([HUFLVH,QGXFHG/DU\QJHDO 2EVWUXFWLRQ
'LDJQRVWLFSURFHGXUHVDQGWKHUDS\
5REHUW&KULVWLDDQ0DDW
'LVVHUWDWLRQIRUWKHGHJUHHSKLORVRSKLDHGRFWRU3K' DWWKH8QLYHUVLW\RI%HUJHQ1RUZD\
([HUFLVH,QGXFHG/DU\QJHDO 2EVWUXFWLRQ
'LDJQRVWLFSURFHGXUHVDQGWKHUDS\
5REHUW&KULVWLDDQ0DDW
'HSDUWPHQWRI2WRODU\QJRORJ\+HDG 1HFN6XUJHU\
+DXNHODQG8QLYHUVLW\+RVSLWDO%HUJHQ
6HFWLRQIRU2WRODU\QJRORJ\+HDG 1HFN6XUJHU\
'HSDUWPHQWRI6XUJLFDO6FLHQFH 8QLYHUVLW\RI%HUJHQ
1RUZD\
/LVWRISXEOLFDWLRQV
, 5¡NVXQG2'0DDW5&+HLPGDO-+2ORIVVRQ-6NDGEHUJ%7+DOYRUVHQ7 ([HUFLVHLQGXFHGG\VSQHDLQWKH\RXQJ/DU\Q[DVWKHERWWOHQHFNRIWKHDLUZD\V
5HVSLU0HG'HF
,, 0DDW5&5¡NVXQG2'+DOYRUVHQ76NDGEHUJ%72ORIVVRQ-(OOLQJVHQ7$
$DUVWDG+-+HLPGDO-+
$XGLRYLVXDODVVHVVPHQWRIH[HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQUHOLDELOLW\DQG YDOLGLW\RIREVHUYDWLRQV
(XU$UFK2WRUKLQRODU\QJRO'HF
,,, 0DDW5&5¡NVXQG2'2ORIVVRQ-+DOYRUVHQ76NDGEHUJ%7+HLPGDO-+
6XUJLFDOWUHDWPHQWRIH[HUFLVHLQGXFHGODU\QJHDOG\VIXQFWLRQ (XU$UFK2WRUKLQRODU\QJRO$SU
,9 0DDW5&+LOODQG05¡NVXQG2'+DOYRUVHQ72ORIVVRQ-$DUVWDG+- +HLPGDO-+
([HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQQDWXUDOKLVWRU\DQGHIIHFWRIVXUJLFDO WUHDWPHQW
(XU$UFK2WRUKLQRODU\QJRO-XQ>(SXEDKHDGRISULQW@
7KHVHSXEOLFDWLRQVDUHUHSULQWHGZLWKSHUPLVVLRQRIWKHLUFRS\ULJKWKROGHUV
$EEUHYLDWLRQV
$() $U\HSLJORWWLFIROG
&/(WHVW &RQWLQXRXVODU\QJRVFRS\H[HUFLVHWHVW (,$ ([HUFLVHLQGXFHGDVWKPD
(,/ ([HUFLVHLQGXFHGODU\QJRPDODFLD (,/' ([HUFLVHLQGXFHGODU\QJHDOG\VIXQFWLRQ (,,6 ([HUFLVHLQGXFHGLQVSLUDWRU\VWULGRU (,/2 ([HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQ
*(5 *DVWURHVRSKDJHDOUHIOX[
*(5' *DVWURHVRSKDJHDOUHIOX[GLVHDVH /$5 /DU\QJHDODGGXFWRUUHIOH[
/0 /DU\QJRPDODFLD
/35 /DU\QJRSKDU\QJHDOUHIOX[
16' 1RUVNVDPIXQQVYLWHQVNDSHOLJGDWDWMHQHVWH 39)0 3DUDGR[LFDOYRFDOIROGPRWLRQ
3)0' 3DUDGR[LFDOYRFDOIROGPRWLRQGLVRUGHU 5)6 5HIOX[ILQGLQJVFRUH
6' 6WDQGDUGGHYLDWLRQ
7)/ 7UDQVQDVDOILEHURSWLFODU\QJRVFRS\
9$6 9LVXDODQDORJXHVFDOH 9&' 9RFDOFRUGG\VIXQFWLRQ 9)0' 9RFDOIROGPRELOLW\GLVRUGHU
&RQWHQWV
/LVWRISXEOLFDWLRQV
$EEUHYLDWLRQV
$FNQRZOHGJHPHQWV
$EVWUDFW
,QWURGXFWLRQ
([HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQ
+LVWRULFDODVSHFWV
1RPHQFODWXUHFRQIXVLRQ
'HILQLWLRQRIWKHWHUP(,/2
0DJQLWXGHRIWKH(,/2SUREOHP
'LIIHUHQWLDOGLDJQRVHVWR(,/2
/DU\QJHDOIXQFWLRQDQGDHWLRORJLFDODVSHFWVRI(,/2
/DU\QJHDOIXQFWLRQ
3ULQFLSOHVRIDHURG\QDPLFV
$HWLRORJLFDODVSHFWVRI(,/2
'LDJQRVWLFSURFHGXUHV
7KHUDSHXWLFFKDOOHQJHVRI(,/2
(,/2DWWKHVXSUDJORWWLFOHYHO
(,/2DWWKHJORWWLFOHYHO
3URJQRVLV
7KHVWXG\
$LPVRIWKHVWXG\
0HWKRGV
6WXG\GHVLJQ
3DWLHQWVDQGYROXQWHHUV
&RQWLQXRXVODU\QJRVFRS\H[HUFLVHWHVW
4XHVWLRQQDLUHV
6XUJLFDOWUHDWPHQW
6WDWLVWLFDODQDO\VHV
6XPPDU\RIUHVXOWV
3DSHU,
3DSHU,,
3DSHU,,,
3DSHU,9
'LVFXVVLRQ
0HWKRGRORJLFDODVSHFWV
,QFOXVLRQV
&RQWUROV
6XUJLFDOO\YHUVXVFRQVHUYDWLYHO\WUHDWHGSDWLHQWV
7KH&/(WHVW
1RUPDOYHUVXVSDWKRORJLFDOODU\QJHDOPRWLRQ 'LIIHUHQWLDWLRQDQGJUDGLQJRIODU\QJHDOREVWUXFWLRQ
&/(VFRUHYDOLGDWLRQ
6WULGRUDQGZKHH]H
(IIHFWVRIVXUJHU\RQVXSUDJORWWLF(,/2
3URJQRVLVRI(,/2
$JHDQGJHQGHULQUHODWLRQWR(,/2
$HWLRORJLFDODVSHFWVRI(,/2
0DQDJHPHQW
&RQFOXVLRQV
)XWXUHSHUVSHFWLYHV
5HIHUHQFHV
&XUULFXOXP9LWDH
$SSHQGL[
4XHVWLRQQDLUH
*UDGLQJVFKHPHRIH[HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQ
2ULJLQDOSDSHUV,,9
$FNQRZOHGJHPHQWV
7KLVVWXG\ZDVFDUULHGRXWDWWKHGHSDUWPHQWRI2WRODU\QJRORJ\+HDGDQG1HFN 6XUJHU\DQGDWWKHGHSDUWPHQWRI3DHGLDWULFV+DXNHODQG8QLYHUVLW\+RVSLWDO%HUJHQ 1RUZD\'XULQJWKHZRUNZLWKWKLVWKHVLV,KDYHEHHQVXSSRUWHGE\DJUDQWIURP7KH :HVWHUQ1RUZD\5HJLRQDO+HDOWK$XWKRULW\
7KHUHDUHVHYHUDOSHUVRQV,ZRXOGOLNHWRWKDQNLQWKLVSDUWRIWKHWKHVLV,FRXOGQRW LPDJLQHIXOILOOLQJWKLVZRUNZLWKRXWWKHLUKHOS
)LUVWRIDOODVVRFLDWHG3URIHVVRU-RKQ+HOJH+HLPGDOFOLQLFDOGLUHFWRURIWKHGLYLVLRQ RI2WRODU\QJRORJ\+HDG 1HFN6XUJHU\RIWKH+DXNHODQG8QLYHUVLW\+RVSLWDOLQ
%HUJHQP\GHYRWHGVXSHUYLVRUDQGPHQWRU7KDQN\RXIRU\RXUDOZD\VHQWKXVLDVWLF VXSSRUW:LWKRXW\RXUHQFRXUDJLQJDQGVWLPXODWLQJHYDOXDWLRQRIP\VFLHQWLILFDQG FOLQLFDOHGXFDWLRQ,ZRXOGQRWEHZKHUH,DPQRZ
3URIHVVRU-DQ2ORIVVRQIRUPHUFOLQLFDOGLUHFWRURIWKHGLYLVLRQRI
2WRODU\QJRORJ\+HDG 1HFN6XUJHU\RIWKH+DXNHODQG8QLYHUVLW\+RVSLWDOP\FR VXSHUYLVRU7KDQN\RXIRU\RXUYDOXDEOHVXSSRUWLQWKLVZRUN\RXUHYHUSRVLWLYHDQG TXLFNUHVSRQVHDQGIRULQWURGXFLQJPHWRWKHLQWHUQDWLRQDOVFLHQWLILFFRPPXQLW\E\
VWLPXODWLQJPHWRSUHVHQWP\VWXGLHVDEURDG
2OD'UDQJH5¡NVXQGP\IHOORZUHVHDUFKHUDQGSLYRWLQWKH(,/2SURMHFW7KDQN\RX IRUEUDLQVWRUPLQJZLWKPHRQSRVVLEOHUHVHDUFKPHWKRGVWKHSDWKRSK\VLRORJ\EHKLQG (,/2DQGEHWZHHQWKHPDQ\&/(WHVWVZHSHUIRUPHGGULQNLQJFRIIHHDQGGLVFXVVLQJ VSRUWVLQJHQHUDO
'RFWRU7KRPDV+DOYRUVHQSDHGLDWULFLDQDQGFRVXSHUYLVRUDQG'RFWRU%ULWW 6NDGEHUJFOLQLFDOGLUHFWRURIWKHGHSDUWPHQWRI3DHGLDWULFV+DXNHODQG8QLYHUVLW\
+RVSLWDOWZRRIWKHIRXQGHUVRIWKH(,/2SURMHFW7KDQN\RX7KRPDVDQG%ULWWIRU
\RXUHQWKXVLDVPDWWKH&/(WHVWVDQG\RXUUHPDUNVZKHQUHDGLQJWKURXJKP\SDSHUV DQGWKHVLV
3URIHVVRU+DQV-¡UJHQ$DUVWDG7KDQN\RXIRU\RXUSRVLWLYHFRPPHQWVRQP\SDSHUV DQG\RXUZRUNRQWKHVWDWLVWLFV7KRU$QGUH(OOLQJVHQFOLQLFDOSKRWRJUDSKHU7KDQN
\RXIRU\RXUKHOSZLWKDOOLOOXVWUDWLRQVHGLWLQJRIKXQGUHGVRIILOPVDQGSUHSDULQJ WKHPIRUJUDGLQJDQGSUHVHQWDWLRQV
5HLGXQ%UXQYROGDQG-DQLFNH9LQGHQHVWKDQN\RXIRUKHOSLQJPHZLWKWKH
DGPLQLVWUDWLYHZRUNRUGHULQJDQGVHQGLQJWKHSXEOLFDWLRQVDOVRRQORQJGLVWDQFH-HQL +DUSHUWKDQN\RXIRUFULWLFDOO\UHDGLQJWKLVWKHVLV
0\GHDUIULHQG'RFWRU.HQQHWK.URVVWKDQN\RXIRUHQFRXUDJLQJPHWRVWDUWZLWK VFLHQWLILFZRUNDQGJLYLQJPHDIHHOLQJRIEHLQJDWKRPHLQDIRUHLJQFRXQWU\'RFWRU 7RQYDQ$PVWHOWKDQN\RXIRU\RXUFROODERUDWLRQ\RXUVXSSRUWDQGWDNLQJFDUHRIRXU GHSDUWPHQWZKHQ,ZDVDEVHQWGXULQJP\PDQ\WULSVWR%HUJHQ
0\IDPLO\DQGIULHQGV7KDQN\RXIRUVXSSRUWLQJP\MRXUQH\WKURXJK(XURSH 7DQMDWKDQN\RXQRWRQO\IRUVXSSRUWLQJDQGHQFRXUDJLQJWKLVHIIRUWUHYLHZLQJP\
SDSHUVDQGWKLVWKHVLVWKRURXJKO\EXWDOVRIRU\RXUSDWLHQFHDQGEHLQJP\OLIHSDUWQHU
$QGILQDOO\0DUWKHRXUGDXJKWHUZKRLVPRVWO\LQWHUHVWHGLQIOXII\DQLPDOVDQGWKDW¶V DJRRGWKLQJ
$DOGHQ1/-XQH
$EVWUDFW
,QWURGXFWLRQ([HUFLVHLQGXFHGLQVSLUDWRU\VWULGRU(,,6LVQRWXQFRPPRQLQ DGROHVFHQWV,WFDQEHFDXVHGE\DLUIORZREVWUXFWLRQDWGLIIHUHQWOHYHOVRIWKHDLUZD\V EXWPRVWRIWHQDWWKHODU\QJHDOOHYHO$OWKRXJKWKHODU\Q[PD\IXQFWLRQSHUIHFWO\
QRUPDOO\GXULQJTXLHWEUHDWKLQJREVWUXFWLRQRIDLUIORZWKURXJKWKHODU\Q[FDQFDXVH UHVSLUDWRU\GLVWUHVVDQGVWULGRUGXULQJH[HUFLVH,QWKHOLWHUDWXUHWKHUHLVFRQIXVLRQRYHU WKHWHUPLQRORJ\XVHGIRUWKLVSKHQRPHQRQ2QHRIWKHPRUHUHFHQWWHUPVH[HUFLVH LQGXFHGODU\QJHDOREVWUXFWLRQ(,/2KDVWKHDGYDQWDJHWKDWSUHYLRXVWHUPVFDQEH LQFOXGHGLQWRLWVIUDPHZRUN/DU\QJHDOREVWUXFWLRQW\SLFDOO\LQGXFHVLQVSLUDWRU\VWULGRU DVRSSRVHGWRDVWKPDFDXVLQJH[SLUDWRU\ZKHH]H6WLOOWKHVHFRQGLWLRQVDUHDOOWRR RIWHQPL[HGXSDQGPDOWUHDWPHQWFDQEHDFRQVHTXHQFH,QRUGHUWRHDVHWKH
GLIIHUHQWLDWLRQEHWZHHQWKHVHFRQGLWLRQVDVHWXSIRUFRQWLQXRXVODU\QJRVFRS\GXULQJ H[HUFLVHKDGEHHQHVWDEOLVKHGSULRUWRWKHFRPPHQFHPHQWRIWKLVZRUN+HLPGDOHWDO
$LPV7KHILUVWDLPRIWKLVWKHVLVZDVWRDSSO\WKHFRQWLQXRXVODU\QJRVFRS\H[HUFLVH
&/(WHVWRQDODUJHUVHULHVRISDWLHQWVH[SHULHQFLQJH[HUFLVHLQGXFHGLQVSLUDWRU\
VWULGRU(,,6&OLQLFDODSSOLFDWLRQRIWKHWHVWXQFRYHUHGDQHHGIRUDPRUHREMHFWLYH HYDOXDWLRQRIILQGLQJVDQGWKHUHIRUHWKHVHFRQGDLPZDVWRGHYHORSDVFRULQJVFKHPH WKDWFRXOGEHXVHGWRJUDGHWKHOHYHODQGVHYHULW\RIODU\QJHDOREVWUXFWLRQDQGWRDVVHVV WKHUHOLDELOLW\DQGYDOLGLW\RIWKLV&/(WHVWVFRUH
