Scribd Logo
Upload

Welcome to Scribd!

  • LEZAK-Capitulo 7 Traducido

    Uploaded by

    Radio Miercoles
    20 views220 pages
    This document discusses the importance of neuropathology knowledge for neuropsychologists in order to make diagnostic sense of behavioral patterns that emerge during assessments. It states that knowledge of the neuropsychological presentation of neurological disorders and their underlying pathology provides examiners with a diagnostic frame of reference. The chapter then reviews some of the major neurological disorders commonly seen in clinical practice based on their classification and primary involvement, noting that multiple conditions can affect brain function and produce complex symptom pictures. It emphasizes that the specific information needed about a patient will vary depending on their history and diagnostic possibilities.

    Original Description:

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    This document discusses the importance of neuropathology knowledge for neuropsychologists in order to make diagnostic sense of behavioral patterns that emerge during assessments. It states that knowledge of the neuropsychological presentation of neurological disorders and their underlying pathology provides examiners with a diagnostic frame of reference. The chapter then reviews some of the major neurological disorders commonly seen in clinical practice based on their classification and primary involvement, noting that multiple conditions can affect brain function and produce complex symptom pictures. It emphasizes that the specific information needed about a patient will vary depending on their history and diagnostic possibilities.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    20 views220 pages

    LEZAK-Capitulo 7 Traducido

    Uploaded by

    Radio Miercoles
    This document discusses the importance of neuropathology knowledge for neuropsychologists in order to make diagnostic sense of behavioral patterns that emerge during assessments. It states that knowledge of the neuropsychological presentation of neurological disorders and their underlying pathology provides examiners with a diagnostic frame of reference. The chapter then reviews some of the major neurological disorders commonly seen in clinical practice based on their classification and primary involvement, noting that multiple conditions can affect brain function and produce complex symptom pictures. It emphasizes that the specific information needed about a patient will vary depending on their history and diagnostic possibilities.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 220

     1HXURSDWKRORJ\IRU1HXURSV\FKRORJLVWV

    ,QRUGHUWRPDNHGLDJQRVWLFVHQVHRXWRIWKHEHKDYLRUDOSDWWHUQVWKDWHPHUJHLQQHXURSV\FKRORJLFDO
    DVVHVVPHQW WKH SUDFWLWLRQHU PXVW EH NQRZOHGJHDEOH DERXW WKH QHXURSV\FKRORJLFDO SUHVHQWDWLRQ RI
    PDQ\ NLQGV RI QHXURORJLFDO GLVRUGHUV DQG WKHLU XQGHUO\LQJ SDWKRORJ\ +DQQD\ %LHOLDXVNDV HW DO
     7KLVNQRZOHGJHJLYHVWKHH[DPLQHUDGLDJQRVWLFIUDPHRIUHIHUHQFHWKDWKHOSVWRLGHQWLI\VRUW
    RXW DSSUDLVH DQG SXW LQWR D GLDJQRVWLFDOO\ PHDQLQJIXO FRQWH[W WKH PDQ\ ELWV DQG SLHFHV RI
    REVHUYDWLRQV VFRUHV IDPLO\ UHSRUWV DQG PHGLFDO DQG VRFLDO KLVWRU\ WKDW W\SLFDOO\ PDNH XS WKH
    PDWHULDO RI D FDVH )XUWKHUPRUH VXFK D IUDPH RI UHIHUHQFH VKRXOG KHOS WKH H[DPLQHU NQRZ ZKDW
    DGGLWLRQDOTXHVWLRQVQHHGEHDVNHGRUZKDWIXUWKHUREVHUYDWLRQVRUEHKDYLRUDOPHDVXUHPHQWVQHHGEH
    PDGHWRDUULYHDWWKHIRUPXODWLRQRIWKHSDWLHQWߤVSUREOHPV
    7KLVFKDSWHUFDQRQO\VNHWFKEURDGDQGPRVWO\EHKDYLRUDORXWOLQHVRIVXFKDIUDPHRIUHIHUHQFH,W
    FDQQRWVXEVWLWXWHIRUNQRZOHGJHRIQHXURSDWKRORJ\JDLQHGIURPFRQWDFWZLWKPDQ\SDWLHQWVDQGWKHLU
    PDQ\GLIIHUHQWQHXURSDWKRORJLFDOGLVRUGHUVDWPDQ\GLIIHUHQWVWDJHVLQWKHLUFRXUVHDQGߟLGHDOO\ߟLQ
    DWUDLQLQJVHWWLQJ+RZHYHUZLWKLWVSUHGRPLQDQWO\QHXURSV\FKRORJLFDOSHUVSHFWLYHWKLVFKDSWHUPD\
    KHOS WR FU\VWDOOL]H XQGHUVWDQGLQJV JDLQHG LQ FOLQLFDO REVHUYDWLRQV DQG WUDLQLQJ DQG HQKDQFH WKH
    FOLQLFLDQߤVVHQVLWLYLW\WRWKHEHKDYLRUDODVSHFWVRIWKHFRQGLWLRQVGLVFXVVHGKHUH7KHPDMRUGLVRUGHUV
    RIWKHQHUYRXVV\VWHPKDYLQJQHXURSV\FKRORJLFDOFRQVHTXHQFHVZLOOEHUHYLHZHGDFFRUGLQJWRWKHLU
    FXVWRPDU\FODVVLILFDWLRQE\NQRZQRUVXVSHFWHGHWLRORJ\RUE\WKHV\VWHPRISULPDU\LQYROYHPHQW
    :KLOH WKLV UHYLHZ FDQQRW EH FRPSUHKHQVLYH LW FRYHUV WKH PRVW FRPPRQ QHXURSDWKRORJLFDO
    FRQGLWLRQV VHHQ LQ WKH XVXDO KRVSLWDO RU FOLQLF SUDFWLFH LQ ZHVWHUQ FRXQWULHV )RU PRUH GHWDLOHG
    SUHVHQWDWLRQVRIWKHPHGLFDODVSHFWVRIWKHVHDQGRWKHUOHVVFRPPRQFRQGLWLRQVWKDWKDYHEHKDYLRUDO
    UDPLILFDWLRQVVHH$VEXU\HWDO'LVHDVHVRIWKH1HUYRXV6\VWHP  %UD]LVHWDO/RFDOL]DWLRQ LQ
    &OLQLFDO1HXURORJ\WKHG  *LOPDQ2[IRUG$PHULFDQ+DQGERRNRI1HXURORJ\  5RSSHU
    DQG6DPXHOVߤ$GDPVDQG9LFWRUߤV3ULQFLSOHVRI1HXURORJ\WKHG  
    $V LQ HYHU\ DVSHFW RI QHXURSV\FKRORJLFDO DVVHVVPHQW RU DQ\ RWKHU SHUVRQDOL]HG FOLQLFDO
    DVVHVVPHQWSURFHGXUHWKHNLQGRILQIRUPDWLRQWKHH[DPLQHUQHHGVWRNQRZZLOOYDU\IURPSDWLHQWWR
    SDWLHQW)RUH[DPSOHKHUHGLWDU\SUHGLVSRVLWLRQLVQRWDQLVVXHZLWKLQIHFWLRXVGLVRUGHUVRUDK\SR[LF
    FRQGLWLRQ RI LQVXIILFLHQW R[\JHQDWLRQ  HSLVRGH GXULQJ VXUJHU\ EXW LW EHFRPHV D YHU\ LPSRUWDQW
    FRQVLGHUDWLRQ ZKHQ D SUHYLRXVO\ VRFLDOO\ DSSURSULDWH SHUVRQ EHJLQV WR H[KLELW XQFRQWUROODEOH
    PRYHPHQWV DQG SRRU MXGJPHQW FRXSOHG ZLWK LPSXOVLYLW\ 7KXV LW LV QRW QHFHVVDU\ WR DVN HYHU\
    FDQGLGDWH IRU QHXURSV\FKRORJLFDO DVVHVVPHQW IRU IDPLO\ KLVWRU\ JRLQJ EDFN D JHQHUDWLRQ RU WZR
    DOWKRXJK IDPLO\KLVWRU\ LV LPSRUWDQW ZKHQ WKH GLDJQRVWLF SRVVLELOLWLHV LQFOXGHD KHUHGLWDU\ GLVRUGHU
    VXFKDV+XQWLQJWRQߤVGLVHDVH,QFHUWDLQSRSXODWLRQVWKHLQFLGHQFHRIDOFRKRORUGUXJDEXVHLVVRKLJK
    WKDW HYHU\ SHUVRQ ZLWK FRPSODLQWV VXJJHVWLYH RI D FHUHEUDO GLVRUGHU VKRXOG EH FDUHIXOO\ TXHVWLRQHG
    DERXWGULQNLQJRUGUXJKDELWV\HWIRUPDQ\SHUVRQVVXFKTXHVWLRQLQJEHFRPHVFOHDUO\XQQHFHVVDU\
    HDUO\LQDFOLQLFDOH[DPLQDWLRQDQGPD\HYHQEHRIIHQVLYH
    0RUHRYHUDQXPEHURIGLIIHUHQWNLQGVRIGLVRUGHUVSURGXFHVLPLODUFRQVWHOODWLRQVRIV\PSWRPV
    )RUH[DPSOHDSDWK\DIIHFWLYHGXOOLQJDQGPHPRU\LPSDLUPHQWRFFXULQ.RUVDNRIIߤVSV\FKRVLVZLWK
    KHDY\H[SRVXUHWRFHUWDLQRUJDQLFVROYHQWVDVDQDIWHUPDWKRIVHYHUHWUDXPDWLFEUDLQLQMXU\RUKHUSHV
    HQFHSKDOLWLV DQG ZLWK FRQGLWLRQV LQ ZKLFK WKH VXSSO\ RI R[\JHQ WR WKH EUDLQ KDV EHHQ VHYHUHO\
    FRPSURPLVHG 0DQ\ FRQGLWLRQV ZLWK VLPLODU QHXURSV\FKRORJLFDO IHDWXUHV FDQ EH GLVWLQJXLVKHG E\
    GLIIHUHQFHVLQRWKHUQHXURSV\FKRORJLFDOGLPHQVLRQV2WKHUFRQGLWLRQVPD\EHEHVWLGHQWLILHGLQWHUPV
    RIWKHSDWLHQWߤVKLVWRU\DVVRFLDWHGQHXURORJLFDOV\PSWRPVDQGWKHQDWXUHRIWKHRQVHWDQGFRXUVHRI
    WKHGLVRUGHU
    7KH SUHVHQFH RI RQH NLQG RI QHXURSDWKRORJLFDO GLVRUGHU GRHV QRW H[FOXGH RWKHUV QRU GRHV LW
    H[FOXGH HPRWLRQDO UHDFWLRQV RU SV\FKLDWULF DQG SHUVRQDOLW\ GLVRUGHUV :LWK PRUH WKDQ RQH GLVHDVH
    SURFHVVDIIHFWLQJEUDLQIXQFWLRQWKHEHKDYLRUDOSUHVHQWDWLRQLVSRWHQWLDOO\FRPSOH[ZLWKDFRQIXVLQJ
    V\PSWRPSLFWXUHHJ&KXL9LFWRURIIDQGWKHLUFROOHDJXHV  VXJJHVWHGWKHGLDJQRVWLFFDWHJRU\
    RI ߧPL[HG GHPHQWLDߨIRU WKRVH GHPHQWLQJ FRQGLWLRQV LQYROYLQJ PRUH WKDQ RQH QHXURSDWKRORJLFDO
    HQWLW\ $OVR VRPH FRQGLWLRQV PD\ LQFUHDVH WKH RFFXUUHQFH RI RWKHU GLVRUGHUV HJ WUDXPDWLF EUDLQ
    LQMXU\ LV D ULVN IDFWRU IRU $O]KHLPHU ߤV GLVHDVH DQG VWURNH LV DVVRFLDWHG ZLWK $O]KHLPHU ߤV GLVHDVH
    +DFKLQVNL   DQG DOFRKROLVP LQFUHDVHV WKH OLNHOLKRRG RI KHDG LQMXULHV IURP IDOOLQJ RII EDU
    VWRROVPRWRUYHKLFOHDFFLGHQWVRU6DWXUGD\QLJKWILJKWV
    1RVLQJOHUXOHRIWKXPEZLOOWHOOWKHH[DPLQHUMXVWZKDWLQIRUPDWLRQDERXWDQ\SDUWLFXODUSDWLHQWLV
    QHHGHG WR PDNH WKH PRVW HIIHFWLYH XVH RI WKH H[DPLQDWLRQ GDWD :KHWKHU WKH SXUSRVH RI WKH
    H[DPLQDWLRQ LV GLDJQRVLV RU GHOLQHDWLRQ RI WKH EHKDYLRUDO H[SUHVVLRQ RI D NQRZQ FRQGLWLRQ
    NQRZOHGJHDERXWWKHNQRZQRUVXVSHFWHGFRQGLWLRQ V SURYLGHVDIUDPHRIUHIHUHQFHIRUWKHUDWLRQDO
    FRQGXFWRIWKHH[DPLQDWLRQ

    75$80$7,&%5$,1,1-85<
    +XPSW\'XPSW\VDWRQDZDOO
    +XPSW\'XPSW\KDGDJUHDWIDOO
    $QGDOOWKHNLQJߤVKRUVHVDQGDOOWKHNLQJߤVPHQ
    &RXOGQߤWSXW+XPSW\WRJHWKHUDJDLQ
    0RWKHU*RRVH

    7UDXPDWLFEUDLQLQMXU\ 7%, JHQHUDOO\UHIHUVWRLQMXU\LQYROYLQJWKHEUDLQUHVXOWLQJIURPVRPHW\SH


    RILPSDFWDQGRUDFFHOHUDWLRQGHFHOHUDWLRQRIWKHEUDLQ$QLQWHUQDWLRQDOZRUNLQJJURXSVSRQVRUHGE\
    WKH 1DWLRQDO ,QVWLWXWHV RI +HDOWK DQG RWKHU JRYHUQPHQW DJHQFLHV LQ WKH 8QLWHG 6WDWHV VSRQVRUHG DQ
    LQWHUQDWLRQDODQGLQWHUDJHQF\ZRUNLQJJURXSWRHVWDEOLVKWKLVFRQVHQVXVVWDWHPHQWߧ7%,LVGHILQHGDV
    DQDOWHUDWLRQLQEUDLQIXQFWLRQRURWKHUHYLGHQFHRIEUDLQSDWKRORJ\FDXVHGE\DQH[WHUQDOIRUFHߨ S
      '.0HQRQHWDO 
    7KLVEULHIGHILQLWLRQSURYLGHVDFRQVHQVXVVWDQGDUGEXWGRHVQRWDGGUHVVVHYHULW\KRZWKHHIIHFWV
    RI 7%, DUH DVVHVVHG RU QHXUREHKDYLRUDO RXWFRPH 6RPH RI WKH WHUPLQRORJ\ UHODWHG WR 7%,
    FODVVLILFDWLRQ DQG VHYHULW\ LV UHOHYDQW IRU WKHVH LPSRUWDQW LVVXHV +HDGLQMXU\ LV VWLOO V\QRQ\PRXVO\
    ZLWK7%,EXWLQVRPHFDVHVLWUHIHUVWRLQMXU\RIRWKHUKHDGVWUXFWXUHVVXFKDVWKHIDFHRUMDZ0RVW
    7%,VDUHFORVHGLQWKDWWKHVNXOOUHPDLQVLQWDFWDQGWKHEUDLQLVQRWH[SRVHG&ORVHGKHDGLQMXU\ &+,
    LVUHIHUUHGWRDVEOXQWKHDGWUDXPDRUEOXQWLQMXU\DVZHOO7KHVNXOOFDQEHIUDFWXUHGDQGWKHLQMXU\
    PD\VWLOOEHD&+,DVORQJDVWKHPHQLQJHDOFRYHULQJRIWKHEUDLQRUWKHEUDLQLWVHOILVQRWEUHDFKHG
    E\ SHQHWUDWLRQ WKURXJK WKH VNXOO 3HQHWUDWLQJ KHDG LQMXULHV 3+,  VRPHWLPHV FDOOHG RSHQ KHDG
    LQMXULHVLQFOXGHDOOLQMXULHVIURPDQ\VRXUFHLQZKLFKWKHVNXOODQGGXUDDUHSHQHWUDWHGE\PLVVLOHVRU
    RWKHUREMHFWV:KLOHWKHUHDUHFRPPXQDOLWLHVEHWZHHQ&+,DQG3+,QRWRQO\WKHQDWXUHRIWKHLQMXU\
    EXWDOVR WKH SDWKRSK\VLRORJLFDO SURFHVVHVVHW LQ PRWLRQ E\ GDPDJH WR WKH EUDLQ PD\ GLIIHU LQWKHVH
    WZRW\SHVRILQMXULHV
    )RUVRPHFOLQLFLDQVWKHWHUP7%,FDQLQFOXGHRWKHUDFTXLUHGHWLRORJLHVVXFKDVVWURNHDQGDQR[LD
    WKHWHUPDFTXLUHG EUDLQ LQMXU\ $%,  UHIHUV WR MXVW DERXW DQ\WKLQJ WKDW FDQ GDPDJH EUDLQ WLVVXH DQG
    PD\EHDSSOLHGWR7%,V7KXVWKHPHDQLQJRI7%,FRQWLQXHVWREHVRPHZKDWFRQIXVLQJDQGQHHGVWR
    EHFODULILHGLQWKHOLWHUDWXUHDVZHOODVE\WKHFOLQLFLDQZKHQHYDOXDWLQJSDWLHQWVZLWKVXFKLQMXULHV,Q
    WKLVERRN7%,UHIHUVVWULFWO\WRWKHHIIHFWVRI&+,DQGRU3+,$QRWKHUWHUPLVFRQFXVVLRQFRQVLGHUHG
    DPLOGIRUPRI7%, S 
    7%, LV WKH PRVW FRPPRQ FDXVH RI EUDLQ GDPDJH LQ FKLOGUHQ DQG \RXQJ DGXOWV IRU UHYLHZV VHH
    5XWODQG%URZQHWDO6XPPHUVHWDO7KXUPDQHWDO 0RGHUQPHGLFDOWHFKQLTXHV
    IRU WKH PDQDJHPHQW RI DFXWH EUDLQ FRQGLWLRQV DUH VDYLQJ PDQ\ DFFLGHQW YLFWLPV ZKR WHQ RU WZHQW\
    \HDUV DJR ZRXOG KDYH VXFFXPEHG WR WKH PHWDEROLF KHPRG\QDPLF DQG RWKHU FRPSOLFDWLRQV WKDW
    DFFRPSDQ\VHYHUH7%, 'LHGOHUHWDO-DJDQQDWKDQHWDO0(7DQJDQG/REHO $V
    DUHVXOWDQHYHULQFUHDVLQJQXPEHURIVXUYLYRUVRIVHYHUH7%,PRVWO\FKLOGUHQDQG\RXQJDGXOWVDW
    WKH WLPH RI LQMXU\ DUH OLYLQJ ZLWK WKLV UHODWLYHO\ QHZ DQG XVXDOO\ WUDJLF SKHQRPHQRQ RI EHLQJ
    SK\VLFDOO\ILW\RXQJSHRSOHZKRVHEUDLQVKDYHEHHQVLJQLILFDQWO\GDPDJHGIRUWKHLUOLIHWLPH
    7KH VHFRQGDU\ RU GHOD\HG LQMXU\ WR WKH EUDLQ IURP D YDULHW\ RI VRXUFHV VXFK DV RQJRLQJ
    KHPRUUKDJH K\SR[LD LQVXIILFLHQW R[\JHQ  LVFKHPLD LQVXIILFLHQWRU DEVHQW EORRG VXSSO\  HOHYDWHG
    LQWUDFUDQLDO SUHVVXUH ,&3  DQG FKDQJHV LQ PHWDEROLF IXQFWLRQ FRDJXORSDWK\ EORRG FORWWLQJ  DQG
    S\UH[LD IHYHU PD\EHDVRUHYHQPRUHLPSRUWDQWWKDQWKHLPPHGLDWHGLUHFWGDPDJHWRDQGGLVUXSWLRQ
    RIEUDLQWLVVXHDQGQHXUDOFLUFXLWU\ 0:*UHYH DQG=LQN  0DDV HW DO  3RYOLVKRFNDQG
    .DW]   %HWWHU XQGHUVWDQGLQJ RI WKHVH FRQGLWLRQV KDV OHG WR WKH GHYHORSPHQW RI VSHFLDOL]HG
    FOLQLFDOPRQLWRULQJWHFKQLTXHVIRUPRUHVHULRXVLQMXULHV *X«ULWHWDO+HOP\HWDO DQG
    LQYHVWLJDWLRQV LQWR WKH EDVLF PHFKDQLVPV XQGHUO\LQJ WKHVH FOLQLFDO FKDQJHV .QRZOHGJH IURP WKHVH
    VWXGLHV VWLPXODWHV WKH VHDUFK IRU HIILFDFLRXV SKDUPDFRORJLFDO WUHDWPHQWV 1DUD\DQ 0LFKHO HW DO
    3RYOLVKRFN=LWQD\HWDO DQGRWKHULQWHUYHQWLRQVVXFKDVK\SRWKHUPLD 0DULRQDQG
    %XOORFN   DQG K\SHUEDULF R[\JHQ WKHUDSLHV 5RFNVZROG HW DO   5HVHDUFK ILQGLQJV WKDW
    VHHPSURPLVLQJLQWKHODERUDWRU\PD\QRWSURYHWREHFOHDUO\HIILFDFLRXVLQFOLQLFDOWULDOVLQ ZKLFK
    WKHVDPHULJRURXVFRQWURORYHUDP\ULDGRIYDULDEOHVLQFOXGLQJJHQHWLFDQGLQMXU\FKDUDFWHULVWLFVLV
    QRWSRVVLEOH
    3UHYDOHQFH HVWLPDWHV DQG LQFLGHQFH UHSRUWV LQ HSLGHPLRORJLFDO VWXGLHV YDU\ GHSHQGLQJ RQ VXFK
    GHFLVLRQV DV ZKHWKHU WR LQFOXGH DOO JUDGHV RI VHYHULW\ WR FRXQW GHDWKV WR OLPLW WKH VWXG\ WR
    KRVSLWDOL]HGSDWLHQWVHWF %HUURO-).UDXVDQG&KX ,QFLGHQFHRI7%,DOVRYDULHVZLWK
    WKHVWXG\VLWHDVXUEDQFHQWHUVDFFRXQWIRUDKLJKHULQFLGHQFHRI7%,WKDQUXUDODUHDV *DEHOODHWDO
     )% 5RJHUV HW DO   ,Q WKH 8QLWHG 6WDWHV LQ  EDVHG RQ &HQWHUV IRU 'LVHDVH &RQWURO
    &'&  GDWD WKHUH ZHUH DQ HVWLPDWHG  7%,V VHH 5XWODQG%URZQ HW DO   2I WKHVH
    DSSUR[LPDWHO\ZHUHHYDOXDWHGLQDQHPHUJHQF\URRPZLWKKRVSLWDOL]HGDQG
    GHDWKV $OVR EDVHG RQ &'& GDWD LW ZDV HVWLPDWHG WKDW LQ  DSSUR[LPDWHO\  RU  PLOOLRQ
    LQGLYLGXDOVLQWKH86FLYLOLDQSRSXODWLRQKDGVRPHIRUPRIORQJWHUPGLVDELOLW\DVVRFLDWHGZLWK7%,
    &RUULJDQ6HODVVLHDQG2UPDQ=DORVKQMDHWDO 7KHHVWLPDWHGFXUUHQWLQFLGHQFHRIDOO
    W\SHV RI 7%, YDULHV DFURVV VWXGLHV EXW DYHUDJHV DERXW  SHU  -) .UDXV DQG &KX  
    FRQVLGHUDEO\ ORZHU WKDQ D  SHU  SUHYLRXV HVWLPDWH E\ WKH VDPH VHQLRU DXWKRU D GHFDGH
    HDUOLHU -).UDXV 0F$UWKXUHWDO  +RZHYHU IRU WKH PRVW FRPPRQ W\SH RI &+, PLOG 7%,
    PDQ\LQMXUHGQHYHUVHHNPHGLFDOFDUH,IWKHLUQXPEHUVZHUHLQFOXGHGLQHSLGHPLRORJLFDOVWXGLHVWKH
    DQQXDOLQFLGHQFHUDWHFRXOGEHDVKLJKDVaSRSXODWLRQ %D]DULDQHWDO5\X HW DO
     
    +LJKHUUDWHVKDYHEHHQ UHSRUWHGIRU6RXWK $IULFD  SHU  1HOODQG %URZQ DQG
    6RXWK$XVWUDOLD SHUVHH+LOOLHUHWDO :KHWKHUGXHWRLPSURYHGGULYLQJKDELWVRU
    LQFOXVLRQRIGDWDIURPDOOSDUWVRI$XVWUDOLDWKHHVWLPDWHIRUZDVSHU 2ߤ5DQFHDQG
    )RUWXQH 6RPHFRXQWULHV HJ(QJODQG-DSDQ6ZHGHQ KDYHSRVWHGKDOIDVPDQ\IDWDOLQMXULHV
    DV WKH 8QLWHG 6WDWHV -) .UDXV 0F$UWKXU HW DO  -7( 5LFKDUGVRQ    :KLOH GLIIHUHQW
    DFURVVFRXQWULHVWKHVHGDWDSRLQWRXWWKHXQLYHUVDOQDWXUHDQGKLJKIUHTXHQF\RI7%,(YHQHVWLPDWHV
    RIPRUWDOLW\UDWHVYDU\JUHDWO\ -).UDXVDQG&KX HVSHFLDOO\E\VHYHULW\RILQMXU\ 8GHNZXHW
    DO   0RUWDOLW\ UDWHV PD\ YDU\ RYHU WLPH IRU VXFK UHDVRQV DV FKDQJLQJ KRVSLWDO DGPLVVLRQ
    SUDFWLFHVDQGHIIHFWLYH SUHYHQWLYH SURJUDPV (QJEHUJ DQG 7HDVGDOH  ,Q)UDQFH DOPRVW 
    GHDWKV ZHUH IURP PRWRU YHKLFOH DFFLGHQWV 09$V  LQ  IROORZLQJ D VWULFW V\VWHP IRU WD[LQJ
    VSHHGHUV WKH )UHQFK 09$ GHDWK UDWH ZDV EHORZ  IRU  -/ 7UXHOOH  SHUVRQDO
    FRPPXQLFDWLRQ>PGO@ 
    $IWHUWKHLQLWLDOSHULRGRIKLJKULVNORQJWHUPPRUWDOLW\IURP7%,LVSULPDULO\UHODWHGWRWKHODWH
    HIIHFWVRILQMXU\ODFNRIIXQFWLRQDOLQGHSHQGHQFHDJHDQGWXEHIHHGLQJ %DJXOH\6OHZD<RXQDQHW
    DO+DUULVRQ)HOL[HWDO6KDYHOOHHWDO 3RVWWUDXPDWLFHSLOHSV\ $QQHJHUV+DXVHU
    HWDO LQFUHDVHG OLIHWLPH LQFLGHQFH RIQHXURSV\FKLDWULF VHTXHODH +ROVLQJHU HW DO  DQG
    ODWHOLIHGHPHQWLQJLOOQHVV 3ODVVPDQ+DYOLNHWDO DUHVLJQLILFDQWODWHVHTXHODHDVVRFLDWHGZLWK
    7%,0F*UDWK  UHSRUWVVWXGLHVRIUHWLUHGSURIHVVLRQDOIRRWEDOO 86$VW\OH SOD\HUVZKRDUHILYH
    WRWLPHVPRUHOLNHO\WREHFRPHGHPHQWHGWKDQWKHJHQHUDOSRSXODWLRQ+HDOVRQRWHVWKDWSOD\HUV
    KDYH EHHQ GLDJQRVHG ZLWK DP\RWURSKLF ODWHUDO VFOHURVLV D PRUELGO\ SDUDO\]LQJ GLVHDVH SRSXODUO\
    FDOOHG ߧ/RX *HKULJߤV GLVHDVHߨDIWHU D EDVHEDOO KHUR ZKR PD\ DFWXDOO\ KDYH KDG FRQFXVVLRQUHODWHG
    WUDXPDQRWWKHFRQGLWLRQWKDWEHDUVKLVQDPH
    7KHSHDNDJHVIRU7%,DUHLQWKHߞ\HDUUDQJHZLWKKLJKLQFLGHQFHUDWHVDOVRRFFXUULQJLQWKH
    ILUVWILYH\HDUVDQGIRUHOGHUO\SHUVRQV -).UDXVDQG&KX/RYHHWDO-7(5LFKDUGVRQ
     7KHPRVWFRPPRQFDXVHVRI7%,DUHIDOOV +HOSVHWDO-DJHUHWDO1DXJOH
    DQG WUDQVSRUWDWLRQ UHODWHG LQMXULHV &'&  -) .UDXV DQG &KX 0DVVRQ 7KLFRLSH HW DO
     0RUHWKDQKDOIWKHLQMXULHVLQFXUUHGE\LQIDQWVDQG\RXQJFKLOGUHQDQGE\SHUVRQVLQWKHDQG
    ROGHUDJHUDQJHDUHGXHWRIDOOV /RYHHWDO 0RYLQJYHKLFOHDFFLGHQWV 09$V DFFRXQWIRUKDOI
    RIDOOKHDGLQMXULHVLQWKHRWKHUDJHJURXSV &RKDGRQ HWDO 0DVVRQ7KLFRLSH HW DO   
    0RWRUF\FOLVWVKDYHDKLJKHUPRUWDOLW\UDWHWKDQRFFXSDQWVRIPRWRUYHKLFOHVEXWSHGHVWULDQVLQWUDIILF
    DFFLGHQWVKDYHWKHKLJKHVWUDWHRIDOO GH6RXVDHWDO(:RQJHWDO 
    +HOPHWV KDYH UHGXFHG KHDG LQMXULHV LQ VSRUWV VXFK DV ELF\FOLQJ KRFNH\ KRUVHEDFN ULGLQJ DQG
    IRRWEDOODOWKRXJKQRWDOOKHOPHWVUHGXFHFUDQLRIDFLDOLQMXULHVHIIHFWLYHO\ 6:0DUVKDOOHWDO
    36 0RVV HW DO  '& 7KRPSVRQ HW DO   ,Q 09$UHODWHG DFFLGHQWV KHOPHWV UHGXFH
    PRUWDOLW\DQGPRUELGLW\EXWVLJQLILFDQWEUDLQLQMXU\RFFXUVHYHQZKHQKHOPHWVDUHZRUQ &URFHHWDO
     :KLOHKHOPHWVPD\SURWHFWWKHVNXOODQGVXUIDFHRIWKHKHDGWKHLQWHUQDOPRYHPHQWG\QDPLFV
    IURP WKH WUDXPD VWLOO RFFXU SURGXFLQJ VKHDUVWUDLQ DQG PHFKDQLFDO GHIRUPDWLRQ RI WKH EUDLQ
    +DPEHUJHU HW DO  0RWKHUZD\ HW DO   6RPH KDYH DOVR DUJXHG WKDW ZHDULQJ D KHOPHW
    FUHDWHVDVHQVHRILQYXOQHUDELOLW\WKXVHQFRXUDJLQJLQFUHDVHGULVNWDNLQJE\WKHZHDUHUHVSHFLDOO\LQ
    VSRUWV&OHDUO\UHVHDUFKVXSSRUWVWKHXVHRIKHOPHWV
    ([FHSWLQJ WKH RYHU DJH JURXS LQ ZKLFK ZRPHQ RXWQXPEHU PHQ PHQ VXVWDLQ LQMXULHV DERXW
    WZLFHDVIUHTXHQWO\DVZRPHQZLWKWKLVVH[GLIIHUHQWLDOJUHDWHVWDWWKHSHDNWUDXPD\HDUV &RKDGRQHW
    DO-).UDXVDQG&KX1DXJOH /RZHUVRFLRHFRQRPLFVWDWXVXQHPSOR\PHQWDQG
    ORZHU HGXFDWLRQDO OHYHOV DUH DOVR ULVN IDFWRUV LQFUHDVLQJ WKH OLNHOLKRRG RI 7%,V GXH WR IDOOV RU
    DVVDXOWVPRUHWKDQIRURWKHUJURXSV &RKDGRQHWDO1DXJOH ߧ7\SLFDOO\7%,RFFXUVLQ
    \RXQJZRUNLQJFODVVPDOHVZKRPD\KDYHKDGOLPLWHGHGXFDWLRQDODWWDLQPHQWDQGZKRPD\QRWKDYH
    KDGDVWDEOHZRUNKLVWRU\SULRUWRLQMXU\ߨ 3RQVIRUG 9LROHQW7%, HJDVVDXOWZLWKDEOXQWRU
    SHQHWUDWLQJREMHFWJXQVKRWZRXQG LQIOLFWHGE\RQHVHOIRUDQRWKHULVKLJKHUIRUWKRVHZKRKDYHOHVV
    WKDQDKLJKVFKRROGHJUHH YV DUHXQHPSOR\HG YV DUHPDOH YV 
    DQGKDYHDKLJKHUEORRGDOFRKROOHYHODWWKHWLPHRILQMXU\ YVPJGO DQGDOVRIRU$IULFDQ
    $PHULFDQV +DQNVHWDO 
    3UHH[LVWLQJ DOFRKRO DQG VXEVWDQFH DEXVH DUH PDMRU IDFWRUV FRQWULEXWLQJ WR WKH LQFLGHQFH RI 7%,
    3DUU\-RQHVHWDO 7KH\DUHFORVHO\DVVRFLDWHGZLWKULVNWDNLQJEHKDYLRUDQGEHLQJߧXQGHUWKH
    LQIOXHQFHߨDWWKHWLPHRILQMXU\,QRQHVHULHVRISDWLHQWVDWOHDVWKDGVRPHSULRUFHQWUDOQHUYRXV
    V\VWHPFRQGLWLRQLQFOXGLQJKLVWRU\RIDOFRKROLVP  DQGKHDGLQMXU\   -/*DOH'LNPHQHW
    DO   EXW KLJKHU HVWLPDWHV IRU KHDY\ GULQNHUV KDYH EHHQ UHSRUWHG %RPEDUGLHU HW DO 
    &RKDGRQHWDO5LPHO*LRUGDQLHWDO :KLOHWUDQVSRUWDWLRQDFFLGHQWVDQGIDOOVDUHWKH
    OHDGLQJ FDXVHV RI 7%, DVVDXOWVߟZKHWKHU E\EORZV WR WKH KHDGRUDSHQHWUDWLQJ ZHDSRQ VSRUWVDQG
    UHFUHDWLRQDO DFWLYLWLHV DQG WKH ZRUNSODFHߟWRJHWKHU DFFRXQW IRU DERXW  WR  RI UHSRUWHG
    LQMXULHV -).UDXVDQG&KX1DXJOH563DUNHU 
    7KHEHKDYLRUDOHIIHFWVRIDOOEUDLQOHVLRQVKLQJHXSRQDYDULHW\RIIDFWRUVVXFKDVVHYHULW\DJH
    VLWHRIOHVLRQVDQGSUHPRUELGSHUVRQDOLW\ VHH&KDSWHU 7KHQHXURSV\FKRORJLFDOFRQVHTXHQFHVRI
    KHDGWUDXPDDOVRYDU\DFFRUGLQJWRKRZWKHLQMXU\KDSSHQHGHJZKHWKHU09$UHODWHGDVDUHVXOWRI
    D EORZ WR WKH KHDG RU IURP D PLVVLOH IXUURZLQJ WKURXJK LW :LWK NQRZOHGJH RI WKH NLQG RI KHDG
    LQMXU\LWVVHYHULW\DQGWKHVLWHRIIRFDOYHUVXVGLIIXVHGDPDJHH[SHULHQFHGH[DPLQHUVFDQJHQHUDOO\
    SUHGLFWWKHEURDGRXWOLQHVRIWKHLUSDWLHQWVߤPDMRUEHKDYLRUDODQGQHXURSV\FKRORJLFDOGLVDELOLWLHVDQG
    WKH OLNHO\ SV\FKRVRFLDO SURJQRVLV ,Q FRQWHPSRUDU\ SUDFWLFH VRPH IRUP RI EUDLQ LPDJLQJ LV
    SHUIRUPHGRQDOPRVWDOOSDWLHQWVSUHVHQWLQJZLWKDFXWH7%,ZKHQPHGLFDOO\LQGLFDWHGWKXVSURYLGLQJ
    WKH FOLQLFLDQ LQIRUPDWLRQ DERXW WKH ORFDWLRQ V  DQG H[WHQW RI QHXURSDWKRORJ\ GHWHFWDEOH E\
    QHXURLPDJLQJ
    &DUHIXO QHXURSV\FKRORJLFDO H[DPLQDWLRQ FDQ GHPRQVWUDWH WKH LQGLYLGXDO IHDWXUHV RI WKH SDWLHQWߤV
    GLVDELOLWLHVVXFK DVZKHWKHU YHUEDO RUYLVXDO IXQFWLRQV DUH PRUH GHSUHVVHG DQG WKH H[WHQWWR ZKLFK
    UHWULHYDOSUREOHPVIURQWDOLQHUWLDRULPSDLUHGOHDUQLQJDELOLW\HDFKFRQWULEXWHWRWKHSDWLHQWߤVSRRU
    SHUIRUPDQFH RQ PHPRU\ WHVWV <HW WKH VLPLODULWLHV LQ WKH EHKDYLRUDO SDWWHUQV RI PDQ\ SDWLHQWV
    HVSHFLDOO\WKRVHZLWK&+,WHQGWRRXWZHLJKLQGLYLGXDOGLIIHUHQFHV)XUWKHUPRUHQHXURSV\FKRORJLFDO
    VWXGLHVVHUYHDVDVLJQLILFDQWOLQNEHWZHHQSDWLHQWVߤH[SHULHQFHGQHXURFRJQLWLYHDQGQHXUREHKDYLRUDO
    GHILFLWVDQGWKHOHVLRQVREVHUYHGLQQHXURLPDJLQJVWXGLHV

    6HYHULW\&ODVVLILFDWLRQVDQG2XWFRPH3UHGLFWLRQ
    7KHUDQJHRI7%,VHYHULW\EHJLQVZLWKLPSDFWVVRPLOGDVWROHDYHQREHKDYLRUDOWUDFHVUHVXOWLQJLQ
    QR ODVWLQJ VWUXFWXUDO LQMXU\ WR WKH EUDLQ DQG SURGXFLQJ RQO\ WKH EULHIHVW RI WUDQVLHQW DQG WHPSRUDU\
    FKDQJHV LQ QHXURORJLFDO IXQFWLRQ 2PPD\D HW DO   (YHU\RQH KDV KDG D EUXLVHG KHDG IURP
    EXPSLQJ LQWR D SURWUXGLQJ VKHOI RU EHLQJ VXGGHQO\ MRVWOHG ZKLOH LQ D FDU RU EXV ZLWK QR ODVWLQJ LOO
    HIIHFWVVXFKLQMXULHVGRQRWUHDFKWKHWKUHVKROGWKDWZRXOGGDPDJHWKHEUDLQDQGGRQRWUHSUHVHQWD
    7%, 7KH WRXJK HQFDVLQJ VNXOO DQG WKH FRQILJXUDWLRQ RI WKH EUDLQ ZLWKLQ LW KDQGOH WKHVH PRYHPHQWV
    ZLWKRXWDQ\GDPDJHZKDWVRHYHU7KHLQWHUQDOVWUXFWXUHRIWKHVNXOODVZHOODVWKHFRQILJXUDWLRQRIWKH
    EUDLQߤVVXUIDFHKROGVLWLQSODFHIRUPRVWURXWLQHPRYHPHQWV %LJOHUE&ORRWVHWDO-+R
    DQG.OHLYHQ $WWKHRWKHUHQGRIWKHVHYHULW\FRQWLQXXPDUHSDWLHQWVLQSURORQJHGFRPDRUD
    YHJHWDWLYHVWDWHIURPFDWDVWURSKLFEUDLQLQMXU\LQZKLFKPRVWUHJLRQVRIWKHEUDLQKDYHEHHQGDPDJHG
    +6 /HYLQ %HQWRQ 0XL]HODDU DQG (LVHQEHUJ   DQG ZKHUH QHXURLPDJLQJ VWXGLHV H[SRVH WKH
    PRVWVHULRXVQHXURSDWKRORJLFDODEQRUPDOLWLHV1HXURSV\FKRORJLFDODVVHVVPHQWLVPRVWO\FRQFHUQHG
    ZLWKSDWLHQWVEHWZHHQWKHVHWZRH[WUHPHV
    7%, VHYHULW\ JHQHUDOO\ UHODWHV WR EHKDYLRUDO DQG QHXURSV\FKRORJLFDO RXWFRPHV &RKDGRQ HW DO
     + 6 /HYLQ  -7( 5LFKDUGVRQ   7KH PRVW IDUUHDFKLQJ HIIHFWV RI 7%, LQYROYH
    SHUVRQDO DQG VRFLDO FRPSHWHQFH PRUH VR WKDQ HYHQ WKH ZHOOVWXGLHG FRJQLWLYH LPSDLUPHQWV
    5HODWLYHO\IHZSDWLHQWVZKRKDYHVXVWDLQHGVHYHUHKHDGLQMXU\UHWXUQWRFRPSHWLWLYHZRUNVLPLODUWR
    ZKDW WKH\ GLG SULRU WR LQMXU\ DQG WKRVH ZKR GR RIWHQ FDQ KROG MREV RQO\ LQ WKH PRVW VXSSRUWLYH
    VHWWLQJV +VLDQJ DQG 0DUVKDOO  /LYLQJVWRQ HW DO  6KDPHV HW DO   HYHQ GHVSLWH
    UHODWLYHO\QRUPDOVFRUHVRQWHVWVRIFRJQLWLYHIXQFWLRQV&RQVLGHULQJDOOOHYHOVRILQMXU\YDQ 9HO]HQ
    DQGFROOHDJXHV   REVHUYHG WKDW RQO\  UHWXUQHG WR ZRUN DIWHU WZR \HDUV 4XDOLW\ RI OLIH DV
    UHIOHFWHG LQ SDWLHQW DQG IDPLO\ VDWLVIDFWLRQ DQG GLVWUHVV DOVR WHQGV WR EH LQFUHDVLQJO\ FRPSURPLVHG
    ZLWKLQFUHDVHGVHYHULW\RILQMXU\ 'HVWDLOODWVHWDO/H]DNDQG2ߤ%ULHQ3RQVIRUG 
    :KHQ GLVFXVVLQJ VHYHULW\ UDWLQJV DQG RXWFRPH SUHGLFWLRQ LW LV DV LPSRUWDQW WR QRWH WKH
    GLVFUHSDQFLHV IURP WKHVH SUHGLFWLRQV 3UHGLFWLRQ H[FHSWLRQV RFFXU DW DOO SRLQWV DORQJ WKH VHYHULW\
    FRQWLQXXP 7KXV SDWLHQWV ZKRVH LQMXULHV VHHP PLOG DV PHDVXUHG E\ PRVW DFFHSWHG PHWKRGV PD\
    KDYHUHODWLYHO\SRRURXWFRPHVERWKFRJQLWLYHO\DQGVRFLDOO\DQGFRQYHUVHO\VRPHRWKHUVZKRKDYH
    EHHQ FODVVLILHG DV PRGHUDWHO\ WR VHYHUHO\ LQMXUHG KDYH HQMR\HG VXUSULVLQJO\ JRRG RXWFRPHV
    )RUHPDQ HW DO  1HZFRPEH   0RUHRYHU WKH DFFXUDF\ RI DQ RXWFRPH SUHGLFWLRQ PD\
    GHSHQGRQZKHQRXWFRPHLVHYDOXDWHG6RPHSDWLHQWVUHSRUWPRUHV\PSWRPVD\HDUDIWHUWKHDFFLGHQW
    WKDQ DIWHU WKH ILUVW PRQWK 'LNPHQ 0DFKDPHU )DQQ DQG 7HPNLQ   :KLOH FRPSODLQWV RI
    SK\VLFDO V\PSWRPV GHFUHDVHG PRUH HPRWLRQUHODWHG V\PSWRPV WHPSHU LUULWDELOLW\ DQG DQ[LHW\
    ZHUHGRFXPHQWHGDWD\HDUSRVWLQMXU\

    %HKDYLRUEDVHGFODVVLILFDWLRQV\VWHPVIRU7%,VHYHULW\

    7KH QHHG WR WULDJH SDWLHQWV ERWK IRU WUHDWPHQW SXUSRVHV DQG IRU RXWFRPH SUHGLFWLRQ KDV OHG WR WKH
    GHYHORSPHQW RI D JHQHUDOO\ DFFHSWHG FODVVLILFDWLRQ V\VWHP EDVHG RQ WKH SUHVHQFH GHJUHH DQG
    GXUDWLRQRIFRPDWKH*ODVJRZ&RPD6FDOH *&6  -HQQHWWDQG%RQG0DWLVDQG%LUELOLV
    VHH7DEOHS 0HDVXUHPHQWRIVHYHULW\E\PHDQVRIWKH*&6GHSHQGVXSRQWKHHYDOXDWLRQRI
    ERWK GHSWK DQG GXUDWLRQ RI DOWHUHG FRQVFLRXVQHVV &RPD GXUDWLRQ DORQH LV D SRRU SUHGLFWRU RI
    RXWFRPH IRU WKH PDQ\ SDWLHQWV ZKR KDYH EULHI SHULRGV RI ORVV RIFRQVFLRXVQHVV /2&  XS WR ߞ
    PLQXWHV *URQZDOO  EXW LW LV D JRRG SUHGLFWRU IRU PRUH VHYHUH LQMXULHV -) .UDXV DQG &KX
    %>$@:LOVRQ9L]RUDQG%U\DQW 
    'XUDWLRQRISRVWWUDXPDWLFDPQHVLD 37$ FDQ DOVRKHOS GHWHUPLQH WKH SUHVHQFH DQG VHYHULW\ RID
    7%, %ULHI RU QR 37$ LV DVVRFLDWHG ZLWK PLOG LQMXU\ ZLWK LQFUHDVLQJ 37$ GXUDWLRQ DVVRFLDWHG ZLWK
    PRUHVHYHUHLQMXU\ VHHSIRUPHWKRGVPHDVXULQJ37$VHHDOVR($6KRUHVHWDO 
    $W WKH PLOGHVW HQG RI WKH 7%, VSHFWUXP LV FRQFXVVLRQ D WHUP WKDW KDV EHHQ DQ LVVXH LQ 7%,
    FODVVLILFDWLRQ %HLQJ WKH PLOGHVW IRUP RI 7%, DOVR PHDQV WKDW GHILQLWLRQDO VWDWHPHQWV RI FRQFXVVLRQ
    UHSUHVHQWWKHPLQLPDOVWDQGDUGVIRUSUHVHQFHRIDEUDLQLQMXU\HYHQRQHZLWKRQO\WUDQVLHQWHYLGHQW
    V\PSWRPV 4XHVWLRQV FRQFHUQLQJ WKH QDWXUH DQG GXUDWLRQ RI FRQFXVVLRQ V\PSWRPV KDYH FUHDWHG
    FRQVLGHUDEOHFRQWURYHUV\DERXWWKLVFRQGLWLRQ 5:(YDQV/./HH 
    7KUHH FRQVHQVXVEDVHG GRFXPHQWV WKDW QRZ GHILQH FRQFXVVLRQߟDQG WKHUHIRUH PLOG 7%,ߟDUH
    SUREDEO\PRVWUHOHYDQWWRQHXURSV\FKRORJ\ WKHUHDUHPRUHEXWEH\RQGWKHVFRSHRIWKLVFKDSWHUWR
    UHYLHZ 7KHROGHVWGHILQLWLRQFRPHVIURPWKH$PHULFDQ&RQJUHVVRI5HKDELOLWDWLRQ0HGLFLQH
    $&50 GHILQLWLRQ VHH7DEOH 7KLV$&50GHILQLWLRQKDVEHHQHQGRUVHGLQWKH1DWLRQDO$FDGHP\
    RI 1HXURSV\FKRORJ\ߤV SRVLWLRQ SDSHU RQ ߧ5HFRPPHQGDWLRQV IRU GLDJQRVLQJ PLOG WUDXPDWLF EUDLQ
    LQMXU\ߨ 505XII,YHUVRQHWDOS 
    7$%/('LDJQRVWLF&ULWHULDIRU0LOG7%,E\WKH$PHULFDQ&RQJUHVVRI5HKDELOLWDWLRQ0HGLFLQH6SHFLDO,QWHUHVW*URXSRQ0LOG
    7UDXPDWLF%UDLQ,QMXU\
    1RWH'HYHORSHGE\WKH0LOG7UDXPDWLF%UDLQ,QMXU\&RPPLWWHHRIWKH+HDG,QMXU\,QWHUGLVFLSOLQDU\6SHFLDO,QWHUHVW*URXS  

    $QRWKHUVHWRIGLDJQRVWLFFULWHULDIRUFRQFXVVLRQFRPHVIURPWKH7KLUG,QWHUQDWLRQDO&RQIHUHQFH
    RQ&RQFXVVLRQLQ6SRUW ,&&6  30F&URU\0HHXZLVVHHWDO 
    &RQFXVVLRQLVGHILQHGDVDFRPSOH[SDWKRSK\VLRORJLFDOSURFHVVDIIHFWLQJWKHEUDLQLQGXFHGE\WUDXPDWLFELRPHFKDQLFDOIRUFHV
    6HYHUDO FRPPRQ IHDWXUHV WKDW LQFRUSRUDWH FOLQLFDO SDWKRORJLF DQG ELRPHFKDQLFDO LQMXU\ FRQVWUXFWV WKDW PD\ EH XWLOL]HG LQ
    GHILQLQJWKHQDWXUHRIDFRQFXVVLYHKHDGLQMXU\LQFOXGH
     &RQFXVVLRQ PD\ EH FDXVHG E\ D GLUHFW EORZ WR WKH KHDG IDFH QHFN RU HOVHZKHUH RQ WKH ERG\ ZLWK DQ ߧLPSXOVLYHߨIRUFH
    WUDQVPLWWHGWRWKHKHDG
    &RQFXVVLRQW\SLFDOO\UHVXOWVLQWKHUDSLGRQVHWRIVKRUWOLYHGLPSDLUPHQWRIQHXURORJLFIXQFWLRQWKDWUHVROYHVVSRQWDQHRXVO\
    &RQFXVVLRQPD\UHVXOWLQQHXURSDWKRORJLFFKDQJHVEXWWKHDFXWHFOLQLFDOV\PSWRPVODUJHO\UHIOHFWDIXQFWLRQDOGLVWXUEDQFH
    UDWKHUWKDQDVWUXFWXUDOLQMXU\
    &RQFXVVLRQUHVXOWVLQDJUDGHGVHWRIFOLQLFDOV\PSWRPVWKDWPD\RUPD\QRWLQYROYHORVVRIFRQVFLRXVQHVV5HVROXWLRQRIWKH
    FOLQLFDO DQG FRJQLWLYH V\PSWRPV W\SLFDOO\ IROORZV D VHTXHQWLDO FRXUVH KRZHYHU LW LV LPSRUWDQW WR QRWH WKDW LQ D VPDOO
    SHUFHQWDJHRIFDVHVSRVWFRQFXVVLYHV\PSWRPVPD\EHSURORQJHG
    1RDEQRUPDOLW\RQVWDQGDUGVWUXFWXUDOQHXURLPDJLQJVWXGLHVLVVHHQLQFRQFXVVLRQ

    7KH ,&&6 GHILQLWLRQ ZDV LQWHQGHG IRU ߧ߮ FDUH RI LQMXUHG DWKOHWHV ZKHWKHU UHFUHDWLRQDO HOLWH RU
    SURIHVVLRQDOOHYHOߨ 0F&URU\0HHXZLVVHHWDOS +RZHYHUWKHVHDXWKRUVDOVRQRWHWKDW
    ߧWKHUHLVVWLOOQRWSURIHVVLRQDOXQDQLPLW\FRQFHUQLQJVSRUWVFRQFXVVLRQߨ S 7KH,&&6GRFXPHQW
    UHFRPPHQGVWKHOLVWRIFRQFXVVLRQV\PSWRPVLQWKH6SRUWV&RQFXVVLRQ$VVHVVPHQW7RRO 6&$7  VHH
    7DEOH  IRU GLDJQRVLV EXW OLPLWV LWV DSSOLFDWLRQ WR ߧ ߮ WKH PDMRULW\ ߞ  RI FRQFXVVLRQV
    >ZKLFK@UHVROYHLQDVKRUW WRGD\ SHULRGDOWKRXJKWKHWLPHIUDPHPD\EHORQJHULQFKLOGUHQ
    DQGDGROHVFHQWVߨ S 7KHVHFRQFXVVLRQFULWHULDZHUHQRWLQWHQGHGDVHPHUJHQF\GHSDUWPHQW ('
    JXLGHOLQHV IRU KRVSLWDO 7%, HYDOXDWLRQV DV WKH G\QDPLFV RI LQMXULHV IURP RWKHU QRQVSRUWV VRXUFHV
    PD\EHYHU\GLIIHUHQWIURPZKDWRFFXUVLQVSRUWVFRQFXVVLRQ
    7$%/(6HOHFWHG6LJQVDQG6\PSWRPVRID&RQFXVVLRQ$GDSWHGIURP6SRUWV&RQFXVVLRQ$VVHVVPHQW7RRO 6&$7 DQG+DOVWHDG
    DQG:DOWHU 
    1RWH&RQFXVVLRQVKRXOGEHVXVSHFWHGLQWKHSUHVHQFHRIDQ\RQHRUPRUHRIWKHDERYHV\PSWRPVIROORZLQJVRPHIRUPRIKHDGLQMXU\

    0DQ\VSRUWVFRQFXVVLRQVDVZHOODVWKRVHWKDWRFFXUDWKRPHDQGLQRWKHUUHFUHDWLRQDORUOHLVXUH
    VHWWLQJV DUH QHYHU HYDOXDWHG LQ WKH (' DQG KDYH YHU\ EULHI DQG WUDQVLHQW HIIHFWV ZLWK QR GHWHFWDEOH
    VHTXHODH 00F&UHD3OLVNLQHWDO $WKOHWHVDUHVXVFHSWLEOHWRUHSHDWHGFRQFXVVLYHDQGRWKHU
    7%,V DQG WKXV KDYH WKHLU RZQ VHW RI SRWHQWLDO SDWKRORJLFDO FRQVHTXHQFHV DQG QHXURSV\FKRORJLFDO
    VHTXHODH WKDW PD\ EH GLIIHUHQW IURP QRQVSRUW UHODWHG 7%,V 0F.HH &DQWX HW DO  0F.HH
    *DYHWWHWDO  VHHSSߞ 
    2QFH LW KDV EHHQ GHWHUPLQHG WKDW DQ LQGLYLGXDO KDV VXVWDLQHG D EUDLQ LQMXU\ DW ZKDWHYHU VHYHULW\
    OHYHOWKDWSHUVRQVKRXOGEHFRQVLGHUHGDFDQGLGDWHIRUQHXURSV\FKRORJLFDODVVHVVPHQWRIZKDWFRXOG
    EHFRJQLWLYHDQGRUQHXUREHKDYLRUDOVHTXHODH7KUHHSRVLWLRQSDSHUVIURPWKH1DWLRQDO$FDGHP\RI
    1HXURSV\FKRORJ\ GLVFXVV WKH QHXURSV\FKRORJLFDO FRUUHODWHV RI EUDLQ LQMXU\ WKDW PD\ LQWHUIHUH ZLWK
    UHDO OLIH IXQFWLRQLQJ 2QH GHDOLQJ ZLWK VSRUWV FRQFXVVLRQ RIIHUV DVVHVVPHQW UHFRPPHQGDWLRQV ZLWK
    FRQFOXVLRQV VLPLODU WR WKRVH RI WKH ,&&6 0RVHU ,YHUVRQ HW DO   7KH RWKHUV FRQFHUQ WKH
    GLDJQRVLVRIPLOG7%,RFFXUULQJDVDUHVXOWRIPLOLWDU\FRPEDW
    UHODWHGLQMXULHV 0F&UHD3OLVNLQHWDO DQGPLOG7%,LQFLYLOLDQKHDGLQMXU\ 5XII,YHUVRQ
    HWDO 7KHODWWHUSDSHUSURYLGHVXVHIXOGLUHFWLYHIRUWKHLQLWLDOHYDOXDWLRQRIPLOG7%,
    7KHGLDJQRVLVRIPLOG7%,LVEDVHGRQLQMXU\FKDUDFWHULVWLFV1HXURLPDJLQJLVDGMXQFWLYHEXWLQWKHDEVHQFHRISRVLWLYHILQGLQJV
    QRW FRQFOXVLYH 1HXURSV\FKRORJLF WHVWLQJ H[DPLQHV WKH FRQVHTXHQFHV RI D PLOG 7%, EXW FDQQRW EH XVHG DV WKH EDVLV IRU WKH
    LQLWLDO GLDJQRVLV ZKLFK PXVW EH GHWHUPLQHG RQ WKH EDVLV RI /2& 37$ FRQIXVLRQ DQG GLVRULHQWDWLRQ RU QHXURORJLF VLJQV ,W LV
    ZHOO HVWDEOLVKHG WKDW QHXURSV\FKRORJLF WHVW UHVXOWV FDQ DOVR EH LQIOXHQFHG E\ QXPHURXV GHPRJUDSKLF VLWXDWLRQDO SUHH[LVWLQJ
    FRRFFXUULQJ DQG LQMXU\UHODWHG IDFWRUV 7KHUHIRUH WKH GLDJQRVLV RI D PLOG 7%, LV SULPDULO\ EDVHG RQ D FOLQLFDO LQWHUYLHZ
    FROODWHUDOLQWHUYLHZVDQGUHFRUGUHYLHZ5HFRUGVRIWKHGD\RILQMXU\DQGWKHILUVWIHZPHGLFDOFRQWDFWVIROORZLQJWKHGDWHRI
    LQMXU\FDQEHPRVWKHOSIXOIRUDQDFFXUDWHGLDJQRVLV+RZHYHUUHFRUGVWKDWFRQWDLQDQLQLWLDO*&6RIDUHLQVXIILFLHQWWRUXOH
    RXWDPLOG7%,$GGLWLRQDOLQIRUPDWLRQLVQHFHVVDU\$WKRXJKWIXODQGGHOLEHUDWHDSSURDFKVKRXOGEHXVHGWKDWUHWURVSHFWLYHO\
    DVVHVVHVWKHSUHVHQFHRIORVVRUDOWHUHGFRQVFLRXVQHVVJDSVLQPHPRU\RUDPQHVLD UHWURJUDGHDQGSRVWWUDXPDWLF DQGIRFDO
    QHXURORJLFVLJQV2QHFDQQRWDVVXPHWKDWVXFKDGHOLEHUDWHDSSURDFKZDVWDNHQE\KHDOWKFDUHSURYLGHUVDWWKHVFHQHRULQWKH
    HPHUJHQF\GHSDUWPHQW S 

    7KHPRVWFRPPRQO\XVHGVFDOHIRUDVVHVVLQJWKHSUHVHQFHDQGLQLWLDOVHYHULW\RI7%,LVWKH*&6
    UHFRUGHG E\ SDUDPHGLFV DW WKH VFHQH RI DQ LQMXU\ RU LQ WKH (' RU KRVSLWDO :KLOH YDOXDEOH LW KDV
    OLPLWDWLRQV/LNHDQ\RWKHUSUHGLFWRURIKXPDQEHKDYLRUWKH*&6LVQRWDSSURSULDWHIRUPDQ\FDVHV
    0DWLVDQG%LUELOLV $VLQJOH*&6VFRUHZLWKRXWGDWDRQZKHQLWZDVGHWHUPLQHGDQGWKHVWDWXV
    RI RWKHU SHUWLQHQW YDULDEOHV DW WKH WLPH HJ FOLQLFDO VLJQV EORRG DOFRKRO OHYHO DQG OHYHO RI
    UHFUHDWLRQDO RU SUHVFULEHG GUXJV VHGDWLRQ IRU DJLWDWLRQ DPRXQW DQG WLPLQJ RI GUXJV DGPLQLVWHUHG
    HDUOLHURUFXUUHQWO\VZHOOLQJDQGGLVFRORUDWLRQLQWXEDWLRQIDFLDOLQMXULHVDQHVWKHVLDIRUVXUJHU\&7
    VFDQ ILQGLQJV  FDQ OHDG WR DQ LQDFFXUDWH DVVHVVPHQW RI WKH VHYHULW\ RI LQMXU\ VHH S   0DQ\
    GLIIHUHQWNLQGVRIGDWDLQFOXGLQJ*&6VFRUHVIURPWKHILUVWߞKRXUVSRVWLQMXU\PD\EHUHTXLUHG
    WR HVWDEOLVK WKH VHYHULW\ RI LQMXU\ LQ VRPH SDWLHQWV )RU H[DPSOH SHUVRQV ZLWK D *&6 RI  EXW
    DEQRUPDOLWLHVRQWKH&7VFDQVKRXOGEHSURSHUO\FODVVLILHGDVߧFRPSOLFDWHGPLOG7%,ߨ\HWWKH\RIWHQ
    SHUIRUP RQ QHXURSV\FKRORJLFDO WHVWV PRUH OLNH LQGLYLGXDOV ZLWK D PRGHUDWH 7%, .DVKOXED HW DO
    505XII,YHUVRQHWDO 
    3HUVRQV ZKR HQWHU WKH 7%, WUDXPD V\VWHP ZLWK OLWWOH RU QR ORVV RI FRQVFLRXVQHVV EXW ZKR VXIIHU VLJQLILFDQW GHWHULRUDWLRQ LQ
    PHQWDOVWDWXVXVXDOO\ZLWKLQWKHILUVWKRXUVSRVWLQMXU\IURPDGHOD\HGKHPDWRPDFHUHEUDOHGHPDRURWKHUWUDXPDUHODWHG
    SUREOHPV DUH OLNHO\ WR EH PLVFODVVLILHG E\ DQ HDUO\ *&6 VFRUH 6HUYDGHL HW DO  6W\UNH HW DO   $ SDWLHQW ZKR
    FOHDUO\ KDV D VHYHUH KHDG LQMXU\ EXW UHFRYHUV FRQVFLRXVQHVV ZLWKLQ WKH ILUVW  KRXUV PLJKW EH PLVFODVVLILHG LI WKH EHVW GD\ 
    *&6VFRUH KLJKHVW*&6VFRUHLQILUVWKRXUV LVXVHGDVDPHDVXUHRIVHYHULW\0RUHRYHUSDWLHQWVZLWKOHIWODWHUDOL]HG3+,
    DUHPRUHOLNHO\WRVXIIHUORVVRIFRQVFLRXVQHVV /2& DQGLQDELOLW\WRUHVSRQGYHUEDOO\WKDQWKRVHZKRVHLQMXULHVDUHFRQILQHG
    WRWKHULJKWVLGHRIWKHEUDLQDQGWKHGXUDWLRQRIFRPDIRUWKRVHZLWKULJKWVLGHGOHVLRQVWHQGVWREHVKRUWHUWKDQZKHQOHVLRQV
    DUH RQ WKH OHIW 6DOD]DU 0DUWLQ DQG *UDIPDQ   $V DQ DGGLWLRQDO SUREOHP DOFRKRO LQWR[LFDWLRQ FDQ VSXULRXVO\ ORZHU D
    *&6VFRUHVXFKWKDWWKHKLJKHUWKHEORRGDOFRKROOHYHODWWLPHRILQMXU\WKHPRUHOLNHO\LWLVWKDWWKH*&6VFRUHZLOOLPSURYH
    ZKHQUHHYDOXDWHGDWOHDVWVL[KRXUVODWHU 6WXNHHWDO 

    6RPHFOLQLFLDQVUHO\LQVWHDGRQ37$WRPHDVXUHWKHVHYHULW\RIWKHLQMXU\ HJ%LJOHUD05
    %RQG  :5 5XVVHOO DQG 1DWKDQ  VHH 7DEOH   1RW VXUSULVLQJO\ GXUDWLRQ RI 37$
    FRUUHODWHV ZHOO ZLWK *&6 UDWLQJV +6 /HYLQ %HQWRQ DQG *URVVPDQ   H[FHSW IRU VRPH ILQHU
    VFDOLQJDWWKHH[WUHPHV1%URRNV  REVHUYHGWKDW37$GXUDWLRQ ZKLFKEHJLQVDWWLPHRILQMXU\
    DQGLQFOXGHVWKHFRPDSHULRG W\SLFDOO\ODVWVDERXWIRXUWLPHVWKHOHQJWKRIFRPD
    (DUO\ GLIILFXOWLHV LQ GHILQLQJ DQG WKHUHIRUH GHWHUPLQLQJ WKH GXUDWLRQ RI 37$ UHVWULFWHG LWV
    XVHIXOQHVV -HQQHWW  0DFDUWQH\)LOJDWH   6WDQGDUGL]HG PHDVXUHV VXFK DV WKH 5HYLVHG
    :HVWPHDG 3RVW7UDXPDWLF $PQHVLD 6FDOH 6KRUHV /DPPHO HW DO   DQG WKH *DOYHVWRQ
    2ULHQWDWLRQ $PQHVLD 7HVW *2$7 SS ߞ  SURYLGH XQLIRUP IRUPDWV IRU LWV PHDVXUHPHQW
    +RZHYHUVRPHFOLQLFDOFKDOOHQJHVLQHVWDEOLVKLQJ37$UHPDLQ:KLOHLWLVJHQHUDOO\DJUHHGWKDW37$
    GRHV QRW HQG ZKHQ WKH SDWLHQW EHJLQV WR UHJLVWHU H[SHULHQFH DJDLQ EXW RQO\ ZKHQ UHJLVWUDWLRQ LV
    FRQWLQXRXVGHFLGLQJZKHQFRQWLQXRXVUHJLVWUDWLRQUHWXUQVPD\EHGLIILFXOWZLWKFRQIXVHGRUDSKDVLF
    SDWLHQWV *URQZDOO DQG :ULJKWVRQ   0RUHRYHU PDQ\ SDWLHQWV ZLWK UHODWLYHO\ PLOG 7%, DUH
    GLVFKDUJHG KRPH ZKLOH VWLOO LQ 37$ RU QHYHU VHHN HPHUJHQF\ PHGLFDO FDUH LQ WKH ILUVW SODFH $Q
    H[DPLQHU DW VRPH ODWHU GDWH FDQ RQO\ HVWLPDWH 37$ GXUDWLRQ IURP UHSRUWV E\ WKH SDWLHQW RU IDPLO\
    PHPEHUV ZKR RIWHQ KDYH OHVV WKDQ UHOLDEOH PHPRULHV 7KHVH FRQVLGHUDWLRQV KDYH OHG VXFK
    NQRZOHGJHDEOH FOLQLFLDQV DV -HQQHWW   DQG 1 %URRNV   WR FRQFOXGH WKDW ILQHWXQHG
    DFFXUDF\RIHVWLPDWLRQLVQRWQHFHVVDU\MXGJPHQWVRI37$LQWKHODUJHUWLPHIUDPHVRIKRXUVGD\V
    RUZHHNVZLOOXVXDOO\VXIILFHIRUFOLQLFDOSXUSRVHV VHH7DEOH 
    7$%/((VWLPDWHVRI,QMXU\6HYHULW\%DVHGRQ3RVWWUDXPDWLF$PQHVLD 37$ 'XUDWLRQ
    37$'XUDWLRQ 6HYHULW\
    PLQXWHV 9HU\PLOG
    ߞPLQXWHV 0LOG
    ߞKRXUV 0RGHUDWH
    ߞGD\V 6HYHUH
    ߞZHHNV 9HU\VHYHUH
    0RUHWKDQZHHNV ([WUHPHO\VHYHUH

    /HQJWK RI 37$ WHQGV WR EH PRUH DFFXUDWH WKDQ FRPD GXUDWLRQ LQ SUHGLFWLQJ ORQJWHUP FRJQLWLYH
    VWDWXV 1DNDVH5LFKDUGVRQHWDO DQGUHODWHVPRUHGLUHFWO\WRORQJWHUPQHXURLPDJLQJILQGLQJV
    *KRVK HW DO  6FKRQEHUJHU HW DO   ,W LV DOVR PRUH SUHGLFWLYH RI JOREDO RXWFRPH WKDQ
    DGPLVVLRQ*&6RQWKH*ODVJRZ2XWFRPH6FDOH *26  -HQQHWW DQG %RQGVHH SS ߞ  DW
    RQH\HDUSRVWLQMXU\ YDQGHU1DDOWHWDO 7KHPRVWVHYHUHRIWKHIRXU*26RXWFRPHOHYHOVLV
    YHJHWDWLYH VWDWH LQ ZKLFK QR GLVFHUQDEOH FRUWLFDO IXQFWLRQLQJ LV DSSDUHQW 7KH QH[W WKUHH VHYHULW\
    OHYHOVUDQJHIURP6HYHUHGLVDELOLW\IRUFRQVFLRXVSDWLHQWVZKRDUHPRUHRUOHVVGHSHQGHQWRQRWKHUV
    IRU DFFRPSOLVKLQJ PXFK RI WKH QRUPDO DFWLYLWLHV RI GDLO\ OLYLQJ WR 0RGHUDWH GLVDELOLW\ ZKLFK
    LQFOXGHVSHUVRQVFDSDEOHRILQGHSHQGHQWOLYLQJEXWZKRDUHUHVWULFWHGLQRQHRUPRUHPDMRUDFWLYLW\
    DUHDE\WKHLUGLVDELOLWLHVWR*RRGUHFRYHU\ IRU SHUVRQV ZKR DUH IXOO\IXQFWLRQDO VRFLDOO\DOWKRXJK
    VRPH PD\ KDYH PLQRU UHVLGXDO GHILFLWV ZKHWKHU SK\VLFDO RU PHQWDO VHH SS ߞ IRU RWKHU
    RXWFRPH PHDVXUHV  <HW IDLOXUHV WR GLVFULPLQDWHEHWZHHQPRGHUDWHO\ DQGVHYHUHO\ LPSDLUHGSDWLHQWV
    VXJJHVWWKDWLWPD\QRWFODVVLI\SDWLHQWVZLWKVXIILFLHQWVHQVLWLYLW\IRUUHVHDUFK 1%URRNV0F.LQOD\
    HWDO $GGLWLRQDOFODVVLILFDWLRQV\VWHPVKDYHEHHQSURSRVHGIRUUHVHDUFKWDUJHWLQJLQWHUYHQWLRQ
    VWUDWHJLHV 6DDWPDQHWDO 
    )RUWKHSDWLHQW37$FDQEHDSV\FKRORJLFDOO\SDLQIXOLVVXH:KHQFRQIXVLRQKDVVHWWOHGGRZQDQG
    FRQWLQXRXVUHJLVWUDWLRQKDVUHWXUQHGSDWLHQWVDUHOLNHO\WREHFRPHDZDUHWKDWWKH\KDYHQRPHPRU\
    RU SHUKDSV RQO\ D YHU\ VSRWW\ PHPRU\ IRU GD\VߟVRPHWLPHV ZHHNV RU PRQWKVߟIROORZLQJ WKHLU
    LQMXU\0DQ\DUHTXLWHXQFRPIRUWDEOHDERXWWKLVVRPHWLPHVWURXEOHGLQGHILQLWHO\E\XQHDVLQHVVDERXW
    WKHLUSHULRGRI37$GHVSLWHEHLQJWROGZKDWKDSSHQHGWRWKHPDQGEHLQJUHDVVXUHGDVWRWKHSURSULHW\
    RIWKHLUEHKDYLRUGXULQJWKDWWLPH
    5HWURJUDGHDPQHVLD 5$ XVXDOO\LQYROYLQJWKHPLQXWHVVRPHWLPHVKRXUVDQGPRUHUDUHO\GD\V
    LPPHGLDWHO\SUHFHGLQJWKHDFFLGHQWIUHTXHQWO\DFFRPSDQLHV37$ 1%URRNV+6/HYLQ+LJK
    HWDO$50D\HV,VDDFHWDO ,WVGXUDWLRQWRRWHQGVWRFRUUHODWHZLWKVHYHULW\RILQMXU\
    7KHDQDWRPLFDOEDVLVRIUHWURJUDGHDPQHVLDLQ&+,LVQRWHQWLUHO\FOHDU)URQWDODQGWHPSRUDOUHJLRQV
    KDYHEHHQLPSOLFDWHGDVZHOODVWKHDQWHULRUFLQJXODWHJ\UXV &DUOHVLPRHWDO%/HYLQH6WXVV
    HWDO0DUNRZLWVFK &DODEUHVH HW DO   5HWURJUDGH DPQHVLD VRPHWLPHV SURIRXQG ZKHQ
    UHSRUWHG DIWHU PLQRU &+, UDLVHV WKH TXHVWLRQ RI D SV\FKRORJLFDO EDVLV -HQNLQV HW DO 
    0DFNHQ]LH3DSDJQR +RZHYHUDVVKRZQE\7UDPRQLDQGFRZRUNHUV  WKHUHPD\
    HYHQEHDQLQWHUHVWLQJXQGHUO\LQJQHXURSDWKRORJ\DVVRFLDWHGZLWKIXQFWLRQDODPQHVLD,QDPLOG7%,
    FDVH6HOODODQGFROOHDJXHV  UHSRUWHGQHJDWLYH&7DQG05,\HW((*DQG63(&7DEQRUPDOLWLHV
    RI GLVWLQFW ULJKW WHPSRUDO G\VIXQFWLRQ ZLWK SDUDOOHO GLVVLSDWLRQ RI UHWURJUDGH DPQHVLD DQG 63(&7
    ILQGLQJVDWWKUHHPRQWKV

    1RQEHKDYLRUDOPDUNHUVRI7%,VHYHULW\

    ,QWKHDFXWHVWDJHRILQMXU\LQDGGLWLRQWRQHXURLPDJLQJHOHFWURSK\VLRORJLFDOPHDVXUHVVXFKDV((*
    DQGHYRNHGSRWHQWLDOFDQKHOSHYDOXDWHWKHGHJUHHRIGDPDJH $PDQWLQL$PDGRULDQG)RVVL
    /HZ HW DO    &RPELQLQJ QHXURLPDJLQJ ZLWK HOHFWURSK\VLRORJLFDO VWXGLHV DQG RI FRXUVH
    REVHUYDWLRQFDQEHHVSHFLDOO\XVHIXOZKHQHYDOXDWLQJSDWLHQWVZKRVHLPSDLUHGFRQVFLRXVQHVVSUHFOXGH
    PRUHWUDGLWLRQDOHYDOXDWLRQVWKDWUHO\RQSDWLHQWUHVSRQVLYHQHVV
    9LVXDO ILHOG GHIHFWV DUH VWURQJ LQGLFDWRUV RI VHYHULW\ 8]]HOO 'ROLQVNDV DQG /DQJILWW  
    $QRVPLD ORVV RI WKH VPHOO VHQVH  FDQ EH D PDUNHU RI QRW RQO\ GDPDJH WR ROIDFWRU\ UHJLRQV RI WKH
    EUDLQEXWDOVR RUELWRIURQWDO GDPDJH 10 0DQQ DQG9HQWR  9DUQH\ 3LQNVWRQ DQG :X 
    <RXVHPHWDO ZKLFKFDQEHREMHFWLYHO\GRFXPHQWHGZLWK05,QHXURLPDJLQJ $WLJKHFKLHWDO
     6RPH7%,SDWLHQWVZLWKG\VQRVPLD ZHDNHQHGVPHOOVHQVH PD\SDVVVPHOOVFUHHQLQJWHVWVDQ\
    FRQFHUQVDERXWWKHSDWLHQWߤVVPHOOVHQVHUHTXLUHPRUHH[WHQVLYHDVVHVVPHQW &DOODKDQDQG+LQNHEHLQ
     $QRVPLFVPD\KDYHORQJHUKRVSLWDOVWD\VORQJHUDQGGHHSHUFRPDPRUHQHXURSV\FKRORJLFDO
    GHILFLWV PRUH DEQRUPDO &705, VFDQV DQG SRRUHU IXQFWLRQDO RXWFRPH &DOODKDQ DQG +LQNHEHLQ
    6ZDQQHWDO 
    &7VFDQVDUHXVXDOO\GRQHLQWKHDFXWHVWDJHRIKHDGLQMXU\VLQFHWKH\GHWHFWSUDFWLFDOO\DOORIWKH
    VXUJLFDOO\ VLJQLILFDQW OHVLRQV FRVW OHVV WKDQ 05, DUH UHDGLO\ DYDLODEOH DQG FDQ EH JLYHQ LQ WKH
    LQWHQVLYH FDUH VHWWLQJ 7KH\ GR QRW UHTXLUH WKH VSHFLDOL]HG OLIH VXSSRUW HTXLSPHQW DQG PRQLWRULQJ
    GHYLFHVQHFHVVDU\IRUQHXURLPDJLQJLQYROYLQJPDJQHWLFILHOGV 'LD]0DUFKDQHWDO+DQNLQVHW
    DO   &RPPRQ &7 ILQGLQJV RI WUDXPD LQFOXGH VXUIDFH FRQWXVLRQV LQWUDSDUHQFK\PDO
    KHPRUUKDJHV ERQH IUDFWXUHV DQG DQ\ W\SH RI IUDJPHQW WKDW GHIOHFWV DQ [UD\ EHDP +RZHYHU DW
    VXEDFXWH DQG FKURQLF VWDJHV 05, LV WKH PHWKRG RI FKRLFH %LJOHU   05, VWXGLHV WDNHQ LQ WKH
    DFXWH VWDJHV PD\ QRW SUHGLFW RXWFRPH UHOLDEO\ ZKHUHDV DIWHU  PRQWKV RU PRUH LPDJLQJ ILQGLQJV
    SURYH PRUH SUHGLFWLYH RI QHXURSV\FKRORJLFDO LPSDLUPHQWV WKDQ HDUO\ REVHUYDWLRQV %LJOHU 
    D -7/ :LOVRQ :HLGPDQQ HW DO    $W DQ\ VWDJH 05, LV EHWWHU WKDQ &7 DW YLVXDOL]LQJ
    EUDLQVWHPOHVLRQVWKDWDUHNQRZQWRSUHGLFWSRRUHURYHUDOORXWFRPH %LJOHU5\VHUHWDO 
    'XULQJ WKH ODVW GHFDGH D ODUJHVFDOH UHVHDUFK HIIRUW KDV EHHQ XQGHUZD\ WR GHWHFW ELRPDUNHUV RI
    EUDLQLQMXU\WKDWPD\EHUHOHYDQWWRQHXURSV\FKRORJLFDORXWFRPH &DVWHOODQLHWDO .RUILDV HW
    DO7RZQHQGDQG,QJHEULJWVHQ 7KLVUHVHDUFKKROGVWKHSURPLVHWKDWJOLDOPDUNHUVVXFK
    DVP\HOLQEDVLFSURWHLQJOLDOILEULOODU\DFLGLFSURWHLQDQGWKH6%SURWHLQPHDVXUHGLQEORRGFDQ
    EHXVHGDVVXUURJDWHELRFKHPLFDOPDUNHUVIRUEUDLQLQMXU\ 6DQGOHUHWDO :KLOH ELRPDUNHUV
    RI 7%, UHSUHVHQWV DQ DUHD RI LQWHQVH UHVHDUFK VHH 2WWHQV HW DO   DV \HW QR GHILQLWLYH VWXGLHV
    KDYHUHVXOWHGLQDFRQVHQVXVRQKRZWKLVLQIRUPDWLRQFDQEHXVHIXOLQHYDOXDWLQJWKH7%,SDWLHQW

    1HXURSDWKRORJ\RI7%,
    5HJDUGOHVVRIKRZWKHEUDLQLVLQMXUHGEHLWIURP&+,RU3+,VRPHEDVLFQHXURSDWKRORJLFDOHIIHFWV
    DUH FRPPRQ WR DOO LQMXULHV $ FRPSOH[ DUUD\ RI SDWKRSK\VLRORJLFDO DQG VWUXFWXUDO FKDQJHV UHVXOW
    IURPWKHLQMXU\ VHH)LJ>DGDSWHGIURP0D]]HRHWDO@ 7KHVHSDWKRORJLFDOFKDQJHVSOD\RXW
    RYHUWLPHVRPHWDNLQJRQO\PLQXWHVRWKHUVPRQWKVRUHYHQ\HDUVWRGHYHORS )LJVDQG  $V
    VKRZQLQ)LJLQWKHPLOGHVWIRUPRI7%,VKRUWGXUDWLRQSK\VLRORJLFDOHIIHFWVRFFXURYHUPLQXWHV
    WRDIHZKRXUVDVLQMXU\VHYHULW\LQFUHDVHVWKHWLPHIUDPHRISK\VLRORJLFDODQGVWUXFWXUDOHIIHFWVRI
    WKH7%,H[WHQGVRYHUGD\VWRPRQWKV7KXVWKHQDWXUHDQGW\SHVRISUHVHQWLQJLPSDLUPHQWVZLOOGHSHQG
    RQZKHUHWKHSDWLHQWLVDORQJWKH;D[LVDWWKHWLPHRIDVVHVVPHQW
    7KHWLPHVHTXHQFH RIWUDXPDWLF D[RQDO LQMXU\ 7$,  )LJ   LQYROYHV PRUH WKDQ MXVW VKHDULQJ
    WHDULQJHIIHFWV RQ D[RQV LHSULPDU\ D[RWRP\ߟEUHDNGRZQ RI WKH D[RQ LQLWLDWHG E\ VKHDULQJ IRUFHV
    WKDWRFFXUZLWKLQRQHKRXURILQMXU\3UREDEO\PRVWWUDXPDWLFD[RQDOSDWKRORJ\RFFXUVDVDUHVXOWRI
    VHFRQGDU\HIIHFWVGDPDJLQJWKHILQHF\WRDUFKLWHFWXUHRIWKHD[RQ VHH)LJS  UHIHUUHGWRDV
    VHFRQGDU\ D[RWRP\ %LJOHU DQG 0D[ZHOO   7KHVH LQWUDFHOOXODU DOWHUDWLRQV HYROYH RYHU WLPH
    WDNLQJGD\VWRPRQWKVIRUWKHIXOOSDWKRORJLFDOHIIHFWVWRGHYHORS 7DQJ6FKRPHUHWDO  7KH\
    GHJUDGHWKHIXQFWLRQDOLW\RIWKHD[RQDQGFDQHYHQOHDGWRFHOOGHDWK
    $ORQJ ZLWK FRPPRQDOLWLHV EHWZHHQ SHQHWUDWLQJ YHUVXV FORVHG KHDG LQMXULHV VRPH
    QHXURSDWKRORJLFDOIHDWXUHVDUHXQLTXHWRHDFK0RUHRYHUWKHQHXUREHKDYLRUDOFRQVHTXHQFHVRI3+,
    DQG &+, SDWKRORJLHV PD\ GLIIHU WR WKH GHJUHH WKDW WKH\ FDQ EH FRQVLGHUHG DV VHSDUDWH HQWLWLHV ERWK
    FOLQLFDOO\DQGIRUUHVHDUFKSXUSRVHV
    ),*85(7KLVVFKHPDWLFRIDQHXURQGHSLFWVWKHPDQ\QHXURQDOPHPEUDQHDQGSK\VLRORJLFDOHIIHFWVLQFXUUHGGXULQJWKHLQLWLDOVWDJHRI
    7%,ZKHQDKHDGKLWVDVWDWLRQDU\REMHFW7%,LQLWLDWHVDKRVWRIDGYHUVHSK\VLRORJLFDOSURFHVVHVHDFKKDYLQJDGLIIHUHQWSDWKRORJLFDO
    HIIHFWDVLQGLFDWHGE\WKHDUURZV1RWHWKDWPDQ\RIWKHSDWKRORJLFDOGLVUXSWLRQVKDYHPXOWLSOHIHHGEDFNSDWKZD\VWKDWLQWXUQLQLWLDWHD
    PXOWLWXGHRIRWKHUDGYHUVHHIIHFWV)URP%LJOHUDQG0D[ZHOO  XVHGZLWKSHUPLVVLRQIURP6SULQJHU3XEOLVKLQJ$GDSWHGZLWK
    SHUPLVVLRQIURP0D]]HRHWDOZKLFKDOVRSURYLGHVGHWDLOHGH[SODQDWLRQVIRUDOOSDWKRORJLFDOHYHQWVVKRZQLQWKLVLOOXVWUDWLRQ

    ),*85(3URWHLQVDUHWKHEXLOGLQJEORFNVRIDOOWLVVXHV,QWKLVGLDJUDPWKHGHJUHHRISDWKRORJLFDOFKDQJHVLQSURWHLQLQWHJULW\ KLJKHU
    LQGLFDWLQJJUHDWHUSDWKRORJLFDOFKDQJH LVRQWKH\D[LV7KH[D[LVGHSLFWVWKHPXOWLWXGHRISDWKRORJLFDODQGSRWHQWLDOUHJURZWKSURFHVVHV
    VRPHLQWHUGHSHQGHQWRWKHUVGHSHQGHQWWKDWRFFXURYHUWLPHRQFHD7%,RFFXUV,PSRUWDQWIRUQHXURSV\FKRORJ\LVWKDWWKHVHSURWHLQEDVHG
    QHXUDOFKDQJHVDUHG\QDPLFDQGPDQ\SOD\RXWIRUPRQWKVSRVWLQMXU\VKRZLQJWKHQRQVWDWLFQDWXUHRIEUDLQLQMXU\ZLWKLQWKHILUVW\HDUVRI
    LQMXU\5HSURGXFHGZLWKSHUPLVVLRQIURP2WWHQVHWDO

    3HQHWUDWLQJ+HDG,QMXULHV
    3HQHWUDWLQJ KHDG LQMXU\ RFFXUV ERWK DFFLGHQWDOO\ DQG LQWHQWLRQDOO\ ZLWK HYHU\GD\ REMHFWV WRROV
    ZHDSRQVDQGHYHQSODQWV)RULQVWDQFHLQMXULHVKDYHEHHQUHSRUWHGIURPDGLYHUVHDUUD\RIREMHFWV
    0DFNHUOH DQG*DO  LQFOXGLQJVXFK EL]DUUH VRXUFHV DV DEDOOSRLQW SHQ 6KDULI HW DO  D
    FKRSVWLFN .DZDPXUD HW DO   D GRRU NH\ 6HH[ HW DO   D 79 DQWHQQD $O6HEHLK HW DO
      D PHWDO GROO GLVSOD\ VWDQG .RHVWOHU DQG .HVKDYDU]   D ILVKLQJ KDUSRRQ /RSH] HW DO
     DWRLOHWEUXVKKDQGOH )DUKDGLHWDO DQGDZHHG 1DND\DPDHWDO 6RPHRIWKHVH
    REMHFWV EHFRPH HPEHGGHG LQ WKH KHDG DQG RWKHUV LQFOXGLQJ EXOOHWV FDXVH D ߧWKURXJKDQGWKURXJK
    LQMXU\ߨZLWKERWKHQWU\DQGH[LWZRXQGV )LJ *XQVKRWZRXQGV *6: WRWKHKHDGDUHWKHOHDGLQJ
    FDXVHRI3+, .DUFKHWDO-).UDXVDQG&KX6RVLQHWDO 
    2IWHQERQHIUDJPHQWVDVVRFLDWHGZLWKSHQHWUDWLRQDQGVKDWWHULQJRIWKHVNXOODUHDOVRGULYHQLQWR
    WKHEUDLQWKHIUDJPHQWVSURGXFLQJZLGHVSUHDGGDPDJHDVVKRZQLQ)LJXUH 3+,FDQ DOVR UHVXOW
    IURPDWDQJHQWLDOLQMXU\LQZKLFKDQREMHFWJODQFHVRIIWKHVNXOOIUDFWXULQJLWDORQJZLWKIUDJPHQWV
    GULYHQLQWRWKHEUDLQDOWKRXJKWKHREMHFWGRHVQRWDFWXDOO\SHQHWUDWHWKHEUDLQ +RW]HWDO 7KH
    3+, PRUWDOLW\ UDWH LV PXFK KLJKHU WKDQ ZLWK &+, DSSUR[LPDWHO\  3HHN$VD HW DO   DIWHU
    FRQWUROOLQJIRULQLWLDO*&6JHQGHUDJHDQGSUHVHQFHRIPXOWLSOHWUDXPD,QDSURVSHFWLYHVWXG\RI
    FLYLOLDQ3+,RXWFRPHVZHUHGHDGRQDUULYDORUGLHGLQWKHHPHUJHQF\FHQWHU =DIRQWH:RRGHW
    DO 2IWKHVXUYLYDEOHLQMXULHVDGPLWWHGIRULQSDWLHQWUHKDELOLWDWLRQFDUHZHUHVHYHUH
    PRGHUDWHDQGPLOG)RUW\RQHSHUFHQWRIWKHVHDGPLVVLRQVGLHGZLWKLQWKHILUVWKRXUV

    1HXURSDWKRORJ\

    3ULRUWRFRQWHPSRUDU\QHXURLPDJLQJPXFKRIWKHGDPDJHWRWKHEUDLQLQ3+,VKDGWREHLQIHUUHGDV
    VNXOO ILOP [UD\V RQO\ VKRZHG DQ HQWU\ DQG H[LW SRLQW (DUO\ SLRQHHUV LQ QHXURSV\FKRORJ\ PDGH
    UHPDUNDEOH FRQWULEXWLRQV EDVHG RQ WKLV W\SH RI LQIRUPDWLRQ 7KH WKURXJKDQGWKURXJK
    ߧFOHDQߨFKDUDFWHULVWLFRIVRPHSHQHWUDWLQJKHDGZRXQGVUHFHLYLQJSURPSWVXUJLFDODWWHQWLRQW\SLFDOO\
    LQ D ZDU VHWWLQJ SURYLGHG WKH PDWHULDO IRU PDQ\ RI WKH PRVW LPSRUWDQW HDUO\ FRQWULEXWLRQV WR WKH
    XQGHUVWDQGLQJRIIXQFWLRQDOEUDLQRUJDQL]DWLRQ HJ/XULD1HZFRPEH  1HZFRPEHDQG
    5XVVHOO6HPPHVHWDO7HXEHU 1RZFRQWHPSRUDU\LPDJLQJFDQSRUWUD\LQ
    H[TXLVLWHGHWDLOWKHW\SHDQGH[WHQWRIGDPDJHIURPD3+, HJDVVKRZQLQ)LJXUH 7KHLPSRUWDQW
    LVVXHV IRU XQGHUVWDQGLQJ QHXURSV\FKRORJLFDO RXWFRPH LQ 3+, DUH ZKHUH WKH SHQHWUDWLRQ RFFXUUHG
    ZKDWZDVWKHWUDMHFWRU\KRZVFDWWHUHGDUHIUDJPHQWVLISUHVHQWDQGKRZWKLVIRFDOSDWKRORJ\UHODWHVWR
    EHKDYLRUDORXWFRPH
    $[RQDOGDPDJHPD\HQFRPSDVVDPXFKEURDGHUDUHDRIEUDLQWLVVXHIDUUHPRYHGIURPWKHIRFDO
    VLWHRISHQHWUDWLQJLQMXU\,QSDUWWKLVLVUHODWHGWRGLVUXSWLRQRID[RQVFRXUVLQJWKURXJKWKLVUHJLRQDV
    ZHOO DV WKH PXFK PRUH H[WHQVLYH LQIODPPDWRU\ UHDFWLRQ DIIHFWLQJ VXUURXQGLQJ QHXUDO WLVVXH QRW
    GLUHFWO\GDPDJHG$VFDQEHDSSUHFLDWHGLQYLHZLQJ)LJIXOO\YLDEOHDQGIXQFWLRQDOWLVVXHLVQRW
    HQFRXQWHUHG XQWLO VRPH GLVWDQFH IURP WKH IRFDO OHVLRQ ,Q 3+, IURP D JXQVKRW ZRXQG WKH EXOOHWߤV
    WUDFN FDQ EH YLVXDOL]HG LQ WKH &7 LPDJH )LJ   DQG IURP VXFK DQ LPDJH WKH JURVV DQDWRPLFDO
    GDPDJHGLQIHUUHG
    ),*85(7ZRSDWKZD\VOHDGWRD[RQDOEUHDNGRZQ D[RWRP\ LQ7%,3ULPDU\D[RWRP\KDSSHQVLPPHGLDWHO\RUZLWKLQDQKRXUDQGLV
    WKHSURGXFWRIVKHDULQJIRUFHVWKDWLQGXFHGLIIXVHD[RQDOLQMXU\ '$, +RZHYHUWKHPXFKPRUHFRPPRQGDPDJHWRWKHD[RQ VHFRQGDU\
    D[RWRP\ SOD\VRXWRYHUDORQJSHULRGRIWLPH1RWHDOORIWKHVWDJHVDQGGLIIHUHQWWLPHIDFWRUVWKDWPD\SURGXFHVHFRQGDU\D[RWRP\
    5HSURGXFHGZLWKSHUPLVVLRQIURP6SULQJHU3XEOLVKLQJDQG%LJOHUDQG0D[ZHOO  ZKLFKDOVRSURYLGHVDGGLWLRQDOGHWDLOVDQG
    UHIHUHQFHVDVVKRZQLQWKHGLDJUDPߤVSDUHQWKHVHV
    ),*85( /HIW 'D\RILQMXU\ '2, LQLWLDO&7VFDQSULRUWRQHXURVXUJHU\GHSLFWLQJWKHWUDMHFWRU\DQGSDWKRIDEXOOHWLQMXU\WR
    IURQWRWHPSRUDODUHDVRIWKHEUDLQ7KHVFDQVDUHLQUDGLRORJLFDOSHUVSHFWLYHZLWKEXOOHWHQWUDQFHLQWKHUHJLRQRIWKHOHIWWHPSOH6KDWWHUHG
    ERQHIUDJPHQWVVKRZHUHGWKURXJKRXWWKHWHPSRUDOOREHZLWKVRPHH[WHQGLQJLQWRWKHSRVWHULRUOHIWIURQWDOUHJLRQ7KHEXOOHWIUDJPHQWV
    WUDYHUVHGIURPWKHOHIWWHPSRUDOHQWUDQFHWRWKHULJKWIURQWDOUHJLRQZKHUHDIUDJPHQWORGJHGLQWKHVNXOO0HWDOIUDJPHQWVGHIOHFWWKH[
    UD\EHDPFUHDWLQJWKHVWHOODWHDUWLIDFWDVVKRZQ+HPRUUKDJLFOHVLRQVGHYHORSHGDORQJWKHWUDMHFWRU\ZLWKDODUJHLQWUDFHUHEUDOKHPDWRPD
    LQWKHULJKWIURQWDOUHJLRQ$QRXWOLQHRIWKHEXOOHWWUDMHFWRU\FDQEHYLVXDOL]HGIURPOHIWWRULJKWDFURVVWKHIURQWDOOREHV 5LJKW 2QH
    PRQWKSRVWVXUJHU\DULJKWIURQWDOFUDQLRWRP\LVDSSDUHQW DEVHQFHRIVNXOO ZLWKPXOWLSOHUHWDLQHGERQHIUDJPHQWVPRVWO\LQWKHOHIW
    WHPSRUDODUHDEXWVRPHH[WHQGLQJLQWRWKHSRVWHULRUIURQWDO1RWHWKHH[SDQVLRQRIWKHYHQWULFXODUV\VWHPDQLQGLFDWLRQRIFHUHEUDO
    DWURSK\5HSURGXFHGZLWKSHUPLVVLRQIURP7:.LPHWDO-RXUQDORI7UDXPD

    ,Q 3+, H[WHQVLYH VFDOS ZRXQGV PD\ EH SUHVHQW ZLWK HQRXJK EORRG ORVV WKDW K\SRWHQVLRQ
    DEQRUPDOO\ ORZ EORRG SUHVVXUH  DQG K\SRYROHPLD DEQRUPDOO\ ORZ EORRG YROXPH  FDQ UHVXOW
    .QLJKWO\ DQG3XOOLPDQ  7UDVN DQG 1DUD\DQ  ZKLFKDGGV WR WKH SULPDU\ IRFDO GDPDJH
    &RQWXVLRQV EUXLVHV FDQEHZLGHVSUHDGZLWKJXQVKRWZRXQGVHVSHFLDOO\DWHQWU\DQGFRQWUHFRXS VHH
    S VLWHVDVVKRZQLQ)LJ/RFDOL]HGDVZHOODVJHQHUDOL]HGFHUHEUDOHGHPD WLVVXHVZHOOLQJ
    DQG LQWUDFUDQLDO KHPDWRPDV VZHOOLQJ ILOOHG ZLWK EORRG  PD\ GHYHORS ZLWKLQ VHYHUDO KRXUV DIWHU
    LQMXU\ $ UHODWLYHO\ FRPPRQ FDXVH RI SRVWLQMXU\ GHWHULRUDWLRQ DUH WKH DSSUR[LPDWHO\  RI SRVW
    *6: LQWUDFUDQLDO KHPDWRPDV WKDW GHYHORS HVSHFLDOO\ LQ WKH VXEIURQWDO UHJLRQ 3UHYHQWLRQ DQG
    WUHDWPHQW RI LQIHFWLRQ DUH LPSRUWDQW LQ VXUYLYLQJ 3+, VLQFH WKH VNXOO DQG GXUD KDYH EHHQ EUHDFKHG
    LQFUHDVLQJWKHULVNRIEUDLQDEVFHVVHV$QWLELRWLFVDUHWKXVZLGHO\XVHGLQSRVWRSHUDWLYHPDQDJHPHQW
    RI3+,SDWLHQWV

    ),*85(05,GHPRQVWUDWLRQRIWKHHIIHFWVRISHQHWUDWLQJEUDLQLQMXU\7KLVSUHWHHQFKLOGVXVWDLQHGDSHQHWUDWLQJ7%,ZKHQWKHIDPLO\
    FDUWKHFKLOGZDVULGLQJLQZDVLQYROYHGLQDQDFFLGHQWDQGGLVORGJHGPHWDOIURPLQVLGHWKHFDUSHQHWUDWHGWKHULJKWIURQWDOUHJLRQ ZKLWH
    DUURZLQ$QRWHWKDWWKH05,VFDQLPDJHLVQRWLQUDGLRORJLFDOSHUVSHFWLYH 1RWHWKDWWKHD[LDO7 OHIW )/$,5 VHFRQGIURPOHIW DQG
    WKHFRORUL]HG'7,LPDJHVDUHQRWLQUDGLRORJLFDORULHQWDWLRQEHFDXVHWKH\DUHSDLUHGZLWKD'VXUIDFHUHQGHULQJRIWKHULJKWKHPLVSKHUH
    VKRZLQJWKHWUDFWRJUDSK\RIWKHFRUSXVFDOORVXP7KHIRFDOHIIHFWVRIWKHSHQHWUDWLQJGDPDJHDUHFOHDUO\LGHQWLILDEOHRQWKH7LPDJHV
    WKDWVKRZXSDVWKHGDUNHVWDUHDVUHIOHFWLYHRIHQFHSKDORPDOFLDDVFDQEHYLVXDOL]HGLQWKH)/$,5LPDJHZKLFKDOVRVKRZVXQGHUO\LQJ
    ZKLWHPDWWHUGDPDJH7KLVIRFDOULJKWIURQWDOGDPDJHUHVXOWHGLQDPDUNHGUHGXFWLRQLQWKHFRUSXVFDOORVXPSURMHFWLRQVLQWKLVDUHDDV
    VKRZQE\WKHDUURZLQWKHULJKWKDQG'LPDJH

    ),*85(3RVWPRUWHPVHFWLRQVKRZLQJWKHFHQWUDOSHQHWUDWLRQZRXQGIURPDEXOOHWZKLFKSURGXFHVDSHUPDQHQWFDYLW\LQWKHEUDLQ
    7KHWLVVXHLPPHGLDWHO\DGMDFHQWWRWKHFDYLW\UHSUHVHQWVPDFHUDWHGWLVVXHZLWKDVWURF\WLFGHVWUXFWLRQDQGDQRXWHUULPRIVFDWWHUHG
    KHPRUUKDJLFOHVLRQV7KHQH[WEXWPXFKODUJHUFLUFOHUHSUHVHQWVDQDUHDRIJUHDWD[RQDOGHVWUXFWLRQGLVWDOIURPWKHIRFDOHIIHFWVRIWKH
    SHQHWUDWLQJLQMXU\8VHGZLWKSHUPLVVLRQIURP2HKPLFKHQHWDO

    3HQHWUDWLQJREMHFWVWKDWHQWHUWKHEUDLQZLWKVLJQLILFDQWIRUFHPD\DOVRFDXVHGDPDJHWKURXJKRXW
    WKHEUDLQDVDUHVXOWRIVKRFNZDYHVDQGSUHVVXUHHIIHFWV 2HKPLFKHQHWDO5HLGHU*URVZDVVHU
    HW DO  7UDVN DQG 1DUD\DQ   7KLV NLQG RI GLIIXVH GDPDJH LV VLPLODU WR ZKDW KDSSHQV LQ
    FORVHG KHDG LQMXULHV LQFOXGLQJ VHYHUH EODVW LQMXULHV (OGHU DQG &ULVWLDQ +RIIHU HW DO  
    7KHH[WHQWDQGVHYHULW\RIGLIIXVHGDPDJHWREUDLQWLVVXHGHSHQGRQVXFKSK\VLFDOTXDOLWLHVDVVSHHG
    ZREEOHDQGPDOOHDELOLW\RIWKHSHQHWUDWLQJREMHFW 6DOD]DU0DUWLQDQG*UDIPDQ *UDIPDQDQG
    6DOD]DU  FRQWUDVWHGWKHUHODWLYHO\UHVWULFWHGDUHDRIGDPDJHOHIWE\DORZYHORFLW\ XQGHU
    IWVHF PLVVLOHWKDWZDVW\SLFDORIFLYLOLDQEXOOHWVDQGROGHUPLOLWDU\PLVVLOHVZLWKWKHPRUHH[WHQVLYH
    UDQJHRIWLVVXHGDPDJHGE\KHPRUUKDJHVDQGDSSDUHQWLVFKHPLD DEVHQFHRIQRUPDOEORRGIORZLQWKH
    DIIHFWHGDUHD RUHGHPDZKHQWKHYHORFLW\RIWKHSHQHWUDWLQJREMHFWH[FHHGVIWVHFDVLQPRGHUQ
    ZHDSRQU\ 2I FRXUVH ORZ YHORFLW\ VKUDSQHO IUDJPHQWV DOVR SURGXFH GLIIXVH GDPDJH 5HLGHU
    *URVZDVVHU HW DO   7KH WUDQVLHQW SK\VLRORJLFDO FRQGLWLRQV RI VZHOOLQJ EOHHGLQJ  GXULQJ WKH
    DFXWHVWDJHVPD\OHDYHSHUPDQHQWWLVVXHGDPDJH
    6RPHHIIHFWVRIWKHLQMXU\DUHGHOD\HGE\PDQ\\HDUV3RVWWUDXPDWLFHSLOHSV\IROORZLQJ3+,LVD
    SDUWLFXODU SUREOHP 5D\PRQW *UHDWKRXVH HW DO  'LD]$UUDVWLD HW DO   HVSHFLDOO\ OLNHO\
    ZKHQ QRW DOO IUDJPHQWV FRXOG EH UHPRYHG 5HVLGXDO IUDJPHQWV XVXDOO\ GR QRW FDXVH PHGLFDO
    FRPSOLFDWLRQVRUUHTXLUHUHSHDWQHXURVXUJLFDOLQWHUYHQWLRQEXWPD\LQGXFHSRVWWUDXPDWLFHSLOHSV\EH
    GLVUXSWLYH RI QHXUDO IXQFWLRQ DQG DIIHFW QHXURSV\FKRORJLFDO RXWFRPH 6SRQWDQHRXV PLJUDWLRQ RI
    IUDJPHQWV FDQ SURGXFH QHXURORJLF GHWHULRUDWLRQ WKDW LPSURYHV DIWHU IUDJPHQW UHPRYDO =DIRQWH
    :DWDQDEHDQG0DQQ ,QRQHFDVHDSHQHWUDWLQJPHWDOVSOLQWHULQDQ\HDUROGZDVDVVRFLDWHG
    ZLWKDFKURQLFDEVFHVVVFDUIRUPDWLRQDQGDPDOLJQDQWJOLRPD\HDUVODWHU 6DEHOHWDO LQ
    DQRWKHUDEUDLQDEVFHVVGHYHORSHG\HDUVDIWHUDVKUDSQHOLQMXU\ 0DUTXDUGWHWDO 

    1HXURSV\FKRORJLFDOHIIHFWVRISHQHWUDWLQJLQMXULHV

    ,QDGGLWLRQWRVRPHEHKDYLRUDOFKDQJHVDQGVSHFLILFFRJQLWLYHGHILFLWVWKDWFDQXVXDOO\EHWUDFHGWRWKH
    VLWHRIWKHOHVLRQ V DQGWKHSDWLHQWߤVFOLQLFDOKLVWRU\RI3+, *UDIPDQ-RQDVHWDO 6FKRROHU
    &DSODQHWDO WKHVHSDWLHQWVPD\VKRZVRPHRIWKHJHQHUDOLPSDLUPHQWVFRPPRQWRDQ\EUDLQ
    LQMXU\ߟQDPHO\SUREOHPVRIDWWHQWLRQDQGFRQFHQWUDWLRQPHPRU\IXQFWLRQVDQGPHQWDOVORZLQJWKDW
    WHQGWREHDVVRFLDWHGZLWKGLIIXVHGDPDJH 5RPDQHWDO 6KRUWWHUPPHPRU\LVHVSHFLDOO\OLNHO\
    WR EH FRPSURPLVHG UHJDUGOHVV RI WKH ORFDWLRQ RU ߧFOHDQQHVVߨRI WKH LQMXU\ 6FKRROHU HW DO  
    <HDUVDJRLQH[DPLQLQJ:RUOG:DU,,DQG.RUHDQ:DUYHWHUDQVZKRVXVWDLQHG3+,7HXEHU 
    QRWHG ߧVXEWOH EXW SHUYDVLYH FKDQJHV LQ RXU SDWLHQWVߤ FDSDFLW\ WR GHDO ZLWK HYHU\GD\ LQWHOOHFWXDO
    GHPDQGVߨ ZKLFK KH FRQVLGHUHG WR EH DPRQJ WKH ߧJHQHUDO HIIHFWVߨRI SHQHWUDWLQJ KHDG ZRXQGV
    +RZHYHU LQ 3+, SDWLHQWV IRFDO HIIHFWV DUH W\SLFDOO\ PRUH SURQRXQFHG WKDQ GLIIXVH RQHV ++
    .DXIPDQ HW DO 1HZFRPEH  DQG DV RQH PLJKW H[SHFW WKH ODUJHU WKH OHVLRQ WKH PRUH
    JHQHUDOWKHGHILFLWV *UDIPDQHWDO7HXEHU  ,Q DFLYLOLDQ SRSXODWLRQ ERWK3+, DQG&+,
    SDWLHQWV LPSURYHG DW D VLPLODU UDWH EXW WKH QHXURSV\FKRORJLFDO SHUIRUPDQFHV RI WKH 3+, SDWLHQWV
    GLIIHUHGIURPWKRVHZLWK&+,
    &RXUVHDQGRXWFRPH

    6RPH RI WKH PRVW FRPSUHKHQVLYH ORQJLWXGLQDO VWXGLHV RI 3+, FRPH IURP ZRUN ZLWK :RUOG :DU ,,
    .RUHDQ :DU DQG 9LHWQDP :DU YHWHUDQV ZLWK 3+, ([FHSWLQJ WKRVH ZLWK SHUVLVWHQW LPSDLUPHQWV LQ
    FRQVFLRXVQHVV WKHVH 3+, VXUYLYRUV WHQGHG WR PDNH UHODWLYHO\ UDSLG JDLQV LQ WKH ILUVW \HDU RU WZR
    IROORZLQJLQMXU\ 6DOD]DU6FKZDEHWDO$(:DONHUDQG-DEORQ )XUWKHULPSURYHPHQW
    FRPHVYHU\VORZO\DQGPRUHOLNHO\DVDUHVXOWRIOHDUQHGDFFRPPRGDWLRQVDQGFRPSHQVDWLRQVWKDQRI
    UHWXUQRUUHQHZDORIIXQFWLRQ&RJQLWLYHLPSDLUPHQWVVXFKDVODQJXDJHDQGFRQVWUXFWLRQDOGLVRUGHUV
    DUHDPRQJWKRVHWKDWPD\VKRZVLJQLILFDQWLPSURYHPHQWZKLOHVHQVRU\GHIHFWVVXFKDVYLVXDOEOLQG
    VSRWV DQG UHGXFHG WDFWLOH VHQVLWLYLW\ SHUVLVW XQFKDQJHG LQGHILQLWHO\ 7HXEHU   0DQ\ RI WKH
    JHQHUDO HIIHFWV RI EUDLQ GDPDJH VXFK DV GLVWUDFWLELOLW\ RU VORZLQJ WHQG WR LPSURYH EXW PD\ QHYHU
    UHWXUQWRWKHSUHPRUELGOHYHORIHIILFLHQF\
    :RUN VWDWXV KDV JLYHQ HYLGHQFH RI VLJQLILFDQW LPSURYHPHQW DIWHU 7%, )LIWHHQ \HDUV DIWHU WKH
    5XVVLDQ LQYDVLRQ RI )LQODQG  RI WKH VXUYLYLQJ )LQQLVK 7%, YHWHUDQV ZHUH ZRUNLQJ +LOOERP
      1HZFRPEH   DQG7HXEHU   HDFK UHSRUWHG WKDW DSSUR[LPDWHO\  RI WKHLU :RUOG
    :DU,,3+,YLFWLPVZHUHJDLQIXOO\HPSOR\HGRUPRUH\HDUVDIWHULQMXU\7KLVODUJHSURSRUWLRQRI
    JRRGRXWFRPHVLQWKHVHROGHUVWXGLHVPD\EHDWWULEXWDEOHWRORZVXUYLYDOUDWHVIRUWKHPRUHVHYHUHO\
    LQMXUHG VROGLHUV $ VPDOO VWXG\ RI .RUHDQ :DU 3+, YLFWLPV DOVR SURYLGHG ߧLPSUHVVLYH HYLGHQFH RI
    UHFRYHU\ߨVXFK WKDW GHVSLWH GLVFUHWH FRJQLWLYH LPSDLUPHQWV LQ VRPH PRVW RI WKHVH PHQ ZHUH
    ߧZRUNLQJ VXSSRUWLQJ IDPLOLHV DQG DEOH WR WUDYHO DORQHߨDSSUR[LPDWHO\  \HDUV DIWHU KDYLQJ EHHQ
    LQMXUHG &RUNLQ+XUWHWDOVHHDOVR'UHVVHUHWDO 5HFHQWVWXGLHVRI9LHWQDPYHWHUDQV
     \HDUV DIWHU FRPEDW LQMXU\ GHPRQVWUDWH WKH SHUVLVWLQJ GHILFLWV DVVRFLDWHG ZLWK 3+, SDUWLFXODUO\
    SRVWWUDXPDWLFHSLOHSV\DQGQHXURSV\FKLDWULFVHTXHODH 3DUGLQLHWDO5D\PRQW *UHDWKRXVHHW
    DO5D\PRQW6DOD]DUHWDO 
    )LIWHHQ \HDUV SRVWLQMXU\ 9LHWQDP YHWHUDQV VWLOO KDG LPSDLUPHQWV LQ YHUEDO OHDUQLQJ   YLVXDO
    PHPRU\   VXVWDLQHG DWWHQWLRQ   SV\FKRORJLFDO SUREOHPV   SRVWWUDXPDWLF HSLOHSV\
     VHQVRU\ORVV  YLVXDOILHOGORVV  SDUHVLV  GLPLQLVKHGYLVLRQ  YLROHQFH
    WHQGHQFLHV   DQG GLIILFXOWLHV LQ VRFLDO LQWHUDFWLRQ ߞ  DQG RQO\  ZHUH ZRUNLQJ
    6FKZDE HW DO   7KHLU ZRUN VWDWXV ZDV QHJDWLYHO\ FRUUHODWHG ZLWK SRVWWUDXPDWLF HSLOHSV\
    SDUHVLVYLVXDOILHOGORVVYHUEDOPHPRU\ORVVSV\FKRORJLFDOSUREOHPVDQGYLROHQWEHKDYLRU)RUWKLV
    JURXSRIYHWHUDQVWKHWRWDODPRXQWRIFHUHEUDOYROXPHORVVZDVQHJDWLYHO\UHODWHGWRUHWXUQWRZRUN
    *URVZDVVHU5HLGHUHWDO 5HWXUQWRZRUNZDVDOVRUHODWHGWRHGXFDWLRQDODFKLHYHPHQW
    ZHQW EDFN WR VFKRRO DQG  HDUQHG GHJUHHV .UDIWHWDO  7KH RFFXSDWLRQDO DFKLHYHPHQW RI
    WKRVHUHWXUQLQJWRZRUNZDVQRWUHODWHGWRVHYHULW\RILQMXU\

    6HL]XUHGLVRUGHUVDQGRWKHUVHTXHODH

    3+, LV DVVRFLDWHG ZLWK D KLJK UDWH RI DFXWH SRVWLQMXU\ VHL]XUHV RFFXUULQJ LQ XS WR  RI SDWLHQWV
    ZLWKLQ WKHILUVW KRXUV $QQHJHUV DQG&RDQ  7HPNLQ  <DQJ DQG %HQDUGR   2QH
    VWXG\UHSRUWHGWKDW3+,SDWLHQWVZKRGHYHORSSRVWWUDXPDWLFHSLOHSV\UXQDKLJKULVNRIFKURQLFSRVW
    WUDXPDWLF HSLOHSV\ߟ DW  \HDUV SRVWLQMXU\  QLQH \HDUV ODWHU (IWHNKDU 6DKUDLDQ HW DO
      'XULQJ DFXWH 3+, VHL]XUHV PD\ VHULRXVO\ LQFUHDVH LQWUDFUDQLDO SUHVVXUH ,&3  ZRUVHQLQJ
    LVFKHPLFFRQGLWLRQV 7UDVNDQG1DUD\DQ 
    9LHWQDP:DU3+,YHWHUDQVKDGDUDWHRISRVWWUDXPDWLFHSLOHSV\DQGDUDWHRISHUVLVWHQW
    HSLOHSV\ZKHQVHHQ\HDUVSRVWLQMXU\ 6DOD]DU-DEEDULHWDO6DOD]DU6FKZDEHWDO 
    7KLUW\ILYH\HDUIROORZXSVWXGLHVRIDJURXSRI9LHWQDPYHWHUDQVZKRKDGVXVWDLQHG3+,LQFRPEDW
    FRQWLQXHG WR VKRZ D VLPLODU UDWHߟDURXQG  FOHDUO\ LQGLFDWLQJ WKH FKURQLFLW\ RI SRVWWUDXPDWLF
    HSLOHSV\LQ3+, 5D\PRQW6DOD]DUHWDO 2WKHUGDWDIRUWKLV\HDUFRKRUWLVLQFRPSOHWHEXW
    SUHYLRXV VWXGLHV ZLWK WKLV JURXS RI VROGLHUV KDG VKRZQ WKDW GHVSLWH WKH VHL]XUHV SDWLHQWV ZLWK 3+,
    DVVRFLDWHG HSLOHSV\ GLG QRW GLIIHU VLJQLILFDQWO\ IURP QRQHSLOHSWLF 3+, VXUYLYRUV RQ
    QHXURSV\FKRORJLFDO PHDVXUHV H[FHSW IRU PRWRU VORZLQJ DQG ORZHU ZRUG OLVW UHFDOO 6DOD]DU
    *UDIPDQHWDO /HVLRQVLQWKHOHIWKLSSRFDPSXVZHUHPRVWVXVFHSWLEOHWRVHL]XUHGHYHORSPHQW
    DOWKRXJKOHVLRQVLQRWKHUODWHUDOL]HGVWUXFWXUHVDOVRWHQGHGWREHHSLOHSWRJHQLF 6DOD]DU$PLQHWDO
     /DUJHUOHVLRQVZHUHDOVRDVVRFLDWHGZLWKVHL]XUHV 6DOD]DU-DEEDULHWDO 7KHPDMRULW\
    RIWKHVHSDWLHQWVKDGPRUHWKDQRQHVHL]XUHRYHUDQDYHUDJHWLPHRIPRUHWKDQVHYHQ\HDUVZLWKPRVW
    VHL]XUHVLQLWLDOO\DSSHDULQJLQWKHILUVWWKUHH\HDUVSRVWLQMXU\ *+:HLVV6DOD]DUHWDO 2WKHU
    H[DPLQDWLRQV RI 9LHWQDP YHWHUDQV IRXQG WKDW DOPRVW DOO NLQGV RI VHL]XUHVߟVLPSOH SDUWLDO FRPSOH[
    SDUWLDOSDUWLDOZLWK VHFRQGDU\JHQHUDOL]DWLRQ DQGJHQHUDOL]HG VHL]XUHVߟDUH FRPPRQLQ WKLV JURXS
    6DOD]DU6FKZDEHWDO6ZDQVRQ HW DO   3RVWWUDXPDWLF HSLOHSV\ LV DOVR DVVRFLDWHGZLWK
    SUHPDWXUHGHDWKDPRQJVXUYLYRUVRISHQHWUDWLQJKHDGZRXQGV &RUNLQ6XOOLYDQDQG&DUU$(
    :DONHUDQG%OXPHU SDUWLFXODUO\DIWHUWKHDJHRI *+:HLVV&DYHQHVVHWDO 
    ,QWKHVWXGLHVUHYLHZHGDERYHRQFHWKH3+,SDWLHQWLVLQWKHFKURQLFVWDJHVHYHULW\RI3+,LQLWVHOI
    GLG QRW DSSHDU WR FRQWULEXWH WR D KLJKHU GHDWK UDWH H[FHSW DV DVVRFLDWHG ZLWK HSLOHSV\ .KDUDWLVKYLOL
    DQG3LWNDQHQ &RUNLQDQGKHUFROOHDJXHV  IRXQGWKDWIRUKHDGLQMXUHGYHWHUDQVDORZHU
    HGXFDWLRQDO OHYHO ZDV DOVR VLJQLILFDQWO\ DVVRFLDWHG ZLWK D VKRUWHQHG OLIH H[SHFWDQF\ $FKWH DQG KLV
    FROOHDJXHV  UHSRUWHGDQLQFUHDVHGLQFLGHQFHRISV\FKRVLVLQWKHLUZDULQMXUHGSRSXODWLRQZLWK
    VHYHULW\RILQMXU\DQLPSRUWDQWFRQWULEXWLQJIDFWRU7KHLQFLGHQFHRISV\FKRSDWKRORJ\LQFUHDVHGZLWK
    HSLOHSV\ DW D VLPLODU UDWH DFURVV HSLOHSV\ VXEW\SHV WKRXJK PRUH RI WKH YHWHUDQV ZLWK SDUWLDO
    JHQHUDOL]HGDQGJHQHUDOL]HGVHL]XUHVKDGLQSDWLHQWRURXWSDWLHQWSV\FKLDWULFWUHDWPHQW 6ZDQVRQHWDO
     
    ,Q 9LHWQDP YHWHUDQV WKH DPRXQW RI FHUHEUDO DWURSK\ UHVXOWLQJ IURP 3+, H[DFHUEDWHV WKH UDWH RI
    FRJQLWLYHGHFOLQHRYHUWLPH 5D\PRQW*UHDWKRXVHHWDO ,QWHUHVWLQJO\KDYLQJGDPDJHWRWKH
    YHQWURPHGLDOSUHIURQWDOUHJLRQZDVIRXQGWRPHGLDWHWKHHIIHFWVRIIDWLJXHIROORZLQJ3+, 3DUGLQLHW
    DO   ZKHUHDV RWKHU IURQWDO OHVLRQV DSSHDUHG WR EH LQYROYHG ZLWK HLWKHU UHVLVWDQFH WR RU
    YXOQHUDELOLW\IRUSRVW3+,GHSUHVVLRQ .RHQLJVHWDOD 6LPLODUO\FHUWDLQPHGLDOWHPSRUDOOREH
    3+, OHVLRQV DORQJ ZLWK YHQWURPHGLDO SUHIURQWDO OHVLRQV ZHUH DVVRFLDWHG ZLWK D ORZHU LQFLGHQFH RI
    376'LQWKHVH9LHWQDP:DUYHWHUDQV .RHQLJVHWDOE 

    &ORVHG+HDG,QMXULHV
    1HXURSDWKRORJ\

    $VZLWK3+,EUDLQGDPDJHLQFORVHGKHDGLQMXU\W\SLFDOO\RFFXUVLQVWDJHVEHJLQQLQJZLWKWKHLPSDFW
    DQG PHFKDQLFDO GHIRUPDWLRQ RI WKH EUDLQ $ FRPSOH[ DUUD\ RI SDWKRORJLFDO ELRFKHPLFDO DQG
    SK\VLRORJLFDO HIIHFWV HQVXH SOXV FRQVHTXHQWLDO VHFRQGDU\ HIIHFWV DVVRFLDWHG ZLWK LQIODPPDWRU\
    UHDFWLRQVDQGRWKHUFRPSOLFDWLRQVWKDWPD\UHVXOWIURPV\VWHPLFLQMXULHV )LJS 
    &+, GDPDJH PD\ EH IRFDO EXW XQOLNH 3+, WKH W\SLFDO &+, SURGXFHV D PRUH JHQHUDOL]HG EUDLQ
    LQMXU\ LQ ZKLFK WKH H[WHQW RI GDPDJH LV GHWHUPLQHG ODUJHO\ E\ WKH VHYHULW\ RI LQMXU\ 7KH SULPDU\
    LQMXU\LVWKHGDPDJHWKDWRFFXUVDWWKHWLPHRILQLWLDOLPSDFWWKHVHFRQGLQMXU\FRQVLVWVRIWKHHIIHFWV
    RISK\VLRORJLFDOSURFHVVHVVHWLQPRWLRQE\WKHSULPDU\LQMXU\7KHVHPD\WDNHPRQWKVWR\HDUVWR
    GHYHORSIXOO\ VHH )LJV  DQG SS  ,QMXU\VHYHULW\LVW\SLFDOO\ HVWDEOLVKHGZLWKLQ WKH
    DFXWHWRHDUO\VXEDFXWHWLPHIUDPHEXWWKHORQJWHUPHIIHFWVRI7%,DQGUHVXOWDQWGLVDELOLW\LIDQ\FDQ
    RQO\EHHVWDEOLVKHGPRQWKVWR\HDUVSRVWLQMXU\
    7KH ELRPHFKDQLFV RI LQMXU\ SOD\ D VLJQLILFDQW UROH LQ GHWHUPLQLQJ WKH SULPDU\ DQG VHFRQGDU\
    HIIHFWVRIDQ\EORZWRWKHEUDLQ)RUPRUHWHFKQLFDOLQIRUPDWLRQRQWKHELRPHFKDQLFVRIEUDLQLQMXU\
    VHH%DQGDNHWDO1DUD\DQ:LOEHUJHUDQG 3RYOLVKRFN  DQG3ILVWHUHWDO $ EDVLF
    RYHUYLHZRIWKHELRPHFKDQLFVRIKHDGLQMXU\LVVKRZQLQ)LJXUHS
    7KHWZRPDLQELRPHFKDQLFDOIHDWXUHVRI7%,DUH D LPSXOVLYHORDGLQJZKHQWKHKHDGPRYHVDV
    WKHUHVXOWRIPRWLRQLPSDUWHGWRVRPHRWKHUSDUWRIWKHERG\ WRS)LJ DQG E LPSDFWORDGLQJLQ
    ZKLFK WKH KHDG HLWKHU VWULNHV D VWDWLRQDU\ REMHFW RU LV VWUXFN E\ D PRYLQJ REMHFW ERWWRP )LJ  
    7KHVH HYHQWV DUH PHFKDQLFDOO\ GLVWLQFW DQG VHSDUDWH SRWHQWLDOO\ UHVXOWLQJ LQ GLIIHUHQW SDWKRORJLFDO
    FRQVHTXHQFHVWKH\FDQQRWRFFXUVLPXOWDQHRXVO\EXWPD\RFFXUVHTXHQWLDOO\ *ROGVPLWKDQG3OXQNHWW
     
    'HSHQGLQJRQWKHQDWXUHRIWKHLPSXOVHLPSDFWIDFWRUVPD\FRQWULEXWHWRLPSXOVLYHORDGLQJRQWR
    WKH KHDG VR WKDW LW URWDWHV DERXW WKH XSSHU FHUYLFDO VSLQH ,Q VXFK D URWDWLRQ WKH VNXOO PRYHV DW D
    GLIIHUHQW UDWH IURP WKH EUDLQ ZKLFK ODJV EHKLQG EHFDXVH EUDLQ DQG VNXOO DUH QRW ULJLGO\ ORFNHG
    WRJHWKHU ,PSDFW IRUFHV DUH WUDQVPLWWHG ILUVW WR WKH VNXOO DQG WKHQ WR WKH EUDLQ 7KLV GLIIHUHQWLDO
    GLVSODFHPHQW PD\ SXOO DQG WXJ RQ EORRG YHVVHOV EUHDNLQJ WKRVH WKDW DUH VWUHWFKHG EH\RQG WKHLU
    WROHUDQFH +HDG PRYHPHQW LQ WKH DQWHULRUSRVWHULRU VDJLWWDO  SODQH LV PRVW OLNHO\ WR SURGXFH D
    VXEGXUDOKHPDWRPDZKHUHDVODWHUDOLPSDFWRUDFFHOHUDWLRQLQWKHFRURQDOSODQHPRUHRIWHQUHVXOWVLQ
    WUDXPDWLFD[RQDOLQMXU\ 7$, 
    %LRPHFKDQLFV DOVR DFFRXQW IRU GLIIXVH D[RQDO LQMXU\ '$,  DV DQ LPPHGLDWH FRQVHTXHQFH RI WKH
    &+,WKDWPRVWFRPPRQO\RFFXUVZLWKVLGHLPSDFWYHKLFXODUFUDVKHV <RJDQDQGDQHWDO :KLOH
    WKHWHUP'$,LVIUHTXHQWO\XVHG'$,LVRQO\DVXEVHWRIDOORIWKHSRWHQWLDOFHOOXODULQMXULHVWRQHXURQV
    DVVRFLDWHG ZLWK DFWXDO D[RQDO VKHDULQJ VHH )LJ   7KHUHIRUH 7$, EHWWHU GHVFULEHV WKH RYHUDOO
    SDWKRORJ\RIZKLWHPDWWHUGDPDJHWKDWRFFXUVLQ7%,DVLWLQFOXGHVWKHVXPRISDWKRORJLFDOHIIHFWVRQ
    WKH FHOOXODU VWUXFWXUH RI WKH EUDLQ 3RYOLVKRFN DQG .DW]  VHH EHORZ  *LYHQ WKH KLJKVSHHG
    IRUFHVJHQHUDWHGRQLPSDFWLQWKHW\SLFDO09$ERWKLPSXOVLYHDQGLPSDFWORDGLQJVEHFRPHFRPSOH[
    IRUFHVLQMXULQJWKHEUDLQ
    ),*85( $ 'LDJUDPVKRZLQJLPSXOVLYHORDGLQJIURPWKHUHDU OHIW DQGIURQW ULJKW ,PSDFWORDGLQJLVGLDJUDPPDWLFDOO\SUHVHQWHG
    LQ % ZLWKDIL[HGREMHFWDQG & ZLWKDPRYLQJREMHFW9 YHORFLW\) )RUFH PDVVWLPHVDFFHOHUDWLRQ DQGͣ URWDWLRQDOFKDQJH)URP
    *ROGVPLWKDQG3OXQNHWW  XVHGZLWKSHUPLVVLRQ

    $Q LPSRUWDQW GLPHQVLRQ RI WKH ELRPHFKDQLFV RI EUDLQ LQMXU\ UHODWHV WR WKH DJH RI WKH LQGLYLGXDO
    ZKRVHVNXOOLVKLWWKHDYHUDJHVNXOOWKLFNQHVVRIDQDGXOWLVPPEXWMXVWPPIRUD\RXQJFKLOG
    DQG RQO\ PP IRU D QHRQDWH *ROGVPLWK DQG 3OXQNHWW   7KH RWKHU LPSRUWDQW ELRPHFKDQLFDO
    IHDWXUHLVKRZWKHLPSDFWRIWKHVHIRUFHVDIIHFWWKHEUDLQ
    7KHSULPDU\LQMXU\%LRPHFKDQLFDOIRUFHVH[SODLQPDQ\RIWKHFRPPRQSDWWHUQVRI&+,LHWKH
    YXOQHUDELOLW\ RI WKH IURQWDO DQG WHPSRUDO OREHV FRUSXV FDOORVXP DQG RWKHU ZKLWH PDWWHU UHJLRQV
    LQFOXGLQJWKHXSSHUEUDLQVWHPDQGIRUQL[ 2PPD\D*ROGVPLWKDQG7KLEDXOW 7KHPHFKDQLFDO
    IRUFHV SURGXFHG E\ WKH LQLWLDO EORZ WR WKH KHDG FDQ UHVXOW LQ ߧD FRPSOH[ VHULHV RI PHFKDQLFDO DQG
    SK\VLFDOUHDFWLRQVLQYROYLQJORFDOEHQGLQJRIWKHVNXOOYROXPHFKDQJHVWRWKHLQWUDFUDQLDOFRQWHQWV
    VKRFN ZDYH SURSDJDWLRQ WKURXJKRXW WKH EUDLQ DQG LQHUWLDO HIIHFWV DOO RI ZKLFK LQGXFH WLVVXH VWUDLQV
    DQG VWUHVVHV ZKLFK PD\ JLYH ULVH WR GDPDJH RI WKH VFDOS FUDQLXP EORRG YHVVHOV RU EUDLQ
    PDWWHUߨ 0RWKHUZD\ HW DO  S   7KH PRVW REYLRXV RI WKHVH LV FRQWDFW IRUFH IRUFH RI
    LPSDFW  WKH SUHGRPLQDQW FDXVH RI EUDLQ GDPDJH LQ VWDWLF LQMXULHV LQ ZKLFK D UHODWLYHO\ VWLOO YLFWLP
    UHFHLYHVDEORZWRWKHKHDG *HDQ-RUGDQ 'DPDJHDSSHDUVWREHGXHWRDUDSLGVHTXHQFH
    RI HYHQWV EHJLQQLQJ ZLWK WKH LQZDUG PROGLQJ RI WKH VNXOO DW WKH SRLQW RI LPSDFW DQG FRPSHQVDWRU\
    DGMDFHQWRXWEHQGLQJIROORZHGE\UHERXQGHIIHFWV VHH)LJXUHVDQG :LWKVXIILFLHQWVWUHVVWKH
    VNXOOPD\EHIUDFWXUHGWKXVGLVVLSDWLQJVRPHRIWKHLPSDFWHQHUJ\EXWFRPSOLFDWLQJWKHSLFWXUHZLWK
    WKHSRVVLELOLW\RILQIHFWLRQDQGDGGLWLRQDOWLVVXHGDPDJH:KHQWKHILQHWLVVXHFRYHULQJWKHEUDLQ SLD
    DUDFKQRLG LVWRUQWKHLQMXU\LVFDOOHGDODFHUDWLRQ
    ,QHUWLDOIRUFHVFDQLQYROYHWUDQVODWLRQDODFFHOHUDWLRQDVWKHKHDGPRYHVLQDVWUDLJKWOLQHZLWKWKH
    EUDLQߤV FHQWHU RI JUDYLW\ RU URWDWLRQDO DFFHOHUDWLRQ GXH WR WKH EUDLQ URWDWLQJ DURXQG LWV FHQWHU RI
    JUDYLW\DQGFHQWUDOD[LVߟWKHXSSHUEUDLQVWHP0RYHPHQWRIWKHKHDGDQGQHFNRQLPSDFWUHVXOWVLQ
    DQJXODUDFFHOHUDWLRQDFRPELQDWLRQRIWUDQVODWLRQDODQGURWDWLRQDODFFHOHUDWLRQ$WWKHFHOOXODUOHYHO
    FODVVLFWKHRU\KHOGWKDWVKHDUVWUDLQUHVXOWHGLQ'$,VXJJHVWLQJWKDWD[RQVZHUHPHFKDQLFDOO\WRUQDW
    WKHPRPHQWRILQMXU\E\WKHVHIRUFHV6KHDULQJGRHVRFFXUSDUWLFXODUO\LQVHYHUH7%,YLFWLPVZKRGR
    QRWVXUYLYH ;< /L DQG )HQJ   +RZHYHU DFFRUGLQJ WR FRQWHPSRUDU\ WKHRU\ WKH PHFKDQLFDO
    IRUFHV GR QRW QHFHVVDULO\ VKHDU UDWKHU WKH\ LQLWLDWH D SURJUHVVLYH QHXURSDWKRORJLFDO SURFHVV WKDW
    GDPDJHV WKH XQGHUO\LQJ F\WRVNHOHWDO QHXURQDO LQWHUQDO VFDIIROGLQJ  HOHPHQWV RI WKH QHXURQ
    XOWLPDWHO\ OHDGLQJ WR FHOOXODU GDPDJH DQGRU GHDWK %XNL DQG 3RYOLVKRFN  )DUNDV DQG
    3RYOLVKRFNVHH)LJ 

    ),*85(0LGVDJLWWDOVFKHPDWLFVKRZLQJWKHLPSDFWG\QDPLFVRIDQJXODUGHFHOHUDWLRQVRIWKHEUDLQDVWKHKHDGKLWVDIL[HGREMHFWLH
    ZKHUHWKHJUHDWHVWVWUHWFKVWUDLQDQGURWDWLRQDOIRUFHHIIHFWVRFFXULQWKHEUDLQ1RWHWKHSDUWLFXODUYXOQHUDELOLW\RIFRUHDUHDVZLWKLQWKH
    EUDLQLQFOXGLQJWKHXSSHUEUDLQVWHPWKDODPXVIRUQL[FRUSXVFDOORVXPDQGFLQJXODWHJ\UXVDVZHOODVWKHLPSDFWYXOQHUDELOLW\RIWKH
    IURQWDOOREHKLJKOLJKWHGZLWKUHGVKDGLQJ)URP5RSSHUDQG*RUVRQ  XVHGZLWKSHUPLVVLRQIURPWKH1HZ(QJODQG-RXUQDORI
    0HGLFLQH

    6KHDULQJ IRUFHV DOVR WHDU DW WKH GHOLFDWH YDVFXODWXUH 5RGULJXH]%DH]D HW DO   7KXV RQH
    PDUNHU RI VKHDULQJ DQG WKHUHIRUH '$, LQ WKH KHDG LQMXUHG SDWLHQW LV WKH SUHVHQFH RI EORRG LQ DFXWH
    VWDJH QHXURLPDJLQJ XVXDOO\ E\ &7 VFDQQLQJ ;< /L DQG )HQJ   +HPRVLGHULQ DQ LURQODGHQ
    UHVLGXH RI WKH EUHDNGRZQ RI KHPRUUKDJLF EORRG VKRZV XS RQ 05, RI VXEDFXWH DQG FKURQLF EUDLQ
    LQMXULHV 7KHVH LQWUDFHOOXODU LURQ GHSRVLWV PD\ UHPDLQ LQGHILQLWHO\ LQ EUDLQ SDUHQFK\PD DQG DUH
    UHDGLO\GHWHFWLEOH E\ 05, 7RQJHWDO7RSDO HW DO   7KH QXPEHU ORFDWLRQ DQG RYHUDOO
    EXUGHQ RI WKHVH UHVLGXDO PLFURKHPRUUKDJHV UHODWH WR QHXURSV\FKRORJLFDO RXWFRPH $VKZDO HW DO
    6FKHLGHWDO 

    ),*85(:DYHSURSDJDWLRQDQGFRQWDFWSKHQRPHQDIROORZLQJLPSDFWWRWKHKHDG1RWHWKHLQEHQGLQJRIWKHVNXOORQLQLWLDOFRQWDFW
    DQGWKHHQHUJ\SURSDJDWLRQZDYHWKDWPRYHVWKURXJKWKHEUDLQLPSDFWLQJWKHEDVHRIWKHVNXOOHYHQWKRXJKLPSDFWRFFXUUHGGRUVDOO\DQG
    WKHQWKHERXQFHEDFNZDYH)URP*ROGVPLWKDQG3OXQNHWW  XVHGZLWKSHUPLVVLRQ

    &RQWXVLRQV EUXLVHV UHIHUWRIRFDOGDPDJHWREUDLQWLVVXHDQGYDVFXODUVWUXFWXUH7KH\DUHPRVW


    VHYHUHRQJ\UDOFUHVWVDQGPD\H[WHQGPRUHRUOHVVGHHSO\LQWRWKHZKLWHPDWWHU ',*UDKDP
    +DOOLGD\VHH)LJ$ &RUWLFDOFRQWXVLRQVPD\EHDVVRFLDWHGZLWKKHPRUUKDJHDQGFORWWLQJ
    $VWKHEUDLQLVMRVWOHGDERXWE\PHFKDQLFDOIRUFHVLWLVYXOQHUDEOHWREUXLVLQJRQWKHERQ\ULGJHVDQG
    SURWXEHUDQFHV RQ WKH LQWHULRU EDVH RI WKH VNXOO PDNLQJ WKH IURQWDO DQG WHPSRUDO OREHV WKH PRVW
    FRPPRQVLWHVIRUFRUWLFDOFRQWXVLRQV VHH)LJ%DQG* 
    7KHEORZDWSRLQWRILPSDFWLVFDOOHGWKHFRXSDFRQWXVLRQLVOLNHO\WRDSSHDUXQGHUWKHLPSDFWVLWH
    &RQWUHFRXS OHVLRQV LQ ZKLFK WKH ERXQFLQJ EUDLQ VXVWDLQV D FRQWXVLRQ LQ DQ DUHD RSSRVLWH WKH EORZ
    PRVWIUHTXHQWO\RFFXULQWKHIURQWDODQGWHPSRUDOOREHVDQGLQ6\OYLDQILVVXUHUHJLRQV %LJOHUE
    'DUE\ DQG :DOVK  1HGG HW DO   0HPRU\ LPSDLUPHQWV DQG FKDQJHV LQ HPRWLRQDO DQG
    H[HFXWLYH IXQFWLRQLQJ DUH FRPPRQSODFH LQ 7%, DQG DSSHDU WR EH UHODWHG WR WKH KLJK LQFLGHQFH RI
    IURQWRWHPSRUDOOREHLQMXU\ )XMLZDUDHWDO6LGDURV(QJEHUJHWDO6LGDURV6NLPPDJH
    HWDO 
    ),*85( $ͣ+ 7KHFRORUL]HGLPDJHVUHSUHVHQWD'F7UHFUHDWLRQRIWKHGD\RILQMXU\KHPRUUKDJHVUHVXOWLQJIURPDVHYHUH7%,
    QRWHWKHLUSUHSRQGHUDQFHLQWKHIURQWDODQGWHPSRUDOUHJLRQVRIWKHEUDLQ6RPHRIWKHVHKHPRUUKDJHVDUHFORVHUWRWKHFRUWLFDOVXUIDFH
    WRSDUURZVLQ% RUDWWKHJUD\ZKLWHMXQFWLRQRUZLWKLQWKHZKLWHPDWWHU DUURZVLQ) RUZLWKLQWKHYHQWULFOH ERWWRPDUURZLQ% 7KHWRS
    DUURZLQFSRLQWVWRDVPDOOHSLGXUDOKHPDWRPDLQWKHIURQWDOOREHWKHERWWRPDUURZSRLQWVWRWKHVSKHQRLGERQHDFRPPRQVLWHIRU
    KHPRUUKDJLFFRQWXVLRQZKLFKFDQEHYLVXDOL]HGDURXQGWKLVDUHD,-DQG.GHPRQVWUDWHWKHPRVWOLNHO\DUHDVZKHUHKHPRUUKDJLF
    FRQWXVLRQVUHVXOWLQFRUWLFDOJUD\PDWWHUYROXPHORVV$FRURQDOSRVWPRUWHPVHFWLRQLVVKRZQLQ/GHPRQVWUDWLQJWKHPXOWLSOHORFDWLRQVRI
    DQGW\SHVRIKHPRUUKDJHVLQ7%,7KHDUURZLQWKHFRUSXVFDOORVXPSRLQWVWRVKHDUVWUDLQZLWKLQWKHFRUSXVFDOORVXPOLNHO\DUHVXOWRIWKH
    FRUSXVFDOORVXPVWULNLQJWKHIDO[FHUHEUL7KHVPDOOEODFNDUURZVSRLQWWRSHWHFKLDOKHPRUUKDJHVZLWKLQWKHSXWDPHQ7KHFLUFOHVVKRZWKH
    QXPHURXVLQWUDSDUHQFK\PDOKHPRUUKDJHVRIWHQDWWKHJUD\ZKLWHPDWWHULQWHUIDFHRUWRZDUGWKHJ\UDOVXUIDFH XVHGZLWKSHUPLVVLRQIURP
    %LJOHUDQG0D[ZHOODQG6SULQJHU3XEOLVKLQJ 

    7%, SDWLHQWV PD\ VXVWDLQ IRFDO FRUSXV FDOORVXP VKHDULQJ OHVLRQV DV ZHOO DV DWURSK\ WKDW FRPHV
    IURP VHFRQGDU\ D[RQDO GHJHQHUDWLRQ LQYROYLQJ WUDQVFDOORVDO ILEHUV (ZLQJFREEV HW DO  0)
    .UDXV6XVPDUDVHWDOHJVHH)LJXUHVDQG 5HJLRQDOSURMHFWLRQVDFURVVWKHFRUSXV
    FDOORVXP FRQQHFW ZLWK OREXODU SURMHFWLRQV IRU H[DPSOH ZKHQ JUHDWHU DWURSK\ LV SUHVHQW LQ WKH
    DQWHULRU DVSHFW RI WKH FRUSXV FDOORVXP URVWUXP JHQX DQG DQWHULRU PLGERG\  WKHQ JUHDWHU IURQWDO
    ZKLWHPDWWHUGDPDJHLVOLNHO\$WURSK\LQDQ\RIWKHUHJLRQDOFRPSRQHQWVRIWKHFRUSXVFDOORVXPPD\
    SURGXFHFRUUHVSRQGLQJQHXURSV\FKRORJLFDOG\VIXQFWLRQ SSDQG)LJVSS
     
    $QRWKHULPSRUWDQWQHXURSV\FKRORJLFDOFRUUHODWHRIFRUSXVFDOORVXPGDPDJHLQ7%,LVGLPLQLVKHG
    VSHHG RI SURFHVVLQJ DV QRUPDO UDWHV RI SURFHVVLQJ VSHHG UHTXLUH WKH LQWHJUDWLRQ RI WKH WZR
    KHPLVSKHUHV 0XHW]HO HW DO  :R]QLDN HW DO  5HVSRQVHV WRDQ\ WHVW PHDVXULQJ UHVSRQVH
    VSHHG RU UHDFWLRQ WLPHߟ7UDLO 0DNLQJ &RGLQJ 'LJLW 6\PERO6\PERO 'LJLW HWFߟDUH OLNHO\ WR EH
    DEQRUPDOO\ VORZ ZLWK VLJQLILFDQW FRUSXV FDOORVXP DEQRUPDOLWLHV ZKHWKHU LQ 7%, SDWLHQWV 0DWKLDV
    %LJOHUHWDO($:LOGH&KXHWDO RURWKHUV .0.HQQHG\DQG5D] 
    ),*85( 723 7KHOHIWFROXPQVKRZVWKHPLGVDJLWWDO05,ZLWKDQDWURSKLHGFRUSXVFDOORVXPDQGROGVKHDUOHVLRQLQWKHLVWKPXV
    $ 7KHGLUHFWLRQDO'7,FRORUPDSZLWKWKHFRUSXVFDOORVXPLVRXWOLQHGLQUHGEHFDXVHDWWKHPLGVDJLWWDOOHYHOWKHWUDFWVDUHFRXUVLQJ
    ODWHUDOO\DFURVVWKHFRUSXVFDOORVXP & 7KHULJKWVLGHFROXPQRIVFDQVGHSLFWVWKHQRUPDOPLGVDJLWWDODSSHDUDQFHRIWKHFRUSXV
    FDOORVXPIURPDKHDOWK\DJHPDWFKHGFRQWURO'VKRZVWKHW\SLFDODSSHDUDQFHRI&&WUDFWV1RWHWKHREYLRXVVL]HGLIIHUHQFHFRPSDULQJ
    $DQG&WR%DQG'+RZHYHUPRVWQRWDEOHLVWKHWKLQQLQJRXWRIFRUSXVFDOORVXPWUDFWVUHYHDOHGE\WUDFWRJUDSK\ FRPSDUH(WR) 
    8VHGZLWKSHUPLVVLRQIURP%LJOHUDQG0D[ZHOO  DQG,263UHVV

    ,Q PRGHUDWHWRVHYHUH 7%, QRW RQO\ LV WKHUH D SUHGLOHFWLRQ IRU IRFDO SDWKRORJ\ LQ WKH
    IURQWRWHPSRUDOUHJLRQV %LJOHUE%/HYLQH.RYDFHYLFHWDO EXWGLIIXVHFKDQJHVDOVR
    RFFXU LQ ZLGHVSUHDG DUHDV RI WKH EUDLQ ZLWK UHVXOWDQW JHQHUDOL]HG DWURSK\ LQ DOO PDMRU EUDLQ DUHDV
    DSSHDULQJDVUHGXFWLRQLQZKLWHPDWWHUWKLQQLQJRIWKHFRUWLFDOPDQWOHUHIOHFWHGDVDUHGXFWLRQLQJUD\
    PDWWHUDQGLQFUHDVHVLQYHQWULFXODUYROXPHDOOUHODWHGWRWKHVHYHULW\RILQMXU\ %LJOHU$ELOGVNRYHW
    DO0DPHUHHWDO0HUNOH\HWDOVHH)LJ 
    $SRVWPRUWHPEUDLQZHLJKWVWXG\LQFOXGHG7%,YLFWLPVZKRVXUYLYHGDWOHDVWWKUHHPRQWKVDQGKDG
    VXVWDLQHGPRGHUDWHWRVHYHUH7%,ZLWKRXWFRPHVRIPRGHUDWHO\GLVDEOHGVHYHUHO\GLVDEOHGYHJHWDWLYH
    VWDWH DQG D QRQWUDXPD FRQWURO JURXS :/ 0D[ZHOO HW DO   2Q DXWRSV\ PHDQ EUDLQ ZHLJKW
    ZKLFKLVDOVRDPHDVXUHRIEUDLQYROXPH ZDVKLJKHVWIRUFRQWUROV sJ DQGORZHVWIRU
    YHJHWDWLYH VWDWH SDWLHQWV  s  J  ZLWK GHVFHQGLQJ ZHLJKWV LQ RUGHU RI VHYHULW\ IRU WKH LQ
    EHWZHHQJURXSV7KLVSRVLWLYHUHODWLRQVKLSEHWZHHQVHYHULW\RILQMXU\DQGGLVDELOLW\DQGWKHGHJUHHRI
    JHQHUDOL]HG FHUHEUDO DWURSK\ DOVR VKRZV XS RQ 05, VWXGLHV RI YHQWULFOH VL]H LQ SURSRUWLRQ WR WRWDO
    EUDLQYROXPHDVZDVVKRZQLQ)LJXUH7KHFRPELQDWLRQRIIRFDOVLWH V RILPSDFWGDPDJHDVZHOO
    DVQRQVSHFLILFVWUXFWXUDOGDPDJHFDXVLQJDWURSKLFFKDQJHVUHVXOWVLQDQHXURSV\FKRORJLFDOSDWWHUQRI
    PXOWLIRFDORUELODWHUDOGDPDJHZLWKRXWFOHDUFXWHYLGHQFHRIODWHUDOL]DWLRQUHJDUGOHVVRIWKHVLWHRI
    LPSDFW %LJOHUD3RQVIRUG 
    &+,DQG LQWUDFUDQLDO KHPRUUKDJHV 7KH W\SH RI LQWUDFUDQLDO KHPRUUKDJH GXH WR &+, GHSHQGV RQ
    ZKLFKEORRGYHVVHORUYHVVHOVDUHLQMXUHGDQGKRZWKHLQMXU\KDSSHQHGZKHWKHUWKHKHPRUUKDJHVDUH
    VPDOO SHWHFKLDH  DQGRU PXOWLSOH DQG VFDWWHUHG ZKHWKHU D IRUPHG FORW KHPDWRPD  GHYHORSV DQG
    ZKHWKHUWKHEORRGLVZLWKLQWKHEUDLQ LQWUDSDUHQFK\PDO RURQWKHFRUWLFDOVXUIDFH VXEDUDFKQRLGRU
    SLDO KHPRUUKDJH  ZLWKLQ WKH YHQWULFXODU V\VWHP LQWUDYHQWULFXODU  RU RXWVLGH WKH EUDLQ SURSHU
    H[WUDSDUHQFK\PDO  7\SLFDOO\ WZR W\SHV RI SDWKRORJLFDOO\ VLJQLILFDQW FORWV IRUP RXWVLGH WKH EUDLQ
    SURSHU   H[WUDGXUDO ('+  DOVR UHIHUUHG WR DV HSLGXUDO LQ ZKLFK WKH FORW IRUPV LQ WKH VSDFH
    EHWZHHQWKHLQQHUWDEOHRIWKHVNXOODQGWKHRXWHUVXUIDFHRIWKHGXUDPDWHURU  VXEGXUDO 6'+ 
    ZKHQ WKH FORW IRUPV EHQHDWK WKH GXUD DQG QH[W WR WKH VXUIDFH RI WKH EUDLQ %RWK W\SHV RI FORWV
    PHFKDQLFDOO\FRPSUHVVEUDLQWLVVXHEHFDXVHWKHH[SDQGLQJFORWGLVSODFHVWKHSOLDEOHEUDLQEXWQHLWKHU
    LVIRUPHGRIEORRGWRXFKLQJGLUHFWO\RQWKHEUDLQSURYLGHGWKDWWKHSLDPDWHULVQRWEUHHFKHGLQDQ
    H[SDQGLQJVXEGXUDOKHPRUUKDJH,QFRQWUDVWKHPRUUKDJHVRQWKHVXUIDFHRUZLWKLQWKHEUDLQQRWRQO\
    GLVSODFH EUDLQ WLVVXH EXW EUDLQ SDUHQFK\PD LV GHSULYHG RI LWV EORRG VRXUFH ZKLFK FDQ DOVR EH WKH
    FRQVHTXHQFH RI DQ\ H[SDQGLQJ KHPDWRPD WKURXJK RXWZDUG FRPSUHVVLRQ RI WKH VXUIDFH YDVFXODWXUH
    7KH QXPEHU DQG VL]H RI KHPRUUKDJLF OHVLRQV LV SRVLWLYHO\ DVVRFLDWHG ZLWK QHXURSV\FKRORJLFDO
    LPSDLUPHQWSDUWLFXODUO\PHPRU\IXQFWLRQLQJ 6FKHLGHWDO 6HYHUDOW\SHVRIKHPRUUKDJHVDUH
    FRPPRQWR7%, VHH)LJ 

    ),*85(05,FRPSDULVRQVDWGLIIHUHQWOHYHOVRI7%,VHYHULW\LQFKLOGUHQZLWKDPHDQDJHRI$OOD[LDO05,VDUH
    DSSUR[LPDWHO\DWWKHKHDGRIWKHFDXGDWHQXFOHXVDQWHULRUKRUQDQGWKLUGYHQWULFOHOHYHO7KHLPDJHRQWKHOHIWLVIURPDQRUWKRSHGLFDOO\
    LQMXUHG 2, FRQWURODQGLVUHSUHVHQWDWLYHRIZKDWDQRUPDOEUDLQVKRXOGDSSHDUOLNHDWWKLVOHYHODQGIRUDJH9%5VWDQGVIRUߧYHQWULFOH
    WREUDLQUDWLRߨDQGLVWKHUDWLRRIWRWDOYHQWULFXODUYROXPHGLYLGHGE\EUDLQYROXPHPXOWLSOLHGE\VRWKDWZKROHQXPEHUYDOXHVDUH
    XVHG$QRUPDO9%5IRUWKLVDJHLVDURXQGZLWKDVWDQGDUGGHYLDWLRQRI$VVXFKWKH2,FRQWURODQGPLOG *ODVJRZ&RPD6FDOH
    RU*&6  7%,FDVHDUHZLWKLQQRUPDOOLPLWVKRZHYHUWKHSDWLHQWVZLWK*&6VFRUHVRIDQGGHPRQVWUDWHSURJUHVVLYHO\LQFUHDVHG
    DWURSK\PRVWHYLGHQWE\WKHLQFUHDVHGVL]HRIWKHYHQWULFOHDQGSURPLQHQFHRIWKHVXOFL8VHGZLWKSHUPLVVLRQIURP,QIRUPD+HDOWKIURP
    *KRVKHWDO  

    %ORRGYHVVHOVHPEHGGHGLQWKHLQQHUVXUIDFHRIWKHVNXOODQGRQWKHVXUIDFHRIWKHPHQLQJHVFDQEH
    VKHDUHGUXSWXUHGRUGLVVHFWHGDZD\IURPWKHLUQDWXUDOSRVLWLRQDVLPSDFWIRUFHVSXOOWKHEUDLQDZD\
    IURPWKHVNXOO6NXOOIUDFWXUHVDUHDFRPPRQVRXUFHRIH[WUDGXUDOKHPDWRPDV6NXOOIUDFWXUHLQMXULHV
    DUH FODVVLILHG DV &+, DV ORQJ DV ERQH IUDJPHQWV KDYH QRW SHQHWUDWHG LQWR WKH EUDLQ VKRXOG WKH
    PHQLQJHVEHEUHHFKHGDQGSHQHWUDWLRQRFFXUVWKHLQMXU\EHFRPHVD3+,0DQ\WUDXPDWLFH[WUDGXUDO
    KHPDWRPDVSUHVHQWDVPHGLFDOHPHUJHQFLHVEXWRWKHUVPD\WDNHKRXUVWRIRUPDQGGD\VEHIRUHWKH
    EOHHGKDVEHFRPHVRJUHDWWKDWPHGLFDODWWHQWLRQLVUHTXLUHG2IFRXUVHIRUFHVZLWKVXIILFLHQWVWUHQJWK
    WR UXSWXUHEORRG YHVVHOV DUH VWURQJ HQRXJKWRLQMXUH QHXURQVWKXV7$, FRPPRQO\ RFFXUV ZLWK DQ\
    W\SH RI KHPRUUKDJLF OHVLRQ *XVPDR DQG 3LWWHOOD   :KLOH WKH PDMRU QHXURSV\FKRORJLFDO
    VHTXHODH RI DQ H[WUDGXUDO KHPDWRPD PD\ EH GXH WR EUDLQ FRPSUHVVLRQ 7$, DOVR FRQWULEXWHV WR WKH
    FRQVHTXHQWLPSDLUPHQWV
    :KHQWKHKHPDWRPDGHYHORSVEHQHDWKWKHGXUDPDWHULWRIWHQFRPSUHVVHVWKHVXUIDFHRIWKHEUDLQ
    LQWRDFUHVFHQWVKDSHGGHSUHVVLRQ VHH)LJ 7KHPHFKDQLFDOFRPSUHVVLRQSURSHUWLHVRIVXEGXUDO
    DQG H[WUDGXUDO KHPDWRPDV DUH VLPLODU +RZHYHU VLQFH WKH EORRG IRUPLQJ D VXEGXUDO KHPDWRPD
    W\SLFDOO\FRPHVIURPYHVVHOVORFDWHGLQWKHVXEGXUDOVSDFHDFORWRQWKHSLDOVXUIDFHRIWKHEUDLQPD\
    GLVWRUW EUDLQ SDUHQFK\PD PRUH GLUHFWO\ WKDQ DQ H[WUDGXUDO KHPDWRPD RI D VLPLODU VL]H EHFDXVH WKH
    H[WUDGXUDO FORW ILUVW KDV WR GLVSODFH WKH VWXUG\ GXUD PDWHU :KHQ GXUD PDWHU LV RQ WKH RXWVLGH RI D
    VXEGXUDO FORW WKH RQO\ GLVSODFHPHQW SRVVLEOH LV LQZDUG GLUHFWO\ RQWR WKH FRUWH[ 7KXV VXEGXUDO
    KHPDWRPDVSUHVHQWPRUHRIWHQDVPHGLFDOHPHUJHQFLHVWKDQWKRVHWKDWDUHH[WUDGXUDO$QLPDOVWXGLHV
    KDYHGHPRQVWUDWHGDGLUHFWUHODWLRQVKLSEHWZHHQWKHVL]HRIDVXEGXUDOFORWߟSDUWLFXODUO\LWVZLGWKߟ
    DQGWKHDPRXQWRIFHUHEUDOFRUWH[GLVWRUWLRQDQGQHXURQDOGDPDJH 3DWHOHWDO 
    7UDXPDWLFLQMXU\LQYROYLQJWKHVXEDUDFKQRLGVSDFHPD\DOVRUHVXOWLQDVXEDUDFKQRLGKHPRUUKDJH
    6$+  EXW GLIIHUV IURP D VXEGXUDO KHPDWRPD LQ WKDW ODUJH FORWV GR QRW IRUP DQG WKH KHPRUUKDJH
    UHPDLQV ZLWKLQ WKH VXEDUDFKQRLG VSDFH )LJXUH  VKRZV WKH DSSHDUDQFH RI GLIIHUHQW W\SHV RI
    KHPRUUKDJHVIURP7%,LQVFDQVDQGSRVWPRUWHP

    ),*85( $ '05,UHFRQVWUXFWLRQRIDVHYHUH7%,KLJKOLJKWLQJWKHIURQWDOIRFXVRIWUDXPDWLFKHPRUUKDJHVVKRZQLQUHG
    6XVFHSWLELOLW\ZHLJKW05,LVPRVWVHQVLWLYHLQGHWHFWLQJSULRUKHPRUUKDJHROGKHPRUUKDJLFOHVLRQVLQWKHIURQWDOUHJLRQDSSHDULQWKH
    KRUL]RQWDO % VDJLWWDO F DQGFRURQDO ' SODQHV7KHVHLPDJHVDUHQRWLQUDGLRORJLFDOSHUVSHFWLYHDVWKHDUURZVSRLQWWRKHPRUUKDJHVLQ
    WKHULJKWIURQWDOOREH$SRVWPRUWHPVHFWLRQVKRZLQJGLIIHUHQWW\SHVRIDFXWHKHPRUUKDJHLVVKRZQLQ(ZKHUHWKHWRSDUURZSRLQWVWRD
    VPDOOKHPRUUKDJHDWWKHJUD\ZKLWHPDWWHULQWHUIDFHWKHORQJDUURZMXVWEHQHDWKSRLQWVWRDODUJHLQWUDFHUHEUDOKHPRUUKDJHZLWK
    DGGLWLRQDOKHPRUUKDJLFOHVLRQVLQWKHFRUSXVFDOORVXP WRSPLGGOHDUURZ DQGWKHERWWRPDUURZSRLQWVWRWKHSURPLQHQWFROODSVHDQG
    PLGOLQHVKLIWRIWKHYHQWULFXODUV\VWHPDORQJZLWKLQIHULRUIURQWDOVXUIDFHFRQWXVLRQ $VVKRZQLQ)LQWUDSDUHQFK\PDOKHPRUUKDJLFOHVLRQV
    PD\OHDYHVRPHRIWKHEUDLQWLVVXHFOHDYHGDSDUWZKLFKLQWXUQILOOVZLWK&6) DUURZ 8VHGZLWKSHUPLVVLRQIURP%LJOHUDQG0D[ZHOO
     DQG,263UHVV*DQG+DUHIURPDGLIIHUHQW7%,SDWLHQWVKRZLQJWKHDSSHDUDQFHRIYDULRXVW\SHVRIKHPRUUKDJHVLQWKHDFXWH
    VWDJH VW6FDQDQG$IWHU(SLGXUDO5HPRYDO DQGWKHLUHIIHFWVRQEUDLQLQWHJULW\DIWHUVL[ZHHNVSRVWLQMXU\LQFOXGLQJZKHUHWKH05,
    )/$,5VHTXHQFHGHPRQVWUDWHVYHQWULFXODUGLODWLRQIRFDOHQFHSKDORPDODFLDDQGQXPHURXVZKLWHPDWWHUK\SHULQWHQVLWLHVRXWVLGHWKH
    ERXQGDULHVZKHUHIRFDOGDPDJHRFFXUUHG

    ,QWUDSDUHQFK\PDO KHPRUUKDJHV LQ &+, UHVXOW IURPVKHDULQJ DQGWHQVLOH HIIHFWV RQ EORRG YHVVHOV
    7KH EUDLQߤV H[WHQVLYH QHWZRUN RI VPDOO FDSLOODULHV LV HPEHGGHG WKURXJKRXW WKH SDUHQFK\PD 6KHDU
    HIIHFWVVXIILFLHQWWRVWUHWFKWHDUD[RQVFDQGRWKHVDPHWREORRGYHVVHOV$WWKHFRUHRIWKHKHPRUUKDJH
    LV GLVUXSWHG EORRG IORZ WR EUDLQ WLVVXH GDPDJLQJ QHXUDO FHOOV WKDW ZRXOG QRUPDOO\ EH IHG E\ WKHVH
    YHVVHOV )URP WKH FHQWUDO DUHD RI WKH KHPRUUKDJH WLVVXH LV GLVUXSWHG LQ D FHQWULIXJDO IDVKLRQ
    7UDFNLQJ WKH HIIHFWV RI KHPRUUKDJH RYHU WLPH LQ VHTXHQWLDO QHXURLPDJLQJ VWXGLHV SURYLGHV KHOSIXO
    LQIRUPDWLRQ DERXW KRZ KHPRUUKDJLF OHVLRQV DQG WKHLU VHTXHODH FDQ DIIHFW EUDLQ IXQFWLRQ DQG
    FRQVHTXHQWO\ EHKDYLRU $V VKRZQ LQ )LJXUH  WKH LQLWLDO VFDQ H[KLELWV QXPHURXV KHPRUUKDJLF
    OHVLRQVEXWWKHFKDQJHVRYHUWLPHDQGWKHSURIRXQGDWURSK\WKDWUHVXOWHGSRVWLQMXU\VKRZVKRZLQLWLDO
    SDWKRORJ\ GHYHORSV LQWR FKURQLF SDWKRORJ\ &KURQLF SDWKRORJ\ OLNH WKLV WUDQVODWHV LQWR JHQHUDOL]HG
    QHXURSV\FKRORJLFDOGHILFLWV
    7%, LQGXFHGLQWUDYHQWULFXODUKHPRUUKDJH LV W\SLFDOO\ DVVRFLDWHG ZLWK KHPRUUKDJLF OHVLRQV IURP
    YHVVHOVVXUURXQGLQJWKHYHQWULFOHVRUEOHHGLQJIURPVXUURXQGLQJSDUHQFK\PDWKDWPDNHVLWVZD\LQWR
    WKH YHQWULFOH 2I  SRVWPRUWHP FDVHV ZLWK KLVWRU\ RI EOXQW WUDXPD  KDG EORRG ZLWKLQ WKH
    YHQWULFOHZLWKWKHVRXUFHRIWKHEORRGHYHQO\GLVWULEXWHGIURPWKHVHUHJLRQV 0D[HLQHUDQG6FKLUPHU
      9HQWULFXODU EORRG LV HYLGHQFH RI DQ LQMXU\ WR EUDLQ SDUHQFK\PD )LJ $ VKRZV
    LQWUDYHQWULFXODUKHPRUUKDJHLQDVVRFLDWLRQZLWKPXOWLSOHRWKHUW\SHVRIKHPRUUKDJHV 

    7KH VHFRQG LQMXU\ 6HFRQGDU\ GDPDJH GXH WR HQVXLQJ SK\VLRORJLFDO SURFHVVHV PD\ EH DV
    GHVWUXFWLYH RI EUDLQ WLVVXH DV WKH DFFLGHQWߤV LPPHGLDWH HIIHFWV LI QRW PRUH GHVWUXFWLYH 0: *UHYH
    DQG=LQN.RFKDQHNHWDO 7KHDVVRFLDWLRQEHWZHHQSULPDU\DQGVHFRQGDU\LQMXU\FDQEH
    VHHQ LQ )LJ  S   (OHYDWHG LQWUDFUDQLDO SUHVVXUH ,&3  EUDLQ VZHOOLQJ HGHPD  LQVXIILFLHQW
    R[\JHQ K\SR[LD LQVXIILFLHQWRUDEVHQWEORRGVXSSO\ LVFKHPLD IHYHU S\UH[LD DQGLQIHFWLRQDUH
    DPRQJWKHFRPSOLFDWLQJSURFHVVHVLQLWLDWHGDWWKHWLPHRILQMXU\WKDWOHDGWRVHFRQGDU\GDPDJHRIWKH
    EUDLQ ',*UDKDP-' 0LOOHU 3LSHUDQG -RQHV  7KH LQLWLDO GDPDJH WR WKH EUDLQ DOVR
    SUHFLSLWDWHV D FDVFDGH RI QHXURFKHPLFDO H[FLWRWR[LF DQG RWKHU DGYHUVH FHOOXODU HYHQWV *L]D DQG
    +RYGD7.0F,QWRVKHWDO1RYDFN'LOORQDQG-DFNVRQ 
    (OHYDWHG LQWUDFUDQLDO SUHVVXUH FDQ OHDG WR YDVFXODU FRQJHVWLRQ DGGLQJ WR EUDLQ HGHPD %UDLQ
    VZHOOLQJ FDQ EH IRFDO RU JHQHUDOL]HG DGMDFHQW WR D FRQWXVLRQ RU GLIIXVHG WKURXJKRXW RQH RU ERWK
    KHPLVSKHUHV ', *UDKDP   &HUHEUDO LVFKHPLD UHVXOWV ZKHQ FHUHEUDO EORRG IORZ &%)  LV
    LQVXIILFLHQWWRVXSSRUWWKHPHWDEROLFQHHGVRIEUDLQWLVVXH7KLVFDQEHVHHQSULPDULO\LQWKHILUVW
    KRXUVSRVWLQMXU\HVSHFLDOO\LQWKHILUVWIRXU 0XL]HODDU2EULVWDQG0DULRQ ,QRQHVWXG\
     RI SDWLHQWV ZKR GLHG GXH WR VHYHUH 7%, KDG KLVWRORJLFDO HYLGHQFH RI FHUHEUDO LVFKHPLD ',
    *UDKDP$GDPVDQG'R\OH 3\UH[LDLVOLNHO\WRLQFUHDVHPHWDEROLFGHPDQGVRQWKHEUDLQZKHQ
    &%)LVORZDQGLVDVVRFLDWHGZLWKEUDLQFRQJHVWLRQHGHPDDQGHOHYDWHG,&3 ',*UDKDP  ,Q
    PRVW FDVHV S\UH[LD LV DVVXPHG WR EH WKH ERG\ߤV UHVSRQVH WR LQMXU\ DQG WKH UHDVRQ IRU PHGLFDOO\
    UHJXODWLQJERG\WHPSHUDWXUHLQWKHDFXWHVWDJHRIEUDLQLQMXU\WUHDWPHQWLWDOVRPD\FRQWULEXWHWRWKH
    VHFRQGDU\EUDLQLQMXU\ &KLOGV6DFKRDQG&KLOGV 
    7KHPRVWOLIHWKUHDWHQLQJHIIHFWVRIFHUHEUDOVZHOOLQJDUHRQEUDLQVWHPVWUXFWXUHVFRQFHUQHGZLWK
    YLWDOIXQFWLRQVIRUZKHQFRPSUHVVLRQVHULRXVO\FRPSURPLVHVWKHLUDFWLYLW\WKHSDWLHQWGLHV(OHYDWHG
    LQWUDFUDQLDOSUHVVXUHLVWKHPRVWIUHTXHQWFDXVHRIGHDWKLQ&+, -+$GDPV*UDKDPDQG*HQQDUHOOL
     0DUPDURX   DQG WHQGV WR EH D VWURQJ SUHGLFWRU RI VHYHUH FKURQLF LPSDLUPHQW 8]]HOO
    'ROLQVNDV DQG :LVHU   7KXV FRQWURO RI LQWUDFUDQLDO SUHVVXUH LV WKH PRVW LPSRUWDQW PHGLFDO
    FRQVLGHUDWLRQLQWKHDFXWHFDUHRIKHDGWUDXPD 0(7DQJDQG/REHO 7KHLQFUHDVLQJVXUYLYDO
    UDWHRISDWLHQWVZLWKVXFKLQMXULHVDWWHVWVWRWKHVXFFHVVRIPRGHUQPHGLFDODQGVXUJLFDOWHFKQLTXHVIRU
    FRQWUROOLQJ,&3
    $ORQJZLWKDGGLWLRQDOGDPDJHIURPVZHOOLQJLQFUHDVHGFHUHEUDOEORRGYROXPH K\SHUHPLD GXHWR
    ORVVRIQRUPDODXWRUHJXODWRU\SURFHVVHVPD\FRQWULEXWHWRHOHYDWHGLQWUDFUDQLDOSUHVVXUH7KLVH[FHVV
    RIEORRGLQWKHEUDLQW\SLFDOO\DSSHDUVDERXWWKHVHFRQGRUWKLUGGD\DIWHUVHYHUHLQMXU\5DWKHUWKDQ
    JXDUDQWHHLQJ DGHTXDWH R[\JHQDWLRQ DQG QRXULVKPHQW ZKHQ VLFN DQG G\LQJ EUDLQ WLVVXH PRVW QHHG
    WKHPK\SHUHPLDGLVUXSWVQRUPDOEORRGIORZ =ZLHQHQEHUJDQG0XL]HODDU 7KH FRPSUHVVLRQ
    HIIHFWVRIUDLVHG,&3FDQUHGXFHFHUHEUDOEORRGIORZJHQHUDOO\DQGFUHDWHLVFKHPLFDUHDVLQZKLFKQR
    DUWHULDOEORRGJHWVWKURXJKWRVZROOHQWLVVXHV ',*UDKDP$GDPVDQG'R\OH  (OHYDWHG,&3
    ZLWKK\SHUHPLDFRQWULEXWHVVLJQLILFDQWO\WRSRRUHURXWFRPHVLQVXUYLYLQJSDWLHQWV &KLHUHJDWRHWDO
    8]]HOO2EULVWHWDO +\SRWHQVLRQ ORZEORRGSUHVVXUH DQGK\SR[LDFDQDOVRFRQWULEXWH
    WR SRRU RXWFRPH *HQQDUHOOL DQG *UDKDP  -HUHPLWVN\ HW DO  1DUD\DQ :LOEHUJHU DQG
    3RYOLVKRFN 

    %HKDYLRUDODOWHUDWLRQVDVVRFLDWHGZLWKFRPPRQSDWWHUQVRI7%,

    'LIIXVH GDPDJH 0XFK RI WKH GLIIXVH GDPDJH DVVRFLDWHG ZLWK 7%, FRQVLVWV RI GHJUDGDWLRQ LQ WKH
    PLFURVWUXFWXUHDQGLQWHJULW\RID[RQVDQGWKHLUFRQQHFWLRQV:KLWHPDWWHUSDWKRORJ\LQ7%,FDQEHD
    PL[WXUH RI PLQXWH OHVLRQV VFDWWHUHG WKURXJKRXW WKH EUDLQ VXEVWDQFH WKDW HYHQWXDOO\ PD\ EHFRPH WKH
    VLWHVRIGHJHQHUDWLYHFKDQJHVDQGRIVFDUWLVVXHRUVLPSO\OLWWOHFDYLWLHV )DUNDVDQG3RYOLVKRFN
    6WULFK 'LIIXVLRQWHQVRULPDJLQJKDVFODULILHGWKHZKLWHPDWWHUFKDQJHVWKDWRFFXURYHUWLPHLQ
    7%,VXFKDVH[WHQVLYHDQGZLGHVSUHDGGDPDJHLQYROYLQJWKHIURQWDODQGWHPSRUDOOREHZKLWHPDWWHU
    WUDFWV DQG WKH LQWHJULW\ RI WKH FRUSXV FDOORVXP %HQGOLQ HW DO  %LJOHU   7KLV NLQG RI
    GDPDJH WHQGV WR FRPSURPLVH PHQWDO VSHHG DWWHQWLRQDO IXQFWLRQV FRJQLWLYH HIILFLHQF\ DQG ZKHQ
    VHYHUH KLJKOHYHO FRQFHSW IRUPDWLRQ DQG FRPSOH[ UHDVRQLQJ DELOLWLHV DQG H[HFXWLYH IXQFWLRQV
    $]RXYLHWDO563DUNHU9DQ=RPHUHQDQG%URXZHU  $VSHFWVRI PHPRU\ DOVR
    WHQG WR EH DIIHFWHG 7VDRXVLGHV DQG *RUGRQ  9DNLO   7KHVH SUREOHPV DUH W\SLFDOO\
    UHIOHFWHG LQ SDWLHQWVߤ FRPSODLQWV RI LQDELOLW\ WR FRQFHQWUDWH RU SHUIRUP FRPSOH[ PHQWDO RSHUDWLRQV
    FRQIXVLRQDQGSHUSOH[LW\LQWKLQNLQJLUULWDELOLW\IDWLJXHDQGLQDELOLW\WRGRWKLQJVDVZHOODVEHIRUH
    WKHDFFLGHQW7KHODWWHUFRPSODLQWLVSDUWLFXODUO\SRLJQDQWLQEULJKWPLOGO\GDPDJHGLQGLYLGXDOVZKR
    PD\ VWLOO SHUIRUP ZHOO RQ VWDQGDUG DELOLW\ WHVWV EXW ZKR DUH DZDUH RI D ORVV RI PHQWDO SRZHU DQG
    DFXLW\WKDWZLOONHHSWKHPIURPUHDOL]LQJSUHPRUELGJRDOVRUUHSHDWLQJSUHPRUELGDFFRPSOLVKPHQWV
    3UREOHPVDVVRFLDWHGZLWKGLIIXVHGDPDJHUHDGLO\EHFRPHDSSDUHQWLQDQDSSURSULDWHH[DPLQDWLRQ
    6ORZHGWKLQNLQJDQGUHDFWLRQWLPHVPD\UHVXOWLQVLJQLILFDQWO\ORZHUHGVFRUHVRQWLPHGWHVWVGHVSLWH
    WKH FDSDFLW\ WR SHUIRUP WKH UHTXLUHG WDVN DFFXUDWHO\ 7DVNV UHTXLULQJ VHOHFWLYH RU GLYLGHG DWWHQWLRQ
    WHQG WR EH SDUWLFXODUO\ VHQVLWLYH WR GLIIXVH HIIHFWV *URQZDOO  0 /HFOHUFT DQG $]RXYL 
    6WXVV 6WHWKDP HW DO  9DQ =RPHUHQ DQG %URXZHU   ,Q JHQHUDO SDWLHQWV ZLWK GLIIXVH
    GDPDJHSHUIRUPUHODWLYHO\SRRUO\RQWDVNVUHTXLULQJFRQFHQWUDWLRQDQGPHQWDOWUDFNLQJVXFKDVRUDO
    DULWKPHWLFVHTXHQWLDODULWKPHWLFDQGUHDVRQLQJSUREOHPVWKDWPXVWEHSHUIRUPHGPHQWDOO\ *URQZDOO
    DQG:ULJKWVRQ2JGHQ   2WKHU GLIILFXOWLHV H[SHULHQFHG E\ SDWLHQWV ZLWK GLIIXVH GDPDJH
    LQFOXGH FRQIXVLRQ RI LWHPV RU HOHPHQWV RI RUDOO\ SUHVHQWHG TXHVWLRQV IHHOLQJV RI XQFHUWDLQW\ DERXW
    WKHFRUUHFWQHVVRIWKHLUDQVZHUVGLVWUDFWLELOLW\DQGIDWLJXH /H]DNDE2JGHQ 
    2FFDVLRQDOO\D7%,SDWLHQWZLWKDVWURQJPDWKHPDWLFVEDFNJURXQGZLOOSHUIRUPVXUSULVLQJO\ZHOO
    RQDULWKPHWLFSUREOHPVHYHQWKRVHLQYROYLQJRUDODULWKPHWLFZLWKLWVPHQWDOWUDFNLQJUHTXLUHPHQWV
    DOWKRXJKPDQ\RIWKHVHSDWLHQWVUXQLQWRGLIILFXOW\ZLWKSUREOHPVWKDWUHTXLUHWKHPWRMXJJOHVHYHUDO
    HOHPHQWVPHQWDOO\2EVHUYDWLRQVRIDULWKPHWLFDOO\H[FHSWLRQDOSDWLHQWVZKRSHUIRUPSRRUO\RQRWKHU
    WHVWVRIPHQWDOWUDFNLQJJLYHWKHLPSUHVVLRQWKDWWKHLUDULWKPHWLFWKLQNLQJKDELWVDUHVRLQJUDLQHGWKDW
    WKH VROXWLRQV FRPH WR WKHP DXWRPDWLFDOO\ EHIRUH WKH\ KDYH WLPH WR ORVH RU JHW FRQIXVHG DERXW WKH
    SUREOHPߤVHOHPHQWV6LPLODUPDQLIHVWDWLRQVRIRWKHUNLQGVRIRYHUOHDUQHGEHKDYLRUFDQDOVRFURSXS
    XQH[SHFWHGO\
    3DWLHQWV ZLWK WKH PHQWDO HIILFLHQF\ SUREOHPV DVVRFLDWHG ZLWK GLIIXVH GDPDJH IUHTXHQWO\ LQWHUSUHW
    WKHLU H[SHULHQFHV RI VORZHG SURFHVVLQJ DQG DWWHQWLRQDO GHILFLWV DV PHPRU\ SUREOHPV HYHQ ZKHQ
    OHDUQLQJLVDIIHFWHGRQO\PLOGO\LIDWDOO +RZLHVRQDQG/H]DNE 7KXVWKH\FRPSODLQRIߧSRRU
    PHPRU\ߨ EXW DQDO\VLV RI WKHLU SHUIRUPDQFH RQ PHPRU\ DQG DWWHQWLRQ WHVWV W\SLFDOO\ LPSOLFDWHV
    UHGXFHGDXGLWRU\VSDQGLIILFXOW\GRLQJ RUSURFHVVLQJ PRUHWKDQRQHWKLQJ RUVWLPXOXV DWDWLPH
    DQG YHUEDO UHWULHYDO SUREOHPV 0DQ\ DUH DFXWHO\ DZDUH WKDW WKH\ DUH PHQWDOO\ LQHIILFLHQWߟHDVLO\
    FRQIXVHG GLVRULHQWHG RYHUZKHOPHG RU GLVWUDFWHG 7KHVH SDWLHQWV PD\ WU\ WR FRPSHQVDWH IRU WKHLU
    GHILFLHQFLHV ZLWK REVHVVLYHFRPSXOVLYH VWUDWHJLHV *UDGRV  +LEEDUG %RJGDQ\ HW DO 
    /H]DN DQGWHQGWRDYRLGVWUHVVIXO LHKLJKO\VWLPXODWLQJ VLWXDWLRQVߟVXFKDVFRFNWDLOSDUWLHV
    WKH ORFDO SXE ELJ IDPLO\ JDWKHULQJV DQG VKRSSLQJ PDOOVߟWKXV EHFRPLQJ VRPHZKDW VRFLDOO\
    ZLWKGUDZQ

    'LUHFWEORZVWRWKHKHDG&RXSDQGFRQWUHFRXSOHVLRQVWHQGWREHIRFDOLQYROYLQJGLVFUHWHFRUWLFDO
    GDPDJHDQGSURGXFLQJVSHFLILFLPSDLUPHQWVRIWKRVHIXQFWLRQVPHGLDWHGE\WKHFRUWLFDOUHJLRQDWWKH
    OHVLRQ VLWH 6XFK VSHFLILF LPSDLUPHQWV PD\ DSSHDU DV WKH VROH RU SUHGRPLQDQW QHXURSV\FKRORJLFDO
    GLVWXUEDQFH ZKHQ WKH YLFWLP KDV EHHQ VWUXFN E\ DQ REMHFW RU KDV VWUXFN WKH KHDG DJDLQVW DQ REMHFW
    WKURXJKDVXGGHQPRYHRUVKRUWIDOOLQZKLFKQRWPXFKPRPHQWXPZDVJDLQHG
    $ERXWRQH\HDUDIWHUKHUHFHLYHGDQHOHFWULFVKRFNDQGIHOOHLJKWIHHWIURPKLVZRUNVWDWLRQVWULNLQJWKHOHIWVLGHRIKLVKHDGD
    \HDUROGULJKWKDQGHGHOHFWULFLDQZDVUHIHUUHGIRUDQHPSOR\DELOLW\HYDOXDWLRQ+HGLVSOD\HGQRODQJXDJHRUQHXURORJLFDO
    GHILFLWV DQG DOO DVSHFWV RI UHVSRQVH VSHHG PRWRU FRQWURO DWWHQWLRQ FRQFHQWUDWLRQ DQG PHQWDO WUDFNLQJ ZHUH ZHOO DERYH
    DYHUDJH+RZHYHUKHFRXOGQRORQJHUSHUIRUPFRPSOH[PHFKDQLFDOFRQVWUXFWLRQZRUNHIILFLHQWO\RUVDIHO\QRUFRXOGKHGUDZ
    DKRXVHLQSHUVSHFWLYH+HIDLOHGPLVHUDEO\RQDQHPSOR\HHDSWLWXGHWHVWRIYLVXRJUDSKLFIXQFWLRQVDQGKDGGLIILFXOW\ZLWKEORFN
    DQG SX]]OH FRQVWUXFWLRQ WDVNV +LV WKLQNLQJ GLVSOD\HG WKH IUDJPHQWHG TXDOLW\ FKDUDFWHULVWLF RI SDWLHQWV ZLWK ULJKW KHPLVSKHUH
    GDPDJHDQGKLVZLIHFRPSODLQHGWKDWKHKDGEHFRPHLQVHQVLWLYHWRKHUHPRWLRQDOVWDWHVDVZHOODVVRFLDOO\JDXFKH PGO 
    7KHUH ZDV QR TXHVWLRQ WKDW WKLV PDQ KDG ORFDOL]HG EUDLQ GDPDJH :LWKRXW QHXURLPDJLQJ RQH FRXOG QRW GLVSURYH WKH
    SRVVLELOLW\WKDWKHZDVRQHRIWKHRQHLQDKXQGUHGULJKWKDQGHGSHUVRQVZKRVHODWHUDOFRUWLFDORUJDQL]DWLRQZDVWKHUHYHUVHRI
    QRUPDO+RZHYHUDPRUHOLNHO\H[SODQDWLRQZDVWKDWKHZDVRQHRIWKHZKRVXVWDLQDORFDOL]HGFRQWUHFRXSOHVLRQZKHQ
    WKHWUDXPDWLFLPSDFWLVWRWKHVLGHRIWKHKHDG VHH&DVWUR&DOGDV&RQIUDULDHWDOIRUDVLPLODUFDVHRIFRQWUHFRXSEXW
    ZLWKDULJKWVLGHGFRXS 

    &RUWLFDOFRQWXVLRQV EUXLVLQJ GXHWRGHFHOHUDWLRQDFFHOHUDWLRQHIIHFWV$QRWKHUSDWWHUQRIVSHFLILF


    LPSDLUPHQWV DVVRFLDWHG ZLWK ORFDOL]HG EUDLQ OHVLRQV LQYROYHV WKH IURQWDO DQG WHPSRUDO OREHV WKRVH
    DUHDV PRVW VXVFHSWLEOH WR WKH GDPDJLQJ HIIHFWV RI WKH EUDLQ ERXQFLQJ DQG WZLVWLQJ ZLWKLQ WKH VNXOO
    %LJOHUE 7KXVSUREOHPVLQWKHUHJXODWLRQDQGFRQWURORIJRDOGLUHFWHGDFWLYLW\LQFRQFHSWXDO
    DQGSUREOHPVROYLQJEHKDYLRUDQGLQYDULRXVDVSHFWVRIPHPRU\DQGOHDUQLQJDUHFRPPRQDPRQJ
    &+,YLFWLPV 1%URRNV'DUE\DQG:DOVK563DUNHU 7KHPRUHVHYHUHWKHLQMXU\
    WKH PRUH OLNHO\ LW LV WKDW WKH SDWLHQW ZLOO GLVSOD\ GHILFLWV FKDUDFWHULVWLF RI IURQWDO DQG WHPSRUDO OREH
    LQMXULHV DQG WKH PRUH SURPLQHQW WKHVH GHILFLWV ZLOO EH 'DPDJH LQYROYLQJ WKH IURQWDO DQG WHPSRUDO
    OREHVDOVRDIIHFWVWKHSDWLHQWߤVSHUVRQDOLW\DQGVRFLDODGMXVWPHQW %OXPHUDQG%HQVRQ( .LP
    *-2ߤ6KDQLFNDQG2ߤ6KDQLFN 7KHVHSHUVRQDOLW\FKDQJHVHYHQZKHQVXEWOHDUHPRUH
    OLNHO\ WR LPSHGH WKH SDWLHQWߤV UHWXUQ WR SV\FKRVRFLDO LQGHSHQGHQFH WKDQ FRJQLWLYH LPSDLUPHQW RU
    SK\VLFDO FULSSOLQJ .' %HFN HW DO /H]DN DQG 2ߤ%ULHQ  0XUUH\ +DOH DQG :LOOLDPV
     

    6HQVRU\DOWHUDWLRQV$QLPSDLUHGVHQVHRIVPHOO DQRVPLD IUHTXHQWO\DFFRPSDQLHVEUXLVLQJRIWKH


    IURQWDOOREHVDVWKHLUXQGHUVLGHOLHVRQWKHROIDFWRU\QHUYHV $WLJKHFKLHWDO+D[HO*UDQWDQG
    0DFND\6LP<RXVHPHWDO 'HILFLWVLQVPHOOGLVFULPLQDWLRQPD\DOVRLQGLFDWHGDPDJH
    WROLPELFFRPSRQHQWVRIWKHWHPSRUDOOREHVDVWKHVHWRRKDYHFRQQHFWLRQVWRWKHSULPDU\ROIDFWRU\
    VWUXFWXUHV (VOLQJHU'DPDVLRDQG9DQ+RHVHQ0DUW]NHHWDO $OWHUDWLRQVRIWKHVHQVH
    RIVPHOODUHGLUHFWO\UHODWHGWRWUDXPDVHYHULW\ 6LJXUGDUGRWWLU-HUVWDGHWDO DQGPD\RFFXULQ
    PRUHWKDQKDOIRISDWLHQWVLQFRQWUDVWWRPXFKORZHUUDWHVRIDZDUHQHVVRIWKHGHILFLWV &DOODKDQ DQG
    +LQNHEHLQ&RVWDQ]RDQG=DVOHU 
    0DQ\7%,SDWLHQWVVXVWDLQPRUHRUOHVVVXEWOHDOWHUDWLRQVLQYLVXDOFRPSHWHQF\ %UDKPHWDO
    +R\W 3DGXOD DQG $UJ\ULV   7KHVH FDQ LQYROYH YLVXDO DFXLW\ ERWK QHDU DQG IDU YLVXDO
    ILHOGVRFXORPRWRUGLVRUGHUVLQFOXGLQJIL[DWLRQGLIILFXOWLHVDQGIDLOXUHRIELQRFXODUIXVLRQZKLFKLV
    W\SLFDOO\ H[SHULHQFHG DV GRXEOH YLVLRQ GLSORSLD  DW RQH RU PRUH DQJOH RI YLVLRQ DQG DYHUVLRQ WR
    EULJKW OLJKWV SKRWRSKRELD  *URQZDOO  .DSRRU DQG &LXIIUHGD  6XFKRII HW DO 
    :HLVVEHUJ HW DO   3URVRSDJQRVLD DOVR WURXEOHV D IHZ 7%, SDWLHQWV PRUH W\SLFDOO\ IROORZLQJ
    VHYHUH7%, 0DWWVRQHWDO3UDGDW'LHKOHWDO 
    'L]]LQHVV DQG EDODQFH GLVRUGHUV DUH FRPPRQ SUREOHPV DIWHU KHDG LQMXU\ WKDW FDQ DGG WR WKH
    SDWLHQWߤV GLVWUHVV VHQVH RI FRQIXVLRQ DQG GLVRULHQWDWLRQ DQG FRJQLWLYH G\VIXQFWLRQ %DVIRUG HW DO
     )XUPDQ DQG &DVV  () 5LFKWHU   $ORQJ ZLWK GL]]LQHVV KHDULQJ GHIHFWV QRW
    LQIUHTXHQWO\ FRQWULEXWH WR WKHVH SDWLHQWVߤ FRJQLWLYH LQHIILFLHQFLHV DQG HPRWLRQDO GLVWUHVV -XU\ DQG
    )O\QQ  /H]DN   0RVW FRPPRQ RI WKHVH DUH ULQJLQJ RU EX]]LQJ LQ WKH HDU WLQQLWXV
    (JJHUPRQW DQG 5REHUWV   DQG LQWROHUDQFH RI ORXGVXGGHQ QRLVHV K\SHUDFXVLV  $WWLDV HW DO
    1ROOHHWDO 5LFKWHU  GHVFULEHVWKHSUREOHPRIVHQVRU\RYHUVWLPXODWLRQDIIHFWLQJ
    PDQ\SHUVRQVZKRKDYHVXVWDLQHG7%,
    6KRSSLQJLQDJURFHU\VWRUHLVSRWHQWLDOO\TXLWHGLIILFXOW7KLVDFWLYLW\UHTXLUHVVFDQQLQJDFURVVERWKVLGHVRIDQDLVOHSURFHVVLQJ
    H[WHQVLYH YLVXDO LQIRUPDWLRQ ZKLOH PRYLQJ WKURXJK WKH HQYLURQPHQW DQG DYRLGLQJ ERWK VWDWLRQDU\ DQG PRYLQJ REVWDFOHV 7KH
    FRORUIXOSDFNDJLQJDQGDPELHQWQRLVHSURYLGHDGGLWLRQDOVHQVRU\VWLPXOL S 

    &ORVHG+HDG,QMXU\1DWXUH&RXUVHDQG2XWFRPH
    0LOGWUDXPDWLFEUDLQLQMXU\

    'LDJQRVWLF FULWHULD 0DQ\ GLIIHUHQW FULWHULD IRU GLDJQRVLQJ PLOG 7%, P7%,  KDYH EHHQ RIIHUHG
    RYHUWKH\HDUVVRPHUHO\LQJRQ37$RWKHUVUHTXLULQJDWOHDVWEULHI/2&RUDPLQLPDODOWHUDWLRQLQ
    OHYHO RI FRQVFLRXVQHVV &DVVRQ 3HOOPDQ DQG 9LDQR  5RSSHU DQG *RUVRQ  5XII DQG
    -XULFD   0RVW QHXURSV\FKRORJLVWV QRZ VXEVFULEH WR WKH GLDJQRVWLF FULWHULD GHYHORSHG E\ WKH
    $PHULFDQ &RQJUHVV RI 5HKDELOLWDWLRQ 0HGLFLQH VHH S   +RZHYHU RWKHUߟQRW YHU\ GLIIHUHQWߟ
    FULWHULD DUH VWLOO LQ XVH HJ VHH $PHULFDQ $FDGHP\ RI 1HXURORJ\  0F$OOLVWHU   0DQ\
    HDUOLHUGHILQLWLRQVKDGUHTXLUHGORVVRIFRQVFLRXVQHVVLIRQO\IRUVHFRQGVDVDPLQLPDOFULWHULRQIRU
    DGLDJQRVLV RI 7%, $OPRVWZLWKRXW H[FHSWLRQ FXUUHQW GHILQLWLRQV UHFRJQL]H WKDW D PLOG 7%, FDQ EH
    VXVWDLQHGZLWKQR/2& VHH5XII,YHUVRQHWDOIRUJXLGHOLQHVIRUWKHGLDJQRVLVRIPLOG7%,
    0RVHU,YHUVRQHWDOIRUGLDJQRVLVRIVSRUWVFRQFXVVLRQ 

    1HXURSDWKRORJ\ RI PLOG 7%, &RQWHPSRUDU\ QHXURLPDJLQJ KDV JUHDWO\ LPSURYHG RXU
    XQGHUVWDQGLQJRIDFXWHFRQFXVVLRQDQGLWVXQGHUO\LQJVWUXFWXUDODQGSDWKRSK\VLRORJLFDOUHODWLRQVKLSV
    *L]DDQG+RYGD 1LRJL DQG0XNKHUMHH  7U]HSDF] DQG.HQQHG\  ,Q DOO IRUPV RI
    7%, DW OHDVW RQH HOHPHQW RI WKH LQMXU\ LV GXH WR PHFKDQLFDO IRUFHV WKDW LQ VRPH IDVKLRQ SHUWXUEHG
    FHOOXODU SK\VLRORJ\ DQGRU DQDWRP\ E\ GHIRUPLQJ VWUHWFKLQJ DQGRU DOWHULQJ QHXUDO FHOOV LQ
    SDUWLFXODUWKHD[RQ <&&KHQ6PLWKDQG0HDQH\ ,QLWVPLOGHVWIRUPFRQFXVVLYHLQMXU\WRWKH
    EUDLQLQGXFHVDQDFXWHSK\VLRORJLFDOHIIHFWEXWSUREDEO\QRODVWLQJVWUXFWXUDOLQMXU\ 0:*UHYHDQG
    =LQN ,QWKHPRVWFRPPRQVFHQDULRRIWKHPLOGHVWIRUPVRIFRQFXVVLRQFXUUHQWWHFKQRORJLHV
    GR QRW GHPRQVWUDWH VKHDULQJ RU SHUPDQHQW VWUXFWXUDO RU SK\VLRORJLFDO HIIHFWV 7KLV DOVR PHDQV WKDW
    WKHYDVWPDMRULW\RIFDVHVRIWKHPLOGHVWRIFRQFXVVLRQKDYHDJRRGSURJQRVLV +LPDQHQHWDO
    .RSRQHQHWDO6WXOHPHLMHUYDQGHU:HUIHWDO ,PSDFWVWKDWRFFXUIURP09$UHODWHG
    DFFLGHQWV RU KHDG LQMXULHV IURP IDOOV RU DVVDXOWV ZKHUH WKH KHDG LV QRW SURWHFWHG UHVXOW LQ JUHDWHU
    LPSDFWIRUFHVDQGDUHQRWOLNHYHU\PLOGVSRUWVFRQFXVVLRQ 0F&URU\-RKQVWRQHWDO5RZVRQ
    %UROLQVRQHWDO 
    +RZHYHULWLVLPSRUWDQWWRQRWHWKDWSK\VLRORJLFDOGLVUXSWLRQIURPPHFKDQLFDOSHUWXUEDWLRQVFDQ
    SHUPDQHQWO\ DOWHU FHOOXODU IXQFWLRQ ZLWK SRWHQWLDOO\ ODVWLQJ HIIHFWV *HQQDUHOOL DQG *UDKDP  
    6XEVWDQWLDO SK\VLRORJLFDO DQG LQIODPPDWRU\ UHDFWLRQV WR WKH LQLWLDO SHUWXUEDWLRQV FDQ RFFXU HYHQ LQ
    PLOGFRQFXVVLRQ$VWXG\RIDGROHVFHQWVZKRKDGVXVWDLQHGDPL[WXUHRIVSRUWVDQG09$UHODWHGYHU\
    PLOGFRQFXVVLRQV *&6RIDQGQR/2& IRXQGZLGHVSUHDGDFXWHLQIODPPDWRU\UHDFWLRQVZLWKLQ
    WKHZKLWHPDWWHURIWKHEUDLQ =&KXHWDO ,QSDWLHQWVZLWKP7%,05,LGHQWLILHGPHWDEROLWHV
    LQGLFDWLYH RI WLVVXH GLVUXSWLRQ SDUWLFXODUO\ LQ ZKLWH PDWWHU ZHUH UHODWHG WR SRVWFRQFXVVLYH VHTXHODH
    *DVSDURYLFHWDO 0RUHRYHUDVWKHVHYHULW\RIPLOG7%,LQFUHDVHVDFWXDOGLVUXSWLRQRIZKLWH
    PDWWHU WUDFWV FDQ DQG GRHV WDNH SODFH 5XWJHUV HW DO  VHH )LJ   0DQ\ 05, VWXGLHV KDYH
    LOOXPLQDWHG WKH VXEWOH SDWKRORJ\ DVVRFLDWHG ZLWK PLOG 7%, ERWK LQ WKH DFXWH DQG FKURQLF VWDJHV
    %LJOHU 
    7KH LVVXH RI UHSHDW FRQFXVVLRQV DQG QHXURSV\FKLDWULF GLVRUGHU ODWHU LQ OLIH KDV EHFRPH D PDMRU
    FRQFHUQ 'H%HDXPRQW7KHRUHWHWDO.LUDO\DQG.LUDO\:HLHWDO 7KHSUREOHP
    RIVLJQLILFDQWPHQWDOFRPSURPLVHODWHULQOLIHLVHVSHFLDOO\WUXHRIVSRUWVLQMXULHVDVSOD\HUVDQGRWKHU
    LQWHUHVWHGSHUVRQVPD\LJQRUHRUEHXQDZDUHRIWKHLQMXU\RUPD\ZLVKWKHLQMXUHGSOD\HUWRUHWXUQWR
    SOD\EHIRUHLWLVVDIH VHHSSߞ 

    (SLGHPLRORJ\ 2I WKH HVWLPDWHG RYHU RQHDQGDKDOIPLOOLRQ GRFXPHQWHG 7%,V DQQXDOO\ VHH S
     aRUPRUHRFFXUZLWKLQWKHPLOGUDQJH 5XWODQG%URZQHWDO +RZHYHUVLQFHWKHVH
    VWDWLVWLFVDUHEDVHGRQKRVSLWDOUHFRUGVDQGDQHVWLPDWHGRISHUVRQVVXVWDLQLQJP7%,QHYHUJRWR
    WKH(5RUVHHNWUHDWPHQWPLOG7%,UDWHVPD\EHPRUHLQWKHUDQJHRISRSXODWLRQLHDW
    OHDVWSHUVRQVZLWKP7%,VMXVWLQWKH8QLWHG6WDWHVHYHU\\HDU 6HWQLNDQG%D]DULDQ 
    7KLV HVWLPDWH LV IXUWKHU FRPSOLFDWHG E\ WKH IDFW WKDW SUREDEO\ KDOI RI WKH FDVHV WKDW ZRXOG UHDFK
    UHVHDUFKFULWHULDIRUP7%,DUHQHYHUGLDJQRVHGDVVXFK 'LNPHQ&RUULJDQHWDO $&DQDGLDQ
    VWXG\ IRXQG WKDW GLDJQRVLV E\ D IDPLO\ SK\VLFLDQ UDLVHG WKH DQQXDO LQFLGHQFH WR 
    SRSXODWLRQ 5\X)HLQVWHLQHWDO 6XFKKLJKLQFLGHQFHRIP7%,KDVEHHQLQIHUUHGIRUGHFDGHV
    :ULJKWVRQDQG*URQZDOO &HUWDLQO\DQ\HVWLPDWHRIP7%,LQFLGHQFHPXVWEHUHJDUGHGDVDQ
    XQGHUHVWLPDWH +3HWLWHWDO 

    &RXUVH DQG GXUDWLRQ 'HVFULSWLRQV RI WKH DFXWH FRQGLWLRQ LQ P7%, DJUHH RQ D WULDG RI
    QHXURSV\FKRORJLFDO G\VIXQFWLRQVߟDWWHQWLRQ GHILFLWV LPSDLUHG YHUEDO UHWULHYDO DQG IRUJHWIXOQHVVߟ
    WKDW DUH UHFRJQL]HG LPPHGLDWHO\ RU ZLWKLQ KRXUV WR D IHZ GD\V DIWHU LQMXU\ $OYHV DQG -DQH 
    *DVTXRLQHE5LPHOHWDO $50D\HUDQGFROOHDJXHV  XVHGDQI05,SDUDGLJPWR
    H[SORUH DWWHQWLRQDO G\VIXQFWLRQ LQ P7%, ZLWKLQ WKH ILUVW WKUHH ZHHNV SRVWLQMXU\ 7KHLU VWXGLHV
    GHPRQVWUDWHGGLVUXSWLYHSURFHVVLQJLQSDWLHQWVZKRVHDELOLW\WRGLVHQJDJHIURPRQHWDVNDQGPRYHWR
    DQRWKHU ZDV DGYHUVHO\ DIIHFWHG 2WKHU V\PSWRPV PRVW QRWDEO\ KHDGDFKH GL]]LQHVV LUULWDELOLW\
    GURZVLQHVV VOHHS GLVWXUEDQFH DQG IDWLJDELOLW\ DUH DOVR YHU\ FRPPRQ HDUO\ VHTXHODH &RRQOH\
    +RJDQVRQ HW DO  *DVTXRLQH E 3RQVIRUG :LOOPRWW HW DO   DQG FDQ H[DFHUEDWH WKH
    HIIHFWVRIFRJQLWLYHGHILFLWVDQGSV\FKRVRFLDODGMXVWPHQWV &RQER\ %DUWKDQG %ROO'LNPHQ
    0F/HDQDQG7HPNLQ 7KHVHV\PSWRPVFDQRFFXUZLWKRWKHUGLVRUGHUVDQGWKHUHIRUHDUHQRW
    VSHFLILFWRP7%,6LQFHFRPSODLQWVE\P7%,SDWLHQWVRQHPRQWKSRVWLQMXU\UDQJHIURPIHZWRPDQ\
    VXEMHFWLYHFRPSODLQWVDORQHVKRXOGQRWEHXVHGWRLGHQWLI\SHUVRQVZLWKP7%, 3DQLDN5H\QROGV HW
    DO DE  0LOG 7%, QHHGV WR EH GLDJQRVHG E\ WKH UHOHYDQW KLVWRU\ FOLQLFDO SUHVHQWDWLRQ RI WKH
    SDWLHQWDVZHOODVQHXURSV\FKRORJLFDODVVHVVPHQW
    ),*85(7KLVLVDFDVHRIPLOG7%,LQZKLFKFRQYHQWLRQDOLPDJLQJ XSSHUOHIW VKRZVQRDEQRUPDOLW\EXWWKHIUDFWLRQDODQLVRWURS\
    '7,PDS WRSPLGGOHLPDJH GRHV7KHUHJLRQRILQWHUHVWLVKLJKOLJKWHGLQUHGLQWKHXSSHUULJKWLPDJH'7,WUDFWRJUDSK\RIWKHIURQWDO
    UHJLRQVKRZVWUDFWGLVFRQWLQXLWLHVLQWKHZKLWHPDWWHUHPDQDWLQJIURPWKHFRUSXVFDOORVXPLQWRWKHOHIWIURQWDOUHJLRQ UHJLRQRIWKHIRUFHSV
    PLQRU ZKHUHWKHGLVFRQWLQXLWLHVDUHKLJKOLJKWHG VHHDUURZ )URP5XWJHUVHWDO  XVHGZLWKSHUPLVVLRQIURP7KH$PHULFDQ6RFLHW\
    RI1HXURUDGLRORJ\

    :KHQWKHSDWLHQWKDVVXVWDLQHGRWKHULQMXULHVSDUWLFXODUO\WKRVHUHTXLULQJVLJQLILFDQWDPRXQWVRI
    PHGLFDWLRQIRUSDLQRUSURFHGXUHVVXFKDVVXUJHU\RUFDVWLQJWRWUHDWRUWKRSHGLFLQMXULHVWKDWNHHSWKH
    SDWLHQWIURPUHVXPLQJDIXOOVFKHGXOHRIDFWLYLWLHVWKHFRJQLWLYHSUREOHPVPD\QRWEHFRPHGLVUXSWLYH
    RUHYHQHYLGHQWIRUGD\VRUߟLQVRPHFDVHVߟZHHNVDIWHUWKHDFFLGHQW3DWLHQWVZKRWDNHDIHZGD\V
    DZD\ IURP WKHLU QRUPDO UHVSRQVLELOLWLHV DIWHU DQ DFFLGHQW PD\ QRW QRWLFH PHQWDO LPSDLUPHQWV XQWLO
    UHWXUQLQJWRZRUNRUSUHSDULQJPHDOVVKRSSLQJDQGSODQQLQJIRUDIDPLO\7KXVLWLVQRWXQFRPPRQ
    WRILQGQRQRWHVUHSRUWLQJDOWHUHGPHQWDOVWDWXVLQWKHHPHUJHQF\URRPUHFRUGRUKRVSLWDOFKDUWHYHQ
    ZKHQWKHSDWLHQWLVODWHUREVHUYHGWRVXIIHUIURPIDLUO\GHELOLWDWLQJPHQWDOG\VIXQFWLRQ
    7KH SRVVLELOLW\ DQG IUHTXHQF\ RI UHWXUQ WR SUHLQMXU\ OHYHO RI FRJQLWLYH DQG QHXUREHKDYLRUDO
    IXQFWLRQDIWHUP7%,KDVEHHQDPXFKVWXGLHGWRSLFRYHUWKHSDVWWKUHHGHFDGHV +6/HYLQ0DWWLVHW
    DO  0F&UHD ,YHUVRQ HW DO   7KRVH ZKR VXVWDLQ VSRUWV FRQFXVVLRQ JHQHUDOO\ KDYH DQ
    H[FHOOHQWSURJQRVLVDVPRVWUHWXUQWRQRUPDODFWLYLWLHVZLWKLQKRXUVWRGD\VWRZHHNV 0F&UHD 
    WKHH[FHSWLRQEHLQJIRUWKRVHZLWKPXOWLSOHFRQFXVVLRQV VHHSSߞ 7KXVDJHQHUDOFRQFOXVLRQ
    DERXW P7%, KDV EHHQ WKDW ߧQHXUREHKDYLRUDO LPSDLUPHQW ߮ JHQHUDOO\ UHVROYHG GXULQJ WKH ILUVW 
    PRQWKV DIWHU PLQRU KHDG LQMXU\ߨ +6 /HYLQ 0DWWLV HW DO  S   RU ߧPRVW SHRSOH UHFRYHU
    FRPSOHWHO\ IURP D PLOG KHDG LQMXU\ ZLWKLQ D PRQWK RU WZRߨ :ULJKWVRQ DQG *URQZDOO  
    +RZHYHUEDVHGRQWKHDERYHHSLGHPLRORJLFDOVWDWLVWLFVLIWKHUHDUHPDQ\PRUHWKDQDPLOOLRQDQGD
    KDOIP7%,VDQQXDOO\MXVWLQWKH8QLWHG6WDWHVDQGHYHQLIRQO\DVPDOOSHUFHQWDJHJRRQWRKDYHPRUH
    SHUVLVWLQJV\PSWRPVWKDWSRWHQWLDOO\WUDQVODWHVLQWRWHQVRIWKRXVDQGVRISHUVRQVZKRGRQRWUHWXUQWR
    WKHLUSUHLQMXU\VWDWXV
    ,QLWLDOV\PSWRPVDUHFRPPRQSODFHDVDOOEXWRQHRIWKHPLOGO\LQMXUHGSDWLHQWVLQDWKUHHFHQWHU
    VWXG\KDGW\SLFDOSRVWFRQFXVVLRQDOFRPSODLQWVLPPHGLDWHO\IROORZLQJWKHLQMXU\ +6/HYLQ 0DWWLV
    HWDO $WRQHPRQWKUHGXFHGYLVXRPRWRUVSHHGDQGDWWHQWLRQDOGHILFLWVSHUVLVWHGLQDQXPEHURI
    WKHVHSDWLHQWV
    7KHVH SUREOHPV DQG DVVRFLDWHG FRPSODLQWV RI KHDGDFKH IDWLJXH DQG GL]]LQHVV GLPLQLVKHG
    VLJQLILFDQWO\LQWKHQH[WWZRPRQWKV'HVSLWHWKHFRQWLQXHGLPSURYHPHQWLQFRJQLWLYHVWDWXVDWWKUHH
    PRQWKVDOPRVWDOORIWKHVHSDWLHQWVVWLOOFRPSODLQHGRIKHDGDFKHVDQGIDWLJXHDQGGL]]LQHVVHDFKZHUH
    UHSRUWHG E\  RI WKHP 7KHVH VXEMHFWLYH G\VIXQFWLRQV DUH RIWHQ WKH PRUH SHUVLVWLQJ FRUH RI
    FRPSODLQWVIURPPLOG7%,SDWLHQWVHYHQZLWKWKHUHWXUQRIZKDWDSSHDUVWREHEDVHOLQHQHXURFRJQLWLYH
    ILQGLQJV )RU WKH FOLQLFLDQ WKLV PHDQV WKDW WKH VXEWOHߟDQG ZKDW DUH RIWHQ FRQVLGHUHG VXEMHFWLYH
    V\PSWRPVߟPD\ EHFRPH HYLGHQW RQO\ RYHU WLPH DQG UHTXLUH PRUH LQGHSWK DVVHVVPHQW DQG
    DSSURSULDWHWHVWLQJWRHYDOXDWH *URQZDOO6WXVV6WHWKHP+XJHQKROW]HWDO 
    +RZHYHURIWHQ FRQYHQWLRQDO QHXURSV\FKRORJLFDO WHVWLQJ LV QRW VXIILFLHQWO\ VHQVLWLYHWRGHWHFW DOO
    GHILFLWV &LFHURQH 
    7KLVZDVGHPRQVWUDWHGE\+HLWJHUDQGFRLQYHVWLJDWRUV  ZKRPDWFKHGP7%,SDWLHQWVZKREHFDPHQRQV\PSWRPDWLFDIWHU
    WKUHH PRQWKV WR WKRVH ZLWK SHUVLVWHQW GHILFLWV 2Q XVXDO PHDVXUHV RI QHXURSV\FKRORJLFDO IXQFWLRQLQJ WKH V\PSWRPDWLF P7%,
    JURXSGLGQRWGLIIHUIURPVXEMHFWVZLWKVLPLODUGRFXPHQWDWLRQRIP7%,EXWZKREHFDPHDV\PSWRPDWLF+RZHYHURQDUHDFWLRQ
    WLPHWDVNDVVHVVLQJRFXODUPRYHPHQWWKHWZRJURXSVFOHDUO\GLIIHUHG)XUWKHUWKHVSHHGRISURFHVVLQJGHILFLWLQP7%,SDWLHQWV
    ZDVDVVRFLDWHGZLWKUHIOH[LYHEUDLQVWHPIXQFWLRQLQJQRWDVVHVVHGZLWKWKHXVXDOQHXURSV\FKRORJLFDOWHFKQLTXHV7KLVVWXG\DOVR
    IRXQG HOHFWURSK\VLRORJLFDO DWWHQWLRQDO DEQRUPDOLWLHV LQ P7%, SDWLHQWV ZKR FRPSODLQHG RI DWWHQWLRQDO SUREOHPV EXW SHUIRUPHG
    DGHTXDWHO\RQPHDVXUHVSXUSRUWHGO\DVVHVVLQJDWWHQWLRQ

