%QWTUG%QFG&/$#(/

5GEWTKV[ #PCN[UKU CPF 2QTVHQNKQ /CPCIGOGPV

$XWKRU
1HKD$JDUZDO
1LWLQ.XPDU

6HI)LQDQFHG8QLYHUVLW\XQGHU6HFIRI8*&$FWDQG$FFUHGLWHGE\1$$&
 $GYLVRU\&RPPLWWHH

3URI5DP5DWWDQ3UR3UHVLGHQW-(&5&8QLYHUVLW\
3URI:LGKL'XEH\'LUHFWRU''(
3URI$YLUHQL6ULQLYDVXOX'LUHFWRU$FDGHPLFV''(
3URI5DMHHY-DLQ'HDQ)DFXOW\RI0DQDJHPHQW
3URI'HHSDN'HPEOD+R')DFXOW\RI,7 &$

¤ #NNTKIJVUTGUGTXGF0QRCTVQHVJKUDQQMOC[DGTGRTQFWEGFUVQTGFKPCTGVTKGXCNU[UVGOQT
EQRKGF KP CP[ HQTO QT D[ CP[ OGCPU GNGEVTQPKE OGEJCPKECN RJQVQITCRJKE QT QVJGTYKUG
YKVJQWV VJG RTKQT YTKVVGP RGTOKUUKQP QH VJG CWVJQT CPF VJG RWDNKUJGT

6/05HYLHZ&RPPLWWHH

'U6XPDQ%KDWQDJDU$VVRF3URIHVVRU%&$ 0&$''(

'U5XFKL*R\DO$VVRF3URIHVVRU%%$''(
'U$QDPLND8SDGK\D\$VVRF3URIHVVRU%&RP 0%$''(
'U*DXUDY'HHS$VVRF3URIHVVRU(QJOLVK''(
'U%KDYWRVK$ZDVWKL$VVRF3URIHVVRU0DWKHPDWLFV''(

3XEOLVKHG 3ULQWHG%\
36TXDUH6ROXWLRQV+,QGXVWULDO$UHD6LWH%1HDU+3&/'HSRW%DUDUL0DWKXUD
0DWKXUD83(PDLOTXHU\#SUDJ\DRQOLQHFRP
)RU-(&5(8QLYHUVLW\'LUHFWRUDWHRI'LVWDQFH(GXFDWLRQ

'LVFODLPHU ± 3XEOLVKHU RI WKLV SULQWLQJ PDWHULDO LV QRW UHVSRQVLEOH IRU DQ\ HUURUV RU GLVSXWHV IURP FRQWHQWV RI WKLV FRXUVH
PDWHULDO WKLV PDWHULDO FRPSOHWHO\ GHSHQGV RQ $87+25¶6 0$186&5,37
 6\OODEXV

81,7
,QWURGXFWLRQWR6HFXULW\$QDO\VLV&RQFHSWRIVHFXULWLHV%RQGV(TXLWLHV&RPPRGLWLHV
'HULYDWLYHV/LVWLQJRIVHFXULWLHV0HFKDQLVPRILQYHVWLQJ6WRFNYDOXDWLRQHTXDWLRQV9DOXDWLRQ
PDUNHWSULFH6HFXULW\FUHGLWUDWLQJ7KHOLVWRIFUHGLWFULWHULD0DUNHW EURNHUV,QYHVWPHQW
FRPSDQLHV0DUNHWLQGLFHV UHWXUQ*RYHUQPHQWVHFXULWLHV5HDOHVWDWHLQYHVWPHQW

&RQFHSWRI5LVN 5HWXUQ&DOFXODWLQJDQGLQWHUSUHWLQJULVNPHDVXUHPHQWV7\SHVRIUHWXUQ
7\SHV RI ULVN 'LYHUVLILFDWLRQ RI ULVN  7KH ULVNUHZDUG WUDGHRII (IILFLHQW PDUNHW WKHRU\
'HILQLWLRQRIPDUNHWHIILFLHQF\)RUPVRIPDUNHWHIILFLHQF\(PSLULFDOWHVWRIHPK$QDPROLHV
LQHPK

81,7
6WRFN0DUNHW$QDO\VLV)XQGDPHQWDO$SSURDFK(FRQRPLF$QDO\VLV(FRQRPLF)RUHFDVWLQJ
,QGXVWU\$QDO\VLV,QGXVWU\/LIH&\FOH&RPSDQ\$QDO\VLV)LQDQFLDO$QDO\VLVRI)LQDQFLDO
6WDWHPHQWV 7HFKQLFDO $QDO\VLV 3ULFH ,QGLFDWRUV ()),&,(17 0$5.(7 +<327+(6,6 7+(
7+5(()25062)7+(()),&,(170$5.(<+<327+(6,6(0+(0+YV)81'$0(17$/$1'
7(&+1,&$/$1$/<6(6'LIIHUHQW6WRFN([FKDQJHVLQ,QGLD0DUNHW,QGH[

81,7
3RUWIROLR 0DQDJHPHQW  ,QWURGXFWLRQ WR 3RUWIROLR 0DQDJHPHQW &RQFHSW RI 3RUWIROLR
3RUWIROLRPDQDJHPHQW&RPSRVLWLRQRI3RUWIROLR0DQDJHPHQW2%-(&7,9(62)3257)2/,2
0$1$*(0(172SWLPXP3RUWIROLR6HOHFWLRQ3UREOHPV0DUNRZLW]3RUWIROLR7KHRU\3RUWIROLR
6HOHFWLRQ7UDGLWLRQDO0HWKRG0RGHUQ0HWKRG)DFWRUV,QIOXHQFLQJ3RUWIROLR6HOHFWLRQ0HDQ
9DULDQFH&ULWHULDDQG3RUWIROLR6HOHFWLRQ0XOWL3HULRG09&6+$53(6,1*/(,1'(;02'(/
$30$VVHW3ULFLQJ0RGHOV$UELWUDJH3ULFLQJ7KHRU\,QYHVWPHQWLQ/LTXLG$VVHWV%RQG
3RUWIROLR0DQDJHPHQW$FWLYH0DQDJHPHQW6WUDWHJLHV0DWFKHG)XQGLQJ7HFKQLTXHV
 81,7
)LQDQFLDO$QDO\VLV,QYDULDQWDQG3RUWIROLRV6WUDWHJLHV)LQDQFLDO$QDO\VLV$Q
,QWURGXFWLRQ3$57,(6,17(5(67('5DWLR$QDO\VLV&DVK)ORZ6WDWHPHQW
2%-(&7,9(2)&$6+)/2:67$7(0(176/,0,7$7,2162)&$6+)/2:67$7(0(17&267
92/80(352),7&93$1$/<6,6)LQDQFLDO)RUHFDVWLQJ,QYHVWPHQW 3RUWIROLR6WUDWHJLHV
3RUWIROLRLQYHVWPHQWSURFHVV&RUSRUDWH,QYHVWPHQW 3RUWIROLR

81,7
3RUWIROLR0DQDJHPHQW,QGLDDQG&DSLWDO6WUXFWXUH,QWURGXFWLRQ1DWLRQDO ,QWHUQDWLRQDO
3RUWIROLR0L[&$3,7$/6758&785(0($1,1*2)&$3,7$/6758&785(&+$5$&7(5,67,&6
2),03257$17/21*7(506285&(62))81'6)$&7256$))(&7,1*&$3,7$/6758&785(
'(7(50,1$1762)&$3,7$/6758&785(7+(25,(62)&$3,7$/6758&785(1(7,1&20(
$3352$&+1(723(5$7,1*,1&20(12,$3352$&+75$',7,21$/$3352$&+02',*/,$1,
$1'0,//(5$3352$&+
 &217(176

81,7
  ,QWURGXFWLRQWR6HFXULW\$QDO\VLV  
 ,QWURGXFWLRQ

 &RQFHSWRIVHFXULWLHV

 %RQGV

 (TXLWLHV

 &RPPRGLWLHV

 'HULYDWLYHV

 /LVWLQJRIVHFXULWLHV

 0HFKDQLVPRILQYHVWLQJ

 6WRFNYDOXDWLRQHTXDWLRQV

 9DOXDWLRQ PDUNHWSULFH

 6HFXULW\FUHGLWUDWLQJ

 7KHOLVWRIFUHGLWFULWHULD

 0DUNHW EURNHUV

 ,QYHVWPHQWFRPSDQLHV

 0DUNHWLQGLFHV UHWXUQ

 *RYHUQPHQWVHFXULWLHV

 5HDOHVWDWHLQYHVWPHQW

 &RQFHSWRI5LVN 5HWXUQ  

 ,QWURGXFWLRQ

 &DOFXODWLQJDQGLQWHUSUHWLQJULVNPHDVXUHPHQWV

 7\SHVRIUHWXUQ

 7\SHVRIULVN

 'LYHUVLILFDWLRQRIULVN7KHULVNUHZDUGWUDGHRII
  (IILFLHQWPDUNHWWKHRU\

 'HILQLWLRQRIPDUNHWHIILFLHQF\

 )RUPVRIPDUNHWHIILFLHQF\

 (PSLULFDOWHVWRIHPK

 $QDPROLHVLQHPK

81,7
  6WRFN0DUNHW$QDO\VLV  
 ,QWURGXFWLRQ

 )XQGDPHQWDO$SSURDFK

 (FRQRPLF$QDO\VLV

 (FRQRPLF)RUHFDVWLQJ

 ,QGXVWU\$QDO\VLV

 ,QGXVWU\/LIH&\FOH

 &RPSDQ\$QDO\VLV

 )LQDQFLDO

 $QDO\VLVRI)LQDQFLDO6WDWHPHQWV

 7HFKQLFDO$QDO\VLV

 3ULFH,QGLFDWRUV

 ()),&,(170$5.(7+<327+(6,6

 7+(7+5(()25062)7+(()),&,(170$5.(<+<327+(6,6(0+

 (0+YV)81'$0(17$/$1'7(&+1,&$/$1$/<6(6

 'LIIHUHQW6WRFN([FKDQJHVLQ,QGLD

 0DUNHW,QGH[

81,7
  3RUWIROLR0DQDJHPHQW 

 ,QWURGXFWLRQWR3RUWIROLR0DQDJHPHQW

 &RQFHSWRI3RUWIROLR 3RUWIROLRPDQDJHPHQW

 &RPSRVLWLRQRI3RUWIROLR0DQDJHPHQW

 2%-(&7,9(62)3257)2/,20$1$*(0(17
  2SWLPXP3RUWIROLR6HOHFWLRQ3UREOHPV

 0DUNRZLW]3RUWIROLR7KHRU\

 3RUWIROLR6HOHFWLRQ

 7UDGLWLRQDO0HWKRG

 0RGHUQ0HWKRG

 )DFWRUV,QIOXHQFLQJ3RUWIROLR6HOHFWLRQ

 0HDQ9DULDQFH&ULWHULDDQG3RUWIROLR6HOHFWLRQ

 0XOWL3HULRG09&

  6KDUSHVLQJOHLQGH[PRGHO  

 ,QWURGXFWLRQ

 $30$VVHW3ULFLQJ0RGHOV

 $UELWUDJH3ULFLQJ7KHRU\

 ,QYHVWPHQWLQ/LTXLG$VVHWV

 %RQG3RUWIROLR0DQDJHPHQW

 $FWLYH0DQDJHPHQW6WUDWHJLHV

 0DWFKHG)XQGLQJ7HFKQLTXHV

81,7
  )LQDQFLDO$QDO\VLV,QYDULDQWDQG3RUWIROLRV6WUDWHJLHV  
 )LQDQFLDO$QDO\VLV$Q,QWURGXFWLRQ

 3$57,(6,17(5(67('

 5DWLR$QDO\VLV

 &DVK)ORZ6WDWHPHQW

 2%-(&7,9(2)&$6+)/2:67$7(0(176

 /,0,7$7,2162)&$6+)/2:67$7(0(17

 &26792/80(352),7&93$1$/<6,6

 )LQDQFLDO)RUHFDVWLQJ

 ,QYHVWPHQW 3RUWIROLR6WUDWHJLHV

 3RUWIROLRLQYHVWPHQWSURFHVV

 &RUSRUDWH,QYHVWPHQW 3RUWIROLR

 81,7
  3RUWIROLR0DQDJHPHQW,QGLDDQG&DSLWDO6WUXFWXUH  
 ,QWURGXFWLRQ

 1DWLRQDO ,QWHUQDWLRQDO3RUWIROLR0L[

 &$3,7$/6758&785(

 0($1,1*2)&$3,7$/6758&785(

 &+$5$&7(5,67,&62),03257$17/21*7(506285&(62))81'6

 )$&7256$))(&7,1*&$3,7$/6758&785('(7(50,1$1762)&$3,7$/6758&785(

 7+(25,(62)&$3,7$/6758&785(

 1(7,1&20($3352$&+

 1(723(5$7,1*,1&20(12,$3352$&+

 75$',7,21$/$3352$&+

 02',*/,$1,$1'0,//(5$3352$&+
 ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV

 127(6

,QWURGXFWLRQWR
6HFXULW\$QDO\VLV

„
„
„
„
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV ,1752'8&7,21
3RUWIROLR0DQDJHPHQW
6HFXULW\$QDO\VLVLVYHU\HVVHQWLDOEHIRUHLQYHVWLQJLQPDMRU6HFXULWLHVDQGVRVRPH
H[WHQVLYHUHVHDUFKLVGRQHWRPDNHVXUHWKDWZHDUHJHWWLQJWKHEHVW,QYHVWRUV
GHILQLWHO\ZDQWWRPDNHVXUHWKDWZKDWWKH\DUHJHWWLQJRQEHKDOIRIWKHPRQH\WKH\
127(6
DUHLQYHVWLQJ
6HFXULW\$QDO\VLVLVWKHSURFHVVRIUHVHDUFKLQJDQGHYDOXDWLQJWKHIDFWRUVWKDWLQIOX
HQFHDVHFXULWLHVYDOXH$SHUVRQZKRSHUIRUPVWKLVWDVNLHUHVHDUFKRQVHFXULWLHV
DQGUHFRPPHQGVLQYHVWPHQWVEDVHGRQKLVUHVHDUFKLVFDOOHGD6HFXULW\$QDO\VW
6HFXULWLHVDQDO\VWVXVXDOO\ZRUNIRUEURNHUDJHVRURWKHUILQDQFLDOLQVWLWXWLRQV7KHUH
DUHPDQ\GLIIHUHQWZD\VWRDQDO\]HDVHFXULWLHVYDOXH0RVWVHFXULW\DQDO\VLVWHFK
QLTXHVORRNDWDFRPSDQ\¶VHDUQLQJVUHYHQXHVFDVKIORZHTXLW\DQGGLYLGHQGVWR
GHWHUPLQHWKHYDOXHRIDVHFXULW\6HFXULWLHVDQDO\VWVGHWHUPLQHDFRPSDQ\¶VSURI
LWDELOLW\E\ORRNLQJDWLWVUHWXUQV$UHWXUQLVWKHDPRXQWDQLQYHVWPHQWHDUQVDVD
SHUFHQWDJHRIWKHSULFHSDLGWRRZQLW,WLVWKHVXPRILQFRPHDQLQYHVWPHQWPDNHV
RYHUWLPHSOXVLWVFDSLWDOJDLQV$QDO\VWVQRWRQO\ORRNDWWKHVHFXULWLHVKLVWRULFDO
PDUNHWUHWXUQVWKH\DOVRORRNDWDFRPSDQ\¶VUHWXUQRQLQYHVWPHQWUHWXUQRQDVVHWV
DQGUHWXUQRQHTXLW\7KHDPRXQWRIGLYLGHQGVDVHFXULW\UHWXUQVLVDOVRDQLPSRUWDQW
PHDVXUHWKDWVKRXOGEHWDNHQGXULQJLWVHYDOXDWLRQ7KHSHUFHQWDJHRIDFRPSDQ\¶V
VWRFNSULFHSDLGWRVKDUHKROGHUVLQGLYLGHQGVLVNQRZQDVWKHVHFXULW\¶VGLYLGHQG
\LHOG$QDO\VWVHYDOXDWHDVHFXULW\¶VSULFHEHKDYLRULQPDQ\GLIIHUHQWZD\V7KHPRVW
FRPPRQPHDVXUHPHQWLVWKHSULFHWRHDUQLQJV3(UDWLR7KH3(UDWLRWHOOVXV
KRZPDQ\\HDUVLWZLOOWDNHDWWKHFXUUHQWUDWHRIHDUQLQJVIRU\RXWRPDNHDOORI
\RXULQYHVWPHQWEDFN2WKHUFRPPRQSULFHLQGLFDWRUVLQFOXGHWKHSULFHWRVDOHV3
6UDWLRHDUQLQJVSHUVKDUH(36DQGHDUQLQJVEHIRUHLQWHUHVWDQGWD[HV(%,7
7KHGHJUHHWRZKLFKDVHFXULW\¶VSULFHFKDQJHVRYHUWLPHLWVYRODWLOLW\LVDOVR
H[DPLQHG
7KLVXQLWDQGWKHRWKHUFKDSWHUVLQWKLVERRNZLOOH[DPLQHDOOWKHVHFRQFHSWVUHODWHG
WR6HFXULW\$QDO\VLVLQGHWDLO
&21&(372)6(&85,7,(6
6HFXULW\LVJHQHUDOO\DIXQJLEOHQHJRWLDEOHILQDQFLDOLQVWUXPHQWUHSUHVHQWLQJILQDQFLDO
YDOXH6HFXULWLHVDUHEURDGO\FDWHJRUL]HGLQWR
x GHEWVHFXULWLHVVXFKDVEDQNQRWHVERQGVDQGGHEHQWXUHV
x HTXLW\VHFXULWLHVHJFRPPRQVWRFNVDQG
x 'HULYDWLYHFRQWUDFWVVXFKDVIRUZDUGVIXWXUHVRSWLRQVDQGVZDSV
7KHFRPSDQ\RURWKHUHQWLW\LVVXLQJWKHVHFXULW\LVFDOOHGWKHLVVXHU$FRXQWU\¶V
UHJXODWRU\VWUXFWXUHGHWHUPLQHVZKDWTXDOLILHVDVDVHFXULW\)RUH[DPSOHSULYDWH
LQYHVWPHQWSRROVPD\KDYHVRPHIHDWXUHVRIVHFXULWLHVEXWWKH\PD\QRWEHUHJLV
WHUHGRUUHJXODWHGDVVXFKLIWKH\PHHWYDULRXVUHVWULFWLRQV
6HFXULWLHVPD\EHUHSUHVHQWHGE\DFHUWLILFDWHRUPRUHW\SLFDOO\³QRQFHUWLILFDWHG´
WKDWLVLQHOHFWURQLFRU³ERRNHQWU\´RQO\IRUP&HUWLILFDWHVPD\EHEHDUHUPHDQLQJ
WKH\HQWLWOHWKHKROGHUWRULJKWVXQGHUWKHVHFXULW\PHUHO\E\KROGLQJWKHVHFXULW\RU
6HOI,QVWUXFWLRQDO 0DWHULDO
UHJLVWHUHGPHDQLQJWKH\HQWLWOHWKHKROGHUWRULJKWVRQO\LIKHDSSHDUVRQDVHFXULW\

UHJLVWHUPDLQWDLQHGE\WKHLVVXHURUDQLQWHUPHGLDU\7KH\LQFOXGHVKDUHVRIFRUSR ,QWURGXFWLRQWR
UDWHVWRFNRUPXWXDOIXQGVERQGVLVVXHGE\FRUSRUDWLRQVRUJRYHUQPHQWDODJHQFLHV 6HFXULW\$QDO\VLV
VWRFNRSWLRQVRURWKHURSWLRQVOLPLWHGSDUWQHUVKLSXQLWVDQGYDULRXVRWKHUIRUPDO
LQYHVWPHQWLQVWUXPHQWVWKDWDUHQHJRWLDEOHDQGIXQJLEOH
127(6
2EMHFWLYHVRI6HFXULW\$QDO\VLV
7KHPDMRUREMHFWLYHVEHKLQG6HFXULW\$QDO\VLVDUHDVIROORZLQJ
5HJXODULQFRPH±7KHLQFRPHIURPWKHLQYHVWPHQWVKRXOGEHUHJXODUDQGFRQVLV
WHQWRQH7KHKLJKIOXFWXDWLRQLVLQFRPHVWUHDPLVQRWVXLWDEOHIRUWKHORQJWHUP
JURZWK
&DSLWDODSSUHFLDWLRQ±7KHLQYHVWPHQWPXVW\LHOGUHJXODULQFRPHDVZHOODVJURZWK
LQYDOXHLHFDSLWDODSSUHFLDWLRQ,WLVWKHGLIIHUHQFHEHWZHHQWKHVHOOLQJSULFHDQG
SXUFKDVHSULFH
6DIHW\RIFDSLWDO±7KHFDSLWDOLQYHVWHGLQDVVHWVUHTXLUHVWKHVDIHW\6DIHW\LVWKH
LPSRUWDQWHOHPHQWZKLFKSURWHFWVWKHORVVRIFDSLWDODQGUHWXUQIURPWKHLQYHVWPHQWV
/LTXLGLW\±/LTXLGLW\LVWKHHDVHRIFRQYHUWLELOLW\RUPDUNHWDELOLW\RIDVVHWV
+HGJHDJDLQVW,QIODWLRQ±7KHLQIODWLRQLVWKHELJJHVWSUREOHPZHDUHIDFLQJWRGD\
KHQFHWKHUDWHRIUHWXUQIURPWKHLQYHVWPHQWUHTXLUHVKLJK\LHOGWREHDWLQIODWLRQUDWH
7KHVHDUHWKHPDMRUREMHFWLYHVEHKLQGDFDUHIXODQGFULWLFDOVHFXULW\DQDO\VLV7KH
DQDO\VLVLVGRQHZKLFKDUHXVHGWRILQGRXWWKHDQVZHUIRUWKHTXHVWLRQOLNHZK\
VKDUHSULFHVIOXFWXDWHKRZWKH\DUHGHWHUPLQHGZKDWWREX\RUVHOODQGZKHQWR
EX\RUVHOO
7\SHV RI 6HFXULWLHV
7KHYDULRXVW\SHVRIVHFXULWLHVDUHGLVFXVVHGEHORZDVIROORZLQJ
 %21'6
L %HDUHUDQG5HJLVWHUHG%RQGV
LL *HQHUDO2EOLJDWLRQDQG5HYHQXH%RQGV
LLL 7UHDVXU\%RQGV
LY 7UHDVXU\1RWHV
Y 7UHDVXU\%LOOV
YL 3DUWLFLSDWLQJ%RQGV
YLL &RQYHUWLEOH%RQGV
YLLL =HUR&RXSRQ%RQGV
L[ +LJK<LHOG-XQN%RQGV
[ :DUUDQW%RQG%RQGVZLWKZDUUDQWV
[L ,QGH[HG%RQGV
[LL 6LQNLQJ%RQG)XQGV
[LLL &RPPHUFLDO3DSHU 6HOI,QVWUXFWLRQDO 0DWHULDO

[LY 0RUWJDJHGEDFNHG6HFXULWLHV 
6HFXULW\$QDO\VLV  (48,7,(6
3RUWIROLR0DQDJHPHQW L &RPPRQ6WRFN
LL 3UHIHUUHG6WRFN
127(6 LLL 3DU9DOXH
LY &ODVVHVRI6WRFN
Y 6WRFN6SOLWV
YL 'LYLGHQGV
YLL (['LYLGHQG
YLLL '5,36
L[ 7UHDVXU\6WRFN
[ 'HSRVLWRU\5HFHLSWV
 &2002',7,(6
 '(5,9$7,9(6
L )XWXUHV
LL 2SWLRQV
LLL &RYHUHGFDOOV
LY 8QFRYHUHGFDOOV
Y ,QGH[RSWLRQV
YL :DUUDQWV
YLL 6ZDSV
YLLL 5HSXUFKDVH$JUHHPHQWV
$EULHILQWURGXFWLRQRIDOOWKHDERYHVHFXULWLHVLVEHLQJJLYHQEHORZ
 %21'6
%RQGVDUHWKHGHEWLQVWUXPHQWVWKDWDUHJHQHUDOO\LVVXHGE\JRYHUQPHQWVRUJRYHUQ
PHQWDJHQFLHVVXFKDVPXQLFLSDOLWLHVDQGFRUSRUDWLRQV7KHERQG\LHOGVPRUH
LQWHUHVWIURPSURIHVVLRQDODQGLQVWLWXWLRQDOLQYHVWRUVWKDQIURPWKHJHQHUDOSXEOLF
,QVWLWXWLRQDOLQYHVWRUVLQFOXGHSHQVLRQIXQGVLQVXUDQFHFRPSDQLHVEDQNWUXVWGH
SDUWPHQWVDQGFROOHFWLYHLQYHVWPHQWVFKHPHV$ERQGLVDSURPLVHE\WKHLVVXHUWR
SD\EDFNWKHDPRXQWORDQHGWRLWFDOOHGSULQFLSDOSOXVDQDJUHHGWRDPRXQWRI
LQWHUHVWRQRUEHIRUHDVWDWHGGDWH7KHLQWHUHVWPD\EHSDLGSHULRGLFDOO\GXULQJWKH
OLIHRIWKHORDQRUDOODWRQFHZKHQWKHORDQLVSDLGEDFN%RQGVDUHDOVRFDOOHGIL[HG
LQFRPHLQVWUXPHQWVEHFDXVHWKHDPRXQWRILQFRPHWKDWWKHERQGZLOOJHQHUDWHLV
&KHFN <RXU 3URJUHVV IL[HGE\WKHVWDWHGLQWHUHVWUDWHRIWKHERQG7KHGDWHZKHQWKHORDQEHFRPHVGXH
 :KDW LV WKH FRQ LVFDOOHGWKHPDWXULW\GDWHRIWKHERQG
FHSWRIVHFXULWLHV"
 :KDWDUHERQGV" 7KHORDQLVUHSUHVHQWHGE\DSK\VLFDOSLHFHRISDSHUDQGLILWSD\VLQWHUHVWSHULRGL
FDOO\GXULQJWKHOLIHRIWKHORDQWKHFHUWLILFDWHPD\DOVRFRQVLVWRIFRXSRQV&RXSRQV
DUHGHWDFKDEOHIURPWKHERQGFHUWLILFDWHLWVHOIXVXDOO\E\DSHUIRUDWLRQDQGDUH
SUHVHQWHGWRWKHSD\LQJDJHQWRIWKHLVVXHUXVXDOO\DFRPPHUFLDOEDQNIRUSD\PHQW
)RUWKLVUHDVRQWKH\DUHFDOOHGFRXSRQERQGV:KLOHFRXSRQERQGVDUHQRORQJHU
6HOI,QVWUXFWLRQDO 0DWHULDO ZLGHO\XVHGWKHDPRXQWRILQWHUHVWWKDWDERQGSD\VLVVWLOONQRZQDVWKHFRXSRQ
 UDWHDQGWKHERQGLVVWLOONQRZQDVDFRXSRQERQG
z %HDUHU DQG5HJLVWHUHG%RQGV ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV
%HDUHUERQGVEHORQJWRWKHSHUVRQZKRKROGVWKHP7KHRWKHUFRPPRQW\SH
RIIRUPDWLVDIXOO\UHJLVWHUHGERQGHLWKHULQFHUWLILFDWHIRUPRULQERRNHQWU\
7KHRZQHU¶VQDPHLVUHFRUGHGZLWKDWUDQVIHUDJHQWDQGLQWHUHVWSD\PHQWVDUH
PDGHHLWKHUE\FKHFNRUHOHFWURQLFFUHGLW7KHUHDVRQDERQGLVFDOOHGDGHEW 127(6
LQVWUXPHQWLVEHFDXVHWKHUHDUHQRRZQHUVKLSULJKWVLQDERQG7KHSURPLVHWR
SD\LVZKDWGLVWLQJXLVKHVERQGVIURPVWRFNV7KHKROGHURIDERQGLVDFUHGLWRU
WKHKROGHURUDVWRFNLVDQRZQHU
z *HQHUDO2EOLJDWLRQDQG5HYHQXH%RQGV
*HQHUDOREOLJDWLRQERQGVXVXDOO\UHIHUWRJRYHUQPHQWERQGVDQGDUHEDFNHGE\
WKHIXOOIDLWKDQGFUHGLWRIWKHWD[LQJSRZHUFRXQWU\PXQLFLSDOLW\HWFWKDW
LVVXHVWKHP5HYHQXHERQGVDUHSD\DEOHRQO\IURPVRPHVSHFLILFVRXUFHRI
WD[HVKLJKZD\VWROOVZDWHUELOOVHWFDQGDUHQRWVXEMHFWWRWKHJHQHUDOWD[LQJ
SRZHURIWKHLVVXHU
z 7UHDVXU\*RYHUQPHQW%RQGV
$FRXQWU\¶VORQJWHUPILQDQFLQJQHHGVDUHPHWE\LVVXLQJERQGVWKDWPDWXUHIURP
DQ\ZKHUHDIWHURQH\HDUXSWRHVVHQWLDOO\DVORQJDVDFRXQWU\ZDQWVDQGWR
ZKLFKWKHSXEOLFLVZLOOLQJWRFRPPLWLWVPRQH\$YHUDJHWLPHSHULRGLVRU
\HDUVDQGDUHFDOOHGORQJWHUPERQGV7KHVHORQJWHUPERQGVDUHZDWFKHG
FORVHO\E\WKHPDUNHWDVDQLQGLFDWLRQRIZKHUHORQJWHUPLQWHUHVWUDWHVZLOOEH
KHDGLQJ/RQJWHUPERQGVPD\EHVXEMHFWWREHLQJFDOOHGEHIRUHWKH\PDWXUH
z 7UHDVXU\*RYHUQPHQW1RWHV
7KHVHQRWHVXVXDOO\KDYHDPDWXULW\RIWR\HDUVDQGDUHNQRZQDVLQWHU
PHGLDWHWHUPLQYHVWPHQWLQVWUXPHQWV7QRWHVDUHQRWFDOODEOHEHIRUHWKHLUPD
WXULW\GDWH1RWHVXVXDOO\SD\LQWHUHVWVHPLDQQXDOO\
z 7UHDVXU\*RYHUQPHQW%LOOV
7ELOOVRUELOOVDUHWKHVKRUWHVWWHUP7UHDVXU\VHFXULW\DQGXVXDOO\PDWXUHLQ
RUPRQWKV7ELOOVFDUU\QRFRXSRQUDWHRILQWHUHVWEXWDUHVROGDWD
GLVFRXQWIURPSDU3DULVWKHIDFHDPRXQWRIWKHERQG7KLVPHDQVWKDWWKHSULFH
SDLGIRUD7ELOOLVOHVVWKDQLWVYDOXHDWPDWXULW\7KXVDPRQWK7ELOO\LHOGLQJ
ZRXOGEHVROGDWDGLVFRXQWIURPWKHIDFHYDOXHRIWKHERQG
z 3DUWLFLSDWLQJ%RQGV
7KHVHERQGVQRWRQO\EHDUDIL[HGUDWHRILQWHUHVWEXWDOVRKDYHDSURILWVKDULQJ
IHDWXUH7KHERQGKROGHULVHQWLWOHGWRSDUWLFLSDWHDORQJZLWKVKDUHKROGHUVLQ
HDUQLQJVRIWKHFRUSRUDWLRQWRWKHH[WHQWGHVFULEHGLQWKHERQGFRQWUDFW7KHVH
DUHXVHGZLGHO\LQ(XURSHDQGDUHXVXDOO\LVVXHGE\ZHDNFRPSDQLHVDVDQ
DGGHGLQGXFHPHQWWRDWWUDFWEX\HUV
z &RQYHUWLEOH%RQGV
&RQYHUWLEOHERQGLVDQH[FHSWLRQWRWKHRWKHUIRUPV7KHVHPD\EHFRQYHUWHG
WRDVWDWHGQXPEHURIFRPPRQVKDUHVLQDFRUSRUDWLRQ$QHZFRUSRUDWLRQ
ZLWKRXWPXFKPRQH\RUWUDFNUHFRUGIRUSD\LQJRIIERQGVRUDFRUSRUDWLRQZLWK
DORZFUHGLWUDWLQJPLJKWRIIHUFRQYHUWLEOHERQGVEHFDXVHWKHERUURZLQJFRVWV 6HOI,QVWUXFWLRQDO 0DWHULDO
RIVWUDLJKWERQGVZRXOGEHSURKLELWLYH 
6HFXULW\$QDO\VLV z
3RUWIROLR0DQDJHPHQW
127(6
=HUR&RXSRQ%RQGV
=HURVDUHLVVXHGDWDGLVFRXQWIURPWKHLUSDUYDOXH8QOLNHDFRQYHQWLRQDOERQG
]HURVSD\QRLQWHUHVWEHWZHHQLVVXDQFHDQGUHGHPSWLRQEXWRQO\DWPDWXULW\
$OWKRXJKWKHERQGKROGHUIRUIHLWVLPPHGLDWHLQFRPHIURPWKH]HURWKH\LHOGWR
PDWXULW\LVFRPSXWHGRQWKHDVVXPSWLRQWKDWWKHFRXSRQLQWHUHVWLVUHLQYHVWHGDW
WKHSUHYDLOLQJUDWHZKHQUHFHLYHG&RQVHTXHQWO\DVLQWHUHVWUDWHVIDOOWKHUHLQ
YHVWPHQWLVSUHVXPHGWREHDWWKHORZHUUDWHUHGXFLQJWKH\LHOGEXWLQFUHDVLQJ
WKHSULFHRIWKHERQG/LNHZLVHLILQWHUHVWUDWHVULVHWKHERQG¶VSULFHZLOOIDOO
EXWWKHFRXSRQVDUHUHLQYHVWHGDWWKHKLJKHUUDWHUDLVLQJWKH\LHOGWRPDWXULW\
:LWKQRFDVKIORZIURPFRXSRQSD\PHQWVWRDFWDVDFXVKLRQ]HURSULFHVVZLQJ
UDSLGO\XSDQGGRZQLQUHVSRQVHWRHYHQPLQRUFKDQJHVLQWKHLQWHUHVWUDWH,Q
WLPHVRIKLJKLQWHUHVWUDWHV]HURVDUHYHU\SRSXODULQRUGHUWRORFNLQWKRVHKLJK
UDWHV
z +LJK<LHOG-XQN%RQGV
%RQGVLQWKHVHFDWHJRULHVPD\JHQHUDOO\EHERXJKWIRUILGXFLDU\DFFRXQWVXQOHVV
VSHFLILFDOO\UHVWULFWHG)LGXFLDU\DFFRXQWVLQFOXGHSHQVLRQSODQVDQGVRPHEDQN
WUXVWDFFRXQWV$Q\ERQGEHORZLQYHVWPHQWJUDGHLVUHIHUUHGWRDVD³MXQN´
ERQG%XWLQWKHWHUPVRIWKHPDUNHWLWLVFDOOHGDKLJK\LHOGERQG,WLVFDOOHG
MXQNEHFDXVHLWGHVFULEHVWKHTXDOLW\RIWKHERQG%URNHUVDQGGHDOHUVSUHIHU
WKHWHUPKLJK\LHOGEHFDXVHLWVRXQGVEHWWHUDQGDOVREHFDXVHLWGHVFULEHVWKH
\LHOG7KH\LHOGLVKRZPXFKDERQGSD\VRUWKHLQWHUHVWUDWH7KHERQGPXVW
SD\DKLJKOHYHORILQWHUHVWEHFDXVHRILWVORZUDWLQJ7KHULVNRIWKHLVVXHUQRW
EHLQJDEOHWRSD\RIIWKHERQGVLVKLJKVRWKHSRWHQWLDOUHWXUQWRWKHLQYHVWRU
PXVWDOVREHKLJKLQRUGHUWRMXVWLI\WDNLQJWKHULVN
z :DUUDQW%RQGV
7KHVHERQGVFRQWDLQWKHULJKWZDUUDQWVWRSXUFKDVHVKDUHVRIFRPPRQVWRFN
DWDVSHFLILHGSULFH8VXDOO\WKHZDUUDQWSULFHLVKLJKHUWKDQWKHFXUUHQWPDUNHW
SULFH
z QGH[HG%RQGV7KHVHERQGVDUHXVHGLQSHULRGVRIKLJKLQIODWLRQ7KHLQWHUHVW
SD\PHQWVDUHLQGH[HGWRWKHLQIODWLRQUDWH
z 6LQNLQJ%RQG
7KLVLVQRWWHFKQLFDOO\DVHSDUDWHFDWHJRU\RIERQGV$Q\ERQGLVVXHPD\KDYH
D³VLQNLQJ´IHDWXUH:LWKWKLVIHDWXUHWKHLVVXHUDJUHHVWRVHWDVLGHDFHUWDLQ
DPRXQWRIPRQH\HDFKDQGHYHU\\HDUIRUWKHHYHQWXDOUHWLUHPHQWRIWKHERQG
LVVXH$ERQGLVVXHLVUHWLUHGZKHQLWLVIXOO\SDLG$IWHUDVSHFLILHGSHULRG
UHGHPSWLRQVPD\EHJLQDQGERQGVPD\EHFDOOHG
z &RPPHUFLDO3DSHU
&RPPHUFLDOSDSHULVVKRUWWHUPGHEWLVVXHGE\DFRUSRUDWLRQ&RPPHUFLDO
SDSHUKDVDPDWXULW\GDWHRIOHVVWKDQRQH\HDUVRPHWLPHVMXVWDIHZPRQWKV
,WLVDQXQVHFXUHGSURPLVVRU\QRWHDQGPD\EHLVVXHGDWDGLVFRXQWWRWKHSDU
YDOXH,QWHUHVWRQFRPPHUFLDOSDSHULVXVXDOO\SDLGRQO\DWWKHPDWXULW\GDWH
z 0RUWJDJH EDFNHG VHFXULWLHV
6HOI,QVWUXFWLRQDO 0DWHULDO 0RUWJDJHVDUHDFRQYH\DQFHRIWLWOHWRSURSHUW\WKDWLVJLYHQDVVHFXULW\IRUWKH
 SD\PHQWRIDGHEW7KHPRUWJDJHGRFXPHQWLVWKHGRFXPHQWWKDWWUDQVIHUVWLWOH
 RIWKHKRXVHWRWKHQDPHRIWKHLQVWLWXWLRQRUSHUVRQOHQGLQJWKHPRQH\DV ,QWURGXFWLRQWR
VHFXULW\IRUWKHQRWH,IWKHGHEWRUGRHVGHIDXOWWKHOHQGHUKDVWKHULJKWWRVHOO 6HFXULW\$QDO\VLV
WKH KRXVHLQ RUGHU WR FRYHU WKH GHEW 0RUWJDJHV DUH FRPELQHG ZLWK RWKHU
PRUWJDJHVWRFUHDWHZKDWLVFDOOHGPRUWJDJHEDFNHGVHFXULWLHV7KHVHVHFXULWLHV
DUHEDFNHGE\WKHPRUWJDJHVDWWDFKHG7KHSURFHVVRIFRQYHUWLQJDVVHWVLQWR 127(6
DQHJRWLDEOHVHFXULW\IRUUHVDOHLQWKHILQDQFLDOPDUNHWVLVNQRZQDVVHFXULWL]LQJ
WKHDVVHW
(48,7,(6
7KHSULQFLSDOIRFXVRIVHFXULWLHVUHJXODWLRQLVRQWKHHTXLWLHVPDUNHWEHFDXVHLW
DWWUDFWVPXFKPRUHLQWHUHVWIURPWKHJHQHUDOSXEOLFZKLFKLVXVXDOO\OHVVVRSKLVWL
FDWHGWKDQSURIHVVLRQDORULQVWLWXWLRQDOLQYHVWRUV7KLVPDUNHWWUDGHVVKDUHVRIFRP
PRQVWRFNVLVVXHGE\FRUSRUDWLRQV
z &RPPRQ6WRFN
$OOFRUSRUDWLRQVLVVXHDVWRFNWKDWKDVWKHODVWFODLPRQWKHFRUSRUDWLRQ¶VDVVHWV
7KHPRVWIUHTXHQWO\XVHGWHUPIRUWKLVNLQGRIVWRFNLVFRPPRQVWRFN,WLVWKH
ILUVWVHFXULW\WREHLVVXHGDQGWKHODVWWREHUHWLUHG&RPPRQVWRFNUHSUHVHQWV
WKHFKLHIRZQHUVKLSRIDFRUSRUDWLRQDQGXVXDOO\LVWKHRQO\LVVXHWKDWKDVDYRWH
LQPDQDJLQJWKHFRUSRUDWLRQ&RPPRQVWRFNRZQHUVPD\UHFHLYHQRWKLQJIRU
WKHLUVKDUHVLQWKHHYHQWWKHFRUSRUDWLRQEHFRPHVEDQNUXSWRULVIRUFHGLQWR
OLTXLGDWLRQ
z 3UHIHUUHG6WRFN
7KLVW\SHRIVWRFNXVXDOO\GRHVQRWKDYHDQ\YRWLQJULJKWVDQGLVRIWHQUHWLUHG
DIWHUDFHUWDLQSHULRGRIWLPHXVXDOO\DERXW\HDUV7KH³SUHIHUHQFH´FRPHV
LQWKDWWKHVHVKDUHVDUHHQWLWOHGWRGLYLGHQGSD\PHQWVRUFODLPVRQDVVHWVLQWKH
FDVHRIEDQNUXSWF\EHIRUHDQ\SD\PHQWWRWKHFRPPRQVWRFNKROGHUVEXWVWLOO
RQO\DIWHUDOOERQGKROGHUVKDYHEHHQSDLG
z 6WRFN6SOLWV
$VWRFNVSOLWRFFXUVZKHQDFRPSDQ\GLYLGHVLWVVKDUHV7KHVSOLWKDVQRHIIHFW
RQWKHFRPSDQ\¶VQHWZRUWKRUWKHYDOXHRIWKHVKDUHKROGHU¶VLQYHVWPHQW$VSOLW
MXVWVSUHDGVWKHLQYHVWPHQWRYHUPRUHVKDUHV)RUH[DPSOHLIDFRUSRUDWLRQ
ZLWKPLOOLRQVKDUHVRXWVWDQGLQJVKRXOGLQFUHDVHWKDWQXPEHUWRPLOOLRQWKHQ
LWZRXOGEHVDLGWKDWWKHFRUSRUDWLRQVSOLWWKHVKDUHVIRUDQGWKHSULFHRI
WKHVKDUHZRXOGEHGLYLGHGE\$UHYHUVHVWRFNVSOLWRQWKHRWKHUKDQG
UHGXFHV WKH QXPEHU RI VKDUHV DQG LQFUHDVHV WKH SULFH RI WKH VWRFN 6RPH
H[FKDQJHVUHTXLUHDPLQLPXPVWRFNSULFHWREHOLVWHGDQGDUHYHUVHVSOLWPD\
EHGRQHWRFRPSO\ZLWKWKLVUHTXLUHPHQW9HU\ORZSULFHGVKDUHVDUHIUHTXHQWO\
UHIHUUHGWRDV³SHQQ\VWRFNV´HYHQWKRXJKWKH\PD\EHVHOOLQJIRUPRUHWKDQ
WKDWDQGDUHQRWYHU\ZHOOUHJDUGHGE\WKHLQYHVWPHQWFRPPXQLW\$UHYHUVH
VWRFNVSOLWZRXOGUDLVHWKHSULFHRIWKHVWRFNDQGSHUKDSVWKHSURILOHRIWKH
FRPSDQ\LQWKHPDUNHWSODFH5HYHUVHVWRFNVSOLWVPD\LQGLFDWHWKDWDFRPSDQ\
LVLQILQDQFLDOWURXEOH
z '5,36
'LYLGHQG5H,QYHVWPHQW3ODQVRU'5,36DVWKH\DUHFRPPRQO\NQRZQDUH 6HOI,QVWUXFWLRQDO 0DWHULDO
SODQVWKDWDUHVSRQVRUHGE\PRVWODUJHFRPSDQLHV7KHVHSODQVDOORZWKHVKDUH 
6HFXULW\$QDO\VLV KROGHUWRUHLQYHVWDOOFDVKGLYLGHQGVGLUHFWO\LQWRWKHSXUFKDVHRIDGGLWLRQDO
3RUWIROLR0DQDJHPHQW VKDUHVRIWKHFRUSRUDWLRQ7KHVHVKDUHVDUHSXUFKDVHGGLUHFWO\IURPWKHFRUSR
UDWLRQLQWKHSULPDU\PDUNHW7KHUHLQYHVWPHQWLVDXWRPDWLFDQGKDQGOHGE\WKH
FRUSRUDWLRQ1RVKDUHFHUWLILFDWHVDUHLVVXHGWKHVKDUHVDUHERRNHQWU\KROG
127(6 LQJVDQGXVXDOO\LQFOXGHIUDFWLRQDOVKDUHVWKDWFRXOGQRWEHSXUFKDVHGLQWKH
VHFRQGDU\PDUNHW
z 7UHDVXU\6WRFN
6KDUHVWKDWKDYHEHHQLVVXHGWRWKHSXEOLFLQWKHSULPDU\PDUNHWDQGWKHQ
UHSXUFKDVHGE\DFRPSDQ\IURPLWVRZQVKDUHKROGHUVLQWKHVHFRQGDU\PDUNHW
DUHUHIHUUHGWRDVWUHDVXU\VKDUHVEHFDXVHWKH\DUHUHWXUQHGWRWKHWUHDVXU\RI
WKHFRPSDQ\7KHVHVKDUHVKDYHQRYRWLQJULJKWVUHFHLYHQRGLYLGHQGVDQGDUH
QRWXVHGLQWKHFRPSXWDWLRQRIHDUQLQJVSHUVKDUHLQWKHFRUSRUDWLRQ¶VILQDQFLDO
UHFRUGV7KHFRUSRUDWLRQPD\XVHWUHDVXU\VWRFNIRUHPSOR\HHVWRFNSXUFKDVH
SODQVWRIXQGH[HFXWLYHVWRFNRSWLRQVRUERQXVHVDVDYHKLFOHWRDFTXLUHWKH
DVVHWVRIDQRWKHUFRUSRUDWLRQWKURXJKDQH[FKDQJHRIVWRFNWHQGHURIIHURU
VLPSO\DVDQLQYHVWPHQWEHFDXVHWKHERDUGRIGLUHFWRUVEHOLHYHVWKDWWKHVWRFN
LVXQGHUSULFHGDQGPD\HYHQEHEHORZERRNYDOXH
z 'HSRVLWRU\ 5HFHLSWV
'HSRVLWRU\UHFHLSWVHYLGHQFHVKDUHVRIDFRUSRUDWLRQWKDWLVLQFRUSRUDWHGRXW
VLGHWKHFRXQWU\LQZKLFKWKHUHFHLSWVDUHWUDGHG'HSRVLWRU\UHFHLSWVDUHXVXDOO\
QDPHGDIWHUWKHFRXQWU\LQZKLFKWKH\VHOODQGDUHXVXDOO\UHIHUUHGWRE\DQ
DFURQ\PPDGHXSRIWKHILUVWOHWWHURIWKHVHOOLQJFRXQWU\IROORZHGE\'5IRU
GHSRVLWRU\UHFHLSWV
&2002',7,(6
$FRPPRGLW\LVQRWWHFKQLFDOO\DVHFXULW\EXWWKHFRQWUDFWWREX\RUVHOOWKHFRP
PRGLW\LVDVHFXULW\%HFDXVHLWLVWKHFRQWUDFWVWREX\RUVHOOWKDWDUHEHLQJWUDGHG
LQYHVWRUVGHDOZLWKWKHVHVHFXULWLHVZLWKRXWHYHUVHHLQJWKHFRPPRGLW\WKDWLVWKH
VXEMHFWRIWKHFRQWUDFW7KHFRPPRGLW\LVGHVFULEHGLQWKHFRQWUDFWDQGWKHQHHG
WRVHHRUKDQGOHWKHDFWXDOFRPPRGLW\GRHVQRWDULVH7KHFRPPRGLWLHVPDUNHW
LQYROYHVWKHSXUFKDVHRUVDOHRISURGXFWVVXFKDVRLOJROGVLOYHUFRSSHUDQGPDQ\
DJULFXOWXUDOSURGXFWV&XUUHQF\PDUNHWVKDYHEHFRPHWKHXOWLPDWHFRPPRGLW\PDU
NHWVZLWKZRUOGZLGHLQIOXHQFH,QWHUHVWUDWHVDQGVSHFLILFVWRFNLQGH[HVDUHWZR
RWKHURIWKHPRVWUHFHQWO\LQWURGXFHGVXEMHFWVRIFRPPRGLW\FRQWUDFWV6LQFHVRPH
FRPPRGLWLHVFDQQRWEHGHOLYHUHGLQWHUHVWUDWHVDQGPRVWFRPPRGLW\WUDGHUVGRQ¶W
ZDQWWKHFRPPRGLW\GHOLYHUHGSRUNEHOOLHVFRPPRGLW\FRQWUDFWVPD\DOVREH
VHWWOHGIRUFDVKUDWKHUWKDQWKHXQGHUO\LQJFRPPRGLW\WKDWLVWKHVXEMHFWPDWWHURI
WKHFRQWUDFW7KHSULFHRIWKHVHWWOHPHQWLVGHWHUPLQHGE\WKHGLIIHUHQFHLQWKHFRVW
RIWKHFRPPRGLW\DWWKHWLPHRISXUFKDVHRUVDOHDQGWKHFRVWRIWKHFRPPRGLW\DW
WKHWLPHRIWKHH[SLUDWLRQRIWKHFRQWUDFW
&RPPRGLW\SRVLWLRQVPD\DOVREHFORVHGRXWE\SXUFKDVLQJWKHRSSRVLWHSRVLWLRQ
UDWKHUWKDQWKHFRPPRGLW\RUFDVK)RUH[DPSOHLIDWUDGHUKDVERXJKWDFRPPRG
LW\KHRUVKHZLOOVHOOWKHVDPHDPRXQWRIWKHVDPHFRPPRGLW\EHIRUHWKHH[SLUDWLRQ
RIWKHFRQWUDFW/LNHZLVHDVHOOHUZLOOEX\EDFNWKHFRQWUDFWLQRUGHUWRDYRLGKDYLQJ
6HOI,QVWUXFWLRQDO 0DWHULDO WRGHOLYHU%RWKWUDGHUVDUHVSHFXODWLQJRIFRXUVHWKDWWKH\ZLOOPDNHDSURILW
 EHWZHHQWKHILUVWDQGVHFRQGDFWLRQ
'(5,9$7,9(6 ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV
7KHZRUGGHULYDWLYHPHDQVWDNHQIURPVRPHWKLQJHOVH,QVHFXULWLHVLWGHSHQGV
XSRQDERQGRUVWRFN7KHVHVHFXULWLHVDUHGLUHFWREOLJDWLRQVRULQYHVWPHQWV(Y
HU\WKLQJHOVHLVGHULYHGIURPRQHRIWKHVHLQVWUXPHQWV)LQDQFLDOSURGXFWVWKDWZHUH
RQFHFDOOHG³KHGJLQJLQVWUXPHQWV´DUHQRZFDOOHGGHULYDWLYHVEXWDUHVWLOOZLGHO\XVHG 127(6
IRUWKHSXUSRVHRIKHGJLQJ7KHPRVWFRPPRQGHULYDWLYHVDUHIXWXUHVRSWLRQV
ZDUUDQWVVZDSVDQGUHSXUFKDVHDJUHHPHQWV
<RXPD\OHDUQPRUHDERXWWKHGHULYDWLYHVLQULVNPDQDJHPHQWSDSHU
/,67,1*2)6(&85,7,(6
/LVWLQJPHDQVDGPLVVLRQRIWKHVHFXULWLHVWRGHDOLQJVRQDUHFRJQL]HGVWRFNH[
FKDQJH7KHVHFXULWLHVPD\EHRIDQ\SXEOLFOLPLWHGFRPSDQ\&HQWUDORU6WDWH
*RYHUQPHQWTXDVLJRYHUQPHQWDODQGRWKHUILQDQFLDOLQVWLWXWLRQVFRUSRUDWLRQVPX
QLFLSDOLWLHVHWF
7KHREMHFWLYHVRIOLVWLQJDUHPDLQO\WR
x SURYLGHOLTXLGLW\WRVHFXULWLHV
x PRELOL]HVDYLQJVIRUHFRQRPLFGHYHORSPHQW
x 3URWHFWLQWHUHVWRILQYHVWRUVE\HQVXULQJIXOOGLVFORVXUHV
7KH([FKDQJHKDVDVHSDUDWH/LVWLQJ'HSDUWPHQWWRJUDQWDSSURYDOIRUOLVWLQJRI
VHFXULWLHVRIFRPSDQLHVLQDFFRUGDQFHZLWKWKHSURYLVLRQVRIWKH6HFXULWLHV&RQ
WUDFWV5HJXODWLRQ$FW6HFXULWLHV&RQWUDFWV5HJXODWLRQ5XOHV&RP
SDQLHV$FW*XLGHOLQHVLVVXHGE\6(%,DQG5XOHV%\HODZVDQG5HJXODWLRQV
RIWKH([FKDQJH
$FRPSDQ\LQWHQGLQJWRKDYHLWVVHFXULWLHVOLVWHGRQWKH([FKDQJHKDVWR
FRPSO\ZLWKWKHOLVWLQJUHTXLUHPHQWVSUHVFULEHGE\WKH([FKDQJH6RPHRI
WKHUHTXLUHPHQWVDUHDVXQGHU
, 0LQLPXP/LVWLQJ5HTXLUHPHQWVIRUQHZFRPSDQLHV
,, 0LQLPXP /LVWLQJ 5HTXLUHPHQWV IRU FRPSDQLHV OLVWHG RQ RWKHU VWRFN
H[FKDQJHV
,,, 0LQLPXP5HTXLUHPHQWVIRUFRPSDQLHVGHOLVWHGE\WKLV([FKDQJHVHHNLQJ
UHOLVWLQJRIWKLV([FKDQJH
,9 3HUPLVVLRQ WR XVH WKH QDPH RI WKH ([FKDQJH LQ DQ ,VVXHU &RPSDQ\¶V
SURVSHFWXV
9 6XEPLVVLRQRI/HWWHURI$SSOLFDWLRQ
9, $OORWPHQWRI6HFXULWLHV
9,, 7UDGLQJ3HUPLVVLRQ
9,,,5HTXLUHPHQWRI6HFXULW\
,; 3D\PHQWRI/LVWLQJ)HHV
; &RPSOLDQFHZLWK/LVWLQJ$JUHHPHQW
;, &DVK0DQDJHPHQW6HUYLFHV&06&ROOHFWLRQRI/LVWLQJ)HHV 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 0LQLPXP/LVWLQJ5HTXLUHPHQWVIRUQHZFRPSDQLHV
3RUWIROLR0DQDJHPHQW 7KHIROORZLQJUHYLVHGHOLJLELOLW\FULWHULDIRUOLVWLQJRIFRPSDQLHVRQWKH([FKDQJH
WKURXJK,QLWLDO3XEOLF2IIHULQJV,32V )ROORZRQ3XEOLF2IIHULQJV)32VHIIHF
WLYH$XJXVW
127(6
(/,*,%,/,7<&5,7(5,$)25,32V)32V
 &RPSDQLHVKDYHEHHQFODVVLILHGDVODUJHFDSFRPSDQLHVDQGVPDOOFDS
FRPSDQLHV$ODUJHFDSFRPSDQ\LVDFRPSDQ\ZLWKDPLQLPXPLVVXHVL]H
RI5VFURUHVDQGPDUNHWFDSLWDOL]DWLRQRIQRWOHVVWKDQ5VFURUHV
$VPDOOFDSFRPSDQ\LVDFRPSDQ\RWKHUWKDQDODUJHFDSFRPSDQ\
D ,QUHVSHFWRI/DUJH&DS&RPSDQLHV
L 7KHPLQLPXPSRVWLVVXHSDLGXSFDSLWDORIWKHDSSOLFDQWFRPSDQ\
KHUHLQDIWHUUHIHUUHGWRDV³WKH&RPSDQ\´VKDOOEH5VFURUHVDQG
LL 7KHPLQLPXPLVVXHVL]HVKDOOEH5VFURUHVDQG
LLL 7KHPLQLPXPPDUNHWFDSLWDOL]DWLRQRIWKH&RPSDQ\VKDOOEH5V
FURUHVPDUNHWFDSLWDOL]DWLRQVKDOOEHFDOFXODWHGE\PXOWLSO\LQJWKH
SRVWLVVXHSDLGXSQXPEHURIHTXLW\VKDUHVZLWKWKHLVVXHSULFH
E ,QUHVSHFWRI6PDOO&DS&RPSDQLHV
L 7KHPLQLPXPSRVWLVVXHSDLGXSFDSLWDORIWKH&RPSDQ\VKDOOEH
5VFURUHVDQG
LL 7KHPLQLPXPLVVXHVL]HVKDOOEH5VFURUHVDQG
LLL 7KHPLQLPXPPDUNHWFDSLWDOL]DWLRQRIWKH&RPSDQ\VKDOOEH5V
FURUHVPDUNHWFDSLWDOL]DWLRQVKDOOEHFDOFXODWHGE\PXOWLSO\LQJWKH
SRVWLVVXHSDLGXSQXPEHURIHTXLW\VKDUHVZLWKWKHLVVXHSULFH
DQG
LY 7KHPLQLPXPLQFRPHWXUQRYHURIWKH&RPSDQ\VKRXOGEH5V
FURUHVLQHDFKRIWKHSUHFHGLQJWKUHHPRQWKVSHULRGDQG
Y 7KHPLQLPXPQXPEHURISXEOLFVKDUHKROGHUVDIWHUWKHLVVXHVKDOOEH

YL $GXHGLOLJHQFHVWXG\PD\EHFRQGXFWHGE\DQLQGHSHQGHQWWHDP
RI&KDUWHUHG$FFRXQWDQWVRU0HUFKDQW%DQNHUVDSSRLQWHGE\WKH
([FKDQJHWKHFRVWRIZKLFKZLOOEHERUQHE\WKHFRPSDQ\7KH
UHTXLUHPHQWRIDGXHGLOLJHQFHVWXG\PD\EHZDLYHGLIDILQDQFLDO
LQVWLWXWLRQRUDVFKHGXOHGFRPPHUFLDOEDQNKDVDSSUDLVHGWKHSURMHFW
LQWKHSUHFHGLQJPRQWKV
 )RUDOOFRPSDQLHV
D ,QUHVSHFWRIWKHUHTXLUHPHQWRISDLGXSFDSLWDODQGPDUNHWFDSLWDOL]D
WLRQWKHLVVXHUVVKDOOEHUHTXLUHGWRLQFOXGHLQWKHGLVFODLPHUFODXVH
IRUPLQJDSDUWRIWKHRIIHUGRFXPHQWWKDWLQWKHHYHQWRIWKHPDUNHW
FDSLWDOLVDWLRQSURGXFWRILVVXHSULFHDQGWKHSRVWLVVXHQXPEHURIVKDUHV
UHTXLUHPHQWRIWKH([FKDQJHQRWEHLQJPHWWKHVHFXULWLHVRIWKHLVVXHU
ZRXOGQRWEHOLVWHGRQWKH([FKDQJH
E 7KHDSSOLFDQWSURPRWHUVDQGRUJURXSFRPSDQLHVVKRXOGQRWEHLQ
6HOI,QVWUXFWLRQDO 0DWHULDO
GHIDXOWLQFRPSOLDQFHRIWKHOLVWLQJDJUHHPHQW

 F 7KHDERYHHOLJLELOLW\FULWHULDZRXOGEHLQDGGLWLRQWRWKHFRQGLWLRQVSUH ,QWURGXFWLRQWR
VFULEHGXQGHU6(%,'LVFORVXUHDQG,QYHVWRU3URWHFWLRQ*XLGHOLQHV 6HFXULW\$QDO\VLV

0LQLPXP /LVWLQJ 5HTXLUHPHQWV IRU FRPSDQLHV OLVWHG RQ RWKHU VWRFN H[
FKDQJHV 127(6

7KH*RYHUQLQJ%RDUGRIWKH([FKDQJHDWLWVPHHWLQJKHOGRQWK$XJXVW
DPHQGHGWKHGLUHFWOLVWLQJQRUPVIRUFRPSDQLHVOLVWHGRQRWKHU6WRFN([FKDQJHV
DQGVHHNLQJOLVWLQJDW%6(7KHVHQRUPVDUHDSSOLFDEOHZLWKLPPHGLDWHHIIHFW
 7KHFRPSDQ\VKRXOGKDYHPLQLPXPLVVXHGDQGSDLGXSHTXLW\FDSLWDORI5V
FURUHV
 7KH&RPSDQ\VKRXOGKDYHSURILWPDNLQJWUDFNUHFRUGIRUODVWWKUHH\HDUV
7KHUHYHQXHVSURILWVDULVLQJRXWRIH[WUDRUGLQDU\LWHPVRULQFRPHIURPDQ\
VRXUFHRIQRQUHFXUULQJQDWXUHVKRXOGEHH[FOXGHGZKLOHFDOFXODWLQJGLVWULE
XWDEOHSURILWV
 0LQLPXPQHWZRUWKRI5VFURUHVQHWZRUWKLQFOXGHV(TXLW\FDSLWDODQG
IUHHUHVHUYHVH[FOXGLQJUHYDOXDWLRQUHVHUYHV
 0LQLPXPPDUNHWFDSLWDOL]DWLRQRIWKHOLVWHGFDSLWDOVKRXOGEHDWOHDVWWZR
WLPHVRIWKHSDLGXSFDSLWDO
 7KHFRPSDQ\VKRXOGKDYHDGLYLGHQGSD\LQJWUDFNUHFRUGIRUWKHODVW
FRQVHFXWLYH\HDUVDQGWKHPLQLPXPGLYLGHQGVKRXOGEHDWOHDVW
 0LQLPXPRIWKHFRPSDQ\¶VLVVXHGFDSLWDOVKRXOGEHZLWK1RQ3UR
PRWHUVVKDUHKROGHUVDVSHU&ODXVHRIWKH/LVWLQJ$JUHHPHQW2XWRI
DERYH1RQ3URPRWHUKROGLQJQRVLQJOHVKDUHKROGHUVKRXOGKROGPRUHWKDQ
RIWKHSDLGXSFDSLWDORIWKHFRPSDQ\LQGLYLGXDOO\RUMRLQWO\ZLWK
RWKHUVH[FHSWLQFDVHRI%DQNV)LQDQFLDO,QVWLWXWLRQV)RUHLJQ,QVWLWXWLRQDO
,QYHVWRUV2YHUVHDV&RUSRUDWH%RGLHVDQG1RQ5HVLGHQW,QGLDQV
 7KHFRPSDQ\VKRXOGKDYHDWOHDVWWZR\HDUVOLVWLQJUHFRUGZLWKDQ\RIWKH
5HJLRQDO6WRFN([FKDQJH
 7KHFRPSDQ\VKRXOGVLJQDQDJUHHPHQWZLWK&'6/ 16'/IRUGHPDW
WUDGLQJ
0LQLPXP5HTXLUHPHQWVIRUFRPSDQLHVGHOLVWHGE\WKLV([FKDQJHVHHNLQJ
UHOLVWLQJRIWKLV([FKDQJH
7KHFRPSDQLHVGHOLVWHGE\WKLV([FKDQJHDQGVHHNLQJUHOLVWLQJDUHUHTXLUHGWRPDNH
DIUHVKSXEOLFRIIHUDQGFRPSO\ZLWKWKHSUHYDLOLQJ6(%,¶VDQG%6(¶VJXLGHOLQHV
UHJDUGLQJLQLWLDOSXEOLFRIIHULQJV
3HUPLVVLRQWRXVHWKHQDPHRIWKH([FKDQJHLQDQ,VVXHU&RPSDQ\¶VSUR
VSHFWXV
7KH([FKDQJHIROORZVDSURFHGXUHLQWHUPVRIZKLFKFRPSDQLHVGHVLULQJWROLVWWKHLU
VHFXULWLHVRIIHUHGWKURXJKSXEOLFLVVXHVDUHUHTXLUHGWRREWDLQLWVSULRUSHUPLVVLRQWR
XVHWKHQDPHRIWKH([FKDQJHLQWKHLUSURVSHFWXVRURIIHUIRUVDOHGRFXPHQWVEHIRUH
ILOLQJWKHVDPHZLWKWKHFRQFHUQHGRIILFHRIWKH5HJLVWUDURI&RPSDQLHV7KH([
FKDQJHKDVVLQFHODVWWKUHH\HDUVIRUPHGD³/LVWLQJ&RPPLWWHH´WRDQDO\]HGUDIW 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV SURVSHFWXVRIIHUGRFXPHQWVRIWKHFRPSDQLHVLQUHVSHFWRIWKHLUIRUWKFRPLQJSXEOLF
3RUWIROLR0DQDJHPHQW LVVXHVRIVHFXULWLHVDQGGHFLGHXSRQWKHPDWWHURIJUDQWLQJWKHPSHUPLVVLRQWRXVH
WKHQDPHRI³%RPED\6WRFN([FKDQJH/LPLWHG´LQWKHLUSURVSHFWXVRIIHUGRFX
PHQWV7KHFRPPLWWHHHYDOXDWHVWKHSURPRWHUVFRPSDQ\SURMHFWDQGVHYHUDORWKHU
127(6 IDFWRUVEHIRUHWDNLQJGHFLVLRQLQWKLVUHJDUG
6XEPLVVLRQRI/HWWHURI$SSOLFDWLRQ
$VSHU6HFWLRQRIWKH&RPSDQLHV$FWDFRPSDQ\VHHNLQJOLVWLQJRILWV
VHFXULWLHVRQWKH([FKDQJHLVUHTXLUHGWRVXEPLWD/HWWHURI$SSOLFDWLRQWRDOOWKH
6WRFN([FKDQJHVZKHUHLWSURSRVHVWRKDYHLWVVHFXULWLHVOLVWHGEHIRUHILOLQJWKH
SURVSHFWXVZLWKWKH5HJLVWUDURI&RPSDQLHV
$OORWPHQWRI6HFXULWLHV
$VSHU/LVWLQJ$JUHHPHQWDFRPSDQ\LVUHTXLUHGWRFRPSOHWHDOORWPHQWRIVHFXULWLHV
RIIHUHGWRWKHSXEOLFZLWKLQGD\VRIWKHGDWHRIFORVXUHRIWKHVXEVFULSWLRQOLVW
DQGDSSURDFKWKH5HJLRQDO6WRFN([FKDQJHLH6WRFN([FKDQJHQHDUHVWWRLWV
5HJLVWHUHG2IILFHIRUDSSURYDORIWKHEDVLVRIDOORWPHQW
,QFDVHRI%RRN%XLOGLQJLVVXH$OORWPHQWVKDOOEHPDGHQRWODWHUWKDQGD\VIURP
WKHFORVXUHRIWKHLVVXHIDLOLQJZKLFKLQWHUHVWDWWKHUDWHRIVKDOOEHSDLGWRWKH
LQYHVWRUV
7UDGLQJ3HUPLVVLRQ
$VSHU6HFXULWLHVDQG([FKDQJH%RDUGRI,QGLD*XLGHOLQHVWKHLVVXHUFRPSDQ\
VKRXOGFRPSOHWHWKHIRUPDOLWLHVIRUWUDGLQJDWDOOWKH6WRFN([FKDQJHVZKHUHWKH
VHFXULWLHVDUHWREHOLVWHGZLWKLQZRUNLQJGD\VRIILQDOL]DWLRQRI%DVLVRI$OORWPHQW
$FRPSDQ\VKRXOGVFUXSXORXVO\DGKHUHWRWKHWLPHOLPLWIRUDOORWPHQWRIDOOVHFXULWLHV
DQGGLVSDWFKRI$OORWPHQW/HWWHUV6KDUH&HUWLILFDWHVDQG5HIXQG2UGHUVDQGIRU
REWDLQLQJWKHOLVWLQJSHUPLVVLRQVRIDOOWKH([FKDQJHVZKRVHQDPHVDUHVWDWHGLQLWV
SURVSHFWXVRURIIHUGRFXPHQWV,QWKHHYHQWRIOLVWLQJSHUPLVVLRQWRDFRPSDQ\EHLQJ
GHQLHGE\DQ\6WRFN([FKDQJHZKHUHLWKDGDSSOLHGIRUOLVWLQJRILWVVHFXULWLHVLW
FDQQRWSURFHHGZLWKWKHDOORWPHQWRIVKDUHV+RZHYHUWKHFRPSDQ\PD\ILOHDQ
DSSHDOEHIRUHWKH6HFXULWLHVDQG([FKDQJH%RDUGRI,QGLDXQGHU6HFWLRQRIWKH
6HFXULWLHV&RQWUDFWV5HJXODWLRQ$FW
5HTXLUHPHQWRI6HFXULW\
7KHFRPSDQLHVPDNLQJSXEOLFULJKWVLVVXHVDUHUHTXLUHGWRGHSRVLWRILVVXH
DPRXQWZLWKWKH5HJLRQDO6WRFN([FKDQJHEHIRUHWKHLVVXHRSHQV7KLVDPRXQWLV
OLDEOHWREHIRUIHLWHGLQWKHHYHQWRIWKHFRPSDQ\QRWUHVROYLQJWKHFRPSODLQWVRI
LQYHVWRUVUHJDUGLQJGHOD\LQVHQGLQJUHIXQGRUGHUVVKDUHFHUWLILFDWHVQRQSD\PHQWRI
FRPPLVVLRQWRXQGHUZULWHUVEURNHUVHWF
3D\PHQWRI/LVWLQJ)HHV
$OOFRPSDQLHVOLVWHGRQWKH([FKDQJHKDYHWRSD\$QQXDO/LVWLQJ)HHVE\WKHWK
$SULORIHYHU\ILQDQFLDO\HDUWRWKH([FKDQJHDVSHUWKH6FKHGXOHRI/LVWLQJ)HHV
SUHVFULEHGIURPWLPHWRWLPH
7KHVFKHGXOHRIOLVWLQJIHHVIRUWKH\HDUSUHVFULEHGE\WKH*RYHUQLQJ
6HOI,QVWUXFWLRQDO 0DWHULDO
%RDUGRIWKH([FKDQJHLVJLYHQKHUHXQGHU

6&+('8/(2)/,67,1*)((6)257+(<($5 ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV
6U $PRXQW
3DUWLFXODUV
1R 5V
127(6
 ,QLWLDO/LVWLQJ)HHV 

 
$QQXDO /LVWLQJ )HHV

L &RPSDQLHV ZLWK SDLGXS FDSLWDO  XSWR 5V  FURUHV



LL $ERYH5V  FURUHV DQG XS WR 5V  FURUHV



LLL$ERYH5VFURUHVDQGXSWR5VFURUHV


 &RPSDQLHVZKLFKKDYHDSDLGXSFDSLWDO RIPRUHWKDQ 5V FURUHV ZLOOSD\


DGGLWLRQDOIHHRI5VIRUHYHU\LQFUHDVHRI5VFURUHVRUSDUWWKHUHRI

 ,Q FDVHRIGHEHQWXUH FDSLWDOQRW FRQYHUWLEOH LQWRHTXLW\VKDUHVRIFRPSDQLHV

WKHIHHVZLOOEHFKDUJHG#RIWKHIHHVSD\DEOHDVSHUWKHDERYHPHQWLRQHG 
VFDOHV

LQFOXGHV HTXLW\ VKDUHV SUHIHUHQFH VKDUHV IXOO\ FRQYHUWLEOH GHEHQWXUHV SDUWO\ FRQYHUWLEOH
GHEHQWXUHFDSLWDODQGDQ\RWKHUVHFXULW\ZKLFKZLOOEHFRQYHUWHGLQWRHTXLW\VKDUHV

.LQGO\1RWHWKHODVWGDWHIRUSD\PHQWRIOLVWLQJIHHIRUWKH\HDU
LV$SULO)DLOXUHWRSD\WKHOLVWLQJIHHIRUWKHHTXLW\DQGRUGHEW
VHJPHQWEHIRUHWKHGXHGDWHLH$SULOZLOODWWUDFWLPSRVLWLRQRI
LQWHUHVW#SHUDQQXPZHI0D\

&RPSOLDQFHZLWK/LVWLQJ$JUHHPHQW
7KHFRPSDQLHVGHVLURXVRIJHWWLQJWKHLUVHFXULWLHVOLVWHGDUHUHTXLUHGWRHQWHULQWRDQ
DJUHHPHQWZLWKWKH([FKDQJHFDOOHGWKH/LVWLQJ$JUHHPHQWDQGWKH\DUHUHTXLUHGWR
PDNHFHUWDLQGLVFORVXUHVDQGSHUIRUPFHUWDLQDFWV$VVXFKWKHDJUHHPHQWLVRI
JUHDWLPSRUWDQFHDQGLVH[HFXWHGXQGHUWKHFRPPRQVHDORIDFRPSDQ\8QGHUWKH
/LVWLQJ$JUHHPHQWDFRPSDQ\XQGHUWDNHVDPRQJVWRWKHUWKLQJVWRSURYLGHIDFLOLWLHV
IRUSURPSWWUDQVIHUUHJLVWUDWLRQVXEGLYLVLRQDQGFRQVROLGDWLRQRIVHFXULWLHVWRJLYH
SURSHUQRWLFHRIFORVXUHRIWUDQVIHUERRNVDQGUHFRUGGDWHVWRIRUZDUGFRSLHVRI
XQDEULGJHG$QQXDO5HSRUWVDQG%DODQFH6KHHWVWRWKHVKDUHKROGHUVWRILOH'LVWUL
EXWLRQ6FKHGXOHZLWKWKH([FKDQJHDQQXDOO\WRIXUQLVKILQDQFLDOUHVXOWVRQDTXDUWHUO\
EDVLVLQWLPDWHSURPSWO\WRWKH([FKDQJHWKHKDSSHQLQJVZKLFKDUHOLNHO\WRPDWH
ULDOO\DIIHFWWKHILQDQFLDOSHUIRUPDQFHRIWKH&RPSDQ\DQGLWVVWRFNSULFHVWR
FRPSO\ZLWKWKHFRQGLWLRQVRI&RUSRUDWH*RYHUQDQFHHWF
7KH/LVWLQJ'HSDUWPHQWRIWKH([FKDQJHPRQLWRUVWKHFRPSOLDQFHRIWKHFRPSDQLHV 6HOI,QVWUXFWLRQDO 0DWHULDO
ZLWKWKHSURYLVLRQVRIWKH/LVWLQJ$JUHHPHQWHVSHFLDOO\ZLWKUHJDUGWRWLPHO\SD\ 
6HFXULW\$QDO\VLV PHQWRIDQQXDOOLVWLQJIHHVVXEPLVVLRQRITXDUWHUO\UHVXOWVUHTXLUHPHQWRIPLQLPXP
3RUWIROLR0DQDJHPHQW QXPEHURIVKDUHKROGHUVHWFDQGWDNHVSHQDODFWLRQDJDLQVWWKHGHIDXOWLQJFRPSD
QLHV
&DVK 0DQDJHPHQW 6HUYLFHV &06  &ROOHFWLRQ RI /LVWLQJ )HHV
127(6
$VDIXUWKHUVWHSWRZDUGVVLPSOLI\LQJWKHV\VWHPRISD\PHQWRIOLVWLQJIHHVWKH
([FKDQJHKDVHQWHUHGLQWRDQDUUDQJHPHQWZLWK+')&%DQNIRUFROOHFWLRQRIOLVWLQJ
IHHVIURPORFDWLRQVVLWXDWHGDOORYHU,QGLD'HWDLOVRIWKH+')&%DQNEUDQFKHV
DUHDYDLODEOHRQRXUZHEVLWHVLWHZZZEVHLQGLDFRPDVZHOODVRQWKH+')&%DQN
ZHEVLWHZZZKGIFEDQNFRP7KHDERYHIDFLOLW\LVEHLQJSURYLGHGIUHHRIFRVWWRWKH
&RPSDQLHV
&RPSDQLHVLQWHQGLQJWRXWLOL]HWKHDERYHIDFLOLW\IRUSD\PHQWRIOLVWLQJIHHZRXOGEH
UHTXLUHGWRIXUQLVKWKHLQIRUPDWLRQPHQWLRQHGEHORZLQWKH&DVK0DQDJHPHQW
&DVK'HSRVLW6OLS7KHVHVOLSVZRXOGEHDYDLODEOHDWDOOWKH+')&%DQNFHQWHUV
 61R +($' ,1)250$7,2172%(3529,'('
 &OLHQW1DPH %RPED\6WRFN([FKDQJH/LPLWHG
 &OLHQW&RGH %6(/,67
 &KHTXH1R PHQWLRQWKHFKHTXH1R GDWH
 'DWH 'DWHRQZKLFKSD\PHQWLVEHLQJGHSRVLWHGZLWK
WKHEDQN
 'UDZHU 6WDWHWKHQDPHRIWKHFRPSDQ\DQGWKHFRPSDQ\
FRGH1R7KHODVWGLJLWVPHQWLRQHGLQWKH5HI1R
RQWKH%LOOLVWKHFRPSDQ\FRGH1RHJ,IWKH5HI
1RLQWKH%LOOLVPHQWLRQHGDV/LVWLQJ$OI%LOO
 WKHQ WKH FRGH 1R RI WKDW
FRPSDQ\LV
 'UDZHH%DQN VWDWHWKHEDQNRQZKLFKFKHTXHLVGUDZQ
 'UDZQRQ/RFDWLRQ 0HQWLRQWKHORFDWLRQRIWKHGUDZHHEDQN
 3LFNXS/RFDWLRQ 1RWDSSOLFDEOH
 1RRI,QVWV 1RWDSSOLFDEOH
7KH&KHTXHVKRXOGEHGUDZQLQIDYRURI%RPED\6WRFN([FKDQJH/LPLWHGDQG
VKRXOGEHSD\DEOHORFDOO\&RPSDQLHVDUHUHTXHVWHGWRPHQWLRQLQWKHGHSRVLWVOLS
WKHILQDQFLDO\HDUVIRUZKLFKOLVWLQJIHHLVEHLQJSDLG3D\PHQWPDGHWKURXJKDQ\
RWKHUVOLSVZRXOGQRWEHFRQVLGHUHG7KHDERYHVOLSVZLOOKDYHWREHILOOHGLQ
TXDGUXSOLFDWH
&RVWRI,QYHVWPHQWLQ6HFXULWLHV
7KHWHUP³&RVWRILQYHVWPHQW´UHIHUVWRWKHRULJLQDOYDOXHRIDQDVVHWDGMXVWHGIRU
VWRFNVSOLWVGLYLGHQGVDQGFDSLWDOGLVWULEXWLRQV,WLVXVHGWRFDOFXODWHWKHFDSLWDOJDLQ
RUORVVRQDQLQYHVWPHQWIRUWD[SXUSRVHV
6HOI,QVWUXFWLRQDO 0DWHULDO $WWKHPRVWEDVLFOHYHOWKHFRVWEDVLVRIDQLQYHVWPHQWLVMXVWWKHWRWDODPRXQW
 LQYHVWHG LQWR WKH FRPSDQ\SOXV DQ\FRPPLVVLRQV LQYROYHG LQ WKH SXUFKDVH
7KLVFDQHLWKHUEHGHVFULEHGLQWHUPVRIWKH5XSHHVDPRXQWRIWKHLQYHVWPHQWRUWKH ,QWURGXFWLRQWR
HIIHFWLYHSHUVKDUHSULFHWKDWZHSDLGIRUWKHLQYHVWPHQW 6HFXULW\$QDO\VLV

([DPSOH,I0U5DMHVKLQYHVWHG5VLQ$%&&RPSDQ\ZKLFKJDYHKLP
VKDUHVLQWKHFRPSDQ\7KHFRVWEDVLVRIWKHLQYHVWPHQWLV5VEXW
127(6
LWLVPRUHRIWHQH[SUHVVHGLQWHUPVRIDSHUVKDUHEDVLVVRIRUWKLVLQYHVWPHQWLW
ZRXOGEH5V5V
,QEULHIWKHFRVWRILQYHVWLQJLQVHFXULWLHVLQYROYHV
([SOLFLW&RVWV
 3XUFKDVH3ULFH
 %URNHUDJH
 7UDQVDFWLRQ7D[
 &DSLWDO*DLQ7D[
,PSOLFLW&RVWV
 2SSRUWXQLW\&RVWRIIXQGV
 5LVNLQYROYHGLQWKH6HFXULW\
 )XWXUH7UDQVDFWLRQ&RVWV\RXQHHGWRSD\EURNHUDJHHWFWRVHOOWKH
VHFXULWLHVVRDVWRHQFDVKWKHVHFXULWLHV
 0RQLWRULQJ&RVWV\RXQHHGWRPRQLWRUKRZWKHVHFXULW\SULFHVPRYHDQG
WDNHFRUUHFWGHFLVLRQ

0(&+$1,602),19(67,1*

7KHUHDUHVWHSVXQGHUPHFKDQLVPRILQYHVWLQJ7KH\DUHDVIROORZLQJ
6(77,1*7+(,19(670(172%-(&7,9(
7KHILUVWVWHSIRUWKHLQYHVWRULVWRVHWWKHLQYHVWPHQWREMHFWLYHZKLFKZRXOGYDU\
IRULQGLYLGXDOVSHQVLRQDQGPXWXDOIXQGVEDQNVILQDQFLDOLQVWLWXWLRQVLQVXUDQFH
FRPSDQLHVHWF)RUH[DPSOHWKHREMHFWLYHIRUDSHQVLRQRUPXWXDOIXQGRULQVXUDQFH
FRPSDQ\PD\EHWRKDYHDFDVKIORZVSHFLILFDWLRQWRVDWLVI\OLDELOLWLHVDWGLIIHUHQW
GDWHVLQWKHIXWXUH7KHVHOLDELOLWLHVZRXOGLQFOXGHUHGHPSWLRQGLYLGHQGVRUFODLP
VHWWOHPHQWSD\RXWVEXWLQWKHFDVHRILQGLYLGXDOLQYHVWRUWKHREMHFWLYHPD\EHWR
RSWLPL]HUHWXUQRQLQYHVWPHQW7RPD[LPL]HUHWXUQZRXOGLPSO\WKHPD[LPL]DWLRQRI
ULVNZKLFKZRXOGQRWEHSUDFWLFDORUVXVWDLQDEOH
,WZRXOGEHTXLWHLQRUGHUWRSUHVHQWDVDPSOHLQYHVWPHQWREMHFWLYHIRUIXUWKHU 6HOI,QVWUXFWLRQDO 0DWHULDO
DQDO\VLVDQGPRGLILFDWLRQWRVXLWWKHUHTXLUHPHQWVRILQGLYLGXDOLQYHVWRUV7KHREMHF 
6HFXULW\$QDO\VLV WLYHZRXOGUHYROYHDURXQGDVSHFWVRILQFRPHJHQHUDWLRQJURZWKRIWKHLQYHVWPHQW
3RUWIROLR0DQDJHPHQW FDSLWDOVWDELOLW\DQGLPSOHPHQWDWLRQ
(67$%/,6+,1*,19(670(1732/,&<(VWDEOLVKLQJRUVHWWLQJLQYHVWPHQW
SROLF\EHJLQVZLWKDVVHWDOORFDWLRQDPRQJVWWKHPDMRUDVVHWFODVVHVDYDLODEOHLQWKH
127(6 FDSLWDOPDUNHWZKLFKUDQJHIURPHTXLWLHVGHEWIL[HGLQFRPHVHFXULWLHVUHDOHVWDWH
DQGIRUHLJQVHFXULWLHVWRFXUUHQFLHV:KLOHHVWDEOLVKLQJWKHLQYHVWPHQWSROLF\WKH
FRQVWUDLQWVRIWKHHQYLURQPHQWDQGWKDWRIWKHLQYHVWRUKDYHWREHNHSWLQSHUVSHF
WLYH7KHHQYLURQPHQWZRXOGLQFOXGHJRYHUQPHQWUXOHVDQGUHJXODWLRQVRUUHVWULF
WLRQVDQRWKHUZRXOGEHWKHRSHUDWLQJV\VWHPRIWKHPDUNHWSODFH,QGLYLGXDOFRQ
VWUDLQWVZRXOGLQFOXGHILQDQFLDOFDSDELOLW\DYDLODELOLW\RIWLPHWRXQGHUWDNHWKHH[HU
FLVHULVNSURILOHDQGWKHOHYHORIXQGHUVWDQGLQJWKHLQYHVWRUKDVRIWKHLQYHVWPHQW
HQYLURQPHQW
)URPWKHSHUVSHFWLYHRIWKHLQGLYLGXDOLQYHVWRULWZRXOGEHPRUHDPDWWHURI
VWUDWHJ\DQGWDFWLFVZKLOHHQJDJLQJGLUHFWO\ZLWKWKHLQYHVWPHQWHQYLURQPHQWWKURXJK
WKHYDULRXVPDUNHWVKHPD\KDYHDFFHVVWRDQGZRXOGLQFOXGHWKHVWRFNPDUNHW
DPRQJVWRWKHUPDUNHWVERWKUHJLRQDODQGJOREDO,WZRXOGEHTXLWHLQRUGHUWR
SUHVHQWDVDPSOHLQYHVWPHQWSROLF\IRUIXUWKHUDQDO\VLVDQGPRGLILFDWLRQWRVXLWWKH
UHTXLUHPHQWVRILQGLYLGXDOLQYHVWRUV
6(/(&7,1*7+(3257)2/,2675$7(*<7KHSRUWIROLRVWUDWHJ\VHOHFWHG
ZRXOGKDYHWREHLQFRQIRUPLW\ZLWKERWKWKHLQYHVWPHQWREMHFWLYHDQGLQYHVWPHQW
SROLF\JXLGHOLQHV$Q\FRQWUDGLFWLRQKHUHZRXOGUHVXOWLQDV\VWHPVEUHDNGRZQDQG
ORVVHV
/HW¶VFRQVLGHUDSHUVRQZLWKDMREWKDWNHHSVKLPEXV\IRUKRXUVDGD\ILYH
GD\VRIWKHZHHN2Q6DWXUGD\KHKHOSVWKHIDPLO\ZLWKKRXVHKROGFKRUHV2Q
6XQGD\KHWDNHVWKHGD\RIIDQGHQMR\VKLPVHOI1RZZLWKVXFKDEXV\OLIHZH
FDQQRWH[SHFWKLPWRREWDLQRSWLPDOUHWXUQVIURPLQYHVWPHQWVLQWKHHTXLW\PDUNHW
:KHUHLVWKHWLPHIRUWKRXJKWDQDO\VLVDQGDFWLRQ")RUDSHUVRQZLWKVXFKDEXV\
OLIHVFKHGXOHLWZRXOGEHEHVWWRLQYHVWLQIL[HGLQFRPHVHFXULWLHV7KHVHZRXOG
LQFOXGH5%,ERQGV%DQNGHSRVLWVLQVXUDQFHHWFZKHUHWKHUHLVDORZHUEXWDV
VXUHGUHWXUQ+RZHYHULIWKLVDYHUDJHKDUGZRUNLQJDQGVXFFHVVIXOSHUVRQVWLOO
ZDQWVWRLQYHVWLQWKHHTXLW\PDUNHWIRUDUHODWLYHO\KLJKHUUDWHRIUHWXUQ7KHQKH
ZRXOGKDYHWRFUHDWHWKHWLPHIRUWKHWKRXJKWDQDO\VLVDQGDFWLRQUHTXLUHGIRU
VXFFHVVLQWKLVHQGHDYRU8QGHUWKLVVWHSDQLQYHVWRUVKRXOGORRNLQWRPDWWHUVRI
PDUNHWWLPLQJVHFWRUURWDWLRQVWRFNVHOHFWLRQDQGFRQFHSWXDOL]DWLRQ
6(/(&7,1*7+($66(76,WLVRILPSRUWDQFHIRUWKHLQYHVWRUWRVHOHFWVSHFLILF
DVVHWVWREHLQFOXGHGLQWKHSRUWIROLR,WLVKHUHWKDWWKHLQYHVWRURUPDQDJHUDWWHPSWV
WRFRQVWUXFWDQRSWLPDORUHIILFLHQWSRUWIROLRZKLFKZRXOGJLYHWKHH[SHFWHGUHWXUQ
IRUDJLYHQOHYHORIULVNRUWKHORZHVWULVNIRUDJLYHQH[SHFWHGUHWXUQ7KHGLIIHUHQW
DVVHWFODVVHVKDYHEHHQGHVFULEHGHDUOLHU,WLVYHU\LPSRUWDQWIRUWKHLQYHVWRUWR
UHEDODQFHWKHYDULRXVFRPSRQHQWVRIKLVRYHUDOOSRUWIROLRIURPWLPHWRWLPHGHSHQG
LQJRQKLVREMHFWLYHVZLWKUHVSHFWWRWKLVSRUWIROLR
0($685,1*$1'(9$/8$7,1*3(5)250$1&(7KLVVWHSZRXOGLQ
YROYHWKHPHDVXULQJDQGHYDOXDWLQJRISRUWIROLRSHUIRUPDQFHUHODWLYHWRDUHDOLVWLF
EHQFKPDUN6WDQGDUG:HZRXOGPHDVXUHSRUWIROLRSHUIRUPDQFHLQERWKDEVROXWH
DQGUHODWLYHWHUPVDJDLQVWDSUHGHWHUPLQHGUHDOLVWLFDQGDFKLHYDEOHEHQFKPDUN
6HOI,QVWUXFWLRQDO 0DWHULDO )XUWKHUZHZRXOGHYDOXDWHWKHSRUWIROLRSHUIRUPDQFHUHODWLYHWRWKHREMHFWLYHDQG
 RWKHUSUHGHWHUPLQHGSHUIRUPDQFHSDUDPHWHUV
7KHLQYHVWRURUPDQDJHUZRXOGFRQVLGHUWZRPDLQDVSHFWVQDPHO\ULVNDQGUHWXUQ ,QWURGXFWLRQWR
+HZRXOGPHDVXUHDQGHYDOXDWHZKHWKHUWKHUHWXUQVZHUHZRUWKWKHULVNRUZKHWKHU 6HFXULW\$QDO\VLV
WKHULVNZDVZRUWKWKHUHWXUQ7KHLVVXHKHUHLVZKHWKHUWKHSRUWIROLRKDVDFKLHYHG
FRPPHQVXUDWHUHWXUQVJLYHQWKHULVNH[SRVXUHRIWKHSRUWIROLR
0HDVXULQJDQGHYDOXDWLQJSRUWIROLRSHUIRUPDQFHZRXOGEHXVHGWRJLYHWKHLQYHVWRU 127(6
RUPDQDJHUIHHGEDFNDQGZRXOGKHOSWKHLQYHVWRURUPDQDJHULQLPSURYLQJWKH
TXDOLW\DQGSHUIRUPDQFHRIERWKWKHSRUWIROLRDQGLWVPDQDJHPHQWSURFHVVLQWKH
IXWXUH
9DOXDWLRQRI6HFXULWLHV
,QYHVWPHQWLVDFRPPLWPHQWRIIXQGVIRUDSHULRGRIWLPHWRGHULYHDUDWHRIUHWXUQ
WKDWZRXOGFRPSHQVDWHWKHLQYHVWRUVIRUWKHWLPHGXULQJZKLFKWKHIXQGVDUHQRW
DYDLODEOHIRUFRQVXPSWLRQIRUWKHH[SHFWHGUDWHRILQIODWLRQGXULQJWKHSHULRGRI
LQYHVWPHQWDQGIRUWKHXQFHUWDLQW\LQYROYHG6LQFHWKHREMHFWLYHRIWKHLQYHVWPHQWLV
WRGHULYHDUDWHRIUHWXUQLQYHVWRUVKDYHWRILUVWVSHFLI\WKHGHVLUHGUDWHRIUHWXUQ
VRWKDWDQLQYHVWPHQWGHFLVLRQFDQEHPDGHLIWKHH[SHFWHGUDWHRIUHWXUQLVHTXDO
WRRUJUHDWHUWKDQWKHGHVLUHGRUUHTXLUHGUDWHRIUHWXUQ7KHUHTXLUHGUHWXUQLQ
FUHDVHVDORQJZLWKDQLQFUHDVHLQWKHULVNOHYHORILQYHVWPHQW2QFHWKHGHVLUHGRU
UHTXLUHGUDWHRIUHWXUQLVLGHQWLILHGWKHVHFRQGVWHSLQLQYHVWPHQWGHFLVLRQLVWRILQG
RXWWKHH[SHFWHGUHWXUQRILQYHVWPHQW7KLVLVQRUPDOO\GRQHE\FRPSDULQJWKHLQLWLDO
LQYHVWPHQWUHTXLUHGWREX\WKHILQDQFLDODVVHWDQGSHULRGLFFDVKIORZVDYDLODEOHIURP
WKHDVVHW,QVRPHFDVHVOLNHVDYLQJVEDQNDFFRXQWRULQYHVWPHQWVLQIL[HGGHSRVLWV
RUFRUSRUDWHERQGWKHHVWLPDWLRQRIH[SHFWHGUHWXUQLVIDLUO\HDV\EHFDXVHWKHLVVXHU
RIWKHVHFXULW\FOHDUO\VWDWHVWKHFDVKIORZVDYDLODEOHIURPVXFKDVVHWV7KXVGHFLVLRQ
RQVXFKLQYHVWPHQWVLVUHODWLYHO\HDVLHUWKDQLQYHVWLQJLQHTXLW\VKDUHV,QYHVWPHQWLQ
HTXLW\VKDUHVUHTXLUHVLQYHVWRUVWRHVWLPDWHWKHFDVKIORZVEDVHGRQWKHH[SHFWHG
SHUIRUPDQFHRIWKHILUPGXULQJWKHLQYHVWPHQWSHULRG7KLVLVWKHFRPSOH[DQGPRVW
FKDOOHQJLQJMRELQLQYHVWPHQWGHFLVLRQPDNLQJSURFHVV
:HZLOOEDVLFDOO\JRWKURXJKWKHYDOXDWLRQRIW\SHVRIVHFXULWLHV
z %RQG
z 6KDUHV
9DOXDWLRQRIERQGV VKDUHVLVEDVHGRQWKHIROORZLQJWKHRULHV
z *RLQJFRQFHUQYDOXHLVWKHYDOXHRIDILUPDVDQRSHUDWLQJEXVLQHVV
z /LTXLGDWLRQYDOXHLVWKHSURMHFWHGSULFHWKDWDILUPZRXOGUHFHLYHE\
VHOOLQJLWVDVVHWVLILWZHUHJRLQJRXWRIEXVLQHVV
z %RRNYDOXHLVWKHYDOXHRIDQDVVHWDVFDUULHGRQDEDODQFHVKHHW
z 0DUNHWYDOXHLVWKHSULFHDWZKLFKEX\HUVDQGVHOOHUVWUDGHVLPLODU
LWHPVLQDQRSHQPDUNHWSODFH
z 5HSODFHPHQW YDOXH LV WKH YDOXH WKDWD FRPSDQ\ ZRXOG UHTXLUH WR
UHSODFHDOORILWVDVVHWV
9DOXDWLRQRI)L[HG,QFRPH6HFXULWLHV%RQG9DOXDWLRQ
6HOI,QVWUXFWLRQDO 0DWHULDO
%RQGVDUHGHEWLQVWUXPHQWVWKDWDUHLVVXHGE\FRPSDQLHVPXQLFLSDOLWLHVDQGJRY

HUQPHQWVWRUDLVHIXQGVIRUILQDQFLQJWKHLUFDSLWDOH[SHQGLWXUH%\SXUFKDVLQJDERQG
6HFXULW\$QDO\VLV DQLQYHVWRUORDQVPRQH\IRUDIL[HGSHULRGRIWLPHDWDSUHGHWHUPLQHGLQWHUHVWUDWH
3RUWIROLR0DQDJHPHQW :KLOHWKHLQWHUHVWLVSDLGWRWKHERQGKROGHUDWUHJXODULQWHUYDOVWKHSULQFLSDODPRXQW
LVUHSDLGDWDODWHUGDWHNQRZQDVWKHPDWXULW\GDWH:KLOHERWKERQGVDQGVWRFNV
DUHVHFXULWLHVWKHSULQFLSOHGLIIHUHQFHEHWZHHQWKHWZRLVWKDWERQGKROGHUVDUH
127(6 OHQGHUVZKLOHVWRFNKROGHUVDUHWKHRZQHUVRIWKHRUJDQL]DWLRQ
%DVLF )HDWXUHV RI %RQGV
,QRUGHUWREHWWHUXQGHUVWDQGWKLVFRPSOLFDWHGWRSLFZHUHTXLUHGHVFULELQJWKHEDVLF
IHDWXUHVRIDERQG7KHVHIHDWXUHVLQFOXGH
 0DWXULW\
0DWXULW\LVWKHWLPHDWZKLFKWKHERQGPDWXUHVDQGWKHKROGHUUHFHLYHVWKHILQDO
SD\PHQWRISULQFLSDODQGLQWHUHVW7KH³WHUPWRPDWXULW\´LVWKHDPRXQWRIWLPH
XQWLOWKHERQGDFWXDOO\PDWXUHV
7KHUHDUHEDVLFFODVVHVRIPDWXULW\
$6KRUW7HUP0DWXULW\±2QHWRILYH\HDUVLQOHQJWK
%,QWHUPHGLDWH7HUP0DWXULW\±)LYHWRWZHOYH\HDUVLQOHQJWK
&/RQJ7HUP0DWXULW\±7ZHOYH\HDUVRUPRUHLQOHQJWK
0DWXULW\LVLPSRUWDQWEHFDXVH
x ,WLQGLFDWHVWKHOHQJWKRIWLPHLQZKLFKDQLQYHVWRUZLOOUHFHLYHLQWHUHVWDVZHOO
DVZKHQKHRUVKHZLOOUHFHLYHSULQFLSDOSD\PHQWV
x ,WDIIHFWVWKH\LHOGRQWKHERQGORQJHUPDWXULWLHVWHQGWR\LHOGKLJKHUUDWHV
x 7KHSULFHYRODWLOLW\RIDERQGLVDIXQFWLRQRILWVPDWXULW\$ORQJHUPDWXULW\
W\SLFDOO\LQGLFDWHVKLJKHUYRODWLOLW\
 3DU9DOXH)DFH9DOXH
3DUYDOXHLVWKHDPRXQWWKHKROGHUZLOOUHFHLYHDWWKHERQG¶VPDWXULW\3DUYDOXH
LVDOVRNQRZQDVSULQFLSOHIDFHPDWXULW\RUUHGHPSWLRQYDOXH%RQGSULFHVDUH
TXRWHGDVDSHUFHQWDJHRISDU
([DPSOH3UHPLXPVDQG'LVFRXQWV
,PDJLQHWKDWSDUIRU$%&&RUSLV5V,IWKH$%&&RUSERQGVWUDGHDW
 ZKDWZRXOG WKH YDOXH RI WKH ERQG EH":KDW LI$%& &RUS ERQGV DW
"
$QVZHU$WWKH$%&&RUSERQGVZRXOGWUDGHDWDGLVFRXQWWRSDUDW5V
,I$%&&RUSERQGVDWWKHERQGVZRXOGWUDGHDWDSUHPLXPRI5V

 &RXSRQ5DWH,QWHUHVW5DWH
$FRXSRQUDWHVWDWHVWKHLQWHUHVWUDWHWKHERQGZLOOSD\WKHKROGHUVHDFK\HDU7R
ILQGWKHFRXSRQ¶VGROODUYDOXHVLPSO\PXOWLSO\WKHFRXSRQUDWHE\WKHSDU
YDOXH7KHUDWHLVIRURQH\HDUDQGSD\PHQWVDUHXVXDOO\PDGHRQDVHPLDQQXDO
6HOI,QVWUXFWLRQDO 0DWHULDO EDVLV6RPHVHFXULWLHVSD\PRQWKO\ZKLOHPDQ\LQWHUQDWLRQDOVHFXULWLHVSD\RQO\

 DQQXDOO\7KHFRXSRQUDWHDOVRDIIHFWVDERQG¶VSULFH7\SLFDOO\WKHKLJKHUWKH ,QWURGXFWLRQWR
UDWHWKHOHVVSULFHVHQVLWLYLW\IRUWKHERQGSULFHEHFDXVHRILQWHUHVWUDWHPRYH 6HFXULW\$QDO\VLV
PHQWV
 &XUUHQF\'HQRPLQDWLRQ
127(6
&XUUHQF\GHQRPLQDWLRQLQGLFDWHVZKDWFXUUHQF\WKHLQWHUHVWDQGSULQFLSOHZLOOEH
SDLGLQ7KHUHDUHWZRPDLQW\SHV
x 'ROODU'HQRPLQDWHG±UHIHUVWRERQGVZLWKSD\PHQWLQ86'
x 1RQGROODU'HQRPLQDWHG±GHQRWHVERQGVLQZKLFKWKHSD\PHQWVDUHLQ
DQRWKHUFXUUHQF\EHVLGHV86'
 5HGHPSWLRQ9DOXH7KHYDOXHWKDWDERQGKROGHUZLOOJHWRQPDWXULW\LV
FDOOHG5HGHPSWLRQRUPDWXULW\YDOXH
 0DUNHW9DOXH7KHSULFHDWZKLFKWKHERQGLVFXUUHQWO\WUDGHLQWKHPDUNHW
LVFDOOHG0DUNHW9DOXH,WPD\EHGLIIHUHQWIURP)DFH9DOXH
)RUWKHVDNHRIYDOXDWLRQZHFODVVLI\WKHERQGVLQWRFDWHJRULHV

 <LHOG WR 0DWXULW\ 7KHVH DUH WKH ERQGV WKDW VSHFLI\ LQWHUHVW 5DWH  WKH
PDWXULW\SHULRG+HUHGLVFRXQWHGYDOXHRILWVFDVKIORZV PDWXULW\YDOXHLV
FDOFXODWHG7KHVXPRIWKHVHYDOXHVLVYDOXHRIERQG
% ,,,««««««,Q %Q
             .G  .G      .G           .G Q                   .G Q
1RWH,ILQWHUHVWLVSDLGVHPLDQQXDOO\PXOWLSO\WLPHE\ GLYLGHUDWHRILQWHUHVW
E\
([DPSOH)LQGWKH\LHOGWRPDWXULW\RQDVHPLDQQXDOFRXSRQERQGZLWKDIDFH
YDOXHRIDFRXSRQUDWHDQG\HDUVUHPDLQLQJXQWLOPDWXULW\JLYHQ
WKDWWKHERQGSULFHLV
6ROXWLRQ

7KHSULFHRUYDOXHRIDERQGLVGHWHUPLQHGE\GLVFRXQWLQJWKHERQG¶VH[SHFWHG
FDVKIORZVWRWKHSUHVHQWXVLQJWKHDSSURSULDWHGLVFRXQWUDWH7KLVUHODWLRQVKLS
LVH[SUHVVHGIRUDVHPLDQQXDOFRXSRQERQGE\WKHIROORZLQJIRUPXOD

6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV
3RUWIROLR0DQDJHPHQW

127(6

ZKHUH
x % WKHERQGYDOXH
x & WKHDQQXDOFRXSRQSD\PHQW
x ) WKHIDFHYDOXHRIWKHERQG
x U WKHUHTXLUHGUHWXUQRQWKHERQGDQG
x W WKHQXPEHURI\HDUVUHPDLQLQJXQWLOPDWXULW\
([DPSOH)LQGWKHSULFHRIDVHPLDQQXDOFRXSRQERQGZLWKDIDFHYDOXHRI
5VDFRXSRQUDWHDQG\HDUVUHPDLQLQJXQWLOPDWXULW\JLYHQWKDW
WKHUHTXLUHGUHWXUQLV
6ROXWLRQ

1RWH
z $ERQGLVFRQVLGHUHGWREHDSDUERQGZKHQLWVSULFHHTXDOVLWVIDFHYDOXH
7KLVZLOORFFXUZKHQWKHFRXSRQUDWHHTXDOVWKHUHTXLUHGUHWXUQRQWKH
ERQG
z $ERQGLVFRQVLGHUHGWREHDSUHPLXPERQGZKHQLWVSULFHLVJUHDWHUWKDQ
LWVIDFHYDOXH7KLVZLOORFFXUZKHQWKHFRXSRQUDWHLVJUHDWHUWKDQWKH
UHTXLUHGUHWXUQRQWKHERQG
z $ERQGLVFRQVLGHUHGWREHDGLVFRXQWERQGZKHQLWVSULFHLVOHVVWKDQLWV
IDFHYDOXH7KLVZLOORFFXUZKHQWKHFRXSRQUDWHLVOHVVWKDQWKHUHTXLUHG
UHWXUQRQWKHERQG
 3XUH'LVFRXQW%RQGV$SXUHGLVFRXQWERQGPDNHVDVLQJOHSD\PHQWDWWKH
PDWXULW\GDWHRIWKHERQG867UHDVXU\ELOOVKDYHWKLVFKDUDFWHULVWLF,WLV
FRQYHQLHQWWRLQWURGXFHWKHQRWLRQRISUHVHQWYDOXHLQWHUPVRIDSXUHGLVFRXQW
ERQGEHFDXVHWKHSD\PHQWVWUXFWXUHLVYHU\VLPSOH
([DPSOH$FRPSDQ\LVVXHDGLVFRXQWERQGRIIDFHYDOXH PDWXULW\
6HOI,QVWUXFWLRQDO 0DWHULDO
YDOXHDW\LHOGIRU\HDUV

 % 0Q        5V ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV
           .G Q         
 3HUSHWXDO%RQGV$ERQGZLWKQRPDWXULW\GDWH3HUSHWXDOERQGVDUHQRW
UHGHHPDEOHEXWSD\DVWHDG\VWUHDPRILQWHUHVWIRUHYHU$SHUSHWXDOERQGLV 127(6
DOVRNQRZQDVDµFRQVRO¶6LQFHSHUSHWXDOERQGSD\PHQWVDUHVLPLODUWRVWRFN
GLYLGHQGSD\PHQWVDVWKH\ERWKRIIHUVRPHVRUWRIUHWXUQIRUDQLQGHILQLWH
SHULRGRIWLPHLWLVORJLFDOWKDWWKH\ZRXOGEHSULFHGWKHVDPHZD\7KHSULFH
RIDSHUSHWXDOERQGLVWKHUHIRUHWKHIL[HGLQWHUHVWSD\PHQWRUFRXSRQDPRXQW
GLYLGHGE\VRPHFRQVWDQWGLVFRXQWUDWHZKLFKUHSUHVHQWVWKHVSHHGDWZKLFK
PRQH\ORVHVYDOXHRYHUWLPHSDUWO\EHFDXVHRILQIODWLRQ7KHGLVFRXQWUDWH
GHQRPLQDWRUUHGXFHVWKHUHDOYDOXHRIWKHQRPLQDOO\IL[HGFRXSRQDPRXQWV
RYHUWLPHHYHQWXDOO\PDNLQJWKLVYDOXHHTXDO]HUR$VVXFKSHUSHWXDOERQGV
HYHQWKRXJKWKH\SD\LQWHUHVWIRUHYHUFDQEHDVVLJQHGDILQLWHYDOXHZKLFKLQ
WXUQUHSUHVHQWVWKHLUSULFH

% ,QWZKHUH,QWLV3HULRGLF,QWHUHVW3D\PHQW .GLVGLVFRXQWUDWH

SHUSHULRG
           .G
3UHIHUHQFH6KDUH9DOXDWLRQ
6KDUHVZKLFKSURYLGHDVSHFLILFGLYLGHQGWKDWLVSDLGEHIRUHDQ\GLYLGHQGVDUHSDLG
WRFRPPRQVWRFNKROGHUVDQGZKLFKWDNHVSUHIHUHQFHRYHUFRPPRQVWRFNLQWKH
HYHQWRIDOLTXLGDWLRQDUHFDOOHGSUHIHUHQFH6KDUHV/LNHFRPPRQVWRFNSUHIHUHQFH
VKDUHVUHSUHVHQWSDUWLDORZQHUVKLSLQDFRPSDQ\DOWKRXJKSUHIHUUHGVWRFNVKDUH
KROGHUVGRQRWHQMR\DQ\RIWKHYRWLQJULJKWVRIFRPPRQVWRFNKROGHUV$OVRXQOLNH
FRPPRQVWRFNSUHIHUHQFHVKDUHVSD\DIL[HGGLYLGHQGWKDWGRHVQRWIOXFWXDWH
DOWKRXJKWKHFRPSDQ\GRHVQRWKDYHWRSD\WKLVGLYLGHQGLILWODFNVWKHILQDQFLDO
DELOLW\WRGRVR7KHPDLQEHQHILWWRRZQLQJSUHIHUHQFHVKDUHVDUHWKDWWKHLQYHVWRU
KDVDJUHDWHUFODLPRQWKHFRPSDQ\¶VDVVHWVWKDQFRPPRQVWRFNKROGHUV3UHIHUUHG
VKDUHKROGHUVDOZD\VUHFHLYHWKHLUGLYLGHQGVILUVWDQGLQWKHHYHQWWKHFRPSDQ\JRHV
EDQNUXSWSUHIHUUHGVKDUHKROGHUVDUHSDLGRIIEHIRUHFRPPRQVWRFNKROGHUV,Q
JHQHUDOWKHUHDUHIRXUGLIIHUHQWW\SHVRISUHIHUUHGVWRFNFXPXODWLYHSUHIHUUHGQRQ
FXPXODWLYHSDUWLFLSDWLQJDQGFRQYHUWLEOHDOVRFDOOHGSUHIHUUHGVWRFN
9DOXDWLRQRI5HGHHPDEOH3UHI6KDUHV
3         3',9 3',9 «««  3',9Q         3Q
                      .S   .S                         .S Q      .S
9DOXDWLRQRI,UUHGHHPDEOH3UHI6KDUHV3 3',9
                                                    .S
9DOXDWLRQRI9DULDEOH,QFRPHVHFXULWLHV(TXLW\6KDUH9DOXDWLRQ
)LUPVREWDLQWKHLUORQJWHUPVRXUFHVRIHTXLW\ILQDQFLQJE\LVVXLQJFRPPRQDQG
SUHIHUUHGVWRFN7KHSD\PHQWVRIWKHILUPWRWKHKROGHUVRIWKHVHVHFXULWLHVDUHLQ
WKHIRUPRIGLYLGHQGV8QOLNHLQWHUHVWSD\PHQWVRQGHEWZKLFKDUHWD[GHGXFWLEOH
GLYLGHQGVPXVWEHSDLGRXWRIDIWHUWD[LQFRPH
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 7KHFRPPRQVWRFNKROGHUVDUHWKHRZQHUVRIWKHILUP7KH\KDYHWKHULJKWWRYRWH
3RUWIROLR0DQDJHPHQW RQLPSRUWDQWPDWWHUVWRWKHILUPVXFKDVWKHHOHFWLRQRIWKH%RDUGRI'LUHFWRUV7KH
FRPPRQVWRFNKROGHUVKDYHDUHVLGXDOFODLPDJDLQVWWKHDVVHWVDQGFDVKIORZVRIWKH
ILUP7KDWLVWKHFRPPRQVWRFNKROGHUVKDYHDFODLPDJDLQVWZKDWHYHUDVVHWVUHPDLQ
127(6 DIWHUWKHGHEWKROGHUVDQGSUHIHUUHGVWRFNKROGHUVKDYHEHHQSDLG0RUHRYHUWKH
FDVKIORZWKDWUHPDLQVDIWHULQWHUHVWDQGSUHIHUUHGGLYLGHQGVKDYHEHHQSDLGEHORQJV
WRWKHFRPPRQVWRFNKROGHUV
7KHSULRULW\RIWKHFODLPVDJDLQVWWKHDVVHWVRIWKHILUPEHORQJLQJWRGHEWKROGHUV
SUHIHUUHGVWRFNKROGHUVDQGFRPPRQVWRFNKROGHUVGLIIHU7KHRZQHUVRIWKHILUP¶V
GHEWVHFXULWLHVKDYHWKHILUVWFODLPDJDLQVWWKHDVVHWVRIWKHILUP7KLVPHDQVWKDWWKH
GHEWKROGHUVPXVWUHFHLYHWKHLUVFKHGXOHGLQWHUHVWDQGSULQFLSDOSD\PHQWVEHIRUHDQ\
GLYLGHQGVFDQEHSDLGWRWKHHTXLW\KROGHUV,IWKHVHFODLPVDUHQRWSDLGWKHGHEW
KROGHUVFDQIRUFHWKHILUPLQWREDQNUXSWF\7KHSUHIHUUHGVWRFNKROGHUVKDYHWKHQH[W
FODLP7KH\PXVWEHSDLGWKHIXOODPRXQWRIWKHLUVFKHGXOHGGLYLGHQGVEHIRUHDQ\
GLYLGHQGVPD\EHGLVWULEXWHGWRWKHFRPPRQVWRFNKROGHUV
7KHYDOXHRIDFRQVWDQWJURZWKVWRFNFDQEHGHWHUPLQHGXVLQJWKHIROORZLQJHTXD
WLRQ

ZKHUH
x 3 WKHVWRFNSULFHDWWLPH
x ' WKHFXUUHQWGLYLGHQG
x ' WKHQH[WGLYLGHQGLHDWWLPH
x J WKHJURZWKUDWHLQGLYLGHQGVDQG
x U WKHUHTXLUHGUHWXUQRQWKHVWRFNDQG
x JU
([DPSOH)LQGWKHVWRFNSULFHJLYHQWKDWWKHFXUUHQWGLYLGHQGLV5VSHUVKDUH
GLYLGHQGVDUHH[SHFWHGWRJURZDWDUDWHRILQWKHIRUHVHHDEOHIXWXUHDQGWKH
UHTXLUHGUHWXUQLV
3    5V 
           
'LYLGHQG<LHOGDQG&DSLWDO*DLQV<LHOG
7KHFRQVWDQWJURZWKVWRFNHTXDWLRQFDQEHUHDUUDQJHGWRREWDLQDQH[SUHVVLRQIRU
WKHH[SHFWHGUHWXUQRQWKHVWRFNDVIROORZV

:KHQH[SUHVVHGLQWKLVPDQQHULWLVDSSDUHQWWKDWWKHH[SHFWHGUHWXUQRQWKHVWRFN
6HOI,QVWUXFWLRQDO 0DWHULDO HTXDOVWKHH[SHFWHGGLYLGHQG\LHOGSOXVWKHH[SHFWHGFDSLWDOJDLQV\LHOGZKHUH
 WKHGLYLGHQG\LHOGDQGFDSLWDOJDLQV\LHOGDUHGHILQHGDVIROORZV
 ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV

7KHYDOXHRIDQRQFRQVWDQWJURZWKVWRFNFDQEHGHWHUPLQHGXVLQJWKHIROORZLQJ
HTXDWLRQ 127(6

ZKHUH
x 3 WKHVWRFNSULFHDWWLPH
x 'W WKHH[SHFWHGGLYLGHQGDWWLPHW
x 7 WKHQXPEHURI\HDUVRIQRQFRQVWDQWJURZWK
x JF WKHORQJWHUPFRQVWDQWJURZWKUDWHLQGLYLGHQGVDQG
x U WKHUHTXLUHGUHWXUQRQWKHVWRFNDQG
x JFU
([DPSOH7KHFXUUHQWGLYLGHQGRQDVWRFNLV5VSHUVKDUHDQGLQYHVWRUVUHTXLUH
DUDWHRIUHWXUQRI'LYLGHQGVDUHH[SHFWHGWRJURZDWDUDWHRISHU\HDU
RYHUWKHQH[WWKUHH\HDUVDQGWKHQDWDUDWHRISHU\HDUIURPWKDWSRLQWRQ)LQG
WKHSULFHRIWKHVWRFN
6ROXWLRQ
7KHUHDUH\HDUVRIQRQFRQVWDQWJURZWKWKXV7 %HIRUHVXEVWLWXWLQJLQWRWKH
IRUPXODJLYHQDERYHLWLVQHFHVVDU\WRFDOFXODWHWKHH[SHFWHGGLYLGHQGVIRU\HDUV
WKURXJKXVLQJWKHSURYLGHGJURZWKUDWHV

672&.9$/8$7,21(48$7,216

&RQVWDQW *URZWK 6WRFN

3ULFH 

([SHFWHG5HWXUQ

1RQ FRQVWDQW *URZWK
6HOI,QVWUXFWLRQDO 0DWHULDO
6WRFN  
6HFXULW\$QDO\VLV ([DPSOHV
3RUWIROLR0DQDJHPHQW
 $VVXPHWKDW\RXDUHLQWHUHVWHGLQSXUFKDVLQJDERQGZLWK\HDUVWRPDWXULW\
DQGDFRXSRQUDWH,I\RXUUHTXLUHGUHWXUQLVZKDWLVWKHKLJKHVW
SULFHWKDW\RXZRXOGEHZLOOLQJWRSD\"
127(6

ª   º
«    »


9% «
 »     
«¬ »¼

 $VVXPHWKDW\RXDUHFRQVLGHULQJWKHSXUFKDVHRIDVWRFNZKLFKZLOOSD\GLYL
GHQGVRI5VQH[W\HDUDQG5VWKHIROORZLQJ\HDU$IWHUUHFHLYLQJWKH
VHFRQGGLYLGHQG\RXSODQRQVHOOLQJWKHVWRFNIRU5V:KDWLVWKH
LQWULQVLFYDOXHRIWKLVVWRFNLI\RXUUHTXLUHGUHWXUQLV"
  "            


   

9  
  
  
,ILQWKLVH[DPSOHGLYLGHQGDUHJURZLQJ#WKHQDSSO\LQJIRUPXODIRUGLYL
GHQGGLVFRXQWLQJ

   

9&6 
     
 6XSSRVHWKDW\RXDUHLQWHUHVWHGLQSXUFKDVLQJVKDUHVRIDSUHIHUUHGVWRFNZKLFK
SD\VD5VGLYLGHQGHYHU\\HDU,I\RXUUHTXLUHGUHWXUQLVZKDWLVWKH
LQWULQVLFYDOXHRIWKLVVWRFN"

' 
93 
N &6 

&RQVLGHUWKHIROORZLQJ6LWXDWLRQ%RQGV6ROGDWD3UHPLXP
x $5VERQG
x 7KHERQGSD\VLQWHUHVWWZLFHD\HDU
x 7KHLQWHUHVWRQWKHERQGLVZKLFKLV5VD\HDURU5VHYHU\VL[
PRQWKV
6HOI,QVWUXFWLRQDO 0DWHULDO

x 7KHERQGPDWXUHVLQWZR\HDUVSHULRGV
 x 7KHPDUNHWLQWHUHVWUDWHLVD\HDUZKLFKLVIRUDSD\PHQWSHULRG ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV
,IWKHPDUNHWLQWHUHVWUDWHLVWKHFRUSRUDWLRQZRXOGQRWLVVXHWKLVERQGDW
:K\LVVXHDWDKLJKHULQWHUHVWUDWH"
7KHFRUSRUDWLRQFDQVHOOWKLVERQGIRUDKLJKHUSULFHUHIOHFWLQJWKHPDUNHW 127(6
LQWHUHVWUDWH
<RXKDYHWRXVHWKH3UHVHQW9DOXH)RUPXOD7KH39LVWKHERQGPDUNHWSULFH



 &RQVLGHUWKHIROORZLQJ6LWXDWLRQ%RQGV6ROGDWD'LVFRXQW
x $5VERQG
x 7KHERQGSD\VLQWHUHVWWZLFHD\HDU
x 7KHLQWHUHVWRQWKHERQGLVZKLFKLV5VD\HDURU5VHYHU\VL[
PRQWKV
x 7KHERQGPDWXUHVLQWZR\HDUVSHULRGV
x 7KHPDUNHWLQWHUHVWUDWHLVD\HDUZKLFKLVIRUDSD\PHQWSHULRG
,IWKHPDUNHWLQWHUHVWUDWHLVQRERG\ZRXOGEX\WKLVERQGDWIDFHYDOXHWKDW
HDUQVLQWHUHVW
7KHFRUSRUDWLRQFDQVHOOWKLVERQGIRUDORZHUSULFHUHIOHFWLQJWKHPDUNHWLQWHUHVW
UDWH
<RXKDYHWRXVHWKH3UHVHQW9DOXH)RUPXOD7KH39LVWKHERQGPDUNHWSULFH

7HVW<RXU.QRZOHGJH
 6XSSRVHWKDWDSHUFHQW5VERQGZLOOSD\5VDQQXDOLQWHUHVW
LQWRSHUSHWXLW\:KDWZRXOGEHLWVYDOXHRIWKHERQGLIWKHPDUNHW\LHOGRU
LQWHUHVWUDWHZHUHSHUFHQW"
 $FRPSDQ\PD\LVVXHDSXUHGLVFRXQWERQGRI5VIDFHYDOXHIRU5V
WRGD\IRUDSHULRGRIILYH\HDUV&DOFXODWHWKHUDWHRILQWHUHVW"
 $ILUPERUURZV5VE\LVVXLQJDERQGZLWKFRXSRQUDWHRIDQG
SURPLVHV WR SD\ EDFN WKH SULQFLSDO LQ  \HDUV ,I WKH &XUUHQW PDUNHW
LQWHUHVWUDWHRQDVLPLODUERQGLVZKDWLVWKHYDOXHRIWKLVERQG"
 )LQGWKHSULFHRIDVKDUHRISUHIHUUHGVWRFNJLYHQWKDWWKHSDUYDOXHLV5V
SHUVKDUHWKHSUHIHUUHGGLYLGHQGUDWHLVDQGWKHUHTXLUHGUHWXUQ 6HOI,QVWUXFWLRQDO 0DWHULDO
LV 
6HFXULW\$QDO\VLV  (VVDU 2LO SD\V SHUFHQW SHUDQQXP TXDUWHUO\ LQWHUHVWUDWH GXH HYHU\
3RUWIROLR0DQDJHPHQW 0DUFK-XQH6HSWDQG'HFHQG7KHTXRWHGSULFHLQWKHPDUNHWLV5V
RQ-DQ'HWHUPLQHWKHDFFUXHGLQWHUHVWDVRQWKLVGDWH"

127(6
  9DOXDWLRQ  0DUNHW 3ULFH
7KHVHFXULWLHVPDUNHWVSURYLGHDQHYROYLQJFRQFHSWRIWKHULVNDGMXVWHGYDOXHRI
SDUWLFXODUVHFXULW\%\XQGHUVWDQGLQJKRZWKHPDUNHWVYDOXHVHFXULWLHVLQGLYLGXDO
LQYHVWRUVFDQFKRRVHPRUHGXUDEOHLQYHVWPHQWVWUDWHJLHV
-XGJLQJWKHSRWHQWLDOXVHIXOQHVVRIGLIIHUHQWLQYHVWPHQWVWUDWHJLHVUHTXLUHVVRPH
XQGHUVWDQGLQJRIZKDWWKHVHFXULWLHVPDUNHWVUHDOO\GR+HUHZHVKDOOORRNWKH
PDUNHWSULFHRIILQDQFLDOVHFXULWLHVIURPWKHVWDQGSRLQWRIULVNDQGUHWXUQ7KLV
GHVFULSWLRQJHQHUDOO\FKDUDFWHUL]HVWKHEHKDYLRURIPRGHUQVHFXULWLHVPDUNHWVLQ
LQGXVWULDOL]HGFRXQWULHVDURXQGWKHZRUOG
,Q6HFXULWLHVPDUNHWVWKHSKHQRPHQRQRIDFRQWLQXRXVDGMXVWPHQWRIEDODQFHRI
WUDGLQJRUGHUJRHVRQDQGSULFHFKDQJHVDFFRUGLQJWRWKLVDGMXVWHGEDODQFH,PSRU
WDQWREVHUYDWLRQVDERXWVHFXULWLHVPDUNHWVIURPLQYHVWPHQWVFLHQFHDUHWKDW
x 7KHDJJUHJDWHPDUNHWUHWXUQFRQVLVWVRISD\RXWVSOXVFDSLWDOJDLQVRUORVVHV
DFURVVDOOLQYHVWRUV7KHWHUPDJJUHJDWHPDUNHWUHWXUQPHDQVWRWDOSRVVLEOH
UHWXUQIRUSXEOLFO\WUDGHGVHFXULWLHV
x )XQGDPHQWDOO\PDUNHWVORRNIRUZDUG3DUWLFLSDQWVWU\WRORRNFORVHO\XQ
SUHGLFWDEOHIXWXUHHYHQWVWKDWDUHJORRP\DQGIXQGDPHQWDOO\XQNQRZDEOH
x 0DUNHWSULFHVHFXULWLHVRQDULVNDGMXVWHGEDVLV&XUUHQW6HFXULWLHVDUH
GLVFRXQWHGDFFRUGLQJWRWKHLUSURMHFWHGIXWXUHYDOXHVWRUHZDUGFHUWDLQ
W\SHVRIULVN3ULFHVGLIIHUIURPRQHVHFXULW\WRDQRWKHUEHFDXVHH[SHFWHG
HFRQRPLFUHWXUQVGLIIHUDQGEHFDXVHLQYHVWRUVSHUFHLYHJUHDWHURUOHVVHU
FHUWDLQW\LQWKHUHDOL]DWLRQRIWKRVHH[SHFWHGUHWXUQV
x &XUUHQWPDUNHWSULFHVUHIOHFWWKHFXUUHQWFRQVHQVXVRUEDODQFHRIH[SHFWHG
ULVNDQGH[SHFWHGUHWXUQ7KLVYDOXDWLRQFRQVHQVXVUHIOHFWVWKHEDODQFHDFURVV
DOODFWLYHSDUWLFLSDQWVLQFOXGLQJWKRVHZKRDUHSD\LQJDWWHQWLRQEXWFKRVH
QRWWRDFW
x &XUUHQWPDUNHWSULFHVWHQGWRUHIOHFWIXOO\DOOFXUUHQWO\NQRZQLQIRUPDWLRQ
DVVRFLDWHGZLWKDSDUWLFXODUVHFXULW\7KHUHPD\EHDZLGHUDQJHLQWKH
LQWHUSUHWDWLRQRIWKHLPSRUWDQFHRIYDULRXVLQIRUPDWLRQDQGDVVHWPDUNHW
YDOXHVUHIOHFWWKHFRQVHQVXVDFURVVDOOLQYHVWRUV
x 1HZLQIRUPDWLRQGLVVHPLQDWHVZLGHO\DQGYHU\UDSLGO\,QYHVWRUVTXLFNO\
LQWHUSUHWQHZLQIRUPDWLRQIRULWVSRWHQWLDOLPSDFWXSRQERWKYDOXHDQGULVN
3ULFHVUDSLGO\UHIOHFWQHZLQIRUPDWLRQDVVXSSO\DQGGHPDQGVKLIWVTXLFNO\
DQGPDUNHWSULFHVFKDQJHDFFRUGLQJO\
x :KHQVRPHLQYHVWRUV³ZLQ´RWKHUVPXVW³ORVH´UHODWLYHWRWKHDJJUHJDWH
PDUNHWUHWXUQ:KHWKHUOXFNRUVNLOOGHWHUPLQHVZKRZLQVRUORVHVDQGKRZ
RQHFDQWHOOWKHGLIIHUHQFHDUHSLYRWDOTXHVWLRQVLQFKRRVLQJLQYHVWPHQW
VWUDWHJLHV
6HOI,QVWUXFWLRQDO 0DWHULDO %\XQGHUVWDQGLQJWKHVHFULWLFDOLQYHVWPHQWVXEMHFWVDQGEHLQJDZDUHRIWKHDVVRFL
 DWHGVFLHQWLILFHYLGHQFHLQYHVWRUVFDQDGRSWLQYHVWPHQWVWUDWHJLHVWKDWDUHSRWHQWLDOO\
PRUHSURILWDEOH6FLHQWLILFHYLGHQFHLQGLFDWLQJZKLFKVWUDWHJLHVDUHSUHIHUDEOHUH ,QWURGXFWLRQWR
GXFHVFRQIXVLRQDQGUHLQIRUFHVWKHFRQILGHQFHQHHGHGWRULGHRXWPDUNHWYRODWLOLW\ 6HFXULW\$QDO\VLV

