Structural Reliabilism: Inductive Logic as a Theory of Justification (Trends in Logic)

STRUCTURAL RELIABILISM

TRENDS IN LOGIC Studia Logica Library VOLUME 16 Managing Editor Ryszard Wójcicki, Institute of Philosophy and Sociology, Polish Academy of Sciences, Warsaw, Poland Editors Daniele Mundici, Department of Computer Sciences, University of Milan, Italy Ewa Orłowska, National Institute of Telecommunications, Warsaw, Poland Graham Priest, Department of Philosophy, University of Queensland, Brisbane, Australia Krister Segerberg, Department of Philosophy, Uppsala University, Sweden Alasdair Urquhart, Department of Philosophy, University of Toronto, Canada Heinrich Wansing, Institute of Philosophy, Dresden University of Technology, Germany

SCOPE OF THE SERIES

Trends in Logic is a bookseries covering essentially the same area as the journal Studia Logica – that is, contemporary formal logic and its applications and relations to other disciplines. These include artificial intelligence, informatics, cognitive science, philosophy of science, and the philosophy of language. However, this list is not exhaustive, moreover, the range of applications, comparisons and sources of inspiration is open and evolves over time.

Volume Editor Ryszard Wójcicki

The titles published in this series are listed at the end of this volume.

PAWEŁ KAWALEC The Catholic University of Lublin, Poland

STRUCTURAL RELIABILISM Inductive Logic as a Theory of Justification

KLUWER ACADEMIC PUBLISHERS DORDRECHT / BOSTON / LONDON

A C.I.P. Catalogue record for this book is available from the Library of Congress.

ISBN 1-4020-1013-3

Published by Kluwer Academic Publishers, P.O. Box 17, 3300 AA Dordrecht, The Netherlands. Sold and distributed in North, Central and South America by Kluwer Academic Publishers, 101 Philip Drive, Norwell, MA 02061, U.S.A. In all other countries, sold and distributed by Kluwer Academic Publishers, P.O. Box 322, 3300 AH Dordrecht, The Netherlands.

Printed on acid-free paper

All Rights Reserved © 2003 Kluwer Academic Publishers No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording or otherwise, without written permission from the Publisher, with the exception of any material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Printed in the Netherlands.





                         

7RP\0RWKHU.U\VW\QD.DZDOHF





&RQWHQWV

3UHIDFH

L[

$FNQRZOHGJHPHQWV

[Y

 7+(6<67(062),1'8&7,9(/2*,&  7KH0DLQ,GHDV3UHFHGLQJWKH&RQVWUXFWLRQRIWKH6\VWHPV  RI,QGXFWLYH/RJLF  &DUQDS¶V6\VWHPVRI,QGXFWLYH/RJLF  7KH)LQQLVK6FKRRO¶V6\VWHPVRI,QGXFWLYH/RJLF  7KH%D\HVLDQ'HYHORSPHQWVRI,QGXFWLYH/RJLF

    

 ,1'8&7,9(/2*,&$6$6758&785$/5(/,$%,/,67  7+(25<2)-867,),&$7,21   7KH0HQWDOLVWLF7KHRU\RI-XVWLILFDWLRQDQG3URFHVV5HOLDELOLVP   &RQIOLFWLQJ0HWD/HYHO$VVXPSWLRQVRI0HQWDOLVWLF  5HOLDELOLVW7KHRULHVRI-XVWLILFDWLRQ   7KH0LQLPDOLVW7KHRU\RI-XVWLILFDWLRQDQG6WUXFWXUDO  5HOLDELOLVP   &DUQDS¶V6WUXFWXUDO5HOLDELOLVP   7KH)LQQLVK6FKRRO¶V6\VWHPVRI,QGXFWLYH/RJLFDQG  6WUXFWXUDO5HOLDELOLVP   6758&785$/5(/,$%,/,60$1'7+(352%/(062) %$<(6,$1(3,67(02/2*<  (SLVWHPRORJLFDO&ULWLFLVPVRI&DUQDS¶V,QGXFWLYH/RJLF YLL

 

YLLL      

&217(176 6WUXFWXUDO5HOLDELOLVPDQG'LIILFXOWLHVRI0HQWDOLVWLF 5HOLDELOLVP 6WUXFWXUDO5HOLDELOLVPDQGWKH3DUDGR[HVRI&RQILUPDWLRQ 7KH6WUXFWXUDO5HOLDELOLVW5HGHILQLWLRQRIWKH%D\HVLDQ 2EMHFWLYH6XEMHFWLYH'LFKRWRP\

  

&RQFOXVLRQ



5HIHUHQFHV



,QGH[ 







3UHIDFH

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

L[

[ 

35()$&( LQGXFWLYHUHDVRQLQJLVWRPDNHLQIHUHQFHVRIDVSHFLDONLQG)URPWKLVSRLQWRIYLHZ WKH GHPDQG RI MXVWLILFDWLRQ ZRXOG QDWXUDOO\ EH GLUHFWHG DW DQ\ DOOHJHG SULQFLSOHV RI LQGXFWLYHLQIHUHQFH,ZRXOGQRWVD\WKDWLWLVZURQJWRUHJDUGLQIHUHQFHPDNLQJDVWKH DLP%XWIURPP\SRLQWRIYLHZLWVHHPVSUHIHUDEOHWRWDNHDVWKHHVVHQWLDOSRLQWLQ LQGXFWLYHUHDVRQLQJWKHGHWHUPLQDWLRQRISUREDELOLW\YDOXHV,QP\YLHZLQGXFWLYH ORJLFLVWKHWKHRU\RIWKLVSDUWLFXODUFRQFHSWRISUREDELOLW\&DUQDSD 

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²VWLOO SHUVLVWHQW LQ WKH 3ROLVK SKLORVRSKLFDOWUDGLWLRQZKLFKGUDZVXSRQWKHKHULWDJHRIWKH/YRY:DUVDZ 6FKRRO²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

35()$&( [L  WKHJURXQGVRIVWUXFWXUDOUHOLDELOLVP ,DOVRGHOLQHDWHWKHHVVHQWLDOSRLQWVRI DGYDQWDJHWKDWVWUXFWXUDOUHOLDELOLVPHQMR\VRYHULWVPDLQVWUHDPFRPSHWLWRUV 'HVSLWHWKHVHYHUHFULWLFLVPVRIWKHZKROHSURJUDPRILQGXFWLYHORJLFQR RQH KDV \HW XQGHUWDNHQ WKH WDVN RI VHWWLQJ IRUWK DQ DSSURSULDWH HSLVWHPRORJLFDO DQDO\VLV RI WKH &DUQDS+LQWLNND VW\OH V\VWHPV RI LQGXFWLYH ORJLFDVFRQVWLWXWLQJLQIDFWDQHSLVWHPRORJLFDOSRVLWLRQDOWKRXJKWKHYLHZ WKDW ³WKH UHODWLRQ  RI FRQILUPDWLRQ LV  WUDQVSDUHQWO\ HSLVWHPRORJLFDO´ &UHDWK    KDV UHFHQWO\ EHHQ ZLGHO\ DFNQRZOHGJHG DPRQJ &DUQDS VFKRODUV)ULHGPDQ ,QGXFWLYHORJLFLVE\DQGODUJHSHUFHLYHGDVDQ HIIRUW WR HODERUDWH RQ +HPSHO¶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¶V HSLVWHPRORJLFDO SRVLWLRQ KDV RIWHQ EHHQ RXWUDJHRXVO\ RYHUVLPSOLILHG DQG PLVFRQFHLYHG DQG PRUHRYHU WKH PHQWDOLVWLF FKDUDFWHU RI WKH PDLQVWUHDP WKHRULHVRIMXVWLILFDWLRQHQMR\VWKHVWDWXVRIDQXQTXHVWLRQHGGRJPDHYHQLQ WKHIDFHRIWKHLUDSSDUHQWIDLOXUHWRFRPHWRJULSVZLWKWKHSUHVVLQJSUREOHP RIMXVWLILFDWLRQ ,QJHQHUDO,FRQWULYHWKHIUDPHZRUNIRUWKHVWUXFWXUDOUHOLDELOLVWWKHRU\RI MXVWLILFDWLRQ E\ FULWLFDO DVVHVVPHQW RI PHWDOHYHO SURSHUWLHV XQGHUO\LQJ WKH PHQWDOLVWLF YHUVLRQ RI UHOLDELOLVP VXFK DV EHLQJ D VXEVWDQWLYH QRPLF DQG TXLHWLVWLF WKHRU\ RI MXVWLILFDWLRQ 2QO\ WKHQ GR , SURFHHG WR SURMHFW WKH JHQHUDOVWDWHPHQWRIDQHFHVVDU\FRQGLWLRQRIMXVWLILFDWLRQRQWKHJURXQGVRI VWUXFWXUDOUHOLDELOLVP7KLVFRQGLWLRQLVFDVWLQVWUXFWXUDOWHUPVDQGWKHUHIRUH WXUQVRQWKHWHFKQLFDOGHWDLOVRIWKHFRQVWUXFWLRQRIWKHV\VWHPVRILQGXFWLYH ORJLFGHYHORSHGE\&DUQDSDQGWKH)LQQLVK6FKRRO 7KHILUVWFKDSWHU7KH6\VWHPVRI,QGXFWLYH/RJLFGHOLQHDWHVWKHGHWDLOVRI WKHFRQVWUXFWLRQRIWKHV\VWHPVRILQGXFWLYHORJLFZKLFKDUHJHUPDQHWRWKH ODWHU GLVFXVVLRQ ,Q WKH ILUVW VHFWLRQ , GLVFXVV FRQFHSWXDO DGYDQFHV LQ SKLORVRSK\ DQG SUREDELOLW\ WKHRU\ SHUWLQHQW WR WKH GHYHORSPHQW RI WKH TXDQWLWDWLYH V\VWHPV RI LQGXFWLYH ORJLF E\ &DUQDS DQG WKH )LQQLVK 6FKRRO DQG ZKLFK GLVSOD\ WKH WUDGLWLRQDO SKLORVRSKLFDO FRQFHUQ IRU GHYHORSLQJ LQGXFWLYHORJLFLQJHQHUDODQGTXDQWLWDWLYHLQGXFWLYHORJLFLQSDUWLFXODU,Q WKH UHPDLQLQJ VHFWLRQV , SURFHHG WKHQ WR SUHVHQW WKH GHYHORSPHQW RI WKH 

[LL 35()$&(  &DUQDS+LQWLNND VW\OH V\VWHPV RI LQGXFWLYH ORJLF , DWWHPSW WR GHOLQHDWH EHWZHHQ&DUQDS¶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¶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

35()$&(

[LLL

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¶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

1RWHV  &I /HKUHU   .XLSHUV   : & 6DOPRQ FODLPV WKDW &DUQDS¶V FRQFHSW RI WKH GHJUHH RI FRQILUPDWLRQ LV DW RGGV ZLWK +HPSHO¶V PRGHO RI H[SODQDWLRQ EHFDXVH RI WKH SUREOHP ZLWK]HURFRQILUPDWLRQRIJHQHUDOL]DWLRQVFI6DOPRQED    &I 5\QLQ   :DONHU    +HPSHO     [L[  &DUQDS   :yMFLFNL   0LVDN    .XLSHUV    6HH +HVVH    IRU DQ DUJXPHQW WKDW WKH FRQFHSW RI FRQILUPDWLRQ ZDV QHYHU LQWHQGHGE\&DUQDSWRIXOILOOWKLVUROH  )RU D VXUYH\ RI HSLVWHPRORJLFDO LQWHUSUHWDWLRQV RI &DUQDS¶V ZRUNV VHH 0RXOLQHV   

 

[LY 35()$&(    5HPDUNDEO\ DOO WKHRULHV RI WKH HSLVWHPLF WKHRULHV RI MXVWLILFDWLRQ GLVFXVVHG E\  

 

5&KLVKROPLQ&KLVKROP DUH²ZKDW,SURSRVHWRFDOO²PHQWDOLVWLFWKHRULHV RIWKLVFRQFHSWVHHDOVR0DQQHWDO 3ODQWLQJDDE  )RUDGHPDUFDWLRQEHWZHHQHSLVWHPLFDQGQRQHSLVWHPLFFRQFHSWVRIMXVWLILFDWLRQVHHHJ )ROH\  $FFRUGLQJWR5&KLVKROPWKHUHDUHWKUHHUHOHYDQWW\SHVRIGR[DVWLFDWWLWXGHVDQHSLVWHPLF DJHQW FDQ DVVXPH WR EHOLHYH WR GLVEHOLHYH DQG WR ZLWKKROG EHOLHI FI &KLVKROP   &I3ODQWLQJD )RUDKLVWRULFDODFFRXQWVHH:yMFLFNL  &I)UDQNOLQ %DUWKDDQG-RKQV 





$FNQRZOHGJHPHQWV

, DP LQGHEWHG WR PDQ\ SHRSOH IRU WKHLU FRPPHQWV DQG GLVFXVVLRQV RQ YDULRXVSDUWVRIWKHERRNDVZHOODVRQWKHSDSHUVWKDWSUHFHGHGLW5D\PRQG 'DFH\5REHUWR)HVWD-y]HI+HUEXW5LVWR+LOSLQHQ$GDP*UREOHU(OĪELHWD .DáXV]\ĔVND , 1LLQLOXRWR :ORGHN 5DELQRZLF] :HVOH\ & 6DOPRQ DQG 6DQG\/=DEHOO,ZDQWDOVRWRWKDQNP\FROOHDJXHVIURPWKH'HSDUWPHQWRI 0HWKRGRORJ\ DW WKH &DWKROLF 8QLYHUVLW\ RI /XEOLQ IRU VWLPXODWLQJ GLVFXVVLRQV , VKRXOG HVSHFLDOO\ OLNH WR WKDQN $QGU]HM %URQN /HRQ .RM 7KHR$).XLSHUV DQG 5\V]DUG :yMFLFNL ZKR SURYLGHG GHWDLOHG FRPPHQWVRQHDUOLHUGUDIWVRIWKHERRN , ZDQW DOVR WR H[SUHVV P\ ZDUP JUDWLWXGH WR P\ ZLIH $QQD IRU KHU HQGXULQJVXSSRUW ,ZRXOGOLNHWRWKDQNWKHHGLWRUV&KDUOHV(UNHOHQV5XGROI5LMJHUVEHUJ -RODQGD 9RRJG DQG 7DPDUD :HOVFKRW RI .OXZHU $FDGHPLF 3XEOLVKHUV IRU WKHLULQYDOXDEOHDVVLVWDQFHDQGDOVRWRWKHDQRQ\PRXVUHDGHUIRUWKHKHOSIXO VXJJHVWLRQVDQGFRQVWUXFWLYHFULWLFLVPV

[Y



&KDSWHU  7+(6<67(062),1'8&7,9(/2*,&   

5 &DUQDS VXFFLQFWO\ FKDUDFWHUL]HV KLV PHWDHSLVWHPRORJLFDO YLHZV DV IROORZV WKH WKHRU\ RI NQRZOHGJH ZKLFK LV DIWHU DOO QRWKLQJ EXW DSSOLHG ORJLF FDQ QR PRUH GLVSHQVH ZLWK V\PEROLF ORJLF WKDQ SK\VLFV FDQ GLVSHQVH ZLWK PDWKHPDWLFV &DUQDS  

$FFRUGLQJWRWKLVYLHZ³WKHWKHRU\RINQRZOHGJH´DVDQ³DSSOLHGORJLF´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¶VZHUHVXEVHTXHQWO\JHQHUDOL]HGE\-+LQWLNNDDQGKLVFRZRUNHUV ,QWKLVFKDSWHU,ZLOOIRFXVRQWKHWHFKQLFDOGHWDLOVRIWKH&DUQDS+LQWLNND VW\OHV\VWHPVRILQGXFWLYHORJLF7KLVZLOOEHGRQHHVVHQWLDOO\LQWKUHHVWHSV ,Q VHFWLRQ  , LQWURGXFH WKH SKLORVRSKLFDO EDFNJURXQG RI WKH GLVFXVVLRQV SUHFHGLQJ&DUQDS¶VDQG+LQWLNND¶VFRQVWUXFWLRQVRIWKHV\VWHPVRILQGXFWLYH ORJLF 7KHUH VHHP WR EH WZR PDMRU FRPSRQHQWV WR WKLV EDFNJURXQG ZRUWK KLJKOLJKWLQJ DGYDQFHV LQ ORJLF DQG GHYHORSPHQWV LQ SUREDELOLW\ WKHRU\ 6HFWLRQ  WUDFNV WKH VXFFHVVLYH VWHSV LQ WKH HYROXWLRQ RI &DUQDS¶V DQG +LQWLNND¶VYHUVLRQVRIWKHV\VWHPVRILQGXFWLYHORJLF$QGILQDOO\LQVHFWLRQ WKHVXEVHTXHQWGHYHORSPHQWVRIWKHV\VWHPVDUHGHOLQHDWHG 7KH GHWDLOHG GLVFXVVLRQ RI WKH WKHRU\ RIMXVWLILFDWLRQ UHSUHVHQWHG E\ WKH V\VWHPVRILQGXFWLYHORJLFZLOOEHSUHVHQWHGLQFKDSWHUVDQG  P. Kawalec (ed.), Structural Reliabilism © Kluwer Academic Publishers 2003

 



&+$37(5

7KH0DLQ,GHDV3UHFHGLQJWKH&RQVWUXFWLRQRIWKH 6\VWHPVRI,QGXFWLYH/RJLF

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¶VLQWHUQDOVWDWHVLQ HVWDEOLVKLQJ WKH MXVWLILFDWRU\ VWDWXV²DQ LGHD VR IRUHLJQ WR $ULVWRWOH¶V FRQFHSWLRQ RI GHPRQVWUDWLYH HSLVWpPH²SURYHG H[WUHPHO\ LQIOXHQWLDO 7KLV LGHD ZDV LQKHULWHG E\ - /RFNH ' +XPH DQG - 6 0LOO DQG WKHQ E\ WK FHQWXU\ *HUPDQ SKLORVRSK\ DQG ORJLF $GPLWWHGO\ LW VXEVWDQWLDWHG PHQWDOLVWLFDVFRQWUDVWHGKHUHZLWKPLQLPDOLVWWKHRULHVRIMXVWLILFDWLRQ 7R VRPH H[WHQW DV ZLOO EHFRPH PRUH SHUVSLFXRXV LQ WKH FKDSWHUV WR IROORZ WKLV ³GHYLDWLRQ´ IURP WKH WUDGLWLRQDO RU ORJLFDO IRU WKDW PDWWHU IUDPHZRUNIRUUHVROYLQJHSLVWHPRORJLFDOTXHVWLRQVKDVEHHQUHPHGLHGE\WKH VHFRQGFRQFHSWXDOVHWWLQJLHWKHJUDGXDOGHYHORSPHQWRISUREDELOLW\WKHRU\ , +DFNLQJ¶V WKRURXJK VWXG\ +DFNLQJ   FOHDUO\ GHSLFWV WKH IDFW WKDW SUREDELOLW\ WKHRU\ KDV DOZD\V EHHQ PRWLYDWHG E\ YLWDO HSLVWHPRORJLFDO SUREOHPV )RU RQ WKH RQH KDQG VR LW VHHPV WKHUH DUH REMHFWLYH FKDQFH PHFKDQLVPVRSHUDWLQJRXWWKHUHLQWKHZRUOGZKLFKPDQLIHVWWKHPVHOYHVIRU LQVWDQFHLQWRVVLQJDFRLQZLWKXQNQRZQELDVZKLOHRQWKHRWKHUWKHUHDUH JUDGXDO EHOLHIVWDWHV RU FRQILGHQFHVWDWHV ZKLFK DUH VRPHWLPHV GXH WR RXU ODFN RI UHOHYDQW LQIRUPDWLRQ RQ ZKDW KDV KDSSHQHG RXW WKHUH LQ WKH ZRUOG +DFNLQJUHFRJQL]HVDVRQHRIWKHNH\SRLQWVLQWKHKLVWRU\RIWKHSUREDELOLW\ WKHRU\ WKH FRPELQDWLRQRIWKH WZR DQGWKH DSSOLFDWLRQ RI REMHFWLYH FKDQFH PHFKDQLVPVWRPDSWKHVXEMHFWLYHJUDGXDOEHOLHIVWDWHV+DFNLQJZULWHV 3UREDELOLW\ KDV WZR DVSHFWV ,W LV FRPELQHG ZLWK WKH GHJUHH RI EHOLHI ZDUUDQWHG E\ HYLGHQFHDQGLWLVFRQQHFWHGZLWKWKHWHQGHQF\GLVSOD\HGE\VRPHFKDQFHGHYLFHVWR



7+(6<67(062),1'8&7,9(/2*,&



 SURGXFHVWDEOHUHODWLYHIUHTXHQFLHV1HLWKHURIWKHVHDVSHFWVZDVVHOIFRQVFLRXVO\DQG GHOLEHUDWHO\ DSSUHKHQGHG E\ DQ\ VXEVWDQWLDO ERG\ RI WKLQNHUV EHIRUH WKH WLPH RI 3DVFDO+DFNLQJ 

$V WKH FRQWHPSRUDU\ GLVSXWHV EHWZHHQ YDULRXV LQWHUSUHWDWLRQV RI SUREDELOLW\ DQG WKH GLVSXWHV EHWZHHQ FODVVLFDO DQG %D\HVLDQ VWDWLVWLFLDQV SRLQWRXWWKHHSLVWHPRORJLFDOSUREOHPRIKRZWRFRPELQHWKH³WZRDVSHFWV´ VHHPVIDUIURPEHLQJUHVROYHG0RUHRYHUWKHUHDUHVWLOOSDUWLHVRIWKHGLVSXWH WKDW DUH DW SDLQV WR HPSKDVL]H H[FOXVLYHO\ RQH DVSHFW RI WKH FRQFHSW RI SUREDELOLW\SHUVRQDOLVWV²OLNH&+RZVRQ%6N\UPVDQG5&-HIIUH\²WKH VXEMHFWLYH DVSHFW ZKLOH IUHTXHQWLVWV²OLNH : & 6DOPRQ²WKH REMHFWLYH DVSHFW &DUQDS ZDV WKH ILUVW WR OHJLWLPL]H WKH GLFKRWRPRXV QDWXUH RI WKH FRQFHSWRISUREDELOLW\&DUQDS 2QWKHRQHKDQGWKHUHLVD ORJLFDODQGDQDO\WLFDOFRQFHSWRISUREDELOLW\DQGRQWKHRWKHUKDQGWKHUHLV DQHPSLULFDODQGV\QWKHWLFFRQFHSWRISUREDELOLW\7KHIRUPHUEHORQJVWRWKH SURYLQFHRIIRUPDOORJLFHVSHFLDOO\VHPDQWLFVZKLOHWKHODWWHUEHORQJVWRWKH SURYLQFHRIHPSLULFDOVFLHQFH&DUQDS¶VLGHDKRZWRPHUJHWKHWZRLVHOLFLWHG LQWKHODVWVHFWLRQRIWKLVERRN $FFRUGLQJ WR +DFNLQJ WKHUH VHHPV WR EH D FORVH FRQFHSWXDO DIILQLW\ EHWZHHQ &DUQDS¶V ORJLFDO FRQFHSW RI SUREDELOLW\ DQG * : /HLEQL]¶V FRQFHSW WKHUHRI +DFNLQJ   +DFNLQJ FODLPV WKDW VHYHQ HOHPHQWDU\ IHDWXUHV RI &DUQDS¶V SURJUDP RI LQGXFWLYH ORJLF ZHUH DOUHDG\ SUHVHQW LQ /HLEQL] )LUVWWKHUHLVVXFKDWKLQJDVQRQGHGXFWLYHHYLGHQFH6HFRQG³EHLQJDJRRGUHDVRQ IRU´LVDUHODWLRQEHWZHHQSURSRVLWLRQV7KLUGWKLVUHODWLRQLVWREHFKDUDFWHUL]HGE\D UHODWLRQ EHWZHHQ VHQWHQFHV LQ D VXLWDEO\ IRUPDOL]HG ODQJXDJH )RXUWK WKHUH LV DQ RUGHULQJ RI UHDVRQV IURP JRRG WR EDG )LIWK WKLV PHDVXUH LV  LQGHSHQGHQW RI DQ\RQH¶V RSLQLRQ 6L[WK WKLV PHDVXUH LV JOREDO²LW DSSOLHV WR DQ\ SDLU RI SURSRVLWLRQV0RUHRYHUWKLVJOREDOUHODWLRQLVD³IRUPDO´RQH+DFNLQJ  

/HLEQL]LQFRQWUDVWWRVXFKFRQWHPSRUDULHVDV%3DVFDO$$UQDXOGDQG 3 1LFROH LQ KLV VWXGLHV RQ SUREDELOLW\ ZDV QRW PRWLYDWHG E\ SUDFWLFDO SUREOHPV RI JDPEOLQJ +DFNLQJ    +H ZDVFRQFHUQHGUDWKHU ZLWK FODVVHVRIVWDWHPHQWVVXFKDVODZVWDWHPHQWVZKLFKGRQRWH[SUHVVDEVROXWH EXW RQO\ FRQWLQJHQW WUXWKV DQG ZKLFK DUH DOZD\V FRQGLWLRQDO RQ HYLGHQFH +HQFH³/HLEQL]WRRNQXPHULFDOSUREDELOLW\DVDSULPDULO\HSLVWHPLFQRWLRQ´ +DFNLQJ    LH DV D PHDVXUH RI WKH GHJUHHV RI XQFHUWDLQW\ UDWKHU WKDQ D PHDVXUH RI SK\VLFDO FKDQFHV LQ D JDPH VHWXS ,Q KLV VWXG\ RQ FRQGLWLRQDOV 'H FRQGLWLRQLEXV   /HLEQL] HVWDEOLVKHV WKH LGHD WKDW SUREDELOLW\WKHRU\ZLWKUHVSHFWWRFRQWLQJHQWWUXWKVPLJKWVHUYHWKHUROHWKH WKHRU\ RI GHGXFWLRQ VHUYHV ZLWK UHVSHFW WR QHFHVVDU\ WUXWKV 7KH WKHRU\ RI 

 &+$37(5  DEVROXWHWUXWKVZDVZHOOHVWDEOLVKHGZKDWZDVVWLOOODFNLQJKRZHYHUZDVD WKHRU\ RI FRQWLQJHQW WUXWKV LH D WKHRU\ RI SUREDELOLWDV WR XVH /HLEQL]¶V RZQ ZRUG 7KH FHQWUDO SRLQW FRQVLVWHG LQ DVVLJQLQJ QXPEHUV WR YDULRXV VWDWHPHQWVDFFRUGLQJWRWKHGHJUHHVRISUREDELOLW\WKH\H[SUHVVEHLQJDQ DEVROXWHVWDWHPHQWDQLPSRVVLEOHVWDWHPHQWDQGDUDWLRQDOQXPEHUUDQJLQJ EHWZHHQ  DQG  UHSUHVHQWLQJ D FRQWLQJHQW VWDWHPHQW 6XSSRVH ZH KDYH D FRQGLWLRQDO VWDWHPHQW S→T ZKHUH S LV HTXLYDOHQW WR D GLVMXQFWLRQ RI DOWHUQDWLYHV S∨S∨∨SQ ,I LW LV WKH FDVH WKDW HDFK RI WKH GLVMXQFWV SSSQLPSOLHVTRULPSOLHVDVXIILFLHQWFRQGLWLRQIRUTWKHQDFFRUGLQJ WR/HLEQL]S→TLVDVVLJQHGWKHYDOXHRI,IKRZHYHULWLVWKHFDVHWKDW QRQH RI WKH GLVMXQFWV LPSOLHV T QRU T¶V VXIILFLHQW FRQGLWLRQV WKHQ S→TLV DVVLJQHG WKH YDOXH RI  )LQDOO\ LW LV SRVVLEOH WKDW VRPH RI WKH GLVMXQFWV LPSO\TRULWVVXIILFLHQWFRQGLWLRQZKLOHWKHUHVWLPSOLHV¤TRULWVVXIILFLHQW FRQGLWLRQ,QVXFKDFDVHS→TVKRXOGEHDVVLJQHGDFFRUGLQJWR/HLEQL]D UDWLRQDO QXPEHU EHWZHHQ  DQG  %\ DOORZLQJ WKXV IRU WKH SRVVLELOLW\ RI PHDVXULQJXQFHUWDLQW\KH ZDV WKH ILUVW WR EHOLHYH LQ D IRUPDO ORJLF RI LQGXFWLRQ WKDW LV WR EH DGYDQFHG E\ FRQVWUXFWLQJDUWLILFLDOODQJXDJHVRIXQLILHGVFLHQFH/HLEQL]¶VLQMXQFWLRQ³FDOFXODWH´ LVQRWWKHFU\RIVRPHDOLHQUDWLRQDOLVPEXWDFU\IRULQGXFWLYHORJLF+DFNLQJ  

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³WKH UDWLR RI IDYRUDEOH FDVHV WR WKH WRWDO QXPEHU RI HTXDOO\SRVVLEOHFDVHV´+DFNLQJ 7KXVWKHLGHDRIDSUREDELOLW\ PHDVXUHIXQFWLRQRYHUDVHWRIDOOSRVVLEOHZRUOGVDQGDVHWRIDOOVHQWHQFHV VRIXQGDPHQWDOIRU&DUQDSZDVFOHDUO\DQWLFLSDWHGE\/HLEQL] ,Q0HDQLQJDQG1HFHVVLW\&DUQDS &DUQDSDGPLWVWKDWKLVVHPDQWLF FRQFHSW RI ³VWDWHGHVFULSWLRQ´ LV GXH WR / :LWWJHQVWHLQ¶V LGHD RI SRVVLEOH ZRUOGVDQGKHQFHLQGLUHFWO\WR/HLEQL]+LQWLNNDRQWKHRWKHUKDQGFRQWHVWV WKDW &DUQDS ZDV RQO\ FORVH WR GHYHORS WKH SRVVLEOHZRUOG VHPDQWLFV EXW IDLOHG³WRLQWHUSUHWKLVPRGHOVDVJHQXLQHDOWHUQDWLYHVWRRXUDFWXDOZRUOG´ +LQWLNND  

7+(6<67(062),1'8&7,9(/2*,&



 ,IRQHDFFHSWV/HLEQL]¶VLGHDRIDVVLJQLQJDSUREDELOLW\PHDVXUHWRHYHU\ VHQWHQFH DQG HYHU\ SDLU RI VHQWHQFHV WKHQ RQ WKH VWDQGDUG DFFRXQW RQH WKHUHZLWKZDUUDQWV7%D\HV¶VWKHRUHPDZLGHDUHDRIDSSOLFDWLRQV 3K⏐H  3K ⋅3H⏐K 3H 

%D\HV¶V7KHRUHP 

ZKLFK VWDWHV WKDW WKH SUREDELOLW\ RI D K\SRWKHVLV K FRQGLWLRQDO RQ WKH HYLGHQFHHHTXDOVWKHSULRUSUREDELOLW\3K RIKWLPHVWKHOLNHOLKRRGRUWKH LQYHUVHSUREDELOLW\3H⏐K RIHRQKGLYLGHGE\WKHWRWDOSUREDELOLW\3H RI H 7KH ODWWHU FDOOHG DOVR WKH SUREDELOLW\ RI WRWDO HYLGHQFH VXPPDUL]HV WKH UHOHYDQW HYLGHQFH ZH REWDLQ DIWHU SHUIRUPLQJ DQ H[SHULPHQW RU D VHULHV RI H[SHULPHQWV $ SULRU SUREDELOLW\ RI D VHQWHQFH RU LWV XQFRQGLWLRQDO SUREDELOLW\ LV WKH SUREDELOLW\ DVVLJQHG WR D JLYHQ VHQWHQFH SULRU WR SHUIRUPLQJ DQ H[SHULPHQW 3ULRU SUREDELOLW\ LV RIWHQ LQWHUSUHWHG DV D VXPPDU\ RI WKH EDFNJURXQG NQRZOHGJH $FFRUGLQJ WR WKLV YLHZ WKH SULRU SUREDELOLW\ , DVVLJQ WR WKH VHQWHQFH ³7KLV ZKHHO RI IRUWXQH LV ORDGHG´ VXPPDUL]HVP\EDFNJURXQGNQRZOHGJHRQVLPLODUZKHHOVRIIRUWXQHZKLFK, SRVVHVVSULRUWRVSLQQLQJWKHZKHHO %D\HV¶VWKHRUHPIRUFHVRQHWRDVVLJQSULRUSUREDELOLWLHVWRDQ\VHQWHQFH LHWRPHDVXUHWKHSUREDELOLW\RIDJLYHQVHQWHQFHSULRUWRDQ\H[SHULPHQWV XQGHUWDNHQ LQ RUGHU WR YHULI\ LW 0RUHRYHU LW IRUFHV RQH WR DGRSW D SUREDELOLW\PHDVXUHGHILQHGIRUFRQGLWLRQDODQGLQYHUVHFRQGLWLRQDOUHODWLRQV EHWZHHQ HYHU\ WZR VHQWHQFHV %D\HV¶V WKHRUHP VHHPV WR DFFRUG ZHOO ZLWK /HLEQL]¶V LGHD RI D SUREDELOLW\ PHDVXUH GHILQHG IRU HYHU\ VHQWHQFH LH IRU HYHU\ VLPSOH DQG HYHU\ FRPSOH[ VHQWHQFH 7KH SUREOHP IRU /HLEQL] KRZHYHUZDVKRZWRDVVLJQQXPEHUVWRFRQWLQJHQWVWDWHPHQWVDQGZHKDYH VHHQ WKDW KH PDGH LW GHSHQGHQW RQ WKH VXFFHVV RI WKH FKDUDFWHULVWLFD XQLYHUVDOLV 6 =DEHOO LQ LQYHVWLJDWLQJ WKH SUHFLVH GDWH ZKHQ %D\HV ILUVW IRUPXODWHG WKHWKHRUHPFRPHVWRWKHFRQFOXVLRQWKDW%D\HVWKRXJKWRILWDVDUHVSRQVH WR +XPH¶V SUREOHP RI LQGXFWLRQ SRVHG LQ  LQ KLV $Q (QTXLU\ &RQFHUQLQJ+XPDQ8QGHUVWDQGLQJ,WLV/DSODFHKRZHYHUZKRWDNHVFUHGLW IRUDSSO\LQJSUREDELOLW\WKHRU\LQJHQHUDODQG%D\HV¶VWKHRUHPLQSDUWLFXODU WR LQGXFWLYH LQIHUHQFH +HHPSOR\HG LW LQ FDOFXODWLQJ WKH SUREDELOLW\ RI WKH QH[W VXQULVH JLYHQ DOO SUHYLRXV VXQULVHV ,Q WKLV FDOFXODWLRQ /DSODFH XVHG WKHQRWRULRXVUXOHRIVXFFHVVLRQ SKL⏐HP  P P 

7KH5XOHRI6XFFHVVLRQ 

ZKLFK GHWHUPLQHV WKH SUREDELOLW\ RI DQ HYHQW L JLYHQ LW LV UHSRUWHG LQ H WR KDYHVXFFHVVLYHO\RFFXUUHGPWLPHV=DEHOOFODLPVWKDW/DSODFH¶VFDOFXODWLRQ RIWKHSUREDELOLW\RIWKHQH[WVXQULVHVRRIWHQWKHQWREHFRPHDVXEMHFWRI 

 &+$37(5  ULGLFXOH ZDV PRWLYDWHG EDVLFDOO\ E\ +XPH¶V DVVHUWLRQ LQ KLV $ 7UHDWLVH RI +XPDQ1DWXUH+XPH WRWKHHIIHFWWKDWWKHQH[WULVLQJRIWKHVXQ H[FHHGVDOOSUREDELOLW\DOWKRXJKLVQRWGHPRQVWUDWLYHO\FHUWDLQ=DEHOO   +XPH¶V DVVHUWLRQ WULJJHUHG RII WKH ORQJ GHEDWH RQ ZKHWKHU LQGXFWLYH LQIHUHQFHLVDPHQDEOHWRSUREDELOLW\WKHRU\DQGLIVRZKHWKHULWVWLOOFDQEH DSSURDFKHGLQTXDQWLWDWLYHWHUPV=DEHOO  ,WLVRQO\DWWKHHQGRIWKHWKFHQWXU\DQGWKHEHJLQQLQJRIWKHWKWKDW ZH REVHUYH D JURZLQJ DVVLPLODWLRQ RI /DSODFH¶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¶V LGHD RI WKHRU\ RI SUREDELOLW\ DV WKH ³QHZ NLQG RI ORJLF´ZDVGRUPDQWXQWLOWKHVZKHQ.H\QHVDQG-HIIUH\VUHIXUELVKHGLW .H\QHVLVFUHGLWHGZLWKWKHORJLFDODSSURDFKWRSUREDELOLW\5HFDOOWKH GLHH[DPSOH7KHUHDUHVL[VHQWHQFHV6LGHVFULELQJWKHHOHPHQWDU\RXWFRPHV RI WKURZLQJ WKH GLH HDFK RI WKH IRUP ³7KH IDFH ZLWK QXPEHU L WXUQV XS´ ZKHUH L LV RQH RI WKH LQWHJHUV IURP  WR  7KH GLVMXQFWLRQ 

7+(6<67(062),1'8&7,9(/2*,&   6∨6∨6∨6∨6∨6 LV DVVLJQHG WKH YDOXH RI  LWV QHJDWLRQ ¤6∧¤6∧¤6∧¤6∧¤6∧¤6WKHYDOXHRIDQGHDFKRIWKH6LVHQWHQFHV KDVDSUREDELOLW\HTXDOWR.H\QHVKRZHYHUZDVKLJKO\VNHSWLFDODERXW /HLEQL]¶VLGHDRIGHILQLQJSUREDELOLW\PHDVXUHRYHUWKHVHWRIDOOVHQWHQFHV +H WKRXJKW LW LPSRVVLEOH LQ PDQ\ RI FDVHV DQG SURSRVHG WKH FRPSDUDWLYH UDWKHU WKDQ TXDQWLWDWLYH FRQFHSW RI SUREDELOLW\ LQ WKHVH FDVHV $FFRUGLQJ WR .H\QHVWKHQHYHQLILWGRHVQRWPDNHVHQVHWRDVFULEHDQXPHULFDOSUREDELOLW\ WRDJLYHQVHQWHQFHLWVWLOOPDNHVVHQVHWRFRPSDUHLWVSUREDELOLW\ZLWKWKH SUREDELOLW\RIVRPHRWKHUVHQWHQFH 7KH GLIILFXOWLHV RI HDFK RI WKH LQWHUSUHWDWLRQV RI SUREDELOLW\ OHG $ 1 .ROPRJRURY WR IRUPXODWH DQ HOHPHQWDU\ VHW RI D[LRPV LH DQ LPSOLFLW GHILQLWLRQIRUWKHSUREDELOLW\FRQFHSWZKLFKSXUSRUWHGO\ZDVLQGHSHQGHQWRI %EHDıILHOGRI DQ\RIWKHLQWHUSUHWDWLRQVRIWKHSUREDELOLW\FRQFHSW/HW% VHWV RI VXEVHWV RI ȍ 7KH VWDQGDUG D[LRPDWL]DWLRQ RI SUREDELOLW\ UHTXLUHV WKDWIRUDQ\$%∈% %WKHIROORZLQJKROG ≤S$ ≤

$[LRP 

Sȍ  

$[LRP 

S$∪%  S$ S% LI$∩% ∅

$[LRP 

7KHODVWD[LRPıDGGLWLYLW\LVVRPHWLPHVDGPLWWHGDVDQ³H[SHGLHQW´ S∪ L $L =

∑ S $ LI$ ∩$  L

L

M

∅IRUDQ\L≠M

$[LRP 

L

,WZDVQRWRQO\WKHGHYHORSPHQWRIPDWKHPDWLFDOORJLFVWDUWLQJIURPODWH WKHWKFHQWXU\WKDWHQDEOHG&DUQDSWRUDLVHKLJKH[SHFWDWLRQVZLWKUHJDUG WRWKHDFFRPSOLVKPHQWRI/HLEQL]¶VLGHDRISUREDELOLW\PHDVXUHRQWKHVHWRI DOO VHQWHQFHV 7KH NH\ HYHQW EHWZHHQ .H\QHV¶V ZRUN DQG &DUQDS¶V LV WKH GHYHORSPHQW RI IRUPDO VHPDQWLFV VWDUWLQJ EDVLFDOO\ ZLWK $ 7DUVNL¶V GHILQLWLRQRIWUXWK



&DUQDS¶V6\VWHPVRI,QGXFWLYH/RJLF

,Q KLV LQWHOOHFWXDO DXWRELRJUDSK\ &DUQDS WHVWLILHV WKDW KH EHFDPH SUHRFFXSLHG ZLWK WKH SUREOHP RI SUREDELOLW\ LQ  &DUQDS D   $QGWKLVSUREOHPUHPDLQHGRQWKHIUDPHZRUNWLOOKLVGHDWKLQ,QWKH ODWH¶VKHZDVVWLOORFFXSLHGZLWKWKHVHPDQWLFDOLVVXHV²ZKDWUHVXOWHGLQ 

 &+$37(5  WKH ERRN 0HDQLQJ DQG 1HFHVVLW\ &DUQDS D  ZKLFK VHW RXWWKH DJHQGD IRUKLVVXEVHTXHQWZRUNRQLQGXFWLYHORJLF²DQGODUJHO\XQGHUWKHLQIOXHQFH RI /HLEQL] RQWKH RQH KDQG DQG :LWWJHQVWHLQ RQWKH RWKHU :KLOH &DUQDS ZDV DWWUDFWHG E\ /HLEQL]¶V LGHD RI GHILQLQJ QHFHVVDU\ WUXWK LQ WHUPV RI SRVVLEOHZRUOGV KH HPEUDFHG IURP :LWWJHQVWHLQ WKH LGHD RI WDXWRORJ\ DV D FRPSOH[ VHQWHQFH ZKLFK UHWDLQV WKH WUXWK YDOXH  RQ DOO SRVVLEOH VXEVWLWXWLRQVRIWUXWKYDOXHVWRLWVFRQVWLWXHQWVHQWHQFHV²DQLGHDZKLFKOHG KLPWRJLYHELUWKWRWKHFRQFHSWRIVWDWHGHVFULSWLRQ 7KHILUVWV\VWHPDWLFDWWHPSWE\&DUQDSWRIRUPXODWHDV\VWHPRILQGXFWLYH ORJLF LV LQ KLV /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ &DUQDS   ,Q KLV VHDUFKIRUWKHIRXQGDWLRQVRIQRQGHPRQVWUDWLYHLQIHUHQFHV&DUQDSLGHQWLILHV WZROHJLWLPDWHFRQFHSWVVRFDOOHG³H[SOLFDQGD´RISUREDELOLW\2QHFRQFHSW LVDQHPSLULFDOFRQFHSWRISUREDELOLW\GHILQHGLQWHUPVRIWKHOLPLWRIUHODWLYH IUHTXHQF\ 7KLV NLQG RI FRQFHSW ZDV LGHQWLILHG E\ &DUQDS ZLWK 5HLFKHQEDFK¶VFRQFHSWRISUREDELOLW\7KHHPSLULFDOFRQFHSWRISUREDELOLW\ ZDVLQDSSURSULDWHIRUWKHNLQGRIIRXQGDWLRQDOUHVHDUFK&DUQDSVHWIRUWKIRU KLPVHOI7KXVKHZDVPRUHFRQFHUQHGZLWKWKHRWKHULHORJLFDOFRQFHSWRI SUREDELOLW\ 7KH DSSURSULDWH H[SOLFDQGXP OHDGLQJ WR WKH GHILQLWLRQ RI WKH ORJLFDO FRQFHSW RI SUREDELOLW\ ZDV LGHQWLILHG E\ &DUQDS DV ³WKH GHJUHH RI FRQILUPDWLRQ´LHWKHGHJUHHRIVXSSRUWDQHYLGHQFHVWDWHPHQWHOHQGVWRD K\SRWKHVLV K 7KH ORJLFDO FRQFHSW RI SUREDELOLW\ WKHQ LV WKH PHWDODQJXDJH FRQFHSW ZKLFK PDNHV LW GLIIHUHQW IURP WKH REMHFWODQJXDJH HPSLULFDO FRQFHSWRISUREDELOLW\&DUQDSD 6RPHDXWKRUVKDYHLGHQWLILHGWKH FRQFHSWRIWKHGHJUHHRIFRQILUPDWLRQDVWKHPHDVXUHRISDUWLDOLPSOLFDWLRQ RIHIURPK&*+HPSHOIRULQVWDQFHVXFFLQFWO\FKDUDFWHUL]HV&DUQDS¶V FRQFHSW RI FRQILUPDWLRQ WKXV LW ³SDUDOOHOV DQG JHQHUDOL]HV WKH IRUPDO FRQFHSWLRQ RI ORJLFDO LPSOLFDWLRQ DV D UHODWLRQ EHWZHHQ VHQWHQFHV UDWKHU WKDQ VD\ EHWZHHQ SURSRVLWLRQV  LQGHHG ORJLFDO LPSOLFDWLRQ PD\ WKHQ EH UHJDUGHGDVDVXEUHODWLRQRIFRQILUPDWLRQ´+HPSHO )RULWPLJKW DSSHDUQDWXUDOWRDVVLJQPHDVXUHWRWKHFRQILUPDWLRQRIKE\HLIHORJLFDOO\ LPSOLHV K DQG  LQ WKH FDVH ZKHQ H LV ORJLFDOO\ LPSOLHV ¤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³ODQJXDJH V\VWHP´ LV D WXSOH / 1! ZKHUH / VLJQLILHV D JLYHQ VXEVHW RI ILUVW RUGHU ORJLF DQG 1 WKH QXPEHU RI LQGLYLGXDO FRQVWDQWV HJ D D  D1  LQ / 

7+(6<67(062),1'8&7,9(/2*,&   7KHWZR LPSRUWDQW GLIIHUHQFHV EHWZHHQ ODQJXDJH V\VWHPV LQ &DUQDS¶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³∀´ FKDQJHV LWV PHDQLQJ LQ GLIIHUHQW ODQJXDJH V\VWHPV6XSSRVHZHKDYHWKHH[SUHVVLRQ³∀3[ ´,QDQ\ODQJXDJHV\VWHP ZLWK ILQLWH 1 WKH H[SUHVVLRQ LV HTXLYDOHQW WR WKH IROORZLQJ FRQMXQFWLRQ ³3D∧3D∧∧3D1´$QGVLQFHLWLVLPSRVVLEOHWRH[SUHVVWKHFRQMXQFWLRQ LQWKHFDVHRIWKHLQILQLWH1&DUQDSVHHPVWRKDYHEHHQPRWLYDWHGWRDOORZD QXPEHU RI ODQJXDJH V\VWHPV ZKLFK PLJKW EH RUGHUHG VHTXHQWLDOO\ ZLWK UHVSHFWWR1 1 ⊂1 ⊂⊂1 ∞ ZKHUH DOO ILQLWH FDVHV DSSUR[LPDWH PRUH DQG PRUH FORVHO\ WKH LQILQLWH ODQJXDJHV\VWHP 0RUHRYHU &DUQDS GHFLGHG WR SXW IXUWKHU H[WUDORJLFDO FRQVWUDLQWV RQ ODQJXDJHV\VWHPV2QHRIWKHPFRQFHUQVWKHLQGLYLGXDOVRIDJLYHQGRPDLQ 352326,7,21([WUDORJLFDOFRQVWUDLQW WKHLQGLYLGXDOFRQVWDQWVRIDJLYHQODQJXDJHV\VWHPH[KDXVWDOOLQGLYLGXDOV LQ ³WKH GRPDLQ RI GLVFRXUVH´ RI WKH ODQJXDJH V\VWHP LQ TXHVWLRQ &DUQDS   7KHRWKHUFRQVWUDLQWVWKHQXPEHURISUHGLFDWHV 352326,7,21([WUDORJLFDOFRQVWUDLQW WKHQXPEHURISUHGLFDWHVEHILQLWH&DUQDS  $V KDV EHHQ DOUHDG\ HPSKDVL]HG WKH ODQJXDJH V\VWHPV DUH QRW H[FOXVLYHO\V\QWDFWLFDOFRQVWUXFWLRQV(DFKRIWKHPLVLQIDFW³DVNHOHWRQRID VHPDQWLFDO V\VWHP´ &DUQDS    EHFDXVH LQGLYLGXDO FRQVWDQWV DQG SUHGLFDWHVDUHLQWHQGHGWRKDYHDQLQWHUSUHWDWLRQEXWDUHQRWSURYLGHGZLWKLW LQ DGYDQFH RI D JLYHQ DSSOLFDWLRQ $VVXPLQJ WKHQ WKDW WKH\ ZLOO EH 

 &+$37(5  SURYLGHGLQWHUSUHWDWLRQLQDJLYHQDSSOLFDWLRQ&DUQDSFRQWLQXHVWRVWDWHWKH ³UXOHV RI WUXWK´ IRU WKH IRUPXODV RI D JLYHQ ODQJXDJH V\VWHP 7KHQ KH FRPPHQWVWKXV 7KH VHPDQWLFDO FRQFHSW RI WUXWK  >HPSOR\HG LQ WKH UXOHV RI WUXWK@ LV VXFK WKDW WKH VWDWHPHQW³WKHVHQWHQFHLLVWUXHLQ/´LQWKHPHWDODQJXDJHFRQYH\VWKHVDPHIDFWXDO LQIRUPDWLRQ DV WKH VHQWHQFH L LWVHOI ZKLFK EHORQJV WR WKH REMHFW ODQJXDJH &DUQDS  

,Q YLHZ RI WKH GLVFXVVLRQ RI HSLVWHPRORJLFDO DVVXPSWLRQV LQ &DUQDS¶V V\VWHPLWLVLPSRUWDQWWRQRWHWKDWWKHGLVTXRWDWLRQDOVFKHPDZKLFKGLVSOD\V WKH LPSOLFDWLRQV RI WKH VHPDQWLFDO FRQFHSW RI WUXWK DFFRXQWV IRU WKH IXQFWLRQDO UROH RI WKH FRQFHSW RI WUXWK DV ZHOO DV WKH SURSHUW\ RI EHLQJ ³VHPDQWLFDO´ZLWKLQWKHV\VWHPRILQGXFWLYHORJLFLQ/RJLFDO)RXQGDWLRQVRI 3UREDELOLW\ 5HPDUNDEO\ WKH VHQWHQFHV ³FK⏐H   U´ VWDWLQJ WKH GHJUHH RI FRQILUPDWLRQ DUH DFFRUGLQJ WR &DUQDS PHWDOLQJXLVWLF H[SUHVVLRQV WKHPVHOYHVDQGRQO\WKHUHOLDQFHRQWKHVHPDQWLFDOGHILQLWLRQRIWUXWKFRXOG JUDQW WKDW WKH FRQWHQWV RI WKH IDFWXDO DUJXPHQWVHQWHQFHV K DQG H LQ WKLV FDVH  UHPDLQ XQFKDQJHG LQ WKH SURFHVV RI WKH DVVHVVPHQW RI WKH UHVSHFWLYH GHJUHH RI FRQILUPDWLRQ 7KHUH DUH WZR UHDVRQV ZK\ WKLV SRLQW VKRXOG EH HPSKDVL]HG )LUVW LW SHUKDSV PRVW SHUVSLFXRXVO\ LOOXVWUDWHV KRZ RQ &DUQDS¶VYLHZWKHVWDQGDUGVRIHSLVWHPLFHYDOXDWLRQFRXOGVXSHUYHQHRQWKH VWUXFWXUHRIJLYHQVHQWHQFHVDQGHYHQHPEUDFHWKHODWWHU6HFRQGWKLVSRLQW VXEVWDQWLDWHV WKH REMHFWLRQ WR VRPH UHIRUPXODWLRQV RI &DUQDS¶V DQG +LQWLNND¶V V\VWHPV RI LQGXFWLYH ORJLF )RU LW VHHPV WKDW WKH UHIRUPXODWLRQV ZKLFKUHVXOWLQWKHIDFWWKDWWKHVHQWHQFHVVWDWLQJWKHGHJUHHRIFRQILUPDWLRQ WXUQRXWWREHORQJWRDQREMHFWODQJXDJHDUHQRWHQWLUHO\IDLWKIXOWRWKHFRUH HSLVWHPRORJLFDOSURMHFW ,Q FRQVWUXFWLQJ D V\VWHP RI LQGXFWLYH ORJLF &DUQDS WKLQNV RI LW DV YHU\ PXFK DNLQ WR D TXDQWLWDWLYH WKHRU\ :H DOUHDG\ NQRZ IURP /HLEQL]¶V DQDO\VLV KRZ WR SURFHHG LQ RUGHU WR OLPLW WKH UDQJH RI QXPHULFDO YDOXHV DVFULEHGWRVHQWHQFHVZLWKLQWKHLQWHUYDO>@&DUQDSGHFLGHGWRDSSO\WKLV DQDO\VLVZLWKLQKLVRZQV\VWHPLHWRDVFULEHWRDOOVHQWHQFHVZKLFKKROG LQQRQHRISRVVLEOHZRUOGVDQGWRWKRVHZKLFKKROGLQDOOSRVVLEOHZRUOGV ,QRUGHUWRDFKLHYHWKLV&DUQDSQHHGHGILUVWDSUHFLVHGHILQLWLRQRIDSRVVLEOH ZRUOG DQG VHFRQG D FDQRQLFDO IRUP IRU HDFK RI WKH VHQWHQFHV LQ WKH ODQJXDJHV\VWHPZKLFKZLOOXQLYRFDOO\GHWHUPLQHWKHVHWRISRVVLEOHZRUOGV LQ ZKLFK D JLYHQ VHQWHQFH KROGV :H WKXV SURFHHG WR DQDO\VLV RI WZR IXQGDPHQWDO VHPDQWLFDO FRQFHSWV LQ &DUQDS¶V V\VWHP LH WKH FRQFHSW RI VWDWHGHVFULSWLRQDQGWKHFRQFHSWRIWKHUDQJHRIDJLYHQVHQWHQFH $VWDWHGHVFULSWLRQLVDGHVFULSWLRQRIRQHRIWKHSRVVLEOHFRQILJXUDWLRQV RILQGLYLGXDOVDQGWKHLUSURSHUWLHVDQGUHODWLRQVLQDGRPDLQRIGLVFRXUVH8 RI / &DUQDS WKHQ FRQWHQGV WKDW WKH FRQFHSW RI VWDWHGHVFULSWLRQ ³PXVW EH 

7+(6<67(062),1'8&7,9(/2*,&   WDNHQ DV UHODWLYH WR D ODQJXDJH V\VWHP´ PRUH SUHFLVHO\ WR ³D ORJLFDOO\ SRVVLEOH VWDWH RI D GRPDLQ RI LQGLYLGXDOV RI / ZLWK UHVSHFW WR DOO DWWULEXWHV SURSHUWLHVDQGUHODWLRQV GHVLJQDWHGE\WKH>SUHGLFDWHV@RI/´&DUQDS   /HW /6 ʌ  EH D ODQJXDJH V\VWHP ZLWK ʌ SULPLWLYH SUHGLFDWHV 3[ «3ʌ[ 7KHVH PLJKW EH FRPELQHG DVIROORZV WR IRUP DQ LPSRUWDQW FRPSOH[SUHGLFDWH '(),1,7,214SUHGLFDWHRI/6 ʌ  4L[ LVD4SUHGLFDWHLII4L[ LVDFRQMXQFWLRQDOORIWKHSULPLWLYHSUHGLFDWHV 3[ «3ʌ[ HDFKRIZKLFKRFFXUVRQFHQHJDWHGRUQRW $V WKLV GHILQLWLRQ KDV LW DQ\ WZR 4SUHGLFDWHV PD\ GLIIHU RQO\ DV UHJDUGV GLVWULEXWLRQRIQHJDWLRQDPRQJWKHSULPLWLYHSUHGLFDWHV %\ DSSURSULDWH DSSOLFDWLRQ RI 4SUHGLFDWHV WR WKH GRPDLQ RI D ODQJXDJH V\VWHP /6 1  ZKHUH 1 LV WKH QXPEHU RI LQGLYLGXDOV LQ WKLV GRPDLQ DQG D«D1 DUH FRQVWDQWV UHSUHVHQWLQJ WKRVH LQGLYLGXDOV  ZH REWDLQ WKH IROORZLQJGHILQLWLRQRIVWDWHGHVFULSWLRQV '(),1,7,216WDWHGHVFULSWLRQ $VWDWHGHVFULSWLRQ6LLVDFRQMXQFWLRQRI14SUHGLFDWHVRI/61VXFKWKDWIRU DQ\L∈14DL RFFXUVLQWKHFRQMXQFWLRQ $V D PDWWHU RI LOOXVWUDWLRQ OHW PH LQYRNH &DUQDS¶V RZQ H[DPSOH KHUH 6XSSRVHZHKDYHDODQJXDJHV\VWHP/ 6 ZLWKRQHSUHGLFDWH³3´DQGWKUHH LQGLYLGXDOFRQVWDQWV ³D´ ³E´ DQG ³F´ 2QHRIWKHVWDWHGHVFULSWLRQV ZLWKLQ WKLVODQJXDJHV\VWHPLV3D∧3E∧3F 2QHRIWKHVHULRXVFRQWULEXWRUVWRWKHDGYDQFHPHQWRI&DUQDS¶VV\VWHPV RI LQGXFWLYH ORJLF²- * .HPHQ\²UHFRJQL]HV WKH FUXFLDO UROH RI WKH FRQFHSWRIVWDWHGHVFULSWLRQIRUWKHFRQVWUXFWLRQRIWKHV\VWHPV 7KHHQWLUHPHWKRGRI&DUQDS¶VLQGXFWLYHORJLFFDQEHFRQVLGHUHGDVEHLQJEDVHGRQ RQHFRQFHSWWKDWRID³VWDWHGHVFULSWLRQ´$OORWKHUFRQFHSWVFDQEHGHILQHGLQWHUPV RI WKLV RQH IRU H[DPSOH WKH UDQJH RI D IRUPXOD LV WKH FODVV RI VWDWHGHVFULSWLRQV ZKRVH GLVMXQFWLRQ LV HTXLYDOHQW WR WKH IRUPXOD D IRUPXOD LV DQDO\WLF LI LWV UDQJH FRQWDLQVDOOVWDWHGHVFULSWLRQVDQGVRRQ(DFKVWDWHGHVFULSWLRQGHVFULEHVD³SRVVLEOH ZRUOG´GHVFULEHGLQDVPXFKGHWDLODVSRVVLEOHLQRXUODQJXDJH 7KXVZHVHHWKDWWKH UDQJHRIDIRUPXODWHOOVXVLQZKLFKSRVVLEOHZRUOGVWKHIRUPXODZRXOGEHWUXHDQG ZHVHHWKDWDQDQDO\WLFIRUPXODLVRQHZKLFKLVWUXHLQDOOSRVVLEOHZRUOGV.HPHQ\  



