHVRIµUHSOLFDJUDPPDWLFDOL]DWLRQ¶5HPHPEHUKRZHYHUWKDWWKH SURFHVVHV LQ L ±LLL  DUH KHUH UHJDUGHG DV WULJJHUV RI FRQWDFWLQGXFHG  JUDPPDWLFDOL]DWLRQ ZKLOHWKH SURFHVV RI JUDPPDWLFDOL]DWLRQ LWVHOI LPSOLHV PHFKDQLVPV RSHUDWLQJ DWWKH OHYHO RI WKH VSHHFK FRPPXQLW\ LQ SDUWLFXODU SURSDJDWLRQDQGFRQYHQWLRQDOL]DWLRQ   ,QWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFVLJQV

 7KH SURFHVV RI GLVWULEXWLRQDO DVVLPLODWLRQ LOOXVWUDWHG LQ   DERYH FDQ EH PDGHPRUHH[SOLFLWDVIROORZVWKHUHDUHWZRVLJQVIURPWZRGLIIHUHQWODQ JXDJHV VD\ 0[ IURP WKHPRGHO ODQJXDJH  DQG 5\ IURP WKH UHSOLFD ODQ JXDJH 7KHVLJQ0[RIWKHPRGHOODQJXDJHLVDVVRFLDWHGZLWKDVHW0RI FRQYHQWLRQDOL]HG XVHV RU µURXWLQHV¶ VD\ µTXHVWLRQ ZRUG¶5RXWLQH DQG µUHODWLYL]HU¶5RXWLQH 7KHVLJQRIWKHUHSOLFDODQJXDJH±5\±LVXVHGLQD VHWRIFRQWH[WV5ZKLFKLVGLIIHUHQWIURPEXWRYHUODSVZLWK0HJµTXHV WLRQ ZRUG¶5RXWLQH  2QFH 0[ DQG 5\ DUH LQWHUOLQJXDOO\ LGHQWLILHG 5\ ZLOODOVREHXVHGE\LQGLYLGXDOVSHDNHUV WRH[SUHVVUHODWLYL]DWLRQ$WWKLV SRLQWVXFKXVHVDUHLQQRYDWLYHDQGPD\EHUHJDUGHGDVLPSURSHUXVDJHE\ FRQVHUYDWLYH VSHDNHUV 2QFH WKH QRYHO XVH RI 5\ ZLWK 5RXWLQH KDV EHHQ FRQYHQWLRQDOL]HGWKHGLVWULEXWLRQRI5\LVH[WHQGHGDQGµDVVLPLODWHGWR¶WKH RQH RI 0[ LH 5\ EHFRPHV 5[ 7KLV GHYHORSPHQWLV LOOXVWUDWHG LQ 'LD JUDPLQDVHPDVLRORJLFDOSHUVSHFWLYHFIDERYHIRUDQRQRPDVLRORJLFDO SHUVSHFWLYH 1RWHWKDWZHHPSOR\WKHWHUPVµXVH¶DQGµURXWLQH¶IRUGLIIHU HQWWKLQJVLHWKHIRUPHUIRUWKHDGKRFµXVH¶DQGWKHODWWHUIRUWKHFRQYHQ WLRQDOL]HG RQH FI +HLQH DQG .XWHYD¶V GLVWLQFWLRQ EHWZHHQ µPLQRU¶ DQG µPDMRUXVHSDWWHUQV¶   7KHGHYHORSPHQWRIDQHZµXVH¶LQWKHUHSOLFDODQJXDJHLVDµFUHDWLYH DFW¶ SHUIRUPHG E\ ELOLQJXDO VSHDNHUV :KHQ DQ LQQRYDWLRQ VSUHDGV DFURVV WKHVSHHFKFRPPXQLW\SURSDJDWLRQ WKHDGKRF XVHWXUQVLQWRDFRQYHQ WLRQDOL]HG µURXWLQH¶ $V ZDV SRLQWHG RXW LQ 6HFWLRQ  VXFK H[WHQVLRQV W\SLFDOO\ZRUNLQWKHGLUHFWLRQRIµPRUHJUDPPDWLFDO¶0RUHRYHUWKHYHU\ FKDQJH IURP D µXVH¶ WR D µURXWLQH¶ EULQJV ZLWK LW VSHFLILF V\PSWRPV RI JUDPPDWLFDOL]DWLRQHJGLVWULEXWLRQDOH[WHQVLRQDKLJKHUGHJUHHRIVHPDQ WLFJHQHUDOLW\DQLQFUHDVHLQIUHTXHQF\DQGWKXVVXVFHSWLELOLW\WRSKRQHWLF HURVLRQHWF:KLOHWKHVHSURFHVVHVDUHFOHDUO\µFRQWDFWLQGXFHG¶WRWKHH[ WHQW WKDW WKH\ ZHUH WULJJHUHG E\ D FRQWDFWLQGXFHG LQQRYDWLRQ WKH IRUPDO V\PSWRPVRI JUDPPDWLFDOL]DWLRQFDQEHUHJDUGHGDVODQJXDJHLQWHUQDOGH

:KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶"



YHORSPHQWV WKDW GR QRW VXEVWDQWLDOO\  GLIIHU IURP FRUUHVSRQGLQJ HQGRJH QRXVSURFHVVHV  02'(/ /$1*8$*(

0[ ZLWK 5RXWLQH 5RXWLQH LQWHUOLQJXDOLGHQWLILFDWLRQ

5(3/,&$ /$1*8$*(

5\ ZLWK 5RXWLQH 

LQGXFHV

5\ ZLWK 5RXWLQH 8VH

5[ ZLWK 5RXWLQH 5RXWLQH

'LDJUDP'LVWULEXWLRQDODVVLPLODWLRQVHPDVLRORJLFDOSHUVSHFWLYH 

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pUUH] 0RUDOHV WKLV YROXPH  7KH XVH RI VSHFLILFERG\SDUWVDVORFDOSUHSRVLWLRQVUHODWLRQDOQRXQV LQPDQ\0HVR DPHULFDQODQJXDJHVLVDQRWKHUUHOHYDQWH[DPSOHFI&DPSEHOOHWDO RQ 0HVRDPHULFDQ ODQJXDJH LQ JHQHUDO DQG 6WRO] DQG 6WRO]   +HLQH DQG .XWHYD   RQ WKH SDWWHUQ RI SRO\VHP\ µVKRXOGHUEDFN¶ PRUHVSHFLILFDOO\  $V ZH ZLOO SURYLGH GHWDLOHG H[HPSOLILFDWLRQ IURP 0D\DQ DQG 0L[H =RTXHDQODQJXDJHVEHORZ6HFWLRQVDQG ZHZLOOQRWGLVFXVVDQ\IXU WKHU H[DPSOHV DW WKLV SRLQW DQG WXUQ WR WKH VHFRQG PDMRU W\SH RI FRQWDFW LQGXFHG LQQRYDWLRQ LH WKH LQWHUOLQJXDO LGHQWLILFDWLRQ RI OLQJXLVWLF FDWH JRULHV 



9RONHU*DVWDQG-RKDQYDQGHU$XZHUD

,QWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFFDWHJRULHV

 ,QWKHW\SHRIFRQWDFWSKHQRPHQRQGLVFXVVHGLQWKLVVHFWLRQLWLVQRWDSDLU RI OLQJXLVWLF VLJQV WKDW LV LQWHUOLQJXDOO\ LGHQWLILHG EXW DQ HQWLUH OLQJXLVWLF FDWHJRU\ FI YDQ GHU $XZHUD DQG *DVW  RQ WKH QRWLRQ RI µOLQJXLVWLF FDWHJRU\¶ LQ D FURVVOLQJXLVWLF SHUVSHFWLYH  $V D VWDUWLQJ SRLQW WKHUH LV D FDWHJRU\ LQ WKH PRGHO ODQJXDJH 0 ± VD\ 0F ± DQG D FDWHJRU\ 5F LQ WKH UHSOLFDODQJXDJH50FDQG5FDUHIXQFWLRQDOO\VLPLODUWKRXJKWKH\GLIIHU LQ WHUPV RI WKHLU VSHFLILF FDWHJRU\ YDOXHV )RU LQVWDQFH WKH FDWHJRU\ RI µQXPEHUP¶RIWKHPRGHOODQJXDJH PD\KDYHWKHYDOXHVµVLQJXODU¶µGXDO¶ DQGµSOXUDO¶ZKLOHWKHFDWHJRU\RIµQXPEHUU¶RIWKHUHSOLFDODQJXDJH RQO\ KDVµVLQJXODU¶DQGµSOXUDO¶7KHUHSOLFDODQJXDJHWKXVODFNVERWKDµURXWLQH¶ RI WKH PRGHO ODQJXDJH ± WKH LQGLFDWLRQ RI GXDOLW\ ± DQG D JUDPPDWLFDO PDUNHUWRH[SUHVVVXFKDURXWLQH ,IWKHWZRFDWHJRULHV0FDQG5FDUHLQWHUOLQJXDOO\LGHQWLILHGWKHLUSDUD GLJPDWLFVWUXFWXUHVDUHDVVLPLODWHGLHWKHVDPHW\SHVRIXVHVRUURXWLQHV DUH H[SUHVVHG LQ ERWK ODQJXDJHV HJ LQGLFDWLRQ RI GXDOLW\ µ\RX WZR¶ LQ VWHDGRIµ\RX¶ $WDILUVWVWDJHVXFKXVHVDUHLQQRYDWLYHDQGLWLVRQO\DVD UHVXOW RI SURSDJDWLRQ WKDW WKH\ DUH IXOO\ LQWHJUDWHG LQWR WKH V\VWHP RI WKH UHSOLFDODQJXDJH7KLVGHYHORSPHQWZKLFKZHZLOOFDOOµFDWHJRU\DVVLPLOD WLRQ¶LVLOOXVWUDWHGLQ'LDJUDPURXQGHGUHFWDQJOHVLQGLFDWHFDWHJRULHVDQG ER[HVZLWKLQWKHODWWHUFDWHJRU\YDOXHVRISDUDGLJPFHOOV  7KHTXHVWLRQDULVHVZKDWPDUNHUZLOOEHXVHGWRH[SUHVVWKHQHZURXWLQH LQWKHUHSOLFDODQJXDJH56LJQLQ'LDJUDP ,QWKHW\SHRISURFHVVXQGHU FRQVLGHUDWLRQ µSDWWHUQ UHSOLFDWLRQ¶  LW LV DOZD\V PDWHULDO RI WKH UHSOLFD ODQJXDJHWKDWLVXVHGIRUWKDWSXUSRVHLHZHDUHQRWGHDOLQJZLWKWKHWUDQV IHURIµIDEULF¶µPDWWHU¶ ,QVSLUDWLRQLQWKHIRUPDWLRQRIDQHZVLJQPD\RU PD\QRWFRPHIURPWKHPRGHOODQJXDJH7KLVGLIIHUHQFHREYLRXVO\PLUURUV WKHGLVWLQFWLRQEHWZHHQµUHSOLFDJUDPPDWLFDOL]DWLRQ¶DQGµRUGLQDU\FRQWDFW LQGXFHG JUDPPDWLFDOL]DWLRQ¶ PDGH E\ +HLQH DQG .XWHYD    ,Q WHUPVRIWKHPRGHOSURSRVHGKHUHWKHGLIIHUHQFHFDQEHSKUDVHGOLNHWKLVLQ RQH FDVH WKHUH LV RQO\ µLQWHUOLQJXDO LGHQWLILFDWLRQ RI OLQJXLVWLF FDWHJRULHV¶ HJWKH7D\RGXDOFI6HFWLRQ LQWKHVHFRQGFDVHWKHUHLVERWKµLQWHU OLQJXDO LGHQWLILFDWLRQ RI OLQJXLVWLF FDWHJRULHV¶ DQG µLQWHUOLQJXDO LGHQWLILFD WLRQRIOLQJXLVWLF VLJQV¶7R LOOXVWUDWH WKH VHFRQGFDVH ZH ZLOO RQFH DJDLQ GLVFXVVWKHH[DPSOHRIWKHKRWQHZVSHUIHFWLQ,ULVK(QJOLVK

:KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶" 0F

02'(/ /$1*8$*(



06LJQ ZLWK 5RXWLQH 06LJQ ZLWK 5RXWLQH 06LJQ ZLWK 5RXWLQH

LQWHUOLQJXDOLGHQWLILFDWLRQ

5F

7$5*(7 /$1*8$*(

56LJQ ZLWK 5RXWLQH 56LJQ ZLWK 5RXWLQH

LQGXFHV

56LJQ ZLWK 5RXWLQH

56LJQ ZLWK 5RXWLQH

56LJQ ZLWK 5RXWLQH

56LJQ ZLWK 5RXWLQH

56LJQ ZLWK 8VH

56LJQ ZLWK 5RXWLQH

'LDJUDP,QWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFFDWHJRULHV

  ,QWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFFDWHJRULHVDQGVLJQV

 ,QDVLPSOLILHGDQGLGHDOL]HGZD\WKHHPHUJHQFHRIWKHKRWQHZVSHUIHFWLQ ,ULVK(QJOLVKFDQEHGHVFULEHGDVIROORZV%LOLQJXDOVSHDNHUVRI,ULVKDQG (QJOLVKLQWHUOLQJXDOO\LGHQWLILHGWKHWHQVHDVSHFWV\VWHPVRIWKHLUWZRODQ JXDJHV7KHµGLVFRXUVHKDELW¶RIPDNLQJDGLVWLQFWLRQEHWZHHQDUHFHQWDQG DQRWVRUHFHQWSDVWZDVWKXVWUDQVIHUUHGIURP,ULVKWRWKHUHOHYDQWLGLROHFWV RI (QJOLVK7KLVZDVDFRQWDFWLQGXFHGLQQRYDWLRQRILQGLYLGXDOVSHDNHUV 7KURXJKSURSDJDWLRQDQGFRQYHQWLRQDOL]DWLRQDQHZYDOXHZDVWKHQLQWUR GXFHGLQWRWKH7$0V\VWHPRI,ULVK(QJOLVKLHFDWHJRU\DVVLPLODWLRQWRRN SODFH