9DOXHIOXFWXDWLRQVDQGFRQIOLFWLQJRSLQLRQVFDQFKDOOHQJHDQ\RQHWRIRUPXODWHDQG
VWLFNZLWKDVHWRILQYHVWPHQWSULQFLSOHV0DUNHWIOXFWXDWLRQVRYHUWLPHDQGDFURVV
127(6
EXVLQHVVF\FOHVLQGXVWULHVDVVHWFODVVHVJHRJUDSKLHVHWFFDQUDLVHVLJQLILFDQWGRXEWV
7KHYDULRXVQHZVRIPHGLDZKLFKDUHQRWKLQJPRUHWKDQWKHUXEELVKLQFUHDVHV
LQYHVWRUFRQIXVLRQ7KLVYHU\YRODWLOLW\DQGFRQIOLFWRIRSLQLRQUHTXLUHVLQYHVWRUVWR
VWULYHIRUDQREMHFWLYHEDVLVIRUFKRRVLQJWKHLULQYHVWPHQWVWUDWHJLHV
7KH6NLOOHG,QYHVWRUVFDQKHOSLQGLYLGXDOLQYHVWRUVWRXQGHUVWDQGVRPHRIWKHLP
SRUWDQWWHUPVRILQYHVWLQJ0DQ\LQYHVWRUVZDQWWRMXPSLPPHGLDWHO\WRLQYHVWPHQW
WDFWLFVDQGPD\DYRLGWKLQNLQJPRUHGHHSO\DERXWWKHXQGHUO\LQJORJLFRUYDOLGLW\RI
WKRVHWDFWLFV7DNLQJGHFLVLRQEHIRUHSURSHUDQDO\VLVOHDGVSRRUUHVXOWV,QYHVWPHQW
EDVHGRQXQWUXHLQYHVWPHQWLQIRUPDWLRQDQGPLVOHDGLQJWKHRULHVFLUFXODWLQJWDFWLFDO
DFWLRQZLWKRXWDVFLHQWLILFDQFKRUFDQJLYHULVHWRWUHPHQGRXVORVV
  6HFXULW\ &UHGLW 5DWLQJ
%HIRUHLQYHVWLQJLQDQ\VHFXULW\RQHPXVWGHFLGHZKHWKHUWKHSURVSHFWLYHHQWLW\ZLOO
EHDEOHWRPHHWLWVREOLJDWLRQV$UDWLQJVFRPSDQ\FDQKHOSLQWKLV3URYLGLQJ
LQGHSHQGHQWREMHFWLYHDVVHVVPHQWVRIWKHFUHGLWZRUWKLQHVVRIFRPSDQLHVVHFX
ULWLHVLVVXHGE\WKHPDFUHGLWUDWLQJVFRPSDQ\KHOSVLQYHVWRUVGHFLGHKRZULVN\LW
LVWRLQYHVWPRQH\LQDFHUWDLQVHFXULW\
$VLQYHVWPHQWRSSRUWXQLWLHVEHFRPHPRUHJOREDODQGGLYHUVHLWLVGLIILFXOWWRGHFLGH
QRWRQO\ZKLFKFRPSDQLHVEXWDOVRZKLFKFRXQWULHVDUHJRRGLQYHVWPHQWRSSRUWX
QLWLHV7KHUHDUHDGYDQWDJHVWRLQYHVWLQJLQIRUHLJQPDUNHWVEXWWKHULVNVDVVRFLDWHG
ZLWKVHQGLQJPRQH\DEURDGDUHFRQVLGHUDEO\KLJKHUWKDQWKRVHDVVRFLDWHGZLWK
LQYHVWLQJLQ\RXURZQGRPHVWLFPDUNHW,WLVLPSRUWDQWWRJDLQLQVLJKWLQWRGLIIHUHQW
LQYHVWPHQWHQYLURQPHQWVEXWDOVRWRXQGHUVWDQGWKHULVNVDQGDGYDQWDJHVWKHVH
HQYLURQPHQWVSRVH0HDVXULQJWKHDELOLW\DQGZLOOLQJQHVVRIDQHQWLW\ZKLFKFRXOG
EHDSHUVRQDFRUSRUDWLRQDVHFXULW\RUDFRXQWU\WRNHHSLWVILQDQFLDOFRPPLW
PHQWVRULWVGHEWFUHGLWUDWLQJVDUHHVVHQWLDOWRROVIRUKHOSLQJ\RXPDNHVRPH
LQYHVWPHQWGHFLVLRQV
7KHUHDUHWKUHHWRSDJHQFLHVWKDWGHDOLQFUHGLWUDWLQJVIRUWKHLQYHVWPHQWZRUOG
7KHVHDUH0RRG\¶V6WDQGDUGDQG3RRU¶V6 3¶VDQG)LWFK,%&$(DFKRIWKHVH
DJHQFLHVDLPVWRSURYLGHDUDWLQJV\VWHPWRKHOSLQYHVWRUVGHWHUPLQHWKHULVNDVVR
FLDWHGZLWKLQYHVWLQJLQDVSHFLILFFRPSDQ\LQYHVWLQJLQVWUXPHQWRUPDUNHW7KHUHDUH
RWKHUDJHQFLHVDOVROLNH,&5$&$5(HWF
5DWLQJVFDQEHDVVLJQHGWRVKRUWWHUPDQGORQJWHUPGHEWREOLJDWLRQVDVZHOODV
VHFXULWLHVORDQVSUHIHUUHGVWRFNDQGLQVXUDQFHFRPSDQLHV/RQJWHUPFUHGLWUDWLQJV
WHQGWREHPRUHLQGLFDWLYHRIDFRXQWU\¶VLQYHVWPHQWVXUURXQGLQJVDQGRUDFRPSDQ\¶V
DELOLW\WRKRQRULWVGHEWUHVSRQVLELOLWLHV
)RUDJRYHUQPHQWRUFRPSDQ\LWLVVRPHWLPHVHDVLHUWRSD\EDFNORFDOFXUUHQF\
REOLJDWLRQVWKDQLWLVWRSD\IRUHLJQFXUUHQF\REOLJDWLRQV7KHUDWLQJVWKHUHIRUHDVVHVV
DQHQWLW\¶VDELOLW\WRSD\GHEWVLQERWKIRUHLJQDQGORFDOFXUUHQFLHV$ODFNRIIRUHLJQ
UHVHUYHVIRUH[DPSOHPD\ZDUUDQWDORZHUUDWLQJIRUWKRVHREOLJDWLRQVDFRXQWU\ 6HOI,QVWUXFWLRQDO 0DWHULDO
PDGHLQIRUHLJQFXUUHQF\,WLVLPSRUWDQWWRQRWHWKDWUDWLQJVDUHQRWHTXDOWRRUWKH 
6HFXULW\$QDO\VLV VDPHDVEX\VHOORUKROGUHFRPPHQGDWLRQV5DWLQJVDUHUDWKHUDPHDVXUHRIDQ
3RUWIROLR0DQDJHPHQW HQWLW\¶VDELOLW\DQGZLOOLQJQHVVWRUHSD\GHEW
$FUHGLWUDWLQJLVDXVHIXOWRROQRWRQO\IRUWKHLQYHVWRUEXWDOVRIRUWKHHQWLWLHV
ORRNLQJIRULQYHVWRUV$QLQYHVWPHQWJUDGHUDWLQJFDQSXWDVHFXULW\FRPSDQ\RU
127(6
FRXQWU\RQWKHJOREDOUDGDUDWWUDFWLQJIRUHLJQPRQH\DQGERRVWLQJDQDWLRQ¶VHFRQRP\
,QGHHGIRUHPHUJLQJPDUNHWHFRQRPLHVWKHFUHGLWUDWLQJLVNH\WRVKRZLQJWKHLU
ZRUWKLQHVVRIPRQH\IURPIRUHLJQLQYHVWRUV$QGEHFDXVHWKHFUHGLWUDWLQJDFWVWR
IDFLOLWDWHLQYHVWPHQWVPDQ\FRXQWULHVDQGFRPSDQLHVZLOOVWULYHWRPDLQWDLQDQG
LPSURYHWKHLUUDWLQJVKHQFHHQVXULQJDVWDEOHSROLWLFDOHQYLURQPHQWDQGDPRUH
WUDQVSDUHQWFDSLWDOPDUNHW
  7KH /LVW RI &UHGLW &ULWHULD
 7KHFXUUHQWVWDWHRIWKHVHFXULW\ZLOOKDYHDQLPSDFWRQWKHFUHGLWZRUWKLQHVVWKDW
LVDWWDFKHGWRLW)RUH[DPSOHLI\RXILQGWKDWWKHVHFXULW\LVKDYLQJDYHU\VKDUS
IDOOLQLWVSULFHYDOXHWKHQWKDWFRXOGEHDZDUQLQJVLJQWKDWWKHFUHGLWZRUWKLQHVV
LVLQTXHVWLRQ2QWKHRWKHUKDQGLI\RXILQGWKDWWKHVHFXULW\LVH[SHULHQFLQJD
YHU\VKDUSULVHLQLWVSULFH\RXPLJKWUHDVRQDEO\FRQFOXGHWKDWLWLVEHFDXVHWKH
FUHGLWUDWLQJRIWKDWVHFXULW\KDVDOVRULVHQ
 7KHSDVWSHUIRUPDQFHRIWKHVHFXULWLHVSRUWIROLRZLOODOVREHFRQVLGHUHGZKHQ
PDNLQJDFUHGLWUDWLQJGHFLVLRQ)RUH[DPSOHLIRYHUWKHSDVWWZHOYHPRQWKWKDW
SDUWLFXODUOLQHRIVHFXULWLHVKDVH[SHULHQFHGJUHDWWXUEXOHQFHLQWHUPVRILWVVKDUH
YDOXHWKHFUHGLWUDWLQJZLOOWXPEOHDVZHOO+RZHYHULIWKHVHFXULWLHVSRUWIROLRKDV
EHHQVWHDG\WKURXJKRXWDVLJQLILFDQWSHULRGWKHFKDQFHVDUHWKDWLWZLOOEH
DOORFDWHGDJRRGFUHGLWVFRUH
 5HODWHGWRFRQWH[WLVWKHUHODWLYHVWUHQJWKRIZHDNQHVVRIRWKHUVHFXULWLHV&RQWH[W
LVYHU\LPSRUWDQWZKHQ\RXDUHH[DPLQLQJDQLQGLYLGXDOVHFXULW\LQVWUXPHQWEHFDXVH
VSHFXODWLRQSOD\VDFUXFLDOSDUWLQGHWHUPLQLQJWKHYDOXHRIDQ\SRUWIROLRLQWKLV
LQGXVWU\7KXVLIRWKHUVHFXULWLHVVHHPWREHGRLQJZHOODQG\RXUVLVIDOOLQJ
EHKLQGWKHQORJLFZRXOGVXJJHVWWKDWLWVFUHGLWUDWLQJZLOOQRWEHYHU\KLJK
+RZHYHULI\RXUVHFXULW\LVWKHEHVWDPRQJDSRRUEXQFKWKHQLWVUHODWLYHFUHGLW
UDWLQJZLOOEHKLJK
 7KHPHWKRGVWKDWDUHXVHGWRDVVHVVFUHGLWUDWLQJIRUVHFXULWLHVKDYHDVLJQLILFDQW
UROHWRSOD\EHFDXVHWKH\EULQJLQWRSOD\WKHLVVXHVRIVXEMHFWLYLW\2QHFUHGLW
UDWLQJRUJDQL]DWLRQPD\WDNHDGLPYLHZRIWKHVDPHVHWRIFLUFXPVWDQFHVWKDW
DQRWKHUUDWLQJRUJDQL]DWLRQZRXOGLJQRUH6RPHWLPHVWKHFUHGLWUDWLQJLQWKH
VHFXULWLHVPDUNHWDSSHDUVWREHDORWWHU\
 0DUNHW  %URNHUV
$EURNHURUEURNHULVDUHJXODWHGSURIHVVLRQDOZKREX\VDQGVHOOVVKDUHVDQGRWKHU
VHFXULWLHVWKURXJKPDUNHWPDNHUVRU$JHQF\2QO\)LUPVRQEHKDOIRILQYHVWRUV$
EURNHUPD\EHHPSOR\HGE\DEURNHUDJHILUP$WUDQVDFWLRQRQDVWRFNH[FKDQJH
PXVWEHPDGHEHWZHHQWZRPHPEHUVRIWKHH[FKDQJH$QRUGLQDU\SHUVRQPD\QRW
ZDONLQWRWKH6WRFN([FKDQJHDQGDVNWRWUDGHVWRFN6XFKDQH[FKDQJHPXVWEH
GRQHWKURXJKDEURNHU
6HOI,QVWUXFWLRQDO 0DWHULDO

7KHUHDUHWKUHHW\SHVRIVWRFNEURNLQJVHUYLFH ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV
x ([HFXWLRQRQO\ZKLFKPHDQVWKDWWKHEURNHUZLOORQO\FDUU\RXWWKHFOLHQW¶V
LQVWUXFWLRQVWREX\RUVHOO
x $GYLVRU\GHDOLQJZKHUHWKHEURNHUDGYLVHVWKHFOLHQWRQZKLFKVKDUHVWR 127(6
EX\DQGVHOOEXWOHDYHVWKHILQDOGHFLVLRQWRWKHLQYHVWRU
x 'LVFUHWLRQDU\GHDOLQJZKHUHWKHVWRFNEURNHUDVFHUWDLQVWKHFOLHQW¶VLQYHVW
PHQWREMHFWLYHVDQGWKHQPDNHVDOOGHDOLQJGHFLVLRQVRQWKHFOLHQW¶VEHKDOI
x 5ROHVVLPLODUWRWKDWRIDVWRFNEURNHULQFOXGHLQYHVWPHQWDGYLVRUDQGILQDQ
FLDODGYLVRU$VWRFNEURNHUPD\RUPD\QRWEHDOVRDQLQYHVWPHQWDGYLVRU
DQGYLFHYHUVD
x 6WRFNEURNHUVDOVRVRPHWLPHVRUH[FOXVLYHO\WUDGHRQWKHLURZQEHKDOIDV
DSULQFLSDOVSHFXODWLQJWKDWDVKDUHRURWKHUILQDQFLDOLQVWUXPHQWZLOOLQFUHDVH
RUGHFOLQHLQSULFH,QVXFKFDVHVWKHWHUPEURNHUPDNHVOLWWOHVHQVHDQGWKH
LQGLYLGXDOVRUILUPVWUDGLQJLQSULQFLSDOFDSDFLW\VRPHWLPHVFDOOWKHPVHOYHV
GHDOHUVVWRFNWUDGHUVRUVLPSO\WUDGHUV7KHUHDUHPDQ\RWKHUW\SHVRI
WUDGHUVZLWKLQFDSLWDOPDUNHWVIRUH[DPSOHWUDGLQJZLWKLQWKHIRUHLJQH[
FKDQJHPDUNHW
 ,QYHVWPHQW &RPSDQLHV
,QGLYLGXDOVKDYHWKHRSWLRQWRLQYHVWRQWKHLURZQRUWKURXJKVRPHLQVWLWXWLRQVZKLFK
VSHFLDOL]HLQVXFKDFWLYLWLHV,QWKH86DQGPDQ\RWKHUGHYHORSHGQDWLRQVLQYHVWRUV
QRUPDOO\SUHIHUWRLQYHVWWKURXJKPXWXDOIXQGVDQGSHQVLRQIXQGV,QGLDQLQYHVWRUV
DUHDOVRLQFUHDVLQJO\LQYHVWLQJWKURXJKVXFKVSHFLDOL]HGIXQGV)XQGVZKLFKVSHFLDO
L]HLQLQYHVWPHQWVRQEHKDOIRIWKHLU,QYHVWRUVDUHFDOOHG,QYHVWPHQW&RPSDQLHV$Q
LQYHVWPHQWFRPSDQ\LVDSRRORIIXQGVEHORQJLQJWRPDQ\LQGLYLGXDOVWKDWLVXVHGWR
DFTXLUHDFROOHFWLRQRILQGLYLGXDOLQYHVWPHQWVVXFKDVVWRFNVERQGVDQGRWKHU
SXEOLFO\WUDGHGVHFXULWLHV:KLOHVRPHRIWKHLQYHVWPHQWFRPSDQLHVRIIHUWKHVH
VHUYLFHVLQGLUHFWO\RWKHUVRIIHUVXFKVHUYLFHVGLUHFWO\,QYHVWPHQWFRPSDQLHVW\SL
FDOO\RIIHUVRPHVHUYLFHQRWGLUHFWO\UHODWHGWRLQYHVWLQJWKHPRQH\LQVHFXULWLHVEXW
WKHDPRXQWFROOHFWHGDJDLQVWVXFKVHUYLFHVDUHLQYHVWHGLQVHFXULWLHVDQGLQFRPH
HDUQHGRXWRIWKDWDUHVKDUHGZLWKWKHFXVWRPHUVRIVHUYLFH7RJLYHDQH[DPSOH
VXSSRVHLI\RXKDYHWDNHQDOLIHLQVXUDQFHSROLF\IURP/LIH,QVXUDQFH&RUSRUDWLRQ
RI,QGLDRUDQ\RWKHUQHZO\IRUPHGSULYDWHVHFWRULQVXUDQFHFRPSDQ\\RXDUH
DFWXDOO\JHWWLQJDQLQVXUDQFHSURGXFWRUVHUYLFH,QVXUDQFHSROLFLHVLQYDULDEO\KDYH
WZRFRPSRQHQWVQDPHO\ULVNFRYHUDQGVDYLQJV6XFKLQVXUDQFHFRPSDQLHVLQDG
GLWLRQWRSURWHFWLQJWKHIDPLO\RISROLF\KROGHUVLQWKHHYHQWRIORVVRISROLF\KROGHUV¶
OLIHDOVRRIIHUDUHWXUQRQWKHVDYLQJVSDUWLQWKHIRUPRIERQXV,QRUGHUWRUHZDUG
WKHSROLF\ROGHUZLWKVXFKUHWXUQLQVXUDQFHFRPSDQLHVLQYHVWPRQH\LQVHFXULWLHVRI
GLIIHUHQWW\SHV$QRWKHUH[DPSOHLVSHQVLRQIXQGVZKLFKDOVRFROOHFWUHJXODUO\VRPH &KHFN <RXU 3URJUHVV
DPRXQWIURPWKHVXEVFULEHUVDQGUHZDUGWKHVXEVFULEHUVE\SURYLGLQJSHQVLRQIRU  :KDW LV DJJUHJDWH
PDUNHWUHWXUQV"
WKHVXEVFULEHUVDVZHOODVKHUKLVIDPLO\6SHFLDOL]HG3HQVLRQ)XQGVDUH\HWWRWDNH
 :KRLVDEURNHU"
RIILQ,QGLDEXW/,&87,DQG,7,3LRQHHU0XWXDO)XQGKDYHDOUHDG\IORDWHGSHQ
VLRQIXQGVVFKHPHV0DQ\PXWXDOIXQGVDQGSULYDWHOLIHLQVXUDQFHFRPSDQLHVDUHLQ
WKHSURFHVVRIEULQJLQJVXFKVFKHPHVWRLQYHVWRUV,QFRQWUDVWZLWKLQYHVWPHQW
FRPSDQLHVWKHPXWXDOIXQGVDUHQRWRIIHULQJDQ\RWKHUVHUYLFHVRWKHUWKDQLQYHVW 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV PHQWVHUYLFHVWRLQYHVWRUV0XWXDOIXQGVFROOHFWPRQH\IURPLQYHVWRUVDQGVLPSO\
3RUWIROLR0DQDJHPHQW LQYHVWWKHDPRXQWLQVHFXULWLHVDVSHUWKHVFKHPH$WWKHHQGRIWKHVFKHPHRU
SHULRGLFDOO\WKHUHWXUQHDUQHGIURPWKHVFKHPHLVGLVWULEXWHGWRWKHKROGHUVRI
PXWXDOIXQGVXQLWVDIWHUGHGXFWLQJPDQDJHPHQWIHHV:HZLOOGLVFXVVPRUHRQPXWXDO
127(6 IXQGVLQWKHQH[W8QLW,QWKLVXQLWRXUGLVFXVVLRQLVPDLQO\UHVWULFWHGWRLQVXUDQFHDQG
SHQVLRQFRPSDQLHV
6RWDONLQJEULHIO\DQLQYHVWPHQWFRPSDQ\LVDFRPSDQ\ZKRVHPDLQEXVLQHVVLV
KROGLQJVHFXULWLHVRIRWKHUFRPSDQLHVSXUHO\IRULQYHVWPHQWSXUSRVHV7KHLQYHVW
PHQWFRPSDQ\LQYHVWVPRQH\RQEHKDOIRILWVVKDUHKROGHUVZKRLQWXUQVKDUHLQWKH
SURILWVDQGORVVHV
,QGLDLVEHLQJUDQNHGDVILIWKELJJHVWHFRQRP\LQWKHZRUOGDQGLVFRQVLGHUHGDVRQH
RIWKHSUHIHUUHGKXEVIRULQYHVWPHQWSURVSHFWVDPRQJIRUHLJQLQYHVWRUVGXHWRLWV
GLYHUVLW\RILQGXVWULHVDQGLQFUHDVLQJO\H[SDQGLQJILQDQFLDOV\VWHP
/LVWRI7RS,QYHVWPHQW&RPSDQLHVLQ,QGLD
 %DMDM$OOLDQ]
 +6%&$VVHW0DQDJHPHQW,QGLD3YW/WG
 60&,QYHVWPHQW6ROXWLRQDQG6HUYLFHV
 6KDK)LQDQFLDO*URXS
 6WDQURVH0DIDWODO,QYHVWPHQWDQG)LQDQFH/WG
 7DWD,QYHVWPHQW&RUSRUDWLRQ/WG
 7RVV)LQDQFLDO6HUYLFHV3YW/WG
 9HURQLFD)LQDQFLDO6HUYLFHV/WG
 ,QGLDQ,QYHVWPHQW&HQWUH
 -0&DSLWDO0DQDJHPHQW3ULYDWH/WG
 0DUNHW ,QGLFHV  5HWXUQ
0DUNHW,QGH[PD\EHGHILQHGDVDQDJJUHJDWHYDOXHSURGXFHGE\FRPELQLQJVHY
HUDOVWRFNVRURWKHULQYHVWPHQWYHKLFOHVWRJHWKHUDQGH[SUHVVLQJWKHLUWRWDOYDOXHV
DJDLQVWDEDVHYDOXHIURPDVSHFLILFGDWH0DUNHWLQGH[HVDUHLQWHQGHGWRUHSUHVHQW
DQHQWLUHVWRFNPDUNHWDQGWKXVWUDFNWKHPDUNHW¶VFKDQJHVRYHUWLPH
,QGH[YDOXHVDUHXVHIXOIRULQYHVWRUVWRWUDFNFKDQJHVLQPDUNHWYDOXHVRYHUORQJ
SHULRGVRIWLPH)RUH[DPSOHWKHZLGHO\XVHG6WDQGDUGDQG3RRU¶V,QGH[LV
FRPSXWHGE\FRPELQLQJODUJHFDS86VWRFNVWRJHWKHULQWRRQHLQGH[YDOXH
,QYHVWRUVFDQWUDFNFKDQJHVLQWKHLQGH[¶VYDOXHRYHUWLPHDQGXVHLWDVDEHQFKPDUN
DJDLQVWZKLFKWRFRPSDUHWKHLURZQSRUWIROLRUHWXUQV
$VWRFNPDUNHWLQGH[LVDPHWKRGRIPHDVXULQJDVHFWLRQRIWKHVWRFNPDUNHW
0DQ\LQGLFHVDUHFLWHGE\QHZVRUILQDQFLDOVHUYLFHVILUPVDQGDUHXVHGDVEHQFK
PDUNVWRPHDVXUHWKHSHUIRUPDQFHRISRUWIROLRVVXFKDVPXWXDOIXQGV
$OWHUQDWLYHO\DQLQGH[PD\DOVREHFRQVLGHUHGDVDQLQVWUXPHQWDIWHUDOOLWFDQEH
6HOI,QVWUXFWLRQDO 0DWHULDO WUDGHGZKLFKGHULYHVLWVYDOXHIURPRWKHULQVWUXPHQWVRULQGLFHV7KHLQGH[PD\EH

ZHLJKWHGWRUHIOHFWWKHPDUNHWFDSLWDOL]DWLRQRILWVFRPSRQHQWVRUPD\EHDVLPSOH ,QWURGXFWLRQWR
LQGH[ZKLFKPHUHO\UHSUHVHQWVWKHQHWFKDQJHLQWKHSULFHVRIWKHXQGHUO\LQJLQVWUX 6HFXULW\$QDO\VLV
PHQWV0RVWSXEOLFO\TXRWHGVWRFNPDUNHWLQGLFHVDUHZHLJKWHG
6WRFNPDUNHWLQGLFHVPD\EHFODVVHGLQPDQ\ZD\V)RUH[DPSOH$µZRUOG¶RU
127(6
µJOREDO¶VWRFNPDUNHWLQGH[LQFOXGHVW\SLFDOO\ODUJHFRPSDQLHVZLWKRXWUHJDUGIRU
ZKHUHWKH\DUHGRPLFLOHGRUWUDGHG7ZRH[DPSOHVDUH06&,:RUOGDQG6 3
*OREDO
$µQDWLRQDO¶LQGH[UHSUHVHQWVWKHSHUIRUPDQFHRIWKHVWRFNPDUNHWRIDJLYHQQDWLRQ
DQGE\SUR[\UHIOHFWVLQYHVWRUVHQWLPHQWRQWKHVWDWHRILWVHFRQRP\
0RUHVSHFLDOL]HGLQGLFHVH[LVWWUDFNLQJWKHSHUIRUPDQFHRIVSHFLILFVHFWRUVRIWKH
PDUNHW6RPHH[DPSOHVLQFOXGHWKH:LOVKLUH865(,7ZKLFKWUDFNVPRUHWKDQ
$PHULFDQUHDOHVWDWHLQYHVWPHQWWUXVWVDQGWKH0RUJDQ6WDQOH\%LRWHFK,QGH[ZKLFK
FRQVLVWVRI$PHULFDQILUPVLQWKHELRWHFKQRORJ\LQGXVWU\
5HWXUQRQ0DUNHW,QGH[
2IWHQZKHQSHRSOHUHIHUWR³WKHPDUNHW´WKH\DUHUHIHUULQJWRDSDUWLFXODUVWRFN
PDUNHWLQGH[7KHPRVWSRSXODUPDUNHWLQGH[HVLQ,QGLDDUH%6( 16(LQGH[
&DOFXODWLQJWKHUHWXUQRQDQ\RQHRIWKHVHLQGLFHVLVDVHDV\DVFDOFXODWLQJWKHUHWXUQ
IRUDJLYHQVKDUHRIVWRFN7KHSURFHVVIRUFDOFXODWLQJ5HWXUQRQPDUNHWLQGH[LV
DVIROORZLQJ
z 5HYLHZWKHFDOFXODWLRQIRUUHWXUQSURILWGLYLGHGE\LQYHVWPHQW,I\RXEX\
DVWRFNIRU5VDQGLWJRHVXSWR5V\RXUSURILWLV5V5V
GLYLGHGE\5VHTXDOVRUSHUFHQW
z *HWWKHWLFNHUV\PEROIRUHDFKLQGH[$VWRFNV\PERORUWLFNHUV\PERO
LVDVKRUWDEEUHYLDWLRQXVHGWRXQLTXHO\LGHQWLI\SXEOLFO\WUDGHGVKDUHVRID
SDUWLFXODUVWRFNRQDSDUWLFXODUVWRFNPDUNHW$VWRFNV\PEROPD\FRQVLVW
RIOHWWHUVQXPEHUVRUDFRPELQDWLRQRIERWK
z /RRNXSWKHSULFHVIRUWKDWSDUWLFXODUWLFNHUIRUWKHSDVW\HDU
z 6HOHFWWZRGDWHVDQGQRWHWKHSULFHVRIHDFKLQGH[RQWKHVHGDWHV6XEWUDFW
WKHFXUUHQWSULFHIURPWKHSXUFKDVHSULFH
z 'LYLGHWKLVQXPEHUE\WKHSXUFKDVHSULFHDQGPXOWLSO\E\IRUWKHPDUNHW
SHUFHQWDJHUHWXUQ$OOWKUHHLQGLFHVWUDFNGLIIHUHQWPDUNHWVHJPHQWVDQGPD\
WKHUHIRUHKDYHGLIIHUHQWUDWHVRIUHWXUQRYHUWKHVDPHWLPHSHULRG
 *29(510(17 6(&85,7,(6
7KH*RYHUQPHQWVHFXULWLHVPDUNHWKDVZLWQHVVHGVLJQLILFDQWFKDQJHVGXULQJWKHSDVW
GHFDGH,QWURGXFWLRQRIDQHOHFWURQLFVFUHHQEDVHGWUDGLQJV\VWHPGHPDWHULDOL]HG
KROGLQJVWUDLJKWWKURXJKSURFHVVLQJHVWDEOLVKPHQWRIWKH&OHDULQJ&RUSRUDWLRQRI
,QGLD/WG&&,/DVWKHFHQWUDOFRXQWHUSDUW\&&3IRUJXDUDQWHHGVHWWOHPHQWQHZ
LQVWUXPHQWVDQGFKDQJHVLQWKHOHJDOHQYLURQPHQWDUHVRPHRIWKHPDMRUDVSHFWVWKDW
KDYHFRQWULEXWHGWRWKHUDSLGGHYHORSPHQWRIWKHPDUNHW
0DMRUSDUWLFLSDQWVLQWKH*RYHUQPHQWVHFXULWLHVPDUNHWKLVWRULFDOO\KDYHEHHQODUJH
LQVWLWXWLRQDOLQYHVWRUV:LWKWKHYDULRXVPHDVXUHVIRUGHYHORSPHQWWKHPDUNHWKDV 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV DOVRZLWQHVVHGWKHHQWU\RIVPDOOHUHQWLWLHVVXFKDVFRRSHUDWLYHEDQNVVPDOOSHQ
3RUWIROLR0DQDJHPHQW VLRQDQGRWKHUIXQGVHWF7KHVHHQWLWLHVDUHPDQGDWHGWRLQYHVWLQ*RYHUQPHQW
VHFXULWLHVWKURXJKUHVSHFWLYHUHJXODWLRQV+RZHYHUVRPHRIWKHVHQHZHQWUDQWVKDYH
RIWHQIRXQGLWGLIILFXOWWRXQGHUVWDQGDQGDSSUHFLDWHYDULRXVDVSHFWVRIWKH*RYHUQ
127(6 PHQWVHFXULWLHVPDUNHW7KH5HVHUYH%DQNRI,QGLDKDVWKHUHIRUHWDNHQVHYHUDO
LQLWLDWLYHVWREULQJDZDUHQHVVDERXWWKH*RYHUQPHQWVHFXULWLHVPDUNHWDPRQJVPDOO
LQYHVWRUV7KHVHLQFOXGHZRUNVKRSVRQWKHEDVLFFRQFHSWVUHODWLQJWRIL[HGLQFRPH
VHFXULWLHVERQGVOLNH*RYHUQPHQWVHFXULWLHVH[LVWLQJWUDGLQJDQGLQYHVWPHQWSUDF
WLFHVWKHUHODWHGUHJXODWRU\DVSHFWVDQGWKHJXLGHOLQHV
7KLVSULPHULV\HWDQRWKHULQLWLDWLYHRIWKH5HVHUYH%DQNWRGLVVHPLQDWHLQIRUPDWLRQ
UHODWLQJWRWKH*RYHUQPHQWVHFXULWLHVPDUNHWWRWKHVPDOOHULQVWLWXWLRQDOSOD\HUVDV
ZHOODVWKHSXEOLF$QHIIRUWKDVEHHQPDGHLQWKLVSULPHUWRSUHVHQWDFRPSUHKHQ
VLYH DFFRXQW RI WKH PDUNHW DQG WKH YDULRXV SURFHVVHV DQG RSHUDWLRQDO DVSHFWV
UHODWHGWRLQYHVWLQJLQ*RYHUQPHQWVHFXULWLHVLQDQHDV\WRXQGHUVWDQGTXHVWLRQ
DQVZHUIRUPDW7KHSULPHUDOVRKDVDVDQQH[HVDOLVWRISULPDU\GHDOHUV3'V
XVHIXOH[FHOIXQFWLRQVDQGJORVVDU\RILPSRUWDQWPDUNHWWHUPLQRORJ\,KRSHWKH
LQYHVWRUVSDUWLFXODUO\WKHVPDOOHULQVWLWXWLRQDOLQYHVWRUVZLOOILQGWKHSULPHUXVHIXOLQ
WDNLQJGHFLVLRQVRQLQYHVWPHQWLQ*RYHUQPHQWVHFXULWLHV5HVHUYH%DQNRI,QGLD
ZRXOGZHOFRPHVXJJHVWLRQVLQPDNLQJWKLVSULPHUPRUHXVHUIULHQGO\
0HDQLQJRID*RYHUQPHQW6HFXULW\
$*RYHUQPHQWVHFXULW\LVDWUDGDEOHLQVWUXPHQWLVVXHGE\WKH&HQWUDO*RYHUQPHQW
RUWKH6WDWH*RYHUQPHQWV,WDFNQRZOHGJHVWKH*RYHUQPHQW¶VGHEWREOLJDWLRQ
6XFKVHFXULWLHVDUHVKRUWWHUPXVXDOO\FDOOHGWUHDVXU\ELOOVZLWKRULJLQDOPDWXULWLHV
RIOHVVWKDQRQH\HDURUORQJWHUPXVXDOO\FDOOHG*RYHUQPHQWERQGVRUGDWHG
VHFXULWLHVZLWKRULJLQDOPDWXULW\RIRQH\HDURUPRUH,Q,QGLDWKH&HQWUDO*RY
HUQPHQWLVVXHVERWKWUHDVXU\ELOOVDQGERQGVRUGDWHGVHFXULWLHVZKLOHWKH6WDWH
*RYHUQPHQWVLVVXHRQO\ERQGVRUGDWHGVHFXULWLHVZKLFKDUHFDOOHGWKH6WDWH'H
YHORSPHQW/RDQV6'/V*RYHUQPHQWVHFXULWLHVFDUU\SUDFWLFDOO\QRULVNRIGHIDXOW
DQGKHQFHDUHFDOOHGULVNIUHHJLOWHGJHGLQVWUXPHQWV*RYHUQPHQWRI,QGLDDOVR
LVVXHVVDYLQJVLQVWUXPHQWV6DYLQJV%RQGV1DWLRQDO6DYLQJ&HUWLILFDWHV16&V
HWFRUVSHFLDOVHFXULWLHVRLOERQGV)RRG&RUSRUDWLRQRI,QGLDERQGVIHUWLOL]HU
ERQGVSRZHUERQGVHWF7KH\DUHXVXDOO\QRWIXOO\WUDGDEOHDQGDUHWKHUHIRUH
QRWHOLJLEOHWREH6/5VHFXULWLHV
)($785(6 2) *29(510(17 6(&85,7,(6
 ,VVXHGDWIDFHYDOXH
 1RGHIDXOWULVNDVWKHVHFXULWLHVFDUU\VRYHUHLJQJXDUDQWHH
 $PSOHOLTXLGLW\DVWKHLQYHVWRUFDQVHOOWKHVHFXULW\LQWKHVHFRQGDU\PDUNHW
 ,QWHUHVWSD\PHQWRQDKDOI\HDUO\EDVLVRQIDFHYDOXH
 1RWD[GHGXFWHGDWVRXUFH
 &DQEHKHOGLQ'(0$7IRUP
 5DWHRILQWHUHVWDQGWHQRURIWKHVHFXULW\LVIL[HGDWWKHWLPHRILVVXDQFHDQG
6HOI,QVWUXFWLRQDO 0DWHULDO LVQRWVXEMHFWWRFKDQJHXQOHVVLQWULQVLFWRWKHVHFXULW\OLNH)5%V)ORDWLQJ
 5DWH%RQGV
  5HGHHPHGDWIDFHYDOXHRQPDWXULW\ ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV
 0DWXULW\UDQJHVIURPRI\HDUV
 6HFXULWLHVTXDOLI\DV6/56WDWXWRU\/LTXLGLW\5DWLRLQYHVWPHQWVXQOHVV
RWKHUZLVHVWDWHG 127(6
7UHDVXU\%LOOV7ELOOV
7UHDVXU\ELOOVRU7ELOOVZKLFKDUHPRQH\PDUNHWLQVWUXPHQWVDUHVKRUWWHUPGHEW
LQVWUXPHQWVLVVXHGE\WKH*RYHUQPHQWRI,QGLDDQGDUHSUHVHQWO\LVVXHGLQWKUHH
WHQRUV QDPHO\  GD\  GD\ DQG  GD\ 7UHDVXU\ ELOOV DUH ]HUR FRXSRQ
VHFXULWLHVDQGSD\QRLQWHUHVW7KH\DUHLVVXHGDWDGLVFRXQWDQGUHGHHPHGDWWKH
IDFHYDOXHDWPDWXULW\)RUH[DPSOHDGD\7UHDVXU\ELOORI5VIDFHYDOXH
PD\EHLVVXHGDWVD\5VWKDWLVDWDGLVFRXQWRIVD\5VDQGZRXOG
EH UHGHHPHG DW WKH IDFH YDOXH RI 5V 7KH UHWXUQ WR WKH LQYHVWRUV LV WKH
GLIIHUHQFHEHWZHHQWKHPDWXULW\YDOXHRUWKHIDFHYDOXHWKDWLV5VDQGWKHLVVXH
SULFHIRUFDOFXODWLRQRI\LHOGRQ7UHDVXU\%LOOVSOHDVHVHHDQVZHUWRTXHVWLRQQR
7KH5HVHUYH%DQNRI,QGLDFRQGXFWVDXFWLRQVXVXDOO\HYHU\:HGQHVGD\WR
LVVXH7ELOOV3D\PHQWVIRUWKH7ELOOVSXUFKDVHGDUHPDGHRQWKHIROORZLQJ)ULGD\
7KHGD\7ELOOVDUHDXFWLRQHGRQHYHU\:HGQHVGD\7KH7UHDVXU\ELOOVRI
GD\VDQGGD\VWHQXUHDUHDXFWLRQHGRQDOWHUQDWH:HGQHVGD\V7ELOOVRIRI
GD\VWHQXUHDUHDXFWLRQHGRQWKH:HGQHVGD\SUHFHGLQJWKHUHSRUWLQJ)ULGD\ZKLOH
7ELOOVDUHDXFWLRQHGRQWKH:HGQHVGD\SULRUWRDQRQUHSRUWLQJ)ULGD\V7KH
5HVHUYH%DQNUHOHDVHVDQDQQXDOFDOHQGDURI7ELOOLVVXDQFHVIRUDILQDQFLDO\HDULQ
WKHODVWZHHNRI0DUFKRIWKHSUHYLRXVILQDQFLDO\HDU7KH5HVHUYH%DQNRI,QGLD
DQQRXQFHVWKHLVVXHGHWDLOVRI7ELOOVWKURXJKDSUHVVUHOHDVHHYHU\ZHHN
E &DVK 0DQDJHPHQW %LOOV &0%V
*RYHUQPHQWRI,QGLDLQFRQVXOWDWLRQZLWKWKH5HVHUYH%DQNRI,QGLDKDVGHFLGHG
WRLVVXHDQHZVKRUWWHUPLQVWUXPHQWNQRZQDV&DVK0DQDJHPHQW%LOOV&0%V
WRPHHWWKHWHPSRUDU\PLVPDWFKHVLQWKHFDVKIORZRIWKH*RYHUQPHQW7KH&0%V
KDYHWKHJHQHULFFKDUDFWHURI7ELOOVEXWDUHLVVXHGIRUPDWXULWLHVOHVVWKDQGD\V
/LNH7ELOOV WKH\DUH DOVR LVVXHG DWD GLVFRXQW DQG UHGHHPHG DWIDFH YDOXH DW
PDWXULW\7KHWHQXUHQRWLILHGDPRXQWDQGGDWHRILVVXHRIWKH&0%VGHSHQGXSRQ
WKHWHPSRUDU\FDVKUHTXLUHPHQWRIWKH*RYHUQPHQW7KHDQQRXQFHPHQWRIWKHLU
DXFWLRQLVPDGHE\5HVHUYH%DQNRI,QGLDWKURXJKD3UHVV5HOHDVHZKLFKZLOOEH
LVVXHGRQHGD\SULRUWRWKHGDWHRIDXFWLRQ7KHVHWWOHPHQWRIWKHDXFWLRQLVRQ7
EDVLV7KHQRQFRPSHWLWLYHELGGLQJVFKHPHKDVQRWEHHQH[WHQGHGWRWKH&0%V
+RZHYHUWKHVHLQVWUXPHQWVDUHWUDGDEOHDQGTXDOLI\IRUUHDG\IRUZDUGIDFLOLW\
,QYHVWPHQWLQ&0%VLVDOVRUHFNRQHGDVDQHOLJLEOHLQYHVWPHQWLQ*RYHUQPHQW
VHFXULWLHVE\EDQNVIRU6/5SXUSRVH
'DWHG*RYHUQPHQW6HFXULWLHV
'DWHG*RYHUQPHQWVHFXULWLHVDUHORQJWHUPVHFXULWLHVDQGFDUU\DIL[HGRUIORDWLQJ
FRXSRQLQWHUHVWUDWHZKLFKLVSDLGRQWKHIDFHYDOXHSD\DEOHDWIL[HGWLPHSHULRGV
XVXDOO\KDOI\HDUO\7KHWHQRURIGDWHGVHFXULWLHVFDQEHXSWR\HDUV
7KHQRPHQFODWXUHRIDW\SLFDOGDWHGIL[HGFRXSRQ*RYHUQPHQWVHFXULW\FRQWDLQVWKH
IROORZLQJIHDWXUHVFRXSRQQDPHRIWKHLVVXHUPDWXULW\DQGIDFHYDOXH)RU 6HOI,QVWUXFWLRQDO 0DWHULDO
H[DPSOH*6ZRXOGPHDQ 
6HFXULW\$QDO\VLV &RXSRQSDLGRQIDFHYDOXH
3RUWIROLR0DQDJHPHQW 1DPHRI,VVXHU*RYHUQPHQWRI,QGLD
'DWHRI,VVXH$SULO
0DWXULW\$SULO
127(6 &RXSRQ3D\PHQW'DWHV+DOI\HDUO\2FWREHUDQG$SULOHYHU\
\HDU
0LQLPXP$PRXQWRILVVXHVDOH5V
,QFDVHWKHUHDUHWZRVHFXULWLHVZLWKWKHVDPHFRXSRQDQGDUHPDWXULQJLQWKHVDPH
\HDUWKHQRQHRIWKHVHFXULWLHVZLOOKDYHWKHPRQWKDWWDFKHGDVVXIIL[LQWKHQRPHQ
FODWXUH)RUH[DPSOH*6)(%ZRXOGPHDQWKDW*RYHUQPHQWVHFXULW\
KDYLQJFRXSRQWKDWPDWXUHLQ)HEUXDU\DORQJZLWKWKHRWKHUVHFXULW\
ZLWKWKHVDPHFRXSRQQDPHO\ZKLFKLVPDWXULQJLQ-XQH
,IWKHFRXSRQSD\PHQWGDWHIDOOVRQD6XQGD\RUDKROLGD\WKHFRXSRQSD\PHQWLV
PDGHRQWKHQH[WZRUNLQJGD\+RZHYHULIWKHPDWXULW\GDWHIDOOVRQD6XQGD\RU
DKROLGD\WKHUHGHPSWLRQSURFHHGVDUHSDLGRQWKHSUHYLRXVZRUNLQJGD\LWVHOI
5HDVRQVIRULQYHVWPHQWLQ*RYHUQPHQWVHFXULWLHV
+ROGLQJRIFDVKLQH[FHVVRIWKHGD\WRGD\QHHGVRIDEDQNGRHVQRWJLYHDQ\
UHWXUQWRLW,QYHVWPHQWLQJROGKDVDWWHQGDQWSUREOHPVLQUHJDUGWRDSSUDLVLQJLWV
SXULW\YDOXDWLRQVDIHFXVWRG\HWF,QYHVWLQJLQ*RYHUQPHQWVHFXULWLHVKDVWKHIRO
ORZLQJDGYDQWDJHV
x %HVLGHVSURYLGLQJDUHWXUQLQWKHIRUPRIFRXSRQVLQWHUHVW*RYHUQPHQW
VHFXULWLHVRIIHUWKHPD[LPXPVDIHW\DVWKH\FDUU\WKH6RYHUHLJQ¶VFRPPLW
PHQWIRUSD\PHQWRILQWHUHVWDQGUHSD\PHQWRISULQFLSDO
x 7KH\FDQEHKHOGLQERRNHQWU\LHGHPDWHULDOL]HGVFULSOHVVIRUPWKXV
REYLDWLQJWKHQHHGIRUVDIHNHHSLQJ
x *RYHUQPHQWVHFXULWLHVDUHDYDLODEOHLQDZLGHUDQJHRIPDWXULWLHVIURP
GD\VWRDVORQJDV\HDUVWRVXLWWKHGXUDWLRQRIDEDQN¶VOLDELOLWLHV
x *RYHUQPHQWVHFXULWLHVFDQEHVROGHDVLO\LQWKHVHFRQGDU\PDUNHWWRPHHW
FDVKUHTXLUHPHQWV
x *RYHUQPHQWVHFXULWLHVFDQDOVREHXVHGDVFROODWHUDOWRERUURZIXQGVLQWKH
UHSRPDUNHW
x 7KHVHWWOHPHQWV\VWHPIRUWUDGLQJLQ*RYHUQPHQWVHFXULWLHVZKLFKLVEDVHG
RQ'HOLYHU\YHUVXV3D\PHQW'Y3LVDYHU\VLPSOHVDIHDQGHIILFLHQW
V\VWHPRIVHWWOHPHQW7KH'Y3PHFKDQLVPHQVXUHVWUDQVIHURIVHFXULWLHVE\
WKHVHOOHURIVHFXULWLHVVLPXOWDQHRXVO\ZLWKWUDQVIHURIIXQGVIURPWKHEX\HU
RIWKHVHFXULWLHVWKHUHE\PLWLJDWLQJWKHVHWWOHPHQWULVN
x *RYHUQPHQWVHFXULW\SULFHVDUHUHDGLO\DYDLODEOHGXHWRDOLTXLGDQGDFWLYH
VHFRQGDU\PDUNHWDQGDWUDQVSDUHQWSULFHGLVVHPLQDWLRQPHFKDQLVP
x %HVLGHVEDQNVLQVXUDQFHFRPSDQLHVDQGRWKHUODUJHLQYHVWRUVVPDOOHULQ
YHVWRUVOLNH&RRSHUDWLYHEDQNV5HJLRQDO5XUDO%DQNV3URYLGHQW)XQGV
DUHDOVRUHTXLUHGWRKROG*RYHUQPHQWVHFXULWLHVDVLQGLFDWHGEHORZ
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\ 1RQ6HFXULW\IRUPRI,QYHVWPHQW ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV
6HFXULW\IRUPRILQYHVWPHQWLVWKDWLQYHVWPHQWZKRVHRZQHUVKLSLVWUDQVIHUDEOHWR
VRPHERG\ZKHUHDVLQFRQWUDVW1RQ6HFXULW\IRUPVRI,QYHVWPHQWRUQRQPDUNHW
DEOHVHFXULWLHVZKRVHRZQHUVKLSLVQRWWUDQVIHUDEOH
127(6
6HFXULW\IRUPVRILQYHVWPHQWLQFOXGHWKHIROORZLQJ
‡ &RUSRUDWH%RQGV'HEHQWXUH
D&RQYHUWLEOH
E1RQ&RQYHUWLEOH
‡ 3XEOLF6HFWRU%RQGV
D7D[DEOH
E7D[)UHH
‡ 3UHIHUHQFH6KDUHV
‡ (TXLW\6KDUHV
D1HZ,VVXH
E5LJKWV,VVXH
F%RQXV,VVXH
1RQVHFXULW\IRUPVRILQYHVWPHQWDVRXWOLQHGEHORZ
‡ 1DWLRQDO6DYLQJV6FKHPH
‡ 1DWLRQDO6DYLQJV&HUWLILFDWHV
3URYLGHQW)XQGV
D6WDWXWRU\3URYLGHQW)XQG
E5HFRJQL]HG3URYLGHQW)XQG
F8QUHFRJQL]HG3URYLGHQW)XQG
G3XEOLF3URYLGHQW)XQG
‡ &RUSRUDWHIL[HGGHSRVLWV
D3XEOLF6HFWRU
E3ULYDWH6HFWRU
‡ /LIHLQVXUDQFHSROLFLHV
D:KROH/LIH3ROLFLHV
E/LPLWHGSD\PHQW/LIH3ROLF\
F&RQYHUWLEOH:KROH/LIH$VVXUDQFH3ROLF\
G(QGRZPHQW$VVXUDQFH3ROLF\
H-HHYDQ0LWUD
I7KH6SHFLDO(QGRZPHQW3ODQZLWK3URILWV
J-HHYDQ6DDWKL
K7KH1HZ0RQH\%DFN3ODQ
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV L0DUULDJH(QGRZPHQW(GXFDWLRQDO$QQXLW\3ODQZLWK3URILWV
3RUWIROLR0DQDJHPHQW M%LPD6DQGHVK3UHPLXP%DFN7HUP,QVXUDQFH3ODQ
N1HZ&KLOGUHQ¶V'HIHUUHG$VVXUDQFH3ODQ
127(6 O-HHYDQ'KDUD
P1HZ-DQD5DNVKD3ODQZLWK3URILWV
Q-HHYDQ$NVKD\3ODQ
R-HHYDQ%DO\D3ODQ
S-HHYDQ.LVKRU
T-HHYDQ*ULKD
U-HHYDQ6DULWDDQG2WKHUV
‡ 8QLWVFKHPHVRI8QLW7UXVWRI,QGLD6RPHDUHPDUNHWDEOHDPRQJWKHVH
D8QLW6FKHPH
E5HLQYHVWPHQW3ODQ
F8QLW/LQNHG,QVXUDQFH3ODQ
G&DSLWDO*DLQV8QLW6FKHPH
H&KLOGUHQ¶V*LIW*URZWK)XQGV
I3DUHQW¶V*LIW*URZWK)XQGV
0RQWKO\,QFRPH8QLW6FKHPHZLWK([WUD%RQXV3OXV*URZWK
K0DVWHU6KDUHV
L0DVWHU*DLQV
M(TXLW\/LQNHG6DYLQJV6FKHPH
N*URZLQJ0RQWKO\,QFRPH8QLW6FKHPH
O0DVWHUVKDUH3OXVHWF
‡ 3RVW2IILFH6DYLQJV%DQN$FFRXQW
D5HFXUULQJ'HSRVLWV
E7LPH'HSRVLWV
F0RQWKO\,QFRPH6FKHPH
G6RFLDO6HFXULW\&HUWLILFDWHV
‡ 2WKHUV
D5DKDW3DWUDVRU5HOLHI%RQGV
E.LVDQ9LNDV3DWUD
F'HSRVLWVLQ&RRSHUDWLYH%DQNV
L5HFXUULQJGHSRVLWV
LL7LPHGHSRVLWVHWF
 5($/ (67$7( ,19(670(17
5HDOHVWDWHLQYHVWLQJLQYROYHVWKHSXUFKDVHRZQHUVKLSPDQDJHPHQWUHQWDODQG
RUVDOHRIUHDOHVWDWHIRUSURILW,PSURYHPHQWRIUHDOW\SURSHUW\DVSDUWRIDUHDO
6HOI,QVWUXFWLRQDO 0DWHULDO
HVWDWHLQYHVWPHQWVWUDWHJ\LVJHQHUDOO\FRQVLGHUHGWREHDVXEVSHFLDOW\RIUHDOHVWDWH

LQYHVWLQJFDOOHGUHDOHVWDWHGHYHORSPHQW5HDOHVWDWHLVDQDVVHWIRUPZLWKOLPLWHG
OLTXLGLW\UHODWLYHWRRWKHULQYHVWPHQWVLWLVDOVRFDSLWDOLQWHQVLYHDOWKRXJKFDSLWDOPD\
EHJDLQHGWKURXJKPRUWJDJHOHYHUDJHDQGLVKLJKO\FDVKIORZGHSHQGHQW,IWKHVH ,QWURGXFWLRQWR
IDFWRUVDUHQRWZHOOXQGHUVWRRGDQGPDQDJHGE\WKHLQYHVWRUUHDOHVWDWHEHFRPHV 6HFXULW\$QDO\VLV
DULVN\LQYHVWPHQW7KHSULPDU\FDXVHRILQYHVWPHQWIDLOXUHIRUUHDOHVWDWHLVWKDWWKH
LQYHVWRUJRHVLQWRQHJDWLYHFDVKIORZIRUDSHULRGRIWLPHWKDWLVQRWVXVWDLQDEOH
RIWHQIRUFLQJWKHPWRUHVHOOWKHSURSHUW\DWDORVVRUJRLQWRLQVROYHQF\$VLPLODU 127(6
SUDFWLFHNQRZQDVIOLSSLQJLVDQRWKHUUHDVRQIRUIDLOXUHDVWKHQDWXUHRIWKHLQYHVW
PHQWLVRIWHQDVVRFLDWHGZLWKVKRUWWHUPSURILWZLWKOHVVHIIRUW
5HDOHVWDWHLQYHVWPHQWLQYROYHVWKHFRPPLWPHQWRIIXQGVWRSURSHUW\ZLWKDQDLPWR
JHQHUDWHLQFRPHWKURXJKUHQWDORUOHDVHDQGWRDFKLHYHFDSLWDODSSUHFLDWLRQ5HDO
HVWDWHUHIHUVWRLPPRYDEOHSURSHUW\VXFKDVODQGDQGHYHU\WKLQJHOVHWKDWLVSHU
PDQHQWO\DWWDFKHGWRLWVXFKDVEXLOGLQJV:KHQDSHUVRQDFTXLUHVUHDOHVWDWHV
KHDOVRDFTXLUHVDVHWRIULJKWVLQFOXGLQJSRVVHVVLRQFRQWURODQGWUDQVIHUULJKWV
8QGHUVWDQGLQJUHDOHVWDWHLQYHVWPHQWLVFUXFLDOEHFDXVHLWXVXDOO\LQYROYHVDVXEVWDQ
WLDOLQYHVWPHQW DQG D ORQJWHUP RQH 0RUHRYHU WKHUHDO HVWDWHPDUNHW FDQ EH
XQSUHGLFWDEOH7KLVLVSDUWLFXODUO\LPSRUWDQWZKHQRQHJRHVEH\RQGEX\LQJDKRPH
WRDFWXDOO\µLQYHVWLQJ¶LQUHDOHVWDWH7KHUHDUHDQXPEHURIZD\VLQZKLFKDQLQYHVWRU
FDQSDUWLFLSDWHLQWKHUHDOHVWDWHPDUNHW
2QHFDQRSWIRUUHDOHVWDWHLQYHVWPHQWZLWKDQDLPWRUHQWWKHSURSHUW\RXWWRD
WHQDQW7KHRZQHUODQGORUGHDUQVDFRQWLQXRXVVWUHDPRIUHQWIURPWKHWHQDQWEXW
LVUHVSRQVLEOHIRUSD\LQJWKHPRUWJDJHWD[HVDQGDQ\FRVWVDVVRFLDWHGZLWKPDLQ
WDLQLQJWKHSURSHUW\7KHRZQHUDOVREHQHILWVIURPFDSLWDODSSUHFLDWLRQDULVHLQWKH
YDOXHRIWKHSURSHUW\RYHUWLPH7KHODQGORUGUXQVWKHULVNRIQRWILQGLQJDWHQDQW
DQGFRXOGVXIIHUQHJDWLYHPRQWKO\FDVKIORZVZLWKPRUWJDJHSD\PHQWVDQGPDLQ
WHQDQFHH[SHQVHVVWLOOWREHERUQH$VFRPSDUHGWRRZQLQJVWRFNVDQGERQGVUHQWDO
UHDO HVWDWHUHTXLUHV DVLJQLILFDQW DPRXQWWLPH DQGHIIRUW WREH GHYRWHGE\ WKH
ODQGORUG
5HDOHVWDWHLQYHVWPHQWJURXSVDUHVLPLODUWRVPDOOPXWXDOIXQGV7KH\DUHVHWXSIRU
UHQWDOSURSHUWLHV:KLOHDQLQYHVWRUPD\RZQRQHRUPRUHXQLWVDSURIHVVLRQDOO\
PDQDJHGFRPSDQ\DFTXLUHVEXLOGVPDLQWDLQVDQGOHWVRXWDOOWKHXQLWVRQWKHSURS
HUWLHVLQH[FKDQJHIRUDSHUFHQWDJHRIWKHPRQWKO\UHQW
5HDOHVWDWHWUDGHUVKROGSURSHUWLHVIRURQO\DVKRUWVSDQRIWLPHOHVVWKDQIRXU
PRQWKVDLPLQJWRVHOOWKHPDWDSURILW7KLVSURFHVVLVFDOOHGIOLSSLQJSURSHUWLHV
,QYHVWRUVDLPDWSXUFKDVLQJVLJQLILFDQWO\XQGHUYDOXHGRUYHU\KRWSURSHUWLHV6XFK
RZQHUVPD\RUPD\QRWLQYHVWPRQH\LQWRLPSURYLQJWKHSURSHUW\EHIRUHSXWWLQJLW
EDFNRQVDOH$EHDUPDUNHWFRXOGUHVXOWLQVXEVWDQWLDOORVVHVIRUDUHDOHVWDWHWUDGHU
VLQFHWKHLQYHVWPHQWLVODUJH
5HDO (VWDWH ,QYHVWPHQW7UXVWV 5(,7V
$UHDOHVWDWHLQYHVWPHQWWUXVW5(,7LVDFRUSRUDWLRQWKDWLQYHVWVLQUHDOHVWDWH
5(,7VWUDGHRQPDMRUH[FKDQJHV$5(,7XVHVLQYHVWRUV¶PRQH\WRDFTXLUHDQG
RSHUDWHSURSHUWLHV
7KHEHQHILWVRI5(,7VDUH
x 5(,7VSURYLGHIDLUO\UHJXODULQFRPH
x ,QYHVWRUVJDLQH[SRVXUHWRQRQUHVLGHQWLDOLQYHVWPHQWVOLNHPDOOVDQGRIILFH
EXLOGLQJV 6HOI,QVWUXFWLRQDO 0DWHULDO

x 5(,7VDUHKLJKO\OLTXLG 
6HFXULW\$QDO\VLV x 5(,7VDUHUHTXLUHGE\ODZWRGLVWULEXWHRIWKHLUWD[DEOHLQFRPHLQWKH
3RUWIROLR0DQDJHPHQW IRUPRIGLYLGHQGVWRVKDUHKROGHUV
%HIRUHPDNLQJDFKRLFHUHJDUGLQJWKHNLQGRIUHDOHVWDWHSDUWLFLSDWLRQDQLQYHVWRU
PXVWHYDOXDWHKLVKHULQYHVWPHQWFDSDFLW\DQGULVNDSSHWLWH
127(6
5LVNPDQDJHPHQWLQ5HDO(VWDWH,QYHVWPHQW
0DQDJHPHQWDQGHYDOXDWLRQRIULVNLVDPDMRUSDUWRIDQ\VXFFHVVIXOUHDOHVWDWH
LQYHVWPHQWVWUDWHJ\5LVNRFFXUVLQPDQ\GLIIHUHQWZD\VDWHYHU\VWDJHRIWKHLQYHVW
PHQWSURFHVV,Q5HDO(VWDWH,QYHVWPHQWWKHUHDUHIROORZLQJULVNV
   5LVN           0LWLJDWLRQ 6WUDWHJ\

)UDXGXOHQWVDOH 9HULI\RZQHUVKLSSXUFKDVHWLWOHLQVXUDQFH

$GYHUVHSRVVHVVLRQ 2EWDLQDERXQGDU\VXUYH\IURPDOLFHQVHGVXUYH\RU

(QYLURQPHQWDO 2EWDLQHQYLURQPHQWDOVXUYH\WHVWIRUFRQWDPLQDQWVOHDG

SDLQWDVEHVWRVVRLO
FRQWDPLQDWLRQ FRQWDPLQDQWVHWF

%XLOGLQJFRPSRQHQWRU &RPSOHWH IXOO LQVSHFWLRQ SULRU WR SXUFKDVH SHUIRUP

V\VWHPIDLOXUH UHJXODUPDLQWHQDQFH
2YHUSD\PHQWDW 2EWDLQWKLUGSDUW\DSSUDLVDOVDQGSHUIRUPGLVFRXQWHGFDVK
IORZDQDO\VLVDVSDUWRIWKH
SXUFKDVH LQYHVWPHQWSURIRUPDGRQRWUHO\RQFDSLWDODSSUHFLDWLRQ
DVWKHSULPDU\VRXUFHRIJDLQIRUWKHLQYHVWPHQW

&DVKVKRUWIDOO 0DLQWDLQVXIILFLHQWOLTXLGRUFDVKUHVHUYHVWRFRYHUFRVWV
DQGGHEWVHUYLFHIRUDSHULRGRIWLPH

(FRQRPLFGRZQWXUQ 3XUFKDVHSURSHUWLHVZLWKGLVWLQFWLYHIHDWXUHVLQGHVLUDEOH
ORFDWLRQVWRVWDQGRXWIURPFRPSHWLWLRQFRQWUROFRVWVWUXF
WXUHKDYHWHQDQWVVLJQORQJWHUPOHDVHV

7HQDQWGHVWUXFWLRQ 6FUHHQSRWHQWLDOWHQDQWVFDUHIXOO\KLUHH[SHULHQFHGSURS
RISURSHUW\ HUW\PDQDJHUV

8QGHUHVWLPDWLRQRIULVN &DUHIXOO\DQDO\]HILQDQFLDOSHUIRUPDQFHXVLQJFRQVHUYDWLYH
DVVXPSWLRQVHQVXUHWKDWWKH SURSHUW\ FDQ JHQHUDWH
HQRXJKFDVKIORZWRVXSSRUWLWVHOI
0DUNHW'HFOLQH 3XUFKDVHSURSHUWLHVEDVHGRQDFRQVHUYDWLYHDSSURDFK
WKDWWKHPDUNHWPLJKWGHFOLQHDQGUHQWDOLQFRPHPD\DOVR
GHFUHDVH
)LUHIORRGSHUVRQDO ,QVXUDQFHSROLF\RQWKHSURSHUW\
6HOI,QVWUXFWLRQDO 0DWHULDO 7D[3ODQQLQJ 3ODQSXUFKDVHVDQGVDOHVDURXQGDQH[LWVWUDWHJ\WRVDYH
 WD[HV
 ,QYHVWPHQW,QVWUXPHQWVRIWKH0RQH\0DUNHW ,QWURGXFWLRQWR
6HFXULW\$QDO\VLV
$VSHU5%,GHILQLWLRQV³0RQH\PDUNHWLVDPDUNHWIRUVKRUWWHUPILQDQFLDODVVHWV
WKDWDUHFORVHVXEVWLWXWHIRUPRQH\ IDFLOLWDWHVWKHH[FKDQJHRIPRQH\LQWKH
SULPDU\ VHFRQGDU\PDUNHW0RQH\PDUNHWLVDPHFKDQLVPWKDWGHDOVLQOHQGLQJ
127(6
ERUURZLQJRIIXQGVIRUOHVVWKDQD\HDU:HFDQDOVRGHILQHLWDVDVHJPHQWRI
WKHILQDQFLDOPDUNHWLQZKLFKWKHILQDQFLDOLQVWUXPHQWVZLWKKLJKOLTXLGLW\ YHU\VKRUW
PDWXULW\DUHWUDGHG3OHDVHJRWKURXJKWKHIROORZLQJILJXUHIRUFOHDUFXWGHPDUFDWLRQ
EHWZHHQFDSLWDOPDUNHW PRQH\PDUNHW
,QVWUXPHQWVRI0RQH\0DUNHW
7UHDVXU\%LOOV7%LOOV7UHDVXU\%LOOVRQHRIWKHVDIHVWPRQH\PDUNHWLQVWUX
PHQWVDUHVKRUWWHUPERUURZLQJLQVWUXPHQWVRIWKH&HQWUDO*RYHUQPHQWRIWKH
&RXQWU\LVVXHGWKURXJKWKH&HQWUDO%DQN5%,LQ,QGLD7KH\DUH]HURULVNLQVWUX
PHQWVDQGKHQFHWKHUHWXUQVDUHQRWVRDWWUDFWLYH,WLVDYDLODEOHERWKLQSULPDU\
PDUNHWDVZHOODVVHFRQGDU\PDUNHW,WLVDSURPLVHWRSD\DVDLGVXPDIWHUD
VSHFLILHGSHULRG7ELOOVDUHVKRUWWHUPVHFXULWLHVWKDWPDWXUHLQRQH\HDURUOHVV
IURPWKHLULVVXHGDWH7KH\DUHLVVXHGZLWKWKUHHPRQWKVL[PRQWKDQGRQH\HDU
PDWXULW\SHULRGV7KH&HQWUDO*RYHUQPHQWLVVXHV7%LOOVDWDSULFHOHVVWKDQWKHLU
IDFHYDOXHSDUYDOXH7KH\DUHLVVXHGZLWKDSURPLVHWRSD\IXOOIDFHYDOXHRQ
PDWXULW\7KHGLIIHUHQFHEHWZHHQWKHSXUFKDVHSULFHDQGWKHPDWXULW\YDOXHLVWKH
LQWHUHVWLQFRPHHDUQHGE\WKHSXUFKDVHURIWKHLQVWUXPHQW7%LOOVDUHLVVXHGWKURXJK
DELGGLQJSURFHVVDWDXFWLRQV$WSUHVHQWWKH*RYHUQPHQWRI,QGLDLVVXHVWKUHH
W\SHVRIWUHDVXU\ELOOVWKURXJKDXFWLRQVQDPHO\GD\VGD\VDQGGD\V
7ELOOV7UHDVXU\ELOOVDUHDYDLODEOHIRUDPLQLPXPDPRXQWRI5V.DQGLQLWV
PXOWLSOHV
5HSXUFKDVH$JUHHPHQWV5HSXUFKDVHWUDQVDFWLRQVFDOOHG5HSRRU5HYHUVH5HSR
DUHWUDQVDFWLRQVRUVKRUWWHUPORDQVLQZKLFKWZRSDUWLHVDJUHHWRVHOODQGUHSXUFKDVH
WKHVDPHVHFXULW\7KH\DUHXVXDOO\XVHGIRURYHUQLJKWERUURZLQJ5HSR5HYHUVH
5HSRWUDQVDFWLRQVFDQEHGRQHRQO\EHWZHHQWKHSDUWLHVDSSURYHGE\5%,DQGLQ5%,
DSSURYHGVHFXULWLHVYL]*2, 6WDWH*RYHUQPHQW6HFXULWLHV7%LOOV368%RQGV
),%RQGVDQG&RUSRUDWH%RQGVHWF8QGHUUHSXUFKDVHDJUHHPHQWWKHVHOOHUVHOOV
VSHFLILHGVHFXULWLHVZLWKDQDJUHHPHQWWRUHSXUFKDVHWKHVDPHDWDPXWXDOO\GHFLGHG
IXWXUHGDWHDQGSULFH6LPLODUO\WKHEX\HUSXUFKDVHVWKHVHFXULWLHVZLWKDQDJUHHPHQW
WRUHVHOOWKHVDPHWRWKHVHOOHURQDQDJUHHGGDWHDWDSUHGHWHUPLQHGSULFH6XFKD
WUDQVDFWLRQLVFDOOHGD5HSRZKHQYLHZHGIURPWKHSHUVSHFWLYHRIWKHVHOOHURIWKH
VHFXULWLHVDQG5HYHUVH5HSRZKHQYLHZHGIURPWKHSHUVSHFWLYHRIWKHEX\HURIWKH
VHFXULWLHV7KXVZKHWKHUDJLYHQDJUHHPHQWLVWHUPHGDVD5HSRRU5HYHUVH5HSR
GHSHQGVRQZKLFKSDUW\LQLWLDWHGWKHWUDQVDFWLRQ7KHOHQGHURUEX\HULQD5HSRLV
HQWLWOHGWRUHFHLYHFRPSHQVDWLRQIRUXVHRIIXQGVSURYLGHGWRWKHFRXQWHUSDUW\
&RPPHUFLDO3DSHUV&RPPHUFLDOSDSHULVDORZFRVWDOWHUQDWLYHWREDQNORDQV
,WLVDVKRUWWHUPXQVHFXUHGSURPLVVRU\QRWHLVVXHGE\FRUSRUDWHDQGILQDQFLDO
LQVWLWXWLRQVDWDGLVFRXQWHGYDOXHRQIDFHYDOXH7KH\DUHXVXDOO\LVVXHGZLWKIL[HG
PDWXULW\EHWZHHQRQHWRGD\VDQGIRUILQDQFLQJRIDFFRXQWVUHFHLYDEOHVLQYHQ
WRULHVDQGPHHWLQJVKRUWWHUPOLDELOLWLHV
&HUWLILFDWHRI'HSRVLW,WLVDVKRUWWHUPERUURZLQJPRUHOLNHDEDQNWHUPGHSRVLW
6HOI,QVWUXFWLRQDO 0DWHULDO
DFFRXQW,WLVDSURPLVVRU\QRWHVVXHGE\DEDQNLQIRUPRIDFHUWLILFDWHHQWLWOLQJWKH

6HFXULW\$QDO\VLV EHDUHUWRUHFHLYHLQWHUHVW7KHFHUWLILFDWHEHDUVWKHPDWXULW\GDWHWKHIL[HGUDWHRI
3RUWIROLR0DQDJHPHQW LQWHUHVWDQGWKHYDOXH,WFDQEHLVVXHGLQDQ\GHQRPLQDWLRQ7KH\DUHVWDPSHGDQG
WUDQVIHUUHGE\HQGRUVHPHQW,WVWHUPJHQHUDOO\UDQJHVIURPWKUHHPRQWKVWRILYH
\HDUVDQGUHVWULFWVWKHKROGHUVWRZLWKGUDZIXQGVRQGHPDQG+RZHYHURQSD\PHQW
127(6 RIFHUWDLQSHQDOW\WKHPRQH\FDQEHZLWKGUDZQRQGHPDQGDOVR7KHUHWXUQVRQ
FHUWLILFDWHRIGHSRVLWVDUHKLJKHUWKDQ7%LOOVEHFDXVHLWDVVXPHVKLJKHUOHYHORIULVN
%DQNHU¶V$FFHSWDQFH ,W LV D VKRUW WHUP FUHGLW LQYHVWPHQW FUHDWHG E\ D QRQ
ILQDQFLDOILUPDQGJXDUDQWHHGE\DEDQNWRPDNHSD\PHQW,WLVVLPSO\DELOORI
H[FKDQJHGUDZQE\DSHUVRQDQGDFFHSWHGE\DEDQN,WLVDEX\HU¶VSURPLVHWR
SD\WRWKHVHOOHUDFHUWDLQVSHFLILHGDPRXQWDWFHUWDLQGDWH7KHVDPHLVJXDUDQWHHG
E\WKHEDQNHURIWKHEX\HULQH[FKDQJHIRUDFODLPRQWKHJRRGVDVFROODWHUDO7KH
SHUVRQGUDZLQJWKHELOOPXVWKDYHDJRRGFUHGLWUDWLQJRWKHUZLVHWKH%DQNHU¶V
$FFHSWDQFHZLOOQRWEHWUDGDEOH
2WKHULQVWUXPHQWVDUHPRQH\PDUNHWDFFRXQWVPRQH\PDUNHWLQGH[%DQNHU¶V
DFFHSWDQFH /,%25 0,%25 HWF
&$6(678'<
%DVLFV RI ,QYHVWPHQW
)LUVW7KLQJV)LUVW
%HIRUHZHJHWJRLQJRQUHWXUQDQGULVNSULQFLSOHVDQGKRZWRLQYHVWZHZLOOILUVW
QHHGWRWDONDOLWWOHELWRQKRZWRVWUXFWXUH\RXUILQDQFLDOOLIHWRPDNHLWSRVVLEOHWR
LQYHVW
:KHQ\RXVWDUWLQYHVWLQJ\RXPXVWGRVRZLWKDFOHDQVODWH7KHUH
VQRSRLQWLQWU\LQJ
WRVDYHZKLOH\RXKDYHKLJKLQWHUHVWFUHGLWFDUGRUSHUVRQDOORDQGHEWVDFFXPXODWLQJ
E\WKHGD\6XUHVRPHNLQGRIGHEWVFDQEHORZLQWHUHVWRUXVHIXOIRUWD[VDYLQJ
SXUSRVHVVXFKDV\RXUKRXVLQJORDQ%XW\RXZLOOEHZHOODGYLVHGWRJHWUHDG\WR
FORVHRII\RXUKLJKLQWHUHVWGHEWVEHIRUH\RXVWDUWWKLQNLQJRQKRZWRLQYHVW
1H[WJHWLQWRWKHKDELWRIIRUFHGVDYLQJ<RXSD\ELOOVHYHU\PRQWKHOHFWULFLW\WR
PRELOHWRFDEOHELOOVULJKW-XVWDGG\RXUVHOIDWWKHWRSRIWKHOLVW(YHU\PRQWKDV
\RXJHW\RXUVDODU\FUHGLWHGWR\RXDFFRXQWVHWDVLGHDVXPWRVDYHRULQYHVW6WDUW
ZLWKDPLQLPXPRI7KHPRUH\RXVDYHWKHPRUHZHDOWK\RXFDQFUHDWH(YHQ
DIHZUXSHHVVDYHGQRZZLOOGRPRUHWKDQORWVRIUXSHHVVDYHGODWHU
8QGHUVWDQGLQJ5HWXUQDQG5LVN
$WWKHFRUHXQGHUVWDQGLQJKRZWRLQYHVWLVDOODERXWUHWXUQVDQGULVN5HWXUQLV
PHDVXUHGE\KRZPXFKRQH
VPRQH\KDVJURZQRYHUWKHLQYHVWPHQWSHULRG5HWXUQV
DUHQRWNQRZQLQDGYDQFH,QVWHDG\RXFDQRQO\PDNHDQHGXFDWHGJXHVVDVWR
ZKDWNLQGRIUHWXUQWRH[SHFW
([SHFWLQJDUHWXUQRIMXVWEHFDXVH\RXUVWRFNLQYHVWLQJIULHQGVD\
VWKDW
VZKDW
\RXZLOOPDNHPD\EHXQUHDVRQDEOH0RVWH[SHFWDWLRQVDUHEDVHGRQZKDW
VKDS
SHQHGLQWKHSDVW8QIRUWXQDWHO\KLVWRU\GRHVQWDOZD\VUHSHDWLWVHOI:HKDYHDOO
VHHQWKHKLJKVRIIROORZHGE\WKHORZVLQKDYHQ
WZH"
+RZHYHUZHFDQGUDZUHDVRQDEOHFRQFOXVLRQVDERXWIXWXUHUHWXUQVE\ORRNLQJDW
6HOI,QVWUXFWLRQDO 0DWHULDO ORQJHUWHUPGDWD\UDQG\UUHFRUGVRIFRXUVHZLWKWKHH[SUHVVXQGHUVWDQGLQJ
 WKDWWKHVHUHWXUQVDUHQRWJXDUDQWHHG
(YHQLI\RXUUHWXUQH[SHFWDWLRQVDUHUHDVRQDEOHWKHUHLVWKHSRVVLELOLW\WKDW\RXU ,QWURGXFWLRQWR
DFWXDOUHWXUQVWXUQRXWGLIIHUHQWWKDQH[SHFWHG<RXUXQWKHULVNRIORVLQJVRPHRU 6HFXULW\$QDO\VLV
DOORI\RXURULJLQDOLQYHVWPHQW
:K\LVWKDW"%HFDXVHRIDQXQFHUWDLQIXWXUHHJJOREDOHFRQRPLFHQYLURQPHQW
127(6
XQFHUWDLQLW\RYHUWKHTXDOLW\DQGVWDELOLW\RILQYHVWPHQWDQGVRPHRWKHUXQFHUWDLQLWLHV
,QJHQHUDOJUHDWHUWKHXQFHUWDLQLW\JUHDWHUWKHULVN6RPHFRPPRQVRXUFHVRI
XQFHUWDLQLW\RUULVNVWKDWZHPXVWDEVRUEZKLOHZHOHDUQKRZWRLQYHVWDUH
%XVLQHVVDQG,QGXVWU\5LVN
7KHUHPLJKWEHDLQGXVWU\ZLGHVORZGRZQRUHYHQDJOREDOHFRQRPLFUHFHVVLRQDV
ZHDUHH[SHULHQFLQJQRZ7KDWSUHVHQWVDQXQFHUWDLQIXWXUHIRUDQ\EXVLQHVVLVQ
W
LW2UWKHEXVLQHVVPLJKWVHHLWVHDUQLQJVGURSSLQJVLJQLILFDQWO\VD\GXHWRPDQDJH
PHQWLQHSWLWXGHZURQJGHFLVLRQV7KHORZHUHDUQLQJVGXHWRDQ\RIWKHDERYHPD\
FDXVHWKHFRPSDQ\VVWRFNWRIDOO
,QIODWLRQ5LVN
7KHPRQH\\RXHDUQWRGD\LVDOZD\VZRUWKPRUHWKDQWKHVDPHDPRXQWRIPRQH\
DWDIXWXUHGDWH7KLVLVEHFDXVHJRRGVDQGVHUYLFHVXVXDOO\FRVWPRUHLQWKHIXWXUH
GXHWRLQIODWLRQ6RLWVLPSRUWDQWWKDW\RXULQYHVWPHQWUHWXUQEHDWVWKHLQIODWLRQUDWH
,ILWPHUHO\NHHSVSDFHZLWKLQIODWLRQWKHQ\RXULQYHVWPHQWUHWXUQLVQRWZRUWKPXFK
:HKDYHVHHQLQIODWLRQVRDULQJXSWRLQQRZLQLWVDWRUOHYHOV
3HUKDSVDQDYHUDJHLQIODWLRQUDWHRYHUQH[W\HDUVPD\ZRUNRXWDW:KR
NQRZVWKHUH
VHQRXJKXQFHUWDLQLW\KHUHWRR
0DUNHW 5LVN
0DUNHW5LVNLVDERXWWKHXQFHUWDLQLW\IDFHGLQWKHVWRFNPDUNHW6HYHUDOPDFURDQG
PLFURHFRQRPLFGHWDLOVVLQJXODUO\RUSOXUDOO\FDQVSRRNWKHPDUNHW:HKDYHVHHQ
KRZWKHPDVVLYHPDQGDWHLQHOHFWLRQVKDVUHLQYLJRUDWHGWKHPDUNHW2QWKH
RWKHUKDQG$IUDJPHQWHGKXQJSDUOLDPHQWPD\KDYHFDXVHGWKHPDUNHWWRQRVHGLYH"
(YHQIRUDZHOOPDQDJHGEXVLQHVVJURZLQJSURILWDEO\LWVVWRFNPD\GURSLQYDOXH
VLPSO\EHFDXVHWKHRYHUDOOVWRFNPDUNHWKDVIDOOHQ
/LTXLGLW\5LVN
6RPHWLPHV\RXDUHQRWDEOHWRJHWRXWRI\RXULQYHVWPHQWFRQYHQLHQWO\DQGDWD
UHDVRQDEOHSULFH)RUH[DPSOHLQ\RXPD\KDYHIRXQGLWWRXJKWRVHOO\RXU
KRXVHDWDSULFH\RXZDQWHG,QKRZHYHU\RXFRXOGKDYHJRQHODXJKLQJWRWKH
EDQN7KHPDUNHWPD\VLPSO\EHLQDFWLYHRULWPD\EHMXVWYRODWLOHDQGWKDWPHDQV
\RXFDQWVHOO\RXULQYHVWPHQWRUJHWWKHSULFH\RXZDQWLI\RXQHHGHGWRVHOO
LPPHGLDWHO\
1RZKHUHFRPHVDQLPSRUWDQWWDNHZD\LQOHDUQLQJKRZWRLQYHVWXQGHUVWDQGLQJ
WKHULVNVDVVRFLDWHGZLWKGLIIHUHQWDVVHWFODVVHV
7KHGHJUHHRIULVNYDULHVZLGHO\EHWZHHQDVVHWFODVVHVDQGHYHQDPRQJLQYHVWPHQW
RSWLRQVLQDDVVHWFODVV:HDOODSSUHFLDWHWKDWDJRYWEDFNHGERQGOLNHD16&RU
33) VFKHPH LV VDIHU WKDQ WKDW RIIHUHG E\ D UHSXWHG FRUSRUDWH 1H[W FRQVLGHU
LQIODWLRQULVNVWRFNVIDFHIDUOHVVHULQIODWLRQULVNWKDQERQGV:KLOHERQGVKDYH
PDQDJHGWRMXVWNHHSSDFHZLWKLQIODWLRQVWRFNVKDYHKLVWRULFDOO\RXWSDFHGLQIODWLRQ 6HOI,QVWUXFWLRQDO 0DWHULDO
E\VRPHDQQXDOO\RQDQDYHUDJHLQ,QGLD+RZHYHUVKRUWWHUPERQGVDQG 
6HFXULW\$QDO\VLV PRQH\PDUNHWLQYHVWPHQWVIDFHYHU\OLWWOHOLTXLGLW\ULVNZKLOHVWRFNVIDFHUHODWLYHO\
3RUWIROLR0DQDJHPHQW JUHDWHUOLTXLGLW\ULVN

6800$5<
127(6 ,QYHVWPHQWPDQDJHPHQWLVWKHSURIHVVLRQDOPDQDJHPHQWRIYDULRXVVHFXULWLHVVKDUHV
ERQGVDQGRWKHUVHFXULWLHVDQGDVVHWVHJUHDOLQRUGHUWRPHHWVSHFLILHGLQYHVW
PHQWJRDOVIRUWKHEHQHILWRIWKHLQYHVWRUV,QYHVWRUVPD\EHLQVWLWXWLRQVLQVXUDQFH
FRPSDQLHVSHQVLRQIXQGVFRUSRUDWLRQVFKDULWLHVHGXFDWLRQDOHVWDEOLVKPHQWVHWF
RUSULYDWHLQYHVWRUVERWKGLUHFWO\YLDLQYHVWPHQWFRQWUDFWVDQGPRUHFRPPRQO\
YLDFROOHFWLYHLQYHVWPHQWVFKHPHVHJPXWXDOIXQGVRUH[FKDQJHWUDGHGIXQGV
7KHWHUPDVVHWPDQDJHPHQWLVRIWHQXVHGWRUHIHUWRWKHLQYHVWPHQWPDQDJHPHQW
RIFROOHFWLYHLQYHVWPHQWVZKLOHWKHPRUHJHQHULFIXQGPDQDJHPHQWPD\UHIHUWRDOO
IRUPVRILQVWLWXWLRQDOLQYHVWPHQWDVZHOODVLQYHVWPHQWPDQDJHPHQWIRUSULYDWHLQYHV
WRUV,QYHVWPHQWPDQDJHUVZKRVSHFLDOL]HLQDGYLVRU\RUGLVFUHWLRQDU\PDQDJHPHQW
RQEHKDOIRIQRUPDOO\ZHDOWK\SULYDWHLQYHVWRUVPD\RIWHQUHIHUWRWKHLUVHUYLFHV
DVZHDOWKPDQDJHPHQWRUSRUWIROLRPDQDJHPHQWRIWHQZLWKLQWKHFRQWH[WRIVRFDOOHG
³SULYDWHEDQNLQJ´
$16:(5672&+(&.<285352*5(66
 6HFXULW\LVJHQHUDOO\DIXQJLEOHQHJRWLDEOHILQDQFLDOLQVWUXPHQWUHSUHVHQWLQJ
ILQDQFLDOYDOXH
 %RQGVDUHWKHGHEWLQVWUXPHQWVWKDWDUHJHQHUDOO\LVVXHGE\JRYHUQPHQWVRU
JRYHUQPHQWDJHQFLHVVXFKDVPXQLFLSDOLWLHVDQGFRUSRUDWLRQV
 7KHWHUPDJJUHJDWHPDUNHWUHWXUQPHDQVWRWDOSRVVLEOHUHWXUQIRUSXEOLFO\
WUDGHGVHFXULWLHV
 $EURNHURUEURNHULVDUHJXODWHGSURIHVVLRQDOZKREX\VDQGVHOOVVKDUHV
DQGRWKHUVHFXULWLHVWKURXJKPDUNHWPDNHUVRU$JHQF\2QO\)LUPVRQEHKDOI
RILQYHVWRUV
7(67<2856(/)
 ([SODLQ6HFXULW\$QDO\VLV":KDWDUHWKHREMHFWLYHVEHKLQGVHFXULW\DQDO\VLV"
 :KDWDUHQRUPVIRUOLVWLQJRI6HFXULWLHV"([SODLQ%ULHIO\
 ([SODLQWKHPHFKDQLVPRILQYHVWLQJLQ\RXURZQZRUGV
 :ULWHVKRUWQRWHVRQ
z ,QYHVWPHQW&RPSDQLHV z 0DUNHWLQGH[
z 5HDOHVWDWHLQYHVWPHQW z 9DOXDWLRQRI6HFXULWLHV
 ([SODLQWKHYDULRXVLQVWUXPHQWVRI0RQH\PDUNHW
 'HVFULEHWKH6HFXULW\ QRQVHFXULW\IRUPRI,QYHVWPHQW
)857+(55($',1*
z 6HFXULW\ $QDO\VLV E\ .KDQ DQG -DLQ z ,QYHVWPHQW 0DQDJHPHQW E\
6HOI,QVWUXFWLRQDO 0DWHULDO
'RQDOG

 &RQFHSWRI
5LVN 5HWXUQ

 127(6

&RQFHSWRI
5LVN 5HWXUQ

„
„
„
„
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV ,QWURGXFWLRQ
3RUWIROLR0DQDJHPHQW
³7KH KLVWRU\ RI WKH VWRFN DQG ERQG PDUNHWV VKRZV WKDW ULVN DQG UHZDUG DUH
LQH[WULFDEO\LQWHUWZLQHG'RQRWH[SHFWKLJKUHWXUQVZLWKRXWKLJKULVN'RQRW
H[SHFWVDIHW\ZLWKRXWFRUUHVSRQGLQJO\ORZUHWXUQV´:LOOLDP%HUQVWHLQ³7KH
127(6
)RXU3LOODUVRI,QYHVWLQJ´
5HWXUQH[SUHVVHVWKHDPRXQWZKLFKDQLQYHVWRUDFWXDOO\HDUQHGRQDQLQYHVWPHQW
GXULQJDFHUWDLQSHULRG,WPD\EHLQWKHIRUPRIWKHLQWHUHVWGLYLGHQGDQGFDSLWDO
JDLQVZKLOHULVNUHSUHVHQWVWKHXQFHUWDLQW\DVVRFLDWHGZLWKDSDUWLFXODUWDVN,Q
ILQDQFLDOWHUPVULVNLVWKHFKDQFHRUSUREDELOLW\WKDWDFHUWDLQLQYHVWPHQWPD\RUPD\
QRWGHOLYHUWKHDFWXDOH[SHFWHGUHWXUQV7KHULVNDQGUHWXUQWUDGHRIIVD\VWKDWWKH
SRWHQWLDOUHWXUQULVHVZLWKDQLQFUHDVHLQULVN,WLVLPSRUWDQWIRUDQLQYHVWRUWRGHFLGH
RQDEDODQFHEHWZHHQWKHGHVLUHIRUWKHORZHVWSRVVLEOHULVNDQGKLJKHVWSRVVLEOH
UHWXUQ
7KHUHODWLRQVKLSEHWZHHQULVNDQGUHWXUQLVDIXQGDPHQWDOILQDQFLDOUHODWLRQVKLSWKDW
DIIHFWVH[SHFWHGUDWHVRIUHWXUQRQHYHU\H[LVWLQJDVVHWLQYHVWPHQW7KH5LVN5HWXUQ
UHODWLRQVKLSH[SUHVVHVWKDWLIWKHUHDUHH[SHFWDWLRQVRIKLJKHUOHYHOVRIULVNDVVRFL
DWHGZLWKDSDUWLFXODULQYHVWPHQWWKHQJUHDWHUUHWXUQVDUHUHTXLUHGDVFRPSHQVDWLRQ
IRUWKDWKLJKHUH[SHFWHGULVN$OWHUQDWLYHO\LIDQLQYHVWPHQWKDVUHODWLYHO\ORZHU
OHYHOVRIH[SHFWHGULVNWKHQLQYHVWRUVDUHVDWLVILHGZLWKUHODWLYHO\ORZHUUHWXUQV
7KLVULVNUHWXUQUHODWLRQVKLSKROGVIRULQGLYLGXDOLQYHVWRUVDQGEXVLQHVVPDQDJHUV
*UHDWHUGHJUHHVRIULVNPXVWEHFRPSHQVDWHGIRUZLWKJUHDWHUUHWXUQVRQLQYHVW
PHQW6LQFHLQYHVWPHQWUHWXUQVUHIOHFWVWKHGHJUHHRIULVNLQYROYHGZLWKWKHLQYHVW
PHQWLQYHVWRUVQHHGWREHDEOHWRGHWHUPLQHKRZPXFKRIDUHWXUQLVDSSURSULDWH
IRUDJLYHQOHYHORIULVN7KLVSURFHVVLVUHIHUUHGWRDV³SULFLQJWKHULVN´,QRUGHU
WRSULFHWKHULVNZHPXVWILUVWEHDEOHWRPHDVXUHWKHULVNRUTXDQWLI\WKHULVNDQG
WKHQZHPXVWEHDEOHWRGHFLGHDQDSSURSULDWHSULFHIRUWKHULVNZHDUHEHLQJDVNHG
WREHDU
7KHUHDUHWKUHHIXQGDPHQWDOFRQFHSWVWKDWXQGHUOLHWKHSURFHVVRIPDNLQJPDQ\
ILQDQFLDOGHFLVLRQV7KH\DUHDOVRWKHWKUHHIXQGDPHQWDOFRQFHSWVWKDWGHWHUPLQHWKH
HFRQRPLFYDOXHRIDQ\SURMHFWLQYHVWPHQWRUEXVLQHVVRUJDQL]DWLRQ7KHWKUHH
FRQFHSWVDUH
 7LPH9DOXHRI0RQH\
 5LVN5HWXUQ5HODWLRQVKLS
 &DVK)ORZV
&DOFXODWLQJDQG,QWHUSUHWLQJ5LVN0HDVXUHPHQWV
1RQSURIHVVLRQDOLQYHVWRUVGRQ¶WKDYHDQ\LGHDKRZWRFDOFXODWHDQGRULQWHUSUHWWKH
ULVNPHDVXUHPHQWV
,WLVDXQLYHUVDOO\DFFHSWHGSULQFLSOHRILQYHVWLQJWKDWULVNDQGUHWXUQDUHSURSRUWLRQ
DWH7KLVWHUPLQRORJ\VLPSO\WHOOVXVWKDWWKHOHYHORIULVNGHWHUPLQHVWKHOHYHORI
UHWXUQ$VDUHVXOWLWLVXQXVXDOWKDWDORZULVNLQYHVWPHQWZLOOSURGXFHDKLJKUHWXUQ
5LVNLVDQLQKHUHQWSDUWRILQYHVWLQJ,QRUGHUWRJHWDUHDVRQDEOHUHWXUQRQDQ
6HOI,QVWUXFWLRQDO 0DWHULDO
LQYHVWPHQWULVNKDVWREHSUHVHQW$ULVNOHVVDVVHWZLOOSURGXFHOLWWOHRUQRUHWXUQ

7KHLQWHOOLJHQWLQYHVWRUPDQDJHVULVNE\UHFRJQL]LQJLWVH[LVWHQFHPHDVXULQJLWV &RQFHSWRI
GHJUHHLQDQ\JLYHQLQYHVWPHQWDQGUHDOLVWLFDOO\DVVHVVLQJKLVRUKHUFDSDFLW\WRWDNH 5LVN 5HWXUQ
ULVN7KHUHLVQRWKLQJZURQJZLWKLQYHVWLQJLQDKLJKULVNIXQGLIWKHIXQG¶VUHWXUQLV
HTXDOO\KLJK7KHTXHVWLRQVWRDVNDUH&DQ,DIIRUGWKHORVVLILWRFFXUV"$P,
HPRWLRQDOO\SUHSDUHGWRGHDOZLWKWKHXQFHUWDLQWLHVRIKLJKULVNLQYHVWPHQWV"'R, 127(6
QHHGWRWDNHWKLVNLQGRIULVNWRDFKLHYHP\LQYHVWPHQWJRDOV"$ZLVHLQYHVWRUZLOO
VHHNWRPDWFKDQGRURIIVHWULVNE\DVVHPEOLQJDUHDVRQDEOHQXPEHURILQYHVW
PHQWVZLWKIDYRUDEOHULVNUHWXUQSURILOHVLQDGLYHUVLW\RIIXQGFDWHJRULHV7KLVLV
GRQHE\ILUVWLGHQWLI\LQJDPL[RIDVVHWFODVVHVDFFRUGLQJWRFRPSDQ\VL]HPDUNHW
FDSLQYHVWLQJVW\OHYDOXHJURZWKDQGEOHQGDQGDVVHWDOORFDWLRQVWRFNDQG
ERQG%\FKRRVLQJIURPWKHVHIXQGV\RXFDQILQGWKRVHWKDWDUHFKDUDFWHUL]HGDV
KDYLQJUHWXUQVWKDWH[FHHGWKHLUULVNVRUDWOHDVWPDWFKWKHP7KLVZRXOGUHSUHVHQW
DIDYRUDEOHULVNUHWXUQSURILOHRUVSUHDGDQGLVDNH\IXQGLQYHVWPHQWTXDOLW\
7<3(62)5(7851
5HWXUQFDQEHFODVVLILHGLQWRFDWHJRULHV
x $QQXDO5DWHRI5HWXUQ
x $YHUDJH5DWHRIUHWXUQ
x ([SHFWHG5DWH2IUHWXUQ
$QQXDO5DWHRI5HWXUQ
7KHUHWXUQRIFRPSDQLHV¶VKDUHVPD\EHFDOFXODWHGIRUDSHULRGORQJHUWKDQ\HDU
7KHUHWXUQIRU\HDULVNQRZQDV$QQXDO5DWHRI5HWXUQ
$YHUDJH5DWHRI5HWXUQ
7KHPHDQRUDYHUDJHRIDQQXDOUHWXUQVLVNQRZQDV$YHUDJH5DWHRI5HWXUQ7KH
H[SHFWHGSUREDELOLW\LVPXOWLSOLHGZLWKDVVRFLDWHGRXWFRPH WKHQDGGHG7KLVJLYHV
H[SHFWHGUDWHRIUHWXUQ7KLVFDQEHDOVRFDOOHGSURMHFWHGUDWHRIUHWXUQ
([SHFWHG5DWHRI5HWXUQ
,WLVWKHUDWHRIUHWXUQWKDWDQLQYHVWRUH[SHFWVLQWKHIXWXUHIRUKLVLQYHVWPHQWLQD
SDUWLFXODUDVVHWFODVV
7<3(62)5,6.
:KHWKHULWLVLQYHVWLQJGULYLQJRUMXVWZDONLQJGRZQWKHVWUHHWHYHU\RQHH[SRVHV
WKHPVHOYHVWRULVN2XUSHUVRQDOLW\DQGOLIHVW\OHSOD\DELJUROHLQKRZPXFKULVNZH
DUHFRPIRUWDEO\DEOHWRWDNHRQ,IZHLQYHVWLQVWRFNVDQGKDYHWURXEOHVOHHSLQJ
DWQLJKWZHDUHSUREDEO\WDNLQJRQWRRPXFKULVN
5LVNLVGHILQHGDVWKHFKDQFHWKDWDQLQYHVWPHQW¶VDFWXDOUHWXUQZLOOEHGLIIHUHQWWKDQ &KHFN <RXU 3URJUHVV
H[SHFWHG7KLVLQFOXGHVWKHSRVVLELOLW\RIORVLQJVRPHRUDOORIWKHRULJLQDOLQYHVWPHQW  :KDW LV WKH
7KRVHRIXVZKRZRUNKDUGIRUHDUQLQJPRQH\KDYHDKDUGHUWLPHSDUWLQJZLWK FRQFHSWRIUHWXUQ"
PRQH\7KHUHIRUHSHRSOHZLWKOHVVGLVSRVDEOHLQFRPHWHQGWREHE\QHFHVVLW\PRUH  +RZPDQ\W\SHVRI
UHWXUQDUHWKHUH"
ULVNDYHUVH2QWKHRWKHUHQGRIWKHVSHFWUXPGD\WUDGHUVDUHULVNORYHUV:KHQ
LQYHVWLQJLQVWRFNVERQGVRUDQ\LQYHVWPHQWLQVWUXPHQWWKHUHLVDORWPRUHULVNWKDQ
ZH¶GWKLQN
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV /HW¶VWDNHDORRNDWWKHWZREDVLFW\SHVRIULVN
3RUWIROLR0DQDJHPHQW
x 6\VWHPDWLF5LVN6\VWHPDWLFULVNVDUHXQFRQWUROODEOH LQIOXHQFHDODUJH
QXPEHURIDVVHWV$VLJQLILFDQWSROLWLFDOHYHQWIRUH[DPSOHFRXOGDIIHFWVHYHUDO
RIWKHDVVHWVLQ\RXUSRUWIROLR,WLVYLUWXDOO\LPSRVVLEOHWRSURWHFW\RXUVHOI
127(6
DJDLQVWWKLVW\SHRIULVN
x 8QV\VWHPDWLF 5LVN 8QV\VWHPDWLF ULVNV DUH FRQWUROODEOH
VRPHWLPHVUHIHUUHGWRDV³VSHFLILFULVN´7KLVNLQGRIULVNDIIHFWVDYHU\
VPDOOQXPEHURIDVVHWV$QH[DPSOHLVQHZVWKDWDIIHFWVDVSHFLILFVWRFN
VXFKDVDVXGGHQVWULNHE\HPSOR\HHV'LYHUVLILFDWLRQLVWKHRQO\ZD\WR
SURWHFWRXUVHOIIURPXQV\VWHPDWLFULVN:HZLOOGLVFXVVGLYHUVLILFDWLRQODWHU
LQWKLVFKDSWHU
1RZWKDWZH¶YHGHWHUPLQHGWKHIXQGDPHQWDOW\SHVRIULVNOHW¶VORRNDWPRUH
VSHFLILFW\SHVRIULVN
x &UHGLWRU'HIDXOW5LVN&UHGLWULVNLVWKHULVNWKDWDFRPSDQ\RULQGL
YLGXDOZLOOEHXQDEOHWRSD\WKHFRQWUDFWXDOLQWHUHVWRUSULQFLSDORQLWVGHEW
REOLJDWLRQV7KLVW\SHRIULVNLVRISDUWLFXODUFRQFHUQWRLQYHVWRUVZKRKROG
ERQGVLQWKHLUSRUWIROLRV*RYHUQPHQWERQGVHVSHFLDOO\WKRVHLVVXHGE\WKH
IHGHUDO JRYHUQPHQW KDYH WKH OHDVW DPRXQW RI GHIDXOW ULVN DQGWKH
ORZHVWUHWXUQVZKLOHFRUSRUDWHERQGVWHQGWRKDYHWKHKLJKHVWDPRXQWRI
GHIDXOWULVNEXWDOVRKLJKHULQWHUHVWUDWHV%RQGVZLWKDORZHUFKDQFHRI
GHIDXOWDUHFRQVLGHUHGWREHLQYHVWPHQWJUDGHZKLOHERQGVZLWKKLJKHU
FKDQFHVDUHFRQVLGHUHGWREHMXQNERQGV
x &RXQWU\5LVN&RXQWU\ULVNUHIHUVWRWKHULVNWKDWDFRXQWU\ZRQ¶WEHDEOH
WR KRQRU LWV ILQDQFLDO FRPPLWPHQWV :KHQ D FRXQWU\GHIDXOWV RQ LWV
REOLJDWLRQVWKLVFDQKDUPWKHSHUIRUPDQFHRIDOORWKHUILQDQFLDOLQVWUXPHQWV
LQWKDWFRXQWU\DVZHOODVRWKHUFRXQWULHVLWKDVUHODWLRQVZLWK&RXQWU\ULVN
DSSOLHVWRVWRFNVERQGVPXWXDOIXQGVRSWLRQVDQGIXWXUHVWKDWDUHLVVXHG
ZLWKLQDSDUWLFXODUFRXQWU\7KLVW\SHRIULVNLVPRVWRIWHQVHHQLQHPHUJLQJ
PDUNHWVRUFRXQWULHVWKDWKDYHDVHYHUHGHILFLW
x )RUHLJQ([FKDQJH5LVN:KLOHLQYHVWLQJLQIRUHLJQFRXQWULHV\RXPXVW
FRQVLGHUWKHIDFWWKDWFXUUHQF\H[FKDQJHUDWHVFDQFKDQJHWKHSULFHRIWKH
DVVHWDVZHOO)RUHLJQH[FKDQJHULVNDSSOLHVWRDOOILQDQFLDOLQVWUXPHQWVWKDW
DUHLQDFXUUHQF\RWKHUWKDQ\RXUGRPHVWLFFXUUHQF\$VDQH[DPSOHLI\RX
DUHDUHVLGHQWRI,QGLDDQGLQYHVWLQVRPH&DQDGLDQVWRFNLQ&DQDGLDQ
GROODUVHYHQLIWKHVKDUHYDOXHDSSUHFLDWHV\RXPD\ORVHPRQH\LIWKH
&DQDGLDQGROODUGHSUHFLDWHVLQUHODWLRQWRWKH,QGLDQ5XSHHV
x ,QWHUHVW5DWH5LVN,QWHUHVWUDWHULVNLVWKHULVNWKDWDQLQYHVWPHQW¶VYDOXH
ZLOOFKDQJHDVDUHVXOWRIDFKDQJHLQLQWHUHVWUDWHV7KLVULVNDIIHFWVWKHYDOXH
RIERQGVPRUHGLUHFWO\WKDQVWRFNV
x 3ROLWLFDO5LVN3ROLWLFDOULVNUHSUHVHQWVWKHILQDQFLDOULVNWKDWDFRXQWU\¶V
JRYHUQPHQWZLOOVXGGHQO\FKDQJHLWVSROLFLHV7KLVLVDPDMRUUHDVRQZK\
GHYHORSLQJFRXQWULHVODFNIRUHLJQLQYHVWPHQW
6HOI,QVWUXFWLRQDO 0DWHULDO x 0DUNHW5LVN7KLVLVWKHPRVWIDPLOLDURIDOOULVNV$OVRUHIHUUHGWRDV
 YRODWLOLW\PDUNHWULVNLVWKHWKHGD\WRGD\IOXFWXDWLRQVLQDVWRFN¶VSULFH
 0DUNHWULVNDSSOLHVPDLQO\WRVWRFNVDQGRSWLRQV$VDZKROHVWRFNVWHQG &RQFHSWRI
WRSHUIRUPZHOOGXULQJDEXOOPDUNHWDQGSRRUO\GXULQJDEHDUPDUNHW 5LVN 5HWXUQ
YRODWLOLW\LVQRWVRPXFKDFDXVHEXWDQHIIHFWRIFHUWDLQPDUNHWIRUFHV
9RODWLOLW\LVDPHDVXUHRIULVNEHFDXVHLWUHIHUVWRWKHEHKDYLRURU³WHPSHUD
PHQW´RIRXULQYHVWPHQWUDWKHUWKDQWKHUHDVRQIRUWKLVEHKDYLRU%HFDXVH 127(6
PDUNHWPRYHPHQWLVWKHUHDVRQZK\SHRSOHFDQPDNHPRQH\IURPVWRFNV
YRODWLOLW\LVHVVHQWLDOIRUUHWXUQVDQGWKHPRUHXQVWDEOHWKHLQYHVWPHQWWKH
PRUHFKDQFHWKHUHLVWKDWLWZLOOH[SHULHQFHDGUDPDWLFFKDQJHLQHLWKHU
GLUHFWLRQ
',9(56,),&$7,212)5,6.7+(5,6.5(:$5'75$'(2))
7KHULVNUHWXUQWUDGHRIILVWKHEDODQFHDQLQYHVWRUPXVWGHFLGHRQEHWZHHQWKH
GHVLUHVIRUWKHORZHVWSRVVLEOHULVNIRUWKHKLJKHVWSRVVLEOHUHWXUQV5HPHPEHUWR
NHHSLQPLQGWKDWORZOHYHOVRIXQFHUWDLQW\ORZULVNDUHDVVRFLDWHGZLWKORZ
SRWHQWLDOUHWXUQVDQGKLJKOHYHOVRIXQFHUWDLQW\KLJKULVNDUHDVVRFLDWHGZLWKKLJK
SRWHQWLDOUHWXUQV
7KHULVNIUHHUDWHRIUHWXUQLVXVXDOO\VLJQLILHGE\WKHTXRWHG\LHOGRI³86*RYHUQ
PHQW6HFXULWLHV´EHFDXVHWKHJRYHUQPHQWYHU\UDUHO\GHIDXOWVRQORDQV/HW¶VVXS
SRVHWKDWWKHULVNIUHHUDWHLVFXUUHQWO\7KHUHIRUHIRUYLUWXDOO\QRULVNDQ
LQYHVWRUFDQHDUQSHU\HDURQKLVRUKHUPRQH\%XWZKRZDQWVZKHQLQGH[
IXQGVDUHDYHUDJLQJSHU\HDU"5HPHPEHUWKDWLQGH[IXQGVGRQ¶WUHWXUQ
HYHU\\HDULQVWHDGWKH\UHWXUQRQH\HDUDQGWKHQH[WDQGVRRQ
,QRWKHUZRUGVLQRUGHUWRUHFHLYHWKLVKLJKHUUHWXUQLQYHVWRUVPXFKDOVRWDNHRQ
FRQVLGHUDEO\PRUHULVN7KHIROORZLQJFKDUWVKRZVDQH[DPSOHRIWKHULVNUHWXUQ
WUDGHRIIIRULQYHVWLQJ$KLJKHUGHYLDWLRQPHDQVDKLJKHUULVN

'LIIHUHQWLQGLYLGXDOVZLOOKDYHGLIIHUHQWWROHUDQFHVIRUULVN7ROHUDQFHLVQRWVWDWLFLW
ZLOOFKDQJHDVSHURXUH[SHFWDWLRQV$VZHJURZROGHUWROHUDQFHZLOOXVXDOO\VKULQN
DVPRUHDQGPRUHREOLJDWLRQVFRPHXSLQFOXGLQJUHWLUHPHQW7KHUHDUHVHYHUDO
GLIIHUHQWW\SHVRIULVNVLQYROYHGLQILQDQFLDOWUDQVDFWLRQV:H¶YHVKHGVRPHOLJKWRQ
WKHVHULVNVHDUOLHU$FKLHYLQJWKHULJKWEDODQFHEHWZHHQULVNDQGUHWXUQZLOOHQVXUH
XVWRDFKLHYHRXUILQDQFLDOJRDOV
7RPHDVXUH5LVNZHJHQHUDOO\FDOFXODWH6WDQGDUG'HYLDWLRQ 9DULDQFH
7KHYDULDQFHDQGWKHFORVHO\UHODWHGVWDQGDUGGHYLDWLRQDUHPHDVXUHVRIKRZVSUHDG
RXWDGLVWULEXWLRQLV,QRWKHUZRUGVWKH\DUHPHDVXUHVRIYDULDELOLW\
7KHYDULDQFHLVFRPSXWHGDVWKHDYHUDJHVTXDUHGGHYLDWLRQRIHDFKQXPEHUIURP
LWVPHDQ)RUH[DPSOHIRUWKHQXPEHUVDQGWKHPHDQLVDQGWKHYDULDQFH 6HOI,QVWUXFWLRQDO 0DWHULDO
LV 
6HFXULW\$QDO\VLV
3RUWIROLR0DQDJHPHQW

127(6 7KHIRUPXODLQVXPPDWLRQQRWDWLRQIRUWKHYDULDQFHLV

ZKHUHȝLVWKHPHDQDQG1LVWKHQXPEHURIVFRUHV
6WDQGDUG'HYLDWLRQ
7KHVWDQGDUGGHYLDWLRQIRUPXODLVYHU\VLPSOHLWLVWKHVTXDUHURRWRIWKHYDULDQFH
,WLVWKHPRVWFRPPRQO\XVHGPHDVXUHRIVSUHDG7KHVWDQGDUGGHYLDWLRQLVRIWHQ
XVHGE\LQYHVWRUVWRPHDVXUHWKHULVNRIDVWRFNRUDVWRFNSRUWIROLR7KHEDVLFLGHD
LVWKDWWKHVWDQGDUGGHYLDWLRQLVDPHDVXUHRIYRODWLOLW\WKHPRUHDVWRFN¶VUHWXUQV
YDU\IURPWKHVWRFN¶VDYHUDJHUHWXUQWKHPRUHYRODWLOHWKHVWRFN&RQVLGHUWKH
IROORZLQJWZRVWRFNSRUWIROLRVDQGWKHLUUHVSHFWLYHUHWXUQVLQSHUFHQWRYHUWKHODVW
VL[PRQWKV%RWKSRUWIROLRVHQGXSLQFUHDVLQJLQYDOXHIURPWR
+RZHYHUWKH\FOHDUO\GLIIHULQYRODWLOLW\3RUWIROLR$¶VPRQWKO\UHWXUQVUDQJHIURP
WRZKHUHDV3RUWIROLR%¶VUDQJHIURPWR7KHVWDQGDUGGHYLDWLRQ
RIWKHUHWXUQVLVDEHWWHUPHDVXUHRIYRODWLOLW\WKDQWKHUDQJHEHFDXVHLWWDNHVDOOWKH
YDOXHVLQWRDFFRXQW7KHVWDQGDUGGHYLDWLRQRIWKHVL[UHWXUQVIRU3RUWIROLR$LV
IRU3RUWIROLR%LWLV
%HWD9DOXHȕ
2QHRIWKHPRVWSRSXODULQGLFDWRUVRIULVNLVDVWDWLVWLFDOPHDVXUHFDOOHGEHWD6WRFN
DQDO\VWVXVHWKLVPHDVXUHDOOWKHWLPHWRJHWDVHQVHRIVWRFNV¶ULVNSURILOHV+HUH
ZHVKHGVRPHOLJKWRQZKDWWKHPHDVXUHPHDQVIRULQYHVWRUV:KLOHEHWDGRHVVD\
VRPHWKLQJDERXWSULFHULVNLWGRHVKDYHLWVOLPLWVIRULQYHVWRUVORRNLQJIRUIXQGDPHQ
WDOULVNIDFWRUV%HWDLVDPHDVXUHRIDVWRFN¶VYRODWLOLW\LQUHODWLRQWRWKHPDUNHW
%\ GHILQLWLRQ WKH PDUNHW KDV D EHWD RI  DQG LQGLYLGXDO VWRFNV DUH UDQNHG
DFFRUGLQJWRKRZPXFKWKH\GHYLDWHIURPWKHPDUNHW$VWRFNWKDWVZLQJVPRUHWKDQ
WKHPDUNHWRYHUWLPHKDVDEHWDDERYH,IDVWRFNPRYHVOHVVWKDQWKHPDUNHW
WKHVWRFN¶VEHWDLVOHVVWKDQ+LJKEHWDVWRFNVDUHVXSSRVHGWREHULVNLHUEXW
SURYLGHDSRWHQWLDOIRUKLJKHUUHWXUQVORZEHWDVWRFNVSRVHOHVVULVNEXWDOVRORZHU
UHWXUQV
:KHQFDOFXODWLQJWKHEHWDRIDQLQYHVWPHQWWKHVLPSOHPRQWKO\UHWXUQVRYHUWKH
VSHFLILHGFRPSDULVRQSHULRGDUHFDOFXODWHG7KHVLPSOHPRQWKO\UHWXUQLV
5HWXUQ (QGBSULFH'LVWBSHUBVKDUH6WDUWBSULFH6WDUWBSULFH
7KHUHWXUQVIRUERWKWKHLQYHVWPHQWDQGEHQFKPDUNDUHFDOFXODWHG,IWKHFRPSDUL
VRQSHULRGLV\HDUVWKHUHDUHPRQWKO\UHWXUQVIRUHDFKWKHLQYHVWPHQWDQGWKH
EHQFKPDUN7RFDOFXODWHWKHEHWDWKHVHGDWDSRLQWVDUHSORWWHGZLWKWKHEHQFK
6HOI,QVWUXFWLRQDO 0DWHULDO PDUNUHWXUQVDORQJWKH;D[LVDQGWKHLQYHVWPHQWUHWXUQVDORQJWKH<D[LV7KHVORSH
 RIDEHVWILWOLQHWKURXJKWKHVHGDWDSRLQWVLVWKH%HWD
7KHEHWDIRUDVWRFNLVGHILQHGDVIROORZV &RQFHSWRI
5LVN 5HWXUQ

127(6
ZKHUH
x VLP WKH&RYDULDQFHEHWZHHQWKHUHWXUQVRQDVVHWLDQGWKHPDUNHWSRUWIROLR
DQG
x VP WKH9DULDQFHRIWKHPDUNHWSRUWIROLR
1RWHWKDWE\GHILQLWLRQWKHEHWDRIWKHPDUNHWSRUWIROLRHTXDOVDQGWKHEHWDRI
WKHULVNIUHHDVVHWHTXDOV
$QDVVHW¶VV\VWHPDWLFULVNWKHUHIRUHGHSHQGVXSRQLWVFRYDULDQFHZLWKWKHPDUNHW
SRUWIROLR7KHPDUNHWSRUWIROLRLVWKHPRVWGLYHUVLILHGSRUWIROLRSRVVLEOHDVLWFRQVLVWV
RIHYHU\DVVHWLQWKHHFRQRP\KHOGDFFRUGLQJWRLWVPDUNHWSRUWIROLRZHLJKW
([DPSOHV
 )LQGWKHH[SHFWHGUHWXUQRQDVWRFNJLYHQWKDWWKHULVNIUHHUDWHLVWKH
H[SHFWHGUHWXUQRQWKHPDUNHWSRUWIROLRLVDQGWKHEHWDRIWKHVWRFNLV

)LQGWKHEHWDRQDVWRFNJLYHQWKDWLWVH[SHFWHGUHWXUQLVWKHULVNIUHHUDWH
LVDQGWKHH[SHFWHGUHWXUQRQWKHPDUNHWSRUWIROLRLV

()),&,(170$5.(77+(25<
7KHDSSURDFKFDOOHGµ(IILFLHQW0DUNHW+\SRWKHVLV¶LVEDVHGRQWKHSUHPLVHWKDW
FXUUHQWPDUNHWSULFHLVDWUXHUHIOHFWLRQRIWKHYDOXHRIWKHVHFXULWLHVVWRFNVDQG
KHQFHLWLVIXWLOHWRH[SHFWWKDWIXQGDPHQWDORUWHFKQLFDODQDO\VLVZLOO\LHOGDVXSHULRU
UHWXUQE\LGHQWLI\LQJXQGHUSULFHGRURYHUSULFHGVWRFNV8QGHUHIILFLHQWPDUNHW
K\SRWKHVLVLQYHVWRUVFDQH[SHFWDUHWXUQFRPPHQVXUDWHZLWKWKHULVNDVVRFLDWHG
ZLWKVXFKLQYHVWPHQWV(IILFLHQW0DUNHW+\SRWKHVLVZDVDQLVVXHWKDWZDVWKH
VXEMHFWRILQWHQVHGHEDWHDPRQJ$FDGHPLFVDQG)LQDQFH3URIHVVLRQDOVGXULQJWKH
ODVWIRXUGHFDGHV7KH(IILFLHQW0DUNHW+\SRWKHVLVVWDWHVWKDWDWDQ\JLYHQWLPH
VHFXULW\SULFHVIXOO\UHIOHFWDOODYDLODEOHLQIRUPDWLRQ7KHLPSOLFDWLRQVRIWKHHIILFLHQW
PDUNHWK\SRWKHVLVDUHWUXO\SURIRXQG0RVWLQGLYLGXDOVZKREX\DQGVHOOVHFXULWLHV
VWRFNVLQSDUWLFXODUGRVRXQGHUWKHDVVXPSWLRQWKDWWKHVHFXULWLHVWKH\DUHEX\LQJ
DUHZRUWKPRUHWKDQWKHSULFHWKDWWKH\DUHSD\LQJZKLOHVHFXULWLHVWKDWWKH\DUH
VHOOLQJDUHZRUWKOHVVWKDQWKHVHOOLQJSULFH%XWLIPDUNHWVDUHHIILFLHQWDQGFXUUHQW
SULFHVIXOO\UHIOHFWDOOLQIRUPDWLRQWKHQEX\LQJDQGVHOOLQJVHFXULWLHVLQDQDWWHPSWWR 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV RXWSHUIRUPWKHPDUNHWZLOOHIIHFWLYHO\EHDJDPHRIFKDQFHUDWKHUWKDQVNLOO8QGHU
3RUWIROLR0DQDJHPHQW HIILFLHQWLQYHVWRUVFDQQRWRXWSHUIRUPWKHPDUNHWVLQFHWKHUHDUHQXPHURXVNQRZO
HGJHDEOHDQDO\VWVDQGLQYHVWRUVZKRZRXOGQRWDOORZWKHPDUNHWSULFHWRGHYLDWH
IURPWKHLQWULQVLFYDOXHGXHWRWKHLUDFWLYHEX\LQJDQGVHOOLQJ7KHFXUUHQWPDUNHW
127(6 SULFHWKHUHIRUHUHIOHFWVWKHLQWULQVLFYDOXHDWDOOWLPHDQGKHQFHWKHUHLVQRQHHGIRU
IXQGDPHQWDODQDO\VLVRUWHFKQLFDODQDO\VLV(PSLULFDOO\DOVRPDUNHWSULFHVKDYHEHHQ
REVHUYHGWRPRYHUDQGRPO\RULQGHSHQGHQWO\$QHWRXWFRPHRIDOOWKLVKDGEHHQ
DJRRGGHDORIFRQIXVHGVXUURXQGLQJVRIWKHHIILFLHQWPDUNHWPRGHORUUDQGRPZDON
PRGHO ,W LV SHUKDSVIRUWKH VDPH UHDVRQ WKDW ZH VWLOOWDON RIHIILFLHQW PDUNHW
K\SRWKHVLVDQGQRWHIILFLHQWPDUNHWDSSURDFKWRHTXLW\LQYHVWPHQWGHFLVLRQ,QWKLV
8QLW\RXZLOOJHWLQWURGXFHGZLWKWKHFRQFHSWVDQGIRUPVRIPDUNHWHIILFLHQF\VRPH
HPSLULFDOWHVWVRI(0+DQGDOVRWKHDQRPDOLHVLQ(0+(IIRUWVKDYHDOVREHHQSXW
WRHQOLJKWHQ\RXRQVRPHRIWKH,QGLDQVWXGLHVRQPDUNHWHIILFLHQF\DQGWRDFHUWDLQ
H[WHQWRQWKHLPSOLFDWLRQVRI(0+IRUVHFXULW\DQDO\VLVDQGSRUWIROLRPDQDJHPHQW
'(),1,7,212)0$5.(7()),&,(1&<
7KH HIILFLHQW PDUNHW WKHRU\ ZDV GLVFRYHUHG E\ FKDQFH LQ  E\ 0DXULFH
.HQGH/XGLVWLQJXLVKHGVWDWLVWLFLDQ.HQGHOOKDGEHHQORRNLQJIRUUHJXODUSULFH
F\FOHVEXWWRKLVVXUSULVHKHFRXOGQRWILQGDQ\+HFDPHWRDILQGLQJWKDWWKHUH
H[LVWVQRSDWWHUQLQWKHPRYHPHQWRIVKDUHSULFHVDQGWKDWWKHFKDQJHLQSULFHVLV
DUDQGRPHYHQW7RTXRWH0DXULFH.HQGHOOKLPVHOI³$VLIRQFHDZHHNWKHGHPRQ
RIFKDQFHGUHZDUDQGRPQXPEHUDQGDGGHGLWWRWKHFXUUHQWSULFHWRGHWHUPLQH
WKHQH[WZHHNVSULFH´,QLWLDOO\
WKLVUHVXOWGLVWXUEHGPDQ\HFRQRPLVWVEHFDXVHWKH\LQWHUSUHWHGWKHUDQGRPEHKDYLRXU
RIVWRFNSULFHVDVDQRXWFRPHRIHUUDWLFPDUNHWSV\FKRORJ\DQGLWIROORZVQRORJLFDO
UXOHV+RZHYHURYHUDSHULRGRIWLPHWKH\VWDUWHGDSSUHFLDWLQJWKDWLQDZHOO
IXQFWLRQLQJRUHIILFLHQWPDUNHWSULFHVZLOOLQGHHGFKDQJHUDQGRPO\UHIOHFWLQJWKH
LPSDFWRIQHZLQIRUPDWLRQ
7KH(IILFLHQW0DUNHW+\SRWKHVLVVORZO\HYROYHGLQWKHVIURPWKH3K'
GLVVHUWDWLRQRI(XJHQH)DPD)DPDSHUVXDVLYHO\PDGHWKHDUJXPHQWWKDWLQDQDFWLYH
PDUNHWWKDWLQFOXGHVPDQ\ZHOOLQIRUPHGDQGLQWHOOLJHQWLQYHVWRUVVHFXULWLHVZLOOEH
DSSURSULDWHO\SULFHGDQGUHIOHFWDOODYDLODEOHLQIRUPDWLRQ,IDPDUNHWLVHIILFLHQWQR
LQIRUPDWLRQRUDQDO\VLVFDQEHH[SHFWHGWRUHVXOWLQRXWSHUIRUPDQFHRIDQDSSUR
SULDWHEHQFKPDUN
$QHIILFLHQWPDUNHWLVGHILQHGDVDPDUNHWZKHUHWKHUHDUHODUJHQXPEHUVRIUD
WLRQDOSURILWPD[LPL]HUVDFWLYHO\FRPSHWLQJZLWKHDFKWU\LQJWRSUHGLFWIXWXUHPDUNHW
YDOXHVRILQGLYLGXDOVHFXULWLHVDQGZKHUHLPSRUWDQWFXUUHQWLQIRUPDWLRQLVDOPRVW
IUHHO\DYDLODEOHWRDOOSDUWLFLSDQWV,QDQHIILFLHQWPDUNHWFRPSHWLWLRQDPRQJWKH
PDQ\LQWHOOLJHQWSDUWLFLSDQWVOHDGVWRDVLWXDWLRQZKHUHDWDQ\SRLQWLQWLPHDFWXDO
SULFHVRILQGLYLGXDOVHFXULWLHVDOUHDG\UHIOHFWWKHHIIHFWVRILQIRUPDWLRQEDVHGERWK
RQHYHQWVWKDWKDYHDOUHDG\RFFXUUHGDQGRQHYHQWVZKLFKDVRIQRZWKHPDUNHW
H[SHFWVWRWDNHSODFHLQWKHIXWXUH,QRWKHUZRUGVLQDQHIILFLHQWPDUNHWDWDQ\SRLQW
LQWLPHWKHDFWXDOSULFHRIDVHFXULW\ZLOOEHDJRRGHVWLPDWHRILWVLQWULQVLFYDOXH
6HOI,QVWUXFWLRQDO 0DWHULDO :LOOLDP6KDUSHVWDWHGWKDW³DSHUIHFWO\HIILFLHQWPDUNHWLVRQHLQZKLFKHYHU\VHFXULW\