 

&+$37(5

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³GHVLJQDWH  SURSHUWLHV RU UHODWLRQV ZKLFK DUH ORJLFDOO\ LQGHSHQGHQW RI HDFKRWKHU´&DUQDS  7KHH[WUDORJLFDOFRQVWUDLQWVDQGDUHQHFHVVDU\LQRUGHUIRUHDFKVWDWH GHVFULSWLRQWREHORJLFDOO\LQGHSHQGHQWRIRWKHUVWDWHGHVFULSWLRQV,QYLHZ RI WKH HIIHFWLYHQHVV RI WKH PHDVXUH IXQFWLRQ &DUQDS LQWURGXFHV IXUWKHU FRQVWUDLQWV 352326,7,21([WUDORJLFDOFRQVWUDLQW WKHQXPEHURIWKHLQGLYLGXDOVLQ8LVDWPRVWGHQXPHUDEO\LQILQLWH $QGWKH³UHTXLUHPHQWRIFRPSOHWHQHVV´ 352326,7,21([WUDORJLFDOFRQVWUDLQW)LQLWH9DULHW\$VVXPSWLRQ  WKH VHW RI SULPLWLYH SUHGLFDWHV LQ / PXVW EH VXIILFLHQW IRU H[SUHVVLQJ HYHU\ TXDOLWDWLYH DWWULEXWH RI WKH LQGLYLGXDOV LQ WKH XQLYHUVH RI / &DUQDS  7KHODWWHU FRQVWUDLQW ZKLFK ZLOO KHQFHIRUWK EH UHIHUUHG WR DVWKH ³ILQLWH YDULHW\DVVXPSWLRQ´LVQRWRI&DUQDS¶VRZQRULJLQ+HTXRWHV.H\QHV 

7+(6<67(062),1'8&7,9(/2*,&



 :HVHHPWRQHHGVRPHVXFKDVVXPSWLRQDVWKDWWKHDPRXQWRIYDULHW\LQWKHXQLYHUVH LVOLPLWHGLQVXFKDZD\WKDWWKHUHLVQRRQHREMHFWVRFRPSOH[WKDWLWVTXDOLWLHVIDOO LQWRDQLQILQLWHQXPEHURILQGHSHQGHQWJURXSV.H\QHV 

&RPPHQWLQJ RQ WKH ILQLWH YDULHW\ DVVXPSWLRQ &DUQDS FRQFHGHV WKDW LW PLJKWQRWVHHPSODXVLEOHZLWKUHVSHFWWRTXDOLWDWLYHSUHGLFDWHVZHRUGLQDULO\ XVHHJWKHTXDOLWDWLYHYLVXDOSUHGLFDWHV1RQHWKHOHVV LI ZHWKLQNRIWKH ZRUOGDVFRQFHLYHGLQWKHRUHWLFDOSK\VLFVWKHQZH ILQGD ILQLWH DQGLQGHHGDYHU\VPDOOQXPEHURIIXQGDPHQWDOPDJQLWXGHVWRZKLFKDFFRUGLQJWR WKHDVVXPSWLRQRISK\VLFLVWVWKHJUHDWYDULHW\RISKHQRPHQDLVXOWLPDWHO\UHGXFLEOH &DUQDS 

7KH FRQFHSW RI WKH VWDWHGHVFULSWLRQ ILQGV RQH RI LWV PRVW LPSRUWDQW DSSOLFDWLRQV LQ \LHOGLQJ WKH QRUPDO IRUP RI WKH VHQWHQFHV RI D ODQJXDJH V\VWHP 7KH RWKHU LPSRUWDQW DSSOLFDWLRQ RI WKLV FRQFHSW LV LQ GHILQLQJ WKH FRQFHSW RI VWUXFWXUH GHVFULSWLRQ VHH GHILQLWLRQ  ODWHU LQ WKLV VHFWLRQ  ZKLFKLQ&DUQDS¶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¤TDQGTGRHVQRWKROGLQ6RU  SLVHTXLYDOHQWWRT∨UDQGDWOHDVWRQHRIWKHGLVMXQFWVKROGVLQ6RU  SLVHTXLYDOHQWWRT∧UDQGERWKFRQMXQFWVKROGLQ6RU  SLVHTXLYDOHQWWR∀[3[ DQGDOOLQVWDQFHVRI3[ LQ/KROGLQ6  /HW PH UHIHU WR WKH SUHYLRXV H[DPSOH RI ODQJXDJH V\VWHP /6 6XSSRVH ZHDUHLQWHUHVWHGLQWKHUDQJHRIWKHIROORZLQJVHQWHQFH S 

¤3D →3E ∧3F  

 

&+$37(5 )LUVWQRWHWKDWSLVHTXLYDOHQWWRWKHFRQMXQFWLYHIRUP >3D ∨3E @∧>3D ∨3F @

7KXVWKHUDQJHRIS LQFOXGHVRXWRIVWDWHGHVFULSWLRQVDYDLODEOHLQD ODQJXDJHV\VWHP/6LHSGRHVQRWKROGLQDQ\RIWKHIROORZLQJWKUHHVWDWH GHVFULSWLRQV ¤3D ∧¤3E ∧3F 

¤3D ∧3E ∧¤3F 

¤3D ∧¤3E ∧¤3F  DQGSKROGVLQDOOWKHRWKHUV 7KHFRQFHSW RI UDQJH LVIXQGDPHQWDO IRU WKH GHILQLWLRQ RI WKH GHJUHH RI FRQILUPDWLRQ DQG IRU VHWWLQJ WKH IXQGDPHQWDOV RI &DUQDS¶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²GHVSLWH KLV GHFODUDWLRQV WR WKH FRQWUDU\²GRHVQRWFRQVWUXHLQWKHERRNDQHIIHFWLYHV\VWHPRITXDQWLWDWLYH LQGXFWLYH ORJLF +H UHOHJDWHV WKH WDVN WR WKH VHFRQG YROXPH DQG RQO\ PDQDJHVWRVNHWFKLQWKHDSSHQGL[KRZKHLQWHQGVKLVV\VWHPWRLQFRUSRUDWH QXPEHUV LH KRZ SUHFLVHO\ WKH ORJLFDO UHODWLRQV EHWZHHQ VHQWHQFHV RI D JLYHQ ODQJXDJH V\VWHP GHWHUPLQH WKH PHDVXUH IXQFWLRQ RI WKHVH VHQWHQFHV 6HFRQGLQKLVVNHWFK\UHPDUNV&DUQDSVHHPVWREHTXLWHFOHDURQWKHSRLQW 

7+(6<67(062),1'8&7,9(/2*,&   WKDW WKH ORJLFDO PHDVXUH IXQFWLRQ SLFNV RXW SUHFLVHO\ RQH FRQILUPDWLRQ IXQFWLRQ ³RXU ILQDO DLP ZLOO EH WR FKRRVH RQH SDUWLFXODU FIXQFWLRQ DV RXU H[SOLFDWXP´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¶DUHORJLFDOO\HTXLYDOHQWWKHQ 

FK⏐H  FK⏐H¶ 

E  ,IKDQGK¶DUHORJLFDOO\HTXLYDOHQWWKHQ 

FK⏐H  FK¶⏐H 

352326,7,210XOWLSOLFDWLRQ 

FK∧M⏐H  FK⏐H ⋅FM⏐H∧K 

352326,7,21$GGLWLRQ ,I¤K∧M∧H LVORJLFDOO\WUXHWKHQ 

FK∨M⏐H  FK⏐H FM⏐H 

352326,7,211RUPDOL]DWLRQ ,IHLVQRWORJLFDOO\IDOVHWKHQ 

FW⏐H  

ZKHUHWLVDWDXWRORJ\ 

 &+$37(5  352326,7,21,QLWLDOFRQILUPDWLRQ ,I6LLVVWDWHGHVFULSWLRQWKDWLVQRWORJLFDOO\IDOVHDQGLVILQLWHWKHQ 

F6L⏐W !

7KH HTXLYDOHQFH FRQGLWLRQV SURSRVLWLRQ   VHHP WULYLDO VLQFH WKH\ DGPLW WKDW WKH PHUH GLIIHUHQFH LQ OLQJXLVWLF IRUP RI WKH HYLGHQFH RU K\SRWKHVLV VWDWHPHQWV GRHV QRW DIIHFW WKH YDOXH RI FRQILUPDWLRQ 0XOWLSOLFDWLRQSURSRVLWLRQ DQGDGGLWLRQSURSRVLWLRQ DUH²&DUQDS DGPLWV²³JHQHUDOO\ DFFHSWHG LQ SUDFWLFDOO\ DOO PRGHUQ WKHRULHV RI SUREDELOLW\´ &DUQDS    7KH DQWHFHGHQW LQ WKH FRQGLWLRQDO RI SURSRVLWLRQ  PLJKW EH LQWHUSUHWHG DV LPSO\LQJ WKDW WKH WZR K\SRWKHVHV DUH ORJLFDOO\ LQFRPSDWLEOH 1RUPDOL]DWLRQ LPSRVHV D OLPLW RQ WKH PD[LPDO YDOXHRIWKHFRQILUPDWLRQIXQFWLRQWRJHWKHUZLWKWKHFRQGLWLRQLQDGGLWLRQLW DOVR PHDQV WKDW WKH YDOXHV RI FRQILUPDWLRQ IXQFWLRQ UDQJH IURP  WR  HQGSRLQWV LQFOXGHG  6LQFH FK⏐H   F¤K⏐H   LW IROORZV IURP SURSRVLWLRQZLWK¤KIRUMDQGW≡K∨¤K DQGSURSRVLWLRQWKDWWKH PLQLPDOYDOXHRIWKHFRQILUPDWLRQIXQFWLRQLVF¤W⏐H  )URPWKHSRLQWRI YLHZ RI WKH FRQFHSW RI FRQILUPDWLRQ WKH YDOXHV  DQG  DUH SXUHO\ FRQYHQWLRQDO QHYHUWKHOHVV WKH\ DUH QRQDUELWUDU\ DV IDU DV RWKHU LQWHUSUHWDWLRQV RI WKH IXQFWLRQ F⏐  DUH LQYROYHG LH DV WKH IDLU EHWWLQJ TXRWLHQWDQGDVWKHHVWLPDWLRQRIUHODWLYHIUHTXHQF\&DUQDS  7KHFRQGLWLRQVDUHDOPRVWHTXLYDOHQWWRWKHVWDQGDUGSUREDELOLW\D[LRPV $[LRP  $[LRP   7KH RQO\ GLIIHUHQFH²DSDUW IURP FRQGLWLRQDO SUREDELOLW\²LV LQ WKH DGGLWLRQ SULQFLSOH ZKLFK LQ WKH FDVH RI WKH VWDQGDUG SUREDELOLW\WKHRU\LVVWDWHGLQDJHQHUDOIRUP 352326,7,21$GGLWLRQ²JHQHUDO 

FK∨M⏐H  FK⏐H FM⏐H ±FK∧M⏐H 

5HPDUNDEO\ &DUQDS FRPPHQWV RQ WKH FRQGLWLRQV VSHFLILHG DV PHUH FRQYHQWLRQV ZKLFK DUH QRW VXIILFLHQW WR ZDUUDQW WKH H[LVWHQFH RI ³DQ DGHTXDWHTXDQWLWDWLYHH[SOLFDWXP´RIWKHORJLFDOFRQFHSWRISUREDELOLW\EXW ZKLFKKDYHWREHVDWLVILHGLQWKHFDVHRIWKHUHEHLQJDQDGHTXDWHTXDQWLWDWLYH H[SOLFDWXP /HWP EHD³QXOOFRQILUPDWLRQ´GHILQHGDVIROORZV '(),1,7,211XOOFRQILUPDWLRQ 

P S = F S W  

7+(6<67(062),1'8&7,9(/2*,&



 )URPWKLVGHILQLWLRQSURSRVLWLRQD DQGSURSRVLWLRQLWIROORZV 352326,7,215HGXFWLRQRIF⏐ WRP  

FK⏐H  FH∧K⏐W FH⏐W  PH∧K PH 

7KXV²YLD SURSRVLWLRQ ²WKH WDVN RI ILQGLQJ WKH YDOXH RI WKH FRQILUPDWLRQIXQFWLRQLVUHGXFHGWRILQGLQJWKHYDOXHRIDPHDVXUHIXQFWLRQ P  6LQFH LQ DQ\ ODQJXDJH V\VWHP D JLYHQ VHQWHQFH LV HTXLYDOHQW WR D GLVMXQFWLRQRIVWDWHGHVFULSWLRQVWKHSUREOHPRIDVVLJQLQJDQXPHULFDOYDOXH WRHDFKVHQWHQFHRIWKHODQJXDJHV\VWHPUHGXFHVWRWKHSUREOHPRIDVVLJQLQJ QXPHULFDO YDOXHV WR HDFK VWDWHGHVFULSWLRQ RI WKH ODQJXDJH V\VWHP IRU WKH YDOXH RI P  IRU D JLYHQ VHQWHQFH S²E\ DGGLWLRQ SURSRVLWLRQ  ²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

± IRUHYHU\VWDWHGHVFULSWLRQ6LLQDODQJXDJHV\VWHPP6L !



± WKH VXP RI WKH YDOXHV RI P  RI DOO VWDWHGHVFULSWLRQ RI ODQJXDJH V\VWHPLV

'(),1,7,21&5HJXODULW\ FS⏐T ZKHUH FS⏐T  PS ∧ T PT  LV DUHJXODUFRQILUPDWLRQ IXQFWLRQ LIIP LVDUHJXODUPHDVXUHIXQFWLRQ $PRQJ WKH IHDWXUHV RI WKH UHJXODU FRQILUPDWLRQ IXQFWLRQV &DUQDS GHPRQVWUDWHVWKHIROORZLQJFRXQWHUSDUWVRIWKHD[LRPVDQGWKHRUHPVRIWKH VWDQGDUGSUREDELOLW\WKHRU\ 

 &+$37(5  352326,7,211RQQHJDWLYLW\IRUFRQILUPDWLRQ 

≤FK⏐H ≤

352326,7,210D[LPXPYDOXHIRUFRQILUPDWLRQ ,ILWLVORJLFDOO\WUXHWKDWH→KWKHQ 

FK⏐H  

352326,7,211RUPDOL]DWLRQIRUFRQILUPDWLRQ 

FW⏐H  

352326,7,21$GGLWLRQIRUFRQILUPDWLRQ 

FK∨M⏐H  FK⏐H FM⏐H ±FK∧M⏐H 

352326,7,21%D\HV¶VWKHRUHPIRUFRQILUPDWLRQ F K H ∧ L  

F  K H ⋅ F L H ∧ K Q

∑ F K M 

M



H ⋅ F L H ∧ K M 

ZKHUHK«KMDUHPXWXDOO\H[FOXVLYHK\SRWKHVHVDQGLQFOXGHK :KLOH&DUQDSDSSUHFLDWHVWKDWWKHWKHRUHPKDVEHHQFRQWURYHUVLDOEXWKH UHEXWV WKH REMHFWLRQV DV LPPDWHULDO )LUVW WKH FRQWURYHUVLHV DUH GXH WR WKH FRQIXVLRQRIORJLFDODQGIUHTXHQF\LQWHUSUHWDWLRQVRISUREDELOLW\6HFRQGWKH FRQWURYHUVLHVDUHGXHWRWKHPLVDSSOLFDWLRQRIWKHWKHRUHPRQWKHEDVLVRIDQ XQFULWLFDOO\XQGHUVWRRGSULQFLSOHRILQGLIIHUHQFHWKLUGWKHWKHRUHPLVSURYHG RQ WKH DVVXPSWLRQV VSHFLILHG WKXV IDU²WKH DUH ZHDN DVVXPSWLRQV ³ZKLFK SUDFWLFDOO\ DOO WKHRULHV RI SUREDELOLW\ VHHP WR KDYH LQ FRPPRQ´ &DUQDS  )LQDOO\WKHWKHRUHPLVDOVRSURYHGLQWKHVWDQGDUGD[LRPV\VWHP IRUSUREDELOLW\ ,Q DOPRVW DOO WKHRULHV RI FRQILUPDWLRQ WKHUH LV D GHVLGHUDWXP WKDW WKH DFFXPXODWLRQ RI HYLGHQFH FRPSDWLEOH ZLWK WKH LQYHVWLJDWHG K\SRWKHVLV LQFUHDVHVLWVGHJUHHRIFRQILUPDWLRQLHWKLVHYLGHQFHLVSRVLWLYHO\UHOHYDQW WRWKHK\SRWKHVLVLQTXHVWLRQ



7+(6<67(062),1'8&7,9(/2*,&  '(),1,7,213RVLWLYHUHOHYDQFHIRUFRQILUPDWLRQ



MLVSRVLWLYHO\UHOHYDQWWRKRQHYLGHQFHHLII  FK⏐H∧M !FK⏐H  7KLVGHILQLWLRQEHDUVRQWKHPHDVXUHIXQFWLRQP DVIROORZV 352326,7,213RVLWLYHUHOHYDQFHIRUPHDVXUHIXQFWLRQ MLVSRVLWLYHO\UHOHYDQWWRKRQHYLGHQFHHLII  

PK∧H∧M ⋅PH !PK∧H ⋅PH∧M 

2I WKH PDQ\ FDQGLGDWHV IRU FRQILUPDWLRQ IXQFWLRQ WKH RQHV UHO\LQJ GLUHFWO\ RQ WKH FODVVLFDO GHILQLWLRQ RI SUREDELOLW\ ± DQG WKHUHE\ RQ WKH QRWRULRXVSULQFLSOHRILQGLIIHUHQFH±FKDUDFWHULVWLFDOO\IDLOWRVDWLVI\SRVLWLYH UHOHYDQFH )XUWKHUPRUHWKHFODVVRIWKHUHJXODUFRQILUPDWLRQIXQFWLRQVLVQDUURZHG GRZQFRQVLGHUDEO\E\V\PPHWU\FRQGLWLRQV '(),1,7,2106\PPHWU\ P LVDV\PPHWULFDOPHDVXUHIXQFWLRQIRUDODQJXDJHV\VWHP/6LIIP LVD UHJXODU PHDVXUHIXQFWLRQ IRU /6 DQG IRU DQ\ H[SUHVVLRQV ij ȥ RIODQJXDJH V\VWHPLIijLVLVRPRUSKLFWRȥWKHQPij  Pȥ  7ZRH[SUHVVLRQVDUHLVRPRUSKLFLQDODQJXDJHV\VWHPURXJKO\VSHDNLQJ LII WKH\ GLIIHU RQO\ ZLWK UHVSHFW WR LQGLYLGXDO FRQVWDQWV WKDW RFFXU ZLWKLQ WKHP0RUHSUHFLVHO\ '(),1,7,21&RUUHODWLRQ &UULVDFRUUHODWLRQIXQFWLRQLIILWLVDRQHRQHUHODWLRQZKLFKPDSVWKHVHWRI LQGLYLGXDOFRQVWDQWVRIWKHODQJXDJHV\VWHPRQWRLWVHOI '(),1,7,21,VRPRUSKLVP 7ZR H[SUHVVLRQV ij DQG ȥ RI D ODQJXDJH V\VWHP DUH LVRPRUSKLF LII WKHUH LV VXFKD&UUWKDW&UUij DQGȥGLIIHUDWPRVWLQWKHRUGHURIFRQMXQFWV 6LPLODUO\IRUF⏐  

  '(),1,7,21&6\PPHWU\

&+$37(5

F⏐ LVDV\PPHWULFDOFRQILUPDWLRQIXQFWLRQIRUDODQJXDJHV\VWHPLIIP  LVDV\PPHWULFDOPHDVXUHIXQFWLRQ ZKHUHFS⏐T  PK∧H PH  6RPHRIWKHV\PPHWU\SURSHUWLHVRIWKHP DQGF⏐ IXQFWLRQVZLWKij DV&UUȥ DQGȣDV&UUį DUHJLYHQEHORZ 352326,7,216\PPHWU\ 

Fȥ⏐į  Fij⏐ȣ 

352326,7,216\PPHWU\ LIijDQGȣKDYHQRLQGLYLGXDOFRQVWDQWVLQFRPPRQOLNHZLVHȥDQGȣWKHQ Fij⏐ȣ  Fȥ⏐ȣ  7KH FRQFHSW RI VWDWHGHVFULSWLRQ LV D EDVLF EXLOGLQJEORFN RI ODQJXDJH V\VWHPV &DUQDS FKDUDFWHULVWLFDOO\ LQVLVWV WKRXJK WKDW WR FRQYH\ WKH ORJLFDO VWUXFWXUHRIODQJXDJHV\VWHPVDGLIIHUHQWFRQFHSWLVQHHGHG '(),1,7,216WUXFWXUHGHVFULSWLRQ ,I6WULVDGLVMXQFWLRQRIDOOVWDWHGHVFULSWLRQVLVRPRUSKLFWR6LLQDODQJXDJH V\VWHP/6WKHQ6WULVDVWUXFWXUHGHVFULSWLRQLQ/6 *LYHQ WKH DERYH GHILQLWLRQ WKH IROORZLQJ V\PPHWU\ WKHRUHPV KROG IRU VWUXFWXUHGHVFULSWLRQV 352326,7,216\PPHWU\ 

P6WUM  V⋅P6L 

ZKHUHVLVWKHQXPEHURIVWDWHGHVFULSWLRQVLVRPRUSKLFWR6LLQWKHODQJXDJH V\VWHP 352326,7,216\PPHWU\ 

F6L⏐6WUM  V 

7+(6<67(062),1'8&7,9(/2*,&



 7KH DQDO\VLV RI WKH UHJXODULW\ UHOHYDQFH DQG V\PPHWU\ FRQGLWLRQV LV WDNHQ E\ &DUQDS WR FRQVWLWXWH WKH VXEVWDQFH RI /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ 1RQHWKHOHVV WKHVH FRQGLWLRQV GHILQH D PXFK ZLGHU FODVV RI FRQILUPDWLRQ IXQFWLRQV WKDQ &DUQDS ZRXOG SHUKDSV H[SHFW DW WKH RXWVHW +RZHYHULQWKH$SSHQGL[&DUQDS KHJLYHVDQRXWOLQHRIWKH SURMHFWHGFRQILUPDWLRQIXQFWLRQF  '(),1,7,21&RQILUPDWLRQIXQFWLRQF  

F K⏐H  P K∧H P H 

'(),1,7,210HDVXUHIXQFWLRQP  P LVP  LII  ± P LVDV\PPHWULFDO ± P DVVLJQVWKHVDPHQXPHULFDOYDOXHWRDOOVWUXFWXUH GHVFULSWLRQVLQWKHODQJXDJHV\VWHP ,I U LV WKH QXPEHU RI VWUXFWXUHGHVFULSWLRQV LQ WKH ODQJXDJH V\VWHP LW IROORZVWKDW 352326,7,216\PPHWU\ 

P 6L  U⋅V

7KHUHLVVWLOODQRWKHURSWLRQWKDW&DUQDSEULQJVWRWKHIRUH '(),1,7,21&RQILUPDWLRQIXQFWLRQF‚ 

F‚K⏐H  P‚K∧H P‚H 

'(),1,7,210HDVXUHIXQFWLRQP‚ P LVP‚ LII  ± P LVV\PPHWULFDO ± P  DVVLJQV WKH VDPH QXPHULFDO YDOXH WR DOO VWDWH GHVFULSWLRQVLQWKHODQJXDJHV\VWHP



 &+$37(5  352326,7,216\PPHWU\ 

P‚6L  Y

ZKHUHYLVWKHQXPEHURIDOOVWDWHGHVFULSWLRQVLQWKHODQJXDJHV\VWHP 7KH WZR IXQFWLRQV P  DQG P‚ DUH ERWK EDVHG RQ V\PPHWU\ FRQVLGHUDWLRQV 2QO\ WKH IRUPHU KRZHYHU FRXOG EH VDWLVIDFWRU\ WR &DUQDS VLQFH WKH ODWWHU²EDVHG RQ WKH FODVVLFDO IRUP RI WKH SULQFLSOH RI LQGLIIHUHQFH²OHDGVWRFRQWUDGLFWLRQVDQGDOVRWRWKHIROORZLQJUHVXOW 352326,7,21,UUHOHYDQFH 

FK⏐H  FK⏐W 

7KLVUHVXOWVHHPVIURPWKHSRLQWRIYLHZRILQGXFWLYHLQIHUHQFHFRXQWHU LQWXLWLYH IRU DOO HPSLULFDO HYLGHQFH LV LUUHOHYDQW WR ERWK FRQILUPDWLRQ DQG SUHGLFWLRQ 6HYHUDOLPSRUWDQWFKDQJHVLQ&DUQDS¶VYLHZVRQFRQILUPDWLRQDQGLQKLV RYHUDOO DSSURDFK WR WKH SUREOHP DSSHDUHG ILUVW LQ WKH IROORZXS YROXPH RI WKH /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ QDPHO\ LQ 7KH &RQWLQXXP RI ,QGXFWLYH 0HWKRGV +H VWLOO VWLFNV WR WKH VHPDQWLFDO IUDPHZRUN RI WKH FRQVWUXFWLRQ EXW WKH FRQQHFWLRQ LV ORRVHQHG E\ WKH LQWURGXFWLRQ RI WKH FRQFHSW RI WKH FKDUDFWHULVWLF IXQFWLRQ ,W LV D WKUHHDUJXPHQW IXQFWLRQ *VVLț DQGLWVYDOXHVDUHLQWKHLQWHUYDO>@7KHILUVWDUJXPHQWVLVWKH QXPEHU RI WKH LQGLYLGXDOV²ZKLFKDUHFODVVLILHG DPRQJ WKH 4SUHGLFDWHV² REVHUYHGLQWKHVDPSOH7KHVHFRQGDUJXPHQWVLLVWKHQXPEHURILQGLYLGXDOV ZLWKWKHSURSHUW\4LDPRQJWKHREVHUYHGLQGLYLGXDOVLQWKHVDPSOH7KHWKLUG DUJXPHQW ț VSHFLILHV WKH QXPEHU RI 4SUHGLFDWHV LQ WKH ODQJXDJH V\VWHP ț ʌ ZKHUH ʌ LV WKH QXPEHU RI WKH SULPLWLYH SUHGLFDWHV LQ WKH ODQJXDJH V\VWHP  7KH FKDUDFWHULVWLF IXQFWLRQ LV VXFK DV WR JLYH WKH FRPSOHWH DQG XQLTXH FKDUDFWHULVWLFV RI D JLYHQ FRQILUPDWLRQ IXQFWLRQ ZLWKLQ WKH VSHFLILHG ODQJXDJH V\VWHP 7KH FKDUDFWHULVWLFV DUH FRPSOHWH LI WKH YDOXH RI WKH FRQILUPDWLRQ IXQFWLRQ LV GHWHUPLQHG E\ WKH FKDUDFWHULVWLF IXQFWLRQ IRU DQ\ SDLURIVHQWHQFHVZLWKLQWKHODQJXDJHV\VWHP,WLVXQLTXHLIIRUDQ\SDLURI VHQWHQFHV RI WKH ODQJXDJH V\VWHP WKH FRQILUPDWLRQ IXQFWLRQ KDV RQO\ RQH YDOXH&DUQDSPDNHVWKHYDOXHRIWKHFKDUDFWHULVWLFIXQFWLRQGHSHQGHQWXSRQ WKHORJLFDOIDFWRUH[SUHVVHGKHUHE\țDQGWKHHPSLULFDOIDFWRUH[SUHVVHG E\VDQGVL&DUQDSE +HVXSSRUWVWKLVFKRLFHE\WKHIROORZLQJ DUJXPHQW $OO WKXV IDU SURSRVHG FRQILUPDWLRQ IXQFWLRQV OLH EHWZHHQ WZR H[WUHPHVRQWKHRQHKDQGWKHYDOXHRIWKHFRQILUPDWLRQIXQFWLRQLVWRWDOO\ 

7+(6<67(062),1'8&7,9(/2*,&   LQGHSHQGHQW RI WKH HPSLULFDO IDFWRU DQG LV EDVHG H[FOXVLYHO\ RQ ORJLFDO FRQVLGHUDWLRQVRQWKHRWKHUKDQGWKHFRQILUPDWLRQIXQFWLRQLVQRWKLQJEXWD IXQFWLRQRIHPSLULFDOGDWD7KHILUVWSURSRVDOLV/DSODFH¶VIDPRXVSULQFLSOH RILQGLIIHUHQFHZKLFKDVVLJQVHTXDOYDOXHVWRHTXLSUREDEOHFDVHVLHFDVHV ZLWKUHVSHFWWRZKLFKWKHUHLVQRUHDVRQWRGLIIHUHQWLDWH,Q&DUQDS¶VWHUPV WKHH[WUHPHFRQILUPDWLRQIXQFWLRQLVDIXQFWLRQRIțDORQH 

FKL⏐H  ț

7KHSUREDELOLW\RIWKHK\SRWKHVLVKLWKDWWKHQH[WREVHUYHGLQGLYLGXDOZLOO LQVWDQWLDWH 4L GHSHQGV RQO\ RQ WKH QXPEHU RI ț DQG LV WKH VDPH IRU DOO ț 4SUHGLFDWHV LH HTXDOV ț 7KH LQIRUPDWLRQ FDUULHG LQ WKH HYLGHQFH VWDWHPHQWHLVWRWDOO\LUUHOHYDQWWRWKHYDOXHRIWKHFRQILUPDWLRQIXQFWLRQ 2Q WKH RWKHU KDQG WKH ORJLFDO IDFWRU PLJKW EH FRPSOHWHO\ LJQRUHG LQ YLUWXHRIWKHHPSLULFDORQH 

FKL⏐H  VLV

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

FKL⏐H  VLV 

2QWKHEDVLVRIWKLVH[WUHPHIRUPRIFRQILUPDWLRQIXQFWLRQLWLVQRWRQO\ WUXHWKDWWKHSUREDELOLW\WKDWWKHQH[WREVHUYHGVZDQZLOOEHZKLWHLVEXW DOVRLWLVWUXHWKDWWKHSUREDELOLW\WKDWDOOVZDQVDUHZKLWHLV 

 

&+$37(5

0RUHRYHULWLVXQDFFHSWDEOHWKDWWKHHPSLULFDOH[WUHPHFRQILUPDWLRQ²LI LQWHUSUHWHGDVDEHWWLQJTXRWLHQW²LQVLPLODUFDVHVZRXOGOHDGWREHWVZLWKWKH DSSDUHQWO\ LUUDWLRQDO RGGV  LH EHWV ZLWK D SRVVLEOH ORVV EXW ZLWKRXW D SRVVLEOHJDLQ $QRWKHUUHDVRQIRU&DUQDSWRUHMHFWWKLVH[WUHPHHPSLULFDOFRQILUPDWLRQ IXQFWLRQ LV WKDW LW LJQRUHV WKH DYDLODEOH ORJLFDO LQIRUPDWLRQ 6XSSRVH IRU LQVWDQFHWKDWWZRLQGLYLGXDOVKDYHEHHQREVHUYHGRQHRIZKLFKLQVWDQWLDWHV 3 WKH RWKHU 3 2Q WKLV SURSRVDO KRZHYHU WKH SUREDELOLW\ RI WKH QH[W REVHUYHGLQGLYLGXDOLQVWDQWLDWLQJSURSHUW\3 ∧3LV7KLVLVREMHFWLRQDEOH IRU&DUQDSVLQFHVXFKDVWDWHPHQWLVORJLFDOO\FRPSDWLEOHZLWKWKHWKXVIDU REWDLQHGLQIRUPDWLRQDQGVKRXOGQRWEHH[FOXGHGRXWRIKDQGKRZHYHUORZ LWVSUREDELOLW\&DUQDSE  7KHVHFRQVLGHUDWLRQVOHDG&DUQDSWRVHWXSWKHFKDUDFWHULVWLFIXQFWLRQLQ VXFKDZD\WKDWWKHWZRH[WUHPHSURSRVDOVEHFRPHLWVVSHFLDOFDVHVZKLOHLW DOVR FRQWDLQV D FRQWLQXXP RI PRUH PRGHUDWH RSWLRQV 7KH FKDUDFWHULVWLF IXQFWLRQ EHFRPHV WKXV D ZHLJKWHG PHDQ RI WKH ORJLFDO ț  DQG HPSLULFDO VLV IDFWRUV '(),1,7,217KHFKDUDFWHULVWLFIXQFWLRQ*RIWKHȜV\VWHP *VVLț  ȗ⋅ț ±ȗ ⋅VLV  VLȜț VȜ  ZKHUHȗ ȜVȜ  7KH SDUDPHWHU Ȝ PD\ EH WUHDWHG HLWKHU DV D QXPHULFDO FRQVWDQW RU DV D IXQFWLRQRIț,QERWKFDVHVLWVYDOXHLVDQRQQHJDWLYHUHDOQXPEHUUDQJLQJ IURPWR∞,QWKHFDVHȜ ZHREWDLQWKHH[WUHPHHPSLULFDOFRQILUPDWLRQ IXQFWLRQ ZKLOH LQ WKH FDVH Ȝ→∞ ZH REWDLQ WKH H[WUHPH ORJLFDO FRQILUPDWLRQ IXQFWLRQ )RU DOO RWKHU QRQQHJDWLYH YDOXHV RI Ȝ ZH REWDLQ FRQILUPDWLRQIXQFWLRQVZKLFK²WRDGLIIHUHQWGHJUHH²WDNHLQWRDFFRXQWERWK IDFWRUVLHWKHORJLFDODQGHPSLULFDO 7KHUHDUHVHYHUDOSRVVLEOHSKLORVRSKLFDOLQWHUSUHWDWLRQVRIWKHSDUDPHWHU +LQWLNNDIRULQVWDQFHFODVVLILHVWKHPLQWRVXEMHFWLYHDQGREMHFWLYH2QWKH VXEMHFWLYH LQWHUSUHWDWLRQ Ȝ LV WKH LQGH[ RI FDXWLRQ WKH KLJKHU LWV YDOXH WKH OHVV D JLYHQ SHUVRQ LV UHDG\ WR UHO\ RQ D PHUH IUHTXHQF\ FRXQW 2Q WKH REMHFWLYHLQWHUSUHWDWLRQȜGHSHQGVRQWKHRUGHURIWKHXQLYHUVH+LQWLNND¶V SRLQW WKHQ LV WKDW RQ QRQH RI WKHVH Ȝ LV D ³ORJLFDO´ SDUDPHWHU DQG H[WUD ORJLFDOFRQVLGHUDWLRQVKDYHWREHWDNHQLQWRDFFRXQWLQRUGHUWRDFFRXQWIRU WKHDFWXDOYDOXHRIȜ7KLVLVDOVRWKHFDVHKHFODLPVZLWKWKHĮSDUDPHWHUKH KLPVHOILQWURGXFHGLQWRLQGXFWLYHORJLF+LQWLNND  6LQFHWKHYDOXHRIWKHSDUDPHWHUȜSOD\VDFUXFLDOUROHLQGHWHUPLQLQJWKH XOWLPDWH VKDSH RI WKH FRQILUPDWLRQ IXQFWLRQ &DUQDS GHFLGHG WR QDPH 

7+(6<67(062),1'8&7,9(/2*,&   KLVV\VWHP RI LQGXFWLYH ORJLF UHIHUULQJ WR WKH QDPH RI WKH SDUDPHWHU ³WKHȜV\VWHP RI LQGXFWLYH ORJLF´ ,Q WKH HQVXLQJ , ZLOO IROORZ WKLV FRQYHQWLRQ DQG UHIHU WR WKH DERYH V\VWHP DV ³WKH ȜV\VWHP´ :H REWDLQ &DUQDS¶V HDUOLHU FRQILUPDWLRQ IXQFWLRQV F‚ DQG F  E\ VXLWDEOH VXEVWLWXWLRQV IRUȜLH∞DQGțUHVSHFWLYHO\ , SURFHHG QRZ WR WKH H[DPLQDWLRQ RI VHYHUDO UHPDUNDEOH GLYHUJHQFHV EHWZHHQ WKH DERYH GLVFXVVHG FRQVWUXFWLRQ RI LQGXFWLYH ORJLF LQ /RJLFDO )RXQGDWLRQVRI3UREDELOLW\DQG7KH&RQWLQXXPRI,QGXFWLYH0HWKRGV,ZLOO IRFXV RQ WKHVH GLYHUJHQFHV ZKLFK DUH SHUWLQHQW WR WKH HSLVWHPRORJLFDO DQDO\VLVSXUVXHGLQWKHQH[WFKDSWHUVRIWKLVERRN $SSDUHQWO\ LQ WKH IRUPHU ERRN WKH FRQVWUXFWLRQ RI LQGXFWLYH ORJLF LV EDVHGRQVHPDQWLFDOFRQFHSWVVXFKDVUDQJHRUVWDWHGHVFULSWLRQ0RUHRYHULW HPEUDFHV &DUQDS¶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ȜRFFXUULQJLQGHILQLWLRQ$QGVLQFHWKHYDOXHRIWKHSDUDPHWHUȜUDQJHV RYHU WKH LQWHUYDO>∞@ WKLV GHILQLWLRQ LQ IDFW GHWHUPLQHVWKH FRQWLQXXP RI FKDUDFWHULVWLFIXQFWLRQV&DUQDSLVDZDUHRIWKHLPSRUWDQFHRIWKLVFKDQJHIRU KLVRYHUDOODSSURDFKWRLQGXFWLYHORJLF



 

&+$37(5 LWZRXOGEHFRQFHLYDEOHWKDWDWVRPH IXWXUHWLPHRQWKHEDVLVRI GHHSHULQVLJKWDOO ZLOODJUHHWKDWDFHUWDLQLQGXFWLYHPHWKRGLVWKHRQO\YDOLGRQH2QWKHRWKHUKDQGLW PD\ EH WKDW WKH PXOWLSOLFLW\ RI PXWXDOO\ LQFRPSDWLEOH PHWKRGV LV DQ HVVHQWLDO FKDUDFWHULVWLFRILQGXFWLYHORJLFVRWKDWLWZRXOGEHPHDQLQJOHVVWRWDONRI³WKHRQH YDOLGPHWKRG´7KLVGRHVQRWQHFHVVDULO\LPSO\WKDWWKHFKRLFHRIDQLQGXFWLYHPHWKRG LV PHUHO\ D PDWWHU RI ZKLP  +RZHYHU TXHVWLRQV RI WKLV NLQG ZRXOG WKHQ QRW EH SXUHO\WKHRUHWLFDOEXWUDWKHURIDSUDJPDWLFQDWXUH$PHWKRGZRXOGKHUHEHMXGJHGDV DPRUHRUOHVVVXLWDEOHLQVWUXPHQWIRUDFHUWDLQSXUSRVH&DUQDSE 

7KXV LQVWHDG RI D VLQJOH FRQILUPDWLRQ IXQFWLRQ IRU DOO LQGXFWLYH LQIHUHQFHVZHKDYHDQLQILQLWHFRQWLQXXPRIIXQFWLRQVZLWKQRVSHFLILFFOXH DV WR WKH FULWHULD RI FKRLFH DPRQJ WKHP &DUQDS UHFRJQL]HG WKH GLIILFXOW\ H[SRVHGODWHURQE\6DOPRQ6DOPRQD DQGWULHGWRREVWUXFWSRVVLEOH REMHFWLRQVE\FODLPLQJWKDWWKHFKRLFHRIWKHFRQILUPDWLRQIXQFWLRQLVQRWD PDWWHU RIDQ DVVHUWLRQ EDVHG RQ WKHRUHWLFDO LQYHVWLJDWLRQ EXW D PDWWHU RID SUDFWLFDO GHFLVLRQ 2QH FDQ WKXV FKDQJH WKH FRQILUPDWLRQ IXQFWLRQV DV RQH FDQ FKDQJH ³D VDZ RU DQ DXWRPRELOH DQG IRU VLPLODU UHDVRQV´ &DUQDS E  'HVSLWH WKH FKDQJH RI KLV YLHZV ZLWK UHVSHFW WR WKHUH EHLQJ RQO\ RQH FRQILUPDWLRQIXQFWLRQ&DUQDSLQVLVWVRQWKHIDFWWKDW )RU DQ\ JLYHQ XQLYHUVH WKHUH LV RQO\ RQH DGHTXDWH ODQJXDJH V\VWHP RU DW OHDVW RQO\ RQHDGHTXDWHYDOXHRIț&DUQDSE 

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¶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¶V V\VWHPV 6XSSRVH ZH VWDUW ZLWK WKH IROORZLQJ ODQJXDJHV/ZLWKRQO\RQHSULPLWLYHSUHGLFDWH*IRU³JUHHQ´DQG/ZLWK 

7+(6<67(062),1'8&7,9(/2*,&   WZRSULPLWLYHSUHGLFDWHV5IRU³UHG´DQG<IRU³\HOORZ´/HWWKHXQLYHUVHRI GLVFRXUVHFRQVLVWRIWZRLQGLYLGXDOVVLJQLILHGE\WZRLQGLYLGXDOFRQVWDQWVD DQG E RFFXUULQJ ERWK LQ / DQG / :H QHHG WR EHJLQ ZLWK VHWWLQJ RXW WKH FRQILUPDWLRQRIDK\SRWKHVLVSULRUWRDYDLODEOHHYLGHQFHV VL   352326,7,213ULRUFRQILUPDWLRQ FKL⏐H  VLȜț Vț  ț



ZKHUH KL LV WKH SUHGLFWLYH K\SRWKHVLV WKDW WKH QH[W XQREVHUYHG LQGLYLGXDO LQVWDQWLDWHV4L ,QIRUPRIFKDUWEHORZ,VXPPDUL]HGDOOYDOXHVQHFHVVDU\WRFDUU\RXW WKHFDOFXODWLRQVWRIROORZIRUVLPSOLFLW\DVVXPLQJȜ ț 

6WUXFWXUH GHVFULSWLRQ

/ 45[ <[ 4¤5[ <[  45[ ¤<[ 4¤5[ ¤<[ 

:HLJKW

6WDWH GHVFULSWLRQ

D

E

1R :HLJKW 1R

6WDWH GHVFULSWLRQ

6WUXFWXUH GHVFULSWLRQ

1R :HLJKW 1R :HLJKW



,



 4 4





,





,,



 4 4





,,





,,,



 4 4





,,,





 4 4







 4 4 



 4 4

    

,9 9 9, 9,, 9,,,



 4 4



 4 4



 4 4



 4 4



 4 4



 4 4



 4 4



 4 4



,;



 4 4



;



 4 4

/ 45[ 4¤5[ 

&KDUW6WDWHGHVFULSWLRQVDQGVWUXFWXUHGHVFULSWLRQVIRUWKHODQJXDJHV/DQG/

2Q WKH ULJKWKDQG VLGH RI WKH FKDUW LV WKH VSHFLILFDWLRQ RI VWDWH GHVFULSWLRQV DQG VWUXFWXUHGHVFULSWLRQV DQG WKHLU UHVSHFWLYH ZHLJKWV IRU 

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⏐W  F4D 4E ∨4D 4E ⏐W  6LQFHWKHVWDWHGHVFULSWLRQVDQGRI/DUHORJLFDOO\H[FOXVLYHIURPWKH VSHFLDODGGLWLRQFRQGLWLRQSURSRVLWLRQ LWIROORZVWKDW F4D 4E ∨4D 4E ⏐W  F4D 4E ⏐W F4D 4E ⏐W  %\LQVHUWLQJWKHDSSURSULDWHYDOXHVIURPFKDUWZHREWDLQWKHIROORZLQJ YDOXHIRUWKHSULRUFRQILUPDWLRQLQ/ F5D ⏐W   

3& 

%\VLPLODUFDOFXODWLRQIRU/ZKHUHWKHK\SRWKHVLV5D LVHTXLYDOHQWWR WKHGLVMXQFWLRQRIWKHVWDWHGHVFULSWLRQVDQGRI/ZH REWDLQ F5D ⏐W   

3& 

7KLV LQWXLWLYHO\ SODXVLEOH HTXLYDOHQFH RI WKH YDOXHV RI WKH SULRU FRQILUPDWLRQLQ/ 3& DQGLQ/3& ZLOOFKDQJHKRZHYHUDVVRRQDV ZH FRQVLGHU WKH REVHUYHG VDPSOH 6XSSRVH WKDW LQGHSHQGHQWO\ RI WKH ODQJXDJHZHDUHXVLQJWKHHYLGHQFHVWDWHPHQWHUHSRUWVWKDWRQHREMHFWKDV EHHQ REVHUYHG WR EH 5 ,Q RUGHU WR FRPSXWH WKH YDOXHV RI WKH FRQILUPDWLRQ IXQFWLRQZHQHHGWRWDNHQRWLFHWKDWWKHYDOXHVRIțGLIIHULQWKHFDVHRI/ ț   DQG / ț   %\ DSSOLFDWLRQ RI GHILQLWLRQ  ZH REWDLQ WKH IROORZLQJYDOXHVRIFRQILUPDWLRQRI5D FRQGLWLRQDORQHYLGHQFHH F5D ⏐H     

3( 

F5D ⏐H     

3( 



7+(6<67(062),1'8&7,9(/2*,&



 7KHVDPH VHQWHQFH RFFXUULQJ WKRXJK LQ WZR GLIIHUHQW ODQJXDJHV / DQG / REWDLQV WKHQ QRW RQO\ WZR GLIIHUHQW YDOXHV RI FRQILUPDWLRQ E\ WKH VDPH HYLGHQFH 3(   3(  EXW DOVR WKH LQFUHDVH RI LWV GHJUHH RI SRVWHULRU FRQILUPDWLRQZLWKUHVSHFWWRSULRUFRQILUPDWLRQLVDFFRUGLQJO\GLIIHUHQW 3( ±3& 3( ±3&  7KHIDFWWKDWWKHFRQILUPDWLRQYDOXHRIDJLYHQK\SRWKHVLVGHSHQGVRQWKH QXPEHURISUHGLFDWHVXVHGLQDJLYHQODQJXDJHVHHPVKLJKO\XQLQWXLWLYHIURP WKH SRLQW RI YLHZ RI VFLHQWLILF SUDFWLFH ,Q RWKHU ZRUGV &DUQDS¶V V\VWHPV DSSDUHQWO\IDLOWRVDWLVI\WKHFULWHULRQRIOLQJXLVWLFLQYDULDQFH /HWFK⏐H EHDFRQILUPDWLRQIXQFWLRQGHILQHGIRUODQJXDJHV//U/HWKLDQGHLEH WZRVHQWHQFHVRI/L≤L≤U VXFKWKDWFKL⏐HL  FLQ/L7RVDWLVI\WKHFULWHULRQRI OLQJXLVWLF LQYDULDQFH WKH FRQILUPDWLRQ IXQFWLRQ FK⏐H  PXVW EH VXFK WKDW LW LV LPSRVVLEOH XVLQJ WKH YDOXHV RI FK⏐H  IRU DQ\ VHQWHQFHV K DQG H LQ DQ\ RI WKH ODQJXDJHV//UDQGXVLQJWKHVHPDQWLFDODQGV\QWDFWLFDOUXOHVRI//UWRSURYH WKDWFKL⏐HL  FZKHUHF≠F6DOPRQ 

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¶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

,Q VXP .HPHQ\¶V LPSURYHPHQWV RYHU &DUQDS¶V LQLWLDO YHUVLRQV RI WKH V\VWHPVRILQGXFWLYHORJLFQRWRQO\UHOD[WKHODQJXDJHERQGVRIWKHIRUPHU 

 &+$37(5  WKH\ SURYHG H[WUHPHO\ LPSRUWDQW LQ DOORZLQJ WKH ODWHU GHYHORSPHQWV RI WKH V\VWHPVLQWRDQD[LRPDWLFIRUPDQGDOVRWKHLUIXOOPDWKHPDWL]DWLRQ .HPHQ\¶V LGHD LV URXJKO\ DV IROORZV ,QVWHDG RI &DUQDS¶V IDYRULWH VHPDQWLFDO FRQFHSW RI VWDWHGHVFULSWLRQ KH EDVHV WKH GHILQLWLRQ RI WKH VHPDQWLFDO PHDVXUHIXQFWLRQ RQ WKH FRQFHSW RI PRGHO (YHU\ D[LRP RI WKH V\VWHPKDVDVHWRIPRGHOVLQZKLFKLWLVWUXH7KHLQWHUVHFWLRQRIWKHVHVHWV LVDVHWRIPRGHOVLQZKLFKDOOD[LRPVDUHWUXH7KHPHDVXUHIRUWKHVHWRIDOO PRGHOV LV  DQG  IRU DQ HPSW\ VHW 7KH PHDVXUH LV DGGLWLYH DQG QRQ QHJDWLYHLWDOVRIXOILOOVWKHGHILQLWLRQRIıPHDVXUHLHLIGHILQHGIRUVHWV WKHQDOVRIRUWKHLUFRPSOHPHQWVVXPDQGSURGXFW  7KHUH LV VWLOO DQRWKHU GHILFLHQF\ LQ &DUQDS¶V V\VWHPV ZKLFK EHFDPH D VWDUWLQJ SRLQW IRU +LQWLNND DQG KLV FRZRUNHUV LQ GHYHORSLQJ WKHLU RZQ YHUVLRQ RI WKH V\VWHPV /HW PH LOOXVWUDWH LW ZLWK WKH IRUPHUO\ GLVFXVVHG H[DPSOHRI/DQG/6XSSRVHZHDUHLQWHUHVWHGLQWKHFRQILUPDWLRQYDOXHRI DJHQHUDOVHQWHQFH ∀[5[ 

*6 

'XH WR WKH FRQVWUXFWLRQ RI WKH V\VWHPV RI LQGXFWLYH ORJLF LQ ERWK ODQJXDJHV*6 LVHTXLYDOHQWWRDGLVMXQFWLRQRIVLQJXODUVHQWHQFHVQDPHO\ WKRVH VWDWHGHVFULSWLRQV ZLWK ZKLFK LW LV FRQVLVWHQW 7KXV LQ / *6  LV HTXLYDOHQWWRWKHVWDWHGHVFULSWLRQ 

∀[5[ ≡4D 4E 

DQGWKHFRQILUPDWLRQYDOXHRI*6 LQ/SULRUWRDQ\H[SHULPHQWLV F∀[5[ ⏐W  F4D 4E ⏐W  

3&*6 

6LPLODUO\LQ/*6 LVHTXLYDOHQWWRWKHVWDWHGHVFULSWLRQVDQG +HQFH F∀[5[ ⏐W   

3&*6 

$QGLQJHQHUDODVVXPLQJWKDWWKHUHDUH1LQGLYLGXDOVLQWKHGRPDLQRI HDFKODQJXDJH  F∀[5[ ⏐W  1 1 

*3&*6 

F∀[5[ ⏐W  1 11 

*3&*6 

7KXVLIWKHQXPEHU1RILQGLYLGXDOREMHFWVLVLQILQLWHZHREWDLQWKDW 

7+(6<67(062),1'8&7,9(/2*,&



 Xκ

 κ 1 

OLP Fκ ∀[5  [ W  

Xκ X X      κ 1 1 1 

1 →∞

 



ZKHUHX Xκ DUHSRO\QRPLDOSDUDPHWHUV  

,W LV QRW RQO\ WKH FDVH RI VXFK VLPSOH JHQHUDO VHQWHQFHV DV *6  EXW D FHQWUDOIHDWXUHRI&DUQDS¶VV\VWHPRILQGXFWLYHORJLFWKDWJHQHUDOVHQWHQFHV KDYH]HURFRQILUPDWLRQLQODQJXDJHV\VWHPVZLWKLQILQLWH1



7KH)LQQLVK6FKRRO¶V6\VWHPVRI,QGXFWLYH/RJLF

, IROORZ KHUH WKH VWDQGDUG H[SRVLWLRQ RI WKH PRWLYDWLRQ IRU +LQWLNND¶V ĮȜV\VWHPFI0RUWLPHU)HVWDIRUWKFRPLQJ DFFRUGLQJWRZKLFKWKH ]HURFRQILUPDWLRQ SUREOHP ZDV WKH VWDUWLQJ SRLQW IRU WKH HODERUDWLRQ RI D QHZYHUVLRQRILQGXFWLYHV\VWHPVE\+LQWLNNDDFFRPSDQLHGODWHURQE\KLV FRZRUNHUV +RZHYHU LW LV GHEDWDEOH ZKHWKHU WKH ]HUR FRQILUPDWLRQ IRU JHQHUDOL]DWLRQVLVLQGHHGGHYDVWDWLQJ,QIDFW&DUQDSZDVWKHILUVWWRQRWLFH WKLVIHDWXUHRIKLVȜV\VWHPZKLOHKHDSSDUHQWO\IDLOHGWRDSSUHFLDWHLWDVD PDMRUSUREOHP3HUKDSVEHFDXVHLWDFFRUGVZHOOZLWKKLVYLHZVRQWKHUROHRI JHQHUDOL]DWLRQVLQVFLHQFH&DUQDS  +LQWLNNDDFNQRZOHGJHVWKDWKHFRQWLQXHVWKHSURJUDPLQLWLDWHGE\&DUQDS RIFRQVWUXFWLQJDTXDQWLWDWLYHLQGXFWLYHORJLFIRUWKHVDPHNLQGVRIODQJXDJHV\VWHPV DV&DUQDS ZKLFKDYRLGVVRPHRIWKHPDLQGLVDGYDQWDJHVRI&DUQDS¶VWKHRU\LQVRIDU DV WKH SUREOHP RI GHDOLQJ ZLWK VWULFW QRQVWDWLVWLFDO  LQGXFWLYH JHQHUDOL]DWLRQ LV FRQFHUQHG 6XFK DQ LQGXFWLYH ORJLF FDQ HYHQ EH EXLOW DORQJ OLQHV FORVHO\ UHPLQLVFHQW RI &DUQDS¶V ,Q GHYHORSLQJ DQ LQGXFWLYH ORJLF DORQJ &DUQDSLDQ OLQHV WKH IXQGDPHQWDO SUREOHPFRQFHUQVWKHFKRLFHRIWKHXQGHUO\LQJPHDVXUHIXQFWLRQ1RZRQHZD\LQ ZKLFKRQHFRPHVWRFKRRVHWKHSDUWLFXODUPHDVXUHIXQFWLRQP ZKLFK&DUQDSIDYRUV PD\SHUKDSVEHGHVFULEHGDVIROORZV:KDWZHDUHSULPDULO\LQWHUHVWHGLQDUHQRWWKH GLIIHUHQW³SRVVLEOHZRUOGV´GHVFULEHGE\VWDWHGHVFULSWLRQVEXWUDWKHUGLIIHUHQWNLQGV RI SRVVLEOH ZRUOGV WKDW FDQ EH GHVFULEHG LQ RXU ODQJXDJH 7KHVH GLIIHUHQW NLQGV RI ZRUOGV DUH LQWHUSUHWHG E\ &DUQDS DV VWUXFWXUDOO\ GLIIHUHQW ZRUOGV +LQWLNND E  