9RONHU*DVWDQG-RKDQYDQGHU$XZHUD

7KHVLJQXVHGIRUWKHQHZFDWHJRU\YDOXHµKRWQHZVSHUIHFW¶ LVDSHUL SKUDVWLFVWUXFWXUHZKLFKHPXODWHVWKHFRUUHVSRQGLQJ,ULVKFRQVWUXFWLRQ7KH UHSOLFDWLRQRIVXFKSHULSKUDVHVDOZD\VLPSOLHVWKHLQWHUOLQJXDOLGHQWLILFDWLRQ RIRWKHUVLJQVRUFDWHJRULHV,QWKHFDVHRIWKHµKRWQHZVSHUIHFW¶WKHUHLV DWOHDVW RQHLQVWDQFHRILQWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFFDWHJRULHV LHWKHLGHQWLILFDWLRQRIWKHFDWHJRU\RIµYHUEDOQRXQ¶LQ,ULVKDQGWKH(QJ OLVK FDWHJRU\ RI µJHUXQG¶0RUHRYHU WKH ,ULVK FRSXOD WiDOVR FDOOHG µVXE VWDQWLYHYHUE¶ DQGWKH(QJOLVKFRSXODEHZHUHLQWHUOLQJXDOO\LGHQWLILHG7KH PRVW FHQWUDO DVSHFW RI LQWHUOLQJXDO LGHQWLILFDWLRQ LV SUREDEO\ WKH RQH FRQ FHUQLQJ WKH SUHSRVLWLRQV DURXQG ZKLFK WKHVH FRQVWUXFWLRQV DUH EXLOW ,Q WHUPVRI0DWUDVDQG6DNHO WKHVHSUHSRVLWLRQVFDQEHUHJDUGHGDVWKH µSLYRWV¶RIWKHFRQVWUXFWLRQVLQTXHVWLRQ,Q,ULVKGLIIHUHQWSUHSRVLWLRQVFDQ EH IRXQG HJ WDU pLV G¶pLV L QGLDLGK 7KHVH SUHSRVLWLRQV ZHUH LQWHUOLQ JXDOO\ LGHQWLILHG ZLWKWKH(QJOLVK SUHSRVLWLRQ DIWHU$V D UHVXOW D µK\SHU OLQJXDO¶VWUXFWXUDOWHPSODWHRIURXJKO\ WKHIRUP>13 &233$)7(5 13'(9(5%@ VHHPV WR KDYH HPHUJHG ZLWK VSHFLILF LQVWDQWLDWLRQV LQ HDFK RI WKH ODQ JXDJHV FRQFHUQHG *LYHQ WKDW WKH LQWURGXFWLRQ RI WKLV WHPSODWH LQWR WKH JUDPPDU RI (QJOLVK SURYLGHVD QHZ SHULSKUDVWLFDOO\ H[SUHVVHG  YDOXH IRU WKH FDWHJRU\ RI µWHQVH¶ WKLV SURFHVV TXDOLILHV DV DQ LQVWDQFH RI FRQWDFW LQGXFHG JUDPPDWLFDOL]DWLRQ )RU UHDVRQV RI VSDFH ZH FDQQRW GLVFXVV DQ\ IXUWKHU H[DPSOHV RI FRQ WDFWLQGXFHG JUDPPDWLFDOL]DWLRQ LQYROYLQJ WKH LGHQWLILFDWLRQ RI ERWK OLQ JXLVWLFFDWHJRULHVDQGVLJQV:HZLOOMXVWPHQWLRQVRPHH[DPSOHVZKLFKZH EHOLHYHTXDOLI\DVJRRGFDQGLGDWHVIRUWKLVSURFHVV$GHYHORSPHQWRIWKH W\SHVNHWFKHGDERYHFDQEHDVVXPHGIRUWKHXVHRIDFRQVWUXFWLRQLQYROYLQJ DYHUE PHDQLQJµWRFRPH¶ IRUWKHH[SUHVVLRQRIGHRQWLFPRGDOLW\LQ(VWR QLDQDQG/DWYLDQFI6WRO]+HLQHDQG.XWHYD RUWKH XVHRIDUHIOH[LYHFRQVWUXFWLRQLQWKHH[SUHVVLRQRIYROLWLRQWRLQGLFDWHLQ DGYHUWHQW DFWLRQ RU XQFRQWUROOHG HPRWLRQV LQ 6RXWKHUQ %DONDQLF 5RPDQL DQG%XOJDULDQ%RUHW]N\DQG,JOD+HLQHDQG.XWHYD  7KH GHYHORSPHQW RI D µUHFLSLHQW SDVVLYH¶ LQ VRPH 6ODYLF ODQJXDJHV XQGHU *HUPDQ LQIOXHQFH GHVFULEHG E\ *LJHU WKLV YROXPH  PD\ EH FRQVLGHUHG DQRWKHU FDVH LQ SRLQW WKRXJK *LJHU GHVFULEHV WKHVH SURFHVVHV LQ WHUPV RI HLWKHUµSRO\VHP\FRS\LQJ¶LQWKHFDVHRI>QRQVWDQGDUG@6RUELDQ RUµUHS OLFDJUDPPDWLFDOL]DWLRQ¶LQWKHFDVHRI&]HFK 6ORYDNLVK\SRWKHVL]HGWR KDYHUHSOLFDWHGWKLVFRQVWUXFWLRQRQWKHPRGHORI&]HFK,QWHUHVWLQJFDVHV RIVXFKµVHPDQWLFDOO\GULYHQ¶SURFHVVHVRIFKDQJHKDYHDOVREHHQGLVFXVVHG E\3ULQFH IRU37'@ 



9RONHU*DVWDQG-RKDQYDQGHU$XZHUD

7KHPDLQSUHGLFDWLRQVD\VWKDWWKHLPSOLFLWVXEMHFWWKHNLQJ KDGVRPHRQH FDOO6LPHRQ7KHDX[LOLDU\GHQRWHVDµURXQGWULS¶LHLWH[SUHVVHVWKDWWKH XQVSHFLILF SDUWLFLSDQW ZKR ZDV VHQW WR FDOO 6LPHRQ ZHQW DQG UHWXUQHG :KDWWKHVHQWHQFHVD\VWKHQLVWKDWµWKHNLQJKDGVRPHRQHJRDQGUHWXUQ DQGFDOO6LPpRQ¶:KLOHLQWKH(QJOLVKWUDQVODWLRQWKHPRYHULVHQFRGHGDV D SDUWLFLSDQW RI LWV RZQ WKLV LV QRW WKH FDVH LQ WKH =RTXH H[DPSOH   ZKHUHWKHXQVSHFLILFILUVWREMHFWGRHVQRWFRUUHVSRQGWRDQDUJXPHQWSRVL WLRQEXWLVLPSOLHGE\WKHGLDWKHWLFVWUXFWXUHRIWKHYHUEZKLFKFRQWDLQVD FDXVDWLYH\DK DSDVVLYHWࣜ DQGDQDSSOLFDWLYHPDUNHUKD\    0RGDODX[LOLDULHVLQ7]RW]LODQG=RTXH

 ,QWKLVVHFWLRQZHZLOORXWOLQHWKHH[SUHVVLRQRISRVVLELOLW\DQGQHFHVVLW\LQ &KLDSDV=RTXHDQG7]RW]LO$VZLOOEHVHHQWKHH[SUHVVLRQRISRVVLELOLW\LV ODUJHO\ SDUDOOHO LQ ERWK ODQJXDJHV EXW WKLV SDUDOOHOLVP LV QRW SDUWLFXODUO\ UHPDUNDEOH EHFDXVH WKH SDWWHUQV IRXQG LQ ERWK ODQJXDJHV DUH UDWKHU FRP PRQ FURVVOLQJXLVWLFDOO\ ,Q WKH HQFRGLQJ RI QHFHVVLW\ KRZHYHU WKHUH DUH PRUH QRWHZRUWK\ SDUDOOHOV WKDW KDYH LQ DOO OLNHOLKRRG UHVXOWHG IURP ODQ JXDJHFRQWDFW   3RVVLELOLW\LQ7]RW]LODQG=RTXH

 $VWKHQDPHµSULPDU\DX[LOLDU\¶XVHGIRUWKHHOHPHQWVGHVFULEHGLQ6HFWLRQ  VXJJHVWV WKHUH LV DOVR D FODVV RI µVHFRQGDU\ DX[LOLDULHV¶ LQ 7]RW]LO WKRXJK QRWLQ =RTXH  :H XVHWKLVWHUP IRU DVHW RIYHUEDOHOHPHQWV WKDW EHKDYH OLNH SULPDU\ DX[LOLDULHV LQ VRPH UHVSHFWV EXW GLIIHU IURP WKHP LQ RWKHUV /LNH SULPDU\ DX[LOLDULHV VHFRQGDU\ RQHV DUH PDUNHG IRU DVSHFW ZKLOHQRWKDYLQJDQDUJXPHQWVWUXFWXUHRIWKHLURZQ7KHGLIIHUHQFHLVWKDW WKH\GRQRWUHTXLUHYHUEVLQWKHVXEMXQFWLYHPRRGEXWFRPELQHZLWKYHUEV LQWKHLQGLFDWLYHPRRGZKLFKDUHKRZHYHUPRUSKRORJLFDOO\LPSRYHULVKHG 2QHVXFKµVHFRQGDU\DX[LOLDU\¶LVWKHPRGDOHOHPHQW\XপZKLFKH[SUHVVHV SRVVLELOLW\,QVRPHGLDOHFWVHJWKHRQHVSRNHQLQ6DQ$QGUpVFI+XUOH\ DQG5Xt]6iQFKH] LWXVXDOO\FRPELQHVZLWKYHUEVLQWKHLQFRPSOH WLYH DVSHFW WKDW ODFN WKH µDIILUPDWLYH¶ PDUNHU WD ZKLFK LV REOLJDWRU\ LQ FRPELQDWLRQZLWKG\QDPLFSUHGLFDWHVLQDIILUPDWLYHPDLQFODXVHV±LWLVLQ WKLV UHVSHFW WKDW WKH YHUEV RFFXUULQJ LQ WKLV FRQVWUXFWLRQ DUH µPRUSKRORJL FDOO\ LPSRYHULVKHG¶ 7KH µVHFRQGDU\ DX[LOLDU\ FRQVWUXFWLRQ¶ RI 7]RW]LO LV LOOXVWUDWHGLQ  VKRZVWKHXVHRIWKHYHUE পDEWHKµZRUN¶DVDPDLQ

:KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶"



SUHGLFDWH IRU FRPSDULVRQ +HUH WKH DIILUPDWLYH SDUWLFOH WD LV REOLJDWRU\ )RUPV LQ WKH LQFRPSOHWLYH DVSHFW ZLWKRXW WD DUH RWKHUZLVH IRXQG LQ PDLQ FODXVHV RQO\ ZLWK VWDWLYH SUHGLFDWHV VXFK DV পRKWLNLQ µNQRZ SHUVRQV ¶ RU QDপ µNQRZ WKLQJV ¶ FI   DQG LQ VSHFLILF W\SHV RI VXERUGLQDWH FODXVHV HJSXUSRVHFODXVHVFIWKHIRUPKFKDQLQ     7]RW]LO6DQ$QGUpVGLDOHFW   µVHFRQGDU\DX[LOLDU\FRQVWUXFWLRQ¶  [\ Xপ [DপDEWHK  ,&3EHDEOH$8;  ,&3$%6ZRUN  µ+DY@  :KHQXVHGDVDPRGDODX[LOLDU\N¶DQWDNHVDWKLUGSHUVRQSRVVHVVRUSUHIL[ ZKLFK FRUUHVSRQGV WR DQ LPSHUVRQDO VXEMHFW µLW ZDQWV¶  ,W LV XVHG WR H[ SUHVV SDUWLFLSDQWH[WHUQDO QHFHVVLW\ HLWKHU GHRQWLF RU QRQGHRQWLF  7KHUH DUHWZRFRQVWUXFWLRQVILUVWN¶DQPD\EHFRPSOHPHQWHGE\DILQLWHFODXVH 6XFK FODXVHV DUH RSWLRQDOO\ LQWURGXFHG E\ WKH FRPSOHPHQWL]HU WL FI   7KH H[DPSOHV LQ   DQG   DUH LQVWDQFHV RI QRQGHRQWLF DQG GHRQWLF SDUWLFLSDQWH[WHUQDOQHFHVVLW\UHVSHFWLYHO\    SDUWLFLSDQWH[WHUQDOQHFHVVLW\QRQGHRQWLF  [ VN¶DQ WL WD [DপDEWHKH \RপN¶X[L  ,&3 (5*ZDQW &203 $)),&3$%6ZRUN VRWKDW

:KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶"

          

[DPDN¶ODQWDV

R

,&3(5*VXSSRUW

37&



DFK¶DPDOWDN 3266IDPLO\ µ&5,@    KHFKR[DO [ VN¶DQ [ KSDVEHWLN  WKHUHIRUH ,&3 (5*ZDQW ,&3 (5*PDNH$33/3/  OHN WL VYHপHOLNH  ZHOO '(7 3266IRRG3/&/  µ7KHUHIRUHZHKDYHWRSUHSDUHJRRGIRRGIRUWKHP¶>&5,@  7XUQLQJ WR =RTXH ZH ILQG H[DFWO\ WKH VDPH WZR FRQVWUXFWLRQV DQG LW LV DJDLQDPDWWHURIGLDWRSLFYDULDWLRQZKLFKRIWKHFRQVWUXFWLRQVLVSUHIHUUHG 7KHUHOHYDQWYHUERI=RTXHLVVXQµWRORYHWRZDQW¶RUVXGGHSHQGLQJRQ WKH GLDOHFW  ,WV SHUVRQDO XVH ZLWKWKH PHDQLQJ µWRZDQW¶ LV LOOXVWUDWHGLQ      &KLDSDV=RTXH&RSDLQDOiGLDOHFW   6XQSD BBBBBBBBBB@ BBBBBBBBBBBBBBBB 3(569HUE'(3  WULJJHUVORW DUJXPHQWVDGMXQFWV   ,Q6DQ-RVp(O3DUDtVR0L[HWKHWULJJHUVORWLVRFFXSLHGE\HOHPHQWVVXFK DV ³LQWURGXFHUV OLJDWXUHV >DQG@ DGYHUEV´ HJ Fƭ µWKHQ¶ NR˜ µZKHQ¶ PDE µVLQFH¶NDপµQR¶WӝµDOUHDG\¶DQG পR\µKDYLQJJRQH¶YDQ+DLWVPDDQGYDQ +DLWVPD    )RU 7RWRQWHSHF 0L[H 6FKRHQKDOV DQG 6FKRHQKDOV  SURYLGHWKHIROORZLQJQRQH[KDXVWLYH OLVWRIGHSHQGHQWWULJ JHUVKǪWVµDQG¶YDQLপWVµDIWHUWKHQ¶NHSµWRPRUURZ¶Rãµ\HVWHUGD\¶KӝSKL µHDUO\LQWKHPRUQLQJ¶PӝNµVWURQJO\ ¶WVRKµGHOLFDWHO\¶YLQপLWµZKHQ¶DQG YLQãࢰSµKRZPXFK¶:LFKPDQQD KDVDUJXHGIRU6D\XOD3RSROXFD  WKDW GHSHQGHQW PDUNLQJ LV JRYHUQHG E\ PDWWHUV RI GLVFRXUVH RUJDQL]DWLRQ DQG WKDW LW UHODWHV WR WKH GLIIHUHQFH EHWZHHQ IRUHJURXQGHG DQG EDFN JURXQGHGLQIRUPDWLRQ$WVRPHSRLQWWKHXVHRIGHSHQGHQWIRUPVLQ0L[H =RTXHDQPD\WKXVKDYHEHHQPRWLYDWHGVHPDQWLFDOO\RUSUDJPDWLFDOO\EXW LQ PRVW  FRQWHPSRUDU\ 0L[H=RTXHDQ ODQJXDJHV WKHUH LV D UDWKHU ULJLG IRUPDO UHODWLRQVKLS EHWZHHQ D VSHFLILF VHW RI µWULJJHUV¶ LQ WKH WULJJHU VORW DQGGHSHQGHQWPRUSKRORJ\RQWKHYHUE$VYDQ+DLWVPDDQGYDQ+DLWVPD    SXW LW ³>W@KH GLIIHUHQFH EHWZHHQ FRQMXQFW DQG QRQFRQMXQFW VHHPVWREHDPHFKDQLFDOFRQVHTXHQFHRIWKHWULJJHUZRUGVZLWKQRVSHFLDO VHPDQWLFIXQFWLRQRILWVRZQ´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



