Department of Command, Leadership, and Management

2010
'HSDUWPHQWRI&RPPDQG/HDGHUVKLSDQG0DQDJHPHQW
8QLWHG6WDWHV$UP\:DU&ROOHJH
United States Army War College &DUOLVOH%DUUDFNV3$
PRIMER 3rd Edition
LEADERSHIP
STRATEGIC

UG(GLWLRQHGLWHGE\

&RORQHO5HW6WHSKHQ-*HUUDV3K'

3URIHVVRURI%HKDYLRUDO6FLHQFHV

Carlisle, Pennsylvania 17013-5050

United States Army War College

7KLV3ULPHULVWKHUHVXOWRIVHYHUDO\HDUVRIUHVHDUFKE\WKHIDFXOW\RIWKH'HSDUWPHQWRI
&RPPDQG/HDGHUVKLSDQG0DQDJHPHQW3OHDVHIRUZDUGFRPPHQWVWR'U6WHYH*HUUDV%R[
SKRQH

7$%/(2)&217(176 35()$&(72UG(',7,21
7KH RULJLQDO HGLWLRQ RI WKH 6WUDWHJLF /HDGHUVKLS 3ULPHU SXEOLVKHG LQ  VHUYHG WKH
86$UP\:DU&ROOHJH86$:&ZHOODVDEDVLFRYHUYLHZRI6WUDWHJLF/HDGHUVKLS:ULWWHQ
E\'U5RG0DJHHZLWKWKHDVVLVWDQFHRIVHYHUDORWKHUIDFXOW\PHPEHUVLWZDVLQWHQGHGDV
3UHIDFHWRUG(GLWLRQ LL
DQ RULHQWDWLRQ UHDGLQJ IRU VWXGHQWV DUULYLQJ DW WKH 86$:& ZKRVH EDFNJURXQGV ZHUH
SULPDULO\LQWKHWDFWLFDODQGRSHUDWLRQDOHOGHQYLURQPHQW7KH3ULPHUZDVXVHIXOEHFDXVH
&KDSWHU,QWURGXFWLRQ
WKHUHZDVQRRWKHUDGHTXDWHZRUNWKDWGHVFULEHGDQGGHQHGVWUDWHJLFOHDGHUVKLSLQWHUPVWKDW
FRXOGEHXQGHUVWRRGDQGDSSOLHGE\86$:&VWXGHQWV
&KDSWHU7KH6WUDWHJLF/HDGHUVKLS(QYLURQPHQW
$QGHGLWLRQZDVSXEOLVKHGLQDQGHGLWHGE\&RORQHO5HW6WHYH6KDPEDFK7KLV
&KDSWHU9LVLRQ UGHGLWLRQXSGDWHVVLJQLFDQWSRUWLRQVRIWKH3ULPHUHVSHFLDOO\&KDSWHUVDQGDQG
DOVRDGGVDFKDSWHURQGHFLVLRQPDNLQJ&KDSWHU,WLVQRWWKDWWKHQDWXUHRIVWUDWHJLF
&KDSWHU6WUDWHJLF/HDGHU&RPSHWHQFLHV OHDGHUVKLSKDVFKDQJHGGUDVWLFDOO\UDWKHU WKLV HGLWLRQ SUHVHUYHV WKH VDOLHQW IHDWXUHV RI
WKHRULJLQDOHGLWLRQV,WLVXSGDWHGZLWKFRQWHPSRUDU\OLWHUDWXUHDQGH[DPSOHVWRVXVWDLQWKH
&KDSWHU6WUDWHJLF'HFLVLRQ0DNLQJ3DUDGLJPV 3ULPHUVUHOHYDQFH

&KDSWHU6WUDWHJLF/HDGHUVKLS7DVNV 7KH HGLWRU DFNQRZOHGJHV WKH WUHPHQGRXV FRQWULEXWLRQV RI &RORQHO 0XUI &ODUN DQG
3URIHVVRU&KDUOHV$OOHQDORQJZLWKHGLWLQJDVVLVWDQFHIURP&RPPDQGHU7UDFL.HHJDQDQG
&KDSWHU7KH6WUDWHJLF/HDGHUDQGWKH+XPDQ 'U 5LFKDUG 0HLQKDUW ZKLOH DOVR DFNQRZOHGJLQJ SUHYLRXV HGLWLRQ FRQWULEXWLRQV IURP 'U
'LPHQVLRQRI&RPEDW /HQQ\:RQJ'U&UDLJ%XOOLVDQG&RORQHO5HW*HRUJH5HHG

$SSHQGL[$6WUDWHJLF/HDGHUVKLS&RPSHWHQFLHV0RQRJUDSK

L LL
 &+$37(5
,1752'8&7,21
,WEHFDPHFOHDUWRPHWKDWDWWKHDJHRI,ZRXOGKDYHWROHDUQ
QHZ WULFNV WKDW ZHUH QRW WDXJKW LQ WKH PLOLWDU\ PDQXDOV RU RQ WKH
EDWWOHHOG,QWKLVSRVLWLRQ,DPDSROLWLFDOVROGLHUDQGZLOOKDYHWRSXW
P\WUDLQLQJLQUDSSLQJRXWRUGHUVDQGPDNLQJVQDSGHFLVLRQVRQ
WKHEDFNEXUQHUDQGKDYHWROHDUQWKHDUWVRISHUVXDVLRQDQGJXLOH,
PXVWEHFRPHDQH[SHUWLQDZKROHQHZVHWRIVNLOOV
*HRUJH&0DUVKDOO
 *HQHUDO0DUVKDOOLVDOOHJHGWRKDYHPDGHWKLVREVHUYDWLRQDVKHUHHFWHGXSRQKLVHDUO\
 7KRXJK WKH OLQHV EHWZHHQ WKHVH OHYHOV VRPHWLPHV EOXU ZH GLVWLQJXLVK WKH VWUDWHJLF
OHYHORIOHDGHUVKLSIURPWKHWDFWLFDODQGRSHUDWLRQDOOHYHOVLQRUGHUWREHWWHUXQGHUVWDQGWKH
XQLTXHUROHVDQGUHVSRQVLELOLWLHVRIWRGD\VVHQLRUOHDGHUV$WWKHWXUQRIWKHVW&HQWXU\
GLVFXVVLRQVDERXWWKHUHDOLWLHVRIPLOLWDU\FRQLFWLQWKH,QIRUPDWLRQ$JHKDYHDGGUHVVHGWKH
FRQFHSWRIWKH6WUDWHJLF&RUSRUDOFODLPLQJWKDWWKHPDQGDWHVRIVWUDWHJLFOHDGHUVKLSQRZ
KDYH WKH SRWHQWLDO WR H[WHQG WR WKH ORZHVW OHYHOV RI PLOLWDU\ RUJDQL]DWLRQVDVVHUWLQJWKDW
WKHPRVWMXQLRUPHPEHUVDFWLRQVFDQKDYHVWUDWHJLFLPSDFWDQGLPSOLFDWLRQV7KLV3ULPHU
DVVHUWV WKDW WKLV LV YHU\ GLIIHUHQW IURP H[HUFLVLQJ VWUDWHJLF OHDGHUVKLS \HW PRUH WKDQ HYHU
HYHU\OHYHORIWKHRUJDQL]DWLRQPXVWDSSUHFLDWHLWVUHVSRQVLELOLWLHVIXQFWLRQVDQGLPSDFWVDW
WKHVWUDWHJLFOHYHO7RDFFRPPRGDWHWKLVPXOWLOHYHODZDUHQHVVUHTXLUHPHQWVWUDWHJLFOHDGHUV
KDYHDUHVSRQVLELOLW\WRVSUHDGNQRZOHGJHDQGYDOXHVWKURXJKRXWWKHLURUJDQL]DWLRQVE\FOHDUO\
FRPPXQLFDWLQJDYLVLRQVKDSLQJFOLPDWHLQXHQFLQJFXOWXUHFRDFKLQJPHQWRULQJWHDFKLQJ
DQGH[HPSOLI\LQJDSSURSULDWHEHKDYLRUV
 6R ZKDW LV VWUDWHJLF OHDGHUVKLS"  7KH 86$:& KDV WUDGLWLRQDOO\ GHQHG VWUDWHJLF
\HDUVDV&KLHIRI6WDIIRIWKH$UP\&6$LQWKHEHJLQQLQJPRQWKVRI:RUOG:DU,,0DUVKDOO
DSSDUHQWO\ EHOLHYHG KLV SUHYLRXV HGXFDWLRQ WUDLQLQJ DQG H[SHULHQFH KDG QRW DGHTXDWHO\
SUHSDUHGKLPIRUKLJKOHYHOOHDGHUVKLS$VWKH&6$KLVVXFFHVVGHSHQGHGXSRQKLVDELOLW\
WRSHUVXDGHLQXHQWLDOSHRSOHDQGRUJDQL]DWLRQVERWKLQDQGRXWRIJRYHUQPHQWWRHPSOR\
WKHLUHIIRUWVRQEHKDOIRIKLVYLVLRQRIDZLQQLQJZDUWLPHVWUDWHJ\DQGWRPRELOL]HWKH$UP\
WRPDNHWKDWVWUDWHJ\DUHDOLW\*HQHUDO0DUVKDOOVSDUWLFXODULQVLJKWVLQWKLVPDWWHUVXSSRUW
WKHEHOLHIWKDWEH\RQGWKHGLUHFWDQGRUJDQL]DWLRQDOOHYHOVLVDWKLUGOHYHORIOHDGHUVKLSWKH
VWUDWHJLFOHYHO7KLV3ULPHULVLQWHQGHGWRVHWWKHVWDJHIRUDJUHDWHUXQGHUVWDQGLQJDQGPRUH
LQGHSWKVWXG\RIOHDGHUVKLSDWWKHVWUDWHJLFOHYHOWKHFRQWH[WFKDOOHQJHVFKDUDFWHULVWLFV
DQG UHTXLUHPHQWV RI VWUDWHJLF OHDGHUVKLS  7KH SXUSRVH RI WKLV FKDSWHU LV WR SURYLGH DQ
RYHUYLHZRIVWUDWHJLFOHDGHUVKLS
 *HQHUDO0DUVKDOOVHHPVWRKDYHLQWXLWLYHO\XQGHUVWRRGWKDWWKHGHYHORSPHQWRIDQDWLRQDO
VWUDWHJ\DQGWKHIRUFHVWUXFWXUHWRH[HFXWHWKDWVWUDWHJ\UHTXLUHGDFRPSOH[GHFLVLRQPDNLQJ
VWUXFWXUHDWWKHQDWLRQDODQGHYHQLQWHUQDWLRQDOOHYHOV$V&6$0DUVKDOOFROODERUDWHG
ZLWKFLYLOLDQOHDGHUVWRGHYHORSDYDVWLQGXVWULDOZDUPDFKLQHDQGFRRUGLQDWHGDPRQJ
WKHDOOLHGQDWLRQVWRHQVXUHXQLW\RIHIIRUW6LQFH0DUVKDOOVWLPHDV&6$WKHSROLWLFDO
FRPSOH[LW\RIWKHVHQDWLRQDODQGLQWHUQDWLRQDOGHFLVLRQPDNLQJVWUXFWXUHVKDVFRQWLQXHGWR
JURZ7KHUHIRUHWREHHIIHFWLYHLQWRGD\VVWUDWHJLFDUHQDVHQLRUPLOLWDU\OHDGHUVDQGWKHLU
VWDIIV PXVW XQGHUVWDQG WKH 1DWLRQV VWUDWHJLF YLVLRQ DQG KRZ VWUDWHJ\ LV IRUPXODWHG $V
ZHOOWKH\PXVWDSSUHFLDWHWKHHQYLURQPHQWDQGPXOWLSOHFXOWXUHVLQZKLFKWKH\ZLOORSHUDWH
WKH FRPSHWHQFLHV WKH\ PXVW GHYHORS DQG WKH WDVNV WKH\ PXVW SHUIRUP  %ULQJLQJ WKH VXP
RIWKHLULQWHOOHFWDQGH[SHULHQFHWREHDUWKH\PXVWFRQFHLYHDSRVLWLYHYLVLRQRIWKHIXWXUH
DQGZRUNWRZDUGVWKRVHVWDWHGHQGVE\GHYHORSLQJSROLFLHVDQGVWUDWHJLHVWKDWDOORZWKHFOHDU
DUWLFXODWLRQRIWKHFRUUHVSRQGLQJZD\VDQGPHDQV,QVKRUWVWUDWHJLFOHDGHUVPXVWVXFFHHGLQ
OHDGHUVKLSDV
7KHSURFHVVXVHGE\DOHDGHUWRDIIHFWWKHDFKLHYHPHQWRIDGHVLUDEOHDQG
FOHDUO\XQGHUVWRRGYLVLRQE\LQXHQFLQJWKHRUJDQL]DWLRQDOFXOWXUHDOORFDWLQJ
UHVRXUFHV GLUHFWLQJ WKURXJK SROLF\ DQG GLUHFWLYH DQG EXLOGLQJFRQVHQVXV
ZLWKLQDYRODWLOHXQFHUWDLQFRPSOH[DQGDPELJXRXVJOREDOHQYLURQPHQWZKLFK
LVPDUNHGE\RSSRUWXQLWLHVDQGWKUHDWV
 'LIIHULQJ VOLJKWO\ IURP WKH 86$:& YHUVLRQ LQ  &6$ *HQHUDO *HRUJH &DVH\
DVVHUWHG
6WUDWHJLF OHDGHUV JXLGH WKH DFKLHYHPHQW RI WKHLU RUJDQL]DWLRQDO YLVLRQ ZLWKLQ D
ODUJHU HQWHUSULVH E\ GLUHFWLQJ SROLF\ DQG VWUDWHJ\ EXLOGLQJ FRQVHQVXV DFTXLULQJ
DQGDOORFDWLQJUHVRXUFHVLQXHQFLQJRUJDQL]DWLRQDOFXOWXUHDQGVKDSLQJFRPSOH[
DQGDPELJXRXVH[WHUQDOHQYLURQPHQWV7KH\OHDGE\H[DPSOHWREXLOGHIIHFWLYH
RUJDQL]DWLRQV JURZ WKH QH[W JHQHUDWLRQ RI OHDGHUV HQHUJL]H VXERUGLQDWHV VHHN
RSSRUWXQLWLHVWRDGYDQFHRUJDQL]DWLRQDOJRDOVDQGEDODQFHSHUVRQDODQGSURIHVVLRQDO
GHPDQGV
 3URYLGLQJDQRWKHUSHUVSHFWLYH5LFK+XJKHVDQG.DWKHULQH%HDWW\IURPWKH&HQWHUIRU
&UHDWLYH/HDGHUVKLSDVVHUWHGWKDW
,QGLYLGXDOVDQGWHDPVHQDFWVWUDWHJLFOHDGHUVKLSZKHQWKH\WKLQNDFWDQGLQXHQFH
LQZD\VWKDWSURPRWHWKHVXVWDLQDEOHFRPSHWLWLYHDGYDQWDJHRIWKHRUJDQL]DWLRQ
DQHQYLURQPHQWPDUNHGE\YRODWLOLW\XQFHUWDLQW\FRPSOH[LW\DQGDPELJXLW\98&$  $QLQIRUPDOV\QWKHVLVRIWKHVHGHQLWLRQVPD\RIIHUVRPHFRPPRQFKDUDFWHULVWLFVRI
VWUDWHJLFOHDGHUVKLS)LUVWVWUDWHJLFOHDGHUVKLSRIWHQLQYROYHVDFRPSUHKHQVLYHDVVHVVPHQW
DQGLQWHUSUHWDWLRQRIWKHH[WHUQDOHQYLURQPHQWZKLFKLILQWHUSUHWHGHIIHFWLYHO\LVHYHQWXDOO\
DOLJQHGWRWKHRUJDQL]DWLRQVYLVLRQ6HFRQGDOWKRXJKVWUDWHJLFOHDGHUVOHDGDWWKHHQWHUSULVH
 

OHYHODQGKDYHJUHDWDXWRQRP\WKH\RIWHQWLPHVQHHGWREXLOGFRQVHQVXVDFURVVDZLGHUDQJH
RIVWDNHKROGHUVWRSURSHUO\PDNHDQGH[HFXWHGHFLVLRQV7KLUGDOLJQLQJWKHLURUJDQL]DWLRQ
ZLWK D UDSLGO\ FKDQJLQJ HQYLURQPHQW LPSOLHV WKDW VWUDWHJLF OHDGHUVKLS LV DERXW OHDGLQJ
DQG PDQDJLQJ FKDQJH WR LQFOXGH WKH QHHG WR EXLOG D VWUDWHJ\ DQG WR DOLJQ WKH UHVRXUFHV
DQGSULRULWLHVWRUHDOL]HWKHLUYLVLRQ,QVKRUWVWUDWHJLFOHDGHUVKLSIRFXVHVRQDOLJQPHQW
YLVLRQLQJDQGFKDQJH
HQYLURQPHQW DQG WKDW WKH RUJDQL]DWLRQV VWUDWHJ\ LVDOLJQHG ZLWK WKLV YLVLRQ  6LPLODUO\
WKHVWUXFWXUHFXOWXUHSHUVRQQHOSROLFLHVDQGWHFKQRORJ\DOVRQHHGWREHDOLJQHGZLWKWKH
YLVLRQ DQG VWUDWHJ\ LQ RUGHU WR DFKLHYH WKH YLVLRQ DQG PDLQWDLQ FRPSHWLWLYH DGYDQWDJH
$OLJQPHQWQHHGVWREHERWKYHUWLFDOWKHORZHVWOHYHOVRIWKHRUJDQL]DWLRQXQGHUVWDQGDQG
DFFHSWWKHELJSLFWXUHDQGKRUL]RQWDOHDFKRIWKHVWRYHSLSHVWKDWFRPHWRJHWKHUDWWKH
VWUDWHJLFOHYHODUHLQV\QF

$/,*10(17
 6WUDWHJLFOHDGHUVPRVWRIWHQRSHUDWHDWWKHHQWHUSULVHOHYHOZKHUHYDULRXVRUJDQL]DWLRQDO
VXEV\VWHPVFRQYHUJHWRVXSSRUWWKHFRPPRQSXUSRVH6XEVHTXHQWO\LWLVDWWKLVOHYHOZKHUH
VWUDWHJLF OHDGHUV KDYH GHFLVLRQ PDNLQJ DXWKRULW\ DQG LQXHQFH RYHU NH\ RUJDQL]DWLRQDO
GULYHUVVXFKDVVWUDWHJ\VWUXFWXUHWHFKQRORJ\DQGSHRSOH0LOLWDU\OHDGHUVRIWHQDWWULEXWH
WKHWLWOHVWUDWHJLFOHDGHUWRLQGLYLGXDOVZKRDUHLQIDFWOHDGHUVDWWKHVWUDWHJLFOHYHO
DVRSSRVHGWRVWUDWHJLFOHDGHUV7KH-RLQW6WDII-LVFOHDUO\DQLPSRUWDQWSROLF\DQG
 $VDQH[DPSOHHDUO\LQ2SHUDWLRQ,UDTL)UHHGRP$UP\OHDGHUVKLSUHDOL]HGLWVYLVLRQ
DQG VWUDWHJ\ UHTXLUHG D GHFHQWUDOL]HG GHSOR\DEOH DQG DJLOH IRUFH VWUXFWXUH WR PHHW WKH
KHDY\GHPDQGVRIWKHFRQWHPSRUDU\RSHUDWLQJHQYLURQPHQW7KH&6$FRQFOXGHGWKDWWKH
$UP\VGLYLVLRQFHQWULFVWUXFWXUHZDVRXWRIDOLJQPHQWZLWKWKLVUHTXLUHPHQWDQGWKHUHIRUH
GLUHFWHGDUDSLGUHVWUXFWXULQJWRDEULJDGHFHQWULF$UP\7KLVUHVWUXFWXULQJH[HPSOLHV
KRZDVWUDWHJLFOHDGHUDOLJQVRUJDQL]DWLRQDOVWUXFWXUHZLWKPLVVLRQUHTXLUHPHQWVWRUHDOL]H
DYLVLRQ6LPLODUO\LQWKH$UP\FRQFOXGHGLWVFXOWXUHZDVQRWDOLJQHGWRDGGUHVV
WZR PDMRU KHDOWK LVVXHV DIIHFWLQJ VROGLHUV GHSOR\HG LQ VXSSRUW RI 2SHUDWLRQV ,UDTL DQG
SODQQLQJOHDGHUDWWKHVWUDWHJLFOHYHO$WWKHVDPHWLPHKRZHYHUWKH-KDVRQO\PDUJLQDO (QGXULQJ)UHHGRPVSHFLFDOO\SRVWWUDXPDWLFVWUHVVGLVRUGHU376'DQGPLOGWUDXPDWLF
LQXHQFH RQ WKH PLOLWDU\ HQWHUSULVH 7KH - FDQW FKDQJH SURPRWLRQ SROLFLHV SLFN WKH
QH[W JURXS RI IRXUVWDU JHQHUDOV RU PDNH NH\ GHFLVLRQV RQ ZHDSRQV DQG WHFKQRORJ\
SURFXUHPHQWV7KH-PDNHVUHFRPPHQGDWLRQVWRVWUDWHJLFOHDGHUVDQGVXUHO\QHHGVWR
EHDEOHWRYLHZWKURXJKWKHOHQVRIDVWUDWHJLFOHDGHUEXWKHGRHVQRWZHDUWKHPDQWOHRI
VWUDWHJLFOHDGHUDVLQWHQGHGLQWKLV3ULPHU7KLVGLVWLQFWLRQLVLPSRUWDQWZKHQGHVFULELQJ
WKHVWUDWHJLFOHDGHUUHTXLUHPHQWWRSURYLGHDOLJQPHQW
 6WUDWHJLF OHDGHUVKLS UHTXLUHV  VWUDWHJLF OHDGHUV WR LQLWLDWH SURFHVVHV WKDW HQVXUH WKHLU
RUJDQL]DWLRQ VFDQV WKH HQYLURQPHQW WR PDLQWDLQ DQ DZDUHQHVV RI VRFLHWDO LQWHUQDWLRQDO
WHFKQRORJLFDOGHPRJUDSKLFDQGHFRQRPLFGHYHORSPHQWV&KDSWHUGLVFXVVHVHOHPHQWV
RI WKH UHOHYDQW H[WHUQDO HQYLURQPHQW IRU PLOLWDU\ OHDGHUV  7KH SULPDU\ UROH LQ WKLV
EUDLQLQMXU\07%,$VSHFWVRI$UP\FXOWXUHUHLQIRUFHGORQJKHOGQHJDWLYHVWHUHRW\SHV
DERXW6ROGLHUVZKRUHSRUWHGQRQYLVLEOHKHDOWKLVVXHVOLNH376'DQG07%,*LYHQWKH
LPSDFWDQGIUHTXHQF\RI376'DQG07%,LQWKHZDUWLPH$UP\$UP\OHDGHUVKLSFUHDWHGD
VWUDWHJLFFRPPXQLFDWLRQVSODQWRDWWHPSWWRDOLJQ$UP\FXOWXUHWRGHDODSSURSULDWHO\ZLWK
WKHVHFRPPRQZDUWLPHKHDOWKLVVXHV
 7KH SUHFHGLQJ SDUDJUDSKV IUHTXHQWO\ UHIHUUHG WR WHUPV ZH RIWHQ WKLQN RI DV FLYLOLDQ
PDQDJHPHQWWHUPV0LOLWDU\RIFHUVURXWLQHO\IURZQZKHQOHDGHUVKLSFRQYHUVDWLRQVWXUQ
WR D GLVFXVVLRQ RI WHUPV OLNH FRUH FRPSHWHQFLHV HQWHUSULVH OHDGHUVKLS DQG FRPSHWLWLYH
DGYDQWDJH$VVWUDWHJLFOHDGHUVKRZHYHUWKHVHWHUPVDUHSDUWRIWKHYHUQDFXODU2IWKH
WKUHHWKHRQHPRVWRIWHQGHQLJUDWHGDVDFRUSRUDWHWHUPDQGWKHUHIRUHQRWYLHZHGDV
HQYLURQPHQWDOVFDQQLQJSURFHVVIRUWKHVWUDWHJLFOHDGHULVWRLQWHUSUHWWKHVFDQQHGGDWDWR
GHWHUPLQHWKHRUJDQL]DWLRQVUHVSRQVH)RUH[DPSOHLIWKH&6$OHDUQVIURPWKHJHQHUDO
LQFKDUJHRI$FFHVVLRQV&RPPDQGWKDWKLJKVFKRROUHFUXLWVGRQWKDYHWKHUHTXLVLWHPDWK
VNLOOVWRRSHUDWHPDQ\RIWKH$UP\VKLJKWHFKV\VWHPVWKH&KLHIQHHGVWRLQWHUSUHWWKLV
GDWDDQGWKHQH[SODLQWRUHOHYDQWVWDNHKROGHUVZKDWWKLVREVHUYDWLRQPHDQVWRWKH$UP\DQG
WKHQDWLRQ+HWKHQQHHGVWRVROLFLWLGHDVIURPKLVVHQLRUFLYLOLDQDQGPLOLWDU\OHDGHUVIRU
WDNLQJDFWLRQGHFLGHDFRXUVHIRUWKHRUJDQL]DWLRQDQGLQXHQFHH[WHUQDOGHFLVLRQPDNHUV
WRFROODERUDWHRQVROXWLRQV
 2QDKROLVWLFOHYHOWKHLQWHUSUHWDWLRQRIHQYLURQPHQWDOVFDQQLQJLQD98&$ZRUOGRXJKW
WROHDGWRWKHFUHDWLRQRIDYLVLRQWKDWLVDOLJQHGZLWKDEHVWHVWLPDWHRIWKHIXWXUHHQYLURQPHQW
7KHRUJDQL]DWLRQVYLVLRQUHSUHVHQWVDQLGHDOL]HGUHSUHVHQWDWLRQRIZKDWWKHRUJDQL]DWLRQ
VKRXOGVWULYHWREHFRPH7KHVXEVHTXHQWO\GHYHORSHGVWUDWHJ\KRZHYHUVKRXOGH[SOLFLWO\
DSSOLFDEOHWRWKHPLOLWDU\LVFRPSHWLWLYHDGYDQWDJH,QDVHFWLRQRQDOLJQPHQWLWLVSUXGHQW
WRDWWHPSWWRFKDQJHWKLVQHJDWLYHUHDFWLRQ6FKRODUVRIVWUDWHJLFOHDGHUVKLSKDYHDUJXHG
WKDW WKH SULPDU\ IRFXV RI VWUDWHJ\ DQG KHQFH VWUDWHJLF OHDGHUV LV WR DFKLHYH VXVWDLQDEOH
FRPSHWLWLYHDGYDQWDJHIRUWKHLURUJDQL]DWLRQWKHIRFXVLVRQZLQQLQJQRZ$1'LQWKH
ORQJWHUP
 ,URQLFDOO\ RQH PXVW ZRQGHU ZK\ WKH WHUP FRPSHWLWLYH DGYDQWDJH ZRXOG UHFHLYH
SXVKEDFN IURP D ZDUJKWLQJ RUJDQL]DWLRQ  &OHDUO\ DOO WKH PLOLWDU\ VHUYLFHV GHVLUH WR
DFKLHYH D YLVLRQ HVSHFLDOO\ LQ WHUPV RI VWUDWHJ\ WHFKQRORJ\ VWUXFWXUH DQG FXOWXUH WKDW
SRVLWLRQV WKH 6HUYLFHV WR GHIHDW $PHULFDV FXUUHQW DQG IXWXUH SRWHQWLDO IRHV  ,Q VKRUW
WKH\ ZDQW FRPSHWLWLYH DGYDQWDJH  8QIRUWXQDWHO\ WKH UHODWLRQVKLS EHWZHHQ FRPSHWLWLYH
DGYDQWDJHWKHFRUSRUDWHZRUOGDQGWKHPLOLWDU\XVXDOO\GULYHVWKHGLVFRXUVHWRDQDQDO\VLV
RIWKHFRPSHWLWLRQRYHUUHVRXUFHVEHWZHHQHDFKRIWKHPLOLWDU\6HUYLFHVSOXVRWKHUIHGHUDO
DOLJQHQGVREMHFWLYHVZD\VFRQFHSWVDQGPHWKRGVDQGPHDQVUHVRXUFHVWRHQVXUHWKH DJHQFLHV7KLVGLVFXVVLRQLVVRPHWLPHVXQFRPIRUWDEOHIRUPLOLWDU\OHDGHUVEXWLWQHHGVWR
RUJDQL]DWLRQVUHVRXUFHVDUHFRPPLWWHGLQDPDQQHUWKDWDOORZWKHRUJDQL]DWLRQWRVXFFHHG RFFXU
LQ LWV FXUUHQWDQGIXWXUHHQYLURQPHQWVLQVKRUWWR HQDFW WKH YLVLRQ  6WUDWHJLFOHDGHUV
PXVWWKHUHIRUHHQVXUHWKDWWKH\DOLJQWKHYLVLRQZLWKWKHLULQWHUSUHWDWLRQRIWKHFKDQJLQJ
 
 FXOWXUH7KHUHIUHH]LQJVWHSDWWHPSWVWRPDNHWKRVHFKDQJHVDSHUPDQHQWDVSHFWRIWKH
 &RPPHUFLDODQGJRYHUQPHQWRUJDQL]DWLRQVFRPSHWHLQGLIIHUHQWZD\VEXWWKH\DOODUHLQ RUJDQL]DWLRQ&KDSWHURIWKLVSULPHUGLVFXVVHVPDQDJLQJFKDQJHDVDVWUDWHJLFOHDGHU
FRPSHWLWLRQZLWKVRPHRWKHUHQWLW\7KHSULPDU\GLIIHUHQFHLVWKDWWKHJRYHUQPHQWDODJHQF\ WDVN6XIFHLWWRVD\WKDWLIWKHHQYLURQPHQWLVFKDQJLQJDWDIDVWHUDQGIDVWHUUDWHWKHQ
SURYLGHVVHUYLFHVWRDEURDGFOLHQWEDVHHJFLWL]HQVDQGLQIDFWFRPSHWHVIRUUHVRXUFHV VWUDWHJLFOHDGHUVQHHGWREXLOGRUJDQL]DWLRQVWKDWFDQFKDQJHHYHQIDVWHUWRDOLJQZLWKWKH
E\FRQWHQGLQJZLWKRWKHUJRYHUQPHQWDJHQFLHVWKDWVHHNWRSURYLGHDVSHFLFVHUYLFHRU HQYLURQPHQW)RUH[DPSOHWKHVHUD*HQHUDO0RWRUVEXUHDXFUDWLFPRGHOURRWHGLQ
SHUIRUPDJLYHQIXQFWLRQ&RPPHUFLDORUJDQL]DWLRQVVHHNWRGRPLQDWHPDUNHWVDQGEXLOG LQHUWLDSODJXHGKLHUDUFKLHVLVSUREDEO\LQWKHGLVWDQWSDVWIRUPRVWSXEOLFDQGSULYDWHVHFWRU
PDUNHWVKDUHE\SULFHFRPSHWLWLRQSURGXFWGLIIHUHQWLDWLRQDQGTXDOLW\RUHYHQPRQRSRO\ RUJDQL]DWLRQV
IRUPDWLRQ WKDW VLPSO\ H[FOXGHV FRPSHWLWRUV  *RYHUQPHQWDO DJHQFLHV FRPSHWH DJDLQVW 
RWKHUDJHQFLHVLQPRUHOLPLWHGDQGQXDQFHGZD\V)RULQVWDQFHWKH\VHHNPRQRSRO\VWDWXV 7+(675$7(*,&/($'(56+,37($0
E\H[FOXVLYHRZQHUVKLSRIDPLVVLRQ$JHQFLHVDOVRDWWHPSWWREURDGHQWKHLUSRSXODWLRQ
VHUYHG WR EXLOG D ODUJHU ORQJWHUP FOLHQW EDVH  7KH\ RU VWDNHKROGHU OREELHV EXLOG  7RS OHDGHUV RI DQ\ RUJDQL]DWLRQ LQFOXGLQJ VWDII PHPEHUV VKDUH WKH UHVSRQVLELOLW\ RI
UHODWLRQVKLSVZLWKWKHOHJLVODWLYHDXWKRUL]HUVDQGDSSURSULDWRUVLQ&RQJUHVVWRJXDUDQWHH VWUDWHJLFOHDGHUVKLS5HDOLVWLFDOO\RQO\RQHRUWZRSHUFHQWRIWKHPHPEHUVRIDQRUJDQL]DWLRQ
DJHQF\SURJUDPVDUHIXQGHGLQWKHIXWXUH$Q\RQHZKRGRHVQRWWKLQNWKHGLVFXVVLRQZLWKLQ ZLOO HYHU DWWDLQ VWUDWHJLF OHDGHUVKLS UDQN RU SRVLWLRQ EXW DQ\RQH ZRUNLQJ GLUHFWO\ IRU D
WKH'HSDUWPHQWRI'HIHQVH'2'RYHUF\EHUVSDFHLVQWDERXWFRPSHWLWLYHDGYDQWDJHIRU
HDFK RI WKH PLOLWDU\ VHUYLFHV GRHV QRW XQGHUVWDQG WKH VXEWOHWLHV RI VWUDWHJLF OHDGHUVKLS
7KLV FRPSHWLWLYH DGYDQWDJH IRFXVHV RQ SRWHQWLDO HQHPLHV EXW DOVR RQ WKH DOORFDWLRQ RI
UHVRXUFHVWRJKWWKHF\EHUZDU$OWKRXJKWKHVWUDWHJLHVDUHGLIIHUHQWEHWZHHQFRPPHUFLDO
DQGJRYHUQPHQWHQWLWLHVDWWKHHQGRIWKHGD\ERWKVHHNFRPSHWLWLYHDGYDQWDJHWRHQVXUH
WKHFRQWLQXHGRZRIUHVRXUFHV7KHVHUHVRXUFHVLQPRVWFDVHVDUHJHQHUDOO\OLPLWHGDQG
VWUDWHJLFOHDGHUVKRXOGEHZHOOYHUVHGLQVWUDWHJLFWKLQNLQJFRQFHSWVLQRUGHUWRDGHTXDWHO\
VXSSRUWDQGDGYLVHWKHOHDGHU(IIHFWLYHVWUDWHJLFGHFLVLRQPDNLQJDQGOHDGHUVKLSFDQQRW
UHVLGHPHUHO\LQRQHOHDGHU7KHFKDQJLQJH[WHUQDOHQYLURQPHQWDQGWKHFRPSOH[LW\RIODUJH
RUJDQL]DWLRQVFUHDWHDVLWXDWLRQZKHUHWKHOHDGHUDWWKHWRSRIWKHRUJDQL]DWLRQDOKLHUDUFK\
FDQQRW SRVVLEO\ OHDG WKH RUJDQL]DWLRQ ZLWKRXW UHFHLYLQJ KHOS LQ LQIRUPDWLRQ JDWKHULQJ
DVVHVVPHQWDQGNQRZOHGJHPDQDJHPHQW(IIHFWLYHOHDGHUVKLSGHSHQGVRQWKHLQWHUDFWLRQV
WKHUHIRUHWRVRPHH[WHQWFUHDWHD]HURVXPFRPSHWLWLRQ
9,6,21,1*
 7KH SUHFHGLQJVHFWLRQLQWURGXFHG WKH LPSRUWDQFH RI WKH FRQFHSW RI DOLJQPHQW ZKLFK
HQVXUHVVXVWDLQDEOHFRPSHWLWLYHDGYDQWDJH'HVSLWHLWVLPSRUWDQFHKRZHYHUPRVWVWUDWHJLF
OHDGHUVKLS VFKRODUV DQG VWUDWHJLF OHDGHUV WKHPVHOYHV FLWH WKH DELOLW\ WR GHYHORS DQG
DUWLFXODWHDFRPSHOOLQJYLVLRQDVWKHPRVWLPSRUWDQWWDVNRIVWUDWHJLFOHDGHUVKLS&KDSWHU
DPRQJVWWKHOHDGHUWKRVHEHLQJOHGRULQXHQFHGERWKLQDQGRXWRIWKHRUJDQL]DWLRQDQG
WKHVLWXDWLRQRUFLUFXPVWDQFHVIDFLQJWKHRUJDQL]DWLRQ7KHFRPSOH[LW\RIWKHVHUHODWLRQVKLSV
DQGLQWHUDFWLRQVGHWHUPLQHWKHHIIHFWLYHQHVVRIVWUDWHJLFOHDGHUVDQGWKHLUWHDPV7KHUHIRUH
WKLV3ULPHUIRFXVHVRQWKHFRQFHSWRIVWUDWHJLFOHDGHUVKLSUDWKHUWKDQWKHVWUDWHJLFOHDGHU
DORQH
 :KLOHWKHQHHGH[LVWVIRUVHQLRURIFHUVWRWUDQVLWLRQWRWKHVWUDWHJLFOHYHORIOHDGHUVKLS
WKHOHDGHUVKLSVNLOOVDQGTXDOLWLHVGHYHORSHGDWWKHGLUHFWDQGRUJDQL]DWLRQDOOHYHOVUHPDLQ
FRYHUVWKLVWRSLFLQGHWDLODQGHPSKDVL]HVWKDWWKHYLVLRQLQJSURFHVVLVDWHDPVSRUW LQYDOXDEOH  7KH VWUDWHJLF OHDGHU PXVW VWLOO H[HUFLVH GLUHFW OHDGHUVKLS RI KLV VXERUGLQDWH
WKH VWUDWHJLF OHDGHU DORQH FDQQRW FUHDWH DQG FRPPXQLFDWH DQ RUJDQL]DWLRQDO YLVLRQ  FRPPDQGHUVDQGVWDII$WWKHVDPHWLPHWKHVWUDWHJLFOHDGHUPXVWPDQDJHDQGOHDGDYHU\
FRPPXQLFDWLQJDYLVLRQWDNHVDJUHDWGHDORIHIIRUW6WUDWHJLFOHDGHUVPXVWRIWHQUHSHDWD ODUJH DQG FRPSOH[ RUJDQL]DWLRQ UHSUHVHQW WKH RUJDQL]DWLRQ WR WKH H[WHUQDO HQYLURQPHQW
FOHDUDQGFRQFLVHPHVVDJHPDQ\WLPHVLQPDQ\SODFHVWRHQVXUHWKHYLVLRQFDVFDGHVGRZQ DQGZLHOGLQXHQFHWRVKDSHWKHH[WHUQDOHQYLURQPHQWWRKHOSWKHRUJDQL]DWLRQDFFRPSOLVK
WKURXJKWKHRUJDQL]DWLRQDQGDFWLRQVVSHDNORXGHUWKDQZRUGV0RVWREVHUYHUVZLOO
TXLFNO\GHWHFWZKHQWKHHVSRXVHGYLVLRQLVQRWDOLJQHGZLWKHQDFWHGYDOXHVDQGSULRULWLHV
WKHUHE\GHFUHDVLQJWKHFKDQFHVRIDFKLHYLQJWKHYLVLRQ
&+$1*(
 0DQ\ZHOOZULWWHQERRNVGHVFULEHKRZWROHDGDQRUJDQL]DWLRQWKURXJKFKDQJH-RKQ
.RWWHUV/HDGLQJ&KDQJHVWDQGVRXWDVRQHRIWKHEHVWRIWKHJHQUH.RWWHUSRLQWHGRXWWKDW
LQGLYLGXDORURUJDQL]DWLRQDOFKDQJHDWLWVPRVWEDVLFLQYROYHVWKUHHSURFHVVHVXQIUHH]LQJ
FKDQJLQJDQGUHIUHH]LQJ7KHXQIUHH]LQJVWHSUHTXLUHVWKDWVWDNHKROGHUVDQGSDUWLFLSDQWV
YLHZWKHFXUUHQWVLWXDWLRQDVXQVXLWDEOH7KHFKDQJHVWHSIRFXVHVRQHQDFWLQJFKDQJHVZLWKLQ
YDULRXVFRPSRQHQWVRIWKHHQWHUSULVHWRLQFOXGHVWUXFWXUHVWUDWHJ\SHRSOHWHFKQRORJ\RU
 
WKH KLHUDUFKLFDO SRVLWLRQ RI OHDGHUV ZLWKLQ WKHLU RZQ V\VWHP LV RI
LWVYLVLRQDQGSXUSRVH0RUHVRWKDQDWDQ\RWKHUOHYHORIOHDGHUVKLSVWUDWHJLFOHDGHUVKLS
UHTXLUHVSURDFWLYHFRQVHQVXVEXLOGLQJDQGFROODERUDWLRQZLWKRWKHURUJDQL]DWLRQVDJHQFLHV
DQGQDWLRQV$WWKHVDPHWLPHWKRXJKWKHSULPDU\IRFXVWXUQVRXWZDUGWKHOHDGHUPXVW
DOVRWHQGWRWKHLQWHUQDORUJDQL]DWLRQDOHQYLURQPHQW([FHVVLYHIRFXVLQVLGHRURXWVLGH
WKHRUJDQL]DWLRQZLOOGHWUDFWIURPRUJDQL]DWLRQDOVXFFHVVDQGSHUKDSVHYHQYLDELOLW\7KH
NH\VWRDVXFFHVVIXOWUDQVLWLRQWRVWUDWHJLFOHDGHUVKLSDUHDQDSSUHFLDWLRQIRUWKHGUDPDWLF
LQFUHDVH LQ VFRSH RI OHDGHUVKLS UHVSRQVLELOLWLHV DQ XQGHUVWDQGLQJ RI WKH XQLTXH QDWXUH
RIWKHVHLQFUHDVHGUHVSRQVLELOLWLHVDQGWKHGHGLFDWLRQRIHIIRUWQHFHVVDU\WRXQGHUVWDQGDQG
LQXHQFHWKHFRPSOH[DQGG\QDPLFHQYLURQPHQWLQZKLFKWKHVHOHDGHUVKLSUHVSRQVLELOLWLHV
UHVLGH%H\RQGXQGHUVWDQGLQJWKLVVWUDWHJLFHQYLURQPHQWVWUDWHJLFOHDGHUVDQGWKHLUVWDIIV
PXVWH[HUFLVHVWUDWHJLFOHDGHUVKLSFRPSHWHQFLHVWRDFKLHYHWKHLUYLVLRQZLWKLQWKDWYRODWLOH
XQFHUWDLQFRPSOH[DQGDPELJXRXVHQYLURQPHQW/HDGHUVKLSH[SHUW-RKQ*DUGQHUDVVHUWHG
5LFKDUG/+XJKHVDQG.DWKHULQH&%HDWW\%HFRPLQJD6WUDWHJLF/HDGHU6DQ)UDQFLVFR:LOH\DQG
OLPLWHG YDOXH EHFDXVH VRPH RI WKH PRVW FULWLFDOO\ LPSRUWDQW WDVNV UHTXLUH 6RQVS
ODWHUDOOHDGHUVKLSERXQGDU\FURVVLQJOHDGHUVKLSLQYROYLQJJURXSVRYHU 6HH72-DFREV6WUDWHJLF/HDGHUVKLS7KH&RPSHWLWLYH(GJHXQSXEOLVKHGPDQXVFULSWS
ZKRPWKH\KDYHQRFRQWURO7KH\PXVWH[HUFLVHOHDGHUOLNHLQXHQFHEH\RQG IRUDPRUHGHWDLOHGFRPSDULVRQRIFLYLOLDQDQGJRYHUQPHQWRUJDQL]DWLRQV
WKHV\VWHPRYHUZKLFKWKH\SUHVLGH7KH\PXVWGRZKDWWKH\FDQWROHDG
ZLWKRXWDXWKRULW\EROGDGGHGIRUHPSKDVLV -RKQ.RWWHU/HDGLQJ&KDQJH%RVWRQ+DUYDUG%XVLQHVV6FKRRO3UHVV