:HH[SHULHQFHGWKDWVRPHSDWLHQWVKDGVHULRXVSUREOHPVZLWKUHVSLUDWRU\GLVWUHVV GXULQJH[HUFLVHDQGWKHUHIRUHZHRIIHUHGVXUJLFDOWUHDWPHQWWRSDWLHQWVVHOHFWHGE\
FOLQLFDOFULWHULDLHLIWKHSDWLHQWVH[SHULHQFHGVHYHUHGLVWUHVVGXULQJH[HUFLVHZHUH KLJKO\PRWLYDWHGIRUVXUJLFDOWUHDWPHQWLQRUGHUWRUHGXFHV\PSWRPVDQGZHFRXOG REVHUYHDVHYHUHREVWUXFWLRQRIWKHODU\QJHDOLQOHWGXULQJWKH&/(WHVW7KHWKLUGDLP ZDVWKHUHIRUHWRXVHWKH&/(WHVWLQRUGHUWRUHYHDOWKHHIIHFWRIVXUJLFDOWUHDWPHQWRQ WKHODU\QJHDOPRWLRQDQGV\PSWRPV
$VPRVW(,/2SDWLHQWVDUHWHHQDJHUVRQHFRXOGK\SRWKHVLVHWKDWDQDWXUDO
GHYHORSPHQWDQGHQODUJHPHQWRIWKHODU\Q[GXULQJJURZWKZRXOGUHGXFHWKHODU\QJHDO REVWUXFWLRQGXULQJH[HUFLVH7KHIRXUWKDLPRIWKLVWKHVLVZDVWKHUHIRUHWRDVVHVVWKH QDWXUDOFRXUVHRI(,/2DQGWRDVVHVVWKHORQJWHUPHIIHFWRIVXUJLFDOWUHDWPHQWRI VXSUDJORWWLF(,/2
0HWKRGV7KH&/(WHVWZDVSHUIRUPHGDFFRUGLQJWRWKHGHVFULSWLRQE\+HLPGDODQG FRZRUNHUV9LGHRDQGVRXQGUHFRUGLQJVZHUHHGLWHGLQWRQHZGDWDILOHVDQG FRXOGWKHUHE\EHUHYLHZHGLQDUDQGRPRUGHUZLWKRXWDQ\FOLQLFDOLQIRUPDWLRQLQRUGHU WRVHFXUHDEHVWSRVVLEOHREMHFWLYHDVVHVVPHQW$GGLWLRQDOLQIRUPDWLRQDERXWV\PSWRPV ZDVUHYHDOHGE\TXHVWLRQQDLUHVDQGYLVXDODQDORJXHVFRUHV9$6,QWKHIROORZXS VWXG\FKDQJHLQV\PSWRPVRIH[HUFLVHLQGXFHGEUHDWKLQJGLVWUHVVOHYHORIDFWLYLW\
DQGWKHLPSDFWRIV\PSWRPVRQGDLO\OLIHDFWLYLW\ZDVDGGUHVVHGLQTXHVWLRQQDLUHVVHQW E\PDLO$OOVXUJLFDOO\WUHDWHGSDWLHQWVDQGVHOHFWHGSDWLHQWVIURPWKHLQLWLDOSDUWRI VWXG\ZHUHLQYLWHGWRSHUIRUPDVHFRQG&/(WHVW
5HVXOWV,QWKHILUVWVWXG\WKH&/(WHVWWXUQHGRXWWREHIHDVLEOHLQRUGHUWRUHYHDO OHYHODQGVHYHULW\RIODU\QJHDOREVWUXFWLRQLQ(,/2SDWLHQWV:HREVHUYHGWKDWWKH ODU\Q[FRXOGEHREVWUXFWHGRQO\DWWKHVXSUDJORWWLFOHYHOEXWPRVWRIWHQLQFRPELQDWLRQ ZLWKREVWUXFWLRQDOVRDWWKHJORWWLFOHYHO7KHODWWHUZDVUDUHO\IRXQGWREHWKHVROH FDXVHRI(,,6
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
7KHIRXUWKVWXG\LQFOXGHGUHH[DPLQDWLRQRISDWLHQWVLQLWLDOO\WHVWHGZKHQ
WHHQDJHUVZLWKDVHFRQG&/(WHVWDWDGXOWDJHDUHH[DPLQDWLRQRIRIVXUJLFDOO\
WUHDWHGSDWLHQWVDQGIROORZXSFRQFHUQLQJV\PSWRPVRIRIWKHSDWLHQWVLQYLWHGWR WKHVWXG\7KLVVWXG\VKRZHGWKDWPRVWVXEMHFWVH[SHULHQFHGV\PSWRPUHOLHIGXULQJWKH REVHUYDWLRQWLPHEXWPRUHVRLQWKHVXUJLFDOO\WUHDWHGWKDQXQWUHDWHGSDWLHQWV
&RPSDULVRQRISUHDQGSRVWRSHUDWLYH&/(WHVWVVKRZHGDVLJQLILFDQWLPSURYHPHQW LQWKHDELOLW\WRNHHSWKHODU\Q[RSHQZKLOHH[HUFLVLQJLQWKHVXUJLFDOO\WUHDWHGJURXS 2QWKHFRQWUDU\OLWWOHFKDQJHZDVREVHUYHGLQODU\QJHDOPRWLRQLQUHWHVWHG XQWUHDWHGSDWLHQWV
&RQFOXGLQJUHPDUNV:HFRQFOXGHWKDWH[HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQFDQ EHYLVXDOL]HGE\WKH&/(WHVWDQGWKDWWKHREVWUXFWLRQRIWKHODU\Q[LQ(,/2SDWLHQWVLV PRVWRIWHQGXHWRDQLQZDUGURWDWLRQRIWKHDU\HSLJORWWLFIROGVIUHTXHQWO\IROORZHGE\
DQDUURZLQJRIWKHJORWWLFVSDFHDQGVHOGRPVROHO\GXHWRJORWWLFDGGXFWLRQ,QVRPH FDVHVPDMRUGLVWUHVVDQGSDQLFUHDFWLRQVFDQEHWKHHQGSRLQWRIWKLVSKHQRPHQRQ7KH VHYHULW\RIREVWUXFWLRQFDQEHJUDGHGE\WKH&/(VFRUHLQDUHOLDEOHDQGYDOLGPDQQHU 6XUJHU\RIH[HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQFDQEHDQDGHTXDWHWUHDWPHQWLQ VWULFWO\VHOHFWHGFDVHVGHSHQGLQJRIVHYHULW\RIV\PSWRPVGHJUHHRIREVWUXFWLRQDQG PRWLYDWLRQRIWKHSDWLHQW(,,6GXHWR(,/2GRHVQRWVHHPWRUHFRYHUVSRQWDQHRXVO\LQ
\RXQJVWHUV5HGXFHGSK\VLFDODFWLYLW\PD\JLYHWKHLPSUHVVLRQWKDWWKHODU\QJHDO IXQFWLRQKDVLPSURYHG
,QWURGXFWLRQ
([HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQ
([HUFLVHLQGXFHGLQVSLUDWRU\VWULGRU(,,6UHVSLUDWRU\GLVWUHVVZLWKDKLJKSLWFKHG LQVSLUDWRU\QRLVHVKRUWQHVVRIEUHDWKDQGRFFDVLRQDOO\SDQLFUHDFWLRQVLQRIWHQDFWLYH
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
LQGXFHVDLUIORZWXUEXOHQFH7KLVDLUZD\REVWUXFWLRQPD\FDXVHH[WUHPHG\VSQHDDQG DXGLEOHZKHH]HRUVWULGRU%MRUQVGRWWLUHWDO/DNLQHWDO
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
+LVWRULFDODVSHFWV
/DU\QJHDOREVWUXFWLRQFDXVLQJUHVSLUDWRU\GLVWUHVVZDVILUVWGHVFULEHGE\'XQJOLVRQLQ DPHGLFDOWH[WERRNLQ+HGHVFULEHGDGLVRUGHURIWKHODU\QJHDOPXVFOHVEURXJKW RQE\µK\VWHULD¶'XQJOLVRQ,Q0DF.HQ]LHYLVXDOL]HGSDUDGR[LFDOO\
FORVXUHRIWKHJORWWLVGXULQJLQVSLUDWLRQLQK\VWHULFDGXOWVZLWKVWULGRU0DF.HQ]LH /DWHULQ:LOOLDP2OVHUGHILQHGWKLVFRQGLWLRQE\GHVFULELQJSDWLHQWVZLWK µVSDVPVRIODU\QJHDOPXVFOHV¶RFFXUULQJGXULQJLQVSLUDWLRQDQGWLPHVRIJUHDWGLVWUHVV 2OVHU
8QWLOWKH¶VOLWWOHZDVSXEOLVKHGRQWKLVWRSLFDQGWKHFRQGLWLRQZDVGHVFULEHG PDLQO\LQSV\FKLDWULFOLWHUDWXUH3V\FKRJHQLFIDFWRUVKDYHEHHQDVVRFLDWHGLQDPDMRULW\
RIFDVHUHSRUWVDQGFOLQLFDOVWXGLHV$FDVHUHSRUWHQWLWOHGµ0XQFKDXVHQ6WULGRU¶LQ LOOXVWUDWHGDWWDFNVZLWKLQVSLUDWRU\ZKHH]HZRUVHQHGE\LQIHFWLRQRUHPRWLRQDO GLVWUHVV3DWWHUVRQHWDO
'XULQJWKH¶VHSLVRGLFREVWUXFWLRQRIWKHODU\Q[EHFDPHUHFRJQLVHGDVDFOLQLFDO HQWLW\ZLWKWKHDSSHDUDQFHRIDQLQFUHDVLQJQXPEHURISXEOLFDWLRQVRQWKLVWRSLF +HUHDIWHUWKLVFRQGLWLRQKDVEHHQPRUHRIWHQGHVFULEHGLQMRXUQDOVRIRWRODU\QJRORJ\
DQGUHVSLUDWRU\PHGLFLQHDVDV\QGURPHRIHSLVRGLFVWULGRUG\VSQHDDQGSDOSLWDWLRQV WKDWPLPLFVRULVPLVWDNHQIRUDVWKPDRUPDOLQJHULQJ7KHIDFWWKDWODU\QJHDO REVWUXFWLRQFDQEHLQGXFHGE\H[HUFLVHKDVDOVRUHFHLYHGPRUHIRFXV$EX+DVDQHW DO&KULVWRSKHUHWDO.D\DQLDQG6KDQQRQ.HQQ/DQGZHKU HWDO0F)DGGHQDQG=DZDGVNL0RUULVHWDO
,QPRVWRIWKHHDUO\UHSRUWVWKHIRFXVZDVRQODU\QJHDOREVWUXFWLRQDWWKHJORWWLFOHYHO LHLQDSSURSULDWHDGGXFWLRQRIWKHYRFDOIROGV&KULVWRSKHUDQGFRZRUNHUVZHUHWKH ILUVWWRGHVFULEHREVWUXFWLRQGXHWRDGGXFWLRQRIWKHIDOVHYRFDOIROGVVLPXOWDQHRXVO\
ZLWKDGGXFWLRQRIWKHWUXHYRFDOIROGV&KULVWRSKHUHWDO
7KHILUVWSDSHUGHVFULELQJDVROHO\VXSUDJORWWLFFDXVHRIODU\QJHDOREVWUXFWLRQGXULQJ H[HUFLVHZDVSXEOLVKHGE\/DNLQ/DNLQHWDO+HGHVFULEHGWKHSKHQRPHQRQDV DVHSDUDWHHQWLW\DQGIRXQGDQLQVSLUDWRU\SURODSVHRIWKHFRUQLFXODWHDQGFXQHLIRUP
FDUWLODJHVLQWKHSRVWHURLQIHULRUSRUWLRQRIWKHDU\HSLJORWWLFIROGVRYHUWKHODU\QJHDO YHVWLEXOHQDUURZLQJWKHVXSUDJORWWLFDSHUWXUHZKLOHWKHYRFDOIROGVZKHUHZLGHO\
DEGXFWHG/DWHUVLPLODUUHVXOWVZHUHGHVFULEHGE\VHYHUDORWKHUDXWKRUV%HQWHWDO
%LWWOHPDQHWDO%MRUQVGRWWLUHWDO&KHPHU\HWDO)DKH\HW DO0DQGHOODQG$UMPDQG6PLWKHWDO
1RPHQFODWXUHFRQIXVLRQ
6LQFHWKHILUVWGHVFULSWLRQE\'XQJOLVRQXSXQWLOWKHSUHVHQWWLPHGLIIHUHQWWHUPVKDYH EHHQXVHGWRGHVFULEHWKHSKHQRPHQRQRIODU\QJHDOREVWUXFWLRQFDXVLQJUHVSLUDWRU\
GLVWUHVV7KHVHWHUPVDUHUHODWHGWRWKHK\SRWKHVHVDQGDYDLODEOHGLDJQRVWLFWRROVRU ODFNRIVXFKDWWKHDFWXDOWLPH7KHXVHRIPLUURUODU\QJRVFRS\LQLWLDOO\HQDEOHGWKH LQYHVWLJDWRUVWRH[DPLQHWKHODU\Q[RQO\GXULQJTXLHWEUHDWKLQJDQGRQO\SDWKRORJLFDO PRWLRQSDWWHUQVRIWKHODU\Q[SUHVHQWGXULQJUHVWFRXOGEHGHVFULEHG2QHKDGWR GHGXFHILQGLQJVGXULQJUHVWLQWRWKHVLWXDWLRQRIH[HUFLVH
,QWKHODVWWKUHHGHFDGHVWKHLQWURGXFWLRQRIIOH[LEOHODU\QJRVFRSHVKDVPDGHLW SRVVLEOHWRH[DPLQHWKHODU\Q[ZKHQSDWLHQWVH[SHULHQFHV\PSWRPVGXULQJH[HUFLVH 6XFKVWXGLHVKDYHUHYHDOHGWKDWREVWUXFWLRQRIWKHODU\Q[LVFRPSOH[DQGRFFXUVDW GLIIHUHQWOHYHOV7KHREVHUYDWLRQRIREVWUXFWLRQRIVXSUDJORWWLFVWUXFWXUHV
VLPXOWDQHRXVO\ZLWKDQDGGXFWLRQRIWKHYRFDOIROGVRUDVROHO\VXSUDJORWWLFFDXVHRI ODU\QJHDOREVWUXFWLRQKDVOHGWRIXUWKHUGLVFXVVLRQDVWRKRZWKLVSKHQRPHQRQVKRXOG EHWHUPHG
7KHILQGLQJVRIVXSUDJORWWLFFROODSVHVLPLODUWRWKDWREVHUYHGLQQHZERUQVZLWK ODU\QJRPDODFLDKDVOHGWRWKHLQWURGXFWLRQRIWHUPVWRWKHQRPHQFODWXUHWKDWLPSO\D FRQQHFWLRQEHWZHHQODU\QJRPDODFLDDQGH[HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQHJ WKHWHUPH[HUFLVHLQGXFHGODU\QJRPDODFLDLQWURGXFHGE\%HQWDQGFRZRUNHUVDQG ODWHUXVHGE\RWKHUV%HQWHWDO&KHPHU\HWDO0DQGHOODQG$UMPDQG 6PLWKHWDORUVLPLODUO\DGXOWODU\QJRPDODFLDE\*HVVOHUDQGFR ZRUNHUV*HVVOHUHWDO