    1HXURSK\VLRORJLFDODQGUHDFWLRQWLPHPHDVXUHVWKDWDVVHVVUHVSRQVHVLQPLOOLVHFRQGWLPHIUDPHV
    PD\ GHWHFW WKH VXEWOH ORQJWHUP HIIHFWV RI P7%, EHWWHU WKDQ PDQ\ QHXURSV\FKRORJLFDO DVVHVVPHQW
    WHFKQLTXHV 'H%HDXPRQW/DVVRQGHHWDO3RQWLIH[HWDO VHHDOVR0F$OOLVWHUIRUD
    UHYLHZRIHOHFWURSK\VLRORJLFVWXGLHVRIP7%, 
    *HQHUDO DJUHHPHQW DERXW WKH QHXUREHKDYLRUDO GLVRUGHUV DVVRFLDWHG ZLWK PLOG 7%, LQ WKH DFXWH
    VWDJH JLYHV ZD\ WR FRQVLGHUDEOH GLVDJUHHPHQW UHJDUGLQJ WKHLU GXUDWLRQ DQG SHUVLVWHQFH ,YHUVRQ
      7KH FRPSOH[ RI VRPDWLF FRJQLWLYH DQG HPRWLRQDOUHDFWLYH V\PSWRPV H[SHULHQFHG DQG
    SUREOHPV UHSRUWHG DFXWHO\ PD\ SHUVLVW IRU PRQWKV WKH SRVWFRQFXVVLRQDO V\QGURPH  DQG LQ VRPH
    SHUVRQVEHFRPHFKURQLF LHODVWORQJHUWKDQD\HDU  %URJOLRHWDO2JGHQDQG:ROIH
    5- 5HHV DQG %HOORQ   (VWLPDWHV RI WKH IUHTXHQF\ RI FKURQLF SRVWFRQFXVVLYH DLOPHQWV DPRQJ
    SHUVRQVZKRKDYHVXVWDLQHGDPLOG7%,UXQIURPDORZRIͣ /0%LQGHU WRQXPEHUVLQ
    WKH UDQJHV RI ͣ 03 $OH[DQGHU  5HLWDQ DQG :ROIVRQ   ͣ 5XII DQG
    *UDQW   ͣ -7( 5LFKDUGVRQ   ͣ +DUWODJH HW DO  0DOHF  
    DQG XS WR  $OYHV 0DFFLRFFKL DQG %DUWK   %HFDXVH RI D ODFN RI V\VWHPDWLF PHWKRGV IRU
    GHILQLQJPLOG7%,DQGGLDJQRVLQJSRVWFRQFXVVLRQDOV\QGURPHWUXHLQFLGHQFHRUSUHYDOHQFHUDWHVRI
    WKHFKURQLFFRQGLWLRQDUHXQNQRZQ7KHDFWXDOSHUFHQWDJHUDQJHLVSUREDEO\QRORZHUWKDQ%LQGHU ߤV
    HVWLPDWLRQDQGUHDVRQDEO\FRXOGEHDVKLJKDVWR %LJOHU 
    6WXGLHV ORRNLQJ DW GLIIHUHQW SRSXODWLRQ JURXSV DQG DW GLIIHUHQW WLPHV SRVWLQMXU\ߟIURP WKUHH
    PRQWKV 3RQVIRUG:LOOPRWWHWDO5LPHOHWDO WRWKUHH\HDUV 5XWKHUIRUG ߟIRXQG
    WKDW VLJQLILFDQW SURSRUWLRQV RI WKRVH GLDJQRVHG DV KDYLQJ VXVWDLQHG PLOG 7%, KDG SRVWFRQFXVVLRQDO
    V\PSWRPVWRDWURXEOLQJGHJUHH *DVTXRLQHD0DOHF2JGHQDQG :ROIH  &ROOHJH
    VWXGHQWV ZKR KDG VXVWDLQHG PLOG 7%, DQG VHHPHG ߧUHFRYHUHGߨZHUH DEQRUPDOO\ SURQH WR PHQWDO
    LQHIILFLHQF\ ZKHQ SK\VLRORJLFDOO\ VWUHVVHG E\ K\SR[LF FRQGLWLRQV (ZLQJ HW DO   RU
    SV\FKRORJLFDOO\VWUHVVHGE\FKDOOHQJLQJWDVNV VHULDOVIURP>@VWDUWLQJDJDLQIURPDIWHUDQ
    HUURULQDYHU\QRLV\HQYLURQPHQW  +DQQD3ODGG\%HUU\HWDO  ,Q D*HUPDQVWXG\ .RQUDG
    DQG FROOHDJXHV   H[DPLQHG  P7%, SDWLHQWV VL[ \HDUV SRVWLQMXU\ FRPSDUHG WR  KHDOWK\
    FRQWUROV1RQHRIWKHSDWLHQWVZHUHLQOLWLJDWLRQWKHUHZHUHQRNQRZQVHFRQGDU\JDLQLVVXHVDQGDOO
    SDVVHG V\PSWRP YDOLGLW\ WHVWLQJ \HW WKH P7%, JURXS VWLOO GLVSOD\HG FRJQLWLYH GHILFLWV RQ
    QHXURSV\FKRORJLFDOWHVWVPDLQO\LQDWWHQWLRQDQGZRUNLQJPHPRU\LPSDLUPHQWVDQGLQFUHDVHGOHYHOV
    RIGHSUHVVLRQ$QH[DPLQDWLRQRIERWKQHXURSV\FKRORJLFDODQG'7,FRUUHODWHVRIPHPRU\IXQFWLRQLQ
    P7%, SDWLHQWV ZKR ZHUH QRW LQ OLWLJDWLRQ KDG UHWXUQHG WR ZRUN DQG RVWHQVLEO\ ZHUH ZLWKRXW
    VHFRQGDU\JDLQLVVXHVVKRZHGUHGXFHGYHUEDOPHPRU\LQFRPSDULVRQWRDKHDOWK\FRQWUROJURXSDQG
    '7,LGHQWLILHG DEQRUPDOLWLHV LQ ZKLWH PDWWHU WUDFWV DVVRFLDWHG ZLWK ZRUNLQJ PHPRU\ DQG DWWHQWLRQ
    (. *HDU\ HW DO   6ORZHG SURFHVVLQJ SHUVLVWV LQ VRPH P7%, SDWLHQWV *DVTXRLQH E
    6WXVV 6WHWKHP +XJHQKROW] HW DO  9DQGHUSORHJ &XUWLVV DQG %HODQJHU   7KHVH VWXGLHV
    SURYLGH HYLGHQFH WKDW P7%, FDQ KDYH D ODVWLQJ DQG GHOHWHULRXV HIIHFW RQ FRJQLWLYH DQG HPRWLRQDO
    RXWFRPHLQVRPHLQGLYLGXDOV
    :55XVVHOO  SRLQWHGRXWWKDWߧWKHUHLVSUREDEO\QRVXFKWKLQJDVߣFRPSOHWHUHFRYHU\ߤIURP
    DFFHOHUDWLRQ FRQFXVVLRQ RI VHYHULW\ VXIILFLHQW WR FDXVH ORVV RI FRQVFLRXVQHVVߨ ,Q D UHSRUW RQ
    LPSURYHPHQWV WKHVH SDWLHQWV FDQ HQMR\ IURP ERWK IRUPDO UHKDELOLWDWLRQ WUDLQLQJ DQG GHYHORSLQJ
    FRPSHQVDWRU\ VWUDWHJLHV RQ WKHLU RZQ 05 +R DQG 7/ %HQQHWWߤV   UHVSRQVH WR WKH TXHVWLRQ
    ߧ'RSHRSOHUHFRYHUIURPPLOG7%,"ߨZDVߧ3UREDEO\QRWߨ03$OH[DQGHU  QRWHGWKDWIRUPRVW
    ߧZHOOUHFRYHUHGߨSDWLHQWVUHVLGXDOV\PSWRPVGRDSSHDUXQGHUFRQGLWLRQVRIVWUHVV ߧPRGHVWDOFRKRO
    XVHVOHHSGHSULYDWLRQOHQJWK\WUDYHOVFKHGXOHVRULQFUHDVHGZRUNSODFHGHPDQGVߨ DQGWKHVHSDWLHQWV
    PD\FRQWLQXHLQGHILQLWHO\WRH[SHULHQFHWKHPVHOYHVDVKDYLQJUHGXFHGPHQWDOHIILFLHQF\

    3UHGLFWLQJ FRXUVH 7KH IUHTXHQWO\ FRPSOH[ LQWHUSOD\ EHWZHHQ EHKDYLRUDO DOWHUDWLRQVߟFRJQLWLYH


    HPRWLRQDO H[HFXWLYH IXQFWLRQߟUHVXOWLQJ IURP WKH EUDLQ LQMXU\ LWVHOI HPRWLRQDO UHDFWLRQV WR WKHVH
    DOWHUDWLRQV HPRWLRQDO YXOQHUDELOLWLHV SUHGDWLQJ WKH DFFLGHQW DQG VRFLDO SUHVVXUHV XQLTXH IRU HDFK
    SDWLHQWPDNHLWYLUWXDOO\LPSRVVLEOHLQPDQ\FDVHVWRFODULI\RUSDUWLDORXWWKHFRQWULEXWLRQRIHDFKRI
    WKHVH SRWHQWLDOO\ FRQWULEXWLQJ IDFWRUV :KLOH SDVW VWXGLHV DWWHPSWHG WR LGHQWLI\ GLVWLQJXLVKLQJ
    FKDUDFWHULVWLFVVRWKDWWKHFRXUVHIRUHDFKQHZSDWLHQWPD\EHSUHGLFWDEOHDQGDSSURSULDWHWUHDWPHQWV
    LQVWLWXWHG HDUO\ 16 .LQJ HW DO  5XII DQG 5LFKDUGV   IHZ RI WKHVH HDUOLHU HIIRUWV KDYH
    \LHOGHGFRQVLVWHQWO\HIIHFWLYHRXWFRPHVIRUP7%,
    %HWWHU RXWFRPH VWXGLHV DUH DYDLODEOH LQ WKH VSRUWV FRQFXVVLRQ OLWHUDWXUH LQ SDUW GXH WR PRUH
    ULJRURXV H[SHULPHQWDO GHVLJQV 0DQ\ DWKOHWHV KDYH EDVHOLQH QHXURSV\FKRORJLFDO GDWD DYDLODEOH DQG
    UHFHLYHQHXURSV\FKRORJLFDODVVHVVPHQWVGXULQJYDULRXVWLPHVSRVWLQMXU\+RZHYHUERWKTXDQWLWDWLYH
    IRUFHLPSDFWG\QDPLFV DQGTXDOLWDWLYH DWKOHWHVDUHDQWLFLSDWLQJSRWHQWLDOLQMXU\WKHW\SLFDOYLFWLPRI
    DQDFFLGHQWRUDVVDXOWLVQRW IHDWXUHVDUHSHFXOLDUWRVSRUWVLQMXULHVDQGWKHUHIRUHFRQFOXVLRQVIURP
    VSRUWVFRQFXVVLRQFDQQRWQHFHVVDULO\EHJHQHUDOL]HGWRQRQVSRUWVP7%,

    'RHVP7%,VHYHULW\SUHGLFWRXWFRPH"2QFRPSDULQJSDWLHQWVZLWKEULHI/2&HTXLYRFDO/2&RU
    QR/2&QRGLIIHUHQFHVDSSHDUHGRQDYDULHW\RIFRJQLWLYHWHVWVRQHZHHNSRVWLQMXU\ ,YHUVRQ/RYHOO
    DQG6PLWKVHHDOVR5XII&URXFKHWDO <HW+LFNOLQJDQGKLVFROOHDJXHV  UHSRUWHG
    WKDW P7%, SDWLHQWV ZKR KDG VXVWDLQHG /2& SHUIRUPHG OHVV ZHOO RQ FRJQLWLYH WHVWV WKDQ WKRVH ZKR
    UHPDLQHGFRQVFLRXVGXULQJWKHDFFLGHQW
    ([DPLQLQJ D YDULHW\ RI SV\FKRVRFLDO IDFWRUV LQ DGGLWLRQ WR LQMXU\ VHYHULW\ 16 .LQJ DQG KLV
    FROOHDJXHV   UHSRUWHG WKDW OHQJWK RI 37$  KU PD[LPXP  DQG  WR GD\ SRVWLQMXU\
    PHDVXUHV RI OLIH HYHQW SUREOHPV HPRWLRQDO GLVWUHVV SURFHVVLQJ VSHHG DQG PHQWDO VWDWXV ZHUH
    SUHGLFWLYH RI SRVWFRQFXVVLRQ V\PSWRP FRPSODLQWV DW WKUHH PRQWKV DQG DW VL[ PRQWKV +RZHYHU
    SUHGLFWLYH VWUHQJWK EHFDPH DWWHQXDWHG DIWHU VL[ PRQWKV 37$ FHDVHG WR EH SUHGLFWLYH EXW WKH HDUO\
    PHDVXUHV RI OLIH HYHQW SUREOHPV DQG HPRWLRQDO GLVWUHVV VWLOO FRUUHODWHGߟDW D ORZHU OHYHOߟZLWK
    SRVWFRQFXVVLRQ V\PSWRP FRPSODLQWV ,Q D ODUJHVFDOH VWXG\ E\ WKH 7KRUQKLOO JURXS   IDFWRUV
    SUHGLFWLYH RI GHDWK RU GLVDELOLW\ LQ P7%, GHILQHG DV *&6 ߞ  ZHUH DJH RYHU  SUHH[LVWLQJ
    SK\VLFDO OLPLWDWLRQV DQG D KLVWRU\ RI EUDLQ LOOQHVV \HW  RI WKH P7%, VXEMHFWV ZLWKRXW WKHVH
    SUHGLVSRVLQJIDFWRUVFRQWLQXHGWRKDYHPRGHUDWHWRVHYHUHGLVDELOLW\,QIDFWDJHKDVSUREDEO\EHHQ
    WKHRQH YDULDEOHPRVW FRQVLVWHQWO\ DVVRFLDWHG ZLWK SHUVLVWLQJ SRVWFRQFXVVLRQ V\PSWRPV 2JGHQ DQG
    :ROIHVHHDOVRSSߞ 7KHVHVWXGLHVSURYLGHIXUWKHUHYLGHQFHIRUWKHJHQHUDOO\DFFHSWHG
    FRQFOXVLRQ WKDW WKH SUHVHQFH RU HQGXUDQFH RI SRVWFRQFXVVLRQ V\PSWRPV DV PHDVXUHG E\ RXU XVXDO
    WHFKQLTXHVLVQRWFOHDUO\UHODWHGWRWKHHDUO\VHYHULW\PHDVXUHVIRUP7%, HJSUHVHQFHDQGGXUDWLRQ
    RI/2&*&6GXUDWLRQRI37$  0DWHHUDQG'ߤ$UF\ 
    &HUWDLQSHUVRQDOLW\WUDLWVDQGEHKDYLRUDOFKDUDFWHULVWLFVWHQGWREHSUHGLVSRVLQJWR7%, 3UHHFHDQG
    *HIIHQ    VXFK DV EHLQJ D \RXQJ DGXOW PDOH LPSXOVLYH DQGRU K\SHUDFWLYH D ULVN WDNHU DQ
    DOFRKRO DEXVHU RU KDYLQJ KDG D OHDUQLQJ GLVDELOLW\ RU SULRU KHDG LQMXU\ RU DQ\ SUHH[LVWLQJ PDMRU
    QHXURSV\FKLDWULFGLVRUGHU 7:0F$OOLVWHUDQG)ODVKPDQ 2QFRPSDULQJVHOIUHSRUWFRJQLWLYH
    FRPSODLQWVZLWKDFWXDOSHUIRUPDQFHRQQHXURSV\FKRORJLFDOWHVWLQJ6WXOHPHLMHU9RVDQGFROOHDJXHV
     REVHUYHGWKDWߧ߮VHOIUHSRUWHGFRJQLWLYHFRPSODLQWVZHUHPRUHVWURQJO\UHODWHGWRSUHPRUELG
    WUDLWV DQG SK\VLFDO DQG HPRWLRQDO VWDWH IDFWRUV WKDQ WR DFWXDO FRJQLWLYH LPSDLUPHQWVߨ S   $OO RI
    WKLV VXJJHVWV FRPSOH[ QHXURELRORJLFDO DQG HPRWLRQDO IRUFHV DUH LQYROYHG LQ ZKDWHYHU DUH WKH
    VHTXHODH RI PLOG 7%, $UFLQLHJDV $QGHUVRQ HW DO   3UHLQMXU\ HPRWLRQDO DQG
    QHXURSV\FKRORJLFDOVWDWXVLVDNQRZQFRQWULEXWRUWRRXWFRPHLQVSRUWVFRQFXVVLRQ &0%DLOH\HWDO
     

    7KHSRVWFRQFXVVLRQV\QGURPHZKDWLVLW"7ZRWLPHUHODWHGDVSHFWVRIZKDWPD\EHFRQVLGHUHGD
    SRVWFRQFXVVLRQ V\QGURPH DUH   WKH FRQVWHOODWLRQ RI SK\VLFDO HPRWLRQDO DQG FRJQLWLYH V\PSWRPV
    WKDW FRQWLQXH RU ZRUVHQ RYHU WKH VXEVHTXHQW KRXUV WR GD\V DIWHU VXVWDLQLQJ D P7%,   SHUVLVWHQW
    SRVWFRQFXVVLYH V\QGURPH LH V\PSWRPV KDYH SHUVLVWHG EH\RQG WKUHH PRQWKV %LJOHU   
    ([SODQDWLRQVRWKHUWKDQVHYHULW\RIWKHLQMXU\KDYHEHHQRIIHUHGWRDFFRXQWIRUSHUVLVWLQJSUREOHPV
    DQG FRPSODLQWV LQ P7%, SDWLHQWV 7KH\ LQFOXGH UHVLGXDO GHILFLWV LQ EUDLQ IXQFWLRQLQJ SV\FKRJHQLF
    GLVRUGHUV KDYLQJ WKHLU RULJLQV LQ WKH SDWLHQWVߤ SUHPRUELG SHUVRQDOLW\ DQG DWWLWXGHV LQFOLQDWLRQVߟ
    ZKHWKHU RU QRW IXOO\ GHOLEHUDWHߟWRZDUG PRQHWDU\ RU VHFRQGDU\ JDLQV DVVRFLDWHG ZLWK OLWLJDWLRQ
    DQGRU GLVDELOLW\ GHWHUPLQDWLRQ ZKLFK VKRZ XS LQ WKH QHXURSV\FKRORJLFDO H[DPLQDWLRQ DV SRRU
    PRWLYDWLRQ WR SHUIRUP ZHOO UHDFWLRQV WR WKH FRJQLWLYH DQG VRPDWLF FKDQJHV WKDW DFFRPSDQLHG WKH
    QHXURSDWKRORJLF LQVXOW ߧGLDJQRVLV WKUHDWߨPHDQLQJ WKDW SDWLHQWV SHUIRUP GLIIHUHQWO\ ZKHQ LQIRUPHG
    WKDWWKH\KDYHVXVWDLQHGDEUDLQLQMXU\DQGK\SHUVHQVLWLYLW\WRPLQRUDOWHUDWLRQVLQPHQWDOHIILFLHQF\
    RUWRVRPDWLFSUREOHPVVXFKDVPLOGKHDGDFKHVRURFFDVLRQDOGL]]LQHVV &RROLGJH0XOOHWDO
    6XKUDQG*XQVWDG:+:LOOLDPVHWDO 
    03$OH[DQGHU   VXJJHVWHG WKDW SDWLHQWV ZLWK FRQWLQXLQJ V\PSWRPV ZHUH PRUH OLNHO\ WR EH
    XQGHU VWUHVV DW WKH WLPH RI WKH DFFLGHQW DQG WKDW D GHSUHVVLYH UHDFWLRQ FDQ PDLQWDLQ RU ZRUVHQ WKH
    V\PSWRPV ߧ)XQFWLRQDO RXWFRPH IROORZLQJ PLOG 7%, LV GHWHUPLQHG E\ WKH FRPSOH[ LQWHUDFWLRQ RI
    QHXURORJLFDOSK\VLFDODQGSV\FKRORJLFDOIDFWRUVWKHLQMXUHGLQGLYLGXDOߤVSUHPRUELGSHUVRQDOLW\DQG
    FRSLQJVW\OHHQYLURQPHQWDOGHPDQGVDQGH[SHFWDWLRQVDQGVXSSRUWIURPRWKHUVߨ 3RQVIRUG:LOOPRWW
    HWDOSVHHDOVR1HPHWKZKRLOOXVWUDWHV3RQVIRUGߤVSRLQWZLWKFDVHGDWD 
    *HQHWLF VWXGLHV KDYH RSHQHG XS D QHZ DUHD RI LQYHVWLJDWLRQ DERXW YXOQHUDELOLW\ WR DQG UHFRYHU\
    IURP7%, 7:0F$OOLVWHU 7KHHDOOHOHRIWKH$32( DSROLSRSURWHLQ( JHQHZKLFKKDVEHHQ
    LGHQWLILHGDVDULVNIDFWRULQ$O]KHLPHU ߤVGLVHDVH VHHS DOVRDSSHDUVWRFRQWULEXWHWRGDPDJH
    VHYHULW\LQ7%, *07HDVGDOH1LFROOHWDO DQGUHGXFHSRWHQWLDOIRULPSURYHPHQWDIWHUDEUDLQ
    LQMXU\ HYHQ LQ PLOG 7%, 0¾OOHU HW DO   +RZHYHU WKLV ZRUN LV MXVW EHJLQQLQJ 7KH FRPSOH[
    LQWHUDFWLRQVEHWZHHQJHQHVLQMXU\VHYHULW\DQGW\SHVRILQMXULHVSUHPRUELGIDFWRUVDQGWKHLQIOXHQFH
    RISULPDU\DQGVHFRQGDU\LQMXU\SURFHVVHVPDNHLWGLIILFXOWWRDVVHVVWKHUROHRIJHQHWLFFRQWULEXWLRQV
    DWWKLVWLPH +DQHWDO,VRQLHPLHWDO3RQVIRUG5XG]NLHWDO05DSRSRUW:ROI
    HWDO 
    3UHPRUELGSHUVRQDOLW\RUSV\FKLDWULFGLVRUGHUVPD\EHVLJQLILFDQWFRQWULEXWRUVWRGHYHORSPHQWRI
    WKH FKURQLF SRVWFRQFXVVLRQ V\QGURPH /0 %LQGHU  36 .ORQRII DQG /DPE  /DUUDEHH
    VHHWKHUHYLHZE\-7(5LFKDUGVRQ &RKDGRQ DQGKLVFROOHDJXHV  UHSRUW WKDWRI
    WKHLUPLOGDQGPRGHUDWHO\LQMXUHGSDWLHQWVZLWKSRVWFRQFXVVLRQDOFRPSODLQWVDWVL[PRQWKV
    KDGKLVWRULHVRIDQWHFHGHQWSV\FKRVRFLDOSUREOHPV2WKHUVKDYHQRWIRXQGVXFKUHODWLRQVKLSVEHWZHHQ
    SUHPRUELG HPRWLRQDO RU SHUVRQDOLW\ GLVWXUEDQFHV DQG V\PSWRP FKURQLFLW\ 3RQVIRUG 
    3RQVIRUG:LOOPRWWHWDO5DVNLQ0DWHHUDQG7ZHHWHQ ([SODQDWLRQVWKDWDUHHVVHQWLDOO\
    LQMXU\EDVHG SRLQW RXW WKDW WKH FRJQLWLYH GHILFLWV LQFXUUHG LQ PLOG 7%,ߟIRU WKH PRVW SDUW GXH WR
    UHGXFHG LQIRUPDWLRQ SURFHVVLQJ FDSDFLW\ߟDUH LQ WKHPVHOYHV VWUHVV SURGXFLQJ ZKLOH DOVR SXWWLQJ D
    VWUDLQRQFRJQLWLYHDQGFRSLQJUHVRXUFHVDQGWKXVFUHDWLQJWKHSRWHQWLDOIRUFRQWLQXDWLRQDQGLQVRPH
    FDVHVH[DFHUEDWLRQRIWKHHDUO\SRVWFRQFXVVLRQDOV\PSWRPV 0DFKXOGDHWDO-7(5LFKDUGVRQ
     
    )XUWKHU FRPSOLFDWLQJ HIIRUWV WR XQGHUVWDQG WKH FRPSOH[LWLHV RI FKURQLF SRVWFRQFXVVLRQDO
    V\QGURPHVLQLQGLYLGXDOFDVHVLVWKHUROHSOD\HGE\KRSHVIRUFRPSHQVDWLRQߟRUUHSULVDOߟIRULQMXU\
    WKURXJK WKHOHJDO V\VWHP 7KLVKDV EHFRPHDQ LVVXH LQ WKH 8QLWHG 6WDWHV DQGDOVR RWKHU FRXQWULHV LQ
    ZKLFK YDOLGDWLQJ LQMXU\ FRPSODLQWV PD\ SURGXFH PRQHWDU\ UHZDUGV VHH &RKDGRQ HW DO  SS
    ߞ  5HSRUWV YDU\ JUHDWO\ RQ WKH H[WHQW WR ZKLFK H[SHFWDWLRQV IRU LQMXU\ FRPSHQVDWLRQ
    FRQWULEXWHWRWKHZLWWLQJRUXQZLWWLQJH[DJJHUDWLRQRUSHUVLVWHQFHRISRVWFRQFXVVLRQDOV\PSWRPVLQ
    PLOGO\ LQMXUHG WUDXPD SDWLHQWV *DVTXRLQH DE -6 +D\HV HW DO  0LOOLV   6RPH
    H[DPLQHUV KDYH UHSRUWHG WKDW FRPSHQVDWLRQ VHHNLQJ SDWLHQWV SUHVHQW PRUH RU PRUH HQGXULQJ
    V\PSWRPV WKDQ GR SDWLHQWV ZLWK VLPLODU DFFLGHQW KLVWRULHV DQG WKXV FRQFOXGH WKDW PRWLYDWLRQ IRU
    ILQDQFLDOJDLQLVDVLJQLILFDQWIDFWRUIRUPDQ\SHUVRQVZKRFRPSODLQRISRVWFRQFXVVLRQDOV\PSWRPV
    0LOOLV DQG 9ROLQVN\   +RZHYHU RWKHUV KDYH QRW IRXQG QRWHZRUWK\ GLIIHUHQFHV EHWZHHQ WKHVH
    JURXSV 3RQVIRUG:LOOPRWWHWDO6WXVV(O\HWDO:RRGDQG5XWWHUIRUG 
    $OOVWXGLHVKDYHVKRZQWKDWPDQ\ߟLIQRWPRVWߟFRPSHQVDWLRQVHHNLQJSDWLHQWVSUHVHQWV\PSWRP
    SDWWHUQV VLPLODU WR WKRVH RI SDWLHQWV QRW VHHNLQJ FRPSHQVDWLRQ 7: 0F$OOLVWHU  -( 0H\HUV
    *DOLQVN\ DQG 9ROEUHFKW  5XII :\OLH DQG 7HQQDQW  5/ :RRG DQG 5XWWHUIRUG  
    0RUHRYHU0XUUH\  UHPLQGVXVWKDWߧSHUVRQVLQOLWLJDWLRQPD\DFWXDOO\KDYHDVHYHUHFRJQLWLYH
    RUHPRWLRQDOLPSDLUPHQWDVDUHVXOWRIWKHLQMXU\ZKLFKKDVUHVXOWHGLQWKHLUVHHNLQJFRPSHQVDWLRQ
    IRU VXFK LQMXULHVߨ S   7: 0F$OOLVWHU   UHYLHZLQJ VWXGLHV WKDW H[DPLQHG ZKHWKHU
    FRPSHQVDWLRQVHHNLQJFRQWULEXWHGWRSRVWFRQFXVVLRQFRPSODLQWVIRXQGWKDWLQPDQ\ߟSHUKDSVPRVW
    ߟFDVHV ߧFRPSHQVDWLRQ IDFWRUV DORQH DUH QRW UHVSRQVLEOH IRU WKH JHQHVLV RU PDLQWHQDQFH RI
    SRVWFRQFXVVLYHV\PSWRPVߨ S 
    $FRQVLGHUDEOHLQGXVWU\KDVHYROYHGIRUDVVHVVLQJWKHHIIRUWDQGYDOLGLW\RIWHVWSHUIRUPDQFHVRI
    SHUVRQVZLWKPLOG7%,LQOLWLJDWLRQ H[DPSOHVDUHLQ&KDSWHU ([DPLQDWLRQJXLGHOLQHVKDYHEHHQ
    UHFRPPHQGHG E\ WKH $PHULFDQ $FDGHP\ RI &OLQLFDO 1HXURSV\FKRORJ\ +HLOEURQQHU 6ZHHW HW DO
     DQGWKH1DWLRQDO$FDGHP\RI1HXURSV\FKRORJ\ 5XII,YHUVRQHWDO $OWHUQDWLYHO\7:
    0F$OOLVWHU   UHFRPPHQGV WKDW LQVWHDG RI GUDZLQJ FRQFOXVLRQV DERXW SHUIRUPDQFH YDOLGLW\
    ߧVLPSO\ߨIURP WKHVH DVVHVVPHQW WHFKQLTXHV WKH H[DPLQHU VKRXOG HYDOXDWH ߧFRQVLVWHQF\ RI
    SHUIRUPDQFH RYHU VHYHUDO WHVWV WKDW DVVHVV VHYHUDO >GLIIHUHQW@ FRJQLWLYH GRPDLQVߨDQG FRQVLGHU WKH
    PDQ\ SRVVLEOH ߧUHDVRQV IRU DSSDUHQW SRRU HIIRUW RU QHJDWLYH UHVSRQVH ELDV >LQFOXGLQJ@ ߮ IDWLJXH
    PHGLFDWLRQ HIIHFWV DQG PHGLFDO RU FRPRUELG SV\FKLDWULF FRQGLWLRQVߨEHIRUH DVVXPLQJ WKDW SRRU RU
    LQFRQVLVWHQW SHUIRUPDQFH LV GXH WR PDOLQJHULQJ 0DOLQJHULQJ DQG H[DJJHUDWHGO\ SRRU SHUIRUPDQFH
    RQ QHXURSV\FKRORJLFDO WHVWV GR RFFXU DQG WKH FOLQLFLDQ KDV WR EH PLQGIXO RI WKLV SRWHQWLDO WKUHDW WR
    DVVHVVPHQWYDOLGLW\

    :KLSODVK:KHWKHUQHXURFRJQLWLYHVHTXHODHRFFXUZLWKZKLSODVKDVVRFLDWHGLQMXU\DOVRUHIHUUHG
    WR DV ZKLSODVK DVVRFLDWHG GLVRUGHUV :$'  LV PRUH FRQWURYHUVLDO WKDQ WKH GHEDWHV DERXW SHUVLVWHQW
    SRVWFRQFXVVLYHGLVRUGHU 1LMVHWDO6WHUQHUDQG*HUGOH 7KHW\SLFDOSDWLHQWSUHVHQWVZLWK
    QHFN SDLQ DQG VWLIIQHVV RFFLSLWDO KHDGDFKH D WKRUDFROXPEDU EDFN SDLQ DQG XSSHU OLPE SDLQ ZLWK
    SDUDHVWKHVLD EXW QR /2& RU 37$ %DQQLVWHU HW DO   7KXV :$' SDWLHQWV DUH XQOLNHO\ WR PHHW
    ROGHUFULWHULDIRUFRQFXVVLRQRUPLOG7%,0RVWUHFRYHUIXOO\LWLVHVWLPDWHGWKDWRQO\KDYHVRPH
    IRUPRISHUPDQHQWGLVDELOLW\
    &XUUHQW GHEDWHV TXHVWLRQ ZKHWKHU SK\VLFDO DEQRUPDOLWLHV RI WKH QHFN FDQ EH REMHFWLYHO\
    GHPRQVWUDWHG :RRGKRXVHHWDO 6RPHH[DPLQHUVVD\ߧ\HVߨ %LUQEDXPHWDO,FKLKDUDHW
    DO RWKHUVVD\ߧQRߨ &DUUDJHH'XOOHUXGHWDO $V\HWWKHUHDUHQRUHSRUWHG'7,RU
    SRVWPRUWHPVWXGLHVRIWKHEUDLQIRU:$'WRVXSSRUWDGLDJQRVLVRIQHXURQDOSDWKRORJ\0RUHRYHULW
    PD\EHXQOLNHO\WKDWDFWXDOEUDLQLQMXU\RFFXUVLQPRVW:$'FDVHV 03$OH[DQGHU  DV
    QRFRQVLVWHQW05,DEQRUPDOLWLHVKDYHEHHQUHSRUWHG 6WXU]HQHJJHUHWDO DOWKRXJKSRWHQWLDOO\D
    PLQRULW\RI:$'SDWLHQWVFRXOGKDYHVXEWOHFHUHEUDOSDWKRORJ\ /RUEHUER\PHWDO $OVRXS
    IRUGLVFXVVLRQLVKRZWRHYDOXDWHWKHYDOLGLW\RI:$'FRPSODLQWV 0'6XOOLYDQHWDO9RQNHW
    DO &OHDUO\LQVRPHVXEMHFWVREMHFWLYHHIIHFWVRIQHFNLQMXU\FDQEHLGHQWLILHGDQGDVVRFLDWHG
    SDLQUHODWHGSUREOHPVRFFXU .ULVWMDQVVRQHWDO )XUWKHUPRUHYHVWLEXODUSDWKRORJ\DQGVXEWOH
    VSLQDOFRUGK\SHUVHQVLWLYLW\WKDWDOWHUSURFHVVLQJPD\FRQWULEXWHWRV\PSWRPVDVVRFLDWHGZLWK:$'
    %DQLFHWDO7UDQWHUDQG*UDKDP 
    &KDUDFWHULVWLFDOO\ SDLQ LV WKH SURPLQHQW UHVLGXDO :$' V\PSWRP %RUVER HW DO   7KH
    SUHVHQFHRISDLQWKHUHVWULFWLRQVWKDWLWLPSRVHVDQGLVVXHVDURXQGKRZLWFKDQJHVTXDOLW\RIOLIHFDQ
    HYROYH LQWR D FRPSOH[ DUUD\ RI V\PSWRPV DQG SUREOHPV FRQIRXQGHG E\ LQMXU\ DQGRU SDLQUHODWHG
    GHSUHVVLRQ SUHH[LVWLQJ SV\FKRORJLFDO DQG SK\VLFDO KHDOWK FRQGLWLRQV DJH DQG VH[ %RUVER HW DO
    6FKPLWWHWDO 0RUHRYHUSDLQFRPSURPLVHVVOHHSVXFKWKDWG\VIXQFWLRQDOVOHHSFDQDOVR
    EH WKH EDVLV RI FRJQLWLYH G\VIXQFWLRQ 1LFKROVRQ 0DUWHOOL DQG =DVOHU  03 :DONHU  
    &KURQLFSDLQFDQFKDQJHWKHEUDLQVWUXFWXUDOO\ 2EHUPDQQHWDO DQGSK\VLRORJLFDOO\ %XUJPHU
    HWDO0RLVVHWHWDO %RWKDFXWHDQGFKURQLFSDLQFDQGLVUXSWOLPELFIXQFWLRQSDUWLFXODUO\
    DWWKHFLQJXODWHOHYHO *DUFLD/DUUHDDQG3H\URQ'*2ZHQHWDO 
    1HXURSV\FKRORJLFDO LPSDLUPHQWV PD\ EH REVHUYHG LQ :$' EXW SUREDEO\ UHODWH PRVWO\ WR WKH
    FKURQLFLW\RISDLQ 6$ 0F/HDQ HW DO 3 6MºJUHQ 2OVHQ HW DO   ,Q WKDW SDLQ FDQ DIIHFW
    VHOHFWLYH DWWHQWLRQ *ULVDUW DQG 3ODJKNL   DQG JLYHQ WKH YLVFHUDO UHDFWLYLW\ RI EUDLQ UHJLRQV
    SURFHVVLQJSDLQ 0RLVVHWHWDO LWLVQRWVXUSULVLQJWKDW:$'SDWLHQWVFRPSODLQRIDWWHQWLRQDQG
    PHPRU\SUREOHPV .HVVHOV$OHPDQHWDO )XUWKHUPRUHFKURQLFSDLQIURPQHFNLQMXU\PD\
    UHVXOWLQSDWKRSK\VLRORJLFDOFKDQJHVLQEUDLQUHJLRQVWKDWSDUWLFLSDWHLQSDLQSHUFHSWLRQVXFKDVWKH
    SRVWHULRU FLQJXODWH SDUDKLSSRFDPSDO DQG SUHIURQWDO J\UL UHVXOWLQJ LQ QHXURSV\FKRORJLFDO
    LPSDLUPHQW /LQQPDQHWDO 

    3RVWWUDXPDWLFVWUHVVGLVRUGHU 376' LQPLOG7%,:KHQ376'ZDVFRQVLGHUHGWREHDPRUHRU


    OHVV VHYHUH DQ[LHW\ UHDFWLRQ WR D WUDXPDWLF HYHQW WKH UHOHYDQFH RI WKLV GLDJQRVLV LQ P7%, ZDV
    TXHVWLRQHGRQWKHEDVLVWKDWDSDWLHQWZLWKDPQHVLDIRUWKHWUDXPDWLFHYHQWFDQQRWKDYHVXFKDUHDFWLRQ
    6ERUGRQH DQG /LWHU   7KH GHILQLWLRQ RI 376' UHTXLUHV DQ ߧLQLWLDO H[SRVXUH WR DQ H[WUHPH
    WUDXPDWLFVWUHVVRUߨZLWKߧUHH[SHULHQFLQJߨV\PSWRPVZKLFKLPSOLHVVRPHFRQVFLRXVDZDUHQHVVRIWKH
    HYHQW ,QVWLWXWH RI 0HGLFLQH  3HQQLQJWRQ   +RZHYHU LW LV QRZ DFFHSWHG WKDW 376' DQG
    P7%,FDQDQGRIWHQGRFRH[LVW %URRPKDOOHWDO%U\DQW2ߤ'RQQHOOHWDO ZLWKUDWHVRI
    376'WHQGLQJWREHLQYHUVHWR7%,VHYHULW\ %U\DQW&UHDPHUHWDO5DWWRFN :DUGHQHW
    DO 7KHSDWKRSK\VLRORJLFDOHIIHFWVRIDPLOGEUDLQLQMXU\PD\DFWXDOO\EHDSUHGLVSRVLQJIDFWRU
    IRU WKH GHYHORSPHQW RI 376' ZLWK KHDG LQMXU\ 3LHWU]DN HW DO  9DVWHUOLQJ 9HUIDHOOLH DQG
    6XOOLYDQ 7KLVDVVRFLDWLRQSUREDEO\UHODWHVWRWKHRYHUODSRIEUDLQVWUXFWXUHVWKDWSDUWLFLSDWHLQ
    376'UHDFWLRQVZLWKDUHDVWKDWDUHOLNHO\GDPDJHGLQP7%, VHH)LJ 1HXURLPDJLQJVWXGLHVRI
    SHUVRQVZLWK376'DUHFRQVLVWHQWZLWKLWVSUREDEOHSDWKRSK\VLRORJ\LQYROYLQJߧG\VUHJXODWLRQRIWKH
    QRUDGUHQHUJLF V\VWHP K\SRWKDODPLFSLWXLWDU\DGHUHQDO +3$  D[LV DQG VHURWRQHUJLF
    V\VWHPߨ 9DVWHUOLQJ*UDQGHHWDO 
    $V ZLWK VR PXFK QHXURSV\FKRORJLFDO NQRZOHGJH FRQVLGHUDEOH XQGHUVWDQGLQJ RI WKH FR
    RFFXUUHQFHRI376' DQGPLOG 7%, KDV FRPH IURPLQYHVWLJDWLRQV LQYROYLQJUHWXUQLQJYHWHUDQV WKLV
    WLPHIURPWKH*XOI,UDTDQG$IJKDQLVWDQZDUV %UHQQHU7HUULRHWDO%UHQQHU9DQGHUSORHJ
    DQG7HUULR  0RUD HW DO   2I WKH PDQ\ WUHDWPHQWV HYDOXDWHGߟSKDUPDFRORJLF SULPDULO\
    DQWLGHSUHVVDQWV DQG DQ[LRO\WLFV PDQ\ GLIIHUHQW NLQGV RI SV\FKRWKHUDS\ߟRQO\ H[SRVXUH WKHUDSLHV
    GHPRQVWUDWHGFRQVLVWHQWHIILFDF\LQWUHDWLQJ376' ,QVWLWXWHRI0HGLFLQH 6RPHUHVHDUFKIRXQG
    WKDW LW PD\ EH SRVVLEOH WR EORFN WKH GHYHORSPHQW RI 376' DW OHDVW SDUWLDOO\ E\ SKDUPDFRORJLFDOO\
    GDPSLQJWKHOLPELFUHJLRQVOLNHO\LQYROYHGLQLQLWLDWLQJWKHQHXURSDWKRORJLFDOUHVSRQVHLQWKHEUDLQ
    WKDWUHVXOWVLQ376' <HKXGD<HKXGDDQG/H'RX[ 

    ),*85(7KHEUDLQUHJLRQVLQYROYHGLQ7%,WKDWRYHUODSZLWK376'DUHKLJKOLJKWHGLQWKLVVFKHPDWLFEDVHGRQWKHUHYLHZE\0%
    6WHLQDQG0F$OOLVWHU  1RWHWKHRYHUODSLQIURQWRWHPSRUDODQGOLPELFUHJLRQV

    7KHPRVWVLJQLILFDQWFRJQLWLYHHIIHFWRI376'LVWKHGLVUXSWLRQRIDWWHQWLRQ 0DU[HWDO ZLWK


    LPSDLUHGVKRUWWHUPPHPRU\ 0'+RUQHUDQG+DPQHU.:6DPXHOVRQ1H\ODQHWDO 
    $ \HDU IROORZXS RI YHWHUDQV IURP WKH  *XOI ZDU IRXQG VXEWOH EXW SHUVLVWLQJ PRWRU VSHHG
    VKRUWWHUP PHPRU\ DQG DWWHQWLRQDO SUREOHPV 0DU[ HW DO   2WKHU VWXGLHV KDYH GRFXPHQWHG
    UHGXFHGOHDUQLQJFDSDFLW\LQSHUVRQVZLWKORQJWHUP376' *ROLHUHWDO 

    &RJQLWLYHGHILFLWVLQP7%,

    'XULQJWKHHDUO\VWDJHVIROORZLQJPLOG7%,PDQ\SDWLHQWVH[KLELWPRGHUDWHWRVHYHUHFRPPXQLFDWLRQ
    SHUFHSWXDO RU FRQFHSWXDO GLVWXUEDQFHV 6( 3HWHUVRQ HW DO  6WDSHUW HW DO   )RU PRVW
    SDWLHQWVWKHVHSUREOHPVXOWLPDWHO\FOHDUXSEXWIRURWKHUVWKH\UHPDLQDVVXEWOHGHIHFWVWKDWDUHQRW
    DOZD\V DSSDUHQW WR FDVXDO REVHUYHUV /H]DN  56 3DUNHU  -7( 5LFKDUGVRQ   $
    VWXG\RIPLOGDQGPRGHUDWH7%,SDWLHQWVPDGHHYLGHQWWKHFRQVLGHUDEOHXQLTXHQHVVRIHDFKSDWLHQWߤV
    FRQGLWLRQ LQ WKH LQWHULQGLYLGXDO YDULDELOLW\ RI FRJQLWLYH GHILFLWV ZKLFK JURXSHG GDWD REVFXUHV )&
    *ROGVWHLQ /HYLQ*ROGPDQHWDO  7KHVH DXWKRUV ZLVHO\ SRLQW RXW WKDW ZLWK PLOG WR PRGHUDWH
    LQMXULHV IRU H[DPSOH D ߧSDWLHQW ZKR ZDV LPSDLUHG LQ H[HFXWLYH IXQFWLRQLQJ ZDV QRW QHFHVVDULO\
    LPSDLUHG LQ RWKHU DUHDVߨ 7KLV ILQGLQJ RI LQGLYLGXDOL]HG GHILFLW SDWWHUQV KROGV WUXH IRU HYHU\ RWKHU
    NLQGRIUHVLGXDOFRJQLWLYHGHILFLWLQPLOG7%,SDWLHQWV+RZHYHUE\YLUWXHRIWKHQDWXUHRIPDQ\7%,V
    RFFXUULQJ XQGHU FRQGLWLRQV RI UDSLG DFFHOHUDWLRQ RU GHFHOHUDWLRQ VRPH FRJQLWLYH GLVRUGHUV RFFXU
    PXFKPRUHIUHTXHQWO\WKDQRWKHUV

    $WWHQWLRQDO GHILFLWV 7KHVH DUH WKH PRVW FRPPRQ RI FRJQLWLYH GHILFLWV LQ PLOG 7%, SDWLHQWV
    *DOELDWLHWDO3RQWLIH[HWDO6SLNPDQDQG9DQ=RPHUHQ 6ORZHGUHDFWLRQWLPHV
    LQWKHDFXWHVWDJHJLYHHYLGHQFHRIVORZHGPHQWDOSURFHVVLQJ %URJOLRHWDO7+DUW:K\WHHW
    DO0DORMFLFHWDO ,QERWKFKLOGUHQDQGDGXOWVVORZHGSURFHVVLQJW\SLFDOO\VKRZVXSDV
    DWWHQWLRQDO GHILFLWV LQFOXGLQJ SRRU FRQFHQWUDWLRQ KHLJKWHQHG GLVWUDFWLELOLW\ GLIILFXOW\ GRLQJ PRUH
    WKDQ RQH WKLQJ DW D WLPH DQG FRPSODLQWV RI LPSDLUHG ߧVKRUWWHUP PHPRU\ߨDQG ߧPHQWDO IDWLJXHߨ 9
    $QGHUVRQ HW DO  -RKDQVVRQ %HUJOXQG DQG 5RQQEDFN  0DWKLDV HW DO   :KHQ
    DWWHQWLRQDOSUREOHPVDUHVHYHUHWKHSDWLHQWPD\FRPSODLQRIFRQIXVLRQLQDELOLW\WRWKLQNFOHDUO\DQG
    GLVRULHQWDWLRQ WKH ODWWHU SUREOHP LV OLNHO\ WR EH FRPSRXQGHG E\ WHQGHQFLHV WR XQGHUHVWLPDWH WLPH
    LQWHUYDOV &$0H\HUVDQG/HYLQ 
    0RVW OD\ SHUVRQV FRQIXVH GHIHFWLYH DFTXLVLWLRQ DQG UHFDOO RI QHZ LQIRUPDWLRQ ZLWK ߧVKRUWWHUP
    PHPRU\ߨ 7KH FRPPRQ FRPSODLQW RI D ߧPHPRU\ SUREOHPߨLQ PLOG EUDLQ LQMXU\ PD\ RIWHQ EH WKH
    SURGXFW RI DWWHQWLRQDO UHGXFHG VSDQ DQG GLVWUDFWLELOLW\  DQG YHUEDO UHWULHYDO GHILFLWV +RZLHVRQ DQG
    /H]DND.D\ 0LOGKHDGLQMXU\SDWLHQWVW\SLFDOO\GRQRWKDYHUHVLGXDOOHDUQLQJSUREOHPV
    ,YHUVRQHWDO2JGHQDQG:ROIH3RQVIRUG:LOOPRWWHWDO DOWKRXJK H[FHSWLRQV
    DSSHDULQHYHU\PLOG7%,JURXSVWXG\

    9HUEDOUHWULHYDO SUREOHPV ,W LV QRW VXUSULVLQJ WKDW VOXJJLVK YHUEDO UHWULHYDO LV FORVHO\ DVVRFLDWHG
    ZLWKVORZHGVSHHGRILQIRUPDWLRQSURFHVVLQJ -%U\DQDQG/XV]F]1ROLQ '& 3DUN HW
    DO $IWHUWKHDFXWHV\PSWRPVKDYHVXEVLGHGPRVW7%,SDWLHQWVHYHQVRPHZKRKDYHVXVWDLQHG
    VHYHUH LQMXULHV WHQG WR VKRZ UHPDUNDEO\ OLWWOH GHILFLW RQ YHUEDO WHVWV WKDW PHDVXUH RYHUOHDUQHG
    PDWHULDORUEHKDYLRUVVXFKDVFXOWXUDOO\FRPPRQLQIRUPDWLRQDQGUHDGLQJZULWLQJDQGVSHHFK ZKHQ
    WKH GDPDJH GRHV QRW GLUHFWO\ LQYROYH WKH ODQJXDJH FHQWHUV  <HW PDQ\ VWLOO KDYH VRPH GLIILFXOW\
    UHFDOOLQJZRUGVUHDGLO\ߟHVSHFLDOO\QDPHV RIREMHFWV SODFHV SHUVRQV *RRGJODVV 0XUGRFK
     9HUEDOUHWULHYDOSUREOHPV G\VQRPLD VKRZXSDVVORZUHFDOORIWKHGHVLUHGQDPHRFFDVLRQDO
    SDUDSKDVLDV HJ ߧVKRHKRUVHߨIRU ߧKRUVHVKRHߨ ߧZDKFKL ߮ ߧ VHOIFRUUHFWHG WR ߧZDONLQJߨ  RU
    PLVQDPLQJV XVXDOO\ JLYLQJ D VHPDQWLFDOO\ UHODWHG UHVSRQVH HJ ߧGLFHߨIRU ߧGRPLQRHVߨ  $OWKRXJK
    YHUEDOUHWULHYDOSUREOHPVDUHQRWLQIUHTXHQWO\PLVLQWHUSUHWHGDVVRPHIRUPRIPHPRU\RUOHDUQLQJ
    GLVRUGHU +RZLHVRQ DQG /H]DN E -7( 5LFKDUGVRQ DQG 6QDSH   WKH\ FDQ EH UHDGLO\
    GLVWLQJXLVKHGXVLQJFXHLQJRUUHFRJQLWLRQWHFKQLTXHVWKDWHQDEOHSDWLHQWVWRGHPRQVWUDWHNQRZOHGJH
    RIWKHZRUGRUQDPHWKH\FDQQRWUHFDOOVSRQWDQHRXVO\
    $\HDUROGOXQFKURRPPDQDJHUZLWKDQHLJKWKJUDGHHGXFDWLRQVXVWDLQHGVLJQLILFDQWERGLO\LQMXULHVLQDUROORYHUDFFLGHQWEXW
    KHU*&6QHYHUGURSSHGEHORZ(LJKWPRQWKVODWHUVKHZDVVWLOOFRPSODLQLQJELWWHUO\RIߧPHPRU\SUREOHPVߨDVVKHIHOWVKH
    KDGORVWKHUHDUO\PHPRULHV+RZHYHURQGLUHFWTXHVWLRQLQJVKHWROGKRZKHUVFKRROLQJEHJDQLQDWZRURRPVFKRROKRXVHEXW
    ILQLVKHGLQDRQHURRPRQHVKHGHVFULEHGKHUPDUULDJHDWDJHE\WKHORFDOSUHDFKHUDQGQDPHGWKHFLW\LQZKLFKVKHDQGKHU
    ILUVWKXVEDQGKDGWKHLUKRQH\PRRQZHHNHQGDQGZHQWWRWKHPRYLHV6KHNQHZKRZPDQ\VLEOLQJVVKHKDGZKHUHVKHZDVLQ
    WKH OLQHXS DQG ZKR ZHUH KHU QLHFHV DQG QHSKHZV 6KH FRXOG QRW JLYH WKH SUHDFKHUߤV QDPH DQG ZDV GLVWUHVVHG WKDW VKH ZDV
    XQDEOHWRUHFDOOKHUQLHFHVߤDQGQHSKHZVߤQDPHV
    6KHDOVRKDG FOHDU UHFDOO RI UHFHQW WULSV WKH QDWXUH DQG FRQVHTXHQFHV RI KHU PRWKHUߤV UHFHQW LOOQHVV ZKHUH VKH KDG EHHQ
    OLYLQJVLQFHWKHDFFLGHQWDQGKHDOWKLVVXHVWKDWKDYHGHYHORSHGVLQFHWKHDFFLGHQW
    2Q WHVWLQJ ZLWK WKH 0HPRU\ $VVHVVPHQW %DWWHU\ IUHH UHFDOO RI VWRULHV ZDV GHIHFWLYH EXW RQ FXHLQJ VKH GHPRQVWUDWHG
    DYHUDJHUHWHQWLRQUHFDOORIDZRUGOLVWDIWHUVL[WULDOVZDVZLWKLQQRUPDOOLPLWVLWGURSSHGWRGHIHFWLYHDIWHUDGHOD\EXWZKHQ
    FXHG VKH DJDLQ VKRZHG DQ DYHUDJH UHWHQWLRQ OHYHO 2Q WKH %RVWRQ 1DPLQJ 7HVW VKH UHWULHYHG  ZRUGV FRUUHFWO\ RQO\ DIWHU
    SKRQHWLF FXHLQJ 7KHVH ILQGLQJV ZHUH FRQVLVWHQW ZLWK DQ DGHTXDWH DXWRELRJUDSKLF PHPRU\ ODFNLQJ RQO\ SHRSOHߤV QDPHV LQ D
    ZRPDQZLWKDVLJQLILFDQWYHUEDOUHWULHYDOSUREOHP PGO 
    6HQVRU\SHUFHSWXDODQGPRWRUGLVRUGHUV6HQVRU\DQGSHUFHSWXDOSUREOHPVDUHIUHTXHQWO\UHSRUWHG
    IROORZLQJ PLOG 7%, SDUWLFXODUO\ LQ WKH DFXWH DQG SRVWDFXWH VWDJHV EHFRPLQJ FKURQLF LQ D VPDOO
    SHUFHQWDJH RI FDVHV -0 6LOYHU +DOHV DQG <XGRIVN\   6\PSWRP UHSRUWV W\SLFDOO\ LQFOXGH
    GLSORSLDDQGYLVXDOLQFRRUGLQDWLRQSKRWRSKRELDGL]]LQHVVDQGߟDWDORZIUHTXHQF\ߟGHDIQHVV 7/
    %HQQHWW DQG 5D\PRQG E *DVTXRLQH E 6RKOEHUJ DQG 0DWHHU   DQGRU WLQQLWXV
    (JJHUPRQWDQG5REHUWV1ROOHHWDO 6RPHSDWLHQWV  FRPSODLQHGRIGLVFRPIRUWLQ
    EULJKW OLJKW EXW RQ WHVWLQJ HYHQ PRUH GLVSOD\HG D ORZHUHG WKUHVKROG IRU OXPLQDQFH WROHUDQFH
    *URQZDOO   0RWRU VORZLQJ ZKLFK ZLOO VKRZ XS RQ FRJQLWLYH WHVWLQJ LV SUREDEO\ WKH PRVW
    XVXDOFKDQJHLQPRWRUIXQFWLRQLQJDIWHUPLOG7%,PRVWQRWDEOHDFXWHO\EXWVRPHSDWLHQWVPD\DOVR
    UHSRUWFRRUGLQDWLRQSUREOHPV :ULJKWVRQDQG*URQZDOO 

    &RPPRQQRQFRJQLWLYHVHTXHODHRIP7%,

    +HDGDFKH+HDGDFKHLVDFRPPRQIHDWXUHLQWKHDFXWHDQGSRVWDFXWHVWDJHVDQGPD\SHUVLVWDIWHU
    RWKHU V\PSWRPV KDYH GLVVLSDWHG &RRQOH\+RJDQVRQ HW DO  3RQVIRUG  71 :DUG DQG
    /HYLQ ,WFDQWDNHWKHIRUPRIPRVWDQ\FKURQLFKHDGDFKHGLVRUGHU 6SHHG   +HDGDFKHV
    WKDW GR QRW GLVVLSDWH ZLWK WKH RWKHU DFXWH V\PSWRPV UHTXLUH PHGLFDO DWWHQWLRQ :ULJKWVRQ DQG
    *URQZDOO 

    (PRWLRQDO GLVWUHVV DQG IDWLJXH 0DQ\ PLOG 7%, SDWLHQWV H[SHULHQFH G\VSKRULF HPRWLRQDO
    DOWHUDWLRQVLQZKLFKIDWLJXHPD\EHWKHFKLHIFXOSULW 3RQVIRUG:LOOPRWWHWDO/05\DQDQG
    :DUGHQ:ULJKWVRQDQG*URQZDOO ZLWKERWKH[TXLVLWHO\DFXWHDZDUHQHVVRIGHILFLWVDQG
    FRPSURPLVHGPHQWDOHIILFLHQF\UXQQLQJFORVHVHFRQGVWRIDWLJXH &RROLGJH0XOOHWDO/H]DN
    D )DWLJXHLVGLVUXSWLYHRIDWWHQWLRQFRQFHQWUDWLRQDQGDELOLW\WRIRFXVDVZHOODVVORZHGVSHHG
    RISURFHVVLQJ -'H/XFD*HQRYDHWDO :LWKWKHVORZHGSURFHVVLQJUHVXOWLQJIURPGLVUXSWHG
    FHUHEUDO ZKLWH PDWWHU DV D FRQVHTXHQFH RI PLOG 7%, DFWLYLWLHV WKDW ZHUH DXWRPDWLF QRZ PD\ EH
    DFFRPSOLVKHGRQO\ZLWKGHOLEHUDWHHIIRUW 6WXVV6WHWKHP+XJHQKROW]DQG5LFKDUG 
    $ \HDUROG VKRSNHHSHU ZDV RQO\ EULHIO\ XQFRQVFLRXV EXW TXLWH FRQIXVHG IRU VHYHUDO GD\V DIWHU KHU FDU ZKLFK KDG EHHQ
    JRLQJ DERXW  PSK  NSK  VSXQ RXW RI FRQWURO DQG LQWR DQ HPEDQNPHQW 6L[ ZHHNV ODWHU VKH FRPSODLQHG RI IDWLJXH VR
    VHYHUHLWDOORZHGKHUWREHDFWLYHIRURQO\WZRWRWKUHHKRXUVDWDWLPHEHIRUHVKHKDGWRVWRSWRUHVW$PRQJWKHPDQ\VXEWOH
    FKDQJHVVKHZDVH[SHULHQFLQJZDVDZDUHQHVVWKDWVKHQRORQJHUFRXOGJHWLQRURXWRIKHUFDUZLWKRXWWKLQNLQJDERXWZKDWVKH
    KDGWRGRDQGGLUHFWLQJHDFKPRYHPHQWFRQVFLRXVO\

    $FWLYLWLHVWKDWDUHQRUPDOO\DXWRPDWLFEXWEHFRPHHIIRUWIXODIWHUWKHLQMXU\SDUWLFXODUO\GXULQJWKH
    ILUVW ZHHNV RU PRQWKV LQFOXGH PDQ\ SHUIRUPHG IUHTXHQWO\ WKURXJKRXW D QRUPDO GD\ VXFK DV
    FRQFHQWUDWLQJZDUGLQJRIIGLVWUDFWLRQVUHDGLQJIRUPHDQLQJGRLQJPHQWDOFDOFXODWLRQVPRQLWRULQJ
    RQJRLQJ SHUIRUPDQFHV SODQQLQJ WKH GD\ߤV DFWLYLWLHV DWWHQGLQJ WR WZR FRQYHUVDWLRQV DW RQFH RU
    FRQYHUVLQJZLWKEDFNJURXQGQRLVHHWF,WLVOLWWOHZRQGHUWKDWE\ODWHDIWHUQRRQLIQRWE\QRRQPDQ\
    RI WKHVH SDWLHQWV DUH H[KDXVWHG 0DNLQJ PDWWHUV ZRUVH DV WKH\ EHFRPH IDWLJXHG WKHLU HIILFLHQF\
    SOXPPHWV WR HYHQ ORZHU OHYHOV VR WKDW DFWLYLWLHV WKDW ZHUH GLIILFXOW ZKHQ WKH\ ZHUH PRVW UHVWHG DQG
    FRPSHWHQW EHFRPH ODERUHG DQG HYHQ PRUH HUURUSURQH HJ WKH\ EHFRPH PRUH GLVWUDFWLEOH PDNH
    PRUHPLVWDNHVZKHQVSHDNLQJEHFRPHPRUHFOXPV\HWF
    )XUWKHU FRPSRXQGLQJ WKHLU EXUGHQV LV KHLJKWHQHG LUULWDELOLW\ 0DFKXOGD HW DO  3RQVIRUG
    /05\DQDQG:DUGHQ 7KLVLVDQH[SHULHQFHZKLFKHYHU\RQHZKRKDVEHHQLOORUKDG
    VXUJHU\VKRXOGUHFRJQL]HZKHQRQHߤVHQHUJ\LVGHSOHWHGSDWLHQFHDQGIUXVWUDWLRQWROHUDQFHGURSDQG
    LUULWDELOLW\HPHUJHVLQWKHLUVWHDG)DWLJXHGRHVQRWLPSURYHDQ\RQHߤVGLVSRVLWLRQDQGVHYHUHIDWLJXH
    FDQ PDNH WKH PLOGHVW SHUVRQ VFUDWFK\ DQG VKRUWWHPSHUHG %ROO DQG %DUWK   *DOEUDLWK 
    ZLVHO\ SRLQWHG RXW WKDW WKH IUXVWUDWLQJ H[SHULHQFH RI PHQWDO LQHIILFLHQF\ PD\ ZHOO FRQWULEXWH WR
    LUULWDELOLW\IROORZLQJPLOGLQMXU\+HDOVRQRWHGWKDWLWFRXOGUHVXOWIURPGLUHFWGDPDJHWRWKHOLPELF
    V\VWHPDOWKRXJKQRVLWHKDVEHHQLGHQWLILHG
    $EQRUPDOWLUHGQHVVPD\EHGXHWRGLVWXUEHGVOHHS -06LOYHU+DOHVDQG<XGRIVN\  RU WR
    WKHH[WUDHIIRUWUHTXLUHGLQWU\LQJWRIXQFWLRQQRUPDOO\ZKLOHFRSLQJZLWKDQDUUD\RIHQHUJ\VDSSLQJ
    FRJQLWLYHSK\VLRORJLFDODQGHPRWLRQDOV\PSWRPVRUERWK7KXVIDWLJXHSUREDEO\KDVDPRUHGLUHFW
    HIIHFWRQDSDWLHQWߤVOLIHWKDQDQ\RWKHUIDFWRUSDUWO\EHFDXVHLQLWVHOILWOLPLWVSHUIRUPDQFHDQGSDUWO\
    EHFDXVH LW LQFUHDVHV WKH HIIHFW RI WKH RWKHU V\PSWRPV FUHDWLQJ D YLFLRXV F\FOH :ULJKWVRQ DQG
    *URQZDOO   7UDXPDUHODWHG VXEWOH G\VIXQFWLRQ ZLWKLQ WKH K\SRWKDODPLFSLWXLWDU\ D[LV DIIHFWV
    VOHHS DV ZHOO DV VRPH HQGRFULQH DFWLYLW\ .ORVH DQG )HOGW5DVPXVVHQ  .UDKXOLN HW DO  
    7KH FKURQLF SDLQ RIWHQ IURP KHDGDFKHV ZKLFK IUHTXHQWO\ DFFRPSDQLHV 7%, LQFOXGLQJ P7%, FDQ
    DOVR FRPSURPLVH HIIHFWLYH IXQFWLRQLQJ 1DPSLDSDUDPSLO   $GGLWLRQDOO\ EUDLQ LQMXU\ LQGXFHV
    LQIODPPDWRU\ UHDFWLRQV LQ WKH SHULSKHU\ RI WKH ERG\ WKDW PD\ KDYH GHWULPHQWDO HIIHFWV RQ RWKHU
    RUJDQV DQG PD\ DOVR FRPSURPLVH WKH LPPXQH V\VWHP &DWDQLD HW DO   9HQWURPHGLDO IURQWDO
    GDPDJHKDVDOVREHHQDVVRFLDWHGZLWKIDWLJXHLQ7%, (QJODQGHUHWDO3DUGLQLHWDO 

    'HSUHVVLRQ DQG DQ[LHW\ 7KHVH DUH FRPPRQ IHDWXUHV RI P7%, -0 6LOYHU 0F$OOLVWHU DQG
    $UFLQLHJDV0%6WHLQDQG0F$OOLVWHU 7KHGLVRULHQWDWLRQVDQGIUXVWUDWLRQVRIKHDGDFKHV
    GL]]LQHVV DEQRUPDO IDWLJXH DQG VLJQLILFDQW FKDQJHV LQ PHQWDO HIILFLHQF\ H[SHULHQFHG LQ WKH HDUO\
    GD\V DIWHU DQ DFFLGHQW DUH OLNHO\ WR HQJHQGHU DQ[LHW\ LQ WKH EHZLOGHUHG DQG XQFRPIRUWDEOH SDWLHQW
    +RYODQG DQG 5DVNLQ   :KHQ WKH HDUO\ V\PSWRPV SHUVLVW WKH SDWLHQW EHFRPHV PRUH SURQH WR
    GHSUHVVLRQ &LFHURQH DQG )UDVHU :KHODQ*RRGLQVRQ HW DO  :ULJKWVRQ DQG *URQZDOO
     HVWLPDWHVRIGHSUHVVLRQSUHYDOHQFHUDQJHDURXQG %XVFKDQG$OSHUQ 7KHH[WHQWWR
    ZKLFK GHSUHVVLRQ LQ P7%, LV UHDFWLYH WR OLQJHULQJ FRJQLWLYH DQG VRPDWLF GLVRUGHUVߟDV PD\ EH
    VXVSHFWHGLQSDWLHQWVZKRVHGHSUHVVLRQRQVHWZDVVL[RUPRUHPRQWKVDIWHUWKHLQMXU\ '- )RUG\FH
    5RXHFKHDQG3ULJDWDQR9DUQH\0DUW]NHDQG5REHUWV ߟDQGWKHH[WHQWWRZKLFKLWKDVD
    QHXURJHQLF RULJLQ 9DLVKQDYL HW DO  :KHODQ*RRGLQVRQ HW DO   LV VWLOO LQ TXHVWLRQ
    &RQWULEXWLRQVIURPHDFKVRXUFHSUREDEO\YDU\IURPFDVHWRFDVH 5RVHQWKDO&KULVWHQVHQDQG5RVV
     3UHPRUELGߧSV\FKRORJLFDORUVRFLDOSUREOHPVߨZHUHLPSOLFDWHGLQRQHVHULHVRISDWLHQWVZLWK
    FRQWLQXLQJ HPRWLRQDO GLVRUGHUV 0D\RX HW DO   :KLOH GHSUHVVLRQ VHYHULW\ PD\ EH DVVRFLDWHG
    ZLWK IXQFWLRQDO GLVDELOLW\ LWV FRQWULEXWLRQ WR FRJQLWLYH LPSDLUPHQWV LQ P7%, SDWLHQWV LV XQFOHDU
    5DVNLQ DQG 6WHLQ   2QH VWXG\ IRXQG WKDW WKH OHYHO RI QHXURSV\FKRORJLFDO LPSDLUPHQW IRU D
    JURXSRIPLOG7%,SDWLHQWVZLWKFRPRUELGGHSUHVVLRQZDVJUHDWHUWKDQVLPLODU7%,SDWLHQWVZLWKRXW
    GHSUHVVLRQ 0-5DSRSRUW0F&XOODJKHWDO 
    )DWLJXHDQ[LHW\LUULWDELOLW\DQGVOHHSGLVWXUEDQFHVߟV\PSWRPVRIWKHSRVWFRQFXVVLRQDOV\QGURPH
    ߟWHQGWR IXUWKHU FRPSOLFDWH GHSUHVVLRQLQWKHVH SDWLHQWV %XVFK DQG$OSHUQ  7: 0F$OOLVWHU
    DQG )ODVKPDQ    5HGXFHG OLELGR LV QRW XQFRPPRQ IROORZLQJ P7%, $ORQL DQG .DW] 
    (OOLRWWDQG%LHYHU:ULJKWVRQDQG*URQZDOO 6RPHSDWLHQWVIHDUWKH\PD\EHJRLQJFUD]\
    8QOHVV VSHFLILFDOO\ IRUHZDUQHG WKDW WKHVH SUREOHPV PLJKW RFFXU DQG WKDW WKH\ DUH QDWXUDO
    FRQVHTXHQFHV RI DQ DFFLGHQW WKDW PD\ VHHP WR KDYH EHHQ DQ LQFRQVHTXHQWLDO HYHQW SDWLHQWV
    H[SHULHQFLQJ WKH W\SLFDO SRVWFRQFXVVLRQ V\PSWRPV LQFOXGLQJ IDWLJXH DQG LUULWDELOLW\ PD\ EHFRPH
    DQ[LRXV ORVH VHOIFRQILGHQFH DQG EH EHZLOGHUHG E\ WKH SX]]OLQJ DQG XQSOHDVDQW FKDQJHV LQ
    WKHPVHOYHV &RQER\HWDO:LWWHQEHUJHWDO:ULJKWVRQDQG*URQZDOO 
    )RU DOO SUDFWLFDO SXUSRVHV DWWHQWLRQDO GHILFLWV GXH WR VORZHG SURFHVVLQJ UHVXOW LQ PHQWDO
    LQHIILFLHQF\7KRVHZKRVHSUREOHPVZLWKPHQWDOLQHIILFLHQF\DUHUHODWLYHO\VHYHUHDQGHQGXULQJDUH
    PRUH OLNHO\ WR EHFRPH GLVWUHVVHG 8QIRUWXQDWHO\ PDQ\ SDWLHQWV LQWHUSUHW WKH H[SHULHQFH RI PHQWDO
    LQHIILFLHQF\ DV ߧVWXSLGLW\ߨ ZKLFK DGGV WR DQ[LHWLHV DQG SRWHQWLDO IRU GHSUHVVLRQ RFFDVLRQHG E\ WKH
    DFFLGHQW DQG WKHLU DOWHUHG VHOIH[SHULHQFH :KHQ FRXQVHOLQJ WKHVH SDWLHQWV LW LV LPSRUWDQW WR
    GLVWLQJXLVKPHQWDOLQHIILFLHQF\IURPߧVWXSLGLW\ߨZKLFKLVRIWHQHDVLO\DFFRPSOLVKHGLQWKHIROORZXS
    WR D QHXURSV\FKRORJLFDO H[DPLQDWLRQ E\ SRLQWLQJ RXW WKHLU DUHDV RI FRJQLWLYH VWUHQJWK 0RUHRYHU
    PDQ\ RI WKHVH SDWLHQWV GHYHORS XVHIXO FRPSHQVDWRU\ WHFKQLTXHV VXFK DV ZRUNLQJ YHU\ VORZO\ DQG
    GRXEOH FKHFNLQJ WKHPVHOYHV WR HQVXUH FRUUHFWQHVV FRQFHUQV DQG WUDLWV DNLQ WR WKRVH RI REVHVVLYH
    FRPSXOVLYHSHUVRQV /H]DN  0F.HRQHWDO  2I FRXUVH SHUVRQDOLW\SUHGLVSRVLWLRQVFDQ
    DIIHFW KRZ WKH SDWLHQW GHDOV ZLWK WKHVH V\PSWRPV DQG PD\ FRQWULEXWH WR VRPH SDWLHQWVߤ GLVDEOHPHQW
    .ZHQWXVHWDO3RQVIRUG:LOOPRWWHWDO5XWKHUIRUG0HUUHWWDQG0F'RQDOG 

    0RGHUDWHWUDXPDWLFEUDLQLQMXU\

    0RGHUDWH7%,LQYROYHVLQMXU\WRERWKJUD\DQGZKLWHPDWWHU VHH)LJ S  7DEOH  S 


    JLYHVWKHFRPPRQO\DFFHSWHGFULWHULDIRUPRGHUDWH7%,VHHDOVR7DEOHS )HZVWXGLHVKDYH
    VSHFLILFDOO\DGGUHVVHGWKRVHOHYHOVRIGDPDJHWKDWDUHQHLWKHUPLOGQRUVHYHUHDOWKRXJKWRRI
    DOO 7%,V IDOO LQWR WKLV FDWHJRU\ %HUURO  -) .UDXV 0F$UWKXU HW DO   ZLWK RQH UHYLHZ
    JLYLQJ DQ LQFLGHQFH UDQJH RI  WR  6& 6WHLQ   7KH LVVXH RI ZKLFK *&6 VFRUH RU
    FRPELQDWLRQ RI *&6 VFRUHV  LV XVHG DV D EDVLV IRU WKH GHILQLWLRQ RU ZKDW FOLQLFDO HYHQWV VKRXOG RU
    VKRXOGQRWEHSUHVHQWKDVEHHQUDLVHGDVZHOO 6&6WHLQ 6RPHZRUNHUVLQFOXGHD*&6RIRU
    H[FOXGHD *&6RI IRU WKLV FODVVLILFDWLRQ VHH %HUURO  VRPH LQFOXGH  ZLWK TXDOLILFDWLRQV
    6& 6WHLQ DQG 5RVV   2WKHUV RQO\ LQFOXGH SDWLHQWV ZKRVH *&6 QHYHU IDOOV EHORZ  '+
    :LOOLDPVHWDO RUZKRKDYHIRFDOGHILFLWVLQWUDFUDQLDOOHVLRQVRUGHSUHVVHGVNXOOIUDFWXUHZLWK
    DGXUDOWHDU +6/HYLQ*ROGVWHLQ+LJKHWDO 
    $OWKRXJK WKH QDWXUH DQG GXUDWLRQ RI V\PSWRPV YDU\ ZLGHO\ ZLWKLQ WKLV JURXS DOPRVW DOO LQ RQH
    ODUJHVWXG\FRQWLQXHGWRVXIIHUVLJQLILFDQWGLVWXUEDQFHVDWWKUHHPRQWKVSRVWLQMXU\LQFOXGLQJWKH
    PDNLQJDߧJRRGUHFRYHU\ߨRQWKH*ODVJRZ2XWFRPH6FDOH 5LPHO*LURGDQL%DUWKDQG-DQH 
    +HDGDFKHV PHPRU\ SUREOHPV DQG GLIILFXOWLHV ZLWK HYHU\GD\ OLYLQJ ZHUH WKH PRVW FRPPRQ
    FRPSODLQWVDQGWZRWKLUGVRIWKRVHSUHYLRXVO\ZRUNLQJKDGQRWUHWXUQHGWRWKHLUMREV%\VL[PRQWKV
    SRVWLQMXU\ PDQ\ 7%, SDWLHQWV ZLWK PRGHUDWH EUDLQ LQMXU\ FRQWLQXH WR H[KLELW FRJQLWLYH GHILFLWV
    'LNPHQ &RUULJDQ HW DO   7KH UHVLGXDO FRJQLWLYH GHILFLWV IROORZLQJ 7%,ߟHVSHFLDOO\
    SURFHVVLQJ VSHHGߟUHODWH WR VHYHULW\ 'LNPHQ 0DFKDPHU DQG 7HPNLQ  5XWWDQ HW DO  
    0RGHUDWHEUDLQLQMXU\FRPPRQO\SURGXFHVGHPRQVWUDEOHVKRUWWHUPPHPRU\GHILFLWV 9DNLO  
    :RPHQPD\KDYHEHWWHURXWFRPHVWKDQPHQ 6OHZD<RXQDQHWDO 
    2IFRXUVHLWLVWKHSDWLHQWߤVUHVLGXDOFRQGLWLRQWKDWXOWLPDWHO\PDWWHUV+HUHWKH*ODVJRZ2XWFRPH
    6FDOH SSߞ SURYLGHVDXVHIXOGHILQLWLRQRIPRGHUDWH7%,WKHVHDUHSDWLHQWVZKRFDQDQGIRU
    WKH PRVW SDUW GR IXQFWLRQ LQGHSHQGHQWO\ 0DQ\ UHWXUQ WR ZRUN KRPHPDNHUV UHVXPH WKHLU XVXDO
    UHVSRQVLELOLWLHV <HW WKH\ WHQG WR GLIIHU IURP LQWDFW SHUVRQV DQG IURP ZKDW WKH\ ZHUH LQ WKDW PRVW
    H[KLELW EHKDYLRUDO WUDFHV RI ORFDOL]HG IURQWDO DQGRU WHPSRUDO EUXLVLQJ )URQWDO GDPDJH FDQ EH
    VXVSHFWHGLQWKRVHZKRKDYHORVWVRPHVSRQWDQHLW\RUVRPHLQLWLDWLQJFDSDFLW\DUHPRUHLPSXOVLYHRU
    VXEMHFWWRWHPSHURXWEXUVWVWKDQEHIRUHRUZKRVHDIIHFWLYHRUHPSDWKLFFDSDFLW\LVPXWHG
    7HPSRUDOOREHGDPDJHPDNHVLWVDSSHDUDQFHDVDWUXHOHDUQLQJGLVRUGHUWKDWRIWHQUHIOHFWVVRPH
    ODWHUDOL]HG GDPDJH DV SUREOHPV PD\ LQYROYH SUHGRPLQDQWO\ YHUEDO RU YLVXDO LH QRQYHUEDOL]DEOH
    PDWHULDO OHVV IUHTXHQWO\ DV WHPSRUDO OREH HSLOHSV\ 7/(  RU LQ DOWHUHG DIIHFWLYH DQG GULYH VWDWHV
    DVVRFLDEOHWRGDPDJHWROLPELFVWUXFWXUHVZLWKLQWKHWHPSRUDOOREHV0RVWRIWKHVHSDWLHQWVZLOOKDYH
    VXVWDLQHG PRUH WKDQ RQH NLQG RI G\VIXQFWLRQ IRU H[DPSOH GLPLQLVKHG LQLWLDWLYH LV XVXDOO\
    DFFRPSDQLHG E\ DIIHFWLYH IODWWHQLQJ D PLOGO\ LPSXOVLYH SHUVRQ PD\ DOVR KDYH D IUDQN OHDUQLQJ
    SUREOHP3ODQQLQJDELOLW\DQGDXWRPDWLFVHOIPRQLWRULQJDUHIUHTXHQWO\FRPSURPLVHGWRVRPHH[WHQW
    QRW HQRXJK WR UHQGHU WKHVH SDWLHQWV XQHPSOR\DEOH EXW MXVW HQRXJK WR NHHS WKHP IURP EHLQJ DEOH WR
    ULVHWRVXSHUYLVRU\RUPDQDJHULDOSRVLWLRQVUHJDUGOHVVRIWKHLUOHYHORIVNLOOVDQGFRJQLWLYHDELOLWLHV
    0DDVHWDO 
    )URQWDO OREH SUREOHPV WHQG WR VKRZ XS LQ VXEWOH ZD\V LQ WKH PRGHUDWHO\ LPSDLUHG SHUVRQ ZKR
    QRQHWKHOHVV OLYHV LQGHSHQGHQWO\ ZRUNV VWHDGLO\ DQG PDLQWDLQV IDPLO\ UHODWLRQVKLSV 3DWLHQWV ZLWK
    GLPLQLVKHG LQLWLDWLYH DQG VSRQWDQHLW\ W\SLFDOO\ UHWXUQ WR WKHLU XVXDO RFFXSDWLRQV DQG FRQGXFW WKHLU
    URXWLQH DIIDLUV ZLWKRXW GLIILFXOW\ EXW WKH\ QR ORQJHU SODQ IRU QRQURXWLQH DFWLYLWLHV LQFOXGLQJ PRVW
    OHLVXUH DFWLYLWLHV VXFK DV JRLQJ WR D PRYLH RUJDQL]LQJ D SLFQLF RU D ILVKLQJ WULS HWF $OH[LWK\PLD
    IXQFWLRQDO GLVFRQQHFWLRQ EHWZHHQ HPRWLRQV DQG FRJQLWLRQ  DQG LPSDLUHG HPRWLRQDO HPSDWK\ DQG
    HPRWLRQDOSURFHVVLQJRFFXUIROORZLQJ7%, 5/:RRG:LOOLDPVDQG.DO\DQL&:LOOLDPVDQG
    :RRGDE $IIHFWLYHPXWLQJRIWHQVKRZVXSLQGLPLQLVKHGGULYHVIRRGVDUHQRORQJHUUHOLVKHG
    DQG VH[XDO DFWLYLW\ ZKLOH VWLOO SOHDVXUDEOH ORVHV ERWK XUJHQF\ DQG LPSRUWDQFHߟVR PXFK LQ VRPH
    LQVWDQFHV WKDW SUHYLRXVO\ DFWLYH SHUVRQV PD\ VWLOO UHVSRQG WR DQRWKHU ߤV DGYDQFHV EXW LW QR ORQJHU
    RFFXUVWRWKHPWRLQLWLDWHLQWHUFRXUVH 563DUNHU 
    $UDLOURDGEUDNHPDQLQKLVPLGWKLUWLHVVXVWDLQHGVHYHUDOKRXUVRI/2&DIWHUEHLQJWKURZQEDFNRQKLVKHDGZKHQWKHFDERRVHLQ
    ZKLFKKHVWRRGFDPHWRDQXQH[SHFWHGDQGDEUXSWKDOW3ULRUWRWKHLQMXU\KHKDGEHHQDGHYRWHGIDPLO\PDQDQGFKXUFKJRHU
    VSHQGLQJHYHU\6DWXUGD\WDNLQJKLVVFKRRODJHGDXJKWHUVWRIDLUVPRYLHVVKRSSLQJPDOOVHWF6XQGD\VKHXVKHUHGDWFKXUFK
    +LVZLIHGHVFULEHGKLPDVKDYLQJEHHQDQDIIHFWLRQDWHKXVEDQGDQGHDJHUVH[SDUWQHU7ZR\HDUVDIWHUWKHDFFLGHQWKHFRQWLQXHG
    LQWKHVDPHMREDQGIRUDOOSUDFWLFDOSXUSRVHVZDVIXOO\FRPSHWHQW1RZKRZHYHUKHVSHQWDOOKLVIUHHWLPHDWKRPHSOD\LQJD
    YLGHR JDPHߟDOZD\V WKH VDPH RQH KLV ZLIH UHSRUWHG +H KDG FHDVHG LQWHUDFWLQJ ZLWK KLV GDXJKWHUV GURSSHG DOO FKXUFK
    DFWLYLWLHVDQGZDVRQO\RFFDVLRQDOO\UHVSRQVLYHZKHQKLVZLIHVRXJKWLQWHUFRXUVH$IIHFWZDVGXOOHGEXWKHZDVQRWGHSUHVVHG
    DOWKRXJK D QDLYH H[DPLQHU FRXOG HDVLO\ LQWHUSUHW KLV EHKDYLRU DV GXH WR GHSUHVVLRQ ,Q IDFW DIIHFWLYHO\ KH ZDV QRW PXFK RI
    DQ\WKLQJߟMXVWWKHUH

    6HYHUH7%,

    ,ߤPDORQH
    ,MXVWFDQߤWVHHPWREUHDNRXW
    Y/RFNHGLQWKLVFDJH
    ,QVLGHP\KHDUW,IHHOIXOORIGRXEW
    ,FDQߤWVHHPWRIUHHP\VHOI
    /LNH,ߤPVWXFNLQDKROH
    ,ߤPDORQH
    &DQDQ\ERG\KHOS

    (YHQ GHFDGHV DIWHU WKH LQMXU\ VHYHUH 7%, FRQWLQXHV WR KDYH VLJQLILFDQW HIIHFWV RQ FRJQLWLYH
    HPRWLRQDO SV\FKRVRFLDO YRFDWLRQDO DQG IDPLO\ IXQFWLRQLQJ DV ZHOO DV LQGHSHQGHQFH LQ OLYLQJ
    +RRILHQ*LOERDHWDO0(7DQJDQG/REHO $OWKRXJKIHZHUWKDQRI7%,YLFWLPV
    DUH VHYHUHO\ LQMXUHG WKLV JURXS SUHVHQWV D PDMRU DQG JURZLQJ VRFLDO SUREOHP EHFDXVH WKHLU
    UHKDELOLWDWLRQQHHGVDUHVRJUHDWDQGVRFRVWO\EHFDXVHVRIHZUHWXUQWRIXOO\LQGHSHQGHQWOLYLQJDQG
    EHFDXVHWKHLUGLVDELOLWLHVFUHDWHKHDY\ILQDQFLDODQGHPRWLRQDOEXUGHQVIRUWKHLUIDPLOLHV 0DFKDPHU
    7HPNLQDQG'LNPHQ190DUVKHWDO5/:RRG 7KHVHGLVDELOLWLHVWHQGWREH
    LQWHUGHSHQGHQWPD\UHVXOWIURPDYDULHW\RILPSDLUPHQWVDQGDUHLQWHUDFWLYHDQGFXPXODWLYHLQWKHLU
    HIIHFWV )RU H[DPSOH DQ LQVWDQFH RI SRRU MXGJPHQW PD\ KDYH FRJQLWLYH FRPSRQHQWV EXW ERWK
    LPSXOVLYLW\DQGORVVRIDSSUHFLDWLRQIRUVRFLDOFRQWH[WPD\DOVRFRQWULEXWH3HUVRQDOLW\DOWHUDWLRQVDUH
    FRPPRQ WKH\ PD\ EH WKH SURGXFW RI FRJQLWLYH HPRWLRQDO DQG H[HFXWLYH LPSDLUPHQWV DQG DIIHFW
    IXQFWLRQLQJLQPDQ\GRPDLQV

    &RJQLWLYHDQGPRWRUGHIHFWV7KLVSRSXODWLRQGLVSOD\VWKHIXOOUDQJHRIVHYHULW\RIG\VIXQFWLRQLQ
    HYHU\DVSHFWRIFRJQLWLRQ([FHSWLQJWKHYHU\VHYHUHO\GDPDJHGZKRDUHPRVWOLNHO\WRKDYHVXIIHUHG
    GLVUXSWLRQ RI FRJQLWLYH IXQFWLRQV JHQHUDOO\ DQG WKRVH LQ SHUVLVWHQW YHJHWDWLYH VWDWHV -HQQHWW  
    HDFK SDWLHQWߤV LPSDLUPHQW SDWWHUQ ZLOO KDYH DW OHDVW VRPH XQLTXH FKDUDFWHULVWLFV DV FHUWDLQ IXQFWLRQV
    FRQWLQXH DW SUHPRUELG RU QHDU SUHPRUELG OHYHOV ZKLOH RWKHUV KDYH EHHQ PRUH RU OHVV VHYHUHO\
    DIIHFWHG 0LOOLV5RVHQWKDOHWDO1HZFRPEH7HDVHOOHWDO 
    :KLOH QRW XQLYHUVDO DWWHQWLRQDO GHILFLWV DUH YHU\ FRPPRQ SDUWLFXODUO\ DPRQJ WKRVH ZKRVH
    LQMXULHVRFFXUUHGXQGHUFRQGLWLRQVRIUDSLGGHFHOHUDWLRQDVLQWUDIILFRUUDLOURDGDFFLGHQWV %URXZHU
    3RQGVHWDO5XWWDQHWDO6WXVV6WHWKHP+XJHQKROW]HWDO 'LVWUDFWLRQVFDQKDYH
    FRQVLGHUDEOH LPSDFW RQ WKH DELOLW\ WR ZRUN LQGHSHQGHQWO\ DQG WKH GLVUXSWLYH HIIHFW GRHV QRW ZDQH
    TXLFNO\ :K\WHHWDO :KHQVHYHUHDWWHQWLRQDOGHILFLWVFDQEHVRGLVUXSWLYHWKDWWKHVHSDWLHQWV
    EHFRPH WRR GLVWUDFWLEOH RU WRR XQDEOH WR PDLQWDLQ GLUHFWHG RU IRFXVHG DWWHQWLRQ WR EHQHILW IURP
    UHWUDLQLQJ 5/ :RRG   %HKDYLRUDO VORZLQJ ERWK RI PHQWDO SURFHVVLQJ DQG RI UHVSRQVH LV
    FKDUDFWHULVWLF RI WKHVH SDWLHQWV 'HILFLWV LQ IRFXVHG DQG GLYLGHG DWWHQWLRQ PD\ UHVXOW IURP VORZHG
    LQIRUPDWLRQSURFHVVLQJEXWQRWDOODWWHQWLRQDOGHILFLWVFDQEHDWWULEXWHGWRWKLVVORZQHVV $VORXQHWDO
    %DWHHWDO 6LPSOHDQGFKRLFHUHDFWLRQWLPHVDUHFRPPRQO\LPSDLUHGZLWKVHYHUH7%,
    $VWKHFRPSOH[LW\RIWKHWDVNLQFUHDVHVRUWKHPRGDOLW\RIVWLPXOXVSUHVHQWDWLRQLVXQFHUWDLQWKH
    SUHSDUDWRU\LQWHUYDO OHQJWKHQV =DKQ DQG 0LUVN\   0RWRU FRPSOH[LW\ LQ WHUPV RI QXPEHU RI
    VHSDUDWHPRYHPHQWVQHHGHGWRUHVSRQGWRVWLPXOL KRZHYHUGRHVQRWDSSHDUWRDIIHFWUHVSRQVHVSHHG
    ZKLOHVWLPXOXVQRYHOW\ OHWWHUVIDPLOLDUDQGXQIDPLOLDUILJXUHV FDQVORZLWLQWKHVHSDWLHQWVDILQGLQJ
    LQWHUSUHWHGDVLPSOLFDWLQJVORZHGLQIRUPDWLRQSURFHVVLQJ 0F)DG\HQHWDO7URPSDQG0XOGHU
     6ORZHGLQIRUPDWLRQSURFHVVLQJFDQEHDIDFWRULQSRRUH[HFXWLYHIXQFWLRQLQJLQGLYLGXDOL]LQJ
    WKH SDFH RI SUHVHQWDWLRQ RI LQIRUPDWLRQ IRU HDFK SDWLHQW FDQ VLJQLILFDQWO\ LPSURYH SURFHVVLQJ
    DFFXUDF\ 0DGLJDQHWDO 
    0HPRU\LPSDLUPHQWVLQVHYHUH7%,XVXDOO\FRQVLVWRISUREOHPVLQERWKDFTXLVLWLRQDQGUHWULHYDORI
    LQIRUPDWLRQ 'LNPHQ0DFKRYHUDQG7HPNLQ9DNLO ZLWKLPPHGLDWHVKRUWWHUPPHPRU\
    OHVVOLNHO\WREHDVDIIHFWHG %HQQHWW/HY\'1%URRNV+RVLHDQG%RQG=HF=HOOHUVHW
    DO   5HFDOO WHQGV WR EH FRQIRXQGHG E\ GLIILFXOW\ GLVFULPLQDWLQJ EHWZHHQ LQWUXVLRQV ZKHWKHU
    SXUHO\DVVRFLDWLYHRURIVLPLODUPDWHULDOSUHVHQWHGGXULQJWKHVDPHH[DPLQDWLRQDVWKHWDUJHWPDWHULDO
    &URVVRQ 1RYDFN 7UHQHUU\ DQG &UDLJ 3DQLDN 6KRUH DQG 5RXUNH    6SDWLDO OHDUQLQJ
    DQGPHPRU\GHILFLWV 6NHOWRQ HW DO  6KXP +DUULV DQG 2ߤ*RUPDQ   PD\ LQWHUIHUH ZLWK
    ZD\ILQGLQJGLIILFXOWLHVLQHYHU\GD\OLIH,WLVQRWXQXVXDOIRUUHFDOORIYHUEDORUYLVXDOLQIRUPDWLRQWR
    EHLPSDLUHGZLWKUHODWLYHO\LQWDFWUHFRJQLWLRQ 6SLNPDQ%HUJDQG'HHOPDQ EXWUHFRJQLWLRQ
    PHPRU\ PD\ DOVR EH LPSDLUHG +DQQD\ /HYLQ DQG *URVVPDQ   'LIILFXOWLHV LQ UHWULHYDO RI
    IDPLOLDUQDPHVDQGOHDUQLQJRIQHZQDPHVDUHFRPPRQFRPSODLQWVZLWKVHYHUH7%,DQGLPSDLUPHQWV
    FDQEHQRWHGRQIRUPDOWHVWLQJ 0LOGHUV +RZHYHUUHFRJQLWLRQRIIDPLOLDUQDPHVLVOLNHO\WR
    EHLQWDFW 0LOGHUV'HHOPDQDQG%HUJ 
    :RUNLQJPHPRU\GHILFLWVDUHRIWHQSUHVHQWZKHQWKHVHSDWLHQWVDWWHPSWWZRWDVNVDWWKHVDPHWLPH
    60F'RZHOOHWDO1HZVRPHHWDO1:3DUN0RVFRYLWFKDQG5REHUWVRQ RUD
    WDVN WKDW LQYROYHV WZR RU PRUH RSHUDWLRQV DW WKH VDPH WLPH HVSHFLDOO\ ZKHQ VSHHGHG RU WR JXLGH D
    VHTXHQFHRIDFWLRQV %XEODNHWDO 7KLVLVSDUWLFXODUO\LPSRUWDQWZKHQ7%,SDWLHQWVUHWXUQWR
    GULYLQJ ZKLFK LQYROYHV WLPH SUHVVXUH LQ FDUU\LQJ RXW GLIIHUHQW VHULHV RI DFWLRQV DV ZHOO DV PDNLQJ
    VSOLWVHFRQGGHFLVLRQV %URXZHU:LWKDDUHWDO  ,Q WKH H[WUHPH FDVH PHPRU\ GLVRUGHUV PD\
    FRQGHPQ WKH SDWLHQW WR DZDUHQHVV RI RQO\ ZKDW LV LPPHGLDWHO\ JLYHQ 3V\FKRPRWRU VNLOO OHDUQLQJ
    SURFHGXUDO OHDUQLQJ  KRZHYHU PD\ EH SUHVHUYHG GHVSLWH VLJQLILFDQW LPSDLUPHQW RI VHPDQWLF DQG
    HYHQW PHPRU\ 7LPPHUPDQ DQG %URXZHU   1RW VXUSULVLQJO\ DOFRKROLFVߟSDUWLFXODUO\ WKRVH
    GUXQNDWWKHWLPHRILQMXU\ߟDUHOLNHO\WRKDYHJUHDWHUPHPRU\LPSDLUPHQWVWKDQSHUVRQVZLWKVLPLODU
    LQMXULHVEXWQRDOFRKROLFKLVWRU\ 1%URRNV6\PLQJWRQHWDO 
    'HILFLWVDVVRFLDWHGZLWKIURQWDOOREHLQMXU\DUHRIWHQWKHPRVWKDQGLFDSSLQJDVWKH\LQWHUIHUHZLWK
    WKHDELOLW\WRXVHNQRZOHGJHDQGVNLOOVIOXHQWO\DSSURSULDWHO\RUDGDSWLYHO\ 70RUULV :KHQ
    LQMXULHV DUH SUHGRPLQDQWO\ IURQWDO WKH SDWLHQW PD\ SHUIRUP ZHOO RQ WLPHOLPLWHG KLJKO\ VWUXFWXUHG
    H[DPLQDWLRQWDVNVEXWVWLOOEHXQDEOHWRIXQFWLRQLQGHSHQGHQWO\2QHLPSRUWDQWSUREOHPWKDWFDQRFFXU
    ZLWKERWKIURQWDODQGULJKWFHUHEUDOLQMXU\LVGLPLQLVKHGDZDUHQHVVRUDSSUHFLDWLRQRIRQHߤVGHILFLWV
    )ODVKPDQHWDO3ULJDWDQR :LWKRXWDZDUHQHVVRIZKDWKDVEHHQORVWRURIWKHPLVWDNHV
    WKH\ PDNH SDWLHQWV DUH QHLWKHU PRWLYDWHG IRU UHWUDLQLQJ QRU FDQ WKH\ PRQLWRU WKHLU SHUIRUPDQFHV
    SURSHUO\7KHSHUIRUPDQFHRIWKHVHSDWLHQWVPD\EHVLJQLILFDQWO\FRPSURPLVHG\HWWKH\FDQDSSHDU
    TXLWH XQWURXEOHG E\ WKLV FDQ ߧWDON D JRRG JDPHߨ DQG PD\ HYHQ FRQWLQXH WR DQQRXQFH LQWHQWLRQV WR
    UHWXUQ WR ZRUN IO\ DLUSODQHV RU HQWHU D SURIHVVLRQ GHVSLWH WKH PRVW REYLRXV FRJQLWLYH RU PRWRU
    GHILFLWV0RUHRYHUWKHLUSUREOHPVLQHPRWLRQDOFRQWURODQGVRFLDOLQWHUDFWLRQDUHPRVWOLNHO\WREH
    XQGHUHVWLPDWHGE\WKHP -RUJH3ULJDWDQR$OWPDQDQG2ߤ%ULHQ 
    /DQJXDJH GHILFLW SDWWHUQV LQ 7%, PD\ GLIIHU IURP WKH FODVVLF DSKDVLF V\QGURPHV VHHQ LQ VWURNH
    EHFDXVHRIWKHPRUHGLIIXVHLQMXU\WRWKHEUDLQLQDGGLWLRQWRZKDWHYHUIRFDOGDPDJHLVSURGXFLQJWKH
    ODQJXDJHGLVWXUEDQFH 9XNRYLFHWDO6DUQRHWDO 7KXVWKHUHLVJUHDWYDULDELOLW\LQWKHLU
    GLVFRXUVH SURILOHV +DUWOH\ DQG -HQVHQ  /LQVFRWW HW DO   6HYHUHO\ GDPDJHG SDWLHQWV DUH
    DOVR PRUH OLNHO\ WR GLVSOD\ UHDVRQLQJ DQG YHUEDO IOXHQF\ LPSDLUPHQWV '1 %URRNV +RVLH DQG
    %RQG ': (OOLV DQG =DKQ   $ FODVVLF DSKDVLD V\QGURPH LV UHODWLYHO\ UDUH H[FHSW ZLWK
    DSSURSULDWHO\ IRFDO OHVLRQV 3ULJDWDQR  6RKOEHUJ DQG 0DWHHU   3UREOHPV ZLWK ZRUG
    ILQGLQJ YHUEDO UHWULHYDO  QDPLQJ DQG DXGLWRU\ FRPSUHKHQVLRQ DUH FRPPRQ +6 /HYLQ 
    0XUGRFK 
    $ELOLW\WRFRPPXQLFDWHPD\EHFRPSURPLVHGGXHWRDODFNRIORJLFDOFRQWHQWDQGFRKHVLYHQHVVD
    ODFNRIFODULW\LQVHQVLWLYLW\WRRWKHUVߤQHHGVDQGLQWHUHVWVLQVHQVLWLYLW\WRWKHDPRXQWRIH[SODQDWLRQ
    QHFHVVDU\ IRU RWKHUV WR FRPSUHKHQG WKH LQIRUPDWLRQ JLYHQ WRR PXFK RU WRR OLWWOH LQIRUPDWLRQ
    FRQIDEXODWLRQ DQG LQFRQVLVWHQFLHV DQG LPSDLUHG SUDJPDWLFV NQRZOHGJH DQG DFWLYLWLHV RI VRFLDOO\
    DSSURSULDWHFRPPXQLFDWLRQ ZKLFKFRXOGLQFOXGHLQDSSURSULDWHFXOWXUDODQGPRUDOFRQWHQW /LQVFRWW
    HWDO6RKOEHUJDQG0DWHHU ,PSDLUHGSUDJPDWLFVDOVRUHIHUVWRPXFKRIWKHQRQYHUEDO
    DVSHFWV RI FRPPXQLFDWLRQ VXFK DV JHVWXUHV ORXGQHVV RI VSHHFK HWF &RQYHUVDWLRQDO GLVFRXUVH PD\
    QRWLPSURYHQRWLFHDEO\RYHUWLPH 36QRZ'RXJODVDQG3RQVIRUG 
    $WHQGHQF\IRUDEUHDNGRZQLQOLQJXLVWLFFRPSHWHQFHKDVEHHQDVVRFLDWHGZLWKVHYHULW\RIGDPDJH
    VXSSRUWLQJ REVHUYDWLRQV WKDW WUDXPD SDWLHQWV ߧWDON EHWWHU WKDQ WKH\ FRPPXQLFDWH ZKLOH WKH UHYHUVH
    KROGV IRU SDWLHQWV ZLWK OHIW KHPLVSKHUH &9$ DSKDVLDߨ :LLJ $OH[DQGHU DQG 6HFRUG  
    &RQYHUVDWLRQE\VHYHUHO\LQMXUHG7%,SDWLHQWVWHQGVWREHHIIRUWIXOPD\EHLQDSSURSULDWHDQGRIWHQ
    XQLQWHUHVWLQJ IRU RWKHUV ) %RQG DQG *RGIUH\   5& 0DUVKDOO   SRLQWHG RXW KRZ WKH
    HIIHFWV RI VXFK FRJQLWLYH DQG H[HFXWLYH GLVRUGHUV DV FRQIXVLRQ GLVRULHQWDWLRQ GLVWUDFWLELOLW\
    GLVLQKLELWLRQ DQG FRQFUHWH DQG ULJLG WKLQNLQJ FDQ GLVWXUE WKH FRPPXQLFDWLRQ SURFHVV 3DWLHQWV ZLWK
    SURQRXQFHGPHPRU\SUREOHPVRUSHUVHYHUDWLYHWHQGHQFLHVFDQEHYHU\UHSHWLWLYH
    9LVXRVSDWLDO YLVXRSHUFHSWXDO DQG FRQVWUXFWLRQDO GHILFLWV WURXEOH VRPH RI WKHVH SDWLHQWV ':
    (OOLVDQG=DKQ1HZFRPEH EXWDVRIWHQDVQRWWKHVHYHUHO\GDPDJHGSDWLHQWZLOOKDYH
    OLWWOHRUQRGLIILFXOW\LQRQHRUPRUHRIWKHVHDUHDVZKLFKPD\DFFRXQWIRUWKHUHODWLYHSDXFLW\RIGDWD
    RQWKHVHVSHFLILFG\VIXQFWLRQV8QIRUWXQDWHO\PXFKRIWKHGDWDRQWHVWVLQYROYLQJWKHVHIXQFWLRQVKDV
    EHHQLPEHGGHGLQ,4RURWKHUVXPPHGVFRUHVVRWKDWWKHLQIRUPDWLRQLVORVWWRWKHUHDGHU2IFRXUVH
    VXFK WHVWV LQ WKH :,6$ EDWWHULHV DUH DOVR WLPHG LQWURGXFLQJ WKH SRVVLELOLW\ RI ORZHU VFRUHV GXH WR
    UHGXFHGLQIRUPDWLRQSURFHVVLQJVSHHGLQWKHVHSDWLHQWV +RRILHQ*LOERDHWDO 
    %DVLF PRWRU IXQFWLRQV VXFK DV SULPLWLYH UHIOH[HV HTXLOLEULXPSURWHFWLYH UHDFWLRQV PXVFOH WRQH
    UDQJHRIPRWLRQDEQRUPDODQGYROXQWDU\PRYHPHQWVDQGPRWRUVNLOOVLQYROYHGLQVLWWLQJNQHHOLQJ
    VWDQGLQJDQGZDONLQJPD\EHLPSDLUHGLQWKHHDUO\VWDJHV 6ZDLQHDQG6XOOLYDQ 7KHSURILOHRI
    PRWRUSUREOHPVYDULHVDFURVVLQGLYLGXDOVEXWVLJQLILFDQWFKDQJHVIRUWKHEHWWHUDUHW\SLFDOO\VHHQLQ
    WKHILUVWIHZZHHNVDIWHUWKHLQMXU\2WKHUPRWRUGLVWXUEDQFHVPD\EHSUHVHQWSHUKDSVIRUPDQ\\HDUV
    LQFOXGLQJ GHFUHDVHG PDQXDO VSHHG DQG GH[WHULW\ LQFUHDVHG UHDFWLRQ WLPH RQ VLPSOH DV ZHOO DV
    FRPSOH[ UHDFWLRQ WLPH WDVNV DWD[LD WUHPRUV KHPLSDUHVLV KHPLSOHJLD GHFUHDVHG UDQJH RI PRWLRQ
    VSDVWLFLW\DQGFRQWUDFWXUHV &*UD\HWDO+DDODQG 7HPNLQHWDO.HUHQ5H]QLN DQG
    *URVZDVVZHU 7UHDWPHQWVVXFKDVUHKDELOLWDWLRQLQFOXGLQJSK\VLFDODQGRFFXSDWLRQDOWKHUDSLHV
    RUWKRWLFVELRIHHGEDFNK\GURWKHUDS\KLSSRWKHUDS\ WKHUDSHXWLFKRUVHEDFNULGLQJ PHGLFDWLRQQHUYH
    EORFNVDQGVXUJHU\PD\EHQHHGHGDWYDULRXVWLPHVWRLPSURYHPRWRUIXQFWLRQ

    ([HFXWLYHG\VIXQFWLRQ7KHPRVWFULSSOLQJDQGRIWHQWKHPRVWLQWUDFWDEOHGLVRUGHUVDVVRFLDWHGZLWK
    VHYHUH 7%, LQYROYH FDSDFLWLHV IRU VHOIGHWHUPLQDWLRQ VHOIGLUHFWLRQ DQG VHOIFRQWURO DQG UHJXODWLRQ
    ZKLFK GHSHQG RQ LQWDFW DZDUHQHVV RI RQHߤV VHOI DQG VXUURXQGLQJV &URVVRQ %DUFR 9HOR]R HW DO
     % /HYLQH %ODFN HW DO  /H]DN E  'HILFLWV LQ VHOIDZDUHQHVV DUH FRPPRQSODFH
    3ULJDWDQR 6HOIDZDUHQHVVKDVLPSRUWDQWVRFLDOUDPLILFDWLRQVZKHQLWLVFRPSURPLVHG
    VRDUHLQVLJKWDQGHPSDWK\ &:LOOLDPVDQG:RRGDE 5HDVRQDEO\DFFXUDWHVHOIDZDUHQHVVLVD
    SUHFRQGLWLRQWRDFFHSWLQJWKHQHHGIRUUHKDELOLWDWLRQDQGWKHUHE\FRRSHUDWLQJZLWKLW %HQ<LVKD\DQG
    'LOOHU.D\DQG6LOYHU3ULJDWDQRDQG0RUURQH6WUXSLQVN\ ,WLVDOVRDPDMRU
    IDFWRULQUHWXUQWRZRUN 6KHUHU%HUJORIIHWDO ,QDSSURSULDWHLPSXOVLYHXQUHDOLVWLFGHFLVLRQ
    PDNLQJ LV FRPPRQ DPRQJ WKHVH SDWLHQWV PXFK RI WKLV LV OLNHO\ D E\SURGXFW RI LPSDLUHG FHQWUDO
    H[HFXWLYHIXQFWLRQLQJ &LDUDPHOOLHWDO 
    2QH\RXQJPDQUHPHPEHUHGWKDWDEXVLQHVVDVVRFLDWHRIKLVIDWKHUߤVKDGRQFHVDLG VODSSLQJKLPRQKLVVKRXOGHU WKDWDQ\WLPH
    KHZDQWHGDMREMXVWWRFRPHDQGVHHKLP6HYHUDO\HDUVODWHUDIWHUKLVDFFLGHQWKHUHPHPEHUHGWKLVFRPPHQWIRXQGWUDQVSRUW
    VHYHUDOKXQGUHGPLOHVWRDQRWKHUFLW\DQGDSSHDUHGRQWKHGRRUVWHSRIWKLVPDQVD\LQJWKDWKHZDVWKHUHIRUDMRE6LQFHWKH
    IDPLO\GLGQRWUHFRJQL]HKLPDQGKHZDVLQVLVWHQWVRPHZKDWLQFRKHUHQWDQGFRXOGQRWSURSHUO\LGHQWLI\KLPVHOIWKH\FDOOHGWKH
    SROLFHZKRFKHFNHGZLWKUHJLRQDOWUDXPDXQLWVDQGUHWXUQHGKLPWRWKHRULJLQDODFXWHFDUHIDFLOLW\WREHUHOHDVHGWRKLVIDPLO\
    PGO 

    ([HFXWLYHIXQFWLRQVDOVRLQFOXGHDVSHFWVRIFRJQLWLRQWKDWDUHQRWFRJQLWLYHDELOLWLHVLQWKHPVHOYHV
    EXW UDWKHU FRQFHUQ ZKHWKHU RU KRZ WKH\ ZLOO EH H[SUHVVHG $]RXYL HW DO  3: %XUJHVV DQG
    :RRG5/:RRGDQG/LRVVLE 7KXVWKHPHPRU\GLVRUGHUVRIPDQ\VHYHUHO\LPSDLUHG
    7%,SDWLHQWVZLOOVHHPPRUHVHYHUHWKDQWKH\DFWXDOO\DUHEHFDXVHWKHSDWLHQWPD\SRVVHVVWKHQHHGHG
    LQIRUPDWLRQEXWZLOOQRWWKLQNWRXVHLWXQOHVVH[WHUQDOO\SURGGHGRUFXHG 6WXVVDQG*RZ )RU
    H[DPSOHSURVSHFWLYHPHPRU\LVIUHTXHQWO\FRPSURPLVHGLQWKHVHSDWLHQWV 6KXP/HYLQDQG&KDQ
       6HOIFRUUHFWLQJ PD\ IROORZ WKH VDPH SDWWHUQ WKH SDWLHQW NQRZV WKHUH LV DQ HUURU EXW GRHV
    QRWKLQJ WR FRUUHFW LW 'DUE\ DQG :DOVK   $ZDUHQHVV RI HUURUV ZKLFK PXVW SUHFHGH WKHLU
    FRUUHFWLRQ LQFRPSOHWLQJHYHU\GD\WDVNVLVORZHUDQGDIIHFWHGHYHQPRUHZKHQWKHUHLVDSODQQLQJ
    DQGZRUNLQJPHPRU\ORDG 7+DUW*LRYDQQHWWLHWDO 
    7KHVH SDWLHQWV KDYH GLIILFXOW\ GHDOLQJ ZLWK VLPXOWDQHRXV FRPSHWLQJ VRXUFHV RI LQIRUPDWLRQ LQ
    ILJXULQJ RXW D VHTXHQFH RI DFWLRQV SHUKDSV IURP SURFHVVLQJ UHVRXUFH OLPLWDWLRQV &D]DOLV HW DO
      $XWRPDWLF XQLQWHQGHG DFWLRQ HUURUV WKDW ZH DOO PDNH IURP WLPH WR WLPH HJ SHHOLQJ
    YHJHWDEOHVDQGWKURZLQJDZD\WKHYHJHWDEOHVQRWWKHSHHOV RFFXUPRUHIUHTXHQWO\LQWKHVHSDWLHQWVDV
    DUHVXOWRIODSVHVLQVXVWDLQHGDWWHQWLRQ ,+5REHUWVRQ0DQO\HWDO 6HYHUH7%,SDWLHQWVPD\
    VSRQWDQHRXVO\ VD\ FRUUHFWO\ WKDW WKH SULQFLSOH RQ D UHDVRQLQJ WDVN KDV FKDQJHG VD\ KRZ LW KDV
    FKDQJHGEXWEHXQDEOHWRVZLWFKWRWKHQHZSULQFLSOHSHUVHYHUDWLQJRQWKHROGRQHLQWKHUHVSRQVHV
    WKDW IROORZ 3HUVHYHUDWLRQ LQ D UHVSRQVH RU WKRXJKW LV FRPPRQ ,QIOH[LELOLW\ ZKHWKHU LW DSSHDUV DV
    IUDQN SHUVHYHUDWLRQ RU DV LPSDLUHG EHKDYLRUDO RU FRQFHSWXDO VKLIWLQJ LQ UHVSRQVH WR LQVWUXFWLRQV RU
    FKDQJLQJ FLUFXPVWDQFHV FDQ FRPSURPLVH FRJQLWLYH DQG VRFLDO IXQFWLRQLQJ DOLNH +6 /HYLQ
    *ROGVWHLQ:LOOLDPVDQG(LVHQEHUJ 
    2IWHQZKDWLVQHHGHGWRSHUIRUPLVDYDLODEOHRUZLWKLQWKHVHSDWLHQWVߤFDSDFLW\EXWLWGRHVQRWRFFXU
    WRWKHPWRXVHZKDWLVWKHUHRUWRDQWLFLSDWHIXWXUHQHHGV &URVVRQ%DUFRHWDO 7KXVDELOLWLHV
    WRSODQDQGWRUHFRJQL]HDQGFKRRVHDOWHUQDWLYHVPD\EHLPSDLUHG$SDWK\DQGGLVLQKLELWLRQDUHERWK
    DVSHFWVRIHPRWLRQDOLW\DQGV\PSWRPVRIG\VIXQFWLRQDODELOLW\WRFRQWURODQGGLUHFWEHKDYLRU 'DUE\
    DQG:DOVK7UXHOOH $SDWK\KDVEHHQVKRZQWRFRUUHODWHZLWKUHGXFHGH[HFXWLYHIXQFWLRQ
    DFTXLVLWLRQ DQG PHPRU\ SV\FKRPRWRU VSHHG $QGHUVVRQ DQG %HUJHGDOHQ   DQG DFWLYH JRDO
    RULHQWHGFRSLQJ )LQVHWDQG$QGHUVVRQ 
    3HUVRQVLQZKRPWKHVHFDSDFLWLHVDUHFRPSURPLVHGFHDVHWREHLQDGHTXDWHFRQWURORIWKHPVHOYHV
    RUWKHLUGHVWLQLHVWKHJUHDWHUWKHGHIHFWWKHPRUHVRFLDOO\GHSHQGHQWDQGVRFLDOO\G\VIXQFWLRQDOWKH\
    EHFRPH ,W LV WKLV RUGHU RI G\VIXQFWLRQ WKDW DFFRXQWV IRU WKH SRRU RXWFRPHV RI VR PDQ\ VHYHUHO\
    GDPDJHGSDWLHQWVZK\WKH\FDQQRWJHWRUKROGMREVFDUHIRUWKHLUIDPLOLHVRUEHJLQQHZRQHVZK\
    SK\VLFDOO\ KHDOWK\ \RXQJ PHQ VWD\ ZKHUH WKH\ DUH SXW ZKHWKHU LW LV D UHKDELOLWDWLRQ FHQWHU WKHLU
    IDPLO\ߤV KRPH RU D VWUHHW FRUQHU ZK\ RWKHUV JHW LQWR FRQWLQXDO GLIILFXOW\ EHFDXVH RI VH[XDO XUJHV
    FOXPVLO\ DVVHUWHG RU VHHPLQJO\ VHQVHOHVV DJJUHVVLRQ 3RQVIRUG  9DUQH\ DQG 0HQHIHH 
    5/:RRGDQG/LRVVLD 

    (PRWLRQDODQGSV\FKLDWULFGLVRUGHUV

    0DQ\GLIIHUHQWNLQGVRIHPRWLRQDODOWHUDWLRQVWDNHSODFHDVDUHVXOWRI7%, :KHODQ*RRGLQVRQHWDO
     & :LOOLDPV DQG :RRG DE  ,Q VHYHUHO\ GDPDJHG SDWLHQWV WKHVH DOWHUDWLRQV DUH
    SUHGRPLQDQWO\ RUJDQLFDOO\ EDVHG DOWKRXJK UHDFWLYH GLVWXUEDQFHV RU FRPSHQVDWRU\ FKDQJHV LQ
    DWWLWXGHVDQGDIIHFWLYHUHVSRQVHFDQKDYHLPSRUWDQWHIIHFWVSUHPRUELGSUHGLVSRVLWLRQWRRPD\HQWHU
    LQWR WKLV FRPSOH[ HTXDWLRQ RI ZK\ WKH\ EHKDYH DV WKH\ GR )OHPLQJHU  3ULJDWDQR 
    5RVHQWKDO&KULVWHQVHQDQG5RVV 
    (PRWLRQDO FKDQJHV JHQHUDOO\ LQYROYH HLWKHU H[DJJHUDWLRQ RU PXWLQJ RI DIIHFWLYH H[SHULHQFH DQG
    UHVSRQVH -RUJH DQG 5RELQVRQ  -0 6LOYHU +DOHV DQG <XGRIVN\   %RWK WKH H[FLWDEOHߟ
    DIIHFWLYHO\ IORULG LPSXOVLYH ODELOH DFWLQJ RXWߟDQG DSDWKHWLFߟHPRWLRQDOO\ IODW GLVLQWHUHVWHG
    QRQLQLWLDWLQJߟSDWWHUQVRIEHKDYLRUDODQGHPRWLRQDODOWHUDWLRQVKDYHWKHLURUJDQLFEDVHVSULPDULO\LQ
    GDPDJHWRWKHIURQWDOOREHVRUXQGHUO\LQJVWUXFWXUHV 'DUE\DQG:DOVK 'DPDJHWRWHPSRUDO
    OLPELF VWUXFWXUHV ZLOO DOVR DIIHFW HPRWLRQDOLW\ VHH SS ߞ  %HKDYLRUDO GLVWXUEDQFHV DVVRFLDWHG
    ZLWK WHPSRUROLPELF OHVLRQV PD\ EH PRUH HSLVRGLF ZLWK WHPSHU RXWEXUVWV RU VXGGHQ DOWHUDWLRQV RI
    PRRGWKDWDUHXVXDOO\G\VSKRULFLQQDWXUH,QVRPHSDWLHQWVERWKGLVRUGHUVFDQEHVHHQZKHQDXVXDOO\
    HPRWLRQDOO\GXOOHGDQGGLVLQWHUHVWHGSDWLHQWIODUHVXSLQUDJHDWVRPHVHHPLQJO\PLQRUSURYRFDWLRQ
    ,QWHUHVWLQJO\WKHIRFXVLQUHSRUWLQJDERXWWKHVHSUREOHPVLVPRUHIUHTXHQWO\RQDJJUHVVLYHDFWLQJ
    RXWSDWLHQWVUDWKHU WKDQ RQ WKRVH ZKR DUH K\SRUHVSRQVLYHDOWKRXJK WKH ODWWHU FDQ EHDV PXFK LI QRW
    PRUHVRFLDOO\G\VIXQFWLRQDOWKDQWKHIRUPHU
    'HSUHVVLRQDQGDQ[LHW\DUHSDUWLFXODUO\FRPPRQUHJDUGOHVVRIWKHVHYHULW\RILQMXU\ )OHPLQJHU
    -06LOYHU0F$OOLVWHUDQG$UFLQLHJDV9DLVKQDYLHWDO  $Q[LHW\ DQGGHSUHVVLRQ
    ZKLFKWURXEOHPDQ\PRGHUDWHO\WRVHYHUHO\LQMXUHGSDWLHQWVߟSDUWLFXODUO\DIWHUWKHDFXWHVWDJHVߟPD\
    LQFUHDVHLQLQWHQVLW\ZLWKWLPHIRUVRPH 3ULJDWDQRDQG0DLHU-06LOYHU+DOHVDQG<XGRIVN\
     9DUQH\ 0DUW]NH DQG 5REHUWV   0DMRU GHSUHVVLRQ PD\ EH PRUH OLNHO\ WR UHPLW WKDQ
    DQ[LHW\ +LEEDUG8\VDOHWDO *HQHUDOL]HGDQ[LHW\GLVRUGHUODVWLQJVHYHUDOZHHNVFRPELQHG
    ZLWKGHSUHVVLRQDSSHDUVWREHDVVRFLDWHGZLWKSURORQJHGGHSUHVVLRQ -RUJH5RELQVRQ6WDUNVWHLQDQG
    $UQGW   7KDW DQ[LHW\ DQG GHSUHVVLRQ DUH IUHTXHQWO\ UHDFWLYH WR SDWLHQWVߤ DSSUHFLDWLRQ RI WKHLU
    SK\VLFDODQGFRJQLWLYHGLVDELOLWLHVDQGVRFLDOOLPLWDWLRQVLVVXJJHVWHGLQDVWXG\UHSRUWLQJDQLQYHUVH
    UHODWLRQVKLSEHWZHHQLQVLJKWLQWREHKDYLRUDOLPSDLUPHQWߟZKLFKWHQGHGWREHSRRUHVWDPRQJSDWLHQWV
    ILUVWH[DPLQHGVL[PRQWKVDIWHULQMXU\DQGHPRWLRQDOGLVWUHVVߟZKLFKJHQHUDOO\ZRUVHQHGZLWKWLPH
    *RGIUH\HWDO  7KLV GRHV QRWUXOH RXWWKHSRVVLELOLW\ WKDW DW OHDVW VRPH G\VSKRULFHPRWLRQDO
    UHDFWLRQV DUH V\PSWRPV RI RUJDQLF DOWHUDWLRQV LQ EUDLQ IXQFWLRQLQJ -HDQ%D\  0 5RVHQWKDO
    &KULVWHQVHQDQG5RVV 
    2WKHU HPRWLRQDO DQG SV\FKLDWULF SUREOHPV DUH PRUH FRPPRQ LQ WKHVH SDWLHQWV WKDQ LQ WKH
    SRSXODWLRQ DW ODUJH VXFK DV PDQLD 6 6KXNOD HW DO   SDUDQRLD 3ULJDWDQR   DQG D
    VFKL]RSKUHQLFOLNHV\QGURPHWKDWGHYHORSVDIWHUKHDGWUDXPD (.LP DQGLVFKDUDFWHUL]HGE\
    QHJDWLYH V\PSWRPV VXFK DV IODWWHQHG DIIHFW VXVSLFLRXVQHVV DQG VRFLDO ZLWKGUDZDO UDWKHU WKDQ WKH
    GHOXVLRQVDQGKDOOXFLQDWLRQVWKDWDUHWKHSRVLWLYHV\PSWRPVRIVFKL]RSKUHQLD 05%RQG-0
    6LOYHU+DOHVDQG<XGRIVN\=KDQJDQG6DFKGHY 
    ,PSDLUHGVRFLDOIXQFWLRQLQJLVDFRPPRQSODFHUHVLGXDORIVHYHUH7%, 7HPNLQ &RUULJDQ HW DO
     ,QFUHDVHGUDWHVRISHUVRQDOLW\GLVRUGHUVLQFOXGLQJERUGHUOLQHDYRLGDQWSDUDQRLGREVHVVLYH
    FRPSXOVLYHDQGQDUFLVVLVWLFW\SHVKDYHEHHQUHSRUWHG +LEEDUG%RJGDQ\HWDO9DQ 5HHNXP
    HW DO   376'FRQWLQXHVWR EH D GLVSXWHG FRQFRPLWDQW RI 7%, EXW VRPH HYLGHQFHVXJJHVWV WKDW
    376'FDQRFFXUDFURVVWKHUDQJHRILQMXU\VHYHULW\ )HLQVWHLQ+HUVKNRSHWDO:DUGHQHWDO
      'LVLQKLELWHG RU ߧLPSXOVLYHߨDJJUHVVLYH EHKDYLRU ZLWK 7%, SUREDEO\ UHVXOWV IURP D ORVV RI
    IURQWDOLQKLELWRU\LQQHUYDWLRQIURPVXEFRUWLFDOOLPELFVWUXFWXUHVYHUEDOFRQIURQWDWLRQVDUHUHSRUWHG
    PRUH WKDQ DFWXDO SK\VLFDO DVVDXOWV *UDIPDQ 6FKZDE HW DO  5/ :RRG DQG /LRVVL D 
    6XFKLQGLYLGXDOVDUHPRUHOLNHO\WRKDYHDKLVWRU\RISUHPRUELGDJJUHVVLYHEHKDYLRUWREH\RXQJHU
    DQG JHQHUDOO\ PRUH LPSXOVLYH LUULWDEOH DQG DQWLVRFLDO .: *UHYH HW DO   7KH UHODWLYH
    FRQWULEXWLRQVRISV\FKRJHQLFUHDFWLRQVDQGRUJDQLFG\VIXQFWLRQOLNHO\GLIIHUDPRQJSDWLHQWVDQGPD\
    GLIIHUIRULQGLYLGXDOSDWLHQWVDWGLIIHUHQWWLPHV
    6RFLDO LVRODWLRQ LV D FRPPRQ FRQVHTXHQFH RI WKHVH HPRWLRQDO DOWHUDWLRQV DOWKRXJK RIWHQ QRW
    EHFDXVH WKHVH KHDG WUDXPD SDWLHQWV GHVLUH LW EXW UDWKHU EHFDXVH WKH\ KDYH EHFRPH ERULQJ GLIILFXOW
    VRPHWLPHVIUDQNO\XQSOHDVDQWWREHZLWKRUEHFDXVHDSDWK\RUWKHLUFRJQLWLYHGHILFLHQFLHVNHHSWKHP
    IURPVRFLDOL]LQJHIIHFWLYHO\LIDWDOO )RUG\FHHWDO/H]DNDQG2ߤ%ULHQ190DUVKDQG
    .QLJKW )ULHQGVIDPLO\DQGFRZRUNHUVPD\QRWXQGHUVWDQGZK\DSDWLHQWLVQRORQJHUߧIXQWR
    EHZLWKߨEXWKDVEHFRPHDQRWKHUEXUGHQLQWKHLUOLYHVDQGWKH\ZLWKGUDZIURPWKHSDWLHQW6HYHUH7%,
    SDWLHQWV PD\ KDYH OHVV RSSRUWXQLW\ IRU HVWDEOLVKLQJ QHZ FRQWDFWV DQG IULHQGV DIWHU DQ LQMXU\ WKDW
    IXUWKHULVRODWHVWKHPDVWLPHJRHVRQ 0RUWRQDQG:HKPDQ 
    6RFLDOLVRODWLRQRIWKHSHUVRQZLWK7%,LVDPDMRUGHWHUPLQDQWRIFDUHJLYHUEXUGHQ 19 0DUVK
    .HUVHO HW DO   ,W LV QRW XQXVXDO IRU DGROHVFHQW SDWLHQWV ZLWK DZDUHQHVV RI WKHLU VLWXDWLRQ WR
    FRPPHQWRQWKHGLVPDODVSHFWVRIWKHLUIXWXUHOLIHSHUKDSVRQWKHIDFWWKDWWKH\ZLOOQHYHUJRWRWKHLU
    KLJK VFKRRO JUDGXDWLRQ SDUW\ QHYHU GDWH RU PDUU\ DQG KDYH FKLOGUHQ RU QHYHU ZRUN 7KLV LV
    KHDUWEUHDNLQJIRUIDPLOLHVHVSHFLDOO\SDUHQWVMXVWDVLWLVZLWKPDQ\RWKHUGLVRUGHUVDQGGLVHDVHVWKDW
    DUHFRQWUDFWHGHDUO\LQOLIH3DUHQWVDUHQRWDOZD\VDEOHWRFDUHIRUDVHYHUHO\LQMXUHGIDPLO\PHPEHU
    DWKRPHDQGQXUVLQJKRPHSODFHPHQWPD\EHWKHRQO\DYDLODEOHVROXWLRQIRUD\RXQJSHUVRQZKRLV
    WKHQIXUWKHULVRODWHGIURPRWKHUVWKHLUDJH,QFXOWXUHVLQZKLFKSHUVRQDOLW\DQGEHKDYLRUDODOWHUDWLRQV
    GXHWR7%,DUHYLHZHGDVDIRUPRIPDGQHVVWKHIDPLO\DVZHOODVWKHSDWLHQWPD\IHHOVKDPHGPD\
    NHHSVHFUHWWKHIDFWVRIWKHLQMXU\DQGZLWKGUDZIURPWKHLUVRFLDOQHWZRUN 6LPSVRQHWDO  ,Q
    WKH 8QLWHG 6WDWHV PDQ\ IDPLO\ PHPEHUV DUH PRUH OLNHO\ WR ILQG WKH SK\VLFDO GHILFLWV DFFHSWDEOH WR
    GLVFXVVDQGGHDOZLWKWKDQWKHHPRWLRQDOSHUVRQDOLW\SUREOHPV

    &RXUVH 7KH PDMRULW\ RI SDWLHQWV ZKR FRPH RXW RI OHQJWK\ FRPD PDNH VRPH SURJUHVV EXW QRW
    HQRXJK WR RYHUFRPH WKH GHYDVWDWLQJ HIIHFWV RI VHYHUH 7%, /LYLQJVWRQ HW DO   6KRUWO\ DIWHU
    UHWXUQWRFRQVFLRXVQHVVWKH\PD\EHDFXWHO\FRQIXVLRQDOIRUGD\VRUOHVVIUHTXHQWO\IRUPRUHWKDQ
    VHYHUDO ZHHNV 7KH FRQIXVLRQDO VWDWH LV W\SLFDOO\ FKDUDFWHUL]HG E\ PRWRU UHVWOHVVQHVV DJLWDWLRQ
    LQFRPSUHKHQVLRQ DQG LQFRKHUHQFH DQG XQFRRSHUDWLYHQHVV LQFOXGLQJ UHVLVWLYH DQG HYHQ DVVDXOWLYH
    EHKDYLRU %URRNHHWDO(DPHVHWDO)XJDWHHWDO $JLWDWHGRUUHVWOHVVEHKDYLRURQ
    DGPLVVLRQ WR SRVWDFXWH FDUH DSSHDUV WR SUHGLFW EHWWHU RXWFRPHV WKDQ VOXJJLVKQHVV RU LPPRELOLW\
    5H\HVHWDO6KHUHU<DEORQDQG1DNDVH5LFKDUGVRQ 
    ,Q WKH QH[W ZHHNV WR PRQWKV ERWK SK\VLFDO VWDWXV LQFOXGLQJ EDVLF PRWRU IXQFWLRQV 6ZDLQH DQG
    6XOOLYDQ DQGPDQ\DVSHFWVRIFRJQLWLRQLPSURYHVRPHTXLWHUDSLGO\ ',.DW]3RO\DNHWDO
      7KH PRUH VHYHUH WKH LQMXU\ WKH PRUH SHUYDVLYH DUH WKH GHILFLWV RQH \HDU DIWHU WKH LQMXU\
    'LNPHQ0DFKDPHU:LQQDQG7HPNLQ 6RPHDELOLWLHVVXFKDVQHZOHDUQLQJWHQGWRLPSURYH
    RYHU D ORQJ SHULRG RI WLPH . 2ߤ%ULHQ DQG /H]DN  3DQLDN 6KRUH DQG 5RXUNH 
    9LJRXURX[HWDO EXWVWLOOGRQRWUHDFKQRUPDOOHYHOVHYHQVL[\HDUVDIWHUWKHLQMXU\ +6/HYLQ
     7KRVHGHILFLWVKDYLQJWRGRZLWKUHWULHYDOUDWKHUWKDQUHJLVWUDWLRQDQGOHDUQLQJPD\LPSURYHDV
    VSHFLILF YHUEDO RU YLVXRVSDWLDO IXQFWLRQV UHWXUQ WR PDNH VWRUHG LQIRUPDWLRQ DQG UHVSRQVH SDWWHUQV
    DYDLODEOHDJDLQ6OXJJLVKUHWULHYDOPD\VKRZRQO\PLQLPDOLPSURYHPHQWWKLVPD\EHFRPHHYLGHQW
    IDLUO\VRRQDIWHUUHWXUQRIFRQVFLRXVQHVVZKHQWKHGHILFLWVUHVXOWIURPH[WHQVLYHIURQWDORUVXEFRUWLFDO
    GDPDJH$FWLYLWLHVWKDWKDYHDODUJHDQGVLPSOHDWWHQWLRQDOFRPSRQHQWVXFKDVLPPHGLDWHVSDQWHQG
    WRLPSURYHTXLFNO\DQGUHDFKDSODWHDXZLWKLQWKHILUVWVL[PRQWKVWRD\HDUDIWHULQMXU\ *URQZDOODQG
    6DPSVRQ/H]DNE 
    $IWHU WKH ILUVW \HDU LPSURYHPHQW PD\ FRQWLQXH EXW ZLOO PRUH OLNHO\ FRPH JUDGXDOO\ DQG DV D
    IXQFWLRQ RI QHZ OHDUQLQJ DQG GHYHORSPHQW RI FRPSHQVDWRU\ VWUDWHJLHV UDWKHU WKDQ VSRQWDQHRXVO\ DV
    RFFXUVLQWKHILUVWWKUHHWRVL[PRQWKVRUVR ',.DW]3RO\DNHWDO $VH[DPSOHVDVHULHVRI
    VHYHUHO\LQMXUHGSDWLHQWVVKRZHGHVVHQWLDOO\QRFKDQJHLQFRJQLWLYHIXQFWLRQVIURP\HDUWR\HDU
    1 %URRNV 0F.LQOD\ 6\PLQJWRQ HW DO   ,Q WKUHH H[DPLQDWLRQV WDNLQJ SODFH RYHU  \HDUV
    DSKDVLF GLVWXUEDQFHV GLPLQLVKHG FRQVLGHUDEO\ FRQFHQWUDWLRQ SUREOHPV VRPHZKDW DQG PHPRU\
    LPSURYHGYHU\OLWWOHLQVHYHUHO\LQMXUHGSDWLHQWV 7KRPVHQ :KLOHSDWLHQWVWHQGHGWREHOHVV
    FKLOGLVK D VPDOO LQFUHDVH LQ LUULWDELOLW\ DQG UHVWOHVVQHVV ZDV QRWHG ZLWK ODUJHU LQFUHDVHV LQ
    IDWLJDELOLW\ߧODFNRILQWHUHVWVߨDQGߧVHQVLWLYLW\GLVWUHVVߨ1%URRNV  IRXQGSDWLHQWSUREOHPVDV
    UHSRUWHGE\IDPLO\PHPEHUVIURPWKHILUVWWRWKHILIWKSRVWWUDXPDWLF\HDUWREHXQFKDQJHG,QDQRWKHU
    JURXSRIVHYHUHO\LQMXUHGSDWLHQWVRWKHUWKDQLPSURYHGSK\VLFDOVWDWXVQRVLJQLILFDQWFKDQJHVZHUH
    QRWHGIURP\HDUWR\HDUDQGDJDLQQRFKDQJHVDSSHDUHGIURP\HDUVWRDOWKRXJKDQRYHUDOO
    LPSURYHPHQW WUHQG LQ HPRWLRQDO DQG SV\FKRVRFLDO IXQFWLRQLQJ ZDV GRFXPHQWHG IRU WKH HQWLUH WLPH
    VSDQ 63.DSODQ  2WKHUVWXGLHVVKRZ WKDW LPSURYHPHQWV PD\ FRQWLQXH IRU VRPH LQGLYLGXDOV
    PDQ\\HDUVDIWHUWKHLQMXU\ ',.DW]3RO\DNHWDO0LOOLV 5RVHQWKDOHW DO  6ERUGRQH
    /LWHUDQG3HWWOHU-HQQLQJV 
    7HVW VFRUHV WKDW IOXFWXDWH ERWK XS DQG GRZQ DIWHU WKH ILUVW \HDU VXJJHVW WKDW PRUH WKDQ VLPSOH
    LPSURYHPHQWRFFXUV /H]DN0LOOLV5RVHQWKDOHWDO 7KHVHIOXFWXDWLRQVDUHPRVWXVXDO
    LQSDWLHQWVZLWKLPSDLUHG H[HFXWLYHIXQFWLRQV DQG UDWKHUWKDQUHIOHFWLQJ VRPH XQGHUO\LQJ FKDQJHLQ
    EUDLQ IXQFWLRQ WKH\ SUREDEO\ UHSUHVHQW D ODFN RI LQWHUQDO VWDELOLW\ DQG VHOIUHJXODWLRQ 0LOOLV
    5RVHQWKDODQGWKHLUJURXS  UHSRUWHGWKDWRIWKHLUSDWLHQWVLPSURYHGGHFOLQHGDQG
    ZHUHXQFKDQJHG,PSURYHPHQWVLQYHUEDOIOXHQF\FRJQLWLYHVSHHGDQGDWWHQWLRQDQGSUREOHP
    VROYLQJZHUHVHHQLQRYHURIWKHLPSURYLQJSDWLHQWVZKLOHVLPLODUUDWHVRIGHFOLQHZHUHIRXQGLQ
    FRJQLWLYHVSHHGDQGDWWHQWLRQSUREOHPVROYLQJDQGPRWRUFRRUGLQDWLRQLQSDWLHQWVZKRVHIXQFWLRQLQJ
    KDG GHFOLQHG $OPRVW  RI RQH VDPSOH RI PRGHUDWHWRVHYHUH 7%, SDWLHQWV H[KLELWHG FRJQLWLYH
    GHFOLQHRYHUILYH\HDUV 7LOOHWDO 
    6HOIUHSRUWRIVHYHUH7%,SDWLHQWVWZR\HDUVDQGLQVRPHFDVHVXSWR\HDUVDIWHUWKHLULQMXU\WHOO
    RI WKH SUREOHPV WKDW FRQWLQXH WR SODJXH WKHVH LQGLYLGXDOV LQ PRVW DVSHFWV RI GDLO\ OLYLQJ WR YDULRXV
    GHJUHHV DOWKRXJK VHOIUHSRUW GRHV QRW DOZD\V PDWFK REMHFWLYH ILQGLQJV RI FRJQLWLYH DQGRU
    QHXURSV\FKLDWULF LPSDLUPHQW 'UDSHU DQG 3RQVIRUG  3RQVIRUG 'UDSHU DQG 6FKRQEHUJHU
     
    $VHOIUHSRUWVWXG\E\3RQVIRUG2OYHUDQG&XUUDQ  IRXQGWKDWWZR\HDUVDIWHUWKHLUDFFLGHQWZHUHVWLOOQRWDWWKHLU
    SUHYLRXV OHYHO RI PRELOLW\ DQG  VWLOO WLUHG PRUH HDVLO\ WKHVH SDWLHQWV DOVR FRPSODLQHG RI KHDGDFKHV   GL]]LQHVV
     DQGYLVXDOGLIILFXOWLHV  0RVWZHUHLQGHSHQGHQWLQEDVLFDFWLYLWLHVRIGDLO\OLYLQJ $'/V VXFKDVIHHGLQJ  
    GUHVVLQJ   DQG SHUVRQDO K\JLHQH   ZLWK RU ZLWKRXW FXHV WR GR VR EXW ͣ VWLOO FRXOG QRW GR OLJKW RU KHDY\
    GRPHVWLFFKRUHV)XOOWLPHHPSOR\PHQWZDVRQO\DVRSSRVHGWRSUHLQMXU\2QO\ZHUHLQYROYHGLQDOOSUHYLRXV
    OHLVXUHDFWLYLWLHVDQGLQWHUHVWV6L[W\SHUFHQWOLYHGZLWKWKHLUIDPLO\DQGKDGQHYHUPDUULHG
    ,Q DQRWKHU VHOIUHSRUW VWXG\ E\ 0DVVRQ DQG FROOHDJXHV    ZLWK VHYHUH 7%, ZHUH ZRUNLQJ DIWHU  \HDUV
    6XEMHFWLYH FRPSODLQWV LQFOXGHG PHPRU\ SUREOHPV   IDWLJXH   GL]]LQHVV   SDLQ   GHSUHVVLYH WHPSHU
      DQ[LHW\   DQG LUULWDELOLW\   )URP DERXW  WR  KDG SUREOHPV ZLWK ZDVKLQJ GUHVVLQJ ZDONLQJ XVLQJ
    WUDQVSRUWGULYLQJZULWLQJDOHWWHUDQGGHDOLQJZLWKSDSHUZRUN2QO\KDGPDGHDJRRGUHFRYHU\ZKLOHVWLOOKDGD
    VHYHUHGLVDELOLW\

    7KXV LQ WKH YHU\ ORQJ WHUP ERWK JRRG DQG EDG RXWFRPHV KDYH EHHQ UHSRUWHG IRU VHYHUH 7%,
    SDWLHQWV 6WLOO WKH PRVW XVXDO ILQGLQJ RYHU WKH \HDUV LV RI QR WR PLQLPDO FKDQJH LQ FRJQLWLYH VWDWXV
    ZLWKSHUVLVWHQWFRPSODLQWVRISUREOHPVߟFRJQLWLYHVFKRROZRUNPHGLFDODQGHPRWLRQDOKHDGLQJWKH
    OLVWߟDQG VRPH FRQWLQXLQJ VRFLDO DQG SHUVRQDOLW\ GHWHULRUDWLRQ 1 %URRNV &DPSVLH HW DO 
    .DURO7KRPVHQ 
    7\SLFDOO\WKHOHVVWKHLPSDLUPHQWVKRZQRQQHXURSV\FKRORJLFDOVWXGLHVSHUIRUPHGVRRQDIWHUWKH
    LQMXU\WKHEHWWHUWKHSURJQRVLVZLOOEHIRULPSURYHPHQWRYHUWLPH1HXURSV\FKRORJLFDODVVHVVPHQW
    FDQ LGHQWLI\ LPSURYHPHQW SODWHDXV 5\X &XOOHQ DQG %D\OH\  6LJXUGDUGRWWLU $QGHOLF HW DO
      6HYHUHO\ LQMXUHG 7%, SDWLHQWV PD\ LPSURYH ZLWK QHXURSV\FKRORJLFDOO\ EDVHG UHPHGLDO
    LQWHUYHQWLRQV &LFHURQH0RWWHWDO9DQGHUSORHJ6FKZDEHWDO 
    6RFLDOG\VIXQFWLRQDVRXWFRPH7KHQHXURSV\FKRORJLFDOGHILFLWVERUQHE\VXUYLYRUVRIVHYHUH7%,
    OHDGDOPRVWLQHYLWDEO\WRGLIILFXOWLHVLQHYHU\DUHDRIVRFLDODFWLYLW\DQGWRWKHSUREOHPVHQFRXQWHUHG
    E\ IDPLO\ PHPEHUV SDUWLFXODUO\ WKRVH UHVSRQVLEOH IRU WKHLU FDUH $VKPDQ HW DO   0RVW
    SURPLQHQW DPRQJ DUHDV RI FRQFHUQ DQG PRVW LPSRUWDQW IRU VRFLDO LQGHSHQGHQFH DUH ZRUN DQG
    IDPLO\
    0RVW VHYHUH 7%, SDWLHQWV QHYHU UHWXUQ WR SUHYLRXV HPSOR\PHQW OHYHOV DOWKRXJK VRPH GR RWKHUV
    PD\ZRUNDWOHVVGHPDQGLQJ DQGOHVVZHOOSD\LQJ MREVWKDQKHOGEHIRUHLQMXU\RULQVXSSRUWHGRU
    VKHOWHUHGHPSOR\PHQW 1%URRNV0F.LQOH\6\PLQJWRQHWDO^J`/H]DNDQG2ߤ%ULHQ
    3RQVIRUG2OYHUHWDO
    5/ 7DWH /XOKDP HW DO   7KH SUREOHPV SUHVHQWHG E\ WKHVH SDWLHQWV DQG UHSRUWHG E\ WKH
    JXLGDQFHDQGUHKDELOLWDWLRQSHRSOHZRUNLQJZLWKWKHPUHIOHFWWKHIXOOJDPXWRIFRJQLWLYHHPRWLRQDO
    DQGH[HFXWLYHGLVRUGHUV%\IDUWKHJUHDWHVWREVWDFOHVWRYRFDWLRQDOUHLQWHJUDWLRQDUHRIDQH[HFXWLYH
    QDWXUHLHSUREOHPVRILQLWLDWLQJSODQQLQJRUJDQL]LQJWKRXJKWVDQGZRUNVHOIFRQWUROIOH[LELOLW\RI
    WKRXJKWDQGUHVSRQVHHWF$WWHQWLRQDODQGPHPRU\SUREOHPVSOXVLPSDLUHGUHDVRQLQJDQGMXGJPHQW
    DOVRFRQWULEXWHWRWKHVHSDWLHQWVߤYRFDWLRQDOIDLOXUHV 1%URRNV0F.LQOD\HWDO6KDPHVHWDO
     $SSURSULDWHUHKDELOLWDWLRQWUDLQLQJFDQLQFUHDVHWKHHPSOR\DELOLW\RIDVLJQLILFDQWQXPEHURI
    PRGHUDWHO\WRVHYHUHO\LQMXUHGSDWLHQWV %HQ<LVKD\6LOYHUHWDO&RKDGRQHWDO.LUVKHW
    DO 
    6WXGLHVRIIDPLO\ DGMXVWPHQW IRFXV RQ WKH EXUGHQ WKHVHSDWLHQWV FUHDWHIRU WKHLU IDPLO\ PHPEHUV
    &DPSODLU%XWOHUDQG/H]DN190DUVK.HUVHOHWDO+-7KRPSVRQ (PRWLRQDO
    EHKDYLRUV PRVW OLNHO\ WR GLVWUHVV IDPLO\ PHPEHUV DUH DJJUHVVLRQ LQFUHDVHG WHPSHU DQG LUULWDELOLW\
    VRFLDOZLWKGUDZDODQGHPRWLRQDOFROGQHVV 1%URRNV190DUVK.HUVHOHWDO  
    2WKHUSUREOHPEHKDYLRUVLQFOXGHFKLOGLVKQHVVHPRWLRQDOODELOLW\DQGXQUHDVRQDEOHQHVVߟDOOTXDOLWLHV
    WKDW FDQ FUHDWH WHQVLRQV GLVVHQVLRQ DQG VWUHVV ZLWKLQ WKH IDPLO\ &DPSODLU .UHXW]HU DQG 'RKHUW\
    /&3HWHUVHWDO7KRPVHQ $VZHOODVWKHVHSUREOHPVSK\VLFDOLPSDLUPHQWVDGG
    WRIDPLO\EXUGHQDWRQH\HDUDIWHULQMXU\ 1%URRNV190DUVK.HUVHOHWDO $W ILYH
    \HDUVDIWHULQMXU\WKHSDWLHQWVߤGHSHQGHQF\ZDVH[SHULHQFHGDVWKHFKLHIEXUGHQRQWKHLUIDPLOLHV 1
    %URRNV 0RUHRYHUIDPLOLHVZLWKD7%,SHUVRQWHQGWREHFRPHLQFUHDVLQJO\VRFLDOO\LVRODWHG
    ZKLFKFDQRQO\H[DFHUEDWHWHQVLRQVDQGGLVVDWLVIDFWLRQV )ORULDQHWDO &DUHJLYHUGHSUHVVLRQLV
    IDLUO\FRPPRQ &DPSODLU%XWOHUDQG/H]DN-.+DUULVHWDO 
    3K\VLFDOFRJQLWLYHHPRWLRQDODQGKRUPRQDOFKDQJHVFRPELQHWRSURGXFHVH[XDOGLIILFXOWLHVWKDW
    DIIHFWWKHVHSDWLHQWVDQGWKHLUSDUWQHUV &URZHDQG3RQVIRUG305HHVHWDO=DVOHUDQG
    0DUWHOOL   /RVV RI OLELGR DQG K\SRVH[XDOLW\ RFFXU PRUH IUHTXHQWO\ WKDQ GLVLQKLELWLRQ DQG
    K\SHUVH[XDOLW\ &URZH DQG 3RQVIRUG    ,W LV SRVVLEOH WKDW FRJQLWLYH SUREOHPV LQWHUIHUH ZLWK
    LPDJHU\LQGXFHGVH[XDODURXVDOLQGHSHQGHQWRIWKHHIIHFWVRIGHSUHVVLRQ &URZHDQG3RQVIRUG
    ' 6PLWK DQG 2YHU   7KH LVVXH RI VH[XDO UHODWLRQV ZLWKLQ D PDUULDJH FRYHUV D YDULHW\ RI
    SUREOHPV FKLHIO\ IRU VSRXVHV ZKRVH SDUWQHUV FDQ QR ORQJHU JLYH RU VKDUH VDWLVIDFWLRQ EHFDXVH RI
    DOWHUHGGULYHVORVVRIHPSDWK\DQGSDWLHQFHFOXPVLQHVVWDFWOHVVQHVVRUFKLOGLVKQHVV $ORQLDQG.DW]
     &DPSODLU .UHXW]HU DQG 'RKHUW\   7KH PRVW FRPPRQ FRPSODLQW RI PDOH SDWLHQWV DQG
    WKHLUSDUWQHUVLVUHGXFHGIUHTXHQF\RIVH[XDOUHODWLRQV .UHXWHUHWDO52ߤ&DUUROO:RRGURZ
    DQG 0DURXQ   %RWK LQIUHTXHQF\ RI VH[XDO FRQWDFWV DQG VH[XDO GLVVDWLVIDFWLRQ ZHUH SRVLWLYHO\
    UHODWHGWRWLPHVLQFHLQMXU\ߟEXWQRWWRDJHRISDWLHQW 52ߤ&DUUROOHWDO  *XLGHV IRU IDPLO\
    PHPEHUV DQG RWKHUV DGGUHVV PDQ\ RI WKHVH SUREOHPV DQG PRUH (5 *ULIILWK DQG /HPEHUJ 
    *URQZDOO:ULJKWVRQDQG :DGGHOO  'LVFXVVLRQ RI VH[XDO FKDQJHV DQG SUREOHPV D WKRURXJK
    HYDOXDWLRQ DQG D WUHDWPHQW SURJUDP WKDW LQYROYHV IRU LQVWDQFH PHGLFDO LQWHUYHQWLRQ FRXQVHOLQJ
    EHKDYLRU PRGLILFDWLRQ RU HGXFDWLRQ VKRXOG EH SDUW RI DQ\ 7%, UHKDELOLWDWLRQ SURJUDP (OOLRWW DQG
    %LHYHU.UHXWHUHWDO4XLQWDUGHWDO 
    3HRSOH ZRUNLQJ ZLWK VHYHUH 7%, SDWLHQWV DUH FRQVLVWHQW LQ UHSRUWLQJ ORZ OHYHOV RI VRFLDO
    LQWHUDFWLRQ ZLWK FRQVHTXHQW ERUHGRP DQG GLVVDWLVIDFWLRQ 'LMNHUV  /H]DN  19 0DUVK
    .QLJKW DQG *RGIUH\   GHVSLWH DGHTXDWH SK\VLFDO PRELOLW\ DQG HYHQ VDWLVIDFWRU\ GULYLQJ
    EHKDYLRU %URXZHU 9DQ =RPHUHQ DQG YDQ :ROIIHODDU   ,Q VKRUW VHYHUH 7%, VLJQLILFDQWO\
    UHGXFHV WKH TXDOLW\ RI WKH OLYHV RI SDWLHQWV DQG WKH SHRSOH FORVH WR WKHP 36 .ORQRII &RVWD DQG
    6QRZ  2ߤ1HLOO HW DO  6WHDGPDQ3DUH HW DO   <HW WKH HPRWLRQDO VWDWXV DQG
    HPSOR\PHQWSRWHQWLDORISDWLHQWVZKRKDYHVXVWDLQHGVHYHUHGDPDJHEHDUVRPHUHODWLRQVKLSWR WKHLU
    IDPLOLHVߤ VWDELOLW\ DQG WKH DPRXQW RI VRFLDO VXSSRUW WKH\ UHFHLYH 63 .DSODQ   6DQGHU
    &DURVHOOL HW DO  6DQGHU 6KHUHU HW DO   2I YDULDEOHV UHOHYDQW ZLWKLQ D UHKDELOLWDWLRQ
    SURJUDP IRU PRGHUDWHO\ WR VHYHUHO\ LQMXUHG SDWLHQWV DSSUHFLDWLRQ DQG DFFHSWDQFH RI WKHLU GHILFLWV
    HPRWLRQDODQGEHKDYLRUDOFRPSHWHQFHFRJQLWLYHIXQFWLRQLQJVRFLDELOLW\ ߧLQYROYHPHQWZLWKRWKHUVߨ
    DQGRIFRXUVHLQMXU\VHYHULW\DUHWKHEHVWSUHGLFWRUVRIHPSOR\PHQWVXFFHVV &DWWHODQLHWDO
    (]UDFKLHWDO 

    1HXURSV\FKRORJLFDO$VVHVVPHQWRI7UDXPDWLFDOO\%UDLQ,QMXUHG3DWLHQWV
    ,QWHQVLYHQHXURSV\FKRORJLFDOH[DPLQDWLRQVDUHQRWXVXDOO\XQGHUWDNHQLQWKHDFXWHDQGHDUO\SRVWDFXWH
    VWDJHVRI7%,VLQFHWKHSDWLHQWPD\EHLQDFRPDRXWRIDFRPDEXWPLQLPDOO\UHVSRQVLYHGHOLULRXV
    GLVRULHQWHG XQDEOH WR XQGHUVWDQG WDVN LQVWUXFWLRQV RU DEOH WR FRPSOHWH RQO\ UHODWLYHO\ VLPSOH WHVWV
    7KRVHZKRDVVHVVSDWLHQWVLQDQLQWHQVLYHFDUHXQLWDQGIROORZWKHPIRUPRQWKVDQG\HDUVDIWHUZDUG
    DUH OLNHO\ WR VWDJJHU WKH LQWURGXFWLRQ RI WHVWV WKDW DUH SUHGLFWLYH RI RXWFRPH VXFK DV WKH *ODVJRZ
    &RPD6FDOHWKH*ODVJRZ2XWFRPH6FDOHWKH'LVDELOLW\5DWLQJ6FDOHWHVWVRIRULHQWDWLRQDQG37$
    DQGVLPSOHFRJQLWLYHWHVWVLQRUGHUWRIROORZLPSURYHPHQWDQGGHWHULRUDWLRQLQWKHHDUO\VWDJHVIRU
    FOLQLFDODQGUHVHDUFKSXUSRVHV VHH&KDSWHUSSߞ+DQQD\ 
    )RU SODQQLQJ UHKDELOLWDWLRQ RI PRGHUDWHO\ DQG VHYHUHO\ LQMXUHG SDWLHQWV QHXURSV\FKRORJLFDO
    DVVHVVPHQWVDUHXVXDOO\LQWURGXFHGRQFHWKHSDWLHQWLVRXWRI37$RUDWVSHFLILFWLPHSRLQWVVXFKDV
    WKUHH DQG VL[ PRQWKV SRVWLQMXU\ /H]DN  VHH DOVR 3DWU\ DQG 0DWHHU  IRU D UHYLHZ RI
    DVVHVVPHQWUHFRPPHQGDWLRQVIRUWKHVHSDWLHQWV 0LOG7%,SDWLHQWVZKRDUHQRWDGPLWWHGWRKRVSLWDO
    XVXDOO\FDQSDUWLFLSDWHLQDQHYDOXDWLRQZLWKLQGD\VDIWHUWKHLQMXU\ZKHQUHTXLUHGE\FLUFXPVWDQFHV
    HJDKLJKVFKRROVWXGHQWZDQWLQJWRUHWXUQWRVFKRRO RUIRUUHVHDUFKSXUSRVHV 0RVHU,YHUVRQHW
    DO +RZHYHUWKHVHDPEXODWRU\SDWLHQWVIXOO\FDSDEOHRIVHOIFDUHPD\EHQHILWPRUHIURPHDUO\
    FRXQVHOLQJ ZLWK WHVWLQJ GHOD\HG XQWLO PRVW RI WKHLU DFXWH V\PSWRPV KDYH VWDELOL]HG RU UHFHGHG
    3DWLHQWVZLWKDFRPSOLFDWHGPLOG7%, PLOG7%,SOXVQHXURLPDJLQJDEQRUPDOLWLHV RUPRGHUDWH7%,
    PD\EHKRVSLWDOL]HGLQDFXWHFDUHIRUDZHHNRQDYHUDJH +DQQD\0F*DUU\HWDO DQG
    PD\QRWEHZHOOHQRXJKWRXQGHUJRDQH[WHQVLYHHYDOXDWLRQIRUDZKLOHDIWHUZDUG6HYHUH7%,SDWLHQWV
    PD\EHKRVSLWDOL]HGLQDFXWHDQGSRVWDFXWHFDUHIRUZHHNVWRPRQWKVDQGVRPHDUHXQDEOHWRDVVLVWLQ
    DFRPSOHWHQHXURSV\FKRORJLFDODVVHVVPHQWHYHQDWWKUHHPRQWKVSRVWLQMXU\ +DQQD\ 
    7HVWDELOLW\ KDV EHHQ VKRZQ WR EH SUHGLFWLYH RI RXWFRPH %RDNH 0LOOLV HW DO  'LNPHQ
    7HPNLQ0DFKDPHUHWDO )RUVWDWLVWLFDOHYDOXDWLRQWHVWFRPSOHWLRQFRGHVFDQEHDVVLJQHGWR
    HDFK WHVW JLYHQ WR D 7%, SDWLHQW RU LQGHHG WR SDWLHQWV ZLWK DQ\ GLVRUGHU +DQQD\   VHH 7DEOH
      3DVWRUHN +DQQD\ DQG &RQWDQW   IRXQG WKDW WHVWDELOLW\ߟPHDVXUHG ZLWK WHVW FRPSOHWLRQ
    FRGHVߟIRU UHODWLYHO\ VLPSOH WHVWV RI ODQJXDJH FRPSUHKHQVLRQ DQG DWWHQWLRQ JLYHQ DW RQH PRQWK
    SRVWLQMXU\ ZHUH EHWWHU SUHGLFWRUV RI RXWFRPH DW WKUHH DQG VL[ PRQWKV SRVWLQMXU\ WKDQ *DOYHVWRQ
    2ULHQWDWLRQDQG$PQHVLD7HVW *2$7 VFRUHV SSߞ DQGWHVWVFRUHVWKHPVHOYHV,WLVSRVVLEOH
    WKDW WKHILQGLQJV RIVRPHVWXGLHVRI 7%,SDWLHQWV XQGHUHVWLPDWH WKHLU FRJQLWLYH SUREOHPV HVSHFLDOO\
    VWXGLHVRIPRGHUDWHDQGVHYHUH7%,LQWKHILUVWVL[PRQWKVSRVWLQMXU\DQGHYHQODWHUVLQFHXQWHVWDEOH
    SDWLHQWVRIWHQDUHQRWPHQWLRQHGRULQFOXGHGLQWKHVXPPDU\GDWD 70RUULV 
    $VWKHSDWLHQWHQWHUVDFXWHDQGSRVWDFXWHUHKDELOLWDWLRQPDQ\RIWKHVDPHWHVWVPD\EHDGPLQLVWHUHG
    DORQJZLWKPRUHGHWDLOHGDVVHVVPHQWRIIXQFWLRQDOVWDWXV5HLQWHJUDWLRQLQWRWKHFRPPXQLW\OHDGVWR
    IXUWKHU HYDOXDWLRQ RI GLVDELOLWLHV HQYLURQPHQWDO IDFLOLWDWRUV DQG EDUULHUV ,Q SRVWDFXWH VWDJHV WKH
    SHUIRUPDQFH RI 7%, SDWLHQWV XVXDOO\ LPSURYHV DQG HYHQWXDOO\ OHYHOV RII DW GLIIHUHQW WLPHV IRU
    GLIIHUHQW SDWLHQWV 7KHQ LQIRUPDWLRQ IURP DQ H[WHQVLYH QHXURSV\FKRORJLFDO H[DPLQDWLRQ DQG
    SUHGLFWLRQV RI WKH SUREDEOH ORQJWHUP QHXURSV\FKRORJLFDO VWDWXV EHFRPH UHDVRQDEO\ UHOLDEOH
    (YDOXDWLRQ RI GLVDELOLWLHV HQYLURQPHQWDO IDFLOLWDWRUV DQG EDUULHUV DW WKLV WLPH DQG WKHUHDIWHU LV
    SDUWLFXODUO\XVHIXOIRUUHKDELOLWDWLRQFRPPXQLW\UHWXUQDQGIRUHQVLFSXUSRVHV
    7$%/(7HVW&RPSOHWLRQ&RGHV
    7HVWIXOO\FRPSOHWHGVHTXHQWLDOO\
    7HVWQRWFRPSOHWHGEHFDXVH
    3DWLHQWKDVDFXWHFRQIXVLRQDOVWDWHLVXQDEOHWRIROORZPRWRUFRPPDQGVRULVXQDEOHWRDURXVH7KLVDSSOLHVWRDQ\VLWXDWLRQZKHUH
    WKHWHVWLVQRWIXOO\DGPLQLVWHUHGGXHWRDURXVDOSUREOHPVWKDWDUHQRWWKHUHVXOWRIVSHFLILFPHGLFDOFRPSOLFDWLRQVRIWUDXPDWLFEUDLQ
    LQMXU\
    3DWLHQWKDVPHGLFDOFRPSOLFDWLRQVWKDWPDNHKLPRUKHUFXUUHQWO\XQWHVWDEOH HJKLJKIHYHUUHVSLUDWRU\SUREOHPVYRPLWLQJHWF 
    3DWLHQWFRXOGQRWFRPSOHWHWHVWEHFDXVHRIHQGRWUDFKHDOLQWXEDWLRQRUWUDFKHRVWRP\
    3DWLHQWUHIXVHGWRFRPSOHWHDOORUSDUWRIDWHVWRUZDVQRWUHVSRQVLYH QRWGXHWRRU 
    3DWLHQWZDVFRRSHUDWLYHDQGDWWHPSWHGWRWDNHWHVWEXWWHVWLQJRUSDUWRIWHVWLQJZDVWHUPLQDWHGGXHWRWKHSDWLHQWߤVFRJQLWLYHPRWRU
    RURWKHUOLPLWDWLRQVQRWOLVWHGHOVHZKHUH HJDSKDVLDVRGRHVQRWXQGHUVWDQGLQVWUXFWLRQVEOLQGQHVVVRRQO\DXGLWRU\WHVWVJLYHQ
    ULJKWKDQGSDUDO\VLVVRRQO\OHIWKDQGWHVWLQJFRPSOHWHGXQGHUVWDQGVLQVWUXFWLRQVDQGFRPSOHWHVSUDFWLFHWULDOVEXWFDQQRWGRWHVW 
    3DWLHQWLVXQDEOHWRFRPSOHWHWHVWGXHWRLOOLWHUDF\
    3DWLHQWLVXQDEOHWRXQGHUVWDQGLQVWUXFWLRQVQRWGXHWRDFXWHFRQIXVLRQDOVWDWHDSKDVLDRULOOLWHUDF\
    7HVWLVQRWDSSOLFDEOHDWWKDWWLPH HJSDWLHQWQRWIROORZLQJFRPPDQGVVRFDQQRWDGPLQLVWHUWKH*2$7SDWLHQWVWLOOLQWKHKRVSLWDOVR
    WKH&+$57LVQRWDSSURSULDWHWRDGPLQLVWHU 
    3DWLHQWLVQRWDYDLODEOH HJLQVFKHGXOHGWKHUDS\RUPHGLFDOLQWHUYHQWLRQQRWUDQVSRUWDWLRQ 
    ([DPLQHULVQRWDYDLODEOH HJLOOVFKHGXOHFRQIOLFWV 
    3DWLHQWGRHVQRWJLYHFRQVHQW
    8QNQRZQ
    *2$7*DOYHVWRQ2ULHQWDWLRQDQG$PQHVLD7HVW&+$57&UDLJ+DQGLFDS$VVHVVPHQWDQG5HSRUWLQJ7HFKQLTXH

    8QOHVVGLUHFWGDPDJHWRWKHOHIWKHPLVSKHUHKDVEHHQVXVWDLQHGPRVW7%,SDWLHQWVKDYHOLWWOHRUQR
    GLIILFXOW\ ZLWK YHUEDO WHVWV H[FHSWLQJ SUREOHPV ZLWK ZRUG QDPLQJ ODQJXDJH FRPSUHKHQVLRQ DQG
    ZRUGIOXHQF\ +LQFKOLIIH HW DO  +6 /HYLQ *DU\ (LVHQEHUJ HW DO  6DUQR HW DO  
    7%,SDWLHQWVPD\DOVRGRZHOORQWHVWVWKDWHOLFLWUHVSRQVHVSULPDULO\PHGLDWHGE\WKHSRVWHULRUDUHDV
    RIWKHFRUWH[ZKLFKDUHOHVVOLNHO\WREHGDPDJHGH[FHSWZKHQXQGHUWKHSRLQWRILPSDFW7KHODWWHU
    LQFOXGH WHVWV RI FRQVWUXFWLRQDO DELOLWLHV DQG SHUFHSWXDO DFFXUDF\ WKDW DUH XQFRPSOLFDWHG E\ PHPRU\
    RUJDQL]DWLRQRUVSHHGUHTXLUHPHQWV6RPHPHPRU\SUREOHPVDUHXVXDOO\SUHVHQWEXWVHYHULW\YDULHV
    JUHDWO\ DPRQJ SDWLHQWV 7KHVH SUREOHPV WHQG WR EH H[DFHUEDWHG E\ SDWLHQWVߤ GLIILFXOW\ LQ LGHQWLI\LQJ
    ZKDW PD\ EH UHOHYDQW DPRQJ D QXPEHU RI LQIRUPDWLRQ ELWV VR WKDW WKHLU UHFDOO LV IXUWKHU UHGXFHG
    9DNLO$UEHOOHWDO 
    0RVWRIWKHWHVWVXVHGIRUERWKJHQHUDOFRJQLWLYHDVVHVVPHQWDQGH[DPLQDWLRQRIEUDLQG\VIXQFWLRQ
    PHDVXUHDELOLWLHVOLNHO\WRZLWKVWDQG7%,:KHQLQMXULHVDUHYHU\VHYHUHLWPD\EHQHFHVVDU\WRXVH
    WHVWVGHYHORSHGIRUFKLOGUHQLQRUGHUWRHOXFLGDWHUHPDLQLQJDELOLWLHV8QOHVVH[DPLQDWLRQWHFKQLTXHV
    DUH JHDUHG WR HOLFLWLQJ LPSDLUPHQWV WKDW DUH FRPPRQ WR KHDG WUDXPD YLFWLPV WKHVH RIWHQ VHULRXVO\
    KDQGLFDSSLQJGHILFLWVPD\QRWEHFRPHHYLGHQW /H]DN1HZFRPEH6RKOEHUJDQG0DWHHU
      0RUHRYHU PDQ\ SDWLHQWV FDQ UHVSRQG DSSURSULDWHO\ WR D FRQYHQWLRQDO SV\FKRORJLFDO
    H[DPLQDWLRQRURQHRIWKHSUHSDFNDJHGQHXURSV\FKRORJLFDOWHVWEDWWHULHV/RQJDIWHUWKHDFXWHVWDJHV
    KDYHSDVVHGPDQ\PRGHUDWHO\DQGHYHQVRPHVHYHUHO\LQMXUHGDGXOWVPD\DFKLHYHVFRUHSDWWHUQVRQ
    :HFKVOHU DQG +DOVWHDG5HLWDQ EDWWHULHV WKDW DUH DW OHDVW LQ WKH DYHUDJH DELOLW\ UDQJH HJ 'LNPHQ
    +HDWRQHWDO'LNPHQ0DFKDPHUDQG7HPNLQ  <HWPDQ\RI WKHVHSDWLHQWV FRQWLQXHWR
    VXIIHU IURQWDO DSDWK\ PHPRU\ GHILFLWV VHYHUHO\ VORZHG WKLQNLQJ SURFHVVHV RU D PHQWDO WUDFNLQJ
    GLVDELOLW\ WKDW PDNHV WKHP XQDEOH WR UHVXPH ZRUNLQJ RU LQ VRPH LQVWDQFHV WR DVVXPH DQ\ VRFLDO
    UHVSRQVLELOLW\DWDOO,QVXIILFLHQWRULQDSSURSULDWHEHKDYLRUDOH[DPLQDWLRQVRI7%,FDQOHDGWRXQMXVW
    VRFLDO DQG OHJDO GHFLVLRQV FRQFHUQLQJ HPSOR\DELOLW\ DQG FRPSHWHQF\ FDQ LQYDOLGDWH UHKDELOLWDWLRQ
    SODQQLQJHIIRUWVDQGFDQFRQIXVHSDWLHQWDQGIDPLO\QRWLQIUHTXHQWO\DGGLQJILQDQFLDOGLVWUHVVWRWKHLU
    DOUHDG\FRQVLGHUDEOHVWUHVVDQGGHVSDLU 70RUULV1HPHWK9DUQH\DQG6KHSKHUG 
    )RU IRUHQVLF SXUSRVHV QHXURSV\FKRORJLVWV DUH RIWHQ DVNHG WR HYDOXDWH 7%, SDWLHQWV ZKR KDYH
    VXVWDLQHG D 7%, DQG WR SURYLGH RSLQLRQ %LJOHU DQG %URRNV   0RVW SDWLHQWV VHHNLQJ
    FRPSHQVDWLRQ GR QRW SUHVHQW PRUH V\PSWRPV RU GHILFLWV WKDQ VLPLODU SDWLHQWV ZKR GR QRW KDYH
    FRPSHQVDWLRQ FODLPV 'LNPHQ 0DFKDPHU )DQQ DQG 7HPNLQ  6WXVV (O\ HW DO  6XKU
    7UDQHOHWDO DOWKRXJKWKHRSSRVLWHKDVEHHQUHSRUWHG 3DQLDN5H\QROGV7ROOHU/REHHWDO
      %RUQVWHLQ 0LOOHU DQG YDQ 6FKRRU   IDLOHG WR ILQG DQ\ GLIIHUHQFHV LQ HPRWLRQDO VWDWXV
    EHWZHHQSDWLHQWVLQYROYHGLQFRPSHQVDWLRQLVVXHVDQGWKRVHZKRZHUHQRWKRZHYHUOLWLJDWLQJPLOG
    7%, SDWLHQWV KDYH VKRZQ KLJKHU UDWHV RI DQ[LHW\ GHSUHVVLRQ DQG VRFLDO G\VIXQFWLRQ )HLQVWHLQ
    2XFKWHUORQ\ HW DO   /0 %LQGHU   QRWHG WKDW ߧWKH HIIHFW RI FRPSHQVDWLRQ FODLPV DQG
    SUHLQMXU\SDWKRORJ\LVRIWHQVHFRQGDU\WRRUJDQLFIDFWRUVߨSRLQWLQJRXWWKDWSDWLHQWVZLWKHQGXULQJ
    V\PSWRPV DUH WKH RQHV PRVW OLNHO\ WR VXH *XLGHOLQHV KDYH EHHQ UHFRPPHQGHG IRU HYDOXDWLQJ
    IRUHQVLFDOO\ UHIHUUHG 7%, SDWLHQWV LQ OLWLJDWLRQ 5 5XII   )RU D GLVFXVVLRQ RI IRUHQVLF
    DVVHVVPHQWLQDQDFDGHPLFPHGLFDOVHWWLQJVHH/6FKZDU]DQGFRZRUNHUV  

    0RGHUDWRU9DULDEOHV$IIHFWLQJ6HYHULW\RI7UDXPDWLF%UDLQ,QMXU\
    $JH

    2I WKH SURPLQHQW PRGHUDWRU YDULDEOHV FRQWULEXWLQJ WR 7%, RXWFRPH DJH LV SUREDEO\ WKH PRVW
    LPSRUWDQW 5( *UHHQ HW DO   $W HYHU\ DJH WKH VXEVHTXHQW HIIHFWV RI DJLQJ LQWHUDFW ZLWK WKH
    EUDLQLQMXU\LVVXHVRIFRJQLWLYHUHVHUYHDQGJHQHWLFYXOQHUDELOLW\WRGHJHQHUDWLYHGLVHDVHSOD\DUROH
    LQWKHORQJWHUPRXWFRPH %LJOHUD 
    $V 7%, RFFXUV ZLWK WKH JUHDWHVW IUHTXHQF\ LQ LQGLYLGXDOV XQGHU  \HDUV RI DJH WKH VRFLDO
    FRQVHTXHQFHV RI \RXWKIXO LQMXU\ DUH LPSRUWDQW )RU H[DPSOH DJH DW LQMXU\ VHHPV WR EH UHODWHG WR
    HPSOR\PHQW RXWFRPH 7KRVH ZLWK D VHYHUH LQMXU\ LQ FKLOGKRRG DQG HDUO\ WHHQV DV RSSRVHG WR ODWH
    DGROHVFHQFHDQGHDUO\DGXOWKRRG QHHGLQWHQVLYHDQGH[WHQVLYHVSHFLDOHGXFDWLRQVHUYLFHV 'RQGHUV
      DQG KDYH SRRUHU HYHQWXDO YRFDWLRQDO RXWFRPH $VLNDLQHQ HW DO   2I FRXUVH WKH HDUOLHU
    7%,RFFXUVWKHPRUHOLNHO\LWLVWRLQWHUIHUHZLWKWKHQRUPDOXQIROGLQJRIGHYHORSPHQWDOSURFHVVHV
    DQGWKXVWRKDYHJUHDWHULPSDFWRQWKHFRJQLWLYHDQGSV\FKRVRFLDOSURFHVVHV
    $GYDQFLQJDJH LV DVVRFLDWHG ZLWK SURJUHVVLYHO\ KLJKHU RGGV RI DQ DGYHUVH RXWFRPH LQ WHUPV RI
    PRUWDOLW\DQGPRUELGLW\HVSHFLDOO\DIWHUDJH )UDQFHODQG-DQH*RPH]HWDO6XVPDQ
    HWDO  7KHVHILQGLQJVFDQQRWEH DWWULEXWHG WR PRUH VHYHUH LQMXULHVSHU VH LQHOGHUO\ SHUVRQV
    6XVPDQ DQG FRZRUNHUV   VXJJHVW WKDW LQWULQVLF FKDUDFWHULVWLFV RI WKH DJLQJ EUDLQ QRW MXVW WKH
    LQFUHDVLQJ LQFLGHQFH RI FRPSOLFDWLRQV VXFK DV KHPRUUKDJHV SURGXFH D ZRUVH RXWFRPH DIWHU KHDG
    LQMXU\ )RU LQVWDQFH FKDQJHV ZLWK DGYDQFLQJ DJH LQ LQWUDFUDQLDO FRPSOLDQFH YDVRHODVWLF SURSHUWLHV
    UHVSRQVH WR PHFKDQLFDO VWUHVV YXOQHUDELOLW\ WR H[FLWRWR[LF GDPDJH DOWHUDWLRQV LQ QHXURWUDQVPLWWHU
    PHWDEROLVP PLFURYDVFXODWXUH GHQGULWLF VSLQHV DQG DUERUL]DWLRQ DQG WKH EORRGEUDLQ EDUULHU
    SUREDEO\ FRQWULEXWH WR WKH JUHDWHU PRUELGLW\ DQG PRUWDOLW\ RI ROGHU 7%, YLFWLPV )UDQFHO DQG -DQH
    (.LP 
    7KURXJKRXWPRVWRIWKHDGXOW\HDUVDJHDSSHDUVWRFRQWULEXWHWRWKHVHYHULW\RIFRJQLWLYHGHILFLWV
    DV ZHOO )& *ROGVWHLQ /HYLQ 3UHVOH\ HW DO  )& *ROGVWHLQ /HYLQ *ROGPDQ HW DO 
    1DXJOH   1DPLQJ ZRUG IOXHQF\ YHUEDO DQG YLVXDO PHPRU\ DWWHQWLRQ DQG LQIRUPDWLRQ
    SURFHVVLQJVSHHGDSSHDUWREHSDUWLFXODUO\YXOQHUDEOH )LQVHW$QNHHWDO)&*ROGVWHLQHWDO
       (OGHUO\ SDWLHQWV DOVR H[SHULHQFH VLJQLILFDQWO\ PRUH GHSUHVVLRQ DQG DQ[LHW\ )&
    *ROGVWHLQHWDO 7KHDSSURSULDWHQHVVRIFRQWUROJURXSVLQVXFKVWXGLHVLVDOZD\VDQLVVXHDQG
    FDQDIIHFWWKHILQGLQJV $KDURQ3HUHW]HWDO 
    $JH PD\ EH D PDMRU IDFWRU LQ VXEVHTXHQW FRJQLWLYH GHFOLQH WKH ULVN EHLQJ  WLPHV PRUH IRU
    HDFK  \HDUV RI DJH DW WLPH RI LQMXU\ 0LOOLV 5RVHQWKDO HW DO   *DXOWLHUL DQG &R[ 
    UHSRUWHG VLJQLILFDQWO\ LQFUHDVHG UDWHV RI ODWHRFFXUULQJ GHSUHVVLRQ DQG SV\FKRWLF GLVRUGHUV LQ
    DGGLWLRQ WR D JUHDWHU OLNHOLKRRG IRXU WR ILYH WLPHV WKDW RI WKH JHQHUDO SRSXODWLRQ  RI WKHVH SDWLHQWV
    GHYHORSLQJGHPHQWLD VHHDOVR(.LP 
    7KHUHODWLRQVKLSEHWZHHQDJHDQGWZRLPSRUWDQWSUHGLFWRUVRIVHYHULW\ߟFRPDGXUDWLRQDQG37$ߟ
    LV FRPSOH[ -) .UDXV 0F$UWKXU HW DO   *URQZDOO DQG :ULJKWVRQ   VKRZHG WKDW
    IROORZLQJ FRQFXVVLRQ PRUH ROGHU WKDQ \RXQJHU SHUVRQV H[KLELW VORZHG SURFHVVLQJ DQG SHUVLVWHQW
    PHPRU\GHILFLWV7%,LQHOGHUO\SHUVRQVRFFXUVPRUHRIWHQLQIDOOVDWKRPHUDWKHUWKDQLQ09$VZLWK
    UHVXOWDQW KLJKHU UDWHV RI LQWUDFUDQLDO KHPDWRPDV VXEDUDFKQRLG KHPRUUKDJH HSLGXUDO DQG VXEGXUDO
    KHPDWRPDVZLWKLQFUHDVHGLQFLGHQFHRIHOHYDWHG,&3DQGKLJKHUUDWHVRIPRUWDOLW\ )UDQFHODQG-DQH
     3UHH[LVWLQJPHGLFDOFRQGLWLRQVDOVRFRQWULEXWHWRWKHSUREOHPV 370XQURHWDO 
    4XHVWLRQV FRQWLQXH ZLWK UHVSHFW WR EHWWHU RU ZRUVH P7%, RXWFRPH LQ WKH HOGHUO\ .LODUX HW DO
     5DSRSRUW DQG )HLQVWHLQ  6XVPDQ HW DO   :LWKLQ WKH QDUURZHU FDWHJRU\ RI VHYHUH
    7%,DJHVHHPVWRPDNHQRDGGLWLRQDOFRQWULEXWLRQWRWKHVHYHULW\RIFRJQLWLYHDQGEHKDYLRUDOGHILFLWV
    0%*OHQQHWDO%>$@:LOVRQ9L]RUDQG%U\DQW 2QWKHFRQWUDU\DPRQJDJURXSRI
    VHYHUHO\LQMXUHGSDWLHQWVRXWFRPHVWR\HDUVODWHUGLIIHUHQWLDWHGWKH\RXQJHU WR IURPWKH
    ROGHU  WR   SDWLHQWV LQ WKDW WKH \RXQJHU RQHV KDG PRUH EHKDYLRUDO DQG HPRWLRQDO SUREOHPV
    7KRPVHQ    &RVW RI UHKDELOLWDWLRQ LV KLJKHU IRU ROGHU SHRSOH DV LW LV DVVRFLDWHG ZLWK
    ORQJHUKRVSLWDOVWD\VDQGVORZHUUDWHVRIIXQFWLRQDOFKDQJH &LIXHWDO 

    5HSHDWHGWUDXPDWLFEUDLQLQMXULHV

    5HSHDWHG 7%,V WHQG WR KDYH D FXPXODWLYH HIIHFW RQ FRJQLWLRQ DV D VHFRQG HYHQ PLOG FRQFXVVLRQ
    OHDYHVWKHYLFWLPVRPHZKDWPRUHFRPSURPLVHGWKDQLIWKLVKDGEHHQWKHVROHLQMXU\ *URQZDOO
    *URQZDOODQG:ULJKWVRQ 0RUHRYHUDVLQJOHWUDXPDWLFLQMXU\WRWKHEUDLQGRXEOHVWKH
    ULVNIRUDIXWXUHKHDGLQMXU\DQGWZRVXFKLQMXULHVUDLVHVWKHULVNHLJKWIROG *DXOWLHULDQG&R[ 
    6SRUWV LQMXULHVߟHVSHFLDOO\ IURP FRQWDFW VSRUWVߟKDYH EHHQ XQIRUWXQDWHO\ D ULFK VRXUFH RI
    LQIRUPDWLRQ DERXW WKH HIIHFWV RI UHSHDWHG 7%,V DQG WKXV FDQ VHUYH DV PRGHOV IRU WKH
    QHXURSV\FKRORJLFDO SUREOHPV DVVRFLDWHG ZLWK UHSHDWHG KHDG LQMXULHV 'UHZ DQG 7HPSOHU 
    (UODQJHUHWDO*DYHWWHWDO0DFFLRFFKL%DUWKHWDO0DWVHU.HVVHOV/H]DNHWDO
     
    ,W LV QRZ ZHOO HVWDEOLVKHG WKDW SURJUHVVLYH QHXURSDWKRORJLFDO FKDQJHV FDQ RFFXU LQ DWKOHWHV ZKR
    H[SHULHQFHUHSHDWHGFRQFXVVLRQVSURGXFLQJDFRQGLWLRQNQRZQDVFKURQLFWUDXPDWLFHQFHSKDORSDWK\
    &7(  +DQGUDWWDHWDO0F.HH&DQWXHWDO0F.HH*DYHWWHWDO2PDOX HW DO
     $VGHPRQVWUDWHGLQELRPHFKDQLFDOVWXGLHVUHSHDWHGVSRUWVUHODWHGLPSDFWVWRWKHKHDGKDYHWKH
    SRWHQWLDO WR SURGXFH FXPXODWLYH VXEFRQFXVVLYH LQMXULHV WKDW PD\ RYHU WLPH HYROYH LQWR VLJQLILFDQW
    EUDLQGDPDJH 0F*UDWK5RZVRQ*RIRUWKHWDO RUDGYHUVHO\KDVWHQWKHDJLQJSURFHVV
    'H%HDXPRQW /DVVRQG HW DO  'H %HDXPRQW 7KHRUHWHWDO *DYHWWHWDO  6RPH
    KHDGLQMXUHGDWKOHWHVZLOOVXIIHUDORQJODVWLQJSRVWFRQFXVVLRQV\QGURPHEXWWKH\PD\KDYHVXVWDLQHG
    DPRUHVHYHUHFRQFXVVLRQRUPD\KDYHDJHQHWLFSUHGLVSRVLWLRQWRWUDXPDYXOQHUDELOLW\ (UODQJHU HW
    DO%'-RUGDQ5HONLQHWDO 
    'DWD UHJDUGLQJ DWKOHWHV IURP  86 KLJK VFKRROV GXULQJ WKH ߞ DFDGHPLF \HDUV VKRZ
    WKH UHODWLYH YXOQHUDELOLW\ WR 7%,V RI SDUWLFLSDQWV LQ KLJK HJ IRRWEDOO ZUHVWOLQJ VRFFHU  DQG ORZ
    HJ EDVHEDOO YROOH\EDOO  FRQWDFW VSRUWV ZLWK WKH VL[ PRVW VHULRXV FDVHV DQG  FRQFXVVLRQV
    UHSRUWHGIRUIRRWEDOO -:3RZHOODQG%DUEHU)RVV ,QWKHWKUHHDFDGHPLF\HDUVIURP WR
    IRUPDOHFROOHJHDWKOHWHVWKHFRQFXVVLRQUDWHZDVKLJKHVWIRUIRRWEDOODQGKLJKHULQJDPHVWKDQ
    LQSUDFWLFHVHVVLRQV HJߞVHDVRQJDPHVUDWH SUDFWLFHUDWH   &RYDVVLQHWDO
      &RQFXVVLRQ UDWHV IRU ZRPHQ DWKOHWHV ZHUH VRPHZKDW ORZHU VRFFHU SURGXFLQJ WKH PRVW
    FRQFXVVLRQV LQ JDPHV HJ ߞ VHDVRQ JDPHV UDWH    ZLWK FRQVLGHUDEO\ IHZHU SUDFWLFH
    LQMXULHV,WLVLQWHUHVWLQJWRQRWHWKDWIRRWEDOOSOD\HUVZKRKDGRQHFRQFXVVLRQGXULQJDVHDVRQZHUHDW
    D WKUHH WLPHV JUHDWHU ULVN RI KDYLQJ DQRWKHU LQMXU\ GXULQJ WKDW VHDVRQ WKDQ QRQFRQFXVVHG SOD\HUV
    *XVNLHZLF]HWDO 
    7KH DSSUR[LPDWHO\  VSRUWV LQMXULHV D \HDU LQ WKH 8QLWHG 6WDWHV (FKHPHQGLD /RYHOO DQG
    %DUWK DPRXQWWRWRRIDOO7%,V (FKHPHQGLDDQG-XOLDQ0F.HHYHUDQG6FKDW]
      ,PSDFW PHDVXUHPHQWV IRU KRFNH\ IRRWEDOO DQG VRFFHU IRXQG WKH KLJKHVW SHDN DFFHOHUDWLRQ
    RFFXUUHGZKHQXVLQJWKHKHDGWRUHFHLYHDQGEDWWKHEDOO KHDGHUV LQVRFFHU J ZLWKIRRWEDOODQG
    KRFNH\ SHDN DFFHOHUDWLRQV WUDLOLQJ DW J DQG J UHVSHFWLYHO\ 1DXQKHLP HW DO   )RU DQ\
    QXPEHURIUHDVRQVPDQ\DWKOHWHVXQGHUUHSRUWLQMXULHV 0F&URU\DQG%HUNRYLF RUDUHXQDZDUH
    WKDW WKH\ KDG D FRQFXVVLRQ -6 'HODQH\ HW DO   PDNLQJ HYDOXDWLRQ RI JURXSߟDQG HYHQ
    LQGLYLGXDOߟGDWDFKDOOHQJLQJ7KLVFDQEHDVSHFLDOSUREOHPZKHQUHWXUQWRSOD\GHFLVLRQVDUHQHHGHG
    HYHQZLWKQHXURSV\FKRORJLFDOO\EDVHGHYDOXDWLRQSURFHGXUHV 0RVHU,YHUVRQHWDO 5DQGROSK
    DQG .LUNZRRG   FRQFOXGH WKDW DV RI WKH WLPH RI WKHLU SXEOLFDWLRQ WKHUH ZDV DV \HW OLWWOH
    HPSLULFDOVXSSRUWߧ߮IRUWKHXVHRIULJLGVWUDWHJLHVRUJXLGHOLQHVLQWKHSODFHRILQGLYLGXDOFOLQLFDO
    GHFLVLRQPDNLQJ LQ WKH PDQDJHPHQW RI WKHVH LQMXULHVߨ S  VHH DOVR .LUNZRRG 5DQGROSK DQG
    <HDWHV.LUNZRRG<HDWHV7D\ORUHWDO 
    0RVW VSRUWVUHODWHG LQMXULHVߟHYHQ UHSHDWHG RQHVߟIDOO LQWR WKH FDWHJRU\ RI PLOG 7%, <RXQJ
    SOD\HUV DJH UDQJH  WR   H[DPLQHG LPPHGLDWHO\ DIWHU UHFHLYLQJ D SRVVLEOH FRQFXVVLRQ VKRZHG
    PLOGHIIHFWVLQVOLJKWO\ORZHUVFRUHVRQWKH6WDQGDUGL]HG$VVHVVPHQWRI&RQFXVVLRQ 6$&  :%%DUU
    DQG0F&UHD 7\SLFDOO\ \RXQJ DQG KHDOWK\DWKOHWHV LPSURYHUDSLGO\ ZLWKLQZHHNV LI QRW GD\V
    DIWHUWKHLQMXU\ZLWKIHZQRWLFHDEOHFRJQLWLYHFKDQJHVLIDQ\ -7%DUWK$OYHVHWDO 7HQGD\V
    DIWHULQMXU\DFRPSDULVRQEHWZHHQSOD\HUVZLWKRQHDQGWKRVHZLWKWZRPLOGFRQFXVVLRQVVXVWDLQHG
    GXULQJ D FROOHJH IRRWEDOO VHDVRQ GLG QRW ILQG GLIIHUHQFHV LQ QHXURSV\FKRORJLFDO IXQFWLRQLQJ
    0DFFLRFFKL%DUWKHWDO 2QO\DWWHQWLRQWHVWVFRUHVRI\RXQJDWKOHWHV DJHVߞ ZKRKDG
    VXVWDLQHGWZRRUPRUHFRQFXVVLRQVDWOHDVWVL[PRQWKVHDUOLHUVKRZHGGHILFLWVVLPLODUWRWKRVHZLWK
    DFXWHFRQFXVVLRQV LHZLWKLQWKHSULRUZHHN DWKOHWHVZLWKDKLVWRU\RIMXVWRQHROGFRQFXVVLRQRU
    QRQHGLGQRWGLVSOD\DQ\FRJQLWLYHGHILFLWV 0RVHUDQG6FKDW] 7KHSRWHQWLDOFDQEHJUHDWIRU
    VLJQLILFDQW LPSDLUPHQW GXH WR VHFRQG LPSDFW QHXURFRJQLWLYH DQG QHXUREHKDYLRUDO VHTXHODH &DQWX
    VHHSSߞ 
    0RVWFRJQLWLYHWHVWSHUIRUPDQFHVRIPRVWDWKOHWHVZKRKDYHKDGIHZFRQFXVVLYHLQMXULHVZLOOEHDW
    RU QHDU QRUPDO OHYHOV SODFLQJ WKHP DW WKH ߧPLOGߨHQG RI ZKDW KDV EHHQ FDOOHG D ߧGRVH
    UHODWHGߨFRQWLQXXPRIGHILFLW7KLVZDVVHHQDPRQJSURIHVVLRQDOVRFFHUSOD\HUVDVWKRVHUHFHLYLQJWKH
    ORZHVW ߧGRVHVߨRI FRQFXVVLRQV DQG KHDGHUV SHUIRUPHG WHVWV RI FRJQLWLYH IXQFWLRQV DW QRUPDO OHYHOV
    ZLWK LQFUHDVHV LQ VHYHULW\ RI FRJQLWLYH GHILFLWV SDUDOOHOLQJ LQFUHDVLQJ LQFLGHQFH RI LQMXULHV 0DWVHU
    .HVVHOV -RUGDQ HW DO  0DWVHU .HVVHOV /H]DN HW DO   7KLV GRVHUHODWHG SKHQRPHQRQ
    VKRZHG XS LQ SOD\HUV LQ ߧKLJK OHYHOߨWHDPV ZKR KDG SOD\HG ZLWKLQ WKH ZHHN RI WHVWLQJ DIIHFWLQJ
    DVSHFWVRIDWWHQWLRQDQGSRVVLEO\FRQFHSWIRUPDWLRQ :HEEHDQG2FKV :LWRODQG:HEEH 
    IRXQGWKDWWKHFXUUHQWOHYHORIKHDGLQJWKHEDOOZDVOHVVSUHGLFWLYHRIFRJQLWLYHLPSDLUPHQWVWKDQZDV
    ߧOLIHWLPHߨDPRXQWRIKHDGLQJ6RFFHUSOD\HUVZKRKHDGHGWKHPRVW HVWLPDWHGIURPUHSRUWࡍWLPHV
    LQ D JDPH\UV  KDG PRUH DEQRUPDOO\ ORZ VFRUHV RQ WKH &RPSOH[ )LJXUH 7HVW   WKH 3DFHG
    $XGLWRU\6HULDO$GGLWLRQ7HVW 3$6$7 DQG7UDLO0DNLQJ7HVW$  WKDQGLGWKRVHZKRVH
    OLIHWLPH KHDGLQJ ZDV ߧORZߨ ߞ WLPHV LQ D JDPH\UV    IRU HDFK WHVW UHVSHFWLYHO\
    :LWRODQG:HEEH 
    %R[LQJKDVVHUYHGDVDQREYLRXVPRGHOIRUWKHHIIHFWVRIFXPXODWLYHEORZVWRWKHKHDGLQWKDWWKH
    JRDOLQER[LQJRIFRXUVHLVWRJLYHRQHߤVRSSRQHQWDVXIILFLHQWO\VHYHUHFRQFXVVLRQDVWRUHQGHUKLP
    XQFRQVFLRXV 'UHZDQG 7HPSOHU  +HLOEURQQHU %XVK HW DO  2DWHV  (YHQILJKWHUV
    ZLWKQRKLVWRU\RIKDYLQJEHHQߧNQRFNHGRXWߨVXIIHUWKHHIIHFWVRI\HDUVRIMDEVWRWKHKHDGDVVKRZQ
    E\ WKH 3DUNLQVRQOLNH VORZLQJ DQG PRWRU V\PSWRPV DQG WKH PHQWDO FRPSURPLVH RI ER[HUV VXFK DV
    0XKDPPDG$OL %'-RUGDQ5*0RUULVRQ 7KHPRVWXVXDOSUHVHQWDWLRQRIFXPXODWLYH
    GDPDJH LQ ER[HUV LV WKH SXQFK GUXQN V\QGURPH RULJLQDOO\ FDOOHG GHPHQWLD SXJLOLVWLFD EXW PRUH
    UHFHQWO\WHUPHGFKURQLFSURJUHVVLYHHQFHSKDORSDWK\RIER[HUV )LOOH\+DPPHUVWDGDQG&DUWHU
     1RZDN HW DO   7KLV FRQGLWLRQ LV QRZ FRQVLGHUHG SDUW RI WKH VSHFWUXP RI SDWKRORJLFDO
    FKDQJHV DVVRFLDWHG ZLWK FKURQLF WUDXPDWLF HQFHSKDORSDWK\ &7(  'HPHQWLQJ FRQGLWLRQV RFFXU LQ
    DSSUR[LPDWHO\  RI SURIHVVLRQDO ER[HUV %' -RUGDQ   7KLV IRUP RI GHPHQWLD LV
    FKDUDFWHUL]HGE\PRWRUV\PSWRPVLQFOXGLQJPRVWSURPLQHQWO\FOXPVLQHVVDQGLQFRRUGLQDWLRQDQG
    LQWHQWLRQ WUHPRU D FKURQLF ILQH WUHPRU H[DFHUEDWHG LQ JRDOGLUHFWHG PRYHPHQWV  /LVKPDQ 
    0DUWODQG5*0RUULVRQ ,PSRWHQFHKDVEHHQUHSRUWHGLQVRPHRIWKHVHUHODWLYHO\\RXQJ
    PHQ %ROOHUDQG)UDQN--RKQVRQ 
    &RJQLWLYHGHILFLWVLQER[HUVDUHFRPPRQDSSHDULQJPRVWW\SLFDOO\DVDWWHQWLRQDOGHIHFWVPHPRU\
    LPSDLUPHQWGLVRULHQWDWLRQDQGFRQIXVLRQ &DVVRQ6LHJHOHWDO'UHZ7HPSOHU6FKX\OHUHW
    DO.DVWHHWDO DQGWRWKLVOLVW0DWVHU.HVVHOV/H]DNDQGWKHLUFRZRUNHUV  DGGHG
    SODQQLQJ GHILFLWV $FXWH HIIHFWV RI ER[LQJ ZHUH GHPRQVWUDWHG E\ DVVHVVPHQWV PDGH EHIRUH DQG
    LPPHGLDWHO\ DIWHU D PDWFK DV  DPDWHXU ER[HUV GLVSOD\HG SURQRXQFHG DOWHUDWLRQV RQ WHVWV RI
    FRQFHSWXDO UHDVRQLQJ PRWRU VSHHG VXVWDLQHG DWWHQWLRQ DQG ERWK YHUEDO DQG YLVXDO UHFDOO 0DWVHU
    .HVVHOV /H]DN HW DO   &KURQLF HIIHFWV KDYH EHHQ GHPRQVWUDWHG RQ QHXURSV\FKRORJLFDO
    DVVHVVPHQW +HLOEURQQHU%XVKHWDO5DYGLQHWDO 
    1HXURUDGLRORJLF LPDJLQJ KDV VKRZQ FHUHEUDO DWURSK\ LQ PDQ\ SURIHVVLRQDO ER[HUV &DVVRQ
    6KDPHWDO%'-RUGDQ%'-RUGDQDQG=LPPHUPDQ 2QHKXQGUHGDWKOHWHVZKR
    SDUWLFLSDWHG LQ FRQWDFW VSRUWV VXFK DV ER[LQJ FRPSHWLWLYH PDUWLDO DUWV DQG H[WUHPH ILJKWLQJ KDG D
    KLJKGHJUHHRILGHQWLILDEOHDEQRUPDOLWLHVRQ05,VWXGLHV 2UULVRQHWDO '7,DQGWKHGHWHFWLRQ
    RI PLFURKHPRUUKDJHV KDV DOVR EURXJKW WR OLJKW WKH KLJK IUHTXHQF\ RI QHXURSDWKRORJLFDO
    DEQRUPDOLWLHVLQER[HUV &KDSSHOOHWDO+DKQHOHWDO 7KHVHVWXGLHVFRPELQHGZLWKWKRVH
    RQ&7( +DQGUDWWDHWDO0F.HH&DQWXHWDO SXWWRUHVWDQ\TXHVWLRQDVWRZKHWKHUEUDLQ
    LQMXU\LVRFFXUULQJLQWKHVHW\SHVRIVSRUWVߟLWLV
    7KH VHFRQG LPSDFW V\QGURPH 6,6  RFFXUV ZKHQ D VHFRQG 7%, LV VXVWDLQHG EHIRUH WKH
    SK\VLRORJLFDOUHDFWLRQVWRDSULRULQMXU\KDYHGLVVLSDWHG (FKHPHQGLDDQG&DQWX (UODQJHUHW
    DO0F&URU\DQG%HUNRYLF 6,6LVPRVWOLNHO\WREHVHHQLQDWKOHWHVHQJDJHGLQFRQWDFW
    VSRUWVDVWKH\PRUHWKDQRWKHUDWKOHWHVWHQGWRUHFHLYH7%,VLQUHODWLYHO\UDSLGVXFFHVVLRQDQGPD\EH
    HDJHUWRUHWXUQWRSOD\DIWHUDFRQFXVVLRQ7KHKDOOPDUNRI6,6LVGLIIXVHVZHOOLQJRIWKHEUDLQZKLFK
    PD\EHJLQZLWKLQKRXUVRIHYHQDPLOGLQMXU\DQGUHVXOWVIURPFRPSURPLVHGFHUHEUDODXWRUHJXODWLRQ
    0F&URU\DQG%HUNRYLF  QRWHGWKDWPRVWUHSRUWHGFDVHVKDYHEHHQRIDGROHVFHQWV&RDFKHVDQG
    WHDPSK\VLFLDQVDUHQRZHQFRXUDJHGWREHNQRZOHGJHDEOHDERXWWKHV\PSWRPVRIFRQFXVVLRQDQGWR
    NHHS LQMXUHG SOD\HUV RXW RI WKH JDPH XQWLO WKH\ DUH V\PSWRP IUHH -7 %DUWK 9DUQH\ HW DO 
    (FKHPHQGLD DQG &DQWX  (UODQJHU HW DO   6HULDO QHXURSV\FKRORJLFDO HYDOXDWLRQV PD\
    SURYLGHWKHEHVWGDWDIRUGHWHUPLQLQJZKHQLWLVVDIHIRUDFRQFXVVHGSOD\HUWRUHWXUQWRSOD\DOWKRXJK
    SUDFWLFH HIIHFWV DQG SOD\HU PRWLYDWLRQ FDQ FRPSOLFDWH WKH HYDOXDWLRQ RI H[DPLQDWLRQ ILQGLQJV
    (FKHPHQGLDDQG-XOLDQ 

    0XOWLSOHLQMXULHVSRO\WUDXPD

    $FFLGHQWVLQMXULQJWKHKHDGIUHTXHQWO\LQYROYHWUDXPDWRRWKHUV\VWHPVDQGSDUWVRIWKHERG\WKDWLQ
    WXUQ FRQWULEXWH WR WKH VHYHULW\ RI WKH QHXUREHKDYLRUDO FRQGLWLRQ 'REVFKD HW DO  0DFDUWQH\
    )LOJDWH $OVRLQWXUQFRJQLWLYHGHILFLWVFRQWULEXWHWRWKHRXWFRPHIRUSRO\WUDXPDSDWLHQWV 9
    )HUQDQGH]HWDO 7KLVKDVEHFRPHDQH[WUHPHO\LPSRUWDQWLVVXHIRUPLOLWDU\SHUVRQQHOLQMXUHG
    LQWKH,UDTDQG$IJKDQLVWDQZDUV 6D\HU&LIXHWDO ,QFLYLOLDQSRO\WUDXPDFDVHVZLWK7%,WKH
    PRUWDOLW\UDWHGRHVQRWDSSHDUWREHLQFUHDVHG %DOWDVHWDO )RUH[DPSOHIHPXUIUDFWXUHSHUVH
    LQ SDWLHQWV ZLWK PXOWLSOH LQMXULHV DQG D &+, GLG QRW LQFUHDVH PRUWDOLW\ RU QHXURORJLF GLVDELOLW\ 9
    )HUQDQGH] HW DO   +RZHYHU VHYHUHO\ KHDG LQMXUHG SDWLHQWV ZKR DOVR VXVWDLQ PXOWLSOH VNHOHWDO
    LQMXULHVDUHOHVVOLNHO\WREHQHILWIURPUHKDELOLWDWLRQWKDQWKRVHZLWKRQO\RQHRUQRVXFKLQMXU\ *
    'DYLGRIIHWDO*URVZDVVHU&RKHQDQG%ODQNVWHLQ :KHQVHQVRU\GLVWXUEDQFHVRFFXULQ
    SDWLHQWVZKRVHDELOLWLHVWRFRQFHQWUDWHRUSHUIRUPPHQWDORSHUDWLRQVDUHDOUHDG\FRPSURPLVHGWKH\
    FDQ JUHDWO\ H[DFHUEDWH WKH DWWHQWLRQDO GLIILFXOWLHV DGG WR IDWLJXH DQG JHQHUDOO\ UHGXFH PHQWDO
    IXQFWLRQLQJ SHUIRUPDQFH HIILFLHQF\ DQG FDSDFLW\ WR XQGHUWDNH QRUPDO VRFLDO DQG RFFXSDWLRQDO
    DFWLYLWLHV 6RKOEHUJDQG0DWHHU:ULJKWVRQDQG*URQZDOO 
    3RO\WUDXPDSDWLHQWVLPSURYHRYHUWLPHEXWJHQHUDOO\GRQRWUHWXUQWRSUHLQMXU\OHYHOV2XWFRPHLV
    LQIOXHQFHGE\DJHVHYHULW\RILQMXU\DQGSUHYLRXVTXDOLW\RIOLIH 8/HKPDQQHWDO0DWDHWDO
     7KLDJDUDMDQ HW DO   5HVLGXDO LPSDLUPHQWV DQG GLVDELOLWLHV LQ DFWLYLWLHV RI GDLO\ OLYLQJ
    $'/V QRQZRUNDFWLYLWLHVDQGZRUNZHUHQRWHGLQRILQGLYLGXDOVZLWKVHYHUHPXOWLSOHWUDXPD
    FRJQLWLYH LPSDLUPHQW ZDV UHODWHG WR YRFDWLRQDO GLVDELOLW\ SK\VLFDO LPSDLUPHQW DQG SDLQ ZHUH
    DVVRFLDWHG ZLWK QRQZRUN GLVDELOLW\ DIWHU WKUHH \HDUV $QNH HW DO   7KH LPSRUWDQFH RI IXOO\
    LQWHJUDWHG WUHDWPHQW LV GHPRQVWUDWHG LQ WKH FRJQLWLYH DQG HPRWLRQDO UHKDELOLWDWLRQ VWUDWHJLHV IRU
    YHWHUDQV ZLWK SRO\WUDXPD UHWXUQLQJ IURP ,UDT DQG $IJKDQLVWDQ *LURQGD HW DO  8RPRWR DQG
    :LOOLDPV 
    $OFRKRODEXVH

    ,WLVQRWVXUSULVLQJWROHDUQWKDW7%,SDWLHQWVZLWKSULRUKLVWRULHVRIDOFRKRODEXVHWHQGWRKDYHSRRUHU
    RXWFRPHVDVPHDVXUHGE\SHUIRUPDQFHVRQQHXURSV\FKRORJLFDOWHVWV 'LNPHQ'RQRYDQHWDO 
    $OFRKRODQGSRO\VXEVWDQFHDEXVHDUHPDMRUFRQWULEXWRUVWRWKHLQFLGHQFHRIWUDXPDWLFEUDLQLQMXU\,W
    LV D PDMRU SRVW LQMXU\ SUREOHP DV ZHOO DV IURQWRWHPSRUROLPELF LQMXU\ GLPLQLVKHV LPSXOVH FRQWURO
    DQGMXGJPHQWUHVXOWLQJLQLQFUHDVHGOLNHOLKRRGRIVXEVWDQFHDEXVH '3*UDKDPDQG&DUGRQ
    3DUU\-RQHV HW DO   $OFRKRO DSSHDUV WR KDYH D SRWHQWLDWLQJ HIIHFW RQ KHDG LQMXU\ VHYHULW\
    QHXURSDWKRORJLFDOFKDQJHVHYHQWUHODWHGSRWHQWLDOVDQGRXWFRPHHYHQZKHQGHJUHHRIYHKLFOHFUXVK
    DQGGHPRJUDSKLFVDUHWDNHQLQWRDFFRXQW %DJXOH\)HOPLQJKDPHWDO%DUNHUHWDO50
    &XQQLQJKDPHWDO 5HWXUQWRSURGXFWLYHDFWLYLW\KDVEHHQUHODWHGWRSULRULQMXU\DQGDOFRKRO
    XVH $. :DJQHU HW DO   7KH UHODWLRQVKLS EHWZHHQ D KLVWRU\ RI DOFRKROLVP UHJDUGOHVV RI LWV
    VHYHULW\ DQG QHXURSV\FKRORJLFDO VWDWXV RQH \HDU DIWHU 7%, LV QRW D VLPSOH RQH WKRVH SDWLHQWV
    SHUIRUPLQJ OHDVW ZHOO RQ WHVWV WHQG WR EH SRRUO\ HGXFDWHG PHQ ZKRVH SUHPRUELG OLIHVW\OH LV PRUH
    OLNHO\WRKDYHSXWWKHPDWULVNIRUKHDGLQMXU\WKDQDUHWKHOLIHVW\OHVRIZRPHQRUZHOOHGXFDWHGPHQ
    1HXURLPDJLQJDEQRUPDOLWLHVSRVWLQMXU\PD\DOVRUHIOHFWSULRUDOFRKRODQGRUSRO\VXEVWDQFHXVHRU
    DEXVH :LOGH%LJOHUHWDO 

    /HVV&RPPRQ6RXUFHVRI7UDXPDWLF%UDLQ,QMXU\
    $OWKRXJKPRVWFDVHVRI7%,LQYROYHEORZVWRWKHKHDGRUSHQHWUDWLRQRIWKHVNXOOE\PLVVLOHVRURWKHU
    REMHFWV RWKHU VRXUFHV RI 7%, LQFOXGH OLJKWQLQJ HOHFWULFDO DFFLGHQWV DQG EODVW LQMXULHV 7KHVH ODWWHU
    PD\ DOVR KDYH QHXURSV\FKRORJLFDO HIIHFWV DV D UHVXOW RI WHPSRUDU\ SDUDO\VLV RI EUDLQ FHQWHUV ZLWK
    FRQVHTXHQWFDUGLDFRUUHVSLUDWRU\PDOIXQFWLRQFUHDWLQJDWUDQVLHQWK\SR[LFFRQGLWLRQ6RPHRIWKHVH
    DFFLGHQW YLFWLPV VXVWDLQ KHDG LQMXULHV WKURXJK IDOOLQJ RU EHLQJ NQRFNHG RYHU HJ /H]DN  
    2WKHUNLQGVRILQMXU\WRWKHEUDLQDQGDVVRFLDWHGWLVVXHFDQDOVRRFFXULQEODVWRUUDGLDWLRQLQMXULHV
    )RU D GHWDLOHG GLVFXVVLRQ RI WKHVH RWKHU IRUPV RI 7%, VHH 'XII DQG 0F&DIIUH\   DQG 3DQVH
     %UDLQGDPDJHGXHWREODVWH[SRVXUHLVDVLJQDWXUHLQMXU\IURPWKH,UDTDQG$IJKDQLVWDQZDUV
    XQIRUWXQDWHO\PRUHZLOOEHFRPHNQRZQDERXWLWVQHXURSV\FKRORJLFDOVHTXHODHLQWKHQH[WIHZ\HDUV
    %HODQJHUHWDO5-5REHUWVDQG5REHUWV 

    (OHFWULFDODQGOLJKWQLQJLQMXULHV

    6RPHIRUPVRIHOHFWULFDOLQMXU\ (, UHVXOWLQVXEVWDQWLDOGLVDELOLW\RUHYHQGHDWK(,IURPFRQWDFWZLWK
    PDQPDGH HOHFWULFDO VRXUFHV UHVXOWV LQ DERXW  GHDWKV SHU \HDU ZKLOH OLJKWQLQJ VWULNHV DUH
    DVVRFLDWHG ZLWK  WR  GHDWKV LQ WKH 8QLWHG 6WDWHV DQQXDOO\ &DZOH\ DQG +RPFH  0$
    &RRSHU'XFORVDQG6DQGHUVRQ /LJKWQLQJFDXVHVPRUHGHDWKVLQWKH8QLWHG6WDWHVWKDQ
    DOORWKHUQDWXUDOGLVDVWHUVEXWIODVKIORRGV$SSUR[LPDWHO\WZRWKLUGVRIHOHFWULFDODFFLGHQWVRFFXUDW
    ZRUN -DQLFDN WKHUHVWKDSSHQLQWKHKRPH 3DWWHQ 7KHQXPEHURIQRQIDWDOLQMXULHVLV
    SHUKDSV ILYH WR WHQ WLPHV DV KLJK ,W KDV EHHQ HVWLPDWHG WKDW  WR  RI DOO DGPLVVLRQV WR EXUQ
    KRVSLWDOV DUH IURP HOHFWULFDO LQMXULHV 0$&RRSHU7$ )RUG\FH HW DO  7UHGJHW HW DO
     