, TXRWH +LQWLNND¶V RZQ DFNQRZOHGJPHQW IRU LQ D UHFHQW FRPPHQW KH UHSXGLDWHV WKH SKUDVH ³&DUQDS+LQWLNND VW\OH V\VWHPV RI LQGXFWLYH ORJLF´ 

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¶VDWWLWXGH DQG RYHUWDNHV WKH VHPDQWLFDO IUDPHZRUN +RZHYHU ZKDW KH ILQGV SUREOHPDWLF DERXW VWDWHGHVFULSWLRQV LV WKDW WKH\ DUH FRQMXQFWLRQV RI VLQJXODU VHQWHQFHV ZKLFKLQHIIHFWUHVXOWVLQWKH]HURFRQILUPDWLRQSUREOHP7KLVLVZK\LQWKH DERYHTXRWDWLRQKHLQWURGXFHVWKHLGHDRIDGHVFULSWLRQRI³NLQGVRIZRUOGV´ LQVWHDGRI³SRVVLEOHZRUOGV´$QGWKDWLQWXUQUHTXLUHVDVRPHZKDWGLIIHUHQW IRUPDO DSSDUDWXV 7HFKQLFDOO\ WKH LGHD LV HODERUDWHG RQ WKH EDVLV RI +LQWLNND¶V IDYRULWH QRUPDO IRUP LH WKH GLVWULEXWLYH QRUPDO IRUP IRU WKH ILUVWRUGHUSUHGLFDWHORJLF5RXJKO\WKHLGHDLVWKDWLQVWHDGRISUHGLFDWLQJ HDFK RI WKH LQGLYLGXDOV LQ 8 RQH RI WKH 4LSUHGLFDWHV ZH OLVW QRQHPSW\ 4LSUHGLFDWHVFDOOHGKHQFHIRUWKDWWULEXWLYHFRQVWLWXHQWV DQGDGGWKDWWKHVH DUHDOOQRQHPSW\DWWULEXWLYHFRQVWLWXHQWV7KHIRUPXODOLVWLQJDOODWWULEXWLYH FRQVWLWXHQWVLQVWDQWLDWHGLQDJLYHQZRUOGLVFDOOHGFRQVWLWXHQW '(),1,7,21&RQVWLWXHQW ∃[&W[ ∧∃[&W[ ∧∧∃[&WL[ ∧∀[&W[ ∨&W[ ∨∨&WL[  ZKHUH&WL²LVRQHRIWKH. ʌ4LSUHGLFDWHVLQDJLYHQODQJXDJH 7KHUHDUH.FRQVWLWXHQWVLQDJLYHQODQJXDJH &RQVWLWXHQWVGHVFULEHDOOWKHGLIIHUHQWNLQGVRI³SRVVLEOHZRUOGV´WKDWFDQEHVSHFLILHG E\ PHDQV RI RXU PRQDGLF SUHGLFDWHV TXDQWLILHUV DQG SURSRVLWLRQDO FRQQHFWLYHV +LOSLQHQ 

&DUQDS DGPLWV WKDW FRQVWLWXHQWV DUH PRUH DEVWUDFW VHPDQWLFDO FRQFHSWV WKDQVWDWHGHVFULSWLRQV+RZHYHUKHJRHVRQWRVXJJHVWWKDW ZH PLJKW FDUU\ WKLV DSSURDFK RQH VWHS IXUWKHU :H FDQ JR IURP WKH FRQVWLWXHQWV WR ZKDW PLJKW EH FDOOHG FRQVWLWXHQWVWUXFWXUHV ,QVWHDG RI VD\LQJ RI HDFK SUHGLFDWH ZKHWKHULWLVH[HPSOLILHGRUQRWZHVLPSO\VD\KRZPDQ\RIWKHPDUHLQVWDQWLDWHGLQ WKHZRUOGDQGKRZPDQ\DUHHPSW\:HPLJKWWKHQVHHZKDWKDSSHQVLIZHJLYHDQ HTXDODSULRULSUREDELOLW\WRHDFKRIWKHVHFRQVWLWXHQWVWUXFWXUHV&DUQDSF 



7+(6<67(062),1'8&7,9(/2*,&



 7KHGHILQLWLRQRIFRQILUPDWLRQIXQFWLRQIRUFRQVWLWXHQWVPXVWDFFRUGLQJ WR +LQWLNND VDWLVI\ QRW RQO\ &DUQDS¶V EXW DOVR WZR DGGLWLRQDO FULWHULD RI DGHTXDF\   $PRQJ FRQVWLWXHQWV UHSUHVHQWLQJ VWURQJ JHQHUDOL]DWLRQV FRPSDWLEOH ZLWK WKH HYLGHQFH WKHUH ZLOO EH RQO\ RQH VXFK WKDW LWV SUREDELOLW\ DSSURDFKHVLQWKHOLPLWDVWKHSRVLWLYHHYLGHQFHLQFUHDVHV   7KH VLPSOHVW FRQVWLWXHQW FRPSDWLEOH ZLWK HYLGHQFH ZLOO KDYH WKH JUHDWHVWDSRVWHULRULSUREDELOLW\7XRPHOD  ,WVHHPVWKDWWKHVHFULWHULDOHDGQDWXUDOO\WKHQWRPDNH&DUQDS¶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−F

S HF  

∑ L 

 ⎡ ⎛ . − F⎞ ⎤   S   S    HF & FL ⎥ ⎢⎣ ⎜⎝ L ⎟⎠ & FL ⎦

ZKHUHHF ²LVWKHHYLGHQFHWRWKHHIIHFWWKDWVWKXVIDUREVHUYHGLQGLYLGXDOV LQVWDQWLDWHFDWWULEXWLYHFRQVWLWXHQWV 7KH VSHFLDO YDOXH LV GHWHUPLQHG DV VRRQ DV WKH YDOXH RI WKH SULRU SUREDELOLW\ S&Z  RI &Z LH D FRQVWLWXHQW ZKLFK FODLPV WKDW RI DWWULEXWLYH FRQVWLWXHQWV Z DUH LQVWDQWLDWHG DV ZHOO DV WKH OLNHOLKRRG SHF⏐&Z  DUH GHWHUPLQHG2QWKHRQHKDQG+LQWLNNDZDQWVWRPDNHWKHYDOXHRI S&Z  GHSHQG XSRQ Z RQO\ RQ WKH RWKHU KDQG KH ZDQWV WR KROG IDVW WR &DUQDS¶V ZD\RIGHWHUPLQLQJWKHSULRUSUREDELOLWLHV+LQWLNND $FFRUGLQJ WR WKH GHILQLWLRQ RI WKH FKDUDFWHULVWLF IXQFWLRQ * RI &DUQDS¶V ȜV\VWHP WKH SUREDELOLW\ WKDW Į LQGLYLGXDOV DUH FRPSDWLEOH ZLWK D SDUWLFXODU VHW RI Z DWWULEXWLYHFRQVWLWXHQWVLVJLYHQE\WKHIRUPXOD 

 &+$37(5  352326,7,213UREDELOLW\RIZLQVWDQWLDWHGFRQVWLWXHQWVȜV\VWHP   Zλ.  Zλ. α −  Zλ. Γα Zλ. Γ λ      λ λ α − λ Γα λ Γ Zλ. ZKHUHī LVWKHJDPPDIXQFWLRQ 6LQFH KRZHYHU +LQWLNND LQVLVWV RQ LQILQLWH GRPDLQV RI LQGLYLGXDOV DQG DOVR RQ WKH GHSHQGHQFH RQ Z RQO\ ZKLFK LV DQDORJRXV WR WKH VWUXFWXUDO FODVVLILFDWLRQDPRQJVWDWHGHVFULSWLRQVLQWKHȜV\VWHP WKHYDOXHRIS&Z LV SURSRUWLRQDO WR SUREDELOLW\ RI Z LQVWDQWLDWHG FRQVWLWXHQWV SURSRVLWLRQ   ZLWKGXHDGMXVWPHQWV 352326,7,213UREDELOLW\RIZLQVWDQWLDWHGFRQVWLWXHQWVĮȜV\VWHP  Γα Zλ  . . Γ Zλ  . .  S& Z   . ⎛ . ⎞ Γα Lλ  . . ⎜L⎟ ⎠ ΓLλ  . . L ⎝

∑

ZKHUHȜ. ²LVDIXQFWLRQRI.DGPLWWHGO\LQDVLPSOLILHGIRUPȜPD\EH MXVWDQXPHULFDOFRQVWDQW 7KH VSHFLDO YDOXH RI WKH ȜV\VWHP LV QRW GLUHFWO\ DSSOLFDEOH WR WKH ĮȜV\VWHP²PDLQO\ GXH WR D GLIIHUHQW VHPDQWLFDO IUDPHZRUN DV KDV EHHQ DOUHDG\SRLQWHGRXW²EXWVWLOODV+LQWLNNDFODLPVWKHUHLVURRPIRUVXLWDEOH DSSOLFDWLRQWKHUHRI7KHUHLVDVSHFLDOYDOXHFRQGLWLRQDORQWKHIDFWWKDWWKH FRQVWLWXHQW &Z LV WUXH LH FRQGLWLRQDO RQ WKH IDFW WKDW Z DWWULEXWLYH FRQVWLWXHQWV DUH LQVWDQWLDWHG 7KLV WKHQ QDWXUDOO\ VXJJHVWV DFFRUGLQJ WR +LQWLNNDWKHIROORZLQJPRGLILFDWLRQRIWKHVSHFLDOYDOXHRIWKHȜV\VWHP 352326,7,217KHVSHFLDOYDOXHRIWKHĮȜV\VWHP VMȜZ VȜ  7KHVXEVWLWXWLRQRIZIRUțLVGXHWRWKHIDFWWKDW²FRQGLWLRQDORQ&Z²LW LVSUHVXSSRVHGWKDWWKHQXPEHURIDWWULEXWLYHFRQVWLWXHQWVLVZQRWț,QWKLV ZD\ZHREWDLQWKHUHTXLUHGOLNHOLKRRG



7+(6<67(062),1'8&7,9(/2*,&  352326,7,217KHOLNHOLKRRGIRUWKHĮȜV\VWHP



S  HF & Z = λ  Z  + λ  Z V −  + λ  Z V F −  + λ  Z = " " λ λ+Z V −  + λ V − + λ =

Γ λ Γ V + λ

F

∏

Γ  V M + λ  Z Γ  λ  Z

L =



ZKHUHVLVWKHQXPEHURIREVHUYHGREMHFWVLQVWDQWLDWLQJ&WVV. V  %\UHOHYDQWVXEVWLWXWLRQVDQGE\WKHGHILQLWLRQRIFRQGLWLRQDOSUREDELOLW\ SK⏐H  SK∧H SH  ZKLFKLQWKHFDVHRIS&WM ∧HF UHTXLUHVWKDWWKHIRUPHUVMEHFKDQJHGWR VMDQGVWRVWKHIRUPXODVWDWHVWKHQWKDWRQHDGGLWLRQDOLQGLYLGXDOLV DVVXPHG WR KDYH EHHQ REVHUYHG WR EH &WM  ZH REWDLQ WKH IROORZLQJ XQFRQGLWLRQDOVSHFLDOYDOXHIRU+LQWLNND¶VĮȜV\VWHP



 &+$37(5  352326,7,218QFRQGLWLRQDOVSHFLDOYDOXHIRUWKHĮȜV\VWHP S& W M H F   ⎛ ⎡ ⎜ ⎢ Γ Γ  α  λ   λ     F    L  . .  F    L ⎛⎜ L− ⎞⎟⎜ ⎢  ⎝ . F ⎠ ⎜ ΓFL λ  . . Γ Vλ FL ⎢  ⎜ ⎢⎣ ⎝

. −F

∑ L

F

λ  FL ⎞ ⎤ ⎛ Γ⎜ V M ⎟ FL ⎠ ⎥ ⎥  ⎝ ⎛ λ  FL ⎞ ⎥ Γ⎜ ⎟ ⎝ FL ⎠ ⎥⎦

∏ M

λ FL ⎞ ⎞ ⎛ Γ⎜ V M ⎟⎟ FL ⎠ ⎟ ⎝  ⎟  ⎛ λ FL ⎞ Γ⎜ ⎟ ⎟ ⎝ FL ⎠ ⎠ λ FL ⎞ ⎤ ⎡ ⎛ ⎟ . −F F Γ⎜ V M ⎢ FL ⎠ ⎥ ⎛ L ⎞⎢  Γα FL λ  . . Γ λ  FL   ⎝ ⎥ ⎜ . − F⎟ ⎛ λ FL ⎞ ⎥ ⎠ ⎢ Γ FL λ  . . Γ Vλ  FL M  L  ⎝ Γ⎜ ⎟ ⎢⎣ ⎝ FL ⎠ ⎥⎦

×

∑

∏

%\ DSSURSULDWH DSSOLFDWLRQ RI %D\HV¶V WKHRUHP ZH REWDLQ WKH SRVWHULRU SUREDELOLW\RI&Z 352326,7,213RVWHULRUFRQILUPDWLRQLQWKHĮȜV\VWHP S & Z HF   Γ V Mλ  Z Z Γα Zλ  . . Γ λ  Z   Γ Zλ  . . Γ Vλ  Z M  Γ λ  Z Z F



∏

⎡ Γα  FL λ  . . Γ λ FL F Γ V Mλ  FL   FL ⎤  ⎛⎜ . − F ⎞⎟⎢ ⎥ ⎝ L ⎠ ⎣⎢ ΓFL λ  . . Γ Vλ  FL M  Γ λ  FL   FL ⎦⎥ 

. −F

∑ L

∏

7KHIRUPXODHLQSURSRVLWLRQSURSRVLWLRQDQGSURSRVLWLRQ JLYH WKH EDVLF FKDUDFWHULVWLFV RI WKH ĮȜV\VWHP 7KH PHDQLQJ RI WKH Ȝ SDUDPHWHUZLWKUHVSHFWWRVLQJXODUVHQWHQFHVLVWKHVDPHDVLQWKHȜV\VWHP 7KHUH LV KRZHYHU D QHZ SDUDPHWHU Į ,W LV LQVWUXFWLYH WR REVHUYH LWV LQIOXHQFHXSRQWKHYDOXHVRIFRQILUPDWLRQ,IĮ→∞WKHQWKHVSHFLDOYDOXH RI WKH ĮȜV\VWHP SURSRVLWLRQ   LV WKH VDPH DV WKH VSHFLDO YDOXH RI 

7+(6<67(062),1'8&7,9(/2*,&   WKHȜV\VWHP EDVHG RQ GHILQLWLRQ  6LQFH WKH VSHFLDO YDOXH GHWHUPLQHV FRPSOHWHO\ D JLYHQ V\VWHP RI LQGXFWLYH ORJLF LW IROORZV WKDW &DUQDS¶V ȜV\VWHPLVDVSHFLDOFDVHRIWKHĮȜV\VWHP 2QWKHRWKHUKDQGLIĮ WKHQWKHSULRUSUREDELOLWLHVRI&ZWXUQRXWWR GHSHQG RQ . RQO\ LQ WKDW ³D KLJKO\ D SULRUL PHWKRG RI GHWHUPLQLQJ WKH SUREDELOLWLHVS&Z ´LVVHWRXW+LQWLNND 1HYHUWKHOHVVS&Z⏐HF  LVLQWKLVFDVHQRWVRPXFKDIIHFWHGE\S&Z DVE\WKHUHVXOWVRIH[SHULPHQWV +HQFHWKHJHQHUDOFRQFOXVLRQIRUWKHLQWHUSUHWDWLRQRIĮLV 7KH ODUJHU WKLV SDUDPHWHU LV WKH PRUH VXVSLFLRXV ZH DUH RI SURVSHFWLYH LQGXFWLYH JHQHUDOL]DWLRQV+LQWLNND 

)RUDV+LQWLNNDFODLPVĮLVVLPLODUO\WRțDQLQGH[RIWKHZHLJKWRIWKH ORJLFDO IDFWRU LQ LQGXFWLYH LQIHUHQFHV ZLWK LQFUHDVLQJ Į WKH YDOXH RI S&Z  IRU Z. DSSURDFKHV  7KH PDLQ GLIIHUHQFH WKHQ OLHV LQ WKH IDFW WKDW Į FRQWUROV WKH EHKDYLRU RI JHQHUDOL]DWLRQV ZKLOH Ȝ²RI VLQJXODU VHQWHQFHV +LQWLNND  +LQWLNND¶V DSSURDFK LQLWLDWHG D QXPEHU RI FRQWULEXWLRQV E\ KLV FRZRUNHUV LQ DFFRPSOLVKLQJ YDULRXV DVSHFWV RI WKH ĮȜV\VWHP 6RPH RI WKHP FRQFHUQ WHFKQLFDO DGYDQFHV ZKLOH RWKHUV GHDO ZLWK HSLVWHPRORJLFDO LVVXHV $PRQJ WKH PRVW VLJQLILFDQW WHFKQLFDO LPSURYHPHQWV RQH VKRXOG OLVW 5 +LOSLQHQ¶VDWWHPSWWRH[WHQGWKHODQJXDJHRIWKHV\VWHPWRUHSUHVHQWQRWRQO\ PRQDGLF EXW DOVR G\DGLF SUHGLFDWHV +LOSLQHQ    +H HODERUDWHV WKH GHILQLWLRQ RI WKH DWWULEXWLYH FRQVWLWXHQW DQG WKH FRQVWLWXHQW VXLWDEOH IRU WKLVNLQGRIODQJXDJHDQGWKHQSURFHHGVWRWKHGHILQLWLRQRIWKHFRQILUPDWLRQ IXQFWLRQ DFFRUGLQJ WR +LQWLNND¶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³F⏐ ´ ZKLFK FRQVWLWXWHV WKH ³LQIHUHQWLDO´DVSHFWRINQRZOHGJHDQGLWV³IDFWXDO´FRPSOHPHQWLQWKHIRUP RI WKH V\QWKHWLF VHQWHQFHV ZKLFK DUH WKH DUJXPHQWV RI ³F⏐ ´ HVSHFLDOO\ VHQWHQFHVUHSUHVHQWLQJHYLGHQFH 7XRPHODZDVWKHILUVWWRDWWHPSWWRUHSUHVHQWRUGHUUHODWLRQVLQWKHV\VWHP 7XRPHOD 7KHEDVLFLGHDLVWRH[WHQGWKHODQJXDJHLQVXFKDZD\DVWR HQDEOHIRUPXODWLRQRIJHQHUDOL]DWLRQVGHVFULELQJRUGHULQDJLYHQXQLYHUVHRI GLVFRXUVH +H DFKLHYHV WKLV E\ LQWURGXFLQJ D G\DGLF SUHGLFDWH ³LPPHGLDWH VXFFHVVRU´ DQG WKHQ E\ DGMXVWPHQWV WR WKH GHILQLWLRQ RI DWWULEXWLYH 

 &+$37(5  FRQVWLWXHQW DQG FRQVWLWXHQW VXLWDEOH IRU WKLV NLQG RI ODQJXDJH +LV VROXWLRQ KRZHYHULVDOVRUHODWLYHWRWKHGHILQLWLRQRIWKHVLPSOLFLW\RIFRQVWLWXHQWVIRU WKHGHILQHGNLQGRIODQJXDJH ,Q +LQWLNND¶V V\VWHP ROG HSLVWHPRORJLFDO SUREOHPV UHODWHG WR WKH LQGXFWLYHMXVWLILFDWLRQRIJHQHUDOL]DWLRQVUHDSSHDU)RURQWKHRQHKDQGLWLV SRVVLEOH LQ WKH V\VWHP WKDW S&Z⏐H  !  ZKLOH WKH QXPEHU RI REMHFWV REVHUYHGWKXVIDUVLVOHVVWKDQZ2QWKHRWKHUKDQGDFFRUGLQJWR+LQWLNND¶V RZQFULWHULDRIDGHTXDF\WKHUHDUHJHQHUDOL]DWLRQVSUHIHUDEOHIURPWKHSRLQW RI YLHZ RI HYLGHQFH LH VXFK WKDW WKHLU GHJUHH RI FRQILUPDWLRQ LQFUHDVHV IDVWHUWKDQRWKHUV+LQWLNNDWULHVWRDFFRXQWIRUWKHVHIHDWXUHVRIWKHV\VWHP LQ WHUPV RI ³QRPLF´ DQG ³DFFLGHQWDO´ JHQHUDOL]DWLRQV +LQWLNND    7KHSUREOHPLVVXEVHTXHQWO\GHDOWZLWKLQLWVIXOOH[WHQWE\-3LHWDULQHQ 3LHWDULQHQ   +LV DUJXPHQW LV WR WKH HIIHFW WKDW HYHU\ V\VWHP RI LQGXFWLYH ORJLF KDQJV RQ WKH SUHVXSSRVLWLRQV FRQFHUQLQJ ZKDW WKH ZRUOG LV OLNH LQ SDUWLFXODU ZKDW LV WKH RUGHU LQ WKH XQLYHUVH RI GLVFRXUVH +DYLQJ VHWWOHG WKLV LW LV SRVVLEOH WR SURYLGH WKH SDUDPHWHUV Į DQG Ȝ ZLWK DQ DSSURSULDWH LQWHUSUHWDWLRQ VR DV WR PDNH WKHP IXQFWLRQ DV WKH PHDVXUHV RI ODZOLNHQHVV



7KH%D\HVLDQ'HYHORSPHQWVRI,QGXFWLYH/RJLF

%URDGO\ VSHDNLQJ %D\HVLDQLVP LV D JHQHUDO DQG XQLIRUP DFFRXQW RI VFLHQWLILF NQRZOHGJH ,W LGHQWLILHV WKH HSLVWHPLF VXSSRUW HYLGHQFH H FRQIHUV RQ DK\SRWKHVLV K ZLWK SUREDELOLW\ ZKLFK LV GHILQHG E\ D[LRPV $[LRP   $[LRP VHHSDJH 0RUHSUHFLVHO\WKLVHSLVWHPLFVXSSRUWLVLGHQWLILHG ZLWKK\SRWKHVLV¶VFRQGLWLRQDOSUREDELOLW\RQHLHZLWKSK⏐H 7KHODWWHULV WKHQFDOFXODWHGDFFRUGLQJWR%D\HV¶VWKHRUHP7KHUXOHRIFRQGLWLRQDOL]DWLRQ FRQVWLWXWHV DQ LQWHJUDO SDUW RI %D\HVLDQLVP 7KLV UXOH SUHVFULEHV KRZ WR XSGDWH RQH¶V EHOLHIV RQ FKDQJLQJ HYLGHQFH ,I ZH DFTXLUH QHZ HYLGHQFHH WKHQWKHSUREDELOLW\RIKRQWKHROGHYLGHQFHHEHFRPHVDSULRUSUREDELOLW\ RIK '(),1,7,215XOHRIFRQGLWLRQDOL]DWLRQ&  SK⏐H  TK  ZKHUHLQDFFRUGDQFHZLWK%D\HV¶VWKHRUHPVHHSDJH  TK⏐H  TK ⋅TH⏐K TH 



7+(6<67(062),1'8&7,9(/2*,&





$QLPSRUWDQWVWHSWRZDUGVWKHGHYHORSPHQWRIWKH%D\HVLDQUHDGLQJRI WKH V\VWHPV RI LQGXFWLYH ORJLF ZDV GXH WR &DUQDS¶V FKDQJH RI WKH ORJLFDO IUDPHZRUNIRUWKHV\VWHPVDFKDQJHGHILQLWHO\LQVSLUHGE\.HPHQ\,Q³$ %DVLF 6\VWHP RI ,QGXFWLYH /RJLF 3DUW ,´ &DUQDS D   &DUQDS GHILQHVWKHVHWRISRVVLEOHZRUOGVLQWHUPVRIPRGHOVDQGSURSRVLWLRQVDQG QRW LQ WHUPV RI V\QWDFWLFDO FRPELQDWLRQV RI 4SUHGLFDWHV 1HYHUWKHOHVV DV SURYHGE\7)LQH)LQH WKHYDOXHRIWKHFRQILUPDWLRQIXQFWLRQ GHILQHG LQ WKLV QHZ VHWWLQJ VWLOO GHSHQGV RQ WKH QXPEHU RI SULPLWLYH SUHGLFDWHVRIDJLYHQODQJXDJHV\VWHP 7KH GHILQLWLRQ RI WKH VHW RI SRVVLEOH ZRUOGV HQDEOHV &DUQDS WR GHILQH D FRXQWHUSDUW RI WKH VWDQGDUG GRPDLQ RI SUREDELOLW\ PHDVXUH LH WKH ıILHOG $QG WKLV LQ WXUQ SURYHG LQIOXHQWLDO ZLWK UHVSHFW WR SURYLGLQJ WKH ILUVW D[LRPDWLF SUHVHQWDWLRQ RI KLV ȜV\VWHP 0RUHRYHU : 6WHJPOOHU JHQHUDOL]HG WKH FKDUDFWHULVWLF IXQFWLRQ RI WKH ȜV\VWHP DQG REWDLQHG WKH FKDUDFWHULVWLFIXQFWLRQRIDQHZWZRSDUDPHWULFȖȜV\VWHP 352326,7,217KHFKDUDFWHULVWLFIXQFWLRQ*&RIWKHȖȜV\VWHP *VVLț  VLȜ⋅ȖL VȜ  ZKHUHȖLLVSULRUSUREDELOLW\RI4L¶V,QSDUWLFXODULIIRUDOO4SUHGLFDWHVȖLLV HTXDOWKHQȖL țDQG*&LVHTXLYDOHQWWR*VHHGHILQLWLRQ  7KH ĮȜ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ȖȜV\VWHPVDWLVILHVWKHIROORZLQJSULQFLSOHV 352326,7,213ULQFLSOHRIRUGHULQGLIIHUHQFH 

S4L4M⏐HV  S4M4L⏐HV 



 &+$37(5  352326,7,213ULQFLSOHRIUHVWULFWHGUHOHYDQFH 

S4L⏐HV  IVVL 

352326,7,213ULQFLSOHRILQLWLDOSRVVLELOLW\ 

ȖL!

7KH SULQFLSOH RI RUGHU LQGLIIHUHQFH LV DQ DSSOLFDWLRQ RI WKH SULQFLSOH RI LQGLIIHUHQFHZLWKUHVSHFWWR4SUHGLFDWHV,WZDVLQWURGXFHGE\&DUQDSEXW RQH QHHGV WR EH PLQGIXO WKDW LQ .XLSHUV¶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ȖȜV\VWHP UHIRUPXODWHG DFFRUGLQJO\ LV HTXLYDOHQW WR WKH VXIILFLHQWQHVV SRVWXODWHDGYDQFHGE\:(-RKQVRQLQ%D\HVLDQVWDWLVWLFV 7KH%D\HVLDQUHDGLQJRIWKHȖȜV\VWHPLVDVIROORZVVXSSRVHWKHUHDUHW SRVVLEOH FDWHJRULHV ^FFFW` ZKHUH ≤W≤∞ /HW ;;; EH D VHTXHQFH RI H[FKDQJHDEOH LH LQYDULDQW XQGHU ILQLWH SHUPXWDWLRQV RI RXWFRPHV  UDQGRP YDULDEOHV ZLWK YDOXHV LQ WKH VHW RI FDWHJRULHV /HW QL QL;;;Q IRUQ≤EHWKHQXPEHURIRXWFRPHVZLWKLQWKHVDPSOH ;;;QIDOOLQJZLWKLQDJLYHQFDWHJRU\;N FLDQGOHWQ QQQW  VSHFLI\ WKH OLVW RI WKH UHVSHFWLYH QXPEHUV IRU DOO WKH FDWHJRULHV 7KH SUHGLFWLYHSUREDELOLW\RU&DUQDS¶V³VSHFLDOYDOXH´ LHWKHSUREDELOLW\WKDW WKHQH[WREVHUYHGLQGLYLGXDOZLOOIDOOZLWKLQWKHFDWHJRU\FLFRQGLWLRQDORQ WKHREVHUYHGVDPSOHIUHTXHQFLHVLV 352326,7,213UHGLFWLYHSUREDELOLW\ 

3;Q FL⏐Q  QLĮL QĮ 

ZKHUHĮL!Į ΣĮLQ≥=DEHOO  $SSDUHQWO\LIZHOHWĮL ȜȖLWKHQWKHSUHGLFWLYHSUREDELOLW\LVSUHFLVHO\ WKHVDPHDVLQWKHȖȜV\VWHPVHHDOVR6N\UPVF  

7+(6<67(062),1'8&7,9(/2*,&



 -RKQVRQ¶V VXIILFLHQWQHVV SRVWXODWH OHDGV WR WKH DERYH IRUPXOD IRU SUHGLFWLYH SUREDELOLW\ ,W PDNHV WKH ODWWHU GHSHQG RQO\ XSRQ WKH REVHUYHG VDPSOHIUHTXHQF\IRUWKHFDWHJRU\DWKDQG 352326,7,216DPSOHIUHTXHQF\ 

3;Q FL⏐Q  ILQL 

,QRWKHUZRUGVWKHVXIILFLHQWQHVVSRVWXODWHPD\EHUHDGDVFRPSRVHGRI WZRFRQGLWLRQV L 

LL 

7KHSUREDELOLW\RIDQRXWFRPHRQWKHQH[WWULDOVKRXOGRQO\GHSHQG RQ WKH IUHTXHQF\ WKDW LW KDV RFFXUUHG LQ WKH SUHFHGLQJ WULDOV IRU HDFKIL[HGQXPEHURIWULDOV DQGQRWRQWKHUHODWLYHIUHTXHQFLHVRI WKHRWKHURXWFRPHV 7KH GHSHQGHQFH VKRXOG EH WKH VDPH IRU DOO FDWHJRULHV 6N\UPV F 

7R REWDLQ &DUQDS¶V ȜV\VWHP RQ WKH %D\HVLDQ JURXQGV ZH QHHG WKH IROORZLQJ H[FKDQJHDELOLW\DQGQRWLQGHSHQGHQFH VXIILFLHQWQHVV  W≥   VWULFW FRKHUHQFH ,I WKH FRQGLWLRQ LL  RI -RKQVRQ¶V SRVWXODWH LV GURSSHGWKHQZHREWDLQWKHȖȜV\VWHP 7KHUH DUH WZR DOWHUQDWLYH UHDGLQJV RI WKH ȖȜV\VWHP RQ WKH JURXQGV RI %D\HVLDQ VWDWLVWLFV WKH REMHFWLYH UHDGLQJ DQG WKH VXEMHFWLYH RQH 2Q WKH IRUPHU WKH ȖȜV\VWHP FRUUHVSRQGV WR LQIHUHQFHV LQ PXOWLQRPLDO FRQWH[WV ZKLFKDUHGHVFULEHGDVIROORZVVXSSRVHZHKDYHN≥PXWXDOO\H[FOXVLYH DQGMRLQWO\H[KDXVWLYHFDWHJRULHVFFN7KH\FODVVLI\WKHRXWFRPHVRIDQ H[SHULPHQWDOSURFHVV(,WLVIXUWKHUVXSSRVHGWKDWIRUHDFKFDWHJRU\WKHUHLV DSK\VLFDOSUREDELOLW\TLWKDWWKHRXWFRPHRIDWULDOLQ(IDOOVZLWKLQFLDQG WKLV SUREDELOLW\ LV VXSSRVHG WR EH FRQVWDQW DFURVV ( :H REWDLQ WKXV D PXOWLYDULDWHRULQWKHFDVHN ELQRPLDO %HUQRXOOLSURFHVV7KHVWDQGDUG H[DPSOHVRIWKLVNLQGRISURFHVVDUHIRULQVWDQFHWKHIROORZLQJWKURZLQJD GLHZLWKXQNQRZQ²EXWXQFKDQJHGDFURVVWKHWULDOV²ELDVRUVDPSOLQJZLWK UHSODFHPHQWIURPDQXUQRIXQNQRZQFRPSRVLWLRQ6N\UPVD  ,IWKHVFLHQWLVWLQYHVWLJDWLQJ(DVVXPHVWKHODWWHUWREHDPXOWLYDULDWHLQ SDUWLFXODU ELQRPLDO %HUQRXOOL SURFHVV WKHQ ZH GHVFULEH WKH VFLHQWLVW¶V FRJQLWLYHFRQWH[WDVDPXOWLQRPLDOFRQWH[W6LQFHWKHVFLHQWLVWZLOOSUREDEO\ QRWNQRZWKHWUXHYDOXHVRITLIRUHDFKFDWHJRU\FL≤L≤N VKHZLOOWU\WR LQYHVWLJDWH YDULRXV K\SRWKHVHV FRQFHUQLQJ WKH WUXH YDOXHV RI TL RQ WKH JURXQGV RI WKH RXWFRPHV RI ( 7KH LQIHUHQFHV ZKLFK OHDG WR HVWDEOLVKLQJ KRZIDUWKHK\SRWKHVHVDUHFRQILUPHGE\WKHHYLGHQFHLQWKLVFRQWH[WZLOOEH FDOOHGPXOWLQRPLDOLQIHUHQFHV 

 

&+$37(5

,Q VXP ZH DVVXPH WKDW WKHUH LV DQ REMHFWLYH SK\VLFDO  FKDQFH PHFKDQLVP DQG WKH SULRU GLVWULEXWLRQ UHIOHFWV WKH VFLHQWLVW¶V VXEMHFWLYH XQFHUWDLQW\ ZLWK UHVSHFW WR ZKLFK WKH SUREDELOLW\ YHFWRU T TTN  JRYHUQV WKH FKDQFH PHFKDQLVP 7KH DLP RI LQGXFWLYH LQIHUHQFH LV WR OHDUQ WKHWUXHYDOXHVRIWKHYHFWRUT 2Q WKLV REMHFWLYH UHDGLQJ LW LV ZRUWK QRWLQJ WKDW WKH SULRU GLVWULEXWLRQ LPSRVHG ZLWKLQ WKH ȖȜV\VWHP LV HTXLYDOHQW WR WKH SULRU 'LULFKOHW GLVWULEXWLRQ LQ %D\HVLDQ VWDWLVWLFV 6N\UPV F   )RU LQ WKH VLWXDWLRQ SULRUWRDQ\H[SHULPHQWZKHUHQL Q  WKHSUHGLFWLYHSUREDELOLW\GHILQHG IRUWKHȖȜV\VWHPJLYHVXVWKHFRPSOHWHSULRUGLVWULEXWLRQ 3;Q FL⏐Q  ĮLĮ ȖL 7KXV GHWHUPLQHG SULRU GLVWULEXWLRQ LV HTXLYDOHQW WR WKH 'LULFKOHW GLVWULEXWLRQ ZLWK WKH SDUDPHWHUV Ȝ DQG Ȗ ȖȖN  LH 'LUȖȜ  )HVWD  1RWHYHU\%D\HVLDQKRZHYHUZLOODVVHQWWRWKHDVVXPSWLRQWKDWWKHUHLV DQ\WKLQJ OLNH SK\VLFDO SUREDELOLWLHV GHVFULEHG DERYH )RU VXEMHFWLYH %D\HVLDQV FRQWHVW DQ\ UHIHUHQFH WR WKH REMHFWLYH RU SK\VLFDO FKDQFHV RI DQ RXWFRPH IDOOLQJ ZLWKLQ D FDWHJRU\ 6N\UPV F     5DWKHU WKH\ FRQVLGHU WKH FRQFHSW RI SUREDELOLW\ DV PRUH RU OHVV DGHTXDWHO\ H[SUHVVLQJ RXU GHJUHHV RI EHOLHI WKDW DQ RXWFRPH ZLOO IDOO ZLWKLQ D JLYHQ FDWHJRU\:KDWLVVXIILFLHQWWRGHWHUPLQHWKHSUHGLFWRU¶VGHJUHHRIEHOLHIWKDW WKH RXWFRPH RI WKH QH[W WULDO ZLOO IDOO ZLWKLQ D FDWHJRU\ FL LV WKH REVHUYHG IUHTXHQF\IRUWKLVFDWHJRU\-RKQVRQ¶VSRVWXODWHLVWKHQLQGLVSHQVDEOHIRUWKLV SXUHO\VXEMHFWLYH%D\HVLDQUHDGLQJRIWKHȖȜV\VWHP)URPWKLVSHUVSHFWLYH WKH FRQGLWLRQV UHTXLUHG WR LQIHU WKH ȖȜV\VWHP DUH LQWHUSUHWHG DV LPSRVLQJ VWURQJ V\PPHWULHV DPRQJ WKH SUHGLFWRU¶V EHOLHIV UDWKHU WKDQ GHILQLQJ LQGXFWLYHLQIHUHQFHVLQPXOWLQRPLDOFRQWH[WV6N\UPVF  7KH LQWHUSUHWDWLRQ RI &DUQDS¶V ȖȜ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ȖȜV\VWHPLQWKHIRUPRISUHGLFWLYHSUREDELOLW\SURSRVLWLRQ 6N\UPV SURSRVHV D QDWXUDO JHQHUDOL]DWLRQ RI WKH V\VWHP LQ TXHVWLRQ ZKLFK ZLOO EH FDSDEOHRIUHSUHVHQWLQJWKHFRQWLQXXPRIYDOXHV6N\UPV   )RU LQ WKH IRUP SURSRVHG E\ &DUQDS WKH ȖȜV\VWHP LV FDSDEOH RI 

7+(6<67(062),1'8&7,9(/2*,&   GHDOLQJRQO\ZLWKQRQQHJDWLYHLQWHJHUV,QWKHSODFHRIĮLQSURSRVLWLRQ 6N\UPV LQWURGXFHV D SDUDPHWHU ȕ ZKLFK LV GHILQHG DV D QRQQHJDWLYH ERXQGHGPHDVXUHRIWKH%RUHODOJHEUDRIWKHXQLWLQWHUYDO7KXVLI2LVD %RUHOVHWLQWKHXQLWLQWHUYDODQGQLVWKHREVHUYHGIUHTXHQF\YHFWRUUHSRUWLQJ QLSRLQWVLQ2LQQWULDOVWKHSUHGLFWLYHSUREDELOLW\WKDWWKHRXWFRPHRIWKH QH[WWULDOIDOOVLQ2LV 352326,7,213UHGLFWLYHSUREDELOLW\IRUWKHYDOXHFRQWLQXXP 32⏐Q  ȕ2 QL ȕ> Q 



6N\UPV JLYHV WKH IROORZLQJ LOOXVWUDWLRQ RI KRZ WKLV IRUPXOD JHQHUDOL]HV SUHGLFWLYHSUREDELOLW\SURSRVLWLRQ WRUHSUHVHQWWKH³YDOXHFRQWLQXXP´ 6N\UPVF 6XSSRVH,LVDVXELQWHUYDORI> DQGȕ,  LVMXVWWKHOHQJWKRI,6XSSRVHIXUWKHUWKDWWKHXQLWLQWHUYDOLVGLYLGHGLQWRN VXELQWHUYDOVWKDWFRUUHVSRQGWRNFDWHJRULHVRIRXWFRPHV7KHIDFWWKDWRIQ WULDOV QL UHVXOWHG LQ , ZRXOG EH UHSRUWHG LQ WHUPV RI SURSRVLWLRQ  DV IROORZV 3,⏐Q  NQL Q  :H FDQ HDVLO\ UHFRJQL]H WKDW WKH DERYH IRUPXOD LV D VSHFLDO YDOXH RI &DUQDS¶VȖȜV\VWHPZKHUHLWLVDVVXPHGWKDWȜ DQGȖLLVXQLIRUPIRUDOO WKHFDWHJRULHV  3UHGLFWLYH SUREDELOLW\ IRU WKH YDOXH FRQWLQXXP SURSRVLWLRQ   LV D IRUPXOD SURSRVHG E\ %ODFNZHOO DQG 0DF4XHHQ WR JHQHUDOL]H 3RO\D XUQ PRGHOV 6N\UPV D   ,W H[WHQGV WKH ȖȜV\VWHP²RQ WKH JURXQGV KRZHYHU RI WKH SXUHO\ VXEMHFWLYH %D\HVLDQ UHDGLQJ RI WKH IRUPHU²WR WKH FDVH ZKHUH WKH RXWFRPHV WDNH RQ UHDO QXPEHUV LQ WKH XQLW LQWHUYDO 7KH ȖȜV\VWHPLVLQIHUUHGRQWKHSXUHO\VXEMHFWLYH%D\HVLDQUHDGLQJE\DGRSWLQJ WKH IROORZLQJ FRQGLWLRQV   H[FKDQJHDELOLW\ DQG QRQLQGHSHQGHQFH   VXIILFLHQWQHVV   W ≥  DQG   VWULFW FRKHUHQFH ,Q RUGHU WR REWDLQ D JHQHUDOL]DWLRQSURSRVLWLRQ FRQGLWLRQV DQG QHHGWREHPRGLILHG DFFRUGLQJO\  

)RU DQ\ PHDVXUDEOH VHW %L DQG DQ\ ILQLWH VHTXHQFH RI REVHUYDWLRQV



3;Q∈%L⏐Q  ILQL 

 

)RU DQ\ PHDVXUDEOH VHW % ZKLFK KDV D QRQ]HUR /HEHVJXH PHDVXUHDQGIRUDQ\ILQLWHVHTXHQFHRIREVHUYDWLRQVQ 

 

&+$37(5 

3;Q∈%⏐Q !

6N\UPV DOVR EULQJV RXW DQ DOWHUQDWLYH URXWH WR VROYH WKH SUREOHP RI WKH YDOXHFRQWLQXXPZKLFKFRUUHVSRQGVWRWKHREMHFWLYH%D\HVLDQUHDGLQJRIWKH ȖȜV\VWHP 2Q WKLV UHDGLQJ WKH V\VWHP LQ TXHVWLRQ LV HTXLYDOHQW WR PXOWLQRPLDO VDPSOLQJ ZLWK SULRU 'LULFKOHW GLVWULEXWLRQ :KLOH WKHUH LV D QDWXUDO JHQHUDOL]DWLRQ RI D 'LULFKOHW GLVWULEXWLRQ LQ WKH IRUP RI D )HUJXVRQ GLVWULEXWLRQ WKH VROXWLRQ EDVHG RQ WKH ODWWHU LV HTXLYDOHQW WR WKH RQH GLVFXVVHGLQWKHIRUHJRLQJ $GPLWWHGO\WKHUHLVDVHULRXVGUDZEDFNWRXVLQJWKH'LULFKOHWSULRUVRU )HUJXVRQGLVWULEXWLRQ  2QH ZRXOG OLNH WR KDYH D SULRU GLVWULEXWLRQ IRU 3 ZLWK WKH SURSHUW\ WKDW LI ; LV D VDPSOHIURP3DQG; [WKHQWKHSRVWHULRUJXHVVDW3JLYHVPRUHZHLJKWWRYDOXHV FORVHWR[WKDQWKHSULRUJXHVVDW3GRHV)RUWKH'LULFKOHWSURFHVVSULRUWKHSRVWHULRU JXHVVDW3JLYHVPRUHZHLJKWWRWKHSRLQW[LWVHOIEXWLWWUHDWVDOORWKHUSRLQWVHTXDOO\ ,QSDUWLFXODUWKHSRVWHULRUJXHVVDW3DFWXDOO\JLYHVOHVVZHLJKWWRSRLQWVQHDU[EXW QRWHTXDOWR[)HUJXVRQ ,TXRWHIURP6N\UPVD 

7KLVSUREOHPZDVDOVRUHFRJQL]HGE\&DUQDSZKRFDOOHGLWWKHSUREOHP RI DQDORJ\ E\ VLPLODULW\ 7KH IDFW WKDW WKH VDPSOH JLYHV PRUH ZHLJKW QRW RQO\ WR [ EXW DOVR FORVH WR [ ZRXOG YLRODWH -RKQVRQ¶V VXIILFLHQWQHVV SRVWXODWH ,I VR WKHQ LW LV QRW SRVVLEOH WR UHSUHVHQW DQDORJ\ E\ VLPLODULW\ ZLWKLQ &DUQDS¶V V\VWHPV +RZHYHU 6N\UPV SURSRVHV D QDWXUDO JHQHUDOL]DWLRQ RI &DUQDS¶V V\VWHP LQ RUGHU WR HQDEOH WKH UHSUHVHQWDWLRQ RI DQDORJ\E\VLPLODULW\$FFRUGLQJWR6N\UPVWKHPRVWQDWXUDOJHQHUDOL]DWLRQ FRQVLVWV LQ ILQLWH PL[WXUHV RI LQGXFWLYH PHWKRGV WKDW EHORQJ WR WKH ȖȜV\VWHP +LV SURSRVDO LV WR FRQVWUXH K\SHU&DUQDSLDQ PHWKRGV E\ LPSRVLQJ K\SHUSULRU GLVWULEXWLRQ RQ D ILQLWH QXPEHU RI PHWDK\SRWKHVHV FRQFHUQLQJWKHYDOXHVRIWKHSDUDPHWHUVȖLDQGȜ7KHSUHGLFWLYHSUREDELOLWLHV RI WKH ȖȜV\VWHP WKXV EHFRPH FRQGLWLRQDO RQ WKH PHWDK\SRWKHVHV ZKLFK DUHWKHPVHOYHVXSGDWHGXVLQJ%D\HV¶VWKHRUHP 7KHUH LV DOVR DQRWKHU NLQG RI DQDORJ\ UHFRJQL]HG E\ &DUQDS QDPHO\ DQDORJ\E\SUR[LPLW\LQWLPHRUVSDFH$VROXWLRQWRWKLVSUREOHPKDVEHHQ VXJJHVWHG E\ .XLSHUV .XLSHUV  6N\UPV   +H SRLQWV RXW WKDW &DUQDS¶V LQGXFWLYH ORJLF LV DOUHDG\ VXLWDEOH IRU VDPSOLQJ IURP DQ XUQ ZLWK UHSODFHPHQW,WLVQDWXUDOWKHQWKDW&DUQDS¶VLQGXFWLYHORJLFEHDSSOLHGWRWKH XUQ PRGHO RI D 0DUNRY FKDLQ DVVXPLQJ KRZHYHU WKDW WUDQVLWLRQV IURP D JLYHQVWDWHJLYHXVQRLQIRUPDWLRQDERXWWUDQVLWLRQVIURPDGLIIHUHQWVWDWH,W LV LQIHUHQFH DERXW 0DUNRY FKDLQV WKDW RSHQV XS WKH ZD\ WR DFFRXQW IRU WHPSRUDOSDWWHUQV &DUQDS¶V VXJJHVWLRQ ZDV UDWKHU WKDW ZH QHHG WR LQWURGXFH LQWR WKH ODQJXDJH V\VWHPV WZRSODFH SUHGLFDWHV UHSUHVHQWLQJ WLPHRUGHULQJ $V WKH 

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¶V VXIILFLHQWQHVV SRVWXODWH 6N\UPV    WKH SUREDELOLW\ 36M⏐6L RIDWUDQVLWLRQWRWKHVWDWH6MJLYHQWKHSUHVHQWVWDWHLV6LGHSHQGV RQO\ RQ LM WKH REVHUYHG QXPEHU Q>6M6L@ RI WUDQVLWLRQV IURP 6L WR 6M DQG ΣPQ>6P6L@ 36M⏐6L  ȜȖLMQ>6M6L@ ȜN Σ NP =Q>6P6L@  2QHRIWKHPRVWGHEDWHGLVVXHVLQWKH&DUQDS+LQWLNNDVW\OHV\VWHPVRI LQGXFWLYHORJLFLVWKHSUREOHPRIWKHFKRLFHRIDSDUWLFXODULQGXFWLYHPHWKRG IURP WKH FRQWLQXXP LH WKH SUREOHP RI DVVLJQLQJ QXPHULFDO YDOXH WR WKH V\VWHPV¶SDUDPHWHUVHJȜRUĮ 7KHSUREOHPZDVLQYHVWLJDWHGLQGHWDLOE\ )HVWD+LVDSSURDFKLVJURXQGHGRQWKHREMHFWLYH%D\HVLDQUHDGLQJRI WKH ȜȖV\VWHP RI LQGXFWLYH ORJLF ZKHUH LW LV SUHVXSSRVHG WKDW WKHUH DUH PXOWLQRPLDOFRQWH[WVZLWKFRUUHVSRQGLQJREMHFWLYHSUREDELOLW\GLVWULEXWLRQV 7KHODWWHUKRZHYHUDUHDVVXPHGWREHXQNQRZQLQDGYDQFHRISHUIRUPLQJ H[SHULPHQWV DQG WKH XQFHUWDLQW\ LV UHIOHFWHG LQ WKH SULRU 'LULFKOHW GLVWULEXWLRQ ZKLFK LV FKDUDFWHUL]HG E\ WKH IROORZLQJ SUREDELOLW\ GHQVLW\ IXQFWLRQ 'LU T TN − α α N  

Γα Tα −TαN N −  Γα Γα N 

',5 

ZKHUHĮĮN!Į ΣĮLDQGTN ±T±±TN±)HVWD  7KHLPSRUWDQWFRQVHTXHQFHLVWKDWWKHȖȜV\VWHPDQGWKHFODVVRISULRU 'LULFKOHW'LUĮĮN RQTDUHHTXLYDOHQWZKHUHȜ Ȗ ΣĮLDQGȖL ĮLĮ ,Q RUGHU WR GHWHUPLQH D SDUWLFXODU LQGXFWLYH PHWKRG LW LV QHFHVVDU\ WR GHWHUPLQHWKHYDOXHVRIWKHSDUDPHWHUVLWLVVXIILFLHQWWRGHWHUPLQHȖDQGȜ  :LWK WKLV DLP LQ YLHZ )HVWD DGYRFDWHV DQ DFFRXQW ZKLFK DGGUHVVHV VRPH IHDWXUHVRIWKHFRQWH[WRIVFLHQWLILFLQYHVWLJDWLRQ,QSDUWLFXODUKHUHIHUVWR WKHEDFNJURXQGNQRZOHGJHRIVFLHQWLVWVLQWKHVSHFLILFIRUPRI³WKHFRUSXVRI WKHRULHV DQG RWKHU DVVXPSWLRQV WDNHQ IRU JUDQWHG DW OHDVW ZLWKLQ WKDW LQTXLU\´ DQG DOVR WR ³WKH FRJQLWLYH JRDOV SXUVXHG E\ VFLHQWLVWV TXD 

 &+$37(5  VFLHQWLVWV´)HVWD 7KHIRUPHULVDVVXPHGWRKDYHDKLJKGHJUHHRI YHULVLPLOLWXGH $SRVVLEOHLQWHJUDWLRQRIWKHVHWZRLGHDVLVJLYHQE\WKHIROORZLQJDVVXPSWLRQV  WKHHIILFLHQF\RIDQLQGXFWLYHPHWKRGLQDSSURDFKLQJWKHWUXWKGHSHQGVRQWKHGHJUHH RIGLV RUGHURIWKHVHFWRURIWKHXQLYHUVHXQGHULQYHVWLJDWLRQ KHQFHWKHDGRSWLRQ RIDJLYHQLQGXFWLYHPHWKRGDVDSUHVXPDEO\HIILFLHQWWRROWRDSSURDFKWKHWUXWKFDQ EH EDVHG RQ DSSURSULDWH SUHVXSSRVLWLRQV DERXW WKH GHJUHH RI GLV RUGHU RI WKH LQYHVWLJDWHGVHFWRURIWKHXQLYHUVH)HVWD 

,QRUGHUWRSUHFLVHO\H[SUHVVDQGPHDVXUHWKHGHJUHHRIGLV RUGHULQWKH XQLYHUVH )HVWD HPSOR\V *LQL GLYHUVLW\ *T  ±ΣT ZKLOH WKH SUHVXSSRVLWLRQV ZLWK UHVSHFW WR WKH GHJUHH RI GLV RUGHU DUH WDNHQ DV SULRU HVWLPDWHV RI *T  ,I ZH VXSSRVH WKDW WKH WUXH YDOXH RI T LV T WKHQ WKH GLVWDQFHIURPWKHWUXWKLVGHILQHGE\)HVWD)HVWD DVWKHGLVWDQFH EHWZHHQTDQG(ȜT⏐HQ LHWKHH[SHFWHGYDOXHRITFDOFXODWHGRQWKHEDVLV RIWKHȖ°ȜV\VWHPZLWKȖ°EHLQJWKHRSWLPXPȖSDUDPHWHU  '(ȜT⏐HQ T  Σ>(ȜTL⏐HQ ±TL@ 2QWKHVHJURXQGV)HVWDVSHFLILHVWKHZD\WRDUULYHDWWKHRSWLPXPYDOXHV RIȖDQGȜ6XSSRVHWKDWWKHEDFNJURXQGNQRZOHGJHFRQWDLQVLQIRUPDWLRQRQ D SURFHVV VLPLODU WR WKH RQH XQGHU LQYHVWLJDWLRQ DQG WKH YDOXHV RI TL VSHFLILHGWKXVDUH α L !  α LP  +HQFHWKHHVWLPDWLRQRITLLVDVIROORZV (VWTL   α L +! + α LP P $QGWKLVUHVXOWYLDWKHIDFWWKDWWKHPDUJLQDOPHDQ(TL  ȖLOHDGVWRWKH GHWHUPLQDWLRQ RIWKH RSWLPXP SDUDPHWHUȖIRU DOON FDWHJRULHV )HVWD    2QFH WKH RSWLPXP ȖSDUDPHWHU LV VHW WKH RSWLPXP ȜSDUDPHWHU LV DOVR DYDLODEOH 7KHUH DUH WZR LQGHSHQGHQW ZD\V )HVWD    WKDW OHDG )HVWDWRHVWDEOLVKWKHIROORZLQJRSWLPXPYDOXHRIȜ

λ ° 

(VW>* T @  * γ ° (VW>* T @

(YHQ LI ZH DGRSW )HVWD¶V DX[LOLDU\ DVVXPSWLRQV ZKLFK DOORZ XV WR HVWDEOLVK WKH RSWLPXP LQGXFWLYH PHWKRG ZLWKLQ WKH ȖȜ V\VWHP LW LV VWLOO GRXEWIXOWKDWWKHSURSRVHGVROXWLRQLVDYDLODEOHRQ&DUQDS¶VRZQJURXQGV, SRVWSRQHKRZHYHUWKHHSLVWHPRORJLFDOGLVFXVVLRQWRWKHQH[WFKDSWHU 

7+(6<67(062),1'8&7,9(/2*,&



 7KXV IDU , KDYH RXWOLQHG KRZ WKH UHDGLQJ RI WKH V\VWHPV RI LQGXFWLYH ORJLFZLWKLQD%D\HVLDQIUDPHZRUNFRQWULEXWHVWRWKHVROXWLRQRIGLIILFXOWLHV ZKLFKZHUHLQVXUPRXQWDEOHZLWKLQ&DUQDS¶VLQLWLDOIUDPHZRUNWKHSUREOHP RIWKHYDOXHFRQWLQXXPWKHSUREOHPRIDQDORJ\WKHUHSUHVHQWDWLRQRIWLPH RUGHULQJ DQG WKH SUREOHP RI WKH FKRLFH RI WKH RSWLPXP LQGXFWLYH PHWKRG 7KHUHLVVWLOODQRWKHUJURVVGLIILFXOW\WKDW&DUQDSZDVQRWDEOHWRVROYHLH WKH SUREOHP RI ]HURFRQILUPDWLRQ RI QRQWDXWRORJLFDO JHQHUDOL]DWLRQV 7KLV SUREOHP KDV DOUHDG\ EHHQ GLVFXVVHG LQ JUHDWHU GHWDLO ZLWK UHVSHFW WR +LQWLNND¶V PRGLILFDWLRQ RI &DUQDS¶V V\VWHPV RI LQGXFWLYH ORJLF VHH SDJH   7KH VXEMHFWLYH %D\HVLDQ UHDGLQJ RI WKH V\VWHPV RI LQGXFWLYH ORJLF FRPHVXSKRZHYHUZLWKDVROXWLRQWRWKHSUREOHPZKLFK²LQFRQWUDVWWRWKH RQHDGYDQFHGE\WKH)LQQLVK6FKRRO²LVFRQILQHGWRDPLQLPDOPRGLILFDWLRQ RIWKHȖȜV\VWHP ,Q+LQWLNND¶VDSSURDFKWKHSUHGLFWLYHSUREDELOLWLHVFDQGHSHQGRQWKHYDOXHRI7WKH QXPEHURILQVWDQWLDWHGVSHFLHVDQGWKHUHVXOWLVDPL[WXUHRIFRQWLQXDRQDOOSRVVLEOH VXEVLPSOH[HVRIWKHVXSSRUWRIWKHPL[LQJPHDVXUHLQWKHGH)LQHWWLUHSUHVHQWDWLRQ 7KH SRLQWRI WKH SUHVHQWQRWH LVWKDW D PXFK VLPSOHU DSSURDFK PHHWLQJ SUHFLVHO\ WKH REMHFWLRQ UDLVHG DW WKH WLPH &DUQDS SXEOLVKHG KLV PRQRJUDSK LV DOVR SRVVLEOH =DEHOO 