SULFHHTXDOLWVPDUNHWYDOXHDWDOOWLPHV´$QHIILFLHQWFDSLWDOPDUNHWLVDPDUNHWWKDW &RQFHSWRI
LVHIILFLHQWLQSURFHVVLQJLQIRUPDWLRQ7KHSULFHVRIVHFXULWLHVREVHUYHGDWDQ\WLPH 5LVN 5HWXUQ
DUHEDVHGRQ³FRUUHFW´HYDOXDWLRQRIDOOLQIRUPDWLRQDYDLODEOHDWWKDWWLPH,QDQ
HIILFLHQWPDUNHWSULFHVIXOO\UHIOHFWDOODYDLODEOHLQIRUPDWLRQ6XEVWDQWLDOHYLGHQFHKDV
EHHQSUHVHQWHGE\HPSLULFDOVWXGLHVUHJDUGLQJWKHYDOLGLW\RI(0+&RQFOXVLRQRI 127(6
WKHVHVWXGLHVLVQRWWKDWVXSHULRUSHUIRUPDQFHLVLPSRVVLEOHEXWWKDWFRQVLVWHQWO\
VXSHULRUSHUIRUPDQFHIRUDJLYHQULVNOHYHOLVH[WUHPHO\UDUH7KHUDQGRPZDON
WKHRU\DVVHUWVWKDWSULFHPRYHPHQWVZLOOQRWIROORZDQ\SDWWHUQVRUWUHQGVDQGWKDW
SDVWSULFHPRYHPHQWVFDQQRWEHXVHGWRSUHGLFWIXWXUHSULFHPRYHPHQWV0XFKRI
WKHWKHRU\RQWKHVHVXEMHFWVFDQEHWUDFHGWR)UHQFKPDWKHPDWLFLDQ/RXLV
%DFKHOLHUZKRVH3K'GLVVHUWDWLRQWLWOHG³7KH7KHRU\RI6SHFXODWLRQ´LQ
FOXGHGVRPHUHPDUNDEO\LQVLJKWVDQGFRPPHQWDU\%DFKHOLHUFDPHWRWKHFRQFOXVLRQ
WKDW³7KHPDWKHPDWLFDOH[SHFWDWLRQRIWKHVSHFXODWRULV]HUR´DQGKHGHVFULEHGWKLV
FRQGLWLRQDVD³IDLUJDPH´8QIRUWXQDWHO\KLVLQVLJKWVZHUHVRIDUDKHDGRIWKHWLPHV
WKDWWKH\ZHQWODUJHO\XQQRWLFHGIRURYHU\HDUVXQWLOKLVSDSHUZDVUHGLVFRYHUHG
DQGHYHQWXDOO\WUDQVODWHGLQWR(QJOLVKDQGSXEOLVKHGLQ0DUNHWHIILFLHQF\KDV
LPSOLFDWLRQVIRUFRUSRUDWHPDQDJHUVDVZHOODVIRULQYHVWRUV
7KLVWDNHVDORWRIWKH³JDPHVPDQVKLS´RXWRIFRUSRUDWHPDQDJHPHQW,IDPDUNHW
LVHIILFLHQWLWLVGLIILFXOWWRIRROWKHSXEOLFIRUORQJ)RULQVWDQFHRQO\JHQXLQH³QHZV´
FDQPRYHWKHVWRFNSULFH,WLVKDUGWRSXPSXSWKHVWRFNSULFHE\FODLPVWKDWDUH
QRWYHULILDEOHE\LQYHVWRUV³)DNH´QHZVZLOOQRWPRYHWKHSULFHRULILWGRHVWKH
SULFHZLOOTXLFNO\UHYHUWWRWKHSUHDQQRXQFHPHQWYDOXHZKHQWKHQHZVSURYHV
KROORZ3XEOLFO\DYDLODEOHLQIRUPDWLRQLVSUREDEO\DOUHDG\LPSRXQGHGLQWKHSULFH
7KLVLVKDUGIRUVRPHPDQDJHUVWREHOLHYH$QH[DPSOHLVWKH6HDUV¶DWWHPSWWRVHOO
WKH6HDUV7RZHULQ&KLFDJRLQWKHODWH¶V7KHFRPSDQ\EHOLHYHGWKDWVLQFH
LWFDUULHGWKHSURSHUW\RQLWVEDODQFHVKHHWDWJUHDWO\GHSUHFLDWHGYDOXHVWKHSXEOLF
GLGQRWFUHGLWWKHFRPSDQ\ZLWKWKHIXOOPDUNHWSULFHRIWKHEXLOGLQJDQGWKXV
6HDUV¶VVWRFNZDVXQGHUSULFHG7KLVSURYHGWREHIDOVH,QIDFWLWVHHPVWKDW6HDUV
ZDVRYHUHVWLPDWLQJWKHYDOXHRIWKHEXLOGLQJDQGWKHVWRFNSULFHZDVUHODWLYHO\
HIILFLHQW$QRWKHUOHVVRQDFFRXQWLQJWULFNVGRQ¶WIRRODQ\ERG\'RQ¶WZRUU\DERXW
WLPLQJDFFRXQWLQJFKDUJHVDQGGRQ¶WZRUU\DERXWZKHWKHULQIRUPDWLRQLVUHYHDOHGLQ
WKHIRRWQRWHVRULQWKHVWDWHPHQWV$QHIILFLHQWPDUNHWZLOOTXLFNO\ILJXUHRXWWKH
PHDQLQJRIWKHLQIRUPDWLRQRQFHLWLVPDGHSXEOLF5DWLRQDOHLQYHVWRUVVHHNWR
PD[LPL]HUHWXUQVDWDJLYHQOHYHORIULVN,IDVHFXULW\LVXQGHUSULFHGLQYHVWRUVZLOO
TXLFNO\LGHQWLI\LWDQGUXVKWRSLFNLWXS&RPSHWLWLRQIRUWKHXQGHUSULFHGVHFXULW\
GULYHVWKHSULFHXS+HQFHLWZRXOGEHGLIILFXOWWRFRQVLVWHQWO\DFKLHYHVXSHULRU
SHUIRUPDQFH0RVWVHFXULWLHVDUHFRUUHFWO\SULFHGDQGLWVKRXOGEHSRVVLEOHWRHDUQ
DQRUPDOUHWXUQE\UDQGRPO\FKRRVLQJVHFXULWLHVRIDJLYHQULVNOHYHO
&KHFN <RXU 3URJUHVV
1RWLRQRIILQDQFLDOPDUNHWHIILFLHQF\LVLQIDFWDNLQWRWKHFRQFHSWRISURILWLQD  :KDWLVEHWDYDOXH"
SHUIHFWO\FRPSHWLWLYHPDUNHW$EQRUPDORUH[FHVVSURILWVLQVXFKDPDUNHWDUH  :KDWLVULVNUHZDUG
FRPSHWHGDZD\,QDQHIILFLHQWPDUNHWQHZLQIRUPDWLRQLVGLVFRXQWHGDVLWDUULYHV WUDGHRII"
3ULFHLQVWDQWDQHRXVO\DGMXVWVWRDQHZDQGFRUUHFWOHYHO$QLQYHVWRUFDQQRWFRQ
VLVWHQWO\HDUQDEQRUPDOSURILWVE\XQGHUWDNLQJIXQGDPHQWDODQDO\VLVWRLGHQWLI\
XQGHUYDOXHGRYHUYDOXHGVHFXULWLHVRUE\VWXG\LQJWKHEHKDYLRURIVKDUHSULFHVZLWK
6HOI,QVWUXFWLRQDO 0DWHULDO
YLHZWRGLVFHUQLQJGHILQLWHSDWWHUQV,VRODWHGLQVWDQFHRIZLQGIDOOJDLQVIURPWKH

6HFXULW\$QDO\VLV VWRFNPDUNHWGRHVQRWQHJDWHWKHWKHRU\WKDWPDUNHWVDUHHIILFLHQW3DUDGR[RIWKH
3RUWIROLR0DQDJHPHQW HIILFLHQWPDUNHWLVWKDWLWLVHIILFLHQWEHFDXVHRIWKHRUJDQL]HGDQGV\VWHPDWLFHIIRUWV
RIWKRXVDQGVRIDQDO\VWWRHYDOXDWHLQWULQVLFYDOXHV,WFHDVHVWREHHIILFLHQWWKH
PRPHQWVXFKHIIRUWVDUHDEDQGRQHGE\WKHLQYHVWLQJFRPPXQLW\DQGDQDO\VWILUPV
127(6 0DUNHWSULFHVZLOOSURPSWO\DQGIXOO\UHIOHFWZKDWLVNQRZQDERXWWKHFRPSDQLHV
ZKRVHVKDUHVDUHWUDGHGRQO\LILQYHVWRUVVHHNVXSHULRUUHWXUQVDQGDQDO\]HLQIRU
PDWLRQSURPSWO\DQGSHUFHSWLYHO\,IWKHHIIRUWVZHUHDEDQGRQHGWKHHIILFLHQF\RI
WKHPDUNHWZRXOGGLPLQLVKUDSLGO\,QRUGHUIRU(0+WREHWUXHLWLVQHFHVVDU\IRU
PDQ\LQYHVWRUVWRGLVEHOLHYHLW
)RUPVRI0DUNHW(IILFLHQF\
(XJHQH)DPDJDYHWKUHHIODYRXUVWRPDUNHWHIILFLHQF\DQGVXEVHTXHQWO\DOOHPSLULFDO
WHVWLQJKDVSURFHHGHGRQWKHVHOLQHV7KHVHWKUHHIRUPVKDYHEHHQGLVFXVVHGLQ
GHWDLO
D :HDNIRUPRI(IILFLHQF\
7KHZHDNIRUPPHDQVWKDWWKHFXUUHQWSULFHVRIVWRFNDOUHDG\IXOO\UHIOHFWDOOWKH
LQIRUPDWLRQWKDWLVFRQWDLQHGLQWKHKLVWRULFDOVHTXHQFHRISULFHV+HQFHDEQRU
PDOSURILWVFDQQRWEHHDUQHGE\VWXG\LQJWKHSDVWEHKDYLRXURIVKDUHSULFHV
,QRWKHUZRUGVZHDNIRUPRIHIILFLHQF\LPSOLHVWKDW\RXFDQ¶WPDNHH[FHVV
SURILWVE\WUDGLQJRQSDVWWUHQGV<RXPD\EHVXUSULVHGWRQRWHWKDWDORWRI
SHRSOHGRH[DFWO\MXVWWKDW7KH\DUHFDOOHGWHFKQLFDODQDO\VWVRUFKDUWLVWV%\
LPSOLFDWLRQWHFKQLFDODQDO\VLVWKDWUHOLHVRQFKDUWVRISULFHVPRYLQJDYHUDJHV
DQGPRPHQWXPDQGYROXPHRIWUDGLQJLVQRWDPHDQLQJIXODQDO\VLVIRUPDNLQJ
DEQRUPDOWUDGLQJSURILWVLIWKHPDUNHWVDUHHIILFLHQWLQZHDNIRUP:KDWZRXOG
\RXGRLI\RXQRWLFHWKDWHYHU\WLPHWKHPDUNHWZHQWXSE\WKHQH[WGD\
RQDYHUDJHLWZHQWXSDJDLQE\":KDWZRXOG\RXGRLI\RXQRWLFHWKDW
HYHU\WLPHWKHPDUNHWZHQWGRZQE\WKHQH[WGD\RQDYHUDJHLWZHQW
GRZQDJDLQE\",I\RXUDQVZHULVWKDW\RXZRXOGEX\RQDQXSGD\DQG
VHOORQDGRZQGD\\RXKDYHWKHPDNLQJVRIDQDFWLYHWHFKQLFDOWUDGHUDQG\RX
DUHXVLQJDWUDGLQJUXOH

$FDGHPLFVKDYHEHHQWHVWLQJWUDGLQJUXOHVOLNHWKLVIRUIRUW\\HDUVDQGWUDGHUV
KDYHEHHQH[SORLWLQJWKHPIRUHYHQORQJHU7KHFRQFHSWEHKLQGWKHVLPSOHUXOH
GHVFULEHGDERYHLVPRPHQWXP$OWKRXJKLWLVDZLGHO\XVHGFRQFHSWIRUWHFK
QLFDOLQYHVWLQJWKHUHLVQRHYLGHQFHWKDWDQ\VKRUWWHUPPDUNHWWLPLQJUXOHDF
WXDOO\PDNHVPRQH\7KHUHDVRQIRUWKLVLVWKHIROORZLQJ:KDWLIHYHU\RQH
IROORZHGWKHVDPHVWUDWHJ\":RXOGQ¶WWKHRSSRUWXQLW\JRDZD\")XUWKHU\RX
KDYH WR EX\ DQG VHOO VWRFNV HYHU\ GD\ DQG LQ GRLQJ VR \RX KDYH WR SD\
EURNHUDJHIHHV7KXVZKLOHPDMRUSDWWHUQVLQVWRFNSULFHVVKRXOGQRWH[LVW
ZHDNSDWWHUQVWKDWDUHWRRFRVWO\WRDUELWUDJHPD\SHUVLVW,IWKHVHVLPSOHWUHQGV
DUHDUELWUDJHG DZD\ WKHQ WKH PDUNHW ZLOO IROORZ D UDQGRP ZDONLH SDVW
GHYLDWLRQIURPH[SHFWHGUHWXUQVWHOO\RXQRWKLQJDERXWIXWXUHGHYLDWLRQVIURP
H[SHFWHGUHWXUQV
6HOI,QVWUXFWLRQDO 0DWHULDO
$ZHDNIRUPHIILFLHQWPDUNHWLVRQHLQZKLFKSDVWVHFXULW\SULFHVDUHLP

SRXQGHGLQWRFXUUHQWSULFHV6LQFHSDVWSULFHVDUHGHHPHGSXEOLFLQIRUPDWLRQ
 ZHDNIRUPRIHIILFLHQF\LPSOLHVVHPLVWURQJIRUPRIHIILFLHQF\DQGVHPLVWURQJ &RQFHSWRI
IRUPHIILFLHQF\LPSOLHVVWURQJIRUPHIILFLHQF\ 5LVN 5HWXUQ

E 6HPL6WURQJIRUPRI(IILFLHQF\
127(6
+RZDERXWDOOSXEOLFLQIRUPDWLRQ"7KDWLVDOOLQIRUPDWLRQDYDLODEOHLQDQQXDO
UHSRUWVQHZVFOLSSLQJVJRVVLSFROXPQVDQGVRRQ",IWKHPDUNHWSULFHLP
SRXQGVDOORIWKLVLQIRUPDWLRQWKHPDUNHWLVWKHQFDOOHG6HPL6WURQJ)RUP
(IILFLHQW0RVWSHRSOHEHOLHYHWKDWWKH86HTXLW\PDUNHWVE\DQGODUJH
UHIOHFWSXEOLFO\DYDLODEOHLQIRUPDWLRQ%XWRQHKDVWRFRQVLGHUFHUWDLQWKLQJV
:KHWKHUWKHLQIRUPDWLRQSXWRQWKH,QWHUQHWSXEOLF"$UHJRYHUQPHQWILOHVDYDLO
DEOHXQGHUWKHIUHHGRPRILQIRUPDWLRQDFWSXEOLF"7KHUHPXVWEHVXEWOHVKDGHV
RIVHPLVWURQJPDUNHWHIILFLHQF\EXWWKH\DUHQRWW\SLFDOO\GLIIHUHQWLDWHG(DFK
QHZSLHFHRILQIRUPDWLRQDQDQDO\VWJDWKHUVVKRXOGEHFDUHIXOO\FRQVLGHUHGZLWK
UHJDUGWRZKHWKHULWLVDOUHDG\LPSRXQGHGLQWKHVWRFNSULFH7KHHDVLHULWZDV
WRJHWWKHPRUHOLNHO\LWLVWRKDYHDOUHDG\EHHQWUDGHGXSRQ6HPLVWURQJIRUP
VWULNHVDWWKHYHU\KHDUWRIWKHDQDO\VWSURIHVVLRQ7HVWVRIVHPLVWURQJKDYH
GHDOWZLWKWKHVSHHGDWZKLFKPDUNHWSDUWLFLSDQWVUHDFWWRSXEOLFUHOHDVHVRIQHZ
LQIRUPDWLRQ(PSLULFDOHYLGHQFHJHQHUDOO\VXSSRUWVWKHFRQWHQWLRQWKDWWKHSXEOLF
UHDFWVTXLFNO\WRLQIRUPDWLRQEXWWKHUHLVDOVRVRPHHYLGHQFHWKDWWKHPDUNHW
GRHVQRWDOZD\VGLJHVWQHZLQIRUPDWLRQFRUUHFWO\

F 6WURQJ)RUPRI(IILFLHQF\

7KLVUHSUHVHQWVWKHH[WUHPHFDVHRIPDUNHWHIILFLHQF\:KDWNLQGRILQIRUPDWLRQ
LVLPSRXQGHGLQWKHVWRFNSULFH",WWXUQVRXWWKDWWKHUHDUHORWVRIGLIIHUHQWOHYHOV
RIPDUNHWHIILFLHQF\GHSHQGLQJXSRQWKHVRXUFHRUWKHLQIRUPDWLRQEHLQJLP
SRXQGHG7KHEHVWZD\WRLOOXVWUDWHWKLVLVWKURXJKH[DPSOH6XSSRVH\RXKDG
DK\SHUHIILFLHQWPDUNHWWKDWLPSRXQGHGDOOSULYDWHLQIRUPDWLRQ7KLVPHDQV
WKDWHYHQDSHUVRQDOQRWHSDVVHGEHWZHHQWKH&(2DQGWKH&)2UHJDUGLQJ
DPDMRUILQDQFLDOGHFLVLRQZRXOGVXGGHQO\LPSDFWWKHVWRFNSULFH,IVRWKLVLV
FDOOHG6WURQJ)RUP(IILFLHQF\)HZSHRSOHEHOLHYHWKDWWKHPDUNHWLVVWURQJ
IRUPHIILFLHQWEXWLWLVQLFHWRKDYHWKLVEHQFKPDUN

7RWHVWWKHVWURQJIRUPWKUHHJURXSVRILQYHVWRUVKDYLQJSRWHQWLDODFFHVVWRSULYDWH
LQIRUPDWLRQKDYHEHHQH[DPLQHG7KHVHDUH

D&RUSRUDWH,QVLGHUV

E6WRFN([FKDQJH6SHFLDOLVWV

F0XWXDO)XQGV

(PSLULFDO7HVWRI(0+
:KDWLVWKHGHJUHHRIHIILFLHQF\ZLWQHVVHGLQWKHVWRFNPDUNHW",VLWHIILFLHQWRIWKH
ZHDNIRUPRUVHPLVWURQJIRUPRUVWURQJIRUP",QRUGHUWREHDEOHWRDQVZHUWKHVH
TXHVWLRQVFHUWDLQHPSLULFDOWHVWVKDYHEHHQGHYLVHG7KLVVHFWLRQZRXOGGLVFXVVLQ
6HOI,QVWUXFWLRQDO 0DWHULDO
GHWDLOVRPHRIWKHWHVWVXVHG

6HFXULW\$QDO\VLV 7HVWV RI:HDN )RUP
3RUWIROLR0DQDJHPHQW
:HDNIRUPHIILFLHQF\VKRXOGEHWKHVLPSOHVWW\SHRIHIILFLHQF\WRSURYHDQGIRUD
WLPHLWZDVZLGHO\DFFHSWHGWKDWWKH86VWRFNPDUNHWZDVDWOHDVWZHDNIRUP
127(6 HIILFLHQW5HFDOOWKDWZHDNIRUPHIILFLHQF\RQO\UHTXLUHVWKDW\RXFDQQRWPDNH
PRQH\XVLQJSDVWSULFHKLVWRU\RIDVWRFNRULQGH[WRPDNHH[FHVVSURILWV5HFDOO
WKHLQWXLWLRQWKDWLISHRSOHNQRZWKHSULFHZLOOULVHWRPRUURZWKHQWKH\ZLOOELGWKH
SULFHXSWRGD\LQRUGHUWRFDSWXUHWKHSURILW5HVHDUFKHUVKDYHEHHQWHVWLQJZHDN
IRUPRIHIILFLHQF\XVLQJGDLO\LQIRUPDWLRQVLQFHWKH¶VDQGW\SLFDOO\WKH\KDYH
IRXQGVRPHGDLO\SULFHSDWWHUQVHJPRPHQWXP+RZHYHULWDSSHDUVGLIILFXOWWR
H[SORLWWKHVHVKRUWWHUPSDWWHUQVWRPDNHPRQH\,QWHUHVWLQJO\DV\RXLQFUHDVHWKH
KRUL]RQRIWKHUHWXUQWKHUHVHHPVWREHHYLGHQFHRISURILWVWKURXJKWUDGLQJ%X\LQJ
VWRFNVWKDWZHQWGRZQRYHUWKHODVWWZRZHHNVDQGVKRUWLQJWKRVHWKDWZHQWXS
DSSHDUVWRKDYHEHHQSURILWDEOH:KHQ\RXUHDOO\LQFUHDVHWKHKRUL]RQVVWRFN
UHWXUQVORRNHYHQPRUHSUHGLFWDEOH(XJHQH)DPDDQG.HQ)UHQFKIRULQVWDQFH
IRXQGVRPHHYLGHQFHWKDW\HDUUHWXUQVWHQGWRUHYHUWWRZDUGVWKHPHDQ8QIRU
WXQDWHO\WKLVLVDGLIILFXOWUXOHWRWUDGHRQZLWKDQ\FRQILGHQFHVLQFHWKHF\FOHVDUH
VRORQJWKDWLQIDFWWKH\DUHDVORQJDVWKHSDWWHUQVFRQMHFWXUHGE\&KDUOHV+HQU\
'RZVRPH\HDUVDJR'RHVWKLVDOOOHQGFUHGHQFHWRWKHFKDUWLVWVZKRORRN
IRUFU\SWLFSDWWHUQVLQVHFXULW\SULFHVSHUKDSV%XWLQDOOOLNHOLKRRGWKHUHLVQRHDV\
PRQH\LQFKDUWLQJHLWKHU3ULFHVIRUZLGHO\WUDGHVVHFXULWLHVDUHSUHWW\FORVHWRD
UDQGRP ZDON DQG LI WKH\ ZHUH QRW WKHQ  WKH\ ZRXOG TXLFNO\ EHFRPH VR DV
DUELWUDJHXUVPRYHGLQWREX\WKHVWRFNZKHQLWLVXQGHUSULFHGDQGVKRUWVHOOLW
ZKHQLWLVRYHUSULFHG%XWZKRNQRZV0D\EHDUHWLUHGURFNHWVFLHQWLVWSOD\LQJ
DURXQGZLWKIUDFWDOJHRPHWU\DQGDUWLILFLDOLQWHOOLJHQFHZLOOKLWXSRQVRPHWKLQJ2I
FRXUVHLIKHRUVKHGLGLWZRXOGQ¶WEHFRPHFRPPRQNQRZOHGJHDWOHDVWIRUD
ZKLOH7KHUHKDYHEHHQHPSLULFDOWHVWVRIZHDNIRUPPDUNHWHIILFLHQF\IRUHTXLWLHV
ERQGVDQGIXWXUHVFRQWUDFWV5DQGRPZDONK\SRWKHVLVVXJJHVWVWKDWHYHQERQG
SULFHFKDQJHVVKRXOGEHHVVHQWLDOO\UDQGRPRUXQSUHGLFWDEOH
7HVWV RI:HDN IRUP HIILFLHQF\
7ZRJURXSVRIWHVWVKDYHEHHQIRUPXODWHGE\UHVHDUFKHUVWRWHVWWKHZHDNIRUPRI
(0+2QHDSSURDFKORRNVIRUVWDWLVWLFDOO\VLJQLILFDQWSDWWHUQVLQVHFXULW\SULFH
FKDQJHV$QRWKHUDSSURDFKVHDUFKHVIRUSURILWDEOHVKRUWWHUPWUDGLQJUXOHV6HULDO
LQGHSHQGHQFHILOWHUUXOHVUXQWHVWVDQGGLVWULEXWLRQSDWWHUQWHVWIRUZHDNIRUPDUH
GHVFULEHGEHORZ
D6WDWLVWLFDOWHVWVRILQGHSHQGHQFH
(0+FRQWHQGVWKDWVHFXULW\UHWXUQVRYHUWLPHVKRXOGEHLQGHSHQGHQWRIRQHDQRWKHU
EHFDXVHQHZLQIRUPDWLRQFRPHVWRPDUNHWLQDUDQGRPLQGHSHQGHQWIDVKLRQDQG
VHFXULW\SULFHVDGMXVWUDSLGO\WRWKLVQHZLQIRUPDWLRQ'RHVUHWXUQRIGD\WFRUUHODWH
ZLWKGD\WWQ"7ZRPDMRUVWDWLVWLFDOWHVWVKDYHEHHQXVHGWRYHULI\WKLVLQGHSHQ
GHQFH2QHLVWKH$XWRFRUUHODWLRQWHVWDQGWKHRWKHULVWKH5XQWHVW
L6HULDO,QGHSHQGHQFH$XWRFRUUHODWLRQ$XWRFRUUHODWLRQPHDVXUHVWKHVLJQLIL
6HOI,QVWUXFWLRQDO 0DWHULDO FDQFHRIWKHSRVLWLYHRUQHJDWLYHFRUUHODWLRQLQUHWXUQRYHUWLPH'RHVWKHUDWHRI
 UHWXUQRQGD\FRUUHODWHZLWKWKHUDWHRIUHWXUQRQGD\WRUWRUW,IWKHFDSLWDO
PDUNHWLVEHOLHYHGWREHHIILFLHQWWKHQRQHVKRXOGH[SHFWLQVLJQLILFDQWFRUUHODWLRQIRU &RQFHSWRI
DOOFRPELQDWLRQV5DQGRPQHVVLQVWRFNSULFHPRYHPHQWVFDQEHWHVWHGE\FDOFX 5LVN 5HWXUQ
ODWLQJWKHFRUUHODWLRQEHWZHHQSULFHFKDQJHVLQRQHSHULRGDQGFKDQJHVIRUWKHVDPH
VWRFNLQDQRWKHUSHULRG
127(6
,IWKHDXWRFRUUHODWLRQLVFORVHWR]HURWKHSULFHFKDQJHVDUHVDLGWREHVHULDOO\
LQGHSHQGHQW7KLVLVWHVWHGIRURYHUVKRUWSHULRGVWRGD\VHYHQGD\V
)DPDIRULQVWDQFHFDOFXODWHGWKHDXWRFRUUHODWLRQIRUWKHSHULRGIRU86
VWRFNSULFHV7KHDXWRFRUUHODWLRQZDVIRXQGWREHLQVLJQLILFDQW$VLPLODUDQDO\VLV
LVGRQHIRUWKH%6(6HQVLWLYH,QGH[6HQVH[DQGIHZRWKHUVWRFNVIRUWKHSHULRG
IURP$SULOWR0DUFKXVLQJWKHGDLO\LQGH[YDOXHDQGWKHUHVXOWVDUH
UHSRUWHGLQ7DEOH7KHUHVXOWVVKRZWKDWWKHVHULDORUDXWRFRUUHODWLRQYDOXHV
EHWZHHQWKHUHWXUQVRIYDULRXVODJVDUHYHU\ORZDQGVWDWLVWLFDOO\LQVLJQLILFDQWH[FHSW
LQDIHZFDVHV$YHU\ORZDXWRFRUUHODWLRQSURYLGHVVRPHHYLGHQFHWKDW,QGLDQ
PDUNHWLVDOVRVKRZLQJHIILFLHQF\DWZHDNIRUPDQGKHQFHDQ\DQDO\VLVRQKLVWRULFDO
SULFHGDWDLVRIOLWWOHXVH2QHRIPDLQUHDVRQVIRUDFKLHYLQJZHDNIRUPRIHIILFLHQF\
LVFUHDWLQJDQHQYLURQPHQWIRUDFWLYHWUDGLQJDQGUHGXFLQJWKHWUDQVDFWLRQFRVW7KHVH
WZRDFWLRQVZLOODWWUDFWDODUJHQXPEHURILQYHVWRUVWRWUDGHDQGEULQJVRPHOHYHO
RIHIILFLHQF\LQWKHPDUNHW
LL5XQVWHVWVFRQILUPHIILFLHQF\3ULFHFKDQJHVPD\EHUDQGRPPRVWRIWKH
WLPHEXWRFFDVLRQDOO\EHFRPHVHULDOO\FRUUHODWHGIRUYDU\LQJSHULRGRIWLPH)XUWKHU
VHULDOFRUUHODWLRQFRHIILFLHQWVFDQEHDIIHFWHGE\H[WUHPHYDOXHV7RRYHUFRPHWKHVH
SUREOHPVWKHUXQWHVWLVXVHG5XQWHVWVLJQRUHWKHDEVROXWHYDOXHVRIWKHQXPEHUV
LQWKHVHULHVDQGREVHUYHRQO\WKHLUVLJQV*LYHQDVHULHVRISULFHFKDQJHVHDFK
SULFHFKDQJHLVHLWKHUGHVLJQDWHGDSOXVLILWLVDQLQFUHDVHLQSULFHRUDPLQXV
LILWLVDGHFUHDVHLQSULFH7KHUHVXOWLVDVHWRISOXVHVDQGPLQXVHVMXVWOLNH
WKLV$UXQRFFXUVZKHQWZRFRQVHFXWLYHSULFHFKDQJHV
DUHWKHVDPHWZRRUPRUHFRQVHFXWLYHSRVLWLYHRUQHJDWLYHSULFHFKDQJHVFRQVWLWXWH
RQHUXQ)RUH[DPSOHKDVWKUHHUXQV:KHQWKHSULFHFKDQJHV
LQDGLIIHUHQWGLUHFWLRQWKHQVXFKDVDQHJDWLYHSULFHFKDQJHLVIROORZHGE\D
SRVLWLYHSULFHFKDQJHWKHUXQHQGVDQGDQHZUXQEHJLQV7KHDFWXDOQXPEHURI
UXQVREVHUYHGLVFRPSDUHGZLWKWKHQXPEHUWKDWDUHH[SHFWHGIURPDVHULHVRI
UDQGRPO\JHQHUDWHGSULFHFKDQJHV,IQRVLJQLILFDQWGLIIHUHQFHVDUHIRXQGWKHQSULFH
FKDQJHVDUHUDQGRPLQFKDUDFWHU6WXGLHVWKDWKDYHH[DPLQHGWKHVWRFNSULFHUXQV
KDYHFRQILUPHGWKHLQGHSHQGHQFHRIVWRFNSULFHFKDQJHVRYHUWLPH7KHDFWXDO
QXPEHURIUXQVIRUVWRFNSULFHVHULHVFRQVLVWHQWO\IHOORYHUWKHUDQJHH[SHFWHGIRU
DUDQGRPVHULHV
LLL'LVWULEXWLRQ3DWWHUQ7KHVXPRUWKHGLVWULEXWLRQRIUDQGRPRFFXUUHQFHVZLOO
VWDWLVWLFDOO\FRQIRUPWRDQRUPDOGLVWULEXWLRQ,ISURSRUWLRQDWHSULFHFKDQJHVDUH
UDQGRPO\JHQHUDWHGHYHQWVWKHQWKHLUGLVWULEXWLRQVKRXOGEHDSSUR[LPDWHO\QRUPDO
)DPDKDVWHVWHGIRUQRUPDOGLVWULEXWLRQDQGIRXQGRQO\VOLJKWGLIIHUHQFHIURPWKH
QRUPDO6WXGLHVKDYHDOVREHHQXQGHUWDNHQRQWHFKQLFDOWUDGLQJVWUDWHJLHVEDVHGRQ
LQIRUPDWLRQRWKHUWKDQKLVWRULFDOSULFHVVXFKDVRGGORWILJXUHVYROXPHRIVKRUW
VDOHVDGYDQFHGHFOLQHUDWLRVFKDUWSDWWHUQHWF7KHJHQHUDOFRQFOXVLRQLVWKDWVXFK
VWUDWHJLHVKDYHIDLOHGWRRXWSHUIRUPDQDLYHEX\DQGKROGVWUDWHJ\ 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV E7HVWVRI7UDGLQJ5XOHV
3RUWIROLR0DQDJHPHQW
7KHVWDWLVWLFDOWHVWVRILQGHSHQGHQFHZHUHWRRULJLGWRLGHQWLI\WKHLQWULFDWHSULFH
SDWWHUQVH[DPLQHGE\WHFKQLFDODQDO\VLV7HFKQLFDODQDO\VLVGRQRWDFFHSWDVHW
127(6 QXPEHURISRVLWLYHRUQHJDWLYHSULFHFKDQJHVDV DVLJQDORI DPRYHWR DQHZ
HTXLOLEULXPLQWKHPDUNHW7KH\W\SLFDOO\ORRNIRUDJHQHUDOFRQVLVWHQF\LQWKHSULFH
DQGYROXPHWUHQGVRYHUWLPH6XFKDWUHQGPLJKWLQFOXGHERWKSRVLWLYHDQGQHJDWLYH
FKDQJHV)RUWKLVUHDVRQWHFKQLFDODQDO\VWVIHOWWKDWWKHLUWUDGLQJUXOHVZHUHWRR
VRSKLVWLFDWHGDQGFRPSOLFDWHGWREHVLPXODWHGE\ULJLGVWDWLVWLFDOWHVWV$GYRFDWHV
RI(0+K\SRWKHVL]HGWKDWLQYHVWRUVFRXOGQRWGHULYHSURILWDERYHDEX\DQGKROG
SROLF\RUDEQRUPDOSURILWVXVLQJDQ\WUDGLQJUXOHWKDWGHSHQGHGVROHO\RQDQ\SDVW
PDUNHWLQIRUPDWLRQDERXWIDFWRUVVXFKDVSULFHYROXPHRGGORWVKDUHVRUVSHFLDOLVW
DFWLYLW\)LOWHUVFDQEHSUHVFULEHGIRUWUDGLQJDVIROORZV
$VKDUHSULFHLVLQFUHDVLQJDQGDSHUFHQWILOWHUKDVEHHQVHW6XSSRVHLWVWDUWV
GHFOLQLQJDQGZKHQLWUHDFKHVDOHYHOSHUFHQWEHORZLWVSHDNLWLVDVHOOVLJQDO
6LPLODUO\LIWKHVKDUHLVGHFOLQLQJLQSULFHDQGLWUHYHUVHVLWVWUHQGDQGOHYHOWKHQLW
LVDEX\VLJQDO%\XVLQJVXFKEX\DQGVHOOVLJQDOVXVLQJILOWHUVUDQJLQJIURPWR
SHUFHQWVHYHUDOVWXGLHVIRXQGWKDWLWZDVQRWSRVVLEOHWRHDUQDEQRUPDOUHWXUQV
6WXGLHVRIWKLVWUDGLQJUXOHKDYHDUDQJHRIILOWHUVIURPSHUFHQWWRSHUFHQW
7KHUHVXOWVLQGLFDWHGWKDWVPDOOILOWHUVZRXOG\LHOGDERYHDYHUDJHSURILWVEHIRUH
WDNLQJDFFRXQWRIWUDGLQJFRPPLVVLRQV+RZHYHUVRPHILOWHUVJHQHUDWHQXPHURXV
WUDGHVDQGWKHUHIRUHVXEVWDQWLDOWUDGLQJFRVWV:KHQWKHVHWUDGLQJFRPPLVVLRQV
ZHUHFRQVLGHUHGDOOWKHWUDGLQJSURILWVWXUQHGWRORVVHV$OWHUQDWLYHO\ODUJHUILOWHUV
GLGQRW\LHOGUHWXUQVDERYHWKRVHRIDVLPSOHEX\DQGKROGVWUDWHJ\)DPDDQG
%OXPH
2QDEHIRUHWUDQVDFWLRQFRVWEDVLVWKHVHWUDGLQJUXOHVGRDSSHDUWRZRUNEXWWKHUH
LVQRHYLGHQFHWKDW\RXFDQSURILWDEO\WUDGHRQWKLVZKHQWUDQVDFWLRQFRVWVDUH
LQFOXGHGWKHSURILWDELOLW\GLVDSSHDUV
5HVHDUFKHUVKDYHJHQHUDWHGRWKHUWUDGLQJUXOHVWKDWXVHGSDVWPDUNHWGDWDRWKHU
WKDQ VWRFN SULFHV 7UDGLQJ UXOHV KDYH EHHQ GHYLVHG WKDW XVH RGGORW ILJXUHV
DGYDQFHGGHFOLQHUDWLRVVKRUWVDOHVVKRUWSRVLWLRQVDQGVSHFLDOLVWDFWLYLWLHV7KHVH
VLPXODWLRQWHVWVKDYHJHQHUDWHGPL[HGUHVXOWV0RVWRIWKHHDUO\VWXGLHVVXJJHVWHG
WKDWWKHVHWUDGLQJUXOHVJHQHUDOO\ZRXOGQRWRXWSHUIRUPDEX\DQGKROGSROLF\RQD
ULVNDGMXVWHGEDVLVDIWHUWDNLQJDFFRXQWRIFRPPLVVLRQV*HRUJH3LQFKHV
ZKLOHDFRXSOHRIVWXGLHVKDYHLQGLFDWHGVXSSRUWIRUWKHVSHFLILFWUDGLQJUXOHV%UXVK
DQG3URLWWDQG:KLWH7KHUHIRUHPRVWHYLGHQFHIURPVLPXODWLRQRI
VSHFLILFWUDGLQJUXOHVLQGLFDWHWKDWWKHVHWUDGLQJUXOHVKDYHQRWEHHQDEOHWREHDWD
EX\DQGKROGSROLF\7KHVHUHVXOWVVXSSRUWWKHZHDNIRUPRI(0+
7HVWVRI6HPL6WURQJ)RUP
6HPL6WURQJIRUPFRQWHQGVWKDWDOOSXEOLFLQIRUPDWLRQLVIXOO\UHIOHFWHGLQVHFXULW\
SULFHV3XEOLFLQIRUPDWLRQLQFOXGHVFRPSDQ\ILQDQFLDOVWDWHPHQWVHDUQLQJVDQG
GLYLGHQGVERQXVDQQRXQFHPHQWVDQGPDFURHFRQRPLFGDWD7KHPRVWREYLRXV
6HOI,QVWUXFWLRQDO 0DWHULDO LQGLFDWLRQWKDWWKHPDUNHWLVQRWDOZD\VDQGHYHU\ZKHUHVHPLVWURQJIRUPHIILFLHQW

LVWKDWPRQH\PDQDJHUVIUHTXHQWO\XVHSXEOLFLQIRUPDWLRQWRWDNHSRVLWLRQVLQ &RQFHSWRI
VWRFNV:KLOHWKHUHLVQRHYLGHQFHWKDWWKH\EHDWWKHPDUNHWRQDULVNDGMXVWHG 5LVN 5HWXUQ
EDVLVLWLVKDUGWREHOLHYHWKDWDQHQWLUHLQGXVWU\RILQIRUPDWLRQSURGXFWLRQDQG
DQDO\VLVLVIRUQDXJKW,WVHHPVOLNHO\WKDWWKHUHLVYDOXHWRSXEOLFO\DYDLODEOH
LQIRUPDWLRQKRZHYHUWKHUHDUHSUREDEO\GHJUHHVWRZKLFKLQIRUPDWLRQUHDOO\LV 127(6
SXEOLFNQRZOHGJH:KDWLVVXUSULVLQJLVWKDWUHFHQWVWXGLHVKDYHVKRZQVRPHHYL
GHQFHWKDWH[FHVVUHWXUQVFDQEHPDGHE\WUDGLQJXSRQYHU\SXEOLFLQIRUPDWLRQ
7KHVHWHVWVXVXDOO\WDNHWKHIRUPRI³EDFNWHVWLQJ´WUDGLQJVWUDWHJLHV7KDWLV\RX
SOD\D³ZKDWLI¶JDPHZLWKSDVWVWRFNSULFHVDQGSUHWHQG\RXIROORZHGVRPHUXOH
XVLQJLQIRUPDWLRQDYDLODEOHRQO\DWWKHWLPHRIWKHSUHWHQGWUDGH2QHFRPPRQUXOH
WKDWVHHPVWRSHUIRUPZHOOKLVWRULFDOO\LVWREX\VWRFNVZKHQWKHGLYLGHQG\LHOGLV
KLJK7KLVDSSDUHQWO\KDVPDGHPRQH\LQWKHSDVWHYHQWKRXJKWKHLQIRUPDWLRQ
DERXWZKLFKRIWKHVWRFNVKDYHKLJK\LHOGVDQGZKLFKRIWKHPKDYHORZ\LHOGVLV
ZLGHO\DYDLODEOH$QRWKHUUXOHWKDWJHQHUDWHVSRVLWLYHH[FHVVUHWXUQVLQEDFNWHVWV
LVWREX\VWRFNVZKHQWKHHDUQLQJVDQQRXQFHPHQWLVKLJKHUWKDQH[SHFWHG7KLV
VHHPVVLPSOHVLQFHFXUUHQWDQQRXQFHPHQWVDQGHYHQIRUHFDVWVDUHZLGHO\DYDLODEOH
DVZHOO'RHVWKLVPHDQWKDWLWLVHDV\WREHFRPHULFKLQVWRFNPDUNHW"+DUGO\
7KHSURILWDELOLW\RIWKHVHVLPSOHWUDGLQJUXOHVGHSHQGVXSRQWKHOLTXLGLW\RIWKH
VWRFNVLQYROYHGDQGWUDGLQJFRVWV³IULFWLRQV´6RPHWLPHVWKHFRVWVRXWZHLJKWKH
EHQHILWV:KLOHPDQ\LQYHVWPHQWPDQDJHUVH[SODLQWKDWWKH\SXUVXHDVWUDWHJ\RI
EX\LQJ³9DOXH´VWRFNVVXFKDVORZ3,(ILUPVIHZRIWKHVHPDQDJHUVKDYHFRQ
VLVWHQWO\VXSHULRUWUDFNUHFRUGV7KHDVVXPSWLRQRIVHPLVWURQJIRUPHIILFLHQF\LV
DJRRGILUVWDSSUR[LPDWLRQIRUDPDUNHWZLWKDVPDQ\VKDUSWUDGHUVDQGZLWKDV
PXFKSXEOLFO\DYDLODEOHLQIRUPDWLRQDVWKH86HTXLW\PDUNHW)DPD)LVFKHU
-HQVHQDQG5ROOKDYHWHVWHGWKHVSHHGRIWKHPDUNHW¶VUHDFWLRQWRDFRPSDQ\¶V
DQQRXQFHPHQWVRIDVWRFNVSOLWDQGZLWKUHVSHFWWRDFKDQJHLQGLYLGHQGSROLF\
7KH\HVWLPDWHGWKHDEQRUPDOUHWXUQVXVLQJCUHVLGXDODQDO\VLV´6HFXULW\UHWXUQVZHUH
UHJUHVVHGDJDLQVWWKHUHWXUQVRQDPDUNHWLQGH[DQGWKHHUURUWHUPLQWKHIROORZLQJ
OLQHDUHTXDWLRQUHSUHVHQWHGWKHUHVLGXDORUDEQRUPDOUHWXUQ
)DPD)LVFKHU-HQVHQDQG5ROOH[DPLQHG6WRFN6SOLWVRQWKH1HZ<RUN6WRFN
([FKDQJHIURPWR3ULFHRIWKH6WRFNVZDVH[DPLQHGIRUDSHULRGRI
PRQWKVEHIRUHWKHGDWHRIWKHVSOLWDQGPRQWKVDIWHUWKHVSOLW7KHDFWXDODFW
RIVSOLWWLQJGLGQRWKDYHDQ\LPSDFWRQWKHZHDOWKRIVKDUHKROGHUV)XUWKHUEX\LQJ
VWRFNVDIWHUDVWRFNVSOLWGLGQRWDSSHDUWRSURGXFHDEQRUPDOUHWXUQV
%DOODQG%URZQGLGDQDQDO\VLVRIWKHVWRFNPDUNHW¶VDELOLW\WRDEVRUEWKHLQIRUPD
WLRQDOFRQWHQWRIUHSRUWHGDQQXDOHDUQLQJVSHUVKDUH7KH\IRXQGWKDWWKRVHFRPSD
QLHVZKLFKUHSRUWHG³JRRG´HDUQLQJVH[SHULHQFHGSULFHLQFUHDVHVDQGWKRVHZLWK
³EDG´HDUQLQJVUHSRUWVH[SHULHQFHGSULFHGHFOLQHV1HDUO\SHUFHQWRIWKHLQIRU
PDWLRQDOFRQWHQWRIWKHHDUQLQJVDQQRXQFHPHQWVZDVUHIOHFWHGLQVWRFNSULFHPRYH
PHQWVSULRUWRWKHUHOHDVHRIWKHDFWXDOILJXUH
7HVWVRI6WURQJ)RUP
6WURQJIRUPDUJXHVWKDWDOOLQIRUPDWLRQLVIXOO\UHIOHFWHGLQVHFXULW\SULFHV7KHWRS
PDQDJHPHQWKDVDFFHVVWRFRUSRUDWHDQGILQDQFLQJVWUDWHJLHV,QWKHVDPHZD\ 6HOI,QVWUXFWLRQDO 0DWHULDO
VSHFLDOLVWVKDYHDFFHVVWRWKHERRNOLPLWRUGHUVIRUDQ\VKDUH.QRZOHGJHRIWKH 
6HFXULW\$QDO\VLV SULFHDQGTXDQWLWLHVRIWKHOLPLWRUGHUUHSUHVHQWSULYDWHLQIRUPDWLRQ3URIHVVLRQDO
3RUWIROLR0DQDJHPHQW SRUWIROLRPDQDJHUVZKRKDYHODUJHUHVHDUFKGDWDEDVHDQGDOVRDFFHVVWRWRSPDQ
DJHPHQWPD\DOVRKDYHDFFHVVWRVXFKSULYDWH0HUFKDQWEDQNLQJILUPVIRUH[
DPSOHPD\KDYHSULYDWHLQIRUPDWLRQRQDQHZFRPSDQ\WKDWKDVQRW\HWEHHQ
127(6 GLVFORVHGWRWKHSXEOLF
7RGLVSURYHVWURQJIRUP(0+RQHKDVWRILQGDQLQVLGHUZKRKDVSURILWHGIURP
LQVLGHLQIRUPDWLRQ
7KHVWURQJIRUPRI(0+LVRIWZRW\SHV
D 6XSHUVWURQJ  IRUP  ZKLFK  LQFOXGHV  LQVLGHUV  DQG  VSHFLDOLVWV  ZKR
SRVVHVVPRQRSROLVWLFLQIRUPDWLRQ
E 1HDUVWURQJIRUPZKLFKLQFOXGHVSULYDWHHVWLPDWHVGHYHORSHGE\ZKR
SRVVHVVLQIRUPDWLRQILQDQFLDODQDO\VWVSRUWIROLRPDQDJHUVHWF
,Q86$FRUSRUDWHPDQDJHUVRUVD\RQHZKRRZQVPRUHWKDQSHUFHQWRIDQ
LVVXHRIVHFXULWLHVDUHGHHPHGWREH³LQVLGHUV´XQGHUWKH6HFXULWLHVDQG([FKDQJH
$FWVRIDQG,QVLGHUVDUHUHTXLUHGWRUHSRUWWKHLUWUDQVDFWLRQVZLWKLQ
GD\VWRWKH6HFXULWLHVDQG([FKDQJH&RPPLVVLRQ6XFKLQVLGHUWUDGLQJLQIRUPDWLRQ
LVSXEOLVKHGLQWKH6(&V2IILFLDO6XPPDU\RI6HFXULWLHV7UDQVDFWLRQVDQG+ROGLQJV
1HDUO\PRQWKVHODSVHEHIRUHLQIRUPDWLRQRQLQVLGHUWUDQVDFWLRQVEHFRPHVSXEOLFO\
DYDLODEOH6HYHUDOVWXGLHVKDYHIRXQGWKDWLQVLGHUVDQGVSHFLDOLVWVLQ86$XVHVXFK
PRQRSROLVWLFLQIRUPDWLRQWRDGYDQWDJHDQGHDUQSRVLWLYHDEQRUPDOUHWXUQV+HQFH
WKHVXSHUVWURQJIRUPRI(0+ZDVE\DQGODUJHQRWYDOLG
8QGHUWKH,QVLGHUV7UDGLQJ5HJXODWLRQWKH6HFXULWLHVDQG([FKDQJH%RDUGRI
,QGLDGHILQHGDQLQVLGHUDV³DSHUVRQZKRLVRUZDVFRQQHFWHGZLWKWKHFRPSDQ\
RULVGHHPHGWRKDYHEHHQFRQQHFWHGZLWKWKHFRPSDQ\DQGZKRLVUHDVRQDEO\
H[SHFWHGWRKDYHDFFHVVE\YLUWXHRIVXFKFRQQHFWLRQWRXQSXEOLVKHGSULFHVHQ
VLWLYHLQIRUPDWLRQLQUHVSHFWRIVHFXULWLHVRIWKHFRPSDQ\RUZKRKDVUHFHLYHGRU
KDVKDGDFFHVVWRVXFKXQSXEOLVKHGSULFHVHQVLWLYHLQIRUPDWLRQ´+HQFHDQLQVLGHU
FRXOGEHWKHFRPSDQ\SURPRWHUGLUHFWRUH[HFXWLYHDXGLWRUDODZ\HUVWRFNEUR
NHUDIXQGPDQDJHURUHYHQDQHZVSDSHUFRUUHVSRQGHQWZKRPD\EHSULY\WR
DFHUWDLQFULWLFDOGHYHORSPHQWLQWKHFRPSDQ\ZKLFKFRXOGDIIHFWWKHFRPSDQ\¶V
VKDUHSULFHVEHIRUHWKHJHQHUDOSXEOLFFRPHWRNQRZRIWKHGHYHORSPHQW
7KHUHJXODWLRQKDVDOVRJLYHQDQLOOXVWUDWLYHOLVWRILQIRUPDWLRQWKDWPD\EHFRQVWUXHG
XSRQDVSULFHVHQVLWLYHLQIRUPDWLRQ,WLQFOXGHVILQDQFLDOUHVXOWVERWKKDOI\HDUO\DQG
DQQXDOGHFODUDWLRQRIGLYLGHQGVERWKKDOI\HDUO\DQGDQQXDOLVVXHRIVKDUHVE\
ZD\RISXEOLFULJKWVRUERQXVDQ\PDMRUH[SDQVLRQRUH[HFXWLRQRIQHZSURMHFWV
DPDOJDPDWLRQPHUJHUVDQGWDNHRYHUVWD[DWLRQFKDUJHVH[WUDRUGLQDU\HYHQWVOLNH
VWULNHVHWF
)XUWKHUWKHUHJXODWLRQVD\WKDWDSHUVRQJXLOW\RILQVLGHUWUDGLQJEDVHGRQUHSRUWV
VXEPLWWHGE\WKHLQVSHFWLRQRI6(%,LVOLDEOHWREHSXQLVKHGZLWKDFLYLFSHQDOW\QRW
H[FHHGLQJWKUHHWLPHVRIWKHSURILWJDLQHGRUORVVDYRLGHGDVDUHVXOWRIGHDOLQJ
6HOI,QVWUXFWLRQDO 0DWHULDO VXEMHFWWRDPLQLPXPRI5VRUSXQLVKDEOHZLWKULJRURXVLPSULVRQPHQWQRW
 H[FHHGLQJWZR\HDUVRUDILQHQRWH[FHHGLQJ5VODNKVRUERWKDVWKHFRXUWPD\
GHFLGH0RUHLQIRUPDWLRQRQWKHUHJXODWLRQFRXOGEHREWDLQHGIURPWKH6(%,ZHE &RQFHSWRI
5LVN 5HWXUQ
VLWHZZZVHELJRYLQ:LWKWKHLPSOHPHQWDWLRQRIWKHUHJXODWLRQWRFXUELQVLGHU
WUDGLQJLWLVKRSHGWKDWVWRFNPDUNHWZRXOGEHFRPHPRUHHIILFLHQWDQGGHYRLGRI
PDOSUDFWLFH 127(6
(YHQVWXGLHVLQ86$WKDWUHMHFWHGWKHVXSHUVWURQJIRUPRI(0+GLGQRWUHSRUW
H[FHHGLQJO\ODUJHUHWXUQV,QVLGHUVKDYHEHHQDEOHWRHDUQDEQRUPDOUHWXUQVRIWKH
RUGHURISHUFHQWRYHUDSHULRGRIPRQWKVEHIRUHWUDQVDFWLRQFRVWV%HWZHHQ
DQGWKHSHUIRUPDQFH,QGLDRIPRUHWKDQSHUFHQWRIDOOPXWXDOIXQGV
LQ86$ZDVZRUVHWKDQ6 3LQGH[
7KHIDFWWKDWPXWXDOIXQGVGLGQRWRXWSHUIRUPUDQGRPO\VHOHFWHGSRUWIROLRSUREDEO\
PHDQVWKDWPXWXDOIXQGPDQDJHUVFRPSHWHLQDQHIILFLHQWPDUNHWZLWKRWKHUSRUWIROLR
PDQDJHUVRIHTXDOSHWHQFH$VLPSOHWHVWIRU6WURQJ)RUPRI(IILFLHQF\LVEDVHG
XSRQSULFHFKDQJHVFORVHWRDQHYHQW$FWVRIQDWXUHPD\PRYHSULFHVEXWLISULYDWH
LQIRUPDWLRQUHOHDVHGRHVQRWWKHQZHNQRZWKDWWKHLQIRUPDWLRQLVDOUHDG\LQWKH
VWRFNSULFH)RUH[DPSOHFRQVLGHUDPHUJHUEHWZHHQWZRILUPV1RUPDOO\DPHUJHU
RUDQDFTXLVLWLRQLVNQRZQDERXWE\DQ³LQQHUFLUFOH´RIODZ\HUVLQYHVWPHQWEDQNHUV
DQGWKHILUPPDQDJHUVEHIRUHWKHSXEOLFUHOHDVHRIWKHLQIRUPDWLRQ:KHQWKHVH
LQVLGHUVYLRODWHWKHODZE\WUDGLQJRQWKLVSULYDWHLQIRUPDWLRQWKH\PD\PDNHPRQH\
7KH\DOVRPDNHLWWRWKH6(&¶VZDOORIVKDPH
8QIRUWXQDWHO\VWRFNSULFHVW\SLFDOO\PRYHXSEHIRUHDPHUJHULQGLFDWLQJWKDWVRPH
RQHLVDFWLQJGLVKRQHVWO\7KHHDUO\PRYHLQGLFDWHVWKDWWKHPDUNHWKDVDWHQGHQF\
WRZDUGVVWURQJIRUPRIHIILFLHQF\LHHYHQSULYDWHLQIRUPDWLRQLVLQFRUSRUDWHGLQWR
SULFHV+RZHYHUWKHSXEOLFDQQRXQFHPHQWRIDPHUJHULVW\SLFDOO\PHWZLWKDODUJH
SULFHUHVSRQVHVXJJHVWLQJWKDWWKHPDUNHWLWQRWVWURQJIRUPHIILFLHQW/HDNDJH
HYHQLILOOHJDOGRHVRFFXUEXWLWLVQRWIXOO\LPSRXQGHGLQVWRFNSULFH%\WKHZD\
XQWLOUHFHQWO\LQVLGHUWUDGLQJZDVOHJDOLQ6ZLW]HUODQG
7KHHIILFLHQWPDUNHWWKHRU\LVDILUVWDQGJRRGDSSUR[LPDWLRQIRUFKDUDFWHUL]LQJKRZ
SULFHLVDOLTXLGDQGIUHHPDUNHWUHDFWVWRWKHGLVFORVXUHRILQIRUPDWLRQ,QDZRUG
³4XLFNO\´,IWKH\GLGQRWWKHQWKHPDUNHWLVODFNLQJLQWKHRSSRUWXQLVPZHKDYH
FRPHWRH[SHFWIURPDQHFRQRP\ZLWKDUELWUDJHXUVFRQVWDQWO\FROOHFWLQJSURFHVVLQJ
DQGWUDGLQJXSRQLQIRUPDWLRQDERXWLQGLYLGXDOILUPV7KHIDFWWKDWLQIRUPDWLRQ
LVLPSRXQGHGTXLFNO\LQVWRFNSULFHVDQGWKDWWKHZLQGRZVRILQYHVWPHQWRSSRUWX
QLW\DUHIOHHWLQJLVRQHRIWKHEHVWDUJXPHQWVIRUNHHSLQJWKHPDUNHWVIUHHRI
H[FHVVLYHWUDGLQJFRVWVDQGIRUUHPRYLQJWKHSHQDOWLHVIRUKRQHVWVSHFXODWLRQ
6SHFXODWRUVNHHSPDUNHWSULFHVFORVHWRHFRQRPLFYDOXHVDQGWKLVLVJRRGQRWEDG
$1$02/,(6,1(0+
6HFXULWLHVPDUNHWVDUHIORRGHGZLWKWKRXVDQGVRILQWHOOLJHQWZHOOSDLGDQGZHOO
HGXFDWHGLQYHVWRUVVHHNLQJXQGHUDQGRYHUYDOXHGVHFXULWLHVWREX\DQGVHOO7KH
PRUHSDUWLFLSDQWVDQGWKHIDVWHUWKHGLVVHPLQDWLRQRILQIRUPDWLRQWKHPRUHHIILFLHQW
DPDUNHWVKRXOGEH7KHGHEDWHDERXWHIILFLHQWPDUNHWVKDVUHVXOWHGLQKXQGUHGV
DQGWKRXVDQGVRIHPSLULFDOVWXGLHVDWWHPSWLQJWRGHWHUPLQHZKHWKHUVSHFLILFPDU
NHWVDUHLQIDFW³HIILFLHQW´DQGLIVRWRZKDWGHJUHH0DQ\QRYLFHLQYHVWRUVDUH 6HOI,QVWUXFWLRQDO 0DWHULDO
VXUSULVHGWROHDUQWKDWDWUHPHQGRXVDPRXQWRIHYLGHQFHVXSSRUWVWKHHIILFLHQW 
6HFXULW\$QDO\VLV PDUNHWK\SRWKHVLV(DUO\WHVWVRIWKH(0+IRFXVHGRQWHFKQLFDODQDO\VLVDQGLWLV
3RUWIROLR0DQDJHPHQW FKDUWLVWVZKRVHYHU\H[LVWHQFHVHHPVPRVWFKDOOHQJHGE\WKH(0+$QGLQIDFW
WKHYDVWPDMRULW\RIVWXGLHVRIWHFKQLFDOWKHRULHVKDYHIRXQGWKHVWUDWHJLHVWREH
FRPSOHWHO\XVHOHVVLQSUHGLFWLQJVHFXULWLHVSULFHV+RZHYHUUHVHDUFKHUVKDYHGRFX
127(6 PHQWHGVRPHWHFKQLFDODQRPDOLHVWKDWPD\RIIHUVRPHKRSHIRUWHFKQLFLDQVDO
WKRXJKWUDQVDFWLRQFRVWVPD\UHGXFHRUHOLPLQDWHWKHDGYDQWDJH
D7HFKQLFDO$QRPDOLHV
$TXHVWLRQWKDWKDVEHHQVXEMHFWWRH[WHQVLYHUHVHDUFKDQGGHEDWHLVZKHWKHUSDVW
SULFHVDQGFKDUWVFDQEHXVHGWRSUHGLFWIXWXUHSULFHV³7HFKQLFDO$QDO\VLV´LVD
JHQHUDOWHUPIRUDQXPEHURILQYHVWLQJWHFKQLTXHVWKDWDWWHPSWWRIRUHFDVWVHFXULWLHV
SULFHVE\VWXG\LQJSDVWSULFHVDQGUHODWHGVWDWLVWLFV&RPPRQWHFKQLTXHVLQFOXGH
VWUDWHJLHVEDVHGRQUHODWLYHVWUHQJWKPRYLQJDYHUDJHVDVZHOODVVXSSRUWDQG
UHVLVWDQFH7KHPDMRULW\RIUHVHDUFKHUVWKDWKDYHWHVWHGWHFKQLFDOWUDGLQJV\VWHPV
DQGWKHZHDNIRUPHIILFLHQWPDUNHWK\SRWKHVLVKDYHIRXQGWKDWSULFHVDGMXVWUDS
LGO\WRVWRFNPDUNHWLQIRUPDWLRQDQGWKDWWHFKQLFDODQDO\VLVWHFKQLTXHVDUHQRWOLNHO\
WRSURYLGHDQ\DGYDQWDJHWRLQYHVWRUVZKRXVHWKHP+RZHYHURWKHUVDUJXHWKDW
WKHUHLVYDOLGLW\WRVRPHWHFKQLFDOVWUDWHJLHV,QSDUWLFXODUDQH[FHUSWIURPWKHVL[WK
HGLWLRQRI0DONLHO¶VERRNJRHVOLNHWKLV³7KHFHQWUDOSURSRVLWLRQRIFKDUWLQJLV
DEVROXWHO\IDOVHDQGLQYHVWRUVZKRIROORZLWVSUHFHSWVZLOODFFRPSOLVKQRWKLQJEXW
LQFUHDVLQJVXEVWDQWLDOO\WKHEURNHUDJHFKDUJHVWKH\SD\7KHUHKDVEHHQDUHPDUN
DEOHXQLIRUPLW\LQWKHFRQFOXVLRQVRIVWXGLHVGRQHRQDOOIRUPVRIWHFKQLFDODQDO\VLV
1RWRQHKDVFRQVLVWHQWO\RXWSHUIRUPHGWKHSODFHERRIDEX\DQGKROGVWUDWHJ\´
%DOODQG%URZQDQDO\]HGDQQXDOHDUQLQJV-R\/LW]HQEHUJHUDQG0F(QDOO\WHVWHGWKH
LPSDFWRITXDUWHUO\HDUQLQJVDQQRXQFHPHQWRQVWRFNSULFHV7KH\IRXQGWKDWIDYRU
DEOHLQIRUPDWLRQSXEOLVKHGLQTXDUWHUO\UHSRUWVLVQRWLQVWDQWDQHRXVO\UHIOHFWHGLQ
VWRFN SULFHV 5HVHDUFKHUV KDYH DOVR XQFRYHUHG QXPHURXV RWKHU VWRFN PDUNHW
DQRPDOLHVWKDWVHHPWRFRQWUDGLFWWKH(0+7KHVHDUFKIRUDQRPDOLHVLVHIIHFWLYHO\
WKHVHDUFKIRUV\VWHPVRUSDWWHUQVWKDWFDQEHXVHGWRRXWSHUIRUPSDVVLYHDQGRU
EX\DQGKROGVWUDWHJLHV7KHRUHWLFDOO\WKRXJKRQFHDQDQRPDO\LVGLVFRYHUHG
LQYHVWRUVDWWHPSWLQJWRSURILWE\H[SORLWLQJWKHLQHIILFLHQF\VKRXOGUHVXOWLWVGLVDS
SHDUDQFH,QIDFWQXPHURXVDQRPDOLHVWKDWKDYHEHHQGRFXPHQWHGYLDEDFNWHVWLQJ
KDYHVXEVHTXHQWO\GLVDSSHDUHGRUSURYHQWREHLPSRVVLEOHWRH[SORLWEHFDXVHRI
WUDQVDFWLRQVFRVWV
E6WRFN0DUNHW$QRPDOLHV
7KHVWRFNPDUNHWUHODWHGDQRPDOLHVLQFOXGH
L)XQGDPHQWDODQRPDOLHV9DOXHLQYHVWLQJLVSUREDEO\WKHPRVWSXEOLFL]HGDQRPDO\
RIWKHIXQGDPHQWDODQRPDOLHVDQGLVIUHTXHQWO\WRXWHGDVWKHEHVWVWUDWHJ\IRU
LQYHVWLQJ7KHUHLVDODUJHERG\RIHYLGHQFHGRFXPHQWLQJWKHIDFWWKDWKLVWRULFDOO\
LQYHVWRUVPLVWDNHQO\RYHUHVWLPDWHWKHSURVSHFWVRIJURZWKFRPSDQLHVDQGXQGHU
HVWLPDWHYDOXHFRPSDQLHV6%DVXLQDZHOOUHVHDUFKHGDUWLFOHWHVWHGIRUWKHLQIRU
PDWLRQDOFRQWHQWRIWKHSULFHHDUQLQJVPXOWLSOH+LVVWXG\LQTXLUHGLQWRZKHWKHUORZ
SULFHHDUQLQJVPXOWLSOHWHQGHGWRRXWSHUIRUPVWRFNVZLWKKLJK3(UDWLRV+LVVWXG\
6HOI,QVWUXFWLRQDO 0DWHULDO LQGLFDWHVWKDWORZ3(SRUWIROLRH[SHULHQFHGVXSHULRUUHWXUQVUHODWLYHWRWKHPDUNHW

2YHUGLIIHUHQWVWXGLHVRIPDUNHWUHDFWLRQWRHDUQLQJVDQQRXQFHPHQWVUHSRUWHG &RQFHSWRI
SRVWDQQRXQFHPHQWH[FHVVUHWXUQV 5LVN 5HWXUQ

LL&DOHQGDU$QRPDOLHV7KHVHLQFOXGHVDQRPDOLHVOLNHWKH-DQXDU\HIIHFWWXUQRI
WKHPRQWKHIIHFWWKH0RQGD\HIIHFWDQG<HDUHQGLQJLQHIIHFW 127(6
-DQXDU\(IIHFW$FFRUGLQJWR5REHUW+DXJHQDQG3KLOLSSH-RULRQ³7KH-DQXDU\
HIIHFWLVSHUKDSVWKHEHVWNQRZQH[DPSOHRIDQRPDORXVEHKDYLRXULQVHFXULW\PDUNHWV
WKURXJKRXWWKHZRUOG´7KH-DQXDU\(IIHFWLVSDUWLFXODUO\LQWULJXLQJEHFDXVHLWGRHVQ¶W
DSSHDUWREHGLPLQLVKLQJGHVSLWHEHLQJZHOONQRZQDQGSXEOLFL]HGIRUQHDUO\WZR
GHFDGHV7KHRUHWLFDOO\DQDQRPDO\VKRXOGGLVDSSHDUDVWUDGHUVDWWHPSWWRWDNH
DGYDQWDJHRILWLQDGYDQFH7KHERWWRPOLQHLVWKDW-DQXDU\KDVKLVWRULFDOO\EHHQWKH
EHVWPRQWKWREHLQYHVWHGLQVWRFNV
7KHHIIHFWLVXVXDOO\DWWULEXWHGWRVPDOOVWRFNVUHERXQGLQJIROORZLQJ\HDUHQGWD[
VHOOLQJ,QGLYLGXDOVWRFNVGHSUHVVHGQHDU\HDUHQGDUHPRUHOLNHO\WREHVROGIRUWD[
ORVVUHFRJQLWLRQZKLOHVWRFNVWKDWKDYHUXQXSDUHRIWHQKHOGXQWLODIWHUWKHQHZ\HDU
0DQ\EHOLHYHWKH-DQXDU\HIIHFWKDVPRYHGLQWR1RYHPEHUDQG'HFHPEHUDVD
UHVXOWRIPXWXDOIXQGVEHLQJUHTXLUHGWRUHSRUWKROGLQJVDWWKHHQGRI2FWREHUDQG
IURPLQYHVWRUVEX\LQJLQDQWLFLSDWLRQRIJDLQVLQ-DQXDU\6RPHVWXGLHVRIIRUHLJQ
FRXQWULHVKDYHIRXQGWKDWUHWXUQVLQ-DQXDU\ZHUHJUHDWHUWKDQWKHDYHUDJHUHWXUQIRU
WKHZKROH\HDU,QWHUHVWLQJO\WKH-DQXDU\HIIHFWKDVDOVREHHQREVHUYHGLQPDQ\
IRUHLJQFRXQWULHVLQFOXGLQJVRPH*UHDW%ULWDLQDQG$XVWUDOLDWKDWGRQ¶WXVH'HFHP
EHUDVWKHWD[\HDUHQG7KLVLPSOLHVWKDWWKHUHLVPRUHWRWKH-DQXDU\HIIHFWWKDQ
MXVWWD[HIIHFWV
(PSLULFDOVWXG\KDVDOVRHVWDEOLVKHGWKDWRYHURQHKDOIRIWKHVPDOOILUPHIIHFWRFFXUV
LQ-DQXDU\DQGPRVWRIWKHDEQRUPDOUHWXUQDVVRFLDWHGZLWK-DQXDU\WDNHVSODFH
GXULQJWKHILUVWGD\VRIWUDGLQJ7XUQRIWKH0RQWK(IIHFW6WRFNVFRQVLVWHQWO\
VKRZKLJKHUUHWXUQVRQWKHODVWGD\DQGILUVWIRXUGD\VRIWKHPRQWK&KULV5+HQVHO
DQG:LOOLDP7=LHPEDSUHVHQWHGWKHWKHRU\WKDWWKHHIIHFWUHVXOWVIURPFDVKIORZV
DWWKHHQGRIWKHPRQWKVDODULHVLQWHUHVWSD\PHQWVHWF7KHDXWKRUVIRXQGUHWXUQV
IRUWKHWXUQRIWKHPRQWKZHUHVLJQLILFDQWO\DERYHDYHUDJHIURPWKURXJK
DQG³WKDWWKHWRWDOUHWXUQIURPWKH6 3RYHUWKLVVL[W\ILYH\HDUSHULRGZDV
UHFHLYHGPRVWO\GXULQJWKHWXUQRIWKHPRQWK´7KHVWXG\LPSOLHVWKDWLQYHVWRUV
PDNLQJUHJXODUSXUFKDVHVPD\EHQHILWE\VFKHGXOLQJWRPDNHWKRVHSXUFKDVHVSULRU
WRWKHWXUQRIWKHPRQWK
7KH0RQGD\(IIHFW0RQGD\WHQGVWREHWKHZRUVWGD\WREHLQYHVWHGLQVWRFNV
7KHILUVWVWXG\GRFXPHQWLQJDZHHNHQGHIIHFWZDVE\0-)LHOGVLQLQWKH
-RXUQDORI%XVLQHVVDWDWLPHZKHQVWRFNVWUDGHGRQ6DWXUGD\V)LHOGVKDGDOVR
IRXQGLQDVWXG\WKDWWKH'-,$FRPPRQO\DGYDQFHGWKHGD\EHIRUHKROLGD\V
6HYHUDOVWXGLHVKDYHVKRZQWKDWUHWXUQVRQ0RQGD\DUHZRUVHWKDQRWKHUGD\VRI
WKHZHHN,QWHUHVWLQJO\/DZUHQFH+DUULVKDVVWXGLHGLQWUDGD\WUDGLQJDQGIRXQGWKDW
WKHZHHNHQGHIIHFWWHQGVWRRFFXULQWKHILUVWPLQXWHVRIWUDGLQJDVSULFHVIDOOEXW
RQDOORWKHUGD\VSULFHVULVHGXULQJWKHILUVWPLQXWHV7KLVDQRPDO\SUHVHQWVWKH
LQWHUHVWLQJTXHVWLRQ&RXOGWKHHIIHFWEHFDXVHGE\WKHPRRGVRIPDUNHWSDUWLFL
SDQWV"3HRSOHDUHJHQHUDOO\LQEHWWHUPRRGVRQ)ULGD\VDQGEHIRUHKROLGD\VEXWDUH 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV JHQHUDOO\JUXPS\RQ0RQGD\VLQIDFWVXLFLGHVDUHPRUHFRPPRQRQ0RQGD\WKDQ
3RUWIROLR0DQDJHPHQW RQDQ\RWKHUGD\,QYHVWRUVVKRXOGKRZHYHUNHHSLQPLQGWKDWWKHGLIIHUHQFHLV
VPDOODQGYLUWXDOO\LPSRVVLEOHWRWDNHDGYDQWDJHRIEHFDXVHRIWUDGLQJFRVWV<HDU
HQGLQJLQ,QLWVH[LVWHQFHWKH'-,$KDVQHYHUKDGDGRZQ\HDULQDQ\\HDUHQGLQJ
127(6 LQ2IFRXUVHWKLVPD\EHSXUHO\FRLQFLGHQWDO8QIRUWXQDWHO\ZHKDYHWRZDLWWLOO
WRVHHLIWKHVWUHDNZLOOFRQWLQXH
F2WKHU$QRPDOLHV
7KH6L]H(IIHFW6RPHVWXGLHVKDYHVKRZQWKDWVPDOOILUPVFDSLWDOL]DWLRQRUDVVHWV
WHQGWRRXWSHUIRUP7KHVPDOOVWRFNDIIHFWZDVILUVWGRFXPHQWHGE\5ROI:%DQ]
+HGLYLGHGWKHVWRFNVRQWKH1<6(LQWRTXLQWLOHVEDVHGRQPDUNHWFDSLWDOL]DWLRQ
7KHUHWXUQVIURPWRIRUWKHVPDOOHVWTXLQWLOHRXWSHUIRUPHGWKHRWKHU
TXLQWLOHVDQGRWKHULQGH[HV2WKHUVKDYHDUJXHGWKDWLWLVµQRWVL]HWKDWPDWWHUVLWLV
WKHDWWHQWLRQDQGWKHQXPEHURIDQDO\VWVWKDWIROORZWKHVWRFN
$QQRXQFHPHQW%DVHG(IIHFWV3ULFHFKDQJHVWHQGWRSHUVLVWDIWHULQLWLDODQQRXQFH
PHQWV6WRFNVZLWKSRVLWLYHVXUSULVHVWHQGWRGULIWXSZDUGWKRVHZLWKQHJDWLYH
VXUSULVHVWHQGWRGULIWGRZQZDUG6RPHUHIHUWRWKHOLNHOLKRRGRISRVLWLYHHDUQLQJV
VXUSULVHV  WR  EH  IROORZHG  E\  VHYHUDO  PRUH  HDUQLQJV  VXUSULVHV  DV  WKH
³FRFNURDFK´WKHRU\EHFDXVHZKHQ\RXILQGRQHWKHUHDUHOLNHO\WREHPRUHLQ
KLGLQJ5REHUW+DXJHQLQKLVERRN7KH1HZ)LQDQFH7KH&DVH$JDLQVW(IILFLHQW
0DUNHWVDUJXHGWKDWWKHHYLGHQFHLPSOLHVLQYHVWRUVLQLWLDOO\XQGHUHVWLPDWHILUPVVKRZLQJ
VWURQJSHUIRUPDQFHDQGWKHQRYHUUHDFW+DXJHQFRQFOXGHGWKDW³7KHPDUNHW
RYHUUHDFWVZLWKDODJ´DQGWKDW³ZHDSSDUHQWO\KDYHDPDUNHWWKDWLVVORZWR
RYHUUHDFW´
,32V6HDVRQHG(TXLW\2IIHULQJVDQG6WRFN%X\EDFNV1XPHURXVVWXGLHVKDYH
FRQFOXGHGWKDW,QLWLDO3XEOLF2IIHULQJV,32VLQDJJUHJDWHXQGHUSHUIRUPWKHPDUNHW
DQGWKHUHLVDOVRHYLGHQFHWKDWVHFRQGDU\RIIHULQJVDOVRXQGHUSHUIRUP6HYHUDO
UHFHQWVWXGLHVKDYHDOVRGRFXPHQWHGDUJXDEO\UHODWHGPDUNHWLQHIILFLHQFLHV%DOD
'KDUDQDQG'DYLG,NHQEHUU\IRXQGWKDWILUPVOLVWLQJWKHLUVWRFNRQWKH1<6(DQG
$0(;IRUWKHILUVWWLPHVXEVHTXHQWO\XQGHUSHUIRUP7LP/RXJKUDQDQG$QDQG0
9LMKUHFHQWO\IRXQGWKDWDFTXLULQJILUPVWKDWFRPSOHWHVWRFNPHUJHUVXQGHUSHUIRUP
ZKLOHILUPVWKDWFRPSOHWHFDVKWHQGHURIIHUVRXWSHUIRUP7KHVWXG\LPSOLHVWKDW
DFTXLUHUVZKRXVHWKHLUVWRFNWRHIIHFWWUDQVDFWLRQVPD\EHOLHYHWKHVWRFNLVRYHU
YDOXHG
6WRFNUHSXUFKDVHVRQWKHRWKHUKDQGFDQEHYLHZHGDVWKHRSSRVLWHRIVWRFN
LVVXHVDQGVWXGLHVKDYHVKRZQWKDWILUPVDQQRXQFLQJVWRFNUHSXUFKDVHVRXWSHUIRUP
LQWKHIROORZLQJ\HDUV'DYLGHWDO7KLVHYLGHQFHVHHPVWRFRQILUPWKHWKHRU\
WKDWPDQDJHUVWHQGWRKDYHLQVLGHLQIRUPDWLRQUHJDUGLQJWKHYDOXHRIWKHLUFRPSDQ\¶V
VWRFNDQGWKHLUGHFLVLRQVZKHWKHUWRLVVXHRUEX\EDFNWKHLUVWRFNPD\VLJQDORYHU
RUXQGHUYDOXDWLRQ7KHLPSOLFDWLRQRIWKHVHVWXGLHVVHHPVWREHWKDWLQYHVWRUVPD\
GREHWWHUEX\LQJVWRFNVRIILUPVWKDWDUHUHSXUFKDVLQJWKHLURZQVWRFNUDWKHUWKDQ
IURPILUPVWKDWDUHVHOOLQJRULVVXLQJPRUHRIWKHLURZQVWRFN,QVLGHUWUDQVDFWLRQV
7KHUHKDYHEHHQPDQ\VWXGLHVWKDWKDYHGRFXPHQWHGDUHODWLRQVKLSEHWZHHQWUDQV
6HOI,QVWUXFWLRQDO 0DWHULDO DFWLRQVE\H[HFXWLYHVDQGGLUHFWRUVLQWKHLUILUP¶VVWRFNDQGWKHVWRFN¶VSHUIRU
 PDQFH,QVLGHUEX\LQJE\PRUHWKDQRQHLQVLGHULVFRQVLGHUHGE\PDQ\WREHDVLJQDO
WKDWWKHLQVLGHUVEHOLHYHWKHVWRFNLVVLJQLILFDQWO\XQGHUYDOXHGDQGWKHLUEHOLHIWKDWWKH &RQFHSWRI
VWRFNZLOORXWSHUIRUPDFFRUGLQJO\LQWKHIXWXUH+RZHYHUPDQ\UHVHDUFKHUVTXHVWLRQ 5LVN 5HWXUQ
ZKHWKHUWKHJDLQVDUHVLJQLILFDQWDQGZKHWKHUWKH\ZLOORFFXULQWKHIXWXUH
7KH6 3*DPH³7KH6 3*DPH´LQYROYHVEX\LQJVWRFNVWKDWZLOOEHDGGHGWRWKH 127(6
6 3LQGH[DIWHUWKHDQQRXQFHPHQWEXWEHIRUHWKHVWRFNLVDGGHGVHYHUDOGD\V
ODWHU7KHIDFWWKDWVWRFNVULVHLPPHGLDWHO\DIWHUEHLQJDGGHGWR6 3ZDV
RULJLQDOO\GRFXPHQWHGE\$QGUHL6KOHLIHUDVZHOODV/DZUHQFH+DUULVDQG(LWDQ
*XUHOLQ$OVRVHH0HVVRG'%HQHLVKDQG5REHUW(:KDOH\2SSRUWXQLWLHV
PD\DOVRH[LVWZLWKRWKHULQGH[HV
&$6(678'<
7KHULVNUHWXUQWUDGHRII
7KHQH[WLPSRUWDQWWDNHDZD\LQOHDUQLQJKRZWRLQYHVWLVXQGHUVWDQGLQJULVNUHWXUQ
DQDO\VLVRUWUDGHRIIV(YHU\LQYHVWRUZRXOGZDQWWKHKLJKHVWSRVVLEOHUHWXUQIRUWKH
OHYHORIULVNXQFHUWDLQLW\WKDWKHLVZLOOLQJWRDFFHSW,QDFRPSHWLWLYHPDUNHWSODFH
WKLVUHVXOWVLQDWUDGHRII/RZULVNLQYHVWPHQWVQDWXUDOO\DUHDVVRFLDWHGZLWKORZ
SRWHQWLDOUHWXUQVDQGKLJKULVNLQYHVWPHQWVZLWKKLJKSRWHQWLDOUHWXUQV
,IZHORRNDWORQJWHUPUHWXUQVVWRFNVLQ,QGLDKDYHKLVWRULFDOO\SURGXFHGUHWXUQV
WKDWDYHUDJHDQQXDOO\ZKLOHERQGVKDYHDYHUDJHGDQQXDOO\7KLVUHIOHFWV
WKHULVNUHWXUQWUDGHRII
,WVLPSRUWDQWWRUHPHPEHUWKDWWKLVLVRQDQDYHUDJHIRUWKHDVVHWFODVV6SHFLILF
LQYHVWPHQWRSWLRQVPD\SURGXFHIDUKLJKHURUORZHUUHWXUQV)RUH[DPSOHDQLQYHVW
PHQWLQ,7&IRUWKHODVW\HDUVKDVSURYLGHGUHWXUQVLQH[FHVVRIDQQXDOO\
,W
VXVHIXOWRUHPHPEHUWKDWWKHULVNLVLQWKHXQFHUWDLQLW\,I\RXFDQHYDOXDWHDVWRFN
LQYHVWPHQWDQGZHLJKWKHSRWHQWLDOUHWXUQVZLWKWKHXQFHUWDLQLWLHVRUUHODWLYHODFNRI
XQFHUWDLQLW\YLVDYLVDQRWKHUVWRFNLQYHVWPHQW\RXVWDQGWRJDLQWUHPHQGRXVO\
IURPWKHVHWUDGHRIIVWRR
7KHUH
VDQRWKHUXVHIXOVHUYLFHWKHVHULVNUHWXUQWUDGHRIIVVHUYH7KH\IODJRIIKLJKO\
ULVN\LQYHVWPHQWV$Q\VFKHPHDGYHUWLVLQJKLJKSRWHQWLDOUHWXUQVXVXDOO\IODJVKLJK
ULVNHYHQWKRXJKWKHULVNVPD\QRWEHDSSDUHQWDWILUVWJODQFH)RUH[DPSOHTXLWH
RIWHQZHVHH&RUSRUDWH%RQGVRIIHULQJIDUKLJKHU\LHOGVWKDQXVXDOXVXDOO\IURP
XQNQRZQFRPSDQLHVGRQ
WZHQRZWKDW\RXNQRZKRZWRLQYHVWEDVLFVDQGWKH
ULVNUHWXUQWUDGHRIIV,DPVXUH\RXZLOOWUHDWWKHVHZLWKFDXWLRQDQGDKHDOWK\GRVH
RIVNHSWLFLVP
6800$5<
5HWXUQH[SUHVVHVWKHDPRXQWZKLFKDQLQYHVWRUDFWXDOO\HDUQHGRQDQLQYHVWPHQW
GXULQJDFHUWDLQSHULRG5HWXUQLQFOXGHVWKHLQWHUHVWGLYLGHQGDQGFDSLWDOJDLQVZKLOH
ULVNUHSUHVHQWVWKHXQFHUWDLQW\DVVRFLDWHGZLWKDSDUWLFXODUWDVN,QILQDQFLDOWHUPV
ULVNLVWKHFKDQFHRUSUREDELOLW\WKDWDFHUWDLQLQYHVWPHQWPD\RUPD\QRWGHOLYHU
WKHDFWXDOH[SHFWHGUHWXUQV
7KHULVNDQGUHWXUQWUDGHRIIVD\VWKDWWKHSRWHQWLDOUHWXUQULVHVZLWKDQLQFUHDVHLQ
ULVN,WLVLPSRUWDQWIRUDQLQYHVWRUWRGHFLGHRQDEDODQFHEHWZHHQWKHGHVLUHIRUWKH
ORZHVWSRVVLEOHULVNDQGKLJKHVWSRVVLEOHUHWXUQ 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 5LVN$QDO\VLV
3RUWIROLR0DQDJHPHQW
5LVNLQLQYHVWPHQWH[LVWVEHFDXVHRIWKHLQDELOLW\WRPDNHSHUIHFWRUDFFXUDWHIRUH
FDVWV5LVNLQLQYHVWPHQWLVGHILQHGDVWKHYDULDELOLW\WKDWLVOLNHO\WRRFFXULQ
IXWXUHFDVKIORZVIURPDQLQYHVWPHQW7KHJUHDWHUYDULDELOLW\RIWKHVHFDVKIORZV
127(6 LQGLFDWHVJUHDWHUULVN
9DULDQFHRUVWDQGDUGGHYLDWLRQPHDVXUHVWKHGHYLDWLRQDERXWH[SHFWHGFDVKIORZVRI
HDFKRIWKHSRVVLEOHFDVKIORZVDQGLVNQRZQDVWKHDEVROXWHPHDVXUHRIULVNZKLOH
FRHIILFLHQWRIYDULDWLRQLVDUHODWLYHPHDVXUHRIULVN
)RUFDUU\LQJRXWULVNDQDO\VLVIROORZLQJPHWKRGVDUHXVHG
z 3D\EDFN>+RZORQJZLOOLWWDNHWRUHFRYHUWKHLQYHVWPHQW@
z &HUWDLQW\HTXLYDOHQW>7KHDPRXQWWKDWZLOOFHUWDLQO\FRPHWR\RX@
z 5LVNDGMXVWHGGLVFRXQWUDWH>3UHVHQWYDOXHLH39RIIXWXUHLQIORZVZLWK
GLVFRXQWUDWH@
+RZHYHULQSUDFWLFHVHQVLWLYLW\DQDO\VLVDQGFRQVHUYDWLYHIRUHFDVWWHFKQLTXHVEHLQJ
VLPSOHUDQGHDVLHUWRKDQGOHDUHXVHGIRUULVNDQDO\VLV6HQVLWLYLW\DQDO\VLV>DYDULD
WLRQRIEUHDNHYHQDQDO\VLV@DOORZVHVWLPDWLQJWKHLPSDFWRIFKDQJHLQWKHEHKDYLRU
RIFULWLFDOYDULDEOHVRQWKHLQYHVWPHQWFDVKIORZV&RQVHUYDWLYHIRUHFDVWVLQFOXGH
XVLQJVKRUWSD\EDFNRUKLJKHUGLVFRXQWUDWHVIRUGLVFRXQWLQJFDVKIORZV
$16:(5672&+(&.<285352*5(66
 5HWXUQH[SUHVVHVWKHDPRXQWZKLFKDQLQYHVWRUDFWXDOO\HDUQHGRQDQLQYHVW
PHQWGXULQJDFHUWDLQSHULRG
 %HWDLVDPHDVXUHRIDVWRFN¶VYRODWLOLW\LQUHODWLRQWRWKHPDUNHW
 7KHULVNUHWXUQWUDGHRIILVWKHEDODQFHDQLQYHVWRUPXVWGHFLGHRQEHWZHHQ
WKHGHVLUHVIRUWKHORZHVWSRVVLEOHULVNIRUWKHKLJKHVWSRVVLEOHUHWXUQV
7(67<2856(/)
 ([SODLQWKHFRQFHSWRIULVN UHWXUQ$OVRH[SODLQWKHYDULRXVW\SHVRI
UHWXUQ
 'HVFULEHYDULRXVW\SHVRIULVNVLQEULHI
 'HVFULEH0DUNHW(IILFLHQF\
 ([SODLQ
D :HDNIRUPRI(IILFLHQF\
E 6WURQJIRUPRI(IILFLHQF\
F 6HPL6WURQJIRUPRIHIILFLHQF\
 'HVFULEHYDULRXVW\SHVRI$QRPDOLHVLQWKH(0+

)857+(55($',1*

6HOI,QVWUXFWLRQDO 0DWHULDO
z 5LVN DQDO\VLV E\ *XSWD
 z 5LVN 5HWXUQ 7UDGH RII E\ $JDUZDO
 6WRFN0DUNHW$QDO\VLV

127(6

6WRFN0DUNHW$QDO\VLV

„
„
„
„
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV   ,QWURGXFWLRQ
3RUWIROLR0DQDJHPHQW
:HKDYHDOUHDG\JRQHWKURXJKWKHEDVLFVRI6HFXULW\DQDO\VLVLQXQLW1RZZHZLOO
GLVFXVVPRUHDERXWWKLVVXEMHFW+HUHZHZLOOOHDUQDSSURDFKHVRIDQDO\VLV
127(6  )XQGDPHQWDO$SSURDFK)XQGDPHQWDO$QDO\VLV
 7HFKQLFDO$SSURDFK7HFKQLFDO$QDO\VLV
Ϯ͘Ϯ  &ƵŶĚĂŵĞŶƚĂů ƉƉƌŽĂĐŚ
7KHILUVWPDMRUDQDO\VLVIRUDQLQYHVWPHQWLVWKHIXQGDPHQWDODQDO\VLV$IXQGDPHQWDO
DQDO\VLVGHSHQGVXSRQDFDUHIXODVVHVVPHQWRIWKHIXQGDPHQWDOVRIDQHFRQRP\
LQGXVWU\ WKHFRPSDQ\,WVWDUWVZLWKWKHDQDO\VLVRIJHQHUDOHFRQRPLFVLWXDWLRQRI
WKHLQGXVWU\ JRHVILQDOO\LQGHSWKDQDO\VLVRIILQDQFLDO QRQILQDQFLDORIWKH
FRPSDQ\RIFKRLFH7KHILQDQFLDODQDO\VLVLVDLPHGDWDQDO\]LQJWKHYDULRXVIXQGD
PHQWDOVRUEDVLFIDFWRUVWKDWDIIHFWWKHULVNUHWXUQRIWKHVHFXULWLHV,QWKLVDQDO\VLV
VHFXULWLHVRIGLIIHUHQWVHFWRUVRIWKHHFRQRPLHVWKDWDSSHDUWRRIIHUSURILWDEOHRS
SRUWXQLWLHVDUHVHOHFWHG,WLVYHU\LPSRUWDQWWRSUHGLFWWKHFRXUVHRIQDWLRQDOHFRQRP\
EHFDXVHHFRQRPLFDFWLYLW\VXEVWDQWLDOO\DIIHFWVFRUSRUDWHSURILWVLQYHVWRU¶VDWWLWXGHV
H[SHFWDWLRQV XOWLPDWHO\VHFXULW\SULFHV$QRXWORRNRIGRZQZDUGHFRQRPLFJURZWK
FDQOHDGWRORZHUFRUSRUDWHSURILWVLQYHVWRU¶VSHVVLPLVP ORZHUVHFXULW\SULFHV
6RPHLQGXVWULHVPLJKWEHH[SHFWHGWRSHUIRUPEHWWHU WKHLUVWRFNSULFHVPD\QRW
GHFOLQHDVPXFKDVVHFXULWLHVLQJHQHUDO7KHDQDO\VWVKRXOGQRWHWKDWRYHUDOOHFR
QRPLFDFWLYLW\PDQLIHVWVLWVHOILQWKHEHKDYLRURIVWRFNVLQJHQHUDORUWKHVWRFN
PDUNHWLQSDUWLFXODU
,IWKHHFRQRP\LVERRPLQJLQFRPHVDUHULVLQJ WKHGHPDQGZLOOUDLVHWKHQWKH
LQGXVWULHV FRPSDQLHVLQJHQHUDOPD\SURVSHU7KHIROORZLQJIDFWRUVDUHFRQVLG
HUHGWREHHVVHQWLDOIRUWKHEHWWHUSHUIRUPDQFHRIWKHFRUSRUDWHVHFWRU
 7KHEHKDYLRURIWKHPRQVRRQ
 7KHSHUIRUPDQFHRIDJULFXOWXUHVHFWRU
 7KHHFRQRPLFV\VWHPRIWKHFRXQWU\
 0RQHWDU\SROLF\RIWKHJRYHUQPHQW
 7UHQGVLQWKHPRQH\VXSSO\
 7KHEXVLQHVVF\FOHV
 7KHHFRQRPLF SROLWLFDOVWDELOLW\
7KHWRWDODQDO\VLVRIWKHLQYHVWPHQWHQYLURQPHQWFDQEHJURXSHGLQWRWKHIROORZLQJ
WKUHHW\SHV
D (FRQRPLF$QDO\VLV
E ,QGXVWU\$QDO\VLV
F &RPSDQ\$QDO\VLV

6HOI,QVWUXFWLRQDO 0DWHULDO

 (FRQRPLF $QDO\VLV 6WRFN0DUNHW$QDO\VLV

(FRQRPLF$QDO\VLVLVLPSRUWDQWEHFDXVHVWRFNSULFHKDYHDVWURQJSRVLWLYHUHODWLRQ
VKLSZLWKRYHUDOOHFRQRPLFSHUIRUPDQFH,QYHVWRUVDUHFRQFHUQHGZLWKWKRVHIRUFHV
LQWKHHFRQRP\ZKLFKDIIHFWWKHSHUIRUPDQFHRIWKHFRPSDQLHVZKRVHVWRFNVWKH\ 127(6
ZLVKWRSXUFKDVH,WLVLPSRUWDQWWRSUHGLFWWKHFRXUVHRIWKHQDWLRQDOHFRQRP\
EHFDXVHHFRQRPLFDFWLYLW\DIIHFWVFRUSRUDWHSURILWVLQYHVWRU¶VH[SHFWDWLRQV VH
FXULW\SULFHV
6WRFNSULFHV HFRQRPLFDFWLYLWLHVDUHFORVHO\UHODWHG(FRQRPLFH[SDQVLRQFDQEH
JHQHUDOO\VHHQZLWKULVLQJVWRFNSULFHV YLVDYHUVD+RZHYHULWLVQRWQHFHVVDU\WKDW
ERWKWKHVHDFWLYLWLHVRFFXUDWWKHVDPHWLPH,WKDVRIWHQREVHUYHGWKDWWKHUHLV
GHFOLQHLQWKHSULFHVRIVWRFNHYHQGXULQJWKHH[SDQVLRQRIHFRQRP\7KLVLVEHFDXVH
WKHYDULDEOHVWKDWGULYHHFRQRPLFSULFHVHDUQLQJVGLYLGHQGVLQWHUHVWUDWHVHWFDUH
EDVHGPRUHRQH[SHFWHGEXVLQHVVFRQGLWLRQV,QYHVWRUVUHVSRQGDFFRUGLQJWRIXWXUH
UDWKHUWKDQWKHSUHVHQW7KHYDULDELOLW\LQVWRFNSULFHVLVGXHWRRYHUDOOHFRQRPLF
PRYHPHQW7KXVVXFFHVVRIHFRQRP\ZLOOOHDGWRVXFFHVVRIWKHRYHUDOOPDUNHW,Q
WKHDEVHQFHRISRVLWLYH KHDOWK\HFRQRPLFHQYLURQPHQWLWLVGLIILFXOWIRUDFRPSDQ\
WRIORXULVKZKLFKLQWXUQKDVDQDGYHUVHHIIHFWRQWKHRYHUDOOPDUNHWSHUIRUPDQFH
0DFURHFRQRPLF)DFWRUV$IIHFWLQJ6WRFN3ULFHV
‡ (FRQRPLF*URZWK
‡ 3RSXODWLRQ
‡ 0RQVRRQ $JULFXOWXUDO3URGXFWLRQ
‡ ,QGXVWULDO3URGXFWLRQ
‡ 1DWXUDO5HVRXUFHV DYDLODELOLW\RIUDZPDWHULDOV
‡ ,QIODWLRQ
‡ ,QWHUHVWUDWHV
‡ )RUHLJQH[FKDQJHUHVHUYHV
‡ %DODQFHRISD\PHQWSRVLWLRQ
‡ %XGJHWDU\GHILFLW
‡ 3XEOLFVDYLQJV FDSLWDORXWSXWUDWH
‡ (PSOR\PHQWGHEW IRUHLJQGHEW
‡ 'RPHVWLF
‡ 7D[DWLRQSROLF\
‡ ,QIUDVWUXFWXUHIDFLOLWLHV
‡ *RYHUQPHQWSROLFLHV
‡ 3ROLWLFDOVWDELOLW\
‡ ,QWHUQDWLRQDOGHYHORSPHQW
‡ &DSLWDOIRUPDWLRQ
6HOI,QVWUXFWLRQDO 0DWHULDO
‡ 6DYLQJVSDWWHUQ

6HFXULW\$QDO\VLV ‡ 5HVHDUFK WHFKQRORJLFDOGHYHORSPHQW
3RUWIROLR0DQDJHPHQW
‡ (FRQRPLFLQGLFDWRUV
‡ (FRQRPLFUHIRUPV
127(6 ‡ )RUHLJQGLUHFWLQYHVWPHQW
1RZZHZLOOJRWKURXJKWKHGLVFXVVLRQRQVRPHRIWKHVHSRLQWV
*URVV1DWLRQDO3URGXFW*13
,WLVWKHDJJUHJDWHYDOXHRIJRRGV VHUYLFHVSURGXFHGLQWKHHFRQRP\,WUHIOHFWV
WKHRYHUDOOSHUIRUPDQFHRIWKHHFRQRP\,WLVIDYRUDEO\UHODWHGWRWKHVWRFNPDUNHW
3RSXODWLRQ
3RSXODWLRQH[SORVLRQUHVXOWVLQGHPDQGIRUPRUHLQGXVWULHVVXFKDVKRWHOLQGXVWU\
VHUYLFHLQGXVWULHV FRQVXPHUGHPDQGVVXFKDVUHIULJHUDWRUFDUVHWF,QFUHDVHLQ
SRSXODWLRQWKHUHIRUHVKRZVDJUHDWHUQHHGIRUHFRQRPLFGHYHORSPHQWRIWKHFRXQ
WU\
5HVHDUFK 7HFKQRORJLFDO'HYHORSPHQW
7KHDPRXQWRIUHVRXUFHVDOORFDWHGE\WKHJRYHUQPHQWRQWKHWHFKQRORJLFDOGHYHO
RSPHQWDIIHFWWKHLQGXVWULDOSHUIRUPDQFHWKHUHE\DIIHFWLQJWKHHFRQRP\
5DZPDWHULDO ,QIUDVWUXFWXUDO)DFLOLWLHV
$YDLODELOLW\RIUDZPDWHULDOV JRRGLQIUDVWUXFWXUHIDFLOLWLHVDUHUHVSRQVLEOHIRUD
FRXQWU\¶VHFRQRPLFJURZWK)RUH[DPSOH-DSDQHVHHFRQRP\IORXULVKHGDIWHUWKH
GLVFRYHU\RIUDZPDWHULDOVLQWKHIRUPRIODERXUIRUFH)DFLOLWLHVVXFKDVDGHTXDWH
HOHFWULFVXSSO\ZHOOWUDQVSRUWDWLRQJRRGFRPPXQLFDWLRQV\VWHPHWFLQIOXHQFHWKH
LQGXVWULDOSHUIRUPDQFHDORW
0RQVRRQ DJULFXOWXUH
,QWKH,QGLDQHFRQRP\WKHEHKDYLRURIPRQVRRQ WKHSHUIRUPDQFHRIDJULFXOWXUH
SOD\DYLWDOUROHLQDVVHVVLQJIRUHFDVWLQJLQGXVWULDOSHUIRUPDQFH,QGXVWULDOSHUIRU
PDQFHLVGLUHFWO\RULQGLUHFWO\DIIHFWHGE\DJULFXOWXUDOSURGXFWLRQ WKLVSURGXFWLRQ
GHSHQGVDORWRQPRQVRRQ
6DYLQJV ,QYHVWPHQW
$SRUWLRQRI*13LVVDYHG LQYHVWHGLQWKHFDSLWDOPDUNHW7KHKLJKHUWKHOHYHO
RIVDYLQJV LQYHVWPHQWWKHPRUHIDYRUDEOHLWLVIRUWKHVWRFNPDUNHW
0RQHWDU\ )LVFDO3ROLF\
7KHPRQHWDU\ ILVFDOSROLFLHVKDYHPDMRULPSDFWRQWKHLQGXVWULDOJURZWKE\
DIIHFWLQJWKHFRVWDQGDYDLODELOLW\RIFUHGLWWKHSURILWPDUJLQVRIWKHFRPSDQLHVHWF
7KHVHSROLFLHVDOVRLQIOXHQFHWKHPRYHPHQWLQSULFHOHYHOLQIODWLRQ LQWHUHVWUDWH
ZKLFKLQWXUQKDYHDJUHDWLQIOXHQFHRQWKHSHUIRUPDQFHRIWKHLQGXVWULHV WKH
6HOI,QVWUXFWLRQDO 0DWHULDO
HFRQRP\

*HQHUDO%XVLQHVV&RQGLWLRQV 6WRFN0DUNHW$QDO\VLV

7KHOHYHORIEXVLQHVVDFWLYLW\DOVRLQIOXHQFHVWKHGHPDQGIRULQGXVWULDOSURGXFWV
WKHRYHUDOOSHUIRUPDQFHRIWKHLQGXVWU\7KHEXVLQHVVDFWLYLW\IOXFWXDWHVGHSHQGLQJ
XSRQWKHVWDWHVRIHFRQRP\DJULFXOWXUDOSHUIRUPDQFHHWF 127(6
(FRQRPLF SROLWLFDOVWDELOLW\
(FRQRPLF SROLWLFDOVWDELOLW\LVQHFHVVDU\IRUDJRRGSHUIRUPDQFHRIWKHHFRQRP\
LQJHQHUDO LQGXVWULHVLQSDUWLFXODU7KHJRYHUQPHQWSROLF\VKRXOGEHNQRZQLQ
DGYDQFHLQDOODVSHFWV WKHUHVKRXOGEHQRXQFHUWDLQW\$Q\DGYHUVHFKDQJHVLQ
JRYHUQPHQWSROLF\DIIHFWWKHLQGXVWULDOSHUIRUPDQFHDGYHUVHO\7KHIRUHLJQH[FKDQJH
SRVLWLRQ WKHEDODQFHRISD\PHQWVDOVRLQIOXHQFHWKHJRYHUQPHQWSROLF\ZLWKUH
VSHFWWRLPSRUWVH[SRUWVIRUHLJQLQYHVWPHQWV UHODWHGPDWWHUV
(FRQRPLF)RUHFDVWLQJ
%HIRUHWDNLQJDQ\LQYHVWPHQWGHFLVLRQVLWLVQHFHVVDU\WRIRUHFDVWWKHHFRQRPLF
HQYLURQPHQW7KLVLVQRWKLQJEXWHFRQRPLFIRUHFDVWLQJ7KHPRYHPHQWRIWKHRYHUDOO
PDUNHWH[SODLQVWKHYDULDELOLW\LQVWRFNSULFHV WKHPDUNHWSHUIRUPDQFHLVUHODWHG
WRRYHUDOOHFRQRPLFSHUIRUPDQFH7KXVWKHVXFFHVVRIWKHHFRQRP\ZLOOXOWLPDWHO\
OHDGWRWKHVXFFHVVRIWKHRYHUDOOPDUNHW$QXQKHDOWK\HFRQRPLFHQYLURQPHQW
DGYHUVHO\DIIHFWVWKHRYHUDOOVWRFNSHUIRUPDQFH(FRQRPLFIRUHFDVWLQJLVYHU\LP
SRUWDQWEHFDXVHLWHQDEOHVWKHLQYHVWRUVWRSODQWKHULJKWWLPHIRULQYHVWPHQW7LPLQJ
LVYHU\FUXFLDOIRUDQLQYHVWRU0DNLQJDQLQYHVWPHQWDWWKHULJKWWLPHZLOOHDUQD
JRRGUDWHEHVLGHVKDYLQJDFRQVLGHUDEO\ORZSXUFKDVHSULFH+RZHYHUDQLQYHVW
PHQWPDGHGXULQJDGLVWXUEHGVWDWHRIFDSLWDOPDUNHWIRUHJVWULNHVZRXOGORZHU
WKHFDSLWDOJDLQ
)RUHFDVWLQJ7HFKQLTXHV
%DVLFDOO\WKHIROORZLQJIRUHFDVWLQJWHFKQLTXHVDUHFRPPRQ
‡ 6XUYH\V
‡ (FRQRPLF,QGLFDWRUV
‡ 'LIIXVLRQ,QGLFHV
‡ (FRQRPLF0RGHO%XLOGLQJ
‡ 2SSRUWXQLVWLF0RGHO%XLOGLQJ
6XUYH\V
7KLVWHFKQLTXHDWWHPSWVWRPHDVXUHWKHIXWXUHHFRQRPLFEHKDYLRXURIEXVLQHVVHV
WKHFRQVXPHUVE\FRQGXFWLQJVXUYH\VWKDWDUHFRPPRQO\UHIHUUHGWRDVDQWLFLSDWLRQ
VXUYH\V7KHVHVXUYH\VLQFOXGHDVNLQJSHRSOHLQEXVLQHVVDERXWWKHLUSODQV
EXGJHWVIRUH[SHQGLWXUHVZRUNVWRLPSURYHWKHLUEXVLQHVV+RZHYHUWKHVHVXUYH\V
PHDVXUHRQO\WKHSODQQHGDFWLYLW\,WGRHVQ¶WJXDUDQWHHZKHWKHUEXVLQHVVZRXOG
DGKHUHWRWKHLULQWHQVLRQVRUQRW
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 7KLVWHFKQLTXHLVEDVHGRQEHOLHIVLQWHQVLRQV IXWXUHEXGJHWLQJRIDEXVLQHVVRU
3RUWIROLR0DQDJHPHQW DQLQGLYLGXDOFRQVXPHU,WLQGLFDWHVWKHIXWXUHFRXUVHRIHYHQWVLQWKHHFRQRP\7KH
EDVLFXVHRIWKLVWHFKQLTXHLVWRKDYHLQVLJKWRIWKHNLQGRIDFWLYLW\LQWKHHFRQRP\

127(6 (FRQRPLF,QGLFDWRUV
7KHVHLQGLFDWRUVEHKDYHOLNHEDURPHWHU7KH\JLYHWKHLQGLFDWLRQRIWKHHFRQRPLF
SURFHVVWKURXJKF\FOLFDOWLPLQJVLHEXVLQHVVGHSUHVVLRQ EXVLQHVVSURVSHULW\
$OWKRXJKDYHU\DFFXUDWHHVWLPDWLRQLVQRWSRVVLEOHLQGLFDWRUVLQGLFDWHWKHOHYHORI
HFRQRPLFDFWLYLW\,WJLYHVDQHVWLPDWLRQRIWKHIXWXUHRIHFRQRPLFFRQGLWLRQV
'LIIXVLRQ,QGLFHV
'LIIXVLRQLQGH[RUFRPPRQO\NQRZQDVFRPSRVLWHLQGH[LVDPHWKRGWKDWFRPELQHV
GLIIHUHQWLQGLFDWRUVWRDQDO\]HDSDUWLFXODUWLPHVHULHVRIGDWD WKHQGUDZRXWD
SDUWLFXODUDQVZHU7KLVLVDFRPSOH[VWDWLVWLFDOPHWKRG WKHFRPELQDWLRQRIYDULRXV
IDFWRUVLQWKLVWHFKQLTXHPDNHVLWH[WUHPHO\GLIILFXOWIRUHFDVWLQJPHWKRG
(FRQRPHWULF0RGHO%XLOGLQJ
(FRQRPHWULFPRGHOVDSSO\PDWKHPDWLFDO VWDWLVWLFDOWHFKQLTXHVWRHFRQRPLFIRUH
FDVWLQJ,WLVPRVWVFLHQWLILFDSSURDFKWRHFRQRPLFIRUHFDVWLQJ UHTXLUHVWKHXVHU
WRVSHFLI\WKHSUHFLVHLQWHUUHODWLRQVKLSVEHWZHHQPHPEHUVRIHFRQRPLFYDULDEOHV
ERWKGHSHQGHQW LQGHSHQGHQWWRFRPHXSZLWKPRGHO7KHVHPRGHOVSUHGLFWWKH
GLUHFWLRQRIIXWXUHHFRQRPLFDFWLYLW\ DOVRLWVGXUDWLRQ PDJQLWXGH,QVWHDGRID
JHQHUDOIRUHFDVWWKH\JLYHDSUHFLVHQXPEHU
+RZHYHUWKHVHPRGHOVUHTXLUHYDVWDPRXQWRIFOHULFDO FRPSXWHUSURJUDPPLQJ
VXSSRUWWRPDLQWDLQ XSGDWHWKHV\VWHP7KXVWKHUHLVGHOD\LQPDNLQJWKHUHVXOWV
DYDLODEOHLWWRWKHSXEOLF*HQHUDOO\WKHVHPRGHOVDUHXVHIXOIRUVKRUWWHUPIRUH
FDVWV
2SSRUWXQLVWLFPRGHOEXLOGLQJ
7KLVPHWKRGLVDOVRFDOOHGVHFWRUDODQDO\VLVRU*URVV1DWLRQDO3URGXFW0RGHO
%XLOGLQJ,QWKLVDSSURDFKWKHIRUHFDVWHUXVHGWKHUHVXOWVGUDZQIURPDOORWKHU
WHFKQLTXHVDOUHDG\GLVFXVVHGHDUOLHU7KLVPHWKRGLVKLJKO\IOH[LEOH
,WVWDUWVZLWKWKHDVVXPSWLRQRIWRWDOGHPDQG WRWDOLQFRPHE\WKHIRUHFDVWHUIRU
WKHIRUHFDVWSHULRG:KLOHPDNLQJWKLVDVVXPSWLRQYDULRXVHQYLURQPHQWDOIDFWRUV
VXFKDVSROLWLFDOVWDELOLW\UDWHRILQIODWLRQOHYHORILQWHUHVWUDWHVDQ\FKDQJHLQWD[
HWF7KHQWKHIRUHFDVWHUPDNHVDIRUHFDVWRI*13E\HVWLPDWLQJWKHOHYHOVRIYDULRXV
FRPSRQHQWVRI*13VXFKDVFRQVXPSWLRQH[SHQVHVJURVVGRPHVWLFLQYHVWPHQW
&KHFN <RXU 3URJUHVV JURVVSXUFKDVHRIJRRGV VHUYLFHV QHWH[SRUWV
 :KDWLVHFRQRPLF
DQDO\VLV" 7KHQH[WFRPSRQHQWVDUHJURVVGRPHVWLFLQYHVWPHQWQHWH[SRUWV SHUVRQDOFRQ
 :KDWLV*13" VXPSWLRQH[SHQGLWXUHV7KH\DUHIXUWKHUGLYLGHGLQWRWKHLUVXEFDWHJRULHVIRUWKH
FRQYHQLHQFHRIIRUHFDVWLQJ

6HOI,QVWUXFWLRQDO 0DWHULDO
$IWHUDFTXLULQJDOOWKHDERYHGDWDWKHQH[WVWHSLVWRDGGWKHPWRJHW*13IRUHFDVW

7KLVWRWDOLVWHVWHGIRULQWHUQDOFRQVLVWHQF\EHFDXVHRIWKHLQWHUUHODWHGQHVVRIWKH
*13DFFRXQWV7KHIRUHFDVWHUPXVWEHFOHDUWKDWKLV*13IRUHFDVWLVFRQVLVWHQWZLWK 6WRFN0DUNHW$QDO\VLV
DOOWKHVHIDFWRUV7KXVWKLVPRGHOLQYROYHVDYDVWDPRXQWRIMXGJPHQW LQJHQXLW\
LQRUGHUWRFRPHXSZLWKDFRPSUHKHQVLYHIRUHFDVW
,QGXVWU\$QDO\VLV 127(6
1H[WVWHSLQIXQGDPHQWDODQDO\VLVLV,QGXVWU\DQDO\VLV$QLQGXVWU\LVDKRPRJHQHRXV
JURXSRIFRPSDQLHV,QGXVWU\EURDGO\FRYHUVDOOWKHHFRQRPLFDFWLYLWLHVKDSSHQLQJ
LQDFRXQWU\$EURDGFRQFHSWRILQGXVWU\ZRXOGLQFOXGHIDFWRUVRISURGXFWLRQ
WUDQVSRUWDWLRQWUDGLQJDFWLYLW\ SXEOLFXWLOLWLHV7KHLQGXVWULHVFDQEHGLYLGHGDF
FRUGLQJWRWKHLUIXQFWLRQVOLNH$XWRPRELOH,QGXVWU\6WHHO,QGXVWU\HWF7KH
EURDGFKDUDFWHULVWLFVIHDWXUHVRILQGXVWU\DUHJLYHQEHORZ
+RPRJHQHRXV3URGXFWV
&RPPRQ5DZ0DWHULDOV
3URFHVVHVRI3URGXFWLRQLVVLPLODU
6LPLODU7UDGH 6HUYLFHV
$QLQYHVWRUZKRLVFRQILGHQWWKDWWKHHFRQRP\ WKHPDUNHWRIIHUIDYRUDEOHFRQ
GLWLRQVIRULQYHVWLQJSURFHHGVWRFRQVLGHUWKRVHLQGXVWULHVWKDWSURPLVHWKHPRVW
RSSRUWXQLWLHVLQWKHFRPLQJ\HDUV,QGXVWU\$QDO\VLVLVQHFHVVDU\EHFDXVHLQGXVWULHV
SHUIRUPDQFHYDU\GLIIHUHQWO\RYHUWLPH LQYHVWRUVSHUIRUPDQFHZLOOEHVLJQLILFDQWO\
DIIHFWHGE\WKHSDUWLFXODULQGXVWULHVLQZKLFKLQZKLFKLQYHVWRUVVHOHFWVWRFNV7KH
YDOXHRIWKHLQGXVWULHVFDQEHHVWDEOLVKHGE\DVVHVVLQJWKHSHUIRUPDQFHRIYDULRXV
LQGXVWULHVRYHUPXOWLSOH\HDUSHULRGV7KLVDQDO\VLVZLOOKHOSWKHLQYHVWRUVLQVHOHFWLQJ
FHUWDLQLQGXVWULHVZKLOHDYRLGLQJRWKHUV7KHLQYHVWRUVDUHDOVRUHTXLUHGWRDQDO\]H
LQGXVWULHVLQRUGHUWRNQRZWKHFRQVLVWHQF\RILQGXVWU\SHUIRUPDQFHRYHUDSHULRG
7KRVHLQYHVWRUVZKRVHOHFWJURZWKLQGXVWULHV PDLQWDLQWKHLUSRVLWLRQVXVXDOO\
UHFHLYHEHWWHUUHWXUQV
$OWKRXJKLQGXVWU\DQDO\VLVLVYDOXDEOHRYHUWLPHZLWKVRPHLQGXVWULHVRXWSHUIRUPLQJ
WKHRWKHUVLWLVQRWFRQVLVWHQW,QYHVWRUVFDQQRWVLPSO\FKRRVHWKRVHLQGXVWULHVWKDW
KDYHSHUIRUPHGZHOOUHFHQWO\ UHOLDEO\H[SHFWWKHPWRFRQWLQXHWRGRVRIRUWKH
QH[WVHYHUDOSHULRGV7KHLQYHVWRUVVKRXOGQRWLJQRUHWKRVHLQGXVWULHVVLPSO\EH
FDXVHWKHLUUHFHQWSHUIRUPDQFHKDVEHHQSRRU7KHLUVXEVHTXHQWSHUIRUPDQFHRYHU
DVKRUWSHULRGRIWLPHPD\EHRSSRVLWH7KHUHIRUHLWLVQHFHVVDU\WROHDUQWKHEDVLF
FRQFHSWVRILQGXVWU\DQDO\VLV

6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 3URGXFWRU6HUYLFH,QGXVWU\
3RUWIROLR0DQDJHPHQW
6WHHO,QGXVWU\FDQEHFRQVLGHUHGDVD3URGXFW,QGXVWU\ZKHUHDV$LUOLQH,QGXVWU\
FDQEHFRQVLGHUHGDV6HUYLFH,QGXVWU\
127(6 &\FOLFDO*URZWKRU'HIHQVLYH,QGXVWU\
$F\FOLFDOLQGXVWU\¶VSHUIRUPDQFHLVSRVLWLYHO\UHODWHGWRHFRQRPLFDFWLYLW\)RUHJ
DXWRPRELOHLQGXVWU\SDSHUFRPSDQLHVHWF'HIHQVLYHLQGXVWULHVDUHSKDUPDFHXWLFDO
LQGXVWULHVJDVXWLOLWLHVLQGXVWULHV$JRRGH[DPSOHRIJURZWKLQGXVWU\LVELRWHFKQRO
RJ\LQGXVWU\
6WDQGDUG,QGXVWULDO&ODVVLILFDWLRQ6,&6\VWHP
7KLVV\VWHPLVEDVHGRQFHQVXVGDWD LVGHYHORSHGWRFODVVLI\ILUPVRQWKHEDVLV
RIZKDWWKH\SURGXFH7KHFODVVLILFDWLRQFRYHUVDOORUJDQL]DWLRQV LVXSGDWHGDERXW
HYHU\\HDUVWRUHIOHFWWKHFKDQJLQJLQGXVWULDORUJDQL]DWLRQ,WFODVVLILHVIURP
JHQHUDOWRVSHFLILF

 ,QGXVWU\ /LIH &\FOH

/LNHRWKHUOLYLQJFUHDWXUHVLQGXVWU\DOVRKDVLWVFLUFOHRIOLIH7KHLQGXVWU\OLIHF\FOH
LPLWDWHVWKHKXPDQOLIHF\FOH7KHVWDJHVRILQGXVWU\OLIHF\FOHLQFOXGHIUDJPHQWDWLRQ
VKDNHRXWPDWXULW\DQGGHFOLQH7KHVHVWDJHVZLOOEHGHVFULEHGLQWKHIROORZLQJV
VHFWLRQ
3LRQHHULQJ6WDJH
3LRQHHULQJ6WDJHLVWKHILUVWVWDJHRIWKHQHZLQGXVWU\7KLVLVWKHVWDJHZKHQWKHQHZ
LQGXVWU\GHYHORSVWKHEXVLQHVV$WWKLVVWDJHWKHQHZLQGXVWU\QRUPDOO\DULVHVZKHQ
DQHQWUHSUHQHXURYHUFRPHVWKHWZLQSUREOHPVRILQQRYDWLRQDQGLQYHQWLRQDQG
ZRUNVRXWKRZWREULQJWKHQHZSURGXFWVRUVHUYLFHVLQWRWKHPDUNHW,QWKLVVWDJH
WKHUHLVUDSLGJURZWKLQGHPDQG+HUHLWLVJUHDWRSSRUWXQLW\IRUSURILWH[LVWVZKLFK
DWWUDFWVDQXPEHURIFRPSDQLHV%XWRQO\IHZRIWKHPVXUYLYHEHFDXVHRIKHDY\
SULFHFRPSHWLWLRQ+HUHPDQ\FKDUDFWHULVWLFVFDQEHREVHUYHGOLNHKLJKFRVWXQHYHQ
SURGXFWTXDOLW\HUUDWLFVDOHVJURZWK ORZSURILWDELOLW\7KLVVWDJHLVULVNLHVWIRUWKH
LQYHVWRUVEXWDFFRUGLQJO\UHZDUGLVDOVRKLJK,WLVYHU\GLIILFXOWIRUWKHDQDO\VWWR
LGHQWLI\WKHOLNHO\VXUYLYRUV7KXVLQWHOOLJHQWLQYHVWRUVVKRXOGQRWLQYHVWDWWKLVVWDJH
ZDLWIRUWKHH[SDQVLRQVWDJH
([SDQVLRQ6WDJH
,WLVWKHVHFRQGVWDJHRIWKHLQGXVWU\OLIHF\FOH,WLVWKHVWDJHDWZKLFKDQHZLQGXVWU\
HPHUJHV'XULQJWKHH[SDQVLRQVWDJHVKDNHRXWVWDJHFRPSHWLWRUVVWDUWWRUHDOLVH
EXVLQHVVRSSRUWXQLWLHVLQWKHHPHUJLQJLQGXVWU\7KHYDOXHRIWKHLQGXVWU\DOVRTXLFNO\
ULVHV/LNHWKHLQWURGXFWLRQVWDJHWKHJURZWKVWDJHDOVRUHTXLUHVDVLJQLILFDQWDPRXQW
RIFDSLWDOIRUWKHILUP7KHJRDORIPDUNHWLQJHIIRUWVDWWKLVVWDJHLVWRGLIIHUHQWLDWH
DILUP¶VRIIHULQJVIURPRWKHUFRPSHWLWRUVZLWKLQWKHLQGXVWU\7KXVWKHJURZWKVWDJH
UHTXLUHVIXQGVWRODXQFKDQHZO\IRFXVHGPDUNHWLQJFDPSDLJQDVZHOODVIXQGVIRU
6HOI,QVWUXFWLRQDO 0DWHULDO FRQWLQXHGLQYHVWPHQWLQSURSHUW\SODQWDQGHTXLSPHQWWRIDFLOLWDWHWKHJURZWKUH

TXLUHGE\WKHPDUNHWGHPDQGV+RZHYHUWKHLQGXVWU\LVH[SHULHQFLQJPRUHSURGXFW 6WRFN0DUNHW$QDO\VLV
VWDQGDUGL]DWLRQDWWKLVVWDJHZKLFKPD\HQFRXUDJHHFRQRPLHVRIVFDOHDQGIDFLOLWDWH
GHYHORSPHQWRIDOLQHIORZOD\RXWIRUSURGXFWLRQHIILFLHQF\
5HVHDUFKDQGGHYHORSPHQWIXQGVZLOOEHQHHGHGWRPDNHFKDQJHVWRWKHSURGXFW 127(6
RUVHUYLFHVWREHWWHUUHIOHFWFXVWRPHU¶VQHHGVDQGVXJJHVWLRQV,QWKLVVWDJHLIWKH
ILUPLVVXFFHVVIXOLQWKHPDUNHWJURZLQJGHPDQGZLOOFUHDWHVDOHVJURZWK(DUQLQJV
DQGDFFRPSDQ\LQJDVVHWVZLOODOVRJURZDQGSURILWVZLOOEHSRVLWLYHIRUWKHILUPV
7KHGXUDWLRQRIWKHJURZWKVWDJHDVDOOWKHRWKHUVWDJHVGHSHQGVRQWKHSDUWLFXODU
LQGXVWU\XQGHUVWXG\6RPHLWHPV²OLNHIDVKLRQFORWKLQJIRUH[DPSOH²PD\H[SH
ULHQFHDYHU\VKRUWJURZWKVWDJHDQGPRYHDOPRVWLPPHGLDWHO\LQWRWKHQH[WVWDJHV
RIPDWXULW\DQGGHFOLQH+RZHYHUIRURWKHUSURGXFWVWKHJURZWKVWDJHPD\EH
ORQJHUGXHWRIUHTXHQWSURGXFWXSJUDGHVDQGHQKDQFHPHQWVWKDWIRUHVWDOOPRYHPHQW
LQWRPDWXULW\7KHFRPSXWHULQGXVWU\WRGD\LVDQH[DPSOHRIDQLQGXVWU\ZLWKDORQJ
JURZWKVWDJHGXHWRXSJUDGHVLQKDUGZDUHVHUYLFHVDQGDGGRQSURGXFWVDQG
IHDWXUHV
6WDELOL]DWLRQ6WDJH
6WDELOL]DWLRQ0DWXULW\LVWKHWKLUGVWDJHLQWKHLQGXVWU\OLIHF\FOH7KLVVWDJHLV
IHDWXUHGE\PRGHUDWHJURZWK6DOHVPD\VWLOOFRQWLQXHWRULVHEXWDWDPXFKVORZHU
UDWHWKDQWKHRYHUDOOHFRQRP\3URGXFWVEHFRPHPRUHVWDQGDUGL]HGDQGOHVVLQQR
YDWLYH7KHFRVWVRIWKHSURGXFWEHFRPHVWDEOH WKHPDUNHWLVIXOORIFRPSHWLWRUV
,QGXVWULHVDWWKLVVWDJHFRQWLQXHWRPRYHEXWZLWKRXWDQ\VLJQLILFDQWJURZWK(YHQLI
WKHLQYHVWPHQWRSSRUWXQLWLHVZLWKLQWKHLQGXVWU\GLPLQLVKVRPHFRPSDQLHVPD\VWLOO
SURYHWREHJRRGLQYHVWPHQWV7KHFRPSHWLWLRQLQWKHLQGXVWU\LVUDWKHUDJJUHVVLYH
EHFDXVHWKHUHDUHPDQ\FRPSHWLWRUVDQGSURGXFWVXEVWLWXWHV3ULFHFRPSHWLWLRQ
DQGFRRSHUDWLRQWDNHRQDFRPSOH[IRUP6RPHFRPSDQLHVPD\VKLIWVRPHRIWKH
SURGXFWLRQRYHUVHDVLQRUGHUWRJDLQFRPSHWLWLYHDGYDQWDJH
+RZHYHUDQLQGXVWU\PD\VWDJQDWHIURPWLPHWRWLPHDQGPD\UHVXPHDSHULRGRI
JURZWKWKHUHE\VWDUWLQJDQHZF\FOHZLWKDWHFKQRORJLFDOLQQRYDWLRQRULQWURGXFWLRQ
RIDQHZSURGXFW
'HFOLQH 6WDJH
'HFOLQHLVWKHILQDOVWDJHRIWKHLQGXVWU\OLIHF\FOH'HFOLQHLVDVWDJHGXULQJZKLFKD
ZDURIVORZGHVWUXFWLRQEHWZHHQEXVLQHVVHVPD\GHYHORSDQGWKRVHZLWKKHDY\
EXUHDXFUDFLHVPD\IDLO,QDGGLWLRQWKHGHPDQGLQWKHPDUNHWPD\EHIXOO\VDWLVILHG
RUVXSSOLHUVPD\EHUXQQLQJRXW7KHFKDQJHIURPH[SDQVLRQWRVWDJQDWLRQVWDJH
LVVRVORZWKDWLWLVGLIILFXOWIRUWKHFRPSDQLHVWRUHDOLVHWKHVLWXDWLRQ7KH\DUHKDSS\
ZLWKWKHLUSURILWV GRQRWUHDOLVHWKDWWKHLUJURZWKLVVORZ%\WKHWLPHWKH\UHDOLVH
WKH\VOLSWRWKHGHFOLQHVWDJHWKHLQGXVWU\LVDWORVV FDQ¶WH[SDQGIXUWKHU
,QWKHVWDJHRIGHFOLQHVRPHFRPSDQLHVPD\OHDYHWKHLQGXVWU\LIWKHUHLVQRGHPDQG
IRUWKHSURGXFWVRUVHUYLFHVWKH\SURYLGHRUWKH\PD\GHYHORSQHZSURGXFWVRU
VHUYLFHVWKDWPHHWWKHGHPDQGLQWKHPDUNHW,QVXFKFDVHVWKLVZLOOFUHDWHDQHZ
LQGXVWU\7KHUHDVRQVIRUWKLVVWDJHPD\EH 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV &KDQJHLQVRFLDOKDELWV
3RUWIROLR0DQDJHPHQW *RYHUQPHQWUHJXODWLRQV
,PSURYHGWHFKQRORJ\
127(6 ,QFUHDVHGODERXUFRVWHWF
,QDGGLWLRQWR,QGXVWU\/LIH&\FOHZHKDYHWRFRQFHQWUDWHXSRQ
4XDOLWDWLYH$VSHFWVRI,QGXVWU\$QDO\VLV
4XDQWLWDWLYH$VSHFWVRI,QGXVWU\$QDO\VLV
4XDOLWDWLYH$VSHFWVRI,QGXVWU\$QDO\VLV
&RPSHWLWLRQ
+LVWRULFDO3HUIRUPDQFH
*RYHUQPHQWUHJXODWLRQV
/DERXUFRQGLWLRQ
3HUIRUPDQFH
([WHUQDOVKRFNV
)LQDQFLDOLVVXHV
,QGXVWU\VKDUHSULFHYDOXDWLRQ
4XDQWLWDWLYH$VSHFWVRI,QGXVWU\$QDO\VLV
(QG8VH$QDO\VLV,WLVWKHWHFKQLTXHZKLFKWKHDQDO\VWDWWHPSWVWRLGHQWLI\
WKHVRXUFHRIGHPDQGIRUDQLQGXVWU\¶VSURGXFWVRUVHUYLFHV KRZWKH
GHPDQGIRUWKHSURGXFWLVOLNHO\WRFKDQJHIRUHDFKXVHU
5DWLR$QDO\VLV,WGLYLGHVGDWDE\DJJUHJDWHHFRQRPLFGDWDRYHUDSHULRG
RIWLPH H[DPLQHVWKHUHVXOWIRUWUHQGV$Q\PRYHPHQWRUODFNRIPRYH
PHQWLQDUDWLRVXJJHVWVVRPHLPSRUWDQWFKDUDFWHULVWLFVRIWKHLQGXVWU\
5HJUHVVLRQ &RUUHODWLRQ$QDO\VLV7KHVHDUHWKHVWDWLVWLFDOWHFKQLTXHV
XVHGIRUDQDO\]LQJGHPDQG RWKHULQGXVWU\GDWD5HJUHVVLRQDQDO\VLVGH
WHUPLQHVWKHUHODWLRQVKLSEHWZHHQWZRRUPRUHYDULDEOHVZKHUHDVFRUUHODWLRQ
DQDO\VLVGHWHUPLQHVWKHGHJUHHWRZKLFKWZRYDULDEOHVDUHUHODWHGWRRQH
DQRWKHU
  &RPSDQ\ $QDO\VLV
2QFHWKHLQGXVWU\KDVEHHQDQDO\]HGWKHQH[WVWHS ODVWVWHSRIIXQGDPHQWDO
DQDO\VLVLVFRPSDQ\DQDO\VLV&RPSDQ\DQDO\VLVLQYROYHVDQDO\]LQJEDVLFILQDQFLDO
YDULDEOHVLQRUGHUWRHVWLPDWHFRPSDQ\¶VLQWULQVLFYDOXH7KHVHYDULDEOHVLQFOXGH
VDOHVSURILWPDUJLQVGHSUHFLDWLRQWD[UDWHVRXUFHVRIILQDQFHDVVHWXWLOL]DWLRQ
RWKHUIDFWRUV9DULRXVTXDOLWDWLYHIDFWRUVOLNHFRPSDQ\¶VFRPSHWLWLYHSRVLWLRQODERXU
UHODWLRQVWHFKQRORJLFDOFKDQJHVPDQDJHPHQWHWFDUHDOVRDQDO\]HG+HUHWKHFRP
SDQLHVZKLFKDUHLQWKHVDPHLQGXVWU\DUHFRPSDUHGWRRQHDQRWKHUWRILQGRXWZKLFK
RQHLVWKHEHVWSHUIRUPHUIRUWKHQHHGRILQYHVWPHQWEDVHGRQLWVILQDQFLDOSRVLWLRQ
7KHFRPSDQ\DQDO\VLVLVWKHPRVWLPSRUWDQWIDFWRUIRULQYHVWPHQW HQWHULQJLQWRWKH
6HOI,QVWUXFWLRQDO 0DWHULDO VWRFNPDUNHW