    7KH HIIHFWV RI HOHFWULF VKRFN DQG OLJKWQLQJ LQMXULHV YDU\ JUHDWO\ LQ SDUW GXH WR WKH HOHFWULFDO
    VRXUFH SRLQWV RI HQWU\ SDWKZD\ WKURXJK WKH ERG\ DV ZHOO DV DVVRFLDWHG LQMXULHV DQG YLFWLP
    FKDUDFWHULVWLFV 7KH\ FDQ KDYH D VXEVWDQWLDO HIIHFW RQ WKH EUDLQ ZLWK UHVXOWLQJ SURPLQHQW
    QHXURSV\FKRORJLFDOGHILFLWV 3OLVNLQ&DSHOOL6FKHOOSIHIIHUHWDO5DPDWL3OLVNLQHWDO 
    7KH QDWXUH RI HOHFWULFDO FLUFXLWV LV UHODWHG WR KRZ HOHFWULFDO LQMXULHV RFFXU DQG WKHLU FRQVHTXHQW
    GDPDJLQJ HIIHFWV 9ROWDJH SRWHQWLDO GLIIHUHQFH EHWZHHQ WKH LQVLGH DQG RXWVLGH RI D FRQGXFWRU
    PHDVXUHGLQYROWV DPRXQWRIFXUUHQW PRYHPHQWRIFKDUJHGSDUWLFOHVLQVLGHDFRQGXFWRUH[SUHVVHG
    LQDPSHUHV UHVLVWDQFH RSSRVLWLRQWRFXUUHQWIORZPHDVXUHGLQRKPV W\SHRIFXUUHQW DOWHUQDWLQJ
    RUGLUHFW DVZHOODVH[SRVXUHGXUDWLRQDQGSDWKWKURXJKWKHERG\DIIHFWWKHVHYHULW\RILQMXU\ 0$
    &RRSHU5HVFRUO 
    (OHFWULFDOLQMXULHVDUHRIWHQGLYLGHG LQWRKLJK YROWDJH LQMXULHV JUHDWHU WKDQ  YROWV  DQGORZ
    YROWDJH LQMXULHV OHVV WKDQ  YROWV  DOWKRXJK WKH GLYLVLRQ LV VRPHZKDW DUELWUDU\ 0$ &RRSHU
    5&/HH +LJKYROWDJHLQMXULHVDUHOLNHO\WRSURGXFHH[WHQVLYHEXUQLQJDQGFKDUULQJRI
    WLVVXHV DQG PD\ HYHQ UHTXLUH PXOWLSOH OLPE DPSXWDWLRQ 0$ &RRSHU    +RZHYHU GHDWKV FDQ
    RFFXU IURP ORZ YROWDJHV EHFDXVH RI D ߧQR OHWJRߨPHFKDQLFDO DWWUDFWLRQ WR WKH VRXUFH ODVWLQJ IRU D
    ORQJ SHULRG 5& /HH  VHH EHORZ  ZKLOH UHODWLYHO\ OLWWOH LQMXU\ KDV UHVXOWHG IURP VRPH KLJK
    YROWDJH DFFLGHQWV &KHULQJWRQ   $ QHZ W\SH RI (, DVVRFLDWHG ZLWK 7$6(5p  JXQV DOVR KDV
    QHXURSV\FKRORJLFDO FRQVHTXHQFHV ERWK SULPDU\ HOHFWULFDO HIIHFWV DQG VHFRQGDU\ HIIHFWV GXH WR WKH
    IDOOEURXJKWRQE\WKHSDUDO\]LQJHIIHFWRIWKHVWXQ /'5HHG6ZHUGORZHWDO 
    +RXVHKROG FXUUHQW JHQHUDOO\  WR  PLOOLDPSV >P$@  LV UHODWLYHO\ VDIH XQGHU PRVW FRQGLWLRQV
    ZKHUHDVKLJKHUDPSHUDJHVRIWRP$FDQSURGXFHUHVSLUDWRU\DUUHVWDQGWRP$UHVXOWVLQ
    YHQWULFXODU ILEULOODWLRQ 0$ &RRSHU  5HVLVWDQFHYDULHV ZLWK WLVVXH W\SH &ZLQQ DQG &DQWULOO
     1HUYHFHOOVFDUU\HOHFWULFDOLPSXOVHVDQGKDYHWKHOHDVWUHVLVWDQFHIROORZHGE\EORRGYHVVHOV
    PXVFOHVVNLQWHQGRQVIDWDQGERQH(OHFWULFLW\XVXDOO\FRQWDFWVWKHERG\YLDWKHVNLQZLWKWKLFNHU
    VNLQߟDQG HVSHFLDOO\ FDOOXVHVߟLQFUHDVLQJ UHVLVWDQFH 'DPS RU ZHW VNLQ LV D EHWWHU FRQGXFWRU RI
    HOHFWULFDO FXUUHQW DQG VZHDW FDQ UHGXFH VNLQ UHVLVWDQFH IURP  WR  RKPV SHU FP :KHQ
    FRQWDFWLQJ ZHW VNLQ HYHQ D ORZ DPSHUDJH KRXVHKROG FXUUHQW FDQ FDXVH YHQWULFXODU ILEULOODWLRQ DQG
    VRPHWLPHV GHDWK 0RUHRYHU FOHDQ VNLQ KDV OHVV UHVLVWDQFH WR FXUUHQW IORZ WKDQ GLUW\ VNLQ DQG WKLQ
    ERG\ FURVVVHFWLRQV KDYH OHVV UHVLVWDQFH WKDQ WKLFN RQHV )RU D SDUWLFXODU YROWDJH WKH LQMXU\ LV
    WKHUHIRUHOLNHO\WREHJUHDWHULQDILQJHUWKDQDQDUP 0$&RRSHU 
    2QFHWKHVNLQLVFRPSURPLVHGFXUUHQWIORZVSULPDULO\LQWHUQDOO\DORQJQHUYHVEORRGYHVVHOVDQG
    PXVFOHV $OWHUQDWLQJ FXUUHQW $&  LV VXEVWDQWLDOO\ߟSHUKDSV WKUHH WLPHVߟPRUH GDQJHURXV WKDQ WKH
    VDPH DPSHUDJH RI GLUHFW FXUUHQW '&  %HUQVWHLQ  )RQWDQDURVD    'LUHFW FXUUHQW '&
    XVXDOO\ HOLFLWV D VLQJOH VWURQJ VNHOHWDO PXVFOH IOH[LRQ WKDW PD\ SXVK WKH YLFWLP DZD\ IURP WKH
    HOHFWULFDO VRXUFH /RZ YROWDJH  WR  P$  $& VXFK DV KRXVHKROG FXUUHQW SURGXFHV DQ XQSOHDVDQW
    WLQJOLQJVHQVDWLRQ$&YROWDJHVDVORZDVWRP$PD\IUHH]HPRYHPHQWGXHWRUHSHWLWLYHPXVFOH
    VWLPXODWLRQ WHWDQ\ VXFKWKDWWKHYLFWLPFDQQRWOHWJRRIDQREMHFWUHVXOWLQJLQGDQJHURXVO\SURORQJHG
    H[SRVXUH WR LQWHUQDO FXUUHQW IORZ &XUUHQW WHUPLQDWLRQ WKH VKHHU ZHLJKW RI WKH YLFWLPߤV ERG\ RU
    DQRWKHU SHUVRQ SXOOLQJ WKH YLFWLP DZD\ IURP WKH FXUUHQW VRXUFH FDQ UHOHDVH WKH YLFWLP IURP WKLV
    IUR]HQ VWDWH &RQWLQXHG FRQWDFW ZLWK WKH FXUUHQW FDQ FDXVH VXVWDLQHG DSQHD ZLWK K\SR[HPLD DQG
    UHVSLUDWRU\DQGRUFDUGLDFDUUHVW
    /LJKWQLQJ GLIIHUV IURP PDQPDGH HOHFWULFDO VRXUFHV LQ VHYHUDO ZD\V 0$ &RRSHU  65
    &UDLJ   /LJKWQLQJ PD\ LQYROYH PDQ\ PLOOLRQV WR D ELOOLRQ YROWV DQG IURP D IHZ WR VHYHUDO
    KXQGUHGWKRXVDQGDPSHUHV/LJKWQLQJLV'&DQGWHQGVWRKDYHDVKRUWGXUDWLRQRIWRRI
    D VHFRQG ZLWK D FRQWDFW WHPSHUDWXUH RI r& WR r& ,Q FRQWUDVW PDQPDGH KLJK YROWDJH
    VRXUFHV DUH XVXDOO\ OHVV WKDQ  YROWV OHVV WKDQ  DPSHUHV $& RU '& DQG LQYROYH ORQJHU
    H[SRVXUHGXUDWLRQV

    5LVN IDFWRUV 7KH ULVN IDFWRUV IRU HOHFWULF VKRFN DQG OLJKWQLQJ LQMXULHV DUH EHKDYLRUDO
    HQYLURQPHQWDODQGJHRJUDSKLFߟRIWHQDFRPELQDWLRQRIWKHVHIDFWRUVLQLQGLYLGXDOFDVHV
    )RUHOHFWULFDOLQMXULHVIDLOXUHWRDGKHUHWRHOHFWULFDOVDIHW\JXLGHOLQHVLVWKHPRVWFRPPRQFDXVH
    RI VKRFN %RWK ORZ YROWDJH HJ FRQWDFW ZLWK GHIHFWLYH WRROV RU DSSOLDQFHV  DQG KLJK YROWDJH HJ
    FRQWDFWZLWKSRZHUOLQHV LQMXULHVRFFXURQWKHMRERUDWKRPH 5&/HH0HOOHQHWDO 
    $GROHVFHQW PDOH ULVNWDNLQJ EHKDYLRU VXFK DV FOLPELQJ XWLOLW\ SROHV RU ULGLQJ RQ WUDLQ URRIV KDYH
    UHVXOWHGLQKLJKYROWDJHLQMXULHV )RQWDQDURVD6WHUQLFNHWDO &KLOGUHQDUHPRVWOLNHO\WR
    SXWILQJHUVRUREMHFWVLQRXWOHWVWRWRXFKOLYHZLUHVRUWRVXIIHUHOHFWULFDOEXUQVRIWKHPRXWKIURP
    VXFNLQJ RU FKHZLQJ RQ D OLYH ZLUH =XEDLU DQG %HVQHU   EXW DGXOWV WRR KDYH VXFK LQMXULHV
    6KLPR\DPDHWDO +LJKVFKRROHGXFDWHGPHQLQWKHLUVDQGVVXVWDLQPRVW  RQWKH
    MREHOHFWULFDOLQMXULHVDQGGHDWKV 5&/HH0HOOHQHWDO 
    /LJKWQLQJ FDQ VWULNH LQ D YDULHW\ RI ZD\V &KHULQJWRQ  0$ &RRSHU  &ZLQQ DQG
    &DQWULOO 
    $GLUHFWVWULNHE\DOLJKWQLQJEROWLVSDUWLFXODUO\VHULRXV,IWKHVWULNHLVQHDUWKHKHDGFXUUHQWPD\
    HQWHU E\ WKH RULILFHVߟHDUV H\HV QRVH DQG PRXWK %( $QGUHZV    $ VLGH IODVK VRPHWLPHV
    FDOOHG D VSODVK RFFXUV ZKHQ WKH GLUHFW SDWKZD\ RI FXUUHQW SHUKDSV WKURXJK D WUHH KDV D KLJKHU
    UHVLVWDQFH WKDQ D SHUVRQ RU DQRWKHU REMHFW QHDUE\ ,W FDQ FDXVH VHULRXV LQMXU\ RU GHDWKߟHYHQ WR
    SHUVRQV LQGRRUV IRU LQVWDQFH DW D WHOHSKRQH RU LQ WKH EDWKWXE ZKHQ D JURXQG FXUUHQW WUDYHOV DORQJ
    KRXVHSLSHV %($QGUHZVDQG'DUYHQL]D $JURXQG RU VWULGHFXUUHQW RFFXUV ZKHQOLJKWQLQJ
    VWULNHVDQGWKHQWUDYHOVDORQJWKHJURXQGWRDSHUVRQ,IRQHIRRWLVFORVHUWRWKHVWULNHSRLQWFXUUHQW
    PD\IORZXSRQHOHJWKURXJKWKHERG\DQGRXWWKHRWKHUOHJ0$&RRSHU  GHVFULEHVDQRWKHU
    PHFKDQLVPDZHDNXSZDUGVWUHDPHUDQHOHFWULFFKDUJHWKDWVXUJHVXSWKURXJKDQ\REMHFWSURMHFWLQJ
    IURP WKH JURXQG LQGXFHG ZKHQ WKH WLS RI D EUDQFK RI FORXGWRJURXQG OLJKWQLQJ JHWV ZLWKLQ D IHZ
    KXQGUHGPHWHUVRIWKHJURXQG/LJKWQLQJEROWVFDQVWULNHRXWRIDFOHDUVN\ &KHULQJWRQ.ULGHUHWDO
      KHQFH WKH WHUP ߧEROW RXW RI WKH EOXHߨ 3UHFHGLQJ D VWRUP WKLV OLJKWQLQJ WUDYHOV QHDUO\
    KRUL]RQWDOO\ IURP D OLJKWQLQJ KHDG WKDW PD\ EH PRUH WKDQ  NP DZD\ $GGLWLRQDOO\ EOXQW WUDXPD
    PD\RFFXUIURPWKHWKHUPRDFRXVWLFEODVWWKDWWKURZVWKHYLFWLP 0$&RRSHU 
    *HRJUDSKLFDQGFOLPDWLFYDULDWLRQVDIIHFWWKHUDWHRIOLJKWQLQJVWULNHV)RULQVWDQFHWKHVWDWHVRI
    )ORULGD DQG WKHQ 7H[DV KDG WKH PRVW OLJKWQLQJUHODWHG GHDWKV RYHU DQ \HDU SHULRG LQ WKH 8QLWHG
    6WDWHV EXW :\RPLQJ IROORZHG E\ 1HZ 0H[LFR $UNDQVDV 0LVVLVVLSSL DQG WKHQ )ORULGD KDG WKH
    KLJKHVWUDWHVSHUFDSLWD 0$&RRSHU$QGUHZVHWDO'XFORVDQG6DQGHUVRQ  *HRORJLF
    IDXOWV PHWDOOLF RUHV DQG QDWXUDO UDGLRDFWLYLW\ DUH OLNHO\ WR EH DVVRFLDWHG ZLWK KLJKHU VWULNH UDWHV
    3DWWHQ /LJKWQLQJVWULNHVDQGUHODWHGGHDWKVSHDNLQVXPPHUHVSHFLDOO\WKHODWHDIWHUQRRQZKHQ
    SHRSOH DUH HQJDJHG LQ RXWGRRU UHFUHDWLRQ RU HPSOR\PHQW &KHULQJWRQ   'XFORV DQG
    6DQGHUVRQ /LJKWQLQJDVVRFLDWHGGHDWKVRFFXUSULPDULO\DPRQJPDOHV PRUHWKDQPDOHWR
    IHPDOH UDWLR  ZLWK PHGLDQ DJH LQ WKH PLG WZHQWLHV 'XFORV DQG 6DQGHUVRQ   7KH /LJKWQLQJ
    6DIHW\*URXSRIWKH$PHULFDQ0HWHRURORJLFDO6RFLHW\RIIHUVRQOLQHUHFRPPHQGDWLRQVIRUUHGXFLQJ
    WKHOLNHOLKRRGRIDOLJKWQLQJDFFLGHQW KWWSZZZXLFHGXODEVOLJKWQLQJLQMXU\ 0$&RRSHUDQGKHU
    FROOHDJXHV  UHODWHP\WKVDERXWOLJKWQLQJGDQJHU

    1HXURDQDWRP\ DQG SDWKRSK\VLRORJ\ 5HJDUGOHVV RI LWV VRXUFH WKH SDWKZD\ RI HOHFWULFDO FXUUHQW
    WKURXJK WKH ERG\ LV LPSRUWDQW LQ GHWHUPLQLQJ PRUELGLW\ DQG PRUWDOLW\ 0$ &RRSHU 
    )RQWDQDURVD3DWWHQ )RULQVWDQFHWKHFHQWUDOQHUYRXVV\VWHPKHDUWDQGLQWHUQDORUJDQV
    DUHLQFOXGHGLQKHDGWRIRRWFRQGXFWLRQ\HWVXGGHQGHDWKIURPYHQWULFXODUILEULOODWLRQLVPRUHOLNHO\
    WRRFFXUIURPKDQGWRKDQGUDWKHUWKDQKDQGWRIRRWFXUUHQWIORZ5HODWLYHO\VPDOOFXUUHQWVFDQKDYH
    VHULRXVDQGHYHQIDWDOHIIHFWV$OWHUQDWLYHO\ODUJHUFXUUHQWVSDVVLQJWKURXJKWKHWKXPEDQGRXWRWKHU
    ILQJHUVRIWKHKDQGPLJKWKDYHOLWWOHHIIHFW3UHVXPDEO\SDWKZD\VLQYROYLQJWKHKHDGVKRXOGOHDGWR
    KLJKHU UDWHV RI FHQWUDO QHUYRXV V\VWHP GLVRUGHUV DQG QHXURSV\FKRORJLFDO GHILFLWV 'XII DQG
    0F&DIIUH\3OLVNLQHWDO +RZHYHUZKDWSDWKZD\KDVEHHQWDNHQDQGZKDWV\VWHPVKDYH
    EHHQFRPSURPLVHGDUHQRWDOZD\VFOHDU
    &HQWUDO QHUYRXV V\VWHP LQYROYHPHQW LV FRPPRQ ZLWK ERWK HOHFWULF VKRFN DQG OLJKWQLQJ LQMXULHV
    %&%U\DQ$QGUHZV+XUOH\DQG7DEHU ,WKDVEHHQHVWLPDWHGWKDWRYHURIDOOOLJKWQLQJ
    YLFWLPVKDYHDEULHIORVVRIFRQVFLRXVQHVVDQGWKDWRYHUKDYHFRQIXVLRQZLWKDPQHVLDDQGEULHI
    SHULRGV RI SDUHVWKHVLDV DQG SDUHVLV &KHULQJWRQ <DUQHOO DQG /RQGRQ  0$ &RRSHU  
    6HL]XUHVPD\EHSUHVHQWLQWKHILUVWIHZGD\VRUGHYHORSODWHU (OGDGHWDO &KHULQJWRQDQGKLV
    FROOHDJXHV  UHSRUWHGDZLGHUDQJHRIQHXURORJLFFRPSOLFDWLRQVIURPOLJKWQLQJLQMXULHVVXFKDV
    LQWUDFUDQLDO DQG HSLGXUDO KHPDWRPDV FHUHEUDO HGHPD KHPRUUKDJH KHPLSDUHVLV LQIDUFW WKDW PD\
    LQYROYH FRUWLFDO DQGRU VXEFRUWLFDO VWUXFWXUHV P\HORSDWK\ DQG FRQFXVVLRQ $ QXPEHU RI V\PSWRPV
    DQG V\QGURPHV PD\ UHVXOW VRPH RI ZKLFK FDQ EH GHOD\HG LQ RQVHW 7KHVH LQFOXGH K\SR[LF
    HQFHSKDORSDWK\ߟRIWHQ IURP FDUGLDF DUUHVW DWD[LD SURJUHVVLYH FHUHEHOODU V\QGURPH 3DUNLQVRQߤV
    GLVHDVH SRO\QHXURSDWK\ EXOEDU SDOV\ :LOVRQߤV GLVHDVH VSLQDO DWURSK\ H[WUDS\UDPLGDO V\QGURPH
    VDJLWWDOVLQXVRFFOXVLRQDQGDXWRQRPLFIDLOXUH VHHDOVR0$&RRSHU$QGUHZVHWDO5&/HH
    $DUVYROGHWDO 
    0DQ\ DQG GLIIHUHQW QHXURSDWKRORJLF ILQGLQJV KDYH EHHQ GHVFULEHG IROORZLQJ HOHFWULFDO DQG
    OLJKWQLQJ DFFLGHQWV 0$ &RRSHU $QGUHZV HW DO  5& /HH HW DO   UHVXOWLQJ LQ D ZLGH
    YDULHW\RIQHXURSV\FKRORJLFDOHIIHFWV 5DPDWL5XELQHWDO $PRQJWKHPDUHIRFDOSHWHFKLDO
    KHPRUUKDJHVWKURXJKRXWWKHEUDLQߟHVSHFLDOO\LQWKHPHGXOODDQGWKHDQWHULRUKRUQVRIVSLQDOFRUG
    JUD\ PDWWHU GLVLQWHJUDWLRQ RI FHOOV LQ FHUHEHOODU VWUXFWXUHV DQG WKH DQWHULRU KRUQ SOXV GLODWLRQ RI
    SHULYDVFXODUVSDFHVGHP\HOLQDWLRQFRDJXODWLRQQHFURVLVRIJUD\DQGZKLWHPDWWHUDQGHGHPD:LWKD
    GLUHFWKLWWRWKHFUDQLXPWKHHQWLUHEUDLQPD\EHFRPHVZROOHQDQGVRIWHQHG,PDJLQJFDQHOXFLGDWHWKH
    QHXURSDWKRORJ\UHVSRQVLEOHIRUVRPHV\PSWRPV+RZHYHUPDQ\LQGLYLGXDOVZLWKFRJQLWLYHGHILFLWV
    KDYHQRUPDO&705,VFDQV 0$&RRSHUHWDO DQDEQRUPDO((*LVWKHPRUHIUHTXHQWILQGLQJ
    %DUUDVKHWDO+RRVKPDQGHWDO7%,LQGXFHGLQWUDYHQWULFXODU KHPRUUKDJH LV W\SLFDOO\
    DVVRFLDWHG 9DQ=RPHUHQWHQ'XLVHWDO 
    1XPHURXV VPDOO IRFL RI K\SHULQWHQVLWLHV LQ WKH VXSUDWHQWRULDO ZKLWH PDWWHU PDLQO\ LQ WKH LPPHGLDWH VXEFRUWLFDO UHJLRQ ZHUH
    DSSDUHQWRQWKH05,RID\HDUROGPDOHZKRZDVQRWXQFRQVFLRXVEXWWKURZQEDFNZDUGYLROHQWO\LQDOLJKWQLQJVWRUP+H
    KDGSDLQLQWKHOHIWDUPDQGSDUHVLVLQWKHOHIWOHJLPPHGLDWHO\WKDWUHVROYHGZKLOHDWD[LDRIJDLWUHVROYHGODWHUDQGKHFRQWLQXHG
    WR KDYH PLOG FRJQLWLYH GLIILFXOWLHV LQYROYLQJ DEVWUDFW UHDVRQLQJ DWWHQWLRQ DQG FRQFHQWUDWLRQ 0LOWRQ 2ߤ'HOO DQG :DUQHU
     
    &KHULQJWRQ<DUQHOODQG+DOOPDUN  GHVFULEHGWKUHHOLJKWQLQJDFFLGHQWV$VSULQJVNLHUVXIIHUHGGLIIXVHDQR[LFEUDLQ
    LQMXU\DQGQHYHUUHJDLQHGFRQVFLRXVQHVV$Q05,WZRGD\VSRVWLQMXU\UHYHDOHGHQODUJHPHQWRIJ\ULHIIDFHPHQWRIVXOFLDQG
    LQFUHDVHGVLJQDOLQWHQVLW\LQWKHEDVDOJDQJOLDDQGFRUWLFDOJUD\PDWWHU$PRXQWDLQFDPSHUORVWFRQVFLRXVQHVVDQGFRPSODLQHG
    RIQXPEQHVVDQGOLPEVWLIIQHVVWKDWUHVROYHGWKDWGD\EXWKDGUHVLGXDOߧUHGVWUHDNVߨRQKLVOHIWDUPFKHVWDQGQHFNDSHUIRUDWHG
    HDUGUXP DQG ILQJHUWRQRVH LQFRRUGLQDWLRQ $WURSK\ RI WKH VXSHULRU FHUHEHOOXP DSSHDUHG RQ 05, ,Q FRQWUDVW D KRUVHEDFN
    ULGHUDOVRORVWFRQVFLRXVQHVVKDGDPQHVLDIRUWKHHYHQWEXUQVRQKHUIRUHKHDGDQGDQH[LWZRXQGRQKHUULJKWOHJZLWKWUXQFDO
    DQGILQJHUWRQRVHDWD[LDEXWQRUPDO&7DQG05,

    ,QWKHSHULSKHUDOQHUYRXVV\VWHP 316 WKDWSDUWRIWKHQHUYRXVV\VWHPZKLFKOLHVRXWVLGHWKH&16


    ERWK P\HOLQ VKHDWKV DQG D[RQV FDQ VXIIHU YDULRXV LQMXULHV 0 &ULWFKOH\   0LOG WLQJOLQJ RU
    QXPEQHVV KDV EHHQ UHSRUWHG DQG HYHQ D FRPSOHWH ORVV RI VHQVRU\ RU PRWRU IXQFWLRQ PD\ RFFXU
    0DQNDQL HW DO   6HQVRU\ VWUXFWXUHV FDQ EH LQMXUHG ZLWK ILQGLQJV RI SHUIRUDWHG HDUGUXPV
    WLQQLWXV VHQVRULQHXUDO KHDULQJ ORVV YHUWLJR ORVV RI YLVLRQ FDWDUDFWV DQG LQIODPPDWLRQ LQ H\H
    VWUXFWXUHV +DZNHV DQG 7KRUSH  2JUHQ DQG (GPXQGV  7%, LQGXFHG LQWUDYHQWULFXODU
    KHPRUUKDJH LV W\SLFDOO\ DVVRFLDWHG 9DQ =RPHUHQ WHQ 'XLV HW DO   5HSRUWV RI DXWRQRPLF
    QHUYRXV V\VWHP V\PSWRPV LQFOXGH FDUGLRYDVFXODU WHPSHUDWXUH EODGGHU DQG HUHFWLOH G\VIXQFWLRQV
    -$&RKHQ)RQWDQDURVD 7KHVHV\PSWRPVDUHXVXDOO\LPPHGLDWHDQGWUDQVLHQWEXWPD\
    EHSURORQJHG :HHUDPDQWKULHWDO RUGHOD\HG (OGDGHWDO 

    7KHGLVHDVHSURFHVV&KHULQJWRQ  VXJJHVWHGDIRXUFDWHJRU\FODVVLILFDWLRQRIWKHQHXURORJLF


    HIIHFWVRIOLJKWQLQJLQMXU\  LPPHGLDWHDQGWUDQVLHQWV\PSWRPVVXFKDVORVVRIFRQVFLRXVQHVVRU
    UHWURJUDGH DPQHVLD   LPPHGLDWH DQG SURORQJHG RU SHUPDQHQW SUREOHPV VXFK DV DQ LQIDUFW 
    GHOD\HG VHTXHODH VXFK DV P\HORSDWK\ RU HYHQ DQ LQWUDFHUHEUDO JOLRPD DQG   VHFRQGDU\ OHVLRQV
    VXFK DV UXSWXUH RI WKH W\PSDQLF PHPEUDQH RU 7%, 7KLV FODVVLILFDWLRQ FRXOG EH JHQHUDOL]HG WR
    HOHFWULFDOLQMXULHVDQGWRQRQQHXURORJLFV\PSWRPVDVZHOO
    'HOD\HG HIIHFWV KDYH EHHQ REVHUYHG DSSHDULQJ DV ODWH DV D GHFDGH DIWHU WKH LQMXU\ &KHULQJWRQ
      VXJJHVWHG VHYHUDO SRVVLEOH H[SODQDWLRQV IRU GHOD\HG HIIHFWV D FRLQFLGHQFH D QHXURORJLF
    FRQGLWLRQ SUHVHQW IURP WKH EHJLQQLQJ EXW QRW QRWLFHG EHFDXVH LW ZDV VXEWOH DQG RYHUVKDGRZHG E\
    PRUH SUHVVLQJ PHGLFDO SUREOHPV SUHH[LVWLQJ EXW XQQRWLFHG V\PSWRPV RU VWUXFWXUDO FKDQJHV
    RFFXUULQJLQSURWHLQVDQGRWKHUPROHFXOHVEORRGYHVVHOZDOOVDQGFHOOXODUPHPEUDQHVWKDWDUHQRW
    LPPHGLDWHO\HYLGHQW *6'DYLGVRQDQG'HFN5&/HH 7KHLQLWLDWLRQRIDGHJHQHUDWLYH
    SURFHVVLVDOVRDSRVVLELOLW\ 5&/HH&DQQDGD\DQG+DPPHU 

    'LDJQRVLVDQGSUHGLFWLRQ'LDJQRVLVRIHOHFWULFVKRFNLVJHQHUDOO\VWUDLJKWIRUZDUGDVLWLVEDVHGRQ
    WKH KLVWRU\ SK\VLFDO VXUURXQGLQJV DW WKH WLPH RI WKH HYHQW HQWUDQFH DQG H[LW ZRXQGV DQG EXUQV
    +RZHYHU VRPHWLPHV EOXQW WUDXPD DQG IDOOV ZLWK DEVHQFH RI EXUQV EODVW HIIHFWV RU IDOOLQJ GHEULV
    FRPSOLFDWH WKH SLFWXUH VXFK WKDW D 7%, IURP PHFKDQLFDO IRUFHV PXVW EH FRQVLGHUHG 0$ &RRSHU
    'XIIDQG0F&DIIUH\VHHSSߞ /LJKWQLQJLQMXU\PD\RFFXUZKHQQRERG\LV
    DURXQGZLWKQRUHSRUWHGWKXQGHUVWRUPDWWKHWLPHDQGQRHQWUDQFHDQGH[LWZRXQGVEXUQVRURWKHU
    SDWKRJQRPRQLF VNLQ OHVLRQV VXFK DV ߧIHDWKHULQJ PDUNVߨ 0$ &RRSHU     ,Q FDVHV
    SUHVHQWLQJ ZLWK XQFRQVFLRXVQHVV SDUDO\VLV GLVRULHQWDWLRQ DQG RWKHU FRJQLWLYH GHILFLWV DOWHUQDWLYH
    HWLRORJLHVPXVWEHFRQVLGHUHG &KHULQJWRQ.XUW]PDQHWDO0$&RRSHU 
    0$&RRSHU  UHSRUWHGWKDWRIOLJKWQLQJYLFWLPVGLHDQGRIWKRVHUHPDLQLQJKDYH
    SHUPDQHQW GLVDELOLWLHV 'HDWK PD\ EH GXH WR FDUGLRSXOPRQDU\ DUUHVW   DQGRU FUDQLDO EXUQV
     DQGRUOHJEXUQV  6RPHYLFWLPVGLHLPPHGLDWHO\XVXDOO\IURPFDUGLDFDUUK\WKPLD %
    %DLOH\HWDO ZKLOHRWKHUVOLQJHUIRUGD\VZHHNVRUPRQWKVEHIRUHG\LQJRIWKHLULQMXULHV HJ
    *6'DYLGVRQDQG'HFN )URPDFRJQLWLYHUHKDELOLWDWLRQSHUVSHFWLYHH[WHQGHGUHKDELOLWDWLRQ
    VLPLODU WR WKDW GRQHIRU 7%,LVFRPPRQ IRU SDWLHQWV ZLWK HOHFWULFDO LQMXULHVZKRVH QHXUDO IXQFWLRQV
    DUHLQYROYHG 3ULPHDX<DUQHOO 6HTXHODHFDQLQFOXGHDFRPSOH[RISK\VLFDOHPRWLRQDO
    DQG FRJQLWLYH GLVRUGHUV 7$ 0DUWLQ 6DOYDWRUH DQG -RKQVWRQH  0RUVH DQG 0RUVH 
    0XHKOEHUJHUHWDO 

    &RJQLWLRQ 7KH PDQ\ ZD\V LQ ZKLFK DQ (, FDQ RFFXU DQG SRWHQWLDOO\ DIIHFW QHXUDO IXQFWLRQ KDV
    KDPSHUHG RXWFRPH UHVHDUFK HVSHFLDOO\ LQ ROGHU VWXGLHV WKDW KDG VPDOO VDPSOH VL]HV LQVXIILFLHQW
    H[FOXVLRQ UHTXLUHPHQWV RU H[DPLQDWLRQ RI UHOHYDQW IXQFWLRQV DQG LQDGHTXDWH GHVLJQ HJ
    LQDSSURSULDWHFRQWUROVDPSOHV  'XIIDQG0F&DIIUH\3ULPHDX(QJHOVWDWWHUDQG%DUHV 
    0RUHUHFHQWO\ODUJHUDQGPRUHV\VWHPDWLFVWXGLHVKDYHH[DPLQHGQHXURSV\FKRORJLFDORXWFRPH7KH
    IUHTXHQF\ DQG VHYHULW\ RI FRJQLWLYH GHILFLWV IRXQG LQ WKHVH VWXGLHV RI (, YLFWLPV PDNH
    QHXURSV\FKRORJLFDO DVVHVVPHQW DGYLVDEOH LQ PRVW FDVHV &- $QGUHZV    )RU H[DPSOH DQ
    H[DPLQDWLRQ RI  HOHFWULFDO LQMXU\ VXUYLYRUV FDUHIXOO\ PDWFKHG WR GHPRJUDSKLFDOO\ HTXLYDOHQW
    FRQWUROVVKRZHGDWWHQWLRQVSHHGRISURFHVVLQJPHPRU\DQGPRWRUGHILFLWV 3OLVNLQ $PPDU HW DO
     ,QDIROORZXSVWXG\WKLVVDPHJURXSH[DPLQHGI05,FRUUHODWHVRI(,GHPRQVWUDWLQJDYDULHW\
    RI DUHDV RI DEQRUPDO DFWLYDWLRQ GXULQJ FRJQLWLYH WDVNV LPSOLFDWLQJ FRUWLFDO DQG VXEFRUWLFDO
    G\VIXQFWLRQ 5DPDWL3OLVNLQHWDO 
    0HQWDOVWDWXVDOWHUDWLRQVDUHUHODWLYHO\FRPPRQSDUWLFXODUO\RFFXUULQJDVDSHULRGRIFRQIXVLRQ
    LPPHGLDWHO\ IROORZLQJ LQMXU\ DQG UHWXUQ WR FRQVFLRXVQHVV 'LVRULHQWDWLRQ VHHPV WR EH UHSRUWHG
    LQIUHTXHQWO\ 'XII DQG 0F&DIIUH\   \HW LW EHFDPH HYLGHQW ZKHQ IROORZLQJ D SDWLHQW ZKRVH
    PHQWDOVWDWXVZDVH[DPLQHGDSSURSULDWHO\ XVLQJWKH*2$7  +RSHZHOO 
    6HQVRULPRWRU GLVWXUEDQFHV LQFOXGH SDLQ SDUHVWKHVLDV DQG G\VHVWKHVLDV PRWRU ZHDNQHVV DQG
    LQFRRUGLQDWLRQ 7KHVH DUH FRPPRQ UHVLGXDO SUREOHPV IRU ERWK HOHFWULF VKRFN DQG OLJKWQLQJ VWULNH
    YLFWLPV &UHZVHWDO0'DQLHOHWDO3ULPHDX(QJHOVWDWWHUDQG%DUHV 3HUVLVWLQJ
    YLVXRSHUFHSWXDOGHILFLWVIURPDOLJKWQLQJVWULNHWRWKHKHDGKDYHEHHQUHSRUWHG .OHLWHUHWDO 
    &RPSODLQWV RI SRRU DWWHQWLRQFRQFHQWUDWLRQ DQG VORZHU WKLQNLQJ DUH FRPPRQ 3OLVNLQ &DSHOOL
    6FKHOOSIHIIHUHWDO3ULPHDX(QJHOVWDWWHUDQG%DUHV :,6$'LJLW6\PEROSHUIRUPDQFH
    LVRIWHQORZHUWKDQH[SHFWHGDOWKRXJK:,6$$ULWKPHWLFLVXVXDOO\LQWDFW %DUUDVK.HDOH\DQG-DQXV
     'XII DQG 0F&DIIUH\  9DUQH\ -X DQG 6KHSKHUG   3HUIRUPDQFHV RQ RWKHU WHVWV
    H[DPLQLQJ DWWHQWLRQDO IXQFWLRQV HJ 6HDVKRUH 5K\WKP 7HVW 6SHHFK 6RXQGV 3HUFHSWLRQ 7HVW  PD\
    DOVREHLQWKHLPSDLUHGUDQJH 0'DQLHOHWDO 9DQ=RPHUHQWHQ'XLVDQGWKHLUFRZRUNHUV
     UHSRUWHGWKDWKDOIRIWKHLUOLJKWQLQJVWULNHYLFWLPVVFRUHGDWERUGHUOLQHOHYHOVRQYLVXDOFKRLFH
    UHDFWLRQ WLPH WHVWLQJ ZLWK FOHDUO\ LPSDLUHG SHUIRUPDQFHV RQ D GLYLGHG DWWHQWLRQ WDVN ,QIRUPDWLRQ
    SURFHVVLQJ VSHHG DV PHDVXUHG RQ WKH 3$6$7 LV VRPHWLPHV LPSDLUHG &UHZV HW DO  YDQ
    =RPHUHQWHQ'XLVHWDO 
    0HPRU\ DQG OHDUQLQJ DUH RIWHQ DIIHFWHG % %DLOH\ *DXGUHDXOW DQG 7KLYLHUJH  1D\HE
    +DVKHPLHWDO 0DQ\YLFWLPVFRPSODLQRILQDELOLW\WRUHFDOOUHFHQWHYHQWVIDPLOLDUQDPHVRU
    SODFHV DQG JHWWLQJ ORVW LQ IDPLOLDU SODFHV 0 'DQLHO HW DO   5HWURJUDGH DPQHVLD DQG
    DQWHURJUDGHDPQHVLDPD\EHSUHVHQWDFXWHO\ 9DQ=RPHUHQWHQ'XLVHWDO 'HILFLWVLQYHUEDO
    OHDUQLQJDQGLQLPPHGLDWHDQGGHOD\HGPHPRU\DUHFRPPRQSUREOHPVDFXWHO\VRPHPD\FRQWLQXH
    IRU PRQWKV VRPH PD\ EHFRPH FKURQLF %DUUDVK .HDOH\ DQG -DQXV    7KHVH GHILFLWV KDYH
    DSSHDUHGRQZRUGOLVWOHDUQLQJWDVNV %DUUDVK HW DO  &UHZVHWDO  DQG VWRU\ UHFDOO WHVWV
    &UHZVHWDO 0HPRU\IRUYLVXDOLQIRUPDWLRQLVOHVVOLNHO\WREHLPSDLUHG %DUUDVKHWDO
    9DUQH\ -X DQG 6KHSKHUG   EXW YLVXDO UHFDOO SUREOHPV KDYH EHHQ QRWHG &UHZV HW DO 
    3OLVNLQ )LQN HW DO   6RPH YLFWLPV KDG SRRU WDFWLOH UHFDOO RQ WKH 7DFWXDO 3HUIRUPDQFH 7HVW
    &UHZVHWDO0'DQLHOHWDO 
    9HUEDO IXQFWLRQV DQG DFDGHPLF VNLOOV DUH XVXDOO\ LQWDFW DV PHDVXUHG E\ :,6$ ,QIRUPDWLRQ
    &RPSUHKHQVLRQ9RFDEXODU\DQG6LPLODULWLHV %DUUDVK.HDOH\DQG-DQXV&UHZVHWDO
    'XIIDQG0F&DIIUH\9DUQH\-XDQG6KHSKHUG ,QRQHFDVHDSKDVLFVSHHFKZDVSUHVHQW
    WZR\HDUVSRVWHOHFWULFDUFLQMXU\EXWHYHQWXDOO\UHVROYHGDOWKRXJKDYHUEDOUHWULHYDOGHILFLWUHPDLQHG
    9DUQH\ HW DO   0DQ\ HOHFWULF VKRFN YLFWLPV FRPSODLQ RI YHUEDO UHWULHYDO SUREOHPV 3OLVNLQ
    &DSHOOL6FKHOOSIHIIHU HW DO   DOWKRXJK %DUUDVK DQG KLV FROOHDJXHV   GLG QRW ILQG WKLV RQ
    YHUEDOIOXHQF\WHVWLQJ7KHIHZFDVHVUHSRUWHGLQGHWDLOVXJJHVWFRQVLGHUDEOHYDULDELOLW\RQDFDGHPLF
    VNLOOWHVWLQJVRPHVFRUHVGURSSLQJIRUVRPHSDWLHQWVEXWQRWRWKHUV
    3HUFHSWXDO DQG FRQVWUXFWLRQDO IXQFWLRQV KDYH PRVWO\ EHHQ PHDVXUHG E\ :,6$ WHVWV %ORFN
    'HVLJQ 2EMHFW $VVHPEO\ 3LFWXUH $UUDQJHPHQW 3LFWXUH &RPSOHWLRQ  ZLWK SDWLHQWVߤ SHUIRUPDQFHV
    JHQHUDOO\ ZLWKLQ QRUPDO OLPLWV %DUUDVK .HDOH\ DQG -DQXV  &UHZV HW DO  'XII DQG
    0F&DIIUH\  9DUQH\ -X DQG 6KHSKHUG   7KHVH SDWLHQWVߤ SHUIRUPDQFHV RQ WKH &RPSOH[
    )LJXUH 7HVW %HQWRQ 9LVXDO 5HWHQWLRQ 7HVW DQG %HQWRQߤV )DFLDO 5HFRJQLWLRQ 7HVW ZHUH DOVR PRVWO\
    ZLWKLQQRUPDOOLPLWV %DUUDVKHWDO9DUQH\HWDO +RZHYHUWDFWLOHIRUPGLVFULPLQDWLRQ
    WHQGHGWREHVORZDQGIRUPORFDOL]DWLRQSRRULQVRPHSDWLHQWV &UHZVHWDO0 'DQLHO HW DO
     

    ([HFXWLYH IXQFWLRQV )HZ SXEOLVKHG DVVHVVPHQWV RI WKHVH SDWLHQWV KDYH FRQVLGHUHG H[HFXWLYH
    IXQFWLRQLQJ 7KH &DWHJRU\ 7HVW DQG 7UDLO 0DNLQJ 7HVW% KDYH VRPHWLPHV EHHQ DVVRFLDWHG ZLWK
    LPSDLUHGSHUIRUPDQFH 'XII DQG 0F&DIIUH\   EXW WKLV GRHV QRW QHFHVVDULO\ LQGLFDWH LPSDLUHG
    H[HFXWLYHIXQFWLRQLQJ

    3HUVRQDOLW\DQGSV\FKRVRFLDOEHKDYLRU/LNHPDQ\SHUVRQVZKRVXIIHUVRPHLQVXOWWRWKHLUEUDLQ
    YLFWLPVRIHOHFWULFVKRFNDQGOLJKWQLQJLQMXU\H[SHULHQFHFKDQJHVLQWKHLUDIIHFWDQGPRRG 3OLVNLQ
    &DSHOOL6FKHOOSIHIIHU HW DO  3OLVNLQ )LQN HW DO   $GGLWLRQDOO\ WKH\ PD\ GHYHORS 376'
    0 'DQLHO HW DO  $5 *URVVPDQ HW DO  .0 .HOOH\ HW DO   3OLVNLQ DQG KLV
    FROOHDJXHV   IRXQG WKDW WKHLU SDWLHQWV HQGRUVHG LQFUHDVHG VWUHVVGHSUHVVLRQ   FKDQJHV LQ
    DWWLWXGH  DQGSUREOHPVZLWKDQJHUWHPSHU  ZKHUHDVWKHUDWHVIRUFRQWUROVXEMHFWVZHUHLQ
    WKHWRUDQJH7KHVHHOHYDWHGUDWHVDUHIDLUO\VLPLODUWRWKRVHUHSRUWHGE\-DQXVDQG%DUUDVK
      'HSUHVVLRQ HPRWLRQDO ODELOLW\ LQFUHDVHG DQ[LHW\ DQG LUULWDELOLW\ GHFUHDVHG VWUHVV WROHUDQFH
    DQG VHOIFRQILGHQFH LQGHFLVLYHQHVV LPPDWXULW\ LUUDWLRQDO YLROHQFH ORZ VHOIHVWHHP VRPDWLF
    SUHRFFXSDWLRQVIHDURIIXWXUHLQMXU\DQGQLJKWPDUHVPD\GHYHORSIROORZLQJWKHVHLQMXULHV VHHDOVR
    &UHZV%DUWKHWDO3ULPHDX(QJHOVWDWWHUDQG%DUHV9DUQH\-XDQG6KHSKHUG 
    /RQJWHUPSHUVLVWHQFH RI 376'OLNH V\PSWRPV KDV EHHQUHSRUWHG /LVKPDQ 3OLVNLQ )LQN HW
    DO 
    2Q SHUVRQDOLW\ LQYHQWRULHV HOHYDWLRQV RQ GHSUHVVLRQ DUH FRPPRQ ZLWK 0LQQHVRWD 0XOWLSKDVLF
    3HUVRQDOLW\,QYHQWRU\ 003, VFDOHHOHYDWLRQVRQ+V+\DQGVRPHWLPHV3WDQG6FDVKDVDSSHDUHG
    IRU EUDLQ LQMXUHG SDWLHQWV LQ JHQHUDO VHH SS ߞ  &UHZV HW DO  0 'DQLHO HW DO 
    3OLVNLQ &DSHOOL6FKHOOSIHIIHU HW DO   (OHFWULF VKRFN YLFWLPV PDNH VLJQLILFDQWO\ SRRUHU
    SV\FKRVRFLDO DGMXVWPHQW WKDQ EXUQ SDWLHQWV LQ WKHLU YRFDWLRQDO IXQFWLRQLQJ SHUVRQDO DQG IDPLO\
    UHODWLRQVKLSVVRFLDOHQYLURQPHQWDQGSV\FKRORJLFDOGLVWUHVV 3OLVNLQ)LQNHWDO 

    7UHDWPHQW 7KH QHHG IRU OLIHVDYLQJ VHUYLFHV DFXWHO\ KDV EHHQ ZHOO GRFXPHQWHG 0$ &RRSHU
    $QGUHZV HW DO   (YDOXDWLRQ DQG WUHDWPHQW IRU WKH ZLGH YDULHW\ RI PHGLFDO GLVRUGHUV DQG
    SV\FKRORJLFDO GLVRUGHUV WKDW RFFXU LPPHGLDWHO\ DIWHU D GHOD\ RU DUH SURJUHVVLYH LQ QDWXUH PD\ EH
    QHFHVVDU\DQGIROORZSURWRFROVGHYHORSHGIRUWKHVHFRQGLWLRQVQRPDWWHUZKDWWKHLUHWLRORJ\ 0$
    &RRSHU HW DO   7UHDWPHQW PD\ LQFOXGH VXSSRUWLYH SV\FKRWKHUDS\ DQG UHKDELOLWDWLRQ
    +HLOEURQQHU 

    %ODVWLQMXULHV

    :KLOH DQ XQFRPPRQ VRXUFH RI FLYLOLDQ EUDLQ LQMXU\ WKH ,UDT DQG $IJKDQLVWDQ ZDUV KDYH EURXJKW
    DWWHQWLRQ WR EODVW LQMXU\ ') 0RRUH DQG -DIIHH   7KH PHFKDQLVP RI LQMXU\ LQ EODVW WUDXPD LV
    GLIIHUHQW WKDQ LQ EOXQW IRUFH WUDXPD 3UHVVXUH HIIHFWV IURP EODVW LQMXU\ FDQ DIIHFW DQ\ RUJDQ RI WKH
    ERG\ EXW LQ SDUWLFXODU LPSLQJHV RQ WKH EUDLQ OXQJV DQG YDVFXODU V\VWHP 'HVPRXOLQ DQG 'LRQQH
     ,QSXUHEODVWLQMXU\WKHRQO\LPSDFWWRWKHERG\LVIURPWKHVRXQGZDYHDQGXQOLNHWKHW\SLFDO
    PHFKDQLFDO GHIRUPDWLRQ WKDW FRPHV IURP EOXQW WUDXPD EODVW HIIHFWV PD\ UDSLGO\ FKDQJH LQWHUQDO
    SUHVVXUHJUDGLHQWVZLWKLQRUJDQVZKLFKGHIRUPVQHXUDOWLVVXH (OGHUDQG&ULVWLDQ 
    1HXURLPDJLQJ VWXGLHV FRQYLQFLQJO\ GHPRQVWUDWH WKDW EUDLQ LQMXU\ FDQ RFFXU IURP EODVW WUDXPD
    +XDQJ0DWWKHZVHWDO6SRQKHLPHWDO 0RVWRIWKHVHLQMXULHVGRQRWVKRZXSRQ
    FRQYHQWLRQDOQHXURLPDJLQJ HJ&705, EXWRIPLOLWDU\SHUVRQQHOVXEMHFWHGWREODVWVKDG
    EUDLQ DEQRUPDOLWLHV ߞ PRQWKV SRVWLQMXU\ ZKHQ H[DPLQHG E\ '7, 0DF'RQDOG HW DO   7KH
    PRVW YXOQHUDEOH EUDLQ DUHDV ZHUH WKH PLGGOH FHUHEUDO SHGXQFOHV FLQJXOXP EXQGOHV DQG ULJKW
    RUELWRIURQWDOZKLWHPDWWHU,QIRUPDWLRQRQWKHQHXURSV\FKRORJLFDODVVHVVPHQWWUHDWPHQWDQGIROORZ
    XSRIEODVWYLFWLPVLVEHFRPLQJDYDLODEOH %UHQQHUHWDO6D\HU&KLURVHWDO 

    &(5(%529$6&8/$5',625'(56
    .QRZOHGJHDERXWWKHVWUXFWXUHDQGG\QDPLFVRIWKHFHUHEURYDVFXODUFLUFXODWLRQLWVUHODWLRQVKLSWRWKH
    UHVWRIWKHFLUFXODWRU\V\VWHPDQGWKHGLVHDVHVWKDWDIIHFWWKHFHUHEURYDVFXODUV\VWHPLVIXQGDPHQWDO
    IRU XQGHUVWDQGLQJ WKH HYHQWV WKDW FKDUDFWHUL]H WKH FRXUVH RI FHUHEURYDVFXODU GLVHDVHV DV ZHOO DV
    H[SHFWHG SDWWHUQV RI QHXURSV\FKRORJLFDO GHILFLWV DVVRFLDWHG ZLWK YDVFXODU OHVLRQV 7KH FRQVLGHUDEOH
    YDULHW\RIGLVRUGHUVDIIHFWLQJFHUHEUDOFLUFXODWLRQDQGWKHLUPDQ\VXEW\SHVSUHFOXGHGLVFXVVLRQRIDOO
    WKH QHXURSV\FKRORJLFDO LPSOLFDWLRQV RI FHUHEURYDVFXODU GLVHDVH 7KLV VHFWLRQ GHDOV ZLWK WKH PRVW
    FRPPRQ FRQGLWLRQV DQG WKH EURDG RXWOLQHV RI WKHLU VWUXFWXUDO DQG SDWKRSK\VLRORJLFDO DQWHFHGHQWV
    7KHVHV\QGURPHVDQGLPSDLUPHQWVDUHXVXDOO\REYLRXVLQWKHDFXWHXVXDOO\LQSDWLHQWVWDJHZKHQWKH
    FODVVLFV\PSWRPVWHQGWREHPRVWSURPLQHQW
    $ IXOO\ GHWDLOHG GHVFULSWLRQ RI WKH HQWLUH FHUHEUDO FLUFXODWLRQ DQG LWV YLFLVVLWXGHV LV EH\RQG WKH
    VFRSHRIWKLVERRN5HDGHUVZLVKLQJVXFKDGHVFULSWLRQDWDUHODWLYHO\QRQWHFKQLFDOOHYHOFDQFRQVXOW
    WKH VWXG\ FRXUVH RI WKH $PHULFDQ $FDGHP\ RI 1HXURORJ\  VHH DOVR 5$ &RKHQ DQG *XQVWDG
    (GV  1HXURSV\FKRORJ\ DQG FDUGLRYDVFXODU GLVHDVH  0HQGR]D DQG )RXQGDV &OLQLFDO
    QHXURDQDWRP\ $ QHXUREHKDYLRUDO DSSURDFK  2WKHU XVHIXO JHQHUDO UHIHUHQFHV DUH
    %RJRXVVODYVN\ DQG &DSODQ 6WURNH V\QGURPHV  +DUULJDQ DQG 'HYHLNLV +DQGERRN RI
    FHUHEURYDVFXODU GLVHDVH DQG QHXURLQWHUYHQWLRQDO WHFKQLTXH  DQG -3 0RKU 6WURNH WK HG 
    
    9DVFXODU GLVRUGHUV HVSHFLDOO\ LVFKHPLF VWURNH SURYLGH EDVLF PDWHULDO IRU WKH FRJQLWLYH
    QHXURVFLHQFH UHVHDUFK WKDW DSSOLHV WKH OHVLRQ PHWKRG WR KXPDQV ,VFKHPLF VWURNHV FKDUDFWHULVWLFDOO\
    \LHOGDIRFDOFLUFXPVFULEHGDQGߟLQWKHFKURQLFSKDVHߟVWDEOHDUHDRIQHXUDOWLVVXHGDPDJHWKDWFDQ
    EHYLVXDOL]HGZLWKQHXURLPDJLQJSURFHGXUHV HJ05, DQGVXEVHTXHQWO\PDSSHGDQGDQDO\]HGXVLQJ
    DYDULHW\RIVRSKLVWLFDWHGDQDO\VLVSURFHGXUHV HJ(%DWHVHWDO5XGUDXIHWDOVHHDOVR
    S 7KXVPXFKRIRXUNQRZOHGJHDERXWEUDLQEHKDYLRUUHODWLRQVKLSVZHRZHWRLVFKHPLFVWURNH
    SDWLHQWV

    6WURNHDQG5HODWHG'LVRUGHUV
    7KHPRVWFRPPRQFHUHEURYDVFXODUGLVHDVHLVWKHFHUHEURYDVFXODUDFFLGHQW &9$ ,WZDVRQFHFDOOHG
    DSRSOH[\RUDQDSRSOHFWLFDWWDFNDQGLVQRZUHIHUUHGWRDVDVWURNH 7KHWHUP6WURNHLVDOVRSUHIHUUHG
    WR FHUHEURYDVFXODU DFFLGHQW DV WKH FRQGLWLRQ LV QRW DQ ߧDFFLGHQWߨ  6WURNH LV GHILQHG E\ WKH :RUOG
    +HDOWK2UJDQL]DWLRQ  DVWKHUDSLGGHYHORSPHQWRIFOLQLFDOVLJQVRIIRFDORUJOREDOGLVWXUEDQFH
    RIFHUHEUDOIXQFWLRQODVWLQJKRXUVRUORQJHUZLWKQRDSSDUHQWFDXVHRWKHUWKDQYDVFXODURULJLQ$
    IRFDOQHXURORJLFDOGHILFLWODVWLQJOHVVWKDQKRXUVLVFODVVLILHGDVDWUDQVLHQWLVFKHPLFDWWDFN 7,$
    S   8QOLNH P\RFDUGLDO LQIDUFWLRQ ߧKHDUW DWWDFNߨ  ZKLFK LV W\SLFDOO\ DQQRXQFHG E\ SDLQ DQG
    VKRUWQHVVRIEUHDWKPRVWVWURNHVDUHSDLQOHVV&RQVHTXHQWO\PDQ\SDWLHQWVPD\UHPDLQDWKRPHWRVHH
    LI WKHLU V\PSWRPV ZLOO UHVROYH 7KH WHUP ߧEUDLQ DWWDFNߨ DQDORJRXV WR ߧKHDUW DWWDFNߨ KDV EHHQ
    LQWURGXFHGWRLQFUHDVHSXEOLFDZDUHQHVVRIWKHQHHGIRULPPHGLDWHPHGLFDODWWHQWLRQ &DUDPDWDHWDO
      ,PPHGLDWH PHGLFDO DWWHQWLRQ KDV EHFRPH HYHQ PRUH LPSRUWDQW ZLWK WKH UHFHQW DYDLODELOLW\ RI
    W3$ WLVVXH SODVPLQRJHQ DFWLYDWRU  ZKLFK FDQ JUHDWO\ UHGXFH PRUELGLW\ DQG PRUWDOLW\ LI GHOLYHUHG
    ZLWKLQWKHILUVWIHZKRXUVDIWHUDFXWHVWURNH 96LQJK6XHWDO 7LPHLVHYHU\WKLQJߟDV
    WKH$PHULFDQ$FDGHP\RI1HXURORJ\SURFODLPVߧ7LPHORVWLVEUDLQORVWߨ
    6WURNHV DIIHFW DSSUR[LPDWHO\  SHUVRQV RXW RI HYHU\  0' +LOO DQG )HDVE\ 
    /OR\G-RQHVHWDO PDNLQJLWWKHILIWKPRVWFRPPRQQHXURORJLFDOGLVRUGHULQWKH8QLWHG6WDWHV
    :RUOGZLGH VWURNH LV WKH VHFRQG PRVW FRPPRQ FDXVH RI GHDWK DIWHU KHDUW GLVHDVH 6/ 3DXO HW DO
     $OWKRXJKWKHLQFLGHQFHRIVWURNHKDGUHPDLQHGVWDEOHIRUDQXPEHURI\HDUVLWQRZDSSHDUVWR
    EH ULVLQJ SHUKDSV EHFDXVH RI PRUH VHQVLWLYH GLDJQRVWLF WHFKQLTXHV %RJRXVVODYVN\ +RPPHO DQG
    %DVVHWWL  3$ :ROI   )RU H[DPSOH WKH WHUP ߧVLOHQW VWURNHߨKDV IRXQG LWV ZD\ LQWR WKH
    OLWHUDWXUH DFNQRZOHGJLQJ D WUDQVLHQW QHXURORJLFDO HYHQW ZLWK SDWKRORJ\ PDGH HYLGHQW E\ UDGLRORJ\
    VHHS 7KHLQFLGHQFHRIVWURNHLVDFWXDOO\KLJKHUWKDQWKHSDWLHQWFRXQWDVߧVLOHQWߨVWURNHVߟWKRVH
    ZLWKQRREYLRXVPRWRU RUVHQVRU\DOWHUDWLRQVߟIUHTXHQWO\ UHPDLQXQGHWHFWHGXQWLOWKH\VKRZXS RQ
    QHXURLPDJLQJIRUVRPHPRUHUHFHQWSUREOHPRUDWDXWRSV\ %URGHULFNHWDO3RKMDVYDDUDHWDO
    HJVHHFDVHH[DPSOHSSߞ 
    7KHWRWDOHFRQRPLFEXUGHQRIVWURNHLQWKH8QLWHG6WDWHVLQZDVHVWLPDWHGWREHELOOLRQ
    LQFOXGLQJ GLUHFW DQG LQGLUHFW FRVWV 5RVDPRQG )OHJDO )ULGD\ HW DO   7KH GHPRJUDSKLF
    YDULDEOHVRIDJHVH[DQGLQVXUDQFHVWDWXVZHUHQRWDVVRFLDWHGZLWKFRVWEXWVHYHULW\LQFUHDVHGFRVWV
    VLJQLILFDQWO\7KHFKDOOHQJHVDQGEXUGHQVRIVWURNHZLOORQO\FRQWLQXHWRJURZZLWKWKHDJLQJRIWKH
    SRSXODWLRQ DQG JHQHUDO ߧJUD\LQJ RI VRFLHW\ߨLQ GHYHORSHG FRXQWULHV 'HYHORSLQJ FRXQWULHV DUH DOVR
    VHHLQJPRUHVWURNHSDWLHQWVDVGLDEHWHVDQGREHVLW\ߟWZRLPSRUWDQWULVNIDFWRUVIRUVWURNHߟLQFUHDVH
    ZLWKULVLQJOLYLQJVWDQGDUGV *XQVWDGHWDO 

    5LVNIDFWRUV
    5LVNIDFWRUVIRUVWURNHDUHZHOONQRZQ -:1RUULVDQG+DFKLQVNL5RVDPRQG)OHJDO)XULHHW
    DO6WUDXVHWDO 5LVNIDFWRUVFDQEHFODVVLILHGDVQRWPRGLILDEOH DJHVH[UDFHIDPLO\
    KLVWRU\  RU PRGLILDEOH K\SHUWHQVLRQ VPRNLQJ GLDEHWHV FDUGLDF GLVHDVH K\SHUOLSLGHPLD SK\VLFDO
    DFWLYLW\REHVLW\QXWULWLRQGUXJDQGDOFRKRODEXVHKRUPRQHWKHUDS\LQIODPPDWRU\GLVHDVH  'HVDLHW
    DO   $QRWKHU ULVN IDFWRU LV WKH XVH RI H[RJHQRXV HVWURJHQV LQ RUDO FRQWUDFHSWLYHV ZKLFK PD\
    FRQWULEXWHODWHUWRVWURNHULVNLQSRVWPHQRSDXVDOZRPHQ 5RVDPRQG)OHJDO)ULGD\HWDO 
    6WURNHLQFLGHQFHLQFUHDVHVH[SRQHQWLDOO\ZLWKDJH+\SHUWHQVLRQ KLJKEORRGSUHVVXUH UHPDLQVWKH
    PDMRUULVNIDFWRUIRUVWURNH 7RUQHU +\SHUWHQVLRQHOHYDWHGOHYHOVRIFKROHVWHURODQGVDWXUDWHG
    IDWW\ DFLGV GLDEHWHV DQG FLJDUHWWH VPRNLQJ DUH DOO VLJQLILFDQW FRQWULEXWRUV WR WKH HYROXWLRQ RI
    DWKHURVFOHURVLVWKHFRQGLWLRQRISDWKRORJLFDOO\WKLFNHQHGDUWHULDOZDOOVZKLFKLVWKHVRXUFHRIPRVW
    VWURNHV )DWW\ VXEVWDQFHV DUH D VLJQLILFDQW FRPSRQHQW RI WKHVH SODTXHOLNH OHVLRQV +3 $GDPV -U
    'RQDJK\  +LJK VDOW LQWDNH WRR LV WKRXJKW WR EH D ULVN IDFWRU DV LW PD\ FRQWULEXWH WR
    K\SHUWHQVLRQDQGREHVLW\DQGLVDVRIWGULQNFRPSRQHQW +HDQG0DF*UHJRU 7KHFRPELQDWLRQ
    RIKLJKHVWURJHQGRVDJHLQRUDOFRQWUDFHSWLYHVDQGVPRNLQJKDVEHHQDVVRFLDWHGZLWKDULVNRIVWURNH
    LQ\RXQJHU ZRPHQUHFHQW GUXJIRUPXODWLRQV FRQWDLQLQJUHGXFHG HVWURJHQ OHYHOV PD\ QRW FUHDWHDV
    PXFKRIDULVNIRUZRPHQZKRVPRNH .LWWQHUDQG%XVK  +\SRWHQVLRQ ORZEORRG SUHVVXUH
    PD\DOVREHDULVNIDFWRUSDUWLFXODUO\LQHOGHUO\SHUVRQV =*XRHWDO 6WURNHDORQHLQFUHDVHV
    WKHULVNRIGHPHQWLDE\PRUHWKDQDIDFWRURIQLQH 7DWHPLFKL HW DO VHH DOVR 3HQGOHEXU\DQG
    5RWKZHOOUHJDUGLQJLQFUHDVHGLQFLGHQFHRIGHPHQWLDSRVWVWURNH 
    6RPH GHPRJUDSKLF FKDUDFWHULVWLFV DUH DOVR DVVRFLDWHG ZLWK VWURNH LQFLGHQFH *HQHUDOO\ LW
    LQFUHDVHVZLWKDJHPRVWUDSLGO\IURPWKHVL[WKGHFDGHRQZDUGDQGPHQDUHVRPHZKDWPRUHVWURNH
    SURQH WKDQ ZRPHQ -: 1RUULV DQG +DFKLQVN\  5RVDPRQG )OHJDO DQG )ULGD\    5DFH
    PD\SOD\DUROHDVERWK-DSDQHVHLQ-DSDQDQG$IULFDQ$PHULFDQVKDYHKLJKVWURNHUDWHV-DSDQHVHLQ
    WKH 8QLWHG 6WDWHV DQG SRRU UXUDO 1LJHULDQV DUH OHVV OLNHO\ WR KDYH VWURNHV \HW ZHOOWRGR 1LJHULDQV
    KDYHKLJKUDWHV +DFKLQVN\DQG1RUULV3$:ROI 7KXVGLHWDQGRWKHUFXOWXUDOIDFWRUV
    FRQWULEXWHWRWKHLQFLGHQFHRIWKLVGLVHDVH *DOLPDQLVHWDO $IULFDQ$PHULFDQVZLWKVWURNHWHQG
    WREH\RXQJHUWKDQRWKHUVWURNHSDWLHQWVLQWKH8QLWHG6WDWHV0RUH$IULFDQ$PHULFDQVKDYHDJUHDWHU
    QXPEHURIVWURNHULVNIDFWRUVLQFOXGLQJK\SHUWHQVLRQGLDEHWHVPHOOLWXVFRQJHVWLYHKHDUWIDLOXUHDQG
    SULRUVWURNHVWKDQ&DXFDVLDQSDWLHQWV +DVVDEDOODHWDO 
    6LQFHPDQ\VWURNHULVNIDFWRUVDUHPRGLILDEOHVWURNHLQFLGHQFHFDQEHUHGXFHGW\SLFDOO\WKURXJK
    VLJQLILFDQWOLIHVW\OHFKDQJHVLQFOXGLQJGLHWH[HUFLVHVPRNLQJFHVVDWLRQOLPLWLQJDOFRKROLQWDNHDQG
    PHGLFDOPDQDJHPHQW 'HVDLHWDO 7KHPDLQW\SHVRIPHGLFDOPDQDJHPHQWLQFOXGHWUHDWPHQW
    IRUK\SHUWHQVLRQKLJKFKROHVWHUROOHYHOVDQGREHVLW\DQWLSODWHOHWDQGDQWLFRDJXODWLRQPHGLFDWLRQDQG
    PHGLFDWLRQ IRU DWULDO ILEULOODWLRQ DQG RWKHU FDUGLDF SUREOHPV :DUQLQJ VLJQV RI LPSHQGLQJ VWURNH
    VXFKDVWUDQVLHQWLVFKHPLFDWWDFNV 7,$VVHHS ZKLFKDUHRIWHQLJQRUHGPXVWEHKHHGHGIRUWLPH
    WUHDWPHQWWREHLQLWLDWHGWKLVUHTXLUHVHGXFDWLQJWKHSXEOLF 6&-RKQVWRQ)D\DGHWDO 

    7KHSDWKRSK\VLRORJ\RIVWURNH

    $ VWURNH LV D ߧIRFDO QHXURORJLFDO GLVRUGHU RI DEUXSW GHYHORSPHQW GXH WR D SDWKRORJLFDO SURFHVV LQ
    EORRG YHVVHOVߨ 'RQDJK\   7KH FDUGLQDO SDWKRJHQLF IHDWXUH RI VWURNH LV WKH GLVUXSWLRQ RI WKH
    VXSSO\RIQXWULHQWVWRWKHEUDLQߟSULPDULO\R[\JHQDQGJOXFRVHߟDVDUHVXOWRIGLVUXSWHGEORRGIORZ
    %RJRXVVODYVN\ +RPPHO DQG %DVVHWWL   7KH LQDELOLW\ RI QHUYRXV WLVVXH LQ PDQ\ SDUWV RI WKH
    EUDLQ WR VXUYLYH PRUH WKDQ VHYHUDO PLQXWHV RI R[\JHQ GHSULYDWLRQ DFFRXQWV IRU WKH UDSLGLW\ ZLWK
    ZKLFKLUUHYHUVLEOHEUDLQGDPDJHWDNHVSODFH7KHSURFHVVRIWLVVXHGDPDJHUHVXOWLQJIURPEORFNDJH
    RIQRUPDOEORRGIORZLQDEORRGYHVVHOLVNQRZQDVLQIDUFWLRQDQGWKHDUHDRIGDPDJHGRUGHDGWLVVXH
    FDXVHG E\ WKLV SURFHVV LV FDOOHG DQ LQIDUFW 0RVW VWURNHV DUH FDXVHG E\ LVFKHPLF LQIDUFWLRQV LH
    LQIDUFWLRQVGXHWRWLVVXHVWDUYDWLRQUHVXOWLQJIURPLQVXIILFLHQWRUDEVHQWEORRGIORZUDWKHUWKDQIURP
    LQVXIILFLHQWRUDEVHQWQXWULHQWVLQWKHEORRG
    ,QDGGLWLRQWRWKHFHOOVWKDWGLHLQWKHLPPHGLDWHLQIDUFWLRQDUHDFHOOVVXUURXQGLQJWKHLQIDUFWLRQ
    DUHDWULVN7KHVWURNHEHJLQVDUDSLGFDVFDGHRIQHXURFKHPLFDOFKDQJHVLQZKLFKEUDLQFHOOVDGMDFHQW
    WRWKHLQIDUFWUHPDLQYLDEOHIRUVHYHUDOKRXUVEXWDUHVXEVHTXHQWO\LQFRUSRUDWHGLQWRWKHLQIDUFWHGDUHD
    RI LUUHYHUVLEOH GDPDJH XQOHVV PHGLFDOO\ WUHDWHG +3 $GDPV -U  %R\VHQ DQG &KULVWHQVHQ
      7KLV DUHD FDOOHG WKH LVFKHPLF SHQXPEUD LV WKH WDUJHW RI WKURPERO\WLF EUHDNGRZQ RI
    DWKHURVFOHURWLF SDUWLFOHV LQ WKH EORRGVWUHDP  WKHUDS\ WR PLQLPL]H FHUHEUDO GDPDJH IROORZLQJ
    LVFKHPLFVWURNH +HLVV 7KURPERO\WLFV DVSLULQLVRQH DUHPRVWOLNHO\WREHHIIHFWLYHGXULQJ
    WKHILUVWWKUHHWRIRXUDQGRQHKDOIKRXUVIROORZLQJVWURNH 6WHUQHUDQG/\GHQ ,WLVFULWLFDOWKDW
    SDWLHQWVVHHNPHGLFDOFDUHDVVRRQDVSRVVLEOHVRWKDWDSSURSULDWHHYDOXDWLRQ HJ&7VFDQQLQJ DQG
    WKURPERO\WLF WUHDWPHQW FDQ EH LQVWLWXWHG ZLWKLQ WKH HDUO\ WLPH ZLQGRZ (YHQVRQ HW DO   7KH
    SULPDU\ ULVN DVVRFLDWHG ZLWK WKURPERO\WLF WKHUDS\ LV KHPRUUKDJHߟD ULVN WKDW LV RIWHQ ZHOO ZRUWK
    WDNLQJ +3$GDPV%URWWHWDO 
    7ZRSURPLQHQWPHFKDQLVPVWKDWFDQDFFRXQWIRUWKHWLVVXHVWDUYDWLRQRIVWURNHVDUHREVWUXFWLRQV
    RIEORRGYHVVHOVZKLFKFUHDWHDQLVFKHPLFFRQGLWLRQLQZKLFKEORRGIORZLVGHILFLHQWRUDEVHQWDQG
    KHPRUUKDJH 0HQGR]DDQG)RXQGDV<DPDPRWRHWDO %HFDXVHWKHV\PSWRPVDQGFRXUVH
    RIWKHVHWZRPDMRUVWURNHSURGXFLQJGLVRUGHUVGLIIHUWKH\DUHFRQVLGHUHGVHSDUDWHO\7KLVVHSDUDWLRQ
    KRZHYHULVDQRYHUVLPSOLILFDWLRQDVVRPHNLQGVRIREVWUXFWLRQVDUHKHPRUUKDJLFLQQDWXUHDQGVRPH
    KHPRUUKDJHV JLYH ULVH WR VSDVPRGLF FRQVWULFWLRQ RI WKH EORRG YHVVHOV YDVRVSDVP  WKDW VR VHYHUHO\
    LPSHGHVEORRGIORZDVWRFUHDWHIRFDOVLWHVRIREVWUXFWLRQ

    2EVWUXFWLYH LVFKHPLF VWURNHV

    ,Q WKH 86  RI QHZ VWURNHV HDFK \HDU DUH LVFKHPLF %HDO   ,VFKHPLF VWURNHV PD\ EH
    FDWHJRUL]HGDFFRUGLQJWRYDVFXODWXUHVLWHLHWKRVHFDXVHGE\RFFOXVLRQRIWKHLQWHUQDOFDURWLGDUWHU\
    DQGLWVEUDQFKHV WKHDQWHULRUFLUFXODWLRQ DQGWKRVHFDXVHGE\RFFOXVLRQRIWKHYHUWHEUDODQGEDVLODU
    DUWHULHVRUWKHLUEUDQFKHV WKHSRVWHULRUFLUFXODWLRQ  GH)UHLWDVDQG%RJRXVVODYVN\ $OOWKLQJV
    EHLQJHTXDOWKHQHXURORJLFDODQGQHXURSV\FKRORJLFDOPDQLIHVWDWLRQVRILVFKHPLFVWURNHV\QGURPHV
    DUHUHPDUNDEO\UHOLDEOHLQORFDOL]LQJWKHLQYROYHGYDVFXODWXUH2WKHUIDFWRUVWKRXJKFDQFRPSOLFDWH
    WKHSLFWXUH6RPHRIWKHPRVWFRPPRQDUHDFFHVVWRFROODWHUDOFLUFXODWLRQZKHWKHUWKHRFFOXVLRQOLHV
    SUR[LPDORUGLVWDOWRDUWHULDOLQWHUFRQQHFWLRQVZLWKLQWKHEUDLQDQGYDULDWLRQVLQWKHUHJLRQVXSSOLHG
    E\DSDUWLFXODUDUWHU\ GH)UHLWDVDQG%RJRXVVODYVN\DOVRVHHSSߞ 

    &HUHEUDO WKURPERVLV 7KH EXLOGXS RI IDW GHSRVLWV ZLWKLQ DUWHU\ ZDOOV FDOOHG DWKHURVFOHURWLF RU
    DUWHULRVFOHURWLF SODTXHV  LQYROYHV ILEURXV WLVVXH DQG LV VXVFHSWLEOH WR KHPRUUKDJH DQG XOFHUDWLRQ
    $PHULVR DQG 6DKDL  )HVWD HW DO   7KHVH GHSRVLWV DUH WKH PRVW FRPPRQ VRXUFH RI
    REVWUXFWLRQ RI EORRG IORZ WR WKH EUDLQ FDXVLQJ  WR  RI DOO VWURNHV DQG PRUH WKDQ  RI
    REVWUXFWLYH VWURNHV %RJRXVVODYVN\ +RPPHO DQG %DVVHWWL  3RZHUV   ,Q WKURPERWLF
    VWURNHV WKH LQIDUFWLRQ UHVXOWV IURP RFFOXVLRQ RI D EORRG YHVVHO E\ D FOXPS RI EORRG SDUWLFOHV DQG
    WLVVXH RYHUJURZWK D WKURPEXV WKDW DFFXPXODWHV LQ DUWHULRVFOHURWLF SODTXHV 7KHVH SODTXHV PRVW
    XVXDOO\IRUPZKHUHEORRGYHVVHOVEUDQFKRUOHVVIUHTXHQWO\RQWUDXPDWLFRURWKHUOHVLRQVLWHVRQWKH
    YHVVHO ZDOO *URZWK RI WKH WKURPEXV QDUURZV WKH RSHQLQJ LQ WKH EORRG YHVVHO WKXV UHGXFLQJ EORRG
    IORZ RU LW FORVHV RII WKH YHVVHO DOWRJHWKHU 7KURPERWLF VWURNHV PD\ RFFXU VXGGHQO\ ZLWK QR IXUWKHU
    LQFUHDVHLQV\PSWRPV2IWHQWKH\WDNHDVORQJDVKDOIDQKRXUWRGHYHORSIXOO\,QDVPDQ\DVRQHWKLUG
    RIFDVHVWKURPERWLFVWURNHVHYROYHIRUKRXUVRUHYHQGD\V <DPDPRWRHWDO  0DQ\ UHSRUWV
    UDQJHIURPWRRIFDVHV DUHSUHFHGHGE\RQHRUPRUHߧOLWWOHVWURNHVߨLHWUDQVLHQWLVFKHPLF
    DWWDFNV VHHS 
    7KURPERWLF VWURNHV WHQG WR DULVH IURP DWKHURVFOHURWLF OHVLRQV LQ WKH LQWHUQDO FDURWLG RU WKH
    YHUWHEUREDVLODU DUWHULHV 0RUH WKDQ WZRWKLUGV RI WKH UHVXOWDQW LQIDUFWV LQYROYH SRVWHULRU IURQWDO
    WHPSRUDO DQG SDULHWDO VWUXFWXUHV LQ WKH UHJLRQ IHG E\ WKH PLGGOH FHUHEUDO DUWHU\ 0&$  1HDX DQG
    %RJRXVVODYNV\  2WKHU LQIDUFWV RFFXU LQ WKH EUDLQVWHP LQIHULRU WHPSRUDO OREH LQFOXGLQJ WKH
    KLSSRFDPSXV  DQG RFFLSLWDO OREHV ZKHQ WKH YHUWHEUREDVLODU V\VWHP LV LQYROYHG VHH %RJRXVVODYVN\
    DQG&DSODQ3DUW,,SDVVLP $ERXWRISDWLHQWVZLWKWKURPERWLFVWURNHVLQWKHWHUULWRU\RI
    WKH PLGGOH FHUHEUDO DUWHU\ KDYH VLJQLILFDQW VSRQWDQHRXV LPSURYHPHQW DV VZHOOLQJ DQG PHWDEROLF
    G\VIXQFWLRQ UHVROYH EXW DOPRVW KDOI FRQWLQXH WR EH GLVDEOHG $IWHU WKUHH PRQWKV UHODWLYHO\ OLWWOH
    VSRQWDQHRXVLPSURYHPHQWFDQEHH[SHFWHG %RJRXVVODYVN\+RPPHODQG%DVVHWWL 
    0DQ\ PHWKRGRORJLFDO LVVXHV PDNH RXWFRPH OLWHUDWXUH GLIILFXOW WR LQWHUSUHW 7KHVH LQFOXGH KRZ
    RXWFRPH LV DVVHVVHG HJ UHWXUQ WR ZRUN YV IRUPDO RXWFRPH VFDOH  VHYHULW\ RI PRWRU ZHDNQHVV
    DVVRFLDWLRQRIFRPRUELGLWLHVDQGZKHWKHUDFRQVHFXWLYHSDWLHQWVHULHVLVHYDOXDWHGYVRQO\WKRVHLQ
    IRUPDO UHKDELOLWDWLRQ SURJUDPV ,Q DGGLWLRQ H[SHFWDWLRQV IRU RXWFRPH VXFFHVV LQ SDWLHQWV ZLWK
    SURPLQHQW ODQJXDJH GLVWXUEDQFHV PD\ GLIIHU IURP WKRVH IRU SDWLHQWV ZKRVH GHILFLWV DUH SULPDULO\
    HPRWLRQDORUQRQOLQJXLVWLF
    :KHQWKHPLGGOHFHUHEUDODUWHU\LVLQYROYHGWKHPRVWDSSDUHQWFRJQLWLYHGLVRUGHUVDVVRFLDWHGZLWK
    OHIW KHPLVSKHUH GDPDJH ZLOO EH GLVWXUEDQFHV LQ VSHHFK DQG ODQJXDJH DSKDVLD  ZLWK ULJKWVLGHG
    GDPDJH LPSDLUPHQWV LQ YLVXRVSDWLDO DELOLWLHV DQG HPRWLRQDO SURFHVVLQJ DUH WKH PRVW REYLRXV
    FRJQLWLYHPDQLIHVWDWLRQV $PHULFDQ$FDGHP\RI1HXURORJ\ /LPEZHDNQHVVDQGSDUDO\VLVDV
    ZHOO DV VRPDWRVHQVRU\ FKDQJHV DUH FRPPRQ LQ QHDUO\ DOO RI WKHVH SDWLHQWV &RJQLWLYH GHILFLWV
    LQYROYLQJYLVXDODQGPHPRU\IXQFWLRQVWHQGWRRFFXUZLWKVWURNHVGXHWRRFFOXVLRQRIWKHSRVWHULRU
    FHUHEUDO DUWHU\ 3&$  ZKLFKEUDQFKHV RII IURP WKHYHUWHEUREDVLODU V\VWHP 9HUWHEUREDVLODU VWURNHV
    FRQILQHG WR WKH EUDLQVWHP RU VWUXFWXUHV EHORZ WKH FHUHEUXP SULPDULO\ DIIHFW DVSHFWV RI PRYHPHQW
    VHQVDWLRQDQGFRQVFLRXVQHVVEXWFDQDOVRDOWHUFRJQLWLYHSURFHVVLQJ

    &HUHEUDOHPEROLVP$ERXWWRRIREVWUXFWLYHVWURNHVDUHHPEROLF .ORPLQVN\5DEDVHWDO
      2EVWUXFWLRQ LQ WKHVH VWURNHV LV FDXVHG E\ DQ HPEROXV D SOXJ RI WKURPELF PDWHULDO RU IDWW\
    GHSRVLWEURNHQDZD\IURPEORRGYHVVHOZDOOVRURIIRUHLJQPDWWHUVXFKDVFOXPSVRIEDFWHULDRUHYHQ
    REVWUXFWLYHJDVEXEEOHV0RVWHPEROLDUHIUDJPHQWVRIWKURPERWLFOHVLRQVWKDWGHYHORSHGRXWVLGHWKH
    LQWUDFUDQLDO FLUFXODWRU\ V\VWHP PDQ\ LQ WKH KHDUW DQG LWV EORRG YHVVHOV 'XIILV DQG )LVKHU  
    5HODWLYHO\IHZWKURPERWLFHPEROLDULVHIURPOHVLRQVZLWKLQWKHPDMRUDUWHULDOSDWKZD\VWRWKHEUDLQ
    3UHVHQWDWLRQRIHPEROLFVWURNHVWHQGVWREHDEUXSWDQGZLWKRXWWKHZDUQLQJSUHFXUVRUVRIKHDGDFKHRU
    WUDQVLHQWLVFKHPLFDWWDFNVWKDWFDQDFFRPSDQ\RWKHUNLQGVRIVWURNHDOWKRXJKWRRIHPEROLF
    VWURNHVEHJLQZLWKIOXFWXDWLQJDQGHYROYLQJV\PSWRPVLQWKHILUVWGD\RUWZR6\PSWRPVDVVRFLDWHG
    ZLWK UHODWLYHO\ UHVWULFWHG FRUWLFDO GDPDJH DUH PRUH OLNHO\ WR RFFXU ZLWK HPEROLF VWURNH WKDQ ZLWK
    RWKHUNLQGVRIVWURNH
    7KH PLGGOH FHUHEUDO DUWHU\ WHUULWRU\ LV DOVR WKH PRVW FRPPRQ VLWH RI HPEROLF VWURNHV DOWKRXJK
    WKH\FDQRFFXUHOVHZKHUH/5&DSODQ  LQWURGXFHGWKHWHUPWRSRIWKHEDVLODU V\QGURPH
    WRUHIHUWRYLVXDORFXORPRWRUDQGEHKDYLRUDODEQRUPDOLWLHVGXHWRHPEROLWKDWWUDYHUVHGWKHYHUWHEUDO
    DUWHULHVEXWIDLOHGWRQHJRWLDWHWKHKDUGWXUQLQWRWKHSRVWHULRUFLUFXODWLRQDQGWKXVRFFOXGHSRVWHULRU
    FHUHEUDODUWHULHV0HPRU\LPSDLUPHQWLVFRPPRQLQWKLVV\QGURPHLQZKLFKWKHPHGLDOWKDODPXVLV
    IUHTXHQWO\LQIDUFWHG

    9DULDEOHV DIIHFWLQJ SUHVHQWDWLRQ RI REVWUXFWLYH VWURNHV 7KH HIIHFWV RI LVFKHPLF LQIDUFWLRQV YDU\
    IURPSHUVRQWRSHUVRQRUIURPWLPHWRWLPHZKHQDSHUVRQVXIIHUVUHSHDWHGVWURNHV7KHVHYDULDWLRQV
    DUH GXH WR D KRVW RI IDFWRUV VXFK DV LQGLYLGXDO GLIIHUHQFHV LQ WKH DQDWRPLFDO RUJDQL]DWLRQ RI WKH
    FHUHEUDOFLUFXODWLRQLQWKHFDSDFLW\WRGHYHORSDQGXWLOL]HFROODWHUDOEUDLQFLUFXODWLRQDQGLQFHUHEUDO
    EORRGSUHVVXUHDQGEORRGIORZ9DULDWLRQVLQWKHH[WHQWVLWHVDQGVHYHULW\RIDUWHULRVFOHURWLFGLVHDVH
    LQ WKH ODUJH H[WUDFUDQLDO DUWHULHV WKDW IHHG WKH FHUHEUDO FLUFXODWLRQ LQ WKH VPDOOHU LQWUDFUDQLDO DQG
    LQWUDFHUHEUDO YHVVHOV DQG ZLWKLQ WKH FLUFXODWRU\ V\VWHP RI WKH KHDUW FRQWULEXWH WR LQGLYLGXDO
    GLIIHUHQFHVLQWKHPDQLIHVWDWLRQRIVWURNHDVGRVXFKKHDOWKYDULDEOHVDVKHDUWGLVHDVHGLDEHWHVDQG
    EORRGFRQGLWLRQVWKDWDIIHFWLWVYLVFRVLW\RUFORWWLQJFDSDFLW\
    $JH DQG VH[ FDQ SOD\ D UROH LQ GHWHUPLQLQJ WKH SUHVHQWDWLRQ RI D VWURNH 3& *DWHV HW DO 
    6RUJDWR HW DO   )RU H[DPSOH HPEROLF VWURNHV XVXDOO\ DVVRFLDWHG ZLWK KHDUW GLVHDVH WHQG WR
    RFFXUDWDQHDUOLHUDJHWKDQWKURPERWLFVWURNHV7KHDSKDVLFZRPHQVWXGLHGE\+'DPDVLRDQGKHU
    FROOHDJXHV   KDG PRUH VWURNHV LQYROYLQJ DQWHULRU UHJLRQV WKDQ WKH PHQ ZKRVH VWURNHV ZHUH
    PRUH OLNHO\ WR EH SRVWHULRU ZLWK DVVRFLDWHG GLIIHUHQFHV LQ WKH QDWXUH RI WKHLU DSKDVLF GLVRUGHUV
    +RZHYHUFRQIOLFWLQJGDWDOHDYHXQVHWWOHGWKHTXHVWLRQRIVH[GLIIHUHQFHVLQVWURNHSUHVHQWDWLRQ %HDO
    .HUWHV] 
    &RJQLWLYHDOWHUDWLRQVZLWKREVWUXFWLYHVWURNHV/DUJHDUWHU\LQIDUFWLRQVWHQGWRSURGXFHVLJQLILFDQW
    EHKDYLRUDOFKDQJHVHLWKHUE\GLUHFWFRUWLFDOLQMXU\RUE\GLVUXSWLRQRIODUJHVXEFRUWLFDODUHDV9HU\
    VPDOODUWHU\LQIDUFWLRQVPD\KDYHIHZEHKDYLRUDOFRQVHTXHQFHVH[FHSWZKHQWKH\RFFXUFXPXODWLYHO\
    ZLWKPRUHDQGPRUHOLWWOHVWURNHVSURGXFLQJDQLQFUHDVLQJYROXPHRIGDPDJHGWLVVXH
    <HW ZLWK DOO WKHVH YDULDWLRQV FHUWDLQ RYHUDOO SDWWHUQV LQ RQVHW RI REVWUXFWLYH VWURNHV DQG WKHLU
    PDQLIHVWDWLRQVWHQGWRVWDQGRXW6WURNHWHQGVWRKDYHODWHUDOL]HGRQHVLGHGHIIHFWV:KLOHWKHUHLVDQ
    HQRUPRXV UDQJH RI GLIIHUHQFHV EHWZHHQ VWURNH SDWLHQWV ZLWK UHVSHFW WR WKH GHSWK H[WHQW DQG VLWH RI
    GDPDJHGWLVVXHPRVWVWURNHVODWHUDOL]HHLWKHUWRWKHULJKWRUWRWKHOHIW)RUWKLVUHDVRQVWURNHSDWLHQWV
    KDYHEHHQVXEMHFWVRIPXFKQHXURSV\FKRORJLFDOUHVHDUFKLQWRWKHODWHUDORUJDQL]DWLRQRIWKHEUDLQDQG
    WKHDQDWRPLFFRUUHODWHVRIVSHFLILFFRJQLWLYHIXQFWLRQV HJ+'DPDVLRDQG'DPDVLR 'DUE\
    DQG:DOVK+HLOPDQDQG9DOHQVWHLQ 1HXUREHKDYLRUDOFKDQJHVIROORZLQJVWURNHRIIHUWKH
    EHVW H[DPSOHV RI ERWK DSKDVLF V\QGURPHV XVXDOO\ OHIW KHPLVSKHUH  DQG QRQODQJXDJH XVXDOO\ ULJKW
    KHPLVSKHUH  EHKDYLRUDO V\QGURPHV %HLQJ DFXWH LQ RQVHW VWURNHV OHDYH QR WLPH IRU LPPHGLDWH
    IXQFWLRQDOFRPSHQVDWLRQFRQWUDVWLQJZLWKV\PSWRPVRISDWLHQWVZLWKLQILOWUDWLYHLQWUDFUDQLDOWXPRUV
    ZKR UDUHO\ KDYH FODVVLF DSKDVLF V\QGURPHV EHFDXVH WKH WXPRU JURZV VORZO\ DOORZLQJ IRU
    FRPSHQVDWLRQ DQG WLVVXH GLVSODFHPHQW 6: $QGHUVRQ + 'DPDVLR DQG 7UDQHO   2EVWUXFWLYH
    VWURNHV\QGURPHVDUHPRVWSURPLQHQWDFXWHO\DQGWKHQEHFRPHOHVVGHILQHGRYHUWLPH
    7KHRFFXUUHQFHRIODVWLQJDOWHUDWLRQVRIIXQFWLRQLQDUHDVRIWKHEUDLQTXLWHGLVWDQWIURPWKHOHVLRQ
    KDVEHHQVXJJHVWHGE\HOHFWURSK\VLRORJLFDO *XPPRZHWDO EORRGIORZ %HQNHHWDO
    &KXHWDO DQGQHXURLPDJLQJ 0RXQW]0RXQW]/LXDQG'HXWVFK VWXGLHVDQGE\
    WKH PDQ\ SDWLHQWV ZKR H[SHULHQFH VHQVRULPRWRU V\PSWRPV LQ WKHLU OLPEV RQ WKH VXSSRVHGO\
    XQDIIHFWHG VLGH -6 .LP  YDQ 5DYHQVEHUJ HW DO   'XULQJ WKH DFXWH VWDJHV VHFRQGDU\
    GLIIXVHHIIHFWV DQG GLDVFKLVLV W\SLFDOO\ DGG V\PSWRPV RI ZLGHVSUHDG EUDLQ SDWKRORJ\ DV HGHPD DQG
    RWKHUSK\VLRORJLFDOUHDFWLRQVWDNHSODFH :LWWHDQG6WROOVHHS 6RPHWLPHVWKHV\PSWRPV
    LPSURYHUHODWLYHO\HDUO\LQWKHFRXUVHRIWKHLOOQHVV6XFKDFKDQJHIRUWKHEHWWHULVWKRXJKWWRUHIOHFW
    WKHGLVORGJHPHQWRIDQHPEROXVDQGUHWXUQRIPRUHQRUPDOEORRGIORZ6ZHOOLQJDQGRWKHUVHFRQGDU\
    HIIHFWVRIWKHVWURNHFDQFDXVHPRUHVHULRXVELODWHUDORUGLIIXVHGDPDJHWKDQWKHVWURNHLWVHOIDQGPD\
    ߟDVFDQVHFRQGDU\SK\VLRORJLFDOUHDFWLRQVWRWUDXPDߟUHVXOWLQGHDWK *HZLUW]DQG6WHLQEHUJ 
    7KXVVWURNHSDWLHQWVIUHTXHQWO\GLVSOD\VLJQVRIELODWHUDORUGLIIXVHGDPDJHGXULQJWKHHDUO\VWDJHVRI
    WKHLU LOOQHVV $V VZHOOLQJ GLPLQLVKHV DQG RWKHU SK\VLRORJLFDO GLVWXUEDQFHV UHWXUQ WR D PRUH QRUPDO
    VWDWHVLJQVRIELODWHUDORUGLIIXVHG\VIXQFWLRQJUDGXDOO\GLPLQLVKZKLOHWKHVHYHULW\RIWKHODWHUDOL]HG
    LPSDLUPHQWVXVXDOO\GHFUHDVHVWRR .ZDNNHLHWDO 
    )RUDSKDVLFVWURNHSDWLHQWVVSHHFKIOXHQF\W\SLFDOO\UHWXUQVE\RQHPRQWKLILWUHWXUQVDWDOOIHZHU
    WKDQRQHIRXUWKRISDWLHQWVZKRDUHQRQIOXHQWDWRQHPRQWKUHJDLQIOXHQF\E\VL[PRQWKV .QRSPDQ
    6HOQHVHWDO ,QFRQWUDVWFRQIURQWDWLRQQDPLQJLVW\SLFDOO\LPSDLUHGDWRQHPRQWKZLWKDERXW
    RQHWKLUGRIDSKDVLFSDWLHQWVLPSURYLQJWRQRUPDORUQHDUQRUPDOOHYHOVE\VL[PRQWKV .QRSPDQ
    6HOQHV HW DO   %RWK VLWH DQG VL]H RI OHVLRQ DUH DVVRFLDWHG ZLWK LPSURYHPHQW 6DUQR DQG KHU
    FRZRUNHUV   IRXQG WKDW WKHLU SDWLHQWV PDGH VRPH FRQWLQXLQJ JDLQV ZLWK QR VH[ GLIIHUHQFHV LQ
    DWWDLQHGOHYHOVRILPSURYHPHQWDIWHURQHWRWZRDQGRQHKDOI\HDUV)XQFWLRQDOQHXURLPDJLQJVWXGLHV
    KDYHLGHQWLILHGFHUHEUDODUHDVZKLFKLIDFWLYDWHGPD\FRQWULEXWHWRLPSURYHPHQWLQVSHFLILFIXQFWLRQV
    &ULQLRQDQG/HII 
    $W RQH PRQWK SRVWVWURNH PRVW SDWLHQWV ZLWK KHPLSOHJLD ODWHUDOL]HG SDUDO\VLV  KDG SHUFHSWXDO
    GHILFLWV DV ZHOO UHJDUGOHVV RI WKH VLGH RI OHVLRQ (GPDQV DQG /LQFROQ    7KHVH SUREOHPV
    DIIHFWHG DOPRVW DOO   RI WKH DSKDVLF SDWLHQWV ZLWK KHPLSOHJLD DQG PRVW   RI WKH OHIW
    KHPLSOHJLFSDWLHQWVLQWKLVVWXG\EXWIHZHUWKDQKDOI  RIWKHULJKWKHPLSOHJLFSDWLHQWVZKRGLG
    QRWKDYHDSKDVLD$OWKRXJKSDWLHQWVLQERWKKHPLSOHJLDJURXSVGLVSOD\HGLQDWWHQWLRQRQRQHRUPRUH
    WHVWVLQWKH(GPDQVDQG/LQFROQVWXG\WKRVHZLWKOHIWKHPLSOHJLDKDGVLJQLILFDQWO\PRUHLQVWDQFHVRI
    OHIWVLGH LQDWWHQWLRQ )RU WKH PDQ\ VSHFLILF YLVXRSHUFHSWXDO GHIHFWV WKDW WURXEOH VWURNH SDWLHQWV VHH
    %DUWRQDQG&DSODQIRUGLVRUGHUVRIDXGLWRU\SHUFHSWLRQVHH5$/HYLQHDQG+¦XVOHU
    0RVWSDWLHQWVZKRVHVWURNHVZHUHLVFKHPLFKDYHUHVLGXDOGHIHFWVWKDWDUHPRUHRUOHVVREYLRXVO\
    ODWHUDOL]HGDQGGLVSOD\UHODWLYHO\PLQLPDOHYLGHQFHRIGLIIXVHGDPDJHDIWHUWKHDFXWHVWDJH $PHULFDQ
    $FDGHP\RI1HXURORJ\)HVWDHWDO 7KXVZLWKOHIWVLGHGLQIDUFWVVSHHFKDQGODQJXDJH
    GLVRUGHUVDUHFRPPRQWKHLUVSHFLILFQDWXUHGHSHQGLQJRQWKHVLWHDQGH[WHQWRIWKHOHVLRQ '&DSODQ
    *URG]LQVN\DQG$PXQWVSDVVLP :LWKOHVLRQVRQWKHULJKWSHUFHSWXDODQGYLVXRVSDWLDO
    GHILFLWVWHQGWREHDPRQJWKHPRVWSURPLQHQW %HQWRQ6LYDQHWDO6&ODUNH)DUDKDQG
    (SVWHLQ   3DWLHQWV ZLWK ULJKWVLGHG GDPDJH ZKR KDYH OHIW KHPLVSDWLDO LQDWWHQWLRQ DUH OLNHO\ WR
    KDYHORVWPXFKRIWKHLULQDWWHQWLRQELDVDWWHQPRQWKVSRVWVWURNHEXWPD\VWLOOGLVSOD\VRPHLQDWWHQWLRQ
    WHQGHQFLHV (JHONR 6LPRQ HW DO   7KHLU FRPSUHKHQVLRQ RI HPRWLRQ DQG DIIHFWߟERWK YLVXDO
    DQGDXGLWRU\ߟDOVRVKRZVVRPHLPSURYHPHQWEXWLVW\SLFDOO\FRPSURPLVHG +HLOPDQ%ORQGHUHWDO
     
    (PRWLRQDOGLVWXUEDQFHVZLWKVWURNH'HSUHVVLRQDQGGLIILFXOW\LQVRFLDODGMXVWPHQWDIIHFWEHWZHHQ
    RQHWKLUG DQG WZRWKLUGV RI SDWLHQWV (VOLQJHU 3DUNLQVRQ DQG 6KDPD\  7XUQHU6WRNHV DQG
    +DVVDQ   7KH LQFLGHQFH RI GHSUHVVLRQ LV OLNHO\ WR LQFUHDVH RYHU WLPH 0/ .DXKDQHQ HW DO
    DE &XOOXPDQG%LJOHU  IRXQGWKDWZLWKLQWKHILUVWKDOI\HDUSRVWVWURNH H[FOXGLQJWKRVH
    SDWLHQWV ZLWK VLJQLILFDQWO\ FRPSURPLVHG ODQJXDJH IXQFWLRQV ZKR DUH PRVW IUHTXHQWO\ WURXEOHG E\
    GHSUHVVLRQ HDUO\ LQ WKHLU FRXUVH DQG WKRVH XQDEOH WR ILOO RXW D WHVW IRUP   RI VWURNH SDWLHQWV
    GHVFULEHGWKHPVHOYHVDVFOLQLFDOO\GHSUHVVHGLQDVLPLODUJURXSZKRKDGVWURNHVVHYHQWRPRQWKV
    HDUOLHU  DGPLWWHG WR FOLQLFDO OHYHOV RI GHSUHVVLYH V\PSWRPV $W RQH \HDU PDMRU GHSUHVVLRQ
    WURXEOHG  RI VWURNH VXUYLYRUV LQ D PHWDDQDO\VLV RI ILYH VWXGLHV 5* 5RELQVRQ DQG 6WDUNVWHLQ
      'XULQJ WKH ILUVW WZR \HDUV SRVWVWURNH LW KDV EHHQ HVWLPDWHG WKDW DERXW  RI SDWLHQWV ZLOO
    GHYHORSGHSUHVVLRQ GHSHQGLQJRQIDFWRUVVXFKDVDVVHVVPHQWPHWKRGVHWWLQJ HJDFXWHVWURNHXQLWV
    UHKDELOLWDWLRQ XQLWV RU SDWLHQWV OLYLQJ LQ WKH FRPPXQLW\  SUHVHQFH RI DSKDVLD DQG VHYHULW\ RI
    FRJQLWLYHLPSDLUPHQW7ZR\HDUVDIWHUVWURNHRIRQHODUJH  VDPSOHZHUHGHSUHVVHG
    ZLWK V\PSWRPV RI PDMRU GHSUHVVLRQ 5* 5RELQVRQ 6WDUU HW DO   5* 5RELQVRQ 
    UHSRUWHG D PHDQ IUHTXHQF\ RI  IRU PDMRU GHSUHVVLRQ DQG  IRU PLQRU GHSUHVVLRQ EDVHG RQ
    GDWDSRROHGIURPZRUOGZLGHVWXGLHV':'HVPRQGDQGKLVFROOHDJXHV  TXHVWLRQHGWKHVHKLJK
    LQFLGHQFHUHSRUWVVXJJHVWLQJWKDWDKLVWRU\RISUHPRUELGGHSUHVVLRQPXVWEHWDNHQLQWRDFFRXQWZKHQ
    H[DPLQLQJWKHUHODWLRQVKLSEHWZHHQVWURNHDQGGHSUHVVLRQ,QWKLVVWXG\SRVWVWURNHGHSUHVVLRQDIIHFWHG
    RISDWLHQWVGHSUHVVLRQRFFXUUHGPRUHRIWHQLQZRPHQDQGDVGLVDELOLW\VHYHULW\LQFUHDVHG
    'LIIHUHQFHVLQKRZSDWLHQWVZLWKOHIWRUULJKWKHPLVSKHUHVWURNHVUHDFWLQWKHDFXWHVWDJHVRIWKHLU
    GLVHDVH KDYH EHHQ GHVFULEHG LQ WHUPV RI D SUHSRQGHUDQFH RI GHSUHVVLRQ DQG FDWDVWURSKLF UHDFWLRQV
    ZLWK OHIWVLGHG VWURNHV DQG LQGLIIHUHQFH UHDFWLRQV ZKHQ WKH OHVLRQ LV RQ WKH ULJKW *DLQRWWL 
    +HLOPDQ%ORQGHUHWDO5*5RELQVRQDQG6WDUNVWHLQ 5HSRUWVE\SDWLHQWVߤUHODWLYHVWZR
    ZHHNV DIWHU VWURNH RQVHW LQGLFDWHG WKDW GHSUHVVLRQ ZDV WKH PRVW SURPLQHQW HPRWLRQDO FKDQJH
    UHJDUGOHVV RI OHVLRQ VLGH DQG WKDW WKH OHYHO RI ߧLQGLIIHUHQFHߨ GHILQHG LQ WKLV VWXG\ DV ߧUHVWULFWHG
    HPRWLRQDO H[SUHVVLRQߨ HTXDWHG ZLWK D SV\FKLDWULF GHILQLWLRQ RI ߧDSDWK\ߨ DQG DOVR LQFOXGLQJ
    DQRVRJQRVLD  ZDV PXFK KLJKHU LQ SDWLHQWV ZLWK ULJKW KHPLVSKHUH LQYROYHPHQW /' 1HOVRQ HW DO
     VXJJHVWLQJWKDWOHIWDQGULJKWKHPLVSKHUHVWURNHSDWLHQWVPD\EHH[SHULHQFLQJGLIIHUHQWNLQGV
    RI GHSUHVVLRQ 3RVWKRVSLWDO GHYHORSPHQW RI GHSUHVVLRQ RFFXUV PRUH IUHTXHQWO\ IRU SDWLHQWV ZLWK
    ULJKWVLGHGOHVLRQVWKHQXPEHURIGHSUHVVHGSDWLHQWVZLWKOHIWVLGHGOHVLRQVWHQGVWRGHFUHDVHDIWHUWKH
    DFXWH VWDJHV 5* 5RELQVRQ DQG 6WDUNVWHLQ   0RUHRYHU RQH WR WZR \HDUV SRVWVWURNH VHYHUH
    GHSUHVVLRQLQSDWLHQWVZLWKULJKWVLGHG GDPDJHGZDV VWURQJO\FRUUHODWHG ZLWK SRVWHULRU OHVLRQVLWHV
    EXW GHSUHVVLRQ LQ SDWLHQWV ZLWK OHIWVLGHG OHVLRQV VKRZHG QR DQWHULRUSRVWHULRU SUHGLOHFWLRQ 5*
    5RELQVRQDQG6WDUNVWHLQ 
    5HGXFWLRQLQDFWLYLWLHVDQGLQVRFLDOL]LQJDUHFRPPRQOLIHVW\OHDOWHUDWLRQVDPRQJVWURNHSDWLHQWV
    /0 %LQGHU +RZLHVRQ DQG &RXOO   'HSUHVVHG SDWLHQWV LQ SDUWLFXODU DUH OLNHO\ WR H[SHULHQFH
    UHVWULFWHGDFWLYLWLHVDQGVRFLDOFRQWDFW1RWVXUSULVLQJO\IRXU\HDUVSRVWVWURNHGHSUHVVLYHWHQGHQFLHV
    FRQWULEXWHG PRUH WR GHWHUPLQLQJ WKH TXDOLW\ RI SDWLHQWVߤ OLYHV WKDQ GLG DELOLW\ WR ZDON DELOLW\ WR
    SHUIRUPDFWLYLWLHVRIGDLO\OLYLQJRUPHPRU\DELOLW\ 1LHPLHWDO ,QDPRUHUHFHQWUHSRUWWKH
    PRVWLPSRUWDQWIDFWRUV DVVRFLDWHG ZLWK SRVWVWURNH TXDOLW\ RIOLIH ZHUH GHSUHVVLRQDQG PDULWDO VWDWXV
    0/.DXKDQHQHWDOE 

    +HPRUUKDJLFVWURNHV

    +HPRUUKDJLFVWURNHLVWKHPRVWGHYDVWDWLQJIRUPRIVWURNHDQGKDVWKHZRUVWSURJQRVLV,QWR
     RI DOO VWURNHV LQ 1RUWK $PHULFD  KHPRUUKDJH LV WKH SULPDU\ DQG PRVW VLJQLILFDQW DJHQW RI
    GDPDJH %RJRXVVODYVN\+RPPHODQG%DVVHWWL +HPRUUKDJLFVWURNHVKDYHDPRUWDOLW\UDWHRI
    WRZLWKLQWKHILUVWGD\V &DUKXDSRPDDQG+DQOH\ +\SHUWHQVLRQLVWKHFKLHIULVN
    IDFWRUDOWKRXJKFKURQLFRUDODQWLFRDJXODQWVFDQDOVRLQFUHDVHWKHOLNHOLKRRGRIKHPRUUKDJLFVWURNHLI
    GRVDJHVDUHQRWZHOOPRQLWRUHGDQGFRQWUROOHG7KHWZRPRVWFRPPRQPHFKDQLVPVFRQWULEXWLQJWR
    DUWHULDO UXSWXUH DUH ZHDNHQLQJ RI D YHVVHO ZDOO GXH WR SDWKRORJLFDO DOWHUDWLRQV VHFRQGDU\ WR
    K\SHUWHQVLRQDFFRXQWLQJIRUWRRIFDVHVDQGUXSWXUHDVVRFLDWHGZLWKDYDVFXODUDEQRUPDOLW\
    VXFK DV DQHXU\VP D EDOORRQLQJ ZHDNHQHG DUWHULDO ZDOO  DUWHULRYHQRXV PDOIRUPDWLRQ VHH S  
    WXPRU RU GHILFLHQW FRDJXODWLRQ 4XUHVKL 7XKULP HW DO  'RQDJK\   'UXJ HVSHFLDOO\
    FRFDLQH DQGDOFRKRODEXVHDUHDGGLWLRQDOULVNIDFWRUVIRULQWUDFHUHEUDOKHPRUUKDJH $'2ߤ&RQQRU
    HWDO0DUWLQ6FKLOGHWDO4XUHVKL0RKDPPDGHWDO +\SHUWHQVLYHKHPRUUKDJLF
    VWURNHVRFFXUPRVWW\SLFDOO\LQSHUVRQVLQWKHWR\HDUUDQJHWKHPRVWFRPPRQO\DIIHFWHGVLWHV
    DUHVXEFRUWLFDOYL]WKHEDVDOJDQJOLDWKDODPXVDQGVXEFRUWLFDOZKLWHPDWWHU &XOOXP5LOOLQJHWDO
     
    )LYHWRRIDOOVWURNHVDUHGXHWRUXSWXUHGDQHXU\VPV +3$GDPV**%URZQ/D]DU
    DQG'HODQR:RRG 7KHULVNRIUXSWXUHGDQHXU\VPGHSHQGVPRUHRQDQHXU\VPFKDUDFWHULVWLFV
    WKDQ SDWLHQW FKDUDFWHULVWLFV DOWKRXJK ULVN JUHDWO\ LQFUHDVHV LQ SHUVRQV ZKHQ WZR RU PRUH FORVH
    UHODWLYHV KDYH DQHXU\VPV LPSOLFDWLQJ D JHQHWLF IDFWRU VPRNLQJ PD\ DOVR EH FRQWULEXWRU\ **
    %URZQ/D]DUDQG'HODQR:RRG&XOOXP5LOOLQJHWDO :RPHQDQGROGHUSDWLHQWVKDYH
    LQFUHDVHG ULVN RI UXSWXUH DOWKRXJK SDWLHQW GHPRJUDSKLFV YDU\ JUHDWO\ 5LQNHO HW DO  
    6\PSWRPDWLF DQHXU\VPV WKRVH ODUJHU WKDQ  PP DQG EDVLODU DUWHU\ DQHXU\VPV KDYH D PDUNHGO\
    LQFUHDVHGOLNHOLKRRGRIUXSWXUH7KHPRVWFRPPRQVLWHIRUUXSWXUHGDQHXU\VPLVVXEDUDFKQRLG 
    RIFDVHV DQGRIWKHVHLQYROYHWKHDQWHULRUFRPPXQLFDWLQJDQWHULRUFHUHEUDODUWHU\ZKLOH
    RFFXU LQ WKH PLGGOH FHUHEUDO DUWHU\ HDFK ZLWK WKH SRWHQWLDO IRU SURIRXQG QHXURSV\FKRORJLFDO
    FRQVHTXHQFHV 0RULWDHWDO=DFKDULDHWDO 
    7KHPDQLIHVWDWLRQVRIUXSWXUHGDQHXU\VPVFDQEHTXLWHGUDPDWLF(DUO\ZDUQLQJV\PSWRPVUDUHO\
    SUHFHGH VXEDUDFKQRLG KHPRUUKDJHV 6$+V  &XOOXP 5LOOLQJ HW DO  2JGHQ   5DWKHU
    W\SLFDOO\WKHSDWLHQWVXIIHUVDQH[WUHPHO\SDLQIXOKHDGDFKHWKDWLVRIWHQDFFRPSDQLHGE\QDXVHDDQG
    YRPLWLQJDQGIROORZHGZLWKLQWKHKRXUE\HYLGHQFHRIQHXURORJLFDOG\VIXQFWLRQVXFKDVVWLIIQHFNDQG
    IRFDOQHXURORJLFDOVLJQV7KHSDWLHQWPD\RUPD\QRWORVHFRQVFLRXVQHVVGHSHQGLQJRQWKHVHYHULW\RI
    WKH EOHHG DQG WKH LQWHQVLW\ DQG VLWH RI YDVRVSDVP FRQWUDFWLRQ RI EORRG YHVVHOV LQ WKH UHJLRQ RI WKH
    EOHHG ZKLFKRFFXUVLQDERXWRIFDVHVDQGSURGXFHVLVFKHPLDDQGLQIDUFWLRQ %ULW]DQG0D\EHUJ
     0RKU 6SHW]OHU HW DO   7KH FRQGLWLRQ FDQ EH IDWDO ZKHQ PDVVLYH EOHHGLQJ RU H[WHQVLYH
    YDVRVSDVP RFFXUV ZLWK  PRUWDOLW\ ZLWKLQ WKH ILUVW PRQWK SRVWVWURNH (VWRO   <HW LI WKH
    EOHHGLQJ LV DUUHVWHG VRRQ HQRXJK WKH SDWLHQW PD\ VXVWDLQ UHODWLYHO\ OLWWOH EUDLQ GDPDJH DQG IHZ
    FRJQLWLYH GHILFLWV LI DQ\ 2JGHQ 0HH DQG +HQQLQJ   0RUELGLW\ DVVRFLDWHG ZLWK WKH VXUJLFDO
    WUHDWPHQWRIUXSWXUHGDQHXU\VPVPD\EHUHGXFHGZLWKLQWUDRSHUDWLYHK\SRWKHUPLD 6:$QGHUVRQ
    7RGGHWDO7RGGHWDO 
    3DWLHQWVLQZKRPGDPDJHLVH[WHQVLYHEXWQRWIDWDOWHQGWRGLVSOD\VHULRXVEHKDYLRUDOLPSDLUPHQWV
    DWWULEXWDEOHWRIRFDOGDPDJH)RUH[DPSOHSDWLHQWVZKRKDYHKDGUXSWXUHGDQHXU\VPVRIWKHDQWHULRU
    FRPPXQLFDWLQJ DUWHU\ DUH OLNHO\ WR VXIIHU WKH NLQG RI EHKDYLRUDO GLVWXUEDQFHVߟVXFK DV ODFN RI
    VSRQWDQHLW\FKLOGLVKQHVVLQGLIIHUHQFHDQGPHPRU\UHWULHYDOSUREOHPVߟDVVRFLDWHGZLWKIURQWDOOREH
    OHVLRQV &XOOXP 5LOOLQJ HW DO  /LVKPDQ   *LYHQ WKLV SDWWHUQ RI GHILFLWV LW LV QRW
    VXUSULVLQJWKDWSV\FKRVRFLDORXWFRPHVDUHRIWHQSRRU +XWWHUHWDO &RJQLWLYHGHILFLWVUHVXOWLQJ
    IURPUXSWXUHGDQHXU\VPVGLIIHUIURPWKHLPSDLUPHQWVRILVFKHPLFFHUHEURYDVFXODUDFFLGHQWVLQWKDW
    WKH GDPDJH LV OLNHO\ WR EH PRUH ZLGHVSUHDG DQG GRHV QRW QHFHVVDULO\ IROORZ DQDWRPLFDOO\ ZHOO
    GHILQHGRUQHXURSV\FKRORJLFDOO\FRPPRQSDWWHUQV &XOOXP5LOOLQJHWDO 
    +HPRUUKDJHV DVVRFLDWHG ZLWK K\SHUWHQVLRQ WHQG WR LQYROYH WKH EORRG YHVVHOV DW WKH EDVH RI WKH
    FHUHEUDO KHPLVSKHUHV VR WKDW WKH GDPDJH LV XVXDOO\ VXEFRUWLFDO /5 &DSODQ  9RHONHU DQG
    .DXIPDQ 7KXVWKHVHVWURNHVPRVWO\DIIHFWWKHWKDODPXVEDVDOJDQJOLDDQGEUDLQVWHP7KHVH
    K\SHUWHQVLYHFHUHEUDOKHPRUUKDJHVRULQWUDFHUHEUDOKHPRUUKDJHVDVWKH\DUHYDULRXVO\FDOOHGKDYHD
    PRUWDOLW\ UDWH RI DURXQG  DW RQH \HDU  DUH VWLOO DOLYH )HUUR   7KH FRQGLWLRQ RI
    VXUYLYLQJSDWLHQWVFDQEHDQ\WKLQJIURPQHDUYHJHWDWLYHWRDUHODWLYHO\JRRGUHWXUQWRLQGHSHQGHQFH
    RQO\DFKLHYHIXQFWLRQDOLQGHSHQGHQFHDWWKUHHPRQWKVSRVWVWURNH )HUUR   0RWRUV\VWHP
    LPSDLUPHQWVWHQGWREHSURPLQHQWDQGPHPRU\GLVRUGHUVPD\DOVRRFFXU VHH&URVVRQ 
    $UWHULRYHQRXVPDOIRUPDWLRQV $90V DUHWDQJOHGPDVVHVRIDUWHULHVDQGYHLQVRIFRQJHQLWDORULJLQ
    ZKLFK JURZ XVXDOO\ JUDGXDOO\ PXFK OLNH D WXPRU ** %URZQ /D]DU DQG 'HODQR:RRG 
    +DFKLQVNL DQG 1RUULV  0RKU 7DWHPLFKL HW DO   7KHVH DUH QRW FRPPRQ UXSWXUHG DQG
    KHPRUUKDJLQJ $90V FRPSULVH DERXW  RI DOO VWURNHV 7KH FRJQLWLYH HIIHFWV RI QRQKHPRUUKDJLF
    $90V PD\ EH UHODWLYHO\ PLOG DQG QRW QHFHVVDULO\ UHIOHFWLYH RI ODWHUDOL]HG GDPDJH ,I SURQRXQFHG
    FRJQLWLYH GHILFLWV ZLOO VKRZ WKH H[SHFWHG ODWHUDOL]HG SDWWHUQ QRQ FRJQLWLYH GHILFLWV W\SLFDOO\
    DVVRFLDWHGZLWKGDPDJHWRWKHKHPLVSKHUHFRQWUDODWHUDOWRWKH$90PD\DOVREHSUHVHQW 0DKDOLFNHW
    DO 

    7UDQVLHQW,VFKHPLF$WWDFNV 7,$V

    %\GHILQLWLRQD7,$LVߧDEULHIHSLVRGHRIQHXURORJLFDOG\VIXQFWLRQFDXVHGE\IRFDOEUDLQRUUHWLQDO
    LVFKHPLDZLWKFOLQLFDOV\PSWRPVW\SLFDOO\ODVWLQJOHVVWKDQRQHKRXUDQGZLWKRXWHYLGHQFHRIDFXWH
    LQIDUFWLRQߨ (DVWRQHWDO 0DQ\7,$VODVWIRURQO\PLQXWHVPRUHWKDQKDOIGLVVLSDWHZLWKLQDQ
    KRXU (OLDV]LZHWDO-:HLQEHUJHU 7KLVFXUUHQWWLVVXHEDVHGGHILQLWLRQKDVUHSODFHGWKH
    HDUOLHUWLPHEDVHGGHILQLWLRQRI7,$V DQLVFKHPLFHSLVRGHODVWLQJXSWRKRXUV 1HXURLPDJLQJKDV
    VKRZQ WKDW PDQ\ LVFKHPLF HSLVRGHV ODVWLQJ OHVV WKDQ  KRXUV GLDJQRVDEOH DV 7,$V LQ WKH SDVW GR
    OHDYH SHUPDQHQWO\ GDPDJHG EUDLQ WLVVXH :LWK WKH QHZHU FRQFHSWXDOL]DWLRQ RI EUDLQ LVFKHPLD DV D
    ߧVSHFWUXPRIVHULRXVFRQGLWLRQVߨ7,$VDUHDWWKHPLOGHQG /LEHUDWRHWDO  7KH NH\YDULDEOH
    VHSDUDWLQJ 7,$ߤV IURP GLDJQRVDEOH VWURNH LV WKH DEVHQFH RI SHUPDQHQW EUDLQ LQMXU\ GXUDWLRQ LV
    VHFRQGDU\7KHFRQWURYHUV\RYHUKRZWRGHILQHD7,$ߟDQGZKDWWKHRSWLPDOWLPHZLQGRZVKRXOGEH
    IRU WKH GHILQLWLRQߟKDV QRW EHHQ IXOO\ UHVROYHG (DVWRQ HW DO   1R PDWWHU ZKDW WKH HYHQWXDO
    FRQVHQVXV RQ WKH WHUPLQRORJ\ DQG UXEULF WKH PHGLFDO XUJHQF\ RI 7,$ V\PSWRPV VKRXOG QRW EH
    XQGHUHVWLPDWHG $FFXUDWH GLDJQRVLV DQG WLPHO\ LQWHUYHQWLRQ DUH FULWLFDO IRU NHHSLQJ PRUELGLW\ DQG
    PRUWDOLW\WRDPLQLPXP
    7,$VDUHFKDUDFWHUL]HGE\PLOGVWURNHOLNHV\PSWRPVWKDWIROORZWKHVDPHSDWWHUQVRISUHVHQWDWLRQ
    ߟODWHUDOL]DWLRQ DQG FOXVWHULQJ RI V\PSWRPV ZLWKLQ GHILQHG DUWHULDO WHUULWRULHVߟDV GR IXOOEORZQ
    VWURNHV +DFKLQVN\ DQG 1RUULV   )XUWKHUPRUH OLNH VWURNHV PRVW 7,$V DUH DVVRFLDWHG ZLWK
    DUWHULRVFOHURWLFGLVHDVHDQGKDYHWKHVDPHULVNIDFWRUV %RJRXVVODYVN\+RPPHODQG%DVVHWWL
    :: =KDQJ HW DO   7KH\ W\SLFDOO\ UHSUHVHQW UHYHUVLEOH LVFKHPLD UHVXOWLQJ IURP WKURPERWLF
    PLFURHPEROL WKDW SDVV RQ EHIRUH WKH\ GR DQ\ SHUPDQHQW GDPDJH 3DWLHQWV PD\ H[SHULHQFH IHZ RU
    PDQ\ VXFK DWWDFNV UHODWLYHO\ IUHTXHQWO\ RU VSDFHG RYHU PRQWKV RU \HDUV 6& -RKQVWRQ DQG 5XII
      :LWKLQ WKH ILUVW PRQWKV DIWHU D 7,$ VWURNH HYROYHV LQ DSSUR[LPDWHO\  RI SDWLHQWV
    %RJRXVVODYVN\+RPPHODQG%DVVHWWL 
    7KHULVNRIVWURNHIROORZLQJD7,$GHSHQGVRQRWKHUFOLQLFDOIDFWRUV)RUH[DPSOH7,$SDWLHQWV
    ZLWKPRUHWKDQDVWHQRVLVRIWKHLSVLODWHUDOLQWHUQDOFDURWLGDUWHU\ ,&$ KDYHDERXWDFKDQFH
    RI VWURNH LQ WKH QH[W WZR \HDUV ZKHUHDV 7,$ SDWLHQWV ZLWK WKH FDUGLDF GLVRUGHU DWULDO ILEULOODWLRQ
    H[WUHPHO\UDSLGKHDUWEHDW KDYHDQWRFKDQFHRIDVWURNHLQWKHQH[WWZR\HDUV 3$6FRWWHW
    DO 7KXV7,$VDUHRIWHQSUHFXUVRUVWRPRUHVHYHUHLVFKHPLFDWWDFNVWRRIVWURNHV
    DUHIRUHVKDGRZHGE\D7,$ 6&-RKQVWRQDQG5XII 8QIRUWXQDWHO\SXEOLFDZDUHQHVVRI7,$V
    LVORZPDQ\SDWLHQWVGRQRWVHHNPHGLFDOFDUH 6&-RKQVWRQ)D\DGHWDO 
    7UHDWPHQWRI7,$W\SLFDOO\LQYROYHVFKURQLFDQWLSODWHOHWFRDJXODWLRQWKHUDS\RIWHQDVSLULQVXIILFHV
    HJ +DQNH\ DQG (ONHOERRP   $QWLFRDJXODWLRQ WKHUDS\ PD\ EH LQLWLDWHG SUHYHQWLYHO\ LI D
    SRWHQWLDO HPEROLF VRXUFH LV VXVSHFWHG HJ DWULDO ILEULOODWLRQ  ,W LV KRSHG EXW DV \HW XQSURYHQ WKDW
    OLIHVW\OH FKDQJHV FDQ UHGXFH SRVW7,$ VWURNH ULVN GH /DX HW DO   &DURWLG HQGDUWHUHFWRP\
    VXUJLFDOUHPRYDORIDWKHURVFOHURWLFSODTXHVIURPWKHFDURWLGDUWHU\ PD\EHSHUIRUPHGZKHQWKHUHLV
    VLJQLILFDQWFDURWLGVWHQRVLV DUWHULDOQDUURZLQJ  +-%DUQHWWHWDO'*6KHUPDQDQG/DORQGH
     

    6LOHQWVWURNHV

    6LOHQW VWURNHV RU VLOHQW EUDLQ LQIDUFWLRQ >6%@  LQ ZKLFK V\PSWRPV DUH QRW REYLRXV DQG WKXV JR
    XQUHSRUWHGZHUHIRXQGLQWRRIVXEMHFWVLQVHYHUDOODUJHVWXGLHV %URWWHWDO6KLQNDZD
    HW DO   3UHYLRXVO\ LQIDUFWHG WLVVXH PD\ EH SUHVHQW LQ XS WR  RI SDWLHQWV ZLWK VLJQLILFDQW
    LQWHUQDOFDURWLGGLVHDVH )XUVWHWDO0LZDHWDO DQGZDVIRXQGLQRQHWKLUGRIDODUJH
    VHULHV RI ߧILUVW WLPHߨLVFKHPLF VWURNH SDWLHQWV 2K HW DO   6LOHQW VWURNHV DUH ILYH WLPHV DV
    SUHYDOHQWDVV\PSWRPDWLFEUDLQLQIDUFWVWKHLUQXPEHULQFUHDVHVZLWKDJH /LPDQG.ZRQ  DQG
    LVVOLJKWO\JUHDWHUIRUZRPHQ 9HUPHHUHWDO +\SHUWHQVLRQLVDOHDGLQJULVNIDFWRUDORQJZLWK
    WKH RWKHU ULVN IDFWRUV FRPPRQO\ DVVRFLDWHG ZLWK VWURNHߟHJ FRURQDU\ DUWHU\ GLVHDVH RYHUZHLJKW
    DQGH[FHVVLYHDOFRKROFRQVXPSWLRQ
    )RUWKHPRVWSDUWVLOHQWVWURNHVWHQGWREHVPDOOODFXQDU VPDOOLQIDUFWHGDUHD OHVLRQVVLWXDWHGLQ
    GHHSEUDLQVWUXFWXUHV/HIWKHPLVSKHUHVWURNHVDUHXQOLNHO\WRHVFDSHQRWLFHXQOHVVWKH\DUHVPDOODQG
    LQGHHSVWUXFWXUHVGXHWRWKHREYLRXVHIIHFWVRQVSHHFKDQGODQJXDJH,QWKHULJKWKHPLVSKHUHVLQFH
    V\PSWRPVPD\EHOHVVREYLRXVVLOHQWVWURNHVWHQGWREHODUJHUZLWKDKLJKHUSHUFHQWDJHLQYROYLQJWKH
    FRUWH[6LOHQWVWURNHVXVXDOO\EHFRPHDSSDUHQWXSRQ&7RU05,VFDQQLQJRIODWHURFFXUULQJREYLRXV
    VWURNHVRUZKHQEHKDYLRUFKDQJHVEULQJWKHSDWLHQWWRPHGLFDODWWHQWLRQ
    $\HDUROGEXLOGLQJLQVSHFWRUZDVFKDUJHGZLWKFULPLQDOPLVFRQGXFWIRULVVXLQJKXQGUHGVRIEXLOGLQJSHUPLWVIRUSODQVWKDW
    GLG QRW PHHW FRGH UHTXLUHPHQWV +H UHVSRQGHG ZLWK D SURIRXQG GHSUHVVLRQ IRU ZKLFK KH ZDV KRVSLWDOL]HG 2Q
    QHXURSV\FKRORJLFDOH[DPLQDWLRQKHZDVDOHUWRULHQWHGYHUERVHLOORJLFDOEXWQRWLUUDWLRQDODQGIHHOLQJKXUWDQGSX]]OHGE\KLV
    VLWXDWLRQDVKHWKRXJKWKHKDGGRQHKLVZRUNZHOO:KLOHKLVVFRUHVRQSUHGRPLQDQWO\YHUEDOWHVWVZHUHJHQHUDOO\ZHOODERYH
    DYHUDJH KLV SHUIRUPDQFHV RQ FRQVWUXFWLRQ WHVWV ZHUH FRQIXVHG DQG ERWK IUHHKDQG DQG FRS\ GUDZLQJV ZHUH FRQIXVHG DQG
    GLVWRUWHG2QTXHVWLRQLQJKHSURYLGHGDKLVWRU\RIDIOXOLNHLOOQHVVRFFXUULQJMXVWEHIRUHKHEHJDQJLYLQJWKHLPSURSHUSHUPLWV
    &7VFDQUHYHDOHGDQROGULJKWIURQWRSDULHWDOLQIDUFW

    9$6&8/$5',625'(56
    +\SHUWHQVLRQ
    +\SHUWHQVLRQLVWKHPRVWFRPPRQSULPDU\GLDJQRVLVLQWKH8QLWHG6WDWHV\HWRISHRSOHZLWKWKLV
    FRQGLWLRQ DUH XQDZDUH WKH\ KDYH LW &KREDQLDQ HW DO   +\SHUWHQVLRQ UHIHUV WR KLJK EORRG
    SUHVVXUHGHVFULEHGDVV\VWROLF KHDUWEHDWSKDVHZKHQEORRGLVSXPSHGIURPKHDUWWRDUWHULHV EORRG
    SUHVVXUH!PP+JDQGGLDVWROLF KHDUWEHDWSKDVHZKHQKHDUWPXVFOHUHOD[HVDOORZLQJEORRGWR
    UHHQWHU LW  SUHVVXUH !  PP +J $ PDMRU SUHFXUVRU RI KHDUW DWWDFNV DQG VWURNHV K\SHUWHQVLRQ LQ
    LWVHOIPD\DOWHUEUDLQVXEVWDQFHDQGDIIHFWFHUHEUDOIXQFWLRQLQJ -RKDQVVRQ 
    7KH PRVW XVXDO ULVN IDFWRUV IRU K\SHUWHQVLRQ LQFOXGH REHVLW\ H[FHVVLYH XVH RI VDOW H[FHVVLYH
    DOFRKROLQWDNHODFNRIH[HUFLVHDQGWREDFFRXVH 10.DSODQ &HUHEURYDVFXODUULVNIDFWRUVLQ
    PLGOLIHDSSHDUWRLQFUHDVHWKHOLNHOLKRRGRIYDVFXODUFRJQLWLYHLPSDLUPHQWLQODWHUOLIH 'H&DUOLHWDO
    .LODQGHU HW DO   7KXV \RXQJ K\SHUWHQVLYH SDWLHQWV PD\ EH PRUH DW ULVN IRU FRJQLWLYH
    LPSDLUPHQWV WKDQ WKHLU ROGHU FRXQWHUSDUWV DV WKH FXPXODWLYH HIIHFWV RI HOHYDWHG EORRG SUHVVXUH WDNH
    WKHLU WROO ODWHU LQ OLIH :DOGVWHLQ -HQQLQJV HW DO   0RUHRYHU HYHQ SHRSOH ZKR KDYH QRUPDO
    EORRGSUHVVXUHDWDJHZLOOKDYHDOLIHWLPHULVNRIGHYHORSLQJK\SHUWHQVLRQ &KREDQLDQHWDO
     
    $ UHYLHZ RI VWXGLHV E\ %LUQV DQG .DLUD   VKRZV WKDW WKH UHODWLRQVKLS EHWZHHQ K\SHUWHQVLRQ
    DQGFRJQLWLYHIXQFWLRQLVFRPSOH[&URVVVHFWLRQDOVWXGLHVILQGPL[HGUHODWLRQVKLSVDVPDQ\VWXGLHV
    UHSRUW QR FRUUHODWLRQ EHWZHHQ K\SHUWHQVLRQ DQG FRJQLWLYH LPSDLUPHQW RU ORZ EORRG SUHVVXUH
    DVVRFLDWHG ZLWK QHDUO\ DV PXFK FRJQLWLYH GHFOLQH DV K\SHUWHQVLRQ RU D 8VKDSHG DVVRFLDWLRQ
    +\SHUWHQVLRQ LV PRUH FRQVLVWHQWO\ OLQNHG ZLWK FRJQLWLYH GHFOLQH LQ ORQJLWXGLQDO VWXGLHV 6LPLODU
    ILQGLQJVKDYHEHHQUHSRUWHGE\WKH%DOWLPRUH/RQJLWXGLQDO$JLQJ6WXG\RISDUWLFLSDQWVDJHG
    DQG ROGHU :DOGVWHLQ *LJJH\ HW DO   &URVVVHFWLRQDO DQG ORQJLWXGLQDO FRUUHODWLRQV RI EORRG
    SUHVVXUHZLWKFRJQLWLYHIXQFWLRQZHUHSUHGRPLQDQWO\QRQOLQHDUDQGPRGHUDWHGE\DJHHGXFDWLRQDQG
    DQWLK\SHUWHQVLYHPHGLFDWLRQV7KH)UDPLQJKDP6WXG\*URXSUHSRUWLQJRQWKHLUSDUWLFLSDQWVLQ
    WKHWRDJHUDQJHIRXQGQRFRJQLWLYHFKDQJHVDVVRFLDWHGZLWKK\SHUWHQVLRQ 0()DUPHU:KLWH
    HWDO EXWXSRQUHDQDO\VLVRIWHVWVWDNHQWR\HDUVODWHUK\SHUWHQVLRQZLWKORQJHUGXUDWLRQ
    ZDVDVVRFLDWHGZLWKSRRUHUFRJQLWLYHSHUIRUPDQFH 0()DUPHU.LWWQHUHWDO 
    0RGHUQQHXURLPDJLQJWHFKQLTXHVDQGKLJKHUSRZHU05,VHVSHFLDOO\WKHXVHRI7HVODPDJQHWV
    DUH PRUH OLNHO\ WKDQ ROGHU WHFKQLTXHV WR VKRZ PLFURYDVFXODU LVFKHPLF FKDQJHV RU VPDOO YHVVHO
    LVFKHPLF GLVHDVH LQ HOGHUO\ SDWLHQWV XQGHUJRLQJ VFDQV 7KH SUHVHQFH RI VXFK DEQRUPDOLWLHV RQ 05,
    RIWHQOHDGVWRDGLDJQRVLVRIVPDOOYHVVHOLVFKHPLFGLVHDVHDQGLIFRJQLWLYHLPSDLUPHQWLVVXVSHFWHG
    YDVFXODU RUPXOWLLQIDUFW GHPHQWLD VHHEHORZ 7KHGHWHFWLRQRIWKHVHFKDQJHVKRZHYHULVDWOHDVW
    SDUWO\ DQ DUWLIDFW RI WKH PRUH VHQVLWLYH GLDJQRVWLF PHDVXUHV WKH ߧPDJQLI\LQJ JODVVߨRI KLJK SRZHU
    05,VKRZVߧOHVLRQVߨWKDWZHUHQRWREVHUYDEOHEHIRUH:KDWPDWWHUVLQWKHHQGLVZKHWKHUWKHSDWLHQW
    KDVFRJQLWLYHEHKDYLRUDOPDQLIHVWDWLRQV
    :KHQ FRJQLWLYH GHILFLWV GHYHORS WKH\ XVXDOO\ FRQVLVW RI LPSDLUHG DWWHQWLRQ LQIRUPDWLRQ
    SURFHVVLQJVSHHGDQGH[HFXWLYHIXQFWLRQ -72ߤ%ULHQHWDO 7HVWVUHTXLULQJH[HFXWLYHFRQWURO
    RI DWWHQWLRQ DQG VSHHG DUH SDUWLFXODUO\ VHQVLWLYH HJ 'LJLW 6\PERO RU RQH RI LWV YDULDWLRQV 7UDLO
    0DNLQJ7HVWDQGWKH6WURRS7HVW  YDQ6ZLHWHQHWDO9HUGHOKRHWDO 
    7KHHIIHFWVRIDQWLK\SHUWHQVLYHPHGLFDWLRQVRQFRJQLWLRQDQGTXDOLW\RIOLIHYDU\)DYRUDEOHHIIHFWV
    KDYHEHHQUHSRUWHGZLWK$&( DQJLRWHQVLQFRQYHUWLQJHQ]\PH LQKLELWRUVDQGDQJLRWHQVLQ,,UHFHSWRU
    DQWDJRQLVWV )RJDUL DQG =RSSL   +RZHYHU GURZVLQHVV DQG OLVWOHVVQHVV FDQ RFFXU ZLWK
    PHWK\OGRSD $OGRPHW  /LVKPDQ3RWWDVKHWDO DQGILEORFNHUVVXFKDVSURSUDQROROKDYH
    EHHQDVVRFLDWHGZLWKFRQIXVLRQDQGLPSDLUHGFRJQLWLRQHVSHFLDOO\LQHOGHUO\SHUVRQV 5R\%\UQHDQG
    8SDGK\D\D 0$ 7D\ORU    2WKHU VWXGLHV VXJJHVW QR VLJQLILFDQW FRJQLWLYH FKDQJHV ZLWK
    WKHVH PHGLFDWLRQV HJ * *ROGVWHLQ 0DWHUVRQ HW DO  3«UH]6WDEOH HW DO  
    $QWLK\SHUWHQVLYH PHGLFDWLRQ HIIHFWV RQ TXDOLW\ RI OLIH PHDVXUHV ILQG YDU\LQJ SDWWHUQV RQ VXFK
    PHDVXUHPHQW FDWHJRULHV DV ߧJHQHUDO ZHOOEHLQJߨ ߧVH[XDO G\VIXQFWLRQߨ ߧZRUN SHUIRUPDQFHߨ DQG
    ߧOLIHVDWLVIDFWLRQߨ &URRJHWDO)RJDULDQG=RSSL 
    ,QDFRPSDULVRQRIRYHUZHLJKWZRPHQZLWKDQGZLWKRXWK\SHUWHQVLRQPRUHK\SHUWHQVLYHZRPHQVFRUHGLQWKHQHJDWLYHGLUHFWLRQ
    WKDQ QRQK\SHUWHQVLYH ZRPHQ RQ VHYHQ RI HLJKW  PHDVXUHV RI ZHOOEHLQJ HJ *HQHUDO +HDOWK 9LWDOLW\ 6RFLDO )XQFWLRQLQJ
    .OHLQVFKPLGW HW DO   7KH\ DOVR KDG VLJQLILFDQWO\ KLJKHU VFRUHV RQ WKH %HFN 'HSUHVVLRQ ,QYHQWRU\ DV ZHOO DV RQ VHOI
    UHSRUW PHDVXUHV RI IDWLJXH DQ[LHW\ DQG ߧYLVLRQ ORVVߨ +\SHUWHQVLYH ZRPHQ ZHUH WDNLQJ PRUH PHGLFDWLRQV WKDQ WKH
    QRQK\SHUWHQVLYHV UDLVLQJ WKH FKLFNHQHJJ TXHVWLRQ RI ZKHWKHU PHGLFDWLRQV DIIHFWHG WKH TXDOLW\ RI OLIH RI WKHVH ZRPHQ RU
    ߧSHUKDSV WKH XVH RI PDQ\ PHGLFDWLRQV UHODWHV WR WKH VHYHULW\ RI V\PSWRPV DQG FRQFXUUHQW SUREOHPV DVVRFLDWHG ZLWK
    >K\SHUWHQVLRQ@ߨ S 

    3UHYHQWLRQ RI K\SHUWHQVLRQ RU NHHSLQJ LW XQGHU FRQWURO LV LPSRUWDQW IRU SUHVHUYLQJ ZHOOQHVV
    :KHQ OLIHVW\OH FKDQJHV DUH QRW HQRXJK DQWLK\SHUWHQVLYH PHGLFLQHV FDQ EH HIIHFWLYH 3HGHOW\ DQG
    *RUHOLFN 7ZRRUPRUHDQWLK\SHUWHQVLYHPHGLFLQHVPD\EHQHHGHGWRDFKLHYHRSWLPDOFRQWURO
    )RU D OLVW RI FRPPRQ FODVVHV RI RUDO DQWLK\SHUWHQVLYH GUXJV VHH ߧ7KH 6HYHQWK 5HSRUW WR WKH -RLQW
    1DWLRQDO &RPPLWWHH RQ 3UHYHQWLRQ 'HWHFWLRQ (YDOXDWLRQ DQG 7UHDWPHQW RI +LJK %ORRG
    3UHVVXUHߨ &KREDQLDQHWDO 

    9DVFXODU'HPHQWLD 9D'
    7KLV LVDGHPHQWLD V\QGURPHZLWKSULPDULO\ VXEFRUWLFDO LQYROYHPHQWWKDW KDV D QXPEHURI YDVFXODU
    HWLRORJLHV6\PSWRPVQHFHVVDU\IRUWKLVGLDJQRVLVDUHDWRSLFRIGHEDWHZLWKGLIIHUHQWFULWHULDRIIHUHG
    E\ GLIIHUHQW DXWKRUV 6$ &RVHQWLQR -HIIHUVRQ HW DO   )RU H[DPSOH VRPH FRQVLGHU WKDW D
    VWUDWHJLFDOO\ SODFHG LQIDUFW FDQ SURGXFH GHPHQWLD HJ OHIW DQJXODU J\UXV PHGLDO WKDODPXV  $PDU
    DQG:LOFRFN RWKHUVKDYHSURSRVHGHYLGHQFHRIWZRRUPRUHLVFKHPLFVWURNHVDFFRPSDQLHGE\
    IXQFWLRQDO LPSDLUPHQW WR EH QHFHVVDU\ IRU WKLV GLDJQRVLV &KXL 9LFWRURII HW DO   RU WKDW
    GLDJQRVLVRI9D'UHTXLUHVDGHFOLQHLQPHPRU\IXQFWLRQLQJ 5RPDQ7DWHPLFKLHWDO 7KXVWKH
    WHUPߧYDVFXODUGHPHQWLDߨODFNVDJUHHGXSRQGLDJQRVWLFFULWHULDUHVXOWLQJLQVLJQLILFDQWGLIIHUHQFHVLQ
    SDWLHQWFODVVLILFDWLRQ &KXL0DFNHWDO6$&RVHQWLQR-HIIHUVRQHWDO:HWWHUOLQJHWDO
       $V D UHVXOW WKH WHUP YDVFXODU FRJQLWLYH LPSDLUPHQW ZDV FRLQHG WR HQFRPSDVV WKH YDULRXV
    IRUPV RI FRJQLWLYH LPSDLUPHQW GXH WR FHUHEURYDVFXODU GLVHDVH -9 %RZOHU DQG +DFKLQVNL  
    9D' LV OHVV FRPPRQ WKDQ RQFH WKRXJKW ,Q D ODUJH VHULHV RI GHPHQWLD FDVHV ZLWK DXWRSV\  KDG
    GHPHQWLDRQWKHEDVLVRILQIDUFWVDORQH -$6FKQHLGHUHWDO 3XUHVXEFRUWLFDO9D'LVUDUHDV
    YDVFXODUGLVHDVHRIWHQFRRFFXUVZLWK$' 6$&RVHQWLQR-HIIHUVRQHWDO 

    5LVNIDFWRUV

    :KLWHPDWWHUOHVLRQVPD\EHSUHVHQWLQROGHUSHUVRQVZKRKDYHQRUPDOFRJQLWLYHIXQFWLRQIRUWKHLU
    DJH +RZHYHU LQ D ORQJLWXGLQDO VWXG\ RI QRQGHPHQWHG HOGHUO\ SDWLHQWV DQ LQFUHDVH RYHU WLPH LQ
    VXEFRUWLFDOZKLWHPDWWHUK\SHULQWHQVLWLHVZDVDVVRFLDWHGZLWKPHPRU\GHFOLQH 6LOEHUW1HOVRQHWDO
     7KHVHDXWKRUVSURSRVHGWKDWZKLWHPDWWHUFKDQJHVVKRXOGQRWEHFRQVLGHUHGDEHQLJQFRQGLWLRQ
    6LPLODULWLHVEHWZHHQODFXQDULQIDUFWVDQGVXEFRUWLFDODUWHULRVFOHURVLVLQFOXGHWKHFRPPRQULVNIDFWRUV
    RIK\SHUWHQVLRQGLDEHWHVDEQRUPDOO\KLJKIDWW\FRQWHQWRIWKHEORRGREHVLW\DQGFLJDUHWWHVPRNLQJ

    3DWKRSK\VLRORJ\

    7KHIRUPVRI9D'FDQEHGLYLGHGLQWRODUJHDQGVPDOOYHVVHOGLVHDVH/DUJHYHVVHOGLVHDVHLQFOXGHV
    HPEROLWKURPELDQGDWKHURVFOHURVLVWKDWFDQFDXVHPXOWLLQIDUFWVDFFRXQWLQJIRUDERXWRI9D'
    -HOOLQJHU 7KHQHXURSV\FKRORJLFDOGHILFLWVDVVRFLDWHGZLWKODUJHYHVVHOGLVHDVHDUHGHSHQGHQW
    RQWKHVLWHDQGH[WHQWRIFHUHEUDOOHVLRQV0RVWODUJHYHVVHOLQIDUFWVDIIHFWWKHLQWHUQDOFDURWLGDUWHU\
    EORRG VXSSO\ WR FRUWLFDO DVVRFLDWLRQ DUHDV EXW RFFOXVLRQV RI WKH SRVWHULRU FHUHEUDO DUWHU\ DQG WKH
    DQWHULRUFHUHEUDODUWHU\DOVRRFFXU :HWWHUOLQJ.DQLW]DQG%RUJLV 6\PSWRPVRIWHQKDYHDQ
    DEUXSW RQVHW DQG PD\ IROORZ D VWHSZLVH GHFOLQH LQ FRJQLWLRQ DORQJ ZLWK LQFUHDVLQJ QXPEHUV DQG
    VHYHULW\RIQHXURORJLFDOVLJQV7KLVFRQGLWLRQPD\EHUHIHUUHGWRDVPXOWLLQIDUFWGHPHQWLD&HUHEUDO
    DXWRVRPDO GRPLQDQW DUWHULRSDWK\ ZLWK VXEFRUWLFDO LQIDUFWV DQG OHXFRDUDLRVLV &$',6,/  LV D UDUH
    JHQHWLF GLVHDVH SURGXFLQJ H[WHQVLYH VXEFRUWLFDO LQIDUFWLRQV DQG OHXNRHQFHSKDORSDWK\ ZKLWH PDWWHU
    GLVHDVH 
    7KHW\SHVRIVPDOOYHVVHOGLVHDVHDUHVXEFRUWLFDOODFXQHVVWUDWHJLFLQIDUFWVZDWHUVKHGLQIDUFWVDQG
    VXEFRUWLFDODUWHULRVFOHURVLV -HOOLQJHU   6XEFRUWLFDO ODFXQHVRU PLFURLQIDUFWV   PP DUHDV
    SULPDULO\LQYROYHFHQWUDOZKLWHPDWWHUDQGVXEFRUWLFDOVWUXFWXUHVVXFKDVWKHWKDODPXVEDVDOJDQJOLD
    LQWHUQDOFDSVXOHDQGEUDLQVWHP7KHVHYXOQHUDEOHDUHDVXQGHUOLHSDUWVRIIURQWDOOREHFLUFXLWU\VRLWLV
    QRWVXUSULVLQJWKDWSDWLHQWVW\SLFDOO\H[KLELWVLJQVRIIURQWDOV\VWHPG\VIXQFWLRQSULPDULO\GHILFLWVLQ
    H[HFXWLYHEHKDYLRU &/&DUH\HWDO /DFXQHVWKDWODFNREYLRXVVWURNHOLNHV\PSWRPVߟߨVLOHQW
    VWURNHVߨRU ߧVLOHQW EUDLQ LQIDUFWVߨLQ WKDW WKH\ PD\ QRW EH GLVFRYHUHG XQWLO DXWRSV\ߟDUH VXUSULVLQJO\
    FRPPRQ
    ,QDORQJLWXGLQDOVWXG\RIFHUHEURYDVFXODUGLVHDVHDQGDJLQJRIQRUPDOSDUWLFLSDQWVZLWKD
    PHDQ DJH RI  KDG ODFXQDU LQIDUFWV &/ &DUH\ HW DO   6LOHQW ODFXQHV LQ WKHVH VXEMHFWV ZHUH
    DVVRFLDWHGZLWKSRRUHUSHUIRUPDQFHRQDFRPSRVLWHPHDVXUHRIH[HFXWLYHIXQFWLRQWKDWLQFOXGHGWHVWV
    RILQLWLDWLRQSHUVHYHUDWLRQOHWWHUIOXHQF\UHYHUVHGGLJLWVSDQDQGYLVXDOPHPRU\VSDQ6LOHQWLQIDUFWV
    UDLVH WKH ULVN RI GHSUHVVLRQ DQG $' 9HUPHHU /RQJVWUHWK DQG .RXGVWDDO   /DFXQHV DOVR FDQ
    SURGXFHQHXURORJLFDOVLJQVVXFKDVYLVXDOILHOGGHIHFWVDUPDQGOHJVHQVRU\RUPRWRUGLVWXUEDQFHV
    G\VDUWKULD FU\LQJ VPDOOVWHSSHG JDLW DQG XULQDU\ LQFRQWLQHQFH &KXL  9HUPHHU /RQJVWUHWK
    DQG .RXGVWDDO   3VHXGREXOEDU SDOV\ DQG DIIHFW GLVRUGHUHG DFWLYLWLHV LQYROYLQJ PRXWK
    PRYHPHQWVߟHJ GURROLQJ VZDOORZLQJߟDQG HPRWLRQDO ODELOLW\ PD\ RFFXU ZLWK PXOWLSOH ELODWHUDO
    ODFXQHV
    6WUDWHJLFELODWHUDOLQIDUFWLRQRIWKHDQWHURPHGLDOWKDODPXVZKLFKLQFOXGHVWKHGRUVRPHGLDOQXFOHL
    FDQ SURGXFH DQ DEUXSW RQVHW GHPHQWLD V\QGURPH RI LPSDLUHG PHPRU\ DWWHQWLRQ DQG H[HFXWLYH
    IXQFWLRQVRPHWLPHVDFFRPSDQLHGE\PDUNHGDSDWK\ &KXL ,QIDUFWLRQRIWKHLQIHULRUJHQXRI
    WKH LQWHUQDO FDSVXOH LV DQRWKHU VLWH WKDW FDQ JLYH ULVH WR D VWUDWHJLFLQIDUFW GHPHQWLD LH GHPHQWLD
    UHVXOWLQJ IURP D VLQJOH OHVLRQ LQ D FULWLFDO DUHD  SUHVXPDEO\ EHFDXVH RI D GLVUXSWLRQ RI
    WKDODPRFRUWLFDO ZKLWH PDWWHU WUDFWV 7DWHPLFKL 'HVPRQG HW DO   :DWHUVKHG LQIDUFWV GXH WR
    K\SRSHUIXVLRQ DW WKH GLVWDO HQGV RI YHVVHOV LQ WKH WHUULWRULHV EHWZHHQ DUWHULHV PD\ SURGXFH
    KLSSRFDPSDO RU WKDODPLF LQIDUFWV 7KH KLSSRFDPSXV LV HVSHFLDOO\ VHQVLWLYH WRK\SRSHUIXVLRQ ZKLFK
    FDQUHVXOWLQKLSSRFDPSDOVFOHURVLVRUODFXQHV 0HQRQDQG.HOOH\ 
    6XEFRUWLFDO DUWHULRVFOHURVLV DQG %LQVZDQJHUߤVGLVHDVH GLIIHU IURP ODFXQDU FRQGLWLRQV LQ WKDW WKH
    RQVHWLVVORZDQGLQVLGLRXVDQGWKH\LQYROYHZKLWHPDWWHUOHVLRQV &XPPLQJVDQG0DKOHU6WXVV
    DQG&XPPLQJV  +\SRSHUIXVLRQ DQG RWKHU GLVWXUEDQFHVRI FHUHEUDO EORRGIORZ SURGXFH WKHVH
    FKURQLF LVFKHPLD FRQGLWLRQV ZKLFK FDQ UHVXOW LQ GHP\HOLQDWLRQ D[RQDO ORVV DQG ODFXQDU LQIDUFWV LQ
    WKH SHULYHQWULFXODUGHHS DQG VXEFRUWLFDO ZKLWH PDWWHU )LOOH\   -HOOLQJHU    :KLWH
    PDWWHUK\SHULQWHQVLWLHVVKRZXSRQ05,VFDQV3HULYHQWULFXODUZKLWHPDWWHUOHVLRQVVRPHWLPHVFDOOHG
    OHXNRDUDLRVHVFDQEHTXLWHH[WHQVLYHDQGPD\DIIHFWDVPDQ\DVRIPXOWLLQIDUFWSDWLHQWVRI
    SDWLHQWVZLWK$O]KHLPHUGLVHDVHDQGPRUHWKDQDWKLUGRIFRJQLWLYHO\KHDOWK\LQGLYLGXDOVRYHUDJH
    .REDULHWDO 
    &RJQLWLYHDQGEHKDYLRUDOV\PSWRPV

    7KH GHILQLQJ FRJQLWLYH IHDWXUHV RI 9D' DUH SV\FKRPRWRU VORZLQJ DQG H[HFXWLYH G\VIXQFWLRQ RIWHQ
    DFFRPSDQLHG E\ GHSUHVVLRQ -$ /HY\ DQG &KHOXQH   5HVHDUFK FULWHULD IRU VXEFRUWLFDO 9D'
    LQFOXGHDG\VH[HFXWLYHV\QGURPHGHWHULRUDWLRQIURPDSUHYLRXVKLJKHUOHYHORIFRJQLWLYHIXQFWLRQ
    HYLGHQFH RI FHUHEURYDVFXODU GLVHDVH DQG WKH SUHVHQFH RU KLVWRU\ RI QHXURORJLFDO VLJQV FRQVLVWHQW
    ZLWK VXEFRUWLFDO 9D' VXFK DV KHPLSDUHVLV ORZHU IDFLDO ZHDNQHVV %DELQVNLߤV VLJQ VHQVRU\ GHILFLW
    G\VDUWKULDJDLWGLVRUGHURUH[WUDS\UDPLGDOVLJQV (UNLQMXQWWLHWDO ,QRQHVWXG\UDGLRORJLFDO
    HYLGHQFH RI DEQRUPDOLWLHV LQ DW OHDVW  RI FHUHEUDO ZKLWH PDWWHU ZDV QHHGHG EHIRUH SDWLHQWV
    GLVSOD\HG GHPHQWLD ZLWK GHILFLWV LQ H[HFXWLYH IXQFWLRQ YLVXRFRQWUXFWLRQV PHPRU\ DQG ODQJXDJH
    &&3ULFH-HIIHUVRQHWDO 
    9D' SDWLHQWV WHQG WR UHWDLQ DZDUHQHVV RI WKHLU GLVDELOLWLHV 'H%HWWLJQLHV HW DO   *LYHQ WKLV
    DZDUHQHVV LW LV QRW VXUSULVLQJ WR ILQG DV PDQ\ DV  RI WKHVH SDWLHQWV ZLWK GHSUHVVLYH V\PSWRPV
    $SRVWRORYD DQG &XPPLQJV   &XPPLQJV 0LOOHU HW DO    7KUHDWHQLQJ GHOXVLRQV
    VXFKDVEHLQJUREEHGRUKDYLQJDQXQIDLWKIXOVSRXVHDUHOLNHO\WRRFFXULQKDOIRIWKHVHSDWLHQWVDW
    VRPHWLPHLQWKHLUFRXUVH
    7UHDWPHQW

    7KHLGHDOWUHDWPHQWIRUPDQ\SHRSOHZLWKYDVFXODUULVNIDFWRUVLVOLIHVW\OHPRGLILFDWLRQVWKDWLQFOXGH
    ZHLJKWUHGXFWLRQUHJXODUSK\VLFDODFWLYLW\DGLHWORZLQVDOWDQGVDWXUDWHGIDWDQGULFKLQIUXLWVDQG
    YHJHWDEOHVPRGHUDWLRQ RIDOFRKRO FRQVXPSWLRQDQG DYRLGDQFHRI FLJDUHWWHV &KREDQLDQ%DNULV HW
    DO   &RQWUROOLQJ ERWK KLJK EORRG SUHVVXUH HVSHFLDOO\ V\VWROLF DQG ORZ EORRG SUHVVXUH LQ
    HOGHUO\DGXOWVLVLPSRUWDQWIRUUHGXFLQJWKHULVNRIGHPHQWLD 4LX:LQEODGDQG)UDWLJOLRQL 

    0LJUDLQH
    7KH VHFRQG PRVW FRPPRQ QHXURORJLFDO GLVRUGHU DQG UDQNHG WK DPRQJ DOO GLVHDVHV FDXVLQJ
    GLVDELOLW\ ZRUOGZLGH E\ WKH :RUOG +HDOWK 2UJDQL]DWLRQ ,QWHUQDWLRQDO +HDGDFKH 6RFLHW\  
    PLJUDLQHLV D KHDGDFKH FRQGLWLRQ LQYROYLQJ WR  RIWKHDGXOW SRSXODWLRQ )HUUDUL DQG+DDQ
    /LSWRQ%LJDOHWDO 3UHYDOHQFHLVKLJKHVWLQWKHWRDJHUDQJHDQGORZHVWLQWKRVH
    \HDUVRUROGHU 5:(YDQV  7KH WHUPPLJUDLQH LPSOLHVD ODWHUDOL]HG KHDGDFKH DOWKRXJK
    RQO\RIPLJUDLQHKHDGDFKHVRFFXUXQLODWHUDOO\ 'HUPDQ 7\SLFDOO\KHDGDFKHVODVWIRXUWR
     KRXUV DQG KDYH DW OHDVW WZR RI WKH IROORZLQJ SDLQ FKDUDFWHULVWLFV XQLODWHUDO ORFDWLRQ SXOVDWLQJ
    TXDOLW\PRGHUDWHWRVHYHUHLQWHQVLW\DQGDJJUDYDWLRQE\URXWLQHSK\VLFDODFWLYLW\DVVRFLDWLRQQDXVHD
    DQGRUSKRWRSKRELDDQGSKRQRSKRELDDUHFRPPRQ$XUDIUHTXHQWO\DVVRFLDWHGZLWKPLJUDLQHUHIHUV
    WRWKHLQLWLDORUSUHVDJLQJV\PSWRPVZKLFKIUHTXHQWO\DUHXQSOHDVDQWVHQVDWLRQV
    &ODVVLILFDWLRQ RI KHDGDFKHV KDV DOZD\V EHHQ VRPHZKDW DPELJXRXV 3DWLHQWV FDQ KDYH PRUH WKDQ
    RQH W\SH RI KHDGDFKH WKHLU KHDGDFKHV PD\ FKDQJH LQ QDWXUH DQG IUHTXHQF\ RYHU WKHLU OLIHWLPH DQG
    VRPH KHDGDFKHV DUH QRW HDVLO\ FODVVLILHG ,Q RUGHU WR VWDQGDUGL]H WKH FULWHULD IRU GLDJQRVLV RI
    KHDGDFKHVDQGWRIDFLOLWDWHWKHFRPSDULVRQRISDWLHQWVLQYDULRXVVWXGLHVDKLHUDUFKLFDOO\FRQVWUXFWHG
    VHWRIFODVVLILFDWLRQDQGGLDJQRVWLFFULWHULDZDVGHYHORSHGE\WKH+HDGDFKH&ODVVLILFDWLRQ&RPPLWWHH
    RIWKH,QWHUQDWLRQDO+HDGDFKH6RFLHW\  ,QWKLVFODVVLILFDWLRQV\VWHPWKHWHUPPLJUDLQHZLWKRXW
    DXUDUHSODFHVFRPPRQPLJUDLQH0LJUDLQHZLWKDXUDUHIHUVWRFODVVLFPLJUDLQHDGLVRUGHUZLWKIRFDO
    QHXURORJLFDO V\PSWRPV FOHDUO\ ORFDOL]DEOH WR WKH FHUHEUDO FRUWH[ DQGRU EUDLQVWHP 9DULDQWV RI WKLV
    FRQGLWLRQ LQFOXGH SURORQJHG DXUD IDPLOLDO KHPLSOHJLF PLJUDLQH EDVLODU PLJUDLQH PLJUDLQH DXUD
    ZLWKRXW KHDGDFKH DQG PLJUDLQH ZLWK DFXWH RQVHW DXUD 6LOEHUVWHLQ HW DO   0RUH XQXVXDO
    PLJUDLQHGLVRUGHUVKDYHEHHQGHVFULEHG

    5LVNIDFWRUV

    (VWLPDWHVRISUHYDOHQFHUDQJHIURPWRLQZRPHQDQGIURPWRLQPHQZLWK
    WKH UDWLR RI IHPDOHV H[FHHGLQJ PDOHV SHDNLQJ DW DJH  /LSWRQ DQG 6WHZDUW  :) 6WHZDUW
    6KHFKWHU DQG 5DVPXVVHQ   0LJUDLQH UDWHV DSSHDU WR YDU\ ZLWK UDFH  IRU &DXFDVLDQV
     IRU $IULFDQ $PHULFDQV DQG  IRU $VLDQV SHUKDSV UHIOHFWLQJ D JHQHWLF FRPSRQHQW :)
    6WHZDUW/LSWRQDQG/LHEHUPDQ 8SWRRIPLJUDLQHLVKHUHGLWDEOH 5:(YDQV  $
    OLQNWRFKURPRVRPHSKDVEHHQLGHQWLILHGLQIDPLOLDOKHPLSOHJLFPLJUDLQH 0DWKHZ 
    0RRG GLVRUGHUVߟGHSUHVVLRQ DQ[LHW\ DQG SDQLF DWWDFNVߟDUH DPRQJVW WKH PRVW FRPPRQ
    FRPRUELGLWLHV %UHVODXHWDO5:(YDQV6LOEHUVWHLQ (SLOHSV\ /LSWRQ2WWPDQHW
    DO6LOEHUVWHLQ:HOFKDQG/HZLV VWURNHDQGHVVHQWLDOWUHPRU 6LOEHUVWHLQ 
    DOVRWHQGWRRFFXUZLWKPLJUDLQH7KHEDVLVIRUWKHVHDVVRFLDWLRQVLVQRWFOHDU /LSWRQDQG6LOEHUVWHLQ
    0HULNDQJDV DQG6WHYHQV  ,W PD\ EHELGLUHFWLRQDO ZLWK GHSUHVVLRQ HSLOHSV\VWURNHDQG
    WUHPRU LQYROYLQJ RQH RU PRUH FRPPRQ HWLRORJLHV 7KH QRWLRQ RI D PLJUDLQH SHUVRQDOLW\ ZDV
    LQWURGXFHGE\+*:ROII  EXWHYLGHQFHGRHVQRWVHHPWRVXSSRUWLW /LVKPDQ $OWKRXJK
    VRPHVWXGLHVUHSRUWWKDWPLJUDLQHSDWLHQWVKDYHDUHODWLYHO\KLJKLQFLGHQFHRITXHVWLRQQDLUHUHVSRQVHV
    DVVRFLDWHG ZLWK ߧQHXURWLF VLJQVߨRU ߧQHXURWLFLVPߨ HJ 6LOEHUVWHLQ /LSWRQ DQG %UHVODX   WKLV
    UHVHDUFK IDLOHG WR WDNH LQWR DFFRXQW VFRUH LQIODWLRQ UHVXOWLQJ IURP KRQHVW UHSRUWLQJ RI PLJUDLQH
    V\PSWRPVDQGWKHLUHYHU\GD\UHSHUFXVVLRQV
    9DULRXVWULJJHUVFDQLQGXFHPLJUDLQHV)RRGVVXFKDVFKHHVHFKRFRODWHDQGDOFRKROߟHVSHFLDOO\
    UHGZLQHDQGEHHUߟDVZHOODVIRRGDGGLWLYHV QLWUDWHVDVSDUWDPHDQGPRQRVRGLXPJOXWDPDWH PD\
    SUHFLSLWDWHDPLJUDLQHLQVRPHLQGLYLGXDOV 3HDWILHOG5RSSHUDQG6DPXHOV /DFNRIVOHHS
    RUWRRPXFKPLVVLQJDPHDORUVWUHVVFDQSUHFLSLWDWHDQDWWDFN /LVKPDQ 2WKHUWULJJHUVDUH
    KHDW KLJK KXPLGLW\ DQG KLJKDOWLWXGH 5: (YDQV  6RPH UHVHDUFK KDV LQGLFDWHG WKDW SDWLHQWV
    DUHPRUHOLNHO\WRKDYHPLJUDLQHVRQWKHZHHNHQGSHUKDSVGXHWRKDELWFKDQJHVVXFKDVFRQVXPLQJ
    OHVVFDIIHLQHJHWWLQJXSODWHUDQGVOHHSLQJORQJHURUUHGXFHGZRUNUHODWHGVWUHVV &RXWXULHU+HULQJ
    DQG6WHLQHU&RXWXULHU/DPDQHWDO EXWRWKHUVGLVDJUHH 7*/HHDQG6RORPRQ
    7RUHOOL HW DO   $ IDOO LQ HVWURJHQ OHYHOV KDV EHHQ OLQNHG WR WKH SURGXFWLRQ RI PHQVWUXDWLRQ
    UHODWHG PLJUDLQHV ZKLOH VXVWDLQHG KLJK OHYHOV RI HVWURJHQ LQ WKH VHFRQG DQG WKLUG WULPHVWHUV RI
    SUHJQDQF\ PD\ OHDG WR WKHLU UHGXFWLRQ 6LOEHUVWHLQ   0LJUDLQHV PD\ EH EHWWHU ZRUVH RU
    XQFKDQJHGZLWKRUDOFRQWUDFHSWLYHVPHQRSDXVHDQGSRVWPHQRSDXVDOKRUPRQHUHSODFHPHQWWKHUDS\
    0DF*UHJRU 6RPHGUXJV HJQLWURJO\FHULQHKLVWDPLQHUHVHUSLQHDQGK\GUDOD]LQH FDQEH
    WULJJHUV (YHQ ZHDWKHU FKDQJHV KLJK DOWLWXGHV DQG JODUH OLJKWLQJ KDYH EHHQ LPSOLFDWHG 0DWKHZ
     3KDUPDFRORJLFLQWHUYHQWLRQIRUPLJUDLQHVDQGLWVFRPRUELGLWLHVVKRXOGEHLQGLYLGXDOL]HGIRU
    HDFKSDWLHQW 6LOEHUVWHLQ 
    3DWKRSK\VLRORJ\

    $QXPEHURIWKHRULHVKDYHDWWHPSWHGWRDFFRXQWIRUYXOQHUDELOLW\WRPLJUDLQHEXWQRQH\HWDUHIXOO\
    VXFFHVVIXOSHUKDSVGXHWRWKHPDQ\DQGGLIIHUHQWDQWHFHGHQWVIRUWKLVFRQGLWLRQ7KHYDVFXODUWKHRU\
    RIPLJUDLQHSURSRVHGWKDWWKHDXUDRIDPLJUDLQHLVDVVRFLDWHGZLWKLQWUDFUDQLDOYDVRFRQVWULFWLRQDQG
    WKH KHDGDFKH ZLWK D VWHULOH LQIODPPDWRU\ UHDFWLRQ DURXQG WKH ZDOOV RI GLODWHG FHSKDOLF YHVVHOV -5
    *UDKDP DQG :ROI  /DXULW]HQ  7KLV WKHRU\ LV VXSSRUWHG E\ WKH SDLQߤV SXOVDWLQJ DVSHFW
    RFFXUUHQFHRIKHDGDFKHVZLWKRWKHUYDVFXODUGLVRUGHUVVXFFHVVIXOWUHDWPHQWRIVRPHKHDGDFKHVZLWK
    YDVRFRQVWULFWRUV DQG HYLGHQFH SRLQWLQJ WR WKH EORRG YHVVHOV DV WKH VRXUFH RI SDLQ <HW WKH YDVFXODU
    WKHRU\GRHVQRWH[SODLQDOODVSHFWVRIPLJUDLQH)RULQVWDQFHLQPLJUDLQHZLWKDXUDWKHUHDSSHDUVWR
    EHDZDYHRIROLJHPLD UHGXFHGEORRGIORZ VLPLODUWRWKHߧVSUHDGLQJFRUWLFDOGHSUHVVLRQRI/HDRߨ
    ZKLFKVWDUWVLQWKHSRVWHULRUSDUWRIWKHEUDLQDQGVSUHDGVWRWKHSDULHWDODQGWHPSRUDOOREHVDWWKHUDWH
    RIWRPPPLQIRUWRPLQXWHVDQGWRDYDU\LQJH[WHQW /DXULW]HQ /HDR  7KLV
    VSUHDGLQJROLJHPLDIROORZVWKHFRUWLFDOVXUIDFHUDWKHUWKDQYDVFXODUGLVWULEXWLRQV /DXULW]HQ  
    7KXV DUWHULDO YDVRVSDVP GRHV QRW DSSHDU WR EH UHVSRQVLEOH IRU WKH UHGXFHG EORRG IORZ *RDGVE\
     2OHVHQ HW DO   2WKHU K\SRWKHVHV LQFOXGH LQFUHDVHG SODWHOHW DJJUHJDELOLW\ ZLWK
    PLFURHPEROLDEQRUPDOFHUHEURYDVFXODUUHJXODWLRQDQGUHSHDWHGDWWDFNVRIK\SRSHUIXVLRQGXULQJWKH
    DXUD 5:(YDQV 
    7KHQHXURJHQLFWKHRU\RIPLJUDLQHSURSRVHVWKDWWKHKHDGDFKHLVJHQHUDWHGFHQWUDOO\DQGLQYROYHV
    WKH VHURWRQHUJLF DQG DGUHQHUJLF SDLQPRGXODWLQJ V\VWHPV -6 0H\HU   6HYHUDO OLQHV RI
    HYLGHQFH LPSOLFDWH VHURWRQLQ LWV V\PSWRPDWLF UHOLHI RI KHDGDFKHV LWV GURS LQ EORRG OHYHOV GXULQJ
    PLJUDLQH DQG WKH SURGXFWLRQ RI PLJUDLQHV E\ VHURWRQLQ DQWDJRQLVWV 6DNDL HW DO   (QKDQFHG
    VHURWRQLQ UHOHDVH LQFUHDVHV WKH UHOHDVH RI QHXURSHSWLGHV LQFOXGLQJ VXEVWDQFH 3 ZKLFK UHVXOWV LQ D
    QHXURJHQLF LQIODPPDWLRQ RI LQWUDFUDQLDO EORRG YHVVHOV DQG PLJUDLQH SDLQ 'HUPDQ   3DLQ
    DSSHDUVWRDULVHIURPYDVRGLODWLRQSULPDULO\RIWKHLQWUDFUDQLDOEORRGYHVVHOVDQGIURPDFWLYDWLRQRI
    WKHFHQWUDOWULJHPLQDOV\VWHPDVZHOO 0DWKHZ 
    &HUHEUDODWURSK\UDWHVLQPLJUDLQHXUVRIWRKDYHEHHQUHSRUWHGEXWPDQ\RIWKHVH&7DQG
    05, LPDJLQJ LQWHUSUHWDWLRQV PD\ KDYH EHHQ EDVHG RQ VXEMHFWLYH FULWHULD 5:(YDQV  6RPH
    LPDJLQJ VWXGLHV IRXQG DQ LQFLGHQFH RI 05, DEQRUPDOLW\ QR KLJKHU WKDQ LQ FRQWURO VXEMHFWV
    GH%HQHGLWWLVHWDO =LHJOHU HW DO   *UD\ PDWWHU VKULQNDJH LQ DUHDV DVVRFLDWHG ZLWK SDLQ
    WUDQVPLVVLRQ KDV EHHQ UHSRUWHG 6FKPLGW:LOFNH HW DO   DV KDYH RWKHU VXEWOH JUD\ PDWWHU
    DEQRUPDOLWLHV 5RFFD&HFFDUHOOLHWDO :KLWHPDWWHUDEQRUPDOLWLHVRQ05,DUHVHHQLQWR
    RIPLJUDLQHSDWLHQWVSDUWLFXODUO\LQYROYLQJWKHIURQWDOUHJLRQZKLOHRFFXUULQJLQWRRI
    KHDGDFKHIUHH FRQWUROV 5: (YDQV  )LOOH\   5DWHV RI WKHVH DEQRUPDOLWLHV DUH UHODWLYHO\
    KLJKHYHQIRUPLJUDLQHXUVXQGHUDJHKDYLQJQRRWKHUULVNIDFWRUV )D]HNDVHWDO,JDUDVKLHW
    DO  9DULRXV H[SODQDWLRQV IRU WKH SUHVHQFH RI ZKLWH PDWWHU DEQRUPDOLWLHV LQ PLJUDLQH SDWLHQWV
    LQFOXGHLQFUHDVHGZDWHUFRQWHQWGXHWRGHP\HOLQDWLRQRULQWHUVWLWLDOHGHPDPXOWLSOHPLFURHPEROLZLWK
    ODFXQDU LQIDUFWV FKURQLF ORZOHYHO YDVFXODU LQVXIILFLHQF\ UHVXOWLQJ IURP YDVFXODU LQVWDELOLW\ DQG
    UHOHDVH RI YDVRFRQVWULFWLYH VXEVWDQFHV VXFK DV VHURWRQLQ GH%HQHGLWWLV HW DO  ,JDUDVKL HW DO
     5HFHQWLPDJLQJVWXGLHVUHSRUWGHHSDVZHOODVSHULYHQWULFXODUZKLWHPDWWHUOHVLRQV DSSHDULQJ
    DVK\SHULQWHQVLWLHV LQPDQ\PLJUDLQHSDWLHQWVZLWKDVXEVHWRIWKHPDFFXPXODWLQJPRUHOHVLRQVRYHU
    WLPHFRJQLWLYHGHFOLQHZDVQRWDVVRFLDWHGZLWKWKHVHOHVLRQVߧ0LJUDLQHLVFHUWDLQO\QRWDULVNIDFWRU
    IRUGHPHQWLDߨ 3DHPHOHLUHS 
    7UDQVLHQWJOREDODPQHVLD 7*$ LVDVVRFLDWHGZLWKDQLQFUHDVHGUDWHRIPLJUDLQHEXWWKLVGLVRUGHU
    GLIIHUV IURP FRPPRQ PLJUDLQH LQ DJH RI RQVHW DQG IHZHU V\PSWRPV VXFK DV QDXVHD DQG KHDGDFKH
    7*$ WHQGV WR RFFXU LQ PLGGOHDJHG WR HOGHUO\ LQGLYLGXDOV LW XVXDOO\ ODVWV IRU D IHZ KRXUV EXW
    JHQHUDOO\OHVVWKDQDGD\3DWLHQWVW\SLFDOO\KDYHWRWDO UDUHO\SDUWLDO DPQHVLDIRUWKHHYHQWVGXULQJWKH
    DWWDFN ZKHQ PDQ\ GR UHSHWLWLYH TXHVWLRQLQJ DQG DUH GLVRULHQWHG IRU WLPH DQG SODFH ' 2ZHQ HW DO
      &RPSOH[ URXWLQH WDVNV PD\ EH FDUULHG RXW GXULQJ WKH HSLVRGH :KHWKHU VWUHVVIXO HYHQWV DQG
    DFWLYLWLHVDUHSUHFLSLWDQWVLVXQFOHDU)RFDOQHXURORJLFVLJQVDUHDEVHQW7KHVXJJHVWLRQKDVEHHQPDGH
    WKDW 7*$ DQG PLJUDLQH DUH LQGHSHQGHQW FRQGLWLRQV LQYROYLQJ D VLPLODU PHFKDQLVP RI SDUR[\VPDO
    G\VUHJXODWLRQ 1LFKHOOLDQG0HQDEXH6FKPLGWNHDQG(KPVHQ (WLRORJLHVIRU7*$RWKHU
    WKDQ PLJUDLQH KDYH EHHQ SURSRVHG VXFK DV HSLOHSV\ DQG SDUDGR[LFDO HPEROL ' 2ZHQ HW DO 
    0DULQ*DUFLDDQG5XL]9DUJDV 
    7KHPLJUDLQHFRQGLWLRQ

    +RXUVDQGHYHQGD\VEHIRUHKHDGDFKHRQVHWPLJUDLQHXUVPD\H[SHULHQFHDSURGURPHWKDWLQYROYHV
    RQH RU PRUH V\PSWRPV VXFK DV GHSUHVVLRQ HXSKRULD LUULWDELOLW\ UHVWOHVVQHVV IDWLJXH GURZVLQHVV
    IUHTXHQW \DZQLQJ PHQWDO VORZQHVV VOXJJLVKQHVV LQFUHDVHG XULQDWLRQ IOXLG UHWHQWLRQ GLDUUKHD
    FRQVWLSDWLRQ IRRG FUDYLQJ DQRUH[LD VWLII QHFN D FROG IHHOLQJ SKRWRSKRELD SKRQRSKRELD DQG
    K\SHURVPLD 'HUPDQ  6FKRRQPDQ HW DO  6LOEHUVWHLQ DQG /LSWRQ   $Q DXUD RI
    QHXURORJLFDOV\PSWRPVORFDOL]DEOHWRWKHFHUHEUDOFRUWH[RUEUDLQVWHPRFFXUVDURXQGWRPLQXWHV
    EHIRUHWKHKHDGDFKHLQDERXWWRRIPLJUDLQHHSLVRGHV -.&DPSEHOO'HUPDQ
    6LOEHUVWHLQDQG/LSWRQ +RPRQ\PRXVYLVXDODXUDVDUHPRVWFRPPRQDQGLQFOXGHVFLQWLOODWLQJ
    OLJKWV IRUPLQJ D ]LJ]DJ SDWWHUQ WHFKRSVLD  VFRWRPDV GXH WR EULJKW JHRPHWULF OLJKWV RU ORVV RI
    YLVLRQ RU EOXUUHG RU FORXG\ YLVLRQ 5RVVRU   2EMHFWV PD\ HYHQ FKDQJH LQ VKDSH RU VL]H
    PLFURSVLDRUPDFURSVLD RU]RRPLQDQGRXW
    8QLODWHUDO VHQVRU\ GLVWXUEDQFHV VXFK DV SDUHVWKHVLDV DQG G\VHVWKHVLDV DUH OHVV FRPPRQ DV DUH
    PRWRUGLVWXUEDQFHVWKDWLQFOXGHZHDNQHVVRIRQHOLPERUKDOIWKHERG\ PRQRSOHJLDKHPLSOHJLD DQG
    ODQJXDJH GHILFLWV 'HUPDQ  -6 6DSHU HW DO   'LSORSLD YHUWLJR G\VSKDJLD DQG DWD[LD
    SURYLGH HYLGHQFH RI EUDLQVWHP LQYROYHPHQW 8VXDOO\ WKH DXUD ODVWV OHVV WKDQ DQ KRXU EXW LW FDQ
    FRQWLQXHIRUVHYHUDOGD\V,WLVSRVVLEOHWRKDYHWKHDXUDZLWKRXWDKHDGDFKH
    7KH PRUH FRPPRQ XQLODWHUDO SDLQ GXULQJ WKH KHDGDFKH SKDVH W\SLFDOO\ LQYROYHV RQH SHULRUELWDO
    UHJLRQߟFKHHNRUHDUDOWKRXJKDQ\SDUWRIWKHKHDGDQGQHFNFDQEHDIIHFWHG 'HUPDQ 3DLQLV
    JHQHUDOO\ DVVRFLDWHG ZLWK QDXVHD OHVV RIWHQ ZLWK YRPLWLQJ )DFLDO SDOORU FRQJHVWLRQ RI IDFH DQG
    FRQMXQFWLYD QDVDO VWXIILQHVV OLJKWKHDGHGQHVV SDLQIXO VHQVDWLRQV LPSDLUHG FRQFHQWUDWLRQ PHPRU\
    LPSDLUPHQW VFDOS WHQGHUQHVV RU DQ\ RI WKH SURGURPDO SKDVH V\PSWRPV PD\ RFFXU 2UWKRVWDWLF
    K\SRWHQVLRQDQGGL]]LQHVVKDYHEHHQUHSRUWHG 0DWKHZ 3DLQFDQEHPRUHRUOHVVVHYHUHDQG
    IUHTXHQWO\ KDV D SXOVDWLQJ TXDOLW\ ,W PD\ EH DJJUDYDWHG E\ H[HUFLVH RU VLPSOH KHDG PRYHPHQW
    'HUPDQ/LVKPDQ5RVVRU6LOEHUVWHLQDQG/LSWRQ 7KHKHDGDFKHODVWVDIHZ
    KRXUV WR VHYHUDO GD\V 0LJUDLQHXUV RIWHQ IHHO WLUHG OLVWOHVV DQG GHSUHVVHG GXULQJ WKH VXFFHHGLQJ
    KRXUV WR GD\V WKRXJK WKH FRQYHUVHߟIHHOLQJ UHIUHVKHG DQG HXSKRULFߟVRPHWLPHV RFFXUV 'HUPDQ
     
    0LJUDLQHVFDQGHYHORSDWDQ\WLPHEXWEHJLQPRVWIUHTXHQWO\RQDULVLQJLQWKHPRUQLQJ,QDODUJH
    VWXG\  RI PLJUDLQHXUV UHSRUWHG DQ DWWDFN IUHTXHQF\ RI WKUHH RU PRUH SHU PRQWK DQG 
    UHSRUWHG VHYHUH LPSDLUPHQW RU WKH QHHG IRU EHG UHVW /LSWRQ %LJDO HW DO   0LJUDLQHV RIWHQ
    FRPSURPLVH IXQFWLRQLQJ IRU KRXUV WR GD\V -6 0H\HU   DQG LQ WKH UDUH LQVWDQFH DUH OLIH
    WKUHDWHQLQJ )HUJXVRQ DQG 5RELQVRQ   9HU\ RFFDVLRQDOO\ WKH\ PD\ EH DVVRFLDWHG ZLWK
    SHUPDQHQW QHXURORJLFDO VHTXHODH IURP LVFKHPLF DQG KHPRUUKDJLF VWURNH (VWRO  .ROE 
    2OHVHQHWDO 
    0LJUDLQHGRHVDSSHDUWREHDVPDOOULVNIDFWRUIRUVWURNH %XULQJHWDO(WPLQDQHWDO
    0HULNDQJDV HW DO   DOWKRXJK WKH UHODWLRQVKLS EHWZHHQ VWURNH DQG PLJUDLQH LV QRW IXOO\
    XQGHUVWRRG %URGHULFN  0LOKDXG HW DO  .0$ :HOFK   &RQFHUQ KDV EHHQ UDLVHG
    DERXWDQLQFUHDVHGULVNIRULVFKHPLFVWURNHLQZRPHQRIFKLOGEHDULQJDJHZKRKDYHPLJUDLQHZLWK
    DXUD 'RQDJK\HWDO0LOKDXGHWDO7]RXULRHWDO 

    &RJQLWLRQ

    )LQGLQJV IURP QHXURSV\FKRORJLFDO VWXGLHV KDYH EHHQ LQFRQVLVWHQW 7KH SHUIRUPDQFH RI FROOHJH
    VWXGHQWV ZLWK FODVVLF DQG FRPPRQ PLJUDLQHV ZDV VLPLODU WR WKDW RI QRQPLJUDLQRXV VWXGHQWV RQ WKH
    +DOVWHDG5HLWDQ %DWWHU\ +5%  DV ZHOO DV RQ PHPRU\ WHVWV %XUNHU HW DO   6LQIRULDQL DQG KLV
    FROOHDJXHV  DOVRUHSRUWHGQRLPSDLUPHQWRQDQ\RIDVHWRIWHVWVWKDWDVVHVVHGDZLGHUDQJHRI
    FRJQLWLYH IXQFWLRQV 7KHVH SDWLHQWV KDG QRUPDO &7 VFDQV ((* ILQGLQJV DQG QHXURORJLFDO
    H[DPLQDWLRQ DQG KDG QRW XVHG DQ\ SURSK\ODFWLF WUHDWPHQW LQ WKH ODVW PRQWK /HLMGHNNHUV DQG
    FRZRUNHUV   VWXGLHG ZRPHQ ZKR KDG PLJUDLQH ZLWK DQG ZLWKRXW DXUD FRPSDULQJ WKHLU
    SHUIRUPDQFHV RQ WKH 1HXUREHKDYLRUDO (YDOXDWLRQ 6\VWHP 1(6  WR KHDOWK\ FRQWUROV DQG IRXQG QR
    JURXS GLIIHUHQFHV RQ PHDVXUHV RI DWWHQWLRQ OHDUQLQJ DQG PHPRU\ DQG PRWRU WDVNV $ SRSXODWLRQ
    EDVHGVWXG\RI'DQLVKWZLQVIRXQGQRGLIIHUHQFHEHWZHHQWKHDIIHFWHGDQGQRQDIIHFWHGWZLQSDLUVRQ
    WHVWV RI YHUEDO IOXHQF\ GLJLW VSDQ V\PERO GLJLW VXEVWLWXWLRQ DQG GHOD\HG ZRUG UHFDOO *DLVW HW DO
      6LPLODU ILQGLQJV KDYH EHHQ UHSRUWHG IRU ROGHU PLJUDLQH SDWLHQWV FRPSDUHG ZLWK PDWFKHG
    FRQWUROVXVLQJGLJLWV\PERODULWKPHWLFSUREOHPVROYLQJDQGVSDWLDOWHVWV 3HDUVRQHWDO $OVR
    HQFRXUDJLQJDUHGDWDIURPDSURVSHFWLYHORQJLWXGLQDOFRPPXQLW\EDVHGVWXG\LQZKLFKSHUVRQVZLWK
    PLJUDLQH VKRZHG D VOLJKW LQFUHDVH LQ GHOD\HG UHFDOO VFRUHV ZKLOH SDUWLFLSDQWV ZLWKRXW PLJUDLQH
    VKRZHG D VOLJKW GHFOLQH ZKHQ UHH[DPLQHG ZLWK D PRGLILHG YHUVLRQ RI WKH 5H\ $XGLWRU\ 9HUEDO
    /HDUQLQJ7HVWRYHU\HDUVRIIROORZXS .DOD\GMLDQHWDO 7KHJURXSGLIIHUHQFHVZHUHVPDOO
    DQGOLNHO\FOLQLFDOO\LQVLJQLILFDQW7KHDXWKRUVGRQRWVWDWHWKHQDWXUHRIWKHPRGLILFDWLRQRIWKHWHVW
    EXWWKHPHDQGHOD\HGUHFDOOVFRUHVIRUWKHJURXSV IRUPLJUDLQHXUVDQGIRUQRQPLJUDLQHXUV
    ZRXOGEHXQXVXDOO\ORZIRUWKHPHDQDJHV DQGUHVSHFWLYHO\ RQWKHVWDQGDUGDGPLQLVWUDWLRQ
    8VLQJ D VPDOO ߧPLQLߨWHVW EDWWHU\ 0LQL0HQWDO 6WDWH ([DPLQDWLRQ  &RJQLWLYH &DSDFLW\ 6FUHHQLQJ
    ([DPLQDWLRQ -60H\HU  DOVRIRXQGQRHYLGHQFHRIFRJQLWLYHGHFOLQHLQKLVPLJUDLQHXUVEXW
    ߟQRW VXUSULVLQJO\ߟGRFXPHQWHG SRRUHU SHUIRUPDQFHV IRU VXEMHFWV H[DPLQHG ZKHQ KDYLQJ D
    PLJUDLQHWKDQZKHQSDLQIUHH
    ,QFRQWUDVW+RRNHUDQG5DVNLQ  IRXQGVLJQLILFDQWO\KLJKHU$YHUDJH,PSDLUPHQW5DWLQJVRQ
    WKH+5%LQSDWLHQWVZLWKFODVVLFDQGFRPPRQPLJUDLQHVFRPSDUHGWRQRUPDOFRQWUROV3HUIRUPDQFH
    ZDV SDUWLFXODUO\ SRRU RQ VHYHUDO WHVWV RI PRWRU VSHHG GH[WHULW\ WDFWLOH SHUFHSWLRQ GHOD\HG YHUEDO
    UHFDOODQGDSKDVLDVFUHHQLQJ2QPDQ\RIWKHWHVWVPHDQVFRUHVRIWKHPLJUDLQHSDWLHQWVZHUHZRUVH
    WKDQ WKH FRQWURO JURXSߤV PHDQV EXW WKH ODUJH YDULDQFHVߟPRVW QRWDEO\ RQ WHVWV ZLWK VNHZHG
    GLVWULEXWLRQV HJ 7UDLO 0DNLQJ 7HVW% ߟREOLWHUDWHG SRVVLEOH JURXS GLIIHUHQFHV VHH /H]DN DQG
    *UD\  IRU D GLVFXVVLRQ RI WKLV VWDWLVWLFDO SUREOHP  6ORZHU SHUIRUPDQFH ZDV REWDLQHG E\
    PLJUDLQHXUVFRPSDUHGWRFRQWUROVRQDFRPSXWHUVHWVKLIWLQJWDVNDOWKRXJKWKHUHZDVQRGLIIHUHQFH
    EHWZHHQWKHJURXSVRQWKH6WURRSWHVW 6FKPLW]HWDO 
    6XEMHFW VHOHFWLRQ VHHPV WR EH WKH IDFWRU WKDW PRVW FOHDUO\ GLVWLQJXLVKHV WKH VWXGLHV UHSRUWLQJ
    FRJQLWLYHGHILFLWVIURPWKRVHWKDWGRQRWLQVRPHEXWQRWDOOVWXGLHV,QWKH+RRNHUDQG5DVNLQ 
    DQG =HLWOLQ DQG 2GG\   VWXGLHV VRPH RI WKH SDWLHQWV ZHUH XVLQJ SURSK\ODFWLF RU V\PSWRPDWLF
    WUHDWPHQWV EXW WKLV GLG QRW DSSHDU WR DFFRXQW IRU WKH JURXS GLIIHUHQFHV <HW WKHVH SDWLHQWV ZHUH
    UHFHLYLQJ PHGLFDO DWWHQWLRQ IRU WKHLU PLJUDLQHV UDLVLQJ WKH SRVVLELOLW\ WKDW WKH\ ZHUH H[SHULHQFLQJ
    PRUH VHULRXV PLJUDLQHUHODWHG V\PSWRPV DQG VLGH HIIHFWV +RZHYHU %' %HOO DQG KLV FROOHDJXHV
     UHFUXLWHGPRVWO\SDWLHQWVZLWKFRPPRQPLJUDLQHVIURPVSHFLDOW\SDLQFOLQLFVDQGIRXQGWKDW
    RQO\DERXWRIWKHPVKRZHGPLOGFRJQLWLYHLPSDLUPHQWRQILYHRUPRUHRIWHVWYDULDEOHV7KH
    PLJUDLQHXUVLQWKHVWXGLHVWKDWIRXQGQRGLIIHUHQFHVEHWZHHQWKHPDQGFRQWUROVXEMHFWVZHUHPRVWO\
    PLOGO\DIIHFWHGLQGLYLGXDOV HJQRWVHHNLQJPHGLFDODWWHQWLRQQRUPDO((*UHFRUGV 

    7UHDWPHQW

    &RPPRQ DQDOJHVLFV DUH HIIHFWLYH IRU PDQ\ LI WKH\ DUH WDNHQ DW WKH HDUOLHVW RQVHW RI KHDGDFKH
    6HURWRQLQ DJRQLVWV KDYH SURYHQ XVHIXO IRU WUHDWLQJ VRPH PLJUDLQHV 3URSK\ODFWLF SKDUPDFRWKHUDS\
    LQYROYLQJ DGUHQHUJLF EORFNLQJ DJHQWV WULF\FOLF DQWLGHSUHVVDQWV FDOFLXP FKDQQHO EORFNHUV 
    K\GUR[\WU\SWDPLQH DQWDJRQLVWV QRQVWHURLGDO DQWLLQIODPPDWRU\ PHGLFDWLRQV DQWLHSLOHSWLFV DQG
    PDJQHVLXPUHSODFHPHQWDUHLQGLFDWHGIRURWKHUPLJUDLQHV )HUUDUL DQG +DDQ  0DWKHZ  
    $OWKRXJKERWXOLQXPWR[LQLVXVHGDVDSURSK\OD[LVUHVHDUFKVKRZVWKDWLWLVQRWPRUHHIIHFWLYHWKDQ
    SODFHER 6KXKHQGOHU HW DO   2SWLPDO WUHDWPHQW UHTXLUHV D GLIIHUHQWLDO GLDJQRVLV RI PLJUDLQH
    IURPWHQVLRQW\SHKHDGDFKHVDQGFOXVWHUKHDGDFKHV2WKHUGLVRUGHUVVXFKDVDQHXU\VPVVXEDUDFKQRLG
    KHPRUUKDJH VXEGXUDO KHPDWRPD EUDLQ WXPRU RU LGLRSDWKLF LQWUDFUDQLDO K\SHUWHQVLRQ QHHG WR EH
    UXOHGRXWDVZHOO 0DWKHZ 

    (3,/(36<
    (WLRORJ\DQGGLDJQRVWLFFODVVLILFDWLRQV

    (SLOHSV\LVQRWDVLQJOHGLVHDVHRUFRQGLWLRQEXWPRUHSUHFLVHO\DQHSLVRGLFGLVWXUEDQFHRIEHKDYLRU
    RU SHUFHSWLRQ DULVLQJ IURP K\SHUH[FLWDELOLW\ DQG K\SHUV\QFKURQRXV GLVFKDUJH RI QHUYH FHOOV LQ WKH
    EUDLQ WKDW FDQ EH DVVRFLDWHG ZLWK D YDULHW\ RI HWLRORJLHV 7KH GLIIHUHQW V\QGURPHV DVVRFLDWHG ZLWK
    HSLOHSV\DUHRIWHQFROOHFWLYHO\UHIHUUHGWRDVߧHSLOHSVLHVߨWRUHIOHFWWKLVKHWHURJHQHLW\7KHXQGHUO\LQJ
    FDXVHVDUHPDQ\VXFKDVVFDUULQJRUEUDLQLQMXU\IURPELUWKWUDXPDWUDXPDWLFEUDLQLQMXU\WXPRU
    WKHFRQVHTXHQFHVRILQIHFWLRQRULOOQHVV
    HJFRPSOH[IHEULOHVHL]XUHV PHWDEROLFGLVRUGHUVWURNHSURJUHVVLYHEUDLQGLVHDVHDQGDKRVW
    RIRWKHUFRQGLWLRQVLQFOXGLQJJHQHWLFIDFWRUV0DQ\IRUPVDUHVLPSO\LGLRSDWKLFDVQRNQRZQVRXUFH
    FDQEHHVWDEOLVKHG
    (SLOHSV\ LV DPRQJ WKH PRVW SUHYDOHQW RI WKH FKURQLF QHXURORJLFDO GLVRUGHUV DIIHFWLQJ
    DSSUR[LPDWHO\  RI WKH 86 SRSXODWLRQ RU VRPH  PLOOLRQ $PHULFDQV 6W /RXLV DQG *UDQQHU
     LWVLQFLGHQFHUHDFKHVE\DJH *3/HH ,WLVHVWLPDWHGWKDWVRPHWRPLOOLRQ
    SHUVRQVZRUOGZLGHKDYHWKLVFRQGLWLRQ :HQGOLQJ (SLOHSV\LVDERXWHTXDOO\SUHYDOHQWIRUWKH
    VH[HVXQWLOROGHUDJHZKHQHOGHUO\PHQKDYHDVRPHZKDWKLJKHULQFLGHQFHPDNLQJHSLOHSV\WKHWKLUG
    PRVWFRPPRQGLVHDVHDIIHFWLQJWKHEUDLQLQWKHHOGHUO\ :HUKDKQ $SSUR[LPDWHO\RIQHZ
    FDVHVDUH\RXQJHUWKDQDWGLDJQRVLV */+ROPHVDQG(QJHO 7KHDQQXDOWRWDOFRVWIRUWKH
    URXJKO\  PLOOLRQ $PHULFDQV ZLWK HSLOHSV\ LV RQ WKH RUGHU RI WHQV RI ELOOLRQV RI GROODUV ,QGLUHFW
    FRVWVGXHWRWKHSV\FKRVRFLDOPRUELGLW\RIHSLOHSV\DFFRXQWIRUURXJKO\RIWKLVWRWDOZLWKGLUHFW
    FRVWV FRQFHQWUDWHG DPRQJ SDWLHQWV ZLWK LQWUDFWDEOH HSLOHSVLHV %HJOH\ HW DO   LW KDV EHHQ
    HVWLPDWHGWKDWDERXWRISDWLHQWVDUHSKDUPDFRUHVLVWDQWHYHQZLWKQHZHUJHQHUDWLRQDQWLHSLOHSWLF
    PHGLFDWLRQV 7KH SXEOLF KHDOWK LPSOLFDWLRQV RI HSLOHSV\ DUH VXEVWDQWLDO DQG KDYH EHHQ GRFXPHQWHG
    WKURXJK WDUJHWHG LQLWLDWLYHV DQG FRQIHUHQFHV VSRQVRUHG E\ WKH 1DWLRQDO ,QVWLWXWH RI 1HXURORJLFDO
    'LVRUGHUV DQG 6WURNH   WKH &HQWHUV IRU 'LVHDVH &RQWURO DQG 3UHYHQWLRQ  VHH DOVR
    FRPSXWHUVHDUFKIRUHSLOHSV\&'& DQGWKH$JHQF\IRU+HDOWKFDUH5HVHDUFKDQG4XDOLW\  
    $QHSLOHSWLFVHL]XUHLVDVXGGHQWUDQVLHQWDOWHUDWLRQLQEHKDYLRUFDXVHGE\DQDEQRUPDOH[FHVVLYH
    HOHFWULFDO GLVFKDUJH LQ WKH EUDLQ GXH WR D WHPSRUDU\ V\QFKURQL]DWLRQ RI QHXURQDO DFWLYLW\ RFFXUULQJ
    IRUUHDVRQVZKLFKDUHQRWFOHDUO\XQGHUVWRRG 6W/RXLVDQG*UDQQHU 7KHOLIHWLPHSUHYDOHQFH
    RI H[SHULHQFLQJ D VLQJOH VHL]XUH LV DSSUR[LPDWHO\  6HL]XUHV FDQ DULVH IURP DQ\ FRQGLWLRQ WKDW
    KHLJKWHQVWKHH[FLWDELOLW\RIEUDLQWLVVXH7KH\DUHPRVWRIWHQSURYRNHGE\HLWKHUH[WULQVLF V\VWHPLF
    RULQWULQVLF EUDLQ IDFWRUV3URYRNHGVHL]XUHVPD\RFFXUZLWKKLJKIHYHUDOFRKRORUGUXJXVHDOFRKRO
    RU GUXJ ZLWKGUDZDO PHWDEROLF GLVRUGHUV RU EUDLQ LQIHFWLRQV HJ EUDLQ DEVFHVV FHUHEULWLV
    HQFHSKDOLWLVDFXWHPHQLQJLWLV 
    (SLOHSV\ LQ FRQWUDVW LV FKDUDFWHUL]HG E\ UHFXUUHQW XQSURYRNHG VHL]XUHV 7KH GLDJQRVLV RI
    HSLOHSV\UHTXLUHVWKHSUHVHQFHRIDWOHDVWWZRXQSURYRNHGVHL]XUHV LHRFFXUULQJLQWKHDEVHQFHRI
    DFXWHV\VWHPLFLOOQHVVRUEUDLQLQVXOW 7KHPDLQFOLQLFDOVLJQVDQGV\PSWRPVRIHSLOHSV\LQFOXGHLFWDO
    GXULQJ D VHL]XUH  SRVWLFWDO LPPHGLDWHO\ IROORZLQJ D VHL]XUH  DQG LQWHULFWDO EHWZHHQ VHL]XUHV
    PDQLIHVWDWLRQV7KHQDWXUHRILFWDOEHKDYLRUDOGLVWXUEDQFHVGHSHQGVRQWKHORFDWLRQRIVHL]XUHRQVHWLQ
    WKHEUDLQDQGLWVSDWWHUQRISURSDJDWLRQ 6W/RXLVDQG*UDQQHU 8QIRUWXQDWHO\WKHGLDJQRVLVRI
    ߧHSLOHSV\ߨFRQWLQXHVWRFDUU\ZLWKLWDFHUWDLQDPRXQWRISV\FKRVRFLDOVWLJPDFRQVHTXHQWO\WKHWHUP
    VHL]XUH GLVRUGHU LV RIWHQ XVHG WR DYRLG WKH QHJDWLYH VRFLDO FRQQRWDWLRQ 7KH VWLJPD GDWHV EDFN WR
    DQWLTXLW\ߟWKHWHUPߧHSLOHSV\ߨVWHPVIURPWKH*UHHNߧHSLOHSVLDߨZKLFKUHIHUVWRWKHQRWLRQRIߧEHLQJ
    VHL]HGRUWDNHQKROGRIߨUHIOHFWLQJWKHHUURQHRXVDQGDOOWRRSHUVLVWHQWEHOLHIWKDWHSLOHSWLFVHL]XUHV
    KDYHVXSHUQDWXUDORUVSLULWXDOFDXVHV
    (SLOHSVLHVDUHJHQHUDOO\FODVVLILHGDORQJWZRGLPHQVLRQVߟZKHWKHUWKH\DUHIRFDORUJHQHUDOL]HG
    DQGZKHWKHUWKHLUHWLRORJ\LVNQRZQVXVSHFWHGRUXQNQRZQ ,QWHUQDWLRQDO/HDJXHDJDLQVW(SLOHSV\
     6HL]XUHVWKDWKDYHDORFDOL]HGDUHDRIRQVHW LHEHJLQZLWKV\PSWRPVRIDORFDOL]DEOHEUDLQ
    GLVWXUEDQFH  DUH FDOOHG SDUWLDO RU IRFDO VHL]XUHV WKDW DSSHDU WR LQYROYH ODUJH UHJLRQV RI ERWK
    KHPLVSKHUHVVLPXOWDQHRXVO\DUHUHIHUUHGWRDVJHQHUDOL]HG7KH\PD\EHFKDUDFWHUL]HGLQWKUHHPDMRU
    HWLRORJLFFDWHJRULHV,GLRSDWKLFHSLOHSVLHVKDYHQRNQRZQHWLRORJ\DQGXVXDOO\DUHQRWDVVRFLDWHGZLWK
    DQ\ RWKHU QHXURORJLFDO GLVRUGHUV PDQ\ RI WKHVH SDWLHQWV GR QRW KDYH QHXURSV\FKRORJLFDO GHILFLWV
    3HUULQH*HUVKHQJRUPDQG%URZQ (WLRORJLHVRIFU\SWRJHQLFHSLOHSV\DUHDOVRXQNQRZQEXW
    QHXURORJLFDO DQG QHXURSV\FKRORJLFDO IXQFWLRQV DUH XVXDOO\ QRW QRUPDO 6HL]XUHV IURP D NQRZQ
    HWLRORJ\DUHFDOOHGV\PSWRPDWLF
    ,Q FOLQLFDO SUDFWLFH KRZHYHU D V\QGURPH GLDJQRVLV LV RIWHQ JLYHQ HJ WHPSRUDO OREH HSLOHSV\
    >7/(@  ZKLFK PRUH QDUURZO\ FKDUDFWHUL]HV LQGLYLGXDO SDWLHQWV ZLWK UHVSHFW WR SURJQRVLV DQG
    WUHDWPHQWRSWLRQV :\OOLHDQG/¾GHUV $FODVVLILFDWLRQV\VWHPWKDWDWWHPSWHGWRFRPELQH((*
    HWLRORJ\ DQG V\QGURPH SUHVHQWDWLRQ +DPHU DQG /¾GHUV   KDV QRW JDLQHG ZLGH DFFHSWDQFH $
    QHZFODVVLILFDWLRQV\VWHPDQGWHUPLQRORJ\KDVEHHQSURSRVHGE\$7%HUJDQGFROOHDJXHV  6W
    /RXLV DQG *UDQQHU   HPSKDVL]H WKDW WKH VHL]XUH W\SH DQG HSLOHSV\ V\QGURPH GLDJQRVHV DUH
    FUXFLDOIRUSDWLHQWVZLWKHSLOHSV\EHFDXVHWKLVLQIRUPDWLRQJXLGHVWKHUDS\ HJGUXJVVXUJHU\ DQG
    GHWHUPLQHVSURJQRVLV1HXURLPDJLQJLVQRZFRPPRQO\XVHGWRDVVLVWLQGLDJQRVLQJVHL]XUHW\SHDQG
    HSLOHSV\V\QGURPH OD)RXJªUHHWDO05LFKDUGVRQ 
    7KHWZRSULQFLSDOW\SHVRIHSLOHSWLFVHL]XUHVDUHSDUWLDODQGJHQHUDOL]HGVHL]XUHV3DUWLDOVHL]XUHV
    ߟDOVRFDOOHGߧIRFDOߨRUߧORFDOL]DWLRQUHODWHGߨߟDULVHIURPDVSHFLILFDUHDRIWKHEUDLQPD\EHVLPSOH
    LH ZLWKRXW DOWHUDWLRQ RI FRQVFLRXVQHVV  DQG PD\ LQYROYH RQO\ RQH PRGH RI H[SUHVVLRQ PRWRU
    VRPDWRVHQVRU\ DXWRQRPLF RU SV\FKLF  &RPSOH[ SDUWLDO VHL]XUHV E\ GHILQLWLRQ LQYROYH DOWHUHG
    FRQVFLRXVQHVV ,Q DGGLWLRQ LW LV QRW XQFRPPRQ IRU D SDUWLDO VHL]XUH WR SURJUHVV )RU H[DPSOH D
    VLPSOHSDUWLDOVHL]XUHPD\EHSUHFHGHGE\DQDXUD SUHPRQLWRU\VHQVDWLRQVFRPPRQLQWUXHHSLOHSV\
    DQGWKHQGHYHORSLQWRDFRPSOH[SDUWLDOVHL]XUH7KLVPD\VXEVHTXHQWO\SURJUHVVWRLQYROYHWKHHQWLUH
    EUDLQDSURFHVVFDOOHGVHFRQGDU\JHQHUDOL]DWLRQ HJSURGXFLQJDVHFRQGDU\JHQHUDOL]HGWRQLFFORQLF
    ߟVXFFHVVLYHSKDVHVRIPXVFOHVSDVPVߟVHL]XUH &RPSOH[SDUWLDOVHL]XUHVPRVWFRPPRQO\RULJLQDWH
    IURPWKHWHPSRUDOOREHVDQGVHFRQGPRVWFRPPRQO\IURPWKHIURQWDOOREHV,QSUDFWLFHKRZHYHULW
    LV VRPHWLPHV GLIILFXOW WR GLVWLQJXLVK IURQWDO OREH IURP WHPSRUDO OREH VHL]XUHV GXH WR WKH GLUHFW
    ELGLUHFWLRQDOSURMHFWLRQVEHWZHHQWKHVHDUHDV
    3ULPDU\ JHQHUDOL]HG VHL]XUHV LQYROYH DOO RU ODUJH SRUWLRQV RI ERWK KHPLVSKHUHV EHJLQQLQJ DW
    VHL]XUH RQVHW 7KH\PD\EH QRQFRQYXOVLYHDSSHDULQJ DV DEVHQFH >SURQRXQFHG ߧDKEVDZQFHߨ@ VSHOOV
    RU SHWLWPDO>SURQRXQFHGߧSHKWHHPDKOߨ@DWWDFNV LQZKLFKFRQVFLRXVQHVVLVEULHIO\ORVWZKLOHH\HV
    EOLQNRUUROOXSRUFRQYXOVLYHZKLFKLQYROYHVPDMRUPRWRUPDQLIHVWDWLRQV JHQHUDOL]HGWRQLFFORQLF
    VHL]XUHVDOVRFDOOHGJUDQGPDOVHL]XUHV 7KHWHUPߧDEVHQFHߨLVUHVHUYHGIRUQRQFRQYXOVLYHSULPDU\
    JHQHUDOL]HG VHL]XUHV DQG LV QRW XVHG ZKHQ ORVV RI DZDUHQHVV RFFXUV ZLWK FRPSOH[ SDUWLDO VHL]XUHV
    7KH GLVWLQFWLRQ EHWZHHQ SDUWLDO IRFDO  DQG JHQHUDOL]HG VHL]XUHV KDV SUDFWLFDO LPSOLFDWLRQV VLQFH
    GLIIHUHQW VHL]XUH W\SHV RIWHQ UHVSRQG WR GLIIHUHQW DQWLFRQYXOVDQW PHGLFDWLRQV DQWLHSLOHSWLF GUXJV
    $('V 
    6SHFLILF((*SDWWHUQVDUHDVVRFLDWHGZLWKPDQ\HSLOHSV\V\QGURPHVDQGDVVLVWLQIRUPDOGLDJQRVLV
    HJ  +] VSLNH DQG ZDYH FRPSOH[HV LQ DEVHQFH VHL]XUHV VHH .ODVV DQG :HVWPRUHODQG  
    DOWKRXJK VRPH VHL]XUH SDWLHQWV PD\ DW WLPHV KDYH QRUPDO ((* UHFRUGLQJV 0XQL] DQG %HQEDGLV
      ((* PRQLWRULQJ LV DOVR LPSRUWDQW IRU GHWHUPLQLQJ LI D SDWLHQWߤV VSHOOV PD\ EH
    ߧSV\FKRJHQLFߨ VHH S   RU GXH WR D QRQQHXURORJLFDO FRQGLWLRQ VXFK DV IDLQWLQJ V\QFRSH  ((*
    FKDUDFWHULVWLFV DUH DOVR YHU\ LPSRUWDQW LQ HYDOXDWLRQV RI D SDWLHQWߤV FDQGLGDF\ IRU HSLOHSV\ VXUJHU\
    &DVFLQR   DQG IRU LQIHUULQJ WKH DQDWRPLFDO ORFDOL]DWLRQ RI VHL]XUH RULJLQV 5RVVHWWL DQG
    .DSODQ 

    5LVNIDFWRUVDQGYXOQHUDELOLWLHV

    *HQHWLF SUHGLVSRVLWLRQ (SLOHSV\ PD\ UXQ LQ IDPLOLHV DSSHDULQJ HLWKHU LQ FRQMXQFWLRQ ZLWK DQ
    LQKHULWDEOHFRQGLWLRQZKLFKPDNHVWKHSDWLHQWVHL]XUHSURQHRUVLPSO\DVDQLQKHULWHGSUHGLVSRVLWLRQ
    WR VHL]XUHV /RSHV&HQGHV   'LIIHUHQW VHL]XUH W\SHV FDQ RFFXU LQ IDPLO\ PHPEHUV ZKR KDYH
    HSLOHSV\ %HUNRYLFHWDO2WWPDQHWDO *HQHWLFIDFWRUVDSSHDUWREHPRUHLPSRUWDQWLQ
    WKH JHQHUDOL]HG HSLOHSVLHV EXW DOVR SOD\ D UROH LQ VRPH SDUWLDO HSLOHSVLHV %HUNRYLF HW DO   
    6WXGLHVRIWZLQVKDYHVKRZQDKLJKHUFRQFRUGDQFHUDWHDPRQJPRQR]\JRWLFFRPSDUHGWRGL]\JRWLF
    WZLQV +RZHYHU WKH PRGH RI LQKHULWDQFH LV FRPSOH[ DQG YDULHV ZLWK VHL]XUH W\SHV DQG HSLOHSV\
    V\QGURPHVLWKDVEHHQHVWLPDWHGWKDWWKHUHDUHDWOHDVWKXPDQߧHSLOHSV\ߨJHQHVDQGPDQ\PRUHDUH
    NQRZQIURPDQLPDOPRGHOV 03-DFREVHWDO ,QSRLQWLQJRXWWKDWWKHLPSRUWDQFHRIJHQHWLF
    KHWHURJHQHLW\ KDV EHHQ UHODWLYHO\ QHJOHFWHG 3DO DQG FROOHDJXHV   QRWHG WKDW YHU\ IHZ JHQHWLF
    DVVRFLDWLRQVIRULGLRSDWKLFHSLOHSV\KDYHEHHQUHSOLFDWHG(YLGHQFHLVDFFXPXODWLQJWKDWSDWKRJHQHVLV
    RIPDQ\IRUPVRIHSLOHSV\UHIOHFWVDFKDQQHOSDWKRORJ\DWWKHPLFURSK\VLRORJLFOHYHOZLWK.1D
    RU&DFKDQQHOVEHLQJDIIHFWHGLQGLIIHUHQWW\SHVRIHSLOHSVLHV .DQHNRHWDO 