9RONHU*DVWDQG-RKDQYDQGHU$XZHUD

LHL µDX[LOLDU\¶7]RW]LO DQGµGHSHQGHQWWULJJHU¶=RTXH DQGLL µVXE MXQFWLYH YHUE¶ 7]RW]LO  DQG µGHSHQGHQW YHUE¶=RTXH  $V D UHVXOW D µK\ SHUOLQJXDO¶VWUXFWXUDOWHPSODWHPD\KDYHHPHUJHGPRUHRUOHVVDVVKRZQLQ   µ$8;'7¶ DQG µ68%-'(3¶ VWDQG IRU WKH JHQHUDOL]HG K\SHUOLQJXDO FDWHJRULHV RI µDX[LOLDU\GHSHQGHQW WULJJHU¶ DQG µVXEMXQFWLYH GHSHQGHQW YHUE¶UHVSHFWLYHO\   BBBBBBBBBBBBBBBB   $8;'7$63 &/ 3(56968%-'(3       DUJXPHQWVDGMXQFWV  $V VKRZQ LQ 6HFWLRQ  WKH WZR LQWHUOLQJXDOO\ LGHQWLILHG FDWHJRULHV ± $8;'7 DQG 68%-'(3 ± DUH RUJDQL]HG LQWR RQHGLPHQVLRQDO SDUDGLJPV LQ ERWK ODQJXDJHV 7KH $8;'7 FDWHJRU\ FRPSULVHV WZR VORWV WKH RQH RI 68%-'(3YHUEV IRXU DV WKHUH LV DQ LQFOXVLYHH[FOXVLYH GLVWLQFWLRQ  7KH SDUDGLJPDWLFRUJDQL]DWLRQRIWKHµ$8;'7FRQVWUXFWLRQ¶FDQWKXVEHUHSUH VHQWHGDVVKRZQLQ FI'LDJUDPLQ6HFWLRQIRUWKHUHSUHVHQWDWLRQ RI FDWHJRULHV DQG WKHLU SDUDGLJPV  ,I ZH DUH ULJKW LQ DVVXPLQJ WKDW WKH VWUXFWXUHHPHUJHGLQ7]RW]LODQGZDVUHSOLFDWHGLQ=RTXHWKHSDUDOOHOLVPLV DUHVXOWRIFDWHJRU\DVVLPLODWLRQLQ=RTXH     





968%-'(3(;&/







968%-'(3,1&/



$8;'(3,&3



968%-'(3



$8;'(3&3

 &/ 

968%-'(3

BBBBBBBBBBBBBBBB







 

DUJXPHQWVDGMXQFWV



,W VHHPV OLNHO\ WR XV WKDW WKH SURFHVVHV RI FDWHJRU\ DVVLPLODWLRQ VNHWFKHG DERYHZHUHDFFRPSDQLHGE\LQVWDQFHVRILQWHUOLQJXDOLGHQWLILFDWLRQRIOLQ JXLVWLFVLJQVDQGGLVWULEXWLRQDODVVLPLODWLRQ,QSDUWLFXODUWKHLQWHJUDWLRQRI QHZHOHPHQWVLQWRWKHQHZO\FUHDWHG FDWHJRU\RIµDX[LOLDU\¶LQ=RTXHPD\ KDYH EHHQ HQKDQFHG E\ WKH GLVWULEXWLRQDO DVVLPLODWLRQ RI VSHFLILF PRWLRQ YHUEV :KLOH WKH LQWHUOLQJXDO LGHQWLILFDWLRQ RI FDWHJRULHV DQG WKDW RI VLJQV DUH LQ SULQFLSOH LQGHSHQGHQW RI HDFK RWKHU WKH WZR SURFHVVHV FHUWDLQO\ µFRQVSLUH¶ LQ V\VWHPDWLF ZD\V LQ ³WKH V\QFUHWLVDWLRQ RI SURFHVVLQJ RSHUD WLRQV´0DWUDVDQG6DNHO $IWHUDOOSDUDGLJPVDUHVWUXFWXUHG 

:KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶"



VHWVRIOLQJXLVWLFVLJQVDQGWKHGHJUHHRIVLPLODULW\EHWZHHQSDUDGLJPVRE YLRXVO\ FRUUHODWHV SRVLWLYHO\ ZLWK WKH QXPEHU RI LQWHUOLQJXDOO\ LGHQWLILHG HOHPHQWVRFFXUULQJLQWKRVHSDUDGLJPV7KHµPXWXDOUHLQIRUFHPHQW¶RIWKH WZR SURFHVVHV XQGHU GLVFXVVLRQ ZLOO DOVR EHFRPH DSSDUHQW LI ZH FRQVLGHU WKHGHRQWLFPRGDOVN¶DQDQGVXQ   7KHH[SUHVVLRQRIGHRQWLFQHFHVVLW\ZLWKDYROLWLRQDOYHUE

 7KHH[SUHVVLRQRIGHRQWLFQHFHVVLW\LQ7]RW]LODQG=RTXHVHHPVWRSURYLGH DFOHDUFDVHRILQWHUOLQJXDOLGHQWLILFDWLRQRIOLQJXLVWLFVLJQV:HZLOODJDLQ VWDUWZLWKWKHGHYHORSPHQWRIWKH7]RW]LODX[LOLDU\N¶DQ DVVXPLQJWKDWWKH HPHUJHQFHRIWKHFRQVWUXFWLRQLQ=RTXHZDVFRQWDFWLQGXFHG 7KHPRGDOXVHRIWKHYROLWLRQDOYHUEN¶DQLQ7]RW]LOFDQEHUHJDUGHGDV DQLQVWDQFHRIJHQHUDOL]DWLRQRYHUDGHRQWLF RUGHULQJVRXUFH$SUHGLFDWH RI ZDQWLQJ WDNHV WZR DUJXPHQWV DQ ([SHULHQFHU DQG D 'HVLGHUDWXP HJ µ>,@(;3ZDQW>\RXWRJR@'(6¶,IWKHSRVLWLRQRIWKH([SHULHQFHULVOHIWXQVSHFL ILHG LQDQLPSHUVRQDO FRQVWUXFWLRQWKH 'HVLGHUDWXP UHPDLQV DVD VROH VH PDQWLFDUJXPHQWRIWKHFRQVWUXFWLRQ$SURSRVLWLRQDO'HVLGHUDWXPLQWXUQ µ\RXWRJR¶ LVVHPDQWLFDOO\DNLQWRDSURSRVLWLRQLQWKHVFRSHRIDGHRQWLF QHFHVVLW\RSHUDWRUDVERWKH[SUHVVK\SRWKHWLFDOVWDWHVRIDIIDLUVZKLFKUHS UHVHQWDµEHWWHUZRUOG¶LQFRPSDULVRQWRWKHVSHFLILFDOWHUQDWLYHZRUOGVXQ GHUGLVFXVVLRQ $VDUHVXOWRIWKHSURFHVVRIUHDQDO\VLVVNHWFKHGDERYH7]RW]LON¶DQDF TXLUHG DQ DGGLWLRQDO IXQFWLRQ LH WKH H[SUHVVLRQ RI GHRQWLF PRGDOLW\ ,Q IDFW VHQWHQFHV ZLWK N¶DQ PD\ EH DPELJXRXV EHWZHHQ D SHUVRQDO DQG DQ LPSHUVRQDO LQWHUSUHWDWLRQ DV LV WKH 6SDQLVK H[DPSOHV LQ  DERYH QRWH KRZHYHU WKDW LQ PRVW FRQWH[WV DVSHFWXDO LQIRUPDWLRQ ZLOO GLVWLQJXLVK WKH WZRLQWHUSUHWDWLRQVLQ7]RW]LO  ,Q WHUPV RI WKH PRGHO SUHVHQWHG LQ 6HFWLRQ  WKH YHUEV N¶DQ 7]RW]LO  DQGVXQ=RTXH ZHUHLQWHUOLQJXDOO\LGHQWLILHGDQGWKHGLVWULEXWLRQRI=R TXH VXQ ZDV DVVLPLODWHG WR WKDW RI 7]RW]LO N¶DQ *LYHQ WKDW WKH DGGLWLRQDO PHDQLQJ DFTXLUHG E\ =RTXH VXQ GHRQWLF PRGDOLW\  LV PRUH JUDPPDWLFDO WKDQ WKH OH[LFDO PHDQLQJ µZDQW¶  WKLV SURFHVV TXDOLILHV DV DQ LQVWDQFH RI FRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ,WLVLOOXVWUDWHGLQ        µORYH¶ µZDQW¶ µPXVW¶  



9RONHU*DVWDQG-RKDQYDQGHU$XZHUD

7KH UHSOLFDWLRQ RI D µGHYROLWLRQDO¶ GHRQWLF PRGDO LQ =RTXH DOVR LPSOLHV JUDPPDWLFDOL]DWLRQ LQ DQRWKHU UHVSHFW ,Q WKHLU PRGDO XVHV WKH WZR YHUEV N¶DQ DQG VXQ  DUH DVVRFLDWHG ZLWK VSHFLILF FRQVWUXFWLRQV FI  DERYH  =RTXHVXQLVIXOO\LQWHJUDWHGLQWRWKHFODVVRIGHSHQGHQWWULJJHUVDX[LOLDULHV WKH µSLYRW¶ RI WKH UHOHYDQW FRQVWUXFWLRQ LQ WHUPV RI 0DWUDV DQG 6DNHO  7]RW]LON¶DQIRUPVDGLVWULEXWLRQDOFODVVZLWKµVHFRQGDU\¶DX[LOLDULHV OLNH \Xপ  µEH DEOH WR¶ 7KH H[LVWHQFH RI D SDLU RI LQWHUOLQJXDOO\ LGHQWLILHG VLJQV±DµK\SHUOLQJXDO¶VLJQVXQN¶DQDVLWZHUH±IXUWKHUVWUHQJWKHQVWKH OLQNEHWZHHQWKHFDWHJRULHVFRQWDLQLQJWKHUHOHYDQWHOHPHQWVHYHQWKRXJK ZHKDYHPDGHDGLVWLQFWLRQEHWZHHQµSULPDU\¶DQGµVHFRQGDU\¶DX[LOLDULHV LQ7]RW]LOZKLFKGRHVQRWVHHPWRH[LVWLQ=RTXH   &RQFOXVLRQV

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µFRQWDFWLQGXFHGLQQRYDWLRQ¶RQWKHRQHKDQGDQGWKH VRFLROLQJXLVWLFSURFHVVRISURSDJDWLRQRQWKHRWKHUDQGWKDWLWLVWKHIRUPHU W\SH RI SURFHVV WKDW SURYLGHV WKH NH\ WR DQ XQGHUVWDQGLQJ RI FRQWDFW LQGXFHGJUDPPDWLFDOL]DWLRQ 7KHDUJXPHQWVDQGFODLPVPDGHLQWKLVSDSHUDUHQHFHVVDULO\WHQWDWLYH JLYHQWKHK\SRWKHWLFDOQDWXUHRIWKHDFWXDOGHYHORSPHQWVLQWKHODQJXDJHV XQGHUGLVFXVVLRQDQGJLYHQWKHIDFWWKDWWKHLQWHUDFWLRQRIJUDPPDWLFDOL]D WLRQDQGODQJXDJHFRQWDFWLVYHU\KDUGWRJHWDJULSRQHYHQIRUODQJXDJHV ZKLFKDUHEHWWHUGRFXPHQWHGLQKLVWRULFDOWHUPV7KHPDLQREMHFWLYHRIWKLV SDSHUKDVEHHQWRGLVFXVVWKHTXHVWLRQRIZKDWFDQSODXVLEO\EHDVVXPHGWR EHWUDQVIHUUHGLQFDVHVRIµJUDPPDWLFDOFRQYHUJHQFH¶:HKDYHDUJXHGIRU DQ LQWHUSUHWDWLRQ RI µFRQWDFWLQGXFHG JUDPPDWLFDOL]DWLRQ¶ DV VXEVXPLQJ SURFHVVHV RI JUDPPDWLFDOL]DWLRQ WKDW KDYH EHHQ WULJJHUHG E\ LQWHUOLQJXDO LGHQWLILFDWLRQRIOLQJXLVWLFVLJQVRUFDWHJRULHV7KHGDWDGLVFXVVHGDUHREYL RXVO\ OLPLWHG LQ VFRSH 6WLOO ZHKRSHWR KDYH PDGH D FRQWULEXWLRQWRWKH UHODWLRQVKLS EHWZHHQ ODQJXDJH FRQWDFW DQG JUDPPDWLFDOL]DWLRQ D WRSLF

:KDWLVµFRQWDFWLQGXFHGJUDPPDWLFDOL]DWLRQ¶"