7KHLQIRUPDWLRQDERXWWKHFRPSDQ\LVIRXQGRXWIURPWZRVRXUFHV 6WRFN0DUNHW$QDO\VLV

,QWHUQDO6RXUFHV)LQDQFLDO6WDWHPHQWVDUHWKHVRXUFHVRI,QWHUQDO6RXUFHV$SDUW
IURPILQDQFLDOVWDWHPHQWVLQWHUQDOLQIRUPDWLRQFDQDOVREHFROOHFWHGIURPDQQXDO
UHSRUWVSXEOLF SULYDWHVWDWHPHQWVRIWKHPDQDJHUVHWF 127(6
([WHUQDO6RXUFHV([WHUQDO6RXUFHVKHOSVWRRYHUFRPHELDVHVLQKHUHQWLQLQWHUQDO
LQIRUPDWLRQ,WDOVRSURYLGHVFHUWDLQLQIRUPDWLRQWKDWLVQRWIRXQGLQLQWHUQDOLQIRUPD
WLRQ
  )LQDQFLDO 6WDWHPHQWV
7KHWKUHHPDMRUILQDQFLDOVWDWHPHQWVWKDWDUHXVHGE\DQDQDO\VWWRJDWKHULQWHUQDO
LQIRUPDWLRQDUH
%DODQFH6KHHW
,QFRPH6WDWHPHQWV
6WDWHPHQWRI&DVK)ORZ
  $QDO\VLV RI )LQDQFLDO 6WDWHPHQWV
)LQDQFLDO5DWLRV)LQDQFLDO5DWLRVDUHRQHRIWKHPRVWZLGHO\XVHGWRROVIRU
DQDO\]LQJDFRPSDQ\¶VILQDQFLDOVWDWHPHQWVEHFDXVHWKH\VKRZUHODWLRQVKLSVRIWKH
ILQDQFLDOVWDWHPHQWV7KH\KHOSWRLGHQWLI\DFRPSDQ\¶VVWUHQJWKRUZHDNQHVV
KLJKOLJKWVWKDWUHTXLUHIXUWKHULQYHVWLJDWLRQ7KH\KDYHEHHQFODVVLILHGLQWRILYHFDW
HJRULHV
/LTXLGLW\5DWLRV7KHVH5DWLRVPHDVXUHWKHILUPSRVLWLRQWRPHHWLWVFXUUHQW
OLDELOLWLHV)ROORZLQJUDWLRVFRPHXQGHUWKLVFDWHJRU\
&XUUHQW5DWLR,WUHIOHFWVWKHVROYHQF\RIWKHILUP
&XUUHQW5DWLR &XUUHQW$VVHWV&XUUHQWOLDELOLWLHV
+LJKHUWKHUDWLRZLOOEHJUHDWHUWKHVDIHW\IRUWKHFUHGLWRUV YLFHYHUVD,GHDO
&XUUHQW5DWLRLV
/LTXLG 5DWLR4XLFN5DWLR$FLG7HVW5DWLR7KH WZRFRPSRQHQWV RI
OLTXLGUDWLRDFLGWHVWUDWLRRUTXLFNUDWLRDUHOLTXLGDVVHWVDQGOLTXLG
OLDELOLWLHV/LTXLGDVVHWVQRUPDOO\LQFOXGHFDVKEDQNVXQGU\GHEWRUVELOOV
UHFHLYDEOHDQGPDUNHWDEOHVHFXULWLHVRUWHPSRUDU\LQYHVWPHQWV6LPLODUO\
/LTXLGOLDELOLWLHVPHDQVFXUUHQWOLDELOLWLHVLHVXQGU\FUHGLWRUVELOOVSD\DEOH
RXWVWDQGLQJH[SHQVHVVKRUWWHUPDGYDQFHVLQFRPHWD[SD\DEOHGLYLGHQGV
SD\DEOHDQGEDQNRYHUGUDIWRQO\LISD\DEOHRQGHPDQG
/LTXLG5DWLR /LTXLG$VVHWV&XUUHQW/LDELOLWLHV

/LTXLGUDWLRLVPRUHULJRURXVWHVWRIOLTXLGLW\WKDQWKHFXUUHQWUDWLREHFDXVHLW
HOLPLQDWHVLQYHQWRULHVDQGSUHSDLGH[SHQVHVDVDSDUWRIFXUUHQWDVVHWV8VXDOO\
DKLJKOLTXLGUDWLRLVDQLQGLFDWLRQWKDWWKHILUPLVOLTXLGDQGKDVWKHDELOLW\WRPHHW
6HOI,QVWUXFWLRQDO 0DWHULDO
LWVFXUUHQWRUOLTXLGOLDELOLWLHVLQWLPHDQGRQWKHRWKHUKDQGDORZOLTXLGLW\UDWLR

6HFXULW\$QDO\VLV UHSUHVHQWVWKDWWKHILUP¶VOLTXLGLW\SRVLWLRQLVQRWJRRG$VDFRQYHQWLRQJHQ
3RUWIROLR0DQDJHPHQW HUDOO\DTXLFNUDWLRRI³RQHWRRQH´LVFRQVLGHUHGWREHVDWLVIDFWRU\

$EVROXWH/LTXLG5DWLR&DVK5DWLR &DVK%DQN6KRUWWHUP6HF&XU
127(6 UHQW/LDELOLWLHV,GHDO5DWLRLV

$FWLYLW\UDWLRV(IILFLHQF\5DWLRV

7KHVHVKRZKRZHIILFLHQWDILUPLVLQXVLQJLWVDVVHWV$JRRGTXDOLW\ILUPZLOOEH
PRUHHIIHFWLYHLQLWVXVHRILWVUHVRXUFHVWKDQDOHVVZHOOPDQDJHGILUP

$YHUDJHFROOHFWLRQSHULRG7KLVPHDVXUHVWKHDYHUDJHDPRXQWRIFUHGLW
H[WHQGHGE\DILUPWRLWVFXVWRPHUV

6WRFNRULQYHQWRU\WXUQRYHUUDWLR7KLVPHDVXUHVWKHQXPEHURIWLPHVLQ
D\HDUWKHILUP¶VVWRFNRULQYHQWRU\LVWXUQHGRYHU

)L[HGDVVHWWXUQRYHUUDWLR7KLVPHDVXUHVKRZHIIHFWLYHWKHILUPLVLQ
XVLQJLWVµLQSODFH¶DVVHWVVXFKDVSURSHUW\SODQWDQGPDFKLQHU\WRJHQHUDWH
VDOHV

7RWDODVVHWWXUQRYHUUDWLR7KLVPHDVXUHVKRZHIIHFWLYHWKHILUPLVLQXVLQJDOOLWV
DVVHWVWRJHQHUDWHVDOHV

3URILWDELOLW\5DWLRV

*URVV3URILW5DWLR*35DWLR*URVVSURILWUDWLR*3UDWLRLVWKHUDWLR

RIJURVV SURILWWRQHW VDOHVH[SUHVVHGDV DSHUFHQWDJH,W H[SUHVVHVWKH
UHODWLRQVKLSEHWZHHQJURVVSURILWDQGVDOHV*URVVSURILWUDWLRPD\EHLQGL
FDWHGWRZKDWH[WHQWWKHVHOOLQJSULFHVRIJRRGVSHUXQLWPD\EHUHGXFHG
ZLWKRXWLQFXUULQJORVVHVRQRSHUDWLRQV,WUHIOHFWVHIILFLHQF\ZLWKZKLFKDILUP
SURGXFHVLWVSURGXFWV$VWKHJURVVSURILWLVIRXQGE\GHGXFWLQJFRVWRI
JRRGVVROGIURPQHWVDOHVKLJKHUWKHJURVVSURILWEHWWHULWLV7KHUHLVQR
VWDQGDUG*3UDWLRIRUHYDOXDWLRQ,WPD\YDU\IURPEXVLQHVVWREXVLQHVV

>*URVV 3URILW5DWLR *URVVSURILW1HW VDOHVî@

1HW3URILW5DWLR135DWLR1HWSURILWUDWLRLVWKHUDWLRRIQHWSURILWDIWHU

WD[HV WR QHW VDOHV ,W LV H[SUHVVHG DV SHUFHQWDJH 13 UDWLR LV XVHG WR
PHDVXUHWKHRYHUDOOSURILWDELOLW\DQGKHQFHLWLVYHU\XVHIXOWRSURSULHWRUV
7KHUDWLRLVYHU\XVHIXODVLIWKHQHWSURILWLVQRWVXIILFLHQWWKHILUPVKDOOQRW
EHDEOHWRDFKLHYHDVDWLVIDFWRU\UHWXUQRQLWVLQYHVWPHQW7KLVUDWLRDOVR
LQGLFDWHVWKHILUP¶VFDSDFLW\WRIDFHDGYHUVHHFRQRPLFFRQGLWLRQVVXFKDV
SULFHFRPSHWLWLRQORZGHPDQGHWF2EYLRXVO\KLJKHUWKHUDWLRWKHEHWWHU
LVWKHSURILWDELOLW\

1HW 3URILW 5DWLR  1HW SURILW  1HW VDOHV î @

6HOI,QVWUXFWLRQDO 0DWHULDO
 2SHUDWLQJ5DWLR2SHUDWLQJUDWLRLVWKHUDWLRRIFRVWRIJRRGVVROGSOXV
 RSHUDWLQJH[SHQVHVWRQHWVDOHV,WLVJHQHUDOO\H[SUHVVHGLQSHUFHQWDJH 6WRFN0DUNHW$QDO\VLV
2SHUDWLQJUDWLRVKRZVWKHRSHUDWLRQDOHIILFLHQF\RIWKHEXVLQHVV/RZHU
RSHUDWLQJUDWLRVKRZVKLJKHURSHUDWLQJSURILWDQGYLFHYHUVD$QRSHUDWLQJ
UDWLRUDQJLQJEHWZHHQDQGLVJHQHUDOO\FRQVLGHUHGDVVWDQGDUGIRU
127(6
PDQXIDFWXULQJFRQFHUQV7KLVUDWLRLVFRQVLGHUHGWREHD\DUGVWLFNRIRSHU
DWLQJHIILFLHQF\EXWLWVKRXOGEHXVHGFDXWLRXVO\EHFDXVHLWPD\EHDIIHFWHG
E\DQXPEHURIXQFRQWUROODEOHIDFWRUVEH\RQGWKHFRQWURORIWKHILUP

2SHUDWLQJ5DWLR >&RVWRIJRRGVVROG2SHUDWLQJH[SHQVHV1HWVDOHV@

î 

([SHQVH5DWLR([SHQVHUDWLRVLQGLFDWHWKHUHODWLRQVKLSRIYDULRXVH[SHQVHVWRQHW
VDOHV([SHQVHUDWLRVDUHFDOFXODWHGE\GLYLGLQJHDFKLWHPRIH[SHQVHVRUJURXSRI
H[SHQVHZLWKWKHQHWVDOHVWRDQDO\]HWKHFDXVHRIYDULDWLRQRIWKHRSHUDWLQJUDWLR

>3DUWLFXODU([SHQVH 3DUWLFXODUH[SHQVH1HWVDOHVî@

5HWXUQRQ6KDUHKROGHUV¶,QYHVWPHQWRU1HWZRUWK5DWLR,WLVWKHUDWLR
RIQHWSURILWWRVKDUHKROGHU¶VLQYHVWPHQW,WLVWKHUHODWLRQVKLSEHWZHHQQHW
SURILWDIWHULQWHUHVWDQGWD[DQGVKDUHKROGHU¶VSURSULHWRU¶VIXQG

5HWXUQRQVKDUHKROGHU¶VLQYHVWPHQW ^1HWSURILWDIWHULQWHUHVWDQGWD[

6KDUHKROGHU¶VIXQG`î

7KLVUDWLRLVRQHRIWKHPRVWLPSRUWDQWUDWLRVXVHGIRUPHDVXULQJWKHRYHUDOOHIIL
FLHQF\RIDILUP$VWKHSULPDU\REMHFWLYHRIEXVLQHVVLVWRPD[LPL]HLWVHDUQLQJV
WKLVUDWLRLQGLFDWHVWKHH[WHQWWRZKLFKWKLVSULPDU\REMHFWLYHRIEXVLQHVVHVEHLQJ
DFKLHYHG

5HWXUQRQ(TXLW\&DSLWDO52(&5DWLR

,QUHDOVHQVHRUGLQDU\VKDUHKROGHUVDUHWKHUHDORZQHUVRIWKHFRPSDQ\7KH\
DVVXPHWKHKLJKHVWULVNLQWKHFRPSDQ\3UHIHUHQFHVKDUHKROGHUVKDYHDSUHIHUHQFH
RYHURUGLQDU\VKDUHKROGHUVLQWKHSD\PHQWRIGLYLGHQGDVZHOODVFDSLWDO

5HWXUQRQ(TXLW\&DSLWDO >1HWSURILWDIWHUWD["3UHIHUHQFHGLYLGHQG

(TXLW\VKDUHFDSLWDO@î

7KLVUDWLRLVPRUHPHDQLQJIXOWRWKHHTXLW\VKDUHKROGHUVZKRDUHLQWHUHVWHG
WRNQRZSURILWV HDUQHGE\WKHFRPSDQ\ DQGWKRVHSURILWVZKLFK FDQEHPDGH
DYDLODEOHWRSD\GLYLGHQGVWRWKHP,QWHUSUHWDWLRQRIWKHUDWLRLVVLPLODUWRWKH
LQWHUSUHWDWLRQRIUHWXUQRQVKDUHKROGHU¶VLQYHVWPHQWVDQGKLJKHUWKHUDWLREHWWHULV

5HWXUQRQ&DSLWDO(PSOR\HG5DWLR52&(5DWLR

7KHSULPHREMHFWLYHRIPDNLQJLQYHVWPHQWVLQDQ\EXVLQHVVLVWRREWDLQVDWLVIDFWRU\
UHWXUQRQFDSLWDOLQYHVWHG+HQFHWKHUHWXUQRQFDSLWDOHPSOR\HGLVXVHGDVD
6HOI,QVWUXFWLRQDO 0DWHULDO
PHDVXUHRIVXFFHVVRIDEXVLQHVVLQUHDOL]LQJWKLVREMHFWLYH5HWXUQRQFDSLWDO

6HFXULW\$QDO\VLV HPSOR\HGUDWLRLVFRQVLGHUHGWREHWKHEHVWPHDVXUHRISURILWDELOLW\LQRUGHUWR
3RUWIROLR0DQDJHPHQW DVVHVVWKHRYHUDOOSHUIRUPDQFHRIWKHEXVLQHVV,WLQGLFDWHVKRZZHOOWKHPDQDJH
PHQWKDVXVHGWKHLQYHVWPHQWPDGHE\RZQHUVDQGFUHGLWRUVLQWRWKHEXVLQHVV
127(6 *URVV FDSLWDO HPSOR\HG  )L[HG DVVHWV  ,QYHVWPHQWV  &XUUHQW DVVHWV

1HWFDSLWDOHPSOR\HG )L[HGDVVHWV,QYHVWPHQWV:RUNLQJFDSLWDO 

:RUNLQJFDSLWDO FXUUHQWDVVHWV"FXUUHQWOLDELOLWLHV

5HWXUQRQ&DSLWDO(PSOR\HG $GMXVWHGQHWSURILWV &DSLWDOHPSOR\HGî@

'LYLGHQG<LHOG5DWLR

'LYLGHQG\LHOGUDWLRLVWKHUHODWLRQVKLSEHWZHHQ GLYLGHQGVSHUVKDUHDQGWKH
PDUNHWYDOXHRIWKHVKDUHV7KLVUDWLRKHOSVDVLQWHQGLQJLQYHVWRUNQRZVWKHHIIHFWLYH
UHWXUQKHLVJRLQJWRJHWRQWKHSURSRVHGLQYHVWPHQW

'LYLGHQG<LHOG5DWLR 'LYLGHQGSHU6KDUH0DUNHW9DOXHSHU6KDUH@

'LYLGHQG3D\RXW5DWLR

'LYLGHQGSD\RXWUDWLRLVFDOFXODWHGWRILQGWKHH[WHQWWRZKLFKHDUQLQJVSHUVKDUH
KDYHEHHQXVHGIRUSD\LQJGLYLGHQGDQGWRNQRZZKDWSRUWLRQRIHDUQLQJVKDVEHHQ
UHWDLQHGLQWKHEXVLQHVV,WLVDQLPSRUWDQWUDWLREHFDXVHLQYHVWLQJEDFNRISURILWV
HQDEOHVDFRPSDQ\WRJURZDQGSD\PRUHGLYLGHQGVLQIXWXUH

'LYLGHQG3D\RXW5DWLR 'LYLGHQGSHU(TXLW\6KDUH(DUQLQJVSHU6KDUH

$FRPSOHPHQWDU\RIWKLVUDWLRLVUHWDLQHGHDUQLQJVUDWLR5HWDLQHGHDUQLQJVUDWLR
LVFDOFXODWHGE\XVLQJWKHIROORZLQJIRUPXOD

>5HWDLQHG(DUQLQJV5DWLR 5HWDLQHG(DUQLQJ3HU(TXLW\6KDUH(DUQLQJ
3HU(TXLW\6KDUH@

7KHSD\RXWUDWLRDQGWKHUHWDLQHGHDUQLQJVUDWLRDUHWKHLQGLFDWRUVRIWKHDPRXQWRI
HDUQLQJVWKDWKDYHEHHQSORXJKHGEDFNLQWKHEXVLQHVV7KHORZHUWKHSD\RXWUDWLR
WKHKLJKHUZLOOEHWKHDPRXQWRIHDUQLQJVSORXJKHGEDFNLQWKHEXVLQHVVDQGYLFH
YHUVD

(DUQLQJVSHU6KDUH(365DWLR(DUQLQJVSHUVKDUHUDWLR(365DWLR

LVDVPDOOYDULDWLRQRIUHWXUQRQHTXLW\FDSLWDOUDWLRDQGLVFDOFXODWHGE\
GLYLGLQJWKHQHWSURILWDIWHUWD[HVDQGSUHIHUHQFHGLYLGHQGE\WKHWRWDOQXP
EHURIHTXLW\VKDUHV

(DUQLQJVSHUVKDUH(365DWLR 1HWSURILWDIWHUWD["3UHIHUHQFHGLYL

GHQG1RRIHTXLW\VKDUHVFRPPRQVKDUHV@

7KHHDUQLQJVSHUVKDUHUDWLRLVDJRRGPHDVXUHRISURILWDELOLW\DQGZKHQFRPSDUHG
6HOI,QVWUXFWLRQDO 0DWHULDO
ZLWK(36RIVLPLODUFRPSDQLHVLWJLYHVDYLHZRIWKHFRPSDUDWLYHHDUQLQJVRU

HDUQLQJVSRZHURIWKHILUP(36UDWLRFDOFXODWHGIRUDQXPEHURI\HDUVLQGLFDWHV 6WRFN0DUNHW$QDO\VLV
ZKHWKHURUQRWWKHHDUQLQJSRZHURIWKHFRPSDQ\KDVLQFUHDVHG

3ULFH(DUQLQJV5DWLR3(5DWLR
127(6
3ULFHHDUQLQJVUDWLR3(UDWLRLVWKHUDWLREHWZHHQPDUNHWSULFHSHUHTXLW\VKDUH
DQGHDUQLQJVSHUVKDUH3ULFHHDUQLQJVUDWLRKHOSVWKHLQYHVWRULQGHFLGLQJZKHWKHU
WREX\RUQRWWREX\WKHVKDUHVRIDSDUWLFXODUFRPSDQ\DWDSDUWLFXODUPDUNHWSULFH
*HQHUDOO\KLJKHUWKHSULFHHDUQLQJVUDWLRWKHEHWWHULWLV,IWKH3(UDWLRIDOOVWKH
PDQDJHPHQWVKRXOGORRNLQWRWKHFDXVHVWKDWKDYHUHVXOWHGLQWRWKHIDOORIWKLVUDWLR

3ULFH(DUQLQJV5DWLR 0DUNHWSULFHSHUHTXLW\VKDUH(DUQLQJVSHUVKDUH

 /HYHUDJH 5DWLRV

7KLVJURXSRIUDWLRVFDOFXODWHVWKHSURSRUWLRQDWHFRQWULEXWLRQVRIRZQHUVDQGFUHGL
WRUVWRDEXVLQHVVVRPHWLPHVDSRLQWRIFRQIOLFWEHWZHHQWKHWZRSDUWLHV&UHGLWRUV
OLNHRZQHUVWRSDUWLFLSDWHWRVHFXUHWKHLUPDUJLQRIVDIHW\ZKLOHPDQDJHPHQWHQMR\V
WKHJUHDWHURSSRUWXQLWLHVIRUULVNVKLIWLQJDQGPXOWLSO\LQJUHWXUQRQHTXLW\WKDWGHEW
RIIHUV

 (TXLW\5DWLR

&RPPRQ6KDUHKROGHUV¶(TXLW\

7RWDO&DSLWDO(PSOR\HG

7KHUDWLRRIFRPPRQVWRFNKROGHUV¶HTXLW\LQFOXGLQJHDUQHGVXUSOXVWRWRWDOFDSLWDO

RIWKHEXVLQHVVVKRZVKRZPXFKRIWKHWRWDOFDSLWDOL]DWLRQDFWXDOO\FRPHVIURPWKH
RZQHUV

'HEWWR(TXLW\5DWLR

'HEW3UHIHUUHG/RQJ7HUP

&RPPRQ6WRFNKROGHUV¶(TXLW\

$KLJKUDWLRKHUHPHDQVOHVVSURWHFWLRQIRUFUHGLWRUV$ORZUDWLRRQWKHRWKHUKDQG
LQGLFDWHVDZLGHUVDIHW\FXVKLRQLHFUHGLWRUVIHHOWKHRZQHU¶VIXQGVFDQKHOS
DEVRUESRVVLEOHORVVHVRILQFRPHDQGFDSLWDO

7RWDO'HEWWR7DQJLEOH1HW:RUWK

,I\RXUEXVLQHVVLVJURZLQJWUDFNWKLVUDWLRIRULQVLJKWLQWRWKHGLVWULEXWLYHVRXUFHRI
IXQGVXVHGWRILQDQFHH[SDQVLRQ

'HEW 5DWLR 

&XUUHQW/RQJ7HUP'HEW
6HOI,QVWUXFWLRQDO 0DWHULDO
7RWDO$VVHWV

6HFXULW\$QDO\VLV :KDWSHUFHQWDJHRIWRWDOIXQGVLVSURYLGHGE\FUHGLWRUV"$OWKRXJKFUHGLWRUVWHQGWR
3RUWIROLR0DQDJHPHQW SUHIHUDORZHUUDWLRPDQDJHPHQWPD\SUHIHUWROHYHURSHUDWLRQVSURGXFLQJDKLJKHU
UDWLR
127(6 7LPHV,QWHUHVW(DUQHG

(%,7

(%,7 HDUQLQJVEHIRUHLQWHUHVWDQGWD[HV

, GROODUDPRXQWRILQWHUHVWSD\DEOHRQGHEW

7KH7LPHV,QWHUHVW(DUQHG5DWLRVKRZVKRZPDQ\WLPHVHDUQLQJVZLOOFRYHUIL[HG
LQWHUHVWSD\PHQWVRQORQJWHUPGHEW

0DUNHW 9DOXH 5DWLRV

3ULFH(DUQLQJV5DWLR3(5DWLR

7KH3ULFH(DUQLQJV5DWLRLVFDOFXODWHGE\GLYLGLQJWKHFXUUHQWPDUNHWSULFHSHUVKDUH
RIWKHVWRFNE\HDUQLQJVSHUVKDUH(36(DUQLQJVSHUVKDUHDUHFDOFXODWHGE\
GLYLGLQJQHWLQFRPHE\WKHQXPEHURIVKDUHVRXWVWDQGLQJ

7KH3(5DWLRLQGLFDWHVKRZPXFKLQYHVWRUVDUHZLOOLQJWRSD\SHUGROODURIFXUUHQW
HDUQLQJV$VVXFKKLJK3(5DWLRVDUHDVVRFLDWHGZLWKJURZWKVWRFNV,QYHVWRUV
ZKRDUHZLOOLQJWRSD\DKLJKSULFHIRUDGROODURIFXUUHQWHDUQLQJVREYLRXVO\H[SHFW
KLJKHDUQLQJVLQWKHIXWXUH,QWKLVPDQQHUWKH3(5DWLRDOVRLQGLFDWHVKRZH[SHQ
VLYHDSDUWLFXODUVWRFNLV7KLVUDWLRLVQRWPHDQLQJIXOKRZHYHULIWKHILUPKDVYHU\
OLWWOHRUQHJDWLYHHDUQLQJV

:KHUH

0DUNHWWR%RRN 5DWLR

7KH0DUNHWWR%RRN5DWLRUHODWHVWKHILUP¶VPDUNHWYDOXHSHUVKDUHWRLWVERRN
YDOXHSHUVKDUH6LQFHDILUP¶VERRNYDOXHUHIOHFWVKLVWRULFDOFRVWDFFRXQWLQJWKLV
UDWLRLQGLFDWHVPDQDJHPHQW¶VVXFFHVVLQFUHDWLQJYDOXHIRULWVVWRFNKROGHUV7KLVUDWLR
LVXVHGE\³YDOXHEDVHGLQYHVWRUV´WRKHOSWRLGHQWLI\XQGHUYDOXHGVWRFNV

:KHUH

Ϯ͘ϭϬ dĞĐŚŶŝĐĂů ŶĂůLJƐŝƐ

)XQGDPHQWDODQDO\VLVLQYROYHVDQDO\]LQJWKHFKDUDFWHULVWLFVRIDFRPSDQ\LQRUGHUWR
HVWLPDWHLWVYDOXH7HFKQLFDODQDO\VLVWDNHVDFRPSOHWHO\GLIIHUHQWDSSURDFKLWGRHVQ¶W
FDUHRQHELWDERXWWKH³YDOXH´RIDFRPSDQ\RUDFRPPRGLW\7HFKQLFLDQVVRPH
WLPHVFDOOHGFKDUWLVWVDUHRQO\LQWHUHVWHGLQWKHSULFHPRYHPHQWVLQWKHPDUNHW
'HVSLWHDOOWKHIDQF\DQGFRPSOH[WRROVLWHPSOR\VWHFKQLFDODQDO\VLVUHDOO\MXVW
6HOI,QVWUXFWLRQDO 0DWHULDO VWXGLHVVXSSO\DQGGHPDQGLQDPDUNHWLQDQDWWHPSWWRGHWHUPLQHZKDWGLUHFWLRQ

RUWUHQGZLOOFRQWLQXHLQWKHIXWXUH,QRWKHUZRUGVWHFKQLFDODQDO\VLVDWWHPSWVWR 6WRFN0DUNHW$QDO\VLV
XQGHUVWDQGWKHHPRWLRQVLQWKHPDUNHWE\VWXG\LQJWKHPDUNHWLWVHOIDVRSSRVHGWR
LWVFRPSRQHQWV,I\RXXQGHUVWDQGWKHEHQHILWVDQGOLPLWDWLRQVRIWHFKQLFDODQDO\VLV
LWFDQJLYH\RXDQHZVHWRIWRROVRUVNLOOVWKDWZLOOHQDEOH\RXWREHDEHWWHUWUDGHU
127(6
RULQYHVWRU

7HFKQLFDODQDO\VLVLVDPHWKRGRIHYDOXDWLQJVHFXULWLHVE\DQDO\]LQJWKHVWDWLVWLFV
JHQHUDWHGE\PDUNHWDFWLYLW\VXFKDVSDVWSULFHVDQGYROXPH7HFKQLFDODQDO\VWVGR
QRWDWWHPSWWRPHDVXUHDVHFXULW\¶VLQWULQVLFYDOXHEXWLQVWHDGXVHFKDUWVDQGRWKHU
WRROVWRLGHQWLI\SDWWHUQVWKDWFDQVXJJHVWIXWXUHDFWLYLW\

-XVWDVWKHUHDUHPDQ\LQYHVWPHQWVW\OHVRQWKHIXQGDPHQWDOVLGHWKHUHDUHDOVR
PDQ\GLIIHUHQWW\SHVRIWHFKQLFDOWUDGHUV6RPHUHO\RQFKDUWSDWWHUQVRWKHUVXVH
WHFKQLFDOLQGLFDWRUVDQGPRVWXVHVRPHFRPELQDWLRQRIWKHWZR,QDQ\FDVH
WHFKQLFDODQDO\VWV¶H[FOXVLYHXVHRIKLVWRULFDOSULFHDQGYROXPHGDWDLVZKDWVHSD
UDWHVWKHPIURPWKHLUIXQGDPHQWDOFRXQWHUSDUWV8QOLNHIXQGDPHQWDODQDO\VWVWHFK
QLFDODQDO\VWVGRQ¶WFDUHZKHWKHUDVWRFNLVXQGHUYDOXHGWKHRQO\WKLQJWKDWPDWWHUV
LVDVHFXULW\¶VSDVWWUDGLQJGDWDDQGZKDWLQIRUPDWLRQWKLVGDWDFDQSURYLGHDERXW
ZKHUHWKHVHFXULW\PLJKWPRYHLQWKHIXWXUH7KHILHOGRIWHFKQLFDODQDO\VLVLVEDVHG
RQWKUHHDVVXPSWLRQV

 7KH0DUNHW'LVFRXQWVHYHU\WKLQJ$PDMRUFULWLFLVPRIWHFKQLFDODQDO\
VLVLVWKDWLWRQO\FRQVLGHUVSULFHPRYHPHQWLJQRULQJWKHIXQGDPHQWDOIDFWRUV
RIWKHFRPSDQ\+RZHYHUWHFKQLFDODQDO\VLVDVVXPHVWKDWDWDQ\JLYHQWLPH
DVWRFN¶VSULFHUHIOHFWVHYHU\WKLQJWKDWKDVRUFRXOGDIIHFWWKHFRPSDQ\
LQFOXGLQJIXQGDPHQWDOIDFWRUV7HFKQLFDODQDO\VWVEHOLHYHWKDWWKHFRPSDQ\¶V
IXQGDPHQWDOVDORQJZLWKEURDGHUHFRQRPLFIDFWRUVDQGPDUNHWSV\FKRORJ\
DUHDOOSULFHGLQWRWKHVWRFNUHPRYLQJWKHQHHGWRDFWXDOO\FRQVLGHUWKHVH
IDFWRUVVHSDUDWHO\7KLVRQO\OHDYHVWKHDQDO\VLVRISULFHPRYHPHQWZKLFK
WHFKQLFDOWKHRU\YLHZVDVDSURGXFWRIWKHVXSSO\DQGGHPDQGIRUDSDU
WLFXODUVWRFNLQWKHPDUNHW

 3ULFH0RYHVLQ7UHQGV,QWHFKQLFDODQDO\VLVSULFHPRYHPHQWVDUHEH
OLHYHGWRIROORZWUHQGV7KLVPHDQVWKDWDIWHUDWUHQGKDVEHHQHVWDEOLVKHG
WKHIXWXUHSULFHPRYHPHQWLVPRUHOLNHO\WREHLQWKHVDPHGLUHFWLRQDVWKH
WUHQGWKDQWREHDJDLQVWLW0RVWWHFKQLFDOWUDGLQJVWUDWHJLHVDUHEDVHGRQ
WKLVDVVXPSWLRQ

 +LVWRU\WHQGVWRUHSHDWLWVHOI$QRWKHULPSRUWDQWLGHDLQWHFKQLFDODQDO\
VLVLVWKDWKLVWRU\WHQGVWRUHSHDWLWVHOIPDLQO\LQWHUPVRISULFHPRYHPHQW
7KHUHSHWLWLYHQDWXUHRISULFHPRYHPHQWVLVDWWULEXWHGWRPDUNHWSV\FKRORJ\
LQRWKHUZRUGVPDUNHWSDUWLFLSDQWVWHQGWRSURYLGHDFRQVLVWHQWUHDFWLRQWR
VLPLODUPDUNHWVWLPXOLRYHUWLPH7HFKQLFDODQDO\VLVXVHVFKDUWSDWWHUQVWR
DQDO\]HPDUNHWPRYHPHQWVDQGXQGHUVWDQGWUHQGV$OWKRXJKPDQ\RIWKHVH 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV FKDUWVKDYHEHHQXVHGIRUPRUHWKDQ\HDUVWKH\DUHVWLOOEHOLHYHGWREH
3RUWIROLR0DQDJHPHQW UHOHYDQWEHFDXVHWKH\LOOXVWUDWHSDWWHUQVLQSULFHPRYHPHQWVWKDWRIWHQUHSHDW
WKHPVHOYHV
127(6 )DFWRUV&RQVLGHUHGLQ7HFKQLFDO$QDO\VLV

3ULFH&KDQJHVLQSULFHUHIOHFWVFKDQJHVLQLQYHVWRUV¶DWWLWXGH GHPDQGIRU
VXSSO\RIVHFXULWLHV

7LPH7KHGHJUHHRIPRYHPHQWLQSULFHLVDIXQFWLRQRIWLPH7KHORQJHULW
WDNHVIRUDUHYHUVDOLQWUHQGWKHJUHDWHUWKHSULFHFKDQJHWKDWZRXOGIROORZ

9ROXPH7KHLQWHQVLW\RISULFHFKDQJHVLVUHIOHFWHGLQWKHYROXPHRIWUDQV
DFWLRQVWKDWDFFRPSDQ\WKHFKDQJH$QLQFUHDVHLQSULFHDFFRPSDQLHGE\
DORZYROXPHLPSOLHVWKDWWKHFKDQJHLVQRWVWURQJHQRXJK

%UHDGWK7KHTXDOLW\RISULFHFKDQJHLVPHDVXUHGE\VWXG\LQJZKHWKHUD
FKDQJHLQWUHQGVSUHDGVDFURVVPRVWVHFWRUV LQGXVWULHVRULVFRQFHQWUDWHG
LQOLWWOHVFULS6WXG\RIWKHEUHDGWKRIWKHPDUNHWLQGLFDWHVWKHH[WHQWWR
ZKLFKSULFHFKDQJHVKDYHWDNHQSODFHLQWKHPDUNHWLQDFFRUGDQFHZLWK
FHUWDLQRYHUDOOWUHQG
7RROVRI7HFKQLFDO$QDO\VLV
&DWHJRU\ 0DUNHW ,QGLFDWRUV
0DUNHW  ,QGLYLGXDO

6WRFN ,QGLFDWRUV
3ULFH ,QGLFDWRUV L 'RZ 7KHRU\ L &KDUWLQJ 7HFKQLTXHV
LL (OOLRW :DYH 7KHRU\ ‡  %DU &KDUW
LLL %UHDGWK RI 0DUNHW ,QGLFDWRUV ‡  /LQH &KDUW
ā ‡ 3OXUDOLW\ ‡  3RLQW )LJXUH &KDUW
‡  0DUNHW %UHDGWK ,QGH[ LL 0RYLQJ$YHUDJHV
‡  $GYDQFHV 'HFOLQHV LLL 5HODWLYH 6WUHQJWK
LY 1HZ KLJKV  1HZ /RZV
Y 0RVW$FWLYH /LVW
YL &RQILGHQFH ,QGLFDWRUV'LVSDULW\ ,QGH[ L &KDUWLQJ
7HFKQLTXHV
9ROXPH ,QGLFDWRUV L 1HZ <RUN  $PHULFDQ 5HVLVWDQFH  6XSSRUW
&KDUWV
([FKDQJH 9ROXPH
LL &RQWUDU\ 2SLQLRQ 7KHRU\ 3ULPH 9ROXPH %DU &KDUWV
‡  6KRUW 6HOOLQJ
‡  2GG /RW 7UDGLQJ
2WKHU ,QGLFDWRUV  0XWXDO )XQG$FWLYLW\
 &UHGLW %DODQFH 7KHRU\
6HOI,QVWUXFWLRQDO 0DWHULDO

3ULFH,QGLFDWRUV 6WRFN0DUNHW$QDO\VLV

0DUNHW,QGLFDWRUV
'RZ7KHRU\
127(6
'RZ7KHRU\ZDVIRUPXODWHGIURPDVHULHVRI:DOO6WUHHW-RXUQDOHGLWRULDOVDXWKRUHG
E\&KDUOHV+'RZIURPXQWLOWKHWLPHRIKLVGHDWKLQ7KHVHHGLWRULDOV
UHIOHFWHG'RZ¶VEHOLHIVRQKRZWKHVWRFNPDUNHWEHKDYHGDQGKRZWKHPDUNHW
FRXOGEHXVHGWRPHDVXUHWKHKHDOWKRIWKHEXVLQHVVHQYLURQPHQW'RZEHOLHYHGWKDW
WKHVWRFNPDUNHWDVDZKROHZDVDUHOLDEOHPHDVXUHRIRYHUDOOEXVLQHVVFRQGLWLRQV
ZLWKLQWKHHFRQRP\DQGWKDWE\DQDO\]LQJWKHRYHUDOOPDUNHWRQHFRXOGDFFXUDWHO\
PHDVXUHWKRVHFRQGLWLRQVDQGLGHQWLI\WKHGLUHFWLRQRIPDMRUPDUNHWWUHQGVDQGWKH
OLNHO\GLUHFWLRQRILQGLYLGXDOVWRFNV
6L[%DVLFYLHZRI'RZ7KHRU\
7KH0DUNHW'LVFRXQWVHYHU\WKLQJ7KHILUVWEDVLFSUHPLVHRI'RZ7KHRU\
VXJJHVWVWKDWDOOLQIRUPDWLRQSDVWFXUUHQWDQGHYHQIXWXUHLVGLVFRXQWHG
LQWRWKHPDUNHWVDQGUHIOHFWHGLQWKHSULFHVRIVWRFNVDQGLQGH[HV7KDW
LQIRUPDWLRQLQFOXGHVHYHU\WKLQJIURPWKHHPRWLRQVRILQYHVWRUVWRLQIODWLRQ
DQGLQWHUHVWUDWHGDWDDORQJZLWKSHQGLQJHDUQLQJVDQQRXQFHPHQWVWREH
PDGHE\FRPSDQLHVDIWHUWKHFORVH%DVHGRQWKLVWHQHWWKHRQO\LQIRUPDWLRQ
H[FOXGHGLVWKDWZKLFKLVXQNQRZDEOHVXFKDVDPDVVLYHHDUWKTXDNH%XW
HYHQWKHQWKHULVNVRIVXFKDQHYHQWDUHSULFHGLQWRWKHPDUNHW
0DUNHWKDVPRYHPHQWV
, 3ULPDU\7UHQG,Q 'RZ WKHRU\WKH SULPDU\WUHQG LVWKH PDMRU WUHQG RI WKH
PDUNHWZKLFKPDNHVLWWKHPRVWLPSRUWDQWRQHWRGHWHUPLQH,WGHWHUPLQHGWKDWD
SULPDU\WUHQGZLOOJHQHUDOO\ODVWEHWZHHQRQHDQGWKUHH\HDUVEXWFRXOGYDU\LQVRPH
LQVWDQFHV7KHSULPDU\WUHQGZLOODOVRLPSDFWWKHVHFRQGDU\DQGPLQRUWUHQGVZLWKLQ
WKHPDUNHW7KLVWUHQGPD\EHULVLQJ%XOO0DUNHWRUIDOOLQJ%HDU0DUNHW

       8SZDUG7UHQG                       'RZQZDUG7UHQG
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV ,,6HFRQGDU\7UHQG$VHFRQGDU\WUHQGPRYHVLQWKHRSSRVLWHGLUHFWLRQRI
3RUWIROLR0DQDJHPHQW WKHSULPDU\WUHQGRUDVDFRUUHFWLRQWRWKHSULPDU\WUHQG,QJHQHUDODVHFRQG
DU\RULQWHUPHGLDWHWUHQGW\SLFDOO\ODVWVEHWZHHQWKUHHZHHNVDQGWKUHHPRQWKV
ZKLOHWKHUHWUDFHPHQWRIWKHVHFRQGDU\WUHQGJHQHUDOO\UDQJHVDPRQJRQHWKLUG
127(6 WRWZRWKLUGVRIWKHSULPDU\WUHQG¶VPRYHPHQW

$VHFRQGDU\WUHQGZDSULPDU\XSWUHQG
,,,0LQRU7UHQG7KHODVWRIWKHWKUHHWUHQGW\SHVLQ'RZ7KHRU\LVWKHPLQRU
WUHQGZKLFKLVGHILQHGDVDPDUNHWPRYHPHQWODVWLQJOHVVWKDQWKUHHZHHNV7KH
PLQRUWUHQGLVJHQHUDOO\WKHFRUUHFWLYHPRYHVZLWKLQDVHFRQGDU\PRYHRUWKRVH
PRYHVWKDWJRDJDLQVWWKHGLUHFWLRQRIWKHVHFRQGDU\WUHQG

                                               0LQRU 7UHQG
3ULFH$FWLRQ'HWHUPLQHVWKHWUHQG
6HOI,QVWUXFWLRQDO 0DWHULDO /LQHVLQGLFDWHPRYHPHQW

 3ULFH9ROXPH5HODWLRQVKLSVSURYLGH%DFNJURXQG7KHUHODWLRQVKLSEHWZHHQ 6WRFN0DUNHW$QDO\VLV
VKDUHSULFHV YROXPHRIVKDUHVWUDGHGLVYHU\LPSRUWDQWLQWHFKQLFDODQDO\
VLV9ROXPHLVQRUPDOO\H[SHFWHGWRFRPSOHPHQWWKHPRYHPHQWLQSULFHV$
UHYHUVDOLQWUHQGLVVLJQDOHGLIDGXOOYROXPHDFFRPSDQLHVDUDOO\RUDKLJK
YROXPHRUDUHYHUVDO 127(6

$YHUDJHPXVWFRQILUP$FFRUGLQJWRWKLVSRLQWWKHPDUNHWDYHUDJHV
LQGXVWU\DYHUDJHVPXVWFRQILUPHDFKRWKHU PRYHWRJHWKHU

&ULWLFLVPVRI'RZ7KHRU\

,WLVQRWDWKHRU\EXWDQLQWHUSUHWDWLRQRINQRZQGDWD

7KHUHLVFRQVLGHUDEOHJDSEHWZHHQWKHDFWXDOWUXPSVSRLQWV WKRVHLQGL
FDWHGE\WKHIRUHFDVW

,WKDVSRRUSUHGLFWLYHSRZHU

(OOLRW:DYH7KHRU\

$FFRUGLQJWRWKLVWKHRU\WKHPDUNHWLVXQIROGHGWKURXJKWKHEDVLVUK\WKPRUSDWWHUQ
RIXSZDUG GRZQZDUGZDYHVWRIRUPDFRPSOHWHF\FOHRIZDYHV2QH
FRPSOHWHF\FOHFRQVLVWVRIZDYHVRIGLVWLQFWSKDVHVEXOOLVK EHDULVK

:DYH3HUVRQDOLWLHV

:DYH $ERXWKDOIRIWKHILUVWZDYHVDUHSDUWRIWKHEDVLQJSURFHVV RIWHQ

DSSHDUWREHQRWKLQJPRUHWKDQDUHERXQGIURPYHU\GHSUHVVHGOHYHOV
)LUVWZDYHVDUHXVXDOO\WKHVKRUWHVWRIWKHILYHZDYHV7KHVHILUVWZDYHV
FDQVRPHWLPHVEHG\QDPLFHVSHFLDOO\LIWKH\RFFXUIURPPDMRUEDVH
IRUPDWLRQV

:DYH 6HFRQGZDYHVXVXDOO\UHWUDFHRUJLYHEDFNDOORUPRVWRIZDYH7KH
DELOLW\RIZDYHKRZHYHUWRKROGDERYHWKHERWWRPLVZKDWSURGXFHV
PDQ\RIWKHWUDGLWLRQDOFKDUWSDWWHUQVVXFKDVGRXEOHRUWULSOH LQYHUVH
KHDG VKRXOGHUVERWWRPV

:DYH 7KHUGZDYHLVORQJHVW PRVWG\QDPLFDWOHDVWLQWKHFRPPRQVWRFN

DUHD7KHSHQHWUDWLRQRIWRSRIZDYHUHJLVWHUVDOONLQGRIWUDGLWLRQDO
EUHDNRXWV 'RZ7KHRU\EX\VLJQDOV9LUWXDOO\DOOWHFKQLFDOWUHQGIROORZ
LQJV\VWHPVKDYHMXPSHGRQWKHEXOOEDQGZDJRQE\WKLVSRLQW9ROXPH
LVKHDYLHVWGXULQJWKLVZDYH JDSVSUHYDLO

:DYH 7KHIRXUWKZDYHLVXVXDOO\DFRPSOH[SDWWHUQ/LNHZDYHLWLVFRUUHF
WLYHRUDFRQVROLGDWLRQSKDVHEXWXVXDOO\GLIIHUVIURPLWLQFRQVWUXFWLRQ
2QHLPSRUWDQWSRLQWLVWKDWWKHERWWRPRIZDYHFDQ¶WRYHUODSWRSRI
ZDYH

:DYH ,QFDVHRIVWRFNVZDYHLVPXFKOHVVG\QDPLFWKDQZDYH,QFRP
6HOI,QVWUXFWLRQDO 0DWHULDO
PRGLWLHVZDYHLVORQJHVWZDYH WKHRQHPRVWOLNHO\WRH[WHQG

6HFXULW\$QDO\VLV %UHDGWKRI0DUNHW,QGLFDWRUV
3RUWIROLR0DQDJHPHQW
3OXUDOLW\RUQHWDGYDQFHV GHFOLQHV7RJHWQHWDGYDQFHVRUGHFOLQHVVXEWUDFW
WKHQXPEHURILVVXHVZKRVHSULFHVGHFOLQHGIURPWKHQXPEHURILVVXHVZKRVHSULFHV
127(6 DGYDQFHGHDFKGD\2EWDLQFXPXODWLYHLQGH[E\DGGLQJGDLO\QHWDGYDQFHV GH
FOLQHV

:KHQWKHLQGH[LVYHPDUNHWLVEXOOLVK

:KHQWKHLQGH[LV±YHPDUNHWLVEHDULVK

$GYDQFHG±'HFOLQH5DWLR$VLPSOHYDULDQWWRWKHDERYHPHWKRGLVFRPSXWLQJ
DUDWLR

$GYDQFHG'HFOLQH5DWLR 1XPEHURIDGYDQFHV1XPEHURIGHFOLQHV

:KHQWKHUDWLRLV!PDUNHWLVEXOOLVK

:KHQWKHUDWLRLVPDUNHWLVEHDULVK

0DUNHW%UHDGWK,QGH[7KLVLVDQRWKHUZD\RIFRPSXWLQJWKHDGYDQFHV
GHFOLQHV

0DUNHW%UHDGWK,QGH[ DGYDQFHVGHFOLQHVXQFKDQJHG

1HZKLJKV 1HZ/RZV

$VXSSOHPHQWDU\PHDVXUHWRPDUNHWEUHDGWKLQGH[LVKLJKORZGLIIHUHQWRULQGH[
7KHDVVXPSWLRQVXQGHUO\LQJLVULVLQJPDUNHWZLOOKDYHPRUHQXPEHURIVWRFNV
DWWDLQLQJQHZKLJKV GZLQGOLQJQXPEHURIQHZORZV7KHUHYHUVHKROGVWUXHIRUD
GHFOLQLQJPDUNHW

7KHLQGH[LVFRPSXWHGDVIROORZV

7KHQXPEHURIVWRFNVPDNLQJQHZKLJKVPLQXVWKHVWRFNVPDNLQJQHZORZV
LVREWDLQHGIRUD\HDU

$PRYLQJDYHUDJHRIGD\SHULRGLVFDOFXODWHG

6XFKDKLJKORZLQGH[ZRXOGQRUPDOO\PRYHZLWKWKHPDUNHW$Q\GLYHUJHQFHIURP
WKHPDUNHWWUHQGLVFOXHWRIXWXUHSULFHPRYHPHQWV
0RVW$FWLYH /LVW

7KHPRVWDFWLYHVWRFNVLQDQ\PDUNHWVKRZLQJDQHWJDLQRUQHWORVVHDFKZHHN
GRQRWH[FHHGWZHQW\7KHVHLVVXHVWDNHQDVDZKROHUHSUHVHQWRQO\SHUFHQWRI
WKHWRWDOLVVXHVWUDGHGEXWDFFRXQWIRUDOPRVWRIWKHWRWDOYROXPH6LQFH
UDQGRPYDULDWLRQVRIWHQRFFXULQWKHVWRFNPDUNHWDQDGGLWLRQDOWLPHGLPHQVLRQRI
VHYHUDOZHHNVLVHVVHQWLDO$ZHHNDFWLYLW\ZLOOWHQGWRVPRRWKRWKHUHUUDWLFFXUYH
7KHQWKHXSSHU ORZHUOLPLWVRIWKHPRVWDFWLYHOLVWEHFRPHV 

6HOI,QVWUXFWLRQDO 0DWHULDO %HDU0DUNHW,QGLFDWRUVRIIROORZLQJDORQJ FRQWLQXRXVGHFOLQHLQWKHPDUNHW


%XOO0DUNHW,QGLFDWRUVRILQDULVLQJPDUNHW 6WRFN0DUNHW$QDO\VLV

&RQILGHQFH,QGLFDWRUV'LVSDULW\,QGH[

$FRQILGHQFHLQGLFDWRUVKRXOGWHOODWHFKQLFLDQKRZZLOOLQJLQYHVWRUDUHWRDVVXPH
127(6
ULVN2QHFRQILGHQFHLQGLFDWRULV%DURQ¶V&RQILGHQFH,QGLFDWRU%&,

%DURQ¶V&RQILGHQFH,QGLFDWRU%&, $YHUDJH\LHOGRI%DURQ¶VKLJKHVWJUDGH

ERQGVDWWLPHW$YHUDJH\LHOGRI'UDZ-RQHVERQGVDWWLPHWOHVVHUJUDGH

7KH%&,VKRXOGDOZD\VEHOHVVWKDQ

3ULFH,QGLFDWRUVRI,QGLYLGXDO6WRFN,QGLFDWRUV

&KDUWLQJ7HFKQLTXHV

 %DU&KDUW%DUFKDUWVKDYHDVHULHVRIYHUWLFDOEDUVUHSUHVHQWLQJHDFKGD\¶V
SULFHPRYHPHQW(DFKEDUKDVDUDQJHIURPWKHGD\¶VORZHVWSULFHWRWKH
GD\¶VKLJKHVWSULFH$VPDOOFURVVRQHDFKEDUVLJQLILHVWKHGD\¶VFORVLQJ
SULFH

 /LQH&KDUW$OLQHFKDUWLVDJUDSKRIVXFFHVVLYHGD\¶VFORVLQJSULFHV7KH
PRUHLPSRUWDQWIRUPDWLRQV WKHLULQGLFDWLRQVDUHGHVFULEHGEHORZ

&ŝŐƵƌĞƐ͗

R ,ĞĂĚΘ^ŚŽƵůĚĞƌƐdŽƉWĂƚƚĞƌŶͲƐƚŚĞŶĂŵĞƐƵŐŐĞƐƚƐ͕ƚŚĞ,^d
ĨŽƌŵĂƚŝŽŶ ŚĂƐ Ă ůĞĨƚ ƐŚŽƵůĚĞƌ͕ ĂŚĞĂĚ͕ Θ Ă ƌŝŐŚƚ ƐŚŽƵůĚĞƌ͘ dŚĞ
,^dĨŽƌŵĂƚŝŽŶƌĞƉƌĞƐĞŶƚƐĂďĞĂƌŝƐŚĚĞǀĞůŽƉŵĞŶƚ͘/ĨƚŚĞƉƌŝĐĞ
ŝƐďĞůŽǁŶĞĐŬůŝŶĞ͕ĂƉƌŝĐĞĚĞĐůŝŶĞŝƐĞdžƉĞĐƚĞĚΘŚĞŶĐĞŝƚŝƐƚŚĞ
ƐŝŐŶĂů ƚŽ ƐĞůů͘

R /ŶǀĞƌƐĞ ,ĞĂĚ Θ ^ŚŽƵůĚĞƌƐ dŽƉ WĂƚƚĞƌŶͲ dŚĞ /,^d ĨŽƌŵĂƚŝŽŶ ŝƐ

ƚŚĞŝŶǀĞƌƐĞŽĨ,^dĨŽƌŵĂƚŝŽŶ͘

R dƌŝĂŶŐůĞŽƌŽŝů&ŽƌŵĂƚŝŽŶͲdŚŝƐĨŽƌŵĂƚŝŽŶƌĞƉƌĞƐĞŶƚƐĂƉĂƚƚĞƌŶ
ŽĨ ƵŶĐĞƌƚĂŝŶƚLJ͘ ,ĞŶĐĞ ŝƚ ŝƐ ĚŝĨĨŝĐƵůƚ ƚŽ ƉƌĞĚŝĐƚ ǁŚŝĐŚ ǁĂLJ ƚŚĞ
ƉƌŝĐĞ ǁŝůů ďƌĞĂŬ ŽƵƚ͘

R &ůĂŐƐΘWĞŶŶĂŶƚƐ&ŽƌŵĂƚŝŽŶͲ/ƚƚLJƉŝĐĂůůLJƐŝŐŶŝĨŝĞƐĂƉĂƵƐĞĂĨƚĞƌ
ǁŚŝĐŚ ƚŚĞƉƌĞǀŝŽƵƐ ƉƌŝĐĞƚƌĞŶĚ ŝƐ ůŝŬĞůLJƚŽ ĐŽŶƚŝŶƵĞ͘

R ŽƵďůĞ dŽƉ &ŽƌŵĂƚŝŽŶͲ/ƚ ƌĞƉƌĞƐĞŶƚƐ Ă ďĞĂƌŝƐŚ ĚĞǀĞůŽƉŵĞŶƚ͕

ƐŝŐŶĂůŝŶŐ ƚŚĂƚ ƚŚĞ ƉƌŝĐĞ ŝƐ ĞdžƉĞĐƚĞĚ ƚŽ ĨĂůů͘

R ŽƵďůĞŽƚƚŽŵ&ŽƌŵĂƚŝŽŶͲ/ƚƌĞƉƌĞƐĞŶƚƐĂďƵůůŝƐŚĚĞǀĞůŽƉŵĞŶƚ͕
ƐŝŐŶĂůŝŶŐ ƚŚĂƚ ƚŚĞ ƉƌŝĐĞ ŝƐ ĞdžƉĞĐƚĞĚ ƚŽ ƌŝƐĞ͘
&ŝŐƵƌĞƐ͗
ϲ WŽŝŶƚ&ŝŐƵƌĞŚĂƌƚƐͲWŽŝŶƚΘ&ŝŐƵƌĞŚĂƌƚƐĂƌĞĂƚŚŝƌĚΘŵŽƌĞĐŽŵƉůĞdž
6HOI,QVWUXFWLRQDO 0DWHULDO
ƚLJƉĞŽĨĐŚĂƌƚ͘ dĞĐŚŶŝĐĂůĂŶĂůLJƐƚƐƵƐĞW&ƐƚŽƉƌĞĚŝĐƚ ƌĞǀĞƌƐĂůŝŶƉƌŝĐĞ

6HFXULW\$QDO\VLV ƚƌĞŶĚƐĨŽƌĐŽŵŵŽŶƐƚŽĐŬƐďƵƚƚŽĨŽƌĞĐĂƐƚĨƵƚƵƌĞƉƌŝĐĞŵŽǀĞŵĞŶƚ͘/ƚ
3RUWIROLR0DQDJHPHQW
127(6
6HOI,QVWUXFWLRQDO 0DWHULDO
 ĂďůĞƚŽƚŚĞŵĂƌŬĞƚŽƉĞƌĂƚŽƌƐ͘tŚĞŶƚŚĞƐŚĂƌĞƉƌŝĐĞƐĚĞĐůŝŶĞ͕ĂďĞĂƌƚŚŝŶŬƐ
ŚĂƐ ƚŚĞ ĨŽůůŽǁŝŶŐ ĨĞĂƚƵƌĞƐ͗
ĂͿ ,ĞƌĞ ŽŶůLJ ƐŝŐŶŝĨŝĐĂŶƚ ƉƌŝĐĞ ĐŚĂŶŐĞƐ ĂƌĞ ƌĞĐŽƌĚĞĚ͘
ďͿ tŚŝůĞ ƚŚĞ ǀĞƌƚŝĐĂů ƐĐĂůĞ ŽŶ W& ƌĞƉƌĞƐĞŶƚƐ ƚŚĞ ƉƌŝĐĞ ŽĨ ƚŚĞ
ƐƚŽĐŬ͕ ƚŚĞ ŚŽƌŝnjŽŶƚĂů ƐĐĂůĞ ƌĞƉƌĞƐĞŶƚƐ ƚŚĞ ƚŝŵĞ ƐĐĂůĞ ŝŶ ƚŚĞ
ƵƐƵĂů ƚŝŵĞ͘
ĐͿ ĂĐŚ ĐŽůƵŵŶ ƌĞƉƌĞƐĞŶƚƐ Ă ƐŝŐŶŝĨŝĐĂŶƚ ƌĞǀĞƌƐĂů ŽĨ ƉƌŝĐĞ ŵŽǀĞͲ
ŵĞŶƚ Θ ŶŽƚ Ă ƚƌĂĚŝŶŐ ĚĂLJ͘
;ŝŝͿ DŽǀŝŶŐ ǀĞƌĂŐĞƐ
x ^ŝŵƉůĞDŽǀŝŶŐǀĞƌĂŐĞ͗/ƚƐŝŵƉůLJƚĂŬĞƐƚŚĞƐƵŵŽĨĂůůƚŚĞƉĂƐƚ
ĐůŽƐŝŶŐƉƌŝĐĞƐŽǀĞƌƚŚĞƉĞƌŝŽĚŽĨƚŝŵĞΘĚŝǀŝĚĞƐƚŚĞƐƵŵďLJƚŚĞ
ŶƵŵďĞƌŽĨƉƌŝĐĞƐ͘
x >ŝŶĞĂƌ ǁĞŝŐŚƚĞĚ ǀĞƌĂŐĞƐ͗ dŚĞ ůŝŶĞĂƌ ǁĞŝŐŚƚĞĚ ĂǀĞƌĂŐĞ ŝƐ
ĐĂůĐƵůĂƚĞĚ ďLJ ƚĂŬŝŶŐ ƚŚĞ ƐƵŵ ŽĨ Ăůů ƚŚĞ ĐůŽƐŝŶŐ ƉƌŝĐĞƐ ŽǀĞƌ Ă
ĐĞƌƚĂŝŶƚŝŵĞƉĞƌŝŽĚΘŵƵůƚŝƉůLJŝŶŐƚŚĞŵďLJƚŚĞƉŽƐŝƚŝŽŶŽĨƚŚĞ
ĚĂƚĂƉŽŝŶƚΘĚŝǀŝĚŝŶŐďLJƚŚĞ ƐƵŵŽĨŶƵŵďĞƌŽĨƉĞƌŝŽĚƐ͘
x džƉŽŶĞŶƚŝĂůDŽǀŝŶŐǀĞƌĂŐĞ͗dŚŝƐŵŽǀŝŶŐĂǀĞƌĂŐĞĐĂůĐƵůĂƚŝŽŶ
ƵƐĞƐ Ă ƐŵŽŽƚŚŝŶŐ ĨĂĐƚŽƌ ƚŽ ƉůĂĐĞ Ă ŚŝŐŚĞƌ ǁĞŝŐŚƚ ŽŶ ƌĞĐĞŶƚ
ĚĂƚĂ ƉŽŝŶƚƐ Θ ŝƐ ƌĞŐĂƌĚĞĚ ĂƐ ŵƵĐŚ ŵŽƌĞ ĞĨĨŝĐŝĞŶƚ ƚŚĂŶ ůŝŶĞĂƌ
ǁĞŝŐŚƚĞĚ ĂǀĞƌĂŐĞ͘
;ŝŝŝͿZĞůĂƚŝǀĞ ^ƚƌĞŶŐƚŚ͗ dŚĞ ƉƌŝŶĐŝƉůĞ ďĞŚŝŶĚ ƚŚŝƐ ƚĞĐŚŶŝƋƵĞ ŝƐ ƚŚĂƚ ĐĞƌƚĂŝŶ ƐĞͲ
ĐƵƌŝƚŝĞƐƉĞƌĨŽƌŵďĞƚƚĞƌƚŚĂŶŽƚŚĞƌƐŝŶĂŐŝǀĞŶŵĂƌŬĞƚĞŶǀŝƌŽŶŵĞŶƚΘƚŚĂƚƚŚŝƐ
ďĞŚĂǀŝŽƵƌǁŝůůƌĞŵĂŝŶĐŽŶƐƚĂŶƚŽǀĞƌƚŝŵĞ͘^ĞĐƵƌŝƚŝĞƐŚĂǀŝŶŐƌĞůĂƚŝǀĞƐƚƌĞŶŐƚŚ
ǁŝůů ŚĂǀĞ ƉƌŝĐĞƐ ƌŝƐŝŶŐ ƌĞůĂƚŝǀĞůLJ ĨĂƐƚĞƌ ŝŶ Ă ďƵůů ŵĂƌŬĞƚ Žƌ ĚĞĐůŝŶŝŶŐ ŵŽƌĞ
ƐůŽǁůLJŝŶĂďĞĂƌŵĂƌŬĞƚ͘&ŽůůŽǁŝŶŐƌĂƚŝŽƐĂƌĞĐĂůĐƵůĂƚĞĚƚŽŵĞĂƐƵƌĞƚŚĞƌĞůĂͲ
ƚŝǀĞƐƚƌĞŶŐƚŚ͗
ZĞƚƵƌŶƐ ŽĨ Ă ĐŽŵƉĂŶLJ͛Ɛ ƐƚŽĐŬƐ ƚŽ ƚŚŽƐĞ ŽĨ ŝŶĚƵƐƚƌLJ ŐƌŽƵƉ͘
ZĞƚƵƌŶƐ ŽĨ Ă ĐŽŵƉĂŶLJ͛Ɛ ƐƚŽĐŬƐ ƚŽ ƚŚŽƐĞ ŽĨ ŐĞŶĞƌĂů ŵĂƌŬĞƚ͘
ZĞƚƵƌŶƐŽĨƚŚĞŝŶĚƵƐƚƌLJŐƌŽƵƉ ƚŽƚŚŽƐĞŽĨŐĞŶĞƌĂůŵĂƌŬĞƚ͘
sŽůƵŵĞ /ŶĚŝĐĂƚŽƌƐ
EĞǁ zŽƌŬ Θ ŵĞƌŝĐĂŶ ^ƚŽĐŬ džĐŚĂŶŐĞ sŽůƵŵĞ
DyͲEz^ /ŶĚĞdž с ĂŝůLJ sŽůƵŵĞ ŽĨ DyͬĂŝůLJ ǀŽůƵŵĞ ŽĨ Ez^
dŚĞ ŝŶĚĞdž ǁŽƵůĚ ĂƐƐƵŵĞ ǀĂůƵĞ ďĞƚǁĞĞŶ Ϭ Θ ϭ͘ Ϭ͘ϲ ƐŚŽǁƐ ŚŝŐŚ ƐƉĞĐƵůĂƚŝŽŶ
njŽŶĞ͘ƌĂƚŝŽŽĨϬ͘ϯΘďĞůŽǁƌĞƉƌĞƐĞŶƚƐŚĞĂůƚŚLJŵĂƌŬĞƚΘŐŽŽĚďƵLJŝŶŐŽƉƉŽƌͲ
ƚƵŶŝƚŝĞƐ͘
ŽŶƚƌĂƌLJ KƉŝŶŝŽŶ dŚĞŽƌŝĞƐ
^ŚŽƌƚ ^ĞůůŝŶŐ dŚĞŽƌLJ͗ ^ŚŽƌƚ ^ĞůůŝŶŐ ŝƐ Ă ƐƉĞĐƵůĂƚŝǀĞ ŽƉĞƌĂƚŝŽŶ ŽƉƚŝŽŶ ĂǀĂŝůͲ
ƚŚĂƚ ƚŚĞ ƉƌŝĐĞƐ ǁŝůů ŐŽ ĚŽǁŶ ŝŶ ƚŚĞ ĨƵƚƵƌĞ͘ ,Ğ ƐĞůůƐ ƐŽŵĞ ƐŚĂƌĞƐ͘ /ƚ ĨƵƌƚŚĞƌ 6WRFN0DUNHW$QDO\VLV
ŚĞůƉƐŝŶĚĞĐůŝŶĞƚŚĞŵĂƌŬĞƚ͘,ĞďƵLJƐƚŚĞŵůĂƚĞƌĂƚůŽǁĞƌƉƌŝĐĞ͘dŚĞĚŝĨĨĞƌĞŶĐĞ
ŝƐ ŚŝƐ ŶĞƚ ƉƌŽĨŝƚ͘ dŚŝƐ ŽƉĞƌĂƚŝŽŶ ŝƐ ĐĂůůĞĚ ƐŚŽƌƚ ƐĞůůŝŶŐ͘
KĚĚ>ŽƚƚŚĞŽƌLJ͗^ŚĂƌĞƐĂƌĞƚƌĂĚĞĚŝŶƵƐƵĂůůLJƌŽƵŶĚůŽƚƐ͘dŚĞƐŵĂůůĞƌŝŶǀĞƐƚŽƌ͕ 127(6
ŵŽƌĞŽĨƚĞŶƚŚĂŶŶŽƚ͕ďƵLJƐĨĞǁĞƌƚŚĂŶϭϬϬƐŚĂƌĞƐŽĨĂŐŝǀĞŶƐƚŽĐŬͲĂŶŽĚĚůŽƚͲ
Θ ƐƵĐŚ ďƵLJĞƌƐ Θ ƐĞůůĞƌƐ ĂƌĞ ĐĂůůĞĚ ŽĚĚ ůŽƚƚĞƌƐ͘
ZĞƐŝƐƚĂŶĐĞ Θ ^ƵƉƉŽƌƚ ŚĂƌƚƐ
dŚŝƐ ŝƐ Ă ŶĞǁ ǀĂƌŝĞƚLJ ŽĨ ĐŚĂƌƚ͕ǁŚŝĐŚĚĞƚĞĐƚ ƌĞƐŝƐƚĂŶĐĞ ;ĂƌĞĂ ŽĨ ƐƵƉƉůLJͿ ĂƐ Ă
ƐƚŽĐŬƐ ƉƌŝĐĞ ŐŽĞƐ ĚŽǁŶ͘
:KHQVWRFNVDUHWUDGHGPRVWRIWHQDWDOHYHOLWLVSRSXODUOHYHO LVLQGLFDWHGE\
DORQJHUOLQHVVKRUWOLQHVVKRZOLWWOHDFWLYLW\ZLWKHYHU\PLQRUULVHLQWKHSULFH
DGGLWLRQDOVKDUHVFRPHIRUVDOH UHVLVWDQFHOLQHIRUPV&RQYHUVHO\DSULFHIDOO
DGGLWLRQDOGHPDQGLVJHQHUDWHGVXSSRUWOLQHVIRUPV
2WKHU,QGLFDWRUV
0XWXDO)XQG$FWLYLW\0XWXDOIXQGVUHSUHVHQWRQHRIWKHPRVWSRWHQWLQVWLWXWLRQDO
IRUFHVLQWKHPDUNHW7ZRW\SHVRILQGLFDWRUVDUHGHYHORSHGE\WHFKQLFLDQV
&DVK5DWLR &DVKLQKDQG1HWDVVHWV
1HW6XEVFULSWLRQV 6XEVFULSWLRQVWRQHZVKDUHV5HGHPSWLRQVRIH[LVWLQJ
VKDUHV
&UHGLW%DODQFH7KHRU\$FFRUGLQJWRWKLVWKHRU\LQYHVWRUVUHFHLYHEDODQFHVLQWKHLU
DFFRXQWZKHQWKH\VHOOVWRFNV5LVHLQFDVKEDODQFHVVXJJHVWVGURSLQSULFHV GURS
LQFDVKEDODQFHVLQGLFDWHULVHLQSULFHV7HFKQLFLDQVVXJJHVWWKDWDZLVHLQYHVWRUZLOO
EX\ZKHQFUHGLWEDODQFHVDUHULVLQJ YLFHYHUVD

 ()),&,(17 0$5.(7 +<327+(6,6

$QHIILFLHQWFDSLWDOPDUNHWLVRQHLQZKLFKWKHFXUUHQWSULFHRIDVHFXULW\IXOO\UHIOHFWV
DOOWKHLQIRUPDWLRQFXUUHQWO\DYDLODEOHDERXWVHFXULW\LQFOXGLQJULVN$QLQIRUPDWLRQDO
HIILFLHQWPDUNHWLVRQHLQZKLFKVHFXULW\SULFHVDGMXVWUDSLGO\DQGFRPSOHWHO\DQ\
QHZLQIRUPDWLRQ
0DUNHWHIILFLHQF\LVEDVHGRQWKHIROORZLQJDVVXPSWLRQV
/DUJHQXPEHURISURILWPD[LPL]LQJSDUWLFLSDQWVDOOFRPSHWLQJIRUSURILW
1HZLQIRUPDWLRQIORZVWRPDUNHWLQUDQGRPIDVKLRQ
3ULFHVDGMXVWUDSLGO\WRQHZLQIRUPDWLRQ
,WLVGLIILFXOWLIQRWLPSRVVLEOHWRFRQVLVWHQWO\RXWSHUIRUPWKHPDUNHW
([SHFWHGUHWXUQVLPSOLFLWO\LQFOXGHULVNLQWKHSULFHRIWKHVHFXULW\

6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 5DQGRPZDONWKHRU\
3RUWIROLR0DQDJHPHQW
5DQGRPZDONWKHRU\JDLQHGSRSXODULW\LQZKHQ%XUWRQ0DONLHOZURWH³$
5DQGRP:DON'RZQ:DOO6WUHHW´DERRNWKDWLVQRZUHJDUGHGDVDQLQYHVWPHQW
127(6 FODVVLF5DQGRPZDONLVDVWRFNPDUNHWWKHRU\WKDWVWDWHVWKDWWKHSDVWPRYHPHQW
RUGLUHFWLRQRIWKHSULFHRIDVWRFNRURYHUDOOPDUNHWFDQQRWEHXVHGWRSUHGLFWLWV
IXWXUHPRYHPHQW2ULJLQDOO\H[DPLQHGE\0DXULFH.HQGDOOLQWKHWKHRU\
VWDWHVWKDWVWRFNSULFHIOXFWXDWLRQVDUHLQGHSHQGHQWRIHDFKRWKHUDQGKDYHWKHVDPH
SUREDELOLW\GLVWULEXWLRQEXWWKDWRYHUDSHULRGRIWLPHSULFHVPDLQWDLQDQXSZDUG
WUHQG
,QVKRUWUDQGRPZDONVD\VWKDWVWRFNVWDNHDUDQGRPDQGXQSUHGLFWDEOHSDWK7KH
FKDQFHRIDVWRFN¶VIXWXUHSULFHJRLQJXSLVWKHVDPHDVLWJRLQJGRZQ$IROORZHU
RIUDQGRPZDONEHOLHYHVLWLVLPSRVVLEOHWRRXWSHUIRUPWKHPDUNHWZLWKRXWDVVXPLQJ
DGGLWLRQDOULVN,QKLVERRN0DONLHOVWDWHVWKDWERWKWHFKQLFDODQDO\VLVDQGIXQGD
PHQWDODQDO\VLVDUHODUJHO\DZDVWHRIWLPHDQGDUHVWLOOXQSURYHQLQRXWSHUIRUPLQJ
WKHPDUNHWV
0DONLHOFRQVWDQWO\VWDWHVWKDWDORQJWHUPEX\DQGKROG$SDVVLYHLQYHVWPHQWVWUDW
HJ\LQZKLFKDQLQYHVWRUEX\VVWRFNVDQGKROGVWKHPIRUDORQJSHULRGRIWLPH
UHJDUGOHVVRIIOXFWXDWLRQVLQWKHPDUNHWVWUDWHJ\LVWKHEHVWDQGWKDWLQGLYLGXDOV
VKRXOGQRWDWWHPSWWRWLPHWKHPDUNHWV$WWHPSWVEDVHGRQWHFKQLFDOIXQGDPHQWDO
RUDQ\RWKHUDQDO\VLVDUHXVHOHVV+HEDFNVWKLVXSZLWKVWDWLVWLFVVKRZLQJWKDWPRVW
PXWXDOIXQGVIDLOWREHDWEHQFKPDUNDYHUDJHVOLNHWKH6 3
:KLOHPDQ\VWLOOIROORZWKHSUHDFKLQJRI0DONLHORWKHUVEHOLHYHWKDWWKHLQYHVWLQJ
ODQGVFDSHLVYHU\GLIIHUHQWWKDQLWZDVZKHQ0DONLHOZURWHKLVERRNQHDUO\\HDUV
DJR7RGD\HYHU\RQHKDVHDV\DQGIDVWDFFHVVWRUHOHYDQWQHZVDQGVWRFNTXRWHV
,QYHVWLQJLVQRORQJHUDJDPHIRUWKHSULYLOHJHG5DQGRPZDONKDVQHYHUEHHQD
SRSXODUFRQFHSWZLWKWKRVHRQ:DOO6WUHHWSUREDEO\EHFDXVHLWFRQGHPQVWKH
FRQFHSWVRQZKLFKLWLVEDVHGVXFKDVDQDO\VLVDQGVWRFNSLFNLQJ
,W¶VKDUGWRVD\KRZPXFKWUXWKWKHUHLVWRWKLVWKHRU\WKHUHLVHYLGHQFHWKDW
VXSSRUWVERWKVLGHVRIWKHGHEDWH2XUVXJJHVWLRQLVWRSLFNXSDFRS\RI0DONLHO¶V
ERRNDQGGUDZ\RXURZQFRQFOXVLRQV

 7+( 7+5(( )2506 2) 7+( ()),&,(170$5.(<

+<327+(6,6 (0+
 :HDNIRUPHIILFLHQWPDUNHWV7KHZHDNIRUPRIWKH(0+VWDWHVWKDW
FXUUHQWVWRFNSULFHVIXOO\UHIOHFWDOOFXUUHQWO\DYDLODEOHVHFXULW\PDUNHWLQIRU
PDWLRQ7KXVSDVWSULFHDQGYROXPHLQIRUPDWLRQZLOOKDYHQRSUHGLFWLYH
SRZHUDERXWIXWXUHGLUHFWLRQRIVHFXULW\SULFHV7KHFRQFOXVLRQLVWKDWDQ
LQYHVWRUFDQQRWDFKLHYHH[FHVVUHWXUQVXVLQJWHFKQLFDODQDO\VLV
 6HPLVWURQJIRUPRI HIILFLHQWPDUNHWV7KH VHPLVWURQJIRUP RIWKH
(0+KROGVWKDWVHFXULW\SULFHVUDSLGO\DGMXVWWRWKHDUULYDORIDOOQHZSXEOLF
6HOI,QVWUXFWLRQDO 0DWHULDO LQIRUPDWLRQ$VVXFKFXUUHQWVHFXULW\SULFHVIXOO\UHIOHFWDOOSXEOLFO\DYDLODEOH
 LQIRUPDWLRQ7KHVHPLVWURQJIRUPVD\VVHFXULW\SULFHVLQFOXGHDOOVHFXULW\
 PDUNHWDQGQRQPDUNHWLQIRUPDWLRQDYDLODEOHWRWKHSXEOLF7KHFRQFOXVLRQ 6WRFN0DUNHW$QDO\VLV
LVWKDWDQLQYHVWRUFDQQRWDFKLHYHDEQRUPDOUHWXUQVXVLQJIXQGDPHQWDODQDO\
VLV
 6WURQJIRUPHIILFLHQWPDUNHWV7KHVWURQJIRUPRIWKH(0+VWDWHVWKDW 127(6
VWRFNSULFHVIXOO\UHIOHFWDOOLQIRUPDWLRQIURPSXEOLFDQGSULYDWHVRXUFHV7KH
VWURQJIRUPLQFOXGHVDOOW\SHVRILQIRUPDWLRQPDUNHWQRQPDUNHWSXEOLF
DQGSULYDWHLQVLGHLQIRUPDWLRQ7KLVPHDQVWKDWQRJURXSRILQYHVWRUVKDV
PRQRSROLVWLFDFFHVVWRLQIRUPDWLRQUHOHYDQWWRWKHIRUPDWLRQRISULFHVDQG
QRQHVKRXOGEHDEOHWRFRQVLVWHQWO\DFKLHYHDEQRUPDOUHWXUQV
7HVWLQJ7HFKQLTXHVIRU(IILFLHQW0DUNHW+\SRWKHVLV
7KHGLIIHUHQWIRUPVRIHIILFLHQWPDUNHWK\SRWKHVLVKDYHEHHQWHVWHGWKURXJKVHYHUDO
HPSLULFDOVWXGLHV7KHWHVWVRIWKHZHDNIRUPK\SRWKHVLVDUHHVVHQWLDOO\WHVWVRI
ZKHWKHUDOOLQIRUPDWLRQFRQWDLQHGLQKLVWRULFDOSULFHVRIVHFXULWLHVLVIXOO\UHIOHFWHGLQ
FXUUHQWSULFHV6HPLVWURQJIRUPWHVWVRIWKHHIILFLHQWPDUNHWK\SRWKHVLVDUHWHVWVRI
ZKHWKHUSXEOLFO\DYDLODEOHLQIRUPDWLRQLVIXOO\UHIOHFWHGLQFXUUHQWVWRFNSULFHV)L
QDOO\VWURQJIRUPWHVWVRIWKHHIILFLHQWPDUNHWK\SRWKHVLVDUHWHVWVRIZKHWKHUDOO
LQIRUPDWLRQERWKSXEOLFDQGSULYDWHRULQVLGHLVIXOO\UHIOHFWHGLQVHFXULW\SULFHV
DQGZKHWKHUDQ\W\SHRILQYHVWRULVDEOHWRHDUQH[FHVVUHWXUQV
(PSLULFDO7HVWVRI:HDN)RUP(IILFLHQF\
7KHZHDNIRUPRIWKHHIILFLHQWPDUNHWK\SRWKHVLV(0+VD\VWKDWWKHFXUUHQWSULFHV
RIVWRFNVDOUHDG\IXOO\UHIOHFWDOOWKHLQIRUPDWLRQWKDWLVFRQWDLQHGLQWKHKLVWRULFDO
VHTXHQFHRISULFHV7KHQHZSULFHPRYHPHQWVDUHFRPSOHWHO\UDQGRP7KH\DUH
SURGXFHGE\QHZSLHFHVRILQIRUPDWLRQDQGDUHQRWUHODWHGRUGHSHQGHQWRQSDVW
SULFHPRYHPHQWV7KHUHIRUHWKHUHLVQREHQHILWLQVWXG\LQJWKHKLVWRULFDOVHTXHQFH
RISULFHVWRJDLQDEQRUPDOUHWXUQVIURPWUDGLQJLQVHFXULWLHV7KLVLPSOLHVWKDWWHFK
QLFDODQDO\VLVZKLFKUHOLHVRQFKDUWVRISULFHPRYHPHQWVLQWKHSDVWLVQRWD
PHDQLQJIXODQDO\VLVIRUPDNLQJDEQRUPDOWUDGLQJSURILWV7KHZHDNIRUPRIWKH
HIILFLHQWPDUNHWK\SRWKHVLVLVWKXVDGLUHFWGHQLDORIWHFKQLFDO$QDO\VLV
dǁŽĂƉƉƌŽĂĐŚĞƐŚĂǀĞďĞĞŶƵƐĞĚƚŽƚĞƐƚƚŚĞǁĞĂŬĨŽƌŵŽĨƚŚĞĞĨĨŝĐŝĞŶƚŵĂƌŬĞƚ
ŚLJƉŽƚŚĞƐŝƐ͘ KŶĞ ĂƉƉƌŽĂĐŚ ůŽŽŬƐ ĨŽƌ ƐƚĂƚŝƐƚŝĐĂůůLJ ƐŝŐŶŝĨŝĐĂŶƚ ƉĂƚƚĞƌŶƐ ŝŶ ƐĞĐƵͲ
ƌŝƚLJ ƉƌŝĐĞ ĐŚĂŶŐĞƐ͘ dŚĞ ĂůƚĞƌŶĂƚŝǀĞ ĂƉƉƌŽĂĐŚ ƐĞĂƌĐŚĞƐ ĨŽƌ ƉƌŽĨŝƚĂďůĞ ƐŚŽƌƚͲ
ƚĞƌŵƚƌĂĚŝŶŐƌƵůĞƐ͘
6HULDO&RUUHODWLRQ7HVW
6LQFHWKHZHDNIRUP(0+SRVWXODWHVLQGHSHQGHQFHEHWZHHQVXFFHVVLYHSULFH
FKDQJHVVXFKLQGHSHQGHQFHRUUDQGRPQHVVLQVWRFNSULFHPRYHPHQWVFDQEHWHVWHG
E\FDOFXODWLQJWKHFRUUHODWLRQEHWZHHQSULFHFKDQJHVLQRQHSHULRGDQGFKDQJHVIRU
WKHVDPHVWRFNLQDQRWKHUSHULRG7KHFRUUHODWLRQFRHIILFLHQWFDQWDNHRQDYDOXH
UDQJLQJIURPWRDSRVLWLYHQXPEHULQGLFDWHVDGLUHFWUHODWLRQDQHJDWLYHYDOXH
LPSOLHVDQLQYHUVHUHODWLRQVKLSDQGDYDOXHFORVHWR]HURLPSOLHVQRUHODWLRQVKLS
7KXVLIFRUUHODWLRQFRHIILFLHQWLVFORVHWR]HURWKHSULFHFKDQJHVFDQEHFRQVLGHUHG 6HOI,QVWUXFWLRQDO 0DWHULDO
WREHVHULDOO\LQGHSHQGHQW 
6HFXULW\$QDO\VLV 5XQ 7HVW
3RUWIROLR0DQDJHPHQW
7KHUXQWHVWLVDQRWKHUWHVWXVHGWRWHVWWKHUDQGRPQHVVLQVWRFNSULFHPRYHPHQWV
,QWKLVWHVWWKHDEVROXWHYDOXHVRISULFHFKDQJHVDUHLJQRUHGRQO\WKHGLUHFWLRQRI
127(6 FKDQJHLVFRQVLGHUHG$QLQFUHDVHLQSULFHLVUHSUHVHQWHGE\VLJQV7KHGHFUHDVH
LVUHSUHVHQWHGE\³´´VLJQ:KHQWKHUHLVQRFKDQJHLQSULFHVLWLVUHSUHVHQWHGE\
µ¶$FRQVHFXWLYHVHTXHQFHRIWKHVDPHVLJQLVFRQVLGHUHGDVDUXQ)RUH[DPSOH
WKHVHTXHQFHKDVWZRUXQV,QRWKHUZRUGVDFKDQJHRIVLJQLQGLFDWHV
DQHZUXQ7KHVHTXHQFHKDVILYHUXQVDUXQRIWKUHH
¶VIROORZHGE\DUXQRIWZR¶VDQRWKHUUXQRIRQHDIRXUWKUXQRIWKUHH¶V
DQGDILIWKUXQRIIRXU¶V,QDUXQWHVWWKHDFWXDOQXPEHURIUXQVREVHUYHGLQD
VHULHVRIVWRFNSULFHPRYHPHQWVLVFRPSDUHGZLWKWKHQXPEHURIUXQVLQDUDQGRPO\
JHQHUDWHGQXPEHUVHULHV,IQRVLJQLILFDQWGLIIHUHQFHVDUHIRXQGWKHQWKHVHFXULW\
SULFHFKDQJHVDUHFRQVLGHUHGWREHUDQGRPLQQDWXUH
)LOWHU 7HVWV
,IVWRFNSULFHFKDQJHVDUHUDQGRPLQQDWXUHLWZRXOGEHH[WUHPHO\GLIILFXOWWR
GHYHORSVXFFHVVIXOPHFKDQLFDOWUDGLQJV\VWHPV)LOWHUWHVWVKDYHEHHQGHYHORSHGDV
GLUHFWWHVWVRIVSHFLILFPHFKDQLFDOWUDGLQJVWUDWHJLHVWRH[DPLQHWKHLUYDOLGLW\DQG
XVHIXOQHVV
,WLVRIWHQEHOLHYHGWKDWDVORQJDVQRQHZLQIRUPDWLRQHQWHUVWKHPDUNHWWKHSULFH
IOXFWXDWHVUDQGRPO\ZLWKLQWZREDUULHUVRQHORZHUDQGWKHRWKHUKLJKHUDURXQGWKH
IDLUSULFH:KHQQHZLQIRUPDWLRQFRPHVLQWRWKHPDUNHWDQHZHTXLOLEULXPSULFHZLOO
EHGHWHUPLQHG,IWKHQHZVLVIDYRUDEOHWKHQWKHSULFHVKRXOGPRYHXSWRDQHZ
HTXLOLEULXPDERYHWKHROGSULFH,QYHVWRUVZLOONQRZWKDWWKLVLVRFFXUULQJZKHQWKH
SULFHEUHDNVWKURXJKWKHROGEDUULHU,ILQYHVWRUVSXUFKDVHDWWKLVSRLQWWKH\ZLOO
EHQHILWIURPWKHSULFHLQFUHDVHWRWKHQHZHTXLOLEULXPOHYHO
/LNHZLVHLIWKHQHZVUHFHLYHGLVXQIDYRUDEOHWKHSULFHRIWKHVWRFNZLOOGHFOLQHWR
DORZHUHTXLOLEULXPOHYHO,ILQYHVWRUVVHOOWKHVWRFNDVLWEUHDNVWKHORZHUEDUULHU
WKH\ZLOODYRLGPXFKRIWKHGHFOLQH7HFKQLFLDQVVHWXSWUDGLQJVWUDWHJLHVEDVHGRQ
VXFKSDWWHUQVWRHDUQH[FHVVUHWXUQV7KHVWUDWHJ\LVFDOOHGDILOWHUUXOH7KHILOWHUUXOH
LVXVXDOO\VWDWHGLQWKHIROORZLQJZD\3XUFKDVHWKHVWRFNZKHQLWULVHVE\[SHUFHQW
IURPWKHSUHYLRXVORZDQGVHOOLWZKHQLWGHFOLQHVE\[SHUFHQWIURPWKHVXEVHTXHQW
KLJK7KHILOWHUVPD\UDQJHIURPSHUFHQWWRSHUFHQWRUPRUH7KHDOWHUQDWLYH
WRWKLVDFWLYHWUDGLQJVWUDWHJ\LVWKHSDVVLYHEX\DQGKROGVWUDWHJ\
7KHUHWXUQVJHQHUDWHGE\WUDGLQJDFFRUGLQJWRWKHILOWHUUXOHDUHFRPSDUHGZLWKWKH
UHWXUQVHDUQHGE\DQLQYHVWRUIROORZLQJWKHEX\DQGKROGVWUDWHJ\,IWUDGLQJZLWK
ILOWHUVUHVXOWVLQVXSHULRUUHWXUQVWKDWZRXOGVXJJHVWWKHH[LVWHQFHRISDWWHUQVLQSULFH
PRYHPHQWVDQGQHJDWHWKHZHDNIRUP(0+
'LVWULEXWLRQ3DWWHUQ
,WLVDUXOHRIVWDWLVWLFVWKDWWKHGLVWULEXWLRQRIUDQGRPRFFXUUHQFHVZLOOFRQIRUPWR
6HOI,QVWUXFWLRQDO 0DWHULDO DQRUPDOGLVWULEXWLRQ7KHQLISULFHFKDQJHVDUHUDQGRPWKHLUGLVWULEXWLRQVKRXOG

DOVREHDSSUR[LPDWHO\QRUPDO7KHUHIRUHWKHGLVWULEXWLRQRISULFHFKDQJHVFDQEH 6WRFN0DUNHW$QDO\VLV
VWXGLHGWRWHVWWKHUDQGRPQHVVRURWKHUZLVHRIVWRFNSULFHPRYHPHQWV
(PSLULFDO7HVWVRI6HPLVWURQJ)RUP(IILFLHQF\
7KHVHPLVWURQJIRUPRIWKHHIILFLHQWPDUNHWK\SRWKHVLVVD\VWKDWFXUUHQWSULFHVRI 127(6
VWRFNVQRWRQO\UHIOHFWDOOLQIRUPDWLRQDOFRQWHQWRIKLVWRULFDOSULFHVEXWDOVRUHIOHFW
DOOSXEOLFO\DYDLODEOHLQIRUPDWLRQDERXWWKHFRPSDQ\EHLQJVWXGLHG3XEOLFO\DYDLODEOH
LQIRUPDWLRQDUHFRUSRUDWHDQQXDOUHSRUWVFRPSDQ\DQQRXQFHPHQWVSUHVVUHOHDVHV
DQQRXQFHPHQWVRIIRUWKFRPLQJGLYLGHQGVVWRFNVSOLWVHWF7KHVHPLVWURQJK\SRWK
HVLVPDLQWDLQVWKDWDVVRRQDVWKHLQIRUPDWLRQEHFRPHVSXEOLFWKHVWRFNSULFHV
FKDQJHDQGDEVRUEWKHIXOOLQIRUPDWLRQ,QRWKHUZRUGVVWRFNSULFHVLQVWDQWDQHRXVO\
DGMXVWWRWKHLQIRUPDWLRQWKDWLVUHFHLYHG
7KHLPSOLFDWLRQRIVHPLVWURQJK\SRWKHVLVLVWKDWIXQGDPHQWDODQDO\VWVFDQQRWPDNH
VXSHULRUJDLQVE\XQGHUWDNLQJIXQGDPHQWDODQDO\VLVEHFDXVHVWRFNSULFHVDGMXVWWR
QHZSLHFHVRILQIRUPDWLRQDVVRRQDVWKH\DUHUHFHLYHG7KHUHLVQRWLPHJDSLQ
ZKLFKDIXQGDPHQWDODQDO\VWFDQWUDGHIRUVXSHULRUJDLQV7KXVWKHVHPLVWURQJ
K\SRWKHVLVUHSXGLDWHVIXQGDPHQWDODQDO\VLV
6HPLVWURQJIRUPWHVWVGHDOZLWKZKHWKHURUQRWVHFXULW\SULFHVIXOO\UHIOHFWDOO
SXEOLFO\DYDLODEOHLQIRUPDWLRQ7KHVHWHVWVDWWHPSWWRHVWDEOLVKZKHWKHUVKDUHSULFHV
UHDFWSUHFLVHO\DQGTXLFNO\WRQHZLWHPVRILQIRUPDWLRQ,ISULFHVGRQRWUHDFW
TXLFNO\DQGDGHTXDWHO\WKHQDQRSSRUWXQLW\H[LVWVIRULQYHVWRUVRUDQDO\VWVWRHDUQ
H[FHVVUHWXUQVE\XVLQJWKLVLQIRUPDWLRQ7KHUHIRUHWKHVHWHVWVDOVRDWWHPSWWRILQG
LIDQDO\VWVDUHDEOHWRHDUQVXSHULRUUHWXUQVE\XVLQJSXEOLFO\DYDLODEOHLQIRUPDWLRQ
7KHUHLVDQHQRUPRXVDPRXQWDQGYDULHW\RISXEOLFLQIRUPDWLRQ6HPLVWURQJIRUP
WHVWVKDYHEHHQSHUIRUPHGZLWKUHVSHFWWRPDQ\GLIIHUHQWW\SHVRILQIRUPDWLRQ
0XFKRIWKHPHWKRGRORJ\XVHGLQVHPLVWURQJIRUPWHVWVKDVEHHQLQWURGXFHGE\
)DPD)LVKHU-HQVHQDQG5ROO
7KHJHQHUDOPHWKRGRORJ\IROORZHGLQWKHVHVWXGLHVKDVEHHQWRWDNHDQHFRQRPLF
HYHQWDQGPHDVXUHLWVLPSDFWRQWKHVKDUHSULFH7KHLPSDFWLVPHDVXUHGE\WDNLQJ
WKHGLIIHUHQFHEHWZHHQWKHDFWXDOUHWXUQDQGH[SHFWHGUHWXUQRQDVHFXULW\7KH
H[SHFWHGUHWXUQRQDVHFXULW\LVJHQHUDOO\HVWLPDWHGE\XVLQJWKHPDUNHWPRGHORU
VLQJOHLQGH[PRGHOVXJJHVWHGE\:LOOLDP6KDUSH7KHPRGHOXVHGIRUHVWLPDWLQJ
H[SHFWHGUHWXUQVLVWKHIROORZLQJ
5L DLEL5PHL
ZKHUH
&KHFN <RXU 3URJUHVV
5L 5HWXUQRQVHFXULW\L
 :KDWLVHFRQRPLF
5P 5HWXUQRQDPDUNHWLQGH[ IRUHFDVWLQJ"
 :KDWLVQHWSURILWUDWLR"
DLDQGEL &RQVWDQWV
HL 5DQGRPHUURU 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 7KLVDQDO\VLVLVNQRZQDV5HVLGXDODQDO\VLV7KHSRVLWLYHGLIIHUHQFHEHWZHHQWKH
3RUWIROLR0DQDJHPHQW DFWXDOUHWXUQDQGWKHH[SHFWHGUHWXUQUHSUHVHQWVWKHH[FHVVUHWXUQHDUQHGRQD
VHFXULW\,IWKHH[FHVVUHWXUQLVFORVHWR]HURLWLPSOLHVWKDWWKHSULFHUHDFWLRQ
IROORZLQJWKHSXEOLFDQQRXQFHPHQWRILQIRUPDWLRQLVLPPHGLDWHDQGWKHSULFHDGMXVWV
127(6 WRDQHZOHYHODOPRVWLPPHGLDWHO\7KXVWKHODFNRIH[FHVVUHWXUQVZRXOGYDOLGDWH
WKHVHPLVWURQJIRUP(0+
7HVWVRI6WURQJ)RUP(IILFLHQF\
7KHVWURQJIRUPK\SRWKHVLVUHSUHVHQWVWKHH[WUHPHFDVHRIPDUNHWHIILFLHQF\7KH
VWURQJIRUPRIWKHHIILFLHQWPDUNHWK\SRWKHVLVPDLQWDLQVWKDWWKHFXUUHQWVHFXULW\
SULFHVUHIOHFWDOOLQIRUPDWLRQERWKSXEOLFO\DYDLODEOHLQIRUPDWLRQDVZHOODVSULYDWHRU
LQVLGHLQIRUPDWLRQ7KLVLPSOLHVWKDWQRLQIRUPDWLRQZKHWKHUSXEOLFRULQVLGHFDQEH
XVHGWRHDUQVXSHULRUUHWXUQVFRQVLVWHQWO\
7KHGLUHFWRUVRIFRPSDQLHVDQGRWKHUSHUVRQVRFFXS\LQJVHQLRUPDQDJHPHQWSR
VLWLRQVZLWKLQFRPSDQLHVKDYHDFFHVVWRPXFKLQIRUPDWLRQWKDWLVQRWDYDLODEOHWRWKH
JHQHUDOSXEOLF7KLVLVNQRZQDVLQVLGHLQIRUPDWLRQ0XWXDOIXQGVDQGRWKHUSURIHV
VLRQDODQDO\VWVZKRKDYHODUJHUHVHDUFKIDFLOLWLHVPD\JDWKHUPXFKSULYDWHLQIRUPD
WLRQUHJDUGLQJGLIIHUHQWVWRFNVRQWKHLURZQ7KHVHDUHSULYDWHLQIRUPDWLRQQRW
DYDLODEOHWRWKHLQYHVWLQJSXEOLFDWODUJH
7KHVWURQJIRUPHIILFLHQF\WHVWVLQYROYHWZRW\SHVRIWHVWV7KHILUVWW\SHRIWHVWV
DWWHPSWWRILQGZKHWKHUWKRVHZKRKDYHDFFHVVWRLQVLGHLQIRUPDWLRQKDYHEHHQDEOH
WRXWLOLVHSURILWDEO\VXFKLQVLGHLQIRUPDWLRQWRHDUQH[FHVVUHWXUQV7KHVHFRQGW\SH
RIWHVWVH[DPLQHWKHSHUIRUPDQFHRIPXWXDOIXQGVDQGWKHUHFRPPHQGDWLRQVRI
LQYHVWPHQWDQDO\VWVWRVHHLIWKHVHKDYHVXFFHHGHGLQDFKLHYLQJVXSHULRUUHWXUQVZLWK
WKHXVHRISULYDWHLQIRUPDWLRQJHQHUDWHGE\WKHP
7KHUHVXOWVRIUHVHDUFKRQVWURQJIRUP(0+PD\EHVXPPDULVHGDVIROORZV
,QVLGHLQIRUPDWLRQFDQEHXVHGWRHDUQDERYHDYHUDJHUHWXUQV
0XWXDOIXQGVDQGLQYHVWPHQWDQDO\VWVKDYHQRWEHHQDEOHWRHDUQVXSHULRUUHWXUQV
E\XVLQJWKHLUSULYDWHLQIRUPDWLRQ
,QFRQFOXVLRQLWPD\EHVWDWHGWKDWWKHVWURQJIRUPK\SRWKHVLVLVLQYDOLGDVUHJDUGV
LQVLGHLQIRUPDWLRQEXWYDOLGDVUHJDUGVSULYDWHLQIRUPDWLRQRWKHUWKDQLQVLGHLQIRU
PDWLRQ

 (0+ YV )81'$0(17$/ $1' 7(&+1,&$/

6HOI,QVWUXFWLRQDO 0DWHULDO

 $1$/<6(6
7KHUHDUHWKUHHEURDGWKHRULHVFRQFHUQLQJVWRFNSULFHPRYHPHQWV7KHVHDUHWKH
IXQGDPHQWDODQDO\VLVWHFKQLFDODQDO\VLVDQGHIILFLHQWPDUNHWK\SRWKHVLV)XQGDPHQ
WDODQDO\VWVEHOLHYHWKDWE\DQDO\]LQJNH\HFRQRPLFDQGILQDQFLDOYDULDEOHVWKH\FDQ
HVWLPDWHWKHLQWULQVLFZRUWKRIDVHFXULW\DQGWKHQGHWHUPLQHZKDWLQYHVWPHQWDFWLRQ
WRWDNH)XQGDPHQWDODQDO\VLVVHHNVWRLGHQWLI\XQGHUSULFHGVHFXULWLHVDQGRYHU
SULFHGVHFXULWLHV7KHLULQYHVWPHQWVWUDWHJ\FRQVLVWVLQEX\LQJXQGHUSULFHGVHFXULWLHV
DQGVHOOLQJRYHUSULFHGVHFXULWLHVWKHUHE\HDUQLQJVXSHULRUUHWXUQV
$WHFKQLFDODQDO\VWPDLQWDLQVWKDWIXQGDPHQWDODQDO\VLVLVXQQHFHVVDU\+HEHOLHYHV 6WRFN0DUNHW$QDO\VLV
WKDWKLVWRU\UHSHDWVLWVHOI+HQFHKHWULHVWRSUHGLFWIXWXUHPRYHPHQWVLQVKDUHSULFHV
E\VWXG\LQJWKHKLVWRULFDOSDWWHUQVLQVKDUHSULFHPRYHPHQWV
7KHHIILFLHQWPDUNHWK\SRWKHVLVLVH[SUHVVHGLQWKUHHIRUPV7KHZHDNIRUPRIWKH 127(6
(0+GLUHFWO\FRQWUDGLFWVWHFKQLFDODQDO\VLVE\PDLQWDLQLQJWKDWSDVWSULFHVDQGSDVW
SULFHFKDQJHVFDQQRWEHXVHGWRIRUHFDVWIXWXUHSULFHFKDQJHVEHFDXVHVXFFHVVLYH
SULFHFKDQJHVDUHLQGHSHQGHQWRIHDFKRWKHU7KHVHPLVWURQJIRUPRIWKH(0+
FRQWUDGLFWVIXQGDPHQWDODQDO\VLVWRVRPHH[WHQWE\FODLPLQJWKDWWKHPDUNHWLV
HIILFLHQWLQWKHGLVVHPLQDWLRQDQGSURFHVVLQJRILQIRUPDWLRQDQGKHQFHSXEOLFO\
DYDLODEOHLQIRUPDWLRQFDQQRWEHXVHGFRQVLVWHQWO\WRHDUQVXSHULRULQYHVWPHQWUH
WXUQV
7KHVWURQJIRUPRIWKH(0+PDLQWDLQVWKDWQRWRQO\LVSXEOLFO\DYDLODEOHLQIRUPDWLRQ
XVHOHVVWRWKHLQYHVWRURUDQDO\VWEXWDOOLQIRUPDWLRQLVXVHOHVV
(YHQWKRXJKWKH(0+UHSXGLDWHVERWKIXQGDPHQWDODQDO\VLVDQGWHFKQLFDODQDO\VLV
WKHPDUNHWLVHIILFLHQWSUHFLVHO\EHFDXVHRIWKHRUJDQL]HGDQGV\VWHPDWLFHIIRUWVRI
WKRXVDQGVRIDQDO\VWVXQGHUWDNLQJIXQGDPHQWDODQGWHFKQLFDODQDO\VLV7KXVWKH
SDUDGR[RIHIILFLHQWPDUNHWK\SRWKHVLVLVWKDWERWKIXQGDPHQWDODQGWHFKQLFDODQDO\
VHVDUHUHTXLUHGWRPDNHWKHPDUNHWHIILFLHQWDQGWKHUHE\YDOLGDWHWKHK\SRWKHVLV

 'LIIHUHQW 6WRFN ([FKDQJHV LQ ,QGLD

2YHUYLHZ7KHPDLQIXQFWLRQRIWKHVWRFNPDUNHWLVWRHQDEOHWUDGHLQWKHVKDUHV
RISXEOLFFRPSDQLHVZKLFKLQWXUQUHIOHFWWKHSHUIRUPDQFHRIWKHFRPSDQLHVZKRVH
VKDUHVDUHWUDGHGLQWKHVWRFNPDUNHW6WRFNPDUNHWVDUHDOVRDYLWDOSDUWRIDQ
HFRQRP\RUWKHHFRQRPLFV\VWHPRIDFRXQWU\7RGD\PRVWHFRQRPLHVDURXQGWKH
ZRUOGDUHMXGJHGE\WKHSHUIRUPDQFHRIWKHLUVWRFNPDUNHWV7KHVWRFNPDUNHWV
VHUYHDYLWDOSXUSRVHLQWKHJURZWKDQGGHYHORSPHQWRIDFRPSDQ\WKDWZDQWVWR
H[SDQG6XFKFRPSDQLHVZLWKH[SDQVLRQSODQVDQGQHZSURMHFWVDUHLQQHHGRI
IXQGLQJDQGWKHVWRFNPDUNHWVHUYHVDVWKHEHVWSODWIRUPIURPZKLFKDFRPSDQ\FDQ
µVHOO¶LWVHOI7RWUDGHLQWKHVWRFNPDUNHWDFRPSDQ\KDVWREHDEVROXWHO\WUDQVSDUHQW
DERXWLWVYLWDOIXQGDPHQWDOVVXFKDVUHYHQXHVLQFRPHDVVHWVOLDELOLWLHVLQIUDVWUXF
WXUHHWFDVWKLVDOORZVWKHLQYHVWLQJSXEOLFWRPDNHDIDLUDVVHVVPHQWRIWKHVDLG
FRPSDQ\¶VPDUNHWZRUWK
0RVWVWRFNPDUNHWVDURXQGWKHZRUOGKDYHXQGHUJRQHDSURFHVVRIVWHDG\HYROX
WLRQDQGKDYHFKDQJHGLQUHODWLRQWRWKHSURFHVVNQRZQDVµJOREDOL]DWLRQ¶:LWK
LQIRUPDWLRQWHFKQRORJ\FKDQJLQJWKHZD\ZHGREXVLQHVVDOORYHUWKHZRUOG7KLVKDV
QRWMXVWUHYROXWLRQL]HGWKHZD\FRPSDQLHVUDLVHPRQH\IRUH[SDQVLRQRUQHZYHQ
WXUHVEXWDOVREURXJKWDERXWDOHYHORIWUDQVSDUHQF\DQGHDVHLQWKHIXQFWLRQDODUHDV
RIWUDGHLQVKDUHVWKDWZDVQHYHUVHHQEHIRUH
7KHRULJLQRIWKHVWRFNPDUNHWLQ,QGLDJRHVEDFNWRWKHHQGRIWKHHLJKWHHQWK
FHQWXU\ZKHQORQJWHUPQHJRWLDEOHVHFXULWLHVZHUHILUVWLVVXHG+RZHYHUIRUDOO
SUDFWLFDOSXUSRVHVWKHUHDOEHJLQQLQJRFFXUUHGLQWKHPLGGOHRIWKHQLQHWHHQWK
6HOI,QVWUXFWLRQDO 0DWHULDO
FHQWXU\DIWHUWKHHQDFWPHQWRIWKHFRPSDQLHV$FWLQ

6HFXULW\$QDO\VLV $QLPSRUWDQWHDUO\HYHQWLQWKHGHYHORSPHQWRIWKHVWRFNPDUNHWLQ,QGLDZDVWKH
3RUWIROLR0DQDJHPHQW IRUPDWLRQRIWKHQDWLYHVKDUHDQGVWRFNEURNHUVµ$VVRFLDWLRQDW%RPED\LQ
WKHRULJLQDWRURIWKHSUHVHQWGD\%RPED\6WRFN([FKDQJH7KLVZDVIROORZHGE\
WKHIRUPDWLRQRIDVVRFLDWLRQVH[FKDQJHVLQ$KPHGDEDG&DOFXWWD
127(6 DQG0DGUDV,QDGGLWLRQDODUJHQXPEHURIWHPSRUDU\H[FKDQJHVHPHUJHG
PDLQO\LQRSWLPLVWLFSHULRGV
6WRFNH[FKDQJHVDUHFRPSOH[LQWHUZRYHQLQWKHIUDPHZRUNRIDQDWLRQ¶VHFRQRPLF
OLIH :LWKRXW D VWRFN H[FKDQJH WKH VDYLQJ RI WKH FRPPXQLW\ ZRXOG UHPDLQ
XQGHUXWLOL]HG7KHWDVNRIPRELOL]DWLRQDQGDOORFDWLRQRIVDYLQJVFRXOGEHDWWHPSWHG
LQWKHROGGD\VE\DPXFKOHVVVSHFLDOL]HGLQVWLWXWLRQWKDQWKHVWRFNH[FKDQJHV%XW
DVEXVLQHVVDQGLQGXVWU\H[SDQGHGDQGWKHHFRQRP\DVVXPHGPRUHFRPSOH[QDWXUH
WKHQHHGIRUµSHUPDQHQWILQDQFH¶DURVH(QWUHSUHQHXUVQHHGHGPRQH\IRUORQJ
WHUPZKHUHDVLQYHVWRUVGHPDQGHGOLTXLGLW\±WKHIDFLOLW\WRFRQYHUWWKHLULQYHVWPHQW
LQWRFDVKDWDQ\JLYHQWLPH7KHDQVZHUZDVDUHDG\PDUNHWIRULQYHVWPHQWVDQG
WKLVZDVKRZWKHVWRFNH[FKDQJHFDPHLQWREHLQJ
6WRFNH[FKDQJHPHDQVDQ\ERG\RILQGLYLGXDOVZKHWKHULQFRUSRUDWHGRUQRWFRQ
VWLWXWHGIRUWKHSXUSRVHRIUHJXODWLQJRUFRQWUROOLQJWKHEXVLQHVVRIEX\LQJVHOOLQJRU
GHDOLQJLQVHFXULWLHV7KHVHVHFXULWLHVLQFOXGH
L6KDUHVVFULSVWRFNVERQGVGHEHQWXUHVVWRFNRURWKHUPDUNHWDEOHVHFXULWLHVRI
DOLNHQDWXUHLQRURIDQ\LQFRUSRUDWHGFRPSDQ\RURWKHUERG\FRUSRUDWH
LL*RYHUQPHQWVHFXULWLHVDQG
LLL5LJKWVRULQWHUHVWLQVHFXULWLHV
7KH%RPED\6WRFN([FKDQJH%6(DQGWKH1DWLRQDO6WRFN([FKDQJHRI,QGLD/WG
16(DUHWKHWZRSULPDU\H[FKDQJHVLQ,QGLD,QDGGLWLRQWKHUHDUH5HJLRQDO
6WRFN([FKDQJHV+RZHYHUWKH%6(DQG16(KDYHHVWDEOLVKHGWKHPVHOYHVDVWKH
WZROHDGLQJH[FKDQJHVDQGDFFRXQWIRUDERXWSHUFHQWRIWKHHTXLW\YROXPH
WUDGHGLQ,QGLD7KHSULPDU\LQGH[RI%6(LV%6(6HQVH[FRPSULVLQJVWRFNV
16(KDVWKH6 316(,QGH[1LIW\ZKLFKFRQVLVWVRIILIW\VWRFNV7KH%6(
6HQVH[LVWKHROGHUDQGPRUHZLGHO\IROORZHGLQGH[
%RWKWKHVHLQGLFHVDUHFDOFXODWHGRQWKHEDVLVRIPDUNHWFDSLWDOL]DWLRQDQGFRQWDLQ
WKHKHDYLO\WUDGHGVKDUHVIURPNH\VHFWRUV7KHPDUNHWVDUHFORVHGRQ6DWXU
GD\VDQG6XQGD\V%RWKWKHH[FKDQJHVKDYHVZLWFKHGRYHUIURPWKHRSHQRXWFU\
WUDGLQJV\VWHPWRDIXOO\DXWRPDWHGFRPSXWHUL]HGPRGHRIWUDGLQJNQRZQDV%2/7
%6(RQ/LQH7UDGLQJDQG1($71DWLRQDO([FKDQJH$XWRPDWHG7UDGLQJ6\VWHP
%ULHI+LVWRU\RI6WRFN([FKDQJHV
'R\RXNQRZWKDWWKHZRUOG¶VIRUHPRVWPDUNHWSODFH1HZ<RUN6WRFN([FKDQJH
1<6(VWDUWHGLWVWUDGLQJXQGHUDWUHHQRZNQRZQDV:DOO6WUHHWRYHU
\HDUVDJR"6LPLODUO\,QGLD¶VSUHPLHUVWRFNH[FKDQJH%RPED\6WRFN([FKDQJH
%6(FDQDOVRWUDFHEDFNLWVRULJLQWRDVIDUDV\HDUVZKHQLWVWDUWHGDVD
6HOI,QVWUXFWLRQDO 0DWHULDO YROXQWDU\QRQSURILWPDNLQJDVVRFLDWLRQ

7KHH[FKDQJHPDNHVEX\LQJDQGVHOOLQJHDV\)RUH[DPSOH\RXGRQ¶WKDYHWR 6WRFN0DUNHW$QDO\VLV
DFWXDOO\JRWRDVWRFNH[FKDQJHVD\%6(\RXFDQFRQWDFWDEURNHUZKRGRHV
EXVLQHVVZLWKWKH%6(DQGKHRUVKHZLOOEX\RUVHOO\RXUVWRFNRQ\RXUEHKDOI
7KHPRVWIDPRXVVWRFNPDUNHWVRIWKHZRUOGDUH 127(6
x$PHULFDQ6WRFN([FKDQJH x.XZDLW6WRFN([FKDQJH
x$XVWUDOLDQ6WRFN([FKDQJH x/RQGRQ6WRFN([FKDQJH
x&RORPER6WRFN([FKDQJH&6( x1LJHULDQ6WRFN([FKDQJH
x&KLFDJR6WRFN([FKDQJH x1HZ<RUN6WRFN([FKDQJH
x'KDND6WRFN([FKDQJH x3KLOLSSLQH6WRFN([FKDQJH
x+RQJ.RQJ6WRFN([FKDQJH x6LQJDSRUH6WRFN([FKDQJH
x-DNDUWD6WRFN([FKDQJH x7KH1DWLRQDO6WRFN([
FKDQJHRI,QGLD
x-DPDLFD6WRFN([FKDQJH x7RURQWR6WRFN([FKDQJH

1HZ<RUN6WRFN([FKDQJH /RQGRQ6WRFN([FKDQJH

                $QODC[ 5VQEM 'ZEJCPIG

7KHPRVWIDPRXVVWRFNH[FKDQJHLQ,QGLDLVWKH0XPEDL6WRFN([FKDQJHZKRVH
PDUNHWPRYHPHQWLVVWLOODQLFRQRI,QGLD¶VHFRQRPLFSHUIRUPDQFH+RZHYHULQDQ
,7HQDEOHGHQYLURQPHQWLWLVWKHIDUPRUHVRSKLVWLFDWHGDQGDGYDQFHG1DWLRQDO
6WRFN([FKDQJH16(WKDWKDVJUDGXDOO\JDLQHGLPSRUWDQFHGXHWRPRUHDSSOLFDEOH
SURILOH 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 0DMRU6WRFN([FKDQJHVRI,QGLDDUH
3RUWIROLR0DQDJHPHQW
x %RPED\6WRFN([FKDQJH%6( x &RLPEDWRUH6WRFN([FKDQJH
x 1DWLRQDO6WRFN([FKDQJH16( x *DXKDWL6WRFN([FKDQJH
127(6 x 8WWDU3UDGHVK6WRFN([FKDQJH x -DLSXU6WRFN([FKDQJH
x $KPHGDEDG6WRFN([FKDQJH x /XGKLDQD6WRFN([FKDQJH
x &DOFXWWD6WRFN([FKDQJH x 0DGK\D 3UDGHVK 6WRFN ([
FKDQJH
x 0DGUDV6WRFN([FKDQJH x 0DQJORUH6WRFN([FKDQJH
x 27&(,6WRFN([FKDQJH x 3XQH6WRFN([FKDQJH
x 'HOKL6WRFN([FKDQJH x 6.6(6DXUDVKWUD.XWFK6WRFN
([FKDQJH
x +\GHUDEDG6WRFN([FKDQJH x %KXEDQHVKZDU6WRFN([FKDQJH
x %DQJDORUH6WRFN([FKDQJH x 9DGRGDUD6WRFN([FKDQJH
x 0DJDGK6WRFN([FKDQJH x &RFKLQ6WRFN([FKDQJH
)XQFWLRQVRI6WRFN([FKDQJHVLQ,QGLD
7KHPDMRUIXQFWLRQVRIWKHVWRFN([FKDQJHDUHDVIROORZLQJ
 5DLVLQJFDSLWDOIRUEXVLQHVVHV7KH6WRFN([FKDQJHSURYLGHVFRPSD
QLHVZLWKWKHIDFLOLW\WRUDLVHFDSLWDOIRUH[SDQVLRQWKURXJKVHOOLQJVKDUHVWR
WKHLQYHVWLQJSXEOLF
 0RELOL]LQJVDYLQJIRULQYHVWPHQW:KHQSHRSOHGUDZWKHLUVDYLQJVDQG
LQYHVWLQVKDUHVLWOHDGVWRDPRUHUDWLRQDODOORFDWLRQRIUHVRXUFHVEHFDXVH
IXQGVZKLFKFRXOGKDYHEHHQFRQVXPHGRUNHSWLQLGOHGHSRVLWVZLWK
EDQNVDUHPRELOL]HGDQGUHGLUHFWHGWRSURPRWHEXVLQHVVDFWLYLW\ZLWKEHQ
HILWVIRUVHYHUDOHFRQRPLFVHFWRUVVXFKDVDJULFXOWXUHFRPPHUFHDQGLQGXV
WU\UHVXOWLQJLQDVWURQJHUHFRQRPLFJURZWKDQGKLJKHUSURGXFWLYLW\OHYHOV
DQGILUPV
 )DFLOLWDWLQJFRPSDQ\JURZWK&RPSDQLHVYLHZDFTXLVLWLRQVDVDQRSSRU
WXQLW\WRH[SDQGSURGXFWOLQHVLQFUHDVHGLVWULEXWLRQFKDQQHOVKHGJHDJDLQVW
YRODWLOLW\LQFUHDVHLWVPDUNHWVKDUHRUDFTXLUHRWKHUQHFHVVDU\EXVLQHVV
DVVHWV$WDNHRYHUELGRUDPHUJHUDJUHHPHQWWKURXJKWKHVWRFNPDUNHWLV
RQHRIWKHVLPSOHVWDQGPRVWFRPPRQZD\VIRUDFRPSDQ\WRJURZE\
DFTXLVLWLRQRUIXVLRQ
 5HGLVWULEXWLRQRIZHDOWK6WRFNVH[FKDQJHVGRQRWH[LVWWRUHGLVWULEXWH
ZHDOWK+RZHYHUERWKFDVXDODQGSURIHVVLRQDOVWRFNLQYHVWRUVWKURXJK
GLYLGHQGVDQGFDSLWDOJDLQVVKDUHLQWKHZHDOWKRISURILWDEOHEXVLQHVVHV
 &RUSRUDWHJRYHUQDQFH%\KDYLQJDZLGHDQGYDULHGVFRSHRIRZQHUV
FRPSDQLHVJHQHUDOO\WHQGWRLPSURYHRQWKHLUPDQDJHPHQWVWDQGDUGVDQG
HIILFLHQF\LQRUGHUWRVDWLVI\WKHGHPDQGVRIWKHVHVKDUHKROGHUVDQGWKH
PRUHVWULQJHQWUXOHVIRUSXEOLFFRUSRUDWLRQVLPSRVHGE\SXEOLFVWRFNH[
FKDQJHVDQGWKHJRYHUQPHQW
 &UHDWLQJ LQYHVWPHQW RSSRUWXQLW\ RI VPDOO LQYHVWRU $V RSSRVHG WR
RWKHUEXVLQHVVHVWKDWUHTXLUHKXJHFDSLWDORXWOD\LQYHVWLQJLQVKDUHVLVRSHQ
6HOI,QVWUXFWLRQDO 0DWHULDO
WR ERWK WKH ODUJHDQG VPDOOVWRFN LQYHVWRUV EHFDXVHD SHUVRQ EX\V WKH

 QXPEHURIVKDUHVWKH\FDQDIIRUG7KHUHIRUHWKH6WRFN([FKDQJHSURYLGHV 6WRFN0DUNHW$QDO\VLV
WKHRSSRUWXQLW\IRUVPDOOLQYHVWRUVWRRZQVKDUHVRIWKHVDPHFRPSDQLHVDV
ODUJHLQYHVWRUV
 *RYWFDSLWDOUDLVLQJIRUGHYHORSPHQWSURMHFW*RYHUQPHQWVDWYDULRXV
OHYHOVPD\GHFLGHWRERUURZPRQH\LQRUGHUWRILQDQFHLQIUDVWUXFWXUHSURMHFWV 127(6
VXFKDVVHZDJHDQGZDWHUWUHDWPHQWZRUNVRUKRXVLQJHVWDWHVE\VHOOLQJ
DQRWKHUFDWHJRU\RIVHFXULWLHVNQRZQDVERQGV7KHVHERQGVFDQEHUDLVHG
WKURXJKWKH6WRFN([FKDQJHZKHUHE\PHPEHUVRIWKHSXEOLFEX\WKHPWKXV
ORDQLQJPRQH\WRWKHJRYHUQPHQW7KHLVVXDQFHRIVXFKERQGVFDQSUHYHQW
WKHQHHGWRGLUHFWO\WD[WKHFLWL]HQVLQRUGHUWRILQDQFHGHYHORSPHQW
 %DURPHWHURIWKHHFRQRP\$WWKHVWRFNH[FKDQJHVKDUHSULFHVULVHDQG
IDOOGHSHQGLQJODUJHO\RQPDUNHWIRUFHV6KDUHSULFHVWHQGWRULVHRUUHPDLQ
VWDEOHZKHQFRPSDQLHVDQGWKHHFRQRP\LQJHQHUDOVKRZVLJQVRIVWDELOLW\
DQGJURZWK$QHFRQRPLFUHFHVVLRQGHSUHVVLRQRUILQDQFLDOFULVLVFRXOG
HYHQWXDOO\OHDGWRDVWRFNPDUNHWFUDVK7KHUHIRUHWKHPRYHPHQWRIVKDUH
SULFHVDQGLQJHQHUDORIWKHVWRFNLQGH[HVFDQEHDQLQGLFDWRURIWKHJHQHUDO
WUHQGLQWKHHFRQRP\
  0DUNHW ,QGH[
0DUNHW,QGH[PD\EHGHILQHGDVDQDJJUHJDWHYDOXHSURGXFHGE\FRPELQLQJVHY
HUDOVWRFNVRURWKHULQYHVWPHQWYHKLFOHVWRJHWKHUDQGH[SUHVVLQJWKHLUWRWDOYDOXHV
DJDLQVWDEDVHYDOXHIURPDVSHFLILFGDWH0DUNHWLQGH[HVDUHLQWHQGHGWRUHSUHVHQW
DQHQWLUHVWRFNPDUNHWDQGWKXVWUDFNWKHPDUNHW¶VFKDQJHVRYHUWLPH
,QGH[YDOXHVDUHXVHIXOIRULQYHVWRUVWRWUDFNFKDQJHVLQPDUNHWYDOXHVRYHUORQJ
SHULRGVRIWLPH)RUH[DPSOHWKHZLGHO\XVHG6WDQGDUGDQG3RRU¶V,QGH[LV
FRPSXWHGE\FRPELQLQJODUJHFDS86VWRFNVWRJHWKHULQWRRQHLQGH[YDOXH
,QYHVWRUVFDQWUDFNFKDQJHVLQWKHLQGH[¶VYDOXHRYHUWLPHDQGXVHLWDVDEHQFKPDUN
DJDLQVWZKLFKWRFRPSDUHWKHLURZQSRUWIROLRUHWXUQV
$VWRFNPDUNHWLQGH[LVDPHWKRGRIPHDVXULQJDVHFWLRQRIWKHVWRFNPDUNHW
0DQ\LQGLFHVDUHFLWHGE\QHZVRUILQDQFLDOVHUYLFHVILUPVDQGDUHXVHGDVEHQFK
PDUNVWRPHDVXUHWKHSHUIRUPDQFHRISRUWIROLRVVXFKDVPXWXDOIXQGV
$OWHUQDWLYHO\DQLQGH[PD\DOVREHFRQVLGHUHGDVDQLQVWUXPHQWDIWHUDOOLWFDQEH
WUDGHGZKLFKGHULYHVLWVYDOXHIURPRWKHULQVWUXPHQWVRULQGLFHV7KHLQGH[PD\EH
ZHLJKWHGWRUHIOHFWWKHPDUNHWFDSLWDOL]DWLRQRILWVFRPSRQHQWVRUPD\EHDVLPSOH
LQGH[ZKLFKPHUHO\UHSUHVHQWVWKHQHWFKDQJHLQWKHSULFHVRIWKHXQGHUO\LQJLQVWUX
PHQWV0RVWSXEOLFO\TXRWHGVWRFNPDUNHWLQGLFHVDUHZHLJKWHG
6WRFNPDUNHWLQGLFHVPD\EHFODVVHGLQPDQ\ZD\V)RUH[DPSOH$µZRUOG¶RU
µJOREDO¶VWRFNPDUNHWLQGH[LQFOXGHVW\SLFDOO\ODUJHFRPSDQLHVZLWKRXWUHJDUGIRU
ZKHUHWKH\DUHGRPLFLOHGRUWUDGHG7ZRH[DPSOHVDUH06&,:RUOGDQG6 3
*OREDO
$µQDWLRQDO¶LQGH[UHSUHVHQWVWKHSHUIRUPDQFHRIWKHVWRFNPDUNHWRIDJLYHQQDWLRQ
DQGE\SUR[\UHIOHFWVLQYHVWRUVHQWLPHQWRQWKHVWDWHRILWVHFRQRP\
0RUHVSHFLDOL]HGLQGLFHVH[LVWWUDFNLQJWKHSHUIRUPDQFHRIVSHFLILFVHFWRUVRIWKH
PDUNHW6RPHH[DPSOHVLQFOXGHWKH:LOVKLUH865(,7ZKLFKWUDFNVPRUHWKDQ
$PHULFDQUHDOHVWDWHLQYHVWPHQWWUXVWVDQGWKH0RUJDQ6WDQOH\%LRWHFK,QGH[ZKLFK
FRQVLVWVRI$PHULFDQILUPVLQWKHELRWHFKQRORJ\LQGXVWU\ 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 5HFHQW 'HYHORSPHQWV LQ WKH ,QGLDQ 6WRFN 0DUNHW
3RUWIROLR0DQDJHPHQW
7KHPDMRUUHIRUPV GHYHORSPHQWVXQGHUWDNHQLQFDSLWDOPDUNHWRI,QGLDLQFOXGHV
(VWDEOLVKPHQWRI6(%,7KH6HFXULWLHVDQG([FKDQJH%RDUGRI,QGLD6(%,ZDV
127(6 HVWDEOLVKHGLQ,WJRWDOHJDOVWDWXVLQ6(%,ZDVSULPDULO\VHWXSWR
UHJXODWHWKHDFWLYLWLHVRIWKHPHUFKDQWEDQNVWRFRQWUROWKHRSHUDWLRQVRIPXWXDO
IXQGV WRZRUN DV DSURPRWHU RI WKHVWRFN H[FKDQJH DFWLYLWLHVDQG WR DFWDV D
UHJXODWRU\DXWKRULW\RIQHZLVVXHDFWLYLWLHVRIFRPSDQLHV7KH6(%,ZDVVHWXSZLWK
WKHIXQGDPHQWDOREMHFWLYH³WRSURWHFWWKHLQWHUHVWRILQYHVWRUVLQVHFXULWLHVPDUNHW
DQG IRU PDWWHUV FRQQHFWHG WKHUHZLWK RU LQFLGHQWDO WKHUHWR´
7KHPDLQIXQFWLRQVRI6(%,DUH
L 7RUHJXODWHWKHEXVLQHVVRIWKH
VWRFNPDUNHWDQGRWKHUVHFXUL
WLHVPDUNHW
LL 7RSURPRWHDQGUHJXODWHWKHVHOIUHJXODWRU\RUJDQL]DWLRQV
LLL 7RSURKLELWIUDXGXOHQWDQGXQIDLUWUDGHSUDFWLFHVLQVHFXULWLHVPDUNHW
LY 7RSURPRWHDZDUHQHVVDPRQJLQYHVWRUVDQGWUDLQLQJRILQWHUPHGLDU
LHVDERXWVDIHW\RIPDUNHW
Y 7RSURKLELWLQVLGHUWUDGLQJLQVHFXULWLHVPDUNHW
YL 7RUHJXODWHKXJHDFTXLVLWLRQRIVKDUHVDQGWDNHRYHURIFRPSDQLHV
(VWDEOLVKPHQWRI&UHGLWRUV5DWLQJ$JHQFLHV7KUHHFUHGLWRUVUDWLQJDJHQFLHV
YL]7KH&UHGLW5DWLQJ,QIRUPDWLRQ6HUYLFHVRI,QGLD/LPLWHG&5,6,/WKH
,QYHVWPHQW,QIRUPDWLRQDQG&UHGLW5DWLQJ$JHQF\RI,QGLD/LPLWHG,&5$
DQG&UHGLW$QDO\VLVDQG5HVHDUFK/LPLWHG&$5(ZHUHVHWXSLQRUGHUWRDVVHVV
WKHILQDQFLDOKHDOWKRIGLIIHUHQWILQDQFLDOLQVWLWXWLRQVDQGDJHQFLHVUHODWHGWRWKHVWRFN
PDUNHWDFWLYLWLHV,WLVDJXLGHIRUWKHLQYHVWRUVDOVRLQHYDOXDWLQJWKHULVNRIWKHLU
LQYHVWPHQWV
,QFUHDVLQJRI0HUFKDQW%DQNLQJ$FWLYLWLHV0DQ\,QGLDQDQGIRUHLJQFRPPHU
FLDOEDQNVKDYHVHWXSWKHLUPHUFKDQWEDQNLQJGLYLVLRQVLQWKHODVWIHZ\HDUV7KHVH
GLYLVLRQVSURYLGHILQDQFLDOVHUYLFHVVXFKDVXQGHUZULWLQJIDFLOLWLHVLVVXHRUJDQL]LQJ
FRQVXOWDQF\VHUYLFHVHWF,WKDVSURYHGDVDKHOSLQJKDQGWRIDFWRUVUHODWHGWRWKH
FDSLWDOPDUNHW
&DQGLG3HUIRUPDQFHRI,QGLDQ(FRQRP\,QWKHODVWIHZ\HDUV,QGLDQHFRQRP\
LVJURZLQJDWDJRRGVSHHG,WKDVDWWUDFWHGDKXJHLQIORZRI)RUHLJQ,QVWLWXWLRQDO
6HOI,QVWUXFWLRQDO 0DWHULDO