-RKQ*DUGQHU2Q/HDGHUVKLS1HZ<RUN7KH)UHH3UHVVS

67(:$5'6+,3

 )LQDOO\ SURIHVVLRQDO HWKLFV SOD\ D IRXQGDWLRQDO UROH LQ WKH HIIHFWLYHQHVV RI VWUDWHJLF
OHDGHUV$OOSURIHVVLRQVVKDUHVRPHFRPPRQWUDLWVDPRQJWKHPDVKDUHGYDOXHV\VWHPD
FRQWULEXWLRQWRVRFLHW\DVSHFLDOL]HGMXULVGLFWLRQDQGDQLQWHUQDOVHOISROLFLQJPHFKDQLVP
$WWKHVWUDWHJLFOHYHORIOHDGHUVKLSWKHVHTXDOLWLHVPDQLIHVWWKHPVHOYHVPRVWGLVWLQFWO\LQ
WKHUHTXLUHPHQWIRUDUHVSRQVLEOHXVHRISRZHU

 )RUH[DPSOHHIIHFWLYHVWUDWHJLFOHDGHUVDQGWKHLUWHDPVDUHFRJQL]DQWRIWKHDPSOLHG
LPSDFW RI WKHLU GHFLVLRQV  :KHWKHU WKH\ DUH FRQGXFWLQJ D ZDU GHYHORSLQJ D VWUDWHJ\
RU LQYHVWLQJ LQ PLOLWDU\ FDSDELOLWLHV WKH\ DSSUHFLDWH WKH JUDYLW\ RI WKHLU RIFH $OPRVW
E\ GHQLWLRQ HIIHFWLYH VWUDWHJLF OHDGHUV WDNH DQ H[SDQVLYH YLHZ RI WKHLU VWHZDUGVKLS
UHVSRQVLELOLWLHVWRZDUGWKHORQJWHUPKHDOWKRIWKHLQVWLWXWLRQ7KH\H[HUFLVHDZDULQHVV
RIWKHLUQDWXUDOWHQGHQF\WRDFWLQWKHLUVHOILQWHUHVWDQGEXLOGDVPDOOFDGUHRIDGYLVRUVRU
DFFRXQWDELOLW\ SDUWQHUV WR SURWHFW WKHPVHOYHV IURP SHUVRQDO PLVWDNHV WKDW FDQ DIIHFW WKH
HQWLUHRUJDQL]DWLRQ7KHVWUDWHJLFOHDGHUZKRFRQGXFWVKLPVHOIZLWKDVHOHVVSURIHVVLRQDO
HWKLFEXLOGVSXEOLFWUXVWDQGLQWKHSURFHVVDFFXPXODWHVDUHVHUYRLURIPRUDODXWKRULW\WKDW
VHUYHVERWKKLVRIFHDQGWKHLQVWLWXWLRQZHOO

6800$5<

 6WUDWHJLFOHDGHUVKLSLVJHQHUDOO\DWHDPVSRUWWKDWUHTXLUHVDVWUDWHJLFOHDGHUOHGYLVLRQLQJ
SURFHVVWRFUHDWHWKHDOLJQPHQWEHWZHHQWKHRUJDQL]DWLRQVVWUHQJWKVDQGZHDNQHVVHVDQG
WKHDQWLFLSDWHGGHPDQGVRIWKHIXWXUHH[WHUQDOHQYLURQPHQW6WUDWHJLFOHDGHUVXQGHUVWDQG
WKHLPSRUWDQFHRIYHUWLFDODQGKRUL]RQWDODOLJQPHQWHQVXULQJWKHYLVLRQDQGVWUDWHJ\RIWKH
RUJDQL]DWLRQDOLJQZLWKWKHSURFHVVHVVWUXFWXUHVFXOWXUHDQGWHFKQRORJ\RIWKHRUJDQL]DWLRQ
)LQDOO\VWUDWHJLFOHDGHUVDUHWKHFKDQJHDJHQWVWKDWHQDFWWKHFRQVWDQWUHDOLJQPHQWVUHTXLUHG
LQWKHVWFHQWXU\V98&$HQYLURQPHQW

(1'127(6

 0DUVKDOO ZDV SURPRWHG IURP %ULJDGLHU *HQHUDO GLUHFWO\ WR *HQHUDO RQ 6HSWHPEHU   VR KLV
H[SHULHQFHLVDW\SLFDOEXWVWLOOZHOOLOOXVWUDWHVWKHGLIIHUHQWVNLOOVDQGSHUVSHFWLYHVQHHGHGE\WKHPRVWVHQLRU
OHDGHUV

*HQHUDO&DVH\SUHVHQWDWLRQWRWKH86$:&6HSWHPEHU&LWHGZLWKSHUPLVVLRQRI2IFHRI
&KLHIRI6WDII

 
 &+$37(5
7+(675$7(*,&/($'(56+,3(19,5210(17 ,
,GRQWWKLQN,DPH[DJJHUDWLQJZKHQ,VD\WKDWZHIDFHWKHPRVWGDXQWLQJ
VWUDWHJLFHQYLURQPHQWLQJHQHUDWLRQV
8QGHU6HFUHWDU\RI'HIHQVHIRU3ROLF\ 6KRXOG\RXFDUH"
7KHVHWLPHVDUHRQHPLJKWVD\RUGLQDU\WLPHVDVOLFHRIOLIHOLNHDQ\RWKHU
:KRFDQEHDUWRKHDUWKLVRUZKRZLOOFRQVLGHULW"$UHZHQRWHVSHFLDOO\
VLJQLFDQWEHFDXVHRXUFHQWXU\LVRXUFHQWXU\DQGLWVQXFOHDUERPEVLWV
XQLTXHDQGXQSUHFHGHQWHG+RORFDXVWLWVVHULDOH[WHUPLQDWLRQVDQGUHIXJHH
SRSXODWLRQV RXU FHQWXU\ DQG LWV ZDUPLQJ LWV VLOLFRQ FKLSV PHQ RQ WKH
PRRQDQGVSOLFHGJHQHV"1RZHDUHQRWDQGLWLVQRW
$QQLH'LOODUG7KH:UHFNRI7LPH7DNLQJ2XU&HQWXU\V0HDVXUH
$ KXPDQ EHLQJ LV QRW RQH WKLQJ DPRQJ RWKHUV WKLQJV GHWHUPLQH HDFK
RWKHU EXW PDQ LV XOWLPDWHO\ VHOIGHWHUPLQLQJ  :KDW KH EHFRPHVZLWKLQ
OLPLWV RI HQGRZPHQW DQG HQYLURQPHQWKH KDV PDGH RXW RI KLPVHOI  ,Q
WKHFRQFHQWUDWLRQFDPSZHZDWFKHGDQGZLWQHVVHGVRPHRIRXUFRPUDGHV
EHKDYHOLNHVZLQHZKLOHRWKHUVEHKDYHGOLNHVDLQWV0DQKDVERWKSRWHQWLDOV
ZLWKLQ KLPVHOI ZKLOH RQH LV DFWXDOL]HG GHSHQGV RQ GHFLVLRQV EXW QRW RQ
:KLFKRIWKHVHIDFWVLVUHOHYDQWWRDPLOLWDU\OHDGHU"
)RUWKHUVWWLPHLQLWVKLVWRU\LQWKH1)/LVVXHGJXLGHOLQHVIRUSOD\HUVVXIIHULQJ
FRQFXVVLRQV7KH86(QHUJ\,QIRUPDWLRQ$GPLQLVWUDWLRQHVWLPDWHVWKDWEHWZHHQQRZDQG
WKHSHUFHQWDJHRIHOHFWULFLW\WKHZRUOGJHWVIURPQXFOHDUSRZHUZLOOGHFUHDVHIURP
WRSHUFHQW7KHIDVWHVWJURZLQJSRSXODWLRQVHJPHQWLQPRVWLQGXVWULDOL]HGFRXQWULHVLV
FHQWHQDULDQV
$UHFHQW+DUYDUG%XVLQHVV5HYLHZDUWLFOHUHFRPPHQGHGDVNLQJTXHVWLRQVWKDWFKDOOHQJH
WKHVWDWXVTXRLQ\RXURUJDQL]DWLRQDWOHDVWWLPHVHDFKGD\
,VWKDWDJRRGLGHDIRUOHDGHUVLQWKH86PLOLWDU\"'R\RXVSHQGWLPHFRQVLGHULQJZKDW
FRQVWLWXWHVWKHVWDWXVTXRLQ\RXURUJDQL]DWLRQ"
6HQDWRU.LUNZKRLQ6HSWHPEHUUHSODFHGORQJWLPH6HQDWRU(GZDUG.HQQHG\RQ
WKH 6HQDWH$UPHG 6HUYLFHV &RPPLWWHH TXHVWLRQHG &KDLUPDQ 0XOOHQ LQ WKH ZDNH RI WKH
SUHVLGHQWV'HFHPEHUDQQRXQFHPHQWRIDWURRSVXUJHIRU$IJKDQLVWDQ
'R\RXNQRZZKDWWKH\VDLG"6KRXOGVXFKWHVWLPRQ\LQXHQFH\RXUWKLQNLQJ"
$PLGVWPXFKFODPRUDERXWXQSUHFHGHQWHGFKDQJHEURXJKWRQE\WKH,QIRUPDWLRQ$JH
)RUHLJQ3ROLF\PDJD]LQHTXRWHVDQHFRQRPLVWZKREHOLHYHVWKHFRQWLQXHGSUROLIHUDWLRQRI
WKHSODLQROG79KDVPXFKPRUHSRWHQWLDOWRFKDQJHWKHZRUOGWKDQWKHLQWHUQHWDQGZLUHOHVV
FRQGLWLRQVEROGHPSKDVLVDGGHG WHFKQRORJ\  'HVSLWH FODLPV DERXW WKH RYHUZKHOPLQJ WHFKQRORJ\ OHDSV EHLQJ PDGH E\
,QGLDDQG&KLQDLQWHUQHWSHQHWUDWLRQLQWKRVHFRXQWULHVDQGRIWRWDOSRSXODWLRQ
9LFWRU)UDQNO0DQV6HDUFKIRU0HDQLQJ
&DUOLVOH3$0D\7ZLWWHUOLPLWVWKH&KDLUPDQRIWKH-RLQW&KLHIVRI6WDIIDQG
HYHU\RQHHOVHWRFKDUDFWHUVSHUWZHHWDQGKHWZHHWVRQFHRUPRUHDOPRVWGDLO\
PLOOLRQ SHRSOH KDYH HVWDEOLVKHG DFFRXQWV RQ )DFHERRN  :RUOGZLGH DSSUR[LPDWHO\ 
PLOOLRQSHRSOHDUHOLYLQJZLWK+,90DQGDWRU\HQWLWOHPHQWSURJUDPVDFFRXQWIRURYHU
WULOOLRQRIWKHWULOOLRQ)HGHUDO%XGJHWDQGWKH2IFHRI0DQDJHPHQWDQG%XGJHW
HVWLPDWHVWKDWWKHSHUFHQWDJHRIWKHQDWLRQDOGHEWKHOGE\WKHSXEOLFZLOOLQFUHDVHIURP
WRLQWKHQH[W\HDUV3HUVRQDOEDQNUXSWFLHVKDYHGRXEOHGLQWKH86LQWKHODVW
\HDUVDQGTXDGUXSOHGEHWZHHQDQG7KH86PLOLWDU\EXGJHWGZDUIVWKHGHIHQVH
UHVSHFWLYHO\UHPDLQVIDUEHORZ1RUWK$PHULFDDQGPRVWRWKHUZHVWHUQGHPRFUDFLHV
:KDW NQRZOHGJH FDQ OHDGHUV GHULYH IURP WKLV LQIRUPDWLRQ DQG KRZ FDQ WKH\ PDQDJH
WKH JDWKHULQJ VRUWLQJ DQG DVVHVVLQJ RI WKDW NQRZOHGJH LQ RUGHU WR EHWWHU XQGHUVWDQG WKH
HQYLURQPHQWLQZKLFKWKH\PXVWPDNHGHFLVLRQVDQGOHDGODUJHRUJDQL]DWLRQVLQWRWKHIXWXUH"
0DQ\RIWKHIDFWVLQWKHSUHYLRXVSDUDJUDSKVZLOOEHRXWGDWHGRUOHVVUHOHYDQWE\WKHWLPH
RI SXEOLFDWLRQ WKDW IDFW DORQH IXUWKHU LOOXVWUDWHV WKH FKDOOHQJH RI HQYLURQPHQWDO VFDQQLQJ
DQGVWUDWHJLFGHFLVLRQPDNLQJLQWKH,QIRUPDWLRQ$JH%HFDXVHRIWKHPXOWLSOLFLW\RIIDFWRUV
DQGLQXHQFHVDWSOD\DQGWKHORQJOHDGWLPHVUHTXLUHGIRUFKDQJHLQODUJHRUJDQL]DWLRQV
VWUDWHJLF OHDGHUVKLS UHTXLUHV D PXFK EURDGHU VNLOO VHW WKDQ OHDGHUVKLS SUDFWLFHG DW ORZHU
EXGJHWRI&KLQDE\DPXOWLSOHRIDWOHDVWIRXUGHSHQGLQJRQKRZRQHFDOFXODWHV
7KLVFKDSWHUZDVVLJQLFDQWO\XSGDWHGIRUWKHUGHGLWLRQE\&RORQHO0XUI&ODUN
,

LQWHUIHUH7KHFRPSHWLWLYHHQYLURQPHQWGHPDQGVWKDWRUJDQL]DWLRQVDVVXPHULVN,Q6WUDWHJLF
/HDGHUVKLS 7KH &RPSHWLWLYH (GJH 7 2ZHQ -DFREV GHVFULEHV WKH H[WHUQDO HQYLURQPHQW
DV OOHG ZLWK 9RODWLOLW\ 8QFHUWDLQW\ &RPSOH[LW\ DQG $PELJXLW\ KHQFH WKH DFURQ\P
98&$7KDWWKHHQYLURQPHQWRIWKH,QIRUPDWLRQ$JHLVIUDXJKWZLWK98&$GRHVOLWWOH
WR H[FXVH LUUHVSRQVLELOLW\ FDUHOHVVQHVV RU D ODFN RI ULJRU ZKHQ DWWHPSWLQJ WR XQGHUVWDQG
WKHHQYLURQPHQWDQWLFLSDWHFKDQJHDQGPDQDJHULVNVW&HQWXU\OHDGHUVPXVWDSSURDFK
WKLV FKDOOHQJH ZLWK LQWHOOLJHQFH HQHUJ\ DQG XUJHQF\ FRQGHQW WKDW WKHVH UHDOLWLHV DQG
FRPSOH[LWLHVFDQDVHDVLO\EHWUDQVIRUPHGLQWRDFRPSHWLWLYHDGYDQWDJHZKHQWXUQHGDJDLQVW
WKHHQHPLHVRIRXUQDWLRQ
*LYHQWKHH[WHQWRIWKHLUUHVSRQVLELOLWLHVDQGWKHH[SDQGLQJHIIHFWVRIWKHLUGHFLVLRQV
VWUDWHJLF OHDGHUV PXVW FRQVLGHU D YDVW DUUD\ RI IDFWV LQXHQFHV DQG SDUWLFLSDQWV 7R VD\
WKH\PXVWFRQVLGHUDOOWKLQJVPD\EHRQO\DVOLJKWH[DJJHUDWLRQ7KHUHLQOLHVWKHUXE:LWK
OLPLWHG WLPH DQG QLWH NQRZOHGJH HIIHFWLYH OHDGHUV PXVW OLWHUDOO\ GHFLGH KRZ WR GHFLGH
7KDWLVWKH\PXVWGHWHUPLQHZKLFKHOHPHQWVRIWKHLUHQYLURQPHQWDUHPRVWLPSRUWDQWWRD
SDUWLFXODUVLWXDWLRQRUGHFLVLRQDQGWKHQIRFXVWKHLUDWWHQWLRQDQGHIIRUWVWKHUH
6WUDWHJLF OHDGHUV DQG VWUDWHJLVWV PXVW DWWHPSW WR XQGHUVWDQG LQWHUSUHW DQG PDVWHU WKH
98&$HQYLURQPHQW-DFREVVXJJHVWVOHDGHUVFDQQRWDWWDLQFRPSOHWHNQRZOHGJHDERXWWKH
PDQ\IDFWRUVJRYHUQLQJVWUDWHJLFGHFLVLRQV1RQHWKHOHVVOHDGHUVKLSUHTXLUHVWKDWGHFLVLRQV
EHPDGH7RDQVZHUWKHFKDOOHQJHRI98&$ZHPXVWUVWXQGHUVWDQGWKHEDVLFLPSOLFDWLRQV
RILWVFRQVWLWXHQWWHUPV
9RODWLOLW\  WKH UDWH RI FKDQJH RI WKH HQYLURQPHQW 9RODWLOLW\ LQ WKH ,QIRUPDWLRQ$JH
PHDQVHYHQWKHPRVWFXUUHQWGDWDPD\QRWSURYLGHDQDGHTXDWHFRQWH[WIRUGHFLVLRQPDNLQJ
%H\RQGDQDELOLW\WRDFFXUDWHO\DVVHVVWKHFXUUHQWHQYLURQPHQWOHDGHUVPXVWDQWLFLSDWHUDSLG
FKDQJH DQG GR WKHLU EHVW WR SUHGLFWZKDWPD\KDSSHQZLWKLQWKHWLPHVFRSHRIDSURMHFW
SURJUDPRURSHUDWLRQ9RODWLOLW\LQWKHHQYLURQPHQWFRXSOHGZLWKWKHH[WHQGHGWLPHOLQHV
RIPRGHUQDFTXLVLWLRQSURJUDPVFUHDWHVDVSHFLDOFKDOOHQJHIRUVWUDWHJLFOHDGHUVDQGWKHLU
DGYLVRUV
8QFHUWDLQW\WKHLQDELOLW\WRNQRZHYHU\WKLQJDERXWDVLWXDWLRQDQGWKHGLIFXOW\RI
OHYHOV  6WUDWHJLF GHFLVLRQ PDNLQJ LV H[WUHPHO\ GLIFXOW UHTXLULQJ H[KDXVWLYH UHVHDUFK
DQDO\VLVFROODERUDWLRQDQGFRPSURPLVHWRUHDFKWKHEHVWSRVVLEOHVROXWLRQVWRSUREOHPV
(YHQKLJKO\H[SHULHQFHGOHDGHUVHVSHFLDOO\KLJKO\H[SHULHQFHGOHDGHUVPD\EHWHPSWHG
WRVXEVWLWXWHHGXFDWHGJXHVVLQJRULQWXLWLRQIRUVRXQGSURFHVVHVRILQIRUPDWLRQJDWKHULQJ
DVVHVVPHQWDQGULVNPDQDJHPHQW5HVRXUFHFRQVWUDLQWVDQGSROLWLFDOFRQVLGHUDWLRQVPD\

FRXOGEHVDLGWRFUHDWHXQFHUWDLQW\EHFDXVHRIWKHVKHHUYROXPHRISRVVLEOHLQWHUDFWLRQVDQG
RXWFRPHV
$PELJXLW\  GHVFULEHV D VSHFLF W\SH RI XQFHUWDLQW\ WKDW UHVXOWV IURP GLIIHUHQFHV
LQ LQWHUSUHWDWLRQ ZKHQ FRQWH[WXDO FOXHV DUH LQVXIFLHQW WR FODULI\ PHDQLQJ  ,URQLFDOO\
DPELJXRXV LV DQ DPELJXRXV WHUP ZKRVH GHQLWLRQ FKDQJHV VXEWO\ GHSHQGLQJ RQ WKH
FRQWH[WRILWVXVDJH)RURXUSXUSRVHVKHUHLWUHIHUVWRWKHGLIFXOW\RILQWHUSUHWLQJPHDQLQJ
ZKHQ FRQWH[W LV EOXUUHG E\ IDFWRUV VXFK DV FXOWXUDO EOLQGQHVV FRJQLWLYH ELDV RU OLPLWHG
SHUVSHFWLYH$WWKHVWUDWHJLFOHYHOOHDGHUVFDQRIWHQOHJLWLPDWHO\LQWHUSUHWHYHQWVLQPRUH
WKDQRQHZD\DQGWKHOLNHOLKRRGRIPLVLQWHUSUHWDWLRQLVKLJK
98&$ HQYLURQPHQWV DQG ODUJH RUJDQL]DWLRQV  /DUJH FRPSOH[ RUJDQL]DWLRQV
FRQVLVWRILQWULFDWHQHWZRUNVRIVWDIIIXQFWLRQDODQGRSHUDWLQJ FRPSRQHQWV 7R DFKLHYH
RUJDQL]DWLRQDOJRDOVWKHVHFRPSRQHQWVPXVWIXQFWLRQWRJHWKHUDQGLQWHUDFWZLWKH[WHUQDO
HQWLWLHVWKDWDUHHTXDOO\DVFRPSOH[$VWUDWHJLFOHDGHUQRWRQO\OHDGVWKHRUJDQL]DWLRQ
EXWPXVWDOVRUHSUHVHQWKLVRUKHURUJDQL]DWLRQGXULQJWKHQHFHVVDU\LQWHUDFWLRQVZLWKD
PD]HRIRWKHUHQWLWLHVWKDWFRQVWLWXWHWKHRUJDQL]DWLRQVH[WHUQDOHQYLURQPHQW6WUDWHJLF
OHDGHUVPXVWVKDSHWKHIRUPDQGGLUHFWLRQRIWKHLURUJDQL]DWLRQVDQGLQXHQFHH[WHUQDO
DFWRUVWRZDUGDFFRPSOLVKPHQWRIREMHFWLYHV:LWKLQWKH98&$HQYLURQPHQWWDVNVPXVW
EH DFFRPSOLVKHG FROODERUDWLYHO\ UDWKHU WKDQ WKURXJK LQGLYLGXDO HIIRUW  6HOGRP GRHV D
VLQJOHOHDGHUSRVVHVVVXIFLHQWNQRZOHGJHWRDGHTXDWHO\GHYHORSWKHRUJDQL]DWLRQDOYLVLRQ
VWUDWHJLFOHDGHUVPXVWGHYHORSWKHDELOLW\WRFROODERUDWHFRRSHUDWHDQGFRPSURPLVHWR
LQXHQFHH[WHUQDODJHQFLHV2XWVLGHWKHRUJDQL]DWLRQZKHQUDQNDQGSRVLWLRQEHFRPH
OHVVFRPSHOOLQJOHDGHUVPXVWHPSOR\WDFWSHUVXDVLRQDQGVRXQGDUJXPHQWDWLRQ
7KXV WKH VWUDWHJLF OHDGHUVKLS HQYLURQPHQW FRQVLVWV RI ERWK LQWHUQDO DQG H[WHUQDO
FRPSOH[LWLHVWKDWGLUHFWO\DQGLQGLUHFWO\DIIHFWWKHUHVRXUFLQJVWUXFWXULQJDQGRSHUDWLRQDO
SHUIRUPDQFH RI WKH RUJDQL]DWLRQ  7KH G\QDPLFV RI D FKDQJLQJ WKUHDW WKH FKDQJHV LQ
LQWHUQDWLRQDOFRDOLWLRQVWKHVKLIWLQJRISXEOLFDWWLWXGHVWKHUDSLGDGYDQFHVLQWHFKQRORJ\WKH
HOHFWLRQ RI QHZ JRYHUQPHQWV WKH XFWXDWLRQ RI QDWLRQDO EXGJHWV WKH HYROXWLRQ RI QHZ
PLVVLRQVDQGFKDQJLQJGHPRJUDSKLFVDOOLQFUHDVHWKHFKDOOHQJHVRIVWUDWHJLFOHDGHUVKLS
6WUDWHJLFOHDGHUVPXVWPRQLWRUDQGXQGHUVWDQGWKHFURVVFXUUHQWVRIWKHRUJDQL]DWLRQVH[WHUQDO
SUHGLFWLQJWKHQDWXUHDQGHIIHFWRIFKDQJHWKHQH[XVRIXQFHUWDLQW\DQGYRODWLOLW\8QFHUWDLQW\
RIWHQGHOD\VGHFLVLRQPDNLQJSURFHVVHVDQGLQFUHDVHVWKHOLNHOLKRRGRIYDVWO\GLYHUJHQW
RSLQLRQVDERXWWKHIXWXUH,WGULYHVWKHQHHGIRULQWHOOLJHQWULVNPDQDJHPHQWDQGKHGJLQJ
VWUDWHJLHV
&RPSOH[LW\WKHGLIFXOW\RIXQGHUVWDQGLQJWKHLQWHUDFWLRQVRIPXOWLSOHSDUWVRUIDFWRUV
DQG RI SUHGLFWLQJ WKH SULPDU\ DQG VXEVHTXHQW HIIHFWV RI FKDQJLQJ RQH RU PRUH IDFWRUV LQ
D KLJKO\ LQWHUGHSHQGHQW V\VWHP RU HYHQ V\VWHP RI V\VWHPV  &RPSOH[LW\ GLIIHUV IURP
XQFHUWDLQW\WKRXJKLWPD\EHSRVVLEOHWRSUHGLFWLPPHGLDWHRXWFRPHVRIVLQJOHLQWHUDFWLRQV
ZLWKLQDEURDGHUZHEWKHQRQOLQHDUEUDQFKHVDQGVHTXHOVPXOWLSO\VRTXLFNO\DQGGRXEOH
EDFNRQSUHYLRXVFRQQHFWLRQVVRDVWRRYHUZKHOPPRVWDVVHVVPHQWSURFHVVHV&RPSOH[LW\

HQYLURQPHQWVWD\LQJDOHUWIRURSSRUWXQLWLHVWRLPSOHPHQWFRQVWUXFWLYHFKDQJHV
6DYY\ OHDGHUV EURDGHQ WKHLU HQYLURQPHQWDO VFDQ E\ GHYHORSLQJ D QHWZRUN RI
NQRZOHGJHDEOHDVVRFLDWHVLQH[WHUQDODJHQFLHV2SWLPDOO\DVWUDWHJLFOHDGHUVVWDIIZRXOG
GHYHORSVLPLODUFRQWDFWVDWWKHZRUNLQJOHYHOWRDVVXUHWKDWWKLVPXOWLSOLFLW\RIQHWZRUNVUXQV
OLNHDURRWV\VWHPWKURXJKRXWWKHH[WHUQDOHQYLURQPHQW7LPHO\UHFHLSWRIUHOHYDQWLQIRUPDWLRQ
JUHDWO\ DLGV GHFLVLRQ PDNLQJ DQG DFWLRQ WDNLQJ  /HDGHUV DUPHG ZLWK FXUUHQW LQIRUPDWLRQ
DQGFRQWH[WFDQPRUHHIIHFWLYHO\SHUVXDGHSDUWQHUVHGXFDWHVWDNHKROGHUVDQGLQXHQFHNH\
GHFLVLRQ PDNHUV  ,Q XQGHUWDNLQJ VXFK FRQVHQVXV EXLOGLQJ WKH VWUDWHJLF OHDGHU PXVW EH
ZLOOLQJWRFRPSURPLVHDVQHFHVVDU\3DUWLDODFKLHYHPHQWRIRUJDQL]DWLRQDOREMHFWLYHVLV
FOHDUO\SUHIHUDEOHWRIDLOXUHDQGPD\VHWWKHFRQGLWLRQVIRUIXUWKHUSURJUHVV


7KHDVSHFWVDQGHOHPHQWVRIWKHH[WHUQDOHQYLURQPHQWWKDWKLVWRULFDOO\KDYHWKHJUHDWHVW
LPSDFWXSRQWKH$UP\DVDQLQVWLWXWLRQLQFOXGHWKUHDWVLQWHUQDWLRQDODOOLDQFHVQDWLRQDO
FXOWXUHVWKHPLOLWDU\LQGXVWULDOFRPSOH[SXEOLFRSLQLRQIHGHUDOEXGJHWWHFKQRORJ\IHGHUDO
JRYHUQPHQWSULYDWHRUJDQL]DWLRQVDQGLQWHUQDOHQYLURQPHQW6XFFHVVIXOVWUDWHJLFOHDGHUV
GHYHORSDVRSKLVWLFDWHGXQGHUVWDQGLQJRIHDFKDVSHFWDQGDSSO\WKLVNQRZOHGJHWRGHYHORS
YLVLRQVIRUWKHLURUJDQL]DWLRQVDQGWRLQXHQFHWKHH[WHUQDOHQYLURQPHQWWRVHWFRQGLWLRQVIRU
VXFFHVV$GYLVRUVWRVWUDWHJLFOHDGHUVVKRXOGDOVRXQGHUVWDQGWKHVHHOHPHQWVDQGPRQLWRU
WKHPZKLOHKHOSLQJWRJXLGHWKHRUJDQL]DWLRQWKURXJKWKLVHYHUFKDQJLQJHQYLURQPHQW
7+5($76
2EYLRXVO\RIDOOWKHYDULDEOHVLQWKHH[WHUQDOHQYLURQPHQWWKRVHPRVWUHOHYDQWWRWKH
86$UP\DUHWKUHDWVWRQDWLRQDOVHFXULW\DQGRXUYLWDOQDWLRQDOLQWHUHVWV6LQFHWKHUHKDV
EHHQDGUDPDWLFLQFUHDVHLQUHJLRQDOFRQLFWVFLYLOZDUVLQVXUJHQFLHVWHUURULVWDFWLYLWLHV
ZHDSRQV SUROLIHUDWLRQ DQG GUXJ WUDIFNLQJ  5HJLRQDO LQVWDELOLWLHV WKDW WKUHDWHQ RXU
QDWLRQDOLQWHUHVWVRUWKUHDWHQWKHOLYHVRIRXUFLWL]HQVOLYLQJDEURDGPD\UHTXLUHXVWRHPSOR\
PLOLWDU\IRUFHVLQDYDULHW\RIKRVWLOHDQGQRQKRVWLOHFLUFXPVWDQFHVHLWKHUXQLODWHUDOO\
PXOWLODWHUDOO\ RU ZLWKLQ WKH 8QLWHG 1DWLRQV IUDPHZRUN  %HFDXVH RI PXOWLSOH UHJLRQDO
LQVWDELOLWLHVLQWKHSRVWHQYLURQPHQWOHDGHUVDQGSODQQHUVIDFHWKHGLIFXOWWDVNRI
SUHGLFWLQJZKHQZKHUHDQGKRZRXUIRUFHVPD\QHHGWRUHVSRQG6WUDWHJLFOHDGHUVPXVW
HQVXUHWKHLURUJDQL]DWLRQVUHPDLQUHDG\WRUHVSRQGWRZRUOGZLGHFKDOOHQJHVDFURVVWKHIXOO
UDQJHRIPLOLWDU\RSHUDWLRQVDVSDUWRIDMRLQWDQGRUFRPELQHGIRUFH
,17(51$7,21$/$//,$1&(6
2SHUDWLQJHIIHFWLYHO\LQWKHLQWHUQDWLRQDOHQYLURQPHQWGHPDQGVDQXQGHUVWDQGLQJRIWKH
YDULRXVSROLWLFDOHFRQRPLFDQGFXOWXUDO IDFWRUV WKDW LQXHQFH GHFLVLRQ PDNLQJ LQ RWKHU
FRXQWULHV&RPELQHGRSHUDWLRQVLQDOOLDQFHRUFRDOLWLRQFLUFXPVWDQFHVRUXQGHUWKHDXVSLFHV
RIWKH8QLWHG1DWLRQVDUHFRPPRQSODFH7KHFXUUHQWLQXHQFHRIUDGLFDOUHOLJLRXVJURXSV
WUDQVQDWLRQDOWKUHDWVDQGQRQVWDWHDFWRUVIXUWKHUFRPSOLFDWHVWKHDELOLW\WRIRUPVWUDWHJLF
DOOLDQFHV$VVXFKVWUDWHJLFOHDGHUVPXVWGHWHUPLQHZKRPD\VKDUHFRPPRQLQWHUHVWV
LQ DGGUHVVLQJ DQ LQWHUQDWLRQDO WKUHDW ZKDW DOOLDQFHV DQG UHODWLRQVKLSV H[LVW DPRQJ DQG
EHWZHHQLQYROYHGIDFWLRQVDQGZKDWWKHSROLWLFDODQGGLSORPDWLFG\QDPLFVRIWKHVLWXDWLRQ
PD\EHERWKLQWHUQDWLRQDOO\DQGGRPHVWLFDOO\6WUDWHJLFOHDGHUVPXVWDOVREHDZDUHWKDWWKH
VXFFHVVIXOFRQGXFWRIFRPELQHGRSHUDWLRQVUHTXLUHVDSDUWLFXODUVHQVLWLYLW\WRWKHLPSDFW
WKH GHSOR\PHQW RI 86 IRUFHV PD\ KDYH RQ WKH ODZV WUDGLWLRQV DQG FXVWRPV RI D KRVW
FRXQWU\
1$7,21$/&8/785(
:KLOHRXUPLOLWDU\PDLQWDLQVWKHXQLTXHQHVVDQGYDOXHRILWVRZQFXOWXUHLWUHPDLQVD
VXEFXOWXUHZLWKLQDEURDGHUDQGHYHQPRUHSRZHUIXOQDWLRQDODQGVRFLHWDOFXOWXUH,WPXVW

SURPLQHQWSROLWLFDOYRLFHVKDYHZRQGHUHGDORXGLIWKRVHODZVDUHWRRWROHUDQWRIEHKDYLRU
ZHPLJKWUHDVRQDEO\MXGJHDVEH\RQGWKHSURSHUPHVKLQJRILQGXVWU\DQGWKHPLOLWDU\
38%/,&23,1,21
6WUDWHJLF OHDGHUV PXVW H[DPLQH KRZ WKHLU DQWLFLSDWHG GHFLVLRQV DQG DFWLRQV PD\ EH
SHUFHLYHGDQGUHFHLYHGE\WKHSXEOLFDGYRFDF\JURXSVDQGHOHPHQWVRIVRFLHW\OLNHO\WREH
DIIHFWHGWRLQFOXGHWKHLURZQRUJDQL]DWLRQVDQGWKHPHGLD0RVWUHSXWDEOHPHGLDRXWOHWV
DWWHPSWWRSURYLGHDEDODQFHGYLHZRIWKHPLOLWDU\DVDQLQVWLWXWLRQ,QWXUQWKHWD[SD\LQJ
SXEOLF DQG SXEOLF RIFLDOV KDYH D OHJLWLPDWH ULJKW WR LQIRUPDWLRQ DV ORQJ DV LW GRHV QRW
FRPSURPLVHWKHVHFXULW\RIRSHUDWLRQVDQGSODQV6WUDWHJLFOHDGHUVVKRXOGZRUNZLWKWKH
PHGLDDQGFRQVLGHUKRZEHVWWRSURYLGHLQIRUPDWLRQIRUPXWXDOEHQHW7KHPHGLDFDQ
UDSLGO\DQGGUDPDWLFDOO\DIIHFWZRUOGRSLQLRQSROLF\DQGXOWLPDWHO\VWUDWHJ\
6WUDWHJLFOHDGHUVPXVWEHVNLOOHGLQLQIRUPDWLRQRSHUDWLRQVDQGVWUDWHJLFFRPPXQLFDWLRQV
7KH\PXVWSURDFWLYHO\ZRUNWRLQIRUPERWKIRUHLJQDQGGRPHVWLFDXGLHQFHVFRQFHUQLQJWKH
$UPHG6HUYLFHVDVRUJDQL]DWLRQVDQGDERXWWKHPLVVLRQVWKH\SHUIRUP6WUDWHJLFOHDGHUV
VKRXOGXVHDOODYDLODEOHPHDQVWRWHOOWKHLUVWRU\DQGDUWLFXODWHRUJDQL]DWLRQDOSXUSRVHDQG
DFWLRQWRDZRUOGZLGHDXGLHQFH2YHUWKHODVW\HDUVSXEOLFVXSSRUWKDVEHFRPHDQ
LQFUHDVLQJO\YLWDOLQJUHGLHQWLQVXFFHVVIXOPLOLWDU\RSHUDWLRQV,QDGGLWLRQOHDGHUVVKRXOG
TXLFNO\LQIRUPFLYLOLDQOHDGHUVKLSDQGWKHSXEOLFZKHQSUREOHPVDULVH7UDQVSDUHQF\DQG
WLPHOLQHVVKHOSPDLQWDLQWKHFUHGLELOLW\HQMR\HGE\WKHPLOLWDU\SURIHVVLRQ7KH$PHULFDQ
SHRSOH GR QRW H[SHFW D SHUIHFW PLOLWDU\  7KH\ GR H[SHFWPLOLWDU\OHDGHUVWRGHDOZLWK
SUREOHPVWDNHFDUHRIWKHLUVRQVDQGGDXJKWHUVDQGGHIHQGRXUQDWLRQ
)('(5$/%8'*(7
7KH G\QDPLFV RI WKH IHGHUDO EXGJHWLQJSURFHVVVWURQJO\LQXHQFHGHFLVLRQPDNLQJ DW
WKHVWUDWHJLFOHYHO&RPSHWLWLRQIRUQLWHUHVRXUFHVGHPDQGVFOHDUMXVWLFDWLRQDQGVWULFW
DFFRXQWDELOLW\,QWHUHVWRQWKHQDWLRQDOGHEWHQWLWOHPHQWSURJUDPVDQGWKHEXGJHWDU\GHVLUHV
RIHDFKGHSDUWPHQWRIJRYHUQPHQWFRQVWUDLQWKHIHGHUDOEXGJHW7KH'2'GHYHORSVIDUPRUH
UHTXLUHPHQWVWKDQWKHIHGHUDOEXGJHWFDQPHHW:LWKLQWKH'2'SODQQLQJSURJUDPPLQJ
VKDSHDQGGHQHLWVHOIZLWKLQWKHOLPLWVRIWKDWGRPLQDQWFXOWXUH7KHPLOLWDU\VHUYLFHVFDQ
DQGVKRXOGPLUURUWKHKLJKHVWLGHDOVRIRXUVRFLHW\DQGVHWVWDQGDUGVRIFRQGXFWWKDWUHTXLUH
WKHWRWDOGHGLFDWLRQDQGFRPPLWPHQWRIWKRVHZKRVHUYHLQWKHLUUDQNVEXWWREHVWGHIHQGWKH
QDWLRQWKH\PXVWDOZD\VEHDSDUWRIRXUVRFLDOIDEULF$Q$UP\WKDWUHHFWVWKHEHOLHIVDQG
YDOXHVRI$PHULFDQVRFLHW\ZLOOPRUHHDVLO\PDLQWDLQWKHUHVSHFWDQGWUXVWRIWKDWVRFLHW\
2QWKHRWKHUKDQGHYHQWVVXFKDVWKHPLVWUHDWPHQWRIGHWDLQHHVDW$EX*KUDLELQDQG
VFDQGDOVDWRXUPLOLWDU\DFDGHPLHVFDQTXLFNO\HURGHWKHFRQGHQFHRI$PHULFDQVDQGWKH
LQWHUQDWLRQDOFRPPXQLW\LQWKH$UP\VLGHDOVDQGFRQGXFW
7+(0,/,7$5<,1'8675,$/&203/(;
:KHQKHUHWLUHGIURPSXEOLFVHUYLFHDWWKHHQGRIKLVSUHVLGHQF\*HQHUDO(LVHQKRZHU
FRLQHG D QHZ WHUP DV KH ZDUQHG WKH QDWLRQ RI D SRZHUIXO QHZ IRUFH LQ RXU OLYHVWKH
PLOLWDU\LQGXVWULDOFRPSOH[
7KLVFRQMXQFWLRQRIDQLPPHQVHPLOLWDU\HVWDEOLVKPHQWDQGDODUJHDUPVLQGXVWU\
LV QHZ LQ WKH $PHULFDQ H[SHULHQFH  7KH WRWDO LQXHQFH  HFRQRPLF SROLWLFDO
HYHQVSLULWXDOLVIHOWLQHYHU\FLW\HYHU\VWDWHKRXVHHYHU\RIFHRIWKHIHGHUDO
JRYHUQPHQW:HUHFRJQL]HWKHLPSHUDWLYHQHHGIRUWKLVGHYHORSPHQW<HWZHPXVW
QRWIDLOWRFRPSUHKHQGLWVJUDYHLPSOLFDWLRQV2XUWRLOUHVRXUFHVDQGOLYHOLKRRGDUH
DOOLQYROYHGVRLVWKHYHU\VWUXFWXUHRIRXUVRFLHW\,QWKHFRXQFLOVRIJRYHUQPHQW
ZHPXVWJXDUGDJDLQVWWKHDFTXLVLWLRQRIXQZDUUDQWHGLQXHQFHZKHWKHUVRXJKW
RUXQVRXJKWE\WKHPLOLWDU\LQGXVWULDOFRPSOH[7KHSRWHQWLDOIRUWKHGLVDVWURXV
ULVHRIPLVSODFHGSRZHUH[LVWVDQGZLOOSHUVLVW:HPXVWQHYHUOHWWKHZHLJKWRI
WKLVFRPELQDWLRQHQGDQJHURXUOLEHUWLHVRUGHPRFUDWLFSURFHVVHV:HVKRXOGWDNH
QRWKLQJIRUJUDQWHG2QO\DQDOHUWDQGNQRZOHGJHDEOHFLWL]HQU\FDQFRPSHOWKH
SURSHUPHVKLQJRIWKHKXJHLQGXVWULDODQGPLOLWDU\PDFKLQHU\RIGHIHQVHZLWKRXU
SHDFHIXOPHWKRGVDQGJRDOVVRWKDWVHFXULW\DQGOLEHUW\PD\SURVSHUWRJHWKHU
3UHVLGHQW'ZLJKW'(LVHQKRZHU
)DUHZHOO$GGUHVVWRWKH1DWLRQ-DQXDU\
$OPRVW  \HDUV ODWHU WKH PLOLWDU\LQGXVWULDO FRPSOH[ LV DOLYH DQG ZHOO SURYLGLQJ
VWDWHRIWKHDUWFDSDELOLWLHVDVZHOODVVLJQLFDQWSROLWLFDOQDQFLDODQGHWKLFDOFKDOOHQJHV
,QIRUPDWLRQVKDULQJEHWZHHQLQGXVWU\SDUWQHUVDQGVHQLRUPLOLWDU\RIFLDOVOHDGVWRPXWXDO
XQGHUVWDQGLQJ DQG LQFUHDVHV WKH OLNHOLKRRG RI QGLQJ WKH EHVW VROXWLRQV WR WHFKQLFDO
SUREOHPV EXW VLPXOWDQHRXVO\ FUHDWHV WKH SRWHQWLDO IRU FRQLFW RI LQWHUHVW DQG UHDO RU
SHUFHLYHGXQHWKLFDODQGLOOHJDOGHDOLQJV$IHZZHOONQRZQFDVHVKLJKOLJKWWKHSRWHQWLDO
IRUFRUUXSWLRQLQDQLQGXVWU\WKDWGHDOVLQWHUPVRIELOOLRQVRIGROODUV$UHFHQWFRQWURYHUV\
SRQGHUVWKHUROHRIUHWLUHGVHQLRUPLOLWDU\OHDGHUVZRUNLQJZLWKERWKGHIHQVHFRQWUDFWRUV
DQGWKHLUIRUPHUVHUYLFHVDQGTXHVWLRQVWKHSURSULHW\RIWKLVSRWHQWLDOFRQLFWRILQWHUHVW
RUXQIDLUDGYDQWDJHWRWKHGHIHQVHUPVE\ZKRPWKH\DUHHPSOR\HGRUFRQWUDFWHG:KLOH
PRVW DFWLRQV RI WKHVH LQXHQWLDO OHDGHUV UHPDLQ FOHDUO\ ZLWKLQ WKH OHWWHU RI FXUUHQW ODZ