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
0RUHWKDQWHUPVKDYHEHHQXVHGLQOLWHUDWXUHLQRUGHUWRGHVFULEHUHVSLUDWRU\
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
7$%/(,
7HUPLQRORJ\XVHGWRGHVFULEHFDXVHVRIUHVSLUDWRU\GLVWUHVVRULJLQDWLQJDWWKH ODU\QJHDOOHYHO
$GGXFWRUEUHDWKLQJG\VWRQLD
$GXOWVSDVPRGLFFURXS
$FTXLUHGODU\QJRPDODFLD
$GXOWODU\QJRPDODFLD
$VWKPDOLNHGLVRUGHU
$VWKPDWLFH[WUDWKRUDFLFXSSHUDLUZD\
REVWUXFWLRQ
$W\SLFDODVWKPD
%HQLJQSDUDGR[LFDOYRFDOFRUGPRWLRQ
%LODWHUDODEGXFWRUYRFDOFRUGSDUHVLV (PRWLRQDOODU\QJHDOZKHH]LQJ (PRWLRQDOODU\QJRVSDVP (SLVRGLFODU\QJHDOG\VIXQFWLRQ (SLVRGLFODU\QJHDOG\VNLQHVLD (SLVRGLFODU\QJRVSDVP
(SLVRGLFSDUR[\VPDOODU\QJRVSDVP ([HUFLVHLQGXFHGODU\QJRPDODFLD
([HUFLVHLQGXFHGODU\QJRVSDVPRIHPRWLRQDO RULJLQ
([HUFLVHLQGXFHGODU\QJRFKDODVLD ([HUFLVHLQGXFHGODU\QJHDOSURODSVH ([HUFLVHLQGXFHGVXSUDJORWWLFFORVXUH ([HUFLVHLQGXFHGSDUDGR[LFDOYRFDOFRUG G\VIXQFWLRQ
([HUFLVHUHODWHGODU\QJRPDODFLD ([SLUDWRU\ODU\QJHDOVWULGRU ([WUDWKRUDFLFDLUZD\G\VIXQFWLRQ )DFWLWLRXVDVWKPD
)DOVHFURXS
)DPLOLDO0XQFKDXVHQVWULGRU
)DFWLWLRXVDVWKPD
)XQFWLRQDODEGXFWLRQSDUHVLV )XQFWLRQDODVWKPD
)XQFWLRQDOEUHDWKLQJGLVRUGHU )XQFWLRQDOODU\QJHDOG\VNLQHVLD )XQFWLRQDOODU\QJHDOREVWUXFWLRQ )XQFWLRQDOODU\QJHDOVWULGRU )XQFWLRQDOLQVSLUDWRU\VWULGRU )XQFWLRQDOXSSHUDLUZD\REVWUXFWLRQ )XQFWLRQDOYRFDOFRUGSDUDO\VLV
*ORWWLFG\VIXQFWLRQ +\VWHULFFURXS +\VWHULFDOVWULGRU
,QVSLUDWRU\YRFDOFRUGG\VIXQFWLRQ ,QWHUPLWWHQWDU\WHQRLGUHJLRQSURODSVH ,UULWDEOHODU\Q[V\QGURPH
,UULWDQWDVVRFLDWHGYRFDOFRUGG\VIXQFWLRQ /DU\QJHDODVWKPD
/DU\QJHDOG\VIXQFWLRQ /DU\QJHDOG\VNLQHVLD /DU\QJHDOUHVSLUDWRU\G\VWRQLD /DU\QJHDOVSDVP
/DU\QJHDOVWULGRU /DU\QJLVPXVIXJD[
/DU\QJLVPXVVWULGXORXV /DU\QJRQHXURVLV /DWHRQVHWODU\QJRPDODFLD
0XQFKDXVHQV\QGURPHSUHVHQWLQJDV EURQFKRVSDVP
0XQFKDXVHQVWULGRU 1RQRUJDQLFVWULGRU
1RQRUJDQLFXSSHUDLUZD\REVWUXFWLRQ 3DUDGR[LFDOYRFDOFRUGDGGXFWLRQ 3DUDGR[LFDOYRFDOFRUGG\VIXQFWLRQ 3DUDGR[LFDOYRFDOFRUGPRWLRQ 3DUDGR[LFDOYRFDOFRUGPRYHPHQW 3DUDGR[LFDOYRFDOIROGG\VIXQFWLRQ 3DUDGR[LFDOYRFDOIROGPRWLRQ 3DUR[\VPDOODU\QJRVSDVP 3VHXGRDVWKPD
3VHXGRVWHURLGUHVLVWDQWDVWKPD 3V\FKRJHQLFODU\QJHDOG\VIXQFWLRQ 3V\FKRJHQLFUHVSLUDWRU\GLVWUHVV 3V\FKRJHQLFVWULGRU
3V\FKRJHQLFVWULGRUFDXVHGE\DFRQYHUVLRQ GLVRUGHU
3V\FKRJHQLFXSSHUDLUZD\REVWUXFWLRQ 3V\FKRJHQLFYRFDOFRUGG\VIXPFWLRQ
0RGLILHGDIWHU%UXJPDQ:KDW¶VWKLVWKLQJFDOOHG 9RFDO&RUG'\VIXQFWLRQ"%UXJPDQ
3V\FKRVRPDWLFVWULGRU 3V\FKRVRPDWLFZKHH]LQJ 5HVSLUDWRU\JORWWLFVSDVP
5HYHUVLEOHXSSHUDLUZD\REVWUXFWLRQ 6OHHSUHODWHGODU\QJRVSDVP 6SDVPRGLFFURXS
6SDVPRGLFFURXSLQWKHDGXOW
6WUHVVLQGXFLEOHIXQFWLRQDOODU\QJRVSDVP 6XIIRFDWLYHODU\QJLVPXV
7K\PLFDVWKPD
8SSHUDLUZD\G\VIXQFWLRQV\QGURPH 8SSHUDLUZD\REVWUXFWLRQPLVGLDJQRVHGDV DVWKPD
9DULDEOHH[WUDWKRUDFLFREVWUXFWLRQ 9DULDEOHYRFDOFRUGG\VIXQFWLRQ 9RFDOFRUGG\VIXQFWLRQPDVTXHUDGLQJDV DVWKPD
9RFDOFRUGG\VNLQHVLD 9RFDOFRUGPDOIXQFWLRQ
'HILQLWLRQRIWKHWHUP(,/2
:KLOVWRYHUZKHOPLQJLQQXPEHUQRQHRIWKHDYDLODEOHWHUPVDFWXDOO\VWULFWO\
GLIIHUHQWLDWHV\PSWRPVIURPREMHFWLYHODU\QJHDOILQGLQJVRUSK\VLRORJLFDOWULJJHUV IURPSDWKRORJLFDOFRQGLWLRQV%UXJPDQ7KHUHLVWKHUHIRUHDQHHGIRUDWHUP WKDWWDNHVLQWRFRQVLGHUDWLRQWKHDVSHFWVPHQWLRQHGE\%UXJPDQ6XFKDWHUPLQRORJ\
KDVQRWSUHYLRXVO\EHHQDYDLODEOHEXW(,/2KDVEHHQVXJJHVWHGDVDWHUPWKDWFRYHUV VHYHUDORIWKHDIRUHPHQWLRQHGDQGXVHGWHUPV&KULVWHQVHQHWDO
7KHWHUP(,/2ZLOOLQWKLVWKHVLVEHGHILQHGDVDLUZD\REVWUXFWLRQYLVXDOL]HGDWWKH ODU\QJHDOOHYHOE\FRQWLQXRXVODU\QJRVFRS\GXULQJH[HUFLVHLQSDWLHQWVZLWK(,,6 V\PSWRPVLIWKHLUODU\Q[LVIXQFWLRQLQJQRUPDOO\DWUHVW
(,/2ZLOOEHVHSDUDWHGDFFRUGLQJWRWKHOHYHORIREVWUXFWLRQLQWKHODU\Q[LH VXSUDJORWWLFLIWKHREVWUXFWLRQLVGRPLQDQWDERYHWKHYRFDOIROGVRUJORWWLFLIWKH REVWUXFWLRQLVGRPLQDQWDWWKHJORWWLFOHYHO,IERWKOHYHOVDUHLQYROYHGWKHWHUP
³FRPELQHGW\SHRI(,/2´ZLOOEHXVHG
0DJQLWXGHRIWKH(,/2SUREOHP
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
6PLWKHWDO%DVHGRQWKHDYDLODEOHVWXGLHVVRIDURQO\FUXGHHVWLPDWHV FRQFHUQLQJWKHPDJQLWXGHRIWKH(,/2SUREOHPFDQEHSXWIRUZDUGXQWLOSRSXODWLRQ EDVHGVWXGLHVDUHSHUIRUPHG
'LIIHUHQWLDOGLDJQRVHVWR(,/2
(,/2YHUVXV(,$
$OWKRXJK(,/2KDVEHHQUHFRJQL]HGDVWKHPRVWFRPPRQFDXVHIRU(,,6WKH V\PSWRPVRI(,/2DUHVWLOORIWHQFRQIXVHGZLWKWKRVHRIH[HUFLVHLQGXFHGDVWKPD (,$DQGWKHUHIRUHWKH(,/2FRQGLWLRQFDQEHPLVGLDJQRVHGDV(,$&DUOVHQ 0RUULVHWDO+RZHYHU(,/2HYHQFRH[LVWVZLWK(,$0RUULVHWDO 5XQGHOODQG6SLHULQJ
7KHUHDUHFHUWDLQGLIIHUHQFHVEHWZHHQWKHFRQGLWLRQVWKDWVKRXOGHDVHWKH
GLIIHUHQWLDWLRQEHWZHHQWKHP3DWLHQWVZLWK(,$FDQXVXDOO\XQGHUWDNHDQGILQLVK YLJRURXVDFWLYLW\EXWWKHDFTXLUHGDLUZD\REVWUXFWLRQEHJLQVVKRUWO\DIWHUWKH WHUPLQDWLRQRIH[HUFLVHUHDFKHVLWVSHDNLQPLQXWHVDQGWKHQUHPLWV
VSRQWDQHRXVO\0F)DGGHQDQG*LOEHUW,QFRQWUDVWLQSDWLHQWVVXIIHULQJIURP (,/2WKHDFTXLUHGDLUZD\REVWUXFWLRQEHJLQVDQGSHDNVGXULQJH[HUFLVH
([HUFLVHLQGXFHGDVWKPD(,$LVGHILQHGE\ORZHUDLUZD\REVWUXFWLRQFDXVLQJ V\PSWRPVRIFRXJKLQJZKHH]LQJRUG\VSQHDLQGXFHGE\H[HUFLVHLQSDWLHQWVZLWK XQGHUO\LQJDVWKPD6FKZDUW]HWDO6\PSWRPVPD\EHZKHH]LQJPRVWO\
H[SLUDWRU\G\VSQHDFRXJKLQJDQGFKHVWWLJKWQHVV
(,$FDQEHFRQILUPHGE\GHPRQVWUDWLQJGHFUHDVHGYDOXHVIRUH[SLUDWRU\IORZUDWHV DQGIRUFHGH[SLUDWRU\YROXPHLQWKHILUVWVHFRQG)(9ZKHQSHUIRUPLQJVSLURPHWU\
DIWHUDQH[HUFLVHFKDOOHQJH&DUOVHQDQG&DUOVHQ5LFHHWDO(,$LV FRQVLGHUHGWKHDHWLRORJ\IRUH[HUFLVHLQGXFHGG\VSQHD(,'LIWKHWUHDGPLOOH[HUFLVH UHVXOWVLQUHSURGXFWLRQRIV\PSWRPVLQDVVRFLDWLRQZLWKDGHFUHDVHLQ)(9RIDWOHDVW
$EX+DVDQHWDO
5HVSLUDWRU\VRXQGVFDQEHDKHOSZKHQWKHOHYHORIDLUZD\REVWUXFWLRQLVWREH GHWHUPLQHG6WULGRURUZKHH]HLVKHDUGPRVWO\GXULQJLQVSLUDWLRQLQ(,/2ZKHUHDVLQ (,$WKHVWULGRURUZKHH]HLVPDLQO\DSSDUHQWGXULQJH[SLUDWLRQ
6WULGRULVDKDUVKKLJKSLWFKHGPXVLFDOVRXQGZKLFKFDQEHSURGXFHGE\WXUEXOHQW DLUIORZWKURXJKDSDUWLDOO\REVWUXFWHGDLUZD\H[SODLQHGE\WKH9HQWXULSULQFLSOH )RUJDFV,WLVRIWHQUHIHUUHGWRDVDQLQVSLUDWRU\VRXQGWKDWLVORXGHVWRYHUWKH FHQWUDODLUZD\V:LONLQVHWDO6WULGRULVQRWDGLDJQRVLVEXWDV\PSWRPRI XQGHUO\LQJSDWKRORJ\,WFDQEHFUHDWHGE\ERWKG\QDPLFDQGVROLGREVWUXFWLRQLQDQ\
SDUWRIWKHDLUZD\WKRXJKLWRULJLQDWHVPRVWO\IURPREVWUXFWLRQLQWKHODU\QJHDODQG WUDFKHDOSDUW%HQW7ZRZD\VWULGRULVXVXDOO\DVVRFLDWHGZLWKDPRUHVHYHUH GHJUHHRIREVWUXFWLRQLQFRQWUDVWWRWKHORXGQHVVRIWKHVWULGRUZKLFKGRHVQRWKDYHD GLUHFWFRUUHODWLRQZLWKVHYHULW\
,QJHQHUDOLQVSLUDWRU\VWULGRULVDVVRFLDWHGZLWKH[WUDWKRUDFLFREVWUXFWLRQRIWKH DLUZD\V%URRNHVDQG)DLUID[7KHH[WUDWKRUDFLFUHJLRQLQFOXGHVWKHSDUWRI WKHDLUZD\DERYHWKHWKRUDFLFLQOHW
$SRO\SKRQLFZKHH]HRQWKHRWKHUKDQGQRUPDOO\UHIOHFWVGLVHDVHLQVPDOODLUZD\V DQGLVVXJJHVWLYHRIDVWKPDHVSHFLDOO\LIPXOWLSOHZKHH]HVDUHKHDUG)RUJDFV DQG2EVWUXFWLRQLQWKHLQWUDWKRUDFLFUHJLRQRIWKHDLUZD\VXVXDOO\SURGXFHV H[SLUDWRU\ZKHH]HGHSHQGLQJRQWKHVLWHDQGVL]HRIREVWUXFWLRQ%DXJKPDQDQG /RXGRQ0HVOLHUHWDO
7DEOH,,VKRZVDQRYHUYLHZRIW\SLFDOFOLQLFDOIHDWXUHVUHODWHGWR(,/2DWWKH VXSUDJORWWLFRUJORWWLFOHYHOVDQG(,$
7DEOH,, &RPSDULVRQRIFOLQLFDOIHDWXUHVRI(,/2DQG(,$ 'HVFULSWLRQ(,/26XSUDJORWWLFOHYHO(,/2*ORWWLFOHYHO(,$ $JH$GROHVFHQWV$GROHVFHQWVDQGDGXOWV$Q\DJH *HQGHUƂ!ƃƂ!ƃƂƃ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