,QYHVWPHQWV),,7KHPDVVLYHHQWU\RI),,VLQWKH,QGLDQFDSLWDOPDUNHWKDVJLYHQ
JRRGDSSUHFLDWLRQIRUWKH,QGLDQLQYHVWRUVLQUHFHQWWLPHV6LPLODUO\PDQ\QHZ
FRPSDQLHVDUHHPHUJLQJRQWKHKRUL]RQRIWKH,QGLDQFDSLWDOPDUNHWWRUDLVHFDSLWDO
IRUWKHLUH[SDQVLRQV
5LVLQJ(OHFWURQLF7UDQVDFWLRQV'XHWRWHFKQRORJLFDOGHYHORSPHQWLQWKHODVWIHZ
\HDUVWKHSK\VLFDOWUDQVDFWLRQZLWKPRUHSDSHUZRUNLVUHGXFHG1RZSDSHUOHVV
WUDQVDFWLRQVDUHLQFUHDVLQJDWDUDSLGUDWH,WVDYHVPRQH\WLPHDQGHQHUJ\RI
LQYHVWRUV7KXVLWKDVPDGHLQYHVWLQJVDIHUDQGKDVVOHIUHHHQFRXUDJLQJPRUHSHRSOH
WRMRLQWKHFDSLWDOPDUNHW
*URZLQJ0XWXDO)XQG,QGXVWU\7KHJURZLQJRIPXWXDOIXQGVLQ,QGLDKDVFHU
WDLQO\KHOSHGWKHFDSLWDOPDUNHWWRJURZ3XEOLFVHFWRUEDQNVIRUHLJQEDQNVILQDQ
FLDOLQVWLWXWLRQVDQGMRLQWPXWXDOIXQGVEHWZHHQWKH,QGLDQDQGIRUHLJQILUPVKDYH
ODXQFKHGPDQ\QHZIXQGV$ELJGLYHUVLILFDWLRQLQWHUPVRIVFKHPHVPDWXULW\HWF 6WRFN0DUNHW$QDO\VLV
KDVWDNHQSODFHLQPXWXDOIXQGVLQ,QGLD,WKDVJLYHQDZLGHFKRLFHIRUWKHFRPPRQ
LQYHVWRUVWRHQWHUWKHFDSLWDOPDUNHW
*URZLQJ6WRFN([FKDQJHV7KHQXPEHUVRIYDULRXV6WRFN([FKDQJHVLQ,QGLDDUH
LQFUHDVLQJ,QLWLDOO\WKH%6(ZDVWKHPDLQH[FKDQJHEXWQRZDIWHUWKHVHWWLQJXSRI 127(6
WKH16(DQGWKH27&(,VWRFNH[FKDQJHVKDYHVSUHDGDFURVVWKHFRXQWU\5H
FHQWO\DQHZ,QWHUFRQQHFWHG6WRFN([FKDQJHRI,QGLDKDVMRLQHGWKHH[LVWLQJVWRFN
H[FKDQJHV
,QYHVWRU¶V3URWHFWLRQ8QGHUWKHSXUYLHZRIWKH6(%,WKH&HQWUDO*RYHUQPHQWRI
,QGLDKDVVHWXSWKH,QYHVWRUV(GXFDWLRQDQG3URWHFWLRQ)XQG,(3)LQ,W
ZRUNVLQHGXFDWLQJDQGJXLGLQJLQYHVWRUV,WWULHVWRSURWHFWWKHLQWHUHVWRIWKHVPDOO
LQYHVWRUVIURPIUDXGVDQGPDOSUDFWLFHVLQWKHFDSLWDOPDUNHW
*URZWKRI'HULYDWLYH7UDQVDFWLRQV6LQFH-XQHWKH16(KDVLQWURGXFHG
WKHGHULYDWLYHVWUDGLQJLQWKHHTXLWLHV,Q1RYHPEHULWDOVRLQWURGXFHGWKH
IXWXUHDQGRSWLRQVWUDQVDFWLRQV7KHVHLQQRYDWLYHSURGXFWVKDYHJLYHQYDULHW\IRUWKH
LQYHVWPHQWOHDGLQJWRWKHH[SDQVLRQRIWKHFDSLWDOPDUNHW
,QVXUDQFH6HFWRU5HIRUPV,QGLDQLQVXUDQFHVHFWRUKDVDOVRZLWQHVVHGPDVVLYH
UHIRUPVLQODVWIHZ\HDUV7KH,QVXUDQFH5HJXODWRU\DQG'HYHORSPHQW$XWKRULW\
,5'$ZHUHVHWXSLQ,WSDYHGWKHHQWU\RIWKHSULYDWHLQVXUDQFHILUPVLQ
,QGLD$VPDQ\LQVXUDQFHFRPSDQLHVLQYHVWWKHLUPRQH\LQWKHFDSLWDOPDUNHWLWKDV
H[SDQGHG
&RPPRGLW\7UDGLQJ$ORQJZLWKWKHWUDGLQJRIRUGLQDU\VHFXULWLHVWKHWUDGLQJLQ
FRPPRGLWLHVLVDOVRUHFHQWO\HQFRXUDJHG7KH0XOWL&RPPRGLW\([FKDQJH0&;
LVVHWXS7KHYROXPHRIVXFKWUDQVDFWLRQVLVJURZLQJDWDVSOHQGLGUDWH
$SDUWIURPWKHVHUHIRUPVWKHVHWWLQJXSRI&OHDULQJ&RUSRUDWLRQRI,QGLD/LPLWHG
&&,/9HQWXUH)XQGVHWFKDYHUHVXOWHGLQWRWKHWUHPHQGRXVJURZWKRI,QGLDQ
FDSLWDOPDUNHW
&$6( 678'<
'LYHUVLILFDWLRQ0LWLJDWLQJ5LVNV
'LYHUVLILFDWLRQLVDVWUDWHJ\WKDWFDQEHQHDWO\VXPPHGXSE\WKHWLPHOHVVDGDJH
'RQ
WSXWDOO\RXUHJJVLQRQHEDVNHW:HKDYHOHDUQWKRZWRLQYHVWLVDOODERXW
UHWXUQVDQGULVNSULQFLSOHV<RXZLOOQRZSUREDEO\ORRNWRLQYHVWLQDVWRFNRQO\DIWHU
DQDO\VLQJWKDW\RXZLOOEHFRPSHQVDWHGZHOOIRUWKHULVN\RXDUHWDNLQJE\LQYHVWLQJ
LQWKHVWRFNIURPWKHVWRFN
VUHWXUQV
1RZFRQVLGHUWKHVFHQDULRWKDW\RXDUHLQYHVWHGLQDVLQJOHVWRFN$%&/WG:KDW
KDSSHQVLI$%&/WGSHUIRUPVEDGO\<RXZLOOQRWEHFRPSHQVDWHGIRUWKHULVN\RX
KDYHWDNHQZLWKWKHVWRFN1RZFRQVLGHUWKHRWKHUVFHQDULRZKHQ\RXDUHLQYHVWHG
LQDSRUWIROLRRIVWRFNV$%&/WGDQGRWKHUXQUHODWHGVWRFNV:KDWKDSSHQV
DJDLQLI$%&/WGSHUIRUPVEDGO\"<RXUWRWDOUHWXUQVDUHQRWKXUWDVEDGO\ULJKW
<RXKDYHPLWLJDWHGWKHEXVLQHVVULVNVXEVWDQWLDOO\E\GLYHUVLI\LQJ\RXULQYHVWPHQW
DPRQJGLIIHUHQWVWRFNV
7KHUHWXUQRI$%&/WGUHPDLQVWKHVDPHSOHDVHQRWH$OVRQRWHWKDWHDFKVWRFN
V
UHWXUQLVDIIHFWHGE\GLIIHUHQWIDFWRUVVD\WKHVWRFNVEHORQJHGWRGLIIHUHQWVHFWRUV
WHOHFRP%DQNLQJ6WHHOHWFDQGWKH\IDFHGLIIHUHQWULVNV6RLWVLPSRUWDQWWRLQYHVW
6HOI,QVWUXFWLRQDO 0DWHULDO
DFURVVGLIIHUHQWFDWHJRULHVRUVWRFNVWRGLYHUVLI\DQGUHGXFHULVNVVXEVWDQWLDOO\

6HFXULW\$QDO\VLV :HKDYHVHHQEHIRUHWKDWGLIIHUHQWDVVHWFDWHJRULHVVWRFNVIL[HGLQFRPHDQG
3RUWIROLR0DQDJHPHQW PRQH\PDUNHWLQYHVWPHQWVIDFHYDU\LQJGHJUHHRIULVNVZUWOLTXLGLW\LQIODWLRQDQG
PDUNHWULVNV6RLWPDNHVVHQVHWKDW\RXVKRXOGGLYHUVLI\DFURVVWKHVHPDMRULQYHVW
PHQWFDWHJRULHV'LYHUVLILFDWLRQZLWKLQDQDVVHWFDWHJRU\VXFKDVVWRFNVDFURVV
127(6 VHFWRUVDQGODUJHFDSPLGFDSEOXHFKLSVWRFNVDQGHYHQIL[HGLQFRPHSURGXFWV
ORQJWHUPERQGVPRQH\PDUNHWIXQGVZLOOIXUWKHUUHGXFHPDUNHWDQGLQIODWLRQ
ULVNV$QGZHKDYHDOUHDG\VHHQEXVLQHVVULVNFDQEHPLWLJDWHGE\GLYHUVLI\LQJ
DFURVVDSRUWIROLRRIXQUHODWHGVWRFNV
1RZGRQ
WJRRYHUERDUGDQGRYHUGLYHUVLI\VD\DFURVVVWRFNV<RXUXQWKH
RYHUGLYHUVLILFDWLRQULVNWKHQ7KHUHDUHERXQGWREHSRFNHWVRIVLPLODULW\WKH
LQFUHPHQWDOULVNPLWLJDWLRQZLOOEHPLQLPDO$QG\RXORVHWKHEHQHILWVRIVWRFN
FRQFHQWUDWLRQDVRSSRVHGWRGLYHUVLILFDWLRQEXWWKDW
VDQRWKHUGLVFXVVLRQDQGOHW
V
OHDYHLWIRUDQRWKHUDUWLFOH
$VDVHQLRULQYHVWRURQFHSXWWRPH,QYHUWWKHORJLF,I\RXGRQRWGLYHUVLI\\RX
DUHSXWWLQJDOO\RXUHJJVLQRQHEDVNHWDQGDUHWDNLQJRQWRRPXFKRIDULVNLW
V
OLNHO\\RXZLOOQRWJHWFRPSHQVDWHGIRULWE\\RXUUHWXUQV
6800$5<
7KHUHDUHGLIIHUHQWEXVLQHVVF\FOHV FDXVLQJIRUPRYHPHQWVLQWKHHFRQRP\VXFK
DVERRPGHSUHVVLRQUHFHVVLRQHWF
7KHVHFXULW\DQDO\VLVLVWREHPDGHE\WKHLQYHVWRUEHIRUHPDNLQJDQLQYHVWPHQW
GHFLVLRQV6XFKDQDO\VLVZLOOEHXVHIXOWRLGHQWLI\WKHSRWHQWLDOLQGXVWU\FRPSDQ\
W\SHRILQYHVWPHQWLQRUGHUWRPD[LPL]HWKHH[SHFWHGUHWXUQ PLQLPL]HWKHULVN)RU
WKLVSXUSRVHWKHLQYHVWRUKDVWRVFDQWKRURXJKO\WKHLQYHVWPHQWFOLPDWH
$16:(5 &+(&. <285 352*5(66
 (FRQRPLF$QDO\VLVLVLPSRUWDQWEHFDXVHVWRFNSULFHKDYHDVWURQJSRVLWLYH
UHODWLRQVKLSZLWKRYHUDOOHFRQRPLFSHUIRUPDQFH
 ,WLVWKHDJJUHJDWHYDOXHRIJRRGV VHUYLFHVSURGXFHGLQWKHHFRQRP\,W
UHIOHFWVWKHRYHUDOOSHUIRUPDQFHRIWKHHFRQRP\
 (FRQRPLFIRUHFDVWLQJLVYHU\LPSRUWDQWEHFDXVHLWHQDEOHVWKHLQYHVWRUVWR
SODQWKHULJKWWLPHIRULQYHVWPHQW
 1HWSURILW UDWLRLVWKHUDWLR RIQHWSURILWDIWHU WD[HVWRQHWVDOHV ,WLV
H[SUHVVHGDVSHUFHQWDJH
7(67 <2856(/)
 *LYHDGHWDLOHGLQWURGXFWLRQWRHFRQRPLF$QDO\VLV
 :KDWDUHWKHPDFURHFRQRPLFIDFWRUVDIIHFWLQJVWRFN3ULFHV([SODLQHDFK
RQHLQWKHVKRUW
 :KDWDUHWKHYDULRXVPHDVXUHVWDNHQXQGHUDQDO\VLVRI)LQDQFLDO6WDWHPHQWV
 *LYHDQRXWORRNWRWHFKQLFDODQDO\VLV
 ([SODLQ'RZ7KHRU\LQEULHIO\
 :KDWDUHYDULRXVSULFH,QGLFDWRUV
)857+(5 5($',1*
6HOI,QVWUXFWLRQDO 0DWHULDO ‡6WRFN0DUNHW,QGH[E\%DWUD
 ‡)LQDQFLDO0DQDJHPHQWE\,03DQGH\
 3RUWIROLR0DQDJHPHQW

127(6



3RUWIROLR0DQDJHPHQW

„
„
„
„
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV  ,QWURGXFWLRQ WR 3RUWIROLR 0DQDJHPHQW
3RUWIROLR0DQDJHPHQW
3RUWIROLR0DQDJHPHQWLVDOVRUHIHUUHGDV,QYHVWPHQW0DQDJHPHQW,QYHVWLQJLQ
VHFXULWLHVVXFKDVVKDUHVGHEHQWXUHV ERQGVLVSURILWDEOHDVZHOODVH[FLWLQJEXW
127(6 QRWDHDV\WDVN,WLVLQGHHGUHZDUGLQJEXWLQYROYHVDJUHDWGHDORIULVN FDOOVIRU
VFLHQWLILFNQRZOHGJHDVZHOODVDUWLVWLFVNLOO,QVXFKLQYHVWPHQWVERWKUDWLRQDODVZHOO
DVHPRWLRQDOUHVSRQVHVDUHLQYROYHG,QYHVWLQJLQILQDQFLDOVHFXULWLHVLVQRZFRQVLG
HUHGWREHRQHRIWKHPRVWULVN\DYHQXHVRILQYHVWPHQW

,WLVUDUHWRILQGLQYHVWRUVLQYHVWLQJWKHLUHQWLUHVDYLQJVLQDVLQJOHVHFXULW\,QVWHDG
WKH\WHQGWRLQYHVWLQDJURXSRIVHFXULWLHV6XFKDJURXSRIVHFXULWLHVLVFDOOHGD
SRUWIROLR&UHDWLRQRIDSRUWIROLRKHOSVWRUHGXFHULVNZLWKRXWVDFULILFLQJUHWXUQV
3RUWIROLRPDQDJHPHQWGHDOVZLWKWKHDQDO\VLVRILQGLYLGXDOVHFXULWLHVDVZHOODVZLWK
WKHWKHRU\ SUDFWLFHRIRSWLPDOO\FRPELQLQJVHFXULWLHVLQWRSRUWIROLR$QLQYHVWRU
ZKRXQGHUVWDQGVWKHIXQGDPHQWDOSULQFLSOHV DQDO\WLFDODVSHFWVRISRUWIROLRPDQ
DJHPHQWKDVDEHWWHUFKDQFHRIVXFFHVV

 &RQFHSW RI 3RUWIROLR  3RUWIROLR PDQDJHPHQW

3RUWIROLRLVDFRPELQDWLRQRIVHFXULWLHVVXFKDVVWRFNERQGV RWKHULQVWUXPHQWV
7KHSURFHVVRIEOHQGLQJWRJHWKHUWKHEURDGDVVHWFODVVHVVRDVWRREWDLQRSWLPXP
UHWXUQZLWKPLQLPXPULVNLVFDOOHG3RUWIROLR&RQVWUXFWLRQ7KHJRDORISRUWIROLR
FRQVWUXFWLRQLVWRJHQHUDWHDSRUWIROLRWKDWSURYLGHVWKHKLJKHVWUHWXUQVDWDJLYHQ
OHYHORIULVN$SRUWIROLRKDYLQJWKLVFKDUDFWHULVWLFLVNQRZQDV(IILFLHQW3RUWIROLR
7KH3RUWIROLR$QDO\VLVFDQEHXVHGWRJHWDQHIILFLHQW3RUWIROLR

3RUWIROLRPDQDJHPHQWLQFRPPRQSDUODQFHUHIHUVWRWKHVHOHFWLRQRIVHFXULWLHVDQG
WKHLUFRQWLQXRXVVKLIWLQJLQWKHSRUWIROLRWRRSWLPL]HUHWXUQVWRVXLWWKHREMHFWLYHVRI
DQLQYHVWRU,Q,QGLDDVZHOODVLQDQXPEHURIZHVWHUQFRXQWULHVSRUWIROLRPDQDJH
PHQWVHUYLFHKDVDVVXPHGWKHUROHRIDVSHFLDOL]HGVHUYLFHQRZDGD\VDQGDQXPEHU
RISURIHVVLRQDOPHUFKDQWEDQNHUVFRPSHWHDJJUHVVLYHO\WRSURYLGHWKHEHVWWRKLJK
QHWZRUWKFOLHQWVZKRKDYHOLWWOHWLPHWRPDQDJHWKHLULQYHVWPHQWV7KHLGHDLV
FDWFKLQJRQZLWKWKHERRPLQWKHFDSLWDOPDUNHWDQGDQLQFUHDVLQJQXPEHURISHRSOH
DUHLQFOLQHGWRPDNHSURILWVRXWRIWKHLUKDUGHDUQHGVDYLQJV

3RUWIROLRPDQDJHPHQWVHUYLFHLVRQHRIWKHPHUFKDQWEDQNLQJDFWLYLWLHVUHFRJQL]HG
E\6HFXULWLHVDQG([FKDQJH%RDUGRI,QGLD6(%,7KHVHUYLFHFDQEHUHQGHUHG
HLWKHUE\PHUFKDQWEDQNHUVRUSRUWIROLRPDQDJHUVRUGLVFUHWLRQDU\SRUWIROLRPDQDJHU
DQGWKHLUIXQFWLRQLQJDUHJXLGHGE\WKH6(%,

3RUWIROLRPDQDJHPHQWFRPSULVHVDOOWKHSURFHVVHVLQYROYHGLQWKHFUHDWLRQ
PDLQWHQDQFHRIDQLQYHVWPHQWSRUWIROLR,WGHDOVVSHFLILFDOO\ZLWKVHFXULW\DQDO\VLV
SRUWIROLRDQDO\VLVSRUWIROLRVHOHFWLRQSRUWIROLRUHYLVLRQ SRUWIROLRHYDOXDWLRQ,WDOVR
PDNHVXVHRIDQDO\WLFDOWHFKQLTXHVRIDQDO\VLV FRQFHSWXDOWKHRULHVUHJDUGLQJ
UDWLRQDODOORFDWLRQRIIXQGV3RUWIROLRPDQDJHPHQWLVDFRPSOH[SURFHVVZKLFKWULHV
WRPDNHLQYHVWPHQWDFWLYLWLHVPRUHDZDUGLQJ OHVVULVN\
6HOI,QVWUXFWLRQDO 0DWHULDO

$QLQYHVWRUFRQVLGHULQJLQYHVWPHQWLQ 3RUWIROLR0DQDJHPHQW
6HFXULW\$QDO\VLV
VHFXULWLHVLVIDFHGZLWKWKHSUREOHPRI
FKRRVLQJ IURP DPRQJ D QXPEHU RI
VHFXULWLHV+LVFKRLFHGHSHQGVXSRQ
3RUWIROLR$QDO\VLV 127(6
WKHULVNUHWXUQFKDUDFWHULVWLFVRILQGL
YLGXDOVHFXULWLHV7KHLQYHVWRUIDFHVDQ
LQILQLWHQXPEHURISRVVLEOHRIJURXSRI 3RUWIROLR6HOHFWLRQ
VHFXULWLHV7KHULVN UHWXUQRISRUWIR
OLRVGLIIHUIURPWKRVHRILQGLYLGXDOVH
FXULWLHVFRPELQLQJWRIRUPDSRUWIROLR 3RUWIROLR5HYLVLRQ
7KHLQYHVWRUWULHVWRFKRRVHWKHRSWL
PXPSRUWIROLRWDNLQJLQWRFRQVLGHUDWLRQ
WKHULVN UHWXUQ FKDUDFWHULVWLFV RI DOO 3RUWIROLR(YDOXDWLRQ
SRVVLEOHSRUWIROLRV

 &RPSRVLWLRQ RI
3RUWIROLR 0DQDJHPHQW
7KH&RPSRVLWLRQRISRUWIROLRPDQDJHPHQWFRPSULVHVRIVWHSVZKLFKDUHDV
IROORZLQJ

 6HFXULW\$QDO\VLV6HFXULW\$QDO\VLVLVWKHLQLWLDOSKDVHRIWKHSRUWIROLR
PDQDJHPHQWSURFHVV7KLVVWHSFRQVLVWVRIH[DPLQLQJULVNUHWXUQRILQGL
YLGXDOVHFXULWLHV$EDVLFVWUDWHJ\LQVHFXULW\LQYHVWPHQWLVWREX\XQGHU
SULFHGVHFXULWLHV VHOORYHUSULFHGVHFXULWLHV%XWWKHSUREOHPLVKRZWR
LGHQWLI\WKHVHVHFXULWLHV7KHVHFXULW\DQDO\VLVGHDOVZLWKWKHSUREOHP7KHUH
DUHDSSURDFKHVWRVHFXULW\DQDO\VLV)XQGDPHQWDO$QDO\VLV 7HFKQL
FDO$QDO\VLV:HKDYHDOUHDG\GLVFXVVHGWKHVHWRSLFVLQWKHSUHYLRXVFKDS
WHU

 3RUWIROLR$QDO\VLV$SRUWIROLRLVDJURXSRIVHFXULWLHVKHOGWRJHWKHUDV
LQYHVWPHQW,QYHVWRUVLQYHVWWKHLUIXQGVLQDSRUWIROLRUDWKHUWKDQLQDVLQJOH
VHFXULW\EHFDXVHWKH\DUHULVNDYHUVH%\FRQVWUXFWLQJDSRUWIROLRWKH\ZDQW
WRGLYHUVLI\WKHLUULVN6HFXULW\$QDO\VLVSURYLGHVWKHLQYHVWRUVZLWKDVHWRI
ZRUWKZKLOHVHFXULWLHV3RUWIROLR$QDO\VLVLVWKHSKDVHRISRUWIROLRPDQDJH
PHQWFRQVLVWVRILGHQWLI\LQJWKHUDQJHRISRVVLEOHSRUWIROLRWKDWFDQEHFRQ
VWLWXWHGIURPDJLYHQVHWRIVHFXULWLHV

 3RUWIROLR6HOHFWLRQ3RUWIROLR$QDO\VLVSURYLGHVWKHLQSXWIRUWKHQH[WSKDVH
LQ3RUWIROLRPDQDJHPHQWZKLFKLVSRUWIROLRVHOHFWLRQ7KHJRDOLVWRVHOHFWD
SRUWIROLRZKLFKSURYLGHVKLJKHVWUHWXUQVDWDJLYHQOHYHORIULVN$SRUWIROLR
KDYLQJWKLVFKDUDFWHULVWLFLVNQRZQDVHIILFLHQWSRUWIROLR7KHRXWSXWRIWKH
SRUWIROLRDQDO\VLVFDQEHXVHGIRUWKHVHOHFWLRQRIHIILFLHQWSRUWIROLR)URP
WKHVHWRIHIILFLHQWSRUWIROLRRSWLPDOSRUWIROLRLVVHOHFWHGIRULQYHVWPHQW

 3RUWIROLR5HYLVLRQ+DYLQJFRQVWUXFWHGWKHRSWLPDOSRUWIROLRWKHLQYHVWRU 6HOI,QVWUXFWLRQDO 0DWHULDO

KDVWRFRQVWDQWO\PRQLWRUWKHSRUWIROLRWRHQVXUHWKDWLWFRQWLQXHVWREH 
6HFXULW\$QDO\VLV RSWLPDO$VWKHHFRQRP\ ILQDQFLDOPDUNHWVDUHG\QDPLFQHZVHFXULWLHV
3RUWIROLR0DQDJHPHQW DOZD\VFRPHLQWKHPDUNHW$VWLPHSDVVHVWKHVHFXULWLHVZKLFKZHUHRQFH
DWWUDFWLYHPD\VWRSWREHGRLQJVR7KHLQYHVWRUVKDYHWRUHYLVHWKHLUSRUW
IROLRVLQWKHOLJKWRIWKHGHYHORSPHQWVLQWKHPDUNHW7KLVOHDGVWRSXUFKDVH
127(6 RIQHZVHFXULWLHVRUVHOOLQJRIH[LVWLQJVHFXULWLHV DOVRFKDQJHLQWKHLU
SURSRUWLRQV3RUWIROLRUHYLVLRQPD\DOVREHQHFHVVLWDWHGE\VRPHLQYHVWRU
UHODWHGFKDQJHVVXFKDVDYDLODELOLW\RIDGGLWLRQDOIXQGVFKDQJHVLQULVNDW
WLWXGHQHHGRIFDVKIRURWKHUDOWHUQDWLYHXVHHWF7KHSRUWIROLRUHYLVLRQ
VKRXOGEHGRQHVFLHQWLILFDOO\ REMHFWLYHO\WRHQVXUHWKHRSWLPDOLW\RIUH
YLVHGSRUWIROLR

 3RUWIROLR(YDOXDWLRQ,WLVWKHODVWVWHSRI3RUWIROLR0DQDJHPHQWLQZKLFK
SHUIRUPDQFHRIDSRUWIROLRLVDVVHVVHGRYHUDSHULRGRIWLPHLQWHUPVRIULVN
UHWXUQ7KLVLQYROYHVTXDQWLWDWLYHPHDVXUHPHQWRIDFWXDOUHWXUQUHDOLVHG
WKHULVNERUQE\WKHSRUWIROLRRYHUWKHSHULRGRILQYHVWPHQW7KHVHKDYHWR
EHFRPSDUHGZLWKREMHFWLYHQRUPVWRDVVHVVWKHUHODWLYHSHUIRUPDQFHRI
SRUWIROLR$OWHUQDWLYHPHDVXUHVRISHUIRUPDQFHHYDOXDWLRQKDYHEHHQGHYHO
RSHGIRUXVHRILQYHVWRUV SRUWIROLRPDQDJHUV3HUIRUPDQFHHYDOXDWLRQ
DOVRKHOSVLQLGHQWLI\LQJWKHZHDNHUDUHDVRIWKHLQYHVWPHQWSURFHVV
LPSURYLQJWKHVHGHILFLHQWDUHDV

 2%-(&7,9(6 2) 3257)2/,2 0$1$*(0(17

7KHPDMRUREMHFWLYHVRISRUWIROLRPDQDJHPHQWDUHVXPPDUL]HGDVEHORZ

L ,WNHHSVWKHVHFXULW\VDIHW\RI3ULQFLSDOVXPLQWDFWERWKLQWHUPVRI
PRQH\DVZHOODVLWVSXUFKDVLQJSRZHU

LL ,WEULQJVVWDELOLW\RIWKHIORZRILQFRPHVRDVWRIDFLOLWDWHSODQQLQJPRUH
DFFXUDWHO\DQGV\VWHPDWLFDOO\WKHUHLQYHVWPHQWRUFRQVXPSWLRQRILQ
FRPH

LLL ,WKHOSVWRDWWDLQFDSLWDOJURZWKE\UHLQYHVWLQJLQJURZWKVHFXULWLHVRU
WKURXJKSXUFKDVHRIJURZWKVHFXULWLHV

LY ,WKHOSVLQPDUNHWDELOLW\RIWKHVHFXULW\ZKLFKLVHVVHQWLDOIRUSURYLGLQJ
IOH[LELOLW\WRLQYHVWPHQWSRUWIROLR

Y ,WEULQJVOLTXLGLW\LHQHDUQHVVWRPRQH\ZKLFKLVGHVLUDEOHIRUWKH
LQYHVWRUVRDVWRWDNHDGYDQWDJHRIDWWUDFWLYHRSSRUWXQLWLHVXSFRPLQJLQ
WKHPDUNHW

YL 'LYHUVLILFDWLRQ7KHEDVLFREMHFWLYHRIEXLOGLQJDSRUWIROLRLVWRUHGXFH
WKHULVNRIORVVRIFDSLWDODQGLQFRPHE\LQYHVWLQJLQYDULRXVW\SHVRI
VHFXULWLHVDQGRYHUDZLGHUDQJHRILQGXVWULHV

YLL )DYRUDEOHWD[VWDWXV7KHHIIHFWLYH\LHOGDQLQYHVWRUJHWVIURPKLVLQ
6HOI,QVWUXFWLRQDO 0DWHULDO YHVWPHQWGHSHQGVRQWD[WRZKLFKLWLVVXEMHFW%\PLQLPL]LQJWKHWD[
 EXUGHQ\LHOGFDQEHHIIHFWLYHO\LPSURYHG
 2SWLPXP 3RUWIROLR 6HOHFWLRQ 3UREOHPV 3RUWIROLR0DQDJHPHQW

$QLQYHVWPHQWSRUWIROLRLVDGLVWULEXWLRQRIZHDOWKDPRQJVHYHUDOILQDQFLDODVVHWV
VXFKDVVWRFNERQGVDQGWKHLUGHULYDWLYHV7KHPDLQJRDORIEXLOGLQJDSRUWIROLRLV
WRGLYHUVLI\ULVNZKLOHDWWDLQLQJDKLJKOHYHORIUHWXUQ+RZHYHUFUHDWLQJDQRSWLPXP 127(6
SRUWIROLRLVQRWDHDV\WDVN7KHPDMRUFRQVWUDLQWVEHKLQGWKLVDUHDVIROORZLQJ

L 5HTXLUHGUHWXUQ KLJKHVWDFFHSWDEOHOHYHORIULVN7ZRPRVWFRP
PRQO\VRXJKWJRDOVDUHPD[LPL]DWLRQRIUHWXUQIRUDJLYHQDFFHSWDEOHOHYHO
RIULVNDQGPLQLPL]DWLRQRIULVNWRDFKLHYHDJLYHQUHTXLUHGOHYHORIUHWXUQ
$UELWUDJHHQVXUHVWKDWLQFUHDVLQJWKHOHYHORIUHWXUQLVQRWSRVVLEOHZLWKRXW
WDNLQJDQ\ULVN

LL 7LPHDOORFDWLRQ7KHUHTXLUHGUHWXUQDQGWKHKLJKHVWDFFHSWDEOHOHYHORI
ULVNDUHQRWWKHRQO\FRQVWUDLQWVWKDWGHWHUPLQHWKHDPRXQWRIZHDOWKWKDW
VKRXOGEHLQYHVWHGLQHDFKDVVHW7LPHDOORFDWHGWRDFKLHYHWKHUHTXLUHG
UHWXUQGLFWDWHVWKHVSHHGDWZKLFKWKHZHDOWKVKRXOGEHDFFXPXODWHG7LPH
WRPDWXULW\RIHDFKDVVHWFHUWDLQO\OLPLWVWKHVHWRIDVVHWVDYDLODEOHWRWDNH
SDUWLQDSRUWIROLRHVSHFLDOO\ZKHQWKHJRDOQHHGVWREHDFKLHYHGTXLFNO\

LLL 7UDQVDFWLRQFRVW,WFRXOGEHLQWKHIRUPRIDIL[HGDPRXQWRUDSRUWLRQ
RIWKHWUDQVIHUUHGDPRXQWZKLFKDOVRLQIOXHQFHVWKHG\QDPLFVRIDSRUWIROLR
WKDWLVZKHWKHUWKHSRUWIROLRLVWREHKHOGIL[GXULQJWKHHQWLUHWLPHSHULRG
DOORFDWHGWRDFKLHYHWKHPDLQJRDORIDQLQYHVWRURUWKHSRUWIROLRFRXOGEH
DGMXVWHGDIWHUFHUWDLQWLPHLQWHUYDOV

LY &KRLFHRI,QYHVWRU$QLQYHVWRUPLJKWSUHIHUDSDUWLFXODUSRUWIROLRVWUXF
WXUH)RUH[DPSOHDSHUVRQFORVHWRUHWLUHPHQWLVXVXDOO\ULVNDYHUVHDQG
SUHIHUVWRLQYHVWLQOHVVULVN\JRYHUQPHQWERQGVZKLOHD\RXQJHQWKXVLDVWLF
LQGLYLGXDOPLJKWEHPRUHULVNSURQHDQGZLOOLQJWRLQYHVWLQVHYHUDOKLJKULVN
VWRFNVZLWKKRSHWRTXLFNO\HDUQODUJHDPRXQWRIPRQH\

Y 2WKHUFLUFXPVWDQFHV7KHRWKHUFLUFXPVWDQFHVZKLFKPD\PLJKWDIIHFWWKH
SRUWIROLRVHOHFWLRQLQFOXGHWKHDPRXQWRIPRQH\DYDLODEOHDVZHOODVWKH
SRVVLELOLW\IRUVKRUWVHOOLQJWKDWLVZKHWKHUDQLQYHVWRUFRXOGVHOODVVHWVWKDW
KHVKHGRHVQRWRZHLQRUGHUWRLQFUHDVHWKHDPRXQWRIPRQH\DYDLODEOHWR
LQYHVWLQRWKHUDVVHWVWKDWZLOOKRSHIXOO\\LHOGEHWWHUUHVXOWV0RUHRYHUWKH
FKRLFHVIRURSWLPDOSRUWIROLRDUHOLPLWHGE\WKHSUHIHUHQFHRIDQLQYHVWRU
ZKHWKHUDOOWKHDYDLODEOHZHDOWKPXVWEHLQYHVWHGRUQRW

 0DUNRZLW] 3RUWIROLR 7KHRU\

,QWKHHDUO\VWKHUHZDVPXFKFRQWHPSODWLRQDPRQJLQYHVWPHQWLQGXVWU\SUR
IHVVLRQDOVDERXWULVN LWVLPSOLFDWLRQVRQVHOHFWLQJVSHFLILFVHFXULWLHV RWKHUW\SHV
RIDVVHWVZKLOHFRQVWUXFWLQJDQRSWLPXPSRUWIROLR<HWWKHUHZDVQRHIIHFWLYHPHDQV
RUPRGHOVRIPHDVXULQJULVNDYDLODEOHDWWKHWLPH%\DWWKHVDPHWLPHLWZDVYHU\
FOHDUWKDWWRFRQVWUXFWWKHRSWLPXPSRUWIROLRFDSDEOHRIPHHWLQJDQLQYHVWRU¶V 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV REMHFWLYHVZLWKLQWKHFRQVWUDLQWVRIKLVRUKHUFKRVHQLQYHVWPHQWKRUL]RQZDVQRW
3RUWIROLR0DQDJHPHQW JRLQJWREHSRVVLEOHZLWKRXWDGHTXDWH TXDQWLILDEOHPHDVXUHVRIULVN

7RPHHWWKLVQHHG+DUU\00DUNRZLW]LQWURGXFHGKLVPRGHOLQDSDSHUWLWOHG
127(6 SRUWIROLRVHOHFWLRQZKLFKKHKDGSXEOLVKHGLQWKH-RXUQDORI)LQDQFH

$VVXPSWLRQRI0RGHO
D ,QYHVWRUVFRQVLGHUHDFKLQYHVWPHQWDOWHUQDWLYHDVEHLQJUHSUHVHQWHGE\D
SUREDELOLW\GLVWULEXWLRQRIH[SHFWHGUHWXUQVRYHUVRPHKROGLQJSHULRG
E ,QYHVWRUVPD[LPL]HRQHSHULRGH[SHFWHGXWLOLW\ SRVVHVVXWLOLW\FXUYHZKLFK
GHPRQVWUDWHVGLPLQLVKLQJPDUJLQDOXWLOLW\RIZHDOWK
F ,QGLYLGXDOVHVWLPDWHULVNRQWKHEDVLVRIWKHYDULDELOLW\RIWKHH[SHFWHG
UHWXUQV
G ,QYHVWRUV¶EDVHGHFLVLRQVVROHO\RQH[SHFWHGUHWXUQ YDULDQFHRUUHWXUQV
RQO\
H )RUDJLYHQULVNOHYHOLQYHVWRUVSUHIHUKLJKUHWXUQVWRORZUHWXUQV6LPLODUO\
IRUDJLYHQOHYHORIH[SHFWHGUHWXUQLQYHVWRUVSUHIHUOHVVULVNWRPRUHULVN
)ROORZLQJWKHVHDVVXPSWLRQVDSRUWIROLRLVFRQVLGHUHGWREHHIILFLHQWLIQRRWKHU
DVVHWRUSRUWIROLRJLYHVPRUHUHWXUQWKDQWKDWSDUWLFXODUSRUWIROLR

)LJXUH

,QWKHDERYHILJXUHWKHYHUWLFDOD[LVUHSUHVHQWH[SHFWHGUHWXUQ KRUL]RQWDOD[LV
UHSUHVHQWVWDQGDUGGHYLDWLRQRIWKHUHWXUQV7KHDUF$%VKRZVWKHHIILFLHQWERXQG
DU\7KHVKDGHGUHJLRQVKRZVWKHDWWDLQDEOHSRUWIROLR$Q\WZRVHFXULWLHVPD\JLYH
WKHVDPHUHWXUQ KDYHWKHGLIIHUHQWOHYHORIULVN$IWHUWKHHIILFLHQWVHWLVGHILQHG
DQ\RQHFDQFKRRVHDSRUWIROLRZKLFKFDQJLYHPRUHUHWXUQRUORZHUOHYHORIULVN

$QLQYHVWRU¶VILQDOFKRLFHRXWRIWKHHIILFLHQWVHWGHSHQGVRQKLVWDVWHV

6HOI,QVWUXFWLRQDO 0DWHULDO $QLQYHVWRUZKRLVULVNVHHNHUZRXOGH[SHFWKLJKHUUHWXUQIRUDFHUWDLQOHYHORIULVN

 YLFHYHUVD$PRGHUDWHULVNWDNHUZRXOGKDYHXWLOLWLHVLQEHWZHHQWKHVHWZR
H[WUHPHV7KHXWLOLWLHVRIGLIIHUHQWFDWHJRULHVRILQYHVWRUVDUHVKRZQLQWKHILJXUH 3RUWIROLR0DQDJHPHQW
DKHDG

2QFHDQLQYHVWRULVDEOHWRPDSWKHSUHFLVHXWLOLW\SDWWHUQRIDULVNUHWXUQFRPEL
QDWLRQWKHLQYHVWRUFDQWKHQDSSO\WRWKHHIILFLHQWIURQWLHULQWRWKLVXWLOLW\PDS7KH 127(6
LQGLIIHUHQFHSRLQWLVWKHWDQJHQWRIWKHHIILFLHQWFXUYH

0DUNRZLW]LQWURGXFHGWKHFRQFHSWRIULVNSHQDOW\LQKLVWKHRU\$VHFXULW\ZLOOEH
VHOHFWHGLQWRDSRUWIROLRLIWKHULVNDGMXVWHGUHWXUQLVKLJKHUWKDQWKHRWKHUDYDLODEOH
VHFXULWLHV

5LVN$GMXVWHG5HWXUQ8WLOLW\ ([SHFWHG5HWXUQ±5LVN3HQDOW\

5LVN 3HQDOW\  5LVN 6TXDUHG5LVN7ROHUDQFH

5LVNVTXDUHGLVWKHYDULDQFHRIWKHVHFXULW\UHWXUQ ULVNWROHUDQFH,WLVEHWZHHQ
 5LVNWROHUDQFHRIDQLQYHVWRULVVWDWHGDVDSHUFHQWDJHSRLQWEHWZHHQ
QXPEHUV DYHU\KLJKULVNWROHUDQFHFRXOGEHVWDWHGDVRUDERYH YHU\ORZ
ULVNWROHUDQFHOHYHOFRXOGEHVWDWHGDVEHWZHHQ 

7KHIROORZLQJULVNUHWXUQFRPELQDWLRQVRISRUWIROLRVDUHDYDLODEOHWRDQLQYHVWRU
$VVXPHWKHULVNWROHUDQFHOHYHOIRUWKHLQYHVWRULVUDQNWKHSRUWIROLRV VHOHFW
WKHEHVWSRUWIROLRWKDWWKDWILWVLQYHVWRU¶VUHTXLUHPHQW

3RUWIROLR $ % & ' ( ) * + , -

5HWXUQ          
5LVN           
5LVN3HQDOW\          
3RUWIROLRXWLOLW\          

7KHUDQNLQJRIWKHSRUWIROLRVZLOOEHDVIROORZLQJ

3RUWIROLR $ % & ' ( ) * + , -

8WLOLW\          
5DQN          


 3RUWIROLR 6HOHFWLRQ

*HQHUDOO\IRUSRUWIROLRVHOHFWLRQZHDGRSWWZRDSSURDFKHVZKLFKDUHDVIROORZLQJ

 7UDGLWLRQDO 0HWKRG

7KHWUDGLWLRQDODSSURDFKEDVLFDOO\GHDOVZLWKWZRPDMRUGHFLVLRQV7KH\DUH

, 'HWHUPLQLQJWKHREMHFWLYHVRIWKHSRUWIROLR 6HOI,QVWUXFWLRQDO 0DWHULDO


,, 6HOHFWLRQRIVHFXULWLHVWREHLQFOXGHGLQWKHSRUWIROLR
6HFXULW\$QDO\VLV 1RUPDOO\WKLVLVFDUULHGRXWLQIROORZLQJVWHSV
3RUWIROLR0DQDJHPHQW
 $QDO\VLVRIFRQVWUDLQWV7KHFRQVWUDLQWVQRUPDOO\GLVFXVVHGDUHLQFRPHQHHGV
OLTXLGLW\WLPHKRUL]RQVDIHW\WD[FRQVLGHUDWLRQV WHPSHUDPHQW
127(6 D ,QFRPH1HHGV7KHLQFRPHQHHGVGHSHQGRQWKHQHHGIRULQFRPH
LQFRQVWDQWUXSHHV FXUUHQWUXSHHV7KHQHHGIRULQFRPHLQFXUUHQW
UXSHHVDULVHVIURPWKHLQYHVWRU¶VQHHGWRPHHWDOORUSDUWRIWKH
OLYLQJH[SHQVHV
E /LTXLGLW\/LTXLGLW\QHHGRIWKHLQYHVWPHQWLVKLJKO\LQGLYLGXDOLVWLFRI
WKHLQYHVWRU,IWKHLQYHVWRUSUHIHUVWRKDYHKLJKOLTXLGLW\WKHQIXQGV
VKRXOGEHLQYHVWHGLQKLJKTXDOLW\VKRUWWHUPGHEWPDWXULW\LVVXHV
VXFKDVPRQH\PDUNHWIXQGVFRPPHUFLDOSDSHUV VKDUHVDUHZLGHO\
WUDGHG
F 6DIHW\RIWKH3ULQFLSDO$QRWKHUVHULRXVFRQVWUDLQWWREHFRQVLGHUHG
E\WKHLQYHVWRULVWKHVDIHW\RIWKHSULQFLSDOYDOXHDWWKHWLPHRI
OLTXLGDWLRQ,QYHVWLQJLQERQGV GHEHQWXUHVLVVDIHUWKDQLQYHVWLQJ
LQWKHVWRFNV
G 7LPH+RUL]RQ7LPHKRUL]RQLVWKHLQYHVWLQJSODQQLQJSHULRGRIWKH
LQGLYLGXDOV7KLVYDULHVIURPLQGLYLGXDOWRLQGLYLGXDO,QGLYLGXDOULVN
UHWXUQSUHIHUHQFHVDUHRIWHQGHVFULEHGLQWHUPVRIKLV³OLIHF\FOH´
7KHVWDJHVRIWKHOLIHF\FOHGHWHUPLQHWKHQDWXUHRILQYHVWPHQW7KH
ILUVWVWDJHLVWKHHDUOLHUFDUHHUVLWXDWLRQ$WWKHFDUHHUVWDULQJSRLQWV
DUHOHVVHUWKDQWKHLUOLDELOLWLHV7KHRWKHUVWDJHRIWKHWLPHKRUL]RQLV
WKHPLGFDUHHULQGLYLGXDO$WWKLVVWDJHKLVDVVHWVDUHODUJHWKDQKLV
OLDELOLWLHV7KHILQDOVWDJHLVWKHODWHFDUHHURUWKHUHWLUHPHQWVWDJH
+HUHWKHWLPHKRUL]RQRIWKHLQYHVWPHQWLVYHU\PXFKOLPLWHG+H
QHHGVVWDEOHLQFRPH RQFHUHWLUHVWKHVL]HRILQFRPHKHQHHGV
IURPLQYHVWPHQWDOVRLQFUHDVHV
H 7D[&RQVLGHUDWLRQ,QYHVWRUVLQWKHLQFRPHWD[SD\LQJJURXSFRQ
VLGHUWKHWD[FRQFHVVLRQVWKH\JHWIURPWKHLULQYHVWPHQWV)RUDOO
SUDFWLFDOSXUSRVHWKH\ZRXOGOLNHWRUHGXFHWD[HV)RULQFRPHWD[
SXUSRVHVLQWHUHVW GLYLGHQGVDUHWD[HGXQGHUWKHKHDG³LQFRPH
IURPRWKHUVRXUFHV´7KHFDSLWDODSSUHFLDWLRQLVWD[HGXQGHUWKH
KHDG³FDSLWDOJDLQV´RQO\ZKHQWKHLQYHVWRUVVHOOWKHVHFXULWLHV
UHDOL]HVWKHJDLQ7KHWD[LVWKHQDWDFRQFHVVLRQDOUDWHGHSHQGLQJ
RQWKHRQWKHSHULRGIRUZKLFKWKHDVVHWKDVEHHQKHOGEHIRUHEHLQJ
VROG)URPWD[SRLQWRIYLHZWKHIRUPLQZKLFKLQFRPHLVUHFHLYHG
LHLQWHUHVWGLYLGHQGVKRUWWHUPFDSLWDOJDLQV ORQJWHUPFDSLWDO
JDLQVDUHLPSRUWDQW
I 7HPSHUDPHQW7KHWHPSHUDPHQWRIWKHLQYHVWRUKLPVHOISRVHVD
FRQVWUDLQWRQIUDPLQJKLVLQYHVWPHQWREMHFWLYHV6RPHLQYHVWRUVDUH
ULVNORYHUV WDNHUVZKRZRXOGOLNHWRWDNHXSKLJKHUULVNHYHQIRU
6HOI,QVWUXFWLRQDO 0DWHULDO ORZUHWXUQ:KLOHVRPHLQYHVWRUVDUHULVNDYHUVHZKRPD\QRWEH
 ZLOOLQJWRXQGHUWDNHKLJKHUOHYHORIULVNHYHQIRUKLJKHUOHYHORI
 UHWXUQV 3RUWIROLR0DQDJHPHQW
 'HWHUPLQDWLRQRIREMHFWLYHV3RUWIROLRVKDYHWKHFRPPRQREMHFWLYHRIIL
QDQFLQJSUHVHQW IXWXUHH[SHQGLWXUHVIURPDODUJHSRRORIDVVHWV7KH
UHWXUQWKDWWKHLQYHVWRUUHTXLUHV WKHGHJUHHRIULVNKHLVZLOOLQJWRXQGHU
127(6
WDNHGHSHQGXSRQWKHFRQVWUDLQWV7KHFRPPRQREMHFWLYHVDUHGLVFXVVHG
EHORZ
&XUUHQW,QFRPH
*URZWKRI,QFRPH DVVHWPL[
&DSLWDO$SSUHFLDWLRQ
3UHVHUYDWLRQRI&DSLWDO
 6HOHFWLRQRI3RUWIROLR
 $VVHVVPHQWRI5LVN 5HWXUQ7KHWUDGLWLRQDODSSURDFKKDVVRPHEDVLF
DVVXPSWLRQV)LUVWLQYHVWRUVSUHIHUODUJHUWRVPDOOHUUHWXUQIURPVHFXULWLHV
7RDFKLHYHWKLVJRDOLQYHVWRUKDVWRWDNHPRUHULVN7KHDELOLW\WRDFKLHYH
KLJKHUUHWXUQVLVGHSHQGHQWXSRQKLVDELOLW\WRWDNHVSHFLILFULVNV7KHULVNV
DUHQDPHGDVLQWHUHVWUDWHULVNSXUFKDVLQJSRZHUULVNILQDQFLDOULVN
PDUNHWULVN7KHLQYHVWRUDQDO\]HVWKHYDU\LQJGHJUHHVRIULVN FRQVWUXFWV
KLVSRUWIROLR$WILUVWKHHVWDEOLVKHVWKHPLQLPXPLQFRPHWKDWKHPXVWKDYH
WRDYRLGKDUGVKLSVXQGHUPRVWDGYHUVHHFRQRPLFFRQGLWLRQ WKHQKHGH
FLGHVULVNRIORVVRILQFRPHWKDWFDQEHWROHUDWHG
 'LYHUVLILFDWLRQ2QFHWKHDVVHWPL[LVGHWHUPLQHG WKHUHWXUQVDUHDQDO\]HG
WKHILQDOVWHSLVWKHGLYHUVLILFDWLRQRISRUWIROLR)LQDQFLDOULVNFDQEHPLQL
PL]HGE\FRPPLWPHQWVWRWRSTXDOLW\ERQGVEXWWKHVHVHFXULWLHVRIIHUSRRU
UHVLVWDQFHWRLQIODWLRQ6WRFNVSURYLGHEHWWHULQIODWLRQSURWHFWLRQWKDQERQGV
EXWDUHPRUHYXOQHUDEOHWRILQDQFLDOULVNV*RRGTXDOLW\FRQYHUWLEOHVPD\
EDODQFHWKHILQDQFLDOULVN SXUFKDVLQJSRZHUULVN$FFRUGLQJWRWKHLQYHVWRU¶V
QHHGIRULQFRPH ULVNWROHUDQFHOHYHOSRUWIROLRLVGLYHUVLILHG
 0RGHUQ 0HWKRG
7KHWUDGLWLRQDODSSURDFKLVDFRPSUHKHQVLYHILQDQFLDOSODQIRULQGLYLGXDO,WWDNHV
LQWRDFFRXQWWKHLQGLYLGXDOQHHGVXFKDVKRXVLQJOLIHLQVXUDQFH SHQVLRQSODQV%XW
WKHVHW\SHVRIILQDQFLDOSODQQLQJDSSURDFKHVDUHQRWGRQHLQPRGHUQDSSURDFK
ZKLFKKDVEHHQJLYHQE\0DUNRZLW],WJLYHVPRUHDWWHQWLRQWRWKHSURFHVVRI
VHOHFWLQJWKHSRUWIROLR+LVSODQQLQJFDQEHDSSOLHGPRUHLQWKHVHOHFWLRQRIFRPPRQ
VWRFNVWKDQWKHERQGSRUWIROLR7KHVWRFNVDUHQRWVHOHFWHGRQWKHEDVLVRIQHHGIRU
LQFRPHRIDSSUHFLDWLRQ%XWWKHVHOHFWLRQLVEDVHGRQWKHULVN UHWXUQDQDO\VLV
5HWXUQLQFOXGHVWKHPDUNHWUHWXUQRUGLYLGHQG7KH\DUHDVVXPHGWREHLQGLIIHUHQW
WRZDUGVWKHIRUPRIUHWXUQ
)DFWRUV,QIOXHQFLQJ3RUWIROLR6HOHFWLRQ

, 6HFXULW\$QLQYHVWRULVQRWSUHSDUHGWRORVHPRQH\6RWKHVHFXULW\RIWKH
6HOI,QVWUXFWLRQDO 0DWHULDO
LQYHVWPHQWEHFRPHVDQLPSRUWDQWFRQVLGHUDWLRQ+HUHWKHWHUPVHFXULW\VWDQGV 
6HFXULW\$QDO\VLV IRUWKHPDLQWHQDQFHRIWKHFDSLWDOYDOXHRIWKHLQYHVWPHQWDWOHDVWLQQRPLQDO
3RUWIROLR0DQDJHPHQW WHUPV

,, 5HWXUQ7KHH[SHFWHGUHWXUQPD\EHWKHGRPLQDQWFRQVLGHUDWLRQ0RQH\
127(6 SXWLQWRLQYHVWPHQWVLVH[SHFWHGWRHDUQDVDWLVIDFWRU\UDWHRIUHWXUQ$
VDWLVIDFWRU\UHWXUQFRPSDWLEOHZLWKWKHVDIHW\LVWKXVWKHQRUPDOH[SHFWDWLRQ
RIDQLQYHVWRU

,,, *URZWK3URVSHFWV7KHUHWXUQVIURPLQYHVWPHQWVQRWRQO\EHVDWLVIDFWRU\
EXWDOVRRYHUWLPHJURZWRNHHSWKHLQYHVWRUVKDSS\6LPLODUO\WKHSURVSHFW
RIJURZWKLQWKHYDOXHRILQYHVWPHQWFDSLWDOJDLQLVDQRWKHUZHOFRPLQJ
IHDWXUHIRUDQLQYHVWRU7KHUHIRUHWKHPRVWSURILWDEOHLQYHVWPHQWRSSRUWX
QLWLHVDUHOLNHO\WREHIRXQGLQEXVLQHVVILUPVZLWKJRRGJURZWKSURVSHFWV

,9 /LTXLGLW\7KLVUHIHUVWRWKHFRQYHUWLELOLW\RILQYHVWPHQWVEDFNLQWRFDVKDW
VKRUWQRWLFH7KLVLVWUXHLQFDVHRILQYHVWPHQWVPDGHRXWRIVKRUWWHUP
IXQGV

9 5LVN$QLQYHVWRUJHQHUDOO\ZDQWVWRPD[LPL]HJDLQVIURPLQYHVWPHQWVZLWK
DVPLQLPXPULVNDVSRVVLEOH+HUHULVNUHSUHVHQWVWKHYDULDELOLW\RIWKH
H[SHFWHGUHWXUQIURPLQYHVWPHQWVULVNFDQEHUHGXFHGE\GLYHUVLILFDWLRQ$
UDWLRQDODSSURDFKZRXOGEHWRVSUHDGRQH¶VLQYHVWPHQWLQWRGLIIHUHQWW\SHV
RIVKDUHVVRWKDWWKHORVVHVLQFXUUHGRQVRPHPD\EHFRPSHQVDWHGE\JDLQV
LQRWKHUV

 0HDQ 9DULDQFH &ULWHULD DQG 3RUWIROLR 6HOHFWLRQ

7KHIXQGDPHQWDOJRDORISRUWIROLRWKHRU\LVWRRSWLPDOO\DOORFDWHWKHLQYHVWPHQWV
EHWZHHQGLIIHUHQWDVVHWV0HDQYDULDQFH&ULWHULDLVDTXDQWLWDWLYHWRROZKLFKZLOO
DOORZPDNLQJWKLVDOORFDWLRQE\FRQVLGHULQJWKHWUDGHRIIEHWZHHQULVNDQGUHWXUQ

,QFRQYHQWLRQDOVLQJOHSHULRG09&ZHZLOOPDNHRXUSRUWIROLRDOORFDWLRQIRUDVLQJOH
XSFRPLQJSHULRGDQGWKHJRDOZLOOEHWRPD[LPL]HRXUH[SHFWHGUHWXUQVXEMHFWWR
DVHOHFWHGOHYHORIULVN

,QPXOWLSHULRG09&ZHZLOOEHFRQFHUQHGZLWKVWUDWHJLHVLQZKLFKWKHSRUWIROLR
LVUHEDODQFHGWRDVSHFLILHGDOORFDWLRQDWWKHHQGRIHDFKSHULRG6XFKDVWUDWHJ\
LVVRPHWLPHVFDOOHG&RQVWDQW3URSRUWLRQ&3RU&RQVWDQW5DWLR$VVHW$OORFDWLRQ
&5$$/7KHJRDOKHUHLVWRPD[LPL]HWKHWUXHPXOWLSHULRGJHRPHWULFPHDQ
UHWXUQIRUDJLYHQOHYHORIIOXFWXDWLRQ
&KHFN <RXU 3URJUHVV
 :KDWLV09&" ‹‰Ž‡ ‡”‹‘† 
 :KDWLV/LTXLGLW\"
6LQJOHSHULRGSRUWIROLRRSWLPL]DWLRQXVLQJWKHPHDQDQGYDULDQFHZDVILUVWIRUPXODWHG
E\0DUNRZLW]
6HOI,QVWUXFWLRQDO 0DWHULDO 7KHVLQJOHSHULRG0DUNRZLW]DOJRULWKPVROYHVXVHVWKHIROORZLQJLQSXWVWRJHWRXW
 SXWVIRUWKHSRUWIROLRVHOHFWLRQ
 x ,QSXWV 3RUWIROLR0DQDJHPHQW

R 7KHH[SHFWHGUHWXUQIRUHDFKDVVHW

R 7KHVWDQGDUGGHYLDWLRQRIHDFKDVVHWDPHDVXUHRIULVN 127(6

R 7KHFRUUHODWLRQPDWUL[EHWZHHQWKHVHDVVHWV

x 2XWSXW

R 7KHHIILFLHQWIURQWLHULHWKHVHWRISRUWIROLRVZLWKH[SHFWHGUHWXUQ
JUHDWHUWKDQDQ\RWKHUZLWKWKHVDPHRUOHVVHUULVNDQGOHVVHUULVN
WKDQDQ\RWKHUZLWKWKHVDPHRUJUHDWHUUHWXUQ

7KHHIILFLHQWIURQWLHULVFRQYHQWLRQDOO\SORWWHGRQDJUDSKZLWKWKHVWDQGDUGGHYLDWLRQ
ULVNRQWKHKRUL]RQWDOD[LVDQGWKHH[SHFWHGUHWXUQRQWKHYHUWLFDOD[LV

7KH0DUNRZLW]DOJRULWKPLVLQWHQGHGDVDVLQJOHSHULRGDQDO\VLVWRROLQZKLFKWKH
LQSXWVSURYLGHGE\WKHXVHUUHSUHVHQWKLVKHUSUREDELOLW\EHOLHIVDERXWWKHXSFRPLQJ
SHULRG,QSULQFLSOHWKHXVHUVKRXOGLGHQWLI\DQXPEHURIGLVWLQFWSRVVLEOH³RXW
FRPHV´DQGDVVLJQDSUREDELOLW\RIRFFXUUHQFHIRUHDFKRXWFRPHDQGDUHWXUQIRU
HDFKDVVHWIRUHDFKRXWFRPH7KHH[SHFWHGUHWXUQVWDQGDUGGHYLDWLRQDQGFRUUH
ODWLRQPDWUL[PD\WKHQEHFRPSXWHGXVLQJVWDQGDUGVWDWLVWLFDOIRUPXODH

0RUHLQIRUPDOO\WKHH[SHFWHGUHWXUQUHSUHVHQWVWKHVLPSOHSUREDELOLW\ZHLJKWHG
DYHUDJHRIWKHSRVVLEOHUHWXUQVIRUHDFKDVVHWDQGWKHVWDQGDUGGHYLDWLRQUHSUHVHQWV
WKHXQFHUWDLQW\DERXWWKHRXWFRPH7KHFRUUHODWLRQPDWUL[LVDV\PPHWULFPDWUL[
ZLWKXQLW\RQWKHGLDJRQDODQGDOORWKHUHOHPHQWVEHWZHHQDQG$SRVLWLYH
FRUUHODWLRQEHWZHHQWZRDVVHWV$DQG%LQGLFDWHVWKDWZKHQWKHUHWXUQRIDVVHW$
WXUQVRXWWREHDERYHEHORZLWVH[SHFWHGYDOXHWKHQWKHUHWXUQRIDVVHW%LVOLNHO\
DOVRWREHDERYHEHORZLWVH[SHFWHGYDOXH$QHJDWLYHFRUUHODWLRQVXJJHVWVWKDW
ZKHQ$¶VUHWXUQLVDERYHLWVH[SHFWHGYDOXHDQGWKHQ%¶VZLOOEHEHORZLWVH[SHFWHG
YDOXHDQGYLFHYHUVD

džĂŵƉůĞ ;Ϯ ƐƐĞƚ ĐĂƐĞͿ

&RQVLGHUWKHIROORZLQJH[DPSOH

&RUUHODWLRQPDWUL[
([SHFWHG 6WDQGDUG
$VVHW
UHWXUQ GHYLDWLRQ
$VVHW $VVHW

$VVHW    

$VVHW    

6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV +HUHWKHULVN UHWXUQIRUHDFKSRUWIROLRFRPSRVLWLRQLVSORWWHG
3RUWIROLR0DQDJHPHQW
/RRNLQJDWWKHLQSXWGDWDLW
PLJKWDSSHDUWKDWWKHVPDOO
127(6 H[FHVV H[SHFWHG UHWXUQ
 UDWKHU WKDQ RI
$VVHWGRHVQRWMXVWLI\WKH
FRQVLGHUDEOH H[WUD ULVN D
VWDQGDUGGHYLDWLRQRI
UDWKHU WKDQ  %XW WKH
IROORZLQJ 09& GLDJUDP
SDLQWVDGLIIHUHQWSLFWXUH

:HVHHWKDWDVZHVWDUWIURP3RUWIROLR$RIWKHSORWDQGEHJLQWRLQFOXGHVRPH$VVHW
QRWRQO\GRHVWKHH[SHFWHGUHWXUQLQFUHDVHDVZHZRXOGH[SHFWEXWWKHULVN
DFWXDOO\GHFUHDVHVXQWLOZHUHDFK3RUWIROLR%DWRI$VVHW7KLV³PLQLPXP
YDULDQFH´SRUWIROLRDFWXDOO\KDV]HURULVNWKLVLVSRVVLEOHEHFDXVHWKHDVVHWVDUH
DVVXPHGWREHQHJDWLYHO\FRUUHODWHG

7KHHIILFLHQWIURQWLHUUXQVIURP3RUWIROLR%WKHPLQLPXPYDULDQFHSRUWIROLRWR
3RUWIROLR(WKHPD[LPXPUHWXUQSRUWIROLR7KHLQYHVWRUVKRXOGVHOHFWDSRUWIROLRRQ
WKHHIILFLHQWIURQWLHULQDFFRUGDQFHZLWKKLVKHUULVNWROHUDQFH

1RWHWKDWWKHPD[LPXPUHWXUQSRUWIROLRFRQVLVWVRIWKHKLJKHVWUHWXUQLQJDVVHW
LQWKLVFDVH$VVHW7KLVLVDJHQHUDOIHDWXUHRIVLQJOHSHULRGPHDQYDULDQFH
RSWLPL]DWLRQZKLOHLWLVRIWHQSRVVLEOHWRGHFUHDVHWKHULVNEHORZWKDWRIWKHORZHVW
ULVNDVVHWLWLVQRWSRVVLEOHWRLQFUHDVHWKHH[SHFWHGUHWXUQEH\RQGWKDWRIWKH
KLJKHVWUHWXUQDVVHW

3UREOHPVZLWKWKHPRGHO

/ŶƉƵƚ ĂƚĂ /ƐƐƵĞƐ

$PDMRULVVXHIRUWKHPHWKRGRORJ\LVWKHVHOHFWLRQRILQSXWGDWDDQGRQHSRVVLELOLW\
IRUJHQHUDWLQJWKH09&LQSXWVLVWRXVHKLVWRULFDOGDWD7KHVLPSOHVWZD\WRFRQYHUW
1\HDUVRIKLVWRULFDOGDWDLQWR09&LQSXWVLVWRPDNHWKHK\SRWKHVLVWKDWWKH
XSFRPLQJSHULRGZLOOUHVHPEOHRQHRIWKH1SUHYLRXVSHULRGVZLWKDSUREDELOLW\
1DVVLJQHGWRHDFK

&ĂŝůƵƌĞ ŽĨ ƵŶĚĞƌůLJŝŶŐ ŚLJƉŽƚŚĞƐŝƐ

6HOI,QVWUXFWLRQDO 0DWHULDO
:KHQZHXVHKLVWRULFDOGDWDWRSURYLGHWKH09&LQSXWV\RXDUHLPSOLFLWO\DVVXPLQJ
 WKDW
 x 7KHUHWXUQVLQWKHGLIIHUHQWSHULRGVDUHLQGHSHQGHQW 3RUWIROLR0DQDJHPHQW

x 7KHUHWXUQVLQWKHGLIIHUHQWSHULRGVDUHGUDZQIURPWKHVDPHVWDWLVWLFDO
GLVWULEXWLRQ
127(6
x 7KH1SHULRGVRIDYDLODEOHGDWDSURYLGHDVDPSOHRIWKLVGLVWULEXWLRQ

7KHVHK\SRWKHVHVPD\VLPSO\QRWEHWUXH7KHPRVWVHULRXVLQDFFXUDFLHVDULVHIURP
DSKHQRPHQRQFDOOHGPHDQUHYHUVLRQLQZKLFKDSHULRGRUSHULRGVRIVXSHULRU
LQIHULRUSHUIRUPDQFHRIDSDUWLFXODUDVVHWWHQGWREHIROORZHGE\DSHULRGRU
SHULRGVRILQIHULRUVXSHULRUSHUIRUPDQFH

ƌƌŽƌ ŝŶ ƚŚĞ ĞƐƚŝŵĂƚĞĚ ŵĞĂŶ

,IZHEHOLHYHWKDWWKHUHWXUQVLQWKHGLIIHUHQWSHULRGVDUHLQGHSHQGHQWDQGLGHQWLFDOO\
GLVWULEXWHGZHDUHRIQHFHVVLW\XVLQJWKHDYDLODEOHGDWDWRHVWLPDWHWKHSURSHUWLHV
RIWKLVVWDWLVWLFDOGLVWULEXWLRQ

dŚĞ ƚƌƵĞ ůŽŶŐ ƚĞƌŵ ƌĞƚƵƌŶ

8QIRUWXQDWHO\WKHH[SHFWHGUHWXUQDVVLJQHGE\WKHDOJRULWKPWRHDFKSRUWIROLRLV
DOZD\VDQRYHUHVWLPDWHRIWKHWUXHORQJWHUPUHWXUQRIWKHUHEDODQFHGSRUWIROLR
6LQFHWKLVGLVFUHSDQF\LQFUHDVHVDVWKHVWDQGDUGGHYLDWLRQRIWKHSRUWIROLRLQFUHDVHV
WKH0DUNRZLW]HIILFLHQWIURQWLHUDOZD\VH[DJJHUDWHVWKHWUXHORQJWHUPEHQHILWRI
EHDULQJLQFUHDVLQJULVN7KHPRUDOKHUHLVWREHZDU\RIWKHULJKWPRVWSDUWRIWKH
FXUYH

͵ǤͳǤͳʹ  —Ž–‹Ǧ‡”‹‘† 

:HEHJLQRXUGLVFXVVLRQRIPXOWL
SHULRG 09& E\ FRQVLGHULQJ WKH
DQDO\VLVRIKLVWRULFDOGDWD

dǁŽ ƐƐĞƚ džĂŵƉůĞ

&RQVLGHUWKHIROORZLQJWZRDVVHWWZRSHULRGH[DPSOH

  $ULWKPHWLF *HRPHWULF 6WDQGDUG

$VVHW
UHWXUQ UHWXUQ PHDQ PHDQ GHYLDWLRQ

$VVHW     

$VVHW     

,WLVHDV\WRFKHFNWKDWXQGHUWKHK\SRWKHVLVWKDWWKHXSFRPLQJSHULRGZLOOUHVHPEOH
RUHDFKZLWKHTXDOSUREDELOLW\WKLVGDWDOHDGVWRWKH09&LQSXWV
FRQVLGHUHGLQWKHVLQJOHSHULRGWZRDVVHWH[DPSOHDERYH$VLQWKHVLQJOHSHULRG
6HOI,QVWUXFWLRQDO 0DWHULDO
FDVHWKHRSWLPL]HULVQRWUHDOO\UHTXLUHGKHUHDOOWKDWLVQHFHVVDU\LVWRSORWWKHULVN

DQGUHWXUQIRUHDFKUHEDODQFHGSRUWIROLRFRPSRVLWLRQ
6HFXULW\$QDO\VLV
3RUWIROLR0DQDJHPHQW

127(6

&RPSDULQJWKLVSORWZLWKWKHVLQJOHSHULRGRQHZHVHHVRPHQRWDEOHGLIIHUHQFHV
7KHUHWXUQVRIDOOWKHSRUWIROLRVDUHFRQVLGHUDEO\VPDOOHUDQG$VVHWKDVDORZHU
JHRPHWULFPHDQWKDQ$VVHWZKHUHDVLWKDGDKLJKHUDULWKPHWLFPHDQ1HYHUWKH
OHVVDVZHLQFUHDVHWKHDOORFDWLRQRI$VVHWIURPDW3RUWIROLR$WKHJHRPHWULF
PHDQRIWKHUHEDODQFHGSRUWIROLRLQFUHDVHVDVGLGWKHDULWKPHWLFPHDQ

0RUHVLJQLILFDQWO\ZHVHHWKDWWKHUHEDODQFHGSRUWIROLRZLWKWKHKLJKHVWJHRPHWULF
PHDQUHWXUQZKLFKRFFXUVFORVHWR3RUWIROLR&KDVDUHWXUQRIDURXQG
ZKLFKLVFRQVLGHUDEO\KLJKHUWKDQWKDWRIHLWKHURIWKHWZRLQGLYLGXDODVVHWV

7KLVLVYHU\GLIIHUHQWIURPWKHVLQJOHSHULRGFDVHLQZKLFKDQ\SRUWIROLRH[SHFWHG
UHWXUQPXVWDOZD\VOLHEHORZWKDWRIWKHDVVHWZLWKWKHKLJKHVWH[SHFWHGUHWXUQ7KLV
HQKDQFHGJHRPHWULFPHDQLVRQO\SRVVLEOHEHFDXVHRIWKHUHEDODQFLQJZLWKRXW
UHEDODQFLQJLWLVLPSRVVLEOHWRREWDLQDJHRPHWULFPHDQUHWXUQKLJKHUWKDQWKDWRIWKH
KLJKHVWJHRPHWULFPHDQUHWXUQDVVHW

/DVWO\ZHVHHWKDWSRUWIROLRVWRWKHULJKWRIWKHPD[LPXPDWFRPSRVLWLRQKDYH
LQFUHDVLQJULVNDQGGHFUHDVLQJUHWXUQWKLVIHDWXUHLVQRWVHHQLQWKHFRUUHVSRQGLQJ
VLQJOHSHULRGDQDO\VLV

&$6( 678'<
+RZWRLQYHVWLVWKHIRXQGDWLRQVWURQJ"

/HW
VWU\DQGHQVXUHWKDW\RXWUXO\DEVRUEWKHKRZWRLQYHVWSULQFLSOHVRIUHWXUQDQG
6HOI,QVWUXFWLRQDO 0DWHULDO ULVN<RXULQYHVWLQJVXFFHVVGHSHQGVRQKRZVWURQJWKLVIRXQGDWLRQLV

  5HWXUQVDUHQRWNQRZQLQDGYDQFH6R\RXPXVWPDNH\RXULQYHVWPHQW 3RUWIROLR0DQDJHPHQW
GHFLVLRQXVLQJUHWXUQH[SHFWDWLRQVWKDWDUHUHDVRQDEOHDQGPHVKZLWKUHDOLW\

 <RXUDFWXDOUHWXUQPD\QRWPHHW\RXUH[SHFWDWLRQV%HDZDUHRIWKDWSRV
VLELOLW\ZKLOHPDNLQJDOOLQYHVWPHQWV 127(6
 5LVNFRPHVIURPWKHXQFHUWDLQW\VXUURXQGLQJWKHDFWXDORXWFRPHRI\RXU
LQYHVWPHQWJUHDWHUWKHXQFHUWDLQW\JUHDWHUWKHULVN

 %XVLQHVVRULQGXVWU\ULVNLQIODWLRQULVNOLTXLGLW\ULVNDQGPDUNHWULVNWKHVH
DUHWKHPDMRUVRXUFHVRIULVN$OOLQYHVWPHQWVIDFHHDFKRIWKHVHULVNVEXW
WRYDU\LQJGHJUHHV

 7KHUHLVDWUDGHRIIEHWZHHQULVNDQGSRWHQWLDOUHWXUQKLJKHUWKHSRWHQWLDO
UHWXUQVJUHDWHUWKHULVNORZHUWKHSRWHQWLDOUHWXUQVORZHUWKHULVNV%H
ZDU\RIFODLPVRIKLJKUHWXUQVWKHUHPD\EHKLGGHQULVNV

 7KHVHULVNVFDQEHUHGXFHGVLJQLILFDQWO\WKURXJKGLYHUVLILFDWLRQ$OZD\VGL
YHUVLI\DFURVVDVVHWFDWHJRULHVVWRFNVERQGVPRQH\PDUNHWLQVWUXPHQWV
ZLWKLQDVVHWFDWHJRULHVDQGDFURVVLQGLYLGXDOVHFXULWLHV

 'LYHUVLILFDWLRQLVDOVRLPSRUWDQWDFURVVPDUNHWHQYLURQPHQWVWKHORQJHU
\RXUKROGLQJSHULRGWKHEHWWHU'RQRWLQYHVWLQYRODWLOHLQYHVWPHQWVOLNH
VWRFNVLI\RXFDQQRWUHPDLQLQYHVWHGIRUDWOHDVWWKUHHWRILYH\HDUV

6800$5<
$3RUWIROLR0DQDJHPHQWUHIHUVWRWKHVFLHQFHRIDQDO\]LQJWKHVWUHQJWKVZHDN
QHVVHVRSSRUWXQLWLHVDQGWKUHDWVIRUSHUIRUPLQJZLGHUDQJHRIDFWLYLWLHVUHODWHGWR
WKHRQH¶VSRUWIROLRIRUPD[LPL]LQJWKHUHWXUQDWDJLYHQULVN,WKHOSVLQPDNLQJ
VHOHFWLRQRI'HEW9V(TXLW\*URZWK9V6DIHW\DQGYDULRXVRWKHUWUDGHRIIV

0DMRUWDVNVLQYROYHGZLWK3RUWIROLR0DQDJHPHQWDUHDVIROORZV

x 7DNLQJGHFLVLRQVDERXWLQYHVWPHQWPL[DQGSROLF\

x 0DWFKLQJLQYHVWPHQWVWRREMHFWLYHV

x $VVHWDOORFDWLRQIRULQGLYLGXDOVDQGLQVWLWXWLRQ

x %DODQFLQJULVNDJDLQVWSHUIRUPDQFH

$16:(56 72 &+(&. <285 352*5(66

 3RUWIROLR0DQDJHPHQWLVDOVRUHIHUUHGDV,QYHVWPHQW0DQDJHPHQW,QYHVWLQJ
LQVHFXULWLHVVXFKDVVKDUHVGHEHQWXUHV ERQGVLVSURILWDEOHDVZHOODV
H[FLWLQJEXWQRWDHDV\WDVN

 6HFXULW\

 0HDQYDULDQFH&ULWHULDLVDTXDQWLWDWLYHWRROZKLFKZLOODOORZPDNLQJWKLV 6HOI,QVWUXFWLRQDO 0DWHULDO

DOORFDWLRQE\FRQVLGHULQJWKHWUDGHRIIEHWZHHQULVNDQGUHWXUQ 
6HFXULW\$QDO\VLV  7KLVUHIHUVWRWKHFRQYHUWLELOLW\RILQYHVWPHQWVEDFNLQWRFDVKDWVKRUWQRWLFH
3RUWIROLR0DQDJHPHQW 7KLVLVWUXHLQFDVHRILQYHVWPHQWVPDGHRXWRIVKRUWWHUPIXQGV

7(67 <2856(/)
127(6
 :KDWLVWKHFRQFHSWRI3RUWIROLRPDQDJHPHQW"

 :KDWDUHWKHYDULRXVFRPSRQHQWVRISRUWIROLRPDQDJHPHQW"

 ([SODLQWKHYDULRXVWKHRULHVRISRUWIROLRPDQDJHPHQW

 :KDWDUHOLTXLGLW\PHDVXUHV"

 ([SODLQWKHVLJQLILFDQFHRIPHDQYDULDQFHFULWHULD

)857+(5 5($',1*
‡3RUWIROLRPDQDJHPHQWE\0DKHVKZDUL

‡$QDO\]LQJSRUWIROLR¶VE\*XSWD

6HOI,QVWUXFWLRQDO 0DWHULDO

 6KDUSHVLQJOH
LQGH[PRGHO

127(6



6KDUSH6LQJOH
,QGH[0RGHO

„
„
„
„
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV  ,QWURGXFWLRQ
3RUWIROLR0DQDJHPHQW
7KLVPRGHOZDVGHYHORSHGE\:LOOLDP6KDUSH7KHVLQJOHLQGH[PRGHOLVZLGHO\
HPSOR\HGWRDOORFDWHLQYHVWPHQWVLQWKHSRUWIROLREHWZHHQLQGLYLGXDOHTXLW\VKDUHV
127(6 ZKLOHWKHRULJLQDOPRUHJHQHUDOPRGHORI0DUNRZLW]LVZLGHO\XVHGWRDOORFDWH
LQYHVWPHQWVEHWZHHQW\SHVRIDVVHWVVXFKDVERQGVVKDUHVDQGUHDOHVWDWH,QWKH
IROORZLQJVHFWLRQVZHVKDOOGLVFXVVWKHFRQFHSWLQGHWDLO
$VVXPSWLRQVRIWKHPRGHO
7KHVLQJOHLQGH[PRGHODVVXPHVWKDWWKHUHWXUQVRIYDULRXVVHFXULWLHVDUHUHODWHGRQO\
WKURXJKFRPPRQUHODWLRQVKLSVZLWKVRPHEDVLFXQGHUO\LQJIDFWRU,QWKHZRUGVRI
6KDUSHWKLVIDFWRU³PD\EHWKHOHYHORIWKHVWRFNPDUNHWDVDZKROHWKHJURVV
QDWLRQDOSURGXFWVRPHSULFHLQGH[RUDQ\RWKHUIDFWRUWKRXJKWWREHWKHPRVW
LPSRUWDQWVLQJOHLQIOXHQFHRQWKHUHWXUQVIURPVHFXULWLHV´$FDVXDOREVHUYDWLRQRI
VKDUHSULFHPRYHPHQWVDWOHDVWWHQGVWRVXSSRUWWKLVOLQHRIDUJXPHQW7KHUHLV
FRQVLGHUDEOHHYLGHQFHWKDWZKHQWKHVWRFNPDUNHWJRHVGRZQPRVWVKDUHVWHQGWR
GHFUHDVHLQSULFH)RULQVWDQFHRQWKHGDWHRIEXGJHWVHYHUDOVWRFNVPRYHLQWKH
VDPHGLUHFWLRQGHSHQGLQJRQWKHDVVHVVPHQWRIWKHEXGJHWRQWKHHFRQRP\DQG
LQGXVWU\,WDSSHDUVWKHUHIRUHWKDWRQHUHDVRQVKDUHUHWXUQVPLJKWEHFRUUHODWHGLV
EHFDXVHRIDFRPPRQUHVSRQVHWRPDUNHWFKDQJHVDVPHDVXUHGE\WKHPRYHPHQWV
LQVD\VKDUHSULFHLQGH[
7RXQGHUVWDQGWKHDERYHDVVXPSWLRQRIWKHVLQJOHLQGH[PRGHOPRUHSUHFLVHO\UHIHU
WRWKHILJXUHJLYHQEHORZZKHUHZHKDYHUHODWHGWKHUHWXUQVRIDK\SRWKHWLFDOVKDUH
WRWKHUHWXUQVRQWKHPDUNHWLQGH[

6HQVH[5HWXUQ

7KHOLQHUXQQLQJWKURXJKWKHVFDWWHUSRLQWVLVWKHµOLQHRIEHVWILW¶2UDQHVWLPDWHRI
ZKDWLVNQRZQDVDVKDUH¶VµFKDUDFWHULVWLFOLQH¶$OJHEUDLFDOO\WKHFKDUDFWHULVWLFOLQH
FDQEHGHILQHGDV
5 L D Lȕ L5 P
6HOI,QVWUXFWLRQDO 0DWHULDO
OOO

:KHUH 6KDUSHVLQJOH
LQGH[PRGHO
5 L WKHUHWXUQRIVHFXULW\L
DL  7KH FRPSRQHQWV RI 6HFXULW\ , WKDW LV LQGHSHQGHQW RI PDUNHW SHUIRUPDQFH
127(6
5P 
7KHUDWHRIUHWXUQRQPDUNHWLQGH[DUDQGRPYDULDEOH
ȕ L 7KHVORSHRIWKHFKDUDFWHULVWLFOLQHWKDWPHDVXUHVWKHH[SHFWHGFKDQJHLQ5
JLYHQDFKDQJHLQ5P
,WLVXVHIXOWREUHDNWKHWHUP5 LLQWZRFRPSRQHQWV
ĮL 7KHH[SHFWHGYDOXHRID L
HL 7KHUDQGRPHOHPHQWZLWKDPHDQYDOXHRI]HUR

,QWHUPVRIJUDSKLFDOSUHVHQWDWLRQHLPHDVXUHYHUWLFDOGHYLDWLRQVIURPWKHFKDUDFWHU
LVWLFVOLQH
1RZWKHHTXDWLRQFDQEHUHZULWWHQDV
5 L Į Lȕ L5 PHL
,WLVIXUWKHUDVVXPHGWKDWWKHUHVLGXDOVDUHQRWFRUUHODWHGDFURVVVKDUHVRIGLIIHUHQW
FRPSDQLHVWKDWLVHLLVLQGHSHQGHQWRIHMIRUDOOYDOXHVRILDQGM7KLVLVDQ
LPSRUWDQWDVVXPSWLRQLWLPSOLHVWKDWWKHRQO\UHDVRQVKDUHVYDU\WRJHWKHUV\VWHP
DWLFDOO\LVEHFDXVHRIDFRPPRQFRPRYHPHQWZLWKWKHPDUNHW7KXVVLQJOHLQGH[
PRGHODVVXPHVDZD\DOORWKHUSRVVLEOHHIIHFWVRQVKDUHV¶UHWXUQVVXFKDVLQGXVWU\
HIIHFWV
6\VWHPDWLF 5LVN DQG 'LYHUVLILDEOH RU 5HVLGXDO 5LVN DQG &RYDULDQFH RI
5HWXUQV
:LWKVRPHPDQLSXODWLRQVRIHTXDWLRQDERYHZHJHWWKHIROORZLQJLPSRUWDQWUHVXOWV
D 7KHH[SHFWHGUHWXUQ5 L Į Mȕ L5 P
E7KHYDULDQFHRIVKDUH¶VUHWXUQıL ȕLıPıHLZKHUHıP ıHLDUHWKH
YDULDQFHVRIWKHGLVWULEXWLRQRI5P HLDQGUHVSHFWLYHO\DQG
F&RYDULDQFHRIUHWXUQVEHWZHHQVKDUHVLDQGMıLM ȕLȕMıP
,WLVDSSDUHQWIURPDDERYHWKDWWKHH[SHFWHGUHWXUQKDVWZRFRPSRQHQWVDXQLTXH
RUQRQPDUNHWSDUWDDQGPDUNHWUHODWHGSDUWȕ L5 P(YHQWKRXJKVKDUHVKDYH
PDQ\FRPPRQFKDUDFWHULVWLFVDQGDVDUHVXOWWHQGWRPRYHWRJHWKHUWKHLUQXPHU
RXVLQGLYLGXDODQGGLVWLQJXLVKLQJSURSHUWLHVFDXVHVKDUHVWRFRPRYHZLWKWKHPDUNHW
DWGLIIHUHQWUDWHV$FFRUGLQJO\KRZVHQVLWLYHDVKDUH¶VSULFHLVWRFKDQJHVLQWKH
RYHUDOOPDUNHWLHWKHYDOXHRILWVµEHWD¶LVRIJUHDWVLJQLILFDQFHLQGHWHUPLQLQJWKH
H[SHFWHGUHWXUQ
/LNHWKHH[SHFWHGUHWXUQZHFDQDOZD\VVSOLWWKHYDULDQFHRIVKDUHVUHWXUQVLQWRWZR
6HOI,QVWUXFWLRQDO 0DWHULDO
SDUWVDVVKRZQLQEDERYH7KHILUVWFRPSRQHQWȕLıPLVFDOOHGWKHµV\VWHPDWLF

6HFXULW\$QDO\VLV ULVN¶RUµPDUNHWULVN¶RIWKHLQYHVWPHQW6LQFHıPLVWKHVDPHIRUDOOVKDUHV
3RUWIROLR0DQDJHPHQW V\VWHPDWLFULVNVZLOOGLIIHUDPRQJGLIIHUHQWVKDUHVDFFRUGLQJO\WRWKHPDJQLWXGHVRI
WKHLUEHWDVȕL6LPSO\VWDWHGEHWDPHDVXUHVVHQVLWLYLW\RIDVKDUH¶VSULFHPRYHPHQWV
FRPSDUHGZLWKWKRVHRIWKHPDUNHWLQGH[6KDUHVKDYLQJEHWDVOHVVWKDQFDQEH
127(6 VDLGWREHµGHIHQVLYH¶2QHSHUFHQWLQFUHDVHGHFUHDVHLQWKHPDUNHWUHWXUQLVOLNHO\
WREHDFFRPSDQLHGE\DOHVVWKDQRQHSHUFHQWLQFUHDVHGHFUHDVHLQWKHVKDUHV¶
UDWHRIUHWXUQ7KHLQYHVWRUVDUHWKXVGHIHQGHGWRVRPHH[WHQWDJDLQVWWKHRFFXU
UHQFHRIPDMRUGRZQIDOOLQWKHPDUNHWUHWXUQ2QWKHRWKHUKDQGVKDUHVZLWK
LQGLYLGXDOEHWDYDOXHVJUHDWHUWKDQRQHDUHFRQVLGHUHGWREHPRUHµDJJUHVVLYH¶RU
PRUHULVN\DVRQHSHUFHQWLQFUHDVHGHFUHDVHLQWKHPDUNHWUHWXUQLVOLNHO\WREH
DFFRPSDQLHGE\DQHYHQJUHDWHULQFUHDVHGHFUHDVHLQWKHVKDUHV¶UDWHVRIUHWXUQ
$EHWDRIRQHLPSOLHVµDYHUDJH¶ULVNLQHVVHYHU\RQHSHUFHQWUHWXUQRQWKHPDUNHW
LVDVVRFLDWHGZLWKRQHSHUFHQWRSSRUWXQLW\UHWXUQRQWKHVKDUH%HWDFDQEHQHJD
WLYHDVZHOOUHIOHFWLQJWKDWVKDUHSULFHVFDQULVHZKHQWKHPDUNHWIDOOVDQGYLFH
YHUVDEXWWKLVLVQRUPDOO\XQXVXDO
7KHV\VWHPDWLFULVNLVFDXVHGE\PDFURHYHQWVOLNHRLOFULVLVDQXQH[SHFWHGFKDQJH
LQUDWHRILQIODWLRQHWF7KHPDFURHYHQWVDUHEURDGDQGDIIHFWQHDUO\DOOVKDUHVWR
RQHGHJUHHRUDQRWKHUDQGWKH\PD\KDYHDQLPSDFWRQWKHJHQHUDOOHYHORIVWRFN
PDUNHW7KXVRQHFDQQRWUHGXFHV\VWHPDWLFULVNE\GLYHUVLI\LQJLQYHVWPHQWDFURVV
GLIIHUHQWVKDUHV7KDWLVZK\WKHV\VWHPDWLFULVNLVRIWHQFDOOHGµQRQGLYHUVLILDEOH¶
ULVN
7KHVHFRQGFRPSRQHQWRIYDULDQFHRIVKDUH¶VUHWXUQVıHLLVNQRZQDVµUHVLGXDO
YDULDQFHRU³XQV\VWHPDWLFULVN¶RUµGLYHUVLILDEOHULVN¶7KHVRXUFHRIWKLVNLQGRIULVN
LVµPLFUR¶HYHQWVZKLFKKDYHLPSDFWRQLQGLYLGXDOVKDUHVEXWQRVZHHSLQJLPSDFW
RQRWKHUVKDUHV([DPSOHVLQFOXGHWKHLQWURGXFWLRQRIDQHZSURGXFWVRUWKH
VXGGHQREVROHVFHQFHRIDQROGRQH7KH\PLJKWDOVRLQFOXGHODERUVWULNHORFNRXWRU
WKHUHVLJQDWLRQRUGHDWKRIDNH\SHUVRQLQWKHILUPRUVSOLWWLQJXSRIDEXVLQHVV
IDPLO\6LQFHPLFURHYHQWVDIIHFWRQO\WKHLQGLYLGXDOVKDUHVXQGHUFRQVLGHUDWLRQWKHLU
LPSDFWFDQEHUHGXFHGWRDJUHDWH[WHQWE\KROGLQJDGLYHUVLILDEOHSRUWIROLR:HZLOO
H[SODLQKRZGLYHUVLILFDWLRQRIULVNWDNHVSODFHDIWHUDZKLOH
,IWKHVLQJOHLQGH[PRGHOLVDYDOLGGHVFULSWLRQRIWKHSURFHVVJHQHUDWLQJVKDUHV
UHWXUQVWKHUHLVQRQHHGIRUGLUHFWHVWLPDWHVRIWKHFRYDULDQFH$OOWKDWZHQHHGWR
NQRZDUHWKHYDOXHVRIVKDUHVEHWDVDQGYDULDQFHRIUHWXUQVRQPDUNHWLQGH[WKH
FRYDULDQFHEHWZHHQDQ\WZRVKDUHVLDQGMFDQQH[WEHREWDLQHGHDVLO\E\HPSOR\LQJ
WKHUHODWLRQVKLSDVQRWHGDERYH1HHGOHVVWRVD\WKDWWKHUHODWLRQVKLSLVPXFKOHVV
GHPDQGLQJLQWHUPVRIHVWLPDWLRQSURFHGXUHDQGFRPSXWDWLRQWLPH:KDWLVPRUH
DPD]LQJWRQRWHKHUHLVWKDWWKHVLQJOHLQGH[PRGHOGRHVQRWUHTXLUHHYHQWKHLQGLUHFW
HVWLPDWHVRIFRYDULDQFHRIUHWXUQVEHWZHHQVKDUHV7KHPRGHOSURYLGHVDVWLOOVLP
SOHUIRUPXODIRUFRPSXWLQJYDULDQFHRISRUWIROLRUHWXUQV:HZLOOQRZH[SODLQWKLV
9DULDQFHRI3RUWIROLR5HWXUQV
:HEHJLQE\UHVWDWLQJWKDWWKHWRWDOULVNRUYDULDQFHRIUHWXUQVRQVKDUHµL¶LVJLYHQ
6HOI,QVWUXFWLRQDO 0DWHULDO
E\

ıL ȕLıPıHL 6KDUSHVLQJOH
7RWDOYDULDQFH 6\VWHPDWLF5LVN5HVLGXDOYDULDQFH LQGH[PRGHO

7KLVHTXDWLRQKROGVIRUDSRUWIROLRRIVKDUHVDVZHOO5HZULWLQJWKHHTXDWLRQIRUD
SRUWIROLRZHJHW 127(6
ıL ȕSıPıHS
7RWDO3RUWIROLRYDULDQFH 3RUWIROLR6\VWHPDWLF5LVN3RUWIROLRUHVLGXDOYDULDQFH
:KHUHWKHVXEVFULSWµS¶GHQRWHVDSRUWIROLR
3RUWIROLR%HWD :HLJKWHGDYHUDJHRILQGLYLGXDOVKDUHEHWDV
3RUWIROLRUHVLGXDOYDULDQFH :HLJKWHGDYHUDJHRILQGLYLGXDOUHVLGXDOYDULDQFHVZKHUH
ZHLJKWVDUHVTXDUHG
(VWLPDWLQJ%HWDDQGWKH'LYHUVLILDEOH5LVN&RPSRQHQW
7KHHVWLPDWLRQRIEHWDDQGWKHGLYHUVLILDEOHULVNFRPSRQHQWRIDVKDUHLQYROYHILWWLQJ
DµFKDUDFWHULVWLFOLQH´DVVKRZQLQ)LJXUH6XFKWKDWWKHYHUWLFDOGHYLDWLRQVRIWKH
VFDWWHUSRLQWVIURPWKHILWWHGOLQHDUHPLQLPL]HG7KHVWDWLVWLFDOSURFHGXUHIRUREWDLQ
LQJDOLQHRIEHVWILWLVNQRZQDVµVLPSOHOLQHDUUHJUHVVLRQ¶RUµRUGLQDU\OHDVWVTXDUHV
PHWKRG2/6¶7KHEHWDFDQEHFRPSXWHGPDQXDOO\RUXVLQJFRPSXWHUV7RGD\
DQDO\VWVJHQHUDOO\XVHFRPSXWHUVWRJHWEHWDYDOXH)RULQVWDQFHLI\RXKDYHWKH
PRQWKO\UHWXUQVRID0DUNHW,QGH[OLNH%6(6HQVH[DQGDQLQGLYLGXDOVWRFN¶V
UHWXUQ^VD\*UDVLPLQWKH0LFURVRIW([FHOVKHHW\RXFDQHDVLO\FRPSXWHWKHEHWD
XVLQJDIXQFWLRQFDOOHG 6/23(5DQJHRI6WRFN5HWXUQ5DQJHRI0DUNHW5HWXUQ
$OWKRXJKWKHDERYHHVWLPDWLRQSURFHGXUHORRNVTXLWHVWUDLJKWIRUZDUGLWLVIUDXJKW
ZLWKVHYHUDOSUDFWLFDOSUREOHPV)RULQVWDQFHZKDWVKRXOGEHWKHOHQJWKRIEHWD
HVWLPDWLRQSHULRGPR\HDUVWKUHH\HDUVRUPRUH"2UVKRXOGZHEDVHRXUFDOFX
ODWLRQRQDQQXDOUHWXUQGDWD"7KHUHDUHPDQ\VKDUHVZKLFKDUHQRWUHJXODUO\WUDGHG
RQWKHVWRFNH[FKDQJHDFFRUGLQJO\WKHLUSULFHTXRWDWLRQVUHPDLQXQFKDQJHGHYHQ
WKHFDVHRILOOWUDGHGVKDUHV"1RGRXEWWKHOLWHUDWXUHRQWKHVXEMHFWSURYLGHVVRPH
DQVZHUVWRDOOVXFKTXHVWLRQVEXWWKH\QHHGEHYHULILHGHPSLULFDOO\LQRXUFRQWH[W
8QIRUWXQDWHO\WKHUHLVGHDUWKRIHPSLULFDOVWXGLHVZLWKWKH,QGLDQVKDUHV¶GDWD(YHQ
LIZHREWDLQVDWLVIDFWRU\HVWLPDWHVRIKLVWRULFDOGDWDZHVWLOOIDFHWKHSUREOHPRI
HVWLPDWLQJIXWXUHRUH[DQWHEHWD:KDWLVRIFRQFHUQWRXVLVEHWDVIRUIXWXUH
KROGLQJSHULRGDQGQRWWKHKLVWRULFDOEHWDV
6LQFHODUJHVFDOHH[SHFWDWLRQGDWDRQUHWXUQVRILQGLYLGXDOVKDUHVDVZHOODVRI
PDUNHWLQGH[DUHQRWDYDLODEOHRQHFDQQRWGLUHFWO\HVWLPDWHIXWXUHEHWDVE\ILWWLQJ
UHJUHVVLRQOLQHV6RWKHKLVWRULFDOEHWDPXVWEHHVWLPDWHGILUVWDQGWKHQZHFDQPDNH
VRPHDGMXVWPHQWVWRLWIRUGHULYLQJWKHIXWXUHEHWD

 $30 $VVHW 3ULFLQJ 0RGHOV

8QGHUWKH$VVHWSULFLQJ0RGHOVZHVKDOOVWXG\WKHIROORZLQJWZRPRGHOV
 7KH&$300RGHO
 7KH$UELWUDJH3ULFLQJ0RGHO 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 7KH&$30 0RGHO
3RUWIROLR0DQDJHPHQW
&DSLWDODVVHWSULFLQJPRGHO&$30LVDPRGHOWKDWFDOFXODWHVH[SHFWHGUHWXUQ
EDVHGRQH[SHFWHGUDWHRIUHWXUQRQWKHPDUNHWWKHULVNIUHHUDWHDQGWKHEHWD
127(6 FRHIILFLHQWRIWKHVWRFN7KHPRGHOVWDWHVWKDWWKHSULFHRIDVWRFNLVDVVRFLDWHGZLWK
WZRYDULDEOHVWKHWLPHYDOXHRIPRQH\DQGWKHULVNRIWKHVWRFNLWVHOI,WGHVFULEHV
WKHGLIIHUHQFHEHWZHHQULVNH[SHFWHGUHWXUQDQGHYDOXDWHVWKHSHUIRUPDQFHRI
PDQDJHGSRUWIROLRV,WKHOSVLQDQDO\]LQJZKHWKHUDSDUWLFXODUVWRFNLVSHUIRUPLQJ
DQGJLYLQJJRRGUHWXUQVRUYLFHYHUVD
7KHPRGHOZDVGHYHORSHGE\ILQDQFLDOHFRQRPLVW:LOOLDP6KDUSHDQG-RKQ/LQWQHU
&$30LVZLGHO\XVHGE\LQYHVWRUVPDQDJHUVDQGILQDQFLDOLQVWLWXWLRQV$FFRUGLQJ
WR&$30WKHH[SHFWHGUHWXUQRIDVHFXULW\RUDSRUWIROLRHTXDOVWRWKHUDWHRQD
ULVNIUHHVHFXULW\SOXVDULVNSUHPLXP,IWKLVH[SHFWHGUHWXUQGRHVQRWPHHWWKH
UHTXLUHGUHWXUQWKHQWKHLQYHVWPHQWVKRXOGQRWEHXQGHUWDNHQ
,WLVDVLQJOHIDFWRUPRGHOEDVHGRQWKHUHTXLUHGUDWHRIUHWXUQSUHGLFWLQJRQHIDFWRU
LHV\VWHPDWLFULVN$QLQGLYLGXDOLQYHVWPHQWFRQWDLQVWZRW\SHVRIULVN
6\VWHPDWLF5LVN7KHVHDUHPDUNHWULVNVWKDWFDQQRWEHGLYHUVLILHG(J,QWHUHVW
UDWHV5HFHVVLRQVDQGZDUV
8QV\VWHPDWLF5LVN5LVNVSHFLILFWRLQGLYLGXDOVWRFNVDQGFDQEHGLYHUVLILHG
DZD\DVWKHLQYHVWRULQFUHDVHVWKHQXPEHURIVWRFNVLQKLVRUKHUSRUWIROLR
)RUPXOD
7KHIRUPXODIRU&$30LVJLYHQDVIROORZLQJ
(5L 5IȕL(5P5I
:KHUH
(5L ([SHFWHGUHWXUQRQWKHFDSLWDODVVHW
5I 5LVNIUHHUDWHRILQWHUHVW
ȕL 9RODWLOLW\RIDSRUWIROLRRQFRPSDULVRQWRWKHZKROHPDUNHW
(5P ([SHFWHGUHWXUQRIWKHPDUNHW
(5P5I 0DUNHWSUHPLXPRUULVNSUHPLXP
([DPSOH,IWKHULVNIUHHUDWHLVWKHEHWDULVNPHDVXUHRIWKHVWRFNLVDQG
WKHH[SHFWHGPDUNHWUHWXUQRYHUWKHSHULRGLVWKHVWRFNLVH[SHFWHGWRUHWXUQ

(5,    
7KHH[SHFWHGUHTXLUHGUDWHRIUHWXUQ(5LLVFDOFXODWHGXVLQJ&$30WKHQWKH
UHTXLUHGUDWHRIUHWXUQLVFRPSDUHGWRWKHDVVHW¶VHVWLPDWHGUDWHRIUHWXUQRYHUD
VSHFLILFLQYHVWPHQWKRUL]RQWRGHWHUPLQHZKHWKHULWZRXOGEHDQDSSURSULDWHLQYHVW
PHQW$QDVVHWLVFRUUHFWO\SULFHGZKHQLWVHVWLPDWHGSULFHLVWKHVDPHDVWKH
UHTXLUHGUDWHRIUHWXUQ$ULVNLHULQYHVWPHQWVKRXOGHDUQDSUHPLXPRYHUWKHULVN
6HOI,QVWUXFWLRQDO 0DWHULDO
IUHHUDWHWKHDPRXQWRYHUWKHULVNIUHHUDWHLVFDOFXODWHGE\WKHHTXLW\PDUNHW

SUHPLXPPXOWLSOLHGE\LWVEHWD,IWKHHVWLPDWHGSULFHLVKLJKHUWKDQWKH&$30
YDOXDWLRQWKHQWKHDVVHWLVXQGHUYDOXHGDQGRYHUYDOXHGZKHQWKHHVWLPDWHGSULFH 6KDUSHVLQJOH
LVEHORZWKH&$30YDOXDWLRQ LQGH[PRGHO

%HWD
$FFRUGLQJWR&$30EHWDLVWKHRQO\UHOHYDQWPHDVXUHRIDVWRFN¶VULVN,WPHD 127(6
VXUHVDVWRFN¶VUHODWLYHYRODWLOLW\WKDWLVLWVKRZVKRZPXFKWKHSULFHRIDSDUWLFXODU
VWRFNMXPSVXSDQGGRZQFRPSDUHGZLWKKRZPXFKWKHVWRFNPDUNHWDVDZKROH
MXPSVXSDQGGRZQ,IDVKDUHSULFHPRYHVH[DFWO\LQOLQHZLWKWKHPDUNHWWKHQWKH
VWRFN¶VEHWDLV$VWRFNZLWKDEHWDRIZRXOGULVHE\LIWKHPDUNHWURVH
E\DQGIDOOE\LIWKHPDUNHWIHOOE\
(TXLW\5LVN3UHPLXP
7KHH[FHVVUHWXUQWKDWDQLQGLYLGXDOVWRFNRUWKHRYHUDOOVWRFNPDUNHWSURYLGHVRYHU
DULVNIUHHUDWH7KLVH[FHVVUHWXUQFRPSHQVDWHVLQYHVWRUVIRUWDNLQJRQWKHUHODWLYHO\
KLJKHUULVNRIWKHHTXLW\PDUNHW7KHVL]HRIWKHSUHPLXPZLOOYDU\DVWKHULVNLQD
SDUWLFXODUVWRFNRULQWKHVWRFNPDUNHWDVDZKROHFKDQJHVKLJKULVNLQYHVWPHQWV
DUH FRPSHQVDWHG
ZLWKDKLJKHUSUHPLXP
7KHJHQHUDOLGHDEHKLQG&$30LVWKDWLQYHVWRUVQHHGWREHFRPSHQVDWHGLQWZR
ZD\VWLPHYDOXHRIPRQH\DQGULVN7KHWLPHYDOXHRIPRQH\LVUHSUHVHQWHGE\WKH
ULVNIUHH5IUDWHLQWKHIRUPXODDQGFRPSHQVDWHVWKHLQYHVWRUVIRUSODFLQJPRQH\
LQDQ\LQYHVWPHQWRYHUDSHULRGRIWLPH7KHRWKHUKDOIRIWKHIRUPXODUHSUHVHQWVULVN
DQGFDOFXODWHVWKHDPRXQWRIFRPSHQVDWLRQWKHLQYHVWRUQHHGVIRUWDNLQJRQDGGL
WLRQDOULVN7KLVLVFDOFXODWHGE\WDNLQJDULVNPHDVXUHEHWDWKDWFRPSDUHVWKH
UHWXUQVRIWKHDVVHWWRWKHPDUNHWRYHUDSHULRGRIWLPHDQGWRWKHPDUNHWSUHPLXP
5P5I
7KH(IILFLHQW)URQWLHU

7KHSRUWIROLRZLWKDWPLQLPXPYDULDQFHLVDQHIILFLHQWSRUWIROLREHFDXVHWKHULVNDQG 6HOI,QVWUXFWLRQDO 0DWHULDO

UHWXUQDWWKHSDUWLFXODUSRLQWLVHTXDORULWLVRSWLPDO$FFRUGLQJWR&$30WKHULVN 
6HFXULW\$QDO\VLV UHWXUQSURILOHRIDSRUWIROLRFDQEHRSWLPL]HG²DQRSWLPDOSRUWIROLRGLVSOD\VWKH
3RUWIROLR0DQDJHPHQW ORZHVWSRVVLEOHOHYHORIULVNIRULWVOHYHORIUHWXUQ$GGLWLRQDOO\HDFKDGGLWLRQDODVVHW
LQWURGXFHGLQWRDSRUWIROLRIXUWKHUGLYHUVLILHVWKHSRUWIROLR$OOVXFKRSWLPDOSRUWIR
OLRVLHRQHIRUHDFKOHYHORIUHWXUQFRPSULVHWKHHIILFLHQWIURQWLHU&$/VWDQGVIRU
127(6 WKHFDSLWDODOORFDWLRQOLQH
&DSLWDOPDUNHWOLQH
,WVSHFLILHVWKHUHODWLRQVKLSEHWZHHQH[SHFWHGUHWXUQDQGULVNIRUHIILFLHQWSRUWIROLRV
7KH&0/LVGHULYHGE\GUDZLQJDWDQJHQWOLQHIURPWKHLQWHUFHSWSRLQWRQWKH
HIILFLHQWIURQWLHUWRWKHSRLQWZKHUHWKHH[SHFWHGUHWXUQHTXDOVWKHULVNIUHHUDWHRI
UHWXUQ,WLVFRQVLGHUHGWREHVXSHULRUWRWKHHIILFLHQWIURQWLHUVLQFHLWWDNHVLQWR
DFFRXQWWKHLQFOXVLRQRIDULVNIUHHDVVHWLQWKHSRUWIROLR7KHFDSLWDODVVHWSULFLQJ
PRGHOGHPRQVWUDWHVWKDWWKHPDUNHWSRUWIROLRLVHVVHQWLDOO\WKHHIILFLHQWIURQWLHU7KLV
LVDFKLHYHGYLVXDOO\WKURXJKWKHVHFXULW\PDUNHWOLQH60/
6HFXULW\PDUNHWOLQH
,WVSHFLILHVWKHHTXLOLEULXPSRVLWLRQEHWZHHQWKHH[SHFWHGUHWXUQVDQGV\VWHPDWLFULVN
IRULQGLYLGXDOVHFXULWLHV,WJUDSKVWKHUHVXOWVIURPWKHFDSLWDODVVHWSULFLQJPRGHO
&$30IRUPXOD7KH[D[LVUHSUHVHQWVWKHULVNEHWDDQGWKH\D[LVUHSUHVHQWVWKH
H[SHFWHGUHWXUQ7KHPDUNHWULVNSUHPLXPLVGHWHUPLQHGIURPWKHVORSHRIWKH60/
7KHUHODWLRQVKLSEHWZHHQȕDQGUHTXLUHGUHWXUQLVSORWWHGRQWKHVHFXULWLHVPDUNHW
OLQHZKLFKVKRZVH[SHFWHGUHWXUQDVDIXQFWLRQRIȕ7KHLQWHUFHSWLVWKHQRPLQDO
ULVNIUHHUDWHDYDLODEOHIRUWKHPDUNHWZKLOHWKHVORSHLVWKHPDUNHWSUHPLXP(5P
5I7KHVHFXULWLHVPDUNHWOLQHFDQEHUHJDUGHGDVUHSUHVHQWLQJDVLQJOHIDFWRUPRGHO
RIWKHDVVHWSULFHZKHUH%HWDLVH[SRVXUHWRFKDQJHVLQYDOXHRIWKH0DUNHW7KH
HTXDWLRQRIWKH60/LVWKXV
60/ (L5L5IL(5P5I

&KHFN <RXU 3URJUHVV

 :KDWLV6KDUSH
LQGH[" ,WLVDXVHIXOWRROLQGHWHUPLQLQJLIDQDVVHWEHLQJFRQVLGHUHGIRUDSRUWIROLRRIIHUV
 'HILQH&$30 DUHDVRQDEOHH[SHFWHGUHWXUQIRUULVN,QGLYLGXDOVHFXULWLHVDUHSORWWHGRQWKH60/
PRGHO" JUDSK,IWKHVHFXULW\¶VULVNYHUVXVH[SHFWHGUHWXUQLVSORWWHGDERYHWKH60/LWLV
XQGHUYDOXHGVLQFHWKHLQYHVWRUFDQH[SHFWDJUHDWHUUHWXUQIRUWKHLQKHUHQWULVN$QG
6HOI,QVWUXFWLRQDO 0DWHULDO
DVHFXULW\SORWWHGEHORZWKH60/LVRYHUYDOXHGVLQFHWKHLQYHVWRUZRXOGEHDFFHSW

LQJOHVVUHWXUQIRUWKHDPRXQWRIULVNDVVXPHG
$QLQYHVWRUDQWLFLSDWHV;<=VHFXULW\ZLOOUHDFK5VE\WKHHQGRIRQH\HDU;<= 6KDUSHVLQJOH
EHWDLV$VVXPLQJWKHUHWXUQRQWKHPDUNHWLVH[SHFWHGWREHDQGWKHULVN LQGH[PRGHO
IUHH UDWH LV  &DOFXODWH WKH H[SHFWHG UHWXUQ RI ;<= VWRFN LQ RQH \HDU DQG
GHWHUPLQHZKHWKHUWKHVWRFNLVXQGHUYDOXHGRYHUYDOXHGRUSURSHUO\YDOXHGZLWKD
FXUUHQWYDOXHRI5V 127(6

(5[\]  

*LYHQWKHH[SHFWHGUHWXUQRI;<=VWRFNXVLQJ&$30LVDQGWKHLQYHVWRU
DQWLFLSDWHVDUHWXUQWKHVHFXULW\ZRXOGEHSURSHUO\YDOXHG,IWKHH[SHFWHG
UHWXUQXVLQJWKH&$30LVKLJKHUWKDQWKHLQYHVWRU¶VUHTXLUHGUHWXUQWKHVHFXULW\LV
XQGHUYDOXHGDQGWKHLQYHVWRUVKRXOGEX\LW,IWKHH[SHFWHGUHWXUQXVLQJWKH&$30
LVORZHUWKDQWKHLQYHVWRU¶VUHTXLUHGUHWXUQWKHVHFXULW\LVRYHUYDOXHGDQGVKRXOGEH
VROG
7KH&$30KDVLWVPHULWVDQGGHPHULWVRYHURWKHUPHWKRGVRIFDOFXODWLQJH[SHFWHG
UHWXUQDQGULVNV
0HULWV RI &$30
x ,WFRQVLGHUVRQO\V\VWHPDWLFULVNUHIOHFWLQJDUHDOLW\LQZKLFKPRVWLQYHVWRUV
KDYHGLYHUVLILHGSRUWIROLRV
x ,WJHQHUDWHVDWKHRUHWLFDOO\GHULYHGUHODWLRQVKLSEHWZHHQUHTXLUHGUHWXUQDQG
V\VWHPDWLFULVN
x &$30FRQWULEXWHGWRWKHULVHLQXVH
RILQGH[LQJDVVHPEOLQJDSRUWIROLR
RIVKDUHVWRPLPLFDSDUWLFXODUPDU
NHWE\ULVNDGYHUVHLQYHVWRUV
'HPHULWVRI &$30
x 7KHUHDUHRWKHUDOWHUQDWLYHDVVHWSULFLQJPRGHOVXVHGIRUFDOFXODWLRQV
x ,WLVGLIILFXOWWRSUHGLFWIURPEHWDKRZLQGLYLGXDOVWRFNVPLJKWUHDFWWR
SDUWLFXODUPRYHPHQWV,QYHVWRUVFDQSUREDEO\VDIHO\GHGXFHWKDWDSRUWIROLR
RIKLJKEHWDVWRFNVZLOOPRYHPRUHWKDQWKHPDUNHWLQHLWKHUGLUHFWLRQRU
DSRUWIROLRRIORZEHWDVWRFNVZLOOPRYHOHVVWKDQWKHPDUNHW
x ,WLVKRZHYHUIUHTXHQWO\REVHUYHGWKDWUHWXUQVLQHTXLW\DQGRWKHUPDUNHWV
DUHQRWQRUPDOO\GLVWULEXWHG$VDUHVXOWODUJHVZLQJVWRVWDQGDUG
GHYLDWLRQVIURPWKHPHDQRFFXULQWKHPDUNHWPRUHIUHTXHQWO\WKDQWKH
QRUPDOGLVWULEXWLRQDVVXPSWLRQZRXOGH[SHFWWKLVFDQDIIHFWWKHFDOFXODWLRQ
RI&$30
x $OOLQYHVWRUVKDYHDFFHVVWRWKHVDPHLQIRUPDWLRQDQGDJUHHDERXWWKHULVN
DQGH[SHFWHGUHWXUQRIDOODVVHWV
x 7KHSUREDELOLW\EHOLHIVRILQYHVWRUVPDWFKWKHWUXHGLVWULEXWLRQRIUHWXUQV$
GLIIHUHQWSRVVLELOLW\LVWKRVHLQYHVWRUV¶H[SHFWDWLRQVDUHELDVHGFDXVLQJPDUNHW 6HOI,QVWUXFWLRQDO 0DWHULDO

SULFHVWREHLQIRUPDWLRQDOO\LQHIILFLHQW 
6HFXULW\$QDO\VLV x 7KHPRGHODVVXPHVWKHUHDUHQRWD[HVRUWUDQVDFWLRQFRVWVDOWKRXJKWKLV
3RUWIROLR0DQDJHPHQW DVVXPSWLRQPD\EHUHOD[HGZLWKPRUHFRPSOLFDWHGYHUVLRQVRIWKHPRGHO
x 7KHPRGHODVVXPHVMXVWWZRGDWHVVRWKDWWKHUHLVQRRSSRUWXQLW\WRFRQ
127(6 VXPHDQGUHEDODQFHSRUWIROLRVUHSHDWHGO\RYHUWLPH
x &$30DVVXPHVWKDWDOOLQYHVWRUVZLOOFRQVLGHUDOORIWKHLUDVVHWVDQGRSWL
PL]HRQHSRUWIROLR7KLVLVLQVKDUSFRQWUDGLFWLRQZLWKSRUWIROLRVWKDWDUHKHOG
E\LQGLYLGXDOLQYHVWRUV
:KLOHVRPHVWXGLHVUDLVHGRXEWVDERXW&$30¶VYDOLGLW\WKHPRGHOLVVWLOOZLGHO\
XVHGLQWKHLQYHVWPHQWFRPPXQLW\&$30LVDPRGHUQSRUWIROLRWKHRU\XVHGIRU
SULFLQJVHFXULWLHV,W¶VLPSRUWDQWWRHPSKDVL]HWKDWGHVSLWHWKHLUPDQ\VLPSOLI\LQJ
DVVXPSWLRQV0RGHUQ3RUWIROLR7KHRU\VWLOOMXVWLILDEO\SURYLGHVWKHFRUQHUVWRQHVRI
SRUWIROLRPDQDJHPHQW,QSDUWLFXODUWKHDGRSWLRQRIWKHSULQFLSOHRISRUWIROLRGLYHU
VLILFDWLRQKDVHQDEOHGIXQGPDQDJHUVWRRIIHULQYHVWRUVUHWXUQVWKDWDUHFRQVLVWHQWO\
KLJKHUWKDQWKHULVNIUHHUDWH
:LWKUHJDUGWR&$30LWGRHVDSSHDUWKDWWKHQXPEHURIGLIIHUHQWVHFXULW\KROGLQJV
WHQGWRLQFUHDVHDVWKHIXQGVL]HLQFUHDVHVLHIXQGPDQDJHUVDUHGLYHUVLI\LQJDVIDU
DVWKH\SRVVLEO\FDQ,QYHVWRUVFDQWDLORUWKHLUSRUWIROLRVWRWKHLUVSHFLILFULVNUHWXUQ
UHTXLUHPHQWVDLPLQJWRKROGVHFXULWLHVZLWKEHWDVLQH[FHVVRIZKLOHWKHPDUNHW
LV ULVLQJ DQG
VHFXULWLHVZLWKEHWDVRIOHVVWKDQZKHQWKHPDUNHWLVIDOOLQJ7KLVLVODUJHO\GXHWR
&$30¶VPHVVDJHWKDWLWLVRQO\SRVVLEOHWRHDUQKLJKHUUHWXUQVWKDQWKRVHRIWKH
PDUNHWDVDZKROHE\WDNLQJRQKLJKHUULVNEHWD8QWLOVRPHQHZDVVHWSULFLQJ
PRGHOLVGHYHORSHG&$30UHPDLQVDYHU\XVHIXOLWHPLQWKHILQDQFLDOPDQDJHPHQW

  $UELWUDJH 3ULFLQJ 7KHRU\

7KLVWKHRU\ZDVIRUPXODWHGE\WKHHFRQRPLVW6WHSKHQ5RVVLQ$UELWUDJH
SULFLQJWKHRU\$37LVDJHQHUDOWKHRU\RIDVVHWSULFLQJWKDWKROGVWKDWWKHH[
SHFWHGUHWXUQRIDILQDQFLDODVVHWFDQEHPRGHOHGDVDOLQHDUIXQFWLRQRIYDULRXV
PDFURHFRQRPLFIDFWRUVRUWKHRUHWLFDOPDUNHWLQGLFHVZKHUHVHQVLWLYLW\WRFKDQJHV
LQHDFKIDFWRULVUHSUHVHQWHGE\DIDFWRUVSHFLILFEHWDFRHIILFLHQW7KHPRGHO
GHULYHGUDWHRIUHWXUQZLOOWKHQEHXVHGWRSULFHWKHDVVHWFRUUHFWO\WKHDVVHWSULFH
VKRXOGHTXDOWKHH[SHFWHGHQGRISHULRGSULFHGLVFRXQWHGDWWKHUDWHLPSOLHGE\WKH
PRGHO,IWKHSULFHGLYHUJHVDUELWUDJHVKRXOGEULQJLWEDFNLQWROLQH
7KH$37PRGHO
5LVN\DVVHWUHWXUQVDUHH[SUHVVHGDV

:KHUH
x DMLVDFRQVWDQWIRUDVVHWM

6HOI,QVWUXFWLRQDO 0DWHULDO x )NLVDV\VWHPDWLFIDFWRU


 x EMNLVWKHVHQVLWLYLW\RIWKHMWKDVVHWWRIDFWRUNDOVRFDOOHGIDFWRU 6KDUSHVLQJOH
ORDGLQJ LQGH[PRGHO

x $QG(MLVWKHULVN\DVVHW¶VLGLRV\QFUDWLFUDQGRPVKRFNZLWKPHDQ
]HUR 127(6
7KH$37VWDWHVWKDWLIDVVHWUHWXUQVIROORZDIDFWRUVWUXFWXUHWKHQWKHIROORZLQJ
UHODWLRQH[LVWVEHWZHHQH[SHFWHGUHWXUQVDQGWKHIDFWRUVHQVLWLYLWLHV

:KHUH
x 53NLVWKHULVNSUHPLXPRIWKHIDFWRU
x UILVWKHULVNIUHHUDWH
7KDWLVWKHH[SHFWHGUHWXUQRIDQDVVHWMLVDOLQHDUIXQFWLRQRIWKHDVVHWVVHQVLWLYLWLHV
WRWKHQIDFWRUV
1RWHWKDWWKHUHDUHVRPHDVVXPSWLRQVDQGUHTXLUHPHQWVWKDWKDYHWREHIXOILOOHGIRU
WKHODWWHUWREHFRUUHFW7KHUHPXVWEHDSHUIHFWFRPSHWLWLRQLQWKHPDUNHWDQGWKH
WRWDOQXPEHURIIDFWRUVPD\QHYHUVXUSDVVWKHWRWDOQXPEHURIDVVHWV
$UELWUDJHDQGWKH$37
$UELWUDJHLVWKHSUDFWLFHRIWDNLQJSRVLWLYHH[SHFWHGUHWXUQIURPRYHUYDOXHGRU
XQGHUYDOXHGVHFXULWLHVLQWKHLQHIILFLHQWPDUNHWZLWKRXWDQ\LQFUHPHQWDOULVNDQG]HUR
DGGLWLRQDOLQYHVWPHQWV
$UELWUDJHPHFKDQLFV
,QWKH$37FRQWH[WDUELWUDJHFRQVLVWVRIWUDGLQJLQWZRDVVHWV±ZLWKDWOHDVWRQH
EHLQJPLVSULFHG7KHDUELWUDJHXUVHOOVWKHDVVHWZKLFKLVUHODWLYHO\WRRH[SHQVLYHDQG
XVHVWKHSURFHHGVWREX\RQHZKLFKLVUHODWLYHO\WRRFKHDS
8QGHUWKH$37DQDVVHWLVPLVSULFHGLILWVFXUUHQWSULFHGLYHUJHVIURPWKHSULFH
SUHGLFWHGE\WKHPRGHO7KHDVVHWSULFHWRGD\VKRXOGHTXDOWKHVXPRIDOOIXWXUHFDVK
IORZVGLVFRXQWHGDWWKH$37UDWHZKHUHWKHH[SHFWHGUHWXUQRIWKHDVVHWLVDOLQHDU
IXQFWLRQRIYDULRXVIDFWRUVDQGVHQVLWLYLW\WRFKDQJHVLQHDFKIDFWRULVUHSUHVHQWHGE\
DIDFWRUVSHFLILFEHWDFRHIILFLHQW
$FRUUHFWO\SULFHGDVVHWKHUHPD\EHLQIDFWDV\QWKHWLFDVVHWDSRUWIROLRFRQ
VLVWLQJRIRWKHUFRUUHFWO\SULFHGDVVHWV7KLVSRUWIROLRKDVWKHVDPHH[SRVXUHWRHDFK
RIWKHPDFURHFRQRPLFIDFWRUVDVWKHPLVSULFHGDVVHW7KHDUELWUDJHXUFUHDWHVWKH
SRUWIROLRE\LGHQWLI\LQJ[FRUUHFWO\SULFHGDVVHWVRQHSHUIDFWRUSOXVRQHDQGWKHQ
ZHLJKWLQJWKHDVVHWV VXFK WKDWSRUWIROLR EHWDSHU IDFWRU LVWKH VDPH DVIRU WKH
PLVSULFHGDVVHW
:KHQWKHLQYHVWRULVORQJWKHDVVHWDQGVKRUWWKHSRUWIROLRRUYLFHYHUVDKHKDV
FUHDWHGDSRVLWLRQZKLFKKDVDSRVLWLYHH[SHFWHGUHWXUQWKHGLIIHUHQFHEHWZHHQ
DVVHWUHWXUQDQGSRUWIROLRUHWXUQDQGZKLFKKDVDQHW]HURH[SRVXUHWRDQ\PDF 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV URHFRQRPLFIDFWRUDQGLVWKHUHIRUHULVNIUHHRWKHUWKDQIRUILUPVSHFLILFULVN7KH
3RUWIROLR0DQDJHPHQW DUELWUDJHXULVWKXVLQDSRVLWLRQWRPDNHDULVNIUHHSURILW
:KHUHWRGD\¶VSULFHLVWRRORZ
127(6 7KHLPSOLFDWLRQLVWKDWDWWKHHQGRIWKHSHULRGWKHSRUWIROLRZRXOGKDYHDSSUHFLDWHG
DWWKHUDWHLPSOLHGE\WKH$37ZKHUHDVWKHPLVSULFHGDVVHWZRXOGKDYHDSSUHFLDWHG
DWPRUHWKDQWKLVUDWH7KHDUELWUDJHXUFRXOGWKHUHIRUH
7RGD\
‡VKRUWVHOOVWKHSRUWIROLR
‡EX\WKHPLVSULFHGDVVHWZLWKWKHSURFHHGV
$WWKHHQGRIWKHSHULRG
‡VHOOVWKHPLVSULFHGDVVHW
‡XVHWKHSURFHHGVWREX\EDFNWKHSRUWIROLR
‡SRFNHWWKHGLIIHUHQFH
:KHUHWRGD\¶VSULFHLVWRRKLJK
7KHLPSOLFDWLRQLVWKDWDWWKHHQGRIWKHSHULRGWKHSRUWIROLRZRXOGKDYHDSSUHFLDWHG
DWWKHUDWHLPSOLHGE\WKH$37ZKHUHDVWKHPLVSULFHGDVVHWZRXOGKDYHDSSUHFLDWHG
DWOHVVWKDQWKLVUDWH7KHDUELWUDJHXUFRXOGWKHUHIRUH
7RGD\
‡VKRUWVHOOVWKHPLVSULFHGDVVHW
‡EX\WKHSRUWIROLRZLWKWKHSURFHHGV
$WWKHHQGRIWKHSHULRG
‡VHOOVWKHSRUWIROLR
‡XVHWKHSURFHHGVWREX\EDFNWKHPLVSULFHGDVVHW
‡SRFNHWWKHGLIIHUHQFH
7UDFLQJWKH(IILFLHQW3RUWIROLR
$QHIILFLHQWVHWLVDFRQWLQXRXVFXUYHZKLFKLQWXUQPHDQVWKDWWKHUHDUHLQILQLWH
QXPEHUVRIHIILFLHQWSRUWIROLRV7KLVSRVHVDW\SLFDOSUREOHPWRWKHLQYHVWRUV+RZ
FDQRQHGHWHUPLQHFRPELQDWLRQRIDVVHWVDQGSRUWIROLRZHLJKWVRIHDFKRIDQLQILQLWH
QXPEHURIHIILFLHQWSRUWIROLRV"7KHURXJKLGHDLVJLYHQLQWKLVVHFWLRQ
$VZHNQRZDQHIILFLHQWVHWFDQEHGHWHUPLQHGE\PLQLPL]LQJSRUWIROLRULVNIRUDQ\
OHYHORIH[SHFWHGUHWXUQ,IZHVSHFLI\WKHUHWXUQDWVRPHOHYHODQGPLQLPL]HULVN
ZHKDYHRQHSRLQWLHDSRUWIROLRRQWKHHIILFLHQWIURQWLHU7KXVZHQHHGWRVROYH
WKHIROORZLQJFRQVWUDLQHGPLQLPL]DWLRQSUREOHP