7(&+12/2*,&$/)$&7256
86 IRUFHV PXVW OHYHUDJH LQIRUPDWLRQ WHFKQRORJ\ DQG LQQRYDWLYH QHWZRUN
FHQWULFFRQFHSWVRIRSHUDWLRQVWRGHYHORSLQFUHDVLQJO\FDSDEOHMRLQWIRUFHV1HZ
LQIRUPDWLRQDQGFRPPXQLFDWLRQVWHFKQRORJLHVKROGSURPLVHIRUQHWZRUNLQJKLJKO\
GLVWULEXWHGMRLQWDQGPXOWLQDWLRQDOIRUFHV
6HFUHWDU\RI'HIHQVH'RQDOG5XPVIHOG
$FURVV WKH UDQJH RI PLOLWDU\ RSHUDWLRQV WHFKQRORJLFDO GHYHORSPHQWV KDYH HQKDQFHG
WKH FDSDELOLWLHV RI WKH$UP\ E\ JLYLQJ RXU IRUFHV VLJQLFDQW DGYDQWDJHV LQ QHWZRUNLQJ
FRPPDQGDQGFRQWUROVLWXDWLRQDODZDUHQHVVDQGRYHUDOOFRPEDWSRZHU7KHWHFKQRORJLFDO
UHYROXWLRQ LQ ZDUIDUH KDV GUDPDWLFDOO\ LQFUHDVHG WKH WHPSR RI RSHUDWLRQV WKH UDSLGLW\
RI PDQHXYHU WKH SUHFLVLRQ RI UHSRZHU WKH SURFHVVLQJ RI FULWLFDO LQIRUPDWLRQ DQG WKH
FRPSOH[LWLHV RI FRPPDQG  7HFKQRORJ\ KDV DOVR HQKDQFHG WKH DELOLW\ RI WKH $UP\ WR
IXQFWLRQ LQ D MRLQW LQWHUDJHQF\ DQG PXOWLQDWLRQDO RSHUDWLRQDO HQYLURQPHQW  6WUDWHJLF
OHDGHUVPXVWKDYHDEURDGXQGHUVWDQGLQJRIUHOHYDQWWHFKQRORJLHVDQGKRZDGYDQFHPHQWV
LQHDFKRIWKHVHWHFKQRORJLHVFDQEHLQFRUSRUDWHGLQWR$UP\RUJDQL]DWLRQVGRFWULQHDQG
HTXLSPHQWWRSHUPLWFRQWLQXHGDGYDQFHPHQWVLQFRPEDWHIIHFWLYHQHVVDQGHIFLHQF\
+RZHYHUQHZWHFKQRORJ\FXWVWZRZD\V:LWKLQFUHDVHGFDSDELOLW\DOVRFRPHQHZDQG
GLIIHUHQWYXOQHUDELOLWLHV7KHDV\PPHWULFQDWXUHRIIXWXUHZDUIDUHUHTXLUHVWKHOHDGHUWR
XQGHUVWDQGQRWRQO\WKHFDSDELOLWLHVRIQHZWHFKQRORJLHVEXWDOVRLWVLQKHUHQWYXOQHUDELOLWLHV
6XFKYXOQHUDELOLWLHVFDQDQGZLOOEHH[SORLWHGE\DQ\GHWHUPLQHGDGYHUVDU\
)('(5$/*29(510(17
%HFDXVH WKH PLOLWDU\ DQVZHUV WR FLYLOLDQ JRYHUQPHQW FRQWURO VWUDWHJLF OHDGHUV PXVW
HQJDJHZLWKQXPHURXVH[HFXWLYHOHJLVODWLYHDQGMXGLFLDORUJDQL]DWLRQVDQGDJHQFLHV7KH
PLOLWDU\SOD\VDNH\DGYLVRU\UROHLQWKHGHYHORSPHQWRIWKHQDWLRQDOVHFXULW\VWUDWHJ\WKH
QDWLRQDOPLOLWDU\VWUDWHJ\DQGOHJLVODWLRQDIIHFWLQJWKHDGPLQLVWUDWLRQRIWKH$UPHG)RUFHV
:LWKLQWKHSDUDPHWHUVRIVXFKGLUHFWLYHVDQGODZVVWUDWHJLFOHDGHUVGHYHORSWKHQHFHVVDU\
EXGJHWLQJ DQG H[HFXWLRQ 33%( SURFHVV WKH ([HFXWLYH DQG /HJLVODWLYH %UDQFKHV H[SHFW
VWUDWHJLFOHDGHUVWRVHWSULRULWLHVDGYRFDWHIRUWKHPRVWLPSRUWDQWUHTXLUHPHQWVDQGSURYLGH
FDQGLGDVVHVVPHQWVRIWKHULVNVDQGFRQVHTXHQFHVRIYDULRXVSURJUDPPLQJDQGEXGJHWLQJ
DOWHUQDWLYHV7REHHIIHFWLYHLQWKLVQDWLRQDOV\VWHPRIUHVRXUFHDOORFDWLRQVWUDWHJLFOHDGHUV
PXVWWKRURXJKO\XQGHUVWDQGWKH33%(SURFHVVWKHUROHRIWKH2IFHRI0DQDJHPHQWDQG
%XGJHWDQGWKH&RQJUHVVLRQDO$XWKRUL]DWLRQDQG$SSURSULDWLRQ3URFHVV

VWUDWHJLHVSODQVDQGSROLFLHVWRVXSSRUWDQGLPSOHPHQW3UHVLGHQW6HFUHWDU\RI'HIHQVH
DQG&RQJUHVVLRQDOLQWHQW
6WUDWHJLF OHDGHUV IUHTXHQWO\ SURYLGH FRXQVHO WR FLYLOLDQ H[HFXWLYH DXWKRULWLHV DQG
URXWLQHO\ WHVWLI\ EHIRUH FRQJUHVVLRQDO FRPPLWWHHV DQG VXEFRPPLWWHHV  )HGHUDO &RXUWV
RFFDVLRQDOO\ UHYLHZ FHUWDLQ GHFLVLRQV EULQJLQJ WKH MXGLFLDU\ EUDQFK LQWR SOD\ DV ZHOO
$GGLWLRQDOO\ WRS PLOLWDU\ OHDGHUV PXVW SRVLWLYHO\ LQXHQFH WKH LQWHUDJHQF\ SURFHVV  ,Q
RUGHUWRVXFFHHGLQWKHVHGXWLHVWKH\PXVWFXOWLYDWHUHODWLRQVKLSVFROODERUDWHHIIHFWLYHO\
ZLWKRXWVLGHDJHQFLHVDQGIRVWHUDVSLULWRIFRRSHUDWLRQGHVSLWHGLIIHULQJSULRULWLHV

35,9$7(25*$1,=$7,216
9LFWRU)UDQNO0DQV6HDUFKIRU0HDQLQJ%RVWRQ%HDFRQ3UHVVSS
0DQ\ 1RQ*RYHUQPHQWDO 2UJDQL]DWLRQV 1*2V DQG 3ULYDWH DQG 9ROXQWHHU
0LFKDHO0XOOHQ$GPRQP\ZD\WRWKH$25ZLWK862WURRSLQFOXGLQJDFWRUMDPHVJDQGROQLWRQ\
2UJDQL]DWLRQV 392V SHUIRUP LPSRUWDQW IXQFWLRQV LQ WKH FRQWHPSRUDU\ RSHUDWLQJ VLULFRURVHPFJRZDQDQGVXSHUERZOFKDPSLRQMRQVWLQFKFRPE0DUFKKWWSZZZWZLWWHUFRP
HQYLURQPHQWDQGWKHUHIRUHLQXHQFHVWUDWHJ\GHYHORSPHQWDQGSROLF\6WUDWHJLFOHDGHUV WKHMRLQWVWDIIDFFHVVHG0DUFK
IUHTXHQWO\LQWHUDFWZLWKUHSUHVHQWDWLYHVRIWKHVHRUJDQL]DWLRQVDQGPXVWHQVXUHWKDWVXFK
LQWHUDFWLRQV UHPDLQ ZLWKLQ WKH SDUDPHWHUV RI SROLF\ JXLGDQFH DQG HWKLFDO FRQGXFW 7KH )DFHERRN3UHVV5RRP)DFHERRN&RUSRUDWH:HEVLWH)DFHERRN0DUFKKWWSIDFHERRN
FRPSUHVVLQIRSKS"VWDWLVWLFVDFFHVVHG0DUFK
PDQQHULQZKLFKWKHPLOLWDU\VVWUDWHJLFOHDGHUVOHYHUDJHDQGDLGWKHVHRUJDQL]DWLRQVFDQ
VSHOOWKHGLIIHUHQFHEHWZHHQVXFFHVVDQGIDLOXUH  &HQWHUV IRU 'LVHDVH &RQWURO  :RUNLQJ 7RJHWKHU WR$GYDQFH$PHULFDV &RPPLWPHQW WR &RPEDW
*OREDO+,9$,'V&'&0DUFKKWWSZZZFGFJRY)HDWXUHV:RUOG$,'6'D\DFFHVVHG
7+(,17(51$/(19,5210(17 0DUFK

 2IFH RI 0DQDJHPHQW DQG %XGJHW  %XGJHW 6XPPDU\ 7DEOH 6 %XGJHW 7RWDOV  2IFH RI
,QPDQ\ZD\VWKHLQWHUQDOHQYLURQPHQWVRIWKH$UP\DQGWKHQDWLRQDOPLOLWDU\VWUXFWXUH
0DQDJHPHQW DQG %XGJHW  -DQXDU\    KWWSZZZZKLWHKRXVHJRYRPEEXGJHW2YHUYLHZ%XGJHW
DUHMXVWDVFRPSOH[DQGGHPDQGLQJDVWKHH[WHUQDOHQYLURQPHQW,WZRXOGEHLPSUDFWLFDO 6XPPDU\DFFHVVHG-DQXDU\
WRGHVFULEHDOOWKHRUJDQL]DWLRQVV\VWHPVDQGVXEV\VWHPVWKDWH[LVWDWWKHVWUDWHJLFOHYHO
ZLWKLQ DQG DPRQJ WKH 6HUYLFHV WKH FRPEDWDQW FRPPDQGV LQWHUQDWLRQDO FRPPDQGV WKH $PHULFDQ%DQNUXSWF\,QVWLWXWH,QWHUDFWLYH&KDUWV$PHULFDQ%DQNUXSWF\,QVWLWXWH0D\
-RLQW 6WDII DQG WKH 'HSDUWPHQW RI 'HIHQVH  1RU LV LW SUDFWLFDO LQ WKLV VKRUW UHYLHZ WR KWWSZZZDELZRUOGRUJENVWDWVKLVWRULFDOKWPODFFHVVHG0D\
GHVFULEHWKHPXOWLWXGHRILQWHUORFNLQJUHODWLRQVKLSVOLQHVRIFRPPXQLFDWLRQDQGRSHUDWLQJ
$QXS6KDK:RUOG0LOLWDU\6SHQGLQJ*OREDO,VVXHV6RFLDO3ROLWLFDO(FRQRPLFDQG(QYLURQPHQWDO
G\QDPLFV  6XIFH LW WR VD\ WKDW WKH VWUDWHJLF OHDGHU PXVW LQWHUDFW ZLWKLQ WKLV FRPSOH[ ,VVXHVWKDW$IIHFW8V$OO6HSWHPEHUKWWSZZZJOREDOLVVXHVRUJDUWLFOHZRUOGPLOLWDU\VSHQGL
LQWHUQDODUHQDWRUHDOL]HWKHRUJDQL]DWLRQDOYLVLRQ QJ,Q&RQWH[W860LOLWDU\6SHQGLQJ9HUVXV5HVWRIWKH:RUOGDFFHVVHG0D\

6800$5< 0LFKDHO:LQHVDQG-RQDWKDQ$QVHOG7KH1HZ<RUN7LPHV2QOLQH$VLD3DFLF0DUFK
KWWSZZZQ\WLPHVFRPZRUOGDVLDFKLQDKWPODFFHVVHG0D\

6WUDWHJLFOHDGHUVKLSWUDQVFHQGVWKHRUJDQL]DWLRQE\RUFKHVWUDWLQJLQWHUQDOHYHQWVDQG  2IFH RI WKH 6HFUHWDU\ RI 'HIHQVH  0LOLWDU\ 3RZHU RI WKH 3HRSOHV 5HSXEOLF RI &KLQD $QQXDO
H[HUWLQJSHUVRQDODQGRUJDQL]DWLRQDOLQXHQFHRQWKHH[WHUQDOHQYLURQPHQWWRDFKLHYHDQ 5HSRUWWR&RQJUHVV:DVKLQJWRQ'&2IFHRIWKH6HFUHWDU\RI'HIHQVH
RUJDQL]DWLRQDOYLVLRQ8QIRUWXQDWHO\WKHLQWHUQDODQGH[WHUQDOHQYLURQPHQWVDUHYRODWLOH
XQFHUWDLQFRPSOH[DQGDPELJXRXV&RQVHTXHQWO\WKHVWUDWHJLFOHDGHUPXVWVFDQPDQ\ $ODQ 6FKZDU] 1) / ,VVXHV 1HZ *XLGHOLQHV RQ &RQFXVVLRQV  'HFHPEHU   KWWSZZZ
Q\WLPHVFRPVSRUWVIRRWEDOOFRQFXVVLRQDFFHVVHG0D\
DVSHFWVRIWKHHQYLURQPHQWDVVHVVWKHLUREVHUYDWLRQVDQGGLVFHUQKRZEHVWWRLQXHQFH
HYHQWV IRU WKH EHQHW RI WKH RUJDQL]DWLRQ  )XUWKHUPRUH WKH\ PXVW FRQWLQXRXVO\ DSSO\  86 (QHUJ\ ,QIRUPDWLRQ $GPLQLVWUDWLRQ  ,QWHUQDWLRQDO (QHUJ\ 2XWORRN   ,QGHSHQGHQW
WKHPVHOYHV WR EXLOGLQJ FRQVHQVXV DPRQJ NH\ VWDNHKROGHUV  7KRVH HOHPHQWV ZLWKLQ WKH 6WDWLVWLFVDQG$QDO\VLV0D\KWWSZZZHLDGRHJRYRLDILHRKLJKOLJKWVKWPO)LJDFFHVVHG
HQYLURQPHQWWKDWKDYHFKDUDFWHULVWLFDOO\KDGWKHJUHDWHVWLPSDFWRQWKH$UP\LQFOXGHWKH
WKUHDWLQWHUQDWLRQDODOOLDQFHVRXUQDWLRQDOFXOWXUHWKHPLOLWDU\LQGXVWULDOFRPSOH[SXEOLF
RSLQLRQ WKH IHGHUDO EXGJHWLQJ SURFHVV WHFKQRORJ\ RXU QDWLRQDO V\VWHP RI JRYHUQPHQW
0D\
7KH$VVRFLDWHG3UHVV1<'DLO\1HZVFRP'DLO\1HZV-XO\KWWSZZZQ\GDLO\QHZV
FRPOLIHVW\OHBPRUHBSHRSOHBDUHBOLYLQJBSDVWBB\HDUVBROGKWPODFFHVVHG0D\
SULYDWH RUJDQL]DWLRQV DQG WKH LQWHUQDO RUJDQL]DWLRQ RI RXU 6HUYLFHV DQG WKH 'HSDUWPHQW
RI'HIHQVH7REHVXFFHVVIXOWKHVWUDWHJLFOHDGHUPXVWUHPDLQDSHUSHWXDOVWXGHQWRIWKH
HQYLURQPHQWDQGUHPDLQFRQVWDQWO\HQJDJHGLQWKHSURFHVVRIDGDSWLQJWRWKDWHQYLURQPHQW
(1'127(6
 0LFKHOH )ORXUQR\ 'HSDUWPHQW RI 'HIHQVH 2IFH RI WKH 8QGHUVHFUHWDU\ RI 'HIHQVH IRU 3ROLF\

+DO%*UHJHUVHQ-HIIUH\+'\HUDQG&OD\WRQ0&KULVWHQVHQ7KH,QQRYDWRUV'1$+DUYDUG
%XVLQHVV5HYLHZ'HFHPEHU
 6HQDWH $UPHG 6HUYLFHV &RPPLWWHH  +HDULQJ WR 5HFHLYH 7HVWLPRQ\ RQ $IJKDQLVWDQ  +HDULQJ
7UDQVFULSW:DVKLQJWRQ'&866HQDWH&RPPLWWHHRQ$UPHG6HUYLFHV
86'35HPDUNVIRU86$)6HQLRU/HDGHU2ULHQWDWLRQ&RXUVH$XJXVWKWWSSROLF\GHIHQVHJRY &KDUOHV.HQQ\5HYROXWLRQLQD%R[)RUHLJQ3ROLF\1RYHPEHU'HFHPEHUKWWSZZZ
DFFHVVHG0D\ IRUHLJQSROLF\FRPDUWLFOHVUHYROXWLRQBLQBDBER["SDJH IXOODFFHVVHG0D\

$QQLH'LOODUG7KH:UHFNRI7LPH7DNLQJ2XU&HQWXU\V0HDVXUH+DUSHUV0DJD]LQH-DQXDU\
SS

 

 ,QWHUQHW :RUOG 6WDWV  8VDJH DQG 3RSXODWLRQ 6WDWLVWLFV  $VLD DQG 1RUWK $PHULFD ,QWHUQHW &+$37(5
3HQHWUDWLRQ

'ZLJKW'(LVHQKRZHU)DUHZHOO$GGUHVVE\3UHVLGHQW'ZLJKW'(LVHQKRZHU)LQDO797DON 9,6,21
:DVKLQJWRQ'&(LVHQKRZHU/LEUDU\1DWLRQDO$UFKLYHVDQG5HFRUGV$GPLQLVWUDWLRQ-DQXDU\

'RQDOG+5XPVIHOG1HW&HQWULF:DUIDUH&UHDWLQJD'HFLVLYH:DUJKWLQJ$GYDQWDJH3DPSKOHW
:DVKLQJWRQ'&2IFHRIWKH6HFUHWDU\RI'HIHQVH'LUHFWRU)RUFH7UDQVIRUPDWLRQ
 2IWKHWKUHHVWUDWHJLFOHDGHUWDVNVSUHVHQWHGLQ&KDSWHUDOLJQPHQWYLVLRQDQGFKDQJH
DUJXDEO\WKHPRVWLPSRUWDQWLVIRUWKHOHDGHUVWRGHYHORSDQGSURPXOJDWHDYLVLRQIRUWKH
RUJDQL]DWLRQ,  &KDSWHU  FRYHUHG WKH VWUDWHJLF HQYLURQPHQW LQ GHWDLO DQG GHPRQVWUDWHG
WKH FKDOOHQJHV IRU OHDGHUV RSHUDWLQJ LQ DQ HQYLURQPHQW FKDUDFWHUL]HG E\98&$ 7R EH
VXFFHVVIXOVWUDWHJLFOHDGHUVKRZHYHUUHTXLUHVWKHGHYHORSPHQWRIDVHWRIFRPSHWHQFLHVWKDW
HQDEOHWKHPWRHIIHFWLYHO\QDYLJDWHWKHVWUDWHJLFHQYLURQPHQWDQGWKURXJKWKHLULQXHQFH
SURPXOJDWHDYLVLRQ7KH\PXVWEHDJLOHHQRXJKWROHDUQIURPWKHSDVWDGDSWWRFXUUHQW
FLUFXPVWDQFHV DQG DQWLFLSDWH WKH IXWXUH IURP WUHQGV DQG SRWHQWLDOLWLHV /HDGHUV VKRXOG
HVWDEOLVKFODULW\RISXUSRVHIRUWKHPVHOYHVDQGWKHLURUJDQL]DWLRQDQGKDYHWKHDELOLW\WR
FRPPXQLFDWHZLWKLQWHUQDODQGH[WHUQDOFRQVWLWXHQWV7KHSUHFHGLQJVNLOOVDUHQHFHVVDU\
DQGLQYDOXDEOHLQGHYHORSLQJDQGVKDULQJWKHYLVLRQIRUDQHQWHUSULVH

 /LNHWKHFRQFHSWRIOHDGHUVKLSWKHFRQVWUXFWRIYLVLRQFDQEHFRQFHLYHGDWRYHUODSSLQJ
OHYHOV\HWVWLOOOLQNHGWRVSHFLFJRDOV$WWKHLQGLYLGXDOOHYHOWKHUHLVDSHUVRQDOYLVLRQHJ
EHDPLOOLRQDLUHE\DJH0RUHFRPPRQWUHDWPHQWVRIYLVLRQDUHDWWKHRUJDQL]DWLRQDO
DQGLQVWLWXWLRQDOOHYHOVHJEHD)RUWXQHFRPSDQ\RUWKHPRVWSUHVWLJLRXVLQVWLWXWLRQ
IRU WKH HGXFDWLRQ RI VWUDWHJLF OHDGHUV   0RUH GLIFXOW WR DWWDLQ DUH WKH YLVLRQV DW WKH
FLYLFJRYHUQPHQWDODQGVRFLHWDOOHYHOVHJEHVWFRPPXQLW\$PHULFDV+RPHWRZQRU
EHDFRQRIIUHHGRPIRUWKHZRUOG+DYLQJFRKHUHQFHLQYLVLRQVVXFKWKDWWKHORZHUOHYHOV
DUHQHVWHGZLWKLQWKRVHYLVLRQVDWKLJKHUOHYHOVPD\SUHFOXGHJRDOFRQLFWVDQGFRJQLWLYH
GLVVRQDQFHDPRQJPHPEHUV

'(),1,7,21$1',03257$1&(2)9,6,21

 7KHFRQFHSWRIYLVLRQKDVEHFRPHVRIDPLOLDUZLWKLQDFDGHPLFJRYHUQPHQWGHIHQVH
DQGFRUSRUDWHFLUFOHVWKDWLWLVVRPHWLPHVGLVPLVVHGRUGHULGHGDVRKWKDWYLVLRQWKLQJ
$VWKHYDULRXVGHQLWLRQVDUHH[DPLQHGKRZHYHUVRPHFRPPRQFKDUDFWHULVWLFVDQGWUHQGV
HPHUJH7KHWHUPYLVLRQVXJJHVWVWKDWDFRUHHOHPHQWLVDYLVXDOLPDJHDPHQWDOSLFWXUH
RIZKDWWKHIXWXUHHQWHUSULVHRUHQYLURQPHQWZLOOORRNOLNH7KHFRQFHSWDOVRLPSOLHVD
ORQJHUWLPHKRUL]RQ7KLVWLPHKRUL]RQWHQGVWREHPLGGOHWRORQJWHUPLQQDWXUHYHWR
WZHQW\\HDUV

'HQLWLRQVRIYLVLRQDUHDVQXPHURXVDQGYDULHGDVWKRVHIRUOHDGHUVKLS2XU86$:&
YLVLRQ VWDWHPHQW PHVKHV ZHOO ZLWK WKH GHQLWLRQV E\ -RKQ .RWWHU D  SLFWXUH RI WKH
IXWXUHZLWKVRPHLPSOLFLWRUH[SOLFLWFRPPHQWDU\RQZK\SHRSOHVKRXOGVWULYHWRFUHDWH
WKDW IXWXUH DQG 3HWHU 6HQJH D VKDUHG SLFWXUH RI WKH IXWXUH ZH VHHN WR FUHDWH DQG
SLFWXUHVWKDWIRVWHUJHQXLQHFRPPLWPHQWDQGHQUROOPHQWUDWKHUWKDQFRPSOLDQFH

7KLVFKDSWHUZDVVLJQLFDQWO\XSGDWHGIRUWKHUGHGLWLRQE\3URIHVVRU&KDUOHV$OOHQ
,

 
3UDFWLFDOO\ YLVLRQV VKRXOG EH FOHDU DQG FRQFLVH FRPPXQLFDWH D VHQVH RI SXUSRVHWKH
UDLVRQGrWUHDQGEHVKDUHGZLWKRWKHUV:KHQHQWHUSULVHPHPEHUVSHUFHLYHLWDVZRUWK
WKH HIIRUW WKH YLVLRQ FUHDWHV HQHUJ\ FRPPLWPHQW DQG EHORQJLQJ  :KHQ VKDUHG E\ DOO
SDUWLFLSDQWVWKHYLVLRQFDQEULQJSHRSOHWRVLJQLFDQWDFKLHYHPHQWV
6RGHQHGYLVLRQWUDQVFHQGVDOOOHYHOVRIDQRUJDQL]DWLRQ7KHLPSRUWDQFHRIYLVLRQ
LVGHPRQVWUDWHGWKURXJKPDQ\IDFHWV,WSURYLGHVDVHQVHRILGHQWLW\IRULQGLYLGXDOVDQG
PHPEHUVRIRUJDQL]DWLRQV$QHIIHFWLYHDQGHQGXULQJYLVLRQEHFRPHVSDUWRIWKHFXOWXUH
WKDW GLFWDWHV KRZ SHRSOH EHKDYH DQG VHUYHV DV D PRWLYDWLQJ LQXHQFH RQ WKHLU DFWLRQV
9LVLRQV FRPSHO DQG JXLGH  )RU VHQLRU OHDGHUV YLVLRQV VHUYH DV WRXFKVWRQHV DV ZHOO DV
DOLJQLQJPHFKDQLVPVIRUGHFLVLRQVDQGDFWLRQV)RUVWUDWHJLFOHDGHUVDYLVLRQLVLPSRUWDQW
IRUVSDQQLQJRUJDQL]DWLRQDOERXQGDULHV$VWDWHPHQWRIYLVLRQQRWRQO\GLUHFWVLQWHUQDO
PHPEHUVEXWLVXVHIXOLQLQXHQFLQJDQGJDUQHULQJVXSSRUWIURPH[WHUQDOVWDNHKROGHUVE\
EXLOGLQJFRQVHQVXVDQGSURYLGLQJDFFHVVWRRWKHUZLVHXQDYDLODEOHUHVRXUFHVDVZHOO
9LVLRQSURYLGHVDVHQVHRIXOWLPDWHSXUSRVHGLUHFWLRQDQGPRWLYDWLRQIRUDOOPHPEHUV
DQGDFWLYLWLHVZLWKLQDQHQWHUSULVH,WSURYLGHVDQRYHUDUFKLQJFRQFHSWWKDWVHUYHVWRLQLWLDWH
DQGWKHQVSHFLI\JRDOVSODQVDQGSURJUDPV7KHSURFHVVRIGHYHORSLQJWKHYLVLRQRIIHUV
D PHDQV RI DQDO\]LQJ DQG XQGHUVWDQGLQJ WKH SUHVVXUHV DQG H[LJHQFLHV RI WKH H[WHUQDO
HQYLURQPHQW  7KH YLVLRQ KHOSV WR LGHQWLI\ ZKDW LQ WKH HQYLURQPHQW LV LPSRUWDQW ZKDW
UHTXLUHV DFWLRQ DQG ZKDW DFWLRQ VKRXOG EH WDNHQ  ,W DOVR HVWDEOLVKHV DQG UHLQIRUFHV WKH
EDVLFYDOXHVRIWKHHQWHUSULVHDQGRILWVOHDGHUV
9LVLRQVDUHLQWHQGHGWREHHQGXULQJ'XULQJWKHSURFHVVRIHQYLURQPHQWDOVFDQQLQJDQG
RUJDQL]DWLRQDOGLDJQRVLVKRZHYHULWPD\EHFRPHDSSDUHQWWKDWWKHYLVLRQKDVEHFRPHRXW
RIIRFXVRULUUHOHYDQW7KHYLVLRQLQJSURFHVVDOORZVOHDGHUVDQGWKHLUHQWHUSULVHVWRGHQH
WKHYLVLRQWRUHGLVFRYHUDQGDIUPWKHYLVLRQGXULQJWLPHVRIVWUHVVDQGWXUEXOHQFHRUWR
DGMXVWDQGDGDSWWKHYLVLRQWREHWWHUDOLJQWKHHQWHUSULVHZLWKLWVHQYLURQPHQW&RQVLGHUWKH
IROORZLQJYLVLRQVDQGVWDWHPHQWVIURPDFURVVDQDUUD\RIGRPDLQVQDWLRQDOVRFLHWDODQG
7RHQDEOHSHRSOHDQGEXVLQHVVHVWKURXJKRXWWKHZRUOGWRUHDOL]HWKHLUIXOOSRWHQWLDO
0LFURVRIW
*RRJOHV PLVVLRQ LV WR RUJDQL]H WKH ZRUOGV LQIRUPDWLRQ DQG PDNH LW XQLYHUVDOO\
DFFHVVLEOHDQGXVHIXO
*RRJOH
6DYLQJSHRSOHPRQH\WRKHOSWKHPOLYHEHWWHU
:DOPDUW
6KRXOGYLVLRQVEHVDFURVDQFWDQGXQFKDQJLQJ"1RYLVLRQVKHOSOHDGHUVDQGHQWHUSULVHV
VXVWDLQUHOHYDQF\LQFKDQJLQJHQYLURQPHQWV:KDWLI6WHYH-REVDQG$SSOH&RPSXWHU,QF
VWD\HGWKHFRXUVHZLWKLWVYLVLRQRI$Q$SSOHRQHYHU\'HVN"5HFRJQL]LQJDQG
VHL]LQJRSSRUWXQLWLHVWKDWYLVLRQWKLQJFKDQJHGIRU$SSOHWRPDNHDFRQWULEXWLRQWRWKH
ZRUOGE\PDNLQJWRROVIRUWKHPLQGWKDWDGYDQFHKXPDQNLQG7KLVPLQGVHWOHGWRWKH
QRZXELTXLWRXVL7XQHVL3RGVL3KRQHVDQGWKHL3DG
675$7(*,&/($'(55(63216,%,/,7,(6
$UHYLVLRQVWDWHPHQWVXVHIXOIRUOHDGLQJRUJDQL]DWLRQV"'RWKH\HQDEOHVWUDWHJLFOHDGHUV
WR GHYHORS DQG FRPPXQLFDWH D FRPSHOOLQJ XQGHUVWDQGDEOH VWUDWHJLF GLUHFWLRQ IRU WKH
RUJDQL]DWLRQ"$QHIIHFWLYHYLVLRQLVDPHDQVRIIRFXVLQJHIIRUWDQGSURJUHVVLQJWRZDUGD
GHVLUHGIXWXUHZKDWRXJKWWREH:KLOHWKHYLVLRQLVDQLPDJHRIDIXWXUHVWDWHLWLVDOVR
WKHUHVXOWRIDSURFHVVWKDWDQHQWHUSULVHOHDGHUFDQXVHWRJXLGHIXWXUHGHYHORSPHQW$Q
FRUSRUDWH
:HKROGWKHVHWUXWKVWREHVHOIHYLGHQWWKDWDOOPHQDUHFUHDWHGHTXDOWKDWWKH\DUH
HQGRZHGE\WKHLUFUHDWRUZLWKFHUWDLQXQDOLHQDEOHULJKWVWKDWDPRQJWKHVHDUHOLIH
OLEHUW\DQGWKHSXUVXLWRIKDSSLQHVVWKDWWRVHFXUHWKHVHULJKWVJRYHUQPHQWVDUH
LQVWLWXWHGDPRQJPHQGHULYLQJWKHLUMXVWSRZHUVIURPWKHFRQVHQWRIWKHJRYHUQHG
'HFODUDWLRQRI,QGHSHQGHQFH
:KHQWKHDUFKLWHFWVRIRXUUHSXEOLFZURWHWKHPDJQLFHQWZRUGVRIWKH&RQVWLWXWLRQ
DQGWKH'HFODUDWLRQRI,QGHSHQGHQFHWKH\ZHUHVLJQLQJDSURPLVVRU\QRWHWRZKLFK
HYHU\$PHULFDQZDVWRIDOOKHLU7KLVQRWHZDVDSURPLVHWKDWDOOPHQZRXOGEH
HIIHFWLYHYLVLRQDOVRUHTXLUHVDQLPSOHPHQWLQJVWUDWHJ\RUSODQWRHQDEOHLWVDWWDLQPHQW
KRZWRJHWWKHUH
&UHDWLQJ WKH YLVLRQ LV D FROODERUDWLYH HIIRUW WKDW EHJLQV ZLWK VWUDWHJLF OHDGHUV 7KHLU
FRPSHWHQF\ FRXSOHG ZLWK WKH DXWKRULW\ RI SRVLWLRQ EHVWRZ XSRQ VWUDWHJLF OHDGHUV WKH
XQLTXHUHVSRQVLELOLW\DQGRSSRUWXQLW\WRHVWDEOLVKORQJWHUPVWUDWHJLFLQWHQWDQGGLUHFWLRQ
$VWUDWHJLFYLVLRQSURSHUO\DUWLFXODWHGFDQEHFRPSHOOLQJDQGHQGXULQJ
'HQLQJ WKH YLVLRQ LV WKH UVW VWHS LQ WKH GHYHORSPHQW RI VWUDWHJLHV DQG SODQV IRU
FKDQJH2QFHWKHYLVLRQLVH[SUHVVHGWKHQWKHPHWKRGVDQGUHVRXUFHVWRDFKLHYHLWVKRXOG
EH LGHQWLHG 9LVLRQLQJ LV DQ LQKHUHQWO\ FUHDWLYH SURFHVV WKDW PD\ FRPH IURP \HDUV RI
H[SHULHQFHRUGHHSVWXG\WKURXJKHGXFDWLRQ1RWHWKDWWKH*RRJOHIRXQGHUVZHUH\HDUV
JXDUDQWHHGWKHLQDOLHQDEOHULJKWVRIOLIHOLEHUW\DQGWKHSXUVXLWRIKDSSLQHVV
'U0DUWLQ/XWKHU.LQJ-U

SHRSOH7KURXJKYLVLRQLQJOHDGHUVIRUHFDVWWKHIXWXUHEDVHGRQHQYLURQPHQWDOFRQGLWLRQV
DQGWUHQGVWRVHHNRSSRUWXQLWLHVDQGLGHQWLI\FRPSHWLWRUVDQGWKUHDWV/HDGHUVWKHQGHYHORS
WKHLPDJHRIWKHGHVLUHGZKDWRXJKWWREHIRUWKHHQWHUSULVHSRVLWLRQLQJLWIRUVXFFHVV
LQWKHIXWXUHHQYLURQPHQW/HDGHUVEXLOGXSRQWKHYLVLRQVRIRWKHUVWKDWKDYHJRQHEHIRUH
WKHP
,I,KDYHVHHQIXUWKHULWLVRQO\E\VWDQGLQJRQWKHVKRXOGHUVRIJLDQWV
6LU,VDDF1HZWRQ
&5($7,1*7+(9,6,21
$ YLVLRQ VKRXOG EH WKH SURGXFW RI D G\QDPLF ORJLFDO DQG FROOHFWLYH RUJDQL]DWLRQDO
SURFHVV9LVLRQLVRIWHQDWWULEXWHGRQO\WROHDGHUVEHFDXVHRIWKHLUFULWLFDOUROHLQGHYHORSLQJ
DUWLFXODWLQJ DQG GLUHFWLQJ LW  (IIHFWLYH YLVLRQV KRZHYHU DUH UDUHO\ WKH UHVXOW RI OHDGHUV
FUHDWLQJ YLVLRQV LQ LVRODWLRQ  9LVLRQV GR QRW UHVLGH RQO\ LQ OHDGHUV UDWKHU YLVLRQV DUH
GHYHORSHGDVDFROODERUDWLYHHIIRUWZLWKOHDGHUVSHUIRUPLQJWKHFULWLFDOUROHRILQWHJUDWLQJ
DQGJXLGLQJWKHSURFHVV7KRXJKIDUIURPVLPSOHWKHYLVLRQLQJSURFHVVFRQVLVWVSULPDULO\
RIH[DPLQLQJWKHH[WHUQDOHQYLURQPHQWSURMHFWLQJOLNHO\IXWXUHVWDWHVDQGGHYHORSLQJD
GHVLUHGHQGVWDWH,QWKLVWDVNOHDGHUVDUHDVVLVWHGE\WKHHIIRUWVRINH\PHPEHUVRIWKH
HQWHUSULVHGHSXWLHVFKLHIVRIVWDIIVXERUGLQDWHOHDGHUVDQGDGYLVRUV9LVLRQLQJPD\EH
DQ LQIRUPDOSURFHVVKRZHYHUDWKLJKHUOHYHOVRI RUJDQL]DWLRQWHPSRUDU\RU SHUPDQHQW
VSHFLDOL]HGVWDIIVWKLQNWDQNVRUIXWXUHVJURXSVRIWHQDVVLVWOHDGHUVLQWKLVFRPSOH[
WDVN
7KHYLVLRQLQJSURFHVVEHJLQVZLWKDFRPSUHKHQVLYHDVVHVVPHQWRIWKHHQYLURQPHQWWKH
RUJDQL]DWLRQVKLVWRU\PLVVLRQDQGWUHQGVDVZHOODVDQXQGHUVWDQGLQJRIFRPSHWLWRUVWR
GHWHUPLQHZKLFKDUHPRVWOLNHO\WREHGRPLQDQWLQGHWHUPLQLQJWKHIXWXUHRIWKHHQWHUSULVH
WRGLVFHUQRSSRUWXQLWLHVDQGWKUHDWVWRLWVUHOHYDQF\7KHSURFHVVVKRXOGDOVRLQFRUSRUDWHDQ
LQWHUQDODVVHVVPHQWRIWKHRUJDQL]DWLRQWRGHWHUPLQHLWVVWUHQJWKVDQGZHDNQHVVHV)URP
WKHH[DPLQDWLRQRIWKHHQYLURQPHQWDQGWKHHQWHUSULVHOHDGHUVSURMHFWLQWRWKHIXWXUHDQG
GHYHORS OLNHO\ DOWHUQDWLYH IXWXUH VWDWHV  7KH\ PXVW DVVHVV WKH IXWXUH HQYLURQPHQW DQG
VWDWH RI WKH RUJDQL]DWLRQ DV REMHFWLYHO\ DQG UHDOLVWLFDOO\ DV SRVVLEOH  &UHDWLQJ D YLVLRQ
LQYROYHVLQWXLWLRQEDVHGLQMXGJPHQWJDLQHGWKURXJKH[SHULHQFH([SHULHQFHLQDQDO\]LQJ
LQWHJUDWLQJ DQG V\QWKHVL]LQJ LQIRUPDWLRQ HTXLSV OHDGHUV ZLWK IUDPHV RI UHIHUHQFH
WKH DELOLW\ WR SHUFHLYH QHZ LQIRUPDWLRQ UHODWLRQVKLSV DQG SRVVLELOLWLHV  $OWKRXJK WKH
FROODERUDWLRQZLWKRWKHUVLQWHUQDODQGH[WHUQDOWRWKHHQWHUSULVHLVLPSRUWDQWLWLVWKHOHDGHU
ZKRVHH[SHULHQFHYDOXHVIUDPHVRIUHIHUHQFHDQGUROHFRQWULEXWHPRVWWRWKHFUHDWLRQRI
WKHYLVLRQ
&RPSOH[YLVLRQVFDSWXUHGLQDIHZZRUGVDVHQWHQFHRUDSDUDJUDSKFDQLQVSLUHDQG
JXLGHDODUJHRUJDQL]DWLRQHYHQZLWKRXWWKHGLUHFWSUHVHQFHRIWKHOHDGHU$EULHIYLVLRQ
VWDWHPHQWFDQFRQYH\DFRQFHSWXDOLPDJHEURDGDQGSRZHUIXOHQRXJKWRJLYHDXWKRULW\DQG

ROGZKHQLWZDVLQLWLDOO\UHOHDVHGLQ7KHSURFHVVEULQJVWRJHWKHUNQRZQLQIRUPDWLRQ
DQGQHZLGHDVLQWHJUDWHVWKHVHLGHDVZLWKSURVSHFWLYHWHFKQRORJLHVDQGIXWXUHRUJDQL]DWLRQDO
UHTXLUHPHQWVDQGEOHQGVWKHPLQWRDQLQQRYDWLYHDSSURDFKWRUHDOL]HWKHSRWHQWLDORILWV

RIIHUXWLOLW\RYHUDPRUHGHWDLOHGEXWOHVVHDVLO\UHPHPEHUHGSUHVHQWDWLRQRIWKHYLVLRQ
7KHYLVLRQVWDWHPHQWVKRXOGEHH[LEOHHQRXJKWRDFFRPPRGDWHDUDQJHRISODXVLEOHIXWXUHV
DQGFRQWDLQYDOXHVWKDWPDNHLWZRUWK\RIWKHHIIRUWUHTXLUHGWRDFKLHYHLW)RUH[DPSOH
WKLVVWDWHPHQWZDVPDGHDERXWWKH(XURSHDQ5HFRYHU\3ODQEHWWHUNQRZQDVWKH0DUVKDOO
3ODQ
2XU SROLF\ LV GLUHFWHG QRW DJDLQVW DQ\ FRXQWU\ RU GRFWULQH EXW DJDLQVW KXQJHU
SRYHUW\GHVSHUDWLRQDQGFKDRV,WVSXUSRVHVKRXOGEHWKHUHYLYDORIDZRUNLQJ
HFRQRP\LQWKHZRUOGVRDVWRSHUPLWWKHHPHUJHQFHRISROLWLFDODQGVRFLDOFRQGLWLRQV
LQZKLFKIUHHLQVWLWXWLRQVFDQH[LVW
*HRUJH&0DUVKDOO6HFUHWDU\RI6WDWH
'UDZLQJIURPH[SHULHQFHDQGNQRZOHGJHOHDGHUVDSSO\MXGJPHQWWRFUHDWHDQGGHFLGH
XSRQ WKH YLVLRQ WR SXUVXH $V WKH 86$UP\ VWUXJJOHG ZLWK GHQLQJ LWV UROH ZLWK WKH
GLVLQWHJUDWLRQRIWKH6RYLHW8QLRQWKUHDWLQWKHVDQGIDFLQJWKHVWFHQWXU\DVDQHZ
HUD RI FRQLFW LWV VHQLRU OHDGHUV RIIHUHG WKH IROORZLQJ VWDWHPHQWV :H VHH D FRQVLVWHQW
WKHPH LQ WKH SXUSRVH RI WKH$UP\ DQG VKRXOG DOVR GLVFHUQ LWV LQVWLWXWLRQDO UHVSRQVHV WR
HQYLURQPHQWDOFRQGLWLRQVEHIRUHDQGDIWHUWKHDWWDFNVRI6HSWHPEHU
7KH$UP\VIXQGDPHQWDOSXUSRVHLVWRJKWDQGZLQWKH1DWLRQV:DUE\HVWDEOLVKLQJ
FRQGLWLRQV IRU ODVWLQJ SHDFH WKURXJK ODQG IRUFH GRPLQDQFH  7KLV GRPLQDQFH LV
HVWDEOLVKHG WKURXJK LQWHJUDWLRQ RI WKH FRPSOHPHQWDU\ FDSDELOLWLHV RI DOO WKH
VHUYLFHV
)07KH$UP\-XQH
7KH$UP\VQRQQHJRWLDEOHFRQWUDFWZLWKWKH$PHULFDQSHRSOHLVWRJKWDQGZLQRXU
1DWLRQVZDUV2XUXQLTXHFRQWULEXWLRQWRQDWLRQDOVHFXULW\LVSURPSWVXVWDLQHG
ODQGGRPLQDQFHDFURVVWKHUDQJHRIPLOLWDU\RSHUDWLRQVDQGVSHFWUXPRIFRQLFW
7KH$UP\SURYLGHVWKHODQGIRUFHGRPLQDQFHHVVHQWLDOWRVKDSLQJWKHLQWHUQDWLRQDO
VHFXULW\HQYLURQPHQW
      )07KH$UP\-XQH
86$UP\9LVLRQ
2XU$UP\LVVHUYLQJD1DWLRQDWZDU7KLVZDUUHTXLUHVWKDWDOOHOHPHQWVRIRXU
QDWLRQDOSRZHUEHDSSOLHGLQDEURDGXQ\LHOGLQJDQGUHOHQWOHVVFDPSDLJQ7KLV