*LYHQWKHȖȜV\VWHPRILQGXFWLYHORJLFLVJHQHUDWHGE\WKHVXIILFLHQWQHVV SRVWXODWH D VOLJKWO\ PRGLILHG YHUVLRQ RI WKH SRVWXODWH²DV =DEHOO GHPRQVWUDWHV²JLYHV ULVH WR D QHZ V\VWHP ZKLFK DYRLGV WKH GLIILFXOW\ LQ TXHVWLRQ WKH QHZ VXIILFLHQWQHVV SRVWXODWH IRU DOO Q ≥  DQG DOO IUHTXHQF\ YHFWRUV Q WKH SUHGLFWLYH SUREDELOLWLHV 3;Q FL⏐Q  DUH IXQFWLRQV RI ILQL Q  RI QL DQG Q DORQH H[FHSWZKHQQL DQG7 =DEHOO 

ZKHUH7LVWKHQXPEHURIFDWHJRULHVREVHUYHGLQWKHVDPSOH 1RWZLWKVWDQGLQJ WKH PRGLILFDWLRQ WKH UHVXOWLQJ V\VWHP LV D PHPEHU RI WKHȖȜ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

 &+$37(5  WKH SUREOHP GLVFXVVHG LQ WKLV SDUDJUDSK 7KH UHFHQW HPHUJHQFH RI WKLV V\VWHP FRQVWLWXWHV WKH EHVW UHVSRQVH WR DOO WKRVH SURFODLPLQJ WKH &DUQDS +LQWLNNDSURJUDPWREHDGHDGHQG

1RWHV  &DUQDS¶VLQGXFWLYHORJLFZDVSUHFHGHGE\DQDOWHUQDWLYHDQGUDWKHUXQH[SORUHGDSSURDFK PRUHFORVHO\SHUKDSVPDWFKLQJWKHSDWWHUQRIWKHV\VWHPVRIGHGXFWLYHORJLFàXNDVLHZLF]  VHHDOVR:ROHĔVNL   )RUDVXUYH\RIWKHWKFHQWXU\DWWHPSWVWRSURYLGHDORJLFDOIRXQGDWLRQIRUSUREDELOLW\ DQGLQGXFWLYHLQIHUHQFHVHH+DLOSHULQ +RZVRQ   &IHJ&KLVKROP +LQWLNND .DNNXUL.QXXWWLODDQG.QXXWWLOD  1LLQLOXRWR .DNNXUL.QXXWWLOD   &I1DJHO (VVOHU 0LOWRQVHFWLRQ   &I àDNRPD    +DFNLQJ    ,W DSSHDUV WKDW WKH ILUVW DWWHPSWV WR XVH SUREDELOLW\DV D PHDVXUHRIWKH GHJUHHVRI HSLVWHPLFXQFHUWDLQW\ FRXOGEHWUDFHGEDFNLQ /RJLF RI 3RUW 5R\DO RI  &KDSWHU ,9  7KHVH DUH WKHQ WKH ILUVW DWWHPSWV WR FRPELQH LQGXFWLRQDQGSUREDELOLW\+DFNLQJ   )RUDQDQDO\VLVRIWKHPHWDSK\VLFDOPRWLYDWLRQVHH+DFNLQJ   +RZHYHU 5 %DUFDQ 0DUFXV DUJXHV WKDW LW LV WKH HSLVWHPRORJLFDO DQDO\VLV RI WKH NLQG , SXUVXH WKURXJKRXW WKLV ERRN WKDW LV DGHTXDWH WR DQDO\]H &DUQDS¶V PRGDO FRQFHSWV FI %DUFDQ0DUFXV   7KRPDV%D\HV ZDVDQ(QJOLVKFOHUJ\PDQFUHGLWHGZLWK³%D\HV¶VWKHRUHP´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¶V LGHD RI D FRPSDUDWLYH WKHRU\ RI SUREDELOLW\ ZDV VXEVHTXHQWO\GHYHORSHGE\%2.RRSPDQLQ.RRSPDQ 7)LQHLQ)LQH  DQG5:yMFLFNLLQ:yMFLFNL  ,QKLVHDUO\ ZULWLQJVRQSUREDELOLW\KRZHYHU&DUQDS²IROORZLQJ-+RVLDVVRQ²UHIHUUHG WR 6 0D]XUNLHZLF]¶V D[LRPV UDWKHU WKDQ .ROPRJRURY¶V FI 0D]XUNLHZLF]   )RU D SHQHWUDWLQJ GLVFXVVLRQ RI .ROPRJRURY¶V D[LRPV VHH )LQH    ,Q SDUWLFXODU 7)LQHDVVHQWVWRWKHFULWLFLVPOHYHOHGDJDLQVWWKHODWWHUE\&DUQDSZKRFODLPVWKDWWKLV

 

7+(6<67(062),1'8&7,9(/2*,&



  VHW RI D[LRPV LV LQFRPSOHWH DQG LQDGHTXDWH EHFDXVH RI ³WKH VXSSRVHGO\ FORVH UHODWLRQ WR WKHUHODWLYHIUHTXHQF\LQWHUSUHWDWLRQRISUREDELOLW\´)LQH  )RUDVXUYH\RIRWKHUDWWHPSWVDWD[LRPDWL]DWLRQRISUREDELOLW\WKHRU\VHH'XPLWULX   &I&DUQDS (VVOHU  &I7DUVNL )RUDGHWDLOHGGLVFXVVLRQRI7DUVNL¶VGHILQLWLRQRIWUXWK EDVHGRQWKHDVVXPSWLRQRIWKHUHEHLQJDQLQWHQGHGLQWHUSUHWDWLRQRIDJLYHQODQJXDJH²WKH DVVXPSWLRQ DORQJ &DUQDS¶V RZQ YLHZ RI VHPDQWLFV SUHVHQWHG KHUH²VHH :yMFLFNL E  )RU D WKRURXJK DQDO\VLV RI &DUQDS¶V VHPDQWLFV XQGHUO\LQJ KLV V\VWHPV RI LQGXFWLYHORJLFVHH6PRNOHU +LQWLNND  7KH OLVW RI &DUQDS¶V ZULWLQJV RQ LQGXFWLYH ORJLF WR IROORZ LV IDU IURP FRPSOHWH EXW LW FRQWDLQV &DUQDS¶V PRVW LPSRUWDQW ZRUNV HVSHFLDOO\ IURP WKH SHUVSHFWLYH RI WKH FHQWUDO DUJXPHQW FDUULHG RXW LQ WKLV ERRN &DUQDS    D EDEDEFGE F G D E F D F     &DUQDS DQG 6WHJPOOHU   )RU D FULWLFDO VXUYH\ RI &DUQDS¶V GHYHORSPHQWV RI LQGXFWLYH ORJLF VHH &DUQDSD :LOOLDPV 6KLPRQ\E 1DJHO  :DON   6DOPRQ E   3LHWDULQHQ    &DUQDS E   %DWHQV    -HIIUH\  [[OL  6KLPRQ\   6WHJP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³&DPEULGJH 6FKRRO´ PRVW QRWDEO\ .H\QHV DQG -HIIUH\V FI &DUQDS    +HPSHO    &UHDWK  )RUDVHYHUHFULWLFLVPVHH6DOPRQDD 3RSSHU  1LLQLOXRWR  ,WPLJKWEHREMHFWHGWKDWLWGRHVQRWPDNH PXFKVHQVHWRSUHVHQW&DUQDS¶VLQLWLDOORJLFDO IUDPHZRUNVLQZKLFKKHSUHVHQWHGKLVV\VWHPVIRURQWKHRQHKDQGWKH\DUHVXEVXPHG E\ VXEVHTXHQW GHYHORSPHQWV FI .XLSHUV E  DQG RQ WKH RWKHU KDQG WKH NLQG RI ORJLFDO IUDPHZRUN HPSOR\HG LV QRW UHOHYDQW WR WKH SUHVHQWDWLRQ RI &DUQDS¶V V\VWHP 7KH GLVFXVVLRQRIWKLVDUJXPHQW,UHOHJDWHWRWKHQH[WFKDSWHUZKHUHKRSHIXOO\WKHUHDVRQVIRU SUHVHQWLQJ DOVR &DUQDS¶V LQLWLDO IUDPHZRUNV DQG VXEVHTXHQW PRGLILFDWLRQV WKHUHRI ZLOO EHFRPHDSSDUHQW 7KHUDWLRQDOHIRUWKLVSURFHGXUHLVHOXFLGDWHGE\&DUQDSLQ&DUQDS  .HPHQ\ IRUPXODWHV WKHUH KRZHYHU D PRGLILFDWLRQ LQ WKH FRQVWUXFWLRQ RI VWDWH GHVFULSWLRQVILUVWVWDWHWKHD[LRPVDQGWKHLQWHUVHFWLRQRIWKHLUUDQJHVDQGWKHQVHWXSWKH PHDVXUH IXQFWLRQ FI &DUQDS    7KLV PRGLILFDWLRQ SURYHG FUXFLDO LQ ODWHU GHYHORSPHQWV RI WKH V\VWHPV E\ - +LQWLNND , 1LLQLOXRWR DQG 7$) .XLSHUV FI+LQWLNNDDQG1LLQLOXRWR 1LLQLOXRWR .XLSHUVE  7KLVDVVXPSWLRQRILQGHSHQGHQFHZDVVXFFHVVLYHO\DOOHYLDWHGE\&DUQDSIRUWKHILUVWWLPH LQ&DUQDSD )6FKLFNFODLPVWKDWDFFRUGLQJWR&DUQDSSULPLWLYHSUHGLFDWHVGHQRWH

 

  

&+$37(5

SV\FKRORJLFDOO\ VLPSOH SURSHUWLHV FI 6FKLFN    7KLV FODLP KRZHYHU LV QRW VXSSRUWHGE\&DUQDS¶VZULWLQJV )RUDQH[WHQGHGH[SODQDWLRQVHH&DUQDS  : & 6DOPRQ ZDV ILUVW WR SRLQW RXW WKDW DOWKRXJK WKLV FRQGLWLRQ LV VDWLVILHG ZLWKLQ HDFK ODQJXDJHV\VWHPLQ&DUQDS¶VFRQVWUXDOLWLVQRQHWKHOHVVYLRODWHG ZKHQ ZHVKLIWEHWZHHQ GLIIHUHQW ODQJXDJH V\VWHPV LH WZR V\QRQ\PRXV VHQWHQFHV JHW GLIIHUHQW FRQILUPDWLRQ YDOXHVLQWZRODQJXDJHV\VWHPVZKLFKGLIIHURQO\ZLWKUHVSHFWWRWKHQXPEHURISULPLWLYH SUHGLFDWHVIRUGHWDLOVVHH6DOPRQ  ,QIDFWFRQYHQWLRQVDUHDOUHDG\HPEHGGHGLQ.ROPRJRURYD[LRPV³WKHSUREDELOLW\VFDOH D[LRPDWL]HG E\ .ROPRJRURY LV RFFDVLRQDOO\ HPSLULFDOO\ PHDQLQJOHVV DQG DOZD\V HPERGLHVDQDUELWUDU\FKRLFHRUFRQYHQWLRQ´)LQH  )RU DQ DUJXPHQW DJDLQVW EDVLQJ D V\VWHP RI LQGXFWLYH ORJLF RQ WKH VWDQGDUG SUREDELOLW\ D[LRPVVHH&RKHQ &RKHQ  6XSSRVH IRU WKH VDNH RI VLPSOLFLW\ WKDW H ≡ W /HW 3 EH WKH RQO\ SUHGLFDWH RI D JLYHQ ODQJXDJHV\VWHP/DQGMEHWKHFRQMXQFWLRQ³3D ∧«∧3D ´ZKLOHKEH³3D ´ $V K∧ M FRQVWLWXWH RQO\ RQH VWDWHGHVFULSWLRQ LQ / E\ WKH DSSOLFDWLRQ RI WKH FODVVLFDO GHILQLWLRQRISUREDELOLW\ZHREWDLQWKDWPK∧M  QZKHUHQLVWKHWRWDOQXPEHURIVWDWH GHVFULSWLRQV LQ /  1RZ M KROGV LQ WZR VWDWHGHVFULSWLRQV K∧ M DQG ¬K∧ M KHQFH PM  QVLPLODUO\PK  Q Q 2QWKLVDFFRXQWWKHQFK|M   PK  ,W LV D YLRODWLRQ RI WKH FRQGLWLRQ RI VWULFW FRKHUHQFH WKHQ LQWURGXFHG E\ $ 6KLPRQ\ FI6KLPRQ\D 6HHDOVRSDJH 6HHDOVR6N\UPV  )RUPRUHGHWDLOVVHH&DUQDSE +HVVHD  7KHVDPHFODLPLVDGYDQFHGLQ6DOPRQ %RKQHUWE[OLL )RGRUDQG /HSRUH&KDSWHU )RUFRXQWHUDUJXPHQWVVHH6PRNOHU +DFNLQJ  )RULPSRUWDQWFRQWULEXWLRQVVHH0DUWLQ 6FRWWDQG.UDXVV .XLSHUVE  6FRWW  .HPHQ\    .HPHQ\    +H ZDV DOVR DEOH WR H[WHQG &DUQDS¶V V\VWHPWRSUHGLFDWHFDOFXOLRIDOOILQLWHRUGHUVFI.HPHQ\F VHHDOVR.\EXUJ   $ VLPLODU YLHZ RQ JHQHUDOL]DWLRQV LV DGYDQFHG E\ / - 6DYDJH ZKR FODLPV WKDW JHQHUDOL]DWLRQV DUH ³HOOLSWLFDO  VWDWHPHQWV RI D YDULHW\ RI ILQLWH FRQMXQFWLRQV´ 6DYDJH   6HHHJ+LQWLNNDEDE  )RU DQ H[WHQVLYH GLVFXVVLRQRQZKHWKHU ]HURFRQILUPDWLRQ FRQVWLWXWHV D UHDO SUREOHP VHH %DUNHU 0LFKDORVE +LQWLNNDD (VVOHU .XLSHUV E   &UHDWK    .XLSHUV    2Q REMHFWLRQV VLPLODU WR DQG SUHFHGLQJ&DUQDS¶VVHH=DEHOO  6HHDOVR+LQWLNNDEF .XLSHUVD  +H GHYHORSHG WKH EDVLFV LQ +LQWLNND   IRU IXUWKHU GHYHORSPHQWV VHH +LQWLNND D  +LQWLNND DQG 5DQWDOD    6FRWW   +LQWLNND D  E 5DQWDOD  7KH\ DUH VXSSRVHGWRGHVFULEH ³SRVVLEOH NLQGV RI LQGLYLGXDOV´ FI +LQWLNND D   5DQWDOD  6HHDOVR+LQWLNNDD  )RUGHWDLOHGGHULYDWLRQVVHH+LQWLNND +LOSLQHQ 

 

7+(6<67(062),1'8&7,9(/2*,&



  ,Q.DZDOHF ,DQDO\]HLQPRUHGHWDLOYDULRXVDWWHPSWVDWDQDGHTXDWHLQWHUSUHWDWLRQ RIĮ 2QH RI WKH PRVW FRPSHOOLQJ SUREOHPV GLVFXVVHG LQ WKLV FRQWH[W LV WKH SUREOHP RI WKH VR FDOOHG ³WUDQVFHQGHQWDO K\SRWKHVHV´ LH K\SRWKHVHV FRQFHUQLQJ WKH UHODWLRQV RI WKH REVHUYHGREMHFWVWRXQREVHUYHGFI+LOSLQHQ  6HH-HIIUH\ IRUDQH[SODQDWLRQRIZKDWSUHFLVHO\FRQVWLWXWHV%D\HVLDQLVP -+LQWLNNDSRLQWVRXWWKDWDFKDQJHRIWKHYDOXHRIWKHSDUDPHWHUVRIWKHV\VWHPVLVQRWD %D\HVLDQ FRQGLWLRQDOL]DWLRQ FI +LQWLNND D   $ GLIIHUHQW REMHFWLRQ DJDLQVW FRQGLWLRQDOL]DWLRQRQWKHJURXQGVRIWKH&DUQDS+LQWLNNDVW\OHV\VWHPVZDVSRLQWHGRXWE\ -HIIUH\LQKLVOHWWHURI-XQHWKWR&DUQDS-HIIUH\DQG&DUQDS  )RUDQHODERUDWLRQVHH6WHJPOOHU  ,QIDFWWKHILUVWDWWHPSWWRSUHVHQWDQD[LRPDWL]HGV\VWHPRILQGXFWLYHORJLFLVSUHVHQWHGDV DQDSSHQGL[WR&DUQDSDQG6WHJPOOHU VHHDOVR&DUQDSF .HPHQ\   0RUHSUHFLVHO\WKH\SUHVHQWDQD[LRPDWLFV\VWHPZKLFKLVDGHTXDWHWRUHSUHVHQWSRVLWLYH FRQILUPDWLRQ YDOXHV IRU JHQHUDOL]DWLRQV DQG WKH ĮȜV\VWHP LV D VSHFLDO FDVH RI WKH D[LRPDWLFV\VWHPFI+LQWLNNDDQG1LLQLOXRWR  ,W LV DOVR ZRUWK PHQWLRQLQJ WKDW &DUQDS¶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¶VLQGXFWLYHORJLFLQ-HIIUH\ DQGZKRLQIOXHQFHG&DUQDSWRFKDQJHKLVYLHZV FI&DUQDS ,QWKHSUHVHQWVWXG\,GRQRWDFFRXQWKRZHYHUIRUWKHFRQFHSWXDOVKLIW LQ&DUQDS¶VWKRXJKWIURPRQZDUGV&DUQDSFDE IRULW LQWURGXFHV D GUDVWLF HSLVWHPRORJLFDO UHYLVLRQ RI &DUQDS¶V HDUOLHU DVVXPSWLRQV ,Q WKLV , IROORZ WKH VWDQGDUG YLHZ RI &DUQDS DGYDQFHG ILUVW E\ : 6WHJPOOHU FI 6WHJPOOHU  +LOSLQHQ 5-%RJGDQFODLPVWKDW&DUQDS¶VVKLIWLVWKHEHVWHYLGHQFHRIWKH IDLOXUH RI WKH SUHFHGLQJ SURJUDP LQ LQGXFWLYH ORJLF FI %RJGDQ    &DUQDS SHUFHLYHVWKLVVKLIWDVDJUDGXDOGHYHORSPHQWRIKLVHDUOLHUYLHZVZKLFKLVSULPDULO\GXHWR KLVFRRSHUDWLRQZLWK5&-HIIUH\FI&DUQDSDQG-HIIUH\D  )RUWKHFRQFHSWRIH[FKDQJHDELOLW\VHH'H)LQHWWL +LQWLNND  ,Q&DUQDS¶VRULJLQDOV\VWHPWKHUROHRIWKHFRQFHSWRIH[FKDQJHDELOLW\LVSOD\HGE\WKDWRI V\PPHWU\WKHSHUPXWDWLRQRILQGLYLGXDOFRQVWDQWVGRHVQRWDIIHFWWKHSUREDELOLW\FIDOVR 6N\UPV  7KLVLVSURYHGLQ=DEHOO VHHDOVR=DEHOO  0\H[SRVLWLRQRIWKHPXOWLQRPLDOFRQWH[WVLVGXHWR5)HVWD¶VGHILQLWLRQWKHUHRIFI)HVWD  )RUDVLPLODUDFFRXQWVHH5RVHQNUDQW]  7KLV YLHZ LV SXW IRUZDUG E\ 6N\UPV FI 6N\UPV D   +RZHYHU )HVWD JLYHV D GHWDLOHGGHIHQVHRIWKHFODLPWKDWWKHSULRUGLVWULEXWLRQUHIOHFWVVRPHREMHFWLYHIHDWXUHVRI WKHFRJQLWLYHFRQWH[WRIVFLHQWLVW)HVWD 

 

  

&+$37(5

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¶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⏐H UDUHDQDO\WLF $ IXUWKHU VRSKLVWLFDWLRQ ZKLFK DOORZV IRU WKH FRPSDULVRQ RI WKH VLPLODULW\ EHWZHHQ WKH WZRH[SHULPHQWVXQGHUTXHVWLRQLVSRVVLEOHFI)HVWD  )RU PRUH GHWDLOV VHH =DEHOO  6 / =DEHOO DUJXHV WKDW DOUHDG\ &DUQDS DSSUHFLDWHG WKHUROHRIVWXG\LQJWKHFDVHRILQGXFWLYHLQIHUHQFHZKHQWKHQXPEHURIFDWHJRULHVLVQRW IL[HGLQDGYDQFHFI=DEHOO  7KLVLVLQGLUHFWRSSRVLWLRQWRWKHFODLPVSURSRXQGHGE\&DUQDS¶VFORVHVWDOOLHVFI%DU +LOOHO[[[ DQGWRUHFHQWYLHZVRI+LQWLNNDFI1LLQLOXRWR 





&KDSWHU  ,1'8&7,9(/2*,&$6$6758&785$/ 5(/,$%,/,677+(25<2)-867,),&$7,21   

)RU&DUQDSWKHUHLVQRRWKHUZD\WRFRQWULYHDWKHRU\RIWKHFRQFHSWRI LQIHUHQWLDOMXVWLILFDWLRQRWKHUWKDQWRFRQVWUXFWWKHV\VWHPVRIGHGXFWLYHDQG LQGXFWLYH ORJLF LV  ,W LV QRW KRZHYHU WKH NLQG RI WKHRU\ WKDW ZRXOG EH SURSRXQGHG LQ WKH PDLQVWUHDP HSLVWHPRORJ\ ,Q RUGHU WKHQ WR PRWLYDWH WKH GLVFXVVLRQ RI &DUQDS¶V LQGXFWLYH ORJLF DV FRQVWLWXWLQJ D WKHRU\ RI MXVWLILFDWLRQ , QHHG ILUVW WR LQWURGXFH WKH HSLVWHPRORJLFDO IUDPHZRUN DSSURSULDWHIRUWKLVGLVFXVVLRQ,FRQYH\WKHGLIIHUHQFHEHWZHHQWKHNLQGRI WKH WKHRU\ RI HSLVWHPLF MXVWLILFDWLRQ EURXJKW RXW E\ WKH &DUQDS+LQWLNND VW\OH V\VWHPV RI LQGXFWLYH ORJLF DQG WKH NLQG RI WKH WKHRU\ RI HSLVWHPLF MXVWLILFDWLRQHVSRXVHGLQWKHPDLQVWUHDPHSLVWHPRORJ\LQWHUPVRIPLQLPDOLVW DQGPHQWDOLVWLFNLQGVRIWKHWKHRU\RIHSLVWHPLFMXVWLILFDWLRQ )XUWKHUPRUH &DUQDS¶V PLQLPDOLVW WKHRU\ RI LQIHUHQWLDO MXVWLILFDWLRQ VHHPVWRUHSUHVHQWDNLQGRIUHOLDELOLVP ,QGLVFXVVLQJSURFHVVUHOLDELOLVP , VHW RXW WKH IUDPHZRUN IRU WKH NLQG RI WKH PLQLPDOLVW UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ QDPHO\ VWUXFWXUDO UHOLDELOLVP , WKHQ SURFHHG WR H[DPLQH &DUQDS+LQWLNNDVW\OHV\VWHPVRILQGXFWLYHORJLFDVFRQVWLWXWLQJDVWUXFWXUDO UHOLDELOLVWWKHRU\RIMXVWLILFDWLRQ



7KH0HQWDOLVWLF7KHRU\RI-XVWLILFDWLRQDQG3URFHVV 5HOLDELOLVP

$SSDUHQWO\ WKH ERWWRPXS VWUDWHJ\ SUHYDLOV RQ WKH ZD\ WKH PDLQVWUHDP HSLVWHPRORJLFDOWKHRULHVRIMXVWLILFDWLRQDUHGHYHORSHG$VDPSOHSDWWHUQRI DFWXDOO\ XSKHOG EHOLHIV LV FKRVHQ DW WKH RXWVHW DQG LV WKHQ VXEMHFWHG WR  P. Kawalec (ed.), Structural Reliabilism © Kluwer Academic Publishers 2003

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³MXVWLILHG´ RFFXUULQJ LQ 7 LV D UHODWLRQDO WHUP GHILQHG RYHU D WXSOH 6%W! ZKHUH 6 LV DQ HSLVWHPLF DJHQW DQG %W LV D VHW RI EHOLHIV DFWXDOO\ XSKHOGE\6ZKHUHWUDQJHVRYHUDSDUWRIRUHYHQHQWLUH6¶VOLIHVSDQ DQG %WLVFORVHGXQGHUWKHRSHUDWLRQRI6FRPSXWDWLRQDOFRQVHTXHQFHRI%W %\VD\LQJWKDW³6LVDQHSLVWHPLFDJHQW´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³QRUPDO´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³6FRPSXWDWLRQDO FRQVHTXHQFH RI ;´ UHIOHFWV WKH IROORZLQJIHDWXUHRIHSLVWHPRORJLFDOGLVFXVVLRQV6XSSRVHWKDW6EHOLHYHVS DQG 6 EHOLHYHV S ∧ T 1RWZLWKVWDQGLQJ IRU WKH HYDOXDWLRQ RI WKH HSLVWHPLF VWDWXVRI6¶VEHOLHILQSLWLVLPSRUWDQWWKDW6DFWXDOO\FDUULHVRXWWKHSURFHVV 

6758&785$/5(/,$%,/,60   RILQIHUULQJKHUEHOLHILQSIURPKHUEHOLHILQS∧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

7KXV LI 6 EHOLHYHV LQ S RQ VRPH RWKHU JURXQG WKDQ KHU EHOLHILQ S∧ T WKHQHSLVWHPRORJLVWVDVVXPHLWLVQRWUHOHYDQWWRWKHHSLVWHPLFVWDWXVRI6¶V EHOLHILQSWKDWSLVLQIDFWDORJLFDOFRQVHTXHQFHRIS∧T $ , *ROGPDQ SUHVHQWV WZR DUJXPHQWV WR GHPRQVWUDWH WKDW WKH ORJLFDO FRQVHTXHQFHLVQRWDVXIILFLHQWFRQGLWLRQIRUMXVWLILFDWLRQWREHVWDWHGRQWKH JURXQGVRIDPHQWDOLVWLFWKHRU\RIMXVWLILFDWLRQ6XSSRVH6UHDOL]HVDORJLFDO FRQVHTXHQFH RI KHU EHOLHI LQ S ∧ T WKHQ 6 PLJKW UHMHFW S ∧ T LQVWHDG RI MXVWLILHGO\ EHOLHYLQJ WKH FRQVHTXHQFH 7KH RWKHU DUJXPHQW LV WKDW HYHQ LI 6 EHOLHIV S ∧ T EXW QRQHWKHOHVVIDLOVWR SHUIRUP WKH LQIHUHQFHKHUVHOIWKHQ6 GRHVQRWMXVWLILHGO\EHOLHYHLQS*ROGPDQ  7KHORJLFDOFRQVHTXHQFHREWDLQLQJEHWZHHQ6¶VEHOLHIVLVQRWDVXIILFLHQW FRQGLWLRQIRUMXVWLILFDWLRQHLWKHUEHFDXVHLWZLOOUHTXLUHORJLFDORPQLVFLHQFH RQWKHSDUWRIHSLVWHPLFDJHQWVDQGWKLVUHTXLUHPHQWLVLPSODXVLEOHLQUHVSHFW RIDFWXDOHSLVWHPLFDJHQWV2QHUHDVRQLVZRUGHGE\*+DUPDQWKXV³,I\RX EHOLHYH  SUHPLVHV DQG WKHQ GHGXFH >WKH@ FRQFOXVLRQ \RX OHDUQ WKDW \RXU EHOLHIVLPSO\WKDWFRQFOXVLRQ7KDWE\LWVHOILVQRWHQRXJKIRU\RXWREHDEOH WR EHMXVWLILHGLQLQIHUULQJWKDW FRQFOXVLRQ ,W PD\ LQVWHDGSURYLGH DUHDVRQ IRU\RXWRTXHVWLRQ\RXUEHOLHILQWKHSUHPLVHV´+DUPDQ 7KLVLV DOVRZK\6LVQRWWDNHQWREHHSLVWHPRORJLFDOO\UHVSRQVLEOHIRUQRWEHLQJDEOH WRWUDFNDOOORJLFDOUHODWLRQVDPRQJKHUEHOLHIV)RUWKDWUHDVRQ,XVHLQP\ GHILQLWLRQRIPHQWDOLVWLFWKHRU\RIMXVWLILFDWLRQGHILQLWLRQ WKHFRQFHSWRI ³6FRPSXWDWLRQDO FRQVHTXHQFH´ PHDQLQJ WKHUHE\ WKH VXEVHW RI ORJLFDO FRQVHTXHQFHV DPRQJ 6¶V EHOLHIV WKDW 6 GXH WR KHU FRQILQHG FRJQLWLYH FDSDFLWLHV LV DEOH WR WUDFN KHUVHOI DW D JLYHQ WLPH ³6FRPSXWDWLRQDO FRQVHTXHQFH´WKHUHIRUHUHVXOWVLQFRQVWUDLQLQJWKHVHWRISRVVLEOHUHDVRQVRU JURXQGV WKDW PLJKW VHUYH LQ MXVWLI\LQJ 6¶V EHOLHIV DQG OLPLWV 6¶V HSLVWHPLF UHVSRQVLELOLW\ $ & *UD\OLQJ FRLQHG WKH WHUP ³ILQLWDU\ SUHGLFDPHQW´ WR UHIHU WR WKH OLPLWDWLRQV RI HPSLULFDO FRJQLWLYH DJHQWV ³,W LV DQ DOO WRR IDPLOLDU IDFW WKDW WKH HSLVWHPLF FDSDFLWLHV RI KXPDQV DUH ILQLWH :H VXIIHU WKH ILQLWDU\ SUHGLFDPHQW RXU HPSLULFDO UHVRXUFHV IRU DFTXLULQJ DQG WHVWLQJ LQIRUPDWLRQ 

 &+$37(5  DERXW WKH ZRUOG DUH OLPLWHG DQG VR DUH RXU SRZHUV RI LQIHUHQFH DQDO\VLV UHFRJQLWLRQ DQG PHPRU\´ *UD\OLQJ    7KLV KRZHYHU LV RQO\ SRVVLEOH ZKHQ SV\FKRORJLFDO RU HYHQ QHXURSK\VLRORJLFDO FRQFHUQV XQGHUO\LQJ6¶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¶V EHOLHIV7KHUHLVQRFRQVHQVXVDPRQJHSLVWHPRORJLVWVDVWRZKDWPLJKWWDNH RQWKLVUROHIRULQVWDQFHVRPHZRXOGDJUHHWKDW6¶VILUVWRUGHUEHOLHIVFRXQW DVUHOHYDQWVRPHZRXOGDGGWKDWDOVR6¶VKLJKHURUGHUEHOLHIVDUHUHOHYDQW ZKLOHRWKHUVZLOOGHQ\WKHODWWHUFODLPRUERWK +RZHYHU QR SDUWLFXODU GHILQLWLRQ RI EHOLHI KDV EHHQ SUHVXSSRVHG E\ 0(7- LQIDFWWKLVGHILQLWLRQPLJKWVHUYHDVDFRQWH[WXDOGHILQLWLRQRIWKH FRQFHSW RI EHOLHI )RU RQ WKH RQH KDQG ZH KDYH DOUHDG\ REVHUYHG WKDW 6¶V FRPSXWDWLRQDO FDSDFLWLHV SOD\ DQ LPSRUWDQWUROH ZLWKUHVSHFW WR KHU EHOLHIV 7KDWKRZHYHUZRXOGUHTXLUHWKDWKHUEHOLHIVEHDWOHDVWSDUWO\DPHQGDEOH WR 6¶V FRPSXWDWLRQDO FDSDFLWLHV DV WKH\ PXVW EH XSKHOG E\ KHU 0RUHRYHU 0(7-  LPSOLHV WKDW EHOLHIV FDQ EH VXVWDLQHG E\ DFWXDO HSLVWHPLF DJHQWV ZKLFK LV WDQWDPRXQW WR DFNQRZOHGJLQJ WKDW WKH\ DUH NLQGV RI SURSRVLWLRQDO DWWLWXGHV7KLVLVWKHVWDQGDUGYLHZZKLFK²DV-+HLODGPLWV²³KDVSURYHG UHPDUNDEO\UHVLOLHQW´+HLO ,QJHQHUDOSURSRVLWLRQDODWWLWXGHVDUH PHQWDOVWDWHVZLWKSURSRVLWLRQDOFRQWHQW%HOLHIVDUHWKHNLQGRISURSRVLWLRQDO DWWLWXGHVZKLFKLQYROYHV³DVWDQFHRQWKHTXHVWLRQZKHWKHUWKHSURSRVLWLRQLV WUXH TXLWH DSDUW IURP ZKHWKHU LW ZRXOG EH QLFH LI LW ZHUH WUXH´ *ROGPDQ   2QWKHRWKHUKDQGZHOHDUQIURP0(7- WKDWLWLVSULPDULO\EHOLHIVWKDW ZH FRQIHU MXVWLILFDWLRQ XSRQ LH EHOLHIV FDQ EH ULJKWIXOO\ HYDOXDWHG HSLVWHPRORJLFDOO\ 7KH\ DUH D NLQG RI DQG QRW MXVW WKH DV DUJXHG EHORZ MXVWLILFDWLRQEHDUHUV ,QRUGHUWRKDYHVRPHIODYRURIKRZ0(7- ZRUNVOHWPHDSSO\LWWRRQH RI WKH HSLVWHPRORJLFDO SRVLWLRQV WR ZLW *ROGPDQ¶V SRVLWLRQ GHYHORSHG LQ ³:KDW ,V -XVWLILHG %HOLHI"´ *ROGPDQ   *ROGPDQ¶V WKHRU\ RI MXVWLILFDWLRQLVFRQVWUXFWHGRQWKHEDVLVRIWKHIROORZLQJGHILQLWLRQV %&  ,I6¶VEHOLHILQSDWWUHVXOWVIURPDUHOLDEOHFRJQLWLYHSURFHVVDQGWKHUHLVQR UHOLDEOH RU FRQGLWLRQDOO\ UHOLDEOH SURFHVV DYDLODEOH WR 6 ZKLFK KDG LW EHHQ



6758&785$/5(/,$%,/,60



 XVHGE\6LQDGGLWLRQWRWKHSURFHVVDFWXDOO\XVHGZRXOGKDYHUHVXOWHGLQ6¶V QRWEHOLHYLQJSDWWWKHQ6¶VEHOLHILQSDWWLVMXVWLILHG*ROGPDQ   5&  ,I6¶VEHOLHILQSDWWUHVXOWV³LPPHGLDWHO\´ IURPDEHOLHIGHSHQGHQWSURFHVV WKDWLVDWOHDVW FRQGLWLRQDOO\UHOLDEOHDQGLIWKHEHOLHIVLIDQ\ RQZKLFKWKLV SURFHVVRSHUDWHVLQSURGXFLQJ6¶VEHOLHILQSDWWDUHWKHPVHOYHVMXVWLILHGWKHQ 6¶VEHOLHILQSDWWLVMXVWLILHG*ROGPDQ 

&RQGLWLRQ%& LVFDOOHGE\*ROGPDQ³WKHEDVHFRQGLWLRQ´IRULWFRQFHUQV WKH NLQG RI EHOLHIIRUPLQJ SURFHVVHV ZKLFK GR QRW WDNH EHOLHIV DV LQSXWV 7KH UHFXUVLYH FODXVH 5&  VWDWHV WKH UHOLDELOLW\ FRQGLWLRQ IRU WKRVH EHOLHI IRUPLQJ SURFHVVHV ZKLFK WDNH EHOLHIV DV LQSXW 7KXV WKH UHOLDELOLW\ RI WKH ODWWHU NLQG RI EHOLHIIRUPLQJ SURFHVVHV LV FRQGLWLRQDO RQ WKH UHOLDELOLW\ RI LQSXWEHOLHIV)RULQVWDQFHP\YLVXDOEHOLHI³7KHUHLVDVKHHSLQIURQWRIPH´ IRUPHG ZKLOH SHUFHLYLQJ D VKHHS IURP D GLVWDQFH RI WZR PHWHUV LQ QRUPDO FRQGLWLRQVLQFOXGLQJWKHFRUUHFWIXQFWLRQLQJRIP\SHUFHSWXDODQGFRJQLWLYH DSSDUDWXV ZRXOGEHDQH[DPSOHRIDEHOLHIZKLFKVDWLVILHV%& :KLOHP\ EHOLHI UHFDOOHG IURP PHPRU\ WKDW WKHUH ZDV D VKHHS LQ IURQW RI PH RQ 6HSWHPEHU VW  LV UHOLDEOH XQOHVV WKH EHOLHI LQ TXHVWLRQ ZDV QRW MXVWLILHG %RWK %&  DQG 5&  DSSO\ WKH SKUDVH ³6¶V EHOLHI LQ S LV MXVWLILHG´ WKHUHIRUH SULPD IDFLH VDWLVI\LQJ GHILQLWLRQ  DVUHJDUGV WKH GRPDLQ RIWKH FRQFHSWRIMXVWLILFDWLRQ:KDWZHVWLOOQHHGWRUHVROYHLVZKHWKHU*ROGPDQ¶V XQGHUVWDQGLQJRI³6´DQG³%W´VDWLVILHVLWDVZHOO,QWKHFDVHRI³6´LWKROGV WULYLDOO\VLQFH*ROGPDQDVVHUWVWKDW6LVDSHUVRQ*ROGPDQ  )URP %&  DQG 5&  ZH OHDUQ WKDW WKH PHPEHUV RI WKH GRPDLQ %W RI MXVWLILFDWLRQ FDQ VHUYH ERWK DV LQSXWV DQG RXWSXWV RI WKH SV\FKRORJLFDO SURFHVVHVRIDJLYHQLQGLYLGXDO7KHFORVXUHFRQGLWLRQ0(7- LPSRVHVRQ %W LV WKHUHIRUH VDWLVILHG LQ *ROGPDQ¶V DFFRXQW )RU LW LV QRW RQO\ WKDW 6FRPSXWDWLRQDOFRQVHTXHQFHVEHORQJWR%WEXWDOVRDOOVRUWVRIRXWSXWVRI SV\FKRORJLFDO SURFHVVHV ZKLFK WDNH EHOLHIV DV LQSXW IRU LQVWDQFH ZLVKIXO WKLQNLQJRUKDVW\JHQHUDOL]DWLRQ



&RQIOLFWLQJ0HWD/HYHO$VVXPSWLRQVRI0HQWDOLVWLF 5HOLDELOLVW7KHRULHVRI-XVWLILFDWLRQ

$SSDUHQWO\ *ROGPDQ DGYDQFHV D PHQWDOLVWLF WKHRU\ RI MXVWLILFDWLRQ ,Q RUGHUWRJLYHLWVRPHVXEVWDQFHKHEULQJVRXWVRPHRWKHUPHWDOHYHOIHDWXUHV XQGHUO\LQJ KLV SURFHVVUHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ 2QH RI *ROGPDQ¶V PRWLYDWLRQVZKLFKOHDGVKLPWRDPHQWDOLVWLFWKHRU\RIMXVWLILFDWLRQLVWKDW KLV WKHRU\ PXVW EH ³TXLHWLVWLF´ ZLWK UHVSHFWWR ³RXURUGLQDU\ VWDQGDUGV´ $ 

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¶VWKHRU\ '(),1,7,216XEVWDQWLYHWKHRU\67  7KHRU\7RIWKHFRQFHSWRIMXVWLILFDWLRQ-LVVXEVWDQWLYHLIIWKHQHFHVVDU\DQG VXIILFLHQWFRQGLWLRQV7OD\VGRZQIRU-DUHVWDWHGLQQRQHSLVWHPLFWHUPV *ROGPDQ DFNQRZOHGJHV WKDW JLYHQ 47  LW LV LPSRVVLEOH WR HVFDSH WKH YDJXHQHVVRIRUGLQDU\VWDQGDUGVZLWKUHVSHFWWRZKDWFRXQWVDVDQHSLVWHPLF FRQFHSW 1RQHWKHOHVV DPRQJ WKH FOHDUO\ HSLVWHPLF FRQFHSWV KH OLVWV WKH IROORZLQJ ³µMXVWLILHG¶ µZDUUDQWHG¶ µKDV JRRG  JURXQGV¶ µKDV UHDVRQ WR EHOLHYH ¶ µNQRZV WKDW¶ µVHHV WKDW¶ µDSSUHKHQGV WKDW¶ µLV SUREDEOH¶ LQ DQ HSLVWHPLFRULQGXFWLYHVHQVH µVKRZVWKDW¶µHVWDEOLVKHVWKDW¶DQGµDVFHUWDLQV WKDW¶´ :KHUHDV WKH OLVW RI XQGRXEWHGO\ VWDQGDUG QRQHSLVWHPLF FRQFHSWV FRQWDLQV WKH IROORZLQJ ³µEHOLHYHV WKDW¶ µLV WUXH¶ µFDXVHV¶ µLW LV QHFHVVDU\ WKDW¶ µLPSOLHV¶ µLV GHGXFLEOH IURP¶ DQG µLV SUREDEOH¶ HLWKHU LQ WKH IUHTXHQF\ VHQVH RU WKH SURSHQVLW\ VHQVH  ,Q JHQHUDO SXUHO\  GR[DVWLF PHWDSK\VLFDO PRGDO VHPDQWLF RU V\QWDFWLF H[SUHVVLRQV DUH QRW HSLVWHPLF´ *ROGPDQ  %HIRUH,SURFHHGWRLQYHVWLJDWHWKHUROHRI67 LQ*ROGPDQ¶VWKHRU\OHW PHEULHIO\H[DPLQHWKHWZROLVWVRIFRQFHSWV7KHUHLVQRSRLQWLQWU\LQJWREH IDU PRUH H[SOLFLW WKDQ *ROGPDQ RQ ZKDW FRQVWLWXWHV WKH HSLVWHPLF²QRQ HSLVWHPLFGLFKRWRP\1RWHKRZHYHUWKDWRQHRIWKHGHOLQHDWLRQVVHSDUDWLQJ WKH WZR LV WKDW LW LV E\ DQG ODUJH WKH IRUPHU WKDW FRQYH\V SURSRVLWLRQDO DWWLWXGHV 0RUHRYHU LW LV QRW DFFLGHQWDOO\ VR EHFDXVH ZKDW VHHPV WR EH D QHFHVVDU\ FRQGLWLRQ IRU DQ\ HSLVWHPLF UHODWLRQ WR REWDLQ LV WKDW KXPDQ SV\FKRORJLFDO IXQFWLRQLQJ EH LQYROYHG 7KLV SRLQW FDQ EH LOOXVWUDWHG RQ WKH H[DPSOH RI ³LV SUREDEOH´ 7KLV H[SUHVVLRQ ILJXUHV LQ ERWK *ROGPDQ¶V OLVWV EXW ZLWK FOHDU LQGLFDWLRQ LQ SDUHQWKHVHV ZKHWKHU LW LV DSSOLFDEOH WR WKH 

6758&785$/5(/,$%,/,60   HSLVWHPLFDJHQW¶VJUDGXDOEHOLHIVRUWRSK\VLFDOSURSHUWLHV6WLOODSDUWIURP KXPDQ DWWLWXGHV DOO H[SUHVVLRQV RQ WKH IRUPHU OLVW LPSO\ WKH SURSRVLWLRQDO FRQWHQWRIWKHVHQRQLGHDOL]HGDWWLWXGHVLQFOXGLQJDWKDWFODXVH +RZHYHU RQFH ZH DJUHH WKDW UHIHUULQJ WR QRQLGHDOL]HG SURSRVLWLRQDO DWWLWXGHV LV D QHFHVVDU\ FRQGLWLRQ IRU D WKHRU\ QRW WR EH VXEVWDQWLYH WKHQ PDNLQJ 67  FRPSDWLEOH ZLWK 47  VHHPV KLJKO\ SUREOHPDWLF &RQVLGHU WKHIROORZLQJ H[DPSOH-RQHV DVNHG ZK\ D EHOLHI LQ S LVMXVWLILHGDQVZHUV WKXV ³, DP LQFOLQHG WR WKLQN WKDW D EHOLHI LQ S LV MXVWLILHG EHFDXVH , DP DVVXUHG E\ D PRVW WUXVWZRUWK\ H[SHUW HFRQRPLVW WKDW S LV MXVWLILHG´ $SSDUHQWO\ -RQHV¶V DQVZHU VDWLVILHV %&  DQG 5&  7KH SURFHVV RI WHVWLPRQ\LVFRQGLWLRQDOO\UHOLDEOHLQWKLVFDVHIRULWYHU\RIWHQWXUQVRXWWKDW ZKHQHYHUWKHH[SHUWHFRQRPLVWWHOOV-RQHVWKDWSLVMXVWLILHGLWLVLQIDFWWUXH WKDWSLVMXVWLILHG7KHWHVWLPRQ\KRZHYHULVRQO\FRQGLWLRQDOO\UHOLDEOHRQ WKH MXVWLILFDWLRQ RI LQSXW EHOLHIV 6XSSRVH WKRXJK WKDW WKH H[SHUW HFRQRPLVW¶VEHOLHIWKDWSLVMXVWLILHGLVDUHVXOWRIDUHOLDEOHSURFHVVDQGVKH GRHVQRWKDYHXQGHUPLQLQJHYLGHQFHDJDLQVWLW7KXV%& LVDOVRVDWLVILHG 7KHUHIRUHWKHVHQWHQFHXWWHUHGE\-RQHVVHHPVWRILW*ROGPDQ¶VWKHRU\ZHOO 1RQHWKHOHVV LW LV LQFRPSDWLEOH ZLWK D FRQMXQFWLRQ RI SURSHUWLHV 67  DQG 47 WKDW*ROGPDQSURMHFWVIRUKLVWKHRU\:K\LVWKLVVR"6XSSRVHZHZDQW WRKROGIDVWWR67 -RQHV¶VVHQWHQFHKRZHYHUZKLFKDSWO\H[SUHVVHVDSDUW RIKLVHSLVWHPLFHYDOXDWLYHVWDQGDUGVHPSOR\VWKHHSLVWHPLFWHUP³MXVWLILHG´ +HQFH LQ RUGHU WR VWLFN ZLWK 67  ZH QHHG WR GLVFDUG ³MXVWLILHG´ LQ WKH VHQWHQFHXWWHUHGE\-RQHVE\VXEVWLWXWLQJ³T´LQVWHDGRI³SLVMXVWLILHG´:KDW ZHREWDLQLVDSHUIHFWO\PHDQLQJIXOVHQWHQFH³,DPLQFOLQHGWRWKLQNWKDWD EHOLHI LQ S LV MXVWLILHG EHFDXVH , DP DVVXUHG E\ D PRVW WUXVWZRUWK\ H[SHUW HFRQRPLVW WKDW T´ 7KLV VHQWHQFH DOVR VDWLVILHV %&  DQG 5&  LQ D ZD\ VLPLODUWRWKHLQLWLDOVHQWHQFHXWWHUHGE\-RQHV+RZHYHUZKDW-RQHVLQLWLDOO\ VD\VWKHQLVWDQWDPRXQWWRVSHFLI\LQJWKHSURFHVVE\PHDQVRIZKLFKKHLV DEOHWRVROYHWKHSUREOHPRIHYDOXDWLQJWKHMXVWLILFDWRU\VWDWXVRIWKHEHOLHILQ SE\UHGXFLQJLWWRWKHSUREOHPRIFKHFNLQJWKHH[SHUWHFRQRPLVW¶VRSLQLRQ ZKHWKHUSLVMXVWLILHG ((7-S →-%S

L 

ZKHUH³((7S ´VWDQGVIRU³WKHH[SHUWHFRQRPLVWVWDWHVWKDWS´³%S´VWDQGV IRU³EHOLHYHVLQS´DQG³-S´VWDQGVIRU³SLVMXVWLILHG´ 7KH QHZ VHQWHQFH REWDLQ E\ VXEVWLWXWLQJ ³T´ LQ SODFH RI ³S LVMXVWLILHG´ UHDGV ((7T →-%S

LL  

 

&+$37(5

,Q DFFRUGDQFH ZLWK 67  FODXVH L  LQ RSSRVLWLRQ WR LL  FRXOG QRW EH VDWLVIDFWRU\VLQFHLQVWDWLQJSDUWRI-RQHV¶VHYDOXDWLYHVWDQGDUGVLWXVHVWKH HYDOXDWLYHWHUP³MXVWLILHG´ZKLFKLVWKHQGLVFDUGHGLQLL 1RQHWKHOHVVLL  YLRODWHV 47  -RQHV¶V LQLWLDO XWWHUDQFH HVWDEOLVKHV WKH UHOHYDQFH EHWZHHQ ZKDW KHWDNHV LQWR DFFRXQW DQG ZKDWWKHH[SHUWHFRQRPLVW WHOOVKLP 7KH\ DUHERWKFRQVLGHULQJWKHVDPHSURSRVLWLRQSDQGPRUHRYHUWKH\ERWKDVVXPH WKDW WKH VRUW RI HYDOXDWLRQ WR EH UHOHYDQW +RZHYHU RQFH ZH GURS WKH HSLVWHPLF WHUP IURP -RQHV¶V LQLWLDO VWDWHPHQW RI HYDOXDWLYH VWDQGDUGV DV LV GRQH LQ LL  WKHQ QHLWKHU RI WKH WZR NLQGV RI UHOHYDQFH SRLQWHG RXW DERYH FRXOG EH SUHVHUYHG 6R LW ZHOO DFFRUGV ZLWK LL  WKDW -RQHV ZRXOG WDNH WKH EHOLHILQWKHSURSRVLWLRQWKDW³RQHRIWKH(XURSHDQVWRFNPDUNHWVLVJRLQJWR FROODSVH ZLWKLQ WKH QH[W WZR PRQWKV´ DV MXVWLILHG HYHQ WKRXJK WKH H[SHUW HFRQRPLVW WROG KLP WKDW ³QRQH RI WKH (XURSHDQ VWRFN PDUNHWV LV JRLQJ WR FROODSVHZLWKLQWKHQH[WWZRPRQWKV´,WVHHPVWKDWLL LVDPLVFRQVWUXDORI -RQHV¶V HYDOXDWLYH VWDQGDUGV IRU WKH MXVWLILFDWRU\ VWDWXV RI EHOLHIV DQG WKXV LL YLRODWHV47  ,Q RUGHU WR PDNH P\ SRLQW SHUVSLFXRXV , UHIHUUHG LQ WKH IRUHJRLQJ DUJXPHQWWRWHVWLPRQ\1HYHUWKHOHVVWKHYHU\VDPHSRLQWFDQEHHVWDEOLVKHG IRUDQ\NLQGRIEHOLHIIRUPLQJSURFHVV2IFRXUVHWKLVLVDPDQLIHVWDWLRQRI WKH*HQHUDOLW\3UREOHPLHWKHSUREOHPRIKRZWRVSHFLI\LQQRQHSLVWHPLF WHUPV WKH UHOHYDQW FODVV RI SURFHVVHV ZKLFK GHWHUPLQH WKH UHOLDELOLW\ RI LWV PHPEHUSURFHVVHV DQG WR ZKLFK EHORQJV WKH SURFHVV ZKRVH UHOLDELOLW\ LV XQGHUVFUXWLQ\$OVWRQE  ,QWKHLQLWLDOVHQWHQFHXWWHUHGE\-RQHV³MXVWLILHG´IURPEHLQJDSDUWRIKLV HSLVWHPLFHYDOXDWLYHVWDQGDUGVEHFRPHVDSDUWRIWKHFRQWHQWVSHFLILFDWLRQRI ZKDW WKH H[SHUW HFRQRPLVW WHOOV -RQHV 7KXV WKH UROH -RQHV DVVLJQV WR ³MXVWLILHG´ LQ WKH H[SHUW HFRQRPLVW WHVWLPRQ\ LV QRW HYDOXDWLYH *ROGPDQ PLJKWZDQWWRFODLPEXWLVWKDWRILGHQWLI\LQJWKHUHOHYDQWXWWHUDQFHRIWKH H[SHUWHFRQRPLVW7KHUHIRUH67 DQG47 VHHPSHUIHFWO\FRPSDWLEOHZLWK UHJDUGWR*ROGPDQ¶VWKHRU\H[SOLFDWLQJWKHHSLVWHPLFHYDOXDWLYHVWDQGDUGVRI -RQHV )RU VXSSRVH ZH QRZ GLVWLQJXLVK EHWZHHQ WKHRULHV TXLHWLVWLF ZLWK UHVSHFW WR RUGLQDU\ VWDQGDUGV RI HSLVWHPLF HYDOXDWLRQ 47(  DQG WKHRULHV TXLHWLVWLF ZLWK UHVSHFW WR RUGLQDU\ VWDQGDUGV RI ODQJXDJH XVDJH 47/  6R 67 DQG47( DUHFRPSDWLEOHZLWKLQ*ROGPDQ¶VWKHRU\ZKLOHLWLV47/  WKDWLVYLRODWHGE\WKHWKHRU\LQTXHVWLRQ 7KH VWUDWHJ\ RI GHIHQGLQJ WKH FRPSDWLELOLW\ RI 67  DQG 47  ZLWKLQ *ROGPDQ¶VWKHRU\VHHPVQRWSURPLVLQJDIWHUDOO)RULQ*ROGPDQ¶VDFFRXQW WKHQHFHVVDU\FRQGLWLRQIRU67 UHTXLUHVWKHLGHQWLILFDWLRQRIDSURSRVLWLRQ LQTXHVWLRQDFURVVWKHHSLVWHPLF²QRQHSLVWHPLFGLFKRWRP\+HFDQQRWWKHQ GLVWLQJXLVK47( DQG47/ DQGWKHQSURFHHGWRUHMHFWRQO\WKHODWWHURQ SDLQ RI DVVXPLQJ VRPH P\VWHULRXV DFFHVV WR HYDOXDWLYH VWDQGDUGV RI WKH MXVWLILFDWRU\VWDWXVRIEHOLHIVZKLFKKDYHSURSRVLWLRQDOFRQWHQW,IZHUHMHFW 

6758&785$/5(/,$%,/,60   47/ ZKDWNLQGRIDFFHVVWRRUGLQDU\VWDQGDUGVDUHZHVXSSRVHGWRKDYH VXFKWKDWWKHVHVWDQGDUGVDUH47( "47/ DPRXQWVWRDFNQRZOHGJLQJWKDW ZH FDQQRW WUXVW SHRSOH¶V XWWHUDQFHV ZKLOH 47(  UHTXLUHV WKDW ZH KDYH DFFHVV WR WKH SURSRVLWLRQDO FRQWHQW RI WKHLU UHOHYDQW DWWLWXGHV (YHQ LI ZH ZRUN RXW D ZD\ WR FURVV LGHQWLI\ SURSRVLWLRQV ZLWKRXW UHIHUHQFH WR WKHLU FRQWHQWLWVWLOOZLOOQRWDVVXUHWKDWWKLVFURVVLGHQWLILFDWLRQGRHVQRWYLRODWH 47 ZKLFKLWDSSDUHQWO\GRHV $QRWKHUZD\WRXQGHUPLQHWKHH[LVWHQFHRIWKHWHQVLRQEHWZHHQ67 DQG 47  LV E\ SRLQWLQJ RXWWKDW-RQHV¶V XWWHUDQFH YLRODWHV GHILQLWLRQ  VLQFH WKHH[SHUWHFRQRPLVWLVVXSSRVHGWRDWWULEXWH³MXVWLILHG´WRSLQVWHDGRI%S 7KXVZHQHHGWRUHIRUPXODWH-RQHV¶VLQLWLDOXWWHUDQFHVRWKDWLWZRXOGILWZLWK GHILQLWLRQRIPHQWDOLVWLFWKHRU\RIMXVWLILFDWLRQ+DYLQJDFFRPSOLVKHGWKLVZH FRXOG SURFHHG WR LQWURGXFH²DORQJ WKH OLQHV RI LL ²D UHIRUPXODWLRQ RI -RQHV¶V XWWHUDQFHWR REWDLQ DQ XWWHUDQFH FRPSDWLEOHZLWK GHILQLWLRQ LH ZH FRXOG REWDLQ LW E\ VXEVWLWXWLQJ T IRU WKLV SDUW RI -RQHV¶V HYDOXDWLYH VWDQGDUGZKLFKFRQWDLQVHSLVWHPLFFRQFHSWV7KLVKRZHYHUZRXOGIRUFHXV WRUHSODFH³EHOLHILQSLVMXVWLILHG´E\³T´ ((7T →T