3K\VLFDOH[DPLQDWLRQ,QVSLUDWRU\ZKHH]H,QVSLUDWRU\VWULGRU([SLUDWRU\ZKHH]H 6SLURPHWU\IORZYROXPH3ODWHDXLQJRI3ODWHDXLQJRI%OXQWLQJRIWKH ORRSLQVSLUDWRU\SRUWLRQLQVSLUDWRU\SRUWLRQH[SLUDWRU\ORRS /DU\QJRVFRS\&ROODSVHRIVXSUD3DUDGR[LFDODG1RUPDOPLOG JORWWLFVWUXFWXUHVGXFWLRQRIYRFDOJORWWLFDGGXFWLRQ IROGV 0RGLILHGIURP%MRUQVGRWWLU([HUFLVHLQGXFHGODU\QJRFKDODVLDDQLPLWDWRURIH[HUFLVHLQGXFHGEURFKRVSDVP%MRUQVGRWWLU 5HSURGXFHGZLWKSHUPLVVLRQIURPDXWKRUDQGSXEOLVKHU
2QHVKRXOGDOVRKDYHLQPLQGWKDWDYDULHW\RIFRQGLWLRQVPD\DIIHFWWKHODU\Q[DQG WUDFKHDDQGFDXVHDLUZD\REVWUXFWLRQWKDWFDQPLPLFV\PSWRPVFDXVHGE\(,/2$
FDUHIXOH[DPLQDWLRQRIWKHSDWLHQWVVKRXOGLQPRVWFDVHVUHYHDOWKHFRUUHFWGLDJQRVLV LQWKHVHFDVHV7DEOH,,,VXPPDUL]HVSRVVLEOHHQWLWLHVRIVROLGDQGG\QDPLFXSSHU DLUZD\REVWUXFWLRQVWKDWFDQFDXVHVWULGRUDQGWKHUHIRUHDOVR(,,6V\PSWRPVLI SDWLHQWVDUHDEOHWRSHUIRUPH[HUFLVH(,/2LVKHUHH[FOXGHGDVG\QDPLFREVWUXFWLRQ
7DEOH,,,
8SSHUDLUZD\REVWUXFWLRQVZKLFKPD\FDXVHVWULGRU 'HVFULSWLRQ 0DMRU&DWHJRU\ ([DPSOHV
6ROLGREVWUXFWLRQ /DU\QJHDOVWHQRVLV 6XEJORWWLFVWHQRVLV VXSUDJORWWLFJORWWLF F\VWVZHEVFqOHV
VXEJORWWLF KDHPDQJLRPDVSRO\SV
1HRSODVPVEHQLJQPDOLJQ 3DSLOORPDFDUFLQRPDV
,QIHFWLRXVFDXVH /DU\QJRWUDFKHLWLV
HSLJORWLWLVDEVFHVVHV
$OOHUJLFFDXVH $QJLRQHXURWLFRHGHPD
7UDFKHRPDODFLDH[WULQVLF 1HFNPDVVHVYDVFXODU
FRPSUHVVLRQ ULQJV
7UDXPD )UDFWXUHVRHGHPD
'\QDPLFREVWUXFWLRQ 7UDFKHRPDODFLDLQWULQVLF &RQJHQLWDO
1HXURORJLFDOGLVRUGHUV &HQWUDOQHUYRXVV\VWHP
OHVLRQVUHFXUUHQW
ODU\QJHDOQHUYHOHVLRQV
9RFDOIROGPRELOLW\GLVRUGHU 3DUDGR[LFDOYRFDOIROG
9)0' PRWLRQ39)0
ODU\QJRVSDVPODU\QJHDO
G\VNLQHVLD
/DU\QJHDOIXQFWLRQDQGDHWLRORJRFLFDODVSHFWVRI(,/2
7KHDHWLRORJ\RI(,/2LVFRPSOH[DQGRXUXQGHUVWDQGLQJRIWKHPXOWLSOHIDFWRUV LQGXFLQJDWWDFNVLVOLPLWHG2QHPD\DUJXHWKDWWKHDHWLRORJ\RI(,/2ZLOOLQHYLWDEO\
EHUHODWHGWRVRPHRIWKHSK\VLRORJLFDODVSHFWVRIWKHODU\Q[DQGWKHUHIRUHWKHVH DVSHFWVDUHSUHVHQWHGLQPRUHGHWDLO
/DU\QJHDOIXQFWLRQ
7KHYDOYHPHFKDQLVP
7KHODU\Q[LVGHVFULEHGDVDQDLUSDVVDJHDVSKLQFWHUGHYLFHZKLFKIROGVDQGXQIROGV F\FOLFDOO\IRUYHQWLODWLRQDQGIROGVLQWHUPLWWHQWO\LQLQFUHDVLQJGHJUHHVIRUYRLFH SURGXFWLRQSK\VLFDOHIIRUWDQGGHJOXWLWLRQ)LQN7KHWZRPDLQWDVNVIRUWKH ODU\Q[DUHWRVHFXUHWKHRSHQDLUZD\DQGWRSURWHFWWKHORZHUDLUZD\7KHODU\Q[
DFFRPSOLVKHVWKHVHFRQIOLFWLQJWDVNVE\LWVULJLGFDUWLODJHVNHOHWRQIRUFHIXOOLJDPHQWV DQGDFWLRQRIDGGXFWRUDQGDEGXFWRUPXVFOHV
7KHODU\Q[LVSURWHFWHGIURPLQVSLUDWRU\FROODSVHE\LWVUHODWLYHO\ULJLGFDUWLODJH VNHOHWRQSDUWLFXODUO\WKHFULFRLGFDUWLODJHDQGPXVFXODUDFWLRQVWKDWSURYLGHVXSSRUW IRUWKHJORWWLFDQGVXSUDJORWWLFVWUXFWXUHV7KHQDWXUDOFRQILJXUDWLRQRIWKHODU\Q[LV VXFKWKDWWKHWDSHULQJVXEJORWWLFFRQHUHVHPEOHVDQLQYHUWHGIXQQHODQGWKHH[SLUDWRU\
IORZUDWHLVSUDFWLFDOO\ZLWKRXWKLQGUDQFH7KHIUHHERUGHURIYRFDOIROGVDQGWKH VKDOORZVDXFHUOLNHFRQWRXURIWKHIORRURIODU\QJHDOYHQWULFOHFDSWXUHWKHIRUFHRIWKH LQVSLUDWRU\IORZ(VSHFLDOO\ZKHQVXSUDJORWWLFRUJORWWLFVWUXFWXUHVDUHIODFFLGWKLV FDQEHWKHFDXVHRIGLVSODFHPHQWLQWKHDLUVWUHDPUHVXOWLQJLQJUHDWHUWXUEXOHQFHDQG GLPLQLVKHGIORZUDWH.DVKLPD
7KHJORWWLVLVRSHQHGPRUHZLGHO\GXULQJLQVSLUDWLRQWKDQGXULQJH[SLUDWLRQLQTXLHW EUHDWKLQJ%DUWOHWW)LQN7KHUHVSLUDWRU\PRYHPHQWVRIWKHYRFDOIROGV DUHFORVHO\FRRUGLQDWHGZLWKWKRVHRIWKHGLDSKUDJPDQGRWKHUPXVFOHVRIWKH YHQWLODWRUSXPS7KHIROGVEHJLQWRVHSDUDWHVOLJKWO\EHIRUHWKHRQVHWRI GLDSKUDJPDWLFFRQWUDFWLRQ
'XULQJVZDOORZLQJWKHODU\Q[LVHOHYDWHGWRRSHQWKHIRRGSDVVDJHDQGLVWLJKWO\
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
/DU\QJHDOUHVSLUDWRU\IXQFWLRQ
7KHODU\QJHDOYDOYHPHFKDQLVPFDQSUHFLVHO\UHJXODWHWKHWUDQVJORWWLFSUHVVXUHRU UHVLVWDQFH%DUWOHWWDQGDQLPSRUWDQWUHVSLUDWRU\UROHRIWKHODU\Q[VHHPVWREH WKHUHJXODWLRQRIUHVLVWDQFHWRDLUIORZ&ROHHWDO.RXIPDQDQG%ORFN 0DWKHUV6FKPLGWDQG%ULOOD
:KLOHK\SHUYHQWLODWLQJDQGSDQWLQJWKHYRFDOIROGVDUHPRUHZLGHO\DEGXFWHGGXULQJ LQVSLUDWLRQWKDQLQWKHUHVWLQJVWDWHDQGWKHDEGXFWLRQLVSURORQJHGLQWRRUWKURXJKWKH H[SLUDWRU\SHULRGUHGXFLQJH[SLUDWRU\ODU\QJHDOUHVLVWDQFH(QJODQGDQG%DUWOHWW
'XULQJH[HUFLVHWKHYHQWLODWLRQUDWHPD\LQFUHDVHWRWLPHVRYHUUHVWLQJYDOXHV +XUELVDQG6FKLOG*X\WRQ(OLWHDWKOHWHVFDQDFKLHYHYHQWLODWLRQUDWHV XSWR!OLWUHVSHUPLQXWH&DUOVHQDQG.RZDOVNL7UDQVLWLRQIURPQDVDOWR PRXWKEUHDWKLQJRFFXUVZKHQEUHDWKLQJUHDFKHVOLWUHVSHUPLQXWH)HUULVHWDO
$FWLYHRSHQLQJRIWKHPRXWKORZHUVWKHODU\Q[LQWKHQHFNDQGWKHUHE\WHQGV WRZLGHQWKHODU\QJHDORULILFH)LQN
7KHPRGHRIDEGXFWLRQRIWKHDU\WHQRLGVUHVXOWVLQDQHIILFLHQWHQODUJHPHQWRIWKH ODU\QJHDOERWWOHQHFNZLWKDEURDGO\SHQWDJRQDORXWOLQHRIWKHJORWWLFDUHDDQGSHUPLWV LQWHQVLYHDLUIORZV)LQN7KHLQFUHDVHGJORWWLFDUHDVLJQLILFDQWO\GHFUHDVHVWKH
UHVLVWDQFHWRDLUIORZLQWKHODU\Q[7KHJORWWLFDUHDLQH[SLUDWLRQLQQRUPDOVXEMHFWV LQFUHDVHVE\GXULQJH[HUFLVH7KLVOHDGVWRDGHFUHDVHRILQODU\QJHDO UHVLVWDQFHDFFRUGLQJWR%DLHU%DLHUHWDO+XUELVDQG6FKLOG
%HOPRQWDQG*UXQGIDVWLQWKHLUDQDWRPLFDOVWXG\VWDWHGWKDWWKHLQWULQVLFPXVFOHVRI WKHODU\Q[VHUYHQRWRQO\WRDEGXFWDQGDGGXFWWKHYRFDOIROGVEXWFOHDUO\DOVRDVVLVW LQVWDELOLVDWLRQRIWKHDU\WHQRLGVDQGSUHVXPDEO\WKHDWWDFKHGDU\HSLJORWWLFIROGV
%HOPRQWDQG*UXQGIDVW7RJHWKHUZLWKWKHVXEPXFRXVFROODJHQRXVILEUHVDW WKHGRUVDOPDUJLQRIWKHDU\HSLJORWWLFIROGV$()WKHSRRUO\GHYHORSHGPXVFOH ILEUHVPD\UHQGHUWKHIROGVVXIILFLHQWO\WHQVHDQGUHVLVWLQVSLUDWRU\LQZDUGVXFWLRQ ([WHUQDODQGLQWHUQDOODU\QJHDOPXVFOHVDUHLQYROYHGLQWKHDGDSWLRQRIWKHODU\Q[
OXPHQWRLQFUHDVHGDLUIORZGXULQJH[HUFLVH7KHVXSUDJORWWLFSDUWRIWKHODU\Q[LV VXVSHQGHGLQWKHK\SRSKDU\Q[E\QXPHURXVPXVFOHVWKDWH[HUWGLODWRU\IRUFHVRQWKH ODU\QJHDOLQOHWWKHVHPXVFOHVWKHUHIRUHVHUYHDVDQLQWHJUDWHGXQLWZLWKWKHODU\Q[LQ RUGHUWRPDLQWDLQSDWHQF\RIWKHDLUZD\7KHIROORZLQJWKUHHPXVFOHVFDQSURYLGH VXSSRUWIRUWKHVXSUDJORWWLFSDUWRIWKHODU\Q[DQGFRXOGFOHDUO\ZLWKWKHLUYHFWRUVRI IRUFHLQWHUDFWWRUHVXOWLQGLODWDWLRQRIWKHODU\QJHDOLQOHW
x 7KHVW\ORSKDU\QJHXVPXVFOHIRUPVWKHODWHUDOJORVVRHSLJORWWLFIROGDQGWKH SKDU\QJRHSLJORWWLFIROGDQGLQVHUWVLQWRWKHDU\HSLJORWWLFIROG
x 7KHSDODWRSKDU\QJHXVPXVFOHLQVHUWVLQWRWKHSKDU\QJRHSLJORWWLFIROGZLWKWKH VW\ORSKDU\QJHXVPXVFOHDORQJZLWKSRUWLRQVRIWKHVW\ORSKDU\QJHXVPXVFOH x 7KHK\RJORVVXVPXVFOHLQVHUWVLQWRWKHK\RHSLJORWWLFOLJDPHQWDQGDSSHDUVWRWLOW
WKHHSLJORWWLVIRUZDUG%HOPRQWDQG*UXQGIDVW
7KHVHPXVFOHVSXOOWKHHSLJORWWLVIRUZDUGWKHDU\HSLJORWWLFIROGVDUHOHQJWKHQHGDQG WKLQQHGDQGDSRVVLEOHLQVWDELOLW\RIWKHVHVWUXFWXUHVVKRXOGEHSUHYHQWHG%HQWHWDO
&RQWUDFWLRQRIWKHVWHUQRK\RLGPXVFOHLVWKRXJKWWRGUDJDSDUWWKHWLVVXHVLQWHUQDOWR WKHWK\URLGFDUWLODJHODPLQDQRWDEO\WKHYRFDOYHVWLEXODUDQGDU\HSLJORWWLFIROGV )LQN$FFHOHUDWHGODU\QJHDOH[SDQVLRQSURGXFHGE\WKLVPHFKDQLVPZRXOGEH
QHJOLJLEOHXQGHUHXSQHLFFRQGLWLRQVEXWLVVLJQLILFDQWLQDUHVSLUDWRU\HPHUJHQF\)RU H[DPSOHLQDFRPSHWLWLRQEHWZHHQHOLWHDWKOHWHVWKHODVWIUDFWLRQRIDPLOOLPHWUHRI JORWWLFHQODUJHPHQWDQGWKXVWKHODVWIUDFWLRQDOLQFUHDVHRIUHVSLUDWRU\IORZFRXOGEH FUXFLDO,WKDVEHHQVSHFXODWHGWKDWWKHRVVLILFDWLRQRIWKHODPLQDRIWKHWK\URLG FDUWLODJHLQWKHWKLUGGHFDGHRIOLIHLQYROYHVDUHGXFWLRQLQWKHIOH[LELOLW\RIWKH DWKOHWH¶VODU\Q[DQGFRQVHTXHQWO\LQLWVSHDNFRQGXFWDQFH)LQN 3ULQFLSOHVRIDHURG\QDPLFV
'XULQJH[HUFLVHWKHLQFUHDVHGDLUIORZKDVDQLQIOXHQFHRQWKHODU\QJHDOOXPHQWKDW FDQEHLGHQWLILHGZLWKSULQFLSOHVRIDHURG\QDPLFVLH9HQWXULDQG%HUQRXOOL SULQFLSOHVDQG3RLVHXLOOHVODZ