 LVQRWEXVLQHVVDVXVXDO7KH$UP\V:D\$KHDGH[SORUHVKRZZHZLOOREWDLQD
PRUHUHOHYDQWDQGUHDG\FDPSDLJQTXDOLW\$UP\ZLWKD-RLQWDQG([SHGLWLRQDU\
0LQGVHW
      *HQHUDO3HWHU-6FKRRPDNHU&6$
7KH $UP\ ZLOO UHPDLQ $PHULFDV SULQFLSDO ODQG IRUFH RUJDQL]HG WUDLQHG DQG
HTXLSSHGIRUSURPSWDQGVXVWDLQHGFRPEDWRURSHUDWLRQVRQODQGWRGHIHDWHQHP\
ODQGIRUFHVDQGWRVHL]HKROGDQGGHIHQGODQGDUHDVDQGSURYLGHIRUFHVIRUORQJ
WHUP DUHD VHFXULW\ RSHUDWLRQV DEURDG LQFOXGLQJ LQLWLDO HVWDEOLVKPHQW RI PLOLWDU\
JRYHUQPHQWSHQGLQJWUDQVIHURIWKLVUHVSRQVLELOLW\WRRWKHUDXWKRULWLHV
/HDGHUVDWHYHU\OHYHORIRUJDQL]DWLRQVPXVWEHHIIHFWLYHFXVWRGLDQVGHYHORSHUVDQG
DUWLFXODWRUVRIWKHLUYLVLRQ,QWKHPLOLWDU\FRQWH[WZKHWKHUDGYLVRUVWRVHQLRUDQGVWUDWHJLF
OHDGHUVRUPHPEHUVRIWKH-RLQW&KLHIVRI6WDIIOHDGHUVJXLGHWKHGHQLWLRQRIWKHGHVLUHG
HQGVWDWHIRU86QDWLRQDOVHFXULW\$UJXDEO\RQO\VWUDWHJLFOHDGHUVSRVVHVVWKHGHFLVLRQ
DXWKRULW\ SHUVSHFWLYH SRVLWLRQ DQG H[SHULHQFH WR GHULYH D YLVLRQ IURP DVVHVVPHQW RI
WKHHQYLURQPHQWXQGHUVWDQGLQJRISHUVRQDODQGSURIHVVLRQDOYDOXHVDQGDSSUHFLDWLRQRI
WKHSRWHQWLDORIWKHHQWHUSULVH/HDGHUVDUHDOVRUHVSRQVLEOHIRUWKHFRQWLQXDOHYDOXDWLRQ
DQGUHQHPHQWRIWKHYLVLRQLQUHVSRQVHWRLQWHUQDODQGH[WHUQDOFKDQJHV7KHPHDVXUH
RIHIIHFWLYHQHVVRIWKHYLVLRQLVERWKREMHFWLYHDQGVXEMHFWLYHWKHGHJUHHWRZKLFKWKH
HQWHUSULVHDFFRPSOLVKHVLWVPLVVLRQDQGPDLQWDLQVLWVUHOHYDQF\LQWKHSUHVHQWDQGLQWKH
IXWXUHDOLJQHGZLWKLWVHQYLURQPHQW

      $UP\&DSVWRQH&RQFHSW (1'127(6

7KLVIUDPHZRUNRI/HDUQ$GDSWDQG$QWLFLSDWHLVPRGLHGIURPWKHZRUNRI(OLRW&RKHQDQG-RKQ
2QFHDGHVLUHGIXWXUHVWDWHDQGUHVXOWLQJYLVLRQDUHGHYHORSHGVWUDWHJLFOHDGHUVFUHDWHD *RRFK0LOLWDU\0LVIRUWXQHV7KH$QDWRP\RI)DLOXUHLQ:DU1HZ<RUN7KH)UHH3UHVV
SDWKZD\WRWKHIXWXUHE\PHDQVRIVWUDWHJ\DQGSODQV7KH\GHYHORSHQGVREMHFWLYHVZD\V  %RE -RKDQVHQ  *HW 7KHUH (DUO\  6HQVLQJ WKH )XWXUH WR &RPSHWH LQ WKH 3UHVHQW 6DQ )UDQFLVFR
FRQFHSWVDQGPHWKRGVDQGPHDQVUHVRXUFHVWRDFKLHYHWKHYLVLRQ([SOLFLWO\GHQHG %HUUHWW.RHKOHUSS+HWXUQHGWKH98&$DFURQ\PRQLWVKHDGZLWKWKHVHSURSRVHGVWUDWHJLF
REMHFWLYHV PDNH YLVLRQ DWWDLQPHQW UHFRJQL]DEOH ZKHQ LW FRPHV WR IUXLWLRQ  'HQDEOH OHDGHUVKLSVNLOOV
REMHFWLYHVDOVRSURYLGHDPHWKRGRIPHDVXULQJDQGHYDOXDWLQJSURJUHVVWRZDUGDFKLHYLQJ
WKHYLVLRQ7KXVVDLGYLVLRQVVHUYHDQRWKHUSXUSRVHWKDWRIDFFRXQWDELOLW\7KHUHLVDQ -RKDQVHQVPRGHORI98&$GRHVQRWLQFOXGHWKHDGGLWLRQDO&IRUFRPPXQLFDWLRQ
LQKHUHQWDFFRXQWDELOLW\RIWKHOHDGHUWRWKHHQWHUSULVHPHPEHUVDQGH[WHUQDOVWDNHKROGHUVWR 86$UP\:DU&ROOHJH6WUDWHJLF3ODQ&DUOLVOH3$86$:&)HEUXDU\S
HQVXUHWKDWWKHOHDGHUVDFWLRQVDUHFRQVLVWHQWZLWKWKHHVSRXVHGYLVLRQ7KHYLVLRQLVDOVRD
PHDQVRIKROGLQJHQWHUSULVHPHPEHUVDFFRXQWDEOHVRWKDWWKHRUJDQL]DWLRQDOVWUXFWXUHVDQG $WWULEXWHGWR*RYHUQRU*HRUJH:%XVKLQ6HH5REHUW$MHPLDQ:KHUHLVWKH5HDO*HRUJH
SURFHVVHVDVZHOODVWKHLUEHKDYLRUVUHPDLQLQDOLJQPHQWZLWKWKHYLVLRQ %XVK"7LPH-DQXDU\KWWSZZZWLPHFRPWLPHPDJD]LQHDUWLFOHKWPO

-RKQ.RWWHU/HDGLQJ&KDQJH%RVWRQ+DUYDUG%XVLQHVV6FKRRO3UHVVS

6800$5<
3HWHU6HQJH7KH)LWK'LVFLSOLQH7KH$UWDQG3UDFWLFHRIWKH/HDUQLQJ2UJDQL]DWLRQ1HZ<RUN
9LVLRQLVDOHDGHUIRFXVHGDFWLYLW\WKDWJLYHVDVHQVHRILGHQWLW\SXUSRVHGLUHFWLRQDQG &XUUHQF\S
HQHUJ\7KLVSURFHVVH[LVWVDWPDQ\OHYHOVDQGLQHYHU\W\SHRIRUJDQL]DWLRQLWVFRQWHQW
LVWKHGHVLUHGIXWXUHRIWKHRUJDQL]DWLRQ)RUWKDWUHDVRQYLVLRQDGGVYDOXHE\SURYLGLQJ  0DUWLQ / .LQJ -U  , KDYH D 'UHDP 6SHHFK :DVKLQJWRQ '&$XJXVW   KWWSZZZ
XVFRQVWLWXWLRQQHWGUHDPKWPO
WKHPHDQVIRUWKHHQWHUSULVHWRDQWLFLSDWHDQGPRYHWRZDUGWKHIXWXUH9LVLRQVJHQHUDOO\
LQFUHDVH LQ FRPSOH[LW\ DQG H[WHQG LQ WKH WLPH KRUL]RQ DW VXFFHVVLYHO\ KLJKHU OHYHOV RI 6HHKWWSZZZPLFURVRIWFRPHQDEOHPLFURVRIWPLVVLRQDVS[
RUJDQL]DWLRQ6WUDWHJLFYLVLRQHVWDEOLVKHVWKHSULRULW\IRULQXHQFHDQGWKHDOORFDWLRQRI
UHVRXUFHV 6HHKWWSZZZJRRJOHFRPFRUSRUDWH

6HHKWWSZDOPDUWVWRUHVFRP$ERXW8VDVS[
7KLV FKDSWHU KDV SURYLGHG VHYHUDO SHUVSHFWLYHV RQ YLVLRQV DQG WKH YLVLRQLQJ SURFHVV
,W VKRXOG EH FOHDU WKDW WKHUH LV QR FRRNLH FXWWHU VROXWLRQ RU EHVW WHPSODWH IRU FUHDWLQJ 6WHYH'LWOHD$Q$SSOHRQHYHU\GHVN+RZ$SSOH&RPSXWHUKDVLQDXJXUDWHGWKHZRUNSODFHRIWKH
DQGLPSOHPHQWLQJDYLVLRQ,WLVLPSRUWDQWIRUIXWXUHVWUDWHJLFOHDGHUVWRFRQVLGHUVHYHUDO IXWXUH,QFKWWSZZZLQFFRPPDJD]LQHKWPODFFHVVHG'HFHPEHU
WHFKQLTXHV DQG WR SXUVXH WKH WHFKQLTXH WKDW WV WKH FRQWH[W RI WKH HQWHUSULVH DQG LWV
HQYLURQPHQW 6HHKWWSPDFGDLO\QHZVFRPLQGH[SKSZHEORJFRPPHQWV

 

,VDDF1HZWRQ/HWWHUWR5REHUW+RRNH)HEUXDU\KWWSHQZLNLSHGLDRUJZLNL6WDQGLQJB &+$37(5

RQBWKHBVKRXOGHUVBRIBJLDQWV

5HPDUNVRI6HFUHWDU\RI6WDWH*HRUJH&0DUVKDOODWWKH+DUYDUG8QLYHUVLW\&RPPHQFH([HUFLVHV 675$7(*,&/($'(5&203(7(1&,(6
-XQHKWWSXVDXVHPEDVV\GHHWH[WVPDUVKDOOSDPVSKWP

'HSDUWPHQWRIWKH$UP\)LHOG0DQXDO)07KH$UP\:DVKLQJWRQ'&'HSDUWPHQW

RIWKH$UP\-XQHS  &RPSHWHQFLHVDUHWKHNQRZOHGJHVNLOOVDWWULEXWHVDQGFDSDFLWLHVWKDWHQDEOHDOHDGHU
WRSHUIRUPKLVUHTXLUHGWDVNV$OWKRXJKFRPSHWHQFLHVDUHRIWHQUHODWHGWRQDWXUDOWUDLWV
 86$UP\ 6WUDWHJLF &RPPXQLFDWLRQV 3HQWDJRQ :DVKLQJWRQ '& 'HFHPEHU   KWWS DQGDELOLWLHVZKDWW\SLFDOO\GLVWLQJXLVKHVDFRPSHWHQF\IURPDWUDLWLVWKHXQGHUVWDQGLQJ
ZZZDUP\PLOWKHZD\DKHDGDFFHVVHG)HEUXDU\ WKDWFRPSHWHQFLHVFDQEHGHYHORSHGDQGVLJQLFDQWO\LPSURYHGIRUPRVWLQGLYLGXDOV$
'HSDUWPHQWRIWKH$UP\7KH$UP\&DSVWRQH&RQFHSW2SHUDWLRQDO$GDSWDELOLW\2SHUDWLQJXQGHU
FRPSHWHQF\FDQEHLPSURYHGWKURXJKHGXFDWLRQEXWPRVWRIWHQLVGHYHORSHGE\UHHFWLYH
&RQGLWLRQV RI 8QFHUWDLQW\ DQG &RPSOH[LW\ LQ DQ (UD RI 3HUVLVWHQW &RQLFW  :DVKLQJWRQ '& H[SHULHQFH6WUDWHJLFOHDGHUFRPSHWHQFLHVDUHRIWHQQRGLIIHUHQWWKDQWKHVDPHDELOLWLHV
'HSDUWPHQWRIWKH$UP\'HFHPEHUS UHTXLUHG WR EH D OHDGHU DW DQ\ OHYHO  +RZHYHU VRPH VWUDWHJLF OHDGHU FRPSHWHQFLHV DUH
TXDOLWDWLYHO\GLIIHUHQWDQGQHZ)RULQVWDQFHVWUDWHJLFOHDGHUVQRWRQO\QHHGWRKDYHWKH
VNLOOVUHTXLUHGWROHDGDQGWDNHFDUHRIWKHLUVXERUGLQDWHVWKH\DOVRQHHGWRDEOHWRHQYLVLRQ
ORQJUDQJHIXWXUHUHTXLUHPHQWVDQGWRDSSO\LQWHJUDWLYHWKLQNLQJVNLOOV

 7KH PDMRU FDWHJRULHV RI OHDGHUVKLS FRPSHWHQFLHV FDQ EH JURXSHG DV FRQFHSWXDO
WHFKQLFDODQGLQWHUSHUVRQDO6WUDWHJLFFRQFHSWXDOFRPSHWHQFLHVLQFOXGHWKHWKLQNLQJVNLOOV
QHHGHGWRXQGHUVWDQGDQGGHDOZLWKWKHFRPSOH[DQGDPELJXRXVVWUDWHJLFZRUOG7HFKQLFDO
FRPSHWHQFLHVLQFOXGHNQRZOHGJHRIH[WHUQDOSROLWLFDOHFRQRPLFDQGFXOWXUDOV\VWHPVWKDW
LPSDFW WKH RUJDQL]DWLRQ  ,QWHUSHUVRQDO FRPSHWHQFLHV LQFOXGH FRQVHQVXV EXLOGLQJ ERWK
LQWHUQDODQGH[WHUQDOWRWKHRUJDQL]DWLRQDQGWKHFDSDFLW\WRFRPPXQLFDWHHIIHFWLYHO\)RU
DPRUHGHWDLOHGH[DPLQDWLRQRIVHQLRUOHDGHUFRPSHWHQFLHVVHH$SSHQGL[$

&21&(378$/&203(7(1&,(6

 6WUDWHJLFOHDGHUVUHTXLUHWKHFDSDFLW\WRGHDOZLWKH[WUDRUGLQDU\FRPSOH[LW\7KHLUVLV
DQHQYLURQPHQWRIGLIFXOWFRPSHWLQJLVVXHVIHZRIZKLFKKDYHFOHDUVROXWLRQVDQGDOORI
ZKLFKSRVHULVNVRUFKDOOHQJHV0DQ\LVVXHVKDYHPRUHWKDQRQHIHDVLEOHVROXWLRQEXWQR
RQHVROXWLRQPD\EHWRWDOO\DFFHSWDEOHZKLOHDOOLQFXUFRVWV,WLVLPSRUWDQWWRXQGHUVWDQG
VXFK LVVXHV IXQGDPHQWDOO\ DQG DFFXUDWHO\ WR GHWHUPLQH WKH XQGHUO\LQJ WKUHDGV WKDW PD\
FRQQHFWDSSDUHQWO\XQUHODWHGLVVXHVDQGWRFKDUWDFWLRQVWKDWZLOOKDYHWKHEHVWORQJWHUP
RXWFRPHV,QGRLQJVRDQXQGHUVWDQGLQJRIVHFRQGDQGWKLUGRUGHUHIIHFWVLVQHFHVVDU\
WRUHVLVWDFWLRQVWKDWPD\DSSHDUUHDVRQDEOHLQWKHVKRUWUXQEXWDUHGHWULPHQWDOLQWKHORQJ
WHUP6WUDWHJLFFRQFHSWXDOFRPSHWHQFLHVLQFOXGHIUDPHRIUHIHUHQFHGHYHORSPHQWSUREOHP
PDQDJHPHQWDQGHQYLVLRQLQJWKHIXWXUH

)UDPHRI5HIHUHQFH'HYHORSPHQW(YHU\OHDGHUEXLOGVDFRPSOH[NQRZOHGJHVWUXFWXUH
RYHUWLPHIURPVFKRROLQJSHUVRQDOH[SHULHQFHDQGVHOIVWXG\)RUWKHVWUDWHJLFOHDGHUWKLV
NQRZOHGJHVWUXFWXUHLVDPDSRIWKHVWUDWHJLFZRUOGLWLVDG\QDPLFUHSUHVHQWDWLRQRIWKH
VLJQLFDQWIDFWRUVLQWKHVWUDWHJLFHQYLURQPHQWZLWKFDXVHDQGHIIHFWLQWHUUHODWLRQVKLSV$
IUDPHRIUHIHUHQFHDFWVDVDEDVLVRIREVHUYDWLRQDQGMXGJPHQW

 
 7KUHHDWWULEXWHVDUHHVVHQWLDOIRUEXLOGLQJDJRRGIUDPHRIUHIHUHQFH)LUVWWKHOHDGHU
PXVWEHRSHQWRQHZH[SHULHQFHVDQGLQSXWIURPRWKHUVLQFOXGLQJVXERUGLQDWHVDQGSHHUV
6HFRQGWKHOHDGHUPXVWEHUHHFWLYHDQGQRWDIUDLGWRUHWKLQNSDVWH[SHULHQFHVDQGOHDUQ
IURP WKHP 7KLUG KH PXVW EH FRPIRUWDEOH ZLWK DEVWUDFWV DQG FRQFHSWV FRPPRQ LQ WKH
VWUDWHJLFHQYLURQPHQW
 $ IUDPH RI UHIHUHQFH FDQQRW EH WDXJKW E\ FRQYHQWLRQDO FODVVURRP PHWKRGV  ,W LV
GHYHORSHGE\WKHLQGLYLGXDORYHUWLPHDVKHUHHFWVDQGPDNHVVHQVHRIQHZNQRZOHGJH
DQGH[SHULHQFHV)UDPHVRIUHIHUHQFHIRUPDVOHDGHUVSURJUHVVIURPWKHGLUHFWWKURXJK
WKHRUJDQL]DWLRQDOWRWKHVWUDWHJLFOHYHOVRIOHDGHUVKLS,QGLYLGXDOLQLWLDWLYHLVLPSRUWDQW
WR GHYHORSLQJ D EURDG IUDPH RI UHIHUHQFH  &RQVHTXHQWO\ SDUW RI EHFRPLQJ D VWUDWHJLF
OHDGHULVDSSURDFKLQJWKLVPHQWDODFWLYLW\DVLQWULQVLFDOO\LQWHUHVWLQJDQGUHZDUGLQJ,QWKH
IROORZLQJYLJQHWWH*HQHUDO/\QFKH[SODLQVWKHYDOXHRIDJKWLQJOHYHOIUDPHRIUHIHUHQFH
WKDWFKDUDFWHUL]HGWKHQ&ROLQ3RZHOOVVHUYLFHDV&KDLUPDQRIWKH-RLQW&KLHIVRI6WDII
2QHRI\RXUJUHDWHVWFKDOOHQJHVLQWKH3HQWDJRQLVWU\LQJWRH[SODLQWRRWKHUSHRSOH
WKHSUREOHPVGRZQDWWKHJKWLQJOHYHO6RPDQ\RIWKRVHJX\VVWDUWHGRXWDVYLFH
SUHVLGHQWVDQGZRUNHGWKHLUZD\XS7KH\QHYHUKDGDQDSSUHFLDWLRQRIZKDWJRHV
RQGRZQWKHUHDWWKHORZHVWOHYHO3RZHOOKDGWKHDGYDQWDJHRIJRLQJXSWKURXJK
WKRVHOHYHOV)RUWKH\RXQJHUOHDGHUVLQ9LHWQDPWKHUHZDVDWUHPHQGRXVPRUDO
DQGHWKLFDOFKDOOHQJHWKDWZDVQHYHUIDFHGE\WKHFRPPDQGHUVLQ:RUOG:DU,,
:KHQDJX\LVVWHHSHGLQWKHPRUDODQGHWKLFDOLVVXHVGRZQDWWKHJKWLQJOHYHO
KHVPRUHLQFOLQHGWREDFNRIIIURPJURVVVROXWLRQVDQGWU\WRHTXDWHZKDWWKH\DUH
VD\LQJWRKRZGLIFXOWLWZRXOGEHWRLPSOHPHQWLWGRZQZKHUHKHUHPHPEHUVLW
3RZHOOZDVWKHUVW&KDLUPDQZKRKDGWKDWH[SHULHQFHDQGZDVDEOHWRFDUU\LWXS
WKURXJKWKHUDQNV
3UREOHP 0DQDJHPHQW  0DQDJHPHQW RI VWUDWHJLF SUREOHPV GHDOV ZLWK LVVXHV WKDW
DUH FRPSHWLQJ WKDW KDYH PDQLIROG LPSOLFDWLRQV ZKLFK DUH RIWHQ GLIFXOW WR XQGHUVWDQG
FRPSOHWHO\DQGWKDWKDYHSRWHQWLDOO\FDWDVWURSKLFRXWFRPHVLIQRWUHVROYHGFDUHIXOO\7KHUH
DUHQRULJKWDQVZHUV0DQ\LVVXHVDUHQRWVRPXFKDFKRLFHEHWZHHQULJKWDQGZURQJ
DVDFKRLFHEHWZHHQULJKWDQGULJKW6WUDWHJLFOHDGHUVPXVWEHDEOHWRWKLQNIDPLOLHVRI
LVVXHVWKURXJKDVV\VWHPVVRWKDWGHFLVLRQVPRYHWKHSUREOHPDVDZKROHWRZDUGUHVROXWLRQ
7KLVLQYROYHVDSSO\LQJSDVWH[SHULHQFHVLGHQWLI\LQJDQGFUHDWLQJSDWWHUQVGLVFDUGLQJQRQ
XVHDEOH GDWD XQGHUVWDQGLQJ VHFRQG DQG WKLUGRUGHU HIIHFWV PDLQWDLQLQJ H[LELOLW\ DQG
NQRZLQJZKDWLVDQDFFHSWDEOHRXWFRPHIRUWKHV\VWHPDVDZKROH,WDOVRLQYROYHVZRUNLQJ
DQGWKLQNLQJLQWHUDFWLYHO\DQGQRWVROYLQJSUREOHPVLQGLYLGXDOO\
 3UREOHPPDQDJHPHQWDQGGHFLVLRQPDNLQJDUHWZRGLVWLQFWDFWLYLWLHV7KHUVWLQYROYHV
PDQDJLQJ WKH SUREOHPV WRZDUGV WKH GHVLUHG RXWFRPHPDNLQJ DGMXVWPHQWV PRGLI\LQJ
WKHLQLWLDODSSURDFKDQGGLVFDUGLQJDOWHUQDWLYHVWKDWLQKLELWSURJUHVV0DQ\RIWKHPRVW
VLJQLFDQWSUREOHPVDWWKHVWUDWHJLFOHYHOUHTXLUHWKLVDSSURDFKEHFDXVHVLPSOHDQGGLUHFW
DOWHUQDWLYH FRXUVHV RI DFWLRQ GR QRW H[LVW  7KH VHFRQG LQYROYHV GHYHORSLQJ DOWHUQDWLYH
FRXUVHV RI DFWLRQ DVVHVVLQJ SUREDELOLW\ RI VXFFHVV DQG SXUVXLQJ WKH VHOHFWHG FRXUVH RI
DFWLRQ7KLVGLIIHUHQWLDWLRQEHWZHHQSUREOHPPDQDJHPHQWDQGGHFLVLRQPDNLQJLVDPDMRU
HOHPHQWLQWKHWUDQVLWLRQIURPGLUHFWWRPRUHLQGLUHFWOHDGHUVKLS0RVWSDVWWUDLQLQJDQG
ZRUN H[SHULHQFHV DW WKH GLUHFW OHYHO DUH EDVHG RQ GHYHORSLQJ VKRUWWHUP VROXWLRQV DQG
GHFLGLQJ RQ UHODWLYHO\ ZHOOVWUXFWXUHG SUREOHPV E\ FKRRVLQJ DPRQJ DOWHUQDWLYH FRXUVHV
RI DFWLRQ  /RQJWHUP LOOGHQHG SUREOHPV IRU ZKLFK LW LV GLIFXOW WR HQYLVLRQ GHVLUHG
RXWFRPHVDUHQRWIUHTXHQWO\HQFRXQWHUHGDWORZHUOHYHOV7KHVHDUHWKHSUREOHPVKRZHYHU
WKDWVWUDWHJLFOHDGHUVIUHTXHQWO\HQFRXQWHU
 6WUDWHJLF OHDGHUVKLS UHTXLUHV D UHQHG DELOLW\ WR UHFRJQL]H DQG DYRLG LUUHOHYDQW DQG
PDUJLQDO LVVXHV $Q LPSRUWDQW DELOLW\ LQ ZRUNLQJ VWUDWHJLF LVVXHV LV WR VHH EH\RQG WKH
*HQHUDO0LNH/\QFK86$UP\5HW LPPHGLDWHO\REYLRXVLQIRUPDWLRQUHFHLYHGDQGWRNQRZZKDWLQIRUPDWLRQLVPLVVLQJ7KLV
 0XFKOLNHWKHLQWHOOLJHQFHDQDO\VWWKHVWUDWHJLFOHDGHUHTXLSSHGZLWKDZHOOGHYHORSHG
IUDPHRIUHIHUHQFHWHPSODWHVHYHQWVWKDWPD\KDYHQRGLVFHUQDEOHSDWWHUQWRKLVVXERUGLQDWHV
+HLVPRUHDEOHWRXQGHUVWDQGWKHWUXHVLWXDWLRQDQGPRVWLPSRUWDQWO\NQRZZKHUHWKHVH
HYHQWVDUHOLNHO\WROHDGLIQRLQWHUYHQWLRQRFFXUV6XFKOHDGHUVDUHXQLTXHO\HTXLSSHGWR
GHDOZLWKHYHQWVKDYLQJFRPSOH[FDXVHVDQGWRHQYLVLRQFUHDWLYHVROXWLRQV7KLVHQDEOHV
WLPHO\DQGSURDFWLYHGHFLVLRQPDNLQJ
 $ ZHOOGHYHORSHG IUDPH RI UHIHUHQFH DOVR JLYHV WKH VWUDWHJLF OHDGHU D WKRURXJK
XQGHUVWDQGLQJRIRUJDQL]DWLRQDOVXEV\VWHPV7KLVXQGHUVWDQGLQJHQDEOHVYLVXDOL]LQJWKH
LQWHUDFWLYHG\QDPLFVRIWKHWRWDOV\VWHP$SSUHFLDWLRQIRUWKHVHLQWHUGHSHQGHQFLHVKHOSV
WRHQVXUHWKDWGHFLVLRQVWDNHQLQRQHDUHDZLOOQRWKDYHDQXQDQWLFLSDWHGDGYHUVHLPSDFW
LQRWKHUV:LWKRXWWKLVFDSDFLW\FKDQJHVLQSROLF\UHJXODWLRQRUDFWLRQPD\LQGLUHFWO\
SURGXFHRWKHUFKDQJHVWKDWDUHQHLWKHUDQWLFLSDWHGQRUGHVLUHG
 
RIVWUDWHJLFSODQVWRDGGUHVVPLGDQGORQJWHUPSURJUDPVGHVLJQHGWRDFKLHYHWKHVWUDWHJLF
DLPV7KLVGHPDQGVDQXQGHUVWDQGLQJRIWKHLQWHUDFWLRQRIHQGVZD\VDQGPHDQVDVWKH\
LQWHUDFWWRIRUPDVWUDWHJ\$VWDIIRIVWUDWHJLVWVPD\GHYHORSDQGUHQHWKHVWUDWHJ\EXWWKH
VWUDWHJLFOHDGHUSURYLGHVWKHGLUHFWLRQWKHFRQFHSWDQGWKHIRFXV
 $VHQLRUOHDGHUPXVWQRWRQO\KDYHWKHDELOLW\WRHQYLVLRQWKHIXWXUHEXWPXVWDOVRZRUN
SURDFWLYHO\WRVKDSHWKHIXWXUHHQYLURQPHQWWRHQKDQFHJRDODWWDLQPHQW$WWKHVWUDWHJLF
OHYHOJRDOVPD\EHIDUUHDFKLQJDQGVKRXOGEHIRUPXODWHGWRDFFRPPRGDWHFRQWLQJHQFLHV
WKDWUHHFWWKHRUJDQL]DWLRQVUHODWLRQVKLSWRDFKDQJLQJHQYLURQPHQW7KLVUHTXLUHVWKH
WKLQNLQJDQGSURFHVVLQJRILQIRUPDWLRQFUHDWLYHO\RXWVLGHWKHHVWDEOLVKHGERXQGDULHV,WLV
DQDELOLW\WRVHHWKHRUJDQL]DWLRQDQGHQYLURQPHQWQRWDVLWLVEXWUDWKHUDVLWRXJKWWREH
7(&+1,&$/&203(7(1&,(6
 6WUDWHJLF OHDGHU WHFKQLFDO FRPSHWHQFLHV GLIIHU VLJQLFDQWO\ IURP WKRVH VNLOOV UHTXLUHG
DW WKH GLUHFW RU RUJDQL]DWLRQDO OHYHO :KLOH WKH WHFKQLFDO VNLOOV XVHG DW ORZHU OHYHOV DUH
LPSRUWDQWHOHPHQWVRIWKHVWUDWHJLFOHDGHUVIUDPHRIUHIHUHQFHWKH\XVXDOO\DUHQRWGLUHFWO\
UHOHYDQWWRWKHVSHFLFWDVNVUHTXLUHGDWWKHKLJKHUOHYHO$WWKHVWUDWHJLFOHYHOWHFKQLFDO
FRPSHWHQFLHV LQFOXGH DQ XQGHUVWDQGLQJ RI RUJDQL]DWLRQDO V\VWHPV DQ DSSUHFLDWLRQ RI
IXQFWLRQDOUHODWLRQVKLSVRXWVLGHWKHRUJDQL]DWLRQDQGNQRZOHGJHRIWKHEURDGHUSROLWLFDO
DQGVRFLDOV\VWHPVZLWKLQZKLFKWKHRUJDQL]DWLRQRSHUDWHV6XFFHVVDWWKHVWUDWHJLFOHYHOLV
DPDWWHURIFRQWLQXRXVOHDUQLQJDVH[HPSOLHGE\*HRUJH:DVKLQJWRQ
LQFOXGHVUHFRJQL]LQJPXOWLSOHSDWKVWRWKHVDPHJRDOXQGHUVWDQGLQJWKHRSSRUWXQLW\FRVWV
IRUHDFKSDWKDQGIRUHVHHLQJWKHLQGLUHFWHIIHFWVRIHDFK
 $GGLWLRQDOO\DFFHSWDQFHRIVRPHGHJUHHRIULVNLVHVVHQWLDO6WUDWHJLFLVVXHVDUHJHQHUDOO\
LOOGHQHGDQGPRVWLQIRUPDWLRQDYDLODEOHLVDPELJXRXVDQGLQFRPSOHWH0RVWSRVVLEOH
FRXUVHV RI DFWLRQ KDYH VXFK FRPSOH[ VHFRQG DQG WKLUGRUGHU HIIHFWV WKDW D FRPSOHWHO\
DFFXUDWH SUHGLFWLRQ RI WKHLU RXWFRPHV LV QRW SRVVLEOH  7KLV QHFHVVLWDWHV FRPPLWWLQJ WR
GHFLVLRQVDQGRSHUDWLQJHIIHFWLYHO\XQGHUFRQGLWLRQVRIXQFHUWDLQW\,QWKHIDFHRIULVNWKH
DELOLW\WRUHFRJQL]HDQGVHL]HRSSRUWXQLWLHVLVHYLGHQWPRVWFOHDUO\LQWKHHIIHFWLYHQHVVZLWK
ZKLFKWKHVWUDWHJLFOHDGHULGHQWLHVUHOHYDQWLQIRUPDWLRQXQGHUVWDQGVWKHVLJQLFDQFHRI
SURMHFWVRUDFWLYLWLHVRIRWKHUVDQGGLVFDUGVGLVWUDFWHUV
(QYLVLRQLQJWKH)XWXUH7KHFDSDELOLW\WRIRUPXODWHDQGDUWLFXODWHVWUDWHJLFDLPVDQG
NH\FRQFHSWVLVSHUKDSVWKHVWUDWHJLFOHDGHUVPRVWVLJQLFDQWFDSDFLW\WKHDSSOLFDWLRQRI
ZKLFKZDVGLVFXVVHGLQ&KDSWHU9LVLRQ+HPXVWOHDGWKHRUJDQL]DWLRQLQWKHGHYHORSPHQW
ZKLFKLPSDFWRSHUDWLRQVRIDFRPELQHGIRUFH6LPLODUO\HDFK6HUYLFHKDVGHYHORSHGD
GLIIHUHQW FXOWXUH YRFDEXODU\ DQG H[SHFWDWLRQ IRU LWV PHPEHUV  6WUDWHJLF OHDGHUV PXVW
NQRZ KRZ WR RSHUDWH LQ D PXOWLFXOWXUDO HQYLURQPHQW WR JDLQ WKH IXOO XQGHUVWDQGLQJ DQG
FRPPLWPHQWRIWKHLUVXERUGLQDWHV
3ROLWLFDO DQG 6RFLDO &RPSHWHQFH  7KH DELOLW\ WR SDUWLFLSDWH HIIHFWLYHO\ LQ WKH
LQWHUDJHQF\ SURFHVV LQKHUHQW LQ QDWLRQDO VHFXULW\ SROLF\ IRUPXODWLRQ DQG H[HFXWLRQ LV
IXQGDPHQWDO-XVWDVLPSRUWDQWLVWKHFDSDFLW\IRULQWHUDFWLQJZLWKWKHOHJLVODWLYHEUDQFK
,W LV QHFHVVDU\ WR KDYH WKLV SROLWLFDO DQG VRFLDO FRPSHWHQFH WR DGYLVH LQ GHYHORSLQJ WKH
SROLF\SUHSDULQJWKHVWUDWHJ\DQGZRUNLQJWRVHFXUHDGHTXDWHUHVRXUFHVWRLPSOHPHQWWKH
VWUDWHJ\/HDGHUVDWWKHVWUDWHJLFOHYHOIXQFWLRQDVPHPEHUVRIWKHSROLF\IRUPXODWLRQWHDP
KHOSLQJWRGHWHUPLQHQDWLRQDOLQWHUHVWVDQGREMHFWLYHV7KH\SUHVHQWDEDODQFHGDUJXPHQW
RIQDWLRQDOVHFXULW\UHTXLUHPHQWVEHQHWVFRVWVDQGULVNV
,17(53(5621$/&203(7(1&,(6
 6WUDWHJLFOHDGHULQWHUSHUVRQDOFRPSHWHQFLHVLQFOXGHWKHDELOLW\WREXLOGFRQVHQVXVZLWKLQ
WKH RUJDQL]DWLRQ WKH DELOLW\ WR QHJRWLDWH ZLWK H[WHUQDO DJHQFLHV RU RUJDQL]DWLRQV LQ DQ
DWWHPSW WR VKDSH RU LQXHQFH WKH H[WHUQDO HQYLURQPHQW DQG WKH DELOLW\ WR FRPPXQLFDWH
LQWHUQDOO\DQGH[WHUQDOO\:KLOHWKHVHDUHQRWWKHRQO\WKUHHLQWHUSHUVRQDOFRPSHWHQFLHV
QHHGHGE\VWUDWHJLFOHDGHUVWKH\DUHWKHPRVWLPSRUWDQWZKHQOHDGLQJRUJDQL]DWLRQVDWWKH
KLJKHVWOHYHOV

7KH FUXFLDO PLOLWDU\ GLIIHUHQFH DSDUW IURP OHYHOV RI LQQDWH DELOLW\ EHWZHHQ
:DVKLQJWRQDQGWKHFRPPDQGHUVZKRRSSRVHGKLPZDVWKDWWKH\ZHUHVXUHWKH\
NQHZDOOWKHDQVZHUVZKLOH:DVKLQJWRQWULHGHYHU\GD\DQGHYHU\KRXUWROHDUQ
-DPHV7KRPDV)OH[QHU
6\VWHPV 8QGHUVWDQGLQJ $W WKH RUJDQL]DWLRQDO OHYHO OHDGHUV XQGHUVWDQG KRZ WKHLU
RUJDQL]DWLRQVRSHUDWHDQGKRZWRIRVWHUFRQGLWLRQVWKDWHQDEOHWKHPWREHPRUHHIIHFWLYH
$W WKH VWUDWHJLF OHYHO WKHUH LV GHFUHDVHG FRQFHQWUDWLRQ RQ LQWHUQDO SURFHVV DQG V\VWHP
LQWHJUDWLRQDQGLQFUHDVHGFRQFHQWUDWLRQRQKRZWKHRUJDQL]DWLRQWVZLWKLQWKHWRWDO'2'
IUDPHZRUNDQGLQWRWKHEURDGHULQWHUQDWLRQDODUHQD2UJDQL]DWLRQDOV\VWHPVDWWKHVHOHYHOV
KDYHFRPSOH[LQWHUUHODWLRQVKLSVDQGVWUDWHJLFOHDGHUVPD\KDYHQXPHURXVUHSRUWLQJDQG
FRRUGLQDWLQJUHODWLRQVKLSV7KXVWKHOHDGHUPXVWXQGHUVWDQGWKHVHSDUDWHUROHVKHSOD\V
WKHERXQGDULHVRIWKHVHUROHVWKHLUGHPDQGVDQGFRQVWUDLQWVDQGWKHH[SHFWDWLRQVRIRWKHU
GHSDUWPHQWVDQGDJHQFLHV
&RQVHQVXV%XLOGLQJ,QFRQWUDVWZLWKRUJDQL]DWLRQDOOHYHOOHDGHUVVWUDWHJLFOHDGHUV
GHYRWHIDUPRUHRIWKHLUWLPHGHDOLQJZLWKRXWVLGHRUJDQL]DWLRQVDQGZLWKOHDGHUVRIRWKHU
6HUYLFHVRUQDWLRQV&RQVHQVXVRQDQLVVXHLVQHFHVVDU\LIFRRUGLQDWHGDQGHIIHFWLYHDFWLRQ
LVWREHWDNHQ&RQVHQVXVEXLOGLQJLVDFRPSOLFDWHGSURFHVVEDVHGRQHIIHFWLYHUHDVRQLQJ
ORJLFDQGQHJRWLDWLRQZKLFKPD\WDNHSODFHRYHUDQH[WHQGHGSHULRG&RQVHQVXVLVQRW
XQDQLPRXVDJUHHPHQW,WLVPRUHDERXWZKDWDOOSDUWLHVFDQOLYHZLWKWKDQZKDWDQ\RQH
SDUW\ZRXOGSUHIHU,WLVDUULYLQJDWDGHFLVLRQWKDWUHVXOWVLQWKHDEVHQFHRIVDERWDJHRU
LQWHUIHUHQFHLQDQDFWLYLW\ZKLOHDOORZLQJVRPHDPRXQWRIWLPHIRUWKHLVVXHWRUHVROYH
LWVHOI,WUHTXLUHVLQYROYLQJDOOVWDNHKROGHUVHQFRXUDJLQJLQSXWPDNLQJSUREOHPVYLVLEOH
DQG UHVROYLQJ WKHP DQG PDNLQJ GHFLVLRQV FROODERUDWLYHO\  (YHQ ZKHQ FRQVHQVXV LV
DFKLHYHGWKHOHDGHUDQGRUJDQL]DWLRQPXVWFRQWLQXRXVO\ZRUNWRHQVXUHWKDWDSSDUHQW
FRQVHQVXVEHDUVRXWLQWKHDFWLRQVRIWKHFRQVHQVXVVWDNHKROGHUV6WUDWHJLFOHDGHUVPXVW
EHSHUVXDVLYH\HWZLOOLQJWRFRPSURPLVHZKHQQHFHVVDU\&RQVHQVXVEXLOGLQJLVGLIIHUHQW
IURPGLUHFWLQJRUFRPPDQGLQJ:KLOHVWUDWHJLFOHDGHUVOLNHRUJDQL]DWLRQDOOHDGHUVPD\
LVVXHGLUHFWRUGHUVVXFKRUGHUVKDYHOHVVIRUFHLQWKHFRPSOH[VWUDWHJLFZRUOG,QZRUNLQJ
ZLWKSHHUVLWLVLPSHUDWLYHWRUHDFKFRQVHQVXV3HHUVZLOOQRWUHVSRQGWRRUGHUV,QHVVHQFH
WKHSURFHVVRIFRQVHQVXVEXLOGLQJHQVXUHVWKDWHIIHFWLYHUHDVRQLQJKDVWDNHQSODFHDQGWKDW
-RLQW ,QWHUDJHQF\ ,QWHUJRYHUQPHQWDO 0XOWLQDWLRQDO -,,0 5HODWLRQVKLSV FRQWHQWLRXV LVVXHV KDYH EHHQ UHVROYHG ZKLFK JDLQV FRPPLWPHQW WR ORQJ WHUP JRDOV WKDW
1DWLRQDO IRUFH SURMHFWLRQ QHFHVVLWDWHV DQ XQGHUVWDQGLQJ DQG LQWHJUDWLRQ RI MRLQW DQG OLNHO\H[WHQGZHOOLQWRWKHIXWXUH
FRPELQHGRSHUDWLRQV'LIIHUHQWQDWLRQVKDYHGLIIHUHQWRSHUDWLQJSUDFWLFHVDQGSULQFLSOHV

 