LLL 

7KLVVHHPVHYHQZRUVHWKDQLL VLQFHZHKDYHQRUHDVRQDWDOOWRLGHQWLI\ -RQHV¶VXWWHUDQFHDVH[SUHVVLQJKLVHYDOXDWLYHVWDQGDUGV 6WLOO DQRWKHU ZD\ RI XQGHUPLQLQJ WKH LQFRPSDWLELOLW\ EHWZHHQ 67  DQG 47  LV WR DSSUDLVH QHJDWLYHO\ WKH UHOHYDQFH RI -RQHV¶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¶V DWWULEXWLQJDWOHDVWVRPHLPSRUWDQFHWRWKHVWDQGDUGKHXWWHUV *ROGPDQPLJKWVWLOOZDQWWRXQGHUPLQHWKHUHOHYDQFHRI-RQHV¶VXWWHUDQFH IRUHSLVWHPLFHYDOXDWLYHVWDQGDUGVVLQFHKHFRQFHUQVKLVWKHRU\WREHQRPLF 17  $WKHRU\7RIWKHFRQFHSWRIMXVWLILFDWLRQ-LVQRPLFRQO\LI7¶VQHFHVVDU\DQG VXIILFLHQW FRQGLWLRQV DSSO\ WR WKH VHW RI MXVWLILFDWLRQEHDUHUV RI - ZLWKRXW SDUWLWLRQLQJWKHVHWRUZLWKSDUWLWLRQLQJWKHVHWLQVXFKDZD\WKDWWKHQXPEHU RIHOHPHQWVLQHDFKSDUWLWLRQJUHDWO\RXWUXQWKHWRWDOQXPEHURIWKHSDUWLWLRQ FHOOV*ROGPDQ 



 

&+$37(5

7KH LGHD KHUH LV WKDW 7 VKRXOG QRW EH D FROOHFWLRQ RI QHFHVVDU\ DQG VXIILFLHQWFRQGLWLRQVH[SUHVVHGIRUHDFKEHOLHIVHSDUDWHO\EXWVKRXOGEHFDVW LQJHQHUDOWHUPV$QGWKHOHYHORIJHQHUDOLW\VKRXOGEHDVKLJKDVSRVVLEOH DQGWKDWLVUREXVWO\PDQLIHVWHGE\WKHQXPEHURISDUWLWLRQFHOOVLQSDUWLFXODU *ROGPDQ¶V RZQ WKHRU\ LPSRVHV RQO\ D WZRFODVV SDUWLWLRQ )URP WKLV SHUVSHFWLYH LW PLJKW EH DUJXHG WDNLQJ -RQHV¶V XWWHUDQFH DV UHOHYDQW IRU HSLVWHPLF HYDOXDWLYH VWDQGDUGV ZLOO IRUFH XV WR UHMHFW 17  DQG GHDO ZLWK HDFKEHOLHIVHSDUDWHO\RUDWOHDVWLQWURGXFHDYHU\ODUJHQXPEHURIW\SHVRI EHOLHIV :KDW KDV WR EH DSSUHFLDWHG LQ WKLV SRLQW LV WKDW -RQHV¶V HYDOXDWLYH VWDQGDUGRIWKHMXVWLILFDWRU\VWDWXVRIEHOLHIVLVLQFRPSDWLEOHZLWK*ROGPDQ¶V %&  DQG 5&  1HYHUWKHOHVV LW LV QRW 17  WKDW -RQHV¶V VWDQGDUG YLRODWHV EXW 67  )RU VXSSRVH WKDW -RQHV DFFHSWV *ROGPDQ¶V %&  DQG 5&  DQG DSSHQGVWKHPZLWKDIXUWKHU-RQHV EDVHFODXVHFRQGLWLRQ '(),1,7,21%DVHFRQGLWLRQ-RQHV  ,I6¶VEHOLHILQSDWWUHVXOWVIURPWKHH[SHUWHFRQRPLVW¶VWHVWLPRQ\WR6WKDWS LV MXVWLILHG E\ D UHOLDEOH FRJQLWLYH SURFHVV DQG WKHUH LV QR UHOLDEOH RU FRQGLWLRQDOO\UHOLDEOHSURFHVVDYDLODEOHWR6ZKLFKKDGLWEHHQXVHGE\6LQ DGGLWLRQ WR WKH SURFHVV DFWXDOO\ XVHG ZRXOG KDYH UHVXOWHG LQ 6¶V QRW EHOLHYLQJSDWWWKHQ6¶VEHOLHILQSDWWLVMXVWLILHG 7KH -RQHV  EDVH FODXVH ZRXOG QRW YLRODWH 17  VLQFH LW DGGV RQO\ RQH FODVVWRWKHLQLWLDO*ROGPDQ¶VSDUWLWLRQ+RZHYHULWZRXOGLQHYLWDEO\YLRODWH 67 IRULWLVQRWRQO\WKHIDFWWKDWWKHEDVHFODXVHFRQGLWLRQ-RQHV XVHVWKH HSLVWHPLFWHUP³MXVWLILHG´EXWWKLVXVHRIHSLVWHPLFWHUPVZRXOGVSUHDGRXW LQWKHZKROHWKHRU\YLD5&  1RWZLWKVWDQGLQJ WKH FDVH RI -RQHV¶V XWWHUDQFH 67  DQG 47  DUH HYHQ SULPD IDFLH LQFRPSDWLEOH EHFDXVH 67  RQ *ROGPDQ¶V DFFRXQW DW OHDVW LV FOHDUO\ PRWLYDWHG E\ D UHGXFWLRQLVW VWUDWHJ\ ZLWK UHVSHFW WR HSLVWHPLF FRQFHSWVZKLOH47 LVQRW *ROGPDQVHHPVWRKDYHLQWXLWLYHO\WULHGWRDOOHYLDWHWKHWHQVLRQEHWZHHQ 67  DQG 47  SHUVLVWHQW LQ KLV WKHRU\ 7KH SUHYDOHQW VROXWLRQ LV WR UHIRUPXODWH WKH QHFHVVDU\ FRQGLWLRQ IRU 67  VR WKDW LW GRHV QRW SUHYHQW HSLVWHPLF FRQFHSWV IURP SOD\LQJ D UROH LQ VHWWLQJ WKH HSLVWHPLF HYDOXDWLYH VWDQGDUGV²FDOOLWWKHDOOHJHGHSLVWHPLFUHIRUPXODWLRQRI67 ³67( ´%XW WKLVVROXWLRQLVQRWDYDLODEOHWR*ROGPDQ /HW PH VWDUW P\ DUJXPHQW E\ DSSUDLVLQJ WKH UROH 67  DVVXPHV LQ KLV WKHRU\)LUVW67 LVHVVHQWLDOIRUHVWDEOLVKLQJWKHPRVWSODXVLEOHFDQGLGDWH IRU %&  ZLWKLQ *ROGPDQ¶V WKHRU\ 7KXV DOO FDQGLGDWHV ZKLFK KDYH SULPD IDFLH SODXVLELOLW\ EXW ZKLFK FRQWDLQ HSLVWHPLF WHUPV DUH GHHPHG WR EH DSSURSULDWHO\UHIRUPXODWHGDWEHVW 

6758&785$/5(/,$%,/,60



 6HFRQG*ROGPDQLQVLVWVRQWKHH[SODQDWRU\FKDUDFWHURIKLVWKHRU\ , VHHN DQ H[SODQDWRU\ WKHRU\ LH RQH WKDW FODULILHV WKH XQGHUO\LQJ VRXUFH RI MXVWLILFDWLRQDO VWDWXV LW LV QRW HQRXJK IRU D WKHRU\ WR VWDWH ³FRUUHFW´ QHFHVVDU\ DQG VXIILFLHQW FRQGLWLRQV ,WV FRQGLWLRQV PXVW DOVR EH DSSURSULDWHO\ GHHS RU UHOHYDQW> DQG@ LW PXVW EH FRXFKHG DW D VXLWDEO\ GHHS JHQHUDO RU DEVWUDFW OHYHO *ROGPDQ  

7KH FRQGLWLRQV 67  DQG 17  WDNHQ WRJHWKHU VHHP WR EH VXIILFLHQW DQG QHFHVVDU\WRJUDQWWKHH[SODQDWRU\VWDWXVWRDJLYHQWKHRU\)RURQWKHRQH KDQG67 ZDUUDQWVWKDWQRHSLVWHPLFWHUPVDUHXVHGLQSDUWLFXODUZHDYRLG D PHUHO\ V\QRQ\PRXV VXEVWLWXWLRQ IRU WKH WHUP ³MXVWLILHG´ RU YHUEDO GHILQLWLRQWKHUHRI2QWKHRWKHUKDQG17 JUDQWVWKDWWKHZD\ZHDSSO\WKH QRQHSLVWHPLFWHUPVQRWRQO\HOXFLGDWHVHDFKSDUWLFXODUFDVHVHSDUDWHO\EXW HPEUDFHVWKHPDOODWRQFH 7KLUG67 GRHVPXFKPRUHIRU*ROGPDQ¶VWKHRU\WKDQWKDW67 SURYHV FUXFLDO LQ KLV UHMHFWLRQ RI RWKHU HSLVWHPRORJLFDO WKHRULHV $V LW VHHPV *ROGPDQ¶V VWUDWHJ\ DJDLQVW FDQGLGDWHV IRU %&  VWHPPLQJ IURP RWKHU HSLVWHPRORJLFDOWKHRULHVLVHVVHQWLDOO\WKHIROORZLQJ7DNHD%& FDQGLGDWH PRVW RI ZKLFK XVH HSLVWHPLF WHUPV DQG UHMHFW LW DFFRUGLQJ WR 67  1H[W UHIRUPXODWH WKH FDQGLGDWH DSSURSULDWHO\ VR WKDW LW QR ORQJHU FRQWDLQV HSLVWHPLF WHUPV )LQDOO\ SXW LW XQGHU VFUXWLQ\ DQG H[DPLQH ZKHWKHU LW LV D VXFFHVVIXO%& FDQGLGDWH7KLVVRUWRIDUJXPHQWDWLYHVWUDWHJ\WKRXJKPDNHV DOOWKHVHFDQGLGDWHVGRRPHGWRIDLOXUHIURPWKHRXWVHW:K\"%HFDXVHWKH\ ZHUH EURXJKW RXW DV SODXVLEOH LQ WKHLU LQLWLDO HSLVWHPLF IRUPXODWLRQ UDWKHU WKDQQRQHSLVWHPLFRQH7KLVLVDWOHDVWZKDWWKHSULQFLSOHRIFKDULW\ZRXOG UHDVRQDEO\SUHVFULEHXVWREHOLHYHLQWKLVFDVH7KXV67 LVHVVHQWLDOIRUWKH FRQVWUXFWLRQRI*ROGPDQ¶VRZQWKHRU\LQVRIDUDVLWIRUFHVWKHSRVVLEOH%&  FDQGLGDWHV ZKLFK VWHP IURP DOWHUQDWLYH WKHRULHV WR WDNH D PXFK OHVV SODXVLEOHSRVLWLRQ +DYLQJUHFRJQL]HGWKHSURPLQHQWUROHRI67 ZLWKLQ*ROGPDQ¶VWKHRU\ ZH FDQ UHWXUQ WR WKH LQLWLDO TXHVWLRQ ZKLFK FRQFHUQV WKH DSSOLFDELOLW\ RI 67(  WR *ROGPDQ¶V WKHRU\ *LYHQ WKH DERYH DUJXPHQW LW LV FOHDU WKDW 67(  ZLOO OHDG WR WKH XQGHUPLQLQJ RI WKH LGHQWLW\ RI *ROGPDQ¶V WKHRU\ DJDLQVWWKHEDFNJURXQGRIDOWHUQDWLYHWKHRULHV)RU67( LQRSSRVLWLRQWR 67  EORFNV WKH HVVHQWLDO SDUW RI *ROGPDQ¶V DUJXPHQW DJDLQVW %&  FDQGLGDWHVZKLFKVWHPIURPDOWHUQDWLYHHSLVWHPRORJLFDOWKHRULHV ,QVXPZKLOH67 LVLQIDFWLQGLVSHQVDEOHIRU*ROGPDQ¶VWKHRU\WKHUHLV QRFRQFHLYDEOHZD\KRZWRDSSURSULDWHO\PRGLI\LWLQRUGHUWRDFFRPPRGDWH 47  7KHUHIRUH LQ WKH IDFH RI WKH FRQIOLFW EHWZHHQ 67  DQG 47  LW LV DSSDUHQWO\WKHODWWHUWKDWQHHGVWREHJLYHQXSZLWKLQWKHWKHRU\LQTXHVWLRQ +RZHYHU LW ZRXOG EH YHU\ XQGHVLUDEOH WR UHMHFW 47  WRXW FRXUW IRU LW HPEUDFHV WKH UROH RI WKH SULPDU\ FRQGLWLRQ RI DGHTXDF\ IRU D PHQWDOLVWLF 

 &+$37(5  WKHRU\ RI MXVWLILFDWLRQ 7KH UHMHFWLRQ RI 47  ZRXOG DOVR VHULRXVO\ WKUHDWHQ *ROGPDQ¶VWKHRU\ 6&RKHQJLYHVDGLIIHUHQWDUJXPHQWDJDLQVW47  WKHMXVWLILFDWLRQWKHRULVWLVLQYHVWLJDWLQJWKHRUGLQDU\FRQFHSWRIMXVWLILHGEHOLHI²WKH FRQFHSW WKDW LV H[SUHVVHG E\ RXU RUGLQDU\ XVH RI ³MXVWLILHG EHOLHI´  >:@H FRQVWUXH WKHMXVWLILFDWLRQWKHRULVWDVWU\LQJWRGHWHUPLQHZKDWZHPHDQLQDYHU\EURDGVHQVH ZKHQZHRUGLQDULO\VD\RISHRSOHWKDWWKH\KDYHMXVWLILHGEHOLHIV7KHSUREOHPZLWK WKLVZD\RIYLHZLQJPDWWHUVLVWKDW³MXVWLILHG´LVDWHUPZHGRQRWRUGLQDULO\DSSO\WR EHOLHIV7KHUHLVQRRUGLQDULO\XVHGH[SUHVVLRQ³MXVWLILHGEHOLHI´&RKHQ 

2QFH KRZHYHU ZH FRQVHQW WR GLVSHQVH ZLWK 47  &RKHQ¶V FRQFOXVLRQ ZRXOGEHLQHYLWDEOH³>W@KHUHLVQRVLJQLILFDQWSKLORVRSKLFDOLVVXHUHJDUGLQJ MXVWLILHG EHOLHI´ &RKHQ    7KH SURMHFW RI PLQLPDOLVW WKHRULHV RI MXVWLILFDWLRQ DV EURXJKW RXW LQ WKLV ERRN QHHG QRW KRZHYHU WXUQ RQ WKLV UDGLFDOYLHZ :KLOH QHLWKHU 67  QRU47 FDQ EH HDVLO\ GLVFDUGHG DQG WRJHWKHU WKH\ DUH SUREOHPDWLF OHW PH VXJJHVW DQRWKHU ZD\ WKDW PLJKW SURYH KHOSIXO WR GHOLQHDWHEHWZHHQWKHVHWZRFRQIOLFWLQJPHWDOHYHOSURSHUWLHVRI*ROGPDQ¶V WKHRU\,FLWHG*ROGPDQ¶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³6FRPSXWDWLRQDOFRQVHTXHQFH´ZDVPRWLYDWHGE\WKHTXLHWLVWLFFKDUDFWHURI *ROGPDQ¶V WKHRU\ LQ SDUWLFXODU E\ WKH FRQVLGHUDWLRQ WKDW GUDZLQJ XSRQ ³ORJLFDO FRQVHTXHQFH´ LQVWHDG RI ³6FRPSXWDWLRQDO FRQVHTXHQFH´ ZLOO EH LPSODXVLEOHLQYLHZRIWKHDFWXDOHSLVWHPLFDJHQW¶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

6758&785$/5(/,$%,/,60   7RXQUDYHOWKLVSRLQWOHWPHUHFDOO*ROGPDQ¶VGLVWLQFWLRQEHWZHHQHSLVWHPLF DQGQRQHSLVWHPLFWHUPV7KHWHUP³LVSUREDEOH´ZDVSUHVHQWLQERWKJURXSV ZLWK D VKRUW FRPPHQW E\ *ROGPDQ RQ WKH LQWHQGHG PHDQLQJ 7KXV ³LV SUREDEOH´ LV DQ HSLVWHPLF FRQFHSW ZKHQ LW LV QRW D IUHTXHQF\ FKDQFH RU SURSHQVLW\FRQFHSWRISUREDELOLW\RWKHUZLVHLWEHORQJVWRWKHVHFRQGJURXS ,W KDV EHHQ WDNHQ IRU JUDQWHG WKDW SUREDELOLW\ LQ WKH QRQHSLVWHPLF VHQVHLV DVFULEHG WR HYHQWV SURFHVVHV RFFXUUHQFHV VWDWHV RI DIIDLUV RU VRPH RWKHU SDUWVRIWKHPLQGLQGHSHQGHQWZRUOG$QGLILWLVDSSOLHGWRSURSRVLWLRQVRU VHQWHQFHVLWLVRQO\GHULYDWLYHO\VREHFDXVHZHFDQLGHQWLI\WKHREMHFWVZH ZDQWWRFDOO³SUREDEOH´ZLWKRXWDQ\UHIHUHQFHWR³SURSRVLWLRQDOFRQWHQW´EXW E\UHIHUULQJRQO\WRWKHLUSK\VLFDORUPDWKHPDWLFDOSURSHUWLHV'HILQLWLRQ RQWKHRWKHUKDQGGRHVQRWHQGRUVHWKHH[LVWHQFHRIDQ\WKLQJHOVHDSDUWIURP WKH SURSRVLWLRQDO DWWLWXGHV UHTXLUHG DV D QHFHVVDU\ FRQGLWLRQ IRU D IXOO\ OHJLWLPDWH WKHRU\ RI MXVWLILFDWLRQ 7KH GLVFRPIRUW 67 PRWLYDWHG HSLVWHPRORJLFDO WKHRU\ ILQGV ZLWK GHILQLWLRQ  LV DOVR UHFRJQL]HG DV WKH JHQHUDOLW\SUREOHP :HKDYHKRZHYHUDOUHDG\QRWLFHGWKDWZKLOH*ROGPDQ¶VWKHRU\FDQQRW EHVXVWDLQHGZLWKRXW67 WKHODWWHULVLQFRPSDWLEOHZLWK47 1RZLWWXUQV RXW WKDW GURSSLQJ 47  ZLOO DOVR UHTXLUH GLVFDUGLQJ 0(7-  ,W ORRNV DV LI *ROGPDQ¶V WKHRU\ LV FDXJKW EHWZHHQ D URFN DQG D KDUG SODFH HLWKHU LW LV IRUFHGWRUHWDLQ67 DQGGLVSHQVHZLWKERWK47 DQGGHILQLWLRQRULW UHWDLQV 47  DQG 0(7-  DQG GLVFDUGV 67  ,Q HLWKHU FDVH WKRXJK WKH LGHQWLW\ RI *ROGPDQ¶V WKHRU\ PD\ WXUQ RXW WR EH VSXULRXV 7KLV GLOHPPD FDXVHG E\ LQWHUQDO WHQVLRQV ZLWKLQ WKH YDULRXV UHTXLUHPHQWV WKDW PRWLYDWH *ROGPDQ¶VWKHRU\LVZHOOWDNHQDQGWKHPRUDOLVWKHQWKDWWKHWKHRU\FDQQRW EHVXVWDLQHGZLWKRXWJLYLQJXSDVXEVWDQWLDOSRUWLRQRILW:KLFKRQH"%HORZ , ZLOO VXJJHVW RQH DOWHUQDWLYH ZKLFK VHHPV WR UHVWRUH WKH VXEVWDQWLDO PRWLYDWLRQ XQGHUO\LQJ 67  DQG ZKLFK DOVR SUHVHUYHV WKH LQWXLWLRQV XQGHUO\LQJ 47  7KH ODWWHU KRZHYHU KDV WR EH PRGLILHG DFFRUGLQJO\ WR UHIOHFWWKHIDFWWKDWGHILQLWLRQLVWREHVXEVXPHGE\DQHZUHTXLUHPHQW



7KH0LQLPDOLVW7KHRU\RI-XVWLILFDWLRQDQG 6WUXFWXUDO5HOLDELOLVP

$V DUJXHG LQ WKH IRUHJRLQJ D SODXVLEOH WKHRU\ RI MXVWLILFDWLRQ VKRXOG LQFOXGHDVXLWDEO\UHIRUPXODWHG67 $ILUPJUDVSRIZKDW67 ZDVLQLWLDOO\ LQWHQGHG IRU ZLOO SHUKDSV DOORZ IRU GHOLQHDWLRQ RI LWV HVVHQWLDO SDUW LI DQ\ *ROGPDQDUWLFXODWHVKLVSULPDU\LQWHQWLRQWKXV 7KH WHUP ³MXVWLILHG´ , SUHVXPH LV DQ HYDOXDWLYH WHUP D WHUP RI DSSUDLVDO $Q\ FRUUHFWGHILQLWLRQRUV\QRQ\PRILWZRXOGDOVRIHDWXUHHYDOXDWLYHWHUPV,DVVXPHWKDW



 

&+$37(5 VXFKGHILQLWLRQVRUV\QRQ\PVPLJKWEHJLYHQEXW,DPQRWLQWHUHVWHGLQWKHP,ZDQW D VHW RI VXEVWDQWLYH FRQGLWLRQV WKDW VSHFLI\ ZKHQ D EHOLHI LV MXVWLILHG *ROGPDQ  

+H VHHPV WR EH VXJJHVWLQJ KHUH WKDW WKH WKHRU\ LV VXEVWDQWLYH LI LWV DFFRXQWRIWKHQHFHVVDU\DQGVXIILFLHQWFRQGLWLRQVRIWKHMXVWLILFDWRU\VWDWXV RIEHOLHILVQRWOLPLWHGWRWKHPHUHDFTXDLQWDQFHRIHSLVWHPRORJLVWVZLWKWKH DSSURSULDWHUXOHVJRYHUQLQJODQJXDJHXVDJH:KDWVHHPVFUXFLDOLVWKDWWKH WKHRU\VKRXOGDOVRSURYLGHXVZLWKWKHFULWHULDRIDGHTXDWHHYDOXDWLRQRIWKH MXVWLILFDWRU\VWDWXVRI6¶VEHOLHIZKLFKKDYHWREHLQGHSHQGHQWRIWKHXVDJHRI HSLVWHPRORJLFDOODQJXDJHDQGWKHLQWURVSHFWLYHFDSDFLWLHVRI6WRUHIOHFWXSRQ KHURZQEHOLHIV $SSDUHQWO\*ROGPDQ¶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yMFLFNLIRULQVWDQFHGHPRQVWUDWHVWKDWRQWKHJURXQGVRID PLQLPDOLVWWKHRU\RIMXVWLILFDWLRQLWLVVWLOOSRVVLEOHWRSURYLGHDPHQWDOLVWLF WKHRU\RIVFLHQWLILFNQRZOHGJH:yMFLFNLD ,QP\SDSHU ³7ZR &RQFHSWV RI -XVWLILFDWLRQ´ .DZDOHF D  ZKHUH , LGHQWLILHG DQG GLVWLQJXLVKHGWZRNLQGVRIWKHRULHVRIHSLVWHPLFMXVWLILFDWLRQ,XVHGWKHWHUP 

6758&785$/5(/,$%,/,60   ³PHWKRGRORJLFDO´WRUHIHUWRWKHNLQGRIWKHRU\RIMXVWLILFDWLRQSURMHFWHGE\ ORJLFDOHPSLULFLVWV7KHWHUP³PHWKRGRORJLFDO´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

2Q WKH RWKHU KDQG KRZHYHU &DUQDS XVHV WKH WHUP ³PHWKRGRORJLFDO´ KDYLQJ LQ PLQG DOO LVVXHV FRQFHUQLQJ WKH DSSOLFDWLRQ RI ORJLFDO WKHRULHV &DUQDS   0RUHRYHU WKLV XVDJH LV DOVR DFNQRZOHGJHG E\ HSLVWHPRORJLVWV VLQFH RQ WKLV YLHZ ³>H@SLVWHPRORJ\ LV WKH VWXG\ RI PHWKRGRORJ\ DQG SURSHU PHWKRGRORJ\ LV WKH SURYLQFH RI GHGXFWLYH ORJLF LQGXFWLYH ORJLF SUREDELOLW\ WKHRU\ DQG VWDWLVWLFV (SLVWHPRORJ\ UHGXFHV WR WKHVHVXEMHFWVDOORIZKLFKDUHIRUPDOGLVFLSOLQHV(PSLULFDOVFLHQFHVDUHQRW QHHGHG´*ROGPDQ  7KHUHIRUHLQVWHDGRI³PHWKRGRORJLFDO´,SURSRVHKHUH³PLQLPDOLVW´)RU WKH WKHRULHV RI MXVWLILFDWLRQ PRWLYDWHG E\ WKH FRQGLWLRQ 0,7-  WKDW , VWDWH EHORZPDNH PLQLPDORQWRORJLFDOFRPPLWPHQWVFRQFHUQLQJWKHH[LVWHQFHRI DVZHOODVWKHRQWLFQDWXUHRIMXVWLILFDWLRQEHDUHUVVXFKDVPHQWDOVWDWHV7KXV ZHKDYH '(),1,7,210LQLPDOLVWWKHRU\RIMXVWLILFDWLRQ0,7-  7LVDPLQLPDOLVWWKHRU\RIWKHHSLVWHPLFFRQFHSWRIMXVWLILFDWLRQRQO\LIWKH WHUP ³MXVWLILHG´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²LQ RSSRVLWLRQ WR GHILQLWLRQ²GRHV QRW RYHUWO\ DFNQRZOHGJH DQ\ SV\FKRORJLFDO 

 &+$37(5  FRPPLWPHQWV 3UHFLVHO\ WKLV SRLQW FRQVWLWXWHV WKH JURXQGV RI *ROGPDQ¶V REMHFWLRQ DJDLQVW PLQLPDOLVW HSLVWHPRORJLFDO WKHRULHV +LV FULWLFLVP KRZHYHU LV FRQGLWLRQDO RQ WKH IDFW WKDW ³>W@KH QRWLRQ RI MXVWLILFDWLRQ LV GLUHFWHG SULQFLSDOO\ DW EHOLHIV´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²ZKLFKKHFDOOVWKHWKHRU\RI³SURSRVLWLRQDOMXVWLILFDWLRQ´²WRD PHQWDOLVWLFWKHRU\LQYLHZRIWKHIDFWWKDW³µSV\FKRORJLFDOO\UHDO¶LQIHUHQFHV FRUUHVSRQG WR MXVWLILHG LQIHUHQWLDO UHODWLRQV DPRQJ SURSRVLWLRQV´ 3DVWLQ    :KDW LV REMHFWLRQDEOH LQ KLV DSSURDFK KRZHYHU LV WKDW VXFKD PHQWDOLVWLF WKHRU\ ZRXOG SUHVXSSRVH ³HPSLULFDOO\ LGHDO EHOLHYHU´ YLRODWLQJ WKHUHE\47 0RUHRYHUWKHFRQGLWLRQVWKDW3DVWLQLPSRVHVRQ³HPSLULFDOO\ LGHDOEHOLHYHU´DUHWKHPVHOYHVGHEDWDEOH/HKUHUE ,QJHQHUDO LW LV ZLGHO\ DVVXPHG WKDW WKH WUDQVLWLRQ IURP D PLQLPDOLVW WKHRU\ RI MXVWLILFDWLRQ WR D PHQWDOLVWLF WKHRU\ WXUQV RQ DQ DFFRXQW RI WKH UHODWLRQ EHWZHHQ SURSRVLWLRQV DQG EHOLHI FRQWHQWV $XGL   0DUFLV]HZVNL  UDWKHUWKDQSV\FKRORJLFDOLGHDOL]DWLRQV $V D PDWWHU RI IDFW ZH FDQQRW DIIRUG WR LJQRUH WKDW DFWXDO HSLVWHPLF DJHQWV LQGHHG IRVWHU SURSRVLWLRQDO DWWLWXGHV WRZDUGV VFLHQWLILF VHQWHQFHV , UHIHUKHUHWR³VHQWHQFHV´UDWKHUWKDQ³SURSRVLWLRQV´IRUWZRUHDVRQV7KHILUVW LVWKDWWKHPLQLPDOLVWWKHRULHVWKDW,DPJRLQJWRSUHVHQWLQWKHHQVXLQJUHIHU SULPDULO\WR³VHQWHQFHV´DOWKRXJKWKHVHWKHRULHVGRQRWWXUQRQUHIHUULQJWR ³VHQWHQFHV´ UDWKHU WKDQ ³SURSRVLWLRQV´ 7KH VHFRQG LV WKDW UHIHUULQJ WR ³SURSRVLWLRQV´ZRXOGHQJDJHPHLQRQWRORJLFDODQGOLQJXLVWLFSUREOHPVWKDW DUHLUUHOHYDQWIRUWKHSXUSRVHDWKDQG0,7- LQRSSRVLWLRQWR0(7- GRHV QRW OLPLW WKH DFFRXQW RI SURSRVLWLRQDO DWWLWXGHV WR EH FDVW RQO\ LQ WHUPV RI IXOOEHOLHIV LW DOORZV IRU PXFK OHVV FRQILGHQW .DSODQ    RU GR[DVWLFDOO\LPSRUWHG SV\FKRORJLFDO DWWLWXGHV .DZDOHF D  0,7-  SHUPLWVWKDWGR[DVWLFDQGQRQGR[DVWLFDWWLWXGHVEHNHSWVHSDUDWHO\,QGHHG 0(7-  DQG 0,7-  VHHP WR ILW QLFHO\ ZLWK VRPH HSLVWHPRORJLFDO GLVWLQFWLRQVIRULQVWDQFHEHWZHHQGLIIHUHQWVHQVHVRI³LQIHUHQFH´ 

6758&785$/5(/,$%,/,60



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´$XGL 

,Q WKH SUHYLRXV VHFWLRQ ZH REVHUYHG WKDW 67  DQG 47  DUH LQ FRQIOLFW FRQGLWLRQDO RQ 0(7-  $GPLWWHGO\ 0,7-  DV D PHWDOHYHO FRQVWUDLQW LV PRUH SURPLVLQJ LQ WKH FRQVWUXFWLRQ RI DQ HSLVWHPRORJLFDO WKHRU\ RI MXVWLILFDWLRQIRULWVXSSRVHGO\DOOHYLDWHVWKHWHQVLRQEHWZHHQ67 DQG47  )RU0,7- SURYLGHV3WDVDQHZGRPDLQZLWKUHVSHFWWRZKLFK7KDVWREH TXLHWLVWLF $QG LW LV SUHFLVHO\ WKLV GRPDLQ WKDW KDV EHHQ WUDGLWLRQDOO\ UHFRJQL]HG DV RQH ZKHUH DOO VRUWV RI ³GR[DVWLF PHWDSK\VLFDO PRGDO VHPDQWLFRUV\QWDFWLF´H[SUHVVLRQVFODVVLILHGE\*ROGPDQDVQRQHSLVWHPLF DUHQDWXUDOO\ORFDWHG,IDOOWKHVHQRQHSLVWHPLFFRQFHSWVDUHDWKRPHZLWK3W WKHQQRSUREOHPVLPLODUWR-RQHV¶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¶VVROXWLRQRILW %HIRUH , SURFHHG IXUWKHU LW VKRXOG EH HPSKDVL]HG WKDW LQ WKH HQVXLQJ , ZLOOUHIUDLQIURPGHDOLQJZLWKZKDW*ROGPDQFDOOVD³EDVHFODXVH´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

 &+$37(5  DV GLUHFWO\ MXVWLILHG LQ RQH FRQWH[W RU ZKDW FRXQWV DV GLUHFWO\ MXVWLILHG FRQGLWLRQDO RQ RQH SHUVRQ¶V EDFNJURXQG NQRZOHGJH PD\ FRXQW DV LQIHUHQWLDOO\ MXVWLILHG LQ D GLIIHUHQW FRQWH[W RU RQ DQRWKHU SHUVRQ¶V EDFNJURXQG NQRZOHGJH ³ZH FDQQRW LQ JHQHUDO VSHFLI\ SURSRVLWLRQV ZKLFK FDQEHEHOLHYHGRQO\LQRQHZD\RUGHWHUPLQHZKHWKHUDEHOLHILVLQIHUHQWLDO E\FRQVLGHULQJMXVWWKHSURSRVLWLRQEHOLHYHG´$XGL  :LWK WKH UHVWULFWLRQ WR WKHRULHV RI LQIHUHQWLDO MXVWLILFDWLRQ DW KDQG , ZLOO QRZ SURFHHG WR VWDWH WKH WZR PRVW LPSRUWDQW FRQGLWLRQV IRU D VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ $FFRUGLQJO\ WKHVH FRQGLWLRQV DUWLFXODWH ZKDW GRHV LW PHDQ IRU D VHQWHQFH²WDXWRORJLFDO RU QRQWDXWRORJLFDO²WR EH MXVWLILHG 6XSSRVHZHKDYHWZRVHQWHQFHVZKLFKDUHPHPEHUVRI3W³$OODQLPDOV ZKLFK KDYH D KHDUW KDYH D OLYHU DV ZHOO´ DQG ³7KH GRJ FDOOHG µ$OGL¶ KDVD KHDUWDQGDOLYHU´,IZHDUHWRHODERUDWHWKHMXVWLILFDWRU\VWDQGDUGVVWDUWLQJ IURP VDPSOH VHQWHQFHV OLNH WKHVH ZH QHHG WR EHDU LQ PLQG WKH 17  FRQGLWLRQ ZKLFK SUHVFULEHV XV QRW WR VWLFN WR FORVHO\ WR WKH LQLWLDO VDPSOH )RU WKHUH DUH PDQ\ SRVVLEOH FRQWHQWGULYHQ GHVFULSWLRQV RI WKH WZR VDPSOH VHQWHQFHVEXWZKLFKVWLOOZLOOIDLOWRFRQVWLWXWHDJHQHULFVHWRIFRQGLWLRQV RIMXVWLILFDWLRQ)RULQVWDQFHZHFRXOGPRGLI\67 WKXV 67¶ 

7KHRU\7RIWKHFRQFHSWRIMXVWLILFDWLRQ-LVVXEVWDQWLYHLIIWKH QHFHVVDU\ DQG VXIILFLHQW FRQGLWLRQV 7 JLYHV IRU - DUH VWDWHG LQ DQDWRPLFWHUPV

67¶  KRZHYHU ZRXOG HYHQ EH OHVV VDWLVIDFWRU\ WKDQ 67  VLQFH ³DQDWRPLF´ LV RQO\ D YHU\ QDUURZ DQG DSSHDUV DV DQ DUELWUDU\ VXEFODVV RI ³QRQHSLVWHPLF´ :H WKXV UHDOL]H WKDW WKH FRQGLWLRQV VWDWHG E\ 67¶  DUH QHLWKHU QHFHVVDU\ QRU VXIILFLHQW IRU D WKHRU\ RI MXVWLILFDWLRQ 7KH\ DUH QRW QHFHVVDU\ IRU WKH UHDVRQ MXVW VWDWHG LH WKH DQDWRPLF WHUPV IRUP RQO\ D VXEFODVV RI ³QRQHSLVWHPLF´ WHUPV DQG ZH KDYH QR JRRG JURXQGV WR UHSXGLDWH WKH FKDUJH WKDW LW LV DQ DUELWUDU\ VXEFODVV +RZHYHU LW LV RQO\ D PDQLIHVWDWLRQRIDPRUHJHQHUDOSUREOHPIRUDQ\FRQWHQWGULYHQVSHFLILFDWLRQ RIDVXEFODVVRI³QRQHSLVWHPLF´WHUPV)RURQWKHRQHKDQGWKHUHPLJKWEH VHYHUDO FRPSHWLQJ VXEFODVVHV OLNH ³DQDWRPLF´ ³SK\VLRORJLFDO´ ³SK\VLFDO´ RU HYHQ ³IXQFWLRQDO´ HDFK RI ZKLFK PLJKW EH FODLPHG WR UHSUHVHQW D SODXVLEOHDOWHUQDWLYHEXWHDFKRIZKLFKSHUKDSVZRXOGEHFRQILQHGWRDYHU\ OLPLWHGDQGRIWHQDUELWUDU\UDQJHRIFDVHV2QWKHRWKHUKDQGKRZHYHUWKHUH PLJKW EH JRRG FDQGLGDWHV WR VXEVXPH ³QRQHSLVWHPLF´ ZKLFK ZRXOG QRQHWKHOHVV\LHOGDGLIIHUHQWOHYHORIJHQHUDOLW\RUZRUOGVOLFLQJHJPLFUR DQGPHJDVFRSLFOHYHORIGHVFULSWLRQ7KLVSUREOHPKRZHYHUGRHVQRWVHHP WR EH H[FOXVLYHO\ FRQILQHG WR 67¶  EXW ZRXOG UDWKHU FRQFHUQ DQ\ VLPLODU FRQWHQWGULYHQSULQFLSOH 

6758&785$/5(/,$%,/,60



 7KH RIIHU RI SURYLGLQJ D FRQWHQWGULYHQ VSHFLILFDWLRQ RI VXIILFLHQW FRQGLWLRQVZLWKLQ67 IDUHVQREHWWHU$SULPDIDFLHREMHFWLRQLVWKDWHYHQLI WKLV URXWH FDQ EH VXFFHVVIXOO\ IROORZHG LW ZLOO \LHOG D YHUVLRQ RI 67  LQFRPSDWLEOHZLWK17 )RULWLVFOHDUWKDWVXIILFLHQWFRQGLWLRQH[SUHVVHGLQ ³DQDWRPLF´WHUPVZLOOQRWEHDVXIILFLHQWFRQGLWLRQIRUDOONLQGVRIVHQWHQFHV ZKLFKDUHPHPEHUVRI3WHJVHQWHQFHVVWHPPLQJIURPSK\VLFVRUKLVWRU\ +DYLQJ ILJXUHG RXW ZKDW NLQGV RI WHUPV WKHUH DUH WR FRYHU DOO VRUWV RI VHQWHQFHVZKLFKDUHWKHPHPEHUVRI3WZHZLOOHQGXSZLWKDJUHDWQXPEHU RIVXIILFLHQWFRQGLWLRQVIRUWKHNLQGVRIWHUPVLQTXHVWLRQ7KLVLQWXUQZLOO LPSRVHDJUHDWQXPEHURISDUWLWLRQFHOOVXSRQ3WWKXVYLRODWLQJ17  $QRWKHUUHDVRQZK\FRQWHQWGULYHQVSHFLILFDWLRQRIVXIILFLHQWFRQGLWLRQV IRU67 ZLOOQRWJUDQWWKHWKHRU\7LQTXHVWLRQWKH³VXEVWDQWLYH´FKDUDFWHULV WKLVVXSSRVHWKDWZHFDQFDUU\RXWWKHFRQWHQWUHODWLYHSDUWLWLRQRI3WDQGE\ WKH VDPH WRNHQ WKH SDUWLWLRQ RI WKH VXIILFLHQW FRQGLWLRQV RI 67  LQ D ZD\ ZKLFKDFFRUGVZHOOZLWK17 (DFKRIWKHSDUWLWLRQHGVXIILFLHQWFRQGLWLRQV ZLOO DPRXQW WR DFNQRZOHGJLQJ WKDW 7 LV ³VXEVWDQWLYH´ IRU WKLV SDUW RI WKH GLVFRXUVHZKLFKLVGLVFULPLQDWHGE\WKHDSSURSULDWHNLQGRIWHUPVZLWKLQ3W 6XSSRVH IXUWKHU WKDW HDFK VXIILFLHQW FRQGLWLRQ LV D OHJLWLPDWH RQH HJ WKDW WKH VXIILFLHQW FRQGLWLRQVWDWHGLQ ³DQDWRPLF´WHUPV LV D VXIILFLHQW FRQGLWLRQ IRU 7 WR EH VXEVWDQWLYH 6LQFH WKH VXIILFLHQW FRQGLWLRQ FDVW LQ ³DQDWRPLF´ WHUPV GRHV QRW KDYH D XQLYHUVDO DSSOLFDELOLW\ IRU DOO NLQGV RI GLVFRXUVH LW LPSOLHVWKDW7LVVXEVWDQWLYHRQO\ZLWKUHVSHFWWRWKHNLQGRIGLVFRXUVHZKLFK LV GLVFULPLQDWHG E\ ³DQDWRPLF´ WHUPV 7KLV VXIILFLHQW FRQGLWLRQ WHOOV XV QRWKLQJ KRZHYHU DERXW 7¶V EHLQJ VXEVWDQWLYH LQ RWKHU NLQGV RI GLVFRXUVH EH\RQGWKH³DQDWRPLF´RQH:KDWWKLVVHHPVWRHQGRUVHWKHQLVDGLVFRXUVH UHODWLYHFRQFHSWRI³VXEVWDQWLYH´WKHRU\VXFKDFRQFHSWDVZHKDYHDOUHDG\ QRWLFHGZRXOGXQGHUPLQHWKHQRPLFFKDUDFWHURIWKHWKHRU\LQTXHVWLRQ $QDOWHUQDWLYHWRWKHIRUHJRLQJZD\VWRPRGLI\67 PLJKWEHDFRQWHQW LQGHSHQGHQW IRUPXODWLRQ RI QHFHVVDU\ DQG VXIILFLHQW FRQGLWLRQV IRU MXVWLILFDWLRQ FRQWLQXRXV ZLWK 0,7-  7KLV FRXOG IRU LQVWDQFH EH D PRGLILFDWLRQZKLFKZRXOGWXUQRQWKHVWUXFWXUHRIJLYHQVHQWHQFHV7KXVWKH LQLWLDO³DQDWRPLF´VHQWHQFHVFRXOGUHDGDVIROORZV³∀[>+[ ≡/[ @´DQG ³+D  ∧ /D ´ RU ³∃[>+[  ∧ /[ @´ ZKHUH ³+´ VWDQGV IRU ³KDV D KHDUW´ ³/´²³KDV D OLYHU´ DQG ³D´²³$OGL´ 7KH VHHPLQJ DGYDQWDJH RI WKLV DSSURDFK RYHU WKH FRQWHQWGULYHQ RQH LV WKDW LW LV XQLYHUVDO DFURVV GLIIHUHQW FRQWHQWVSHFLILF NLQGV RI GLVFRXUVH XQOHVV ZH GR QRW KDYH DSSURSULDWH ORJLFDO PHDQV WR FRSH ZLWK WKH VWUXFWXUH RI VHQWHQFHV :KLOH FRQVHQWLQJ WR WKH LUUHOHYDQFH RI WKH FRQWHQW RI VHQWHQFHV ZH FDQ DIIRUG D XQLIRUP VHW RI ³VWUXFWXUDO´WHUPVWRSURYLGHWKHQHFHVVDU\FRQGLWLRQZLWKLQ67 



 &+$37(5  '(),1,7,216WUXFWXUDOO\VXEVWDQWLYHWKHRU\676  $PLQLPDOLVWWKHRU\RIMXVWLILFDWLRQ7LVVXEVWDQWLYHRQO\LI7VWDWHVQHFHVVDU\ FRQGLWLRQVIRUMXVWLILFDWLRQLQVWUXFWXUDOWHUPV ,WLVUDWKHUVWUDLJKWIRUZDUGWKDW676 LVFRQWLQXRXVZLWK67 VLQFHZH DSSUHFLDWH WKDW WKH EXLOGLQJEORFNV RI ³VWUXFWXUDO WHUPV´ LH ³PRGDO VHPDQWLFRUV\QWDFWLFH[SUHVVLRQVDUHQRWHSLVWHPLF´6WLOOWKHUHPD\PRUH WKDQRQHZD\WRHOXFLGDWHWKHPHDQLQJRIWKHWHUP³VWUXFWXUDO´RFFXUULQJLQ 676 3URYLGHGZHOLPLWWKHGLVFXVVLRQDVSHUWDLQVWRLQGXFWLYHORJLFWKHUH VWLOO VHHP WR EH WZR PDMRU DOWHUQDWLYH DSSURDFKHV²DV ZDV LQ VRPH GHWDLO LOOXVWUDWHG LQ FKDSWHU 2QH LV WR SURYLGH D PL[HG UHSUHVHQWDWLRQ RI SUREDELOLW\VSDFHFRPELQLQJWKHVWDQGDUGSUREDELOLW\WKHRU\ZLWKVHPDQWLFDO FRQFHSWV HVS WKH FRQFHSW RI PRGHO DV D SRLQW LQ SUREDELOLW\ VSDFH DQG ORJLFDO YV IDFWXDO WUXWK FI &DUQDS D   7KH RWKHU DSSURDFK LV PRUHFRQILQHGWRWKHFDWHJRULHVRIWKHVWDQGDUGSUREDELOLW\WKHRU\VHHHJ VHFWLRQ  RI WKH ILUVW FKDSWHU .XLSHUV E +RZVRQ DQG 8UEDFK  =DEHOO 2IFRXUVHWKLVLVQRWDWULYLDOGLIIHUHQFHDQG,OHDYHLWIRUWKH PRPHQW DV DQ RSHQ TXHVWLRQ ZKHWKHU WKH GLIIHUHQFH EHWZHHQ WKH WZR DSSURDFKHV LV DOVR SULQFLSDO EXW VWLOO WKH IRUPHU LV DSSDUHQWO\ PRUH DSW WR VWUXFWXUDOO\PRGHOORJLFDOUHODWLRQVEHWZHHQVHQWHQFHVSURSRVLWLRQV $QGLI ZH LQVLVW RQ VXVWDLQLQJ WKH GLVWLQFWLRQ EHWZHHQ ORJLFDO DQG HPSLULFDO SUREDELOLW\WKHQWKHODWWHUDSSURDFKFRXOGEHUHVHUYHGWRPRGHOLQVWDQFHVRI FDUU\LQJRXWIDFWXDOLQGXFWLYHLQIHUHQFHV $V UHJDUGV WKH IRUPHU DSSURDFK LW PLJKW DSSHDU WKDW ³VWUXFWXUDO WHUPV´ ZRXOG EH VHYHUHO\ OLPLWHG EHFDXVH RI WKH FRQILQHG YRFDEXODU\ RI WKH ODQJXDJHV VWXGLHG LQ WKH V\VWHPV RI LQGXFWLYH ORJLF 7KLV ZRUU\ KRZHYHU PD\EHVRPHZKDWDOOHYLDWHGE\RXWOLQLQJWKHUHVXOWVZKLFKFRXOGEHVHHQDV FRQWLQXRXV ZLWK WKH GLVFXVVHG DSSURDFK )RU LQVWDQFH + *DLIPDQ DQG 0 6QLU *DLIPDQ DQG 6QLU   VHW RXW D IDLUO\ FRPSOH[ VWUXFWXUH IRU D ODQJXDJH ZKLFK LV ULFK HQRXJK WR SURYH - / 'RRE¶V EDVLF PDUWLQJDOH FRQYHUJHQFHWKHRUHPURXJKO\LIWKHHYLGHQFHLVVXIILFLHQWO\FRPSOHWHWKHQ DOPRVWVXUHO\WKHSRVWHULRUSUREDELOLW\RIDK\SRWKHVLVKDSSURDFKHVLIKLV WUXH  $ KLJKO\ VRSKLVWLFDWHG SURMHFW FRQWLQXRXV ZLWK WKH V\VWHPV RI LQGXFWLYH ORJLF SUHVHQWHG LQ FKDSWHU  LV EURXJKW RXW E\ 5 &KXDTXL ,Q D VLPLODU YHLQ KH DWWHPSWV WR H[SOLFDWH WKH FRQFHSW RI SUREDELOLW\ DV ³WKH GHJUHHRISRVVLELOLW\RIWUXWK´GUDZLQJXSRQERWKVHPDQWLFDOFRQFHSWVHJ PRGHODQGWUXWK DQGDPRGLILHGSULQFLSOHRILQGLIIHUHQFHFI&KXDTXL   $ JHQHUDO UHSUHVHQWDWLRQ WKHRUHP LV SURYHG WR WKH HIIHFW WKDW DQ\ VWRFKDVWLF SURFHVV FDQ EH DSSUR[LPDWHG XS WR DQ LQILQLWHVLPDO E\ WKLV ³UHODWLRQDO´YDULHW\RIVWUXFWXUDOUHSUHVHQWDWLRQHVSRXVHGE\&KXDTXL 

6758&785$/5(/,$%,/,60





7KLVRXWOLQHLVPHDQWWRUXOHRXWVRPHLPSRUWDQWDOWHUQDWLYHVUDWKHUWKDQ WR SURYLGH D SUHFLVH LQGLFDWLRQ RQ KRZ WR SLFN RXW V\VWHPV RI  VWUXFWXUDO WHUPV$QGSHUKDSVQRQHRIWKHDXWKRUVGLVFXVVHGLQWKLVERRNZLOOFODLPWKDW DWWKHSUHVHQWVWDJHRIWKHGHYHORSPHQWRIVFLHQFHVXFKDUHVROXWLRQFRXOGEH DFFRPSOLVKHG
/HW0EHWKHVHWRIDOOPRGHOVRIDJLYHQODQJXDJHV\VWHP/ZLWK67DVWKH YRFDEXODU\RI/ DQG)DıILHOGJHQHUDWHGE\WKHVHWRIDWRPLFVHQWHQFHVRI /RQ0 $VHQWHQFH 67SRI/LVDVWUXFWXUDOWUDQVODWLRQRIDVHQWHQFHSRI3WLIIWKHUHLV DVHWRIPRGHOV0∈)LQZKLFK 67SLVWUXHDQG 67SLVREWDLQHGIURPSDIWHU HYHU\WHUPRFFXUULQJLQSZKLFKGRHVQRWEHORQJWR67QRUFDQEHH[SOLFLWO\ GHILQHGE\WHUPVZKLFKEHORQJWR67LVUHSODFHGE\DWHUPGHILQHGE\WHUPV ZKLFKEHORQJWR67 $ QXPEHU RI UHPDUNV FRPSOHPHQW WKLV GHILQLWLRQ 2I FRXUVH WKH VHQWHQFHV ZKLFK H[SUHVV D PHDVXUH GHILQHG RQ ) DUH DOVR UHJDUGHG DV VWUXFWXUDOWKRXJKWKH\DUHQRWLQFOXGHGLQVWUXFWXUDOWUDQVODWLRQ7KLVLVGXH WR WKH IDFW WKDW²RQ WKH VWUXFWXUDO WKHRU\ RI MXVWLILFDWLRQ²QRQVWUXFWXUDO MXGJPHQWV RI WKH GHJUHH RI MXVWLILFDWLRQ VXSHUYHQH RQ WKH SUREDELOLW\ PHDVXUH FRQILUPDWLRQ  RI WKH UHOHYDQW VHQWHQFH DQG QRW WKH RWKHU ZD\ 

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« 7KLV VHHPV XVHIXO IRU DEVWUDFW XQLQWHUSUHWHG  D[LRP V\VWHPV « >,@Q LQGXFWLYH ORJLF LW LV PRUH XVHIXO WR VSHFLI\ IRU HDFK LQYHVWLJDWLRQ RQFH IRU DOO WKH GRPDLQ RI LQGLYLGXDOV DQG « WKH SDUWLWLRQRIWKHYDOXHVSDFHWREHXVHGVRWKDWWKHVHVSHFLILFDWLRQVKROGIRUDOOPRGHOV WKDWLVIRUDOOSRVVLELOLWLHVFRQVLGHUHG&DUQDSD 

7KLVVKRXOGQRWKRZHYHUVXEVXPHRUFRQIODWHWKHGLIIHUHQFHEHWZHHQPRGHO DQGLQWHUSUHWDWLRQ 7KHRWKHUUHPDUNLVWKHIROORZLQJ,WLVSRVVLEOHWRLPDJLQHWKDWDWVRPH VWDJHRIWKHGHYHORSPHQWRIVFLHQFHWKHVHQWHQFHVRI3WFORVHO\UHVHPEOHWKHLU VWUXFWXUDOFRXQWHUSDUWV1RWZLWKVWDQGLQJWKLVVLPLODULW\WKHTXHVWLRQZKHWKHU 67 SLVWUXHLQDJLYHQPRGHO ³LVGRQHE\DSXUHO\ORJLFDODQDO\VLV´RIWKLV VHQWHQFH DQG WKH UHOHYDQW PRGHO ³ZLWKRXW DQ\ XVH RI IDFWXDO LQIRUPDWLRQ´ &DUQDSD 7KLVLVSHUWLQHQWWRWKHVWUXFWXUDOWKHRU\RIMXVWLILFDWLRQ HVSRXVHG LQ WKH V\VWHPV RI LQGXFWLYH ORJLF EHFDXVH IRUPDO FRQVLGHUDWLRQV DORQHVXIILFHWRGHWHUPLQHZKLFKPRGHOVDJLYHQVHQWHQFHLVWUXHLQDQGWKH WDVN RI GHWHUPLQLQJ GHJUHH RI FRQILUPDWLRQ RI D JLYHQ VHQWHQFH PD\ EH VWUDLJKWIRUZDUGO\UHOHJDWHGWRDPHDVXUHIXQFWLRQGHILQHGRQPRGHOV 7KH LVVXHOHIWRSHQ E\ WKH GHILQLWLRQRI VWUXFWXUDO WUDQVODWLRQLV ZKHWKHU WKHUHLVRQO\RQHODQJXDJHWRVHUYHDVDEDVLVIRUVWUXFWXUDOWUDQVODWLRQRIDOO VHQWHQFHV ZKLFK EHORQJ WR 3W" ,I WKH TXHVWLRQ FRQFHUQV WKH SUHVHQW VWDWH RI DIIDLUVWKHDQVZHUVKRXOGSHUKDSVEHLQWKHQHJDWLYH:RXOGLWKRZHYHUEH WKH VDPH JLYHQ WKH ZKROH KLVWRU\ RI WKH XQLYHUVH"$Q DQVZHU WR WKH ODWWHU TXHVWLRQ²DVDWWDLQDEOHRQWKHJURXQGVRIWKHV\VWHPVRILQGXFWLYHORJLF²DV ZHOODVWKHUHODWHGLVVXHZKHWKHUSDUDPHWHUVOLNHĮȖțRUȜDUHVWUXFWXUDO WHUPV²LVVWXGLHGLQVRPHPRUHGHWDLOLQVHFWLRQRIFKDSWHU 5HJDUGOHVVRIWKHTXHVWLRQVPHQWLRQHGLQWKHSUHFHGLQJSDUDJUDSKWKHUH LVVWLOODTXHVWLRQZKHWKHUVWUXFWXUDOWUDQVODWLRQLVXQLTXH"7KHKLVWRU\RIWKH V\VWHPVRILQGXFWLYHORJLFDVHYLGHQFHGWRVRPHH[WHQWE\FKDSWHURIWKLV ERRN SURYLGHV D JRRG JURXQG IRU VFHSWLFLVP (YHQ WKRXJK ZH ZRXOG VWLOO 

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³VXEVWDQWLYH´ FKDUDFWHU RI DQ HSLVWHPRORJLFDO WKHRU\ RI MXVWLILFDWLRQ FDVW LQ ³VWUXFWXUDO´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¶VEDVHFRQGLWLRQ%& LVRILQWHUHVWWRXVKHUH7KHIDFWWKDW,GR QRW SURYLGH D EDVH FRQGLWLRQ ZLWKLQ VWUXFWXUDO UHOLDELOLVP GRHV QRW PHDQ KRZHYHU WKDW QRQH FDQ EH JLYHQ 7KH UHDVRQ WR UHSUHVHQW WKH QHFHVVDU\ FRQGLWLRQ IRU MXVWLILFDWLRQ RQ WKH JURXQGV RI VWUXFWXUDO UHOLDELOLVP DV D FRXQWHUSDUW RI *ROGPDQ¶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



 &+$37(5  '(),1,7,215HFXUVLYHVWUXFWXUDOFRQGLWLRQ565  )RU DQ\ WZR VHQWHQFHV S DQG S ZKLFK DUH WKH PHPEHUV RI WKH VHW RI VHQWHQFHV3WSLVMXVWLILHGE\SRQO\LISLVVWUXFWXUDOO\WUDQVODWHGDV 67S DQGSLVVWUXFWXUDOO\WUDQVODWHGDV67SDQG67SLVMXVWLILHGE\67S 2I FRXUVH WKH ORFXWLRQ ³67S LV MXVWLILHG E\ 67S´ FDQ EH GHILQHG LQ GLIIHUHQW ZD\V 7KHUHIRUH 565  GRHV QRW GHWHUPLQH D XQLTXH VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ 1HYHUWKHOHVV , OLPLW P\ GLVFXVVLRQ WR IROORZWRWKHSUREOHPRIKRZWKH&DUQDS+LQWLNNDVW\OHV\VWHPVRILQGXFWLYH ORJLF GHILQH WKLV ORFXWLRQ $GPLWWHGO\ WKH YLDELOLW\ RI WKH VWUXFWXUDO UHOLDELOLVWUHFXUVLYHFRQGLWLRQIRUMXVWLILFDWLRQ565 WXUQVRQWKLVSUREOHP ,Q WKH QH[W WZR VHFWLRQV WR IROORZ , ZLOO SUHVHQW &DUQDS¶V DQG +LQWLNND¶V HSLVWHPRORJLFDOPRWLYDWLRQXQGHUO\LQJWKHLUGHIHQVHRI565 