    'HYHORSPHQWDO FRQVLGHUDWLRQV 6HL]XUH LQFLGHQFH RYHU WKH KXPDQ OLIHVSDQ LV KLJKHVW GXULQJ
    LQIDQF\DQGFKLOGKRRG(DFK\HDUDERXWFKLOGUHQDQGDGROHVFHQWVLQWKH8QLWHG6WDWHVKDYHD
    VLQJOH XQSURYRNHG VHL]XUH DERXW RQHILIWK RI WKHVH HYHQWXDOO\ GHYHORS HSLOHSV\ =XSDQF  
    0DQ\ VWXGLHV KDYH VRXJKW WR GHWHUPLQH ZKDW IDFWRUV LQIOXHQFH WKH GHYHORSPHQW RI VHL]XUHV DQG WKH
    SKHQRPHQRQRIHSLOHSWRJHQHVLVLQWKHGHYHORSLQJEUDLQ 5DNKDGHDQG-HQVHQ (SLGHPLRORJLFDO
    VWXGLHV KDYH OLQNHG SURORQJHG IHEULOH VHL]XUHVߟZKLFK DUH PRVW FRPPRQ LQ HDUO\ OLIHߟWR WKH
    GHYHORSPHQWRIWHPSRUDOOREHHSLOHSV\EXWZKHWKHUORQJRUUHFXUUHQWIHEULOHVHL]XUHVFDXVHWHPSRUDO
    OREH HSLOHSV\ KDV UHPDLQHG XQUHVROYHG 'XEH HW DO   6HL]XUHV LQGXFH GLIIHUHQW PROHFXODU
    FHOOXODUDQGSK\VLRORJLFDOFRQVHTXHQFHVLQWKHLPPDWXUHEUDLQFRPSDUHGWRWKHPDWXUHEUDLQHJ
    DJHGHSHQGHQW GLIIHUHQFHV LQ KRZ VHL]XUHV DOWHU FHOO ELUWK RFFXU LQ WKH GHQWDWH J\UXV %( 3RUWHU
     &KLOGUHQDOVRUHVSRQGGLIIHUHQWO\WR$('VWKDQGRDGXOWVDQGWUHDWPHQWRISKDUPDFRUHVLVWDQW
    HSLOHSV\LQFKLOGUHQFDQEHHVSHFLDOO\FRPSOLFDWHG 5KHLPVHWDO:KHOHVVHWDO 5HFHQW
    UHYLHZVVXJJHVWWKDWQHZHUJHQHUDWLRQ$('VKDYHDERXWWKHVDPHHIIHFWLYHQHVVRYHUVHL]XUHFRQWURO
    LQFKLOGUHQDVWKHROGHUJHQHUDWLRQGUXJVEXWDUHWROHUDWHGEHWWHUDQGPD\KDYHIHZHUVLGHHIIHFWVWKDQ
    WKHROGHUGUXJV &RQQRFNHWDO 

    3RVWWUDXPDWLF HSLOHSV\ 7UDXPDWLF EUDLQ LQMXU\ LV D PDMRU ULVN IDFWRU IRU HSLOHSV\ DQG
    SRVWWUDXPDWLF HSLOHSV\ UHSUHVHQWV D PDMRU VRFLHWDO SUREOHP VHH SS  ߞ  3RVWWUDXPDWLF
    HSLOHSV\ OLNHO\ LQYROYHV QXPHURXV SDWKRJHQLF IDFWRUV EXW WZR IDFWRUV WHUPHG ߧSULPH PRYHUVߨKDYH
    EHHQ LGHQWLILHGߟGLVLQKLELWLRQ DQG GHYHORSPHQW RI QHZ IXQFWLRQDO H[FLWDWRU\ FRQQHFWLYLW\ 3ULQFH HW
    DO   7KXV DW WKH QHWZRUN OHYHO HSLOHSV\ PD\ EH XQGHUVWRRG DV D QHXUDO V\VWHPߤV DEQRUPDO
    OHDUQHGUHVSRQVHWRUHSHDWHGSURYRFDWLRQV '+VXHWDO +RZHYHUWKHPHFKDQLVPVE\ZKLFKD
    EUDLQLQMXU\FDQOHDGWRHSLOHSV\DUHVWLOOSRRUO\XQGHUVWRRG $URQLDGRX$QGHUMDVNDHWDO 7KH
    ULVN RI GHYHORSLQJ HSLOHSV\ IROORZLQJ SHQHWUDWLQJ KHDG ZRXQGV LV HVSHFLDOO\ KLJK VHH S  
    ,QWHUHVWLQJO\:RUOG:DU,,VXUYLYRUVRIPLVVLOHZRXQGVWRWKHEUDLQKDGDQRWDEO\ORZHULQFLGHQFHRI
    HSLOHSV\ WR WKDQ9LHWQDP:DUVXUYLYRUV   1HZFRPEH  6DOD]DU -DEEDUL DQG
    9DQFH  $( :DONHU DQG -DEORQ   7KLV FRXOG UHIOHFW D ORZHU VXUYLYDO UDWH IRU PRUH
    VHYHUHO\ LQMXUHG SDWLHQWV DV 7%, LQ LWVHOI LQFUHDVHV WKH ULVN RI GHYHORSLQJ HSLOHSV\ DQG VHYHULW\
    FRQWULEXWHVVLJQLILFDQWO\WRWKDWULVN -HQQHWW 
    %UDLQFRQWXVLRQ VXEGXUDO KHPDWRPD VNXOOIUDFWXUH ORVV RI FRQVFLRXVQHVV RUDPQHVLD IRU PRUH
    WKDQRQHGD\DQGDQDJHRIDWOHDVW\HDUVLQFUHDVHGWKHULVNRIGHYHORSLQJSRVWWUDXPDWLFVHL]XUHV
    LQDFLYLOLDQ7%,SDWLHQWVWXG\ $QQHJHUV+DXVHUHWDO ,QJHQHUDOWKHSUHVHQFHRIDQ\IRFDO
    OHVLRQVXFKDVLQWUDFHUHEUDOKHPRUUKDJHDQGKHPDWRPDVLQFUHDVHVWKHOLNHOLKRRGRISRVWWUDXPDWLF
    HSLOHSV\ $URQLDGRX$QGHUMDVND HW DO  'ߤ$OHVVDQGUR HW DO  -HQQHWW   $ VOLJKW
    VHL]XUH ULVN IRU SDWLHQWV IROORZLQJ PLOG 7%, GRHV SHUVLVW DIWHU ILYH \HDUV $QQHJHUV +DXVHU HW DO
     ,QFRQWUDVWVHYHUH7%,LVDVVRFLDWHGZLWKDPXFKKLJKHUSRVWWUDXPDWLFVHL]XUHULVNWKDWLVPXFK
    PRUHORQJVWDQGLQJWKHFKDQFHRIDILUVWXQSURYRNHGVHL]XUHPRUHWKDQ\HDUVDIWHUWKHLQMXU\DOVR
    LQFUHDVHVZLWK7%,VHYHULW\ -&KULVWHQVHQHWDO $OWKRXJKDVHL]XUHLQWKHILUVWZHHNDIWHUD
    SHQHWUDWLQJKHDGLQMXU\LVQRWQHFHVVDULO\SUHGLFWLYHRIHYHQWXDOSRVWWUDXPDWLFHSLOHSV\RI7%,
    SDWLHQWVZKRKDYHDVHL]XUHLQWKHILUVWZHHNZLOOKDYHVHL]XUHVODWHU2QO\RISDWLHQWVZKRGRQRW
    KDYH DQ HDUO\ VHL]XUH ZLOO GHYHORS ODWHRQVHW VHL]XUHV 7KH FRJQLWLYH LPSDLUPHQW VHHQ LQ SRVW
    WUDXPDWLFVHL]XUHSDWLHQWVSUREDEO\UHIOHFWVWKHHIIHFWVRIWKHEUDLQLQMXULHVWKDWJLYHULVHWRVHL]XUHV
    UDWKHUWKDQHIIHFWVRIWKHVHL]XUHVSHUVH +DOWLQHUHWDO3LQFXVDQG7XFNHU 

    2WKHUV\PSWRPDWLFHSLOHSVLHV1HDUO\DQ\NLQGRILQVXOWWRWKHEUDLQFDQLQFUHDVHVXVFHSWLELOLW\WR
    VHL]XUHV $URQLDGRX$QGHUMDVND HW DO  /LVKPDQ   $SSUR[LPDWHO\  RI DOO VWURNH
    SDWLHQWVH[SHULHQFHVHL]XUHV 762OVHQ,(6LOYHUPDQHWDO ZLWKURXJKO\KDOIRIWKHVH
    RFFXUULQJGXULQJWKHILUVWGD\DQGWKHRWKHUKDOISHDNLQJEHWZHHQDQGPRQWKVSRVWVWURNHHYHQW
    6HL]XUHV RFFXU WKUHH WLPHV PRUH RIWHQ IROORZLQJ KHPRUUKDJLF VWURNH WKDQ LVFKHPLF VWURNH DQG DUH
    XVXDOO\ DVVRFLDWHG ZLWK FRUWLFDO LQYROYHPHQW )HZ VWURNH SDWLHQWV ߞ  GHYHORS HSLOHSV\ WKRVH
    ZLWK ODWHRQVHWVHL]XUHV DUHDWJUHDWHU ULVN %ODGLQ HW DO    (SLOHSV\ FDQ DOVR RFFXU ZLWK &16
    LQIHFWLRQV EUDLQ WXPRUV DQG GHJHQHUDWLYH GHPHQWLD $QQHJHUV    LQFOXGLQJ $O]KHLPHU ߤV
    GLVHDVH 3DORS DQG 0XFNH    %UDLQ LQIODPPDWLRQ FDQ FRQWULEXWH WR HSLOHSWRJHQHVLV DQG FDXVH
    QHXURQDOLQMXU\LQHSLOHSV\ &KRLDQG.RK 7KHFKDOOHQJHVRIߧJURZLQJROGZLWKHSLOHSV\ߨDUH
    VLJQLILFDQWDVSHUVRQVZLWKFKURQLFHSLOHSV\DUHH[SRVHGWRQXPHURXVULVNIDFWRUVIRUFRJQLWLYHDQG
    EHKDYLRUDOLPSDLUPHQW +HUPDQQ6HLGHQEHUJHWDO 

    3UHFLSLWDWLQJ FRQGLWLRQV $OWKRXJK PRVW VHL]XUHV KDSSHQ ZLWKRXW DSSDUHQW SURYRFDWLRQ VRPH
    FRQGLWLRQVDQGVWLPXOLDUHDVVRFLDWHGZLWKVHL]XUHOLNHOLKRRG7KHGLVLQKLELWLQJHIIHFWVRIDOFRKROFDQ
    SURYRNHDVHL]XUHDVFDQWKHSK\VLRORJLFDODOWHUDWLRQVWKDWRFFXUZLWKDOFRKROZLWKGUDZDOGXULQJWKH
    ߧKDQJRYHUߨSHULRGDQGZLWKDOFRKROLQWHUDFWLRQVZLWKPHGLFDWLRQV 0+LOOERPHWDO .UHXW]HU
    'RKHUW\HWDO $OFRKROZLWKGUDZDOVHL]XUHVXVXDOO\GHYHORSDIWHUSURORQJHGDOFRKRODEXVHWKH
    DOFRKROLFSDWLHQWVXGGHQO\VWRSVGULQNLQJDQGJHQHUDOL]HGFRQYXOVLRQVW\SLFDOO\RFFXUWRKRXUV
    ODWHU3K\VLFDOGHELOLWDWLRQZKHWKHUIURPLOOQHVVODFNRIVOHHSRUSK\VLFDOH[KDXVWLRQLQFUHDVHVWKH
    OLNHOLKRRG RI VHL]XUHV ,Q VRPH ZRPHQ ZLWK HSLOHSV\ VHL]XUH IUHTXHQF\ YDULHV ZLWK WKH PHQVWUXDO
    F\FOH LHFDWDPHQLDOHSLOHSV\  5HGG\7DXEROOHWDO 7KLVSKHQRPHQRQDSSHDUVWREH
    UHODWHG WR WKH UDWLR RI HVWURJHQ WR SURJHVWHURQH (PRWLRQDO VWUHVV WRR KDV EHHQ LPSOLFDWHG DV D
    SURYRFDWLYHIDFWRUDQGYROXQWDU\DQGVSRQWDQHRXVFKDQJHVLQEHKDYLRUDQGWKLQNLQJPD\DOVREULQJ
    RQ VHL]XUHV )HQZLFN DQG %URZQ   5HIOH[ HSLOHSV\ UHIHUV WR HSLOHSVLHV FKDUDFWHUL]HG E\ D
    VSHFLILFPRGHRIVHL]XUHSUHFLSLWDWLRQWKHPRVWFRPPRQRIZKLFKLVSKRWRVHQVLWLYLW\ )HUOD]]RHWDO
     =LINLQ DQG .DVWHOHLMQ1RLVW 7UHQLWH   9LGHR JDPHV DQG WHOHYLVLRQ WRR KDYH EHHQ
    SXUSRUWHGWRWULJJHUVHL]XUHV %DGLQDQG+XEHUWHWDO5LFFLHWDO 

    &RJQLWLYHIXQFWLRQLQJ
    %HKDYLRU DQG FRJQLWLRQ LQ HSLOHSV\ SDWLHQWV FDQ EH DIIHFWHG E\ PXOWLSOH IDFWRUV LQFOXGLQJ VHL]XUH
    HWLRORJ\W\SHIUHTXHQF\GXUDWLRQDQGVHYHULW\FHUHEUDOOHVLRQVDFTXLUHGSULRUWRVHL]XUHRQVHWDJH
    DWVHL]XUHRQVHWLFWDODQGLQWHULFWDOSK\VLRORJLFDOG\VIXQFWLRQGXHWRWKHVHL]XUHVVWUXFWXUDOFHUHEUDO
    GDPDJH GXH WR UHSHWLWLYH RU SURORQJHG VHL]XUHV KHUHGLWDU\ IDFWRUV SV\FKRVRFLDO FRQGLWLRQV DQG
    DQWLHSLOHSWLF GUXJ HIIHFWV (OJHU HW DO   $V D YHU\ JHQHUDO FKDUDFWHUL]DWLRQ SDWLHQWV ZLWK
    HSLOHSV\WHQGWRKDYHLPSDLUHGFRJQLWLRQFRPSDUHGWRPDWFKHGQRQHSLOHSWLFFRPSDULVRQSDUWLFLSDQWV
    'RGULOO9LQJHUKRHWV DOWKRXJKWKHUHDUHPDQ\H[FHSWLRQV
    6HL]XUHHWLRORJ\LVDQLPSRUWDQWGHWHUPLQDQWRIFRJQLWLYHVWDWXV 3HUULQHHWDO 3DWLHQWVZLWK
    VHL]XUHVGXHWRSURJUHVVLYHFHUHEUDOGHJHQHUDWLRQW\SLFDOO\KDYHJHQHUDOL]HGFRJQLWLYHLPSDLUPHQW
    SDWLHQWV ZLWK PHQWDO UHWDUGDWLRQ KDYH DQ LQFUHDVHG LQFLGHQFH RI HSLOHSV\ ZKLFK LV OLNHO\ WR EH
    UHIUDFWRU\ LHPHGLFDWLRQUHVLVWDQW  'RGULOO+XWWHQORFKHUDQG+DSNH DQGSDWLHQWVZLWK
    VHL]XUHVGXHWRDIRFDOEUDLQOHVLRQPD\H[KLELWDVSHFLILFQHXURSV\FKRORJLFDOSDWWHUQRIGHILFLWV,Q
    FRQWUDVWSDWLHQWVZLWKLGLRSDWKLFHSLOHSV\DUHPRUHOLNHO\WRKDYHQRUPDOPHQWDODELOLWLHV6LPLODUO\
    VHL]XUH W\SH LV VWURQJO\ DVVRFLDWHG ZLWK FRJQLWLYH SHUIRUPDQFH +XWWHQORFKHU DQG +DSNH  
    3DWLHQWVZLWKMXYHQLOHP\RFORQLFHSLOHSV\ -0( VKRZLQJFODVVLF+]VSLNHDQGZDYHDEVHQFHXVXDOO\
    KDYHQRUPDOFRJQLWLYHDELOLWLHVLQWHULFWDOO\FKLOGUHQZLWKLQIDQWLOHVSDVPVKDYHJHQHUDOO\GHSUHVVHG
    QHXURSV\FKRORJLFDO SURILOHV (DUOLHU VHL]XUH RQVHW DJH LV DVVRFLDWHG ZLWK JUHDWHU FRJQLWLYH
    LPSDLUPHQW +HUPDQQ6HLGHQEHUJDQG%HOO +RZHYHURQWKHIOLSVLGHRIWKLVFRLQHDUO\RQVHW
    KDVEHHQLGHQWLILHGDVDSURWHFWLYHIDFWRUIRUFRJQLWLYHVLGHHIIHFWVIURPDQWHULRUWHPSRUDOOREHFWRP\
    VXUJHU\ SHUKDSV GXH WR QHXUDO UHRUJDQL]DWLRQ SURPSWHG E\ HDUO\ RQVHW VHL]XUHV RU E\ WKH QHXUDO
    LQVXOW WKDW JDYH ULVH WR WKH VHL]XUHV LQ WKH ILUVW SODFH HJ <XFXV DQG 7UDQHO    0DQ\ RI WKH
    HSLOHSVLHV RI FKLOGKRRG DUH IDLUO\ EHQLJQ HVSHFLDOO\ LQ UHJDUG WR FRJQLWLYH IXQFWLRQLQJ
    3DQD\LRWRSRXORVHWDO 

    )RFDO VHL]XUHV DQG FRJQLWLYH G\VIXQFWLRQ )RFDO VHL]XUHV RULJLQDWH IURP RQH VLGH RI WKH EUDLQ
    DOWKRXJKVHL]XUHDFWLYLW\PD\VXEVHTXHQWO\VSUHDGWRRWKHUEUDLQDUHDV,QVRPHFDVHVSDWLHQWVZLWK
    IRFDO VHL]XUH RQVHW GLVSOD\ D SDWWHUQ RI WHVW SHUIRUPDQFH OLNH WKDW RI SDWLHQWV ZLWK QRQHSLOHSWRJHQLF
    OHVLRQV LQ VLPLODU ORFDWLRQV 7KXV VHL]XUH RQVHW IURP WKH OHIW KHPLVSKHUH PD\ EH DVVRFLDWHG ZLWK
    LPSDLUHG YHUEDO IXQFWLRQV VXFK DV YHUEDO PHPRU\ GHILFLWV DQG FRPSURPLVH LQ YHUEDO DEVWUDFW
    UHDVRQLQJ ,Q FRQWUDVW SDWLHQWV ZLWK ULJKW KHPLVSKHUH VHL]XUH RQVHW DUH PRUH OLNHO\ WR GLVSOD\
    YLVXRSHUFHSWXDO YLVXDO PHPRU\ DQG FRQVWUXFWLRQDO GLVDELOLWLHV +RZHYHU WKH PDJQLWXGH RI WKH
    GHILFLWV LV RIWHQ OHVV WKDQ ZLWK FRPSDUDEOH QRQHSLOHSWLF OHVLRQV $W\SLFDO FHUHEUDO ODQJXDJH
    UHRUJDQL]DWLRQUHVXOWLQJIURPHDUO\VHL]XUHRQVHWPD\DIIHFWWKHODWHUDOL]LQJDQGORFDOL]LQJSDWWHUQV
    RQQHXURSV\FKRORJLFDO WHVWV 6 *ULIILQ DQG 7UDQHO  /RULQJ 6WUDXVV HW DO  6HLGHQEHUJ
    +HUPDQQ 6FKRHQIHOG HW DO   ,Q DGGLWLRQ PDQ\ $('V GHSUHVV QHXURSV\FKRORJLFDO WHVW
    SHUIRUPDQFH SDUWLFXODUO\ IRU PHDVXUHV WKDW DUH WLPHG RU KDYH D SURPLQHQW PRWRU FRPSRQHQW
    'RGULOODQG7HPNLQ/RULQJ0DULQRDQG0HDGRU0HDGRUDE 7KHPDJQLWXGHRI
    ODWHUDOL]HG EHKDYLRUDO GHILFLWV PD\ EH PRUH SURQRXQFHG ZKHQ WHVWLQJ RFFXUV GXULQJ WKH LPPHGLDWH
    SRVWLFWDOSHULRG $QGUHZHV3XFHDQG%ODGLQ0HDGRUDQG0RVHU3ULYLWHUDHWDO 
    $UHYLHZRIUHOHYDQWOLWHUDWXUHFDQEHIRXQGLQ/RULQJ  

    0HPRU\0HPRU\DQGOHDUQLQJGLVRUGHUVDUHFRPPRQDPRQJHSLOHSV\SDWLHQWV +HOPVWDHGWHUDQG
    .XUWKHQ  *3 /HH DQG &ODVRQ  0LOQHU   7KH\ EHFRPH PRVW SURQRXQFHG ZLWK
    WHPSRUDO OREH HSLOHSV\ UHIOHFWLQJ WKH GHJUHH RI PHGLDO WHPSRUDO OREH SDWKRORJ\ +HOPVWDHGWHU
    *UXQZDOGHWDO  5DXVFKDQG %DEE  7UHQHUU\ :HVWHUYHOG DQG 0HDGRU   0DWHULDO
    VSHFLILF PHPRU\ GHILFLWV RFFXU SULPDULO\ IRU YHUEDO PHPRU\ LQ DVVRFLDWLRQ ZLWK OHIW 7/( WKH
    DVVRFLDWLRQEHWZHHQULJKW7/(DQGYLVXRVSDWLDOQRQYHUEDOPHPRU\GHILFLWVLVOHVVFRQVLVWHQW %DUU
    &KHOXQHHWDO+HUPDQQ6HLGHQEHUJ6FKRHQIHOGDQG'DYLHV70/HH<LSDQG-RQHV
    *RWPDQ   $V ZLWK RWKHU QHXURSV\FKRORJLFDO IXQFWLRQV D ULVN WR PHPRU\ ZLWK VRPH $('V
    LQFUHDVHV ZLWK PXOWLSOH PHGLFDWLRQV SRO\SKDUPDF\  0HDGRU *LOOLDP HW DO   <HW PDQ\
    PHPRU\ FRPSODLQWV E\ SDWLHQWV ZLWK HSLOHSV\ ZHUH DVVRFLDWHG ZLWK HPRWLRQDO GLVWUHVV UDWKHU WKDQ
    REMHFWLYHO\PHDVXUHGGHILFLWV .(+DOOHWDO 
    &5%XWOHUDQG=HPDQ  SURSRVHWKDWWKUHHW\SHVRIPHPRU\LPSDLUPHQWDUHDVVRFLDWHGZLWK
    HSLOHSV\  WUDQVLHQWHSLOHSWLFDPQHVLDLQZKLFKWKHSULQFLSDOPDQLIHVWDWLRQRIVHL]XUHVLVUHFXUUHQW
    HSLVRGHV RI DPQHVLD   DFFHOHUDWHG ORQJWHUP IRUJHWWLQJ LQ ZKLFK QHZO\ OHDUQHG PHPRULHV DUH
    IRUJRWWHQ RYHU GD\V DQG ZHHNV DIWHU DFTXLVLWLRQ DQG   UHPRWH PHPRU\ LPSDLUPHQW LQ ZKLFK
    PHPRULHV IURP WKH GLVWDQW SDVW DUH ORVW 7KHVH W\SHV RI PHPRU\ GHIHFWV DUH QRW HDVLO\ GHWHFWHG RU
    PHDVXUHG E\ VWDQGDUG QHXURSV\FKRORJLFDO WHVWV EXW FDQ KDYH SURIRXQG DGYHUVH HIIHFWV RQ SDWLHQWVߤ
    OLYHV:KHWKHUWKLVFRQFHSWXDOL]DWLRQRIPHPRU\SUREOHPVLQHSLOHSV\ZLOOEHVXSSRUWHGHPSLULFDOO\
    UHPDLQVWREHVHHQEXWLWLVDQLQWULJXLQJQHZSHUVSHFWLYHWKDWZDUUDQWVFRQVLGHUDWLRQ

    3HUVRQDOLW\DQGHPRWLRQDOEHKDYLRU

    $OWKRXJKWKHSV\FKRVRFLDOEHKDYLRUDQGHPRWLRQDOVWDWXVRIPDQ\SHUVRQVZLWKVHL]XUHGLVRUGHUVDUH
    QRWDEQRUPDOLWLVVWLOOWUXHWKDWEHKDYLRUDQGSHUVRQDOLW\GLVRUGHUVDUHPXFKPRUHFRPPRQDPRQJ
    VHL]XUHSDWLHQWVHVWLPDWHVRISV\FKLDWULFFRPRUELGLW\UDQJHIURPWR *DUFLD0RUDOHVHWDO
    -56WHYHQV7XFNHU 1HDUO\DOOEHKDYLRUDOGLVRUGHUVVHHPWRDSSHDUZLWKJUHDWHU
    IUHTXHQF\DPRQJVHL]XUHSDWLHQWVWKDQLQWKHJHQHUDOSRSXODWLRQ +).LPHWDO ,QSDUWLFXODU
    VHL]XUHSDWLHQWVDUHPRUHOLNHO\WRVXIIHUDIIHFWLYHGLVRUGHUVSDUWLFXODUO\GHSUHVVLRQDQGWKH\KDYHD
    KLJKHUUDWHRIVXLFLGHDWWHPSWV 3LQFXVDQG7XFNHU6FKPLW]VHH%OXPHUDQG$OWVFKXOHU
     IRU D FRPSUHKHQVLYH UHYLHZ  &RPSOLFDWLQJ WKLV SLFWXUH DUH WKH GHSUHVVLYH HIIHFWV RI PDQ\
    $('VDQGWKHLUDVVRFLDWLRQVZLWKLQFUHDVHGLQFLGHQFHRIVXLFLGH 0XODHWDO 7KXVWKHWUHDWPHQW
    RI GHSUHVVLRQ LQ HSLOHSWLF SDWLHQWV LV D FKDOOHQJH UHTXLULQJ VSHFLDO H[SHUWLVH DQG DQ LQIRUPHG DQG
    VHQVLWLYHSHUVSHFWLYH 6HHWKDODNVKPLDQG.ULVKQDPRRUWK\ 
    3V\FKLDWULFV\PSWRPVDQGRWKHUEHKDYLRUDOGLVRUGHUVWHQGWRLQFUHDVHZLWKLQGLFHVRIVHYHULW\VXFK
    DVVHL]XUHIUHTXHQF\ &VHUQDQVN\HWDO3LQFXVDQG7XFNHU DQGDSDWWHUQRIVHL]XUHVRI
    PXOWLSOH W\SHV *3 /HH    3HUVRQV ZKRVH HSLOHSV\ LV DVVRFLDWHG ZLWK NQRZQ EUDLQ LQMXU\
    V\PSWRPDWLF HSLOHSV\  DUH PRUH SURQH WR HPRWLRQDO DQG EHKDYLRUDO GLVWXUEDQFHV WKDQ WKRVH ZLWK
    LGLRSDWKLFVHL]XUHV +HUPDQQDQG:KLWPDQ 
    7KHJHQHUDOO\KLJKUDWHVRISV\FKLDWULFFRPRUELGLW\DPRQJHSLOHSV\SDWLHQWVUHIOHFWPRUHWKDQMXVW
    WKHXQGHUO\LQJEUDLQG\VIXQFWLRQ +HUPDQQDQG:KLWPDQ7XFNHU:KLWPDQDQG+HUPDQ
    SDVVLP %\YLUWXHRIKDYLQJDFRQGLWLRQWKDWPD\EHGXHWREUDLQLQMXU\ߟRIWHQLQFXUUHGHDUO\
    LQOLIHߟWKDWSODFHVUHVWULFWLRQVRQPDQ\DFWLYLWLHVOLPLWVHPSOR\PHQWRSSRUWXQLWLHVDQGIUHTXHQWO\LV
    DVVRFLDWHG ZLWK VRFLDO VWLJPD SHUVRQV ZLWK HSLOHSV\ WHQG WR KDYH ORZHU OHYHOV RI HGXFDWLRQ DQG
    VRFLRHFRQRPLF VWDWXV SRRUHU ZRUN KLVWRULHV DQG IHZHU VRFLDO VXSSRUWV WKDQ KHDOWK\ SHUVRQV
    'RGULOO =LHOLQVNL  6RXUFHV RI GLVWUHVV RIWHQ H[SHULHQFHG E\ HSLOHSV\ SDWLHQWV LQFOXGH
    IHDU RI VHL]XUHV FRQFHUQV DERXW DFWLYLW\ UHVWULFWLRQV HJ GULYLQJ  DQG WKHLU FRQVHTXHQFHV DQG
    HPRWLRQDO UHDFWLRQV WR VRFLDO VWLJPD DOO RI ZKLFK FDQ FRQWULEXWH WR HPRWLRQDO GLVWXUEDQFHV DQG
    GLPLQLVKHG TXDOLW\ RI OLIH :KLWPDQ DQG +HUPDQQ  SDVVLP  +RZHYHU FRQWUDU\ WR HDUOLHU
    UHSRUWVDFDUHIXOO\UHILQHGVWXG\VXJJHVWVWKDWSDWLHQWVZLWKDWHPSRUDOOREHIRFXVDUHQRPRUHOLNHO\
    WRH[SHULHQFHSV\FKRVRFLDOG\VIXQFWLRQWKDQRWKHUVZLWKHSLOHSV\ /RFNHHWDO 

    7HPSRUDOOREHHSLOHSV\$UHODWLRQVKLSEHWZHHQSHUVRQDOLW\DQGWHPSRUDOOREHHSLOHSV\ 7/( ZDV


    GHVFULEHG E\ :D[PDQ DQG *HVFKZLQG   ZKR SURSRVHG WKDW VRPH SDWLHQWV GLVSOD\HG H[FHVVLYH
    YHUEDO RXWSXW FLUFXPVWDQWLDO WKLQNLQJ VWLFNLQHVV RU YLVFRVLW\ LQ WKLQNLQJ DQG VRFLDO LQWHUDFWLRQV
    K\SHUJUDSKLD DOWHUHG VH[XDOLW\ XVXDOO\ K\SRVH[XDOLW\  DQG LQWHQVLILHG PHQWDO OLIH REVHVVLRQDO
    FRJQLWLYH DQG VSLULWXDOUHOLJLRXV LGHDWLRQ  :KHWKHU WKLV V\QGURPH LV D GLVWLQFWLYH SHUVRQDOLW\
    GLVRUGHU KDV ORQJ EHHQ FRQWURYHUVLDO %HQVRQ  %OXPHU  'HYLQVN\ DQG 1DMMDU  
    6HOHFWLRQ ELDV PD\ EH RQH IDFWRU FRQWULEXWLQJ WR WKH UHSRUWHG UHODWLRQVKLS EHWZHHQ HSLOHSV\ DQG
    SV\FKRSDWKRORJ\ +HUPDQQDQG:KLWPDQ 
    'HSUHVVLRQLVUHSRUWHGPRUHIUHTXHQWO\LQSDWLHQWVZLWKWHPSRUDOOREHHSLOHSV\DQGOHIWVLGHGIRFL
    DOWKRXJKQRWDOOVWXGLHVVXSSRUWWKLVILQGLQJ +DUGHQ :KHQGHSUHVVLRQRFFXUVLQ7/(LWPD\
    LQYROYH PRUH ߧQHJDWLYHߨWKDQ ߧSRVLWLYHߨGHSUHVVLRQ V\PSWRPV *HW] HW DO   *HQHUDOO\
    GHSUHVVLRQ FDQ EH WUHDWHG ZLWK DQWLGHSUHVVDQW PHGLFDWLRQV WKH QHZHU JHQHUDWLRQ RI 665,V GR QRW
    DSSHDUWRORZHUVHL]XUHWKUHVKROGDQGWKXVFDQEHXVHGVDIHO\WRWUHDWGHSUHVVLRQLQHSLOHSWLFSDWLHQWV
    6HHWKDODNVKPL DQG .ULVKQDPRRUWK\   ,Q FDVHV RI SV\FKRWLF GHSUHVVLRQ (&7 KDV EHHQ
    FRQVLGHUHG +DUGHQ 

    $JJUHVVLRQLQHSLOHSV\2QHFRQFHUQWKDWKDVUHFHLYHGPXFKDWWHQWLRQRYHUWKH\HDUVLVWKHSRVVLEOH
    UHODWLRQVKLSEHWZHHQHSLOHSV\DQGDJJUHVVLRQRUFULPLQDOEHKDYLRU:KDWKDVRIWHQEHHQGHVFULEHGDV
    YLROHQFH RU DJJUHVVLRQ PD\ DSSHDU LQ SRVWLFWDO FRQIXVLRQ RU SRVWLFWDO SV\FKRVLV .DQHPRWR HW DO
     $OWKRXJKSRVWLFWDOSV\FKRWLFDJJUHVVLRQLVXVXDOO\QRWVHYHUHZKHQLWLVGULYHQE\SURPLQHQW
    GHOXVLRQVDQGKDOOXFLQDWLRQVLWFDQUHVXOWLQVHOIGHVWUXFWLYHDFWVRUVHULRXVYLROHQFH )HQZLFN 
    ,QWHULFWDOO\ HSLOHSV\ SDWLHQWV GLVSOD\ HSLVRGHV RI DJJUHVVLYHQHVV WKDW DUH QR PRUH FRPPRQ WKDQ LQ
    RWKHUSRSXODWLRQVZLWKFRPSDUDEOHQHXURORJLFDOGLVHDVH 3LQFXVDQG7XFNHU 3ODQQHGGLUHFWHG
    DJJUHVVLRQ UHODWHG WR VHL]XUHV LV GLVWLQFWO\ XQXVXDO LQ HSLOHSV\ SDWLHQWV 7UHLPDQ   0RUHRYHU
    WKHLQFLGHQFHRIYLROHQWEHKDYLRUE\LQGLYLGXDOVZLWKHSLOHSV\LVORZHUWKDQIRUWKHSRSXODWLRQDWODUJH
    RGGVUDWLR )D]HOHWDO ,QFDVHVLQZKLFKYLROHQFHGRHVRFFXUDFXWHVLWXDWLRQDOIDFWRUV
    SDUWLFXODUO\GUXJDQGDOFRKROLQWR[LFDWLRQ DQGFRQVWLWXWLRQDODQGSV\FKRVRFLDOFKDUDFWHULVWLFV HJD
    OLIHORQJKLVWRU\RIDQWLVRFLDOSHUVRQDOLW\ QHDUO\DOZD\VILJXUHLQWRWKHHTXDWLRQ 7UDQHO 
    7KDW7/(W\SLFDOO\LQYROYHVDQWHULRUDQGPHGLDOWHPSRUDOOREHVWUXFWXUHVLQFOXGLQJWKHDP\JGDOD
    VXJJHVWV D UHODWLRQVKLS EHWZHHQ 7/( DQG DJJUHVVLYH RU HYHQ YLROHQW EHKDYLRU 7KH LPSRUWDQFH RI
    WKHVHVWUXFWXUHVLQWKHPRGXODWLRQDQGH[SUHVVLRQRIDJJUHVVLYHEHKDYLRUKDVEHHQZHOOGHPRQVWUDWHG
    LQKXPDQVDQGQRQKXPDQPDPPDOV HJVHH.OLQJ*3/HH$UHQDHWDO 0RUHRYHU
    DQWHULRUWHPSRUDOOREHDEQRUPDOLWLHVKDYHEHHQDVVRFLDWHGZLWKYLROHQWEHKDYLRUHJ3(7VFDQVRI
    SDWLHQWV ZLWK UHSHWLWLYH DFWV RI YLROHQFH VKRZHG PHWDEROLF DEQRUPDOLWLHV LQ WKH OHIW WHPSRUDO OREH
    9RONRZDQG7DQFUHGL +RZHYHULWLVLPSRUWDQWWRNQRZWKDWDOWKRXJKWKHUHODWLRQVKLSEHWZHHQ
    7/( DQG DJJUHVVLYH DQGRU YLROHQW EHKDYLRU VHHPV WR PDNH DQDWRPLFDO VHQVH IHZ LQGLYLGXDOV ZLWK
    HSLOHSV\FRPPLWYLROHQWRUDJJUHVVLYHDFWV

    $QWLHSLOHSWLFGUXJV $('V

    $('V DUH GHVLJQHG WR UHGXFH QHXURQDO LUULWDELOLW\ ,Q DGGLWLRQ WR WKHLU HIIHFWV RQ DEQRUPDO EUDLQ
    DFWLYLW\ KRZHYHU $('V GHFUHDVH QRUPDO QHXURQDO H[FLWDELOLW\ ZKLFK PD\ DIIHFW FRJQLWLYH DFWLYLW\
    )RUWXQDWHO\ WKH FRJQLWLYH VLGH HIIHFWV RI $(' PRQRWKHUDS\ DUH JHQHUDOO\ QRW SURQRXQFHG ZKHQ
    DQWLFRQYXOVDQW EORRG OHYHOV DUH PDLQWDLQHG ZLWKLQ WKH VWDQGDUG WKHUDSHXWLF UDQJH 0HDGRU  
    &RJQLWLYH VLGH HIIHFWV PD\ EH SDUWLDOO\ RIIVHW LQ SDWLHQWV ZLWK IUHTXHQW VHL]XUHV VLPSO\ E\ YLUWXH RI
    WKHLU WKHUDSHXWLF HIIHFWV RQ VHL]XUH FRQWURO 7KH ULVN RI VLJQLILFDQW FRJQLWLYH VLGH HIIHFWV LQFUHDVHV
    KRZHYHU ZLWK LQFUHDVLQJ GUXJ GRVDJHV DQWLFRQYXOVDQW EORRG OHYHOV  ZKHQ PXOWLSOH $('V DUH
    QHFHVVDU\ WR REWDLQ VHL]XUH UHOLHI 0HDGRU *LOOLDP HW DO   RU ZKHQ PHGLFDWLRQ LV
    RYHUSUHVFULEHG VHH)LJS 2QJRLQJUHVHDUFKLVDLPHGDWLPSURYLQJWKHHIILFDF\RI$('V
    WKURXJK WKH GHYHORSPHQW RI EHWWHU GUXJ GHOLYHU\ PHFKDQLVPV %HQQHZLW] DQG 6DOW]PDQ   $Q
    H[FHOOHQW VXPPDU\ RI ROGHU DQG QHZHU JHQHUDWLRQ $('V LQFOXGLQJ WKH VSHFWUXP RI WKHLU HIIHFWV
    GRVDJHVDGYHUVHHIIHFWVDQGGUXJLQWHUDFWLRQVLVSURYLGHGE\6W/RXLVDQG*UDQQHU  
    7KHQHXURSV\FKRORJLFDOIXQFWLRQVPRVWOLNHO\WREHDGYHUVHO\DIIHFWHGE\$('VDUHSV\FKRPRWRU
    VSHHGYLJLODQFHPHPRU\DQGPRRG /RULQJ0DULQRDQG0HDGRU ,QWHUSUHWDWLRQRIPXFKRI
    WKH ROGHU OLWHUDWXUH RQ FRJQLWLYH VLGH HIIHFWV LV GLIILFXOW GXH WR WKH PDQ\ GHVLJQ FRQIRXQGV VXFK DV
    QRQUDQGRP DVVLJQPHQW WR WUHDWPHQW FRQGLWLRQV DQG QRQHTXLYDOHQFH RI GUXJ GRVHV 'RGULOO DQG
    7URXSLQ )RUWKHROGHUDQWLFRQYXOVDQWPHGLFDWLRQVWKHPRVWSURQRXQFHGVLGHHIIHFWVVKRZHG
    XS ZLWK EDUELWXUDWHV DQG EHQ]RGLD]HSLQHV EXW VPDOOHU DQG OHVV FRQVLVWHQW SUREOHPV KDYH EHHQ
    DVVRFLDWHG ZLWK FDUEDPD]HSLQH SKHQ\WRLQ DQG YDOSURDWH 0HDGRU D   :KLOH VLGH HIIHFW
    VWXGLHV RI WKH QHZHU $('V FRQWLQXH VR IDU WKH\ VKRZ PRUH IDYRUDEOH FRJQLWLYH SURILOHV WKDQ GLG
    ROGHU $('V /RULQJ 0DULQR DQG 0HDGRU  /XV]F]NL   7RSLUDPDWH 7RSDPD[  LV DQ
    H[FHSWLRQDVLWKDVEHHQDVVRFLDWHGZLWKLPSDLUHGYHUEDOIOXHQF\ 6RPPHUDQG)DQQ +RZHYHU
    ODUJHVFDOHUHYLHZVKDYHQRWGHPRQVWUDWHGXQHTXLYRFDOVXSHULRULW\RIQHZHU$('VDWOHDVWLQUHJDUG
    WRVHL]XUHFRQWUROZKHQFRPSDUHGZLWKROGJHQHUDWLRQ$('V&OLQLFDOSUDFWLFHJXLGHOLQHVVXJJHVWWKDW
    VRPHRIWKHROGHUGUXJVUHPDLQYLDEOHRSWLRQVDVILUVWOLQHGUXJPRQRWKHUDS\IRUQHZO\GLDJQRVHG
    HSLOHSV\LQDGXOWV 3D\DNDFKDWHWDO 1HDUO\DOORIWKH$('VROGHUDQGQHZHUJHQHUDWLRQDOLNH
    KDYHVHGDWLQJSURSHUWLHVWKDWVRPHSDWLHQWVILQGKLJKO\XQSOHDVDQW
    $QRWKHUDUHDRIFRQFHUQLVWKHXVHRI$('VLQSUHJQDQWZRPHQ)RUH[DPSOHLWKDVEHHQVKRZQ
    WKDW$('VGXULQJSUHJQDQF\OHDGWRDVHYHUDOIROGLQFUHDVHLQFRQJHQLWDOPDOIRUPDWLRQVDQGWKLVULVN
    LV IXUWKHU HOHYDWHG ZLWK $(' SRO\WKHUDS\ 0HDGRU %DNHU HW DO  0HDGRU 5H\QROGV HW DO
     

    7UHDWPHQWDQGSURJQRVLV

    ,V HSLOHSV\ SURJUHVVLYH" $ FRQWLQXLQJ FRQWURYHUV\ DERXW HSLOHSV\ LV ZKHWKHU SRRUO\ FRQWUROOHG
    VHL]XUHV FRQWULEXWH WR SURJUHVVLYH FRJQLWLYH GHFOLQH 7KH GHEDWH LV GXH LQ SDUW WR FRQIRXQGLQJ
    YDULDEOHVWKDWDUHGLIILFXOWWRFRQWUROLQWKHVHVWXGLHV 6%URZQ $-&ROH  6LQFH EUDLQ
    DEQRUPDOLWLHVRIWHQH[WHQGIDUEH\RQGWKHVHL]XUHIRFXVLWLVFHUWDLQO\SRVVLEOHWKDWSRRUO\FRQWUROOHG
    VHL]XUHV PD\ KDYH VLJQLILFDQW FXPXODWLYH EUDLQ HIIHFWV +HUPDQQ 6HLGHQEHUJ DQG %HOO   ,Q D
    \HDU IROORZXS VWXG\ RI SDWLHQWV ZLWK SRRUO\ FRQWUROOHG VHL]XUHV QR FRQVLVWHQW FKDQJHV ZHUH
    REVHUYHG ZLWK FRPSUHKHQVLYH QHXURSV\FKRORJLFDO WHVWLQJ DOWKRXJK VXEWOH ߧYHU\ PLOGߨORVVHV ZHUH
    QRWHG RQ VHYHUDO QHXURSV\FKRORJLFDO PHDVXUHV LQFOXGLQJ 'LJLW 6\PERO 9LVXDO 5HSURGXFWLRQ
    7DFWXDO3HUIRUPDQFH7HVWWLPH6HDVKRUH5K\WKP7HVWDQG7UDLO0DNLQJ3DUW% 0'+ROPHVHWDO
     ,QVWXGLHVRISDWLHQWVZLWK7/(DQGFRJQLWLYHGHFOLQHZKRKDYHQRWEHQHILWWHGIURPPHGLFDWLRQ
    LPDJLQJ DQG KLVWRORJLF VWXGLHV KDYH LGHQWLILHG VWUXFWXUDO DQG PHWDEROLF DOWHUDWLRQV 1HDULQJ HW DO
      )RU H[DPSOH ERWK FDVH UHSRUWV DQG SDWLHQW VHULHV KDYH GRFXPHQWHG 05, FKDQJHV LQ
    KLSSRFDPSDOYROXPHVRYHUDSHULRGDVVKRUWDVIRXU\HDUVLQSDWLHQWVZLWKSRRUO\FRQWUROOHGVHL]XUHV
    %ULHOOPDQQ HW DO  7KHRGRUH DQG *DLOODUG   (YHQ DIWHU RQO\ VHYHUDO PRQWKV WLVVXH
    DWURSK\LQWKHPHVLDOWHPSRUDOOREHSURJUHVVHGLQGLUHFWDVVRFLDWLRQZLWKVHL]XUHIUHTXHQF\GXUDWLRQ
    RI HSLOHSV\ &RDQ HW DO    0RUHRYHU LQ WKH DEVHQFH RI RYHUDOO GHWHULRUDWLRQ HSLOHSV\
    ߧUHIUDFWRULQHVVߨLV UHODWHG WR FXPXODWLYH HIIHFWV UHVXOWLQJ IURP WKH PDQ\ QHJDWLYH QHXUDO HYHQWV
    DVVRFLDWHG ZLWK D VHL]XUH ZDUUDQWLQJ DJJUHVVLYH LQWHUYHQWLRQ WR LQWHUUXSW WKLV SURFHVV .ZDQ DQG
    %URGLH 
    0HPRU\IXQFWLRQVPD\EHHVSHFLDOO\YXOQHUDEOHWRSURJUHVVLYHGHFOLQHHVSHFLDOO\LQPHGLFDWLRQ
    UHVLVWDQW HSLOHSV\ 9LQJHUKRHWV   7KLV GHFOLQH LQ PHPRU\ LQ SDWLHQWV ZLWK FKURQLF HSLOHSV\
    HVSHFLDOO\YLVXDO PHPRU\KDV EHHQ DWWULEXWHG WRWKHLQWHUDFWLRQRI VHL]XUH FRQWURO VHL]XUHVHYHULW\
    FRJQLWLYH UHVHUYH FDSDFLW\ DQG WHVWUHWHVW LQWHUYDO +HOPVWDHGWHU   $W OHDVW D SRUWLRQ RI
    SURJUHVVLYHPHPRU\FKDQJHLQHSLOHSV\KDVEHHQDWWULEXWHGWRWKHLQWHUDFWLRQRISUHH[LVWLQJGLVHDVH
    ZLWKWKHDJLQJSURFHVV +HOPVWDHGWHUDQG(OJHU 
    (IIHFWV RIVXUJLFDO WUHDWPHQW 6XUJHU\ LV RIWHQ DQ H[FHOOHQW WUHDWPHQW RSWLRQ IRU VHOHFWHG SDWLHQWV
    ZKRVHVHL]XUHVFDQQRWEHVDWLVIDFWRULO\FRQWUROOHGZLWKPHGLFDWLRQ 3LQFXVDQG7XFNHU:LHEH
    %OXPHHWDO $VLWLVUDUHIRUDSHUVRQZKRKDVIDLOHGWZRGLIIHUHQW$('VWREHFRPHVHL]XUH
    IUHHZLWKDWKLUGPHGLFDWLRQWKHVHSDWLHQWVPD\EHFRPHVXUJHU\FDQGLGDWHV .ZDQDQG%URGLH 
    :LWK FDUHIXO ZRUNXSV DQG ULJRURXV VHOHFWLRQ FULWHULD SDWLHQWV FDQ EH VHOHFWHG IRU DQWHULRU
    WHPSRUDOOREHFWRP\ZLWKDKLJKGHJUHHRIFRQILGHQFHWKDWWKHULVNRIVLJQLILFDQWFRJQLWLYHPRUELGLW\
    ZLOOEHVOLJKW HJORVVRIVSHHFKVHYHUHPHPRU\GLVRUGHU ,QJHQHUDOSRVLWLYHVHOHFWLRQIDFWRUVߟ
    LH WKRVH WKDW SUHGLFW JRRG VXUJLFDO RXWFRPHߟLQFOXGH HDUO\ DJH DW VHL]XUH RQVHW HYLGHQFH RI
    KLSSRFDPSDO DWURSK\ RQ 05, DQG SDWWHUQV RI QHXURSV\FKRORJLFDO DQG :DGD WHVW ILQGLQJV WKDW DUH
    FRPSDWLEOH ZLWK WKH VHL]XUH RQVHW ODWHUDOLW\ DQG D IRFDO ORFDOL]HG DUHD RI QHXURQDO G\VIXQFWLRQ
    /RULQJ%RZGHQHWDO 5HFHQWZRUNKDVHPSKDVL]HGWKHLPSRUWDQFHRIDIXOO\FRPSUHKHQVLYH
    ZRUNXSRIWKHVHVXUJHU\FDQGLGDWHVLQFOXGLQJQHZLPDJLQJSURFHGXUHVVXFKDV3(70(*DQG'7,
    &50F'RQDOG6W/RXLVDQG*UDQQHU WKLVLVHVSHFLDOO\WKHFDVHIRUFKLOGUHQ 5DVWRJL
    HWDO &RQWUDU\WRSUHYLRXVVWXGLHVUHFHQWILQGLQJVVXJJHVWWKDWWHPSRUDOOREHVFOHURVLVGRHV
    QRWSUHGLFWRXWFRPHRIDQWHULRUWHPSRUDOOREHFWRP\ 7KRPHWDO 
    6XUJHU\UHPRYHVRUGHFUHDVHVWKHEXUGHQRIVHL]XUHVIRUPDQ\SDWLHQWVEXWWKHSUDFWLFDORXWFRPH
    GHSHQGVRQRWKHUIDFWRUVDVZHOO /RULQJDQG0HDGRUE 2EYLRXVO\WKHVLGHRIWKHOHVLRQDIIHFWV
    WKH FRJQLWLYH RXWFRPH *ULIILQ DQG 7UDQHO   7KH PRVW IUHTXHQWO\ UHSRUWHG GHILFLWV DUH IRU
    PHPRU\IXQFWLRQV 7«OOH]=HQWHQRHWDO $OWKRXJKULJKWWHPSRUDOOREHFWRP\FDQEHDVVRFLDWHG
    ZLWK YLVXDO PHPRU\ LPSDLUPHQWV *OHLVVQHU HW DO  5& 0DUWLQ +XJJ HW DO    LW RIWHQ
    OHDYHVIHZLIDQ\FOLQLFDOO\DSSDUHQWGHILFLWV %DUU&KHOXQHHWDO70/HHHWDO  /HIW
    WHPSRUDO OREHFWRP\ LV IDLUO\ FRQVLVWHQWO\ DVVRFLDWHG ZLWK GHFOLQHV LQ YHUEDO PHPRU\ DQG
    FRQIURQWDWLRQQDPLQJ +HUPDQQ:\OHU6RPHVDQG&OHPHQW70/HHHWDO DOWKRXJK
    ZKHQ EDVH UDWHV DUH IDFWRUHG LQWR RXWFRPH GDWD SDWLHQWV ZLWK ULJKW WHPSRUDO OREHFWRPLHV DOVR GR D
    OLWWOH OHVV ZHOO RQ YHUEDO PHPRU\ WHVWV DIWHU VXUJHU\ &KHOXQH 1DXJOH HW DO   7KH ODUJHVW
    SRVWRSHUDWLYHGHFOLQHVLQYHUEDOPHPRU\DSSHDUHGLQSDWLHQWVZKRORVWWKHPRVWIXQFWLRQDOWLVVXHDV
    GHPRQVWUDWHGE\05, 7UHQHUU\-DFNHWDO IRUPDOSDWKRORJ\ 5DXVFKDQG%DEE DQG
    :DGD PHPRU\ WHVWLQJ /RULQJ 0HDGRU /HH HW DO   :KHQ HIIHFWLYH PHGLFDO WUHDWPHQW PD\
    RIIHU SDWLHQWV ZLWK WHPSRUDO OREH HSLOHSV\ VRPHZKDW EHWWHU RXWFRPHV WKDQ VXUJHU\ +HOPVWDHGWHU
    .XUWKHQ/X[HWDO 
    7KH EHVW SUHGLFWRUV RI SRVWRSHUDWLYH SV\FKRVRFLDO RXWFRPH IROORZLQJ DQWHULRU WHPSRUDO
    OREHFWRP\DUHWKHSDWLHQWߤVSUHRSHUDWLYHSV\FKRVRFLDODGMXVWPHQWDQGZKHWKHUWKH\EHFRPHVHL]XUH
    IUHH +HUPDQQ :\OHU DQG 6RPHV   $OWKRXJK VKRUWWHUP GDWD WZR WR ILYH \HDU IROORZXSV
    LQGLFDWH WKDW  WR  RI VXUJHU\ SDWLHQWV KDYH D VLJQLILFDQWߟLI QRW FRPSOHWHߟUHGXFWLRQ LQ
    VHL]XUHVGDWDIRUORQJWHUPSURJQRVHVDUHDV\HWLQVXIILFLHQW 7«OOH]=HQWHQRHWDO 

    2WKHU WUHDWPHQWV 'HHS EUDLQ VWLPXODWLRQ ZKLFK LQLWLDOO\ ZDV WRXWHG IRU WKH WUHDWPHQW RI VHYHUH
    PRYHPHQW GLVRUGHUV KDV DWWUDFWHG LQFUHDVLQJ LQWHUHVW DV D WUHDWPHQW IRU RWKHU QHXURORJLFDO DQG
    SV\FKLDWULFGLVHDVHVLQFOXGLQJSKDUPDFRUHVLVWDQWHSLOHSV\ 6FKXO]H%RQKDJH 7KHWHFKQLTXHLV
    EDVHGRQWKHDVVXPSWLRQWKDWVWLPXODWLRQRIFHUWDLQEUDLQVLWHVPLJKWSUHYHQWWKHVSUHDGRIHSLOHSWLF
    GLVFKDUJHVDQGVXSSUHVVWKHLUJHQHUDWLRQ6WLPXODWLRQLVXVXDOO\GLUHFWHGWRWKHWKDODPXVVXEWKDODPLF
    QXFOHL KLSSRFDPSXV DQG YDULHG FRUWLFDO ORFL /DUJHVFDOH FOLQLFDO WULDOV DUH RQJRLQJ 6WHUHRWDFWLF
    UDGLRVXUJHU\ LV DQRWKHU HPHUJLQJ WHFKQRORJ\ IRU WUHDWPHQW RI IRFDO HSLOHSWLF OHVLRQV 4XLJJ DQG
    %DUEDUR $QLQWULJXLQJQHZWUHDWPHQWLQYROYHVQHXUDOWUDQVSODQWVߟIRUH[DPSOHWUDQVSODQWVRI
    IHWDO*$%$HUJLFSURJHQLWRUV HPEU\RQLFVWHPFHOOGHULYHG*$%$HUJLFQHXURQSUHFXUVRUV IURPWKH
    PRXVHRUKXPDQEUDLQLQWRWKHEUDLQVRIHSLOHSWLFSDWLHQWVWKLVSURFHGXUHKDVEHHQVKRZQWRVXSSUHVV
    WKHGHYHORSPHQWRIVHL]XUHV 0DLVDQRHWDO 1HZHUFRQFHSWXDODSSURDFKHVWRVHL]XUHGLVRUGHUV
    KDYH IRFXVHG RQ LGHQWLI\LQJ WUHDWPHQWV WKDW PLJKW HQKDQFH WKH QHXUDO PHFKDQLVPV RI VHL]XUH
    WHUPLQDWLRQ /DGRDQG0RVKH 

    3DUR[\VPDOQRQHSLOHSWLFVSHOOV

    3V\FKRJHQLF ߧVSHOOVߨUHVHPEOLQJ VHL]XUHV KDYH EHHQ UHFRJQL]HG VLQFH WKH WK FHQWXU\ 7ULPEOH
      7KH\ KDYH EHHQ FDOOHG SVHXGRVHL]XUHV K\VWHULFDO SVHXGRVHL]XUHV SVHXGRHSLOHSWLF VHL]XUHV
    K\VWHURHSLOHSWLF SV\FKRJHQLF VHL]XUHV DQG PRUH UHFHQWO\ QRQHSLOHSWLF VHL]XUHV 1(6  -5 *DWHV
      7KLV ODWWHU QDPH UHFRJQL]HV WKH SRVVLELOLW\ WKDW VXFK VSHOOV FDQ EH HYLGHQFH RI SV\FKLDWULF
    GLVHDVH ZKLFK FDQ VHULRXVO\ DIIHFW D SDWLHQWߤV IXQFWLRQLQJ +RZHYHU FDOOLQJ WKHVH V\PSWRPV
    ߧVHL]XUHVߨFDQEHPLVOHDGLQJWRSDWLHQWVVLQFHWKHVSHOOVDUHQRWWUXHVHL]XUHVDQGLWLVDGLVVHUYLFHWR
    DOORZ SDWLHQWV WR EHOLHYH WKDW WKH\ KDYH WUXH VHL]XUHV %HQEDGLV   5HIHUULQJ WR SV\FKRJHQLF
    VSHOOV DV ߧVHL]XUHVߨLV DOVR PLVOHDGLQJ IRU KHDOWK FDUH SURIHVVLRQDOV EHFDXVH PDQ\ W\SHV RI
    QRQHSLOHSWLFVHL]XUHV HJDVVRFLDWHGZLWKK\SRJO\FHPLD DUHJHQXLQHVHL]XUHVEXWDUHQRWHSLOHSV\
    7KXVWKHWHUP SDUR[\VPDOQRQHSLOHSWLF VSHOOV LV SUHIHUUHG DV LW KDV FRPSHOOLQJ UDWLRQDOH DQG LV WKH
    PRVWDSSURSULDWHUXEULF
    3DUR[\VPDO QRQHSLOHSWLF VSHOOV DUH VXGGHQO\ RFFXUULQJ VSHOOV WKDW PD\ VXSHUILFLDOO\ UHVHPEOH
    VHL]XUHV 7KH GLDJQRVLV RI QRQHSLOHSWLF VSHOOVߟZKLFK LV D GLDJQRVLV E\ H[FOXVLRQߟLPSOLHV D
    SV\FKRORJLFDO RULJLQ PRVW RIWHQ WKH\ RFFXU ZLWK DQ[LHW\ GLVRUGHU GHSUHVVLRQ VFKL]RSKUHQLD
    FRQYHUVLRQGLVRUGHUIDFWLWLRXVGLVRUGHUDQGPDOLQJHULQJ+RZHYHUVHL]XUHVDQGQRQHSLOHSWLFVSHOOV
    FRH[LVWLQWRRIRXWSDWLHQWVZLWKHSLOHSV\DQGDVPDQ\DVRILQSDWLHQWVZKLFKQHHGOHVVWR
    VD\ JUHDWO\ FRPSOLFDWHV WKH GLDJQRVWLF FKDOOHQJHV $OVDDGL DQG 0DUTXH]  3LQFXV DQG 7XFNHU
     1RVLQJOHFRJQLWLYHRUSHUVRQDOLW\SDWWHUQFKDUDFWHUL]HVSHUVRQVZKRKDYHQRQHSLOHSWLFVSHOOV
    DV WKH\ DUH D YHU\ KHWHURJHQHRXV JURXS GLIIHULQJ DPRQJ WKHPVHOYHV LQ PHQWDO DELOLWLHV HPRWLRQDO
    IXQFWLRQLQJ GHPRJUDSKLF EDFNJURXQGV DQG QHXURORJLFDO VWDWXV /HVVHU   +RZHYHU
    DSSUR[LPDWHO\  DUH ZRPHQ /HVVHU   0DQ\ KDYH D KLVWRU\ RID SV\FKRORJLFDOO\ WUDXPDWLF
    HYHQWDQGGHSUHVVLRQ %DUU\DQG6DQERUQ  LQFOXGLQJ VH[XDO RUSK\VLFDODEXVH +DUGHQ 
    3LQFXV DQG 7XFNHU    1HZ RQVHW QRQHSLOHSWLF VSHOOV IROORZLQJ 7%, KDYH EHHQ UHSRUWHG /(
    :HVWEURRNHWDO 
    1RQHSLOHSWLFVSHOOVPLPLFMXVWDERXWHYHU\W\SHRIJHQXLQHVHL]XUHSDWWHUQDQGFDQGLVSOD\DOPRVW
    HYHU\DVVRFLDWHGV\PSWRPRUSUREOHPLQFOXGLQJXULQDU\LQFRQWLQHQFHUHSRUWVRIDXUDVDQGHYHQߟ
    WKRXJK UDUHO\ߟVHOILQMXU\ VXFK DV WRQJXH ELWLQJ &DUUHQR  *URSSHO HW DO   +RZHYHU
    QRQHSLOHSWLFVSHOOVPD\EHLGHQWLILHGE\DQXPEHURIFKDUDFWHULVWLFVQRWVHHQZLWKVHL]XUHVLQFOXGLQJ
    D ORQJHU GXUDWLRQ WKDQ PRVW WUXH VHL]XUHV WKH DELOLW\ WR UHFDOO ߧVSHOOVߨVLQFH VHL]XUHV DUH UDUHO\
    UHPHPEHUHGDQGFOHDUFRQVFLRXVQHVVGXULQJWKHHYHQW $OVDDGLDQG0DUTXH]:/%HOO 
    ,QDGGLWLRQPDQ\SDWLHQWVKDYLQJQRQHSLOHSWLFVSHOOVGLVSOD\EL]DUUHRUSXUSRVHIXOPRYHPHQWVVXFK
    DV NLFNLQJ VODSSLQJ DQG VWULNLQJ RXW SHOYLF WKUXVWLQJ LV QRW XQFRPPRQ 7KDW WUXH FRPSOH[ SDUWLDO
    VHL]XUHV ZLWK IURQWDO IRFL FDQ JHQHUDWH EL]DUUH EHKDYLRUVߟHJ SHOYLF WKUXVWLQJ PDVWXUEDWRU\
    DFWLYLW\ DQG NLFNLQJ RU RWKHU DJJUHVVLYH DFWVߟDOVR FUHDWHV GLDJQRVWLF FKDOOHQJHV %DUU\ DQG
    6DQERUQ 6W/RXLVDQG*UDQQHU  KDYHQRWHGWKDWSV\FKRJHQLFVSHOOVIUHTXHQWO\LQYROYH
    FKDUDFWHULVWLF H\H FORVXUH QRQSK\VLRORJLF SDWWHUQV RI PRYHPHQWV SURPLQHQW SHOYLF WKUXVWLQJ
    SURORQJHGGXUDWLRQ RIWHQRYHUWRPLQXWHV ODFNRIVWHUHRW\S\EHWZHHQHSLVRGHVDQGIDLOXUHWR
    UHVSRQGWR$('V3DWLHQWVZKRKDYHQRQHSLOHSWLFVSHOOVWHQGWRSHUIRUPDWRUQHDUQRUPDOOHYHOVRQ
    QHXURSV\FKRORJLFDOWHVWLQJZKLFKPD\EHKHOSIXOLQGLIIHUHQWLDWLQJWKHPIURPSDWLHQWVZLWKHSLOHSV\
    -$ :DONHU    $ QRUPDO ((* UHFRUGHG GXULQJ WKH VSHOO ZLWKRXW HYLGHQFH RI HSLOHSWLIRUP
    DFWLYLW\LVWKHߧJROGVWDQGDUGߨIRUGLDJQRVLV 3LQFXVDQG7XFNHU 6W/RXLVDQG*UDQQHU 
    HPSKDVL]H WKDW GLDJQRVWLF LFWDO YLGHR((* PRQLWRULQJ LV UHTXLUHG WR FRQILUP SV\FKRJHQLF
    QRQHSLOHSWLFVSHOOV
    '(0(17,1*',625'(56
    0LOG&RJQLWLYH,PSDLUPHQW
    :KHQ PHPRU\ SUREOHPV DUH PLOG DQG RWKHU FRJQLWLYH VNLOOV DUH XQLPSDLUHG LW LV GLIILFXOW WR
    GHWHUPLQH ZKHWKHU VXEWOH FKDQJHV UHSUHVHQW HDUO\ GHPHQWLD RU VLPSO\ DJLQJ 0DQ\ HOGHUO\ SHRSOH
    UHSRUW RFFDVLRQDO SUREOHPV UHWULHYLQJ SURSHU QDPHV DQG QDPHV RI REMHFWV DQG OHDUQLQJ QHZ
    LQIRUPDWLRQ EHFRPHV OHVV HIILFLHQW ZLWK DJLQJ 7KH WHUP PLOG FRJQLWLYH LPSDLUPHQW 0&,  LV D
    GLDJQRVLVJLYHQ WR LQGLYLGXDOVZKRDUH WKRXJKWWRKDYH FRJQLWLYH LPSDLUPHQW JUHDWHU WKDQ H[SHFWHG
    IRUDJHDQGHGXFDWLRQZLWKRXWDQREYLRXVHWLRORJ\EXWQRWVXIILFLHQWO\VHYHUHWRZDUUDQWDGLDJQRVLV
    RI GHPHQWLD 3HWHUVHQ 6PLWK HW DO  :LQEODG HW DO   %\ WKH WLPH VRPHRQH PHHWV
    GLDJQRVWLF FULWHULD IRU GHPHQWLD VHH SS   IRU $O]KHLPHU ߤV GLVHDVH  EUDLQ ORVV PD\ EH
    FRQVLGHUDEOH 7KH IRFXV RI GHPHQWLD UHVHDUFK KDV VKLIWHG WR SDWLHQWV ZLWK 0&, EHFDXVH WKLV LV ZKHQ
    GLVHDVHPRGLI\LQJWUHDWPHQWVZRXOGEHH[SHFWHGWREHPRVWEHQHILFLDO
    $V HYLGHQFH RI FRJQLWLYH GHFOLQH WKH FULWHULD VXJJHVW WKDW WKH SHUVRQ RU DQ LQIRUPDQW UHSRUW D
    GHFOLQH DQG WKDW WKHUH LV LPSDLUPHQW RQ REMHFWLYH FRJQLWLYH WDVNV RU WKDW GHFOLQH RYHU WLPH LV
    REVHUYDEOHRQFRJQLWLYHWDVNV5HSRUWVE\LQIRUPDQWVXVXDOO\DUHPRUHKHOSIXOWKDQWKRVHE\SDWLHQWV
    5LQJPDQHWDO ,QDGGLWLRQWKHEDVLFDFWLYLWLHVRIGDLO\OLYLQJPXVWEHSUHVHUYHGZLWKPLQLPDO
    LPSDLUPHQWRIFRPSOH[DFWLYLWLHV
    $ ZHDOWK RI LQIRUPDWLRQ DERXW 0&, FRPHV IURP ORQJLWXGLQDO VWXGLHV RI DJLQJ WKDW SURYLGHG DQ
    RSSRUWXQLW\WRVWXG\FRJQLWLYHLPSDLUPHQW\HDUVEHIRUHDGLDJQRVLVRI$'&RJQLWLYHGHILFLWVDSSHDU
    RQH[DPLQDWLRQSULRUWRGLDJQRVLVRIGHPHQWLDSDUWLFXODUO\GHILFLWVLQHSLVRGLFPHPRU\SURFHVVLQJ
    VSHHGH[HFXWLYHIXQFWLRQLQJYHUEDODELOLW\DQGDWWHQWLRQ /%DFNPDQ-RQHVHWDO3&KHQHW
    DO7ZDPOH\HWDO 6HYHUDOVWXGLHVKDYHIRXQGQRQOLQHDUUDWHVIRUFRJQLWLYHGHFOLQH$'
    VXEMHFWV LQ RQH VWXG\ ILUVW VKRZHG DQ DFFHOHUDWHG UDWH RI PHPRU\ GHFOLQH VHYHQ \HDUV EHIRUH
    GLDJQRVLV)ROORZLQJDUHODWLYHO\VWDEOHSHULRGDFFHOHUDWHGGHFOLQHZDVREVHUYHGDJDLQWZRWRWKUHH
    \HDUV EHIRUH GLDJQRVLV DORQJ ZLWK GHFOLQHV LQ H[HFXWLYH IXQFWLRQ *UREHU +DOO HW DO   ,Q D
    VLPLODU VWXG\ YHU\ HOGHUO\ QRQGHPHQWHG SDUWLFLSDQWV ZKR ODWHU GHYHORSHG 0&, KDG DFFHOHUDWHG
    FRJQLWLYH ORVV RQ DQQXDO WHVWV RI YHUEDO PHPRU\ FDWHJRU\ IOXHQF\ DQG YLVXRVSDWLDO FRQVWUXFWLRQV
    WKUHHWRIRXU\HDUVEHIRUHWKHGLDJQRVLVRI0&,VKRZLQJWKDW0&,KDVDSUHFOLQLFDOVWDJH +RZLHVRQ
    &DUOVRQHWDO $EVHQFHRIDSUDFWLFHHIIHFWRQ:065/RJLFDO0HPRU\ZDVWKHHDUOLHVWVLJQ
    RI WKHLU LPSHQGLQJ FRJQLWLYH LPSDLUPHQW (YLGHQFH WKDW DPQHVWLF 0&, LV D WUDQVLWLRQ VWDJH WR $'
    FRPHVIURPVWXGLHVVKRZLQJWKDW0&,SDWLHQWߤVSHUIRUPDQFHRQPHPRU\DQGRWKHUFRJQLWLYHWHVWVLV
    LQWHUPHGLDWH EHWZHHQ $' SDWLHQWV DQG FRQWUROV *UHHQDZD\ HW DO  *UXQGPDQ HW DO  
    DOWKRXJKH[FHSWLRQVKDYHEHHQREVHUYHG %UDQGWDQG0DQLQJ 
    $' LV QRW WKH RQO\ QHXURGHJHQHUDWLYH GLVHDVH ZLWK DQ LQVLGLRXV RQVHW WKDW SURGXFHV FRJQLWLYH
    LPSDLUPHQW 7KH HDUO\ FOLQLFDO IHDWXUHV RI RWKHU QHXURGHJHQHUDWLYH GLVHDVHV YDU\ DQG WKHLU 0&,
    SURILOHVGLIIHUDFFRUGLQJO\5HFRJQLWLRQRIWKHVHGLIIHUHQFHVKDVOHDGWRDGLYLVLRQRI0&,V\QGURPHV
    LQWR VXEW\SHV 7KH PDMRU GLVWLQFWLRQ KDV EHHQ EHWZHHQ DPQHVWLF 0&, SDWLHQWV WKRXJKW WR KDYH YHU\
    HDUO\$'DQGQRQDPQHVWLF0&,SDWLHQWVWKRXJKWWRKDYHRQHRIWKHRWKHUQHXURGHJHQHUDWLYHGLVHDVHV
    LQFOXGLQJ IURQWRWHPSRUDO OREDU GHJHQHUDWLRQ SS ߞ  GHPHQWLD ZLWK /HZ\ ERGLHV SS ߞ
      RQH RI WKH UDUHU GLVHDVHV SS ߞ  RU YDVFXODU GHPHQWLD SS ߞ  $ IXUWKHU
    EUHDNGRZQ GLYLGHV 0&, SDWLHQWV LQWR VLQJOH GRPDLQߟHJ PHPRU\ߟDQG PXOWLSOH GRPDLQ
    LPSDLUPHQWV 3HWHUVHQ DQG 0RUULV   ,Q D UHWURVSHFWLYH DQDO\VLV RI GDWD IURP D ORQJLWXGLQDO
    VWXG\URXJKO\RQHWKLUGRI0&,SDUWLFLSDQWVKDGVLQJOHGRPDLQDPQHVWLF0&,RQHWKLUGKDGPXOWLSOH
    GRPDLQDPQHVWLF0&,RIZKLFKRQHLQYROYHGPHPRU\DQGRQHWKLUGKDGQRQDPQHVWLF0&, 6WRUDQGW
    *UDQWHWDO 2IWKRVHZLWKGLDJQRVHVFRQILUPHGE\DXWRSVLHVRIWKRVHZLWKVLQJOHGRPDLQ
    DPQHVWLF0&,KDG$'
    5HSRUWVRIWKHDQQXDOUDWHRIFRQYHUVLRQIURP0&,WRGHPHQWLDKDYHUDQJHGIURP 5LWFKLHHW
    DO   WR  3HWHUVHQ 6PLWK HW DO   0&, SDWLHQWV ZLWK PHPRU\ SUREOHPV SOXV RWKHU
    FRJQLWLYHGHILFLWVDUHDWKLJKHVWULVNIRUFRQYHUVLRQWR$' 7DEHUWHWDO 1RWDOO0&,SDWLHQWV
    ZLOO SURJUHVV WR GHPHQWLD 2WKHU IDFWRUV VXFK DV GHSUHVVLRQ VLGH HIIHFWV RI PHGLFLQHV VLOHQW
    FHUHEURYDVFXODUGLVHDVHDQGV\VWHPLFLOOQHVVFDQWDNHWKHLUWROORQFRJQLWLRQDVZHOO,QDQXPEHURI
    VWXGLHVSDUWLFLSDQWVKDYHSHULRGVRIVWDEOHPHPRU\GXULQJWKHSUHFOLQLFDOSKDVHZKLFKPD\UHSUHVHQW
    VXFFHVVIXO EUDLQ FRPSHQVDWRU\ PHFKDQLVPV 7ZDPOH\HWDO  ,Q RQH VWXG\ LQ ZKLFK YHU\ ROG
    VXEMHFWVZHUHH[DPLQHGDQQXDOO\IRUXSWR\HDUVZLWKWKUHHRXWFRPHV LQWDFWFRJQLWLRQFRJQLWLYH
    GHFOLQH WKDW VWDELOL]HG DQG FRJQLWLYH GHFOLQH WKDW SURJUHVVHG WR GHPHQWLD   SURJUHVVHG WR D
    GLDJQRVLV RI GHPHQWLD ZKLOH  UHPDLQHG FRJQLWLYHO\ VWDEOH +RZLHVRQ &DPLFLROL HW DO  
    6XEVHWV RI 0&, SDUWLFLSDQWV LQ ORQJLWXGLQDO VWXGLHV KDYH HYHQ ߧEDFN FRQYHUWHGߨWR QRUPDO FRJQLWLRQ
    %/%URRNV,YHUVRQHWDO ,QDGHPRQVWUDWLRQRIKRZPLVGLDJQRVLVFDQRFFXU%URRNVDQG
    FROOHDJXHV UHYLHZHG PHPRU\ SHUIRUPDQFHV RI WKH ROGHU DGXOWV  WR  \HDUV LQ WKH :06,,,
    VWDQGDUGL]DWLRQ VDPSOH DQG VKRZHG WKDW  RI WKHP KDG RQH RU PRUH VFRUHV DW RU EHORZ WKH WK
    SHUFHQWLOH 7R UHGXFH GHPRJUDSKLF HIIHFWV DGMXVWLQJ WKH VFRUHV DFFRUGLQJ WR UHDGLQJ YRFDEXODU\
    PDGHPDWWHUVZRUVHZLWKKDYLQJDWOHDVWRQHVFRUHDWRUEHORZWKHWKSHUFHQWLOH
    %HFDXVH QRW DOO0&,SDWLHQWV ZLOO SURJUHVVWR GHPHQWLD LW LV LPSRUWDQW WKDWSUHGLFWLRQV RIIXWXUH
    LOOQHVVEHUHOLDEOH$ORQJLWXGLQDOVWXG\RIDPQHVWLF0&,SDWLHQWVFRPSDUHGWKHSUHGLFWLYHYDOXH
    RI $32( DJH IDPLO\ KLVWRU\ RI $' HGXFDWLRQ VH[ SOXV EDVHOLQH 05, PHDVXUHV RI ZKROH EUDLQ
    YHQWULFXODU KLSSRFDPSDO DQG HQWURUKLQDO FRUWH[ YROXPHV DQG EDVHOLQH FRJQLWLYH PHDVXUHV IRU
    DVVHVVLQJ SURJUHVVLRQ WR $' GXULQJ  PRQWKV )OHLVKHU HW DO   7KH EHVW SUHGLFWRU RI
    SURJUHVVLRQ WR $' ZDV SHUIRUPDQFH RQ WKUHH WHVWVߟWKH $O]KHLPHU ߤV 'LVHDVH $VVHVVPHQW 6FDOH
    &RJQLWLYH $'$6&RJ  ZRUG OLVW UHFDOO DQG VWRU\ UHFDOO 7KH HVWLPDWHG SUHGLFWLYH DFFXUDF\ ZDV
     %\ FRPSDULVRQ WKH SUHGLFWLYH DFFXUDF\ RI KLSSRFDPSDO YROXPHV ZDV  DQG 05,
    PHDVXUHV VKRZHG QR VLJQLILFDQW EHQHILW ZKHQ DGGHG WR FOLQLFDO PHDVXUHV 5DWH RI LQFUHDVH LQ ZKLWH
    PDWWHUK\SHULQWHQVLWLHVIURPDQRUPDOEDVHOLQHDOVRDSSHDUVWREHSUHGLFWLYHRISHUVLVWHQW FRJQLWLYH
    LPSDLUPHQW 3&,  6LOEHUW+RZLHVRQHWDO 
    9DULRXVFRPSXWHUL]HGWHVWVKDYHEHHQGHYHORSHGIRUVFUHHQLQJIRU0&, VHH:LOG+RZLHVRQDQG
    FROOHDJXHV>@IRUDUHYLHZ 6RPHFDQEHXVHGLQWKHSULPDU\FDUHSK\VLFLDQߤVRIILFHVXFKDVWKH
    &RPSXWHU$VVHVVPHQWRI0LOG&RJQLWLYH,PSDLUPHQW &$0&,  6D[WRQ0RUURZHWDO 7KLV
    PLQXWH VHOIDGPLQLVWHUHG WHVW FRUUHFWO\ FODVVLILHG  RI 0&, SDUWLFLSDQWV DQG  RI FRJQLWLYHO\
    LQWDFW HOGHUV ZKHQ FRPSDUHG ZLWK FODVVLILFDWLRQV EDVHG RQ DQ H[WHQVLYH EDWWHU\ ,Q KHU UHYLHZ RI 
    FOLQLFLDQ RU VHOIDGPLQLVWHUHG PRVWO\ EULHI  WR  PLQV  VFDOHV DVVHVVLQJ JHQHUDO FRJQLWLYH
    IXQFWLRQLQJDVVHVVLQJDVLQJOHIXQFWLRQ HJH[HFXWLYHPHPRU\ 5/7DWH  RIIHUVDYDULHW\
    RIPHWKRGVIRUEHGVLGHDQGFOLQLFHYDOXDWLRQVRIFRJQLWLYHVWDWXV
    3DWLHQWVZKRFDUU\DQ0&,GLDJQRVLVPD\KDYHIXQFWLRQDOLPSDLUPHQWWKDWLVQRWVHYHUHHQRXJKWR
    ߧFDXVH VLJQLILFDQW LPSDLUPHQW LQ VRFLDO RU RFFXSDWLRQDO IXQFWLRQLQJߨ $PHULFDQ 3V\FKLDWULF
    $VVRFLDWLRQ ,PSDLUPHQWVFDQRFFXULQDOOIXQFWLRQDOGRPDLQV,QRQHVWXG\LQIRUPDQWVUDWHG
    0&, SDUWLFLSDQWV DV SULPDULO\ LPSDLUHG RQ HYHU\GD\ PHPRU\ WDVNV DQG LPSDLUPHQWV LQ GLYLGHG
    DWWHQWLRQEXWHYHU\GD\RUJDQL]DWLRQSUREOHPVZHUHIUHTXHQWO\UHSRUWHGDVZHOO )DULDVHWDO  
    $QRWKHU VWXG\ IRXQG WKDW WKH HDUOLHVW IXQFWLRQDO GHILFLWV VKRZ XS RQ WHVWV RI VKRSSLQJ VNLOOV DQG
    KDQGOLQJILQDQFHV 3HUHLUD HW DO   7KH PRUH VHYHUHO\ LPSDLUHG SDWLHQWV ZKLOH VWLOO TXDOLI\LQJ
    IRUWKH0&,GLDJQRVLVKDGWKHWDXELRPDUNHUVFKDUDFWHULVWLFRI$O]KHLPHU ߤVGLVHDVH6XEW\SHVRI0&,
    KDYH DOVR EHHQ GLVWLQJXLVKHG E\ IXQFWLRQDO LPSDLUPHQWV PHPRU\ GLVRUGHUV ZHUH DVVRFLDWHG ZLWK
    GHILFLWVLQPDQDJLQJILQDQFHVGHILFLWVLQQRQPHPRU\GRPDLQVZHUHDVVRFLDWHGZLWKKHDOWKDQGVDIHW\
    LVVXHV %DQJHQHWDO 
    3UREOHPVZLWKWKH0&,GLDJQRVLV

    7KHJRDORIPDNLQJDGLDJQRVLVRI$'RUDQ\RIWKHSURJUHVVLYHGHPHQWLDV\QGURPHVDWWKHHDUOLHVW
    SRVVLEOH VWDJH LV ODXGDWRU\ EXW IUDXJKW ZLWK GLIILFXOWLHV   7KH GLDJQRVLV LV XQUHOLDEOH 3DWLHQWV
    GLDJQRVHGZLWK0&,GRQRWDOOSURJUHVVWRGHPHQWLD7KH\HDUULVNRIGHPHQWLDLQDODUJHJURXSRI
    0&,SDWLHQWVDJHG s ZDVRQO\ *DQJXOLHWDO ,QDQRWKHUVWXG\WKH\HDUULVN
    ZDV  IRU DPQHVWLF VXEMHFWV DJHG ߞ  IRU WKRVH DJHG ߞ DQG  IRU WKRVH ߞ
    VKRZLQJWKHVWURQJLQIOXHQFHRIDJHRQGHPHQWLDULVN 9LVVHU.HVWHUHWDO 0LVGLDJQRVLVFDQ
    RFFXUDVDFRQVHTXHQFHRILQWHUSUHWLQJRQHRUDIHZQHXURSV\FKRORJLFDOVFRUHVEHORZH[SHFWDWLRQDV
    SDWKRORJLFDOZKHQZLWKLQSHUVRQYDULDELOLW\LVFRPPRQDQGGRHVQRWQHFHVVDULO\VLJQLI\WKHSUHVHQFH
    RI0&, /0%LQGHU,YHUVRQDQG%URRNV6DOWKRXVH   7KHGLVWLQFWLRQEHWZHHQ0&,
    DQG$'LVEOXUUHG *(6PLWKDQG%RQGL $GLDJQRVLVRI$'UHTXLUHVWKDWPHPRU\SOXVRWKHU
    FRJQLWLYH GRPDLQV EH DIIHFWHG DQG WKDW FRJQLWLYH GHILFLWV PXVW EH FRQWULEXWLQJ WR VLJQLILFDQW
    LPSDLUPHQW LQ VRFLDO RU RFFXSDWLRQDO IXQFWLRQLQJ 0DQ\ RI WKHVH DPQHVWLF PXOWLSOH GRPDLQ 0&,
    SDWLHQWVZLWKIXQFWLRQDOLPSDLUPHQWZRXOGKDYHSUHYLRXVO\EHHQGLDJQRVHGZLWKHDUO\$'

    7UHDWPHQW

    7KHJRDOIRUPDQ\RIWKHSKDUPDFRORJLFDQGEHKDYLRUDOWUHDWPHQWVIRU0&,KDVEHHQWRUHGXFHWKH
    ULVN RI RU VORZ SURJUHVVLRQ WR GHPHQWLD 0&, SDWLHQWV DUH IDYRUHG VXEMHFWV IRU PDQ\ GUXJ VWXGLHV
    EHFDXVH WKH\ DUH OHVV FRJQLWLYHO\ LPSDLUHG WKDQ $' SDWLHQWV DQG KDYH JUHDWHU SRWHQWLDO IRU EHQHILW
    3KDUPDFRORJLFDO SODFHERFRQWUROOHG VWXGLHV KDYH EHHQ GLVDSSRLQWLQJ EXW D JHQHUDO ߧKHDOWK\
    OLIHVW\OHߨLQFOXGLQJSK\VLFDOH[HUFLVHKHDOWK\QXWULWLRQVPRNLQJFHVVDWLRQDQGPHQWDOVWLPXODWLRQLV
    UHFRPPHQGHG 0DVVRXG HW DO   :DONLQJ  EORFNV D ZHHN ZDV DVVRFLDWHG ZLWK JUHDWHU JUD\
    PDWWHUYROXPHDQGDWZRIROGUHGXFHGULVNRIGHYHORSLQJFRJQLWLYHLPSDLUPHQWPRUHWKDQDGHFDGH
    ODWHULQDORQJLWXGLQDOVWXG\RIHOGHUV .,(ULFNVRQHWDO ,QDVWXG\LQZKLFKROGHUDGXOWVZHUH
    UDQGRPL]HGWRRQHRIWKUHHFRJQLWLYHUHKDELOLWDWLRQWHFKQLTXHVWKH0&,SDUWLFLSDQWVLQWKHPHPRU\
    WUDLQLQJJURXSGLGQRWEHQHILWRYHUWLPHEXWWKH\EHQHILWWHGWRWKHVDPHGHJUHHDVFRJQLWLYHO\QRUPDO
    VXEMHFWVZKHQUDQGRPL]HGWRWKHUHDVRQLQJDQGVSHHGRISURFHVVLQJJURXSV 8QYHU]DJW6PLWKHWDO
     

    '(*(1(5$7,9(',625'(56
    :LWK WKHLU LQFLGHQFH LQFUHDVLQJ IRU HDFK \HDU RYHU DJH  GHJHQHUDWLYH GLVRUGHUV UHVXOWLQJ LQ
    GHPHQWLDDIIHFWDUHODWLYHO\ODUJHSURSRUWLRQRIHOGHUO\SHUVRQV .XNXOO+LJGRQHWDO 
    7KH WHUP GHPHQWLD DSSOLHV WR D FRQGLWLRQ RI FRJQLWLYH GHFOLQH DQG IXQFWLRQDO LPSDLUPHQW
    $OWKRXJK VRPH DFFRXQWV GHVFULEH ߧUHYHUVLEOH GHPHQWLDVߨ PRUH FRPPRQO\ GHPHQWLD UHIHUV WR DQ
    LUUHYHUVLEOH FRJQLWLYH GHFOLQH UHVXOWLQJ IURP ELRORJLFDO PHFKDQLVPV WKDW GDPDJH EUDLQ FHOOV
    'LIIHUHQW W\SHV RI GHPHQWLD DUH DVVRFLDWHG ZLWK GLVWLQFWLYH EUDLQ DEQRUPDOLWLHV DQG UHODWLYHO\
    GLIIHUHQWLDEOHV\PSWRPSDWWHUQV
    $O]KHLPHU ߤV GLVHDVH $'  LV WKH PRVW FRPPRQ IRUP RI GHPHQWLD DIIHFWLQJ DQ HVWLPDWHG 
    PLOOLRQ $PHULFDQV LQ  $O]KHLPHU ߤV $VVRFLDWLRQ   $FFRUGLQJ WR WKLV UHSRUW GLUHFW DQG
    LQGLUHFW FRVWV RI $O]KHLPHU ߤV DQG RWKHU GHPHQWLDV DPRXQW WR PRUH WKDQ  ELOOLRQ DQQXDOO\
    $SSUR[LPDWHO\ RQHWKLUG RI WKRVH DIIHFWHG DUH VHYHUHO\ LPSDLUHG LH UHTXLUH IXOOWLPH FDUH  86
    &RQJUHVV   0RUHRYHU WKHVH HVWLPDWHV PD\ EH ORZ EHFDXVH RI XQGHUUHSRUWLQJ LQ UXUDO DUHDV
    &DPLFLROL:LOOHUWHWDO 6LQFHPRUHSHUVRQVLQLQGXVWULDOL]HGFRXQWULHVDUHOLYLQJORQJHUDQ
    HVFDODWLQJQXPEHURISHUVRQVZLWKGHPHQWLDߟDQGEXUGHQHGFDUHJLYHUVDQGFDUHIDFLOLWLHVߟPXVWEH
    DQWLFLSDWHG ,Q WKH 8QLWHG 6WDWHV DOPRVW KDOI RI DOO $O]KHLPHU SDWLHQWV UHFHLYH FDUH LQ VRPH NLQG RI
    LQVWLWXWLRQZLWKDQQXDOFRVWVIRUDRQHEHGURRPXQLWLQDQDVVLVWHGOLYLQJIDFLOLW\RIRYHUDQG
    IRUDSULYDWHURRPLQDQXUVLQJKRPHRYHU $O]KHLPHU ߤV$VVRFLDWLRQ 
    1HXURSV\FKRORJLFDOGLIIHUHQFHVEHWZHHQWKHGHJHQHUDWLYHGLVRUGHUVW\SLFDOO\VKRZXSLQWKHHDUO\
    VWDJHVEHIRUHWKHGLVHDVHSURFHVVKDVEHFRPHVRZLGHVSUHDGDVWRREOLWHUDWHWKHP VHH7DEOH  S
    DQG&RPSDULVRQVRI3URJUHVVLYH'HPHQWLDVSSߞ 3URPLQHQWDPRQJWKHFKDUDFWHULVWLFV
    ZKLFK LQ WKHLU YDULDWLRQV GLVWLQJXLVK WKH ZHOOGHILQHG GHPHQWLQJ GLVRUGHUV DUH SV\FKRVRFLDO
    UHJUHVVLRQ GLVRUGHUV RI DWWHQWLRQ VXFK DV LQDWWHQWLYHQHVV LQDELOLW\ WR FRQFHQWUDWH RU WUDFN PHQWDOO\
    DQGGLVWUDFWLELOLW\DSDWK\ZLWKLPSDLUHGFDSDFLW\WRLQLWLDWHSODQRUH[HFXWHFRPSOH[DFWLYLWLHVDQG
    WKHIXOOVSHFWUXPRIPHPRU\GLVRUGHUV
    +RZPDQ\PRQWKVRU\HDUVLWWDNHVIURPWKHILUVWDSSHDUDQFHRIVXEWOHEHKDYLRUDOKDUELQJHUVRI
    WKHGLVRUGHUWRIXOOEORZQGHWHULRUDWLRQYDULHVZLWKWKHFRQGLWLRQDQGZLWKLQGLYLGXDOGLIIHUHQFHV$V
    WKHLUFRJQLWLYHIXQFWLRQVGHWHULRUDWHSDWLHQWVߤVHQVHRISHUVRQFDSDFLW\IRUMXGJPHQWDQGDELOLW\WR
    FDUH IRU WKHPVHOYHV ZLOO GHWHULRUDWH WRR DOWKRXJK VRPH ZHOOLQJUDLQHG VRFLDO KDELWV PD\ VWLOO EH
    HYLGHQW 7KH HQG SRLQW IRU PRVW SHUVRQV VXIIHULQJ WKHVH FRQGLWLRQV LV WRWDO GHSHQGHQF\ ORVV RI
    JHQHUDODZDUHQHVVLQFOXGLQJORVVRIVHQVHRIVHOIDQGLQDELOLW\WRPDNHVHOIVHUYLQJRUJRDOGLUHFWHG
    UHVSRQVHV 'HDWK W\SLFDOO\ UHVXOWV IURP SQHXPRQLD RU RWKHU GLVHDVHV DVVRFLDWHG ZLWK LQDFWLYLW\ DQG
    GHELOLWDWLRQ .HHQHHWDO 

    &257,&$/'(0(17,$6
    $O]KHLPHUߤV'LVHDVH $'
    0RUH WKDQ WZRWKLUGV RI DOO FDVHV RI GHPHQWLD DUH DWWULEXWHG WR $' .XNXOO +LJGRQ HW DO 
    6NRRJ DQG%OHQQRZ  ZLWKSUHYDOHQFH HVWLPDWHVUDQJLQJXS WR  0HVXODPD  $' LV
    FKDUDFWHUL]HG E\ LQH[RUDEO\ SURJUHVVLYH GHJHQHUDWLYH QHUYH FHOO FKDQJHV ZLWKLQ WKH FHUHEUDO
    KHPLVSKHUHVZLWKFRQFRPLWDQWSURJUHVVLYHJOREDOGHWHULRUDWLRQRILQWHOOHFWDQGSHUVRQDOLW\
    ([DPLQDWLRQ RI EUDLQ WLVVXH DW DXWRSV\ VKRZV WKH DFFXPXODWLRQ RI DP\ORLG SODTXHV DQG
    QHXURILEULOODU\ WDQJOHV 7KH YDULRXV EUDLQ UHJLRQV DUH GLIIHUHQWLDOO\ DIIHFWHG &HOO ORVV WHQGV WR
    RULJLQDWH LQ WKH HQWURUKLQDO FRUWH[ DQG KLSSRFDPSXV RI WKH WHPSRUDO OREH 7KH FRQWLQXLQJ GLVHDVH
    SURFHVVWKHQLQYDGHVSUHIURQWDODQGSDULHWDODUHDV7KHSULPDU\PRWRUDQGVHQVRU\FRUWLFDOUHJLRQV
    DUH JHQHUDOO\ VSDUHG :KHWKHU $' HYROYHV IURP QHXURILEULOODU\ WDQJOHV DQG QHXULWLF SODTXHV RU
    ZKHWKHUWKHVHDUHE\SURGXFWVRIWKHGLVHDVHSURFHVVLVXQNQRZQ $QGUHDVHQ0HVXODPD
    VHH SS ߞ  7KH DXWRSVLHG EUDLQV RI D VHULHV RI QRQGHPHQWHG LQGLYLGXDOV DJH  DQG ROGHU DW
    GHDWK PHDQDJH\HDUV VKRZHGWKDWߞRIWKHPKDGSODTXHVDQGWDQJOHV -/3ULFH HW DO
      +RZHYHU SODTXHV DQG WDQJOHV LQ SDWLHQWV \RXQJHU WKDQ  DUH VWURQJO\ DVVRFLDWHG ZLWK WKH
    GLVHDVH
    7KHVWDQGDUGFULWHULRQIRUDGLDJQRVLVRISUREDEOH$'LVSURJUHVVLYHFRJQLWLYHGHFOLQHLQWZRRU
    PRUHFRJQLWLYHGRPDLQVLQWKHDEVHQFHRIGLVWXUEDQFHRIFRQVFLRXVQHVVRUDPHGLFDOQHXURORJLFDO
    RU SV\FKLDWULF FRQGLWLRQ WKDW FRXOG DFFRXQW IRU WKH FRJQLWLYH GHFOLQH 0F.KDQQ HW DO   7KH
    'LDJQRVWLF DQG VWDWLVWLFDO PDQXDO RI PHQWDO GLVRUGHUV '60,9 $PHULFDQ 3V\FKLDWULF $VVRFLDWLRQ
      VSHFLILHV WKDW RQH RI WKH DUHDV RI FRJQLWLYH LPSDLUPHQW PXVW EH DQ LQDELOLW\ WR OHDUQ QHZ
    LQIRUPDWLRQ RU UHFDOO SUHYLRXVO\ OHDUQHG LQIRUPDWLRQ 7KH FRJQLWLYH GHFOLQH LV VXIILFLHQW WR LPSDLU
    VRFLDORURFFXSDWLRQDOIXQFWLRQLQJ7KHSUHVHQFHRIRWKHUEUDLQGLVRUGHUVFDQFRPSOLFDWHWKHFOLQLFDO
    SLFWXUH %ROOHU DQG 'X\FNDHUWV   %HFDXVH GHILQLWLYH GLDJQRVLV LV EDVHG RQ ELRSV\ RU DXWRSV\
    .KDFKDWXULDQ WKHFOLQLFDOGLDJQRVLVRI$'LVQRUPDOO\TXDOLILHGDVߧSRVVLEOHߨRUߧSUREDEOHߨ
    $FFXUDWHDQGHDUO\GLDJQRVLVEHFRPHVLPSHUDWLYHDVWKHSRVVLELOLW\RIGLVHDVHDOWHULQJWUHDWPHQWV
    EHFRPHDYDLODEOH5HFHQWUHILQHPHQWVLQQHXURLPDJLQJDQGQHXURFKHPLFDOSURILOLQJKDYHLQFUHDVHG
    WKHOLNHOLKRRGRIPDNLQJDQHDUO\UHOLDEOHGLDJQRVLVLQOLYHSDWLHQWV %ROOHUDQG'X\FNDHUWV'H
    0H\HUHWDO 6LPLODUO\UHFRJQLWLRQRIWKHFOLQLFDOV\QGURPHLVRFFXUULQJHDUOLHULQWKHFRXUVH
    RI WKH GLVHDVH $ GLDJQRVLV RI GHPHQWLD RI WKH $O]KHLPHUߤV W\SH '$7  DFNQRZOHGJHV ERWK LWV
    QHFHVVDULO\ TXHVWLRQDEOH QDWXUH SULRU WR GLUHFW H[DPLQDWLRQ RI EUDLQ WLVVXH DQG WKDW WKH FOLQLFDO
    V\QGURPH PD\ UHSUHVHQW PRUH WKDQ RQH SDWKRORJLFDO SURFHVV ,Q RQH ODUJH VHULHV RI FDVHV ZLWK
    DXWRSV\ RQO\  RI GHPHQWLD SDUWLFLSDQWV KDG $' DORQH $' ZLWK LQIDUFWV ZDV IRXQG LQ  RI
    SDUWLFLSDQWV -$6FKQHLGHUHWDO 

    5LVNIDFWRUV

    'HPRJUDSKLFIDFWRUV7KHJUHDWHVWULVNIDFWRULVDJH$OWKRXJKWKLVGLVHDVHFDQDSSHDULQSHRSOHDV
    \RXQJDVPRVWFDVHVRFFXUDIWHU,WLVHVWLPDWHGWKDWRI$PHULFDQVDJHߞKDYH$'ZLWK
    WKHSURSRUWLRQLQFUHDVLQJWRLQWKRVHDQGROGHU $O]KHLPHU ߤV$VVRFLDWLRQ 0RVWVWXGLHV
    UHSRUW D KLJKHU SUHYDOHQFH LQ ZRPHQ %URRNPH\HU HW DO  *DR HW DO    DOWKRXJK WKH
    UHYHUVH PD\EH WUXHIRU$IULFDQ$PHULFDQV )LOOHQEDXP HW DO   +RZHYHU LW LV OLNHO\ WKDW WKLV
    LQFUHDVHG SUHYDOHQFH UDWH PHUHO\ UHIOHFWV ZRPHQߤV ORQJHU OLIH H[SHFWDQF\ %RQGL 6DOPRQ DQG
    .DV]QLDN VRPHVWXGLHVUHSRUWQRLQFUHDVHGULVNIRUZRPHQ '$(YDQV%HQQHWWHWDO 
    5DFHDSSHDUVWRLQWHUDFWZLWKRWKHUULVNIDFWRUV$'PD\EHPRUHFRPPRQLQ$IULFDQ$PHULFDQVEXW
    GLDJQRVLV LV FRPSOLFDWHG E\ WKH HIIHFWV RI HGXFDWLRQ VRFLRHFRQRPLF VWDWXV VRFLDO IDFWRUV YDVFXODU
    ULVNIDFWRUVDQGKHDOWKKDELWVWKDWPD\FRQWULEXWHWRREVHUYHGUDFLDOGLIIHUHQFHV 6KDGOHQHWDO 
    )RUH[DPSOHIDOVHSRVLWLYHUDWHVDUHKLJKHUIRU$IULFDQ$PHULFDQV )URHKOLFK +LVSDQLFVPD\
    KDYHDVOLJKWO\KLJKHUULVNUDWLRWKDQZKLWHV 7DQJ&URVVHWDO ZKLOHZKLWHVPD\KDYHVOLJKWO\
    KLJKHUULVNVWKDQ-DSDQHVHDQG&KLQHVHSHRSOH -RUPDQG-ROOH\ +RZHYHUUDFLDOGLIIHUHQFHV
    KDYHQRWDOZD\VEHHQIRXQG )LOOHQEDXPHWDO0RUWLPHUE 
    /RZ HGXFDWLRQDO DQG RFFXSDWLRQDO OHYHOV KDYH EHHQ DVVRFLDWHG ZLWK DQ LQFUHDVHG ULVN IRU
    GHYHORSLQJ$' 6FKPDQG6PLWHWDO<6WHUQ*XUODQGHWDO 2QHODUJHVWXG\IRXQG
    WKLVDVVRFLDWLRQRQO\IRUZRPHQ 2WWYDQ5RVVXPHWDO $QRWKHUVWXG\RIZRPHQIRXQGWKDW
    ORZOLQJXLVWLFDELOLW\LQHDUO\OLIHZDVDVVRFLDWHGZLWKLQFUHDVHGULVNRIWKHGLVHDVH 6QRZGRQHWDO
     $FRPPRQH[SODQDWLRQRIWKLVILQGLQJLVWKDWSHRSOHZLWKKLJKHUOHYHOVRIHGXFDWLRQKDYHPRUH
    ߧFRJQLWLYH UHVHUYHߨWR FRPSHQVDWH IRU WKH QHXURSDWKRORJLFDO FKDQJHV UHVXOWLQJ IURP WKH GLVHDVH
    ZKLFKGHOD\VWKHRQVHWRILWVFOLQLFDOSUHVHQWDWLRQ,QVXSSRUWRIWKLVK\SRWKHVLVDXWRSVLHVRIEUDLQVRI
    GHPHQWHGDQGFRJQLWLYHO\LQWDFWLQGLYLGXDOVZLWKHTXDOO\KLJKEXUGHQVRI$'SDWKRORJ\VKRZHGWKDW
    WKRVH ZKR ZHUH QRW GHPHQWHG KDG ODUJHU WRWDO EUDLQ DQG KLSSRFDPSDO YROXPHV DIWHU DGMXVWLQJ IRU
    KHDGVL]H (UWHQ/\RQVHWDO 5HVHUYHFDSDFLW\PD\UHSUHVHQWDEUDLQSRWHQWLDOSUHVHQWDWELUWK
    DQ DFTXLUHG IDFWRU VXFK DV SUROLIHUDWLRQ RI V\QDSWLF FRQQHFWLRQV GXH WR FRJQLWLYH VWLPXODWLRQ RU
    DELOLW\ WR XVH HIIHFWLYH FRPSHQVDWRU\ FRJQLWLYH VWUDWHJLHV 0RUWLPHU  *( 6PLWK DQG %RQGL
     < 6WHUQ   +LJKHU HGXFDWLRQDO DWWDLQPHQW LV DVVRFLDWHG ZLWK IDVWHU UDWHV RI FRJQLWLYH
    GHFOLQHZKLFKLVFRQVLVWHQWZLWKWKHFRJQLWLYHUHVHUYHK\SRWKHVLVZKLFKVXJJHVWVWKDWJUHDWHUUHVHUYH
    SRVWSRQHVWKHFOLQLFDOH[SUHVVLRQRI$' $QGHOHWDO56:LOVRQ/LHWDO &RJQLWLYHO\
    KHDOWK\ HOGHUV IROORZHG LQ DQ DJLQJ VWXG\ ZKR UHSRUWHG PRUH IUHTXHQW SDUWLFLSDWLRQ LQ FRJQLWLYHO\
    VWLPXODWLQJDFWLYLWLHVLQWKH\HDUVSULRUWRHQWU\LQWRWKHVWXG\H[SHULHQFHGVORZHUDJHUHODWHGGHFOLQH
    RYHU WLPH EXW IDVWHU FRJQLWLYH GHFOLQH DIWHU GHPHQWLD RQVHW FRPSDUHG ZLWK HOGHUV ZKR ZHUH OHVV
    FRJQLWLYHO\ VWLPXODWHG 56 :LOVRQ %DUQHV HW DO   7KH SRVVLELOLW\ WKDW ODWH OLIH RU HDUOLHU
    FRJQLWLYH DFWLYLW\ GHOD\HG WKH RQVHW RI $' DQG KDVWHQHG FRJQLWLYH GHFOLQH DIWHU GHPHQWLD RQVHW LV
    FRQVLVWHQWZLWKDFRJQLWLYHUHVHUYHK\SRWKHVLV

    *HQHWLFSUHGLVSRVLWLRQ,QPRVWFDVHV$'LVVSRUDGLFEXWJHQHWLFIDFWRUVFDQFRQWULEXWHWR$'ULVN
    $ERXWRI$'LVIDPLOLDOWKDWLVWZRRUPRUHIDPLO\PHPEHUVKDYH$' %LUG  ,GHQWLFDO
    WZLQVWXGLHVUHSRUWFRQFRUGDQFHUDQJLQJIURPWR %UHLWQHU HW DO  *DW]HWDO
    -DUYLN   0RVW $' FDVHV DUH FDOOHG ߧODWH RQVHWߨ PHDQLQJ DIWHU WKH DJH RI  RU  6HYHUDO
    SUHGLVSRVLQJJHQHVKDYHEHHQLGHQWLILHGIRUODWHRQVHWGLVHDVH2IWKHVHWKHEHVWVWXGLHGLVWKHJHQH
    IRU D SURWHLQ FDOOHG DSROLSRSURWHLQ ( $SR(  RQ FKURPRVRPH  $SR( LV D QRUPDOO\ RFFXUULQJ
    SURWHLQWKDWKHOSVFDUU\FKROHVWHURODQGSKRVSKROLSLGVWKURXJKRXWWKHERG\DQGWKHEUDLQ7KH$SR(
    JHQH KDV WKUHH YDULDQWV RI ZKLFK RQHߟWKH H DOOHOHߟLQFUHDVHV WKH ULVN IRU D YDULHW\ RI GLVRUGHUV
    &RUGHUHWDO5RVHVDQG6DXQGHUV DQGVHHPVWRVKLIWWKHRQVHWRI$'WRZDUGDQHDUOLHU
    DJH .KDFKDWXULDQ &RUFRUDQ HW DO   7KH DVVRFLDWLRQ RI WKH H DOOHOH ZLWK GHYHORSPHQW RI
    SODTXHVDQGWDQJOHVPD\YDU\ZLWKERWKDJHDQGVH[ *KHEUHPHGKLQHWDO 0RVWJHQHVWXGLHV
    KDYHH[DPLQHGZKLWHSRSXODWLRQV$SR(LVDULVNIDFWRUIRU$'LQ+LVSDQLFVDVZHOO &DVWHOOL6RVD
    HW DO  -+ /HH HW DO   7KH ULVN IRU $IULFDQ $PHULFDQV LV OHVV FOHDU ZLWK VRPH VWXGLHV
    ILQGLQJWKDWWKHHDOOHOHLQFUHDVHVWKHULVNRIGHPHQWLD .'&KULVWHQVHQHWDO0XUUHOO HW DO
     DQGVRPHQRW '$(YDQV%HQQHWWHWDO +HQGULHDQGFROOHDJXHV  FRQFOXGHGWKDW
    WKH $32( DOOHOH LV D ULVN IDFWRU IRU $IULFDQ $PHULFDQV EXW LQWHUHVWLQJO\ QRW IRU DOO $IULFDQV
    UDLVLQJWKHSRVVLELOLW\WKDWWKHHDOOHOHLQWHUDFWVZLWKRWKHUULVNIDFWRUVVXFKDVFKROHVWHURO+RZHYHU
    RWKHUVWXGLHVKDYHIRXQGSRRUHUPHPRU\SHUIRUPDQFHLQROGHUDGXOWVZLWKWKH$32(DOOHOH &DVWHOOL
    5HLPDQHWDO HVSHFLDOO\SHUVRQVKRPR]\JRWLFIRUWKLVDOOHOHW\SH HJ-$/HY\%HUJHVRQHW
    DO $QXPEHURIRWKHUJHQHVVXFKDV625/DQGJHQHPHFKDQLVPVDUHEHLQJVWXGLHG7KH
    ZHEDGGUHVVLVKWWSZZZDO]JHQHRUJJLYHVFXUUHQWLQIRUPDWLRQDERXW$'FDQGLGDWHJHQHV
    2QO\DERXWߞRIDOO$'EHJLQVEHIRUHWKHDJHRIWREXWDERXWRIWKHVHFDVHVDUH
    IDPLOLDOZLWKLQKHULWHGLQDQDXWRVRPDOGRPLQDQWPDQQHU %LUG   6RIDU WKUHHPXWDWLRQV
    SURGXFLQJIDPLOLDOIRUPVRIWKHGLVHDVHKDYHEHHQLGHQWLILHGWKHSUHVHQLOLQJHQH RQFKURPRVRPH
     WKHPRVWFRPPRQPXWDWLRQ WKHSUHVHQLOLQJHQHRQFKURPRVRPHDQGWKHDP\ORLGSUHFXUVRU
    SURWHLQ $33  RQ FKURPRVRPH  $' KDV DOVR EHHQ OLQNHG ZLWK 'RZQ V\QGURPH D FRQGLWLRQ LQ
    ZKLFK PHQWDO UHWDUGDWLRQ LV SURPLQHQW DORQJ ZLWK VNHOHWDO DQG RWKHU GHYHORSPHQWDO DQRPDOLHV
    $EEHGXWRDQG0F'XIILH %RWKIDPLOLDOHDUO\RQVHW$' DSSHDULQJEHIRUHDJH DQG'RZQ
    V\QGURPHKDYHEHHQORFDOL]HGWRFKURPRVRPH $QGUHDVHQ $OPRVWDOO'RZQSDWLHQWVZKR
    OLYHPRUHWKDQRU\HDUV PDQ\GLHHDUOLHU VKRZERWKPHQWDODQGSDWKRORJLFDOFKDUDFWHULVWLFVRI
    $' 6NRRJ DQG %OHQQRZ   'RZQ V\QGURPH RFFXUV VLJQLILFDQWO\ PRUH IUHTXHQWO\ LQ IDPLOLHV
    ZLWKDKLVWRU\RI$'WKDQLQWKRVHZLWKRXWVXFKDKLVWRU\ +H\PDQHWDO 7KHRYHUH[SUHVVLRQ
    RIWKH$33JHQHRQFKURPRVRPHLQ'RZQV\QGURPHLVWKRXJKWWRDFFRXQWIRULWVFRRFFXUUHQFH
    ZLWK$'

    9DVFXODUGLVHDVH1RWRQO\DUHYDVFXODUULVNIDFWRUVDVVRFLDWHGZLWKWKHGHYHORSPHQWRI9D'EXW
    HYLGHQFH LV JURZLQJ WKDW YDVFXODU YXOQHUDELOLWLHV LQFUHDVH ULVN IRU $' 9DVFXODU ULVN IDFWRUV XQGHU
    VWXG\ LQFOXGH KLJK IDW FRQVXPSWLRQ DUWHULRVFOHURVLV K\SHUWHQVLRQ DQG GLDEHWHV PHOOLWXV %UHWHOHU
     &HFKHWWR HW DO   (OHYDWHG V\VWROLF EORRG SUHVVXUH !  PP +J  DQG KLJK VHUXP
    FKROHVWHURO !  PPROO  LQ PLGGOHDJHG SHUVRQV KDYH EHHQ LPSOLFDWHG DV ULVN IDFWRUV ZLWK
    LQFUHDVHGUDWHRIULVNZKHQERWKEORRGSUHVVXUHDQGFKROHVWHUROOHYHOVDUHHOHYDWHG .LYLSHOWRHWDO
     ,WKDVEHHQK\SRWKHVL]HGWKDWFHUHEUDOK\SRSHUIXVLRQUHVXOWLQJIURPYDVFXODUGLVHDVHOHDGVWR
    FHOOXODU FKDQJHV WKDW WULJJHU $' GH OD 7RUUH    2WKHU PHFKDQLVPV KDYH EHHQ SURSRVHG ,Q D
    ODUJH SRSXODWLRQ EDVHG VWXG\ LPSDLUHG DFXWH LQVXOLQ UHVSRQVH DW PLGOLIH ZDV DVVRFLDWHG ZLWK DQ
    LQFUHDVHGULVNRI$'XSWR\HDUVODWHU 5RQQHPDDHWDO %HFDXVHLQVXOLQUHJXODWHVPHWDEROLF
    IXQFWLRQDQGJURZWKVLJQDOVLQWKHEUDLQWKHDXWKRUVVXJJHVWWKDWLQVXOLQFRXOGDIIHFWWKHULVNRI$'
    E\ GLUHFW DFWLRQ RQ WKH EUDLQ 7KLV HIIHFW ZDV IRXQG RQO\ LQ VXEMHFWV ZKR ODFNHG WKH $32( DOOHOH
    $QRWKHUSRVVLELOLW\LVWKDWFHUHEURYDVFXODUGLVHDVHLQWHQVLILHVWKHSUHVHQFHDQGVHYHULW\RIWKHFOLQLFDO
    V\PSWRPVRI$' %UHWHOHU 
    7UDXPDWLF EUDLQ LQMXU\ 7KH UROH RI 7%, DV D ULVN IDFWRU IRU GHYHORSLQJ $' LV VWLOO VRPHZKDW
    FRQWURYHUVLDO 0DQ\ VWXGLHV KDYH UHSRUWHG D VLJQLILFDQWO\ KLJK LQFLGHQFH RI 7%, KLVWRU\ IRU
    $O]KHLPHU ߤV SDWLHQWV HJ /\H DQG 6KRUHV  0RUWLPHU )UHQFK HW DO  6FKRILHOG HW DO
     EXWQRWDOO $6+HQGHUVRQDQG+DVHJDZD0HKWDHWDO ,QRQHVWXG\RISDUWLFXODU
    LQWHUHVWEHFDXVHRILWVSURVSHFWLYHGHVLJQ:RUOG:DU,,YHWHUDQVZLWKGRFXPHQWHGKHDGLQMXULHVZHUH
    DVVHVVHG IRU GHPHQWLD PRUH WKDQ  \HDUV ODWHU 7KRVH ZKR KDG PRGHUDWH WR VHYHUH 7%,V DV \RXQJ
    PHQKDGDKLJKHUSUHYDOHQFHUDWHRI$'FRPSDUHGWRYHWHUDQVZLWKRXW7%, 3ODVVPDQHWDO 
    7KHUROHRIWKH$32(DOOHOHLQLQFUHDVLQJWKHULVNRIGHYHORSLQJ$'DIWHUDVHYHUH7%,LVXQFOHDU
    EHFDXVHRIFRQIOLFWLQJILQGLQJV *XRHWDO-HOOLQJHU3DXOXVHWDO0D\HX[2WWPDQHWDO
      SUREDEO\ EHFDXVH RI WKH VPDOO VDPSOH VL]HV RI $'7%, SDWLHQWV ZLWK WKH H DOOHOH +RZHYHU
    DFFXPXODWLQJ HYLGHQFH LQFUHDVLQJO\ SRLQWV WR D YDOLG OLQN EHWZHHQ KHDG LQMXULHV DQG $' 9DQ 'HQ
    +HXYHO HW DO   7KH FRJQLWLYH DQG SHUVRQDOLW\ FKDQJHV WKDW DUH SDUW RI WKH ߧSXQFK
    GUXQNߨV\QGURPHRIER[HUVVKDUHPDQ\FKDUDFWHULVWLFVZLWKWKHPHQWDODOWHUDWLRQVRI$'0RUHRYHU
    WKHEUDLQVRI$O]KHLPHUSDWLHQWVDQGGHPHQWHGER[HUVVKRZVLPLODUSDWKRORJLFDOFKDQJHVDWDXWRSV\
    0RUWLPHU)UHQFKHWDO 

    2WKHU ULVN IDFWRUV 7KH :RPHQߤV +HDOWK ,QLWLDWLYH 0HPRU\ 6WXG\ D ODUJH SURVSHFWLYH VWXG\ RI
    ZRPHQUDQGRPL]HGWRHLWKHUDFRPELQDWLRQHVWURJHQSOXVSURJHVWHURQH 3UHPSUR RUSODFHERIRXQG
    WKDWKRUPRQHUHSODFHPHQWWKHUDS\GRXEOHGWKHULVNRIGHPHQWLDLQFOXGLQJ$'GXULQJIRXU\HDUVRI
    IROORZXS 6KXPDNHU HW DO    7KH DXWKRUV FRQFOXGHG WKDW WKH ULVNV RI KRUPRQH UHSODFHPHQW
    WKHUDS\ߧIDURXWZHLJKHGߨWKHEHQHILWV

    3RVVLEOH SUHYHQWLYH PHDVXUHV 2Q D SRVLWLYH QRWH DFWLYLW\ DSSHDUV WR EH D SURWHFWLYH IDFWRU LQ D
    SURVSHFWLYHVWXG\RILGHQWLFDOWZLQVJUHDWHUPLGOLIHFRJQLWLYHDQGVRFLDODFWLYLWLHVZDVDVVRFLDWHGZLWK
    D  UHGXFWLRQ LQ GHPHQWLD RQVHW &DUOVRQ HW DO  VHH DOVR 1DWLRQDO ,QVWLWXWHV RI +HDOWK
    3UHYHQWLQJ $O]KHLPHUߤV GLVHDVH DQG FRJQLWLYH GHFOLQH   2WKHU HYLGHQFH DOVR VXJJHVWV WKDW
    SK\VLFDODFWLYLW\ SURWHFWV DJDLQVW $' 5ROODQG HW DO  /LJKW WRPRGHUDWHDOFRKRO FRQVXPSWLRQ
    ߞ GULQNV SHU GD\  LV DVVRFLDWHG ZLWK ORZHU ULVN RI $' $QVWH\ HW DO  /HWHQQHXU  
    $QWLR[LGDQWVVXFKDVLQUHGZLQHPD\KDYHDSURWHFWLYHHIIHFW 2UJRJR]RHWDO 
    ,QVRPHHSLGHPLRORJLFVWXGLHVVPRNLQJDSSHDUHGWRKDYHDSURWHFWLYHHIIHFW HJ)UDWLJOLRQLDQG
    :DQJ $UHYLHZRIHSLGHPLRORJLFVWXGLHVUXOHGRXWWKLVHIIHFWDQGVXJJHVWHGDVDQDOWHUQDWLYH
    WKDW VPRNLQJ PD\ EH D PRGHVW ULVN IDFWRU EXW RQO\ IRU SHUVRQV ZLWKRXW WKH $32( DOOHOH .XNXOO
     2WW 6ORRWHU HW DO    ,Q DQRWKHU VWXG\ QR HIIHFWV RI VPRNLQJ DSSHDUHG 'HEDQQH HW DO
     

    3DWKRSK\VLRORJ\DQGQHXURDQDWRP\

    7KHQHXURSDWKRORJLFDOKDOOPDUNRI$'LVWKHSUHVHQFHRIQHXURILEULOODU\WDQJOHVDQGVHQLOHSODTXHV
    : 6DPXHO HW DO  =XEHQNR   1HXURILEULOODU\ WDQJOHV GHYHORS ZKHQ PLFURWXEXOHV WKDW
    WUDQVSRUWVXEVWDQFHVIURPWKHQHUYHFHOOERG\WRWKHHQGRIWKHD[RQEHFRPHWZLVWHG7KHSURWHLQWKDW
    KHOSVPDLQWDLQWKHVWUXFWXUHRIWKHVHWXEXOHVLVWDX,Q$'WDXLVDOWHUHGDOORZLQJWZLVWHGWXEXOHVWR
    DJJUHJDWH LQWR WDQJOHV 7KH\ DSSHDU HDUO\ LQ WKH FRXUVH RI WKH GLVHDVH LQ WKH HQWRUKLQDO FRUWH[
    KLSSRFDPSXVDQGRWKHUUHJLRQVRIWKHWHPSRUDOOREH %ROOHUDQG'X\FNDHUWV'HODFRXUWHHWDO
       $V WKH GLVHDVH SURJUHVVHV WKH\ VKRZ XS LQFUHDVLQJO\ LQ RWKHU QHRFRUWLFDO DUHDV EXW ZLWK
    UHODWLYHVSDULQJRISULPDU\VHQVRU\DQGPRWRUFRUWH[ DQGLQVSHFLILFEUDLQVWHPQXFOHLߟWKHQXFOHXV
    EDVDOLV RI 0H\QHUW RU EDVDO QXFOHXV  LQ WKH IRUHEUDLQ DQG WKURXJKRXW WKH OLPELF V\VWHP 0HVXODP
    D  'HQVLW\ RI QHXURILEULOODU\ WDQJOHV FRUUHODWHV SRVLWLYHO\ ZLWK GHPHQWLD VHYHULW\ / %HUJ
    0F.HHOHWDO'HODFRXUWHHWDO 1HXURILEULOODU\WDQJOHVDUHDOVRSUHVHQWLQWKHDXWRSVLHG
    EUDLQVRIHOGHUO\QRQGHPHQWHGVXEMHFWVEXWWKH\DUHPRVWO\FRQILQHGWRWKHKLSSRFDPSDOUHJLRQDQG
    UDUHO\RFFXULQWKHFRUWH[ &U\VWDO'LFNVRQHWDO'HODFRXUWHHWDO 7KHVH WDQJOHV DUH
    PDQ\ WLPHV PRUH QXPHURXV LQ $O]KHLPHU SDWLHQWV WKDQ LQ FRQWURO VXEMHFWV HJ LQ RQH PLGEUDLQ
    UHJLRQWLPHVDVPDQ\ZHUHIRXQGLQ$O]KHLPHUSDWLHQWV><DPDPRWRDQG+LUDQR@ 
    6HQLOH QHXULWLF SODTXHVDUHH[WUDFHOOXODUE\SURGXFWVRIQHXURQDOGHJHQHUDWLRQ:KLOHFRPPRQO\
    VHHQWKURXJKRXWWKHFRUWH[RI$O]KHLPHUSDWLHQWVWKH\RFFXUVXEFRUWLFDOO\DVZHOOSDUWLFXODUO\LQWKH
    WKDODPXV K\SRWKDODPXV DQG PDPPLOODU\ ERGLHV 0F'XII DQG 6XPL   ,Q $' WKH DP\ORLG
    SUHFXUVRU SURWHLQ $33  LV FOLSSHG DW WKH ZURQJ VHJPHQW GXULQJ PHWDEROLVP UHVXOWLQJ LQ WKH
    SURGXFWLRQRIDQXQGHVLUDEOHIUDJPHQWEHWDDP\ORLG ͤDP\ORLG  0HVXODPD=XEHQNR 
    7KHVHͤDP\ORLGIUDJPHQWVDJJUHJDWHLQWRROLJRPHUVZKLFKLQWXUQFOXPSLQWRODUJHUSODTXHVWRDFW
    ߧOLNH ߣEUDLQ VOXGJHߤ GHVWUR\LQJ WKH FDSDFLW\ RI QHXURQV WR FRPPXQLFDWH ZLWK RQH
    DQRWKHUߨ $QGUHDVHQ  S   2WKHU SRVVLEOH PHFKDQLVPV DUH XQGHU VWXG\ 3LPSOLNDU HW DO
     
    1HXURQDOORVVLVDQRWKHUFRPPRQIHDWXUHRI$' *RPH],VOD+ROOLVWHUHWDO  ,W LQYROYHV
    ODUJHUQHXURQVLQWKHQHRFRUWH[ZLWKWKHJUHDWHVWORVVLQWKHWHPSRUDOOREHV 6WUDQJH  DQG WKH
    EUDLQVWHPQXFOHLSDUWLFXODUO\WKHEDVDOQXFOHXVDQGWKHORFXVFRHUXOHXV '0DQQHWDO 5'
    7HUU\ DQG .DW]PDQ  <DPDPRWR DQG +LUDQR   ,Q DGGLWLRQ V\QDSWLF G\VIXQFWLRQ RFFXUV
    &RPSDULQJORVVRIV\QDSWLFSURWHLQVLQWKHIURQWDODQGSDULHWDOUHJLRQVPRUHVHYHUHORVVZDVIRXQG
    LQ WKH IURQWDO FRUWH[ 5HGG\ HW DO   /RVV RI IXQFWLRQDO V\QDSVHV LQ PLGIURQWDO DQG ORZHU
    LQIHULRU  SDULHWDO DUHDV VXUURXQGLQJ WKH WHPSRUDO OREHV FRUUHODWHG KLJKO\ U    ZLWK D JOREDO
    PHDVXUHRIGHPHQWLD 0DWWLV'HPHQWLD5DWLQJ6FDOH  5'7HUU\0DVOLDKHWDO 7KLVSDWWHUQHG
    ORVV RI FRUWLFDO IXQFWLRQ GLVFRQQHFWV WHPSRUDO OREH VWUXFWXUHV IURP WKH UHVW RI WKH FHUHEUDO FRUWH[
    WKXV PDNLQJ DQ LPSRUWDQW FRQWULEXWLRQ WR WKH SURPLQHQW PHPRU\ GLVRUGHUV LQ WKLV GLVHDVH *HXOD
     +HXQ HW DO  -XRWWRQHQ HW DO   &RUWLFDO GHJHQHUDWLRQ DOVR DSSHDUV WR GLVFRQQHFW
    SUHIURQWDOIURPSDULHWDOVWUXFWXUHV %UDDNHWDO ZKLFKPD\DFFRXQWIRUWKHHDUO\FRPSURPLVH
    RIWKHFDSDFLW\IRUGLYLGHGDQGVKLIWLQJDWWHQWLRQ 3DUDVXUDPDQDQG*UHHQZRRG 
    1HXURQDOORVVHVSHFLDOO\LQWKHWKUHHEUDLQVWHPDUHDVߟWKHQXFOHXVEDVDOLVRI0H\QHUWWKHUDSKH
    QXFOHXV DQG WKH ORFXV FRHUXOHXVߟDSSHDUV WREH UHODWHG WR UHGXFHG SURGXFWLRQ RI QHXURWUDQVPLWWHUV
    E\ WKHVH FHQWHUV LQ SDUWLFXODU DQG E\ RWKHU EUDLQ VWUXFWXUHV (QJHOERUJKV DQG 'H 'H\Q  
    1HXURQV LQ WKH QXFOHXV EDVDOLV RI 0H\QHUW FRQWDLQ PRVW RI WKH FKROLQHUJLF HQ]\PHV WKDW HQWHU LQWR
    FKROLQHUJLF SURMHFWLRQV WR WKH FHUHEUDO FRUWH[ DQG KLSSRFDPSXV $ORQJ ZLWK FKROLQHUJLF GHSOHWLRQ
    ZKLFK RFFXUV HDUO\ LQ WKH FRXUVH RI WKH GLVHDVH &XPPLQJV 9LQWHUV HW DO   FRPHV ORVV RI
    FRUWLFDO QLFRWLQLF DFHW\OFKROLQH UHFHSWRUV ZKLFK DUH QHFHVVDU\ IRU HIIHFWLYH FRUWLFDO
    QHXURWUDQVPLVVLRQ &RXUW HW DO  1RUGEHUJ   7KH DFFRPSDQ\LQJ GHJHQHUDWLRQ RI WKH
    FKROLQHUJLF SURMHFWLRQ V\VWHP LV D FKDUDFWHULVWLF RI $' WKDW PD\ DOVR SOD\ DQ LPSRUWDQW UROH LQ WKH
    PHPRU\GLVRUGHUV\PSWRPV *HXOD $EQRUPDOLWLHVLQWKHQRUDGUHQHUJLFDQGVHURWRQLQHUJLF
    V\VWHPVLQ$'KDYHEHHQDVVRFLDWHGZLWKQHXURQDOORVVLQWKHORFXVFRHUXOHXVDQGWKHUDSKHQXFOHXV
    UHVSHFWLYHO\ 3DOPHU   DQG RWKHU QHXURWUDQVPLWWHU V\VWHPV DUH DOVR DIIHFWHG 6NRRJ DQG
    %OHQQRZ:6DPXHOHWDO 
    /RVV RI QHXURQV W\SLFDOO\ߟXOWLPDWHO\ߟUHVXOWV LQ WKH JURVV DQDWRPLF DOWHUDWLRQV VHHQ RQ 05,
    ZKLFK DSSHDU PRVW REYLRXVO\ DV HQODUJHG YHQWULFOHV DQG D WKLQQLQJ RI WKH FRUWLFDO PDQWOH 5DWH RI
    YHQWULFXODU&6)YROXPHLQFUHDVHFDQEHXVHGWRPRQLWRUGLVHDVHSURJUHVVLRQ 6LOEHUW 4XLQQ HW DO
      1HXURLPDJLQJ WHFKQLTXHV VKRZ WKDW HDUO\ SURPLQHQW DWURSK\ RFFXUV LQ WKH PHGLDO WHPSRUDO
    OREHLQYROYLQJWKHKLSSRFDPSXVDQGHQWRUKLQDOFRUWH[ -72ߤ%ULHQ6FKHOWHQVDQG.RUI 
    7KLV WHPSRUDO OREH YROXPH ORVV PD\ RFFXU \HDUV SULRU WR FOLQLFDO HYLGHQFH RI GHPHQWLD .D\H
    6ZLKDUW HW DO   DQG RIWHQ LV DV\PPHWULF ZLWK OHIW KLSSRFDPSXV YROXPH ORVV JUHDWHU WKDQ ULJKW
    6KL HW DO  2WKHU DUHDV RI DWURSK\ LQFOXGH WKH VXSHULRU WHPSRUDO OREHV DP\JGDOD WKDODPXV
    DQG WHPSRURSDULHWDO FRUWLFHV =DN]DQLV *UDKDP DQG &DPSEHOO   +RZHYHU YDULDELOLW\ LQ WKH
    QDWXUHDQGH[WHQWRIDWURSKLFFKDQJHVRIERWK$O]KHLPHUSDWLHQWVDQGQRQGHPHQWHGHOGHUO\SHUVRQV
    DQGWKHJURVVSDWKRORJLFVLPLODULWLHVEHWZHHQ$'RWKHUGHPHQWLQJFRQGLWLRQVDQGPL[HGGHPHQWLDV
    SUHFOXGHUHOLDQFHRQYLVXDOL]DWLRQWHFKQLTXHVDORQHIRUGLDJQRVWLFGLVFULPLQDWLRQ1HYHUWKHOHVVZKHQ
    FRXSOHG ZLWK QHXURSV\FKRORJLFDO VWXGLHV KLJK UDWHV RI GLDJQRVWLF DFFXUDF\ KDYH EHHQ UHSRUWHG
    /DDNVRHWDO9LVVHU6FKHOWHQVHWDO 
    (DUO\LQWKHFRXUVHRI$'SDWLHQWVVKRZUHGXFHGPHGLDOWHPSRUDOOREHDFWLYLW\RQI05,LPDJLQJ
    :LHUHQJDDQG%RQGL $ORQJLWXGLQDOVWXG\RIWZRVXEMHFWVZKRWUDQVLWLRQHGIURPFRJQLWLYHO\
    QRUPDO WR DXWRSV\YHULILHG $' SURYLGHG DQ RSSRUWXQLW\ WR ORRN DW EUDLQ JOXFRVH PHWDEROLVP UDWHV
    ZLWK 3(7 &KDQJHV LQ WKH FHUHEUDO PHWDEROLF UDWH ZLWK GLVHDVH SURJUHVVLRQ H[WHQGLQJ IURP WKH
    KLSSRFDPSXV WR WKH SDULHWRWHPSRUDO DQG SRVWHULRU FLQJXODWHG FRUWLFHV ZHUH IRXQG LQ ERWK VXEMHFWV
    0RVFRQLHWDO 6WXGLHVRIEUDLQPHWDEROLVPLQSDWLHQWVZLWKHVWDEOLVKHG$O]KHLPHUGLDJQRVHV
    FRQVLVWHQWO\ UHSRUW UHGXFHG PHWDEROLF DFWLYLW\ LQ ERWK DQWHULRU DQG SRVWHULRU DVVRFLDWLRQ DUHDV
    RFFXUULQJ PRVW VHYHUHO\ LQ SRVWHULRU WHPSRUDO DQG FRQWLJXRXV SDULHWDO DQG RFFLSLWDO UHJLRQV
    'H&DUOL *UDG\ HW DO  ,EDQH] HW DO  :DOGHPDU HW DO   3DWWHUQV RI UHGXFWLRQV LQ
    FHUHEUDOPHWDEROLVPFRUUHODWHZLWKSDWWHUQVRIFRJQLWLYHGHILFLWV 06$OEHUW'XII\DQG0F$QXOW\
    'HVJUDQJHV HW DO  (XVWDFKH 'HVJUDQJHV HW DO   5HGXFHG PHWDEROLVP LQ IURQWDO
    DUHDVLVFORVHO\DVVRFLDWHGZLWKGHPHQWLDVHYHULW\0HDVXUHPHQWVRIUHJLRQDOFHUHEUDOEORRGIORZLQD
    SRVWHULRU WHPSRUDOLQIHULRU SDULHWDO DUHD ZHUH SUHGLFWLYH RI WKH GLVHDVHߤV HYROXWLRQ 1RELOL HW DO
     
    3(7VWXGLHVKDYHW\SLFDOO\VKRZQUHGXFHGJOXFRVHPHWDEROLVPLQWKHLQIHULRUSDULHWDOIURQWDODQG
    ODWHUDOWHPSRUDOFRUWH[DQGLQWKHSRVWHULRUFLQJXODWH *(6PLWKDQG%RQGL 6LPLODUGHFUHDVHV
    LQSHUIXVLRQKDYHEHHQVHHQZLWK63(&7PHDVXUHPHQWV .$-RKQVRQHWDO  $ PHWDDQDO\VLV
    RI  VWXGLHV H[DPLQLQJ WKH GLDJQRVLV RI $' IRXQG WKDW WKH PRVW VHQVLWLYH PHDVXUH ZDV PHPRU\
    IROORZHG E\ KLSSRFDPSXV YROXPH RQ 05, ZKLFK ZDV PRUH VHQVLWLYH WKDQ 3(7 RU 63(&7 9LVVHU
    6FKHOWHQV HW DO   ߧ3LWWVEXUJK &RPSRXQG %ߨXVHG ZLWK 3(7 LPDJLQJ KDV EHHQ GHYHORSHG DV D
    WHFKQLTXH IRU LPDJLQJ DP\ORLG SODTXHV 8VLQJ WKLV WHFKQLTXH LW KDV EHHQ VKRZQ WKDW VLJQLILFDQW
    SODTXH GHSRVLWLRQ RFFXUV SULRU WR FOLQLFDO GHFOLQH LQ $' SDWLHQWV -& 0RUULV 5RH HW DO  
    +RZHYHU WKH OHYHO RI SODTXH FKDQJHG PLQLPDOO\ LQ WKH FRXUVH RI RQH \HDU ZKLOH FRJQLWLYH GHFOLQH
    GHWHULRUDWHGLQWKHVHVXEMHFWVVXJJHVWLQJWKDWWKHSUHVHQFHRIDP\ORLGLQWKHEUDLQZDVQRWVXIILFLHQW
    E\ LWVHOI WR SURGXFH FRJQLWLYH GHFOLQH 1HXURGHJHQHUDWLRQ VHHQ DV DQ LQFUHDVH LQ YHQWULFXODU
    H[SDQVLRQ RQ 05, VFDQV ZDV D EHWWHU PDUNHU EHFDXVH LW ERWK SUHFHGHG DQG SDUDOOHOHG FRJQLWLYH
    GHFOLQH -DFNHWDO 2QHPRGHORIWKHWHPSRUDORUGHURIEUDLQFKDQJHVLQ$'LVWKDW3DP\ORLG
    SODTXHVGHYHORSILUVWIROORZHGE\DEQRUPDOWDXFKDQJHVLQQHXURLPDJLQJDQGWKHRQVHWRIFOLQLFDO
    V\PSWRPV 7URMDQRZVNLHWDO 
    ,QWHJUDWHGILQGLQJVIURPLPDJLQJDQGFRJQLWLYHDVVHVVPHQWVVXJJHVWWKDW$'FDQEHYLHZHGDVD
    GLVFRQQHFWLRQ V\QGURPH VHH SS  ߞ  6WXGLHV XVLQJ I05, 3(7 DQG ((* VKRZ WKDW
    V\QFKURQLFLW\ RI EUDLQ DFWLYLW\ LV DOWHUHG LQ $' 'LIIXVLRQ WHQVRU LPDJLQJ RI D[RQDO SURMHFWLRQV
    DFURVVWKH$'EUDLQIRXQGVXEVWDQWLDOUHJLRQDOLPSDLUPHQWLQILEHUWUDFWLQWHJULW\ %RNGHHWDO
    DQGOHVVIXQFWLRQDOFRQQHFWLYLW\EHWZHHQWKHKLSSRFDPSXVDQGGLIIXVHFRUWLFDODQGVXEFRUWLFDOVLWHVLQ
    $O]KHLPHUSDWLHQWVFRPSDUHGWRFRQWUROV *$OOHQHWDO 7KHEUHDNGRZQLQFURVVPRGDODXGLR
    YLVXDOLQWHJUDWLRQLQ$O]KHLPHUSDWLHQWVLVFRQVLVWHQWZLWKDGLVFRQQHFWLRQV\QGURPH 'HOEHXFNHWDO
     DVLVWKHPHPRU\LPSDLUPHQWFKDUDFWHULVWLFRIWKLVGLVHDVH GH7ROHGR0RUUHOOHWDO 

    'LVHDVHSURFHVV

    &OLQLFDOFRXUVH 7KH GLVHDVH W\SLFDOO\ SURJUHVVHV VORZO\ 7KH PHGLDQ VXUYLYDO IURP UHFRJQL]HG
    V\PSWRP RQVHWZDV QLQH \HDUV LQ DQ DXWRSV\FRQILUPHGJURXS RI $'SDWLHQWV 5DVFRYVN\6DOPRQ
    /LSWRQHWDO ZKLFKLVFRQVLVWHQWZLWKRWKHUVWXGLHV+RZHYHUWKHLQWHUYDOEHWZHHQGLDJQRVLV
    DQGGHDWKFDQEHDVORQJDVWR\HDUV 0HVXODPD $'W\SLFDOO\EHJLQVVRLQVLGLRXVO\WKDW
    PDQ\IDPLOLHVDUHXQDZDUHRIDSUREOHPXQWLOZRUNUHODWHGSUREOHPVSLOHXSRUDVXGGHQGLVUXSWLRQ
    LQ URXWLQH OHDYHV WKH SDWLHQW GLVRULHQWHG FRQIXVHG DQG XQDEOH WR GHDO ZLWK WKH XQIDPLOLDU VLWXDWLRQ
    %HFDXVHWKHHDUO\EHKDYLRUDOGHFOLQHLVVRJUDGXDODQGXQVXVSHFWHGDQGEHFDXVHPRVWEDVLFDELOLWLHVߟ
    HJ ODQJXDJH DQG VHQVRU\ DQG PRWRU IXQFWLRQVߟXVXDOO\ UHPDLQ LQWDFW LQ WKH HDUO\ VWDJHV RI WKH
    GLVHDVHLWLVGLIILFXOWWRGDWHH[DFWO\WKHRQVHWRIWKHFOLQLFDOV\PSWRPV0RUHRYHUHDUO\HYLGHQFHRI
    LQDWWHQWLYHQHVV PLOG FRJQLWLYH GXOOLQJ VRFLDO ZLWKGUDZDO DQG HPRWLRQDO EOXQWLQJ RU DJLWDWLRQ DUH
    RIWHQFRQIXVHGZLWKGHSUHVVLRQVRWKDWLWLVQRWXQFRPPRQWRILQGDQ$O]KHLPHUSDWLHQWZKRKDVEHHQ
    UHFHQWO\ WUHDWHG IRU GHSUHVVLRQ .DV]QLDN 6DGHK DQG 6WHUQ   (YHQ ZLWK KLQGVLJKW LW PD\ EH
    GLIILFXOW WR GLVWLQJXLVK WKH SDWLHQWߤV SUHPRUELG SHUVRQDOLW\ DQG HPRWLRQDO GLVWXUEDQFHV IURP WKH
    HDUOLHVW V\PSWRPV DQG UHDFWLRQV WR WKH HYROYLQJ H[SHULHQFH RI SHUVRQDO GLVLQWHJUDWLRQ %UXQ HW DO
     
    7KHVHTXHQFHLQZKLFKFRJQLWLYHIXQFWLRQVILUVWVKRZGHWHULRUDWLRQJHQHUDOO\EHJLQVZLWKHSLVRGLF
    PHPRU\EXWDOVRZLWKFRPSOH[PHQWDOWUDFNLQJ HJ7UDLO0DNLQJ7HVW% DQGYHUEDOIOXHQF\ 06
    $OEHUW 0RVV 7DQ]L DQG -RQHV   'HOD\HG UHFDOO RI YHUEDO DQG YLVXRVSDWLDO PDWHULDO RIWHQ
    GHWHULRUDWHV TXLFNO\ WR DQ HDUO\ IORRU 7KXV LPPHGLDWH UHFDOO FDWHJRU\ IOXHQF\ DQG FRQIURQWDWLRQ
    QDPLQJ PD\ EH EHWWHU IRU VWDJLQJ GHPHQWLD VHYHULW\ EHFDXVH WKH\ VKRZ D VWHDG\ OLQHDU GHFOLQH --
    /RFDVFLR HW DO   6LPLODUO\ V\PERO VXEVWLWXWLRQ DQG FRQVWUXFWLRQ WHVWV XVXDOO\ GHFOLQH VWHDGLO\
    DQGFDQEHXVHGWRPDUNGLVHDVHSURJUHVVLRQ %RQGL6DOPRQDQG.DV]QLDN  ([DPLQDWLRQRI
    LQGLYLGXDO WHVW SURWRFROV VKRZV D JUHDW GHDO RI YDULDELOLW\ EHWZHHQ IXQFWLRQV DV ZHOO DV EHWZHHQ
    SDWLHQWV *UDG\+D[E\HWDO0DUUD6LOYHULDQG*DLQRWWL $IWHUWKHLQLWLDODSSHDUDQFHRI
    PHPRU\G\VIXQFWLRQFRJQLWLYHGHWHULRUDWLRQPD\EHDUUHVWHGIRUDVORQJDVQLQHPRQWKVWRDOPRVW
    WKUHH \HDUV +D[E\ 5DIIDHOH HW DO   +RZHYHU RQFH QRQPHPRU\ IXQFWLRQV EHJLQ WR GHFOLQH
    PHQWDOGHWHULRUDWLRQSURFHHGVWRLWVLQHYLWDEOHHQG
    $VWKHGLVHDVHSURJUHVVHVFRJQLWLYHLPSDLUPHQWEHFRPHVEURDGDQGVHYHUHDQGWKHUDWHRIGHFOLQH
    JUDGXDOO\DFFHOHUDWHVSDUWLFXODUO\LQSHUVRQVZLWKKLJKHUHGXFDWLRQDODWWDLQPHQW 56:LOVRQ/LHW
    DO   $SKDVLD DQG DSUD[LD EHFRPH SURPLQHQW SUREOHPV ODWHU DORQJ ZLWK YDULRXV DJQRVLDV
    &KRERUDQG%URZQ '\VIOXHQF\SDUDSKDVLDVDQGEL]DUUHZRUGFRPELQDWLRQVDQGLQWUXVLRQV
    DUH FRPPRQ PLGVWDJH VSHHFK GHIHFWV /DWH LQ WKH GLVHDVH FRXUVH PDQ\ IXQFWLRQV FDQ QR ORQJHU EH
    PHDVXUHGZKHWKHUGXHWRSDWLHQWVߤLQDELOLW\WRFRRSHUDWHRUORVVRIWKHIXQFWLRQVWKHPVHOYHV,QYHU\
    ODWH VWDJHV VSHHFK EHFRPHV QRQIOXHQW UHSHWLWLYH DQG ODUJHO\ QRQFRPPXQLFDWLYH DQG DXGLWRU\
    FRPSUHKHQVLRQLVH[FHHGLQJO\OLPLWHGZLWKPDQ\SDWLHQWVGLVSOD\LQJSDUWLDORUFRPSOHWHPXWLVP $X
    HWDO 3ULPLWLYHUHIOH[HVDSSHDUPRUHIUHTXHQWO\LQWKHODWHVWDJHRIWKHGLVHDVH )UDQVVHQDQG
    5HLVEHUJ+RJDQDQG(EO\ ,QDYHU\JHQHUDOVHQVHWKHSDWWHUQRIIXQFWLRQDOUHJUHVVLRQ
    LV WKH LQYHUVH RI QRUPDO GHYHORSPHQWDO VWDJHV (PHU\  5HLVEHUJ )HUULV %RUHQVWHLQ HW DO
     

    &OLQLFDOVXEW\SHV$JHEDVHGGLIIHUHQFHVXQGHUOLHWKHRQFHJHQHUDOO\DFFHSWHGGLVWLQFWLRQEHWZHHQ
    SUHVHQLOH RQVHW XQGHU DJH   DQG VHQLOH RQVHW DW DJH  RU ODWHU  GHPHQWLD $OWKRXJK GLDJQRVWLF
    FRGHV VWLOO PDNH WKLV GLVWLQFWLRQ WKHUH LV OLWWOH UHDVRQ WR EHOLHYH WKDW VRPHRQH ZKR GHYHORSV WKH
    GLVHDVH DW DJH  KDV D GLIIHUHQW GLVHDVH IURP VRPHRQH ZKR GHYHORSV LW DW DJH  +RZHYHU VRPH
    SDWKRORJLFDOGLIIHUHQFHVKDYHEHHQQRWHG %LJLRHWDO DQGDJHDWRQVHWGRHVDIIHFWWKHUDWHRI
    GHFOLQH VHH3UHGLFWLQJFRXUVHEHORZDQGSSߞ 2QHVWXG\VRUWHG$O]KHLPHUSDWLHQWVLQWRIRXU
    GLVWLQFW VXEJURXSV   PLOG GHILFLWV DFURVV FRJQLWLYH GRPDLQV   SULPDU\ GHILFLWV LQ DWWHQWLRQ DQG
    FRQVWUXFWLRQ   SULPDU\ GHILFLWV LQ PHPRU\   VHYHUH GHILFLWV DFURVV FRJQLWLYH GRPDLQV -(
    'DYLGVRQHWDO 7KHPLOGJURXSKDGWKHKLJKHVWHGXFDWLRQOHYHOWKH$32(DOOHOHZDVߧKLJKO\
    DVVRFLDWHGߨZLWK WKH PLOG JURXS DQG OHDVW OLNHO\ WR EH IRXQG LQ DVVRFLDWLRQ ZLWK WKH ߧDWWHQWLRQ DQG
    FRQVWUXFWLRQߨJURXS
    *UHDWHU LQYROYHPHQW RI RQH KHPLVSKHUH WKDQ WKH RWKHU RFFXUV LQ DSSUR[LPDWHO\  WR  RI
    SDWLHQWV $0DUWLQ%URXZHUV/DORQGHHWDO*(6PLWKDQG%RQGL6WULWHHWDO 
    /DWHUDOL]DWLRQRIGHILFLWVWHQGVWRDSSHDULQW\SLFDOSDWWHUQVLQZKLFKYHUEDOGHWDLORULHQWHGIXQFWLRQV
    RU YLVXRVSDWLDOJOREDOO\ FRQILJXUDWLRQDOO\  RULHQWHG IXQFWLRQV DUH FRXSOHG UHPDLQLQJ UHODWLYHO\
    LQWDFW RU GHWHULRUDWLQJ WRJHWKHU 1- )LVKHU 5RXUNH HW DO  0DVVPDQ 'HOLV )LORWHR HW DO
      $OWKRXJK SUHPRUELG DELOLWLHV DQG DJHUHODWHG GHFOLQH PLJKW DFFRXQW IRU VRPH ODWHUDOL]HG
    SHUIRUPDQFHV WKH SUHVXPSWLRQ LV WKDW WKH GLVHDVH DIIHFWV WKH KHPLVSKHUHV DV\PPHWULFDOO\
    $V\PPHWULFDO OHVLRQV KDYH EHHQ IRXQG DW DXWRSV\ 0RRVV\ HW DO   DQG JUHDWHU ODQJXDJH
    LPSDLUPHQW RU YLVXRVSDWLDO GHILFLWV WHQG WR FRUUHODWH ZLWK 05, ILQGLQJV 1& )R[ HW DO   RU
    ORZHUHGEUDLQPHWDEROLVPLQRQHKHPLVSKHUH )UDQFHVFKLHWDO53)ULHGODQGHWDO
    $0DUWLQ%URXZHUV/DORQGHHWDO %RQGL6DOPRQDQG.DV]QLDN  VXJJHVWWKDWWKH
    SUDFWLFHRIDYHUDJLQJJURXSVFRUHVRQGLIIHUHQWWHVWVFDQREVFXUHDV\PPHWULFDOSUHVHQWDWLRQRI$'
    HDUO\ LPSDLUPHQW DV\PPHWULHV DUH PRUH OLNHO\ WR VKRZ XS ZLWK FRPSDULVRQV EHWZHHQ VSHFLILF WHVW
    SHUIRUPDQFHV RQ SUHGRPLQDQWO\ OHIWYHUVXV ULJKWKHPLVSKHUH PHGLDWHG IXQFWLRQV HJ ߧDXGLWRU\
    YHUVXVVSDWLDODWWHQWLRQߨS 
    3RVWHULRU FRUWLFDO DWURSK\ 3&$  LV D SRVWHULRU YDULDQW RU YLVXDO YDULDQW WKDW SUHVHQWV ZLWK
    SURJUHVVLYH YLVXRVSDWLDO LPSDLUPHQW EXW UHODWLYHO\ SUHVHUYHG PHPRU\ LQVLJKW DQG MXGJPHQW
    %HQVRQ 'DYLV DQG 6Q\GHU  )XUH\.XUNMLDQ HW DO  :KDWPRXJK   (DUO\ LQ WKH
    FRXUVHRIWKLVVXEW\SHSURPLQHQWYLVXDOGLVWXUEDQFHVRFFXUVXFKDVYLVXDODJQRVLDVLPXOWDQDJQRVLD
    SURVRSDJQRVLDYLVXDOILHOGGHIHFWDOH[LDDQG%DOLQWߤVV\QGURPH 0F0RQDJOHHWDO7DQJ:DL
    HW DO   0HPRU\ PD\ EH UHODWLYHO\ SUHVHUYHG HDUO\ RQ KRZHYHU D IXOO GHPHQWLD V\QGURPH
    HYHQWXDOO\GHYHORSV '1/HYLQH/HHDQG)LVKHU 0RVWEXWQRWDOODXWRSV\YHULILHGFDVHVZLWK
    SURPLQHQWYLVXDOGLVWXUEDQFHVKDYH$O]KHLPHUW\SHSDWKRORJ\ 7DQJ:DLHWDO7HQRYXRHWDO
     8QOLNHW\SLFDOFDVHVRI$'QHXURSDWKRORJLFDOVWXGLHVVKRZDQRFFLSLWRSDULHWDOIRFXV +RI HW
    DO'1/HYLQH/HHDQG)LVKHU:KDWPRXJK 
    2WKHUFOLQLFDOVXEW\SHVKDYHEHHQREVHUYHGLQFOXGLQJSURJUHVVLYHDSKDVLDFKDUDFWHUL]HGE\VSHHFK
    VORZHGE\ZRUGILQGLQJGHOD\V *RUQR7HPSLQL HW DO  -RVHSKV HW DO  D IURQWDO YDULDQW
    ZLWKHDUO\SHUVRQDOLW\FKDQJHVRUGLVSURSRUWLRQDWHLPSDLUPHQWVRQWHVWVRIIURQWDOOREHIXQFWLRQLQJ
    -.-RKQVRQ+HDGHWDO/DUQHU DQGD.OXYHU%XF\SKHQRW\SH .LOHHWDO 7KHVH
    GLIIHUHQW VXEW\SHV DSSHDU WR UHIOHFW GLIIHUHQW SDWKRORJLF YXOQHUDELOLWLHV EHWZHHQ RU ZLWKLQ
    KHPLVSKHUHV

    'LDJQRVLVDQGSUHGLFWLRQ

    6HYHULW\FODVVLILFDWLRQ$OWKRXJKߧVWDJHVߨRIGHPHQWLDRIWHQUHIHUVWRLWVWLPHFRXUVH LHߧHDUO\ߨ
    ߧPLGGOHߨߧODWHߨ WKHVHWHUPVDOVRUHIHUWRWKHVHYHULW\RIWKHGLVHDVHPHDQLQJUHVSHFWLYHO\ߧPLOGߨ
    ߧPRGHUDWHߨ DQG ߧVHYHUHߨ 7KH *OREDO 'HWHULRUDWLRQ 6FDOH *'6  LV D VHYHQ VWDJH UDWLQJ VFDOH WKDW
    GHILQHVVWDJHVIURPQRFRJQLWLYHGHFOLQHWRYHU\VHYHUHLPSDLUPHQW 5HLVEHUJ)HUULVHWDO 
    7KH&OLQLFDO'HPHQWLD5DWLQJ &'5 VFDOHZKLFKLVZLGHO\XVHGLQGHPHQWLDUHVHDUFKUDWHVVHYHULW\
    RQDSRLQWVFDOHZKHUHLVQRHYLGHQFHRIGHPHQWLDLVPLOGGHPHQWLDDQGVRIRUWK -&0RUULV
     5DWLQJVDUHEDVHGRQPHPRU\DQGRWKHUFRJQLWLYHDELOLWLHVWHPSRUDORULHQWDWLRQMXGJPHQWDQG
    SUREOHP VROYLQJ FRPPXQLW\ DFWLYLWLHV DQG KRPH DFWLYLWLHV DQG KREELHV (YLGHQFH RI FRJQLWLYH
    GHFOLQH QRW PHHWLQJ WKH FULWHULD IRU GHPHQWLD LV UHIHUUHG WR DV PLOG FRJQLWLYH LPSDLUPHQW VHH SS
    ߞ 

    'LDJQRVWLF LVVXHV 1R VLQJOH PDUNHU RU VHW RI PDUNHUV IRU ERWK KLJK VHQVLWLYLW\ DQG KLJK
    VSHFLILFLW\ IRU $' LQ OLYLQJ SDWLHQWV KDV \HW EHHQ IRXQG 6KRUW RI DXWRSV\ WKLV LV D GLDJQRVLV RI
    H[FOXVLRQ PDGH RQO\ DIWHU UXOLQJ RXW RWKHU SRVVLEOH FDXVHV RI PHPRU\ GLVRUGHU RU GHPHQWLD VHH
    7DEOH   7KH FOLQLFDO GLDJQRVLV UHOLHV RQ LQIRUPDWLRQ IURP D YDULHW\ RI VRXUFHV IROORZLQJ
    GLDJQRVWLF JXLGHOLQHV 'XERLV )HOGPDQ HW DO  0F.KDQQ HW DO   7KH QHFHVVDU\
    LQIRUPDWLRQ LQFOXGHV SDWLHQW DQG IDPLO\ KLVWRU\ D QHXURORJLFDO H[DPLQDWLRQ SK\VLRORJLFDO DQG
    QHXURUDGLRJUDSKLF VWXGLHV DQG ODERUDWRU\ GDWD WR KHOS UXOH RXW RWKHUߟSDUWLFXODUO\ UHYHUVLEOHߟ
    FRQGLWLRQV:LWKWKHVHFULWHULDGLDJQRVWLFDFFXUDF\DVWHVWHGE\ELRSV\RUDXWRSV\PD\UXQDVKLJKDV
    RIFDVHV 7LHUQH\HWDO-&0RUULV0F.HHO)XOOLQJHWDO 
    1HZ UHVHDUFK FULWHULD KDYH EHHQ SURSRVHG WR LPSURYH GLDJQRVLV E\ LQFOXGLQJ GLVWLQFWLYH
    ELRPDUNHUV RI WKH GLVHDVH 'XERLV )HOGPDQ HW DO   7KHVH QHZ FULWHULD DUH FHQWHUHG RQ D
    FOLQLFDO FRUH RI HDUO\ DQG VLJQLILFDQW HSLVRGLF PHPRU\ LPSDLUPHQW DFFRPSDQLHG E\ DW OHDVW RQH RU
    PRUH DEQRUPDO ELRPDUNHUV LGHQWLILHG E\ VWUXFWXUDO QHXURLPDJLQJ ZLWK 05, PROHFXODU
    QHXURLPDJLQJZLWK3(7DQGFHUHEURVSLQDOIOXLGDQDO\VLVRIͤDP\ORLGRUWDXSURWHLQV<HWPXFKRI
    WKH GLDJQRVLV ZLOO XOWLPDWHO\ UHO\ RQ WKH TXDQWLWDWLYH SDWWHUQ DQG TXDOLWDWLYH FKDUDFWHULVWLFV RI
    FRJQLWLYHIXQFWLRQLQJHOLFLWHGE\QHXURSV\FKRORJLFDODVVHVVPHQW HJ06$OEHUW0RVV7DQ]LDQG
    -RQHV%RQGL6DOPRQDQG.DV]QLDN 
    7$%/(([FOXVLRQ&ULWHULDIRU'LDJQRVLVRI$O]KHLPHUߤV'LVHDVH

    $JHUHODWHGFRJQLWLYHGHFOLQH
    'HOLULXP
    'HSUHVVLRQ
    'UXJDEXVH
    +XPDQLPPXQRGHILFLHQF\YLUXV
    0HGLFDOFRQGLWLRQVHJK\SRWK\URLGLVPYLWDPLQ%GHILFLHQF\
    V\VWHPLFLOOQHVV
    0HGLFDWLRQVLGHHIIHFWV
    2WKHUFHQWUDOQHUYRXVV\VWHPGHJHQHUDWLYHGLVHDVHV
    9DVFXODUGLVRUGHUVHJVWURNHYDVFXODUPXOWLLQIDUFWGHPHQWLD

    3UHGLFWLQJFRXUVH1RVWURQJSUHGLFWRUVRIUDWHRIFRJQLWLYHGHFOLQHKDYH\HWHPHUJHGDVGLIIHUHQW
    VWXGLHV KDYH SURYLGHG GLIIHUHQW ILQGLQJV 5 *RXOG HW DO   ([DPLQHUV DUH VWLOO PLVVLQJ D
    ߧ\DUGVWLFNߨWKDW UHOLDEO\ GHVFULEHV WKH VWDJH RI WKH GLVHDVH 0DQ\ VWXGLHV KDYH XVHG WKH 0LQL0HQWDO
    6WDWH ([DPLQDWLRQ 006(  RU WKH 0DWWLV 'HPHQWLD 5DWLQJ 6FDOH WR GHWHUPLQH GLVHDVH VWDJH VHH
    &KDSWHU $JHDWRQVHWLVDVLJQLILFDQWSUHGLFWRULQVRPHVWXGLHVZLWKHDUO\RQVHWDVVRFLDWHGZLWK
    IDVWHUGHFOLQH .RVV(GODQGHWDO7HUL0F&XUU\HWDO56:LOVRQ/LHWDO EXW
    QRW LQ DOOVWXGLHV %UDFFRHWDO  +LJKHUHGXFDWLRQ KDV EHHQ DVVRFLDWHG ZLWK IDVWHU GHFOLQH 5
    *RXOGHWDO5DVPXVVRQHWDO7HUL0F&XUU\HWDO 1RUHODWLRQVKLSEHWZHHQUDWH
    RIGHFOLQHDQGVH[KDVHPHUJHG %-6PDOO9LLWDQHQHWDO7HUL0F&XUU\HWDO 5DFH
    VKRZHGDVOLJKWHIIHFWLQRQHVWXG\ZLWKZKLWHVGHFOLQLQJIDVWHUWKDQ$IULFDQ$PHULFDQV )LOOHQEDXP
    3HWHUVRQ HW DO   1R GLIIHUHQFH LQ FRXUVH ZDV IRXQG LQ D VWXG\ FRPSDULQJ 1DWLYH $PHULFDQV
    ZLWKZKLWHV 0):HLQHU5RVHQEHUJHWDO 
    %RWKGHJUHHRIFHUHEUDODWURSK\DQGH[WHQWRIZKLWHPDWWHUGLVHDVHDUHDOVRDVVRFLDWHGZLWKIDVWHU
    UDWHVRIGHFOLQH $GDNHWDO%ULFNPDQHWDO ([WUDS\UDPLGDOVLJQV WUHPRUULJLGLW\DQG
    EUDG\NLQHVLD PD\ EHDQ HDUO\SUHGLFWRURI $' 0 5LFKDUGVHWDO DQG KDYHEHHQDVVRFLDWHG
    ZLWKDVOLJKWO\IDVWHUFRXUVHLQVRPHVWXGLHV &0&ODUNHWDO0DQJRQH:16DPVRQHW
    DO EXWQRWDOO 5DVPXVVRQHWDO (IIHFWVRI$32(RQUDWHRIFRJQLWLYHGHFOLQHUHPDLQ
    LQFRQFOXVLYH &UDIW 7HUL HW DO  'DO )RUQR HW DO   1RQULJKWKDQGHGQHVV DQG IDPLO\
    KLVWRU\RIGHPHQWLDKDYHEHHQDVVRFLDWHGZLWKIDVWHUGHFOLQH 5DVPXVVRQHWDO 
    6RPH FRJQLWLYH YDULDEOHV KDYH SUHGLFWLYH YDOXH %UDFFR HW DO  )DEHU/DQJHQGRHQ HW DO
      3DWLHQWV ZLWK VLJQLILFDQW ODQJXDJH G\VIXQFWLRQ GHWHULRUDWHG PRUH UDSLGO\ WKDQ WKRVH ZLWK
    UHODWLYHO\ LQWDFW ODQJXDJH VNLOOV %UDFFR HW DO   %RWK V\QWDFWLF LPSDLUPHQW DQG SRRU
    SHUIRUPDQFH RQ %ORFN 'HVLJQ KDYH EHHQ LPSOLFDWHG LQ IDVWHU GHFOLQH 5DVPXVVRQ HW DO   
    6WXG\LQJ SDWLHQWV UDQJLQJ LQ DJH IURP  WR  %- 6PDOO +HUOLW] DQG WKHLU FROOHDJXHV 
    UHSRUWHGWKDWSURJUHVVLRQZDVVORZHUZKHQ'LJLWV)RUZDUGDQG%ORFN'HVLJQZHUHLQLWLDOO\VXSHULRU
    IRU WKLV JURXS DJH VH[ DQG HGXFDWLRQ KDG QR SUHGLFWLYH YDOXH 2WKHU IDFWRUV WKDW KDYH EHHQ
    DVVRFLDWHGZLWKDIDVWHUWKDQXVXDOFRXUVHLQFOXGHSV\FKRWLFV\PSWRPV %XFFLRQHHWDO<6WHUQ
    $OEHUWHWDO DJJUHVVLYHEHKDYLRUDQGVOHHSGLVWXUEDQFH 0RUWLPHU(EELWWHWDO 

    6HQVRULPRWRUVWDWXV9LVXDOG\VIXQFWLRQLQ$'VKRZVXSLQUHGXFHGFRQWUDVWVHQVLWLYLW\DVZHOODV
    RWKHUFKDQJHV 0HQGRODHWDO5L]]R$QGHUVRQ'DZVRQDQG1DZURW 9LVXRSHUFHSWXDO
    GHILFLWV DUH FRPPRQ &RJDQ  (VOLQJHU DQG %HQWRQ  5L]]R $QGHUVRQ 'DZVRQ DQG
    1DZURW 7KH\VKRZXSSURPLQHQWO\RQWHVWVUHTXLULQJYLVXDOGLVFULPLQDWLRQDQDO\VLVVSDWLDO
    MXGJPHQWVDQGSHUFHSWXDORUJDQL]DWLRQ6HYHULW\LQFUHDVHVRYHUWLPHEXWWKHSDWWHUQRIG\VIXQFWLRQ
    FDQYDU\JUHDWO\EHWZHHQSDWLHQWVDVVSHFLILFGHILFLWVWHQGWREHLQGHSHQGHQWRIRQHDQRWKHUDQGGRQRW
    QHFHVVDULO\ ZRUVHQ DW VLPLODU UDWHV )RU H[DPSOH 'HOOD 6DOD .LQQHDU DQG WKHLU FRZRUNHUV 
    IRXQG WKDW WKUHH RI  SDWLHQWV GLVSOD\HG LPSDLUHG FRORU SURFHVVLQJ 2EMHFW UHFRJQLWLRQ ZKLFK
    UHTXLUHV LQWDFW LQIHURWHPSRUDO FRUWH[ WHQGV WR EH PRUH LPSDLUHG WKDQ WKH YLVXRVSDWLDO DELOLWLHV
    DVVRFLDWHG ZLWK WKH SRVWHULRU SDULHWDO FRUWH[ )XMLPRUL HW DO  .XU\OR HW DO   $XGLWRU\
    DFXLW\ DSSHDUV WR EH QR PRUH RI D SUREOHP LQ $' WKDQ LQ WKH DJLQJ SRSXODWLRQ JHQHUDOO\ 7RQH
    SHUFHSWLRQPD\UHPDLQLQWDFW '$:KLWHDQG0XUSK\ 
    2OIDFWRU\DFXLW\PHDVXUHGE\UHFRJQLWLRQLVW\SLFDOO\LPSDLUHGHDUO\LQWKHGLVHDVHFRXUVH 5/
    'RW\5H\HVDQG*UHJRU.RVV:HLIIHQEDFKHWDO:HVWHUYHOW%UXFHHWDO EXW
    SOHDVDQWQHVV GLVFULPLQDWLRQ LV UHWDLQHG 5R\HW HW DO   2OIDFWRU\ GHILFLWV LQ SDWLHQWV ZLWK PLOG
    FRJQLWLYH LPSDLUPHQWV PD\ SUHGLFW WKH HYHQWXDO GHYHORSPHQW RI $' 'HYDQDQG HW DO   2Q
    ILQGLQJ QHXURILEULOODU\ WDQJOHV DQG FHOO ORVV LQ ROIDFWRU\ QXFOHL (VLUL DQG :LOFRFNߤV 
    FRQFOXVLRQWKDWߧWKHROIDFWRU\VHQVRU\SDWKZD\LVVLJQLILFDQWO\DIIHFWHGLQ$'ߨLVFRQVLVWHQWZLWKWKH
    EHKDYLRUDO GDWD 5HGXFWLRQV LQ OHIW KLSSRFDPSDO YROXPH DUH DOVR DVVRFLDWHG ZLWK LPSDLUHG RGRU
    LGHQWLILFDWLRQLQ$O]KHLPHUSDWLHQWV &0XUSK\HWDO 
    $SDUWIURPLPSDLUPHQWVLQH\HPRYHPHQWVDQGH[FHSWLQWKHYHU\ODWHVWDJHVZKHQDOOV\VWHPVDUH
    LQYROYHGPRWRUV\VWHPGLVRUGHUVDUHLQIUHTXHQWRFFXUULQJLQDERXWRIFDVHV .ROOHU:LOVRQHW
    DO0HVXODPD +RZHYHUSDWLHQWVGRSRRUO\RQFRPSOH[PRWRUWDVNVEHWWHUZLWKVLPSOHU
    WDVNV .OXJHUHWDO 

    &RJQLWLRQ

    $OWKRXJK $' DIIHFWV HYHU\ DUHD RI EHKDYLRU WKH FRJQLWLYH FKDQJHVߟDQG SDUWLFXODUO\ WKH PHPRU\
    GHILFLWVߟDUH WKH PRVW REYLRXV HDUO\ V\PSWRPV DQG KDYH DWWUDFWHG WKH PRVW UHVHDUFK DWWHQWLRQ 7KH
    RYHUDOOSDWWHUQV RI FRJQLWLYHGHWHULRUDWLRQ LQ$' DUH ZHOO HVWDEOLVKHG $OVR ZHOOHVWDEOLVKHGDUHWKH
    GLIIHUHQFHVDPRQJSDWLHQWVSUREDEO\QRWZRSDWLHQWVSUHVHQWLQWKHVDPHPDQQHUQRUDUHSDWWHUQVRI
    GHWHULRUDWLRQLGHQWLFDODVGLIIHUHQWIXQFWLRQVGHWHULRUDWHDWGLIIHUHQWUDWHVIRUWKHLQGLYLGXDOSDWLHQWDV
    ZHOODVIRUGLIIHUHQWSDWLHQWV<HWWKHRYHUDOOFRXUVHRIWKHGLVHDVHUXQVFRQVLVWHQWO\GRZQKLOOVRWKDWDW
    WKHHQGDOOIXQFWLRQVDUHORVWDQGDOOSDWLHQWVUHDFKDVLPLODUVWDJHRIEHKDYLRUDOGLODSLGDWLRQ3DWLHQWV
    ZLWKPRGHUDWHGLVHDVHVHYHULW\ZLOOVKRZVRPHOHYHORILPSDLUPHQWRQDOPRVWDOOFRJQLWLYHWHVWV HJ
    9OLHWHWDO 7KHIRFXVKHUHZLOOEHRQWKHFKDUDFWHULVWLFVRIPLOG$'
    7KH PRVW GLVWLQJXLVKLQJ FRJQLWLYH IHDWXUH RI $' LV D SUHGRPLQDQW HSLVRGLF PHPRU\ GLVRUGHU
    ZKLFKZDVSUHVHQWLQRIDXWRSV\FRQILUPHGFDVHV %55HHG0XQJDVHWDO 2WKHUGHILFLWV
    DUH OLNHO\ LQ RULHQWDWLRQ VSHHGHG SV\FKRPRWRU SHUIRUPDQFH ODQJXDJH IOXHQF\ DQG FRPSOH[
    UHDVRQLQJ +RZLHVRQ 'DPH HW DO  '0 -DFREV 6DQR 'RRQHLHI HW DO  0XQJDV HW DO
     &RQVWUXFWLRQDOGHILFLWVDUHDOVRFRPPRQ$O]KHLPHUSDWLHQWVW\SLFDOO\VFRUHKLJKHVWRQWHVWVRI
    RYHUOHDUQHGEHKDYLRUVSUHVHQWHGLQDIDPLOLDUIRUPDWDQGUHTXLULQJLPPHGLDWHPHPRU\UHFDOO0DQ\
    ߟHYHQ VRPH ZKR FDQQRW FDUH IRU WKHPVHOYHVߟSHUIRUP TXLWH ZHOO RQ :,6$ WHVWV RI ,QIRUPDWLRQ
    9RFDEXODU\PDQ\&RPSUHKHQVLRQDQG6LPLODULWLHVLWHPVDQG'LJLWV)RUZDUG7KHPRUHWKHWDVNLV
    XQIDPLOLDU DEVWUDFW DQG VSHHGGHSHQGHQW DQG WKH PRUH LW WD[HV SDWLHQWVߤ GZLQGOLQJ FDSDFLW\ IRU
    DWWHQWLRQDQGOHDUQLQJWKHPRUHOLNHO\WKH\ZLOOGRSRRUO\%ORFN'HVLJQ'LJLW6\PERODQG'LJLWV
    %DFNZDUG W\SLFDOO\ YLH IRU WKH ERWWRP UDQN DPRQJ :,6$ WHVW VFRUHV 7KH $O]KHLPHU ߤV 'LVHDVH
    &HQWHUVߤ PLQLPXP QHXURSV\FKRORJLFDO WHVW EDWWHU\ ZKLFK LV H[SHFWHG WR EH VXSSOHPHQWHG E\ RWKHU
    FRJQLWLYHWHVWVLVVKRZQLQ7DEOH
    $WWHQWLRQ $WWHQWLRQDO GHILFLWV DUH SDUW RI WKH V\PSWRP SLFWXUH RI $' EXW DOO SDWLHQWV PD\ QRW
    GLVSOD\ VXFK SUREOHPV SDUWLFXODUO\ LQ WKH HDUO\ VWDJHV $ 0DUWLQ  3DUDVXUDPDQ DQG +D[E\
     0RUHRYHUDOHUWQHVVDSSHDUVWRUHPDLQXQDIIHFWHGDWOHDVWIRUPLOGO\WRPRGHUDWHO\GHPHQWHG
    SDWLHQWV 0F.KDQQHWDO1HEHVDQG%UDG\ 
    7$%/(8QLIRUPGDWDVHWRIWKH1DWLRQDO$O]KHLPHUߤV&RRUGLQDWLRQ&HQWHUQHXURSV\FKRORJLFDOWHVWEDWWHU\
    'RPDLQ 7HVWV
    '(0(17,$6(9(5,7< 006(
    $77(17,21 :$,65'LJLW6SDQ
    352&(66,1*63((' :$,65'LJLW6\PERO7UDLO0DNLQJ
    7HVW3DUW$
    (;(&87,9()81&7,21 7UDLO0DNLQJ7HVW3DUW%
    0(025< :065/RJLFDO0HPRU\6WRU\$
    /$1*8$*( &DWHJRU\)OXHQF\ DQLPDOV
    YHJHWDEOHV %RVWRQ1DPLQJ7HVW
    RGGLWHPV
    $GDSWHGIURP:HLQWUDXE6DOPRQHWDO  

    ,PSDLUPHQWVLQQHDUO\DOODVSHFWVRIDWWHQWLRQKDYHEHHQUHSRUWHGLQFOXGLQJGHIHFWLYHIRFXVLQJDQG
    VKLIWLQJ )UHHG&RUNLQHWDO1HEHVDQG%UDG\5L]]R$QGHUVRQ'DZVRQ0\HUVHWDO
      +RZHYHU VLPSOH DWWHQWLRQ VSDQ PD\ UHPDLQ QHDU QRUPDO )RU H[DPSOH PDQ\ VHYHUHO\
    LPSDLUHG SDWLHQWV ZKR VWLOO KDYH VRPH YHUEDO VNLOOV FDQ FRUUHFWO\ UHSHDW ILYH GLJLWV IRUZDUGV
    &RJQLWLYHVORZLQJUHVXOWV LQORQJHUUHDFWLRQWLPHVIRUWKHVH SDWLHQWV -. )RVWHU HW DO  6DQR
    5RVHQ6WHUQHWDO EXWRQHVWXG\IRXQGRQO\DERXWKDOIWKHSDWLHQWVKDGVORZHGUHDFWLRQWLPHV
    6WRUDQGW DQG %HDXGUHDX   6ORZQHVV RQ WKH YDULRXV V\PERO VXEVWLWXWLRQ WHVWV LV D FRQVLVWHQW
    ILQGLQJ 6WRUDQGWDQG%HDXGUHDX7DEHUW0DQO\HWDO 'HILFLWVLQGLYLGLQJDQGVKLIWLQJ
    DWWHQWLRQ PD\ EH WKH HDUOLHVW LQGLFDWRUV RI FRUWLFDO G\VIXQFWLRQ ZLWK FDSDFLWLHV IRU DURXVDO DQG
    UHVSRQVLYH IRFXVLQJ DIIHFWHG RQO\ ODWHU DV WKH GLVHDVH SURJUHVVHV %DGGHOH\ %DGGHOH\ HW DO 
    3DUDVXUDPDQDQG+D[E\5-3HUU\DQG+RGJHV 7KHVHGHILFLWVDOVRLQFUHDVHLQVHYHULW\
    ZLWKWDVNFRPSOH[LW\
    7KH 6WURRS WHFKQLTXH FRQIOLFW FRQGLWLRQ KLJKOLJKWV GHIHFWLYH DELOLW\ WR VXVWDLQ DWWHQWLRQ ZKLOH
    LQKLELWLQJDSUHSRWHQWUHVSRQVH /HYLQRIIHWDO 7KHSUDFWLFDOLPSOLFDWLRQVRIWKLVGHILFLWVKRZ
    XSLQHVFDODWLQJVRFLDOGHSHQGHQF\DQGGHWHULRUDWLQJSHUVRQDOKDELWV 9LWDOLDQR%UHHQ$OEHUWHWDO
      :KHQ WDONLQJ ZKLOH ZDONLQJ SDWLHQWV XQDEOH WR GR PRUH WKDQ RQH WKLQJ DW D WLPH DUH DW D
    KHLJKWHQHGULVNRIIDOOLQJ &DPLFLROL+RZLHVRQHWDO 
    6WXGLHVRIWHVWDEOHSDWLHQWV LHPLOGO\WRPRGHUDWHO\GHPHQWHG KDYHUHSRUWHGWKDWPDQ\EXWQRW
    DOOKDYHLPSDLUHG DELOLW\IRUKROGLQJLQIRUPDWLRQLQ VKRUWWHUP PHPRU\ ZKLOH PDQLSXODWLQJ LWLH
    ZRUNLQJ PHPRU\ -7 %HFNHU  %HOOHYLOOH HW DO  (9 6XOOLYDQ &RUNLQ DQG *URZGRQ
      7KH DGGLWLRQ RI D GLVWUDFWRU WDVN WR WHVW ZRUNLQJ PHPRU\ LQFUHDVHV WKH LPSDLUPHQW
    VLJQLILFDQWO\ 5* 0RUULV DQG .RSHOPDQ   :RUNLQJ PHPRU\ SHUIRUPDQFH FRUUHODWHV ZLWK
    VHQWHQFH UHSHWLWLRQ IDLOXUHV -$ 6PDOO .HPSHU DQG /\RQV   :RUNLQJ PHPRU\ GHILFLWV DOVR
    DSSHDUZLWKQRQYHUEDO DXGLWRU\ VWLPXOL '$ :KLWH DQG 0XUSK\   7KHVH GHILFLWV LQ UHGXFLQJ
    DPRXQWRILQIRUPDWLRQSURFHVVHGFRQWULEXWHWRWKHOHDUQLQJGHILFLWV +DXW5REHUWVHWDO 

    2ULHQWDWLRQ7HPSRUDORULHQWDWLRQDQGNQRZOHGJHRIFXUUHQWHYHQWVDUHRIWHQFRPSURPLVHG HJ
    %UDQGW )ROVWHLQ DQG )ROVWHLQ   HYHQ HDUO\ LQ WKH FRXUVH RI WKLV GLVHDVH DOWKRXJK LPSDLUHG
    RULHQWDWLRQ DORQH LV XQOLNHO\ WR EH WKH ILUVW V\PSWRP +XII %HFNHU HW DO   2ULHQWDWLRQ PD\
    UHPDLQLQWDFWDIWHUGHWHULRUDWLRQRIRWKHUIXQFWLRQVKDVEHFRPHHYLGHQW (LVGRUIHUDQG&RKHQ
    2ߤ'RQQHOO'UDFKPDQHWDO 

    0HPRU\ DQG OHDUQLQJ $O]KHLPHU SDWLHQWV GLVSOD\ PHPRU\ SUREOHPV HDUO\ LQ WKHLU FRXUVH
    0HPRU\SUREOHPVߟSDUWLFXODUO\YHUEDOPHPRU\GHILFLWVߟVKRZXSRQWHVWVVHYHUDO\HDUVEHIRUHWKH
    GHPHQWLDGLDJQRVLVLVZDUUDQWHG 06$OEHUW 0RVV 7DQ]LDQG -RQHV / %DFNPDQ6PDOO HW
    DO  +RZLHVRQ 'DPH HW DO   7KH QDWXUH RI WKH OHDUQLQJ GHIHFW KDV EHHQ VWXGLHG ZLWK D
    YDULHW\RIWHFKQLTXHVPRVWO\ORRNLQJDWDVSHFWVRIYHUEDOPHPRU\ VHH7DEOH 
    $OPRVW IURP GLVHDVH RQVHW $O]KHLPHU SDWLHQWV VKRZ GHILFLWV LQ DFTXLVLWLRQ DQG UHWHQWLRQ RI
    LQIRUPDWLRQ %RQGL 6DOPRQ DQG .DV]QLDN   2Q WHVWV RI IUHH UHFDOO ZKHWKHU RI PHDQLQJIXO
    PDWHULDO VHQWHQFHV VWRULHV  RU RQ URWH OHDUQLQJ WDVNV $O]KHLPHU SDWLHQWV SHUIRUP YHU\ SRRUO\ 1
    %XWWHUV*UDQKROPHWDO0LWUXVKLQD'UHELQJHWDO GLVSOD\LQJWKHJUHDWHVWORVVHVRQWKH
    HDUOLHVWVWLPXOLSUHVHQWHGLQDVHULHV SULPDF\HIIHFW  0DVVPDQ 'HOLVDQG %XWWHUV   /HDUQLQJ
    DQGRU UHWULHYDO SURFHVVHV H[KLELW WKH PRVW VLJQLILFDQW LPSDLUPHQW LQ WKH HDUO\ VWDJHV ZLWK
    LQFUHDVLQJO\ ORZHU UDWHV RI DFTXLVLWLRQ RI QHZ LQIRUPDWLRQ ZKHWKHU RQ URWH OHDUQLQJ WDVNV RU LQ
    UHPHPEHULQJ RQJRLQJ SHUVRQDO H[SHULHQFHV RU SDVVLQJ HYHQWV XQWLO WKH OHDUQLQJ FDSDFLW\ LV ORVW
    +RGJHV9OLHWHWDO &RQWULEXWLQJWRWKLVOHDUQLQJGHILFLWLVGHIHFWLYHHQFRGLQJZKLFKLQ
    WXUQ DSSHDUV WR EH GXH WR IDLOXUH WR UHPHPEHU RU FDOO XS WKH HQFRGLQJ SURFHVV VR WKDW LPSDLUHG
    OHDUQLQJ LQ $' DSSHDUV WR EH WKH UHVXOW RI D GRXEOH LPSDLUPHQW LQ WKH OHDUQLQJ SURFHVV %XVFKNH
    6OLZLQVNLHWDO&DUOHVLPR0DXULHWDO&DVWHOHWDO 
    7$%/(0HPRU\LQ$O]KHLPHUߤV'LVHDVH
    /($51,1*5(&$//$1'5(&2*1,7,21
    /HDUQLQJIODWOHDUQLQJFXUYHDFURVVWULDOV
    'HOD\HGUHFDOOYHU\SRRUDIWHUHYHQDVKRUWGHOD\
    5HSHWLWLRQVRIWHQIUHTXHQW
    ,QWUXVLRQVRIWHQIUHTXHQW
    5HFRJQLWLRQPHPRU\LPSDLUHGLQGLFDWLQJVWRUDJHSUREOHPV
    3RVLWLYHUHVSRQVHELDVIDOVHSRVLWLYHHUURUV
    (1&2',1*6725$*($1'5(75,(9$/
    (QFRGLQJDQGUHWULHYDOLPSDLUHGEXWRYHUVKDGRZHGE\VWRUDJHSUREOHP
    6WRUDJH FRQVROLGDWLRQ IDLOXUHWRVWRUHQHZLQIRUPDWLRQ
    5DWHRIIRUJHWWLQJUDSLG
    $01(6,$
    $QWHURJUDGHHYLGHQWHDUO\
    5HWURJUDGHDOVRHDUO\EXWGLIILFXOWWRPHDVXUH
    7<3(62)0(025<
    (SLVRGLF YHUEDODQGYLVXDO VHYHUHHDUO\
    6HPDQWLFLPSDLUHG
    ,PSOLFLW XQFRQVFLRXVPHPRU\ LPSDLUHGVHPDQWLFSULPLQJLQWDFWSHUFHSWXDOSULPLQJ
    3URFHGXUDOUHODWLYHO\LQWDFW
    7HPSRUDO RULHQWDWLRQ LPSDLUHG UHODWLYHO\ HDUO\ DQG SURJUHVVLYH UHIOHFWV ERWK DQWHURJUDGH DQG
    UHWURJUDGHDPQHVLD
    1(8523$7+2/2*<
    ,PSDLUHGHSLVRGLFPHPRU\ELODWHUDOPHGLDOWHPSRUDO
    KLSSRFDPSXV &$HQWRUKLQDOFRUWH[VXELFXOXP DP\JGDOD
    SDUDKLSSRFDPSDOJ\UXV
    ,PSDLUHGVHPDQWLFDQGLPSOLFLWPHPRU\DVVRFLDWLRQFRUWH[
    ,PSDLUHGRUJDQL]DWLRQHQFRGLQJDQGVRXUFHPHPRU\IURQWDOOREHV
    ,QWDFWSURFHGXUDOPHPRU\UHODWLYHO\LQWDFWEDVDOJDQJOLD
    $GDSWHGIURP=HF  

    7KH PRVW VHQVLWLYH PHDVXUH RI WKH PHPRU\ GHILFLW LV GHOD\HG PHPRU\ 5DSLG IRUJHWWLQJ
    FKDUDFWHUL]HV$O]KHLPHUSDWLHQWVDIWHUWKH\GHPRQVWUDWHGDFTXLVLWLRQRQERWKYHUEDO HJJURFHU\OLVW
    DQG YLVXDOߞYHUEDO HJ IDFHߞQDPH DVVRFLDWLRQV  OHDUQLQJ WULDOV /DUUDEHH <RXQJMRKQ HW DO  
    :KHQ DFTXLVLWLRQ VFRUHV DSSURDFK QRUPDO OHYHOV WKLV GHILFLW PD\ EH VHHQ LQ ORZ VDYLQJV VFRUHV
    /DUUDEHH<RXQJMRKQHWDO%55HHG3DOOHUDQG0XQJDV7URVWHU%XWWHUV6DOPRQHW
    DO 2QFHYLVXDOVWLPXOLKDYHEHHQOHDUQHGVRPHVWXGLHVVKRZHGWKDWUDWHRIIRUJHWWLQJLVDERXW
    WKDWRIQRUPDOSHUVRQVDOWKRXJKRIFRXUVHWKH$O]KHLPHUSDWLHQWVߤLQLWLDOUHWHQWLRQLVZHOOEHORZWKDW
    RI QRUPDOV +XSSHUW DQG .RSHOPDQ  .RSHOPDQ    2WKHUV GHPRQVWUDWHG D UDSLG IDOORXW
    RYHU WKH ILUVW WZR KRXUV EXW ZKDW LV OHIW PD\ EH UHWDLQHG IRU DW OHDVW WZR GD\V 53 +DUW .ZHQWXV
    7D\ORUDQG+DUNLQV   0RUHRYHU VRPH SDWLHQWVLQ WKHHDUO\ VWDJHV RI WKH GLVHDVHVKRZ EHWWHU
    UHWHQWLRQRIDVHWRIVWLPXOLDWWKUHHGD\VWKDQDWRQHGD\ WKHUHERXQGSKHQRPHQRQ  )UHHG&RUNLQHW
    DO LQZKLFKGHOD\HGUHFDOOLVEHWWHUWKDQUHFHQWUHFDOOLPSOLFDWLQJVORZHGSURFHVVLQJ
    5HWULHYDOSUREOHPVVKRZXSZKHQUHFDOOLVPXFKORZHUWKDQZKDWLVHOLFLWHGE\UHFRJQLWLRQ0LOGO\
    LPSDLUHG SDWLHQWV PD\ SHUIRUP QRUPDOO\ RQ UHFRJQLWLRQ WHVWV +RZHYHU HYHQ ZKHQ DLGHG E\ D
    UHFRJQLWLRQ IRUPDW $O]KHLPHU SDWLHQWV EH\RQG WKH HDUO\ VWDJH RI WKH GLVHDVH SHUIRUP VLJQLILFDQWO\
    EHORZQRUPDOOHYHOVRQYLVXDODVZHOODVYHUEDOUHFRJQLWLRQWDVNV )LQHHWDO+HLQGHO6DOPRQ
    HW DO   WKH\ JLYH D ODUJH SURSRUWLRQ RI IDOVH SRVLWLYH UHVSRQVHV ߧIDOVH DODUPVߨ  GXH WR SRRU
    GLVFULPLQDWLRQ EHWZHHQ WDUJHW LWHPV DQG GLVWUDFWRUV 'HZHHU HW DO  +LOGHEUDQGW HW DO  
    &XHLQJKDVEHHQXVHGWRDVVHVVWKHIXOOOHDUQLQJSRWHQWLDORIWKHVHSDWLHQWVEXWPDQ\VWXGLHVIRXQGWKDW
    YHUEDO FXHLQJߟZKHWKHU ZLWK OHDUQLQJ WULDOV RU DV DQ DLG WR UHFDOOߟGRHV QRW KHOS +HUOLW] DQG
    9LLWDQHQ3HWHUVHQ6PLWK,YQLNHWDO +RZHYHUVWURQJDVVRFLDWLRQDOFXHVDWUHFDOOFDQ
    HQKDQFHSDWLHQWVߤSHUIRUPDQFH %XVFKNH6OLZLQVNLHWDO*UDQKROPDQG%XWWHUV  6HOI
    JHQHUDWHGFXHVDUHPRUHHIIHFWLYHWKDQFXHVSURYLGHGE\WKHH[DPLQHU /LSLQVNDHWDO 
    $O]KHLPHU SDWLHQWV KDYH GHJUDGHG JLVW PHPRU\ *DOOR 6KDKLG HW DO  +XGRQ HW DO 
    DQG GR QRW DSSHDU WR EHQHILW IURP RWKHU FRQFHSWXDO UHODWLRQVKLSV HJ VHPDQWLF FDWHJRULHV  HYHQ
    ZKHQ WKH\ DUH EXLOW LQWR ZRUG OLVWVߟDJDLQ LQ PDUNHG FRQWUDVW WR QRUPDO VXEMHFWV +HUOLW] DQG
    9LLWDQHQ  +RGJHV  +LJK LPDJHU\ GRHV QRW LPSURYH ZRUG UHWHQWLRQ 2EHU .RVV HW DO
      DOWKRXJK IDPLOLDULW\ߟHJ RI DVVRFLDWLRQV LQ ZRUG SDLUV VXFK DV (DVW:HVW 0F:DOWHU HW DO
     ߟPD\EHQHILWUHFDOO0LOGO\LPSDLUHGSDWLHQWVSHUIRUPEHORZFRQWUROVRQSDLUHGDVVRFLDWHWDVNV
    .6 )RZOHU HW DO    LQ SDUW GXH WR HUURUV XVLQJ QRQWHVW IDPLOLDULW\ RI LWHPV DV D EDVLV IRU
    UHFRJQLWLRQ *DOOR 6XOOLYDQ HW DO    $O]KHLPHU SDWLHQWV VKRZ WKH XVXDO SLFWXUH VXSHULRULW\
    HIIHFWLQUHPHPEHULQJSLFWXUHVEHWWHUWKDQZRUGV $OO\HWDO 0HPRU\IRUWKHWHPSRUDORUGHU
    RIHYHQWVLVLPSDLUHG 6WRUDQGW.DVKNLHDQG9RQ'UDV 
    2OGHU PHPRULHV WHQG WR EH PRUH DYDLODEOH WKDQ UHFHQW RQHV D WHPSRUDO JUDGLHQW WKDW DSSOLHV WR
    ERWK SXEOLFO\ DYDLODEOH LQIRUPDWLRQ DQG SHUVRQDO KLVWRU\ )DPD 6XOOLYDQ 6KHDU HW DO D
    .RSHOPDQ $VWKHGLVHDVHSURJUHVVHVNQRZOHGJHRIFXUUHQWHYHQWVDQGJHQHUDOLQIRUPDWLRQLV
    LQFUHDVLQJO\ FRPSURPLVHG /( 1RUWRQ HW DO   3URVSHFWLYH PHPRU\ߟUHPHPEHULQJ WR
    UHPHPEHUߟGHWHULRUDWHVHDUO\LQWKHGLVHDVH 'XFKHNHWDO+XSSHUW DQG %HDUGVDOO   DQG
    PD\EHWKHQHZSDWLHQWߤVPDLQFRPSODLQW:LWKLQWHQVLYHWUDLQLQJYHU\VSHFLILFSURVSHFWLYHPHPRU\
    UHVSRQVHV FDQ EH GULOOHG LQWR VRPH $O]KHLPHU SDWLHQWV &- &DPS HW DO   EXW WKLV UHFDOO LV
    DYDLODEOHRQO\IRUWUDLQHGWDUJHWUHVSRQVHV
    &RQWUDVWLQJZLWKWKHGLVPDOSLFWXUHRIPHPRU\DQGOHDUQLQJLQERWKYHUEDODQGYLVXDOPRGDOLWLHVLV
    HYLGHQFHWKDWOHDUQLQJDELOLW\IRUVLPSOHPRWRUDQGVNLOOOHDUQLQJWDVNVLVUHODWLYHO\SUHVHUYHG %RQGL
    DQG .DV]QLDN  'LFN HW DO  (VOLQJHU DQG 'DPDVLR   EXW QRW IRU FRPSOH[ WDVNV
    *UDIPDQ:HLQJDUWQHU1HZKRXVHHWDO )RUWXQDWHO\$O]KHLPHUSDWLHQWVPD\UHWDLQVNLOOVIRU
    SOHDVXUDEOH DFWLYLWLHV VXFK DV SOD\LQJ PXVLFDO LQVWUXPHQWV %DLUG DQG 6DPVRQ  :: %HDWW\
    :LQQHWDO $O]KHLPHUSDWLHQWVDUHLPSDLUHGRQVRPHLPSOLFLWPHPRU\WHVWV %UDQGW6SHQFHU
    HWDO EXWQRWRWKHUVߟGHSHQGLQJRQWKHW\SHRIWDVNHJVXFFHVVZLWKVKRUWGHOD\VRQZRUG
    EDVHGSHUFHSWXDOWHVWVEXWIDLOXUHZLWKORQJGHOD\V *DEULHOL9DLG\DHWDO0HLUDQDQG-HOLFLF
     7KH\RIWHQVKRZQRUPDOSHUFHSWXDOSULPLQJ -HOLFLF%RQHEDNNHUDQG%RQNH03DUNHW
    DO 7KHVHGLIIHUHQWLDOOHDUQLQJSDWWHUQVUHIOHFWDQDWRPLFDOGLIIHUHQFHVEHWZHHQWKHGHFODUDWLYH
    DQG SURFHGXUDO PHPRU\ V\VWHPV DQG GHPRQVWUDWH WKH VHOHFWLYLW\ RI FHUHEUDO GHJHQHUDWLRQ LQ WKLV
    GLVHDVH

    9HUEDOIXQFWLRQVDQGDFDGHPLFVNLOOV'HWHULRUDWLRQLQWKHTXDOLW\TXDQWLW\DQGPHDQLQJIXOQHVVRI
    VSHHFKDQGLQYHUEDOFRPSUHKHQVLRQFKDUDFWHUL]HVPRVW$O]KHLPHUSDWLHQWVLQUHODWLYHO\HDUO\VWDJHV
    RIWKHGLVHDVHDQGXOWLPDWHO\DOORIWKHP %VFKRUHWDO+HEHUWHWDO 7KLVGHJHQHUDWLYH
    SURFHVVDSSHDUVWRIROORZWKHVHTXHQFHRIODQJXDJHGHYHORSPHQWLQUHYHUVH (PHU\ 
    &HQWUDO WR DOO DVSHFWV RI WKLV GHWHULRUDWLRQ LV D GLVLQWHJUDWLRQ RI VHPDQWLF UHODWLRQVKLSV DQG
    XQGHUVWDQGLQJV 6HPDQWLF GLVUXSWLRQV DSSHDU LQ PDQ\ ZD\V :RUG JHQHUDWLRQ ZKHWKHU WR OHWWHUV
    VHPDQWLF FDWHJRULHV HJ DQLPDOV  RU VLWXDWLRQV HJ QDPLQJ WKLQJV LQ D VXSHUPDUNHW  LV JUHDWO\
    UHGXFHG HYHQ HDUO\ LQ WKH FRXUVH RI WKH GLVHDVH DQG IXUWKHU FRPSURPLVHG E\ PDQ\ HUURUV VXFK DV
    SHUVHYHUDWLRQV DQG LQFRUUHFW FDWHJRULHV %LQHWWL HW DO  6DOPRQ +HLQGHO DQG /DQJH  
    &DWHJRU\IOXHQF\DSSHDUVWREHPRUHGLVUXSWHGWKDQOHWWHUIOXHQF\ -'+HQU\&UDZIRUGDQG3KLOOLSV
      ,Q RQH VWXG\ FDWHJRU\ IOXHQF\ DQLPDOV IUXLWV YHJHWDEOHV  GLVWLQJXLVKHG $O]KHLPHU SDWLHQWV
    IURPFRQWUROVZLWKVHQVLWLYLW\DQGVSHFLILFLW\ZKLOHOHWWHUIOXHQF\KDGVHQVLWLYLW\
    DQG VSHFLILFLW\ 0RQVFK %RQGLHWDO  6HPDQWLF GHILFLWV UHVXOW LQ D YLUWXDO LQDELOLW\ WR
    XVHDFOXVWHULQJVWUDWHJ\IRUZRUGJHQHUDWLRQ 7UR\HU0RVFRYLWFKHWDOE 0RUHRYHUFXHLQJ
    IRUVXEFDWHJRULHV HJߧIDUPDQLPDOVSHWVߨ GRHVQRWKHOS &5DQGROSK%UDXQHWDO )OXHQF\
    WDVNV DUH HVSHFLDOO\ GLIILFXOW IRU $O]KHLPHU SDWLHQWV EHFDXVH WKH\ PDNH GHPDQGV ERWK RQ GLUHFWHG
    JHQHUDWLRQ RI LGHDV DQG RQ VHPDQWLF NQRZOHGJH )DPD 6XOOLYDQ 6KHDU HW DO D  2WKHU
    GLVUXSWLRQV LQ VHPDQWLF PHPRU\ PD\ LQFOXGH HUURUV GXULQJ SLFWXUH VRUWLQJ DFFRUGLQJ WR VHPDQWLF
    WUDLWVRUPDWFKLQJFRQFHSWXDOO\UHODWHGSLFWXUHV +RGJHVDQG3DWWHUVRQ3HUDLWDHWDO 
    &RQIURQWDWLRQ QDPLQJ HOLFLWV PDQ\ IHZHU UHVSRQVHV IURP $O]KHLPHU SDWLHQWV WKDQ IURP LQWDFW
    SHUVRQVDORQJZLWKPDQ\PRUHHUURUVߟXVXDOO\GXHHLWKHUWRVHPDQWLFRUWRZRUGUHWULHYDOIDLOXUHV
    %RZOHVHWDO+RGJHV3DWWHUVRQHWDO/D%DUJH HW DO   EXW SKRQHPLF HUURUVDV
    VHHQ LQ DSKDVLD DUH UDUH $VWHOO DQG +DUOH\  +RGJHV 6DOPRQ DQG %XWWHUV   3HUFHSWXDO
    HUURUVPD\DOVRRFFXURQQDPLQJWHVWVEXWWKH\DUHUDUHXQWLOWKHGLVHDVHVSURJUHVVHVWRWKHPRGHUDWH
    VWDJH /D%DUJHHWDO9*:LOOLDPV%UXFHHWDO 6RPHVWXGLHVKDYHIRXQGWKDWFHUWDLQ
    ZRUGFDWHJRULHVHVSHFLDOO\QRXQVDUHPRUHLPSDLUHGWKDQRWKHUVDOWKRXJKWKHVHILQGLQJVKDYHQRW
    EHHQFRQVLVWHQW 0*URVVPDQ0LFNDQLQHWDO'-:LOOLDPVRQHWDO 1DPLQJGHIHFWV
    XVXDOO\GHYHORSVRPHZKDWODWHUWKDQWKHJHQHUDWLYHSUREOHP %D\OHVDQG7RPRHGD7HVWDHWDO
     <HWFRUUHODWLRQVUXQKLJKEHWZHHQZRUGJHQHUDWLRQDQGQDPLQJIRU$O]KHLPHUSDWLHQWV DQG
    UHVSHFWLYHO\  +XII&RUNLQDQG*URZGRQ$0DUWLQDQG)HGLR VXJJHVWLQJWKDWWKH
    VDPHSURFHVVRIVHPDQWLFGHWHULRUDWLRQXQGHUOLHVIDLOXUHVRQERWKWKHVHWDVNV
    (YHQDVVSHHFKFRQWHQWHPSWLHVWKHEDVLFRUJDQL]LQJSULQFLSOHVRIODQJXDJHߟV\QWD[DQGOH[LFDO
    VWUXFWXUHߟUHPDLQ UHODWLYHO\ LQWDFW ߧQRXQV DUH SODFHG ZKHUH QRXQV VKRXOG JR DQG YHUEV DQG RWKHU
    W\SHVRIZRUGVDUHSODFHGZKHUHWKH\VKRXOGJRߨ %D\OHV./\RQVHWDO <HWVSHHFKPD\
    FRQYH\OLWWOHPHDQLQJDVZRUGVODFNFOHDUUHIHUHQWV HJߧWKLQJߨߧVWXIIߨߧLWߨ>ZLWKRXWDQLGHQWLILDEOH
    DQWHFHGHQW@ DQGVWDWHPHQWVEHFRPHLUUHOHYDQWRUUHGXQGDQW 01LFKRODV2EOHU$OEHUWDQG+HOP
    (VWDEURRNV 
    7KHRWKHUVLGHRIWKLVSUREOHPLVGLPLQLVKHGFRPSUHKHQVLRQRIERWKZULWWHQDQGVSRNHQODQJXDJH
    %D\OHV %RRQH HW DO  3DTXH DQG :DUULQJWRQ   5HDGLQJ DFFXUDF\ IDOWHUV DV VHPDQWLF
    PHPRU\ GHWHULRUDWHV 6WRUDQGW 6WRQH DQG /D%DUJH  6WUDLQ HW DO    &RPSUHKHQVLRQ
    GHILFLWV LQFUHDVH ZLWK JUDPPDWLF DQG V\QWDFWLF FRPSOH[LW\ &URRW HW DO  *UREHU DQG %DQJ
      $O]KHLPHU SDWLHQWV DOVR KDYH GLIILFXOW\ UHFRJQL]LQJ HPRWLRQDO WRQH LQ VSHHFK D SUREOHP
    FORVHO\OLQNHGWRLPSDLUHGUHFRJQLWLRQRIHPRWLRQODGHQIDFLDOH[SUHVVLRQV $OOHQGHU DQG.DV]QLDN
     
    $V ODQJXDJH IXQFWLRQV GHWHULRUDWH DOPRVW DOO DVSHFWV RI ZULWLQJ GHWHULRUDWH DV PXFK RU PRUH
    $SSHOO HW DO  - +RUQHU HW DO  /DPEHUW HW DO   6HQWHQFHV DUH VKRUWHU OHVV
    V\QWDFWLFDOO\FRPSOH[DQGFRQWDLQOHVVUHOHYDQWLQIRUPDWLRQWKDQWKRVHSURGXFHGE\SHHUV .HPSHU
    /D%DUJHHWDO DQGPHFKDQLFDODVSHFWVRIZULWLQJW\SLFDOO\GHWHULRUDWH 1/ *UDKDP  
    1RW VXUSULVLQJO\ TXDQWLW\ RI PLVVSHOOLQJ LV GLUHFWO\ UHODWHG WR GLVHDVH SURJUHVVLRQ 3HVWHOO HW DO
       ZLWK SKRQRORJLFDOO\ LUUHJXODU ZRUGV PRVW OLNHO\ PLVVSHOOHG 5DSFVDN $UWKXU HW DO  
    5HDGLQJ VLQJOH ZRUGV LH WKHLU FRUUHFW SURQXQFLDWLRQ  LV UHODWLYHO\ UHVLOLHQW WHQGLQJ WR EHFRPH
    LPSDLUHG RQO\ DIWHU UHDGLQJ FRPSUHKHQVLRQߟLQFOXGLQJ ZRUG FRPSUHKHQVLRQߟIDLOV 5* 0RUULV
    DQG:RUVOH\ 
    $QLPSRUWDQWDVSHFWRIYHUEDOLPSDLUPHQWWKDWDSSHDUVHDUO\LQWKHFRXUVHRIWKHGLVHDVHLVORVVRI
    VSRQWDQHLW\ VR WKDW FRQYHUVDWLRQ W\SLFDOO\ KDV WR EH LQLWLDWHG E\ VRPHRQH HOVH RU VRPHWKLQJ HOVH
    1DXJOH &XOOXP DQG %LJOHU    'HFUHDVHG DUWLFXODWRU\ DJLOLW\ LV UDUH &URRW +RGJHV HW DO
    2VWEHUJHWDO ,QH[WUHPHFDVHVDYHUEDOO\FDSDEOHSDWLHQWPD\EHFRPHPXWH
    $ \HDUROG PDUULHG VDOHVPDQ IDWKHU RI WKUHH KDG EHHQ YDULRXVO\ GLDJQRVHG DV GHSUHVVHG RU D SDUDQRLG VFKL]RSKUHQLF
    GXULQJDVL[PRQWKSHULRGLQZKLFKKHZLWKGUHZVRFLDOO\DWWKLUGSV\FKLDWULFKRVSLWDOL]DWLRQKHZDVGLDJQRVHGDVFDWDWRQLFDVKH
    UHPDLQHGLPPRELOHPRVWRIWKHWLPHDQGPXWH6LQFHLWLVXQXVXDOIRUFDWDWRQLFVFKL]RSKUHQLDWRILUVWDSSHDULQPLGOLIHVRPHRQHLQ
    WKH3V\FKLDWU\'HSDUWPHQWVXVSHFWHGDSKDVLDDQGDQHXURSV\FKRORJLFDOFRQVXOWDWLRQZDVUHTXHVWHG:KHQ,>PGO@PHWKLPLQKLV
    URRPKHIL[DWHGRQWKHEULJKW\HOORZEXWWRQSLQQHGWRP\ZKLWHODEFRDWDQGVORZO\EHJDQVSHDNLQJIRUWKHILUVWWLPHLQZHHNV
    UHDGLQJ WKH UHG SULQWHG ZRUGV RYHU DQG RYHU ߧ7KDQN \RX IRU QRW VPRNLQJ 7KDQN \RX IRU QRW VPRNLQJߨ HWF 2QFH KH KDG
    VWDUWHGWDONLQJLWEHFDPHSRVVLEOHWRHQJDJHKLVDWWHQWLRQHQRXJKIRUKLPWRDQVZHUTXHVWLRQV+HZDVSURPSWO\UHIHUUHGIRUD
    QHXURORJLFDOZRUNXSZKLFKUHVXOWHGLQDGLDJQRVLVRISUREDEOH$'

    $ULWKPHWLFVNLOOVDUHRIWHQDIIHFWHGHDUO\LQWKHGLVHDVH *LUHOOLDQG'HOD]HU  3HUIRUPDQFH


    RISDWLHQWVZLWKPLOG$'RQRUDODULWKPHWLF LH:,6$$ULWKPHWLF FRUUHODWHGKLJKO\ZLWKVHQWHQFH
    UHSHWLWLRQ U  DQGGLJLWVSDQ IRUZDUGVU EDFNZDUGVU   5RVVHOOL$UGLOD$UYL]XHW
    DO 7KLVVXJJHVWVWKDWWKHSDWLHQWVKDGGLIILFXOW\KROGLQJWKHTXHVWLRQLQPLQGORQJHQRXJKWR
    SHUIRUPWKHPHQWDOFDOFXODWLRQ,QWKLVVWXG\$ULWKPHWLFVFRUHVDOVRFRUUHODWHGKLJKO\ZLWK:065
    9LVXDO 5HSURGXFWLRQ U    SHUKDSV EHFDXVH PDQLSXODWLQJ LWHP HOHPHQWV LQYROYHV YLVXRVSDWLDO
    PHPRU\ $V WKH GLVHDVH SURJUHVVHV VR GR PDWKHPDWLFDO DQG QXPEHU SURFHVVLQJ LPSDLUPHQWV
    'HORFKH+DQQHTXLQHWDO 

    9LVXRVSDWLDO IXQFWLRQV FRQVWUXFWLRQ DQG SUD[LV 9LVXRVSDWLDO FRPSHWHQFH RI $O]KHLPHU SDWLHQWV
    JHQHUDOO\ WHQGV WR EH LPSDLUHG DV GHPRQVWUDWHG E\ VHYHUDO TXLWH GLIIHUHQW PHDQV &RPSOH[
    YLVXRSHUFHSWXDO GLVFULPLQDWLRQV EHFRPH GLIILFXOW $OHJUHW HW DO  .DVNLH DQG 6WRUDQGW  
    7KH DELOLW\ WR URWDWH VSDWLDO LPDJHV PHQWDOO\ LV LPSDLUHG %URXZHUV &R[ HW DO  /LQHZHDYHU
    6DOPRQ HW DO   8QLODWHUDO YLVXRVSDWLDO LQDWWHQWLRQ LV FRPPRQ DPRQJ $O]KHLPHU SDWLHQWV
    VKRZLQJXSLQPRVWDVOHIWVLGHGLQDWWHQWLRQEXWVRPHGLVSOD\WKHOHVVFRPPRQULJKWVLGHGSUREOHP
    / )UHHGPDQ DQG 'H[WHU  0HQGH] HW DO    WKHVH HUURUV FRUUHODWH ZLWK ORZHU FHUHEUDO
    EORRGIORZLQWKHFRQWUDODWHUDOSDULHWDOOREH 0HJXURHWDO /LQHRULHQWDWLRQMXGJPHQWWHQGVWR
    EH LPSDLUHG ZLWK VHYHULW\ UDQJLQJ IURP DOPRVW WRWDO IDLOXUH WR RYHUODS ZLWK YHU\ ORZ SHUIRUPLQJ
    HOGHUO\VXEMHFWV 6ND3RLVVDQWDQG-RDQHWWH 
    7KHFRQVWUXFWLRQDOGLVDELOLWLHVRIWKHVHSDWLHQWVKDYHEHHQZHOOGRFXPHQWHG =HF 2QVLPSOH
    WDVNV VXFK DV FORFN GUDZLQJ WKHLU SHUIRUPDQFHV DUH JHQHUDOO\ GHIHFWLYH RIWHQ EHFDXVH RI
    PLVSODFHPHQW RU ODFN RI D PLQXWH KDQG /H\KH HW DO   DQG ZRUVHQ ZLWK GLVHDVH SURJUHVVLRQ
    &DKQ:HLQHUHWDO5RXOHDXHWDO $OWKRXJKSRSXODUDVDVFUHHQLQJWHVWIRU$'FORFN
    GUDZLQJGHILFLWVDUHQRWVSHFLILFIRU$'RFFXUULQJPRUHIUHTXHQWO\LQ3DUNLQVRQߤVGLVHDVH 6DNDDQG
    (OLERO  DQG /HZ\ ERG\ GHPHQWLD 3DOPTYLVW HW DO   2Q PRUH GLIILFXOW FRS\ WDVNV HJ
    &RPSOH[ )LJXUH 0LQL0HQWDO 6WDWH GHVLJQ  PRVW SHUIRUPDQFHV DUH GHIHFWLYH %LQHWWL &DSSD HW DO
     %URXZHUV &R[ 0DUWLQ HW DO   %ORFN FRQVWUXFWLRQ WRR LV VHQVLWLYH WR WKLV GLVHDVH
    %R]RNL HW DO  +RZLHVRQ 'DPH HW DO   /RVV RI YLVXRVSDWLDO LQIRUPDWLRQ DSSHDUV LQ D
    FRPPRQLQDELOLW\WRXVHDPDS ::%HDWW\DQG%HUQVWHLQ 
    ,Q KDQGOLQJ FRQVWUXFWLRQDO PDWHULDO $O]KHLPHU SDWLHQWV PD\ H[KLELW WKH FORVLQJLQ SKHQRPHQRQ
    ZKHQ WKH\ PDNH WKHLU FRS\ RI D GUDZLQJ RU FRQVWUXFWLRQ FORVH WR RU FRQQHFWHG ZLWK WKH PRGHO RU
    RYHUODSSLQJ LQWR LW ZKLFK KDV EHHQ DWWULEXWHG WR D VWUDWHJLF DGDSWDWLRQ WR VHYHUH YLVXRVSDWLDO
    G\VIXQFWLRQ 6HUUD HW DO   EXW DOVR WR D IRUP RI VWLPXOXV ERXQGHGQHVV LQ ZKLFK EHKDYLRU LV
    GUDZQWRZDUGVDVWLPXOXV 5'0F,QWRVKHWDO 7KHSUHVHQFHRIFORVLQJLQUHVSRQVHVPD\DLG
    LQWKHGLIIHUHQWLDOGLDJQRVLVEHWZHHQ$O]KHLPHU ߤVGHPHQWLDDQGGHPHQWLQJGLVRUGHUVGXHWRYDVFXODU
    GLVHDVHDVWKHODWWHUSDWLHQWVGRQRWJLYHWKLVUHVSRQVH *DLQRWWL3DUODWRHWDO 
    $SUD[LDVLQ$O]KHLPHUSDWLHQWVPD\VKRZXSDVLPSDLUPHQWLQSDQWRPLPLQJ &UXWFKHWDO
    5/6FKZDUW]HWDO DQGLQFRS\LQJJHVWXUDO ILQJHUPRYHPHQW SDWWHUQV /:LOOLVHWDO 
    0DQ\ $O]KHLPHU SDWLHQWV GLVSOD\ D FRQFHSWXDO DSUD[LD VXFK WKDW WKH\ PDNH HUURUV RI WRRODFWLRQ RU
    WRROREMHFW DVVRFLDWLRQV &KDLQD\ HW DO  'XPRQW HW DO   ,PSDLUPHQW LQ WKH DELOLW\ WR
    SHUIRUPHYHU\GD\DFWLYLWLHVZDVFRUUHODWHGZLWKWKLVGLVWXUEDQFHRIWKHFRQFHSWXDOV\VWHP 'HURXHVQH
    HW DO   3DUDSKDVLDV DQG DUWLFXODWRU\ HUURUV WKDW PD\ EH D IRUP RI RUDO DSUD[LD DSSHDU DV WKH
    GLVHDVHSURJUHVVHV &URRWHWDO 