7KHKLQGVLJKWRIWKHKLVWRULDQFDQRQO\UHLQIRUFH:DVKLQJWRQVFRQYLFWLRQWKDWWKH
FUXFLDOEDWWOHVRIWKHZDUZHUHLQWKHDUHQDVRISXEOLFRSLQLRQ7KHUHFDQEHQR
GRXEWWKDWWKH%ULWLVKZHUHWRWDOO\RXWFODVVHGLQWKHZDUIDUHIRUWKHPLQGVRIPHQ
,WZDVLQWKRVHPHQWDODUHQDVWKDWWKHFLYLOLDQVROGLHU*HRUJH:DVKLQJWRQVKRQHWKH
EULJKWHVW+HNHSWIRUHYHULQPLQGDVPRUHUDGLFDOVWDWHVPHQRIHLWKHUWKHULJKWRU
WKHOHIWFRXOGQRWGRWKDWWKHIXQGDPHQWDOREMHFWLYHZDVQRWWRIRVWHUGLYLVLRQEXW
WRLQFUHDVHXQLW\
-DPHV7KRPDV)OH[QHU
1HJRWLDWLRQ$VVWDWHGHDUOLHUPDQ\UHODWLRQVKLSVDWWKHVWUDWHJLFOHYHODUHODWHUDODQG
ZLWKRXW FOHDU VXERUGLQDWLRQ  ,Q PDQ\ RI WKHVH UHODWLRQVKLSV VWUDWHJLF OHDGHUV PXVW UHO\
KHDYLO\ RQ QHJRWLDWLQJ VNLOOV  6XFFHVVIXO QHJRWLDWLRQ UHTXLUHV D UDQJH RI LQWHUSHUVRQDO
VNLOOV  3HUKDSV WKH PRVW LPSRUWDQW LV WKH DELOLW\ WR VWDQG UP RQ QRQQHJRWLDEOH SRLQWV
ZKLOH VLPXOWDQHRXVO\ FRPPXQLFDWLQJ UHVSHFW IRU RWKHU SDUWLFLSDQWV  3HUVRQDO DWWULEXWHV
XQGHUO\LQJ WKLV DELOLW\ UHTXLUH VNLOOV LQ OLVWHQLQJ LQ GLDJQRVLQJ XQVSRNHQ DJHQGDV DQG
WKH FDSDFLW\ WR GHWDFK RQHVHOI SHUVRQDOO\ IURP WKH QHJRWLDWLRQ SURFHVV 7KH HVVHQFH RI
VXFFHVVIXOQHJRWLDWLQJLVFRPPXQLFDWLQJDFOHDUSRVLWLRQRQDQLVVXHZKLOHVWLOOFRQYH\LQJ
ZLOOLQJQHVVWRFRPSURPLVH
&RPPXQLFDWLRQ,QWHUQDOWRWKHRUJDQL]DWLRQVWUDWHJLFOHDGHUVFRPPXQLFDWHWKURXJK
DYDULHW\RIGLUHFWDQGLQGLUHFWPHDQV7KHLUDFWLRQVDQGVWDWHPHQWVDUHDOZD\VFDUHIXOO\
2IPRUHLPPHGLDWHFRQFHUQWR*HQHUDO3RZHOOKRZHYHUZDVPRXQWLQJSUHVVDQG
FRQJUHVVLRQDOSUHVVXUHIRUDSHDFHGLYLGHQG7KH&KDLUPDQZLVKHGWRFRXQWHU
FULWLFLVPWKDWWKH'HSDUWPHQWVSODQQLQJLJQRUHGFKDQJHVLQWKHZRUOG'HWHUPLQHG
WRFRQYLQFHWKH$PHULFDQSHRSOHDQGWKH&RQJUHVVRIWKHQHHGIRUFRQWLQXHG86
HQJDJHPHQWZRUOGZLGH*HQHUDO3RZHOOKDGDOUHDG\EHJXQSXEOLFO\WRDUWLFXODWH
KLVVWUDWHJLFYLVLRQ
 /RUQD6-DIIH
6800$5<
 6WUDWHJLFOHDGHUFRPSHWHQFLHVIDOOXQGHUWKUHHEURDGFDWHJRULHVFRQFHSWXDOWHFKQLFDO
DQGLQWHUSHUVRQDO7KHVHFRPSHWHQFLHVDUHVXSSRUWHGE\DEURDGDQGULFKIUDPHRIUHIHUHQFH
GHYHORSHGWKURXJKRXWWKHOHDGHUVOLIHWKDWHQDEOHVWKHOHDGHUWRGHDOZLWKWUHPHQGRXVO\
FRPSOH[LVVXHVDQGHYHQWV$OWKRXJKWKHRUHWLFDODQGKLVWRULFDOUHDGLQJVFDQPDNHVDOLHQW
WKHNQRZOHGJHVNLOOVDQGDELOLWLHVUHODWHGWRDQ\VWUDWHJLFOHDGHUFRPSHWHQF\PRVWRIWHQ
WKHVHFRPSHWHQFLHVZLOOEHGHYHORSHGWKURXJKKDQGVRQH[SHULHQFHVHVSHFLDOO\LIOLQNHGWR
VRPHVRUWRIFDQGLGIHHGEDFNPHFKDQLVP)XWXUHVWUDWHJLFOHDGHUVVKRXOGEDODQFHLGHQWLHG
ZHDNQHVVHVZLWKFKDOOHQJLQJMREVDQGRSSRUWXQLWLHVLQRUGHUWRVWUHWFKDQGGHYHORSFXUUHQW
VNLOOV
(1'127(6
*HQHUDO0LNH/\QFKLQ+RZDUG0HDQV&ROLQ3RZHOO6ROGLHU6WDWHVPDQ6WDWHVPDQ6ROGLHU1HZ
DQDO\]HG2EVHUYHUVDUHNHHQO\VHQVLWLYHWRQXDQFHVRIPHDQLQJ(IIHFWLYHFRPPXQLFDWLRQ <RUN.QRSIS
ZLWKLQWKHRUJDQL]DWLRQLVLPSRUWDQWWRFKDQJLQJRUHYHQPDLQWDLQLQJGLUHFWLRQRUSROLF\,I -DPHV7KRPDV)OH[QHU*HRUJH:DVKLQJWRQLQWKH$PHULFDQ5HYROXWLRQ%RVWRQ/LWWOH
FKDQJHLVGHVLUHGODUJHRUJDQL]DWLRQVFDQEHVWHHUHGRQDQHZFRXUVHRQO\YHU\GHOLEHUDWHO\ %URZQS
EHFDXVHRIWKHLULQHUWLD:KHQOHDGHUVDWWHPSWFKDQJHWKURXJKSROLF\UHJXODWLRQRUYLVLRQ
WKHLU FRPPXQLFDWLRQV DUH LQWHUSUHWHG DW HYHU\ OHYHO  7KXV FDUH LQ FKRLFH RI ZRUGV LV ,ELGS
HVVHQWLDOWRHQVXULQJWKHGHVLUHGPHVVDJHLVUHFHLYHG
/RUQD6-DIIH7KH'HYHORSPHQWRIWKH%DVH)RUFH:DVKLQJWRQ'&-RLQW+LVWRU\2IFH
-RLQW&KLHIVRI6WDIIS
 ([WHUQDOWRWKHRUJDQL]DWLRQVWUDWHJLFOHDGHUVFRPPXQLFDWHZLWK&RQJUHVVJRYHUQPHQW
DJHQFLHVQDWLRQDOSROLWLFDOOHDGHUVDQGWKHLUFRQVWLWXHQWV7KLVLVDFFRPSOLVKHGWKURXJKD
YDULHW\RIPHDQV7KURXJKZULWLQJPHHWLQJVLQWHUYLHZVIRUQHZVPHGLDRUWKURXJKSXEOLF
VSHDNLQJHQJDJHPHQWVVWUDWHJLFOHDGHUVFRPPXQLFDWHIRUWKHRUJDQL]DWLRQ7KLVUHTXLUHV
FODULW\ RI WKRXJKW GLUHFWLRQ DQG SURFHVV  3RVVHVVLQJ WKHVH FRPPXQLFDWLYH DWWULEXWHV
FRXSOHGZLWKDKLJKGHJUHHRISHUVXDVLYHQHVVSURYLGHVWKHOHDGHUZLWKWKHQHFHVVDU\WRROV
WREXLOGVXSSRUWEXLOGFRQVHQVXVDQGQHJRWLDWHVXFFHVVIXOO\&RPPXQLFDWLQJLQDEULHI
FOHDUDQGSHUVXDVLYHPDQQHUDFRQVLGHUDEOHFKDOOHQJHZKHQGHDOLQJLQDYDJXHXQFHUWDLQ
HQYLURQPHQWLV D FRPSHWHQF\ VWUDWHJLF OHDGHUV PXVW PDVWHU  *HQHUDO 3RZHOO KDG WKH
DELOLW\WRHIIHFWLYHO\FRPPXQLFDWHWRH[WHUQDODXGLHQFHVDVLOOXVWUDWHGEHORZ

 

&+$37(5 'HYHORSPHQW3HUVRQQHODQG)DFLOLWLHV'270/3)2XU$UP\DVSDUWRIWKHQDWLRQDO

GHIHQVH HVWDEOLVKPHQW LV DOZD\V IDFHG ZLWK VWUDWHJLF GHFLVLRQV RQ KRZ WR GHYHORS DQG
675$7(*,&'(&,6,210$.,1*3$5$',*06 SRVLWLRQRXUIRUFHVIRUVXFFHVVLQWKHMRLQWRSHUDWLQJHQYLURQPHQW-2(DQGIRUWKHIXWXUH
$35,0(5)256(1,25/($'(56,
7KHJRDOIRUWKH\HDUDWWKH86$:&LVWRSUHSDUHRXUVWXGHQWVWREHVWUDWHJLFOHDGHUVRU
WRVHUYHDVHIIHFWLYHDGYLVHUVWRWKHVHQLRUOHDGHUVKLSRIRXUPLOLWDU\DQGWKLV1DWLRQ1REHO
/DXUHDWH(OLKX5RRWWKH6HFUHWDU\RI:DULQFKDOOHQJHGRXULQVWLWXWLRQWRVWXG\WKH
WKUHHJUHDWSUREOHPVRIQDWLRQDOGHIHQVHPLOLWDU\VFLHQFHDQGUHVSRQVLEOHFRPPDQG
7KLV PHDQV WKDW RXU JUDGXDWHV DUH SDUW RI WKH V\VWHP WKDW GHWHUPLQHV DQG UHDIUPV WKH
YDOXHVDQGWKHVHFXULW\LQWHUHVWVRIRXU1DWLRQ7KLVV\VWHPIRUPXODWHVSROLFLHVDQGVSDZQV
WKHVHULHVRIVWUDWHJLFGRFXPHQWVEHJLQQLQJZLWKWKH1DWLRQDO6HFXULW\6WUDWHJ\RIWKH86
,QHDFKFDVH$UP\OHDGHUVKLSZDVHQJDJHGDQGGHQHGWKHSXUSRVHRIWKHRUJDQL]DWLRQ
HVWDEOLVKLQJWKHYLVLRQDQGGHYHORSLQJVXSSRUWLQJVWUDWHJLHVWRDFKLHYHLWGHFLGLQJZKDW
WRGRZKHQDQGKRZ$FFRUGLQJO\VWUDWHJLFGHFLVLRQVDUHPDGHE\WKHPHPEHUVRIWKH
RUJDQL]DWLRQZKRKDYHWKHXOWLPDWHUHVSRQVLELOLW\WRHQVXUHIXOOOPHQWRILWVSXUSRVHDQG
ZKRDFFHSWWKHFRQVHTXHQFHVZKHQLWGRHVQRW)RUWKH86PLOLWDU\VWUDWHJLFGHFLVLRQV
DUHPDGHE\WKHFLYLOLDQ6HFUHWDU\RI'HIHQVHWKH&KDLUPDQ-RLQW&KLHIVRI6WDII6HUYLFH
6HFUHWDULHVDQG6HUYLFH&KLHIVDQG&RPEDWDQW&RPPDQGHUVDOORIZKRPEHDUUHVSRQVLELOLW\
WRWKH&KLHI([HFXWLYH&RQJUHVVDQGXOWLPDWHO\WRWKH$PHULFDQSHRSOH'HFLVLRQVDERXW
WKH$UP\LQYROYHRWKHURUJDQL]DWLRQVDQGDJHQFLHVWKDWFOHDUO\KDYHDVWDNHLQZKDWWKH
$UP\ GRHV DQG KRZ LW JRHV DERXW GRLQJ LW 7KH QDWXUH RI WKH FRQWHPSRUDU\ RSHUDWLQJ
DQGVXSSRUWHGE\WKH4XDGUHQQLDO'HIHQVH5HYLHZWKH1DWLRQDO'HIHQVH6WUDWHJ\DQGWKH
1DWLRQDO0LOLWDU\6WUDWHJ\JHQHUDWHGZLWKLQWKH'2'$VPHPEHUVRIWKHSURIHVVLRQRI
DUPVVZRUQWRSURWHFWDQGGHIHQGDJDLQVWDOOHQHPLHVRXUJUDGXDWHVPXVWEHH[SHUWVLQ
WKHGHYHORSPHQWRISODQVDQGWKHHPSOR\PHQWRIPLOLWDU\IRUFHVLQWKHH[HFXWLRQRIRXU
QDWLRQDOSROLFLHV7KH86$:&VSULPDU\PLVVLRQLVWRKHOSVWXGHQWVJDLQDQDSSUHFLDWLRQ
RIWKHFKDOOHQJHVRIVWUDWHJLFGHFLVLRQPDNLQJE\LQFRUSRUDWLQJLQWRLWVFXUULFXOXPOHVVRQV
UHODWLQJWRWKHWKHRU\DQGSUDFWLFHRIVWUDWHJ\IRUPXODWLRQLPSOHPHQWDWLRQDQGHYDOXDWLRQ
7KHFXUULFXOXPGRHVVRE\SURYLGLQJDQRYHUOD\RIKLVWRULFDOFDVHVWXGLHVWRPDNHUHDOWKH
FRPSOH[LW\LQYROYHGLQVWUDWHJLFGHFLVLRQPDNLQJ
675$7(*,&'(&,6,210$.,1*
6WUDWHJLF&KDQJH
 7KHUHDUHVHYHUDOVWUDWHJLFGHFLVLRQVWKDWLQYROYHGFKDQJHLQWKH86$UP\LQWKHVHFRQG
KDOIRIWKHWKFHQWXU\$IWHUWKHFRQFOXVLRQRI:RUOG:DU,,WKH86$UP\UROHVDQG
PLVVLRQVZHUHH[SOLFLWO\VWDWHGLQWKH1DWLRQDO6HFXULW\$FWRI7KHVHHVWDEOLVKHG
LWVMXULVGLFWLRQYLVjYLVWKHRWKHUVHUYLFHV,QWKHVWKH$UP\VRXJKWWRUHGHQH
LWVHOIWRDFFRPPRGDWHWKHGHIHQVHSULRULWLHVRI3UHVLGHQW'ZLJKW'(LVHQKRZHU$WLVVXH
GXULQJWKH(LVHQKRZHU$GPLQLVWUDWLRQZDVWKHFRQWHQWLRXVUHVWUXFWXULQJRIWKHIRUFHIRU
WKHQXFOHDUHUD/DWHUWKH9LHWQDP:DUQHFHVVLWDWHGDFKDQJHLQ$UP\GRFWULQHDQGIRUFH
VWUXFWXUHWRGHDOZLWKWKHHQYLURQPHQWRIXQFRQYHQWLRQDOZDU,QWKHVDQGVWKH
$UP\ DJDLQ UHGHQHG LWVHOI WR IDFH WKH 6RYLHW WKUHDW LQ:HVWHUQ (XURSH DV LW OHDUQHG WR
RSHUDWHZLWKWKHDOOUHFUXLWHGDQGSURIHVVLRQDOL]HGDOOYROXQWHHUIRUFH(DFKRIWKHVH
SHULRGVUHTXLUHGVWUDWHJLFGHFLVLRQVUHDFKHGE\VHQLRUOHDGHUVKLSDQGLPSOHPHQWHGXVLQJD
IUDPHZRUNWKDWLVWRGD\UHIHUUHGWRDV'RFWULQH2UJDQL]DWLRQ7UDLQLQJ0DWHULHO/HDGHU
,7KLVFKDSWHULVDUHSULQWRIDQXQSXEOLVKHGPDQXVFULSWE\3URIHVVRU&KDUOHV$OOHQDQG'U%UHHQD&RDWHV
HQYLURQPHQW&2(QHFHVVLWDWHVFRQVLGHUDWLRQRIFDSDELOLWLHVSRVVHVVHGE\-,,0DQGQRQ
JRYHUQPHQWDODFWRUV7KXVVWUDWHJLFGHFLVLRQPDNHUVPD\EHVLJQLFDQWO\LQXHQFHGE\
VWDNHKROGHUVRXWVLGHRIWKHRUJDQL]DWLRQ
7KH2QWRORJ\RI6WUDWHJLF'HFLVLRQ0DNLQJ
 6WUDWHJLF GHFLVLRQV DUH QRQURXWLQH DQG LQYROYH ERWK WKH DUW RI OHDGHUVKLS DQG WKH
VFLHQFHRIPDQDJHPHQW0DNLQJURXWLQHGHFLVLRQVRIKRZWRHIFLHQWO\PDQDJHUHVRXUFHV
DFFRUGLQJWRHVWDEOLVKHGSURFHGXUHVDQGFOHDUO\XQGHUVWRRGREMHFWLYHVLVWKHWHFKQLFDOZRUN
RIPDQDJHPHQW5RXWLQHGHFLVLRQVDUHQRUPDOO\WKHSXUYLHZRIVXSHUYLVRUVDQGPLGGOH
OHYHOPDQDJHUVWKDWKDYHWKHUHTXLVLWHDXWKRULW\DQGUHVSRQVLELOLW\WRWDNHDFWLRQ+RZHYHU
QRQURXWLQHGHFLVLRQVUHTXLUHZKDW+DUYDUG3URIHVVRU5RQ+HLIHW]UHIHUVWRDVDGDSWLYH
ZRUNZKHUHVHQLRUOHDGHUVKLSPXVWFRQVLGHUWKHEURDGHULPSOLFDWLRQVRIWKHVLWXDWLRQWDNH
DQ DFWLYH UROH LQ GHQLQJ WKH SUREOHP FUHDWLYHO\ H[SORUH SRWHQWLDO VROXWLRQV DQG DSSO\
MXGJPHQWVDVWRZKDWVKRXOGEHGRQH7KH86$:&GHQLWLRQRI6WUDWHJLF/HDGHUVKLSDV
WKHSURFHVVRILQXHQFHIRUDFKLHYHPHQWRIDGHVLUDEOHDQGFOHDUO\XQGHUVWRRGYLVLRQE\
LQXHQFLQJWKHRUJDQL]DWLRQDOFXOWXUHDOORFDWLQJUHVRXUFHVGLUHFWLQJWKURXJKSROLF\DQG
GLUHFWLYHDQGEXLOGLQJFRQVHQVXVLPSOLFLWO\UHTXLUHVWKHFDSDFLW\IRUVWUDWHJLFGHFLVLRQ
PDNLQJ
7KH&RPSOH[LW\RI6WUDWHJLF'HFLVLRQ0DNLQJ
6WUDWHJLFGHFLVLRQVHQWDLOLOOVWUXFWXUHGPHVV\RUZLFNHGSUREOHPVWKDWGRQRW
KDYHTXLFNHDV\VROXWLRQV+/0HQFNHQVTXLSLVDPXVLQJDQGDFFXUDWHWKHUHLVDOZD\V
D ZHOONQRZQ VROXWLRQ WR HYHU\ KXPDQ SUREOHPQHDW SODXVLEOH DQG ZURQJ  7KLV
FRQFHSWNQRZQDVWKH(UURURIWKH7KLUG.LQGGHVFULEHVKRZFRPSOH[SUREOHPVDUHRIWHQ
DGGUHVVHGZLWKDFRUUHFWVROXWLRQWRWKHZURQJSUREOHP$WWKHVWUDWHJLFOHYHOWKHVFRSH
RIGHFLVLRQPDNLQJLVGLIIHUHQWWKDQDWRWKHUOHYHOVZLWKLQDPLOLWDU\RUJDQL]DWLRQWDFWLFDO

 
DQGRSHUDWLRQDOZKLFKKDYHHVWDEOLVKHGDQGDFFHSWHGSURFHGXUHVWKDWDUHQRUPDWLYHDQG
SUHVFULSWLYH7DFWLFDOFRQYR\PRYHPHQWVRIDQLQIDQWU\SODWRRQFDQEHUHGXFHGWRVHYHUDO
GHQDEOHSDUDPHWHUVQXPEHURIYHKLFOHVUDWHRIPDUFKLQWHUYDOEHWZHHQYHKLFOHVQXPEHU
RIUHIXHODQGUHVWVWRSVHWFVRWKDWWKHSODWRRQOHDGHUFDQDUULYHDWWKHULJKWVROXWLRQWR
JHWWKHXQLWWRDGHVLUHGORFDWLRQ$WWKHRSHUDWLRQDOOHYHOPRYHPHQWVIURPDVWDJLQJDUHD
IRUPXOWLSOHEULJDGHFRPEDWWHDPVDORQJSDUDOOHOURXWHVPD\EHPRUHFRPSOLFDWHGEXWXVH
WKHVDPHSDUDPHWHUVWRGHWHUPLQHDEHVWZD\WRGHSOR\FRPEDWIRUFHVLQWRDQDUHDRI
RSHUDWLRQLQDFFRUGDQFHZLWKDZHOOSUHVFULEHGPRYHPHQWWDEOH+RZHYHUWKHVWUDWHJLF
OHYHOGHFLVLRQRQWKHQXPEHURIEULJDGHFRPEDWWHDPVWKDWWKH$UP\ZLOOHOGDVSDUWRI
LWV7UDQVIRUPDWLRQ WR WKH 0RGXODU )RUFH LQYROYHV LQQXPHUDEOH LQWHUGHSHQGHQW DFWLYLWLHV
ZLWKLQWKH'270/3)IUDPHZRUN6XFKDGHFLVLRQLVLQKHUHQWO\PRUHFRPSOH[DQGLOO
VWUXFWXUHGLQSXUVXLWRIWKHREMHFWLYHWRSURYLGHUHOHYDQWODQGSRZHUIRUFHVWRFRPEDWDQW
FRPPDQGHUVIRUIXWXUHEDWWOHHOGV
$WWKHVWUDWHJLFOHYHOWKHQDWLRQDOGHIHQVHHVWDEOLVKPHQWDQGLWVPHPEHUVPXVWLQWHUDFW
DFURVV GLYHUVH HQYLURQPHQWDO GRPDLQV DQG DUH UHTXLUHG WR GHPRQVWUDWH HIIHFWLYHQHVV LQ
WKHH\HVRIPXOWLSOHFRQVWLWXHQWV6WUDWHJLFGHFLVLRQPDNLQJRFFXUVDWDNH\QH[XVRIWKDW
LQWHUDFWLRQFXOPLQDWLQJIURPGHFLVLRQFULWHULDDVVRFLDWHGZLWKG\QDPLFQRQOLQHDUKLJKO\
LQWHUFRQQHFWHGDQGLQWHUGHSHQGHQWUHODWLRQVKLSV7KHSRZHUWRPDNHVWUDWHJLFGHFLVLRQV
LVXVXDOO\GLVSHUVHGRYHUDQXPEHURIFRQVWLWXHQFLHV7KHSXUSRVHRIWKLVFKDSWHULVWR
VKRZ FRPPRQO\ XVHG GHFLVLRQ SDUDGLJPV ZKLOH KLJKOLJKWLQJ WKHLU SDUWLFXODU VWUHQJWKV
DQG ZHDNQHVVHV DV DSSURSULDWH  0DNLQJ VHQVH RI VWUDWHJLF GHFLVLRQV UHTXLUHV DGGLQJ D
VHWRIPHQWDOPRGHOVGLVWLQFWIURPWKHWUDGLWLRQDOPLOLWDU\GHFLVLRQPDNLQJPRGHOV7KH
GHFLVLRQWKHRULHVSUHVHQWHGSURYLGHOHDGHUVZLWKDQXQGHUVWDQGLQJRIWKHPDMRUIRUPVRI
GHFLVLRQ PDNLQJ XVHG LQ FRPSOH[ HQYLURQPHQWV  7KHVH PRGHOV DUH PRUH WKDQ DEVWUDFW
FRQFHSWXDOL]DWLRQVWKH\SURYLGHIUDPHZRUNVE\ZKLFKWRDQDO\]HSDVWVWUDWHJLFSUDFWLFHV
DQG GHYHORS QHZ RQHV  7KH PRGHOV DUH JHQHUDOO\ FDWHJRUL]HG DV HLWKHU SUHVFULSWLYH RU
GHVFULSWLYH$VWKHWHUPLPSOLHVWKHSUHVFULSWLYHPRGHOVXJJHVWVPHWKRGVDQGSURFHVVHV
WKDWVKRXOGEHXVHGLQRUGHUWRPDNHEHWWHUGHFLVLRQV7KLVW\SHRIPRGHOLVVHHQDVDPDWWHU
5DWLRQDO'HFLVLRQ0DNLQJ7KLVDSSURDFKDOVRNQRZQDVWKHUDWLRQDOFRPSUHKHQVLYH
PRGHO ERUURZV IURP HFRQRPLF WKHRU\ DQG KDV WKH JRDO RI PD[LPL]LQJ HIFLHQF\ E\
SLFNLQJWKHEHVW DOWHUQDWLYHEDVHG RQ VSHFLFFULWHULD &RQJUXHQWZLWKWKH0'03LWLV
RIWHQGHVFULEHGDVDVL[VWHSSURFHVV
 'HQHJRDOV
 ,GHQWLI\DOWHUQDWLYHV
 &DOFXODWHWKHFRQVHTXHQFHV
 'HFLGHWKHPRVWIDYRUDEOHXVLQJDFDOFXODWHGUDWLRRIEHQHWVWRFRVWV
 0RQLWRULPSOHPHQWDWLRQ
 %HJLQDJDLQ
7KHUDWLRQDODSSURDFKLVYHU\DWWUDFWLYHDQGHDV\WRHPEUDFHZLWKLWVVLPSOLFLW\7KH
IRUPXODWLRQ LQWXLWLYHO\ VHHPV WR PDNH VHQVH  ,W SURYLGHV D VWUXFWXUHG ZD\ WR DGGUHVV D
SUREOHPDQGDUULYHDWDVROXWLRQ7KHDSSURDFKPD\DSSHDUWRLPSRVHFHUWDLQW\DQGFODULW\
+RZHYHU LW LV EHVW VXLWHG IRU VLPSOH ZHOOVWUXFWXUHG SUREOHPV  7KH UDWLRQDO GHFLVLRQ
PDNLQJSURFHVVGHSHQGVRQFOHDUVWDWHPHQWVRIJRDOVDFFHSWHGE\WKRVHVHHNLQJWRDGGUHVV
SUREOHPDWLFFRQGLWLRQV,WZRUNVZHOORQWHFKQLFDOLVVXHVZKHQJRDOVDUHSUHFLVHO\GHQHG
DQG WKHUH LV JHQHUDO DJUHHPHQW RQ PHDVXUHV IRU DQDO\VLV DQG VHOHFWLRQ FULWHULD  1$6$
XVHVWKHUDWLRQDODSSURDFKEHFDXVHHQJLQHHULQJSDUDPHWHUVDQGSURFHGXUHVWHQGWREHOHVV
DPELJXRXV7KHXVHRIWKLVDSSURDFKLVPXFKPRUHGLIFXOWDQGSUREOHPDWLFIRUGHIHQVH
RUJDQL]DWLRQVZKRVHJRDOVDUHFRQVWDQWO\DPDWWHURIGHEDWHLQDSROLWLFDOV\VWHPGHVLJQHG
WREDODQFHIHGHUDOSRZHUEHWZHHQWKUHHEUDQFKHVRIJRYHUQPHQW
RIFKRLFHE\GHFLVLRQPDNHUVHJWKH0LOLWDU\'HFLVLRQ0DNLQJ3URFHVV0'03,Q
FRQWUDVW GHVFULSWLYH PRGHOV DWWHPSW WR GHWDLO WKH SURFHVV RI KRZ GHFLVLRQV DUH DFWXDOO\
PDGH

7+(%$6,&'(&,6,210$.,1*3$5$',*06

7KHUH DUH PDQ\ PRGHOV RI GHFLVLRQ PDNLQJ XVHIXO IRU VWUDWHJLVWV LQ FRQFHSWXDOL]LQJ
GHFLVLRQV6RPHRIWKHPRVWZHOONQRZQWKDWDUHRIYDOXHIRU86$:&VWXGHQWVDUH
 5DWLRQDO 0RGHO  %RXQGHG5DWLRQDOLW\ 0RGHO  ,QFUHPHQWDO 0RGHO  0L[HG
6FDQQLQJ 0RGHO  3ROLV 0RGHO  *DUEDJH &DQ 0RGHO  %DUJDLQLQJ 0RGHO 
3DUWLFLSDWLYH0RGHO2WKHUGHFLVLRQPDNLQJPRGHOVWKDWKDYHIRXQGDWLRQVLQPLFURHFRQRPLF
WKHRU\VXFKDVWKHSXEOLFFKRLFHPRGHOWKHSURVSHFWPRGHOHWFUHODWHPRUHFORVHO\WRWKH
)LJXUH7KH-RLQW3ODQQLQJDQG([HFXWLRQ&RPPXQLW\
FLYLOLDQQRQPLOLWDU\VHFWRUDQGWKXVDUHQRWDGGUHVVHGKHUH

 

$OWKRXJK WKH UDWLRQDO DSSURDFK RI WKH 0'03 LV HPEUDFHG E\ RXU PLOLWDU\ FXOWXUH 7KLVPRGHORIWHQKDVDQLPSOLFLWFKRLFHYDULDQWZKHUHDOWKRXJKPXOWLSOHDOWHUQDWLYHVDUH
PDQ\IDFWRUVSUHYHQWLWVVWULFWDGKHUHQFHDVDSUHVFULSWLYHSURFHVV:HVHHWKHFKDOOHQJH SUHVHQWHGWKHUHLVDFOHDUIDYRULWHWKDWZLOOOLNHO\EHVHOHFWHGVRGHFLVLRQFULWHULDDUHVNHZHG
SUHVHQWHG E\ WKH UDWLRQDO DSSURDFK ZKHQ RXU PLOLWDU\ OHDGHUV VHHN FOHDU H[SUHVVLRQV RI WRVXSSRUWWKHFKRLFH7KRVHPLOLWDU\SODQQHUVDQGRSHUDWRUVZKRKDYHEHHQLQYROYHGZLWK
GHVLUHGHQGVWDWHVDVDSUHFXUVRUWRGHYHORSLQJPLOLWDU\VWUDWHJ\DQGRSHUDWLRQDOSODQVHJ 0'03 FDQ UHFRXQW WKH GHYHORSPHQW RI WKH REOLJDWRU\ WKUHH FRXUVHV RI DFWLRQ DQG WKH
:HLQEHUJ3RZHOOGRFWULQHDVLPSOHPHQWHGLQ2SHUDWLRQV'HVHUW6KLHOGDQG'HVHUW6WRUP REMHFWLYHZHLJKWLQJWKDWUHVXOWHGLQVHOHFWLRQRIWKHVWDIIIDYRULWHFRXUVHRIDFWLRQLH
8VLQJWKHFRQWH[WRIWKH-RLQW3ODQQLQJDQG([HFXWLRQ&RPPXQLW\VKRZQLQ)LJXUHLWLV
DUJXDEO\GLIFXOWWRKDYHHDFKVXEFRPPXQLW\DJUHHRQWKHFRPPRQJRDOVWREHDFKLHYHG
7KH QDWXUH RI WKH SUREOHPV DQG WKH FRPSOH[LW\ RI WKH HQYLURQPHQW ZRXOG JHQHUDWH DQ
XQPDQDJHDEOHQXPEHURISRVVLEOHDOWHUQDWLYHVWRFRQVLGHU7KHXQFHUWDLQW\DQGDPELJXLW\
RIWKHHQYLURQPHQWZRXOGDOVRXQGHUPLQHDQ\FRQGHQFHLQGHWHUPLQLQJFRQVHTXHQFHVLID
SDUWLFXODUDOWHUQDWLYHZHUHVHOHFWHG7KRVHFRQVHTXHQFHVHLWKHULQWKHDWWDLQPHQWRIVWDWHG
JRDOVRUFRPPHQVXUDWHEHQHWVDQGFRVWVDVVXPHFDXVDOLW\EHWZHHQVHOHFWHGFRXUVHVRI
DFWLRQV DQG VXEVHTXHQW UHVXOWV  :KLOH PLOLWDU\ OHDGHUV SUHIHU FOHDU H[SUHVVLRQV RI HQG
VWDWHV DQG REMHFWLYHV DPELJXLW\ LV YDOXDEOH LQ D SROLWLFDO HQYLURQPHQW  7KH GHVLUH IRU
FOHDUO\GHOLQHDWHGJRDOVDQGREMHFWLYHVDUHUDUHO\WREHIRXQGDQGHYHQZKHQWKH\DUHVWDWHG
SXEOLFO\WKH\DUHRIWHQVXEMHFWWRFKDQJH+HQFHWKHUDWLRQDOGHFLVLRQPDNLQJDSSURDFK
LVQRWVXIFLHQWWRH[SODLQWKHUHDOZRUOGGHFLVLRQVPDGHDWWKHRSHUDWLRQDODQGVWUDWHJLF
OHYHO
WKHRQHWKDWWKHFRPPDQGHUZRXOGDSSURYH

,QFUHPHQWDO 0RGHO  &KDUOHV /LQGEORP DOVR UHMHFWHG WKH UDWLRQDOFRPSUHKHQVLYH
PRGHO DQG SUHVHQWHG DQ DOWHUQDWLYH LQFUHPHQWDO DSSURDFK WR GHFLVLRQ PDNLQJ  ,Q KLV
QRZIDPRXVSDSHU7KH6FLHQFHRI0XGGOLQJ7KURXJK/LQGEORPVDZWKDWPRVWSROLF\
GHFLVLRQVDUHPDGHLQVPDOODQDO\WLFDOLQFUHPHQWVLQUHVSRQVHWRHYHQWVDQGFLUFXPVWDQFHV
ZKHUH WKH GHFLVLRQ PDNHUV DQDO\VLV LV IRFXVHG RQ IDPLOLDU EHWWHUNQRZQ H[SHULHQFHV
7KLV VLJQLFDQWO\ UHGXFHV WKH QXPEHU RI GHFLVLRQ IDFWRUV DQG DOWHUQDWLYHV DYDLODEOH
'LVMRLQWHG LQFUHPHQWDOLVP DUJXHG /LQGEORP LV UHDOO\ KRZ SUREOHPV DUH VROYHG RYHU
WLPHLQSLHFHPHDOUDWKHUWKDQLQFRPSUHKHQVLYHIDVKLRQ5HODWLYHO\VPDOORULQFUHPHQWDO
SROLF\FKDQJHVWHQGWREHWKHQRUPEHFDXVHRIWKHQHHGIRUFRQVHQVXVDPRQJWKHLQWHUHVWHG
SDUWLHVDQGQHJRWLDWLRQHIIRUWVDUHGLUHFWHGWRZKDWFDQEHDFKLHYHG8QIRUWXQDWHO\WKH
DWWDLQPHQW RI VKRUWWHUP VROXWLRQV PD\ EH DW WKH H[SHQVH RI PRUH LPSRUWDQW DQG IDU
UHDFKLQJJRDOV,QFUHPHQWDOLVPLVQRWLQKHUHQWO\XQGHVLUDEOHVLQFHVPDOOFKDQJHVIURPWKH
7KH %HKDYLRUDO 0RGHO %RXQGHG 5DWLRQDOLW\ 7KH PRVW LPSRUWDQW FULWLTXH RI WKH
UDWLRQDODSSURDFKFRPHVIURPWKHZRUNRI1REHO/DXUHDWH+HUEHUW6LPRQZKRSUHVHQWHG
WKHFRQFHSWRIERXQGHGUDWLRQDOLW\7KLVWKHRU\KROGVWKDW DQGRUJDQL]DWLRQVDYRLGPDNLQJELJPLVWDNHVWKDWFRXOGEHFRVWO\PLOLWDULO\QDQFLDOO\DQG
 +XPDQV DUH LQWHOOHFWXDOO\ LOOHTXLSSHG WR PDNH FRJQLWLYHO\ UDWLRQDO GHFLVLRQV
EHFDXVHWKH\FDQRQO\SURFHVVDIHZELWVRIGDWDDWDWLPH
 &RPSUHKHQVLYH DQDO\VLV LV LPSRVVLEOH GXH WR OLPLWDWLRQV RQ WKH DYDLODELOLW\ RI
LQIRUPDWLRQWLPHDQGH[SHUWLVH
 ,QGLYLGXDOVFDQQRWLPDJLQHHYHU\SRVVLEOHVROXWLRQWRDSUREOHPDQGWKHUHIRUHQRW
DOOSRVVLEOHDOWHUQDWLYHVDUHFRQVLGHUHGRUDQDO\]HG
7KH SUDFWLFDO DSSOLFDWLRQ RI WKH UDWLRQDO 0'03 KDV GHFLVLRQ PDNHUV VLPSOLI\LQJ WKH
SUREOHPVHWDQGUHVWULFWLQJWKHPVHOYHVWRDIHZPDMRUDOWHUQDWLYHV7KLVKDSSHQVLQWKH
IDFHRIWLPHFRQVWUDLQWVDQGWKHOLPLWDWLRQVRISHRSOH,QSUDFWLFHGHFLVLRQPDNHUVLGHQWLI\
DOLPLWHGQXPEHURIGHFLVLRQPDNLQJFULWHULDDQGVXEVHTXHQWO\H[DPLQHDOLPLWHGUDQJHRI
DOWHUQDWLYHVWKDWKDYHZRUNHGEHIRUHRUDUHHDV\WRGHYHORS$OWHUQDWLYHVHOHFWLRQWHQGV
WRVWRSDWWKHUVWDOWHUQDWLYHWKDWVXIFLHQWO\DGGUHVVHVWKHSUREOHPDWKDQG*LYHQWKH
ODFNRISHUIHFWLQIRUPDWLRQWRPDNHWKHGHFLVLRQDQGWKHLPSRVVLELOLW\RIRSWLPL]DWLRQLQ
UHVXOWLQJGHFLVLRQVDUHPRUHVXEMHFWWRFRUUHFWLRQLIWKH\SURGXFHXQIDYRUDEOHRXWFRPHV
7KHWKHRU\RILQFUHPHQWDOLVPH[SODLQVKRZWKHSURFHVVRIGHFLVLRQPDNLQJLVVORZHGGRZQ
SROLWLFDOO\+RZHYHUIRFXVLQJRQVPDOOHUSUREOHPVDQGIDLOXUHWRFRQIURQWWKHODUJHULVVXHV
PD\UHVXOWLQNLFNLQJWKHFDQGRZQWKHURDGWRGHDOZLWKODWHUZKHQWKHVLWXDWLRQPD\EH
PRUHFRPSOH[DQGGDQJHURXV)XUWKHUPRUHWKHLQFUHPHQWDOPRGHOPD\VORZO\PRYHWKH
RUJDQL]DWLRQDZD\IURPWKHRULJLQDOHVSRXVHGJRDOV,IWKHRUJDQL]DWLRQLVIDFHGZLWKDQ
HQYLURQPHQWWKDWKDVFKDQJHGVLJQLFDQWO\WKHLQFUHPHQWDODSSURDFKLVXQOLNHO\WRUHVXOW
LQWKHQHFHVVDU\DPRXQWRIFKDQJHWRJXDUDQWHHRUJDQL]DWLRQDOVXUYLYDO
7KHLQFUHPHQWDOPRGHOKDVWKHIROORZLQJFKDUDFWHULVWLFV
 2QO\DIHZRSWLRQVDQGPHDQVDUHFRQVLGHUHG
 'HFLVLRQVDUHWKHSURGXFWRIQHJRWLDWHGVHWWOHPHQWV
 &KDQJHVDUHPDGHJUDGXDOO\RYHUWLPH
 'HFLVLRQVWHQGWREHPDGHUHDFWLYHO\
 3ROLWLFDOFRQVLGHUDWLRQVDUHLPSRUWDQWLQGHWHUPLQLQJRXWFRPHV
7KHLQFUHPHQWDODSSURDFKWRGHFLVLRQPDNLQJLVUHHFWLYHRIWKH3ODQQLQJ3URJUDPPLQJ
WKH SUREOHPVHWWLQJ 6LPRQ DUJXHG WKDW GHFLVLRQ PDNHUV VDWLVFH 7KDW LV WR VD\ WKDW %XGJHWLQJDQG([HFXWLQJ33%(SURFHVVXVHGLQWKHPLOLWDU\7KHJUHDWHVWSUHGHWHUPLQLQJ
SHRSOH GR QRW RSWLPL]H GHFLVLRQV EXW DFWXDOO\ VHHN WR QG D VROXWLRQ WKDW LV PLQLPDOO\ IDFWRUIRUDQ\\HDUVEXGJHWLVWKHSULRU\HDUVEXGJHW$Q\WKLQJPRUHWKDQLQFUHPHQWDO
VXIFLHQW DQG VDWLVIDFWRU\RQH WKDW LV JRRG HQRXJK WR PHHW PLQLPXP HVWDEOLVKHG FKDQJHLVXQOLNHO\ZKHQLWFRPHVWRWKHEXGJHWDU\SURFHVV$QLWHPPLJKWEHVXEPLWWHG
FULWHULD7KHFRQFOXVLRQRI2SHUDWLRQ'HVHUW6WRUPLQVKRUWRIDQLQYDVLRQRI,UDT DQGDSSURYHGLQWKH3URJUDP2EMHFWLYH0HPRUDQGXP320DQGPLJKWEHLQFUHPHQWDOO\
DQGWKHRYHUWKURZRI6DGGDP+XVVHLQVUHJLPHFRXOGEHYLHZHGDVDVDWLVFHGGHFLVLRQ DGGHGWRE\XVLQJWKH6XSSOHPHQWDO%XGJHWWRJDLQPRUHUHVRXUFHVIRULW$OWHUQDWLYHO\D
WKDWZDVJRRGHQRXJKDWWKHWLPH SURJUDPPLJKWEHLQFUHPHQWDOO\GHYHORSHGLQWKH320RYHUVHYHUDO\HDUV6HYHUDORIRXU