9HQWXULSULQFLSOH
:LWKWKHOLQHDUPRYHPHQWRIDJDVWKURXJKDWXEHODWHUDOSUHVVXUHGHFUHDVHVFDXVLQJ IRUFHDFWLQJWRZDUGVDQDUURZLQJRIWKHWXEH7KHIOH[LEOHDLUZD\LVVXEMHFWHGWRWKHVH IRUFHVWKRVHSDUWVWKDWDUHORRVHO\VXSSRUWHGFRXOGIDOOLQWRWKHDLUZD\GXULQJ
LQVSLUDWLRQ9LJRURXVLQVSLUDWRU\HIIRUWVSDUWLFXODUO\ZKHQDVVRFLDWHGZLWKDLUKXQJHU FUHDWHDUHODWLYHLQFUHDVHLQODU\QJHDOSUHVVXUH7KHJORWWLFDQGVXEJORWWLFVWUXFWXUHV DUHIL[HGLQVL]HDQGWKDWLVZK\WKHWLJKWVXSSRUWLQJYRFDOOLJDPHQWVDUHOHVVDIIHFWHG E\WKH9HQWXULSULQFLSOH$PRGHORIWKLVSULQFLSOHLQWKHODU\Q[LVJLYHQLQ)LJXUH
%HUQRXOOLSULQFLSOH
%HUQRXOOL¶VSULQFLSOHLVHTXLYDOHQWWRWKHSULQFLSOHRIFRQVHUYDWLRQRIHQHUJ\7KLV VWDWHVWKDWLQDVWHDG\IORZWKHVXPRIDOOIRUPVRIPHFKDQLFDOHQHUJ\LQDIOXLGRU JDVDORQJDVWUHDPOLQHLVWKHVDPHDWDOOSRLQWVRQWKDWVWUHDPOLQH7KLVUHTXLUHVWKDW WKHVXPRINLQHWLFHQHUJ\DQGSRWHQWLDOHQHUJ\UHPDLQVFRQVWDQW)DMGLJD 0DQLIHVWDWLRQDWWKHJORWWLVRIWKH%HUQRXOOLSULQFLSOHVWDWHVWKDWDORQJDVWUHDPOLQH WKHSUHVVXUHLVOHDVWZKHUHWKHYHORFLW\LVJUHDWHVWSURYLGHGWKDWWKHWRWDOHQHUJ\LV FRQVWDQW)LJXUH)LQN
3RLVHXLOOHVODZ
$OWKRXJKWKLVODZFRXQWVIRUYLVFRXVIOXLGVSDVVLQJSHUXQLWWLPHWKURXJKULJLG V\VWHPVOLNHFDSLOODU\VWUXFWXUHVLWLOOXVWUDWHVWKDWUHVLVWDQFHWRIORZLQDJLYHQWXEH FKDQJHVDFFRUGLQJWRWKHIRXUWKSRZHURIWKHUDGLXVRIWKHOXPHQ7KHOLQHDUYHORFLW\
RIIOXLGLQFUHDVHVZKHQWKHYROXPHIORZUDWHLVKHOGFRQVWDQWDQGWKHFDOLEUHRIWKH WXEHLVUHGXFHG
/DPLQDUYHUVXVWXUEXOHQWDLUIORZ
/DPLQDUIORZLVVLOHQWEXWDERYHDFULWLFDOYHORFLW\RIIORZWXUEXOHQFHDQGYRUWLFHV DSSHDUDQGWKHRVFLOODWLRQVVHWXSE\WKHVHLUUHJXODUSDWWHUQVRIIORZUDGLDWHVRXQG 7KHLQWHQVLW\RIWKHWXUEXOHQFHDQGWKHQRLVHJHQHUDWHGLQFUHDVHZLWKWKHULVLQJ YHORFLW\RIIORZ)RUJDFV7KHUHVLVWDQFHWRIORZWKURXJKFDVWVDQGPRGHOVRI WKHKXPDQODU\Q[LVIORZGHSHQGHQWRZLQJWRWKLVWXUEXOHQFH7KHVKDUSUHGXFWLRQLQ DLUZD\FURVVVHFWLRQDODUHDDWWKHJORWWLVJLYHVULVHWRDFHQWUDOMHWRIKLJKYHORFLW\LQ WKHXSSHUWUDFKHDGXULQJLQVSLUDWLRQZKLFKJHQHUDWHVORFDOWXUEXOHQFH
$HWLRORJLFDODVSHFWVRI(,/2
(,/2DWWKHVXSUDJORWWLFOHYHO
'XULQJWKHODVWWKUHHGHFDGHVVHYHUDOUHSRUWVKDYHEHHQSXEOLVKHGRQODU\QJHDO FROODSVHGXULQJH[HUFLVHFDXVHGE\SURODSVHRIRHGHPDWRXVVZROOHQPXFRVDRIWKH DU\WHQRLGVDU\HSLJORWWLFIROGVDQGRUHSLJORWWLFSRVWHULRUGLVSODFHPHQW$URUDHWDO 1RQRPXUDHWDO3HURQHWDO
7KHPRYHPHQWVRIWKH$()VDUHVXEMHFWHGWRQHXUDOFRQWURO/RJHPDQQHWDO KRZHYHUIDFWRUVUHVSRQVLEOHIRUWKLVFRQWUROPHFKDQLVPDUHQRW\HWXQGHUVWRRGLQ GHWDLO5HLGHQEDFK&HQWUDOQHUYRXVV\VWHPGDPDJHKDVEHHQVXJJHVWHGDVD FRPPRQFDXVHIRUPXFRVDOWLVVXHFROODSVHRIDFTXLUHGUHGXQGDQWVXSUDJORWWLF SURODSVHLQWRWKHODU\QJHDOLQOHW1RQRPXUDHWDO
5HLGHQEDFKVXJJHVWVDSRVVLEOHUHDVRQIRUDQRQSK\VLRORJLFDOLQZDUGSURODSVHRIWKH DU\HSLJORWWLFIROGVWRZDUGVWKHDLUZD\OXPHQPLJKWEHWKDWWKHDQFKRUDJHLV
LQVXIILFLHQWDQGWKDWWKHDU\HSLJORWWLFIROGVPD\JDLQDSDWKRORJLFDELOLW\RIPHGLDO GLVSODFHPHQWGXULQJLQVSLUDWLRQZKLFKPD\EHHVSHFLDOO\GDQJHURXV5HLGHQEDFK
$VLJQRIWKHIRUFHVDWZRUNLVWREHIRXQGLQWKHSRVLWLRQRIWKHFXQHLIRUP FDUWLODJHUHODWLYHWRWKHYRFDOSURFHVV)LQN:KHQWKHDLUIORZWKURXJKWKH ODU\Q[LVUHODWLYHO\KLJKWKHFXQHLIRUPFDUWLODJHVDUHQRUPDOO\IXUWKHUIURPWKHYRFDO SURFHVVHV
7KHUHODWLRQVKLSEHWZHHQWKHYHORFLW\DQGSUHVVXUHH[HUWHGE\DPRYLQJIOXLGOLTXLG RUJDVLVGHVFULEHGE\D9HQWXULHIIHFWRIWKH%HUQRXOOLSULQFLSOH)DMGLJDDV GHVFULEHGHDUOLHU$VWKHOHYHORIDLUIORZLQFUHDVHVVRGRQHJDWLYHWUDQVPXUDO SUHVVXUHJUDGLHQWVWKDWFDQUHVXOWLQFROODSVHRIWKHXSSHUDLUZD\V%MRUQVGRWWLUHWDO 0DQGHOODQG$UMPDQG7KLVLVLOOXVWUDWHGLQ)LJXUH
:KHUHKLVWKHSUHVVXUH GLIIHUHQFHEHWZHHQSRLQW DQGDQGȡLVWKHGHQVLW\RI WKHIOXLG9LVWKHVORZHU IOXLGYHORFLW\ZKHUHWKHSLSH LVZLGHU9LVWKHIDVWHU IOXLGZKHUHWKHSLSHLV QDUURZHU
7KHILJXUHLVPRGLILHGIURP DQLOOXVWUDWLRQDERXWWKH 9HQWXULHIIHFWDW:LNLSHGLD
)LJXUH6FKHPDWLFSLFWXUHUHSUHVHQWLQJWKH9HQWXULHIIHFWDQG%HUQRXOOLSULQFLSOH WKURXJKWKHODU\Q[
9
9
ȡ
(,/2DWWKHJORWWLFOHYHO
7KHFORVXUHRIWKHJORWWLFVSDFHLVSDUWRIWKHSURWHFWLYHODU\QJHDODGGXFWRUUHIOH[
/$5$QLQDSSURSULDWHRUDSDUDGR[LFDOYRFDOIROGPRWLRQ39)0PD\FDXVH UHVSLUDWRU\GLVWUHVV$\UHVDQG*DEERWW6KLEDHWDO39)0LV
FKDUDFWHUL]HGE\DSDUDGR[LFDODGGXFWLRQRIWKHYRFDOIROGVRQLQVSLUDWLRQ:RRGDQG 0LOJURPH[SLUDWLRQ(FKWHUQDFKHWDORUERWK*ROGPDQDQG0XHUV
$K\SHUIXQFWLRQDOUHIOH[KDVEHHQVXJJHVWHGDVDSRWHQWLDOFDXVHIRU39)0EHFDXVH WKLVSKHQRPHQRQFDQEHLQLWLDWHGE\GLIIHUHQWWULJJHUVOLNHRGRXUVSHUIXPHVDQG LQIHFWLRQVEXWDOVRH[HUFLVHLQGXFHGVWUHVV*LPHQH]DQG=DIUD7DUDPDUFD]HW DO.HQQ,EUDKLP
6WLPXODWLRQRIWKHVXSUDJORWWLFPXFRVDLQGXFHVDFRPSOH[VHTXHQFHRIUHIOH[LYH HYHQWVUHVXOWLQJLQDGGXFWLRQRIWKHYRFDOIROGVDQGFORVXUHRIWKHODU\QJHDOLQOHWDQG WKHVZDOORZUHVSRQVH7KHLQYROXQWDU\HIIHUHQWUHVSRQVHWUDYHOVE\WKHYDJXVQHUYH 7KHVDPHHIIHUHQWYDJDOUHVSRQVHLQIOXHQFHVWKHWRQLFLW\RIODU\QJHDOWLVVXHV
$QGUHDWWDHWDO$\UHVDQG*DEERWW+LJKHUVWLPXOXVWKUHVKROGVPD\EH UHTXLUHGWRHOLFLWWKH/$5UHVSRQVHRIJORWWLFFORVXUHDQGVZDOORZLQJ3URORQJHGRU H[FHVVLYHVWLPXODWLRQFDQLQGXFHSURORQJHGJORWWLVFORVXUHRUODU\QJRVSDVPDQG DSQRHD$OWHUQDWLYHO\LIWKHSURFHVVRI/$5LVLQWHUUXSWHGLQHIILFLHQWFRRUGLQDWLRQRI DLUZD\SURWHFWLRQPD\UHVXOW$IIHUHQWLQSXWVPLJKWEHUHODWHGWRVXSUDJORWWLFVHQVRU\
LPSXOVHVWKDWVKRZDORVVRIGLVFULPLQDWLRQLQWKHROGDJHDQGLQFHUWDLQSDWKRORJLF FRQGLWLRQV5HLGHQEDFK
$FDXVDOOLQNEHWZHHQ39)0DQGJDVWURHVRSKDJHDOUHIOX[GLVHDVH*(5'KDVEHHQ VXJJHVWHG.HQQ0F)DGGHQDQG=DZDGVNL7KHRULHVKDYHEHHQSXW IRUZDUGWKDW*(5'PD\ORZHUWKHWKUHVKROGIRUVWLPXOLWRSURGXFHYRFDOIROGVSDVP
$SSHOEODWWDQG%DNHURUDOWHUWKH/$5$QGUHDWWDHWDO$\UHVDQG
*DEERWW%HOPRQWDQG*UXQGIDVWVXVSHFWHGDFRUUHODWLRQEHWZHHQFRQJHQLWDO ODU\QJHDOVWULGRUDQGJDVWURHVRSKDJHDOUHIOX[*(5%HOPRQWDQG*UXQGIDVW /DNLQGHVFULEHGDQHU\WKHPDWRXVSRVWHULRUVXUIDFHRIWKHDU\WHQRLGVLQDSDWLHQWZLWK
(,/2DOWKRXJKWKHVXEMHFWGLGQRWKDYHDQ\V\PSWRPVRIJDVWURHVRSKDJHDOUHIOX[
/DNLQHWDO/DU\QJRSKDU\QJHDOUHIOX[/35LVWKRXJKWWRFDXVHVHYHUDO ODU\QJHDOV\PSWRPVOLNHG\VSKRQLDJOREXVVHQVDWLRQODU\QJRVSDVPDQG39)0
%HODIVN\HWDO.RXIPDQDQG%ORFN7KHUHVSLUDWRU\REVWUXFWLRQFDXVHG E\39)0FRXOGEHUHODWHGWRVWLPXODWLRQRIYDJDOPHGLDWHGUHIOH[HVE\H[SRVXUHRI JDVWULFIOXLGVWRVXSUDJORWWLFFKHPRUHFHSWRUV/RXJKOLQDQG.RXIPDQ,WKDV EHHQVKRZQLQDQLPDOPRGHOVWKDWWKHVXSHULRUODU\QJHDOQHUYHVFRQVWLWXWHWKHDIIHUHQW OLPERIWKH39)0UHIOH[DQGWKDWWKHUHFXUUHQWODU\QJHDOQHUYHVFRQVWLWXWHWKH
HIIHUHQWOLPE
7KHRULHVKDYHDOVREHHQSXWIRUZDUGLQGLFDWLQJWKDWSV\FKRORJLFDOFRQGLWLRQVRU IXQFWLRQDOGLVRUGHUVDVZHOODVQHXURORJLFDOGLVHDVHVFDQFDXVH39&00DVFKNDDQG FRZRUNHUVSURSRVHGDFODVVLILFDWLRQVFKHPHODWHUPRGLILHGE\.RXIPDQDQG%ORFN .RXIPDQDQG%ORFN0DVFKNDHWDO7KHVFKHPHVHSDUDWHVSDUDGR[LFDO YRFDOIROGPRWLRQEDVHGRQSRVVLEOHDHWLRORJ\ERWKRUJDQLFDQGQRQRUJDQLF
2UJDQLFDHWLRORJ\%UDLQVWHPFRPSUHVVLRQVHYHUHFRUWLFDOG\VIXQFWLRQODU\QJHDO PRYHPHQWGLVRUGHUV3DUNLQVRQV\PSWRPVDQGGUXJLQGXFHGEUDLQVWHPG\VIXQFWLRQ ODU\QJRSKDU\QJHDOUHIOX[DVWKPDRURWKHUFDXVHVIRUK\SHUDFWLYHPXFRVDOWLVVXH
GUXJLQGXFHGG\VWRQLFUHDFWLRQVHJQHXUROHSWLFGUXJV 1RQRUJDQLFDHWLRORJ\)DFWLWLRXVRUPDOLQJHULQJFRQYHUVLRQGLVRUGHUVSV\FKRJHQLF
VWULGRU
9RFDOIROGVDUHXQLTXHDVWKH\DUHXQGHUERWKDXWRQRPLFDQGYROXQWDU\FRQWURODQG WKHUHIRUHDIXQFWLRQDOFRPSRQHQWRI39)0KDVEHHQSURSRVHGE\0F)DGGHQDVZHOO 0F)DGGHQ+HSRVWXODWHGKRZHYHUWKDWIDFWLWLRXVQHVVDVFDXVHIRU39)0 PD\EHTXHVWLRQDEOHEHFDXVHSDWLHQWVGRQRWNQRZLQJO\FRQWUROWKHSURFHVVDQG FDQQRWYROLWLRQDOO\UHSURGXFHWKHFKDUDFWHULVWLFYRFDOIROGPRWLRQ7KRXJKLWKDV EHHQVXJJHVWHGWKDW39)0LVDVVRFLDWHGZLWKDQXPEHURISV\FKRORJLFDOGLVRUGHUV LQFOXGLQJDQ[LHW\DQGGHSUHVVLRQ,WKDVEHHQSRVWXODWHGWKDWHOLWHDWKOHWHVPD\