    7KLQNLQJDQGUHDVRQLQJ$VPD\EHH[SHFWHG$O]KHLPHUSDWLHQWVGLVSOD\UHDVRQLQJLPSDLUPHQWV
    VRPH IURP WKH HDUOLHVW VWDJHV RI WKH GLVHDVH 5HDVRQLQJ DERXW ERWK YLVXDO DQG YHUEDO PDWHULDO LV
    DIIHFWHG HJ&URQLQ*RORPE5KRHWDO:LFNOXQGHWDO $EVWUDFWWKLQNLQJLVUHGXFHG
    DVVHHQLQ WKHLUGLPLQLVKHG FDSDFLW\ IRU LQWHUSUHWLQJ SURYHUEV RU PHWDSKRUV $PDQ]LR HW DO 
    &RQFHSWVORVHWKHLUGLVWLQFWLYHQHVVUHVXOWLQJLQYDJXHDQGRYHUJHQHUDOL]HGWKLQNLQJ $0DUWLQ 
    $V UHDVRQLQJ EHFRPHV PRUH GLIILFXOW ZLWK SURJUHVVLRQ RI WKH GLVHDVH SDWLHQWV PD\ EH MXGJHG
    LQFRPSHWHQWWRPDNHGHFLVLRQV 0DUVRQ&RG\HWDO 

    ([HFXWLYHIXQFWLRQV

    $VSHFWV RI H[HFXWLYH IXQFWLRQLQJ FULWLFDO IRU VRFLDO FRPSHWHQFH DQG HIIHFWLYH EHKDYLRU DUH
    FRPSURPLVHGHDUO\LQWKHFRXUVHRIWKLVGLVHDVH6RPHSDWLHQWVDSSUHFLDWHWKHH[WHQWRIWKHLUPHPRU\
    DQGRWKHUFRJQLWLYHSUREOHPVDQGDYHU\IHZDUHDEOHWRDSSUHFLDWHWKHLPSDFWRIWKHLULOOQHVVRQWKHLU
    IDPLO\DQGWKHLPSOLFDWLRQVIRUWKHIXWXUH+RZHYHUWKHPDMRULW\VKRZGLPLQLVKHGDZDUHQHVVRIWKHLU
    FRJQLWLYH GHILFLWV UHJDUGOHVV RI WKHLUQDWXUH7KH LQFLGHQFH RI DQRVRJQRVLDULVHV ZLWK WKH GHJUHH RI
    FRJQLWLYH LPSDLUPHQW .DV]QLDN DQG (GPRQGV  /HLFKW HW DO   ,QDSSURSULDWH EHKDYLRUV
    DSSHDU HDUO\ LQ WKH FRXUVH RI WKH GLVHDVH ZLWK WKH VHYHULW\ RI WKLV SUREOHP URXJKO\ SDUDOOHOLQJ WKH
    GHWHULRUDWLRQ RI PHPRU\ IXQFWLRQV 6 &RVHQWLQR DQG 6WHUQ  9DVWHUOLQJ HW DO  07
    :DJQHUHWDO 
    :KDW LV PRUH LQVLJKW PD\ DSSHDU LQ D PRPHQW RI FODULW\ DQG WKHQ GLVDSSHDU MXVW DV UDSLGO\
    ([HFXWLYHG\VIXQFWLRQLQPLOGVWDJH$'LQFOXGHVLPSDLUPHQWVLQSODQQLQJUHDVRQLQJIRUHVLJKWDQG
    LPSXOVHUHVLVWDQFHDVQHHGHGIRUFRPSOHWLQJPD]HVRUWRZHUWDVNV *UXQGPDQHWDO5DLQYLOOH
    $PLHYDHWDO ,PSDLUHGLPSXOVHUHVLVWDQFHXQGHUOLHVVORZQHVVRI$'SDWLHQWVRQWKHFRQIOLFW
    FRQGLWLRQRIWKH6WURRSWHFKQLTXH %RQGL6HURG\HWDO 6HWVKLIWLQJDQGVHTXHQFLQJSUREOHPV
    DUHFRPPRQ 06$OEHUWHWDO $VWKHGLVHDVHSURJUHVVHVSDWLHQWVKDYHLQFUHDVLQJGLIILFXOW\
    ZLWK PRUH FRPSOH[ WDVNV LQYROYLQJ SODQQLQJ DQG IOH[LELOLW\ RI WKLQNLQJ %UXJJHU 0RQVFK HW DO
    -/0DFNDQG3DWWHUVRQ 
    3HUVHYHUDWLRQV DQG LQWUXVLRQV LQ VSHHFK DQG DFWLRQV ZKLFK PD\ RFFXU ZLWK PRGHUDWH GHPHQWLD
    UHSUHVHQW RWKHU DVSHFWV RI WKHVH SDWLHQWVߤ LPSDLUHG DELOLW\ WR H[HFXWH EHKDYLRU HIIHFWLYHO\ 0RQVFK
    %RQGL 6DOPRQ HW DO  6DOPRQ *UDQKROP HW DO   3HUVHYHUDWLRQV VKRZ XS DV UHSHDWHG
    PRYHPHQWVRUUHVSRQVHVLQZKLFKWKHVXEMHFWKDVGLIILFXOW\JHWWLQJXQVWXFNIURPDQRQJRLQJDFWLRQ
    HJZULWLQJߧ&&&FDUOߨRUFRQWLQXLQJDJHVWXUHZKHQLWLVQRORQJHUDSSURSULDWH VHHSSߞ
      :KHQ WKH UHSHWLWLRQ RFFXUV DV D UHVSRQVH OHIW RYHU IURP D SUHFHGLQJ LWHP DFWLYLW\ RU
    DVVRFLDWLRQLWLVDQLQWUXVLRQ /RHZHQVWHLQ:LONLHHWDO 

    3HUVRQDOLW\DQGSV\FKRVRFLDOEHKDYLRU

    %HKDYLRUDOGLVWXUEDQFHVLQFOXGLQJSHUVRQDOLW\FKDQJHVDQGHPRWLRQDOGLVRUGHUVDIIHFWDOO$O]KHLPHU
    SDWLHQWVHYHQWXDOO\PDQ\RIWKHPIURPWKHHDUOLHVWVWDJHVRIWKHGLVHDVH $SRVWRORYDDQG&XPPLQJV
    0DFHDQG5DELQV7HUL %RUVRQ HW DO  'LIIHUHQWWUDLWV VKRZ GLIIHUHQWSDWWHUQV RI
    FKDQJHߟRUQRFKDQJHߟRYHUWLPH 0DUYLQHWDO &OLQJLQJWRFDUHJLYHUVDQGHDVLO\GLVWUDFWHG
    PRRGVDUHFKDUDFWHULVWLFEHKDYLRUVRIPDQ\SDWLHQWVLQWKHHDUO\VWDJHVRIWKHGLVHDVH
    'LVLQWHUHVW DQG SDVVLYLW\ DUH DOVR SURPLQHQW EHKDYLRUDO IHDWXUHV :LOG .D\H DQG 2NHQ  
    %µ]]ROD DQG KLV FRZRUNHUV   UHSRUWHG DSDWK\ WR EH E\ IDU WKH PRVW SUHYDOHQW ZKLFK DW LWV
    PLOGHVWLQYROYHVSDVVLYLW\ORVVRILQWHUHVWDQGFRQFHUQDQGUHGXFHGVSRQWDQHLW\EHFRPLQJDQHUJLD
    LQ ZKLFK SDWLHQWV DUH LPPRELOL]HG E\ WKHLU QHXURSDWKRORJ\ 7KLV DVSHFW RI $' KDV EHHQ DVVRFLDWHG
    ZLWK GLVUXSWLRQRI FLUFXLWV WRDQWHULRUVXEFRUWLFDO DQGSUHIURQWDO DUHDV $SRVWRORYD DQG &XPPLQJV
     $SDWK\FDQEHPLVWDNHQIRUGHSUHVVLRQLQWKHVHSDWLHQWV 0//HY\HWDO $Q[LHW\
    GHSUHVVLRQ SV\FKRWLF V\PSWRPV VOHHS GLVRUGHU DQG LQFRQWLQHQFH DUH DOVR IUHTXHQW EHKDYLRU
    SUREOHPVDVVRFLDWHGZLWK$' &DFDEHORVHWDO 0DQ\SDWLHQWVKDYHHSLVRGHVRIKDOOXFLQDWLRQV
    DQGYLVXDO LOOXVLRQV *: 6PDOO HW DO   3RRU VHOIFDUH LQFOXGLQJ GHWHULRUDWHG K\JLHQH KDELWV
    DQGLQDSSURSULDWHGUHVVLQJLVDFRPPRQSUREOHPWKDWLQFUHDVHVLQVHYHULW\ZLWKSURJUHVVLRQRIWKH
    GLVHDVH 5HLVEHUJ)HUULV%RUHQVWHLQHWDO7HUL/DUVRQDQG5HLIOHU 
    6XVSLFLRXVQHVV DQG SDUDQRLD DIIHFW WKH WKLQNLQJ RI PDQ\ $' SDWLHQWV 5DELQV 0DFH DQG /XFDV
     6ZHDUHU HW DO   1HJDWLYLVP DV VWXEERUQQHVV RU UHIXVDO WR FRRSHUDWH LV IUHTXHQWO\
    UHSRUWHG E\ FDUHJLYHUV HJ &0 )LVKHU   ,Q RQH ODUJH VWXG\ FDUHJLYHUV UDWHG DJLWDWLRQ
    G\VSKRULD LUULWDELOLW\ GHOXVLRQV DQG DSDWK\ DV WKH PRVW GLVWXUELQJ EHKDYLRUV .DXIHU HW DO  
    7KHVHSUREOHPVDUHQRWPXWXDOO\H[FOXVLYH7KH\PD\DSSHDUDQGGLVDSSHDUDWGLIIHUHQWVWDJHVRIWKH
    GLVHDVHDQGDUHQRWZHOOSUHGLFWHGE\FRJQLWLYHVWDWXV %µ]]RODHWDO0DUYLQHWDO5XELQ
    0RUULV 6WRUDQGW DQG %HUJ   3K\VLFDO DJJUHVVLRQ KDOOXFLQDWLRQV DQG GHSUHVVLYH V\PSWRPV
    PD\UHTXLUHLQVWLWXWLRQDOL]DWLRQ *LOOH\HWDO 
    :KHWKHU PRUH $O]KHLPHU SDWLHQWV VXIIHU IURP GHSUHVVLRQ WKDQ RUJDQLFDOO\ LQWDFW SHUVRQV RI
    FRPSDUDEOHDJHVUHPDLQVXQNQRZQ6RPHLQYHVWLJDWRUVUHSRUWHGWKDWWRRUPRUHRIWKHVH
    SDWLHQWV DUH DOVR GHSUHVVHG /D]DUXV HW DO  /L HW DO   2WKHU VWXGLHV KDYH QRW IRXQG DQ
    DEQRUPDODPRXQWRIGHSUHVVLRQDPRQJWKHP 5XELQDQG.LQVFKHUI ,QRQHVWXG\RI$'
    SDWLHQWV LQ ,VUDHO ZHUH DGPLWWHG WR WKH KRVSLWDO IROORZLQJ D VXLFLGH DWWHPSW %DUDN DQG $L]HQEHUJ
     %\DQGODUJHWKHLQFLGHQFHRIGHSUHVVLRQGHFUHDVHVDVVHYHULW\RIGHPHQWLDLQFUHDVHV +ROW]HU
    HWDO EXWH[FHSWLRQVKDYHEHHQUHSRUWHG 7HUL%RUVRQHWDO7HULDQG:DJQHU  
    'HSUHVVHG SDWLHQWV PD\ EH LGHQWLILHG EHWWHU E\ LQWHUYLHZLQJ WKHLU IDPLOLHV WKDQ E\ VHOIUHSRUW 7%
    0DFNHQ]LHHWDO 
    'HPHQWLDSDWLHQWVZLWKPDMRUGHSUHVVLRQPD\FRQVWLWXWHDVSHFLDOVXEVHWZLWKJUHDWHUGHJHQHUDWLRQ
    RIVXEFRUWLFDOVWUXFWXUHVWKDQSDWLHQWVZKRKDYHQRWEHHQVHYHUHO\GHSUHVVHG =XEHQNR  6XFK
    SDWLHQWVDUHDOVRPRUHOLNHO\WRKDYHFORVHUHODWLYHVZKRKDYHKDGPDMRUGHSUHVVLRQ 3HDUOVRQHWDO
     7KXVERWKRUJDQLFDQGSV\FKRORJLFDOFRQWULEXWLRQVPD\DFFRXQWIRUWKHGLIIHUHQFHVEHWZHHQ
    SDWLHQWV ZLWK UHVSHFW WR WKH SUHVHQFH WLPLQJ DQG H[WHQW RI GHSUHVVLRQ <HW SV\FKLDWULF SUREOHPV
    SDUWLFXODUO\ LQ WKH IRUP RI KDOOXFLQDWLRQV DQG GHOXVLRQV DUH QRW XQFRPPRQ WURXEOLQJ IURP DERXW
     WR DV PDQ\ DV  RI $O]KHLPHU SDWLHQWV *RUPOH\ DQG 5R]ZDQ  +ROUR\G  56
    :LOVRQ*LOOH\HWDOD 7KHZLGHGLIIHUHQFHVLQWKHVHSHUFHQWDJHVPD\UHIOHFWQRWRQO\GLIIHUHQW
    SDWLHQW SRSXODWLRQV DQG HYDOXDWLRQ WHFKQLTXHV EXW DOVR WKH LQFUHDVLQJ LQFLGHQFH RI HPRWLRQDO DQG
    EHKDYLRUDO SUREOHPV GXULQJ WKH HDUO\ HYROXWLRQ RI WKH GLVHDVH 5XELQ 0RUULV DQG %HUJ 
    6ZHDUHU HW DO   +RZHYHU UHODWLRQVKLSV EHWZHHQ FRJQLWLYH GHWHULRUDWLRQ DQG SV\FKLDWULF
    V\PSWRPV KDYH QRW EHHQ FRQVLVWHQWO\ GRFXPHQWHG :UDJJ DQG -HVWH   3DWLHQWV ZLWK IORULG
    SV\FKRWLFV\PSWRPVDSSHDUWRGHWHULRUDWHPRUHUDSLGO\WKDQWKRVHZLWKRXWVXFKV\PSWRPV /RSH] HW
    DO56:LOVRQ*LOOH\HWDOE 
    :KHWKHU $O]KHLPHU SDWLHQWV VKRXOG FRQWLQXH GULYLQJ LV D GLOHPPD 1R RQH ZDQWV WR UHVWULFW WKH
    PRELOLW\ RI VDIH GULYHUV 6RPH LQGLYLGXDOV ZLWK YHU\ PLOG GHPHQWLD FDQ GULYH VDIHO\ +RZHYHU
    JUHDWHUGHPHQWLD VHYHULW\ ROGHU DJH DQGORZHU HGXFDWLRQ DUH DVVRFLDWHG ZLWK SRRUHU SHUIRUPDQFHV
    RQVWDQGDUGL]HGURDGWHVWV 2WW+HLQGHOHWDO 3ROLFLHVWRUHJXODWHGULYHUVDUHPDGHDWWKHVWDWH
    OHYHO DQG OLFHQVLQJ DXWKRULWLHV GHSHQG RQ KHDOWK FDUH SURIHVVLRQDOV DV ZHOO DV LQGLYLGXDOV DQG WKHLU
    IDPLO\PHPEHUVWRLGHQWLI\LQGLYLGXDOVZKRPD\EHXQVDIHGULYHUV3DWLHQWVPD\EHUHIHUUHGWRWKHLU
    VWDWHߤV 'HSDUWPHQW RI 0RWRU 9HKLFOHV RU WR SULYDWH GULYLQJ DVVHVVPHQW SURJUDPV 2QURDG GULYLQJ
    DQGGULYLQJVLPXODWRUDVVHVVPHQWVDUHWKHPRVWGLUHFWZD\WRDVVHVVGULYLQJVDIHW\3HUIRUPDQFHRQ
    QHXURSV\FKRORJLFDOWHVWVSURYLGHLQGLUHFWHYLGHQFHEXWPDQ\VWXGLHVKDYHIRXQGRQO\ORZWRPRGHUDWH
    FRUUHODWLRQVZLWKQHXURSV\FKRORJLFDOVFRUHVDQGRQURDGGULYLQJ :LWKDDUHWDO 3HUIRUPDQFH
    RQYLVXRVSDWLDOWHVWVDQGWKH7UDLO0DNLQJ7HVWKDYHEHHQRIVRPHYDOXHLQGLVWLQJXLVKLQJVDIHIURP
    XQVDIH GULYHUV -' 'DZVRQ HW DO  *UDFH $PLFNHWDO 5HJHU HW DO   0RUHRYHU
    VRPHUHSRUWVLQGLFDWHGWKDWPRUHWKDQRIWKRVHZKRFRQWLQXHWRGULYHJHWORVW .DV]QLDN.H\O
    DQG$OEHUW 

    7UHDWPHQW

    &XUUHQW SKDUPDFRORJLFDO WUHDWPHQWRI FRJQLWLYH SUREOHPV DVVRFLDWHG ZLWK PLOG$'LQYROYHV XVHRI


    DQWLFKROLQHVWHUDVH LQKLELWRUV WKDW HQKDQFH FKROLQHUJLF IXQFWLRQ &XPPLQJV 9LQWHUV HW DO  
    6LQFH FKROLQHUJLF IXQFWLRQ GHFOLQHV ZLWK $' WKLV WUHDWPHQW DWWHPSWV WR UHVWRUH OHYHOV DV PXFK DV
    SRVVLEOH 6RPH SDWLHQWV EHQHILW E\ EHFRPLQJ DEOH WR FDUU\ RXW IXQFWLRQV WKDW KDG EHHQ ORVW EHIRUH
    WUHDWPHQWDQGVRPHVKRZDVORZLQJLQUDWHRIFRJQLWLYHGHFOLQHRYHUWLPHFRPSDUHGZLWKQRQWUHDWHG
    SDWLHQWV -&0RUULV&\UXVHWDO6/5RJHUVHWDO +RZHYHUQRWDOOSDWLHQWVLPSURYH
    $ GUXJ WKDW UHJXODWHV OHYHOV RI JOXWDPDWH LV XVHG WR WUHDW PRGHUDWH WR VHYHUH V\PSWRPV 7KHVH
    WUHDWPHQWVDUHV\PSWRPDWLFDQGGRQRWFKDQJHWKHFRXUVHRIWKHGLVHDVH
    'LVHDVHPRGLI\LQJGUXJVDUHXQGHULQYHVWLJDWLRQ $SRVWRORYDDQG&XPPLQJV  -DQXV
    HWDO VRPHDUHLQKXPDQWULDOV7KHXVHRILPPXQL]DWLRQDJDLQVWEHWDDP\ORLGLVXQGHUVWXG\
    DOWKRXJKHDUO\UHVXOWVKDYHEHHQGLVDSSRLQWLQJ YRQ%HUQKDUGL ,WPD\DOVREHSRVVLEOHWKDWWDX
    LPPXQRWKHUDS\ ZLOO NHHS WDX LQ LWV QRUPDO IRUP WKHUHE\ DYRLGLQJ SURGXFWLRQ RI QHXURILEULOODU\
    WDQJOHV 6LJXUGVVRQ   $ YDULHW\ RI QRYHO WKHUDSHXWLF VWUDWHJLHV DUH EHLQJ VWXGLHG VHH
    1HXJURVFKODQG6DQR $QWLR[LGDQWVVXFKDVUHGZLQHPD\KDYHDSURWHFWLYHHIIHFW 2UJRJR]R
    HWDO 
    3DWLHQWVZKRDUHGHSUHVVHGPD\EHQHILWIURPDQWLGHSUHVVDQWV3DWLHQWVZLWKSV\FKRWLFV\PSWRPVߟ
    IUHTXHQWO\ KDOOXFLQDWLRQV RU GHOXVLRQVߟPD\ EH KHOSHG E\ VRPH W\SLFDO RU QRYHO DQWLSV\FKRWLF
    DJHQWV FDXWLRQ LQ XVH RI DW\SLFDO DQWLSV\FKRWLFV LV XUJHG HVSHFLDOO\ IRU SDWLHQWV ZLWK VWURNH ULVN
    IDFWRUV $SRVWRORYDDQG&XPPLQJV 3DWLHQWVZLWKPLOGGLVHDVHDQGLQVLJKWPD\EHQHILW
    IURP VXSSRUWLYH FRXQVHOLQJ RU D VXSSRUW JURXS 6RFLDO HQJDJHPHQW DQG SK\VLFDO H[HUFLVH FDQ EH
    EHQHILFLDO 0LGGOHWRQ DQG <DIIH  4LX .LYLSHOWR DQG YRQ 6WUDXVV   /HDUQLQJ
    FRPSHQVDWRU\WHFKQLTXHVRUZD\VWRFKDQJHWKHHQYLURQPHQWWRDVVLVWWKHSDWLHQWLVKHOSIXOIRUVRPH
    SDWLHQWVDQGWKHLUIDPLOLHV+RZHYHUDWWHPSWVWRLQFUHDVHPHPRU\VNLOOVDUHLQDGYLVDEOHEHFDXVHWKH\
    FDQ FUHDWH IDOVH H[SHFWDWLRQV DQG OHDG WR XQQHFHVVDU\ IUXVWUDWLRQ :KHQ SDWLHQWV ODFN LQVLJKW
    LQWHUYHQWLRQXVXDOO\LQYROYHVHGXFDWLRQDQGFRXQVHOLQJIRUWKHIDPLO\QRWWKHSDWLHQW

    )URQWRWHPSRUDO/REDU'HJHQHUDWLRQ )7/'
    3DWLHQWVZLWKWKHGLDJQRVLVRIIURQWRWHPSRUDOOREDUGHJHQHUDWLRQDOVRFDOOHGIURQWRWHPSRUDOGHPHQWLD
    )7' VXIIHUIURPGHJHQHUDWLYHGLVRUGHUVRILQVLGLRXVRQVHWDQGVORZSURJUHVVLRQ $SRVWRORYDDQG
    &XPPLQJV 7KHSDWKRORJ\W\SLFDOO\LQYROYHVWKHIURQWDODQGWHPSRUDOOREHVZLWKUHODWLYH
    VSDULQJ RI WKH SRVWHULRU EUDLQ $JH RI RQVHW LV UHODWLYHO\ \RXQJߟEHWZHHQ  DQG  1HDU\ DQG
    6QRZGHQ   )7/' DFFRXQWV IRU DSSUR[LPDWHO\  RI SURJUHVVLYH GHPHQWLD FDVHV 0
    *URVVPDQ  7KUHH PDLQ VXEW\SHV DUHGHVFULEHGߟIURQWRWHPSRUDO GHPHQWLD EHKDYLRUDO YDULDQW
    VHPDQWLFGHPHQWLDDQGSULPDU\ SURJUHVVLYH DSKDVLD $SRVWRORYD DQG&XPPLQJ   (DUO\
    VWXGLHV JHQHUDOO\ ODEHOHG IURQWRWHPSRUDO GHPHQWLDV DV 3LFNߤV GLVHDVH DOWKRXJK 3LFNߤV LV QRZ
    GLVWLQJXLVKDEOHDVDVXEW\SHRIIURQWRWHPSRUDOGHPHQWLD .DXIHUDQG&XPPLQJV 

    5LVNIDFWRUV

    $SSUR[LPDWHO\WRRIFDVHVDUHWUDQVPLWWHGE\DXWRVRPDOGRPLQDQWLQKHULWDQFH +LJJLQVDQG
    0HQGH]5RVVR'RQNHUHWDO )RXUJHQHVKDYHEHHQLGHQWLILHGPLFURWXEXOH DVVRFLDWHG
    SURWHLQ WDX JHQH 0$37  SURJUDQXOLQ JHQH 3*51  FKDUJHG PXOWLYHVLFXODU ERG\ SURWHLQ % JHQH
    &+03% DQGYDORVLQFRQWDLQLQJSURWHLQJHQH 9&3  YDQ GHU =HHHW DO   7KHILQGLQJ RID
    JUHDWHUWKDQXVXDOLQFLGHQFHRIEUDLQWUDXPDSULRUWRRQVHWRIIURQWRWHPSRUDOGHJHQHUDWLRQVXJJHVWV
    WKDW7%,PD\EHDFRQWULEXWLQJIDFWRU 0RUWLPHUDQG3LUR]]ROR5RVVR/DQGZHHUHWDO 
    2OG DJH EHLQJ IHPDOH DQG ORZ HGXFDWLRQDO DWWDLQPHQW GLG QRW LQFUHDVH ULVN LQ D VWXG\ RI  )7'
    SDWLHQWV %RUURQLHWDO 

    3DWKRSK\VLRORJ\DQGQHXURDQDWRP\

    7KH PRVW FRPPRQ FHOOXODU ILQGLQJV DUH WDX LQFOXVLRQV $SRVWRORYD DQG &XPPLQJV   ,W LV
    HVWLPDWHGWKDWDERXWRISDWLHQWVZLWKIURQWRWHPSRUDOGHPHQWLDKDYHFODVVLF3LFNߤVGLVHDVHZLWKWKH
    KDOOPDUN LQWUDQHXURQDO LQFOXVLRQV FDOOHG 3LFN ERGLHV +LJJLQV DQG 0HQGH]   7DXQHJDWLYH
    IRUPVRI)7/'DOVRRFFXUIUHTXHQWO\SURGXFLQJWKHEHKDYLRUDOYDULDQW .HUWHV]0F0RQDJOHHWDO
     8ELTXLWLQSRVLWLYHWDXQHJDWLYHIRUPVPD\KDYHPRWRUQHXURQGLVHDVH2WKHUFHOOXODUILQGLQJV
    DUH SURPLQHQW PLFURYDVFXODU FKDQJH DQGRU VHYHUH DVWURF\WLF JOLRVLV ZLWK RU ZLWKRXW 3LFN ERGLHV
    1HDU\6QRZGHQ *XVWDIVRQ HW DO    ,QSXUH IURQWRWHPSRUDOFDVHV WKH WDQJOHVDQG SODTXHVRI
    $' DUH DEVHQW 7KH SDULHWDO DQG RFFLSLWDO OREHV UHPDLQ XQDIIHFWHG LQ PRVW FDVHV ZLWK DWURSK\
    FRQFHQWUDWHGLQWKHWHPSRUDODQGIURQWDOQHRFRUWH[H[FHSWLQJWKHSRVWHULRURQHKDOIWRWZRWKLUGVRI
    WKH VXSHULRU WHPSRUDO J\UXV ZKLFK LV DOVR W\SLFDOO\ VSDUHG &RUWLFDO DWURSK\ FDQ RFFXU
    DV\PPHWULFDOO\ ,Q VRPH FDVHV D ߧNQLIH EODGHߨERXQGDU\ VHSDUDWLQJ IURQWDO DQG DQWHULRU WHPSRUDO
    OREHV IURP WKH QRQGLVHDVHG SRVWHULRU EUDLQ FDQ EH VHHQ 1HDU\ DQG 6QRZGHQ   $V IRU
    VXEFRUWLFDOVWUXFWXUHVWKHOLPELFV\VWHPDQGWKHFRUSXVVWULDWXPDUHDIIHFWHGEXWPXFKOHVVWKDQWKH
    QHRFRUWH[ 7KH H[WHQW RI KLSSRFDPSXV DQG DP\JGDOD LQYROYHPHQW YDULHV IURP FDVH WR FDVH -6
    6QRZGHQ 1HDU\ HW DO   *OXFRVH K\SRPHWDEROLVP LQ IURQWDO DQG DQWHULRU WHPSRUDO FRUWLFHV
    RFFXUVUHODWLYHO\HDUO\LQWKHGLVHDVHSURFHVV %R]RNLDQG)DURRT 

    &OLQLFDOVXEW\SHV

    $V ZLWK DOO GHJHQHUDWLYH GLVHDVHV WKH FOLQLFDO H[SUHVVLRQ UHIOHFWV WKH GLVWULEXWLRQ RI GLVHDVH LQ WKH
    EUDLQ &KXL 6RPHSDWLHQWVKDYHJUHDWHUIURQWDOWKDQWHPSRUDOLQYROYHPHQWRUPRUHOHIWWKDQ
    ULJKWKHPLVSKHUHLQYROYHPHQW

    )URQWRWHPSRUDOGHPHQWLD )7' EHKDYLRUDOYDULDQW

    7KHPRVWFKDUDFWHULVWLFIHDWXUHRIIURQWRWHPSRUDOGHPHQWLDLVWKHSURIRXQGFKDQJHLQVRFLDOEHKDYLRU
    DQG SHUVRQDOLW\ WKDW RFFXUV VRPHWLPHV \HDUV LQ DGYDQFH RI GLDJQRVLV $SRVWRORYD DQG &XPPLQJV
     7KHVHSDWLHQWVORVHWKHLUVHQVHRISURSHUVRFLDOFRQGXFW7KH\PD\IRUH[DPSOHOHDYH
    WKH URRP ZLWK QR FRPPHQW GXULQJ D YLVLW E\ D IULHQG 7KH\ ORVH WKH FDSDFLW\ IRU HPSDWK\ WRZDUGV
    RWKHUV /DFN RI LQVLJKW LV LQHYLWDEOH 0F*O\QQ DQG .DV]QLDN  6XQJDLOD DQG &URFNHWW   
    2WKHUFRPPRQIHDWXUHVRIWKHV\QGURPHDUHDOWHUDWLRQVLQVSHHFKDQGODQJXDJHH[WUDS\UDPLGDOVLJQV
    DNLQHVLDULJLGLW\DQGWUHPRU LQFRQWLQHQFHDQGSULPLWLYHUHIOH[HV 1HDU\6QRZGHQ*XVWDIVRQHW
    DO 
    $ \HDUROG DSDUWPHQW PDQDJHU EHJDQ OHDYLQJ KLV UHVLGHQFH GXULQJ WKH GD\ DQG QRW UHWXUQLQJ XQWLO HYHQLQJ +LV ZLIH ZDV
    XQDZDUH RI KLV DFWLYLWLHV XQWLO KH ZDV FDXJKW WU\LQJ WR ZDON RXW RI D GHSDUWPHQW VWRUH ZHDULQJ RQH RI WKHLU FRDWV +H ZDV
    DUUHVWHGZKLFKOHDGWRPHGLFDODQGSV\FKRORJLFDOHYDOXDWLRQV+LVZLIHUHSRUWHGWKDWKHKDGEHFRPHOHVVJRDOGLUHFWHGLQKLV
    ZRUNDQGDWFKXUFK+HKDGVWDUWHGRUGHULQJPDQ\WKLQJVYLDPDLORUGHUZLWKRXWRSHQLQJWKHPDQGKDGEHJXQWREHVXVSLFLRXVRI
    RWKHUV$&7VFDQVKRZHGSURPLQHQWIURQWDOEUDLQDWURSK\JUHDWHULQWKHULJKWWKDQOHIWKHPLVSKHUH$QDXWRSV\\HDUVODWHU
    FRQILUPHGWKHGLDJQRVLVRI3LFNߤVGLVHDVH

    'LDJQRVLV)7'DQG$'DUHHDVLO\FRQIXVHGDVPDQ\RIWKHYHUEDOGHIHFWVDUHVLPLODUDQGDSDWK\
    SRRUMXGJPHQWDQGLUULWDELOLW\RUDIIHFWLYHIODWWHQLQJDSSHDULQERWKFRQGLWLRQV VHHSSߞ ,Q
    WKHLUODWHUVWDJHVWKHFRQGLWLRQVPD\EHLQGLVWLQJXLVKDEOH0RUHRYHU$O]KHLPHUQHXURSDWKRORJ\FDQ
    HQFURDFK RQ WKH IURQWDO OREHV RU IURQWDO SURMHFWLRQ URXWHV SURGXFLQJ D PL[HG GLDJQRVWLF SLFWXUH
    6XQJDLOD DQG &URFNHWW   8VLQJ FXUUHQW FOLQLFDO FULWHULD IRU GLIIHUHQWLDWLQJ IURQWRWHPSRUDO
    GHPHQWLDIURP$' 1HDU\ 6QRZGHQ *XVWDIVRQ HW DO    RI SDWLHQWV ZLWK IURQWRWHPSRUDO
    GHPHQWLD PHW WKH GLDJQRVWLF FULWHULD IRU ERWK GLVHDVHV RQ FRQILUPHG DXWRSV\ 9DUPD HW DO  
    +RZHYHU LQ WKH HDUO\ VWDJHV VLOOLQHVV DQG VRFLDOO\ LQDSSURSULDWH DQG HYHQ ERRULVK EHKDYLRUV ZLWK
    UHODWLYHO\ LQWDFW FRJQLWLRQߟLQFOXGLQJ PHPRU\ߟFDQ KHOS GLVWLQJXLVK )7' IURP RWKHU GHPHQWLQJ
    GLVRUGHUV )7' SDWLHQWV DUH PRUH OLNHO\ WKDQ $' SDWLHQWV WR H[KLELW SHUVHYHUDWLRQ FRQIDEXODWLRQ
    FRQFUHWH WKLQNLQJ DQG SRRU RUJDQL]DWLRQ -& 7KRPSVRQ HW DO   6WHUHRW\SLF EHKDYLRU DQG
    KRDUGLQJ PD\ RFFXU ,Q D FRPSDULVRQ VWXG\ WKH )7' SDWLHQWVߤ QHDUQRUPDO HDUO\ VWDJH HSLVRGLF
    PHPRU\ OLVW OHDUQLQJ  FOHDUO\ GLVWLQJXLVKHG WKHP IURP WKH PHPRU\ LPSDLUHG $' SDWLHQWV EXW WKH
    )7' JURXS VKRZHG D PXFK PRUH UDSLG GHFOLQH UHDFKLQJ $' OHYHOV DIWHU  PRQWKV ;LH HW DO
      $ QXPEHU RI EHKDYLRUDO UDWLQJ VFDOHV KDYH EHHQ SURSRVHG WR FDSWXUH WKH IHDWXUHV WKDW
    GLIIHUHQWLDWHLWIURP$' .HUWHV]1DGNDUQLHWDO/HEHUWHWDO-56ZDUW]HWDO 

    &RXUVH 7KHVH GLVHDVHV IROORZ D VWHDGLO\ GRZQKLOO FRXUVH EXW LQGLYLGXDO UDWHV RI GHFOLQH PD\
    GLIIHU JUHDWO\ 1HDU\ DQG 6QRZGHQ   ,Q WKH LQLWLDO VWDJHV VLOOLQHVV VRFLDOO\ GLVLQKLELWHG
    EHKDYLRU DQG SRRU MXGJPHQW SUHGRPLQDWH $SRVWRORYD DQG &XPPLQJV    DOWKRXJK
    ODQJXDJH LPSDLUPHQWV PD\ KHUDOG GLVHDVH &KXL  6 +DUW DQG 6HPSOH   3URJUHVVLYH
    DSDWK\ EOXQWHG DIIHFW DQG FRJQLWLYH G\VIXQFWLRQ FKDUDFWHUL]H WKH PLGGOH VWDJHV ,Q WKH ODWH VWDJHV
    SDWLHQWV EHFRPH PXWH DQG PDQ\ GLVSOD\ VRPH PRWRU ULJLGLW\ 7KH GHWHULRUDWLYH SURFHVV HQGV DV D
    YHJHWDWLYHVWDWH'XUDWLRQRIWKHVHGLVHDVHVPD\EHDQ\ZKHUHIURPWZRWR\HDUV &KXL1HDU\
    DQG6QRZGHQ 

    &RJQLWLRQ $OWHUDWLRQV LQ FRJQLWLYH DELOLWLHV W\SLFDOO\ IROORZ SHUVRQDOLW\ DQG EHKDYLRUDO FKDQJHV
    DOWKRXJKWKLVLVQRWDOZD\VWKHFDVH 0%0RVV$OEHUWDQG.HPSHU )RUPDODVVHVVPHQWLVQRW
    DOZD\VSRVVLEOH ZLWK WKHVHSDWLHQWVHYHQ HDUO\LQ WKHLU FRXUVHDV GLVLQKLELWHG RU DSDWKHWLF EHKDYLRU
    PD\ PDNH LW GLIILFXOW WR HQJDJH WKHLU FRRSHUDWLRQ &KXL   )7' SDWLHQWV SHUIRUP HYHQ PRUH
    SRRUO\RQYHUEDOIOXHQF\WHVWVWKDQ$O]KHLPHUSDWLHQWV 0DWKXUDQDWKHWDO5DVFRYVN\6DOPRQ
    HW DO   (SLVRGLF PHPRU\ DQG YLVXRVSDWLDO DELOLWLHV DUH UHODWLYHO\ VSDUHG LQ PDQ\ FDVHV
    5DVFRYVN\ 6DOPRQ HW DO   )LYH IHDWXUHVߟVRFLDO FRQGXFW GLVRUGHUV K\SHURUDOLW\ DNLQHVLD
    DEVHQFHRIDPQHVLDDQGDEVHQFHRIDSHUFHSWXDOGLVRUGHUߟFRUUHFWO\FODVVLILHGRI)7'DQG
    RI $' DXWRSV\ SURYHQ FDVHV +- 5RVHQ HW DO   6SHHFK PD\ EH FKDUDFWHUL]HG E\ SUHVVXUH RI
    VSHHFK VWHUHRW\S\ RU HFKRODOLD DQG SHUVHYHUDWLRQ RU DOWHUQDWLYHO\ DQG LQ ODWHU VWDJHV SRYHUW\ RI
    VSHHFKRXWSXWWKDWSURJUHVVHVWRPXWLVP 1HDU\6QRZGHQ*XVWDIVRQHWDO 7KHVHSDWLHQWVDUH
    XVXDOO\RULHQWHG 0DWKLDVDQG%XUNH 

    ([HFXWLYH IXQFWLRQV %HKDYLRU LQGLFDWLQJ DQ H[HFXWLYH GLVRUGHU LV DPRQJ WKH GLVWLQFWLYH
    FKDUDFWHULVWLFV RI WKLV GLVHDVH \HW PD\ EH GLIILFXOW WR PHDVXUH RQ VWDQGDUG QHXURSV\FKRORJLFDO WHVWV
    EHFDXVHLPSDLUPHQWVDUHVHHQPRVWO\LQSHUVRQDOEHKDYLRU :LWWHQEHUJHWDO  7KH:LVFRQVLQ
    &DUG 6RUWLQJ 7HVW WKH 6WURRS WHFKQLTXH DQG WHVWV WKDW DVVHVV GHFLVLRQ PDNLQJ DQG ULVN WDNLQJ DUH
    XVHIXO +RGJHV <HWWKHVHSDWLHQWVFDQXVXDOO\PDLQWDLQURXWLQHVGXULQJWKHHDUO\VWDJHVRIWKH
    GLVHDVH 3DWLHQWV ZLWK ODWHUDOL]HG GLVHDVH H[KLELW WKH XVXDO OHIWULJKW GLIIHUHQFHV ZLWK JUHDWHU
    LPSDLUPHQW RQ YHUEDO RU QRQYHUEDO H[HFXWLYH WDVNV UHVSHFWLYHO\ .% %RRQH 0LOOHU /HH HW DO
     

    3HUVRQDOLW\DQGSV\FKRVRFLDOEHKDYLRU,QLWLDOV\PSWRPVW\SLFDOO\DSSHDULQߧIURQWDOORELVKߨNLQGV
    RISHUVRQDOLW\FKDQJHVVXFKDVVLOOLQHVVVRFLDOGLVLQKLELWLRQSRRUMXGJPHQWDQGLPSXOVLYLW\DORQJ
    ZLWKDSDWK\RULPSDLUHGFDSDFLW\IRUVXVWDLQHGPRWLYDWLRQ 0/ /HY\HWDO  6WHUHRW\SLFDO RU
    ULWXDOL]HGEHKDYLRUVWKHXVHRIDߧFDWFKSKUDVHߨDQGDFKDQJHLQIRRGSUHIHUHQFHWRZDUGVZHHWWKLQJV
    DUHFRPPRQ +RGJHV +\SHURUDOLW\PD\RFFXUODWHULQWKHFRXUVHZLWKPRXWKLQJRILQHGLEOH
    REMHFWV 1HDU\ DQG 6QRZGHQ   $IIHFWLYHO\ WKHVH SDWLHQWV WHQG WR EH EODQGO\ LQDSSURSULDWH
    .HUWHV]1DGNDUQLHWDO 

    6HPDQWLFGHPHQWLD

    6RPHSDWLHQWVKDYHPRUHWHPSRUDOWKDQIURQWDOOREHLQYROYHPHQW&RQWUDVWLQJZLWKRWKHUGHPHQWLDV
    HSLVRGLF PHPRU\ DQG DXWRELRJUDSKLFDO PHPRU\ DUH UHODWLYHO\ SUHVHUYHG FRPSDUHG WR ZRUG
    NQRZOHGJH +RGJHVDQG3DWWHUVRQ :RUGILQGLQJGLIILFXOWLHVRFFXU /DPERQ5DOSK*UDKDP
    HWDO EXWPRVWVWULNLQJLVLPSDLUHGNQRZOHGJHRIZRUGPHDQLQJLHVHPDQWLFGHPHQWLD -6
    6QRZGHQ1HDU\HWDO 6HPDQWLFGHPHQWLDUHIHUVWRDUDUHFRQGLWLRQLQZKLFKWKHPHDQLQJRI
    ZRUGV REMHFWV DQG FRQFHSWV EHFRPHV LPSDLUHG :DUULQJWRQ   8QOLNH DQRPLF SDWLHQWV ZKR
    NQRZ WKH PHDQLQJ RI D ZRUG EXW FDQQRW UHWULHYH LW ZKHQ JLYHQ D ZRUG WR GHILQH WKHVH SDWLHQWV
    GHPRQVWUDWH WKDW WKH\ GR QRW NQRZ WKH PHDQLQJ DOWKRXJK WKH ZRUG PD\ VHHP IDPLOLDU 7KH
    GHWHULRUDWLRQ LQ UHFHSWLYHYRFDEXODU\ LQWHUIHUHVZLWKFRPSUHKHQVLRQ RIFRQYHUVDWLRQ $VWUDGLWLRQDO
    ODQJXDJHDUHDVDUHVSDUHGSDWLHQWVVSHDNZLWKLQWDFWJUDPPDUDQGV\QWD[ 6QRZGHQHWDO 7KH
    EUHDNGRZQ LQ VHPDQWLF NQRZOHGJH FDQ EH GHPRQVWUDWHG ZLWK QRQYHUEDO WHVWV LQ ZKLFK WKH SDWLHQW LV
    XQDEOH WR PDWFK SLFWXUHV RI REMHFWV XVXDOO\ IRXQG WRJHWKHU RU KDYH D VLPLODU XVH +RGJHV DQG
    3DWWHUVRQ 
    1HXURLPDJLQJDQGDXWRSV\VKRZSURPLQHQWELODWHUDOLQYROYHPHQWRIWKHDQWHULRUWHPSRUDOOREHV
    7KHDP\JGDODLVDIIHFWHGDQGKLSSRFDPSDODWURSK\PD\EHSUHVHQW *DOWRQHWDO 0RVWSDWLHQWV
    KDYH XELTXLWLQSRVLWLYH WDXQHJDWLYH LQFOXVLRQ QHXURSDWKRORJ\ DOWKRXJK WKLV V\QGURPH KDV EHHQ
    IRXQG ZLWK WDXSRVLWLYH 3LFNߤV GLVHDVH DQG $' SDWKRORJ\ +RGJHV DQG 3DWWHUVRQ   /LPLWHG
    WUHDWPHQW EHQHILWV KDYH EHHQ VKRZQ IRU UHDFTXLULQJ ORVW YRFDEXODU\ SDUWLFXODUO\ ZKHQ
    DXWRELRJUDSKLFDOFRQWH[WXDOLQIRUPDWLRQLVXVHGWRVXSSRUWWKHQHZOHDUQLQJ 0/+HQU\%HHVRQDQG
    5DSFVDN-66QRZGHQDQG1HDU\ 
    $\HDUROGJUDSKLFDUWLVWZDVUHIHUUHGIRUDQHYDOXDWLRQDIWHUWHOOLQJKHUSK\VLFLDQWKDWVKHKDGWURXEOHUHFDOOLQJQDPHVRI
    IULHQGV RU FOLHQWV DW ZRUN 6KH VRPHWLPHV KDG GLIILFXOW\ FRPSUHKHQGLQJ FRQYHUVDWLRQV ZLWK FOLHQWV :KHQ WKH H[DPLQHU DVNHG
    ߧ:KDW LV D WKHUPRPHWHU"ߨ VKH UHVSRQGHG ߧ, XVHG WR NQRZ WKLQJV OLNH WKDWߨ 7KLV ZHOOHGXFDWHG ZRPDQߤV RYHUDOO IXQG RI
    LQIRUPDWLRQDELOLW\WRGHILQHZRUGVDQGFRQIURQWDWLRQDOQDPLQJZHUHVWULNLQJO\LPSDLUHG%\FRQWUDVWKHUQRQYHUEDOWHVWVFRUHV
    ZHUHDYHUDJHKHU/RJLFDO0HPRU\,,VFRUHZDVORZDYHUDJHDQGKHUUHFDOORIWKH&RPSOH[)LJXUHZDVDWWKHLOH+HU
    05,VKRZHGGUDPDWLFORVVRIYROXPHLQWKHOHIWWHPSRUDOOREHLQFOXGLQJDQWHULRUDQGODWHUDOUHJLRQV

    3ULPDU\SURJUHVVLYHDSKDVLD

    7KLVJUDGXDOO\SURJUHVVLYHDSKDVLDV\QGURPHRFFXUVZLWKRXWPHPRU\LPSDLUPHQWRUGHPHQWLDHDUO\
    LQWKHGLVHDVHFRXUVH,QIDFWPDQ\SDWLHQWVUHPDLQGHPHQWLDIUHHIRUDWOHDVWWZRDQGDVORQJDVWHQ
    \HDUV 0HVXODP D  DOWKRXJK DOPRVW DOO SURJUHVV WR D ILQDO GHPHQWLD V\QGURPH 7KH GLVRUGHU
    RIWHQ VWDUWV ZLWK DQRPLD DQG SURFHHGV WR LPSDLUHG JUDPPDWLFDO VWUXFWXUH DQG ODQJXDJH
    FRPSUHKHQVLRQ 0HVXODP   ,QLWLDOO\ SDWLHQWV DUH RIWHQ IOXHQW DQG SURJUHVVLYHO\ EHFRPH
    QRQIOXHQW 0%ODLUHWDO 1RQIOXHQWSDWLHQWVKDYHDVORZHGVSHHFKUDWHDUWLFXODWRU\JURSLQJ
    DQG VHTXHQFLQJ HUURUV SDUWLFXODUO\ HYLGHQW ZKHQ DVNHG IRU PXOWLSOH UHSHWLWLRQV RI PXOWLV\OODELF
    ZRUGV 2JDUHW DO   :RPHQ DUH PRUH YXOQHUDEOH WKDQ PHQ -. -RKQVRQ 'LHKO HW DO 
    5RJDOVNLHW DO  7KH OHIW WHPSRUDO OREH LV WKH SULPDU\ VLWH RI GHJHQHUDWLRQ $OWKRXJK XVXDOO\
    DVVRFLDWHGZLWK)7/' SDWKRORJ\ $'SDWKRORJ\ DFFRXQWVIRU DERXW  RIFDVHV 0HVXODP  
    5DUHO\ WKLV V\QGURPH LV DVVRFLDWHG ZLWK FRUWLFREDVDO GHJHQHUDWLRQ .HUWHV] 0DUWLQH]/DJH HW DO
     
    $\HDUROGPDQGHYHORSHGSURJUHVVLYHVSHHFKGHWHULRUDWLRQ+HFRXOGRIWHQEHJLQDZRUGEXWFRXOGQRWILQLVKPXOWLV\OODELF
    ZRUGV+LVZULWLQJZDVEHWWHUWKDQKLVVSRNHQDWWHPSWVVRKHXVHGSHQFLODQGSDSHUWRFRPPXQLFDWH7KHUHKDELOLWDWLRQSURJUDP
    SURYLGHGKLPZLWKDQHOHFWURQLFGHYLFHLQZKLFKKHFRXOGW\SHWKHEHJLQQLQJRIZRUGVDQGWKHVRIWZDUHZRXOGVXJJHVWWKHZRUG
    FRPSOHWLRQV7KHFRPSXWHUOHDUQHGKLVIUHTXHQWZRUGVDQGPRGLILHGLWVZRUGVXJJHVWLRQVDFFRUGLQJO\:LWKWKLVGHYLFHKHZDV
    DEOHWRFRPPXQLFDWHZLWKIDPLO\DQGIULHQGVXQWLOWKHGHPHQWLDSURJUHVVHG

    'HPHQWLDZLWK/HZ\%RGLHV '/%
    /HZ\ ERG\ GHPHQWLD ZDV XQUHFRJQL]HG EHIRUH WKH V ,W PD\ DFFRXQW IRU DV PDQ\ DV  RI
    SDWLHQWV ZLWK GHPHQWLD 0F.HLWK 3HUU\ HW DO   0DMRU IHDWXUHV LQFOXGH H[WUDS\UDPLGDO VLJQV
    YLVXDO KDOOXFLQDWLRQV DQG VHYHUH IOXFWXDWLRQV LQ FRJQLWLYH IXQFWLRQLQJ 0F.HLWK 'LFNVRQ HW DO
      '/% LV D SURJUHVVLYH GHPHQWLD ZLWK SDUWLFXODU GHILFLWV LQ DWWHQWLRQ H[HFXWLYH IXQFWLRQ DQG
    YLVXRSHUFHSWXDO DELOLW\ *RPH]7RUWRVDHWDO& +ROPHV HW DO  0F.HLWK   2WKHU
    FRPPRQ IHDWXUHV DUH 5(0 VOHHS GLVRUGHU UHSHDWHG IDOOV VHYHUH QHXUROHSWLF VHQVLWLYLW\ DQG ORZ
    GRSDPLQH WUDQVSRUWHU XSWDNH LQ EDVDO JDQJOLD GHPRQVWUDWHG E\ 63(&7 RU 3(7 LPDJLQJ ,W VKDUHV
    FOLQLFDOIHDWXUHVZLWKERWK$O]KHLPHU ߤVDQG3DUNLQVRQߤVGLVHDVH VHH7DEOH DQGKHQFHLVQRWHDVLO\
    FRQFHSWXDOL]HGDVHLWKHUDFRUWLFDORUVXEFRUWLFDOGHPHQWLD
    5LVNIDFWRUVDQGFRXUVH

    6LPLODU WR SDWLHQWV ZLWK $' '/% SDWLHQWV KDYH DQ HOHYDWHG $32( DOOHOH IUHTXHQF\ /DQH HW DO
      '/% LV VOLJKWO\ PRUH FRPPRQ LQ PHQ 0) :HLQHU HW DO   'LVHDVH RQVHW W\SLFDOO\
    RFFXUUVDIWHUDJH 0F.HLWK 6RPHFDVHVDUHIDPLOLDO 1HUYLHWDO 3DWLHQWVZLWK'/%
    KDYHDPRUHUDSLGGHFOLQHWKDQWKRVHZLWK$'DQGRWKHUGHJHQHUDWLYHGHPHQWLDV 0F.HLWK3HUU\ HW
    DO2OLFKQH\HWDO 

    1HXURDQDWRP\DQGSDWKRSK\VLRORJ\

    0RVW '/% SDWLHQWV GLVSOD\ QHXURSDWKRORJLFDO ILQGLQJV FRPPRQ WR ERWK 3DUNLQVRQߤV DQG $'
    0F.HLWK0F.HLWK3HUU\HWDO 7KHHVVHQWLDOQHXURSDWKRORJLFDOIHDWXUHLV/HZ\ERGLHV
    DOSKDV\QXFOHLQ SURWHLQ GHSRVLWV IRXQG WKURXJKRXW WKH FRUWH[ DQG SDUDOLPELF DUHDV DQG LQ WKH
    VXEVWDQWLD QLJUD DV LQ 3DUNLQVRQߤV GLVHDVH ,Q DGGLWLRQ VHQLOH SODTXHV DUH FRPPRQ DOWKRXJK
    QHXURILEULOODU\ WDQJOHV DUH IHZ 0) :HLQHU   :KHQ /HZ\ ERGLHV RFFXU ZLWK QHXURILEULOODU\
    WDQJOHVDQGDP\ORLGSODTXHVLWLVFRQVLGHUHGD/HZ\ERG\YDULDQWRI$'1HXURQDOGHJHQHUDWLRQLV
    SURPLQHQW LQ IURQWDO DQWHULRU FLQJXODWH LQVXODU DQG WHPSRUDO DUHDV 0F.HLWK DQG %XUQ  
    *HQHUDOL]HGDWURSK\PD\DSSHDURQ05,EXWZLWKOHVVPHGLDOWHPSRUDOOREHDWURSK\WKDQVHHQIRU$'
    %DUEHU%DOODUGHWDO*7+DUYH\HWDO ZKLFKPD\H[SODLQZK\'/%SDWLHQWVW\SLFDOO\
    KDYH OHVV PHPRU\ LPSDLUPHQW LQ HDUO\ GLVHDVH VWDJHV WKDQ WKRVH ZLWK $' )XQFWLRQDO LPDJLQJ
    63(&7 KDVVKRZQPRUHIUHTXHQWDSSHDUDQFHRIRFFLSLWDOK\SRSHUIXVLRQWKDQLQ$' /RERWHVLV HW
    DO 7KH((*LVRIWHQDEQRUPDOZLWKJUHDWHUWHPSRUDOOREHVORZLQJDQGWUDQVLHQWVORZZDYH
    DFWLYLW\WKDQLQ$' %ULHOHWDO 
    6HQVRULPRWRUVWDWXV

    6HQVRU\LPRWRU ILQGLQJV LQ '/% SDWLHQWV DUH HQWLUHO\ FRQVLVWHQW ZLWK WKH SDWKRORJ\ ([WUDS\UDPLGDO
    VLJQVDNLQWR3DUNLQVRQV\PSWRPV EUDG\NLQHVLDULJLGLW\K\SRSKRQLFVSHHFKPDVNHGIDFLHVVWRRSHG
    SRVWXUHDQGDVORZVKXIIOLQJJDLW GHYHORSLQRYHURISDWLHQWV6HQVRU\IXQFWLRQLVODUJHO\LQWDFW
    5RFNZHOOHWDO 
    7$%/($FRPSDULVRQRIQHXURSV\FKRORJLFDOIHDWXUHVRI$O]KHLPHUGLVHDVH $' IURQWRWHPSRUDOOREDUGHJHQHUDWLRQ )7/' /HZ\
    %RG\'HPHQWLD /%' 3DUNLQVRQߤVGLVHDVHZLWKGHPHQWLD 3'' +XQWLQJWRQGLVHDVH +' SURJUHVVLYHVXSUDQXFOHDUSDOV\ 363 DQG
    YDVFXODUGHPHQWLD 9D' ZLWK LQGLFDWLQJDGHILQLQJGHILFLWDQG LQGLFDWLQJWKHPRVWSURPLQHQWRIWKHVHGHILFLWV
    D)7/'6HPDQWLFGHPHQWLD
    E )7/'%HKDYLRUDOYDULDQW
    F)7/'3ULPDU\SURJUHVVLYHDSKDVLD

    &RJQLWLRQ

    9LVXRSHUFHSWXDOGHILFLWV DUH SURPLQHQW KDYLQJ EHHQ GHPRQVWUDWHG RQ D YDULHW\ RI SHUFHSWXDO WDVNV
    VXFK DV YLVXDO VHDUFK VL]H DQG IRUP GLVFULPLQDWLRQ LGHQWLILFDWLRQ RI IUDJPHQWHG OHWWHUV DQG
    RYHUODSSLQJ ILJXUHV &DOGHURQ 3HUU\ HW DO  0RUL HW DO  7U¸VWHU  
    9LVXRFRQVWUXFWLRQDOWDVNVHYHQUHODWLYHO\HDV\RQHVVXFKDVWKHSHQWDJRQFRS\LQJWDVNRIWKH006(
    DUHSHUIRUPHGSRRUO\ 7U¸VWHU 1RWRQO\DUHWKHLUFORFNGUDZLQJVIODZHGEXW'/%SDWLHQWVGR
    QRW LPSURYH ZKHQ DOORZHG WR FRS\ D FORFN GUDZLQJ XQOLNH SDWLHQWV ZLWK HLWKHU 3DUNLQVRQߤV RU $'
    $OD HW DO  *QDQDOLQJKDP HW DO   )OXFWXDWLQJ DWWHQWLRQ LV DQRWKHU FRUH IHDWXUH RI WKH
    GLVHDVH$WWHQWLRQDQGOXFLGLW\PD\IOXFWXDWHIRUDIHZPLQXWHVRURYHUZHHNVRUPRQWKVDQGWUDQVLHQW
    FRQIXVLRQDO VWDWHV RFFXU $WWHQWLRQDO LPSDLUPHQWV VKRZ XS RQ VLPSOH DQG FKRLFH UHDFWLRQ WLPH DQG
    FRPSXWHUL]HG YLJLODQFH WHVWV 0F.HLWK DQG %XUQ   'HILFLWV DOVR DSSHDU RQ WHVWV RI VXVWDLQHG
    VHOHFWLYHDQGGLYLGHGDWWHQWLRQ &DOGHURQHWDO 
    7KHPHPRU\G\VIXQFWLRQ SDWWHUQ LQ '/% KDV EHHQ DWWULEXWHG WR EHWWHU SUHVHUYHG PHGLDO WHPSRUDO
    OREHVWUXFWXUHVWKDQLQ$' 6DOPRQDQG%RQGL (DUO\LQWKHGLVHDVHFRXUVH'/%SDWLHQWVKDYH
    UHODWLYHO\ SUHVHUYHG FRQVROLGDWLRQ DQG VWRUDJH RI YHUEDO LQIRUPDWLRQ EXW SRRU UHWULHYDO -0
    +DPLOWRQ6DOPRQHWDO0F.HLWK3HUU\HWDO $VVHVVPHQWRIYLVXDOPHPRU\LVQHDUO\
    LPSRVVLEOHEHFDXVHYLVXRSHUFHSWXDOSURFHVVLQJLVVRLPSDLUHG

    9HUEDODQGH[HFXWLYHIXQFWLRQV

    9HUEDOIXQFWLRQV IROORZ WKH $O]KHLPHU SDWWHUQ RIGHWHULRUDWLRQ /HWWHU DQGVHPDQWLF IOXHQF\ PD\ EH
    GHFUHDVHG DW OHYHOV FRPSDUDEOH WR $' 6LPLODUO\ QDPLQJ DELOLW\ PD\ EH DIIHFWHG RIWHQ EHFDXVH RI
    YLVXRSHUFHSWXDO UDWKHU WKDQ VHPDQWLF HUURUV 9* :LOOLDPV HW DO    ([HFXWLYH G\VIXQFWLRQ
    DSSHDUV LQ GLIILFXOW\ HQJDJLQJ LQ D WDVN RU VKLIWLQJ IURP RQH WDVN WR DQRWKHU SHUVHYHUDWLRQV DQG
    IDLOXUHVRQFRQIOLFWWDVNV 7U¸VWHU $EVWUDFWUHDVRQLQJPD\EHLPSDLUHG 6DOPRQ DQG %RQGL
     

    3HUVRQDOLW\DQGSV\FKRVRFLDOEHKDYLRU

    'HSUHVVLRQ PD\ GHYHORS LQ DV PDQ\ DV KDOI RI '/% SDWLHQWV 0F.HLWK DQG %XUQ   6OHHS
    GLVWXUEDQFHV DUH FRPPRQ RIWHQ LQ WKH IRUP RI 5(0 VOHHS GLVRUGHU +DOOXFLQDWLRQV XVXDOO\ YLVXDO
    FDQ DSSHDU HDUO\ LQ WKH GLVHDVH FRXUVH 7KHLU SHUVLVWHQFH PD\ FRQWULEXWH WR D GLDJQRVLV RI '/%
    3DWLHQWVRIWHQKDYHLQVLJKWLQWRWKHXQUHDOLW\RIWKHKDOOXFLQDWLRQV0DQ\SDWLHQWVDOVRKDYHSDUDQRLG
    GHOXVLRQV 7KH KLJK IUHTXHQF\ RI WKHVH V\PSWRPV RIWHQ OHDGV WR DQ LQLWLDO SV\FKLDWULF UHIHUUDO
    0F.HLWK DQG %XUQ   $FFXUDWH GLDJQRVLV LV LPSRUWDQW DV LQDSSURSULDWH WUHDWPHQW ZLWK
    QHXUROHSWLFV FDQ UHVXOW LQ VHYHUH QRQUHYHUVLEOH PRWRU H[WUDS\UDPLGDO  G\VIXQFWLRQ WKDW ZLOO
    H[DFHUEDWHSDUNLQVRQLDQV\PSWRPV 0F.HLWK0$7D\ORU 
    7UHDWPHQW

    3DWLHQWV PD\ VKRZ VRPH LPSURYHPHQW LQ ERWK FRJQLWLYH DQG EHKDYLRUDO V\PSWRPV IURP
    FKROLQHVWHUDVHLQKLELWRUVOHYDGRSDPD\KHOSZLWKPRWRUV\PSWRPV 0F.HLWK'LFNVRQHWDO 
    665,V DQG 615,V DUH XVHG IRU WUHDWPHQW RI GHSUHVVLRQ $W\SLFDO DQWLSV\FKRWLFV IRU KDOOXFLQDWLRQV
    GHOXVLRQVDQGEHKDYLRUDOGLVWXUEDQFHVPXVWEHSUHVFULEHGFDXWLRXVO\
    68%&257,&$/'(0(17,$6
    6XEFRUWLFDOGHPHQWLDUHIHUVWRWKHEHKDYLRUDOFRQVWHOODWLRQRIV\PSWRPVDVVRFLDWHGZLWKGLVHDVHVRI
    VXEFRUWLFDO EUDLQ VWUXFWXUHV &XPPLQJV DQG %HQVRQ   $OWKRXJK WKH FRQFHSW RI VXEFRUWLFDO
    GHPHQWLD ZDV RULJLQDOO\ DGYDQFHG E\ 0/ $OEHUW )HOGPDQ DQG :LOOLV   DZDUHQHVV RI WKH
    EHKDYLRUDOHIIHFWVIURPGLIIHUHQWLDOLQYROYHPHQWRIFRUWLFDODQGVXEFRUWLFDOVWUXFWXUHVFDQEHWUDFHG
    WRWKHODWHWKFHQWXU\0H\QHUWSRVWXODWHGWKDWFHUWDLQSV\FKLDWULFV\PSWRPVUHVXOWHGIURPDEORRG
    IORZ LPEDODQFH EHWZHHQ FRUWLFDO DQG VXEFRUWLFDO VWUXFWXUHV GLVFXVVHG LQ 0$ 7XUQHU HW DO  
    6XEFRUWLFDOH GHPHQ] ZDV XVHG E\ 9RQ 6WRFNHUW LQ  WR GHVFULEH WKH FRJQLWLYH LPSDLUPHQW RI D
    SDWLHQWZLWKHQFHSKDOLWLVOHWKDUJLFD
    7KH EHKDYLRUDO FKDQJHV DVVRFLDWHG ZLWK VXEFRUWLFDO GHPHQWLD LQFOXGH   FRJQLWLYH VORZLQJ
    EUDG\SKUHQLD  ZLWK GLVWXUEDQFHV RI DWWHQWLRQ DQG FRQFHQWUDWLRQ H[HFXWLYH GLVDELOLWLHV LQFOXGLQJ
    LPSDLUHG FRQFHSW PDQLSXODWLRQ DQG XVH RI VWUDWHJLHV YLVXRVSDWLDO DEQRUPDOLWLHV DQG D PHPRU\
    GLVRUGHU WKDW DIIHFWV UHWULHYDO PRUH WKDQ OHDUQLQJ   DEVHQFH RI DSKDVLD DSUD[LD DQG DJQRVLD WKH
    FODVVLFDO V\PSWRPV RI FRUWLFDO GDPDJH DQG   HPRWLRQDO RU SV\FKLDWULF IHDWXUHV RI DSDWK\
    GHSUHVVLRQRUSHUVRQDOLW\FKDQJH &XPPLQJV6-+XEHUDQG6KXWWOHZRUWK 
    7KH FOLQLFDO GLVWLQFWLRQ EHWZHHQ FRUWLFDO DQG VXEFRUWLFDO GHPHQWLDV LV ODUJHO\ EHKDYLRUEDVHG
    6DOPRQDQG)LORWHR &XPPLQJV  LGHQWLILHGWKHVSHFLILFFRJQLWLYHIXQFWLRQVDIIHFWHGE\
    FRUWLFDO
    GHJHQHUDWLRQߟLQFOXGLQJODQJXDJHDELOLWLHVUHDVRQLQJDQGSUREOHPVROYLQJOHDUQLQJDQGSUD[LV
    ߟDVLQVWUXPHQWDOIXQFWLRQV IXQFWLRQV WKDW FDUU\ RXW EHKDYLRU DQG DUH ߧWKH PRVW KLJKO\ HYROYHG RI
    KXPDQ DFWLYLWLHVߨ ,Q VXEFRUWLFDO GHPHQWLDV LQ FRQWUDVW FRJQLWLYH LPSDLUPHQWV LQYROYH WKH
    IXQGDPHQWDOIXQFWLRQV IXQFWLRQV WKDW ߧDUH FUXFLDO WR VXUYLYDO DQGHPHUJH HDUO\ LQ SK\ORJHQHWLF DQG
    RQWRJHQHWLF GHYHORSPHQWߨ 7KHVH LQFOXGH DURXVDO DWWHQWLRQ SURFHVVLQJ VSHHG PRWLYDWLRQ DQG
    HPRWLRQDOLW\
    6XEFRUWLFDOGHPHQWLDVKDYHPDQ\GLIIHUHQWHWLRORJLHVDSDUWLDOOLVWLQJRIWKHVHLQFOXGHVGLVRUGHUV
    RI WKH EDVDO JDQJOLD DQG WKH PDQ\ VXEFRUWLFDO YDVFXODU LQIHFWLRXV LQIODPPDWRU\ QHRSODVWLF DQG
    WUDXPDWLF FRQGLWLRQV &XPPLQJV DQG %HQVRQ   7KLV V\QGURPH FRPSOH[ KDV DOVR EHHQ FDOOHG
    IURQWDOVXEFRUWLFDO GHPHQWLD EHFDXVH LW LQYROYHV IURQWDOVXEFRUWLFDO SDWKZD\V RU VXEFRUWLFDO
    VWUXFWXUHVLQWLPDWHO\FRQQHFWHGZLWKWKHIURQWDOOREHV %RQHOOLDQG&XPPLQJV /0'XNHDQG
    .DV]QLDN 
    7KHGLVWLQFWLRQEHWZHHQߧFRUWLFDOߨDQGߧVXEFRUWLFDOߨGHPHQWLDVKDVQRWEHHQXQLYHUVDOO\DFFHSWHGDV
    WKHLU RYHUODS IRU ERWK FRJQLWLYH GHILFLWV DQG PRRG DOWHUDWLRQV LV FRQVLGHUDEOH 5* %URZQ DQG
    0DUVGHQ0D\HX[6WHUQ5RVHQDQG%HQVRQ0$7XUQHUHWDO 2EMHFWLRQVWRWKLV
    GLVWLQFWLRQVWUHVVWKHLQWHUUHODWHGQHVVRIFRUWLFDODQGVXEFRUWLFDOGHJHQHUDWLRQWKDWVXEFRUWLFDODWURSK\
    RFFXUV LQ FRUWLFDO GHPHQWLDV =DN]DQLV *UDKDP DQG &DPSEHOO HW DO   DQG WKDW FRUWLFDO
    DEQRUPDOLWLHVDUHDVVRFLDWHGZLWKVXEFRUWLFDOGLVHDVH /5&DSODQ1D\\DUHWDO   ߧ7KH
    GHQVHSDWWHUQRIQHXURQDOLQWHUFRQQHFWLRQVEHWZHHQFRUWLFDODQGVXEFRUWLFDOUHJLRQVVXJJHVWVWKDWWKH
    IXQFWLRQDORUJDQL]DWLRQRIWKHEUDLQGRHVQRWUHVSHFWVXFKFRQYHQWLRQDODQDWRPLFDOGLVWLQFWLRQVߨ 5*
    %URZQ DQG 0DUVGHQ   7KXV $O]KHLPHU SDWLHQWV DQG GHPHQWLD SDWLHQWV ZLWK 3DUNLQVRQߤV RU
    +XQWLQJWRQߤV GLVHDVH FDQ SUHVHQW YHU\ VLPLODUߟRIWHQ XQGLIIHUHQWLDEOHߟDEQRUPDOLWLHV .X]LV HW DO
    3LOORQ'XERLV/KHUPLWWHDQG$JLGVHH7DEOHSDJH ZKLOHGLIIHUHQFHVEHWZHHQ
    WKH 3DUNLQVRQ DQG +XQWLQJWRQ JURXSV FDQ EH DV QRWDEOH DV WKRVH EHWZHHQ VXEFRUWLFDO JURXSV DV D
    ZKROHDQG$O]KHLPHUSDWLHQWV /HUQHUDQG5LOH\0DVVPDQ'HOLVHWDO 
    $OWKRXJK WKH FODVVLILFDWLRQ RI GHPHQWLD DV HLWKHU FRUWLFDO RU VXEFRUWLFDO PD\ EH RYHUVLPSOLILHG
    $O]KHLPHU ߤV GLVHDVH DQG HDFK RI WKH PDMRU WULDG RI VXEFRUWLFDO GHPHQWLDVߟ3DUNLQVRQߤV GLVHDVH
    +XQWLQJWRQߤV GLVHDVH SURJUHVVLYH VXSUDQXFOHDU SDOV\ߟFDQ RIWHQ EH GLVWLQJXLVKHG E\ WKHLU RYHUDOO
    SDWWHUQV RI FRJQLWLYH GHILFLWV 3LOORQ 'XERLV /KHUPLWWH DQG $JLG   7KXV ߧFRUWLFDOߨYV
    ߧVXEFRUWLFDOߨFDWHJRUL]DWLRQV DW EHVW UHSUHVHQW D FRQWLQXXP RI YDU\LQJ GHJUHHV RI FRUWLFDO DQG
    VXEFRUWLFDO SDWKRORJ\ ZLWK EHKDYLRUDO GLVWLQFWLRQV JUHDWHVW GXULQJ WKH HDUOLHU VWDJHV RI GLVHDVH
    +RZHYHU DV D KHXULVWLF GLVWLQFWLRQ WKLV GLIIHUHQWLDWLRQ RI GHPHQWLD W\SHV KDV OHG WR PRUH FDUHIXO
    LQYHVWLJDWLRQVLQWRWKHVHGLVHDVHSURFHVVHVDQGSURYLGHVDFRQFHSWXDOIUDPHZRUNIRURUJDQL]LQJDQG
    HYDOXDWLQJREVHUYDWLRQVRIWKHVHSDWLHQWV

    0RYHPHQW'LVRUGHUV
    7KHODUJHVWJURXSRIVXEFRUWLFDOGHPHQWLDSDWLHQWVKDVPRYHPHQWGLVRUGHUVDVWKHLUGLVHDVHLQYROYHV
    WKH H[WUDS\UDPLGDOPRWRU V\VWHP 7KLV V\VWHP LV FRPSRVHG RI SK\VLRORJLFDOO\ VLPLODU EXW VSDWLDOO\
    GLVWULEXWHGVWUXFWXUHVLQFOXGLQJWKHEDVDOJDQJOLD FDXGDWHSXWDPHQDQGJOREXVSDOOLGXV VXEWKDODPLF
    QXFOHXVVXEVWDQWLDQLJUDDQGWKHLULQWHUFRQQHFWLRQVWRHDFKRWKHUDQGWRWKDODPLFQXFOHL VHHS
    )LJ   ,Q FRQWUDVW WR WKH S\UDPLGDO PRWRU V\VWHP ZKLFK FRQVLVWV RI XSSHU DQG ORZHU PRWRU
    QHXURQV WKDW JXLGH SXUSRVHIXO DQG YROXQWDU\ PRYHPHQW WKH H[WUDS\UDPLGDO V\VWHP PRGXODWHV
    PRYHPHQW DQG PDLQWDLQV PXVFOH WRQH DQG SRVWXUH 0RYHPHQW GLVRUGHUV FDQ EH FRQFHSWXDOL]HG DV
    KDYLQJ HLWKHU H[FHVVLYH DEQRUPDO LQYROXQWDU\ PRYHPHQWV G\VNLQHVLD  RU KDOWLQJ LQLWLDWLRQ DQG
    VORZHG H[HFXWLRQ RI GLUHFWHG PRYHPHQW DNLQHVLD RU EUDG\NLQHVLD  7KH WKUHH PDMRU
    QHXURWUDQVPLWWHUVRIWKHEDVDOJDQJOLDDUHGRSDPLQHDFHW\OFKROLQHDQGJDPLQREXW\ULFDFLG *$%$ 
    ,QVXIILFLHQWIRUPDWLRQDQGDFWLRQRIGRSDPLQHFDXVHVPRWRUV\PSWRPVDQGEUDG\NLQHVLD,QFRQWUDVW
    H[FHVV GRSDPLQH OHYHOV ZKLFK PD\ EH DVVRFLDWHG ZLWK /GRSD >OHYRGRSD@ WKHUDS\ VHH S   FDQ
    SURGXFHG\VNLQHVLD
    0RYHPHQWGLVRUGHUVVKDUHFOLQLFDOIHDWXUHVWKDWDUHWHPSRUDULO\PRGLILDEOH$Q[LHW\IDWLJXHDQG
    VWLPXODQWV H[DFHUEDWH WKH FOLQLFDO V\PSWRPV DQG H[WUDQHRXV PRYHPHQWV PD\ EH GHFUHDVHG
    WHPSRUDULO\ ZLWK YROLWLRQ ,QYROXQWDU\ PRYHPHQWV RWKHU WKDQ WLFV RU P\RFORQXV VXGGHQ VKDUS
    LQYROXQWDU\MHUNV DUHDEVHQWGXULQJVOHHS

    ),*85(ߧ7KHWKUHHQHXURGHJHQHUDWLYHGLVHDVHVFODVVLFDOO\HYRNHGDVVXEFRUWLFDOGHPHQWLDDUH+XQWLQJWRQߤVFKRUHDZLWKOHVLRQVLQ
    WKHVWULDWXPSDUWLFXODUO\WKHFDXGDWHQXFOHXV3DUNLQVRQߤVGLVHDVHZLWKVHYHUHQHXURQDOORVVLQWKHVXEVWDQWLDQLJUDDQGSURJUHVVLYH
    VXSUDQXFOHDUSDOV\ZLWKVHYHUHQHXURQDOORVVLQWKHVWULDWXPDQGVXEVWDQWLDQLJUDDVVRFLDWHGZLWKGHJHQHUDWLRQRIRWKHUVWUXFWXUHVLQWKH
    EDVDOJDQJOLDXSSHUEUDLQVWHPDQGFHUHEHOOXPߨ )URP$JLGHWDOUHSULQWHGE\SHUPLVVLRQ

    3DUNLQVRQߤV'LVHDVH3DUNLQVRQLVP 3'
    3'LVW\SLFDOO\DQLGLRSDWKLFGLVRUGHUDVVRFLDWHGZLWKGRSDPLQHGHSOHWLRQLQWKHEDVDOJDQJOLDDQGLWV
    FRQQHFWLRQVZLWKWKHVXEVWDQWLDQLJUDDVPDOOGDUNQXFOHXVDGMDFHQWWRWKHFDXGDWHQXFOHXVHVVHQWLDO
    IRU GRSDPLQH SURGXFWLRQ 3' LV UDQNHG KLJK DPRQJ WKH PRVW FRPPRQ FKURQLF QHXURORJLFDO
    GLVRUGHUV 0F3KHUVRQDQG&XPPLQJV %HFDXVHWKHV\PSWRPVRI3'FDQDOVREHSUHVHQWZLWK
    QRQLGLRSDWKLF FDXVHV VXFK DV WR[LF H[SRVXUH SXWDPHQDO KHPRUUKDJH RU HQFHSKDOLWLV WKH WHUP
    SDUNLQVRQLVP LV RIWHQ XVHG WR UHIHU WR WKH FRPPRQ IHDWXUHV RI WKH GLVHDVH ZLWKRXW UHIHUHQFH WR
    HWLRORJ\
    3DUNLQVRQ GHVFULEHG WKH FDUGLQDO IHDWXUHV RI 3' LQ KLV  PRQRJUDSK HQWLWOHG ߧ(VVD\ RQ WKH
    6KDNLQJ3DOV\ߨ+HUHSRUWHGߧLQYROXQWDU\WUHPXORXVPRWLRQZLWKOHVVHQHGPXVFXODUSRZHULQSDUWV
    QRW LQ DFWLRQ DQG HYHQ ZKHQ VXSSRUWHG ZLWK D SURSHQVLW\ WR EHQG WKH WUXQN IRUHZDUGV DQG WR SDVV
    IURPDZDONLQJWRDUXQQLQJSDFHWKHVHQVHVDQGLQWHOOHFWEHLQJXQLQMXUHGߨ3DUNLQVRQߤVGHVFULSWLRQ
    ILWVQLFHO\ZLWKLQWKHFXUUHQWFRQFHSWRIVXEFRUWLFDOGHPHQWLD&KDUFRWZKRDGGHGULJLGLW\DVDIHDWXUH
    RIWKHGLVHDVHQDPHGWKHGLVRUGHU3DUNLQVRQߤVGLVHDVH ODPDODGLHGH3DUNLQVRQ  )LQJHU    LW
    KDGSUHYLRXVO\EHHQFDOOHGSDUDO\VLVDJLWDQV
    3DUNLQVRQLVPߤV RXWVWDQGLQJ IHDWXUH LV D PRYHPHQW GLVRUGHU ZLWK D QXPEHU RI FRPSRQHQW
    V\PSWRPV 0F3KHUVRQ DQG &XPPLQJV  :HLVEHUJ   )HZ SDWLHQWV GLVSOD\ DOO V\PSWRPV
    SDUWLFXODUO\HDUO\LQWKHFRXUVHRIWKHGLVHDVH,QLWLDOFRPSODLQWVDUHRIWHQYDJXHDQGPD\LQFOXGHSDLQ
    DQG QXPEQHVV GLIILFXOW\ ZLWK KDQGZULWLQJ DQG GLIILFXOW\ ZLWK UHSHWLWLYH WDVNV HJ EUXVKLQJ WHHWK 
    3URPLQHQWDPRQJWKHPRWRUV\PSWRPVLVWKHߧUHVWLQJWUHPRUߨDUHODWLYHO\UDSLGUK\WKPLFDOVKDNLQJ
    WKDWFDQDIIHFWOLPEVMDZDQGWRQJXHZKLFKGLPLQLVKHVRUGLVDSSHDUVGXULQJPRYHPHQWDQGLQVOHHS
    7UHPRU LV JHQHUDOO\ WKH ILUVW VLJQ RI 3' VHHQ LQ DSSUR[LPDWHO\  RI SDWLHQWV $ /LHEHUPDQ
    E  DQG W\SLFDOO\ EHJLQV LQ D VLQJOH KDQG EHIRUH SURJUHVVLQJ WR WKH LSVLODWHUDO OHJ DQG WKHQ
    FRQWUDODWHUDOOLPEV7KLVWUHPRULVDOVRFDOOHGDߧSLOOUROOLQJߨWUHPRUDOWKRXJK&KDUFRWߤVPRUHYLYLG
    PHWDSKRUGHVFULEHVWKHWUHPRUVDVLIWKHKDQGVZHUHߧFUXPEOLQJEUHDGߨ )LQJHUS 
    7KHVORZHGPRYHPHQWRIEUDG\NLQHVLDDORQJZLWKWKHDNLQHVLFGLIILFXOW\LQLWLDWLQJPRYHPHQWDUH
    WKHFDUGLQDOIHDWXUHVRI3'%UDG\NLQHVLDPD\EHVHHQLQUHGXFHGOLPEPRYHPHQWVVXFKDVDEVHQFHRI
    DUP JHVWXUHV ZKLOH WDONLQJ DQG GHFUHDVHG DUP VZLQJ ZKLOH ZDONLQJ ,W LV DOVR DVVRFLDWHG ZLWK DQ
    DEVHQFHRIIDFLDOH[SUHVVLRQ PDVNHGIDFLHV DQGGHFUHDVHGVSRQWDQHRXVEOLQNUDWH3DWLHQWVKDYHEHHQ
    NQRZQ WR RYHUFRPH EUDG\NLQHVLD WHPSRUDULO\ XQGHU VWURQJ HPRWLRQDO DURXVDO VXFK DV LQ DQ
    HPHUJHQF\ NLQHVLDSDUDGR[LFD DQGZKHQREMHFWVߟVXFKDVNH\VߟDUHWRVVHGWRWKHPDVPDQ\ZKR
    FDQQRW UHDGLO\ LQLWLDWH ZDONLQJ ZLOO FDWFK WKHP HDVLO\ %. :HVWEURRN DQG 0F.LEEHQ  
    %UDG\NLQHVLDDIIHFWVHYHU\GD\DFWLYLWLHVLQFOXGLQJK\JLHQHDQGEHFRPHVDYHU\GHELOLWDWLQJIHDWXUH
    RIWKHGLVHDVH
    0XVFXODUULJLGLW\LVFRPPRQSDUWLFXODUO\LQWKHZULVWVDQGHOERZH[DPLQHUVGHVFULEHLWDVKDYLQJ
    DߧOHDGSLSHߨTXDOLW\DQDQDORJ\WRWKHVWHDG\UHVLVWDQFHDVVRFLDWHGZLWKDWWHPSWLQJWREHQGDOHDGSLSH
    7KHVLPXOWDQHRXVSUHVHQFHRIDߞVHFWUHPRUZLWKSDUNLQVRQLDQK\SHUWRQLDFUHDWHVWKHIHHOLQJRID
    ߧFRJZKHHOߨRUߧUDWFKHWLQJߨUHVLVWDQFHZKHQWKHH[DPLQHUDWWHPSWVWRPRYHWKHSDWLHQWߤVZULVWRUDUP
    5LJLGLW\SUHGRPLQDWHVLQWKHIOH[RUPXVFOHVFDXVLQJDVWRRSHGߧVLPLDQߨDSSHDUDQFH $ /LHEHUPDQ
    E 
    7KXV WKH SDUNLQVRQLDQ JDLW LV FKDUDFWHUL]HG E\ D IRUZDUG VWRRSHG SRVWXUH QDUURZ EDVH D
    GLPLQLVKHGRU DEVHQWDUPVZLQJ DQG VORZ VKXIIOLQJ WDNHQ LQ OLWWOHVWHSV PDUFKH DSHWLWV SDV  ZLWK
    GLIILFXOW\ VWDUWLQJ WR ZDON DQG RQFH VWDUWHG GLIILFXOW\ VWRSSLQJ 3RVWXUDO LQVWDELOLW\ PD\ UHVXOW LQ
    IUHTXHQWWULSSLQJDQGIDOOV 6DPLLHWDO ,QPRUHDGYDQFHGVWDJHVRI3'PRWRUߧIUHH]LQJߨPD\
    RFFXULQZKLFKWKHSDWLHQWDSSHDUVJOXHGWRWKHJURXQGDQGXQDEOHWRWDNHDQ\VWHSV $KOVNRJ 
    3DUNLQVRQSDWLHQWVDUHSDUWLFXODUO\GLVWLQJXLVKHGE\K\SRNLQHWLFG\VDUWKULDDQLPSDLUPHQWRIWKH
    PHFKDQLFDODVSHFWVRIVSHHFK %D\OHV ZKLFK(05&ULWFKOH\  DWWULEXWHGWRDIDLOXUHRI
    LQWHJUDWLRQRIWKHߧSKRQDWLRQDUWLFXODWLRQDQGODQJXDJHߨDVSHFWVRIVSHHFKSURGXFWLRQ7KLVVKRZVXS
    DVG\VDUWKULDORVVRIPHORGLFLQWRQDWLRQZKLFKJLYHVDPRQRWRQLFTXDOLW\WRVSHHFKORZYROXPHDQG
    YDULDEOH RXWSXW VSHHGV VR WKDW ZRUGV PD\ FRPH RXW LQ D UXVK DW RQH WLPH DQG YHU\ VORZO\ DQRWKHU
    :ULWLQJSUREOHPVWHQGWRSDUDOOHODOWHUDWLRQVLQVSHHFKSURGXFWLRQ:ULWLQJDFTXLUHVDFUDPSHGMHUN\
    DSSHDUDQFH DQG PD\ EH JUHDWO\ UHGXFHG LQ VL]H PLFURJUDSKLD  7HWUXG   2WKHU FRPPRQ
    GLVWXUEDQFHV LQFOXGH H\H PRYHPHQW DEQRUPDOLWLHV DXWRQRPLF GLVWXUEDQFHV DQG VOHHS SUREOHPV
    LQFOXGLQJ5(0VOHHSGLVRUGHU 0F3KHUVRQDQG&XPPLQJV 
    &RJQLWLYHLPSDLUPHQWUHVHPEOHVIURQWDOOREHG\VIXQFWLRQ'HSUHVVLRQLVFRPPRQLQ3'EXWGXH
    WRUHGXFHGPRYHPHQWDQGH[SUHVVLYHQHVVVRPHSDWLHQWVPD\DSSHDUGHSUHVVHGZKRKDYHQRDIIHFWLYH
    H[SHULHQFHRIGHSUHVVLRQ\HWGHSUHVVLRQLQPDQ\3'SDWLHQWVPD\EHXQUHFRJQL]HGRUXQGHUWUHDWHG
    /HUQHUDQG5LOH\ 
    7KHW\SLFDODJHDWRQVHWLVLQWKHVLWLVUDUHO\VHHQEHIRUHDJH 5DMSXWHWDO ,QRQH
    VWXG\ $IULFDQ $PHULFDQV ZHUH KDOI DV OLNHO\ WR EH GLDJQRVHG ZLWK 3' DV ZKLWHV 'DKRGZDOD HW DO
      7KH LQFLGHQFH RI 3' LV DSSUR[LPDWHO\  SHU  ZLWK D SUHYDOHQFH RI ߞ SHU
    LQ:HVWHUQFRXQWULHV 0DODVSLQDHWDO ,QWKH8QLWHG6WDWHVPRUHWKDQDGHFDGHDJR
    3'KDGDQHVWLPDWHGFRVWRIELOOLRQSHU\HDU 2EHVRHWDO 

    5LVNIDFWRUV

    7KH HWLRORJ\ RI 3' LV DV \HW QRW ZHOOGHILQHG %RWK JHQHWLF DQG HQYLURQPHQWDO IDFWRUV KDYH EHHQ
    VKRZQ WR EH FRQWULEXWRU\ /HUQHU DQG 5LOH\   EXW IRU PRVW FDVHV HWLRORJ\ LV XQNQRZQ 6LQFH
    SDUNLQVRQLVPLVDV\QGURPHUDWKHUWKDQDGLVHDVHLWKDVDQXPEHURIFDXVDWLYHDJHQWVVRPHNQRZQRU
    VXVSHFWHGDQGVRPHXQNQRZQ %URQVWHLQHWDO $PRQJNQRZQHWLRORJLHVDUHYLUDOHQFHSKDOLWLV
    DQGSRVVLEO\RWKHUSRVWYLUDOFRQGLWLRQVGUXJVZLWK'$DQWDJRQLVWLFSURSHUWLHVVXFKDVQHXUROHSWLFV
    DQG WR[LF VXEVWDQFHV +DPPHUVWDG DQG &DUWHU   0XKDPPDG $OL WKH IDPRXV ER[HU ZKR
    GHYHORSHG D SDUNLQVRQLDQ FRQGLWLRQ GUDPDWLFDOO\ LOOXVWUDWHV WKH SRWHQWLDO RI UHSHDWHG 7%, DV D ULVN
    IDFWRU IRU WKLV GLVHDVH VHH DOVR S   3DUNLQVRQLVP DSSHDUV WR DIIHFW PHQ PRUH WKDQ ZRPHQ
    %URQVWHLQHWDO 
    :KLOHWZLQVWXGLHVKDYHIDLOHGWRLPSOLFDWHDSURPLQHQWJHQHWLFFRPSRQHQW 7DQQHU2WWPDQHWDO
    :LUGHIHOGWHWDO HYLGHQFHLQGLFDWHVDJUHDWHUJHQHWLFFRQWULEXWLRQLQSDWLHQWVZLWKHDUOLHU
    RQVHW GLVHDVH :. 6FRWW HW DO  7DQQHU 2WWPDQ HW DO   $ IHZ IDPLOLHV VKRZ DQ
    LQKHULWDQFH SDWWHUQ W\SLFDOO\ DSSHDULQJ DV DQ DXWRVRPDO GRPLQDQW ZLWK UHGXFHG SHQHWUDQFH 1(
    0DKHUHWDO0XHQWHUHWDO 6HYHUDODXWRVRPDOUHFHVVLYHJHQHVIRU3DUNLQVRQߤVGLVHDVH
    KDYHEHHQLGHQWLILHG */RSH]DQG6LGUDQVN\ 7KHVHUDUHJHQHWLFLQVWDQFHVDFFRXQWIRU
    RI3'FDVHVLQWKH8QLWHG6WDWHV %URQVWHLQHWDO 
    $QHQYLURQPHQWDOHWLRORJ\ZDVVXJJHVWHGZKHQWKHGLVHDVHZDVILUVWUHFRJQL]HGLQ(QJODQGDWWKH
    EHJLQQLQJ RI WKH LQGXVWULDO UHYROXWLRQ DV WR[LF LQGXVWULDO E\SURGXFWV ZHUH LPSOLFDWHG LQ WKH
    GHYHORSPHQW RI 3' 7DQQHU DQG /DQJVWRQ   $ UHQHZHG LQWHUHVW LQ HQYLURQPHQWDO WR[LQV DV D
    FDXVH RI 3' FDPH IURP WKH GLVFRYHU\ WKDW 0373 PHWK\OSKHQ\OWHWUDK\GURS\ULGLQH  D
    QHXURWR[LQ ZLWK D SUHGLOHFWLRQ IRU QHXURQV LQ WKH VXEVWDQWLD QLJUD LQGXFHV SDUNLQVRQLVP 5DMSXW
      )DUPHUV DJULFXOWXUDO ZRUNHUV DQG SHRSOH H[SRVHG WR SHVWLFLGHV KDYH DQ LQFUHDVHG ULVN
    %URQVWHLQHWDO 3DUNLQVRQߤVRWKHUFHOHEULW\SDWLHQWߟ0LFKDHO-)R[ߟPD\KDYHFRQWUDFWHGWKH
    GLVHDVH IURP DQ HQYLURQPHQWDO FRQWDPLQDQW )R[ ZDV RQH RI IRXU HPSOR\HHV RXW RI DSSUR[LPDWHO\
     79 SURGXFWLRQ ZRUNHUV ZKR GHYHORSHG 3' JLYLQJ ULVH WR VSHFXODWLRQ WKDW WKLV 79 FUHZ ZDV
    H[SRVHGWRWKHVDPHHQYLURQPHQWDOWR[LQ)R[ߤV\RXQJDJHLVH[FHSWLRQDODVPRVWFDVHVRFFXULQROGHU
    DGXOWV
    (SLGHPLRORJLFVWXGLHVKDYHFRQVLVWHQWO\LPSOLFDWHGVPRNLQJDVDUHYHUVHULVNIDFWRUDVVPRNHUV
    DUH KDOI DV OLNHO\ WR GHYHORS 3' DV QRQVPRNHUV )UDWLJOLRQL DQG :DQJ   7KLV ILQGLQJ KDV
    SURPSWHG VSHFXODWLRQ DERXW QLFRWLQHߤV UROH V  LQ &16 DFWLYLW\ LQFOXGLQJ LWV PRGXODWLRQ RI
    QHXURWUDQVPLWWHUV 4XLNHWDO &RIIHHGULQNHUVDOVRKDYHDORZHUULVNSDUWLFXODUO\PHQ2WKHU
    SRVVLEOH SURWHFWLYH IDFWRUV DUH SK\VLFDO DFWLYLW\ DQG XVH RI QRQVWHURLGDO DQWLLQIODPPDWRU\ GUXJV
    %URQVWHLQHWDO 

    1HXURDQDWRP\DQGSDWKRSK\VLRORJ\
    7KH SDWKRORJLF KDOOPDUN RI 3' LV WKH IRUPDWLRQ RI /HZ\ ERGLHV ZKLFK FRQWDLQ DV\QXFOHLQ SOXV
    FRUUHVSRQGLQJ QHXURQDO ORVV LQ WKH VXEVWDQWLD QLJUD ORFXV FRHUXOHXV DQG RWKHU EUDLQ VWHP QXFOHL
    0F3KHUVRQDQG&XPPLQJV 7KHORVVRIWKHVXEVWDQWLDQLJUDQHXURQVWKDWV\QWKHVL]HGRSDPLQH
    LVDFFRPSDQLHGE\UHGXFWLRQRIGRSDPLQHLQERWKWKHFDXGDWHDQGSXWDPHQLQWKHEDVDOJDQJOLD%DVDO
    JDQJOLRQ RXWSXW JRHVߟE\ ZD\ RI WKH WKDODPXVߟWR WKH QHRFRUWH[ SDUWLFXODUO\ WR SUHIURQWDO DUHDV
    7KXVGRSDPLQHORVVPD\UHVXOWLQIURQWDOGLVFRQQHFWLRQV '0-DFREV/HY\DQG0DUGHU(9
    6XOOLYDQ 6DJDU *DEULHOL HW DO  $( 7D\ORU 6DLQW&\U DQG /DQJ   DQG DSSHDUV WR EH
    GLUHFWO\ UHODWHG WR WKH SUHVHQFH DQG VHYHULW\ RI PRWRU V\PSWRPV 'XERLV DQG 3LOORQ   :KHQ
    GRSDPLQHOHYHOVGURSEHORZRIQRUPDOWKHPRWRUDQGRWKHUV\PSWRPVRI3'EHFRPHPDQLIHVW
    .ROOHU/DQJVWRQHWDO 
    &HOOORVVDOVRRFFXUVLQRWKHUEUDLQVWHPQXFOHLVXFKDVWKHQXFOHXVEDVDOLVRI0H\QHUWWKHPDMRU
    FKROLQHUJLF LQSXW WR WKH FHUHEUDO FRUWH[ /HUQHU DQG 5LOH\   7KH FRQFRPLWDQW UHGXFWLRQ LQ
    QRQGRSDPLQHUJLF QHXURWUDQVPLWWHUV SUREDEO\ FRQWULEXWHV WR WKH V\PSWRP SLFWXUH (. 3HUU\ HW DO
     3LOORQ 'XERLV &XVLPDQR HW DO   &KROLQHUJLF GHILFLWV KDYH EHHQ OLQNHG WR VXFK NH\
    FOLQLFDO IHDWXUHV DV DWWHQWLRQDO G\VIXQFWLRQ IOXFWXDWLRQV LQ DOHUWQHVV DQG YLVXDO KDOOXFLQDWLRQV
    0F3KHUVRQDQG&XPPLQJV /HVLRQVDUHDOVRRIWHQIRXQGLQRWKHUFHOOSRSXODWLRQVLQFOXGLQJ
    WKH VXEVWDQWLD LQQRPLQDWD WKH K\SRWKDODPXV PDPLOODU\ ERGLHV WKH PHVHQFHSKDOLF UHWLFXODU
    IRUPDWLRQ DQG WKH GRUVDO UDSKH QXFOHXV /RFXV FRHUXOHXV OHVLRQV GHSULYH WKH FRUWH[ RI D
    QRUDGUHQHUJLF VRXUFH 7KXV DOWKRXJK 3' LV WKRXJKW WR EH D GRSDPLQH GLVHDVH LW LQYROYHV PDQ\
    V\VWHPVDQGPDQ\QHXURWUDQVPLWWHUV $UFLQLHJDVDQG%HUHVIRUG 
    &RUWLFDO LQYROYHPHQW LV VXJJHVWHG E\ GHFUHDVHG UHJLRQDO FHUHEUDO EORRG IORZ U&%)  LQ PDQ\
    FRUWLFDOUHJLRQV %LVVHVVXUHWDO:HGHUHWDO 3UHFLVHO\ORFDOL]HGVWXGLHVKDYHFRUUHODWHG
    UHGXFHG EORRG IORZ LQ IURQWDO DQG SDULHWDO DUHDV ZLWK FKDUDFWHULVWLF IURQWDO OREH GHIHFWV RI
    SHUVHYHUDWLRQDQGGLPLQLVKHGYHUEDOIOXHQF\ *ROGHQEHUJ3RGUHNDHWDO LQIURQWDODUHDVDQG
    WKHEDVDOJDQJOLDZLWKPRWRULPDJHU\DQGH[HFXWLRQWDVNV 06DPXHOHWDO DQGLQWKHULJKW
    JOREXVSDOOLGXVZLWKSODQQLQJDQGUHWHQWLRQRISUREOHPVROXWLRQV XVLQJWKH7RZHURI/RQGRQWDVNV
    $02ZHQ'R\RQHWDO ,PDJLQJVWXGLHVSURYLGHHYLGHQFHRIIURQWDOGDPDJHLQ3DUNLQVRQ
    SDWLHQWV 8VLQJ YR[HOEDVHG PRUSKRPHWU\ UHGXFHG JUD\ PDWWHU LQ WKH OHIW IURQWDO UHJLRQV ZDV
    UHSRUWHGLQQRQGHPHQWHG3DUNLQVRQSDWLHQWV %H\HUHWDO ELODWHUDODEQRUPDOLWLHVLQWKHIURQWDO
    OREHVLQQRQGHPHQWHG3DUNLQVRQSDWLHQWVVKRZHGXSZLWKGLIIXVLRQWHQVRULPDJLQJ .DUDJXOOH.HQGL
    HWDO +\SRPHWDEROLVPRIODWHUDOIURQWDOUHJLRQVZDVREVHUYHGRQO\LQ3DUNLQVRQSDWLHQWVZLWK
    PLOGFRJQLWLYHGHILFLWV +RVRNDLHWDO 
    $EQRUPDOO\ VORZHG DXGLWRU\ HYRNHG SRWHQWLDO SDWWHUQV GLIIHUHQWLDWH 3DUNLQVRQ SDWLHQWV IURP
    SDWLHQWV ZLWK RWKHU W\SHV RI SURJUHVVLYH GHPHQWLD DV ZHOO DV IURP KHDOWK\ FRQWURO VXEMHFWV
    .XSHUVPLWK HW DO  %) 2ߤ'RQQHOO 6TXLUHV HW DO   DOWKRXJK WKH GHJUHH RI VORZLQJ LV
    JUHDWHULQROGHU3'SDWLHQWVFRPSDUHGWRDJHPDWFKHGFRQWUROVWKDQLQ\RXQJHU3'SDWLHQWVZKRPD\
    QRW GLIIHU IURP FRQWUROV 6WDQ]LRQH HW DO  7DFKLEDQD HW DO   $EQRUPDOO\ ORQJ HYRNHG
    SRWHQWLDO ODWHQFLHV KDYH EHHQ DVVRFLDWHG ZLWK LPSDLUHG SHUIRUPDQFHV RQ WHVWV RI LPPHGLDWH YHUEDO
    UHFDOODQGYLVXRSHUFHSWXDOGLVFULPLQDWLRQ 63DQJHWDO 

    'LVHDVHSURFHVV

    &RXUVH 6\PSWRP RQVHW PD\ EHJLQ ZLWK MXVW RQH LQGLFDWRU RI WKH GLVHDVH XVXDOO\ WUHPRU .ROOHU
    /DQJVWRQHWDO0F3KHUVRQDQG&XPPLQJV RURWKHUVLJQVRIPRWRULPSDLUPHQWDVLQ
    ILQHPRWRUWDVNVRUDFWLYLWLHVUHTXLULQJSRVWXUDOFKDQJH HJJHWWLQJRXWRIDFKDLU 6\PSWRPVPD\
    IOXFWXDWH EHIRUH EHFRPLQJ HVWDEOLVKHG 7KH\ PD\ HYHQ DSSHDU WHPSRUDULO\ GXULQJ WKH SURGURPDO
    VWDJHW\SLFDOO\XQGHUVWUHVVIXOFRQGLWLRQVDQGWKHQUHFHGHXQWLO\HDUVODWHUZKHQWKHGLVHDVHEHFRPHV
    REYLRXV
    6LQFHWKHPRWRUV\PSWRPVRI3'HPHUJHRQO\DIWHUGRSDPLQHOHYHOVLQWKHEUDLQDUHVXEVWDQWLDOO\
    UHGXFHG WKLV FDQ EH FRQVLGHUHG D WZRVWDJH GLVHDVH :KDWHYHU IDFWRU LV UHVSRQVLEOH IRU WKH
    GHJHQHUDWLRQ SURFHVV LQLWLDWHV WKH SURGURPDO VWDJH ZKLFK PD\ EHJLQ WZR RU PRUH GHFDGHV EHIRUH
    V\PSWRPVEHFRPHREYLRXV %UDDNHWDO*DLJDQG7RORVD  'HJHQHUDWLRQ SULPDULO\ RI
    VXEVWDQWLD QLJUD FHOOV SURJUHVVHV VORZO\ DQG LQVLGLRXVO\ XQWLO WKH VHFRQG VWDJH ZKHQ WKH GLVHDVH
    EHFRPHVPDQLIHVW /DQJVWRQDQG .ROOHU   3URJUHVVLRQ RIWKHGLVHDVH LQ WKH VHFRQG VWDJH DOVR
    WHQGV WR EH VORZ ZLWK PRVW SDWLHQWV QRZ VXUYLYLQJ WHQ WR  \HDUV DIWHU WKH ILUVW V\PSWRPV ZHUH
    QRWLFHG +RHKQ 
    3ULRUWRWKHFXUUHQWDOPRVWXQLYHUVDOXVHRIGRSDPLQHUHSODFHPHQWWKHUDS\ZLWK /GRSDPRUWDOLW\
    UDWHV ZHUH WKUHH WLPHV WKDW RI FRPSDUDEOH DJH DQG VH[ JURXSV LQ WKH JHQHUDO SRSXODWLRQ :LWK
    DSSURSULDWH PHGLFDWLRQ WKLV UDWH DSSURDFKHV QRUPDO H[SHFWDWLRQV DV WKH PDMRULW\ RI 3DUNLQVRQ
    SDWLHQWVVXUYLYHEH\RQGDJH *UDQ«UXV5DMSXWHWDO 

    6XEW\SHV 6RPH GLIIHUHQFHV DPRQJ SDWLHQWV DUH SUHGLFWLYH RI RWKHU IHDWXUHV RI WKH GLVHDVH 7KH\
    DSSHDUZLWKVXIILFLHQWUHJXODULW\DVWRSHUPLWVXEW\SLQJDOWKRXJKWKHVHFODVVLILFDWLRQVDUHQRWPXWXDOO\
    H[FOXVLYH
    $UHYLHZRIFDVHVRISDWKRORJLFDOO\YHULILHG3'GLYLGHGWKHPLQWRHDUOLHUGLVHDVHRQVHW  
    WUHPRU GRPLQDQW   QRQWUHPRU GRPLQDQW   DQG UDSLG GLVHDVH SURJUHVVLRQ ZLWK GHPHQWLD
     VXEJURXSV 6HOLNKRYDHWDO 7KHHDUOLHUGLVHDVHRQVHWJURXS GLVHDVHRQVHWEHORZDJH
    KDGWKHORQJHVWGXUDWLRQWRGHDWKDQGJUHDWHVWGHOD\WRWKHRQVHWRIIDOOVDQGFRJQLWLYHGHFOLQH/DWHU
    RQVHW SDWLHQWV WHQGHG WR KDYH D UDSLG SURJUHVVLRQ RI WKH GLVHDVH DQG ZHUH PRUH OLNHO\ WR VXIIHU
    FRJQLWLYHGHILFLWV .DW]HQHWDO 5DWHVRIGHPHQWLDLQFUHDVHUDSLGO\ZKHQGLVHDVHRQVHWRFFXUV
    DIWHUDJH 0D\HX[6WHUQ5RVHQVWHLQHWDO ZKLFKPD\UHIOHFWDFRPSRXQGLQJRIQRUPDO
    DJLQJZLWKWKHFRJQLWLYHYXOQHUDELOLW\RI3'
    7KH WUHPRU GRPLQDQW FDVHV IURP WKH 6HOLNKRYD JURXS ZHUH DJHV  DQG ROGHU DW RQVHW DQG KDG
    HLWKHUUHVWLQJWUHPRUDVWKHVROHLQLWLDOV\PSWRPRUVXVWDLQHGGRPLQDQFHRIWUHPRURYHUEUDG\NLQHVLD
    DQG ULJLGLW\ 7KH\ ZHUH VLPLODU WR WKH QRQWUHPRU GRPLQDQW JURXS FKDUDFWHUL]HG E\ SUHGRPLQDQWO\
    EUDG\NLQHWLFPRWRUIHDWXUHV LQWKHLUGXUDWLRQRIVXUYLYDOWRGHDWKDQGPHDQWLPHWRRQVHWRIIDOOVDQG
    KDOOXFLQDWLRQV 7KHUH ZDV DVWURQJ DVVRFLDWLRQ EHWZHHQ WKH QRQWUHPRU GRPLQDQW GLVHDVH SDWWHUQ DQG
    FRJQLWLYHGLVDELOLW\7KHQRQWUHPRUVXEJURXSDOVRKDGPRUHFRUWLFDO/HZ\ERGLHVDQGPRUHFRUWLFDO
    3DP\ORLG WKDQ WKH WUHPRU GRPLQDQW JURXS DQG WKH HDUO\ GLVHDVH RQVHW JURXS 2WKHUV KDYH DOVR
    UHSRUWHGWKDWZKHQWUHPRUSUHGRPLQDWHVWKHFRXUVHLVPRUHOLNHO\WREHEHQLJQ :RRWHQ 
    7KHUDSLGSURJUHVVLRQZLWKRXWGHPHQWLDVXEW\SHKDGGHDWKZLWKLQ\HDUVIURPV\PSWRPVRQVHW
    DQGSURJUHVVHGWRDGYDQFHGPRWRUGLVDELOLW\5DSLGSURJUHVVLRQZDVDVVRFLDWHGZLWKROGHUDJHHDUO\
    GHSUHVVLRQDQGHDUO\PLGOLQHPRWRUV\PSWRPVDQGLQRIFDVHVWUHPXORXVRQVHW
    $ ODWHUDOL]HGSUHVHQWDWLRQ RI WKH GLVHDVH LV FRPPRQ ZLWK WUHPRU RU VWLIIQHVV EHJLQQLQJ RQ RQH
    VLGH RU HYHQ MXVW RQH OLPE 8LWWL HW DO   7KLV YDULDWLRQ LQ GLVHDVH SUHVHQWDWLRQ WHQGV WR EH
    UHIOHFWHG FRJQLWLYHO\ LQ WKDW PDQ\ SDWLHQWV ZLWK SUHGRPLQDQWO\ OHIWVLGHG PRWRU G\VIXQFWLRQ VKRZ
    JUHDWHU GHILFLWV WKDQ WKRVH ZLWK ULJKWVLGHG V\PSWRPV RQ WHVWV ZLWK D YLVXRVSDWLDO FRPSRQHQW %(
    /HYLQ /ODEUH 5HLVPDQ HW DO  $( 7D\ORU 6DLQW&\U DQG /DQJ   DQG OHIW YLVXRVSDWLDO
    LQDWWHQWLRQKDVEHHQREVHUYHGLQWKHVHSDWLHQWV 6WDUNVWHLQ/HLJXDUGDHWDO9LOODUGLWD6PLUQL
    DQG =DSSDOD   'LUHQIHOG DQG KLV JURXS   DOVR UHSRUWHG WKDW RQO\ SDWLHQWV ZLWK OHIWVLGHG
    V\PSWRPV KDG VLJQLILFDQW PHPRU\ LPSDLUPHQWV EXW ERWK ODWHUDOL]HG JURXSV VKRZHG YLVXRVSDWLDO
    GHILFLWVZKLFKZHUHPRUHVHYHUHLQSDWLHQWVZLWKOHVLRQVRQWKHOHIW7KRVHZLWKOHIWVLGHGV\PSWRPV
    RQVHW DUH PRUH OLNHO\ WR KDYH LQFUHDVHG GUHDPLQJ KDOOXFLQDWLRQV DQG GD\WLPH VRPQROHVFHQFH
    6WDYLWVN\HWDO 
    2WKHU VWXGLHV KRZHYHU IRXQG QR GLIIHUHQFHV EHWZHHQ ODWHUDOL]HG JURXSV RQ YLVXRVSDWLDO WDVNV
    +RYHVWDGWHWDO FRPSOH[PRWRUWDVNV +RUQH RUDEDWWHU\H[DPLQLQJERWKYLVXRVSDWLDO
    DQG PRWRU IXQFWLRQV 6- +XEHU )UHLGHQEHUJ HW DO   :KHWKHU IDLOXUH WR GHPRQVWUDWH
    ODWHUDOL]DWLRQ GLIIHUHQFHV UHVXOWV IURP SDWLHQW VHOHFWLRQ DQG PDWFKLQJ SURFHGXUHV H[FHVVLYH
    YDULDELOLW\ZLWKLQDSDWLHQWJURXSRUWKHQDWXUHRIWKHWHVWVHPSOR\HGUHPDLQVDQXQVHWWOHGTXHVWLRQ

    'LDJQRVLVDQGSUHGLFWLRQ

    6HYHULW\FODVVLILFDWLRQ+RHKQDQG<DKU  GHYHORSHGWKHILUVWZLGHO\XVHGVFDOHIRUVWDJLQJRI


    3' ,W LV EDVHG ODUJHO\ RQ PRWRU LPSDLUPHQW DQG PRELOLW\ DQG GRHV QRW GLUHFWO\ DGGUHVV IXQFWLRQDO
    VWDWXV,WLVDSRLQWVFDOHZLWKXQLODWHUDOVLJQVDQGV\PSWRPVFKDUDFWHUL]LQJVWDJH$WVWDJHWKH
    SDWLHQW LV ZKHHOFKDLUERXQG RU EHGULGGHQ 7KH PRVW SRSXODU LQVWUXPHQW WR VWDJH 3' LV WKH 8QLILHG
    3DUNLQVRQߤV'LVHDVH 5DWLQJ6FDOH 83'56  ZKLFK FRQWDLQV WKUHH VHFWLRQV   0HQWDWLRQ %HKDYLRU
    DQG 0RRG   $'/ DFWLYLWLHV RI GDLO\ OLYLQJ  DQG   0RWRU IXQFWLRQ $ WRWDO RI  SRLQWV DUH
    SRVVLEOHDQGKLJKHUVFRUHVUHSUHVHQWJUHDWHUGLVDELOLW\7KHDGGLWLRQRITXDOLW\RIOLIHDQGEHKDYLRUDO
    YDULDEOHV WR PRWRU FKDUDFWHULVWLFV RI WKH GLVHDVH KDV FRQWULEXWHG WR WKH 83'56ߤV ZLGH DFFHSWDQFH
    &DOQHDQG.ROOHU 

    'LDJQRVLV7KHFOLQLFDO3'GLDJQRVLVLVEDVHGXSRQIRXUV\PSWRPVEUDG\NLQHVLDULJLGLW\WUHPRU
    DQG SRVWXUDO LQVWDELOLW\ DOWKRXJK DOO IRXU QHHG QRW EH SUHVHQW 1R GLDJQRVWLF WHVW LV VSHFLILF WR 3'
    ZKLFK PD\ H[SODLQ ZK\ WKH GLDJQRVLV RI 3' LV LQFRUUHFW LQ DSSUR[LPDWHO\ RQHIRXUWK RI DXWRSVLHG
    FDVHV $- +XJKHV HW DO   &RPPRQ PLVGLDJQRVHV LQFOXGH FRQGLWLRQV VXFK DV SURJUHVVLYH
    VXSUDQXFOHDUSDOV\ 363  VHHSSߞ PXOWLSOHV\VWHPDWURSK\HVVHQWLDOWUHPRUDQGYDVFXODU
    SDUNLQVRQLVP (-1HZPDQHWDO6HOLNKRYDHWDO 05,PD\LGHQWLI\XQFRPPRQFDXVHV
    RISDUNLQVRQLVPVXFKDVPXOWLSOHLQIDUFWV

    3UHGLFWLQJFRXUVH 7KH DYHUDJH GXUDWLRQ RI LOOQHVV LV DERXW  \HDUV EXW WKH UDQJH LV ZLGH RQH
    VWXG\UHSRUWHGDUDQJHRIRQHWR\HDUV +RHKQDQG<DKU <RXQJHUDJHLQWDFWFRJQLWLRQODFN
    RIIDOOVDQGIHZELODWHUDOPRWRUV\PSWRPVDWLOOQHVVRQVHWDUHDVVRFLDWHGZLWKDVORZHUFRXUVHRIWKH
    GLVHDVH +DYLQJ D WUHPRU DV WKH VROH LQLWLDO V\PSWRP RU VXVWDLQHG GRPLQDQFH RI WUHPRU RYHU
    EUDG\NLQHVLD DQG ULJLGLW\ LV DVVRFLDWHG ZLWK D EHWWHU FRJQLWLYH RXWFRPH 6HOLNKRYD HW DO   ,Q
    FRQWUDVW 3' SDWLHQWV ZKR SUHVHQW ZLWK SRVWXUDO LQVWDELOLW\ DQG JDLW GLIILFXOW\ DV WKHLU PDMRU FOLQLFDO
    LPSDLUPHQW WHQG WR EH ROGHU WR EH PRUH FRJQLWLYHO\ LPSDLUHG DQG WR KDYH D PRUH UDSLG GLVHDVH
    SURJUHVVLRQ

    6HQVRULPRWRUVWDWXV

    6HQVRU\V\PSWRPVPD\SUHFHGHPRWRUV\PSWRPVDQGDUHDPDMRUGHWHUPLQDQWRITXDOLW\RIOLIH -XUL
    HWDO 3ULPDU\DPRQJVHQVRU\V\PSWRPVDUHSDLQDQGROIDFWRU\G\VIXQFWLRQ0RUHWKDQ
    RISDWLHQWVLQRQHVWXG\KDGROIDFWRU\GHILFLWVRQSDWKRORJLFH[DPLQDWLRQRIHLJKWEUDLQVDYDLODEOHIRU
    DXWRSV\ /HZ\ ERGLHV VKRZHG XS LQ HYHU\ ROIDFWRU\ EXOE VSHFLPHQ +DZNHV HW DO   2WKHU
    FRPSODLQWVPD\LQFOXGHQXPEQHVVDQGFROGQHVV .ROOHUE 2IWHQWKHVHV\PSWRPVDUHUHVWULFWHG
    WRWKHKHPLSDUNLQVRQVLGHDQGSUHFHGHPRWRUV\PSWRPV
    0RWRU VORZLQJ LV V\PSWRPDWLF RI 3' DQG DIIHFWV SHUIRUPDQFHV RQ DOO WLPHG WHVWV $GGLWLRQDOO\
    EH\RQGMXVWVORZHGLQLWLDWLQJRUFDUU\LQJRXWDFWLYLWLHVEUDG\SKUHQLD PHQWDOVORZLQJ RFFXUULQJLQ
    H[FHVV RI PRWRU VORZLQJ KDV EHHQ VKRZQ WR DIIHFW WKH EHKDYLRU RI PDQ\ 3' SDWLHQWV 3DWH DQG
    0DUJROLQ   D SKHQRPHQRQ RIWHQ DVVRFLDWHG ZLWK GHSUHVVLRQ /HHV   %UDG\SKUHQLD FDQ
    LQFUHDVH ZLWK WDVN FRPSOH[LW\ DV 3DUNLQVRQ SDWLHQWV PD\ KDYH QRUPDO UHDFWLRQ WLPHV EXW DUH
    DEQRUPDOO\VORZHGRQFKRLFHUHDFWLRQWLPHWHVWV &XPPLQJV+DQHV    +RZHYHURWKHUV
    KDYHQRWVKRZQWKDWUHDFWLRQWLPHVORZVZLWKJUHDWHUWDVNFRPSOH[LW\ 5DIDO3RVQHUHWDO&
    5REHUWVRQDQG(PSVRQ5XVVDQG6HJHU ,Q3'SDWLHQWVZLWKGHPHQWLD 3'' DQGSDWLHQWV
    ZLWK/HZ\ERG\GHPHQWLDEUDG\SKUHQLDKDVEHHQVKRZQWRFRUUHODWHSRVLWLYHO\ZLWKVHYHULW\RIRWKHU
    SDUNLQVRQLDQV\PSWRPV %DOODUGHWDO 

    &RJQLWLRQ

    $QHVWLPDWHGWRRI3DUNLQVRQSDWLHQWVKDYHVRPHGHJUHHRIFRJQLWLYHLPSDLUPHQW 6LOEHUW
    DQG .D\H    %\ DQG ODUJH WKH FRJQLWLYH GHILFLWV DVVRFLDWHG ZLWK WKH HDUO\ VWDJHV RI 3' DUH
    VLPLODU WRߟDQG RIWHQ LQGLVWLQJXLVKDEOH IURPߟWKH FRJQLWLYH GLVRUGHUV WKDW RFFXU ZLWK IURQWDO OREH
    GDPDJH SDUWLFXODUO\ ZLWK LQYROYHPHQW RI WKH SUHIURQWDO FRUWH[ %RQGL .DV]QLDN HW DO 
    :KLWHKHDG DQG %URZQ  =JDOMDUGLF %RURG HW DO   7KHVH SDWLHQWV WHQG WR GLVSOD\ VXFK
    FKDUDFWHULVWLFVRISUHIURQWDOG\VIXQFWLRQDVGLIILFXOWLHVLQVZLWFKLQJRUPDLQWDLQLQJDVHWLQLQLWLDWLQJ
    UHVSRQVHVLQVHULDODQGWHPSRUDORUGHULQJLQJHQHUDWLQJVWUDWHJLHV LHH[HFXWLYHSODQQLQJ DQGLQ
    PRQLWRULQJDQGUHJXODWLQJJRDOGLUHFWHGEHKDYLRU
    &RQIOLFWLQJ ILQGLQJV IURP GLIIHUHQW VWXGLHV DUH QRW XQFRPPRQ 7KH\ DUH SUREDEO\ GXH WR
    YDULDWLRQV LQ SURJUHVVLRQ RI GLVHDVH DPRQJ WKHVH SDWLHQWV GLIIHUHQW WRROV XVHG WR DVVHVV FRJQLWLRQ
    DQGZKHWKHUWKH\ZHUHPHGLFDWHGDWWKHWLPHRIWKHH[DPLQDWLRQ6HYHUDOEULHIFRJQLWLYHEDWWHULHVKDYH
    EHHQ GHVLJQHG IRU DVVHVVPHQW RI 3DUNLQVRQ SDWLHQWV .XOLVHYVN\ DQG 3DJRQDEDUUDJD   7KH
    6&DOHV IRU2XWFRPHV RI 3$UNLQVRQߤVGLVHDVH&RJQLWLRQ 6&23$&2*  0DULQXVHWDO  DQG WKH
    7KH 3DUNLQVRQߤV 'LVHDVH&RJQLWLYH 5DWLQJ 6FDOH 3'&56  ERWK FRQWDLQ LWHPV DVVHVVLQJ YHUEDO
    PHPRU\ DWWHQWLRQ ZRUNLQJ PHPRU\ YHUEDO IOXHQF\ DQG YLVXRVSDWLDO IXQFWLRQV 7KH 6&23$&2*
    LQFOXGHV D YLVXDO PHPRU\ LWHP DQG D FRXSOH RI SODQQLQJ WDVNV ZKLOH WKH 3'&56 DOVR FKHFNV
    FRQIURQWDWLRQDOQDPLQJ

    $WWHQWLRQ )RU DWWHQWLRQDO FDSDFLW\ DV PHDVXUHG E\ GLJLW VSDQ PRVW VWXGLHV KDYH IRXQG
    SHUIRUPDQFHV WR EH JHQHUDOO\ ZLWKLQ QRUPDO OLPLWV IRU GLJLWV IRUZDUG 5* %URZQ DQG 0DUVGHQ
    .ROOHUD $WWHQWLRQDOGHILFLWVDUHFRPPRQRQRWKHUW\SHVRIWHVWVDSSHDULQJPRVWXVXDOO\
    RQ FRPSOH[ WDVNV UHTXLULQJ VKLIWLQJ RU VXVWDLQHG DWWHQWLRQ &XPPLQJV  0XVOLPRYLF HW DO
     0- :ULJKW HW DO   6XSSUHVVLQJ QRQUHOHYDQW VWLPXOL LV GLIILFXOW IRU WKHVH SDWLHQWV
    =JDOMDUGLFHWDO 'LJLWVSDQUHYHUVHGLVOLNHO\WREHLPSDLUHG =JDOMDUGLFHWDO  DV DUH
    PHQWDOFDOFXODWLRQVWKDWUHTXLUHVXVWDLQHGZRUNLQJPHPRU\ $(7D\ORU6DLQW&\U/DQJDQG.HQQ\
      $WWHQWLRQ WHVWHG E\ FRQVRQDQW WULJUDPV ZDV LQWDFW ZLWK GHOD\V XS WR  VHF H[FHSW ZKHQ DQ
    LQWHUYHQLQJ GLVWUDFWRU ZDV LQWURGXFHG PDNLQJ WKLV D WHVW RI ZRUNLQJ PHPRU\ %URZQ3HWHUVRQ
    WHFKQLTXH IRUWKHQSDWLHQWVߤUHFDOOUDWHGURSSHGEHORZWKDWRIQRUPDOFRQWUROVXEMHFWV (96XOOLYDQ
    6DJDU &RRSHU DQG -RUGDQ   0RUH SURQRXQFHG ZRUNLQJ PHPRU\ GHILFLWV KDYH EHHQ UHSRUWHG
    IRUYLVXRVSDWLDOWDVNVWKDQIRUYHUEDOWDVNV 6LHJHUWHWDO EXWQRWZKHQWHVWHGZLWKDUHFRJQLWLRQ
    IRUPDW 3RVVLQHWDO 
    3DUNLQVRQ SDWLHQWVߤ FRJQLWLYH VORZLQJ LV RIWHQ HYLGHQW RQ UHDFWLRQ WLPH WDVNV SDUWLFXODUO\ WKRVH
    ZLWK FRPSOH[ FKRLFHV &RRSHU 6DJDU HW DO   $WWHPSWV WR VHSDUDWH WKH HIIHFWV RI FRJQLWLYH
    VORZLQJ IURP PRWRU VORZLQJ KDYH SURGXFHG PL[HG UHVXOWV :KHQ FRYHUW RULHQWLQJ RI DWWHQWLRQ ZDV
    H[DPLQHGRQDQGRIIPHGLFDWLRQLQFUHDVHGPRWRUVORZLQJRIIPHGLFDWLRQZDVQRWDFFRPSDQLHGE\
    LQFUHDVHGFRJQLWLYHVORZLQJOHDGLQJWRWKHFRQFOXVLRQWKDW3DUNLQVRQSDWLHQWVGRQRWQHFHVVDULO\KDYH
    VORZLQJ RI WKRXJKW 5DIDO 3RVQHU HW DO   6DZDPRWR DQG FROOHDJXHV   XVHG D PRUH
    FRPSOH[ PHQWDO RSHUDWLRQ WDVN LQ ZKLFK SDWLHQWV ZHUH LQVWUXFWHG WR PRYH D GRW PHQWDOO\ RQ D JULG
    DFFRUGLQJ WR PXOWLSOH YLVXDO LQVWUXFWLRQV RU WR FDOFXODWH WKH GD\ RI WKH ZHHN IURP D VWDUWLQJ GDWH
    DFFRUGLQJ WR VHULDO YLVXDO LQVWUXFWLRQV $V WKH UDWH RI SUHVHQWDWLRQ RI VWLPXOL DQG LQVWUXFWLRQV
    LQFUHDVHG FRJQLWLYH VORZLQJ LQ XSGDWLQJ RI PHQWDO UHSUHVHQWDWLRQV IRU 3DUNLQVRQ SDWLHQWV ZDV
    VLJQLILFDQWFRPSDUHGWRFRQWUROV
    0HPRU\ DQG OHDUQLQJ $ IDLUO\ FRQVLVWHQW SDWWHUQ RI PHPRU\ DQG OHDUQLQJ LPSDLUPHQWV KDV
    HPHUJHG GHVSLWH VRPH FRQWUDGLFWRU\ ILQGLQJV ERWK EHWZHHQ DQG ZLWKLQ VWXGLHV ZKLFK LQ WKH ODWWHU
    KDYH EHHQ H[SODLQHG E\ VWULNLQJ YDULDWLRQV ZLWKLQ WKH SDWLHQW JURXS HJ VHH (O$ZDU HW DO 
    )ROW\QLHHWDO 2ULHQWDWLRQLVW\SLFDOO\LQWDFW &XPPLQJV 
    ,PPHGLDWHUHFDOOIRUZRUGOLVWVRUVWRULHV 0DVVPDQ'HOLV%XWWHUVHWDO7URVWHU6WDOSHW
    DO   RU SLFWXUHV :KLWWLQJWRQ 3RGG DQG 6WHZDUW:LOOLDPV   LV OLNHO\ WR EH LPSDLUHG
    'HOD\HGUHFDOORIXQUHODWHGYHUEDOPDWHULDOLVSDUWLFXODUO\LPSDLUHG =DN]DQLVDQG)UHHGPDQ 
    ,Q D VWXG\ FRPSDULQJ QRQPHGLFDWHG SDWLHQWV ZLWK HDUO\ 3' WR FRQWUROV WKH HIIHFW VL]HV RQ DOO
    QHXURSV\FKRORJLFDOWHVWVZHUHVPDOOZLWKWKHODUJHVWHIIHFWVL]HIRUYHUEDOZRUGOHDUQLQJ $DUVODQG
    %URQQLFNHWDO 7KHOLWHUDWXUHLVLQFRQVLVWHQWDERXWZKHWKHUUHFRJQLWLRQPHPRU\LVLPSDLUHG
    0F3KHUVRQDQG &XPPLQJV   6RPH VWXGLHV KDYH UHSRUWHG WKDW 3DUNLQVRQ SDWLHQWV ZLOO WHQG WR
    SHUIRUP ZLWKLQ QRUPDO OLPLWV ZKHQ DVVLVWDQFH LV SURYLGHG WKURXJK FXHLQJ DV LQ SDLUHG DVVRFLDWH
    OHDUQLQJ +DUULQJWRQ +DDODQG HW DO  .ROOHU D  RU LQ D UHFRJQLWLRQ IRUPDW )ORZHUV
    3HDUFHDQG3HDUFH$(7D\ORU6DLQW&\UDQG/DQJ +RZHYHURWKHUVWXGLHVIRXQGQR
    LPSURYHPHQW ZLWK FXHLQJ HJ 0DVVPDQ HW DO   :KLWWLQJWRQ DQG FROOHDJXHV   UHSRUWHG
    WKDW UHFRJQLWLRQ PHPRU\ LV LQWDFW RQO\ LQ HDUO\ VWDJH 3' DQG RQO\ DW WKH HDV\ WDVN OHYHO 3DUNLQVRQ
    SDWLHQWVEHQHILWZKHQJLYHQOHDUQLQJVWUDWHJLHVVXFKDVFDWHJRUL]LQJWKHVWLPXOLEXWWKH\DUHXQOLNHO\
    WR LQLWLDWH VWUDWHJLHV +- %HUJHU HW DO   6HTXHQFLQJ DQG RWKHU RUGHULQJ UHTXLUHPHQWV JUHDWO\
    LQFUHDVHWKHGLIILFXOW\RIWKHOHDUQLQJWDVNIRUWKHVHSDWLHQWV :HLQJDUWQHU%XUQVHWDO 
    :KHQYLVXDOPHPRU\UHTXLUHVDPRWRUUHVSRQVH 5*%URZQDQG0DUVGHQ3LOORQ'XERLV
    /KHUPLWWHDQG$JLG RUVWUDWHJLFSURFHVVLQJ 3LOORQ'HZHHUHWDO  3DUNLQVRQ SDWLHQWV
    WHQG WR SHUIRUP SRRUO\ ,QWDFW YLVXDO OHDUQLQJ LV VXJJHVWHG ZKHQ LW LV H[DPLQHG E\ D UHFRJQLWLRQ
    IRUPDW )ORZHUV3HDUFHDQG3HDUFH %RWKVSDWLDODQGSDWWHUQUHFRJQLWLRQKDYHEHHQVKRZQWR
    EHGHILFLHQWEXWOHVVVRZLWKORQJHUGHOD\LQWHUYDOV %HDWW\ \HWVSDWLDOOHDUQLQJUHPDLQVLQWDFW
    -$ &RRSHU DQG 6DJDU   3DUNLQVRQ SDWLHQWVߤ SRRU SHUIRUPDQFH RQ PHPRU\ WDVNV KDV EHHQ
    DWWULEXWHGWRIURQWDOH[HFXWLYHGHILFLWV =JDOMDUGLFHWDO 
    3URFHGXUDO DQG VNLOO OHDUQLQJ PD\ EH FRPSURPLVHG ZLWK WKH GHJUHH RI LPSDLUPHQW UHODWLQJ WR
    VHYHULW\RIWKHGLVHDVH +DDODQGDQG+DUULQJWRQ+DUULQJWRQ+DDODQGHWDO VXSSRUWLQJ
    WKH FRQMHFWXUH WKDW WKH EDVDO JDQJOLD SOD\ DQ LPSRUWDQW UROH LQ PRWRU VNLOO OHDUQLQJ DQG LPSOLFLW
    OHDUQLQJ)RUH[DPSOH+HLQGHO6DOPRQ6KXOWVDQGWKHLUFROOHDJXHV  UHSRUWHGWKDWSURFHGXUDO
    OHDUQLQJLPSDLUPHQWVRFFXUUHGRQO\LQSDWLHQWVZLWKSURQRXQFHGFRJQLWLYHGHILFLWV3DUNLQVRQSDWLHQWV
    FDQGHYLVHDVLPSOHPRWRUSURJUDPDQGXVHLWHIIHFWLYHO\H[FHSWZKHQUHTXLUHGWRGHYHORSFRPSHWLQJ
    PRWRU SURJUDPV RU VZLWFK DPRQJ PRWRU SURJUDPV +DDODQG +DUULQJWRQ HW DO   ,PSOLFLW
    VHTXHQFHOHDUQLQJLVOLNHO\WREHVLJQLILFDQWO\VORZHGDVVKRZQLQDVWXG\XVLQJVHULDOUHDFWLRQWLPH
    WDVNV LQ ZKLFK SDWLHQWV UHVSRQG WR D VWLPXOXV WKDW DSSHDUV LQ RQH RI IRXU SRVVLEOH ORFDWLRQV RQ D
    FRPSXWHUVFUHHQDFFRUGLQJWRDQXQDQQRXQFHGVHTXHQFH 6LHJHUWHWDO <HW%HDWW\DQG0RQVRQ
    IRXQGVNLOOOHDUQLQJWREHQRUPDOIRU3DUNLQVRQSDWLHQWVZLWKRUZLWKRXWGHPHQWLD VHH%HDWW\ 
    6XFKFRQWUDGLFWRU\ILQGLQJVUDLVHTXHVWLRQVRIVXEMHFWVHOHFWLRQLQDFRQGLWLRQZLWKVRPDQ\V\PSWRP
    YDULDEOHV
    5HPRWHUHFDOOWHQGVWREHLPSDLUHG %HDWW\DQG0RQVRQ9HQQHULHWDO EXWQRWLQDOO
    VWXGLHV )DPD6XOOLYDQHWDOD 3URVSHFWLYHPHPRU\LVLPSDLUHG (5)RVWHU0F'DQLHOHWDO
    .DWDL0DUX\DPDHWDO 'DWDDUHFRQIOLFWLQJRQZKHWKHUGHSUHVVLRQFRQWULEXWHVWRSRRU
    PHPRU\SHUIRUPDQFH %ROOHU0DUFLHHWDO61RUPDQ7U¸VWHUHWDO 

    9HUEDOIXQFWLRQV9RFDEXODU\JUDPPDUDQGV\QWD[UHPDLQHVVHQWLDOO\LQWDFWLQ3' %D\OHV
    -$ 6PDOO /\RQV DQG .HPSHU   DOWKRXJK ERWK SKUDVH OHQJWK DQG RYHUDOO RXWSXW WHQG WR EH
    UHGXFHG %D\OHV 7RPRHGD .DV]QLDN HW DO   /LNH RWKHU PRWRU UHVSRQVHV 3DUNLQVRQ SDWLHQWV
    KDYH GLIILFXOW\ PDLQWDLQLQJ D SURJUDPPHG YHUEDO UHVSRQVH DQG UDSLG VZLWFKLQJ EHWZHHQ UHVSRQVHV
    .$6SHQFHUDQG 5RJHUV   3UREOHPV ZLWK FRPSUHKHQGLQJ FRPSOH[ FRPPDQGV DQG FRPSOH[
    VHQWHQFH VWUXFWXUH KDYH EHHQ DWWULEXWHG WR OLPLWDWLRQV LQ ZRUNLQJ PHPRU\ 0F3KHUVRQ DQG
    &XPPLQJV 3DUNLQVRQSDWLHQWVWHQGWRSHUIRUPEHORZH[SHFWDWLRQRQYHUEDOIOXHQF\WHVWVEXW
    WKHHIIHFWLVVPDOO -'+HQU\DQG&UDZIRUG 9HUEDOIOXHQF\LVUHODWHGWRGRSDPLQHGHSOHWLRQ
    DV VKRZQ E\ 3(7 5LQQH 3RUWLQ HW DO   2Q IOXHQF\ WULDOV ERWK RQ DQG RII /GRSD GHFUHDVHG
    RXWSXWRFFXUUHGRQO\ZKHQSDWLHQWVZHUHQRWUHFHLYLQJ/GRSD *RWKDPHWDO 
    5HSRUWV RI FRQIURQWDWLRQ QDPLQJ GHILFLWV DUH DOPRVW HYHQO\ GLYLGHG EHWZHHQ VWXGLHV WKDW IRXQG
    WKHP %D\OHV :3 *ROGPDQ HW DO   DQG WKRVH WKDW GLG QRW &XPPLQJV 'DUNLQV HW DO
    3LOORQ'XERLV/KHUPLWWHDQG$JLG )LQGLQJVOLQNLQJLPSDLUHGQDPLQJZLWKVHYHULW\RI
    FRJQLWLYH GHILFLWV VXJJHVW WKDW WKH QDPLQJ GLVRUGHU HPHUJHV ODWHU WKDQ RWKHU YHUEDO G\VIXQFWLRQV
    QRWDEO\ G\VIOXHQF\ %D\OHV DQG 7RPRHGD  *XUG DQG :DUG   1RW VXUSULVLQJO\ RUDO
    UHDGLQJLVVORZHG &RUNLQ*URZGRQ'HVFORVDQG5RVHQ 

    9LVXRVSDWLDO IXQFWLRQV 9LVXRVSDWLDO LPSDLUPHQWV DUH IUHTXHQWO\ GHVFULEHG LQ 3DUNLQVRQ SDWLHQWV
    5*%URZQDQG0DUVGHQ&XPPLQJVDQG+XEHU 'HILFLWVKDYHEHHQUHSRUWHGIRUYLVXDO
    DQDO\VLVDQGV\QWKHVLVYLVXDOGLVFULPLQDWLRQDQGPDWFKLQJDQGSDWWHUQFRPSOHWLRQ 0F3KHUVRQ DQG
    &XPPLQJV DQGIRUERWKSHUVRQDODQGH[WUDSHUVRQDORULHQWDWLRQVH[FHSWIRUHTXLYRFDOILQGLQJV
    IRUOHIWߞULJKWRULHQWDWLRQ 5*%URZQDQG0DUVGHQ 7KHVHSDWLHQWVKDYHGLIILFXOW\ZLWK:,6$
    %ORFN 'HVLJQ DQG 2EMHFW $VVHPEO\ WHVWV *LURWWL HW DO  :3 *ROGPDQ %DW\ HW DO 
    =DN]DQLV DQG )UHHGPDQ   0RUWLPHU 3LUR]]ROR DQG WKHLU FROOHDJXHV   IRXQG WKDW JRRG
    SHUIRUPDQFHRQYLVXRVSDWLDOWDVNVZDVDVVRFLDWHGZLWKWUHPRUSRRUSHUIRUPDQFHZLWKEUDG\NLQHVLD
    0RVW VWXGLHV FRQWUROOHG RU DFFRXQWHG IRU PRWRU GLVRUGHU EHIRUH UHSRUWLQJ YLVXRVSDWLDO GHILFLWV
    HJ%ROOHU3DVVDILXPHHWDO&XPPLQJV 6WLOOWKHQDWXUHRIWKHVHSUREOHPVKDVEHHQ
    TXHVWLRQHGE\VWXGLHVILQGLQJWKDWYLVXRVSDWLDOIXQFWLRQVDUHQRWXQGXO\LPSDLUHGLQ3DUNLQVRQSDWLHQWV
    VHH %( /HYLQ  ߟDW OHDVW LQ WKRVH ZKRVH PRWRU SUREOHPV DUH QRW SUHGRPLQDQWO\ OHIWVLGHG
    5DWKHU ZKDW DSSHDUV DV D YLVXRVSDWLDO GLVRUGHU PD\ EH EHVW XQGHUVWRRG LQ WHUPV RI H[HFXWLYH
    G\VIXQFWLRQV VHHEHORZ &RS\DQGUHFDOOGUDZLQJVRIWKH5H\2VWHUULHWK&RPSOH[)LJXUHDUHSRRUO\
    RUJDQL]HG ZLWK VLJQLILFDQW RPLVVLRQV GHILFLWV WKDW LPSOLFDWH H[HFXWLYH G\VIXQFWLRQV EXW ERWK
    YLVXRSHUFHSWXDO DQG PRWRU GHIHFWV DOVR FRQWULEXWHG WR LPSDLUHG SHUIRUPDQFHV OHDGLQJ WR WKH
    FRQFOXVLRQ WKDW ߧYLVXDO FRQVWUXFWLRQ LPSDLUPHQWV LQ 3' DUH PXOWLIDFWRULDO LQ QDWXUHߨ 0 *URVVPDQ
    &DUYHOOHWDO 

    7KLQNLQJDQGUHDVRQLQJ7HVWEDWWHULHVDVVHPEOHGWRH[DPLQH3DUNLQVRQSDWLHQWVW\SLFDOO\RPLWWHVWV
    RIUHDVRQLQJDQGMXGJPHQWEXWZKDWVSDUVHILQGLQJVDUHDYDLODEOHLQGLFDWHWKDWLQWKLVDUHD3DUNLQVRQ
    SDWLHQWVWHQGWRSHUIRUPQRUPDOO\ߟRQWHVWVRIFRPSUHKHQVLRQRIFRPSOH[LGHDWLRQDOPDWHULDO 0/
    $OEHUW  +DDODQG SHUVRQDO FRPPXQLFDWLRQ  /RUDQJHU HW DO   RQ WKH &RJQLWLYH
    (VWLPDWH WHVW /HHV DQG 6PLWK   DQG WR KDYH D UHDOLVWLF DSSUHFLDWLRQ RI WKHLU FRQGLWLRQ DQG
    OLPLWDWLRQV 5*%URZQ0DF&DUWK\HWDO0F*O\QQDQG.DV]QLDN 5HSRUWVRQFRQFHSW
    IRUPDWLRQ DUH FRQWUDGLFWRU\ $ PHWDDQDO\VLV IRXQG PHGLXP HIIHFW VL]H RQ :,6$ 6LPLODULWLHV
    =DN]DQLVDQG)UHHGPDQ 6PDOOGHILFLWVZHUHDOVRIRXQGIRU3DUNLQVRQSDWLHQWVRQWKH7ZHQW\
    4XHVWLRQV7HVW =JDOMDUGLFHWDO 

    ([HFXWLYHIXQFWLRQV

    7KH DWWULEXWHV RI WKLQNLQJߟUHDVRQLQJ SUREOHP VROYLQJ MXGJPHQW DQG FRQFHSW IRUPDWLRQߟFDQ EH
    GLVWLQJXLVKHGRQHIURPDQRWKHUDQGDUHFOHDUO\GLVVRFLDEOHIURPH[HFXWLYHIXQFWLRQV\HW3DUNLQVRQ
    SDWLHQWV FRQVLVWHQWO\ IDLO WHVWV FRPSULVLQJ ERWK FRQFHSWXDO DQG H[HFXWLYH IXQFWLRQV $ 0F.LQOD\
      7HVWV ZKLFK UHTXLUH ERWK FRQFHSW IRUPDWLRQ DQG WKH DELOLW\ WR VKLIW VHWV HOLFLW GHIHFWLYH
    SHUIRUPDQFHV IURP PRVW 3DUNLQVRQ SDWLHQWV HJ 5DYHQ 3URJUHVVLYH 0DWULFHV 6- +XEHU
    6KXWWOHZRUWK 3DXOVRQ HW DO  3LOORQ 'XERLV HW DO    WKH :LVFRQVLQ &DUG 6RUWLQJ
    7HVW /HHV DQG 6PLWK  $( 7D\ORU 6DLQW&\U DQG /DQJ   DQG WKH &DWHJRU\ 7HVW &*
    0DWWKHZV DQG +DDODQG   7KHVH SDWLHQWV W\SLFDOO\ PDNH HUURUV ZKHQ WKH\ DUH ILUVW UHTXLUHG WR
    IRUPXODWH D VWUDWHJ\ RQFH WKH\ KDYH DFTXLUHG D VROXWLRQ VHW WKH\ SHUIRUP DW QHDUQRUPDO OHYHOV
    6DLQW&\U DQG 7D\ORU   %RWK WKH VKLIWLQJ FRPSRQHQW RI DQ\ WDVN DQG PDLQWDLQLQJ D VHW DUH
    GLIILFXOWIRUWKHP )ORZHUVDQG5REHUWVRQ+DDODQGDQG+DUULQJWRQ EXWSUREOHPVLQVHW
    VKLIWLQJPD\EHSUHGRPLQDQW &RROVHWDO )UHTXHQWO\DSSHDULQJ SUREOHPV LQVHOIPRQLWRULQJ
    *LURWWL HW DO   DQG VHOIFRUUHFWLRQ KDYH EHHQ DWWULEXWHG WR GLIILFXOWLHV LQ VKLIWLQJ VHWV RU WR
    IDLOXUHWRLQLWLDWHFKDQJHVWKH\SHUFHLYHGZHUHQHHGHG 2JGHQ*URZGRQDQG&RUNLQ 
    3DUNLQVRQ SDWLHQWV KDYH GLIILFXOW\ DGDSWLQJ WR QRYHOW\ UHJDUGOHVV RI WKH PRGDOLW\ LQ ZKLFK LW
    DSSHDUV $( 7D\ORU DQG 6DLQW&\U   5HVSRQVH VORZLQJ PD\ DOVR FRQWULEXWH WR H[HFXWLYH
    GHILFLWV 5*%URZQDQG0DUVGHQ'DXPDQG4XLQQ $( 7D\ORU 6DLQW&\UDQG /DQJ
      ,QDELOLW\ WR RUJDQL]H SHUFHSWV LQ D SODQIXO PDQQHUߟZKDW 2JGHQ DQG KHU FROOHDJXHV FDOOHG
    ߧIRUZDUG SODQQLQJߟVKRZV XS DV D VHTXHQFLQJ GHILFLW ZKHQ WKHVH SDWLHQWV PXVW RUJDQL]H SLFWXUH
    VWRULHV VHULDOO\ HJ :,6$ 3LFWXUH $UUDQJHPHQW  DQG LV DQRWKHU DVSHFW RI LPSDLUHG H[HFXWLYH
    IXQFWLRQLQJLGHQWLILHGLQ3DUNLQVRQSDWLHQWV 0RUWLPHUD2JGHQ *URZGRQ DQG &RUNLQ 
    (9 6XOOLYDQ 6DJDU HW DO   3ODQQLQJ RQ WKH 7RZHU RI /RQGRQ WHVW RU WKH VRPHZKDW PRUH
    GHPDQGLQJ7RZHURI7RURQWRWHVWSURFHHGVVORZO\ $(7D\ORUDQG6DLQW&\U 
    6RPH UHVHDUFKHUV KDYH SRVWXODWHG WKDW DOO RI WKHVH GHILFLWV PD\ EH GXH WR GHIHFWLYH EHKDYLRUDO
    UHJXODWLRQ DULVLQJ IURP DQ LPSDLUPHQW RI FHQWUDO SURJUDPPLQJ 5* %URZQ DQG 0DUVGHQ 
    +DDODQGDQG+DUULQJWRQ<6WHUQ0D\HX[DQG5RVHQ RUIURPGLIILFXOW\VHOHFWLQJDQG
    H[HFXWLQJ PHQWDO VWUDWHJLHV HIILFLHQWO\ =JDOMDUGLF HW DO   +DUULQJWRQ DQG +DDODQG E
    VXJJHVWHG WKDW YLVXRSHUFHSWXDO GHILFLWV DQG VOXJJLVK VKLIWLQJ PD\ DOVR FRQWULEXWH WR WKHVH SDWLHQWVߤ
    PRWRUUHJXODWLRQGLVRUGHU

    3HUVRQDOLW\DQGHPRWLRQDOEHKDYLRU

    'HSUHVVLRQ LV RQH RI WKH PRUH FRQVLVWHQW IHDWXUHV RI SDUNLQVRQLVP ZLWK PRVW HVWLPDWHV RI LWV
    RFFXUUHQFHLQWKHWRUDQJH $/LHEHUPDQ7U¸VWHUDQG)LHOGV EXWLWKDVDOVR
    EHHQ UHSRUWHG WR EH DV KLJK DV  %LHOLDXVNDV DQG *ODQW]   ,Q DQ H[WHQVLYH UHYLHZ RI WKH
    OLWHUDWXUH &XPPLQJV   UHSRUWHG WKDW GHSUHVVLRQ RFFXUV LQ DSSUR[LPDWHO\  RI 3' SDWLHQWV
    DQG LV GLVWLQJXLVKDEOH IURP RWKHU GHSUHVVLYH GLVRUGHUV E\ JUHDWHU DQ[LHW\ DQG OHVV VHOISXQLWLYH
    LGHDWLRQ 5DWHV RI GHSUHVVLRQ ZHUH ORZHU LQ VWXGLHV ODFNLQJ VWDQGDUGL]HG UDWLQJ RU LQWHUYLHZ
    SURWRFROV 0HDQ UHSRUWHG VFRUHV RQ WKH PRVW FRPPRQO\ XVHG LQVWUXPHQW WKH %HFN 'HSUHVVLRQ
    ,QYHQWRU\ %', ZHUHKLJK LHLQWKHDEQRUPDOGLUHFWLRQ LQWKHQRUPDOWRVXEFOLQLFDOUDQJH
    &XPPLQJV  REVHUYHGWKDWGHSUHVVLRQLQ3'ZDVLQLWLDOO\FRQVLGHUHGWREHDUHDFWLRQWRWKH
    SDWLHQWߤVFKURQLFDQGSURJUHVVLYHQHXURORJLFLPSDLUPHQWV,WHPDQDO\VLVRIWKHVHSDWLHQWVߤUHVSRQVHV
    RQWKH%',VKRZHGJUHDWHUG\VSKRULDDQGSHVVLPLVPLUULWDELOLW\VDGQHVVDQGVXLFLGDOLGHDWLRQZLWK
    OLWWOH RI WKH JXLOW VHOIEODPH IHHOLQJV RI IDLOXUH RU IHDU RI SXQLVKPHQW WKDW FKDUDFWHUL]H FODVVLFDO
    LGLRSDWKLFGHSUHVVLRQ&XPPLQJVIXUWKHUQRWHGWKDW3'SDWLHQWVDOVRKDYHDKLJKIUHTXHQF\RIDQ[LHW\
    V\PSWRPV ZLWK IHZ GHOXVLRQV RU KDOOXFLQDWLRQV +H FRQFOXGHG WKDW WKHVH VXEWOH GLIIHUHQFHV EHWZHHQ
    GHSUHVVLRQ LQ 3' DQG LGLRSDWKLF PRRG GLVRUGHUV VXJJHVW WKDW WKLV PD\ EH D GLVHDVHVSHFLILF
    GHSUHVVLRQ V\QGURPH ZLWK GLVWLQFWLYH PRRG SURILOHV IXUWKHU QRWLQJ WKDW GHSUHVVLRQ LQ 3' LQYROYHG
    PHVRFRUWLFDOSUHIURQWDOG\VIXQFWLRQDVVRFLDWHGZLWKUHZDUGPRWLYDWLRQDQGVWUHVVUHVSRQVHV\VWHPV
    +RZHYHUPDQ\VWXGLHVVXJJHVWHGRWKHUZLVHDVWKHGXUDWLRQRI3'DSSHDUVXQUHODWHGWRWKHSUHVHQFH
    RI GHSUHVVLRQ 'HVSLWH IUHTXHQW VXLFLGDO LGHDWLRQ 3' SDWLHQWV KDYH D YHU\ ORZ VXLFLGH UDWH HJ
    0\VORERGVN\HWDO 
    'HSUHVVLRQLQ3'LVKLJKHULQSDWLHQWVZLWKWKHDNLQHWLFULJLGW\SHRI3'FRPSDUHGWRFODVVLF3'
    LH WUHPRU ULJLGLW\ DQGRU EUDG\NLQHVLD  DQG LQ SDWLHQWV ZLWK ULJKWVLGHG PRWRU V\PSWRPV :0
    0F'RQDOG 5LFKDUG DQG 'H/RQJ   $OWKRXJK GHSUHVVLRQ PD\ VHHP WR EH DQ DSSURSULDWH
    UHVSRQVHWRWKHFULSSOLQJV\PSWRPVRISDUNLQVRQLVPLWWHQGVWREHXQUHODWHGWRWKHVHYHULW\RIPRWRU
    V\PSWRPV 0D\HX[ 6WHUQ &RWH DQG :LOOLDPV  60 5DR +XEHU DQG %RUQVWHLQ    WR
    FRJQLWLYHLPSDLUPHQWZKHQLWLVQRWVHYHUH 605DRHWDO RUWRRWKHUSDWLHQWFKDUDFWHULVWLFV
    VXFKDVDJHRUVH[H[WHQWRIGLVDEOHPHQWRUPHGLFDWLRQUHJLPHQ $(7D\ORU6DLQW&\U/DQJDQG
    .HQQ\ ,WLVPRUHOLNHO\WRGHYHORSZKHQFRJQLWLYHLPSDLUPHQWVDUHVHYHUH 0D\HX[6WHUQHW
    DO    DOWKRXJK RQO\  RI 3DUNLQVRQ SDWLHQWV ZHUH ERWK GHSUHVVHG DQG GHPHQWHG LQ D
    VHULHVLQZKLFKZHUHFOLQLFDOO\GHSUHVVHGEXWZLWKRXWGHPHQWLDDQGKDGGHPHQWLDEXWZHUH
    QRWGHSUHVVHG 6DQR 6WHUQ HW DO  :KHQ FRPSDUHGZLWKSDWLHQWV ZLWK RWKHU HTXDOO\ FULSSOLQJ
    GLVRUGHUV PRVW VWXGLHV KDYH IRXQG WKDW PRUH 3DUNLQVRQ SDWLHQWV ZHUH GHSUHVVHG &RQQ  
    .DV]QLDN 6DGHK DQG 6WHUQ   SRLQW RXW VRPH RI WKH GLIILFXOWLHV LQ GLDJQRVLQJ GHSUHVVLRQ LQ
    EUDG\NLQHWLF SDWLHQWV LQ ZKRP UHGXFHG OHYHOV RI PRWRU DFWLYLW\ IDFLDO LPSDVVLYLW\ DQG VORZHG
    UHVSRQGLQJ FDQ PDNH WKHP DSSHDU GHSUHVVHG D SUREOHP FRPSRXQGHG E\ WKH XQUHOLDELOLW\ RI VHOI
    UHSRUWVRIFRJQLWLYHO\LPSDLUHGSDWLHQWV VHHDOVR$UFLQLHJDVDQG%HUHVIRUG 
    'HSUHVVLRQ LPSURYHV WUDQVLHQWO\ EXW QRW VLJQLILFDQWO\ ZKHQ WUHDWPHQW ZLWK /GRSD UHGXFHV
    GLVDELOLW\ 6DQWDPDULDDQG7RORVD 3DUNLQVRQGHSUHVVLRQKDVDORZUHPLWWDQFHUDWHDQGWHQGVWR
    EH UHVLVWDQW WR WUHDWPHQWV GHVLJQHG IRU LGLRSDWKLF GHSUHVVLRQ ZKLFK VXJJHVWV WKDW UDWKHU WKDQ EHLQJ
    GXH WR VHURWRQLQ GHSOHWLRQ ߧGHSUHVVLRQ LQ 3' PD\ EH D IXQFWLRQ RI WKH QHXURELRORJ\ RI 3'
    LWVHOIߨ $UFLQLHJD DQG %HUHVIRUG  S   $ FRPSOH[ FRPELQDWLRQ RI DEQRUPDOLWLHV LQ
    GRSDPLQHUJLF QRUDGUHQHUJLF DQG VHURWRQHUJLF WUDQVPLWWHUV V\VWHPV LV OLNHO\ LQYROYHG 0F3KHUVRQ
    DQG&XPPLQJV $Q[LHW\DQGSDQLFDWWDFNVPD\DOVRRFFXU 0F3KHUVRQDQG&XPPLQJV
    7U¸VWHUDQG)LHOGV DOWKRXJKPRUHIUHTXHQWO\GXULQJPHGLFDWLRQߧRIIߨSHULRGV

    3DUNLQVRQGLVHDVHGHPHQWLD 3''

    (VWLPDWHVRIWKHSUHYDOHQFHRIGHPHQWLDLQWKHVHSDWLHQWVKDYHUDQJHGIURPWR 7U¸VWHUDQG
    )LHOGV>@VD\ߧWR ZLWKDQHVWLPDWHGEDVHGRQIRXUVWXGLHVZLWKWKHPRVWULJRURXV
    PHWKRGRORJ\ $DUVODQG=DFFDL DQG %UD\QH   7KH GHPHQWLD V\QGURPH KDV DQ LQVLGLRXV RQVHW
    DQG VORZ SURJUHVVLRQ $Q DGGLWLRQDO  RI SDWLHQWV PD\ VKRZ VLJQV RI FRJQLWLYH LPSDLUPHQW
    ZLWKRXW IUDQN GHPHQWLD $ /LHEHUPDQ   $OWKRXJK 3' ZLWK GHPHQWLD 3''  DQG /HZ\ ERG\
    GHPHQWLD VKDUH PDQ\ SDWKRORJLFDO DQG FOLQLFDO IHDWXUHV WKH\ SUHVHQW WZR FOLQLFDO HQWLWLHV RQ D
    VSHFWUXP RI /HZ\ ERG\ GLVHDVH (PUH HW DO  6LOEHUW DQG .D\H   /LNH /HZ\ ERG\
    GHPHQWLD WKH FRQGLWLRQ LV D GLVRUGHU RI DV\QXFOHLQ PHWDEROLVP 7U¸VWHU   7\SLFDOO\ WKH
    GLDJQRVLV RI 3'' LV PDGH ZKHQ GHPHQWLD GHYHORSV ZLWKLQ WKH FRQWH[W RI HVWDEOLVKHG 3' ZKLOH WKH
    GLDJQRVLVRI'/%LVXVHGZKHQWKHGLDJQRVLVRIGHPHQWLDSUHFHGHVRUFRLQFLGHVZLWKLQRQH\HDURI
    WKH GHYHORSPHQW RI PRWRU V\PSWRPV &RPSOLFDWLQJ SUREOHPV ZLWK GLDJQRVLV DQG SUHYDOHQFH
    DFFXUDF\3'DQG'/%IUHTXHQWO\FRH[LVWZLWK$' *DOYLQ 
    $QXPEHURIULVNIDFWRUVIRU3'FRQYHUVLRQWR3''KDYHEHHQLGHQWLILHGLQFOXGLQJROGHUDJHZKHQ
    GHPHQWLD V\PSWRPV DSSHDU PRUH VHYHUH SDUNLQVRQLVP LQ WKH IRUP RI ULJLGLW\ SRVWXUDO LQVWDELOLW\
    DQGJDLWGLVWXUEDQFHSUHVHQFHRIKDOOXFLQDWLRQVDQGPLOGFRJQLWLYHLPSDLUPHQWFRLQFLGLQJZLWKWKH
    RQVHWRIH[WUDS\UDPLGDOV\PSWRPV *RHW](PUHDQG'XERLV
    */HY\6FKXSIHWDO 5HSRUWVRIVSHFLILFFRJQLWLYHULVNIDFWRUVKDYHYDULHGFRQVLGHUDEO\
    DOWKRXJKPRVWIRXQGH[HFXWLYHG\VIXQFWLRQDQGPHPRU\LPSDLUPHQWGHYHORSLQJHDUO\LQWKHFRXUVH
    RIWKHGLVHDVHWREHSUHGLFWLYH -DQYLQHWDO*/HY\-DFREVHWDO0DKLHX[)HQHORQHW
    DO  :RRGV DQG 7U¸VWHU   6PDOO VDPSOH VL]HV DQG VKRUW IROORZXS GXUDWLRQV SUREDEO\
    DFFRXQWIRULQFRQVLVWHQFLHVDFURVVVWXGLHV
    7KHGHPHQWLDDVVRFLDWHGZLWK3'RIWHQGHVFULEHGDVDG\VH[HFXWLYHV\QGURPHLVVLPLODUWR/%'
    WKH\FDQQRWEHUHOLDEO\GLVWLQJXLVKHG VHH7DEOHS  7U¸VWHU ,QDGGLWLRQWRGHILFLWVLQ
    LQLWLDWLRQSODQQLQJFRQFHSWIRUPDWLRQSUREOHPVROYLQJVHWVKLIWLQJDQGDELOLW\WRVXVWDLQDWWHQWLRQ
    YLVXRVSDWLDOSURFHVVLQJDQGFRQVWUXFWLRQVDUHLPSDLUHG *RHW](PUHDQG'XERLV0F3KHUVRQ
    DQG &XPPLQJV  6WDUNVWHLQ 6DEH HW DO   ,PSDLUPHQWV RQ %ORFN 'HVLJQ DUH KLJKO\
    FRUUHODWHGZLWKGHPHQWLDDQGGLVHDVHGXUDWLRQ %(/HYLQHWDO DVDUHYLVXRVSDWLDORULHQWDWLRQ
    GHILFLWV 5DVNLQ %RURG :DVVHUVWHLQ HW DO   8QOLNH WKHLU QRQGHPHQWHG FRXQWHUSDUWV WKHVH
    SDWLHQWV KDYH LPSDLUHG YHUEDO IOXHQF\ :RRGV DQG 7U¸VWHU   SHUKDSV JUHDWHU IRU DFWLRQ YHUE
    QDPLQJ  IOXHQF\ 3LDWW )LHOGV HW DO   'HILFLWV LQ OHDUQLQJ DQG PHPRU\ .X]LV 6DEH HW DO
     LQFOXGHUHFRJQLWLRQPHPRU\ :KLWWLQJWRQ3RGGDQG.DQ EXWJHQHUDOO\DUHOHVVVHYHUH
    WKDQH[HFXWLYHGHILFLWV :RRGVDQG7U¸VWHU &RPPRQEHKDYLRUDOIHDWXUHVDUHDSDWK\FKDQJHLQ
    SHUVRQDOLW\ GHSUHVVLRQ RU DQ[LHW\ KDOOXFLQDWLRQV PRVWO\ YLVXDO  GHOXVLRQV XVXDOO\ SDUDQRLG  DQG
    H[FHVVLYHGD\WLPHVOHHSLQHVV *RHW](PUHDQG'XERLV 

    7UHDWPHQW

    0HGLFDO WUHDWPHQW RI 3' IRFXVHV RQ V\PSWRPDWLF PHGLFDWLRQ DQG GHFUHDVLQJ WKH UDWH RI GLVHDVH
    SURJUHVVLRQ ZLWK QHXURSURWHFWLYH DJHQWV 3HUKDSV WKH PRVW LPSRUWDQW WUHDWPHQW VXFFHVV VWRU\ LQ
    QHXURORJ\ KDV EHHQ WKH XVH RI /GRSD EHJXQ LQ  WR UHSODFH GRSDPLQH GHSOHWLRQ GXH WR
    GHJHQHUDWLRQ RI WKH VXEVWDQWLD QLJUD 6LQFH GRSDPLQH GRHV QRW FURVV WKH EORRGEUDLQ EDUULHU WKH
    GRSDPLQH SUHFXUVRU /GRSD ZDV HPSOR\HG WR UHSODFH WKH GLPLQLVKHG GRSDPLQH VWRUHV $OWKRXJK LW
    SURYLGHVUHOLHIIURPPDQ\SDUNLQVRQLDQIHDWXUHVLWLVDOVRDVVRFLDWHGZLWKQDXVHDDQGYRPLWLQJGXH
    WRLWVHIIHFWVRQWKHSHULSKHUDOQHUYRXVV\VWHP2QHIRUPRI/GRSDLVFRPELQHGZLWKFDUELGRSDZKLFK
    PLQLPL]HV XQZDQWHG VLGH HIIHFWV 6LQHPHW WKH WUDGH QDPH IRU WKH /GRSDFDUELGRSD FRPELQDWLRQ
    PHDQVߧQRYRPLWLQJߨ
    5HVHDUFK ILQGLQJV KDYH EHHQ HTXLYRFDO UHJDUGLQJ WKH HIIHFW RI /GRSD RQ WKH FRJQLWLYH VWDWXV RI
    3DUNLQVRQSDWLHQWV $UFLQLHJDVDQG%HUHVIRUG PDQ\RIWKHPGLVFRXUDJLQJ 0DKXULQ)HKHUHW
    DO  3LOORQ 'XERLV %RQQHW HW DO   /GRSDߤV EHQHILFLDO HIIHFW RQ H[HFXWLYHUHODWHG
    SHUIRUPDQFHGHSHQGVRQWKHWLPHWRSHDNFRQFHQWUDWLRQDQGVSHFLILFWDVNGHPDQGV 3DVFXDO6HGDQRHW
    DO $OWKRXJK/GRSDPD\WHPSRUDULO\LPSURYHGHPHQWLDWKHVHSDWLHQWVDUHYHU\VXVFHSWLEOHWR
    LWV WR[LF VLGH HIIHFWV 0D\HX[ 6WHUQ 5RVHQVWHLQ HW DO  3HUHW] DQG &XPPLQJV  
    8QIRUWXQDWHO\PRVWRILWVHQKDQFLQJHIIHFWVRQPRWRUV\PSWRPVEHJLQWRGLPLQLVKDIWHURQO\WZRRU
    IRXU\HDUV 0F3KHUVRQDQG&XPPLQJV  /GRSDWKHUDS\LVIUHTXHQWO\GHIHUUHGXQWLOWKHGLVHDVH
    EHFRPHV VXIILFLHQWO\ DGYDQFHG WR LQWHUIHUH ZLWK GDLO\ DFWLYLWLHV EHFDXVH RI WKLV WLPHOLPLWHG
    HIIHFWLYHQHVV
    7KLUW\ SHUFHQW RU PRUH RI SDWLHQWV WDNLQJ /GRSD H[SHULHQFH SV\FKLDWULF VLGH HIIHFWV XVXDOO\ DV
    PLOG SV\FKRWLF V\PSWRPV VXFK DV YLVXDO KDOOXFLQDWLRQV SDUDQRLG GHOXVLRQV YLYLG GUHDPV
    FRQIXVLRQDOVWDWHV &RQQ/RKUDQG:LVQLHZVNL DQGG\VNLQHVLDV LQYROXQWDU\DEQRUPDO
    PRYHPHQWV  6WUDQJH   ,PSXOVH FRQWURO GLVRUGHUV LQFOXGLQJ FRPSXOVLYH JDPEOLQJ EX\LQJ
    VH[XDODFWLQJRXWDQGHDWLQJFDQUHVXOWIURP /GRSDSDUWLFXODUO\LQPDOHVWKRVHZLWK\RXQJHUDJHDW
    3'RQVHWDQGWKRVHZLWKDSHUVRQDOLW\VW\OHFKDUDFWHUL]HGE\LPSXOVLYHQHVV ':HLQWUDXE  /
    GRSD GRHV QRW VHHP WR DOOHYLDWH GHSUHVVLRQ GLUHFWO\ UDWKHU WKH UHDFWLYH FRPSRQHQW RI GHSUHVVLRQ
    WHQGVWRGLVVLSDWHDVPRWRUV\PSWRPVLPSURYH .DV]QLDN6DGHKDQG6WHUQ 
    $ FRPSOLFDWLRQ RI /GRSD WKHUDS\ LV WKH GHYHORSPHQW RI UHVSRQVH IOXFWXDWLRQV DQG G\VNLQHVLDV
    JHQHUDOO\EHJLQQLQJDERXWILYH\HDUVDIWHULQLWLDWLQJ /GRSDWKHUDS\ +DUGLHHWDO 0F3KHUVRQ
    DQG &XPPLQJV    7KH LQLWLDO VLJQV RI GLPLQLVKHG /GRSD HIILFDF\ DSSHDU DV D ߧZHDULQJ
    RIIߨSKHQRPHQRQ VXFK WKDW PRWRU V\PSWRPV IOXFWXDWH RU LQFUHDVH SULRU WR WKH QH[W /GRSD GRVLQJ
    7KLVFRQGLWLRQSURJUHVVHVXQWLODQߧRQߞRIIߨSDWWHUQGHYHORSVLQZKLFKWKHVHYHULW\RIERWKPRWRUDQG
    QRQPRWRU VHQVRU\DXWRQRPLF V\PSWRPVIOXFWXDWHVJHQHUDOO\LQUHODWLRQWRWLPHRIGRVDJHLQWDNH
    -+ &DUWHU HW DO  1XWW :RRGZDUG HW DO   (YHQWXDOO\ PRWRU ߧIUHH]LQJߨDSSHDUV GXULQJ
    ߧRIIߨSHULRGV DQG XQH[SHFWHG IDOOLQJ EHFRPHV D SUREOHP :KHQ ߧRQߨ SDWLHQWV SHUIRUP EHWWHU RQ
    FRJQLWLYH WHVWV IHHO PRUH DOHUW DQG FOHDUKHDGHG DQG KDYH IDVWHU UHDFWLRQ WLPHV WKDQ LQ WKH
    ߧRIIߨFRQGLWLRQ 5*%URZQ0DUVGHQHWDO (PRWLRQDOVWDWXVPD\DOVRIOXFWXDWHZLWKHOHYDWHG
    PRRG DQG OHVV DQ[LHW\ LQ WKH ߧRQߨFRQGLWLRQ DQG ORZHU PRRG DQG LQFUHDVHG DQ[LHW\ ZKHQ
    ߧRIIߨ 5LFKDUGHWDO 
    2WKHUPHGLFDWLRQVKDYHEHHQWULHGHLWKHUDORQHRULQFRQMXQFWLRQZLWK /GRSD0RVWXVXDOO\QRWHG
    DUH DQWLFKROLQHUJLF PHGLFDWLRQV XVHG WR WUHDW WKH PRWRU V\PSWRPV EXW WKH\ DSSHDU WR KDYH DGYHUVH
    HIIHFWV RQ VHOHFWLYH DWWHQWLRQ DQG SODQQLQJ *ODWW DQG .ROOHU    5DVDJHOLQH DQG 6HOHJLOLQH DUH
    PRQRDPLQH R[LGDVH 0$2  % LQKLELWRUV ZKLFK PD\ VORZ GLVHDVH SURJUHVVLRQ E\ UHGXFLQJ WKH
    LQFLGHQFH RI IUHH UDGLFDOV DQG SURWHFWLQJ DJDLQVW /GRSDߤV ߧZHDULQJ RIIߨWHQGHQF\ 0F3KHUVRQ DQG
    &XPPLQJV   $QRWKHU FODVV RI GUXJV FDOOHG FDWHFKRO2PHWK\WUDQVIHUDFH &207  LQKLELWRUV
    VXFKDVHQWDFDSRQHPD\DOVRLQFUHDVHߧRQߨWLPH 0F3KHUVRQDQG&XPPLQJV 
    ([HUFLVH PD\ EHQHILW SDWLHQWV ZKR DUH QRW LQ DGYDQFHG VWDJHV RI GLVHDVH E\ LPSURYLQJ SRVWXUDO
    VWDELOLW\DQGEDODQFH 'LEEOHHWDO 7DNLQJDGYDQWDJHRIWKHEDVDOJDQJOLDߤVUROHLQUK\WKPLF
    PHWHUHG PRYHPHQW UHVHDUFKHUV VWXGLHG WKH HIIHFWV RI WDQJR GDQFLQJ RQ PRWRU SHUIRUPDQFH RI
    3DUNLQVRQ SDWLHQWV 'DQFLQJ WZLFH D ZHHN LPSURYHG EDODQFH IXQFWLRQDO PRELOLW\ DQG ZDONLQJ
    FRPSDUHGWRDQRGDQFHFRQWUROJURXS +DFNQH\DQG(DUKDUW $JURXSUHFHLYLQJZDOW]IR[WURW
    OHVVRQVLPSURYHGDOPRVWDVPXFKDVWKHWDQJRJURXS
    6XUJLFDOWUHDWPHQWVKDYH HYROYHG IURPSDOOLGRWRP\ GHYHORSHG LQ WKH HDUO\VWRGHHS EUDLQ
    VWLPXODWLRQ7KHPRVWFRPPRQVWLPXODWLRQVLWHVIRUWKHWUHDWPHQWRI3'DUHWKHJOREXVSDOOLGXVDQG
    WKH VXEWKDODPLF QXFOHXV 6XUJHU\ FDQGLGDWHV DUH XVXDOO\ SDWLHQWV ZKRVH PHGLFDO PDQDJHPHQW KDV
    EHFRPHLQFUHDVLQJO\GLIILFXOWDQGZKRKDYHQHLWKHUGHPHQWLDQRUHYLGHQFHRILQYROYHPHQWRIPDQ\
    EUDLQUHJLRQV,QRQHODUJHVWXG\SDWLHQWVZKRUHFHLYHGGHHSEUDLQVWLPXODWLRQJDLQHGDPHDQRIWR
    KRXUVSHUGD\RIߧRQߨWLPHZLWKRXWWURXEOLQJG\VNLQHVLDFRPSDUHGZLWKKRXUVSHUGD\IRUSDWLHQWV
    ZKR UHFHLYHG EHVW PHGLFDO WKHUDS\ )0 :HDYHU HW DO   &RPSDUHG ZLWK EHVW PHGLFDO WKHUDS\
    SDWLHQWV WKH JURXS ZLWK GHHS EUDLQ VWLPXODWLRQ DOVR KDG VLJQLILFDQW LPSURYHPHQW LQ TXDOLW\ RI OLIH
    VFRUHV %\ DQG ODUJH WKHVH SURFHGXUHV DUH DVVRFLDWHG ZLWK UHODWLYHO\ OLWWOH FRJQLWLYH ULVN LQ
    QRQGHPHQWHG SDWLHQWV DOWKRXJK UHGXFHG YHUEDO IOXHQF\ PD\ RFFXU DQG VRPH IURQWDOH[HFXWLYH
    G\VIXQFWLRQ KDV EHHQ UHSRUWHG +DOSHUQ 5LFN HW DO  :HDYHU HW DO   'HHS EUDLQ
    VWLPXODWLRQLVQRWZLWKRXWVLGHHIIHFWVDVLWKDVEHHQDVVRFLDWHGZLWKGHSUHVVLRQK\SRPDQLDHXSKRULD
    DQG K\SHUVH[XDOLW\ %XUQ DQG 7URVWHU   DQG LQ VRPH FDVHV LUUHYHUVLEOH GHWHULRUDWLRQ KDV
    UHVXOWHG /HUQHUDQG5LOH\ 

    +XQWLQJWRQߤV'LVHDVH +'
    7KLV KHUHGLWDU\ FRQGLWLRQ ZDV ILUVW GHVFULEHG E\ *HRUJH +XQWLQJWRQ ZKRVH SDWLHQWV OLYHG RQ /RQJ
    ,VODQG 1HZ <RUN 1RZ FDOOHG +XQWLQJWRQߤV GLVHDVH LW ZDV RULJLQDOO\ QDPHG +XQWLQJWRQߤV FKRUHD
    IURP WKH *UHHN ZRUG FKRUHLD PHDQLQJ ߧGDQFHߨEHFDXVH RI WKH SURPLQHQFH RI WKH LQYROXQWDU\
    VSDVPRGLFRIWHQWRUWXRXVPRYHPHQWVWKDWXOWLPDWHO\SURIRXQGO\GLVDEOHLWVYLFWLPV
    0RWRU GLVWXUEDQFH FRJQLWLYH LPSDLUPHQW DQG SV\FKLDWULF GLVRUGHUV WRJHWKHU IRUP WKH V\PSWRP
    WULDG %UDQGW   :LWK WKH SRVVLEOH H[FHSWLRQ RI WKRVH SHUVRQV ZKRVH V\PSWRPV GR QRW DSSHDU
    XQWLO UHODWLYHO\ ODWH LQ OLIH DQG ZKR DV D JURXS PD\ QRW H[KLELW DV VHYHUH D GHJUHH RI FRJQLWLYH
    GHWHULRUDWLRQRUHPRWLRQDOGLVRUGHUVDVGRWKHRWKHUV -:%ULWWRQHWDO PRVWSDWLHQWVVXIIHU
    LPSDLUPHQWLQDOOWKUHHV\PSWRPVSKHUHVDOWKRXJKHDFKDVSHFWRIWKHGLVHDVHPD\GLIIHULQWLPHRI
    RQVHWDQGLQVHYHULW\6LQFHPRVWSHRSOHDWULVNIRUWKLVGLVHDVHDUHDZDUHRIWKHLUSRVVLEOHIDWHHDUO\
    GLDJQRVLV LV PRUH FRPPRQ WKDQ ZLWK RWKHU GHPHQWLDV (VWLPDWHV RI WKH RYHUDOO SUHYDOHQFH RI
    +XQWLQJWRQGLVHDVHUXQIURPHLJKWWRWHQSHULQZHVWHUQFRXQWULHVDQGIRXUWRILYHSHURQH
    PLOOLRQZRUOGZLGH 0HVWUHHWDO 
    &RJQLWLYHGHILFLWVW\SLFDOO\ILUVWLQWHUSUHWHGE\WKHSDWLHQWRUREVHUYHUVDVPHPRU\SUREOHPVPD\
    EHWKHLQLWLDOV\PSWRPVRIWKLVGLVHDVH +DKQ%DUPDHWDO3DXOVHQ=KDRHWDO RUWKH\
    PD\QRWDSSHDUXQWLODIWHUPRWRURUEHKDYLRUDOFKDQJHVKDYHEHFRPHREYLRXV 6( )ROVWHLQ 
    9DULRXV HVWLPDWHV RI WKH LQFLGHQFH RI GHPHQWLD KDYH EHHQ RIIHUHG EXW WKH\ SUREDEO\ UHIOHFW WKH
    GXUDWLRQRIWKHGLVHDVHLQWKHVDPSOHXQGHUVWXG\DVDOO+XQWLQJWRQSDWLHQWVGHYHORSGHPHQWLDXQOHVV
    WKH\ GLH EHIRUH WKH GLVHDVH UXQV LWV FRXUVH 6LPLODUO\ SV\FKLDWULF V\PSWRPV WHQG WR GHYHORS
    LQGHSHQGHQWO\RIFRJQLWLYHDQGPRWRUDVSHFWVRIWKHGLVHDVH 3DXOVHQ5HDG\HWDO 'HSUHVVLRQ
    LVFRPPRQVXLFLGHUDWHVDUHPXFKKLJKHUWKDQDPRQJWKHJHQHUDOSRSXODWLRQ 'L0DLRHWDO 

    5LVNIDFWRUV

    *HQHWLF GHWHUPLQDQWV +XQWLQJWRQߤV GLVHDVH UHVXOWV IURP DQ H[FHVVLYH QXPEHU RI WULQXFOHRWLGH
    &$*UHSHDWV F\WRVLQHDGHQLQHJXDQLQH LQWKH+'JHQHWKDWHQFRGHVDSURWHLQNQRZQDVKXQWLQJWLQ
    ORFDWHGRQFKURPRVRPH .UHPHUHWDO 3HRSOHZLWKRXWWKHGLVHDVHZLOOKDYHIHZHUWKDQ
    UHSHDWV 7KLV DXWRVRPDO GRPLQDQW GLVHDVH KDV  SHQHWUDQFH VXFK WKDW KDOI RI DOO RIIVSULQJ RI D
    FDUULHU SDUHQW ZLOO DFTXLUH WKH GLVHDVH LI WKH\ OLYH ORQJ HQRXJK +RZHYHU SDUHQWDO VH[ LV UHODWHG WR
    GLVHDVH RQVHW DQG VHYHULW\ ZLWK SDWHUQDO WUDQVPLVVLRQ DVVRFLDWHG ZLWK LQFUHDVLQJ UHSHDW H[SDQVLRQ
    9& :KHHOHU HW DO   DQG HDUOLHU RQVHW DQG PRUH UDSLG FRXUVH /HUQHU DQG 5LOH\   ,Q D
    ODUJHVDPSOHRIWKHYDULDQFHLQRQVHWDJHZDVDWWULEXWDEOHWRJHQHVRWKHUWKDQWKH+'JHQHDQG
    ZDVDVVRFLDWHGZLWKHQYLURQPHQWDOHIIHFWV :H[OHUHWDO 

    'HPRJUDSKLFIDFWRUV'LVHDVHRQVHWW\SLFDOO\RFFXUVEHWZHHQDQG\HDUVZKLFKDOORZVPDQ\
    SDWLHQWVWRKDYHFKLOGUHQEHIRUHWKH\NQRZLIWKH\DUHJHQHFDUULHUV,QDGGLWLRQWKHDJHUDQJHGXULQJ
    ZKLFK+'PRVWXVXDOO\EHFRPHVHYLGHQWPDNHVWKHGLVHDVHH[SUHVVLRQHVSHFLDOO\GLIILFXOWIRUIDPLO\
    PHPEHUVVLQFHWKHVHDUHSULPHSDUHQWLQJDQGZDJHHDUQLQJ\HDUV3UHYDOHQFHUDWHVYDU\JUHDWO\ERWK
    EHWZHHQ FRXQWULHV DQG EHWZHHQ UHJLRQV ZLWKLQ FRXQWULHV DV D IXQFWLRQ RI WKH PLJUDWRU\ SDWWHUQV RI
    SHRSOHZLWKWKHLQLWLDOPXWDWLRQWKH\PD\DOVREHLQIOXHQFHGE\WKHQRUPDOGLVWULEXWLRQRI&$*UHSHDW
    OHQJWKSRO\PRUSKLVPVLQGLIIHUHQWSRSXODWLRQV +DUSHU &DXFDVLDQVVKRZDODUJHUSURSRUWLRQ
    RIKLJKHUUHSHDWDOOHOHVFRPSDUHGZLWKHLWKHU$VLDQRU$IULFDQSRSXODWLRQVDQGWKXV+'RFFXUVOHVV
    IUHTXHQWO\ LQ $IULFDQ $PHULFDQV ,W LV UDUH LQ $VLDQV $V ZRXOG EH H[SHFWHG ZLWK DQ DXWRVRPDO
    GRPLQDQWLQKHULWDQFHSDWWHUQ+'DIIHFWVPDOHVDQGIHPDOHVHTXDOO\

    1HXURDQDWRP\DQGSDWKRSK\VLRORJ\

    7KH H[DFW ZD\ WKDW PXWDWLRQ RI WKH KXQWLQJWLQ JHQH FDXVHV GDPDJH WR VSHFLILF EUDLQ UHJLRQV LV
    XQNQRZQ7KHFRUH DQDWRPLF IHDWXUH RI WKLV GLVHDVHLVDWURSK\ RIWKHFDXGDWH QXFOHXV DQG SXWDPHQ
    DQGVWUXFWXUHVLQWKHFRUSXVVWULDWXP /HUQHUDQG5LOH\VHH)LJS $WURSK\EHJLQV
    DORQJ WKH KHDG RI WKH FDXGDWH QH[W WR WKH YHQWULFXODU ZDOO SURGXFLQJ D GLVWLQFWLYH IODWWHQLQJ ZKHQ
    YLHZHG RQ &7 RU 05, 7KH GHJHQHUDWLYH SURFHVV PD\ DOVR LQYDGH WKH FHUHEHOOXP WKDODPLF QXFOHL
    DQG RWKHU VXEFRUWLFDO VWUXFWXUHV DV ZHOO DV IURQWDO FRUWH[ 'HFUHDVHG EDVDO JDQJOLD YROXPH PD\
    SUHGDWHGLVHDVHRQVHW $\OZDUG%UDQGWHWDO &RUUHODWLRQVRIUHGXFHGYROXPHZLWKPRWRUDQG
    PHQWDO VORZLQJ DQG GHFUHDVHG YHUEDO PHPRU\ ZLWKRXW WKH IXOO V\PSWRP WULDG VXJJHVW HDUO\
    PDQLIHVWDWLRQV RI WKH GLVHDVH SULRU WR LGHQWLILFDWLRQ RI GLVHDVH RQVHW &DPSRGRQLFR HW DO  
    0HWDEROLFDOWHUDWLRQVYLVXDOL]HGE\3(7VFDQQLQJLQGLFDWHUHGXFHGPHWDEROLVPOHYHOVLQWKHFDXGDWH
    QXFOHXVDQGSXWDPHQ %HUHQWHWDO DQGDSSHDUWRSUHGLFWGLVHDVHRQVHWLQSUHV\PSWRPDWLF+'
    SDWLHQWV $QWRQLQLHWDO &KDQJHVLQI05,DFWLYLW\DOVRKDYHEHHQREVHUYHGLQSUHV\PSWRPDWLF
    LQGLYLGXDOV EHIRUH WKH GHYHORSPHQW RI VWULDWLDO DWURSK\ =LPEHOPDQ HW DO   /RVV RI FRUWLFDO
    QHXURQVKDVEHHQGHVFULEHGRQDXWRSV\ 6WUDQJH DQGSUHIURQWDODWURSK\PD\EHVHHQRQ05,
    *RPH]$QVRQ $OHJUHW HW DO  6WDUNVWHLQ %UDQGW HW DO   ,Q D VPDOO VDPSOH SUHIURQWDO
    FRUWLFDO YROXPH UHGXFWLRQߟJUHDWHU RQ WKH OHIWߟFRUUHODWHG ZLWK WKH QXPEHU RI &$* UHSHDWV DQG
    YLVXRPRWRUSHUIRUPDQFH *RPH]$QVRQHWDO 
    (YRNHGSRWHQWLDOSDWWHUQVUHVHPEOHWKRVHRI3DUNLQVRQSDWLHQWVDOWKRXJKGLIIHUHQFHVDUHSUHVHQW
    WKH\DUHQRWVXIILFLHQWO\VSHFLILFIRUGLDJQRVWLFSXUSRVHV *RRGLQDQG$PLQRII (DUO\VHQVRU\
    SURFHVVHV DV ZHOO DV ODWHU ODWHQF\ (53 LQGLFHV RI ZRUG UHFRJQLWLRQ DQG WDUJHW GHWHFWLRQ PD\ EH
    DIIHFWHG 0XQWHHWDO:HWWHU3HDY\HWDO 
    $OWHUDWLRQV LQWKHOHYHOV RI PDQ\ QHXURWUDQVPLWWHUVDFFRPSDQ\ WKH VWULDWDO GHJHQHUDWLRQ 6 +DUW
    DQG 6HPSOH  6WUDQJH   7KH PRVW SURPLQHQW DQG FRQVLVWHQW FKDQJHV RFFXU DV UHGXFHG
    OHYHOVRIWKHLQKLELWRU\QHXURWUDQVPLWWHU*$%$ 6()ROVWHLQ-%0DUWLQ7RELQ 
    ZLWK D FRQFRPLWDQW LQFUHDVH LQ H[FLWDWRU\ QHXURWUDQVPLWWHUV WKDW LQ KLJK FRQFHQWUDWLRQV FDQ KDYH
    QHXURWR[LF HIIHFWV 1XWW  6FKZDUF] DQG 6KRXOVRQ  7RELQ   7KHVH FKDQJHV DUH
    FRQILQHGWRWKHLQYROYHGVXEFRUWLFDOVWUXFWXUHV &XPPLQJV 

    'LVHDVHSURFHVV

    &RXUVH 7KLV LV D VWHDGLO\ SURJUHVVLYH GLVRUGHU WKDW W\SLFDOO\ UXQV LWV FRXUVH LQ WHQ WR  RU 
    \HDUV 6FKZDUF]DQG6KRXOVRQ7RELQ EXWLWPD\ODVWDVORQJDV\HDUV -% 0DUWLQ
     ,QDYHU\IHZFDVHVGLVHDVHRQVHWRFFXUVEHIRUHDJHILYHRUDVODWHDVEXWWKHPHDQDJHDW
    RQVHWLVLQWKHHDUO\VZLWKWRRQVHWRYHU -%0DUWLQ7RELQ 5HSRUWVRI
    RQVHWDJHDUHDIIHFWHGE\FULWHULDIRUGLDJQRVLVDVVRPHZRUNHUVGDWHRQVHWIURPWKHILUVWDVVRFLDWHG
    V\PSWRPZKLFKPD\EHFRJQLWLYH +DKQ%DUPDHWDO RUSV\FKLDWULF %HUULRVHWDO \HW
    RWKHUV PD\ UHTXLUH PRWRU VLJQV $V WKH QXPEHU RI &$* UHSHDWV RQ WKH +' JHQH KLJKHU WKDQ 
    LQFUHDVHV VR GR DOO DVSHFWV RI GLVHDVH VHYHULW\ %UDQGW   +LJKHU UHSHDWV KDYH EHHQ DVVRFLDWHG
    ZLWK HDUOLHU GLVHDVH RQVHW PRUH UDSLG UDWH RI QHXURQDO ORVV )XUWDGR HW DO   DQG PRUH UDSLG
    GLVHDVH SURJUHVVLRQ %UDQGW %\OVPD *URVV HW DO  ,OODULRVKNLQ HW DO   EXW QRW ZLWK
    SV\FKLDWULFV\PSWRPV %HUULRVHWDO &DVHVRIMXYHQLOHRQVHW+'W\SLFDOO\KDYHPRUHWKDQ
    &$*UHSHDWV&KLOGUHQZKRGHYHORS+'UDUHO\OLYHXQWLODGXOWKRRG
    ,QLWLDOPRWRUVLJQVPD\EHPLOGUHVWOHVVQHVVRFFDVLRQDOXQFRQWUROOHGMHUNVRUJHVWXUHVLQYROYLQJ
    DQ\ SDUW RI WKH ERG\ WKH FKRUHLF PRYHPHQWV  DQG PDQXDO FOXPVLQHVV 6( )ROVWHLQ  /HUQHU
    DQG5LOH\/LVKPDQ 7KHFKRUHDLVYHU\VXEWOHLQWKHHDUOLHVWVWDJHVRIWKHGLVHDVHDQGLV
    RIWHQLQFRUSRUDWHGLQWRYROXQWDU\PRYHPHQWVRPHWKLQJRIZKLFKHYHQWKHSDWLHQWLVXQDZDUHDQGPD\
    LQWHUSUHW DV HYLGHQFH RI UHVWOHVVQHVV RU EHLQJ XQFRPIRUWDEOH 2QH RI WKH HDUOLHVW VLJQVߟH\H
    PRYHPHQW DEQRUPDOLWLHVߟFDQ EH VHHQ LQ GHOD\HG LQLWLDWLRQ RI VDFFDGHV DQG GHILFLWV LQ VDFFDGH
    DFFXUDF\ :LQRJUDG*XUYLFK HW DO   2YHU WLPH WKHVH SUREOHPV LQFUHDVH LQ IUHTXHQF\ DQG
    VHYHULW\ ZLWK RWKHU H[WUDS\UDPLGDO PRWRU DEQRUPDOLWLHV IXUWKHU LPSDLULQJ YROXQWDU\ PRWRU FRQWURO
    $VWKHGLVHDVHSURJUHVVHVFKRUHDZLOOEHDFFRPSDQLHGE\G\VDUWKULDDQGG\VSKDJLD $/LHEHUPDQ
    D ,QWKHILQDOVWDJHVDNLQHWLFDQGPXWHSDWLHQWVDUHIXOO\GHSHQGHQW$VSLUDWLRQSQHXPRQLDLVWKH
    PRVWFRPPRQFDXVHRIGHDWKZKHQWKHGLVHDVHUXQVLWVFRXUVH 6()ROVWHLQ'&0\HUV 
    ,Q PRUH WKDQ KDOI RI WKH FDVHV SV\FKLDWULF GLVWXUEDQFH RU GHPHQWLD SUHFHGHV WKH DSSHDUDQFH RI
    REYLRXVPRWRUV\PSWRPV 6()ROVWHLQ%UDQGWDQG)ROVWHLQ/HUQHUDQG5LOH\ 7KHUDWH
    RI SURJUHVVLRQ RI HDFK DVSHFW RI WKH GLVHDVHߟPRWRULF FRJQLWLYH DQG SV\FKLDWULFߟPD\ GLIIHU
    DOWKRXJKLQPRVWHYROYHGFDVHVDOOPDMRUIHDWXUHVRIWKHGLVHDVHDUHSUHVHQW

    6XEW\SHV7LPHRIRQVHWUDWHRISURJUHVVLRQDQGV\PSWRPVHYHULW\WHQGWRGLIIHUDFFRUGLQJWRWKH
    VH[ RI WKHDIIHFWHG SDUHQW 5+ 0\HUV HW DO  6DSLHQ]D  ,Q JHQHUDO WKH GLVHDVH DSSHDUV
    HDUOLHULQFKLOGUHQRI+XQWLQJWRQIDWKHUVZLWKD\HDUGLIIHUHQFHLQDYHUDJHDJHDWRQVHWDQGWKXV
    FRQVLGHUDEOHRYHUODSEHWZHHQRIIVSULQJRIWUDQVPLWWLQJPRWKHUVDQGIDWKHUV7KHHDUOLHUWKHRQVHWWKH
    PRUH VHYHUH DUH WKH V\PSWRPV DQG WKH IDVWHU LWV SURJUHVVLRQ ZLWK WKH MXYHQLOH IRUP RI WKH GLVHDVH
    SUHVHQWLQJWKHPRVWVHYHUHPRWRUV\PSWRPVDQGSURJUHVVLQJPRVWUDSLGO\DOWKRXJKFRJQLWLRQPD\EH
    UHODWLYHO\ SUHVHUYHG *RPH]7RUWRVD GHO %DUULR HW DO   )DPLOLHV GLIIHU LQ WKH LQFLGHQFH RI
    PDMRUDIIHFWLYHGLVRUGHU DVLWUXQVDEQRUPDOO\ KLJKLQ VRPHDQG YHU\ ORZ LQ RWKHUV 6( )ROVWHLQ
    $EERWWHWDO6()ROVWHLQ)UDQ]HWDO *URXSGLIIHUHQFHVKDYHDOVREHHQVXJJHVWHGE\
    ILQGLQJVWKDW$IULFDQ$PHULFDQVWHQGWRKDYHDQHDUOLHURQVHWZLWKIHZHUSV\FKLDWULFGLVWXUEDQFHV 6(
    )ROVWHLQ&KDVHHWDO 

    'LDJQRVLVDQGSUHGLFWLRQ

    6HYHULW\FODVVLILFDWLRQ7KH8QLILHG+XQWLQJWRQ'LVHDVH5DWLQJ6FDOH 8+'56  ZDVGHYHORSHG WR


    IDFLOLWDWH GLVHDVH FKDUDFWHUL]DWLRQ IRU UHVHDUFK SXUSRVHV +XQWLQJWRQ 6WXG\ *URXS  6LHVOLQJ
    YDQ 9XJW HW DO  VHH DOVR 6LHVOLQJ =ZLQGHUPDQ HW DO  IRU D VKRUWHQHG YHUVLRQ  7KH
    8+'56 PHDVXUHV IRXU GRPDLQV RI FOLQLFDO SHUIRUPDQFH DQG FDSDFLW\ LQ +' PRWRU IXQFWLRQ
    FRJQLWLYH IXQFWLRQ EHKDYLRUDO DEQRUPDOLWLHV DQG IXQFWLRQDO FDSDFLW\ 7KH FRJQLWLYH WHVWV LQFOXGH
    SKRQHPLFIOXHQF\6\PERO'LJLW0RGDOLWLHV7HVWDQGWKH6WURRSWHVW

    'LDJQRVWLF LVVXHV 7KH GLVFRYHU\ RI WKH +' JHQH KDV UDLVHG TXHVWLRQV DERXW WKH DGYLVDELOLW\ RI
    JHQHWLF WHVWLQJ RI SHUVRQV DW ULVN IRU GHYHORSLQJ WKH GLVHDVH IRU IHDU WKDW SRVLWLYH UHVXOWV PD\ KDYH
    GHYDVWDWLQJ SV\FKRORJLFDO HIIHFWV RU WKDW HYHQ QHJDWLYH UHVXOWV PD\ SURGXFH ߧVXUYLYRU JXLOWߨ 6
    +HUVFK -RQHV HW DO   +RZHYHU SRWHQWLDO FDUULHUVߤ UHDFWLRQV WHQG WR UHODWH WR WKHLU OHYHO RI
    SV\FKRORJLFDODGMXVWPHQWPRUHWKDQWRWKHWHVWUHVXOWV 0HLVHUDQG'XQQ 6SHFLILFHWKLFDODQG
    OHJDOLVVXHVDULVHZKHQIDPLOLHVVHHNSUHQDWDOWHVWLQJ$OWKRXJKJHQHWLFWHVWLQJLVZLGHO\DYDLODEOHLW
    KDVQRWEHFRPHWKHVWDQGDUGRIFDUH*HQHUDOO\IHZHUWKDQRIHOLJLEOHLQGLYLGXDOVKDYHXQGHUJRQH
    WKLVSURFHGXUH 60+HUVFKDQG5RVDV &OLQLFDOGLDJQRVLVW\SLFDOO\UHOLHVRQGHWHUPLQDWLRQRI
    DQ RWKHUZLVH XQH[SODLQDEOH DQG FKDUDFWHULVWLF H[WUDS\UDPLGDO PRYHPHQW GLVRUGHU ZLWK DSSURSULDWH
    IDPLO\KLVWRU\

    6HQVRULPRWRUVWDWXV

    (\HPRYHPHQWVEHFRPHGLVWXUEHGLQVHYHUDOZD\V 6()ROVWHLQ'&0\HUV 7KH\DUH


    JHQHUDOO\VORZHGDQGKDYHORQJHUODWHQFLHVLQUHVSRQVHWRVWLPXODWLRQWKHDSSURDFKWRWDUJHWVRFFXUV
    LQ VKRUW MHUN\ VWHSV UDWKHU WKDQ D QRUPDO VPRRWK VZHHS DQG YLVXDO WUDFNLQJ EHFRPHV LQHIILFLHQW
    EHFDXVH RI LQDELOLW\ WR PDLQWDLQ JD]H RQ D PRYLQJ WDUJHW RU WR UHSUHVV UHIOH[LYH UHVSRQVHV WR
    XQDQWLFLSDWHG VWLPXOL /DVNHU DQG =HH   :LWK WKHVH YLVXDO SUREOHPV LW LV QRW VXUSULVLQJ WKDW
    +XQWLQJWRQSDWLHQWVDUHVLJQLILFDQWO\VORZHGRQYLVXDOWUDFNLQJWDVNVVXFKDVWKH7UDLO0DNLQJ7HVW
    DQG V\PERO VXEVWLWXWLRQ WDVNV %UDQGW )ROVWHLQ :RQJ HW DO  &DLQH %DPIRUG HW DO  
    2HSHQ DQG KLV FROOHDJXHV   GHVFULEHG MHUNLQHVV RQ D SHQFLO WUDFNLQJ WDVN ZKLFK ZDV PRVW
    SURPLQHQWLQWKHOHIWKDQG0DQXDORSHUDWLRQVEHFRPHLQFUHDVLQJO\VORZHGDQGFOXPV\DVWKHGLVHDVH
    SURJUHVVHV +* 7D\ORU DQG +DQVRWLD   6SHFLILF GHIHFWV RQ D VHTXHQWLDO PRYHPHQW WDVN WKDW
    FKDUDFWHUL]HG +XQWLQJWRQ SDWLHQWV LQFOXGHG GLIILFXOW\ LQ LQLWLDWLQJ PRYHPHQWV SRRU XWLOL]DWLRQ RI
    DGYDQFH LQIRUPDWLRQ DQG UHODWLYHO\ JUHDWHU GHILFLWV LQ SHUIRUPDQFHV E\ WKH QRQSUHIHUUHG KDQG
    %UDGVKDZ3KLOOLSVHWDO ,GHRPRWRUDSUD[LDPD\EHSUHVHQW -0+DPLOWRQ+DDODQGHWDO
     
    3DWLHQWV RIWHQ DSSHDU XQDZDUH RI WKHLU LQYROXQWDU\ PRYHPHQWV ZKLFK KDV EHHQ LQWHUSUHWHG DV
    UHIOHFWLQJODFNRILQVLJKWDVVRFLDWHGZLWKSV\FKRORJLFDOGHIHQVHPHFKDQLVPVRUGHFUHDVHGFRJQLWLYH
    IXQFWLRQV 0F*O\QQ DQG .DV]QLDN  7UDQHO 3DXOVHQ DQG +RWK   +RZHYHU +XQWLQJWRQ
    SDWLHQWV PD\ QRW KDYH WKH VXEMHFWLYH H[SHULHQFH RI FKRUHLF PRYHPHQW ZKLFK PD\ RU PD\ QRW EH
    XQUHODWHG WR GHJUHH RI FRJQLWLYH LPSDLUPHQW -6 6QRZGHQ &UDXIXUG HW DO   +XQWLQJWRQ
    SDWLHQWV GR KDYH GHFUHDVHG SHUFHSWLRQ RI IRUFHV DQG ZHLJKWV VXJJHVWLQJ LPSDLUHG ߧHIIRUW
    VHQVDWLRQߨVLPLODUWRWKDWVKRZQE\FRJQLWLYHO\KHDOWK\VXEMHFWVZLWKZHDNHQHGPXVFOHVZKRSHUFHLYH
    ZHLJKWV DV GLVSURSRUWLRQDWHO\ KHDY\ /DIDUJXH DQG 6LULJX   2OIDFWRU\ LGHQWLILFDWLRQ EHFRPHV
    LPSDLUHG HDUO\ LQ WKH FRXUVH RI WKH GLVHDVH 0REHUJ HW DO  :HWWHU HW DO   DQG WDFWLOH
    SHUFHSWLRQPD\EHGLPLQLVKHG '&0\HUV06FKZDU]HWDO 

    &RJQLWLRQ

    /LNH 3DUNLQVRQߤV GLVHDVH PDQ\ RI WKH LQLWLDO FRJQLWLYH GHILFLWV RI +XQWLQJWRQ SDWLHQWV DUH DNLQ WR
    IURQWDO OREH GLVRUGHUV 6WXGLHV WKDW KDYH GHPRQVWUDWHG UHODWLRQVKLSV EHWZHHQ QHXURSDWKRORJLFDO
    FKDUDFWHULVWLFV RI WKLV GLVHDVH DQGFRJQLWLYHGHILFLWV FRQVLVWHQWO\ LPSOLFDWH WKH FDXGDWHQXFOHXV LQ LWV
    PHQWDOUDWKHUWKDQLWVPRWRUPDQLIHVWDWLRQV %HUHQWHWDO%UDQGW)ROVWHLQ:RQJHWDO
    6WDUNVWHLQ%UDQGWHWDO *LYHQWKHFDXGDWHQXFOHXVߤVLQWLPDWHFRQQHFWLRQVZLWKWKHSUHIURQWDO
    FRUWH[LWZRXOGDSSHDUWKDWDWURSK\GLVFRQQHFWVFDXGDWHߞSUHIURQWDOORRSV
    &RJQLWLYH GHFOLQH KDV EHHQ DVVRFLDWHG PRUH FORVHO\ ZLWK VHYHULW\ RI PRWRU V\PSWRPV WKDQ
    GXUDWLRQRIWKHGLVHDVH %UDQGW6WUDXVVHWDO 3RRUHUFRJQLWLYHSHUIRUPDQFHLVDVVRFLDWHGZLWK
    DODUJHUQXPEHURI&$*UHSHDWVRQWKH+'JHQH -DVRQHWDO 'HVSLWHVRPHODFNRIDJUHHPHQW
    UHJDUGLQJ HDUO\ V\PSWRP DSSHDUDQFH GH %RR HW DO   FRJQLWLYH LPSDLUPHQW LV RIWHQ WKH ILUVW
    H[SUHVVLRQRIWKHGLVHDVHDQGPD\SUHGDWHPRWRUV\PSWRPVE\DVORQJDVWZR\HDUV +DKQ%DUPDHW
    DO3DXOVHQ=KDRHWDO 6PDOOYDULDWLRQVLQFRJQLWLYHSDWWHUQPD\RFFXUEHWZHHQVWXGLHV
    EHFDXVHGLIIHUHQWVWDJHVRIWKHGLVHDVHDUHUHSUHVHQWHGLQWKHSDWLHQWVDPSOHVDQGRUEHFDXVHVDPSOH
    VL]HVWHQGWREHVPDOOHJߧRQO\RIWKH>+XQWLQJWRQ@SDWLHQWJURXSV>XQGHUUHYLHZ@߮FRQVLVWHG
    RIPRUHWKDQSDWLHQWVDQGKDGRQO\ߨ /H]DNF 
    $WWHQWLRQ $WWHQWLRQ VSDQߟXVXDOO\ WHVWHG E\ LPPHGLDWH GLJLW UHFDOOߟVKULQNV DV WKH GLVHDVH
    SURJUHVVHVLWFDQEHQRUPDOLQWKHHDUO\VWDJHVEXWLQHYLWDEO\EHFRPHVDEQRUPDOO\VKRUW 1%XWWHUV
    6D[ HW DO  'XII %HJOLQJHU HW DO   &RQFHQWUDWLRQ DQG PHQWDO WUDFNLQJ DUH LPSDLUHG DW
    HYHU\VWDJHRIWKHGLVHDVH %ROO+HDWRQDQG5HLWDQ('&DLQH(EHUWDQG:HLQJDUWQHU
    6()ROVWHLQ%UDQGWDQG)ROVWHLQ 'LIILFXOWLHVERWKLQPDLQWDLQLQJDQGLQVKLIWLQJDWWHQWLRQDO
    VHWVDOVRFKDUDFWHUL]H+XQWLQJWRQSDWLHQWV %ROOHWDO6()ROVWHLQ-RVLDVVHQ&XUU\DQG
    0DQFDOO ,QVWXGLHVRIRULHQWLQJRIDWWHQWLRQSDWLHQWVVKRZHGDQDEQRUPDOO\ODUJHLQKLELWLRQRI
    UHWXUQVXFKWKDWZKHQWKHLUYLVXDODWWHQWLRQLVGLUHFWHGWRDORFDWLRQEXWWKHVWLPXOXVLVVORZWRDUULYH
    WKHLUDWWHQWLRQPRYHVDZD\IURPWKHWDUJHWHGORFDWLRQDQGLVVORZHUWKDQQRUPDOWRUHWXUQ )DUURZHW
    DO)LHOGLQJHWDO 
    6ORZHGPHQWDOSURFHVVLQJDIIHFWVSHUIRUPDQFHRQPDQ\FRJQLWLYHWHVWVLQFOXGLQJDWWHQWLRQDOWHVWV
    'XII%HJOLQJHUHWDO0XOOHU-XQJHWDO DQGYLVXRSHUFHSWXDOWHVWV )LQNHHWDO 
    $PRQJ :,6$ WHVWV 'LJLW 6\PERO FRQWLQXHV WR EH DPRQJ WKH PRVW VHQVLWLYH WR DOWHUDWLRQV LQ HDUO\
    +' .LUNZRRGHWDO3DXOVHQ=KDRHWDO $6\PERO'LJLWVFRUHRQHVWDQGDUGGHYLDWLRQ
    EHORZ D YHUEDO IOXHQF\ VFRUH ZDV SUHGLFWLYH IRU WKH GLVHDVH LQ DWULVN LQGLYLGXDOV /DQJEHKQ DQG
    3DXOVHQ   7KH\ DUH VORZ RQ DOO VHFWLRQV RI WKH 6WURRS WHVW :DWNLQV HW DO   :RUNLQJ
    PHPRU\LVXVXDOO\LPSDLUHG $'/DZUHQFHHWDO0HXGHOOHWDO 
    0HPRU\DQGOHDUQLQJ,QWHQVLYHVWXG\RIWKHPHPRU\V\VWHPSUREOHPVHQFRXQWHUHGE\+XQWLQJWRQ
    SDWLHQWVKDVIRXQGDSDWWHUQRIVSHFLILFPHPRU\GHILFLWV 5*%URZQDQG0DUVGHQ1%XWWHUV
    6DOPRQ DQG +HLQGHO   $PRQJ WKH HDUOLHVW LQGLFDWRUV RI FRJQLWLYH GHFOLQH WKHVH GHILFLWV DUH
    PLOGLQWKHEHJLQQLQJVWDJHVRIWKHGLVHDVHZRUVHQLQJDQGEHFRPLQJPRUHLQFOXVLYHDVWKHGLVHDVH
    SURJUHVVHV 06$OEHUW%XWWHUVDQG%UDQGW1%XWWHUV6D[HWDO1%XWWHUV:ROIHHW
    DO 
    7KHNH\IHDWXUHRIWKLVSDWWHUQLVGHIHFWLYHUHWULHYDODQGWKXVLWDSSHDUVPRVWSURPLQHQWO\RQIUHH
    UHFDOOWULDOVDVVHPDQWLFFXHLQJRUDUHFRJQLWLRQIRUPDWWHQGVWRDLGUHWULHYDO *UDQKROPDQG%XWWHUV
     0DVVPDQ 'HOLV %XWWHUV HW DO   ,Q D PHWDDQDO\VLV RI D ODUJH QXPEHU RI
    QHXURSV\FKRORJLFDOWHVWV+XQWLQJWRQSDWLHQWVZHUHPRVWGHILFLHQWRQGHOD\HGUHFDOOIROORZHGE\SRRU
    PHPRU\ DFTXLVLWLRQ =DN]DQLV   :LWK GLVHDVH SURJUHVVLRQ SDWLHQWV ORVH WKH DELOLW\ WR
    GLVFULPLQDWHEHWZHHQVWRUHGDQGDVVRFLDWHGPDWHULDOVRWKDWDUHFRJQLWLRQIRUPDWEHFRPHVOHVVKHOSIXO
    LQ HIIRUWV WR GLIIHUHQWLDWH OHDUQLQJ DQG UHWULHYDO -+ .UDPHU 'HOLV %OXVHZLF] HW DO   6WRU\
    UHFDOOLVLPSDLUHG 1%XWWHUV6D[HWDO (' &DLQH%DPIRUGHWDO -RVLDVVHQ &XUU\
    DQG0DQFDOO ZLWKVRPHORVVRILQIRUPDWLRQIROORZLQJDGHOD\ 1%XWWHUV6DOPRQ&XOOXPHW
    DO  7URVWHU %XWWHUV HW DO   $IIHFWLYHO\ ORDGHG PDWHULDO FDQ KDYH DQ HQKDQFLQJ HIIHFW
    ZKLFK PD\ EH PDLQWDLQHG RQ GHOD\HG UHFDOO *UDQKROP :ROIH DQG %XWWHUV   7KXV GHILFLWV
    DSSHDU FKLHIO\ DW LQSXW DV GHIHFWLYH ZRUNLQJ PHPRU\ DQG HQFRGLQJ DQG LQ VSRQWDQHRXV UHFDOO LQ
    ZKLFKUHGXFHGUHWULHYDOHIILFLHQF\FRPELQHVZLWKGHIHFWLYHVWRUDJHWRFRPSURPLVHPHPRU\DELOLWLHV
    5HWHQWLRQRIOHDUQHGLQIRUPDWLRQDSSHDUVWREHIDLUO\VWDEOH
    9LVXDOPHPRU\GHILFLWVWRRWHQGWREHPLOGLQLWLDOO\DQGZRUVHQZLWKWLPH 1%XWWHUV6D[HWDO
     'HIHFWLYHYLVXDOPHPRU\KDVEHHQUHSRUWHGIRUGHVLJQV 1%XWWHUVHWDO IDFHV %LEHUHW
    DO DQGRWKHUYLVXDOVWLPXOL 6()ROVWHLQ%UDQGWDQG)ROVWHLQ $VDQH[FHSWLRQWRWKHVH
    ILQGLQJVLVRQHVWXG\LQZKLFK+XQWLQJWRQSDWLHQWVKDGJRRGUHFDOOIRUGHVLJQVEXWPDGHDQDEQRUPDO
    QXPEHURILQWUXVLRQHUURUV '-DFREVHWDO %UDQGW6KSULW]DQGFROOHDJXHV  IRXQGWKDW
    PHPRU\ IRU WKH ORFDWLRQ RI REMHFWV LQ VSDFH ZDV PRUH LPSDLUHG WKDQ WKHLU PHPRU\ IRU WKH REMHFWV
    WKHPVHOYHV
    +XQWLQJWRQ PHPRU\ GHILFLWV DULVH IURP VWUDWHJLF RU RUJDQL]DWLRQDO IDLOXUHV DW WKH WLPH WKH
    LQIRUPDWLRQ LV DFTXLUHG RU UHWULHYHG DQG QRW EHFDXVH RI D SULPDU\ GLVRUGHU RI UHWHQWLRQ %UDQGW
    &UDXIXUGDQG6QRZGHQ $OWKRXJKWKHVHSDWLHQWVWHQGWREHDZDUHRIPHPRU\ODSVHVWKH\
    DUH XQOLNHO\ WR LQLWLDWH D VHDUFK IRU XQUHWULHYHG PDWHULDO %UDQGW  6( )ROVWHLQ %UDQGW DQG
    )ROVWHLQ   6LPLODU WR LQGLYLGXDOV ZLWK IURQWDO OREH LPSDLUPHQW +' SDWLHQWV KDYH GHFUHDVHG
    UHFDOOIRUWKHVRXUFHRIOHDUQHGLQIRUPDWLRQ %UDQGW%\OVPDHWDO 
    %RWKYLVXDODQGYHUEDOUHPRWHPHPRU\GHILFLWVRI+XQWLQJWRQSDWLHQWVUHVHPEOHWKRVHRIQRUPDO
    VXEMHFWVLQQRWVKRZLQJDWHPSRUDOJUDGLHQW 06$OEHUW%XWWHUVDQG%UDQGW%HDWW\6DOPRQ
    HWDO /LNHOHDUQLQJWKHLUUHPRWHPHPRU\EHQHILWVIURPFXHLQJ 6DGHNHWDO 
    +XQWLQJWRQ SDWLHQWV GLVSOD\ YLUWXDOO\ QRUPDO SULPLQJ HIIHFWV &UDXIXUG DQG 6QRZGHQ 
    +HLQGHO6DOPRQHWDO LQGLFDWLQJWKDWVRPHOHDUQLQJGRHVRFFXUDWOHDVWZKLOHWKH\DUHVWLOO
    WHVWDEOH 0RWRU VNLOO DQG SURFHGXUDO OHDUQLQJ LQ WKHVH SDWLHQWV KDYH FRQVLVWHQWO\ SURYHQ GHIHFWLYH
    +HLQGHO 6DOPRQ 6KXOWV HW DO  3DXOVHQ %XWWHUV HW DO   0RVW VWXGLHV H[DPLQLQJ
    SURFHGXUDO OHDUQLQJ GHILFLWV VKRZ VRPH SUHVHUYHG OHDUQLQJ DELOLW\ RQ YHUEDO WDVNV LQGLFDWLQJ
    GLIIHUHQWLDO GHWHULRUDWLRQ RI WKH KDELWIRUPLQJ DQG WKH NQRZOHGJH DFTXLVLWLRQ PHPRU\ V\VWHPV
    3URFHGXUDO OHDUQLQJ WRR LV OHVV LPSDLUHG LQ WKH HDUO\ VWDJHV RI WKLV GLVHDVH 1 %XWWHUV :ROIH
    0DUWRQHHWDO 