Q Q
6HOI,QVWUXFWLRQDO 0DWHULDO

6XEMHFWWRWKHFRQVWUDLQWV 6KDUSHVLQJOH
LQGH[PRGHO
‡ ([SHFWHGUHWXP5SLVHTXDOWRVRPHSUHGHWHUPLQHGOHYHO5
‡ 7KHVXPRIWKHSRUWIROLRZHLJKWVIRUDOODVVHWVLQWKHSRUWIROLRPXVWEHHTXDO
WR-! L 127(6

‡ 7KHSRUWIROLRZHLJKWDVVLJQHGWRDQ\DVVHWVKRXOGEHSRVLWLYH
7KHSURFHVVGLVFXVVHGDERYHFDQEHUHSHDWHGWRILQGDVPDQ\SRLQWVDVGHVLUHGRQ
WKHHIILFLHQWIURQWLHUHDFKWLPHVWDUWLQJZLWKDVSHFLILHGWDUJHWH[SHFWHGUDWHRI
UHWXUQ,QDFWXDOSUDFWLFHVWDQGDUGFRPSXWHUSDFNDJHVDUHDYDLODEOHZKLFKFDQILQG
VROXWLRQVTXLFNO\DQGDFFXUDWHO\)RURXUH[DPSOHFDVHRIWKUHHHTXLW\VKDUHV7DEOH
VKRZVWHQHIILFLHQWSRUWIROLRVLGHQWLILHGE\WKHDSSOLFDWLRQRIVXFKDSDFNDJH

3RUWIROLR    
([SHFWHG5HWXP     

6WDQGDUG'HYLDWLRQ     

&RPSRVLWLRQ
$VKRN/H\ODQG     

$&&     

*UDVLP     

3RUWIROLR1R     
([SHFWHG5HWXUQ     

6WDQGDUG'HYLDWLRQ     

&RPSRVLWLRQ     

$VKRN/H\ODQG
$&&     

*UDVLP     

2QFHVXIILFLHQWQXPEHUVRIHIILFLHQWSRUWIROLRVDUHGHWHUPLQHGLWLVDVLPSOHPDWWHU
IRUWKHFRPSXWHUXVLQJLWVFDSDELOLW\IRUJUDSKLFVWRGUDZWKHJUDSKRIWKHHIILFLHQW
6HOI,QVWUXFWLRQDO 0DWHULDO
VHW)LJXUHVKRZVWKHJUDSKGUDZQE\WKHFRPSXWHUSDFNDJH

6HFXULW\$QDO\VLV &RQFOXGLQJWRJHWDQHIILFLHQWSRUWIROLRIROORZWKHIROORZLQJVWHSV
3RUWIROLR0DQDJHPHQW
¾ 5HVHDUFKVWRFNVWKDW\RXZRXOGOLNHWRLQYHVWLQ6L[FRPSDQLHVZLOOEHD
JRRGVWDUWWRGLYHUVLILFDWLRQ/RRNDWVWRFNVLQYDULRXVVHFWRUVOLNHWHFKQRO
127(6 RJ\KHDOWKFDUHDQGHQHUJ\0DNHVXUHWKHVHFRPSDQLHVKDYHJRRGPDQ
DJHPHQWILQDQFLDOVWDELOLW\DQGSRVVLEO\RIIHUDGLYLGHQG$GLYLGHQGFDQ
SURYLGHH[WUDLQFRPHRURIIVHWDVOLJKWGURSLQWKHVWRFN¶VSULFH²WKDW¶V
HIILFLHQW
¾ 3LFNVL[VWRFNVIURPWKHFRPSDQLHV\RXUHVHDUFKHGEHFDXVHWKLVZLOOHQVXUH
\RXUVROHLQYHVWPHQWLQQRWLQRQHRUWZRVWRFNVZKLFKZLOOLQFUHDVHPRUH
ULVN&UHDWHDEDODQFHGSRUWIROLRIURPWKHVHVWRFNV
¾ /RJRQWR\RXURQOLQHLQYHVWPHQWDFFRXQW2QOLQHDFFRXQWVDUHKHOSIXOEH
FDXVHWKH\RIIHUORZDFFRXQWPLQLPXPVDQGFRPPLVVLRQVDUHKHDYLO\GLV
FRXQWHG7KLVZLOOKHOSLQWKHORQJUXQ+LJKFRPPLVVLRQVDQGIHHVZLOOHDW
LQWRSRWHQWLDOSURILWV
¾ ,QYHVWLQWKHFRPSDQLHV\RXSLFNHG7KLVLVGRQHE\HQWHULQJWKHFRPSDQ\¶V
WLFNHUV\PERODQGFOLFNLQJWKH³WUDGH´EXWWRQ5HPHPEHURQFHDWUDGHLV
FRQILUPHGLWLVILQDO
¾ :DWFK\RXUSRUWIROLRHYHU\GD\WRWZRGD\V7KLVNHHSV\RXXSWRGDWHLQ
KRZ\RXUSRUWIROLRLVSHUIRUPLQJ

&RQVWUXFWLRQ RI 2SWLPXP 3RUWIROLR

&RQVWUXFWLRQRIRSWLPXPSRUWIROLRUHIHUVWRWKHDOORFDWLRQRIIXQGVDPRQJDYDULHW\
RIILQDQFLDODVVHWVRSHQIRULQYHVWPHQW3RUWIROLRWKHRU\FRQFHUQVLWVHOIZLWKWKH
SULQFLSOHVJRYHUQLQJVXFKDOORFDWLRQ7KHREMHFWLYHRIWKHWKHRU\LVWREHHODERUDWH
WKHSULQFLSOHVLQZKLFKWKHULVNFDQEHPLQLPL]HGVXEMHFWWRDGHVLUHGOHYHORIUHWXUQ
RQWKHSRUWIROLRRUPD[LPL]HWKHUHWXUQVXEMHFWWRWKHFRQVWUDLQWRIDWROHUDEOHOHYHO
RIULVN
7KHUHIRUHWKHFRQVWUXFWLRQRIDQRSWLPXPSRUWIROLRLVWRPD[LPL]H\LHOG PLQLPL]H
ULVN7KHRWKHUDGGLWLRQDOREMHFWLYHVDUHDVIROORZV
x 5HJXODULQFRPHRUVWDEOHUHWXUQ
x $SSUHFLDWLRQRIFDSLWDO
x 0DUNHWDELOLW\ OLTXLGLW\
x 6DIHW\RILQYHVWPHQW
x 0LQLPL]LQJWD[OLDELOLW\
)RUWKHDWWDLQPHQWRIWKHVHREMHFWLYHVWKHSRUWIROLRPDQDJHUKDVWRFRQVWUXFWWKH
RSWLPXPSRUWIROLRZLWKWKHLUSURMHFWHGUHWXUQ ULVN FKRRVHRQO\WKRVHLQYHVW
PHQWVZKLFKVDWLVI\WKHUHTXLUHPHQWRIWKHLQGLYLGXDOLQYHVWRU FDQPDNHDYDLODEOH
6HOI,QVWUXFWLRQDO 0DWHULDO
WRKLVSUHIHUHQFHV

3RUWIROLR RI  6HFXULWLHV &DVH  6HFXULW\ &DVH 6KDUSHVLQJOH
LQGH[PRGHO
,QWKLVVHFWLRQZHVKDOODQDO\]HWKHULVN UHWXUQLQWKHFDVHRIVHFXULWLHVSRUWIROLR
,WZLOOJLYHDQLQWURGXFWLRQDERXWWKHLPSDFWRIFRPELQDWLRQRIWZRVHFXULWLHV
3RUWIROLR5LVNFDQEHFDOFXODWHGE\ 127(6
ıS  >[ ı  [ ı  [ [ U ıı @
:KHUH
ıSLVSRUWIROLRVWDQGDUGGHYLDWLRQ
[LVRIWRWDOSRUWIROLRYDOXHLQVWRFN
[LVRIWRWDOSRUWIROLRYDOXHLQVWRFN
ı LV6'RIVWRFN
ı LV6'RIVWRFN
WKXVQRZZHKDYH6'RISRUWIROLRVHFXULWLHV:HFDQREVHUYHWKDWSRUWIROLRULVN
LVDIIHFWHGE\
7KHSURSRUWLRQRIIXQGVGHYRWHGWRHDFKVWRFN
7KH6'RIHDFKVWRFN
7KHFRYDULDQFHEHWZHHQWKHHDFKVWRFN
,IWKHVWRFNVDUHLQGHSHQGHQWWRHDFKRWKHUWKHQFRYDULDQFHZLOOEH]HURLIWKH\
DUHSRVLWLYHO\FRUUHODWHWKHQ LIQHJDWLYHO\FRUUHODWHGWKHQ%\FKDQJLQJWKH
SURSRUWLRQRIDVVHWVZHFDQJHWDEHWWHUSRUWIROLR
/HWZHKDYHVWRFNV; <
; <

([SHFWHGUHWXUQ  

6'  

&RYDULDQFHLV FRHIILFLHQWRIFRUUHODWLRQLV1RZE\FKDQJLQJSURSRUWLRQRI
;  <
; < 3RUWIROLR6'
  
  
  
  
  
6RZHFDQVHHWKDWSRUWIROLRULVNFDQEHEURXJKWGRZQWR]HURE\VNLOOIXOO\EDODQFLQJ
LW,QWKHVLPLODUZD\ZFDQVHWWKHHTXDWLRQIRUWKHVHFXULWLHVFDVH
ıS [ ı[ ı[ ı[[Uıı [[Uıı[[Uıı 6HOI,QVWUXFWLRQDO 0DWHULDO

6LPLODUO\ZHFDQH[WHQGLWWRWKHQVHFXULW\FDVH 
6HFXULW\$QDO\VLV  ,QYHVWPHQW LQ /LTXLG $VVHWV
3RUWIROLR0DQDJHPHQW
7KHWHUPOLTXLGLW\UHIHUVWRKRZIDVWVRPHWKLQJFDQEHWXUQHGLQWRKDUGFDVK/LTXLG
DVVHWVDUHWKRVHWKDWDUHWKRXJKWWREHWXUQHGWRFDVKLPPHGLDWHO\
127(6
/LTXLGDVVHWVDUHDPRQJWKHPRVWEDVLFIRUPRIILQDQFLDOUHVRXUFHVXVHGE\FRQ
VXPHUVVXSSOLHUVDQGLQYHVWRUV(VVHQWLDOO\DOLTXLGDVVHWLVFDVKRUDQ\W\SHRI
QHJRWLDEOHDVVHWWKDWFDQEHFRQYHUWHGTXLFNO\DQGHDVLO\LQWRFDVK,QPDQ\LQ
VWDQFHVILQDQFLDOH[SHUWVFKRRVHWRFODVVLI\OLTXLGDVVHWVDVDQ\DVVHWWKDWFDQEH
FRQYHUWHGLQWRFDVKZLWKLQDSHULRGRIWZHQW\GD\V
&XUUHQF\DQGFRLQDUHWKHWZRPRVWREYLRXVIRUPVRIOLTXLGDVVHWV,PPHGLDWHO\
UHFRJQL]HGDVOHJDOWHQGHUIRUSXUFKDVHVDQGWRVHWWOHRXWVWDQGLQJGHEWVFXUUHQF\
UHPDLQVWKHVLQJOHPRVWFRPPRQRIDOOOLTXLGDVVHWVWKDWDUHXVHGRQDFRQVLVWHQW
EDVLVE\UHWDLOFXVWRPHUV7KHFLUFXODWLRQRIFXUUHQF\DQGFRLQVDUHFRQWUROOHGE\
WKHILQDQFLDODUPRIWKHFRXQWU\LQTXHVWLRQRIWHQDWUHDVXU\RUUHYHQXHGHSDUWPHQW
RIWKHFHQWUDOJRYHUQPHQW
$ORQJZLWKFXUUHQF\WKHUHDUHVHYHUDORWKHUFRPPRQH[DPSOHVRIOLTXLGDVVHWVWKDW
DUHXVHGERWKLQEXVLQHVVDQGLQWKHSULYDWHVHFWRU0RQH\WKDWLVGHSRVLWHGLQWRD
VDYLQJVRUFKHFNLQJDFFRXQWDUHFRQVLGHUHGWREHOLTXLGDVVHWVVLQFHLWLVSRVVLEOH
WRLPPHGLDWHO\DFFHVVWKHIXQGVDQGLVVXHWKHPLQRUGHUWRVHWWOHGHEWV:LWKWKH
DGYHQWRIWKHGHELWFDUGWKHFRQVXPHUKDVHYHQJUHDWHUDFFHVVWRLPPHGLDWHOLTXLG
DVVHWVRIWKLVW\SHWKDQHYHUEHIRUH
7KHVWDQGDUGVDYLQJVDFFRXQWLVQRWWKHRQO\IRUPRILQYHVWPHQWWKDWFDQEHSURSHUO\
FODVVLILHGDVDOLTXLGDVVHW0RQH\PDUNHWIXQGVKDUHVERQGVPXWXDOIXQGVDQGWKH
FDVKYDOXHRIDOLIHLQVXUDQFHSROLF\DUHDOOH[DPSOHVRILQWHUHVWEHDULQJLQYHVWPHQWV
WKDWFDQXQGHUJROLTXLGDWLRQDQGSURYLGHTXLFNFDVKZKHQQHFHVVDU\:KLOHWKH
DFWXDO PDUNHW OLTXLGLW\ RI HDFK DVVHW PD\ YDU\ WKH NH\ LV WKDW WKH SURFHVV RI
FRQYHUWLQJRUVHOOLQJRIIWKHDVVHWWRUDLVHPRQH\ZLOOEHVLPSOHDQGFDQEHDFFRP
SOLVKHGLQDVKRUWSHULRGRIWLPH
2WKHUIRUPVRIWKHFDVKDVVHWPD\DSSO\LQGLIIHUHQWEXVLQHVVDQGSHUVRQDOILQDQFH
VLWXDWLRQV0RUWJDJHVDUHVRPHWLPHVFRQVLGHUHGDOLTXLGDVVHW7KHILQDOVHWWOHPHQW
DZDUGHGE\DFRXUWIRUGDPDJHVLQDODZVXLWLVFRQVLGHUHGWREHOLTXLGDVVHWV
GHSHQGLQJRQWKHWHUPVRISD\PHQWVSHFLILHGE\WKHFRXUW7D[UHIXQGVDQGWKH
EDODQFHVRIWUXVWIXQGVDUHRIWHQDOVRLQFOXGHGLQWKHZRUNLQJGHILQLWLRQIRUOLTXLG
DVVHWV:KHQGHWHUPLQLQJLIDSDUWLFXODUDVVHWLVLQIDFWDOLTXLGRQHNHHSLQPLQG
WKDWWKHDVVHWPXVWEHRQHWKDWFDQEHVROGIRUFDVKTXLFNO\DQGUHDOL]HDVDOHYDOXH
WKDWLVDWOHDVWHTXDOWRWKHPDUNHWYDOXHRIWKHDVVHW
/LTXLGLW\LVYHU\LPSRUWDQWLQWKHFDVHZLWKVWRFNPDUNHW,IVKDUHVDUHVROGHDVLO\
DQGTXLFNO\WKHQPDUNHWLVOLTXLG7KHEX\LQJDQGVHOOLQJRIVKDUHVDIIHFWVWRFN
SULFHV7KHWUDGHRIVKDUHVLVGHSHQGVRQWKHLQYHVWRUVSUHIHUHQFHVDQGLQWHUHVWV
,IVWRFNVWUDGHRQPDMRUVWRFNH[FKDQJHVLWLVFRQVLGHUHGPRUHOLTXLGDVLQYHVWRUV
DUHNHHQHUWRLQYHVWRUWUDGHWKHVHVWRFNV,IVWRFNWUDGHVRQSLQNVKHHWVDQGRYHU
6HOI,QVWUXFWLRQDO 0DWHULDO
WKHFRXQWHULWLVOHVVOLTXLGGXHWROHVVWUDGLQJDFWLYLWLHVDQGOHVVLQWHUHVWRIWUDGHUV

6SUHDGRI%LGRU$VN3ULFHFDQDOVREHXVHGDVDPHDVXUHRIOLTXLGLW\,WLVDERXW 6KDUSHVLQJOH
RIWUDGLQJSULFHIRUOLTXLGDVVHWVDQGODUJHUIRULOOLTXLGDVVHWV%HIRUH\RXSODFH LQGH[PRGHO
RUGHUPXVWNQRZDERXWOLTXLGLW\RIWKHVWRFN)RUSODFLQJDOLPLWRUGHURQPDMRU
VWRFNH[FKDQJHV\RXZLOOJHWGHVLUHGSULFHGXULQJQRUPDOPDUNHWKRXUV7KLVSUDF
WLFHLVLGHDOIRUQRQOLTXLGFRPSDQLHV 127(6

%RQG3RUWIROLR0DQDJHPHQW
6WRFNPDUNHWLQYHVWRUVZLOOFKRRVHDSDUWLFXODUULVNOHYHORQWKH60/DQGLQYHVWDW
WKLVSRLQWFKRRVLQJRQO\WKRVHVHFXULWLHVWKDWOLHRQWKH60/RUDERYHLW6WRFN
LQYHVWRUVKDYHGLIIHUHQWOHYHOVRIULVNUHWXUQUHTXLUHPHQWV%RQGLQYHVWRUVZLOOGRWKH
VDPHWKLQJ$\RXQJDJJUHVVLYHERQGLQYHVWRUPD\FKRRVHDKLJKULVNERQG LV
ZLOOLQJWRULVNKLVSULQFLSDOLQYHVWPHQW$UHWLUHHPD\QRWEHZLOOLQJWRWDNHDULVN\
ERQGLQYHVWPHQWDQGPD\LQVWHDGLQYHVWLQFRQVHUYDWLYHERQGV
,QGLYLGXDOLQYHVWRUVFKRRVHWRLQYHVWLQERQGV$OVRSHQVLRQSODQVEDQNVLQVXUDQFH
FRPSDQLHVDQGRWKHULQVWLWXWLRQVLQYHVWLQERQGV$WDQ\UDWHDOOLQYHVWRUVDUH
LQWHUHVWHGLQDERQGLQYHVWPHQWVWUDWHJ\7KHUHDUHWKUHHPDMRUW\SHVRIVWUDWHJLHV
 SDVVLYHSRUWIROLRPDQDJHPHQWVWUDWHJLHV
 DFWLYHSRUWIROLRPDQDJHPHQWVWUDWHJLHV
 PDWFKHGIXQGLQJVWUDWHJLHV
,QWKHVWKHERQGPDUNHWZDVFRQVLGHUHGDVDIHFRQVHUYDWLYHLQYHVWPHQW$W
WKDWWLPHDEX\DQGKROGVWUDWHJ\ZDVVXIILFLHQW+RZHYHUWLPHVFKDQJHGLQWKH
VLQIODWLRQLQFUHDVHGDQGLQWHUHVWUDWHVEHFDPHPRUHYRODWLOH7KXVZLWKPRUH
YRODWLOHLQWHUHVWUDWHVWKHUHZDVDJUHDWDPRXQWRISURILWSRWHQWLDOZLWKERQGV
1RWDOOLQYHVWRUVYLHZHGWKHULVHLQLQWHUHVWUDWHYRODWLOLW\DVDJRRGWKLQJ7KH
SHQVLRQIXQGDQGLQVXUDQFHFRPSDQLHVWKDWLQYHVWLQERQGIRXQGWKHLUMREPXFK
PRUHGLIILFXOW7KXVVWUDWHJLHVEDVHGRQGXUDWLRQZHUHGHYHORSHGWRDLGSHQVLRQ
IXQGPDQDJHUVWRPDWFKWKHLUOLDELOLWLHVZLWKSURSHUO\FRQVWUXFWHGERQGSRUWIROLRV
3DVVLYH%RQG3RUWIROLR6WUDWHJLHV
7KHUHDUHWZRPDMRUSDVVLYHVWUDWHJLHV
x EX\DQGKROG
x LQGH[LQJ
%X\DQGKROG6WUDWHJ\
7KLVVWUDWHJ\VLPSO\LQYROYHVEX\LQJDERQGDQGKROGLQJLWXQWLOPDWXULW\%RQG
LQYHVWRUVZRXOGH[DPLQHVXFKIDFWRUVDVTXDOLW\UDWLQJVFRXSRQOHYHOVWHUPVWR
PDWXULW\FDOOIHDWXUHVDQGVLQNLQJIXQGV7KHVHLQYHVWRUVGRQRWWUDGHDFWLYHO\WR
HDUQUHWXUQVUDWKHUWKH\ORRNIRUERQGVZLWKPDWXULWLHVRUGXUDWLRQVWKDWPDWFKWKHLU
LQYHVWPHQWKRUL]RQ
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 7KHUHLVDOVRDPRGLILHGEX\DQGKROGVWUDWHJ\LQZKLFKLQYHVWRUVEX\VERQGVZLWK
3RUWIROLR0DQDJHPHQW WKHLQWHQWLRQRIKROGLQJWKHPXQWLOPDWXULW\EXWWKH\VWLOODFWLYHO\ORRNIRURSSRUWX
QLWLHVWRWUDGHLQWRPRUHGHVLUDEOHSRVLWLRQV

127(6 :KLOHWKHEX\DQGKROGVWUDWHJ\LVDSDVVLYHVWUDWHJ\LWVWLOOLQYROYHVDJUHDWGHDO
RIZRUN$JHQF\LVVXHVW\SLFDOO\SURYLGHKLJKTXDOLW\ERQGVDWDKLJKHUUHWXUQWKDQ
7UHDVXU\VHFXULWLHVFDOODELOLW\DIIHFWVWKHDWWUDFWLYHQHVVRIDQLVVXHHWF3OXV\RX
PD\ZDQWWRGHYHORSDSRUWIROLRLQZKLFKFRXSRQSD\PHQWVDUHVWUXFWXUHGDQG
SULQFLSDOUHSD\PHQWV
,QGH[LQJ
,QGH[LQJLQYROYHVDWWHPSWLQJWREXLOGDSRUWIROLRWKDWZLOOPDWFKWKHSHUIRUPDQFHRI
DVHOHFWHGERQGSRUWIROLRLQGH[7KLVSRUWIROLRPDQDJHULVMXGJHGRQKLVDELOLW\WR
WUDFNWKHLQGH[
$FWLYH 0DQDJHPHQW 6WUDWHJLHV
7KHVHVWUDWHJLHVUHTXLUHPDMRUDGMXVWPHQWVWRSRUWIROLRVWUDGLQJWRWDNHDGYDQWDJH
RILQWHUHVWUDWHIOXFWXDWLRQVHWF7KHUHDUHILYHPDMRUDFWLYHERQGSRUWIROLRPDQDJH
PHQWVWUDWHJLHV
 ,QWHUHVWUDWHDQWLFLSDWLRQ
 9DOXDWLRQDQDO\VLV
 &UHGLWDQDO\VLV
 <LHOGVSUHDGDQDO\VLV
 ERQGVZDSV
,QHDFKVWUDWHJ\WKHPDQDJHUKRSVWRRXWSHUIRUPWKHEX\DQGKROGSROLF\E\XVLQJ
DFXPHQVNLOOHWF
,QWHUHVW5DWH$QWLFLSDWLRQ
7KLVLVWKHULVNLHVWVWUDWHJ\EHFDXVHWKHLQYHVWRUPXVWDFWRQXQFHUWDLQIRUHFDVWVRI
IXWXUHLQWHUHVWUDWHV7KHVWUDWHJ\LVGHVLJQHGWRSUHVHUYHFDSLWDOZKHQLQWHUHVWUDWHV
ULVHDQGERQGSULFHVGURSDQGWRUHFHLYHDVPXFKFDSLWDODSSUHFLDWLRQDVSRVVLEOH
ZKHQLQWHUHVWUDWHVGURSDQGERQGSULFHVULVH
7KHVHREMHFWLYHVFDQEHREWDLQHGE\DOWHULQJWKHPDWXULW\RUGXUDWLRQRIWKHLUSRUW
IROLRV/RQJHUPDWXULW\RUORQJHUGXUDWLRQSRUWIROLRVZLOOEHQHILWWKHPRVWIURPDQ
LQWHUHVWUDWHGHFUHDVHDQGYLFHYHUVD7KXVLIDPDQDJHUH[SHFWVDQLQFUHDVHLQ
LQWHUHVWUDWHVWKH\ZRXOGVWUXFWXUHSRUWIROLRWRKDYHWKHORZHVWSRVVLEOHGXUDWLRQ
&KHFN <RXU 3URJUHVV
 :KDWLV$UELWUDJH 7KHSUREOHPIDFHGZLWKWKLVW\SHRIVWUDWHJ\LVWKHULVNRIPLVHVWLPDWLQJLQWHUHVWUDWH
SULFLQJWKHRU\" PRYHPHQWV,WLVGLIILFXOWWRSUHGLFWLQWHUHVWUDWHPRYHPHQWV
 'HILQH,QGH[LQJ" +RZHYHULIWKLVLV\RXUVWUDWHJ\\RXVKRXOGEHFRQFHUQHGZLWK
x GLUHFWLRQRIWKHFKDQJHLQLQWHUHVWUDWHV
6HOI,QVWUXFWLRQDO 0DWHULDO x WKHPDJQLWXGHRIWKHFKDQJHDFURVVPDWXULWLHVDQG

x 7KHWLPLQJRIWKHFKDQJH
6FHQDULR$QDO\VLV,I´LQWHUHVWUDWHVULVHIDOOE\WKLVPXFKRYHUWKHQH[WPRQWK\HDU 6KDUSHVLQJOH
HWF$QDO\]HWKHLQGLYLGXDOERQGVZLWKLQ\RXUSRUWIROLRXQGHUHDFKVFHQDULRDQGVHH LQGH[PRGHO
KRZWKHUHWXUQVDUHDIIHFWHGXQGHUHDFKVFHQDULR7KHVFHQDULRDQDO\VLVOHDGVXVWR
IXUWKHUDQDO\VLV
127(6
5HODWLYH5HWXUQ9DOXH$QDO\VLV:HFDQFDOFXODWHWKHRYHUDOOH[SHFWHGUHWXUQIRU
HDFKERQGLQRXUVFHQDULRDQGWKHFXUUHQWGXUDWLRQRIHDFKERQGLQRXUSRUWIROLR
DQGJUDSKWKHUHODWLRQVKLS7KRVHERQGVIDOOLQJDERYHDUHJUHVVLRQOLQHZRXOGEH
VDIH
6WUDWHJLF)URQWLHU$QDO\VLV:HFDQJUDSKWKHERQGVLQRXUSRUWIROLRZLWKWKHEHVW
FDVHVFHQDULRRQWKHYHUWLFDOD[LVDQGWKHZRUVWFDVHVFHQDULRRQWKHKRUL]RQWDOD[LV
DVVKRZQEHORZ

7KRVHVHFXULWLHVZKLFKIDOOLQWR4XDGUDQW,UHSUHVHQWDJJUHVVLYHVHFXULWLHV²LIWKH
EHVWFDVHKDSSHQVWKH\ZLOOGRZHOOKRZHYHULIWKHZRUVWFDVHKDSSHQVWKH\ZLOO
EHWKHZRUVWSHUIRUPHUV7KRVHVHFXULWLHVIDOOLQJLQWR4XDGUDQW,,DUHVXSHULRU
VHFXULWLHV²WKH\ZLOOSHUIRUPZHOOUHJDUGOHVVRIZKLFKVFHQDULRRFFXUV4XDGUDQW,,,
UHSUHVHQWVGHIHQVLYHVHFXULWLHV²WKH\ZLOOGRZHOOXQGHUWKHZRUVWFDVHVFHQDULREXW
SHUIRUPSRRUO\LIWKHEHVWFDVHRFFXUV4XDGUDQW,9VHFXULWLHVDUHLQIHULRUDVWKH\
ZLOOSHUIRUPSRRUO\UHJDUGOHVVRIWKHVFHQDULR<RXVKRXOGVHOOVHFXULWLHVIDOOLQJLQWR
4XDGUDQW,91RUPDOO\DIHZVHFXULWLHVZRXOGIDOOLQWR4XDGUDQWV,,DQG,9ZLWK
PRVWIDOOLQJLQWR4XDGUDQWV,DQG,,,

6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 9DOXDWLRQ$QDO\VLV
3RUWIROLR0DQDJHPHQW 7KHSRUWIROLRPDQDJHUORRNVIRUXQGHUYDOXHGERQGV²WKRVHERQGVWKDWKDYHD
FRPSXWHGYDOXHDFFRUGLQJWRWKHSRUWIROLRPDQDJHUKLJKHUWKDQWKHFXUUHQWPDUNHW
SULFH7KLVDOVRWUDQVODWHVWRWKRVHERQGVZKRVHH[SHFWHG<70LVORZHUWKDQWKH
127(6 FXUUHQW<707KLVVWUDWHJ\UHTXLUHVORWVRIDQDO\VLVFRQWLQXRXVHYDOXDWLRQVDQGORWV
RIWUDGLQJEDVHGRQWKHDQDO\VLV
&UHGLW$QDO\VLV
&UHGLWDQDO\VLVLQYROYHVH[DPLQLQJERQGLVVXHUVWRGHWHUPLQHLIDQ\FKDQJHVLQWKH
ILUP¶VGHIDXOWULVNFDQEHLGHQWLILHG:HWU\WRGHWHUPLQHLIWKHERQGUDWLQJDJHQFLHV
DUHJRLQJWRFKDQJHWKHILUP¶VUDWLQJ5DWLQJFKDQJHVDUHSURPSWHGE\LQWHUQDO
FKDQJHVZLWKLQWKHILUPDVZHOODVH[WHUQDOFKDQJHV9DULRXVIDFWRUVH[DPLQHGLQ
FOXGHILQDQFLDOUDWLRV*13LQIODWLRQHWF
0DQ\PRUHGRZQJUDGLQJRFFXUGXULQJHFRQRPLFFRQWUDFWLRQV7REHVXFFHVVIXOLQ
XWLOL]LQJERQGUDWLQJFKDQJHVZHPXVWDFFXUDWHO\SUHGLFWZKHQWKHERQGUDWLQJ
FKDQJHZLOORFFXUDQGWDNHDFWLRQSULRUWRWKHFKDQJH7KHPDUNHWGRHVUHDFWWR
XQH[SHFWHGERQGUDWLQJFKDQJHVKRZHYHULWUHDFWVTXLFNO\
<LHOG6SUHDG$QDO\VLV
$SRUWIROLRPDQDJHUZRXOGPRQLWRUWKH\LHOGUHODWLRQVKLSVEHWZHHQYDULRXVW\SHVRI
ERQGVDQGORRNIRUDEQRUPDOLWLHV,IDVSUHDGZHUHWKRXJKWWREHDEQRUPDOO\KLJK
\RXZRXOGWUDGHWRWDNHDGYDQWDJHRIDUHWXUQWRDQRUPDOVSUHDG7KXV\RXQHHG
WRNQRZZKDWWKH³QRUPDO´VSUHDGLVDQG\RXQHHGWKHOLTXLGLW\WRPDNHWUDGHV
TXLFNO\WRWDNHDGYDQWDJHRIWHPSRUDU\VSUHDGDEQRUPDOLWLHV
6SUHDG$QDO\VLV,QYROYHVDQWLFLSDWLQJFKDQJHVLQVHFWRUDOUHODWLRQVKLSV)RUH[
DPSOHSULFHVDQG\LHOGVRQORZHULQYHVWPHQWJUDGHERQGVWHQGWRPRYHWRJHWKHU
LGHQWLILDEOHFODVVHVRIVHFXULWLHVDUHUHIHUUHGWRDVVHFWRUV&KDQJHVLQUHODWLYH
\LHOGVRUWKHVSUHDGPD\RFFXUGXHWR
x DOWHUHGSHUFHSWLRQVRIWKHFUHGLWZRUWKLQHVVRIDVHFWRURIWKHPDUNHW¶V
VHQVLWLYLW\WRGHIDXOWULVN
x FKDQJHVLQWKHPDUNHW¶VYDOXDWLRQRIVRPHDWWULEXWHRUFKDUDFWHULVWLF
RIWKHVHFXULWLHVLQWKHVHFWRUVXFKDVD]HURFRXSRQIHDWXUHRU
x FKDQJHVLQVXSSO\GHPDQGFRQGLWLRQV
7KHREMHFWLYHLVWRLQYHVWLQWKHVHFWRURUVHFWRUVWKDWZLOOGLVSOD\WKHVWURQJHVW
UHODWLYHSULFHPRYHPHQWV%URNHUDJHILUPVPDLQWDLQKLVWRULFDOUHFRUGVRI\LHOGVSUHDGV
DQGDUHDEOHWRFRQGXFWVSHFLDOL]HGDQDO\VHVIRUFOLHQWVVXFKDVPHDVXUHPHQWRIWKH
KLVWRULFDODYHUDJHPD[LPXPDQGPLQLPXPVSUHDGDPRQJVHFWRUV
3RWHQWLDOGUDZEDFNVRIWKLVPHWKRGLQFOXGHWKHQHHGWRPDNHQXPHURXVWUDGHVWKH
SRVVLELOLW\RISRRUWLPLQJKRZORQJZLOOLWWDNHIRUWKHPDUNHWWRUHDOL]HWKHDEQRUPDO
VSUHDGDQGWKHGDQJHUWKDWRYHUDOOFKDQJHVLQLQWHUHVWUDWHVZLOOGZDUIWKHVHHIIRUWV
0DWFKHG)XQGLQJ7HFKQLTXHV
7KHPDWFKHGIXQGLQJWHFKQLTXHVLQFRUSRUDWHVWKHSDVVLYHEX\DQGKROGVWUDWHJ\
DQGDFWLYHPDQDJHPHQWVWUDWHJLHV7KHPDQDJHUWULHVWRPDWFKVSHFLILFOLDELOLW\
REOLJDWLRQVGXHDWVSHFLILFWLPHVWRDSRUWIROLRRIERQGVLQDZD\WKDWPLQLPL]HVWKH
6HOI,QVWUXFWLRQDO 0DWHULDO
SRUWIROLR¶VH[SRVXUHWRLQWHUHVWUDWHULVNWKHXQFHUWDLQW\RIUHWXUQVGXHWRSRVVLEOH

FKDQJHVLQLQWHUHVWUDWHVRYHUWLPH7KHVHWHFKQLTXHVDUHPHDQWWRDYRLGRURIIVHW
ULVNDQGWKH\W\SLFDOO\UHTXLUHFRQVWDQWPRQLWRULQJDQGPDQ\WUDQVDFWLRQVWRDFKLHYH 6KDUSHVLQJOH
WKHLQWHQGHGJRDO LQGH[PRGHO

0DQ\RIWKHVHWHFKQLTXHVZHUHGHYHORSHGLQWKHVGXHWRKLJKO\YRODWLOH
LQWHUHVWUDWHVIRUSHQVLRQIXQGVNQRZQREOLJDWLRQVLQGLYLGXDOUHWLUHPHQWSODQQLQJ
FROOHJHHGXFDWLRQHWF7KHVHLQYHVWRUVQHHGHG[DW[GDWH:LWKLQWHUHVWUDWHVWKDW 127(6
ZHUHKLJKO\YRODWLOHDWWKHQHHGHGGDWHERQGSULFHVFRXOGEHGRZQVXEVWDQWLDOO\
EHORZWKHQHHGHGDPRXQW7KXVPDQ\LQYHVWRUVZDQWHGWHFKQLTXHVWKDWZRXOGKHOS
WKHPPDWFKIXWXUHOLDELOLW\VWUHDPVZLWKERQGSRUWIROLRVWKDWZRXOGSURYLGHWKH
UHTXLUHGIXQGVZLWKRXWKDYLQJWRZRUU\DERXWZKHUHLQWHUHVWUDWHVZRXOGEHDWWKH
WLPH
'HGLFDWHG3RUWIROLRV
3XUH&DVKPDWFKHGGHGLFDWHGSRUWIROLRPRVWFRQVHUYDWLYHPHWKRG&RQVWUXFWD
ERQGSRUWIROLRZLWKDVWUHDPRISD\PHQWVVLQNLQJIXQGVDQGPDWXULQJSULQFLSDO
SD\PHQWVWRH[DFWO\PDWFKVSHFLILFOLDELOLW\VFKHGXOH7KLVUHTXLUHVHVWLPDWLQJ\RXU
IXWXUHREOLJDWLRQVSHQVLRQIXQGSD\RXWVFROOHJHWXLWLRQHWF<RXFRXOGFKRRVH
]HURFRXSRQERQGVWKDWKDGPDWXULW\GDWHVH[DFWO\ZKHQ\RXQHHGHGWKHIXQGV7KLV
LVDQHQWLUHO\SDVVLYHSRUWIROLRWKDWUHTXLUHVQRUHLQYHVWPHQW]HURFRXSRQERQGVSD\
QRFDVKFRXSRQSD\PHQWDQGPDWXUHVWKHGD\\RXQHHGWKHIXQGVVRDVVRRQDV
\RXUHFHLYH\RXUPDWXULW\SD\PHQW\RXZRXOGSD\RXW\RXUSHQVLRQPRQH\7HFK
QLFDOO\LWLVGLIILFXOWWRGHWHUPLQHH[DFWO\:+(1\RXUFDVKIORZSD\RXWVZLOOEHGXH
VRLWLVEHVWWRDSSO\DVRPHZKDWFRQVHUYDWLYHDSSURDFK
'HGLFDWHG&DVKPDWFKHGSRUWIROLRZLWKUHLQYHVWPHQW
$VVXPHVWKDWFDVKIORZVGRQ¶WDOZD\VFRPHZKHQQHHGHGPD\FRPHHDUOLHUDQG
ZLOOEHUHLQYHVWHG7KHUHIRUHLWZLOOUHTXLUHVPDOOHUVXPVRILQLWLDOIXQGVWRPHHW
IXWXUHJRDOV
3RUWIROLR,PPXQL]DWLRQ
$WWHPSWVWRHQDEOHRQHWR³ORFNLQ´JRLQJLQWHUHVWUDWHVDQGQRWKDYHWRZRUU\DERXW
LQWHUHVWUDWHVKLIWV
&RPSRQHQWVRI,QWHUHVW5DWH5LVN2QHRIWKHPDMRUSUREOHPVIDFHGE\ERQG
SRUWIROLRPDQDJHUVLVKDYLQJWKHQHHGHGDPRXQWRIIXQGVDWDVSHFLILFGDWHWKH
HQGLQJZHDOWKUHTXLUHPHQW²\RXULQYHVWPHQWKRUL]RQ,ILQWHUHVWUDWHVQHYHUFKDQJHG
GXULQJ\RXULQYHVWPHQWKRUL]RQ\RXFRXOGUHLQYHVW\RXUFRXSRQSD\PHQWVDWWKH
VWDEOHLQWHUHVWUDWHDQGHDUQWKHSURPLVHG<70+RZHYHULQUHDOLW\WKH\LHOGFXUYH
LVQRWIODWDQGLQWHUHVWUDWHVGRFKDQJH&RQVHTXHQWO\LQYHVWRUVIDFHLQWHUHVWUDWH
ULVN7KHUHDUHWZRFRPSRQHQWVRILQWHUHVWUDWHULVN
x 3ULFHULVNLILQWHUHVWUDWHVFKDQJH
EHIRUHWKHHQGRI\RXULQYHVWPHQW
KRUL]RQDQGWKHERQGLVVROGSULRU
WRPDWXULW\\RXZRXOG³ZLQ´ZLWK
DQ LQWHUHVW UDWH GHFUHDVH DQG
³ORVH´ZLWKDQLQWHUHVWUDWHLQ
FUHDVH
x &RXSRQUHLQYHVWPHQWULVN7KH 6HOI,QVWUXFWLRQDO 0DWHULDO
SURPLVHG<70DVVXPHVWKDWDOO 
6HFXULW\$QDO\VLV FRXSRQSD\PHQWVDUHUHLQYHVWHG
3RUWIROLR0DQDJHPHQW DWWKHSURPLVHG<70,ILQWHUHVW
UDWHVFKDQJHWKLVFDQQRWEHDF
FRPSOLVKHG<RXZLOO³ZLQ´ZLWK
127(6 DQLQFUHDVHLQ,5DQGYLFHYHUVD
,PPXQL]DWLRQDQG,QWHUHVW5DWH5LVN
1RWHWKDWWKH³ZLQ´VLWXDWLRQXQGHUSULFHULVNLVH[DFWO\RSSRVLWHWKH³ZLQ´VLWXDWLRQ
XQGHUFRXSRQUHLQYHVWPHQWULVN%RQGSRUWIROLRPDQDJHUVZRXOGOLNHWRHOLPLQDWH
WKHVHWZRLQWHUHVWUDWHULVNV)LVKHUDQG:HLOEHFDXVHRIWKHRSSRVLQJHIIHFWVRI
,5RQSULFHDQGFRXSRQUHLQYHVWPHQWULVNGHYHORSHGDSUHFLVHLPPXQL]DWLRQSUR
FHVVWRHOLPLQDWH,5ULVN)LVKHUDQG:HLODUJXHWKDWDSRUWIROLRKDVEHHQLPPXQL]HG
LILWVYDOXHDWWKHHQGRIWKHSHULRGLVWKHVDPHRUKLJKHUWKDQZKDWLWZRXOGKDYH
EHHQLILQWHUHVWUDWHVKDGQRWFKDQJHGGXULQJWKHLQYHVWPHQWKRUL]RQ7KH\DVVXPH
WKDW,5FKDQJHVZLOODIIHFWDOOUDWHVE\WKHVDPHDPRXQWLHDOOUDWHVZLOOULVHE\
RUIDOOE\²ORQJWHUPERQGVZRQ¶WULVHE\DQGVKRUWWHUPE\ERWK
ZLOOULVHE\,IWKLVLVWKHFDVHWKHQSRUWIROLRLPPXQL]DWLRQFDQEHDFKLHYHG
E\KROGLQJDSRUWIROLRRIERQGVZLWKDPRGLILHGGXUDWLRQHTXDOWRWKHUHPDLQLQJ
LQYHVWPHQWKRUL]RQ³7RREWDLQDJLYHQSRUWIROLRGXUDWLRQ\RXVHWWKHYDOXHZHLJKWHG
DYHUDJHPRGLILHGGXUDWLRQRIWKHSRUWIROLRDWWKHLQYHVWPHQWKRUL]RQDQGNHHSLW
HTXDOWRWKHUHPDLQLQJKRUL]RQYDOXHRYHUWLPH´
,PSOHPHQWLQJ,PPXQL]DWLRQ
:KLOHRQWKHVXUIDFHWKHLPPXQL]DWLRQVWUDWHJ\PD\VHHPVLPSOHHYHQSDVVLYHLQ
UHDOLW\LWLVQRWH[FHSW]HURFRXSRQERQGVIDFHQRFRXSRQUHLQYHVWPHQWULVNRUSULFH
ULVN²DVLWVGXUDWLRQLVLWVWHUPWRPDWXULW\0RVWSRUWIROLRVQRQ]HURFRXSRQ
SRUWIROLRVUHTXLUHIUHTXHQWUHEDODQFLQJWRPDLQWDLQWKHPRGLILHGGXUDWLRQLQYHVWPHQW
KRUL]RQPDWFKLQJ<RXFDQQRWLQLWLDOO\VHWWKHPHTXDODQGWKHQLJQRUHWKHPDIWHUWKDW
'XUDWLRQLVSRVLWLYHO\DIIHFWHGE\WHUPWRPDWXULW\VRDVWLPHSDVVHVDV\RXU
LQYHVWPHQWKRUL]RQVKRUWHQVVRGRHVWKHGXUDWLRQRIWKHERQGSRUWIROLRDVVXPLQJ
QRWKLQJHOVHKDVFKDQJHG+RZHYHUGXUDWLRQFKDQJHVDWDVORZHUSDFHWKDQWHUP
WRPDWXULW\$OVRGXUDWLRQLVDIIHFWHGE\FKDQJHVLQLQWHUHVWUDWHVHWF6RLWWDNHV
FRQVWDQWUHEDODQFLQJWRNHHSWUDFNRIGXUDWLRQPDWFKLQJLPPXQL]DWLRQVWUDWHJ\
&$6( 678'<
,QGLDQ6WRFN0DUNHW
7KHGRPHVWLFPDUNHWVDUHH[SHFWHGWRRSHQLQWKHJUHHQWUDFNLQJJDSXSRSHQLQJ
LQPRVWRIWKH$VLDQPDUNHWV,QGLDQPDUNHWVHQGHGKLJKHURQ)ULGD\IRUDIRXUWK
GD\LQDURZRQWKHEDFNRIKHDY\EX\LQJE\),,V
*OREDOO\PRVWRIWKH86DQG(XURSHDQPDUNHWVFORVHGKLJKHUDVWUDGHUVUHDFWHG
SRVLWLYHO\WRDPXFKEHWWHUWKDQH[SHFWHGUHSRUWRQWKHHPSOR\PHQWVLWXDWLRQLQWKH
86LQWKHPRQWKRI-DQXDU\:LWKWKHVWURQJHUWKDQH[SHFWHGMREJURZWKWKH
6HOI,QVWUXFWLRQDO 0DWHULDO

XQHPSOR\PHQWUDWHXQH[SHFWHGO\IHOOWRORZHVWVLQFH)HEUXDU\IURP
LQWKHSUHYLRXVPRQWK$OVRDVHSDUDWHUHSRUWIURPWKH,QVWLWXWHIRU6XSSO\
0DQDJHPHQWVKRZHGWKDWQRQPDQXIDFWXULQJLQGH[URVHWRLQ-DQXDU\IURPD
UHYLVHGLQ'HFHPEHUZLWKDUHDGLQJDERYHLQGLFDWLQJJURZWKLQWKHVHUYLFH
VHFWRU
,QGLDQLQYHVWRUVWKLVZHHNPHDQZKLOHZRXOGNHHQO\ZDWFKRXWIRUWKHGRPHVWLF
LQGXVWULDOSURGXFWLRQJURZWKIRUWKHPRQWKRI'HFHPEHUGXHWREHUHOHDVHGRQ 6KDUSHVLQJOH
)ULGD\$OVRFRQVXPHUFRPIRUWLQGH[RI86ZKLFKZLOOEHUHOHDVHGRQFRPLQJ LQGH[PRGHO
7KXUVGD\ZLOOEHRQUDGDU
0DUNHWV 7RGD\
127(6
7KHWUHQGGHFLGLQJOHYHOIRUWKHGD\LVOHYHOV,I1,)7<WUDGHVDERYH
WKLVOHYHOGXULQJWKHILUVWKDOIDQKRXURIWUDGHWKHQZHPD\ZLWQHVVDIXUWKHUUDOO\
XSWROHYHOV+RZHYHULI1,)7<WUDGHVEHORZ
OHYHOVIRUWKHILUVWKDOIDQKRXURIWUDGHWKHQLWPD\FRUUHFWXSWR
   OHYHOV
4)< 5HVXOW 5HYLHZV
'5/
)RU4)<'5/SRVWHGDJRRGVHWRIQXPEHUVPXFKDKHDGRIRXUH[SHF
WDWLRQV 7KH FRPSDQ\
V QHW VDOHV FDPH LQ DW 5V JURZWK RI  \R\
*URZWKZDVGULYHQE\86VDOHVZKLFKJUHZE\\R\2WKHUNH\JHRJUD
SKLHVDSDUWIURP(XURSHJUHZLQGRXEOHGLJLWV*URZWKLQWKH86ZDVOHGE\WKH
KLJKYDOXHODXQFKRI2ODQ]DSLQHPJQHZSURGXFWVODXQFKHGLQWKHSDVW
PRQWKVDQGVWURQJYROXPHJURZWKDFURVVNH\SURGXFWV7KLVDOVRDLGHGVLJQLILFDQW
LPSURYHPHQWLQWKHFRPSDQ\
VJURVVPDUJLQDQGVXEVHTXHQWO\LQ2307KHFRPSDQ\
V
230H[SDQGHGE\\R\WR&RQVHTXHQWO\QHWSURILWJUHZE\\R\
GXULQJWKHSHULRG:HPDLQWDLQRXU%X\UDWLQJRQWKHVWRFN7KHWDUJHWSULFHLVXQGHU
UHYLHZ
0DGUDV &HPHQWV
'XULQJ4)<0DGUDV&HPHQWV
WRSOLQHURVHE\\R\WR5VFU7KH
FHPHQWEXVLQHVVSRVWHG\R\JURZWKLQQHWVDOHVWR5VFURQDFFRXQWRI
\R\JURZWKLQGLVSDWFKHVRQDORZEDVHDQG\R\JURZWKLQUHDOL]D
WLRQV7KHZLQGGLYLVLRQ
VUHYHQXHGHFUHDVHGE\\R\WR5VFU,PSURYHG
FHPHQWUHDOL]DWLRQDLGHG230WRJURZE\ESWRDPLGVWFRVWSUHVVXUHV
IHOWLQIUHLJKWH[SHQVHVDQGRWKHUFRVWV7KHFRPSDQ\
VERWWRPOLQHLQFUHDVHGE\
\R\WR5VFU:HPDLQWDLQRXU1HXWUDOYLHZRQWKHVWRFN
+(*
+(*/WGUHSRUWHGUHYHQXHJURZWKRI\R\WR5VFUIRU4)<IURP
5VFULQ4)<GXHWRLQFUHDVHGSULFHVRIJUDSKLWHHOHFWURGHVDQGRYHU
FDSDFLW\XWLOL]DWLRQIRUWKHTXDUWHU230IRUWKHTXDUWHUFRQWUDFWHGE\ES
WRLQ4)<IURPLQ4)<RQDFFRXQWRIKLJKHURWKHU
H[SHQVHV DQG IRUH[ ORVV RI 5VFU 3$7 GLSSHG E\  \R\ WR 5VFU DV
FRPSDUHGWR5VFULQ4)<7D[UDWHZDVORZHUDWIRUWKHTXDUWHU
FRPSDUHGWRLQ4)<:HPDLQWDLQRXU%X\UDWLQJRQWKHVWRFNZLWKD
UHYLVHGWDUJHWSULFHRI5VEDVHGRQDWDUJHW3%RI[IRU)<(
7966ULFKDNUD
)RU4)<7966ULFKDNUDUHSRUWHGDPL[HGVHWRIQXPEHUV7KHFRPSDQ\
UHSRUWHG\R\JURZWKLQLWVQHWVDOHVIURP5VFULQ4)<WR5VFU
LQ4)<1HWUDZPDWHULDOFRVWIRUWKHFRPSDQ\LQFUHDVHGE\\R\
,QFUHDVHGQHWUDZPDWHULDOFRVWDORQJZLWKKLJKHURWKHUH[SHQGLWXUHE\\R\ 6HOI,QVWUXFWLRQDO 0DWHULDO
OHGWRDVXEVWDQWLDOGHFOLQHLQWKHRSHUDWLQJSURILWRIWKHFRPSDQ\2SHUDWLQJSURILW 
6HFXULW\$QDO\VLV PDUJLQVWRRGDWDGHFOLQHRIES\R\DQGESTRT7KHFRPSDQ\
VSURILW
3RUWIROLR0DQDJHPHQW GHFOLQHGE\\R\WR5VFUZKLFKZDV5VFULQWKHVDPHTXDUWHUODVW\HDU
:HPDLQWDLQRXU%X\UHFRPPHQGDWLRQRQWKHVWRFN7KHVWRFNSULFHLVXQGHU
UHYLHZ
127(6 6XEURV
6XEURVUHSRUWHGSRRUUHVXOWVIRU4)<OHGE\D\R\GHFOLQHLQYROXPHVDQG
LQFUHDVHGLQWHUHVWH[SHQVH+RZHYHURQDVHTXHQWLDOEDVLVKLJKHULQWHUHVWFRVWDQG
GHSUHFLDWLRQH[SHQVHLPSDFWHGWKHFRPSDQ\
VSHUIRUPDQFH6XEURVUHSRUWHGD
\R\GHFOLQHLQLWVQHWVDOHVWR5VFUGXHWRD\R\GURSLQYROXPHV
1HWDYHUDJHUHDOL]DWLRQLPSURYHGE\\R\WKHUHE\SUHYHQWLQJIXUWKHUGHFOLQH
LQWKHWRSOLQH2QDVHTXHQWLDOEDVLVQHWVDOHVLQFUHDVHGE\RQDFFRXQWRI
DLQFUHDVHLQYROXPHV2SHUDWLQJPDUJLQLPSURYHGE\ES\R\ESTRT
WRGULYHQE\UDZPDWHULDOFRVWVDYLQJVUDZPDWHULDOWRVDOHVUDWLRGHFOLQHG
E\ES\R\GXHWRFRPPHQFHPHQWRIORFDOSURGXFWLRQRIFHUWDLQFRPSRQHQWV
PDLQO\HYDSRUDWRUV2QWKHRWKHUKDQGDES\R\LQFUHDVHLQVWDIIFRVWUH
VWULFWHGPDUJLQH[SDQVLRQWRDFHUWDLQH[WHQW1HWSURILWQRVHGLYHGE\VWHHS
\R\TRTWR5VFURQDFFRXQWRIDQ\R\TRTLQFUHDVH
LQLQWHUHVWFRVW7KHVWRFNUDWLQJLVFXUUHQWO\XQGHUUHYLHZ
4)<5HVXOW3UHYLHZV
+8/
+8/LVH[SHFWHGWRDQQRXQFHLWV4)<UHVXOWV:HH[SHFWWKHFRPSDQ\WR
UHSRUWDKHDOWK\\R\JURZWKUDWHLQLWVUHYHQXHWR5VFUDQGDES
\R\H[SDQVLRQLQLWVRSHUDWLQJPDUJLQWR7KHFRPSDQ\LVH[SHFWHGWRUHSRUW
\R\JURZWKLQUHFXUULQJHDUQLQJVRZLQJWRKHDOWK\UHYHQXHWUDFWLRQDQGDQ
H[SDQVLRQLQPDUJLQV:HPDLQWDLQRXU1HXWUDOYLHZRQWKHVWRFN
1DOFR
1DOFRLVVODWHGWRUHSRUWLWV4)<UHVXOWV:HH[SHFWQHWVDOHVWRLQFUHDVHE\
\R\WR5VFU+RZHYHU(%,7'$PDUJLQLVH[SHFWHGWRFRQWUDFWE\
ES\R\WRGXHWRULVHLQSULFHVRINH\LQSXWVSULPDULO\FRDO1HWSURILW
LVH[SHFWHGWRGHFUHDVHE\\R\WR5VFU:HPDLQWDLQRXU1HXWUDOYLHZ
RQWKHVWRFN
*6.&+4&<
6HOI,QVWUXFWLRQDO 0DWHULDO

*6.&RQVXPHU*6.&+LVVODWHGWRDQQRXQFHLWV4&<QXPEHUV)RUWKH
TXDUWHUZHH[SHFW*6.&+WRSRVWKHDOWK\JURZWKRI\R\LQLWVWRSOLQHWR
5VFUGULYHQE\JURZWKLQLWVFRUHEUDQGVDQGQHZSURGXFWODXQFKHV7KH
ERWWRPOLQHLVH[SHFWHGWRUHJLVWHUJURZWKRI\R\WR5VFUDLGHGE\WRS
OLQHJURZWKDQGPDUJLQH[SDQVLRQRIES\R\WR:HPDLQWDLQRXU1HXWUDO
YLHZRQWKHVWRFN
02,/
02,/LVVODWHGWRUHSRUWLWV4)<UHVXOWV:HH[SHFWQHWVDOHVWRGHFOLQHE\
 \R\ WR 5VFU PDLQO\ RQ DFFRXQW D GHFOLQH LQ PDQJDQHVH RUH SULFHV
1HYHUWKHOHVV(%,7'$PDUJLQLVH[SHFWHGWRLPSURYHE\ES\R\WRLQ
4)< 1HW SURILW LV H[SHFWHG WR LQFUHDVH E\  \R\ WR 5VFU :H
PDLQWDLQRXU1HXWUDOYLHZRQWKHVWRFN
,QGLD&HPHQWV 6KDUSHVLQJOH
LQGH[PRGHO
,QGLD &HPHQWV LVH[SHFWHG WR DQQRXQFHLWV 4)< UHVXOWV:H H[SHFW WKH
FRPSDQ\
VWRSOLQHWRJURZE\\R\WR5VFUSULPDULO\RQDFFRXQWRI
\R\JURZWKLQUHDOL]DWLRQWKRXJKRQDORZHUEDVHRIODVW\HDU7KHFRPSDQ\
V
PDUJLQLVH[SHFWHGWRLPSURYHE\ES\R\WRDLGHGE\KLJKHUUHDOL]DWLRQ 127(6
7KH FRPSDQ\
V QHW SURILW LV H[SHFWHG WR JURZ E\  \R\ WR 5VFU :H
PDLQWDLQRXU1HXWUDOUDWLQJRQWKHVWRFN
%*5(QHUJ\
)RU4)<ZHH[SHFW%*5(QHUJ\
V%*5WRSOLQHWREHXQGHUSUHVVXUHGXH
WRKLJKEDVHFUHDWHGLQ4)<DQGSDUWO\GXHWRH[HFXWLRQGHOD\V7KHWRSOLQH
LVH[SHFWHGWRGHFOLQHE\\R\WR5VFU(%,7'$PDUJLQLVH[SHFWHG
WRFRPHLQDW,QWHUHVWFRVWLVH[SHFWHGWRVWUHWFKIXUWKHURZLQJWRKLNHLQ
LQWHUHVWUDWHVDQGHQKDQFHGZRUNLQJFDSLWDOGHEWOHYHOVZKLFKDORQJZLWKVOXPSHG
UHYHQXHLVOLNHO\WRGUDJWKHERWWRPOLQHGRZQE\\R\WR5VFU$WWKH
&03WKHVWRFNLVWUDGLQJDW[DQG[)<(DQG)\((36UHVSHF
WLYHO\&XUUHQWO\ZHUHPDLQ1HXWUDORQWKHVWRFN
1DJDUMXQD&RQVWUXFWLRQ&RPSDQ\
:HH[SHFWVXEGXHGSHUIRUPDQFHIURP1DJDUMXQD&RQVWUXFWLRQ1&&IRUWKLV
TXDUWHU2QWKHWRSOLQHIURQW1&&LVH[SHFWHGWRSRVWD\R\GHFOLQHRIWR
5VFU(%,7'$PDUJLQLVH[SHFWHGWREHIODWDW2QWKHHDUQLQJVIURQW
ZHH[SHFW1&&WRSRVWDGHFOLQHRI\R\WR5VFUIRUWKHTXDUWHU7KLV
ZRXOGEHSULPDULO\GXHWREXUJHRQLQJLQWHUHVWFRVW\R\MXPSRIaDQGD
GHFOLQHLQWKHFRPSDQ\
VWRSOLQH2ZLQJWRWKHVKDUSUXQXSLQWKHVWRFNSULFHZH
UHFRPPHQG1HXWUDORQWKHVWRFN
*,3&/
*,3&/LVH[SHFWHGWRDQQRXQFHLWV4)<UHVXOWV7KHFRPSDQ\LVH[SHFWHG
WRUHJLVWHU\R\JURZWKLQLWVUHYHQXHWR5VFUSULPDULO\RQWKHEDFNRI
KLJKHUYROXPHVIURP0:6/33VWDWLRQ,,230LVVHWWRH[SDQGE\ESWR
GXHWRKLJKHUDYDLODELOLW\RI6XUDW,,VWDWLRQ7KHFRPSDQ\
VERWWRPOLQHLV
H[SHFWHGWRLPSURYHE\\R\WR5VFULQ4)<:HPDLQWDLQRXU
%X\UDWLQJRQWKHVWRFNZLWKDWDUJHWSULFHRI5V
(FRQRPLFDQG3ROLWLFDO1HZV
z &RXUWTXDVKHV6ZDP\
VSHWLWLRQUHOLHIIRU&KLGDPEDUDP
z *OREDOIRRGSULFHVWRHDVHLQ:RUOG%DQN
z *RYHUQPHQWPD\ORZHU677LQ%XGJHWWRERRVWPDUNHWV
z *R0PHHWLQJRQ$7)LPSRUW)',$,RQ7KXUVGD\
&RUSRUDWH1HZV
z &HQWUDO%DQNRI,QGLDPD\UHFDVWORDQVWRSRZHUXWLOLWLHV
z )RUWLVLQYHVWV5VFULQWZR6LQJDSRUHKHDOWKFDUHYHQWXUHV
z 0XQGUDSURMHFWPD\EHFRPHDQ13$7DWD3RZHU
z 5HOLDQFH,QGXVWULHVWRFKDUJH86PDUNHWLQJPDUJLQRQ&%0JDV 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 6800$5<
3RUWIROLR0DQDJHPHQW
7KH6KDUSHUDWLRLVXVHGWRFKDUDFWHUL]HKRZZHOOWKHUHWXUQRIDQDVVHWFRPSHQ
VDWHVWKHLQYHVWRUIRUWKHULVNWDNHQWKHKLJKHUWKH6KDUSHUDWLRQXPEHUVWKHEHWWHU
:KHQFRPSDULQJWZRDVVHWVHDFKZLWKWKHH[SHFWHGUHWXUQDJDLQVWWKHVDPHEHQFK
127(6
PDUNZLWKUHWXUQWKHDVVHWZLWKWKHKLJKHU6KDUSHUDWLRJLYHVPRUHUHWXUQIRUWKH
VDPHULVN,QYHVWRUVDUHRIWHQDGYLVHGWRSLFNLQYHVWPHQWVZLWKKLJK6KDUSHUDWLRV
+RZHYHUOLNHDQ\PDWKHPDWLFDOPRGHOLWUHOLHVRQWKHGDWDEHLQJFRUUHFW3\UDPLG
VFKHPHVZLWKDORQJGXUDWLRQRIRSHUDWLRQZRXOGW\SLFDOO\SURYLGHDKLJK6KDUSH
UDWLRZKHQGHULYHGIURPUHSRUWHGUHWXUQVEXWWKHLQSXWVDUHIDOVH:KHQH[DPLQLQJ
WKHLQYHVWPHQWSHUIRUPDQFHRIDVVHWVZLWKVPRRWKLQJRIUHWXUQVVXFKDVZLWK
SURILWVIXQGVWKH6KDUSHUDWLRVKRXOGEHGHULYHGIURPWKHSHUIRUPDQFHRIWKH
XQGHUO\LQJDVVHWVUDWKHUWKDQWKHIXQGUHWXUQV
$16:(56 72 &+(&. <285 352*5(66
 7KHVLQJOHLQGH[PRGHODVVXPHVWKDWWKHUHWXUQVRIYDULRXVVHFXULWLHVDUH
UHODWHGRQO\WKURXJKFRPPRQUHODWLRQVKLSVZLWKVRPHEDVLFXQGHUO\LQJIDF
WRU
 &DSLWDODVVHWSULFLQJPRGHO&$30LVDPRGHOWKDWFDOFXODWHVH[SHFWHG
UHWXUQEDVHGRQH[SHFWHGUDWHRIUHWXUQRQWKHPDUNHWWKHULVNIUHHUDWHDQG
WKHEHWDFRHIILFLHQWRIWKHVWRFN
 7KLVWKHRU\ZDVIRUPXODWHGE\WKHHFRQRPLVW6WHSKHQ5RVVLQ$UEL
WUDJHSULFLQJWKHRU\$37LVDJHQHUDOWKHRU\RIDVVHWSULFLQJWKDWKROGV
WKDWWKHH[SHFWHGUHWXUQRIDILQDQFLDODVVHWFDQEHPRGHOHGDVDOLQHDU
IXQFWLRQRIYDULRXVPDFURHFRQRPLFIDFWRUVRUWKHRUHWLFDOPDUNHWLQGLFHV
ZKHUH VHQVLWLYLW\WR FKDQJHV LQHDFK IDFWRU LV UHSUHVHQWHG E\ D IDFWRU
VSHFLILFEHWDFRHIILFLHQW
 ,QGH[LQJLQYROYHVDWWHPSWLQJWREXLOGDSRUWIROLRWKDWZLOOPDWFKWKHSHUIRU
PDQFHRIDVHOHFWHGERQGSRUWIROLRLQGH[7KLVSRUWIROLRPDQDJHULVMXGJHG
RQKLVDELOLW\WRWUDFNWKHLQGH[
7(67 <2856(/)
 7KURZDOLJKWRQWKHVLJQLILFDQFHRI6KDUSH¶V,QGH[
 :KDWLVWKHLPSRUWDQFHRI&$30PRGHO"
 ([SODLQ&0/DQG60/
 :KDWLVWKHFRQFHSWRIDUELWUDJHSULFLQJ"
 :KDWDUHWKHYDULRXVFRQVLGHUDWLRQVLQDUELWUDJHSULFLQJ"
)857+(5 5($',1*
 6WRFNPDQDJHPHQWDQGDQDO\VLVE\*HVWDOW
 6WRFNPDQDJHPHQWE\$JDUZDO

6HOI,QVWUXFWLRQDO 0DWHULDO

 )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
6WUDWHJLHV

 127(6

)LQDQFLDO$QDO\VLV
,QYHVWPHQWDQG
3RUWIROLR6WUDWHJLHV

„
„
„
„ 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV  )LQDQFLDO $QDO\VLV $Q ,QWURGXFWLRQ
3RUWIROLR0DQDJHPHQW
:HNQRZEXVLQHVVLVPDLQO\FRQFHUQHGZLWKWKHILQDQFLDODFWLYLWLHV,QRUGHUWR
DVFHUWDLQWKHILQDQFLDOVWDWXVRIWKHEXVLQHVVHYHU\HQWHUSULVHKDVWRSUHSDUHFHUWDLQ
127(6 VWDWHPHQWVNQRZQDVILQDQFLDOVWDWHPHQWV)LQDQFLDOVWDWHPHQWVDUHPDLQO\SUHSDUHG
IRUGHFLVLRQPDNLQJSXUSRVHV%XWWKHLQIRUPDWLRQDVLVSURYLGHGLQWKHILQDQFLDO
VWDWHPHQWVLVQRWDGHTXDWHO\KHOSIXOLQGUDZLQJDPHDQLQJIXOFRQFOXVLRQ7KXVDQ
HIIHFWLYHDQDO\VLVDQGLQWHUSUHWDWLRQRIILQDQFLDOVWDWHPHQWVLVUHTXLUHG
$QDO\VLVPHDQVHVWDEOLVKLQJDPHDQLQJIXOUHODWLRQVKLSEHWZHHQYDULRXVLWHPVRIWKH
WZRILQDQFLDOVWDWHPHQWVZLWKHDFKRWKHULQVXFKDZD\WKDWDFRQFOXVLRQLVGUDZQ
%\ILQDQFLDOVWDWHPHQWVZHPHDQWZRVWDWHPHQWV
L3URILWDQGORVV$FFRXQWRU,QFRPH6WDWHPHQW
LL%DODQFH6KHHWRU3RVLWLRQ6WDWHPHQW
7KHVHDUHSUHSDUHGDWWKHHQGRIDJLYHQSHULRGRIWLPH7KH\DUHWKHLQGLFDWRUV
RISURILWDELOLW\DQGILQDQFLDOVRXQGQHVVRIWKHEXVLQHVVFRQFHUQ7KHWHUPILQDQFLDO
DQDO\VLVLVDOVRNQRZQDVDQDO\VLVDQGLQWHUSUHWDWLRQRIILQDQFLDOVWDWHPHQWV,WUHIHUV
WRWKHHVWDEOLVKLQJPHDQLQJIXOUHODWLRQVKLSEHWZHHQYDULRXVLWHPVRIWKHWZRILQDQFLDO
VWDWHPHQWVLH,QFRPHVWDWHPHQWDQGSRVLWLRQVWDWHPHQW,WGHWHUPLQHVILQDQFLDO
VWUHQJWKDQGZHDNQHVVHVRIWKHILUP$QDO\VLVRIILQDQFLDOVWDWHPHQWVLVDQDWWHPSW
WRDVVHVVWKHHIILFLHQF\DQGSHUIRUPDQFHRIDQHQWHUSULVH7KXVWKHDQDO\VLVDQG
LQWHUSUHWDWLRQRIILQDQFLDOVWDWHPHQWVLVYHU\HVVHQWLDOWRPHDVXUHWKHHIILFLHQF\
SURILWDELOLW\ILQDQFLDOVRXQGQHVVDQGIXWXUHSURVSHFWVRIWKHEXVLQHVVXQLWV
)LQDQFLDODQDO\VLVVHUYHVWKHIROORZLQJSXUSRVHV
0HDVXULQJWKHSURILWDELOLW\
7KHPDLQREMHFWLYHRIDEXVLQHVVLVWRHDUQDVDWLVIDFWRU\UHWXUQRQWKHIXQGV
LQYHVWHGLQLW)LQDQFLDODQDO\VLVKHOSVLQDVFHUWDLQLQJZKHWKHUDGHTXDWHSURILWVDUH
EHLQJHDUQHGRQWKHFDSLWDOLQYHVWHGLQWKHEXVLQHVVRUQRW,WDOVRKHOSVLQNQRZLQJ
WKHFDSDFLW\WRSD\WKHLQWHUHVWDQGGLYLGHQG
,QGLFDWLQJWKHWUHQGRI$FKLHYHPHQWV
)LQDQFLDOVWDWHPHQWVRIWKHSUHYLRXV\HDUVFDQEHFRPSDUHGDQGWKHWUHQGUHJDUGLQJ
YDULRXVH[SHQVHVSXUFKDVHVVDOHVJURVVSURILWVDQGQHWSURILWHWFFDQEHDVFHU
WDLQHG9DOXHRIDVVHWVDQGOLDELOLWLHVFDQEHFRPSDUHGDQGWKHIXWXUHSURVSHFWVRI
WKHEXVLQHVVFDQEHHQYLVDJHG
$VVHVVLQJWKHJURZWKSRWHQWLDORIWKHEXVLQHVV
7KHWUHQGDQGRWKHUDQDO\VLVRIWKHEXVLQHVVSURYLGHVXIILFLHQWLQIRUPDWLRQLQGLFDWLQJ
WKHJURZWKSRWHQWLDORIWKHEXVLQHVV
&RPSDUDWLYHSRVLWLRQLQUHODWLRQWRRWKHUILUPV

6HOI,QVWUXFWLRQDO 0DWHULDO
7KHSXUSRVHRIILQDQFLDOVWDWHPHQWVDQDO\VLVLVWRKHOSWKHPDQDJHPHQWWRPDNHD
 FRPSDUDWLYHVWXG\RIWKHSURILWDELOLW\RIYDULRXVILUPVHQJDJHGLQVLPLODUEXVLQHVVHV
6XFKFRPSDULVRQDOVRKHOSVWKHPDQDJHPHQWWRVWXG\WKHSRVLWLRQRIWKHLUILUPLQ )LQDQFLDO$QDO\VLV
UHVSHFWRIVDOHVH[SHQVHVSURILWDELOLW\DQGXWLOL]LQJFDSLWDOHWF ,QYDULDQWDQG3RUWIROLRV
6WUDWHJLHV
$VVHVVRYHUDOOILQDQFLDOVWUHQJWK
7KHSXUSRVHRIILQDQFLDODQDO\VLVLVWRDVVHVVWKHILQDQFLDOVWUHQJWKRIWKHEXVLQHVV 127(6
$QDO\VLVDOVRKHOSVLQWDNLQJGHFLVLRQVZKHWKHUIXQGVUHTXLUHGIRUWKHSXUFKDVHRI
QHZPDFKLQHVDQGHTXLSPHQWVDUHSURYLGHGIURPLQWHUQDOVRXUFHVRIWKHEXVLQHVV
RUQRW
$VVHVV VROYHQF\ RI WKH ILUP
7KHGLIIHUHQWWRROVRIDQDQDO\VLVWHOOXVZKHWKHUWKHILUPKDVVXIILFLHQWIXQGVWRPHHW
LWVVKRUWWHUPDQGORQJWHUPOLDELOLWLHVRUQRW

 3$57,(6 ,17(5(67('

$QDO\VLVRIILQDQFLDOVWDWHPHQWVKDVEHFRPHYHU\VLJQLILFDQWGXHWRZLGHVSUHDG
LQWHUHVWRIYDULRXVSDUWLHVLQWKHILQDQFLDOUHVXOWVRIDEXVLQHVVXQLW7KHYDULRXV
SDUWLHVLQWHUHVWHGLQWKHDQDO\VLVRIILQDQFLDOVWDWHPHQWVDUH
L ,QYHVWRUV6KDUHKROGHUVRUSURSULHWRUVRIWKHEXVLQHVVDUHLQWHUHVWHGLQWKH
ZHOOEHLQJRIWKHEXVLQHVV7KH\OLNHWRNQRZWKHHDUQLQJFDSDFLW\RIWKH
EXVLQHVVDQGLWVSURVSHFWVRIIXWXUHJURZWK
LL 0DQDJHPHQW7KHPDQDJHPHQWLVLQWHUHVWHGLQWKHILQDQFLDOSRVLWLRQDQG
SHUIRUPDQFHRIWKHHQWHUSULVHDVDZKROHDQGRILWVYDULRXVGLYLVLRQV,W
KHOSVWKHPLQSUHSDULQJEXGJHWVDQGDVVHVVLQJWKHSHUIRUPDQFHRIYDULRXV
GHSDUWPHQWDOKHDGV
LLL 7UDGHXQLRQV7KH\DUHLQWHUHVWHGLQILQDQFLDOVWDWHPHQWVIRUQHJRWLDWLQJWKH
ZDJHVRUVDODULHVRUERQXVDJUHHPHQWZLWKWKHPDQDJHPHQW
LY /HQGHUV/HQGHUVWRWKHEXVLQHVVOLNHGHEHQWXUHKROGHUVVXSSOLHUVRIORDQV
DQGOHDVHDUHLQWHUHVWHGWRNQRZVKRUWWHUPDVZHOODVORQJWHUPVROYHQF\
SRVLWLRQRIWKHHQWLW\
Y 6XSSOLHUVDQG WUDGH FUHGLWRUV 7KH VXSSOLHUV DQG RWKHUFUHGLWRUV DUH
LQWHUHVWHGWRNQRZDERXWWKHVROYHQF\RIWKHEXVLQHVVLHWKHDELOLW\RIWKH
FRPSDQ\WRPHHWWKHGHEWVDVDQGZKHQWKH\IDOOGXH
YL 7D[DXWKRULWLHV7D[DXWKRULWLHVDUHLQWHUHVWHGLQILQDQFLDOVWDWHPHQWVIRU
GHWHUPLQLQJWKHWD[OLDELOLW\
YLL 5HVHDUFKHUV7KH\DUHLQWHUHVWHGLQILQDQFLDOVWDWHPHQWVLQXQGHUWDNLQJ
UHVHDUFKZRUNLQEXVLQHVVDIIDLUVDQGSUDFWLFHV
YLLL (PSOR\HHV7KH\DUHLQWHUHVWHGWRNQRZWKHJURZWKRISURILW$VDUHVXOW
RIZKLFKWKH\FDQGHPDQGEHWWHUUHPXQHUDWLRQDQGFRQJHQLDOZRUNLQJHQ
YLURQPHQW
L[ *RYHUQPHQWDQGWKHLUDJHQFLHV*RYHUQPHQWDQGWKHLUDJHQFLHVQHHG 6HOI,QVWUXFWLRQDO 0DWHULDO

ILQDQFLDOLQIRUPDWLRQWRUHJXODWHWKHDFWLYLWLHVRIWKHHQWHUSULVHVLQGXVWULHV 
6HFXULW\$QDO\VLV DQGGHWHUPLQHWD[DWLRQSROLF\7KH\VXJJHVWPHDVXUHVWRIRUPXODWHSROLFLHV
3RUWIROLR0DQDJHPHQW DQGUHJXODWLRQV
[ 6WRFNH[FKDQJH7KHVWRFNH[FKDQJHPHPEHUVWDNHLQWHUHVWLQILQDQFLDO
127(6 VWDWHPHQWVIRUWKHSXUSRVHRIDQDO\VLVEHFDXVHWKH\SURYLGHXVHIXOILQDQFLDO
LQIRUPDWLRQDERXWFRPSDQLHV7KXVZHILQGWKDWGLIIHUHQWSDUWLHVKDYHLQWHU
HVWLQILQDQFLDOVWDWHPHQWVIRUGLIIHUHQWUHDVRQV
1DWXUHRI)LQDQFLDO$QDO\VLV
7KHQDWXUHRIILQDQFLDODQDO\VLVFDQEHXQGHUVWRRGIURPWKHIROORZLQJSRLQWV
$FFRXQWLQJ&RQYHQWLRQV7KHUHDUHVRPHDFFRXQWLQJFRQYHQWLRQVZKLFKDUHIRO
ORZHGZKLOHSUHSDULQJILQDQFLDOVWDWHPHQWV
3RVWXODWHV7KHDFFRXQWDQWPDNHVFHUWDLQDVVXPSWLRQVZKLOHSUHSDULQJDFFRXQWLQJ
UHFRUGV)RU([DPSOH$VVHWVDUHVKRZQRQJRLQJFRQFHUQEDVLV
5HFRUGHG)DFWV7KHWHUPUHFRUGHGIDFWVUHIHUVWRWKHGDWDWDNHQRXWIURPWKH
DFFRXQWLQJUHFRUGV7KHRULJLQDORUKLVWRULFDOFRVWVDUHWKHEDVLVRIUHFRUGLQJYDULRXV
IDFWV
7\SHVRI)LQDQFLDO$QDO\VLV
7KHILQDQFLDODQDO\VLVLVPDGHRQWKHIROORZLQJEDVLV
D2QWKHEDVLVRIPDWHULDOXVHGIRUWKHVDPH
([WHUQDO$QDO\VLV
,QWHUQDO$QDO\VLV
E2QWKHEDVLVRIRSHUDWLRQRIWKHDQDO\VLV
+RUL]RQWDO$QDO\VLV
9HUWLFDO$QDO\VLV
3OHDVHJRWKURXJKWKHIROORZLQJGLDJUDPWRXQGHUVWDQGWKHDERYHFODVVLILFDWLRQ
7\SHVRI)LQDQFLDO$QDO\VLV



$FFRUGLQJWRPDWHULDOXVHG$FFRUGLQJWRRSHUDWLRQRI$QDO\VLV

([WHUQDO$QDO\VLV,QWHUQDO$QDO\VLV+RUL]RQWDO$QDO\VLV9HUWLFDO$QDO\VLV


$IIHFWHGE\ $IIHFWHGE\ )LQDQFLDO 5DWLR$QDO\VLV
 6WDWHPHQWV IRURQH
,QYHVWRUV ,QWHUQDO DUHDQDO\]HG GDWH$FFRXQWLQ
FUHGLWRUV 
 ERGLHV IRUFHUWDLQQR J3HULRG
RWKHUH[WHUQDO
 RI\HDUV
ERGLHV
6HOI,QVWUXFWLRQDO 0DWHULDO


/LPLWDWLRQVRI)LQDQFLDO$QDO\VLV )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
7KHUHDUHVRPHRIWKHOLPLWLQJIDFWRUVRIWKLVDQDO\VLVZHPXVWNHHSLQPLQG 6WUDWHJLHV

‡ 3DVWILQDQFLDOSHUIRUPDQFHJRRGRUEDGLVQRWQHFHVVDULO\DJRRGSUHGLFWRU
RIZKDWZLOOKDSSHQZLWKDFXVWRPHULQWKHIXWXUH 127(6

‡ 7KHPRUHRXWRIGDWHDFXVWRPHU¶VILQDQFLDOVWDWHPHQWVDUHWKHOHVVYDOXH
WKH\DUHWRWKHFUHGLWGHSDUWPHQW
‡ :LWKRXWWKHQRWHVWRWKHILQDQFLDOVWDWHPHQWVFUHGLWPDQDJHUVFDQQRWJHWD
FOHDUSLFWXUHRIWKHVFRSHRIWKHFUHGLWULVNWKH\DUHFRQVLGHULQJ
‡ 8QOHVVWKHFXVWRPHUILQDQFLDOVWDWHPHQWVDUHDXGLWHGWKHUHLVQRDVVXUDQFH
WKH\FRQIRUPWRJHQHUDOO\DFFHSWHGDFFRXQWLQJSULQFLSOHV$VDUHVXOWWKH
VWDWHPHQWVPD\EHPLVOHDGLQJRUHYHQFRPSOHWHO\IUDXGXOHQW
‡ 7RVHHWKHELJSLFWXUHLWLVQHFHVVDU\WRKDYHDWOHDVWWKUHH\HDUVRIILQDQFLDO
VWDWHPHQWVIRUFRPSDULVRQ7UHQGVZLOORQO\EHFRPHDSSDUHQWWKURXJKFRP
SDUDWLYHDQDO\VLV
,QSHUIRUPLQJOLTXLGLW\DQDO\VLVPRVWFUHGLWPDQDJHUVXVHWKHFXUUHQWDQGRUTXLFN
UDWLR7KHSUREOHPLVWKDWWKHVHWZRUDWLRVRQO\SURYLGHDQHVWLPDWHRIDFXVWRPHU¶V
OLTXLGLW\WKH\DUHQRWDFFXUDWHHQRXJKWREHXVHGWRSUHGLFWZKHWKHURUQRWD
FXVWRPHULVFDSDEOHRISD\LQJWUDGHFUHGLWRUVDQG\RXUFRPSDQ\LQSDUWLFXODURQ
WLPH
1RZZHZLOOJRWKURXJKWKHIROORZLQJW\SHVRI$QDO\VLV
‡ 5DWLR$QDO\VLV
‡ )XQG)ORZ &DVK)ORZ$QDO\VLV
‡ &RVW9ROXPH3URILW$QDO\VLV

 5DWLR $QDO\VLV

7KHWHUP³DFFRXQWLQJUDWLRV´LVXVHGWRGHVFULEHVLJQLILFDQWUHODWLRQVKLSEHWZHHQ
ILJXUHVVKRZQRQDEDODQFHVKHHWLQDSURILWDQGORVVDFFRXQWLQDEXGJHWDU\FRQWURO
V\VWHPRULQDQ\RWKHUSDUWRIDFFRXQWLQJRUJDQL]DWLRQ$FFRXQWLQJUDWLRVWKXVVKRZV
WKHUHODWLRQVKLSEHWZHHQDFFRXQWLQJGDWD:KHQWKHVHUDWLRVDUHXVHGIRUWKHSXU
SRVHRIILQDQFLDODQDO\VLVLWLVNQRZQDV5DWLR$QDO\VLV
5DWLRVFDQEHIRXQGRXWE\GLYLGLQJRQHQXPEHUE\DQRWKHUQXPEHU5DWLRVVKRZ &KHFN <RXU 3URJUHVV
KRZRQHQXPEHULVUHODWHGWRDQRWKHU,WPD\EHH[SUHVVHGLQWKHIRUPRIFR  :KDWLVILQDQFLDO
HIILFLHQWSHUFHQWDJHSURSRUWLRQRUUDWH)RUH[DPSOHWKHFXUUHQWDVVHWVDQGFXUUHQW DQDO\VLV"
OLDELOLWLHVRIDEXVLQHVVRQDSDUWLFXODUGDWHDUHDQGUHVSHF  :KDWLVUDWLR
DQDO\VLV"
WLYHO\7KHUDWLRRIFXUUHQWDVVHWVDQGFXUUHQWOLDELOLWLHVFRXOGEHH[SUHVVHGDVLH
RUSHUFHQWRULWFDQEHH[SUHVVHGDVLHWKHFXUUHQW
DVVHWVDUHWZRWLPHVWKHFXUUHQWOLDELOLWLHV5DWLRVRPHWLPHVLVH[SUHVVHGLQWKHIRUP
RIUDWH)RULQVWDQFHWKHUDWLREHWZHHQWZRQXPHULFDOIDFWVXVXDOO\RYHUDSHULRG 6HOI,QVWUXFWLRQDO 0DWHULDO
RIWLPHHJVWRFNWXUQRYHULVWKUHHWLPHVD\HDU 
6HFXULW\$QDO\VLV $GYDQWDJHVRI5DWLRV$QDO\VLV
3RUWIROLR0DQDJHPHQW
5DWLRDQDO\VLVLVDQLPSRUWDQWDQGYHU\ROGWHFKQLTXHRIILQDQFLDODQDO\VLV7KH
IROORZLQJDUHVRPHRIWKHDGYDQWDJHV%HQHILWVRIUDWLRDQDO\VLV
127(6  6LPSOLILHVILQDQFLDOVWDWHPHQWV,WVLPSOLILHVWKHGHWDLOLQJRIILQDQFLDOVWDWH
PHQWV5DWLRVWHOOWKHZKROHVWRU\RIFKDQJHVLQWKHILQDQFLDOFRQGLWLRQRIWKH
EXVLQHVV
 )DFLOLWDWHVLQWHUILUPFRPSDULVRQ,WSURYLGHVGDWDIRULQWHUILUPFRP
SDULVRQ5DWLRVKLJKOLJKWWKHIDFWRUVDVVRFLDWHGZLWKVXFFHVVIXODQGXQVXF
FHVVIXOILUP7KH\DOVRUHYHDOVWURQJILUPVDQGZHDNILUPVRYHUYDOXHGDQG
XQGHUYDOXHGILUPV
 +HOSVLQSODQQLQJ,WKHOSVLQSODQQLQJDQGIRUHFDVWLQJ5DWLRVFDQDVVLVW
PDQDJHPHQWLQLWVEDVLFIXQFWLRQVRIIRUHFDVWLQJ3ODQQLQJFRRUGLQDWLRQ
FRQWURODQGFRPPXQLFDWLRQV
 0DNHVLQWHUILUPFRPSDULVRQSRVVLEOH5DWLRVDQDO\VLVDOVRPDNHVSRV
VLEOHFRPSDULVRQRIWKHSHUIRUPDQFHRIGLIIHUHQWGLYLVLRQVRIWKHILUP7KH
UDWLRVDUHKHOSIXOLQGHFLGLQJDERXWWKHLUHIILFLHQF\RURWKHUZLVHLQWKHSDVW
DQGOLNHO\SHUIRUPDQFHLQWKHIXWXUH
 +HOSLQLQYHVWPHQWGHFLVLRQV,WKHOSVLQLQYHVWPHQWGHFLVLRQVLQWKHFDVH
RILQYHVWRUVDQGOHQGLQJGHFLVLRQVLQWKHFDVHRIEDQNHUVHWF
/LPLWDWLRQVRI5DWLRV$QDO\VLV
7KHUDWLRVDQDO\VLVLVRQHRIWKHPRVWSRZHUIXOWRROVRIILQDQFLDOPDQDJHPHQW
7KRXJKUDWLRVDUHVLPSOHWRFDOFXODWHDQGHDV\WRXQGHUVWDQGWKH\VXIIHUIURP
VHULRXVOLPLWDWLRQV
 /LPLWDWLRQVRIILQDQFLDOVWDWHPHQWV5DWLRVDUHEDVHGRQO\RQWKHLQIRU
PDWLRQZKLFKKDVEHHQUHFRUGHGLQWKHILQDQFLDOVWDWHPHQWV)LQDQFLDOVWDWH
PHQWVWKHPVHOYHVDUHVXEMHFWWRVHYHUDOOLPLWDWLRQV7KXVUDWLRVGHULYHG
WKHUHIURPDUHDOVRVXEMHFWWRWKRVHOLPLWDWLRQV)RUH[DPSOHQRQILQDQFLDO
FKDQJHVWKRXJKLPSRUWDQWIRUWKHEXVLQHVVDUHQRWUHOHYDQWE\WKHILQDQFLDO
VWDWHPHQWV)LQDQFLDOVWDWHPHQWVDUHDIIHFWHGWRDYHU\JUHDWH[WHQWE\DF
FRXQWLQJFRQYHQWLRQVDQGFRQFHSWV3HUVRQDOMXGJPHQWSOD\VDJUHDWSDUWLQ
GHWHUPLQLQJWKHILJXUHVIRUILQDQFLDOVWDWHPHQWV
 &RPSDUDWLYHVWXG\UHTXLUHG5DWLRVDUHXVHIXOLQMXGJLQJWKHHIILFLHQF\RI
WKHEXVLQHVVRQO\ZKHQWKH\DUHFRPSDUHGZLWKSDVWUHVXOWVRIWKHEXVLQHVV
+RZHYHUVXFKDFRPSDULVRQRQO\SURYLGHJOLPSVHRIWKHSDVWSHUIRUPDQFH
DQGIRUHFDVWVIRUIXWXUHPD\QRWSURYHFRUUHFWVLQFHVHYHUDORWKHUIDFWRUV
OLNHPDUNHWFRQGLWLRQVPDQDJHPHQWSROLFLHVHWFPD\DIIHFWWKHIXWXUH
RSHUDWLRQV
 5DWLRVDORQHDUHQRWDGHTXDWH5DWLRVDUHRQO\LQGLFDWRUVWKH\FDQQRWEH
6HOI,QVWUXFWLRQDO 0DWHULDO WDNHQDVILQDOUHJDUGLQJJRRGRUEDGILQDQFLDOSRVLWLRQRIWKHEXVLQHVV2WKHU
 WKLQJVKDYHDOVRWREHVHHQ
  3UREOHPVRISULFHOHYHOFKDQJHV$FKDQJHLQSULFHOHYHOFDQDIIHFWWKH )LQDQFLDO$QDO\VLV
YDOLGLW\RIUDWLRVFDOFXODWHGIRUGLIIHUHQWWLPHSHULRGV,QVXFKDFDVHWKHUDWLR ,QYDULDQWDQG3RUWIROLRV
6WUDWHJLHV
DQDO\VLVPD\QRWFOHDUO\LQGLFDWHWKHWUHQGLQVROYHQF\DQGSURILWDELOLW\RIWKH
FRPSDQ\7KHILQDQFLDOVWDWHPHQWVWKHUHIRUHEHDGMXVWHGNHHSLQJLQYLHZ
WKHSULFHOHYHOFKDQJHVLIDPHDQLQJIXOFRPSDULVRQLVWREHPDGHWKURXJK 127(6
DFFRXQWLQJUDWLRV
 /DFNRIDGHTXDWHVWDQGDUG1RIL[HGVWDQGDUGFDQEHODLGGRZQIRULGHDO
UDWLRV7KHUHDUHQRZHOODFFHSWHGVWDQGDUGVRUUXOHRIWKXPEIRUDOOUDWLRV
ZKLFK FDQ EH DFFHSWHG DV QRUP ,W UHQGHUV LQWHUSUHWDWLRQ RI WKH UDWLRV
GLIILFXOW
 /LPLWHGXVHRIVLQJOHUDWLRV$VLQJOHUDWLRXVXDOO\GRHVQRWFRQYH\PXFK
RIDVHQVH7RPDNHDEHWWHULQWHUSUHWDWLRQDQXPEHURIUDWLRVKDYHWREH
FDOFXODWHGZKLFKLVOLNHO\WRFRQIXVHWKHDQDO\VWWKDQKHOSKLPLQPDNLQJDQ\
JRRGGHFLVLRQ
 3HUVRQDOELDV5DWLRVDUHRQO\PHDQVRIILQDQFLDODQDO\VLVDQGQRWDQHQG
LQLWVHOI5DWLRVKDYHWRLQWHUSUHWDQGGLIIHUHQWSHRSOHPD\LQWHUSUHWWKHVDPH
UDWLRLQGLIIHUHQWZD\
 ,QFRPSDUDEOH1RWRQO\LQGXVWULHVGLIIHULQWKHLUQDWXUHEXWDOVRWKHILUPV
RIWKHVLPLODUEXVLQHVVZLGHO\GLIIHULQWKHLUVL]HDQGDFFRXQWLQJSURFHGXUHV
HWF,WPDNHVFRPSDULVRQRIUDWLRVGLIILFXOWDQGPLVOHDGLQJ

7\SHV RI 5DWLRV

/LTXLGLW\5DWLRV7KHVH5DWLRVPHDVXUHWKHILUPSRVLWLRQWRPHHWLWVFXUUHQW
OLDELOLWLHV)ROORZLQJUDWLRVFRPHXQGHUWKLVFDWHJRU\
‡ &XUUHQW5DWLR,WUHIOHFWVWKHVROYHQF\RIWKHILUP
&XUUHQW5DWLR &XUUHQW$VVHWV&XUUHQWOLDELOLWLHV
+LJKHUWKHUDWLRZLOOEHJUHDWHUWKHVDIHW\IRUWKHFUHGLWRUV YLFHYHUVD,GHDO
&XUUHQW5DWLRLV
‡ /LTXLG 5DWLR4XLFN5DWLR$FLG7HVW5DWLR7KH WZRFRPSRQHQWV RI
OLTXLGUDWLRDFLGWHVWUDWLRRUTXLFNUDWLRDUHOLTXLGDVVHWVDQGOLTXLG
OLDELOLWLHV/LTXLGDVVHWVQRUPDOO\LQFOXGHFDVKEDQNVXQGU\GHEWRUVELOOV
UHFHLYDEOHDQGPDUNHWDEOHVHFXULWLHVRUWHPSRUDU\LQYHVWPHQWV6LPLODUO\
/LTXLGOLDELOLWLHVPHDQVFXUUHQWOLDELOLWLHVLHVXQGU\FUHGLWRUVELOOVSD\DEOH
RXWVWDQGLQJH[SHQVHVVKRUWWHUPDGYDQFHVLQFRPHWD[SD\DEOHGLYLGHQGV
SD\DEOHDQGEDQNRYHUGUDIWRQO\LISD\DEOHRQGHPDQG
/LTXLG5DWLR /LTXLG$VVHWV&XUUHQW/LDELOLWLHV
/LTXLGUDWLRLVPRUHULJRURXVWHVWRIOLTXLGLW\WKDQWKHFXUUHQWUDWLREHFDXVHLW
HOLPLQDWHVLQYHQWRULHVDQGSUHSDLGH[SHQVHVDVDSDUWRIFXUUHQWDVVHWV8VXDOO\
DKLJKOLTXLGUDWLRLVDQLQGLFDWLRQWKDWWKHILUPLVOLTXLGDQGKDVWKHDELOLW\WRPHHW 6HOI,QVWUXFWLRQDO 0DWHULDO
LWVFXUUHQWRUOLTXLGOLDELOLWLHVLQWLPHDQGRQWKHRWKHUKDQGDORZOLTXLGLW\UDWLR 
6HFXULW\$QDO\VLV UHSUHVHQWVWKDWWKHILUP¶VOLTXLGLW\SRVLWLRQLVQRWJRRG$VDFRQYHQWLRQJHQ
3RUWIROLR0DQDJHPHQW HUDOO\DTXLFNUDWLRRI³RQHWRRQH´LVFRQVLGHUHGWREHVDWLVIDFWRU\
‡ $EVROXWH/LTXLG5DWLR&DVK5DWLR &DVK%DQN6KRUWWHUP6HF&XU
127(6 UHQW/LDELOLWLHV,GHDO5DWLRLV
6ROYHQF\ 5DWLRV
‡ 'HEWWR(TXLW\UDWLRLQGLFDWHVWKHUHODWLRQVKLSEHWZHHQWKHH[WHUQDOHTXL
WLHVRURXWVLGHUVIXQGVDQGWKHLQWHUQDOHTXLWLHVRUVKDUHKROGHUVIXQGV
'HEW(TXLW\5DWLR ([WHUQDO(TXLWLHV,QWHUQDO(TXLWLHV2U>2XWVLG
HUVIXQGV6KDUHKROGHUVIXQGV@
$VDORQJWHUPILQDQFLDOUDWLRLWPD\EHFDOFXODWHGDVIROORZV
7RWDO/RQJ7HUP'HEWV7RWDO/RQJ7HUP)XQGV2U7RWDO/RQJ7HUP'HEWV
6KDUHKROGHUV)XQGV
7KHRXWVLGHUV¶IXQGVLQFOXGHDOOGHEWVOLDELOLWLHVWRRXWVLGHUVZKHWKHUORQJWHUPRU
VKRUWWHUPRUZKHWKHULQWKHIRUPRIGHEHQWXUHVERQGVPRUWJDJHVRUELOOV7KH
VKDUHKROGHUVIXQGVFRQVLVWRIHTXLW\VKDUHFDSLWDOSUHIHUHQFHVKDUHFDSLWDOFDSLWDO
UHVHUYHVUHYHQXHUHVHUYHVDQGUHVHUYHVUHSUHVHQWLQJDFFXPXODWHGSURILWVDQGVXU
SOXVHVOLNHUHVHUYHVIRUFRQWLQJHQFLHVVLQNLQJIXQGVHWF7KHDFFXPXODWHGORVVHV
DQG GHIHUUHG H[SHQVHV LI DQ\ VKRXOG EH GHGXFWHG IURP WKH WRWDO WR ILQG RXW
VKDUHKROGHU¶VIXQGV'HEWWRHTXLW\UDWLRLQGLFDWHVWKHSURSRUWLRQDWHFODLPVRIRZQHUV
DQGWKHRXWVLGHUVDJDLQVWWKHILUP¶VDVVHWV7KHSXUSRVHLVWRJHWDQLGHDRIWKH
FXVKLRQDYDLODEOHWRRXWVLGHUVRQWKHOLTXLGDWLRQRIWKHILUP$UDWLRRILVXVXDOO\
FRQVLGHUHGWREHVDWLVIDFWRU\UDWLRDOWKRXJKWKHUHFDQQRWEHUXOHRIWKXPERUVWDQ
GDUGQRUPIRUDOOW\SHVRIEXVLQHVVHV
‡ 3URSULHWDU\5DWLRRU(TXLW\5DWLR
7KLVLVDYDULDQWRIWKHGHEWWRHTXLW\UDWLR,WLVDOVRNQRZQDVHTXLW\UDWLRRUQHW
ZRUWKWRWRWDODVVHWVUDWLR
3URSULHWDU\RU(TXLW\5DWLR 6KDUHKROGHUVIXQGV7RWDO$VVHWV
‡ )L[HG$VVHWVWR3URSULHWRU¶V)XQG5DWLR
)L[HGDVVHWVWRSURSULHWRU¶VIXQGUDWLRHVWDEOLVKWKHUHODWLRQVKLSEHWZHHQIL[HGDVVHWV
DQGVKDUHKROGHUV¶IXQGV7KHUDWLRRIIL[HGDVVHWVWRQHWZRUWKLQGLFDWHVWKHH[WHQW
WRZKLFKVKDUHKROGHU¶VIXQGVDUHVXQNLQWRWKHIL[HGDVVHWV*HQHUDOO\WKHSXUFKDVH
RIIL[HGDVVHWVVKRXOGEHILQDQFHGE\VKDUHKROGHU¶VHTXLW\LQFOXGLQJUHVHUYHVVXU
SOXVHVDQGUHWDLQHGHDUQLQJV,IWKHUDWLRLVOHVVWKDQLWLPSOLHVWKDWRZQHUV¶
IXQGVDUHPRUHWKDQIL[HGDVVHWVDQGDSDUWRIWKHZRUNLQJFDSLWDOLVSURYLGHGE\
WKHVKDUHKROGHUV:KHQWKHUDWLRLVPRUHWKDQWKHLWLPSOLHVWKDWRZQHUV¶
IXQGVDUHQRWVXIILFLHQWWRILQDQFHWKHIL[HGDVVHWVDQGWKHILUPKDVWRGHSHQGXSRQ
RXWVLGHUVWRILQDQFHWKHIL[HGDVVHWV7KHUHLVQRUXOHRIWKXPEWRLQWHUSUHWWKLVUDWLR
6HOI,QVWUXFWLRQDO 0DWHULDO
E\WRSHUFHQWLVFRQVLGHUHGWREHDVDWLVIDFWRU\UDWLRLQFDVHRILQGXVWULDO

XQGHUWDNLQJV
)L[HG$VVHWVWR3URSULHWRUV)XQG )L[HG$VVHWV3URSULHWRUV)XQG )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
‡ &XUUHQW$VVHWVWR3URSULHWRU¶V)XQG5DWLR 6WUDWHJLHV

&XUUHQW$VVHWVWR3URSULHWRUV¶)XQG5DWLRHVWDEOLVKHVWKHUHODWLRQVKLSEHWZHHQ
FXUUHQWDVVHWVDQGVKDUHKROGHU¶VIXQGV7KHSXUSRVHRIWKLVUDWLRLVWRFDOFXODWHWKH 127(6
SHUFHQWDJHRIVKDUHKROGHUVIXQGVLQYHVWHGLQFXUUHQWDVVHWV
&XUUHQW$VVHWVWR3URSULHWRUV)XQGV &XUUHQW$VVHWV3URSULHWRU¶V)XQGV
‡ 'HEW6HUYLFH5DWLRRU,QWHUHVW&RYHUDJH5DWLR,QWHUHVWFRYHUDJHUDWLR
LVDOVRNQRZQDVGHEWVHUYLFHUDWLRRUGHEWVHUYLFHFRYHUDJHUDWLR7KLVUDWLR
UHODWHVWKHIL[HGLQWHUHVWFKDUJHVWRWKHLQFRPHHDUQHGE\WKHEXVLQHVV,W
LQGLFDWHVZKHWKHUWKHEXVLQHVVKDVHDUQHGVXIILFLHQWSURILWVWRSD\SHULRGL
FDOO\WKHLQWHUHVWFKDUJHV,WLVFDOFXODWHGE\XVLQJWKHIROORZLQJIRUPXOD7KH
LQWHUHVWFRYHUDJHUDWLRLVYHU\LPSRUWDQWIURPWKHOHQGHU¶VSRLQWRIYLHZ,W
LQGLFDWHVWKHQXPEHURIWLPHVLQWHUHVWLVFRYHUHGE\WKHSURILWVDYDLODEOHWR
SD\LQWHUHVWFKDUJHV)RUPXODRI'HEW6HUYLFH5DWLRRULQWHUHVWFRYHUDJH
UDWLR
>,QWHUHVW&RYHUDJH5DWLR 1HW3URILWEHIRUH,QWHUHVWDQG7D[)L[HG,Q
WHUHVW &KDUJHV@
‡ &DSLWDO*HDULQJ5DWLR
&ORVHO\UHODWHGWRVROYHQF\UDWLRLVWKHFDSLWDOJHDULQJUDWLR&DSLWDOJHDULQJ
UDWLRLVPDLQO\XVHGWRDQDO\]HWKHFDSLWDOVWUXFWXUHRIDFRPSDQ\7KHWHUP
FDSLWDOVWUXFWXUHUHIHUVWRWKHUHODWLRQVKLSEHWZHHQWKHYDULRXVORQJWHUPIRUPRI
ILQDQFLQJVXFKDVGHEHQWXUHVSUHIHUHQFHDQGHTXLW\VKDUHFDSLWDOLQFOXGLQJUH
VHUYHVDQGVXUSOXVHV/HYHUDJHRIFDSLWDOVWUXFWXUHUDWLRVLVFDOFXODWHGWRWHVWWKH
ORQJWHUPILQDQFLDOSRVLWLRQRIDILUP
>&DSLWDO *HDULQJ 5DWLR  (TXLW\ 6KDUH &DSLWDO  )L[HG ,QWHUHVW %HDULQJ
)XQGV@
3URILWDELOLW\5DWLRV
‡ *URVV3URILW5DWLR*35DWLR*URVVSURILWUDWLR*3UDWLRLVWKHUDWLR
RIJURVV SURILWWRQHW VDOHVH[SUHVVHGDV DSHUFHQWDJH,W H[SUHVVHVWKH
UHODWLRQVKLSEHWZHHQJURVVSURILWDQGVDOHV*URVVSURILWUDWLRPD\EHLQGL
FDWHGWRZKDWH[WHQWWKHVHOOLQJSULFHVRIJRRGVSHUXQLWPD\EHUHGXFHG
ZLWKRXWLQFXUULQJORVVHVRQRSHUDWLRQV,WUHIOHFWVHIILFLHQF\ZLWKZKLFKDILUP
SURGXFHVLWVSURGXFWV$VWKHJURVVSURILWLVIRXQGE\GHGXFWLQJFRVWRI
JRRGVVROGIURPQHWVDOHVKLJKHUWKHJURVVSURILWEHWWHULWLV7KHUHLVQR
VWDQGDUG*3UDWLRIRUHYDOXDWLRQ,WPD\YDU\IURPEXVLQHVVWREXVLQHVV
>*URVV 3URILW5DWLR *URVVSURILW1HW VDOHVî@
‡ 1HW3URILW5DWLR135DWLR1HWSURILWUDWLRLVWKHUDWLRRIQHWSURILWDIWHU
WD[HV WR QHW VDOHV ,W LV H[SUHVVHG DV SHUFHQWDJH 13 UDWLR LV XVHG WR 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV PHDVXUHWKHRYHUDOOSURILWDELOLW\DQGKHQFHLWLVYHU\XVHIXOWRSURSULHWRUV
3RUWIROLR0DQDJHPHQW 7KHUDWLRLVYHU\XVHIXODVLIWKHQHWSURILWLVQRWVXIILFLHQWWKHILUPVKDOOQRW
EHDEOHWRDFKLHYHDVDWLVIDFWRU\UHWXUQRQLWVLQYHVWPHQW7KLVUDWLRDOVR
LQGLFDWHVWKHILUP¶VFDSDFLW\WRIDFHDGYHUVHHFRQRPLFFRQGLWLRQVVXFKDV
127(6 SULFHFRPSHWLWLRQORZGHPDQGHWF2EYLRXVO\KLJKHUWKHUDWLRWKHEHWWHU
LVWKHSURILWDELOLW\
1HW 3URILW 5DWLR  1HW SURILW  1HW VDOHV î @
‡ 2SHUDWLQJ5DWLR2SHUDWLQJUDWLRLVWKHUDWLRRIFRVWRIJRRGVVROGSOXV
RSHUDWLQJH[SHQVHVWRQHWVDOHV,WLVJHQHUDOO\H[SUHVVHGLQSHUFHQWDJH
2SHUDWLQJUDWLRVKRZVWKHRSHUDWLRQDOHIILFLHQF\RIWKHEXVLQHVV/RZHU
RSHUDWLQJUDWLRVKRZVKLJKHURSHUDWLQJSURILWDQGYLFHYHUVD$QRSHUDWLQJ
UDWLRUDQJLQJEHWZHHQDQGLVJHQHUDOO\FRQVLGHUHGDVVWDQGDUGIRU
PDQXIDFWXULQJFRQFHUQV7KLVUDWLRLVFRQVLGHUHGWREHD\DUGVWLFNRIRSHU
DWLQJHIILFLHQF\EXWLWVKRXOGEHXVHGFDXWLRXVO\EHFDXVHLWPD\EHDIIHFWHG
E\DQXPEHURIXQFRQWUROODEOHIDFWRUVEH\RQGWKHFRQWURORIWKHILUP
2SHUDWLQJ5DWLR >&RVWRIJRRGVVROG2SHUDWLQJH[SHQVHV1HWVDOHV@
î 
([SHQVH5DWLR([SHQVHUDWLRVLQGLFDWHWKHUHODWLRQVKLSRIYDULRXVH[SHQVHVWRQHW
VDOHVdžƉĞŶƐĞUDWLRVDUHFDOFXODWHGE\GLYLGLQJHDFKLWHPRIH[SHQVHVRUJURXSRI
H[SHQVHZLWKWKHQHWVDOHVWRDQDO\]HWKHFDXVHRIYDULDWLRQRIWKHRSHUDWLQJUDWLR
>3DUWLFXODU([SHQVH 3DUWLFXODUH[SHQVH1HWVDOHVî@
‡ 5HWXUQRQ6KDUHKROGHUV¶,QYHVWPHQWRU1HWZRUWK5DWLR,WLVWKHUDWLR
RIQHWSURILWWRVKDUHKROGHU¶VLQYHVWPHQW,WLVWKHUHODWLRQVKLSEHWZHHQQHW
SURILWDIWHULQWHUHVWDQGWD[DQGVKDUHKROGHU¶VSURSULHWRU¶VIXQG
5HWXUQRQVKDUHKROGHU¶VLQYHVWPHQW ^1HWSURILWDIWHULQWHUHVWDQGWD[
6KDUHKROGHU¶VIXQG`î
7KLVUDWLRLVRQHRIWKHPRVWLPSRUWDQWUDWLRVXVHGIRUPHDVXULQJWKHRYHUDOOHIIL
FLHQF\RIDILUP$VWKHSULPDU\REMHFWLYHRIEXVLQHVVLVWRPD[LPL]HLWVHDUQLQJV
WKLVUDWLRLQGLFDWHVWKHH[WHQWWRZKLFKWKLVSULPDU\REMHFWLYHRIEXVLQHVVHVEHLQJ
DFKLHYHG
‡ 5HWXUQRQ(TXLW\&DSLWDO52(&5DWLR
,QUHDOVHQVHRUGLQDU\VKDUHKROGHUVDUHWKHUHDORZQHUVRIWKHFRPSDQ\7KH\
DVVXPHWKHKLJKHVWULVNLQWKHFRPSDQ\3UHIHUHQFHVKDUHKROGHUVKDYHDSUHIHUHQFH
RYHURUGLQDU\VKDUHKROGHUVLQWKHSD\PHQWRIGLYLGHQGDVZHOODVFDSLWDO
5HWXUQRQ(TXLW\&DSLWDO >1HWSURILWDIWHUWD["3UHIHUHQFHGLYLGHQG
(TXLW\VKDUHFDSLWDO@î
7KLVUDWLRLVPRUHPHDQLQJIXOWRWKHHTXLW\VKDUHKROGHUVZKRDUHLQWHUHVWHGWRNQRZ
SURILWVHDUQHGE\WKHFRPSDQ\DQGWKRVHSURILWVZKLFKFDQEHPDGHDYDLODEOHWRSD\
GLYLGHQGVWRWKHP,QWHUSUHWDWLRQRIWKHUDWLRLVVLPLODUWRWKHLQWHUSUHWDWLRQRIUHWXUQ
6HOI,QVWUXFWLRQDO 0DWHULDO
RQVKDUHKROGHU¶VLQYHVWPHQWVDQGKLJKHUWKHUDWLREHWWHULV

 ‡ 5HWXUQRQ&DSLWDO(PSOR\HG5DWLR52&(5DWLR )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
7KHSULPHREMHFWLYHRIPDNLQJLQYHVWPHQWVLQDQ\EXVLQHVVLVWRREWDLQVDWLVIDFWRU\ 6WUDWHJLHV
UHWXUQRQFDSLWDOLQYHVWHG+HQFHWKHUHWXUQRQFDSLWDOHPSOR\HGLVXVHGDVD
PHDVXUHRIVXFFHVVRIDEXVLQHVVLQUHDOL]LQJWKLVREMHFWLYH5HWXUQRQFDSLWDOHP
127(6
SOR\HGUDWLRLVFRQVLGHUHGWREHWKHEHVWPHDVXUHRISURILWDELOLW\LQRUGHUWRDVVHVV
WKHRYHUDOOSHUIRUPDQFHRIWKHEXVLQHVV,WLQGLFDWHVKRZZHOOWKHPDQDJHPHQWKDV
XVHGWKHLQYHVWPHQWPDGHE\RZQHUVDQGFUHGLWRUVLQWRWKHEXVLQHVV
*URVV FDSLWDO HPSOR\HG  )L[HG DVVHWV  ,QYHVWPHQWV  &XUUHQW DVVHWV
1HWFDSLWDOHPSOR\HG )L[HGDVVHWV,QYHVWPHQWV:RUNLQJFDSLWDO 
:RUNLQJFDSLWDO FXUUHQWDVVHWV"FXUUHQWOLDELOLWLHV
5HWXUQRQ&DSLWDO(PSOR\HG $GMXVWHGQHWSURILWV &DSLWDOHPSOR\HGî@
‡ 'LYLGHQG<LHOG5DWLR
'LYLGHQG\LHOGUDWLRLVWKHUHODWLRQVKLSEHWZHHQGLYLGHQGVSHUVKDUHDQGWKHPDUNHW
YDOXHRIWKHVKDUHV7KLVUDWLRKHOSVDVLQWHQGLQJLQYHVWRUNQRZVWKHHIIHFWLYHUHWXUQ
KHLVJRLQJWRJHWRQWKHSURSRVHGLQYHVWPHQW
'LYLGHQG<LHOG5DWLR 'LYLGHQGSHU6KDUH0DUNHW9DOXHSHU6KDUH@
‡ 'LYLGHQG3D\RXW5DWLR
'LYLGHQGSD\RXWUDWLRLVFDOFXODWHGWRILQGWKHH[WHQWWRZKLFKHDUQLQJVSHUVKDUH
KDYHEHHQXVHGIRUSD\LQJGLYLGHQGDQGWRNQRZZKDWSRUWLRQRIHDUQLQJVKDVEHHQ
UHWDLQHGLQWKHEXVLQHVV,WLVDQLPSRUWDQWUDWLREHFDXVHLQYHVWLQJEDFNRISURILWV
HQDEOHVDFRPSDQ\WRJURZDQGSD\PRUHGLYLGHQGVLQIXWXUH
'LYLGHQG3D\RXW5DWLR 'LYLGHQGSHU(TXLW\6KDUH(DUQLQJVSHU6KDUH
$FRPSOHPHQWDU\RIWKLVUDWLRLVUHWDLQHGHDUQLQJVUDWLR5HWDLQHGHDUQLQJVUDWLR
LVFDOFXODWHGE\XVLQJWKHIROORZLQJIRUPXOD
>5HWDLQHG(DUQLQJV5DWLR 5HWDLQHG(DUQLQJ3HU(TXLW\6KDUH(DUQLQJ
3HU(TXLW\6KDUH@
7KHSD\RXWUDWLRDQGWKHUHWDLQHGHDUQLQJVUDWLRDUHWKHLQGLFDWRUVRIWKHDPRXQWRI
HDUQLQJVWKDWKDYHEHHQSORXJKHGEDFNLQWKHEXVLQHVV7KHORZHUWKHSD\RXWUDWLR
WKHKLJKHUZLOOEHWKHDPRXQWRIHDUQLQJVSORXJKHGEDFNLQWKHEXVLQHVVDQGYLFH
YHUVD
‡ (DUQLQJVSHU6KDUH(365DWLR(DUQLQJVSHUVKDUHUDWLR(365DWLR
LVDVPDOOYDULDWLRQRIUHWXUQRQHTXLW\FDSLWDOUDWLRDQGLVFDOFXODWHGE\
GLYLGLQJWKHQHWSURILWDIWHUWD[HVDQGSUHIHUHQFHGLYLGHQGE\WKHWRWDOQXP
EHURIHTXLW\VKDUHV
(DUQLQJVSHUVKDUH(365DWLR 1HWSURILWDIWHUWD["3UHIHUHQFHGLYL
GHQG1RRIHTXLW\VKDUHVFRPPRQVKDUHV@
7KHHDUQLQJVSHUVKDUHUDWLRLVDJRRGPHDVXUHRISURILWDELOLW\DQGZKHQFRPSDUHG
ZLWK(36RIVLPLODUFRPSDQLHVLWJLYHVDYLHZRIWKHFRPSDUDWLYHHDUQLQJVRU
HDUQLQJVSRZHURIWKHILUP(36UDWLRFDOFXODWHGIRUDQXPEHURI\HDUVLQGLFDWHV
ZKHWKHURUQRWWKHHDUQLQJSRZHURIWKHFRPSDQ\KDVLQFUHDVHG 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 3ULFH(DUQLQJV5DWLR3(5DWLR
3RUWIROLR0DQDJHPHQW
3ULFHHDUQLQJVUDWLR3(UDWLRLVWKHUDWLREHWZHHQPDUNHWSULFHSHUHTXLW\VKDUH
DQGHDUQLQJVSHUVKDUH3ULFHHDUQLQJVUDWLRKHOSVWKHLQYHVWRULQGHFLGLQJZKHWKHU
127(6 WREX\RUQRWWREX\WKHVKDUHVRIDSDUWLFXODUFRPSDQ\DWDSDUWLFXODUPDUNHWSULFH
*HQHUDOO\KLJKHUWKHSULFHHDUQLQJVUDWLRWKHEHWWHULWLV,IWKH3(UDWLRIDOOVWKH
PDQDJHPHQWVKRXOGORRNLQWRWKHFDXVHVWKDWKDYHUHVXOWHGLQWRWKHIDOORIWKLVUDWLR
3ULFH(DUQLQJV5DWLR 0DUNHWSULFHSHUHTXLW\VKDUH(DUQLQJVSHUVKDUH

)XQGV )ORZ 6WDWHPHQW

7KHIXQGVIORZVWDWHPHQWLVDUHSRUWRQFKDQJHVLQILQDQFLDORSHUDWLRQV IORZRU
PRYHPHQWVRIIXQGVGXULQJWKHSHULRG,WLVDVWDWHPHQWZKLFKVKRZVWKHVRXUFHV
DQDSSOLFDWLRQRIIXQGVRULWVKRZVKRZWKHDFWLYLW\RIDEXVLQHVVLVILQDQFHGLQD
SDUWLFXODWHSHULRG,QRWKHUZRUGVVXFKDVWDWHPHQWVKRZVKRZWKHILQDQFLDOUH
VRXUFHVKDYHEHHQXVHGGXULQJDSDUWLFXODUSHULRGRIWLPH,WLVWKXVDKLVWRULFDO
VWDWHPHQWVKRZLQJVRXUFHVDQGDSSOLFDWLRQRIIXQGVEHWZHHQWKHWZRGDWHVGHVLJQHG
HVSHFLDOO\WRDQDO\]HWKHFKDQJHVLQWKHILQDQFLDOFRQGLWLRQVRIDQHQWHUSULVH,QWKH
ZRUGVRI)RXONHLWLV³$VWDWHPHQWRI6RXUFHVDQG$SSOLFDWLRQRI)XQGVLV
DWHFKQLFDOGHYLFHGHVLJQHGWRDQDO\]HWKHFKDQJHVLQWKHILQDQFLDOFRQGLWLRQ
RIDEXVLQHVVHQWHUSULVHVEHWZHHQWZRGDWHV´
7KHREMHFWLYHRIWKLVVWDWHPHQWFDQEHRXWOLQHGDVEHORZ
 $QDO\VLVRI)LQDQFLDO3RVLWLRQ7KHEDVLFSXUSRVHRISUHSDULQJWKHVWDWH
PHQWLVWRPDNHWKHILQDQFLDORSHUDWLRQVHIIHFWLYH,WDQDO\VHVKRZWKHIXQGV
ZHUHREWDLQHGDQGXVHGLQWKHSDVW,QWKLVVHQVHLWLVDYDOXDEOHWRROIRU
WKHILQDQFHPDQDJHUIRUDQDO\]LQJWKHSDVWDQGIXWXUHSODQVRIWKHILUPDQG
WKHLULPSDFWRQWKHOLTXLGLW\
 (YDOXDWLRQRIWKH)LUP¶V)LQDQFLQJ2QHLPSRUWDQWXVHRIWKHVWDWHPHQW
LVWKDWLWHYDOXDWHVWKHILUP¶ILQDQFLQJFDSDFLW\7KHDQDO\VLVRIVRXUFHVRI
IXQGVUHYHDOVKRZWKHILUP¶VILQDQFHGLWVGHYHORSPHQWSURMHFWVLQWKHSDVW
LHIURPLQWHUQDOVRXUFHVRUIURPH[WHUQDOVRXUFHV,WDOVRUHYHDOVWKHUDWH
RIJURZWKRIWKHILUP
 (IIHFWLYH$OORFDWLRQRI5HVRXUFHV,QPRGHUQODUJHVFDOHEXVLQHVVDYDLO
DEOHIXQGVDUHDOZD\VVKRUWIRUH[SDQVLRQSURJUDPPHVDQGWKHUHLVDOZD\V
DSUREOHPRIDOORFDWLRQRIUHVRXUFHV,WLVWKHUHIRUHDQHHGRIHYROYLQJDQ
RUGHURISULRULWLHVIRUSXWWLQJWKURXJKWKHLUH[SDQVLRQSURJUDPPHVZKLFKDUH
SKDVHGDFFRUGLQJO\DQGIXQGVKDYHWREHDUUDQJHGDVGLIIHUHQWSKDVHVRI
SURJUDPPHVJHWLQWRWKHLUVWULGH
 (IIHFWLYH&RPPXQLFDWLRQWR2XWVLGH:RUOG)XQGV)ORZ6WDWHPHQWKHOSV
LQJDWKHULQJWKHILQDQFLDOVWDWHVRI%XVLQHVV,QWKHSUHVHQWZRUOGRIFUHGLW
ILQDQFLQJLWSURYLGHVDXVHIXOLQIRUPDWLRQWREDQNHUVFUHGLWRUVHWFUHJDUG
LQJDPRXQWRIORDQUHTXLUHGLWVSURSRVHVWKHWHUPVRIUHSD\PHQWVRXUFHV
6HOI,QVWUXFWLRQDO 0DWHULDO
IRUUHSD\PHQWRIORDQHWF

  &DQEHXVHGIRU)XWXUH5HIHUHQFH$QDQDO\VLVRI)XQGV)ORZ6WDWH )LQDQFLDO$QDO\VLV
PHQWVRIVHYHUDO\HDUVUHYHDOVFHUWDLQYDOXDEOHLQIRUPDWLRQIRUWKHILQDQFLDO ,QYDULDQWDQG3RUWIROLRV
6WUDWHJLHV
PDQDJHUIRUSODQQLQJWKHIXWXUHILQDQFLDOUHTXLUHPHQWVRIWKHILUPDQGWKHLU
QDWXUHWRRLH6KRUWWHUPORQJWHUPRUPLGWHUP7KHPDQDJHPHQWFDQ
IRUPXODWHLWVILQDQFLDOSROLFLHVEDVHGRQLQIRUPDWLRQJDWKHUHGIURPWKHDQDO\ 127(6
VLVRIVXFKVWDWHPHQWV)LQDQFLDOPDQDJHUFDQUHDUUDQJHWKHILUP¶VILQDQFLQJ
PRUHHIIHFWLYHO\RQWKHEDVLVRIVXFKLQIRUPDWLRQDORQJZLWKWKHH[SHFWHG
FKDQJHVLQWUDGHSSD\DEOHVDQGWKHYDULRXVDFFUXDOV,QWKLVZD\LWJXLGHV
WKHPDQDJHPHQWLQDUUDQJLQJLWVILQDQFLQJPRUHHIIHFWLYHO\
3UHSDUDWLRQRI)XQG)ORZ6WDWHPHQW
L3UHSDUH6FKHGXOHRI&KDQJHVLQZRUNLQJ&DSLWDOWRJHW1HWLQFUHDVH'HFUHDVH
LQZRUNLQJFDSLWDO
&XUUHQW$VVHWV $VRQ« $VRQ« ,QFUHDVH 'HFUHDVH
x &DVK%DODQFH
x %DQN%DODQFH
x 0DUNHWDEOH6HFXULWLHV
x $FFRXQWV5HFHLYDEOH
x 6WRFNLQ7UDGH
x 3UHSDLG([SHQVHV
&XUUHQW/LDELOLWLHV    
x %DQN2YHUGUDIW
x $FFRXQWVSD\DEOH
x 2XWVWDQGLQJ([SHQVHV

1HW,QFUHDVH'HFUHDVHLQ:RUNLQJ&DSLWDO    


1HW,QFUHDVH'HFUHDVHLQ:RUNLQJ&DSLWDO
LL3UHSDUH)XQG)ORZ6WDWHPHQW
3DUWLFXODUV
6RXUFHVRIIXQGV
,VVXHVRI6KDUHV
,VVXHVRI'HEHQWXUHV
/RQJ7HUP%RUURZLQJV
6DOHRIIL[HG$VVHWV
2SHUDWLQJSURILW
'HFUHDVHLQZRUNLQJFDSLWDO
,QFUHDVHLQZRUNLQJFDSLWDO
 
$PRXQW 3DUWLFXODUV $PRXQW
 $SSOLFDWLRQRIIXQGV 
5HGHPSWLRQRIUHGHHPDEOH6KDUHV
5HGHPSWLRQRI'HEHQWXUHV
3D\PHQWRIRWKHUORQJWHUPORDQV
3XUFKDVHRIIL[HGDVVHWV
2SHUDWLQJORVV
3D\PHQWRIGLYLGHQGVWD[HWF