VXEFRQVFLRXVO\FRQYHUWSHUIRUPDQFHDQ[LHW\LQWRODU\QJHDOFORVXUHSURYLGLQJD SK\VLRORJLFDOPHFKDQLVPIRUVRPHFDVHVRIµFKRNLQJ¶GXULQJVSRUW0F)DGGHQDQG
=DZDGVNL
7KHPDMRULW\RISDWLHQWVLQSXEOLVKHGFDVHVZLWK39)0DUHZRPHQEHWZHHQDQG
\HDUVROG$PRQJWKHVHSDWLHQWVSHUIHFWLRQLVPGHSUHVVLRQDQGDQ[LHW\LV FRPPRQ/DQGZHKUHWDO0RUULVDQG&KULVWRSKHU2QWKHRWKHUKDQG 39)0KDVEHHQGHPRQVWUDWHGLQQHZERUQVDVZHOO2PODQGDQG%URQGER 7\SLFDOSUHVHQWLQJV\PSWRPVLQFOXGHVWULGRUG\VSQHDLQVSLUDWRU\GLIILFXOW\WKURDW WLJKWQHVVYRLFHFKDQJHDQGLQVRPHFDVHVDIHHOLQJRIFKRNLQJDQGFRXJKLQJ:RRG DQG0LOJURP
)LJXUH$/DU\QJHDOILQGLQJLQQRUPDOEUHDWKLQJDQG%ODU\QJHDOILQGLQJLQ39)0 ,OOXVWUDWLRQUHSURGXFHGZLWKSHUPLVVLRQIURPWKHDXWKRU:HLVV
'LDJQRVWLFSURFHGXUHV
7KH(,/2GLDJQRVLVLVEDVHGRQSDWLHQWKLVWRU\DQGH[DPLQDWLRQSUHIHUDEO\ZKHQWKH SDWLHQWVH[SHULHQFHV\PSWRPVRIUHVSLUDWRU\GLVWUHVV
3DWLHQWVGHVFULEHEUHDWKOHVVQHVVDQGV\PSWRPVWKDWRIWHQDUHPLVWDNHQDVDVWKPDOLNH 7KHGLVWUHVVPD\HPHUJHGXULQJH[HUFLVHRULQWHQVHHPRWLRQGXULQJH[HUFLVHDQG DWWDFNVGRQRWUHVSRQGWRDVWKPDPHGLFDWLRQ0RVWSDWLHQWVH[SHULHQFHLQVSLUDWRU\
ZKHH]HRUVWULGRU6\PSWRPVOLNHWLJKWQHVVRIFKHVWSDLQLQWKHWKURDWRUXSSHUFKHVW DUHUHSRUWHG6RPHUHSRUWDIHHOLQJRIEHLQJFKRNHGHYHQWXDOO\UHVXOWLQJLQDSDQLF DWWDFN$WWDFNVXVXDOO\DSSHDUVXGGHQO\DQGGLVDSSHDUZLWKLQDIHZPLQXWHVDIWHUWKH H[HUFLVHKDVVWRSSHG
7KHREVHUYHURIDQDWWDFNPD\KHDUDKLJKSLWFKHGVRXQGV\QFKURQRXVWRHDFK LQKDODWLRQSKDVHRIWKHEUHDWKZKLFKLQGLFDWHVWKDWWKHOHYHORIREVWUXFWLRQLVORFDWHG WRWKHXSSHUSDUWRIFHQWUDODLUZD\VSDQLFPD\RFFXUGXULQJWKHHQGRIDQDWWDFN7KH DEUXSWRQVHWZKHQWULJJHUHGE\H[HUFLVHUHODWLYHO\VKRUWGXUDWLRQDQGODFNRI
V\PSWRPVDWUHVWSRLQWVWRZDUGVDQREVWUXFWLRQDWWKHODU\QJHDOOHYHO
([HUFLVHLQGXFHGDLUIORZFRQVWUDLQWLQDQRWKHUZLVHQRUPDOODU\Q[EHFRPHVYLVLEOH RQO\DWKLJKDLUIORZOHYHODQGEHFDXVHDLUIORZUDSLGO\GHFUHDVHVDIWHUH[HUFLVHSUH DQGSRVWH[HUFLVHODU\QJHDOH[DPLQDWLRQVSURYLGHRQO\OLPLWHGLQIRUPDWLRQ$
SK\VLFDOH[DPLQDWLRQXVXDOO\UHYHDOVQRUPDOILQGLQJVE\ODU\QJRVFRS\EHWZHHQ DWWDFNVEXWVRPHDXWKRUVKDYHUHSRUWHGWKDWVXEWOHFKDQJHVLQODU\QJHDOPRWLRQFDQEH YLVXDOLVHGE\ODU\QJRVFRS\DOVREHWZHHQDWWDFNVLQWKHVHSDWLHQWV7UHROH 6SLURPHWU\LQYHVWLJDWLRQVDUHGHVFULEHGDVXVHIXOWRROVDIODWWHQLQJRIWKHLQVSLUDWRU\
VHFWLRQRIWKHIORZYROXPHORRSLVRIWHQFLWHGDVDW\SLFDOILQGLQJ9ODKDNLVHWDO :RRGDQG0LOJURP+RZHYHUIORZYROXPHFXUYHVPD\RIWHQEH LQFRQFOXVLYH
7KHUHDUHVHYHUDOSUHYLRXVUHSRUWVRQSURFHGXUHVRIODU\QJRVFRS\GXULQJUHVSLUDWRU\
GLVWUHVV(QJODQGDQG%DUWOHWWH[DPLQHGWKHODU\QJHDOUHVSRQVHWRERWKH[HUFLVHDQG K\SHUSQRHDRQDQHUJRPHWHUF\FOHDPRQJKHDOWK\YROXQWHHUV(QJODQGDQG%DUWOHWW
/DU\QJRVFRS\GXULQJH[HUFLVHRQDQHUJRPHWHUF\FOHZDVIXUWKHUGHVFULEHGE\
+XUELVDQG6FKLOGZKRXVHGDIOH[LEOHODU\QJRVFRSHWRUHFRUGODU\QJHDOLPDJHVZKLOH VXEMHFWVEUHDWKHGWKURXJKDVSLURPHWHUGXULQJHQGRVFRS\+XUELVDQG6FKLOG 7KHILUVWVWXG\WRFRQWLQXRXVO\YLHZWKHODU\Q[WKURXJKRXWWKHHQWLUHH[HUFLVHSHULRG LQFRPELQDWLRQZLWKVSLURPHWU\ZDVSXEOLVKHGE\%HQWDQGFRDXWKRUV%HQWHWDO
$VLPLODUVHWXSZLWKDQLQFUHPHQWDOHUJRPHWHUVWDWLRQDU\ELF\FOHZDVXVHG E\%HDW\DQGFRZRUNHUVLQ%HDW\DQG+RIIPDQ%HDW\HWDODQG )DKH\LQ)DKH\HWDO
)OH[LEOHWUDQVQDVDOILEHURSWLFODU\QJRVFRS\LQSDWLHQWVZLWKRQJRLQJV\PSWRPV WKHUHIRUHDSSHDUVWRUHSUHVHQWDGLDJQRVWLFJROGVWDQGDUG%HDW\HWDO,EUDKLP ,QPRVW\RXQJSHRSOHDWUHDGPLOOLVDPRUHUHOHYDQWGHYLFHWKDQDELF\FOH ZKHQH[KDXVWLRQLVDPDMRUREMHFWLYHRIWKHWHVW*DUFLDGHOD5XELDHWDO
$OWKRXJKDFRQWLQXRXVODU\QJRVFRS\GXULQJH[HUFLVHPD\UHYHDOWKHREVWUXFWLRQVRI WKHODU\Q[DVWKHFDXVHIRUHJ(,,6WKHVHQVLWLYLW\DQGVSHFLILFLW\RIWKHWHVWVVKRXOG LGHDOO\EHGHWHUPLQHGLQRUGHUWRIXOILOLPSRUWDQWUHTXLUHPHQWVIRUDFOLQLFDOWHVW
7KHUDSHXWLFFKDOOHQJHVRI(,/2
7UHDWPHQWRI(,/2KDVVRIDUEHHQEDVHGRQUHODWLYHO\ZHDNHYLGHQFH1R UDQGRPL]HGFRQWUROOHGWULDOVXWLOL]LQJREMHFWLYHRXWFRPHPHDVXUHVKDYHEHHQ SHUIRUPHG7KXVILUPHYLGHQFHGRHVQRWH[LVWIRUDQ\RIWKHVXJJHVWHGWUHDWPHQW RSWLRQVDQGWKHUHLVDQHHGIRUIXWXUHSURVSHFWLYHUDQGRPL]HGVWXGLHVRQWKLVWRSLF 0DQDJHPHQWLVEDVHGRQH[FOXVLRQRIRWKHUFDXVHVIRUUHVSLUDWRU\GLVWUHVVDQG GLVFDUGLQJXQQHFHVVDU\PHGLFDWLRQ$FXWHDWWDFNVFDQEHKDQGOHGE\RQVLWH
PDQRHXYUHVHJSDQWLQJRUVQLIILQJ$FDOPUHDVVXULQJPDQQHUKDVEHHQGHVFULEHGLQ PDQ\FDVHUHSRUWVDVDQHIIHFWLYHPHWKRGRIWHUPLQDWLQJDFXWHDWWDFNV,EUDKLP
(,/2DWWKHVXSUDJORWWLFOHYHO
,QSDWLHQWVZLWKVXSUDJORWWLFW\SHRI(,/2DQGSDWLHQWVZLWKK\SHUWURSKLFVXSUDJORWWLF VWUXFWXUHVWUHDWPHQWDFFRUGLQJWRWKHSULQFLSOHVRXWOLQHGIRUSHGLDWULFODU\QJRPDODFLD KDVEHHQVXJJHVWHGDQGDOVRSURYHQVXFFHVVIXOLHODVHUVXSUDJORWWRSODVW\RU
HSLJORWWRSH[\%HQWHWDO0DQGHOODQG$UMPDQG0F&OXUJDQG(YDQV 6PLWKHWDO7HPSOHUHWDO%HQWHWDO0DQGHOODQG
$UMPDQG6PLWKHWDO
6PLWKUHSRUWHGWKHUHPRYDORIWKHFRUQLFXODWHFDUWLODJHVE\ODVHUHSLJORWWRSODVW\LQ SDWLHQWVZLWKH[HUFLVHLQGXFHGVXSUDJORWWLFFROODSVHRIWLVVXH3RVWRSHUDWLYHO\D YLVXDOLPSURYHPHQWRIWKHRSHUDWHGDQDWRPLFDOUHJLRQZDVDVVRFLDWHGZLWKPDUNHG LPSURYHPHQWLQDHURELFHQGXUDQFHDVPHDVXUHGE\SK\VLFDOILWQHVVWHVWLQJ6PLWKHW DO6XEVHTXHQWWR6PLWK¶VVWXG\HQGRVFRSLFVXSUDJORWWRSODVW\ZDVGHVFULEHG E\%HQWDQGFRZRUNHUVLQ,WZDVSHUIRUPHGZLWKDFDUERQGLR[LGHODVHUDQG VXVSHQVLRQPLFURODU\QJRVFRS\WKHFRUQLFXODWHUHJLRQRIWKHDU\HSLJORWWLFIROGZDV H[FLVHGELODWHUDOO\5HSHDWH[HUFLVHWHVWLQJDIWHUVXUJHU\VKRZHGFRPSOHWHUHVROXWLRQ RIWKHSUREOHPDQGFRXOGHIIHFWLYHO\UHGXFHWKHUHGXQGDQWVXSUDJORWWLFWLVVXH%HQWHW DO)XUWKHUPRUHRWKHUVKDYHVKRZQWKDWVXUJLFDOWUHDWPHQWZLWK
VXSUDJORWWRSODVW\RUHSLJORWWRSH[\FDQKDYHDSRVLWLYHHIIHFWZLWKUHVSHFWWR V\PSWRPUHOLHILQVHOHFWHGFDVHVZLWKWKHVXSUDJORWWLFW\SHRI(,/21RQRPXUDHW DO6LRXHWDO0DQGHOODQG$UMPDQG:K\PDUNHWDO
(,/2DWWKHJORWWLFOHYHO
:KHQLWFRPHVWRWUHDWPHQWRI(,/2DWWKHJORWWLFOHYHOPRUHFRQVHUYDWLYHWUHDWPHQW PRGDOLWLHVDUHVXJJHVWHG3DWLHQWVDUHWDXJKWWRIRFXVDWWHQWLRQDZD\IURPWKHODU\Q[
DQGLQVSLUDWLRQWRFRQFHQWUDWHRQDFWLYHH[SLUDWLRQXVLQJWKHDQWHULRUDEGRPLQDO PXVFOHVDQGWRUHOD[WKHRURSKDU\QJHDOLQWHUFRVWDOQHFNDQGVKRXOGHUJLUGOHPXVFOHV
$QGULDQRSRXORVHWDO&KULVWRSKHUHWDO*ROGPDQDQG0XHUV .D\DQLDQG6KDQQRQ/HRDQG.RQDNDQFKL0DLOODUGHWDO 0F4XDLGHWDO0XUU\HWDO0XUU\HWDO6XOOLYDQHWDO
2QHVKRXOGEHDZDUHWKDWVRPHRIWKHVHWHFKQLTXHVDUHXVHGWRWUHDWDWWDFNVRI UHVSLUDWRU\GLVWUHVVWKDWDUHQRWLQGXFHGE\H[HUFLVHDQGWKHUHIRUHVRPHRIWKH VXJJHVWHGWUHDWPHQWVDUHGLIILFXOWWRLPSOHPHQWLQDWUHDWPHQWIRUJORWWLF(,/27KLV VDLGVSHHFKWKHUDS\XVHGWRWHDFKSDWLHQWVWRUHOD[WKHODU\QJHDOPXVFOHVGXULQJ LQVSLUDWLRQKDVEHHQIRXQGWREHYHU\VXFFHVVIXO.D\DQLDQG6KDQQRQ 6XOOLYDQGHVFULEHVDWUHDWPHQWIRU39)0LQDWKOHWHVEHKDYLRXUDOLQWHUYHQWLRQWR FRQWUROV\PSWRPVRI39)0GXULQJH[HUFLVH6XOOLYDQHWDO
1HYHUWKHOHVVLWFRXOGEHWKDWFHUWDLQWHFKQLTXHVDUHQRWSUDFWLFDOIRUWKRVHZLWK H[HUFLVHLQGXFHG39)0EHFDXVHWKHWHFKQLTXHVZRXOGUHTXLUHVWRSSLQJWKHDWKOHWLF DFWLYLW\WKDWZDVLQGXFLQJWKHSUREOHPZKLFKUHVXOWVLQVSRQWDQHRXVUHVROXWLRQRI V\PSWRPVDQ\ZD\:HLQEHUJHUDQG$EX+DVDQ
3KDUPDFRORJLFDOWUHDWPHQW
,QH[HUFLVHLQGXFHG39)0:HLQEHUJHUREVHUYHGWKDWDQDQWLFKROLQHUJLFDHURVRO ,SUDWSURLXPEURPLGHZKHQXVHGEHIRUHH[HUFLVHFDQSUHYHQWSDUDGR[LFDOYRFDOIROG DGGXFWLRQ:HLQEHUJHUDQG$EX+DVDQ3KDUPDFRORJLFDODJHQWVKDYH
RWKHUZLVHEHHQXVHGWRGHFUHDVHWKHLPSDFWRI39)0WULJJHUV:LOVRQDQG:LOVRQ
,QVSLUDWRU\PXVFOHWUDLQLQJ