    9HUEDO IXQFWLRQV /DQJXDJH VWUXFWXUHߟYRFDEXODU\ JUDPPDU V\QWD[ߟWHQGV WR EH SUHVHUYHG LQ


    +XQWLQJWRQGLVHDVHXQWLOWKHODVWVWDJHVZKHQWKHGHPHQWLDEHFRPHVHVVHQWLDOO\JOREDO %D\OHV 
    +RZHYHUYHUEDOSURGXFWLRQVEHFRPHVLPSOLILHGVKRUWHQHGDQGVXVFHSWLEOHWRVHPDQWLFHUURUV 6(
    )ROVWHLQ%UDQGWDQG)ROVWHLQ:3*RUGRQDQG,OOHV 5HGXFHGYHUEDOIOXHQF\LVRQHRI
    WKHHDUOLHVWVLJQVRIHQFURDFKLQJFRJQLWLYHGHWHULRUDWLRQ 1%XWWHUV:ROIH*UDQKROPDQG0DUWRQH
     EXWZLWKFDWHJRU\FXHVWKHVHSDWLHQWVFDQLPSURYHWKHLUVFRUHVDOWKRXJKWKH\DUHXQOLNHO\WRJHW
    XSWRFRQWUROVXEMHFWVߤOHYHOV &5DQGROSK0RKUDQG&KDVH 7KH\WHQGWRSURGXFHZRUGVLQ
    IHZHU VXEFDWHJRULHV WKDQ FRQWUROV DQ LQGLFDWLRQ RI GHILFLHQW VZLWFKLQJ 5LFK 7UR\HU HW DO  
    8QOLNH$O]KHLPHUSDWLHQWV+XQWLQJWRQSDWLHQWVSURGXFHDODUJHUSURSRUWLRQRIWKHLUUHVSRQVHVODWHLQ
    WKHUHFDOOSHULRGFRQVLVWHQWZLWKWKHYLHZWKDWFRJQLWLYHVORZLQJLVDFRQWULEXWLQJIDFWRU 5RKUHU HW
    DO   &RQIURQWDWLRQ QDPLQJ LV OHVV OLNHO\ WR EH LPSDLUHG HDUO\ LQ WKH FRXUVH RI WKH GLVHDVH
    %D\OHV DQG 7RPRHGD  5* %URZQ DQG 0DUVGHQ   EXW EHFRPHV LPSDLUHG DV WKH GLVHDVH
    SURJUHVVHVDQGPD\VKRZXSDVDQHDUO\V\PSWRPDVZHOO :3*RUGRQDQG,OOHV 
    7KHPHFKDQLFVRIVSHHFKSURGXFWLRQVXIIHUVLJQLILFDQWDOWHUDWLRQVLQFOXGLQJLPSDLUHGDUWLFXODWLRQ
    ORVVRIH[SUHVVLYHWRQLQJDQGUHGXFHGFRQWURORYHUUDWHDQGLQWHQVLW\RIGHOLYHU\ :3 *RUGRQ DQG
    ,OOHV   :LWK ZRUVHQLQJ PRWRU RU FRJQLWLYH V\PSWRPV SDWLHQWV XOWLPDWHO\ FHDVH WDONLQJ
    DOWRJHWKHUGXHWRWKHVDPHORVVRIYROXQWDU\FRQWURORYHUWKHPXVFOHVRIVSHHFKDQGEUHDWKLQJWKDW
    PDNHVHDWLQJGLIILFXOWDQGVZDOORZLQJKD]DUGRXV .UHPHU 

    9LVXRVSDWLDO IXQFWLRQV $OPRVW DOO VWXGLHV UHSRUW LPSDLUHG YLVXRVSDWLDO DELOLWLHV LQFOXGLQJ ULJKWߞ
    OHIWRULHQWDWLRQUHJDUGOHVVRIZKHWKHUDPRWRUUHVSRQVHLVUHTXLUHG %UDQGW5* %URZQ DQG
    0DUVGHQ  &DLQH %DPIRUG HW DO   )RU H[DPSOH +XQWLQJWRQ SDWLHQWV KDYH GLIILFXOW\
    SHUIRUPLQJVSDWLDO PDQLSXODWLRQV 0RKU %URXZHUV HW DO   DQG DUH LPSDLUHG RQ PDS UHDGLQJ
    DQG GLUHFWLRQDO VHQVH 0RKU &ODXV HW DO   7KH\ DUH DOVR LPSDLUHG RQ WKH YLVXDO LQWHJUDWLRQ
    UHTXLUHGIRUWKH+RRSHU9LVXDO2UJDQL]DWLRQ7HVW *RPH]7RUWRVDGHO%DUULRHWDO 
    $GPLQLVWUDWLRQ OLPLWDWLRQV LPSRVHG E\ UHVHDUFK QHHGV IRU VWDQGDUGL]HG SHUIRUPDQFHV RU ULJLG
    LQWHUSUHWDWLRQ RI WHVW LQVWUXFWLRQV PD\ REVFXUH XQGHUO\LQJ GHILFLWV WKDW FRQWULEXWH WR ORZ VFRUHV RQ
    YLVXRSHUFHSWXDODQGFRQVWUXFWLRQWHVWVZKLOHQRWSHUPLWWLQJUHVLGXDOFRPSHWHQFLHVWRFRPHWROLJKW
    $ \HDUROG ODZ VFKRRO SURIHVVRU ZKRVH PRWKHU KDG GLHG ZLWK +XQWLQJWRQ GLVHDVH ZDV UHIHUUHG IRU QHXURSV\FKRORJLFDO
    DVVHVVPHQW ZKHQ D &7 VFDQ UHYHDOHG UHGXFWLRQ LQ FDXGDWH VL]H DQG HQODUJHG YHQWULFOHV +LV EHVW SHUIRUPDQFH DW D VXSHULRU
    OHYHOZDVRQWKH:$,65,QIRUPDWLRQWHVWZLWKQRRWKHU:$,65WHVWVFRUHVDERYHDYHUDJH$QJXODWLRQMXGJPHQW -XGJPHQW
    RI/LQH2ULHQWDWLRQ ZDVKLJKDYHUDJH
    +RZHYHU LGHQWLILFDWLRQ RI FXWXS SLFWXUHV +RRSHU 9LVXDO 2UJDQL]DWLRQ 7HVW  ZDV YHU\ GHIHFWLYH SULPDULO\ EHFDXVH RI D
    SHUVLVWHQWWHQGHQF\WRUHVSRQGWRMXVWRQHRIWKHVHYHUDOSLFWXUHGSLHFHVLQDQLWHPUDWKHUWKDQFRQGXFWLQJWKHIXOOVFDOHVHDUFK
    UHTXLUHG IRU DQ LQWHJUDWHG UHVSRQVH HJ KH FDOOHG WKH WUXFN >LWHP @ D ߧGUHVVHUߨ DWWHQGLQJ RQO\ WR WKH UHFWDQJOH ZLWK WKUHH
    SDUDOOHO GRXEOH OLQHV WKDW FRPHV IURP WKH WUXFNߤV VLGH WKH PRXVH >LWHP @ EHFDPH D ߧSLSHߨ ZKLFK LV WKH VKDSH RI WKH WDLO
    SLHFH 
    +LVLQLWLDODSSURDFKWRFRS\LQJWKH&RPSOH[)LJXUHZDVSLHFHPHDOKHEHJDQZLWKRXWDQ\DSSDUHQWDWWHPSWWRVFDQWKHZKROH
    GHVLJQ VHH)LJ 7KHVFRUHIRUWKLVILUVWFRS\LVGLIILFXOWWRFRPSXWHEXWZRXOGEHQRKLJKHUWKDQSRLQWV RI 8SRQ
    FRPSOHWLQJWKHFLUFOHDQGILYHVKRUWOLQHVKHEHJDQWRORRNIRUWKHQH[WVWHSLQWKHGUDZLQJDQGRQO\WKHQUHDOL]HGWKDWKLVFRS\
    ZDV JURVVO\ GLVWRUWHG +H DFFHSWHG WKH RIIHU RI UHGUDZLQJ WKH ILJXUH DQG GHVSLWH KLV FOXPVLQHVV SURGXFHG DQ RUJDQL]HG DQG
    VSDWLDOO\DFFXUDWHFRS\ZLWKRQHLQWUXVLRQHUURU VHHORZHUGUDZLQJRI)LJ  DQG RPLVVLRQ RI WKH OHIW VLGH FURVV VHH )LJ
     S  VKRZLQJ WKH 5H\2VWHUULHWK &RPSOH[ )LJXUH  %RWK KLV LPPHGLDWH DQG GHOD\HG UHFDOO GUDZLQJV SUHVHUYHG WKH
    VWUXFWXUDORXWOLQHVRIWKHILJXUHDOWKRXJKPRVWGHWDLOVZHUHORVW FI)LJ ,WLVGRXEWIXOWKDWUHFDOOZRXOGKDYHEHHQHYHQ
    WKLVVXFFHVVIXOLIKHKDGQRWEHHQJLYHQDVHFRQGFRS\WULDO7KXVZKLOHYLVXRVSDWLDODELOLWLHVUHPDLQHGLQWDFWKLVSHUIRUPDQFHV
    DSSHDUHG LPSDLUHG GXH WR GHIHFWLYH VFDQQLQJ DQG SODQQLQJ +DG WKLV H[DPLQDWLRQ IROORZHG D UHVHDUFK SURWRFRO ULJLGO\ WKLV
    SDWLHQWߤVLQWDFWYLVXRVSDWLDODELOLWLHVZRXOGQRWKDYHEHHQDGHTXDWHO\GRFXPHQWHG

    7KLQNLQJ DQG UHDVRQLQJ ,PSDLUHG FRQFHSWXDO DELOLWLHV PHDVXUHG RQ 6LPLODULWLHV >:,6$@  DQG
    SUDFWLFDO UHDVRQLQJ PHDVXUHG RQ &RPSUHKHQVLRQ >:,6$@  =DN]DQLV   DUH FRPPRQ
    &DOFXODWLRQVDUHW\SLFDOO\DIIHFWHG &DLQH%DPIRUGHWDO:DWNLQVHWDO +'SDWLHQWVDUH
    DOVRLPSDLUHGRQSDWWHUQFRPSOHWLRQDQGDQDORJ\SUREOHPV 5DYHQV3URJUHVVLYH0DWULFHV  =DN]DQLV
     *HQHUDOL]LQJDELOLW\LVH[WUHPHO\ORZHYHQLQPLQLPDOO\LPSDLUHGSDWLHQWV %\OVPD%UDQGWHW
    DO %\FRQWUDVWGHFLVLRQPDNLQJRQDWDVNLQYROYLQJVHOHFWLQJDQGJDPEOLQJRQRXWFRPHVZLWK
    GLIIHULQJ SUREDELOLWLHV PD\ EH LQWDFW :DWNLQV HW DO   ,Q WKH :DWNLQV VWXG\ +' SDWLHQWV
    FRQVLVWHQWO\ FKRVH WKH PRUH SUREDEO\ VXFFHVVIXO RXWFRPH DQG GLIIHUHG IURP FRQWUROV RQO\ LQ
    VORZQHVV 7KH DXWKRUV VXJJHVWHG WKDW RUELWRIURQWDO IXQFWLRQV QHHGHG IRU VXFFHVVIXO JDPEOLQJ DUH
    SUHVHUYHGLQ+XQWLQJWRQSDWLHQWV

    ),*85(7UDFLQJVRIODZSURIHVVRUߤV&RPSOH[)LJXUHFRSLHV VHHWH[WIRUGHVFULSWLRQRIKLVSHUIRUPDQFH 7KHFRORUHGSHQVKHXVHG


    WRGUDZWKHILJXUHZHUHVZLWFKHGLQWKHFRXUVHRIKLVGUDZLQJSHUPLWWLQJWKLVWUDFLQJWRVKRZWKHRUGHULQZKLFKKHGUHZWKHILJXUHV7KH
    GUDZLQJVHTXHQFHIRUWKHILUVW XSSHU ILJXUHLVLQGLFDWHGE\WKHGLIIHUHQWOLQHVߟߟߞߞߞ߮ 7KHGUDZLQJVHTXHQFHIRUWKH
    VHFRQG ORZHU ILJXUHZDVߟߟߞߞߞߟߟߞߞߞ߮ ߮BB
    ),*85(,PPHGLDWH XSSHU DQGGHOD\HG ORZHU UHFDOORIWKH&RPSOH[)LJXUHE\WKHODZSURIHVVRUZLWK+XQWLQJWRQߤVGLVHDVH
    ZKRVHFRSLHVRIWKHILJXUHDUHVKRZQLQ)LJXUH

    ([HFXWLYHIXQFWLRQV

    ([HFXWLYH GHILFLHQFLHV DUH VLPLODU WR WKRVH H[KLELWHG E\ SDWLHQWV ZLWK IURQWDO OREH OHVLRQV %UDQGW
     &UDXIXUG DQG 6QRZGHQ   LQFOXGLQJ GLPLQLVKHG VHOIJHQHUDWHG DFWLYLW\ LPSDLUHG
    EHKDYLRUDOUHJXODWLRQDQGGHILFLWVLQSODQQLQJDQGRUJDQL]DWLRQ+XQWLQJWRQSDWLHQWVVKRZSODQQLQJ
    GHILFLWVRQWKH7RZHURI/RQGRQ :DWNLQVHWDO DQGFRJQLWLYHIOH[LELOLW\LVGLPLQLVKHGRQWKH
    :LVFRQVLQ&DUG6RUWLQJ7HVW $PRV%UDQGW,QVFRUHHWDO ERWKWHVWVWKDWUHTXLUHLQWDFW
    GRUVRODWHUDOIURQWDOFRUWH[6LQFHWKHFDXGDWHQXFOHXVUHFHLYHVLWVPRVWSURPLQHQWDIIHUHQWSURMHFWLRQV
    IURPWKHGRUVRODWHUDOSUHIURQWDOFRUWH[WKHVHLPSDLUPHQWVDUHQRWXQH[SHFWHG %UDQGW  ,Q DQ
    05, VWXG\ RI HDUO\ VWDJH +XQWLQJWRQ SDWLHQWV H[HFXWLYH G\VIXQFWLRQ FRUUHODWHG ZLWK JUD\ PDWWHU
    YROXPHORVVLQWKHFDXGDWHDQGSXWDPHQELODWHUDOO\DQGDOVRWKHLQVXODUOREH 3HLQHPDQQHWDO 
    (DUO\LQWKHGLVHDVHWKHVHSDWLHQWVDUHUHDVRQDEO\DFFXUDWHLQUHSRUWLQJWKHLUGHILFLWV &DLQH+XQW
    HWDO  DOWKRXJK WKLVDFFXUDF\ WHQGV WR GLPLQLVKDV WKH GHPHQWLDEHFRPHV PRUH VHYHUH &DLQH
    DQG6KRXOVRQ7UDQHO3DXOVHQDQG+RWK 6XUSULVLQJO\VRPHSHRSOHZLWKRYHUWFOLQLFDO
    V\PSWRPVUHIXVHWRDFFHSWWKDWWKH\KDYH+' &UDXIXUGDQG6QRZGHQ 

    3HUVRQDOLW\DQGSV\FKRVRFLDOEHKDYLRU

    +XQWLQJWRQSDWLHQWVXQGHUJRVLJQLILFDQWSHUVRQDOLW\FKDQJHVWKDWPD\SUHFHGHWKHDSSHDUDQFHRIRWKHU
    V\PSWRPV PD\ DFFRPSDQ\ WKHP RU PD\ RFFXU ODWHU LQ WKH FRXUVH RI WKH GLVHDVH &UDXIXUG DQG
    6QRZGHQ&XPPLQJV 6WDWLVWLFVRQHPRWLRQDOGLVRUGHUVYDU\JUHDWO\SUREDEO\EHFDXVH
    RIDJHVHYHULW\DQGGXUDWLRQGLIIHUHQFHVEHWZHHQSDWLHQWJURXSV'%HDU ߤV  FRQFOXVLRQWKDWWKH
    LQFLGHQFH RI SHUVRQDOLW\ RU HPRWLRQDO FKDQJH DSSURDFKHV  ߧRI DGHTXDWHO\ H[DPLQHG
    SDWLHQWVߨHPSKDVL]HVWKHXELTXLW\RIHPRWLRQDODQGEHKDYLRUDOGLVWXUEDQFHVLQWKHVHSDWLHQWV
    'HSUHVVLRQ LV WKH PRVW FRPPRQ SV\FKLDWULF GLVRUGHU DIIHFWLQJ DQ HVWLPDWHG  WR  RI DOO
    +XQWLQJWRQSDWLHQWVDWVRPHWLPHZLWKVXIIHULQJFKURQLFGHSUHVVLRQ %UDQGWDQG)ROVWHLQ 
    (YLGHQFHVXJJHVWLQJWKDWLWLVQRWVLPSO\DUHDFWLRQWRKDYLQJWKHGLVHDVHEXWYHU\OLNHO\DQHIIHFWRI
    WKHGLVHDVHSURFHVVFRPHVIURPVHYHUDOVRXUFHVGHSUHVVLRQSUHFHGHVPRWRUDQGFRJQLWLYHV\PSWRPV
    LQ PDQ\ FDVHV DQG LW LV PXFK PRUH FRPPRQ LQ +XQWLQJWRQߤV WKDQ LQ $O]KHLPHU ߤV GLVHDVH 0DULFOH
       9HQWUDO SUHIURQWDO DQG DQWHULRU WHPSRUDO SDUDOLPELF DUHD  K\SRPHWDEROLVP KDV EHHQ
    LPSOLFDWHGLQ+XQWLQJWRQGHSUHVVLRQ 0D\EHUJ $VXLFLGHUDWHDURXQGLVIDUDERYHWKDWIRU
    WKHJHQHUDOSRSXODWLRQ 'L0DLRHWDO 6XLFLGHDWWHPSWVZHUHLGHQWLILHGLQRISDWLHQWVLQ
    WKH1DWLRQDO+XQWLQJWRQ'LVHDVH5HVHDUFK5RVWHU )DUUHU +RZHYHUJHQHWLFWHVWLQJFRQILUPLQJ
    +'JHQHFDUULHUVWDWXVGRHVQRWDSSHDUWRLQFUHDVHVXLFLGHULVN 3DXOVHQHWDO DQGPRRGDQG
    FRSLQJVWUDWHJLHVDSSHDUXQDIIHFWHGE\GLDJQRVLVFRQILUPDWLRQ -DQNRYLFHWDO 
    0DQLDRUK\SRPDQLDRFFXUVLQDERXWRISDWLHQWV 6()ROVWHLQ&KDVHHWDO )URP
    WRPD\SUHVHQWZLWKVFKL]RSKUHQLFOLNHGHOXVLRQDORUKDOOXFLQDWRU\V\PSWRPV YDQ'XLMQHWDO
      +XQWLQJWRQ SDWLHQWV DUH PRUH OLNHO\ WR KDYH REVHVVLYHFRPSXOVLYH V\PSWRPV ZLWK UHSRUWHG
    SUHYDOHQFHV RI  WR  2EVHVVLYHFRPSXOVLYH WHQGHQFLHV PD\ EH H[SUHVVHG E\ FRJQLWLYH
    ULJLGLW\ H[FHVVLYH UHOLDQFH RQ URXWLQHV DQG SHUVHYHUDWLRQ RQ VSHFLILF WRSLFV /HURL DQG 0LFKDORQ
     
    ,UULWDELOLW\HPRWLRQDOODELOLW\ DQG DQ[LHW\ WURXEOHPDQ\SDWLHQWV &XPPLQJVYDQ 'XLMQ HW
    DO $JJUHVVLYHRXWEXUVWVDUHQRWXQFRPPRQDQGVH[XDOSURPLVFXLW\KDVEHHQUHSRUWHGLQWKH
    HDUO\VWDJHVRIERWK+XQWLQJWRQߤVGLVHDVHDQG$O]KHLPHU ߤVGLVHDVH 'HZKXUVWHWDO $WOHDVWLQ
    PDOHVWKHUHLVDQLQFUHDVHGFULPHUDWHLQFDUULHUVRIWKH+'JHQH 3-HQVHQHWDO  ,UULWDELOLW\
    DQG DJJUHVVLRQ WRR PD\ EH DVVRFLDWHG ZLWK WKH GLVHDVH SURFHVV $SDWK\ QRW WR EH FRQIXVHG ZLWK
    GHSUHVVLRQWHQGVWRWDNHRYHULQWKHODWHUVWDJHVRIWKHLOOQHVV 1DDUGLQJHWDO 

    7UHDWPHQW

    7UHDWPHQW RSWLRQV DUH OLPLWHG WR SDOOLDWLYH FDUH DQG ZLOO GLIIHU GXULQJ GLIIHUHQW GLVHDVH VWDJHV
    1HXUROHSWLF PHGLFDWLRQV DUH PRVW FRPPRQO\ XVHG WR UHOLHYH WKH FKRUHLF PRYHPHQWV /HUQHU DQG
    5LOH\ :KLOHHIIHFWLYHIRUWKLVSXUSRVHWKH\WHQGWRLQFUHDVHULJLGLW\DQGRWKHUSDUNLQVRQOLNH
    V\PSWRPV6RPHQHZHUDW\SLFDOQHXUROHSWLFVDUHRIWHQEHWWHUWROHUDWHG8QIRUWXQDWHO\GRSDPLQHUJLF
    GUXJVWKDWDOOHYLDWHWKH3DUNLQVRQOLNHV\PSWRPVH[DFHUEDWHWKHFKRUHD 3HUHW]DQG&XPPLQJV 
    EXWDQWLGRSDPLQHUJLFVDUHRIWHQHIIHFWLYHLQWUHDWLQJWKHPRYHPHQWGLVRUGHU 6KDOHDQG7DQQHU 
    $FURVV VWXGLHV QR GUXJ KDV FRQVLVWHQWO\ LPSURYHG WKH V\PSWRPV RI +' 2I WKH YDULRXV
    SKDUPDFRORJLF WUHDWPHQWV VWXGLHG WKH DQWLGRSDPLQHUJLF GUXJ WHWUDEHQD]LQH KDG WKH EHVW UHVXOWV IRU
    FRQWUROOLQJ FKRUHD 0HVWUH HW DO   %HFDXVH SDWLHQWV PD\ EH XQDZDUH RI WKHLU FKRUHD WKLV
    FRQGLWLRQ LV QRW DOZD\V WUHDWHG 8QIRUWXQDWHO\ QHLWKHU WKHVH QRU RWKHU PHGLFDWLRQV LPSURYH WKH
    GHPHQWLD 7ULF\FOLF DQWLGHSUHVVDQWV RU OLWKLXP LV RIWHQ HIIHFWLYH LQ WKH WUHDWPHQW RI GHSUHVVLYH
    V\PSWRPV /HUQHU DQG 5LOH\   5LVSHULGRQH PD\ EH XVHIXO IRU WUHDWLQJ SV\FKLDWULF V\PSWRPV
    'XII%HJOLQJHUHWDO 
    6WUHVVUHGXFWLRQDQGSK\VLFDORFFXSDWLRQDOVSHHFKDQGQXWULWLRQDOWKHUDSLHVKDYHLPSRUWDQWUROHV
    %HKDYLRUDO FKDQJHV DUH RIWHQ RI JUHDWHU GLVWXUEDQFH WR FDUHJLYHUV WKDQ PRWRU RU FRJQLWLYH GHILFLWV
    6RFLDOVXSSRUWLVLPSRUWDQWIRUWKHSDWLHQWDQGIDPLO\

    3URJUHVVLYH6XSUDQXFOHDU3DOV\ 363
    7KLV GLVRUGHU DOVR NQRZQ DV 6WHHOH5LFKDUGVRQ2OV]HZVNL V\QGURPH -& 6WHHOH 5LFKDUGVRQ DQG
    2OV]HZVNL LVFODVVLFDOO\DVVRFLDWHGZLWKDQLQDELOLW\WRORRNGRZQZDUGRQFRPPDQG%HFDXVH
    WKHH\HJD]HQXFOHLLQWKHEUDLQVWHPDUHLQWDFWWKHFULWLFDOOHVLRQLVDOHYHODERYHWKHVHQXFOHLߟKHQFH
    WKHQDPH VXSUDQXFOHDU 363 LV D SURJUHVVLYH GHJHQHUDWLYH GLVHDVH WKDW HURGHV VXEFRUWLFDO VWUXFWXUHV
    DQGDOWHUVFRUWLFDOߟSULPDULO\SUHIURQWDOߟIXQFWLRQLQJDVVXEFRUWLFDOFRUWLFDOLQWHUFRQQHFWLRQVEUHDN
    GRZQ :LWKRXW D GLVWLQFWLYH GLVHDVHVSHFLILF ELRPDUNHU GLDJQRVLV PXVW UHO\ RQ WKH FOLQLFDO
    SUHVHQWDWLRQ\HWYDULDQWVRIWKLVFRQGLWLRQFRPSOLFDWHWKHGLDJQRVWLFSLFWXUH '5:LOOLDPVDQG/HHV
     
    2QVHWRIWKLVQRQIDPLOLDOFRQGLWLRQLVXVXDOO\LQWKHVZLWKDPHGLDQVXUYLYDORIWR\HDUV
    *ROEH'DYLVHWDO 7KHSUHYDOHQFHLVSHUZLWKDQHVWLPDWHGLQFLGHQFHRIWR
    SHUPLOOLRQ *ROEH 0HQPD\EHPRUHOLNHO\WRGHYHORSWKHGLVHDVH -+%RZHUHWDO
    6DQWDFUX]HWDO DOWKRXJK*ROEH  IRXQGQRVH[GLIIHUHQFHV5LVNIDFWRUVDUHXQNQRZQ

    1HXURDQDWRP\DQGSDWKRSK\VLRORJ\

    7KHSULPDU\OHVLRQVLWHVLQ363DUHVLWXDWHGIURPWKHXSSHU URVWUDO EUDLQVWHPWRWKHEDVDOJDQJOLD


    )LJ S   '5 :LOOLDPV DQG /HHV   7KH GHJHQHUDWLYH SURFHVV DSSHDUV WR GLVFRQQHFW
    DVFHQGLQJSDWKZD\VIURPWKHVHVXEFRUWLFDOVWUXFWXUHVWRWKHSUHIURQWDOFRUWH[ZKLOHDVFHQGLQJORQJ
    WUDFWVIURPORZHUVWUXFWXUHVUHPDLQLQWDFW7KLVGLVHDVHRIWHQFRH[LVWVZLWKRWKHUQHXURGHJHQHUDWLYH
    GLVRUGHUV,QRQHVWXG\$O]KHLPHUSDWKRORJ\ZDVIRXQGLQRIFDVHVDQG/HZ\ERGLHVZHUHIRXQG
    LQ  .HLWK5RNRVK DQG $QJ   )URQWDO LQYROYHPHQW GXH WR GLVFRQQHFWLRQ IURP VXEFRUWLFDO
    FHQWHUVVKRZVXSDVK\SRPHWDEROLVP %OLQHWDO1/)RVWHUHWDO*DUUDX[HWDO 
    &KDQJHV LQ QHXURWUDQVPLWWHU OHYHOV WDNH SODFH DV WKH GHJHQHUDWLRQ SURFHHGV 'RSDPLQH OHYHOV GURS
    GUDVWLFDOO\ LQ WKH VWULDWXP DQG RWKHU DEQRUPDO QHXURFKHPLFDO DOWHUDWLRQV DUH SUHVHQW /HUQHU DQG
    5LOH\ 

    7KHGLVHDVHSURFHVV

    &RXUVH ,QLWLDO V\PSWRPV YDU\ JUHDWO\ DQG EHFRPH PRUH SURQRXQFHG DV WKH GLVHDVH SURJUHVVHV
    '5:LOOLDPVDQG/HHV 3RVWXUDOLQVWDELOLW\DQGIDOOLQJDUHWKHPRVWFRPPRQLQLWLDOIHDWXUHV
    )XUPDQ DQG &DVV   RIWHQ DSSHDULQJ WZR \HDUV RU PRUH SULRU WR GLDJQRVLV 6DQWDFUX] HW DO
      2WKHU HDUO\ V\PSWRPV DUH G\VDUWKULD DQG EUDG\NLQHVLD /LWYDQ $JLG -DQNRYLF HW DO  
    &RJQLWLYH RU EHKDYLRUDO FKDQJHV DOVR XVXDOO\ EHJLQ LQ WKH ILUVW \HDU DOWKRXJK UDUHO\ DUH WKH ILUVW
    V\PSWRPV /LWYDQ0DQJRQHHWDO 'LIILFXOW\ FRQFHQWUDWLQJDQG ZRUGILQGLQJ SUREOHPV DUH
    VHHQ LQ URXJKO\ KDOI RI 363 SDWLHQWV ZLWKLQ WZR \HDUV RI GLDJQRVLV DERXW KDOI RI DOO SDWLHQWV ZKR
    VXUYLYHPRUHWKDQIRXU\HDUVDIWHUGLDJQRVLVFRPSODLQRIIDLOLQJPHPRU\ 6DQWDFUX]HWDO $
    VPDOOQXPEHURISDWLHQWVLQLWLDOO\GLVSOD\WUHPRURUPRWRUV\PSWRPVLQYROYLQJVSHHFKVZDOORZLQJ
    RUGH[WHULW\7KHKDOOPDUNRIWKHGLVHDVHߟYHUWLFDOJD]HSDOV\ߟRFFXUVUHODWLYHO\ODWH+LVWRORJLFDOO\
    FRQILUPHGFDVHVRI363ZLWKRXWRSKWKDOPRSOHJLDKDYHEHHQUHSRUWHG 'XEDVHWDO6DQWDFUX]HW
    DO 
    $ERXW KDOIZD\ WKURXJK WKH GLVHDVH FRXUVH PRVW RI WKH RWKHU SUREOHPV HPHUJH DQG LQFUHDVH LQ
    VHYHULW\ :KHQ WKH GLVHDVH LV IXOOEORZQ PRYHPHQW GLVRUGHUV DSSHDULQJ DV ULJLGLW\ EUDG\NLQHVLD
    GHIHFWLYH FRQWURO RI PRXWK DQG QHFN PXVFOHV ZLWK DQ LPSDVVLYH H[SUHVVLRQ DQG GURROLQJ SOXV D
    YDULHW\RIRFXORPRWRUGHIHFWVUHQGHUWKHSDWLHQWLQFUHDVLQJO\GHSHQGHQW0RVWSDWLHQWVZKROLYHORQJ
    HQRXJK EHFRPH ZKHHOFKDLUERXQG DQG PDQ\ DUH PXWH DW WKH HQG VWDJH 'HDWK RIWHQ UHVXOWV IURP
    UHVSLUDWRU\ DUUHVW HLWKHU VHFRQGDU\ WR SQHXPRQLD RU GXH WR GHJHQHUDWLYH SURFHVVHV LQYROYLQJ
    EUDLQVWHPUHVSLUDWRU\FHQWHUV

    'LDJQRVLVDQGSUHGLFWLRQ

    +LVWRORJLF H[DPLQDWLRQ LV QHFHVVDU\ IRU D GHILQLWLYH GLDJQRVLV ZKLFK LQFOXGHV DQ DSSURSULDWH
    GLVWULEXWLRQ DQG GHQVLW\ RI QHXURILEULOODU\ WDQJOHV DQG QHXURSLO WKUHDGV LQ WKH EDVDO JDQJOLD DQG
    EUDLQVWHP /LWYDQ $JLG &DOQH HW DO   /LNH )7' 363 UHVXOWV IURP DEQRUPDO WDX + WDX
    KDSORW\SHRQFKURPRVRPHLVDVVRFLDWHGZLWKWKHGLVHDVH +RXJKWRQDQG/LWYDQ 363LVRIWHQ
    PLVGLDJQRVHG FOLQLFDOO\ DV 3DUNLQVRQߤV GLVHDVH E\ SULPDU\ QHXURORJLVWV RU DV FRUWLFREDVDO
    GHJHQHUDWLRQ E\ PRYHPHQW GLVRUGHU VSHFLDOLVWV /HHV  /LWYDQ 0DQJRQH HW DO   :KLOH
    FOLQLFLDQV PD\ GLIIHU RQ D IHZ RI WKH VSHFLILFV WKH DJUHHG XSRQ FRQGLWLRQV WKDW DUH QHFHVVDU\ IRU
    FOLQLFDO GLDJQRVLV LQFOXGH RQVHW DIWHU DJH  SRVWXUDO LQVWDELOLW\ D SURJUHVVLYH FRXUVH DQG WKH
    FKDUDFWHULVWLFRFXORPRWRUV\PSWRPV /LWYDQ$JLG&DOQHHWDO/LWYDQ$JLG-DQNRYLFHWDO
     363WHQGVWREHPRUHVHYHUHLQROGHUSDWLHQWVZKRDOVRKDYHDVKRUWHUVXUYLYDOWLPH 6DQWDFUX]
    HWDO 

    6HQVRULPRWRUVWDWXV

    363SDWLHQWVW\SLFDOO\H[SHULHQFHYLVXDOSUREOHPVDVVRFLDWHGZLWKRFXORPRWRUGHIHFWV '5:LOOLDPV
    DQG/HHV 0RVWFRPPRQDPRQJWKHVHLVDJD]HGHIHFWLQWKHYHUWLFDOSODQHVXFKWKDWYROXQWDU\
    GRZQZDUG JD]H XOWLPDWHO\ EHFRPHV LPSRVVLEOH 7KXV WKH\ KDYH GLIILFXOW\ HDWLQJ RU ZULWLQJ 0RVW
    SDWLHQWVIDOOZKLOHZDONLQJZKHQWKH\WU\WRFRPSHQVDWHE\EHQGLQJWKHKHDGGRZQWKHLUH\HVUROOXS
    UHIOH[LYHO\ 2WKHU RFXORPRWRU SUREOHPV UHVXOW LQ EOXUULQJ RU GRXEOH YLVLRQ DQG LPSDLUHG DELOLW\ WR
    ILQGRUWUDFNYLVXDOVWLPXOL 5DIDO 7KH\SHUIRUPWHVWVFDOOLQJIRUYLVXDOVFDQQLQJH[WUHPHO\
    VORZO\ DQG DUH HUURUSURQH *UDIPDQ /LWYDQ *RPH] DQG &KDVH  ' .LPXUD %DUQHWW DQG
    %XUNKDUW  0RWRU LPSDLUPHQWV VKRZXS DVVORZLQJDQG GLIILFXOW\ SHUIRUPLQJ VHTXHQWLDO KDQG
    PRYHPHQWV *UDIPDQ /LWYDQ *RPH] DQG &KDVH  0LOEHUJ DQG $OEHUW   ,GHRPRWRU
    DSUD[LDPD\EHSUHVHQW 3KDUU/LWYDQHWDO3KDUU8WWOHWDO 

    &RJQLWLRQ

    'HILFLWV WKDW WHQG WR DFFRPSDQ\ SUHIURQWDO OHVLRQV DUH SURPLQHQW 6ORZLQJ LQ DOO DVSHFWV RI PHQWDO
    SURFHVVLQJDQGUHVSRQVHLVSHUYDVLYH 'XERLV3LOORQ/HJDXOWHWDO*UDIPDQ/LWYDQ*RPH]
    DQG &KDVH    /LVKPDQ   UHSRUWLQJ KLV FOLQLFDO H[SHULHQFH VWDWHG WKDW ZKHQ JLYHQ DQ
    ߧDEQRUPDODPRXQWRIWLPHߨLQZKLFKWRUHVSRQGKLVSDWLHQWVJDYHߧVXUSULVLQJO\LQWDFWߨSHUIRUPDQFHV
    ߧ0HPRU\DVVXFKDSSHDUHGQRWWREHWUXO\LPSDLUHGEXWUDWKHUWKHWLPLQJPHFKDQLVPZKLFKHQDEOHV
    WKH PHPRU\ V\VWHP WR IXQFWLRQ DW QRUPDO VSHHGߨ S   $V ZLWK RWKHU SURJUHVVLYH FRQGLWLRQV IRU
    ZKLFKVWXGLHVDUHEDVHGRQVPDOOVDPSOHVRISDWLHQWVDWGLIIHUHQWVWDJHVQRIXOO\FRQVLVWHQWSLFWXUHRI
    FRJQLWLYH GLVDELOLWLHV HPHUJHV DOWKRXJK PDQ\ IHDWXUHV RI FRJQLWLYH G\VIXQFWLRQ LQ 363 KDYH EHHQ
    LGHQWLILHG (50DKHUHWDO 

    $WWHQWLRQ$PHDQIRUZDUGGLJLWVSDQRIsLQDVDPSOHRISDWLHQWVDYHUDJLQJ\HDUV
    LQGLFDWHVWKDWVSDQLVZLWKLQQRUPDOOLPLWVIRUPDQ\LIQRWPRVWRIWKHVHSDWLHQWV 0LOEHUJDQG$OEHUW
     0HQWDOWUDFNLQJSUREOHPVWHQGWREHPLOGRQUHODWLYHO\VLPSOHWDVNVDQGLQFUHDVHLQVHYHULW\DV
    WUDFNLQJ WDVNV EHFRPH PRUH FRPSOH[ *UDIPDQ /LWYDQ *RPH] DQG &KDVH  3LOORQ 'XERLV
    /KHUPLWWH DQG $JLG   ,QIRUPDWLRQ SURFHVVLQJ LV SURIRXQGO\ VORZHG *UDIPDQ /LWYDQ DQG
    6WDUN.HUWHV]DQG0F0RQDJOH 

    0HPRU\DQGOHDUQLQJ0HPRU\LPSDLUPHQWFDQRFFXUDWHYHU\VWDJHRISURFHVVLQJH[FHSWVKRUW
    WHUPUHWHQWLRQZLWKRXWLQWHUIHUHQFH /LWYDQ*UDIPDQ*RPH]DQG&KDVH0LOEHUJDQG$OEHUW
     7KHVHSDWLHQWVDUHYHU\VXVFHSWLEOHWRLQWHUIHUHQFHHIIHFWV 3LOORQDQG'XERLV ,QHIILFLHQW
    VWRUDJH DQG UHWULHYDO VWUDWHJLHV XQGHUOLH WKH PHPRU\ GLVRUGHU .HUWHV] DQG 0F0RQDJOH  
    $OWKRXJK VLJQLILFDQWO\ LPSDLUHG ZKHQ FRPSDUHG ZLWK DQ DSSURSULDWH FRQWURO JURXS 363 SDWLHQWVߤ
    PHPRU\GHILFLWVWHQGQRWWREHDVVHYHUHDVWKRVHRI$O]KHLPHUSDWLHQWV 0LOEHUJ DQG$OEHUW
    3LOORQ 'XERLV /KHUPLWWH DQG $JLG   DQG ZLWKLQ JURXS YDULDWLRQV FDQ EH YHU\ ODUJH (5
    0DKHUHWDO ,PSOLFLWOHDUQLQJGRHVWDNHSODFH 3LOORQDQG'XERLV 

    9HUEDOIXQFWLRQV,PSDLUHGYHUEDOUHWULHYDOVKRZVXSDVZRUGILQGLQJSUREOHPV $X HW DO 


    DQGGHIHFWLYHSHUIRUPDQFHRQIOXHQF\WHVWV /LWYDQ*UDIPDQHWDO3LOORQ'XERLV3ORVNDDQG
    $JLG 
    &RQIURQWDWLRQ QDPLQJ WHQGV WR EH PLOGO\ LPSDLUHG 0LOEHUJ DQG $OEHUW   DOWKRXJK WKH
    QDPLQJ HUURUV RIWHQ LQYROYH DQ REMHFW YLVXDOO\ VLPLODU WR WKH WDUJHW REMHFW VXJJHVWLQJ WKDW YLVXDO
    PLVSHUFHSWLRQLVWKHPDMRUVRXUFHRIWKHQDPLQJGLVRUGHU$VZLWK+XQWLQJWRQDQG3DUNLQVRQSDWLHQWV
    WKH HOHPHQWV RI ODQJXDJH UHPDLQ LQWDFW LQ PDQ\ SDWLHQWV EXW SULPDU\ SURJUHVVLYH DSKDVLD DIIHFWV D
    VXEVWDQWLDO QXPEHU .HUWHV] DQG 0F0RQDJOH   7KH PHFKDQLVP RI VSHHFK SURGXFWLRQ FDQ EH
    DIIHFWHGPRVWSURPLQHQWO\E\VORZLQJEXWDOVRE\G\VDUWKULDDQGDPRQRWRQLFGHOLYHU\ 0/ $OEHUW
    )HOGPDQDQG:LOOLV 

    9LVXRVSDWLDO IXQFWLRQV 6FRUHV RQ WHVWV UHTXLULQJ DQDO\VLV DQG LQWHJUDWLRQ RI YLVXDOO\ SUHVHQWHG
    PDWHULDOWHQGWREHPDUJLQDOWRWKHDYHUDJHUDQJH 3LFWXUH&RPSOHWLRQVHH'.LPXUD%DUQHWWDQG
    %XUNKDUW  3LFWXUH $UUDQJHPHQW VHH *UDIPDQ /LWYDQ *RPH] DQG &KDVH    DQG WKHVH
    SDWLHQWVGRSRRUO\RQ%ORFN'HVLJQ 'HUL[0LOEHUJDQG$OEHUW 7KHVH:,6$WHVWVDUH
    DOO WLPHG OHDYLQJ LQ TXHVWLRQ KRZ PXFK UHVSRQVH VORZLQJ FRQWULEXWHG WR ORZ VFRUHV $ ILQGLQJ RI
    LPSDLUHGFXEHGUDZLQJKRZHYHUGRHVLPSOLFDWHDYLVXRVSDWLDOGHILFLW 3LOORQ'XERLV/KHUPLWWHDQG
    $JLG 

    7KLQNLQJ DQG UHDVRQLQJ &OLQLFDO REVHUYDWLRQV LQGLFDWH WKDW 363 SDWLHQWV YDU\ LQ WKH GHJUHH WR
    ZKLFKWKLQNLQJDQGUHDVRQLQJDUHLPSDLUHGDVVRPHUHSRUWQRUPDOIXQFWLRQLQJDQGRWKHUVGHVFULEH
    GHILFLWV 0/$OEHUW)HOGPDQDQG:LOOLV-DQDWLDQG$SSHO 9HUEDOFRQFHSWIRUPDWLRQDV
    PHDVXUHGE\6LPLODULWLHV :,6$ KDVW\SLFDOO\EHHQUHSRUWHGWREHDWDQDYHUDJHOHYHO H[FHSWLQJD
    UHSRUW E\3LOORQ 'XERLV /KHUPLWWH DQG $JLG  ZKRVH SDWLHQWV SHUIRUPHG VLJQLILFDQWO\ EHORZ
    WKH DYHUDJH UDQJH  :KHQ H[DPLQHG E\ YLVXDO WHVWV 5DYHQߤV 3URJUHVVLYH 0DWULFHV :LVFRQVLQ &DUG
    6RUWLQJ 7HVW  FRQFHSW IRUPDWLRQ LV FRQVLVWHQWO\ LPSDLUHG 'XERLV 3LOORQ /HJDXOW HW DO 
    *UDIPDQ /LWYDQ *RPH] DQG &KDVH  0LOEHUJ DQG $OEHUW   7KHVH SDWLHQWVߤ DELOLW\ IRU
    PHQWDOPDQLSXODWLRQVDVUHTXLUHGE\DULWKPHWLFVWRU\SUREOHPVWHQGVWREHLPSDLUHGDOWKRXJKWKH\
    FDQSHUIRUPPXOWLSOLFDWLRQDGHTXDWHO\ 0LOEHUJDQG$OEHUW3LOORQHWDO 

    ([HFXWLYHIXQFWLRQV

    ([HFXWLYH G\VIXQFWLRQ LV DQ LPSRUWDQW FKDUDFWHULVWLF RI WKLV GLVHDVH ,W VKRZV XS LQ ERWK YHUEDO DQG
    JUDSKLF G\VIOXHQF\ LQ LPSDLUHG VHTXHQFLQJ DQG PHQWDO IOH[LELOLW\ DQG DV DSDWK\ DQG EHKDYLRUDO
    LQHUWLDDQGGLIILFXOW\SODQQLQJDQGVKLIWLQJFRQFHSWXDOVHWV 0/$OEHUW)HOGPDQDQG:LOOLV
    *UDIPDQ/LWYDQDQG6WDUN3LOORQ'XERLV3ORVNDDQG$JLG 3LOORQDQG'XERLV 
    VXJJHVWHG WKDW PDQ\ RI WKHVH SDWLHQWVߤ DEVWUDFWLRQ DQG UHDVRQLQJ IDLOXUHV DUH HVVHQWLDOO\ GXH WR
    LPSDLUHG H[HFXWLYH IXQFWLRQLQJ 9HUEDO IOXHQF\ SDUWLFXODUO\ SKRQHPLF IOXHQF\ LV UHGXFHG .HUWHV]
    DQG0F0RQDJOH 8WLOL]DWLRQEHKDYLRUDQGIURQWDOUHOHDVHVLJQVPD\EHSUHVHQW /LWYDQ$JLG
    -DQNRYLFHWDO 6LJQLILFDQWFRUUHODWLRQVKDYHEHHQUHSRUWHGEHWZHHQDSDWK\DQGWKH,QLWLDWLRQ
    DQG 3HUVHYHUDWLRQ VFRUHV IURP WKH 0DWWLV 'HPHQWLD 5DWLQJ 6FDOH VXJJHVWLQJ D FRPPRQ OLQN WR
    IURQWDOߞVXEFRUWLFDODEQRUPDOLWLHV /LWYDQ0HJDHWDO 
    3HUVRQDOLW\DQGSV\FKRVRFLDOEHKDYLRU

    $SDWK\DQGLQHUWLDDUHWKHPRVWFRPPRQO\UHSRUWHGSHUVRQDOLW\IHDWXUHVRI363SDWLHQWV $DUVODQGHW
    DO  0/ $OEHUW )HOGPDQ DQG :LOOLV  -DQDWL DQG $SSHO   7KHVH SUREOHPV ZHUH
    LGHQWLILHG LQ  RI RQH VDPSOH XVLQJ WKH 1HXURSV\FKLDWULF,QYHQWRU\ /LWYDQ 0HJD HW DO  
    ,UULWDELOLW\ LV IUHTXHQWO\ VHHQ GHSUHVVLRQ RU HXSKRULD PD\ RFFXU LQ VRPH SDWLHQWV 'XERLV 3LOORQ
    /HJDXOW DQG WKHLU FROOHDJXHV   IRXQG D WHQGHQF\ IRU WKHLU SDWLHQWV WR UHSRUW PLOG GHSUHVVLRQ
    (PRWLRQDO LQFRQWLQHQFHߟHLWKHU ODXJKLQJ RU FU\LQJߟKDV DOVR EHHQ GHVFULEHG LQ VRPH SDWLHQWV
    'LVLQKLELWLRQLVSUHVHQWLQDSSUR[LPDWHO\RQHWKLUGRI363SDWLHQWV /LWYDQ0HJDHWDO 

    7UHDWPHQW

    'HVSLWH LWV UHVHPEODQFH WR PDQ\ IHDWXUHV RI 3DUNLQVRQߤV GLVHDVH 363 KDV OLPLWHG UHVSRQVH WR
    GRSDPDQHUJLF RU DQWLFKROLQHUJLF GUXJV .RPSROLWL HW DO   7KH HPRWLRQDO V\PSWRPV PD\ EH
    UHOLHYHGE\VRPHDQWLGHSUHVVDQWVEXWFRJQLWLYHG\VIXQFWLRQLVDV\HWXQWUHDWDEOH /HHV 

    &RPSDULVRQVRIWKH3URJUHVVLYH'HPHQWLDV
    7KHSULPDU\GHJHQHUDWLYHGLVHDVHVRIWKHEUDLQKDYHRYHUODSSLQJIHDWXUHVDQGLQPDQ\ZD\VFDQEH
    WKRXJKW RI DV D VSHFWUXP RI GLVRUGHUV 7KH RYHUODS LQFOXGHV QHXURSDWKRORJ\ DV ZHOO DV FOLQLFDO
    FKDUDFWHULVWLFV ,Q D VHULHV RI DXWRSVLHV RI HOGHUO\ SDWLHQWV ZLWK VXVSHFWHG $O]KHLPHU ߤV GLVHDVH RQO\
     KDG ߧSXUHߨ$' FRH[LVWLQJ SDWKRORJLHV LQFOXGHG YDVFXODU OHVLRQV LQ  DQG /HZ\ ERGLHV LQ
     -HOOLQJHU  3DWLHQWV ZLWK /HZ\ ERG\ GHPHQWLD DQG WKRVH ZLWK 3DUNLQVRQߤV GLVHDVH VKDUH
    /HZ\ ERGLHVߟDOWKRXJK LQ GLIIHUHQW GLVWULEXWLRQV LQ WKH EUDLQߟDQG PRWRU V\PSWRPV 3DUNLQVRQߤV
    GLVHDVHZLWKGHPHQWLDLVWKHSUHIHUUHGGLDJQRVLVLIPRWRUV\PSWRPVRI3DUNLQVRQߤVGLVHDVHSUHFHGH
    FRJQLWLYHGHILFLWVE\DWOHDVWRQH\HDU7KHߧIURQWDOYDULDQWߨRI$O]KHLPHU ߤVGLVHDVHFDQEHGLIILFXOWWR
    GLVWLQJXLVK IURP IURQWRWHPSRUDO OREDU GHJHQHUDWLRQ -. -RKQVRQ +HDG HW DO   DQG
    RYHUODSSLQJSDWKRORJ\EHWZHHQVRPHLQVWDQFHVRI$'DQG)7/'KDVEHHQVXJJHVWHG YDQGHU=HHHW
    DO 
    $OWKRXJK WKH\ VKDUH VLPLODULWLHV WKHVH YDULRXV IRUPV RI GHPHQWLD KDYH FKDUDFWHULVWLF SURILOHV
    GXULQJWKHHDUO\VWDJHV -$/HY\DQG&KHOXQH DQGWKHVHGLVWLQFWLRQVPD\SHUVLVWZLWKGLVHDVH
    SURJUHVVLRQ /LERQ ;LH HW DO   6HH 7DEOH  IRU WKH W\SLFDO HDUO\ QHXURSV\FKRORJLFDO
    SUHVHQWDWLRQV RI WKH PRVW FRPPRQ IRUPV RI SURJUHVVLYH GHPHQWLD ZKLFK LQFOXGHV SULPDU\
    GHJHQHUDWLYH GLVHDVHV DQG YDVFXODU GHPHQWLD 6RPH RI WKHVH GLVHDVHV KDYH GLVWLQJXLVKLQJ
    QHXURORJLFDOIHDWXUHVZKLFKDUHQRWLQFOXGHGLQWKHWDEOH$Q\LQGLYLGXDOSDWLHQWPD\QRWILWWKHSDWWHUQ
    VKRZQLQWKLVWDEOHDVWKHVHGLVHDVHVFDQKDYHXQXVXDOSUHVHQWDWLRQV%HFDXVHRIWKHVHFKDOOHQJHVWKH
    DFFXUDF\RIFOLQLFDOGLDJQRVHVRI$O]KHLPHU ߤVGLVHDVHLVDURXQGWR .ODWNDHWDO 7KH
    ߧJROG VWDQGDUGߨRI QHXURSDWKRORJLFDO GLDJQRVLV DOVR KDV OLPLWHG DFFXUDF\ )RU H[DPSOH LW LV ZHOO
    NQRZQWKDWVRPHHOGHUVZKRIXQFWLRQHGQRUPDOO\LQWKHLUHQYLURQPHQWVDWWKHWLPHRIWKHLUGHDWKKDYH
    DEXQGDQW QHXURSDWKRORJLFDO VLJQV RI $O]KHLPHU ߤV GLVHDVH RQ SRVWPRUWHP H[DPLQDWLRQ &U\VWDO
    'LFNVRQHWDO'*'DYLV6FKPLWWHWDO 
    3DWLHQWVZLWKSURJUHVVLYHGHPHQWLDZLWKLQVLGLRXVRQVHWZLOOKDYHDQHDUO\VWDJHSUHVHQWLQJDVPLOG
    FRJQLWLYH LPSDLUPHQW %HFDXVH WKH SDUWLFXODU IHDWXUHV ZLOO EH GHSHQGHQW RQ WKH W\SH RI GHPHQWLD LW
    SUHFHGHV PLOG FRJQLWLYH LPSDLUPHQW LV QRW LQFOXGHG LQ WKLV WDEOH ,Q PRVW FDVHV SDWLHQWV ZLWK PLOG
    FRJQLWLYH LPSDLUPHQW KDYH FRJQLWLYH GHILFLWV DQG EHKDYLRUDO PDQLIHVWDWLRQV LQWHUPHGLDWH EHWZHHQ
    LQWDFWDGXOWVDQGGHPHQWLDSDWLHQWV
    7KH GHILQLQJ HDUO\ IHDWXUH IRU PRVW SDWLHQWV ZLWK $O]KHLPHU ߤV GLVHDVH LV LPSDLUHG QHZ OHDUQLQJ
    DQG UHWHQWLRQ $ ZLGH UDQJH RI FRJQLWLYH IXQFWLRQV PD\ EH LPSDLUHG DOWKRXJK ROG OHDUQHG
    LQIRUPDWLRQDQGUHPRWHPHPRULHVDUHUHODWLYHO\UHWDLQHGHDUO\LQWKHGLVHDVH/DQJXDJHLPSDLUPHQW
    XVXDOO\ LV LQ WKH IRUP RI ZRUG ILQGLQJ GLIILFXOWLHV DOWKRXJK WKLV PD\ EH VSDUHG DQG GHFUHDVHG
    VHPDQWLFIOXHQF\$O]KHLPHUSDWLHQWVRIWHQODFNDSSUHFLDWLRQRIWKHGHJUHHRIWKHLUFRJQLWLYHGHILFLWV
    7KH\PD\VKRZVLJQVRIDSDWK\GHSUHVVLRQRUERWK
    &RQWUDVWLQJ ZLWK $O]KHLPHU ߤV GLVHDVH SDWLHQWV ZLWK IURQWRWHPSRUDO GHPHQWLD KDYH H[HFXWLYH
    GHILFLWV JUHDWHU WKDQ PHPRU\ GHILFLWV )7' SDWLHQWV DUH PRUH OLNHO\ WKDQ $' SDWLHQWV WR H[KLELW
    SHUVHYHUDWLRQFRQIDEXODWLRQFRQFUHWHWKLQNLQJDQGSRRURUJDQL]DWLRQ -&7KRPSVRQHWDO 
    9HUEDO IOXHQF\ HVSHFLDOO\ SKRQHPLFߟOHWWHUߟIOXHQF\ LV RIWHQ PRUH LPSDLUHG LQ )7' 9LVXRVSDWLDO
    DELOLWLHV DUH UHODWLYHO\ SUHVHUYHG 5DVFRYVN\ 6DOPRQ +R DQG FROOHDJXHV   IRXQG WKDW
    SHUIRUPDQFHRQWKUHHWHVWVߟOHWWHUIOXHQF\EORFNGHVLJQDQGPHPRU\ߟFRUUHFWO\FODVVLILHG  RI
    $'SDWLHQWVDQGRI)7'SDWLHQWV6HPDQWLFIOXHQF\VORZHUWKDQOHWWHUIOXHQF\FRUUHFWO\FODVVLILHG
     RI $' SDWLHQWV DQG  RI )' SDWLHQWV 5DVFRYVN\ 6DOPRQ HW DO   ,Q DGGLWLRQ D
    SURPLQHQWIHDWXUHRIVRPH)7'SDWLHQWVLVEHKDYLRUDORUVRFLDOLQGLVFUHWLRQV
    7KH PDMRU FRJQLWLYH IHDWXUHV RI GHPHQWLD ZLWK /HZ\ ERGLHV DUH SRRU H[HFXWLYH FRQWURO RI
    DWWHQWLRQRQWHVWVRIVXVWDLQHGIRFXVHGDQGGLYLGHGDWWHQWLRQDQGVWULNLQJYLVXRSHUFHSWXDOLPSDLUPHQW
    8QOLNH$O]KHLPHU ߤVGLVHDVHYLVXRSHUFHSWXDODQGYLVXRVSDWLDOGHILFLWVDUHJUHDWHUWKDQYHUEDOPHPRU\
    GHILFLWV &DOGHURQHWDO '/%SDWLHQWVDUHOHVVOLNHO\WKDQ$'SDWLHQWVWRKDYHFRQIURQWDWLRQDO
    QDPLQJ GLIILFXOWLHV 7U¸VWHU   \HW H[HFXWLYH GHILFLWV DUH JUHDWHU WKDQ ZLWK $' 6DOPRQ DQG
    %RQGL ,QWKHPDMRULW\RI'/%FDVHVYLVXDOKDOOXFLQDWLRQVDUHDQHDUO\VLJQEXWWKH\DUHOHVV
    IUHTXHQW LQ $' DQG DUH XVXDOO\ QRW DQ HDUO\ IHDWXUH 5(0 VOHHS GLVRUGHU PD\ RFFXU ZLWK '/% DQG
    3'' '/% DQG 3'' KDYH VLPLODU QHXURSV\FKRORJLFDO SURILOHV VXFK WKDW WKHLU VLPLODULWLHV RXWZHLJK
    WKHGLIIHUHQFHV 7U¸VWHU 
    3V\FKRPRWRU VORZLQJ LV SURPLQHQW LQ YDVFXODU GHPHQWLD SDWLHQWV &RPSDUHG WR $' SDWLHQWV
    FRQFHSWIRUPDWLRQSODQQLQJVHOIUHJXODWLRQDQGLQLWLDWLRQDUHPRUHOLNHO\WREHDIIHFWHGLQ9D' -$
    /HY\DQG&KHOXQH 9LVXRSHUFHSWLRQDOVRWHQGVWREHPRUHLPSDLUHGLQ9D'WKDQ$',QDPHWD
    DQDO\VLVWKHELJJHVWGLIIHUHQFHEHWZHHQ9D'DQG$'SDWLHQWVZDVSRRUHU9D'SHUIRUPDQFHRQDWHVW
    RI HPRWLRQDO UHFRJQLWLRQ 0DWKLDV DQG %XUNH   9D' SDWLHQWV PD\ SHUIRUP ZLWKLQ WKH QRUPDO
    UDQJH RQ YHUEDO PHPRU\ WHVWV XQOLNH $O]KHLPHU SDWLHQWV &RVHQWLQR -HIIHUVRQ HW DO  %5
    5HHG0XQJDVHWDO 1/*UDKDPDQGFROOHDJXHV  JDYHDODUJHEDWWHU\RIFRJQLWLYHWHVWV
    WR $' DQG 9D' SDUWLFLSDQWV DQG IRXQG WKDW $' SDWLHQWVߤ VFRUHV ZHUH ORZHU RQ :065 /RJLFDO
    0HPRU\,,EXW9D'SDWLHQWVߤGLGOHVVZHOORQDVLOKRXHWWHQDPLQJWHVW VHHS WKHVHGLIIHUHQFHV
    GLVFULPLQDWHGEHWZHHQWKHJURXSVZLWKDFFXUDF\

    27+(5352*5(66,9(',625'(562)7+(&(175$/1(592866<67(0:+,&+0$<
    +$9(,03257$171(85236<&+2/2*,&$/())(&76
    0XOWLSOH6FOHURVLV 06
    $OWKRXJKW\SLFDOO\FKDUDFWHUL]HGE\UHODSVHVDQGUHPLVVLRQVHDUO\LQLWVFRXUVH06LVJURXSHGZLWK
    WKH GHJHQHUDWLYH GLVHDVHV EHFDXVH LW RIWHQ LQYROYHV PRUH RU OHVV SURJUHVVLYH DFFXPXODWLRQ RI
    QHXURORJLFDOGHILFLWVZLWKSHUVLVWHQWFRJQLWLYHDQGEHKDYLRUDOG\VIXQFWLRQODWHULQLWVFRXUVH8QOLNH
    PDQ\RWKHUGHJHQHUDWLYHGLVHDVHVKRZHYHU06XVXDOO\VWULNHVGXULQJWKHSULPHZDJHHDUQLQJ\HDUV
    EXWGRHVQRWDSSUHFLDEO\VKRUWHQOLIHVSDQ7KHVHFKDUDFWHULVWLFVPDNH06H[WUHPHO\FRVWO\RQERWK
    LQGLYLGXDO DQG VRFLHWDO OHYHOV :KHWWHQ*ROGVWHLQ HW DO   ,Q WKH 8QLWHG 6WDWHV DQ HVWLPDWHG
     SHUVRQV KDYH SK\VLFLDQGLDJQRVHG 06 DQG ZRUOGZLGH WKH SUHYDOHQFH LV DERXW  PLOOLRQ
    1DWLRQDO0XOWLSOH6FOHURVLV6RFLHW\ 
    06LVGLVWLQFWLYHIRUWKHRIWHQHUUDWLFDSSHDUDQFHRIV\PSWRPVWKDWIODUHXSDFXWHO\RYHUWKHFRXUVH
    RI VHYHUDO GD\V SHUVLVW IRU YDULDEOH OHQJWKV RI WLPH WKHQ GLVDSSHDU RU DW OHDVW SDUWLDOO\ UHPLW IRU
    SHULRGVRIXQSUHGLFWDEOHOHQJWK $(0LOOHU 1RVHZRUWK\/XFFKLQHWWLHWDO  (DFKQHZ
    DWWDFNPD\LQYROYHGLIIHUHQWDUHDVRIEUDLQRUVSLQDOFRUGZKLWHPDWWHUDQGFRQVHTXHQWO\PD\SURGXFH
    YHU\ GLIIHUHQW V\PSWRPV 7KH HQRUPRXV YDULDELOLW\ LQ WKH SK\VLFDO DQG FRJQLWLYH PDQLIHVWDWLRQV RI
    06 DQG LQ UDWHV RI GLVHDVH SURJUHVVLRQ FRPSOLFDWH WKH GHWHUPLQDWLRQ RI ߧHDUO\ߨDQG ߧODWHߨVWDJHV
    &RQVHTXHQWO\06LVPRUHDFFXUDWHO\VWDJHGZLWKUHIHUHQFHWRH[WHQWRIXQGHUO\LQJSDWKRORJ\VKRZQ
    RQ05,WKDQWRV\PSWRPGXUDWLRQ
    0RVW RI WKH SK\VLFDO V\PSWRPV RI 06 UHODWH WR WKH VSHFLILF OHVLRQ VLWHV &KHOXQH 6WRWW DQG
    3LQNVWRQ 3URPLQHQW06V\PSWRPVLQFOXGHZHDNQHVVVWLIIQHVVRULQFRRUGLQDWLRQRIDQDUP
    RU OHJ JDLW GLVWXUEDQFH YLVXDO LPSDLUPHQWV QHXURJHQLF EODGGHU DQG ERZHO V\PSWRPV LQFOXGLQJ
    KHVLWDQF\DQGUHWHQWLRQRUXUJHQF\DQGLQFRQWLQHQFH VH[XDOG\VIXQFWLRQ DIIHFWLQJDOODVSHFWVRIWKH
    VH[XDO UHVSRQVH  VHQVRU\ FKDQJHV KHDW VHQVLWLYLW\ DQG IDWLJXH SDUWLFXODUO\ LQ WKH DIWHUQRRQ ZKHQ
    ERG\ WHPSHUDWXUH ULVHV $( 0LOOHU   6RPH SDWLHQWV PD\ GHYHORS D FHUHEHOODU V\QGURPH
    LQFOXGLQJG\VDUWKULDFKDUDFWHUL]HGE\WKLFNHQHGVOXJJLVKVRXQGLQJVSHHFKRUE\VSDVPRGLFDOO\SDFHG
    ߟߧVFDQQLQJߨߟVSHHFK G\VSKDJLD GLIILFXOW\ VZDOORZLQJ  DQG WUHPRU &RJQLWLYH LPSDLUPHQWߟ
    W\SLFDOO\LQYROYLQJDWWHQWLRQDOSURFHVVHVPHPRU\DQGH[HFXWLYHIXQFWLRQVߟDIIHFWVWRSHUFHQW
    RI 06 SDWLHQWV 'H6RXVD HW DO   +RZHYHU FRUWLFDO VLJQV HJ DSKDVLD DQG DSUD[LD  DUH UDUH
    ZKLFK PD\ H[SODLQ ZK\ QHXURORJLVWV IDLOHG IRU VR PDQ\ \HDUV WR DSSUHFLDWH WKH SUHYDOHQFH RI
    FRJQLWLYHLPSDLUPHQWLQ06 )LVFKHU-7(5LFKDUGVRQ5RELQVRQDQG5RELQVRQ 

    'LDJQRVLVFRXUVHDQGSUHGLFWLRQ

    'LDJQRVWLF LVVXHV 7KH GLDJQRVLV RI 06 LV EDVHG RQ FOLQLFDO DEQRUPDOLWLHV REVHUYHG RQ
    QHXURORJLFDO H[DPLQDWLRQ VXSSOHPHQWHG E\ DEQRUPDOLWLHV RQ ODERUDWRU\ VWXGLHV VXFK DV
    FHUHEURVSLQDOIOXLG &6) DQDO\VLVLQGLFDWLQJLPPXQHDFWLYDWLRQDQGHYRNHGSRWHQWLDORU05,VWXGLHV
    :,0F'RQDOGHWDO$(0LOOHU1RVHZRUWK\/XFFKLQHWWLHWDO ,QLWLDOGLDJQRVLV
    PD\LQFOXGHVSHFLILFDWLRQRIRQHRIWZRFRPPRQFRXUVHVWKHGLVHDVHDSSHDUVWREHWDNLQJUHODSVLQJ
    RUSURJUHVVLYH2YHUWLPHUHODSVLQJPD\SURFHHGWRSURJUHVVLYH VHH'LVHDVHFRXUVHEHORZ 
    5HODSVLQJ IRUPV RI 06 DUH FRQVLGHUHG GHILQLWH ZKHQ DQ LQGLYLGXDO KDV KDG DW OHDVW WZR GLVWLQFW
    DWWDFNV SOXV QHXURORJLF VLJQV FRQILUPLQJ LQYROYHPHQW RI DW OHDVW WZR VLWHV LQ WKH FHQWUDO QHUYRXV
    V\VWHP LH HYLGHQFH RI ߧGLVVHPLQDWLRQ LQ WLPH DQG VSDFHߨ &0 3RVHU 3DW\ HW DO   7KH YDVW
    PDMRULW\ RI SDWLHQWV ZKR LQLWLDOO\ KDYH LVRODWHG &16 V\QGURPHV LQYROYLQJ WKH RSWLF QHUYH VSLQDO
    FRUG EUDLQ VWHP RU FHUHEHOOXP ZLWK 05, HYLGHQFH RI DGGLWLRQDO FOLQLFDOO\ DV\PSWRPDWLF EUDLQ
    OHVLRQV KDYH IXUWKHU FOLQLFDO DWWDFNV %UH[ HW DO  2SWLF 1HXULWLV 6WXG\ *URXS  
    &RQVHTXHQWO\ SDWLHQWV ZLWK FOLQLFDOO\ LVRODWHG V\QGURPHV ZKR KDYH XQHTXLYRFDO 05, HYLGHQFH RI
    GLVVHPLQDWLRQ LQ WLPH DQG VSDFH FDQ EH JLYHQ D GLDJQRVLV RI GHILQLWH 06 'DOWRQ HW DO  :,
    0F'RQDOG HW DO   DEVHQW 05, HYLGHQFH SDWLHQWV ZLWK FOLQLFDOO\ LVRODWHG V\QGURPHV UHFHLYH D
    GLDJQRVLVRISRVVLEOH063URJUHVVLYHIRUPVRI06DUHFRQVLGHUHGGHILQLWHLISDWLHQWVKDYHFOLQLFDORU
    05, HYLGHQFH RI GLVHDVH SURJUHVVLRQ IRU DW OHDVW RQH \HDU DQG VXSSRUWLYH ODERUDWRU\ ILQGLQJV LH
    DEQRUPDO &6) DQG DEQRUPDO 05, RU YLVXDO HYRNHG SRWHQWLDOV  ZLWK QR RWKHU SODXVLEOH QHXURORJLF
    FDXVH :,0F'RQDOGHWDO 

    0HDVXULQJ GLVHDVH VHYHULW\ 'LVHDVH VHYHULW\ LQ 06 LV WUDGLWLRQDOO\ H[SUHVVHG DV D VFRUH RQ WKH
    ([SDQGHG 'LVDELOLW\ 6WDWXV 6FDOH ('66 .XUW]NH   D FOLQLFDO UDWLQJ VFDOH GHULYHG IURP WKH
    QHXURORJLF H[DPLQDWLRQ :DONLQJ DELOLW\ DQG PRWRU IXQFWLRQ FRQWULEXWH PRVW VWURQJO\ WR ('66
    VFRUHVDOWKRXJKEUDLQVWHPVHQVRU\ERZHODQGEODGGHUDQGYLVXDOIXQFWLRQVDOVRHQWHULQ7KHUDWLQJ
    RI ߧFHUHEUDOߨIXQFWLRQV LV EDVHG RQ FOLQLFDO MXGJPHQW UDWKHU WKDQ IRUPDO QHXURSV\FKRORJLFDO
    H[DPLQDWLRQDQGWKLVVFDOHFRQIRXQGVDVVHVVPHQWRIFRJQLWLYHIXQFWLRQDQGDIIHFWLYHVWDWH7KH('66
    KDV SV\FKRPHWULF OLPLWDWLRQVߟRUGLQDO VFDOH RI PHDVXUHPHQW ELPRGDO VFRUH GLVWULEXWLRQ SRRU
    UHSURGXFLELOLW\DQGUHODWLYHLQVHQVLWLYLW\WRFKDQJH 6KDUUDFNHWDO ('66LQVHQVLWLYLW\LVPRVW
    SURPLQHQW DW ORZHU VHYHULW\ OHYHOV YDQ :LQVHQ HW DO   7KH 0XOWLSOH 6FOHURVLV 6HYHULW\ 6FRUH
    0666 ZDVGHYHORSHGWRPHDVXUHSURJUHVVLRQRIGLVHDVHE\FRUUHFWLQJWKH('66VFRUHIRUGXUDWLRQ
    RIWKHLOOQHVV 5R[EXUJKHWDO DQG KDV SURYHQVWDELOLW\RYHU WLPH 'DXPHUHWDO  7KH
    0XOWLSOH6FOHURVLV)XQFWLRQDO&RPSRVLWH 06)&  )LVFKHU-DNHWDO  ZKLFK LQFOXGHV D WLPHG
    ZDON SHJERDUG WHVW DQG WKH 3$6$7 FRUUHODWHG ZLWK GLVDELOLW\ SURJUHVVLRQ DVVRFLDWHG ZLWK JUD\
    PDWWHUDWURSK\EXWWKH('66GLGQRW 5XGLFN/HHHWDO 
    &RJQLWLYHIXQFWLRQJHQHUDOO\FRUUHODWHVZHDNO\ZLWKV\PSWRPGXUDWLRQDQGQHXURORJLFGLVDELOLW\
    DVDVVHVVHGE\WKH('66 %HDWW\*RRGNLQ+HUWVJDDUGDQG0RQVRQ605DR/HR%HUQDUGLQ
    DQG8QYHU]DJW H[FHSWLQJSHUKDSVSURFHVVLQJVSHHGDQGZRUNLQJPHPRU\ 7KRUQWRQDQG5D]
      7KLV VKRXOG QRW EH VXUSULVLQJ &HUHEUDO DWURSK\ FDQ RFFXU HDUO\ LQ DQ 06 FRXUVH 5XGLFN
    )LVKHU HW DO  =LYDGLQRY 6HSFLF HW DO    FRQWULEXWLQJ WR WKH ZHDN UHODWLRQVKLS EHWZHHQ
    FRJQLWLYH IXQFWLRQ DQG GLVHDVH GXUDWLRQ 0RUHRYHU SDWLHQWV ZLWK SUHGRPLQDQWO\ VSLQDO FRUG
    LQYROYHPHQWFDQKDYHVXEVWDQWLDOSK\VLFDOGLVDELOLW\ߟUHVXOWLQJLQKLJK('66VFRUHVߟEXWVWLOOUHPDLQ
    FRJQLWLYHO\ LQWDFW /H]DN %RXUGHWWH HW DO   &RQVHTXHQWO\ TXDQWLWDWLYH DVVHVVPHQWV ZKLFK
    LQFRUSRUDWHPHDVXUHVRIVHQVRU\PRWRUDQGFRJQLWLYHIXQFWLRQFRPSOHPHQWVHYHULW\UDWLQJVGHULYHG
    IURP06FOLQLFDOUDWLQJVFDOHV )LVFKHU5XGLFN&XWWHUHWDO6\QGXONR.HHWDO 

    'LVHDVHFRXUVH06FDQIROORZVHYHUDOGLVWLQFWFRXUVHV $UQHWW%DUZLFNDQG%HHQH\/XEOLQ
    DQG5HLQJROG9XNXVLFDQG&RQIDYUHX[ $UDUHߧFOLQLFDOO\VLOHQWߨIRUPRIWKHGLVHDVHKDV
    EHHQGHVFULEHGLQZKLFK06SODTXHVVKRZHGXSRQDXWRSV\LQLQGLYLGXDOVZKRGLVSOD\HGQRREYLRXV
    FOLQLFDOV\PSWRPVRIWKHGLVHDVHGXULQJOLIH --*LOEHUWDQG6DGOHU +RZHYHUDV\PSWRPDWLF
    SHUVRQV ZLWK ODERUDWRU\ VLJQV RI 06 RQ 05, HYRNHG SRWHQWLDOV &6)  KDG ORZHU VFRUHV RQ WKH
    3$6$7DQGSKRQHPLFIOXHQF\EXWQRWRWKHUFRJQLWLYHWHVWVVXJJHVWLQJWKDWVXEWOHGHILFLWVDFFRPSDQ\
    HYHQSUHVXPDEO\DV\PSWRPDWLF06 &/HEUXQHWDO +DNLNLDQGFRZRUNHUV  DOVRIRXQG
    FLUFXPVFULEHGGHILFLWVRQQHXURSV\FKRORJLFDOWHVWLQJRISDWLHQWVIXOILOOLQJODERUDWRU\FULWHULDIRU06
    EXWZLWKIHZLIDQ\V\PSWRPV
    ,Q DSSUR[LPDWHO\  RI SDWLHQWV 06 EHJLQV ZLWK D FOLQLFDO DWWDFN IURP ZKLFK WKH SDWLHQW
    HVVHQWLDOO\ߧUHFRYHUVߨIROORZHGE\FOHDUO\GHILQHGUHODSVHVZLWKLPSURYHPHQWߟHLWKHUIXOORUSDUWLDO
    ߟDQGFOLQLFDOVWDELOLW\EHWZHHQDWWDFNVWKLVSDWWHUQLVWHUPHGUHODSVLQJߞUHPLWWLQJ068SWRRI
    WKHVH SDWLHQWV GR H[WUHPHO\ ZHOO ZLWK RQO\ LQIUHTXHQW DWWDFNV DQG OLWWOH REVHUYDEOH QHXURORJLFDO
    LPSDLUPHQWDIWHU\HDUVRUPRUH EHQLJQ06 WKLVVXEJURXSLVSUREDEO\XQGHUUHSUHVHQWHGLQFOLQLF
    EDVHGVWXGLHVDVSDWLHQWVKDYHQRQHHGIRUIROORZXSH[DPLQDWLRQV0RVWUHODSVLQJߞUHPLWWLQJSDWLHQWV
    VWDUW GHWHULRUDWLQJ SURJUHVVLYHO\ ZLWKLQ  \HDUV RI WKHLU LQLWLDO DWWDFN HLWKHU ZLWK RU ZLWKRXW
    RFFDVLRQDOUHODSVHV VHFRQGDU\SURJUHVVLYH06 
    ,QFRQWUDVWDERXWRI06SDWLHQWVKDYHDJUDGXDOQHDUO\FRQWLQXRXVSURJUHVVLYHFRXUVHIURP
    WKH WLPH WKHLU ILUVW V\PSWRP DSSHDUV $- 7KRPSVRQ HW DO   0RVW GR QRW KDYH DQ\ FOHDUFXW
    UHODSVHV RU UHPLVVLRQV SULPDU\ SURJUHVVLYH 06  DOWKRXJK VRPH KDYH RFFDVLRQDO UHODSVHV
    VXSHULPSRVHGRQDSURJUHVVLYHFRXUVH SURJUHVVLYHUHODSVLQJ06 2QRFFDVLRQ06SURJUHVVHVYHU\
    UDSLGO\UHGXFLQJDSDWLHQWWRKHOSOHVVGHSHQGHQF\RUGHDWKVRRQDIWHUGLVHDVHRQVHW PDOLJQDQW06 
    +RZHYHUVWXGLHVRIOLIHH[SHFWDQF\LQ06ߟHYHQWKRVHFRQGXFWHGEHIRUHWKHDYDLODELOLW\RIGLVHDVH
    PRGLI\LQJ PHGLFDWLRQVߟLQGLFDWHG D PHGLDQ VXUYLYDO RI  WR  \HDUV DIWHU GLDJQRVLV 6 3RVHU
    .XUW]NHHWDO VRIRUPRVWSDWLHQWVDJHDWGHDWKLVRQO\DOLWWOHORZHUWKDQIRUWKHSRSXODWLRQDW
    ODUJH 5DJRQHVHHWDO5HGHOLQJVHWDO 
    $OWKRXJKWKHVHFODVVLILFDWLRQVDUHEDVHGSULPDULO\RQSK\VLFDOFKDQJHVDSSHDULQJRQQHXURORJLFDO
    H[DPLQDWLRQ GLVHDVH FRXUVH KDV PRGHVW SUHGLFWLYH YDOXH IRU FRJQLWLYH G\VIXQFWLRQ &DUDPLD HW DO
      )RU H[DPSOH FKURQLF SURJUHVVLYH SDWLHQWV WKRVH ZLWK SULPDU\ SURJUHVVLYH RU VHFRQGDU\
    SURJUHVVLYH 06  JHQHUDOO\ SHUIRUP ZRUVH RQ FRJQLWLYH WHVWV WKDQ GR SDWLHQWV ZLWK UHODSVLQJߞ
    UHPLWWLQJ 06 0 *URVVPDQ $UPVWURQJ HW DO  +HDWRQ 1HOVRQ 7KRPSVRQ HW DO   ,Q
    DGGLWLRQ VHFRQGDU\ SURJUHVVLYH 06 SDWLHQWV WHQG WR EH PRUH LPSDLUHG WKDQ WKRVH ZLWK D SULPDU\
    SURJUHVVLYHFRXUVH 6-&DPSHWDO*DXGLQRHWDO DOWKRXJKWKHVHGLIIHUHQFHVDUHPXFK
    OHVVVWULNLQJZKHQSDWLHQWVDUHHTXDWHGIRUGLVHDVHGXUDWLRQDQGGLVDELOLW\ )RRQJ5R]HZLF]&KRQJ
    HW DO  5HODSVLQJߞUHPLWWLQJ SDWLHQWV PD\ DOVR KDYH GHILFLWV UHODWLYH WR KHDOWK\ FRQWUROV DOEHLW
    OHVVREYLRXVRQHVWKDQWKRVHREVHUYHGLQSURJUHVVLYHSDWLHQWV 0*URVVPDQ$UPVWURQJHWDO
    / 5\DQ HW DO    5HODSVHV PD\ DOVR EH DVVRFLDWHG ZLWK IOXFWXDWLRQV LQ FRJQLWLYH IXQFWLRQ
    SDUWLFXODUO\ DWWHQWLRQ DQG SURFHVVLQJ VSHHG )RRQJ 5R]HZLFD 4XDJKHEHXU HW DO   +RZHYHU
    WKHUHODWLRQVKLSEHWZHHQFRJQLWLYHLPSDLUPHQWDQGGLVHDVHFRXUVHLVQRWVWURQJHQRXJKWRSUHGLFWWKH
    FRJQLWLYHVWDWXVRILQGLYLGXDO06SDWLHQWV %HDWW\*RRGNLQ+HUWVJDDUGHWDO 

    3URJQRVLV 3UHGLFWLQJ GLVHDVH FRXUVH RU UDWH RI SURJUHVVLRQ LV IUDXJKW ZLWK LQDFFXUDFLHV
    SDUWLFXODUO\ HDUO\ LQ WKH GLVHDVH .DQWDUFL DQG :HLQVKHQNHU   %HIRUH GLVHDVH PRGLI\LQJ
    WUHDWPHQWV ZHUH DYDLODEOH WKH FRPPRQ H[SHFWDWLRQ ZDV WKDW KDOI RI DOO 06 SDWLHQWV ZRXOG QHHG
    DVVLVWDQFHWRZDONZLWKLQ\HDUVRIFOLQLFDORQVHW :HLQVKHQNHUHWDO  3RRUSURJQRVLV LH
    PRUH UDSLG GLVDELOLW\ SURJUHVVLRQ  LV DVVRFLDWHG ZLWK ROGHU DJH DW V\PSWRP RQVHW LQFRPSOHWH
    UHFRYHU\IURPDILUVWDWWDFNDVKRUWLQWHUYDOEHWZHHQWKHILUVWWZRDWWDFNVIUHTXHQWUHODSVHVRYHUWKH
    ILUVW ILYH \HDUV D SURJUHVVLYH FRXUVH IURP GLVHDVH RQVHW DQG HDUO\ PRWRU FHUHEHOODU RU VSKLQFWHU
    V\PSWRPV .DQWDUFL DQG:HLQVKHQNHU  1RVHZRUWK\ /XFFKLQHWWL HW DO   ,I WKH LQLWLDO 06
    DWWDFN FRQVLVWV RI RSWLF QHXULWLV SUHGRPLQDQWO\ VHQVRU\ V\PSWRPV RU OLPLWHG EUDLQVWHP V\PSWRPV
    WKHGLVHDVHRIWHQIROORZVDPRUHIDYRUDEOHFRXUVH%HLQJIHPDOHHDUO\DJHRQVHWZLQWHUELUWKDPRQJ
    VRPHRWKHUYDULDEOHVLVDVVRFLDWHGZLWKDEHWWHUSURJQRVLV 7KRUQWRQDQG'H)UHLWDV 
    3UHGLFWLQJWKHSUREDELOLW\DQGFRXUVHRIFRJQLWLYHLPSDLUPHQWLQDQ06SDWLHQWLVDOVRGLIILFXOWDV
    LW PD\ GHSHQG RQ PDQ\ GLIIHUHQW YDULDEOHV 2QH WKUHH\HDU SUHGLFWLRQ RI FRJQLWLYH VWDWXV UHOLHG RQ
    DJH VH[ FRQFHQWUDWLRQ DELOLW\ DQG VXSUDWHQWRULDO OHVLRQ ORDG GH *URRW HW DO   0RUHRYHU
    FRJQLWLYH UHVHUYH LH KLJKHU OHYHO RI SUHPRUELG FRJQLWLYH IXQFWLRQLQJ  VORZHG FRJQLWLYH
    GHWHULRUDWLRQ UHODWLYH WR WKH GHJUHH RI EUDLQ DWURSK\ 6XPRZVNL HW DO   (DUO\ ORQJLWXGLQDO
    VWXGLHV VXJJHVWHG WKDW FRJQLWLYH GHILFLWV ZHUH UHDVRQDEO\ VWDEOHߟRU DW OHDVW SURJUHVVHG VORZO\
    UHODWLYHWRSK\VLFDOLPSDLUPHQWߟZLWKIHZHUWKDQRISDWLHQWVGHWHULRUDWLQJRYHUWKUHHWRIRXU
    \HDULQWHUYDOV %HUQDUGLQHWDO-HQQHNHQV6FKLQNHOHWDO $ODWHUORQJLWXGLQDOVWXG\ZDV
    OHVV RSWLPLVWLF  RI UHFHQW RQVHW SDWLHQWVߟPRVW RI ZKRP KDG UHODSVLQJߞUHPLWWLQJ GLVHDVHߟ
    ZRUVHQHGZLWKLQIRXUWRILYH\HDUVDQGE\WKHWHQ\HDUIROORZXSKDGGHWHULRUDWHGVLJQLILFDQWO\
    $PDWR3RQ]LDQLHWDO )XUWKHUPRUHQHDUO\DOORIWKHFRJQLWLYHO\LPSDLUHGSDWLHQWVLQDVWXG\
    RISDWLHQWVZLWKPRGHUDWHWRVHYHUHGLVDELOLW\DQGSURJUHVVLYH06GHWHULRUDWHGIXUWKHURYHUWKHWZR
    WR IRXU\HDU IROORZXS DQG QHDUO\ RQHWKLUG RI WKRVH ZKR ZHUH FRJQLWLYHO\ LQWDFW DW WKH LQLWLDO
    DVVHVVPHQWZRUVHQHGVOLJKWO\DVZHOO .XMDOD3RUWLQDQG5XXWLDLQHQ 7KXVDVZLWKDOORWKHU
    06V\PSWRPVFRJQLWLYHLPSDLUPHQWLVRIWHQSURJUHVVLYHDWTXLWHYDULDEOHUDWHV

    5LVNIDFWRUV

    &RQYHUJLQJ HYLGHQFH IURP DQ H[WHQVLYH ERG\ RI JHQHWLF HSLGHPLRORJLF YLUDO DQG LPPXQRORJLF
    VWXGLHVVXJJHVWVWKDW06LVWKHSURGXFWRIPXOWLSOHIDFWRUV .DNDODFKHYDHWDO 1RQHRIWKHVH
    E\LWVHOIDSSHDUVWREHVXIILFLHQWIRUWKHGHYHORSPHQWRI06 3U\VH3KLOOLSVDQG&RVWHOOR 

    *HQHWLF SUHGLVSRVLWLRQ *HQHWLF IDFWRUV FOHDUO\ LQIOXHQFH VXVFHSWLELOLW\ WR 06 &RPSVWRQ DQG
    &ROHV+LOOHUWDQG0DVWHUPDQ1RVHZRUWK\/XFFKLQHWWLHWDO DQGFOLQLFDORXWFRPH
    5DPDJRSDODQHWDO &RQFRUGDQFHUDWHVLQPRQR]\JRWLFWZLQV DSSUR[LPDWHO\ DUHDERXW
    VL[WLPHVWKRVHIRUGL]\JRWLFWZLQVDQGRWKHUIXOOVLEOLQJV ߞ ߟPDUNHGO\KLJKHUWKDQWKDWLQWKH
    JHQHUDO SRSXODWLRQ 7KH KXPDQ OHXNRF\WH DQWLJHQ +/$  JHQH FRPSOH[ LV FRQVLGHUHG FUXFLDO LQ
    GHWHUPLQLQJ06VXVFHSWLELOLW\DOWKRXJKRWKHUFDQGLGDWHJHQHVDQGFKURPRVRPDOUHJLRQVKDYHEHHQ
    LPSOLFDWHGDVZHOO +LOOHUWDQG0DVWHUPDQ7.RUQ 6RPHJHQHWLFIDFWRUV HJ$32(
    DOOHOH IUHTXHQF\  PD\ DIIHFW UDWHV RI GLVHDVH SURJUHVVLRQ EXW QRW VXVFHSWLELOLW\ - &KDSPDQ HW DO
     )D]HNDV 6WUDVVHU)XFKV HW DO   QRU LV LW DVVRFLDWHG ZLWK 06 FRJQLWLYH G\VIXQFWLRQ
    *KDIIDU 5HLV HW DO  3RUWDFFLR HW DO   0DQ\ FKURPRVRPH UHJLRQV FRQWDLQLQJ JHQHV
    WKRXJKW WR EH LPSRUWDQW LQ 06 DOVR KDUERU JHQHV WKDW SUHGLVSRVH LQGLYLGXDOV WR RWKHU DXWRLPPXQH
    GLVHDVHV .* %HFNHU HW DO   $XWRLPPXQH GLVHDVHVߟEXW QRW RWKHU GLVHDVHV W\SHVߟDUH PRUH
    FRPPRQLQILUVWGHJUHHUHODWLYHVRI06SDWLHQWVWKDQLQFRQWUROVXEMHFWVUDLVLQJWKHSRVVLELOLW\WKDW
    DXWRLPPXQLW\ LWVHOI PD\ KDYH D FRPPRQ JHQHWLF SUHGLVSRVLWLRQ %URDGOH\ HW DO   06 PRVW
    OLNHO\LQYROYHVPXOWLSOHJHQHVDQGFRQVLGHUDEOHJHQHWLFKHWHURJHQHLW\ +LOOHUWDQG0DVWHUPDQ
    2NVHQEHUJ DQG %DUDQ]LQL   +RZHYHU WKH ODFN RI SHUIHFW FRQFRUGDQFH LQ LGHQWLFDO WZLQV
    XQGHUVFRUHVWKHLPSRUWDQFHRIQRQKHUHGLWDU\IDFWRUV ,VODPHWDO:LOOHUHWDO 

    'HPRJUDSKLFIDFWRUV06LVWZRWRWKUHHWLPHVPRUHFRPPRQLQZRPHQWKDQLQPHQ7KLVJHQGHU
    GLVFUHSDQF\ LV JUHDWHVW LQ SDWLHQWV ZKRVH GLVHDVH LQLWLDOO\ IROORZV D UHODSVLQJߞUHPLWWLQJ FRXUVH DQG
    YLUWXDOO\QRQH[LVWHQWLQSDWLHQWVZKRVHFRXUVHLVSURJUHVVLYHIURPRQVHW 1RVHZRUWK\/XFFKLQHWWLHW
    DO   7KH DYHUDJH DJH DW 06 V\PSWRP RQVHW LV DURXQG  9XNXVLF DQG &RQIDYUHX[  
    +RZHYHULQLWLDOV\PSWRPVRFFXUEHIRUHDJHLQQHDUO\RISDWLHQWV *KH]]LHWDO   DQG
    DIWHUDJHLQFORVHWR 1RVHZRUWK\3DW\HWDO 3UHYDOHQFHE\UDFHLVUHODWHGWRODWLWXGH
    VHHEHORZ 

    *HRJUDSKLF ODWLWXGH 7KH SUHYDOHQFH RI 06 YDULHV JUHDWO\ DURXQG WKH ZRUOG LPSOLFDWLQJ
    HQYLURQPHQWDO IDFWRUV ([FHSWLQJ -DSDQ WHPSHUDWH ]RQHV WHQG WR KDYH KLJKHU SUHYDOHQFH UDWHV ZLWK
    06 EHFRPLQJ OHVV FRPPRQ DV RQH DSSURDFKHV WKH WURSLFV )RU XQNQRZQ UHDVRQV WKLV QRUWKVRXWK
    JUDGLHQW KDV DWWHQXDWHG VRPHZKDW RYHU WLPH +HUQ£Q HW DO   +LJK SUHYDOHQFH UHJLRQV  RU
    PRUH FDVHV SHU   LQFOXGH WKH QRUWKHUQ 8QLWHG 6WDWHV DQG &DQDGD QRUWKHUQ (XURSH HDVWHUQ
    5XVVLD,VUDHOVRXWKHDVWHUQ$XVWUDOLDDQG1HZ=HDODQG5HJLRQVZLWKPHGLXPSUHYDOHQFHUDWHV WR
     FDVHV SHU   FRPSULVH WKH VRXWKHUQ 8QLWHG 6WDWHV VRXWKHUQ 0HGLWHUUDQHDQ FRXQWULHV WKH
    8NUDLQHDQG5XVVLDLQWR6LEHULDWKHUHPDLQGHURI$XVWUDOLD6RXWK$IULFDDQGSDUWVRI/DWLQ$PHULFD
    06 UHPDLQV UHODWLYHO\ UDUH LQ WKH UHVW RI $VLD $IULFD DQG QRUWKHUQ 6RXWK $PHULFD DOWKRXJK WKH
    SUHYDOHQFHUDWHLQ$IULFDQ$PHULFDQVߟPDQ\RIZKRPDUHRIPL[HG$IULFDQDQG&DXFDVLDQKHULWDJH
    ߟLVEHWZHHQWKDWRIQDWLYH$IULFDQVDQG&DXFDVLDQV(SLGHPLRORJLFDOVWXGLHVLQWKH)DUR,VODQGVDQG
    HPLJUDWLRQ VWXGLHV LQ 6RXWK $IULFD ,VUDHO DQG (QJODQG VXJJHVW WKDW WKH ULVN RI GHYHORSLQJ 06 LV
    DVVRFLDWHGZLWKZKHUHRQHOLYHGEHIRUHPLGDGROHVFHQFHE\DQGODUJH(XURSHDQVPLJUDWLQJWRDUHDV
    RIUHODWLYHO\ORZLQFLGHQFH HJ,VUDHO6RXWK$IULFD DIWHUDJHKDYHWKHVDPHULVNRI06DVWKRVH
    UHPDLQLQJ LQ WKHLU FRXQWULHV RI RULJLQ ZKHUHDV WKRVH PLJUDWLQJ EHIRUH DJH  KDYH WKH ORZHU ULVN
    DVVRFLDWHGZLWKWKHLUQHZFRXQWULHV .XUW]NH 
    6XQOLJKWPD\SOD\DFULWLFDOUROHLQWKHJHRJUDSKLFGLVWULEXWLRQRI069LWDPLQ'GHILFLHQF\KDV
    EHHQSURSRVHGDVDPHGLDWRURIWKHODWLWXGHJUDGLHQWLQ06 .DPSPDQDQG%UXVWDG6PROGHUV
    HW DO   ,Q WHPSHUDWH ]RQHV ZKHUH VRODU 89 UDGLDWLRQ H[SRVXUH LV ORZ LQGLYLGXDOV DUH PRUH
    OLNHO\WRODFNYLWDPLQ'ZKLFKLVSURGXFHGE\WKHVNLQZKHQH[SRVHGWRVXQOLJKW6XQOLJKWPD\DOVR
    FRQWULEXWHWRLPPXQHV\VWHPGHYHORSPHQWWKURXJKDOWHUQDWLRQVLQOHYHOVRIYLWDPLQ$DQGPHODWRQLQ
    0HKWD 

    ,QIHFWLRQ 6HYHUDO OLQHV RI HYLGHQFH VXJJHVW WKDW DQ LQIHFWLRXV DJHQW PD\ LQLWLDWHߟDQG SHUKDSV
    PDLQWDLQߟWKH SDWKRORJLFDO LPPXQH UHVSRQVH LQ 06 2Q DYHUDJH 06 SDWLHQWV FRQWUDFWHG FRPPRQ
    FKLOGKRRGLOOQHVVHVDWODWHUDJHVWKDQKHDOWK\FRQWUROVDQGWKH\DOVRKDYHHOHYDWHGOHYHOVRIVHUXPRU
    &6) DQWLERGLHV WR VHYHUDO YLUXVHV PRVW QRWDEO\ (SVWHLQ%DUU (%9  $VFKHULR DQG 0XQJHU 
    6'&RRN 06H[DFHUEDWLRQVRIWHQVHHPWREHWULJJHUHGE\YLUDORUEDFWHULDOLQIHFWLRQVHYHQ
    LI WKH LQIHFWLRXV DJHQW LV QRW LPSOLFDWHG LQ WKH GHYHORSPHQW RI 06 .HVVHOULQJ DQG /DVVPDQ 
    KDYH VXJJHVWHG WKDW 06 SUREDEO\ UHSUHVHQWV D JHQHUDOL]HG GHOD\HG LPPXQH UHVSRQVH WR PXOWLSOH
    LQIHFWLRQVRFFXUULQJGXULQJDKLJKO\YXOQHUDEOHSHULRGIRUWKHLPPXQHV\VWHP

    ,PPXQRORJ\:KLOHPDQ\DVSHFWVRIWKHLPPXQHUHVSRQVHLQ06PXVWVWLOOEHZRUNHGRXWWKHUHLV
    QRGRXEWWKDWWKHLPPXQHV\VWHPSOD\VDFUXFLDOUROHLQWKLVQHXURORJLFGLVHDVH0DQ\FRPSRQHQWVRI
    WKH LPPXQH V\VWHP DUH LQYROYHG &RPSVWRQ DQG &ROHV  2NVHQEHUJ DQG +DXVHU   )RU
    XQNQRZQUHDVRQVFHUWDLQW\SHVRILPPXQHV\VWHPFHOOV 7FHOOV QRUPDOO\ORFDWHGRXWVLGHWKH&16
    EHFRPHDFWLYDWHGDQGDUHDEOHWRSHQHWUDWHWKHSURWHFWLYHEORRGߞEUDLQEDUULHU %%% WRSUROLIHUDWHDQG
    VWLPXODWHDFWLYLW\ LQ RWKHU W\SHVRI LPPXQH V\VWHP FHOOV HJ% FHOOV PDFURSKDJHV DQG F\WRNLQHV 
    $QWLERGLHV WR FRPSRQHQWV RI WKH P\HOLQ VKHDWK DUH DOVR IRUPHG HQWHU WKH &16 DQG DWWDFN P\HOLQ
    GLUHFWO\ /XFFKLQHWWLHWDO1RVHZRUWK\/XFFKLQHWWLHWDO $GGLWLRQDOLPPXQHIDFWRUVDQG
    PHFKDQLVPV PD\ FRQWULEXWH WR P\HOLQ GHJUDGDWLRQ DQG SUHGRPLQDWH GXULQJ WKH UHODSVLQJ DQG
    SURJUHVVLYHVWDJHVRIWKHLOOQHVV1HXURLPDJLQJVWXGLHVVXJJHVWWKDWDFWLYHLQIODPPDWRU\OHVLRQVDUH
    SUHVHQW XS WR WHQ WLPHV PRUH RIWHQ WKDQ PDQLIHVW UHODSVHV VXJJHVWLQJ WKDW 06 LV IDU PRUH DFWLYH
    LPPXQRORJLFDOO\ WKDQ LV FOLQLFDOO\ DSSDUHQW '+ 0LOOHU %DUNKRI DQG 1DXWD   $OWKRXJK WKH
    LPPXQH V\VWHP LV LQGLVSXWDEO\ FULWLFDO LQ WKH SDWKRJHQHVLV RI 06 VRPH UHVHDUFKHUV DUH H[SORULQJ
    ZKHWKHUWKHLPPXQHUHVSRQVHLVSULPDU\RUVHFRQGDU\WRDGHJHQHUDWLYHSURFHVVLQWKHEUDLQ 7UDSS
    DQG1DYH 

    0HQVWUXDO F\FOH +RUPRQDO IDFWRUV PD\ PRGLI\ ERWK WKH FRPSOH[ LPPXQH UHVSRQVH DQG WKH
    FOLQLFDO V\PSWRPV RI WKLV LOOQHVV 5HODSVH UDWHV DQG 06 OHVLRQ DFWLYLW\ W\SLFDOO\ GHFOLQH GXULQJ
    SUHJQDQF\ߟHVSHFLDOO\ GXULQJ WKH WKLUG WULPHVWHUߟDQG WKHQ LQFUHDVH LQ WKH ILUVW WKUHH PRQWKV
    SRVWSDUWXPEHIRUHUHWXUQLQJWRSUHSUHJQDQF\UDWHV &RQIDYUHX[HWDOYDQ:DOGHUYHHQ7DVHW
    DO ,QDGGLWLRQ06V\PSWRPVRIWHQZRUVHQGXULQJWKHSUHPHQVWUXDOSKDVHRIDZRPDQߤVF\FOH
    =RUGUDJHUDQG'H.H\VHU DQG06OHVLRQDFWLYLW\RQ05,KDVEHHQDVVRFLDWHGZLWKKRUPRQH
    UDWLRVLQWKHOXWHDOSKDVH 3R]]LOOLHWDO 

    9XOQHUDELOLWLHV

    6WUHVV 7KH LGHD WKDW SK\VLFDO WUDXPD RU HPRWLRQDO VWUHVV PD\ SUHFLSLWDWH 06 RQVHW RU
    H[DFHUEDWLRQVKDVEHHQDURXQGVLQFHWKHODWHV&RQWUROOHGVWXGLHVKDYHQRWVKRZQDQDVVRFLDWLRQ
    EHWZHHQSK\VLFDOWUDXPDDQGHLWKHU06RQVHWRUH[DFHUEDWLRQ *RRGLQ(EHUVHWDO0DUWLQHOOL
      &RQWUROOHG UHWURVSHFWLYH VWXGLHV GR VXJJHVW D OLQN EHWZHHQ SV\FKRORJLFDO VWUHVV DQG 06
    V\PSWRPRQVHWRYHURI06SDWLHQWVH[SHULHQFHGDWOHDVWRQHPDMRUQHJDWLYHOLIHHYHQWSULRUWR
    V\PSWRP RQVHW FRPSDUHG ZLWK VOLJKWO\ RYHU KDOI RI WKRVH ZLWK RWKHU FKURQLF LOOQHVVHV :DUUHQ
    *UHHQKLOODQG:DUUHQ DQGRQO\RQHWKLUGRIKHDOWK\DGXOWVRYHUFRPSDUDEOHWLPHSHULRGV ,
    *UDQW%URZQHWDO *UDQWDQGKLVFROOHDJXHVIRXQGWKDW06SDWLHQWVZHUHPXFKPRUHOLNHO\
    WKDQKHDOWK\SHUVRQVWRKDYHH[SHULHQFHGTXDOLWDWLYHO\H[WUHPHHYHQWV,QDSURVSHFWLYHVWXG\HYHQWV
    FDWHJRUL]HGDVߧPRGHUDWHO\VWUHVVIXOߟWKRVHWKDWSURGXFHGFRQIOLFWDQGGLVUXSWHGGDLO\URXWLQHVEXW
    ZHUH QRW FRQVLGHUHG VHYHUH VWUHVVRUVߟZHUH DVVRFLDWHG ZLWK QHZ LQIODPPDWRU\ OHVLRQV RQ 05, 
    ZHHNV ODWHU '& 0RKU *RRGNLQ %DFFKHWWL HW DO   $ PHWDDQDO\VLV RI  VWXGLHV VXSSRUWHG
    HDUOLHUILQGLQJVOLQNLQJVWUHVVIXOH[SHULHQFHVZLWK06H[DFHUEDWLRQEXWWKHDXWKRUVQRWHWKDWWKHHIIHFW
    VL]H LV PRGHVW G    SRVVLEO\ UHIOHFWLQJ WKH YDULDELOLW\ LQ GLVHDVH UHDFWLRQ RI VWXG\ SDUWLFLSDQWV
    '&0RKU+DUWHWDO 0RVWSDWLHQWVEHOLHYHWKDWVWUHVVFDQWULJJHU06H[DFHUEDWLRQV 5DELQV
    %URRNVHWDO 
    +RZHYHURWKHUVWXGLHVKDYHQRWVXSSRUWHGDOLQNEHWZHHQVWUHVVDQG06DFWLYDWLRQ)RUH[DPSOH
    FOLQLFDOO\ VWDEOH SDWLHQWV DQG WKRVH LQ H[DFHUEDWLRQ UHSRUWHG FRPSDUDEOH QXPEHUV RI VWUHVVHVߟERWK
    PDMRU DQG PLQRUߟLQ WKH SUHFHGLQJ VL[ PRQWKV :DUUHQ :DUUHQ DQG &RFNHULOO   DOWKRXJK
    RWKHUSDWLHQWVLQH[DFHUEDWLRQUHSRUWHGDJUHDWHUQXPEHURIߧPRGHUDWHO\WRH[WUHPHO\QHJDWLYHߨHYHQWV
    LQWKHSUHFHGLQJVL[PRQWKVWKDQGLGFOLQLFDOO\VWDEOHSDWLHQWV *0)UDQNOLQ1HOVRQ+HDWRQHWDO
      2YHU D ZHHN SHULRG WKH DEVROXWH QXPEHU RI PDMRU OLIH VWUHVVRUV GLG QRW SURVSHFWLYHO\
    SUHGLFW HLWKHU FOLQLFDO H[DFHUEDWLRQV RU QHZ LQIODPPDWRU\ OHVLRQV RQ 05,  '& 0RKU *RRGNLQ
    %DFFKHWWL HW DO   )XUWKHUPRUH 06 SDWLHQWV DQG KHDOWK\ SHUVRQV GLVSOD\HG VLPLODU VXEMHFWLYH
    SK\VLRORJLFDODQGLPPXQRORJLFUHVSRQVHVWRVLPXODWHGVWUHVVRUV $FNHUPDQHWDO 
    ,W PD\ ZHOO EH WKDW WKH LQWHQVLW\ RI D VSHFLILF VWUHVVRU DQG WKH GLVUXSWLRQ DVVRFLDWHG ZLWK LW DUH
    FUXFLDO PHGLDWLQJ IDFWRUV LQ 06 $ FKURQLF IOXFWXDWLQJ GLVHDVH OLNH 06 XQGRXEWHGO\ LQFUHDVHV WKH
    SURSRUWLRQ RI QHJDWLYH WR SRVLWLYH VWUHVVRUV ZKLFK LQ WXUQ FRXOG DIIHFW GLVHDVH SURJUHVVLRQ &(
    6FKZDUW] HWDO   7KH UHODWLRQVKLS EHWZHHQ VWUHVV DQG 06 H[DFHUEDWLRQV FOHDUO\ PHULWV IXUWKHU
    VWXG\ *RRGLQ (EHUV HW DO  0DUWLQHOOL    ,Q DGGLWLRQ WR VWUHVV LQWHQVLW\ DQG FKURQLFLW\
    IDFWRUVOLNHO\WREHLPSRUWDQWLQFOXGHKHDOWKORFXVRIFRQWURORSWLPLVPSHUFHLYHGVRFLDOVXSSRUWDQG
    FRSLQJVWUDWHJLHV &KULVWRGRXORXHWDO0LWVRQLV3RWDJDVHWDO 

    +HDW ,Q 06 KHDWߟZKHWKHU H[WHUQDO LQ WKH IRUP RI KRW ZHDWKHU RU DQ RYHUKHDWHG URRP RU
    LQWHUQDODVIHYHUDVVRFLDWHGZLWKLQIHFWLRQDQGHOHYDWHGERG\WHPSHUDWXUHVZLWKSK\VLFDOH[HUWLRQRU
    H[HUFLVHߟRIWHQ ZRUVHQV H[LVWLQJ V\PSWRPV DQG PD\ HYHQ SUHFLSLWDWH QHZ RQHV HJ EOXUULQJ RI
    YLVLRQ  7&*XWKULHDQG1HOVRQ )RUWXQDWHO\WKHHPHUJHQFHRUZRUVHQLQJRI06V\PSWRPV
    GXHWRHOHYDWHGERG\WHPSHUDWXUHLVQHDUO\DOZD\VWUDQVLHQWDVV\PSWRPVUHWXUQWREDVHOLQHZKHQERG\
    WHPSHUDWXUHLVUHGXFHG $(0LOOHU 

    )DWLJXH2YHURI06SDWLHQWVFLWHIDWLJXHDVDFXUUHQWV\PSWRPDQGLWLVRIWHQRQHRIWKHPRVW
    GLVDEOLQJ .RVHWDO.UXSS 3DWLHQWVZLWKVLJQLILFDQWIDWLJXHFDQQRWDFWLYHO\HQJDJHLQD
    WDVNIRUPRUHWKDQDIHZKRXUVDWDWLPHZLWKRXWLWFRPSURPLVLQJWKHLUHIILFLHQF\RUVHQVHRIZHOO
    EHLQJ06IDWLJXHLVUHODWLYHO\LQGHSHQGHQWRIGLVHDVHUHODWHGYDULDEOHVVXFKDVSK\VLFDOGLVDELOLW\DQG
    GLVHDVH GXUDWLRQ RU FRXUVH -' )LVN HW DO  )RUG HW DO   ,W LV WKRXJKW WR DULVH IURP D
    FRPELQDWLRQ RI LPSDLUHG QHUYH FRQGXFWLRQ SK\VLFDO GHFRQGLWLRQLQJ GHSUHVVLRQ DQG DQ[LHW\ DQG
    FRJQLWLYHLPSDLUPHQW .UXSS   &HQWUDO IDFWRUV VXFK DV PHWDEROLF DEQRUPDOLWLHV RI WKH IURQWDO
    FRUWH[ DQG EDVDO JDQJOLD LQFUHDVHG FRUWLFDO DFWLYDWLRQ GXULQJ PRYHPHQW DQG LPPXQH G\VIXQFWLRQ
    XQGRXEWHGO\FRQWULEXWHWR06IDWLJXH &RPL/HRFDQLHWDO 
    $OWKRXJK 06 SDWLHQWV RIWHQ UHSRUW WKDW IDWLJXH DIIHFWV WKHLU FRJQLWLYH IXQFWLRQLQJ
    QHXURSV\FKRORJLFDOWHVWSHUIRUPDQFHLVQRWVWURQJO\UHODWHGHLWKHUWRVXEMHFWLYHIDWLJXH DVDVVHVVHG
    E\WKHLWHP)DWLJXH6HYHULW\6FDOH )66  .UXSSDQG(ONLQV5+3DXO%HDWW\HWDOE
    RUWRIDWLJXHLQGXFHGE\WKHWHVWLQJSURFHGXUHVWKHPVHOYHV 6.-RKQVRQHWDO6$0RUURZHW
    DO   +RZHYHU DGYHUVH HIIHFWV RI IDWLJXH KDYH EHHQ REVHUYHG RQ WDVNV UHTXLULQJ FRQWLQXRXV
    PHQWDO HIIRUW RYHU H[WHQGHG LQWHUYDOV .UXSS DQG (ONLQV  .XMDOD 3RUWLQ 5HYRQVXR DQG
    5XXWLDLQHQ 
    1HXURDQDWRP\DQGSDWKRSK\VLRORJ\
    3DWKRSK\VLRORJ\ 7KH SDWKRORJLFDO KDOOPDUN RI 06 LV WKH GHP\HOLQDWHG SODTXH ZKLFK LV
    FKDUDFWHUL]HGE\ORVVRIWKHP\HOLQVKHDWKDURXQGD[RQVDQGSUROLIHUDWLRQRIDVWURF\WHV VWDUVKDSHG
    FRQQHFWLYHWLVVXHFHOOV IRUPLQJSLQNLVKRUJUD\LVKVFDUWLVVXH JOLRVLV  &RPSVWRQDQG&ROHV
    1RVHZRUWK\ /XFFKLQHWWL HW DO   $FWLYH OHVLRQV XVXDOO\ VKRZ HYLGHQFH RI ERWK LQIODPPDWRU\
    FHOOV DQG UHP\HOLQDWLRQ ߧVKDGRZ SODTXHVߨ  $OWKRXJK DOO 06 OHVLRQV IURP DQ\ JLYHQ SDWLHQW ZLOO
    KDYHDFRPPRQVWUXFWXUHDQGLPPXQRORJLFIHDWXUHVWKHLPPXQRORJLFIHDWXUHVRIOHVLRQVPD\GLIIHU
    IURPSDWLHQWWRSDWLHQW /XFFKLQHWWLHWDO 7KLVUDLVHVWKHSRVVLELOLW\WKDW06LVDGLVHDVHHQWLW\
    WKDW DFWXDOO\ FRPSULVHV VHYHUDO GLVWLQFW V\QGURPHV GLIIHULQJ LQ WKHLU HWLRORJLHV DQG SDWKRJHQLF
    PHFKDQLVPV
    7KHHDUO\FOLQLFDOV\PSWRPVRI06PRVWOLNHO\VWHPIURPD[RQDOGHP\HOLQDWLRQZKLFKFDQVORZ
    RUHYHQEORFNQHUYHFRQGXFWLRQ 1RVHZRUWK\/XFFKLQHWWLHWDO  &OLQLFDO UHFRYHU\ RFFXUV DV
    HGHPD UHVROYHV VRGLXP FKDQQHOVߟHVVHQWLDO WR WKH SURSDJDWLRQ RI QHUYH LPSXOVHVߟEHFRPH
    UHGLVWULEXWHG DORQJ GHP\HOLQDWHG D[RQV DQG UHP\HOLQDWLRQ RFFXUV LQ VRPH D[RQV $IWHU UHSHDWHG
    ERXWVRIGLVHDVHDFWLYLW\QHXURORJLFIXQFWLRQLVSURJUHVVLYHO\ORVWGXHWRLUUHYHUVLEOHD[RQDOLQMXU\
    VFDUULQJ DQG GHSOHWLRQ RI WKH FHOOV IURP ZKLFK P\HOLQ LV IRUPHG 6RPH D[RQV EHFRPH WUDQVHFWHG
    7UDSS DQG 1DYH   %RWK LQIODPPDWLRQ DQG GHP\HOLQDWLRQ DSSHDU WR SOD\ D UROH LQ D[RQDO
    GHJHQHUDWLRQ ERWK ZLWKLQ 06 SODTXHV DQG LQ ߧQRUPDO DSSHDULQJ ZKLWH PDWWHUߨRXWVLGH OHVLRQV DV D
    UHVXOW RI :DOOHULDQ GHJHQHUDWLRQ ORVV RI D[RQV GXH WR GLVFRQQHFWLRQ IURP WKHLU RULJLQDWLQJ FHOO
    ERGLHV  'H6WHIDQR HW DO  :D[PDQ   DOEHLW DW GLIIHUHQW GLVHDVH VWDJHV ,Q UHFHQW \HDUV
    HYLGHQFHKDVPRXQWHGWKDWQHXURQDOLQMXU\RFFXUVHDUO\DQGWKURXJKRXWWKHFRXUVHRIWKHGLVHDVHIURP
    IRFDOD[RQDOLQMXU\ZLWKVXEVHTXHQWDWURSK\RIQHXURQDOFHOOERGLHVDQGGHQGULWHV 6LIIULQ9RJWHWDO
     

    1HXURDQDWRP\$OWKRXJKSULPDULO\DGLVHDVHDIIHFWLQJZKLWHPDWWHU06OHVLRQVFDQQRQHWKHOHVVEH
    IRXQGLQDQ\SDUWRIWKH&16LQFOXGLQJJUD\PDWWHULQZKLFKP\HOLQDWHGD[RQVOLH .LGG%DUNKRIHW
    DO  1RVHZRUWK\ /XFFKLQHWWL HW DO   0RUHRYHU ZKLWH PDWWHU OHVLRQV EORFNLQJ RU
    FRPSURPLVLQJ VXEFRUWLFDO D[RQDO WUDQVPLVVLRQ FDQ XQGHUFXWߟDQG HIIHFWLYHO\ LVRODWHߟVSHFLILF
    FRUWLFDO DUHDV )LOOH\  -HIIHU\ $EVKHU HW DO   'HVSLWH WKH UDQGRPQHVV ZLWK ZKLFK 06
    OHVLRQV FDQ DSSHDU FHUWDLQ SDWWHUQV RI OHVLRQ ORFDWLRQ DFFRXQW IRU WKH PRVW FRPPRQ V\PSWRPV
    6SHFLILFDOO\ 06 KDV D SUHGLOHFWLRQ IRU WKH RSWLF QHUYHV WKH ZKLWH PDWWHU VXUURXQGLQJ WKH FHUHEUDO
    YHQWULFOHV SHULYHQWULFXODU UHJLRQ  WKH FRUSXV FDOORVXP DQG WKH ZKLWH PDWWHU RI WKH EUDLQ VWHP
    FHUHEHOOXPDQGVSLQDOFRUG 1RVHZRUWK\/XFFKLQHWWLHWDO 

    1HXURLPDJLQJ 06 OHVLRQV DSSHDU DV K\SHULQWHQVH ߧEULJKW VSRWVߨRQ FRQYHQWLRQDO 7ZHLJKWHG
    05, PDNLQJ 05, RQH RI WKH PRVW XVHIXO GLDJQRVWLF WRROV )D]HNDV HW DO   05, PDNHV LW
    SRVVLEOHWRLGHQWLI\ORFDWHDQGVWXG\WKHHYROXWLRQRIERWK06OHVLRQVDQGDWURSK\LQWKHEUDLQDQG
    VSLQDO FRUG 30 0DWWKHZV DQG $UQROG  '+ 0LOOHU *URVVPDQ HW DO   +RZHYHU
    QHXURORJLF GLVDELOLW\ DV PHDVXUHG E\ WKH ('66  LV RQO\ PRGHVWO\ FRUUHODWHG ZLWK WKH QXPEHU RU
    YROXPH RI 06 OHVLRQV DSSHDULQJ RQ 7 LPDJHVߟQR GRXEW D IXQFWLRQ RI ERWK WKH SV\FKRPHWULF
    OLPLWDWLRQVRIWKH('66DQGWKHUHVWULFWHGVFRSHRIFRQYHQWLRQDOLPDJLQJ %DUNKRI  &RUWLFDO
    WKLQQLQJDQGJUD\PDWWHUDWURSK\FRUUHODWHZLWKGHJUHHRIGLVDELOLW\ ()LVKHUHWDO*HXUWVDQG
    %DUNKRI6LIIULQHWDO 
    )RU H[DPSOH QHZHU 7 LPDJH DFTXLVLWLRQ SURFHGXUHVߟVXFK DV IDVW VSLQ HFKR )6(  LPDJLQJ DQG IOXLGDWWHQXDWHG LQYHUVLRQ
    UHFRYHU\ )/$,5 ߟFDQ GHWHFW FRUWLFDO DQG MX[WDFRUWLFDO OHVLRQV QRW DSSDUHQW RQ FRQYHQWLRQDO LPDJHV %DNVKL $UL\DUDWDQD HW
    DO  0RULDUW\ HW DO   ZKLOH 05, SURFHGXUHV VXFK DV 7ZHLJKWHG LPDJLQJ ZLWK JDGROLQLXP DUH EHWWHU VXLWHG WR
    LGHQWLI\LQJ DFWLYH LQIODPPDWRU\ OHVLRQV DV ZHOO DV DUHDV RI H[WHQVLYH GHP\HOLQDWLRQ DQG D[RQDO ORVVߟVRFDOOHG ߧEODFN
    KROHVߨ '+ 0LOOHU *URVVPDQ HW DO   4XDQWLWDWLYH LPDJLQJ WHFKQLTXHVߟPDJQHWLF WUDQVIHU LPDJLQJ 07,  GLIIXVLRQ
    ZHLJKWHGLPDJLQJ ':,  DQG PDJQHWLF UHVRQDQFH VSHFWURVFRS\ 056 ߟFDQ GHWHFW VXEWOH DEQRUPDOLWLHV LQ EUDLQ WLVVXH WKDW
    DSSHDU TXLWH QRUPDO RQ 7 DQG 7 LPDJHV )LOLSSL DQG *URVVPDQ  5RYDULV %R]]DOL HW DO   'LIIXVLRQ WHQVRU
    LPDJLQJ WUDFWRJUDSK\ '7, FDQTXDQWLI\YDULDWLRQVDQGSDWWHUQVRIILEHUVLQZKLWHPDWWHUWUDFWV +X<HHWDO 6XEWOH
    DEQRUPDOLWLHVLQEUDLQWLVVXHHOLFLWHGE\WKHVHLPDJLQJWHFKQLTXHVPD\SUHFHGHWKHHPHUJHQFHRIHQKDQFLQJOHVLRQVE\XSWR
    \HDUV 3LNHHWDO 

    1RW VXUSULVLQJO\ QHXURSV\FKRORJLFDO WHVW SHUIRUPDQFH UHODWHV PRGHUDWHO\ WR VWURQJO\ WR WKH
    RYHUDOO YROXPHRI 06 OHVLRQVRQ 05, 60 5DR/HR+DXJKWRQ HWDO 5RYDULV DQG )LOLSSL
      3ULPDU\ SURJUHVVLYH SDWLHQWV ZLWK WKH JUHDWHVW 7 OHVLRQ YROXPHV DUH DW KHLJKWHQHG ULVN IRU
    IXUWKHU FRJQLWLYH GHFOLQH 3HQQ\ HW DO   7HVW SHUIRUPDQFH KDV DOVR EHHQ DVVRFLDWHG ZLWK 05,
    LQGLFDWRUVRIEUDLQDWURSK\LQFOXGLQJHYLGHQFHRISHULYHQWULFXODUDQGFDOORVDOVLWHVDQGJHQHUDOL]HG
    ORVVRIEUDLQWLVVXH =LYDGLQRY'H0DVLHWDO 0HDVXUHVRIEUDLQDWURSK\LQGLFDWHGE\WKLUGRU
    ODWHUDO YHQWULFOH YROXPHV KDYH D VWURQJ UHODWLRQVKLS ZLWK QHXURSV\FKRORJLFDO WHVW SHUIRUPDQFH
    %HQHGLFW:HLQVWRFN*XWWPDQHWDO ,QFUHDVHVLQOHVLRQEXUGHQDQGLQEUDLQDWURSK\RYHURQH
    WRIRXU\HDULQWHUYDOVKDYHEHHQDVVRFLDWHGZLWKGHWHULRUDWLQJWHVWSHUIRUPDQFH 6SHUOLQJHWDO
    6XPPHUV HW DO  =LYDGLQRY 6HSFLF HW DO   *UD\ PDWWHU DWURSK\ LV DVVRFLDWHG ZLWK
    FRJQLWLYHGHFOLQH %HQHGLFW%UXFHHWDO &RQWUROOLQJIRUJHQHUDODWURSK\LQ06SDWLHQWVOHIW
    IURQWDO JUD\ PDWWHU DWURSK\ ZDV DVVRFLDWHG ZLWK ORZHU VFRUHV LQ D YHUEDO PHPRU\ WHVW ZKLOH ULJKW
    IURQWDO JUD\ PDWWHU DWURSK\ ZDV DVVRFLDWHG ZLWK SRRUHU SHUIRUPDQFH RQ WHVWV RI YLVXDO ZRUNLQJ
    PHPRU\ 7HNRN.LOLFHWDO 
    $ SXUSRUWHG UHODWLRQVKLS EHWZHHQ 06 OHVLRQ EXUGHQ LQ VSHFLILF EUDLQ UHJLRQV HVSHFLDOO\ WKH
    IURQWDO OREHV DQG H[HFXWLYH G\VIXQFWLRQߟD FRPPRQ SUREOHP LQ WKLV GLVHDVH $PDWR =LOROL DQG
    3RUWDFFLR$UQHWW5DRHWDOVHHSSߞ EHFRPHVDWWHQXDWHGZKHQRYHUDOOOHVLRQ
    EXUGHQ LV WDNHQ LQWR DFFRXQW )RRQJ 5R]HZLF] 4XDJKHEHXU HW DO   &RJQLWLYH GHILFLWV ZHUH
    DVVRFLDWHGZLWKTXDQWLW\RIFRUWLFDOOHVLRQVDQGWLVVXHORVVLQUHODSVLQJߞUHPLWWLQJSDWLHQWV &DODEUHVH
    HW DO   &RJQLWLYH LPSDLUPHQW LQ 06 LV PRUH FORVHO\ OLQNHG WR OHVLRQV WKDW GLVUXSW FRUWLFDO
    FRUWLFDO FRQQHFWLRQV WKDQ LW LV WR ZKLWH PDWWHU OHVLRQV LQ VSHFLILF UHJLRQV /D]HURQ HW DO 
    0RULDUW\HWDO $PRQJWKHPRVWUREXVWUHODWLRQVKLSVEHWZHHQQHXURDQDWRPLFORFLRQ05,DQG
    QHXURSV\FKRORJLFDOSHUIRUPDQFHDUHWKRVHEHWZHHQWKHFRUSXVFDOORVXPDQGVHYHUDOUHODWHGFRJQLWLYH
    IXQFWLRQVߟFRPSOH[ DWWHQWLRQ DQG SURFHVVLQJ VSHHG YHUEDO IOXHQF\ DQG LQWHUKHPLVSKHULF WUDQVIHU
    2]WXUN HW DO  3HOOHWLHU HW DO   7KHVH ILQGLQJV PDNH VHQVH SHUIRUPDQFH RQ PDQ\
    FRJQLWLYHWHVWVLVVXEVHUYHGE\GLVWULEXWHGFRJQLWLYHQHWZRUNVUDWKHUWKDQLVRODWHGEUDLQUHJLRQVVRLW
    LVXQUHDOLVWLFWRDWWULEXWHPRVWFRJQLWLYHDEQRUPDOLWLHVLQ06WRIRFDOOHVLRQVSDUWLFXODUO\ZKHQWKHUH
    LV ZLGHVSUHDG GLVHDVH %HVLGHV OHVLRQ EXUGHQ RWKHU SDUDPHWHUV GHULYHG IURP IXQFWLRQDO LPDJLQJ
    WHFKQLTXHV KDYH GHPRQVWUDWHG VWULNLQJ DVVRFLDWLRQV ZLWK FRJQLWLYH IXQFWLRQ 5RYDULV )LOLSSL
    0LQLFXFFL HW DO  YDQ %XFKHP HW DO  =LYDGLQRY 'H 0DVL HW DO   06 SDWLHQWVߤ
    FRJQLWLYHIXQFWLRQFRUUHODWHVVWURQJO\ZLWKFHUHEUDOJOXFRVHPHWDEROLVPUDWHVRQ3(7 %OLQNHQEHUJ
    HW DO   WKHLU FHUHEUDO DFWLYDWLRQ SDWWHUQV GLIIHU IURP FRQWURO VXEMHFWVߤ RQ ERWK (53 VWXGLHV
    3HORVL HW DO   DQG I05, 5RFFD )DOLQL &RORPER HW DO   0RUHRYHU GLIIHUHQFHV LQ
    FHUHEUDODFWLYDWLRQSDWWHUQVDUHDSSDUHQWHYHQZKHQ06SDWLHQWVߤWHVWSHUIRUPDQFHVDUHVXSHUILFLDOO\
    VLPLODU WR WKRVH RI KHDOWK\ FRQWUROV )LOLSSL DQG *URVVPDQ  6WDIIHQ HW DO   UDLVLQJ WKH
    SRVVLELOLW\WKDWFRJQLWLYHDQGPRWRUFLUFXLWVFDQUHRUJDQL]HWRFRPSHQVDWHIRUWLVVXHGDPDJH

    6HQVRULPRWRUVWDWXV

    9LVXDOGLVWXUEDQFHVLQ06DUHYDULHGDQGPD\LQFOXGHEOXUUHGYLVLRQGRXEOHYLVLRQUHVXOWLQJIURP
    H\HPRYHPHQWLQFRRUGLQDWLRQZKLFKLVXVXDOO\SHUVLVWHQWWRWDORUSDUWLDOORVVRIYLVLRQGXHWRRSWLF
    QHXULWLV LQIODPPDWRU\ GHP\HOLQDWLRQ RI WKH RSWLF QHUYH W\SLFDOO\ RI DFXWH RQVHW XQLODWHUDO DQG
    WUDQVLHQW06 ORVVRIFRORUSHUFHSWLRQRUEOLQGQHVVLQRQHRUERWKH\HVLPSDLUHGFRQWUDVWVHQVLWLYLW\
    LPSDLUHG DELOLW\ WR SURFHVV LQGLYLGXDO IHDWXUHV RI YLVXDO VWLPXOL DQG H\H PRYHPHQW DEQRUPDOLWLHV
    $(0LOOHU9OHXJHOVHWDO :KLWDNHUDQG%HQYHQLVWH  HVWLPDWHGWKDWWZRWKLUGVRI
    06 SDWLHQWV ZRXOG H[SHULHQFH DW OHDVW RQH RI WKHVH YLVXDO SUREOHPV DW VRPH SRLQW LQ WKHLU LOOQHVV
    VRPH WUDQVLHQWO\ DQG RWKHUV SHUPDQHQWO\ $XGLWRU\ G\VIXQFWLRQ LV OHVV FRPPRQ EXW KHDULQJ ORVVߟ
    HLWKHU XQLODWHUDO RU ELODWHUDOߟGRHV RFFDVLRQDOO\ RFFXU RIWHQ LQ DVVRFLDWLRQ ZLWK EUDLQVWHP OHVLRQV
    $(0LOOHU ([DPLQHUVPXVWEHDZDUHRIWKHSRVVLELOLW\RIVHQVRU\GLVRUGHUVWKDWFDQDIIHFW
    SDWLHQWVߤWHVWSHUIRUPDQFHV
    6SRQWDQHRXVFRPSODLQWVRILPSDLUHGVHQVHRIVPHOODUHUDUHEXWXSWRRQHWKLUGRIDOO06SDWLHQWV
    PD\KDYHROIDFWRU\G\VIXQFWLRQ 'RW\/LHWDO 2OIDFWRU\GHILFLWVDUHVWURQJO\DVVRFLDWHGZLWK
    SODTXHORDGLQLQIHULRUIURQWDODQGWHPSRUDOOREHV'HILFLWVLQROIDFWLRQPD\DOHUWWKHH[DPLQHUWRWKH
    SRVVLELOLW\RIGHIHFWVLQFRJQLWLYHIXQFWLRQVVXEVHUYHGE\WKHVHUHJLRQV$WVRPHSRLQWLQWKHLULOOQHVV
    QHDUO\ DOO 06 SDWLHQWV H[SHULHQFH VRPDWRVHQVRU\ DOWHUDWLRQVߟLQFOXGLQJ QXPEQHVV WLQJOLQJ RU
    SDLQIXO VHQVDWLRQV DQG /KHUPLWWHߤV SKHQRPHQRQ ߧHOHFWULF VKRFNߨVHQVDWLRQ RQ QHFN IOH[LRQ  $(
    0LOOHU 
    0RWRUV\PSWRPVDUHDOVRH[WUHPHO\FRPPRQZLWKWRRI06SDWLHQWVUHSRUWLQJHSLVRGLF
    RU SHUVLVWHQW OLPE ZHDNQHVV VSDVWLFLW\ DQGRU LQFRRUGLQDWLRQߟXVXDOO\ D FRPELQDWLRQ RI WKHVH
    SUREOHPV6LQFH06SDWLHQWVLQHYLWDEO\SHUIRUPSRRUO\RQWHVWVUHTXLULQJILQHVHQVRU\GLVFULPLQDWLRQ
    RUUDSLGFRRUGLQDWHGPRWRUUHVSRQVHV +HDWRQ1HOVRQ7KRPSVRQHWDOYDQGHQ%XUJHWDO
      WHVW EDWWHULHV VKRXOG PLQLPL]H VHQVRU\ DQG PRWRU GHPDQGV %HQHGLFW )LVFKHU HW DO 
    3H\VHUHWDO $OWHUQDWLYHO\RQHFDQߧH[WUDFWߨWKHPRWRUVNLOODVSHFWVRIDWDVNE\VXEWUDFWLQJWKH
    VFRUHRIDVLPSOHYLVXRPRWRUWDVNIURPWKDWRILWVFRPSOH[IRUP HJ'LJLW6\PERO>:$,6,,,@7UDLO
    0DNLQJ 7HVW  9LVXDO PHPRU\ WHVWLQJ FDQ DYRLG GUDZLQJ UHTXLUHPHQWV E\ XVLQJ YLVXDO UHFRJQLWLRQ
    WHVWVVXFKDVWKH1$%6KDSH/HDUQLQJ7HVW VHHSSߞ :KLOHJLYLQJDZLGHUDQJHRIFRJQLWLYH
    IXQFWLRQV WKH H[DPLQHU VKRXOG DYRLG JLYLQJ WHVWV RQ ZKLFK IDLOXUH LV ERWK LQHYLWDEOH DQG
    XQLQWHUSUHWDEOH GXH WR VHQVRU\ RU PRWRU FRQIRXQGV VHH SS ߞ IRU WHVWLQJ ZKLFK PLQLPL]HV
    YLVXDOVHQVRU\DQGPRWRUGHPDQGV 

    &RJQLWLRQ

    7KHGLVVHPLQDWLRQRIOHVLRQVLQ FHUHEUDO ZKLWH PDWWHUSOXVWKHLU DIILQLW\ IRUSHULYHQWULFXODU UHJLRQV


    FUHDWHV VRPH FRPPRQDOLWLHV RI FRJQLWLYH G\VIXQFWLRQ LQ 06 )LVFKHU  :LVKDUW DQG 6KDUSH
     5HODWLYHO\IHZ06SDWLHQWVTXDOLI\IRUDGLDJQRVLVRIGHPHQWLDDVFRJQLWLYHLPSDLUPHQWVDUH
    RIWHQ OHVV VHYHUH WKDQ WKRVH VHHQ LQ QHXURORJLF GLVRUGHUV LQ ZKLFK GHPHQWLD LV SURPLQHQW %HDWW\
    *RRGNLQ0RQVRQDQG%HDWW\0$%XWWHUV*ROGVWHLQHWDO 
    0RUHRYHU XQOLNH GHPHQWLQJ FRQGLWLRQV 06 LV E\ LWV YHU\ QDWXUH KHWHURJHQHRXV LQ ERWK LWV
    SK\VLFDODQGFRJQLWLYHPDQLIHVWDWLRQV)RUH[DPSOHWKUHHGLVWLQFWQHXURSV\FKRORJLFDOSDWWHUQVKDYH
    EHHQREVHUYHGLQUHODSVLQJߞUHPLWWLQJSDWLHQWV )LVFKHU-DFREV&RRNIDLUHWDO/5\DQHWDO
     $OWKRXJKPDQ\SDWLHQWVߟWRRIWKRVHVWXGLHGߟDSSHDUHGWRIXQFWLRQTXLWHQRUPDOO\
    IURPDQHXURSV\FKRORJLFDOSHUVSHFWLYHQHDUO\RQHLQVL[ZHUHQRWLFHDEO\LPSDLUHGZLWKGHILFLWVRIDW
    OHDVWPRGHUDWHVHYHULW\LQWKUHHRUPRUHFRJQLWLYHGRPDLQV7KHPRVWFRPPRQSDWWHUQRILPSDLUPHQW
    LQWKHVHVDPSOHVߟREVHUYHGLQWRRIWKHSDWLHQWVߟLQYROYHGFLUFXPVFULEHGGHILFLWVLQRQHRU
    WZR FRJQLWLYH GRPDLQV HJ DWWHQWLRQSURFHVVLQJ VSHHG OHDUQLQJPHPRU\ DQGRU H[HFXWLYH
    IXQFWLRQ LQYDU\LQJFRPELQDWLRQV
    'DWD RQ WKH SUHYDOHQFH RI GHILFLWV YDU\ ZLWK 06 VXEJURXSV DQG WHVWV SHUIRUPHG &KHOXQH 6WRWW
    DQG3LQNVWRQ  (VWLPDWHV RI WKH SUHYDOHQFHRI FRJQLWLYH G\VIXQFWLRQߟLQFOXGLQJ PLOGHU IRUPV
    RI FRJQLWLYH LPSDLUPHQWߟKRYHU DURXQG  WR  RQ FRPSUHKHQVLYH QHXURSV\FKRORJLFDO
    DVVHVVPHQWV +HDWRQ 1HOVRQ 7KRPSVRQ HW DO  60 5DR /HR %HUQDUGLQ DQG 8QYHU]DJW
     7KHVHILJXUHVDUHPXFKKLJKHUWKDQWKRVHGHULYHGIURPEULHIPHQWDOVWDWXVH[DPLQDWLRQVZKLFK
    DUH QRWRULRXVO\ LQVHQVLWLYH WR WKH W\SHV RI FRJQLWLYH GHILFLWV FRPPRQO\ VHHQ LQ 06 %HDWW\ DQG
    *RRGNLQ %HFDXVHRIWKHPDQ\GLIIHUHQWZD\VLQZKLFKFRJQLWLRQFDQEHDIIHFWHGLQ06SDWLHQWV
    QHXURSV\FKRORJLFDO H[DPLQDWLRQ RI WKHVH SDWLHQWV UHTXLUHV DVVHVVPHQW RI D YDULHW\ RI IXQFWLRQV
    &RJQLWLYHSUREOHPVDORQHDUHUDUHO\WKHSUHVHQWLQJV\PSWRPIRU06

    $WWHQWLRQ 0DQ\ 06 SDWLHQWV UHSRUW IHHOLQJ PHQWDOO\ ߧVORZHG GRZQߨ QRWLQJ WKDW WKH\ PXVW H[HUW
    JUHDWHIIRUWWRWKLQNTXLFNO\RUWRNHHSXSZLWKWKHSDFHRIQRUPDOFRQYHUVDWLRQ,PSDLUHGSURFHVVLQJ
    VSHHGLVDFODVVLFILQGLQJLQ06 &-$UFKLEDOGDQG)LVN.DLO.XMDOD3RUWLQ5HYRQVXR
    DQG 5XXWLDLQHQ    7KLV VKRZV XS RQ VSHHG GHSHQGHQW WDVNV DV ZHOO DV RQ WHVWV UHTXLULQJ
    LQIRUPDWLRQ WUDQVIHU EHWZHHQ FHUHEUDO KHPLVSKHUHV 6* /\QFK HW DO  60 5DR %HUQDUGLQ
    /HR HW DO  :LVKDUW 6WUDXVV HW DO    SDUWLFXODUO\ WKRVH LQYROYLQJ GLFKRWLF OLVWHQLQJ DQG
    OH[LFDOGHFLVLRQPDNLQJ 2UWL]HWDO 06SDWLHQWVFDQRIWHQSHUIRUPDFFXUDWHO\LIVWLPXOLDUH
    SUHVHQWHGDWDVXIILFLHQWO\VORZUDWHDVLPSDLUHGSURFHVVLQJVSHHGLVDFRUHFRJQLWLYHGHILFLW 'HPDUHH
    HWDO 
    6LPSOH DXGLWRU\ VSDQ DQG YLVXRVSDWLDO VSDQ DUH QRUPDO LQ PRVW 06 SDWLHQWV +HDWRQ 1HOVRQ
    7KRPSVRQHWDO0LQGHQ0RHV2UDYHWDO605DR/HR%HUQDUGLQDQG8QYHU]DJW
     DOWKRXJKGHILFLWVLQDXGLWRU\VSDQߟDQGOHVVFRPPRQO\YLVXRVSDWLDOVSDQߟKDYHEHHQUHSRUWHG
    %HDWW\ 3DXO %ODQFR HW DO  'H/XFD %DUELHUL%HUJHU DQG -RKQVRQ  )LVFKHU  
    3HUIRUPDQFH RQ WHVWV RI VHOHFWLYH DWWHQWLRQ YDULHV GHSHQGLQJ RQ WDVN GHPDQGV DQG GLVHDVH IDFWRUV
    0DQ\06SDWLHQWVZLOOSHUIRUPQRUPDOO\RQVHOISDFHGWHVWVZLWKWKHSULQWHGPDWHULDOLQIURQWRIWKHP
    HJOHWWHURUV\PEROFDQFHOODWLRQWDVNV DQGRQWHVWVWKDWKDYHIHZVWLPXOXVRUUHVSRQVHFKRLFHVVXFK
    DVWKH%URZQ3HWHUVRQWHFKQLTXH DXGLWRU\FRQVRQDQWWULJUDPV DQGPDQ\FKRLFHUHDFWLRQWLPHWDVNV
    %HDWW\ *RRGNLQ 0RQVRQ DQG %HDWW\  .XMDOD 3RUWLQ 5HYRQVXR DQG 5XXWLDLQHQ  60
    5DR/HR%HUQDUGLQDQG8QYHU]DJW 'HILFLWVDUHRIWHQPRUHDSSDUHQWRQWHVWVXVLQJDXGLWRU\
    YHUEDOVWLPXOLWKDQWKRVHXVLQJYLVXDOVWLPXOL )RRQJ5R]HZLF]4XDJKHEHXUHWDO5+3DXO
    %HDWW\HWDOD DOWKRXJKQRWDOZD\V %-'LDPRQG'H/XFD.LPDQG.HOOH\  ,QFUHDVHG
    GLVHDVH DFWLYLW\ ZKHWKHU GXH WR DQ H[DFHUEDWLRQ RU FRQWLQXLQJ GLVHDVH SURJUHVVLRQ PD\ XOWLPDWHO\
    FRPSURPLVH D SDWLHQWߤV SUHYLRXVO\ DGHTXDWH DWWHQWLRQDO UHVRXUFHV OHDGLQJ WR SHUIRUPDQFH
    LPSDLUPHQWV RQ HYHQ OHVV GHPDQGLQJ VHOHFWLYH DWWHQWLRQ WHVWV , *UDQW 0F'RQDOG 7ULPEOH HW DO
    *ULJVE\$\DUEHHWDO 
    5HJDUGOHVV RI GLVHDVH VWDWXV PRVW 06 SDWLHQWV H[KLELW GHILFLWV RQ WDVNV ZLWK JUHDWHU VWLPXOXV RU
    UHVSRQVH FRPSOH[LW\ߟVXFK DV VXSUDVSDQ WHVWV VHTXHQFH UHYHUVDO WHVWVߟDQG WKRVH UHTXLULQJ
    LQKLELWLRQ RI D SUHYLRXVO\ FRUUHFW UHVSRQVHߟLQFOXGLQJ WKH 6WURRS LQWHUIHUHQFH FRQGLWLRQ DQG WKH
    3$6$7 5+3DXO%HDWW\HWDODYDQGHQ%XUJHWDO $FRPSDULVRQRIWKHVHWZRWHVWV
    VKRZHG WKDW JURXS GLIIHUHQFHV EHWZHHQ 06 SDWLHQWV DQG FRQWUROV ZDV UHODWHG PRUH WR VSHHG RQ WKH
    FRORUDQGZRUGFRQGLWLRQVRIWKH6WURRSWKDQRQ3$6$7VFRUHV 6*/\QFKHWDO 7KHDXWKRUV
    FRQFOXGHG WKDW 06 SDWLHQWVߤ VWUXJJOH SHUIRUPLQJ WKH 3$6$7 KDV PRUH WR GR ZLWK VORZ SURFHVVLQJ
    WKDQ ZLWK LPSDLUHG ZRUNLQJ PHPRU\ 1RQHWKHOHVV DOWHUQDWLQJ DWWHQWLRQ DQG GLYLGHG DWWHQWLRQ DUH
    QHDUO\DOZD\VLPSDLUHGLQ06,PSDLUPHQWVZLOOEHLPPHGLDWHO\DSSDUHQWRQWDVNVUHTXLULQJSDWLHQWV
    WRVKLIWDWWHQWLRQEDFNDQGIRUWKIURPRQHVWLPXOXVWRDQRWKHUVXFKDVDOSKDQXPHULFVHTXHQFLQJDQG
    7UDLOV% *ULJVE\.D\HDQG%XVHQEDUN+HDWRQ1HOVRQ7KRPSVRQHWDO 3HUIRUPDQFH
    GHILFLHQFLHVZLOODOVREHHYLGHQWZKHQWZRRSHUDWLRQVRUWDVNVPXVWEHSHUIRUPHGVLPXOWDQHRXVO\WKH
    DEVROXWH OHYHO RI LPSDLUPHQW LQFUHDVLQJ ZLWK WDVN VLPLODULW\ DQG WKH DWWHQGDQW FRPSHWLWLRQ IRU
    FRPPRQDWWHQWLRQDOUHVRXUFHV &$$UFKLEDOGDQG)LVN'ߤ(VSRVLWR2QLVKLHWDO 

    0HPRU\DQGOHDUQLQJ06SDWLHQWVRIWHQUHSRUWSUREOHPVZLWKߧVKRUWWHUPPHPRU\ߨPHDQLQJWKDW
    WKH\ KDYH GLIILFXOW\ UHPHPEHULQJ GHWDLOV RI UHFHQW FRQYHUVDWLRQV DQG HYHQWV EXW VWLOO UHFDOO HYHQWV
    IURP WKH GLVWDQW SDVW TXLWH ZHOO ,Q IDFW VHPDQWLF PHPRU\ LV RIWHQ IDLUO\ ZHOO SUHVHUYHG LQ 06
    SDUWLFXODUO\ LQ SDWLHQWV ZLWK UHODSVLQJ GLVHDVH %HDWW\ *RRGNLQ 0RQVRQ DQG %HDWW\  +
    .ORQRII &ODUN HW DO   +RZHYHU GHILFLHQW UHFDOO RI UHPRWHO\ OHDUQHG IDFWV PD\ RFFXU
    VSRUDGLFDOO\DVRQWKH:,6$,QIRUPDWLRQWHVW 605DR/HR%HUQDUGLQDQG8QYHU]DJW RU
    RQDXWRELRJUDSKLFDOPHPRU\PHDVXUHVIRUSHUVRQDOHYHQWV 5+3DXO%ODQFR+DPHVHWDO 
    6WXGLHVXVLQJSULPLQJDQGSHUFHSWXDOPRWRUVNLOOVVKRZWKDW06SDWLHQWVߤLPSOLFLWPHPRU\LVDOPRVW
    DOZD\VLQWDFW %HDWW\*RRGNLQ0RQVRQDQG%HDWW\605DR*UDIPDQ'L*LXOLRHWDO 
    ,Q D PHWDDQDO\VLV H[SOLFLW PHPRU\ GLIILFXOW\ ZDV DPRQJ WKH PRVW SURPLQHQW FRJQLWLYH SUREOHPV
    DVVRFLDWHGZLWK06 3UDNDVKHWDO 
    5HSRUWV RI PHPRU\ SUREOHPV DVVRFLDWHG ZLWK 06 KDYH IRFXVHG RQ WZR PDMRU DUHDV LQLWLDO
    DFTXLVLWLRQ DQG UHWULHYDO &KLDUDYDOORWL DQG 'H/XFD   2QH FODVVLF ILQGLQJ LQ 06 LV LPSDLUHG
    UHFDOORQWHVWVRIPXOWLWULDOOHDUQLQJ *ULIILWKVHWDO0LQGHQ0RHV2UDYHWDO 3DWLHQWV
    RIWHQVWUXJJOHRQWKHILUVWWULDOWRJUDVSDOORIWKHPDWHULDOSUHVHQWHGILQGLQJWKHLUSURFHVVLQJFDSDFLW\
    RYHUZKHOPHG7\SLFDOO\WKH\GREHWWHURQVXEVHTXHQWWULDOVZKLFKDOORZWKHPWROHDUQWKHOLVWE\VORZ
    DFFUHWLRQDOWKRXJKDWDORZHUOHYHOWKDQFRQWUROV 6WHJHQ HW DO   :KHQ 06SDWLHQWV OHDUQHGD
    ZRUG OLVW WR FULWHULRQ WKHLU UHFDOO DQG UHFRJQLWLRQ SHUIRUPDQFH ZDV HTXLYDOHQW WR KHDOWK\ VDPSOHV
    &KLDUDYDOORWL%DO]DQRHWDO 
    06 SDWLHQWV DV D JURXS DUH VSHFLILFDOO\ LPSDLUHG LQ WKHLU DELOLW\ WR DFWLYDWH QRYHO VWUDWHJLHV )RU
    H[DPSOHWKH\DUHOHVVOLNHO\WRXVHVHPDQWLFFOXVWHULQJ $UQHWW5DR*UDIPDQHWDO DQGYLVXDO
    LPDJHU\ &DQHOORSRXORX DQG 5LFKDUGVRQ   7KLV FRQWULEXWHV WR GHILFLHQW HQFRGLQJ RQ WKH ILUVW
    WULDO RI PXOWLWULDO OHDUQLQJ WDVNV DQG RQ SDLUHG DVVRFLDWH OHDUQLQJ WDVNV ZLWK ZHDN FXHߞWDUJHW
    DVVRFLDWLRQV )DJOLRQLHWDO7KRUQWRQ5D]DQG7XFNHU 5HFDOORIZRUGOLVWVLVW\SLFDOO\
    PRUH GLVUXSWHG WKDQ WKDW RI SURVH SDVVDJHV LQ ZKLFK WKH LQKHUHQW PHDQLQJIXOQHVV RI WKH SDVVDJH
    SURYLGHVDNLQGRIߧJOXHߨWRKHOSWKHPDWHULDOVWLFN %HDWW\ 
    'HILFLWV LQ SURFHVVLQJ VSHHG DQG ZRUNLQJ PHPRU\ FRQWULEXWH VLJQLILFDQWO\ WR WKHVH OHDUQLQJ
    GHILFLWV *DXGLQR&KLDUDYDOORWLHWDO7KRUQWRQ5D]DQG7XFNHU &OLQLFDOREVHUYDWLRQV
    VXJJHVW WKDW VORZHG PHQWDO SURFHVVLQJ PDNHV LW GLIILFXOW IRU PDQ\ SDWLHQWV WR JUDVS DOO RI D YHUEDO
    PHVVDJH SDUWLFXODUO\ ZKHQ LW LV ORQJ FRPSOH[ GHOLYHUHG UDSLGO\ DQG ZLWK FRPSHWLQJ VWLPXOLߟDV
    RIWHQRFFXUVLQDQRLV\RIILFHRUDWKRPHZKHQWKHEDE\LVFU\LQJWKH79LVEODVWLQJDQGWKHSDWLHQWLV
    WU\LQJWRSHUIRUPVRPHKRXVHKROGFKRUH +RZLHVRQDQG/H]DN /DERUDWRU\VWXGLHVFRQGXFWHG
    XQGHUTXLHWDQGFRQWUROOHGFRQGLWLRQVRIWHQUHSRUWWKDWVXFKSDWLHQWVUHFDOOPDWHULDOUHDVRQDEO\ZHOO
    ZKHQWKH\FDQGHYRWHDOORIWKHLUDWWHQWLRQDOUHVRXUFHVWROHDUQLQJWKHPDWHULDO+RZHYHULQUHDOOLIH
    UDSLGO\SDVVLQJDPELHQWLQIRUPDWLRQWKDWRWKHUVSLFNXSHIIRUWOHVVO\LVPLVVHG06SDWLHQWVߤIDLOXUHWR
    FDUU\RXWIXWXUHDFWLRQVVWHPVSULPDULO\IURPGHILFLHQFLHVLQWKHLULQLWLDOJUDVSRILQIRUPDWLRQJRLQJ
    E\WKHPUDSLGO\DQGRQO\RQFHߟDVLQQRUPDOFRQYHUVDWLRQDOߧJLYHDQGWDNHߟDVRSSRVHGWRIDLOXUH
    RISURVSHFWLYHPHPRU\SHUVH LHߧUHPHPEHULQJWRGRߨ  %UDYLQHWDO 
    06PD\SUHIHUHQWLDOO\GLVUXSWUHWULHYDOZKLOHVSDULQJHQFRGLQJDQGVWRUDJHSURFHVVHV 605DR
    *UDIPDQ'L*LXOLRHWDO605DR/HRDQG6W$XELQ)DXEHUW 06SDWLHQWVWHQGWREH
    OHVVFRQVLVWHQWLQUHFDOOLQJLWHPVIURPRQHOHDUQLQJWULDOWRWKHQH[W %HDWW\:LOEDQNV%ODQFRHWDO
    )DJOLRQL HW DO   $OVR IUHH UHFDOO WHQGV WR EH SRRUHU WKDQ FXHG UHFDOO ZKLFK LQ WXUQ LV
    LQIHULRU WR UHFRJQLWLRQ 7KRUQWRQ DQG 5D]  :LVKDUW DQG 6KDUSH   0DQ\ 06 SDWLHQWV
    SHUIRUP QHDUO\ QRUPDOO\ RQ UHFRJQLWLRQ WHVWLQJ FRQILUPLQJ WKDW WKH\ KDYH DEVRUEHG FRQVLGHUDEO\
    PRUHPDWHULDOWKDQWKH\DUHDEOHWRGUHGJHXSVSRQWDQHRXVO\
    7KUHH SDWWHUQV RI PHPRU\ SHUIRUPDQFH ZHUH REVHUYHG LQ D VWXG\ RI 06 SDWLHQWV DQG FRQWUROV
    %HDWW\:LOEDQNV%ODQFRHWDO 6RPHSDWLHQWV WRRIWKHVDPSOHV SHUIRUPHGOLNH
    KHDOWK\FRQWUROVZLWKHVVHQWLDOO\LQWDFWOHDUQLQJDQGUHFDOO$PRUHFRPPRQSDWWHUQ WRRI
    WKH SDWLHQWV VDPSOHG  ZDV WKDW RI ߧLQHIILFLHQWߨSHUIRUPDQFH LQ ZKLFK VXPPDU\ VFRUHV DQG OHDUQLQJ
    FXUYHV DUH VXSHUILFLDOO\ QRUPDO EXW FORVHU LQVSHFWLRQ XQFRYHUV GHILFLHQW ILUVW WULDO UHFDOO PLOGO\
    LQFRQVLVWHQW UHFDOO DFURVV WULDOV DQG PLOGO\ GHILFLHQW GHOD\HG UHFDOO 7KH UHPDLQGHU ߞ
    H[KLELW VWULNLQJ SHUIRUPDQFH GHILFLWV LQFOXGLQJ D IODWWHQHG OHDUQLQJ FXUYH H[WUHPHO\ SRRU GHOD\HG
    UHFDOODQGQXPHURXVLQWUXVLRQHUURUV
    ,QFRQVLVWHQFLHVDFURVVVWXGLHVLQUHSRUWVRIPHPRU\SHUIRUPDQFHSUREDEO\UHODWHWRWKHYDULDEOH
    QDWXUHRI063DWLHQWVZLWKSULPDU\SURJUHVVLYH06WHQGWRSHUIRUPZRUVHWKDQWKRVHZLWKVHFRQGDU\
    SURJUHVVLYH 06 :DFKRZLXV HW DO   )RU DQ\ RQH SDWLHQW DW DQ\ SRLQW LQ WLPH FRJQLWLYH
    IXQFWLRQLQJUHSUHVHQWVDEDODQFHEHWZHHQWKHHIIHFWVRIWLVVXHGHVWUXFWLRQWLVVXHUHSDLU DQG DGDSWLYH
    EUDLQIXQFWLRQDOUHRUJDQL]DWLRQ 6+RIIPDQQHWDO 

    9HUEDOIXQFWLRQVDQGDFDGHPLFVNLOOV/DQJXDJHDELOLWLHVW\SLFDOO\UHPDLQLQWDFWLQ06H[FHSWIRU
    WKRVH GHSHQGHQW RQ UDSLG DQG HIILFLHQW UHWULHYDO $SKDVLD V\QGURPHV DUH UDUH -7( 5LFKDUGVRQ
    5RELQVRQDQG5RELQVRQ $OH[LDVKDYHDOVREHHQREVHUYHGDVKDYHRWKHUV\QGURPHVXVXDOO\
    DVVRFLDWHG ZLWK FRUWLFDO OHVLRQV 'RJXOX HW DO  )LOOH\  -RQVGRWWLU HW DO    7KHVH
    V\QGURPHVW\SLFDOO\RFFXUZLWKDQDFXWHUHODSVHߟRFFDVLRQDOO\HYHQDVWKHSUHVHQWLQJV\PSWRPߟDQG
    PRVWUHVROYHZLWKFRUWLFRVWHURLGWUHDWPHQW
    9HUEDO IOXHQF\ LV RIWHQ GLVUXSWHG LQ 06ߟZKHWKHU E\ UHGXFWLRQV LQ FRJQLWLYH VSHHG IOH[LELOLW\
    VHDUFK VWUDWHJ\ DQGRU DFFHVV WR YHUEDO VWRUDJH )ULHQG HW DO  60 5DR /HR DQG 6W $XELQ
    )DXEHUW   &OLQLFDO H[SHULHQFH VXJJHVWV WKDW SKRQHPLF IOXHQF\ WDVNV DUH PRUH VHQVLWLYH WR
    LPSDLUPHQW WKDQ DUH VHPDQWLF IOXHQF\ WDVNV 'HILFLWV LQ FRQIURQWDWLRQ QDPLQJ KDYH EHHQ UHSRUWHG
    )ULHQGHWDO/HWKOHDQDQG0XUGRFK DOWKRXJKJHQHUDOO\FRQIURQWDWLRQQDPLQJLVEHWWHU
    SUHVHUYHG WKDQ IOXHQF\ SDUWLFXODUO\ LQ SDWLHQWV ZLWK UHODSVLQJߞUHPLWWLQJ GLVHDVH -' +HQU\ DQG
    %HDWW\3UDNDVKHWDO  :KHQ FRQIURQWDWLRQQDPLQJ LV LPSDLUHG LQ 06 SKRQHPLF FXLQJ
    RIWHQIDFLOLWDWHVUHWULHYDOLPSO\LQJUHDVRQDEOHSUHVHUYDWLRQRIWKHVWUXFWXUHRIVHPDQWLFNQRZOHGJH
    6XEWOHODQJXDJHDEQRUPDOLWLHVGRRFFXULQ06DVLQGLFDWHGE\WHVWLQJGHILFLWVLQFRPSUHKHQVLRQ
    RI FRQFHSW PHDQLQJV DQG DWWULEXWHV /DDWX HW DO   DQG LQ GHFLSKHULQJ FRPSOH[ RU DPELJXRXV
    JUDPPDWLFDO VWUXFWXUHV 0 *URVVPDQ 5RELQVRQ HW DO  /HWKOHDQ DQG 0XUGRFK   ,Q
    DGGLWLRQ VRPH 06 SDWLHQWVߤ YHUEDO RXWSXW RIWHQ VHHPV ߧHPSW\ߨ ZLWK IHZHU LQIRUPDWLRQ XQLWV SHU
    VHQWHQFHDQGIHZHUFRPSOHWHDQGJUDPPDWLFDOO\FRUUHFWVHQWHQFHV */:DOODFHDQG+ROPHV 
    6XEWOHODQJXDJHGLIILFXOWLHVVXFKDVWKHVHFDQKDYHGHYDVWDWLQJHIIHFWVRQLQWHUSHUVRQDOUHODWLRQVKLSV
    DQGRQZRUNSHUIRUPDQFHSDUWLFXODUO\IRUSDWLHQWVLQYHUEDOO\GHPDQGLQJSURIHVVLRQV

    9LVXRVSDWLDO IXQFWLRQV DQG FRQVWUXFWLRQ 06 SDWLHQWV RIWHQ FRPSODLQ RI SUREOHPV ZLWK ߧYLVLRQߨ
    6HQVRU\ LPSDLUPHQWV LQYROYLQJ WKH YLVXDO V\VWHP IUHTXHQWO\ RFFXU LQ 06 VHH S   +RZHYHU
    SUREOHPV WKDW SDWLHQWV DWWULEXWH WR GHIHFWLYH ߧYLVLRQߨDUH PRUH RIWHQ GLVRUGHUV RI YLVXRSHUFHSWLRQ
    ZKLFK DUH FRPPRQ LQ 06 60 5DR /HR %HUQDUGLQ DQG 8QYHU]DJW  9OHXJHOV HW DO  
    $Q\DVSHFWRIYLVXRSHUFHSWLRQPD\EHGLVUXSWHGLQFOXGLQJIDFLDOSHUFHSWLRQ ߧNQRZLQJZKRߨ  %HDWW\
    *RRGNLQ0RQVRQDQG%HDWW\-:DUGHWDO YLVXDOIRUPSHUFHSWLRQ ߧNQRZLQJZKDWߨ
    YDQ GHQ %XUJ 9DQ =RPHUHQ DQG 0LQGHUKRXG  9OHXJHOV HW DO   DQG YLVXRVSDWLDO
    SHUFHSWLRQ ߧNQRZLQJZKHUHߨ  605DR/HR%HUQDUGLQDQG8QYHU]DJW 6SDWLDOSHUFHSWLRQ
    PD\EHDIIHFWHGOHVVRIWHQWKDQRWKHUDVSHFWVRIYLVXRSHUFHSWLRQSDUWLFXODUO\IRUUHODSVLQJߞUHPLWWLQJ
    SDWLHQWV -'H/XFD*DXGLQRHWDO'ߤ(VSRVLWR2QLVKLHWDO 
    7HVW SHUIRUPDQFH RQ PHDVXUHV RI YLVXRVSDWLDO DELOLWLHV DQG FRQVWUXFWLRQ PXVW EH LQWHUSUHWHG
    FDXWLRXVO\ $V )HQQHOO DQG 6PLWK   DVWXWHO\ QRWHG WKHVH WHVWV GUDZ RQ QXPHURXV DELOLWLHV
    LQFOXGLQJߧYLVXDOSHUFHSWLRQYLVXRVSDWLDODQDO\VLVH[HFXWLYHIXQFWLRQVPHPRU\DQGVSHHGRIPRWRU
    RXWSXWߨ$OWKRXJKGHILFLWVLQPRWRUVSHHGDQGFRRUGLQDWLRQDUHZHOOGRFXPHQWHGLQ06WKHLPSDFWRI
    SRRUSODQQLQJRQYLVXRFRQVWUXFWLRQDOWDVNSHUIRUPDQFHLVRIWHQXQGHUDSSUHFLDWHG

    7KLQNLQJ DQG UHDVRQLQJ 06 SDWLHQWV PD\ SHUIRUP DW QRUPDO OHYHOV RQ ZHOOVWUXFWXUHG WHVWV RI
    YHUEDOUHDVRQLQJDQGFRQFHSWIRUPDWLRQ 6-&DPSHWDO -'H/XFD -RKQVRQDQG 1DGHOVRQ
    /DQGURHWDO EXWGHILFLWVLQDEVWUDFWUHDVRQLQJDUHOLNHO\WRVKRZXSRQOHVVVWUXFWXUHG
    WHVWV %HDWW\*RRGNLQ0RQVRQDQG%HDWW\6-&DPSHWDO+HDWRQ1HOVRQ7KRPSVRQ
    HWDO ,PSDLUHGSUREOHPVROYLQJLQ06KDVEHHQDWWULEXWHGWRSHUVHYHUDWLYHUHVSRQVHV %HDWW\
    *RRGNLQ 0RQVRQ DQG %HDWW\  +HDWRQ 1HOVRQ 7KRPSVRQ HW DO  60 5DR /HR
    %HUQDUGLQDQG8QYHU]DJW +RZHYHUVWXGLHVXVLQJWHVWVWKDWGLVHQWDQJOHFRQFHSWIRUPDWLRQDQG
    FRQFHSWVKLIWLQJߟVXFKDVWKH'.()66RUWLQJ7HVWߟKDYHVKRZQWKDW06SDWLHQWVDOVRSURGXFHIHZHU
    FRQFHSWV WKDQFRQWUROV 3DUPHQWHU =LYDGLQRY HW DO    7KHVH ILQGLQJV VXJJHVW WKDW D GHILFLHQW
    DELOLW\WRJHQHUDWHDOWHUQDWLYHVWUDWHJLHVFRQWULEXWHVWRWKHEHKDYLRUDOLQIOH[LELOLW\RIWHQH[KLELWHGE\
    06SDWLHQWV

    ([HFXWLYH IXQFWLRQV ,Q DGGLWLRQ WR WKHLU OLPLWDWLRQV LQ SUREOHP VROYLQJ 06 SDWLHQWV DUH RIWHQ
    LQHIILFLHQW DQG HUURU SURQH RQ SODQQLQJ DQG VHTXHQFLQJ WDVNV $UQHWW 5DR *UDIPDQ HW DO 
    %HDWW\ DQG 0RQVRQ  )RRQJ 5R]HZLF] 4XDJKHEHXU HW DO   2WKHU DVSHFWV RI H[HFXWLYH
    IXQFWLRQV PD\ EH GLVUXSWHG DV ZHOO LQFOXGLQJ WHPSRUDO RUGHULQJ %HDWW\ DQG 0RQVRQ  
    PRQLWRULQJ LQWHUQDO DQG H[WHUQDO VWLPXOL *UDIPDQ 5DR %HUQDUGLQ DQG /HR  /DQGUR HW DO
     FRJQLWLYHHVWLPDWLRQ )RRQJ5R]HZLF]4XDJKHEHXUHWDO VHOIUHJXODWLRQ %HQHGLFW
    3ULRUHHWDO*ULJVE\.UDYFLVLQHWDO DQGHYHU\GD\IXQFWLRQLQJ 05%DVVR6KLHOGVHW
    DO 'HILFLHQFLHVLQH[HFXWLYHIXQFWLRQVDUHRIWHQPRUHDSSDUHQWWRIDPLO\PHPEHUVDQGIULHQGV
    WKDQWKH\ DUHWRWKH DIIHFWHG LQGLYLGXDO 3HUVRQV FORVHWR WKH SDWLHQWPD\ HUURQHRXVO\ DWWULEXWH WKHVH
    EHKDYLRUV WR SHUVRQDOLW\ IHDWXUHV VXFK DV ߧVWXEERUQQHVVߨRU ߧGLVRUJDQL]DWLRQߨ +HOSLQJ IULHQGV DQG
    IDPLO\ PHPEHUV WR XQGHUVWDQG WKH QHXURORJLF EDVLV IRU WKHVH GHILFLWV DQG WR GHYHORS VWUDWHJLHV IRU
    PDQDJLQJWKHPPD\HDVHKRXVHKROGWHQVLRQVFRQVLGHUDEO\ %HQHGLFW6KDSLURHWDO 
    ,PSDLUPHQWV LQ FRQFHSWXDO UHDVRQLQJ DQG H[HFXWLYH IXQFWLRQV PD\ FRQWULEXWH WR 06 SDWLHQWVߤ
    GHILFLHQFLHV RQ WHVWV RI RWKHU FRJQLWLYH DELOLWLHV VXFK DV PHPRU\ DQG YLVXRFRQVWUXFWLRQ DQG
    FRJQLWLYH GHILFLWV FDQ FRQWULEXWH WR LPSDLUHG H[HFXWLYH IXQFWLRQLQJ .DOPDU HW DO    7KHVH
    SUREOHPV IUHTXHQWO\ VHHP WR JR KDQGLQKDQG 3HUIRUPDQFH RQ PHDVXUHV RI H[HFXWLYH IXQFWLRQV LV
    PRGHUDWHO\ WR VWURQJO\ FRUUHODWHG ZLWK RYHUDOO UHFDOO 7UR\HU HW DO   VSRQWDQHRXV XVH RI
    V\VWHPDWLFOHDUQLQJVWUDWHJLHV $UQHWW5DR*UDIPDQHWDO DQGKRZUHDGLO\SDWLHQWVOHDUQWR
    DSSO\ LPDJHU\EDVHG PQHPRQLF WHFKQLTXHV &DQHOORSRXORX DQG 5LFKDUGVRQ    2IWHQ SRRU
    SHUIRUPDQFH RQ YLVXRFRQVWUXFWLRQDO WDVNV FDQ EH WUDFHG WR LPSDLUHG SODQQLQJ DQG RUJDQL]DWLRQDO
    DELOLWLHVDVZHOO VHH)HQQHOODQG6PLWKIRUDFDVHH[DPSOH 
    7KHIROORZLQJFDVHLOOXVWUDWHVVHYHUDOLPSRUWDQWIHDWXUHVRI06UHODWHGFRJQLWLYHG\VIXQFWLRQ
    $ \HDUROG ZRPDQ ZDV VHHQ IRU QHXURSV\FKRORJLFDO DVVHVVPHQW WR HYDOXDWH FRPSODLQWV RI VXEWOH GLIILFXOWLHV ZLWK
    FRQFHQWUDWLRQZRUGUHWULHYDODQGPHPRU\WKDWDIIHFWHGKHUZRUNDVDFXVWRPHUVHUYLFHPDQDJHUDMREVKHKDGKHOGIRUFORVH
    WR WHQ \HDUV 6RPH  \HDUV SULRU WR WKH HYDOXDWLRQ VKH KDG DQ DFXWH RQVHW RI ULJKWVLGHG QXPEQHVV DQG ZHDNQHVV JDLW
    GLVWXUEDQFHH\HOLGGURRSDQGG\VDUWKULDKHUQHXURORJLFZRUNXSDWWKHWLPHZDVQHJDWLYHDQGQRGLDJQRVLVZDVHVWDEOLVKHG
    0RVW RI KHU V\PSWRPV UHVROYHG EXW VKH ZDV OHIW ZLWK GLPLQLVKHG ULJKWVLGHG VHQVDWLRQ DQG SHUVLVWHQW IDWLJXH DQG WKHQ ODWHU
    GHYHORSHG ULJKWVLGHG SDLQ EODGGHU G\VIXQFWLRQ DQG PDMRU GHSUHVVLRQ 6KH ZDV GLDJQRVHG ZLWK 06 VKRUWO\ EHIRUH WKH
    QHXURSV\FKRORJLFDOHYDOXDWLRQDWZKLFKWLPHVKHKDGDQ('66RI PRGHUDWHGLVDELOLW\ 'HVSLWHKHUFRJQLWLYHFRPSODLQWV
    WKLV SDWLHQW SHUIRUPHG LQ WKH DYHUDJH WR KLJK DYHUDJH UDQJH LQ PRVW GRPDLQV RI FRJQLWLYH IXQFWLRQ YHUEDO YLVXRVSDWLDO
    FDOFXODWLRQ DELOLW\ DWWHQWLRQSURFHVVLQJ VSHHG OHDUQLQJPHPRU\ DQG SODQQLQJ  7KLV ZDV FRQVLVWHQW ZLWK KHU KLVWRU\ RI
    FRPSOHWLQJ WZR \HDUV RI FROOHJH 7KH RQO\ H[FHSWLRQ ZDV KHU UHGXFHG SUREOHPVROYLQJ IOH[LELOLW\ LQ WKH ORZDYHUDJH UDQJH
    SHUVHYHUDWLYHHUURUVRQWKH:LVFRQVLQ&DUG6RUWLQJ7HVW 
    7KH SDWLHQW ZDV FRDFKHG RQ FRPSHQVDWRU\ VWUDWHJLHV WR DSSO\ DW ZRUN DQG DW KRPH DQG UHIHUUHG IRU SV\FKRORJLFDO
    FRXQVHOLQJDQGUHDVVHVVPHQWRIKHUDQWLGHSUHVVDQWPHGLFDWLRQ+HUGHSUHVVLRQZDVVXFFHVVIXOO\WUHDWHGDQGKHU06V\PSWRPV
    UHPDLQHGFOLQLFDOO\VWDEOHEXWVKHFRQWLQXHGWRKDYHGLIILFXOW\SHUIRUPLQJKHUMREDQGWRRNDPHGLFDOOHDYHVL[PRQWKVDIWHUWKH
    HYDOXDWLRQ :KHQ UHDVVHVVHG  PRQWKV ODWHU VKH KDG FOHDUO\ GHWHULRUDWHG KHU SUREOHPVROYLQJ DELOLWLHV KDG VOLSSHG LQWR WKH
    GHIHFWLYH UDQJH  SHUVHYHUDWLYH HUURUV DQG RQO\  FDWHJRULHV DFKLHYHG RQ WKH :LVFRQVLQ &DUG 6RUWLQJ 7HVW 
    DWWHQWLRQSURFHVVLQJ VSHHG KDG ZRUVHQHG 3$6$7ߨ7RWDO RI  YV KHU SUHYLRXV   DQG OHDUQLQJ ZDV DOVR GHIHFWLYH
    &DOLIRUQLD9HUEDO/HDUQLQJ7HVWࡀ7ULDOVߞ ߞ6' 

    $VLQWKLVFDVHPHPRU\LVQRWDOZD\VLPSDLUHGLQWKHHDUO\VWDJHRI063DWLHQWVRIWHQLQWHUSUHW
    WKHLU FRJQLWLYH GLIILFXOWLHV DV ߧPHPRU\ SUREOHPVߨZKHQ IXQFWLRQV RWKHU WKDQ PHPRU\ߟLQ WKLV FDVH
    SUREOHPVROYLQJߟDUHFRPSURPLVHG7KLVFDVHDOVRGHPRQVWUDWHVWKDWHYHQFLUFXPVFULEHGFRJQLWLYH
    GHILFLWVFDQKDYHDSRWHQWLDOO\GHYDVWDWLQJLPSDFWRQGDLO\IXQFWLRQLQJDQGWKDWFRJQLWLYHLPSDLUPHQW
    FDQSURJUHVVLQDSDWLHQWZKRDSSHDUVWREHFOLQLFDOO\VWDEOHLQRWKHUUHVSHFWV
    6LPLODU GLVSDULWLHV EHWZHHQ SDWLHQWVߤ FRJQLWLYH FRPSODLQWV DQG WKHLU REMHFWLYH SHUIRUPDQFH DUH
    FRPPRQ /DQGUR HW DO  5 7D\ORU   6RPH SDWLHQWVߟSDUWLFXODUO\ WKRVH ZKR DUH
    HPRWLRQDOO\GLVWUHVVHGߟJUHDWO\XQGHUHVWLPDWHWKHLUREMHFWLYHSHUIRUPDQFHZKHUHDVRWKHUVߟSDWLHQWV
    ZLWKGHILFLWVLQFRQFHSWIRUPDWLRQDQGVHOIPRQLWRULQJDQGWKRVHZLWKVHYHUHPHPRU\GHILFLWVߟRIWHQ
    RYHUHVWLPDWH WKHLU DELOLWLHV &RQVHTXHQWO\ DOO FRJQLWLYH IXQFWLRQV FRPPRQO\ LPSDLUHG LQ 06ߟ
    DWWHQWLRQDQGSURFHVVLQJVSHHGOHDUQLQJDQGPHPRU\YLVXRVSDWLDODELOLWLHVDQGH[HFXWLYHIXQFWLRQV
    ߟPXVWEHH[DPLQHGQRWMXVWWKRVHWKHSDWLHQWVD\VDUHLPSDLUHG

    7KHQHXURSV\FKRORJLFDOH[DPLQDWLRQRI06SDWLHQWV

    ,GHDOO\06SDWLHQWVVKRXOGEHWHVWHGLQWKHPRUQLQJWRPLQLPL]HWKHHIIHFWVRIODWHGD\IDWLJXHDQGLQ
    D TXLHWHQYLURQPHQW ZLWK D UHODWLYHO\FRRODPELHQWWHPSHUDWXUHWR DFFRPPRGDWHWKHKHDW VHQVLWLYLW\
    WKDW WURXEOHV VR PDQ\ 06 SDWLHQWV 7DVNV UHTXLULQJ FRQWLQXRXV FRJQLWLYH HIIRUW VKRXOG EH
    LQWHUPLQJOHG ZLWK OHVV DWWHQWLRQGHPDQGLQJ WDVNV DQG DPSOH RSSRUWXQLWLHV IRU EUHDNV VKRXOG EH
    SURYLGHG/HQJWK\EDWWHULHVPD\QHHGWREHDGPLQLVWHUHGLQWZRRUWKUHHVHSDUDWHWHVWLQJVHVVLRQV
    06EDWWHULHV7ZRVFUHHQLQJEDWWHULHVKDYHEHHQXVHGZLWKVXFFHVVLQHYDOXDWLQJ06SDWLHQWV VHH
    S $QRWKHUFRPSUHKHQVLYHEDWWHU\GHYHORSHGIRUWKHILUVWLQWHUIHURQVWXG\SURYHGYHU\VHQVLWLYH
    WRSDWLHQWVߤUHVSRQVHV WR PHGLFDWLRQ )LVFKHU  )LVFKHU 3ULRUH HW DO   /' -DFREV HW DO
     
    3V\FKRVRFLDOFRQVHTXHQFHVRIFRJQLWLYHLPSDLUPHQWLQPXOWLSOHVFOHURVLV

    &RJQLWLYH LPSDLUPHQW FDQ KDYH IDUUHDFKLQJ FRQVHTXHQFHV IRU 06 SDWLHQWV DQG WKHLU IDPLOLHV )RU
    H[DPSOH LW DIIHFWV WKH HPSOR\DELOLW\ RI PDQ\ 06 SDWLHQWV $PDWR 3RQ]LDQL HW DO  %HDWW\
    %ODQFRHWDO605DR/HR(OOLQJWRQHWDO 3DWLHQWVUHSRUWIDWLJXHLPSDLUHGPRELOLW\
    DQG GH[WHULW\ DQG FRJQLWLYH G\VIXQFWLRQ DV FKLHI DPRQJ UHDVRQV IRU QRW ZRUNLQJ 6LPPRQV HW DO
      $ FRPSDULVRQ RI 06 SDWLHQWV ZLWK SURPLQHQW VSLQDO FRUG GLVHDVH DQG PLQLPDO FRJQLWLYH
    G\VIXQFWLRQZLWKPRUHPRELOHSDWLHQWVZKRKDGSULPDULO\FHUHEUDOLQYROYHPHQWIRXQGWKDWRQO\RQH
    RI WKH  ߧFHUHEUDO 06ߨSDWLHQWV UHPDLQHG HPSOR\HG ZKLOH RYHU KDOI RI WKH  ߧVSLQDO 06ߨJURXS
    FRQWLQXHGWRZRUNGHVSLWHORQJHUGLVHDVHGXUDWLRQVDQGJUHDWHUSK\VLFDOGLVDELOLW\ :LOG/H]DNHWDO
     &RJQLWLYHO\LPSDLUHG06SDWLHQWVDOVRKDYHSRRUHUGULYLQJVNLOOVDQGDJUHDWHUULVNRIPRWRU
    YHKLFOHDFFLGHQWV 6FKXOWKHLVHWDO 
    &RJQLWLYHLPSDLUPHQWFDQDOVRFRQVWUDLQLQGHSHQGHQFHZLWKLQWKHFRPPXQLW\DQGDWKRPH $PDWR
    3RQ]LDQLHWDO+LJJLQVRQHWDO DQGOLPLWDSDWLHQWߤVDELOLW\WREHQHILWIURPUHKDELOLWDWLRQ
    SURJUDPV /DQJGRQDQG7KRPSVRQ &RJQLWLYHO\LPSDLUHG06SDWLHQWVSDUWDNHRIIHZHUVRFLDO
    DFWLYLWLHV WKDQ WKHLU FRJQLWLYHO\ LQWDFW FRXQWHUSDUWV DQG UHTXLUH PRUH DVVLVWDQFH LQ SHUIRUPLQJ
    FRPSOH[KRXVHKROGWDVNVVXFKDVFRRNLQJDQGLQH[WUHPHFDVHVHYHQEDVLFVHOIFDUHDFWLYLWLHV 60
    5DR /HR (OOLQJWRQ HW DO   7KH\ RIWHQ QHHG KHOS PDNLQJ GHFLVLRQV DQG PDQDJLQJ WKHLU
    ILQDQFHV\HWSDWLHQWVZLWKQRREYLRXVSK\VLFDOGLVDELOLWLHVRUODFNLQJDSSUHFLDWLRQRIWKHLUFRJQLWLYH
    OLPLWDWLRQVPD\WKZDUWHIIRUWVWRDVVLVWWKHP1RWVXUSULVLQJO\FRJQLWLYHLPSDLUPHQWLVDVLJQLILFDQW
    VRXUFHRIFDUHJLYHUVWUDLQ &KLSFKDVHDQG/LQFROQ5*.QLJKW'HYHUHX[DQG*RGIUH\ 
    06 SDWLHQWV ZLWK SUHGRPLQDQWO\ FHUHEUDO LQYROYHPHQW KDG IHZHU VWDEOH PDUULDJHVߟDOWKRXJK PRUH
    PDUULDJHVSHUFDSLWDߟWKDQWKRVHZLWKVSLQDOGLVHDVH :LOG/H]DNHWDO $PRQJWKHIDFWRUV
    FRQWULEXWLQJ WR SV\FKRVRFLDO DGMXVWPHQW DUH GHJUHH RI SHUFHLYHG VWUHVV DQG FRSLQJ VWUDWHJLHV
    'HQQLVRQHWDO 

    'LVRUGHUVRIPRRGDIIHFWDQGEHKDYLRU
    'LVWXUEDQFHV RI DIIHFW DQG EHKDYLRUߟHXSKRULD DIIHFWLYH LQVWDELOLW\ DQG SDWKRORJLFDO ODXJKLQJ DQG
    FU\LQJߟDUHQRWXQFRPPRQLQ06 )HLQVWHLQ0LQGHQDQG6FKLIIHU (XSKRULDߟXQXVXDO
    FKHHUIXOQHVVDQGRSWLPLVPDERXWWKHIXWXUHWKDWLVLQFRQVLVWHQWZLWKDSDWLHQWߤVFOLQLFDOFRQGLWLRQߟZDV
    ZLGHO\GLVFXVVHGLQHDUO\ZULWLQJVRQ06 )LQJHU ODWHUVXUYH\VVXJJHVWWKDWWUXHHXSKRULDLV
    UDUH DQG W\SLFDOO\ DVVRFLDWHG ZLWK DGYDQFHG GLVHDVH DQG H[WHQVLYH IURQWDO ZKLWH PDWWHU LQYROYHPHQW
    )HLQVWHLQ 0XFKPRUHFRPPRQWKDQHXSKRULDLVDIIHFWLYH LQVWDELOLW\ߟDEUXSW VKLIWV LQ PRRG
    DQG EHKDYLRU 8S WR  RI 06 SDWLHQWV ZHUH GHVFULEHG E\ IDPLO\ PHPEHUV LQ D VXUYH\ DV
    ߧDJLWDWHGߨDQGRUߧLUULWDEOHߨ 'LD]2ODYDUULHWDHWDO  7KHVHSDWLHQWV RIWHQ GRQRW PRQLWRU WKHLU
    EHKDYLRUHIIHFWLYHO\HLWKHULQVRFLDOVLWXDWLRQVRURQQHXURSV\FKRORJLFDOWHVWLQJ HJPDNLQJPRUH
    HUURUVWKDQFRQWUROVXEMHFWVRQUHDVRQLQJWHVWV  %HQHGLFW3ULRUHHWDO 'LD]2ODYDUULHWDDQG
    FROOHDJXHV IRXQG WKDW  RI SDWLHQWV LQ WKHLU VDPSOH ZHUH IUDQNO\ GLVLQKLELWHG DQG LPSXOVLYH
    ߧ6XGGHQPRRGFKDQJHVߨDQGߧSDUWQHUXSVHWWLQJRWKHUSHRSOHߨDUHDPRQJWKHEHKDYLRUVWKDWFDUHJLYHUV
    UHSRUWDVPRVWEXUGHQVRPH
    1HDUO\  RI SDWLHQWV GHYHORSHG SDWKRORJLFDO ODXJKLQJ DQG FU\LQJ 3/&  D VRFLDOO\ GLVDEOLQJ
    FRQGLWLRQ LQ ZKLFK RXWZDUG DIIHFWLYH H[SUHVVLRQ EHFRPHV GLVFRQQHFWHG IURP LQWHUQDO HPRWLRQDO
    H[SHULHQFH )HLQVWHLQ)HLQVWHLQHWDOVHHDOVRSVHXGREXOEDUVWDWHS 3DWLHQWVZLWK3/&
    VXGGHQO\ORVHHPRWLRQDOFRQWUROHLWKHUODXJKLQJRUFU\LQJXQFRQWUROODEO\ߟRUVRPHWLPHVERWKߟLQ
    WKHDEVHQFHRIDQDSSDUHQWWULJJHULQJVWLPXOXVRUFRUUHVSRQGLQJPRRGVWDWH7KHVHSDWLHQWVPDQ\RI
    ZKRPKDYHSURJUHVVLYHGLVHDVHRIWHQKDYHFRJQLWLYHGHILFLWVߟSDUWLFXODUO\RQWDVNVUHTXLULQJUDSLG
    PHQWDO DFWLYLW\ )HLQVWHLQ 2ߤ&RQQRU DQG )HLQVWHLQ   $ ZLGHO\ GLVSHUVHG QHXUDO QHWZRUN
    LQFOXGLQJ SUHIURQWDODQWHULRU FLQJXODWH FLUFXLWV DQG SDULHWDO UHJLRQV KDV EHHQ LPSOLFDWHG DV KDYH
    FHUHEURSRQWRFHUHEHOODUSDWKZD\V *KDIIDU&KDPHOLDQDQG)HLQVWHLQ3DUYL]LHWDO 
    0RRG GLVWXUEDQFHV VXFK DV PDMRU GHSUHVVLRQ DQG ELSRODU GLVRUGHU DUH DOVR FRPPRQ LQ 06
    &XPPLQJVDQG0HJD6FKLIIHUDQG%DELJLDQ ,QVWUXFWXUHGSV\FKLDWULFLQWHUYLHZV
    WR  RI 06 FOLQLF SDWLHQWV JLYH D KLVWRU\ FRQVLVWHQW ZLWK PDMRU GHSUHVVLRQ -RIIH HW DO 
    6DGRYQLFNHWDO DUDWHXSWRWKUHHWLPHVWKDWIRUKHDOWK\DGXOWV %OD]HU HW DO  %LSRODU
    GLVRUGHUߟZLWKDOLIHWLPHSUHYDOHQFHRIWRߟLVWRWLPHVPRUHFRPPRQLQ06SDWLHQWV
    WKDQLQWKHJHQHUDOSRSXODWLRQ -RIIHHWDO $WDQ\JLYHQSRLQWLQWLPHDSSUR[LPDWHO\RQHLQVL[
    06SDWLHQWVPHHWVFULWHULDIRUFXUUHQWPDMRUGHSUHVVLRQZLWKSUHYDOHQFHUDWHVUHDFKLQJDPRQJ
    QHZO\ GLDJQRVHG SDWLHQWV 0-/ 6XOOLYDQ HW DO   0RVW RI WKHVH VWXGLHV UHOLHG RQ SDWLHQWV
    DWWHQGLQJ06FOLQLFVZKLFKPD\RYHUHVWLPDWHWKHSUHYDOHQFHRIGHSUHVVLRQ 6LHJHUWDQG $EHUQHWK\
     ,QDSRSXODWLRQEDVHGVWXG\WKHPRQWKSUHYDOHQFHRIGHSUHVVLRQZDVFRPSDUHGZLWK
    LQSHRSOHZLWKRXW06 3DWWHQ%HFNHWDO FRQVLVWHQW ZLWK DGHSUHVVLRQ GLDJQRVLV UDWH RI
     RI 06 SDWLHQWV LQ D ODUJH RXWSDWLHQW FOLQLF &KZDVWLDN DQG (KGH   1RW VXUSULVLQJO\ 06
    SDWLHQWVZLWKVHYHUHPDMRUGHSUHVVLRQSDUWLFXODUO\WKRVHZKROLYHDORQHDQGZKRDOVRDEXVHDOFRKRO
    DUHDWKHLJKWHQHGULVNIRUVXLFLGH )HLQVWHLQ 
    2IWHQ WKH FDUGLQDO V\PSWRPV RI XQFRPSOLFDWHG PDMRU GHSUHVVLRQ VXFK DV DSDWK\ DQG VRFLDO
    ZLWKGUDZDODUHOHVVSURQRXQFHGLQ06ZKHUHDVV\PSWRPVVXFKDVLUULWDELOLW\ߟDQGWRDOHVVHUH[WHQW
    ZRUU\DQGGLVFRXUDJHPHQWߟDUHPRUHSURPLQHQW 0LQGHQ2UDYDQG5HLFK5RQDQG/RJVGDLO
     'HSUHVVHGPRRGLQ06SDWLHQWVKDVEHHQDVVRFLDWHGZLWKSRRUHUTXDOLW\RIOLIH -/ :DQJ HW
    DO   DQG SRRUHU SHUIRUPDQFH RQ SURFHVVLQJ VSHHG DQG ZRUNLQJ PHPRU\ WHVWV $UQHWW
    +LJJLQVRQ 9RVV HW DO DE  DQG SODQQLQJ HIILFLHQF\ WHVWV -- 5DQGROSK $UQHWW DQG )UHVNH
    --5DQGROSK$UQHWWDQG+LJJLQVRQ $VVHVVPHQWRIGHSUHVVLRQFDQEHFRPSOLFDWHGE\
    IDWLJXH VOHHS GLVWXUEDQFH DQG FRQFHQWUDWLRQ GLIILFXOWLHV &DUHIXO TXHULHV DERXW D SDWLHQWߤV IDWLJXH
    VOHHS DQG FRQFHQWUDWLRQ GLIILFXOWLHVߟLQFOXGLQJ GLXUQDO YDULDWLRQV KHDW VHQVLWLYLW\ DQG
    UHVSRQVLYHQHVVWRPHQWDODQGSK\VLFDODFWLYLW\ߟFDQKHOSWKHFOLQLFLDQGLVFHUQWKHH[WHQWWRZKLFK06
    LWVHOIPD\EHFRQWULEXWLQJWRGHSUHVVLRQ
    $OWKRXJK RQH PLJKW DVVXPH WKDW GHSUHVVLRQ LV QRW DQ LQDSSURSULDWH UHDFWLRQ WR ZKDW FDQ EH D
    GHYDVWDWLQJGLVHDVHRI\RXQJDGXOWKRRGLWLVRQO\ZHDNO\UHODWHGWRGLVHDVHVHYHULW\DVPHDVXUHGE\
    WKH('66 6-+XEHU5DPPRKDQHWDO3DWWHQDQG0HW]3DXOVHQ%XWWHUVHWDO 
    0DQ\ SDWLHQWV ZLWK VXEVWDQWLDO SK\VLFDO GLVDELOLW\ IXQFWLRQ HIIHFWLYHO\ XVLQJ VXFK DGDSWLYH FRSLQJ
    VWUDWHJLHV DV SRVLWLYH UHDSSUDLVDO DQG VRFLDO VXSSRUW VHHNLQJ 0RQWHO DQG %XQJHQHU  
    'HSUHVVLRQ LV UHSRUWHGO\ PRUH FRPPRQ LQ ߧFHUHEUDOߨWKDQ LQ ߧVSLQDOߨ06 6FKLIIHU &DLQH HW DO
      &RUUHODWLRQV EHWZHHQ GHSUHVVLRQ DQG FHUHEUDO DWURSK\ DQG D[RQDO ORVV DUH PRGHVW %DNVKL
    &]DUQHFNLHWDO=RU]RQHWDO DQGHIIRUWVWROLQNGHSUHVVLRQZLWK06OHVLRQORDG RQ7
    05, KDYHEHHQGLVDSSRLQWLQJ 5RQDQG/RJVGDLO6DEDWLQLHWDO 
    &OLQLFDOO\VLJQLILFDQWDQ[LHW\ߟZLWKRUZLWKRXWGHSUHVVLRQߟLVDOVRIDLUO\FRPPRQUDQJLQJIURP
    WRRIVHOIUHSRUWVWXGLHV &KZDVWLDNDQG(KGH &RPELQHGDQ[LHW\DQGGHSUHVVLRQLQ
    06SDWLHQWVLVDVVRFLDWHGZLWKLQFUHDVHGVRPDWLFFRPSODLQWVVXLFLGDOWKRXJKWVDQGSODQVDQGJUHDWHU
    VRFLDOG\VIXQFWLRQ6RFDOOHGߧVXEV\QGURPDOߨGLVWUHVV LHSHUVRQDOO\GLVUXSWLYHHPRWLRQDOV\PSWRPV
    WKDWGRQRWIXOILOOFULWHULDIRUDPDMRUGHSUHVVLRQRUDQ[LHW\GLVRUGHU LVSUHVHQWLQQHDUO\KDOIRIDOO
    06SDWLHQWV )HLQVWHLQDQG)HLQVWHLQ 
    3V\FKRORJLFDO IDFWRUVߟVXFK DV OLIH VWUHVVHV DQG FRSLQJ VWUDWHJLHV $LNHQVHWDO *LOFKULVW
    DQG&UHHG DQGFRJQLWLYHDSSUDLVDO 3DNHQKDP6KQHNHWDO ߟDUHPXFKVWURQJHU
    SUHGLFWRUVRIPRRGWKDQGLVHDVHYDULDEOHV0RVWSDWLHQWVGREHFRPHPRUHGLVWUHVVHGGXULQJFOLQLFDO
    UHODSVHV 'DORVHWDO.URHQFNHHWDO RUERXWVRI&16LQIODPPDWLRQ )DVVEHQGHUHWDO
    )HLQVWHLQ5RQDQG7KRPSVRQ $WWKHVHWLPHVSV\FKRORJLFDODQGLPPXQRORJLFIDFWRUV
    FOHDUO\LQWHUDFW )ROH\HWDO0RKU*RRGNLQ,VODUHWDO 

    7UHDWPHQW

    0HGLFDWLRQV7KHWUHDWPHQWRI06ZDVUHYROXWLRQL]HGLQWKHPLGVZKHQEHQHILFLDOHIIHFWVRI
    GLVHDVH PRGLI\LQJ PHGLFDWLRQV ZHUH GHPRQVWUDWHG LQ ODUJHVFDOH FOLQLFDO WULDOV ZLWK UHODSVLQJߞ
    UHPLWWLQJ06SDWLHQWV 0)UHHGPDQ%OXPKDUGWHWDO*RRGLQ)URKPDQHWDO 7KHVH
    LQMHFWDEOH PHGLFDWLRQV ELQWHUIHURQV DQG JODWLUDPHU DFHWDWH  VXSSUHVV LPPXQH DFWLYDWLRQ DOWKRXJK
    WKHLU PHFKDQLVPV RI DFWLRQ YDU\ VHH &RPL )LOLSSL DQG :ROLQVN\  ,)1% 0XOWLSOH 6FOHURVLV
    6WXG\*URXS.3-RKQVRQHWDO (DFKPHGLFDWLRQKDVDQLPPHGLDWHLPSDFWRQGLVHDVH
    DFWLYLW\ UHGXFLQJ FOLQLFDO UHODSVH UDWHV DQG LPSHGLQJ QHZ OHVLRQ IRUPDWLRQ ,Q DGGLWLRQ VRPH KDYH
    EHHQVKRZQWRUHWDUGFOLQLFDOGLVHDVHSURJUHVVLRQDVGHILQHGE\WKH('66 /'-DFREV HW DO 
    .3-RKQVRQHWDO RUWRDWWHQXDWHFHUHEUDOOHVLRQDFFXPXODWLRQ /LDQG3DW\ 7KHUHVXOWV
    RI FOLQLFDO PHGLFDWLRQ WULDOVOHGWR UHYLVLRQ RIWKHGLDJQRVWLF FULWHULDIRU 06 :,0F'RQDOGHWDO
     DQGWRWKHUHFRPPHQGDWLRQWKDWSDWLHQWVEHWUHDWHGDWWKHILUVWVLJQRIFOLQLFDOGLVHDVH *RRGLQ
    )URKPDQ HW DO   :KLOH WKHVH ILUVW JHQHUDWLRQ LPPXQRWKHUDSLHV IRU 06 DUH UHODWLYHO\ VDIH
    QHZHUDSSURYHGGUXJVIRUGUXJUHVLVWDQWSDWLHQWVDUHEHLQJWULHGHYHQWKRXJKWKH\KDYHWKHSRWHQWLDO
    IRU VHULRXV VLGH HIIHFWV %RXUGHWWH DQG :KLWKDP   +LJK GRVH FRUWLFRVWHURLGV KDVWHQ WKH
    UHFRYHU\RIIXQFWLRQDIWHUDQ06H[DFHUEDWLRQDQGDUHFRQVLGHUHGVWDQGDUGWUHDWPHQWIRUDFXWHDWWDFNV
    RI06DOWKRXJKWKH\PD\KDYHDWUDQVLHQWDGYHUVHHIIHFWRQPHPRU\SHUIRUPDQFH )RRQJ5R]HZLF]
    4XDJKHEHXUHWDO 
    &OLQLFDO WULDOV RI GLVHDVH PRGLI\LQJ PHGLFDWLRQV IRU 06 W\SLFDOO\ DVVHVV VRFDOOHG
    ߧFOLQLFDOߨRXWFRPHVߟ('66 RU TXDQWLWDWLYH PHDVXUHV RI IXQFWLRQߟRU 05, VWXGLHV
    1HXURSV\FKRORJLFDO HIIHFWV RI GLVHDVH PRGLI\LQJ PHGLFDWLRQV IRU 06 KDYH EHHQ OHVV ZHOO VWXGLHG
    )LVFKHU :KLOHVRPHPHGLFDWLRQVVKRZHGQHLWKHUEHQHILFLDOQRUDGYHUVHQHXURSV\FKRORJLFDO
    HIIHFWV .DSSRVHWDO$:HLQVWHLQHWDO EHQHILFLDOHIIHFWVZHUHREVHUYHGRQFRPSRVLWH
    FRJQLWLYHPHDVXUHVLQDWZR\HDUWULDORILQWHUIHURQSDIRUUHODSVLQJߞUHPLWWLQJ06 )LVFKHU3ULRUH
    HW DO   DWWHQWLRQ DQG PHPRU\ VKRZHG WKH PRVW VWULNLQJ LPSURYHPHQWV -$ &RKHQ DQG
    FROOHDJXHV   DOVR UHSRUWHG D EHQHILFLDO WUHQG RQ WKH 3$6$7 WKH RQO\ PHDVXUH RI FRJQLWLYH
    IXQFWLRQDGPLQLVWHUHGLQDWULDORILQWHUIHURQEDIRUVHFRQGDU\SURJUHVVLYH06,QDQRWKHUFOLQLFDO
    WULDOIRUSURJUHVVLYH06LQZKLFKDFRPSUHKHQVLYHQHXURSV\FKRORJLFDOEDWWHU\ZDVXVHGWKH3$6$7
    DOVRSURYHGWREHWKHPHDVXUHPRVWVHQVLWLYHWRWUHDWPHQWHIIHFWV *RRGNLQDQG)LVFKHU 
    &KROLQHVWHUDVH LQKLELWRUVߟGHYHORSHG DV D WUHDWPHQW IRU GHPHQWLDߟPD\ DOVR LPSURYH FRJQLWLYH
    IXQFWLRQLQ06SDWLHQWV &KULVWRGRXORX0HOYLOOHHWDO<0*UHHQHHWDO 7KH\FOHDUO\
    PHULWIXUWKHULQYHVWLJDWLRQLQ060HGLFDWLRQVIRUIDWLJXHLQFOXGLQJSV\FKRVWLPXODQWVPD\DOVREH
    RIEHQHILWIRUVRPH06SDWLHQWV$PDQWDGLQHKDGDPRGHVWEHQHILFLDOHIIHFWRQVHOHFWLYH DWWHQWLRQLQ
    WZRVPDOOVWXGLHVRI06SDWLHQWVEHLQJWUHDWHGIRUIDWLJXH 5$&RKHQDQG)LVKHU*HLVOHUHWDO
     DOWKRXJKQRWLQDWKLUGWULDO 6DLOHUHWDO 7KHUHDUHDOVRWKHUDSLHVIRU06V\PSWRPVRI
    VSDVWLFLW\ SDLQ EODGGHU SUREOHPV DQG VH[XDO G\VIXQFWLRQ +RZHYHU  RI SDWLHQWV VHOHFWHG IRU D
    FOLQLFDOWULDOFRPSDULQJDFWLYLW\SURJUDPVZHUHWDNLQJSDLQGHSUHVVLRQ PRVWO\665,ߤV DQWLVSDVWLF
    RU DQWLHSLOHSV\ PHGLFDWLRQV ZKLFK ORZHUHG WKHLU FRJQLWLYH IXQFWLRQLQJ ZKHQ FRPSDUHG WR 06
    SDWLHQWVWDNLQJQR&16DFWLYHGUXJV 2NHQ)OHJHOHWDO 

    3V\FKRORJLFDOWUHDWPHQWV$FRPSUHKHQVLYHOLWHUDWXUHUHYLHZIRXQGHQFRXUDJLQJUHVXOWVIRUERWK
    FRJQLWLYHUHPHGLDWLRQDQGFRXQVHOLQJSV\FKRWKHUDS\ZLWK06SDWLHQWVEXWQRWHGWKDWWKHGLYHUVLW\RI
    WUHDWPHQWV LQ HDFK FDWHJRU\ DQG GLVFRQWLQXLWLHV EHWZHHQ VWXGLHV PDNH LW GLIILFXOW WR DUULYH DW
    FRQFOXVLYH LQWHUSUHWDWLRQV RI WKHVH VWXGLHV 3: 7KRPDV HW DO   &RJQLWLYH UHKDELOLWDWLRQ PD\
    EHQHILW VRPH 06 SDWLHQWV )LVFKHU   %RWK SURFHVV VSHFLILF DQG JHQHUDO EHQHILFLDO HIIHFWV RQ
    DWWHQWLRQ ZHUH PDLQWDLQHG RYHU D QLQH ZHHN IROORZXS SHULRG E\ 06 SDWLHQWV ZLWK GRFXPHQWHG
    DWWHQWLRQDO LPSDLUPHQWV ZKR KDG  ZHHNV RI FRPSXWHUL]HG SURFHVV VSHFLILF DWWHQWLRQ WUDLQLQJ
    3ORKPDQQ HW DO   $ VL[ ZHHN FRJQLWLYH UHKDELOLWDWLRQ SURJUDP FRPELQLQJ UHVWRUDWLYH DQG
    FRPSHQVDWRU\ WHFKQLTXHV LPSURYHG YLVXDO SHUFHSWLRQ ZLWK D WUHQG IRU EHWWHU YLVXRVSDWLDO PHPRU\
    EXWQRWDWWHQWLRQ LQDJURXSRIFRJQLWLYHO\LPSDLUHGLQSDWLHQWVZKRWKHQPDLQWDLQHGJDLQVRYHUDVL[
    PRQWK IROORZXS SHULRG -RQVVRQ HW DO  -RUP DQG -ROOH\   )XQFWLRQDO 05, VWXGLHV
    GRFXPHQWLQJDOWHUDWLRQVLQFRUWLFDODFWLYDWLRQDVVRFLDWHGZLWKVLPSOHKDQGPRYHPHQWVLQ06SDWLHQWV
    UDLVHWKHLQWULJXLQJSRVVLELOLW\WKDWFRPSHQVDWRU\FHUHEUDOUHRUJDQL]DWLRQPD\XQGHUOLHWKHUHODWLYHO\
    ODVWLQJEHQHILWVRIFRJQLWLYHUHKDELOLWDWLRQ 5HGG\HWDO5RFFD)DOLQLHWDO 
    1RQVSHFLILFVXSSRUWLYHFRXQVHOLQJFDQSUHYHQWZRUVHQLQJRIGHSUHVVLRQ '&0RKUDQG*RRGNLQ
     EXWDPDMRUGHSUHVVLYHHSLVRGHJHQHUDOO\GRHVQRWIXOO\UHVROYHZLWKRXWVSHFLILFWUHDWPHQWV$
    KDQGIXO RI WUHDWPHQW RXWFRPH VWXGLHV FRQILUP WKH HIIHFWLYHQHVV RI ERWK FRJQLWLYH EHKDYLRU WKHUDS\
    /DUFRPEHDQG:LOVRQ'&0RKU%RXGHZ\QHWDO DQGDQWLGHSUHVVDQWPHGLFDWLRQ '&
    0RKUDQG*RRGNLQ6FKLIIHUDQG:LQHPDQ 
    $QWLGHSUHVVDQW PHGLFDWLRQV DUH RIWHQ UHPDUNDEO\ HIIHFWLYH IRU SDWKRORJLFDO ODXJKLQJ DQG FU\LQJ
    DV ZHOO 'DUN HW DO  6FKLIIHU +HUQGRQ DQG 5XGLFN    )LQDOO\ ߧQHXURSV\FKRORJLFDO
    FRPSHQVDWRU\ WUDLQLQJߟD FRPELQDWLRQ RI HGXFDWLRQ VRFLDO VNLOOV WUDLQLQJ LQFOXGLQJ HPSDWKLF
    OLVWHQLQJ DQGFRJQLWLYHEHKDYLRUDOWHFKQLTXHV VHOIPRQLWRULQJSUREOHPVROYLQJVHOIFRQWURO ߟFDQ
    KHOS PRGLI\ WKH DIIHFWLYH LQVWDELOLW\ DQG EHKDYLRUDO GLVWXUEDQFHV DVVRFLDWHG ZLWK 06 %HQHGLFW
    6KDSLURHWDO 