ZKLFKKDVFKLHIO\EHHQLQVWLJDWHGE\$LNKHQYDOG +HLQHDQG.XWHYD  DQG0DWUDVDQG6DNHO DQGZKLFKFHUWDLQO\GHVHUYHVWR UHFHLYHPRUHDWWHQWLRQLQIXWXUHW\SRORJLFDODQGKLVWRULFDOOLQJXLVWLFZRUN   1RWHV   7KLV SDSHU LV D UHVXOW RI D UHVHDUFK VWD\ E\ 9RONHU *DVW DW WKH 8QLYHUVLW\ RI $QWZHUSLQDXWXPQILQDQFHGE\WKH $OH[DQGHUYRQ+XPEROGW )RXQGD WLRQ)HRGRU/\QHQSURJUDPPH DQGWKH5HVHDUFK&RXQFLORIWKH8QLYHUVLW\RI $QWZHUS)LQDQFLDOVXSSRUWIURPWKHVHLQVWLWXWLRQVLVJUDWHIXOO\DFNQRZOHGJHG 7KHSDSHUZDVXSGDWHGDQGSDUWO\UHZULWWHQLQVSULQJ:HZRXOGOLNHWR WKDQNWZRDQRQ\PRXVUHIHUHHVDQGWKHHGLWRUVRIWKLVYROXPHIRUKHOSIXOFRP PHQWV$Q\UHPDLQLQJLQDFFXUDFLHVDUHRXURZQ  5RXJKO\Ȧ3,(&(2)/$1'$/0267&203/(7(/5=@ >'0@ >&5,@  

6N¶RS6RW]¶OHE7KH7]RW]LORI=LQDFDQWDQ2QOLQHJUDPPDUE\- +DYLODQG$YDLODEOHRQOLQHDW KWWSZZZ]DSDWDRUJ7]RW]LO 1HZ7HVWDPHQWLQ7]RW]LORI=LQDFDQWDQ/D/LJD%tELOLFD 3HNDWVDPHGDP$FRUSXVRI=RTXHQDUUDWLYHVFRPSLOHGE\-DQ7HUMH )DDUOXQG 5HODWRV=RTXHV(GE\0DUFHOLQR(VWUDGD5XHGDHWDO&ROHJLR/HQ JXDVGH0p[LFR '0XVRN\X\-RXUQDOHGLWHGE\WKH,QVWLWXWR&KLDSDQHFRGH&XOWXUD &XHQWRV\5HODWRV,QGtJHQDV0p[LFR')81$0

5HIHUHQFHV  $LNKHQYDOG$OH[DQGUD7KH UHFLSLHQW SDVVLYH LQ 6ORYDN@6ORYHQVNiUHþ *LJHU0DUNXV   2Q GHOLPLWDWLRQ RI DQDO\WLF YHUEDO IRUPV RQ WKH EDVLV RI WKUHH :HVW6ODYLFFRQVWUXFWLRQV 6ODYLD



0DUNXV*LJHU

*LJHU6LWiURYi0LULDP   /H[LND D ãWêO DGPLQLVWUDWtYQRSUiYQ\FK WH[WRY ]R  VWRURþLD >/H[LFRQDQGVW\OHRIDGPLQLVWUDWLYHOHJDOGRFXPHQWVRIWKHWK± WK FHQWXU\@ %UDWLVODYD XQSXEOLVKHG 3K' WKHVLV -D]\NRYHGQê ~VWDYďXGRYtWDâW~UD6$9%UDWLVODYD  *ODVHU(OYLUD   .ULHJ XQG NULHJHQ =XU $UHDOLWlW GHU %(.200(13HULSKUDVHQ ,Q Ä.ULHJ XQG )ULHGHQ³ ± $XVHLQDQGHUVHW]XQJ XQG 9HUV|KQXQJ LQ 'LVNXUVHQ8OOD.OHLQEHUJHU*QWKHU$QQHOLHV+lFNL%XKRIHUDQG (OLVDEHWK3LLUDLQHQ+UVJ 7ELQJHQ)UDQFNH +DVSHOPDWK0DUWLQ   +RZ\RXQJLV6WDQGDUG$YHUDJH(XURSHDQ"/DQJXDJH6FLHQFHV  +DVSHOPDWK0DUWLQ   7KH(XURSHDQOLQJXLVWLFDUHD6WDQGDUG$YHUDJH(XURSHDQ,Q/DQ JXDJH 7\SRORJ\ DQG /DQJXDJH 8QLYHUVDOV $Q ,QWHUQDWLRQDO +DQGERRN 0DUWLQ +DVSHOPDWK (NNHKDUG .|QLJ :XOI 2HVWHUUHL FKHU DQG :ROIJDQJ 5DLEOH HGV   +DQGEFKHU ]XU 6SUDFK XQG .RPPXQLNDWLRQVZLVVHQVFKDIW   %HUOLQ1HZ &]HFK*HUPDQ'LFWLRQDU\,$-@ 3UDKD-RVHIDZGRZD)HWWHUORZiĜM]HQMP:iFODYDâSLQN\ .RWW)UDQWLãHN  ýHVNRQČPHFNêVORYQtN]YOiãWČJUDPPDWLFNRIUDVHRORJLFNê,9,,,  'RGDWN\ ,,,, >&]HFK*HUPDQ 'LFWLRQDU\ HVSHFLDOO\ JUDP PDWLFDODQGSKUDVHRORJLFDO,9,,,DGGLWLRQV,,,,@3UDKD.ROiĜ /|W]VFK5RODQG   1ČNRWUH ZXVNXWNLQČPVNHKR ZOLZD QD ZHUEDOQ\ V\VWHP VHUEãüLQ\ >6RPH UHVXOWV RI WKH *HUPDQ LQIOXHQFH RQ WKH YHUEDO V\VWHP RI 6RUELDQ@,Q3ĜLQRãNLNVHUEVNHPXUČþHVS\WHM%HLWUlJH]XUVRUEL VFKHQ 6SUDFKZLVVHQVFKDIW +HOPXW )D‰NH DQG 5RODQG /|W]VFK UHG %XG\ãLQ%DXW]HQ'RPRZLQD /|W]VFK5RODQG   =XPLQGLUHNWHQ3DVVLYLP'HXWVFKHQXQG6ODZLVFKHQ,Q6ODZLVFK GHXWVFKH :HFKVHOEH]LHKXQJHQ LQ 6SUDFKH /LWHUDWXU XQG .XOWXU :HUQHU .UDXVV =G]LVáDZ 6WLHEHU -DURPtU %ƟOLþ DQG 9 , %RU

7KH³UHFLSLHQWSDVVLYH´LQ:HVW6ODYLF



NRYVNLM +UVJ   9HU|IIHQWOLFKXQJHQ GHV ,QVWLWXWV IU 6ODZLVWLN %HUOLQ$NDGHPLH9HUODJ 0DWUDV&RQFLVH GLFWLRQDU\ RI WKH &]HFKODQJXDJH,$-@6WiWQtQDNODGDWHOVWYt 6FKXO]H-DQD   'LH (QWVWHKXQJ XQG (QWZLFNOXQJ HLQHU HLQKHLWOLFKHQ REHUVRUEL VFKHQ6FKULIWVSUDFKHLP-DKUKXQGHUWXQGGHU%HLWUDJGHV'LFK WHUV -DNXE %DUWûLãLQVNL ]X LKUHU HQGJOWLJHQ .RQVROLGLHUXQJ XQG 'XUFKVHW]XQJ/HLS]LJ8QLYHUVLWlW/HLS]LJ âČUDNRZD,UHQD   6\QWDNVD >6\QWD[@ ,Q 6HUEãüLQD +HOPXW )DVND UHG   1DMQRZV]H G]LHMH MĊ]\NyZ VáRZLDĔVNLFK  2SROH 8QLZHUV\WHW 2SROVNL±,QVW\WXW)LORORJLL3ROVNLHM 6SHVFKD$UQROG   *UDPPDWLFD VXUVLOYDQD &XHUD &DVD HGLWXUD SHU PLHGV G¶LQVWUXF]LXQ 66-ý   6ORYQtNVSLVRYQpKRMD]\NDþHVNpKR,$0>'LFWLRQDU\RIWKHOLWHU DU\ &]HFK ODQJXDJH , $0@ 3UDKD 1DNODGDWHOVWYt þHVNRVOR YHQVNpDNDGHPLHYČG âWtFKD)UDQWLãHN   2SLVQpSDVLYQtNRQVWUXNFHVUHOiWRUHPGRVWDWDWUSQêPSDUWLFLSLHP YVRXþDVQpþHãWLQČ~]XVDJUDPDWLþQRVW>3HULSKUDVWLFSDVVLYHFRQ VWUXFWLRQVZLWKWKHUHODWRUGRVWDWDQGDSDVVLYHSDUWLFLSOH8VHDQG JUDPPDWLFDOLW\@ ,Q ýHãWLQD ± XQLYHU]iOLD D VSHFLILND  =GHĖND +ODGNiDQG3HWU.DUOtNHGV 3UDKD/LGRYpQRYLQ\



0DUNXV*LJHU

9RJHO3HWUD0   'DV XQSHUV|QOLFKH 3DVVLY (LQH IXQNWLRQDOH 8QWHUVXFKXQJ XQWHU EHVRQGHUHU %HUFNVLFKWLJXQJ GHV 'HXWVFKHQ XQG VHLQHU KLVWRUL VFKHQ(QWZLFNOXQJ%HUOLQ±1HZ$QDO\WLFDO SDVVLYH LQ 5XVVLDQ DQG 3ROLVK@ ,Q 6HPDQW\ND D NRQIURQWDFMD MĊ]\NRZD9LROHWWD.RVHVND7RV]HZDUHG :DUV]DZD 62: :LHPHU%M|UQ   7KHHYROXWLRQRISDVVLYHVDVJUDPPDWLFDOFRQVWUXFWLRQVLQ1RUWKHUQ 6ODYLF DQG %DOWLF ODQJXDJHV ,Q :KDW PDNHV *UDPPDWLFDOL]DWLRQ" $/RRNIURPLWV)ULQJHVDQGLWV&RPSRQHQWV:DOWHU%LVDQJ1LNR ODXV3+LPPHOPDQQDQG%M|UQ:LHPHUHGV 7UHQGV LQ OLQJXLVWLFV 6WXGLHV DQG PRQRJUDSKV   %HUOLQ ± 1HZ DQG@ LV VLOHQW¶ EHJL LãþL µUXQ >DQG@ ORRN IRU LW¶ [RGLW åDOXHWVMD µVKH JRHV DURXQG>DQG@FRPSODLQV¶SULãOLSR]QDNRPLOLV¶µWKH\FDPH>DQG@LQWURGXFHG WKHPVHOYHV¶VOXãDMXRåLGDMXµ,DPOLVWHQLQJ>DQG@ZDLWLQJ¶HWF%HFDXVHRI WKHVHVHPDQWLFUHVWULFWLRQVRIWKHILUVWYHUEVXFK'9VEHORQJWRWKHDV\P PHWULFDOW\SHRIVHULDOL]DWLRQVLQJOHGRXWLQ$LNKHQYDOG   %HVLGHVWKLVWKHUHDUHWZRLPSRUWDQWVXEW\SHVWKDWQHHGQRWVDWLVI\WKH VDLG VFDOH RI SUHIHUHQFHV 7KH ILUVW FRQVLVWV RI YHUE SDLUV ZKRVH VHFRQG FRPSRQHQW H[SUHVVHV WKH ODFN RI DQ\ REVWDFOH RU LQWHUIHUHQFH WKDW FRXOG DIIHFWWKHSURFHVVGHVFULEHGE\WKHILUVWFRPSRQHQW,WPD\EHLOOXVWUDWHGE\ H[DPSOHVVXFKDVELW¶QHåDOHW¶OLWµEHDWXS>DQG@QRWKDYHSLW\¶UDGRYDW¶VMD QHQDUDGRYDW¶VMDµEHJODGDQGQRWKDYHHQRXJKMR\¶åLW¶QHVVRULW¶VMDµOLYH >DQG@QRWTXDUUHO¶HWF7KHFUXFLDOUROHRIQHJDWLRQLQVXFKSDLUVLVREYLRXV VHHQH[WVHFWLRQ 1RWHWKDWWKH'9FRQVWUXFWLRQLVQRWWKHRQO\WHFKQLTXH WKDWFDQH[SUHVVWKHFRQFHSWRIDQHDV\VPRRWKDQGXQWURXEOHGSURFHVVLQ FROORTXLDO5XVVLDQLQSDUWLFXODUWKHVDPHLGHDPD\EHUHQGHUHGE\WKHSDU WLFOHVHEHDVLQåLYHWVSLWVLGLWUDERWDHW[RGLWVHEHµOLYHVVOHHSVVLWV ZRUNVZDONVDURXQGZLWKRXWWURXEOH¶%RWKGHYLFHVPD\FRPELQHHJåLYX VHEHQHWXåXµ,OLYH>DQG@GRQRWPRXUQ¶  7KH WHPSRUDO HTXLYDOHQW RI WKH ODFNLQJ REVWDFOH LV XQLQWHUUXSWHG GXUD WLRQ LWV PDUNHUV DUH WKH ILUVW YHUEV VLGHW¶ VWRMDW¶ DQG [RGLW¶ VHFWLRQ   PRUHRYHU WKH UHGXSOLFDWLRQ RI RQH YHUE DV LQ LGHPLGHP µZH JR DQG JR¶ LFRQLFDOO\ VHUYHV WKH VDPH SXUSRVH 7KH LGHD RI DQ XQGLVWXUEHG SURFHVV LV IXUWKHU GHYHORSHG E\ WKH VHFRQG VXEW\SH LQ ZKLFK WKH VHFRQG FRPSRQHQW VHUYHVDVDQLQWHQVLILHURIWKHILUVWRQHFINULþDW¶UD]GLUDW¶VMDµVKRXWYHU\ ORXGO\¶6XFKSDLUVDUHRIWHQSKUDVHRORJLFDOO\ERXQGVHFWLRQ DQGRU EDVHGRQV\QRQ\PRXVYDULDWLRQVHFWLRQ   ,Q QRQSURWRW\SLFDO '9V QHLWKHU RI WKH FRPSRQHQWV WKH VHPDQWLF µWZLQV¶ LVVXEMHFWWRVSHFLILFOH[LFDOUHVWULFWLRQVDFFRUGLQJWRWKHWHUPLQR ORJ\SURSRVHGE\$LNKHQYDOG WKHVHDUHV\PPHWULFDO69&V:KDWLV VDOLHQW KHUH DUH FHUWDLQ IXQGDPHQWDO VHPDQWLFUHODWLRQV EHWZHHQ WKHP YL] FRK\SRQ\P\DQWRQ\P\FRQYHUVLRQRUDVHPDQWLFVFULSWVHHVHFWLRQ 