 
'HSDUWPHQWRIWKH$UP\'$ZHDSRQVV\VWHPVSURJUDPVHJ%UDGOH\)LJKWLQJ9HKLFOH RIDOOSHUWLQHQWFKRLFHVLVLPSUDFWLFDODQGRQWKHRWKHUKDQGWKDWLQFUHPHQWDOLVPGLGQRW
WKH5HPRWHO\3LORWHG9HKLFOHDQGWKH)XWXUH&RPEDW6\VWHPFRXOGEHYLHZHGXVLQJWKH GLVWLQJXLVKEHWZHHQFRUHDQGSHULSKHUDOLVVXHV
LQFUHPHQWDO PRGHO  ,Q WKH FDVH RI WKH %UDGOH\ )LJKWLQJ9HKLFOH WKH RULJLQDO HVSRXVHG
JRDOVZHUHLQFUHPHQWDOO\FRQWUDGLFWHGRYHUWLPH 3ROLV0RGHO$QRWKHUVFKRODUFULWLFDODERXWWKHUDWLRQDODQGWKHLQFUHPHQWDOPRGHOV
 LV 'HERUDK 6WRQH ZKR RIIHUHG DQRWKHU SHUVSHFWLYH RI SXEOLF SROLF\ PDNLQJWKH 3ROLV
/LQGEORPFRQFHGHGVKRUWFRPLQJVRIWKHLQFUHPHQWDODSSURDFKLQFOXGLQJIUDJPHQWDWLRQ PRGHORIDSROLWLFDOFRPPXQLW\6WRQHSUHVHQWHGRSSRVLQJYLHZSRLQWVRIWKHPDUNHWD
RIGHFLVLRQVDUELWUDU\H[FOXVLRQVDQGGHFLVLRQPDNHUVPD\RYHUORRNH[FHOOHQWSROLFLHVQRW UDWLRQDOPRGHOIRUSROLWLFDOGHFLVLRQPDNLQJDQGWKHSROLVKRZSROLWLFDOGHFLVLRQVUHDOO\
VXJJHVWHGE\WKHFKDLQRIVXFFHVVLYHSROLF\VWHSV<HKH]NHO'URURIIHUHGRWKHUFULWLTXHV KDSSHQ6KHDUJXHGWKHSROLVSHUVSHFWLYHLVPRUHGHVFULSWLYHRIWKHZD\GHFLVLRQVDUH
RILQFUHPHQWDOLVP,WPD\QRWVXIFHWRPHHWUHDOJURZLQJGHPDQGVLWPD\PLVVWKHPDUN UHDOO\PDGHE\FRPSDULQJWKHWKHRUHWLFDOSROLWLFDOHQYLURQPHQWVRIWKHPDUNHWDQGWKHSROLV
HQWLUHO\LWODFNVUHVSRQVLYHQHVVWRODUJHVFDOHQHHGVLWPDNHVDFFHSWDEOHWKHIRUFHVWKDW DQGFRQVLGHULQJWKHJRDOVRIWKHUHVSHFWLYHFRPPXQLWLHV+RZSUREOHPVDUHGHQHGLQWKH
WHQGWRZDUGLQHUWLDLWPDLQWDLQVWKHVWDWXVTXRDQGLWODFNVLQQRYDWLYHQHVV7KHUHVXOW PDUNHWYHUVXVWKHSROLVLVDIXQFWLRQRIV\PEROLVPFDXVHVDQGLQWHUHVWVWKDWLQXHQFHKRZ
PD\EHDIDLOXUHWRFRQIURQWPDMRULVVXHV7KHGDQJHULVWKDWWKHVLWXDWLRQPD\EHFRPH
PRUHFRPSOH[DQGWHQXRXV
0L[HG 6FDQQLQJ 0RGHO  7KLV LV D K\EULG RU FRPSURPLVH SDUDGLJP GHULYHG IURP
UDWLRQDODQGLQFUHPHQWDOGHFLVLRQPDNLQJWKHRULHV,WLVGUDZQIURPWKHZRUNRIVRFLRORJLVW
$PLWDL(W]LRQLZKRVXJJHVWHGLWVXVHLQVHHNLQJSROLF\VROXWLRQVWRVKRUWWHUPEXWXUJHQW
QHHGV,WLVLQHIIHFWDFRQFHSWWKDWFDQEHGHVFULEHGDVVSOLWWLQJWKHGLIIHUHQFHEHWZHHQ
WKHPRGHOV(W]LRQLOLNHQVWKHFRQFHSWWRDSKRWRJUDSKHUZRUNLQJZLWKWZRFDPHUDV$
EURDGDQJOHGFDPHUDTXLFNO\SDQVWKURXJKWKHHQWLUHHQYLURQPHQWZKLFKLVWKHUDWLRQDO
DSSURDFK $QRWKHU FDPHUD ZRXOG ]HUR LQ RQ WKRVH DUHDV UHYHDOHG E\ WKH UVW FDPHUD
WRUHTXLUHPRUHGHWDLOHGH[DPLQDWLRQ-DQLVDQG0DQQFDOOWKLVWKHTXDVLVDWLVFLQJ
DSSURDFK)RUH[DPSOHWKH861DWLRQDO6HFXULW\$GYLVRUWRWKH3UHVLGHQWLQVXJJHVWLQJ
D SROLF\ GHFLVLRQ RQ WHUURULVW FDPSV LQ 3DNLVWDQ PLJKW VXSHUFLDOO\ VFDQ DOO UHFHQW
GHYHORSPHQWVZKLFKLVWKHFRPSUHKHQVLYHDSSURDFK+HPLJKWWKHQIRFXVRQWKHLVVXHV
WKDWKDYHFRPHXSVLQFHWKHODVWVFDQZKLFKLVWKHLQFUHPHQWDODSSURDFK
 GHFLVLRQDVFUHDWLQJWKHPD[LPXPVRFLDOJRRG
7KH&KDLUPDQRIWKH-RLQW&KLHIVRI6WDIIJLYHQDVWUDWHJLFSUREOHPVXFKDVSURYLGLQJ
DGYLFH WR WKH 6HFUHWDULHV RI 'HIHQVH DQG 6WDWH RQ ZKHWKHU WKH 86 VKRXOG DVVLVW ,VUDHO
LQLWVRQJRLQJFRQLFWZLWK+DPDVZRXOGSODXVLEO\UHYLHZWKHFKHVVERDUGRIRSWLRQV
PLOLWDU\VXSSRUWSROLWLFDODQGGLSORPDWLFVXSSRUWZDWFKDQGZDLWRUVRPHRWKHUVWUDWHJ\
+H PLJKW WKHQ FKRRVH D SDUWLFXODU DSSURDFK  +DYLQJ GRQH VR KH DQG KLV WHDP ZRXOG
JR EDFN WR H[DPLQLQJ LQ GHWDLO WKH RSWLRQV ZLWKLQ WKH FKRVHQ VXEVHW :KHQ 3UHVLGHQW
)UDQNOLQ'HODQR5RRVHYHOWDQGKLVDGYLVRUVVFDQQHGWKHDYDLODEOHRSWLRQVIRUWKH86SULRU
WRLQYROYHPHQWLQ:RUOG:DU,,WKH\ZHUHXWLOL]LQJWKHUDWLRQDODSSURDFK:KHQLWEHFDPH
FOHDUWKDWWKHSUHIHUUHGRSWLRQZDVLQYROYHPHQWLQWKHZDU)'5DQGDGYLVRUVWKHQVFDQQHG
SHUWLQHQWGHFLVLRQVUHTXLUHGIRU86LQYROYHPHQW,QWXUQWKLVVFDQJHQHUDWHGWKHVWUDWHJ\
IRUHQWU\LQWRWKHZDU
(W]LRQL FULWLFL]HG ERWK DSSURDFKHV DV EHLQJ LQVXIFLHQW  +H REVHUYHG WKDW RQ WKH
RQH KDQG FDOOLQJ WKH UDWLRQDO DSSURDFK XQUHDOLVWLF DQG DUJXLQJ WKDW D IXOO H[DPLQDWLRQ

IRUZKLFKWKHUHDUHQRLPPHGLDWHSUREOHPVDQGWKHVHDUHGXPSHGLQDKROGLQJFDQWKH
JDUEDJHFDQ3UREOHPVQHHGLQJVROXWLRQVZLOODULVHLQWKHIXWXUHDQGDVHDUFKWKURXJKWKH
JDUEDJHPLJKW\LHOGDVROXWLRQ,QWKLVVHQVHWKHJDUEDJHFDQLVUHDOO\DQRSSRUWXQLW\
FDQ7KHPL[RIRSSRUWXQLWLHVO\LQJLQZDLWLQJDUHEDVHGRQWKHRUJDQL]DWLRQVFXUUHQWDQG
SDVWHQYLURQPHQWDOUHDOLWLHV7KHJDUEDJHFDQVUHOHYDQFHGHSHQGVRQKRZTXLFNO\WKHVH
FDQVJHWOOHGDQGDOVRKRZTXLFNO\WKHJDUEDJHFDQVDUHGLVFDUGHG:KLOHWKHJDUEDJH
FDQ SUHVHQWV RSSRUWXQLWLHV IRU DGGUHVVLQJ WKH LPSRUWDQW SUREOHPV LW KDV WKH WKUHDW RI
XQV\VWHPDWLFUDWLRQDOLW\
9LFH$GPLUDO-RVHSK0HWFDOIXVHGWKHJDUEDJHFDQPRGHOWRH[SODLQGHFLVLRQPDNLQJ
RIWKH*UHQDGD5HVFXH2SHUDWLRQ9$'00HWFDOIZDVWKHFRPPDQGHURIWKHMRLQW
86IRUFHV&-7)IRU2SHUDWLRQ8UJHQW)XU\ZKRLQKLVUHHFWLRQVFRPPHQWHG,WLV
SUREOHPVDUHDGGUHVVHG'HFLVLRQVDUHPDGHDQGVROXWLRQVSROLF\VWUDWHJLHVDUHIRUPHG
ZLWKLQGXFHPHQWVUXOHVULJKWVDQGSRZHUVDVWKHGULYLQJIRUFHV,QVXPWKHSROLVPRGHO
DVVXPHV LQFRQVLVWHQFLHV LQ OLIH ZKHUH WKH SROLWLFDO FRPPXQLW\ LV DEOH WR GHDO ZLWK OHVV
WKDQFRPSUHKHQVLYHLQIRUPDWLRQDQGOHVVWKDQUHOLDEOHLQIRUPDWLRQ6WRQHVPRGHOKDVWKH
IROORZLQJFKDUDFWHULVWLFV
 6WDWHJRDOVDPELJXRXVO\DQGNHHSVRPHVHFUHW
 %HSUHSDUHGWRVKLIWDQGUHGHQHJRDOVDVWKHSROLWLFDOVLWXDWLRQGLFWDWHV
 .HHSXQGHVLUDEOHDOWHUQDWLYHVRIIWKHDJHQGDE\QRWPHQWLRQLQJWKHP
 0DNH\RXUSUHIHUUHGDOWHUQDWLYHDSSHDUWREHWKHRQO\IHDVLEOHRQH
 )RFXVRQRQHSDUWRIWKHFDXVDOFKDLQDQGLJQRUHSROLWLFDOO\GLIFXOWRQHV
 8VHUKHWRULFDOGHYLFHVWREOHQGDOWHUQDWLYHVWRSUHYHQWVWURQJRSSRVLWLRQ
 6HOHFWLYHO\SURMHFWFRQVHTXHQFHVWKDWPDNH\RXUGHFLVLRQORRNWKHEHVW
 &
 KRRVH WKH DFWLRQ WKDW KXUWV SRZHUIXO FRQVWLWXHQWV WKH OHDVW EXW SRUWUD\ \RXU
7KH3ROLV0RGHOFDQEHDSSOLHGWRWKHGHFLVLRQPDNLQJSURFHVVRI3UHVLGHQW/\QGRQ
-RKQVRQIRUWKH9LHWQDP:DU$V+50F0DVWHUUHFRXQWVLQKLVERRN'HUHOLFWLRQRI'XW\
-RKQVRQVJRDOVIRUWKHFRQLFWZHUHQRWFOHDUO\VWDWHGQRUVKDUHGZLWKWKH86&RQJUHVV
:LWKVXSSRUWRI6HFUHWDU\RI'HIHQVH0F1DPDUDWKHSUHVLGHQWFRRSWHGWKH-RLQWV&KLHIV
RI6WDIIWRJDLQWKHLUVLOHQFHDVKHSXVKHGIRUKLV*UHDW6RFLHW\DJHQGDDWWKHH[SHQVHRI
UHFRPPHQGHGIRUFHOHYHOVIRURSHUDWLRQVLQ9LHWQDP
*DUEDJH&DQ0RGHO&RKHQ0DUFKDQG2OVHQGHYHORSHGWKHQRWLRQWKDWGHFLVLRQV
DUHPDGHEDVHGRQFKDQFHDQGXQV\VWHPDWLFLQWHUDFWLRQVRIDFWRUVDQGRSSRUWXQLWLHVDQG
WKHFXUUHQWDYDLODELOLW\RIUHVRXUFHV7KLVPRGHOEDVHGRQWKHWKHRU\RIRUJDQL]DWLRQDO
DQDUFK\SRVLWVWKHQRWLRQWKDWRUJDQL]DWLRQVKDYHLQFRQVLVWHQWDQGLOOGHQHGSUHIHUHQFHV
DQGRSHUDWHRQWKHEDVLVRIWULDODQGHUURUWKDWVWDNHKROGHUVRQO\SDUWLDOO\XQGHUVWDQGWKH
SURFHVVHVDQGWKDWGHFLVLRQPDNHUVRIWHQDFWZKLPVLFDOO\DQGLPSXOVLYHO\:LWKLQWKLV
IUDPHZRUN0DUFKDQGKLVFROOHDJXHVWKHRUL]HGWKDWRUJDQL]DWLRQVSURGXFHPDQ\VROXWLRQV

DGHFLVLRQWKDWDOOZLOODFFHSW&RQVHTXHQWO\LWPD\OHDGWRDQHTXLWDEOHGLVWULEXWLRQRI
SRZHUDQGEHQHWWKDWPD\EHLQKHUHQWO\OHVVHIIHFWLYHWKDQDFRQWHVWHGGHFLVLRQ

.HWWO DQG )HVOHU SURYLGH XV ZLWK DQ H[DPSOH DV WKH\ GHFRQVWUXFW WKH 86 GHFLVLRQV
GXULQJWKH&XEDQ0LVVLOH&ULVLV%DVHGRQ*UDKDP$OOLVRQVFODVVLFVWXG\7KH(VVHQFHRI
'HFLVLRQWKHH[DPSOHGHPRQVWUDWHVWKHEDUJDLQLQJDPRQJWKHNH\.HQQHG\$GPLQLVWUDWLRQ
DGYLVHUVUDQJLQJIURPWKHVHQLRUPLOLWDU\RIFLDOV6HFUHWDU\RI'HIHQVH6HFUHWDU\RI6WDWH
'LUHFWRU &HQWUDO ,QWHOOLJHQFH $JHQF\ DQG RWKHUV XQGHU WKH OHDGHUVKLS RI WKH $WWRUQH\
*HQHUDO5REHUW.HQQHG\7KH&XEDQ0LVVLOH&ULVLVZDVDKLJKVWDNHVDQGWLPHVHQVLWLYH
HYHQWZLWKSRWHQWLDOO\FDWDVWURSKLFFRQVHTXHQFHVIRUIDLOXUH7KHNH\SOD\HUVZLWKLQWKH
.HQQHG\$GPLQLVWUDWLRQKDGGLVWLQFWO\RSSRVLQJYLHZVRQWKHJRDOVWREHDFKLHYHGDQG
ZKDWVKRXOGEHGRQHHJ*HQHUDO/H0D\VLQVLVWHQFHRQFRQIURQWLQJWKH6RYLHW8QLRQ
FOHDUWKDWPDQ\GHFLVLRQVMXVWKDSSHQHG:KLOHWKHJRDOVRIWKHLQYDVLRQZHUHFOHDUO\ ZLWKGLUHFWPLOLWDU\VWULNHVLQDQHQYLURQPHQWRIXQFHUWDLQW\FRPSOH[LW\DQGDPELJXLW\
HVWDEOLVKHGDQGFRPPXQLFDWHGWKHFRPPDQGDQGVWDIIVWUXFWXUHZDVFREEOHGWRJHWKHUZLWK 7KHQDO86DFWLRQVZHUHGHULYHGIURPUHDFKLQJFRQVHQVXVWKURXJKVHYHUDOLWHUDWLRQVRI
DYDLODEOHIRUFHVIURPDOO6HUYLFHVDQH[LVWLQJVROXWLRQXVHGWRVROYHWKHHPHUJHQWSUREOHP GLVFXVVLRQVZLWKWKHDGYLVHUV
7KHSDSHURUJDQL]DWLRQRI&-7)ZDVHVKHGRXWE\UHGLUHFWLQJSHUVRQQHODQRWDEOH
FDVHZDVWDNLQJWKH$UP\OLDLVRQRIFHU0DMRU*HQHUDO1RUP6FKZDU]NRSIDQGQDPLQJ
KLP WKH GHSXW\ FRPPDQGHU :KLOH WKH RSHUDWLRQ ZDV D VXFFHVV VHYHUDO SUREOHPV ZLWK %DUJDLQLQJLVDSURFHVVWKDWJLYHVHDFKSDUWLFLSDQWDYRLFHLQWKHSURFHHGLQJV:KLOH
LQWHOOLJHQFH FRPPXQLFDWLRQV DQG FRRUGLQDWLRQ UHVXOWLQJ LQ IUDWULFLGH DPRQJ WKH MRLQW LWPD\QRWEHWKHFDVHZKHUHDVLPSOHPDMRULW\ZLQVLWFDQEHIUDXJKWZLWKFRQWHQWLRQDQG
IRUFHVOHGWRFRQJUHVVLRQDOLQYHVWLJDWLRQV7KHUHYLHZRI2SHUDWLRQ8UJHQW)XU\FRQWULEXWHG FDQEHWLPHFRQVXPLQJLQWKHDWWHPSWWRUHVROYHSRLQWVRIGLVDJUHHPHQW,QWKLVIRUPRI
WRWKHHQDFWPHQWRIWKH*ROGZDWHU1LFKROV'HSDUWPHQWRI'HIHQVH5HRUJDQL]DWLRQ$FWRI GHFLVLRQPDNLQJWKHQHHGVRIWKHPRVWSRZHUIXOSDUWLHVDUHPRUHOLNHO\WREHPHWEXWWKH
*1$*1$HVWDEOLVKHGDXWKRULWLHVIRUWKH&KDLUPDQRIWKH-RLQW&KLHIVRI6WDII
UHYLVHG PLOLWDU\ FRPPDQG VWUXFWXUHV DQG LQVWLWXWHG UHTXLUHPHQWV IRU MRLQW WUDLQLQJ  ,Q
VXPWKHQRQUDWLRQDOLW\RIWKHGHFLVLRQPDNLQJSURFHVVOHGWROHJLVODWLRQWRSURYLGHPRUH
VWUXFWXUHDQGFRQWURO
%DUJDLQLQJ 0RGHO  %DUJDLQLQJ UHHFWV D GHFLVLRQ PDNLQJ SURFHVV ERWK EHWZHHQ
LQGLYLGXDOVZLWKLQDQRUJDQL]DWLRQDQGEHWZHHQRUJDQL]DWLRQVWKURXJKWKHLUUHSUHVHQWDWLYHV
7KLVSHUVSHFWLYHUHTXLUHVDQXQGHUVWDQGLQJRIWKHSULQFLSOHVRIQHJRWLDWLRQ7KHHVVHQFHRI
GHFLVLRQPDNLQJRIJURXSVLQYROYHVWUDGHRIIVEHWZHHQFRQVWLWXHQWVWKDWPD\KDYHFRPSHWLQJ
LQWHUHVWV DQG DJHQGDV  ,Q VHHNLQJ WR LGHQWLI\ FRPPRQ LQWHUHVWV DQG PXWXDO EHQHW IRU
WKH LQYROYHG SDUWLHV VRPH FRQFHVVLRQV PD\ EH PDGH EXW WKH UHVXOWLQJ GHFLVLRQ VKRXOG
SURGXFHDFRQGLWLRQWKDWLVDFFHSWDEOHWRHLWKHUVLGH+HUHWKHDQFKRULQJDQGDGMXVWPHQW
ELDV LQKLELWV VXEVWDQWLDO PRYHPHQW IURP WKH VWDWXV TXR VR LW LV XQOLNHO\ WR KDYH GUDVWLF
FKDQJHLQSROLF\RUVWUDWHJ\HPEUDFHGE\WKHJURXS
 LVVXHVIRUFRQVLGHUDWLRQEHIRUHGHFLVLRQVDUHUHDFKHG:KLOHWKHVHHIIRUWVPD\EHODUJHO\
7KH EDUJDLQLQJ DSSURDFK LV FRPPRQ LQ JRYHUQPHQW EXW GRHV KDYH D QXPEHU RI
DGYDQWDJHVDQGZHDNQHVVHV,WPD\EHHIIHFWLYHIRUDGGUHVVLQJDQGSUHVHQWLQJLVVXHV
ZKLOHVHUYLQJDVWKHFDWDO\VWIRUJHWWLQJPXOWLSOHSHUVSHFWLYHVEHIRUHWKHGHFLVLRQPDNLQJ
ERG\+RZHYHUWKLVDSSURDFKPD\QRWUHVXOWLQWKHEHVWDOWHUQDWLYHIRUDJLYHQVLWXDWLRQ
VLQFHSROLWLFDOFRQVHQVXVVRPHWLPHVUHVXOWVLQWKHORZHVWFRPPRQGHQRPLQDWRUDFKLHYLQJ

ODUJHU LQWHUHVWV RI WKH DJJUHJDWH PD\ QRW EH DGGUHVVHG  /LPLWLQJ WKH QXPEHU RI SHRSOH
LQYROYHGLQPDNLQJGHFLVLRQVSUHVHQWVLVRZQSDUDGR[HV6PDOOHUQXPEHUVRISDUWLFLSDQWV
PD\EHDEOHWRUHDFKGHFLVLRQVPRUHTXLFNO\E\H[FOXGLQJOHVVSRZHUIXOPHPEHUVEXWPD\
QRWKDYHWKHUHTXLVLWHGLYHUVLW\RIWKRXJKWDQGH[SHULHQFHWRIRUPXODWHEHWWHUGHFLVLRQV
7KHSRWHQWLDOIRUEHWWHUGHFLVLRQVLQFUHDVHVZKHQWKHSDUWLFLSDQWSRROLVODUJHUHYHQWKRXJK
DFKLHYLQJDJUHHPHQWPD\EHPRUHGLIFXOW
3DUWLFLSDWLYH'HFLVLRQ0DNLQJ0RGHO7KHSDUWLFLSDWLYHGHFLVLRQPDNLQJSHUVSHFWLYH
LV DQ H[SDQVLRQ RI WKH EDUJDLQLQJ DSSURDFK DQG DWWHPSWV WR LQFOXGH DOO WKRVH GLUHFWO\
DIIHFWHG E\ WKH GHFLVLRQ  ,W LV WKH PRVW GHPRFUDWLF IRUP RI GHFLVLRQ PDNLQJ ZKHUH
WKHUH LV DQ RSSRUWXQLW\ WR SURYLGH LQSXW DQG LQXHQFH  +RZHYHU WKHUH LV DQ LPSRUWDQW
GLVWLQFWLRQEHWZHHQFRQVXOWDWLRQDQGVKDUHGGHFLVLRQPDNLQJSRZHU3URYLGLQJWKH
RSSRUWXQLW\WRYRLFHDQRSLQLRQLVQRWWKHVDPHDVJLYLQJSRZHUWRPDNHWKHGHFLVLRQ:H
FRPPRQO\VHHWKLVDSSURDFKDVRQHWKDWFDOOVIRUFRQVXOWDWLRQDQGVWDNHKROGHUDQDO\VLV
DQGWKDWSODFHVHPSKDVLVRQPHHWLQJZLWKFRQVWLWXHQWVDQGFOLHQWHOHWRGLVFHUQWKHNH\
V\PEROLF VXFK VWDNHKROGHU JURXSV FDQ ZLHOG VLJQLFDQW SRZHU DQG SUHVHQW REVWDFOHV LI
QRW DSSURSULDWHO\ LQFOXGHG LQ WKH GHFLVLRQ SURFHVV  7KHVH JURXSV PD\ KDYH WKHLU RZQ
DJHQGD DQG LQWHUHVWV WR SURWHFW KHQFH UDLVLQJ FRQFHUQV DERXW WKH GHJUHH WR ZKLFK WKH\
WUXO\UHSUHVHQWWKHJRRGZLOORIWKHJUHDWHUFRPPXQLW\7RDGGUHVVWKLVFRQFHUQDGYLVRU\
JURXSVDUHRIWHQVRXJKWWRUHSUHVHQWDOOYLHZVRIWKHFRPPXQLW\LQDJUDVVURRWVIDVKLRQ

3DUWLFLSDWLYHGHFLVLRQPDNLQJWDNHVSODFHLQWKH8QLWHG1DWLRQV1$72DQGRWKHUZRUOG DQGFROODERUDWLRQ,QVXFKFDVHVHLWKHUWKHEDUJDLQLQJRUSDUWLFLSDWLYHGHFLVLRQPDNLQJ
ERGLHV DSSURDFKPD\EHPRUHDSSURSULDWHWRHVWDEOLVKFRPPRQLQWHUHVWVDQGSURGXFHDJUHHPHQW
DVWRZKDWVKRXOGEHGRQHDQGKRZ7KH.HWWODQG)HVOHUFRQFOXVLRQWKDWQRVLQJOHDSSURDFK
7KH%DVH5HDOLJQPHQWDQG&ORVXUH%5$&SURFHVVKDGREYLRXVLPSOLFDWLRQV RIIHUVDEHVWVROXWLRQWRDOOWKHSUREOHPVRIPDNLQJGHFLVLRQVFDSWXUHVWKHFHQWUDOWKHPHWR
IRUWKHPHPEHUVRIWKH-RLQW3ODQQLQJDQG([HFXWLRQ&RPPXQLW\'HFLVLRQVPDGHE\WKH WKH86$:&SHUVSHFWLYHRQGHFLVLRQPDNLQJ+DYLQJDYDULHW\RIGHFLVLRQWRROVLQRXU
6HUYLFHV UHVSRQVLEOH WR SURYLGH WKH7LWOH  IXQFWLRQV RI WUDLQLQJ DQG VXVWDLQLQJ HOGHG NLWEDJVKHOSVXVLGHQWLI\WKHDSSURSULDWHDSSURDFKWRLQGLYLGXDOSUREOHPVHWV
IRUFHV KDYH D VLJQLFDQW LPSDFW RQ WKH &RPEDWDQW &RPPDQGV &R&RPV WKDW KDYH WKH
PLVVLRQWRH[HFXWHWKHQDWLRQDOPLOLWDU\VWUDWHJ\MRLQWSODQVDQGRSHUDWLRQV7KH%5$&
GHFLVLRQVUHFRPPHQGHGE\WKH$UP\LQVXFKDUHDVDVUHDOLJQPHQWRIRSHUDWLRQDOIRUFHVRI
WKH$FWLYH$UP\DWLQVWDOODWLRQV'2'ZLGHUHWXUQRIRYHUVHDVXQLWVEDFNWRWKHFRQWLQHQWDO
86 DQG FRQVROLGDWLRQ RI KHDGTXDUWHUV DQG RWKHU DFWLYLWLHV LQ -RLQW RU PXOWLIXQFWLRQDO
LQVWDOODWLRQVKDYHREYLRXVLPSOLFDWLRQVIRUZDUJKWLQJFRPPDQGV7RJDLQLQSXWIURP
(1'127(6
7KLVTXRWHIURP(OLKX5RRWLVWKHJXLGLQJSULQFLSOHWKDWHVWDEOLVKHVWKH86$:&FRUHFXUULFXOXPDQG
LVFLWHGLQWKH86$:&FRPPDQGEULHQJ
7KHGLVFXVVLRQRIMXULVGLFWLRQVIRUPLOLWDU\SURIHVVLRQLVLQFOXGHGLQ'RQ06QLGHU7KH86$UP\
WKHPLOLWDU\GHSDUWPHQWVRQDUHDVRIFRPPRQLQWHUHVW-RLQW&URVV6HUYLFH*URXSVZHUH DV3URIHVVLRQLQ'RQ06QLGHUHG7KH)XWXUHRIWKH$UP\3URIHVVLRQ1HZ<RUN0F*UDZ+LOO
IRUPHGDQGSURYLGHGLQSXWWRWKH$UP\LQIUDVWUXFWXUHDQDO\VLVIRUWKH%5$&GHOLEHUDWLRQV SS
2QFH WKH '2' %5$& UHSRUW ZDV VXEPLWWHG WR WKH H[HFXWLYH EUDQFK PHPEHUV RI WKH
3UHVLGHQWLDO%5$&FRPPLVVLRQYLVLWHGLQVWDOODWLRQVUHFRPPHQGHGIRUFORVXUHWRKHDUIURP $-%DFHYLFKDQG/DZUHQFH).DSODQ*HQHUDOV9HUVXV7KH3UHVLGHQW(LVHQKRZHUDQGWKH$UP\
   $ &DVH LQ &LYLO 0LOLWDU\ 5HODWLRQV &6  6\UDFXVH 1< 6\UDFXVH 8QLYHUVLW\
WKRVHLPSDFWHGE\VXFKGHFLVLRQV 1DWLRQDO6HFXULW\6WXGLHV

3DUWLFLSDWLYHGHFLVLRQPDNLQJLVVORZDQGH[SHQVLYH:KLOHLWLVDQHIIHFWLYHPHDQV 5RQDOG+HLIHW]/HDGHUVKLSZLWKRXW(DV\$QVZHUV&DPEULGJH0$%HONQDS3UHVVSS

WRFROOHFWLQIRUPDWLRQWKHDPRXQWDQGXQRUJDQL]HGQDWXUHRIWKHLQIRUPDWLRQLVDSUREOHP 6WHSKHQ6KDPEDFKHG6WUDWHJLF/HDGHUVKLS3ULPHU&DUOLVOH3$86$:&S
LQ LWV RZQ ULJKW WKDW KDV WR EH DGGUHVVHG  7KH TXDOLW\ RI WKH GHFLVLRQ LQ WKLV DSSURDFK
RIWHQGHSHQGVRQWKHH[SHUWLVHDQGFRPPLWPHQWRIWKHSDUWLFLSDQWV7KHUHDUHDQXPEHU ,DQ0LWURIIDQG)UDQFLVFR6DJDVWL(SLVWHPRORJ\DVD*HQHUDO6\VWHPV7KHRU\$Q$SSURDFKWRWKH
RILPSRUWDQWIDFWRUVWKDWFDQLQXHQFHWKHTXDOLW\RISDUWLFLSDWLYHGHFLVLRQPDNLQJ7KH 'HVLJQRI&RPSOH['HFLVLRQ0DNLQJ([SHULPHQWV3KLORVRSK\RIWKH6RFLDO6FLHQFHVSS
SDUWLFLSDQWVVKRXOGVWULYHWRVXERUGLQDWHVHOILQWHUHVWLQSXUVXLWRIFRPPRQJRDOV7KHUH
7KH WHUP LV PRUH FRPPRQSODFH DQG ZDV LQWURGXFHG LQ + 5LWWHO DQG 0:HEEHU 'LOHPPDV LQ D
VKRXOGEHDQDSSURSULDWHOHYHORIUHSUHVHQWDWLRQIURPWKHVWDNHKROGHUVDQGWKRVHJURXSV *HQHUDO7KHRU\RI3ODQQLQJ3ROLF\6FLHQFHV$PVWHUGDP(OVHYLHU6FLHQWLF3XEOLVKLQJ&RPSDQ\,QF
VKRXOGKDYHHQRXJKSRZHUWRLQXHQFHWKHRXWFRPH 9ROSS

 +HQU\ /RXLV 0HQFNHQ 3UHMXGLFHV 6HFRQG 6HULHV  KWWSZZZSKQHWSXEOLFPDPDD

&21&/86,21 PHQFNHQKWPDQG86HGLWRUKWWSZZZTXRWDWLRQVSDJHFRPTXRWHKWPO1RYHPEHU

(DFKGHFLVLRQSDUDGLJPSUHVHQWHGKHUHSURYLGHVDPHWKRGWRDQDO\]HSUREOHPVWKDWRXU
86$:&JUDGXDWHVZLOOIDFHDVWKH\PRYHLQWRKLJKHUOHYHOVRIFRPPDQG,WLVHYLGHQWWKDW
HDFK SDUDGLJP KDV LWV RSSRUWXQLWLHV DQG FKDOOHQJHV 7KH DGYDQWDJHV DQG GLVDGYDQWDJHV
ZLOOPDQLIHVWWKHPVHOYHVLQYDU\LQJGHJUHHVDQGLQGLIIHUHQWFRQWH[WV$VWKH\VLWDWWKH
GHFLVLRQPDNLQJWDEOHRXUJUDGXDWHVZLOOEHDEOHWRUHFRJQL]HDQGDQDO\]HWKHSDUDGLJPDWLF
OLPLWDWLRQVDQGVWUHQJWKVDVWKH\DUHEHLQJGLVFXVVHGLQVWUDWHJ\SODQQLQJ7KH\ZLOODOVR
+RZDUG5DLIID'HFLVLRQ$QDO\VLV1HZ<RUN$GGLVRQ:HVOH\
 7KLV JXUH LV LQFOXGHG LQ D VOLGH SUHVHQWDWLRQ IRXQG DW KWWSZZZGWLFPLOGRFWULQHMUPSODQ
SSW7KHFRQFHSWRI-RLQW3ODQQLQJDQG([HFXWLRQLVGHWDLOHGLQ&KDSWHU,3ULQFLSOHVDQG&RQFHSWV-RLQW
3XEOLFDWLRQ  -RLQW 2SHUDWLRQ 3ODQQLQJ )LJXUH , SURYLGHV DQ LOOXVWUDWLRQ RI WKH -RLQW 3ODQQLQJ DQG
([HFXWLRQ&RPPXQLW\
NQRZWKDWZKLOHZHDVSLUHWREHUDWLRQDOLQRXUFKRLFHVRIDFWLRQZHDUHOLPLWHGLQRXU +HUEHUW$6LPRQ0RGHOVRI0DQ1HZ<RUN-RKQ:LOH\DQG6RQV
FRJQLWLYH DELOLW\ WR FRPSUHKHQVLYHO\ GHYHORS DQG DVVHVV DOWHUQDWLYHV $GGLWLRQDOO\ ZH
KDYHLQQDWHELDVHVDQGXVHKHXULVWLFVWKDWHIIHFWKRZZHSURFHVVDQGXVHLQIRUPDWLRQ6LQFH  &KDUOHV /LQGEORP 7KH 6FLHQFH RI 0XGGOLQJ 7KURXJK 3XEOLF $GPLQLVWUDWLRQ 5HYLHZ 6SULQJ
LPSOHPHQWLQJ GHFLVLRQV JHQHUDOO\ UHTXLUHV WKH LQYROYHPHQW RI RWKHUV LW LV QHFHVVDU\ WR SS
LQFOXGHWKHPLQWKHSURFHVVRILGHQWLI\LQJNH\LVVXHVDQGGHWHUPLQLQJSRWHQWLDOVROXWLRQV
,ELG
7KH HQYLURQPHQW DQG FRQWH[W RI WKH SUREOHP VKRXOG LQXHQFH WKH H[WHQW RI LQFOXVLRQ

 

)RUDQDPXVLQJWUHDWPHQWRIWKHHYROXWLRQRIWKH%UDGOH\)LJKLQJ9HKLFOHIURPDQLQIDQWU\WURRS &+$37(5
WUDQVSRUWWRDQLPSRVLQJFRPEDWV\VWHPVHHWKH+%2OP7KH3HQWDJRQ:DUVGLUHFWHGE\5LFKDUG
%HQMDPLQ
675$7(*,&/($'(56+,37$6.6
<HKH]NHO'URU0XGGOLQJ7KURXJK6FLHQFHRU,QHUWLD"3XEOLF$GPLQLVWUDWLRQ5HYLHZ
SS

$PDWDL (W]LRQL $7KLUG$SSURDFK RI 'HFLVLRQ0DNLQJ 3XEOLF$GPLQLVWUDWLRQ 5HYLHZ 

7KH SUHVVXUH WR UHVSRQG WR WKH FKDOOHQJHV RI WKH YRODWLOH XQFHUWDLQ FRPSOH[ DQG
SS$PDWDL(W]LRQL0L[HG6FDQQLQJ5HYLVLWHG3XEOLF$GPLQLVWUDWLRQ5HYLHZSS DPELJXRXVQDWXUHRIWKHHQYLURQPHQWWHQGVWRIRFXVVWUDWHJLFOHDGHUVDWWHQWLRQRQWDVNV
DVVRFLDWHG ZLWK WKH SUHVHQW  +RZHYHU LI VWUDWHJLF OHDGHUV EHFRPH HQPHVKHG LQ VKRUW
(W]LRQL WHUP UHTXLUHPHQWV WKH\ FDQQRW IRFXV RQ WKH PLG DQG ORQJWHUP WDVNV WKDW RQO\ WKH\
KDYH WKH DXWKRULW\ WR SHUIRUP  6WUDWHJLF OHDGHUV PXVW FRQFHQWUDWH WKHLUHIIRUWV RQ ORQJ
,UYLQJ-DQLVDQG/HRQ0DQQ'HFLVLRQ0DNLQJ1HZ<RUN7KH)UHH3UHVV
WHUPWDVNVZKLOHVLPXOWDQHRXVO\DGGUHVVLQJVKRUWWHUPUHTXLUHPHQWVLQWKHFRQWH[WRIWKH
3DXO$+D\QHV7RZDUGVD&RQFHSWRI0RQLWRULQJ7RZQ3ODQQLQJ5HYLHZSS RUJDQL]DWLRQVORQJWHUPGLUHFWLRQ

'HERUDK6WRQH3ROLF\3DUDGR[7KH$UWRI3ROLWLFDO'HFLVLRQPDNLQJ1HZ<RUN::1RUWRQ   %HORZLVDGLVFXVVLRQRINH\VWUDWHJLFOHDGHUVKLSWDVNV1RVLQJOHOHDGHUSHUIRUPVDOOWKH

&R,QF WDVNVDVVRFLDWHGZLWKVWUDWHJLFOHYHOOHDGHUVKLSZLWKRXWWKHDVVLVWDQFHRIPHPEHUVRIWKH
,ELG
VHQLRUOHDGHUVKLSWHDP.H\VWUDWHJLFOHDGHUVKLSWDVNVLQFOXGHWKHIROORZLQJPDMRUDUHDVRI
UHVSRQVLELOLW\
+50F0DVWHU'HUHOLFWLRQRIGXW\/\QGRQ-RKQVRQ5REHUW0F1DPDUDWKH-RLQW&KLHIVRI6WDII
DQGWKHOLHVWKDWOHGWR9LHWQDP1HZ<RUN+DUSHU&ROOLQV  3URYLGHYLVLRQ
0LFKDHO&RKHQ-DPHV0DUFKDQG-RKDQ2OVHQ7KH*DUEDJH&DQ0RGHORI2UJDQL]DWLRQDO&KRLFH
$GPLQLVWUDWLYH6FLHQFH4XDUWHUO\SS
 6KDSHFXOWXUH

  -RVHSK 0HWFDOI 'HFLVLRQPDNLQJ DQG WKH *UHQDGD 5HVFXH 2SHUDWLRQ LQ - * 0DUFK DQG 5  %XLOGDQGVKDSHMRLQWLQWHUDJHQF\PXOWLQDWLRQDODQGLQWUDDJHQF\UHODWLRQVKLSV
:HLVVLQJHU%D\ORQHGV$PELJXLW\DQGFRPPDQG2UJDQL]DWLRQDOSHUVSHFWLYHVRQPLOLWDU\GHFLVLRQPDNLQJ
0DUVKHOG0DVVDFKXVHWWV3LWPDQ3XEOLVKLQJSS  %XLOGDQGVKDSHQDWLRQDOOHYHOUHODWLRQVKLSV
,ELGS
 5HSUHVHQWWKHRUJDQL]DWLRQ
,ELGSS
 /HDGDQGPDQDJHFKDQJH
'RQDOG.HWWODQG-DPHV)HVOHU7KH3ROLWLFVRIWKH$GPLQLVWUDWLYH3URFHVV:DVKLQJWRQ'&&4
3UHVVSS

*UDKDP7$OOLVRQ(VVHQFHRI'HFLVLRQ([SODLQLQJWKH&XEDQ0LVVLOH&ULVLV%RVWRQ/LWWOH%URZQ 3529,'(9,6,21


 $VGHWDLOHGLQ&KDSWHUDSULPDU\WDVNUHTXLUHGRIVWUDWHJLFOHDGHUVLVWRFUHDWHDYLVLRQ
,ELGS IRUWKHLURUJDQL]DWLRQV7KHYLVLRQZKLFKVHWVWKHWRQHIRUWKHIXWXUHRIWKHRUJDQL]DWLRQ
,ELGS
LV WKH UVW VWHS LQ WKH GHYHORSPHQW RI SODQV DQG VWUDWHJLHV IRU FKDQJH  )RU D PLOLWDU\
RUJDQL]DWLRQFUHDWLRQRIWKHYLVLRQVKRXOGLQFOXGHGHWHUPLQLQJIXWXUHUHTXLUHGRSHUDWLQJ
&UDLJ&ROOHJHDQG:LOOLDP7DUDQWLQR/HDGLQJ&KDQJHZLWKLQWKH$UP\%5$&3URFHVV3DSHU FDSDELOLW\E\FRQVLGHULQJGHYHORSLQJFRQFHSWVIRUWKHIXWXUHQDWXUHRIZDUHPHUJLQJWKUHDW
SUHVHQWHGDW'HIHQVH$QDO\VLV6HPLQDU6HRXO.RUHD$SULOS FDSDELOLWLHVDQGLQWHQWLRQVDQGDGYDQFHVLQWHFKQRORJ\
.HWWODQG)HVOHUS
 7KHVWUDWHJLFOHDGHUVYLVLRQVHWVWKHORQJWHUPGLUHFWLRQIRUDQRUJDQL]DWLRQ7KHVROXWLRQV
,ELGS WR VKRUWWHUP UHTXLUHPHQWV VKRXOG EH FRQVLVWHQW ZLWK WKH DUWLFXODWHG YLVLRQ $ VWUDWHJLF
OHDGHUPXVWLQVWLWXWLRQDOL]HDVWUDWHJ\WRLPSOHPHQWWKHYLVLRQLQFOXGLQJWKHVHOHFWLRQDQG