    1RUPDO3UHVVXUH+\GURFHSKDOXV 13+
    7KLV RIWHQ UHYHUVLEOH FRQGLWLRQ LQYROYLQJ PHQWDO GHWHULRUDWLRQ KDV DOVR EHHQ FDOOHG RFFXOW
    K\GURFHSKDOXV 3LQFXVDQG7XFNHU RUFRPPXQLFDWLQJK\GURFHSKDOXV +XUOH\HWDO ,WLV
    QRW D SULPDU\ GHJHQHUDWLYH GLVRUGHU VXFK DV WKH GHPHQWLDV 5DWKHU LW UHVXOWV IURP LPSDLUHG
    UHDEVRUSWLRQRUREVWUXFWLRQRIWKHIORZRIFHUHEUDOVSLQDOIOXLG &6) PRVWXVXDOO\E\VFDUULQJIURP
    ROGWUDXPDRUVXEDUDFKQRLGKHPRUUKDJHEXWDOVRIURPRWKHUVRXUFHVRIKHPRUUKDJHRUWXPRU 5'
    $GDPV)LOOH\*HRFDGLQDQG:LOOLDPV 6RPHWLPHV WKH VRXUFH RI WKH REVWUXFWLRQ
    FDQQRW EH LGHQWLILHG LGLRSDWKLF QRUPDO SUHVVXUH K\GURFHSKDOXV  ,13+  0HDJHU HW DO   ,W LV
    SULPDULO\DGLVHDVHRIROGHUDGXOWVDQGSUHYDOHQFHUDWHLQFUHDVHVDVDJLQJDGYDQFHV 6KSUHFKHUHWDO
     (VWLPDWHVRIWKHSUHYDOHQFHUDWHVRIWKHLGLRSDWKLFIRUPRIWKHGLVHDVHDORQHUHDFKDVKLJKDV
    SHURUIURPWRSHUVRQVLQWKH8QLWHG6WDWHV 0HDJHUHWDO ,IOHIW
    WR UXQ LWV FRXUVH 13+ SURGXFHV D FODVVLF V\PSWRP WULDG RI VORZO\ SURJUHVVLYH JDLW GLVWXUEDQFH
    XULQDU\ LQFRQWLQHQFH DQG FRJQLWLYH LPSDLUPHQW W\SLILHG E\ FRQIXVLRQ GLVRULHQWDWLRQ DQG PHPRU\
    SUREOHPV ZLWK SURJUHVVLYH PHQWDO GHELOLWDWLRQ 7KH VKXIIOLQJ DSUDFWLF JDLW ZKLFK VRPHZKDW
    UHVHPEOHVWKDWRI3DUNLQVRQSDWLHQWVHYHQWXDOO\LQWHUIHUHVZLWKDPEXODWLRQ
    7KH QHXURSDWKRORJ\ LQYROYHV YHQWULFXODU HQODUJHPHQW ZLWK DVVRFLDWHG ZKLWH PDWWHU GDPDJH
    )LOOH\ *HRFDGLQ DQG :LOOLDPV   $V WKH YROXPH RI &6) LQFUHDVHV SUHVVXUH EXLOGV XS
    ZLWKLQ WKH YHQWULFOHV ZKLFK JUDGXDOO\ HQODUJH E\ HURGLQJ DGMDFHQW WLVVXH DQG E\ VWUHWFKLQJ WR
    DFFRPPRGDWH WKH SUHVVXUH 2XWZDUG SUHVVXUH RQ WKH VXUURXQGLQJ ZKLWH PDWWHU DOVR VWUHWFKHV DQG
    FRPSUHVVHVEORRGYHVVHOVSURGXFLQJLVFKHPLFGDPDJHDQGSXVKLQJWKHFRUWH[DJDLQVWWKHVNXOO$VWKH
    YHQWULFOHVHQODUJHWRDFFRPPRGDWHWKHVWHDG\XVXDOO\VORZIOXLGLQFUHDVHZLWKLQWKHP&6)SUHVVXUH
    UHWXUQVWRQRUPDO7KHRQVHWRIWKLVFRQGLWLRQFDQEHYHU\VORZDQGLQVLGLRXV
    $OWKRXJKWKHLUHQODUJHGYHQWULFOHVUHDGLO\VKRZXSRQQHXURLPDJLQJDFDVXDORUQDLYHREVHUYHU
    FDQHDVLO\PLVGLDJQRVHWKHVWHDGLO\GHWHULRUDWLQJPHQWDODQGSK\VLFDOFRQGLWLRQRIWKHVHSDWLHQWVDVLQ
    WKH ODWHU VWDJHV LW UHVHPEOHV SULPDU\ GHPHQWLDV VXFK DV $O]KHLPHU ߤV GLVHDVH 3LQFXV DQG 7XFNHU
     7KHFRPPRQVHTXHQFHRIHYHQWVLQ13+UXQVFRXQWHUWRWKHFRXUVHRI$O]KHLPHU ߤVGLVHDVHLQ
    ZKLFKPHPRU\GHILFLWVDUHDPRQJWKHHDUOLHVWV\PSWRPVDQGLQFRQWLQHQFHDQGORVVRIZDONLQJDELOLW\
    KHUDOG WKH WHUPLQDO VWDJHV ,GGRQ HW DO   +LSSRFDPSDO DQG WHPSRUDO OREH DWURSK\ ZLWKRXW
    GLVSURSRUWLRQDWHO\ HQODUJHG YHQWULFOHV GLIIHUHQWLDWHV $O]KHLPHU ߤV GLVHDVH IURP 13+ RQ
    QHXURLPDJLQJVWXGLHV $(*HRUJHHWDO:*%UDGOH\ 
    ,WLVHVWLPDWHGWKDWXSWRRISDWLHQWVHYDOXDWHGIRUGHPHQWLDPD\LQIDFWKDYH13+ +XUOH\HWDO
     %HFDXVHWKHGHWHULRUDWLQJSURFHVVPD\EHUHYHUVHGE\DUHODWLYHO\VLPSOHVXUJLFDOSURFHGXUH
    LQYROYLQJ SODFHPHQW RI D YHQWULFXODU VKXQW IRU &)6 GUDLQDJH FRUUHFW GLDJQRVLV LV RI WKH XWPRVW
    LPSRUWDQFH *HRFDGLQDQG:LOOLDPV 
    *DLWGLVWXUEDQFHVLQFRQWLQHQFHDQGPHPRU\LPSDLUPHQWDUHDOVRIHDWXUHVRI$O]KHLPHU ߤVGLVHDVH
    DV ZHOO DV RI QRUPDO SUHVVXUH K\GURFHSKDOXV DQG VRPH 13+ SDWLHQWVߟSDUWLFXODUO\ WKRVH ZLWK WKH
    JUHDWHVW FRJQLWLYH LPSDLUPHQWߟPD\ KDYH FRQFRPLWDQW $O]KHLPHU ߤV GLVHDVH SDWKRORJ\ LH QHXULWLF
    SODTXHV  *RORPE HW DO 6KSUHFKHU HW DO   +RZHYHU WKH XVXDO RUGHU RI DSSHDUDQFH RI
    WKHVH V\PSWRPV FDQ KHOS WKH H[DPLQHU GLVWLQJXLVK EHWZHHQ WKH WZR FRQGLWLRQV 5' $GDPV 
    3LQFXVDQG7XFNHU6WDPEURRN*LOOHWDO 
    &RJQLWLYHFKDQJHVDUHRIWHQVXEWOHDWILUVWEXWZKHQDSSDUHQWLQYROYHGLVRULHQWDWLRQFRQIXVLRQ
    DSDWK\ GHFUHDVHG DWWHQWLRQ VSDQ ERWK PHQWDO DQG PRWRU VORZLQJ DQG LPSDLUHG QHZ OHDUQLQJ ZLWK
    UHODWLYHO\JRRGSUHVHUYDWLRQRIPDQ\FRJQLWLYHIXQFWLRQVMXGJPHQWDQGVHOIDZDUHQHVVXQWLOODWHLQ
    WKH GLVHDVH FRXUVH :LWK SURJUHVVLRQ OHDUQLQJ DQG UHFDOO RI ERWK YLVXDO DQG YHUEDO PDWHULDO LV
    W\SLFDOO\FRPSURPLVHGDOWKRXJKUHFDOORIERWKUHFHQWDQGUHPRWHHYHQWV HSLVRGLFPHPRU\ LVOLNHO\
    WRUHPDLQLQWDFW([HFXWLYHG\VIXQFWLRQVORZHGSURFHVVLQJDQGSHUVHYHUDWLRQRFFXUUHODWLYHO\HDUO\
    LQ WKH GLVHDVH SURFHVV 0HDJHU  6KSUHFKHU HW DO    6LPLODULW\ EHWZHHQ WKLV SDWWHUQ RI
    GHILFLWVDQGEHKDYLRUDODOWHUDWLRQVIUHTXHQWO\DVVRFLDWHGZLWKIURQWDOOREHGLVHDVHLVQRWVXUSULVLQJDV
    HQODUJHPHQWRIWKHODWHUDOYHQWULFOHVFDQGDPDJHIURQWDOWLVVXH )LOOH\6WDPEURRN*LOOHWDO
     
    5HSRUWV RI VXFFHVV UDWHV IRU YHQWULFXODU VKXQW UDQJH IURP  WR  ZLWK V\PSWRPDWLF UHOLHI
    ODVWLQJ XS WR IRXU \HDUV LQ VRPH FDVHV +XUOH\ HW DO   ,PSURYHPHQW LQ SDWLHQWVߤ FRJQLWLYH
    IXQFWLRQLQJ LQGLFDWHV WKDW WKH\ ZHUH UHODWLYHO\ LQWDFW 2JGHQ   DV VXUJHU\ LV PRVW OLNHO\ WR EH
    VXFFHVVIXO LQ SDWLHQWV ZLWK VHFRQGDU\ 13+ LH KDYLQJ DQ LGHQWLILDEOH RULJLQ  6XUJLFDO VXFFHVV LV
    UHODWHG WR V\PSWRP GXUDWLRQ OHVV WKDQ VL[ PRQWKV RQVHW RI JDLW GLVWXUEDQFH EHIRUH FRJQLWLYH
    GHWHULRUDWLRQQRFHUHEURYDVFXODUGLVHDVHDQGDSRVLWLYH&6)WDSWHVW LHJLYLQJWHPSRUDU\UHOLHI
    %RRQ HW DO  *HOGPDFKHU DQG :KLWHKRXVH  +XUOH\ HW DO   +RZHYHU VKXQW
    FRPSOLFDWLRQV DUH UHODWLYHO\ FRPPRQ UHDFKLQJ  LQ RQH VWXG\ ZLWK QHHG IRU VKXQW UHYLVLRQ
    GRFXPHQWHGLQWKHUDQJHRIWR 6KSUHFKHUHWDO 
    6LQFHSDWLHQWVZLWKQRUPDO SUHVVXUH K\GURFHSKDOXVUHWDLQVHOIDZDUHQHVV DQG DUHDSSUHFLDWLYH RI
    WKHLU VRFLDOO\ KDQGLFDSSLQJ LPSDLUPHQWV XQWLO WKH\ EHFRPH VHYHUHO\ FRQIXVHG WKH\ PD\ EH TXLWH
    DSSURSULDWHO\GHSUHVVHGEXWGLDJQRVLVRIGHSUHVVLRQFDQEHFRQIXVHGE\IURQWDOV\PSWRPVRIDSDWK\
    RUDEXOLD )LOOH\ $OWKRXJKIUDQNSV\FKRVHVDUHUDUH 1DJDUDWQDPHWDO SDWLHQWVPD\
    KDYH RWKHU PRRG GLVWXUEDQFHV DQ[LHW\ DQG DJJUHVVLYH RXWEXUVWV ZKLFK RIWHQ LPSURYH ZLWK
    VXFFHVVIXOVKXQWLQJ 5LFHDQG*HQGHOPDQ 3K\VLFDOV\PSWRPVDUHPRUHOLNHO\WRLPSURYHRU
    UHVROYHDIWHUYHQWULFXODUVKXQWLQJWKDQDUHFRJQLWLYHGHILFLWV *HRFDGLQDQG:LOOLDPV,GGRQHW
    DO 
    +\GURFHSKDOXV FDQ DOVR RFFXU FRQJHQLWDOO\ LQ DVVRFLDWLRQ ZLWK D ZLGH YDULHW\ RI HWLRORJLHV DQG
    ZLWKYDU\LQJGHJUHHVRIGLVDELOLW\ 0HDJHUHWDO<HDWHV)OHWFKHUDQG'HQQLV +HDGVL]H
    RISHUVRQVZKRVHK\GURFHSKDOXVLVFRQJHQLWDOWHQGVWREHODUJHUWKDQQRUPDO 6KSUHFKHUHWDO 
    $VWXG\RI\RXQJDGXOWVZLWKK\GURFHSKDOXVHLWKHUFRQJHQLWDORUDFTXLUHGVRRQDIWHUELUWKIRXQGWKDW
    WKHPDMRULW\VFRUHGEHORZFRQWUROVDQGLQWKHORZDYHUDJHUDQJHRUEHORZRQWHVWVRIYHUEDOOHDUQLQJ
    GHOD\HG YHUEDO UHFDOO VSDWLDO ZRUNLQJ PHPRU\ DWWHQWLRQDO VHWVKLIWLQJ DQG GLYLGHG DWWHQWLRQVHW
    VKLIWLQJ ,GGRQ0RUJDQHWDO 0HDJHUDQGFROOHDJXHV  UHIHUWRWKHQHXURSV\FKRORJLFDO
    SURILOH RI WKHVH SDWLHQWV DV ߧD GLIIXVH LPSDLUPHQW ߮ >ZLWK@ YHUEDO DQG YLVXDO PHPRU\ GLIILFXOWLHVߨ
    7KHFRJQLWLYHLPSDLUPHQWVHHQLQK\GURFHSKDOXVLQFKLOGKRRGSHUVLVWVLQWRDGXOWOLIH
    $ \HDUROG PDQ KDG D JRRG FRJQLWLYH RXWFRPH GHVSLWH XQWUHDWHG FRQJHQLWDO K\GURFHSKDOXV KH KDG D ODUJH KHDG VL]H DQG
    H[FHSWLRQDOO\HQODUJHGYHQWULFOHV:LWKQRKLVWRU\RIOHDUQLQJGLVDELOLW\KHZDVLQWKHߧWRSRIWKHFODVVߨLQJUDGHVFKRRO7KLV
    UHWLUHG PLQLVWHU REWDLQHG D 0DVWHUߤV GHJUHH LQ 0HGLD +H SHUIRUPHG H[WUHPHO\ ZHOO LQ VRPH FRJQLWLYH GRPDLQV +LV IXQG RI
    LQIRUPDWLRQ VFRUH ZDV LQ WKH VXSHULRU UDQJH DQG KLV UHDGLQJ YRFDEXODU\ ZDV KLJK DYHUDJH +H FRUUHFWO\ UHSHDWHG  GLJLWV
    IRUZDUG DQG  EDFNZDUG +LV SHUIRUPHG LQ WKH DYHUDJH UDQJH IRU :$,6,,, 'LJLW 6\PERO 3LFWXUH &RPSOHWLRQ DQG %ORFN
    'HVLJQ DQG IRU WKH 7UDLO 0DNLQJ DQG 6WURRS WHVWV :KLOH KLV :06,9 9LVXDO 5HSURGXFWLRQ VFRUHV ZHUH DYHUDJH /RJLFDO
    0HPRU\ VFRUHV ZHUH ORZDYHUDJH +LV ZRUVW VFRUHߟERUGHUOLQH LPSDLUHGߟZDV RQ GHOD\HG UHFDOO RI D ZRUG OLVW +H ZDV
    EHLQJ VHHQ LQ D PHPRU\ FOLQLF EHFDXVH RI D VL[ \HDU KLVWRU\ RI PHPRU\ SUREOHPV DQG ZRUG ILQGLQJ GLIILFXOWLHV RI XQNQRZQ
    HWLRORJ\ZKLFKVXJJHVWVWKDWKLVYHUEDOPHPRU\SUREOHPVZHUHOLNHO\RIUHODWLYHO\UHFHQWRULJLQ7KHFDVHLOOXVWUDWHVDVSHFWVRI
    WKHFOLQLFDOYDULDELOLW\LQWKLVFRQGLWLRQ

    72;,&&21',7,216
    7KHOLVWRIVXEVWDQFHVWKDWFDQEHGHOHWHULRXVWREUDLQWLVVXHLVYLUWXDOO\HQGOHVV HJ'( +DUWPDQ
    366SHQFHUDQG6FKDXPEXUJ ,WLQFOXGHVVXEVWDQFHVWKDWDUHSRLVRQRXVLQDQ\IRUPRU
    DPRXQWVXEVWDQFHVRIDEXVHDVZHOODVWKHGUXJVWKDWPD\SURPRWHFHQWUDOQHUYRXVV\VWHPHIILFLHQF\
    DWRQHGRVHOHYHOEXWLQWHUIHUHZLWKLWDWDQRWKHU,WLVEH\RQGWKHVFRSHRIWKLVFKDSWHUWRUHYLHZWKH
    PDQ\NLQGVRIQHXURWR[LFVXEVWDQFHVWKHYDULHW\RISDWKRORJLFDOSURFHVVHVWKH\FDQSURGXFHRUWKHLU
    QXPHURXVHIIHFWV7KLVEULHIRYHUYLHZDGGUHVVHVVRPHRIWKHPRVWFRPPRQIRUPVRIQHXURWR[LFLW\
    $OWKRXJKWKHH[DPLQHUVKRXOGNHHSLQPLQGWKHSRVVLELOLW\RIDWR[LFUHDFWLRQZLWKYLUWXDOO\HYHU\
    SDWLHQW UHODWLYHO\ IHZ SHRSOH VHHQ IRU QHXURSV\FKRORJLFDO DVVHVVPHQW KDYH GLVRUGHUV WKDW DUH
    SULPDULO\ GXH WR WR[LFLW\ H[FHSWLQJ SDWLHQWV ZLWK DQ DOFRKRO RU GUXJUHODWHG FRQGLWLRQ 1RW
    LQIUHTXHQWO\KRZHYHUWKHHIIHFWVRIPHGLFDWLRQVRUVWUHHWGUXJVRILQGXVWULDODQGRWKHUFKHPLFDOVRU
    RI DOFRKROLVP ZLOO FRPSOLFDWH WKH SUHVHQWDWLRQ RI DQRWKHU NLQG RI QHXURORJLFDO GLVRUGHU 7KH
    H[DPLQHUQHHGVWRUHPDLQDOHUWWRWKLVSRVVLELOLW\SDUWLFXODUO\ZLWKSDWLHQWVLQFOLQHGWRZDUGWKHXVHRI
    VWUHHWGUXJVDQGDOFRKRODQGWKRVHSURQHWRVHOIPHGLFDWLRQRUOLNHO\WREHFDUHOHVVDERXWDPHGLFDO
    UHJLPHQ 3DWLHQWV ZKR DUH RQ DQWLHSLOHSWLF PHGLFDWLRQV PD\ DOVR H[SHULHQFH DQG PDQLIHVW FRJQLWLYH
    DQG HPRWLRQDO VLGH HIIHFWV SV\FKLDWULF PHGLFDWLRQV WRR FDQ KDYH PDMRU HIIHFWV RQ FRJQLWLYH
    IXQFWLRQLQJ VHHSSߞ 

    $OFRKRO5HODWHG'LVRUGHUV
    ([FHVVLYH FRQVXPSWLRQ RI DOFRKRO LV SUREDEO\ WKH PRVW GHYDVWDWLQJ DQG ZLGHVSUHDG QHXURWR[LQ WKH
    ZRUOG RYHU LWV DGYHUVH HIIHFWV RQ EUDLQ IXQFWLRQ KDYH EHHQ H[WHQVLYHO\ GRFXPHQWHG $V ZLWK PDQ\
    VXEVWDQFHVKRZHYHUPRGHUDWHOHYHOVRIFRQVXPSWLRQDUHQRWQHFHVVDULO\DVVRFLDWHGZLWKQHXURWR[LF
    HIIHFWV DQG PDQ\ VWXGLHV QRZ VXJJHVW WKDW D PRGHVW OHYHO RI DOFRKRO FRQVXPSWLRQ PD\ HYHQ KDYH
    EHQHILFLDO KHDOWK HIIHFWV )RU H[DPSOH PRGHUDWH DOFRKRO LQWDNH KDV EHHQ DVVRFLDWHG ZLWK D ORZHUHG
    ULVN RI GHPHQWLD 2UJRJR]R 'DUWLTXHV HW DO  5XLWHQEHUJ HW DO  =XFFDOD HW DO  
    0RUHRYHUSURWHFWLYHHIIHFWVRIPRGHUDWHDOFRKROLQWDNHKDYHEHHQGHVFULEHGIRUFDUGLRYDVFXODUDQG
    FHUHEURYDVFXODUGLVHDVH 5HQDXGHWDO7KXQHWDO 
    6RPH VWXGLHV IRXQG WKDW UHG ZLQH DIIRUGV WKH JUHDWHVW SURWHFWLRQ /LSSL HW DO  2UJRJR]R
    'DUWLTXHV HW DO  5HLQNH DQG 0F&D\   WKLV KDV EHHQ DWWULEXWHG WR LWV KLJK OHYHO RI
    SRO\SKHQLF DQWLR[LGDQWV 6XQHWDO  2WKHU VWXGLHV UHSRUW WKDW DQ\ NLQG RI DOFRKROLF EHYHUDJH
    WDNHQ LQ PRGHUDWLRQ LV EHQHILFLDO +HQQHNHQV  .ODWVN\ $UPVWURQJ DQG )ULHGPDQ 
    0XNDPDO HW DO   7KH LVVXH RI ZKDW ߧPRGHUDWHߨPHDQV RI FRXUVH LV D FUXFLDO IDFWRU LQ DOO RI
    WKHVH ILQGLQJV DV WKHUH LV FRQVLGHUDEOH GLVDJUHHPHQW DERXW ZKHUH WR VHW GHPDUFDWLRQ SRLQWV IRU
    ߧPRGHUDWHߨYHUVXVߧKHDY\ߨGULQNLQJ,QDQ\HYHQWߧ]HURߨDOFRKROFRQVXPSWLRQPD\QRWQHFHVVDULO\EH
    KHDOWKLHUWKDQߧVRPHߨ 0$&ROOLQVHWDO*XQ]HUDWKHWDO 
    :KHQ HYDOXDWLQJ UHVHDUFK LQYROYLQJ DOFRKRO FRQVXPSWLRQ LW LV LPSRUWDQW WR UHDOL]H WKDW
    ߧLPSUHFLVH DQG XQUHOLDEOH DVFHUWDLQPHQW RI DOFRKRO LQWDNH LV WKH UXOH LQ WKH DUHD RI DOFRKRO
    HSLGHPLRORJ\ UHVHDUFKߨ .ODWVN\  ߟLH WKH SUREOHP RI XQ UHOLDELOLW\ RI VHOIUHSRUWV RI
    DOFRKRO FRQVXPSWLRQ LV IXQGDPHQWDO ,W LV ZHOOGRFXPHQWHG WKDW SHRSOH WHQG WR XQGHUHVWLPDWH DQG
    XQGHUUHSRUWWKHLU OHYHORI DOFRKROLQWDNH 5HKP HW DO  DQG WKH GHJUHH RI HUURU PD\ LQFUHDVH
    ZLWK WKH DPRXQW RI FRQVXPSWLRQ 1HYLWW DQG /XQGDN    (YHQ IRU ߧPRGHUDWHߨGULQNHUV
    XQGHUUHSRUWLQJLVDPDMRULVVXH .ODWVN\*XQGHUVRQDQG.LSS 6LQFHPXFKRIWKHOLWHUDWXUHLQ
    WKLVDUHDUHOLHVRQVHOIUHSRUWWRGHWHUPLQHOHYHORIFRQVXPSWLRQXQGHUUHSRUWLQJFDQUDLVHTXHVWLRQV
    DERXW UHVHDUFK ILQGLQJV 7KH SRVVLELOLW\ WKDW XQGHUUHSRUWLQJ KDV DOVR FRQIRXQGHG GDWD UHJDUGLQJ
    PRGHUDWH DOFRKRO FRQVXPSWLRQ PD\ FRQWULEXWH WR SK\VLFLDQVߤ UHOXFWDQFH WR UHFRPPHQG DOFRKRO XVH
    IRU FDUGLRYDVFXODU EHQHILW $PPDU HW DO   7KH $PPDU JURXS QRWHG WKDW SHUVRQV ZLWK
    GRFXPHQWHG DOFRKROLVP DQG SUREOHP GULQNLQJ IUHTXHQWO\ UHSRUWHG GULQNLQJ EHKDYLRU LQ WKH
    ߧRSWLPXPߨUDQJH ࡌGULQNVGD\ WKLVZDVWUXHRIMXVWXQGHUKDOIWKHDOFRKROLFV  DQGQHDUO\DOO
    RIWKHSUREOHPGULQNHUV    

    6RFLDOGULQNLQJ

    $OFRKRO LQWDNH LQ PRGHUDWLRQ LV W\SLFDOO\ GHILQHG DV RQH WR WZR QRUPDO SRUWLRQV VKRW RI OLTXRU
    KLJKEDOO JODVV RI ZLQH VPDOO PXJ RI EHHU  ZKLFK SURYLGHV  WR  IOXLG RXQFHV  WR 
    PLOOLOLWHUV RI DOFRKRO  LQ D GD\ GHILQLWLRQV RI KHDY\ RU KLJK LQWDNH W\SLFDOO\ EHJLQ DW IRXU WR ILYH
    GULQNVDGD\ $UFLQLHJDVDQG%HUHVIRUGGH%UXLQHWDO 6RPHVWXGLHVRIVRFLDOGULQNHUV
    KDYH VKRZQ D UHODWLRQVKLS EHWZHHQ WKH DPRXQWV DQG IUHTXHQF\ RI FRQVXPSWLRQ DQG PLOG FRJQLWLYH
    LPSDLUPHQWVDSSHDULQJPRVWO\LQVOLJKWO\UHGXFHGVKRUWWHUPYHUEDOUHFDOOVXEWOHGHILFLWVLQFRQFHSW
    IRUPDWLRQ DQG PHQWDO IOH[LELOLW\ DQG PLOG SHUVHYHUDWLYH WHQGHQFLHV , *UDQW  3DUVRQV DQG
    1L[RQ   +RZHYHU RWKHU VWXGLHV RI VRFLDO GULQNHUV KDYH QRW IRXQG WKDW WKLV TXDQWLW\ RI
    FRQVXPSWLRQ RU HYHQ D OLWWOH PRUH 6FKLQND 9DQGHUSORHJ HW DO DE  DIIHFWV SHUIRUPDQFHV RQ
    PDQ\GLIIHUHQWNLQGVRIQHXURSV\FKRORJLFDOWHVWV &
    &RRSHU HW DO   5* .QLJKW DQG /RQJPRUH   QRWHG WKDW WKH HYLGHQFH RI
    QHXURSV\FKRORJLFDOLPSDLUPHQWLQVRFLDOGULQNHUVߧUHPDLQVLQFRQFOXVLYHLQFRQVLVWHQWDQGRSHQWRD
    YDULHW\RIH[SODQDWLRQVߨ,QILQGLQJQRVLJQLILFDQWFRJQLWLYHHIIHFWVLQDODUJHJURXSRIORZLQWDNH
    \HDUROGV.UDKQDQGFRZRUNHUV  QRWHWKH LPSRUWDQFH RI LQFOXGLQJEDVHOLQHFRJQLWLYHGDWDWR
    PDNHVHQVHRIODWHUWHVWVFRUHV

    $OFRKRODEXVHHIIHFWVRQEUDLQDQGEHKDYLRU

    %UDLQFKDQJHVWKDWKDYHEHHQDVVRFLDWHGZLWKH[FHVVLYHDOFRKROFRQVXPSWLRQLQFOXGHDWURSK\RIWKH
    FHUHEUDOFRUWH[ -HUQLJDQ%XWWHUVHWDO UHGXFHGZKLWHPDWWHUYROXPH )LOOH\&+DUSHU
      HQODUJHG YHQWULFOHV 'LQJ HW DO   DQG DWURSK\ RI VXEFRUWLFDO VWUXFWXUHV HJ
    K\SRWKDODPXV DQG FHUHEHOOXP & +DUSHU 'L[RQ HW DO   $OFRKRO HWKDQRO  DFWV DV D FHQWUDO
    QHUYRXV V\VWHP GHSUHVVDQW DQG KDV HIIHFWV OLNH WKRVH RI VRPH WUDQTXLOL]LQJ DQG K\SQRWLF GUXJV ,)
    'LDPRQG DQG 0F,QWLUH   7KH PHWDEROLVP RI DOFRKRO DQG LWV PHWDEROLWHV LQLWLDWH FKDLQV RI
    ELRFKHPLFDO DQG SK\VLRORJLFDO HYHQWV LQYROYLQJ PDQ\ RWKHU RUJDQ V\VWHPV RI WKH ERG\ 7KXV ߧWKH
    FKDUDFWHULVWLFDFWLRQRIDOFRKRO߮PD\UHIOHFWQRWRQO\WKHLQWULQVLFSURSHUWLHVRIWKHGUXJEXWDOVR
    WKH ZKROH FRQVWHOODWLRQ RI VHFRQGDU\ HYHQWV WKDW DUH GHWHUPLQHG E\ WKH DPRXQWV URXWHV DQG
    IUHTXHQFLHVZLWKZKLFK>LWLV@FXVWRPDULO\XVHGߨ .DODQW 
    6RPH GLVWLQFWLYH SDWWHUQV RI EHKDYLRUDO DOWHUDWLRQV DQG QHXURSV\FKRORJLFDO GHILFLWV HPHUJH ZLWK
    DOFRKRO DEXVH 7KH\ FDQ RYHUODS LQ D VLQJOH SHUVRQ RU D SDUWLFXODU FOLQLFDO JURXS DQG PD\ VLPSO\
    UHSUHVHQWVWDJHV RIQHXURWR[LFLW\ DORQJ DFRQWLQXXPRI QHXUREHKDYLRUDO GHWHULRUDWLRQ &5\DQ DQG
    %XWWHUVD  <HW WKH\ FDQ GLIIHU JUHDWO\ LQ WKHLU EHKDYLRUDO SUHVHQWDWLRQV DQG WKHLU HWLRORJLHV LQ
    WHUPV RI VXFK ULVN IDFWRUV DV GXUDWLRQ DQG TXDQWLW\ RI DOFRKRO FRQVXPSWLRQ SUHPRUELG QXWULWLRQDO
    VWDWXVOHQJWKRIDEVWLQHQFHDQGXQGHUO\LQJQHXURSDWKRORJ\7KHKHWHURJHQHLW\RIDOFRKROLFGLVRUGHUV
    LQ WHUPV RI V\PSWRPDWRORJ\ FRXUVH DQG RXWFRPH KDV EHHQ DWWULEXWHG WR GLIIHUHQFHV LQ WKH
    SDWKRSK\VLRORJLFDOSURFHVVHVWKDWOHDGWRG\VIXQFWLRQ &DPSDQHOODHWDO 
    6HYHUDO QHXURSV\FKRORJLFDO PRGHOV KDYH EHHQ RIIHUHG WR H[SODLQ WKH FRJQLWLYH SURILOH RI
    DOFRKROLFVLQFOXGLQJWKHߧULJKWKHPLVSKHUHK\SRWKHVLVߨWKHߧSUHPDWXUHDJLQJK\SRWKHVLVߨWKHߧPLOG
    JHQHUDOL]HG G\VIXQFWLRQ K\SRWKHVLVߨ DQG WKH ߧIURQWDO OREH K\SRWKHVLVߨ 2I WKHVH HPSLULFDO VXSSRUW
    IRUWKHߧULJKW KHPLVSKHUH K\SRWKHVLVߨDQG ߧSUHPDWXUH DJLQJK\SRWKHVLVߨLV ODFNLQJ 6% 5RXUNH DQG
    *UDQW  QRU GRHV D ߧPLOG JHQHUDOL]HG G\VIXQFWLRQ K\SRWKHVLVߨKDYH UREXVW HPSLULFDO EDFNLQJ
    8HNHUPDQQ DQG 'DXP   %\ FRQWUDVW WKH ߧIURQWDO OREH K\SRWKHVLVߨKDV FRQVLGHUDEOH VXSSRUW
    IURPDYDULHW\RIUHVHDUFKSHUVSHFWLYHV 0RVHOK\HWDO 1RWOHDVWRIWKHVHDUHWKHDEQRUPDOLWLHV
    RI IURQWDO V\VWHP IXQFWLRQLQJ WKDW DUH D GLVWLQJXLVKLQJ IHDWXUH RI DOFRKROLFV ZLWK .RUVDNRIIߤV
    V\QGURPH 2VFDU%HUPDQ.LUNOH\HWDO  VHHSDOVRS 

    &KURQLFDOFRKROLVP

    'HILQLWLRQVRIDOFRKROLVPDERXQGPRVWUHO\XSRQDOFRKROUHODWHGSV\FKRVRFLDOPDODGDSWDWLRQV HJ
    $PHULFDQ3V\FKLDWULF$VVRFLDWLRQ RURQWKHTXDQWLW\DQGIUHTXHQF\RIGULQNLQJ 6% 5RXUNH
    DQG *UDQW   ,GHQWLI\LQJ ZKR LV DQ DOFRKROLF KRZHYHU LV QRW DV VWUDLJKWIRUZDUG DV PLJKW EH
    H[SHFWHG 3UREOHP GULQNHUV W\SLFDOO\ FRPH WR SURIHVVLRQDO DWWHQWLRQ ZKHQ WKH\ DUH VHHNLQJ UHOLHI
    IURPWKHSUREOHPKHOSIRUDPHGLFDOO\UHODWHGSUREOHPRUDVDUHVXOWRIPLVEHKDYLRUZKLOHXQGHU
    DOFRKROߤVLQIOXHQFH,QRQHUHSRUWSK\VLFLDQVUHFRJQL]HGWKHSUREOHPLQIHZHUWKDQKDOIRIDJURXSRI
    FKURQLFDOFRKROLFVDOWKRXJKDOFRKROLFVDUHPRUHOLNHO\WREHLGHQWLILHGLIWKH\SUHVHQWZLWKDPHGLFDO
    FRQGLWLRQ 5'0RRUHHWDO  0RUHRYHU ZRPHQZLWKDOFRKRO SUREOHPV DUHHYHQ OHVVUHDGLO\
    UHFRJQL]HG $PRGHLHWDO(OLDVRQ 0RVWVWXGLHVRIDOFRKROLFVUHO\RQSDWLHQWUHSRUWVRI
    KRZPXFKDQGKRZRIWHQWKH\GULQNZLWKLQDJLYHQWLPHSHULRGIRUGLDJQRVLVRUIRUPHDVXULQJWKH
    VHYHULW\RIWKHGULQNLQJSUREOHP$VQRWHGHDUOLHUVHOIUHSRUWVRIGULQNLQJLQDOFRKROLFV DQGPRVW
    SHUVRQVDVZHOO DUHIUHTXHQWO\XQUHOLDEOH,QVKRUWLWLVQRWHQWLUHO\FOHDUKRZWRGHILQHDOFRKROLVP
    EXWWKH'60,9HPSKDVLVRQGLVUXSWLRQRILQWHUSHUVRQDODQGRFFXSDWLRQDOIXQFWLRQLQJRIIHUVXVHIXO
    FULWHULD
    $OFRKRODEXVHUDUHO\RFFXUVLQLVRODWLRQDVLWLVKLJKO\FRPRUELGZLWKDEXVHRIRWKHUVXEVWDQFHV
    1LFRWLQH LV RQH RI WKH PRVW FRPPRQO\ FRDEXVHG VXEVWDQFHV ,W KDV EHHQ VXJJHVWHG WKDW DOFRKROLFV
    PD\ JUDYLWDWH WRZDUGV WREDFFR XVH LQ SDUW EHFDXVH RI WKH SRVLWLYH HIIHFWV RI QLFRWLQH RQ DVSHFWV RI
    FRJQLWLYH SHUIRUPDQFH WKDW PD\ EH FRPSURPLVHG DV D FRQVHTXHQFH RI FKURQLF DOFRKRO DEXVH
    &HEDOORV   DQG LQ SDUW DV WRJHWKHU WKHVH WZR VXEVWDQFHV PD\ ORZHU QHJDWLYH ZLWKGUDZDO
    V\PSWRPV /DMWKD DQG 6HUVKHQ   &KURQLF FRPRUELG FLJDUHWWH VPRNLQJ PRGXODWHV 05,
    GHWHFWDEOH EUDLQ LQMXU\ DQG FRQWULEXWHV WR FRJQLWLYH G\VIXQFWLRQ LQ SHUVRQV ZLWK DOFRKRO UHODWHG
    GLVRUGHUV 'XUD]]RDQG0H\HUKRII 

    5LVN IDFWRUV %HVLGHV WKH REYLRXV ULVNV RI GULQNLQJ WRR PXFK WRR RIWHQ PDQ\ RWKHU ULVN IDFWRUV
    PD\ FRQWULEXWH WR FRJQLWLYH G\VIXQFWLRQ LQ DOFRKROLFV .0 $GDPV DQG *UDQW   7KLV
    PXOWLIDFWRULDO DVSHFW RI FKURQLF DOFRKROLVP DFFRXQWV IRU WKH UDQJH DQG YDULHW\ RI SUHVHQWDWLRQV RI
    FRJQLWLYHGLVRUGHUVDQGPD\KHOSH[SODLQDOLWHUDWXUHVHHPLQJO\UHSOHWHZLWKFRQWUDGLFWRU\ILQGLQJV
    5(0H\HU6%5RXUNHDQG*UDQW 
    $JLQJ KDV EHHQ FRQVLGHUHG D ULVN IDFWRU )UHXQG  5LJOHU   EXW LV FRQIRXQGHG ZLWK
    GXUDWLRQDQGLQWHQVLW\RIGULQNLQJDQGORQJHUH[SRVXUHWRPHGLFDOULVNIDFWRUVVXFKDVWUDXPDWLFEUDLQ
    LQMXU\ 1%URRNV6\PLQJWRQHWDO'3 *UDKDP DQG &DUGRQ  -RUJH 6WDUNVWHLQ HW DO
      DOFRKROUHODWHG GLVHDVHV *UºQEDHN  6% 5RXUNH DQG *UDQW   DQG PHGLFDWLRQ
    LQWHUDFWLRQV $$0RRUHHWDO 
    5DFHPD\SOD\DSURWHFWLYHUROHDVPDQ\$IULFDQ$PHULFDQVFDUU\DJHQHYDULDQWDVVRFLDWHGZLWK
    UDSLGPHWDEROLVPRIDOFRKROOHDGLQJWROHVVSOHDVXUHIURPGULQNLQJDQGDUHGXFHGULVNRIDOFRKROLVP
    '0 6FRWW DQG 7D\ORU   1DWLYH $PHULFDQV LQ FRQWUDVW KDYH WKH KLJKHVW UDWHV RI DOFRKROLVP
    6]LHPNRHWDO 
    6H[GLIIHUHQFHVKDYHDOVREHHQFRQVLGHUHGDSRVVLEOHULVNIDFWRUVLQFHZRPHQJHQHUDOO\PHWDEROL]H
    DOFRKRO GLIIHUHQWO\ /LHEHU   DQG GULQN OHVV 1ROHQ+RHNVHPD DQG +LOW   6RPH RI WKLV
    GLIIHUHQFH PD\ EH GXH WR SV\FKRVRFLDO DWWLWXGHV VRPH WR SV\FKRORJLFDO GLIIHUHQFHV HJ KLJKHU
    OHYHOVRIULVNWDNLQJLQPHQ +RZHYHUQRSDWWHUQRIVH[UHODWHGGLIIHUHQWLDOUHVSRQVHWRDOFRKROKDV
    EHHQFRQVLVWHQWO\GRFXPHQWHG (96XOOLYDQ)DPDHWDO 
    $IDPLO\KLVWRU\RIDOFRKROLVPZHLJKVKHDYLO\DVDULVNIDFWRUHYHQZKHQWKHFKLOGUHQKDYHEHHQ
    UDLVHG LQ D QRQDOFRKROLF HQYLURQPHQW VXJJHVWLQJ VWURQJ JHQHWLF YXOQHUDELOLW\ )DPLO\ KLVWRU\ PD\
    ZHOO EH WKH PRVW SRWHQW ULVN IDFWRU RI DOO DV VRQV RI DOFRKROLF IDWKHUV ZKR DUH WKHPVHOYHV VRQV RI
    DOFRKROLFIDWKHUVDUHHVSHFLDOO\YXOQHUDEOH %)*UDQW2VE\HWDO3LKOHWDO 'LHW
    SOD\VDUROHDVZHOOERWKLQWKHGHOHWHULRXVHIIHFWVRIPDOQXWULWLRQRQFRJQLWLYHIXQFWLRQLQJDQGLQWKH
    GHYHORSPHQW RI QHXURSDWKRJHQLF GHILFLHQF\ GLVHDVHV %UXVW E /LVKPDQ  2VFDU%HUPDQ
    DQG0DULQNRYLF 

    1HXURDQDWRP\DQGSDWKRSK\VLRORJ\$OFRKROLVDQHXURWR[LQLQDQGRILWVHOI %UXVWE)LOOH\
      ,WV PHWDEROLVP SURFHHGV WKURXJK VHYHUDO GLIIHUHQW URXWHV ZKLFK PD\ DFFRXQW IRU DOFRKROߤV
    PDQ\ GLIIHUHQW HIIHFWV RQ WKH FHQWUDO QHUYRXV V\VWHP DQG RQ RWKHU RUJDQ WLVVXHV %UXVW E
    &DPSDQHOOD HW DO   &RJQLWLYH GHILFLWV KDYH EHHQ FRUUHODWHG ZLWK ERWK ZKLWH DQG JUD\ PDWWHU
    DEQRUPDOLWLHV &HUHEUDO DWURSK\ LV D FRPPRQ ILQGLQJ DPRQJ FKURQLF DOFRKROLFV FRPSDUHG WR DJH
    PDWFKHG FRPSDULVRQ SDUWLFLSDQWV -HUQLJDQ %XWWHUV HW DO  2VFDU%HUPDQ DQG 0DULQNRYLF
     :KLWHPDWWHU DWURSK\LVPRUHSURPLQHQW WKDQ JUD\PDWWHU FKDQJHV %UXVW E )LOOH\ DQG
    .OHLQVFKPLGW'H0DVWHUV&+DUSHU DQGWHQGVWREHUHODWHGWRDJH,WLVLGHQWLILDEOHZLWK
    VSHFLDOL]HG 05, WHFKQLTXHV HJ GLIIXVLRQ WHQVRU LPDJLQJ  3IHIIHUEDXP HW DO   &XULRXVO\
    KRZHYHUGHJUHHRIDWURSK\LVQRWDUHOLDEOHSUHGLFWRURIFRJQLWLYHG\VIXQFWLRQ :$FNHU5RQHWDO
    /LVKPDQ6%5RXUNHDQG*UDQW 
    *UD\PDWWHULQWKHGRUVRODWHUDOSUHIURQWDODQGSDULHWDOUHJLRQVPD\EHHVSHFLDOO\DIIHFWHGRYHUDOO
    EUDLQDWURSK\PDUNHGE\HQODUJHGYHQWULFOHVDQGZLGHQHGVSDFHVEHWZHHQFRUWLFDOIROGVLVFRPPRQ
    -HUQLJDQ %XWWHUV HW DO  /LVKPDQ  '$ :LONLQVRQ DQG &DUOHQ   &KURQLF KHDY\
    DOFRKRO LQJHVWLRQ UHGXFHV WKH HODERUDWLRQ RI GHQGULWHV LQ WKH EUDLQ &+DUSHU   PRVWO\ LQ WKH
    KLSSRFDPSXV DQG FHUHEHOOXP .RUVWHQ DQG :LOVRQ  /LVKPDQ   $EQRUPDOLWLHV LQ EUDLQ
    VWUXFWXUHDQGYROXPHDQGLQZKLWHPDWWHUTXDOLW\KDYHEHHQUHSRUWHGZLWKDOFRKROXVHLQDGROHVFHQFH
    6TXHJOLDHWDO 6XEFRUWLFDODWURSK\LVIUHTXHQWO\REVHUYHGDWDXWRSV\RURQQHXURLPDJLQJDQG
    PD\LQYROYHWKHFHUHEHOOXPWKHFDXGDWHQXFOHXVDQGOLPELFV\VWHPVWUXFWXUHV -HUQLJDQ%XWWHUV HW
    DO $OFRKROPD\GLVWXUEKLSSRFDPSDOIXQFWLRQGLUHFWO\DQGE\GLVUXSWLQJFULWLFDOKLSSRFDPSDO
    DIIHUHQWV $0 :KLWH HW DO   $OO PHDVXUHV RI UHJLRQDO FHUHEUDO EORRG IORZ U&%)  DUH
    UHODWLYHO\ UHGXFHG PRVWO\ LQ IURQWDO DQG SDULHWDO UHJLRQV %HUJOXQG HW DO  6% 5RXUNH DQG
    *UDQW 6WURNHVPD\FRPSOLFDWHWKHFKURQLFDOFRKROLFߤVQHXURSDWKRORJLFDQGQHXURSV\FKRORJLF
    SUHVHQWDWLRQ $'2ߤ&RQQRUHWDO0$6ORDQ 
    7KHIURQWDOOREHVOLPELFV\VWHPDQGFHUHEHOOXPDSSHDUWREHSDUWLFXODUO\YXOQHUDEOHWRGDPDJH
    DQGG\VIXQFWLRQDVVRFLDWHGZLWKFKURQLFDOFRKRODEXVH 2VFDU%HUPDQDQG 0DULQNRYLF  VHHQ
    LQ DEQRUPDOLWLHV LQ IURQWRWHPSRUDO DQG EDVDO JDQJOLD FLUFXLWV <¾FHO HW DO   7KH SUHIURQWDO
    FRUWH[DSSHDUVWRKDYHDVSHFLILFYXOQHUDELOLW\WRWKHQHXURWR[LFHIIHFWVRIDOFRKRO &+DUSHU
    0RVHOK\HWDO3RUMHV]DQG%HJOHLWHU FRQVLVWHQWZLWKWKHߧIURQWDOOREHK\SRWKHVLVߨ
    $EQRUPDO((*ILQGLQJVDUHFRPPRQLQFKURQLFDOFRKROLFV &HEDOORV%DXHUDQG+RXVWRQ
    3RUMHV]DQG%HJOHLWHU6%5RXUNH DQG*UDQW  /XNDV0HQGHOVRQ DQG WKHLU FROOHDJXHV
     UHSRUWHGWKDWQRUPDOVXEMHFWVJLYHQPHDVXUHGGRVHVRIDOFRKROH[KLELWHGKHLJKWHQHGSDULHWDO
    OREHDOSKDZDYHDFWLYLW\ZKLFKZDVDVVRFLDWHGZLWKVXEMHFWLYHIHHOLQJVRIHXSKRULDZKLOHLQFUHDVHG
    WKHWD DFWLYLW\ SDUDOOHOHG WKH ULVLQJ EORRG DOFRKRO OHYHO 6WXGLHV RI YLVXDO HYRNHG SRWHQWLDOV LQ
    DOFRKROLFV KDYH IRXQG DEQRUPDOLWLHV VXJJHVWLYH RI IURQWDO DQG SDULHWDO LQYROYHPHQW 3RUMHV] DQG
    %HJOHLWHU   7KH 3 HYHQWUHODWHG SRWHQWLDO DPSOLWXGH PD\ DOVR EH GHFUHDVHG (QRFK HW DO
     -0 1LFKROV DQG 0DUWLQ   HVSHFLDOO\ ZKHQ WKHUH LV D IDPLO\ KLVWRU\ RI DOFRKROLVP DQG
    QHXURUHFHSWRU ORVV 6% 5RXUNH DQG *UDQW   $OFRKROLF SDWLHQWV GLVSOD\ KLJK EHWD DQG WKHWD
    SRZHULQWKHUHVWLQJ((*VXJJHVWLQJK\SHUDURXVDORIWKH&16DORQJZLWKGHFUHDVHGWKHWDJDPPD
    DQGGHOWDRVFLOODWLRQVFRQVLVWHQWZLWKFRJQLWLYHGLVLQKLELWLRQDWDIXQFWLRQDOOHYHO &DPSDQHOODHWDO
     
    $OWKRXJKSUREDEO\FRQWULEXWLQJWRWKHDFTXLVLWLRQRIDQDGGLFWLRQWRDOFRKROLQVRPHFDVHV /XNDV
    0HQGHOVRQ HW DO   WKH WUDQVLHQW HXSKRULD WKDW DOFRKRO FDQ JHQHUDWH GRHV QRW DFFRXQW IRU WKH
    GHVSHUDWH QHHG IRU DOFRKRO H[SHULHQFHG E\ WUXO\ DGGLFWHG SHUVRQV 5DWKHU VXGGHQ ZLWKGUDZDO FDQ
    WULJJHU VHULRXV DQG SRWHQWLDOO\ OLIH WKUHDWHQLQJ SUREOHPV LQ ORQJWHUP YHU\ KHDY\ GULQNHUV %UXVW
    E /LVKPDQ   ,QLWLDO ZLWKGUDZDO V\PSWRPV LQFOXGH QDXVHD WUHPXORXVQHVV DQG LQVRPQLD
    DQGWKLVFDQSURJUHVV VRPHWLPHVUDSLGO\ WRVHL]XUHVDQGGHOLULXPWUHPHQV '7V DQDFXWHGLVRUGHULQ
    ZKLFKWKHPRVWSURPLQHQWV\PSWRPVDUHWUHPXORXVQHVVYLVXDODQGRWKHUVHQVRU\KDOOXFLQDWLRQVDQG
    SURIRXQG FRQIXVLRQ DQG DJLWDWLRQ WKDW FDQ OHDG WR GHDWK IURP H[KDXVWLRQ 7UHYLVDQ HW DO  
    $OFRKRO SUHFLSLWDWHG VHL]XUHV DUH QRW XQFRPPRQ DPRQJ VHL]XUH SURQH SHUVRQV VXFK DV WKRVH ZKR
    KDYHKDGD7%,RUZKRKDYHIRFDOOHVLRQVIURPVRPHRWKHUFDXVH $+RSNLQV  /HFKWHQEHUJ
       6HL]XUHV DQG WUDQVLHQW DPQHVLF HSLVRGHV ߧEODFNRXWVߨ  DOVR RFFXU LQ FKURQLF DOFRKROLFV
    XVXDOO\GXULQJDKHDY\ERXWRIGULQNLQJRUVRRQDIWHU 'RQDJK\ 

    6HQVRU\ DQG PRWRU IXQFWLRQV &KURQLF DOFRKROLVP LQFUHDVHV YXOQHUDELOLW\ WR VHQVRU\ DQG PRWRU
    DEQRUPDOLWLHV 0HUJOHU %ODLQ DQG WKHLU FROOHDJXHV   IRXQG LPSDLUHG FRORU YLVLRQ LQ HYHU\
    KHDY\ PRUH WKDQ  RXQFHV > JUDPV@SHU ZHHN  GULQNHUWKH\H[DPLQHGLQFUHDVHGFRQVXPSWLRQ
    LQFUHDVHGLQFLGHQFHRIWKHLPSDLUPHQW VHHDOVR%UXVWE ,PSDLUHG YLVXDOVHDUFK DQG VFDQQLQJ
    HIILFLHQF\ &5\DQDQG%XWWHUV DQGDEQRUPDOVPRRWKSXUVXLWH\HPRYHPHQWV &DPSDQHOODHW
    DO PD\DFFRXQWIRUFKURQLFDOFRKROLFVߤUHODWLYHO\VORZHGSHUIRUPDQFHVRQV\PEROVXEVWLWXWLRQ
    WDVNV *ORVVHU%XWWHUVDQG.DSODQ 7HQGHQFLHVWRUHVSRQVHVORZLQJKDYHEHHQGRFXPHQWHGRQ
    PDQ\ GLIIHUHQW NLQGV RI WHVWV HJ 6: *OHQQ DQG 3DUVRQV  3DUVRQV DQG )DUU  6%
    5RXUNHDQG*UDQW ,QVRPHKHDY\GULQNHUVPDQXDOVORZLQJPD\EHH[DFHUEDWHGE\SHULSKHUDO
    QHXURSDWKLHVH[SHULHQFHGDVQXPEQHVVRUSDUHVWKHVLDVRIWKHKDQGVRUIHHW %UXVW E 'RQDJK\
     3HULSKHUDOQHXURSDWKLHVLQDOFRKROLFVDUHQHDUO\DOZD\VDVVRFLDWHGZLWKYLWDPLQGHILFLHQFLHV
    WKHFRQWULEXWLRQRIDOFRKROWR[LFLW\SHUVHLVXQNQRZQ /+9DQGHQ%XUJHWDO 

    &RJQLWLYH IXQFWLRQV &KURQLF DOFRKRO DEXVH DIIHFWV VRPH VSHFLILF DVSHFWV RI FRJQLWLRQ DQG
    H[HFXWLYH IXQFWLRQLQJ LQFOXGLQJ FRPSOH[ YLVXRVSDWLDO DELOLWLHV DQG SV\FKRPRWRU VSHHG ZKLOH PDQ\
    ZHOOHVWDEOLVKHGDELOLWLHVDQGVNLOOVVXFKDVDULWKPHWLFDQGODQJXDJHߟRYHUOHDUQHGDELOLWLHVH[DPLQHG
    ZLWKLQ ZHOOVWUXFWXUHG DQG IDPLOLDU IRUPDWVߟUHPDLQ UHODWLYHO\ XQLPSDLUHG 3DUVRQV %XWWHUV DQG
    1DWKDQ&5\DQDQG%XWWHUV 7KHVHYHULW\RIWKHVSHFLILFGHILFLWVDVVRFLDWHGZLWKFKURQLF
    DOFRKROLVPKDVEHHQUHODWHGWRLQWDNHTXDQWLW\DQGGXUDWLRQRIWKHGULQNLQJSUREOHP 6%5RXUNHDQG
    *UDQW&5\DQDQG%XWWHUV DVZHOODVDJH &DUOHQ:LONLQVRQHWDO3DUVRQV DQG
    )DUU& 5\DQ DQG %XWWHUV   3LVKNLQ DQG KLV FROOHDJXHV   IRXQG WKDW DJH DW ZKLFK
    GULQNLQJ EHJDQ ZDV D VWURQJ SUHGLFWRU RI FRQFHSWXDO OHYHO DQG HIILFLHQF\ DQG PD\ DFFRXQW IRU WKH
    SRVLWLYHFRUUHODWLRQVEHWZHHQDJHRUGXUDWLRQDQGFRJQLWLYHG\VIXQFWLRQUHSRUWHGLQRWKHUVWXGLHV
    ,QQRWLQJWKHFRQIOLFWLQJGDWDEHWZHHQVWXGLHVRIYDULDEOHVWKDWPLJKWEHDVVRFLDWHGZLWKFRJQLWLYH
    G\VIXQFWLRQ&5\DQDQG%XWWHUV  FDOOHGDWWHQWLRQWRߧWKHP\ULDGGHPRJUDSKLFDQGDOFRKROLVP
    UHODWHGIDFWRUVZKLFKLQWHUDFWWRSURGXFHWKHSDWWHUQRIFRJQLWLYHLPSDLUPHQWIRXQGLQWKHDOFRKROLF
    LQGLYLGXDOߨ &RQVXPSWLRQ YDULDEOHV DORQH H[SODLQ UHODWLYHO\ OLWWOH RI DOFRKROLFVߤ GHILFLWV RQ
    QHXURSV\FKRORJLFDOWHVWV 6%5RXUNHDQG*UDQW 
    %LQJHGULQNHUVDSSHDUWREHOHVVSURQHWRDOFRKROUHODWHGFRJQLWLYHGHILFLWVWKDQWKRVHZLWKDKHDY\
    GDLO\DOFRKROLQWDNH 6DQFKH]&UDLJ +RZHYHUELQJHGULQNLQJFDQLQGXFHDQXPEHURIFKDQJHV
    LQFRJQLWLYHSURFHVVHVWKDWDUHOLNHO\FRPPRQWRERWKELQJHGULQNLQJDQGFKURQLFDOFRKRODEXVHVXFK
    DV LQFUHDVHG VXEMHFWLYH FUDYLQJ IRU DOFRKRO LQFUHDVHG LPSXOVLYH GHFLVLRQ PDNLQJ DQG LPSDLUHG
    LQKLELWRU\ FRQWURO RYHU GULYHV DQG EHKDYLRU )LHOG HW DO   6XFK GHILFLWV KDYH EHHQ UHODWHG WR
    G\VIXQFWLRQ LQSUHIURQWDO FRUWH[ DQGDP\JGDOD 6WHSKHQV DQG'XND   $WWHQWLRQDO GHILFLWV KDYH
    EHHQGHPRQVWUDWHGLQELQJHGULQNLQJFROOHJHVWXGHQWV &UHJRHWDO+RZODQGHWDO 
    &RJQLWLYHDOWHUDWLRQVWKDWRFFXUZLWKDJLQJVKDUHDQXPEHURIVLPLODULWLHVZLWKWKRVHH[KLELWHGE\
    PDQ\DOFRKROLFVSURPSWLQJWKHK\SRWKHVLVWKDWDOFRKROLVPDFFHOHUDWHVDJLQJRIWKHEUDLQ %OXVHZLF]
    HWDO*UDII5DGIRUG+HDWRQHWDO 7KHVHVLPLODULWLHVLQFOXGHLPSDLUPHQWVRIH[HFXWLYH
    IXQFWLRQV VXFK DV PHQWDO IOH[LELOLW\ DQG SUREOHP VROYLQJ VNLOOV DQG RI VKRUWWHUP PHPRU\ DQG
    OHDUQLQJ &UDLN& 5\DQ DQG %XWWHUV E  DORQJ ZLWK GHIHFWLYH VRFLDOHPRWLRQDO IXQFWLRQV
    +RZHYHU FDUHIXO FRPSDULVRQV KDYH LGHQWLILHG VLJQLILFDQW GLIIHUHQFHV EHWZHHQ HOGHUO\ SHUVRQV DQG
    FKURQLFDOFRKROLFVLQERWKSV\FKRPHWULFGHILFLWSDWWHUQVDQGTXDOLWDWLYHDVSHFWVRIWHVWSHUIRUPDQFH
    VXJJHVWLQJ WKDW WKH SURFHVVHV XQGHUO\LQJ WKH FRJQLWLYH GHILFLHQFLHV LQ WKHVH WZR JURXSV DUH QRW WKH
    VDPH -+.UDPHU%OXVHZLF]DQG3UHVWRQ2VFDU%HUPDQDQG:HLQVWHLQ  1RQHWKHOHVV
    LWLVLQWULJXLQJWKDWDߧIURQWDOOREHK\SRWKHVLVߨKDVEHHQVHWIRUWKLQERWKWKHDJLQJ 'HQEXUJ&ROHHW
    DO  'HQEXUJ 7UDQHO DQG %HFKDUD  5/ :HVW   DQG DOFRKROLVP 8HNHUPDQQ DQG
    'DXP OLWHUDWXUHV
    $WWHQWLRQGHILFLWVWRRVKRZXSRQDYDULHW\RIWDVNV &RUGRYLO'H6RXVDHWDO&UHJRHWDO
     7KHLUIUHTXHQF\WHQGVWREHUHODWHGWRWDVNFRPSOH[LW\ 6%5RXUNHDQG*UDQW 7KLVLV
    QRWVXUSULVLQJVLQFHDWWHQWLRQDOGHILFLWK\SHUDFWLYLW\GLVRUGHU $'+' LVDSURQRXQFHGIHDWXUHRIIHWDO
    DOFRKROV\QGURPH 0XNKHUMHHHWDO 
    0HPRU\GHILFLWVDUHFRPPRQEXWIDUIURPXQLYHUVDO&KURQLFDOFRKROLFVWHQGWRVXVWDLQVXEWOHEXW
    FRQVLVWHQW VKRUWWHUP PHPRU\ DQG OHDUQLQJ GHILFLWV WKDW EHFRPH PRUH HYLGHQW DV WDVN GLIILFXOW\
    LQFUHDVHV HJE\LQFUHDVLQJWKHQXPEHURILWHPVWREHOHDUQHGRULQVHUWLQJGLVWUDFWRUWDVNVEHWZHHQ
    OHDUQLQJ DQG UHFDOO WULDOV  & 5\DQ DQG %XWWHUV   7KHVH GHILFLWV DSSHDU WR EH WKH SURGXFW RI
    UHOLDQFHRQVXSHUILFLDOHQFRGLQJVWUDWHJLHVZKLFKOLPLWVGLVFULPLQDELOLW\EHWZHHQVWLPXOLDQGDFFHVVWR
    HIIHFWLYHDVVRFLDWLRQV)RUH[DPSOHLQWUXVLRQV UHFDOOHUURUVRIWHQDVVRFLDWLRQVWRWDUJHWVWLPXOLHJ
    ߧWHDFKHUߨRIIHUHGLQ UHFDOO RID ZRUG OLVW LQFOXGLQJ ߧSDUHQWߨDQG ߧVFKRROߨ DSSHDULQJUHDWHU QXPEHU
    WKDQLVQRUPDODQGWHQGWRSHUVLVWWKURXJKRXWVXFFHVVLYHWULDOV -+.UDPHU%OXVHZLF]DQG3UHVWRQ
      1RUPDO UDWHV RI IRUJHWWLQJ IXUWKHU LPSOLFDWH HQFRGLQJ UDWKHU WKDQ UHWULHYDO -7 %HFNHU
    %XWWHUV HW DO  1L[RQ HW DO   +RZHYHU RQH JURXS RI DOFRKROLFV GHPRQVWUDWHG QRUPDO
    ZRUGOLVWOHDUQLQJEXWUHWULHYDOZDVGHIHFWLYH &KDQUDXGHWDO ,QWKLVVWXG\UHWULHYDOGHILFLWV
    ZHUH DVVRFLDWHG ZLWK PLFURVWUXFWXUDO JUD\ PDWWHU DEQRUPDOLWLHV LQ IURQWDO WHPSRUDO DQG FHUHEHOODU
    UHJLRQV:LWK DOFRKRO DEXVHPHPRU\ DELOLW\IRU ERWK YHUEDODQG QRQYHUEDOPDWHULDO LV OLNHO\ WR EH
    GHILFLHQW 1L[RQHWDO6%5RXUNHDQG*UDQW 
    'HIHFWV LQ SURVSHFWLYH PHPRU\ KDYH DOVR EHHQ DVVRFLDWHG ZLWK H[FHVVLYH GULQNLQJ +HIIHUQDQ
     /HLW] HWDO  ODUJHU DPRXQWV RI DOFRKRO FRQVXPSWLRQ DQG ORQJHU GXUDWLRQV RI GULQNLQJ
    KLVWRU\ZRUVHQWKHSURVSHFWLYHPHPRU\LPSDLUPHQW
    <HWVHULRXVPHPRU\DQGOHDUQLQJGHILFLWVDUHQRWDQHFHVVDU\IHDWXUHRIFKURQLFDOFRKROLVPDQG
    VRPHDOFRKROLFVPD\H[KLELWQRPHPRU\SUREOHPVDWDOO 66PLWKDQG)HLQ 5HPRWHPHPRU\
    LV SDUWLFXODUO\ UHVLVWDQW WR GHWHULRUDWLRQ LQ DOFRKROLFV 06 $OEHUW %XWWHUV DQG %UDQGW   ,Q
    DVVHVVLQJ DOFRKROLFV LW LV LPSRUWDQW WR NHHS LQ PLQG WKDW PDQ\ WHQG WR XQGHUHVWLPDWH WKHLU PHPRU\
    LPSDLUPHQWV RU GHQ\ WKHP DOWRJHWKHU -- 5\DQ DQG /HZLV   0RUHRYHU WKHLU FRPSODLQWV RI
    FRJQLWLYH G\VIXQFWLRQ DUH PRUH OLNHO\ WR UHIOHFW HPRWLRQDO GLVWUHVV WKDQ DFFXUDWH VHOISHUFHSWLRQV
    (UULFRHWDO 
    9LVXRVSDWLDOIXQFWLRQV UHPDLQ ODUJHO\ LQWDFW DOWKRXJK FKURQLF DOFRKROLFV ZLWK YHU\ KHDY\ LQWDNH
    PD\SHUIRUPUHODWLYHO\SRRUO\RQWHVWVUHTXLULQJYLVXRVSDWLDORUJDQL]DWLRQ 3DUVRQVDQG)DUU
    &5\DQDQG%XWWHUV $QDO\VLVRIWKHYLVXRVSDWLDOIDLOXUHVRIFKURQLFDOFRKROLFVVXJJHVWVWKDW
    WKH\ LQYROYH VORZHG YLVXDO RUJDQL]DWLRQ DQG LQWHJUDWLRQ $NVKRRPRII HW DO   1R FRQVLVWHQW
    SHUIRUPDQFHGHFUHPHQWZDVIRXQGRQSHUFHSWXRPRWRUWDVNVRUPRWRUFRRUGLQDWLRQWDVNVWKDWUHTXLUH
    OLWWOHRUQRV\QWKHVL]LQJRUJDQL]LQJRURULHQWLQJDFWLYLW\ 2VFDU%HUPDQDQG:HLQVWHLQ 
    ([HFXWLYHIXQFWLRQV'HILFLWVLQDGDSWLYHRUH[HFXWLYHEHKDYLRUDUHIUHTXHQWO\REVHUYHGLQSHUVRQV
    ZLWKDOFRKRODEXVHDSSHDULQJRQWDVNVLQYROYLQJIXQFWLRQVDVVRFLDWHGZLWKIURQWDOOREHDFWLYLW\DQG
    VXSSRUWLQJWKHߧIURQWDOOREHK\SRWKHVLVߨ 6%5RXUNHDQG*UDQW
    & 5\DQ DQG %XWWHUV  7DOODQG D  7KXV GLIILFXOWLHV LQ PDLQWDLQLQJ D FRJQLWLYH VHW
    LPSHUVLVWHQFHGHFUHDVHGIOH[LELOLW\LQWKLQNLQJGHIHFWLYHYLVXDOVHDUFKEHKDYLRUVLPSOLVWLFSUREOHP
    VROYLQJVWUDWHJLHVGHILFLHQWPRWRULQKLELWLRQSHUVHYHUDWLRQORVVRIVSDWLDODQGWHPSRUDORULHQWDWLRQ
    DQG LPSDLUHG DELOLW\ WR RUJDQL]H SHUFHSWXRPRWRU UHVSRQVHV DQG V\QWKHVL]H VSDWLDO HOHPHQWV
    FKDUDFWHUL]HWKHWHVWEHKDYLRURIFKURQLFDOFRKROLFV6RPHDOFRKROLFVߤDELOLWLHVWRPDNHDEVWUDFWLRQV
    DQGWRJHQHUDOL]HIURPSDUWLFXODUVPD\UHPDLQLQWDFWEXWWKHVHDELOLWLHVDUHHVSHFLDOO\YXOQHUDEOHWR
    DOFRKRODEXVH 6%5RXUNHDQG*UDQW 7KHSHUIRUPDQFHGHIHFWVOLVWHGKHUHDOVRFRQWULEXWHWR
    DOFRKROLFVߤIDLOXUHVRQWHVWVLQYROYLQJDEVWUDFWLRQV &5\DQDQG%XWWHUV 
    7KHUHLVVXSSRUWIRUDߧIURQWDOOREHK\SRWKHVLVߨRIEUDLQEHKDYLRUHIIHFWVLQFKURQLFDOFRKRODEXVH
    LQWKDWWKHSUHIURQWDOFRUWH[DQGLWVIXQFWLRQVDUHSDUWLFXODUO\VXVFHSWLEOHWRWKHQHXURWR[LFHIIHFWVRI
    DOFRKRO 8HNHUPDQQ DQG 'DXP   VKRZHG WKDW DOFRKROLVP LV DVVRFLDWHG ZLWK YDULRXV GHIHFWV LQ
    VRFLDO FRJQLWLRQ LQFOXGLQJ HPRWLRQDO IDFH DQG SURVRG\ SHUFHSWLRQ GHILFLWV LPSDLUHG ߧWKHRU\ RI
    PLQGߨDQGGHIHFWVLQKXPRUSURFHVVLQJ
    2WKHU H[HFXWLYH IXQFWLRQ GHILFLWV WKDW KDYH EHHQ GRFXPHQWHG LQ DOFRKRO GHSHQGHQW DGXOWV LQFOXGH
    VORZHG SURFHVVLQJ VSHHG LPSDLUHG FRJQLWLYH IOH[LELOLW\ DQG LPSDLUHG DWWHQWLRQDO FRQWURO
    3DUDKHUDNLVHWDO5DWWLHWDO=LQQHWDO $OFRKROLFVKDYHGLIILFXOW\PDQLSXODWLQJ
    LQIRUPDWLRQ LQ ZRUNLQJ PHPRU\ SODQQLQJ DQG LQKLELWLQJ LPSXOVLYH EHKDYLRUDO UHVSRQVHV 1RHO HW
    DO ([HFXWLYHIXQFWLRQLQJGHILFLWVDUHRIWHQDPRQJWKHPRVWVHYHUHO\LPSDLUHGRIDOOFRJQLWLYH
    IXQFWLRQV LQDOFRKRO GHSHQGHQW DGXOWV *LDQFROD DQG0RVV  &RQVLVWHQWZLWKWKLV OLWHUDWXUH DUH
    WKHPDQ\VWXGLHVWKDWKDYHGHPRQVWUDWHGPHWDEROLFDQGPRUSKRORJLFDEQRUPDOLWLHVLQWKHSUHIURQWDO
    UHJLRQVRIDOFRKROLFSDWLHQWV VHHS 

    $EVWLQHQFHHIIHFWV7KHUHKDVEHHQPXFKLQWHUHVWLQWKHH[WHQWWRZKLFKFRJQLWLYHGHILFLWVDVVRFLDWHG
    ZLWKDOFRKROFRQVXPSWLRQFDQEHUHYHUVHGE\DEVWLQHQFH'XULQJWKHGHWR[LILFDWLRQSHULRGXVXDOO\WKH
    ILUVW WZR ZHHNV DIWHU FHVVDWLRQ RI GULQNLQJ PRVW DOFRKROLFV ZLOO H[KLELW D YDULHW\ RI
    QHXURSV\FKRORJLFDO GHILFLWV LQYROYLQJ MXVW DERXW HYHU\ FRJQLWLYH IXQFWLRQ WKDW KDV EHHQ VXEMHFW WR
    WHVWLQJLQFOXGLQJWKHRUGLQDULO\VWDEOHYHUEDOVNLOOV 06*ROGPDQ&5\DQDQG%XWWHUV 
    7KXV PRVW QHZO\ DEVWLQHQW DOFRKROLFV VKRZ UHPDUNDEOH ߧLPSURYHPHQWVߨZKHQ WHVW VFRUHV REWDLQHG
    ZHHNVRU PRQWKVODWHUDUH FRPSDUHG ZLWKSHUIRUPDQFH OHYHOV REWDLQHG GXULQJ WKH DFXWHZLWKGUDZDO
    VWDJH +RZHYHU PHDVXUHPHQWV RI LPSURYHPHQW RI IXQFWLRQ DUH UHDOO\ RQO\ YDOLG DQG PHDQLQJIXO
    ZKHQ FRPSDUHG ZLWK EDVHOLQH VFRUHV REWDLQHG DIWHU WKH DFXWH FRQGLWLRQ KDV GLVVLSDWHG 7KH JUHDWHVW
    DPRXQWRIUHWXUQRIIXQFWLRQWDNHVSODFHLQWKHILUVWZHHNRIDEVWLQHQFH &5\DQDQG%XWWHUV 
    5DWHRIUHWXUQVORZVGRZQUDSLGO\WKHUHDIWHUOHYHOLQJRIIDWWKUHHWRVL[ZHHNV)RUVRFLDOGULQNHUV
    SHUIRUPLQJ JHQHUDOO\ ZLWKLQ QRUPDO OLPLWV RQ QHXURSV\FKRORJLFDO WHVWV WZR ZHHNV RI DEVWLQHQFH
    PDGHQRGLIIHUHQFHLQWHVWVFRUHV 3DUVRQV 
    5HSRUWVRIFRQWLQXLQJLPSURYHPHQWDUHLQFRQVLVWHQW &5\DQ'L'DULRHWDO6%5RXUNH
    DQG*UDQW   'HILFLWV LQ H[HFXWLYH IXQFWLRQLQJ PD\ SHUVLVW IRU VRPH WLPH DIWHU DOFRKRO XVH LV
    WHUPLQDWHG 0( %DWHV HW DO  =LQQ HW DO   EXW HYHQWXDOO\ WKH\ WHQG WR LPSURYH ZLWK
    VXVWDLQHG DEVWLQHQFH . 0DQQ HW DO   )RU ERWK UHFHQWO\ GHWR[LILHG DQG DEVWLQHQW DOFRKROLFV
    FKURQLFFLJDUHWWHVPRNLQJFDQHQFXPEHUWKHFRXUVHRIERWKQHXURELRORJLFDODQGQHXURSV\FKRORJLFDO
    LPSURYHPHQW 'XUD]]RDQG0H\HUKRII 
    +RZHYHUORQJWHUPDEVWLQHQFHFDQKDYHEHQHILFLDOHIIHFWV /RHEHUHWDO ,PSURYHPHQWVLQ
    VKRUWWHUPPHPRU\DSSURDFKLQJQRUPDOOHYHOVZHUHREVHUYHGLQDOFRKROLFVDEVWLQHQWIRUILYHRUPRUH
    \HDUV & 5\DQ DQG %XWWHUV   5HVSRQVH VSHHG DQG DWWHQWLRQ PHDVXUHG RQ V\PERO VXEVWLWXWLRQ
    WDVNVPD\LPSURYHRYHUD\HDURUPRUHRIDEVWLQHQFH &5\DQDQG%XWWHUV 
    $JHPD\EHDVLJQLILFDQWYDULDEOHLQGHWHUPLQLQJWKHUHYHUVLELOLW\RIDOFRKROUHODWHGGHILFLWV2QD
    YDULHW\RIVSHHGGHSHQGHQWSHUFHSWXDODQGPRWRUWDVNV\RXQJHUVXEMHFWV XQGHUWR JHQHUDOO\
    UHWXUQHGWRQRUPDOSHUIRUPDQFHOHYHOVZLWKLQWKUHHPRQWKVDIWHUWKH\VWRSSHGGULQNLQJZKLOHROGHU
    RQHV LPSURYHG EXW UHPDLQHG UHODWLYHO\ LPSDLUHG 06*ROGPDQ   2WKHU UHSRUWV FRQILUP WKDW
    QHXURSV\FKRORJLFDOIXQFWLRQVSULPDULO\PHPRU\DQGH[HFXWLYHDELOLWLHVDUHOHVVOLNHO\WRLPSURYH
    RU ZLOO LPSURYH PRUH VORZO\ LQ ROGHU DEVWLQHQW SDWLHQWV 0XQUR 6D[WRQ DQG %XWWHUV  6%
    5RXUNHDQG*UDQW )HLQDQGFROOHDJXHV  UHSRUWHGWKDWWKHZRPHQLQWKHLUVWXG\LPSURYHG
    PRUHWKDQPHQ<HWLQDOFRKROLFVZLWK.RUVDNRIIߤVV\QGURPHEHWWHURXWFRPHDIWHUGHWR[LILFDWLRQDQG
    DEVWLQHQFH ZDV DVVRFLDWHG ZLWK VH[ PHQ KDG EHWWHU RXWFRPHV WKDQ ZRPHQ  KLJKHU SUHPRUELG
    HGXFDWLRQDQGIHZHUGHWR[LILFDWLRQVLQWKHSDVWZLWKQRHYLGHQFHRIDFFHOHUDWHGFRJQLWLYHGHFOLQHRU
    RQVHWRIGHPHQWLDOLNHV\PSWRPVRYHUWZR\HDUVIROORZLQJGHWR[LILFDWLRQ )XMLZDUDHWDO 
    ,Q VRPH FKURQLF DOFRKROLFV ZLWK FHUHEUDO DWURSK\ QHXURLPDJLQJ VKRZHG UHGXFHG DWURSK\
    IROORZLQJ DEVWLQHQFH ZKLFK SDUDOOHOHG LPSURYHG FRJQLWLYH IXQFWLRQLQJ &DUOHQ 3HQQ HW DO 
    /LVKPDQ6%5RXUNHDQG*UDQW DSDUDOOHOWKDWZDVPDLQWDLQHGDORQJWKHDJHFRQWLQXXP
    7UDEHUWHWDO 6LQFHDOFRKROWR[LQVVHHPWRDFWSUHIHUHQWLDOO\RQZKLWHPDWWHULPSURYHPHQWV
    PD\EHGXHWRUHP\HOLQDWLRQRIQHUYHILEHUV )LOOH\ 

    $OFRKROLFGHPHQWLD

    $ FRQGLWLRQ RI VLJQLILFDQW PHQWDO DQG SHUVRQDOLW\ GHWHULRUDWLRQ RFFXUULQJ DIWHU \HDUV RI DOFRKRO
    DEXVHDOFRKROLFGHPHQWLDIHDWXUHVZLGHVSUHDGFRJQLWLYHGHWHULRUDWLRQZLWKRXWWKHSURIRXQGDPQHVLD
    RI .RUVDNRIIߤV V\QGURPH /LVKPDQ  & 5\DQ DQG %XWWHUV   7KHVH SDWLHQWV VXVWDLQ
    H[WHQVLYH FHUHEUDO DWURSK\ ZKLFK LQYROYHV ZKLWH PDWWHU WR D GLVSURSRUWLRQDWH GHJUHH )LOOH\  
    $ORQJ ZLWK PHPRU\ GHILFLWV WKH\ GLVSOD\ EHKDYLRUDO G\VIXQFWLRQV W\SLFDOO\ DVVRFLDWHG ZLWK IURQWDO
    OREH SDWKRORJ\ DQG SRRU SHUIRUPDQFHV RQ WHVWV RI FRJQLWLYH DELOLWLHV $OFRKROLF GHPHQWLD PD\
    UHSUHVHQW WKH HQG VWDJH RI D GHPHQWLQJ SURFHVV DVVRFLDWHG ZLWK DOFRKRO LQGXFHG DWURSK\ 6RPH
    SDWLHQWVGLDJQRVHGDVKDYLQJDOFRKROLFGHPHQWLDGLVSOD\V\PSWRPVW\SLFDORI.RUVDNRIIߤVV\QGURPH
    %UXVW E /LVKPDQ  6% 5RXUNH DQG *UDQW   DQG YLFH YHUVD ZKLFK VXJJHVWV WKDW
    DOFRKROGHPHQWLDSDWLHQWVKDYHVXVWDLQHGPRUHWKDQRQHNLQGRIDOFRKROUHODWHGEUDLQLQMXU\$OVRWKH
    QDWXUH DQG VHYHULW\ RI HSLVRGLF DQG ZRUNLQJ PHPRU\ GHILFLWV KDYH EHHQ VKRZQ WR EH VLPLODU LQ
    .RUVDNRII DQG QRQ.RUVDNRII DOFRKROLFV FRQVLVWHQW ZLWK QHXURLPDJLQJ LQYHVWLJDWLRQV VKRZLQJ
    VLPLODU SDWWHUQV RI QHXURDQDWRPLFDO GDPDJH LQ ERWK DOFRKROLF JURXSV 3LWHO HW DO   &RUWLFDO
    FKDQJHV VLPLODU WR WKRVH SUHVHQW LQ IURQWRWHPSRUDO GHPHQWLD KDYH DOVR EHHQ GHVFULEHG %UXQ DQG
    $QGHUVVRQ 
    .RUVDNRIIߤVV\QGURPH

    7KH PRVW VWULNLQJ QHXURSV\FKRORJLFDO GHILFLW DVVRFLDWHG ZLWK DOFRKROLVP LV WKH JURVV PHPRU\
    LPSDLUPHQW RI .RUVDNRIIߤV V\QGURPH 7KLV DOFRKRO UHODWHG GLVRUGHU LV VRPHWLPHV UHIHUUHG WR DV
    :HUQLFNH.RUVDNRII V\QGURPH DV LQ DFXWH DQG XQWUHDWHG SDWLHQWV WKH LQLWLDO V\PSWRPV W\SLFDOO\
    LQFOXGHPDVVLYHFRQIXVLRQDQGGLVRUGHUHGH\HDQGOLPEPRYHPHQWV:HUQLFNHߤVHQFHSKDORSDWK\ LV D
    UHODWHGFRQGLWLRQGXHWRWKLDPLQHGHILFLHQF\LQZKLFKLQYROXQWDU\UDSLGH\HPRYHPHQWV Q\VWDJPXV 
    JD]H SDUHVLV DWD[LD FRQIXVLRQ DQG DPQHVLD DUH SURPLQHQW V\PSWRPV $PHULFDQ $FDGHP\ RI
    1HXURORJ\  %UXVW E .RSHOPDQ 7KRPVRQ HW DO   7KLV FRQGLWLRQ RI QXWULWLRQDO
    GHSOHWLRQߟHVSHFLDOO\ WKLDPLQHߟW\SLFDOO\ DIIHFWV DOFRKROLFV ZLWK D ORQJ GULQNLQJ KLVWRU\ ,W PD\ EH
    EURXJKWRQE\DSDUWLFXODUO\KHDY\ERXWZLWKDOFRKRO XVXDOO\WZRZHHNVRUPRUH GXULQJZKLFKWKH
    SDWLHQW HDWV OLWWOH LI DQ\ IRRG $OFRKRO LQWHUIHUHV ZLWK JDVWURLQWHVWLQDO WUDQVSRUW RI YLWDPLQ %
    WKLDPLQH DQGFKURQLFOLYHUGLVHDVHFRPSURPLVHVWKLDPLQHPHWDEROLVP ,)'LDPRQGDQG0F,QWLUH
    5HXOHU HW DO   :KHQ WKH DOFRKROLFߤV GLHW LV LQVXIILFLHQW WR PHHW WKH ERG\ߤV QHHGV WKRVH
    UHJLRQVRIWKHEUDLQWKDWDUHPRVWWKLDPLQHGHSHQGHQWZLOOVXIIHULPSDLUHGQHXURQDOIXQFWLRQZKLFKLI
    QRWWUHDWHGFDQOHDGWRFHOOGHDWKߟDQGWRWKHDQDWRPLFDOOHVLRQVDVVRFLDWHGZLWKWKLVEUDLQGLVHDVH 1
    %XWWHUV  35 0DUWLQ HW DO   $ JHQHWLF GHIHFW LQ WKLDPLQH PHWDEROLVP ZLWK KHLJKWHQHG
    YXOQHUDELOLW\ WR WKLDPLQH GHILFLHQF\ ZKHQ GLHWDU\ LQWDNH LV LQVXIILFLHQW KDV EHHQ LGHQWLILHG LQ VRPH
    .RUVDNRIISDWLHQWV *XHUULQLHWDO.RSHOPDQ7KRPVRQHWDO ,IWUHDWHGSURPSWO\LQWKH
    DFXWH VWDJH ZLWK WKLDPLQH ERWK :HUQLFNHߤV DQG .RUVDNRIIߤV V\QGURPHV PD\ EH DPHOLRUDWHG %UXVW
    E.RSHOPDQ7KRPVRQHWDO9LFWRUHWDO 'HILFLHQF\RIDQRWKHUYLWDPLQQLFRWLQLF
    DFLGKDVEHHQDVVRFLDWHGZLWKDFRQIXVLRQDOGLVRUGHUWKDWRFFXUVLQDOFRKROLFSDWLHQWV %UXVW E
    /LVKPDQ 
    7KH OLQN WR WKLDPLQH LV VXSSRUWHG E\ RWKHU ZRUNߟIRU H[DPSOH 5ROODQG DQG 7UXVZHOO 
    UHSRUWHG D  UHGXFWLRQ LQ WKH LQFLGHQFH RI DFXWH :HUQLFNH HQFHSKDORSDWK\ DQG .RUVDNRII
    V\QGURPHIROORZLQJWKHLQWURGXFWLRQRIWKLDPLQHHQULFKHGEUHDGLQ$XVWUDOLD$OVRWKHUHKDVEHHQD
    QRWDEOHLQFUHDVHLQWKHIUHTXHQF\RI:HUQLFNHHQFHSKDORSDWK\LQWKHZDNHRIEDULDWULFVXUJHU\GXHWR
    WKH QXWULWLRQDOFRPSOLFDWLRQVߟLQFOXGLQJ WKLDPLQH GHILFLHQF\ߟWKDW FDQ RFFXUZLWKEDULDWULF VXUJHU\
    $DVKHLP 7KLVSUREOHPLVOLNHO\WRZRUVHQDVVXUJLFDOLQWHUYHQWLRQVIRUZHLJKWORVVEHFRPH
    LQFUHDVLQJO\FRPPRQ 6WHLQEURRN 

    1HXURDQDWRP\ DQG QHXURSDWKRORJ\ +HPRUUKDJLF OHVLRQV LQ VSHFLILF WKDODPLF QXFOHL DQG LQ WKH
    PDPPLOODU\ERGLHVXVXDOO\ZLWKOHVLRQVRFFXUULQJLQRWKHUVWUXFWXUHVRIWKHOLPELFV\VWHPKDYHEHHQ
    LPSOLFDWHG LQ .RUVDNRIIߤV V\QGURPH 9LFWRU HW DO   7KH FKDUDFWHULVWLF QHXURSDWKRORJ\ RI
    .RUVDNRII V\QGURPH DOVR LQFOXGHV QHXURQDO ORVV PLFURKHPRUUKDJHV DQG JOLRVLV LQ WKH
    SDUDYHQWULFXODU DQG SHULDTXHGXFWDO JUH\ PDWWHU .RSHOPDQ 7KRPVRQ HW DO   1HXURQDO
    GHSOHWLRQ DSSHDUV LQ NQRZQ VRXUFHV RI LQSXW WR WKH FKROLQHUJLF V\VWHP LH WKH QXFOHXV EDVDOLV RI
    0H\QHUW DQG RWKHU EDVDO IRUHEUDLQ QXFOHL 1 %XWWHUV DQG 6WXVV  -R\FH  6DOPRQ DQG
    %XWWHUV DOWKRXJKWUDQVPDJQHWLFVWLPXODWLRQVKRZHGWKDWGDPDJHWRWKHFKROLQHUJLFV\VWHPLV
    LQVXIILFLHQW WR DFFRXQW IRU WKH SHUVLVWLQJ :HUQLFNH.RUVDNRII DPQHVLF V\QGURPH 1DUGRQH HW DO
      2WKHU QHXURWUDQVPLWWHU GHILFLHQFLHV KDYH DOVR EHHQ UHSRUWHG -R\FH  0F(QWHH HW DO
     '$ :LONLQVRQ DQG &DUOHQ    05, VFDQV VKRZ VLJQLILFDQW ORVV RI JUD\ PDWWHU LQ
    RUELWRIURQWDODQGPHVLRWHPSRUDOFRUWH[DQGLQWKHWKDODPXVDQGRWKHUGLHQFHSKDOLFVWUXFWXUHVDORQJ
    ZLWKHQODUJHGYHQWULFOHV -HUQLJDQ6FKDIHUHWDO 
    (DUO\VWXGLHVOHGWRWKHFRQFOXVLRQWKDWQHXURQDOORVVLQWKHPHGLDODQWHULRUWKDODPLFQXFOHLZDVWKH
    SULPDU\VRXUFHRIWKHSURIRXQGDQWHURJUDGHDPQHVLDLQ.RUVDNRIISDWLHQWV +DUGLQJHWDO3-
    9LVVHU .UDEEHQGDP HW DO   +RZHYHU OHVLRQV LQ WKH PDPPLOODU\ ERGLHV WKH PDPPLOOR
    WKDODPLF WUDFW DQG WKH DQWHULRU WKDODPXV PD\ EH PRUH LPSRUWDQW WR PHPRU\ G\VIXQFWLRQ LQ WKHVH
    SDWLHQWV WKDQ OHVLRQV LQ WKH PHGLDO GRUVDO WKDODPXV .RSHOPDQ 7KRPVRQ HW DO   2OIDFWRU\
    GHILFLWVIXUWKHULPSOLFDWHOLPELFV\VWHPG\VIXQFWLRQ 1%XWWHUVDQG&HUPDN+XOVKRII3ROHWDO
     $ߧFHUHEHOODUK\SRWKHVLVߨZKLFKH[SODLQVWKHFRJQLWLYHLPSDLUPHQWVRI.RUVDNRIIߤVV\QGURPH
    DV GXH WR FHUHEHOORFRUWLFDO SDWKZD\ GLVFRQQHFWLRQV :LMQLD DQG *RRVVHQVHQ   KDV \HW WR EH
    ULJRURXVO\WHVWHG

    &RJQLWLYHIXQFWLRQV*LYHQWKHSURPLQHQFHDQGRIWHQWLPHVIORULGQDWXUHRIWKHPHPRU\GHIHFWLQ
    .RUVDNRIIߤV SDWLHQWV LW LV QRW VXUSULVLQJ WKDW PRVW HDUO\ VWXGLHV RI .RUVDNRIIߤV V\QGURPH
    FRQFHQWUDWHG RQ WKH PHPRU\ GHILFLWV ZLWK OHVV DWWHQWLRQ SDLG WR RWKHU IXQFWLRQV $OVR .RUVDNRII
    SDWLHQWVߤVFRUHVRQXVXDOWHVWVRIFRJQLWLYHIXQFWLRQV HJ:,6$6FDOHV WHQGWREHTXLWHFRPSDUDEOH
    WR WKRVH RI FKURQLF DOFRKROLFV .DSXU DQG %XWWHUV  & 5\DQ DQG %XWWHUV   7KXV WKH
    SHUIRUPDQFHV RI .RUVDNRII SDWLHQWV KROG XS RQ ZHOOVWUXFWXUHG XQWLPHG WHVWV RI IDPLOLDU XVXDOO\
    RYHUOHDUQHGPDWHULDOVXFKDVYRFDEXODU\DQGDULWKPHWLFZKLOHWKHLUVFRUHVRQWKHRWKHUWHVWVGHFOLQH
    RQO\ WR WKH H[WHQW WKDW VSHHG DQG YLVXRSHUFHSWXDO DQG VSDWLDO RUJDQL]DWLRQ DUH LQYROYHG +RZHYHU
    .RUVDNRIISDWLHQWVWDNHDQDEQRUPDOO\ORQJWLPHWRLGHQWLI\YLVXDOO\SUHVHQWHGPDWHULDOGXHWRWKHLU
    JUHDWO\ VORZHG YLVXDO SURFHVVLQJ FDSDFLWLHV 2VFDU%HUPDQ   $XGLWRU\ SURFHVVLQJ WRR LV
    VLJQLILFDQWO\ VORZHG LQ .RUVDNRII SDWLHQWV 1 %XWWHUV &HUPDN -RQHV DQG *ORVVHU  65
    3DUNLQVRQ 
    2QFOLQLFDOH[DPLQDWLRQVRIDWWHQWLRQPDQ\.RUVDNRIISDWLHQWVSHUIRUPTXLWHZHOORQ'LJLW6SDQ
    6XEWUDFWLQJ6HULDO6HYHQVDQGRWKHUWDVNVLQYROYLQJVLPSOHFRPSRQHQWVRIDWWHQWLRQ 1 %XWWHUV DQG
    &HUPDN.RSHOPDQ DOWKRXJKWKH\DUHXQOLNHO\WRUHVXPHLQWHUUXSWHGDFWLYLWLHV 7DOODQG
     7KH\IDLORQPRUHFRPSOH[DVSHFWVRIDWWHQWLRQVXFKDVVKLIWLQJDQGGLYLGLQJ 2VFDU%HUPDQ
     DQGZRUNLQJPHPRU\ 2ߤ&RQQRUDQG9HUIDLOOLH3LWHOHWDO 
    7KH PHPRU\ LPSDLUPHQW LQ .RUVDNRIIߤV V\QGURPH LQYROYHV GHFODUDWLYH PHPRU\ DQG LQFOXGHV
    ERWK DQWHURJUDGH DQG UHWURJUDGH GHILFLWV 1 %XWWHUV DQG 6WXVV  .RSHOPDQ 7KRPVRQ HW DO
     3DUNLQ    $ IXQFWLRQDO UHODWLRQVKLS EHWZHHQ UHWURJUDGH DQG DQWHURJUDGH DPQHVLD LQ
    .RUVDNRIIߤV V\QGURPH LV VXJJHVWHG E\ WKHLU LQHYLWDEOH WRJHWKHUQHVV LQ .RUVDNRIIߤV V\QGURPH 7KDW
    WKHVH WZR PDMRU FRPSRQHQWV RI PHPRU\ LPSDLUPHQW DSSHDU RQO\ LQFRQVLVWHQWO\ LQ FKURQLF
    DOFRKROLVP DQG WKHQ UHODWLYHO\ PLOGO\ DQG QRW QHFHVVDULO\ SDLUHG LQGLFDWHV WKDW WKH .RUVDNRII
    PHPRU\ GHILFLW LV QRW VLPSO\ D PRUH VHYHUH SUHVHQWDWLRQ RI WKH PHPRU\ LPSDLUPHQW RI FKURQLF
    DOFRKROLVP ,Q DQ LQJHQLRXV VHULHV RI VWXGLHV 1 %XWWHUV DQG KLV FRZRUNHUV 1 %XWWHUV D 1
    %XWWHUV DQG %UDQGW  1 %XWWHUV DQG &HUPDN  & 5\DQ DQG %XWWHUV  6DOPRQ DQG
    %XWWHUV  LPSOLFDWHG GHIHFWLYH HQFRGLQJ RI QHZ LQIRUPDWLRQ DV WKH FRPPRQ FRPSRQHQW RI WKH
    .RUVDNRIIPHPRU\GLVRUGHU'HIHFWLYHHQFRGLQJUHVXOWVLQWKHSDWLHQWߤVUHWDLQLQJDFFHVVWRPXFKRI
    WKHLPPHGLDWHH[SHULHQFHRIWKHSDVWWZRRUWKUHHPLQXWHVZLWKOLWWOHRUQRDELOLW\WRXWLOL]HZKDWHYHU
    PLJKW KDYH EHHQ VWRUHG LQ UHFHQW PHPRU\ LH VLQFH WKH RQVHW RI WKH FRQGLWLRQ  DQG D WHQGHQF\
    WRZDUGV LQFRQVLVWHQW DQG SRRUO\ RUJDQL]HG UHWULHYDO RI UHPRWH PHPRU\ ZLWK UHWURJUDGH DPQHVLD
    RFFXUULQJRQDVWHHSWHPSRUDOJUDGLHQW,WLVDVWKRXJKOHWWHUVDQGSDSHUVZHUHVOLSSHGUDQGRPO\LQWRD
    VHWRIILOHVWKHLQIRUPDWLRQZRXOGEHWKHUHEXWQRWUHDGLO\UHWULHYDEOHDQGZKDWHYHULVSXOOHGRXWLV
    SUREDEO\QRWZKDWZDVVRXJKW
    7KHDQWHURJUDGHPHPRU\GHILFLWVDUHWKHPRVWUHDGLO\DSSDUHQWVLQFHIRUDOOSUDFWLFDOSXUSRVHV
    SDWLHQWVZLWKDIXOOEORZQ.RUVDNRIIߤVV\QGURPHOLYHLQDWLPH]RQHRIDERXWWKUHHWRILYHPLQXWHV
    KDYLQJ OLWWOH RU QR UHDG\ DFFHVV WR HYHQWV RU OHDUQLQJ GULOOV LQ ZKLFK WKH\ SDUWLFLSDWHG SULRU WR WKH
    VSDFHDOORZHGE\WKHLUVKRUWWHUPPHPRU\7KHVHOHDUQLQJGHILFLWVDUHQRWPRGDOLW\VSHFLILFEXWH[WHQG
    WRDOONLQGVRIPDWHULDO 1%XWWHUV2ߤ&RQQRUDQG9HUIDLOOLH :KDWOLWWOHOHDUQLQJDELOLW\
    WKH\ GR PDQLIHVW RQ UHFDOO LV H[WUHPHO\ YXOQHUDEOH WR SURDFWLYH LQKLELWLRQ 1 %XWWHUV DQG &HUPDN
     /HQJ DQG 3DUNLQ   DOWKRXJK WKH\ EHQHILW IURP ORQJ UHKHDUVDO WLPHV 1 %XWWHUV D
    0HXGHOO HW DO   0RUHRYHU WKH\ VKRZ OLWWOH LI DQ\ OHDUQLQJ FXUYH RQ UHSHDWHG UHFDOO WULDOV
    7DOODQG *LYHQWKHDQDORJ\WRDGLVRUJDQL]HGILOLQJV\VWHPLWLVQRWVXUSULVLQJWKDW.RUVDNRII
    SDWLHQWV KDYH GLIILFXOW\ ERWK OHDUQLQJ DQG UHFDOOLQJ LQIRUPDWLRQ LQ WHPSRUDO VHTXHQFH 6KLPDPXUD
    -DQRZVN\DQG6TXLUH 7KH\DOVRGLVSOD\WHQGHQFLHVWRSHUVHYHUDWHHUURUVRUUHVSRQVHVIURP
    RQH VHW RI VWLPXOL WR WKH QH[W 1 %XWWHUV  1 %XWWHUV $OEHUW 6D[ HW DO  0HXGHOO HW DO
     DQGWRPDNHLQWUXVLRQHUURUVLQERWKYHUEDODQGYLVXDOPRGDOLWLHV 1%XWWHUV*UDQKROPHWDO
    '-DFREV7URVWHUHWDO 
    6KRUWWHUP UHFDOO GRHV QRW GLIIHU JUHDWO\ IURP WKDW RI QRUPDO VXEMHFWV HYHQ ZLWK LQWHUIHUHQFH
    SURFHGXUHV 1%XWWHUVDQG*UDG\.RSHOPDQ DOWKRXJKFRQWUDGLFWRU\ILQGLQJVKDYHEHHQ
    UHSRUWHG /HQJDQG3DUNLQ 0RUHRYHUZKHQLQIRUPDWLRQLVDVNHGIRULQDUHFRJQLWLRQUDWKHU
    WKDQ UHFDOO IRUPDW WKH\ GR GHPRQVWUDWH VRPH OHDUQLQJ SDUWLFXODUO\ ZLWK ORQJ H[SRVXUH WLPHV WKH\
    EHQHILW RQO\ LQFRQVLVWHQWO\ IURP FRQWH[WXDO LQIRUPDWLRQ DQG QRW DW DOO IURP YHUEDO PHGLDWRUV 1
    %XWWHUV  +XSSHUW DQG 3LHUF\  0DUWRQH %XWWHUV DQG 7UDXQHU   <HW ZKHQ JLYHQ D
    VWUDWHJ\ IRU UHPHPEHULQJ HJ MXGJLQJ WKH OLNDELOLW\ RI IDFHV  WKHLU UHFRJQLWLRQ VFRUHV LPSURYH
    %LEHU%XWWHUVHWDO 7KHLUDOPRVWQRUPDOUHFDOORIVWRULHVZLWKVH[XDOFRQWHQW '$'DYLGRII
    HWDO*UDQKROP:ROIHDQG%XWWHUV DQGLPSURYHGUHFDOOZLWKYLVXDOLPDJHU\ /HQJDQG
    3DUNLQ DOVRLQGLFDWH WKDWWKHVH SDWLHQWV KDYH VRPH OHDUQLQJSRWHQWLDO VHH DOVR 1 %XWWHUV DQG
    6WXVV3DUNLQ 7KHLQWLPDWHLQWHUFRQQHFWLRQEHWZHHQPHPRU\DQGHPRWLRQLVLOOXVWUDWHG
    LQWKHVHSDWLHQWVDVUHWHQWLRQRIHPRWLRQDOO\ODGHQZRUGVLVVXSHULRUWRUHWHQWLRQRIQHXWUDOZRUGV -
    .HVVOHUHWDO .RSHOPDQ7KRPVRQDQGFROOHDJXHV  HPSKDVL]HGWKDW.RUVDNRIISDWLHQWV
    ZHUH FDSDEOH RI QHZ OHDUQLQJ HVSHFLDOO\ LI WKH\ OLYH LQ D FDOP ZHOOVWUXFWXUHG HQYLURQPHQW DQG LI
    QHZLQIRUPDWLRQLVFXHG:KHQQHZLQIRUPDWLRQLVDFTXLUHG DOEHLWVORZO\ .RUVDNRIISDWLHQWVVKRZ
    QRUPDOIRUJHWWLQJUDWHVIXUWKHULPSOLFDWLQJDSUREOHPZLWKUHWULHYDOUDWKHUWKDQVWRUDJH +XSSHUWDQG
    3LHUF\.RSHOPDQ 
    7KHUHWURJUDGHPHPRU\GHIHFWVKRZVXSDVGLIILFXOW\LQUHFDOOLQJHLWKHUSDVWSHUVRQDORUSXEOLF
    LQIRUPDWLRQ 06$OEHUW%XWWHUVDQG/HYLQ1%XWWHUVDQG$OEHUW 5$ 0F&DUWK\DQG
    :DUULQJWRQ 'XHWRWKHVWHHSWHPSRUDOJUDGLHQWUHFDOORIWKHPRVWUHFHQWHYHQWVLVSRRUHVWDQG
    UHFDOO LPSURYHV DV WKH WLPH RI PHPRU\ DFTXLVLWLRQ LV PRUH UHPRYHG IURP WKH GDWH RI RQVHW RI WKH
    .RUVDNRIIFRQGLWLRQ 1 %XWWHUV DQG &HUPDN .RSHOPDQ   (DUO\ HSLVRGLF PHPRULHV RI
    .RUVDNRII SDWLHQWV DUH UHODWLYHO\ SUHVHUYHG ZKHUHDV VHPDQWLF PHPRU\ HJ IRU YRFDEXODU\  LV
    HTXDOO\ LPSDLUHG DFURVV DOO UHWURJUDGH WLPH SHULRGV .RSHOPDQ %ULJKW HW DO   $V ZLWK QHZ
    OHDUQLQJ WKHVH SDWLHQWV SHUIRUP PXFK EHWWHU ZLWK D UHFRJQLWLRQ IRUPDW DJDLQ GHPRQVWUDWLQJ WKDW
    UHWULHYDOLVDVLJQLILFDQWSDUWRIWKH.RUVDNRIIPHPRU\SUREOHP .RSHOPDQ $V1%XWWHUVDQG
    &HUPDN   KDYH VKRZQ WKLV GHILFLW RFFXUV ZLWK PDWHULDO OHDUQHG DQG DYDLODEOH WR WKH SDWLHQW
    SUHPRUELGO\ ZKLOH WKH SDWLHQWߤV PHPRU\ ZDV VWLOO UHDVRQDEO\ LQWDFW 7KHVH REVHUYDWLRQV WKXV FDVW
    GRXEWRQIDXOW\HQFRGLQJDVDQH[SODQDWLRQRILPSDLUHGUHWULHYDORIORQJVWRUHGLQIRUPDWLRQLQWKLV
    FRQGLWLRQ
    2QHLQWHUHVWLQJDVSHFWRIWKHLUPHPRU\GLVRUGHULVDEUHDNGRZQLQWKHFDSDFLW\WRDSSUHFLDWHRU
    XVHWLPHUHODWLRQVKLSVWRJXLGHRUHYDOXDWHWKHLUUHVSRQVHV.RUVDNRIISDWLHQWVWHQGWREHREOLYLRXVWR
    FKURQRORJ\LQWKHLUUHFDOORIUHPRWHHYHQWVVRWKDWWKH\UHSRUWLPSRVVLEOHVHTXHQFHVXQTXHVWLRQLQJO\
    DQG ZLWKRXW JXLOH VXFK DV JRLQJ LQWR VHUYLFH EHIRUH JRLQJ WR KLJK VFKRRO RU ZDWFKLQJ WHOHYLVLRQ
    EHIRUH:RUOG:DU,,:KHQWKH\DWWHPSWWRDQVZHUTXHVWLRQVDERXWHYHQWVLWLVDVWKRXJKWKH\UHVSRQG
    ZLWK WKH ILUVW DVVRFLDWLRQ WKDW FRPHV WR PLQG QR PDWWHU KRZ ORRVHO\ RU LQDSSURSULDWHO\ LW PLJKW EH
    OLQNHG WR WKH TXHVWLRQV /KHUPLWWH DQG 6LJQRUHW   .RUVDNRII SDWLHQWV DUH DOVR SURQH WR
    FRQIDEXODWLRQSDUWLFXODUO\LQWKHHDUO\VWDJHVRIWKHLUGLVRUGHU 1%XWWHUV.HVVHOV.RUWULMNHW
    DO.RSHOPDQD )RUH[DPSOHWKH\WHQGWRSURGXFHXQFRQVLGHUHGIUHTXHQWO\LQFRQVLVWHQW
    IRROLVK DQGVRPHWLPHVTXLWH H[RWLFFRQIDEXODWLRQV LQ UHVSRQVH WR TXHVWLRQV WR ZKLFKWKH\IHHO WKH\
    RXJKW WR NQRZ WKH DQVZHU VXFK DV ߧ:KDW ZHUH \RX GRLQJ ODVW QLJKW"ߨ RU ߧ+RZ GLG \RX JHW WR WKLV
    SODFH"ߨ
    $OVR LW KDV EHHQ VKRZQ WKDW .RUVDNRII SDWLHQWV FRQIDEXODWH PRVW IUHTXHQWO\ ZLWKLQ WKH
    HSLVRGLFDXWRELRJUDSKLFDO PHPRU\ GRPDLQ FRQILUPLQJ WKH JHQHUDO FOLQLFDO LPSUHVVLRQ WKDW WKHVH
    SDWLHQWVFRQIDEXODWHLQHYHU\GD\OLIHPDLQO\ZLWKUHVSHFWWRWKHLUSHUVRQDOSDVWDQGSUHVHQW %RUVXW]N\
    HW DO   7KH JUHDWHU SUHVHQFH RI FRQIDEXODWLRQ GXULQJ WKH LQLWLDO VWDJHV RI WKH GLVHDVH PD\ EH
    UHODWHG WR RUELWDO DQG PHGLDO IURQWDO K\SRPHWDEROLVP ZKLFK QRUPDOL]HV RYHU WLPH %HQVRQ
    'MHQGHUHGMLDQHWDO '\VIXQFWLRQLQWKHEDVDOIRUHEUDLQLVDQRWKHUOLNHO\FXOSULW 6DOPRQDQG
    %XWWHUV 
    ,PSOLFLW PHPRU\ H[DPLQHG HJ E\ UHVSRQVH WLPHV RU SULPHG UHFDOO  UHPDLQV UHODWLYHO\ LQWDFW
    .RSHOPDQ7KRPVRQHWDO ,WLVRQO\ZKHQDFWLYH FRQVFLRXVGLUHFWHG UHWULHYDOLVUHTXLUHG
    WKDW .RUVDNRII SDWLHQWV IDLO WR H[KLELW ZKDW WKH\ PD\ KDYH OHDUQHG *UDI HW DO  1LVVHQ
    :LOOLQJKDPDQG+DUWPDQ 

    ([HFXWLYH IXQFWLRQV 1RWDEOH LPSDLUPHQWV RQ H[HFXWLYH WDVNV VXFK DV GHFLVLRQ PDNLQJ DQG
    FRJQLWLYHHVWLPDWLRQSUHPDWXUHUHVSRQGLQJGLPLQLVKHGDELOLW\WREHQHILWIURPPLVWDNHV LHFKDQJH
    XQUHZDUGLQJUHVSRQVHSDWWHUQV DQGGLPLQLVKHGDELOLW\WRSHUFHLYHDQGXVHFXHVDOVRFKDUDFWHUL]HWKH
    QHXURSV\FKRORJLFDOSURILOHRISDWLHQWVZLWK.RUVDNRIIߤVV\QGURPH 0%UDQG)XMLZDUD%RUVXW]N\HW
    DO  0 %UDQG )XMLZDUD .DOEH HW DO  %URNDWH HW DO  2VFDU%HUPDQ    7KH
    SDWLHQWV DOVR GR SRRUO\ RQ WHVWV UHTXLULQJ K\SRWKHVLV JHQHUDWLRQ DQG WHVWLQJ DV ZHOO DV SUREOHP
    VROYLQJ 1 %XWWHUV  /DLQH DQG %XWWHUV   7KHVH FRQFHSWXDO DQG UHJXODWRU\ H[HFXWLYH
    LPSDLUPHQWV DUH EHKDYLRUDO PDQLIHVWDWLRQV RI WKH GLVSURSRUWLRQDWH G\VIXQFWLRQ LQ IURQWDO OREH
    VWUXFWXUHV RI SDWLHQWV ZLWK .RUVDNRIIߤV V\QGURPH 0 %UDQG )XMLZDUD %RUVXW]N\ HW DO  0
    %UDQG )XMLZDUD .DOEH HW DO  %URNDWH HW DO   $EQRUPDOLWLHV RI IURQWDO V\VWHP
    IXQFWLRQLQJ PD\ EH D GLVWLQJXLVKLQJ IHDWXUH RI DOFRKROLFV ZLWK .RUVDNRIIߤV V\QGURPH 2VFDU
    %HUPDQ.LUNOH\HWDO 

    (PRWLRQDO DQG SV\FKRVRFLDO EHKDYLRU %HKDYLRUDO GHIHFWVVSHFLILFDOO\ DQGFRQVLVWHQWO\DVVRFLDWHG


    ZLWK WKH .RUVDNRII V\QGURPH DUH GLVRULHQWDWLRQ IRU WLPH DQG SODFH DSDWK\ FKDUDFWHUL]HG E\ D
    YLUWXDOO\ WRWDO ORVV RI LQLWLDWLYH LQVLJKW DQG LQWHUHVW DQG D VWULNLQJ ODFN RI FXULRVLW\ DERXW SDVW
    SUHVHQWRUIXWXUH3DWLHQWVDUHHPRWLRQDOO\EODQGEXWZLWKDFDSDFLW\IRUPRPHQWDU\LUULWDELOLW\DQJHU
    RUSOHDVXUHWKDWTXLFNO\GLVVLSDWHVZKHQWKHVWLPXODWLQJFRQGLWLRQLVUHPRYHGRUWKHGLVFXVVLRQWRSLF
    LV FKDQJHG 7KXV WKH\ DUH YLUWXDOO\ DW WKH PHUF\ RI ZKDWHYHU RU ZKRHYHU LV LQ WKHLU LPPHGLDWH
    HQYLURQPHQW 'HVSLWH WKHLU PDQ\ UHVLGXDO DELOLWLHV DQG VNLOOV XQOLNH WKH FKURQLF DOFRKROLF ZKRVH
    PHPRU\ IXQFWLRQV UHPDLQ UHODWLYHO\ LQWDFW WKH PHPRU\ GHIHFWV DQG LQHUWLD RI WKH .RUVDNRII
    V\QGURPHUHQGHUWKHVHYHUHO\LPSDLUHGSDWLHQWXWWHUO\GHSHQGHQW
    6SHFLILFGHILFLWVLQHPRWLRQDOSURFHVVLQJKDYHEHHQUHSRUWHG.RUVDNRIISDWLHQWVZHUHLPSDLUHGLQ
    LQWHUSUHWLQJ WKH DIIHFWLYH SURVRG\ RI VSRNHQ VHQWHQFHV WKDW KDG QHXWUDO RU LQFRQJUXHQW VHQWHQFH
    FRQWHQW 6QLW] HW DO   7KH IDFLOLWDWLQJ HIIHFW RI HPRWLRQDO YDOHQFH RQ PHPRU\ SHUIRUPDQFH D
    SRWHQWHIIHFWWKDWKROGVXSLQPDQ\DPQHVLFSDWLHQWV %XFKDQDQHWDO  DQG LQDJLQJ 'HQEXUJ
    %XFKDQDQ HW DO   ZDV DEVHQW LQ .RUVDNRII SDWLHQWV IXUWKHU XQGHUVFRULQJ G\VIXQFWLRQ LQ
    HPRWLRQUHODWHGQHXUDOV\VWHPVLQWKHVHSDWLHQWV /DEXGGDHWDO 

    5HODWLRQVKLS EHWZHHQ .RUVDNRII ߤV V\QGURPH DQG FKURQLF DOFRKROLVP ,W KDV EHHQ VXJJHVWHG WKDW
    .RUVDNRIIߤV V\QGURPH UHSUHVHQWV WKH H[WUHPH HQG VWDJH RI WKH RUJDQLF DOWHUDWLRQV LQ FKURQLF
    DOFRKROLVP +RZHYHU .RUVDNRIIߤV V\QGURPH GLIIHUV IURP FKURQLF DOFRKROLVP LQ D QXPEHU RI
    LPSRUWDQWUHVSHFWV6LQFHPRVW.RUVDNRIISDWLHQWVKDYHDKLVWRU\RIFKURQLFDOFRKROLVPWKH\DOVRDUH
    OLNHO\ WR KDYH DFTXLUHG WKH NLQG RI FHUHEUDO DWURSK\ W\SLFDOO\ DVVRFLDWHG ZLWK KHDY\ DOFRKRO LQWDNH
    RYHU WKH \HDUV DQG VRPH FKURQLF DOFRKROLFV ZLOO DOVR KDYH PLOG GLHQFHSKDOLF LQYROYHPHQW 2QO\
    .RUVDNRII SDWLHQWV KRZHYHU ZLOO KDYH VXVWDLQHG VLJQLILFDQW OHVLRQV LQ VWUXFWXUHV WKURXJKRXW WKH
    GLHQFHSKDORQ DORQJ ZLWK GHSUHVVHG QHXURWUDQVPLWWHU OHYHOV 8QOLNH WKH JUDGXDO GHWHULRUDWLRQ
    DVVRFLDWHGZLWKFKURQLFDOFRKROLVP.RUVDNRIIߤVV\QGURPHKDVDVXGGHQRQVHWRIWHQDSSHDULQJDVD
    UHVLGXDO RI :HUQLFNHߤV HQFHSKDORSDWK\ +HLQGHO 6DOPRQ DQG %XWWHUV  /LVKPDQ  6%
    5RXUNHDQG*UDQW .RUVDNRIISDWLHQWVH[KLELWPDUNHGSHUVRQDOLW\DOWHUDWLRQVZLWKWKHFDUGLQDO
    IHDWXUHV RI H[WUHPH SDVVLYLW\ DQG HPRWLRQDOEODQGQHVV DQG WKXVDUH XQOLNH FKURQLF DOFRKROLFV ZKR
    IRUWKHPRVWSDUWGRQRWORVHWKHLULQGLYLGXDOLW\RUFDSDFLW\WRJHQHUDWHVHOIVHUYLQJRUJRDOGLUHFWHG
    DFWLYLW\&KURQLFDOFRKROLFVDUHIXUWKHUGLVWLQJXLVKHGE\WKHDEVHQFHRIFRQIDEXODWLRQDQGߟQRWOHDVW
    ߟE\WKHUHODWLYHPLOGQHVVDQGVFDWWHUHGLQFLGHQFHRIWKHLUPHPRU\GHILFLWV
    $QRWKHU LPSRUWDQW GLIIHUHQFH LV WKH SRWHQWLDO IRU LPSURYHPHQW .RUVDNRII SDWLHQWV UHTXLUH
    WKLDPLQHUHSODFHPHQWHDUO\LQWKHLUFRXUVHWRPDNHDQ\JDLQVEXWZKLOHWKH:HUQLFNHIHDWXUHVRIWKH
    FRQGLWLRQLPSURYHZLWKWKLDPLQH HJYLVXDODQGJDLWGLVWXUEDQFHV WKH.RUVDNRIIFRQGLWLRQLVPRUH
    OLNHO\WRODVW %UXVWE $JDLQXQOLNHDOFRKROLFVPDQ\.RUVDNRIISDWLHQWVGRQRWUHJDLQHQRXJK
    FDSDFLW\WRPDLQWDLQVRFLDOLQGHSHQGHQFHDQGWKHQDWXUHRIWKHFRQGLWLRQSUHFOXGHVHIIHFWLYHFRJQLWLYH
    UHPHGLDWLRQ SDWLHQWV ZKR GR QRW KDYH VHOIGLUHFWHG DFFHVV WR QHZ LQIRUPDWLRQ FDQQRW PDNH
    EHKDYLRUDOFKDQJHV)RU.RUVDNRIISDWLHQWVIXUWKHUQHXURORJLFDOGHWHULRUDWLRQLVXQOLNHO\VLQFHPRVW
    RIWKHPHQGXSLQFXVWRGLDOFDUH .RSHOPDQ7KRPVRQHWDO 

    6WUHHW'UXJV
    'UXJ DEXVH UHPDLQV D OHDGLQJ KHDOWK SUREOHP WKH ZRUOG RYHU 'UXJV RI DGGLFWLRQ LQ SDUWLFXODU
    FRQWLQXH WR H[DFW DQ HQRUPRXV WROO RQ VRFLHW\ DQG FRQWULEXWH WR DOO PDQQHU RI KHDOWK SUREOHPV
    GLVHDVHDFFLGHQWVDQGFULPHV2EWDLQLQJDFFXUDWHLQIRUPDWLRQRQWKHQHXURSV\FKRORJLFDOHIIHFWVRI
    GUXJVRIDEXVHSUHVHQWVDIRUPLGDEOHUHVHDUFKFKDOOHQJHDOWKRXJKPXFKKHDGZD\KDVEHHQPDGHLQ
    UHFHQW\HDUV5HVHDUFKFKDOOHQJHVEHJLQZLWKWKHZLGHO\GLIIHULQJHIIHFWVRIDQ\RQHRIWKHPDQ\LOOLFLW
    VXEVWDQFHVWDNHQE\GUXJXVHUVDQGWKH\DUHIUHTXHQWO\FRPSRXQGHGE\EDFNJURXQGYDULDEOHVVXFKDV
    KLVWRULHVRIKHDGWUDXPDDQGSRRUVFKRROSHUIRUPDQFHDQGE\WKHSRO\GUXJKDELWV LQFOXGLQJDOFRKRO
    DEXVH RIPRVWVWUHHWGUXJXVHUV7KXVNQRZOHGJHDERXWDQ\VLQJOHGUXJPD\FRPHIURPVWXGLHVRI
    UHODWLYHO\IHZSHUVRQVZKRFDPHWRPHGLFDODWWHQWLRQDQGWKHQLQFOXGHVDOOWKHELDVHVWKDWFDQGLVWRUW
    WKHILQGLQJVRIVXFKOLPLWHGVWXGLHV0RVWLQYHVWLJDWRUVKDYHWRVHWWOHIRUSRSXODWLRQVDPSOHVWKDWDUH
    ߧUHODWLYHO\ߨSXUHLQWHUPVRIRQHGUXJXVH HJYDQGHU3ODVHWDO 7KLVPD\DFWXDOO\EHDSOXV
    JLYHQ WKH XELTXLWRXV QDWXUH RI SRO\SKDUPDF\ DQG WKH WKUHDWV WR H[WHUQDO YDOLGLW\ ZKHQ VWXG\LQJ
    XQUHSUHVHQWDWLYH VLQJOH GUXJ XVHUV 'HVSLWH WKH UHVHDUFK FKDOOHQJHV FKDUDFWHULVWLF DQG HQGXULQJ
    QHXURSV\FKRORJLFDOHIIHFWVKDYHEHHQLGHQWLILHGIRUDIHZVWUHHWGUXJV

    6H[ GLIIHUHQFHV 'UXJ DEXVH ZDV RQFH FRQVLGHUHG ODUJHO\ D ߧPDOHߨSUREOHP VR WKDW WKH YDVW
    PDMRULW\ RI HDUOLHU UHVHDUFK RQ GUXJ DEXVH IHDWXUHG PHQRQO\ RU PHQSUHGRPLQDQWO\ VWXG\
    SRSXODWLRQV 7XFKPDQ    7KLV VLWXDWLRQ KDV FKDQJHG LQ UHFHQW \HDUV DV ZRPHQ KDYH EHFRPH
    LQFUHDVLQJO\DEXVLYHRIGUXJVDQGDOFRKRO,PSRUWDQWVH[GLIIHUHQFHVKDYHQRZEHHQIRXQGDWYLUWXDOO\
    HYHU\ SKDVH RI GUXJ XVH DQG DEXVH LQFOXGLQJ DFTXLVLWLRQ PDLQWHQDQFH DQG RXWFRPH 4XLQRQHV
    -HQDE 7KHVHGLIIHUHQFHVDUHHYLGHQWIURPWKHEHJLQQLQJPHQDQGZRPHQGLIIHULQWKHPDQQHU
    LQZKLFKWKH\EHFRPHDGGLFWHGWRGUXJVDVZRPHQWHQGWREHJLQXVLQJDWDODWHUDJH2QFHWKH\VWDUW
    KRZHYHU ZRPHQ SURJUHVV PRUH UDSLGO\ WR DGGLFWLRQ DQG WKHQ WUHDWPHQW D SDWWHUQ WKDW KDV EHHQ
    WHUPHGߧWHOHVFRSLQJߨ +HUQDQGH]$YLOD&/ 5DQGDOO HW DO  'LIIHUHQFHVFRQWLQXH ZKHQ
    ZRPHQHQWHUVXEVWDQFHDEXVHWUHDWPHQWDVWKH\W\SLFDOO\SUHVHQWZLWKDPRUHVHYHUHFOLQLFDOSURILOH
    6)*UHHQILHOGHWDO 
    ,PSRUWDQW GLIIHUHQFHV FRQWLQXH LQ KRZ PHQ DQG ZRPHQ UHVSRQG WR WUHDWPHQW UHPDLQ FOHDQ DQG
    VREHUDQGUHODSVHWRGUXJXVH -%%HFNHUDQG+X+&)R[DQG6LQKD 7KHUHDUHHYHQ
    VH[ UHODWHG GLIIHUHQFHV LQ EDVLF FUDYLQJV DQG XUJHV WR XVH GUXJVߟZRPHQ IRU H[DPSOH KDYH EHHQ
    VKRZQWRKDYHKLJKHUFUDYLQJVIRUFRFDLQHWKDQPHQ (OPDQHWDO6- 5REELQV HW DO  
    7KHVH GLIIHUHQFHV PD\ EH UHODWHG WR EDVLF GLIIHUHQFHV LQ QHXURELRORJ\ WKDW LQFOXGH VH[ UHODWHG
    GLPRUSKLVPV RI FULWLFDO VWUXFWXUHV VXFK DV WKH YHQWUDO WHJPHQWDO DUHD QXFOHXV DFFXPEHQV VWULDWXP
    DP\JGDOD DQG PHGLDO SUHIURQWDO FRUWH[ LH WKH VRFDOOHG PHVRFRUWLFROLPELF V\VWHP WKDW KDV EHHQ
    LPSOLFDWHG IRU PDQ\ GUXJV RI DEXVH 6SHFLILF VH[ UHODWHG GLIIHUHQFHV IRU HDFK RI WKH YDULRXV GUXJV
    UHYLHZHGEHORZDUHFRPSOH[DQGEH\RQGWKHVFRSHRIWKLVERRNEXWRQHPXVWUHPDLQDZDUHWKDWWKHVH
    GLIIHUHQFHVRFFXUZLWKYLUWXDOO\DOOGUXJVDVZHOODVIRUDOFRKRO IRUUHYLHZVVHH-%%HFNHUDQG+X
    'OX]HQDQG/LX)DWWRUH)DGGDDQG)UDWWD6)*UHHQILHOGHWDO 

    0DULMXDQD FDQQDELV

    $IWHU DOFRKRO DQG QLFRWLQH PDULMXDQD LV WKH PRVW FRPPRQO\ XVHG ߧUHFUHDWLRQDOߨGUXJ LQ :HVWHUQ
    FRXQWULHV DQG SUREDEO\ WKH PRVW FRPPRQO\ XVHG LOOLFLW GUXJ ZRUOGZLGH 'L )RUWL HW DO  
    0DULMXDQDߤV DFXWH HIIHFWV LQFOXGH KDOOXFLQDWRU\ DQG UHDFWLYH HPRWLRQDO VWDWHV VRPH SOHDVDQW VRPH
    XQSOHDVDQW DQG HYHQ WHUULI\LQJ WLPH GLVRULHQWDWLRQ DQG UHFHQWߟWUDQVLHQWߟPHPRU\ ORVV %UXVW
    D /LVKPDQ  6RORZLM    7KH LQWHQVLW\ RI WKHVH HIIHFWV LQFOXGLQJ ERWK YLVXDO DQG
    DXGLWRU\ KDOOXFLQDWLRQV LQFUHDVHV DV WKH GRVH JHWV KLJKHU YHU\ KLJK GRVHV FDQ UHVXOW LQ SV\FKRWLF
    VWDWHV &ROEDFKDQG&URZH6HPSOHHWDO 3DUDOOHOVEHWZHHQPDULMXDQDLQWR[LFDWLRQDQG
    WKHV\PSWRPVRIVFKL]RSKUHQLDKDYHEHHQGUDZQDQGFRQYHUJLQJHYLGHQFHVXJJHVWVWKDWFDQQDELQRLGV
    FDQSURGXFHDIXOOUDQJHRIWUDQVLHQWVFKL]RSKUHQLDOLNHSRVLWLYHQHJDWLYHDQGFRJQLWLYHV\PSWRPVLQ
    VRPH KHDOWK\ SHUVRQV 'ߤ6RX]D HW DO   +RZHYHU WKLV LV PRUH OLNHO\ WR RFFXU ZKHQ RWKHU
    SUHGLVSRVLQJULVNIDFWRUVDUHSUHVHQW 6HZHOO5DQJDQDWKDQDQG'ߤ6RX]D 
    /LNHGUXJVVXFKDVFRFDLQHDPSKHWDPLQHVKHURLQDOFRKRODQGQLFRWLQHPDULMXDQDLVUHJXODUO\
    FRQVXPHGIRULWVHXSKRULDQWRUSV\FKRVWLPXODQWHIIHFWV8QOLNHWKHVHRWKHUGUXJVKRZHYHUWKHORQJ
    WHUP QHXURORJLFDO DQG QHXURSV\FKRORJLFDO HIIHFWV RI PDULMXDQD XVH DUH HTXLYRFDO *RQ]DOH] HW DO
      (YHQ WKH EDVLF LVVXH RI ZKHWKHU PDULMXDQD VKRXOG EH FRQVLGHUHG D GUXJ RI DGGLFWLRQ ZLWK
    KDUPIXO VLGH HIIHFWV OLNH FRFDLQH DPSKHWDPLQHV DQG RWKHUV  UHPDLQV RSHQ WR GHEDWH (DUOH\ZLQH
    ,YHUVHQ 6FLHQWLILFHYLGHQFHWKDWPDULMXDQDKDVDQ\SHUPDQHQWQHXURWR[LFHIIHFWVLVKDUG
    WR FRPH E\ *RQ]DOH] HW DO  0DUWLQ6DQWRV HW DO   DQG PD\ EH UHVWULFWHG WR ORQJWHUP
    KHDY\ GRVDJH XVHUV (OGUHWK HW DO  *UXEHU HW DO   +HDY\ XVDJH GRVH DQG GXUDWLRQ
    GHSHQGHQW  KDV DOVR EHHQ OLQNHG WR SDWKRORJLFDO DOWHUDWLRQV LQ PDQ\ ERG\ V\VWHPV 5HHFH  
    HVSHFLDOO\UHVSLUDWRU\DQGFDUGLRYDVFXODU :+DOODQG'HJHQKDUGW 
    'HEDWHDERXWSRVVLEOHGDQJHUVRIOHJDOL]HGPDULMXDQDFRQWLQXHVLQVFLHQWLILFSXEOLFDWLRQVDVZHOO
    DVWKHSRSXODUPHGLD HJ3-&RKHQDE-RIIHDQG<DQF\:DUI $UJXPHQWVDERXW
    PDULMXDQDߤVVWDWXVDVDQLOOLFLWVXEVWDQFHKDYHRQO\EHHQVKDUSHQHGE\WKHUDSLGO\DFFUXLQJHYLGHQFH
    WKDW PDULMXDQD KDV LPSRUWDQW HIILFDF\ DV D PHGLFDO WUHDWPHQW IRU D QXPEHU RI FRQGLWLRQV LQFOXGLQJ
    JODXFRPD DFXWH DQG FKURQLF SDLQ LQFOXGLQJ KHDGDFKH DQG FDQFHU SDLQ  QDXVHD DQG YRPLWLQJ
    GLPLQLVKHG DSSHWLWH DQG ZHLJKW ORVV HJ DVVRFLDWHG ZLWK $,'6 ZDVWLQJ  VSDVWLFLW\ LQYROXQWDU\
    PRYHPHQWV DQG HYHQ VHL]XUHV $JJDUZDO HW DO * 7 &DUWHU HW DO  (DUOH\ZLQH  
    7KHFRQWLQXHGFULPLQDOL]DWLRQRIPDULMXDQDDQGOHJDOSURKLELWLRQRQLWVXVHPD\KDYHKDUPIXOVLGH
    HIIHFWVIRULQGLYLGXDOVDQGVRFLHW\ZKLOHKDYLQJOLWWOHLQIOXHQFHRQWKHSUHYDOHQFHRILWVXVHߧ&DQQDELV
    SHU VH LVQRW DKD]DUG WRVRFLHW\EXW GULYLQJ LW IXUWKHU XQGHUJURXQG PD\ ZHOO EHߨ (GLWRUV/DQFHW
    VHHDOVR*URWHQKHUPHQ 

    $FXWH HIIHFWV /DERUDWRU\ VWXGLHV RI EHKDYLRU GXULQJ PDULMXDQD XVH WHQG WR EH HTXLYRFDO ,Q D
    GHWDLOHG UHYLHZ // 0LOOHU   IRXQG WKDW IRU HDFK VWXG\ WKDW GHPRQVWUDWHG D PDULMXDQDUHODWHG
    FKDQJH RQ RQH RU DQRWKHU WHVW RI FRJQLWLYH IXQFWLRQV DW OHDVW RQH DQG XVXDOO\ PRUH GLG QRW <HW
    0LOOHU ߤVGDWDVXJJHVWDGHILFLWSDWWHUQ:KLOHVWXGLHVXVLQJ:HFKVOHU ߤV'LJLW6SDQZHUHWRRHTXLYRFDO
    WR DOORZ DQ\ FRQFOXVLRQV WR EH GUDZQ VFRUHV RQ V\PERO VXEVWLWXWLRQ WHVWV VKRZHG D SRVVLEOH GRVH
    UHODWHG WHQGHQF\ WRZDUGV UHVSRQVH VORZLQJ RQ WKLV WDVN 2Q VLPSOH WUDFNLQJ WDVNV QR GHILFLWV ZHUH
    IRXQG EXW D VWXG\ XVLQJ D FRPSOH[ WUDFNLQJ WDVN GLG HOLFLW HYLGHQFH RI LPSDLUPHQW IROORZLQJ
    PDULMXDQDLQKDODWLRQ0HPRU\WHVWGDWDDUHWKHPRVWFRQFOXVLYHJHQHUDOO\VKRZLQJUHGXFHGPHPRU\
    HIILFLHQF\GXULQJPDULMXDQDXVH %UXVWD 7KLVGHILFLHQF\DSSHDUVWREHDVVRFLDWHGZLWKVWRUDJH
    EXWQRWUHWULHYDO &)'DUOH\HWDO DQGPD\EHGXHPRUHWRLPSDLUHGDWWHQWLRQORVVRIDELOLW\WR
    GLVFULPLQDWHEHWZHHQROGDQGQHZOHDUQLQJRULQVXIILFLHQWUHKHDUVDOWKDQWRDVWRUDJHGHIHFWSHUVH
    6ORZHGYLVXDOSURFHVVLQJGXULQJPDULMXDQDXVHKDVDOVREHHQGHPRQVWUDWHG %UDIIHWDO 7LPH
    SHUFHSWLRQZKLFKXQGHUQRUPDOFRQGLWLRQVWHQGVWREHXQGHUHVWLPDWHG LHRQHWKLQNVOHVVWLPHKDV
    SDVVHGWKDQDFWXDOO\KDV PD\EHXQGHUHVWLPDWHGHYHQPRUHZKHQPDULMXDQDLVXVHG+RZHYHUWKLV
    HIIHFWREVHUYHGLQWKHODERUDWRU\ZLWKLQPLQXWHVRIDGPLQLVWUDWLRQRIWKHGUXJWHQGHGWRGLVVLSDWH
    ZLWKLQ WKH VXEVHTXHQW  PLQXWHV 'RUQEXVK DQG .RNNHYL   DQG QR HIIHFW RQ WLPH VHQVH ZDV
    REWDLQHGLQRQHVWXG\RI\RXQJDGXOWPDOHV +HLVKPDQHWDO 
    0RUH UHFHQW VWXGLHV XVLQJ VLPXODWHG GULYLQJ IRUPDWV VXSSRUW WKH ROGHU GDWD ZLWK ILQGLQJV WKDW
    DFXWHO\PDULMXDQDXVHLPSDLUVSHUIRUPDQFHRQVHOHFWLYHDQGGLYLGHGDWWHQWLRQWLPHHVWLPDWLRQDQG
    FRJQLWLYHIOH[LELOLW\ %0$QGHUVRQHWDO6HZHOO3ROLQJDQG6RIXRJOX 7KH$QGHUVRQ
    VWXG\ IRXQG QR VH[ GLIIHUHQFHV LQ VLPXODWHG GULYLQJ YDULDEOHV EXW SKDUPDFRG\QDPLF DQG
    SKDUPDFRNLQHWLFGLIIHUHQFHVKDYHEHHQLGHQWLILHG )DWWRUHDQG)UDWWD 
    5- 0DWKHZ DQG FROOHDJXHV   XVLQJ 3(7 IRXQG FHUHEHOODU EORRG IORZ LQFUHDVHV LQ PRVW
    KHDOWK\YROXQWHHUVZLWKWLPHVHQVHDOWHUHGRQO\IRUWKRVHZLWKGHFUHDVHGIORZ1HZLPDJLQJZRUNKDV
    EHJXQWRFODULI\KRZFDQQDELQRLGVDFWLQWKHEUDLQ %KDWWDFKDU\\DHWDO 1HXURLPDJLQJVWXGLHV
    GXULQJ DFXWH DGPLQLVWUDWLRQ VKRZ VXEMHFWV SHUIRUPLQJ FRJQLWLYH WDVNV KDYH LQFUHDVHG DFWLYDWLRQ RI
    IURQWDOUHJLRQV 0DUWLQ6DQWRVHWDO 

    /RQJWHUPHIIHFWVRQFRJQLWLYHDELOLWLHV$FRPSDULVRQRIWHVWVFRUHVRIFROOHJHVWXGHQWPDULMXDQD
    XVHUV DQG QRQXVHUV RQ WKH :HFKVOHU $GXOW ,QWHOOLJHQFH 6FDOH DQG WKH +DOVWHDG %DWWHU\ WDNHQ D \HDU
    DSDUWVKRZHGQRGLIIHUHQFHRQDQ\PHDVXUH &XOYHUDQG.LQJ 7KLVILQGLQJZDVVXSSRUWHGE\D
    'DQLVKVWXG\RIVHYHUDOJURXSVRISRO\GUXJXVHUVDOORIZKRPXVHGPDULMXDQDLQZKLFKWKHVDPHVHW
    RI WHVWV SOXV OHDUQLQJ DQG UHDFWLRQ WLPH WHVWV VKRZHG QR GLIIHUHQFHV EHWZHHQ WKH XVHUV DQG FRQWURO
    JURXSV 3 %UXKQ DQG 0DDJH   6LPLODU VWXGLHV KDYH FRPH XS ZLWK VLPLODUO\ QHJDWLYH UHVXOWV
    6DW] )OHWFKHU DQG 6XWNHU  - 6FKDHIIHU HW DO   , *UDQW $GDPV &DUOLQ DQG WKHLU
    FRZRUNHUV  FRQFOXGHGRQWKHEDVLVRIDODUJHVFDOHVWXG\RISRO\GUXJDEXVHWKDWPDULMXDQDߧLV
    QRWQHXURWR[LFDWOHDVWLQWKHVKRUWUXQ LHDSSUR[LPDWHO\\HDUVRIUHJXODUXVH ߨ+RZHYHUWKH\
    TXDOLILHG WKLV FRQFOXVLRQ E\ QRWLQJ WKDW WKHLU VXEMHFWV ߧZHUH QRW LQ JHQHUDO KHDY\ KDOOXFLQRJHQ
    FRQVXPHUVߨ0RUHUHFHQWVWXGLHVORRNLQJDWVSHFLILFPHPRU\RSHUDWLRQVKDYHIRXQGLPSDLUPHQWVLQ
    HQFRGLQJ VWRUDJH DQG UHWULHYDO LQ ORQJWHUP FDQQDELV XVHUV *RQ]DOH] HW DO   WKH H[WHQW RI
    LPSDLUPHQWߧUHODWHGWRWKHGXUDWLRQIUHTXHQF\GRVHDQGDJHRIRQVHWߨ 6RORZLMDQG%DWWLVWL 
    6HYHUDO ODUJHVFDOH VWXGLHV RI SRSXODWLRQV LQ &RVWD 5LFD -DPDLFD DQG *UHHFHߟSODFHV ZKHUH
    KHDY\ PDULMXDQD XVH LV HQGHPLFߟKDYH IDLOHG WR ILQG VLJQLILFDQW QHJDWLYH ORQJWHUP FRJQLWLYH
    RXWFRPHV DVVRFLDWHG ZLWK KHDY\ PDULMXDQD XVH YDQ $PVWHUGDP HW DO   )RU H[DPSOH -0
    )OHWFKHUDQGFROOHDJXHV  DGPLQLVWHUHGDQH[WHQVLYHEDWWHU\RIFRJQLWLYHWHVWVWRPDULMXDQDXVHUV
    ZKR KDG FRQVXPHG PDULMXDQD RQ DYHUDJH IRU  \HDUV VPRNLQJ DERXW ILYH MRLQWV SHU GD\ :KHQ
    WHVWHG DIWHU D KRXU SHULRG RI DEVWLQHQFH ORQJWHUP XVHUV KDG VXEWOH PLOG GHILFLWV RQ D IHZ
    PHDVXUHVRIFRPSOH[YHUEDOPHPRU\EXWZHUHRWKHUZLVHLQGLVWLQJXLVKDEOHIURPDFRPSDULVRQJURXS
    RI QRQXVHUV $ OLWHUDWXUH UHYLHZ FRQFOXGHG WKDW ߧPRVW RI WKH FXUUHQW HYLGHQFH VXJJHVWV WKDW
    QHXURSV\FKRORJLFDO FRQVHTXHQFHV RI FDQQDELV XVH DSSHDU WR GLVVLSDWH RYHU WLPH LQGLFDWLYH RI QR
    SHUPDQHQW QHXURSV\FKRORJLFDO HIIHFWVߨ *RQ]DOH] HW DO  S   :KHWKHU FDQQDELV LV WUXO\ D
    QHXURWR[LQLVTXHVWLRQDEOH

    /RQJWHUP HIIHFWV RQ SHUVRQDOLW\ 6RPH VWXGLHV SRLQW WR SHUVRQDOLW\ FKDQJHV LQ KHDY\ XVHUV RI
    PDULMXDQD RU KDVKLVK $6 &DUOLQ DQG 2ߤ0DOOH\  /LVKPDQ   7KH PRVW FRPPRQO\
    GHVFULEHG FKDUDFWHULVWLFV DUH DIIHFWLYH EOXQWLQJ PHQWDO DQG SK\VLFDO VOXJJLVKQHVV DSDWK\
    UHVWOHVVQHVVVRPHPHQWDOFRQIXVLRQDQGSRRUUHFHQWPHPRU\ )RQWHVHWDO )RUH[DPSOH%3
    6KDUPD  IRXQGWKDW1HSDOHVHZKRXVHGFDQQDELVDWOHDVWWKUHHWLPHVDGD\IRUPRUHWKDQWZR
    \HDUVVKRZHGGLPLQLVKHGPRWLYDWLRQSRRUZRUNUHFRUGVDQGVRFLDOUHODWLRQVKLSVUHGXFHGOLELGRDQG
    LQHIILFLHQF\ WKHVH SUREOHPV UHVROYHG ZLWK DEVWLQHQFH 0RUHRYHU PDQ\ VWXGLHV KDYH IRXQG QR
    VLJQLILFDQWORQJWHUPEHKDYLRUDOGHILFLWV $6&DUOLQDQG2ߤ0DOOH\+DQQHU] DQG +LQGPDUVK
     - 6FKDHIIHU HW DO   6XPPDULHV LQ (DUOH\ZLQH   DQG ,YHUVHQ   VXSSRUW WKLV
    FRQFOXVLRQDVWKHSUHSRQGHUDQFHRIHPSLULFDOHYLGHQFHVXJJHVWVWKDWFKURQLFPDULMXDQDFRQVXPSWLRQ
    GRHVQRWSURGXFHSHUPDQHQWSHUVRQDOLW\FKDQJHV

    0DULMXDQD DQG GULYLQJ VDIHW\ 'HVSLWH PHGLD FODLPV RI DQ DVVRFLDWLRQ EHWZHHQ PDULMXDQD
    LQWR[LFDWLRQ DQG UHFNOHVV RU GDQJHURXV GULYLQJ IHZ VFLHQWLILF GDWD VXSSRUW DQ\ VXFK FRQQHFWLRQ
    0RUHRYHU ZKHQ DOFRKRO LV WDNHQ RXW RI WKH HTXDWLRQ HJ PRVW ߧKLJKߨGULYHUV LQ FUDVKHV DUH DOVR
    GUXQN  LW LV QRW FOHDU WKDW PDULMXDQD LPSDLUV GULYLQJ DW DOO (DUOH\ZLQH   /DERUDWRU\ VWXGLHV
    LQGLFDWHWKDWGULYHUVLQWR[LFDWHGZLWKFDQQDELVWHQGWRFRPSHQVDWHIRUWKHGUXJߤVFRJQLWLYHHIIHFWVE\
    GULYLQJPRUHVORZO\OHDYLQJPRUHVSDFHEHWZHHQFDUVDQGWDNLQJIHZHUULVNV 6HZHOO3ROLQJDQG
    6RIXRJOX 7KHVHEHKDYLRUVPD\H[SODLQZK\HSLGHPLRORJLFDOVWXGLHVKDYHVKRZQWKDWWKHRGGV
    RIFDXVLQJGHDWKRULQMXU\LQFDUFUDVKHVDUHDFWXDOO\VOLJKWO\ORZHULQFDQQDELVXVHUVWKDQLQSHRSOH
    ZKRKDGQRWFRQVXPHGGUXJV HJ01%DWHVDQG%ODNHO\$):LOOLDPVHWDO  6WXGLHV
    XVLQJ VRSKLVWLFDWHG GULYLQJ VLPXODWRUV KDYH DOVR VKRZQ WKDW SDUWLFLSDQWV XQGHU WKH LQIOXHQFH RI
    PDULMXDQDWHQGWRGULYHPRUHVORZO\EXWRWKHUWKDQWKLVDQGDIDLOXUHWRVKRZSUDFWLFHHIIHFWVXQGHU
    GLVWUDFWHGGULYLQJWKHLQWR[LFDWHGGULYHUVZHUHQRWGLIIHUHQWIURPQRQLQWR[LFDWHGFRQWUROVRQYDULRXV
    PHDVXUHVRIEDVHOLQHGULYLQJDQGFROOLVLRQDYRLGDQFH %0$QGHUVRQHWDO 

    (IIHFWVRQGHYHORSPHQW2QHDUHDLQZKLFKWKHUHLVPRUHFRQVLVWHQWHYLGHQFHIRUQHJDWLYHHIIHFWV
    RIPDULMXDQDXVHLVQHXURGHYHORSPHQWDVDQXPEHURIVWXGLHVKDYHVKRZQWKDWPDULMXDQDH[SRVXUH
    DQG XVH GXULQJ HDUO\ GHYHORSPHQWDO VWDJHVߟLQ XWHUR QRW VXUSULVLQJO\ *URWHQKHUPHQ   EXW
    PRUH LPSRUWDQW GXULQJ DGROHVFHQFHߟPD\ KDYH ORQJWHUP QHJDWLYH FRQVHTXHQFHV IRU FRJQLWLYH
    EHKDYLRUDOSV\FKRORJLFDO DQG QHXURORJLFDOKHDOWK -DJHUDQG 5DPVH\6TXHJOLD HW DO 
    7UH]]DHWDO $UHYLHZE\5HDOLQLDQGFRZRUNHUV  UHSRUWHGVXEWOHFKDQJHVLQDGXOWEUDLQ
    FLUFXLWV DIWHU KHDY\ FDQQDELV FRQVXPSWLRQ GXULQJ DGROHVFHQFH OHDGLQJ WR LPSDLUHG HPRWLRQDO DQG
    FRJQLWLYHSHUIRUPDQFHDQGSRWHQWLDOO\UHSUHVHQWLQJDULVNIDFWRUIRUGHYHORSLQJVFKL]RSKUHQLD7KH
    OLQN WR VFKL]RSKUHQLD KDV EHHQ HPSKDVL]HG E\ D QXPEHU RI LQYHVWLJDWRUV &RXOVWRQ HW DO 
    6RORZLMDQG0LFKLH WKLVLVHVSHFLDOO\WUXHRIJHQHWLFDOO\YXOQHUDEOHLQGLYLGXDOV 'L)RUWLHWDO
      $V ZLWK PXFK RI WKH OLWHUDWXUH RQ PDULMXDQD WKHUH DUH PDQ\ QHJDWLYH VWXGLHV WRR ,Q RQH
    OLWHUDWXUH UHYLHZ -DFREXV DQG FROOHDJXHV   UHSRUWHG WKDW YLUWXDOO\ DOO GHILFLWV DVVRFLDWHG ZLWK
    PDULMXDQDXVHLQWHHQDJHUVWHQGWRGLVDSSHDUDIWHUVHYHUDOPRQWKVRIFHVVDWLRQ0RUHRYHU'ߤ6RX]DHW
    DO  SRLQWRXWWKDWFDQQDELVH[SRVXUHLVQHLWKHUQHFHVVDU\QRUVXIILFLHQWWRFDXVHVFKL]RSKUHQLD
    RUDSV\FKRWLFGLVRUGHU7KHSRVVLELOLW\WKDWKHDY\PDULMXDQDXVHGXULQJEUDLQGHYHORSPHQWFDQOHDG
    WRORQJWHUPQHJDWLYHRXWFRPHVKRZHYHULVFRQVLVWHQWO\VXSSRUWHGE\WKHFXUUHQWOLWHUDWXUH

    &RFDLQH

    7KLV SRWHQW FHQWUDO QHUYRXV V\VWHP VWLPXODQW LV KLJKO\ DGGLFWLYH ERWK WKURXJK WKH HXSKRULF
    ߧUXVKߨH[SHULHQFH REWDLQHG E\ LQKDOLQJ IUHHEDVH VPRNH RU WKURXJK QDVDO LQKDODWLRQ RI LWV SRZGHU
    IRUP 1QDGL HWDO  2WKHU SRVLWLYH DVSHFWV RIFRFDLQH LQWR[LFDWLRQ LQFOXGHLQFUHDVHG DOHUWQHVV
    DQGDURXVDOOHYHOVLQFUHDVHGVHQVHRIZHOOEHLQJDQGFRQILGHQFHDQGPRWRUDFWLYDWLRQPXFKOLNHWKH
    VWLPXODWLQJTXDOLWLHVRIDPSKHWDPLQHV
    7KH HXSKRULF HIIHFW LV OHVV UDSLG DQG VKDUS ZKHQ WKH GUXJ LV WDNHQ LQWUDYHQRXVO\ VR WKDW
    LQFUHDVLQJO\JUHDWHUDPRXQWVRIWKHGUXJDUHUHTXLUHGWRUHH[SHULHQFHWKHHDUO\KLJKV 6&5HHGHW
    DO  $& 6PDOO HW DO   $W WKH QHXURWUDQVPLVVLRQ OHYHO FRFDLQH LQFUHDVHV GRSDPLQH LQ
    UHZDUGFLUFXLWVFRQWULEXWLQJWRDYLFLRXVF\FOHRIFUDYLQJDQGHYHUKLJKHUWKUHVKROGVIRUDHXSKRULF
    UHDFWLRQWRWKHGUXJ 'DFNLVDQG2ߤ%ULHQ.&6FKPLWWDQG5HLWK ,QWKHHDUO\VWDJHVRI
    XVHLWDFWVDVDQDSKURGLVLDFKHLJKWHQLQJOLELGRDQGVH[XDOUHVSRQVH /XNDVDQG5HQVKDZ  EXW
    LQ WKH ORQJ UXQ FRFDLQH FDQ UHGXFH OLELGR DQG FDXVH LPSRWHQFH 3V\FKLDWULF UHDFWLRQV LQFOXGH
    DJLWDWLRQSDUDQRLDGHOXVLRQVDQGKDOOXFLQDWLRQVSDQLFDWWDFNVDQGVHOIRURWKHUGLUHFWHGYLROHQFH
    VXLFLGHLQWHQWRUIDQWDVLHVDUHQRWXQFRPPRQZLWKUHFHQWFRFDLQHXVH 1QDGLHWDO  ߧ7KHUH LV
    VLJQLILFDQW HYLGHQFH WKDW UHSHDWHG VWLPXODQW H[SRVXUH GLVUXSWV WKH IXQFWLRQDO LQWHJULW\ RI WKH EUDLQߤV
    UHZDUGFHQWUHVߨ 'DFNLVDQG2ߤ%ULHQ 
    6HL]XUHVDIIHFWDVPDOOSHUFHQWDJHRIKDELWXDOFRFDLQHXVHUV 0DMOHVLHWDO :KHQWDNHQLQ
    WKH SXULILHG IRUP RI ߧFUDFNߨ QHZFRPHUV WR WKH GUXJ PD\ DOVR KDYH D VHL]XUH UHDFWLRQ %HUOLQHU
     3DVFXDO/HRQH HW DO   &RFDLQH XVHUV ZLWK SULRU VHL]XUH KLVWRULHV DUH PRUH OLNHO\ WKDQ
    RWKHUVWRKDYHDVHL]XUHUHDFWLRQ$FXWHK\SHUWHQVLRQDQGRWKHUV\PSWRPVRIFHQWUDOQHUYRXVV\VWHP
    RYHUVWLPXODWLRQ FDQ OHDG WR VWURNHV '& .ORQRII HW DO  1QDGL HW DO   ZKLFK DUH PRUH
    RIWHQKHPRUUKDJLFWKDQLQIDUFWVZKHQFRFDLQHSRZGHULVVQLIIHG 7UHDGZHOODQG5RELQVRQ RU
    WRGHDWKIURPUHVSLUDWRU\RUFDUGLDFIDLOXUHRUDFXWHO\HOHYDWHGERG\WHPSHUDWXUH 0DUDMHWDO
    5HVWUHSRHWDO &KURQLFXVHUVZKRKDYHFRFDLQHDVVRFLDWHGVHL]XUHVWHQGWRVKRZEUDLQDWURSK\
    RQ&7VFDQVZLWKHYLGHQFHRIZKLWHPDWWHUOHVLRQV OHXNRHQFHSKDORSDWK\  %HUOLQHU)LOOH\DQG
    .OHLQVFKPLGW'H0DVWHUV 
    /HXNRHQFHSKDORSDWK\DQGRWKHUEUDLQWLVVXHDWURSK\FDQDOVRGHYHORSZLWKRXWVHL]XUHKLVWRU\ +6
    6KDUPD HW DO   )XQFWLRQDO QHXURLPDJLQJ I05,  VKRZV DEQRUPDO PHWDEROLVP DQG
    K\SRSHUIXVLRQ ERWK ZKHQ XVLQJ FRFDLQH DQG LQ FKURQLF XVHUV HYHQ DIWHU VXVWDLQHG DEVWLQHQFH
    6WULFNODQGHW DO   7KHVH QHXURLPDJLQJ DEQRUPDOLWLHV DUH FRQVLVWHQW ZLWK QHXURSV\FKRORJLFDO
    ILQGLQJVRIVORZHGPHQWDOSURFHVVLQJPHPRU\LPSDLUPHQWVDQGUHGXFHGPHQWDOIOH[LELOLW\&RFDLQH
    DSSHDUVWRLQGXFHQHXURWR[LFLW\E\GLVUXSWLQJWKHEORRGEUDLQEDUULHU 'LHWULFK+66KDUPDHW
    DO    :KDWHYHU WKH PHFKDQLVP FRFDLQH EULQJV DERXW DGYHUVH ELRFKHPLFDO FKDQJHV WKDW PD\
    XQGHUOLH WKH QHXURSDWKRORJ\ LQ EUDLQ WLVVXH ZKLFK LQ WXUQ SURGXFHV WKH FRJQLWLYH DQG EHKDYLRUDO
    LPSDLUPHQWV DVVRFLDWHG ZLWK FKURQLF XVH /LFDWD DQG 5HQVKDZ  1QDGL HW DO    1RW
    VXUSULVLQJO\H[SRVXUHWRFRFDLQHLQXWHURKDVODVWLQJDGYHUVHHIIHFWVRQEUDLQVWUXFWXUHDQGIXQFWLRQ
    %KLGH 
    8QOLNH PDQ\ RWKHU GUXJV RI DGGLFWLRQ FRFDLQH ZLWKGUDZDO LV QHLWKHU SRWHQWLDOO\ OLIHWKUHDWHQLQJ
    QRU SK\VLFDOO\ DJRQL]LQJ EXW WUDQVLHQW GHSUHVVLRQ LUULWDELOLW\ OLVWOHVVQHVV UHVWOHVVQHVV FRQIXVLRQ
    VOHHSGLVWXUEDQFHV DQG DEQRUPDO PRYHPHQWV FDQ RFFXU 6RIXRJOX HW DO  0$ 7D\ORU  
    &RJQLWLYHSUREOHPVPD\GHYHORSZLWKORQJWHUPXVHRIWKHGUXJPHPRU\DQGFRQFHQWUDWLRQGHILFLWV
    DQGLPSDLUHGH[HFXWLYHIXQFWLRQLQJDUHFRPPRQ %HYHULGJHHWDO5RVVHOOL$UGLOD/XEDQVN\
    HWDO 7KHPHPRU\SUREOHPDSSHDUVWREHGXHPRVWO\WRUHGXFHGUHWULHYDOHIILFLHQF\EXWDPLOG
    VWRUDJHGHILFLWLVDOVRVXJJHVWHG 0LWWHQEHUJDQG0RWWD 0DQ\ FKURQLFXVHUV ZKHQDEVWLQHQW
    EHFRPH G\VSKRULF %HUOLQHU   %RWK WKH DPRXQW RI FRFDLQH XVH DQG OHQJWK RI DEVWLQHQFH
    FRQWULEXWHWRUHVSRQVHSDWWHUQV

    2SLDWHV

    2SLDWH DGGLFWLRQ XVXDOO\ WDQWDPRXQW WR KHURLQ DGGLFWLRQ LQ (XURSH DQG 1RUWK $PHULFD FUHDWHV D
    IDPLOLDU SLFWXUH RI PHQWDO DQG SK\VLFDO VOXJJLVKQHVV DQG QHJOHFW RI SHUVRQDO K\JLHQH ZKLFK FDQ
    ZRUVHQZLWK FRQWLQXLQJ XVHRI WKH GUXJ 'RQDJK\   DQG LV SDUDOOHOHG E\ ((* VORZLQJ %UXVW
    F  &RJQLWLYH HIIHFWV DUH JHQHUDOO\ PLOG LI DQ\ HYHQ LQ SHUVRQV ZKR KDYH KDG ORQJWHUP
    DGGLFWLRQV $6 &DUOLQ DQG 2ߤ0DOOH\  6 )LHOGV DQG )XOOHUWRQ   7KH QHXURWR[LF
    PHFKDQLVPV RIRSLDWH LQFOXGHR[LGDWLYH VWUHVV PLWRFKRQGULDO G\VIXQFWLRQ DSRSWRVLV DQG LQKLELWLRQ
    RIQHXURJHQHVLV &XQKD2OLYHLUD5HJRDQG2OLYHLUD 
    /RQJWHUP RSLDWH XVHUV FDQ VXVWDLQ SHUPDQHQW FRJQLWLYH LPSDLUPHQWV WKDW VKRZ XS LQ ORZHUHG
    VFRUHV RQ WHVWV LQYROYLQJ DWWHQWLRQ FRQFHQWUDWLRQ YDULRXV DVSHFWV RI PHPRU\ DQG OHDUQLQJ DQG
    YLVXRVSDWLDODQGYLVXRPRWRUDFWLYLWLHV *RQ]DOH]HWDO*UXEHUHWDO  2QH VWXG\RI 
    RSLDWH XVHUV UHSRUWHG SRRUHVW SHUIRUPDQFHV RQ WHVWV UHTXLULQJ LQWHJUDWLRQ RI GLIIHUHQW NLQGV RI
    QHXURSV\FKRORJLFDOIXQFWLRQVZLWKDQRYHUDOOSDWWHUQRIG\VIXQFWLRQVXJJHVWLYHRIGLIIXVHLPSDLUPHQW
    5RXQVDYLOOH1RYHOO\DQG.OHEHU ,QWKLVVWXG\DUHYLHZRIULVNIDFWRUVIRUWKHDSSUR[LPDWHO\
    IRXUILIWKVZKRKDGFRJQLWLYHGHILFLWV VHYHUHPLOG IRXQGPRUHVLJQLILFDQWUHODWLRQVKLSV
    EHWZHHQQHXURSV\FKRORJLFDOLPSDLUPHQWVDQGSRRUVFKRROSHUIRUPDQFHFKLOGKRRGK\SHUDFWLYLW\DQG
    RWKHU GUXJ FRFDLQH  DQG DOFRKRO XVH WKDQ IRU WKH QRQLPSDLUHG RSLDWH DGGLFWV 1R UHODWLRQVKLSV
    EHWZHHQ WHVW SHUIRUPDQFH DQG OHYHOV RU GXUDWLRQ RI RSLDWH XVH VKRZHG XS QRU ZHUH WKHUH
    SHUIRUPDQFH GLIIHUHQFHV EHWZHHQ WKH RSLDWH XVHUV DQG PDWFKHG FRPSDULVRQ SDUWLFLSDQWV LQ DQRWKHU
    VWXG\E\5RXQVDYLOOH ZLWK-RQHVHWDO 
    ,QDEVWLQHQWKHURLQDGGLFWVDWWHQWLRQPHQWDOIOH[LELOLW\DQGDEVWUDFWUHDVRQLQJPD\EHXQDIIHFWHG
    DOWKRXJKLPSXOVLYLW\DSSHDUHGRQWKH3RUWHXV0D]HV 70/HHDQG3DX  2WKHU ILQGLQJVKDYH
    VXJJHVWHGWKDWLQDEVWLQHQWSHUVRQVSURORQJHGXVHRIRSLDWHVDORQHGRHVQRWVHHPWRGXOOFRJQLWLYH
    IXQFWLRQLQJ %UXVWF6)LHOGVDQG)XOOHUWRQ/LVKPDQ 2QWKHRWKHUKDQGDUHSRUW
    RI DGYHUVH HIIHFWV RI ORQJ WHUP RSLDWH XVH RQ H[HFXWLYH IXQFWLRQLQJ LQFOXGHV GLPLQLVKHG DELOLW\ WR
    VKLIWFRJQLWLYHVHWDQGWRLQKLELWLQDSSURSULDWHUHVSRQVHWHQGHQFLHV *UXEHUHWDO  %HFDXVHRI
    FDUHOHVVQHHGOHH[FKDQJHRSLDWHDGGLFWVDQGRWKHUDGGLFWVLQMHFWLQJGUXJVDUHDOVRDWKLJKHUULVNIRU
    +,9LQIHFWLRQZKLFKFDQH[DFHUEDWHERWKFRJQLWLYHLPSDLUPHQWVDQGSK\VLFDOKHDOWKSUREOHPV 1DWK
     

    0HWKDPSKHWDPLQH

    0HWKDPSKHWDPLQH DQG VHYHUDO UHODWHG VXEVWDQFHV VXFK DV HFVWDV\ 0'0$ 
    PHWK\OHQHGLR[\PHWKDPSKHWDPLQH IR[\ PHWKR[\11GLLVRSURS\OWU\SWDPLQH DQGDPSKHWDPLQHDUH
    KLJKO\DGGLFWLYHSV\FKRVWLPXODQWV7KHLUDEXVHKDVUDSLGO\UHDFKHGHSLGHPLFSURSRUWLRQVZRUOGZLGH
    )RU HDVH RI H[SRVLWLRQ WKLV IDPLO\ RI VXEVWDQFHV ZLOO EH UHIHUUHG WR VLPSO\ DV 0(7+ ZLWK WKH
    XQGHUVWDQGLQJ WKDW WKHUH DUH VRPH GLIIHUHQFHV LQ WKHLU ELRFKHPLFDO DFWLRQV &KURQLF 0(7+ XVH LV
    DVVRFLDWHG ZLWK D KRVW RI DGYHUVH PHGLFDO DQG VRFLDO FRQVHTXHQFHV DV ZHOO DV D UDQJH RI
    QHXURSV\FKRORJLFDO LPSDLUPHQWV LQFOXGLQJ GHILFLWV LQ DWWHQWLRQ PHPRU\ DQG H[HFXWLYH IXQFWLRQV
    YDQGHU3ODVHWDO $UHYLHZE\-&6FRWWDQGFROOHDJXHV  VKRZHGWKDWFKURQLF0(7+
    DEXVHGHSHQGHQFHZDVDVVRFLDWHGZLWKPHGLXPHIIHFWVL]HVIRUGHILFLWVLQHSLVRGLFPHPRU\H[HFXWLYH
    IXQFWLRQVLQIRUPDWLRQSURFHVVLQJVSHHGPRWRUVNLOOVODQJXDJHDQGYLVXRFRQVWUXFWLRQDODELOLWLHV$
    VWXG\IRFXVHGVSHFLILFDOO\RQHFVWDV\XVHUVIRXQGWKDWSDUWLFLSDQWVKDGDYDULHW\RIGHILFLWVLQDVSHFWV
    RIH[HFXWLYHIXQFWLRQLQJ -()LVNDQG0RQWJRPHU\ 
    7KH QHXURWR[LFLW\ RI WKH 0(7+ IDPLO\ RI GUXJV KDV EHHQ ZHOO GRFXPHQWHG 'DPDJH WR
    GRSDPLQHUJLF DQG VHURWRQHUJLF WHUPLQDOV DV ZHOO DV QHXURQDO DSRSWRVLV DUH WKH OLNHO\ PHFKDQLVPV
    EHKLQG WKHVH GUXJVߤ QHXURSV\FKLDWULF DQG QHXURSV\FKRORJLFDO PDQLIHVWDWLRQV &DGHW DQG .UDVQRYD
    (VFXEHGRHWDO 5HFHQWUHVHDUFKVXJJHVWVWKDWWKHQHXUDOGDPDJHSURGXFHGE\WKH0(7+
    GUXJ IDPLO\ PD\ EH HYHQ PRUH H[WHQVLYH WKDQ SUHYLRXVO\ WKRXJKW *RX]RXOLV0D\IUDQN DQG
    'DXPDQQ  .LWD HW DO  <DPDPRWR HW DO    PRUHRYHU FKURQLF VWUHVV DQG +,9
    LQIHFWLRQ FDQ DXJPHQW WKLV QHXURWR[LFLW\ 0DQ\ RI WKH ILQGLQJV LQFOXGLQJ VRPH RI WKH FRPPRQ
    FRJQLWLYH LPSDLUPHQWV LPSOLFDWH G\VIXQFWLRQ RI WKH IURQWRVWULDWDO V\VWHP FRQVLVWHQW ZLWK NQRZQ
    QHXURWR[LFPHFKDQLVPV 1DNDJDZDDQG.DQHNR ([SRVXUHWR0(7+KDVDOVREHHQLPSOLFDWHG
    DVDULVNIDFWRUIRUWKHGHYHORSPHQWRI3DUNLQVRQߤVGLVHDVH 7KUDVKHWDO 
    ,QWDNHRI0(7+GUXJVZKHWKHURUDOE\LQKDODWLRQRULQWUDYHQRXVO\FDQUHVXOWLQVWURNHVVRPH
    GXHWRVSDVWLFRFFOXVLRQRILQWUDFUDQLDODUWHULHVSURGXFLQJDFKDUDFWHULVWLFߧEHDGLQJߨHIIHFWWKDWVKRZV
    XS RQ DUWHULRJUDPV 5RWKURFN HW DO   +HPRUUKDJLF VWURNH DOVR RFFXUV +HOOHU HW DO  
    2WKHUFDUGLRSXOPRQDU\DQGQHXURORJLFDOPDQLIHVWDWLRQVFDQKDYHQHXURSV\FKRORJLFDOFRQVHTXHQFHV
    HJFHUHEUDOHGHPDDQGKHPDWRPDRIWKHFRUSXVFDOORVXP,QWKHVHVLWXDWLRQVFRJQLWLYHDOWHUDWLRQV
    WHQG WR EH DVVRFLDWHG ZLWK GDPDJH WR ZKDWHYHU DUHDV RI WKH EUDLQ DUH LQYROYHG &KDUDFWHULVWLFDOO\
    SDUDQRLGSV\FKRWLFHSLVRGHVZLWKYLYLGKDOOXFLQDWLRQVERWKDXGLWRU\DQGYLVXDODQGYXOQHUDELOLW\WR
    SV\FKRWLF UHODSVHV KDYH RFFXUUHG LQ ORQJWHUP KHDY\ XVHUV +HOOHU HW DO  .LWD HW DO 
    /LVKPDQ 

    3KHQF\FOLGLQH

    3&3RUߧDQJHOGXVWߨDVSKHQF\FOLGLQHLVNQRZQRQWKHVWUHHWFDQEHVPRNHGVQLIIHGRUVZDOORZHG
    $FXWHO\XVHUVPD\EHFRPHFRQIXVHGGLVRULHQWHGH[FLWHGDQGGLVSOD\SV\FKRWLFV\PSWRPVZKLFKLQ
    VRPHRIKRVSLWDOL]HGXVHUVPD\ODVWIRUVHYHUDOZHHNV -DYLWW +LJK GRVHV FDQUHVXOWLQ
    ߧVHL]XUHVFRPDH[WHQVRUSRVWXULQJUHVSLUDWRU\GHSUHVVLRQDQGK\SRWHQVLRQߨDQGGHDWKGLUHFWO\GXH
    WR RYHUGRVH RU LQGLUHFWO\ GXH WR VHOI RU RWKHULQIOLFWHG YLROHQFH %UXVW   8VHUV KDYH EHHQ
    GHVFULEHGDVVKRZLQJPRUHJHQHUDOFRJQLWLYHLPSDLUPHQWWKDQQRQXVHUV &DUOLQDQG2ߤ0DOOH\
     EXW WKH KLVWRULFDO FRQIRXQGV RI KLJK UDWHV RI 7%, VHL]XUHV FKLOGKRRG FKURQLF RWLWLV PHGLD DQG
    DWWHQWLRQ DQG OHDUQLQJ GLVRUGHUV WRJHWKHU ZLWK WKH TXHVWLRQDEOH QDWXUH RI VXEVWDQFHV VROG DV
    ߧ3&3ߨPDNHUHVHDUFKILQGLQJVGLIILFXOWWRLQWHUSUHW$PRQJWKHSK\VLRORJLFDOGLVWXUEDQFHVDVVRFLDWHG
    ZLWK3&3K\SHUWHQVLRQLVPRVWFRPPRQDQGLQUDUHFDVHVKDVEHHQIDWDO -DYLWW 3&3ZKLFK
    DFWV DV D JOXWDPDWH DQWDJRQLVW FRQWLQXHV WR EH XVHG E\ UHVHDUFKHUV DV D YDOLG DQLPDO PRGHO IRU
    VFKL]RSKUHQLD ,W LV RIWHQ FRQVLGHUHG D PRUH DSSURSULDWH PRGHO RI SV\FKRVLV WKDQ VHURWRQHUJLF
    KDOOXFLQRJHQVVXFKDV/6'DQGSVLORF\ELQ VHHEHORZ)XMLWDHWDO*RX]RXOLV0D\IUDQNHWDO
    0HOW]HUDQG+XDQJ 

    /\VHUJLFDFLGGLHWK\ODPLGH /6'

    /6'LVRQHRIVHYHUDOVHURWRQHUJLFKDOOXFLQRJHQVWKDWEHORQJWRWKHFDWHJRU\RIߧSV\FKHGHOLFߨGUXJV
    LQFOXGLQJSVLORFLQDQGSVLORF\ELQIURPPXVKURRPVDQGPHVFDOLQHIURPSH\RWHFDFWXV %UXVW 
    $FXWH UHDFWLRQV LQYROYH SHUFHSWLRQ HJ KDOOXFLQDWLRQV  VRPDWLF V\VWHPV HJ GL]]LQHVV WUHPRU
    K\SHUWKHUPLD  DQG SV\FKRORJLFDO VWDWXV HJ GHSHUVRQDOL]DWLRQ P\VWLFDO HODWLRQ  ,W KDV EHHQ
    VXJJHVWHGWKDWWKHUHDUHVLPLODULWLHVEHWZHHQWKHW\SLFDOWUDLWVRIߧFUHDWLYHߨSHRSOHDQGWKHVXEMHFWLYH
    SV\FKRORJLFDO FKDUDFWHULVWLFV DVVRFLDWHG ZLWK KDOOXFLQRJHQLF GUXJ XVH 6HVVD   DOWKRXJK WKH
    HPSLULFDOHYLGHQFHIRUWKLVLVHVVHQWLDOO\DQHFGRWDODQGPD\EHZLVKIXOWKLQNLQJ/6'LVQRORQJHUD
    FRPPRQO\XVHGGUXJ2QHOLWHUDWXUHUHYLHZVXJJHVWHGWKDWIHZLIDQ\ORQJWHUPQHXURSV\FKRORJLFDO
    GHILFLWVFRXOGEHDWWULEXWHGWRKDOOXFLQRJHQ LQFOXGLQJ/6' XVHDOWKRXJKQHDUO\DOORIWKHDYDLODEOH
    VWXGLHV ZHUH SODJXHG E\ PHWKRGRORJLFDO ZHDNQHVVHV DQG FRQIRXQGLQJ YDULDEOHV VXFK DV SUHPRUELG
    FRJQLWLYH DQG SHUVRQDOLW\ IXQFWLRQ DQG SULRU XVH RI RWKHU VXEVWDQFHV +DOSHUQ DQG 3RSH   $
    SHUVRQDO DFTXDLQWDQFH DQG UHVSHFWHG SURIHVVRU EHFDPH XQUHOHQWLQJO\ SV\FKRWLF\ SDUDQRLG ZLWK
    UHOLJLRXVLGHDWLRQDIWHUPRQWKVRIGDLO\/6'XVH PGO 
    3RO\GUXJDEXVH

    3RO\GUXJ DEXVH LV WKH UXOH UDWKHU WKDQ WKH H[FHSWLRQ IRU YLUWXDOO\ DOO GUXJV RI DGGLFWLRQ DV ZHOO DV
    DOFRKRO GLVHQWDQJOLQJ WKH HIIHFWV RI RQH GUXJ YHUVXV DQRWKHU DQG RI DOFRKRO  LV H[WUHPHO\
    FKDOOHQJLQJIRUVFLHQWLILFZRUN,QJHQHUDODQGQRWVXUSULVLQJO\WKHDGYHUVHHIIHFWVRQFRJQLWLYHDQG
    EHKDYLRUDOIXQFWLRQLQJWHQGWREHPRUHVHYHUHDQGPRUHZLGHVSUHDGLQSRO\GUXJDEXVHUVFRPSDUHG
    WRVLQJOHVXEVWDQFHDEXVHUV +RVKLHWDO 
    :KHQ H[DPLQHG ZLWKLQ WKH ILUVW VHYHUDO ZHHNV RI DEVWLQHQFH DERXW WZRILIWKV WR RQHKDOI RI
    SRO\GUXJ DEXVHUV VKRZHG LPSDLUPHQW RQ FRJQLWLYH DQG PRWRU IXQFWLRQ WHVWV DOWKRXJK WKHVH
    LPSDLUPHQWV ZHUH IRXQG DOPRVW H[FOXVLYHO\ LQ VXEMHFWV XVLQJ FHQWUDO QHUYRXV V\VWHP GHSUHVVDQWV
    VHGDWLYHV K\SQRWLFV DQG RSLDWHV  , *UDQW 5HHG HW DO   7KLV ODUJHVFDOH VWXG\ IRXQG ERWK
    YLVXRSHUFHSWXDO DQG YHUEDODFDGHPLF GHILFLHQFLHV LQ D QHZO\ GHWR[LILHG JURXS RI SRO\GUXJ XVHUV
    PDQ\ RI ZKRP DOVR XVHG DOFRKRO 8QIRUWXQDWHO\ H[FHSW IRU WKH PHPRU\ WULDOV RQ WKH 7DFWXDO
    3HUIRUPDQFH7HVWWKLV+DOVWHDG5HLWDQEDWWHU\EDVHGVWXG\GLGQRWH[DPLQHPHPRU\IXQFWLRQV5LVN
    RI FRJQLWLYH LPSDLUPHQW ZDV DOVR OLQNHG WR LQFUHDVLQJ DJH SRRU HGXFDWLRQ DQG PHGLFDO DQG
    GHYHORSPHQWDOSUREOHPV
    6WXGLHVLQFOXGLQJPHPRU\IXQFWLRQVLQWKHLUH[DPLQDWLRQVKDYHUHSRUWHGDSDWWHUQRISHUIRUPDQFH
    VORZLQJ DQG LPSDLUHG PHPRU\ ERWK YHUEDO DQG YLVXDO ZLWK YHUEDO FRQFHSW IRUPDWLRQ UHPDLQLQJ
    LQWDFW %RQGL'UDNHDQG*UDQW0F&DIIUH\.UDKXODHWDO-$6ZHHQH\HWDO <HW
    DQRWKHUVWXG\FRPSDULQJVXEMHFWVXVLQJRQO\FRFDLQHVXEMHFWVFRPELQLQJFRFDLQHZLWKDOFRKRODEXVH
    DQGߧQRUPDOVߨIRXQGQRJURXSGLIIHUHQFHVRQPRVW+DOVWHDG5HLWDQEDWWHU\WHVWVH[FHSWIRUFRPSOH[
    SV\FKRPRWRUDQGVLPSOHPRWRUWHVWVRQWKHVHFRFDLQHXVHUVߤSHUIRUPDQFHVZHUHFRQVLVWHQWO\EHORZ
    WKRVHRIWKHRWKHUWZRJURXSV -(5RELQVRQ +RVKLHWDO  QRWHGWKDWUHFUHDWLRQDOGUXJ
    XVHLQJHQHUDOFDQOHDGWRVXEWOHFRJQLWLYHLPSDLUPHQWVUHFHQWGUXJXVHKDGWKHVWURQJHVWLPSDFWRQ
    FRJQLWLYHSHUIRUPDQFH

    6RFLDO'UXJV
    &DIIHLQH

    :RUOGZLGH FDIIHLQH LV RQH RI WKH PRVW SRSXODU GUXJV ,WV DOHUWQHVV DQG SHUIRUPDQFH HQKDQFLQJ
    HIIHFWV KDYH EHHQ ZHOO GRFXPHQWHG &DIIHLQH DQG QLFRWLQH VHH EHORZ  KDV VWLPXODQWDURXVDO
    SURSHUWLHV .RHOHJD &DIIHLQHWHQGVWRLQFUHDVHPRWRUDFWLYLW\DQGUDWHRIVSHHFKDQGUHGXFHV
    UHDFWLRQ WLPHV -XGG HW DO    WKHVH HIIHFWV DUH PRUH SURQRXQFHG LQ FKLOGUHQ WKDQ LQ DGXOWV
    5DSRSRUWHWDO ,WDOVRLQFUHDVHVILQHPRWRUXQVWHDGLQHVVZKHQWDNHQE\SHUVRQVZKRQRUPDOO\
    XVHOLWWOHRUQRFDIIHLQHEXWKDVYLUWXDOO\QRQHJDWLYHHIIHFWVRQWKRVHZKRFRQVXPHFDIIHLQHUHJXODUO\
    %+-DFREVRQDQG7KXUPDQ/DFH\ 7KHVHDURXVDOHIIHFWVKDYHEHHQGRFXPHQWHGLQ((*DQG
    HYRNHGUHVSRQVHVWXGLHV 0GH&DUYDOKRHWDO 
    7KDULRQ DQG FROOHDJXHV   UHSRUWHG WKDW ZLWK FDIIHLQH VXEMHFWV ZHUH EHWWHU DEOH WR PDLQWDLQ
    WKHLU IRFXV RI DWWHQWLRQ WR D YLVXDO YLJLODQFH WDVN :KHQ FDIIHLQH ZDV WDNHQ ZLWK JOXFRVH VXVWDLQHG
    DWWHQWLRQ DQG YHUEDO PHPRU\ ZHUH HQKDQFHG PRUH WKDQ LQWDNH RI HLWKHU VXEVWDQFH DORQH $GDQ DQG
    6HUUD*UDEXORVD   8VHUV RI FDIIHLQDWHG WHD UHSRUW EHWWHU DOHUWQHVV IRFXVHG DWWHQWLRQ DQG
    DFFXUDF\ - %U\DQ   7KH SRVLWLYH FRJQLWLYH HIIHFWV RI WKH LQFUHDVLQJO\ SRSXODU ߧHQHUJ\
    GULQNVߨDUHGXHPDLQO\WRWKHSUHVHQFHRIFDIIHLQH YDQGHQ(\QGHHWDO &DIIHLQHPD\HQKDQFH
    FRJQLWLYH SHUIRUPDQFHV LQ ROGHU SHUVRQV .DOOXV HW DO   ,W KDV DOVR EHHQ VKRZQ WR KDYH
    HUJRJHQLF SURSHUWLHV HQKDQFLQJ SK\VLFDO SHUIRUPDQFH GXULQJ H[HUFLVH 1/ 5RJHUV DQG 'LQJHV
     6RPHKHDOWKSURWHFWLYHHIIHFWVRIFDIIHLQHKDYHEHHQGRFXPHQWHG%ODFNWHDKDVEHHQVKRZQWR
    KDYH PXOWLSOH SRVLWLYH HIIHFWV RQ KHDOWK LQFOXGLQJ ORZHULQJ ULVN RI FRURQDU\ KHDUW GLVHDVH (-
    *DUGQHUHWDO W\SHGLDEHWHVDQGOLYHUFDQFHU &DGGHQHWDOYDQ'DP $PRUH
    FRQWURYHUVLDO ILQGLQJ LV WKDW FDIIHLQH KDV D SURWHFWLYH HIIHFW RQ WKH OLNHOLKRRG RI GHYHORSLQJ
    $O]KHLPHU ߤVGLVHDVH 5RVVRHWDO&6DQWRVHWDO 

    1LFRWLQH

    /LNHFDIIHLQHQLFRWLQHLVDOHJDODQGZLGHO\XVHGGUXJZLWKVWLPXODQWDQGDURXVDOSURSHUWLHVWKDWFDQ
    LQFUHDVHDOHUWQHVVDQGHQKDQFHFRJQLWLYHSHUIRUPDQFH+RZHYHUDEDVLFGLVWLQFWLRQEHWZHHQDFXWHDQG
    FKURQLF HIIHFWV KDV EHHQ ZHOO GRFXPHQWHG $FXWH LQJHVWLRQ RI QLFRWLQH HQKDQFHV FRJQLWLYH
    SHUIRUPDQFH WKURXJK SRVLWLYH HIIHFWV RQ OHDUQLQJ PHPRU\ DQG DWWHQWLRQ (' /HYLQ HW DO  
    5HVHDUFK KDV VKRZQ WKDW QLFRWLQH IDFLOLWDWHV PHPRU\ UHWHQWLRQ IROORZLQJ OHDUQLQJ WULDOV EXW QRW WKH
    DPRXQW RI LQLWLDO OHDUQLQJ 5XVWHG DQG :DUEXUWRQ  :DUEXUWRQ 5XVWHG DQG )RZOHU 
    :DUEXUWRQ 5XVWHG DQG 0XOOHU   7KLV SKHQRPHQRQ ZDV DWWULEXWHG WR LQFUHDVHG DYDLODELOLW\ RI
    DWWHQWLRQDO UHVRXUFHV :KHQ JLYHQ WR $O]KHLPHU SDWLHQWV QLFRWLQH GLG QRW LQFUHDVH WKH DPRXQW RI
    PDWHULDOOHDUQHGEXWSDWLHQWVVKRZHGDGRVHUHODWHGUHGXFWLRQLQLQWUXVLRQHUURUVRQDOHDUQLQJWDVN
    1HZKRXVHHWDO 7HPSRUDU\FRJQLWLYHLPSURYHPHQWZLWKQLFRWLQHXVDJHLQ$O]KHLPHUSDWLHQWV
    KDVEHHQGRFXPHQWHG )DQWHWDO 
    %\YLUWXHRILWVVKRUWWHUPDFWLRQVRQWKHFKROLQJHULFV\VWHPQLFRWLQHFDQKDYHSRVLWLYHHIIHFWVRQ
    ZRUNLQJ PHPRU\ DQGH[HFXWLYH IXQFWLRQV 6ZDQ DQG /HVVRY6FKODJJDU  7KHQHXUDO EDVHV RI
    WKHVHHIIHFWVKDYHEHJXQWREHXQGHUVWRRGIXQFWLRQDOLPDJLQJVWXGLHVIRUH[DPSOHKDYHVKRZQWKDW
    VPRNLQJHQKDQFHVQHXURWUDQVPLVVLRQLQFRUWLFREDVDOJDQJOLDWKDODPLFFLUFXLWVDQGLQFUHDVHVRYHUDOO
    QHXUDOHIILFLHQF\ $]L]LDQHWDO$6KDUPDDQG%URG\ 7KHLPPHGLDWHDURXVDOHIIHFWVRI
    QLFRWLQH DUH REVHUYHG RQ ((* 2ߤ6KDQLFN DQG =DVOHU   DQG PD\ EH HVSHFLDOO\ SURPLQHQW LQ
    SUHIURQWDODUHDV 0DQVYHOGHUHWDO 
    &KURQLFQLFRWLQHFRQVXPSWLRQRQWKHRWKHUKDQGGLPLQLVKHVFRJQLWLYHSHUIRUPDQFH 3RRUWKXLVHW
    DO HVSHFLDOO\ZKHQVWDUWHGGXULQJDGROHVFHQFH 'H%U\DQG7LIIDQ\ ,QGLUHFWHIIHFWVRI
    VPRNLQJ RQ PHQWDWLRQ VKRZ XS LQ KDELWXDO VPRNHUV ZKR GHYHORS FKURQLF REVWUXFWLYH SXOPRQDU\
    GLVHDVH &23'  ZLWK UHVXOWDQW LQVXIILFLHQW R[\JHQDWLRQ DQG FRPSURPLVHG EUDLQ IXQFWLRQ 6RPH
    HSLGHPLRORJLF VWXGLHV RI $O]KHLPHU ߤV DQG 3DUNLQVRQߤV GLVHDVH KDG VXJJHVWHG WKDW QLFRWLQH PD\ EH
    SURWHFWLYHEXWWKHGDWDRQ$O]KHLPHU ߤVGLVHDVHKDYHQRWEHHQZHOOVXSSRUWHG 6DEEDJKHWDO 
    5DWKHUPDQ\VWXGLHVKDYHIRXQGWKDWVPRNLQJSHUVHPD\EHDULVNIDFWRUIRU$O]KHLPHU ߤVGLVHDVH
    YDVFXODU GHPHQWLD DQG FRJQLWLYH GHFOLQH LQ WKH HOGHUO\ 5 3HWHUV HW DO   )RU 3DUNLQVRQߤV
    GLVHDVH KRZHYHU QLFRWLQH KDV SURYHQ EHQHILWV LQFOXGLQJ SURWHFWLQJ DJDLQVW GHYHORSPHQW RI WKH
    GLVHDVHDQGUHGXFLQJWUHPRULQWKHGHYHORSHG3DUNLQVRQFRQGLWLRQ 4XLN4XLN+XDQJHWDO
      1LFRWLQH KDV EHHQ VXVSHFWHG RI VSHHGLQJ XS WKH HYROXWLRQ RI $,'6 LQ +,9 SRVLWLYH SHUVRQV
    )DQWHWDO :KLOHQRWGLUHFWO\DVVRFLDWHGZLWKIXQFWLRQDOLPSDLUPHQWQLFRWLQHLVWKHPRVWOHWKDO
    RIWKHDGGLFWLYHGUXJVDVLWVXVXDOPHWKRGVRIGHOLYHU\FUHDWHWKHPRVWVHULRXVKHDOWKKD]DUGV
    :LWKGUDZDOV\PSWRPVEHJLQDGD\RUWZRDIWHUFHVVDWLRQRIVPRNLQJDQGPD\FRQWLQXHIRUVHYHUDO
    GD\V WKHUHDIWHU FUHDWLQJ D PHQWDO PLDVPD RI GURZVLQHVV FRQIXVLRQ DQG LPSDLUHG FRQFHQWUDWLRQ
    H[DFHUEDWHG E\ ORZ IUXVWUDWLRQ WROHUDQFH DQG LUULWDELOLW\ 2ߤ6KDQLFN DQG =DVOHU   :RPHQ DUH
    OHVVVXFFHVVIXOWKDQPHQLQEUHDNLQJWKHVPRNLQJKDELW 3RJXQDQG<DUDUEDV 7KHVHDXWKRUV
    REVHUYHG LPSRUWDQW VH[ GLIIHUHQFHV LQ ODERUDWRU\ DQLPDOV VXJJHVWLQJ D ELRORJLFDO EDVLV IRU VH[
    GLIIHUHQFHVLQQLFRWLQHUHDFWLRQV
    $ SURYRFDWLYH VWXG\ GHPRQVWUDWHG WKDW SDWLHQWV ZLWK GDPDJH WR WKH LQVXOD FRUWH[ VKRZHG D
    ߧGLVUXSWLRQߨRIVPRNLQJDGGLFWLRQFKDUDFWHUL]HGE\WKHDELOLW\WRTXLWVPRNLQJLPPHGLDWHO\ZLWKRXW
    UHODSVH DQG ZLWKRXW D SHUVLVWHQFH XUJH WR VPRNH 1DTXL HW DO  VHH DOVR %HFKDUG DQG 0DUWLQ
      7KHVH ILQGLQJV VXJJHVW WKDW WKH ELRORJLFDO XUJH WR VPRNH DQG SHUKDSV WR FRQVXPH RWKHU
    VXEVWDQFHVDQGRWKHUW\SHVRIUHZDUGLQJVWLPXOL PD\EHPHGLDWHGE\WKHLQVXODVRWKDWGDPDJHWRWKLV
    VWUXFWXUHOLWHUDOO\ZLSHVRXWWKHXUJHHQDEOLQJDSHUVRQWRTXLWVPRNLQJZLWKOLWWOHHIIRUWRUULVNRI
    UHODSVH%HFKDUDDQGFROOHDJXHVKDYHGHPRQVWUDWHGWKHLPSRUWDQFHRIWKHLQVXODIRUWKHSKHQRPHQRQ
    RI ߧFUDYLQJߨ DQG KDYH DOVR EHJXQ WR LQYHVWLJDWH SRWHQWLDO VH[ GLIIHUHQFHV LQ WKHVH SKHQRPHQD
    .RVFLN %HFKDUD DQG 7UDQHO  7UDQHO DQG %HFKDUD  7UDQHO + 'DPDVLR 'HQEXUJ DQG
    %HFKDUD 

    (QYLURQPHQWDODQG,QGXVWULDO1HXURWR[LQV
    0RUH WKDQ  VXEVWDQFHV VRPH FRPPRQ VRPH UDUH KDYH EHHQ LGHQWLILHG DV KDYLQJ NQRZQ RU
    SRWHQWLDO QHXURWR[LF HIIHFWV $QJHU  &ULQLRQ   0RVW IDOO LQWR WKUHH PDMRU FDWHJRULHV
    VROYHQWVDQGIXHOVSHVWLFLGHVDQGPHWDOV %:HLVV5):KLWH)HOGPDQDQG3URFWRU ,Q
    DGGLWLRQ WR WKH GUXJV GLVFXVVHG DERYH PDQ\ PHGLFDWLRQV DQG FRPPRQO\ XVHG VXEVWDQFHV FDQ KDYH
    QHXURWR[LFHIIHFWVZKHQWDNHQLQH[FHVVLYHDPRXQWV 6FKDXPEXUJE $OWKRXJKHSLGHPLRORJLFDO
    VWXGLHVKDYHDVVRFLDWHGDJRRGO\QXPEHURIWKHVHVXEVWDQFHVߟHVSHFLDOO\FHUWDLQVROYHQWVSHVWLFLGHV
    DQG PHWDOV OHDG DOXPLQXP ߟZLWK KLJKHU ULVN RI GHYHORSLQJ $O]KHLPHU ߤV GLVHDVH WKH HPSLULFDO
    VXSSRUWIRUVXFKOLQNVLQZHOOFRQWUROOHGVWXGLHVUDQJHVIURPQRWDEOH SHVWLFLGHV WRVFDQW\ VROYHQWV
    WRYLUWXDOO\QRQH[LVWHQW OHDGDQGDOXPLQXP  0RQQHW7VFKXGLHWDO6DQWLEDQH]HWDO 
    ,QHYDOXDWLQJH[SRVHGSHUVRQVLWLVLPSRUWDQWWRWDNHWKHQDWXUHRIWKHH[SRVXUHLQWRDFFRXQW /$
    0RUURZ6WHLQHWDO5RKOPDQHWDO +LJKOHYHODFXWHH[SRVXUHLVW\SLFDOO\DRQHWLPH
    HYHQW RFFXUULQJ IRU H[DPSOH DV DQ DFFLGHQWDO UHOHDVH RI WR[LF VXEVWDQFHV ORQJWHUP FKURQLF
    H[SRVXUHWRORZHUOHYHOVRIWR[LQVPD\QRWKDYHWKHREYLRXVHIIHFWVRIDVLQJOHKLJKGRVHH[SRVXUH
    EXW FXPXODWLYH HIIHFWV PD\ UHVXOW LQ QHXURWR[LF GLVRUGHUV 6\PSWRPV PD\ GLIIHU JUHDWO\ ZLWK
    GLIIHUHQFHV LQ WKH DPRXQW DQG GXUDWLRQ RI H[SRVXUH $UH]]RDQG 6FKDXPEXUJ  'RFWRU 
    5):KLWH)HOGPDQDQG3URFWRU 0RUHRYHUVRPHQHXURWR[LFHIIHFWVPD\WDNHWLPHWRHYROYH
    ILUVW DSSHDULQJ RQO\ DIWHU GHFDGHV RI H[SRVXUH &DOQH HW DO  2JGHQ   RU H[DFHUEDWLQJ
    SUHH[LVWLQJQHUYRXVV\VWHPG\VIXQFWLRQ $UH]]RDQG6FKDXPEHUJ )RUFRPSUHKHQVLYHUHYLHZV
    RI HQYLURQPHQWDO WR[LQV DQG WKHLU QHXURSV\FKRORJLFDO HIIHFWV VHH '( +DUWPDQ   DQG 36
    6SHQFHUDQG6FKDXPEHUJ E 
    ,Q RUGHU WR FRPSDUH SDWLHQWV DQG SDWLHQW JURXSV IRU VHYHULW\ RI ZRUN UHODWHG H[SRVXUH DQ
    HVWLPDWHGH[SRVXUHLQGH[ ((, KDVEHHQSURSRVHG /$0RUURZ.DPLVDQG+RGJVRQ 7KLV
    LQGH[ WDNHV LQWR DFFRXQW GXUDWLRQ RI H[SRVXUH PHDVXUHG LQ \HDUV PRQWKV DQG GD\V LQWHQVLW\ RI
    H[SRVXUH DV HLWKHU ߧEDFNJURXQG H[SRVXUHߨZLWK QR GLUHFW SK\VLFDO FRQWDFW RU ߧLQWHQVH
    H[SRVXUHߨLQYROYLQJGLUHFWFRQWDFWZLWKWKHWR[LFVXEVWDQFHE\LQKDODWLRQVNLQDEVRUSWLRQRUERWKRU
    ߧLQWHUPHGLDWHZKHQWKHVXEVWDQFHZDVLQWKHZRUNDUHDEXWGLUHFWFRQWDFWZDVDYRLGHGIUHTXHQF\RI
    H[SRVXUHPHDVXUHG DVHLWKHUOHVV WKDQ  EHWZHHQ  DQG RU JUHDWHU WKDQ  SHUMREDQG
    KLVWRU\RISHDNH[SRVXUHJUDGHGDVߧQRߨߧ\HVZLWKRXWKRVSLWDOL]DWLRQߨRUߧ\HVZLWKKRVSLWDOL]DWLRQߨ
    7KH((,LVFDOFXODWHGDVLQWHQVLW\™IUHTXHQF\™SHDNGXUDWLRQ

    6ROYHQWVDQGIXHOV

    7KH V\PSWRPV RI QHXURWR[LFLW\ IURP VROYHQW H[SRVXUH RIWHQ LQ WKH IRUP RI IXPHV LQ WKH
    HQYLURQPHQWDUHVRQRQVSHFLILFWKDWWKH\FDQEHPLVWDNHQIRUHYHU\WKLQJIURPWKHFRPPRQFROGWR
    QHXUDVWKHQLDWRYDULRXVHPRWLRQDOGLVWXUEDQFHV0RUHRYHUWKH\DUHVRYDULHGDQGYDJXHWKDWDFDVXDO
    REVHUYHU PD\ HDVLO\ PLVLQWHUSUHW WKHP 7KLV FRPELQHG ZLWK WKH IDFW WKDW PDQ\ LQFLGHQWV RI VROYHQW
    H[SRVXUH DUH SUHYHQWDEOH DFFLGHQWV LQYROYLQJ OLDELOLW\ LVVXHV KDV PDGH WKLV DUHD IHUWLOH JURXQG IRU
    OLWLJDWLRQZKLFKWHQGVWRIXUWKHUFRPSOLFDWHDQGREIXVFDWHWKHEDVLFQHXURSV\FKRORJLFDOLVVXHV
    $SDWWHUQRIZLGHVSUHDGEHKDYLRUDOGLVWXUEDQFHVUHIOHFWVWKHDFXWHVHQVLWLYLW\RIWKHFHQWUDOQHUYRXV
    V\VWHPWRWR[LFVXEVWDQFHVDQGWKHHVSHFLDOSUHGLOHFWLRQRIVROYHQWVIRUIDWULFKQHXURQDOWLVVXHLH
    ZKLWH PDWWHU )LOOH\  6FKDXPEHUJ F <XFHO 7DNDJL HW DO   0RVW FOLQLFDO DQG
    ODERUDWRU\ILQGLQJVSRLQWWRDJHQHUDOGHSUHVVLRQRIEUDLQIXQFWLRQLQVROYHQWWR[LFLW\ /$0RUURZ
    0XOGRRQ DQG 6DQGVWURP    $EQRUPDO ((*V DQG LQ VRPH VWXGLHV EUDLQ DWURSK\ KDYH EHHQ
    GRFXPHQWHGLQVROYHQWH[SRVHGSHUVRQV -XQWXQHQHWDO/ROLQ /RQJWHUPH[SRVXUHFDQ
    ORZHU FHUHEUDO EORRG IORZ SDUWLFXODUO\ LQ IURQWRWHPSRUDO DUHDV 2NDGD HW DO   :KLOH FLWLQJ
    HYLGHQFH RI WKH QHXURWR[LF HIIHFWV RI KLJKOHYHO H[SRVXUH *UDVVR   QRWHG WKDW TXHVWLRQV VWLOO
    UHPDLQUHJDUGLQJWKHWR[LFLW\RIORZOHYHOH[SRVXUH0RUHUHFHQWVWXGLHVRIZRUNHUVZLWKYHU\ORZ
    OHYHO H[SRVXUH KDYH GHPRQVWUDWHG RQO\ PLOG GHILFLWV RQ DWWHQWLRQDO WDVNV UHTXLULQJ PHQWDO VKLIWLQJ
    DQGRU UHVSRQVH VSHHG ZLWK QR PHPRU\ RU GLVWUHVV V\PSWRPV 6FKDXPEHUJ DQG 6SHQFHU E 
    +RZHYHU ORZOHYHO H[SRVXUH WR DJHQWV XVHG LQ FRVPHWLF QDLO VWXGLRV DQG EHDXW\ VDORQV KDV EHHQ
    DVVRFLDWHGZLWKUHSRUWVRIPLOGFRJQLWLYHLQHIILFLHQFLHV /R6DVVRHWDO 
    (SLGHPLRORJLFDO VWXGLHV KDYH GRFXPHQWHG LPSRUWDQW VKLIWV LQ WKH QDWXUH DQG W\SHV RI VROYHQW
    H[SRVXUHRYHUWKHGHFDGHV)RUH[DPSOHWULFKORURHWK\OHQHZDVXVHGH[WHQVLYHO\IURPWKHHDUO\V
    WKURXJK WKH V DV D GHJUHDVLQJ DJHQW EXW LWV XVH GHFOLQHG VKDUSO\ EHFDXVH RI HQYLURQPHQWDO
    FRQFHUQV %DNNHHWDO 7KHVHW\SHVRIVKLIWVLQVROYHQWH[SRVXUHSDWWHUQVDUHLPSRUWDQWIDFWRUV
    LQHYDOXDWLQJWKHOLWHUDWXUHRQQHXURSV\FKRORJLFDOHIIHFWVHVSHFLDOO\LQUHJDUGWRORQJWHUPH[SRVXUH

    $FXWH H[SRVXUH 'XULQJ DQG LPPHGLDWHO\ IROORZLQJ DFXWH VROYHQW H[SRVXUH PDQ\ SHUVRQV
    FRPSODLQ RI KHDGDFKH GL]]LQHVV XQGXH IDWLJXH QDXVHD DQG PHQWDO FRQIXVLRQ &( $QGHUVRQ DQG
    /RRPLV  )XUPDQ DQG &DVV  5) :KLWH )HOGPDQ DQG 7UDYHUV   6RPH ZLOO KDYH
    UHVSLUDWRU\ V\PSWRPV RU VNLQ LUULWDWLRQ $ WUDQVLHQW HXSKRULF UHDFWLRQ WR KLJK LQWHQVLW\ LQWDNH RI
    WROXHQHDFRQVWLWXHQWRIVXFKFRPPRQLWHPVDVJOXHVSDLQWVPDUNLQJSHQVDQGWKLQQHUVKDVOHGWR
    VQLIILQJIRUSOHDVXUH /XEPDQHWDO &DUGLRYDVFXODUDOWHUDWLRQVH[DFHUEDWHGE\DQHPRWLRQDO
    FKDUJH FDQ HQG LQ VXGGHQ GHDWK VQLIILQJ V\QGURPH &( $QGHUVRQ DQG /RRPLV   /DERUDWRU\
    VWXGLHV RI WKH FRJQLWLYH HIIHFWV RI VKRUWWHUP H[SRVXUHV KDYH LGHQWLILHG WHVWV RI DWWHQWLRQ DQG
    PRQLWRULQJDVVHQVLWLYHWRWKLVW\SHRIH[SRVXUHEXWPDQ\RIWKHPRVWVHQVLWLYHFOLQLFDOWHVWVKDYHQRW
    EHHQXVHGLQODERUDWRU\UHVHDUFK $QJHU 1RWVXUSULVLQJO\VHYHULW\RIG\VIXQFWLRQWHQGVWREH
    SRVLWLYHO\DVVRFLDWHGZLWKWKHGXUDWLRQDQGLQWHQVLW\RIH[SRVXUH

    &KURQLFH[SRVXUH0RVWFKURQLFVROYHQWWR[LFLW\RFFXUVLQWKHZRUNSODFHDVDUHVXOWRIORQJWHUP
    H[SRVXUH WR IXPHV IURP VXFK VXEVWDQFHV DV SDLQWV JOXHV DQG FOHDQLQJ IOXLGV HJ WROXHQH
    SHUFKORUHWK\OHQH VROYHQW PL[WXUHV  50 %RZOHU 0HUJOHU +XHO HW DO  36 6SHQFHU DQG
    6FKDXPEHUJ E SDVVLP  WR SHWUROHXP IXHOV .QDYH HW DO   RU WR PDWHULDOV XVHG LQ WKH
    PDQXIDFWXUH RI SODVWLFV HJ VW\UHQH  (VNHQD]L DQG 0DL]OLVK  2ߤ'RQRJKXH   &KURQLF
    LQKDODQW DEXVHUV HJ ߧJOXH VQLIIHUVߨ  KDYH LQFXUUHG VXFK ORQJWHUP QHXURORJLFDO DQG
    QHXURSV\FKRORJLFDO GLVRUGHUV DV FRJQLWLYH LPSDLUPHQWV UDQJLQJ LQ VHYHULW\ IURP PLOG GHILFLWV WR
    IXOOEORZQ GHPHQWLD /XEPDQ HW DO   'LVRUGHUHG JDLW EDODQFH DQG FRRUGLQDWLRQ DORQJ ZLWK
    VSDVWLFLW\DQGRFXORPRWRUGHIHFWVDUHREVHUYHGLQVRPHSDWLHQWV &($QGHUVRQDQG/RRPLV 
    DQGZKLWHPDWWHUDWURSK\ WR[LFOHXNRHQFHSKDORSDWK\ FDQRFFXU )LOOH\DQG.OHLQVFKPLGW'H0DVWHUV
     6FKDXPEHUJ F  'DPDJH WR WKH OLYHU DQG UHQDO V\VWHP KDV DOVR EHHQ UHSRUWHG LQ JOXH
    VQLIILQJDGROHVFHQWV /XEPDQHWDO6FKDXPEHUJF 
    6XEMHFWLYHFRPSODLQWVDVVRFLDWHGZLWKFKURQLFH[SRVXUHWRVROYHQWVLQFOXGHIDWLJXHPHPRU\DQG
    FRQFHQWUDWLRQSUREOHPVHPRWLRQDOODELOLW\DQGGHSUHVVLRQVOHHSGLVWXUEDQFHVDQGVHQVRU\DQGPRWRU
    V\PSWRPV HVSHFLDOO\LQYROYLQJWKHH[WUHPLWLHV  50%RZOHU0HUJOHU5DXFKHWDO'RFWRU
    /$0RUURZ0XOGRRQDQG6DQGVWURP /$0RUURZ6WHLQDQGWKHLUFROOHDJXHV 
    IRXQG WKDW  RI VXEMHFWV UHSRUWLQJ SULRU H[SRVXUH WR ZRUNSODFH VROYHQWV PHW IRUPDO '60
    >$PHULFDQ3V\FKLDWULF$VVRFLDWLRQ@ FULWHULDIRUGHSUHVVLRQ7KHVLPLODULW\RIWKHVHFRPSODLQWV
    WR WKRVH RI QHXURWLF RU GHSUHVVHG SDWLHQWV FRXSOHG ZLWK WKH DEVHQFH RI GLVWLQFWLYH QHXURORJLFDO
    V\PSWRPV FDQ PLVOHDG D QD°YH H[DPLQHU LQWR GLVFRXQWLQJ WKH SDWLHQWߤV FRPSODLQWV LI VXSSRUWLQJ
    QHXURSV\FKRORJLFDO ILQGLQJV DUH QRW DYDLODEOH DQG REYLRXV IRUPDO GHILFLWV FDQQRW EH GRFXPHQWHG
    7KLV ߧIDOVH QHJDWLYHߨRXWFRPH LV DOO WKH PRUH OLNHO\ ZLWK DEEUHYLDWHG H[DPV WKDW ODFN VXIILFLHQW
    EUHDGWKDQGGHSWKWRFRYHUDOORIWKHFULWLFDOIXQFWLRQVWKDWVKRXOGEHDVVHVVHG
    6HQVRU\DQGPRWRUFKDQJHVPD\LQFOXGHLPSDLUHGYLVXDODFXLW\ &($QGHUVRQDQG/RRPLV
    0HUJOHU)UHQHWWHHWDO DQGFRORUYLVLRQ 50%RZOHU/H]DNHWDO0HUJOHUDQG%ODLQ
     YHVWLEXODUGLVRUGHUV )XUPDQDQG&DVV/$0RUURZ)XUPDQHWDO DOWHUHGVPHOO
    VHQVH ZLWK K\SHUVHQVLWLYLW\ WR FRPPRQ HQYLURQPHQWDO RGRUV &0 5\DQ 0RUURZ DQG +RGJVRQ
      UHGXFHG PDQXDO GH[WHULW\ 50 %RZOHU 0HUJOHU +XHO HW DO    DQG QXPEQHVV DQGRU
    ZHDNQHVV RI WKH H[WUHPLWLHV (/ %DNHU /HW] HW DO   3HULSKHUDO QHUYH FRQGXFWLRQ YHORFLWLHV
    ZHUHVORZHGLQPRUHWKDQKDOIRIRQHJURXSRISDWLHQWVZLWKORQJWHUPH[SRVXUH )ORGLQHWDO 
    6ORZHGODWHQFLHVRIHYHQWUHODWHGSRWHQWLDOVZHUHGRFXPHQWHGLQDOORIDVPDOOJURXSRISHUVRQVZLWK
    RUJDQLFVROYHQWH[SRVXUHWKDWRFFXUUHGWZR\HDUVRUPRUHEHIRUHWHVWLQJ /$0RUURZ6WHLQKDXHU
    DQG +RGJVRQ  VHH DOVR /$ 0RUURZ 6WHLQKDXHU DQG &RQGUD\   6HQVRU\ DQG PRWRU
    V\PSWRPVWHQGWRUHIOHFWERWKSHULSKHUDODQGFHQWUDOQHUYRXVV\VWHPLQYROYHPHQW &($QGHUVRQDQG
    /RRPLV6FKDXPEHUJDQG6SHQFHU 
    7KHPRVWSURPLQHQWFRJQLWLYHGHILFLWVLQYROYHLPSDLUHGDWWHQWLRQPHPRU\DQGSURFHVVLQJVSHHG
    UHVSRQVHVORZLQJ  $QJHU50%RZOHU0HUJOHU+XHOHWDO/$0RUURZ6WHLQHWDO
     /$0RUURZ5RELQDQGWKHLUFROOHDJXHV  GRFXPHQWHGVSHFLILFGHILFLWVLQERWKIRUZDUG
    DQGUHYHUVHGGLJLWVSDQOHDUQLQJDQGDYDULDWLRQRIWKH%URZQ3HWHUVRQGLVWUDFWRUWHFKQLTXH7KHLU
    ILQGLQJVVXJJHVWHGWKDWWKHDPRXQWRILQIRUPDWLRQWKHDIIHFWHGSDWLHQWVDUHFDSDEOHRISURFHVVLQJLV
    UHGXFHG $EQRUPDO VORZLQJ RQ WKH 7UDLO 0DNLQJ 7HVW FKDUDFWHUL]HG WKH SHUIRUPDQFH RI PDQ\ߟEXW
    QRW DOOߟZRUNHUV ZLWK VHYHUH FKURQLF WR[LF HQFHSKDORSDWK\ GXH WR VROYHQW H[SRVXUH 1LOVRQ HW DO
      6ORZLQJ ZDV PRVW SURQRXQFHG RQ WKH 7UDLO 0DNLQJ 7HVW ߞ 3DUW % DQG LQFUHDVHG ZLWK DJH
    5HDVRQLQJDQGSUREOHPVROYLQJDELOLWLHVPD\DOVREHFRPSURPLVHG /LQ]HWDO  $ UHYLHZ RI
    WKHQHXURSV\FKRORJLFDOHIIHFWVDVVRFLDWHGZLWKRFFXSDWLRQDOH[SRVXUHWRYDULRXVVROYHQWVDOVRIRXQG
    VLJQLILFDQWO\ORZHUVFRUHVRQPHDVXUHVRIDWWHQWLRQPHPRU\PRWRUSHUIRUPDQFHDQGFRQVWUXFWLRQDO
    DELOLWLHV WKH PHDVXUHV WKDW ZHUH PRVW VHQVLWLYH IRU GHWHFWLQJ QHXURSV\FKRORJLFDO GHILFLWV ZHUH
    SURFHVVLQJ VSHHG DQG UHVSRQVH DOWHUQDWLRQ DQG LQKLELWLRQ 0H\HU%DURQ %ODV]NHZLF] HW DO  
    7KHH[SRVHGJURXSVKDGWKHJUHDWHVWSURSRUWLRQRIORZHUVFRUHVRQDWWHQWLRQDOWHVWVHIIHFWVL]HVRQ
    WKHVH PHDVXUHV UDQJHG IURP VPDOO G  ߞ WR PRGHUDWH G  ߞ  EXW H[SRVXUHHIIHFW
    UHODWLRQVKLSV ZHUH KLJKO\ LQFRQVLVWHQW PRVW OLNHO\ GXH WR FUXGH RU LQDSSURSULDWHO\ FDOFXODWHG
    H[SRVXUHPHDVXUHV
    ([HFXWLYH GLVRUGHUV VKRZ XS DV UHGXFHG VSRQWDQHLW\ LPSDLUHG SODQQLQJ DELOLW\ DQG VLWXDWLRQ
    GHSHQGHQF\ +DJVWDGLXV HW DO  +DZNLQV   3(7 KDV GRFXPHQWHG IURQWDO G\VIXQFWLRQ LQ
    VROYHQW H[SRVHG VXEMHFWV SHUIRUPLQJ ZRUNLQJ PHPRU\ WDVNV D ILQGLQJ FRQVLVWHQW ZLWK UHGXFWLRQ LQ
    SUHIURQWDOEORRGIORZ +DXW/HDFKHWDO 
    (PRWLRQDOGLVWXUEDQFHVRIWHQSUHVHQWDVVRPDWLFSUHRFFXSDWLRQVGHSUHVVLYHWHQGHQFLHVRUDQ[LHW\
    ZLWKVRFLDOZLWKGUDZDO 50%RZOHU/H]DNHWDO50%RZOHU0HUJOHU5DXFKHWDO
    50%RZOHU5DXFKHWDO/LQ]HWDO DQGFDQSHUVLVWIRU\HDUVDIWHUH[SRVXUHVWRSV 50
    %RZOHU 0HUJOHU 5DXFK DQG %RZOHU  /$ 0RUURZ 0XOGRRQ DQG 6DQGVWURP   7KHVH
    HVVHQWLDOO\ G\VSKRULF UHDFWLRQV DSSHDU WR RFFXU ZLWKRXW VLJQLILFDQW FKDQJHV LQ SHUVRQDOLW\ RU
    LQWHUSHUVRQDOLQWHUDFWLRQV /$0RUURZ.DPLVDQG+RGJVRQ 7KHDEVHQFHRIDUHODWLRQVKLS
    EHWZHHQHPRWLRQDOGLVWUHVVDQGFRJQLWLYHG\VIXQFWLRQVXJJHVWVWKDWGLVWUHVVLVQRWQHFHVVDULO\UHDFWLYH
    WRPHQWDODELOLW\GHILFLWVDQGWKDWGLVWUHVVSHUVHGRHVQRWQHFHVVDULO\FRQWULEXWHVLJQLILFDQWO\WRSRRU
    WHVWSHUIRUPDQFH 50%RZOHU/H]DNHWDO/$0RUURZ5\DQ+RGJVRQDQG5RELQ
    /$ 0RUURZ 6WHLQ HW DO   +RZHYHU G\VSKRULF HPRWLRQDO VWDWHV DQG FRJQLWLYH LPSDLUPHQWV
    WHQG WR RFFXU WRJHWKHU 2JGHQ   $OWHUDWLRQV LQ DGDSWLYH FDSDFLW\ HJ VOHHS GLVWXUEDQFH
    OHWKDUJ\ DUHIUHTXHQWO\UHSRUWHG $QJHU(/%DNHU/HW]HWDO)LOOH\DQG.OHLQVFKPLGW
    'H0DVWHUV 
    'LIIHUHQFHV EHWZHHQ WKH HIIHFWV RI SDUWLFXODU VROYHQWV DQG KRZ VXFK HIIHFWV DUH PDQLIHVWHG LQ
    SDWLHQWV UHIOHFW LQWHUDFWLRQV EHWZHHQ PDQ\ YDULDEOHV LQFOXGLQJ GXUDWLRQ DQG LQWHQVLW\ RI H[SRVXUH
    DJHSK\VLFDODQGHPRWLRQDOVWDWXVRIWKHSDWLHQWDWWKHWLPHRIH[SRVXUHSUHPRUELGSHUVRQDOLW\WKH
    GLIIHUHQW NLQGV RI QHXURWR[LQV WR ZKLFK D SHUVRQ KDV EHHQ H[SRVHG DQG WKH PHWDEROLF DOWHUDWLRQV
    LQGXFHG E\ VSHFLILF WR[LF VXEVWDQFHV (/ %DNHU /HW] HW DO  6FKDXPEHUJ E  5HODWLYHO\
    ORZEXWHQGXULQJH[SRVXUHVFDQUHVXOWLQVOLJKWߟRIWHQVXEWOHߟEXWGHPRQVWUDEOHQHXURSV\FKRORJLFDO
    GHILFLWV %OHHFNHU %ROOD $JQHZ HW DO   %RWK UHFHQF\ RI H[SRVXUH DQG H[SRVXUH WR D VLQJOH
    VXGGHQKLJKGRVHKDYHEHHQUHODWHGWRV\PSWRPVHYHULW\ /$0RUURZ5\DQ+RGJVRQDQG5RELQ
    /$0RUURZ6WHLQKDXHU&RQGUD\DQG+RGJVRQ 2YHUDOOLQWHQVLW\RIH[SRVXUHUDWKHU
    WKDQ GXUDWLRQ PD\ EH D NH\ IDFWRU LQ GHWHUPLQLQJ V\PSWRP VHYHULW\ (/ %DNHU /HW] HW DO 
    /$0RUURZ5\DQ+RGJVRQDQG5RELQ5LVEHUJDQG +DJVWDGLXV  $IWHU WZR RU
    PRUH \HDUV RI QR IXUWKHU H[SRVXUH VRPH SDWLHQWV KDG IHZHU FRPSODLQWV RI VXEMHFWLYH GLVWUHVV
    SDUWLFXODUO\IDWLJXHKHDGDFKHDQGGL]]LQHVV šUEDHNDQG/LQGJUHQ 