9HUEVHULDOL]DWLRQLQQRUWKHDVW(XURSH  

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µ,¶OO JR >DQG@ YHULI\¶ VMDGHPSRGXPDHPµZH¶OOVLWGRZQDQGWKLQNRILW¶W\E\OHJODVSDODµDQG@VOHHS¶1RQSURWRW\SLFDOXVHVUHIHUWRWZRVWLOOGLVWLQ JXLVKDEOH WKRXJK QRW HQWLUHO\ VHSDUDWH HYHQWV \HW WKH\ WHQG WR FRYHU WKH VDPH WLPH VSDQ RU HOVH WLPH UHIHUHQFH EHFRPHV LUUHOHYDQW DV LV RIWHQ WKH FDVHZLWKKDELWXDORUJHQHULFUHDGLQJV7KHSURJUHVVLYHPHDQLQJRIWKHLP SHUIHFWLYHDVSHFWLVIRXQGDOPRVWH[FOXVLYHO\ZLWKWKHVHPDQWLFSURWRW\SH   1HJDWLRQ  7KHSRVLWLRQRIQHJDWLRQPD\YDU\LWFDQEHSODFHGEHIRUHHLWKHUWKHVHFRQG RU GXH WR LQYHUVLRQ  WKH ILUVW YHUE FI H㶠QH EHVSRNRMVMD µ(DW GRQ¶W ZRUU\¶ DQG QH SROHQLV¶ SURþLWDM µGRQ¶W EH OD]\ UHDG LW WKURXJK¶ RU HYHQ EHIRUHERWKRIWKHPFIQHSHOLQHSOMDVDOLµWKH\QHLWKHUVDQJQRUGDQFHG¶ QHSURMWLQHSURH[DW¶µRQHFDQQHLWKHUSDVVE\ZDONLQJQRUE\GULYLQJ¶QRWH WKDWWKHQRUPDOGRXEOHQHJDWLRQµQHLWKHU«QRU¶ZRXOGEHQLSURMWLQLSUR H[DW¶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



'DQLHO:HLVV

PHQWLRQHGVHPDQWLFFRQVWDQWZKDWLVQHJDWHGLVWKHSUHVHQFHRIDQREVWDFOH WKDWFRXOGVRPHKRZDIIHFWVORZGRZQLQKLELWLPSDLURUHYHQSUHYHQW WKH SURFHVVGHQRWHGE\WKHILUVWYHUE%HVLGHVWKHLPSHUDWLYHVQHSROHQLV¶µGRQ¶W EHOD]\¶DQGQHEHVSRNRMVMDµGRQ¶WZRUU\¶TXRWHGDERYHWKLVSDWWHUQLVUHS UHVHQWHG E\ VXFK FROORFDWLRQV DV LGHW QH VSHãLW µLV ZDONLQJ ZLWKRXW KXUU\¶ VOXãDHWQHSHUHELYDHWµLVOLVWHQLQJZLWKRXWLQWHUUXSWLQJ¶OHåLWQHãHYHOLWVMD QHSRGQLPHWVMDµOLHVZLWKRXWPRYLQJZLOOQRWVWDQGXS¶åLYXWQHVVRUMDWVMD µWKH\OLYHZLWKRXWTXDUHOOLQJ¶åLYHWQHWXåLWµOLYHVZLWKRXWPRXUQLQJ¶Y\SLO QHSRPRUãþLOVMDµKHGUDQN>LW@RXWZLWKRXWIURZQLQJ¶ELOLQHåDOHOLµWKH\KLW PHUFLOHVVO\¶O¶HWQHSHUHVWDHWµLW¶VUDLQLQJLQFHVVDQWO\¶UDGXMXV¶QHQDUDGX MXV¶µ,DPJODGZLWKRXWHQG¶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þLW o VLGLWLPROþLW V\QGHWLFFRRUGLQDWLRQ µVLWVLVVLOHQW¶  µVLWVDQGLVVLOHQW¶ VLGLWPROþLW o VLGLWPROþD FRQYHUE µVLWVLVVLOHQW¶ µVLWVEHLQJVLOHQW¶ SULGLSR]QDNRP¶VMDo SULGLSR]QDNRPLW¶VMD LQILQLWLYH µFRPHLQWURGXFH\RXUVHOI¶ µFRPHWRLQWURGXFH\RXUVHOI¶  1RQHRIWKHVHYDULDQWVLVDIXOOHTXLYDOHQWRIVHULDOL]DWLRQQRUGRWKHLUFRQ GLWLRQVRIXVHFRLQFLGH7REHJLQZLWKV\QGHWLFOLQNLQJLVE\IDUWKHFORVHVW YDULDQWDQGRQHPLJKWHYHQFRQMHFWXUHWKDWWKH'9FRQVWUXFWLRQJRHVEDFN WR D VLPSOH RPLVVLRQ RI WKH FRQMXQFWLRQ µDQG¶ 7KLV LV KRZHYHU QRW YHU\ SUREDEOHDVZLOOEHVKRZQLQVHFWLRQWKHURRWVRI5XVVLDQYHUEDOVHULDOL ]DWLRQ VKRXOG QRW EH WUDFHG EDFNHG WR 5XVVLDQ LWVHOI EXW WR FRQWDFW ZLWK )LQQR8JULF ODQJXDJHV %HVLGHV WKLV FRQWUDU\ WR $LNKHQYDOG   



9HUEVHULDOL]DWLRQLQQRUWKHDVW(XURSH  

 WKHUH LV D ZKROH UDQJH RI '9V WKDW EORFN WKH LQVHUWLRQ RI µDQG¶ ILUVW VHW SKUDVHVRIWKHLQWHQVLI\LQJW\SHNULþDW¶QDGU\YDW¶VMDWREHGLVFXVVHGLQWKH QH[WVHFWLRQVHFRQGKDOIV\QRQ\PRXVSDLUVGHVFULELQJRQHVLQJOHHYHQWRI WKH W\SH SR[ORSDOSRJODGLO PRMX UXNX VHH VHFWLRQ   WKLUG '9V ZLWK SHUIHFWLYHDVSHFWWKDWGRQRWGHQRWHDVHTXHQFHRIDFWLRQVFI:HLVV  DQGIRXUWK'9VLQWKHLPSHUDWLYHZKRVHILUVWFRPSRQHQWLVSUDJPDWLFDOO\ VSHFLDOL]HGDQGIXQFWLRQVPXFKOLNHDSDUWLFOHFIGDYDMSHMµJRRQ>OLWJLYH@ GULQN¶VPRWULQHSURVWXGLV¶µZDWFK>RXW@GRQ¶WFDWFKFROG¶SRGLSRYHU¶µJR EHOLHYH¶HWF2QWKHZKROHRQHZRXOGH[SHFWWKDWSURWRW\SLFDO'9VLQJHQ HUDOFRQVWLWXWHDQREVWDFOHWRV\QGHWLFSDUDSKUDVLQJVLQFHWKH\GHQRWHRQO\ RQH VLQJOH HYHQW ZKLOH FRRUGLQDWLRQ W\SLFDOO\ FRPELQHV WZR PRUH RU OHVV DXWRQRPRXV HYHQWV LQ YLHZ RI WKH QXPHURXV ³H[FHSWLRQV´ ZKHUH µDQG¶ FRPELQHVQRWWZRVHSDUDWHSURSRVLWLRQVEXWUDWKHUWZRGLIIHUHQWDVSHFWVRI WKHVDPHVLWXDWLRQ:HLVV RQHKDVKRZHYHUWRDEDQGRQVXFKD VLPSOLVWLFK\SRWKHVLV  7KHFRQYHUESDUDSKUDVHLVQHXWUDODVWRWKHRSSRVLWLRQRQHHYHQWWZR HYHQWV! EXW FKDQJHV WKH HTXDO VWDWXV RI ERWK FRPSRQHQWV LQWR DQ LQWHUQDO KLHUDUFK\ WKH DVSHFW UHQGHUHG E\ WKH FRQYHUE LV HLWKHU EDFNJURXQGHG RU HOVHWKHFRQYHUESKUDVHLVSURVRGLFDOO\IRFXVHG%HVLGHVWKHFRPSOLFDWLRQV DULVLQJ ZLWK VXFK QDWXUDO SDLUV DV µHDW DQG GULQN¶ FI 3LO HGMD µKH GUDQN >ZKLOH@ HDWLQJ¶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ãHO SR]QDNRPLOVMD µFDPH LQWURGXFHG KLPVHOI¶UHIHUVWRWZRHYHQWVWKDWUHDOO\WRRNSODFHZKHUHDVLQSULãHOSR]QD NRPLW¶VMD µFDPH WR LQWURGXFH KLPVHOI¶ WKH WUXWK YDOXH RI WKH SURSRVLWLRQ SR]QDNRPLOVMD µKH LQWURGXFHG KLPVHOI¶ UHPDLQV RSHQ 0RUHRYHU LPSHUD WLYHVZLWKSUDJPDWLFDOO\VSHFLDOL]HGILUVWFRPSRQHQWVVHHVHFWLRQ GR QRWDOORZIRUWKHLQILQLWLYHWUDQVIRUPDWLRQFI3RGLSRYHU¶ SRYHULW¶µ*R



'DQLHO:HLVV

EHOLHYH  WR EHOLHYH¶ 6PRWUL QH SUREROWDMVMD  QH SUREROWDW¶VMD µ:DWFK >RXW@GRQ¶WOHWRXW>WKHVHFUHW@ QRWWROHWRXW¶  7R VXP XS V\QGHWLF FRRUGLQDWLRQ VKDUHV WKH HTXDO VWDWXV RI ERWK FRQ MXQFWV ZLWK WKH '9 FRQVWUXFWLRQ ZKHUHDVFRQYHUEDQG LQILQLWLYH FRQVWUXF WLRQV DUH EDVHG RQ KLHUDUFKLFDO UHODWLRQV7KHODWWHUWZR W\SHV RI FRQVWUXF WLRQVVKDUHZLWKWKH'9FRQVWUXFWLRQWKHUHTXLUHPHQWRIDFRPPRQVXEMHFW IRUERWKYHUEDOFRPSRQHQWVZKHUHDVFRRUGLQDWLRQDGPLWVGLIIHUHQWVXEMHFWV   3KUDVHRORJLFDOERXQGQHVV  '9V ZLWK DQ LQWHQVLI\LQJ VHFRQG FRPSRQHQW WHQG WR EHFRPH SKUDVHROR JL]HG 6XFK LV WKH FDVH RI NULþDW¶QDGU\YDW¶VMD µVFUHDP ZLWK DOO RQH¶V VWUHQJWK¶ [R[RWDW¶]DOLYDW¶VMD µODXJK XSURDULRXVO\¶ O¶HWQH SHUHVWDHW µLW UDLQVLQFHVVDQWO\¶RQWKHEDVLVRIWKHVHFRQGYHUEZHDUHDEOHWRSUHGLFWWKH ILUVW RQH ZLWK KLJK SUREDELOLW\ )RULQVWDQFHWKHVHFRQG YHUE QDGU\YDW¶VMD ³IRUHFDVWV´DILUVWYHUEGHQRWLQJDVRXQGDFWLYLWL\FI2QDRUHWQDGU\YDHWVMD µVKH LV VKRXWLQJ ZLWK DOO KHU VWUHQJWK¶ PODGHQHF NULþDOQDGU\YDOVMD µWKH FKLOG ZDV VFUHDPLQJ YHU\ ORXGO\¶ EXW DOVR VREDND ODHWQDGU\YDHWVMD µWKH GRJ LV EDUNLQJ YHU\ ORXGHO\¶ WHOHIRQ ]YRQLOQDGU\YDOVMD µWKH SKRQH ZDV ULQJLQJ YHU\ ORXGHO\¶ HWF ,W VKRXOG EH QRWHG WKDW QDGU\YDW¶VMD DORQH FDQ DOUHDG\PHDQµWRVKRXWZLWKDOORQH¶VVWUHQJWK¶WKXVLQWKHFDVHRIDKXPDQ DJHQWWKHVHFRQGYHUERIWKH'9EHFRPHVUHGXQGDQWZKHUHDVZLWKDQLPDOV DQGLQDQLPDWHVRXUFHVVXFKDVSKRQHVZHREVHUYHDPHWDSKRULFDOWUDQVIHU $VLPLODUVLWXDWLRQREWDLQVZLWK[R[RWDW¶]DOLYDW¶VMDVLQFH]DOLYDW¶VMDDORQH PD\DOVRPHDQµODXJKORXGO\¶,QWKLVZD\WKHH[DPSOHVPHQWLRQHGEHORQJ WRWKHVDPHVHPDQWLFVXEW\SHDVWKHVHULHVZLWKLGHQWLFDOURRWVRIWKHNLQG åGDW¶RåLGDW¶RU]YRQLW¶QD]YDQLYDW¶ZKLFKDOVRVHUYHWKHSXUSRVHRILQWHQVL I\LQJ :HLVV    PRUHRYHU DV ZH ZLOO VHH LQ WKH QH[W VHFWLRQ WKH VDPHPHDQLQJLVDOVRH[SUHVVHGE\DKRVWRI³IUHH´'9FRPELQDWLRQV1RWH WKDWWKHFRQFHSWRILQWHQVLW\UHLQIRUFHVWKHVHPDQWLFLQYDULDQWGHVFULEHGLQ WKH SUHYLRXV VHFWLRQ ZKHUH WKH '9 FRQVWUXFWLRQ GHQRWHG DQ XQLQWHUUXSWHG DQGXQKLQGHUHGSURFHVV7KLVVHPDQWLFW\SHDOVRVKRZVDFHUWDLQWHQGHQF\ WRZDUGV IUR]HQQHVV IRU LQVWDQFH RQH ILQGV åLW¶ QH VVRULW¶VMD µOLYH ZLWKRXW TXDUUHOOLQJ¶ EXW UDWKHU QRW "EULJDGD UDERWDHW QH VVRULWVMD µWKH EULJDGH ZRUNV ZLWKRXW TXDUUHOOLQJ¶ "GHWL LJUDMXW QH VVRUMDWVMD µWKH FKLOGUHQ DUH SOD\LQJZLWKRXWTXDUUHOOLQJ¶  7KHIUR]HQQHVVRIWKHH[DPSOHVIURPWKLVVHULHVLVEHVWLOOXVWUDWHGE\WKH IROORZLQJUHVWULFWLRQVL WKH\GRQRWDOORZIRULQYHUVLRQFI QDGU\YDHWVMD RUHW DQG LL  WKH\ FDQQRW EH WUDQVIRUPHG LQWR D FRRUGLQDWLYH VWULQJ ZLWK