6HOI,QVWUXFWLRQDO 0DWHULDO
 

6HFXULW\$QDO\VLV ([DPSOH)URPWKHIROORZLQJLQIRUPDWLRQSUHSDUH
3RUWIROLR0DQDJHPHQW L$6FKHGXOHRI&KDQJHVLQ:RUNLQJ&DSLWDO
LL$)XQGV)ORZ6WDWHPHQW

127(6 %DODQFH6KHHW
RI0VBBBBBBDVRQ

VW0DUFK VW0DUFK
/LDELOLWLHV $VVHWV
   

&DSLWDO   *RRGZLOODW  

3URILW/RVV   &RVW  
$SSURSULDWLRQ   /DQGDQG  
%DQN/RDQ   %XLOGLQJV  
%LOOV3D\DEOH   3ODQWDQG  
6XQGU\&UHGLWRUV   0DFKLQHU\  
5HVHUYHIRU7D[DWLRQ )XUQLWXUHDQG  
)LWWLQJV  
6WRFN,QYHQWRUL  
HV  
6XQGU\'HEWRUV  
%LOOV
5HFHLYDEOH
%DQN
&DVK

     

 

6HOI,QVWUXFWLRQDO 0DWHULDO

6ROXWLRQ )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
6FKHGXOH6WDWHPHQWRI&KDQJHVLQ:RUNLQJ&DSLWDOIRUWKHSHULRGIURPBB 6WUDWHJLHV
WR B
127(6
3UHYLRX &XUUHQW :RUNLQJ&DSLWDO&KDQJH
3DUWLFXODUV$FFRXQW
V3HULRG 3HULRG
,QFUHDVH 'HFUHDVH

$&855(17$66(76    
6WRFN,QYHQWRULHV    
6XQGU\'HEWRUV    
%LOOV5HFHLYDEOH    
%DQN    
&DVK   


    



%&855(17    
/,$%,/,7,(63529,6,216    
%LOOV3D\DEOH   
6XQGU\&UHGLWRUV   
3URYLVLRQIRU7D[DWLRQ 

    



  
:RUNLQJ&DSLWDO$"% 


"  

&KDQJHLQ:RUNLQJ&DSLWDO 
2U" 



:RUNLQJ1RWHV
,QWKLVSUREOHPZHQHHGWRSUHSDUH
ƒ &DSLWDODF
ƒ 3URILWDQG/RVV$SSURSULDWLRQDF%DQN/RDQDF
ƒ /DQGDQG%XLOGLQJVDF
ƒ 3ODQWDQG0DFKLQHU\DF
&DSLWDODF

6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 'U&U
3RUWIROLR0DQDJHPHQW
$PRXQW $PRXQW
'DWH 3DUWLFXODUV -) 'DWH 3DUWLFXODUV -)
LQ5V LQ5V

127(6  7R%DODQFHFG ±   %\%DODQFHEG ± 

± %\%DQNDF" ± 
 7RWDO    7RWDO  
     %\%DODQFHEG ± 

%DQN/RDQDF
'U&U

$PRXQW $PRXQW
'DWH 3DUWLFXODUV -) 'DWH 3DUWLFXODUV -)
LQ5V LQ5V
± 7R%DQNDF" ±   %\%DODQFHEG ± 
 7R%DODQFHFG ± 
 7RWDO    7RWDO  
     %\%DODQFHEG ± 

/DQGDQG%XLOGLQJVDF
'U&U

$PRXQW $PRXQW
'DWH 3DUWLFXODUV -) 'DWH 3DUWLFXODUV -)
LQ5V LQ5V
 7R%DODQFHEG ±   %\%DODQFHFG ± 
± 7R%DQNDF" ± 
 7RWDO    7RWDO  
 7R%DODQFHEG ±     

3ODQWDQG0DFKLQHU\DF
'U&U

$PRXQW $PRXQW
'DWH 3DUWLFXODUV -) 'DWH 3DUWLFXODUV -)
LQ5V LQ5V
 7R%DODQFHEG ±   %\%DODQFHFG ± 
± 7R%DQNDF" ± 
 7RWDO    7RWDO  
 7R%DODQFHEG ±     


6HOI,QVWUXFWLRQDO 0DWHULDO

 3URILWDQG/RVV$SSURSULDWLRQDF )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
$PRXQW $PRXQW 6WUDWHJLHV
'DWH 3DUWLFXODUV -) 'DWH 3DUWLFXODUV -)
LQ5V LQ5V
 7R%DODQFHFG ±   %\%DODQFHEG ±  127(6
 %\3/))2DF ± 
 7RWDO    7RWDO  
     %\%DODQFHEG ± 

&KDQJHVLQ)XQG$FFRXQWV

$PRXQW $PRXQW
,WHP 3UHYLRXV &XUUHQW &KDQJH 1DWXUH 5HVXOW
3HULRG 3HULRG

&DSLWDO    /LDELOLW\ ,QIORZ

3URILW/RVV    ,QFUHDVH ,QIORZ
$SSURSULDWLRQ    /LDELOLW\ ,QIORZ
%DQN/RDQ    ,QFUHDVH ,QIORZ
/DQGDQG%XLOGLQJ    /LDELOLW\ 2XWIORZ
3ODQWDQG0DFKLQHU\ ,QFUHDVH
/LDELOLW\
,QFUHDVH
$VVHW,QFUHDVH


)XQGV)ORZ6WDWHPHQW

6WDWHPHQWRI6RXUFHVDQG$SSOLFDWLRQVRI)XQGVIRUWKHSHULRGIURPBBWRBB

6RXUFHV,QIORZ $SSOLFDWLRQV2XWIORZ

$PRXQW $PRXQW
RI)XQGV RI)XQGV

&DSLWDO  /DQGDQG%XLOGLQJV 

3URILW/RVV$SSURSULDWLRQ  3ODQWDQG0DFKLQHU\ 
%DQN/RDQ 

   

  &KDQJHLQ:RUNLQJ&DSLWDO 


 &DVK )ORZ 6WDWHPHQW

7KHFDVKIORZVWDWHPHQWVKRZVKRZPXFKFDVKFRPHVLQDQGJRHVRXWRIWKH
FRPSDQ\RYHUWKHTXDUWHURUWKH\HDU,WVRXQGVOLNHWKHLQFRPHVWDWHPHQWLQWKDW
LWUHFRUGVILQDQFLDOSHUIRUPDQFHRYHUDVSHFLILHGSHULRG%XWWKHUHLVDELJGLIIHUHQFH
EHWZHHQWKHWZR
:KDWGLVWLQJXLVKHVWKHWZRLVWKHSULQFLSOHRIDFFUXDODFFRXQWLQJRQZKLFKRQO\WKH
LQFRPHVWDWHPHQWLVEDVHG$FFUXDODFFRXQWLQJUHTXLUHVFRPSDQLHVWRUHFRUGUHY 6HOI,QVWUXFWLRQDO 0DWHULDO
HQXHVDQGH[SHQVHVZKHQWUDQVDFWLRQVRFFXUQRWZKHQFDVKLVH[FKDQJHG$WWKH 
6HFXULW\$QDO\VLV VDPHWLPHWKHLQFRPHVWDWHPHQWRQWKHRWKHUKDQGRIWHQLQFOXGHVQRQFDVKUHY
3RUWIROLR0DQDJHPHQW HQXHVRUH[SHQVHVZKLFKWKHVWDWHPHQWRIFDVKIORZVGRHVQRWLQFOXGH
([DPSOH7KHLQFRPHVWDWHPHQWVKRZVQHWLQFRPHRIGRHVQRWPHDQVWKDWFDVK
127(6 RQWKHEDODQFHVKHHWZLOOLQFUHDVHE\:KHUHDVZKHQWKHERWWRPRIWKHFDVK
IORZVVWDWHPHQWUHDGVQHWFDVKLQIORZWKDWPHDQVWKHLQFUHDVHLQFDVKE\
&DVKIORZVWDWHPHQWLVGLYLGHGLQWRWKUHHVHFWLRQVFDVKIORZVIURPRSHUDWLRQV
ILQDQFLQJDQGLQYHVWLQJ͘
x &DVKIORZIURPRSHUDWLQJDFWLYLWLHV7KLVVHFWLRQPHDVXUHVWKHFDVKXVHG
RUSURYLGHGE\DFRPSDQ\¶VQRUPDORSHUDWLRQV,WVKRZVWKHFRPSDQ\¶V
DELOLW\WRJHQHUDWHFRQVLVWHQWO\SRVLWLYHFDVKIORZIURPRSHUDWLRQV7KLQNRI
³QRUPDORSHUDWLRQV´DVWKHFRUHEXVLQHVVRIWKHFRPSDQ\)RUH[DPSOH
0LFURVRIW¶VQRUPDORSHUDWLQJDFWLYLW\LVVHOOLQJVRIWZDUH6RPHFDVKIORZVLQ
WKLVUHVSHFWDUH
&DVKUHFHLSWIRUWKHVDOHRIJRRGV
&DVKUHFHLSWIURPVDOHRIUR\DOWLHV
FDVKSD\PHQWRQEHKDOIRIHPSOR\HHV
FDVKSD\PHQWIRUWD[HVFDVKSD\PHQWIRUSUHPLXPVRILQVXUDQFHV
x &DVKIORZVIURPLQYHVWLQJDFWLYLWLHV7KLVDUHDOLVWDOOWKHFDVKXVHGRU
SURYLGHGE\WKHSXUFKDVHDQGVDOHRILQFRPHSURGXFLQJDVVHWV,I0LFURVRIW
DJDLQ RXU H[DPSOH ERXJKW RU VROG FRPSDQLHV IRU DSURILW RU ORVV WKH
UHVXOWLQJILJXUHVZRXOGEHLQFOXGHGLQWKLVVHFWLRQRIWKHFDVKIORZVWDWHPHQW
6RPHFDVKIORZVLQWKLVUHVSHFWDUH
&DVKSD\PHQWIRUDFTXLULQJDVVHWV
&DVKUHFHLSWIURPGLVSRVDORIIL[HGDVVHWV
&DVKSD\PHQWIRUDFTXLULQJVKDUHV
&DVKUHFHLSWIURPGLVSRVDORIVKDUHV
x &DVKIORZVIURPILQDQFLQJDFWLYLWLHV7KLVVHFWLRQPHDVXUHVWKHIORZRIFDVK
EHWZHHQDILUPDQGLWVRZQHUVDQGFUHGLWRUV1HJDWLYHQXPEHUVFDQPHDQ
WKHFRPSDQ\LVVHUYLFLQJGHEWEXWFDQDOVRPHDQWKHFRPSDQ\LVPDNLQJ
GLYLGHQGSD\PHQWVDQGVWRFNUHSXUFKDVHVZKLFKLQYHVWRUVPLJKWEHJODGWR
VHH6RPHFDVKIORZVLQWKLVUHVSHFWDUH
&DVKUHFHLSWVIURPLVVXLQJVKDUHVRUGHEHQWXUHV
&DVKSD\PHQWIRUUHGHPSWLRQRIGHEHQWXUHV
'LVWLQFWLRQEHWZHHQIXQGVIORZVWDWHPHQWDQGFDVKIORZVWDWHPHQW
$GLVWLQFWLRQEHWZHHQWKHVHWZRVWDWHPHQWVPD\EHEULHIHGDVXQGHU
6HOI,QVWUXFWLRQDO 0DWHULDO

 L )XQGV)ORZ6WDWHPHQWLVFRQFHUQHGZLWKDOOLWHPVFRQVWLWXWLQJIXQGV:RUN )LQDQFLDO$QDO\VLV
LQJ&DSLWDOIRUWKHEXVLQHVVZKLOH&DVK)ORZ6WDWHPHQWGHDOVRQO\ZLWK ,QYDULDQWDQG3RUWIROLRV
6WUDWHJLHV
FDVKWUDQVDFWLRQV,QRWKHUZRUGVDWUDQVDFWLRQDIIHFWLQJZRUNLQJFDSLWDO
RWKHUWKDQFDVKZLOODIIHFW)XQGVVWDWHPHQWDQGQRWWKH&DVK)ORZ6WDWH
PHQW 127(6

LL ,Q)XQGV)ORZ6WDWHPHQWQHWLQFUHDVHRUGHFUHDVHLQZRUNLQJFDSLWDOLV
UHFRUGHGZKLOHLQ&DVK)ORZ6WDWHPHQWLQGLYLGXDOLWHPLQYROYLQJFDVKLV
WDNHQLQWRDFFRXQW

LLL )XQGV)ORZVWDWHPHQWLVVWDUWHGZLWKWKHRSHQLQJFDVKEDODQFHDQGFORVHG
ZLWKWKHFORVLQJFDVKEDODQFHUHFRUGVRQO\FDVKWUDQVDFWLRQV

LY &DVK)ORZ6WDWHPHQWLVVWDUWHGZLWKWKHRSHQLQJFDVKEDODQFHDQGFORVHG
ZLWKKWFORVLQJFDVKEDODQFHZKLOHWKHUHDQRRSHQLQJRUFORVLQJEDODQFHV
LQ)XQGV)ORZ6WDWHPHQW

8VHVRI&DVK)ORZ6WDWHPHQW

L 3ODQQLQJDQG&RRUGLQDWLRQRI)LQDQFLDO2SHUDWLRQV&DVK)ORZ6WDWH
PHQWLVXVHIXOLVHYDOXDWLQJ)LQDQFLDOSROLFLHVDQGFXUUHQWFDVKSRVLWLRQ6LQFH
FDVK LV WKHEDVLVIRU FDUU\LQJ RQ RSHUDWLRQV WKH&DVK )ORZ 6WDWHPHQW
SUHSDUHGRQDQHVWLPDWHGEDVLVIRUWKHQH[WDFFRXQWLQJSHULRGZLOOHQDEOH
WKHPDQDJHPHQWWRSODQDQGFRRUGLQDWHWKHILQDQFLDORSHUDWLRQVSUREDEO\
7KHPDQDJHPHQWFRPHVWRNQRZKRZPXFKFDVKLVQHHGHGLQWKHIXWXUHDQG
DWZKDWWLPHDQGKRZFDQLWEHDUUDQJHGKRZPXFKLQWHUQDOO\DQGKRZ
PXFKIURPRXWVLGH,WLVHVSHFLDOO\XVHIXOLQSUHSDULQJFDVKEXGJHWV

LL $&RQWURO'HYLFH&DVK)ORZVWDWHPHQWLVDOVRDFRQWUROGHYLFHIRUWKH
PDQDJHPHQW$FRPSDULVRQRIFDVKIORZVWDWHPHQWRISUHYLRXV\HDUZLWKWKH
EXGJHWIRUWKDW\HDUZRXOGLQGLFDWHWRZKDWH[WHQWWKHUHVRXUFHVRIWKH
HQWHUSULVHZHUHUDLVHGDQDSSOLHGDFFRUGLQJWRWKHSODQ7KXVDFRPSDULVRQ
RIRULJLQDOIRUHFDVWZLWKDFWXDOUHVXOWVPD\KLJKOLJKWVWUHQGVRIPRYHPHQWWKDW
PLJKWRWKHUZLVHJRXQGHWHFWHG

LLL 8VHIXOWRLQWHUQDO)LQDQFLDO0DQDJHPHQW6LQFHLWJLYHVDFOHDUSLFWXUH
RIFDVKLQIORZIURPRSHUDWLRQVDQGQRWLQFRPHIORZRIRSHUDWLRQLWLV
WKHUHIRUHYHU\XVHIXOWRLQWHUQDOILQDQFLDOPDQDJHPHQWLQFRQVLGHULQJWKH
SRVVLELOLW\RIUHWLULQJOLQJWHUPGHEWVLQSODQQLQJUHSODFHPHQWRISODQWIDFLOL
WLHVRULQIRUPXODWLQJGLYLGHQGSROLFLHV

LY 3URILWDQG&DVK3RVLWLRQV,WHQDEOHVWKHPDQDJHPHQWWRDFFRXQWIRU
VLWXDWLRQZKHQEXVLQHVVKDVHDUQHGKXJHSURILWV\HWUXQZLWKRXWPRQH\RU
ZKHQLWKDVVXIIHUHGDORVVDQGVWLOOKDVSOHQW\RIPRQH\DWWKHEDQN

Y 6KRUWWHUP)LQDQFLDO'HFLVLRQV&DVK)ORZ6WDWHPHQWKHOSVWKHPDQDJH
PHQWLQWDNLQJVKRUWWHUPILQDQFLDOGHFLVLRQV6XSSRVHLIILUPZDQWVWRNQRZ
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV LWVVWDWHRIVROYHQF\DIWHURQHPRQWKIURPWRGDWHLWLVSRVVLEOHRQO\IURP
3RUWIROLR0DQDJHPHQW &DVK)ORZDQDO\VLVDQGQRWIURP)XQG)ORZ6WDWHPHQW6KRUWHUWKHSHULRG
JUHDWHULVWKHLPSRUWDQFHRI&DVK)ORZ6WDWHPHQW

127(6  2%-(&7,9( 2) &$6+ )/2: 67$7(0(176

&DVK)ORZVWDWHPHQWLVSUHSDUHGZLWKDQREMHFWLYHWRKLJKOLJKWWKHVRXUFHVDQGXVHV
RIFDVKDQGFDVKHTXLYDOHQWVIRUDSHULRG&DVKIORZVWDWHPHQWLVFODVVLILHGXQGHU
RSHUDWLQJDFWLYLWLHVDQGILQDQFLQJDFWLYLWLHV,WVKRZVWKHQHWLQFUHDVHRUQHWGHFUHDVH
RIFDVKDQGFDVKHTXLYDOHQWVXQGHUHDFKDFWLYLW\

 /,0,7$7,216 2) &$6+ )/2: 67$7(0(17

7KURXJKWKHFDVKIORZ6WDWHPHQWLVDYHU\XVHIXOWRRORIILQDQFLDODQDO\VLV\HWLWKDV
LWVRZQOLPLWDWLRQVZKLFKPXVWEHNHSWLQPLQGDWWKHWLPHRILWVXVH7KHVHOLPLWDWLRQV
DUH
 1RQ&DVK7UDQVDFWLRQVDUHLJQRUHG
 1RWD6XEVWLWXWHIRU,QFRPH6WDWHPHQW
 1RWDWHVWRI7RWDO)LQDQFLDO3RVLWLRQ
 +LVWRULFDOLQ1DWXUH
3URFHGXUHIRUSUHSDULQJ&DVK)ORZ6WDWHPHQW
L ,WVWDUWVZLWKRSHQLQJRUFORVLQJEDODQFH
LL $OOWKHLQIORZVRIFDVKDUHDGGHG RXWIORZVRIFDVKDUHGH
GXFWHG
LLL 7KHEDODQFHLVUHFRQFLOHGZLWKWKHEDODQFHRIFDVK
6RXUFHVRIFDVKLQIORZ
 &DVKIORZIURPRSHUDWLRQV
 ,QFUHDVHLQH[LVWLQJOLDELOLWLHVRUFUHDWLRQRIQHZOLDELOLWLHV
 5HGXFWLRQLQRUVDOHRIDVVHWV
$SSOLFDWLRQRIFDVK
 &DVKORVWLQRSHUDWLRQV
 'LVFKDUJHRIOLDELOLWLHV
 3XUFKDVHRIDVVHWV
 1RQWUDGLQJSD\PHQWV
)RUPDWRI&DVK)ORZ6WDWHPHQW$SSURYHGE\6(%,LVJLYHQEHORZ

6HOI,QVWUXFWLRQDO 0DWHULDO

&DVK)ORZ6WDWHPHQWIRUWKH\HDUHQGHG«««« )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
3DUWLFXODUV 6WUDWHJLHV
$PRXQW
$&DVK)ORZ2SHUDWLQJ$FWLYLWLHV 127(6
1HW3URILW/RVVEHIRUHWD[DQGH[WUDRUGLQDU\LWHPV
$GMXVWPHQWVIRU
'HSUHFLDWLRQ
*DLQ/RVVRQVDOHRIIL[HGDVVHWV
)RUHLJQH[FKDQJH
0LVFHOODQHRXVH[SHQGLWXUHZULWWHQRII
,QYHVWPHQWLQFRPH
,QWHUHVW
'LYLGHQG
2SHUDWLQJSURILWEHIRUHZRUNLQJFDSLWDOFKDQJHV
$GMXVWPHQWVIRU
7UDGHDQGRWKHUUHFHLYDEOHV
,QYHQWRULHV
7UDGH3D\DEOHV
&DVKJHQHUDWHGIURPRSHUDWLRQV
,QWHUHVWSDLG
'LUHFWWD[HVSDLG
&DVKIORZEHIRUHLWHPV
([WUDRUGLQDU\LWHPV
1HW&DVKIURP2SHUDWLQJ$FWLYLWLHV
%&DVK)ORZ)URP,QYHVWLQJ$FWLYLWLHV
3XUFKDVHRIIL[HGDVVHWV
6DOHVRIIL[HGDVVHWV
3XUFKDVHRILQYHVWPHQWV
6DOHRILQYHVWPHQWV
,QWHUHVWUHFHLYHG
'LYLGHQGUHFHLYHG
1HW&DVKIURPXVHGLQLQYHVWLQJDFWLYLWLHV
&&DVK)ORZ)LQDQFLQJ$FWLYLWLHV
3URFHHGVIURPLVVXHRIVKDUHFDSLWDO
3URFHHGVIURPORQJWHUPERUURZLQJVEDQNV
3D\PHQWRIORQJWHUPERUURZLQJV
'LYLGHQGSDLG
1HW&DVKIURPXVHGLQILQDQFLQJDFWLYLWLHV
1HW,QFUHDVH'HFUHDVHLQ &DVKDQG&DVK(TXLYDOHQWV
&DVKDQG&DVK(TXLYDOHQWVDVDW««2SHQLQJ%DODQFH 6HOI,QVWUXFWLRQDO 0DWHULDO

&DVKDQG&DVK(TXLYDOHQWVDVDW««&ORVLQJ%DODQFH
6HFXULW\$QDO\VLV ([DPSOH;<=&RPSDQ\VWDUWHGRQ-DQXDU\ZKHQLWLVVXHGVKDUHV
3RUWIROLR0DQDJHPHQW RISDUYDOXHFRPPRQVWRFNIRUFDVK7KHFRPSDQ\UHQWHGLWVRIILFH
VSDFHDQGIXUQLWXUHDQGHTXLSPHQWDQGLWSHUIRUPHGWD[FRQVXOWLQJVHUYLFHVWKURXJKRXW
WKHILUVW\HDU7KHFRPSDUDWLYHEDODQFHVKHHWVDWWKHEHJLQQLQJDQGDWWKHHQGRIWKH
127(6 \HDUDSSHDUDVIROORZV

 'HF -DQ &KDQJH

,QFUHDVH'HFUHDVH

$VVHWV   

   LQFUHDVH

&DVK   LQFUHDVH
$FFRXQWVUHFHLYDEOH   
 
7RWDO   

/LDELOLWLHVDQG6WRFNKROGHU
V   
(TXLW\ 
  LQFUHDVH
$FFRXQWVSD\DEOH   LQFUHDVH
&RPPRQVWRFN   LQFUHDVH
5HWDLQHGHDUQLQJV   
 
7RWDO   

  

7KHLQFRPHVWDWHPHQWDQGDGGLWLRQDOLQIRUPDWLRQIRU7D[&RQVXOWDWLRQ,QFDUHDV
IROORZV
5HYHQXH 
2SHUDWLQJH[SHQVHV 

,QFRPHEHIRUHLQFRPHWD[HV 
,QFRPHWD[H[SHQVHV 

1HWLQFRPH 

6ROXWLRQL7KH&RPSDQ\KDVQRFDVKRQKDQGDWWKHEHJLQQLQJRIWKH\HDU
EXWDWWKHHQGRI7KXVWKHFKDQJHLQFDVKIRUZDV
DQLQFUHDVHRI
LL'HWHUPLQH1HW&DVK)ORZIURP2SHUDWLQJ$FWLYLWLHV
&DVKFROOHFWHGIURPUHYHQXHV 
&DVKSD\PHQWIRUH[SHQVHV 

,QFRPHEHIRUHLQFRPHWD[HV 
&DVKSD\PHQWVIRULQFRPHWD[HV 
6HOI,QVWUXFWLRQDO 0DWHULDO 
 1HWFDVKSURYLGHGE\RSHUDWLQJDFWLYLWLHV 

LLL3UHSDUDWLRQRI&DVK)ORZ6WDWHPHQW )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
&DVK)ORZV)URP2SHUDWLQJ$FWLYLWLHV   6WUDWHJLHV
1HWLQFRPH  
$GMXVWPHQWVWRUHFRQFLOHQHWLQFRPHWRQHWFDVK 127(6
SURYLGHGE\RSHUDWLQJDFWLYLWLHV  
,QFUHDVHLQDFFRXQWVUHFHLYDEOH 
,QFUHDVHLQDFFRXQWVSD\DEOH 
 
1HWFDVKSURYLGHGE\RSHUDWLQJDFWLYLWLHV  

&DVK)ORZV)URP)LQDQFLQJ$FWLYLWLHV  

,VVXDQFHRIFRPPRQVWRFN 
3D\PHQWRIFDVKGLYLGHQG 

1HWFDVKSURYLGHGE\ILQDQFLQJDFWLYLWLHV  

1HWLQFUHDVHLQFDVK  
&DVK-DQXDU\
 
&DVK'HFHPEHU 

 




 &26792/80(352),7 &93 $1$/<6,6

&RVWYROXPHSURILW&93DQDO\VLVLVDWHFKQLTXHWKDWH[DPLQHVFKDQJHVLQSURI
LWVLQUHVSRQVHWRFKDQJHVLQVDOHVYROXPHVFRVWVDQGSULFHV$FFRXQWDQWVRIWHQ
SHUIRUP&93DQDO\VLVWRSODQIXWXUHOHYHOVRIRSHUDWLQJDFWLYLW\DQGSURYLGHLQIRU
PDWLRQDERXW
 :KLFKSURGXFWVRUVHUYLFHVWRHPSKDVL]H"
 7KHYROXPHRIVDOHVQHHGHGWRDFKLHYHDWDUJHWHGOHYHORISURILW
 7KHDPRXQWRIUHYHQXHUHTXLUHGWRDYRLGORVVHV
 :KHWKHUWRLQFUHDVHIL[HGFRVWV"
 +RZPXFKWREXGJHWIRUGLVFUHWLRQDU\H[SHQGLWXUHV"
 :KHWKHUIL[HGFRVWVH[SRVHWKHRUJDQL]DWLRQWRDQXQDFFHSWDEOHOHYHORI
ULVN"
&RVWYROXPHSURILWDQDO\VLV&93LVXVHGWRFRPSXWHWKHYROXPHOHYHODWZKLFK
WRWDOUHYHQXHVDUHHTXDOWRWRWDOFRVWV:KHQWRWDOFRVWVDQGWRWDOUHYHQXHVDUH
HTXDOWKHEXVLQHVVRUJDQL]DWLRQLVVDLGWREH³EUHDNLQJHYHQ´7KHDQDO\VLVLVEDVHG
RQDVHWRIOLQHDUHTXDWLRQVIRUDVWUDLJKWOLQHDQGWKHVHSDUDWLRQRIYDULDEOHDQGIL[HG
FRVWV 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 7RWDOYDULDEOHFRVWVDUHFRQVLGHUHGWREHWKRVHFRVWVWKDWYDU\DVWKHSURGXFWLRQ
3RUWIROLR0DQDJHPHQW YROXPHFKDQJHV,QDIDFWRU\SURGXFWLRQYROXPHLVFRQVLGHUHGWREHWKHQXPEHURI
XQLWVSURGXFHGEXWLQDJRYHUQPHQWDORUJDQL]DWLRQZLWKQRDVVHPEO\SURFHVVWKH
XQLWVSURGXFHGPLJKWUHIHUIRUH[DPSOHWRWKHQXPEHURIZHOIDUHFDVHVSURFHVVHG
127(6
2EMHFWLYHVRI&93$QDO\VLV
&RVWYROXPHSURILWDQDO\VLV&93DQDO\VLVLVRQHRIWKHPRVWSRZHUIXOWRROV
WKDWPDQDJHUVKDYHDWWKHLUFRPPDQG,WKHOSVWKHPXQGHUVWDQGWKHLQWHUUHODWLRQVKLS
EHWZHHQFRVWYROXPHDQGSURILWLQDQRUJDQL]DWLRQE\IRFXVLQJRQLQWHUDFWLRQV
DPRQJWKHIROORZLQJILYHHOHPHQWV
 3ULFHVRISURGXFWV
 9ROXPHRUOHYHORIDFWLYLW\
 3HUXQLWYDULDEOHFRVW
 7RWDOIL[HGFRVW
 0L[RISURGXFWVROG
%HFDXVHFRVWYROXPHSURILW&93DQDO\VLVKHOSVPDQDJHUVXQGHUVWDQGWKHLQWHUUH
ODWLRQVKLSVDPRQJFRVWYROXPHDQGSURILWLWLVDYLWDOWRROLQPDQ\EXVLQHVVGHFL
VLRQV
&RQWULEXWLRQ0DUJLQ
&RQWULEXWLRQPDUJLQLVWKHDPRXQWUHPDLQLQJIURPVDOHVUHYHQXHDIWHUYDULDEOH
H[SHQVHVKDYHEHHQGHGXFWHG7KXVLWLVWKHDPRXQWDYDLODEOHWRFRYHUIL[HGH[
SHQVHVDQGWKHQWRSURYLGHSURILWVIRUWKHSHULRG&RQWULEXWLRQPDUJLQLVILUVWXVHG
WRFRYHUWKHIL[HGH[SHQVHVDQGWKHQZKDWHYHUUHPDLQVJRWRZDUGVSURILWV,IWKH
FRQWULEXWLRQPDUJLQLVQRWVXIILFLHQWWRFRYHUWKHIL[HGH[SHQVHVWKHQDORVVRFFXUV
IRUWKHSHULRG7KLVFRQFHSWLVH[SODLQHGLQWKHIROORZLQJHTXDWLRQV
6DOHVUHYHQXH"9DULDEOHFRVW  &RQWULEXWLRQ0DUJLQ
%RWK0DQXIDFWXULQJDQG1RQ0DQXIDFWXULQJ
&RQWULEXWLRQPDUJLQ")L[HGFRVW  1HWRSHUDWLQJ,QFRPHRU/RVV
%RWK0DQXIDFWXULQJDQG1RQ0DQXIDFWXULQJ
)RUIXUWKHUFODULILFDWLRQRIWKHEDVLFFRQFHSWRIFRVWYROXPHDQGSURILW$QDO\VLV
&93DQDO\VLVZHQRZWDNHDQH[DPSOH
([DPSOH
$VVXPHWKDW;<=3ULYDWH/WGKDVEHHQDEOHWRVHOORQO\RQHXQLWRISURGXFWGXULQJ
WKHSHULRG,IFRPSDQ\GRHVQRWVHOODQ\PRUHXQLWVGXULQJWKHSHULRGWKHFRPSDQ\¶V
FRQWULEXWLRQPDUJLQLQFRPHVWDWHPHQWZLOODSSHDUDVIROORZV

6HOI,QVWUXFWLRQDO 0DWHULDO

 ;<=3ULYDWH/WG )LQDQFLDO$QDO\VLV
&RQWULEXWLRQPDUJLQ,QFRPH6WDWHPHQW
,QYDULDQWDQG3RUWIROLRV
)RUWKHPRQWKRI

7RWDO 3HU8QLW 6WUDWHJLHV

6DOHV8QLWRQO\  

127(6
/HVV9DULDEOHH[SHQVHV  

 

&RQWULEXWLRQPDUJLQ  

/HVVIL[HGH[SHQVHV  

  

1HWRSHUDWLQJORVV  

 




)RUHDFKDGGLWLRQDOXQLWWKDWWKHFRPSDQ\LVDEOHWRVHOOGXULQJWKHSHULRG
PRUHLQFRQWULEXWLRQPDUJLQZLOOEHFRPHDYDLODEOHWRKHOSFRYHUWKHIL[HGH[SHQVHV
,IDVHFRQGXQLWLVVROGIRUH[DPSOHWKHQWKHWRWDOFRQWULEXWLRQPDUJLQZLOOLQFUHDVH
E\WRDWRWDORIDQGWKHFRPSDQ\¶VORVVZLOOGHFUHDVHE\WR
,IHQRXJKXQLWVFDQEHVROGWRJHQHUDWHLQFRQWULEXWLRQPDUJLQ
WKHQDOORIWKHIL[HGFRVWVZLOOEHFRYHUHGDQGWKHFRPSDQ\ZLOOKDYHPDQDJHGWR
DWOHDVWEUHDNHYHQIRUWKHPRQWKWKDWLVWRVKRZQHLWKHUSURILWQRUORVVEXWMXVW
FRYHUDOORILWVFRVWV7RUHDFKWKHSRLQWWKHFRPSDQ\ZLOOKDYHWRVHOOXQLWV
LQDSHULRGVLQFHHDFKXQLWVROGFRQWULEXWHLQWKHFRQWULEXWLRQPDUJLQ7KLVLV
VKRZQDVIROORZVE\WKHFRQWULEXWLRQPDUJLQIRUPDWLQFRPHVWDWHPHQW
;<=3ULYDWH/WG
&RQWULEXWLRQ0DUJLQ,QFRPH6WDWHPHQW
)RUWKHPRQWKRI
 7RWDO 3HU8QLW

6DOHV8QLWV  

/HVVYDULDEOHH[SHQVHV  

  

&RQWULEXWLRQPDUJLQ  

/HVVIL[HGH[SHQVHV 

  

1HWRSHUDWLQJSURILW  

  



6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 1RWHWKDWWKHEUHDNHYHQLVWKHOHYHO RIVDOHVDWZKLFKSURILWLV=(52
3RUWIROLR0DQDJHPHQW
2QFHWKHSRLQWKDVEHHQUHDFKHGQHWLQFRPHZLOOLQFUHDVHE\XQLWFRQWULEXWLRQ
PDUJLQE\HDFKDGGLWLRQDOXQLWVROG)RUH[DPSOHLIXQLWVDUHVROGGXULQJWKH
127(6 SHULRGWKHQZHFDQH[SHFWWKDWWKHQHWLQFRPHIRUWKHPRQWKZLOOEHVLQFH
WKHFRPSDQ\ZLOOKDYHVROGXQLWPRUHWKDQWKHQXPEHUQHHGHGWREUHDNHYHQ7KLV
LVH[SODLQHGE\WKHIROORZLQJFRQWULEXWLRQPDUJLQLQFRPHVWDWHPHQW
;<=3ULYDWH/WG
&RQWULEXWLRQ0DUJLQ,QFRPH6WDWHPHQW
)RUWKHPRQWKRI
 7RWDO 3HU8QLW

6DOHV8QLWV  

/HVV9DULDEOHH[SHQVHV  



 

&RQWULEXWLRQPDUJLQ  

/HVVIL[HGH[SHQVHV  


 

1HWRSHUDWLQJORVV  

  



,IXQLWVDUHVROGWKHQZHFDQH[SHFWWKDWQHWRSHUDWLQJLQFRPHIRUWKHSHULRG
ZLOOEHDQGVRIRUWK7RNQRZZKDWWKHSURILWZLOOEHDWYDULRXVOHYHOVRI
DFWLYLW\WKHUHIRUHPDQDJHUVGRQRWQHHGWRSUHSDUHDZKROHVHULHVRILQFRPH
VWDWHPHQWV7RHVWLPDWHWKHSURILWDWDQ\SRLQWDERYHWKHSRLQWWKHPDQDJHUFDQ
VLPSO\WDNHWKHQXPEHURIXQLWVWREHVROGDERYHWKHDQGPXOWLSO\WKDWQXPEHUE\
WKHXQLWFRQWULEXWLRQPDUJLQ7KHUHVXOWUHSUHVHQWVWKHDQWLFLSDWHGSURILWIRUWKH
SHULRG 2U WR HVWLPDWH WKH HIIHFW RI D SODQQHG LQFUHDVH LQ VDOH RQ SURILWV WKH
PDQDJHUFDQVLPSO\PXOWLSO\WKHLQFUHDVHLQXQLWVVROGE\WKHXQLWFRQWULEXWLRQ
PDUJLQ7KHUHVXOWZLOOEHH[SUHVVHGDVLQFUHDVHLQSURILWV7RLOOXVWUDWHLWVXSSRVH
FRPSDQ\LVFXUUHQWO\VHOOLQJXQLWVDQGSODQVWRVHOOXQLWVLQQHDUIXWXUHWKH
DQWLFLSDWHGLPSDFWRQSURILWVFDQEHFDOFXODWHGDVIROORZV
,QFUHDVHGQXPEHURIXQLWVWREHVROG 

&RQWULEXWLRQPDUJLQSHUXQLW î



,QFUHDVHLQWKHQHWRSHUDWLQJLQFRPH 

 

6HOI,QVWUXFWLRQDO 0DWHULDO

7RVXPPDUL]HWKHVHH[DPSOHVLIWKHUHZHUHQRVDOHVWKHFRPSDQ\¶VORVVZRXOG
HTXDOWRLWVIL[HGH[SHQVHV(DFKXQLWWKDWLVVROGUHGXFHVWKHORVVE\WKH
DPRXQWRIWKHXQLWFRQWULEXWLRQPDUJLQ2QFHWKHSRLQWKDVEHHQUHDFKHG
HDFKDGGLWLRQDOXQLWVROGLQFUHDVHVWKHFRPSDQ\¶VSURILWE\WKHDPRXQWRIWKH
XQLWFRQWULEXWLRQPDUJLQ
'LIIHUHQFHEHWZHHQ*URVV0DUJLQDQG&RQWULEXWLRQ0DUJLQ )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
*URVV0DUJLQLVWKH*URVV3URILWDVDSHUFHQWDJHRI1HW6DOHV7KHFDOFXODWLRQ 6WUDWHJLHV
RIWKH*URVV3URILWLV6DOHVPLQXV&RVWRI*RRGV6ROG7KH&RVWRI*RRGV6ROG
FRQVLVWVRIWKHIL[HGDQGYDULDEOHSURGXFWFRVWVEXWLWH[FOXGHVDOORIWKHVHOOLQJDQG 127(6
DGPLQLVWUDWLYHH[SHQVHV
&RQWULEXWLRQ 0DUJLQ LV 1HW 6DOHV PLQXV WKH YDULDEOH SURGXFW FRVWV DQG
WKHYDULDEOHSHULRGH[SHQVHV7KH&RQWULEXWLRQ0DUJLQ5DWLRLVWKH&RQWULEXWLRQ
0DUJLQDVDSHUFHQWDJHRI1HW6DOHV
([DPSOH
/HW¶VLOOXVWUDWHWKHGLIIHUHQFHEHWZHHQJURVVPDUJLQDQGFRQWULEXWLRQPDUJLQ
ZLWKWKHIROORZLQJLQIRUPDWLRQFRPSDQ\KDG1HW6DOHVRIGXULQJWKHSDVW
\HDU,WVLQYHQWRU\RIJRRGVZDVWKHVDPHTXDQWLW\DWWKHEHJLQQLQJDQGDWWKHHQG
RI \HDU ,WV &RVW RI *RRGV 6ROG FRQVLVWHG RI  RI YDULDEOH FRVWV DQG
RIIL[HGFRVWV,WVVHOOLQJDQGDGPLQLVWUDWLYHH[SHQVHVZHUHRI
YDULDEOHDQGRIIL[HGH[SHQVHV
7KHFRPSDQ\¶V*URVV0DUJLQLV1HW6DOHVRIPLQXVLWV&RVWRI*RRGV
6ROGRIIRUD*URVV3URILWRI
7KH*URVV0DUJLQRU*URVV3URILW3HUFHQWDJHLVWKH*URVV3URILWRI
GLYLGHGE\RU
7KHFRPSDQ\¶V&RQWULEXWLRQ0DUJLQLV1HW6DOHVRIPLQXVWKHYDULDEOH
SURGXFWFRVWVRIDQGWKHYDULDEOHH[SHQVHVRIIRUD&RQWULEXWLRQ
0DUJLQRI7KH&RQWULEXWLRQ0DUJLQ5DWLRLVGLYLGHG
E\
3UHSDULQJD&93*UDSKRU%UHDN(YHQ&KDUW
,QD&93JUDSKVRPHWLPHVFDOOHGDEUHDNHYHQFKDUWXQLWYROXPHLVFRPPRQO\
UHSUHVHQWHGRQWKHKRUL]RQWDO;D[LVDQGGROODUVRQWKHYHUWLFDO<D[LV3UHSDULQJ
D&93JUDSKLQYROYHVWKUHHVWHSV
'UDZDOLQHSDUDOOHOWRWKHYROXPHD[LVWRSUHVHQWWRWDOIL[HGH[SHQVHV)RU
H[DPSOHZHDVVXPHWRWDOIL[HGH[SHQVHV

6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV &KRRVHVRPHYROXPHRIVDOHVDQGSORWWKHSRLQWUHSUHVHQWLQJWRWDOH[SHQVHV
3RUWIROLR0DQDJHPHQW IL[HGDQGYDULDEOHDWWKHDFWLYLW\OHYHO\RXKDYHVHOHFWHG)RUH[DPSOHZHVHOHFW
DOHYHORIXQLWV7RWDOH[SHQVHVDWWKDWDFWLYLW\OHYHODUHDVIROORZV

127(6 )L[HG([SHQVHV 

9DULDEOH([SHQVHVî 
 
7RWDO([SHQVHV 

 

$IWHUWKHSRLQWKDVEHHQSORWWHGGUDZDOLQHWKURXJKLWEDFNWRWKHSRLQWZKHUHWKH
IL[HGH[SHQVHVOLQHLQWHUVHFWVWKHGROODUVD[LV
$JDLQFKRRVHVRPHYROXPHRIVDOHVDQGSORWWKHSRLQWUHSUHVHQWLQJWRWDOVDOHV
GROODUVDWWKHDFWLYLW\OHYHO\RXKDYHVHOHFWHG)RUH[DPSOHZHKDYHFKRVHQD
YROXPHRIXQLWV6DOHVDWWKLVDFWLYLW\OHYHODUHXQLWVî
GUDZDOLQHWKURXJKWKLVSRLQWEDFNWRWKHRULJLQ7KHSRLQWLVZKHUHWKHWRWDOUHYHQXH
DQGWRWDOH[SHQVHOLQHVFURVV6HHWKHJUDSKDQGQRWHWKDWSRLQWLVDWXQLWV,W
PHDQVZKHQWKHFRPSDQ\VHOOVXQLWVWKHSURILWLV]HUR:KHQWKHVDOHVDUH
EHORZ WKH EUHDN HYHQ WKH FRPSDQ\ VXIIHUV D ORVV :KHQ VDOHV DUH DERYH WKH
EUHDNHYHQSRLQWWKHFRPSDQ\HDUQVDSURILWDQGWKHVL]HRIWKHSURILWLQFUHDVHVDV
VDOHVLQFUHDVH
&RQWULEXWLRQ0DUJLQ5DWLR
7KHFRQWULEXWLRQPDUJLQDVDSHUFHQWDJHRIWRWDOVDOHVLVUHIHUUHGWRDVFRQWULEXWLRQ
PDUJLQUDWLR&05DWLR
)RUPXODRI&05DWLR
&05DWLR &RQWULEXWLRQ0DUJLQ6DOHV
7KLVUDWLRLVH[WHQVLYHO\XVHGLQFRVWYROXPHSURILWFDOFXODWLRQV
&DOFXODWLRQ&RPSXWDWLRQRI&RQWULEXWLRQ0DUJLQ5DWLR
([DPSOH
&RQVLGHUWKHIROORZLQJFRQWULEXWLRQPDUJLQLQFRPHVWDWHPHQWRI;<=3ULYDWH/WG
SULYDWH/WGLQZKLFKVDOHVUHYHQXHVYDULDEOHH[SHQVHVDQGFRQWULEXWLRQPDUJLQDUH
H[SUHVVHGDVSHUFHQWDJHRIVDOHV&DOFXODWHFRQWULEXWLRQPDUJLQUDWLR
 7RWDO 3HU8QLW 3HUFHQWRI6DOHV

6DOHVXQLWV   

/HVVYDULDEOHH[SHQVHV   

   

&RQWULEXWLRQPDUJLQ   

   

/HVVIL[HGH[SHQVHV   

6HOI,QVWUXFWLRQDO 0DWHULDO    


1HWRSHUDWLQJLQFRPH   

   
$FFRUGLQJWRDERYHGDWDRI;<=3ULYDWH/WGWKHFRPSXWDWLRQVDUH )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
&RQWULEXWLRQ0DUJLQ5DWLR &RQWULEXWLRQ0DUJLQ6DOHVî 6WUDWHJLHV
    î 
  127(6

,QDFRPSDQ\WKDWKDVRQO\RQHSURGXFWVXFKDV;<=3ULYDWH/WG&0UDWLRFDQ
DOVREHFDOFXODWHGDVIROORZV
&RQWULEXWLRQ0DUJLQ5DWLR 8QLWFRQWULEXWLRQPDUJLQ8QLWVHOOLQJSULFHî
    î 
 
$SSOLFDWLRQVRI&RVW9ROXPH3URILW&93&RQFHSWV
1RZZHFDQH[SODLQKRZ&93FRQFHSWVGHYHORSHGRQDERYHSDJHVFDQEHXVHG
LQSODQQLQJDQGGHFLVLRQPDNLQJ:HVKDOOXVHWKHVHFRQFHSWVWRVKRZKRZFKDQJHV
LQYDULDEOHFRVWVIL[HGFRVWVVDOHVSULFHDQGVDOHVYROXPHDIIHFWFRQWULEXWLRQPDUJLQ
DQGSURILWDELOLW\RIFRPSDQLHVLQDYDULHW\RIVLWXDWLRQV)RU([DPSOH
x &KDQJHLQYDULDEOHFRVWDQGVDOHVYROXPH
x &KDQJHLQIL[HGFRVWVDOHVSULFHDQGVDOHVYROXPH
x &KDQJHLQYDULDEOHFRVWIL[HGFRVWDQGVDOHVYROXPH
x &KDQJHLQUHJXODUVDOHVSULFH
$VVXPSWLRQVRI&RVW9ROXPH3URILW&93$QDO\VLV
$QXPEHURIDVVXPSWLRQVXQGHUOLHFRVWYROXPHSURILW&93DQDO\VLV7KHVHFRVW
YROXPHSURILWDQDO\VLVDVVXPSWLRQVDUHDVIROORZV
 6HOOLQJSULFHLVFRQVWDQW7KHSULFHRIDSURGXFWRUVHUYLFHZLOOQRWFKDQJH
DVYROXPHFKDQJHV
 &RVWVDUHOLQHDUDQGFDQEHDFFXUDWHO\GLYLGHGLQWRYDULDEOHDQGIL[HGHOH
PHQWV7KHYDULDEOHHOHPHQWLVFRQVWDQWSHUXQLWDQGWKHIL[HGHOHPHQWLV
FRQVWDQWLQWRWDORYHUWKHUHOHYDQWUDQJH
 ,QPXOWLSURGXFWFRPSDQLHVWKHVDOHVPL[LVFRQVWDQW
 ,QPDQXIDFWXULQJFRPSDQLHVLQYHQWRULHVGRQRWFKDQJH7KHQXPEHURIXQLWV
SURGXFHGHTXDOVWKHQXPEHURIXQLWVVROG
/LPLWDWLRQVRI&RVW9ROXPH3URILW&93$QDO\VLV
&RVWYROXPHSURILW&93LVDVKRUWUXQPDUJLQDODQDO\VLVLWDVVXPHVWKDWXQLW
YDULDEOHFRVWVDQGXQLWUHYHQXHVDUHFRQVWDQWZKLFKLVDSSURSULDWHIRUVPDOOGHYLD
WLRQVIURPFXUUHQWSURGXFWLRQDQGVDOHVDQGDVVXPHVDQHDWGLYLVLRQEHWZHHQIL[HG
FRVWVDQGYDULDEOHFRVWVWKRXJKLQWKHORQJUXQDOOFRVWVDUHYDULDEOH)RUORQJHU
WHUPDQDO\VLVWKDWFRQVLGHUVWKHHQWLUHOLIHF\FOHRIDSURGXFWRQHWKHUHIRUHRIWHQ
SUHIHUVDFWLYLW\EDVHGFRVWLQJRUWKURXJKSXWDFFRXQWLQJ
%UHDN(YHQ$QDO\VLV
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV %UHDNHYHQLVWKHOHYHORIVDOHVDWZKLFKWKHSURILWLV]HUR&RVWYROXPHSURILW
3RUWIROLR0DQDJHPHQW DQDO\VLVLVVRPHWLPHUHIHUUHGWRVLPSO\DVEUHDNHYHQDQDO\VLV7KLVLVXQIRUWXQDWH
EHFDXVHEUHDNHYHQDQDO\VLVLVRQO\RQHHOHPHQWRIFRVWYROXPHSURILWDQDO\VLV
%UHDNHYHQDQDO\VLVLVGHVLJQHGWRDQVZHUTXHVWLRQVVXFKDV³+RZIDUVDOHVFRXOG
127(6 GURSEHIRUHWKHFRPSDQ\EHJLQVWRORVHPRQH\´)RUGHWDLOHGVWXG\DERXWEUHDN
HYHQFOLFNRQDOLQNEHORZ
'HILQLWLRQRI%UHDNHYHQSRLQW
%UHDNHYHQSRLQWLVWKHOHYHORIVDOHVDWZKLFKSURILWLV]HUR$FFRUGLQJWRWKLV
GHILQLWLRQDWEUHDNHYHQSRLQWVDOHVDUHHTXDOWRIL[HGFRVWSOXVYDULDEOHFRVW7KLV
FRQFHSWLVIXUWKHUH[SODLQHGE\WKHIROORZLQJHTXDWLRQ
>%UHDN HYHQ VDOHV  IL[HG FRVW  YDULDEOH FRVW@
7KHEUHDNHYHQSRLQWFDQEHFDOFXODWHGXVLQJHLWKHUWKHHTXDWLRQPHWKRGRUFRQ
WULEXWLRQPDUJLQPHWKRG7KHVHWZRPHWKRGVDUHHTXLYDOHQW
(TXDWLRQ0HWKRG
7KHHTXDWLRQPHWKRGFHQWHUVRQWKHFRQWULEXWLRQDSSURDFKWRWKHLQFRPHVWDWH
PHQW7KHIRUPDWRIWKLVVWDWHPHQWFDQEHH[SUHVVHGLQHTXDWLRQIRUPDVIROORZV
>3URILW  6DOHV " 9DULDEOH H[SHQVHV " )L[HG H[SHQVHV@
5HDUUDQJLQJWKLVHTXDWLRQVOLJKWO\\LHOGVWKHIROORZLQJHTXDWLRQZKLFKLVZLGHO\XVHG
LQFRVWYROXPHSURILW&93DQDO\VLV
>6DOHV  9DULDEOH H[SHQVHV  )L[HG H[SHQVHV  3URILW@
$FFRUGLQJWRWKHGHILQLWLRQRIEUHDNHYHQSRLQWEUHDNHYHQSRLQWLVWKHOHYHORIVDOHV
ZKHUHSURILWVDUH]HUR7KHUHIRUHWKHEUHDNHYHQSRLQWFDQEHFRPSXWHGE\ILQGLQJ
WKDWSRLQWZKHUHVDOHVMXVWHTXDOWKHWRWDORIWKHYDULDEOHH[SHQVHVSOXVIL[HGH[
SHQVHVDQGSURILWLV]HUR
([DPSOH
)RUH[DPSOHZHFDQXVHWKHIROORZLQJGDWDWRFDOFXODWHEUHDNHYHQSRLQW
x 6DOHVSULFHSHUXQLW 
x YDULDEOHFRVWSHUXQLW 
x 7RWDOIL[HGH[SHQVHV 
&DOFXODWHEUHDNHYHQSRLQW

&DOFXODWLRQ
6DOHV 9DULDEOHH[SHQVHV)L[HGH[SHQVHV3URILW
4   4     
4  
4   

6HOI,QVWUXFWLRQDO 0DWHULDO 4 8QLWV


4  1XPEHU4XDQWLW\RIXQLWVVROG )LQDQFLDO$QDO\VLV
7KHEUHDNHYHQSRLQWFDQEHFRPSXWHGE\ILQGLQJWKDWSRLQWZKHUHSURILWLV ,QYDULDQWDQG3RUWIROLRV
]HUR 6WUDWHJLHV

127(6
7KHEUHDNHYHQSRLQWLQVDOHVGROODUVFDQEHFRPSXWHGE\PXOWLSO\LQJWKH
EUHDNHYHQOHYHORIXQLWVDOHVE\WKHVHOOLQJSULFHSHUXQLW
8QLWVîSHUXQLW 
&RQWULEXWLRQ0DUJLQ0HWKRG
7KHFRQWULEXWLRQPDUJLQPHWKRGFHQWHUVRQWKHLGHDWKDWHDFKXQLWVROGSURYLGHV
DFHUWDLQDPRXQWRIFRQWULEXWLRQPDUJLQWKDWJRHVWRZDUGFRYHULQJIL[HGFRVW7R
ILQGRXWKRZPDQ\XQLWVPXVWEHVROGWREUHDNHYHQGLYLGHWKHWRWDOIL[HGFRVWE\
WKHXQLWFRQWULEXWLRQPDUJLQ
%UHDNHYHQSRLQWLQXQLWV )L[HGH[SHQVHV8QLWFRQWULEXWLRQPDUJLQ
 SHUXQLW
8QLWV
66DOHV"9DULDEOHH[S

$YDULDWLRQRIWKLVPHWKRGXVHVWKH&RQWULEXWLRQ0DUJLQUDWLR&0UDWLRLQVWHDGRI

WKHXQLWFRQWULEXWLRQPDUJLQ7KHUHVXOWLVWKHEUHDNHYHQLQWRWDOVDOHVGROODUV
UDWKHUWKDQLQWRWDOXQLWVVROG
%UHDNHYHQSRLQWLQWRWDOVDOHVGROODUV )L[HGH[SHQVHV&0UDWLR
  
 

7KLVDSSURDFKLVSDUWLFXODUO\VXLWDEOHLQVLWXDWLRQVZKHUHDFRPSDQ\KDVPXOWLSOH
SURGXFWVOLQHVDQGZLVKHVWRFRPSXWHDVLQJOHEUHDNHYHQSRLQWIRUWKHFRPSDQ\DV
DZKROH
7KHIROORZLQJIRUPXODLVDOVRXVHGWRFDOFXODWHEUHDNHYHQSRLQW
%UHDN (YHQ 6DOHV LQ 'ROODUV  >)L[HG &RVW   ± 9DULDEOH &RVW 6DOHV@
7KLVIRUPXODFDQSURGXFHWKHVDPHDQVZHU
%UHDN(YHQ3RLQW >±@
    ± 
   
 

%HQHILWV $GYDQWDJHVRI %UHDN (YHQ$QDO\VLV

7KHPDLQDGYDQWDJHVRIEUHDNHYHQSRLQWDQDO\VLVDUHWKDWLWH[SODLQVWKHUHOD 6HOI,QVWUXFWLRQDO 0DWHULDO
WLRQVKLSEHWZHHQFRVWSURGXFWLRQYROXPHDQGUHWXUQV,WFDQEHH[WHQGHGWRVKRZ 
6HFXULW\$QDO\VLV KRZFKDQJHVLQIL[HGFRVWYDULDEOHFRVWFRPPRGLW\SULFHVDQGUHYHQXHVZLOODIIHFW
3RUWIROLR0DQDJHPHQW SURILWOHYHOVDQGEUHDNHYHQSRLQWV%UHDNHYHQDQDO\VLVLVPRVWXVHIXOZKHQXVHG
ZLWKSDUWLDOEXGJHWLQJFDSLWDOEXGJHWLQJWHFKQLTXHV7KHPDMRUEHQHILWVWRXVH
EUHDNHYHQDQDO\VLVDUHWKDWLWLQGLFDWHVWKHORZHVWDPRXQWRIEXVLQHVVDFWLYLW\
127(6 QHFHVVDU\WRSUHYHQWORVVHV
$VVXPSWLRQRI%UHDN(YHQ3RLQW
7KH%UHDNHYHQ$QDO\VLVGHSHQGVRQWKUHHNH\DVVXPSWLRQV
 $YHUDJHSHUXQLWVDOHVSULFHSHUXQLWUHYHQXH7KLVLVWKHSULFHWKDW\RX
UHFHLYHSHUXQLWRIVDOHVWDNLQJLQWRDFFRXQWVDOHVGLVFRXQWVDQGVSHFLDORIIHUV
*HWWKLVQXPEHUIURP\RXU6DOHV)RUHFDVW)RUQRQXQLWEDVHGEXVLQHVVHV
PDNHWKHSHUXQLWUHYHQXHDQGHQWHU\RXUFRVWVDVDSHUFHQWRIDGROODU7KH
PRVWFRPPRQTXHVWLRQVDERXWWKLVLQSXWUHODWHWRDYHUDJLQJPDQ\GLIIHUHQW
SURGXFWVLQWRDVLQJOHHVWLPDWH7KHDQDO\VLVUHTXLUHVDVLQJOHQXPEHUDQGLI\RX
EXLOG\RXU6DOHV)RUHFDVWILUVWWKHQ\RXZLOOKDYHWKLVQXPEHU<RXDUHQRWDORQH
LQWKLVWKHYDVWPDMRULW\RIEXVLQHVVHVVHOOPRUHWKDQRQHLWHPDQGKDYHWR
DYHUDJHIRUWKHLU%UHDNHYHQ$QDO\VLV
$YHUDJHSHUXQLWFRVW7KLVLVWKHLQFUHPHQWDOFRVWRUYDULDEOHFRVWRIHDFK
XQLWRIVDOHV,I\RXEX\JRRGVIRUUHVDOHWKLVLVZKDW\RXSDLGRQDYHUDJHIRU
WKHJRRGV\RXVHOO,I\RXVHOODVHUYLFHWKLVLVZKDWLWFRVWV\RXSHUGROODURI
UHYHQXHRUXQLWRIVHUYLFHGHOLYHUHGWRGHOLYHUWKDWVHUYLFH,I\RXDUHXVLQJD
8QLWV%DVHG6DOHV)RUHFDVWWDEOHIRUPDQXIDFWXULQJDQGPL[HGEXVLQHVVW\SHV
\RXFDQSURMHFWXQLWFRVWVIURPWKH6DOHV)RUHFDVWWDEOH,I\RXDUHXVLQJWKH
EDVLF6DOHV)RUHFDVWWDEOHIRUUHWDLOVHUYLFHDQGGLVWULEXWLRQEXVLQHVVHVXVHD
SHUFHQWDJHHVWLPDWHHJDUHWDLOVWRUHUXQQLQJDPDUJLQZRXOGKDYHDSHU
XQLWFRVWRIDQGSHUXQLWUHYHQXHRI
 0RQWKO\IL[HGFRVWV7HFKQLFDOO\DEUHDNHYHQDQDO\VLVGHILQHVIL[HGFRVWVDV
FRVWVWKDWZRXOGFRQWLQXHHYHQLI\RXZHQWEURNH,QVWHDGZHUHFRPPHQGWKDW
\RXXVH\RXUUHJXODUUXQQLQJIL[HGFRVWVLQFOXGLQJSD\UROODQGQRUPDOH[SHQVHV
WRWDOPRQWKO\2SHUDWLQJ([SHQVHV7KLVZLOOJLYH\RXDEHWWHULQVLJKWRQILQDQ
FLDOUHDOLWLHV,IDYHUDJLQJDQGHVWLPDWLQJLVGLIILFXOWXVH\RXU3URILWDQG/RVV
WDEOHWRFDOFXODWHDZRUNLQJIL[HGFRVWHVWLPDWH²LWZLOOEHDURXJKHVWLPDWHEXW
LWZLOOSURYLGHDXVHIXOLQSXWIRUDFRQVHUYDWLYH%UHDNHYHQ$QDO\VLV
/LPLWDWLRQVRI%UHDN(YHQ$QDO\VLV
,WLVEHVWVXLWHGWRWKHDQDO\VLVRIRQHSURGXFWDWDWLPH,WPD\EHGLIILFXOWWRFODVVLI\
DFRVWDVDOOYDULDEOHRUDOOIL[HGDQGWKHUHPD\EHDWHQGHQF\WRFRQWLQXHWRXVH
DEUHDNHYHQDQDO\VLVDIWHUWKHFRVWDQGLQFRPHIXQFWLRQVKDYHFKDQJHG
5HYLHZ3UREOHP
9ROWDU &RPSDQ\ PDQXIDFWXUHV DQG VHOOV D WHOHSKRQH DQVZHULQJ PDFKLQH7KH
FRPSDQ\¶VFRQWULEXWLRQIRUPDWLQFRPHVWDWHPHQWIRUWKHPRVWUHFHQW\HDULVJLYHQ
EHORZ

6HOI,QVWUXFWLRQDO 0DWHULDO

 3HUFHQW RI )LQDQFLDO$QDO\VLV
 7RWDO 3HUXQLW
VDOHV ,QYDULDQWDQG3RUWIROLRV
6WUDWHJLHV
6DOHV   
127(6
/HVVYDULDEOHH[SHQVHV   "

   

&RQWULEXWLRQPDUJLQ   "

/HVVIL[HGH[SHQVHV   

   

1HWRSHUDWLQJLQFRPH   

   

&DOFXODWHEUHDNHYHQSRLQWERWKLQXQLWVDQGVDOHVGROODUV8VHWKHHTXDWLRQPHWKRG
6ROXWLRQ
6DOHV 9DULDEOHH[SHQVHV)L[HGH[SHQVHV3URILW
4  4    
4  
4 SHUXQLW
4 XQLWVRUDWSHUXQLW
$OWHUQDWLYHVROXWLRQ
;  ;    
;  
;    
; RUDWSHUXQLWXQLWV

0DUJLQRIVDIHW\026'HILQLWLRQDQG([SODQDWLRQ

0DUJLQRIVDIHW\026LVWKHH[FHVVRIEXGJHWHGRUDFWXDOVDOHVRYHUWKHEUHDN
HYHQYROXPHRIVDOHV,WVWDWVWKHDPRXQWE\ZKLFKVDOHVFDQGURSEHIRUHORVVHV
EHJLQWREHLQFXUUHG7KHKLJKHUWKHPDUJLQRIVDIHW\WKHORZHUWKHULVNRIQRW
EUHDNLQJHYHQ
)RUPXODRI0DUJLQRI6DIHW\
7KHIRUPXODRUHTXDWLRQIRUWKHFDOFXODWLRQRIPDUJLQRIVDIHW\LVDVIROORZV
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV >0DUJLQ RI 6DIHW\ 7RWDO EXGJHWHG RU DFWXDO VDOHV " %UHDN HYHQ VDOHV@
3RUWIROLR0DQDJHPHQW
7KHPDUJLQRIVDIHW\FDQDOVREHH[SUHVVHGLQSHUFHQWDJHIRUP7KLVSHUFHQWDJHLV
REWDLQHGE\GLYLGLQJWKHPDUJLQRIVDIHW\LQGROODUWHUPVE\WRWDOVDOHV)ROORZLQJ
127(6 HTXDWLRQLVXVHGIRUWKLVSXUSRVH
>0DUJLQRI6DIHW\ 0DUJLQRIVDIHW\LQGROODUV7RWDOEXGJHWHGRUDFWXDO
VDOHV@
([DPSOH
6DOHVXQLWV# 

%UHDNHYHQVDOHV 

&DOFXODWHPDUJLQRIVDIHW\

&DOFXODWLRQ
6DOHVXQLWV# 

%UHDNHYHQVDOHV 

 

0DUJLQRIVDIHW\LQGROODUV 

 

0DUJLQRIVDIHW\DVDSHUFHQWDJHRIVDOHV





,WPHDQVWKDWDWWKHFXUUHQWOHYHORIVDOHVDQGZLWKWKHFRPSDQ\¶VFXUUHQWSULFHVDQG
FRVWVWUXFWXUHDUHGXFWLRQLQVDOHVRIRUZRXOGUHVXOWLQMXVW
EUHDNLQJHYHQ,QDVLQJOHSURGXFWILUPWKHPDUJLQRIVDIHW\FDQDOVREHH[SUHVVHG
LQWHUPVRIWKHQXPEHURIXQLWVVROGE\GLYLGLQJWKHPDUJLQRIVDIHW\LQGROODUVE\
WKHVHOOLQJSULFHSHUXQLW,QWKLVFDVHWKHPDUJLQRIVDIHW\LVXQLWV·
XQLWV XQLWV
5HYLHZ3UREOHP
9ROWDU &RPSDQ\ PDQXIDFWXUHV DQG VHOOV D WHOHSKRQH DQVZHULQJ PDFKLQH7KH
FRPSDQ\¶VFRQWULEXWLRQPDUJLQLQFRPHVWDWHPHQWIRUWKHPRVWUHFHQW\HDULVJLYHQ
EHORZ

6HOI,QVWUXFWLRQDO 0DWHULDO

 7RWDO 3HUXQLW 3HUFHQWRI6DOHV )LQDQFLDO$QDO\VLV
'HVFULSWLRQ
,QYDULDQWDQG3RUWIROLRV
6DOHVXQLWV   
6WUDWHJLHV
/HVVYDULDEOHH[SHQVHV   "

    127(6

&RQWULEXWLRQPDUJLQ   "

/HVVIL[HGH[SHQVHV   

   

1HWRSHUDWLQJLQFRPH  

  


5HTXLUHG&DOFXODWHPDUJLQRIVDIHW\ERWKLQGROODUVDQGSHUFHQWDJHIRUP
‘Ž—–‹‘ǣ
0DUJLQRIVDIHW\ 7RWDOVDOHV±%UHDNHYHQVDOHV

±



0DUJLQRIVDIHW\SHUFHQWDJH 0DUJLQRIVDIHW\LQGROODUV7RWDOVDOHV





7KH EUHDN HYHQ VDOHV KDYH EHHQ FDOFXODWHG DV IROORZV

6DOHV 9DULDEOHH[SHQVHV)L[HGH[SHQVHV3URILW

4 4 

4 

4     SHU XQLW

4   XQLWV RU DW  SHU XQLW 

:HNQRZWKDWEUHDNHYHQLVWKHOHYHORIVDOHVZKHUHSURILWLV]HUR

 )LQDQFLDO )RUHFDVWLQJ

)LQDQFLDOIRUHFDVWLQJLVORRNLQJDKHDGWRGHYHORSDILQDQFLDOSODQIRUWKHIXWXUH$
IRUHFDVWLVDSUHGLFWLRQDERXWDIXWXUHFRQGLWLRQRUVLWXDWLRQ,QWHUPVRIDEXVLQHVV
ILQDQFLDOIRUHFDVWLQJPHDQVORRNLQJDKHDGWRDSRLQWLQWKHIXWXUHDQGWU\LQJWR
HVWLPDWHWKHILQDQFLDOVLWXDWLRQWKDWWKHFRPSDQ\ZLOOEHLQDWWKDWWLPH'HFLVLRQV
DERXWZKHWKHUWRVSHQGPRUHRUOHVVPRQH\RQDSURMHFWWRGD\ZLOOEHGHWHUPLQHG
E\ILQDQFLDOIRUHFDVWLQJ$FRPSDQ\QHHGVWRIHHOVHFXUHWKDWWKHLUIXWXUHILQDQFHVZLOO
EHDEOHWRUHFRYHUWKHPRQH\WKH\KDYHVSHQWDQGNHHSWKHLUEDQNEDODQFHVKHDOWK\
0RVWRUJDQL]DWLRQVZLWKVWURQJILQDQFLDOGHSDUWPHQWVVSHQGDORWRIWLPHDQGHIIRUW 6HOI,QVWUXFWLRQDO 0DWHULDO
RQILQDQFLDOIRUHFDVWLQJ7KHQDWXUHRIWKHEXVLQHVVZRUOGPHDQVWKDWPDQDJHUVQHHG 
6HFXULW\$QDO\VLV WRORRNDKHDGDQGSODQIRUDIXWXUHWKDWLVLQQRZD\FHUWDLQ)LQDQFLDOIRUHFDVWLQJ
3RUWIROLR0DQDJHPHQW KHOSVDFRPSDQ\WRPDNHLPSRUWDQWGHFLVLRQVWRGD\WKDWZLOODIIHFWWKHFRPSDQ\LQ
WKHIXWXUH7KHVHGHFLVLRQVDIIHFWWKLQJVOLNHZKHWKHUWRVSHQGRUERUURZPRQH\
ZKHUHWRLQYHVWRUZKHQWRVWDUWDQHZSURMHFW
127(6
7KHGLIILFXOW\ZLWKILQDQFLDOIRUHFDVWLQJLVWKDWLWLQYROYHVXQFHUWDLQW\7KHIXWXUHLV
XQFHUWDLQDQGDVLQJOHILQDQFLDOSROLF\FDQKDYHQXPHURXVUHVXOWV+RZHYHUZKHQ
EXVLQHVVHVGUDZXSVWUDWHJLHVWRGHDOZLWKULVNPDQDJHPHQWWKH\EXLOGLQIRUHFDVWLQJ
SURFHGXUHVZKLFKVWUHQJWKHQWKHFRPSDQ\¶VSRVLWLRQ5LVNFDQQRWEHHOLPLQDWHGE\
ILQDQFLDOIRUHFDVWLQJEXWLWLVEHQHILFLDOIRUDFRPSDQ\WRKDYHDEHWWHUXQGHUVWDQGLQJ
RIZKDWWKHIXWXUHFRXOGKROG&RPSDQLHVDFFHSWWKDWXQFHUWDLQW\LVDQLQWHJUDOSDUW
RIDQ\ILQDQFLDOIRUHFDVW$QRWKHULPSRUWDQWWKLQJWRFRQVLGHULVWKHWLPLQJRID
ILQDQFLDOIRUHFDVW)RUHFDVWVQHFHVVDULO\QHHGWREHXSGDWHGEHFDXVHQHZLQIRUPD
WLRQFRPHVWROLJKWDQGWKLQJVDUHFRQVWDQWO\FKDQJLQJ6RPDQDJHUVQHHGWRWKLQN
DERXWDVHULHVRIILQDQFLDOIRUHFDVWVQRWMXVWRQH7KHTXHVWLRQWKHQEHFRPHV³KRZ
RIWHQGRIRUHFDVWVQHHGWREHPDGH"´(DFKWLPHWKHUHLVDQXSGDWHGIRUHFDVWWKHUH
ZLOOEHDQDGGLWLRQDOFRVW/LQNHGWRWKLVLVWKHQHHGWRHVWDEOLVKKRZIDULQWRWKH
IXWXUHDIRUHFDVWQHHGVWRUHDFK$WHQ\HDUIRUHFDVWZLOOEHPRUHFRPSOLFDWHG±DQG
H[SHQVLYH±WKDQDWZR\HDUIRUHFDVW
)LQDQFLDOIRUHFDVWLQJ0HWKRGV
x 3HUFHQWRI6DOHV0HWKRG
x /LQHDU7UHQG([WUDSRODWLRQ
x 5HJUHVVLRQ$QDO\VLV
3HUFHQW RI 6DOHV 0HWKRG
7KH3HUFHQWDJHRI6DOHV0HWKRGLVD)LQDQFLDO)RUHFDVWLQJDSSURDFKZKLFKLV
EDVHGRQWKHDVVXPSWLRQWKDWPRVW%DODQFH6KHHWDQG,QFRPH6WDWHPHQW$FFRXQWV
YDU\ZLWKVDOHV7KHUHIRUHWKHNH\GULYHURIWKLVPHWKRGLVWKH6DOHV)RUHFDVWDQG
EDVHGXSRQWKLVIRUHFDVWHG)LQDQFLDO6WDWHPHQWVFDQEHFRQVWUXFWHGDQGWKHILUPV
QHHGVIRUH[WHUQDOILQDQFLQJFDQEHLGHQWLILHG
/LQHDU7UHQG([WUDSRODWLRQ
7KLVPHWKRGH[DPLQHVWUHQGVDQGF\FOHVLQKLVWRULFDOGDWDDQGWKHQXVHPDWKHPDWL
FDOWHFKQLTXHVWRHVWLPDWHYDOXHWRWKHIXWXUH7KHDVVXPSWLRQRIDOOWKHVHWHFKQLTXHV
LVWKDWWKHIRUFHVUHVSRQVLEOHIRUFUHDWLQJWKHSDVWZLOOFRQWLQXHWRRSHUDWHLQWKH
IXWXUH7KLVLVRIWHQDYDOLGDVVXPSWLRQZKHQIRUHFDVWLQJVKRUWWHUPKRUL]RQVEXWLW
IDOOVVKRUWZKHQFUHDWLQJPHGLXPDQGORQJWHUPIRUHFDVWV
7KHVWDELOLW\RIWKHHQYLURQPHQWLVWKHNH\IDFWRULQGHWHUPLQLQJZKHWKHUWUHQG
H[WUDSRODWLRQLVDQDSSURSULDWHIRUHFDVWLQJPRGHO7KHFRQFHSWRI³GHYHORSPHQWDO
LQHUWLD´HPERGLHVWKHLGHDWKDWVRPHLWHPVDUHPRUHHDVLO\FKDQJHGWKDQRWKHUV
&ORWKLQJVW\OHVLVDQH[DPSOHRIDQDUHDWKDWFRQWDLQVOLWWOHLQHUWLD,WLVGLIILFXOWWR
6HOI,QVWUXFWLRQDO 0DWHULDO
SURGXFHUHOLDEOHPDWKHPDWLFDOIRUHFDVWVIRUFORWKLQJ(QHUJ\FRQVXPSWLRQRQWKH
 RWKHUKDQGFRQWDLQVVXEVWDQWLDOLQHUWLDDQGPDWKHPDWLFDOWHFKQLTXHVZRUNZHOO7KH
GHYHORSPHQWDOLQHUWLDRIQHZLQGXVWULHVRUQHZWHFKQRORJ\FDQQRWEHGHWHUPLQHG )LQDQFLDO$QDO\VLV
EHFDXVHWKHUHLVQRW\HWDKLVWRU\RIGDWDWRGUDZIURP ,QYDULDQWDQG3RUWIROLRV
6WUDWHJLHV
7KHUHDUHPDQ\PDWKHPDWLFDOPRGHOVIRUIRUHFDVWLQJWUHQGVDQGF\FOHV&KRRVLQJ
DQDSSURSULDWHPRGHOIRUDSDUWLFXODUIRUHFDVWLQJDSSOLFDWLRQGHSHQGVRQWKHKLVWRUL 127(6
FDOGDWD7KHVWXG\RIWKHKLVWRULFDOGDWDLVFDOOHGH[SORUDWRU\GDWDDQDO\VLV,WV
SXUSRVHLVWRLGHQWLI\WKHWUHQGVDQGF\FOHVLQWKHGDWDVRWKDWDSSURSULDWHPRGHO
FDQEHFKRVHQ
5HJUHVVLRQ $QDO\VLV
5HJUHVVLRQLVWKHVWXG\RIUHODWLRQVKLSVDPRQJYDULDEOHVDSULQFLSDOSXUSRVHRI
ZKLFKLVWRSUHGLFWRUHVWLPDWHWKHYDOXHRIRQHYDULDEOHIURPNQRZQRUDVVXPHG
YDOXHVRIRWKHUYDULDEOHVUHODWHGWRLW7RPDNHSUHGLFWLRQVRUHVWLPDWHVZHPXVW
LGHQWLI\WKHHIIHFWLYHSUHGLFWRUVRIWKHYDULDEOHRILQWHUHVWZKLFKYDULDEOHVDUHLP
SRUWDQWLQGLFDWRUVDQGFDQEHPHDVXUHGDWWKHOHDVWFRVWZKLFKFDUU\RQO\DOLWWOH
LQIRUPDWLRQDQGZKLFKDUHUHGXQGDQW

 ,QYHVWPHQW  3RUWIROLR 6WUDWHJLHV

6LPSO\,QYHVWPHQWUHIHUVWRSXUFKDVHRIILQDQFLDODVVHWV,QYHVWPHQWLVGRQHIRU
IXUWKHUJDLQLQIXWXUH7KHSURFHVVRI,QYHVWPHQWLVQRWVRHDV\,WLVYHU\PXFK
FRPSOLFDWHGGXHWRYHUVDWLOLW\LQWKHLQVWUXPHQWV:KLOHFUDWLQJWKHSRUWIROLRYHU\
PXFKUHVHDUFKLVWREHGRQH7KHSRUWIROLRVWUDWHJ\VHOHFWHGZRXOGKDYHWREHLQ
FRQIRUPLW\ZLWKERWKWKHLQYHVWPHQWREMHFWLYHDQGLQYHVWPHQWSROLF\JXLGHOLQHV$Q\
FRQWUDGLFWLRQKHUHZRXOGUHVXOWLQORVVHV
/HW¶VFRQVLGHUDSHUVRQZLWKDMREWKDWNHHSVKLPEXV\IRUKRXUVDGD\ILYH
GD\VRIWKHZHHN2Q6DWXUGD\KHKHOSVWKHIDPLO\ZLWKKRXVHKROGFKRUHV2Q
6XQGD\KHWDNHVWKHGD\RIIDQGHQMR\VKLPVHOI1RZZLWKVXFKDEXV\OLIHZH
FDQQRWH[SHFWKLPWRREWDLQRSWLPDOUHWXUQVIURPLQYHVWPHQWVLQWKHHTXLW\PDUNHW
)RUDSHUVRQZLWKVXFKDEXV\OLIHVFKHGXOHLWZRXOGEHEHVWWRLQYHVWLQIL[HG
LQFRPHVHFXULWLHV7KHVHZRXOGLQFOXGH5%,ERQGV%DQNGHSRVLWVLQVXUDQFHHWF
:KHUHWKHUHLVDORZHUEXWDVVXUHGUHWXUQ+RZHYHULIWKLVDYHUDJHKDUGZRUNLQJ
DQGVXFFHVVIXOSHUVRQVWLOOZDQWVWRLQYHVWLQWKHHTXLW\PDUNHWIRUDUHODWLYHO\KLJKHU
UDWHRIUHWXUQ7KHQKHZRXOGKDYHWRFUHDWHWKHWLPHIRUWKHWKRXJKWDQDO\VLVDQG
DFWLRQUHTXLUHGIRUVXFFHVVLQWKLVHQGHDYRU
3RUWIROLRVWUDWHJLHVDUHPDLQO\RIWZRW\SHVZKLFKDUHDFWLYHSRUWIROLRVWUDWHJLHVDQG
SDVVLYHSRUWIROLRVWUDWHJLHV$FWLYHVWUDWHJLHVKDYHDKLJKHUH[SHFWDWLRQDERXWWKH
IDFWRUVWKDWDUHH[SHFWHGWRLQIOXHQFHWKHSHUIRUPDQFHRIWKHDVVHWFODVVHV:KLOH
SDVVLYHVWUDWHJLHVLQYROYHDPLQLPXPH[SHFWDWLRQLQSXW7KHODWWHUZRXOGLQFOXGH
LQGH[LQJZKLFKZRXOGUHTXLUHWKHLQYHVWRUWRUHSOLFDWHWKHSHUIRUPDQFHRIDSDUWLFX
ODULQGH[%HWZHHQWKHVHWZRH[WUHPHVZHKDYHDUDQJHRIRWKHUVWUDWHJLHVZKLFK
KDYHHOHPHQWVRIERWKDFWLYHDQGSDVVLYHVWUDWHJLHV,QWKHIL[HGLQFRPHVHJPHQW
VWUXFWXUHGSRUWIROLRVWUDWHJLHVKDYHEHFRPHSRSXODU+HUHWKHDLPZRXOGEHWR
DFKLHYHDSUHGHWHUPLQHGSHUIRUPDQFHLQUHODWLRQWRDEHQFKPDUN7KHVHDUHIUH
6HOI,QVWUXFWLRQDO 0DWHULDO
TXHQWO\XVHGWRIXQGOLDELOLWLHV

6HFXULW\$QDO\VLV 7KHLQGLYLGXDOLQYHVWRUVZKRZLVKWRDGRSWDQDFWLYHSRUWIROLRVWUDWHJ\ZRXOGEH
3RUWIROLR0DQDJHPHQW UHTXLUHGWRORRNLQWRPDWWHUVRIPDUNHWWLPLQJVHFWRUURWDWLRQVWRFNVHOHFWLRQDQG
FRQFHSWXDOL]DWLRQ0DUNHWWLPLQJWKHSXUFKDVHRIVWRFNVLQWKHVWRFNPDUNHWZRXOG
E\GHIDXOWUHGXFHWKHVXEVHTXHQWKROGLQJSHULRGRIWKHVWRFNVKHOGLQWKHSRUWIROLR
127(6 ZLWKWKHH[SHFWDWLRQRIDUHDVRQDEOHH[SHFWDWLRQRIUHWXUQDWWKHSRLQWRIVDOHZLWK
WKHDGYDQWDJHRIWKHILQDQFLDOUHVRXUFHVDJDLQEHLQJDYDLODEOHWREHDSSOLHGZLWK
UHJDUGWRRWKHUVWRFNVZKLFKPD\SURYLGHERWKRSSRUWXQLWLHVRISXUFKDVHDVZHOO
DVDIDLUPDUJLQRIVDIHW\DWWKHSRLQWRIWKHLUVXEVHTXHQWSXUFKDVH7KLVZRXOGDOVR
UHVXOWLQWKHWXUQLQJRYHURIWKHLQYHVWPHQWFDSLWDOGXULQJWKHILQDQFLDOSHULRGLQZKLFK
WKLVVWUDWHJ\LVLPSOHPHQWHG6HFWRUURWDWLRQZRXOGUHTXLUHDQXQGHUVWDQGLQJRIWKH
VHJUHJDWLRQRIWKHYDULRXVVWRFNVLQWRDSSURSULDWHLQGXVWULHVDQGVHUYLFHVHFWRU
JURXSV7KHLQYHVWRUPD\QRZFRQVLGHUVKRUWOLVWLQJWKHWRSWKUHHWRILYHFRUSRUDWH
HQWLWLHVIURPHDFKRIWKHOHDGLQGXVWULHVDQGVHUYLFHVHFWRUJURXSVIRUDIXUWKHUVWXG\
WRGHFLGHZKHWKHUWKHVWRFNVVKRUWOLVWHGDUHRILQYHVWPHQWJUDGH7KHUHDIWHUWKH
LQYHVWRUZRXOGEHUHTXLUHGWRPRYHWKHLQYHVWPHQWFDSLWDOIURPRQHLQGXVWU\DQG
RUVHUYLFHVHFWRUJURXSWRDQRWKHUGHSHQGLQJRQWKHDYDLODELOLW\RIDIDLUPDUJLQRI
VDIHW\ZKLOHHQJDJLQJVXFKVWRFNVDQGDGHTXDWHSURILWVZKLOHGLVHQJDJLQJIURPWKHP
6WRFNVHOHFWLRQZRXOGUHTXLUHDVKRUWOLVWLQJRIWKHLQYHVWPHQWJUDGHVWRFNVIRU
DQDO\VLVEDVHGRQIXQGDPHQWDOSDUDPHWHUVWRFRQILUPWKHLUSUHVHQWVWDWXVRIEHLQJ
LQYHVWPHQWZRUWK\$IXUWKHUVWXG\WRFKHFNDQGFRQILUPZKHWKHUWKHFXUUHQWPDUNHW
SULFHRIVXFKVWRFNVLVEHORZLWVLQWULQVLFYDOXHDQGRIIHUDIDLUPDUJLQRIVDIHW\WKLV
PD\DOVRUHTXLUHWKHDSSOLFDWLRQRIWHFKQLFDOWRROVWRUHFRQILUPDSUREDEOHRYHUVROG
FRQGLWLRQDWWKHWLPHRIVXFKDQDO\VLV&RQFHSWXDOL]DWLRQZRXOGUHTXLUHWKHLQYHVWRU
WRKDYHDWKDQGDQLQYHVWPHQWSKLORVRSK\XSRQZKLFKVXEVHTXHQWLQYHVWPHQWGH
FLVLRQVZRXOGEHEDVHG7KLVSKLORVRSK\ZRXOGEHEDVHGRQDQXQGHUVWDQGLQJRI
YDULRXVIRUFHVZKLFKDIIHFWWKHVWRFNPDUNHWVDQGWKHPRYHPHQWRIWKHSULFHVRI
VWRFNVWUDGHGLQWKHP)RUFHVZRXOGLQFOXGHGHPDQGVXSSO\PLVPDWFKHVLQWKH
VWRFNPDUNHWLWVHOIDVZHOODVLQRWKHUDOOLHGPDUNHWVOLNHFRPPRGLWLHVDQGIRUH[
DPRQJVWRWKHUVXFKPDUNHWVLQFOXGLQJJOREDOUHJLRQDODQGQDWLRQDOZKLFKPD\
LQIOXHQFHLWVSHUIRUPDQFHVWRFNPDUNHWSV\FKRORJ\DQRVFLOODWLRQEHWZHHQIHDUDQG
JUHHGSROLWLFDOLQFOXGLQJJRYHUQPHQWSROLFLHVVWDELOLW\RURWKHUZLVHRIWKHQDWLRQ
LQZKLFKWKHVWRFNPDUNHWH[LVWVDPRQJVWRWKHUV,QDGGLWLRQWKHLQYHVWRUZRXOG
DOVREHUHTXLUHGWRVHJUHJDWHWKHVWRFNVVKRUWOLVWHGLQWRFDWHJRULHVRIJURZWKEHOO
ZHDWKHUVVWDUVF\FOLFDOWHFKQRORJ\EDVHGDQGDVVHWULFK7KHUHDIWHUWKHLQYHVWRU
ZRXOGHLWKHUFKRRVHDYDOXHEDVHGRUJURZWKEDVHGDSSURDFK
,QWKHORQJUXQWKHLQGLYLGXDOLQYHVWRUZRXOGILQGWKDWWKHDERYHVHOHFWLRQRIWKH
&KHFN <RXU 3URJUHVV SRUWIROLRVWUDWHJ\DQGLWVVXEVHTXHQWLPSOHPHQWDWLRQZRXOGEHLQWXLWLYH,WZRXOG
 :KDWLVIXQGIORZ UHTXLUHWKHLQGLYLGXDOLQYHVWRUWRDVFHUWDLQZKHWKHUKHKDVWKHWLPHWRWDNHRQWKH
VWDWHPHQW" FKDOOHQJHVRIIHUHGE\WKLVVKLIWIRUPDSDVVLYHSRUWIROLRVWUDWHJ\WRDQDFWLYHSRUWIROLR
 :KDWLVFDVKIORZ VWUDWHJ\VWDQFH,ILWLVIRXQGWKDWWKHWLPHUHTXLUHGIRUWKLVH[HUFLVHLVQRWUHDGLO\
VWDWHPHQW" DYDLODEOHWKHQWKHLQGLYLGXDOLQYHVWRUPD\FRQWLQXHWRPDLQWDLQWKHH[SHFWHGSUHVHQW
VWDQFHRIDSDVVLYHSRUWIROLRVWUDWHJ\2IFRXUVHDSDVVLYHSRUWIROLRVWUDWHJ\VWDQFH
6HOI,QVWUXFWLRQDO 0DWHULDO ZRXOGKDYHWKHDGYDQWDJHRIVDIHW\RIWKHLQYHVWPHQWFDSLWDODOWKRXJKDWDORZHUUDWH

RIUHWXUQRUJURZWKEXWWKHQDJDLQWKHLQGLYLGXDOLQYHVWRUZRXOGKDYHDODUJHU )LQDQFLDO$QDO\VLV
LQYHVWPHQWFDSLWDOEDVHWRVWDUWZLWKZKHQKHGRHVJHWDURXQGWRDGRSWLQJDQDFWLYH ,QYDULDQWDQG3RUWIROLRV
6WUDWHJLHV
SRUWIROLRVWUDWHJ\VWDQFH7KHLQGLYLGXDOLQYHVWRUZRXOGDOVRUHDOL]HWKDWVHOHFWLQJDQ
DSSURSULDWHSRUWIROLRVWUDWHJ\LVEXWRQHOLQNRUSDUWRIZKDWPD\EHFDOOHGWKH
SRUWIROLRPDQDJHPHQWIUDPHZRUN7KDWWKHLQGLYLGXDOLQYHVWRUFKRRVHVWREHFDX 127(6
WLRXVDWDOOWLPHVZRXOGKROGKLPLQJRRGVWHDGLQWKHORQJUXQ
7KHDERYHGLVFXVVHGSURFHVV VWHSVDUHRQO\LQGLFDWLYHRIDVSHFWVWKHLQYHVWRU
ZRXOGKDYHWRFRQVLGHUZKLOHVKLIWLQJIURPDSDVVLYHSRUWIROLRVWUDWHJ\WRDQDFWLYH
SRUWIROLRVWUDWHJ\%XWWKHLQYHVWRUZRXOGEHUHTXLUHGWRGRFXPHQWKLVRZQLQYHVW
PHQWREMHFWLYHDQGLQYHVWPHQWSROLF\DQGVXEVHTXHQWO\FOHDUO\VWDWHRUVHOHFWWKH
DSSURSULDWHSRUWIROLRVWUDWHJ\WREHDGRSWHGIRUVXEVHTXHQWLQYHVWPHQWGHFLVLRQ
PDNLQJ6RGHVLJQLQJDSRUWIROLRVWUDWHJ\LVDG\QDPLFSURFHVV VKRXOGEHKDQGOHG
FDUHIXOO\

  3RUWIROLR LQYHVWPHQW SURFHVV

7KHXOWLPDWHDLPRIFUHDWLQJWKHSRUWIROLRLVWRUHGXFHWKHULVNDQGLQFUHDVHWKHUHWXUQ
WRWKHLQYHVWRULQRUGHUWRUHDFKWKHLQYHVWPHQWREMHFWLYHVRIDQLQYHVWRU7KH
PDQDJHUPXVWEHDZDUHRIWKHLQYHVWPHQWSURFHVV7KHSURFHVVRISRUWIROLRPDQ
DJHPHQWLQYROYHVPDQ\ORJLFDOVWHSVOLNHSRUWIROLRSODQQLQJSRUWIROLRLPSOHPHQWDWLRQ
DQGPRQLWRULQJ7KHSRUWIROLRLQYHVWPHQWSURFHVVDSSOLHVWRGLIIHUHQWVLWXDWLRQ3RUWIROLR
LVRZQHGE\GLIIHUHQWLQGLYLGXDOVDQGRUJDQL]DWLRQVZLWKGLIIHUHQWUHTXLUHPHQWV,Q
YHVWRUVVKRXOGEX\ZKHQSULFHVDUHYHU\ORZDQGVHOOZKHQSULFHVULVHWROHYHOV
KLJKHUWKDWWKHLUQRUPDOIOXFWXDWLRQ
3RUWIROLRLQYHVWPHQWSURFHVVLVDQLPSRUWDQWVWHSWRPHHWWKHQHHGVDQGFRQYHQLHQFH
RILQYHVWRUV7KHSRUWIROLRLQYHVWPHQWSURFHVVLQYROYHVWKHIROORZLQJVWHSV
 3ODQQLQJRISRUWIROLR
 ,PSOHPHQWDWLRQRISRUWIROLRSODQ
 0RQLWRULQJWKHSHUIRUPDQFHRISRUWIROLR
3ODQQLQJRISRUWIROLR
3ODQQLQJLVWKHPRVWLPSRUWDQWHOHPHQWLQDSURSHUSRUWIROLRPDQDJHPHQW7KH
VXFFHVVRIWKHSRUWIROLRPDQDJHPHQWZLOOGHSHQGXSRQWKHFDUHIXOSODQQLQJ:KLOH
PDNLQJWKHSODQGXHFRQVLGHUDWLRQZLOOEHJLYHQWRWKHLQYHVWRU¶VILQDQFLDOFDSDELOLW\
DQGFXUUHQWFDSLWDOPDUNHWVLWXDWLRQ$IWHUWDNLQJLQWRFRQVLGHUDWLRQDVHWRILQYHVW
PHQWDQGVSHFXODWLYHSROLFLHVZLOOEHSUHSDUHGLQWKHZULWWHQIRUP,WLVFDOOHGDV
VWDWHPHQWRILQYHVWPHQWSROLF\7KHGRFXPHQWPXVWFRQWDLQ
7KHSRUWIROLRREMHFWLYH
$SSOLFDEOHVWUDWHJLHV
,QYHVWPHQWDQGVSHFXODWLYHFRQVWUDLQWV
7KHSODQQLQJGRFXPHQWPXVWFOHDUO\GHILQHWKHDVVHWDOORFDWLRQ,WPHDQVDQRSWLPDO
6HOI,QVWUXFWLRQDO 0DWHULDO
FRPELQDWLRQRIYDULRXVDVVHWVLQDQHIILFLHQWPDUNHW7KHSRUWIROLRPDQDJHUPXVW

6HFXULW\$QDO\VLV NHHSLQPLQGDERXWWKHGLIIHUHQFHEHWZHHQEDVLFSXUHLQYHVWPHQWSRUWIROLRDQG
3RUWIROLR0DQDJHPHQW DFWXDOSRUWIROLRUHWXUQV7KHVWDWHPHQWRILQYHVWPHQWSROLF\PD\FRQWDLQWKHVHHOH
PHQWV7KHSRUWIROLRSODQQLQJFRPSULVHVWKHIROORZLQJVLWXDWLRQIRULWVEHWWHUSHUIRU
PDQFH
127(6
$,QYHVWRU&RQGLWLRQV7KHILUVWTXHVWLRQZKLFKPXVWEHDQVZHUHGLVWKLV±
³:KDWLVWKHSXUSRVHRIWKHVHFXULW\SRUWIROLR"´:KLOHWKLVTXHVWLRQPLJKWVHHP
REYLRXVLWLVWRRRIWHQRYHUORRNHGJLYLQJZD\LQVWHDGWRWKHH[FLWHPHQWRIVHOHFWLQJ
WKHVHFXULWLHVZKLFKDUHWREHKHOG8QGHUVWDQGLQJWKHSXUSRVHIRUWUDGLQJLQILQDQFLDO
VHFXULWLHVZLOOKHOSWR
'HILQHWKHH[SHFWHGSRUWIROLROLTXLGDWLRQ
$LGLQGHWHUPLQLQJDQDFFHSWDEOHOHYHORUULVNDQG
,QGLFDWHZKHWKHUIXWXUHFRQVXPSWLRQOLDELOLW\QHHGVDUHWREHSDLGLQQRPLQDO
RUUHDOPRQH\HWF
)RUH[DPSOHD\HDUROGZRPDQZLWKVPDOOWRPRGHUDWHVDYLQJSUREDEO\KDV
DVKRUWLQYHVWPHQWKRUL]RQFDQDFFHSWOLWWOHLQYHVWPHQWULVNDQGQHHGV
SURWHFWLRQDJDLQVWVKRUWWHUPLQIODWLRQ,QFRQWUDVWD\RXQJFRXSOHLQYHVWLQJFRXSOH
LQYHVWLQJIRUUHWLUHPHQWLQ\HDUVKDVDYHU\ORQJLQYHVWPHQWKRUL]RQDQ
DELOLW\WRDFFHSWPRGHUDWHWRODUJHLQYHVWPHQWULVNEHFDXVHWKH\FDQGLYHUVLI\RYHU
WLPHDQGDQHHGIRUSURWHFWLRQDJDLQVWORQJWHUPLQIODWLRQ7KLVVXJJHVWVWKDW
WKH\HDUROGZRPDQVKRXOGLQYHVWVROHO\LQORZGHIDXOWULVNPRQH\PDUNHW
VHFXULWLHV7KH\RXQJFRXSOHFRXOGLQYHVWLQPDQ\RWKHUDVVHWFODVVHVIRUGLYHUVLIL
FDWLRQDQGDFFHSWJUHDWHULQYHVWPHQWULVNV,QVKRUWNQRZLQJWKHHYHQWXDOSXUSRVH
RIWKHSRUWIROLRLQYHVWPHQWPDNHVLWSRVVLEOHWREHJLQVNHWFKLQJRXWDSSURSULDWH
LQYHVWPHQWVSHFXODWLYHSROLFLHV
%0DUNHW&RQGLWLRQ7KHSRUWIROLRRZQHUPXVWNQRZWKHODWHVWGHYHORSPHQWV
LQWKHPDUNHW+HPD\EHLQDSRVLWLRQWRDVVHVVWKHSRWHQWLDORIIXWXUHUHWXUQRQ
YDULRXVFDSLWDOPDUNHWLQVWUXPHQWV7KHLQYHVWRUV¶H[SHFWDWLRQPD\EHWZRW\SHV
ORQJWHUPH[SHFWDWLRQVDQGVKRUWWHUPH[SHFWDWLRQV7KHPRVWLPSRUWDQWLQYHVWPHQW
GHFLVLRQLQSRUWIROLRFRQVWUXFWLRQLVDVVHWDOORFDWLRQ$VVHWDOORFDWLRQPHDQVWKH
LQYHVWPHQWLQGLIIHUHQWILQDQFLDOLQVWUXPHQWVDWDSHUFHQWDJHLQSRUWIROLR6RPHLQYHVW
PHQWVWUDWHJLHVDUHVWDWLF7KHSRUWIROLRUHTXLUHVFKDQJHVDFFRUGLQJWRLQYHVWRU¶V
QHHGVDQGNQRZOHGJH$FRQWLQXHVFKDQJHVLQSRUWIROLROHDGVWRKLJKHURSHUDWLQJ
FRVW*HQHUDOO\WKHSRWHQWLDOYRODWLOLW\RIHTXLW\DQGGHEWPDUNHWLVWR\HDUV7KH
W\SHRIUHEDODQFLQJVWUDWHJ\IRFXVHVRQWKHOHYHORISULFHVRIDJLYHQILQDQFLDODVVHW
&6SHFXODWLYH3ROLFLHV7KHSRUWIROLRRZQHUPD\DFFHSWWKHVSHFXODWLYHVWUDW
HJLHVLQRUGHUWRUHDFKKLVJRDOVRIHDUQLQJWRPD[LPXPH[WDQW,IQRVSHFXODWLYH
VWUDWHJLHVDUHXVHGWKHPDQDJHPHQWRIWKHSRUWIROLRLVUHODWLYHO\HDV\6SHFXODWLYH
VWUDWHJLHVPD\EHFDWHJRUL]HGDVDVVHWDOORFDWLRQWLPLQJGHFLVLRQRUVHFXULW\VHOHFWLRQ
GHFLVLRQ6PDOOLQYHVWRUVFDQGRE\SXUFKDVLQJPXWXDOIXQGVZKLFKDUHLQGH[HGWR
DVWRFN2UJDQL]DWLRQZLWKODUJHFDSLWDOFDQHPSOR\LQYHVWPHQWPDQDJHPHQWILUPVWR
PDNHWKHLUVSHFXODWLYHWUDGLQJGHFLVLRQV
6HOI,QVWUXFWLRQDO 0DWHULDO

'6WUDWHJLF$VVHW$OORFDWLRQ7KHPRVWLPSRUWDQWLQYHVWPHQWGHFLVLRQZKLFK )LQDQFLDO$QDO\VLV
WKHRZQHURIDSRUWIROLRPXVWPDNHLVWKHSRUWIROLR¶VDVVHWDOORFDWLRQ$VVHWDOORFD ,QYDULDQWDQG3RUWIROLRV
6WUDWHJLHV
WLRQUHIHUVWRWKHSHUFHQWDJHLQYHVWHGLQYDULRXVVHFXULW\FODVVHV6HFXULW\FODVVHVDUH
VLPSO\WKHW\SHRIVHFXULWLHV0RQH\0DUNHW,QYHVWPHQW)L[HG,QFRPH
REOLJDWLRQV(TXLW\6KDUHV5HDO(VWDWH,QYHVWPHQW,QWHUQDWLRQDOVHFXUL 127(6
WLHV
6WUDWHJLFDVVHWDOORFDWLRQUHSUHVHQWVWKHDVVHWDOORFDWLRQZKLFKZRXOGEHRSWLPDOIRU
WKHLQYHVWRULIDOOVHFXULW\SULFHVWUDGHDWWKHLUORQJWHUPHTXLOLEULXPYDOXHVWKDWLV
LIWKHPDUNHWVDUHHIILFLHQF\SULFHG
,PSOHPHQWDWLRQRISRUWIROLRSODQ
,QWKHLPSOHPHQWDWLRQVWDJHWKUHHGHFLVLRQVWREHPDGHLIWKHSHUFHQWDJHKROGLQJV
RIYDULRXVDVVHWVFODVVHVDUHFXUUHQWO\GLIIHUHQWIURPWKHGHVLUHGKROGLQJVDVLQWKH
6,3WKHSRUWIROLRVKRXOGEHUHEDODQFHVWRWKHGHVLUHG6$$6WUDWHJLF$VVHW$OOR
FDWLRQ,IWKHVWDWHPHQWRILQYHVWPHQWSROLF\UHTXLUHVDSXUHLQYHVWPHQWVWUDWHJ\WKLV
LVWKHRQO\WKLQJZKLFKLVGRQHLQWKHLPSOHPHQWDWLRQVWDJH+RZHYHUPDQ\SRUWIROLR
RZQHUVHQJDJHLQVSHFXODWLYHWUDQVDFWLRQLQWKHEHOLHIWKDWVXFKWUDQVDFWLRQVZLOO
JHQHUDWHH[FHVVULVNDGMXVWHGUHWXUQV6XFKVSHFXODWLYHWUDQVDFWLRQVDUHXVXDOO\FODV
VLILHGDV³WLPLQJ´RU³VHOHFWLRQ´GHFLVLRQV7LPLQJGHFLVLRQVRYHURUXQGHUZHLJKW
YDULRXVDVVHWVFODVVHVLQGXVWULHVRUHFRQRPLFVHFWRUVIURPWKHVWUDWHJLFDVVHWDO
ORFDWLRQ6XFKWLPLQJGHFLVLRQGHDOZLWKVHFXULWLHVZLWKLQDJLYHQDVVHWFODVVLQGXVWU\
JURXSRUHFRQRPLFVHFWRUDQGDWWHPSWWRGHWHUPLQHZKLFKVHFXULWLHVVKRXOGEHRYHU
RUXQGHUZHLJKWHG
$7DFWLFDO$VVHW$OORFDWLRQ,IRQHEHOLHYHVWKDWWKHSULFHOHYHOVRIFHUWDLQ
DVVHWFODVVHVLQGXVWU\RUHFRQRPLFVHFWRUVDUHWHPSRUDULO\WRRKLJKRUWRRORZ
DFWXDOSRUWIROLRKROGLQJVVKRXOGGHSDUWIURPWKHDVVHWPL[FDOOHGIRULQWKHVWUDWHJLF
DVVHWDOORFDWLRQ6XFKWLPLQJGHFLVLRQLVSUHIHUUHGWRDVWDFWLFDODVVHWDOORFDWLRQ$V
QRWHG7$$GHFLVLRQVFRXOGEHPDGHDFURVVDJJUHJDWHDVVHWFODVVHVLQGXVWU\FODV
VLILFDWLRQVVWHHOIRRGRUYDULRXVEURDGHFRQRPLFVHFWRUVEDVLFPDQXIDFWXULQJ
LQWHUHVWVHQVLWLYHFRQVXPHUGXUDEOHV
7UDGLWLRQDOO\PRVWWDFWLFDODVVHWVDOORFDWLRQKDVLQYROYHGWLPLQJDFURVVDJJUHJDWH
DVVHWFODVVHV)RUH[DPSOHLIHTXLW\SULFHVDUHEHOLHYHVWREHWRRKLJKRQHZRXOG
UHGXFHWKHSRUWIROLR¶VHTXLW\DOORFDWLRQDQGLQFUHDVHDOORFDWLRQWRVD\ULVNIUHH
VHFXULWLHV,IRQHLVLQGHHGVXFFHVVIXODWWDFWLFDODVVHWDOORFDWLRQWKHDEQRUPDOUH
WXUQVZKLFKZRXOGEHHDUQHGDUHFHUWDLQO\HQWHULQJ
%6HFXULW\ 6HOHFWLRQ 7KH VHFRQG W\SH RI DFWLYH VSHFXODWLRQ LQYROYHV WKH
VHOHFWLRQRIVHFXULWLHVZLWKLQDJLYHQDVVHWVFODVVLQGXVWU\RUHFRQRPLFVHFWRU7KH
VWUDWHJLFDVVHWDOORFDWLRQSROLF\ZRXOGFDOOIRUEURDGGLYHUVLILFDWLRQWKURXJKDQLQ
GH[HGKROGLQJRIYLUWXDOO\DOOVHFXULWLHVLQWKHDVVHWLQWKHFODVV)RUH[DPSOHLIWKH
WRWDOPDUNHWYDOXHRI+36&RUSRUDWLRQVKDUHFXUUHQWO\UHSUHVHQWVRIDOOLVVXHG
HTXLW\FDSLWDOWKDQRIWKHLQYHVWRU¶VSRUWIROLRDOORFDWHGWRHTXLW\ZRXOGEHKHOG
LQ+36FRUSRUDWLRQVKDUHV7KHRQO\UHDVRQWRRYHUZHLJKWRUXQGHUZHLJKWSDUWLFXODU 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV VHFXULWLHVLQWKHVWUDWHJLFDVVHWDOORFDWLRQZRXOGEHWRRIIVHWULVNVWKHLQYHVWRUV¶
3RUWIROLR0DQDJHPHQW IDFHVLQRWKHUDVVHWVDQGOLDELOLWLHVRXWVLGHWKHPDUNHWDEOHVHFXULW\SRUWIROLR6HFXULW\
VHOHFWLRQKRZHYHUDFWLYHO\RYHUZHLJKWDQGXQGHUZHLJKWKROGLQJRISDUWLFXODUVHFX
ULWLHVLQWKHEHOLHIWKDWWKH\DUHWHPSRUDULO\PLVSULFHG
127(6
0RQLWRULQJWKHSHUIRUPDQFHRISRUWIROLR
3RUWIROLRPRQLWRULQJLVDFRQWLQXRXVDQGRQJRLQJDVVHVVPHQWRISUHVHQWSRUWIROLR
DQGWKHSRUWIROLRPDQJHUVKDOOLQFRUSRUDWHWKHODWHVWGHYHORSPHQWZKLFKRFFXUUHGLQ
FDSLWDOPDUNHW7KHSRUWIROLRPDQDJHUVKRXOGWDNHLQWRFRQVLGHUDWLRQRILQYHVWRU¶V
SUHIHUHQFHVFDSLWDOPDUNHWFRQGLWLRQDQGH[SHFWDWLRQV0RQLWRULQJWKHSRUWIROLRLV
XSJUDGLQJDFWLYLW\LQDVVHWFRPSRVLWLRQWRWDNHWKHDGYDQWDJHRIHFRQRPLFLQGXVWU\
DQGPDUNHWFRQGLWLRQV7KHPDUNHWFRQGLWLRQVDUHGHSHQGLQJXSRQWKH*RYHUQPHQW
SROLF\$Q\FKDQJHLQ*RYHUQPHQWSROLF\ZRXOGUHIOHFWWKHVWRFNPDUNHWZKLFKLQ
WXUQDIIHFWVWKHSRUWIROLR7KHFRQWLQXHVUHYLVLRQRIDSRUWIROLRGHSHQGVXSRQWKH
IROORZLQJIDFWRUV
 &KDQJHLQ*RYHUQPHQWSROLF\
 6KLIWLQJIURPRQHLQGXVWU\WRRWKHU
 6KLIWLQJIURPRQHFRPSDQ\VFULSWRFRPSDQ\VFULS
 6KLIWLQJIURPRQHILQDQFLDOLQVWUXPHQWWRDQRWKHU
 7KHKDOI\HDUO\\HDUO\UHVXOWVRIWKHFRUSRUDWHVHFWRU
5LVNUHGXFWLRQLVDQLPSRUWDQWIDFWRULQSRUWIROLR,WZLOOEHDFKLHYHGE\DGLYHUVL
ILFDWLRQRIWKHSRUWIROLRFKDQJHVLQPDUNHWSULFHVPD\KDYHQHFHVVLWDWHGLQDVVHW
FRPSRVLWLRQ7KHFRPSRVLWLRQKDVWREHFKDQJHGWRPD[LPL]HWKHUHWXUQVWRUHDFK
WKHJRDOVRILQYHVWRU

 &RUSRUDWH ,QYHVWPHQW  3RUWIROLR

7KHPRVWFULWLFDOGHWHUPLQDQWRIDQRUJDQL]DWLRQ¶VORQJWHUPYDOXHLVLWVDELOLW\WR
RSWLPDOO\DOORFDWHOLPLWHGFDSLWDODPRQJODUJHSURMHFWVQHZPDUNHWVDQGPHUJHUDQG
DFTXLVLWLRQ0 $GHFLVLRQV6XFFHVVIXORUJDQL]DWLRQVPDNHODUJHLQYHVWPHQWDQG
FDSLWDODOORFDWLRQGHFLVLRQVXVLQJDUREXVWDSSURDFKWKDWDQDO\]HVHDFKRSWLRQ¶V
µULVNUHWXUQWUDGHRII¶DQGUHIOHFWVHDFKRSWLRQ¶VRYHUDOOLPSDFWRQWKHH[LVWLQJSRUWIROLR
3RRULQYHVWPHQWVRQWKHRWKHUKDQGFDQUHVXOWLQVKDUHSULFHGHSUHVVLRQORVW
PDUNHWVKDUHGHSDUWXUHRINH\OHDGHUVKLSDQGQHJDWLYHPHGLDDWWHQWLRQ%\LQFRU
SRUDWLQJDULVNUHWXUQSHUVSHFWLYHLQWR&RUSRUDWH3RUWIROLR0DQDJHPHQWRUJDQL]D
WLRQVZLOOEHEHWWHUHTXLSSHGWRDQVZHUWKHIROORZLQJTXHVWLRQV
 +RZFDQULVNEHLQFRUSRUDWHGLQWRWKHGHFLVLRQPDNLQJSURFHVVVRWKDW
PXOWLSOHLQYHVWPHQWRSWLRQVDUHFRQVLVWHQWO\HYDOXDWHG"
 :LOOWKHH[SHFWHGUHWXUQLQDQ\VLQJOHLQYHVWPHQWMXVWLI\WKHOHYHORIULVN
UHTXLUHGWRSXUVXHWKLVRSWLRQ"
6HOI,QVWUXFWLRQDO 0DWHULDO  :KDWLVWKHRSWLPDOFRPELQDWLRQRILQYHVWPHQWRSWLRQVWRDFKLHYHRXUPLG

DQGORQJWHUPVWUDWHJLFREMHFWLYHV"
  :KHUHVKRXOG,VSHQGP\QH[WLQYHVWPHQWGROODU" )LQDQFLDO$QDO\VLV
,QYDULDQWDQG3RUWIROLRV
8WLOL]LQJDULVNUHWXUQSHUVSHFWLYHWRVXSSRUWWKHVHGHFLVLRQVZLOODOORZDILUPWR 6WUDWHJLHV
VXVWDLQJURZWKDQGFUHDWHORQJWHUPYDOXH,WFDQEHDSSOLHGWRDZLGHYDULHW\RI
LQGXVWU\H[DPSOHV 127(6
0HGLDDQGWHFKQRORJ\FRPSDQLHVGHWHUPLQLQJDQDSSURSULDWHEXVLQHVVSRUWIROLR
DPLGWHFKQRORJLFDOXQFHUWDLQW\
(QHUJ\FRPSDQLHVVHOHFWLQJDQH[SORUDWLRQSRUWIROLRDPLGSROLWLFDODQGSULFHXQFHU
WDLQW\
$HURVSDFHDQGDXWRPRWLYHPDQXIDFWXUHUVFKRRVLQJEHWZHHQEXVLQHVVVHJPHQWVDPLG
GHPDQGDQGSURMHFWH[HFXWLRQXQFHUWDLQW\
3KDUPDFHXWLFDOFRPSDQLHVDOORFDWLQJ5 'GROODUVEDVHGRQDSRUWIROLRYLHZRIWKHLU
SLSHOLQH
&RPSDQLHVFRQVLGHULQJDPDNHYVEX\RXWVRXUFLQJGHFLVLRQZLWKLQWKHLUVXSSO\
FKDLQ
5HDOHVWDWHFRPSDQLHVGHWHUPLQLQJWKHULJKWPL[RIJHRJUDSKLFYVXVHFRPELQDWLRQV
:KLOHLQYHVWPHQWGHFLVLRQVVKRXOGLQFOXGHWKHVWUDWHJLFFRQFHUQVDQGPDQDJHPHQW
SHUVSHFWLYHVWKDWSXVKHGWKHFRPSDQ\WRLQLWLDOO\LQYHVWLJDWHDJLYHQLQYHVWPHQW
RSWLRQDULVNUHWXUQTXDQWLWDWLYHDQDO\VLVHQVXUHVWKDWPDQDJHPHQWZLOOQHLWKHURYHU
SD\IRUWKHSRWHQWLDOVWUDWHJLFJDLQQRUXQGHUHVWLPDWHWKHSRWHQWLDOULVNVRIDQ\QHZ
LQYHVWPHQW
,Q FRPSDULVRQWRFXUUHQW ULVNEDVHGGHFLVLRQPDNLQJ SUDFWLFHVWKH &RUSRUDWH
3RUWIROLR0DQDJHPHQWDSSURDFKSURYLGHVWKHIROORZLQJEHQHILWV
,QFUHDVHGGHFLVLRQPDNLQJWUDQVSDUHQF\WKURXJKDPRUHFRQVLVWHQWHYDOXDWLRQRIDOO
EXVLQHVVXQLWVDQGRSWLRQV
$FRQVLVWHQWDSSURDFKWRULVNPHDVXUHPHQW
$V\VWHPDWLFZD\RILQFOXGLQJGLIIHUHQWYLHZVRIULVNLQGHFLVLRQPDNLQJSURFHVV
$FOHDUHQKDQFHPHQWWRWKHGXHGLOLJHQFHSURFHVV
%HWWHUXQGHUVWDQGLQJRIYDOXHFUHDWLRQDPRQJQHZLQYHVWPHQWRSSRUWXQLWLHV
&RQVLGHUDWLRQRIWKHFRUUHODWLRQDQGGLYHUVLILFDWLRQHIIHFWVRIWKHRUJDQL]DWLRQ¶VGLI
IHUHQWEXVLQHVVHVDQGLQYHVWPHQWRSWLRQV
*XLGDQFHIRUVWUDWHJLFSODQQLQJHJLGHQWLILFDWLRQRIZKHUHWKHFRPSDQ\QHHGVWR
PRYHWRLPSURYHLWVULVNUHWXUQSRVLWLRQ
&RQVLGHUDWLRQRITXDOLWDWLYHDQGQRQILQDQFLDOLPSOLFDWLRQV
7KHVHEHQHILWVFDQHDVLO\EHUHFRJQL]HGDFURVVPRVWRUJDQL]DWLRQVUHJDUGOHVVRIVL]H
RULQGXVWU\2XUH[SHULHQFHKDVVKRZQXVWKDWDJUHDWGHDORIWKHLQIRUPDWLRQDQG
6HOI,QVWUXFWLRQDO 0DWHULDO
H[SHUWLVHUHTXLUHGE\WKH&RUSRUDWH3RUWIROLR0DQDJHPHQWDSSURDFKLVDOUHDG\

6HFXULW\$QDO\VLV DYDLODEOHZLWKLQDQRUJDQL]DWLRQ7KHNH\LVWRHQVXUHWKDWPDQDJHPHQWXQGHUVWDQGV
3RUWIROLR0DQDJHPHQW DQGFRQWLQXDOO\HYDOXDWHVWKHULVNUHWXUQSRVLWLRQRIERWKWKHLURUJDQL]DWLRQ¶VDVVHWV
DQGQHZLQYHVWPHQWRSSRUWXQLWLHVWRFUHDWHWKHPRVWYDOXHLQWKHORQJWHUP

127(6 &$6( 678'<

,QGLDQ'HULYDWLYH0DUNHW
(YHU\RQHWDONVDERXWGHULYDWLYHVWKHVHGD\V'HULYDWLYHSURGXFWVKDYHEHHQDURXQG
IRUDORQJWLPH'R\RXNQRZGHULYDWLYHVILUVWFDPHDERXWLQ-DSDQHVHULFHPDUNHWV"
<HVDVHDUO\DVWKHVGHDOLQJVUHVHPEOLQJSUHVHQWGD\GHULYDWLYHPDUNHW
WUDQVDFWLRQVZHUHVHHQLQULFHPDUNHWVLQ2VDND-DSDQ
7KHILUVWOHDSWRZDUGVDQRUJDQL]HGGHULYDWLYHVPDUNHWFDPHLQZKHQWKH
&KLFDJR%RDUGRI7UDGHWKHODUJHVWGHULYDWLYHH[FKDQJHLQWKHZRUOGZDVHVWDE
OLVKHG
7RGD\HTXLW\DQGFRPPRGLW\GHULYDWLYHPDUNHWVDUHUDSLGO\JDLQLQJLQVL]HLQ,QGLD
,QWHUPVRISRSXODULW\WRRWKHVHPDUNHWVDUHFDWFKLQJRQOLNHDIRUHVWILUH6RZKDW
DUHWKHVHPDUNHWVDOODERXW":KDWDUHWKHSURGXFWVWKDWWKH\WUDGHLQ":K\GR
SHRSOHIHHOWKHQHHGWRWUDGHLQVXFKSURGXFWVDQGZKDWVRUWRIWUDGHUVEHQHILWIURP
VXFKWUDGHV"
'RWKHVHPDUNHWVKROGVFRSHIRUUHWDLOLQYHVWRUVWRR"$QGLIVRKRZH[DFWO\FDQ
\RXJRDERXWWUDGLQJLQWKHP"
'HULYDWLYHVPDUNHWVEURDGO\FDQEHFODVVLILHGLQWRWZRFDWHJRULHVWKRVHWKDWDUH
WUDGHGRQWKHH[FKDQJHDQGWKHWKRVHWUDGHGRQHWRRQHRU
RYHUWKHFRXQWHU
7KH\
DUHKHQFHNQRZQDV
z ([FKDQJH7UDGHG'HULYDWLYHV
z 27&'HULYDWLYHV2YHU7KH&RXQWHU
z 27&(TXLW\'HULYDWLYHV
7UDGLWLRQDOO\HTXLW\GHULYDWLYHVKDYHDORQJKLVWRU\LQ,QGLDLQWKH27&PDUNHW
2SWLRQVRIYDULRXVNLQGVFDOOHG7HMLDQG0DQGLDQG)DWDNLQXQRUJDQL]HGPDUNHWV
ZHUHWUDGHGDVHDUO\DVLQ0XPEDL
7KH6&5$KRZHYHUEDQQHGDOONLQGRIRSWLRQVLQ
7KHSURKLELWLRQRQRSWLRQVLQ6&5$ZDVUHPRYHGLQ)RUHLJQFXUUHQF\RS
WLRQVLQFXUUHQF\SDLUVRWKHUWKDQ5XSHHZHUHWKHILUVWRSWLRQVSHUPLWWHGE\5%,
7KH5HVHUYH%DQNRI,QGLDKDVSHUPLWWHGRSWLRQVLQWHUHVWUDWHVZDSVFXUUHQF\
VZDSVDQGRWKHUULVNUHGXFWLRQV27&GHULYDWLYHSURGXFWV
%HVLGHVWKH)RUZDUGPDUNHWLQFXUUHQFLHVKDVEHHQDYLEUDQWPDUNHWLQ,QGLDIRU
VHYHUDOGHFDGHV
7KHWHUP'HULYDWLYHLQGLFDWHVWKDWLWKDVQRLQGHSHQGHQWYDOXHLHLWVYDOXHLV
HQWLUHO\GHULYHGIURPWKHYDOXHRIWKHXQGHUO\LQJDVVHW

6HOI,QVWUXFWLRQDO 0DWHULDO
7KHXQGHUO\LQJDVVHWFDQEHVHFXULWLHVFRPPRGLWLHVEXOOLRQFXUUHQF\OLYHVWRFNRU

DQ\WKLQJHOVH,QRWKHUZRUGV'HULYDWLYHPHDQVDIRUZDUGIXWXUHRSWLRQRUDQ\
RWKHUK\EULGFRQWUDFWRISUHGHWHUPLQHGIL[HGGXUDWLRQOLQNHGIRUWKHSXUSRVHRI )LQDQFLDO$QDO\VLV
FRQWUDFWIXOILOOPHQWWRWKHYDOXHRIDVSHFLILHGUHDORUILQDQFLDODVVHWRUWRDQLQGH[ ,QYDULDQWDQG3RUWIROLRV
6WUDWHJLHV
RIVHFXULWLHV
'HULYDWLYHWUDGLQJLQ,QGLDWDNHVFDQSODFHHLWKHURQDVHSDUDWHDQGLQGHSHQGHQW 127(6
'HULYDWLYH([FKDQJHRURQDVHSDUDWHVHJPHQWRIDQH[LVWLQJ6WRFN([FKDQJH
'HULYDWLYH([FKDQJH6HJPHQWIXQFWLRQDVD6HOI5HJXODWRU\2UJDQLVDWLRQDQG6HEL
DFWVDVWKHRYHUVLJKWUHJXODWRU7KHFOHDULQJ VHWWOHPHQWRIDOOWUDGHVRQWKH'H
ULYDWLYH([FKDQJH6HJPHQWZRXOGKDYHWREHWKURXJKD&OHDULQJ&RUSRUDWLRQ+RXVH
ZKLFKLVLQGHSHQGHQWLQJRYHUQDQFHDQGPHPEHUVKLSIURPWKH'HULYDWLYH([FKDQJH
6HJPHQW
:LWKWKHDPHQGPHQWLQWKHGHILQLWLRQRI
VHFXULWLHV
XQGHU6&5$WRLQFOXGHGH
ULYDWLYHFRQWUDFWVLQWKHGHILQLWLRQRIVHFXULWLHVGHULYDWLYHVWUDGLQJWDNHVSODFHXQGHU
WKHSURYLVLRQVRIWKH6HFXULWLHV&RQWUDFWV5HJXODWLRQ$FWDQGWKH6HFXULWLHV
DQG([FKDQJH%RDUGRI,QGLD$FW
'U/&*XSWD&RPPLWWHHFRQVWLWXWHGE\6HELKDGODLGGRZQWKHUHJXODWRU\IUDPH
ZRUNIRUGHULYDWLYHWUDGLQJLQ,QGLD6(%,KDVDOVRIUDPHGVXJJHVWLYHE\HODZIRU
'HULYDWLYH([FKDQJHV6HJPHQWVDQGWKHLU&OHDULQJ&RUSRUDWLRQ+RXVHZKLFKOD\
V
GRZQWKHSURYLVLRQVIRUWUDGLQJDQGVHWWOHPHQWRIGHULYDWLYHFRQWUDFWV
7KH5XOHV%\HODZV 5HJXODWLRQVRIWKH'HULYDWLYH6HJPHQWRIWKH([FKDQJHVDQG
WKHLU&OHDULQJ&RUSRUDWLRQ+RXVHKDYHWREHIUDPHGLQOLQHZLWKWKHVXJJHVWLYH%\H
ODZV6HELKDVDOVRODLGWKHHOLJLELOLW\FRQGLWLRQVIRU'HULYDWLYH([FKDQJH6HJPHQW
DQGLWV&OHDULQJ&RUSRUDWLRQ+RXVH
7KHHOLJLELOLW\FRQGLWLRQVKDYHEHHQIUDPHGWRHQVXUHWKDW'HULYDWLYH([FKDQJH
6HJPHQW &OHDULQJ&RUSRUDWLRQ+RXVHSURYLGHDWUDQVSDUHQWWUDGLQJHQYLURQPHQW
VDIHW\ LQWHJULW\DQGSURYLGHIDFLOLWLHVIRUUHGUHVVDORILQYHVWRUJULHYDQFHV
6800$5<
)LQDQFLDODQDO\VLVDOVRUHIHUUHGWRDVILQDQFLDOVWDWHPHQWDQDO\VLVRUDFFRXQWLQJ
DQDO\VLVRU$QDO\VLVRIILQDQFHUHIHUVWRDQDVVHVVPHQWRIWKHYLDELOLW\VWDELOLW\
DQGSURILWDELOLW\RIDEXVLQHVVVXEEXVLQHVVRUSURMHFW
,WLVSHUIRUPHGE\SURIHVVLRQDOVZKRSUHSDUHUHSRUWVXVLQJUDWLRVWKDWPDNHXVHRI
LQIRUPDWLRQWDNHQIURPILQDQFLDOVWDWHPHQWVDQGRWKHUUHSRUWV7KHVHUHSRUWVDUH
XVXDOO\SUHVHQWHGWRWRSPDQDJHPHQWDVRQHRIWKHLUEDVHVLQPDNLQJEXVLQHVV
GHFLVLRQV
ƒ &RQWLQXHRUGLVFRQWLQXHLWVPDLQRSHUDWLRQRUSDUWRILWVEXVLQHVV
ƒ 0DNHRUSXUFKDVHFHUWDLQPDWHULDOVLQWKHPDQXIDFWXUHRILWVSURGXFW
ƒ $FTXLUHRUUHQWOHDVHFHUWDLQPDFKLQHULHVDQGHTXLSPHQWLQWKHSURGXFWLRQRILWV
JRRGV
ƒ ,VVXHVWRFNVRUQHJRWLDWHIRUDEDQNORDQWRLQFUHDVHLWVZRUNLQJFDSLWDO
ƒ 0DNHGHFLVLRQVUHJDUGLQJLQYHVWLQJRUOHQGLQJFDSLWDO
ƒ 2WKHUGHFLVLRQVWKDWDOORZPDQDJHPHQWWRPDNHDQLQIRUPHGVHOHFWLRQRQYDUL 6HOI,QVWUXFWLRQDO 0DWHULDO