&DUQDS¶V6WUXFWXUDO5HOLDELOLVP

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¶VV\VWHPVRILQGXFWLYH ORJLFDQGWKH)LQQLVK6FKRRO¶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

6758&785$/5(/,$%,/,60   HSLVWHPRORJLVWVUHIXVHWRDGPLWWKHUHOHYDQFHRI%D\HVLDQLVPWRWKHRULHVRI HSLVWHPLFMXVWLILFDWLRQ 7KHPRUDOIRUWKHSUHVHQWDUJXPHQWLVWZRIROG)LUVWWKHREMHFWLRQLVWKDW RQ&DUQDS¶VFRQVWUXDOLQ/RJLFDO)RXQGDWLRQVRI3UREDELOLW\&DUQDS  DQG LQ 7KH &RQWLQXXP RI ,QGXFWLYH 0HWKRGV &DUQDS E  WKH HSLVWHPRORJLFDO SUREOHPV DUH QRW RYHUWO\ GLVFXVVHG WKH V\VWHP RI LQGXFWLYH ORJLF LV SULPDULO\ D IRUPDO FRQVWUXFWLRQ DQG WKH HSLVWHPRORJLFDO LVVXHV DUH EXW D IROORZXS LQWHUSUHWDWLRQ QR PRUH UHOHYDQW WR WKH YHU\ FRQVWUXFWLRQ WKDQ LQ WKH FDVH RI GHGXFWLYH ORJLF 6HFRQG LW LV FUXFLDO WKDW &DUQDS¶VV\VWHPLVVHPDQWLFDOZKLFKXQGHUPLQHVWKHYHU\SRVVLELOLW\RILWV EHLQJ D WKHRU\ RI HSLVWHPLF MXVWLILFDWLRQ DV LW GRHV QRW DQ DIIRUG HSLVWHPLF VXEMHFW²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¶V LQGXFWLYH ORJLF DSSDUHQWO\ IDLO WR DSSUHFLDWH WKLVIDFW 7RJLYHWKHUHDGHUVRPHLGHDRIWKHIODYRURIWKHHSLVWHPRORJ\LQ/RJLFDO )RXQGDWLRQVRI3UREDELOLW\OHWPHSLFNRXWVRPHRILWVGLVFORVXUHV&DUQDS SHUVLVWHQWO\XVHVH[SOLFLWGHILQLWLRQVRIUHOHYDQWFRQFHSWVUDWKHUWKDQD[LRPV ZKLFKZRXOGKDYHFRQVWLWXWHGWKHLPSOLFLWGHILQLWLRQVRIWKHSULPLWLYHWHUPV )RU D ORJLFLVW OLNH &DUQDS LW LV RQO\ WKH ILUVW SURFHGXUH WKDW ZDUUDQWV WKH ORJLFDOFRQVWUXFWLRQRIDJLYHQREMHFWZKLOHWKHVHFRQGPHUHO\VWDWHVODZIXO FRQQHFWLRQV EHWZHHQ REMHFWV RI DQ\ GRPDLQ WKDW VDWLVI\ WKH D[LRPV ,W LV RQO\WKHIRUPHUDSSURDFKWRIRUPDOFRQVWUXFWLRQVWKDWZDUUDQWVWKHWKHVLVWKDW WKHRUHPV DUH ORJLFDO WUXWKV DERXW ZHOOGHILQHG REMHFWV &DUQDS GRHV QRW KHVLWDWHWRDGPLWWKDW :KLOH GHGXFWLYH ORJLF PD\ EH UHJDUGHG DV WKH WKHRU\ EDVHG XSRQ WKH FRQFHSW RI ORJLFDO FRQVHTXHQFH RU GHGXFLELOLW\ LQGXFWLYH ORJLF LV WKH WKHRU\ EDVHG XSRQ ZKDW



 

&+$37(5 PLJKWEHFDOOHGWKHGHJUHHRILQGXFLELOLW\WKDWLVWKHGHJUHHRIFRQILUPDWLRQ&DUQDS  

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¶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

6758&785$/5(/,$%,/,60   RQHSULPLWLYHSUHGLFDWH³ODQGVKHDGV´+ DQGWZRFRLQWRVVHVDD WKHQ WKHUHDUHWZR4SUHGLFDWHV 4+  DQG 4¤+  IRXUVWDWHGHVFULSWLRQV 64D ∧4D  64D ∧4D  64D ∧4D  64D ∧4D  DQGWKUHHVWUXFWXUHGHVFULSWLRQV 6WU 6 6WU 6∨6 6WU 6 ZKHUH P6   P6  P6  P6WU   P6   $OWKRXJKLWLVRIWHQIRXQGREMHFWLRQDEOHWKDW&DUQDSOLPLWVLQSUDFWLFHKLV V\VWHPVWRILQLWHNWKHIROORZLQJSULQFLSOHGPRWLYDWLRQLVKDUGO\PHQWLRQHG LI ZHWKLQNRIWKH ZRUOGDVFRQFHLYHGLQWKHRUHWLFDOSK\VLFVWKHQZH ILQGD ILQLWH DQGLQGHHGDYHU\VPDOOQXPEHURIIXQGDPHQWDOPDJQLWXGHVWRZKLFKDFFRUGLQJWR WKHDVVXPSWLRQRISK\VLFLVWVWKHJUHDWYDULHW\RISKHQRPHQDLVXOWLPDWHO\UHGXFLEOH &DUQDS 



 

&+$37(5

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¶V DOOHJHG IRXQGDWLRQDOLVP VHHPV WR EH FRPPRQ NQRZOHGJH &DPSEHOO DQG 3DOOHU    ,W DSSDUHQWO\ LV D FRPPRQ YLHZ WKDW WKH SURJUDP LQLWLDWHG E\ &DUQDS¶V /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ ZDV PRWLYDWHGE\DGHVLUHWRUHVWRUHWKHROGIRXQGDWLRQDOLVWSDUDGLJPRI³SHUIHFW LQIDOOLEOHNQRZOHGJH´LQWKHIDFHRIWKHIDFWWKDW³LWZDVFOHDUWKDWWKHRULHV FRXOGQRWEHFODVVLILHGDVSURYDEO\WUXHRUIDOVH´WKXV³&DUQDSWKRXJKWWKDW ZKLOH VFLHQFH ZDV FRQMHFWXUDO WKH WKHRU\ RI SUREDELOLVWLF FRQILUPDWLRQ ZRXOGEHDSULRULDQGLQIDOOLEOH´/DNDWRV 0RVWQRWDEO\ +HPSHODVVHUWVWKDW&DUQDS¶VLQWHUHVWVZHUH XQLWHG E\ D FRPPRQ /HLWPRWLY QDPHO\ WKH VHDUFK IRU  UHIRUPXODWLRQV RU H[SOLFDWLRQV RI WKH EDVLF LGHD RI HPSLULFLVP WKDW DOO RXU NQRZOHGJH RI WKH ZRUOG XOWLPDWHO\ GHULYHV IURP ZKDW LV LPPHGLDWHO\ JLYHQ WR XV LQ WKH GDWD RI RXU GLUHFW H[SHULHQFH+HPSHO 

3 6XSSHV FRPPHQWV RQ WKLV IRXQGDWLRQDOLVW SLFWXUH RI /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ DV SXUVXLQJ ³WKH PLVJXLGHG WUDGLWLRQ RI ORJLFDO DWRPLVP´ RI +XPH¶V 7UHDWLVH DQG :LWWJHQVWHLQ¶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¶V JHQHUDO HSLVWHPRORJ\ LQ /RJLFDO )RXQGDWLRQVRI3UREDELOLW\ 

6758&785$/5(/,$%,/,60



 7KHSUHFHGLQJGLVFXVVLRQVHHPVWREULQJRXWDIRXQGDWLRQDOLVWSLFWXUHRI WKH HSLVWHPRORJ\ LQ /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ VDWLVI\LQJ WKH IRXQGDWLRQDOLVW VWLSXODWLRQV WKHUH LV D VHW RI PXWXDOO\ H[FOXVLYH DQG FROOHFWLYHO\ H[KDXVWLYH VWDWHPHQWV VWDWHGHVFULSWLRQV  ZLWK WKH HVWDEOLVKHG HSLVWHPLF VWDWXV XSRQ ZKLFK DOO RWKHU VWDWHPHQWV GHSHQG 7KLV VHHPLQJO\ IRXQGDWLRQDOLVWOHDQLQJRI&DUQDS¶VHSLVWHPRORJ\LQ/RJLFDO)RXQGDWLRQVRI 3UREDELOLW\LVHVVHQWLDOWRWKHHQWLUHIRUPDOFRQVWUXFWLRQVLQFHZLWKRXWLWWKH ODWWHUORVHVLWVUDWLRQDOHDVDIRXQGDWLRQIRULQGXFWLYHLQIHUHQFHV . /HKUHU IRU RQH DGYRFDWHV D IRXQGDWLRQDOLVW UHDGLQJ RI &DUQDS¶V LQGXFWLYH ORJLF /HKUHU    ZKLFK LV VXSSRVHG WR EH JURXQGHG KRZHYHU LQ ± ZKDW LV UHFRJQL]HG WR EH PLVWDNHQ ± &DUQDS¶V SXUSRUWHG HPSLULFLVP /HKUHU   5 &KLVKROP RQ WKH RWKHUKDQGFODLPV WKDW HSLVWHPRORJLFDO IRXQGDWLRQDOLVP GRHV QRW WXUQ RQ WKH LVVXH RI ORJLF HLWKHU GHGXFWLYHRULQGXFWLYHIRULWGHDOVZLWKDGLIIHUHQWNLQGRITXHVWLRQV LQ DGGLWLRQ WR WKH ³UXOHV RI GHGXFWLRQ´ DQG WKH ³UXOHV RI LQGXFWLRQ´ WKHUH DUH DOVR FHUWDLQ EDVLF ³UXOHV RI HYLGHQFH´ 7KH GHGXFWLYH ORJLFLDQ WULHV WR IRUPXODWH WKH ILUVW W\SH RI UXOH WKH LQGXFWLYH ORJLFLDQ WULHV WR IRUPXODWH WKH VHFRQG DQG WKH HSLVWHPRORJLVWWULHVWRIRUPXODWHWKHWKLUG&KLVKROP 

,IKRZHYHURQHWHQGVWRDGRSWWKHIRXQGDWLRQDOLVWUHDGLQJRIWKHJHQHUDO HSLVWHPRORJLFDO SRVLWLRQ RI &DUQDS LQ /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ WKHQZKDWLVDWRGGVZLWKWKLVYLHZLV&DUQDS¶VFRQWLQXDOLQVLVWHQFHRQWKRVH DOOHJHGIRXQGDWLRQVRIDOOHPSLULFDONQRZOHGJHKDYLQJDSXUHO\IRUPDODQG DQDO\WLFDO QDWXUH &KDUDFWHULVWLFDOO\ WKH VLPLODU SRLQW LV DGYDQFHG E\ :6HOODUV ZKR GHYHORSV D PLQLPDOLVW WKHRU\ RI MXVWLILFDWLRQ SULRU WR &DUQDS³,VKDUHWKHFRQYLFWLRQWKDWDOOMXVWLILFDWLRQLQWKHPHQWDOLVWLFVHQVH RIWKHWHUPLVXOWLPDWHO\DQDO\WLFLQFKDUDFWHU´6HOODUVIRRWQRWH  7KHFUXFLDOVWHSKHUHLVWKHQWRLQWHUSUHWWKHSULPLWLYHSUHGLFDWHVLQWHUPVRI REVHUYDWLRQDO SUHGLFDWHV 7KH IDFW WKDW &DUQDS GRHV QRW SURYLGH D VSHFLILFDWLRQ RI WKH EDVLF VWDWHPHQWV LQ WHUPV RI FRQWHQW²GHVSLWH WKH VHPDQWLFDO FKDUDFWHU RI WKH FRQVWUXFWLRQ²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¶V HSLVWHPRORJ\ PRWLYDWHV WKH H[SORUDWLRQ RI DQ DOWHUQDWLYH HSLVWHPRORJLFDO 

 &+$37(5  SRVLWLRQZKLFKFRXOGDOVRDFFRXQWIRUWKHIRXQGDWLRQDOLVWOHDQLQJRI&DUQDS¶V SRVLWLRQ%HORZ,HODERUDWHWKLVDOWHUQDWLYHLQWHUPVRIVWUXFWXUDOUHOLDELOLVP $OWKRXJKLQWKHSUHVHQWVHFWLRQ,OLPLWP\VHOIPRVWO\WRGLVFXVVLRQRIWKH SULRU GLVWULEXWLRQ LQ SDUWLFXODU WKH P  PHDVXUH IXQFWLRQ RI /RJLFDO )RXQGDWLRQVRI3UREDELOLW\WKHUHLVDQLQWULJXLQJIDFWDERXWWKHFRQILUPDWLRQ IXQFWLRQ F⏐  ZKLFK , ZRXOG OLNH WR HPSKDVL]H DW WKLV SRLQW &DUQDS¶V GHILQLWLRQRIWKHFRQFHSWRIWKHGHJUHHRIFRQILUPDWLRQZKLFKJLYHVULVHWR WKH GHILQLWLRQ RI F⏐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

:KDWVHHPVWRVHW&DUQDSDSDUWIURPPHQWDOLVWLFFRKHUHQWLVPKRZHYHU LV WKH IDFW WKDW D QHFHVVDU\ FRQGLWLRQ IRU FRKHUHQFH HYDOXDWLRQ LV D FRQWHQW VSHFLILFDWLRQ RI D JLYHQ VWDWHPHQW RU SURSRVLWLRQDO DWWLWXGH )RU LQVWDQFH VXSSRVHWKDWP\EDFNJURXQGNQRZOHGJHLVDVLQWKHDERYHH[DPSOHDQG,DP DSSHDUHG WR DV LI LW LV VQRZLQJ *UDQWHG WKLV , FDQ SUHGLFW WKDW WKH ODWWHU VWDWHPHQW LV LQFRKHUHQW ZLWK P\ ERG\ RI EHOLHIV RQO\ LI , KDYH DFFHVV WR 

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¶V HSLVWHPRORJ\ LQ /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ EXW VWLOO LW PLJKW EH ZRUWKZKLOH WR WUDFH SUHFLVHO\ WR ZKDW H[WHQW WKH FRKHUHQWLVW SRVLWLRQ WXUQV RQ WKH FRQWHQW VSHFLILFDWLRQRIWKHUHOHYDQWVWDWHPHQWVRUSURSRVLWLRQDODWWLWXGHV ,Q GLVFXVVLRQ RI WKH IRXQGDWLRQDOLVW DQG FRKHUHQWLVW WUDLWV LQ &DUQDS¶V FRQVWUXFWLRQ,SUHVXSSRVHGWKDWLWPDNHVVHQVHWRFODVVLI\KLVSRVLWLRQDPRQJ WKH DOWHUQDWLYH WKHRULHV RI HSLVWHPLF MXVWLILFDWLRQ 1RZ , VKDOO IDFH WKH REMHFWLRQ WKDW DSSHDUV WR XQGHUPLQH WKLV SURFHGXUH 7KH SRLQW ZKLFK PRVW FRQWHPSRUDU\HSLVWHPRORJLVWVZRXOGEHZLOOLQJWRDFFHSWLVWKDWWKHEHDUHURI MXVWLILFDWLRQ LV EHOLHI $OVWRQ    +RZHYHU &DUQDS¶V V\VWHP RI LQGXFWLYHORJLFLVDVHPDQWLFDOFRQVWUXFWLRQ7KLVSUHFOXGHVVXFKFRQFHSWVDV SURSRVLWLRQDO DWWLWXGHV 7KHUHIRUH WKH SULPD IDFLH HSLVWHPRORJLFDO ZRUU\ LV WKDW&DUQDS¶VWKHRU\RIWKHGHJUHHRIFRQILUPDWLRQLQ/RJLFDO)RXQGDWLRQVRI 3UREDELOLW\DQG 7KH &RQWLQXXP RI ,QGXFWLYH0HWKRGV GRHV QRW FRQVWLWXWH D JHQXLQHHSLVWHPRORJLFDOWKHRU\ *ROGPDQ¶VDUWLFXODWHVWKLVREMHFWLRQDVIROORZV GHJUHHRIEHOLHIVKRXOGEHLGHQWLFDOWRZHLJKWRIHYLGHQFH,WLVQRUPDOO\DVVXPHGWKDW ZHLJKWV RI HYLGHQFH DUH GHULYDEOH IURP FHUWDLQ IRUPDO IDFWV WRJHWKHU ZLWK WKH FRJQL]HU¶VSUHVHQWHYLGHQWLDOFRUSXV7KHFULWLFDOIRUPDOIDFWVDUHHLWKHURIDVHPDQWLF QDWXUH²VR &DUQDS YLHZHG VWDWHPHQWV RI LQGXFWLYH SUREDELOLW\ RU FRQILUPDWLRQ WKHRU\/RJLFDOLPSOLFDWLRQLVDVSHFLDOFDVHRIVXFKIRUPDOIDFWVZKHUHWKHSUHPLVH SURSRVLWLRQFRQIHUVDFRQILUPDWLRQRIGHJUHHRQWKHFRQFOXVLRQ ,I WKLV DSSURDFK LV FRUUHFW WKHQ DOO WDON RI ³SURFHVVHV´ HVSHFLDOO\ SV\FKRORJLFDO SURFHVVHV VHHPV WR EH LUUHOHYDQW >)@LHOGV OLNH VWDWLVWLFV DQG FRQILUPDWLRQ WKHRU\ FDQQRWE\WKHPVHOYHVJLYHXVDQDGHTXDWHWKHRU\RIMXVWLILHGQHVV*ROGPDQ  

$VLPLODUREMHFWLRQLVSXWIRUZDUGE\$:%XUNVLQ%XUNV  7KLVNLQGRIREMHFWLRQKRZHYHULVEDVHGRQDFRQIXVLRQRIPHQWDOLVWLFDQG PLQLPDOLVWWKHRULHVRIMXVWLILFDWLRQZKLFK&DUQDSVKDUSO\GLVWLQJXLVKHGVHH HJWKHPHWKRGRORJLFDOUXOH05 GHILQLWLRQEHORZ  ,DPLQFOLQHGWRDFFHSW*ROGPDQ¶VSRLQWWRWKHH[WHQWWKDWLIZHDGRSWWKH VWDQGDUGYLHZWKDWNQRZOHGJHHQWDLOVEHOLHIWKHQLWLVKDUGWRLPDJLQHKRZ 

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¶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³ZH FDQQRW EDVH MXVWLILFDWRU\ LQIHUHQFH RQ WKH IRUP RI WKH LQIHUHQFH DORQH´ /HKUHU    $ VLPLODU DUJXPHQW LV DGYDQFHG E\ 6RVD 6RVD  /\FDQ ,QWKHQH[WFKDSWHU,DUJXHWKDWWKLVNLQGRIDUJXPHQWIDLOV DV UHJDUGV &DUQDS¶V FRQVWUXDO EHFDXVH LW GRHV QRW DSSUHFLDWH WKH PHDQLQJ WKDWWKHORFXWLRQ³WKHIRUPRILQIHUHQFH´DFTXLUHVLQ&DUQDS¶VDFFRXQW )URP &DUQDS¶V SHUVSHFWLYH KRZHYHU WKHUH LV DQ LPSRUWDQW GLIIHUHQFH EHWZHHQKRZWKHHSLVWHPLFFDQRQVVHWXSE\GHGXFWLYHDQGLQGXFWLYHORJLF RSHUDWH7KHIRUPHUUHVXOWVLQWKH³DFTXLVLWLRQRIDQHZVHQWHQFH´ZKLOHWKH ODWWHUOHDGVWR³DGHWHUPLQDWLRQRILWVGHJUHHRIFRQILUPDWLRQ´&DUQDS  7KLVGLIIHUHQFH²GXHWRWKHIDFWWKDWZLWKLQLQGXFWLYHORJLFWKHUHDUHQR DGGLWLRQDO³LQGXFWLYH´UXOHVRILQIHUHQFHEHVLGHVWKRVHRIGHGXFWLYHORJLF² LQWURGXFHVDKHWHURJHQHLW\LQWRWKHVHWRIHSLVWHPLFFDQRQV7KHRQHVVHWXS E\ GHGXFWLYH ORJLF FRQWURO WKH H[SDQVLRQ RI NQRZOHGJH VWDWHV LQ UHVSHFW RI WKHWUDQVPLVVLRQMXVWLILFDWRU\VWDWXV7KHFDQRQVVHWXSE\LQGXFWLYHORJLF H[WHQGEH\RQGWKHIRUPHUFRQFHUQLQJWKHHYDOXDWLRQRIWKHHSLVWHPLFVWDWXV RIPHWDOHYHOFRPSRXQGVHQWHQFHVRIWKHIRUP³FK⏐H  U´ZKHUHKDQGH DUHVHQWHQWLDOLQSXWDUJXPHQWV 

6758&785$/5(/,$%,/,60



 7KHKHWHURJHQHLW\ZLWKLQWKHVHWRIHSLVWHPLFFDQRQVHOXFLGDWHV&DUQDS¶V HSLVWHPRORJ\ LQ /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ 6LQFH WKH IRUPHU ZDV VXSSRVHG WR HPEUDFH QRUPV IRU DOO HSLVWHPLFDOO\ JUDQWHG LQIHUHQFHV LW IROORZV WKDW WKH RQO\ NLQG RI LQIHUHQFH ZKRVH MXVWLILFDWRU\ VWDWXV LV HSLVWHPLFDOO\OLFHQVHGLQ&DUQDS¶VDFFRXQWLVGHGXFWLYHLQIHUHQFH7KHZRUG ³LQIHUHQFH´ DV DWWULEXWHG WR ³LQGXFWLYH´ PHUHO\ DFFRXQWV IRU WKH GLIIHUHQFH EHWZHHQGLIIHUHQWYDOXHVDK\SRWKHVLVLVDVVLJQHGRQWKHFKDQJLQJHYLGHQFH 3URSHUO\VSHDNLQJLWLVDPLVXVHRIWKHZRUG³LQIHUHQFH´LQWKLVFRQWH[WDV &DUQDS FRQFOXGHV &DUQDS    EHFDXVH LW GRHV QRW LQ HIIHFW \LHOG DQ\ QHZ NQRZOHGJH VWDWHV 7KLV LV ZK\ LQ /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\LQGXFWLYHLQIHUHQFHRSHUDWHVLQFOHDUO\LQWHUQDOLVWIDVKLRQZKLFK LV LQ WKH PHWDOHYHO HYDOXDWLRQ RI HSLVWHPLF VWDWHV ,Q WKLV YLHZ &DUQDS¶V UHIXVDO WR DFFRPPRGDWH DFFHSWDQFH UXOHV ZLWKLQ WKH V\VWHPV RI LQGXFWLYH ORJLF JHWV LWV HSLVWHPRORJLFDO FUHGLW &DUQDS ZDV SHUIHFWO\ DZDUH WKDW SURSRXQGLQJ DQ\ VRUW RI DFFHSWDQFH UXOH ZRXOG OHDG KLP WR HPEUDFH IRXQGDWLRQDOLVP+HPSHO  7KH LQWHUQDOLVW PRWLYH UDLVHG LQ WKH SLFWXUH RI WKH HSLVWHPRORJ\ RI /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ LV LQVWUXFWLYH IRU LQWHUSUHWDWLRQ RI WKH IROORZLQJPHWKRGRORJLFDOUXOH '(),1,7,217KHPHWKRGRORJLFDOUXOH05  6XSSRVH WKDW LQGXFWLYH ORJLF VXSSOLHV D VLPSOH UHVXOW RI WKH IRUP ³FK⏐H  U´,IHH[SUHVVHVWKHWRWDONQRZOHGJHRI;DWWKHWLPHWWKDWLVWR VD\KLVWRWDONQRZOHGJHRIWKHUHVXOWVRIREVHUYDWLRQVWKHQ;LVMXVWLILHGDW WKLVWLPHWREHOLHYHKWRWKHGHJUHHUDQGKHQFHWREHWRQKZLWKDEHWWLQJ TXRWLHQWQRWKLJKHUWKDQU&DUQDS  7KLV PHWKRGRORJLFDO UXOH GRHV QRW DGYDQFH WKH NQRZOHGJH FODLP ZLWK UHVSHFW WR K IRU LW LV RQO\ ³FK⏐H  U´ WKDW LV HSLVWHPLFDOO\ OLFHQVHG E\ LQGXFWLYH LQIHUHQFH 6LPLODUO\ LQGXFWLYH LQIHUHQFH GRHV QRW HQDEOH DQ HSLVWHPLF DJHQW WR HQKDQFH WKH ERG\ RI HYLGHQFH H 7KHUHIRUH K DQG H DUH UHOHYDQWWR&DUQDS¶VWKHRU\RIMXVWLILFDWLRQLQDVPXFKDVWKH\FRQIRUPWRWKH FRQVWUXFWLRQUXOHVRIDJLYHQODQJXDJHHQDEOLQJWKXVWKHHYDOXDWLRQRIF⏐  1RWHKRZHYHUWKDW &DUQDS UHYHDOV KHUHDOVR KLV ELDV WRZDUGV SUREDELOLVWLF HSLVWHPRORJ\LQDWWULEXWLQJWKHMXVWLILFDWLRQEXWQRWNQRZOHGJHWRK +RZHYHUWKHDERYHTXRWDWLRQPXVWEHSHUSOH[LQJIRUDQDGYRFDWHRIWKH HPSLULFLVW IRXQGDWLRQDOLVW VWDQFH RQ &DUQDS¶V HSLVWHPRORJ\ LQ /RJLFDO )RXQGDWLRQVRI3UREDELOLW\)RULWLVDSSDUHQWWKDW&DUQDSWDNHVWKHIRUPXOD ³FK⏐H  U´WREHVXIILFLHQWIRUGHWHUPLQLQJDIDLUEHWWLQJTXRWLHQWIRU;LQ KLV DFWXDO EHWWLQJ EHKDYLRU 6LPLODUO\ ³FK⏐H  U´ LV VXIILFLHQW DV WKH IUHTXHQF\ HVWLPDWRU +RZHYHU ERWK WKHVH FODLPV DSSHDU VRPHZKDW 

 &+$37(5  SDUDGR[LFDO ZKHQ ZH FRQVLGHU WKDW WKH V\VWHP RI LQGXFWLYH ORJLF ZKLFK JHQHUDWHVWKHDVVLJQPHQWRI³U´WR³FK⏐H ´LVSXUHO\IRUPDODQGDQDO\WLFDO EDVHG RQWKHXQLIRUP SULRU GLVWULEXWLRQ DPRQJ WKH VWUXFWXUHGHVFULSWLRQV RI /LQZKLFKKDQGHDUHIRUPXODWHG2QWKHRWKHUKDQGKRZHYHULQ&DUQDS¶V DFFRXQW WKH PDWKHPDWLFDO IXQFWLRQ VHH GHILQLWLRQ  RQ SDJH   WKDW FKDUDFWHUL]HVWKH SUHGLFWLYH SUREDELOLW\ RIWKH QH[WHYHQW WR LQVWDQWLDWHLWK 4SUHGLFDWH  IRUFHV XV WR WUHDW ORJLFDO IRUPXODH DV LI WKH\ ZHUH HYHQWV VXVFHSWLEOHWRHPSLULFDOREVHUYDWLRQ,QRUGHUWRGHWHUPLQHWKHYDOXHRIWKH IXQFWLRQ*&DUQDSGHVLJQVVSHFLILFUXOHVZKLFKJXLGHWKH³REVHUYDWLRQ´DQG FRXQWLQJ RI WKH QXPEHU RI RFFXUUHQFHV RI SDUWLFXODU SUHGLFDWHV LQ D ORJLFDO IRUPXOD&DUQDSE  $ FORVHU ORRN DW &DUQDS¶V FRQVWUXFWLRQ LQ /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ZLOO,VXJJHVWFODULI\WKHYLHZRQZKDWNLQGRIHSLVWHPRORJLFDO WKHRU\KHDGYRFDWHV$FRPSUHKHQVLYHSLFWXUHRI&DUQDS¶VHSLVWHPRORJ\LQ /RJLFDO)RXQGDWLRQVRI3UREDELOLW\ZRXOGUHTXLUHDFRKHUHQWDFFRXQWRIKRZ WKH EDVLF VWDWHPHQWV DUH JHQHUDWHG DQG ZKDW LV SUHFLVHO\ WKHLU HSLVWHPLF VWDWXV,Q.DZDOHFE ,PDNHUHFRXUVHWR&DUQDS¶VRQWRORJ\LQ/RJLFDO )RXQGDWLRQVRI3UREDELOLW\ZKLFKVHHPVWRDFFRXQWZHOOIRUKRZWKHEDVLF VWDWHPHQWVPDNHWKHLUDSSHDUDQFHLQWKHFRQVWUXFWLRQ1RQHWKHOHVVLWPLJKW DOVREHZRUWKWRVWXG\&DUQDS¶VSXUSRUWHGUHOLDELOLVWSRVLWLRQRQWKDWPDWWHU \LHOGLQJWKXVDWKRURXJKUHOLDELOLVWDFFRXQW7KLVLVVXHKRZHYHULVEH\RQG WKHSUHVHQWFRQFHUQDVLWGRHVQRWDIIHFW&DUQDS¶VSRVLWLRQRQQRQLQIHUHQWLDO MXVWLILFDWLRQ $VZDVDOUHDG\PDGHFOHDU&DUQDS¶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



6758&785$/5(/,$%,/,60



 LIZHZDQWWRREWDLQNQRZOHGJHRIWKLQJVDQGHYHQWVRIRXUHQYLURQPHQWWKHQWKH URXQGDERXWZD\ZKLFKOHDGVILUVWDZD\IURPWKHVHWKLQJVWRDQDEVWUDFWVFKHPDPD\ LQWKHORQJUXQEHEHWWHUWKDQWKHGLUHFWZD\ZKLFKVWD\VFORVHWRWKHWKLQJVDQGWKHLU REVHUYDEOHSURSHUWLHV&DUQDS 

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

7KH FUXFLDO VWHS LQ WKH GHYHORSPHQW RI JHRPHWU\ ZDV WR GHWDFK LW IURP ³WKHZRUOGRIFRQFUHWHWKLQJVZLWKWKHLUREVHUYDEOHSURSHUWLHV´DQGPDNHLW ³D VFKHPD FRQVLVWLQJ RI FRQVWUXFWV WUDQVIRUPHG LQWR D WKHRU\ RI FHUWDLQ VSDWLDO FRQILJXUDWLRQV ZKRVH SURSHUWLHV DUH FRPSOHWHO\ DQG H[DFWO\ GHWHUPLQHG´ &DUQDS    7KLV VWHS HQDEOHG ODWHU GHYHORSPHQWV WUDQVIRUPDWLRQ RI JHRPHWU\ LQWR WKH WKHRU\ RI VHWV RI UHDO QXPEHUV LQWR D IRUPDO D[LRP V\VWHP DQG ILQDOO\ LQWR D ³VSHFLDO EUDQFK RI WKH ORJLF RI UHODWLRQV´7KHODWWHUVWHSVSHUPLWWHGWKHGHYHORSPHQWRISK\VLFV 7KHLPSRUWDQW HSLVWHPRORJLFDO PRUDO IRU &DUQDSLV WKDW LQGXFWLYH ORJLF WRRVKRXOGEHSXUHO\VWUXFWXUDOO\VSHFLILHGDQGGHWHUPLQHGDVDVHPDQWLFDO IRUPDOGLVFLSOLQH7KXVZKDWIURP&DUQDS¶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¶V SHUVSHFWLYH RQ VFLHQFH DV ³XQLILHG´ LI 

 &+$37(5  HSLVWHPRORJLFDO WKHRULHV LQ SDUWLFXODU HSLVWHPRORJLFDO WKHRULHV RI MXVWLILFDWLRQDUHWRSDUWLFLSDWHLQWKHVXFFHVVRIVFLHQFHWKHQWKH\KDYHWREH VXEVWDQWLYHWKHRULHVLQWKHVDPHVHQVHDVJHRPHWU\7KLV,WKLQNLV&DUQDS¶V EDVLF DUJXPHQW WR WKH HIIHFW WKDW DQ HSLVWHPRORJLFDO WKHRU\ RI MXVWLILFDWLRQ VKRXOGEHVXEVWDQWLYHLQWKHVWUXFWXUDOVHQVHHOXFLGDWHGLQ607  7KHUH LV VWLOO DQRWKHU DUJXPHQW ZKLFK &DUQDS GHYHORSV WR GHIHQG WKH YLHZWKDWVWUXFWXUHLVVXIILFLHQWIRUGHWHUPLQLQJHSLVWHPLFVWDWXVRIVFLHQWLILF VHQWHQFHV,WPLJKWEHREMHFWHG&DUQDSDGPLWVWKDWVWUXFWXUDOVSHFLILFDWLRQ OHDYHV ³JHQXLQH TXDOLWLHV´ RU ³TXDOLD´ ³IRUHYHU RXWVLGH RXU JUDVS´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

$SDUW IURP WKH IDFW WKDW LQ KLV DUJXPHQW &DUQDS UHLQIRUFHV WKH ILQLWH YDULHW\DVVXPSWLRQZHREVHUYHWKDW&DUQDSELQGVXSLQWLPDWHO\WKHFRQFHSW RI VWUXFWXUH ZLWK WKDW RI D ODQJXDJH /HW PH FDOO WKH ORJLFDO VWUXFWXUH JHQHUDWHG E\ D ODQJXDJH V\VWHP WKH ODQJXDJH HPEHGGHG VWUXFWXUH $V ZH KDYH DOUHDG\ REVHUYHG WKHUH DUH H[WUD ORJLFDO VWLSXODWLRQV WKDW LQ &DUQDS¶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³D YHU\ VPDOO QXPEHU RI IXQGDPHQWDO PDJQLWXGHV WR ZKLFK  WKH JUHDW YDULHW\ RI SKHQRPHQD LV XOWLPDWHO\ UHGXFLEOH´ WKHUH LV RQO\ RQH ODQJXDJH HPEHGGHG VWUXFWXUH ZKLFK ZH DUH QRW DEOH WR UHFRJQL]H \HW +RZHYHU WKH FLUFOH DQDORJ\ DQG &DUQDS¶V FRPPHQWDU\ WKDW LQ WKH FDVH RI ORJLF WKHVH GLIIHUHQW PHWKRGV RI FRYHULQJ ³IDFWV´ DUH REWDLQHG E\ LQWURGXFLQJ QHZ SUHGLFDWHV DV ZHOODVWKHH[DPSOHRIJHRPHWU\VHHPUDWKHUWRVXJJHVWWKDWWKHILQLWHYDULHW\ DVVXPSWLRQLVORFDOLHLWLVUHODWLYHWRDJLYHQGRPDLQRI³WKHJUHDWYDULHW\ 

6758&785$/5(/,$%,/,60   RISKHQRPHQD´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³ODQJXDJH HPEHGGHGVWUXFWXUH´LQWKHVLQJXODU :KDW LV LOOXPLQDWLQJ IRU &DUQDS¶V DSSURDFK WR D ODQJXDJH HPEHGGHG VWUXFWXUHLVKLVUHVSRQVHWR4XLQH¶V³7ZR'RJPDV´4XLQH +H DJUHHVZLWK4XLQHWKDW³LQUHYLVLQJWKHWRWDOV\VWHPRIVFLHQFHQRVWDWHPHQW DQG QR UXOH LV LPPXQH RU VDFURVDQFW´ DQG HYHQ WKDW ³>R@QH FDQ FRQVLGHU UHSODFLQJ WKH XVXDO IRUP RI ORJLF E\ DQ LQWXLWLRQLVWLF RQH RU D WKUHHYDOXHG RQH RU ZKDWHYHU´ 1HYHUWKHOHVV &DUQDS GLVDJUHHV ZLWK 4XLQH¶V FRQFOXVLRQ WKDW³WKHUHLVQRVKDUSERXQGDU\EHWZHHQSK\VLFVDQGORJLF´DQGHPSKDVL]HV WKDW³>W@KHGLIIHUHQFHEHWZHHQDQDO\WLFDQGV\QWKHWLFLVDGLIIHUHQFHLQWHUQDO WRWZRNLQGVRIVWDWHPHQWVLQVLGHDJLYHQODQJXDJHVWUXFWXUHLWKDVQRWKLQJWR GRZLWKWKHWUDQVLWLRQIURPRQHODQJXDJHWRDQRWKHU´&DUQDS  4XLQH¶VUHVSRQVHLVWKHIROORZLQJ ,QVRIDU DV ZH DUH FRQWHQW WR WKLQN RI DOO VFLHQFH DV ILWWHG ZLWKLQ WKDW VWHUHRW\SHG ORJLFDO IUDPHZRUN²DQG WKHUH LV QR KDUGVKLS LQ VR GRLQJ²RXU QRWLRQ RI ORJLFDO YRFDEXODU\LVSUHFLVH$QGVRGHULYDWLYHO\LVRXUQRWLRQRIORJLFDOWUXWK%XWRQO\LQ SRLQWRIH[WHQW7KHUHLVQRHSLVWHPRORJLFDOFRUROODU\DVWRWKHJURXQGRIORJLFDOWUXWK 4XLQH 

$QG E\ WKH VDPH WRNHQ ³WKHUH LV QR HSLVWHPRORJLFDO FRUROODU\ DV WR WKH JURXQG´ RI &DUQDS IDYRULWH GHULYDWLYHV RI ³ORJLFDO WUXWK´ VXFK DV VWDWH GHVFULSWLRQRUUDQJH,QOHYHOLQJWKLVREMHFWLRQKRZHYHU4XLQHPLVWDNHQO\ DWWULEXWHV WR &DUQDS WKH HPSLULFLVW FRQFHSWLRQ RI ORJLF 7R DSSUHFLDWH &DUQDS¶V RZQ XQGHUVWDQGLQJ RI ZKDW GHWHUPLQHV D ODQJXDJH HPEHGGHG VWUXFWXUH LW LV QHFHVVDU\ WR DFNQRZOHGJH WKDW ³RXU HPSLULFDO ODQJXDJH FDQ RQO\ EH XQGHUVWRRG DVDQLQFRKHUHQW DQG IUDJPHQWDU\ VFKHPD RIDQ LGHDOO\ FRKHUHQWODQJXDJH´6HOODUV  ,Q VXP ZH FDQQRW FRQFOXGH WKDW WKHUH DUH PXOWLSOHODQJXDJH HPEHGGHG VWUXFWXUHV LQ &DUQDS¶V DFFRXQW IRU WKH\ PLJKW RQO\ EH LQVWUXPHQWDO LQ 

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³FXUUHQW GHJUHH RI H[SOLFLWQHVVRIWKHUXOHVRIWKHODQJXDJHLVVWLOOYHU\VPDOO´&DUQDS   /HW PH FRPH EDFN WR WKH LVVXH RI WKH DVVHVVPHQW RI &DUQDS¶V JHQHUDO HSLVWHPRORJLFDO SRVLWLRQ LQ /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ :H KDYH DOUHDG\ QRWLFHG WKDW DOO QHFHVVDU\ DQG VXIILFLHQW FRQGLWLRQV IRU LQIHUHQWLDO MXVWLILFDWLRQ EH\RQG WKRVH VSHFLILHG E\ D ODQJXDJH HPEHGGHG VWUXFWXUH DUH QRWVXIILFLHQWQRUQHFHVVDU\FRQGLWLRQVIRUHYDOXDWLRQRIWKHHSLVWHPLFVWDWXV RI D VWDWHPHQW ZLWKLQ D ODQJXDJH HPEHGGHG VWUXFWXUH 7KH IRUPHU FRQFHUQ RQO\ WKH VWLSXODWLRQV RI WKH DSSOLFDELOLW\ RI WKHODWWHUWR D JLYHQ NQRZOHGJH VLWXDWLRQ 7KXV WKH ODQJXDJH HPEHGGHG VWUXFWXUH ZLWK UHVSHFW WR LWV RZQ VWDWHPHQWV PD\ EH LGHQWLILHG DV D UHOLDEOH PHFKDQLVP RI HSLVWHPLF HYDOXDWLRQ EHFDXVH WKH ODQJXDJH HPEHGGHG VWUXFWXUH²IRU DOO LQIHUHQWLDO UHODWLRQV EHWZHHQ LWV RZQ VWDWHPHQWV²XQLTXHO\ GHWHUPLQHV WKH HSLVWHPLF FDQRQVRIHYDOXDWLRQ 7KH H[DPLQDWLRQ RI &DUQDS¶V HSLVWHPRORJLFDO WKHRU\ RI MXVWLILFDWLRQ FDUULHG RXW LQ WKLV VHFWLRQ DOORZV PH WR FRPH WR JULSV ZLWK WKH QHFHVVDU\ FRQGLWLRQ RI MXVWLILFDWLRQ SURSRXQGHG RQ WKH JURXQGV RI VWUXFWXUDO UHOLDELOLVPDQGRXWOLQHGLQGHILQLWLRQRIWKHUHFXUVLYHFRQGLWLRQ565  VHHVHFWLRQRIWKLVFKDSWHUSDJH  ,WLVFUXFLDODWWKLVSRLQWWRXQUDYHOWKHPHDQLQJRIWKHORFXWLRQ³67SLV MXVWLILHG E\ 67S´ LQ DFFRUGDQFH ZLWK &DUQDS¶V YLHZV $V SRLQWHG RXW IRU &DUQDS WKH SDWWHUQ RI WKH VWUXFWXUDO WUDQVODWLRQ RI VFLHQWLILF VHQWHQFHV LV SURYLGHG E\ WKH KLVWRU\ RI JHRPHWU\ 7KH IXOO GHWDLOV RI WKH VWUXFWXUDO WUDQVODWLRQIRUDOOVFLHQWLILFVHQWHQFHVDUHQRWZRUNHGRXWE\&DUQDSEHFDXVH WKH³FXUUHQWGHJUHHRIH[SOLFLWQHVVRIWKHUXOHVRIWKH>VFLHQWLILF@ODQJXDJH LVVWLOOYHU\VPDOO´7KHGHVLJQRIWKHVWUXFWXUDOWUDQVODWLRQWXUQVDOVRRQWKH XQUHVROYHGLVVXHRIZKHWKHUWKHUHLVRQO\RQHODQJXDJHHPEHGGHGVWUXFWXUH IRUXQLILHGVFLHQFHRUPRUH ,I KRZHYHU D JLYHQ ODQJXDJH V\VWHP LV VSHFLILHG WKHQ LW LV SRVVLEOH WR FRQVWUXFWVWDWHGHVFULSWLRQVDQGWRGHWHUPLQHWKHUDQJHRIHDFKVHQWHQFHRI WKLV ODQJXDJH V\VWHP )LQDOO\ LW LV SRVVLEOH WR GHWHUPLQH WKH YDOXH RI WKH PHDVXUHIXQFWLRQP IRUHDFKVHQWHQFHRIWKHODQJXDJHV\VWHPDQGKHQFH WKHYDOXHRIF⏐ IRUDQ\SDLURIVHQWHQFHVRIWKHODQJXDJHV\VWHP$WWKLV 

6758&785$/5(/,$%,/,60   VWDJHWKHYDOXHRIF⏐ VXSHUYHQHVRQWKHVWUXFWXUHRILWVDUJXPHQWVDQGLV ZHLJKWHG E\ SDUDPHWHUV UHIOHFWLQJ IHDWXUHV RI WKH VWUXFWXUH RI WKH ODQJXDJH V\VWHP DV D ZKROH *UDQWHG WKLV DV D ILUVW DSSUR[LPDWLRQ ZH VKRXOG DSSDUHQWO\EULQJRXWWKHUHOLDELOLVWFRQGLWLRQIRUTXDQWLWDWLYHMXVWLILFDWLRQ '(),1,7,215HOLDELOLVWFRQGLWLRQIRUTXDQWLWDWLYHMXVWLILFDWLRQ4  SLVMXVWLILHGE\67SWRWKHH[WHQWULIIF67S⏐67S  U

67

7KHUHDUHPDQ\ZD\VWRWUDQVIRUPWKLVUDWKHUVWUDLJKWIRUZDUGTXDQWLWDWLYH H[SOLFDWLRQRI³67SLVMXVWLILHGE\ 67S´DVSURYLGHGLQ4 LQWRDTXDOLWDWLYH IRUP ZKLFK ZRXOG EH DSSURSULDWH IRU 565  6LQFH , HPSKDVL]H KHUH WKH PLQLPDOLVW FKDUDFWHU RI WKH VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ ,SURSRVHWKHIROORZLQJWUDQVIRUPDWLRQ '(),1,7,215HOLDELOLVWFRQGLWLRQIRUPLQLPDOMXVWLILFDWLRQ0-  67

SLVPLQLPDOO\ MXVWLILHGE\67SLIIF67S⏐67S !∂

$SDUW IURP WKH ZHOONQRZQ SUREOHPV WKLV FRQGLWLRQ UDLVHV WKHUH LV RQH FKDUDFWHULVWLF RI WKH WKHRULHV RI MXVWLILFDWLRQ :KLOH WKHUH DUH WZR PRVW SODXVLEOH FDQGLGDWHV WR GHWHUPLQH WKH YDOXH RI ∂ GLVFXVVHG EHORZ  WKH FKRLFH ZLOO WXUQ RQ WKH NLQG RI WKH FRQFHSW RI MXVWLILFDWLRQ V\QFKURQLF RU GLDFKURQLF *UDQWHG WKH HYLGHQFH LV IL[HG WKH LVVXH RI V\QFKURQLF MXVWLILFDWLRQ IRU D JLYHQ VHW RI VHQWHQFHV FDQ EH SXUVXHG +RZHYHU LI HYLGHQFHYDULHVZLWKWLPHWKHQWKHTXHVWLRQRIGLDFKURQLFMXVWLILFDWLRQRID JLYHQVHQWHQFHZRXOGSHUKDSVEHPRUHSHUWLQHQW ,Q WKH FRQWH[W RI V\QFKURQLF MXVWLILFDWLRQ ZKHUH HYLGHQFH²67S LQ WKLV FDVH²LV IL[HG WKH YDOXH RI ∂ VKRXOG SUHVXPDEO\ GHSHQG RQ WKH GHJUHH RI FRQILUPDWLRQRIWKHK\SRWKHVLVPRVWGLUHFWO\UHODWHGWR 67SLHLWVQHJDWLRQ ¬67SDVIROORZV F67S⏐67S !∂ F¬67S⏐67S 

0-6 

ZKLFK²E\ DGGLWLRQ SURSRVLWLRQ SURSRVLWLRQ ²LVHTXLYDOHQWWR F67S⏐67S !

 

DQG

QRUPDOL]DWLRQ

0-6 

,QWKHFRQWH[WRIGLDFKURQLFMXVWLILFDWLRQWKHYDOXHRI∂VKRXOGUHIOHFWWKH G\QDPLFFKDUDFWHURIHYLGHQFH 

 

&+$37(5 F67S⏐67S !F67S⏐W 

0-' 

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¶V WKHRU\ RI MXVWLILFDWLRQ GLYHUJHV IURP FRPPRQ HSLVWHPRORJLFDO XVDJH LQ VHYHUDO UHVSHFWV )RU LQVWDQFH LQLWLDOO\ ³UHOLDEOH´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²DFFRUGLQJ WR $OVWRQ²D UHDOLVW SRVLWLRQ RQ WKH KXPDQ SV\FKH LH WKH KXPDQ SV\FKH LV GHWHUPLQHG WR DFWXDOO\ SURGXFH EHOLHIV HDFK RI ZKLFK KDV RQO\ RQH DGHTXDWH VHPDQWLFDO VSHFLILFDWLRQ$OVWRQFRQFOXGHVWKXV³WKHYLDELOLW\RIDUHOLDELOLVWWKHRU\RI MXVWLILFDWLRQ RU NQRZOHGJHKDQJV RQ WKH YLDELOLW\ RI SV\FKRORJLFDO UHDOLVP´ $OVWRQE   $GPLWWHGO\ $OVWRQ DGYDQFHV WKLV SRLQW ZLWK UHVSHFW WR WKH PHQWDOLVWLF FRQFHSWRIUHOLDELOLW\7KHHVVHQWLDOSDUWRIKLVFODLPKRZHYHUFDQDOVREH IRUPXODWHGZLWKUHVSHFWWRWKHPLQLPDOLVWFRQFHSWRIUHOLDELOLW\6XSSRVHZH ZULWHGRZQVHQWHQFHVZKLFKUHSUHVHQWWKHSURSRVLWLRQDOFRQWHQWRIWKHRXWSXW EHOLHI DQG RI LQSXW EHOLHIV DQG VXSSRVH IXUWKHU WKDW ZH PDQDJH WR VWUXFWXUDOO\ WUDQVODWH WKRVH VHQWHQFHV 7KHQ LW IROORZV WKDW WKH ODQJXDJH LQ ZKLFK WKH VHQWHQFHV DUH IRUPXODWHG KDV D ODQJXDJH HPEHGGHG VWUXFWXUH ZKLFK ³FRPSOHWHO\ DQG H[DFWO\´ GHWHUPLQHV WKH UDQJHV RI WKRVH VHQWHQFHV LH WKHLU VHPDQWLF SURSHUWLHV :H FDQ VWXG\ WKH PXWXDO UHODWLRQV EHWZHHQ WKRVHVHQWHQFHVQRWRQO\RQWKHJURXQGVRIWKHLUVHPDQWLFSURSHUWLHVEXWDOVR RQ WKH JURXQGV RI WKH PHWULF IXQFWLRQ GHILQHG IRU WKH ODQJXDJH HPEHGGHG VWUXFWXUH ,W VHHPV WKHQ WKDW LQ RUGHU WR VSHFLI\ WKH ³IXQFWLRQ RI FRQWHQW´ LQYRNHGE\$OVWRQLWLVQRWQHFHVVDU\WRUHIHUWRWKHSURFHVVRIIRUPDWLRQRI WKH VHQWHQFHV ,Q IDFW &DUQDS¶V VWUXFWXUDO UHOLDELOLVP WDNHV WKH GLIIHUHQFH EHWZHHQKRZVHQWHQFHVDUHJHQHUDWHGDQGZKDWFRQVWLWXWHVWKHLU³LQIHUHQWLDO VWUXFWXUH´WRLWVH[WUHPHFI$XGL 



7KH)LQQLVK6FKRRO¶V6\VWHPVRI,QGXFWLYH/RJLFDQG 6WUXFWXUDO5HOLDELOLVP

,QVHFWLRQRIWKHILUVWFKDSWHU,GLVFXVVHGLQGHWDLOKRZIDUWKH)LQQLVK 6FKRRO¶V GHYHORSPHQWV RXWSHUIRUP WKH LQLWLDO V\VWHPV RI LQGXFWLYH ORJLF SURSRVHG E\ &DUQDS $ QDWXUDO TXHVWLRQ LV WKHQ ZKDW LI DQ\ LV WKH HSLVWHPRORJLFDO RXWFRPH RI WKH GLIIHUHQFHV EHWZHHQ WKH WZR NLQGV RI V\VWHPVRILQGXFWLYHORJLF",DUJXHWKDWWKHDQVZHULVWZRIROG5HPDUNDEO\ WKH VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ VHHPV WR EH LQYDULDQW ZLWK UHVSHFWWRWKHPRGLILFDWLRQVLQWURGXFHGE\WKH)LQQLVK6FKRRO1HYHUWKHOHVV 

 &+$37(5  WKRVH PRGLILFDWLRQV UHIOHFW DQ LPPHQVH GLYHUJHQFH ZLWK UHVSHFW WR KRZ &DUQDS DQG WKH )LQQLVK 6FKRRO SURFHHG ZLWK LQWHJUDWLQJ WKH VWUXFWXUDO UHOLDELOLVWWKHRU\RIMXVWLILFDWLRQLQWRWKHWKHRU\RINQRZOHGJH $PRQJ WKH GLIIHUHQFHV EHWZHHQ &DUQDS¶V DQG WKH )LQQLVK 6FKRRO¶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³DFFHSWHG´RQWKHEDVLVRIHYLGHQFH+LOSLQHQ  

&DUQDSFODLPHGWKDWWKHUHDUHQRUXOHVRIDFFHSWDQFHRUDWOHDVWWKDWQRQH DUH QHFHVVDU\ LQ VFLHQFH +LQWLNND DQG KLV FRZRUNHUV RQ WKH RWKHU KDQG VXVWDLQHGWKH YLHZ WKDW²HVSHFLDOO\ IURP WKH HSLVWHPRORJLFDO SHUVSHFWLYH² VXFK UXOHV DUH LQGLVSHQVDEOH IRU VFLHQFH DQG WKLV YLHZ PRWLYDWHG WKHLU DFFRXQW RI WKH DFFHSWDQFH UXOHV RQ WKH JURXQGV RI WKH KLWKHUWR HODERUDWHG V\VWHPVRILQGXFWLYHORJLF7KXVWKLVLVVXHPXVWEHFRQVLGHUHGDVRQHWKDW² SXUSRUWHGO\DWOHDVW²PLJKWKDYHUHVXOWHGLQFRQVWUXFWLQJGLIIHUHQWWKHRULHV RIMXVWLILFDWLRQE\&DUQDSRQWKHRQHKDQGDQGWKH)LQQLVK6FKRRORQWKH RWKHU $V ZH KDYH REVHUYHG LQ WKH ILUVW FKDSWHU +LQWLNND¶V VWUDWHJ\ LQ GHYHORSLQJ WKH ĮȜV\VWHP ZDV FUXGHO\ WR VWLFN DV FORVHO\ DV SRVVLEOH WR &DUQDS¶V PHWKRGV LQ FRQVWUXLQJ WKH ȜV\VWHP ZLWK WKH UHVWULFWLRQ WKRXJK WKDW JHQHUDOL]DWLRQV KDYH QRQ]HUR FRQILUPDWLRQ %RWK WKH GRPDLQ RI WKH FRQILUPDWLRQ IXQFWLRQ DQG WKH FRQILUPDWLRQ IXQFWLRQ LWVHOI DUH GHILQHG² PXWDWLV PXWDQGLV²LQ &DUQDSLDQ SRVVLEOHZRUOG VHPDQWLFV $FFRUGLQJO\ D ODQJXDJH HPEHGGHG VWUXFWXUH LV JHQHUDWHG ZKLFK HVWDEOLVKHV WKH VHW RI HSLVWHPLFFDQRQVDJDLQVWZKLFKWRDVVHVVWKHHSLVWHPLFVWDWXVRI³LQGXFWLYHO\ LQIHUUHG´ VHQWHQFHV :KDW PLJKW KRZHYHU FRXQWHQDQFH WKH YLHZ WKDW LW LV 