    6ROYHQWH[SRVXUHDQGGHPHQWLD5HSRUWVWKDWORQJWHUPVROYHQWH[SRVXUHPD\XOWLPDWHO\SURGXFH
    DQ $O]KHLPHUOLNH GHPHQWLD KDYH EHHQ LQFRQVLVWHQW 6DQWLE£³H] HW DO   6XFK V\QGURPHV KDYH
    EHHQGHVFULEHGLQ FKURQLFDOO\ H[SRVHG SDLQWHUV $UOLHQ6ºERUJ HW DO  &DOQH HW DO  /$
    0RUURZ0XOGRRQDQG6DQGVWURP )UHHGDQG.DQGHO  IRXQGWKDWRIDODUJHVDPSOH
    RISUREDEOH$O]KHLPHUSDWLHQWVKDGDPLQLPXPRIWZR\HDUVRIRFFXSDWLRQDOH[SRVXUHVLJQLILFDQWO\
    PRUHWKDQWKHLQWKHFRPSDULVRQJURXSZLWKVLPLODURFFXSDWLRQDOKLVWRULHV2WKHUVWXGLHVKDYH
    TXHVWLRQHG WKH DVVRFLDWLRQ RI VROYHQW H[SRVXUH ZLWK D GHPHQWLQJ GLVRUGHU $ FRPSDULVRQ RI %ULWLVK
    PHQZKRGLHGLQWKHVZLWKDQGZLWKRXWGHDWKFHUWLILFDWHGLDJQRVHVRIߧSUHVHQLOHGHPHQWLDߨIRXQG
    QRGLIIHUHQFHV LQ RFFXSDWLRQDO H[SRVXUH WR SUHVXPHG QHXURWR[LQV 2ߤ)O\QQ HW DO   6WXGLHV RI
    ZRUNHUVLQLQGXVWULDOVHWWLQJVLQZKLFKH[SRVXUHOHYHOVKDGEHHQPDLQWDLQHGDWUHODWLYHO\ORZOHYHOV
    IRU \HDUV GR QRW UHSRUW WKH FRJQLWLYH GHILFLWV RU HPRWLRQDO GLVWUHVV IRXQG DPRQJ OHVV SURWHFWHG
    ZRUNHUV DOWKRXJK VHYHUDO KHDYLO\ H[SRVHG SDWLHQWV GLG VKRZ V\PSWRPV RI WR[LF HQFHSKDORSDWK\
    7ULHELJ 6ROYHQWH[SRVXUHPD\FRQWULEXWHWRSRRUHUFRJQLWLYHIXQFWLRQLQJE\LQWHUDFWLQJZLWK
    WKHQRUPDODJLQJSURFHVV 1LOVRQHWDO 

    3HVWLFLGHV

    0RVWSHVWLFLGHVKDYHQHXURWR[LFHIIHFWVWKDWLQKLJKGRVHVDQGRUORQJH[SRVXUHVSURGXFHDGHILFLW
    SDWWHUQ VLPLODU WR WKH FRUH SDWWHUQ RI VROYHQW WR[LFLW\ 'RFWRU  .XUO\FKHN   :LWK DFXWH
    H[SRVXUH SDWLHQWV H[SHULHQFH PDQ\ V\PSWRPV DVVRFLDWHG ZLWK FHQWUDO QHUYRXV V\VWHP LQYROYHPHQW
    VXFK DV KHDGDFKHV EOXUUHG YLVLRQ DQ[LHW\ UHVWOHVVQHVV DSDWK\ GHSUHVVLRQ PHQWDO VORZLQJ DQG
    FRQIXVLRQ VOXUUHG VSHHFK DQG DWD[LD (VNHQD]LDQG 0DL]OLVK   &RPD FRQYXOVLRQV DQG GHDWK
    GXHWRUHVSLUDWRU\IDLOXUHFDQRFFXUZLWKYHU\VHYHUHH[SRVXUH

    /RQJWHUPH[SRVXUH$ODUJHVFDOHVWXG\ TXHVWLRQQDLUHGDWDIURP,RZDQVPRVWO\IDUPHUV
    IRXQG WKDW D EURDG UDQJH RI QHXURORJLFDO DQG QHXURSV\FKRORJLFDO V\PSWRPV LQYROYLQJ FRJQLWLRQ
    HPRWLRQDOVWDWXVDXWRQRPLFDQGPRWRUIXQFWLRQVDQGYLVLRQRFFXUUHGZLWKFXPXODWLYHSHVWLFLGHXVH
    .DPHOHWDO ([WHQWDQGVHYHULW\RIV\PSWRPVWHQGHGWREHGRVHUHODWHGEXWZHUHHVSHFLDOO\
    LQFUHDVHGE\DKLJKH[SRVXUHHYHQW1HLWKHUGHPRJUDSKLFYDULDEOHVQRURWKHUSUHH[LVWLQJFRQGLWLRQV
    DIIHFWHG WKH DVVRFLDWLRQ ZLWK FXPXODWLYH XVH 2UJDQRSKRVSKDWH DQG RUJDQRFKORULQH LQVHFWLFLGHV
    SUHVHQWHGWKHJUHDWHVWULVN6KHHSIDUPHUVH[SRVHGWRORZOHYHOVRIRUJDQRSKRVSKDWHSHVWLFLGHVKDG
    KLJKHU OHYHOV RI FOLQLFDOO\ VLJQLILFDQW GHSUHVVLRQ DQG DQ[LHW\ WKDQ D FRPSDULVRQ FRKRUW DQG
    SHUIRUPHG ZRUVH WKDQ FRPSDULVRQ SDUWLFLSDQWV DQG EHORZ VWDQGDUGL]DWLRQ VDPSOHV  RQ WHVWV RI
    PHPRU\ UHVSRQVH VSHHG ILQH PRWRU FRQWURO PHQWDO IOH[LELOLW\ DQG GHFLVLRQ PDNLQJ 0DFNHQ]LH
    5RVV HW DO   /RXLV   VXJJHVWHG D SRVVLEOH UHODWLRQVKLS EHWZHHQ DJULFXOWXUDO H[SRVXUHV
    KHUELFLGHVDQGSHVWLFLGHV DQGHVVHQWLDOWUHPRUDOWKRXJKWKHILQGLQJVZHUHQRWGHILQLWLYH
    2OGHU VWXGLHV UHSRUWHG WKDW FKURQLFDOO\ H[SRVHG SHUVRQV DUH VXEMHFW WR PRWRU V\VWHP V\PSWRPV
    DWWHQWLRQ PHPRU\ DQG UHVSRQVH VSHHG DUH PRVW RIWHQ LPSDLUHG +$ 3HWHUV HW DO   7KHVH
    SDWLHQWV IUHTXHQWO\ FRPSODLQHG RI LUULWDELOLW\ DQ[LHW\ FRQIXVLRQ DQG GHSUHVVLRQ 5HLG\ DQG KLV
    FROOHDJXHV   IRXQG LPSDLUHG VKRUWWHUP YLVXRVSDWLDO PHPRU\ LQ DGGLWLRQ WR PHQWDO VSHHG DQG
    PDQXDOGH[WHULW\GHILFLWVLQDJURXSRIZRUNHUV*DUGHQHUVDQGIDUPHUVH[SRVHGWRSHVWLFLGHVPD\EH
    DW LQFUHDVHG ULVN IRU PLOG FRJQLWLYH LPSDLUPHQW %RVPD HW DO   $IWHU ERWK DFXWH DQG FKURQLF
    H[SRVXUHSDWLHQWVKDYHUHSRUWHGVOHHSGLVWXUEDQFHV'DWDRQLPSURYHPHQWRUV\PSWRPVWDELOLW\YDU\
    JUHDWO\DQGPD\GHSHQGRQWKHPHWKRGVRIDVVHVVPHQWDVPXFKRUPRUHWKDQWKHW\SHRISHVWLFLGHRU
    WKHGXUDWLRQRIH[SRVXUH
    6WLOO ZKHWKHU FKURQLF ORQJWHUP H[SRVXUH WR ORZ GRVHV KDV PHDVXUDEOH DGYHUVH HIIHFWV RQ
    FRJQLWLRQDQGEHKDYLRUUHPDLQVRSHQWRGHEDWH &RORVLRHWDO )RUH[DPSOHLQDSURVSHFWLYH
    FRKRUW VWXG\ -: $OEHUV DQG FROOHDJXHV   IRXQG WKDW FKURQLF H[SRVXUH WR WKH LQVHFWLFLGH
    FKORUS\ULIRVSURGXFHGQRFOLQLFDOHYLGHQFHRIFRUWLFDOS\UDPLGDOWUDFWH[WUDS\UDPLGDOWUDFWRURWKHU
    &16G\VIXQFWLRQ7KXVJDLQLQJDFOHDUSHUVSHFWLYHRQKRZSHVWLFLGHVPD\DIIHFWWKHFHQWUDOQHUYRXV
    V\VWHP DQG QHXURSV\FKRORJLFDO IXQFWLRQLQJ UHPDLQV FKDOOHQJLQJ DQG SUREOHPV ZLWK PHDVXUHPHQW
    DQGDZLGHDUUD\RIFRQIRXQGLQJIDFWRUVFRQWLQXHWRSODJXHWKHUHVHDUFKLQWKLVDUHD

    'HYHORSPHQWDO LVVXHV )RU PRVW SRWHQWLDOO\ WR[LF VXEVWDQFHV LW LV OLNHO\ WKDW WKHUH DUH FULWLFDO
    GHYHORSPHQWDOߧZLQGRZVߨZKHQH[SRVXUHFDQOHDGWRPXFKPRUHVHYHUHORQJWHUPFRQVHTXHQFHVWKDQ
    H[SRVXUHDWRWKHUHSRFKV %HOOLQJHU   DQG WKH VDPH LV WUXH IRU SHVWLFLGHV 2QH VWXG\ UHSRUWHG
    WKDW VKRUWWHUP RUJDQRSKRVSKDWH SHVWLFLGH H[SRVXUH LQ +LVSDQLF IDUP FKLOGUHQ DSSHDUHG WR KDYH
    DGYHUVHHIIHFWVRQSURFHVVLQJVSHHGDWWHQWLRQVHTXHQFLQJPHQWDOIOH[LELOLW\YLVXDOVHDUFKFRQFHSW
    IRUPDWLRQ DQG FRQFHSWXDO IOH[LELOLW\ /L]DUGL HW DO   3UHQDWDO H[SRVXUH WR EDFNJURXQG ORZ
    OHYHO FRQFHQWUDWLRQV RI ELV>SFKORURSKHQ\O@WULFKORURHWKDQH ''7  KDV EHHQ DVVRFLDWHG ZLWK D
    GHFUHDVH LQ SUHVFKRROHUVߤ FRJQLWLYH VNLOOV 5LEDV)LWR HW DO   6LPLODUO\ VFKRRODJH FKLOGUHQ
    ZKR KDG EHHQ KRVSLWDOL]HG GXULQJ LQIDQF\ IROORZLQJ H[SRVXUH WR RUJDQRSKRVSKDWH SHVWLFLGHV KDG D
    VXEWOHEXWPHDVXUDEOHGHILFLWLQLQKLELWRU\PRWRUFRQWURO .RIPDQHWDO &KLOGUHQH[SRVHGWR
    PHWK\O SDUDWKLRQ DQRWKHU RUJDQRSKRVSKDWH SHVWLFLGH ZHUH VKRZQ WR KDYH GLIILFXOWLHV RQ WDVNV RI
    VKRUWWHUPPHPRU\DQGDWWHQWLRQ 5XFNDUWHWDO DOWKRXJKWKHILQGLQJVZHUHQRWFRQFOXVLYH$V
    ZLWK PRVW RI WKH ZRUN ZLWK DGXOWV H[SRVHG WR SHVWLFLGHV WKHUH DUH PDQ\ PL[HG DQG LQFRQFOXVLYH
    ILQGLQJV DQG PDQ\ VWXGLHV KDYH IRXQG QR DGYHUVH HIIHFWV RI SHVWLFLGH H[SRVXUH RQ FRJQLWLYH
    GHYHORSPHQW DQG FRJQLWLYH IXQFWLRQLQJ & /X HW DO   &DUHIXOO\ FRQWUROOHG SURVSHFWLYH
    ORQJLWXGLQDO VWXGLHV DUH QHHGHG WR DQVZHU PRUH GHILQLWLYHO\ PDQ\ EDVLF TXHVWLRQV UHJDUGLQJ
    QHXURWR[LFLW\RISHVWLFLGHV

    0HWDOV

    7ZR PHWDOV PD\ EH EHVW NQRZQ IRU WKHLU WR[LFLW\ SRWHQWLDO /HDG WKH PHQWDO GXOOLQJ RI FKLOGUHQ
    H[SRVHG WR OHDG SDLQW DQG OHDGHG JDV IXPHV ZHUH KHDGOLQH VWRULHV DQ DQDO\VLV RI D ORFN RI
    %HHWKRYHQߤV KDLU IRXQG LW KHDYLO\ ORDGHG ZLWK OHDG ZKLFK SRVVLEO\ DFFRXQWHG IRU KLV GHDIQHVV DQG
    IDPHG LUDVFLELOLW\ 5XVVHOO 0DUWLQ   0HUFXU\ PDGH IDPRXV E\ /HZLV &DUUROOߤV 0DG +DWWHU
    KDWPDNHUVLQWKHODWHWKFHQWXU\XVHGPHUFXU\WRSURFHVVIHOW DQGE\KHDGOLQHVWRULHVRQVHYHUDO
    ODUJHVFDOH LOOQHVV HSLGHPLFV WUDFHDEOH WR RUJDQLF PHUFXU\ WKDW HQWHUHG WKH IRRG FKDLQ DIWHU EHLQJ
    GXPSHGLQWRKHDYLO\ILVKHGZDWHUV

    /HDG /HDG FDQ DIIHFW YLUWXDOO\ HYHU\ RUJDQ V\VWHP EXW LW LV SDUWLFXODUO\ WR[LF IRU WKH FHQWUDO
    QHUYRXV V\VWHP HVSHFLDOO\ WKH GHYHORSLQJ EUDLQ :LQQHNH   7R GDWH QR VDIH OHDGH[SRVXUH
    WKUHVKROGKDVEHHQLGHQWLILHG 76DQGHUVHWDO /HDGQHXURWR[LFLW\FDQFRPSURPLVHPRUHRU
    OHVV WKH HQWLUH JDPXW RI FRJQLWLYH IXQFWLRQV DWWHQWLRQ PHPRU\ DQG OHDUQLQJ YLVXDO DQG YHUEDO
    DELOLWLHV SURFHVVLQJ VSHHG DQG PRWRU DQG FRRUGLQDWLRQ IXQFWLRQV $QJHU  5) :KLWH DQG
    -DQXOHZLF]  /HDG KDV EHHQ VKRZQ WR LQGXFH GDPDJH LQ SUHIURQWDO FRUWH[ KLSSRFDPSXV DQG
    FHUHEHOOXP 7 6DQGHUV HW DO   DOWKRXJK WKH PHFKDQLVPV EHKLQG WKHVH HIIHFWV DUH QRW ZHOO
    XQGHUVWRRG 9HUVWUDHWHQHWDO /HDGH[SRVHGZRUNHUVIUHTXHQWO\UHSRUWIDWLJXHDVDSUREOHP
    DORQJZLWKKHDGDFKHUHVWOHVVQHVVLUULWDELOLW\DQGSRRUHPRWLRQDOFRQWURO 'RFWRU3DVWHUQDNHW
    DO   'HYHORSPHQW RI WR[LFLW\ V\PSWRPV UHTXLUHV ZHHNV RU ORQJHU RI H[SRVXUH V\PSWRPV GR
    QRWRFFXUDFXWHO\ &RU\6FKOHFWD DQG6FKDXPEXUJ  /HDG H[SRVXUHKDV VHULRXV HIIHFWV RQ WKH
    GHYHORSLQJ EUDLQ LQ LQIDQWV DQG FKLOGUHQ ZKLFK FRQWLQXH WR GHSUHVV FRJQLWLYH IXQFWLRQLQJ LQWR
    DGXOWKRRG 76DQGHUVHWDO5):KLWHDQG-DQXOHZLF] 
    + +¦QQLQHQ   UHSRUWHG VSHFLILF GHILFLWV RQ YLVXDO WDVNV ERWK FRQVWUXFWLRQ DQG PHPRU\
    9LVXRVSDWLDO DQG H[HFXWLYH IXQFWLRQ LPSDLUPHQWV DUH RIWHQ SURPLQHQW $%DUWKHWDO  ,Q RQH
    VHULHV RI OHDGH[SRVHG ZRUNHUV FRJQLWLYH DELOLWLHV SURJUHVVLYHO\ GHFOLQHG RYHU DQ DYHUDJH RI 
    \HDUVDIWHUSDVWRFFXSDWLRQDOH[SRVXUH %66FKZDUW]HWDO %ROOD:LOVRQDQGKHUFROOHDJXHV
     IRXQGWKDWKLJKHUOHDGOHYHOVLQEORRGZHUHDVVRFLDWHGZLWKSRRUHUSHUIRUPDQFHVRQWHVWVRI
    ERWKYHUEDODQGYLVXDOOHDUQLQJZRUGXVDJHDQGFRQVWUXFWLRQ<HWVRPHVWXGLHVUHSRUWHGQRRUIHZ
    DEQRUPDOFRJQLWLYHILQGLQJV %UDXQDQG'DLJQHDXOW3DVWHUQDNHWDO&05\DQ0RUURZ
    3DUNLQVRQDQG%URPHW ZKLFKPD\KDYHEHHQGXHWRORZRUPRGHUDWHH[SRVXUH
    /HDG WR[LFLW\ DOVR FDQ DIIHFW PRWRU IXQFWLRQV VKRZLQJ XS DV D ZULVW RU IRRWGURS DQG UHGXFHG
    PRWRUVSHHGDQGVWUHQJWK /$0RUURZ0XOGRRQDQG6DQGVWURP3DVWHUQDNHWDO +LJK
    H[SRVXUH OHYHOV KDYH DGYHUVH HIIHFWV RQ WKH FHQWUDO QHUYRXV V\VWHP DV ZHOO DV NLGQH\V WKH
    UHSURGXFWLYHV\VWHPDQGEORRGFRQWHQW /$0RUURZ0XOGRRQDQG6DQGVWURP DQGKDYHDOVR
    EHHQDVVRFLDWHGZLWKORVVRIKHDULQJ 5RVLQ5XVVHOO0DUWLQ 
    7KHRUJDQLFOHDGXVHGLQOHDGHGJDVROLQHLVKLJKO\WR[LF$VVXFKLWLVDQLPSRUWDQWFRQWULEXWRUWR
    WKH QHXUREHKDYLRUDO GLVRUGHUV RI FKURQLF JDVROLQH VQLIIHUV LQFOXGLQJ WKHLU SURQRXQFHG PHPRU\
    LPSDLUPHQW /LVKPDQ6FKDXPEXUJD 

    0HUFXU\0HUFXU\WR[LFLW\FDQKDYHPDQ\GLIIHUHQWFHQWUDOQHUYRXVV\VWHPHIIHFWVFRQVLVWHQWZLWK
    DXWRSV\ ILQGLQJV RI HQFHSKDORSDWK\ SDUWLFXODUO\ LQYROYLQJ WKH FHUHEHOOXP WKH EDVDO JDQJOLD WKH
    SULPDU\VHQVRU\DQGPRWRUFRUWLFHVDQGVSLQDOFRUGGHJHQHUDWLRQ 5* )HOGPDQ  7DEHUDQG
    +XUOH\  9HULW\ DQG 6DUDILDQ   :KHQ DFXWH LQWR[LFDWLRQ GRHV QRW UHVXOW LQ GHDWK VXFK
    SUREOHPV DV PRWRU VORZLQJ DQG FOXPVLQHVV SDUHVWKHVLDV WUHPRU YLVXDO DQG KHDULQJ GHIHFWV
    DJLWDWLRQDQGPHQWDOGXOOLQJPD\HYROYHLQDVIHZDVWZRGD\VDIWHUH[SRVXUHRUPD\WDNHZHHNVRU
    PRQWKV WR GHYHORS DQG WKHQ SHUVLVW LQGHILQLWHO\ 'RFWRU  7DEHU DQG +XUOH\   -XVW RQH
    H[SRVXUHLIWKHGRVHLVKLJKHQRXJKFDQUHVXOWLQVHULRXVVHQVRU\DQGPRWRUG\VIXQFWLRQFRJQLWLYH
    GHILFLWVDQGHYHQGHDWK 9HULW\DQG6DUDILDQ 
    0HWK\OPHUFXU\LQSDUWLFXODULVDSRWHQWQHXURWR[LFDQWDVRQFHLQFRUSRUDWHGLQWRWKHERG\LWHDVLO\
    SHQHWUDWHV WKH EORRGEUDLQ EDUULHU DQG GDPDJHV WKH FHQWUDO QHUYRXV V\VWHP HVSHFLDOO\ LQ IHWXVHV
    '¯H]   0HWK\OPHUFXU\ ELRDFFXPXODWHV DQG ELRPDJQLILHV LQ WKH DTXDWLF IRRG FKDLQ VXFK WKDW
    FRQVXPSWLRQ RI ILVK DQG VHDIRRG LV WKH PRVW FRPPRQ SDWKZD\ RI H[SRVXUH IRU KXPDQV
    0HWK\OPHUFXU\ DQG RWKHU IRUPV RI PHUFXU\ DUH DPRQJ WKH PRVW WR[LF VXEVWDQFHV LQ WKH JOREDO
    HQYLURQPHQW DQG WKHLU PDQ\ DGYHUVH HIIHFWV FRQWLQXH WR EH D PDMRU SXEOLF KHDOWK FRQFHUQ 'LH]
     
    'HILFLWV GXH WR FKURQLF ORZOHYHO H[SRVXUH EHFRPH HYLGHQW RQ WHVWV RI YLVXRPRWRU FRRUGLQDWLRQ
    DQGFRQVWUXFWLRQWKHVHSDWLHQWVDOVRKDYHDWWHQWLRQDOPHPRU\DQGUHDVRQLQJSUREOHPV ++DQQLQHQ
     5) :KLWH )HOGPDQ DQG 7UDYHUV   0HUFXU\ OHYHOV LQ XULQH KDYH EHHQ DVVRFLDWHG ZLWK
    VKRUWWHUPPHPRU\GHILFLWV 36PLWKHWDO :LWKWKHYHU\ORZOHYHORIH[SRVXUHLQFXUUHGE\
    GHQWLVWV ZKHQ ZRUNLQJ ZLWK DPDOJDP WKRVH ZLWK KLJKHVW EXW VWLOO ORZ  H[SRVXUHV PDGH RQ WKH
    DYHUDJH D IHZ PRUH GUDZLQJ HUURUV DQG UHSRUWHG D IHZ PRUH HPRWLRQDO GLVWXUEDQFHV WKDQ ORZ
    H[SRVXUH GHQWLVWV DOWKRXJK FRJQLWLYH IXQFWLRQV UHPDLQHG LQWDFW WKH VWDWXV RI PHPRU\ DQG DWWHQWLRQ
    ZDVQRWUHSRUWHGLQWKHVHVWXGLHV  8]]HOO 'HQWDOWHFKQLFLDQVWRRUHSRUWDSDWWHUQRIHPRWLRQDO
    GLVWUHVVWKDWKDVEHHQDVVRFLDWHGZLWKFRJQLWLYHLQHIILFLHQFLHVDQGDOVRGLVSOD\DVKRUWWHUPPHPRU\
    GHILFLW 8]]HOODQG2OHU 0HUFXU\OHYHOVGRFXPHQWHGE\KDLUDQDO\VLVRIDGXOWVLQD%UD]LOLDQ
    ILVKLQJFRPPXQLW\ZHUHKLJKHUDVVFRUHVRQWHVWVRIYHUEDOOHDUQLQJYLVXRPRWRUVSHHGDQGDWWHQWLRQ
    GHFOLQHG <RNRR HW DO  %ORRG PHUFXU\OHYHOV LQ ILVK HDWLQJ ZHOOHGXFDWHG $PHULFDQVYDULHG
    GLUHFWO\ZLWKH[WHQWRIGHFOLQHLQGHOD\HGUHFDOORIWKH&RPSOH[)LJXUHEXWPHUFXU\OHYHOVDOVRYDULHG
    GLUHFWO\ ZLWK VOLJKWO\ EHWWHU ILQJHU WDSSLQJ VSHHGV QR RWKHU DVVRFLDWLRQV UHDFKHG VLJQLILFDQFH LQ D
    ODUJHWHVWEDWWHU\ 0:HLOHWDO 5):KLWHDQG-DQXOHZLF]  SURYLGHDFDUHIXOGLVFXVVLRQ
    DQGFULWLTXHRIPDQ\RIWKHFRQWUDGLFWRU\ILQGLQJVUHJDUGLQJPHUFXU\
    3DWLHQWVZLWKDKLVWRU\RIUHODWLYHO\VHYHUHH[SRVXUHPD\VXIIHUDFKURQLFDOO\GHSUHVVHGPRRGZLWK
    DSDWK\ DQG VRFLDO ZLWKGUDZDO 7DEHU DQG +XUOH\   EXW GHSUHVVLRQ VK\QHVV LUULWDELOLW\
    QHUYRXVQHVVDQGIDWLJXHFDQWURXEOHSDWLHQWVZLWKFKURQLFPLOGH[SRVXUHV 'RFWRU/6*URVV
    DQG 1DJ\  9HU\ PLOG WUHPRU PRWRU VORZLQJ DQG UHDFWLRQ WLPHV PD\ LPSURYH LQ WLPH -0
    0LOOHU HW DO   ((* DEQRUPDOLWLHV WHQG WR EH DVVRFLDWHG ZLWK DJH DW WLPH RI H[SRVXUH DQG WKH
    VHYHULW\ RI LQWR[LFDWLRQ 1RW VXUSULVLQJO\ FKLOGUHQ VXVWDLQ WKH JUHDWHVW EUDLQ GDPDJH ZLWK WKH PRVW
    SURQRXQFHGFRJQLWLYHDQGQHXURORJLFDOGHILFLWVPDQ\RIZKLFKDUHQRWOLNHO\WRLPSURYH 7DEHUDQG
    +XUOH\5):KLWHDQG-DQXOHZLF] 

    2WKHUPHWDOV7KHOLVWRIPHWDOVZLWKNQRZQWR[LFHIIHFWVLVORQJDQGUHVHDUFKRQPRVWLVVFDQW\
    $QJHU50%RZOHUDQG&RQHSDVVLP36 6SHQFHU DQG 6FKDXPEXUJ  2I WKHVH
    DOXPLQXP DQG PDQJDQHVH DUH RI SDUWLFXODU QHXURSV\FKRORJLFDO LQWHUHVW ,QIRUPDWLRQ DERXW PDQ\
    RWKHU PHWDOV FDQ EH IRXQG LQ WKH WH[WERRNV E\ +DUWPDQ   DQG 36 6SHQFHU DQG 6FKDXPEXUJ
     
    $OXPLQXP JDLQHG QRWRULHW\ ZKHQ LW ZDV WKRXJKW WR SOD\ D UROH LQ WKH HWLRORJ\ RI GHPHQWLD
    HVSHFLDOO\ $O]KHLPHU ߤV GLVHDVH $6 6FKZDUW] )UH\ HW DO   $OWKRXJK WKLV QRWLRQ KDV EHHQ
    GHEXQNHG E\ PRVW VXEVHTXHQW UHVHDUFK LW KDV QHYHU HQWLUHO\ JRQH DZD\ DQG WKH LVVXH UHPDLQV
    FRQWURYHUVLDO DQG YLJRURXVO\ GHEDWHG 0LX DQG %HQJD  0L]RURNL 0HVKLWVXND HW DO 
    6KFKHUEDW\NK DQG &DUSHQWHU   $OXPLQXP KDV NQRZQ QHXURWR[LF SURSHUWLHV ZKLFK KDYH EHHQ
    OLQNHG WR HQFHSKDORSDWK\ DQG XQWRZDUG HIIHFWV RQ WKH FHQWUDO QHUYRXV V\VWHP DQG FRJQLWLYH
    IXQFWLRQLQJ$PHWDDQDO\VLVLQGLFDWHGWKDWWKHODUJHVWDGYHUVHHIIHFWZDVRQ'LJLW6\PEROH[SRVHG
    SDUWLFLSDQWVKDGVLJQLILFDQWO\ORZHUVFRUHVWKDQXQH[SRVHGSDUWLFLSDQWVZLWKDPRGHUDWH G  ߞ
    HIIHFW VL]H 0H\HU%DURQ 6FK¤SHU HW DO   $QDO\VLV RI LQGLYLGXDO SHUIRUPDQFHV VXJJHVWHG DQ
    H[SRVXUHUHVSRQVHUHODWLRQVKLSDVZHOO7KHVHDXWKRUVUHSRUWHGVHYHUDORWKHUFRJQLWLYHWHVWVRQZKLFK
    H[SRVHGSDUWLFLSDQWVKDGORZHUSHUIRUPDQFHVWKDQXQH[SRVHGSDUWLFLSDQWV
    $OXPLQXP LV DOVR LPSOLFDWHG LQ GLDO\VLV GHPHQWLD D FRQGLWLRQ WKDW KDG DIIHFWHG D VPDOO QXPEHU
    IHZHU WKDQ   RI NLGQH\ GLDO\VLV SDWLHQWV /6 *URVV DQG 1DJ\  6SHQFHU   7KH
    LQFLGHQFHRIGLDO\VLVGHPHQWLDKDVVLJQLILFDQWO\GHFUHDVHGIROORZLQJWKHUHPRYDORIDOXPLQXPIURP
    WKHGLDO\VDWHDQGSXULILFDWLRQRIWKHZDWHUXVHGLQGLDO\VLV *%<RXQJDQG%ROWRQ ,WLVPRUH
    OLNHO\ WR EH D SUREOHP ZKHQ GLDO\VLV LV FRQGXFWHG DW KRPH ZLWK D ZDWHU VXSSO\ FRQWDLQLQJ KLJK
    FRQFHQWUDWLRQV RI DOXPLQXP $0 'DYLVRQ HW DO   2QVHW RI GLDO\VLV GHPHQWLD LV W\SLFDOO\
    PDUNHGE\VWXWWHULQJDQGLQDUWLFXODWHRUG\VIOXHQWVSHHFK -%DUURQHWDO  &RQFHQWUDWLRQ DQG
    PHPRU\SUREOHPVFDQTXDOLI\WKHFRQGLWLRQDVDGHPHQWLD3HUVRQDOLW\FKDQJHVFDQLQFOXGHMXVWDERXW
    HYHU\WKLQJ IURP DJLWDWLRQ WR GHSUHVVLRQ DQG DSDWK\ WR SDUDQRLD *% <RXQJ DQG %ROWRQ   
    0RWRU SUREOHPV VKRZ XS LQ XQFRQWUROOHG MHUNLQJ P\RFORQXV  DQG GLIILFXOW\ VZDOORZLQJ ((*
    DEQRUPDOLWLHV W\SLFDOO\ LPSOLFDWH ERWK IURQWDO DUHDV DQG WKH GLHQFHSKDOLF UHWLFXODU DFWLYDWLQJ V\VWHP
    DQGLILGHQWLILHGHDUO\LQWKHLUHYROXWLRQPD\EHUHYHUVHGZLWKDSURPSWUHVSRQVHWRWKHSUREOHP
    0DQJDQHVHLVXVHGLQWKHPDQXIDFWXUHRIPDQ\SURGXFWVSDUWLFXODUO\PHWDODOOR\V,WLVDQHVVHQWLDO
    WUDFH HOHPHQW IRU QRUPDO PHWDEROLVP 16 &KX HW DO   SURPSWLQJ WKH SUHGLFWLRQ WKDW WKHUH
    VKRXOGEHQRDGYHUVHHIIHFWVDWORZH[SRVXUHOHYHOV+RZHYHUWKHUHDSSHDUVWREHDWKUHVKROGDERYH
    ZKLFK DGYHUVH HIIHFWV EHJLQ WR RFFXU DQG ZRUVHQ ZLWK LQFUHDVLQJ OHYHOV RI H[SRVXUH 6DQWDPDULD
      &KURQLF SRLVRQLQJ W\SLFDOO\ VHHQ DPRQJ PLQHUV DQG PHWDO ZRUNHUV HVSHFLDOO\ ZHOGHUV
    HYROYHVVORZO\DQGPD\WDNH\HDUVWRUHDFKDIXOO\HVWDEOLVKHGVWDJHFKDUDFWHUL]HGE\ERWKPHQWDODQG
    PRWRU GLVRUGHUV 50 %RZOHU *\VHQV HW DO  -% 6DVV HW DO   6HYHULW\ RI V\PSWRPV
    LQFUHDVHV ZLWK SURORQJDWLRQ RI H[SRVXUH 2QFH HVWDEOLVKHG WKH PRWRU DQG PHQWDO V\PSWRPV RI
    PDQJDQLVPPD\SURJUHVVHYHQZLWKQRIXUWKHUH[SRVXUH
    ,QLWLDOO\ DIIHFWHG LQGLYLGXDOV FRPSODLQ DERXW GURZVLQHVV GL]]LQHVV VOHHS GLVWXUEDQFHV ZLWK
    QLJKWPDUHVHPRWLRQDOODELOLW\DQGDSDWK\ 16&KXHWDO+XDDQG+XDQJ4+XDQJHW
    DO &OXPVLQHVVDEQRUPDOJDLWDQGSRVWXUHWUHPEOLQJDQGQXPEKDQGVW\SLFDOO\RFFXUODWHULQ
    H[SRVXUH$3DUNLQVRQOLNHPRYHPHQWGLVRUGHUZLWKULJLGLW\DQGEUDG\NLQHVLDPD\EHDVVRFLDWHGZLWK
    LPSDLUHG YLVXRSHUFHSWXDO DFFXUDF\ YLVXDO OHDUQLQJ FRQVWUXFWLRQ DQG VORZHG UHVSRQVH DQG
    SURFHVVLQJWLPHVLQH[SRVHGZRUNHUV +XDDQG+XDQJ WKHVHSUREOHPVKDYHDSSHDUHGDWORZHU
    OHYHOVZLWKHQYLURQPHQWDODLUERUQHH[SRVXUHV 0HUJOHU%DOGZLQHWDO +RZHYHUPDQJDQLVP
    LVDGLVWLQFWPHGLFDOFRQGLWLRQߟLWLVQRW3DUNLQVRQߤVGLVHDVH /XFFKLQLHWDO (SLGHPLRORJLFDO
    HYLGHQFH OLQNLQJ H[SRVXUH WR PDQJDQHVH IURP ZHOGLQJ IXPHV  WR 3DUNLQVRQߤV GLVHDVH UHPDLQV
    FRQWURYHUVLDO 05)O\QQDQG6XVL 
    6RPHH[SRVHGSDWLHQWVPD\KDYHQHLWKHUPRWRUV\PSWRPVQRUFRJQLWLYHGHILFLWVH[FHSWIRUPLOG
    VORZLQJ2WKHUZRUNHUVSUHVHQWLQJZLWKWKH3DUNLQVRQPRWRUV\QGURPHKDYHKDGSUREOHPVRQO\RQ
    WHVWVRIIDFLDOUHFRJQLWLRQDQGFRQVWUXFWLRQ && +XDQJ HW DO  $ODUJH JURXS RI PDQJDQHVH
    ZRUNHUVQRWVHSDUDWHGZLWKUHVSHFWWRPRWRUV\PSWRPVGLVSOD\HGVORZHGUHVSRQVHVSHHGLPSDLUHG
    GH[WHULW\ DQG H\HߞKDQG FRRUGLQDWLRQ DQG GHILFLWV LQ YHUEDO VKRUWWHUP PHPRU\ DQG OHDUQLQJ ZLWK
    HGXFDWLRQ OHYHOV DOVR FRQWULEXWLQJ WR SRRU SHUIRUPDQFHV RQ WKH YHUEDO DQG VSHHGHG WHVWV EXW QRW WR
    GH[WHULW\ RU FRRUGLQDWLRQ SUREOHPV 4 +XDQJ HW DO   'HFUHDVHG FRUWLFDO PHWDEROLVP ZDV
    ZLGHVSUHDG LQ IRXU H[SRVHG ZRUNHUV ZLWK PLOG SDUNLQVRQLVP ZKR GLG QRW KDYH DEQRUPDO
    QHXURSV\FKRORJLFDOH[DPLQDWLRQVRUVXEFRUWLFDOPHWDEROLFFKDQJHV :ROWHUVHWDO 2IDQRWKHU
    JURXSRIH[SRVHGZRUNHUVRYHUDOO RIWKHZHOGHUVLQWKHJURXS VKRZHGLQFUHDVHGVLJQDO
    LQWHQVLWLHVRQ05,ZLWKIHZVKRZLQJDQ\3DUNLQVRQOLNHV\PSWRPV <.LPHWDO 
    $PHWDDQDO\VLVGRFXPHQWHGDQXPEHURIDGYHUVHHIIHFWVRIPDQJDQHVHH[SRVXUHRQFRJQLWLYHDQG
    EHKDYLRUDO IXQFWLRQV ZLWK PRVWO\ VPDOO WR PRGHUDWH HIIHFWV VL]HV G  ߞ WR G  ߞ  0H\HU
    %DURQ.QDSSHWDO *HQHUDOO\FRQVLVWHQWZLWKWKHROGHUOLWHUDWXUHWKLVUHYLHZIRXQGWKDWWKH
    PRVWFRPPRQO\DQGVHYHUHO\DIIHFWHGIXQFWLRQVZHUHPRWRUVSHHGDQGLQIRUPDWLRQSURFHVVLQJVSHHG
    ([SRVXUHHIIHFW UHODWLRQVKLSV ZHUH IRXQG EXW PRUH FRQVLVWHQWO\ IRU KLJKHU FRQFHQWUDWLRQV RI
    LQKDODEOH PDQJDQHVH WKDQ IRU PDQJDQHVH EORRG OHYHOV 7KH SDWWHUQ RI QHXURSV\FKRORJLFDO
    LPSDLUPHQWZDVFRQVLVWHQWZLWKNQRZOHGJHRIKRZPDQJDQHVHDFFXPXODWHVSUHIHUHQWLDOO\LQWKHEDVDO
    JDQJOLDDQGDIIHFWVGRSDPLQHQHXURWUDQVPLVVLRQ 'RFWRU +RZHYHUVSHFLILFHDUO\ELRPDUNHUV
    RI HIIHFWV IURP PDQJDQHVH VXFK DV VXEFOLQLFDO QHXURSV\FKRORJLFDO RU QHXURORJLFDO FKDQJHV RU
    FKDQJHVRQEUDLQ05,KDYHQRWEHHQLGHQWLILHG 6DQWDPDULD 

    )RUPDOGHK\GH

    %HFDXVH LW LV VR ZLGHO\ XVHG LQ EXLOGLQJV IXUQLVKLQJ PDWHULDOV DQG KRXVHKROG SURGXFWV
    IRUPDOGHK\GH LQ YDSRU RU GHULYDWLYH IRUP LV RIWHQ SUHVHQW LQ KRPH HQYLURQPHQWV 6FKHQNHU HW DO
      /DERUDWRU\ DQLPDOV H[SRVHG VWHDGLO\ IRU WKUHH PRQWKV WR VRPHZKDW KLJKHU WKDQ QRUPDOO\
    HQFRXQWHUHG DLU OHYHOV RI IRUPDOGHK\GH LQFXUUHG EUDLQ OHVLRQV SDUWLFXODUO\ LQYROYLQJ WKH SDULHWDO
    FRUWH[ )HOߤGPDQ DQG %RQDVKHYVND\D   %RWK DFXWHO\ DQG FKURQLFDOO\ SHUVRQV H[SRVHG WR
    IRUPDOGHK\GH KDYH FRPSODLQWV LPSOLFDWLQJ WKH FHQWUDO QHUYRXV V\VWHP VXFK DV KHDGDFKH GL]]LQHVV
    LUULWDELOLW\PHPRU\SUREOHPVDQGVOHHSGLVWXUEDQFHV &RQVHQVXV:RUNVKRSRQ)RUPDOGHK\GH
    -+2OVHQDQG'RVVLQJ ,PSDLUPHQWVRQWHVWVRIDWWHQWLRQDQGVKRUWWHUPPHPRU\KDYHEHHQ
    UHSRUWHG IRU H[SRVHG ZRUNHUV % %DFK  .LOEXUQ HW DO   DQG UHGXFHG YLJLODQFH ZDV
    REVHUYHGLQQLQHRISHUVRQVOLYLQJLQKRPHVLQVXODWHGZLWKIRUPDOGHK\GHIRDP 6FKHQNHUHWDO
     
    2XU H[SHULHQFH ZLWK D QXPEHU RI SHUVRQV FRPSODLQLQJ RI PHPRU\ SUREOHPV DVVRFLDWHG ZLWK
    IRUPDOGHK\GH H[SRVXUH LV WKDW PDQ\ RI WKHP GLVSOD\HG DWWHQWLRQDO GHILFLWV ZKLFK LQWHUIHUHG ZLWK
    HIIHFWLYH FRPPXQLFDWLRQ DQG QRUPDO LQIRUPDWLRQ VWRUDJH D FRQGLWLRQ LQWHUSUHWHG E\ WKHP DV
    ߧPHPRU\ߨSUREOHPV>PGOGW@+RZHYHUXVLQJWKH+DOVWHDG5HLWDQEDWWHU\DQGWKH:HFKVOHU0HPRU\
    6FDOH WR H[DPLQH D VPDOO VHULHV RI SHUVRQV H[SRVHG WR ORZ OHYHOV RI IRUPDOGHK\GH IXPHV LQ WKHLU
    KRPHV &ULSH DQG 'RGULOO   UHSRUWHG QR QRWDEOH GLIIHUHQFHV EHWZHHQ H[SRVHG SHUVRQV DQG
    PDWFKHG FRPSDULVRQ VXEMHFWV $V ZLWK YDULRXV VROYHQWV UHYLHZHG DERYH GHOLEHUDWH LQJHVWLRQ RI
    IRUPDOGHK\GH LV PRWLYDWHG E\ HXSKRULDLQGXFLQJ HIIHFWV 2QH VWXG\ IRXQG WKDW WKLV FDQ OHDG WR
    GLPLQLVKHG QHXURSV\FKRORJLFDO IXQFWLRQLQJ DV PHDVXUHG E\ WKH 6KLSOH\ ,QVWLWXWH RI /LYLQJ 6FDOH
    0DUFHDX[HWDO 

    ,1)(&7,286352&(66(6
    0RGHUQPHGLFLQHKDVPDGHUHPDUNDEOHVWULGHVLQWKHHDUO\LGHQWLILFDWLRQDQGWUHDWPHQWRILQIHFWLRXV
    GLVHDVHV WKDW DIIHFW WKH EUDLQ 0DFH   (DUO\ WUHDWPHQW KDV JUHDWO\ UHGXFHG WKH LQFLGHQFH DQG
    VHYHULW\ RI PDQ\ LQIHFWLRXV SURFHVVHV WKDW FDQ KDYH ORQJODVWLQJ PHQWDO HIIHFWV DQG EH VHYHUHO\
    GLVDEOLQJLIQRWIDWDOVXFKDVPHDVOHVHQFHSKDOLWLVDQGWXEHUFXORXVPHQLQJLWLV *HOE/LVKPDQ
      2WKHUV GLVHDVHV XQFRPPRQ WRGD\ߟHJ JHQHUDO SDUHVLV QHXURV\SKLOLV  DQG FHUWDLQ IXQJDO
    LQIHFWLRQVߟPD\ KDYH D IDLUO\ ORQJ FRXUVH WKDW OHDYHV WKH SDWLHQWߤV PHQWDO FDSDFLWLHV SURJUHVVLYHO\
    LPSDLUHG ZLWK YHU\ VSHFLILF GHILFLWV WKDW DUH SHFXOLDU WR WKH GLVHDVH RU WKDW UHODWH WR D IRFDO OHVLRQ
    6RPHLGHDRIKRZPDQ\LQIHFWLRXVGLVHDVHVFDQKDYHGLUHFWHIIHFWVRQEUDLQIXQFWLRQLQJLVJLYHQE\
    /LVKPDQ  ZKROLVWVYDULHWLHVRIHQFHSKDOLWLV7KHLQIHFWLRXVSURFHVVPD\EHHLWKHUYLUDORU
    EDFWHULDOZLWKDQDIWHUPDWKRIQHXURFRJQLWLYHDQGRUQHXUREHKDYLRUDOFKDQJHV,WLVEH\RQGWKHVFRSH
    RI WKLV FKDSWHU WR GHDO VHSDUDWHO\ ZLWK HDFK YDULHW\ RI LQIHFWLRQ EXW VHYHUDO FRPPRQO\ VHHQ E\
    QHXURSV\FKRORJLVWVZLOOEHUHYLHZHGKHUH
    7KHGLVWLQFWLRQIRUEUDLQLQIHFWLRQVLVW\SLFDOO\PDGHEHWZHHQHQFHSKDOLWLVLQIHFWLRQZLWKLQEUDLQ
    SDUHQFK\PDDQGPHQLQJLWLVDQLQIHFWLRQDQGRULQIODPPDWLRQRIWKHPHQLQJHVRUOLQLQJRIWKHEUDLQ
    7UDGLWLRQDOO\HQFHSKDOLWLVFDUULHVLQFUHDVHGOLNHOLKRRGIRUQHXURSV\FKRORJLFDOVHTXHODHEHFDXVHWKH
    LQIHFWLRQ WDNHV SODFH ZLWKLQ WKH EUDLQ LWVHOI +RZHYHU LQIODPPDWLRQ RI WKH PHQLQJHV FDQ OHDG WR
    FRPSURPLVHG FHUHEUDO EORRG IORZ DQG GDQJHURXV HOHYDWLRQV RI FHUHEUDO HGHPD ZKLFK FDQ KDYH
    SURIRXQGFRQVHTXHQFHVIRUQHXURSV\FKRORJLFDOIXQFWLRQLQJ $OPHLGDDQG/DXWHQVFKODJHU-$
    &DUWHUHWDO 

    +,9,QIHFWLRQDQG$,'6
    +,9 KXPDQ LPPXQRGHILFLHQF\ YLUXV  DWWDFNV DQG SURJUHVVLYHO\ GHVWUR\V WKH LPPXQH V\VWHP DQG LW
    KDV D PRUELG SUHGLOHFWLRQ IRU WKH EUDLQ .DHPLQJN DQG .DV]QLDN  0' .HOO\ *UDQW HW DO
    0F$UWKXUHWDO 7KHXVXDOLQIHFWLRXVDJHQWIRUWKHDFTXLUHGLPPXQRGHILFLHQF\V\QGURPH
    $,'6 LV+,9+,9KDVDOVREHHQDVVRFLDWHGZLWK$,'6SDUWLFXODUO\LQZHVWHUQDQGFHQWUDO$IULFD
    , *UDQW DQG 0DUWLQ  7RULDQ HW DO   7KH UDQJH RI FHQWUDO QHUYRXV V\VWHP GLVRUGHUV
    DVVRFLDWHGZLWK+,9LVEURDGEXWJHQHUDOO\WKH\LQYROYHHLWKHUWKHGLUHFWHIIHFWVRIWKHYLUXVRQWKH
    QHUYRXVV\VWHPRULQGLUHFWHIIHFWVIURPRSSRUWXQLVWLFLOOQHVVHVDQGLQIHFWLRQVRUIURPFRPSOLFDWLRQV
    IURP +,9 WUHDWPHQW ) )HUQDQGH] DQG 7DQ   %HFDXVH RI WKH KLJK IUHTXHQF\ RI FRJQLWLYH
    GLVRUGHUVLQLQGLYLGXDOVZLWK+,9QHXURSV\FKRORJLFDODVVHVVPHQWVPD\EHJLYHQHDUO\LQWKHFRXUVH
    RIWKHGLVHDVHWRHVWDEOLVKEDVHOLQHDQGWKHUHDIWHUWRPRQLWRUFRJQLWLYHVHTXHODHDQGHIIHFWLYHQHVVRI
    WUHDWPHQW 6'DZHVHWDO.5REHUWVRQHWDO 

    &RXUVH

    +,9+,9ZDVXQNQRZQXQWLOWKHVVRLQLWLDOO\WKHUHZHUHQRHIIHFWLYHWUHDWPHQWV:KLOHQR
    FXUHKDV\HWEHHQIRXQGHIIHFWLYHPHWKRGVWRPDQDJHWKHLQIHFWLRQDUHDYDLODEOH 0$7KRPSVRQHW
    DO   &RQVLGHUDEO\ PRUH LV QRZ NQRZQ DQG XQGHUVWRRG DERXW +,9 DQG DVVRFLDWHG
    QHXURSV\FKRORJLFDOVHTXHODHOHDGLQJWRWKHGHYHORSPHQWRIDFODVVLILFDWLRQVFKHPD+,9DVVRFLDWHG
    QHXURFRJQLWLYH GLVRUGHUV RU +$1' $QWLQRUL HW DO   )LJ  S  3ODWH  VKRZV WKH
    YDULRXVVXEFODVVLILFDWLRQVZLWKLQ+$1'DQGWKHLUHVWLPDWHGIUHTXHQF\EDVHGRQWKHUHYLHZE\
    0F$UWKXUDQGFROOHDJXHV)LJSLVDIORZGLDJUDPJLYLQJGLDJQRVWLFFULWHULDIRUDVVRFLDWHG
    FRJQLWLYHGLVRUGHUV

    $,'6 7KLV FRQGLWLRQ LV GHILQHG E\ WKH SUHVHQFH RI DQ DFWLYH GLVHDVH VWDWH DVVRFLDWHG ZLWK
    LPPXQRORJLFDO FRPSURPLVH VXFK DV D ZDVWLQJ GLVHDVH ZLWK IHYHU DQG GLDUUKHD D FRQGLWLRQ RI
    QHXURORJLFDO GHWHULRUDWLRQ RU DQ RSSRUWXQLVWLF LQIHFWLRQ RU PDOLJQDQF\ $& &ROOLHU HW DO 
    )DXOVWLFK   $V +,9 LQIHFWLRQ HYROYHV LQWR $,'6 WKH LQFLGHQFH DQG YLUXOHQFH RI EUDLQ GDPDJH
    LQFUHDVHJUHDWO\DSRVLWLYHUHODWLRQVKLSEHWZHHQWKHVWDWXVRIWKHLPPXQHV\VWHPGLVHDVHVHYHULW\DQG
    FRJQLWLYHIXQFWLRQLQJKDVEHHQFRQVLVWHQWO\GRFXPHQWHG .DXOHWDO &HUHEUDOFKDQJHVXVXDOO\
    VKRZ XS RQ 05, VFDQQLQJ DV EUDLQ DWURSK\ DQG LQ PXOWLSOH VPDOO GLIIXVH RU ODUJHU ELODWHUDO
    VXEFRUWLFDO PRVWO\LQZKLWHPDWWHUEXWDOVRGHHSJUD\PDWWHU OHVLRQVDQGRFFDVLRQDOO\DVDVLQJOH
    IRFDOOHVLRQ &LQTXHHWDO*KHXHQVHWDO*RQJYDWDQDHWDO $QH[DPSOHRIZKLWH
    PDWWHUSDWKRORJ\DQGFHUHEUDODWURSK\DVVRFLDWHGZLWKDSDWLHQWߤV+$1'UHFRUGFDQEHVHHQLQ)LJXUH
     3ODWH   0DQ\ SDWLHQWV KDYH ((* DEQRUPDOLWLHV SDUWLFXODUO\ DV WKH GLVHDVH SURJUHVVHV
    .DHPLQJNDQG.DV]QLDN.HOOLQJKDXVHWDO )URPWRRIDOOSDWLHQWVZLOOKDYH
    VRPH&16LQYROYHPHQWE\WKHWLPHWKH\GLHGXHWRRSSRUWXQLVWLFLQIHFWLRQV+,9RUERWK $&&ROOLHU
    HWDO50/HY\DQG%UHGHVHQD 

    ),*85(3\UDPLGGLDJUDPRI+,9$VVRFLDWHG1HXURFRJQLWLYH'LVRUGHUV +$1' ZLWKWKHHQGSRLQWVKRZQDV+,9DVVRFLDWHG


    GHPHQWLD +$' 5HSURGXFHGZLWKSHUPLVVLRQIURP:LOH\,QWHUVFLHQFHIURP0F$UWKXUHWDO  

    1HXURSV\FKRSDWKRORJ\

    3URGURPDO %HFDXVH RI LQFUHDVHG NQRZOHGJH DERXW +,9 DYDLODELOLW\ RI +,9 WHVWLQJ DQG PHGLFDO
    DGYDQFHVWUHDWPHQWQRZNHHSVPDQ\SDWLHQWVߤGLVHDVHFRXUVHXQGHUFRQWURO7KXVWKHHDUO\FRXUVHRI
    WKHGLVHDVHDQGLWVSRWHQWLDOHIIHFWVRQWKHEUDLQFRPHIURPVWXGLHVGRQHLQWKHODWHVWKURXJKWKH
    VLQYROYLQJPRVWO\XQWUHDWHGSDWLHQWV7KHYHU\HDUOLHVWVWDJHVRIWKLVGLVHDVHDUHQRWDEOHIRUWKH
    DEVHQFH RI V\PSWRPV LQ PRVW +,9 LQIHFWHG SHUVRQV GLDJQRVLV LV PDGH RQ EORRG VHUXP LQ WKH
    ODERUDWRU\0RVWߟDQHVWLPDWHG 0'.HOO\HWDO ߟ+,9FDUULHUVZLWKRXWREYLRXVKHDOWK
    SUREOHPV VKRZ QR HYLGHQFH RI FRJQLWLYH G\VIXQFWLRQ UHJDUGOHVV RI WKHLU LPPXQH V\VWHP VWDWXV RU
    GXUDWLRQ RI +,9 LQIHFWLRQ *RHWKH HW DO  (1 0LOOHU 6HOQHV HW DO   )RU PRVW SHUVRQV
    FDUU\LQJWKH+,9YLUXVWKLVSURGURPDOVWDJHODVWVIURPWZRWRWHQ\HDUV 6HOQHV0LOOHUHWDO
    ZLWK VRPH LQIHFWHG SHUVRQV UHPDLQLQJ V\PSWRPIUHH IRU  \HDUV /LVKPDQ   +RZHYHU D
    VXEJURXS RI +,9 SDWLHQWV VKRZV VXEWOH PHPRU\ DQG YHUEDO IOXHQF\ GHILFLWV EHIRUH GHYHORSLQJ
    LPPXQRVXSSUHVVLRQUHODWHG LOOQHVVHV 6 3HUU\ HW DO  6NRUDV]HZVNL HW DO   2QH ODUJH
    VWXG\ RI VHURSRVLWLYH +,9 VXEMHFWV IRU H[DPSOH IRXQG WKDW RQHWKLUG KDG UHODWLYHO\ VPDOO EXW
    ZLGHVSUHDGSHUIRUPDQFHGHFUHPHQWVZKHQFRPSDUHGWRRWKHUVHURSRVLWLYHVXEMHFWVZKRVHFRJQLWLYH
    IXQFWLRQLQJZDVJHQHUDOO\FRPSDUDEOHWRKHDOWK\VXEMHFWVLQWKHLUDJHJURXSV 9DQ*RUS+LQNLQHW
    DOVHHDOVR0'.HOO\HWDO 
    ,QWLPHWKHSUHSDWLHQWPD\H[SHULHQFHPLOGHSLVRGHVRIPHQWDOLQHIILFLHQF\RUFRQIXVLRQ7KHHDUO\
    V\PSWRP SDWWHUQ EHIRUH RSSRUWXQLVWLF GLVHDVHV DSSHDU RU WKH YLUXV EHFRPHV DFWLYH ZLWKLQ EUDLQ
    VXEVWDQFHLQFOXGHVWKHFRPPRQLQGLFDWRUVRIGLIIXVHGDPDJHߟDWWHQWLRQDODQGPHPRU\GHILFLWVDQG
    VORZHG SURFHVVLQJ DQG UHVSRQVHV $ EURDG VSHFWUXP RI FRJQLWLYH GHILFLWV PD\ RFFXU LQ +,9
    LQGLFDWLQJ WKDW WKH QHXURSV\FKRORJLFDO DVVHVVPHQW RI WKH +,9 SDWLHQW VKRXOG DOVR EH EURDG EDVHG
    &\VLTXHDQG%UHZ&\VLTXH/HWHQGUHHWDO')7DWH3DXOHWDO&RPELQLQJWKH
    QHXURSV\FKRORJLFDO ILQGLQJV ZLWK FRQWHPSRUDU\ QHXURLPDJLQJ SURYLGHV DQ HIIHFWLYH PHDQV RI
    UHODWLQJQHXURFRJQLWLYHGHILFLWVWRQHXURSDWKRORJLFDOILQGLQJV ')7DWH&RQOH\HWDO 
    7KHHDUOLHVWV\PSWRPVFDQEHGLIILFXOWWRLGHQWLI\RUHYDOXDWHDVWKHSDWLHQWPD\DOVREHUXQGRZQ
    SK\VLFDOO\ KDYH IUHTXHQW UHVSLUDWRU\ RU RWKHU LQIHFWLRQV WDNH PHGLFDWLRQV RU GUXJV WKDW DIIHFW
    DOHUWQHVV RU SURFHVVLQJ VSHHG DQG EH RIWHQߟQRW LQDSSURSULDWHO\ߟGHSUHVVHG VRPDWLFDOO\
    SUHRFFXSLHG RU DQ[LRXV +HVWDG HW DO 50 /HY\ DQG %UHGHVHQ E 6NRUDV]HZVNL HW DO
      DOO FRQGLWLRQV WKDW FDQ DIIHFW PHQWDO HIILFLHQF\ E\ FRPSURPLVLQJ RWKHUZLVH LQWDFW FRJQLWLYH
    IXQFWLRQLQJRUE\ZRUVHQLQJRUJDQLFDOO\EDVHGG\VIXQFWLRQ

    $,'6 GHPHQWLD FRPSOH[ 7KLV SURJUHVVLYH FRQGLWLRQ KDV RWKHU QDPHV VXFK DV +,9DVVRFLDWHG
    HQFHSKDORSDWK\$,'6HQFHSKDORSDWK\RU+,9DVVRFLDWHGGHPHQWLD +$'  $& &ROOLHU HW DO 
    'LHVLQJHWDO 7KH\DOOUHIHUWRDQHYROYLQJGHPHQWLDGXHWRGLUHFW+,9LQIHFWLRQRIWKHEUDLQ
    ZKLFKLQLWVILQDOVWDJHVW\SLFDOO\LQYROYHVUDSLGGHWHULRUDWLRQRIFHUHEUDOIXQFWLRQLQJ ))HUQDQGH]
    DQG 7DQ  /LVKPDQ  6KDULHI DQG 6ZDVK   7KH GHPHQWLQJ SURFHVV PD\ EHJLQ
    LQVLGLRXVO\ ZLWK YHU\ VXEWOH V\PSWRPV VXFK DV GHSUHVVLRQ RU FRPSODLQWV RI FRQFHQWUDWLRQ DQG
    PHPRU\ SUREOHPV DQG RI PHQWDO VOXJJLVKQHVV %HIRUH HYROYLQJ LQWR D IXOOEORZQ GHPHQWLD
    FRQFHQWUDWLRQ DQG PHPRU\ GHILFLWV DQG VORZHG PHQWDO SURFHVVLQJ DUH WKH PRVW XVXDO FRJQLWLYH
    LPSDLUPHQWV0RVWSDWLHQWVGHYHORSPRWRUGLVRUGHUVZLWKZHDNQHVVWUHPRULQFRRUGLQDWLRQDQGJDLW
    GLVWXUEDQFHVSURPLQHQWDPRQJWKHP3DWLHQWVPD\H[KLELWHPRWLRQDOGLVWXUEDQFHVVXFKDVLUULWDELOLW\
    GHSUHVVLRQDSDWK\DJLWDWLRQDQGEOXQWHGDIIHFWKDOOXFLQDWLRQVGHOXVLRQVDQGSDUDQRLGDOWKLQNLQJߟ
    DQG PRUH H[WUHPHO\ SV\FKRWLF PDQLD RU GHOLULXP KDYH EHHQ UHSRUWHG 2FFDVLRQDOO\ HPRWLRQDO DQG
    SHUVRQDOLW\ FKDQJHV VKRZ XS EHIRUH FRJQLWLYH G\VIXQFWLRQ EHFRPHV DSSDUHQW 0HQWDO GLVRUGHUV FDQ
    GHYHORSLQWRIXOOEORZQGHPHQWLDLQMXVWDIHZGD\VIURPWKHDSSHDUDQFHRIWKHILUVWV\PSWRPRUWDNH
    DVORQJDVWZRPRQWKVVRPHWLPHVORQJHU 7URVVDQG+LUVFK')7DWH&RQOH\HWDO 
    ),*85(6FKHPDWLFIORZGLDJUDPVKRZLQJDGLDJQRVWLFGHFLVLRQWUHHIRUYDULRXVQHXURFRJQLWLYHGLVRUGHUVDVVRFLDWHGZLWK+,9)URP
    :RRGV0RRUHHWDO  UHSURGXFHGZLWKSHUPLVVLRQIURP6SULQJHU

    ,QODWHVWDJH$,'6GHPHQWLDSDWLHQWVߤPHQWDOGLODSLGDWLRQVKRZVXSLQFRQIXVLRQGLVLQKLELWLRQDQG
    SURPLQHQW PRWRU GLVRUGHUV 0XWLVP LQFRQWLQHQFH VHL]XUHV DQG FRPD DUH DPRQJ WKH FDWDVWURSKLF
    SUREOHPVKHUDOGLQJ GHDWK &HUHEUDO DWURSK\DSSHDUV RQ 05, VFDQV VHH )LJ DXWRSV\ILQGLQJV
    KDYH VKRZQ FRUWLFDO VSDULQJ ZLWK GLIIXVH OHVLRQV LQ ZKLWH PDWWHU DQG VXEFRUWLFDO VWUXFWXUHV
    VXEVWDQWLDWLQJWKHVXEFRUWLFDOGHPHQWLDQDWXUHRIWKLVFRQGLWLRQ )LOOH\9DQ*RUS0LWUXVKLQDHW
    DO 

    7UHDWPHQW +,9 DQWLUHWURYLUDO WKHUDS\ DQG SURWHDVH LQKLELWRUV WRJHWKHU WHUPHG KLJKO\ DFWLYH
    DQWLUHWURYLUDOWKHUDS\ +$$57 KDYHVLJQLILFDQWO\LQFUHDVHGOLIHH[SHFWDQF\DQGTXDOLW\RIOLIHZKLOH
    GHFUHDVLQJ QHXURORJLF FRPSOLFDWLRQV 0$ 7KRPSVRQ HW DO   3ULRU WR LWV LQWURGXFWLRQ PRUH
    WKDQ  RI $,'6 SDWLHQWV EHFDPH GHPHQWHG 1RZ PRVWO\ LQ GHYHORSHG FRXQWULHV SUREDEO\ IHZHU
    WKDQRI+,9SDWLHQWVZLOOGHYHORSGHPHQWLD &OLIIRUG 6RPHSDWLHQWVZLWK$,'6GHPHQWLD
    ZLOOKDYHPRUHWKDQRQHNLQGRIEUDLQGLVHDVH 50/HY\DQG%UHGHVHQDE DQGVRPHZLWKWZR
    RU PRUH RWKHU EUDLQ GLVRUGHUV PD\ DSSHDU WR KDYH $,'6 GHPHQWLD 7KXV HYHQ ZKHQ WKH SDWLHQW KDV
    GHWHULRUDWHG WR WKH SRLQW RI GHPHQWLD D GLDJQRVWLF HIIRUW PD\ LGHQWLI\ RWKHU WUHDWDEOH FRQGLWLRQV
    6RPH FHQWHUV PD\ GHOD\ LQLWLDWLRQ RI WUHDWPHQW GXH WR ORQJWHUP WR[LFLW\ H[SHQVH DQG LQHYLWDEOH
    HYROXWLRQRIYLUXVUHVLVWDQFHRYHUWLPH %DXWLVWD$UUHGRQGRHWDO&OLIIRUG  <HW$,'6
    WUHDWPHQWKDVVLJQLILFDQWO\LPSURYHGTXDOLW\RIOLIHIRUDIIHFWHGSDWLHQWV
    1HXURSV\FKRORJLFDOWHVWILQGLQJVLQ+,9GLDJQRVWLFGHFLVLRQPDNLQJDQGFODVVLILFDWLRQ,JRU*UDQW
    DQGFROOHDJXHV VHH:RRGVHWDO KDYHVXJJHVWHGDV\VWHPDWLFDSSURDFKWRFRJQLWLYHDVVHVVPHQW
    DQGFODVVLILFDWLRQLQ+,9XVLQJWKH+$1'GHVLJQDWLRQV )LJ ,QWKLVFODVVLILFDWLRQV\VWHPQRWH
    WKDWEHIRUHFRJQLWLYHHIIHFWVFDQEHVSHFLILFDOO\DWWULEXWHGWR+,9FRQIRXQGLQJHIIHFWVVXFKDVPDMRU
    GHSUHVVLYHGLVRUGHUSV\FKRVLVGHOLULXPRUVXEVWDQFHGHSHQGHQFHPXVWEHLQUHPLVVLRQ

    +HUSHV6LPSOH[(QFHSKDOLWLV +6(
    7KLVLQIHFWLRXVFRQGLWLRQLVRIVSHFLDOQHXURSV\FKRORJLFDOLQWHUHVWEHFDXVHRIWKHUHVLGXDOSURIRXQG
    HIIHFWVRQPHPRU\IXQFWLRQWKDWRIWHQDFFRPSDQ\LW5HODWLYHO\IHZSHRSOHFRQWUDFWWKLVGLVHDVHEXW
    EHFDXVHWKHHDUO\V\PSWRPVߟEHIRUHV\PSWRPVGHYHORSLPSOLFDWLQJEUDLQGLVHDVHߟIUHTXHQWO\VHHP
    LQQRFXRXV HJGXOOKHDGDFKHIHYHUQDXVHDPDODLVH WKHSDWKRORJLFDOLQIHFWLRXVSURFHVVLVXVXDOO\
    ZHOO XQGHUZD\ ZKHQ WKH GLDJQRVLV LV PDGH /( 'DYLV   *LYHQ QHXURLPDJLQJ VSHFLILFLW\
    TXLFNHU GLDJQRVLV DQG UDSLG WUHDWPHQW DQWLYLUDO PHGLFDWLRQV VXUYLYDO UDWHV KDYH LPSURYHG ZLWK
    UHGXFHGPRUELGLW\ %DULQJHU 2IWKRVHZKRGRVXUYLYHUHSRUWVRIDUHWXUQWRQRUPDOIXQFWLRQ
    UDQJH IURP  .HQQHG\ DQG &KDXGKXUL   WR RQHWKLUG 6QRZGHQ    GHSHQGLQJ XSRQ
    ZKHWKHUWUHDWPHQWLVLQLWLDWHGEHIRUHGDPDJHLVLUUHSDUDEOH 6KDULHIDQG6ZDVK 8QIRUWXQDWHO\
    PDQ\ZKRGRVXUYLYHKDYHORVWPXFKPHGLDOWHPSRUDODQGRUELWDOEUDLQWLVVXHXVXDOO\LQFOXGLQJWKH
    KLSSRFDPSDO PHPRU\ UHJLVWUDWLRQ UHJLRQ WKH DP\JGDOD ZLWK LWV FHQWHUV IRU FRQWURO RI SULPLWLYH
    GULYHV DQG WKDW DUHD RI WKH IURQWDO OREHV LQYROYHG LQ WKH NLQG RI UHVSRQVH LQKLELWLRQ QHFHVVDU\ IRU
    JRDOGLUHFWHGDFWLYLW\DQGDSSURSULDWHVRFLDOEHKDYLRU .DSXU 7KHGHYDVWDWLQJGDPDJHWRWKH
    PHGLDO WHPSRUDO OREHV LV VKRZQ LQ )LJ  WKLV SDWLHQW KDV EHHQ ZULWWHQ DERXW H[WHQVLYHO\ %$
    :LOVRQ%DGGHO\DQG.DSXU 

    ),*85($XWRSV\SURYHG+,9HQFHSKDOLWLVLQDQ$,'6SDWLHQWZLWKGHPHQWLD /HIW $[LDO7ZHLJKWHGIDVWVSLQ05LPDJHDWWKH


    OHYHORIWKHODWHUDOYHQWULFOHVVKRZVK\SHULQWHQVLWLHV DUURZ LQWKHGHHSZKLWHPDWWHU 5LJKW 2Q)/$,5IDVWVSLQHFKR05LPDJHWKHVH
    OHVLRQV VROLGDUURZ DVZHOODVSHULYHQWULFXODUK\SHULQWHQVHDEQRUPDOLWLHV RSHQDUURZ DUHFOHDUO\YLVLEOH)URP7KXUQKHUHWDO$-15
        8VHGZLWKSHUPLVVLRQ
    'XHWRWKHVLJQLILFDQWLQYROYHPHQWRIWKHWHPSRUDOOREHVELODWHUDOO\WKHVHSDWLHQWVW\SLFDOO\GLVSOD\
    DQ H[FHHGLQJO\ GHQVH PHPRU\ GHIHFW ZLWK SURIRXQG DQWHURJUDGH DPQHVLD FRQVLGHUDEOH UHWURJUDGH
    DPQHVLD DQG VHYHUH VRFLDO GLODSLGDWLRQ +RNNDQHQ DQG /DXQHV    7KHLU KLSSRFDPSDO
    OHVLRQV FRPSURPLVH QHZ OHDUQLQJ LQ FRQWUDVW WR .RUVDNRII SDWLHQWV ZLWK WKDODPLF DQG PDPPLOODU\
    ERG\ OHVLRQV ZKR GHPRQVWUDWH VRPH QHZ OHDUQLQJ EXW KDYH GLIILFXOW\ ZLWK UHWULHYDO 0DQ\ RI WKHVH
    SDWLHQWVEHFRPHSHUVHYHUDWLYHLQWKHLUUHFDOORIROGLQIRUPDWLRQRUDFWLYLWLHV
    $ \HDUROG UHDO HVWDWH EURNHUZLWKVHYHUHPHPRU\ /\PH 'LVHDVH LPSDLUPHQWZDQGHUHG DLPOHVVO\ LQWKHKRVSLWDOFRUULGRU
    +6(&RQWUROVWRSSLQJLQIURQWRIHYHU\PDQZHDULQJDWLHWRVD\ߧ:KDWDQLFHWLH7KDWߤVDYHU\DWWUDFWLYHWLH\RXߤUHZHDULQJߨ
    +H UHSHDWHG KLPVHOIYLUWXDOO\ YHUEDWLP GD\ DIWHU GD\ DQGPDQ\ WLPHVWKH VDPHGD\ WR LQWHUQV DQGUHVLGHQWV ZRUNLQJRQWKDW
    ZDUG+HDWHHYHU\WKLQJKHFRXOGJHWUHJDUGOHVVRIZKHQRUKRZPXFKKHKDGODVWHDWHQDQGZLWKQRUHFDOORIKDYLQJHDWHQ
    PGO 

    7KHSURIRXQGEHKDYLRUDOFKDQJHVWKDWDFFRPSDQ\WKHYLUDOLQYDVLRQRIOLPELFVWUXFWXUHVUHVHPEOH
    WKH .O¾YHU%XF\ V\QGURPH GLVSOD\HG E\ PRQNH\V ZLWK ELODWHUDO WHPSRUDO OREHFWRPLHV DQG DUH
    SUREDEO\PRVWGLUHFWO\DVVRFLDWHGZLWKGDPDJHWRWKHDP\JGDOD 5*UHHQZRRGHWDO/LVKPDQ
    7UDQHO 7KH.OXYHU%XF\OLNHEHKDYLRUPD\VKRZXSDVXQFRQWUROOHGHDWLQJ EXOLPLD 
    K\SHURUDOLW\LQFOXGLQJOLFNLQJOLSVPDFNLQJDQGRUDOVHDUFKLQJORVVRIIHDUVRFLDOUHVSRQVLYLW\DQG
    VRFLDO DQG SHUVRQDO GLVLQKLELWHG DQG DIIHFWLYH EOXQWLQJ DQG LQFDSDFLW\ IRU GLVFULPLQDWLQJ RU
    PHDQLQJIXOUHODWLRQVKLSV %DNFKLQHHWDO ,PSDLUHGDELOLW\WRPDNHGLVFULPLQDWLRQVLVRQHRI
    WKHLPSRUWDQWHOHPHQWVLQWKHGLVRUGHUHGEHKDYLRURISHUVRQVZKRKDYHVXUYLYHGKHUSHVHQFHSKDOLWLV
    3DWKRORJ\H[WHQGVEH\RQGWKHOLPELFV\VWHPVXFKWKDWKHUSHVHQFHSKDOLWLVFDQUHVXOWLQGLIIXVHGDPDJH
    VHH)LJ 
    $QRWKHU FRQGLWLRQ OLPELF HQFHSKDOLWLV PD\ GHYHORS LQ UHVSRQVH WR SDWKRORJ\ HOVHZKHUH LQ WKH
    ERG\ VXFK DV D FDQFHURXV JURZWK LQ WKH OXQJ 7KHVH GLVRUGHUV IDOO XQGHU WKH FDWHJRU\ RI
    SDUDQHRSODVWLFGLVHDVHDQGOLNH+6(PD\DIIHFWWKHPHGLDOWHPSRUDOOREHVELODWHUDOO\ $UFLQLHJDVDQG
    $QGHUVRQ 

    ),*85(7KHGHYDVWDWLQJHIIHFWVRIVWUXFWXUDOGDPDJHIURPKHUSHVVLPSOH[HQFHSKDOLWLVHVSHFLDOO\LQYROYLQJWKHGHVWUXFWLRQRIWKH
    PHGLDOWHPSRUDOOREHVVKRZQLQWKHFRURQDO705,RQWKHOHIW7KHLPDJHRQWKHULJKWLVIURPDVLPLODUO\DJHGFRQWUROSDWLHQW1RWHWKH
    GLIIHUHQFHVLQWKHVL]HRIWKHYHQWULFOHDQGWKHSURPLQHQFHRIWKHFRUWLFDOVXOFLDQGLQFUHDVHGVXUIDFH&6)

    /\PH'LVHDVH
    /\PHGLVHDVHLVDWLFNERUQHLQIHFWLRQFDXVHGE\WKHEDFWHULXP%RUUHOLDEXUJGRUIHULDQGQDPHGDIWHU
    /\PH &RQQHFWLFXW ZKHUH WKH GLVHDVH ZDV ILUVW GHVFULEHG /\PH GLVHDVH FDQ DIIHFW PDQ\ ERGLO\
    V\VWHPV LQFOXGLQJ WKH &16 ZKHUH PXFK RI LWV DFWLRQ PD\ EH WKURXJK QHXURLQIODPPDWLRQ )DOORQ
    /HYLQHWDO $OWKRXJKPRUHWKDQFDVHVDUHUHSRUWHGLQWKH8QLWHG6WDWHVHDFK\HDUWKLV
    LVOLNHO\DORZHVWLPDWHGXHWRXQGHUUHSRUWLQJ 2UORVNL&DPSEHOOHWDO /\PHGLVHDVHLVPRUH
    SUHYDOHQWLQWKHQRUWKHDVWHUQDQGPLG$WODQWLFVWDWHVLQUHJLRQVZKHUHWKHVPDOOKDUGERGLHG,[RGLG
    WLFNV DUH DEXQGDQW ,WV KLJKHVW FRQFHQWUDWLRQV DUH LQ &RQQHFWLFXW   DQG 5KRGH ,VODQG
      2UORVNL+D\HV HWDO   ,W RFFXUV PRVW XVXDOO\ GXULQJ ODWH VSULQJ DQG VXPPHU
    ZKHQWLFNVDQGSHRSOHDUHPRUHDFWLYHRXWGRRUV
    $IWHU WKH WLFN ELWH VSLURFKHWHV VSUHDG WR RWKHU DUHDV E\ FXWDQHRXV O\PSKDWLF DQG EORRGERUQH
    URXWHV 7KH LQFXEDWLRQ SHULRG EHIRUH V\PSWRPV DSSHDU LV JHQHUDOO\ RQH WR WZR ZHHNV ZLWK WKH
    GHYHORSPHQWRIDVLQJOHߧEXOOߤVH\HߨUDVK HU\WKHPDPLJUDQV>(0@ XVXDOO\WKHILUVWV\PSWRP7KLVLV
    IROORZHG E\ QRQVSHFLILF IOXOLNH V\PSWRPV VXFK DV IHYHU PDODLVH IDWLJXH KHDGDFKH DQG MRLQW DQG
    PXVFOHDFKHV7KHGLVHDVHPD\VSUHDGWRRWKHURUJDQV\VWHPVLQXSWRRISDWLHQWVDSSUR[LPDWHO\
    RQH PRQWK DIWHU LQLWLDO LQIHFWLRQ 3DFKQHU HW DO   1HXURORJLF GLVRUGHUV VXFK DV DVHSWLF
    PHQLQJLWLVIDFLDOQHUYHSDOV\PRWRUDQGVHQVRU\QHUYHLQIODPPDWLRQDQGHQFHSKDOLWLVPD\RFFXULQ
    WRRISDWLHQWV *DUFLD0RQFRDQG%HQDFK 3DWLHQWVZKRKDYHEHHQPHGLFDOO\GLDJQRVHG
    ZLWK /\PH HQFHSKDORSDWK\ XVXDOO\ KDYH FRJQLWLYH LPSDLUPHQWV VOHHS GLVWXUEDQFH IDWLJXH DQG
    SHUVRQDOLW\ FKDQJHV ZKLFKߟDORQJ ZLWK DUWKULWLV DQG RWKHU PXVFXORVNHOHWDO LOOQHVVHVߟPD\ EHFRPH
    FKURQLF )DOORQ1LHOGVHWDO 
    /\PH GLVHDVH LV UDUHO\ LI HYHU IDWDO 2Q 05, /\PH SDWLHQWV ZLWK HQFHSKDORP\HOLWLV KDYH ZKLWH
    PDWWHU OHVLRQV WKDW DUH VLPLODU WR 06 OHVLRQV LQ DSSHDUDQFH DOWKRXJK SDWLHQWV ZLWK PLOG
    HQFHSKDORSDWK\ RIWHQ KDYH QRUPDO 05,V RU UHODWLYHO\ VPDOO ZKLWH PDWWHU OHVLRQV )LOOH\ 
    0RUJHQHWDO 2Q63(&7VFDQQLQJPXOWLIRFDODUHDVRIK\SRSHUIXVLRQDSSHDULQERWKFRUWH[
    DQG VXEFRUWLFDO ZKLWH PDWWHU VXJJHVWLQJ IXQFWLRQDO RU PLOG VWUXFWXUDO DEQRUPDOLW\ QRW YLVLEOH RQ
    FRQYHQWLRQDO 05, )DOORQ 'DV HW DO  /RJLJLDQ HW DO   7UHDWPHQW W\SLFDOO\ LQFOXGHV
    DQWLELRWLFWKHUDS\IRUWKUHHWRIRXUZHHNVZKLFKLVPRVWHIIHFWLYHLILQLWLDWHGHDUO\/DWHULQFDVHVZLWK
    HYLGHQWQHXURORJLFG\VIXQFWLRQWKHGLVHDVHPD\EHWUHDWHGZLWKLQWUDYHQRXVDQWLELRWLFV
    7KH SDWWHUQ RI QHXURSV\FKRORJLFDOSHUIRUPDQFHLQFOXGHVPHPRU\ LPSDLUPHQW 0F$XOLIIH HW DO
    :HVWHUYHOWDQG0F&DIIUH\ 6RPHLQYHVWLJDWRUVUHSRUWUHGXFHGZRUGJHQHUDWLRQ %HQNH
    HW DO  *DXGLQR HW DO   ZKHUHDV RWKHUV KDYH QRW REVHUYHG WKLV 5) .DSODQ HW DO 
    6YHWLQD HW DO   ,QFRQVLVWHQF\ LQ QHXURSV\FKRORJLFDO VWXG\ ILQGLQJV PD\ EH GXH LQ SDUW WR
    UHODWLYHO\ VPDOO VDPSOH VL]HV DV ZHOO DV KHWHURJHQHLW\ LQ VWXG\ JURXS FRPSRVLWLRQ :HVWHUYHOW DQG
    0F&DIIUH\ 
    0DQ\ SDWLHQWV ZLWK D KLVWRU\ RI /\PH GLVHDVH KDYH V\PSWRPV WKDW RYHUODS ZLWK FKURQLF IDWLJXH
    V\QGURPH VHH EHORZ  D FRPRUELGLW\ RI FOLQLFDO LQWHUHVW +DVVHWW HW DO   3ULRU SV\FKLDWULF
    KLVWRU\ HVSHFLDOO\ RYHUODS ZLWK VRPDWRIRUPUHODWHG SUREOHPV DSSHDUV WR EH DVVRFLDWHG ZLWK
    SHUVLVWLQJQHXURFRJQLWLYHDQGQHXUREHKDYLRUDOHIIHFWV +XUOH\DQG7DEHU 6LQFHQHXURLPDJLQJ
    GRFXPHQWV WKH FHUHEUDO SDWKRORJ\ RI /\PH GLVHDVH LW FDQ EH DQ LPSRUWDQW WRRO ZKHQ GLIIHUHQWLDO
    GLDJQRVLVLVDQLVVXH +LOGHQEUDQGHWDO)DOORQ.HLOSHWDO 

    &KURQLF)DWLJXH6\QGURPH &)6
    7KLVVRPHZKDWFRQWURYHUVLDOGLDJQRVLVUHTXLUHVFRPSODLQWVRIVHYHUHFKURQLFIDWLJXHODVWLQJDWOHDVW
    VL[ PRQWKV ZLWK RWKHU HWLRORJLHV H[FOXGHG WKXV LW LV D GLDJQRVLV RI H[FOXVLRQ &'&
    FGFLQIR#FGFJRY  $ ODUJH SRUWLRQ RI WKH FRQWURYHUV\ KRZHYHU VWHPV IURP WKH WHQGHQF\ RI VRPH
    KHDOWKFDUHSURYLGHUVWRJLYHWKLVGLDJQRVLVZKHQQRRWKHUH[SODQDWLRQIRUIDWLJXHFDQEHIRXQGHYHQ
    ZKHQWKHSDWLHQWߤVIDWLJXHIDOOVZLWKLQH[SHFWHGOHYHOVRIYDULDWLRQ :HVVHO\ 7KHGLDJQRVLVRI
    &)6 LV W\SLFDOO\ JLYHQ WR SDWLHQWV ZKR EHFRPH JUHDWO\ IDWLJXHG ZLWK PLQRU SK\VLFDO RU PHQWDO
    H[HUWLRQ EXW WKLV VHYHUH IDWLJXH SDWWHUQ PXVW QRW KDYH EHHQ D OLIHORQJ FRQGLWLRQ ,Q DGGLWLRQ &)6
    IDWLJXHLVQRWUHOLHYHGZLWKEHGUHVW6RPDWLFFRPSODLQWVDUHFRPPRQLQFOXGLQJVRUHWKURDWWHQGHURU
    VZROOHQ O\PSK QRGHV PXVFOH SDLQ PXOWLMRLQW SDLQ ZLWKRXW VZHOOLQJ RU UHGQHVV DQG KHDGDFKHV
    &RJQLWLYH DQG HPRWLRQDO V\PSWRPV DUH OLNHZLVH FRPPRQSODFH )ULHGEHUJ   7KLV FOXVWHU RI
    V\PSWRPVLQFOXGLQJPHPRU\GHILFLWVFRQWULEXWHVWRDFOLQLFDOGLDJQRVLV )XNXGDHWDO 
    &)6 LV GLDJQRVHG XS WR IRXU WLPHV PRUH RIWHQ LQ ZRPHQ WKDQ LQ PHQ 5H\HV HW DO  
    3UHYDOHQFH HVWLPDWHV DUH GLIILFXOW WR REWDLQ EXW WKH 5H\HV VWXG\ RI IRXU 86 FLWLHV UHSRUWHG DQ
    LQFLGHQFHRIWRSHU7KHHWLRORJ\RI&)6LVSUREDEO\PXOWLIDFWRULDO$OWKRXJKDOLQN
    EHWZHHQYLUXVHVVXFKDV(SVWHLQ%DUUDQG&)6KDVEHHQVXVSHFWHGWKHVHSDWLHQWVGRQRWKDYHDFWLYH
    LQIHFWLRQ%HFDXVHIDWLJXHLVFRPPRQDIWHUYLUDOLQIHFWLRQDWOHDVWVRPHFDVHVRI&)6PD\UHSUHVHQWD
    SRVWLQIHFWLRQ V\QGURPH -DLQ DQG 'H/LVD   5HGXFHG DFWLYLW\ RI WKH K\SRWKDODPLFߞSLWXLWDU\ߞ
    DGUHQDOD[LVKDVEHHQLPSOLFDWHG &OHDUHHWDO 
    &RJQLWLYH LPSDLUPHQW RIWHQ LQYROYHV SRRU FRQFHQWUDWLRQ LPSDLUHG OHDUQLQJ DQG ZRUG ILQGLQJ
    GLIILFXOW\ %DUURZV   ,Q WKHLU VXPPDU\ RI QHXURSV\FKRORJLFDO GHILFLWV LQ &)6 0LFKLHOV DQG
    &OX\GWV   UHSRUWHG WKDW VORZHG SURFHVVLQJ VSHHG DQG LPSDLUHG ZRUNLQJ PHPRU\ DQG OHDUQLQJ
    DUH WKH PRVW SURPLQHQW DQG PRVW FRQVLVWHQW RI WKHVH 2WKHUV REVHUYHG WKDW FRJQLWLYH GHILFLWV DUH
    UHODWLYHO\VXEWOHDQGLQYROYHFRPSOH[LQIRUPDWLRQSURFHVVLQJVSHHGRUHIILFLHQF\ -DLQDQG 'H/LVD
      7KH OLWHUDWXUH LV LQFRQVLVWHQW LQ SDUW GXH WR WKH KHWHURJHQHLW\ RI GLDJQRVLV DQG JURXS
    FRPSRVLWLRQ DORQJ ZLWK WKH DEVHQFH RI D GHILQLWLYH ELRPDUNHU :KHQ GHILFLWV DUH SUHVHQW WKH\
    JHQHUDOO\WHQGWREHVXEWOH 7LHUVN\HWDO $OWKRXJKGHSUHVVLRQLVFRPPRQLQ&)6DQGFDQEH
    FRQVLGHUHG D SRVVLEOH H[SODQDWLRQ IRU PLOG QHXURSV\FKRORJLFDO LPSDLUPHQW &)6 SDWLHQWV ZLWKRXW
    SV\FKLDWULF LOOQHVV PD\ HYHQ SHUIRUP PRUH SRRUO\ WKDQ SV\FKLDWULFDOO\ WURXEOHG &)6 SDWLHQWV -
    'H/XFD-RKQVRQ(OOLVDQG1DWHOVRQ 6XEMHFWLYHPHPRU\FRPSODLQWVDUHXVXDOO\JUHDWHUWKDQ
    ZKDW LV REVHUYHG LQ IRUPDO QHXURSV\FKRORJLFDO H[DPLQDWLRQV 7LHUVN\ HW DO    SRVVLEO\
    UHIOHFWLQJWKHSDWLHQWߤVH[SHULHQFHRILPSDLUHGPHPRU\GXHWRVORZHGSURFHVVLQJ VHHS 
    1HXURLPDJLQJ VWXGLHV GR QRW GHPRQVWUDWH DQ\ VSHFLILF SDWKRJQRPLF IHDWXUHV GLDJQRVWLF RI &)6
    3HUULQ HW DO   EXW IXQFWLRQDO QHXURLPDJLQJ KDV VKRZQ XQLTXH UHODWLRQVKLSV RI FHUHEUDO
    DFWLYDWLRQ WKDW GLIIHUHQWLDWH &)6 SDWLHQWV IURP FRQWUROV GH /DQJH .DONPDQ HW DO  GH /DQJH
    .RHUVHWDO 7KLVFRXOGEHUHODWHGWRKRZFKURQLFSDLQHYHQZKHQVXEWOHPD\DOWHUWKH&16
    &DVHUDVHWDO6FKPLGW:LOFNHHWDO 2QHYLHZRI&)6VXJJHVWVWKDWLWPD\EHDGLVRUGHU
    LQ ZKLFK WKH FOLQLFDO SUHVHQWDWLRQ DSSHDUV ZLWKLQ WKH VSHFWUXP RI VRPDWRIRUP DQG GLVVRFLDWLYH
    GLVRUGHUV EXW ZLWK DQ XQGHUO\LQJ QHXURELRORJLFDO DQG QHXURSDWKRORJLFDO H[SODQDWLRQ *DUFLD
    &DPSD\RHWDO 

    %5$,1780256
    2QH RI HYHU\ IRXU FDQFHU SDWLHQWV ZLOO GHYHORS WXPRUV WKDW LQYDGH RU LPSLQJH RQ EUDLQ WLVVXH
    LQWUDFUDQLDOQHRSODVPV DWVRPHSRLQWLQWKHLULOOQHVV 5REEHUDQG6DPXHOV ,QDQ\JLYHQ\HDU
     RI HYHU\  DGXOWV LQ WKH 8QLWHG 6WDWHV ZLOO GHYHORS D EUDLQ WXPRU ZKLFK DPRXQWV WR
    DSSUR[LPDWHO\  QHZ 86 FDVHV PRVWO\ PHWDVWDVL]HG IURP OXQJ FDQFHU &$ 0H\HUV DQG
    &DQWRU   ,Q DGXOWV VHFRQGDU\ LQWUDFUDQLDO QHRSODVPV RXWQXPEHU SULPDU\ EUDLQ WXPRUV E\ D
    IDFWRURIZLWKWKHUHYHUVHEHLQJWUXHLQFKLOGUHQ VHH3DFNHUIRUDUHYLHZRISHGLDWULFEUDLQ
    WXPRUV  &RJQLWLYH DQG QHXURELRORJLFDO EHKDYLRUDO HIIHFWV RI EUDLQ WXPRUV YDU\ DFFRUGLQJ WR VXFK
    IDFWRUVDVWKHLUQDWXUHVLWH VL]HUDWH RIJURZWKDQG WUHDWPHQW V  6: $QGHUVRQ+ 'DPDVLR DQG
    7UDQHO6:$QGHUVRQDQG5\NHQ&RUUHD 

    3ULPDU\%UDLQ7XPRUV
    *OLRPDV

    7XPRUVWKDWDULVHIURPWKHJOLDOFHOOVIRUPLQJWKHFRQQHFWLYHWLVVXHRIWKHEUDLQߟJOLRPDVߟDUH WKH
    PRVWFRPPRQSULPDU\EUDLQWXPRUVLQDGXOWVDFFRXQWLQJIRUQHDUO\KDOIRIDOOEUDLQWXPRUVLQDGXOWV
    'H$QJHOLV  5REEHU DQG 6DPXHOV   7KH\ DUH VOLJKWO\ PRUH FRPPRQ LQ PHQ WKDQ LQ
    ZRPHQ   *OLRPDV FDQ EH IXUWKHU VXEGLYLGHG LQWR DVWURF\WRPDV ROLJRGHQGURJOLDO WXPRUV DQG
    PL[HGJOLRPDV%UDLQWXPRUVDUHJUDGHGDFFRUGLQJWRWKHPRVWPDOLJQDQWDUHDLGHQWLILHGZLWKLQWKHP
    UDQJLQJ IURP KLJKO\ PDOLJQDQW JUDGH  RU   WR UHODWLYHO\ EHQLJQ JUDGH  RU   .OHLKXHV DQG
    &DYHQHH/DWHUUDDQG%UHP5REEHUDQG6DPXHOV 
    0DOLJQDQWDVWURF\WLFWXPRUVߟJOLREODVWRPDPXOWLIRUPHDQGDQDSODVWLFDVWURF\WRPDߟDUH WKH PRVW
    FRPPRQJOLDOWXPRUV LQDGXOWV 'H$QJHOLV  /DWHUUD DQG %UHP  *OLREODVWRPDVߟZKLFK
    FRQVWLWXWHRIWKHPDOLJQDQWJOLRPDVߟXVXDOO\SUHVHQWLQWKHVL[WKRUVHYHQWKGHFDGHRIOLIHZKLOH
    DQDSODVWLF DVWURF\WRPDV DSSHDU VOLJKWO\ HDUOLHU IRXUWK RU ILIWK GHFDGH  7KHVH UDSLGO\ JURZLQJ
    PDOLJQDQFLHV LQILOWUDWH WKH EUDLQߤV WLVVXHߟW\SLFDOO\ WKH ZKLWH PDWWHU VHH )LJXUH  3ODWH  ߟ
    PDNLQJFOHDQVXUJLFDOUHPRYDODOOEXWLPSRVVLEOH2Q05,WKH\DUHHDVLO\LGHQWLILHGE\WKHLULUUHJXODU
    ULQJOLNH JDGROLQLXP HQKDQFHPHQW VXUURXQGLQJ HGHPD DQG PDVV HIIHFW 7UHDWPHQW RI PDOLJQDQW
    DVWURF\WRPDV LV HVVHQWLDOO\ SDOOLDWLYH FRQVLVWLQJ RI VXUJLFDO UHPRYDO UHVHFWLRQ  RI DV PXFK RI WKH
    WXPRUDVSRVVLEOHIROORZHGE\IRFXVHGFUDQLDOUDGLDWLRQ 'H$QJHOLV/DSHUULHUH HW DO  
    $GGLQJ FKHPRWKHUDS\ SURORQJV VXUYLYDO WLPH DOEHLW PRGHVWO\ *OLRPD 0HWD$QDO\VLV 7ULDOLVWV
    *URXS (YHQZLWKDJJUHVVLYHWUHDWPHQWPHGLDQVXUYLYDOWLPHIRUJOLREODVWRPDSDWLHQWVLVRQO\
    RQH \HDU IURP GLDJQRVLV DQG IRU SDWLHQWV ZLWK DQDSODVWLF DVWURF\WRPDV LW LV WZR WR IRXU \HDUV ./
    &KDLFKDQDHWDO'H$QJHOLV/DWHUUDDQG%UHP 

    ),*85(3RVWPRUWHPDSSHDUDQFHRIDJOLREODVWRPDPXOWLIRUPH

    /RZHUJUDGHDVWURF\WRPDVJHQHUDOO\RFFXULQDGXOWVLQWKHLUWZHQWLHVRUWKLUWLHV 'H$QJHOLV 
    /LNHPDOLJQDQWJOLRPDVWKHVHWXPRUVDUHLQILOWUDWLYHDOWKRXJKWKH\JURZPXFKPRUHVORZO\3DWLHQWV
    DUH RIWHQ QHXURORJLFDOO\ LQWDFW XQWLO WKH\ KDYH D IRFDO RU JHQHUDOL]HG VHL]XUH 2Q 05, ORZ JUDGH
    DVWURF\WRPDVDSSHDUDVGLIIXVHQRQHQKDQFLQJPDVVHVZLWKRXWVXUURXQGLQJHGHPDRUPDVVHIIHFWRQ
    3(7 VFDQQLQJ WKH\ DUH K\SRPHWDEROLF K\SHUPHWDEROLF DUHDV ZRXOG VXJJHVW D PRUH PDOLJQDQW
    SURFHVV 
    7UHDWPHQW RI ORZ JUDGH DVWURF\WRPDV LV WKH VXEMHFW RI VRPH GHEDWH SDUWLFXODUO\ LQ SDWLHQWV ZKR
    DUH HVVHQWLDOO\ IUHH RI V\PSWRPV DQG ZKRVH VHL]XUHV DUH ZHOO FRQWUROOHG ZLWK DQWLFRQYXOVDQW
    PHGLFDWLRQ %DPSRH DQG %HUQVWHLQ  'H$QJHOLV  5HFKW HW DO   &RPSOHWH VXUJLFDO
    UHPRYDORIDORZJUDGHDVWURF\WRPDLVLGHDOEXWPD\QRWEHSRVVLEOHEHFDXVHWKHVHWXPRUVIUHTXHQWO\
    LPSLQJH RQ FUXFLDO EUDLQ UHJLRQV RU DUH WRR ODUJH WR EH FRPSOHWHO\ H[FLVHG &KHPRWKHUDS\ LV RI
    OLPLWHGEHQHILW3RVWVXUJLFDOUDGLDWLRQWKHUDS\LVRIWHQUHFRPPHQGHG 'H$QJHOLV ߟVSHFLILFDOO\
    ORZGRVHUDGLDWLRQWKHUDS\ZKLFKLVDVHIILFDFLRXVDVKLJKHUGRVHVEXWZLWKIHZHUVLGHHIIHFWV .DULP
    HWDO 6DGO\PRVWRIWKHVHWXPRUVXOWLPDWHO\HYROYHLQWRPDOLJQDQWJOLRPDV0HGLDQVXUYLYDO
    WLPH IRU SDWLHQWV ZLWK ORZ JUDGH DVWURF\WRPDV LV DSSUR[LPDWHO\ ILYH \HDUV EXW ZLWK FRQVLGHUDEOH
    YDULDELOLW\ 'H$QJHOLV   3RRUHU SURJQRVLV LV DVVRFLDWHG ZLWK DJHV RYHU  VSHFLILF WXPRU
    FKDUDFWHULVWLFV KLVWRORJ\ ODUJHU VL]H DQG ZKHWKHU LW FURVVHV WKH PLGOLQH  DQG WKH SUHVHQFH RI
    QHXURORJLFDOGHILFLWVSULRUWRVXUJHU\ 3LJQDWWLHWDO 
    2ULJLQDOO\WKRXJKWWREHUDUHROLJRGHQGURJOLRPDVZKLFKRULJLQDWHIURPWKHROLJRGHQGURF\WHVRU
    WKHLU SUHFXUVRUV PD\ FRQVWLWXWH XS WR  RI DOO JOLDO QHRSODVPV ' )RUWLQ HW DO   7KH\ DUH
    DERXWWZLFHDVFRPPRQLQPHQDVLQZRPHQDQGRFFXUPRVWRIWHQLQ\RXQJDGXOWVLQWKHLUWZHQWLHVRU
    WKLUWLHV 5REEHUDQGVDPXHOV 0RVWDULVHIURPWKHGHHSZKLWHPDWWHUXQGHUO\LQJWKHIURQWDORU
    WHPSRUDO OREHV 2OLJRGHQGURJOLRPDV DUH RIWHQ ORZ JUDGH DQG PD\ EH GLIILFXOW WR GLVWLQJXLVK
    SDWKRORJLFDOO\ IURP ORZ JUDGH DVWURF\WRPDV 7KH\ KDYH EHHQ DVVRFLDWHG ZLWK VSHFLILF JHQHWLF
    DOWHUDWLRQV %LJQHUHWDO ZKLFKKDVLPSRUWDQWWUHDWPHQWLPSOLFDWLRQV -66PLWKHWDO $
    VHL]XUH LV RIWHQ WKH ILUVW VLJQ WKDW VRPHWKLQJ LV DZU\ KHDGDFKH RU KHPLSDUHVLVߟPRVW RIWHQ
    SURJUHVVLYH DOWKRXJK RQVHW LV W\SLFDOO\ DFXWH LI WKHUH KDV EHHQ D KHPRUUKDJHߟPD\ DOVR EH
    SUHVHQWLQJVLJQV
    $VZLWKORZJUDGHDVWURF\WRPDVWUHDWPHQWPD\EHGHIHUUHGXQOHVVGLVDEOLQJV\PSWRPVDUHSUHVHQW
    RU SURJUHVVLRQ LV HYLGHQW RQ FOLQLFDO HYDOXDWLRQ RU LPDJLQJ VWXGLHV 8QOLNH DVWURF\WRPDV
    ROLJRGHQGURJOLRPDVDUHXQXVXDOO\VHQVLWLYHWRFKHPRWKHUDS\PDNLQJERWKFKHPRWKHUDS\DQGIRFDO
    UDGLDWLRQWKHUDS\YLDEOHWUHDWPHQWV -'2OVRQHWDO-53HUU\HWDO +LJKO\PDOLJQDQW
    ROLJRGHQGURJOLRPDV QHFHVVLWDWH LPPHGLDWH DQG DJJUHVVLYH WUHDWPHQW VXUJLFDO UHVHFWLRQ LI IHDVLEOH
    IROORZHG E\ FKHPRWKHUDS\ DQGRU UDGLDWLRQ WKHUDS\ )RUWXQDWHO\  RI SDWLHQWV ZLWK PDOLJQDQW
    ROLJRGHQGURJOLRPDV UHVSRQG WR FKHPRWKHUDS\ DQG QHDUO\ KDOI RI WKHVH FDQ IXQFWLRQ DW SUHPRUELG
    OHYHOVRUDWOHDVWKDYHVXVWDLQHGUHPLVVLRQVZLWKPHDQLQJIXOFOLQLFDOLPSURYHPHQW .3HWHUVRQHWDO
     

    0HQLQJLRPDV

    0HQLQJLRPDV DUH WHFKQLFDOO\ QRW EUDLQ WXPRUV DV WKH\ DULVH IURP WKH FHOOV IRUPLQJ WKH H[WHUQDO
    PHPEUDQHVFRYHULQJWKHEUDLQ WKHPHQLQJHV DQGDVVKRZQLQ)LJ3ODWHFOHDUO\IRUPD
    PDVV RXWVLGH RI EUDLQ SDUHQFK\PD 7KH\ DUH WKH QH[W PRVW FRPPRQ SULPDU\ LQWUDFUDQLDO WXPRU LQ
    DGXOWV FRQVWLWXWLQJ DSSUR[LPDWHO\ ߞ RI LQWUDFUDQLDO QHRSODVPV 'H$QJHOLV   
    0HQLQJLRPDVJURZEHWZHHQWKHEUDLQDQGWKHVNXOODWWLPHVSHQHWUDWLQJWKHVNXOOLWVHOIDQGSURGXFLQJ
    FKDUDFWHULVWLF FKDQJHV LQ LWV ERQ\ VWUXFWXUH 8QOLNH JOLRPDV PHQLQJLRPDV DUH PRUH FRPPRQ LQ
    ZRPHQWKDQLQPHQ  0RVWDUHEHQLJQ 5REEHUDQG6DPXHOV DOWKRXJKUDGLDWLRQLQGXFHG
    PHQLQJLRPDV FDQ EH PDOLJQDQW %RQG\ DQG /LJRQ   0HQLQJLRPDV XVXDOO\ RFFXU RYHU WKH
    FHUHEUDO FRQYH[LWLHV RU DW WKH EDVH RI WKH VNXOO 7KH\ WHQG WR JURZ UHODWLYHO\ VORZO\ FDXVLQJ
    V\PSWRPV E\ FRPSUHVVLQJ DGMDFHQW QHXUDO VWUXFWXUHV HJ FUDQLDO QHXURSDWKLHV KHDGDFKH
    SURJUHVVLYHKHPLSDUHVLV 6\PSWRPDWLFPHQLQJLRPDVDUHIRXQGPRVWRIWHQLQSDWLHQWVLQWKHLUVL[WK
    DQGVHYHQWKGHFDGHVVLQFHRIWKHPDUHYHU\VPDOOWKH\PD\EHGLVFRYHUHGRQO\LQFLGHQWDOO\RQ
    DXWRSV\ 'H$QJHOLV 
    ),*85(3RVWPRUWHPDSSHDUDQFHRIDPLGVDJLWWDOIURQWDOPHQLQJLRPD OHIW DQGDODUJHLQIHULRUIURQWDOPHQLQJLRPD ULJKW 1RWHWKH
    GLVSODFHPHQWRIEUDLQSDUHQFK\PD

    %HFDXVH PHQLQJLRPDV DUH RIWHQ VHOIFRQWDLQHG DQG GR QRW LQYDGH WKH EUDLQ LWVHOI PDQ\ FDQ EH
    FRPSOHWHO\UHPRYHGE\VXUJHU\SDUWLFXODUO\LIWKH\GRQRWLQYROYHWKHVNXOOEDVH 'H$QJHOLV
    5REEHUDQG6DPXHOV +RZHYHUXSWRZLOOUHFXUZLWKLQWHQ\HDUV3DWLHQWVZLWKLQRSHUDEOH
    RU PDOLJQDQW PHQLQJLRPDV PD\ XQGHUJR UDGLDWLRQ WKHUDS\ EXW FKHPRWKHUDS\ LV JHQHUDOO\ QRW
    KHOSIXO

    &16O\PSKRPD

    3ULPDU\FHQWUDOQHUYRXVV\VWHPO\PSKRPDXVHGWREHTXLWHUDUH ࡌRISULPDU\EUDLQWXPRUV ,WV


    LQFLGHQFH LQ WKH 8QLWHG 6WDWHV KDV WULSOHG RYHU WKH ODVW WZR GHFDGHV SDUWO\ GXH WR WKH KHLJKWHQHG
    IUHTXHQF\RI&16O\PSKRPDLQLPPXQRVXSSUHVVHGSRSXODWLRQV LQFOXGLQJ$,'6SDWLHQWV  6FKDEHW
     3ULPDU\&16O\PSKRPDVFDQRFFXULQSHUVRQVZLWKLQWDFWLPPXQHV\VWHPVWKRXJKW\SLFDOO\
    QRW XQWLO WKH VL[WK DQG VHYHQWK GHFDGHV 'H$QJHOLV   /HVLRQV DVVRFLDWHG ZLWK SULPDU\ &16
    O\PSKRPD PD\ EH VLQJOH RU PXOWLIRFDO DQG WKH\ RIWHQ FOXVWHU DURXQG WKH YHQWULFOHV &RQVHTXHQWO\
    WKHVH SDWLHQWV PD\ LQLWLDOO\ SUHVHQW ZLWK EHKDYLRUDO DQG FRJQLWLYH FKDQJHV W\SLFDOO\ DVVRFLDWHG ZLWK
    VXEFRUWLFDO LQYROYHPHQW RU ZLWK IRFDO FHUHEUDO VLJQV HJ KHPLSDUHVLV DSKDVLD RU YLVXDO ILHOG
    GHIHFWV LQVWHDGRIKHDGDFKHVRUVHL]XUHV 'H$QJHOLV5REEHUDQG6DPXHOV 
    7UHDWPHQW RI &16 O\PSKRPD FRQVLVWV RI FUDQLDO LUUDGLDWLRQ DQG FRUWLFRVWHURLGV ZKLFK SURGXFH
    WUDQVLHQWLPSURYHPHQWEXWXQIRUWXQDWHO\WKHVHWXPRUVDOPRVWDOZD\VUHFXUPHGLDQVXUYLYDOWLPHLV
    RQO\  WR  PRQWKV DQG HYHQ OHVV LQ LPPXQRFRPSURPLVHG SDWLHQWV '51HOVRQHW DO  ,Q
    SDWLHQWVZLWKLQWDFWLPPXQHV\VWHPVKLJKGRVHPHWKRWUH[DWHUHJLPHQVFRXSOHGZLWKUDGLDWLRQWKHUDS\
    FDQH[WHQGPHGLDQVXUYLYDOWLPHWRIRXU\HDUVRUPRUH0DQ\SDWLHQWVZKRXQGHUJRWKHVHFRPELQHG
    FKHPRWKHUDS\UDGLDWLRQ UHJLPHQVߟSDUWLFXODUO\ WKRVH RYHU DJH ߟH[SHULHQFH GHOD\HG QHXURWR[LF
    HIIHFWV $EUH\HWDO 

    6HFRQGDU\ 0HWDVWDWLF %UDLQ7XPRUV


    0HWDVWDWLFLQWUDFUDQLDO QHRSODVPVDUH VHFRQGDU\FDUFLQRPDV RULJLQDWLQJ LQ VROLG WXPRUV HOVHZKHUH
    LQ WKH ERG\ WKDW DUH WUDQVSRUWHG LQWR WKH &16 DQG VHWWOH LQ EUDLQ WLVVXHߟWKH VNXOO DQG GXUD RU OHVV
    FRPPRQO\ WKH PHQLQJHV 3DWFKHOO   7KHVH VKRXOG QRW EH FRQIXVHG ZLWK WKH OHVV FRPPRQ
    SDUDQHRSODVWLF GLVRUGHUVߟQHXURORJLF V\QGURPHV DVVRFLDWHG ZLWK FDUFLQRPD WKDW VWHP QRW IURP
    GLUHFWLQYDVLRQRUFRPSUHVVLRQRIWKHQHUYRXVV\VWHPEXWUDWKHUIURPLQGLUHFWPHFKDQLVPVWKDWDUH
    LQFRPSOHWHO\ XQGHUVWRRG >'URSFKR  9HUQLQR HW DO  VHH S @  7KH PRVW FRPPRQ
    VRXUFHRIFHUHEUDOPHWDVWDVHVLVWKHOXQJIROORZHGE\WKHEUHDVWPHODQRPDJDVWURLQWHVWLQDOWUDFWDQG
    NLGQH\ 3DWFKHOO5RSSHUDQG6DPXHOV ([DPSOHVRIPHWDVWDWLFWXPRUVDUHSUHVHQWHGLQ
    )LJXUHVDQG3ODWHV9,ߞ9,,
    &HUHEUDO PHWDVWDVHV DUH PXOWLSOH LQ DW OHDVW  RI FDVHV DUH JHQHUDOO\ VROLG EXW RFFDVLRQDOO\
    ULQJOLNH  DQG DUH W\SLFDOO\ DFFRPSDQLHG E\ HGHPD 3DWFKHOO  5REEHU DQG 6DPXHOV  
    7KHVH WXPRUV WHQG WR JURZ IDVWHU DQG WKXV VKRZ HIIHFWV VRRQHU WKDQ WKH WXPRU RI RULJLQ 3DWFKHOO
      3DWLHQWV ZLWK FHUHEUDO PHVWDVWDVHV RIWHQ SUHVHQW ZLWK V\PSWRPV VLPLODU WR WKRVH RI
    JOLREODVWRPD PXOWLIRUPH KHDGDFKH VHL]XUHV IRFDO FHUHEUDO VLJQV RU FRJQLWLYH DQG EHKDYLRUDO
    DOWHUDWLRQVWKDWSURJUHVVRYHUZHHNVWRPRQWKV 5REEHUDQG6DPXHOV 0HWDVWDVHVWRWKHVNXOO
    DQG GXUD W\SLFDOO\ DULVH IURP EUHDVW RU SURVWDWH WXPRUV RU PXOWLSOH P\HORPDV 7KH\ DUH RIWHQ
    DV\PSWRPDWLFSDUWLFXODUO\LIORFDWHGRQWKHVNXOOFRQYH[LW\EXWFDQEHV\PSWRPDWLFZKHQVNXOOEDVH
    PHWDVWDVHVLQYROYHWKHFUDQLDOQHUYHVRUSLWXLWDU\

    ),*85(3RVWPRUWHPDSSHDUDQFHRIPDOLJQDQWPHODQRPD

    ),*85(3RVWPRUWHPDSSHDUDQFHRISXOPRQDU\PHWDVWDVLVWRWKHEUDLQ

    7UHDWPHQWRIVHFRQGDU\LQWUDFUDQLDOFDUFLQRPDVPD\LQYROYHFRUWLFRVWHURLGV WRUHOLHYHHGHPD 
    VXUJHU\ LI WKHUH LV D VLQJOH DFFHVVLEOH PHWDVWDVLV DQG SULPDU\ WXPRU JURZWK KDV EHHQ FRQWUROOHG 
    ZKROHEUDLQ LUUDGLDWLRQ DQGRU FKHPRWKHUDS\ SDUWLFXODUO\ LI WKH SULPDU\ WXPRU LV VHQVLWLYH WR
    FKHPRWKHUDS\  :KROH EUDLQ LUUDGLDWLRQ LV WKH PRVW ZLGHO\ XVHG WUHDWPHQW \HW HYHQ ZLWK UDGLDWLRQ
    WKHUDS\ PHGLDQ VXUYLYDO WLPH LV D PHDJHU IRXU WR VL[ PRQWKV YDQ GHQ %HQW  
    1HXURSV\FKRORJLFDOWHVWLQJKDVEHHQXVHGWRPRQLWRUWKHHIIHFWVRIPHWDVWDWLFWUHDWPHQWDVZHOODVWKH
    SULPDU\HIIHFWVRIWKHFDQFHU %DVFKQDJHOHWDO 

    &166\PSWRPV$ULVLQJIURP%UDLQ7XPRUV
    %UDLQWXPRUVFDQFRPSURPLVHEUDLQIXQFWLRQLQRQHRUPRUHRIIRXUGLVWLQFWZD\V  E\SURGXFLQJ
    JHQHUDOL]HGV\PSWRPVDVVRFLDWHGZLWKLQFUHDVHG,&3ߟVXFKDVKHDGDFKH ZKLFKRFFXUVLQDERXWKDOI
    RIDOOSDWLHQWVDQGLVW\SLFDOO\GLIIXVHDQGPRVWSURQRXQFHGRQZDNHQLQJ RFFDVLRQDOO\QDXVHDDQG
    YRPLWLQJDQGVL[WKQHUYHSDOV\ SDUDO\VLVRIODWHUDOH\HPRYHPHQWV   E\LQGXFLQJVHL]XUHVZKLFK
    DUH W\SLFDOO\ IRFDO RU VHFRQGDULO\ JHQHUDOL]HG   E\ SURGXFLQJ IRFDO V\PSWRPVߟVXFK DV
    KHPLSDUHVLV DQG DSKDVLDߟWKDW UHIOHFW SURJUHVVLYH LQYDVLRQ RU GLVSODFHPHQW RI EUDLQ WLVVXH DQG FDQ
    VXJJHVW WXPRU ORFDWLRQ DQG   E\ VHFUHWLQJ KRUPRQHV RU DOWHULQJ HQGRFULQH SDWWHUQV LQYROYLQJ D
    YDULHW\RIERG\IXQFWLRQV 'H$QJHOLV 
    7RVRPHH[WHQWWXPRUVDFWDVORFDOL]HGOHVLRQVDIIHFWLQJEHKDYLRULQPXFKWKHVDPHZD\DVGR
    RWKHUNLQGVRIGLVFUHWHEUDLQOHVLRQV 6:$QGHUVRQ+'DPDVLRDQG7UDQHO6FKHLEHO HW DO
      )RU H[DPSOH PHPRU\ LV RIWHQ FRPSURPLVHGߟSDUWLFXODUO\ ZLWK IURQWDO WXPRUV DQG WKRVH LQ
    WKHUHJLRQRIWKHWKLUGYHQWULFOHRULQRUQHDUWKHWKDODPXV 7533ULFH*RHW]DQG/RYHOO 
    0DQ\SULPDU\EUDLQWXPRUVDUHHLWKHUORFDWHGLQWKHIURQWDOOREHVRULQYROYHEUDLQUHJLRQVZLWKULFK
    FRQQHFWLRQV WR WKH IURQWDO OREHV VR H[HFXWLYH G\VIXQFWLRQߟLPSDLUPHQWV LQ FRQFHSWXDO IOH[LELOLW\
    SODQQLQJ DQG RUJDQL]DWLRQ DQG WKH OLNHߟLV QHDUO\ XQLYHUVDO &$ 0H\HUV :HLW]QHU HW DO 
    753 3ULFH HW DO   %UDLQ WXPRUV RIWHQ LQWHUIHUH ZLWK GRSDPLQHUJLF SDWKZD\V LQ WKH IURQWDO
    EUDLQVWHPUHWLFXODU V\VWHPVR GHILFLWVLQSURFHVVLQJ VSHHG DQGZRUNLQJ PHPRU\ DUHDOVR FRPPRQ
    &$0H\HUV:HLW]QHUHWDO 
    +RZHYHU OHVLRQ VLWH PD\ QRW EH RI SULPDU\ LPSRUWDQFH LQ GHWHUPLQLQJ WKH QDWXUH RI DVVRFLDWHG
    QHXURSV\FKRORJLFDOV\PSWRPVEHFDXVHWKHQHXURSV\FKRORJLFDOHIIHFWVRIDWXPRUGHSHQGQRWRQO\RQ
    LWVORFDWLRQEXWDOVRRQLWVUDWHRIJURZWK *OHDVRQDQG0H\HUV+RPDQG5HLWDQ )DVW
    JURZLQJ WXPRUV WHQG WR SXW SUHVVXUH RQ VXUURXQGLQJ VWUXFWXUHV WKHUHE\ GLVUXSWLQJ IXQFWLRQ ,Q
    FRQWUDVW WKH JUDGXDO GLVSODFHPHQW RI EUDLQ WLVVXH E\ ORZHU JUDGH WXPRUV PD\ DOORZ IRU VKLIWV LQ
    SRVLWLRQDQGUHRUJDQL]DWLRQRIVWUXFWXUHVZLWKPLQLPDOEHKDYLRUDOUHSHUFXVVLRQVXQWLOWKHWXPRUKDV
    EHFRPHTXLWHODUJH &$0H\HUV 
    %\ LQFUHDVLQJ LQWUDFUDQLDO SUHVVXUH DQG FRQWULEXWLQJ WR GLVSODFHPHQW RI EUDLQ VWUXFWXUHV HGHPD
    RIWHQ H[DFHUEDWHV QHXURORJLF V\PSWRPV DQG DGGV GLIIXVH HIIHFWV WR WKH IRFDO V\PSWRP SLFWXUH 7KH
    GHJUHHWRZKLFKHGHPDPD\FRQWULEXWHWRWKHVHYHULW\RIV\PSWRPVLVSUREDEO\EHVWDSSUHFLDWHGZKHQ
    RQH VHHV WKH RIWHQ GUDPDWLF HIIHFWV RI FRUWLFRVWHURLGV ZKLFK FDQ UDSLGO\ VKULQN HGHPDVZROOHQ
    WLVVXHV6HYHUHO\FRQIXVHGSDWLHQWVZLWKVHULRXVLPSDLUPHQWVLQDOODVSHFWVRIEUDLQIXQFWLRQPD\LQ
    UHODWLYHO\VKRUWRUGHUUHWXUQWRDQDOHUWDQGUHVSRQVLYHVWDWHZLWKFRQWURORYHUPDQ\RIWKHIXQFWLRQV
    WKDWVHHPHGORVWHYHQKRXUVEHIRUH
    1HXUREHKDYLRUDO FKDQJHV LQ FDQFHU SDWLHQWV FDQ RFFXU DV FRJQLWLYH GHILFLWV PRRG GLVWXUEDQFHV
    EHKDYLRUDODOWHUDWLRQVGLPLQLVKHGDGDSWLYHFDSDFLWLHV HJVRPQROHQFHDSDWK\ORVVRIVSRQWDQHLW\ 
    DQG DQ\ FRPELQDWLRQ WKHUHRI 7KHVH FKDQJHV DUH FKDUDFWHULVWLF RI SDWLHQWV ZLWK KLJKJUDGH JOLRPD
    'URSFKR  0 .OHLQ HW DO   EXW DOVR RFFXU VXUSULVLQJO\ RIWHQ LQ SDWLHQWV ZLWK V\VWHPLF
    FDQFHUV HJVPDOOFHOOOXQJFDUFLQRPD DQGQRHYLGHQFHRIEUDLQPHWDVWDVHV &$ 0H\HUV %\UQH
    DQG.RPDNL 1HXUREHKDYLRUDOFKDQJHVWHQGWREHVXEWOHDWILUVWLQVLGLRXVLQWKHLUGHYHORSPHQW
    DQG PD\ IOXFWXDWH LQ VHYHULW\ SDUWLFXODUO\ HDUO\ RQ $ SDWLHQWߤV QHXUREHKDYLRUDO VWDWXV PD\ DFWXDOO\
    VLJQDO WKH H[WHQW WR ZKLFK FDUFLQRPD KDV LQILOWUDWHG WKH &16 QHXURSV\FKRORJLFDO IXQFWLRQ
    LQGHSHQGHQWO\SUHGLFWV VXUYLYDO LQ SDWLHQWV ZLWK UHFXUUHQW KLJKJUDGH JOLRPDV RYHU DQGDERYH ZKDW
    FDQEHJOHDQHGIURPNQRZLQJWXPRUKLVWRORJ\DQGQXPEHURIUHFXUUHQFHV &$0H\HUV+HVVHWDO
    57KRPDVHWDO 
    0RRG GLVRUGHUV SV\FKRWLF V\PSWRPV DQG SHUVRQDOLW\ FKDQJHV UDQJLQJ IURP GLVLQKLELWLRQ WR
    DSDWK\  DVVRFLDWHG ZLWK LQWUDFUDQLDO QHRSODVPV PD\ EH GLIILFXOW WR GLVHQWDQJOH IURP SULPDU\
    SV\FKLDWULF GLVRUGHUV 7KHVH QHXURSV\FKLDWULF V\PSWRPV DUH RIWHQ DVVRFLDWHG ZLWK GLVUXSWLRQ RI
    FRUWLFDO LQWHUFRQQHFWLRQV IURP OLPELF VWUXFWXUHV :HLW]QHU   )DWLJXH LV DOVR D VLJQLILFDQW
    SUREOHP IRU FDQFHU SDWLHQWV LQ VRPH FDVHV LW LV D GLUHFW HIIHFW RI WKH WXPRU EXW PRUH RIWHQ LW LV
    DVVRFLDWHG ZLWK FRJQLWLYH RU PRRG GLVWXUEDQFHV RU VWHPV IURP FDQFHU WUHDWPHQWV 9DOHQWLQH DQG
    0H\HUV   (PRWLRQDO GLVWUHVV DQG IDWLJXH RIWHQ FRQWULEXWH PRUH WR VXEMHFWLYH FRPSODLQWV RI
    LPSDLUHG FRJQLWLYH IXQFWLRQ LQ FDQFHU SDWLHQWV WKDQ GRHV REMHFWLYH QHXURSV\FKRORJLFDO LPSDLUPHQW
    &XOOHWDO DVPD\EHWKHFDVHLQSDWLHQWVZLWKQRQQHXURORJLFGLVRUGHUV YDQ'DPHWDO 

    &166\PSWRPV$ULVLQJIURP&DQFHU7UHDWPHQW
    &RPSRXQGLQJWKHGLUHFWHIIHFWVRIDEUDLQWXPRURQ&16IXQFWLRQDUHWKHDGYHUVHHIIHFWVDVVRFLDWHG
    ZLWKPDQ\FDQFHUWUHDWPHQWV LDWURJHQLFHIIHFWV  $QGHUVRQ+DQOH\HWDO*DQHWDO 7KH
    PHUH SUHVHQFH RI FDQFHU DQ\ZKHUH LQWKH ERG\ DQGLWV WUHDWPHQW PD\ KDYH QHXURFRJQLWLYH VHTXHODH
    .HVOHU%HQQHWWHWDO<DPDGDHWDO 

    5DGLDWLRQWKHUDS\

    7ZHQW\ILYH WR  RI SDWLHQWV XQGHUJRLQJ HLWKHU WKHUDSHXWLF RU SURSK\ODFWLF UDGLDWLRQ WKHUDS\
    GHYHORS UDGLDWLRQDVVRFLDWHG HQFHSKDORSDWK\ -5 &URVVHQ HW DO   DQG DV PDQ\ DV  PD\
    KDYH VRPH FRJQLWLYH G\VIXQFWLRQ 'LHWULFK HW DO   :KROH EUDLQ LUUDGLDWLRQ FDQ SURGXFH DFXWH
    HIIHFWV LH WUDQVLHQW FRQIXVLRQ DQG ZRUVHQLQJ QHXURORJLFDO IXQFWLRQ GXULQJ UDGLDWLRQ WKHUDS\
    SUHVXPDEO\ GXH WR HGHPD  1H[W PD\ FRPH ߧHDUO\ GHOD\HG HIIHFWVߨFRQVLVWLQJ RI D GLPLQXWLRQ RI
    FRJQLWLYHDQGIXQFWLRQDOVWDWXVZLWKLQWKHILUVWZHHNVDQGPRQWKVDIWHUWUHDWPHQWߟXVXDOO\DWWULEXWHGWR
    WUDQVLHQWFHUHEUDOGHP\HOLQDWLRQDQGWKHQߧODWHGHOD\HGHIIHFWVߨDVVRFLDWHGZLWKVHYHUHGHP\HOLQDWLRQ
    DQG QHFURVLV LH D SURJUHVVLYH VXEFRUWLFDO GHPHQWLD PD\ GHYHORS PRQWKV WR \HDUV DIWHU WUHDWPHQW
    )LOOH\ 1HZWUHDWPHQWPRGDOLWLHVXQGHULQYHVWLJDWLRQKDYH\HWWRVKRZFRQYLQFLQJHYLGHQFHRI
    UHGXFWLRQLQWKHLUQHXURWR[LFLW\ZKLOHDWWDFNLQJWKHWXPRUHIIHFWLYHO\ $3HUU\DQG6FKPLGW 
    &HUHEUDO DWURSK\ LV FRPPRQ LQ SDWLHQWV WUHDWHG ZLWK UDGLDWLRQ WKHUDS\ DV DUH D YDULHW\ RI ZKLWH
    PDWWHU FKDQJHV 7- 3RVWPD HW DO  9LJOLDQL 'X\FNDHUWV HW DO   DQG QHXURSV\FKRORJLFDO
    GHILFLWV &KHXQJHWDO06+XD&KHQHWDO 7RWDOUDGLDWLRQGRVHLVWKHVWURQJHVWIDFWRU
    GHWHUPLQLQJWKHPDJQLWXGHRIZKLWHPDWWHUFKDQJHVDVZHOODVQHXURSV\FKRORJLFDOHIIHFWV &RUQHWDO
     &$ 0H\HUV *HDUD HW DO    6SHFLILF FRJQLWLYH IXQFWLRQV HJ UHWULHYDO IURP YHUEDO
    PHPRU\ PD\EHSDUWLFXODUO\YXOQHUDEOHWRDGYHUVHUDGLDWLRQWKHUDS\HIIHFWV &/$UPVWURQJ&RUQ
    HW DO  &/ $UPVWURQJ 6WHUQ DQG &RUQ   DV DUH FHUWDLQ SDWLHQW SRSXODWLRQV HJ \RXQJ
    FKLOGUHQ HOGHUO\ SHUVRQV SDWLHQWV ZLWK YDVFXODU ULVN IDFWRUV DQG SDWLHQWV UHFHLYLQJ FRQFRPLWDQW
    FKHPRWKHUDS\ :LWKUHYLVLRQVLQUDGLDWLRQWKHUDS\PHWKRGVDQGHOLPLQDWLRQRIFRQIRXQGLQJIDFWRUV
    WKHGHOD\HGHIIHFWVRIFUDQLDOLUUDGLDWLRQPD\EHPRUHWUDQVLHQWDQGPRUHFLUFXPVFULEHGWKDQLQLWLDO
    VWXGLHVVXJJHVWHG 9LJOLDQL6LFKH]HWDO 
    &KHPRWKHUDS\
    0DQ\ RI WKH FXUUHQW FKHPRWKHUDS\ WUHDWPHQWV IRU LQWUDFUDQLDO QHRSODVPV DV ZHOO DV RWKHU IRUPV RI
    FDQFHULQFOXGLQJWKRVHZLWKRXWHYLGHQFHRI&16PHWDVWDVHVDUHWR[LFWRWKHFHQWUDOQHUYRXVV\VWHP
    LQGXFLQJZKLWHPDWWHUFKDQJHVDNLQWRWKRVHSURGXFHGE\UDGLDWLRQWKHUDS\ $KOHVHWDO 2OLQ
       &RJQLWLYH GHILFLWV KDYH EHHQ REVHUYHG ZLWK VWDQGDUG GRVH DV ZHOO DV KLJK GRVH V\VWHPLF
    UHJLPHQV HYHQ DIWHU FRPSOHWLRQ RI FKHPRWKHUDS\ 0DQ\ GLIIHUHQW FRJQLWLYH IXQFWLRQV PD\ EH
    LPSDLUHGLQFOXGLQJLQIRUPDWLRQSURFHVVLQJVSHHGPHPRU\H[HFXWLYHIXQFWLRQVSDWLDODELOLWLHVDQG
    VLPSOHDWWHQWLRQVSDQ $QGHUVRQ+DQOH\HWDO 1RWDOOSDWLHQWVDUHHTXDOO\DIIHFWHGVXJJHVWLQJ
    WKDW DV \HW XQLGHQWLILHG IDFWRUV UHODWHG WR WKH LQGLYLGXDO RU WR WKH WUHDWPHQW PD\ SUHGLVSRVH FHUWDLQ
    SDWLHQWVWRGHYHORSQHXURSV\FKRORJLFDOVHTXHODH
    0HWKRWUH[DWHZDVWKHILUVWDQWLFDQFHUPHGLFDWLRQWRSURGXFHGRFXPHQWHGQHXUREHKDYLRUDOFKDQJHV
    DOWKRXJK QXPHURXV F\WRWR[LF HJ ELVFKORURHWK\OQLWURVRXUHD FLVSODWLQ  LPPXQRVXSSUHVVLYH HJ
    F\FORVSRULQH ).  DQG DQWLPLFURELDO HJ DPSKRWHULFLQ %  PHGLFDWLRQVߟDQG FRPELQDWLRQVߟ
    KDYHVXEVHTXHQWO\EHHQREVHUYHGWRKDYHWKHVHHIIHFWV 'LHWULFKHWDO6FKDJHQHWDOYDQ
    'DPHWDO 0HWDVWDWLFFDQFHUSDWLHQWVWUHDWHGZLWKELRORJLFDOUHVSRQVHPRGLILHUVRUF\WRNLQHV
    LQWHUIHURQD WXPRU QHFURVLV IDFWRUD LQWHUOHXNLQ  DORQH RU LQ FRPELQDWLRQ PD\ EH HVSHFLDOO\
    YXOQHUDEOH$GYHUVHHIIHFWVRIF\WRNLQHVDSSHDUWREHOHVVDIXQFWLRQRIWKHGRVHDGPLQLVWHUHGLQDQ\
    RQH WUHDWPHQW WKDQ D IXQFWLRQ RI HLWKHU WKH URXWH RI DGPLQLVWUDWLRQߟLQWUDWKHFDO RU LQWUDYHQWULFXODU
    DGPLQLVWUDWLRQEHLQJDVVRFLDWHGZLWKWKHJUHDWHVWULVNߟRUWUHDWPHQWGXUDWLRQ WRWDOFXPXODWLYHGRVH
    &DSXURQ HW DO  &$ 0H\HUV    0RRG GLVWXUEDQFHV DUH DOVR FRPPRQ LQ SDWLHQWV
    XQGHUJRLQJ F\WRNLQH WUHDWPHQWߟSDUWLFXODUO\ WKRVH WUHDWHG ZLWK LQWHUIHURQD ZKLFK H[HUWV GLYHUVH
    HIIHFWVRQWKHQHXURHQGRFULQHV\VWHPQHXURWUDQVPLWWHUVDQGRWKHUF\WRNLQHSDWKZD\V /LFLQLRHWDO
     9DOHQWLQH 0H\HUV .OLQJ HW DO   )LQDOO\ RSLRLGVߟFRPPRQO\ XVHG WR FRQWURO WKH SDLQ
    DVVRFLDWHG ZLWK DGYDQFHG FDQFHUߟPD\ SURGXFH RU LQWHQVLI\ SUHH[LVWLQJ QHXUREHKDYLRUDO FKDQJHV
    LQFOXGLQJSV\FKRPRWRUVORZLQJPRRGDOWHUDWLRQVDQGLQH[WUHPHFDVHVKDOOXFLQDWLRQVRUGHOLULXP
    &OHPRQV36MRJUHQ7KRPVHQDQG2OVHQ 
    3V\FKRVWLPXODQWV PD\ EHQHILW SDWLHQWV ZKRVH FRJQLWLYH IXQFWLRQ LV FRPSURPLVHG UHJDUGOHVV RI
    ZKHWKHU WKHVH GHILFLWV VWHP IURP WKH EUDLQ WXPRU LWVHOI UDGLDWLRQ RU FKHPRWKHUDS\ WUHDWPHQWV
    GHVLJQHGWRHUDGLFDWHWKHWXPRURURSLRLGWUHDWPHQWVIRUFDQFHUSDLQ &$0H\HUV:HLW]QHUHWDO
     5R]DQV HW DO   $WWHQWLRQDO UHKDELOLWDWLRQ KDV DOVR VKRZQ EHQHILWV LQ VXUYLYRUV RI
    FKLOGKRRGFDQFHU 5:%XWOHUDQG&RSHODQG 

    2;<*(1'(35,9$7,21
    :KHQ R[\JHQ GHSULYDWLRQ LV VXIILFLHQWO\ VHYHUH DQG ODVWV ORQJ HQRXJK LW SURGXFHV PHQWDO FKDQJHV
    $QR[LDUHIHUVWRDFRPSOHWHDEVHQFHRIDYDLODEOHR[\JHQLQK\SR[LFFRQGLWLRQVR[\JHQDYDLODELOLW\LV
    UHGXFHGLQDQR[HPLDWKHEORRGVXSSO\ODFNVR[\JHQ$QR[LDDQGDQR[HPLDRFFXUDVDUHVXOWRIDFXWH
    R[\JHQGHSULYLQJFRQGLWLRQVZKLFKPD\EHIDWDOLIWKH\ODVWORQJHUWKDQILYHWRWHQPLQXWHV+\SR[LD
    LVGLVWLQFWIURPLVFKHPLD7KHODWWHUUHIHUVWRUHGXFHGEORRGIORZWKDWDIIHFWVWKHGHOLYHU\RIJOXFRVH
    DQG RWKHU VXEVWDQFHV LQ DGGLWLRQ WR R[\JHQ DV ZHOO DV WKH UHPRYDO RI PHWDEROLF E\SURGXFWV VHH S
      'XULQJ DQ K\SR[LD HSLVRGH FHUHEUDO EORRG IORZ FRQWLQXHV DQG RQO\ R[\JHQ OHYHO LV DOWHUHG
    0L\DPRWRDQG$XHU %ULHIK\SR[LDZLWKRXWLVFKHPLDPD\EHUHODWLYHO\EHQLJQ 6LPRQ 
    6HYHUHK\SR[LDFDQUHVXOWLQEUDLQGDPDJHDFXWHO\EXWORZHUOHYHOVRIR[\JHQGHSULYDWLRQDUHDOVR
    DVVRFLDWHG ZLWK EUDLQ GDPDJH LI WKH K\SR[LF HSLVRGHV FRQWLQXH RU IUHTXHQWO\ UHFXU *LEVRQ HW DO
    /LPDQG9HDVH\5RZ 
    7KHEUDLQLVPRUHR[\JHQGHSHQGHQWWKDQPDQ\RWKHUWLVVXHV7KHKLSSRFDPSXVEDVDOJDQJOLDDQG
    FHUHEUDOFRUWH[DUHSDUWLFXODUO\YXOQHUDEOHWRR[\JHQGHSULYDWLRQ 'L3DRODHWDO'&DLQHDQG
    :DWVRQ WKLVLVGXHLQVRPHPHDVXUHWRWKHLUGLVWDOORFDWLRQLQYDVFXODUGLVWULEXWLRQ VHH)LJ
     S   ,Q DGGLWLRQ WR VPDOOHU KLSSRFDPSDO YROXPHV SDWLHQWV ZKR VXUYLYH PRGHUDWH WR VHYHUH
    DQR[LDIURPSURORQJHGFDUGLDFDUUHVWORVHFHUHEUDOJUD\PDWWHU -6$OOHQHWDO 3(7VWXGLHV
    'H9ROGHU HW DO   DQG &7 VFDQQLQJ 7LSSLQ HW DO   KDYH DOVR GHPRQVWUDWHG ERWK FRUWLFDO
    GDPDJHDQGVXEFRUWLFDOOHVLRQVLQWKHFHUHEHOOXPLQYHU\VHYHUHO\LPSDLUHGSDWLHQWV%HFDXVHRIWKH
    EUDLQߤVYDVFXODUGLVWULEXWLRQDQGPHWDEROLFQHHGVDQR[LFEUDLQLQMXU\LVELODWHUDODIIHFWLQJWKHPRVW
    R[\JHQGHSHQGHQWVWUXFWXUHV VHH)LJ 

    ),*85(7KH05,RQWKHOHIWVKRZVELODWHUDOLVFKHPLFK\SR[LFLQMXU\WRWKHJOREXVSDOOLGXVFKDUDFWHULVWLFRIDFXWHDQR[LFEUDLQ
    LQMXU\RQWKHGD\RILQMXU\ '2, 7KHLPDJHVRQWKHULJKWVKRZWKHODWHUHYROYLQJGLIIXVHHIIHFWVRIDQR[LFLQMXU\DVZHOO

    $FXWH2[\JHQ'HSULYDWLRQ
    0HGLFDOHPHUJHQFLHV

    $OPRVWDOOSHUVRQVVXUYLYLQJILYHRUPRUHPLQXWHVRIFRPSOHWHR[\JHQGHSULYDWLRQRUPLQXWHVRI
    ߧVXEVWDQWLDOߨK\SR[LD VXVWDLQ SHUPDQHQW EUDLQ GDPDJH -1 :DOWRQ   %HFDXVH RI WKH
    YXOQHUDELOLW\ RI PHGLDO WHPSRUDO OREH DQG OLPELF VWUXFWXUHV LQ DQR[LD SDWLHQWV ZKR GR QRW EHFRPH
    SHUPDQHQWO\FRPDWRVHW\SLFDOO\LQFXULPSDLUHGOHDUQLQJDELOLW\ZLWKQRUPDOUHWULHYDORILQIRUPDWLRQ
    VWRUHG SULRU WR WKH HYHQW -6 $OOHQ HW DO  'L 3DROD &DOWDJLURQH HW DO  'L 3DROD
    0RVFDWHOOLHWDO ([HFXWLYHIXQFWLRQVDQGPRWRUGHILFLWVDUHRIWHQLPSOLFDWHG /LP$OH[DQGHU
    HWDO ,QYROYHPHQWRIRWKHUFRJQLWLYHIXQFWLRQVYDULHVJUHDWO\DVPDQ\SHUVRQVUHPDLQLQWDFW
    EXWRWKHUVSUHVHQWHYLGHQFHRIFRUWLFDOGDPDJHVXFKDVDQRPLDRUDSUD[LD HJVHH52+RSNLQVDQG
    +DDODQG   6XEFRUWLFDO VWUXFWXUHV WRR PD\ EH DIIHFWHG 52 +RSNLQV DQG %LJOHU   $
    UHYLHZRILQGLYLGXDOFDVHUHSRUWVIRXQGWKDWKDGPHPRU\GLVWXUEDQFHKDGSHUVRQDOLW\
    DQG EHKDYLRUDO FKDQJHV DQG  KDG YLVXRVSDWLDO RU YLVXDO UHFRJQLWLRQ SUREOHPV ' &DLQH DQG
    :DWVRQ 7KHGHJUHHRIQHXURSV\FKRORJLFDOLPSDLUPHQWW\SLFDOO\FRUUHVSRQGVWRWKHGHJUHHRI
    EUDLQFKDQJHVVHHQRQTXDQWLWDWLYH05,DQDO\VLV 52+RSNLQV7DWHDQG%LJOHU 
    &DUGLDF DQG UHVSLUDWRU\ IDLOXUH DUH SUREDEO\ WKH PRVW XVXDO FRQGLWLRQV OHDGLQJ WR DFXWH R[\JHQ
    GHSULYDWLRQ 52 +RSNLQV DQG +DDODQG  9ROSH DQG +LUVW    &RJQLWLYH LPSDLUPHQWV
    IROORZLQJRXWRIKRVSLWDOFDUGLDFDUUHVWDUHRIWHQSHUVLVWHQW 'U\VGDOHHWDO $QHVWKHVLDQHDU
    GURZQLQJ DFFLGHQWV DQG IDLOHG KDQJLQJ DUH RWKHU FDXVHV RI DFXWH R[\JHQ GHSULYDWLRQ 7KHVH
    FRQGLWLRQV DUH PRUH OLNHO\ WR FDXVH EUDLQ LQMXU\ WKDQ FDVHV RI SXUH K\SR[LD EHFDXVH WKH\ LQYROYH
    UHGXFHG EORRG IORZ 0L\DPRWR DQG $XHU   ,QWHUHVWLQJO\ FDVHV RI QHDU GURZQLQJ ZLWK
    VXEPHUVLRQLQIULJLGZDWHUVIRUVXEVWDQWLDOSHULRGVRIWLPHKDYHKDGDUHODWLYHO\IDYRUDEOHRXWFRPH
    EHFDXVHFROGQHVVUHGXFHGPHWDEROLFUHTXLUHPHQWV 52+RSNLQV6. +XJKHVHWDO+
    6DPXHOVRQHWDO 
    6RFLDO FRPSHWHQF\ FDQ EH FRPSURPLVHG DV ZDV WKH FDVH ZLWK WZR SURIHVVLRQDO PHQ H[DPLQHG
    DIWHUDQHVWKHVLDDFFLGHQWV PGO %RWKVXVWDLQHGPHPRU\SUREOHPVEXWWKHLUVRFLDOFULSSOLQJUHVXOWHG
    PRUHIURPUHGXFHGVSRQWDQHLW\LPSDLUHGSODQQLQJDELOLW\GLPLQLVKHGVHOIFRQWURODQGGHWHULRUDWLRQ
    LQJURRPLQJDQGVRFLDOKDELWVWKDQWKHLUPHPRU\GLVRUGHUV

    +\SR[LDDWKLJKDOWLWXGHV

    $FXWH WUDQVLHQW HIIHFWV RI R[\JHQ GHSULYDWLRQ LQ KLJK DOWLWXGH HQYLURQPHQWV KDYH EHHQ VWXGLHG LQ
    DLUSODQHSLORWVZKRDVFHQGUDSLGO\DQGPRXQWDLQHHUVZKRVHDVFHQWLVJUDGXDO+HDGDFKHQDXVHDDQG
    YRPLWLQJPD\DFFRPSDQ\LQFUHDVLQJPHQWDOGXOOLQJGLPLQLVKHGDOHUWQHVVZLWKORVVRIQRUPDOVHOI
    SURWHFWLYHUHVSRQVHVDQGDIIHFWLYHGLVWXUEDQFHVVXFKDVHXSKRULDRULUULWDELOLW\ /LVKPDQ0DD
     7UDQVLHQWGHILFLWVRQDV\PEROVXEVWLWXWLRQWDVNDQGLQPRWRUVSHHGDSSHDUHGZKHQIRUEULHI
    SHULRGVQRUPDOVXEMHFWVZHUHH[SRVHGWRR[\JHQOHYHOVFRPSDUDEOHWRWKRVHDWߞPHWHUV
    DERYH VHD OHYHO YLJLODQFH YHUEDO IOXHQF\ DQG LPPHGLDWH PHPRU\ UHPDLQHG LQWDFW '75 %HUU\
    0F&RQQHOOHWDO ,QDVWXG\RI0RXQW(YHUHVWFOLPEHUVWKHWLPHQHHGHGWRFRPSUHKHQGVLPSOH
    VSRNHQVHQWHQFHVLQFUHDVHGE\DVWKH\DVFHQGHG 3/LHEHUPDQHWDO 
    &KURQLF LPSDLUPHQWV LQ VKRUWWHUP PHPRU\ PHQWDO IOH[LELOLW\ DQG FRQFHQWUDWLRQ VKRZHG XS LQ
    ILYH RI HLJKW ZRUOGFODVV KLJK PRXQWDLQ DERYH  PHWHUV ZLWKRXW R[\JHQ  FOLPEHUV WKH WKUHH
    PRVWLPSDLUHGKDGDEQRUPDO((*ILQGLQJVLQYROYLQJIURQWDODQGWHPSRUDODUHDV 5HJDUG2HO]HWDO
     2WKHUVWXGLHVIRXQGVLPLODUHIIHFWVLQFOLPEHUVDWKLJKDOWLWXGHVZKRDFXWHO\VXVWDLQHGUHGXFHG
    YHUEDODQGYLVXDOPHPRU\SHUIRUPDQFHVPRWRUVORZLQJ ILQJHUWDSSLQJ DQGPLOGYHUEDOH[SUHVVLYH
    GHILFLWV +RUQEHLQHWDO6DUQTXLVWHWDO7RZQHVHWDO 2QIROORZXSH[DPLQDWLRQV
    PRQWKVODWHUGHOD\HG PLQ YHUEDOUHFDOOLPSURYHGVLJQLILFDQWO\DVGLGYHUEDOIOXHQF\EXWUDWH
    RI YHUEDO OHDUQLQJ UHPDLQHG VORZHG DV GLG PRWRU VSHHG ,QVXIILFLHQW EUDLQ R[\JHQDWLRQ GHFUHDVHG
    &%) DQGߟLQ H[SHULHQFHG PRXQWDLQHHUV ZLWK KLJK KHPDWRFULW OHYHOVߟLQFUHDVHG EORRG YLVFRVLW\
    DSSHDUHGWRFRQWULEXWHWRWKHQHXURSV\FKRORJLFDOGHILFLWV
    <DQDQGFRZRUNHUV  FRPSDUHGKLJKDOWLWXGHGZHOOHUVLQ&KLQDZLWKPDWFKHGVXEMHFWVDWVHD
    OHYHO DVVHVVLQJ YHUEDO ZRUNLQJ PHPRU\ LQ DVVRFLDWLRQ ZLWK I05, DFWLYDWLRQ WKRVH IURP KLJK
    DOWLWXGHVKDGQRWRQO\UHGXFHGYHUEDOPHPRU\SHUIRUPDQFHEXWGHFUHDVHG%2/'VLJQDODFWLYDWLRQLQ
    DQXPEHURIUHJLRQVLQFOXGLQJWKHWKDODPXV7KHLPSDFWWKDWSUHVXPHGK\SR[LDDWKLJKDOWLWXGHVFDQ
    KDYH RQ QHXURSV\FKRORJLFDO IXQFWLRQ YDULHV ZLWK DOWLWXGH DQG LQFOXGHV GHILFLWV LQ YHUEDO IOXHQF\
    ODQJXDJH SURGXFWLRQ DQG WKH H[SHFWHG SUREOHPV ZLWK VKRUWWHUP PHPRU\ 9LUX«V2UWHJD HW DO
     

    &KURQLF2[\JHQ'HSULYDWLRQ
    7KH PRVW XVXDO PHGLFDO FRQGLWLRQ XQGHUO\LQJ FKURQLF K\SR[LD LV FKURQLF REVWUXFWLYH SXOPRQDU\
    GLVHDVH &23'  %UXFHHWDO'RQDJK\52+RSNLQV DOVRUHIHUUHGWRDVFKURQLF
    DLUIORZREVWUXFWLRQ &$2  3ULJDWDQR :ULJKW DQG /HYLQ    $V D JURXS SDWLHQWV ZLWK &23'
    WHQG WR VKRZ VPDOO EXW ZLGHUDQJLQJ LPSDLUPHQWV ZKLFK DIIOLFW HYHQ PLOGO\ K\SR[LF SDWLHQWV DQG
    LQFUHDVHZLWKKHLJKWHQHGVHYHULW\RIWKHLUK\SR[LFFRQGLWLRQ %UXFHHWDO,*UDQW3ULJDWDQRHW
    DO   7KDNXU DQG FROOHDJXHV   DIWHU H[DPLQLQJ D ODUJH FRKRUW RI &23' SDWLHQWV Q
     FRQFOXGHGWKDWߧ&23'LVDPXOWLV\VWHPGLVHDVHZLWKH[WUDSXOPRQDU\VHTXHODH,WLVVWURQJO\
    DVVRFLDWHGZLWKDQLQFUHDVHGULVNRIFRJQLWLYHLPSDLUPHQWHVSHFLDOO\DPRQJK\SR[HPLFSDWLHQWVߨ S
     
    ,PSDLUPHQWV KDYH EHHQ IRXQG LQ SHUFHSWXRPRWRU DQG VLPSOH PRWRU VNLOOV DEVWUDFWLRQ H[HFXWLYH
    IXQFWLRQ DQG OHDUQLQJ DQG PHPRU\ DELOLWLHV , *UDQW +HDWRQ 0F6ZHHQ\ HW DO  3ULJDWDQR
    3DUVRQV HW DO    0RVW OLNHO\ WR EH DIIHFWHG DUH FRPSOH[ DWWHQWLRQ VSHHG RI SURFHVVLQJ
    LQIRUPDWLRQPHPRU\ )DYDOOLHWDO0.OHLQHWDO6WXVV3HWHUNLQ*X]PDQHWDO
    DQGFRQVWUXFWLRQDO DELOLWLHV $QWRQHOOL,QFDO]L HW DO   3URORQJHG R[\JHQWKHUDS\ PD\ SDUWLDOO\
    DPHOLRUDWHWKHVHSDWLHQWVߤFRJQLWLYHGHILFLWVRUDWOHDVWKDOWWKHSURJUHVVLRQRIFRJQLWLYHGHWHULRUDWLRQ
    LQWKRVHZKRDUHPRUHVHYHUHO\K\SR[LF +HDWRQ*UDQW0F6ZHHQ\HWDO.R]RUDHWDO 
    5HJDUGOHVV RI WKH GHJUHH RI WKHLU K\SR[LD WKHVH SDWLHQWV UHSRUW D GLPLQLVKHG TXDOLW\ RI OLIH ZLWK D
    UHODWLYHO\ JUHDW DPRXQW RI HPRWLRQDO GLVWUHVV VKRZLQJ XS SDUWLFXODUO\ DV GHSUHVVLRQ DQG VRPDWLF
    SUHRFFXSDWLRQV &XOO\HWDO0F6ZHHQ\*UDQWHWDO2]JHHWDO 
    $FXWH UHVSLUDWRU\ GLVWUHVV V\QGURPH UHVXOWLQJ IURP YDULRXV IRUPV RI LQMXULHV WR WKH OXQJV PD\
    OHDYH VXUYLYRUV ZLWK FKURQLF SXOPRQDU\ ILEURVLV SXOPRQDU\ IXQFWLRQ DEQRUPDOLWLHV DQG FRJQLWLYH
    LPSDLUPHQW $W RQH \HDU IROORZLQJ DFXWH RQVHW RI WKLV FRQGLWLRQ  RI SDWLHQWV KDG FRJQLWLYH
    VHTXHODHDQGKDGPLOGWRPRGHUDWHV\PSWRPVRIGHSUHVVLRQDQGDQ[LHW\ 52+RSNLQV:HDYHU
    HWDO ,QWKLVJURXSORZTXDOLW\RIOLIHZDVUHODWHGWRGHSUHVVLRQDQGDQ[LHW\EXWQRWWRFRJQLWLYH
    VHTXHODH
    &KURQLF K\SR[LD FDQ DOVR RFFXU LQ VOHHS DSQHD LQ ZKLFK EUHDWKLQJ IUHTXHQWO\ VWRSV IRU WHQ RU
    PRUHVHFRQGVDWDWLPHDQGPRUHWKDQWHQWLPHVDQKRXUGXULQJVOHHS 52+RSNLQVDQG%LJOHU
    7VDL  6OHHS DSQHD W\SLFDOO\ RFFXUV LQ RYHUZHLJKW SHRSOH DQG LQ PHQ ߞ LQ WKH
    JHQHUDO SRSXODWLRQ  PRUH WKDQ ZRPHQ ߞ  3DWLHQWV UHSRUW H[FHVVLYH GD\WLPH VOHHSLQHVV
    GHSUHVVLRQDQGDWWHQWLRQDQGFRQFHQWUDWLRQSUREOHPV $ORLDHWDO 7KHVHSDWLHQWVWRRPD\KDYH
    FRJQLWLYHGHILFLWVߟSDUWLFXODUO\RQYLVXDOPHPRU\DQGVSHHGHGWDVNVߟDVVRFLDWHGZLWKWKHGHJUHHRI
    K\SR[LD '75%HUU\:HEEHWDO ,PSDLUHGVKRUWWHUPPHPRU\DQGRUORQJWHUPPHPRU\
    DQGRU YLVXRVSDWLDO SHUIRUPDQFHV ZHUH IRXQG LQ DSSUR[LPDWHO\ WKUHHIRXUWKV RI D JURXS RI 
    SHUVRQV VXIIHULQJ IURP VOHHS DSQHD .DOHV HW DO   $WWHQWLRQDO SUREOHPV DUH FRPPRQ ZKLOH
    ODQJXDJHDQGNQRZOHGJHDQGVNLOOEDVHGFRJQLWLRQDUHXVXDOO\VSDUHG $ORLD HW DO  5HSRUWHG
    H[HFXWLYHG\VIXQFWLRQPD\EHUHODWHGWRFRPSOH[DWWHQWLRQDOSUREOHPV %UXFHHWDO 
    7KHVHSDWLHQWVDOVRKDYHVOHHSIUDJPHQWDWLRQGXHWRDSQHLFHYHQWVWKURXJKRXWWKHQLJKWWKDWGLVUXSW
    VOHHS $Q LQYHVWLJDWLRQ RI WKH UROH RI VOHHS LQ VOHHS DSQHD SDWLHQWV FRQFOXGHG WKDW FRJQLWLYH
    G\VIXQFWLRQ FRXOG EH DWWULEXWHG WR WKH GLVWXUEHG VOHHS 9HUVWUDHWHQ HW DO    6RPQROHQFH
    GHSUHVVLRQ DQG JHQHUDO PDODLVH DUH SUREOHPV IRU PDQ\ VOHHS DSQHD VXIIHUV 7UHDWPHQW ZLWK
    FRQWLQXRXV SRVLWLYH DLUZD\ SUHVVXUH FDQ KHOS DPHOLRUDWH FRJQLWLYH GHILFLWV %UXFH HW DO 
    9DOHQFLD)ORUHV HW DO   %«GDUG DQG KLV FRZRUNHUV   LGHQWLILHG LPSDLUPHQWV LQ SODQQLQJ
    DQGRUJDQL]LQJDELOLWLHVDQGLQPDQXDOGH[WHULW\DVWKRVHOHDVWOLNHO\WRUHVROYHZLWKWUHDWPHQW

    &DUERQ0RQR[LGH3RLVRQLQJ
    ,Q FDUERQ PRQR[LGH &2  SRLVRQLQJ R[\JHQ GHSULYDWLRQ RFFXUV DV &2 VXSSODQWV R[\JHQ LQ WKH
    EORRGVWUHDP2[\JHQZLOODOZD\VORVHLQWKHUDFHIRUELQGLQJVLWHVLQKHPRJORELQDV&2ߤVDIILQLW\IRU
    WKHVHVLWHVLVDERXWWLPHVJUHDWHU /.:HDYHU %UDLQGDPDJHDSSHDUVWREHFHQWHUHGLQWKH
    JOREXVSDOOLGXVDUHDRIWKHEDVDOJDQJOLDEXWLWPD\DOVRLQYROYHWKHFHUHEUDOFRUWH[KLSSRFDPSXV
    FHUHEHOOXP DQG IRUQL[ &U\VWDO DQG *LQVEHUJ  .HVOHU +RSNLQV HW DO  &5 5H\QROGV
    +RSNLQV DQG %LJOHU   +RZHYHU RQH VWXG\ IRXQG WKDW RQO\  RXW RI  VXEMHFWV KDG JOREXV
    SDOOLGXV OHVLRQV 5% 3DUNLQVRQ +RSNLQV HW DO   'HFUHDVHG PHWDEROLF DFWLYLW\ SULPDULO\
    LQYROYLQJ IURQWDO OREH VWUXFWXUHV EXW DOVR WHPSRUDO OREH DUHDV KDV EHHQ UHSRUWHG 3LQNVWRQ HW DO
      ,PDJLQJ VWXGLHV KDYH DOVR LQGLFDWHG WKDW GHP\HOLQL]DWLRQ FDQ RFFXU /LQ HW DO  5%
    3DUNLQVRQHWDO36KDUPD(HVDDQG6FRWW ZKLFKLQPLOGFDVHVFDQEHDV\PSWRPDWLF
    )LOOH\   $ FRPSDULVRQ RI ZKLWH PDWWHU DEQRUPDOLWLHV RQ 05, IRXQG WKDW FHQWUXP VHPLRYDOH
    K\SHULQWHQVLWLHV ZHUH DVVRFLDWHG ZLWK FRJQLWLYH LPSDLUPHQWV ZKLOH QR DVVRFLDWLRQ ZDV IRXQG ZLWK
    SHULYHQWULFXODUDEQRUPDOLWLHV 5%3DUNLQVRQ+RSNLQVHWDO 
    $FXWH &2 SRLVRQLQJ HIIHFWV EHJLQ ZLWK GLVRULHQWDWLRQ KHDGDFKH D UDFLQJ KHDUWEHDW GL]]LQHVV
    IDLQWLQJDQGVRPQROHQFHDQGLIVXIILFLHQWO\VHYHUHWKHSDWLHQWGHWHULRUDWHVLQWRFRPDDQGGHDWK0LOG
    UHVLGXDO SUREOHPV DIIHFWLQJ FRJQLWLRQ DUH FRPPRQ DQG PD\ LQFOXGH LPSDLUHG DWWHQWLRQ SURFHVVLQJ
    VSHHGPHPRU\DQGH[HFXWLYHIXQFWLRQV *DOH+RSNLQVHWDO 'XQKDPDQG-RKQVWRQH 
    QRWHG WKH YDULDELOLW\ LQ V\PSWRP H[SUHVVLRQ HYHQ DPRQJ SHUVRQV ZLWK VLPLODU H[SRVXUH OHYHOV
    6HYHUHFKURQLFHIIHFWVPD\LQFOXGHV\PSWRPVRIERWKFRUWLFDODQGVXEFRUWLFDOLQYROYHPHQWLQFOXGLQJ
    DSUD[LDV DJQRVLDVFRUWLFDO EOLQGQHVV GHPHQWLD SDUDO\VLV 3DUNLQVRQOLNHPRYHPHQWGLVRUGHUV DQG
    LQFRQWLQHQFH$QHVWLPDWHGߞRIWKHVHSDWLHQWVZLOOKDYHFRQWLQXLQJYHUEDOPHPRU\SUREOHPV
    ZKLFKKDYHEHHQDVVRFLDWHGZLWKIRUQL[DWURSK\ .HVOHU+RSNLQVHWDO  6RPH &2 VXUYLYRUV
    PD\ XQGHUJR SHUVRQDOLW\ GHWHULRUDWLRQ FKDUDFWHUL]HG E\ ODELOLW\ LUULWDELOLW\ DQG LPSXOVLYLW\ '/
    -DFNVRQDQG0HQJHV.52OVRQ ,QDVWXG\RISDWLHQWVVL[PRQWKVDIWHU&2SRLVRQLQJ
    FRJQLWLYH LPSDLUPHQWV FRUUHODWHG ZLWK XQFRQVFLRXVQHVV JUHDWHU WKDQ  PLQ EXW QRW ZLWK
    SHULYHQWULFXODUZKLWHPDWWHUK\SHULQWHQVLWLHV 5%3DUNLQVRQHWDO $Q[LHW\DQGGHSUHVVLRQDUH
    FRPPRQDQGPD\EHLQGHSHQGHQWRISRLVRQLQJVHYHULW\ &$&KDPEHUVHWDO 2IRQHJURXSRI
    &2SRLVRQLQJSDWLHQWVPDGHVXLFLGHDWWHPSWV -DVSHUHWDO 
    $IDLUO\XQLTXHIHDWXUHRI&2SRLVRQLQJLVVHHQLQFRPDSDWLHQWVZKRKDGVHHPHGWRUHFRYHUZKHQ
    SHUVRQDOLW\ DOWHUDWLRQV PHQWDO GHWHULRUDWLRQ LQFRQWLQHQFH D JDLW GLVRUGHU DQG PXWLVP ZLWK IURQWDO
    UHOHDVHVLJQVDQGWKHPDVNHGIDFHVVHHQLQ3DUNLQVRQLVPDSSHDUDIWHUDSHULRG IRXUGD\VWRDVPXFK
    DVVL[ZHHNV RIVHHPLQJQRUPDOF\ &U\VWDODQG*LQVEHUJ.ZRQHWDO/RHWDO 
    7KLVGHWHULRUDWLRQLVDVVRFLDWHGZLWKVLJQLILFDQWFHUHEUDOGDPDJH 6XQJHWDO DQGZKLWHPDWWHU
    SDWKRORJ\6XFKUHODSVHVDUHUHODWLYHO\UDUH&U\VWDODQG*LQVEHUJ  UHSRUWRIFDVHV&5
    1RUULVDQGFROOHDJXHV  HVWLPDWHGWRIROORZLQJDFXWH&2H[SRVXUH7KHPDMRULW\RI
    WKHVH SDWLHQWV ZLOO LPSURYH VRPH WR QHDUQRUPDO IXQFWLRQLQJ ZLWKLQ D \HDU DIWHU WKH LQLWLDO UHODSVH
    &U\VWDODQG*LQVEHUJ 
    +RZHYHU %U\HU DQG KLV FROOHDJXHV   QRWHG WKDW SDWLHQWV ZKR DSSHDU WR KDYH ߧWRWDOO\
    UHFRYHUHGߨPD\DFWXDOO\KDYHVXVWDLQHGSHUPDQHQWVXEWOHQHXURSV\FKRORJLFDOGHILFLWV,QOLQHZLWKWKLV
    K\SRWKHVLV FRPSDULVRQ RI QHXURLPDJLQJ TXDQWLWDWLYH 05,  GRQH VL[ PRQWKV DIWHU H[SRVXUH ZLWK
    EDVHOLQHLPDJLQJVWXGLHVIRUDODUJHVHULHVRI&2H[SRVHGVXEMHFWVIRXQGJHQHUDOL]HGDWURSK\RIWKH
    FRUSXV FDOORVXP DQG IURP  WR  RI VXEMHFWV SHUIRUPHG DW ORZHU OHYHOV RQ RQH RU PRUH
    FRJQLWLYH WHVW 66 3RUWHU HW DO   $ FRPELQHG QHXURLPDJLQJ '7,  DQG QHXURSV\FKRORJLFDO
    VWXG\ UHSRUWHG WKDW FRJQLWLYH GHILFLWV DW WKUHH DQG WHQ PRQWKV SRVW H[SRVXUH FRUUHODWHG ZLWK ZKLWH
    PDWWHUDWURSK\ZLWKVLJQLILFDQWLPSURYHPHQWDWWKUHHPRQWKVEXWQRWDWWHQ &&&KDQJHWDO 

    0(7$%2/,&$1'(1'2&5,1(',625'(56
    0HWDEROLF GLVRUGHUVRI WKH EUDLQ DUH VHFRQGDU\WR SDWKRORJLFDOFKDQJHVWKDW RFFXU HOVHZKHUHLQ WKH
    ERG\ 0DQ\ RI WKH FHUHEUDO FRQFRPLWDQWV VKRZ XS DV WUDQVLHQW FRQIXVLRQ GHOLULXP RU GLVRUGHUHG
    FRQVFLRXVQHVVGXULQJDFXWHFRQGLWLRQVRIPHWDEROLFG\VIXQFWLRQ *RGZLQ$XVWHQDQG%HQGDOO
    5REEHU DQG 6DPXHOV   0HQWDO GLVWXUEDQFHV DUH XVXDOO\ JOREDO LQ QDWXUH ZLWK SDUWLFXODU
    LQYROYHPHQW RI DWWHQWLRQDO DQG PHPRU\ IXQFWLRQV UHDVRQLQJ DQG MXGJPHQW DUH DOVR RIWHQ DIIHFWHG
    3V\FKLDWULF GLVWXUEDQFHV WHQG WR EH D PRUH SURPLQHQW IHDWXUH RI HQGRFULQH GLVRUGHUV WKDQ DUH
    FRJQLWLYHLPSDLUPHQWV &RZOHVHWDO(UODQJHU7UHPRQWDQG'DYLV H[FHSWLQJGLDEHWHV
    ZKLFKKDVSURQRXQFHGFRJQLWLYHFRQVHTXHQFHV &6+ROPHV0RUJDQDQG3RZHOO 0RUHRYHU
    QRQ&16V\VWHPLFSDWKRORJLHVFDQLQLWLDWHLQIODPPDWRU\UHDFWLRQVWKDWDIIHFWEUDLQIXQFWLRQ 'DQW]HU
    DQG.HOOH\'DQW]HU2ߤ&RQQRUHWDO 

    'LDEHWHV0HOOLWXV '0
    :KHWKHU D FKLOG RU DQ DGXOW D SHUVRQ ZLWK GLDEHWHV LV DW LQFUHDVHG ULVN IRU FRJQLWLYH LPSDLUPHQW
    &XNLHUPDQHWDO/DPSRUWHWDO <RXQJDQGPLGGOHDJHGDGXOWVZLWKLQVXOLQGHSHQGHQW
    GLDEHWHV ULVN LPSDLUPHQWV LQ ZRUNLQJ PHPRU\ DQG SV\FKRPRWRU VORZLQJ ZKLOH ROGHU DGXOWV DUH
    OLNHO\WRH[SHULHQFHUHGXFHGSURFHVVLQJVSHHGDQGLPSDLUPHQWVLQYHUEDOOHDUQLQJDQGRWKHUDVSHFWV
    RI PHPRU\ DQG FRPSOH[ LQIRUPDWLRQ SURFHVVLQJ $ZDG HW DO  &6 +ROPHV 0RUJDQ DQG
    3RZHOO0HVVLHU 
    +DYLQJ REVHUYHG PRUH UHSHWLWLRQV RQ D YHUEDO IOXHQF\ WDVN 3HUOPXWHU +DNDPL DQG WKHLU
    FROOHDJXHV  UHSRUWHGWKDWSRRUHUVFRUHVRQDOHDUQLQJWHVWZHUHGXHWRLPSDLUHGUHWULHYDOUDWKHU
    WKDQ GHILFLHQW OHDUQLQJ DELOLW\ 2WKHUV KDYH QRWHG LPSDLUHG OHWWHU IOXHQF\ :DKOLQ HW DO    ,Q
    ROGHU DGXOWV GHILFLWV DSSHDUHG PRVWO\ RQ DWWHQWLRQDO DQG VKRUWWHUP PHPRU\ DQG OHDUQLQJ WHVWV
    8ߤ5HQ HW DO   'LDEHWLF ZRPHQ ZKR ZHUH DW OHDVW  \HDUV ROG SHUIRUPHG PRUH SRRUO\ WKDQ
    ROGHUZRPHQZLWKRXWWKHGLVHDVHRQDVKRUWEDWWHU\DVVHVVLQJSURFHVVLQJVSHHGSOXVDPRGLILHG0LQL
    0HQWDO 6WDWXV ([DPLQDWLRQ *UHJJ HW DO   7KH GLDEHWLF ZRPHQ KDG D JUHDWHU UDWH RI GHFOLQH
    ZKHQWHVWHGDJDLQDWOHDVWWKUHH\HDUVODWHU:RPHQZLWKGLDEHWHVIRUDWOHDVW\HDUVKDGDWKUHHIROG
    LQFUHDVHLQEDVHOLQHFRJQLWLYHLPSDLUPHQW
    7KHFULWLFDOYDULDEOHFRQWULEXWLQJWRWKHFRJQLWLYHG\VIXQFWLRQLQGLDEHWHVDSSHDUVWREHLPSDLUHG
    FRQWURORIJOXFRVHOHYHOVLQWKHEORRG &6+ROPHV0RUJDQDQG3RZHOO0F1D\ 3RRU
    JO\FHPLFFRQWURO ZLWKHSLVRGHVRIERWKK\SRDQGK\SHUJO\FHPLD KDVEHHQZHOOGRFXPHQWHGDVDULVN
    IDFWRUIRUFRJQLWLYHG\VIXQFWLRQLQGLDEHWLFSDWLHQWV .RGODQG6HDTXLVW0XVHQ :HVVHOV
    HWDO 
    :KHQ K\SRJO\FHPLF GLDEHWLFV GLVSOD\HG QRWDEOH VORZLQJ RQ FRPSOH[ UHDFWLRQ WLPH WHVWV &6
    +ROPHV .RHSNH DQG 7KRPSVRQ   UHGXFHG YHUEDO IOXHQF\ DQG QDPLQJ DELOLW\ &6 +ROPHV
    .RHSNH7KRPSVRQHWDO DQGVORZHGYLVXRPRWRUWUDFNLQJDQGVKLIWLQJ 5*+RIIPDQHWDO
      $ UHYLHZ IRXQG WKDW XQGHU K\SRJO\FHPLF FRQGLWLRQV PRVW FRPSOH[ WDVNV ZHUH DGYHUVHO\
    DIIHFWHG DQG VRPH FRJQLWLYH DELOLWLHV DUH FRPSOHWHO\ DEROLVKHG 5( :DUUHQ DQG )ULHU  
    6RPPHUILHOGDQGKLVFROOHDJXHV  UHSRUWHGWKDWDOOPHPRU\V\VWHPVZHUHLPSDLUHGGXULQJDFXWH
    K\SRJO\FHPLD ZLWK ZRUNLQJ DQG GHOD\HG PHPRU\ EHLQJ SDUWLFXODUO\ YXOQHUDEOH <HW K\SRJO\FHPLD
    GRHVQRWDSSHDUWRKDYHVXVWDLQHGFRJQLWLYHHIIHFWV 6&)HUJXVRQHWDO&6+ROPHV0RUJDQ
    DQG3RZHOO 7KHH[WHQWWRZKLFKK\SRJO\FHPLDDIIHFWVFRJQLWLYHIXQFWLRQVKDVEHHQTXHVWLRQHG
    %UDQGVDQG.HVVHOV DQGPHFKDQLVPVIRUVXFKHIIHFWVUHPDLQXQFOHDU
    &KURQLF K\SHUJO\FHPLD DW OHDVW IRU DGXOWV FDQ EH DQ LPSRUWDQW ULVN IDFWRU IRU FRJQLWLYH
    G\VIXQFWLRQ &05\DQ:LOOLDPVHWDO&05\DQ DOWKRXJKVRPHVWXGLHVIRXQGRQO\D
    QRQVLJQLILFDQWLPSDLUPHQWWUHQGRUQRLPSDLUPHQW 'UDHORVHWDO5*+RIIPDQHWDO 
    /DPSRUW DQG FRZRUNHUV   UHSRUWHG WKDW SRRU JOXFRVH WROHUDQFH ZDV DVVRFLDWHG ZLWK FRJQLWLYH
    LPSDLUPHQWV ZLWK GHFUHPHQWV LQ YHUEDO PHPRU\ EHLQJ PRVW SUHYDOHQW $ FOXVWHU RI PHWDEROLF DQG
    YDVFXODUULVNIDFWRUVVXFKDVG\VOLSLGHPLDDQGK\SHUWHQVLRQZKLFKDUHSUHGLFWRUVRIFHUHEURYDVFXODU
    GLVHDVHDQGDFFHOHUDWHGFRJQLWLYHGHFOLQHDQGGHPHQWLDSUREDEO\FRQWULEXWHWRWKHFRJQLWLYHGHILFLWV
    H[SHULHQFHGE\VRPDQ\GLDEHWLFV %LHVVHOV.HUVVHQHWDO%UDQGVDQG.HVVHOV 
    'LDEHWHVLVDPDMRUULVNIDFWRUIRUFDUGLRYDVFXODUDQGFHUHEURYDVFXODUGLVHDVHV -'+XEHU 
    'LDEHWLFVߤ UDWH RI KDYLQJ D VWURNH RU FRURQDU\ KHDUW GLVHDVH LV WZR WR WKUHH WLPHV JUHDWHU WKDQ
    QRQGLDEHWLF SHUVRQV 'H )OLQHV DQG 6FKHHQ  6WUDWPDQQ DQG 7VFKRHSH   5HYLHZV KDYH
    LGHQWLILHG GLDEHWHV DV WKH FDUGLRYDVFXODU ULVN IDFWRU PRVW FRQVLVWHQWO\ DVVRFLDWHG ZLWK FRJQLWLRQߟ
    PRUH VR IRU H[DPSOH WKDQ K\SHUWHQVLRQ DEQRUPDOO\ KLJK FKROHVWHURO OHYHOV DQG LQIODPPDWLRQ
    %HHULHWDO)LOOLWHWDOYDQGHQ%HUJ.ORSSHQERUJHWDO ,QDGGLWLRQGLDEHWHV
    PD\ LPSDLU FRJQLWLRQ DQG EUDLQ IXQFWLRQ GLUHFWO\ LQGHSHQGHQWO\ RI WKH FDUGLRYDVFXODU GLVHDVH
    IUHTXHQWO\DVVRFLDWHGZLWKWKHFRQGLWLRQ .RGO)UDQFHWDO6HOYDUDMDKDQG7HVID\H6WDUU
    DQG&RQYLW 
    0DQ\RIWKHFHQWUDOQHUYRXVV\VWHPFKDQJHVREVHUYHGLQGLDEHWLFSDWLHQWVDQGLQDQLPDOPRGHOVRI
    WKHGLVHDVHDUHVLPLODUWRFKDQJHVVHHQLQQRUPDODJLQJ7KLVKDVOHGWRDWKHRU\RIߧDGYDQFHGEUDLQ
    DJLQJߨLQ GLDEHWLF SHUVRQV :ULJKWHQ HW DO   7KH VORZO\ SURJUHVVLYH GHWHULRUDWLRQ RI EUDLQ
    IXQFWLRQ LQ GLDEHWLF SDWLHQWV KDV EHHQ WHUPHG ߧGLDEHWLF HQFHSKDORSDWK\ߨ FKDUDFWHUL]HG E\ PLOG WR
    PRGHUDWH LPSDLUPHQWV LQ FRJQLWLYH IXQFWLRQLQJ YDQ GHQ %HUJ .HVVHOV HW DO  VHH DOVR
    $UYDQLWDNLVHWDO 1RPDWWHUWKHODEHOGLDEHWLFVDUHDWLQFUHDVHGULVNIRUFRJQLWLYHLPSDLUPHQW
    GHPHQWLDDQGQHXURGHJHQHUDWLYHGLVHDVH GHOD0RQWHHWDO'XURQDQG+DQRQ 'LDEHWHV
    PD\ EH D ULVN IDFWRU IRU ERWK $O]KHLPHU ߤV GHPHQWLD DQG YDVFXODU GHPHQWLD %LHVVHOV DQG .DSSHOOH
     3DVTXLHU %RXORJQH HW DO  4LX .LYLSHOWR DQG YRQ 6WUDXVV HW DO   +RZHYHU WKH
    OLQNEHWZHHQGLDEHWHVDQG$O]KHLPHU ߤVGLVHDVHSHUVHUHPDLQVXQFHUWDLQ 6WDUUDQG&RQYLW DQG
    WKHPHFKDQLVPVDUHQRWZHOOGHILQHG 6WUDFKDQ5H\QROGVHWDO 
    7KHPDQ\DGYHUVHHIIHFWVRIGLDEHWHVWKDWFDQFRQWULEXWHWRQHXURGHJHQHUDWLYHFRQGLWLRQVLQFOXGH
    K\SHUJO\FHPLD LQVXOLQ UHVLVWDQFH R[LGDWLYH VWUHVV LQIODPPDWRU\ F\WRNLQHV DQG PLFURYDVFXODU DQG
    PDFURYDVFXODUGLVHDVH :KLWPHU &RPSOLFDWLQJWKHQHXURSV\FKRORJLFDOVWDWXVRIGLDEHWLFVDUH
    RWKHU IUHTXHQWO\ DVVRFLDWHG QHXURSDWKRJHQLF FRQGLWLRQV VXFK DV K\SHUWHQVLRQ DQG FHUHEURYDVFXODU
    GLVHDVH %RUQVWHLQ DQG .HOO\  *RGZLQ$XVWHQ DQG %HQGDOO  /LVKPDQ  
    DJHDVVRFLDWHGEUDLQFKDQJHVDQGGHSUHVVLRQ 9RQ'UDVDQG/LFKW\ 1HXURLPDJLQJVWXGLHVKDYH
    VKRZQDYDULHW\RISDWKRORJLFDOFRQVHTXHQFHVRIFKURQLF'0LQFOXGLQJSURJUHVVLYHFHUHEUDODWURSK\
    YDQ(OGHUHQHWDO DQGQRQVSHFLILFZKLWHPDWWHUFKDQJHV 9HUGHOKRHWDO 

    +\SRWK\URLGLVP 0\[HGHPD
    $V WKH EUDLQ LV DQ LPSRUWDQW WDUJHW RUJDQ IRU WKH WK\URLG KRUPRQH FKDQJHV LQ FRJQLWLYH DQG
    HPRWLRQDO IXQFWLRQLQJ FDQ RFFXU ZLWK WK\URLG JODQG G\VIXQFWLRQ HVSHFLDOO\ WK\URLG LQVXIILFLHQF\
    K\SRWK\URLGLVP  &RUUHLDHWDO/DVVHWDO6DPXHOV &RJQLWLYHGHWHULRUDWLRQLVD
    IDLUO\FRQVLVWHQWIHDWXUHRISURQRXQFHGWK\URLGLQVXIILFLHQF\ P\[HGHPD  %HFNZLWK 7KHRQVHW
    DQG GHYHORSPHQW RI FRJQLWLYH LPSDLUPHQWV LQ WKLV FRQGLWLRQ DUH XVXDOO\ VXEWOH DQG LQVLGLRXV 7KH
    SDWLHQW JUDGXDOO\ JDLQV ZHLJKW EHFRPHV VOXJJLVK DQG OHWKDUJLF DQG VXIIHUV FRQFHQWUDWLRQ DQG
    PHPRU\ GLVWXUEDQFHV *0 $EUDPV DQG -D\  'RFWRU   &RJQLWLYH GLVRUGHUV KDYH EHHQ
    HVWLPDWHG WR RFFXU LQ VRPH  RI FDVHV %RVZHOO HW DO   6SHFLILF YLVXRVSDWLDO LPSDLUPHQWV
    ZHUH GRFXPHQWHG LQ DGROHVFHQWV ZKR ZHUH K\SRWK\URLG DW ELUWK DQG GXULQJ YHU\ HDUO\ LQIDQF\
    DOWKRXJK YLVXDO UHFRJQLWLRQ ZDV LQWDFW /HQHPDQ HW DO   /RZ WK\URLG IXQFWLRQLQJ EXW VWLOO
    ZLWKLQWKHQRUPDOUDQJHKDVEHHQDVVRFLDWHGZLWKFRJQLWLYHLPSDLUPHQWLQROGHUDGXOWV %DGJLRDQG
    :RUGHQ(UODQJHU7UHPRQWDQG'DYLV9ROSDWRHWDO 
    3V\FKLDWULF GLVWXUEDQFHV VXFK DV KDOOXFLQDWLRQV SDUDQRLG LGHDWLRQ RU GHOLULXP FDQ RFFXU ZKHQ
    K\SRWK\URLGLVP LV VHYHUH *0 $EUDPV DQG -D\  'RFWRU    3V\FKLDWULF GLVRUGHUV
    LQFOXGLQJ DSDWKHWLF FRQGLWLRQV DQG GHPHQWLD DUH DOVR SURPLQHQW LQ K\SHUWK\URLGLVP /DVV HW DO
     7KLVFRQGLWLRQLVUHYHUVLEOHZLWKWK\URLGUHSODFHPHQWWKHUDS\ %DOGLQLHWDO &RZOHV HW
    DO 
    ,W KDV EHHQ VXJJHVWHG WKDW FRJQLWLYH G\VIXQFWLRQ LQ RYHUW RU VXEFOLQLFDO WK\URLG G\VIXQFWLRQ LV
    W\SLFDOO\ PLQRU DQG QRW OLNHO\ WR EH GLUHFWO\ UHODWHG WR WK\URLG G\VIXQFWLRQ PRUH FRPPRQO\ VXFK
    SDWLHQWV KDYH VLJQLILFDQW GLVWXUEDQFHV RI PRRG DQG DIIHFW HVSHFLDOO\ GHSUHVVLRQ DQG DQ[LHW\ ZKLFK
    FRXOG FRQWULEXWH WR FRJQLWLYH GHILFLWV 6DPXHOV   :KHWKHU VXEFOLQLFDO K\SR DQG
    K\SHUWK\URLGLVP KDYH PDMRU UHSHUFXVVLRQVߟHVSHFLDOO\ ORQJWHUPߟIRU FRJQLWLRQ DQG EHKDYLRU
    UHPDLQVXQFOHDUDQGPXFKGHEDWHG %LRQGLDQG&RRSHU -''DYLVDQG 7UHPRQW  0RVW
    VWXGLHVKRZHYHUGRVXSSRUWDOLQNEHWZHHQWK\URLGVWDWHDQGFRJQLWLRQWK\URLGG\VIXQFWLRQDSSHDUV
    WREHDVVRFLDWHGZLWKVORZHGLQIRUPDWLRQSURFHVVLQJVSHHGUHGXFHGOHDUQLQJDQGUHGXFHGHIILFLHQF\
    LQ H[HFXWLYH IXQFWLRQV DV ZHOO DV LQFUHDVHG VXVFHSWLELOLW\ WR GHSUHVVLRQ -' 'DYLV DQG 7UHPRQW
     
    $ VHSDUDWH FRQGLWLRQ LV +DVKLPRWRߤV HQFHSKDORSDWK\ D FRQWURYHUVLDO QHXURORJLFDO GLVRUGHU
    FRPSULVLQJ D KHWHURJHQHRXV FOXVWHU RI QHXURORJLFDO FRJQLWLYH DQG SV\FKLDWULF V\PSWRPV WKDW
    PDQLIHVW LQ SDWLHQWV ZLWK KLJK OHYHOV RI DQWLWK\URLG SHUR[LGDVH DQWLERGLHV &KDXGKXUL DQG %HKDQ
     0RFHOOLQ HW DO  6FKLHVV DQG 3DUGR   7KH FOLQLFDO SUHVHQWDWLRQ RI +DVKLPRWRߤV
    HQFHSKDORSDWK\ RIWHQ IROORZV D UHODSVLQJߞUHPLWWLQJ FRXUVH DQG FDQ LQYROYH VHL]XUHV VWURNHOLNH
    HSLVRGHV FRJQLWLYH LPSDLUPHQW SV\FKLDWULF V\PSWRPV PRYHPHQW GLVRUGHUV DQG P\RFORQXV DQG
    HYHQ FRPD 0RFHOOLQ HW DO  7DPDJQR HW DO   (YHQ WKRXJK WK\URLG IXQFWLRQ LQ WKLV
    FRQGLWLRQ LV XVXDOO\ FOLQLFDOO\ DQG ELRFKHPLFDOO\ QRUPDO UHVHDUFK SRLQWV WR D OLQN EHWZHHQ
    +DVKLPRWRߤV HQFHSKDORSDWK\ DQG DXWRLPPXQH WK\URLG GLVHDVH 6WLOO WKH HWLRORJ\ RI WKH GLVRUGHU
    UHPDLQV XQNQRZQ ZLWK QR SURYHQ DVVRFLDWLRQ EHWZHHQ WK\URLG GLVHDVH DQG WKH QHXURORJLFDO
    G\VIXQFWLRQ RI WKH GLVRUGHU )DWRXUHFKL   +DVKLPRWRߤV HQFHSKDORSDWK\ LV UHVSRQVLYH WR
    WUHDWPHQWZLWKVWHURLGVDQGRWKHUWKHUDSLHVVXFKDVSODVPDSKHUHVLVIXUWKHUVXSSRUWLQJWKHK\SRWKHVLV
    WKDWWKLVGLVRUGHULQYROYHVLPPXQHSDWKRJHQLFPHFKDQLVPV 6FKLHVVDQG3DUGR 

    /LYHU'LVHDVH
    $PRQJWKHPDQ\VRXUFHVIRUOLYHUGLVHDVHDUHLQIHFWLRQDOFRKRODQGRWKHUWR[LFDJHQWVDQGDYDULHW\
    RILGLRSDWKLFDQGLQKHULWHGPHWDEROLFGLVRUGHUV :+/HH 0DUVDQR  $EQRUPDOLWLHVRQ
    HOHFWURSK\VLRORJLFDOVWXGLHV ((*(53 DUHFRPPRQDQGDOVRDSSHDURQQHXURLPDJLQJ &DWDIDXHW
    DO6LQJKDOHWDO $VZRXOGEHH[SHFWHGLQDFRQGLWLRQZKLFKLQFUHDVHVWKHOHYHORIWR[LF
    EORRG VXEVWDQFHV DQG DIIHFWV EDVLF PHWDEROLF IXQFWLRQV PDQ\ SDWLHQWV GLVSOD\ DWWHQWLRQDO GLVRUGHUV
    :HLVVHQERUQ HW DO   DQG UHVSRQVH VORZLQJ ZLWK FRQFHSWXDO DQG PHPRU\ DELOLWLHV JHQHUDOO\
    SUHVHUYHG &$ 6WHZDUW HW DO   +RZHYHU DORQJ ZLWK FRQFHQWUDWLRQ GHILFLWV SDWLHQWV ZLWK
    SULPDU\ELOLDU\FLUUKRVLVDOVRDUHOLNHO\WRKDYHVLJQLILFDQWPHPRU\SUREOHPV 1HZWRQHWDO 
    *HQHUDOL]HG FRJQLWLYH LPSDLUPHQW RFFXUV DV ZHOO & 5DQGROSK +LOVDEHFN HW DO   UHODWHG LQ
    SDUWWRKRZDFXWHYHUVXVFKURQLFWKHOLYHUFRQGLWLRQPD\EH 36KDUPD6KDUPDHWDO 3DWLHQWV
    ZLWKOLYHUGLVHDVHPD\KDYHHVSHFLDOGLIILFXOW\ZLWKWDVNVFDOOLQJXSRQYLVXRVSDWLDODELOLWLHVLQVRPH
    SDWLHQWVMXGJPHQWPD\EHFRPHTXHVWLRQDEOH
    0LQLPDOKHSDWLFHQFHSKDORSDWK\ 0+( LVDPLOGIRUPRIWKHVSHFWUXPRIKHSDWLFHQFHSKDORSDWK\
    DQG D FRPPRQ HDUO\ VWDJH PDQLIHVWDWLRQ RI FLUUKRVLV RI WKH OLYHU DQG RWKHU OLYHU GLVHDVHV 'KLPDQ
    DQG &KDZOD    %\ GHILQLWLRQ 0+( SDWLHQWV KDYH QR REYLRXV FOLQLFDO V\PSWRPV EXW VXEWOH
    FRJQLWLYHLPSDLUPHQWVKRZVXSRQGHWDLOHGQHXURSV\FKRORJLFDODVVHVVPHQW &5DQGROSK+LOVDEHFN
    HW DO  &$ 6WHZDUW DQG 6PLWK   3DWLHQWV ZLWK VXVSHFWHG 0+( VKRXOG EH UHIHUUHG IRU
    FRPSUHKHQVLYHQHXURSV\FKRORJLFDOWHVWLQJ %DMDM 6HULDOQHXURSV\FKRORJLFDODVVHVVPHQWVFDQ
    KHOS WUDFN WUHDWPHQW HIILFDF\ 5( 2ߤ&DUUROO    $WWHQWLRQ GHILFLWV ZKLFK FDQ DGYHUVHO\ DIIHFW
    PHPRU\IXQFWLRQDUHDPRQJWKHPRVWFRPPRQQHXURSV\FKRORJLFDOPDQLIHVWDWLRQV
    ,QIHFWLRQ IURP WKH KHSDWLWLV & YLUXV +&9  LV FRPPRQ DIIHFWLQJ VRPH  RI WKH ZRUOGߤV
    SRSXODWLRQ DQGVRPH  PLOOLRQ $PHULFDQV FDQ DOVR LQYROYH WKH FHQWUDO QHUYRXV V\VWHP DQGOHDG WR
    FRJQLWLYH LPSDLUPHQW $FKDU\D DQG 3DFKHFR   7KH PRVW FRPPRQ SV\FKRORJLFDO SUREOHPV
    LQFOXGH IDWLJXH GHSUHVVLRQ DQG DQ[LHW\ DORQJ ZLWK FRJQLWLYH G\VIXQFWLRQ -& 6DXQGHUV   ,W
    ZDVORQJWKRXJKWWKDWWKHFRJQLWLYHG\VIXQFWLRQDVVRFLDWHGZLWK+&9ZDVGXHWRFLUUKRVLVDVVRFLDWHG
    KHSDWLF HQFHSKDORSDWK\ EXW PRUH UHFHQW HYLGHQFH LQGLFDWHV WKDW DERXW RQHWKLUG RI LQGLYLGXDOV ZLWK
    FKURQLF+&9KDYHFRJQLWLYHLPSDLUPHQWHYHQLQWKHDEVHQFHRIFLUUKRVLVRUDQ\RWKHUVLJQVRIOLYHU
    GLVHDVH :3HUU\HWDO 

    8UHPLD
    7KHQHXURSV\FKRORJLFDOHIIHFWVRIXUHPLFSRLVRQLQJZKLFKRFFXUVZLWKNLGQH\IDLOXUH DVVHHQIRU
    H[DPSOH LQ HQGVWDJH UHQDO GLVHDVH  DUH W\SLFDO RI WKH PHQWDO FKDQJHV DVVRFLDWHG ZLWK PHWDEROLF
    GLVRUGHUV $ SURJUHVVLYH GHYHORSPHQW RI OHWKDUJ\ DSDWK\ DQG FRJQLWLYH G\VIXQFWLRQ ZLWK
    DFFRPSDQ\LQJORVVRIVHQVHRIZHOOEHLQJWDNHVSODFHDVWKHXUHPLFFRQGLWLRQGHYHORSVDQGZRUVHQV
    0XUWDJKHWDO3OLVNLQHWDO :KLOHXQWUHDWHGUHQDOSDWLHQWVRIWHQVKRZJHQHUDOFRJQLWLYH
    GXOOLQJ UHQDO HQFHSKDORSDWK\  SURQRXQFHG GHILFLWV PD\ DSSHDU RQ WHVWV RI DWWHQWLRQ SV\FKRPRWRU
    VSHHG LPPHGLDWH UHFDOOߟERWK YLVXDO DQG YHUEDOߟDQG FRQVWUXFWLRQ DQG LQFUHDVH ZLWK GLVHDVH
    VHYHULW\ .XUHOODHWDO 'HILFLWVDSSHDUHVSHFLDOO\LQPHPRU\DVVHVVPHQWVDQGDUHSUHVHQWEXW
    OHVV VHYHUH RQ DWWHQWLRQ WHVWV 6¤QFKH]5RP¤Q HW DO   'HSUHVVLRQ HPRWLRQDO ZLWKGUDZDO DQG
    QHJDWLYLVPDUHFRPPRQSUREOHPVZLWKWKHVHSDWLHQWV /LVKPDQ3OLVNLQHWDO  (SLVRGHV
    RI FRPSURPLVHG FRQVFLRXVQHVV GHOLULXP RU KDOOXFLQDWLRQV RFFXU LQ DERXW RQHWKLUG RI SDWLHQWV
    DERXW RQHWKLUG KDYH VHL]XUHV :KHQ WKH GLVHDVH LV RXW RI FRQWURO SUREOHPV DVVRFLDWHG ZLWK DFXWH
    K\SHUWHQVLRQPD\IXUWKHUGLVUXSWPHQWDOIXQFWLRQLQJ
    7UHDWPHQWZLWKFKURQLFKHPRGLDO\VLVDSSHDUVWRLPSURYHFRJQLWLYHVWDWXVDVSDWLHQWVZKRXQGHUJR
    GLDO\VLV IXQFWLRQEHWWHUFRJQLWLYHO\ WKDQ XQGLDO\]HGSDWLHQWV -DVVDO HW DO  0DGDQ HW DO  
    <HWHYHQZLWKGLDO\VLVXUHPLDSDWLHQWVFRQWLQXHWRGLVSOD\SHUVLVWHQWPHPRU\DQGOHDUQLQJSUREOHPV
    DQGUHGXFHGPHQWDOIOH[LELOLW\ -1*HRUJHHWDO 7KDWVFRUHVRQPHPRU\DQGDWWHQWLRQWHVWVRI
    GLDO\]HG SDWLHQWV ZHUH DPRQJ WKH ORZHVW PD\ UHIOHFW WKHLU VHYHULW\ OHYHOV RQ EHJLQQLQJ GLDO\VLV
    6¤QFKH]5RP¤Q HW DO   0RUHRYHU LQWHUSUHWDWLRQ RI QHXURSV\FKRORJLFDO ILQGLQJV LV
    FRPSOLFDWHGE\WKHDVVRFLDWHGKLJKLQFLGHQFHRIK\SHUWHQVLRQDQGDWKHURVFOHURVLVLQWKHVHSDWLHQWV
    $OXPLQXPWR[LFLW\ZKLOHVWLOODIIHFWLQJVRPHGLDO\VLVSDWLHQWVLVQRORQJHUDVFRPPRQDSUREOHP
    DVLWRQFHZDV VHHSSߞ ,WKDVEHHQVXJJHVWHGWKDWLURQGHILFLHQF\FRPPRQLQSDWLHQWVZLWK
    FKURQLFNLGQH\GLVHDVHFRXOGEHDSULPDU\FRQWULEXWRUWRV\PSWRPVVXFKDVLPSDLUHGFRQFHQWUDWLRQ
    DQGHDV\PHQWDOIDWLJXH $JDUZDO 

    1875,7,21$/'(),&,(1&,(6
    7KH FRQWULEXWLRQV RI PDOQXWULWLRQ WR PHQWDO GHILFLHQFLHV LQ FKLOGUHQ DUH ZHOO NQRZQ DQG
    XQFRQWURYHUVLDO *UDQWKDP0F*UHJRU DQG$QLYRQ 6FKHQFNHWDO:DVDQWZLVXW
    :LQLFN ,PSDLUHGQXWULWLRQGXULQJFKLOGKRRGFDQKDYHORQJVWDQGLQJFRQVHTXHQFHVIRUKHDOWK
    DQGFRJQLWLYHSHUIRUPDQFH )DQMLDQJDQG.OHLQPDQ.\OHDQG3LFKDUG ,QDGXOWVWKHEHVW
    NQRZQRIWKHGLVRUGHUVRIQXWULWLRQDOGHILFLHQF\LV.RUVDNRIIߤVSV\FKRVLVDQGWKHUHODWHGYLWDPLQ%
    GHILFLHQF\GLVHDVHEHULEHUL (.LP.XHWDO/LVKPDQ5REEHUDQG6DPXHOV 7KH
    LPSRUWDQFHRIRWKHU%YLWDPLQVIRUWKHKHDOWKRIWKHQHUYRXVV\VWHPKDVEHHQLQFUHDVLQJO\DSSUHFLDWHG
    *RHEHOV DQG 6R\ND  6HOKXE HW DO   % GHILFLHQF\ IRU H[DPSOH KDV IUHTXHQWO\ EHHQ
    DVVRFLDWHG ZLWK FRJQLWLYH GHILFLWV DQG SV\FKLDWULF SUREOHPV HVSHFLDOO\ LQ HOGHUO\ SHUVRQV DQG RWKHU
    GHPRJUDSKLFJURXSVOLNHO\WREHOLYLQJLQFLUFXPVFULEHGFLUFXPVWDQFHV 0%HFNHUHWDO$'
    6PLWK DQG 5HIVXP   /RZ OHYHOV RI % ZHUH DVVRFLDWHG ZLWK UHGXFHG VSHHG RI LQIRUPDWLRQ
    SURFHVVLQJ RQD FRGLQJ WDVN LQROGHU PHDQ DJH  QRQGHPHQWHG SHUVRQV -HOLFLF HW DO  
    7KHUHLVQRZ VRPH VXSSRUWIRU PDQGDWRU\ YLWDPLQ% IRUWLILFDWLRQ LQ WKH 8QLWHG 6WDWHV VLPLODU WR
    ZKDWZDVGRQHZLWKIROLFDFLGIRUWLILFDWLRQRIIORXU 5*UHHQ 
    0DQ\FRQGLWLRQVRIPHQWDOGHWHULRUDWLRQKDYHEHHQDWWULEXWHGWRGLHWDU\GHILFLHQF\ &KDIHW]
    (VVPDQ  /LVKPDQ   (SLGHPLRORJLFDO VWXGLHV KDYH SURYLGHG FRQYLQFLQJ HYLGHQFH WKDW
    GLHWDU\ SUDFWLFHV GXULQJ DGXOWKRRG DUH LPSRUWDQW FRQWULEXWRUV WR DJHUHODWHG FRJQLWLYH GHFOLQH DQG
    GHPHQWLDULVN (YHULWW HW DO  --RVHSK &ROH HW DO  HVSHFLDOO\ LQJHULDWULF SDWLHQWVZKR
    PD\KDYHDVVRFLDWHGPHWDEROLFGLVRUGHUZLWKQXWULWLRQDOGHILFLHQFLHV $QQZHLOHU6FKRWW$OODOLHWDO
    $QQZHLOHU6FKRWW5ROODQGHWDO$+)RUGHWDO 'LHWVKLJKLQIDWߟHVSHFLDOO\
    WUDQVߞ DQG VDWXUDWHG IDWVߟDGYHUVHO\ DIIHFW FRJQLWLRQ ZKLOH GLHWV KLJK LQ IUXLWV YHJHWDEOHV FHUHDOV
    DQG ILVK DUH DVVRFLDWHG ZLWK EHWWHU FRJQLWLYH IXQFWLRQ DQG ORZHU GHPHQWLD ULVN 3DUURWW DQG
    *UHHQZRRG   DOWKRXJK FDXVDO UHODWLRQVKLSV KDYH QRW EHHQ HVWDEOLVKHG 6HYHUDO ODUJHVFDOH
    UHYLHZV UHSRUW WKDW FXUUHQW UHVHDUFK RQ % YLWDPLQV LV ODUJHO\ LQDGHTXDWH LQ UHJDUG WR WKHLU
    PHFKDQLVPV RI DFWLRQ RQ DJHUHODWHG FRJQLWLYH GLVRUGHUV WKHLU DVVRFLDWLRQV ZLWK GLVHDVH DQG WKHLU
    HIIHFWLYHQHVV DV VXSSOHPHQWV IRU HQKDQFLQJ FRJQLWLYH IXQFWLRQLQJ RI KHDOWK\ LQGLYLGXDOV %DON
    &KXQJHWDO%DON5DPDQHWDO5DPDQ7DWVLRQLHWDO 
    )ROLF DFLGߟRU IRODWHߟGHILFLHQF\ SURYLGHV D JRRG H[DPSOH RI KRZ LQVXIILFLHQW LQWDNH RI D
    VSHFLILF QXWULWLRQDO FRPSRQHQW FDQ UHVXOW LQ D SURJUHVVLYH FRQGLWLRQ RI PHQWDO GHWHULRUDWLRQ ZLWK
    FRQFRPLWDQW FHUHEUDO DWURSK\ 0, %RWH] %RWH] DQG 0DDJ   )RODWH GHILFLHQF\ PRVW XVXDOO\
    DSSHDULQJLQHOGHUO\DQGLQFDSDFLWDWHGSHUVRQVZLWKSRRUGLHWDU\KDELWVRURSSRUWXQLWLHVFDQSURGXFH
    D YDULHW\ RI QHXURORJLFDO DQG QHXURSV\FKRORJLFDO V\PSWRPV LQFOXGLQJ VHQVRU\ DQG UHIOH[
    DEQRUPDOLWLHV GHSUHVVHG PRRG DQG JHQHUDO ORZHULQJ RI FRJQLWLYH IXQFWLRQV ZKLFK ZKHQ VHYHUH
    SUHVHQWV DV GHPHQWLD /LVKPDQ   )RODWH GHILFLHQF\ VKRXOG DOHUW WKH SDWLHQWߤV FOLQLFLDQ WR WKH
    SRVVLELOLW\ RI RWKHU DFFRPSDQ\LQJ QXWULWLRQDO SUREOHPV 6LJQLILFDQW LPSURYHPHQWV RQ
    QHXURSV\FKRORJLFDO WHVWLQJ KDYH EHHQ REVHUYHG ZLWK IRODWH UHSODFHPHQW WKHUDS\ 0, %RWH] %RWH]
    DQG0DDJ)LRUDYDQWLHWDO 7KLVFULSSOLQJGLVRUGHULVXQQHFHVVDU\DVLWFDQEHDYRLGHG
    ZLWKDPRGHUDWHLQWDNHRIOHWWXFHRURWKHUJUHHQV(SLGHPLRORJLFDOVWXGLHVKDYHVKRZQDUHODWLRQVKLS
    EHWZHHQIRODWHDQGRUYLWDPLQ%LQPRRGGLVRUGHUVLQODWHUOLIH )DYDDQG0LVFKRXORQ EXW
    WKHHYLGHQFHIRUDUHODWLRQVKLSZLWKFRJQLWLYHGLVRUGHUVLVZHDNHU %KDW  /RZOHYHOV RI IROLF
    DFLGKDYHDOVREHHQLPSOLFDWHGDVDULVNIDFWRUIRUFDUGLRYDVFXODUGLVHDVHDQGVWURNHLQFUHDVLQJIROLF
    DFLG LQWDNH KDV EHHQ GLUHFWO\ UHODWHG WR UHGXFHG VWURNH LQFLGHQFH 3$ :ROI   $OWKRXJK IROLF
    DFLGZLWKRUZLWKRXW%FDQEHHIIHFWLYHLQLPSURYLQJFRJQLWLYHIXQFWLRQLQIRODWHGHILFLHQWSHUVRQV
    LWV XVHIXOQHVV DV D GLHWDU\ VXSSOHPHQW LQ ROGHU SHUVRQV ZKR DUH QRW IRODWHGHILFLHQW LV TXHVWLRQDEOH
    0DORXIHWDO 
    9LWDPLQ'DPXOWLSXUSRVHVWHURLGKRUPRQHYLWDOWRKHDOWKLVDQRWKHUVXEVWDQFHWKDWKDVDWWUDFWHG
    PXFKDWWHQWLRQDVDSRWHQWLDOQXWULWLRQDOIDFWRUWKDWFRXOGZKHQLQVXIILFLHQWLQWKHGLHWFRQWULEXWHWR
    FRJQLWLYHLPSDLUPHQWDQGPHQWDOKHDOWKSUREOHPVHVSHFLDOO\LQROGHUDGXOWV &KHUQLDFNHWDO 
    $OWKRXJK WKH HYLGHQFH IRU D FDXVDO OLQN EHWZHHQ YLWDPLQ ' DQG FRJQLWLRQ LV VFDQW YLWDPLQ '
    VXSSOHPHQWDWLRQ IRU DWULVN JURXSV LV UHFRPPHQGHG DQG LW PD\ KDYH SRVLWLYH HIIHFWV RQ PHQWDO
    IXQFWLRQLQJ 0F&DQQDQG$PHV 
    0DOQXWULWLRQFDQDOVRRFFXUWRZDUGWKHHQGRIOLIHDPRQJHOGHUO\SHRSOHZKRVHLQWDNHRIQXWULHQWV
    IDOOV EHORZ UHFRPPHQGHG GLHWDU\ VWDQGDUGV -6 *RRGZLQ HW DO   'LVHDVHIUHH IXOO\
    LQGHSHQGHQWDQGILQDQFLDOO\FRPIRUWDEOHDGXOWVDJHVDQGRYHUZKRVHEORRGOHYHOVRIYLWDPLQ&
    ULERIODYLQ YLWDPLQ% DQG IROLF DFLG ZHUH EHORZ UHFRPPHQGHG OHYHOV JHQHUDOO\ KDG WKH SRRUHVW
    SHUIRUPDQFHV RQ WKH &DWHJRU\ 7HVW DQG WKH :HFKVOHU 0HPRU\ 6FDOH *UHDWHU XQGHUVWDQGLQJ RI WKH
    UHODWLRQVKLS EHWZHHQ QXWULWLRQ DQG FRJQLWLYH IXQFWLRQLQJ FDQ LQVXUH DGHTXDWH GLHWDU\ LQWDNH RI WKH
    QXWULHQWVQHHGHGWRPD[LPL]HTXDOLW\RIOLIHLQDQLQFUHDVLQJO\ROGHUVRFLHW\ %KDW5LHGHODQG
    -RULVVHQ 
    +RZ JHQHUDO PDOQXWULWLRQ PD\ DIIHFW WKH IXQFWLRQLQJ RI WKH PDWXUH RU DOPRVW PDWXUH FHQWUDO
    QHUYRXVV\VWHPLVGHPRQVWUDWHGLQDGROHVFHQWDQG\RXQJDGXOWZRPHQZLWKDQRUH[LDQHUYRVD ZKRVH
    VHOILQIOLFWHGVWDUYDWLRQUHJLPHQZDVVXIILFLHQWO\VHYHUHWREULQJWKHPWRSV\FKLDWULFDWWHQWLRQ7KHVH
    \RXQJ SHRSOHߤV QHXURSV\FKRORJLFDO VWDWXV PD\ LQFOXGH D YDULHW\ RI PLOG DQG PRUH VHULRXV
    LPSDLUPHQWV & /RSH] HW DO  0( 5REHUWV HW DO  =DN]DQLV &DPSEHOO DQG 3ROVLQHOOL
       $QRUH[LF ZRPHQ ZHUH VLJQLILFDQWO\ LPSDLUHG LQ HYHU\ DUHD RI QHXURSV\FKRORJLFDO
    IXQFWLRQLQJH[FHSWRQYLJLODQFHWDVNVߟRQZKLFKDWUHQGWRZDUGLPSDLUPHQWDSSHDUHGߟFRPSDUHGWR
    ZRPHQZLWKSULRUVWDUYDWLRQKDELWVZKRPDLQWDLQHGQRUPDOZHLJKWIRUDWOHDVWVL[PRQWKV %3-RQHV
    HWDO 
    7KHTXHVWLRQUHPDLQVDVWRZKHWKHUZLWKDGHTXDWHQXWULWLRQDIWHUDSHULRGRIUHODWLYHVWDUYDWLRQ
    FRJQLWLRQ UHWXUQV IXOO\ WR QRUPDO OHYHOV DQGRU HTXDOO\ DFURVV DOO QHXURSV\FKRORJLFDO GRPDLQV
    %RVDQDFHWDO'..DW]PDQHWDO ,QRQHVWXG\QLQHRI\RXQJZRPHQSHUIRUPHG
    SRRUO\RQWZRRUPRUHWHVWVRIFRJQLWLYHIXQFWLRQVZLWKVORZHGUHDFWLRQWLPHVUHGXFHGVKRUWWHUP
    PHPRU\ DQG UHWULHYDO GHILFLWV EHLQJ WKH PRVW SURPLQHQW SUREOHPV +DPVKHU +DOPL DQG %HQWRQ
     7KHLQFLGHQFHRIVSHFLILFGHILFLWVGLPLQLVKHGRYHUWKHVXEVHTXHQW\HDUZKHQWZRWKLUGVRIWKH
    JURXS HLWKHU PDLQWDLQHG RU JDLQHG ZHLJKW DOWKRXJK PDQ\ RI WKHP VWLOO KDG ORZHU VFRUHV RQ WKH
    :HFKVOHU'LJLW6SDQFRPELQHGVFRUHDQGDOPRVWWKHVDPHQXPEHUFRQWLQXHGWRVKRZUHDFWLRQWLPH
    VORZLQJ$QRWKHUJURXSߤVDEQRUPDOO\ORZSHUIRUPDQFHVRQFRPSOH[VSHHGGHSHQGHQWDWWHQWLRQWHVWV
    %ORFN'HVLJQDQGDSUREOHPVROYLQJWDVNLPSURYHGDIWHUWKUHHPRQWKVGXULQJZKLFKJURXSPHPEHUV
    PDGHߧVXEVWDQWLDOߨZHLJKWJDLQVDOWKRXJKPRUHWKDQKDOIRIWKHVH\RXQJZRPHQZHUHVWLOOLPSDLUHG
    RQ RQH WR WZR RI HLJKW  PHDVXUHV 6]PXNOHU HW DO  VHH DOVR %3 -RQHV HW DO  &DVWUR
    )RUQLHOHVHWDOIRURWKHUVWXGLHVVKRZLQJLPSURYHPHQWZLWKJRRGQXWULWLRQ 
    6WUXFWXUDOQHXURLPDJLQJKDVVKRZQDUHODWLRQVKLSEHWZHHQUHGXFHGULJKWGRUVDODQWHULRUFLQJXODWH
    FRUWH[YROXPHLQSDWLHQWVZLWKDQRUH[LDQHUYRVDZKLFKZDVLQWHUSUHWHGDVEHLQJUHODWHGWRGHIHFWVLQ
    SHUFHSWXDORUJDQL]DWLRQDQGFRQFHSWXDOUHDVRQLQJLQWULJXLQJO\VRPHSDWLHQWVVKRZHGQRUPDOL]DWLRQ
    RIWKHDQWHULRUFLQJXODWHFRUWH[YROXPHDIWHUWUHDWPHQWDQGZHLJKWUHVWRUDWLRQDQGWKRVHZKRGLGQߤW
    KDG KLJKHU UDWHV RI UHODSVH /0 0F&RUPLFN HW DO  5LJKW SDULHWDO JUH\ PDWWHU WKLQQLQJ ZDV
    IRXQGLQDQRWKHUVWXG\RIZRPHQGRLQJH[WUHPHGLHWLQJ -RRVHWDO 

     ,>PGO@GRQRWXVHWKHWHUPߧUHFRYHU\ߨZKHQGLVFXVVLQJEUDLQLQMXULHV'DPDJHWKDWLVVHYHUHHQRXJKWRDOWHUWKHOHYHORIFRQVFLRXVQHVV
    HYHQ PRPHQWDULO\ RU WR UHVXOW LQ HYHQ WUDQVLHQW LPSDLUPHQW RI VHQVRU\ PRWRU RU FRJQLWLYH IXQFWLRQV LV OLNHO\ WR OHDYH VRPH UHVLGXDO
    GHILFLW:KHQWKHLPSDFWLVPRUHWKDQPLOGWKHXVHRIWKHZRUGߧUHFRYHU\ߨZKLFKLPSOLHVUHVWRUDWLRQRUUHWXUQWRSUHPRUELGVWDWXV 1HZ
    2[IRUG$PHULFDQ'LFWLRQDU\   ZKHQ GLVFXVVLQJ D SDWLHQWߤV SURJUHVV FDQ JLYH WKH SDWLHQW DQG IDPLO\ IDOVH KRSHV GHOD\ SUDFWLFDO
    SODQQLQJDQGFDXVHXQQHFHVVDU\DQ[LHW\DQGGLVDSSRLQWPHQW HJVHH/H]DN 
     3RHPZULWWHQE\D\HDUROGZKRKDGEHHQLQMXUHGDWDJHDQGZDVUHIHUUHGIRUDQHXURSV\FKRORJLFDOH[DPLQDWLRQDIWHUDUUHVWIRUD
    GUXQNHQHVFDSDGHGLUHFWHGE\D\HDUROGFDVXDODFTXDLQWDQFH

    You might also like