$QRWKHUWUHDWPHQWRSWLRQFRXOGEHLQVSLUDWRU\PXVFOHWUDLQLQJWRGHYHORSLQFUHDVHG LQVSLUDWRU\PXVFOHVWUHQJWKWRUHGXFHWKHSHUFHSWLRQRIH[HUWLRQDOG\VSQHDDQGWR LPSURYHPHDVXUHVRIPD[LPDOHIIRUWLQDWKOHWHVZLWKH[HUFLVHLQGXFHGSDUDGR[LFDO YRFDOIROGPRWLRQ0DWKHUV6FKPLGWDQG%ULOOD
3URJQRVLV
2QO\VSDUVHDQGHYHQGLVSDUDWHUHVXOWVKDYHEHHQUHSRUWHGFRQFHUQLQJSURJQRVLVRI (,/2DQGWKHORQJWHUPRXWFRPHLVVWLOOXQNQRZQ'DWDIURPDUHWURVSHFWLYHVWXG\E\
'RVKLDQGFRZRUNHUVLQGLFDWHGWKDW(,/2DWWKHJORWWLFOHYHO39)0LV
JHQHUDOO\DVHOIOLPLWLQJGLVRUGHU'RVKL2QWKHRWKHUKDQG+D\HVDQGFR ZRUNHUVKDYHLQDSUHYLRXVVWXG\IDLOHGWRVKRZDQ\LPSURYHPHQWLQWKUHHVFDVHV IROORZHGIRUWHQ\HDUV+D\HV
7KHVWXG\
$LPVRIWKHVWXG\
7KHFRQWLQXRXVODU\QJRVFRS\H[HUFLVHWHVW&/(WHVWKDGEHHQGHYHORSHGDWRXU KRVSLWDOLQRUGHUWRYLVXDOL]HODU\QJHDOPRWLRQGXULQJH[HUFLVHLQSDWLHQWVZLWK H[HUFLVHLQGXFHGUHVSLUDWRU\GLVWUHVV+HLPGDOHWDO&OLQLFDODSSOLFDWLRQRIWKH
&/(WHVWXQFRYHUHGDQHHGIRUDPRUHREMHFWLYHHYDOXDWLRQRIILQGLQJVDQGWKHUHIRUH DVFRULQJVFKHPHKDGWREHGHYHORSHG
([DPLQDWLRQZLWK&/(WHVWVUHYHDOHGWKDWVRPHSDWLHQWVKDGVHYHUHREVWUXFWLRQDWWKH VXSUDJORWWLFOHYHORIWKHODU\Q[6XSUDJORWWRSODVW\KDVSUHYLRXVO\EHHQGHPRQVWUDWHG DVDQHIILFLHQWWUHDWPHQWIRUWKHVXSUDJORWWLFW\SHRI(,/2%HQWHWDO0DQGHOO DQG$UMPDQG1RQRPXUDHWDO6LRXHWDO6PLWKHWDO :K\PDUNHWDO3DWLHQWVZLWKVHYHUHGLVWUHVVZHUHRIWHQKLJKO\PRWLYDWHGIRU WUHDWPHQWLQRUGHUWRUHGXFHWKHLUV\PSWRPV%DVHGRQFOLQLFDOVHOHFWLRQVXUJLFDO WUHDWPHQWZDVWKHUHIRUHRIIHUHGWRSDWLHQWVZKRH[SHULHQFHGVHULRXVUHVSLUDWRU\
GLVWUHVVUHODWHGWRVHYHUHVXSUDJORWWLFREVWUXFWLRQRIWKHODU\Q[&/(WHVWVZHUHXVHG WRDVVHVVWKHHIIHFWRIVXUJHU\E\FRPSDULQJILQGLQJVIURPSUHRSHUDWLYHZLWKSRVW RSHUDWLYH&/(WHVWV
7KHPDMRULW\RIRXU(,/2SDWLHQWVZHUH\RXQJVWHUVDWWKHWLPHRIGLDJQRVLVPHDQ DJH\HDUV2QHFRXOGWKHUHIRUHK\SRWKHVLVHWKDWGHYHORSPHQWIURPDMXYHQLOH ODU\Q[WRDPRUHPDWXUHODU\Q[LHLQFUHDVHGLQVLGHGLDPHWHUVWURQJHUPXVFOHVDQG OHVVIOH[LEOHFDUWLODJHRIWKHODU\Q[FRXOGUHGXFH(,/27KLVTXHVWLRQKDGWREH DGGUHVVHGE\UHH[DPLQDWLRQRISDWLHQWVZLWKDVHFRQG&/(WHVWDQGDUHH[DPLQDWLRQ FRQFHUQLQJV\PSWRPVGXULQJH[HUFLVHVHYHUDO\HDUVDIWHU(,/2GLDJQRVLV
6SHFLILFDLPV
7RDSSO\WKH&/(WHVWRQSDWLHQWVH[SHULHQFLQJ(,,6LQRUGHUWRDVVHVVWKHUROH RIWKHODU\Q[LQWKLVFOLQLFDOVFHQDULRDQGWRUHYHDOW\SHOHYHORIREVWUXFWLRQ DQGVHYHULW\RIODU\QJHDOREVWUXFWLRQLISUHVHQW
7RGHYHORSD&/(VFRUHWKDWFRXOGEHXVHGWRJUDGHWKHVHYHULW\RI(,/2DV UHYHDOHGE\WKH&/(WHVWDQGWRWHVWWKHYDOLGLW\DQGUHOLDELOLW\RIWKLVQHZ VFRULQJVFKHPH
7RLQYHVWLJDWHREMHFWLYHO\WKHHIIHFWRIVXUJHU\RQVHYHUHVXSUDJORWWLF(,/2E\
FRPSDULQJSUHDQGSRVWRSHUDWLYH&/(WHVWVLQSDWLHQWVZKRKDGEHHQ VXUJLFDOO\WUHDWHG
7RVWXG\WKHQDWXUDOFRXUVHRIWKHVXSUDJORWWLFW\SHRI(,/2DQGIXUWKHUPRUH WRDVVHVVWKHORQJWHUPHIIHFWRIVXUJLFDOWUHDWPHQWRQWKHVXSUDJORWWLFW\SHRI (,/2
0HWKRGV
6WXG\GHVLJQ
7KLVWKHVLVLVEDVHGRQDQREVHUYDWLRQDOFRPELQHGFURVVVHFWLRQDODQGIROORZXS GHVLJQ7KHVWXG\ZDVDSSURYHGE\WKH5HJLRQDO(WKLFV&RPPLWWHHDQGWKH
1RUZHJLDQ6RFLDO6FLHQFH'DWD6HUYLFHV1RUVN6DPIXQQVYLWHQVNDSHOLJ'DWDWMHQHVWH 16',QIRUPHGZULWWHQFRQVHQWZDVREWDLQHGIURPDOOSDUWLFLSDWLQJVXEMHFWV
3DWLHQWVDQGYROXQWHHUV
3DWLHQWVQ ZHUHFRQVHFXWLYHO\LQFOXGHGRYHUDSHULRGRIVL[\HDUVIURPWKH SDHGLDWULFRXWSDWLHQWSXOPRQRORJ\FOLQLFDQGWKHGHSDUWPHQWRIRWRODU\QJRORJ\KHDG DQGQHFNVXUJHU\DWWKH+DXNHODQG8QLYHUVLW\+RVSLWDO%HUJHQ1RUZD\,QFOXVLRQ VWDUWHGLQDQGFRQFOXGHGLQ7ZHQW\YROXQWHHUVPHGLFDOVWXGHQWVDQG
PHPEHUVRIWKHµ(,,6VWXG\JURXS¶ZHUHUHFUXLWHGWRGHPRQVWUDWHDQRUPDOODU\QJHDO UHVSRQVHSDWWHUQWRH[HUFLVH
&RQWLQXRXVODU\QJRVFRS\H[HUFLVHWHVW
7KH&/(WHVWSURYLGHVYLVXDODQGSK\VLRORJLFDOLQIRUPDWLRQRQODU\QJHDOUHVSRQVHV UHODWHGWRLQFUHDVLQJYHQWLODWRUUHTXLUHPHQWVGHYHORSHGE\LQFUHPHQWLQJH[HUFLVH +HLPGDOHWDO$FRPSOHWHFDUGLRSXOPRQDU\H[HUFLVHWHVWLVFRPELQHGZLWK FRQWLQXRXVODU\QJRVFRS\GXULQJH[HUFLVH,PDJHVIURPWKHXSSHUSDUWRIWKHERG\RI WKHSDWLHQWDQGEUHDWKVRXQGVDUHUHFRUGHGVLPXOWDQHRXVO\)LJXUH
)LJXUH&RQWLQXRXVODU\QJRVFRS\H[HUFLVHWHVW
)URP+HLPGDO&RQWLQXRXV/DU\QJRVFRS\([HUFLVH7HVW$0HWKRGIRU9LVXDOL]LQJ/DU\QJHDO'\VIXQFWLRQ GXULQJ([HUFLVH+HLPGDOHWDO
6RXQGUHFRUGLQJV
6RXQGUHFRUGLQJVZHUHPDGHFRQWLQXRXVO\WKURXJKRXWWKHH[DPLQDWLRQWRSURYLGH GRFXPHQWDWLRQWKDWFRXOGEHUHDVVHVVHGDIWHUHDFKWHVW/DU\QJHDOPRWLRQFRXOGEH DVVHVVHGVLPXOWDQHRXVO\WRUHVSLUDWRU\QRLVHZKLFKHDVHGWKHGLIIHUHQWLDWLRQEHWZHHQ LQVSLUDWRU\DQGH[SLUDWRU\ZKHH]HDQGVWULGRU7KHVRXQGUHFRUGLQJVFRXOGDOVREH XVHGWRJHWKHUZLWKWKHH[WHUQDOYLGHRUHFRUGLQJVWRUHYHDODGGLWLRQDOLQIRUPDWLRQ DERXWWKHVHYHULW\RIGLVWUHVV
6SLURPHWU\
7KHIROORZLQJYDULDEOHVRIJDVH[FKDQJHZHUHUHFRUGHGSHDNIORZYROXPH)(9 IRUFHGYLWDOFDSDFLW\)9&PLQXWHYHQWLODWLRQ9(PD[LPDOR[\JHQXSWDNH92 UHVSLUDWRU\TXRWLHQW54PD[LPDOKHDUWUDWHUHVSLUDWRU\UDWHDQGWLGDOH[HUFLVH IORZYROXPHORRSVH[W)9/V7LGDOH[HUFLVHIORZYROXPHORRSVZHUHUHFRUGHG VHYHUDOWLPHVGXULQJHDFKWHVW7KHJDVH[FKDQJHSDUDPHWHUVZHUHUHFRUGHGXVLQJWKH µEUHDWKE\EUHDWK¶PHWKRG&XPPLQJHWDO
(YDOXDWLRQ
%\UHYLHZLQJWKHYLGHRUHFRUGLQJVPRYHPHQWVDGGXFWLRQDWWKHJORWWLFDQGWKH VXSUDJORWWLFOHYHOVFRXOGEHDVVHVVHGFRQWLQXRXVO\DVWKHVXEMHFWH[HUFLVHGDWGLIIHUHQW OHYHOVRIHIIRUW5HVSLUDWRU\QRLVHDQGH[WHUQDOUHFRUGHGLPDJHVZHUHHLWKHUHYDOXDWHG VLPXOWDQHRXVO\RUDWVHSDUDWHWLPHVWRWKHODU\QJRVFRS\LPDJHVGHSHQGHQWRQVSHFLILF DLPVRIWKHGLIIHUHQWVWXGLHVLQWKLVWKHVLV
4XHVWLRQQDLUHV
4XHVWLRQQDLUHVZHUHXVHGWRUHYHDOLQIRUPDWLRQDERXWV\PSWRPVLQUHODWLRQWR H[HUFLVHOHYHORIDFWLYLW\LQIOXHQFHRI(,,6RQGDLO\OLIHDFWLYLWLHVXVHRIDQWL DVWKPDWLFPHGLFDWLRQHWF$OVRDYLVXDODQDORJXHVFDOH9$6ZDVXVHGE\WKH SDWLHQWVWRJUDGHWKHVHYHULW\RIUHVSLUDWRU\FRPSODLQWVGXULQJH[HUFLVHIRUPRUH GHWDLOVVHH$SSHQGL[
6XUJLFDOWUHDWPHQW
$OOVXUJLFDOO\WUHDWHGSDWLHQWVXQGHUZHQWVXSUDJORWWRSODVW\DFFRUGLQJWRSURFHGXUHV XVHGIRUSDWLHQWVZLWKODU\QJRPDODFLDDQGSUHYLRXVSXEOLFDWLRQVRQ(,/2%HQWHWDO
%MRUQVGRWWLUHWDO/DQHHWDO2OQH\HWDO6LRXHWDO 6PLWKHWDO=DO]DOHWDO7KHVLWHDQGDPRXQWRIWLVVXHUHPRYHGZDV GHSHQGHQWRQWKHVHYHULW\RIFROODSVHDWWKH&/(WHVW$&2ODVHUZDVXVHGWRGLYLGH WKHDU\HSLJORWWLFIROGVWRLQFUHDVHWKHDQWHULRUSRVWHULRUGLVWDQFHRIWKHVXSUDJORWWLF VWUXFWXUHV+HUHDIWHUWKHUHGXQGDQWPXFRVDOWLVVXHRYHUO\LQJWKHFXQHLIRUPWXEHUFOHV DQGWKHXSSHUSDUWRIWKHFXQHLIRUPWXEHUFOHZDVUHPRYHGHLWKHUE\&2ODVHURU FROGLQVWUXPHQWVRUDFRPELQDWLRQRIWKHVH
6WDWLVWLFDODQDO\VHV
,QVWXG\,,NDSSDDQDO\VLVDFFRUGLQJWR$OWPDQZDVSHUIRUPHGLQRUGHUWR UHYHDOLQWHUDQGLQWUDREVHUYHUDJUHHPHQW&RUUHODWLRQDQDO\VHVZHUHSHUIRUPHGZLWK 6SHDUPDQUZKHQODU\QJHDOREVHUYDWLRQVZHUHFRPSDUHGZLWKFOLQLFDOREVHUYDWLRQV RIV\PSWRPV&RQFRUGDQFHEHWZHHQVFRUHVZDVDVVHVVHGZLWK&KURQEDFKV¶VDDQG
&KLVTXDUHWHVWZHUHXVHGWRDVVHVVGLIIHUHQFHVEHWZHHQSDWLHQWVDQGFRQWUROV ,QSDSHU,,,$129$DQDO\VHVZHUHSHUIRUPHGLQRUGHUWRFRPSDUHJURXSVDQGWKH ILUVWYHUVXVVHFRQG&/(WHVWVZHUHFRPSDUHGZLWK6WXGHQWWWHVWV7KH:LOFR[RQ6LJQ 5DQNDVZHOODV0DQQ:LWKQH\WHVWZDVXVHGWRYDOLGDWHWKHWWHVW
6XPPDU\RIUHVXOWV
3DSHU,
([HUFLVHLQGXFHGG\VSQHDLQWKH\RXQJ/DU\Q[DVWKHERWWOHQHFNRIWKHDLUZD\V
:HDLPHGWRVWXG\ODU\QJHDOIXQFWLRQLQH[HUFLVLQJKXPDQVH[SHULHQFLQJV\PSWRPV RI(,,6E\XVLQJWKH&/(WHVW:HDOVRZDQWHGWRVWXG\ODU\QJHDOIXQFWLRQLQ
V\PSWRPQHJDWLYHFRQWUROV:HREVHUYHGWKDWSDWLHQWVFRPSDUHGWRFRQWUROVVKRZHGD PRUHSURQRXQFHGDGGXFWLRQRIWKHVXSUDJORWWLFVWUXFWXUHVFRQFRPLWDQWZLWK