6758&785$/5(/,$%,/,60   DJDLQWKHORJLFRPDWKHPDWLFDOVWUXFWXUHZKLFKLVQHFHVVDU\DQGVXIILFLHQWWR GHWHUPLQHWKHHSLVWHPLFVWDWXVRIDSURSRVLWLRQLV+LQWLNND¶VSURQRXQFHPHQW WKDW WKH YDOXH RI Į LV WR EH VHW XS V\QWKHWLFDOO\ LH QRW E\ ORJLFDO PHDQV DORQH 7KLV FODLP LV EDVLFDOO\ JURXQGHG LQ WKH SUHVXSSRVLWLRQ YLHZ RI LQGXFWLRQHYRNHGE\+LQWLNNDLWILQGVIXUWKHUVXSSRUW²DVZLOOEHFRPHFOHDU EHORZ²LQWKHZD\+LQWLNNDDQGKLVFRZRUNHUVVHWXSDFFHSWDQFHUXOHV 2QWKHEDVLVRIKRZWKHSDUDPHWHUĮLQIOXHQFHVWKHFRQILUPDWLRQYDOXHV RI JHQHUDOL]DWLRQV LQWKH ĮȜV\VWHP RI LQGXFWLYH ORJLF +LQWLNND FRQFOXGHV WKDWĮLVDQLQGH[RIFDXWLRQDQGWKDWLWUHIOHFWVRQH¶VFRQYLFWLRQVDERXWWKH NLQG RI RUGHU ZKLFK RQH DVVXPHV WR EH RXW WKHUH LQ WKH ZRUOG 00RQGDGRUL DVVHQWV ³>7@KH FKRLFH RI DQ DVVLJQPHQW RI YDOXHV WR WKHVH SDUDPHWHUV UHSUHVHQWV IDUUHDFKLQJ IDFWXDO DVVXPSWLRQV DERXW WKH REMHFWLYH VWUXFWXUH RI RXU ILHOG RI LQTXLU\´ 0RQGDGRUL    7KH SUREOHP KRZHYHULVWKDWQHLWKHURIWKHVHLQWHUSUHWDWLRQVFDQEHGLUHFWO\UHSUHVHQWHGLQ DQ\RIWKH&DUQDS+LQWLNNDVW\OHV\VWHPVRILQGXFWLYHORJLF7KXVLWVHHPV WKDW&DUQDSLVULJKWLQFODLPLQJWKDWWKHTXHVWLRQRIWKHLQWHUSUHWDWLRQRIWKH SDUDPHWHUVRIWKHV\VWHPVRILQGXFWLYHORJLFLVQRWDPDWWHURILQGXFWLYHORJLF DORQHEXWLWLVDPDWWHURIPHWKRGRORJ\LHWKHDSSOLFDWLRQRILQGXFWLYHORJLF WR D SDUWLFXODU SUREOHPVLWXDWLRQ 7KLV FODLP JDLQV IXUWKHU VXSSRUW IURP =DEHOO¶V PRGLILFDWLRQ RI WKH VXIILFLHQWQHVV SRVWXODWH ZKLFK OHDGV IURP &DUQDS¶VLQLWLDOȖȜ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⏐H RQO\LI3K⏐H !±İ ZKHUHİ≤ /HKUHUDFNQRZOHGJHVWKDWWKHUXOHRIKLJKSUREDELOLW\$+3 LVRQO\RQH RI WKH SRVVLEOH VWUDWHJLHV RI DFFHSWDQFH 7KHUH PLJKW EH DOVR H[WUHPH VWUDWHJLHV LI VRPHRQH DLPV DW DFFHSWDQFH RI DOO WUXH VHQWHQFHV RU QR IDOVH VHQWHQFHVWKHQDPRUHDSSURSULDWHUXOHZRXOGEHWRDFFHSWHYHU\VHQWHQFH RUDFFRUGLQJO\WRDFFHSWQRVHQWHQFH/HKUHUD  

 

&+$37(5

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¶V ĮȜV\VWHP DQG GLYLGH WKH SUREOHP LQWR WZR VHSDUDWH DFFHSWDQFHSUREOHPV +LQWLNND DQG +LOSLQHQ    +LOSLQHQ    7KH ILUVW SUREOHP FRQFHUQV WKH DFFHSWDQFHUXOHIRUJHQHUDOL]DWLRQVWKHVHFRQGIRUVLQJXODUVHQWHQFHV,QWKH FDVH RI JHQHUDO VHQWHQFHV WKH ĮȜV\VWHP TXLWH QDWXUDOO\ OHDGV WR WKH IROORZLQJPRGLILFDWLRQRIWKHUXOHRIKLJKSUREDELOLW\ '(),1,7,21*HQHUDOL]HG$+3 UXOHIRUWKHĮȜV\VWHP$+*  $FK⏐H RQO\LI3K⏐H !±İDQGQ!Q ZKHUH Q LV WKH WKUHVKROG YDOXH RI WKH QXPEHU RI REVHUYDWLRQV UHTXLUHG ZKLFK GHSHQGV XSRQ Į +LQWLNND DQG +LOSLQHQ    +LQWLNND DQG +LOSLQHQ  ,QSUDFWLFHRQO\WKRVHJHQHUDOL]DWLRQVZKLFKLQWKHLUQRUPDOIRUPFRQWDLQ WKHFRQVWLWXHQW&FDUHWKHPVHOYHVDFFHSWDEOH0LFKDORVD 7KHUXOH IRU DFFHSWDQFH RI VLQJXODU VHQWHQFHV LV FRQVWUXFWHG RQ WKH EDVLV RI $+*  RQO\ WKRVH VLQJXODU VHQWHQFHV ZKLFK DUH WKH FRQVHTXHQFH RI DFFHSWDEOH JHQHUDOL]DWLRQV DUH DFFHSWDEOH +LQWLNND DQG +LOSLQHQ    +LOSLQHQ 7KHIDFWWKDWRQO\WKRVHVLQJXODUVHQWHQFHVZKLFKDUH GHULYDWLYHVRIDFFHSWDEOHJHQHUDOL]DWLRQVDUHDFFHSWDEOHLVLQWHUSUHWHGE\WKH PHPEHUV RI WKH )LQQLVK 6FKRRO DV FRQVRQDQW ZLWK $ULVWRWOH¶V FODLP WKDW NQRZOHGJH FRQFHUQV RQO\ WKH JHQHUDO +LOSLQHQ    +LQWLNND DQG +LOSLQHQ  

6758&785$/5(/,$%,/,60



 1RWZLWKVWDQGLQJ WKH ZD\ +LQWLNND DQG +LOSLQHQ GHILQH WKH DFFHSWDQFH UXOHVLWLQQR ZD\ DIIHFWVWKHVHPDQWLFDO FRQVWUXFWLRQ RIWKH ĮȜV\VWHP RI LQGXFWLYH ORJLF 7R DXWKRUL]H LQGXFWLYH LQIHUHQFHV DV OHJLWLPDWH NLQGV RI LQIHUHQFHV.\EXUJSURSRVHVWKDWDFFHSWDQFHUXOHVSOD\WKHUROHRIWKHUXOHRI GHWDFKPHQWIRULQGXFWLYHLQIHUHQFHV.\EXUJE +RZHYHU6XSSHV¶V FOHDU GHOLQHDWLRQ EHWZHHQ SUREDELOLVWLF UXOHV RI GHWDFKPHQW DQG DFFHSWDQFH VHHPV WR VHULRXVO\ XQGHUPLQH .\EXUJ¶V FODLP 6XSSHV    7KHUHIRUHWKHHSLVWHPLFFDQRQVRIMXVWLILFDWLRQVSHFLILHGZLWKLQWKHV\VWHP FRQVWLWXWHWKHQHFHVVDU\FRQGLWLRQVIRUDFFHSWDQFH+LQWLNND¶VRZQSURFHGXUH LV GHSLFWHG E\ WKH SRVLWLYH DQVZHU KH HODERUDWHV LQ JUHDWHU GHWDLO WR WKH IROORZLQJTXHVWLRQ >&@DQRQHILQGSUREDELOLW\PHDVXUHVRQWKHVWDWHPHQWVRIVRPHVLPSOHODQJXDJHDQG GHILQHE\WKHLUPHDQVDSUREDELOLVWLFUXOHRIDFFHSWDQFHZKLFKVDWLVILHVWKHPLQLPXP UHTXLUHPHQWV RI FRQVLVWHQF\ DQG ORJLFDO FORVXUH ZKLFK HYHU\ ZHOOEHKDYHG UXOH RI DFFHSWDQFHFOHDUO\VKRXOGVDWLVI\"+LQWLNNDG 

:HKDYHDOUHDG\REVHUYHGWKDWLQGXFWLYHORJLFFRQVWLWXWHVDVLQWKHFDVH RI&DUQDSWKHVWUXFWXUDOUHOLDELOLVWWKHRU\RIMXVWLILFDWLRQ,WWXUQVRXWWKHQ WKDWDVHQWHQFHLVDFFHSWDEOHDFFRUGLQJWR+LQWLNNDDQG+LOSLQHQRQO\LILW IXOILOOV WKH FRQGLWLRQ IRU MXVWLILFDWLRQ VSHFLILHG E\ WKH VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ %DU+LOOHO LV ULJKW LQ SRLQWLQJ RXW WKH SUDJPDWLF FKDUDFWHURIWKHFRQFHSWRIDFFHSWDQFH ZKLFK LV QRW ZRUWKZKLOH RU SRVVLEOH DGHTXDWHO\ WR H[SOLFDWH DV D SXUHO\ VHPDQWLF WHUP%DU+LOOHOF 

,QWKHYLHZRI%DU+LOOHO¶VFODLPLWLVSHUSOH[LQJZKDWSUHFLVHO\+LQWLNND DQG+LOSLQHQKDYHLQPLQGZKHQWKH\ZULWH :HDUHQRWJRLQJWRGLVFXVVWKHLPSRUWDQFHRIWKHUXOHVRIDFFHSWDQFHIURPWKHSRLQW RIYLHZRIWKH PHWKRGRORJ\RIVFLHQFH,QVWHDGZHVKDOOFRQVLGHUWKHSRVVLELOLW\RI LQFRUSRUDWLQJDSUREDELOLVWLFUXOHRIDFFHSWDQFHLQWRDV\VWHPRITXDQWLWDWLYHLQGXFWLYH ORJLF EHFDXVH VXFK D UXOH ZRXOG LQ RXU YLHZ EH YHU\ KHOSIXO IRU WKH SXUSRVH RI H[SOLFDWLQJLQWHUPVRILQGXFWLYHSUREDELOLWLHVVXFKFODVVLILFDWRU\H[SUHVVLRQVXVHGE\ PRVW SKLORVRSKHUV DV ³HPSLULFDO NQRZOHGJH´ ³SUDFWLFDO FHUWDLQW\´ DQG ³UDWLRQDO EHOLHI´+LQWLNNDDQG+LOSLQHQ 

6LQFHWKHUXOH$+* GHSHQGVXSRQĮLWFDQRQO\EHVSHFLILHGLQWHUPVRI ZKDW&DUQDSFDOOVWKH³PHWKRGRORJ\´RILQGXFWLYHORJLF6RLWFDQQRWEHWKLV SRLQWWKDW+LQWLNNDDQG+LOSLQHQDUHDGGUHVVLQJKHUH7KH\LQLWLDOO\PRWLYDWH WKH LPSRUWDQFH RI DFFHSWDQFH UXOHV E\ LQYRNLQJ &KLVKROP¶V GHILQLWLRQ RI NQRZOHGJH$QGWKHSDVVDJHTXRWHGDERYHFOHDUO\LQGLFDWHVWKDWWKH\LQVLVW RQWKHIDFWWKDWWKHV\VWHPRILQGXFWLYHORJLFLVVXIILFLHQWWRJHQHUDWHDTXLWH FRKHVLYH HSLVWHPRORJLFDO SRVLWLRQ 7KH\ HPSKDVL]H WKH IDFW WKDW LQ 

 &+$37(5  WKHHSLVWHPRORJLFDO YLHZ RI NQRZOHGJH WKH\ GHYHORS RQ WKH JURXQGV RI LQGXFWLYHORJLFWKHLQGLVSHQVDEOHSDUWLVIRUPHGE\WKHUXOHVRIDFFHSWDQFH ,QRWKHUZRUGVWKH\VWUHVVWKHGLYHUJHQFHRIWKHLUHSLVWHPRORJLFDOSURJUDP IURP&DUQDS¶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³QRQSUREDELOLVWLF´UHTXLUHPHQWRQWKHQXPEHURIPLQLPDOREVHUYDWLRQV ,I WKHVH DX[LOLDU\ FRQGLWLRQV DUH VDWLVILHG DV LV GHPRQVWUDEO\ WUXH ZLWK UHVSHFWWRWKHUXOH$+* +LOSLQHQ WKHQWKLVUXOH³DOVRSURYLGHV D FRQVLVWHQW GHILQLWLRQ RI NQRZOHGJH DV IDU DV JHQHUDO K\SRWKHVHV DUH FRQFHUQHG ´+LOSLQHQ  ,W VHHPV LQDGHTXDWH KRZHYHU WR FODLP WKDW WKH LVVXH RI WKH DFFHSWDQFH UXOHVGRHVQRWPDNHDQ\GLIIHUHQFHZLWKUHVSHFWWR&DUQDS¶VDQGWKH)LQQLVK 6FKRRO¶V HSLVWHPRORJLFDO SRVLWLRQV 2Q WKH FRQWUDU\ LW DFFRXQWV IRU D YDVW GLIIHUHQFH%XW²DV,VKDOOHPSKDVL]H²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³FK⏐H  U´,IH H[SUHVVHVWKHWRWDONQRZOHGJHRI;DWWKHWLPHWWKDWLVWRVD\KLVWRWDONQRZOHGJHRI WKHUHVXOWVRIREVHUYDWLRQVWKHQ;LVMXVWLILHGDWWKLVWLPHWREHOLHYHKWRWKHGHJUHHU DQGKHQFHWREHWRQKZLWKDEHWWLQJTXRWLHQWQRWKLJKHUWKDQU&DUQDS 

,WLVQRWP\SUHVHQWWDVNWRHOXFLGDWH&DUQDS¶VWKHRU\RINQRZOHGJH:KDW ,ILQGLQVWUXFWLYHLQWKLVORFXWLRQKRZHYHULVWKDWRQWKHRQHKDQG&DUQDS LGHQWLILHV D TXLWH QDWXUDO ZD\ WR SURFHHG IURP WKH PLQLPDOLVW WKHRU\ RI MXVWLILFDWLRQ WR WKH WKHRU\ RI NQRZOHGJH 2Q WKH RWKHU KDQG WKH LPSRUWDQW 

6758&785$/5(/,$%,/,60   REVHUYDWLRQ LV WKDW KH VHHNV WR GHWHUPLQH WKH FRQGLWLRQV IRU NQRZOHGJH LQ WHUPVRIDJUDGXDOFRQFHSWRIEHOLHI+HGRHVQRWKHVLWDWHWRDGPLWWKDW³WKH HQGUHVXOWRILQGXFWLYHUHDVRQLQJLVQRWWKHDFFHSWDQFHRIDK\SRWKHVLVEXW UDWKHUWKHDVVLJQPHQWRIDSUREDELOLW\WRDK\SRWKHVLV´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

-HIIUH\¶V SUREDELOLVWLF HSLVWHPRORJ\ LV PXFK ZHOFRPHG E\ &DUQDS &DUQDS E  F   7KH LGHD RI XQFHUWDLQ HYLGHQFH LV FRQVRQDQW ZLWK &DUQDS¶V YLHZV RQ 3URWRNROVlW]H .LVWOHU   /HKUHU    ,Q IDFW SUREDELOLVWLF HSLVWHPRORJ\ LV D GHVFHQGDQW RI &DUQDS¶V HSLVWHPRORJLFDO DSSURDFK ³&DUQDS¶V LGHD RI DQ µLJQRUDQFH¶ SULRU FXPXODWLYHO\PRGLILHGE\JURZWKRIRQH¶VVHQWHQWLDOGDWDEDVHLVUHSODFHGE\ DSUDJPDWLFDOYLHZRISULRUVDVFDUULHUVRIFXUUHQWMXGJPHQWDQGRIUDWLRQDO XSGDWLQJ LQ WKH OLJKW RI H[SHULHQFH´ -HIIUH\   0RUHRYHU &DUQDS¶V UHSXGLDWLRQ RI WKH FODLP WKDW KLV HSLVWHPRORJ\ LV IRXQGDWLRQDO SDUDOOHOV-HIIUH\¶VDUJXPHQW :KHQZHVSHDNDERXWWKHGHWHUPLQDWLRQRIWKHSUREDELOLW\ZHWDNHWKHHYLGHQFHDV ³JLYHQ´ZHWUHDWLWDVLIZHNQHZLWZLWKSHUIHFWFHUWDLQW\DQGWKLVLVFOHDUO\WKHVDPH WDNLQJLWDV³DFFHSWHG´$QGZHGRWKLVDOWKRXJKPRVWRIXVZKHQZHGLVFXVVQRW LQGXFWLYHORJLFEXWHSLVWHPRORJ\GHFODUHWKDWZHFDQQHYHUKDYHSHUIHFWFHUWDLQW\IRU DQ\ V\QWKHWLF SURSRVLWLRQ )RU PDQ\ \HDUV , KDYH WULHG LQ YDLQ WR  ILQG D ZD\ RI GHDOLQJZLWKXQFHUWDLQHYLGHQFH&DUQDSE 

$VLPLODUSRLQWLVDOVRPDGHEXWQRWHPSKDVL]HGE\+LQWLNND DOO REVHUYDWLRQDO UHSRUWV WKDW DUH XVHG LQ WHVWLQJ K\SRWKHVHV DUH DVVXPHG WR EH WUXH 2XUVLPSOHODQJXDJH/NIRUFHVXVKHUHLQWRDFRQVLGHUDEOHRYHUVLPSOLILFDWLRQ7KLV VLPSOLILFDWLRQLVQRWSHUKDSVWRRVHULRXVKRZHYHU´+LQWLNNDDQG+LOSLQHQ 

7R EH VXUH &DUQDS¶V RZQ HSLVWHPRORJLFDO SRVLWLRQ GRHV QRW H[DFWO\ PDWFK -HIIUH\¶V SURJUDP RI SUREDELOLVWLF HSLVWHPRORJ\ EXW WKLV PD\ EH LQ ODUJHSDUWGXHWRWHFKQLFDOOLPLWDWLRQVWKDW&DUQDSZDVQRWDEOHWRRYHUFRPH 

 &+$37(5  7KH )LQQLVK 6FKRRO KRZHYHU VHHPV VWULFWO\ FRQILQHG WR WKH WUDGLWLRQDO HSLVWHPRORJLFDO DSSURDFK WR WKH WKHRU\ RI NQRZOHGJH LQ SDUWLFXODU WKH\ VHHPWRVWULYHIRUDNLQGRI&KLVKROPLDQIRXQGDWLRQDOLVP+RZHYHULQSODFH RI &KLVKROP¶V QRQJUDGXDO HSLVWHPLF DSSUDLVDO WKH\ SURSRVH TXDQWLWDWLYH PHDVXUHRIWKHHSLVWHPLFVWDWXVRIEHOLHIV $FFRUGLQJWRDZLGHVSUHDGSKLORVRSKLFDOYLHZPRVWRIRXUNQRZOHGJHRIHPSLULFDO PDWWHUV RI IDFW LV ORJLFDOO\ VSHDNLQJ QRW DEVROXWHO\ FHUWDLQ EXW RQO\ SUREDEOH  ,W WKXV OLHV FORVH DW KDQG WR WU\ WR GHILQH NQRZOHGJH LQ WHUPV RI WUXWK DQG KLJK SUREDELOLW\DQGPDQ\SKLORVRSKHUVKDYHLQIDFWWULHGWRGRVR>:@HVKDOOFRQVLGHU VRPHRIWKHGLIILFXOWLHVHQFRXQWHUHGE\WKHVHDWWHPSWVDQGSURSRVHDSDUWLDOVROXWLRQ WRWKHP+LQWLNNDDQG+LOSLQHQ 

7KLV LV DOVR KRZ WKH\ PRWLYDWH WKH LQYHVWLJDWLRQ RI WKH DGHTXDWH GHILQLWLRQ RI DFFHSWDQFH UXOHV +LQWLNND DQG +LOSLQHQ   +LOSLQHQ    )LUVW WKH &KLVKROPLDQ FRQGLWLRQ IRU NQRZOHGJH LV LQWURGXFHG 7KHQ LW LV UHFDVW LQ WKH IRUP RI D PLQLPDOLVW FRQGLWLRQ DV IROORZV .K⏐H  $FK⏐H DQGKLVWUXH

'. 

ZKHUH.K⏐H LV³WKHNQRZDELOLW\´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¶VHSLVWHPRORJLFDODWWLWXGHWRWKHFRQFHSWRINQRZOHGJHDQG WKHUHVSHFWLYHDWWLWXGHRIWKH)LQQLVK6FKRRO,QRUGHUWRPDNHWKHV\VWHPVRI LQGXFWLYH ORJLF DSSOLFDEOH ZLWKRXW UHFRXUVH WR DFFHSWDQFH UXOHV &DUQDS LQWURGXFHV ³PHWKRGRORJLFDO UXOHV IRU WKH XVH RI FRQILUPDWLRQ VWDWHPHQWV´ VXFKDVWKHUHTXLUHPHQWRIWRWDOHYLGHQFHRUWKHUXOHRIPD[LPL]LQJH[SHFWHG XWLOLW\6DOPRQD 7KLVDSSURDFKDFFRUGLQJWR+LOSLQHQ¶VUHVXOWVLV WHQDEOHEXWZKDWLVIXUWKHUUHTXLUHGLVDVXLWDEOHGHILQLWLRQRIXWLOLW\DVZHOO DVDSSHQGLQJWKHVHWRIDFFHSWDQFHUXOHVZLWK³WKHUXOHRIWLHV´LHWKHUXOH RI VXVSHQGLQJ MXGJPHQW ZLWK UHVSHFW WR HTXDOO\ DFFHSWDEOH K\SRWKHVHV +LOSLQHQ  

6758&785$/5(/,$%,/,60



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

$V WKH VWXG\ RI WKH WKHRU\ RI NQRZOHGJH DGYDQFHG E\ &DUQDS DQG WKH )LQQLVK6FKRROH[WHQGVEH\RQGWKHVFRSHRIWKLVERRN,ZLOOQRWSXUVXHWKLV GLVFXVVLRQDQ\IXUWKHU:KDWLVVWLOOOHIWIRULQYHVWLJDWLRQWREHXQGHUWDNHQLQ WKH QH[W FKDSWHU LV WKH HYDOXDWLRQ RI WKH HSLVWHPRORJLFDO LPSRUW RI WKH VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ H[SOLFDWHG LQ WKH V\VWHPV RI LQGXFWLYHORJLF

1RWHV  7KHUHTXLUHPHQWRISV\FKRORJLFDOSODXVLELOLW\LVQDWXUDOO\LPSRVHGRQPHQWDOLVWLFWKHRULHV EHFDXVHRI47 ²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² ZLWKUHVSHFWWRJHRPHWU\LQWKHILUVWLQVWDQFH±WKDWE\QRPHDQVFDQZHGHYHORSDWKHRU\ E\VLPSO\LPSRVLQJ PRUHDQGPRUHFRQVWUDLQLQJLGHDOL]DWLRQVXSRQRXURUGLQDU\EHOLHIV FI$GDPV &RQWUDU\WRWKDW&DUQDSFODLPVWKDW³(XFOLG¶VD[LRPV\VWHPVRI JHRPHWU\ZDVDUDWLRQDOUHFRQVWUXFWLRQRIWKHEHOLHIVFRQFHUQLQJVSDWLDOUHODWLRQV´&DUQDS    )RU D GLVFXVVLRQ RI WKH UHOHYDQFH RI SV\FKRORJLFDO H[SHULPHQWV RQ GHGXFWLYH DQG SUREDELOLVWLFUHDVRQLQJ²LQSDUWLFXODUWKHIDOODFLHVLQUHDVRQLQJSURFHVV²WRHSLVWHPRORJ\ VHHHJ6FKOLFN 7YHUVN\DQG.DKQHPDQ 6REHU &RKHQ   .DKQHPDQ HW DO HGV    7YHUVN\ DQG .DKQHPDQ   *ROGPDQ    .OD\PDQ DQG +D   .\EXUJ   0XVJUDYH   .RUQEOLWK  

 

  

&+$37(5

.XVFK )LVDNDQG3LGJHRQ 3LFDUGL %UDLQHDQG2 %ULHQ HG FKDSWHUVDQG 6WDQRYLFKDQG:HVW   ([FHSW IRU ZKDW ( 6RVD WHUPV DV IRUPDO IRXQGDWLRQDOLVP LH WKH WKHVLV WKDW ³>D@OO HSLVWHPLF MXVWLILFDWLRQ DXWKRULW\ ZDUUDQW RU DQ\ RWKHU HSLVWHPLF VWDWXV RI EHOLHI KHQFH GHULYH IURP ZKDW LV QRW HSLVWHPLFDOO\ HYDOXDWLYH $Q\ HSLVWHPLFDOO\ MXVWLILHG EHOLHI PXVW KDYHQRQHSLVWHPLFSURSHUWLHVZKLFKPDNHLWWKXVMXVWLILHGVRWKDWDQ\RWKHUEHOLHIVKDULQJ DOOVXFKSURSHUWLHVZRXOGEHHTXDOO\HSLVWHPLFDOO\MXVWLILHG´6RVD   )RUDFULWLFDODQGKLVWRULFDODFFRXQWRIGHRQWRORJLVPSUHYDLOLQJLQFRQWHPSRUDU\WKHRULHV RIMXVWLILFDWLRQVHH3ODQWLQJDD %URQN )RUDGLVFXVVLRQRIKRZ HSLVWHPLF REOLJDWLRQV DULVH RQ WKH JURXQGV RI D PLQLPDOLVW WKHRU\ RI MXVWLILFDWLRQ VHH .\EXUJ   $V : $OVWRQ DGPLWV LW LV FKDUDFWHULVWLFDOO\ UHOLDELOLVP KRZHYHU WR FRQVWLWXWH ³WKH PRVW FRPPRQ ZD\ RI IXUWKHU VSHFLI\LQJ H[WHUQDOLVP´ $OVWRQ    VHH DOVR *ROGPDQ    )RU WKH PRVW FRPSUHKHQVLYH DFFRXQW RI WKH W\SHV RI IRXQGDWLRQDOLVP VHH %URQN E  6HHDOVR3ROORFN   7KHVHDUHLQGHHGWZREDVLFHSLVWHPRORJLFDODOWHUQDWLYHVRQHVKDOOVWDUWZLWKFI/HKUHU  3ROORFN 3ODQWLQJD %RQ-RXUE  7KH GLIIHUHQFH EHWZHHQ PHQWDOLVWLF DQG PLQLPDOLVW WKHRULHV RI MXVWLILFDWLRQ WXUQV RQ WKH DFFRXQW RI EHOLHI )RU LQVWDQFH LQ . /HKUHU¶V HSLVWHPRORJ\ EHOLHI SOD\V RQO\ DQ LQVWUXPHQWDO UROH RI VHOHFWLQJ D JLYHQ VHW RI SURSRVLWLRQV ZKLOH WKH QHFHVVDU\ DQG VXIILFLHQW FRQGLWLRQV IRU MXVWLILFDWLRQ DUH VSHFLILHG LQ QRQHSLVWHPLF WHUPV FI /HKUHU D 6LPLODUO\DUROHRIEHOLHILVGLPLQLVKHGRQ5:yMFLFNL¶VDFFRXQWFI:yMFLFNL D  $ , *ROGPDQ¶V SRVLWLRQ LQ WKH SDSHU LV FDOOHG ³SURFHVV UHOLDELOLVP´ +RZHYHU KH VXEVHTXHQWO\PRGLILHGKLVSRVLWLRQFI*ROGPDQ ,WLVFRPPRQO\UHFRJQL]HG WKDW WKH ILUVW YHUVLRQ RI UHOLDELOLVP ZDV IRUPXODWHG E\ ) 3 5DPVH\ LQ 5DPVH\   ZKR FODLPHG WKDW IRU D EHOLHI WR FRQVWLWXWH NQRZOHGJH LV WR EHWUXH FHUWDLQ DQG WR UHVXOW IURP D UHOLDEOH SURFHVV 2WKHU IRUPXODWLRQV RI UHOLDELOLVP SUHFHGLQJ $ , *ROGPDQ¶V IDPRXV SDSHU LQFOXGH) 'UHWVNH 'UHWVNH D  ' 0 $UPVWURQJ $UPVWURQJ   DQGFRQFXUUHQWZLWK*ROGPDQ51R]LFN1R]LFN DQG06ZDLQ6ZDLQ )RU DQDFFRXQWRI*ROGPDQ¶VFKDQJLQJYLHZVVHH6RVD *ROGPDQ  )RUDQH[FHOOHQWGLVFXVVLRQRIGLIIHUHQWIRUPVRIUHOLDELOLVPVHH*ROGPDQ  3ROORFN    3ODQWLQJD F   *ROGPDQ    )RU D UHVSRQVH WR 3ODQWLQJD¶V REMHFWLRQV VHH $OVWRQ D   )RU D FULWLFLVP RI *ROGPDQ¶VSURFHVVUHOLDELOLVPVHHHJ5LQJ $OPHGHUDQG+RJJ 6WXUJHRQ   *ROGPDQ¶V UHOLDELOLVP LQ DGGLWLRQ WR WKH LVVXHV GLVFXVVHG LQ WKLV FKDSWHU UDLVHV DQ LPSRUWDQWLVVXHRIQDWXUDOLVWLFHSLVWHPRORJLFDOWKHRULHV5$OPHGHUFODLPVWKDW*ROGPDQ LQ *ROGPDQ   DGYDQFHV D VRSKLVWLFDWHG YHUVLRQ RI QRUPDWLYH QDWXUDOLVWLF HSLVWHPRORJ\ FI $OPHGHU    $OPHGHU¶V SRLQW , EHOLHYH ZLOO EH VXFFHVVIXOO\ PHW RQ WKH JURXQGV RI D PLQLPDOLVW WKHRU\ RI MXVWLILFDWLRQ ZKLFK , ZLOO LQWURGXFHLQWKHHQVXLQJ ,QKLVGHWDLOHGDQDO\VLVLQ$OVWRQE $OVWRQFRPHVWRWKHFRPSHOOLQJFRQFOXVLRQWKDW DQ\ PHQWDOLVWLF UHOLDELOLVP PXVW DVVXPH SV\FKRORJLFDO UHDOLVP RWKHUZLVH WKH SRVLWLRQ LV XQWHQDEOHEHFDXVHRIWKH*HQHUDOLW\3UREOHPVHHSDJH DQG1RGLVWLQFWLRQ3UREOHP FI)HOGPDQ *ROGPDQ 

 

6758&785$/5(/,$%,/,60



  *ROGPDQ GRHV QRW XVH WKH ZRUG ³TXLHWLVWLF´ EXW VWLOO WKH GHVFULSWLRQ RI KLV RZQ WKHRU\ DFFRUGVZHOOZLWK47 FI*ROGPDQ  ,QIDFWWKHSUREOHPLVFKDUDFWHULVWLFDOO\VWUHQXRXVLQWKHFDVHRIFRQIOLFWLQJQRUPVRIDQG DFWXDOLQVWDQFHVLQIHUHQFHFI6WLFKDQG1LVEHWW  )RU DUJXPHQWV DJDLQVW LQFOXGLQJ ³WUXWK´ DPRQJ HSLVWHPLF FRQFHSWV VHH *ROGPDQ    )RUDGLVFXVVLRQRIWKHGLIIHUHQFHEHWZHHQHSLVWHPLFDQGQRQHSLVWHPLFFRQFHSWVVHHDOVR &RIID  6LQFH*ROGPDQLVVLOHQWRQWKLVSRLQWLWVHHPVWKDWKHWDNHV47 WREHFRPSDWLEOHZLWK 67  7KLV KRZHYHU ZLOO RQO\ EH WUXH LQ WKH FDVH ZKHUH WKH ³RUGLQDU\ VWDQGDUGV´ RI HYDOXDWLRQRIEHOLHI¶VHSLVWHPLFVWDWXVGRQRWLQYROYHHSLVWHPLFSULQFLSOHV%6WURXGDQG ( 1LVEHWW E\ UHIHUULQJ WR SV\FKRORJLFDO H[SHULPHQWV RQ LQGXFWLYH IDOODFLHV GHPRQVWUDWH KRZHYHUWKDW$,*ROGPDQ¶VWKHRU\RIMXVWLILFDWLRQFDQQRWHPEUDFH47 FI6WURXGDQG 1LVEHWW  *ROGPDQ LV ZHOO DZDUH RI WKLV SUREOHP VHH *ROGPDQ    )RU DQ H[WHQGHG DFFRXQWRIWKHSUREOHPVHH)HOGPDQ 6RVD $OVWRQE  $GPLWWHGO\ D WKHRU\ RI GLUHFW MXVWLILFDWLRQ WR FRPSOHPHQW VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ H[SOLFDWHG LQ WKLV ERRN LV QRW VWUDLJKWIRUZDUG HLWKHU 3UHVXPDEO\ WKH PRVW SODXVLEOHFDQGLGDWHVZRXOGEHSLFNHGRXWIURPH[WHUQDOLVWWKHRULHV )RUDQRXWOLQHDQGGLVFXVVLRQRI'RRE¶VWKHRUHPDV ZHOODV *DLIPDQDQG6QLUUHVXOWVHH (DUPDQ  7KH SHUWLQHQW DOWHUQDWLYH LV VWUXFWXUDO UHDOLVP FI :RUUDOO   3VLOORV   /DG\PDQ  )RU D FULWLFDO DQDO\VLV RI &DUQDS¶V PRWLYDWLRQ WR DSSO\ HSLVWHPRORJ\ H[FOXVLYHO\ WR VFLHQWLILFVHQWHQFHVVHH7RXOPLQ %URQN  )RUDQH[DPLQDWLRQRIWKHWKHRU\RINQRZOHGJHSURMHFWHGE\WKHPHPEHUVRIWKH)LQQLVK 6FKRROVHHHJ+LOSLQHQ  &I 3ODQWLQJD    3ROORFN    6HH +RUZLFK    IRU DQ RSSRVLWHYLHZ $ %XUNV IRU LQVWDQFH DGYDQFHV SUHFLVHO\ WKLV FODLP QDPHO\ WKDW &DUQDS¶V V\VWHP RI LQGXFWLYHORJLFLVDSXUHO\IRUPDOFRQVWUXFWLRQZLWKRXWDQ\UHOHYDQFHWRHSLVWHPRORJLFDO LVVXHVFI%XUNV  $FFRUGLQJWR5&-HIIUH\GH)LQHWWLZDVWKHILUVWWRHPEUDFHSUREDELOLVWLFHSLVWHPRORJ\LQ 'H)LQHWWL IRUDQHODERUDWHGH[SRVLWLRQVHHDOVR-HIIUH\DE   (HOOV   .DSODQ   6N\UPV E  +RZVRQ D   IRU D VXUYH\VHH3ROORFN *DODYRWWL /RHZHU 6HH+RVDFN  IRUDFULWLFDODVVHVVPHQW 7KHIDFWWKDW&DUQDS¶VORJLFLQSDUWLFXODULQGXFWLYHORJLFLVDQHSLVWHPRORJLFDOWKHRU\LV UHDGLO\ DFNQRZOHGJHG E\ FRQWHPSRUDU\ HSLVWHPRORJLVWV FI HJ &KLVKROP   *ROGPDQ  1RWZLWKVWDQGLQJ ODWHU DFFRPSOLVKPHQWV RI WKH V\VWHPV RI LQGXFWLYH ORJLF E\ &DUQDS +LQWLNNDDQGRWKHUVWKHVXEVWDQWLDOPRWLYDWLRQIRUWKHHSLVWHPRORJLFDOSRVLWLRQHVSRXVHG LQ WKH V\VWHPV RI LQGXFWLYH ORJLF LV DSSDUHQWO\ EURXJKW RXW LQ /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ &I5LFKDUGVRQ &DUQDS¶VORJLFLVPKDVQRWRQO\HYROYHGEXWLVDOVRHVVHQWLDOO\ GLIIHUHQWIRUP *)UHJH¶VDQG%5XVVHOO¶VFI%RKQHUWD 7KLHO DQGIURP

 

  

&+$37(5

&*+HPSHO¶VFI+HPSHOE )RUDQDUJXPHQWDJDLQVWWHQDELOLW\RI ORJLFLVPLQJHQHUDOVHHHJ7KRP  ,QGHHG LQ &DUQDS¶V ORJLFLVP QXPEHUV DUH SXUHO\ ORJLFDO DV LQGLYLGXDO FRQVWDQWV FI&DUQDS %RKQHUWD  )RUDUHVSRQVHWR,/DNDWRV¶VFULWLFLVPVHH$GOHU  )RU DQ DFFRXQW RI IRXQGDWLRQDOLVP LQ WHUPV RI WKH VWUXFWXUH RI MXVWLILFDWLRQ VHH %URQN E  2Q WKLV EURDG FKDUDFWHUL]DWLRQ RI IRXQGDWLRQDOLVP LW GRHV QRW SUHFOXGH FRKHUHQWLVP FI/HKUHU E   1HYHUWKHOHVV IRXQGDWLRQDOLVP LV KHUH D VXEVWDQWLYH DQG QRW PHUHO\IRUPDOWKHRU\²IRUWKHGLVWLQFWLRQVHH6RVD  (6RVDHPEUDFHVDVLPLODUYLHZFI6RVD  )RU D GHILQLWLRQRI FRKHUHQFH DOWHUQDWLYH WR WKH %D\HVLDQ RQH VHH /HKUHU D   /%RQ-RXUGLVFXVVHVGLIILFXOWLHVXQGHUO\LQJWKHGHILQLWLRQRIFRKHUHQFHDVZHOODVDWWHPSWV WRRYHUFRPHWKHPFIHJ%RQ-RXUE  0\ H[SODQDWLRQ RI ³FRKHUHQFH´ DQG ³VWULFW FRKHUHQFH´ IROORZV %D\HVLDQ H[SRVLWLRQ WKHUHRI EXW P\ GLVFXVVLRQ GRHV QRW WXUQRQWKH %D\HVLDQ UHDGLQJ RI WKHVH FRQFHSWV )RU &DUQDS¶V RULJLQDO H[SRVLWLRQ RI VWULFW FRKHUHQFH VHH UHJXODULW\ FRQGLWLRQV GLVFXVVHG LQ FKDSWHUSDJH )RUSHUWLQHQWGLVFXVVLRQVRIFRKHUHQWLVPVHHHJ%RQ-RXU /HKUHU  (6RVD¶VVHOIDEVWUDFWLRQDQGSUHVHQWDEVWUDFWLRQDUJXPHQWVGUDZSUHFLVHO\RQWKLVSRLQW FI6RVD  7KRXJK LW PLJKW IRU LQVWDQFH H[SODLQ ZK\ &DUQDS ZDV SHUFHLYHG DV D FRKHUHQWLVW E\ 6FKOLFN2EHUGDQ VHHDOVR6FKOLFN +LOSLQHQ .RSSHOEHUJ    ,Q SDUWLFXODU WKH YHUVLRQ RI . /HKUHU¶V FRKHUHQWLVP H[SRVHG LQ /HKUHU   LV GHILQLWHO\ PLVOHDGLQJ IURP &DUQDS¶V SHUVSHFWLYH DV LW LJQRUHV FRQGLWLRQLQJ RQ HYLGHQFHZKLFKUHVXOWVLQ³EHOLHIV>WKDW@PD\EHFRPSOHWHO\MXVWLILHGHYHQWKRXJKEHOLHIV HVVHQWLDOWRWKHMXVWLILFDWLRQDUHIDOVH´/HKUHU  )RU D VXUYH\ RI DOWHUQDWLYH FRQFHSWV RI NQRZOHGJH ZKLFK GR QRW HQWDLOEHOLHI VHH /XSHU   ,QSDUWLFXODUWKHORJLFDOUHODWLRQEHWZHHQHYLGHQFHDQG6¶VEHOLHILVQRWVXIILFLHQWWR\LHOG WKHHYLGHQWLDOVXSSRUWFI)HOGPDQ  ,W VHHPV WKDW RQH RI &DUQDS¶V SUHGHFHVVRUV LQ FRQVWUXLQJ D KLJKO\ LGHDOL]HG WKHRU\ RI MXVWLILFDWLRQZDV:6HOODUVFI/HKUHU  )RUDGHIHQVHRIDVLPLODUYLHZVHH&KDWDOLDQ  )RUDVLPLODUYLHZVHH1LLQLOXRWR  ,Q5$XGL¶VWHUPLQRORJ\5&DUQDSHPEUDFHVWKHUHE\WKHHQWDLOPHQWSULQFLSOHFI$XGL   %HFDXVH RI WKH HPLQHQW HSLVWHPLF VWDWXV RI WKH PHWDOHYHO VHQWHQFHV LW LV DSSHDOLQJ WKDW &DUQDS DWWULEXWHV ORJLFDO IRUP ZLWK D NLQG RI MXVWLILFDWRU\ KROLVP )RU DQ DUJXPHQW VHH 6RVD  6HH .\EXUJ   0DKHU    IRU D KLVWRULFDO VXUYH\ RI VLPLODU SRVLWLRQVDQG.\EXUJD IRUDGLVFXVVLRQRI&DUQDS¶VDUJXPHQWV 5 &KLVKROP LQYHVWLJDWHV D QXPEHU RI SUREOHPV WKDW 05  HQGV XS ZLWK LQ WHUPV RI ³DSSOLFDWLRQIDOODFLHV´FI&KLVKROP ),'UHWVNHRQWKHRWKHUKDQGSRVHV DSDUDGR[ZKLFKVHHPVLQHYLWDEOHLILQGHILQLQJWKHFRQFHSWRINQRZOHGJHZHGUDZXSRQ WKHSUREDELOLVWLFFRQFHSWRIHYLGHQFHFI'UHWVNH +RZHYHULWLVDQRWKHUSDUDGR[ WKH VR FDOOHG SDUDGR[ RI ³ROG HYLGHQFH´ WKDW ZDV ZLGHO\ DWWHQGHG WR E\ SUREDELOLVWLF

 

6758&785$/5(/,$%,/,60



  HSLVWHPRORJLVWV,WLVSDUDGR[LFDOWKDWRQ%D\HV¶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¶VEHVWH[SRVLWLRQRQWKHUROHRIODQJXDJHLQVROYLQJ WKHSXWDWLYHSKLORVRSKLFDOSUREOHPVVHH&DUQDS  2Q WKH JURXQGV RI WKH V\VWHPV RI LQGXFWLYH ORJLF 0-'  LV FRPSOHPHQWHG ZLWK VWULFW FRKHUHQFH ZKLFK LQ WKLV FDVH ZRXOG UHTXLUH WKDW IRU DQ\ 67S RWKHU WKDQ ORJLFDOO\ IDOVH VHQWHQFHLHFRXQWHUWDXWRORJ\F67S⏐W ! )RUDJHQHUDOGHILQLWLRQRIUHOLDELOLVPVHH6RVD  6HH0LFKDORVE %DWHQV IRUDVXUYH\ 6HH +HPSHO   IRU D VLPLODU YLHZ 6HH .\EXUJ      IRU D FULWLFDOGLVFXVVLRQ $ SRLQW ,GRQRWSXUVXH KHUH FRQFHUQV WKH SUREOHP RI WKH FRQVLVWHQF\ RI WKH ³V\QWKHWLF´ LQWHUSUHWDWLRQ RI WKH Į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ĮSDUDPHWHU)RUVRPHRWKHUSUREOHPVVHH6FKLFN  .DZDOHF  7KLV IDFW LV IXUWKHU VXSSRUWHG E\ RWKHU DSSURDFKHV WR WKH UXOHV RI DFFHSWDQFH QRWDEO\ .\EXUJ VFI.\EXUJE 6DOPRQD  6DOPRQDGYRFDWHVWKHYLHZWKDW&DUQDSHYDGHVWKHDFFHSWDQFHUXOHVVLQFHWKH\FDQOHDGWR LQFRQVLVWHQFLHV 6DOPRQ E   %HLQJ D WHFKQLFDO SRLQW WKLV UHVSHFW LV RI PLQRU LPSRUWDQFHIRU&DUQDS

 

  

&+$37(5

)RU DQ LGHD DQG HODERUDWLRQ RI ³XQFHUWDLQ HYLGHQFH´ VHH -HIIUH\     1LLQLOXRWR    )RU D FULWLFLVP RI &DUQDS-HIIUH\ DSSURDFK WR DFFHSWDQFHUXOHVVHH/HYL  ³µ;NQRZVWKDWKLVWUXH¶PHDQV  L  ;DFFHSWVWKHK\SRWKHVLVK  LL  ;KDVDGHTXDWHHYLGHQFHIRUKDQG  LLL  KLVWUXH´ &KLVKROP    , TXRWH IURP +LOSLQHQ    6HH DOVR +LQWLNND DQG +LOSLQHQ IRQS  2QWKHPLVOHDGLQJXVHRIWKHFRQFHSWRIDFFHSWDQFHLQWKHGLVFXVVLRQVRQDFFHSWDQFHUXOHV DQGRQYDULRXVSRVVLEOHPHDQLQJVWKHUHRIVHH%DU+LOOHOE +DMGXN  7KLV DSSURDFK ZDV FRPPRQ WR VXFK GLYHUJHQW FXUUHQWV LQ 3ROLVK HSLVWHPRORJ\ DV 5 ,QJDUGHQ¶V HSLVWHPRORJ\ RQ WKH RQH KDQG DQG . 7ZDUGRZVNL¶V RQ WKH RWKHU FI.DZDOHF D   )RU DQ LQYHVWLJDWLRQ RI WKH KLVWRULFDO H[SODQDWLRQ VHH .DZDOHF   )RU UHFHQW HODERUDWLRQV RQ WKH GLVWLQFWLRQ VHH /HKUHU D   &RKHQ .DSODQ 5RRUGD  &I+LOSLQHQFK +LOSLQHQ 6HHDOVR+LQWLNNDDQG3LHWDULQHQ  6HHDOVR+LOSLQHQ&K 1LLQLOXRWR&K )HVWDIRUWKFRPLQJ  &DUQDSLQ&DUQDS VHHPVWRVXJJHVWWKDWKHGRHVQRWREMHFWLQSULQFLSOHWR WKHUHEHLQJDFFHSWDQFHUXOHVIRUJHQHUDOL]DWLRQVFIDOVR.\EXUJ $QRSSRVLWH YLHZRQ&DUQDSZLWKWKLVUHVSHFWLVGHIHQGHGE\<%DU+LOOHOLQ%DU+LOOHOE  )RUDFULWLTXHRI&DUQDS¶VYLHZVVHH+LOSLQHQ 





&KDSWHU  6758&785$/5(/,$%,/,60$1'7+( 352%/(062)%$<(6,$1(3,67(02/2*<   

7KH%D\HVLDQUHDGLQJRIWKH&DUQDS+LQWLNNDVW\OHV\VWHPVRILQGXFWLYH ORJLFGLVFXVVHGLQVHFWLRQRIWKHILUVWFKDSWHUSXUSRUWHGO\JLYHVUHDVRQWR FODLP WKDW &DUQDS DQG +LQWLNND DGYDQFH WKHLU RZQ SHFXOLDU %D\HVLDQLVP 3ODQWLQJD    $V LW DSSHDUV KRZHYHU ERWK WKH FULWLFV DQG WKH SURSRQHQWV RI LQGXFWLYH SUREDELOLW\ DSSDUHQWO\ IDLO WR DSSUHFLDWH &DUQDS¶V DQG+LQWLNND¶VRZQJUDVSRI%D\HVLDQLVP,FODLPWKDWWKHDSSURSULDWHZD\ WRHOXFLGDWHWKHVSHFLILFYHUVLRQRI%D\HVLDQLVPSURSRXQGHGE\&DUQDSDQG +LQWLNND LV YLD WKH HSLVWHPRORJ\ XQGHUO\LQJ WKH V\VWHPV RI LQGXFWLYH ORJLF DQGLQSDUWLFXODUYLDWKHVWUXFWXUDOUHOLDELOLVWWKHRU\RIMXVWLILFDWLRQ,FODLP WKDW LW LV VWUXFWXUDO UHOLDELOLVP WKDW JURXQGV D EHWWHU FRPSUHKHQVLRQ RI &DUQDS¶V DQG +LQWLNND¶V SODFH LQ WKH FHQWUDO GLYLVLRQ RI %D\HVLDQV LQWR REMHFWLYHDQGVXEMHFWLYH,WLVQRWP\SXUSRVHKRZHYHUWRJLYHPRUHFUHGLW WR &DUQDS¶V %D\HVLDQLVP WKDQ LW DFWXDOO\ GHVHUYHV DQG WR GHIHQG LW DJDLQVW DOO FULWLFLVP UDWKHU , GHYHORS D UHDGLQJ RI &DUQDS¶V DQG +LQWLNND¶V %D\HVLDQLVPWKDWFRXOGEHVKDUHGE\ERWKWKHSURVDQGWKHFRQV ,SURFHHGWRDUJXHLQWKLVFKDSWHUDVIROORZV,QWKHILUVWVHFWLRQ,RXWOLQH WKHVWDQGDUGYLHZRQ&DUQDS¶V%D\HVLDQLVPDQGSRLQWRXWWKDWLWPRWLYDWHV WKHPRVWGHYDVWDWLQJFULWLFLVPVRIWKHSURJUDPRILQGXFWLYHORJLFLQJHQHUDO DQG WKH XQGHUO\LQJ HSLVWHPRORJ\ LQ SDUWLFXODU +RZHYHU WKLV GHYDVWDWLQJ FKDUDFWHURIFULWLFLVPVLVGXHWRDPLVWDNHQYLHZWKDW&DUQDS¶V%D\HVLDQLVP LV JHQHULFDOO\ WKH VDPH DV WKH VWDQGDUG %D\HVLDQLVP 7KH TXHVWLRQ DULVHV ZKHWKHU DQG KRZ &DUQDS¶V RZQ YHUVLRQ RI %D\HVLDQLVP GUDZV XSRQ KLV VWUXFWXUDOUHOLDELOLVWWKHRU\RIMXVWLILFDWLRQ7KLVZD\RIPRWLYDWLQJ&DUQDS¶V VWUXFWXUDOUHOLDELOLVPLVDOWHUQDWLYHWRWKHRQHSUHVHQWHGLQWKHVHFRQGFKDSWHU RI WKLV ERRN ZKHUH WKH GLVFXVVLRQ RI DQ DSSDUHQW LQFRKHUHQFH DPRQJ *ROGPDQ¶V PHWDOHYHO SULQFLSOHV RI KLV RZQ WKHRU\ RI MXVWLILFDWLRQ OHDGV  P. Kawalec (ed.), Structural Reliabilism © Kluwer Academic Publishers 2003

 &+$37(5  QDWXUDOO\ WR D PRGLILHG IUDPHZRUN IRU UHOLDELOLVW WKHRULHV RI MXVWLILFDWLRQ D VXEVSHFLHVRIZKLFKLV&DUQDS¶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



(SLVWHPRORJLFDO&ULWLFLVPVRI&DUQDS¶V,QGXFWLYH /RJLF $URXQGWKHPLGGOHRI&DUQDSZURWHLQDOHWWHUWRGH)LQHWWL $V,VHHWKHVLWXDWLRQWKHGLIIHUHQFHVEHWZHHQWKHYDULRXVFRQFHSWLRQVRISUREDELOLW\ ZKLFK EHORQJ WR WKH VHFRQG FODVV >QRUPDWLYH WKHRULHV@ DUH QRW YHU\ HVVHQWLDO ,Q SDUWLFXODUWKHGLVWLQFWLRQEHWZHHQ\RXUDQG6DYDJH¶VFRQFHSWLRQRQWKHRQHKDQGDQG P\ FRQFHSWLRQ RQ WKH RWKHU VHHPV WR PH WR FRQVLVW HVVHQWLDOO\ WKDW , VWDWH PRUH UHTXLUHPHQWVWKDQ\RX&RQVWDQWLQL 

/HWPHFDOOWKLVWKH%D\HVLDQFXPH[WUDYLHZRQLQGXFWLYHORJLF:KLOH WKH %D\HVLDQ SDUW FRQVLVWV RI QRUPDOL]DWLRQ QRQQHJDWLYLW\ DQG ILQLWH DGGLWLYLW\ VHH SDJH   WKH ³FXPH[WUD´ SDUW FRQWDLQLQJ WKH DGGLWLRQDO UHTXLUHPHQWV LQFOXGHV WKH UHJXODULW\ DQG V\PPHWU\ FRQGLWLRQV H[FKDQJHDELOLW\ DQGFRQYHUJHQFHVHHSDJHV± ,WLVTXLWHXQQHFHVVDU\ WR DGGUHVV DW WKLV SRLQW WKH LVVXH ZKHWKHU D GHFDGH HDUOLHU &DUQDS KLPVHOI DSSUHFLDWHG WKH %D\HVLDQFXPH[WUD YLHZ²LQ IDFW LQ WKH SHULRG IURP WKH HDUO\¶VWLOOZKLFKHQFRPSDVVHV&DUQDS¶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

%$<(6,$1(3,67(02/2*<   KRZ WKH %D\HVLDQFXPH[WUD YLHZ ZKLFK SULPD IDFLH DGPLWWHG RI WKHUH EHLQJ HPSLULFDOO\ GHWHUPLQDWH IUHTXHQFLHV ZLOO ILW GH )LQHWWL¶V UDGLFDO VXEMHFWLYLVP ,Q GH )LQHWWL¶V YLHZ UHIHUULQJ WR ³REMHFWLYH FKDQFHV´ RU ³SK\VLFDOIUHTXHQFLHV´ZRXOGEHSRLQWOHVVWKHUHDUHRQO\UHVSHFWLYHGHJUHHV RI EHOLHIV &DUQDS KRZHYHU ZDV HDJHU WR DGPLW WKDW KLV WKHRU\ RI ³WKH ORJLFDO FRQFHSW RI SUREDELOLW\´ LV SHUIHFWO\ FRPSDWLEOH ZLWK 5HLFKHQEDFK¶V FRQFHSWRISUREDELOLW\DVUHODWLYHIUHTXHQF\LHZLWKDQHPSLULFDOFRQFHSWRI SUREDELOLW\&DUQDS &DUQDSDQG6WHJP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¶V %D\HVLDQLVP LV VXJJHVWHG E\ WKH IDFW WKDW WDON RI REMHFWLYHO\ GHWHUPLQHG SUREDELOLWLHV HQWDLOHG E\ WKH SXUSRUWHG %D\HVLDQ FXPH[WUD FRQVWUXFWLRQ RI &DUQDS ZRXOG YLUWXDOO\ EH SRLQWOHVV IURP WKH SHUVSHFWLYHRIWKHSXUHO\VXEMHFWLYH%D\HVLDQLVP+RZHYHUP\REMHFWLYHLV QRW WR DQDO\]H ZK\ WKH %D\HVLDQFXPH[WUD YLHZ LV ZURQJ UDWKHU WKH OHVV GHPDQGLQJDLPLVWRSRLQWRXWWKDWVLQFHDOOWKHPRVWGHYDVWDWLQJFULWLFLVPV RI&DUQDS¶V%D\HVLDQLVPSUHVXSSRVHWKH%D\HVLDQFXPH[WUDYLHZLWPLJKW EHZRUWKZKLOHWRH[SORUHDQDOWHUQDWLYHUHDGLQJRI&DUQDSDQGVHHZKHWKHU WKHUDWLRQDOHIRUKLVSRVLWLRQLVPRUHIXOO\DSSUHFLDWHG 7KHUH DUH WZR HPSLULFLVW VWUDWHJLHV WKDW VHHP WR VHULRXVO\ XQGHUPLQH &DUQDS¶V SURJUDP RI LQGXFWLYH ORJLF 7KH ILUVW RQH DWWDFNV &DUQDS IRU QHJOHFWLQJ HPSLULFDO LQIRUPDWLRQ LQ VHWWLQJ XS WKH SULRU GLVWULEXWLRQ 2EMHFWLYHDQGVXEMHFWLYH%D\HVLDQVGRQRWKHVLWDWHWRMRLQLQFRQWHVWLQJWKH ³DQDO\WLFDO´  RU ³ORJLFDO´ VWDWXV RI &DUQDS¶V LQGXFWLYH SUREDELOLWLHV 5HPDUNDEO\&UHDWKHPSKDVL]HVWKDWWKHVHWHUPVKDYHSDUWLFXODUPHDQLQJLQ &DUQDS¶V WKHRU\ RI NQRZOHGJH ZKLFK HPSLULFLVWV FKDUDFWHULVWLFDOO\ IDLO WR DSSUHFLDWH &UHDWK     )URP WKLV SHUVSHFWLYH WKH %D\HVLDQ LGHQWLILFDWLRQRIWKHODWWHUZRXOGEHDOWRJHWKHUDVWRQLVKLQJ 7KH VHFRQG VWUDWHJ\ PHQWLRQHG LQ WKH IRUHJRLQJ XQGHUPLQHV WKH WKHVLV WKDW WKH VWDQGDUG D[LRPV RI SUREDELOLW\ WKHRU\ DQG WKH H[WUD D[LRPV DUH LQWHJUDWHG WRJHWKHU LQ &DUQDS¶V FRQVWUXFWLRQ ,W GRHV VR HLWKHU RQ HSLVWHPRORJLFDORURQIRUPDOJURXQGV7KHHSLVWHPRORJLFDOSRLQWLVWRUHWDLQ WKHVSHFLDOVWDWXVRIWKHVWDQGDUGD[LRPVRISUREDELOLW\WKHRU\DQGFKDOOHQJH WKH MXVWLILFDWLRQ RI WKH H[WUD D[LRPV 7KH IRUPDO SRLQW LV WR UHSUHVHQW DOO 