 
PHQWRULQJ RI VXERUGLQDWH OHDGHUV WR FDUU\ RQ WKDW VWUDWHJLF YLVLRQ  2WKHU NH\ VWUDWHJLF
OHDGHUVKLSYLVLRQWDVNVDUHUHODWHGWRFRPPXQLFDWLQJGHYHORSLQJDQGLPSOHPHQWLQJWKDW
YLVLRQ
6+$3(&8/785(
 7KHVWUDWHJLFOHDGHUPXVWWDNHVWHSVWRVKDSHWKHRUJDQL]DWLRQVFXOWXUHLQDPDQQHUWKDW
VXSSRUWVDQGKHOSVWRFRPPXQLFDWHWKHYLVLRQ7DVNVZLWKLQWKLVDUHDLQFOXGH DSSO\ WR WKH MRLQW DUHQD  7KLV WDVN UHTXLUHV DQ DSSUHFLDWLRQ IRU WKH UROHV DQG PLVVLRQV
x (QVXULQJ WKDW RUJDQL]DWLRQDO FXOWXUH LV DOLJQHG ZLWK WKH IXWXUH GHPDQGV RI
WKHHQYLURQPHQW\HWDOVREXLOWRQYDOXHVGHHPHGHVVHQWLDOE\WKHOHDGHUVDQG
PHPEHUVRIWKHRUJDQL]DWLRQ
x (QVXULQJWKHRUJDQL]DWLRQVYDOXHVDUHURRWHGLQDOLJQHGXQGHUO\LQJDVVXPSWLRQV
WKDWSRVLWLRQWKHRUJDQL]DWLRQWRPDLQWDLQFRPSHWLWLYHDGYDQWDJHLQWKHIXWXUH
x (QVXULQJWKDWVWDWHGYDOXHVDVUHODWHGWRWKHVWUDWHJLFYLVLRQDUHFRPPXQLFDWHG
WKURXJKRXWWKHRUJDQL]DWLRQDQGDUHLQWHUQDOL]HGE\LWVPHPEHUV
x %XLOGLQJ FRQVHQVXV ZLWKLQ WKH RUJDQL]DWLRQ WR JDLQ VXSSRUW IRU JRDOV DQG
REMHFWLYHVWKDWVXSSRUWDQGDFKLHYHWKHYLVLRQ
%8,/'$1'6+$3(-2,17,17(5$*(1&<08/7,1$7,21$/
$1',175$$*(1&<5(/$7,216+,36
 6WUDWHJLF OHDGHUV GHYHORS DQG PDQDJH MRLQW DQG FRPELQHG ODWHUDO UHODWLRQVKLSV ZLWK
VWUDWHJLFOHDGHUVRIRWKHU6HUYLFHVRWKHUFRXQWULHVDQGJRYHUQPHQWDJHQFLHVLQERWKSHDFH
DQGZDU0DMRUWDVNVLQFOXGH
x &UHDWLQJ XQGHUVWDQGLQJ DQG DFFHSWDQFH RI RUJDQL]DWLRQDO JRDOV DQG QDWLRQDO
REMHFWLYHV DQG LQ WXUQ XQGHUVWDQGLQJ JRDOV DQG REMHFWLYHV RI RWKHU QDWLRQDO
IRUFHV
x &UHDWLQJ FRQVHQVXV UHTXLUHG WR HQDEOH MRLQW DQG FRPELQHG DFWLRQ WR EH
XQGHUWDNHQLQSXUVXLWRIVKDUHGJRDOVDQGREMHFWLYHV
x 0DLQWDLQLQJWKHNQRZOHGJHDQGUHVRXUFHEDVHWKDWWKHRUJDQL]DWLRQUHTXLUHVWR
HQYLVLRQIXWXUHGHVLUHGRXWFRPHVDQGQHJRWLDWLQJWRPDNHWKHPKDSSHQ
 6WUDWHJLF OHDGHUV PXVW DFWLYHO\ SDUWLFLSDWH LQ WKH GHYHORSPHQW DQG VXVWDLQPHQW RI
FRDOLWLRQVDQGDOOLDQFHVWKDWDUHFHQWUDOWRQDWLRQDOVWUDWHJ\2SHUDWLQJHIIHFWLYHO\LQWKH
PXOWLQDWLRQDO HQYLURQPHQW UHTXLUHV DQ LQWHUQDWLRQDO SHUVSHFWLYH  7KLV WDVN UHTXLUHV WKH
VWUDWHJLFOHDGHUWRXQGHUVWDQGWKHSROLWLFDOHFRQRPLFDQGVRFLDOIDFWRUVRIRWKHUFRXQWULHV
 
x $UWLFXODWLQJWKHRUJDQL]DWLRQVUHTXLUHPHQWVIRUUHVRXUFHVDQGFDSDELOLWLHV
x 'HYHORSLQJFRPSHWLWLYHVWUDWHJLHV
x %ULGJLQJWKHJDSEHWZHHQSROLWLFDOGHFLVLRQVPDGHDVSDUWRIWKHQDWLRQDOVHFXULW\
GHFLVLRQSURFHVVDQGWKHLQGLYLGXDOVWKDWXOWLPDWHO\FDUU\RXWWKRVHGHFLVLRQV
 6WUDWHJLF OHDGHUV DUH UHVSRQVLEOH WR HQVXUH WKDW WKH OHDGHUVKLS RI WKH RUJDQL]DWLRQ
XQGHUVWDQGVQDWLRQDOVHFXULW\SROLF\7RDFFRPSOLVKWKLVWDVNWKH\IRUPXODWHRUJDQL]DWLRQDO
SURJUDPV DQG SROLF\ GLUHFWLYHV WKDW DFFXUDWHO\ LQWHUSUHW DQG UHHFW QDWLRQDO VHFXULW\
REMHFWLYHV  7KHVH SURJUDPV DQG GLUHFWLYHV SUHSDUH WKH RUJDQL]DWLRQ WR UHVSRQG WR DOO
VHFXULW\UHTXLUHPHQWVLQHLWKHUSHDFHRUZDU
5(35(6(177+(25*$1,=$7,21
 7KH VWUDWHJLF OHDGHU UHSUHVHQWV WKH RUJDQL]DWLRQ LQ LWV UHODWLRQVKLSV ZLWK WKH ODUJHU
VRFLHW\7KHVHUHVSRQVLELOLWLHVLQFOXGH VXSSRUWWKHYLVLRQ$FKLHYLQJWKHYLVLRQUHTXLUHVFKDQJHWREULGJHWKHJDSEHWZHHQWKH
x 5HJXODUO\FRPPXQLFDWLQJZLWKHOHPHQWVRIWKH/HJLVODWLYH([HFXWLYHDQG-XGLFLDO
%UDQFKHV
x $FWLQJ DV D VSRNHVSHUVRQ IRU WKH RUJDQL]DWLRQ ZLWK RWKHU )HGHUDO DJHQFLHV WKH
PHGLDLQXHQWLDOSHRSOHDWWKHQDWLRQDOOHYHODQGWKHSXEOLFDWODUJH
x %XLOGLQJ DQG PDLQWDLQLQJ D QHWZRUN RI LQIRUPDWLRQ VRXUFHV WKDW FDQ EH XVHG WR
XQGHUVWDQGDQGLQXHQFHWKHHQYLURQPHQW
 7RDFFRPSOLVKWKHVHWDVNVVWUDWHJLFOHDGHUVIUDPHVRIUHIHUHQFHPXVWLQFOXGHDWKRURXJK
XQGHUVWDQGLQJ RI RXU QDWLRQDO FXOWXUH YDOXHV LQWHUHVWV DQG WKH SROLWLFDO HFRQRPLF DQG
PLOLWDU\HOHPHQWVRIQDWLRQDOSRZHU6WUDWHJLFOHDGHUVPXVWDOVREHH[SHUWVLQWKHSURFHVVHV
DQGSURFHGXUHVIRUGHYHORSLQJQDWLRQDOVHFXULW\REMHFWLYHVQDWLRQDOPLOLWDU\VWUDWHJ\DQG
IRUWKHGHYHORSPHQWGHSOR\PHQWDQGXVHRIWKHQDWLRQVPLOLWDU\IRUFHV
 0DQDJLQJWKHRUJDQL]DWLRQWRDFKLHYHMRLQWREOLJDWLRQVLVDOVRDPDMRUWDVN)XOOOPHQW
RIWKLVWDVNUHTXLUHVWKHVWUDWHJLFOHDGHUVFRPPLWPHQWWRMRLQWGRFWULQHDQGMRLQWRSHUDWLRQV
7KHVWUDWHJLFOHDGHUPXVWYLHZWKHRUJDQL]DWLRQIURPDMRLQWSHUVSHFWLYHDQGGHVLJQLQWHUQDO
SROLF\DQGRUJDQL]DWLRQDOVWUXFWXUHWRPHHWMRLQWUHTXLUHPHQWV
 6WUDWHJLFOHDGHUVPXVWDOVRDUWLFXODWHWKHUROHVDQGPLVVLRQVRIWKHRUJDQL]DWLRQDVWKH\
RI RWKHU 6HUYLFHV DQG DQ XQGHUVWDQGLQJ RI WKHLU JRDOV DQG REMHFWLYHV 7KH RUJDQL]DWLRQ
PXVWEHGHVLJQHGHTXLSSHGWUDLQHGDQGPDLQWDLQHGDWDVWDWHRIUHDGLQHVVWKDWDOORZVLW
WR SDUWLFLSDWH IXOO\ LQ MRLQW DQG FRPELQHG RSHUDWLRQV 7KLV PHDQV WKDW VWUDWHJLF OHDGHUV
PXVWXQGHUVWDQGDQGEHVHQVLWLYHWRWKHFXOWXUHVZLWKLQZKLFKWKHLUIHOORZVWUDWHJLFOHDGHUV
RSHUDWH
 %HFDXVHWKHIXWXUHSRUWHQGVLQFUHDVHGHPSKDVLVRQMRLQWDQGFRPELQHGRSHUDWLRQVLQ
SHDFHDQGZDUWKHVWUDWHJLFOHDGHUVYLVLRQVKRXOGLGHQWLI\DQGGHYHORSWKHRUJDQL]DWLRQV
UROHLQWKRVHDUHQDV'HYHORSLQJDQGVXVWDLQLQJFRDOLWLRQVPDQDJLQJWKHRUJDQL]DWLRQWR
DFKLHYHMRLQWREOLJDWLRQVDQGDSSUHFLDWLQJWKHUROHVDQGPLVVLRQVRIRWKHURUJDQL]DWLRQVLQ
WKHMRLQWDUHQDDUHWDVNVWKDWDVVLVWLQLPSOHPHQWLQJDQGDFKLHYLQJWKHVWUDWHJLFYLVLRQ
%8,/'$1'6+$3(1$7,21$//(9(/5(/$7,216+,36
7KH &RQJUHVV VKDOO KDYH 3RZHU 7R  SURYLGH IRU WKH FRPPRQ 'HIHQVHRI WKH
8QLWHG6WDWHV7RUDLVHDQGVXSSRUW$UPLHV7RSURYLGHDQGPDLQWDLQD1DY\
7RPDNH5XOHVIRUWKH*RYHUQPHQWDQG5HJXODWLRQRIWKHODQGDQGQDYDO)RUFHV
86&RQVW$UWLFOH,6HFWLRQ
 0DQDJLQJUHODWLRQVKLSVEHWZHHQWKHRUJDQL]DWLRQDVDFRPSRQHQWRIWKHQDWLRQVWRWDO
GHIHQVHIRUFHDQGWKHRYHUDUFKLQJQDWLRQDOSROLF\DSSDUDWXVLVDPDMRUUHVSRQVLELOLW\RI
VWUDWHJLFOHDGHUV7KH\XVHWKHLUQDWLRQDODQGLQWHUQDWLRQDOIUDPHVRIUHIHUHQFHWRLQXHQFH
RSLQLRQDQGEXLOGFRQVHQVXVIRURUJDQL]DWLRQDOUROHVPLVVLRQVDQGREMHFWLYHV7KH\JDUQHU
WKHVXSSRUWRIGLYHUVHSOD\HUVWRHQDEOHWKHYLVLRQWREHDFKLHYHG
5HTXLUHPHQWVLQWKLVDUHDLQFOXGH
x 3URYLGLQJDGYLFHDQGFRXQVHOLQQDWLRQDOSROLF\IRUPXODWLRQ
x ,QWHUSUHWLQJQDWLRQDOSROLF\JXLGHOLQHVDQGGLUHFWLRQV
x 3ODQQLQJIRUWKHGHYHORSPHQWDQGVXVWDLQPHQWRIWKHPLOLWDU\FDSDELOLW\UHTXLUHGWR
LPSOHPHQWQDWLRQDOSROLF\LQWKHMRLQWFRPELQHGDQGLQWHUDJHQF\DUHQDV
 1R RUJDQL]DWLRQ RSHUDWHV LQ D YDFXXP  7R DFKLHYH WKH RUJDQL]DWLRQDO VKRUWWHUP
REMHFWLYHVDQGWRLPSOHPHQWWKHORQJWHUPYLVLRQVWUDWHJLFOHDGHUVPXVWXQGHUVWDQGKRZ
WKHRUJDQL]DWLRQWVLQWRWKHQDWLRQDOVHFXULW\IUDPHZRUN7KH\PXVWDOVREXLOGFRQVHQVXV
ZLWKLQWKDWIUDPHZRUN7KHEHVWPHWKRGWRDFKLHYHFRQVHQVXVLQDPXOWLIDFHWHGSOXUDOLVWLF
V\VWHPLVWKURXJKQHWZRUNLQJ,QIRUPDOFRQWDFWVZLWKNQRZOHGJHDEOHLQXHQWLDOSHRSOH
KROGLQJNH\SRVLWLRQVLQRWKHURUJDQL]DWLRQVDQGDJHQFLHVDVVLVWLQJDWKHULQJWKHGLYHUVH
VXSSRUWWKDWDOORZVWKHRUJDQL]DWLRQVYLVLRQWREHDFKLHYHG,QWHJULW\DQGWKHSRZHURI
SHUVRQDOLW\DUHNH\VWRDFFRPSOLVKLQJWKLVFRQVHQVXVEXLOGLQJWDVN6WUDWHJLFOHDGHUVZKR
KDYH WKH DELOLW\ WR SHUVXDGH RWKHUV ZKR NQRZ KRZ DQG ZKHQ WR FRPSURPLVH ZLWKRXW
DEDQGRQLQJSULQFLSOHVDQGZKRJDLQDQGPDLQWDLQWKHWUXVWRIRWKHULQXHQWLDOGHFLVLRQ
PDNHUVZLOOJRDORQJZD\WRZDUGDFKLHYLQJWKHRUJDQL]DWLRQVREMHFWLYHV
0$1$*(&+$1*(
 6WUDWHJLF OHDGHUV SURDFWLYHO\ PDQDJH FKDQJH WKURXJK WKH SURFHVVHV DVVRFLDWHG ZLWK
HPEHGGLQJ WKHLU YLVLRQ ZLWKLQ WKH RUJDQL]DWLRQ DQG VKDSLQJ RUJDQL]DWLRQDO FXOWXUH WR
SUHVHQW DQG WKH IXWXUH  ([WHUQDO HQYLURQPHQWDO IDFWRUV VXFK DV WKH FKDQJLQJ QDWXUH RI
PLOLWDU\ WKUHDWV DGMXVWPHQWV WR QDWLRQDO PLOLWDU\ VWUDWHJ\ OHJLVODWLRQ DIIHFWLQJ '2'
FKDQJHVLQLQWHUQDWLRQDODOOLDQFHVDQGEXGJHWFRQVLGHUDWLRQVJHQHUDWHWKHQHHGIRUFKDQJH
ZLWKLQ WKH RUJDQL]DWLRQ  ,QWHUQDOO\ LPSURYHPHQWV LQ ZDUJKWLQJ GRFWULQH HTXLSPHQW
PRGHUQL]DWLRQUHVRXUFHDGMXVWPHQWVUHVXOWLQJIURPWHFKQRORJ\DGYDQFHPHQWVDQGRWKHU
IDFWRUVDOVRGULYHRUJDQL]DWLRQDOFKDQJH7KHVHIDFWRUVDQGFKDQJHVPD\EHVRH[WHQVLYH
WKDWWKH\SHULRGLFDOO\UHTXLUHWKDWWKHVWUDWHJLFYLVLRQEHUHYLVHG
,KDYHFRQFHLYHGRIPDQ\SODQVEXW,ZDVQHYHUIUHHWRH[HFXWHRQHRIWKHP)RU
DOOWKDW,KHOGWKHUXGGHUDQGZLWKDVWURQJKDQGWKHZDYHVZHUHDOZD\VDJRRG
GHDOVWURQJHU
1DSROHRQ%RQDSDUWH
 '2'-RLQW6WDIIDQG6HUYLFHXQLTXHVWUDWHJLFOHYHOSODQQLQJV\VWHPVSURYLGHVWUDWHJLF
OHDGHUVWKHSURFHVVHVWRPDQDJHFKDQJHLQWKHHQYLURQPHQWRIVWUDWHJLFOHDGHUVKLS'HFLVLRQV
 $Q XQGHUVWDQGLQJ RI FXUUHQW DQG SURMHFWHG QDWLRQDO DQG LQWHUQDWLRQDO VLWXDWLRQV LV PDGHZLWKLQWKH-RLQW6WUDWHJLF3ODQQLQJ6\VWHP-636WKH-RLQW2SHUDWLRQ3ODQQLQJDQG
QHFHVVDU\ IRU FUHGLELOLW\ LQ WHVWLPRQ\ WR &RQJUHVV DQG IRU LQWHUDFWLRQV ZLWK H[HFXWLYHV
RIRWKHUIHGHUDODQGVWDWHDJHQFLHVEXVLQHVVOHDGHUVWKHPHGLDDQGRWKHUVZKRLQXHQFH
QDWLRQDODWWLWXGHVWRZDUGWKHPLOLWDU\$QDZDUHQHVVRIWKHRXWORRNYDOXHVDQGSULRULWLHV
RISROLWLFDOOHDGHUVDQGWKRVHZKRLQXHQFHSXEOLFRSLQLRQUHTXLUHVDQXQGHUVWDQGLQJRI
$PHULFDQVRFLHW\7KLVSHUVSHFWLYHLVQHFHVVDU\QRWRQO\IRUSXEOLFUHSUHVHQWDWLRQEXWDOVR
IRUVKDSLQJWKHFXOWXUHDQGYDOXHVRIWKHRUJDQL]DWLRQDVDQLQWHJUDOSDUWRIWKHWRWDOVRFLHW\

([HFXWLRQ6\VWHP-23(6WKH3ODQQLQJ3URJUDPPLQJ%XGJHWLQJDQG([HFXWLRQ33%(
SURFHVVDQGWKH6HUYLFHVV\VWHPVLQWHJUDWLRQSURFHVVHVSURYLGHSXUSRVHDQGGLUHFWLRQWR
ORZHUOHYHOVRIWKHRUJDQL]DWLRQ0DQDJHPHQWRIFKDQJHDWWKHVWUDWHJLFOHYHOLQFOXGHVWKH
IROORZLQJ
x ,GHQWLI\LQJWKHQHFHVVDU\IRUFHFDSDELOLWLHVWRDFFRPSOLVKWKHQDWLRQDOPLOLWDU\
VWUDWHJ\


x ,GHQWLI\LQJDQGDVVLJQLQJVWUDWHJLFDQGRSHUDWLRQDOUROHVDQGPLVVLRQV
LQFOXGLQJSULRULWLHVIRUDOORFDWLQJUHVRXUFHV
x 3UHSDULQJVWUDWHJLHVDQGSODQVIRUWKHXVHRIPLOLWDU\IRUFHVDFURVVWKHRSHUDWLRQDO
FRQWLQXXPLQWKHXQLHGMRLQWFRPELQHGDQGLQWHUDJHQF\DUHQDV
x 'HYHORSLQJ DQG LPSURYLQJ RSHUDWLQJ GRFWULQH DQG WKH DVVRFLDWHG WUDLQLQJ
PHWKRGRORJLHVWRVXSSRUWWKHGRFWULQH
x 8QGHUVWDQGLQJ DQG SODQQLQJ IRU VHFRQG DQG WKLUGRUGHU HIIHFWV RI DFWLRQV WR
LPSOHPHQWFKDQJH
x 0DLQWDLQLQJHIIHFWLYHOHDGHUGHYHORSPHQWDQGRWKHUKXPDQUHVRXUFHVSURJUDPV
 'HFLVLRQPDNLQJDWWKHVWUDWHJLFOHYHODOPRVWDOZD\VUHTXLUHVPDMRUUHVRXUFHFRPPLWPHQWV
WKDWFDQQRWHDVLO\EHUHYHUVHG&RQWLQXDODQDO\VLVRIUHTXLUHPHQWVFDSDELOLWLHVDQGULVNV
DVVRFLDWHGZLWKFDSDELOLW\VKRUWIDOOVLVHVVHQWLDOWRWKHGHFLVLRQPDNLQJSURFHVV6WUDWHJLF
OHDGHUVUHO\RQWLPHO\DFFXUDWHIHHGEDFNWRSUHYHQWPDNLQJGHFLVLRQVEDVHGRQLQFRPSOHWH
RULQDGHTXDWHLQIRUPDWLRQ6\VWHPVPXVWEHGHVLJQHGWREHWRSGULYHQDQGERWWRPIHG
3XUSRVH GLUHFWLRQ DQG PRWLYDWLRQ DUH SURYLGHG IURP WKH WRS ZKLOH LQIRUPDWLRQ DQG
 
6800$5<
6WUDWHJLFOHDGHUVKDYHWKHFKDOOHQJHDQGUHVSRQVLELOLW\WROHDGODUJHFRPSOH[RUJDQL]DWLRQV
ZKLFKFKDQJHYHU\VORZO\ZLWKJUHDWH[SHQGLWXUHRIHQHUJ\7KHWDVNVUHTXLUHGWRPHHW
WKLVFKDOOHQJHEHJLQZLWKWKHVWUDWHJLFOHDGHUSURYLGLQJDYLVLRQWRWKHRUJDQL]DWLRQ:LWK
WKLVYLVLRQDQGZHOODUWLFXODWHGRUJDQL]DWLRQDOYDOXHVVWUDWHJLFOHDGHUVWKHQLQXHQFHDQG
VKDSHWKHLURUJDQL]DWLRQVFXOWXUH7KH\DOVROHDGWKHRUJDQL]DWLRQRQDGDLO\EDVLVHQVXULQJ
LW PHHWV DOO UHTXLUHPHQWV LQ WKH XQLHG MRLQW FRPELQHG DQG LQWHUDJHQF\ DUHQDV  7KLV
WDVN UHTXLUHV VWUDWHJLF OHDGHUV WR GHDO ZLWK VKRUWWHUP FKDOOHQJHV LQFOXGLQJ RSHUDWLRQDO
FRQWLQJHQFLHV FRQVLVWHQW ZLWK PLG DQG ORQJWHUP REMHFWLYHV  7KH\ DOVR PDQDJH WKH
RUJDQL]DWLRQV UHODWLRQVKLSV ZLWK QDWLRQDOOHYHO DJHQFLHV DQG RUJDQL]DWLRQV UHSUHVHQWLQJ
WKH RUJDQL]DWLRQ EHIRUH &RQJUHVV WKH PHGLD DQG RWKHU LQXHQWLDO RSLQLRQ JURXSV 7KH
REMHFWLYHLVWRJDLQFRQVHQVXVDPRQJWKHVHYDULRXVJURXSVDQGRUJDQL]DWLRQVLQVXSSRUW
RI WKH UROHV DQG PLVVLRQV JRDOV DQG REMHFWLYHV RI WKH RUJDQL]DWLRQ  6XFK FRQVHQVXV LV
HVVHQWLDOWRDFKLHYLQJWKHRUJDQL]DWLRQVYLVLRQLQWKHVWUDWHJLFHQYLURQPHQW)LQDOO\E\
IDFLOLWDWLQJWKHPDQDJHPHQWRIFKDQJHVWUDWHJLFOHDGHUVJXLGHWKHRUJDQL]DWLRQWRGD\ZKLOH
PROGLQJLWWRPHHWWRPRUURZVFKDOOHQJHV
(1'127(6
UHFRPPHQGDWLRQVRZXSZDUGIURPZLWKLQWKHRUJDQL]DWLRQ :LOO'XUDQWDQG$ULHO'XUDQW7KH$JHRI1DSROHRQ1HZ<RUN6LPRQDQG6KXVWHUS

 +HQU\ * *ROH *HQHUDO :LOOLDP ( 'H3X\ 3UHSDULQJ WKH $UP\ IRU 0RGHUQ :DU /H[LQJWRQ
 7KH PDQDJHPHQW RI FKDQJH GHPDQGV WKDW VWUDWHJLF OHDGHUV IRFXV SULPDULO\ RQ IXWXUH .HQWXFN\7KH8QLYHUVLW\3UHVVRI.HQWXFN\S
PLG DQG ORQJUDQJH LVVXHV ZKLOH GHDOLQJ ZLWK FXUUHQW VKRUWWHUP UHTXLUHPHQWV  7KLV
PHDQVWKDWVWUDWHJLFOHDGHUVPXVWHPSRZHUVXERUGLQDWHHFKHORQVWRLPSOHPHQWVWUDWHJLHV
DQGSROLFLHVZLWKLQWKHHVWDEOLVKHGIUDPHZRUN(IIHFWLYHV\VWHPDWLFIHHGEDFNLVHVVHQWLDO
WRSURYLGHVWUDWHJLFOHDGHUVZLWKLQIRUPDWLRQRQZKLFKWRMXGJHWKHSURJUHVVDQGXOWLPDWH
UHVXOWVRIGHVLUHGFKDQJHVZLWKLQWKHRUJDQL]DWLRQ

(PSRZHULQJ VXERUGLQDWH OHDGHUV LQ WKLV IDVKLRQ KHOSV WR SHUSHWXDWH DQG DFKLHYH WKH
VWUDWHJLF YLVLRQ  %HFDXVH VKRUWWHUP VROXWLRQV VKRXOG EH FRQVLVWHQW ZLWK WKH ORQJWHUP
YLVLRQ VXERUGLQDWHV PXVW XQGHUVWDQG DQG LQWHUQDOL]H WKH YLVLRQ WR LPSOHPHQW VWUDWHJLHV
DQGSROLFLHV%HFDXVHWKHWHQXUHRIDQ\LQGLYLGXDOVWUDWHJLFOHDGHULVOLPLWHGVXERUGLQDWH
OHDGHUVPXVWEHVHOHFWHGPHQWRUHGDQGHGXFDWHGWRFDUU\RQWKHYLVLRQ7KHKLVWRU\RIWKH
8QLWHG6WDWHV$UP\KDVEHHQEXLOWIURPJUHDWOHDGHUVZKRSURGXFHGJUHDWVXERUGLQDWHV
2QH RI WKHVH OHDGHUV ZDV75$'2& &RPPDQGHU LQ WKH PLGV *HQHUDO:LOOLDP (
'H3X\%LRJUDSKHU+HQU\*ROHDVVHUWHG

%LOO'H3X\IRXQGWKHPHQZKRZRXOGKHOSKLPLQZKDWKHFDOOHGP\OLIHVZRUN
DWKRURXJKUHIRUPRIWKH$UP\DWDVNKHVHWIRUKLPVHOI$QGKHVHHGHGWKHV\VWHP
ZLWKWDOHQWHGSHRSOHZKRZRXOGGLUHFWO\VXFFHHGKLPDQGRWKHUVZKRZRXOGVXFFHHG
WKHPWRGLUHFWWKH$UP\DGR]HQ\HDUVDQGHYHQWZRGHFDGHVDIWHUKLVUHWLUHPHQW 

 

&+$37(5 DVVLJQPHQWVDUHSUHWW\WUDXPDWLF,WKLQNZHKDYHWRWUDLQWKHPWREHSUHSDUHGIRU
WKDW

7+(675$7(*,&/($'(5$1' *HQHUDO*HRUJH:&DVH\
&6$
7+(+80$1',0(16,212)&20%$7
$IXQGDPHQWDOXQGHUVWDQGLQJRIWKLVKXPDQGLPHQVLRQFDQRQO\EHDFKLHYHGWKURXJK
SHUVRQDO VWXG\ DQG FRQWHPSODWLRQ $OWKRXJK VXFK DSSUHFLDWLRQ DQG XQGHUVWDQGLQJ FDQ
7KHWUDLQHG$PHULFDQSRVVHVVHVTXDOLWLHVWKDWDUHDOPRVWXQLTXH%HFDXVHRIKLV
UHVXOWIURPSHUVRQDOFRPEDWH[SHULHQFHWKHUHLVQROHYHORISHUVRQDOH[SHULHQFHWKDWFDQQRW
LQLWLDWLYHDQGUHVRXUFHIXOQHVVKLVDGDSWDELOLW\WRFKDQJHDQGKLVUHDGLQHVVWRUHVRUW
EHVLJQLFDQWO\UHLQIRUFHGZLWKDQDQDO\VLVRIWKHH[SHULHQFHVRIRWKHUV
WRWKHH[SHGLHQWKHEHFRPHVZKHQKHKDVDWWDLQHGDSURFLHQF\LQDOOWKHQRUPDO
WHFKQLTXHVRIEDWWOHDIRUPLGDEOHVROGLHU<HWHYHQKHKDVKLVOLPLWVWKHSUHVHQWDWLRQ
6WUDWHJLF OHDGHUV VXFK DV *HQHUDOV (LVHQKRZHU DQG $UQROG SRVVHVVHG QR SHUVRQDO
RI KLV LQGLYLGXDO DQG FROOHFWLYH VWUHQJWK LV RQH RI WKH JUHDWHVW UHVSRQVLELOLWLHV RI
H[SHULHQFHLQWKHKXPDQGLPHQVLRQRIFRPEDWEHIRUHWKH\DVVXPHGVLJQLFDQWVWUDWHJLF
OHDGHUVKLS
OHDGHU UHVSRQVLELOLWLHV DW WKH RXWVHW RI :RUOG :DU ,,  <HW ERWK RI WKHVH GLVWLQJXLVKHG
VWUDWHJLFOHDGHUVKDGE\WKDWWLPHDFKLHYHGDQXQGHUVWDQGLQJRIWKLVGLPHQVLRQRIZDUIDUH
*HQHUDO'ZLJKW'(LVHQKRZHU
WKURXJK \HDUV RI UHDGLQJ DQG UHHFWLQJ XSRQ WKH FRPPHQWDULHV RI WKRVH ZKR ZURWH RI
VXFK H[SHULHQFHV  (YHU\ GHFLVLRQ WKDW WKHVH WZR VWUDWHJLF OHDGHUV PDGH ZDV RQO\ DIWHU
1R PDWWHU KRZ LQYROYHG VWUDWHJLF OHDGHUV PD\ EHFRPH LQ ZRUNLQJ WR IXUWKHU WKHLU
FRQVLGHUDWLRQRIWKHFRQVHTXHQFHVRIWKHGHFLVLRQRQWKHVROGLHUVDQGDLUPHQZKRERUHWKH
YLVLRQIRUWKH$UP\WKH\PXVWDOZD\VEHPLQGIXOWKDWWKH\DUHOHDGHUVRIDQRUJDQL]DWLRQ
EUXQWRIEDWWOH(DFKRIWKHVHOHDGHUVXQGHUVWRRGWKHKXPDQG\QDPLFVRIFRPEDWDQGLWV
ZKRVH IXQGDPHQWDO SXUSRVH LV WR SURWHFW RXU QDWLRQDO LQWHUHVWV DQG WKDW RIWHQ LQYROYHV
UHODWLRQVKLSWRWKHSV\FKRORJLFDOVWD\LQJSRZHURIWKHIRUFHVWKH\OHG
FRPPLWWLQJSHUVRQQHOWRWKHYLROHQFHRIEDWWOH7KHSKHQRPHQRQRIKXPDQFRPEDWLVOLNH
QRRWKHUDFWLYLW\LQZKLFKPDQNLQGHQJDJHV:LWKLQWKHFUXFLEOHRIDUPHGFRQLFWWKRVH
$FKLHYLQJ DQ XQGHUVWDQGLQJ RI WKH KXPDQ GLPHQVLRQ RI FRPEDW LV D FRQWLQXLQJ
ZKRSDUWLFLSDWHDUHGUDPDWLFDOO\DIIHFWHGE\WKHIHDURIGHDWKRUPDLPLQJWKHWUDXPDRI
SURIHVVLRQDOFRPPLWPHQWRIDQ\$UP\OHDGHUEXWPRVWHVSHFLDOO\WKHOHDGHUDWWKHVWUDWHJLF
SDUWLFLSDWLQJ LQ DQG ZLWQHVVLQJ YLROHQW GHDWK DQG GHVWUXFWLRQ WKH JULHI IURP WKH ORVV RI
OHYHO,WLVDVXEMHFWDUHDWKDWLVDVULFKDQGDVFRPSOH[DVDQ\TXHVWIRUDQXQGHUVWDQGLQJ
FRPUDGHVDQGWKHGHSULYDWLRQRIHYHQWKHVLPSOHVWRIOLIHVQHHGV
RIKXPDQQDWXUH$VVXFKLWHQFRPSDVVHVVXFKGLYHUVHWRSLFVDVWKHYDOXHV\VWHPRID
VRFLHW\DQGLWVPLOLWDU\KRZLQGLYLGXDOYDOXHVDUHLQXHQFHGRUFKDQJHGWKHSV\FKRORJLFDO
7KHSV\FKRORJLFDOLPSDFWRIEDWWOHDQGWKHSURVSHFWRIIXWXUHEDWWOHKDYHDWUHPHQGRXV
DQGSK\VLFDOPDQLIHVWDWLRQVRIFRPEDWVWUHVVWKHLQXHQFHVRIWUDLQLQJDQGFRQGLWLRQLQJWR
LQXHQFHXSRQWKHSHUIRUPDQFHRILQGLYLGXDOVDQGRIWKHXQLWVLQZKLFKWKH\DUHPHPEHUV
SUHYHQWRUDPHOLRUDWHWKHVWUHVVRIFRPEDWWKHG\QDPLFVRIXQLWSHUIRUPDQFHDQGFRKHVLRQ
,QGLYLGXDOVDQGXQLWVFDQPLQLPL]HWKHDGYHUVHHIIHFWVRIIDFLQJDQGSDUWLFLSDWLQJLQVXVWDLQHG
DQGQXPHURXVRWKHUUHODWHGWRSLFV
FRPEDWE\EHLQJSURSHUO\FRQGLWLRQHGVXSSRUWHGDQGWUDLQHG8QIRUWXQDWHO\WKHFRVWVRI
FUHDWLQJDQGVXVWDLQLQJWKHLQVWLWXWLRQDOSURFHVVHVQHFHVVDU\WRFRQVHUYHWKHSV\FKRORJLFDO
,Q WKH EHVW RI DOO ZRUOGV OHDGHUV ZLOO DFKLHYH WKH VWUDWHJLF OHYHO ZLWKRXW SHUVRQDO
FDSDFLW\RIRXU$UP\WRIXQFWLRQHIIHFWLYHO\LQEDWWOHRIWHQKDYHOLWWOHSHUFHLYHGYDOXHLQ
H[SHULHQFHLQWKHKXPDQGLPHQVLRQRIFRPEDW$IWHUWHQ\HDUVRIFRQLFWLQWKH0LGGOH
WKHGD\WRGD\DGPLQLVWUDWLRQDQGWUDLQLQJRIWKHIRUFHLQSHDFHWLPH7KXVLWLVHVVHQWLDO
(DVW WKLV ORIW\ JRDO LV FOHDUO\ QRW UHDOLVWLF QRZ RU LQ WKH IRUHVHHDEOH IXWXUH 5HJDUGOHVV
WKDWVWUDWHJLFOHDGHUVKDYHDQDSSUHFLDWLRQIRUWKHKXPDQGLPHQVLRQRIFRPEDWVRWKDWWKH\
RI ZKHWKHU WKH\YH SHUVRQDOO\ H[SHULHQFHG WKH VWUHVV RI FRPEDW VWUDWHJLF OHDGHUV PXVW
ZLOOVWRSH[WHUQDODQGLQWHUQDOLQXHQFHVIURPFRQVWULFWLQJWKRVHSROLFLHVDQGDVVRFLDWHG
SRVVHVVDIXQGDPHQWDODSSUHFLDWLRQIRUWKLVGLPHQVLRQRIZDUIDUHIRUWKHYHU\UHDVRQWKDW
UHVRXUFHVGHGLFDWHGWRHQKDQFLQJWKHSV\FKRORJLFDOVWD\LQJSRZHURIRXU$UP\LQEDWWOH
RXU$UP\PXVWDOZD\VEHSUHSDUHGWRFRPPLWLWVIRUFHVWRFRPEDWWRSURWHFWRXUQDWLRQV
7RRRIWHQDQGZLWKWKHEHVWRILQWHQVLRQVWKLVSV\FKRORJLFDOVWD\LQJSRZHULVXQGHUPLQHG
LQWHUHVWV  (YHU\ GHFLVLRQ WKDW$UP\ VWUDWHJLF OHDGHUV PDNH QRZ RU LQ WKH IXWXUH PXVW
LQWKHTXHVWIRUDGPLQLVWUDWLYHHIFLHQF\FRVWHIIHFWLYHQHVVDQGSHDFHWLPHPLVVLRQIRFXV
EH PDGH ZLWK FRQVLGHUDWLRQ RI WKH LPSDFW RI WKDW GHFLVLRQ RQ WKH SV\FKRORJLFDO VWD\LQJ
SRZHURIRXUVROGLHUVDQGXQLWVLQEDWWOH7RSHUPLWRXU$UP\WROHVVHQWKHSURSHUIRFXVRQ
,WZDVFOHDUWRPHDIWHUP\WLPHLQ,UDTWKDWZHUHJRLQJWREHDWWKLVIRUDZKLOH
SV\FKRORJLFDOUHDGLQHVVIRUVXVWDLQHGFRPEDWLVWREUHDNIDLWKZLWKWKRVHVROGLHUVZKRZLOO
DQGWKDWWKHKXPDQPLQGDQGERG\ZHUHQWPDGHWRGHDOZLWKUHSHDWHGFRPEDW
FRPPLWWKHPVHOYHVLQFXUUHQWDQGIXWXUHFRQLFWV
GHSOR\PHQWV$V ZHUH JHWWLQJ VRPH RI WKH \RXQJ 6ROGLHUV IURP VRFLHW\ ZHUH
QGLQJWKDWVRPHRIWKHWKLQJVWKH\PD\VHHLQGHSOR\PHQWVRURYHUVHDV

 
 $33(1',;$
(1'127(6

*HQHUDO'ZLJKW'(LVHQKRZHU&UXVDGHLQ(XURSH*DUGHQ&LW\1HZ-HUVH\'RXEOHGD\S

 675$7(*,&/($'(56+,3&203(7(1&,(6,

$UP\1HZV6HUYLFH*HQHUDO&DVH\/DXGV&RPSUHKHQVLYH6ROGLHU)LWQHVV3URJUHVV$SULO
KWWSZZZDUP\ZHOOEHLQJRUJ  2Q'HFHPEHUWKH&6$WDVNHGWKH86$:&WRLGHQWLI\WKHVWUDWHJLFOHDGHUVNLOO
VHWVIRURIFHUVUHTXLUHGLQWKHSRVW6HSWHPEHUWKHQYLURQPHQW$UHVHDUFKJURXSRIIRXU
VWXGHQWVDQGDIDFXOW\DGYLVRUFRPSOHWHGWKHIROORZLQJUHSRUWDIWHUH[WHQVLYHUHVHDUFKDQG
DQDO\VLV5HVHDUFKYLVLWVFRQGXFWHGE\WKHWHDPLQFOXGHGWKH&HQWHUIRU$UP\/HDGHUVKLS
WKH2EMHFWLYH)RUFH7DVN)RUFHRIFHWKH$UP\5HVHDUFK,QVWLWXWHIRUWKH%HKDYLRUDODQG
6RFLDO 6FLHQFHV 86$UP\ &DGHW &RPPDQG WKH 86 0LOLWDU\$FDGHP\7UDLQLQJ DQG
'RFWULQH&RPPDQGKHDGTXDUWHUVDQGVFKRROVDQGWKHOHDGHUGHYHORSPHQWRIFHVLQWKH
2IFHRIWKH'HSXW\&KLHIRI6WDII*DQG*$GGLWLRQDOO\WKHJURXSFRQVXOWHGZLWK
OHDGHUGHYHORSPHQWH[SHUWVLQRUJDQL]DWLRQVVXFKDVWKH&HQWHUIRU&UHDWLYH/HDGHUVKLS
%ULVWRO0\HUV6TXLEEDQG6WUDWHJLF/HDGHUVKLS6ROXWLRQV

675$7(*,&/($'(56+,3

7KH VHDUFK IRU VWUDWHJLF OHDGHU FRPSHWHQFLHV NQRZOHGJH VNLOOV DWWULEXWHV DQG
DELOLWLHV LV D QDWXUDO SURJUHVVLRQ RI WKH UHVHDUFK LQ WKH HOG RI OHDGHUVKLS  ,Q WKH ODWH
VVRPHVRFLDOVFLHQFHUHVHDUFKHUVEHJDQWRTXHVWLRQZKHWKHUOHDGHUVKLSDFWXDOO\PDGH
DGLIIHUHQFHLQRUJDQL]DWLRQVZKLOHRWKHUVVXJJHVWHGWKDWSHUKDSVWKHVWXG\RIOHDGHUVKLS
KDGUHDFKHGLWVQDGLU5DWKHUWKDQGLVDSSHDULQJKRZHYHUWKHVWXG\RIOHDGHUVKLSWRRNRQ
QHZ HQHUJ\ ZLWK DQ HPSKDVLV RQ OHDGHUVKLS RI RUJDQL]DWLRQV UDWKHU WKDQ WKH WUDGLWLRQDO
OHDGHUVKLS DSSURDFKHV WKDW IRFXVHG RQ IDFHWRIDFH LQWHUDFWLRQ DW ORZHU OHYHOV  6WXGLHV
RIWUDQVIRUPDWLRQDOOHDGHUVKLSRUJDQL]DWLRQDOFXOWXUHYLVLRQDU\OHDGHUVKLSRUJDQL]DWLRQDO
FKDQJHDQGFKDULVPDWLFOHDGHUVUHLQYLJRUDWHGWKHHOGRIOHDGHUVKLS7KXVWKHQRWLRQ
RIVWUDWHJLFOHDGHUVKLSZDVLQWURGXFHG:KLOHOLVWVRIOHDGHUVKLSFRPSHWHQFLHVZHUHYHU\
SRSXODULQWKHVWKHPRVWUHFHQWOLWHUDWXUHGLVWLOOVVWUDWHJLFOHDGHUVKLSWRDIHZNH\
VNLOOVDQGFRPSHWHQFLHVRUDSURFHVV

,QWKH86$:&KRVWHGDFRQIHUHQFHRQWKHHGJOLQJHOGRIVWUDWHJLFOHDGHUVKLS
$WWKDWFRQIHUHQFHVWUDWHJLFOHDGHUVKLSDVSHFWVZHUHEDVHGRQ-DTXHVV6WUDWLHG6\VWHPV
7KHRU\667667HVVHQWLDOO\DUJXHVWKDWWKHUHDUHFULWLFDOWDVNVWKDWPXVWEHSHUIRUPHG
E\OHDGHUVLQHIIHFWLYHRUJDQL]DWLRQV$WHDFKKLJKHUOHYHOLQDQRUJDQL]DWLRQWKHVHWDVNV
EHFRPH LQFUHDVLQJO\ FRPSOH[ DQG TXDOLWDWLYHO\ GLIIHUHQW  &RQVHTXHQWO\ OHDGHUV DW WKH
VWUDWHJLFOHYHOPXVWKDYHKLJKHUOHYHOVRIFRJQLWLYHFRPSOH[LW\WKHDELOLW\WRGHDOZLWK