9HUEVHULDOL]DWLRQLQQRUWKHDVW(XURSH  

 V\QGHWLF OLQNLQJ FI ]YRQLW L QDGU\YDHWVMD QRU LQWR D FRQYHUE FI RUHW QDGU\YDMDV¶ ,Q ERWK UHVSHFWV WKH\ GLIIHU IURP UHJXODU ³IUHH´  '9 FRQ VWUXFWLRQV  7KHIROORZLQJH[DPSOHVUHSUHVHQWWKHKLJKHVWGHJUHHRIOH[LFDOL]DWLRQLQ WKDWWKH\GRQRWDOORZIRUDQ\JUDPPDWLFDOYDULDWLRQEHVLGHVWKDWWULJJHUHG E\ VXEMHFW DJUHHPHQW LH QXPEHU ODVW IRXU H[DPSOHV  DQG JHQGHU LQ WKH SUHWHULWHODVWWZRH[DPSOHV   SRãORSRH[DOROLWµZHQWRIIGURYHRII $QGWKLVZDVLW¶SRGDMSULQHVLOLW µKDQG RYHUEULQJ  D VHUYDQW IRUWKH PRVW LQIHULRU VHUYLFHV¶ HJR  QH UD] EHULSRMPH㶠µ\RX ZRQ¶W XQGHUVWDQG KLP ¶ åLOE\O OLW µOLYHGZDV¶  WKHUH RQFH ZDV¶ 3RåLYHPXYLGLP OLW µ:H¶OO OLYHVHH  :H¶OO ZDLW DQG VHH¶ 8YLGLPSRVPRWULPOLWµ:H¶OOVHHZDWFK :H¶OOZDLWDQGVHH¶.DNåLYHWH PRåHWH"OLWµ+RZGR\RXOLYHEHDEOH +RZLVOLIH"¶  %HVLGHVWKHLUIL[HGPRUSKRORJLFDODUUDQJHPHQWWKHVHVHWSKUDVHVVKDUHWKH DERYHPHQWLRQHGUHVWULFWLRQVZLWKWKHH[DPSOHVGLVFXVVHGHDUOLHUYL]WKH\ OHQG WKHPVHOYHV QHLWKHU WR LQYHUVLRQ QRU WR V\QGHWLF OLQNLQJ FI E\OåLO µZDVOLYHG¶ SRãOR GD SRH[DORµZHQW RII DQG GURYH RII¶ HWF 2Q WKH RWKHU KDQG WKHLU IUR]HQ FKDUDFWHU RIWHQ SURYRNHV SOD\IXO PRGLILFDWLRQV )RU H[ DPSOH ,QWHUQHW EORJJHUV DQG IRUXP GLVFXVVDQWV PD\ PHUJH WZR GRXEOH YHUEVLQWRWULSOHVFI3RåLYHPXYLGLPSRVPRWULPµZH¶OOOLYHVHHZDWFK¶RU HQODUJHDJLYHQ'9E\DGGLQJ³IUHH´SDLUVFIXYLGLPSRVPRWULPJOD]NDPL SRJOMDGLP µZHµOO VHHZDWFK ZH¶OO ZDWFK ZLWK RXU OLWWOH H\HV¶ RU 3RåLYX XYLåXGRåLYXX]QDMXY\åLYXXþWX   *UDPPDWLFDOL]DWLRQSKHQRPHQD  $V LV SUHGLFWHG E\ $LNKHQYDOG    JUDPPDWLFDOL]DWLRQ SKHQRPHQD H[FOXVLYHO\DIIHFWWKHDV\PPHWULFDOVXEW\SHRI69&LHSURWRW\SLFDO'9V ZLWKUHVWULFWHGILUVWYHUEVLQP\WHUPLQRORJ\+RZHYHUILUVWFRPSRQHQWVRI 5XVVLDQGRXEOHYHUEVGRQRWFKDQJHLQWRUHDOJUDPPDWLFDOPDUNHUVVXFKDV 7$0PRUSKHPHVRUQHZSUHSRVLWLRQV7KHSRVVLEOHFDQGLGDWHVIRUVXFKD WUDQVIRUPDWLRQPD\EHFRXQWHGRQRQHKDQGWKHYHUEVVLGHW¶µVLW¶[RGLW¶µJR DURXQG¶SRMWLLGWLµJR¶Y]MDW¶µWDNH¶7KHODVWFDVHLVKRZHYHUQRWSULPDU LO\ UHODWHG WR WKH '9 FRQVWUXFWLRQEXWWR FRRUGLQDWLRQ VWULQJV RI WKH W\SH µKHWRRNDQGGLHG¶LQWKHPHDQLQJRIµDOORIDVXGGHQKHXSDQGGLHG¶LOOXV WUDWHDZLGHVSUHDGVHPDQWLFHYROXWLRQZKLFKDFFRUGLQJWR&RVHULX LV DWWHVWHG LQ QRW OHVV WKDQ  (XURSHDQ ODQJXDJHV FRYHULQJ ZKROH FRPSDFW



'DQLHO:HLVV

DUHDV LQ QRUWK VRXWKHDVW DQG HVSHFLDOO\ HDVW (XURSH $V IRU 5XVVLDQ WKH FRQVWUXFWLRQY]MDOLXPHUY]MDOGDXPHUµWRRNDQGGLHG¶KDVEHHQIRFXVHG XSRQ LQ VHYHUDO VWXGLHV VHH )RUWXLQ    .RU &KDKLQH  DQG :HLVV   $OWKRXJK LW DOORZV IRU D VHULDOL]HG YDULDQW RI WKH W\SH Y]MDOXPHULQVWHDGRIV\QGHWLFOLQNLQJY]MDOLXPHUWKHIRUPHULVVXEMHFWWR IDUPRUHUHVWULFWLRQVWKDQWKHODWWHU:HLVV   6LGHW¶µVLW¶DVILUVWYHUERID'9HPSKDVL]HVWKHXQLQWHUUXSWHGSHUIRUP DQFHRIWKHDFWLYLW\RUWKHRQJRLQJGXUDWLRQRIWKHSURFHVVLQTXHVWLRQDQG RFFXUV PRVW RIWHQ ZLWK SURJUHVVLYH PHDQLQJ 6XFK XVHV DWWHVW WR D VOLJKW VHPDQWLF EOHDFKLQJ VLQFH WKH VLWWLQJ SRVLWLRQ LWVHOI LV QRW FRQFHLYHG RI DV XQLQWHUUXSWHG EXW WKH VHOHFWLRQDO UHVWULFWLRQV LPSRVHG RQ WKH IXOO YHUE UH PDLQYDOLGRQO\DQLPDWHVXEMHFWVDUHDFFHSWDEOHDQGWKHDFWLRQGHQRWHGE\ WKHVHFRQGYHUEVKRXOGLQSULQFLSOHEHFRPSDWLEOHZLWKWKHVLWWLQJSRVLWLRQ RIWKHDJHQW;RGLW¶µWRZDON¶LVWKHG\QDPLFFRXQWHUSDUWRIVLGHW¶µWRVLW¶ WKHDFWLYLW\GHQRWHGE\WKHVHFRQGYHUELVSHUIRUPHGDWGLIIHUHQWSODFHVEXW QRW QHFHVVDULO\ E\ JRLQJ DURXQG FI [RGLW åDOXHWVMD µNHHSV FRPSODLQLQJ¶ 7KXV[RGLW¶WDNHVWKHDGYHUELDOPHDQLQJµHYHU\ZKHUH¶DQGWKHZKROH'9 KDVKDELWXDORULWHUDWLYHPHDQLQJ,QWKLVZD\ERWKVLGHW¶DQG[RGLW¶FRQYH\ WKH LGHD RI XQLQWHUUXSWHG GXUDWLRQ ZH DUH EDFN WR WKH VHPDQWLF LQYDULDQW HYRNHGLQVHFWLRQYL]WKHXQGLVWXUEHGSURFHVV  &RQWUDU\WRWKLVWKHYHUEVLGWLDQGSRMWLDVILUVWFRPSRQHQWVRID'9DUH DVVRFLDWHGZLWKWKHLGHDRIEHJLQQLQJZKLFKGRHVQRWFRPHDVDVXUSULVHLQ YLHZ RI WKH IDFW WKDW LQ FRPELQDWLRQ ZLWK HYHQW QRXQV DV LQ 3RãOD QRYDMD åL]Q¶µDQHZOLIHEHJDQ¶DQGLQILQLWLYHVDVLQ.DNSRãHOUXJDW¶VMDµ$QGWKHQ GLGKHHYHUVWDUWFXUVLQJ¶WKHYHUESRMWLDOVRGHQRWHVDVWDUWLQJSRLQW7KLV GRHVQRWPHDQKRZHYHUWKDWLGWLRUSRMWLIXQFWLRQDVUHDOLQJUHVVLYHPDUN HUVLQWKH'9FRQVWUXFWLRQEHFDXVHDVLVVKRZQLQ:HLVV WKH\DUH VXEMHFW WR WRR PDQ\ DVSHFWXDO DQG VHOHFWLRQDO UHVWULFWLRQV ,QVWHDG RI WKLV WKH\WHQGWREHFRPHVLPSO\UHGXQGDQWVLQFHWKHDFWLYLW\LQTXHVWLRQLPSOLHV D SK\VLFDO PRYHPHQW DQ\ZD\ FI 3RãOD Y\P\ODV¶ µ6KH ZHQWZDVKHG KHU VHOI¶RUSRãOLVREUDOLV¶µWKH\ZHQWJDWKHUHG¶WKLVW\SHRIUHGXQGDQF\PRVW RIWHQRFFXUVLQWKHLPSHUDWLYHDQGKRUWDWLYHZKHUHLWJLYHVULVHWRQXPHURXV WULSOHWV DV LQ LGL EHJDM ]DQLPDM  µJR UXQ ERUURZ VRPH PRQH\ ¶ SRMGHP V[RGLPSRVPRWULPµ/HW¶VJRJRWKHUHKDYHDORRN¶$VLVVKRZQE\WKHODWWHU H[DPSOHVLGWLRUSRMWLPD\EHIROORZHGE\DQRWKHUYHUERIPRWLRQ  2QWKHZKROHRXU5XVVLDQOLVWGRHVQRWORRNYHU\LPSUHVVLYHVLQFHEDVLF YHUEV RI PRWLRQ VXFK DV µJR¶ DQG RI SRVWXUH VXFK DV µVLW¶ µVWDQG¶ RU HYHQ µOLH¶ DUH QRW RQO\ WKH PRVW OLDEOH WR WDNH JUDPPDWLFDO PHDQLQJV LQ 69& $LNKHQYDOGI EXWEHORQJJHQHUDOO\WRWKHPRVWRIWHQJUDPPDWL FDOL]HG YHUEV LQ WKH ODQJXDJHV RI WKH ZRUOG FI 0DMVDN   7KHUHIRUH



9HUEVHULDOL]DWLRQLQQRUWKHDVW(XURSH  

 ZHGRQRWHYHQKDYHWRVHDUFKIRUSDUDOOHOVLQVXFKH[RWLFODQJXDJHVDVFUH ROHV)RULQVWDQFHWKHYHUEµVLW¶DVILUVWFRPSRQHQWRIDFRRUGLQDWLYHFRQ VWUXFWLRQKDVEHFRPHDGXUDWLYHPDUNHULQDZKROHUDQJHRI(XURSHDQODQ JXDJHV+XQJDULDQ%XOJDULDQ6ZHGLVKDQG'XWFKFI.XWHYD(EHUW  &VDWy  DQG 5D[LOLQD   8QOLNH WKHVH ODQJXDJHV 5XVVLDQ DGPLWVWKHYHUEµVLW¶QRWRQO\LQWKHFRRUGLQDWLYHEXWDOVRLQWKHVHULDOL]HG PRGHOEXWWKHGHJUHHRIJUDPPDWLFDOL]DWLRQRIERWKYDULDQWVLVORZHUWKDQ LQWKHRWKHUODQJXDJHV:HLVVI $VIRUWKHYHUEµJR¶DVFRPSR QHQWRIFRRUGLQDWLYHVWUXFWXUHVLWLVVXEMHFWWRPXOWLIDULRXVW\SHVRIVHPDQ WLF EOHDFKLQJ LQFOXGLQJ WKH VXUSULVH PHDQLQJ QRWHG IRU 5XVVLDQ µWDNH¶ DERYH FI (QJOLVK $QG WKHQ KH ZHQW DQG GLHG RU *HUPDQ 8QG GD JHKW HU GRFK KLQ XQG VWLUEW $V ZH KDYH VHHQ LQ WKH 5XVVLDQ VHULDOL]HG H[DPSOHV ZLWKµJR¶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µJR¶,QLWVOLWHUDOUHDGLQJLWVLPSO\VHUYHVDVDQ DGGLWLRQDOPDUNHURIWKHGLUHFWLYHLOORFXWLRQH[SUHVVHGE\WKHLPSHUDWLYHRI WKHVHFRQGYHUEZKLFKLVE\WKHZD\D YHU\ZLGHVSUHDGIXQFWLRQDPRQJ WKHODQJXDJHVRIWKHZRUOG0DMVDN %XWZKHQFRPELQHGZLWKD VHFRQGLPSHUDWLYHGHQRWLQJDPHQWDODFWLYLW\LWFDQQRORQJHUEHLQWHUSUHWHG OLWHUDOO\6XFKLVWKHFDVHRISRGLSRYHU¶WDNRPXDOLEL OLWµJREHOLHYHVXFK DQDOLEL¶SRGLWHUD]EHULWHV¶µJRILQGRXW¶DQGWKHOLNH7KHLUGHULYHGPHDQ LQJ REYLRXVO\ EDVHG RQ D IUR]HQ *ULFHDQ LPSOLFDWXUH  LV D QHJDWLYH VWDWH PHQWFISRGLSRYHU¶ µRQHFDQQRWEHOLHYH¶RUSRGLUD]EHULV¶ µ\RXFDQ¶W ILQG RXW¶ :KHQ WKH VHFRQG YHUE GHQRWHV D SK\VLFDO DFWLYLW\ WKDW PD\ EH SUHFHGHGE\PRYLQJWKH'9FRQVWUXFWLRQPD\EHFRPHDPELJXRXVEHWZHHQ