RXVDOWHUQDWLYHVLQWKHFRQGXFWRILWVEXVLQHVV 
6HFXULW\$QDO\VLV $16:(56 72 &+(&. <285 6(/)
3RUWIROLR0DQDJHPHQW
 )LQDQFLDOVWDWHPHQWVDUHPDLQO\SUHSDUHGIRUGHFLVLRQPDNLQJSXUSRVHV
 7KHWHUP³DFFRXQWLQJUDWLRV´LVXVHGWRGHVFULEHVLJQLILFDQWUHODWLRQVKLS
127(6 EHWZHHQILJXUHVVKRZQRQDEDODQFHVKHHWLQDSURILWDQGORVVDFFRXQW
LQDEXGJHWDU\FRQWUROV\VWHPRULQDQ\RWKHUSDUWRIDFFRXQWLQJRUJDQL
]DWLRQ
 7KHIXQGVIORZVWDWHPHQWLVDUHSRUWRQFKDQJHVLQILQDQFLDORSHUDWLRQV
IORZRUPRYHPHQWVRIIXQGVGXULQJWKHSHULRG
 7KHFDVKIORZVWDWHPHQWVKRZVKRZPXFKFDVKFRPHVLQDQGJRHVRXW
RIWKHFRPSDQ\RYHUWKHTXDUWHURUWKH\HDU
7(67 <2856(/)
 :KDWGR\RXPHDQE\)LQDQFLDO$QDO\VLV"([SODLQLWVQDWXUHDQGOLPLWDWLRQV
 :KDWDUHWKHYDULRXVSDUWLHVLQWHUHVWHGLQWKHDQDO\VLVRIILQDQFLDOVWDWH
PHQWV"
 ([SODLQ5DWLR$QDO\VLV:KDWDUHWKHDGYDQWDJHVDQGGLVDGYDQWDJHVRI5DWLRV
$QDO\VLV"
 :KDWGR\RXPHDQE\)XQG)ORZ6WDWHPHQW"
 ([SODLQ&DVK)ORZ6WDWHPHQW:KDWLVWKHSURFHGXUHRISUHSDULQJ&DVK
)ORZ6WDWHPHQW"
 :KDWLVWKHGLIIHUHQFHEHWZHHQIXQGVIORZVWDWHPHQWDQGFDVKIORZVWDWH
PHQW"
 :KDWLVWKH&RVWYROXPHSURILW&93DQDO\VLV"([SODLQWKHDSSOLFDWLRQVRI
&RVW9ROXPH3URILW&93FRQFHSW
 :KDWGR\RXPHDQE\%UHDN(YHQ$QDO\VLV"([SODLQYDULRXVDGYDQWDJHVRI
%UHDN(YHQ$QDO\VLV
 ([SODLQ)LQDQFLDO)RUHFDVWLQJ:KDWDUHWKHYDULRXV0HWKRGV)LQDQFLDOIRUH
FDVWLQJ"
 :ULWHDVKRUWQRWHRQ
L 4XLFN5DWLR
LL &DSLWDO*HDULQJ5DWLR
LLL 'LYLGHQG3D\RXW5DWLR
LY 2SHUDWLQJ5DWLR
Y 0DUJLQRI6DIHW\
)857+(5 5($',1*
‡)LQDQFLDOPDQDJHPHQWE\,03DQGH\
‡)LQDQFLDO0DQDJHPHQWE\.KDQDQG-DLQ
6HOI,QVWUXFWLRQDO 0DWHULDO

 3RUWIROLR0DQDJHPHQW
,QGLDDQG&DSLWDO
6WUXFWXUH

 127(6

3RUWIROLR0DQDJHPHQW
LQ,QGLDDQG&DSLWDO
6WUXFWXUH

„
„

„
„
„ 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV  ,QWURGXFWLRQ
3RUWIROLR0DQDJHPHQW
$SRUWIROLRLVFROOHFWLRQRIDVVHWVZKLFKDUHILQDQFLDOLQQDWXUHLILWLVFRQFHUQHGZLWK
SRUWIROLRPDQDJHPHQW7KHSRUWIROLRPDQDJHULQYHVWVWKHPRQH\LQGLYHUVHDVVHWV
ZLWKWKHDLPRIPD[LPL]LQJUHWXUQVDQGPLQLPL]LQJWKHULVN
127(6
3RUWIROLRPDQDJHPHQWLVDWRROZKLFKSURYLGHVVRPHEDVLFEHQHILWVVXFKDVJLYLQJ
DKROLVWLFYLHZRIWKHYDULRXVLQYHVWPHQWVDQGWKHDOLJQPHQWRIWKHLQYHVWPHQWVZLWK
WKHORQJWHUPJRDOVRIWKHLQGLYLGXDO+RZHYHU3RUWIROLR0DQDJHPHQWLQ,QGLDLVRQH
RIWKHPRVWFKDOOHQJLQJMREVDQGWKHUHIRUHLVQ¶WHDV\3RUWIROLR0DQDJHPHQWFDQKHOS
XVJDLQFRQWURORIRXULQYHVWPHQWVDQGGHOLYHUVRPHPHDQLQJIXOYDOXHWR\RXUHDUQ
LQJVIURPWKHLQYHVWPHQWV3RUWIROLR0DQDJHPHQWWDNHVDKROLVWLFYLHZRIWKHRYHUDOO
HDUQLQJVWUDWHJ\RIWKHLQGLYLGXDO
3RUWIROLRPDQDJHUPHDQVDQ\SHUVRQZKRSXUVXDQWWRDFRQWDFWZLWKDFOLHQWXQGHU
WDNHVWKHPDQDJHPHQWRIDSRUWIROLRRIVHFXULWLHVRUWKHIXQGVRIWKHFOLHQW
3RUWIROLRPDQDJHPHQWFDQEHLQVWLWXWLRQDOLQQDWXUH7KHPXWXDOIXQGVDUHDNLQGRI
SRUWIROLRVFKHPHV5HFHQWO\PDQ\QHZ3HQVLRQ)XQGVKDYHEHHQODXQFKHG7KHVH
IXQGV DOVR KDYH WR EXLOG D SRUWIROLR VR WKDW D UHWXUQ FDQ EH JHQHUDWHG IRU WKH
SDUWLFLSDQWV
,Q,QGLDWKHUHDUHWKHWZRW\SHVRISRUWIROLRPDQDJHPHQWVHUYLFHVDYDLODEOHWRWKH
LQYHVWRUV

7KH'LVFUHWLRQDU\SRUWIROLRPDQDJHPHQWVHUYLFHV'306
,QWKLVW\SHRIVHUYLFHVWKHFOLHQWSDUWVZLWKKLVPRQH\LQIDYRURIPDQDJHU
ZKRLQUHWXUQKDQGOHVDOOWKHSDSHUZRUNPDNHVDOOWKHGHFLVLRQVDQGJLYHV
DJRRGUHWXUQRQWKHLQYHVWPHQWDQGIRUWKLVKHFKDUJHVDFHUWDLQIHHV
,QWKLVGLVFUHWLRQDU\306WRPD[LPL]HWKH\LHOGDOPRVWDOOSRUWIROLRPDQ
DJHUVSDUNVWKHIXQGVLQWKHPRQH\PDUNHWVHFXULWLHVVXFKDVRYHUQLJKW
PDUNHWGD\VWUHDVXU\ELOOVDQGGD\VFRPPHUFLDOELOOV
1RUPDOO\UHWXUQRQVXFKLQYHVWPHQWYDULHVIURPWRSHUFHQWGHSHQG
LQJRQWKHFDOOPRQH\UDWHVSUHYDLOLQJDWWKHWLPHRILQYHVWPHQW
7KH1RQGLVFUHWLRQDU\SRUWIROLRPDQDJHPHQWVHUYLFHV
7KHPDQDJHUIXQFWLRQDVDFRXQVHORUEXWWKHLQYHVWRULVIUHHWRDFFHSWRU
UHMHFWWKHPDQDJHU¶VDGYLFHWKHPDQDJHUIRUDVHUYLFHVFKDUJHDOVRXQGHU
WDNHVWKHSDSHUZRUN
7KHPDQDJHUFRQFHQWUDWHVRQVWRFNPDUNHWLQVWUXPHQWVZLWKDSRUWIROLR
6HOI,QVWUXFWLRQDO 0DWHULDO
WDLORUPDGHWRWKHULVNWDNLQJDELOLW\RIWKHLQYHVWRU

7KHIXQFWLRQVRI3RUWIROLR0DQDJHPHQWDUHDVIROORZLQJ 3RUWIROLR0DQDJHPHQW
,QGLDDQG&DSLWDO
x 7RIUDPHLQYHVWPHQWVWUDWHJ\DQGVHOHFWDQLQYHVWPHQWPL[ 6WUXFWXUH
x 7RSURYLGHDEDODQFHGSRUWIROLRZKLFKZLOOKHGJHDJDLQVWLQIODWLRQDQGDOVR
RSWLPL]HUHWXUQV 127(6
x 7RPDNHWLPHO\GHFLVLRQVUHJDUGLQJVDOHDQGSXUFKDVHRIVHFXULWLHV
x 7RPD[LPL]HDIWHUWD[UHWXUQE\LQYHVWLQJSDUWRIWKHSRUWIROLRLQWD[VDYLQJV
LQYHVWPHQWV
7KHDGYDQWDJHVRISRUWIROLRPDQDJHPHQWDUHDVIROORZLQJ
x &DSLWDOPDUNHWVRYHUDORQJSHULRGKDYHDOZD\VJLYHQDEHWWHUUHWXUQWKDQDQ\
RWKHULQYHVWPHQW
x 7KHLQYHVWPHQWLQVWRFNPDUNHWVE\LQGLYLGXDOVLVDFRPSOLFDWHGEXVLQHVV,WLV
EHWWHUWKDWDSURIHVVLRQDOKDQGOHVWKLV
:KLOHPDQDJLQJWKHLQYHVWPHQWSRUWIROLRLWLVLPSRUWDQWWRUHPHPEHUWKDWWKHULVNLHU
VWUDWHJLFLQYHVWPHQWVVKRXOGDOZD\VEHEDODQFHGZLWKPRUHFRQVHUYDWLYHLQYHVW
PHQWV7KHLQYHVWPHQWPL[VKRXOGEHFRQVWDQWO\PRQLWRUHGWRDVVHVVZKLFKLQYHVW
PHQWVDUHRQWUDFNDQGZKLFKDUHWKHRQHVWKDWQHHGKHOSDQGZKLFKDUHWKHRQHV
WKDWQHHGWREHVKXWGRZQ
+RZHYHUWKHNH\RIVXFFHVVIXOSRUWIROLRPDQDJHPHQWOLHVLQWKHH[HFXWLRQ$VWURQJ
SRUWIROLRPDQDJHPHQWSURJUDPFDQWXUQDQ\VLQNLQJLQYHVWPHQWDURXQGDQGGRWKH
IROORZLQJ
z 0D[LPL]HYDOXHRILQYHVWPHQWVZKLOHPLQLPL]LQJWKHULVN
z $OORZLQYHVWRUVWRVFKHGXOHUHVRXUFHVPRUHHIILFLHQWO\
z 5HGXFHWKHQXPEHURIUHGXQGDQWLQYHVWPHQWVDQGPDNHLWHDVLHUWRNLOOORVV
PDNLQJLQYHVWPHQWV
$QGRIFRXUVHSRUWIROLRPDQDJHPHQWGHILQLWHO\PHDQVWKDWZHDUHOHIWZLWKPRUH
PRQH\LQRXUSRFNHWV(IILFLHQWSRUWIROLRPDQDJHPHQWDOVRUHGXFHVRYHUDOOH[SHQ
GLWXUHV E\  E\ VDYLQJ WKH ORVVHV WKDW DUHRWKHUZLVH PDGH RQ ORVV PDNLQJ
LQYHVWPHQWV
6RIDULQ,QGLDPRVWRIWKHPLGGOHFODVVHDUQHUVKDYHEHHQULVNDYHUVHDQGWKHUH
IRUHSDUNPRVWRIWKHLUVDYLQJVLQ)L[HG'HSRVLWVDQG2WKHU6DYLQJV$FFRXQWV
WKRXJKWKH\LHOGIURPVXFKLQYHVWPHQWDYHQXHVLVYHU\ORZ+RZHYHUWKHUHFHQW
WUHQGKDVEHHQVXFKWKDWPRUHSHRSOHKDYHEHHQDWWUDFWHGWRZDUGVLQYHVWPHQWLQ
0XWXDO)XQGVDQG(TXLWLHV,WLVLQWKLVOLJKWWKDW3RUWIROLR0DQDJHPHQW&RPSDQLHV
KDYHEHHQJDLQLQJSURPLQHQFHLQ,QGLD7KHWUHQGLVRQO\VHWWRJRXSZDUGVLQWKH
\HDUVWRFRPHDVWKH,QGLDQPLGGOHFODVVEHFRPHVPRUHULVNIULHQGO\
3RUWIROLR&RQVXOWDQF\
$SRUWIROLRFRQVXOWDQWLVDSURIHVVLRQDOZKRSURYLGHVSURIHVVLRQDORUH[SHUWDGYLFH
LQPDQDJLQJDQGFRQVWUXFWLQJWKHSRUWIROLRDFFRUGLQJWRWKHQHHGRIWKHLQYHVWRU7KH
SHUVRQLVNQRZQDVFRQVXOWDQW KLVDFWLYLW\LVNQRZQDVSRUWIROLRFRQVXOWDQF\
$FRQVXOWDQWLVXVXDOO\DQH[SHUWRUDSURIHVVLRQDOLQLQYHVWPHQWDUHDDQGKDVDZLGH
NQRZOHGJHRIWKHVXEMHFWPDWWHUZLWKDJUHDWGHDORIH[SHULHQFHLQ,QYHVWPHQW 6HOI,QVWUXFWLRQDO 0DWHULDO
FUHDWLRQRISRUWIROLR7KH3RUWIROLRFRQVXOWDQWSOD\VKLVUROHLQWZRZD\V 
6HFXULW\$QDO\VLV x $VDQ,QWHUQDO&RQVXOWDQWVRPHRQHZKRRSHUDWHVZLWKLQDQRUJDQL]D
3RUWIROLR0DQDJHPHQW WLRQEXWLVDYDLODEOHWREHFRQVXOWHGE\RWKHUGHSDUWPHQWVRULQGLYLGXDOV
DFWLQJDVFOLHQWV
x $VDQ([WHUQDO&RQVXOWDQWVRPHRQHZKRLVHPSOR\HGH[WHUQDOO\ZKRVH
127(6 H[SHUWLVHLVSURYLGHGRQDWHPSRUDU\EDVLVXVXDOO\IRUDIHH$VVXFKWKLV
W\SHRIFRQVXOWDQWJHQHUDOO\HQJDJHVZLWKPXOWLSOHDQGFKDQJLQJFOLHQWV
2YHUDOOWKHLPSDFWRIDSRUWIROLRFRQVXOWDQWLVWKDWFOLHQWVKDYHDFFHVVWRGHHSHU
OHYHOVRIH[SHUWLVHWKDQZRXOGEHIHDVLEOHIRUWKHPIRUPDQDJLQJWKHLULQYHVWPHQW
SRUWIROLR
7KHSURFHVVRIFRQVXOWLQJDQGWKHPHDQVE\ZKLFKWKHFRQVXOWDQWLVHQJDJHGYDU\
DFFRUGLQJWRWKHQHHGRIWKHFOLHQW$FRQVXOWDQWLVHQJDJHGWRIXOILOODEULHILQWHUPV
RIKHOSLQJWRILQGVROXWLRQVWRVSHFLILFLVVXHVEXWWKHZD\VLQZKLFKWKDWLVWREHGRQH
JHQHUDOO\IDOOVWRWKHFRQVXOWDQWWRGHFLGHZLWKLQFRQVWUDLQWVVXFKDVEXGJHWDQG
UHVRXUFHVDJUHHGZLWKWKHFOLHQW6RPHFRQVXOWDQWVDUHHPSOR\HGLQGLUHFWO\E\WKH
FOLHQWYLDDFRQVXOWDQF\VWDIILQJFRPSDQ\DFRPSDQ\WKDWSURYLGHVFRQVXOWDQWVRQ
DQDJHQF\EDVLV6XFKFRQVXOWDQWVDUHRIWHQFDOOHGFRQWUDFWRUVVLQFHWKH\DUHXVXDOO\
SURYLGLQJWHFKQLFDOVHUYLFHV
  1DWLRQDO  ,QWHUQDWLRQDO 3RUWIROLR 0L[
3RUWIROLR0L[$VVHW0L[7DUJHW$VVHW0L[$VVHW$OORFDWLRQDUHDOOGLIIHUHQWODEHOV
RIWKHVDPHERWWOH,WPHDQVWKDWDOOWKHVHDUHWKHGLIIHUHQWQDPHVXVHGIRUSRUWIROLR
$OOWKHVHWHOOVWKDWKRZPXFKRIHDFKW\SHRILQYHVWPHQWZHVKRXOGEX\
/HW¶VNQRZWKDWGHEWERQGVIL[HGGHSRVLWVGHEWIXQGVDUHDOOVDIHURSWLRQVZKHUH
6HOI,QVWUXFWLRQDO 0DWHULDO

PRUHRUOHVVUHWXUQVDUHIL[HGZKHUHDVVWRFNVHTXLW\PXWXDOIXQGVHTXLW\DUH
ULVNLHURSWLRQVZKHUHUHWXUQVFRXOGEHYHU\KLJKRUHYHQQHJDWLYH
'HSHQGLQJRQLQYHVWRU¶VVLWXDWLRQDQGULVNWDNLQJSRUWIROLRFDQEHGHVLJQHG
1RPDWWHUZKLFKDVVHWDOORFDWLRQWRROZHXVHZHVKDOOQHHGWRNQRZDIHZELWVRI
LQIRUPDWLRQILUVW,IZHDUHVWDUWHUVZHQHHGWRNQRZRXUJRDO)RUH[DPSOH
 7KHQXPEHURI\HDUVXQWLORXUJRDOLVUHDFKHG:HZDQWWRUHWLUHLQ
\HDUV7KDW¶VWKHQXPEHURI\HDUVWRRXUJRDO
 +RZPXFKPRQH\ZHQHHGIRURXUJRDO:HZDQWWRKDYHPLOOLRQZKHQ
DOOLVVDLGDQGGRQH
 +RZPXFKPRQH\ZHFDQLQYHVWULJKWQRZ:HKDYHVHWDVLGH
VRWKDW¶V\RXUVWDUWLQJDPRXQW
 +RZPXFKPRQH\ZHFDQFRQWULEXWHHDFKPRQWK:HFDQLQYHVW
SHUPRQWK
1RZRXUSRUWIROLRPL[FDQLQFOXGHKRPHFRXQWU\VHFXULWLHVZKLFKLVNQRZQDV
1DWLRQDOSRUWIROLRPL[ LILWLQFOXGHVIRUHLJQFRXQWU\VHFXULWLHVWKHQLWLVNQRZQ
DV,QWHUQDWLRQDOSRUWIROLRPL[
*HQHUDOO\LWKDVEHHQREVHUYHGWKDWSHRSOHDUHRIWHQIRXQGWREHELDVHGIRU1DWLRQDO
SRUWIROLRPL[,WLVWKHWHQGHQF\DPRQJLQYHVWRUVWRRYHUZHLJKWWKHLULQYHVWPHQW
SRUWIROLRLQGRPHVWLFVHFXULWLHVVWRFNVDQGERQGVLVVXHGE\FRPSDQLHVDQGJRYHUQ
PHQWVFORVHWRKRPH,QYHVWRUVH[SHULHQFHDIDOVHVHQVHRIVHFXULW\IURPWKLVGH
FLVLRQ7KHLURSWLPLVPDERXWWKHLUKRPHFRXQWU\PD\EHZHOOIRXQGHGRYHUDQ\ 3RUWIROLR0DQDJHPHQW
JLYHQWLPHIUDPHEXWLQWKHORQJWHUPPRGHUQSRUWIROLRWKHRU\FDOOVIRUDEDODQFHG ,QGLDDQG&DSLWDO
PL[RILQYHVWPHQWV'LYHUVLILFDWLRQDFURVVJHRJUDSKLFUHJLRQVDQGDFURVVDVVHWFODVVHV 6WUXFWXUH
LVRQHRIWKHIRXQGDWLRQVRIVRXQGILQDQFLDOSODQQLQJ,WPLJKWIHHOOHVVULVN\WRLQYHVW
WKHEXONRIWKHVDYLQJVLQFRPSDQLHVRQHNQRZDQGVHHFORVHWRKRPH,QIDFWDQ 127(6
RYHUHPSKDVLVRQRQHFRXQWU\LVWKHILQDQFLDOHTXLYDOHQWRIKDYLQJDOOWKHHJJVLQRQH
EDVNHW2QHRIWKHUHPDUNDEOHDVSHFWVRIWKLVFXUUHQWURXQGRIPDUNHWYRODWLOLW\LV
WKDWLWGHPRQVWUDWHVKRZKRPHFRXQWU\ELDVFDQDGGULVNLQXQDQWLFLSDWHGZD\V
1RZWDONLQJDERXW,QWHUQDWLRQDO3RUWIROLR%HQHILWVRI,QWHUQDWLRQDO'LYHUVLILFDWLRQ
PD\EHRXWOLQHGDVEHORZ
D 5LVNFDQEHGLYHUVLILHGWKURXJKLQWHUQDWLRQDOLQYHVWPHQWDQGWKLVLVEHWWHU
WKDQSXUHO\GRPHVWLFGLYHUVLILFDWLRQ
E 7KHFRUUHODWLRQRIVWRFNPDUNHWVIRUWHQPDMRUFRXQWULHVUHYHDOVWKHIROORZ
LQJ
L 7KHLQWUDFRXQWU\FRUUHODWLRQLVRQHIRUHYHU\FRXQWU\
LL 7KHLQWHUFRXQWU\FRUUHODWLRQLVPXFKOHVVWKDQRQHIRUHYHU\SDLU
LLL 7KHVRXUFHRIWKLVORZLQWHUFRXQWU\FRUUHODWLRQLVWKDWPXFKRIWKHVWRFN
PDUNHWULVNLQDQLQGLYLGXDOFRXQWU\LVXQV\VWHPDWLF
LY %DVHGRQWKLVLQWHUQDWLRQDOGLYHUVLILFDWLRQFDQUHPRYHPXFKRIWKHXQV\V
WHPDWLFULVNLQLQGLYLGXDOFRXQWU\PDUNHWV
0HWKRGVRI,QWHUQDWLRQDO'LYHUVLILFDWLRQDUHDVIROORZLQJ
$ ,QWHUQDWLRQDO0XWXDOIXQGV
L 0XWXDOIXQGVDUHILQDQFLDOLQVWLWXWLRQVWKDWDFFHSWPRQH\IURPVDYHUVDQG
WKHQXVHWKHVHIXQGVWREX\DYDULHW\RIVHFXULWLHV
LL ,QWHUQDWLRQDOPXWXDOIXQGVDUHSRUWIROLRVRIVHFXULWLHVIURPYDULRXVFRXQWULHV
LLL ,QWHUQDWLRQDOPXWXDOIXQGVKDYHVHYHUDODGYDQWDJHVRYHULQGLYLGXDOIRUHLJQ
VHFXULWLHV
 ,QWHUQDWLRQDOPXWXDOIXQGVSRROIXQGVDQGWKXVUHGXFHULVNE\GLYHUVLIL
FDWLRQ
 ,QYHVWRUVZRXOGKDYHWRSD\H[WUDWUDQVDFWLRQDQGLQIRUPDWLRQFRVWVLI
WKH\DWWHPSWHGWREX\IRUHLJQVHFXULWLHVGLUHFWO\LQIRUHLJQPDUNHWV
 ,QWHUQDWLRQDOPXWXDOIXQGLQYHVWRUVFLUFXPYHQWPDQ\OHJDODQGLQVWLWX
WLRQDOEDUULHUVDVVRFLDWHGZLWKGLUHFWSRUWIROLRLQYHVWPHQWVLQIRUHLJQ
PDUNHWV
LL 7KHUHDUHWZRFODVVRILQWHUQDWLRQDOPXWXDOIXQGV
 2SHQHQGPXWXDOIXQGVDUHIXQGVZKRVHWRWDOQXPEHURIVKDUHVXQGHU &KHFN <RXU 3URJUHVV
PDQDJHPHQWJURZVDQGVKULQNVDVLQYHVWRUVEX\DQGVHOOWKHIXQG  :KDWLVDSRUWIROLR"
 :KRLVDSRUWIROLR
 &ORVHGHQGIXQGVDUHIXQGVWKDWWKHDPRXQWRIPRQH\XQGHUPDQDJH
PDQDJHU"
PHQWLVIL[HG7KH\LVVXHDIL[HGQXPEHURIVKDUHVDJDLQVWDQLQLWLDO
FDSLWDORIIHULQJDQGWKHVHVKDUHVWKHQWUDGHLQVHFRQGDU\PDUNHWVDW 6HOI,QVWUXFWLRQDO 0DWHULDO
SUHYDLOLQJPDUNHWSULFHV 
6HFXULW\$QDO\VLV LLL 7KHUHDUHDSSUR[LPDWHO\86EDVHGLQWHUQDWLRQDOPXWXDOIXQGVWKDWFDQ
3RUWIROLR0DQDJHPHQW EHJURXSHGLQWRWKHIROORZLQJIRXUFDWHJRULHV
 *OREDOIXQGVLQYHVWHGLQ86DQGQRQ86VHFXULWLHV
127(6  ,QWHUQDWLRQDOIXQGVLQYHVWHGLQRQO\QRQ86VHFXULWLHV
 5HJLRQDOPXWXDOIXQGVLQYHVWHGLQSDUWLFXODUJHRJUDSKLFDUHDV
 &RXQWU\IXQGVLQYHVWHGLQVLQJOHFRXQWULHV
% $PHULFDQ'HSRVLWRU\5HFHLSWV$'6PD\EHSXUFKDVHG7KHVHDUHVHFXULWLHV
GLVWULEXWHGLQWKH8QLWHG6WDWHVEDFNHGE\IRUHLJQVWRFN7KH\UHSUHVHQWWKH
RZQHUVKLSRIXQGHUO\LQJIRUHLJQVWRFNWKDWLVKHOGLQFXVWRG\E\WKHEDQNWKDW
LVVXHVWKHP
L ,QHIIHFWWKHEDQNRZQVWKHVKDUHVDQGWUDGHVFODLPVDJDLQVWWKRVHVKDUHV
LL $'5LQYHVWRUVDUHHQWLWOHGWRDOOWKHSULYLOHJHVRIVWRFNRZQHUVKLSLQFOXGLQJ
GLYLGHQGSD\PHQWV
LLL 5XOHVIRUOLVWLQJYDU\PDUNHGO\IURPFRXQWU\WRFRXQWU\ZLWK86UHTXLUH
PHQWVEHLQJDPRQJWKHPRVWUHVWULFWLYH
LY 7KHWRWDOQXPEHURI$'5VOLVWHGRQPDMRU86VWRFNH[FKDQJHVLQFUHDVHG
IURPLQWRLQ
Y 7KHUHDUHDSSUR[LPDWHO\SULYDWH$'5VWKDWDUHQRWOLVWHGDQGKDUGHU
IRUDQLQGLYLGXDOWRLQYHVWLQ
YL $'5VDUHVRSRSXODUWKDWVRPHFRPSDQ\KDYHEHJXQWRLVVXHJOREDOGH
SRVLWRU\UHFHLSWVLHLQVWUXPHQWVVLPLODUWR$'5VWKDWFDQEHVLPXOWDQHRXVO\
LVVXHGRQVWRFNH[FKDQJHVDOORYHUWKHZRUOG
& )RUHLJQVHFXULWLHVFDQDOVREHGLUHFWO\SXUFKDVHG
L 7KLVLVQRWUHFRPPHQGHGIRUVPDOOLQYHVWRUVEHFDXVHRIPDUNHWLPSHUIHF
WLRQVVXFKDVLQVXIILFLHQWLQIRUPDWLRQWUDQVDFWLRQFRVWVWD[GLIIHUHQWLDOVDPRQJ
FRXQWULHVDQGGLIIHUHQWH[FKDQJHUDWHULVNV
LL $OWHUQDWLYHO\LQYHVWRUVPD\LQYHVWLQIRUHLJQVHFXULWLHVOLVWHGRQ86H[
FKDQJHVLQWKHVDPHZD\WKH\FDQEX\DQ\86VWRFN
' +HGJHIXQGVDUHSULYDWHSDUWQHUVKLSVZLWKDJHQHUDOPDQDJHUDQGDQXPEHURI
OLPLWHGSDUWQHUV
L 8QOLNHRWKHULQYHVWPHQWWRROVWKHVHKHGJHIXQGVDUHODUJHO\XQUHJXODWHG
LQYHVWPHQWSRROVRSHQWRRQO\ZHDOWK\LQYHVWRUV
LL 0DQ\KHGJHIXQGVXVHVKRUWSRVLWLRQVRUEHWVWKDWSULFHVZLOOIDOOWRRIIVHW
WKHLUVHFXULWLHVKROGLQJV
LLL +HGJHIXQGVKDYHJURZQLQSRSXODULW\GXHWRERWKWKHLURYHUVL]HGUHWXUQV
DQGWKHLUDXUDRIH[FOXVLYLW\
LY +HGJHIXQGVKDYHEHFRPHWKHWDUJHWRIIUHTXHQWFULWLFLVPLQWKHILQDQFLDO
SUHVVEHFDXVHRIWKHOXFUDWLYHFRPSHQVDWLRQSDFNDJHVSDLGWRPDQDJHPHQW
Y ([SHUWVVXJJHVWWKDWDQLQYHVWRUVKRXOGDVNWKHIROORZLQJTXHVWLRQVEHIRUH
6HOI,QVWUXFWLRQDO 0DWHULDO
SXWWLQJPRQH\LQWRDKHGJHIXQG

  +RZGRHVWKHLQYHVWPHQWVWUDWHJ\ZRUN" 3RUWIROLR0DQDJHPHQW
,QGLDDQG&DSLWDO
 :KDWDUHWKHULVNV" 6WUXFWXUH
 :KDWPDUNHWFRQGLWLRQIDYRUWKHPDQDJHU¶VVWUDWHJ\DQGZKLFKRQHV
ZRUNDJDLQVWLW" 127(6
 :KDWLVWKHPDQDJHU¶VH[SHULHQFHDQGWUDFNUHFRUG"
 +RZORQJGR,KDYHWRZDLWEHIRUH,FDQZLWKGUDZP\PRQH\"
 +RZDUHWKHPDQDJHUDQGWKHFRQVXOWDQWKHOSLQJVHOHFWWKHKHGJHIXQG
FRPSHQVDWHG"
( ,QYHVWRUVPD\FKRVHWKHVHFXULWLHVRI86EDVHGPXOWLQDWLRQDOFRPSDQLHV01&V
IRUWKHLULQWHUQDWLRQDOSRUWIROLRGLYHUVLILFDWLRQ
L $Q01&UHSUHVHQWVDSRUWIROLRRILQWHUQDWLRQDORSHUDWLRQVWKXVLWVSHUIRU
PDQFHLVVRPHZKDWLQVXODWHGIURP86PDUNHWGRZQWXUQV
) *OREDOLQYHVWLQJZLOOMXVWLQFUHDVHLQLPSRUWDQFH
L (PSLULFDOVWXGLHVFRQFOXGHWKDWLQWHUQDWLRQDOGLYHUVLILFDWLRQSXVKHVRXWWKH
HIILFLHQWIURQWLHUWKXVDOORZLQJLQYHVWRUVVLPXOWDQHRXVO\WRUHGXFHULVNDQG
LQFUHDVHUHWXUQ7KLVEHQHILWVH[LVWVEHFDXVH
 0RUHSURILWDEOHLQYHVWPHQWVDUHSRVVLEOHLQDQHQODUJHGXQLYHUVHEH
FDXVHIDVWHUJURZLQJHFRQRPLHVFUHDWHKLJKHUUHWXUQVRULQYHVWRUVPD\
VHHDQRWKHUDGYDQWDJHIURPFXUUHQF\JDLQV
 7KHDGYDQWDJHVRILQWHUQDWLRQDOGLYHUVLILFDWLRQPD\RFFXUEHFDXVHFRP
SDQLHVLQGLIIHUHQWFRXQWULHVDUHVXEMHFWWRGLYHUJHQWF\FOLFDOHFRQRPLF
IOXFWXDWLRQV
LL 7KH86SRUWLRQRIWRWDOZRUOGFDSLWDOPDUNHWVKDVGURSSHGIURPLQ
 WR  LQ   'XULQJ WKH VDPH WLPH SHULRG QRQGROODU VWRFN
PDUNHWVIUHTXHQWO\RXWSHUIRUPHGWKHLU86FRXQWHUSDUWV
 <HWWKHDYHUDJH$PHULFDQLQYHVWRUKDVOHVVWKDQRIKLVRUKHU
SRUWIROLRLQYHVWHGLQLQWHUQDWLRQDOVHFXULWLHV
LLL 7KHPDQDJHURID86VWRFNIXQGKDVMXVWRQHZD\WREHDWWKHFRPSHWLWLRQ
±E\PDNLQJEHWWHUVWRFNSLFNV
 7KHPDQDJHURIDQLQWHUQDWLRQDOVWRFNIXQGFDQEHDWWKHFRPSHWLWLRQE\
E\SLFNLQJFRXQWULHVE\SLFNLQJFXUUHQFLHVDQGE\SLFNLQJ
VWRFNV
LY 7RVHOHFWWKHEHVWJOREDOIXQGWKHIROORZLQJKLQWVFDQEHXVHG
 6WLFNZLWKODUJHSOD\HUVLQWKHJOREDOPDUNHW
 &RPELQHIXQGVWRPLQLPL]HWKHHIIHFWRIWKHIDLOXUHRIRQHIXQGRQWKH
WRWDOSRUWIROLR
 6HOHFWUHJLRQDOUDWKHUWKDQWRWDOO\JOREDOIXQGV
 &RQVLGHUFRPELQLQJUHJLRQDOIXQGVZLWKVWRFNRUERQGLQGH[IXQGV
 7U\SXEOLFO\WUDGHGIXQGV 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV  &$3,7$/ 6758&785(
3RUWIROLR0DQDJHPHQW
)LQDQFHLVDQLPSRUWDQWLQSXWIRUDQ\W\SHRIEXVLQHVVDQGLVQHHGHGIRUZRUNLQJ
FDSLWDODQGIRUSHUPDQHQWLQYHVWPHQW7KHWRWDOIXQGVHPSOR\HGLQDEXVLQHVVDUH
REWDLQHGIURPYDULRXVVRXUFHV$SDUWRIWKHIXQGVDUHEURXJKWLQE\WKHRZQHUVDQG
127(6
WKHUHVWLVERUURZHGIURPRWKHUVLQGLYLGXDOVDQGLQVWLWXWLRQV:KLOHVRPHRIWKH
IXQGVDUHSHUPDQHQWO\KHOGLQEXVLQHVVVXFKDVVKDUHFDSLWDODQGUHVHUYHVRZQHG
IXQGVVRPHRWKHUVDUHKHOGIRUDORQJSHULRGVXFKDVORQJWHUPERUURZLQJVRU
GHEHQWXUHVDQGVWLOOVRPHRWKHUIXQGVDUHLQWKHQDWXUHRIVKRUWWHUPERUURZLQJV
7KHHQWLUHFRPSRVLWLRQRIWKHVHIXQGVFRQVWLWXWHWKHRYHUDOOILQDQFLDOVWUXFWXUHRIWKH
ILUP<RXDUHDZDUHWKDWVKRUWWHUPIXQGVNHHSRQVKLIWLQJTXLWHRIWHQ$VVXFKWKH
SURSRUWLRQRIYDULRXVVRXUFHVIRUVKRUWWHUPIXQGVFDQQRWSHUKDSVEHULJLGO\ODLG
GRZQ7KHILUPKDVWRIROORZDIOH[LEOHDSSURDFK$PRUHGHILQLWHSROLF\LVRIWHQODLG
GRZQIRUWKHFRPSRVLWLRQRIORQJWHUPIXQGVNQRZQDVFDSLWDOVWUXFWXUH0RUH
VLJQLILFDQWDVSHFWVRIWKHSROLF\DUHWKHGHEWHTXLW\UDWLRDQGWKHGLYLGHQGGHFLVLRQ
7KHODWWHUDIIHFWVWKHEXLOGLQJXSRIUHWDLQHGHDUQLQJVZKLFKLVDQLPSRUWDQWFRPSR
QHQWRIORQJWHUPRZQHGIXQGV6LQFHWKHSHUPDQHQWRUORQJWHUPIXQGVRIWHQ
RFFXS\DODUJHSRUWLRQRIWRWDOIXQGVDQGLQYROYHORQJWHUPSROLF\GHFLVLRQWKHWHUP
ILQDQFLDOVWUXFWXUHLVRIWHQXVHGWRPHDQWKHFDSLWDOVWUXFWXUHRIWKHILUP
7KHUHDUHFHUWDLQVRXUFHVRIORQJWHUPIXQGVZKLFKDUHJHQHUDOO\DYDLODEOHWRWKH
FRUSRUDWHHQWHUSULVHV7KHPDLQVRXUFHVDUHVKDUHFDSLWDORZQHUV¶IXQGVDQGORQJ
WHUPGHEWLQFOXGLQJGHEHQWXUHVFUHGLWRUV¶IXQGV7KHSURILWHDUQHGIURPRSHUDWLRQV
LVRZQHUV¶IXQGVZKLFKPD\EHUHWDLQHGLQWKHEXVLQHVVRUGLVWULEXWHGWRWKHRZQHUV
6HOI,QVWUXFWLRQDO 0DWHULDO

VKDUHKROGHUVDVGLYLGHQG7KHSRUWLRQRISURILWVUHWDLQHGLQWKHEXVLQHVVLVDUHLQ
YHVWPHQWRIRZQHUV¶IXQGV+HQFHLWLVDOVRDVRXUFHRIORQJWHUPIXQGV$OOWKHVH
VRXUFHVWRJHWKHUDUHWKHPDLQFRQVWLWXHQWVRIWKHFDSLWDORIWKHEXVLQHVVWKDWLVLWV
FDSLWDOVWUXFWXUH
0($1,1*2)&$3,7$/6758&785(
7KHWHUPµFDSLWDOVWUXFWXUH¶UHSUHVHQWVWKHWRWDOORQJWHUPLQYHVWPHQWLQDEXVLQHVV
ILUP,WLQFOXGHVIXQGVUDLVHGWKURXJKRUGLQDU\DQGSUHIHUHQFHVKDUHVERQGVGHEHQ
WXUHVWHUPORDQVIURPILQDQFLDOLQVWLWXWLRQVHWF$Q\HDUQHGUHYHQXHDQGFDSLWDOµ
VXUSOXVHVDUHLQFOXGHGLQFDSLWDOVWUXFWXUH,WLVDOZD\VDGYLVDEOHIRUFRPSDQLHVWR
SODQWKHLUFDSLWDOVWUXFWXUH'HFLVLRQVWDNHQE\QRWDVVHVVLQJWKLQJVLQDFRUUHFW
PDQQHUPD\MHRSDUGL]HWKHYHU\H[LVWHQFHRIWKHFRPSDQ\)LUPVPD\SURVSHULQ
WKHVKRUWUXQE\QRWLQGXOJLQJLQSURSHUSODQQLQJEXWXOWLPDWHO\PD\IDFHSUREOHPV
LQIXWXUH
3ODQQLQJWKHFDSLWDOVWUXFWXUHLVRQHRIWKHPRVWFRPSOH[DUHDVRIILQDQFLDOGHFLVLRQ
PDNLQJEHFDXVHRIWKHLQWHUUHODWLRQVKLSVDPRQJFRPSRQHQWVRIWKHFDSLWDOVWUXFWXUH
DQGDOVRLWVUHODWLRQVKLSWRULVNUHWXUQDQGYDOXHRIWKHILUP)RUDVWXGHQWRIILQDQFH
WKHWHUPFDSLWDOXVXDOO\GHQRWHVWKHORQJWHUPIXQGVRIWKHILUP'HEWFDSLWDODQG
RZQHUVKLSFDSLWDODUHWKHWZREDVLFFRPSRQHQWVRIFDSLWDO(TXLW\FDSLWDODVRQH
RIWKHFRPSRQHQWVRIFDSLWDOL]DWLRQFRPSULVHVHTXLW\VKDUHFDSLWDODQGUHWDLQHG
HDUQLQJV3UHIHUHQFHVKDUHFDSLWDOLVDQRWKHUGLVWLQJXLVKLQJFRPSRQHQWRIWRWDOFDSL
WDO
&DSLWDOVWUXFWXUHLVWKHFRPSRVLWLRQRIYDULRXVVRXUFHVRIORQJWHUPILQDQFHLQWKH
WRWDOFDSLWDOL]DWLRQRIWKHFRPSDQ\7KHWZRPDLQVRXUFHVDUHRZQHUVKLSDQGFUHGL
WRUVKLSVHFXULWLHV%RWKW\SHVRIVHFXULWLHVDVZHOODVWKHORQJWHUPORDQVIURP 3RUWIROLR0DQDJHPHQW
ILQDQFLDOLQVWLWXWLRQVDUHXVHGE\PRVWRIWKHODUJHLQGXVWULDOFRPSDQLHV ,QGLDDQG&DSLWDO
6WUXFWXUH
&DSLWDOVWUXFWXUHSODQQLQJLQLWLDOO\DQGRQFRQWLQXLQJEDVLVLVRIJUHDWLPSRUWDQFHWR
DQ\FRPSDQ\DVLWKDVDFRQVLGHUDEOHEHDULQJRQLWVSURILWDELOLW\$ZURQJLQLWLDO
GHFLVLRQLQWKLVUHVSHFWPD\SURYHTXLWHFRVWO\IRUWKHFRPSDQ\ 127(6

:KLOHWDNLQJDGHFLVLRQDERXWFDSLWDOVWUXFWXUHGXHDWWHQWLRQVKRXOGEHSDLGWR
REMHFWLYHVOLNHSURILWDELOLW\VROYHQF\DQGIOH[LELOLW\7KHFKRLFHRIWKHDPRXQWRIGHEW
DQGRWKHUIL[HGUHWXUQVHFXULWLHVRQWKHRQHKDQGDQGYDULDEOHLQFRPHVHFXULWLHV
QDPHO\HTXLW\VKDUHVRQWKHRWKHULVPDGHDIWHUDFRPSDULVRQRIWKHFKDUDFWHULVWLFV
RIHDFKNLQGRIVHFXULWLHVDQGDIWHUFDUHIXOFRQVLGHUDWLRQRILQWHUQDODQGH[WHUQDO
IDFWRUVUHODWHGWRWKHILUP¶VRSHUDWLRQV,QUHDOOLIHVLWXDWLRQVFRPSURPLVHVKDYHWR
EHPDGHVRPHZKHUHRQWKHOLQHEHWZHHQWKHH[SHFWDWLRQVRIFRPSDQLHVVHHNLQJ
IXQGVDQGWKHH[SHFWDWLRQVRIWKRVHWKDWVXSSO\WKHP7KHVHFRPSURPLVHVGRQRW
FKDQJHWKHEDVLFGLVWLQFWLRQVEHWZHHQGHEWDQGHTXLW\*HQHUDOO\WKHGHFLVLRQDERXW
ILQDQFLQJLVQRWRIFKRRVLQJEHWZHHQHTXLW\DQGGHEWEXWLVRIVHOHFWLQJWKHLGHDO
FRPELQDWLRQRIWKHWZR7KHGHFLVLRQRQGHEWHTXLW\PL[LVDIIHFWHGE\FRQVLGHU
DWLRQVRIVXLWDELOLW\ULVNLQFRPHFRQWURODQGWLPLQJ7KHZHLJKWVDVVLJQHGWRWKHVH
IDFWRUVZLOOYDU\IURPFRPSDQ\WRFRPSDQ\GHSHQGLQJRQWKHFKDUDFWHULVWLFVRIWKH
LQGXVWU\DQGWKHSDUWLFXODUVLWXDWLRQRIWKHFRPSDQ\7KHUHFDQQRWSHUKDSVEHDQ
H[DFWPDWKHPDWLFDOVROXWLRQWRWKHGHFLVLRQRQFDSLWDOVWUXFWXULQJ+XPDQMXGJPHQW
SOD\VDQLPSRUWDQWUROHLQDQDO\]LQJWKHFRQIOLFWLQJIRUFHVEHIRUHDGHFLVLRQRQ
DSSURSULDWHFDSLWDOVWUXFWXUHLVUHDFKHG
$QDSSURSULDWHFDSLWDOVWUXFWXUHVKRXOGLQFRUSRUDWHWKHIROORZLQJIHDWXUHV
,WUHTXLUHVDQXPEHURIIDFWRUVWREHFRQVLGHUHGVXFKDV
 5HWXUQ7KHFDSLWDOVWUXFWXUHRIDFRPSDQ\VKRXOGEHPRVWDGYDQWDJHRXV
,WVKRXOGJHQHUDWHPD[LPXPUHWXUQVWRWKHVKDUHKROGHUVIRUDFRQVLGHUDEOH
SHULRGRIWLPHDQGVXFKUHWXUQVVKRXOGNHHSLQFUHDVLQJ
 )OH[LELOLW\$VRXQGFDSLWDOVWUXFWXUHPXVWEHIOH[LEOH7KHFRQVLGHUDWLRQRI
IOH[LELOLW\JLYHVWKHILQDQFLDOPDQDJHUDELOLW\WRDOWHUWKHILUP¶VFDSLWDOVWUXF
WXUHZLWKDPLQLPXPFRVWDQGGHOD\,WVKRXOGDOVREHSRVVLEOHIRUWKH
FRPSDQ\WRSURYLGHIXQGVZKHQHYHUQHHGHGWRILQDQFHLWVSURILWDEOHDFWLYL
WLHV7KH&RPSDQ\VKRXOGEHDEOHWRDGDSWLWVHOIWRVLWXDWLRQVZDUUDQWLQJ
FKDQJHGFLUFXPVWDQFHVZLWKPLQLPXPFRVWDQGGHOD\
 3URILWDELOLW\$VRXQGFDSLWDOVWUXFWXUHLVDOVRRQHWKDWDOVRSRVVHVVHVWKH
IHDWXUHRISURILWDELOLW\LHLWPXVWEHDGYDQWDJHRXVWRWKHFRPSDQ\,W
VKRXOGSHUPLWWKHPD[LPXPXVHRIOHYHUDJHDWDPLQLPXPFRVWZLWKWKH
FRQVWUDLQWV7KXVDVRXQGFDSLWDOVWUXFWXUHWHQGVWRPLQLPL]HµFRVW¶RIILQDQF
LQJDQGPD[LPL]HHDUQLQJVSHUVKDUH(36
 6ROYHQF\$VRXQGFDSLWDOVWUXFWXUHVKRXOGDOVRKDYHWKHIHDWXUHRIVRO
YHQF\LHLWVKRXOGXVHWKHGHEWFDSLWDORQO\XSWRWKHSRLQWZKHUHVLJQLIL
FDQWULVNLVQRWDGGHG$VKDVEHHQDOUHDG\REVHUYHGWKHXVHRIH[FHVVLYH
GHEWWKUHDWHQVWKHVROYHQF\RIWKHFRPSDQ\
 &RQVHUYDWLRQ7KHFDSLWDOVWUXFWXUHVKRXOGEHFRQVHUYDWLYHLQWKHVHQVH
WKDWWKHGHEWFDSDFLW\RIWKHFRPSDQ\VKRXOGQRWH[FHHG7KHGHEWFDSDFLW\ 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV RIDFRPSDQ\GHPDQGVRQLWVDELOLW\WRJHQHUDWHIXWXUHFDVKIORZV,WVKRXOG
3RUWIROLR0DQDJHPHQW KDYHHQRXJKFDVKWRSD\FUHGLWRUVIL[HGFKDUJHVDQGSULQFLSDODPRXQW,W
VKRXOGEHUHPHPEHUHGWKDWFDVKLQVROYHQF\PLJKWDOVROHDGWROHJDOLQVRO
YHQF\
127(6  &RQWURO7KHFDSLWDOVWUXFWXUHVKRXOGLQYROYHPLQLPXPULVNRIORVVRIFRQ
WURORIWKHFRPSDQ\$QLGHDOFDSLWDOVWUXFWXUHVKRXOGLQYROYHPLQLPXPULVN
RIORVVRIFRQWUROWRWKHFRPSDQ\'LOXWLRQRIFRQWUROE\LQGXOJLQJLQH[FHV
VLYHGHEWILQDQFLQJLVXQGHVLUDEOH
 5LVN$V\RXNQRZXVHRIH[FHVVLYHGHEWIXQGVPD\WKUHDWHQWKHFRPSDQ\¶V
VXUYLYDO'HEWGRHVLQFUHDVHHTXLW\KROGHUV¶UHWXUQVDQGWKLVFDQEHGRQHWLOO
VXFKWLPHWKDWQRULVNLVLQYROYHG
 &DSDFLW\7KHFDSLWDOVWUXFWXUHRIWKHFRPSDQ\VKRXOGEHZLWKLQWKHGHEW
FDSDFLW\'HEWFDSDFLW\GHSHQGVRQWKHDELOLW\IRUIXQGVWREHJHQHUDWHG
5HYHQXHVHDUQHGVKRXOGEHVXIILFLHQWHQRXJKWRSD\FUHGLWRUV¶LQWHUHVWV
SULQFLSDODQGDOVRWRVKDUHKROGHUVWRVRPHH[WHQW
:LWKWKHDERYHSRLQWVRQLGHDOFDSLWDOVWUXFWXUHUDLVLQJIXQGVDWWKHDSSURSULDWHWLPH
WRILQDQFHILUP¶VLQYHVWPHQWDFWLYLWLHVLVDQLPSRUWDQWDFWLYLW\RIWKH)LQDQFH0DQDJHU
*ROGHQRSSRUWXQLWLHVPD\EHORVWIRUGHOD\LQJGHFLVLRQVWRWKLVHIIHFW$FRPELQDWLRQ
RIGHEWDQGHTXLW\LVXVHGWRIXQGWKHDFWLYLWLHV:KDWVKRXOGEHWKHSURSRUWLRQRI
GHEWDQGHTXLW\"7KLVGHSHQGVRQWKHFRVWVDVVRFLDWHGZLWKUDLVLQJYDULRXVVRXUFHV
RIIXQGV7KHFRVWRIFDSLWDOLVWKHPLQLPXPUDWHRIUHWXUQDFRPSDQ\PXVWHDUQ
WRPHHWWKHH[SHQVHVRIWKHYDULRXVFDWHJRULHVRILQYHVWRUVZKRKDYHPDGHLQYHVW
PHQWLQWKHIRUPRIORDQVGHEHQWXUHVHTXLW\DQGSUHIHUHQFHVKDUHV$FRPSDQ\QR
EHLQJDEOHWRPHHWWKHVHGHPDQGVPD\IDFHWKHULVNRILQYHVWRUVWDNLQJEDFNWKHLU
LQYHVWPHQWVWKXVOHDGLQJWREDQNUXSWF\/RDQVDQGGHEHQWXUHVFRPHZLWKDSUH
GHWHUPLQHGLQWHUHVWUDWHSUHIHUHQFHVKDUHVDOVRKDYHDIL[HGUDWHRIGLYLGHQGZKLOH
HTXLW\KROGHUVH[SHFWDPLQLPXPUHWXUQRIGLYLGHQGEDVHGRQWKHLUULVNSHUFHSWLRQ
DQGWKHFRPSDQ\¶VSDVWSHUIRUPDQFHLQWHUPVRISD\RXWRIGLYLGHQGV
7KHFDSLWDOVWUXFWXUHRIDFRPSDQ\LVWKHSDUWLFXODUFRPELQDWLRQRIGHEWHTXLW\DQG
RWKHUVRXUFHVRIILQDQFHWKDWLWXVHVWRIXQGLWVORQJWHUPILQDQFLQJ7KHNH\GLYLVLRQ
LQFDSLWDOVWUXFWXUHLVEHWZHHQGHEWDQGHTXLW\7KHSURSRUWLRQRIGHEWIXQGLQJLV
PHDVXUHGE\JHDULQJ
7KLVVLPSOHGLYLVLRQEHFRPHVFRPSOLFDWHGE\WKHH[LVWHQFHRIRWKHUW\SHVRIFDSLWDO
WKDWVKDSHWKHOLQHVEHWZHHQGHEWDQGHTXLW\DVWKH\DUHK\EULGVLQVWUXPHQWVEH
\RQGWKHFRXUVHVWUXFWXUH)RUH[DPSOH3UHIHUHQFHVKDUHVDUHOHJDOO\VKDUHVEXW
KDYHDIL[HGUHWXUQWKDWPDNHVWKHPFORVHUWRGHEWWKDQHTXLW\6LPSOHILQDQFLDO
WKHRU\PRGHOVVKRZWKDWFDSLWDOVWUXFWXUHGRHVQRWDIIHFWWKHWRWDOYDOXHGHEW
HTXLW\RIDFRPSDQ\7KLVLVQRWFRPSOHWHO\WUXHDVPRUHVRSKLVWLFDWHGPRGHOV
VKRZ,WLVQRQHWKHOHVVDQLPSRUWDQWUHVXOWNQRZDVFDSLWDOVWUXFWXUHLUUHOHYDQFH
$FFRUGLQJWR*HUVWHQEHUJ³&DSLWDOVWUXFWXUHUHIHUVWRWKHPDNHXSRIDILUP¶V
FDSLWDOL]DWLRQ´,QRWKHUZRUGVLWUHSUHVHQWVWKHPL[RIGLIIHUHQWVRXUFHVRIORQJWHUP
IXQGV
()%ULJKDPGHILQHVWKLVWHUPDVWKHSHUFHQWDJHVKDUHRIHDFKW\SHRIFDSLWDOXVHG
6HOI,QVWUXFWLRQDO 0DWHULDO
E\WKHILUP'HEWSUHIHUHQFHVKDUHFDSLWDODQGHTXLW\FDSLWDOHTXLW\VKDUHFDSLWDO

SDLGXSSOXVUHWDLQHGHDUQLQJV
$FFRUGLQJWR(::DONHUFRQFHSWRIFDSLWDOVWUXFWXUHLQFOXGHVWKHIROORZLQJ 3RUWIROLR0DQDJHPHQW
,QGLDDQG&DSLWDO
x 7KHSURSRUWLRQRIORQJWHUPORDQV
6WUXFWXUH
x 7KHSURSRUWLRQRIHTXLW\FDSLWDODQG
x 7KHSURSRUWLRQRIVKRUWWHUPREOLJDWLRQV 127(6
x ,QJHQHUDOWKHH[SHUWVLQILQDQFHGHILQHWKHWHUPFDSLWDOVWUXFWXUHWRLQFOXGH
RQO\ORQJWHUPGHEWDQGWRWDO6WRFNKROGHUV¶LQYHVWPHQW
)LQDQFLDOVWUXFWXUHPHDQVWKHFRPSRVLWLRQRIWKHHQWLUHOHIWKDQGVLGHOLDELOLWLHVVLGH
RIWKHEDODQFHVKHHW)LQDQFLDOVWUXFWXUHUHIHUVWRDOOWKHILQDQFLDOUHVRXUFHVPDUVKHOOHG
E\WKHILUP,WZLOOLQFOXGHDOOIRUPVRIORQJDVZHOODVVKRUWWHUPGHEWVDQGHTXLW\
7KXVSUDFWLFDOO\VSHDNLQJWKHUHLVQRGLIIHUHQFHEHWZHHQWKHFDSLWDOVWUXFWXUHVDV
GHILQHGE\ZDONHUDQGILQDQFLDOVWUXFWXUH
,QEULHI
&DSLWDOVWUXFWXUH SURSRUWLRQVRIDOOW\SHVRI/RQJ7HUPFDSLWDO
)LQDQFLDOVWUXFWXUH 3URSRUWLRQVRIDOOW\SHVRI/RQJ7HUPDQG6KRUW7HUPFDSLWDO
&DSLWDOL]DWLRQ 7RWDO/RQJ7HUPFDSLWDO
 &+$5$&7(5,67,&6 2) ,03257$17 /21*7(50
6285&(6 2) )81'6
7KHIRXUPDMRUVRXUFHVRI/RQJ7HUPIXQGVLQDILUPDUHHTXLW\RURUGLQDU\
VKDUHVSUHIHUHQFHVKDUHVUHWDLQHGHDUQLQJVDQGORQJWHUPGHEW0DQ\ILQDQFLDO
DQDO\VWVDQGPDQDJHUVWHQGWRWKLQNRISUHIHUHQFHVKDUHVDVDVXEVWLWXWHRIGHEWDV
WKHDPRXQWRIGLYLGHQGWREHSDLGLVIL[HG7KHGLIIHUHQFHLVWKDWWKHSUHIHUHQFH
GLYLGHQGXQOLNHGHEWLQWHUHVWLVQRWDWD[GHGXFWLEOHH[SHQVH,WGRHVQRWKDYHD
IL[HGPDWXULW\GDWH3UHIHUHQFHVKDUHKROGHUVKDYHDSULRUFODLPWRUHFHLYHLQFRPH
IURPWKHILUP¶VHDUQLQJWKURXJKGLYLGHQGV&RQYHUWLEOHGHEHQWXUHVKDYHWKHIHDWXUHV
RIERWKGHEWDQGHTXLW\FDSLWDO7KHPDLQIRFXVLQWKHGLVFXVVLRQWKDWIROORZVLVRQ
GHFLGLQJWKHPL[RIGHEWDQGHTXLW\ZKLFKDILUPVKRXOGHPSOR\LQRUGHUWRPD[LPL]H
VKDUHKROGHUZHDOWK%HFDXVHRIWKHVHFRQGDU\SRVLWLRQUHODWLYHWRGHEWVXSSOLHUVRI
HTXLW\FDSLWDOWDNHJUHDWHUULVNDQGWKHUHIRUHPXVWEHFRPSHQVDWHGZLWKKLJKHU
H[SHFWHGUHWXUQV
)$&7256$))(&7,1*&$3,7$/6758&785('(7(50,1$176
2)&$3,7$/6758&785(
&DSLWDOVWUXFWXUHKDVWREHGHWHUPLQHGDWWKHWLPHDFRPSDQ\LVSURPRWHG7KH
LQLWLDOFDSLWDOVWUXFWXUHVKRXOGEHGHVLJQHGYHU\FDUHIXOO\7KHPDQDJHPHQWRIWKH
FRPSDQ\VKRXOGVHWDWDUJHWFDSLWDOVWUXFWXUHDQGWKHVXEVHTXHQWILQDQFLQJGHFLVLRQV
VKRXOGEHPDGHZLWKDYLHZWRDFKLHYHWKHWDUJHWFDSLWDOVWUXFWXUH2QFHDFRPSDQ\
KDVEHHQIRUPHGDQGLWKDVEHHQLQH[LVWHQFHIRUVRPH\HDUVWKHILQDQFLDOPDQDJHU
WKHQKDVWRGHDOZLWKWKHH[LVWLQJFDSLWDOVWUXFWXUH7KHFRPSDQ\PD\QHHGIXQGV
WRILQDQFHLWVDFWLYLWLHVFRQWLQXRXVO\(YHU\WLPHWKHIXQGVKDYHWREHSURFXUHGWKH
ILQDQFLDOPDQDJHUZHLJKVWKHSURVDQGFRQVRIYDULRXVVRXUFHVRIILQDQFHDQGVHOHFWV
PRVWDGYDQWDJHRXVVRXUFHVNHHSLQJLQYLHZWKHWDUJHWFDSLWDOVWUXFWXUH7KXVWKH
FDSLWDOVWUXFWXUHGHFLVLRQLVDFRQWLQXRXVRQHDQGKDVWREHWDNHQZKHQHYHUDILUP
QHHGVDGGLWLRQDOILQDQFH 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV *HQHUDOO\WKHIDFWRUVWREHFRQVLGHUHGZKHQHYHUDFDSLWDOVWUXFWXUHGHFLVLRQLV
3RUWIROLR0DQDJHPHQW WDNHQDUHL/HYHUDJHRU7UDGLQJRQHTXLW\LL&RVWRIFDSLWDOLLL&DVKIORZ
LY&RQWUROY)OH[LELOLW\YL6L]HRIWKHFRPSDQ\YLL0DUNHWDELOLW\DQG
YLLL)ORDWDWLRQFRVWV/HWLW¶VEULHIO\H[SODLQWKHVHIDFWRUV
127(6 7KHYDULRXVIDFWRUVDIIHFWLQJWKHFDSLWDOVWUXFWXUHGHFLVLRQDUH
 /HYHUDJHRU7UDGLQJRQHTXLW\7UDGLQJRQHTXLW\RUOHYHUDJHUHIHUVWKH
XVHRIYDULRXVILQDQFLDOLQVWUXPHQWVRUERUURZHGFDSLWDOVXFKDVPDUJLQWR
LQFUHDVHWKHSRWHQWLDOUHWXUQRIDQLQYHVWPHQW7KLVHQDEOHVWKHRZQHUVRID
FRPSDQ\WRHQKDQFHWKHLUUHWXUQRQHTXLW\E\ERUURZLQJIXQGVIRURQHUDWH
RILQWHUHVWDQGXVLQJWKHPRQH\WRHDUQDKLJKHUUDWHRIUHWXUQNHHSLQJWKH
GLIIHUHQWIRUWKHP,WLVWKXVFDOOHGPDNLQJPRQH\E\XVLQJRWKHUSHRSOH¶V
PRQH\(DUQLQJVEHIRUHLQWHUHVWDQGWD[HV(%,7DQG(36UHODWLRQVKLSDUH
WKHPHDQVWRH[DPLQHWKHHIIHFWRIOHYHUDJH2XWRISHUVKDUHFDSLWDODQG
GHEW¶WKHOHYHUDJHLPSDFWLVIHOWPRUHLQWKHFDVHRIGHEWEHFDXVHWKHLU
VRXUFHRIILQDQFHFRVWVORZHUWKDQSHUVKDUHFDSLWDODQGDOVRWKHLQWHUHVW
SD\DEOHRQGHEWLVWD[GHGXFWLEOH7KHXVHRIIL[HGFRVWVRXUFHVRIILQDQFHV
DOVRDGGVWRWKHILQDQFLDOULVNRIWKHFRPSDQ\DQGWKHUHIRUHLWVKRXOGQRW
EHXVHGEH\RQGDSRLQWZKHUHWKHDPRXQWRIIL[HGFRPPLWPHQWFKDUJHV
HTXDOVWKHOHYHORI(%,77RJLYHXSEHFDXVHRILWVHIIHFWRQ(36ILQDQFLDO
OHYHUDJHLVRQHWKHLPSRUWDQWFRQVLGHUDWLRQLQSODQQLQJWKHFDSLWDOVWUXFWXUH
IRUWKHFRPSDQ\
 6DOHV3RVLWLRQ6DOHVSRVLWLRQFRYHUVJURZWKUDWHRIIXWXUHVDOHVDQGVDOHV
VWDELOLW\7KHIXWXUHJURZWKRIVDOHVLVDPHDVXUHRIWKHH[WHQWWRZKLFKWKH
HDUQLQJVSHUVKDUH(36RIWKHVXPDUHOLNHO\WREHPDJQLILHGE\OHYHUDJH
7KLVLVVREHFDXVHWKHOLNHO\YRODWLOLW\DQGXQFHUWDLQW\RIIXWXUHVDOHVKDYH
LPSRUWDQWLQIOXHQFHVXSRQWKHEXVLQHVVULVNWKHOHVVHTXLW\WKDWVKRXOGEH
HPSOR\HG6LPLODUO\VDOHVVWDELOLW\DQGGHEWUDWLRVDUHGLUHFWO\UHODWHGWKDW
LVWKHJUHDWHUWKHVWDELOLW\LQVDOHVDQGHDUQLQJVWKHJUHDWHUWKHGHEWWKDW
VKRXOGEHHPSOR\HG,WLVEHFDXVHRIWKLVIDFWRUWKDWSXEOLFXWLOLWLHVHPSOR\
PRUHGHEWWKDQHTXLW\EHFDXVHWKH\DUHDVVXUHGRIWKHLUIXWXUHVDOHVDQG
HDUQLQJV
 0DQDJHPHQW$WWLWXGHV0DQDJHPHQW¶VDWWLWXGHFRQFHUQLQJFRQWURORI
HQWHUSULVHDQGULVNLQYROYHGGHWHUPLQHWKHGHEWRUHTXLW\LQWKHFDSLWDO
VWUXFWXUHDQGDQ\DQDO\VLVRIFDSLWDOVWUXFWXUHSODQQLQJDIIHFWFDSLWDOVWUXF
WXUH,QIDFWHYHU\DGGLWLRQRIHTXLW\XQLWLQWKHFDSLWDOVWUXFWXUHSUHVHQWV
PDQDJHPHQWWRSDUWLFLSDWHLQWKHFRPSDQ\DIIDLUVWRWKDWH[WHQW7KHUHIRUH
ZKLOHSODQQLQJFDSLWDOVWUXFWXUHILUPVPD\SUHIHUGHEWWREHDVVXPHGRI
FRQWLQXHGFRQWURO
 $VVHWV6WUXFWXUH&RPSRVLWLRQDQGOLTXLGLW\RIDVVHWVPD\DOVRLQIOXHQFH
WKHFDSLWDOVWUXFWXUHGHFLVLRQRIWKHILUP)LUPVZLWKORQJOLYHGIL[HGDVVHWV
HVSHFLDOO\ZKHQGHPDQGIRUWKHLURXWSXWLVUHODWLYHO\DVVXUHGXWLOLWLHVIRU
H[DPSOH±XVHORQJWHUPGHEWH[WHQVLYHO\VLPLODUO\JUHDWHUWKHOLTXLGLW\WKH
PRUHGHEWWKDWJHQHUDOO\FDQEHXVHGDOORWKHUIDFWRUVUHPDLQLQJFRQVWDQW
7KHOHVVOLTXLGWKHDVVHWVRIILUPWKHOHVVIOH[LEOHWKHILUPFDQEHLQPHHWLQJ
LWVIL[HGFKDUJHGREOLJDWLRQV
6HOI,QVWUXFWLRQDO 0DWHULDO

  &DVKIORZDELOLW\RIWKHFRPSDQ\:KHQFRQVLGHULQJWKHDSSURSULDWH 3RUWIROLR0DQDJHPHQW
FDSLWDOVWUXFWXUHLWLVH[WUHPHO\LPSRUWDQWWRDQDO\]HWKHFDVKIORZDELOLW\RI ,QGLDDQG&DSLWDO
WKHILUPWRVHUYHIL[HGFRPPLWPHQWFKDUJHV7KHIL[HGFRPPLWPHQWFKDUJHV 6WUXFWXUH
LQFOXGHSD\PHQWRILQWHUHVWRQGHEHQWXUHVDQGRWKHUGHEWVSUHIHUHQFHGLYL
GHQGDQGSULQFLSDODPRXQW7KXVWKHIL[HGFKDUJHGGHSHQGXSRQERWKWKH 127(6
DPRXQWRIVHQLRUVHFXULWLHVDQGWKHWHUPVRISD\PHQW7KHDPRXQWRIIL[HG
FKDUJHVZLOOEHKLJKLIWKHFRPSDQ\HPSOR\VDODUJHDPRXQWRIGHEWRU
SUHIHUHQFHFDSLWDOZLWKVKRUWWHUPPDWXULW\,WLVWKHUHIRUHSUXGHQWWKDWIRU
VHUYLFLQJIL[HGFKDUJHVDWSURSHUWLPHWKHPDQDJHPHQWPXVWHQVXUHWKH
DYDLODELOLW\RIFDVKEHFDXVHLQDELOLW\RQWKHSDUWRIPDQDJHPHQWPD\UHVXOW
LQILQDQFLDOLQVROYHQF\7KHUHIRUHFDVKIORZDQDO\VLVLVHVVHQWLDOWRFRQVLGHU
ZKLOHSODQQLQJDSSURSULDWHFDSLWDOVWUXFWXUH2EYLRXVO\WKHJUHDWHUDQGPRUH
VWDEOH WKHH[SHFWHG IXWXUH FDVKIORZV RI WKH ILUP WKH JUHDWHUWKH GHEW
FDSDFLW\DQGYLFHYHUVD7REHRQDVDIHVLGHWKHFDVKIORZDELOLW\PXVWEH
GHWHUPLQHGLQWKHSHULRGRIGHSUHVVLRQYHU\FDUHIXOO\
 ([WHUQDO(QYLURQPHQW$Q\GHFLVLRQUHODWLQJWRWKHSDWWHUQRIFDSLWDO
VWUXFWXUHPXVWEHPDGHNHHSLQJLQYLHZWKHH[WHUQDOIDFWRUVVXFKDVVWDWH
RIFDSLWDOPDUNHWWD[DWLRQSROLF\VWDWHUHJXODWLRQVHWF,IWKHFDSLWDOPDUNHW
LVOLNHO\WREHSODQQHGLQEHDULVKVWDWHDQGLQWHUHVWUDWHVDUHH[SHFWHGWR
GHFOLQHWKHPDQDJHPHQWVKRXOGSRVWSRQHGWKHGHEWIRUWKHSUHVHQWLQRUGHU
WRWDNHDGYDQWDJHRI¶FKHDSGHEWDWDODUJHUVWDJH+RZHYHULIGHEWZLOO
EHFRPHFRVWOLHUDQGZLOOEHRQVFDUFHVXSSO\RZLQJWREXOOLVKWUHQGVRIWKH
FDSLWDOPDUNHWWKHPDQDJHPHQWPD\LQMHFWDGGLWLRQDOGRVHVRIGHEWLQFDSL
WDOVWUXFWXUH6LPLODUO\WD[DWLRQSROLF\ZLWKUHJDUGWRWKHYDULRXVVRXUFHVRI
ILQDQFHDIIHFWVWKHFDSLWDOVWUXFWXUHGHFLVLRQRIWKHFRPSDQ\7KHSUHVHQW
WD[DWLRQSURYLVLRQVDUHLQIDYRURIGHEWFDSLWDOEHFDXVHLQWHUHVWSD\PHQWRQ
GHEWLVDWD[GHGXFWLEOHH[SHQVH2QWKHFRQWUDU\GLYLGHQGSD\DEOHRQ
HTXLW\FDSLWDOSUHIHUHQFHVKDUHFDSLWDOLVVXEMHFWWRWD[VWDWHUHJXODWLRQLV
DQRWKHUH[WHULRUIDFWRUWKDWPXVWEHWDNHQLQWRDFFRXQWZKLOHSODQQLQJFDSLWDO
VWUXFWXUH
 2WKHU)DFWRUV$OOWKHIDFWRUVVSHFLILHGDERYHDUHRIFUXFLDOLPSRUWDQFHLQ
PDWWHUVRIFDSLWDOGHFLVLRQ2WKHUIDFWRUVVXFKDVWKHVL]HRIWKHFRPSDQ\
DJHRIWKHFRPSDQ\FUHGLWVWDQGLQJRIWKHFRPSDQ\SHULRGRIILQDQFH
WHQGHU¶VDWWLWXGHFDSLWDOVWUXFWXUHGHFLVLRQVRIFRPSHWLWRUVHWFDUHHTXDOO\
LPSRUWDQW)RUH[DPSOH6PDOOHUFRPSDQLHVFRQIURQWWUHPHQGRXVSUREOHPLQ
UDLVLQJIXQGDQGWKHVHFRPSDQLHVKDYHWRSD\KLJKHULQWHUHVWRQGHEWDQG
KDYHWRDJUHHWRLQFRQYHQLHQWWHUPVRIORDQ
7KHDERYHOLVWHGIDFWRUVDQGGLIIHUHQFHDQDO\VLVZRXOGKHOSWKHILQDQFLDOPDQDJHUWR
GHWHUPLQHZLWKLQVRPHUDQJHWKHDSSURSULDWHFDSLWDOVWUXFWXUH%\QHFHVVLW\WKHILQDO
GHFLVLRQUHJDUGLQJFDSLWDOVWUXFWXUHEDVHGRQREMHFWLYHDQDO\VLVVXSSOHPHQWHGZLWK
VXEMHFWLYHLQWXLWLYHQHVVRIWKHPDQDJHPHQW,QWKLVZD\WKHFRPSDQ\VKDOOEHDEOH
WRREWDLQDFDSLWDOVWUXFWXUHZKLFKKDVGLUHFWLQIOXHQFHRQPD[LPL]LQJWKHZHDOWKRI
VKDUHKROGHUV
6L]HRIWKHFRPSDQ\
'LOXWLRQRIFRQWURO7KHWRSPDQDJHPHQWVKRXOGKDYHWKHHQWLUHIOH[LELOLW\WR
6HOI,QVWUXFWLRQDO 0DWHULDO
WDNHDSSURSULDWHGHFLVLRQVDWWKHULJKWWLPH7KHFDSLWDOVWUXFWXUHSODQQHGVKRXOG

EHRQHLQWKLVGLUHFWLRQ
6HFXULW\$QDO\VLV )ORDWDWLRQFRVWV±$FRPSDQ\GHVLULQJWRLQFUHDVHLWVFDSLWDOE\ZD\RIGHEW
3RUWIROLR0DQDJHPHQW RUHTXLW\ZLOOGHILQLWHO\LQFXUIORDWDWLRQFRVWV(IIHFWLYHO\WKHDPRXQWRIPRQH\
UDLVHGE\DQ\LVVXHZLOOEHORZHUWKDQWKHDPRXQWH[SHFWHGEHFDXVHRIWKH
SUHVHQFHRIIORDWDWLRQFRVWV6XFKFRVWVVKRXOGEHFRPSDUHGZLWKWKHSURILWV
127(6 DQGULJKWGHFLVLRQVWDNHQ
  7+(25,(6 2) &$3,7$/ 6758&785(
7KHUHLVXQLW\DERXWWKHIDFWWKDWWKHFDSLWDOVWUXFWXUHVKRXOGEHRSWLPXP2SWLPXP
FDSLWDOVWUXFWXUHLVWKDWFRPELQDWLRQRIGHEWDQGHTXLW\WKDWOHDGVWRWKHPD[LPXP
YDOXHRIILUP%XWWKHUHLVQRKDUPRQ\DERXWZKDWFDSLWDOVWUXFWXUHLVRSWLPXP
2QHYLHZSRLQWLVWKDWLIWKHUHLVDFKDQJHLQWKHQDWXUHRIFDSLWDOVWUXFWXUHRULQ
SURSRUWLRQRIGHEWWRHTXLW\LWZLOODIIHFWHDUQLQJVSHUVKDUHDQGDOVRWKHYDOXHRI
WKHILUP$QRWKHUYLHZSRLQWLVWKDWWKHILQDQFLQJPL[RUFRPELQDWLRQRIGHEWDQG
HTXLW\KDVRQLPSDFWRQWKHYDOXHRIWKHILUPDQGRQVKDUHKROGHUVZHDOWK7KHUHLV
QRWKLQJOLNHRSWLPXPFDSLWDOVWUXFWXUH7KHUHLVDQDSSURDFKZKLFKLVDPLGGOH
FRXUVHEHWZHHQWKHWZR
$VZHDUHDZDUHHTXLW\DQGGHEWDUHWKHWZRLPSRUWDQWVRXUFHVRIORQJWHUP
VRXUFHVRIILQDQFHRIDILUP7KHSURSRUWLRQRIGHEWDQGHTXLW\LQDILUP¶VFDSLWDO
VWUXFWXUHKDVWREHLQGHSHQGHQWO\GHFLGHGFDVHWRFDVH$SURSRVDOWKRXJKQRWEHLQJ
IDYRUDEOHWROHQGHUVPD\EHWDNHQXSLIWKH\DUHFRQYLQFHGZLWKWKHHDUQLQJSRWHQWLDO
DQGORQJWHUPEHQHILWV0DQ\WKHRULHVKDYHEHHQSURSRXQGHGWRXQGHUVWDQGWKH
UHODWLRQVKLSEHWZHHQILQDQFLDOOHYHUDJHDQGILUPYDOXH
$VVXPSWLRQV
7KHIROORZLQJDUHVRPHFRPPRQDVVXPSWLRQVPDGH
 7KHILUPKDVRQO\WZRVRXUFHVRIIXQGV±GHEWDQGRUGLQDU\VKDUHV
 7KHUHDUHQRWD[HVERWKFRUSRUDWHDQGSHUVRQDO
 7KHILUP¶VGLYLGHQGSD\RXWUDWLRLVWKDWLVWKHILUPSD\VRIIWKH
HQWLUHHDUQLQJVWRLWVHTXLW\KROGHUVDQGUHWDLQHGHDUQLQJVDUH]HUR
 7KHLQYHVWPHQWGHFLVLRQVRIDFRPSDQ\DUHFRQVWDQWWKDWLVWKHILUPGRHV
QRWLQYHVWDQ\IXUWKHULQLWVDVVHWV
 7KHRSHUDWLQJSURILWV(%,7DUHQRWH[SHFWHGWRLQFUHDVHRUGHFOLQH
 $OOLQYHVWRUVVKDOOKDYHLGHQWLFDOVXEMHFWLYHSUREDELOLW\GLVWULEXWLRQRIWKH
IXWXUHH[SHFWHG(%,7
 $ILUPFDQFKDQJHLWVFDSLWDOVWUXFWXUHDWDVKRUWQRWLFHZLWKRXWWKHRFFXU
UHQFHRIWUDQVDFWLRQFRVWV
 7KHOLIHRIWKHILUPLVLQGHILQLWH
%DVHGRQWKHDERYHZHGHULYHWKHIROORZLQJ
 'HEWFDSLWDOEHLQJFRQVWDQW.GLVWKHFRVWRIGHEWZKLFKLVWKHGLVFRXQWUDWH
DWZKLFKGLVFRXQWHGIXWXUHFRQVWDQWLQWHUHVWSD\PHQWVDUHHTXDOWRWKHPDUNHW
YDOXHRIGHEWWKDWLV.G ,%ZKHUH,UHIHUVWRWRWDOLQWHUHVWSD\PHQWVDQG
6HOI,QVWUXFWLRQDO 0DWHULDO %LVWKHWRWDOPDUNHWYDOXHRIGHEW

 7KHUHIRUHYDOXHRIWKHGHEW% ,.G 3RUWIROLR0DQDJHPHQW
,QGLDDQG&DSLWDO
 &RVWRIHTXLW\FDSLWDO.H '3JZKHUH'LVGLYLGHQGDIWHURQH\HDU 6WUXFWXUH
3LVWKHFXUUHQWPDUNHWSULFHDQGJLVWKHH[SHFWHGJURZWKUDWH
 5HWDLQHGHDUQLQJVEHLQJ]HURJ EUZKHUHULVWKHUDWHRIUHWXUQRQHTXLW\ 127(6
VKDUHVDQGELVWKHUHWHQWLRQUDWHWKHUHIRUHJLV]HUR1RZZHNQRZ.H (
3JDQGJEHLQJ]HURVR.H 1,6ZKHUH1,LVWKHQHWLQFRPHWRHTXLW\
KROGHUVDQG6LVPDUNHWYDOXHRIHTXLW\VKDUHV
 7KHQHWRSHUDWLQJLQFRPHEHLQJFRQVWDQWRYHUDOOFRVWRIFDSLWDOLVUHSUHVHQWHG
DV .  :.  :.
7KDWLV. %9.69.ZKHUH%LVWKHWRWDOPDUNHWYDOXHRIWKH
GHEW6LVPDUNHWYDOXHRIHTXLW\DQG9LVWRWDOPDUNHWYDOXHRIWKHILUP%6
7KHDERYHHTXDWLRQFDQEHH[SUHVVHGDV>%%6@.>6%6@..
EHLQJWKHGHEWFRPSRQHQWDQG.HEHLQJWKHHTXLW\FRPSRQHQWZKLFKFDQEH
H[SUHVVHGDV. ,1,9RU(%,79RULQRWKHUZRUGVQHWRSHUDWLQJ
LQFRPHPDUNHWYDOXHRIILUP
7KHUHDUHIRXUDSSURDFKHVRIFDSLWDOVWUXFWXUHZKLFKZLOOEHGLVFXVVHGKHUH
1HWLQFRPHDSSURDFK
1HW2SHUDWLQJLQFRPHDSSURDFK
7UDGLWLRQDODSSURDFK
0RGLJOLDQL±0LOOHUDSSURDFK
1(7,1&20($3352$&+
1HW,QFRPHWKHRU\ZDVLQWURGXFHGE\'DYLG'XUDQG$FFRUGLQJWRWKLVDSSURDFK
WKHFDSLWDOVWUXFWXUHGHFLVLRQLVUHOHYDQWWRWKHYDOXDWLRQRIWKHILUP7KLVPHDQVWKDW
DFKDQJHLQWKHILQDQFLDOOHYHUDJHZLOODXWRPDWLFDOO\OHDGWRDFRUUHVSRQGLQJFKDQJH
LQWKHRYHUDOOFRVWRIFDSLWDODVZHOODVWKHWRWDOYDOXHRIWKHILUP$FFRUGLQJWR1,
DSSURDFKLIWKHILQDQFLDOOHYHUDJHLQFUHDVHVWKHZHLJKWHGDYHUDJHFRVWRIFDSLWDO
GHFUHDVHVDQGWKHYDOXHRIWKHILUPDQGWKHPDUNHWSULFH RIWKHHTXLW\VKDUHV
LQFUHDVHV6LPLODUO\LIWKHILQDQFLDOOHYHUDJHGHFUHDVHVWKHZHLJKWHGDYHUDJHFRVWRI
FDSLWDOLQFUHDVHVDQGWKHYDOXHRIWKHILUPDQGWKHPDUNHWSULFHRIWKHHTXLW\VKDUHV
GHFUHDVHV
$FFRUGLQJWRWKLVDSSURDFKDILUPFDQLQFUHDVHLWVYDOXHRUORZHUWKHRYHUDOOFRVW
RIFDSLWDOE\LQFUHDVLQJWKHSURSRUWLRQRIGHEWLQWKHFDSLWDOVWUXFWXUH,QRWKHU
ZRUGVLIWKHGHJUHHRIILQDQFLDOOHYHUDJHLQFUHDVHVWKHZHLJKWHGDYHUDJHFRVWRI
FDSLWDOZLOOGHFOLQHZLWKHYHU\LQFUHDVHLQWKHGHEWFRQWHQWLQWRWDOIXQGVHPSOR\HG
ZKLOHWKHYDOXHRIILUPZLOOLQFUHDVH5HYHUVHZLOOKDSSHQLQDFRQYHUVHVLWXDWLRQ
1HWLQFRPHDSSURDFKLVEDVHGRQWKHIROORZLQJWKUHHDVVXPSWLRQV
L 7KHUHDUHQRFRUSRUDWHWD[HV
LL 7KHFRVWRIGHEWLVOHVVWKDQFRVWRIHTXLW\
LLL 7KHXVHRIGHEWFRQWHQWGRHVQRWFKDQJHDWULVNSHUFHSWLRQRILQYHVWRUVDV
DUHVXOWERWKWKHNGGHEWFDSLWDOL]DWLRQUDWHDQGNFHTXLW\FDSLWDOL]DWLRQ
UDWHUHPDLQVFRQVWDQW 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV 7KHYDOXHRIWKHILUPRQWKHEDVLVRI1HW,QFRPH$SSURDFKFDQEHDVFHUWDLQHGDV
3RUWIROLR0DQDJHPHQW IROORZV
9  6  '
127(6 ZKHUH9 9DOXHRIWKHILUP6 0DUNHWYDOXHRIHTXLW\' 0DUNHWYDOXHRI
GHEW
0DUNHWYDOXHRIHTXLW\6 1,.F
ZKHUH1, (DUQLQJVDYDLODEOHIRUHTXLW\VKDUHKROGHUV
.F (TXLW\&DSLWDOL]DWLRQUDWH
8QGHU1,DSSURDFKWKHYDOXHRIWKHILUPZLOOEHPD[LPXPDWDSRLQWZKHUH
ZHLJKWHGDYHUDJHFRVWRIFDSLWDOLVPLQLPXP7KXVWKHWKHRU\VXJJHVWVWRWDORU
PD[LPXPSRVVLEOHGHEWILQDQFLQJIRUPLQLPL]LQJWKHFRVWRIFDSLWDO
7KHRYHUDOOFRVWRIFDSLWDOXQGHUWKLVDSSURDFKLV
2YHUDOOFRVWRIFDSLWDO (%,79DOXHRIWKHILUP
(IIHFWRIFKDQJHLQWKHFDSLWDOVWUXFWXUH,QFUHDVHLQGHEWFDSLWDO
/HWXVDVVXPHWKDWWKHILUPGHFLGHVWRUHWLUHZRUWKRIHTXLW\E\XVLQJWKH
SURFHHGVRIQHZGHEWLVVXHZRUWKWKHVDPHDPRXQW7KHFRVWRIGHEWDQGHTXLW\
ZRXOGUHPDLQWKHVDPHDVSHUWKHDVVXPSWLRQVRIWKH1,DSSURDFK7KLVLVEHFDXVH
RQHRIWKHDVVXPSWLRQVLVWKDWWKHXVHRIGHEWGRHVQRWFKDQJHWKHULVNSHUFHSWLRQ
RIWKHLQYHVWRUV
3OHDVH QRWH
2YHUDOOFRVWRIFDSLWDOFDQDOVREHFDOFXODWHGE\XVLQJWKHZHLJKWVRIGHEWDQGHTXLW\
FRQWHQWVZLWKWKHUHVSHFWLYHFRVWRIFDSLWDOV
7KLVSURYHVWKDWWKHXVHRIDGGLWLRQDOILQDQFLDOOHYHUDJHGHEWFDXVHVWKHYDOXHRI
WKHILUPWRLQFUHDVHDQGWKHRYHUDOOFRVWRIFDSLWDOWRGHFUHDVH
:HNQRZWKDW. >%%6@.G>6%6@.H
([DPSOH
*LYHQEHORZDUHWZRILUPV$DQG%ZKLFKDUHLGHQWLFDOLQDOODVSHFWVH[FHSWWKH
GHJUHHRIOHYHUDJHHPSOR\HGE\WKHP:KDWLVWKHDYHUDJHFRVWRIFDSLWDORIERWK
ILUPV"
)LUP$ )LUP%
1HWRSHUDWLQJLQFRPH(%,7 5V 5V
,QWHUHVWRQGHEHQWXUHV, 1LO 5V
(TXLW\HDUQLQJV( 5V 5V
&RVWRIHTXLW\.H  O
&RVWRIGHEHQWXUHV.G  
0DUNHWYDOXHRIHTXLW\6 (.H 5V 5V
0DUNHWYDOXHRIGHEW% 1LO 5V
6HOI,QVWUXFWLRQDO 0DWHULDO
7RWDOYDOXHRIILUP9 5V 5V

$YHUDJH&RVWRIFDSLWDORIILUP$LV 3RUWIROLR0DQDJHPHQW
,QGLDDQG&DSLWDO
 5V ZKLFKLV 6WUXFWXUH
$YHUDJH&RVWRIFDSLWDORIILUP%LV
  ZKLFKLV 127(6
,QWHUSUHWDWLRQ7KHXVHRIGHEWKDVFDXVHGWKHWRWDOYDOXHRIWKHILUPWRLQFUHDVH
DQGWKHRYHUDOOFRVWRIFDSLWDOWRGHFUHDVH
 1(7 23(5$7,1* ,1&20( 12, $3352$&+
1HW2SHUDWLQJ,QFRPH$SSURDFKZDVDOVRVXJJHVWHGE\'XUDQG7KLVDSSURDFKLV
RIWKHRSSRVLWHYLHZRI1HW,QFRPHDSSURDFK7KLVDSSURDFKVXJJHVWVWKDWWKH
FDSLWDOVWUXFWXUHGHFLVLRQRIDILUPLVLUUHOHYDQWDQGWKDWDQ\FKDQJHLQWKHOHYHUDJH
RUGHEWZLOOQRWUHVXOWLQDFKDQJHLQWKHWRWDOYDOXHRIWKHILUPDVZHOODVWKHPDUNHW
SULFH RI LWV VKDUHV 7KLV DSSURDFK DOVR VD\V WKDW WKH RYHUDOO FRVW RI FDSLWDO LV
LQGHSHQGHQWRIWKHGHJUHHRIOHYHUDJH
$FFRUGLQJWRWKLVDSSURDFKWKHPDUNHWYDOXHIRUWKHILUPLVQRWDIIHFWHGE\WKH
FDSLWDOVWUXFWXUHFKDQJHV7KHPDUNHWYDOXHRIWKHILUPLVDVFHUWDLQHGE\FDSLWDOL]LQJ
WKHQHWRSHUDWLQJLQFRPHDWWKHRYHUDOOFRVWRIFDSLWDOZKLFKLVFRQVWDQW7KHPDUNHW
YDOXHRIWKHILUPLVGHWHUPLQHGDVIROORZV
0DUNHWYDOXHRIWKHILUP9 (DUQLQJVEHIRUHLQWHUHVWDQGWD[2YHUDOOFRVW
RIFDSLWDO
7KHYDOXHRIHTXLW\FDQEHGHWHUPLQHGE\WKHIROORZLQJHTXDWLRQ
9DOXHRIHTXLW\6 9PDUNHWYDOXHRIILUP±'0DUNHWYDOXHRIGHEW
&RVWRIHTXLW\ (DUQLQJVDIWHULQWHUHVWDQGEHIRUHWD[PDUNHWYDOXHRIILUP9
0DUNHWYDOXHRIGHEW'
$VVXPSWLRQVRI1HW2SHUDWLQJ,QFRPH$SSURDFK
7KH1HW2SHUDWLQJ,QFRPH$SSURDFKLVEDVHGRQWKHIROORZLQJDVVXPSWLRQV
L 7KHRYHUDOOFRVWRIFDSLWDOUHPDLQVFRQVWDQWIRUDOOGHJUHHRIGHEWHTXLW\
PL[
LL 7KHPDUNHWFDSLWDOL]HVWKHYDOXHRIILUPDVDZKROH7KXVWKHVSOLWEHWZHHQ
GHEWDQGHTXLW\LVQRWLPSRUWDQW
LLL 7KHXVHRIOHVVFRVWO\GHEWIXQGVLQFUHDVHVWKHULVNRIVKDUHKROGHUV7KLV
FDXVHVWKHHTXLW\FDSLWDOL]DWLRQUDWHWRLQFUHDVH7KXVWKHDGYDQWDJHRI
GHEWLVVHWRIIH[DFWO\E\LQFUHDVHLQHTXLW\FDSLWDOL]DWLRQUDWH
LY 7KHUHDUHQRFRUSRUDWHWD[HV
Y 7KHFRVWRIGHEWLVFRQVWDQW
8QGHU12,DSSURDFKVLQFHRYHUDOOFRVWRIFDSLWDOLVFRQVWDQWWKHUHIRUHWKHUHLVQR
RSWLPDOFDSLWDOVWUXFWXUHUDWKHUHYHU\FDSLWDOVWUXFWXUHLVDVJRRGDVDQ\RWKHUDQG
VRHYHU\FDSLWDOVWUXFWXUHLVRSWLPDORQH
)HDWXUHVRI12,DSSURDFK
 $WDOOGHJUHHVRIOHYHUDJHGHEWWKHRYHUDOOFDSLWDOL]DWLRQUDWHZRXOGUHPDLQ
FRQVWDQW)RUDJLYHQOHYHORI(DUQLQJVEHIRUH,QWHUHVWDQG7D[HV(%,7
WKHYDOXHRIDILUPZRXOGEHHTXDOWR(%,7RYHUDOOFDSLWDOL]DWLRQUDWH 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV  7KHYDOXHRIHTXLW\RIDILUPFDQEHGHWHUPLQHGE\VXEWUDFWLQJWKHYDOXHRI
3RUWIROLR0DQDJHPHQW GHEWIURPWKHWRWDOYDOXHRIWKHILUP
 &RVWRI HTXLW\LQFUHDVHV ZLWKHYHU\ LQFUHDVHLQ GHEWDQG WKHZHLJKWHG
DYHUDJHFRVWRIFDSLWDO:$&&UHPDLQFRQVWDQW:KHQWKHGHEWFRQWHQW
127(6 LQWKHFDSLWDOVWUXFWXUHLQFUHDVHVLWLQFUHDVHVWKHULVNRIWKHILUPDVZHOODV
LWVVKDUHKROGHUV7RFRPSHQVDWHIRUWKHKLJKHUULVNLQYROYHGLQLQYHVWLQJLQ
KLJKO\OHYHUHGFRPSDQ\HTXLW\KROGHUVQDWXUDOO\H[SHFWKLJKHUUHWXUQVZKLFK
LQWXUQLQFUHDVHVWKHFRVWRIHTXLW\FDSLWDO
([DPSOH
/HWXVDVVXPHWKDWDILUPKDVDQ(%,7OHYHORIFRVWRIGHEWWKHWRWDO
YDOXHRIGHEWDQGWKH:$&&LV/HWXVILQGRXWWKHWRWDOYDOXH
RIWKHILUPDQGWKHFRVWRIHTXLW\FDSLWDOWKHHTXLW\FDSLWDOL]DWLRQUDWH
6ROXWLRQ

(%,7      
:$&&RYHUDOOFDSLWDOL]DWLRQUDWH 
7KHUHIRUHWRWDOPDUNHWYDOXHRIWKHILUP (%,7.R
    
   
7RWDOYDOXHRIGHEW 
7KHUHIRUHWRWDOYDOXHRIHTXLW\ 7RWDOPDUNHWYDOXH9DOXHRIGHEW
          " 

&RVWRIHTXLW\FDSLWDO (DUQLQJVDYDLODEOHWRHTXLW\KROGHUV7RWDOPDUNHWYDOXH
RIHTXLW\VKDUHV
(DUQLQJVDYDLODEOHWRHTXLW\KROGHUV (%,7,QWHUHVWRQGHEW
    RQ 
 
7KHUHIRUHFRVWRIHTXLW\FDSLWDO "
9HULILFDWLRQRI:$&&
[["
(IIHFWRIFKDQJHLQ&DSLWDOVWUXFWXUHWRSURYHLUUHOHYDQFH
/HWXVQRZDVVXPHWKDWWKHOHYHUDJHLQFUHDVHVIURPWRLQ
WKHILUP¶VFDSLWDOVWUXFWXUH7KHILUPDOVRXVHVWKHSURFHHGVWRUHSXUFKDVHLWV
HTXLW\VWRFNVRWKDWWKHPDUNHWYDOXHRIWKHILUPUHPDLQVWKHVDPHDW
(%,7 
6HOI,QVWUXFWLRQDO 0DWHULDO

:$&& RYHUDOOFDSLWDOL]DWLRQUDWH
7RWDOPDUNHWYDOXHRIWKHILUP "
/HVV7RWDOPDUNHWYDOXHRIGHEW"
7KHUHIRUHPDUNHWYDOXHRIHTXLW\ "
(TXLW\FDSLWDOL]DWLRQUDWH >RQ" 3RUWIROLR0DQDJHPHQW
,QGLDDQG&DSLWDO
2YHUDOOFRVWRIFDSLWDO [[ 6WUXFWXUH

  127(6
7KHDERYHH[DPSOHSURYHVWKDWDFKDQJHLQWKHOHYHUDJHGRHVQRWDIIHFWWKH
WRWDOYDOXHRIWKHILUPWKHPDUNHWSULFHRIWKHVKDUHVDVZHOODVWKHRYHUDOOFRVW
RIFDSLWDO
 75$',7,21$/ $3352$&+
7KH1HW,QFRPHWKHRU\DQG1HW2SHUDWLQJ,QFRPHWKHRU\VWDQGLQH[WUHPHIRUPV
7KH WUDGLWLRQDO DSSURDFKLV DOVR FDOOHG DQ LQWHUPHGLDWH DSSURDFKDV LW WDNHV D
PLGZD\EHWZHHQ1,DSSURDFKWKDWWKHYDOXHRIWKHILUPFDQEHLQFUHDVHGE\
LQFUHDVLQJILQDQFLDOOHYHUDJHDQG12,DSSURDFKWKDWWKHYDOXHRIILUPLVFRQVWDQW
LUUHVSHFWLYHRIWKHGHJUHHRIILQDQFLDOOHYHUDJH7KLV7UDGLWLRQDOWKHRU\ZDVDGYR
FDWHGE\ILQDQFLDOH[SHUWV(]WD6RORPRQDQG)UHG:HVWRQ$FFRUGLQJWRWKLVWKHRU\
DSURSHUDQGULJKWFRPELQDWLRQRIGHEWDQGHTXLW\ZLOODOZD\VOHDGWRPDUNHWYDOXH
HQKDQFHPHQWRIWKHILUP7KLVDSSURDFKDFFHSWVWKDWWKHHTXLW\VKDUHKROGHUVSHU
FHLYHILQDQFLDOULVNDQGH[SHFWSUHPLXPVIRUWKHULVNVXQGHUWDNHQ7KLVWKHRU\DOVR
VWDWHVWKDWDIWHUDOHYHORIGHEWLQWKHFDSLWDOVWUXFWXUHWKHFRVWRIHTXLW\FDSLWDO
LQFUHDVHV
$FFRUGLQJWRWKLVDSSURDFKWKHILUPVKRXOGVWULYHWRUHDFKWKHRSWLPDOFDSLWDO
VWUXFWXUH$WWKHRSWLPDOFDSLWDOVWUXFWXUHWKHRYHUDOOFRVWRIFDSLWDOZLOOEHPLQLPXP
DQGWKHYDOXHRIWKHILUPLVPD[LPXP,WIXUWKHUVWDWHVWKDWWKHYDOXHRIWKHILUP
LQFUHDVHVZLWKILQDQFLDOOHYHUDJHXSWRDFHUWDLQSRLQW%H\RQGWKLVSRLQWWKHLQFUHDVH
LQILQDQFLDOOHYHUDJHZLOOLQFUHDVHLWVRYHUDOOFRVWRIFDSLWDODQGKHQFHWKHYDOXHRI
ILUPZLOOGHFOLQH7KLVLVEHFDXVHWKHEHQHILWVRIXVHRIGHEWPD\EHVRODUJHWKDW
HYHQDIWHURIIVHWWLQJWKHHIIHFWRILQFUHDVHLQFRVWRIHTXLW\WKHRYHUDOOFRVWRIFDSLWDO
PD\VWLOOJRGRZQ+RZHYHULIILQDQFLDOOHYHUDJHLQFUHDVHVEH\RQGDQDFFHSWDEOH
OLPLWWKHULVNRIGHEWLQYHVWRUPD\DOVRLQFUHDVHFRQVHTXHQWO\FRVWRIGHEWDOVR
VWDUWVLQFUHDVLQJ7KHLQFUHDVLQJFRVWRIHTXLW\RZLQJWRLQFUHDVHGILQDQFLDOULVNDQG
LQFUHDVLQJFRVWRIGHEWPDNHVWKHRYHUDOOFRVWRIFDSLWDOWRLQFUHDVH
7KXVDVSHUWKHWUDGLWLRQDODSSURDFKWKHFRVWRIFDSLWDOLVDIXQFWLRQRIILQDQFLDO
OHYHUDJHDQGWKHYDOXHRIILUPFDQEHDIIHFWHGE\WKHMXGLFLRXVPL[RIGHEWDQG
HTXLW\LQFDSLWDOVWUXFWXUH7KHLQFUHDVHRIILQDQFLDOOHYHUDJHXSWRDSRLQWIDYRUDEO\
DIIHFWVWKHYDOXHRIILUP$WWKLVSRLQWWKHFDSLWDOVWUXFWXUHLVRSWLPDO WKHRYHUDOO
FRVWRIFDSLWDOZLOOEHWKHOHDVW
([DPSOH
/HWXVFRQVLGHUDQH[DPSOHZKHUHDFRPSDQ\KDVGHEWDQGHTXLW\LQLWV
FDSLWDOVWUXFWXUH7KHFRVWRIGHEWIRUWKHFRPSDQ\LVDQGWKHFRVWRIHTXLW\LV &KHFN <RXU 3URJUHVV
$FFRUGLQJWRWKHWUDGLWLRQDODSSURDFKWKHRYHUDOOFRVWRIFDSLWDOZRXOGEH  :KDWLVFDSLWDO
VWUXFWXUH"
:$&& :HLJKWRIGHEW[FRVWRIGHEW:HLJKWRIHTXLW\[FRVWRIHTXLW\  :KDWLVOHYHUDJHRU
              [    [  WUDGLQJRQHTXLW\"
                  
6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV ,IWKHFRPSDQ\ZDQWVWRUDLVHWKHGHEWSRUWLRQLQWKHFDSLWDOVWUXFWXUHWREH
3RUWIROLR0DQDJHPHQW WKHFRVWRIGHEWDVZHOODVHTXLW\ZRXOGLQFUHDVHGXHWRWKHLQFUHDVHGULVNRIWKH
FRPSDQ\/HWXVDVVXPHWKDWWKHFRVWRIGHEWULVHVWRDQGWKHFRVWRIHTXLW\
WR$IWHUWKLVVFHQDULRWKHRYHUDOOFRVWRIFDSLWDOZRXOGEH
127(6 :$&& [[
                 " 
,QWKHDERYHFDVHDOWKRXJKWKHGHEWHTXLW\UDWLRKDVLQFUHDVHGDVZHOODVWKHLU
UHVSHFWLYHFRVWVWKHRYHUDOOFRVWRIFDSLWDOKDVQRWLQFUHDVHGEXWKDVGHFUHDVHG
7KHUHDVRQLVWKDWGHEWLQYROYHVORZHUFRVWDQGLVDFKHDSHUVRXUFHRIILQDQFHZKHQ
FRPSDUHGWRHTXLW\7KHLQFUHDVHLQVSHFLILFFRVWVDVZHOOWKHGHEWHTXLW\UDWLRKDV
QRWRIIVHWWKHDGYDQWDJHVLQYROYHGLQUDLVLQJFDSLWDOE\DFKHDSHUVRXUFHQDPHO\
GHEW
1RZOHWXVDVVXPHWKDWWKHFRPSDQ\UDLVHVLWVGHEWSHUFHQWDJHWRWKHUHE\
SXVKLQJGRZQWKHHTXLW\ SRUWLRQWR'XHWRWKH LQFUHDVHGDQGRYHUGHEW
FRQWHQWLQWKHFDSLWDOVWUXFWXUHWKHILUPKDVDFTXLUHGJUHDWHUULVN%HFDXVHRIWKLV
IDFWOHWXVVD\WKDWWKHFRVWRIGHEWULVHVWRDQGWKHFRVWRIHTXLW\WR
,QWKLVVFHQDULRWKHRYHUDOOFRVWRIFDSLWDOZRXOGEH
6HOI,QVWUXFWLRQDO 0DWHULDO

:$&& [[
                 " 
7KLVGHFLVLRQKDVLQFUHDVHGWKHFRPSDQ\¶VRYHUDOOFRVWRIFDSLWDOWR
7KHDERYHH[DPSOHLOOXVWUDWHVWKDWXVLQJWKHFKHDSHUVRXUFHRIIXQGVQDPHO\GHEW
GRHVQRWDOZD\VORZHUWKHRYHUDOOFRVWRIFDSLWDO,WSURYLGHVDGYDQWDJHVWRVRPH
H[WHQWDQGEH\RQGWKDWUHDVRQDEOHOHYHOLWLQFUHDVHVWKHFRPSDQ\¶VULVNDVZHOOWKH
RYHUDOOFRVWRIFDSLWDO7KHVHIDFWRUVPXVWEHFRQVLGHUHGE\WKHFRPSDQ\EHIRUH
UDLVLQJILQDQFHYLDGHEW
 02',*/,$1, $1' 0,//(5 $3352$&+
0RGLJOLDQL0LOODUDSSURDFKSRSXODUO\NQRZQDVWKH00DSSURDFKLVVLPLODUWRWKH
1HWRSHUDWLQJLQFRPHDSSURDFK7KH00DSSURDFKIDYRUVWKH1HWRSHUDWLQJLQ
FRPHDSSURDFKDQGDJUHHVZLWKWKHIDFWWKDWWKHFRVWRIFDSLWDOLVLQGHSHQGHQWRI
WKHGHJUHHRIOHYHUDJHDQGDWDQ\PL[RIGHEWHTXLW\SURSRUWLRQV7KHVLJQLILFDQFH
RIWKLV00DSSURDFKLVWKDWLWSURYLGHVRSHUDWLRQDORUEHKDYLRUDOMXVWLILFDWLRQIRU
FRQVWDQWFRVWRIFDSLWDODWDQ\GHJUHHRIOHYHUDJH:KHUHDVWKHQHWRSHUDWLQJ
LQFRPHDSSURDFKGRHVQRWSURYLGHRSHUDWLRQDOMXVWLILFDWLRQIRULQGHSHQGHQFHRIWKH
FRPSDQ\¶VFRVWRIFDSLWDO
$FFRUGLQJWRWKLVDSSURDFKWKHWRWDOFRVWRIFDSLWDORISDUWLFXODUILUPLVLQGHSHQGHQW
RILWVPHWKRGVDQGOHYHORIILQDQFLQJ0RGLJOLDQLDQG0LOOHUDUJXHGWKDWWKHZHLJKWHG
DYHUDJHFRVWRIFDSLWDORIDILUPLVFRPSOHWHO\LQGHSHQGHQWRILWVFDSLWDOVWUXFWXUH
,QRWKHUZRUGVDFKDQJHLQWKHGHEWHTXLW\PL[GRHVQRWDIIHFWWKHFRVWRIFDSLWDO
7KH\JDYHDVLPSOHDUJXPHQWLQVXSSRUWRIWKHLUDSSURDFK7KH\DUJXHGWKDWDF
FRUGLQJWRWKHWUDGLWLRQDODSSURDFKFRVWRIFDSLWDOLVWKHZHLJKWHGDYHUDJHRIFRVW
RIGHEWDQGFRVWRIHTXLW\HWF7KHFRVWRIHTXLW\WKH\DUJXHGLVGHWHUPLQHGIURP
WKHOHYHORIVKDUHKROGHU¶VH[SHFWDWLRQV1RZLIVKDUHKROGHUVH[SHFWIURPD
SDUWLFXODUFRPSDQ\WKH\GRWDNHLQWRDFFRXQWWKHGHEWHTXLW\UDWLRDQGWKH\H[SHFW
PHUHO\EHFDXVHWKH\ILQGWKDWFRYHUVWKHSDUWLFXODUULVNZKLFKWKLVFRP 3RUWIROLR0DQDJHPHQW
SDQ\HQWDLOV6XSSRVHIXUWKHUWKDWWKHGHEWFRQWHQWLQWKHFDSLWDOVWUXFWXUHRIWKLV ,QGLDDQG&DSLWDO
FRPSDQ\LQFUHDVHVWKLVPHDQVWKDWLQWKHH\HVRIVKDUHKROGHUVWKHULVNRIWKH 6WUXFWXUH
FRPSDQ\LQFUHDVHVVLQFHGHEWLVDPRUHULVN\PRGHRIILQDQFH+HQFHVKDUHKROG
HUVZLOOQRZVWDUWH[SHFWLQJDKLJKHUUDWHRIUHWXUQIURPWKHVKDUHVRIWKHFRPSDQ\ 127(6
+HQFHHDFKFKDQJHLQWKHGHEWHTXLW\PL[LVDXWRPDWLFDOO\RIIVHWE\DFKDQJHLQWKH
H[SHFWDWLRQVRIWKHVKDUHKROGHUVIURPWKHHTXLW\VKDUHFDSLWDO7KLVLVEHFDXVHD
FKDQJHLQWKHGHEWHTXLW\UDWLRFKDQJHVWKHULVNHOHPHQWRIWKHFRPSDQ\ZKLFKLQ
WXUQFKDQJHVWKHH[SHFWDWLRQVRIWKHVKDUHKROGHUVIURPWKHSDUWLFXODUVKDUHVRIWKH
FRPSDQ\0RGLJOLDQLDQG0LOOHUWKHUHIRUHDUJXHGWKDWILQDQFLDOOHYHUDJHKDVQRWKLQJ
WRGRZLWKWKHRYHUDOOFRVWRIFDSLWDODQGWKHRYHUDOOFRVWRIFDSLWDORIDFRPSDQ\
LVHTXDOWRWKHFDSLWDOL]DWLRQUDWHRISXUHHTXLW\VWUHDPRILWVFODVVRIULVN+HQFH
ILQDQFLDOOHYHUDJHKDVQRLPSDFWRQVKDUHPDUNHWSULFHVQRURQWKHFRVWRIFDSLWDO
0RGLJOLDQLDQG0LOOHUPDNHWKHIROORZLQJSURSRVLWLRQV
 7KHWRWDOPDUNHWYDOXHRIDILUPDQGLWVFRVWRIFDSLWDODUHLQGHSHQGHQWRI
LWVFDSLWDOVWUXFWXUH7KHWRWDOPDUNHWYDOXHRIWKHILUPLVJLYHQE\FDSLWDOL]LQJ
WKHH[SHFWHGVWUHDPRIRSHUDWLQJHDUQLQJVDWDGLVFRXQWUDWHFRQVLGHUHG
DSSURSULDWHIRULWVULVNFODVV
 7KHFRVWRIHTXLW\.HLVHTXDOWRFDSLWDOL]DWLRQUDWHRISXUHHTXLW\VWUHDP
SOXVDSUHPLXPIRUILQDQFLDOULVN7KHILQDQFLDOULVNLQFUHDVHVZLWKPRUHGHEW
FRQWHQWLQWKHFDSLWDOVWUXFWXUH$VDUHVXOW.HLQFUHDVHVLQDPDQQHUWR
RIIVHWH[DFWO\WKHXVHRIOHVVH[SHQVLYHVRXUFHRIIXQGV
 7KHFXWRIIUDWHIRULQYHVWPHQWSXUSRVHLVFRPSOHWHO\LQGHSHQGHQWRIWKH
ZD\LQZKLFKWKHLQYHVWPHQWLVILQDQFHG
$VVXPSWLRQVRI00DSSURDFK
 &DSLWDOPDUNHWVDUHSHUIHFW
 $OOLQYHVWRUVKDYHWKHVDPHH[SHFWDWLRQRIWKHFRPSDQ\¶VQHWRSHUDWLQJ
LQFRPHIRUWKHSXUSRVHRIHYDOXDWLQJWKHYDOXHRIWKHILUP
 :LWKLQVLPLODURSHUDWLQJHQYLURQPHQWVWKHEXVLQHVVULVNLVHTXDODPRQJDOO
ILUPV
 GLYLGHQGSD\RXWUDWLR
 $QDVVXPSWLRQRI³QRWD[HV´ZDVWKHUHHDUOLHUZKLFKKDVEHHQUHPRYHG
$UELWUDJHSURFHVV
$UELWUDJHSURFHVVLVWKHRSHUDWLRQDOMXVWLILFDWLRQIRUWKH0RGLJOLDQL0LOOHUK\SRWK
HVLV$UELWUDJHLVWKHSURFHVVRISXUFKDVLQJDVHFXULW\LQDPDUNHWZKHUHWKHSULFH
LVORZDQGVHOOLQJLWLQDPDUNHWZKHUHWKHSULFHLVKLJKHU7KLVUHVXOWVLQUHVWRUDWLRQ
RIHTXLOLEULXPLQWKHPDUNHWSULFHRIDVHFXULW\DVVHW7KLVSURFHVVLVDEDODQFLQJ
RSHUDWLRQZKLFKLPSOLHVWKDWDVHFXULW\FDQQRWVHOODWGLIIHUHQWSULFHV7KH00
K\SRWKHVLVVWDWHVWKDWWKHWRWDOYDOXHRIKRPRJHQHRXVILUPVWKDWGLIIHURQO\LQOHYHU
DJHZLOOQRWEHGLIIHUHQWGXHWRWKHDUELWUDJHRSHUDWLRQ*HQHUDOO\LQYHVWRUVZLOOEX\
WKHVKDUHVRIWKHILUPWKDW¶VSULFHLVORZHUDQGVHOOWKHVKDUHVRIWKHILUPWKDW¶VSULFH
LVKLJKHU7KLVSURFHVVRUWKLVEHKDYLRURIWKHLQYHVWRUVZLOOKDYHWKHHIIHFWRI
LQFUHDVLQJWKHSULFHRIWKHVKDUHVWKDWLVEHLQJSXUFKDVHGDQGGHFUHDVLQJWKHSULFH 6HOI,QVWUXFWLRQDO 0DWHULDO

6HFXULW\$QDO\VLV RIWKHVKDUHVWKDWLVEHLQJVROG7KLVSURFHVVZLOOFRQWLQXHWLOOWKHPDUNHWSULFHVRI
3RUWIROLR0DQDJHPHQW WKHVHWZRILUPVEHFRPHHTXDORULGHQWLFDO7KXVWKHDUELWUDJHSURFHVVGULYHVWKH
YDOXHRIWZRKRPRJHQHRXVFRPSDQLHVWRHTXDOLW\WKDWGLIIHUVRQO\LQOHYHUDJH
/LPLWDWLRQVRI00K\SRWKHVLV
127(6
 ,QYHVWRUVZRXOGILQGWKHSHUVRQDOOHYHUDJHLQFRQYHQLHQW
 7KHULVNSHUFHSWLRQRIFRUSRUDWHDQGSHUVRQDOOHYHUDJHPD\EHGLIIHUHQW
 $UELWUDJHSURFHVVFDQQRWEHVPRRWKGXHWKHLQVWLWXWLRQDOUHVWULFWLRQV
 $UELWUDJHSURFHVVZRXOGDOVREHDIIHFWHGE\WKHWUDQVDFWLRQFRVWV
 7KHFRUSRUDWHOHYHUDJHDQGSHUVRQDOOHYHUDJHDUHQRWSHUIHFWVXEVWLWXWHV
 &RUSRUDWHWD[HVGRH[LVW+RZHYHUWKHDVVXPSWLRQRI³QRWD[HV´KDVEHHQ
UHPRYHGODWHU
&$6( 678'<
,QGLDQ)LQDQFLDO0DUNHW
:KDWGRHVWKH,QGLD)LQDQFLDOPDUNHWFRPSULVHRI",WWDONVDERXWWKHSULPDU\
PDUNHW)',VDOWHUQDWLYHLQYHVWPHQWRSWLRQVEDQNLQJDQGLQVXUDQFHDQGWKHSHQVLRQ
VHFWRUVDVVHWPDQDJHPHQWVHJPHQWDVZHOO:LWKDOOWKHVHHOHPHQWVLQWKH,QGLD
)LQDQFLDOPDUNHWLWKDSSHQVWREHRQHRIWKHROGHVWDFURVVWKHJOREHDQGLVGHILQLWHO\
WKHIDVWHVWJURZLQJDQGEHVWDPRQJDOOWKHILQDQFLDOPDUNHWVRIWKHHPHUJLQJHFRQR
PLHV7KHKLVWRU\RI,QGLDQFDSLWDOPDUNHWVVSDQVEDFN\HDUVDURXQGWKHHQG
RIWKHWKFHQWXU\,WZDVDWWKLVWLPHWKDW,QGLDZDVXQGHUWKHUXOHRIWKH(DVW,QGLD
&RPSDQ\7KHFDSLWDOPDUNHWRI,QGLDLQLWLDOO\GHYHORSHGDURXQG0XPEDLZLWK
DURXQGWRVHFXULWLHVEURNHUVSDUWLFLSDWLQJLQDFWLYHWUDGHGXULQJWKHVHFRQG
KDOIRIWKHWKFHQWXU\
6FRSHRIWKH,QGLD)LQDQFLDO0DUNHW
7KHILQDQFLDOPDUNHWLQ,QGLDDWSUHVHQWLVPRUHDGYDQFHGWKDQPDQ\RWKHUVHFWRUV
DVLWEHFDPHRUJDQL]HGDVHDUO\DVWKHWKFHQWXU\ZLWKWKHVHFXULWLHVH[FKDQJHV
LQ0XPEDL$KPHGDEDGDQG.RONDWD,QWKHHDUO\VWKHQXPEHURIVHFXULWLHV
H[FKDQJHVLQ,QGLDEHFDPHHLJKWLQFOXGLQJ0XPEDL$KPHGDEDGDQG.RONDWD
$SDUWIURPWKHVHWKUHHH[FKDQJHVWKHUHZDVWKH0DGUDV.DQSXU'HOKL%DQJDORUH
DQG3XQHH[FKDQJHVDVZHOO7RGD\WKHUHDUHUHJLRQDOVHFXULWLHVH[FKDQJHVLQ
,QGLD
7KH,QGLDQVWRFNPDUNHWVWLOOGDWHKDYHUHPDLQHGVWDJQDQWGXHWRWKHULJLGHFRQRPLF
FRQWUROV,WZDVRQO\LQDIWHUWKHOLEHUDOL]DWLRQSURFHVVWKDWWKH,QGLDVHFXULWLHV
PDUNHWZLWQHVVHGDIOXUU\RI,32VVHULDOO\7KHPDUNHWVDZPDQ\QHZFRPSDQLHV
VSDQQLQJDFURVVGLIIHUHQWLQGXVWU\VHJPHQWVDQGEXVLQHVVEHJDQWRIORXULVK
7KHODXQFKRIWKH16(1DWLRQDO6WRFN([FKDQJHDQGWKH27&(,2YHUWKH
&RXQWHU([FKDQJHRI,QGLDLQWKHPLGVKHOSHGLQUHJXODWLQJDVPRRWKDQG
WUDQVSDUHQWIRUPRIVHFXULWLHVWUDGLQJ
7KHUHJXODWRU\ERG\IRUWKH,QGLDQFDSLWDOPDUNHWVZDVWKH6(%,6HFXULWLHVDQG
([FKDQJH%RDUGRI,QGLD7KHFDSLWDOPDUNHWVLQ,QGLDH[SHULHQFHGWXUEXOHQFHDIWHU
6HOI,QVWUXFWLRQDO 0DWHULDO
ZKLFKWKH6(%,FDPHLQWRSURPLQHQFH7KHPDUNHWORRSKROHVKDGWREHEULGJHGE\
WDNLQJGUDVWLFPHDVXUHV

3RWHQWLDORIWKH,QGLD)LQDQFLDO0DUNHW 3RUWIROLR0DQDJHPHQW
,QGLDDQG&DSLWDO
,QGLD)LQDQFLDO0DUNHWKHOSVLQSURPRWLQJWKHVDYLQJVRIWKHHFRQRP\KHOSLQJWR 6WUXFWXUH
DGRSWDQHIIHFWLYHFKDQQHOWRWUDQVPLWYDULRXVILQDQFLDOSROLFLHV7KH,QGLDQILQDQFLDO
VHFWRULVZHOOGHYHORSHGFRPSHWLWLYHHIILFLHQWDQGLQWHJUDWHGWRIDFHDOOVKRFNV,Q
WKH,QGLDILQDQFLDOPDUNHWWKHUHDUHYDULRXVW\SHVRIILQDQFLDOSURGXFWVZKRVHSULFHV 127(6
DUHGHWHUPLQHGE\WKHQXPHURXVEX\HUVDQGVHOOHUVLQWKHPDUNHW7KHRWKHUGHWHU
PLQDQWIDFWRURIWKHSULFHVRIWKHILQDQFLDOSURGXFWVLVWKHPDUNHWIRUFHVRIGHPDQG
DQGVXSSO\7KHYDULRXVRWKHUW\SHVRI,QGLDQPDUNHWVKHOSLQWKHIXQFWLRQLQJRIWKH
ZLGH,QGLDILQDQFLDOVHFWRU
)HDWXUHVRIWKH)LQDQFLDO0DUNHWLQ,QGLD
z ,QGLD)LQDQFLDO,QGLFHV%6(,QGH[YDULRXVVHFWRULQGH[HVVWRFNTXRWHV
6HQVH[FKDUWVERQGSULFHVIRUHLJQH[FKDQJH5XSHH 'ROODU&KDUW
z ,QGLDQ)LQDQFLDOPDUNHWQHZV
z 6WRFN 1HZV  %RPED\ 6WRFN ([FKDQJH %6( 6HQVH[  LQGH[ 6 3
&1;1LIW\FRPSDQ\LQIRUPDWLRQLVVXHVRQPDUNHWFDSLWDOL]DWLRQFRUSR
UDWHHDUQLQJVWDWHPHQWV
z )L[HG ,QFRPH  &RUSRUDWH %RQG 3ULFHV &RUSRUDWH 'HEW GHWDLOV 'HEW
WUDGLQJDFWLYLWLHV,QWHUHVW5DWHV0RQH\0DUNHW*RYHUQPHQW6HFXULWLHV
3XEOLF6HFWRU'HEW([WHUQDO'HEW6HUYLFH
z )RUHLJQ ,QYHVWPHQW  )RUHLJQ 'HEW 'DWDEDVH FRPSRVHG E\ %,6 ,0)
2(&' :RUOG%DQN,QYHVWPHQWVLQ,QGLD $EURDG
z *OREDO(TXLW\,QGH[HV'RZ-RQHV*OREDOLQGH[HV0RUJDQ6WDQOH\(TXLW\
,QGH[HV
z &XUUHQF\ ,QGH[HV  );  *ROG &KDUW 3ORWWHU - 3 0RUJDQ &XUUHQF\
,QGH[HV
z 1DWLRQDODQG*OREDO0DUNHW5HODWLRQV
z 0XWXDO)XQGV
z ,QVXUDQFH
z /RDQV
z )RUH[DQG%XOOLRQ
,IDQLQYHVWRUKDVDFOHDUXQGHUVWDQGLQJRIWKH,QGLDILQDQFLDOPDUNHWWKHQIRUPX
ODWLQJLQYHVWLQJVWUDWHJLHVDQGWLSVZRXOGEHHDVLHU
6800$5<
,QILQDQFHFDSLWDO VWUXFWXUHUHIHUV WR WKH ZD\ DFRUSRUDWLRQILQDQFHV
LWVDVVHWVWKURXJKVRPHFRPELQDWLRQRIHTXLW\GHEWRUK\EULGVHFXULWLHV$ILUP¶V
FDSLWDOVWUXFWXUHLVWKHQWKHFRPSRVLWLRQRUµVWUXFWXUH¶RILWVOLDELOLWLHV)RUH[DPSOH
DILUPWKDWVHOOVELOOLRQLQHTXLW\DQGELOOLRQLQGHEWLVVDLGWREHHTXLW\
ILQDQFHGDQGGHEWILQDQFHG7KHILUP¶VUDWLRRIGHEWWRWRWDOILQDQFLQJLQ
WKLVH[DPSOHLVUHIHUUHGWRDVWKHILUP¶VOHYHUDJH,QUHDOLW\FDSLWDOVWUXFWXUHPD\EH
KLJKO\FRPSOH[DQGLQFOXGHGR]HQVRIVRXUFHV*HDULQJ5DWLRLVWKHSURSRUWLRQRI
WKHFDSLWDOHPSOR\HGRIWKHILUPZKLFKFRPHIURPRXWVLGHRIWKHEXVLQHVVILQDQFH
HJE\WDNLQJDVKRUWWHUPORDQHWF
6HOI,QVWUXFWLRQDO 0DWHULDO
7KH0RGLJOLDQL0LOOHUWKHRUHPSURSRVHGE\)UDQFR0RGLJOLDQLDQG0HUWRQ0LOOHU
IRUPVWKHEDVLVIRUPRGHUQWKLQNLQJRQFDSLWDOVWUXFWXUHWKRXJKLWLVJHQHUDOO\YLHZHG 
6HFXULW\$QDO\VLV DVDSXUHO\WKHRUHWLFDOUHVXOWVLQFHLWGLVUHJDUGVPDQ\LPSRUWDQWIDFWRUVLQWKHFDSLWDO
3RUWIROLR0DQDJHPHQW VWUXFWXUHGHFLVLRQ7KHWKHRUHPVWDWHVWKDWLQDSHUIHFWPDUNHWKRZDILUPLV
ILQDQFHGLVLUUHOHYDQWWRLWVYDOXH7KLVUHVXOWSURYLGHVWKHEDVHZLWKZKLFKWRH[DP
LQHUHDOZRUOGUHDVRQVZK\FDSLWDOVWUXFWXUHLVUHOHYDQWWKDWLVDFRPSDQ\¶VYDOXH
127(6 LVDIIHFWHGE\WKHFDSLWDOVWUXFWXUHLWHPSOR\V6RPHRWKHUUHDVRQVLQFOXGHEDQNUXSWF\
FRVWVDJHQF\FRVWVWD[HVDQGLQIRUPDWLRQDV\PPHWU\7KLVDQDO\VLVFDQWKHQEH
H[WHQGHGWRORRNDWZKHWKHUWKHUHLVLQIDFWDQRSWLPDOFDSLWDOVWUXFWXUHWKHRQH
ZKLFKPD[LPL]HVWKHYDOXHRIWKHILUP
$16:(56 72 &+(&. <285 352*5(66
 $SRUWIROLRLVFROOHFWLRQRIDVVHWVZKLFKDUHILQDQFLDOLQQDWXUHLILWLVFRQ
FHUQHGZLWKSRUWIROLRPDQDJHPHQW
 7KHSRUWIROLRPDQDJHULQYHVWVWKHPRQH\LQGLYHUVHDVVHWVZLWKWKHDLPRI
PD[LPL]LQJUHWXUQVDQGPLQLPL]LQJWKHULVN
 7KHWHUPµFDSLWDOVWUXFWXUH¶UHSUHVHQWVWKHWRWDOORQJWHUPLQYHVWPHQWLQD
EXVLQHVVILUP
 7UDGLQJRQHTXLW\RUOHYHUDJHUHIHUVWKHXVHRIYDULRXVILQDQFLDOLQVWUXPHQWV
RUERUURZHGFDSLWDOVXFKDVPDUJLQWRLQFUHDVHWKHSRWHQWLDOUHWXUQRIDQ
LQYHVWPHQW
7(67 <2856(/)
 &RPSDUHWKH1DWLRQDO ,QWHUQDWLRQDOSRUWIROLRPL[
 7KURZVRPHOLJKWRQWKHWRSLF3RUWIROLR0DQDJHPHQW
 *LYHDEULHILQWURGXFWLRQWR3RUWIROLRPDQDJHPHQW6HUYLFHVLQ,QGLD
 ([SODLQSRUWIROLRFRQVXOWDQF\VHUYLFHV
 :KDWDUHWKHSURV FRQVRI1DWLRQDOSRUWIROLRPL["
 :KDWGR\RXPHDQE\WKHWHUP&DSLWDOVWUXFWXUH"
 :KDWDUHWKHHVVHQWLDOIHDWXUHVRIDSSURSULDWHFDSLWDOVWUXFWXUH"
 'LVFXVVIDFWRUVDIIHFWLQJ&DSLWDO6WUXFWXUH
 :KDWDUHWKHDVVXPSWLRQVDQGLPSOLFDWLRQVRI1HWLQFRPH$SSURDFK"
 ([SODLQWKHFRQFHSWRI1HW2SHUDWLQJ,QFRPHDSSURDFK
 ([SODLQ7UDGLWLRQDOWKHRU\RI&DSLWDO6WUXFWXUH
 &ULWLFDOO\HYDOXDWHWKH00$SSURDFKWRFDSLWDOVWUXFWXUH
 $ILUPKDVDQ(%,7RI5VDQGEHORQJVWRDULVNFODVVRI
:KDWLVWKHYDOXHRIHTXLW\FDSLWDOXQGHU12,DSSURDFKLILWHPSOR\HHV
GHEWWRWKHH[WHQWRIRURIWKHWRWDOFDSLWDOIXQGRI5V

 ,IDFRPSDQ\KDVGHEWDQGHTXLW\LQLWVFDSLWDOVWUXFWXUH7KHFRVW
RIGHEWIRUWKHFRPSDQ\LVDQGWKHFRVWRIHTXLW\LV&DOFXODWHWKH
RYHUDOOFRVWRIFDSLWDODFFRUGLQJWRWKHWUDGLWLRQDODSSURDFK
)857+(5 5($',1*
‡&DSLWDOVWUXFWXUHWKHRULHVE\$JDUZDO
6HOI,QVWUXFWLRQDO 0DWHULDO
‡&DSLWDOVWUXFWXUHE\-DLQ