,  7KLV DSSHQGL[ LV D UHSULQW RI WKH 6WUDWHJLF 6WXGLHV ,QVWLWXWH 3XEOLFDWLRQ E\ 'U /HRQDUG :RQJ
'U 6WHSKHQ *HUUDV  &2/ :LOOLDP .LGG &2/ 5REHUW 3ULFRQH DQG &2/ 5LFKDUG 6ZHQJURV 6WUDWHJLF
/HDGHUVKLS&RPSHWHQFLHV6HSWHPEHUDYDLODEOHDWKWWSZZZVWUDWHJLFVWXGLHVLQVWLWXWHDUP\PLOSXEV
GLVSOD\FIP"SXE,' 
 

DEVWUDFWORQJHUWLPHIUDPHFRQFHSWV7KHLQXHQFHRI667RQWKH86$:&DQG$UP\LV
HYLGHQWZLWKWKHHPSKDVLVRQFRJQLWLYHFRPSOH[LW\WKDWSHUPHDWHVPXFKRIWKHVWUDWHJLF
OHDGHUVKLSLQVWUXFWLRQ
 ,QLWV6WUDWHJLF/HDGHUVKLS3ULPHU(GLWLRQWKH86$:&SURYLGHGDOLVWRIVWUDWHJLF
OHDGHU FRPSHWHQFLHV XVLQJ WKH %H .QRZ 'R W\SRORJ\  7KH OLVW LV FRPSUHKHQVLYH DQG
DSSHDUVWRFDSWXUHHYHU\SRVVLEOHDVSHFWRIOHDGHUVKLS
7HFKQLFDO
6\VWHPV8QGHUVWDQGLQJSROLWLFDOHFRQRPLFFXOWXUDOORJLVWLFDOIRUFH
PDQDJHPHQWDQGMRLQWFRPELQHGLQWHUUHODWLRQVKLSVHWF
5HFRJQL]HVDQG8QGHUVWDQGV,QWHUGHSHQGHQFLHVV\VWHPVGHFLVLRQV
RUJDQL]DWLRQVHWF
,QIRUPDWLRQDJH7HFKQRORJLFDO$ZDUHQHVVQH[WJHQHUDWLRQDZDUHQHVV
VRSKLVWLFDWHGWLPHVSDFHVHOHFWLRQ
%('LVSRVLWLRQYDOXHVDWWULEXWHV 6NLOOIXO$SSOLFDWLRQRI(QGV:D\V0HDQV

7KH9DOXHV&KDPSLRQWKHVWDQGDUGEHDUHUEH\RQGUHSURDFK '2$FWLRQLQXHQFLQJRSHUDWLQJDQGLPSURYLQJ

0DVWHURIWKH6WUDWHJLF$UWHQGVZD\VPHDQV
4XLQWHVVHQWLDO6WXGHQWRI+LVWRU\ 3URYLGHIRUWKH)XWXUHYLVLRQLQJORQJWHUPIRFXVWLPHVSDQSHUVSHFWLYH
&RPIRUWDEOHZLWK&RPSOH[LW\ ,QLWLDWHRI3ROLF\DQG'LUHFWLYH
+LJK3HUVRQDO6WDPLQDSK\VLFDOPHQWDOVWUHVVPDQDJHPHQW 6KDSHWKH&XOWXUH9DOXHVEDVHGRUJDQL]DWLRQOHYHUDJHGLYHUVLW\
6NLOOHG'LSORPDW XQGHUVWDQGLQJDQGDFFHSWLQJGLIIHUHQFHVPXOWLSOHSHUVSHFWLYHV
3RVVHVVHV,QWHOOHFWXDO6RSKLVWLFDWLRQDOWHUQDWLYHIUDPHVRIUHIHUHQFHSDWWHUQ 7HDFKDQG0HQWRUWKH6WUDWHJLF$UW
UHFRJQLWLRQDQGDEOHWRVHHQGUGDQGWKRUGHUHIIHFWV 0DQDJH-RLQW&RPELQHGDQG,QWHUDJHQF\5HODWLRQVKLSV
0DQDJH1DWLRQDO/HYHO5HODWLRQVKLSV
.12:'LVSRVLWLRQVNLOOV 5HSUHVHQWWKH2UJDQL]DWLRQ
/HYHUDJH7HFKQRORJ\
&RQFHSWXDO /HDGDQG0DQDJH&KDQJHFUHDWLQJDQGEXLOGLQJOHDUQLQJRUJDQL]DWLRQV
%XLOG7HDPVDQG&RQVHQVXVDW6WUDWHJLF/HYHOFDQWGLFWDWHDFWLRQDWWKLVOHYHO
(QYLVLRQLQJDQWLFLSDWLQJWKHIXWXUHSURDFWLYHWKLQNLQJSUDFWLFHVFULWLFDO FRRSWLQJFRDOLWLRQEXLOGLQJQHJRWLDWLQJHWF
FUHDWLYHUHHFWLYHWKLQNLQJ 3UDFWLFHWKH6WUDWHJLF$UWDOORFDWHVUHVRXUFHVGHYHORSVDQGH[HFXWHVVWUDWHJLF
)UDPHRI5HIHUHQFH'HYHORSPHQWLQFOXGLQJV\VWHPVXQGHUVWDQGLQJVFDQQLQJ SODQVGHULYHGIURPWKHLQWHUDJHQF\SURFHVV
SDWWHUQUHFRJQLWLRQ
3UREOHP0DQDJHPHQWFRPSHWLQJLVVXHVQRULJKWDQVZHUVDELOLW\WRUHFRJQL]H
DQGLJQRUHLUUHOHYDQWLVVXHV 6LPLODUO\LQ)0$UP\/HDGHUVKLSWKH$UP\VGRFWULQDOOHDGHUVKLSPDQXDOWKH
&ULWLFDO6HOI([DPLQDWLRQ VNLOOVDQGDFWLRQVUHTXLUHGRIVWUDWHJLFOHDGHUVDUHDFXPXODWLYHOLVWRIIRUW\RQHFRPSHWHQFLHV
&ULWLFDO5HHFWLYH7KRXJKW DGGUHVVLQJWKHGLUHFWRUJDQL]DWLRQDODQGVWUDWHJLFOHYHOV7ZHQW\RQHFRPSHWHQFLHVDUH
(IIHFWLYHZLWKLQ(QYLURQPHQWRI&RPSOH[LW\ SURYLGHGIRUWKHVWUDWHJLFOHYHODORQH
6NLOOIXO)RUPXODWLRQRI(QGV:D\V0HDQV

,QWHUSHUVRQDO )0$UP\/HDGHUVKLS
6WUDWHJLF/HYHO6NLOOVDQG$FWLRQV
&RPPXQLFDWLRQWRDPXFKEURDGHUDXGLHQFHQHJRWLDWLRQVFRQVHQVXVEXLOGLQJ
DFURVVDYDULHW\RIVWDNHKROGHUVV\VWHPVNQRZOHGJHVRSKLVWLFDWHGSHUVXDVLRQ &RPPXQLFDWLQJ
VNLOOV 8VLQJGLDORJXH
,QVSLUHV2WKHUVWR$FW 1HJRWLDWLQJ
2UJDQL]DWLRQDO5HSUHVHQWDWLRQWRLQWHUQDODQGH[WHUQDODXGLHQFHVVWDNHKROGHUV $FKLHYLQJFRQVHQVXV
6NLOOIXO&RRUGLQDWLRQRI(QGV:D\V0HDQV %XLOGLQJVWDIIV
0DVWHURI&RPPDQGDQG3HHU/HDGHUVKLS

 
 (QYLVLRQLQJ 7KHFRQFHSWVEHKLQGWKHODEHOVQRWWKHODEHOVWKHPVHOYHVDUHWKHIRFDOSRLQWVIRUOHDGHU
'HYHORSLQJIUDPHVRIUHIHUHQFH GHYHORSPHQWDQGDVVHVVPHQW
6WUDWHJLFDUW
0RWLYDWLQJ 7KHIROORZLQJVHFWLRQGHVFULEHVHDFKRIWKHVL[PHWDFRPSHWHQFLHV7KLVUHSRUWLVQRW
/HYHUDJLQJWHFKQRORJ\ LQWHQGHG WR EH DQ H[KDXVWLYH H[SODQDWLRQ RI VWUDWHJLF OHDGHUVKLS  WKH FLYLOLDQ OLWHUDWXUH
([HFXWLQJ GRHVWKDWDGHTXDWHO\,WLVDOVRQRWLQWHQGHGDVDEOXHSULQWWRRYHUKDXOWKH$UP\VHQWLUH
&RPPXQLFDWLQJDYLVLRQ OHDGHUGHYHORSPHQWV\VWHP,QVWHDGWKLVUHSRUWFRQWUDVWVWKHIXWXUHHQYLURQPHQWZLWKWKH
'HFLVLRQPDNLQJ FXUUHQWVWDWXVRIVWUDWHJLFOHDGHUGHYHORSPHQWDQGVXJJHVWVVRPHDLPLQJSRLQWVIRUOHDGHU
/HDGLQJFKDQJH GHYHORSPHQWHIIRUWV
6WUDWHJLFSODQQLQJ
/HDUQLQJ
6WUDWHJLFDVVHVVLQJ 675$7(*,&/($'(56+,30(7$&203(7(1&,(6
7UDQVODWLQJSROLWLFDOJRDOVLQWRPLOLWDU\REMHFWLYHV
%XLOGLQJ ,GHQWLW\7KLVPHWDFRPSHWHQF\LVGHULYHGIURPWKHZRUNRI'RXJODV+DOOZKR
'HDOLQJZLWKXQFHUWDLQW\DQGDPELJXLW\ KHDYLO\LQXHQFHGWKHFRQFOXVLRQVRIWKH$UP\7UDLQLQJDQG/HDGHU'HYHORSPHQW3DQHO
,Q RQH VHQVH WKH 86$:& DQG )0  OLVWV RI VWUDWHJLF OHDGHU FRPSHWHQFLHV DUH
WRRFRPSUHKHQVLYH$WWKHLQGLYLGXDOOHYHOLWLVGLIFXOWWRDVVHVVRQHVOHDGHUVKLSDELOLW\
ZKHQWKHOLVWVVXJJHVWWKDWDVWUDWHJLFOHDGHUPXVWEHNQRZDQGGRMXVWDERXWHYHU\WKLQJ
$WWKHLQVWLWXWLRQDOOHYHOWKHODFNRISDUVLPRQ\PDNHVLWGLIFXOWWRIRFXVDQLQVWLWXWLRQV
DWWHQWLRQDQGUHVRXUFHVRQOHDGHUGHYHORSPHQWZKHQVXFKDEURDGDUUD\RIFRPSHWHQFLHV
LVDGYRFDWHG+HQFHWKHWDVNRILGHQWLI\LQJWKHFRPSHWHQFLHVRIIXWXUHVWUDWHJLFOHDGHUV
EHFRPHV RQH RI UHGXFLQJ WKH OLVWV WR D IHZ PHWDFRPSHWHQFLHV WKDW ZLOO SURYH XVHIXO LQ
2IFHU$7/'3DQHO$FFRUGLQJWR+DOOLGHQWLW\LVWKHDELOLW\WRJDWKHUVHOIIHHGEDFNWR
IRUPDFFXUDWHVHOISHUFHSWLRQVDQGWRFKDQJHRQHVVHOIFRQFHSWDVDSSURSULDWH
7KH$7/'3DQHOGHVFULEHVVHOIDZDUHQHVVDQGGHVFULEHVLWDVWKHDELOLW\WRXQGHUVWDQG
KRZWRDVVHVVDELOLWLHVNQRZVWUHQJWKVDQGZHDNQHVVHVLQWKHRSHUDWLRQDOHQYLURQPHQWDQG
OHDUQKRZWRFRUUHFWWKRVHZHDNQHVVHV7KHPHWDFRPSHWHQF\RILGHQWLW\PRYHVEH\RQG
VLPSO\NQRZLQJRQHVVWUHQJWKVDQGZHDNQHVVHVDVFRQQRWHGE\VHOIDZDUHQHVV,WLQFOXGHV
WKHXQGHUVWDQGLQJRIRQHVVHOIFRQFHSWDVDQRIFHULQWKH$UP\,GHQWLW\DOVRLQFOXGHVDQ
DGLUHFWLQJOHDGHUGHYHORSPHQWHIIRUWVLQWKHSURFHVVRISURGXFLQJOHDGHUVZLWKVWUDWHJLF XQGHUVWDQGLQJRIRQHVYDOXHVDQGKRZWKH\PDWFKXSWRWKHYDOXHVRIWKH$UP\,GHQWLW\
OHDGHU FDSDELOLW\ DQG E IDFLOLWDWLQJ VHOIDVVHVVPHQW E\ RIFHUV RI WKHLU VWUDWHJLF OHDGHU
FDSDELOLW\
/RRNLQJDFURVVWKHH[LVWLQJOLWHUDWXUHRQVWUDWHJLFOHDGHUVKLSWKHFXUUHQWOLVWVRI$UP\
VWUDWHJLFOHDGHUFRPSHWHQFLHVDQGWKHHQYLURQPHQWRIWKHIXWXUHIRUFHVL[PHWDFRPSHWHQFLHV
ZHUHGHULYHGLGHQWLW\PHQWDODJLOLW\FURVVFXOWXUDOVDYY\LQWHUSHUVRQDOPDWXULW\ZRUOG
FODVV ZDUULRU DQG SURIHVVLRQDO DVWXWHQHVV  %HIRUH DGGUHVVLQJ HDFK PHWDFRPSHWHQF\ LW
VKRXOGEHQRWHGWKDWFRQFHQWUDWLQJRQMXVWVL[PHWDFRPSHWHQFLHVGRHVSURYLGHIRFXVEXW
WKHUHDUHVRPHDVVRFLDWHGGLVDGYDQWDJHV)LUVWVRPHVNLOOVDQGDELOLWLHVDUHQRWH[SOLFLWO\
GHVFULEHGE\DPHWDFRPSHWHQF\ODEHO)RUH[DPSOHVWUDWHJLFOHDGHUVQHHGWREHSROLWLFDOO\
VDYY\NQRZLQJZKHQWRFRPSURPLVHXQGHUVWDQGLQJWKDWPDQ\VWUDWHJLFGHFLVLRQVDUH
QRWEODFNDQGZKLWHDQGNQRZLQJZKDWLVEHVWLQWKHORQJUXQIRUWKH1DWLRQDQGWKH$UP\
7KLVDELOLW\LVFDSWXUHGLQWKHSURIHVVLRQDODVWXWHQHVVPHWDFRPSHWHQF\GHVFULSWLRQEXWLV
QRWREYLRXVLQWKHZRUGVSURIHVVLRQDODVWXWHQHVV8QGHUVWDQGLQJWKHPHDQLQJDQGLQWHQW
EHKLQGHDFKPHWDFRPSHWHQF\LVPXFKPRUHLPSRUWDQWWKDQFUHDWLQJDFDWFK\PQHPRQLF
FRQWDLQLQJWKHUVWOHWWHURIHDFKRIWKHVL[ODEHOV6LPLODUO\WKHPHWDFRPSHWHQF\ODEHOVPD\
EHPLVLQWHUSUHWHGLIVHSDUDWHGIURPWKHLUGHVFULSWLRQV)RUH[DPSOHFURVVFXOWXUDOVDYY\
LQFOXGHV WKH DELOLW\ WR ZRUN DFURVV RUJDQL]DWLRQDO ERXQGDULHV EXW WKH PHWDFRPSHWHQF\
FDQEHQDUURZO\PLVLQWHUSUHWHGWRUHIHUWRZRUNLQJRQO\DFURVVQDWLRQDOERXQGDULHV,Q
RWKHU ZRUGV WKH VL[ PHWDFRPSHWHQF\ ODEHOV ZHUH QRW GHYHORSHG DV D VWDQGDORQH OLVW

WRQDYLJDWHLQWKLVPLOLHXDQGEHDGDSWDEOHHQRXJKWRDOWHUWKHLUDFWLRQVDQGWKRVHRIWKHLU
RUJDQL]DWLRQVWRIXQFWLRQLQWKLVFRPSOH[HQYLURQPHQW
)URPDFRJQLWLYHSHUVSHFWLYHVWUDWHJLFOHDGHUVPXVWOHDUQKRZWRVFDQWKHHQYLURQPHQW
XQGHUVWDQGWKHLUZRUOGIURPDV\VWHPVSHUVSHFWLYHDQGHYHQWXDOO\HQYLVLRQGLIIHUHQWIXWXUHV
DQGGLUHFWLRQVIRUWKHLURUJDQL]DWLRQ6FDQQLQJLQYROYHVDFRQVWDQWVHDUFKIRULQIRUPDWLRQ
WKDWDIIHFWVFXUUHQWDVVXPSWLRQVDORQJZLWKWKHIXWXUHRIWKHRUJDQL]DWLRQ2IFHUVZLWK
PHQWDOO\DJLOLW\VHDUFKIRUPRUHLQIRUPDWLRQDQGVSHQGPRUHWLPHLQWHUSUHWLQJLW7KH\
DOVR DQDO\]H ODUJH DPRXQWV RI VRPHWLPHV FRQLFWLQJ LQIRUPDWLRQ DQG WU\ WR XQGHUVWDQG
ZK\WKLQJVKDSSHQDQGLGHQWLI\SRVVLEOHFRXUVHVRIDFWLRQWRDIIHFWHYHQWV0HQWDOO\DJLOH
OHDGHUVNQRZZKLFKIDFWRUVUHDOO\PDWWHULQWKHELJSLFWXUHWKH\LGHQWLI\URRWFDXVHVTXLFNO\
GLVSOD\DNHHQVHQVHRISULRULW\UHOHYDQFHDQGVLJQLFDQFHDQGLQWHJUDWHLQIRUPDWLRQIURP
DYDULHW\RIVRXUFHVZKLOHGHWHFWLQJWUHQGVDVVRFLDWLRQVDQGFDXVHHIIHFWUHODWLRQVKLSV-XVW
DVLPSRUWDQWPHQWDOO\DJLOHOHDGHUVWUDQVODWHFRPSOH[VLWXDWLRQVLQWRVLPSOHPHDQLQJIXO
H[SODQDWLRQVWKDWRWKHUVFDQJUDVS
0HQWDOO\ DJLOH OHDGHUV HIFLHQWO\ JDWKHU DQG SURFHVV UHOHYDQW LQIRUPDWLRQ LQ RUGHU WR
SURFHVVLWIURPDV\VWHPVSHUVSHFWLYHDQGWKHQHQYLVLRQIHDVLEOHIXWXUHVZLWKLQLQFUHDVLQJO\
ORQJHUWLPHKRUL]RQV)URPDV\VWHPVSHUVSHFWLYHWKH\FKDOOHQJHDVVXPSWLRQVIDFLOLWDWH
FRQVWUXFWLYHGLVVHQWDQGDQDO\]HVHFRQGDQGWKLUGRUGHUFRQVHTXHQFHVRIWKHLUGHFLVLRQV
0HQWDOO\DJLOHOHDGHUVDUHFRPIRUWDEOHPDNLQJLPSRUWDQWGHFLVLRQVZLWKRQO\SDUWRIWKH
LQIRUPDWLRQDYDLODEOH0RUHLPSRUWDQWO\WKH\NQRZZKHQWRDFWDQGZKHQWRH[SHULPHQW
WR YDOLGDWH EHOLHIV RU DVVXPSWLRQV  2QFH PHQWDOO\ DJLOH VWUDWHJLF OHDGHUV KDYH VFDQQHG
WKH HQYLURQPHQW SURFHVVHG LQIRUPDWLRQ IURP D V\VWHPV SHUVSHFWLYH DQG HQYLVLRQHG
WKHIXWXUHHIIHFWRIWKDWLQIRUPDWLRQRQWKHRUJDQL]DWLRQWKH\WKHQDGDSWDQGLPSOHPHQW
OHDUQLQJPHFKDQLVPVWRDOWHUWKHSURFHVVHVVWUXFWXUHDQGEHKDYLRUVRIWKHLURUJDQL]DWLRQ
WRDFFRPPRGDWHWKHLUHQYLVLRQHGIXWXUH
&URVVFXOWXUDO VDYY\  :LWK WKH LQFUHDVLQJ IUHTXHQF\ RI FRDOLWLRQ ZDUIDUH DQG DQ
HPSKDVLVRQWKHDWHUVHFXULW\FRRSHUDWLRQWKHQHFHVVLW\IRUFURVVFXOWXUDOVDYY\LVREYLRXV
7KH $UP\V IXWXUH OHDGHUV FOHDUO\ QHHG WR EH ZHOO YHUVHG LQ LQWHUDFWLQJ ZLWK FXOWXUHV
RXWVLGHWKH86ERUGHUV&URVVFXOWXUDOVDYY\KRZHYHUUHIHUVWRPRUHWKDQMXVWWKHDELOLW\
WR ZRUN ZLWK QRQ86 PLOLWDULHV  7KH PHWDFRPSHWHQF\ FURVVFXOWXUDO VDYY\ LQFOXGHV
WKH DELOLW\ WR XQGHUVWDQG FXOWXUHV EH\RQG RQHV RUJDQL]DWLRQDO HFRQRPLF UHOLJLRXV
VRFLHWDO JHRJUDSKLFDO DQG SROLWLFDO ERXQGDULHV  $ VWUDWHJLF OHDGHU ZLWK FURVVFXOWXUDO
VDYY\LVFRPIRUWDEOHLQWHUDFWLQJZLWKDQGOHDGLQJMRLQWLQWHUQDWLRQDOLQWHUDJHQF\RULQWHU
RUJDQL]DWLRQDOHQWLWLHV)XWXUHVWUDWHJLFOHDGHUVPXVWEHDEOHWRZRUNZLWKDGLYHUVHJURXS
RISHRSOHDQGRUJDQL]DWLRQVUDQJLQJIURP\HDUROGFRQJUHVVLRQDOVWDIIHUVWR1RUWKHUQ
$OOLDQFHZDUORUGVWRUHSUHVHQWDWLYHVIURPQRQJRYHUQPHQWDORUJDQL]DWLRQV
:KLOHFURVVFXOWXUDOVNLOOVKDYHEHHQGHVLUDEOHLQWKHSDVWWKH\ZLOOEHHYHQPRUHFULWLFDO
IRUIXWXUHVWUDWHJLFOHDGHUVGXHWRVHYHUDOIDFWRUV)LUVWJOREDOL]DWLRQKDVYDVWO\LQFUHDVHG
LQWHUDFWLRQZLWKRWKHUQDWLRQV6HFRQGWKHJOREDOZDURQWHUURULVPLVLOOXVWUDWLQJWKDWWKH

LPSOLHV PDWXUDWLRQ EH\RQG VHOIDZDUHQHVV DV RIFHUV FRPH WR DQ XQGHUVWDQGLQJ RI ZKR
WKH\DUHQRWMXVWKRZZHOOWKH\GRWKLQJV
,GHQWLW\ DV RSSRVHG WR VHOIDZDUHQHVV DOVR EULQJV LQ DVSHFWV RI GHYHORSPHQW RYHU D
FDUHHU$VVHQLRUOHDGHUVJDLQUHVSRQVLELOLW\WKH\IRFXVOHVVRQWKHLURZQFRQWULEXWLRQVDQG
PRUHRQWKHDFFRPSOLVKPHQWVRIRWKHUV7KHPHWDFRPSHWHQF\RILGHQWLW\DFNQRZOHGJHV
WKDWDVDQRIFHUGHYHORSVVWUDWHJLFOHDGHUVKLSFDSDELOLW\KLVUROHH[WHQGVEH\RQGSHUVRQDO
FRQWULEXWLRQVDQGVKLIWVWRVHUYLQJDVDFDWDO\VWIRUVXFFHVVIRUVXERUGLQDWHV
0HQWDODJLOLW\,QDGGLWLRQWRVHOIDZDUHQHVVWKH$7/'3DQHOUHSRUWUHFRPPHQGVWKDW
WKH$UP\IRFXVRQGHYHORSLQJWKHHQGXULQJFRPSHWHQF\RIDGDSWDELOLW\WKDWLQFOXGHVWKH
SUHGLVSRVLWLRQDQGUHDGLQHVVWRVFDQDQGUHFRJQL]HFKDQJHVLQWKHHQYLURQPHQWWRGHWHUPLQH
ZKDWLVQHZDQGZKDWPXVWEHOHDUQHGWREHHIIHFWLYHDQGWKHZLOOLQJQHVVWRPRGLI\WRD
JLYHQVLWXDWLRQ0HQWDODJLOLW\EXLOGVRQWKHDELOLW\WRVFDQDQGDGMXVWOHDUQLQJEDVHGRQ
WKHHQYLURQPHQWDQGEULQJVDVSHFWVRIFRJQLWLYHFRPSOH[LW\LPSURYLVDWLRQDQGOLJKWQHVV
IRXQGLQWKHVWUDWHJLFOHDGHUVKLSOLWHUDWXUH6WUDWHJLFOHDGHUVRSHUDWHLQDQHQYLURQPHQWRI
DPELJXLW\DQGXQFHUWDLQW\7\SLFDOVWUDWHJLFVLWXDWLRQVODFNVWUXFWXUHDUHRSHQWRYDU\LQJ
LQWHUSUHWDWLRQVDQGSRWHQWLDOO\SHUWLQHQWLQIRUPDWLRQLVRIWHQIDUXQJHOXVLYHFU\SWLFRU
HYHQFRQWUDGLFWRU\0HQWDOO\DJLOHVWUDWHJLFOHDGHUVSRVVHVVWKHUHTXLVLWHFRJQLWLYHVNLOOV

$UP\PXVWFRRUGLQDWHFORVHO\ZLWKRWKHUVHUYLFHVDJHQFLHVDQGRUJDQL]DWLRQVLQWKHQHZ
QDWLRQDOVHFXULW\HQYLURQPHQW7KLUGWKH$UP\KDVWUDGLWLRQDOO\EHHQDFFXVHGRIEHLQJ
VRPHZKDWLQHSWLQLWVGHDOLQJVZLWK&RQJUHVVDQGWKHPHGLD$VVRFLHWDOH[SRVXUHWRWKH
PLOLWDU\GHFUHDVHVLWEHFRPHVLQFUHDVLQJO\LPSRUWDQWIRU$UP\RIFHUVWRWHOOWKH$UP\
VWRU\WRWKRVHRXWVLGHWKH$UP\FXOWXUH)LQDOO\DOWKRXJKWKH86UHPDLQVWKHZRUOGVRQO\
VXSHUSRZHUXQLODWHUDOPLOLWDU\DFWLRQLVEHFRPLQJOHVVFRPPRQ&RDOLWLRQVZLOOFRQWLQXH
WREHYLWDOWRWKHVHFXULW\VWUDWHJ\
&URVVFXOWXUDOVDYY\LPSOLHVWKDWDQRIFHUFDQVHHSHUVSHFWLYHVRXWVLGHKLVRUKHURZQ
ERXQGDULHV,WGRHVQRWLPSO\KRZHYHUWKDWWKHRIFHUDEDQGRQVWKH$UP\RU86FXOWXUH
LQ SXUVXLW RI D UHODWLYLVWLF ZRUOGYLHZ  ,QVWHDG WKH IXWXUH VWUDWHJLF OHDGHU LV JURXQGHG
LQ 1DWLRQDO DQG$UP\ YDOXHV EXW LV DOVR DEOH WR DQWLFLSDWH DQG XQGHUVWDQG WKH YDOXHV
DVVXPSWLRQVDQGQRUPVRIRWKHUJURXSVRUJDQL]DWLRQVDQGQDWLRQV
,QWHUSHUVRQDOPDWXULW\0DQ\RIWKHLQWHUSHUVRQDOVNLOOVUHTXLUHGRIVWUDWHJLFOHDGHUV
DUHEDVLFDOO\WKHVDPHDWWULEXWHVXVHGDWWKHRUJDQL]DWLRQDOOHYHODSSOLHGDWDKLJKHUOHYHO
)RUH[DPSOHPXFKOLNHDMXQLRUOHDGHUVWUDWHJLFOHDGHUVDUHH[SHFWHGWRGLVSOD\FRPSDVVLRQ
ZKHQGHDOLQJZLWKVXERUGLQDWHVRQVHQVLWLYHLVVXHV+RZHYHUWKHUHDUHVHYHUDOLQWHUSHUVRQDO
VNLOOV WKDW DOWKRXJK EDVHG RQ GLUHFW DQG RUJDQL]DWLRQDO OHDGHUVKLS FKDUDFWHULVWLFV DUH
TXDOLWDWLYHO\GLIIHUHQWDWWKHVWUDWHJLFOHYHO6WUDWHJLFOHDGHUVPXVWSRVVHVVDQLQWHUSHUVRQDO
PDWXULW\WKDWJRHVEH\RQGIDFHWRIDFHOHDGHUVKLS6WUDWHJLFOHDGHUVGHYRWHIDUPRUHRI
WKHLUWLPHGHDOLQJZLWKRXWVLGHRUJDQL]DWLRQVDQGOHDGHUVRIRWKHUVHUYLFHVDJHQFLHVDQG
QDWLRQV7KHSRZHUUHODWLRQVKLSEHWZHHQWKHVWUDWHJLFOHDGHUDQGLQGLYLGXDOVIURPWKHVH
HQWLWLHVLVPDUNHGO\GLIIHUHQWWKDQWKHSRZHUUHODWLRQVKLSW\SLFDOO\H[SHULHQFHGDWWKHGLUHFW
DQGRUJDQL]DWLRQDOOHYHO
6HYHUDOLQWHUSHUVRQDOVNLOOVEHFRPHYHU\LPSRUWDQWDWWKLVOHYHO0RVWLPSRUWDQWDPRQJ
WKHVH LV HPSRZHUPHQW  6WUDWHJLF OHDGHUV QHHG WR VKDUH SRZHU ZLWK WKHLU VXERUGLQDWHV
SHHUVDQGFRQVWLWXHQWV7KH\PXVWKDYHWKHZLOOLQJQHVVDQGDELOLW\WRLQYROYHRWKHUVDQG
HOLFLWWKHLUSDUWLFLSDWLRQEDVHGRQWKHVXERUGLQDWHVNQRZOHGJHDQGVNLOOVEHFDXVHWDVNVZLOO
EHWRRFRPSOH[DQGLQIRUPDWLRQWRRZLGHO\GLVWULEXWHGIRUOHDGHUVWRVROYHSUREOHPVRQ
WKHLURZQ$QLQWHUSHUVRQDOO\PDWXUHVWUDWHJLFOHDGHUQHHGVWREHSHUVXDVLYHDQGUHO\OHVV
RQDWDVNLQJRWKHUVWRMRLQLQUDWKHUWKDQWHOOLQJWKHP(PSRZHUPHQWLPSOLHVWKDWWKH
OHDGHULVDJRRGOLVWHQHUOHDGHUVKLSDWWKHVWUDWHJLFOHYHOLVDVPXFKFROODERUDWLRQDVLWLV
DXWKRULWDWLYHOHDGHUVKLS,QWHUSHUVRQDOPDWXULW\LPSOLHVWKDWVWUDWHJLFOHDGHUVGRQRWIHHO
FRPSHOOHGWRGRDOOWKHWDONLQJDQGUHVLVWLPSRVLQJDVROXWLRQRQRWKHUV%HFDXVHRIWKH
XQLTXHSRZHUUHODWLRQVKLSVWKHVNLOOVRIFRQVHQVXVEXLOGLQJDQGQHJRWLDWLRQULVHWRWKHWRS
RIDVWUDWHJLFOHDGHUVLQWHUSHUVRQDOPDWXULW\&RQVHQVXVEXLOGLQJLVDFRPSOLFDWHGSURFHVV
EDVHGRQHIIHFWLYHUHDVRQLQJDQGORJLFWKDWPD\WDNHSODFHRYHUDQH[WHQGHGSHULRG3HHUV
RXWVLGHDJHQFLHVIRUHLJQJRYHUQPHQWVDQGRWKHUVHUYLFHVZLOOQRWQHFHVVDULO\UHVSRQGWR
RUGHUV,QHVVHQFHWKHSURFHVVRIFRQVHQVXVEXLOGLQJLVLQVXUDQFHWKDWHIIHFWLYHUHDVRQLQJ
KDVWDNHQSODFHDQGWKDWFRQWHQWLRXVLVVXHVKDYHEHHQUHVROYHG$VSDUWRIWKLVSURFHVVRU
HYHQVHSDUDWHVWUDWHJLFOHDGHUVZLOOQGWKDWWKH\QHHGWRXQGHUVWDQGWKHDUWRIQHJRWLDWLRQ

$JDLQ EHFDXVH PDQ\ UHODWLRQVKLSV DW WKH VWUDWHJLF OHYHO DUH ODWHUDO DQG ZLWKRXW FOHDU
VXERUGLQDWLRQ OHDGHUV ZLOO QG WKHPVHOYHV LQ GLIFXOW VLWXDWLRQV ZKHUH VXFFHVV UHVWV LQ
WKHLUDELOLW\WRQHJRWLDWHDQDJUHHDEOHVROXWLRQ
,QWHUSHUVRQDO PDWXULW\ DOVR LQFOXGHV WKH DELOLW\ RI RIFHUV WR DQDO\]H FKDOOHQJH DQG
FKDQJHDQRUJDQL]DWLRQVFXOWXUHWRDOLJQLWZLWKWKHHYHUFKDQJLQJRXWVLGHHQYLURQPHQW
6WUDWHJLFOHDGHUVPXVWWKHUHIRUHKDYHVNLOOVLQDQDO\]LQJFXOWXUDODVVXPSWLRQVLGHQWLI\LQJ
IXQFWLRQDODQGG\VIXQFWLRQDODVVXPSWLRQVDQGHYROYLQJSURFHVVHVWKDWHQODUJHWKHFXOWXUH
E\ EXLOGLQJ RQ LWV VWUHQJWKV DQG IXQFWLRQDO HOHPHQWV  6WUDWHJLF OHDGHUV WKHQ QHHG WR
SURDFWLYHO\PDQDJHFKDQJHWKURXJKWKHSURFHVVHVDVVRFLDWHGZLWKHPEHGGLQJWKHLUYLVLRQ
ZLWKLQ WKH RUJDQL]DWLRQ DQG VKDSLQJ RUJDQL]DWLRQDO FXOWXUH WR VXSSRUW WKH YLVLRQ  1RHO
7LFK\ SRVLWV $V ORQJ DV D FXOWXUH WV WKH H[WHUQDO HQYLURQPHQW LW VXFFHHGV EXW ZKHQ
WKHH[WHUQDOUHDOLWLHVFKDQJHWKHFXOWXUHKDVWRFKDQJHDVZHOODWFHUWDLQFULWLFDOVWDJHV
UDGLFDOFXOWXUDOVKLIWVDUHQHHGHGDQGZLWKRXWOHDGHUVKLSWKH\MXVWGRQWKDSSHQ
/DVWO\VWUDWHJLFOHDGHUVPXVWKDYHWKHLQWHUSHUVRQDOPDWXULW\WRWDNHUHVSRQVLELOLW\IRU
WKHGHYHORSPHQWRIWKH$UP\VIXWXUHVWUDWHJLFOHDGHUV7KHUHIRUHVWUDWHJLFOHDGHUVQHHG
WRWHDFKFRDFKDQGPHQWRUZKLOHFUHDWLQJDQHQYLURQPHQWZKHUHRWKHUOHDGHUVPD\GRWKH
VDPH,QWHUSHUVRQDOPDWXULW\LQFOXGHVWKHDELOLW\WRHQVXUHOHDGHUGHYHORSPHQWGRHVQRW
JHWQHJOHFWHGLQWKHSXUVXLWRIHYHU\GD\PLVVLRQDFFRPSOLVKPHQW
:RUOGFODVVZDUULRU7KLVLVWKHVLPSOHVWDQGPRVWXQGHUVWDQGDEOHRIWKHVL[VWUDWHJLF
OHDGHUVKLS PHWDFRPSHWHQFLHV $V D ZRUOGFODVV ZDUULRU VWUDWHJLF OHDGHUV PRYH EH\RQG
WDFWLFDODQGRSHUDWLRQDOFRPSHWHQFHLQWKHHPSOR\PHQWRIWKHIXWXUHIRUFH7KH\XQGHUVWDQG
WKHHQWLUHVSHFWUXPRIRSHUDWLRQVDWWKHVWUDWHJLFOHYHOWRLQFOXGHWKHDWHUVWUDWHJ\FDPSDLJQ
VWUDWHJ\MRLQWLQWHUDJHQF\DQGPXOWLQDWLRQDORSHUDWLRQVDQGWKHXVHRIDOOWKHHOHPHQWVRI
QDWLRQDOSRZHUDQGWHFKQRORJ\LQWKHH[HFXWLRQRIQDWLRQDOVHFXULW\VWUDWHJ\
3URIHVVLRQDODVWXWHQHVV,QWKHLUFRPSUHKHQVLYHVWXG\RIWKH$UP\SURIHVVLRQ'RQ
6QLGHUDQG*D\OH:DWNLQVDUULYHDWDQLPSRUWDQWFRQFOXVLRQFRQFHUQLQJWKHFXUUHQWRIFHU
FRUSV 'RXJODV7+DOO&DUHHUV,QDQG2XWRI2UJDQL]DWLRQV7KRXVDQG2DNV&$6DJH3XEOLFDWLRQV,QF
FRPSDQ\+HZULWHV/HYHOOHDGHUVFKDQQHOWKHLUHJRQHHGVDZD\IURPWKHPVHOYHVDQG
LQWRWKHODUJHUJRDORIEXLOGLQJDJUHDWFRPSDQ\,WVQRWWKDW/HYHOOHDGHUVKDYHQRHJRRU
VHOILQWHUHVW,QGHHGWKH\DUHLQFUHGLEO\DPELWLRXVEXWWKHLUDPELWLRQLVUVWDQGIRUHPRVW
IRUWKHLQVWLWXWLRQQRWWKHPVHOYHV,QFRQWUDVW/HYHOOHDGHUVDUHRIWHQHIIHFWLYHDQG
FKDULVPDWLF\HWWKHFRPSDQ\IDOOVDSDUWDIWHUWKH\OHDYHVLQFH/HYHOOHDGHUVSXWWKHLU
SHUVRQDOVXFFHVVDQGHJRVDKHDGRILQVWLWXWLRQDOVXFFHVV
7KHIXWXUHIRUFHZLOOQHHGVWUDWHJLFOHDGHUVZKRDUH/HYHOOHDGHUVOHDGHUVZKRWDNH
UHVSRQVLELOLW\IRUWKH$UP\DVDSURIHVVLRQ/HDGHUVZLWKSURIHVVLRQDODVWXWHQHVVJHWWKH
PLVVLRQDFFRPSOLVKHGEXWWKH\DOVRKDYHWKHLQVLJKWWRGRZKDWLVEHVWIRUWKHSURIHVVLRQ
DQG1DWLRQ7KLVPD\LQFOXGHKDYLQJSROLWLFDOVDYY\NQRZLQJZKHQWRFRPSURPLVHRU
XQGHUVWDQGLQJWKHPDQ\FRQVWLWXHQWVWKDWWKH$UP\VHUYHV$GGLWLRQDOO\VWUDWHJLFOHDGHUV
ZLWK SURIHVVLRQDO DVWXWHQHVV VHHN WR HQVXUH WKH RIFHU FRUSV PDLQWDLQV LWV H[SHUWLVH LQ
QDWLRQDO GHIHQVH DV ZHOO DV DGKHULQJ WR D SURIHVVLRQDO HWKLF  3URIHVVLRQDO DVWXWHQHVV LV
DVWUDWHJLFOHDGHUVKLSFRPSHWHQF\WKDWLQVXUHVWKDWWKH$UP\GHOLEHUDWHO\WDNHVWKHVWHSV
WRLQVXUHWKH$UP\UHPDLQVDSURIHVVLRQQRWPHUHO\DMRERUJDQL]DWLRQEXUHDXFUDF\RU
RFFXSDWLRQ
&21&/86,216
,Q ERWK WKH FLYLOLDQ DQG PLOLWDU\ OLWHUDWXUH WKHUH LV D SOHWKRUD RI PDWHULDO GLVFXVVLQJ
VWUDWHJLFOHDGHUVKLSDQGVWUDWHJLFOHDGHUFRPSHWHQFLHV3DUWRIWKHGLIFXOW\HQFRXQWHUHG
E\ DQ\RQH GHVLULQJ WR DGMXVW OHDGHU GHYHORSPHQW RU HGXFDWLRQ HIIRUWV LV WKH EURDG DUUD\
RIFRPSHWHQFLHVSUHVHQWHGLQWKHOLWHUDWXUH7KLVVHFWLRQFRPELQHVZKDWLVNQRZQDERXW
VWUDWHJLFOHDGHUVKLSFRPSHWHQFLHVDQGLQWHJUDWHVLWZLWKWKHFKDUDFWHULVWLFVRIWKHRIFHU
FRUSVDQGWKHIXWXUHIRUFHHQYLURQPHQW7KHUHVXOWLVDOLVWRIVL[PHWDFRPSHWHQFLHVIRU
VWUDWHJLFOHDGHUVKLS
(1'127(6
S
7KH $UP\V EXUHDXFUDWLF QDWXUH RXWZHLJKV DQG FRPSURPLVHV LWV SURIHVVLRQDO 1RHO07LFK\7KH/HDGHUVKLS(QJLQH1HZ<RUN+DUSHU&ROOLQV3XEOLVKHUV,QFS
QDWXUH7KLVLVWUXHLQSUDFWLFHEXWRIJUHDWHULPSRUWDQFHLWLVUHJDUGHGDVWUXHLQ
WKHPLQGVRIWKHRIFHUFRUSV2IFHUVGRQRWVKDUHDFRPPRQXQGHUVWDQGLQJRIWKH *D\OH/:DWNLQVDQG'RQ06QLGHU3URMHFW&RQFOXVLRQVLQ'RQ06QLGHU*D\OH/:DWNLQVDQG
$UP\SURIHVVLRQDQGPDQ\RIWKHPDFFHSWWKHSHUYDVLYHQHVVRIEXUHDXFUDWLFQRUPV /OR\G-0DWWKHZVHG7KH)XWXUHRIWKH$UP\3URIHVVLRQ%RVWRQ0F*UDZ+LOO&RPSDQLHV,QF
DQGEHKDYLRUVDVQDWXUDODQGDSSURSULDWH S

-LP&ROOLQV*RRGWR*UHDW:K\6RPH&RPSDQLHV0DNHWKH/HDSDQG2WKHUV'RQW1HZ<RUN
6WUDWHJLFOHDGHUVZKRDUHSURIHVVLRQDOO\DVWXWHXQGHUVWDQGWKDWWKH\DUHQRORQJHUPHUHO\ +DUSHU&ROOLQV3XEOLVKHUV,QFS
PHPEHUVRIDSURIHVVLRQEXWOHDGHUVLQWKHSURIHVVLRQDVWKH$UP\VHUYHVWKH1DWLRQ7KH\
VHHWKHQHHGWRGHYHORSWKHIXWXUHOHDGHUVRIWKHSURIHVVLRQZRUNZLWKVWDNHKROGHUVDQG
FRPPXQLFDWHWKLV UHVSRQVLELOLW\WR IXWXUH OHDGHUV RI WKH SURIHVVLRQ  ,Q KLV UHFHQW ERRN
*RRG WR *UHDW -LP &ROOLQV WDONV DERXW /HYHO  OHDGHUVOHDGHUV ZKR FDQ WUDQVIRUP D