'DQLHO:HLVV

OLWHUDODQGUKHWRULFDOPHDQLQJFI3RGLSRMPDMYRUDµ*RFDWFKWKHWKLHI¶RU µQRPVJ@LURQ,1) VWLUDW¶ XPHHW åUDW¶ JRWRYLW¶ L YVH ZDVK,1)NQRZ3566* HDW,1) FRRN,1) DQG DOO$&&6*1 WDNRH VXFK$&&6*1 µ$ ZLIH LV D GHYLFH >IRU@ LURQLQJZDVKLQJ VKH NQRZV KRZ WR FRRN DQGDOOWKHUHVWRILW¶ DQRWKHUSDUWLFLSDQW¶VUHSO\  ƠWRGRPUDERWLFDPDO¶þLN  µ7KLVLVDPDLGP\ER\¶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¶LPG¶HPVµIHHGZDWHUHQ WHUWDLQWUHDWDVDJXHVW ¶ V¶LPG¶HPVDQGRPV+RQWL 0RUHRYHU WKH )LQQR8JULF SDLUV DUH LQ JHQHUDO OHVV PDUNHG VW\OLVWLFDOO\ WKDQ WKHLU 5XVVLDQ FRXQWHUSDUWV 7ULSOH YHUEV DOVR VHHP WR RFFXU IUHTXHQWO\ FI WKH .RPLH[DPSOHNXUJ\Q\G]XUWQ\RYQ\µEUHDWKHKHDYLO\FUDFNOLYH OLYHIRU D ORQJ WLPH GHVSLWHRQH¶VVLFNQHVV¶ 6RPH RI WKHP DULVH VSRQWDQHRXVO\ LQ SRHWLFODQJXDJHDVWKH\GRLQ5XVVLDQVRPHRWKHUVVHHPWREHOH[LFDOL]HG DOUHDG\6LQFHWKHSHUWLQHQWGHWDLOVZHUHDOUHDG\SUHVHQWHGLQ:HLVV   , ZLOO KHUH UHVWULFW P\VHOI WR VXPPDUL]LQJ WKH PDLQ SDUDOOHOV DQG



9HUEVHULDOL]DWLRQLQQRUWKHDVW(XURSH  

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¶V PDQQHURIZDONLQJZLWKYHU\VSHFLILFILUVWYHUEVWKDWDGGPRUHOLYHO\FRO RXUVWRWKHYLVXDORUDXGLWRU\SHUFHSWLRQHYRNHGE\WKHVHFRQGYHUEVHPDQ WLFDOO\VXFKSDLUVDUHYLYLGO\UHPLQLVFHQWRIWKHVRFDOOHGFRORXUDWLYHFRQ VWUXFWLRQLQ)LQQLVKVHHEHORZ7RTXRWHMXVWWZRSDUWLFXODUO\VWULNLQJH[ DPSOHV IURP .RPL WDSLNDV¶|PXQ| µLV JRLQJ FOXPVLO\ VWDPSLQJ ZLWK KLVKHUODUJHIHHWXVXDOO\DERXWEHDUV ¶DQGEDG³åDO¶|YHWOHGO|µLVZDONLQJ ZDGGOLQJZLWKKHDY\VWHSVXVXDOO\DERXWDKHQ ¶1RWHWKDWWKHK\SHUQ\P DOZD\V RFFXSLHV WKHVHFRQG SRVLWLRQ7KH VDPH WHQGHQF\ WR PDNH WKH GH VFULSWLRQDVFRORXUIXODVSRVVLEOHLVPDQLIHVWHGLQVSRQWDQHRXVPHWDSKRULFDO XVHV RI 69&FIWKH IROORZLQJ TXRWDWLRQIURP )HGLQD   LW FRQ WDLQVDWULSOHYHUE     0HQDPG]XUW|RU³MDV¶|RM]| E\GO\LE\GNXV\QE\GV|Q  µ$WPHDUHFUHDNLQJWHDULQJPRDQLQJ HYHU\ VPDOO ERQH HYHU\ MRLQW HYHU\YHLQ¶  $VIRUDXGLWRU\SHUFHSWLRQFIUDSLLPXQQ\þHJQ\µWREUHDNRIIZLWKDFUDFN¶ RU RS|VWQ\JRU|GQ\ µWR EHJLQ WR KRZO ZLWK D ZLOG YRLFH¶ ERWK H[DPSOHV IURP )HGLQD    7KH K\SHUQ\PLF VXEW\SH DOORZV DOVR IRU RWKHU FRPELQDWLRQVWKDWDUHQRWFKDUDFWHULVWLFRI5XVVLDQ'9VIRUH[DPSOHWKRVH WKDW FRQWDLQ µPDNH¶ DV LWV VHFRQG FRPSRQHQW NHUQ\Y|þQ\ OLW µPDNH SUHSDUH SURFHVVZRUNRQ¶6LPLODUSDLUVFRQWDLQLQJWKHYHUEµGRPDNH¶ DUHDWWHVWHG LQ 0RUGYLQLDQ ZKHUH WKHODWWHU YHUE LV GHVHPDQWL]HGVHUYLQJ RQO\WRLQWHQVLI\WKHRWKHUFRPSRQHQWFIRMPV¶HPVW¶HMHPVµUHVWGR¶LQWHU HVWLQJO\LQVXFKFDVHVLQYHUVLRQLVEORFNHG+RQWLI $FFRUGLQJ WR :lOFKOL    VXFK FRPELQDWLRQV H[SUHVV UDWKHU D GHOLPLWDWLYH PHDQLQJWKHYHUEµGR¶ZRXOGWKXVIXQFWLRQDVDQHTXLYDOHQWRIWKH5XVVLDQ YHUEDOSUHIL[SR  7KHUHPDLQLQJVHPDQWLFUHODWLRQVWKDWOLQNWKHWZRYHUEVDUHLGHQWLFDOWR WKRVHWREHIRXQGLQ5XVVLDQEHVLGHVV\QRQ\P\ZKLFKFKDUDFWHUL]HVSURWR



'DQLHO:HLVV

W\SLFDO'9VZHILQGDQWRQ\P\FRK\SRQ\P\DQGRUFRPPRQVFULSWVRU IUDPHV EHVLGHV :HLVV   VHH DOVR :lOFKOL    /H[LFDO HTXDWLRQV ZLWK 5XVVLDQ DUH HDV\ WR ILQG WR PHQWLRQ EXW D IHZ µSORXJK VRZ¶µHDWGULQN¶µIHHGZDWHU¶µGUHVVSXWRQVKRHV¶µFRRNEDNH¶µOLYHEH¶ HWF7KHODVWPHQWLRQHGH[DPSOHFOHDUO\LQGLFDWHVWKHOLQNWR5XVVLDQIRON ORUHFIWKHRSHQLQJIRUPXODRIIDLU\WDOHVåLOE\OµWKHUHRQFHZDV¶VHHQH[W VHFWLRQ 2QWKHRWKHUKDQGLWVKRXOGEHHPSKDVL]HGWKDWXQOLNHLQ5XVVLDQ EXWPXFKDVLQPDQ\SURWRW\SLFDO69&V VHPDQWLFEOHDFKLQJDQGEOXUULQJ RI FRPSRVLWH PHDQLQJV DUH IUHTXHQW KHUH DQG RIWHQ JLYH ELUWK WR QHZ DE VWUDFW PHDQLQJV 7KH\ UDQJH IURP IDLUO\ SUHGLFWDEOH UHVXOWV IRU H[DPSOH µVLQJGDQFH!EHPHUU\HQMR\¶µSORXJKVRZ!ZRUNRQWKHILHOG¶µFDWFK NLOO!KXQW¶µGU\RXWEDUH!HUDGLFDWH¶WROHVVH[SHFWHGRQHVFIµJRLQJR RXW!EHUHVWOHVVDJLWDWHG¶0RUGYLQ RUµDVNSLFN!EHJ¶.RPL DQGHQG XSZLWKWRWDOO\XQH[SHFWHGQHZPHDQLQJVFIµNQLWVHZ!WDNHFDUHRIVE¶ µJRLQJRRXW!EHIULHQGVZLWKVE¶ERWKIURP.RPL 6LQFHWKHFRPSRVLWH UHDGLQJXVXDOO\UHPDLQVDOVRDYDLODEOHWKHVHDUHFDVHVRISRO\VHP\WKH\ LOOXVWUDWHDWWKHVDPHWLPHWKHWUDQVLWLRQIURPQRQSURWRW\SLFDOFRPSRVLWH LQWHUSUHWDWLRQ WRSURWRW\SLFDORQHHYHQW PHDQLQJRI69&  0RUHRYHU DOO IRXU )LQQR8JULF ODQJXDJHV XQGHU GLVFXVVLRQ KDYH YHUE SDLUVZKHUHRQHFRPSRQHQWLVUHGXQGDQWDQGFRXOGEHRPLWWHGDVZDVWKH FDVHZLWK5XVVLDQ[R[RWDW¶]DOLYDW¶VMDµODXJKORXGO\¶HWFLWZDVKRZHYHU LPSRVVLEOH WR ILQG H[DFW VHPDQWLF FRLQFLGHQFHV ZLWK5XVVLDQ ,Q DGGLWLRQ WKHUHH[LVWSDLUVRQHRIZKRVHPHPEHUVGRHVQRWRFFXUDVDQDXWRQRPRXV VLQJOHYHUEDSDUWIURPWKHJLYHQFRPELQDWLRQWKLVIHDWXUHLVQRWW\SLFDORI 69& VLQFH ³HDFK YHUE LQ DQ 69& PD\ DOVR RFFXU DV WKH VROH YHUE LQ D FODXVH´'L[RQ 6XFK'9VRIWHQVHUYHWRLQWHQVLI\WKHPHDQLQJ H[SUHVVHGE\WKHRWKHUYHUEZKLFKDJDLQLVUHPLQVFHQWRI5XVVLDQWKHODW WHU GRHV QRW KRZHYHU KDYH YHUEV WKDW DUH ERXQG H[FOXVLYHO\ WR WKH '9 FRQVWUXFWLRQ 7KH IROORZLQJ SDUWLFXODULW\ LV DOVR DOLHQ WR 5XVVLDQ VRPH )LQQR8JULF '9V FRQVLVW RI OLQJXLVWLFDOO\ PL[HG PDWHULDO LH WKH\ PD\ FRQWDLQRQH5XVVLDQURRWDVLQ.RPLGXPDMWQ\P|YSDYQ\µWKLQN¶WZRYHUEV VWHPPLQJ IURP GLIIHUHQW GLDOHFWV RU IURP D GLDOHFW DQG WKH VWDQGDUG ODQ JXDJH )HGLQD    ,QWHUHVWLQJO\ 8GPXUW FRPELQHV 5XVVLDQ ILUVW YHUEV ZLWK WKH YHUQDFXODU YHUE µPDNH¶ FI LVVOHGRYDW¶ NDU\Q\ µUHVHDUFK PDNH¶  $ ODVW GLIIHUHQFH FRQFHUQV WKH ULVH RI 7$0 PDUNHUV $V PLJKW EH UH FDOOHGJUDPPDWLFDOL]DWLRQRIILUVWFRPSRQHQWVRI'9VLVDWLWVLQLWLDOVWDJH DQG UHVWULFWHG WR WKH PHDQLQJ RI XQLQWHUUXSWHG GXUDWLRQ LQ 5XVVLDQ WKLV ODQJXDJHFDQQRWEHVDLGWRKDYHDOUHDG\GHYHORSHG7$0PDUNHUVZLWKLQD 69& 7KLV SURFHVV VHHPV WR EH PRUH DGYDQFHG LQ .RPL ZKHUH ZH ILQG



9HUEVHULDOL]DWLRQLQQRUWKHDVW(XURSH  

 PXQQ|µJR¶DVVHFRQGYHUEZLWKLQJUHVVLYHDQGNHUQ\µPDNH¶ZLWKDWWHQX DWLYHPHDQLQJ%HVLGHVWKLV.RPLKDVWUDQVIRUPHGVRPHYHUEDOURRWVLQWR JUDPPDWLFDO VXIIL[HV 6LGRURY    6RPH SDLUV DUH UHVWULFWHG DV WR WKHLU WLPH UHIHUHQFH LQ 0RUGYLQ IRU LQVWDQFH V\QRQ\PRXV SDLUV VXFK DV PXV¶NHPVORYSDWQ¶HPVµZDVK¶DSSHDURQO\LQJHQHUDOL]DWLRQVRUZLWKQHJD WLRQ :lOFKOL    7KLV LV UHPLQLVFHQW RI WKH EHKDYLRXU RI VHYHUDO 5XVVLDQVXEW\SHVGLVFXVVHGLQVHFWLRQ  *UDPPDWLFDOL]DWLRQ LV PRUH VDOLHQW LQ 0DUL DQG 8GPXUW ZKHUH LW DI IHFWVKRZHYHUDGLIIHUHQWW\SHRIYHUEDOFRQVWUXFWLRQLQJURXSVFRPSRVHG RIDILQLWHYHUEVXFKDVµJR¶µFRPH¶µWDNH¶RUµHQG¶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|Ol 7KH WZRYDULDQWVDUHFRQVLGHUHGV\QRQ\PRXVWKHVHULDOYDULDQWEHLQJHYHQDF FHSWDEOHLQWKHVWDQGDUGODQJXDJHLWLVKRZHYHUPXFKOHVVIUHTXHQWWKDQ LWVLQILQLWLYDOFRXQWHUSDUW7KHIROORZLQJSDLURIVHQWHQFHVERWKPHDQLQJµ, IHOOLQWRWKHVQRZ¶PD\LOOXVWUDWHWKLVXVH  D  0LQl VLQQH OXPHHQ NRDWXDW WXSVDKGLQ  , WKHUH VQRZ,// IDOO,1) &2/3676*  E  0LQl VLQQH OXPHHQ NDDGXLQ WXSVDKGLQ  , WKHUH VQRZ,// IDOO3676* &2/3676*  7KH WZRILQLWH YDULDQW LV DOVR UHSRUWHG WR H[LVW LQ 6DPL ODQJXDJHV 6LQFH 2MXWNDQJDV   WKLV FRQVWUXFWLRQ KDV EHHQ UHODWHG WR 69& 7KH VDPH KROGVIRU6WDQGDUG(VWRQLDQFI7UDJHO ,QWKLVODQJXDJHWKHVHWRI ILUVWYHUEVLVYHU\UHVWULFWHGDSDUWIURPPLQHPDµJR¶WXOHPDµFRPH¶NlLPD µZDON¶DQGY}WPDµWDNH¶RQO\DIHZRWKHUPRWLRQYHUEVVXFKDVMRRNVPDDQG OLSSDPD DUH PHQWLRQHG WKLV GLIIHUV VKDUSO\ IURP 5XVVLDQ ZKHUH PDQ\ RWKHU LQLWLDO FRPSRQHQWV DUH DOORZHG 7ULSOHWV GR RFFXU EXW XVXDOO\ RQO\ ZLWKPLQHPDDQGNlLPDDVWKHILUVWWZRYHUEVUHFDOOWKDWLQ5XVVLDQWULS OHWVDOVRXVXDOO\FRQWDLQSRMWLLGWLµJR¶DVILUVWYHUEV *UDPPDWLFDOL]DWLRQLV VDLG WR WDNH SODFH ZLWK PLQHPD µJR¶ DQG WXOHPD µFRPH¶ PDUNLQJ D QHZ