V\PSWRPVRIUHVSLUDWRU\GLVWUHVV(,,6$SULPDU\DGGXFWLRQRIWKHJORWWLVZDV VHOGRPREVHUYHGDVFDXVHIRU(,,67KHSUHVHQFHRIVWUXFWXUDOREVWUXFWLRQVZDV REVHUYHGLQDSSUR[LPDWHO\RISDWLHQWVDQGFRXOGFDXVHV\PSWRPVVLPLODUWR (,/2:HFRQFOXGHGWKDWWKH&/(WHVWFRXOGVDIHO\EHDSSOLHGWRVWXG\WKHODU\Q[
GXULQJDQH[HUFLVHWUHDGPLOOWHVW
7KHQRUPDOODU\QJHDOUHVSRQVHDQGPRGHUDWHWRVHYHUHDGGXFWLRQRIODU\QJHDO VWUXFWXUHVGXULQJH[HUFLVHLVLOOXVWUDWHGE\9LGHRDQGUHVSHFWLYHO\ZKLFKFDQEH IRXQGLQWKHRQOLQHYHUVLRQRIWKLVSXEOLFDWLRQDW
KWWSG[GRLRUJGRLMUPHG 3DSHU,,
$XGLRYLVXDODVVHVVPHQWRIH[HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQUHOLDELOLW\DQG YDOLGLW\RIREVHUYDWLRQV
7KLVVWXG\ZDVSHUIRUPHGLQRUGHUWRGHYHORSDJUDGLQJVFKHPHWKDWLQFOXGHGWKH OHYHODQGVHYHULW\RIODU\QJHDOREVWUXFWLRQGXULQJH[HUFLVH7KHUHOLDELOLW\DQGYDOLGLW\
RIWKLVVFRULQJV\VWHPZDVDVVHVVHG
$JUDGLQJVFKHPH&/(VFRUHZDVGHYHORSHGLQFOXGLQJVFRUHVUHODWHGWR REVWUXFWLRQDWWKHVXSUDJORWWLFDQGJORWWLFOHYHORIWKHODU\Q[GXULQJH[HUFLVHDV GHPRQVWUDWHGRQYLGHRVIURPWKH&/(WHVWV$SSHQGL[,QWHUDQGLQWUDREVHUYHU
UHOLDELOLW\ZDVFDOFXODWHGZLWKNDSSDVFRUHVIRUHDFKOHYHOJORWWLFVXSUDJORWWLFDQG PRPHQWRIVFRULQJPRGHUDWHDQGPD[LPDOLQWHQVLW\2YHUDOORXWFRPHVKRZHG PRGHUDWHWRYHU\JRRGLQWHUDQGLQWUDREVHUYHUDJUHHPHQW:HWKHUHIRUHFRQFOXGHG WKDWWKH&/(VFRUHZDVUHOLDEOHDQGDOVRYDOLGDVWKHUHZDVDVLJQLILFDQWFRUUHODWLRQ EHWZHHQWKH&/(VFRUHVDQGWKHVHYHULW\RIUHVSLUDWRU\GLVWUHVVV\PSWRPVDVDVVHVVHG ERWKE\SDWLHQWVDQGE\REVHUYHUV
3DSHU,,,
6XUJLFDOWUHDWPHQWRIH[HUFLVHLQGXFHGODU\QJHDOG\VIXQFWLRQ
/DVHUDVVLVWHGVXSUDJORWWRSODVW\LVDZHOONQRZQSURFHGXUHIRUODU\QJRPDODFLDLQ QHZERUQDQG\RXQJFKLOGUHQ7KHPHWKRGKDVEHHQGHVFULEHGDQGUHFRPPHQGHGDVD WUHDWPHQWIRUDGXOWW\SHRIODU\QJRPDODFLDFDXVHGE\HJUHGXQGDQWPXFRVD
RYHUO\LQJVXSUDJORWWLFWLVVXH6RPHRIWKHSDWLHQWVH[DPLQHGLQWKLVSURMHFWZHUH VHYHUHO\GLVDEOHGE\WKHLU(,/27KHUHIRUHZHGHFLGHGWRXVHWKHVXSUDJORWWRSODVW\WR WUHDWSDWLHQWVVHOHFWHGE\VWULFWFOLQLFDOFULWHULDLHPDMRULQIOXHQFHRIV\PSWRPVRQ WKHLUTXDOLW\RIOLIHDQGSK\VLFDOFDSDFLW\VHYHUHVXSUDJORWWLFODU\QJHDOREVWUXFWLRQDV REVHUYHGGXULQJ&/(WHVWVDQGSDWLHQWVKLJKO\PRWLYDWHGIRUWUHDWPHQWLQRUGHUWR UHGXFHV\PSWRPV
7KHDLPRIWKLVVWXG\ZDVWRXVHWKH&/(WHVWWRDVVHVVWKHHIIHFWRIVXSUDJORWWRSODVW\
RQH[HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQE\FRPSDULQJSUHDQGSRVWRSHUDWLYH&/(
WHVWILQGLQJV1LQHRXWRISDWLHQWVZHUHVDWLVILHGZLWKWKHUHVXOWVRIWUHDWPHQW7KH\
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
3DSHU,9
([HUFLVHLQGXFHGODU\QJHDOREVWUXFWLRQQDWXUDOKLVWRU\DQGHIIHFWRIVXUJLFDO WUHDWPHQW
,QWKLVUHWURVSHFWLYHREVHUYDWLRQDOVWXG\ZHDLPHGWRDVVHVVWKHQDWXUDOFRXUVHRI VXSUDJORWWLF(,/2DQGDWWKHVDPHWLPHVWXG\ORQJWHUPHIIHFWVLQSDWLHQWVZKRKDG EHHQWUHDWHGVXUJLFDOO\IRUVXSUDJORWWLF(,/2&KDQJHVLQV\PSWRPVRIH[HUFLVH LQGXFHGEUHDWKLQJGLVWUHVVOHYHORIDFWLYLW\DQGWKHLPSDFWRIV\PSWRPVRQGDLO\OLIH DFWLYLW\ZHUHDGGUHVVHGLQTXHVWLRQQDLUHVVHQWE\PDLO0RVWSDWLHQWVH[SHULHQFHGD V\PSWRPUHOLHIEXWPRUHVRLQVXUJLFDOO\WUHDWHGSDWLHQWVWKDQXQWUHDWHGSDWLHQWV
&RPSDULVRQRISUHDQGSRVWRSHUDWLYH&/(WHVWVVKRZHGDVLJQLILFDQWLPSURYHPHQW LQWKHDELOLW\WRNHHSWKHODU\Q[RSHQZKLOHH[HUFLVLQJLQWKHVXUJLFDOO\WUHDWHG2Q WKHRWKHUKDQGRQO\PLQRUFKDQJHVZHUHREVHUYHGLQODU\QJHDOPRWLRQLQ XQWUHDWHGSDWLHQWVUHWHVWHGZLWKWKH&/(WHVW:HFRQFOXGHGWKDW(,,6GXHWR VXSUDJORWWLF(,/2GRHVQRWVHHPWRUHFRYHUVSRQWDQHRXVO\LQ\RXQJSDWLHQWVDQG SDWLHQWVZLWKVHYHUHVXSUDJORWWLF(,/2PD\EHQHILWIURPVXUJLFDOWUHDWPHQWHYHQ DIWHU\HDUVRIIROORZXSWLPH
'LVFXVVLRQ
,QWKLVWKHVLVWKH&/(WHVWKDVEHHQDSSOLHGWRDODUJHVHULHVRISDWLHQWVH[SHULHQFLQJ (,,6$VSHFLILF&/(VFRUHV\VWHPKDVEHHQGHYHORSHGDQGUHOLDELOLW\DVZHOODV YDOLGLW\RIWKLV&/(VFRUHKDVEHHQWHVWHG&OLQLFDOO\VHOHFWHGSDWLHQWVZLWKGLVDEOLQJ RUVHYHUHVXSUDJORWWLFW\SHRI(,/2ZHUHRIIHUHGVXUJLFDOWUHDWPHQW6XUJLFDOO\
WUHDWHGSDWLHQWVKDYHEHHQH[DPLQHGSUHDQGSRVWRSHUDWLYHO\ZLWKWKH&/(WHVW (,,6SDWLHQWVZHUHUHHYDOXDWHGDVWR(,,6V\PSWRPVZLWKDTXHVWLRQQDLUHDQGD VHOHFWHGJURXSRISDWLHQWVZLWKVXSUDJORWWLFW\SHRI(,/2ZKRZHUHQRWVXUJLFDOO\
WUHDWHGZHUHDOVRLQYLWHGWRSHUIRUPDVHFRQG&/(WHVW7KLVGLVFXVVLRQIRFXVHVRQ WKHPHWKRGVXVHGDQGWKHUHVXOWVREWDLQHGZLWKVSHFLDODWWHQWLRQJLYHQWRWKH LPSOLFDWLRQWKDWWKHVHUHVXOWVKDYHRQWKHSUHVHQWXQGHUVWDQGLQJRI(,/2DVD SKHQRPHQRQKRZLWVKRXOGEHDVVHVVHGDQGWUHDWHG
0HWKRGRORJLFDODVSHFWV
,QFOXVLRQV
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
&RQWUROV
7KHYROXQWHHUVZHUHLQJHQHUDOROGHUWKDQWKHSDWLHQWVPHDQWR\HDUV UHVSHFWLYHO\,WLVSRVVLEOHWKDWWKHODU\Q[UHVSRQVHWRH[HUFLVHFKDQJHVIURP FKLOGKRRGWRDGROHVFHQFHDQGWKHUHIRUHFRQWUROVVKRXOGLGHDOO\EHDWVLPLODUDJHDV SDWLHQWV+RZHYHUIRUHWKLFDOUHDVRQVZHIRXQGLWVRPHZKDWGLIILFXOWWRXVHDJHG
PDWFKHGFRQWUROVDVWKH&/(WHVWUHSUHVHQWVDFHUWDLQGHJUHHRIGLVFRPIRUW SDUWLFXODUO\LQFKLOGUHQ
6XUJLFDOO\YHUVXVFRQVHUYDWLYHO\WUHDWHGSDWLHQWV
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³KLVWRULFDO´FRQWUROV$QDWWHPSWWRILQGPDWFKHGSDLUVLQ WKHVHWZRJURXSVUHYHDOHGWKDWWKH\LQGHHGZHUHWRDUHDVRQDEOHH[WHQWFRPSDUDEOH DVWRDJHJHQGHUDQGOHYHORI&/(VFRUHVDWWKHWLPHRIGLDJQRVLV
([SHFWDWLRQFRQFHUQLQJWUHDWPHQWHIIHFWVDVZHOODVSHUFHSWLRQRIV\PSWRPVPD\
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
7KH&/(WHVW
1RUPDOYHUVXVSDWKRORJLFDOODU\QJHDOPRWLRQ
9LVXDOLVDWLRQRIWKHODU\Q[GXULQJSURJUHVVLYHO\VWUHQXRXVH[HUFLVHGHPRQVWUDWHV GLODWDWLRQDQGDQWHURURWDWLRQRIWKHVXSUDJORWWLFSDUWRIWKHODU\Q[WKLQQLQJDQG HORQJDWLRQRIWKHDU\HSLJORWWLFIROGVHSLJORWWLFIODWWHQLQJDJDLQVWWKHEDVHRIWRQJXH DQGSURJUHVVLYHJORWWLFDEGXFWLRQ%HDW\DQG+RIIPDQ%HDW\HWDO%HQW HWDO
%HQWDQGFRZRUNHUVKDYHSUHYLRXVO\UHSRUWHGWKDWDVOLJKWDGGXFWLRQLQWKHDU\
HSLJORWWLFIROGVFDQDOVREHGHPRQVWUDWHGLQFRQWUROVXEMHFWVGXULQJKHDY\H[HUFLVH
%HQWHWDO:HREVHUYHGVLPLODUILQGLQJVLQRXUFRQWUROVXEMHFWVLQGLFDWLQJ WKDWWKHVHILQGLQJVPLJKWEHFRQVLGHUHGQRUPDO7KHUHIRUHZHWRRNWKHVHREVHUYDWLRQV LQWRFRQVLGHUDWLRQZKHQGHFLGLQJZKLFKREVHUYDWLRQVVKRXOGEHIRFXVHGRQLQWKH
&/(VFRUHVFKHPHDQGKRZWKHJUDGLQJVWHSVVKRXOGEHPDGHLQRUGHUWRGLIIHUHQWLDWH EHWZHHQQRUPDODQGSDWKRORJLFDOODU\QJHDOPRWLRQ
'LIIHUHQWLDWLRQDQGJUDGLQJRIODU\QJHDOREVWUXFWLRQ
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
7KHJUDGLQJVFKHPHGLIIHUHQWLDWHVEHWZHHQREVWUXFWLRQVRFFXUULQJDWPRGHUDWHDQG PD[LPDOHIIRUW0RGHUDWHHIIRUWLVGHWHUPLQHGDVWKHOHYHORIH[HUFLVHZKHQWKHPLOO UXQVVRIDVWWKDWWKHVXEMHFWKDVWRFKDQJHIURPZDONLQJWRUXQQLQJ:HGHFLGHGWR DVVHVVREVWUXFWLRQVWZLFHGXULQJWKHWHVWLQRUGHUWRLQFUHDVHWKHSRWHQWLDOQXPEHURI VFRUHV$QRWKHUDGYDQWDJHZLWKWKLVGRXEOHDVVHVVPHQWLVWKHSRVVLELOLW\WRGHWHFW
HDUO\VLJQVRIDEGXFWLRQDWHDFKRIWKHWZROHYHOVDQGGLVWLQJXLVKZKLFKREVWUXFWLRQ FRPHVILUVW
&/(VFRUHYDOLGDWLRQ
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
&/(VFRUHVKRXOGDOVREHFRPSDUHGWRDOWHUQDWLYHPHWKRGVDQGXVHGLQSRSXODWLRQ VWXGLHVLQRUGHUWRGHILQHLWVVHQVLWLYLW\DQGVSHFLILFLW\
6WULGRUDQGZKHH]H
*ROGPDQGLIIHUHQWLDWHGZKHH]HIURPVWULGRUE\WKHSLWFKRIWKHWRQH*ROGPDQ
%RWKVWULGRUDQGZKHH]HZHUHVRPHWLPHVDXGLEOHGXULQJWKH&/(WHVWRID VXEMHFW:HIRXQGWKDWRXWRISDWLHQWVGHYHORSHGZKHH]HDQG SURGXFHGLQVSLUDWRU\VWULGRURIWHQFRPELQHGZLWKZKHH]H:KHQFRPSDULQJ VRXQGUHFRUGLQJVZLWKYLGHRUHFRUGLQJVRIWKHODU\Q[GXULQJ&/(WHVWVZHIRXQGWKDW KLJKSLWFKHGVWULGRUFRUUHODWHGZLWKH[HUFLVHLQGXFHGREVWUXFWLRQDWWKHJORWWLFOHYHO +RZHYHUWKHV\PSWRPRIDXGLEOHUHVSLUDWRU\GLVWUHVVVKRXOGEHXVHGZLWKFDUHZKHQ GLDJQRVLQJSDWLHQWVZLWKRXWODU\QJRVFRS\=ZDUWHQNRWHWDO