'DQLHO:HLVV

LPPHGLDWHIXWXUHOLNH PHDQLQJ ZKLFKLVQRWVXUSULVLQJ JLYHQ WKH JHQHUDO WHQGHQF\RIWKHVHYHUEVWRGHYHORSLQWRIXWXUHPDUNHUV0DMVDN 2Q WKH ZKROH RQH JHWV WKH VWURQJ LPSUHVVLRQ WKDW WKHVH LQVWDQFHV RI 69& LQ PRGHUQ%DOWR)LQQLFDUHEXWWKHPHDJUHUHOLFVRIDFRQVWUXFWLRQW\SHZKLFK KDVORQJEHHQLQGHFOLQH  ,QFRQFOXVLRQP\OLWWOHVXUYH\KDVVKRZQDVWULNLQJDPRXQWRIVWUXFWXUDO DQGOH[LFDOFRQYHUJHQFHEHWZHHQ5XVVLDQDQG3HUPLFRU9ROJD)LQQLFODQ JXDJHV $JDLQVW WKLV EDFNJURXQG PRVW GLYHUJHQFHV IRXQG DUH RI PLQRU LPSRUWDQFH HJ WKH H[LVWHQFH RI '9V ZLWK FRPSRQHQWV WKDW FDQQRW IXQF WLRQ DXWRQRPRXVO\ RU WKH VDOLHQFH RI WKH µFRORXUDWLYH¶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



9HUEVHULDOL]DWLRQLQQRUWKHDVW(XURSH  

 EHJLQQLQJ RI WKH SUHVHQW SDSHU 7KHUHIRUH ZH DUH IRUFHG WR VHHN WKH LP SXOVHRXWVLGHWKH6ODYLFPHGLXP  $PRQJWKHSRVVLEOHVRXUFHVRIWKHERUURZLQJWKHUHLVVWLOODQRWKHUJURXS OHIW QDPHO\ WKH 7XUNLF ODQJXDJHV ZKLFK LQGHHG SRVVHVV D VWUXFWXUDOO\ DQDORJRXV FRQVWUXFWLRQ &VDWy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¶SURGDYDW¶ µEX\VHOO¶ WRJHWKHU ZLWK LWV QRPLQDOL]DWLRQ NXSOMD SURGDåDWKLVGHVLJQDWLRQRIWUDGHVHHPVWREHNQRZQDOORYHU(XUDVLD,Q DGGLWLRQ 7XUNLF SURYLGHG WKH SDWWHUQ IRU QRPLQDO WZLQ IRUPDWLRQV ZKRVH VHFRQGPHPEHULVVHPDQWLFDOO\HPSW\DQGDPHUHSKRQRORJLFDOUHSOLFDRI WKH ILUVW ZLWK VXEVWLWXWLRQ RI WKH LQLWLDO FRQVRQDQW E\ DQ P FI 5XVVLDQ [X[U\PX[U\ µWULIOH¶ WKLV GHYLFH PD\ DOVR EH HPSOR\HG LQ FUHDWLQJ QHZ '9FRPELQDWLRQVFIãLUQXP\UQXVþHPY\Q\UQXµ-X'DQLơO¶   7KXVWKHPRVWSODXVLEOHH[SODQDWLRQIRU5XVVLDQ'9VLVWRWUDFHWKHP EDFN WR )LQQR8JULF 7KLV ZRXOG EH SHUIHFWO\ LQ OLQH ZLWK WKH YLHZ WKDW ³ODQJXDJHVZLWK69&VWHQGWRIRUPDUHDOFOXVWHUV´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



'DQLHO:HLVV

PRVNRY¶H DUHD 7KLV LV H[DFWO\ ZKHUH 7NDþHQNR LQ KLV FDUHIXOO\ GRFX PHQWHG  PRQRJUDSK ORFDWHV WKH RULJLQ RI WKH 5XVVLDQ IDLU\WDOH IRU PXODåLOE\OGLDOHFWRORJLFDODQGKLVWRULFDOGDWDVXJJHVWVXFKDFRQFOXVLRQ DQGWKHDXWKRUFRQYLQFLQJO\DUJXHVWKDWQRRWKHUVRXUFHYHUQDFXODUHYROX WLRQRUERUURZLQJIURPDWKLUGODQJXDJH FDQEHIRXQGWKDWZRXOGH[SODLQ WKH XQLTXH FDUHHU RI WKLV IRUPXOD WKDQ WKH )LQQR8JULF GRXEOH URRW HOl ZROHµEHOLYH¶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µDQG¶ZDVODFNLQJDQGKDGWREH ERUURZHG ODWHU E\ WKH LQGLYLGXDO EUDQFKHV HLWKHU IURP *HUPDQLF RU IURP (DVW 6ODYLF FI IRU H[DPSOH %iWRUL   7KXV ZH PD\ FRQFOXGH WKDW XQOLNH LQ 5XVVLDQ LQ )LQQR8JULF YHUE VHULDOL]DWLRQ ZDV E\ QR PHDQV D V\QWDFWLFDOO\VXSHUIOXRXVSKHQRPHQRQEXWSOD\HGDFUXFLDOUROHDVDPXO WLYHUE FRQVWUXFWLRQ 0RUHRYHU WKH FXPXODWLYH VHPDQWLFV RI WKH DV\P PHWULFDO '9 VXEW\SH ILWV SHUIHFWO\ LQ WKH SLFWXUH RI )LQQR8JULF QRPLQDO GHULYDWLRQDVLVZHOONQRZQVXFKDQRWLRQDVµIDFH¶LVRIWHQFRPSRVHGE\ WZR GHVLJQDWLRQV RI LWV PRVW VDOLHQW SDUWV VXFK DV µH\HVPRXWK¶ µH\HV QRVH¶ RU µQRVHPRXWK¶ LQ WKHVH ODQJXDJHV 2Q WKH RWKHU KDQG LI RXU DV VXPSWLRQ LV FRUUHFW ZKDW UHVXOWV LV D SHFXOLDU NLQG RI FURVVERUURZLQJ )LQQR8JULF RZHV LWV V\QGHWLF OLQNLQJ WR (DVW 6ODYLF ZKHUHDV WKH ODWWHU GHYHORSHG 69& GXH WR WKH VXEVWUDWH LQIOXHQFH RI WKH IRUPHU $V D UHVXOW KRZHYHU69&LVPDUJLQDOL]HGRQERWKFRQWDFWLQJVLGHVLQ)LQQR8JULFLW VHHPV WR EH LQ GHFOLQH SUREDEO\ DOVR XQGHUWKH SUHVVXUH RI WKH QHZ FRQ MXQFWLRQµDQG¶ DQGLWVLQWURGXFWLRQLQWR5XVVLDQUHPDLQVDWWKHIXQFWLRQDO SHULSKHU\RIWKHFODXVHOLQNLQJV\VWHP



9HUEVHULDOL]DWLRQLQQRUWKHDVW(XURSH  

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µHDWGULQN¶HWHWLWDWµIHHG ZDWHU¶pYHOĘGLNY~FViONRGLNµPRXUQEHVDG¶VtUEĘJµFU\ZHHS¶M|QPHJ\ µFRPHJR¶ DGYHV] µEX\VHOO¶ VWIĘ] µEDNHFRRN¶ tUROYDV µZULWHUHDG¶ HWF1HZQRQFRPSRVLWHPHDQLQJVDUHQRWYHU\IUHTXHQWEXWGRRFFXUHJ iVNDSiO µGLJKDFN ! QLWSLFN LQWULJXH EH MHDORXV¶ %HVLGHV WKLV DV LQ .RPLWKHUHDUHYHUESDLUVZKHUHRQHRIWKHFRPSRQHQWVLVSKUDVHRORJLFDOO\ ERXQG WR WKH '9 FRQVWUXFWLRQ RIWHQ LW SURYLGHV D SDURQ\PRXV UHSOLFD RI WKH RWKHU YHUE FI LUXOSLUXO µEOXVK¶ LUXO GRHV QRW RFFXU DSDUW IURP WKLV '9  2WKHU '9V DUH FRPSRVHG RI WKH EDVLF YHUE DQG LWV GHULYDWLYH FI PHJ\PHQGHJpO µJR ZLWKRXW KDVWH¶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ČWL µKDYH¶E\H[LVWHQWLDOVHQWHQFHVZLWKE\W¶µEH¶DQGWKHDGHVVLYHSUHSRVLWLRQX µDW¶LQ5XVVLDQFDQKDUGO\EHH[SODLQHGRWKHUZLVHWKDQE\)LQQR8JULFVXE



'DQLHO:HLVV

VWUDWDOLQIOXHQFH7KHVDPHKROGVWUXHIRUWKHGHYHORSPHQWRIWKLVSUHSRVL WLRQLQWRDPDUNHURI³H[WHUQDO´UDLVHG SRVVHVVRUVZKLFKLQRWKHU6ODYLF ODQJXDJHV DUH H[SUHVVHG E\ WKH GDWLYH 7KLV LV KRZHYHU DQRWKHU VWRU\ ZKLFKFDQQRWEHGLVFXVVHGKHUH   $FNQRZOHGJPHQWV  , ZLVK WR H[SUHVV P\ VSHFLDO JUDWLWXGH WR -XVVL µåLOLE\OL¶ ± SUREOHP UHVROYHG"@ 5XVVNLM MD]\NYQDXþQRPRVYHãþHQLL1R 



9HUEVHULDOL]DWLRQLQQRUWKHDVW(XURSH  

 3OlKQ-UJHQ   ;XMQMDPXMQMD L WRPX SRGREQRH >µ;XMQMDPXMQMD¶ DQG VLPLODU FDVHV@5XVVLDQ/LQJXLVWLFV 5D[LOLQD(NDWHULQD9   5XVLVWLND L WLSRORJLMD /HNVLþ HVNDMD VHPDQWLND JODJRORY VR ]QDþH QLHPµVLGHW¶YUXVVNRPLQLGHUODQGVNRP>5XVVLDQVWXGLHVDQGW\SR ORJ\ 7KH OH[LFDO VHPDQWLFV RI YHUEV ZLWK WKH PHDQLQJ µWR VLW¶ LQ 5XVVLDQDQG'XWFK@5XVVLDQ/LQJXLVWLFV 6LGRURY$OH[HM6   ,]EUDQQ\H VWDW¶L SR NRPL MD]\NX >6HOHFWHG ZRUNV RQ .RPL@ 6\NW\YNDU 7NDþHQNR2UHVW%   6RSRVWDYLWHO¶QRLVWRULþHVNDMDIUD]HRORJLMDVODYMDQVNL[LILQQRXJRUV NL[MD]\NRY>&RPSDUDWLYHDQGKLVWRULFDOSKUDVHRORJ\RIWKH6ODYRQLF DQGWKH)LQQR8JULFODQJXDJHV@.LHY 7UDJHO,ORQD   2QWKHV\QWDFWLFIXQFWLRQV RI(VWRQLDQ6HULDO&RQVWUXFWLRQ,Q.HHO MD.LUMDQGXV>/DQJXDJHDQGOLWHUDWXUH@ZZZHNLHHNHHOMDNLUMDQGXV 9DONR3HWHU   5XVVLVFKH XQG XQJDULVFKH 'RSSHOYHUEHQ LP 9HUJOHLFK 0$ WKHVLV =XULFK :lOFKOL%HUQKDUG  &R&RPSRXQGV DQG 1DWXUDO &RRUGLQDWLRQ 6WRFNKROP 8QLYHUVL WHWVIRUODJHW :HLVV'DQLHO   'YRMQ\H JODJRO\YVRYUHPHQQRPUXVVNRPMD]\NH>6HULDO YHUEVLQ 5XVVLDQ@ ,Q .DWHJRULMD VND]XHPRJR Y VODYMDQVNL[ MD]\ND[ PRGDO¶QRVW¶ L DNWXDOL]DFLMD $NW\ PHåGXQDURGQRM NRQIHUHQFLL &HUWRVD GL 3RQWLJQDQR 6LHQD   $ FXUD GL ) )LFL *LXVWLH66LJQRULQL 0QFKHQ2WWR6DJQHU :HLVV'DQLHO   5XVVNLHGYRMQ\HJODJRO\NWR[R]MDLQDNWRVOXJD">5XVVLDQVHULDO YHUEV:KRLVWKHPDVWHUDQGZKRLVWKHVHUYDQW"@,Q6ORYRYWHNVWH L Y VORYDUH 6ERUQLN VWDWHM N VHPLGHVMDWLOHWLMX DNDGHPLND -X ' $SUHVMDQD / / ,RPGLQ / 3 .U\VLQ UHG   0RVNYD -D]\NLVODYMDQVNL[NXO¶WXU :HLVV'DQLHO   5XVVNLHGYRMQ\HJODJRO\LL[VRRWYHWVWYLMDYILQQRXJRUVNL[MD]\ND[ >5XVVLDQ VHULDO YHUEV DQG WKHLU HTXLYDOHQWV LQ )LQQR8JULF ODQJXDJHV@ ,Q 5XVVNLM MD]\N Y QDXþQRP RVYHãþHQLL Y\S     :HLVV'DQLHO   7KH JUDPPDU RI VXUSULVH 7KH 5XVVLDQ FRQVWUXFWLRQ RI WKH W\SH .RãNDY]MDODGDXPHUODµ6XGGHQO\WKHFDWGLHG¶,Q3URFHHGLQJVRI



'DQLHO:HLVV WKH UG ,QWHUQDWLRQDO &RQIHUHQFH RQ 0HDQLQJ ± 7H[W ± 7KHRU\ .ODJHQIXUW0D\±7UOPDQ5HXWKHU/HR:DQQHUDQG.LP *HUGHVHG :LHQHU6ODZLVWLVFKHU$OPDQDFK/LQJXLVWL VFKH5HLKH6RQGHUEDQG 0QFKHQ±:LHQ9HUODJ2WWR6DJQHU

:HLVV'DQLHO  9UHPHQQDMD VRRWQHVHQQRVW¶ GYRMQ\[ JODJRORY VRYHUãHQQRJR YLGD >7KH WHPSRUDO RULHQWDWLRQ RI SHUIHFWLYH VHULDO YHUEV@ ,Q 'LQDPL þHVNLH PRGHOL 6ORYR 3UHGORåHQLH 7HNVW 6ERUQLN VWDWHM Y þHVWµ (93DGXþHYRMUHG ±0RVNYD-D]\NLVODYMDQVNL[NXO¶ WXU