 &+$37(5  WKHD[LRPVLQDQHDWZD\VRWKDWWKHLUDSSDUHQWHSLVWHPRORJLFDOFRXQWHQDQFH GLVVLSDWHV ,QRUGHUWRJLYHVRPHVXEVWDQFHWRWKHWZRVWUDWHJLHV,VKDOOGLVFXVVWKHP LQPRUHGHWDLO6DOPRQGHYHORSVVHYHUDODUJXPHQWVDJDLQVW&DUQDSPRVWRI ZKLFK KRZHYHU FDQ EH VXEVXPHG XQGHU WKH ILUVW VWUDWHJ\ 6DOPRQ D    +H DFNQRZOHGJHV WKH IDFW WKDWWKHSULQFLSDO GLIILFXOW\ ZLWK &DUQDS¶V FRQVWUXFWLRQ DV KH XQGHUVWDQGV LW LV +XPH¶V SUREOHP WZR GLIIHUHQW HYHQWV IRU LQVWDQFH WKH REVHUYHG DQG XQREVHUYHG DUH ORJLFDOO\ LQGHSHQGHQW 7KXV 6DOPRQ LV OHG WR FKDOOHQJH WKH DQDO\WLFDO FKDUDFWHU RI &DUQDS¶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¶V GHILQLWLRQ RI WKH GHJUHH RI FRQILUPDWLRQLVXQGHUPLQHGE\+XPH¶VSUREOHPDQGSUHVXSSRVHVZKDWLWLV WR SURYH )RU WKH FRQILUPDWLRQ IXQFWLRQ ZLOO HIILFLHQWO\ \LHOG QXPHULFDO YDOXHV RQO\ LI WKH SDUDPHWHU Ȝ LV VSHFLILHG 7KH SDUDPHWHU WKH REMHFWLRQ FRQWLQXHV FDQQRW EH XQLYRFDOO\ GHWHUPLQHG RQ ORJLFDO JURXQGV RQO\ LWV YDOXH KDV WR EH VHW XS E\ D GHFLVLRQ 7KH EHKDYLRU RI WKH FKDUDFWHULVWLF IXQFWLRQKRZHYHUFOHDUO\VXJJHVWVWKDWȜPHDVXUHVKRZPXFKRQHLVZLOOLQJ WR UHO\ RQ HPSLULFDO GDWD LH KRZ PXFK WKH FRQILUPDWLRQ RI K RQ H DSSUR[LPDWHVWKHUHODWLYHIUHTXHQF\ 7KHSDUDPHWHUWKHQRYHUWDNHVZKDWWKH FRQILUPDWLRQIXQFWLRQZDVVXSSRVHGWRGRWRZLWWRPHDVXUHWKHLQGXFWLYH VXSSRUW RI K RQ H &DUQDS¶V V\VWHPV FDQQRW EH ORJLFDO IRU XOWLPDWHO\ WKH\ GHSHQGRQDGHFLVLRQDVVLJQLQJDQDUELWUDU\QXPHULFDOYDOXHWRȜZKLOHORJLF UHPDLQV ³HVVHQWLDOO\ QRQFRPPLWWDO RQ VXEVWDQWLYH PDWWHUV´ +RZVRQ DQG 8UEDFK ,QFRQVHTXHQFH+RZVRQDOVRFRPHVWRWKHFRQFOXVLRQ WKDW &DUQDS¶V V\VWHPV DUH QRW DQDO\WLF :K\ WKHQ LV &DUQDS¶V FRQILUPDWLRQ IXQFWLRQ³FRPPLWWDORQVXEVWDQWLYHPDWWHUV´"3HUKDSVEHFDXVH DV+RZVRQ FODLPV WKH GHILQLWLRQ UHVXOWV LQ SULRUV ZKLFK H[FOXGH FHUWDLQ NLQGV RI ZRUOGVHJDFRPSOHWHO\FKDRWLFZRUOG7KXVWKHHOLPLQDWLRQRIDZRUOGLV EDVHGRQDQDUELWUDU\GHFLVLRQZKLFKLVDUULYHGDWGHVSLWHLJQRUDQFHRIWKH UHOHYDQWHPSLULFDOLQIRUPDWLRQ$WWKLVSRLQW+RZVRQPDNHVDJUHDWHUHIIRUW WKDQ6DOPRQWRUHSXGLDWH&DUQDS¶VSXUSRUWHGDUELWUDULQHVV(YHQWKRXJKKHLV UHDG\WRUHFRJQL]HWKDWGHFLVLRQVIRUPDQDWXUDOSDUWRIWKHIDEULFRIVFLHQFH 

%$<(6,$1(3,67(02/2*<   KHQRQHWKHOHVVSRLQWVRXWWKHLPSRUWDQWGLIIHUHQFHEHWZHHQWKHUROHGHFLVLRQV SOD\LQHPSLULFDOVFLHQFHDQGWKHUROHWKH\SOD\LQLQGXFWLYHORJLF,QVFLHQFH KH FODLPV GHFLVLRQV DUH ³YHULILHG´ E\ WKH DGHTXDF\ RI HPSLULFDO UHSUHVHQWDWLRQ7KLVFRXOGQRWEHWKHFDVHLQLQGXFWLYHORJLFZKLFKLWVHOILV VXSSRVHG WR ³DGMXGLFDWH GHFLVLRQV RI HPSLULFDO DGHTXDF\´ +RZVRQ DQG 8UEDFK 6RPHDXWKRUVWULHGWRFRQVWUXHPHWDLQGXFWLYHDUJXPHQWV WR MXVWLI\ &DUQDS¶V SULRU GLVWULEXWLRQ $Q\ DUJXPHQW KRZHYHU WKDW DFNQRZOHGJHV DQ HPSLULFDO GHWHUPLQDWLRQ RI WKH YDOXH RI WKH SDUDPHWHU Ȝ PXVW DV +RZVRQ FRUUHFWO\ FODLPV OHDG WR LQFRQVLVWHQFLHV LQ &DUQDS¶V V\VWHP $Q LPSRUWDQW FRQVHTXHQFH RI +RZVRQ¶V FULWLTXH RI &DUQDS LV WKH FRQFOXVLRQWKDW&DUQDSWRRNSUREDELOLWLHVWREHORJLFDOTXDQWLWLHVGHWHUPLQHG REMHFWLYHO\ZKLOHLQ+RZVRQ¶VDFFRXQWWKH\DUHWREHXQGHUVWRRGDVDUHVXOW RIVXEMHFWLYHDVVHVVPHQW7KXV&DUQDSLVORFDWHGRQWKHREMHFWLYHSDUWRIWKH REMHFWLYHVXEMHFWLYH%D\HVLDQGLFKRWRP\,QWKHODVWVHFWLRQRIWKLVFKDSWHU KRZHYHU,ILQGWKLVFRQFOXVLRQZDQWLQJ /HW PH QRZ WXUQ WR WKH HSLVWHPRORJLFDO SDUW RI WKH VHFRQG VWUDWHJ\ 6DOPRQDFNQRZOHGJHVWKDW&DUQDS¶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¶VJHQHUDOSRLQWWKHQLVWKDW&DUQDS¶VDWWHPSWVWR MXVWLI\WKHH[WUDD[LRPVLQYRNHLQGXFWLYHLQWXLWLRQZKLFKKHLVQRWDEOHWR DFFRXQWIRU,WU\WRFRPHWRJULSVZLWKWKLVSRLQWLQVHFWLRQEHORZ %RWK 6DOPRQ DQG +RZVRQ UHJDUGOHVVRIWKHIRUHJRLQJ FULWLFLVPV RI WKH H[WUDD[LRPVGRQRWHPEUDFH)LVKHU¶VVNHSWLFLVPZLWKUHJDUGWRWKHVWDQGDUG D[LRPV RI SUREDELOLW\ WKHRU\ +RZVRQ IRU LQVWDQFH GHPRQVWUDWHV WKDW WKH ODWWHUIRUPQHFHVVDU\DQGVXIILFLHQWFRQGLWLRQVRIFRQVLVWHQF\RIFRQGLWLRQDO EHOLHIV+RZVRQDQG8UEDFK  7KXV WKHILUVW DQG VHFRQGVWUDWHJLHV RI 6DOPRQ DQG+RZVRQ SUHVXSSRVH WKH%D\HVLDQFXPH[WUDYLHZRQ&DUQDSZKLFKDFFRXQWVIRUWKHGHOLQHDWLRQ EHWZHHQ WKH HSLVWHPLF VWDWXV RI WKH VWDQGDUG D[LRPV RI SUREDELOLW\ WKHRU\ DQG WKH H[WUD D[LRPV +HQFH LQ YLHZ RI &DUQDS¶V LQGXFWLYH SUREDELOLWLHV \LHOGLQJ QRQVDWLVIDFWRU\ UHVXOWVLWLV SRVVLEOH QRZ WR EODPH QRWWKH ZKROH %D\HVLDQFXPH[WUDVHWXSEXWRQO\LWVSDUWFRQVLVWLQJRIWKHH[WUDD[LRPV UHWDLQLQJWKXVWKHVWDQGDUGD[LRPVRISUREDELOLW\WKHRU\ 

 &+$37(5  7KH FULWLFLVPV GLVFXVVHG WKXV IDU SXUSRUW WR GHPRQVWUDWH WKH XOWLPDWH IDLOXUH RI &DUQDS¶V SURJUDP +RZHYHU WKHUH DUH DOVR UDGLFDO REMHFWLRQV UDLVHG E\ WKRVH ZKR FRQWLQXH WR ZRUN RQ &DUQDS¶V V\VWHPV .XLSHUV IRU LQVWDQFH HPSKDVL]HV WKDW IURP WKH SHUVSHFWLYH RI WKH VWDQGDUG SUREDELOLW\ WKHRU\&DUQDS¶VV\VWHPVIRUPDPL[WXUHRIDSXUHO\IRUPDOIUDPHZRUNDQG DQ DSSOLFDWLRQ $GRSWLQJ WKH %D\HVLDQFXPH[WUD YLHZ HQDEOHG .XLSHUV WR DFFRPSOLVKWKH UHSUHVHQWDWLRQ RI &DUQDS¶V V\VWHPV ZLWKLQ WKH VWDQGDUG VHW WKHRUHWLFDO IUDPHZRUN 6HHPLQJO\ &DUQDS¶V LQLWLDO IRUPDO FRQVWUXFWLRQV FRXOG WKXV EH VXEVXPHG E\ D PRUH SRZHUIXO IRUPXODWLRQ ULFK HQRXJK WR VWXG\DQGFRPSDUHDPXFKZLGHUFODVVRILQGXFWLYHV\VWHPVEH\RQGWKHRQHV VWXGLHGE\&DUQDS +RZHYHU WKH SLHFHPHDO DSSURDFK HQGRUVHG E\ WKH %D\HVLDQFXPH[WUD YLHZ LV LQVHQVLWLYH WR HSLVWHPRORJLFDO SULQFLSOHV XQGHUO\LQJ &DUQDS¶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³FK⏐H  U´ VWDWLQJ WKH GHJUHH RI FRQILUPDWLRQRIKJLYHQH6HOODUV &DUQDS²EHLQJDZDUHRIWKHVH FRQVHTXHQFHV²ZDV FDUHIXO QRW WR FRQIODWH VHWWKHRUHWLFDO ZLWK VHPDQWLFDO UHSUHVHQWDWLRQDVKHWKRXJKWWKDWVHWWKHRU\ZDVQRWDGHTXDWHDVDFRPSOHWH ORJLFRPDWKHPDWLFDO VHWWLQJ IRU D JHQHUDO ODQJXDJH RI VFLHQFH %RKQHUW D  7KH %D\HVLDQFXPH[WUD YLHZ GXH WR LWV HSLVWHPRORJLFDO LQDGHTXDF\ ZLWK UHVSHFW WR &DUQDS¶V /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ DQG 7KH &RQWLQXXPRI,QGXFWLYH0HWKRGVSURMHFWLQRQHZD\RUDQRWKHUXQGHUPLQHV WKH ODWWHU 7KLV IDFW PRWLYDWHV WKH VHDUFK IRU JURXQGV WR GHIHQG WKH SODXVLELOLW\ RI WKH VWUXFWXUDO UHOLDELOLVW LQWHUSUHWDWLRQ RI &DUQDS¶V %D\HVLDQLVP,SURSRXQGLQWKLVERRN7KHVHFWLRQVWRIROORZHODERUDWHVXFK JURXQGV,GLVFXVVKRZWKHVWUXFWXUDOUHOLDELOLVWWKHRU\RIMXVWLILFDWLRQLVDEOH WR FRPH WR JULSV ZLWKGLIILFXOWLHV RI PHQWDOLVWLF UHOLDELOLVP , DUJXH WKDW RQ 

%$<(6,$1(3,67(02/2*<   WKHVWUXFWXUDOUHOLDELOLVWLQWHUSUHWDWLRQWKHV\VWHPVRILQGXFWLYHORJLFDUHDEOH WRPHHWWKH*RRGPDQSDUDGR[DQGILQDOO\,H[DPLQHWKHFRQWULEXWLRQRIWKH VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ WR WKH GHEDWH EHWZHHQ REMHFWLYH DQGVXEMHFWLYH%D\HVLDQV



6WUXFWXUDO5HOLDELOLVPDQG'LIILFXOWLHVRI0HQWDOLVWLF 5HOLDELOLVP

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³KXPDQNQRZOHGJH´6RPHRIWKLVNQRZOHGJHLVVROHO\LQ ERRNVDQGQRWUHPHPEHUHGE\DQ\RQH7KXVVRPHVFLHQWLILFNQRZOHGJHPLJKWEHRI SURSRVLWLRQV QR RQH DFWXDOO\ EHOLHYHV SURSRVLWLRQV DYDLODEOH WR XV VKRXOG ZH QHHG WKHP EXW QRW REMHFWV RI DFWXDO EHOLHI :H FDQ WDON DERXW WKH VWUXFWXUH RI VXFK NQRZOHGJH LQ WKH DEVWUDFW VD\ DERXW ZKHWKHU DOO WKH SURSRVLWLRQV RI VFLHQWLILF NQRZOHGJHFDQEHV\VWHPDWL]HGE\FHUWDLQEDVLFODZVRISK\VLFVRUFKHPLVWU\VRWKDW



 

&+$37(5

WKHVHEDVLFODZVDUHOLNHWKHD[LRPVRIJHRPHWU\DQGWKHRWKHUODZVOLNHLWVWKHRUHPV DUHGHULYDEOHIURPWKHEDVLFODZV$XGL 

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³,W LV WKLV SXUHO\ GHGXFWLYH FKDUDFWHU RI PDWKHPDWLFDO SURRI ZKLFK IRUPV WKH EDVLV RI PDWKHPDWLFDO FHUWDLQW\´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²DWRPLFDVZHOODVFRPSOH[²DFTXLUHWKHLURZQHSLVWHPLFVWDWXV 

%$<(6,$1(3,67(02/2*<



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³YHU\UHOLDEOH´³ZHOOIRXQGHG´³DPSO\FRQILUPHG E\ QXPHURXV H[SHULHQFHV´ :KDW GR WKHVH SKUDVHV PHDQ" ,W LV FOHDU WKDW WKH\ DUH LQWHQGHGWRVD\VRPHWKLQJDERXWGHJUHHRIFRQILUPDWLRQ&DUQDS  

7KHUHIRUH D FRPSUHKHQVLYH WKHRU\ RI HSLVWHPLF VWDWXV RI DOO VRUWV RI VHQWHQFHVRIDJLYHQODQJXDJHLQSDUWLFXODUWKHODQJXDJHRIXQLILHGVFLHQFH PXVW EH GHYHORSHG ILUVW DQG RQO\ WKHQ FDQ ZH SURFHHG WR WKH WDVN RI FRQVWUXFWLQJDWKHRU\RIGR[DVWLFSURSRVLWLRQDODWWLWXGHV&DUQDS D  - )RGRU FODLPV WKDW &DUQDS¶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|GHODQG&DUQDSKLPVHOI+RZHYHULWZDVDZHOOGHYHORSHG WKHRU\IRUVHPDQWLFDOQRWLRQVRQO\EXWQRWIRUSUDJPDWLFRQHV$QG&DUQDS ZDV VWURQJO\ FRQYLQFHG WKDW WKHUH ZDV QR ORJLFDO WKHRU\ IRU SUDJPDWLF 

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³LV D SV\FKRORJLFDO FRQFHSW´ FI&DUQDS 5 5HSOLHV ,Q 3 $ 6FKLOSS (G 7KH 3KLORVRSK\ RI 5XGROI &DUQDS S/D6DOOH2SHQ&RXUW &RFFKLDUHOOD 

)URP &DUQDS¶V HSLVWHPRORJLFDO VWDQGSRLQW WKH GLIIHUHQFH EHWZHHQ WKH HPSLULFDOQDWXUHRISUDJPDWLFFRQFHSWVDQGWKHORJLFDOQDWXUHRIVHPDQWLFDO FRQFHSWV ZDV FUXFLDO /RJLF ZDUUDQWV WKH HSLVWHPLF VWDWXV RQO\ RI LWV FRQVWLWXHQW SDUWV DQG WKH UHVXOWV RI HPSLULFDO VFLHQFH DFTXLUH HSLVWHPLF VWDWXV LQVRIDU DV WKH ORJLFDO VWUXFWXUH LV LPSRVHG XSRQ WKHP +HQFH WKH UHVXOWV RI HPSLULFDO LQYHVWLJDWLRQ FDQ LQ QR ZD\ FRQWULEXWH WR VROYLQJ HSLVWHPRORJLFDO TXHVWLRQV 7KHUHIRUH WKH DFWXDO EHKDYLRU RI HPSLULFDO FRJQLWLYHDJHQWVLVLUUHOHYDQWIURPWKHHSLVWHPRORJLFDOSHUVSHFWLYH7KXVLQ HIIHFW ZH FDQ SURFHHG WR GHYHORS D PHQWDOLVWLF WKHRU\ EXW WKLV NLQG RI WKHRU\ ZLOO QHYHU EH DQ HSLVWHPRORJLFDO WKHRU\ XQOHVV ZH DOUHDG\ KDYH D PLQLPDOLVWWKHRU\XSRQZKLFKWKHPHQWDOLVWLFWKHRU\ZLOOUHVW 

%$<(6,$1(3,67(02/2*<



 7KHUH DUH KRZHYHU PDQ\ REMHFWLRQV WR WKH HIIHFW WKDW WKH WKHRU\ RI MXVWLILFDWLRQ WKDW &DUQDS DQG +LQWLNND SURMHFW LQ WKHLU V\VWHPV RI LQGXFWLYH ORJLF FRXOG QHYHU VHUYH LQ EXLOGLQJ D WKHRU\ RI NQRZOHGJH 7KH IRUPHU WKHRU\²IRU PDQ\ UHDVRQV²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²VXFK DV VWDWHGHVFULSWLRQ PRGHO  UDQJH RU FRQVWLWXHQW²ZKLFK DUH LQ WXUQ GHILQHG DV VHPDQWLFDO FRQFHSWV 'RHV WKLV QRW HQWDLO WKDW WKH WKHRU\ RI MXVWLILFDWLRQ SURSRVHG E\ &DUQDS DQG +LQWLNND UHGXFHV WR WKH WKHRU\RIWUXWK"%XWLIRQ&DUQDS¶VDQG+LQWLNND¶VDFFRXQWWKHGHILQLWLRQRI WUXWK LVVXIILFLHQW WR SURYLGH WKH FRQGLWLRQ RIMXVWLILFDWLRQWKHQ D WKHRU\ RI MXVWLILFDWLRQ HPEUDFLQJ VXFK D FRQGLWLRQ LV QRW SHUWLQHQW WR WKH WKHRU\ RI NQRZOHGJH ,QIDFW&DUQDSUHDGLO\DGPLWVWKRVHOLPLWDWLRQVLQ DSSO\LQJKLV LQGXFWLYHORJLFWRNQRZOHGJHZKLFKDUHGXHWRWKHVLPSOLFLW\RIODQJXDJHRI WKHV\VWHPVRILQGXFWLYHORJLFDVZHOODVDYHU\VLPSOHHYLGHQFHVWDWHPHQWV H[SUHVVLEOH WKHUHLQ &DUQDS D   ,Q VXP WKH FRQGLWLRQ RI MXVWLILFDWLRQ UHTXLUHG E\ WKH WKHRU\ RI NQRZOHGJH PXVW WKHQ FRQWDLQ DQ LQJUHGLHQWZKLFKFDQQRWEHVWDWHGLQWHUPVRIWUXWKRUWKHUHODWHGFRQFHSWV &DUQDS IRU LQVWDQFH GHOLQHDWHV WKH GLIIHUHQFH EHWZHHQ WKH FRQFHSW RI MXVWLILFDWLRQ DQG WUXWK LQ D ZD\ FRQVRQDQW ZLWK WKH VWDQGDUGV RI FRQWHPSRUDU\HSLVWHPRORJ\LQKLVWHUPVWKHGLIIHUHQFHLVDQDORJRXVWRWKH GLIIHUHQFH EHWZHHQ WKH IDFW WKDW S LV WUXH DQG WKH IDFW WKDW FULWHULD RI HYDOXDWLRQ RI ZKHWKHU S LV WUXH RU QRW DUH HSLVWHPLFDOO\ DYDLODEOH IRU 6 &DUQDS,QJDUGHQ  :KDW PLJKW WKLV H[WUD ³LQJUHGLHQW´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³NQRZOHGJH´LQRXUFRPPRQOLQJXLVWLFSUDFWLFHVLVLQRQHZD\RUDQRWKHU VHQVLWLYH WR WKHVH OLPLWDWLRQV )XUWKHUPRUH LW LV WKLV FRPPRQ OLQJXLVWLF SUDFWLFH WKDW FDQQRW EH LJQRUHG LQ WKH WKHRU\ RI NQRZOHGJH WKDW ZH DUH WR 

 &+$37(5  FRQVWUXFW 7KXV WKH FRQFHSW RI HYLGHQFH PXVW EH DFFRXQWHG IRU LQ WKH SURSRVHGFRQFHSWRINQRZOHGJH$QGVLQFHQHLWKHUWKHFRQFHSWRIWUXWKQRU RIEHOLHILVDSSURSULDWHWKHRQO\ZD\WRDFFRXQWIRUWKHFRQFHSWRIHYLGHQFH LVWKHWKHRU\RIMXVWLILFDWLRQ,Q&DUQDS¶VDQG+LQWLNND¶VWHUPVLWPHDQVWKDW LWLVQRWSRVVLEOHWRFRQWULYHDFRQFHSWRIMXVWLILFDWLRQZKLFKZLOOEHVXLWDEOH IRUWKHFRQFHSWRINQRZOHGJHZHVHHNWRGHILQHLQHSLVWHPRORJ\XQOHVVLWLV D SUDJPDWLF FRQFHSW 7KH HSLVWHPLF VXEMHFW RI NQRZOHGJH²DQG E\ WKH VDPHWRNHQWKHHSLVWHPLFVXEMHFWRIMXVWLILFDWLRQ²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¤$ 7KHUH DUH KRZHYHU VHQWHQFHV ZKLFK DUH QHLWKHU ORJLFDOO\ WUXH QRU IDOVH²&DUQDS FDOOV WKHP IDFWXDO VHQWHQFHV $QG WKHUH DUH DOVR W\SHV RI 

%$<(6,$1(3,67(02/2*<   UHODWLRQV EHWZHHQ VHQWHQFHV ZKLFK DUH QRW FRQYH\HG E\ WKH WZR NLQGV RI UHODWLRQVGHSLFWHGDERYH &DUQDS¶V DQG +LQWLNND¶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²DQG E\ WKH VDPH WRNHQ WKH H[WUD VHPDQWLFDO²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Į RU ț  7KXV WKH DUJXPHQW WKDW LQ &DUQDS¶VDQG+LQWLNND¶VDFFRXQWWKHWKHRU\RIMXVWLILFDWLRQLVUHGXFLEOHWRWKH WKHRU\ RI WUXWK DQG KHQFH LQDSSURSULDWH IRU GHYHORSLQJ WKH WKHRU\ RI NQRZOHGJHLVXQJURXQGHG :H WXUQ QRZ WR WKH VHFRQG VRUW RI DUJXPHQW WR WKH HIIHFW WKDW WKH PLQLPDOLVWFRQGLWLRQRIMXVWLILFDWLRQ565 FDQQRWEHPDGHFRPSDWLEOHZLWK WKH PHQWDOLVWLF FRQGLWLRQ RI MXVWLILFDWLRQ ZKLFK UHIHUV WR WKH FRQFHSW RI EHOLHI )RU WKHUH PLJKW EHZHOOGHILQHGMXVWLILFDWRU\ UHODWLRQV²LQWKHVHQVH SURMHFWHGE\&DUQDSDQG+LQWLNND²EHWZHHQVHQWHQFHVZKLFKQRRQHLVDEOH WR DSSUHKHQG RU ZLOOLQJ WR EHOLHYH 2Q WKH RWKHU KDQG WKHUH PLJKW EH VHQWHQFHVWKDWPRVWSHRSOHEHOLHYHDQGWKLQNWKH\GRVRMXVWLILDEO\ZKLOHLW LV QRW SRVVLEOH WR DVVHVV WKH MXVWLILFDWRU\ VWDWXV RI WKHVH VHQWHQFHV ZLWKLQ &DUQDS¶VDQG+LQWLNND¶VFRQVWUXDO &RQVLGHUIRULQVWDQFHWZRVHQWHQFHV³7KHRQHPLOOLRQDQGILUVWVZDQLV ZKLWH´ DQG ³7KH RQH PLOOLRQ DQG VHFRQG VZDQ LV ZKLWH´ 7KHVH DUH YHU\ VLPSOH VHQWHQFHV DQG WKH\ DUH ZHOOIRUPHG VHQWHQFHV LQ D YHU\ VLPSOH LQGXFWLYHV\VWHP0RUHRYHUWKHV\VWHPDOORZVXVWRSURYLGHWKHQXPHULFDO 

 &+$37(5  YDOXHRIWKHMXVWLILFDWRU\VWDWXVRIRQHVHQWHQFHFRQGLWLRQDORQWKHRWKHUDQG QXPHULFDOYDOXHVRIWKHMXVWLILFDWRU\VWDWXVERWKVHQWHQFHVHQMR\SULRUWRDQ\ REVHUYDWLRQ+RZHYHULWLVSV\FKRORJLFDOO\LPSODXVLEOHWKDWVRPHRQHPLJKW L EHOLHYHWKLVVRUWRIVHQWHQFHZKLFKNHHSVWUDFNRIWKHH[DFWQXPEHURIWKH NLQGV RI REMHFWV REVHUYHG WKXV IDU LL  DVVLJQ WR VHQWHQFHV ZKLFK RQH EHOLHYHV SUHFLVH QXPHULFDO YDOXHV UHSUHVHQWLQJ WKH GHJUHH RI EHOLHI LLL  DVVLJQ SUHFLVH QXPHULFDO YDOXHV WR WKH UHODWLRQV EHWZHHQ VHQWHQFHV 7KHUHIRUH &DUQDS¶V DQG +LQWLNND¶V WKHRU\ RI MXVWLILFDWLRQ VHHPV WR EH LQ FRQIOLFW ZLWK WKH FRQFHSW RI EHOLHI 0RUHRYHUWKHFRQGLWLRQVRI NQRZOHGJH WKHWKHRU\RINQRZOHGJHLVWRSURYLGHKDYHWRDFFRUGZLWKRXULQWXLWLRQV²DV UHTXLUHGE\TXLHWLVWLFFKDUDFWHURIHSLVWHPRORJLFDOWKHRULHV²FRQFHUQLQJWKH FRQFHSW RI NQRZOHGJH 7KXV WKH FRQGLWLRQ RI MXVWLILFDWLRQ FRQWULYHG LQ WKH V\VWHPVRILQGXFWLYHORJLFZRXOGEHGLVSHQVDEOHIRULWVHHPVWRFRQIOLFWZLWK RXULQWXLWLRQVFRQFHUQLQJ WKH FRQFHSWRIEHOLHI²WKHRWKHULQJUHGLHQW RIWKH GHILQLWLRQRINQRZOHGJH 7KHUHDUHDOVRVHQWHQFHVVRWKHDUJXPHQWFRQWLQXHVZKLFKZHQRUPDOO\ DFFHSW EXW ZKLFK FDQQRW EH VXEVXPHG XQGHU WKH FRQGLWLRQ RI MXVWLILFDWLRQ 565  SURYLGHG RQ WKH JURXQGV RI WKH V\VWHPV RI LQGXFWLYH ORJLF )RU LQVWDQFH³-RKQZDWFKHV79HYHU\HYHQLQJ´³7KHUHLVDVKHHSLQWKHILHOG´ RU³,EHOLHYHZKDW\RXVD\LVWUXH´7KHVHVLPSOHH[DPSOHVLOOXVWUDWHWKDWDQ LPSRUWDQWSRUWLRQRIRXURUGLQDU\EHOLHIVLVQRWDFFRXQWHGIRUE\WKHWKHRU\ RI MXVWLILFDWLRQ SURMHFWHG E\ &DUQDS DQG +LQWLNND 3HUFHSWXDO EHOLHIV HJ ³7KHUH LV D VKHHS LQ WKH ILHOG´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¶VUHVSRQVHWRWKHVHREMHFWLRQVWXUQVRQWZREDVLFDUJXPHQWVERWK RIZKLFKZHUHWRVRPHH[WHQWDGGUHVVHGLQVHFWLRQRIWKHSUHYLRXVFKDSWHU /HW XV EHJLQ ZLWK WKH DUJXPHQW IURP WKH KLVWRU\ RI JHRPHWU\ 7KH PRUDO 

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¶VDQG+LQWLNND¶VWKHRU\RIMXVWLILFDWLRQ)RULIZHDUHWR FRQVWUXFWDPRGHORIMXVWLILFDWRU\UHODWLRQVDPRQJVHQWHQFHVRUEHOLHIVWKHUH PXVWEHVRPHLGHDOL]DWLRQV$QGWKHNLQGRILGHDOL]DWLRQHQGRUVHGE\&DUQDS LVLPSRUWDQWLQVRIDUDVLWLPSRVHVDPHWULFFRQYHQWLRQZKLFK²DVDUJXHGLQ VHFWLRQRIWKHSUHYLRXVFKDSWHU²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²DV,GRWKURXJKRXWWKLVERRN²WKDWWKH\SURSRVHWKH WKHRU\RILQIHUHQWLDOMXVWLILFDWLRQ



 



&+$37(5

6WUXFWXUDO5HOLDELOLVPDQGWKH3DUDGR[HVRI &RQILUPDWLRQ

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¶VJUXHSDUDGR[7KLVSDUDGR[ ZDV EURXJKW DERXW ZLWK WKH LQWHQWLRQ RI XQGHUPLQLQJ WKH ZKROH SURMHFW , KDYH EHHQ GLVFXVVLQJ VR IDU WR ZLW WKH SURMHFW RI GHYHORSLQJ D WKHRU\ RI MXVWLILFDWLRQ RQ SXUHO\ IRUPDO JURXQGV ,Q HIIHFW *RRGPDQ LQWHQGHG KLV SDUDGR[ WR GHPRQVWUDWH WKDW WKH WKHRU\ RI MXVWLILFDWLRQ HPEUDFHG LQ WKH V\VWHPV RI LQGXFWLYH ORJLF²ZKLFK , DUJXHG WR EH WKH VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ²LV XVHOHVV IRU D WKHRU\ RI NQRZOHGJH RU HSLVWHPRORJ\LQJHQHUDO$QGWKHUHDVRQLVURXJKO\WKDWLWLVLPSRVVLEOH² DVWKHJUXHSDUDGR[LVLQWHQGHGWRGHPRQVWUDWH²WRGHYHORSDQRQSUDJPDWLF WKHRU\RIMXVWLILFDWLRQ/HKUHUIRULQVWDQFHFRQFOXGHVWKH*RRGPDQSDUDGR[ WKXV³>Z@HFDQQRWEDVHMXVWLILFDWRU\LQIHUHQFHRQWKHIRUPRIWKHLQIHUHQFH DORQH´ /HKUHU    , FODLP WKDW WKH VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ GHYHORSHG LQ WKH &DUQDS+LQWLNND VW\OH V\VWHPV RI LQGXFWLYH ORJLFLVDEOHWRPHHWWKH*RRGPDQSDUDGR[%\WKHVDPHWRNHQ,GHPRQVWUDWH WKDW WKH VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ WRRN RII DV RQH RI WKH YLDEOH DOWHUQDWLYHV LQ IDFW DQ XQSUHFHGHQWHG RQH DPRQJ WKH FRQWHPSRUDU\ DWWHPSWVWRSURYLGHWKHWKHRU\RIMXVWLILFDWLRQ /HW PH VWDUW ZLWK WKH SDUDGR[ RI VWDWLVWLFDO V\OORJLVP &RQVLGHU WKH IROORZLQJIRUPRIDQDUJXPHQW



%$<(6,$1(3,67(02/2*<



 

DLV)

'6 



3*⏐)  



+HQFHFHUWDLQO\RUQHFHVVDULO\ DLV*

7KLVLVDIRUPRIDGHGXFWLYHDUJXPHQWLQIDFWDV\OORJLVWLFIRUP,IWKH SUHPLVHVDUHWUXHWKHQWKHUHLVQRDOWHUQDWLYHDUJXPHQWRIWKHVDPHIRUPLQ SDUWLFXODU RQH ZLWK D GLIIHUHQW VHW RI WUXH SUHPLVHV ZKLFK ZLOO OHDG WR D FRQFOXVLRQ LQFRQVLVWHQW ZLWK ³D LV *´ $QDORJRXVO\ ZH FDQ IRUPXODWH DQ DUJXPHQWRIWKHIROORZLQJIRUP  

DLV)

66 



3*⏐) ≈



+HQFHDOPRVWFHUWDLQO\RUSUREDEO\ DLV*

&DOO DQ\ DUJXPHQW RI WKH IRUP 66  VWDWLVWLFDO V\OORJLVP 6WDWLVWLFDO V\OORJLVPVLQRSSRVLWLRQWRDUJXPHQWVRIWKHIRUP'6 OHDGKRZHYHUWR GLIILFXOWLHV/HWXVFRQVLGHUWKHIROORZLQJDUJXPHQWV 

-RKQLVLQWKLVURRP

66 



SHUVRQVRXWRISUHVHQWLQWKLVURRPDUHGHPRFUDWV



+HQFHDOPRVWFHUWDLQO\-RKQLVDGHPRFUDW

DQG 

-RKQLVVLWWLQJLQWKHODVWURZ

66 



SHUVRQVRXWRIVLWWLQJLQWKHODVWURZDUHQRWGHPRFUDWV



+HQFHDOPRVWFHUWDLQO\-RKQLVQRWDGHPRFUDW

,QRSSRVLWLRQWR'6 WKHUHDUHDUJXPHQWVRIWKHIRUP66 ZKLFKKDYH WUXHSUHPLVHVEXWZKLFKOHDGWRFRQFOXVLRQVLQFRQVLVWHQWZLWKWKHSUHPLVHV 7KLVLVWKHVRFDOOHGSDUDGR[RIVWDWLVWLFDOV\OORJLVP 7KH SDUDGR[ +HPSHO FODLPV LV EDVHG RQ WKH PLVOHDGLQJ XVH RI WKH SKUDVH ³FHUWDLQO\´ 7KH DSSOLFDWLRQ RI WKLV SKUDVH LQ WKH FRQFOXVLRQ DORQH 

 &+$37(5  REVFXUHV WKH ORJLF RI WKH LQIHUHQFHV FRQVLGHUHG )RU WKH ZD\ WKLV SKUDVH LV DSSOLHG VXJJHVWV WKDW LW LV D PRGDO TXDOLILFDWLRQ RI WKH FRQFOXVLRQ DORQH ZKLOH LQ IDFW LW LV LQGLFDWLYH RI WKH UHODWLRQ WKDW REWDLQV EHWZHHQ WKH SUHPLVHV DQG WKH FRQFOXVLRQ $Q LPSRUWDQW FRPSOHPHQW WR +HPSHO¶V DUJXPHQWLVWKHGLVFXVVLRQWKDWWKHXVDJHRI³FHUWDLQO\´DVDSXWDWLYHO\PRGDO TXDOLILFDWLRQRIWKHFRQFOXVLRQRIWKHVWDWLVWLFDOV\OORJLVPGRHVQRWPDWFKDQ\ RUGLQDU\XVDJHRIWKLVSKUDVH+HPSHO 7KHPRVWDSSURSULDWH H[SOLFDWLRQRIWKHSKUDVH³FHUWDLQO\´LQWKLVSDUWLFXODUXVDJHLHDVLQGLFDWLYH RIWKHUHODWLRQEHWZHHQSUHPLVHVDQGFRQFOXVLRQRIDVWDWLVWLFDOV\OORJLVPLV WKH FRQFHSW RI ORJLFDO SUREDELOLW\ ³F⏐ ´ GHYHORSHG LQ WKH V\VWHPV RI LQGXFWLYH ORJLF 7KXV DSSURSULDWHG IRUP RI WKH VWDWLVWLFDO V\OORJLVP LV WKH IROORZLQJ 

FDLV*⏐^DLV)DQG3*⏐) ≈` ≈

66& 

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³FK⏐H  U´LVDQDQDO\WLFWUXWK LQ WKH V\VWHPV RI LQGXFWLYH ORJLF +HQFH DOO WKH VHQWHQFHV ³FK⏐H  U´ WKURXJKRXW³FK⏐HL  UL´DUHQHFHVVDU\WUXWKVHYHQWKRXJKU ≠≠UL$\HU LV ZLOOLQJ WR JUDQW WKDW WKH WRWDO HYLGHQFH H HQFRPSDVVHV DOO WKH UHOHYDQW SLHFHVRIHYLGHQFHEURXJKWDERXWE\HHL6WLOOKHFODLPVWKHVHQWHQFH ³FK⏐H  U´LVWKHVDPHNLQGRIDQDO\WLFDOVHQWHQFHDVDQ\RIWKHVHQWHQFHV ³FK⏐H  U´ ³FK⏐HL  UL´ ,Q VXP LW LV QRW SRVVLEOH WR MXVWLI\ WKH UHTXLUHPHQW RI WRWDO HYLGHQFH LQ LQGXFWLYH ORJLF DORQH $\HU    7KH SRLQW KRZHYHU LV JUDQWHG E\ &DUQDS KLPVHOI ZKR DGPLWV WKDW 

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³$OO UDYHQV DUH EODFN´ KDV WR EH FRQILUPHG E\ WKH VDPH HYLGHQFHWKDWWKHK\SRWKHVLV³$OOQRQEODFNWKLQJVDUHQRQUDYHQV´2QWKH RWKHUKDQGKRZHYHULWVHHPVFRXQWHULQWXLWLYH²DVUHJDUGVRXULQWXLWLRQVRQ ³FRQILUPDWLRQ´²WR DGPLW WKDW DQ REVHUYDWLRQ RI ZKLWH VKRHV FRQILUPV WKH K\SRWKHVLVWKDW³$OOUDYHQVDUHEODFN´ 7KHUHKDYHEHHQPDQ\DWWHPSWVWRUHVROYHWKHSDUDGR[7KHILUVWRQHWR PDNH LWVHOI UHSXWDWLRQ ZDV WKH VROXWLRQ SURSRVHG E\ - +RVLDVVRQ /LQGHQEDXP +RVLDVVRQ   +HU LGHD ZDV WR LQWURGXFH D TXDQWLWDWLYH FRQFHSW RI FRQILUPDWLRQ 7KXV DQ REVHUYDWLRQ RI D QRQEODFN QRQUDYHQ GRHV LQGHHG FRQILUP WKH K\SRWKHVLV ³$OO UDYHQ DUH EODFN´ EXW WR D PXFK VPDOOHUH[WHQWWKDQGRHVDQREVHUYDWLRQRIDEODFNUDYHQ$VLWKDSSHQVWKH QXPEHU RI UDYHQV LV PXFK VPDOOHU WKDQ WKH QXPEHU RI QRQEODFN WKLQJV *UDQWHGWKLVIDFWVKHSURYHVWKHQWKDW F³[LVDQRQUDYHQ´⏐³[LVDQRQEODFNWKLQJ´ ! 

F³[LVDEODFNWKLQJ´⏐³[LVDUDYHQ´ 

,QFRQVHTXHQFHWKHREVHUYDWLRQRIDEODFNUDYHQUDLVHVWKHFRQILUPDWLRQ RI WKH K\SRWKHVLV ³$OO UDYHQV DUH EODFN´ WR D JUHDWHU H[WHQW WKDQ GRHV DQ REVHUYDWLRQRIDQRQEODFNQRQUDYHQ+RVLDVVRQ  7KHUHDUHKRZHYHUVRPHIODZVLQWKHSURRIWKDW+RVLDVVRQFRQVWUXFWV )RUWKHVDNHRIVLPSOLFLW\LQSUHVHQWLQJDQGFULWLFL]LQJKHUDUJXPHQWOHWPH XVH WKH VWDQGDUG SUREDELOLW\ IXQFWLRQ LQVWHDG RI WKH FRQILUPDWLRQ IXQFWLRQ ZKLFK LV WKHQ GHILQHG E\ KHU DV FRQGLWLRQDO SUREDELOLW\ ,Q WKH DUJXPHQW +RVLDVVRQUHIHUVWRWKHWKHRUHP ,I WKH HYLGHQFH ( LV D FRQVHTXHQFH RI WKH K\SRWKHVLV + DQG 3+  WKHQWKH YDOXH RI 3+⏐(  LQFUHDVHV DV WKH YDOXH RI 3(  GHFUHDVHV +RVLDVVRQ   0RUWLPHU 



 &+$37(5  1HLWKHU RI WKH WZR HYLGHQFH VHQWHQFHV ³[ LV D UDYHQ DQG [ LV D EODFN WKLQJ´ DQG ³[ LV D QRQUDYHQ DQG [ LV D QRQEODFN WKLQJ´ KRZHYHU LV D FRQVHTXHQFH RI WKH K\SRWKHVLV ³$OO UDYHQV DUH EODFN´ )RU WKH DUJXPHQW +RVLDVVRQ DGYDQFHV LW LV QHFHVVDU\ WR VWDWH WKHQ ZKDW LV WKH SUREDELOLVWLF GHSHQGHQFHRIWKHWZRHYLGHQFHVWDWHPHQWVXSRQWKHK\SRWKHVLVEHFDXVH² DFFRUGLQJWR%D\HV¶VWKHRUHPVHHSDJH ²WKHYDOXHRI3+⏐( GHSHQGVLI 3+ LVJLYHQQRWRQ3( DORQHEXWRQWKHUDWLR3(⏐+ 3( %XWVWLOO +RVLDVVRQ¶V DUJXPHQW FDQ EH UHFRYHUHG LI ZH H[SOLFLWO\ DVVXPH WKDW VHQWHQFHV ³[ LV D UDYHQ´ DQG ³[ LV D EODFN WKLQJ´ DUH SUREDELOLVWLFDOO\ LQGHSHQGHQW RI + 7KH K\SRWKHVLV ³$OO UDYHQV DUH EODFN´ LV ORJLFDOO\ HTXLYDOHQWWRWKHVHQWHQFH³)RUDOO[[LVDUDYHQDQG[LVDEODFNWKLQJLII[ LV D UDYHQ´ +HQFH²E\ HTXLYDOHQFH SURSRVLWLRQ  E ²IRU DOO [ LW LV WKH FDVH WKDW 3³[ LV D UDYHQ DQG D EODFN WKLQJ´  3³[ LV D UDYHQ´  7R GHPRQVWUDWH+RVLDVVRQ¶VSRLQWOHWPHDVVXPHWKDW 3+ 

L 

DQG DOVR WKDW RXU SULRU NQRZOHGJH LQFOXGHV WKH LQIRUPDWLRQ WKDW QRQEODFN WKLQJVRXWQXPEHUUDYHQV 3³[LVDUDYHQ´ 3³[LVDQRQEODFNWKLQJ´  $JDLQE\HTXLYDOHQFHZHREWDLQWKDW 3³[LVDEODFNUDYHQ´  3³[LVDUDYHQ´ ±3³[LVDQRQEODFNUDYHQ´  6LPLODUO\ 3³[LVDQRQEODFNQRQUDYHQ´   

3³[LVDQRQEODFNWKLQJ´ ±3³[LVDQRQEODFNUDYHQ´ 

)URPWKHWKUHHVWDWHPHQWVDERYHLWIROORZVWKDW 3³[LVDEODFNUDYHQ´ 3³[LVDQRQEODFNQRQUDYHQ´ 

LL 

7KHK\SRWKHVLV³$OOUDYHQVDUHEODFN´LVLQFRQVLVWHQWZLWKWKHVHQWHQFH³[ LVDQRQEODFNUDYHQ´+HQFH 3³[LVDEODFNUDYHQ´⏐³$OOUDYHQVDUHEODFN´   

3³[LVDUDYHQ´⏐³$OOUDYHQVDUHEODFN´  

%$<(6,$1(3,67(02/2*<



 DQG 3³[LVDQRQEODFNQRQUDYHQ´⏐³$OOUDYHQVDUHEODFN´   

3³[LVDQRQEODFNWKLQJ´⏐³$OOUDYHQVDUHEODFN´ 

*LYHQWKHSUREDELOLVWLFLQGHSHQGHQFHZHREWDLQWKDW 3³[LVDEODFNUDYHQ´⏐³$OOUDYHQVDUHEODFN´  3³[LVDUDYHQ´  DQG 3³[LVDQRQEODFNQRQUDYHQ´⏐³$OOUDYHQVDUHEODFN´   

3³[LVDQRQEODFNWKLQJ´ 

1RZ ZH FDQ FRPSDUH WKH SUREDELOLWLHV RI WKH K\SRWKHVLV ³$OO UDYHQV DUH EODFN´FRQGLWLRQDORQWKHWZRGLIIHUHQWREVHUYDWLRQV³[LVDEODFNUDYHQ´DQG ³[LVDQRQEODFNQRQUDYHQ´ 3³$OOUDYHQVDUHEODFN´⏐³[LVDEODFNUDYHQ´   >3³$OOUDYHQVDUHEODFN´ ⋅3³[LVDUDYHQ´ @⏐3³[LVDEODFNUDYHQ´   3³$OOUDYHQVDUHEODFN´ ⋅SS S

$ 

ZKHUH S 3³[LVDUDYHQDQG[LVEODFN´  S 3³[LVDUDYHQDQG[LVDQRQEODFNWKLQJ´  6LPLODUO\ 3³$OOUDYHQVDUHEODFN´⏐³[LVDQRQEODFNQRQUDYHQ´   >3³$OOUDYHQVDUHEODFN´ ⋅3³[LVDQRQEODFNWKLQJ´ @ 

3³[LVDQRQEODFNQRQUDYHQ´  

3³$OOUDYHQVDUHEODFN´ ⋅SS S 

% 

  ZKHUH

&+$37(5

S 3³[LVDQRQUDYHQDQG[LVDQRQEODFNWKLQJ´  7KHYDOXHRI$ LVJUHDWHUWKDQWKHYDOXHRI% RQO\LI SSDQGS! ,IWKHODWWHUZRXOGQRWEHVDWLVILHGWKHQLWKROGVWULYLDOO\WKDW 3³$OOUDYHQVDUHEODFN´   7KHIRUPHULVVDWLVILHGDFFRUGLQJWRLL  +RVLDVVRQ¶V UHVXOW LW QRW GLUHFWO\ DSSOLFDEOH WR WKH V\VWHPV RI LQGXFWLYH ORJLF GLVFXVVHG LQ WKLV ERRN EHFDXVH WKHUH LV QR VWUDLJKWIRUZDUG ZD\ WR LQFRUSRUDWH WKH IDFWXDO DVVXPSWLRQ LL ²ZKLFK LV HVVHQWLDO IRU WKLV W\SH RI VROXWLRQ²LQWR WKH V\VWHPV RI LQGXFWLYH ORJLF HPEUDFLQJ V\PPHWU\ FRQGLWLRQVHVSHFLDOO\WKHV\PPHWU\FRQGLWLRQVIRUSUHGLFDWHVGHILQLWLRQV DQGSURSRVLWLRQVWR )RUWKHW\SHRIODQJXDJHZHDSSOLHGWR GLVFXVV WKH SDUDGR[ WKH V\PPHWU\ EHWZHHQ SULPLWLYH SUHGLFDWHV ZRXOG UHTXLUHWKDWLQVWHDGRIWKHLQHTXDOLW\LQLL ZHKDYH 3³[LVDEODFNUDYHQ´  3³[LVDQRQEODFNQRQUDYHQ´  6XSSHVFRPPHQWVSUHFLVHO\RQWKLVSRLQW 1RZWKHLQGXFWLYHORJLFLDQPD\UHSO\WKDWLIKHZHUHVHULRXVO\SXUVXLQJWKLVH[DPSOH KH ZRXOG EHJLQ PXFK IXUWKHU EDFN DQG LQWURGXFH D QXPEHU RI IXQGDPHQWDO HOHPHQWDU\SUHGLFDWHVLQWRKLVODQJXDJHDQGXVHWKHPWRH[SUHVVH[SOLFLWO\WKHNQRZQ HYLGHQFHDERXWUDYHQV« $QGWKLVUHSO\OHDGVWRWKHVHFRQG%D\HVLDQUHWRUW7KHLQGXFWLYHORJLFLDQVWRWKH %D\HVLDQ DW OHDVW DUH WKH KHLUV WR DQ LQWHOOHFWXDOO\ GLVWLQJXLVKHG EXW PLVJXLGHG WUDGLWLRQRIORJLFDODWRPLVPWKDWEHJLQVDWOHDVWZLWK+XPH«>)@RU%D\HVLDQVLWLV DQ DSSURDFK WKDW LV ERXQG WR IDLO IRU IXQGDPHQWDO UHDVRQV )LUVW LW LV LPSRVVLEOH WR H[SUHVV LQ H[SOLFLW IRUP DOO WKH HYLGHQFH UHOHYDQW WR HYHQ RXU VLPSOHVW EHOLHIV « >6HFRQG@>L@WLVRIIXQGDPHQWDOLPSRUWDQFHWRDQ\GHHSDSSUHFLDWLRQRIWKH%D\HVLDQ YLHZSRLQW WR UHDOL]H WKDW WKH SDUWLFXODU IRUP RI WKH SULRU GLVWULEXWLRQ H[SUHVVLQJ EHOLHIVKHOGEHIRUHWKHH[SHULPHQWLVFRQGXFWHGLVQRWDFUXFLDOPDWWHU«7KHZHOO GHVLJQHG H[SHULPHQW LV RQH WKDW ZLOO VZDPS GLYHUJHQW SULRU GLVWULEXWLRQV ZLWK WKH FODULW\ DQG VKDUSQHVV RI LWV UHVXOWV DQG WKHUHE\ UHQGHU LQVLJQLILFDQW WKH GLYHUVLW\ RI SULRURSLQLRQ6XSSHVD 



%$<(6,$1(3,67(02/2*<



 &DUQDSGRHVQRWSURYLGHDQHODERUDWHGVROXWLRQWRWKHSDUDGR[+RZHYHU KHDGPLWVWKDWKHZRXOGHPEUDFH+HPSHO¶VRZQVROXWLRQ&DUQDS   DQG WKDW WKH SRVVLELOLW\ RI FRQVWUXFWLQJ D TXDQWLWDWLYH V\VWHP RI LQGXFWLYHORJLFWXUQVRQWKLVNLQGRIVROXWLRQ&DUQDS :KDWLV ZURQJWKHQZLWK+RVLDVVRQ¶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³[LVDQRQEODFNQRQUDYHQ´ GRHV QRW FRQVWLWXWH D FRQILUPLQJ LQVWDQFH RI WKH JHQHUDO K\SRWKHVLV ³$OO UDYHQV DUH EODFN´ %XW VXSSRVH ZH GHYLFH WZR GLIIHUHQW NLQGV RI WHVWV WR FKHFNZKHWKHUDQREMHFWLVDUDYHQDQGZKHWKHULWLVEODFN6XSSRVHIXUWKHU WKDW ZH H[DPLQH DQ XQVSHFLILHG NLQG RI REMHFW DQG DIWHU SHUIRUPLQJ WKH ODWWHU WHVW ZH DFNQRZOHGJH WKDW WKLV REMHFW LV QRW EODFN )LQDOO\ DIWHU SHUIRUPLQJ WKH IRUPHU WHVW ZH DFNQRZOHGJH WKDW WKLV REMHFW LV QRW D UDYHQ HLWKHU ,Q WKLV DFFRXQW LW VHHPV WKDW LQGHHG DQ LQVWDQFH RI QRQEODFN QRQ UDYHQFRQVWLWXWHVDSRVLWLYHLQVWDQFHRIWKHK\SRWKHVLV³$OOUDYHQVDUHEODFN´ SURYLGHGZHGRQRWDVVXPHWKDWWKHNLQGRIREMHFWZHSXWXQGHUWKHWHVWVLV NQRZQWRXVLQDGYDQFHWRSHUIRUPLQJWKHWHVW 6XSSRVH KRZHYHU WKDW SULRU WR SHUIRUPLQJ WKH WHVWV ZH NQRZ WKDW WKH H[DPLQHGREMHFW[LVDQRQUDYHQ6LQFHIURPWKHK\SRWKHVLV³$OOUDYHQVDUH EODFN´ LW IROORZV WKDW ³[ LV QRQUDYHQ RU [ LV EODFN´ WKHQ WKH HYLGHQFH ZH SRVVHVV SULRU WR SHUIRUPLQJ WKH WHVWV LPSOLHV WKH ODWWHU FRQVHTXHQFH RI WKH JHQHUDOK\SRWKHVLVDQGWKHUHIRUHZHNQRZWKDWWKLVLQVWDQFHLVDFRQILUPLQJ LQVWDQFHRIWKHK\SRWKHVLVSULRUWRSHUIRUPLQJWKHWHVWV:KHQZHGHYLFHWKH V\VWHP RI LQGXFWLYH ORJLF KRZHYHU ZH FDQQRW DVVXPH ZKLFK HPSLULFDO LQIRUPDWLRQZRXOGEHDYDLODEOH6FKHIIOHU  $PRQJ WKH WUDGLWLRQDO HSLVWHPRORJLFDOO\ PRWLYDWHG REMHFWLRQV WR &DUQDS¶V SURJUDP LW LV XQGRXEWHGO\ WKH *RRGPDQ SDUDGR[ WKDW DLPV DW XQGHUPLQLQJ WKH UHOHYDQFH RI &DUQDS¶V²DQG E\ WKH VDPH WRNHQ WKH UHOHYDQFH RI WKH )LQQLVK 6FKRRO¶V²FRQVWUXDO WR HSLVWHPRORJ\ ,Q VKRUW *RRGPDQ¶V LGHD ZDV WR GHPRQVWUDWH WKDW LW LV LPSRVVLEOH WR FRQVWUXFW IRUPDOO\ D WKHRU\ RI MXVWLILFDWLRQ IRU DQ\ VXFK WKHRU\ KDV WR EH FDVW LQ SUDJPDWLF WHUPV 7KHUHIRUH &DUQDS¶V DQG +LQWLNND¶V V\VWHPV RI LQGXFWLYH ORJLF ZRXOG EH LQDSSURSULDWH IRU HSLVWHPRORJLFDO SXUSRVHV IURP WKH RXWVHW DVWKH\DUHFRQVWUXFWHGE\PHDQVRIV\QWDFWLFDODQGVHPDQWLFDOWHUPVDORQH 

 &+$37(5  &DUQDS &DUQDSRYHUWO\DFNQRZOHGJHVWKDW³LQGXFWLYH ORJLF LV OLNH GHGXFWLYH ORJLF LQ P\ FRQFHSWLRQ D EUDQFK RI VHPDQWLFV´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³6´ZKLFK*RRGPDQGHILQHVDV³LVGUDZQE\ 9LFWRU\ LQ (XURSH 'D\ DQG LV UHG RU LV GUDZQ ODWHU DQG LV QRQUHG´ 7KH SUHGLFDWH 6 DSSOLHV WR WKH QLQHW\ QLQH EDOOV GUDZQ VR IDU²WKH\ KDYH EHHQ GUDZQE\9LFWRU\LQ(XURSH'D\DQGDOORIWKHPKDYHEHHQUHG+HQFHDOO QLQHW\QLQHEDOOVDUH6%XWWKHSUHGLFDWH6OHDGVWRDQHZSUHGLFWLRQLQGHHG RQH LQFRQVLVWHQW ZLWK WKH SUHYLRXV RQH QDPHO\ WKDW WKH QH[W EDOO WR EH GUDZQZLOOQRWEHUHG7KHH[SHFWDWLRQWKDWWKHQH[WEDOOZLOOEHQRQUHGLV FRXQWHULQWXLWLYHDVZHQDWXUDOO\H[SHFWWKHQH[WEDOOWREHUHG%XWLWWXUQV RXW WKDW HYLGHQFH VXSSRUWV ERWK H[SHFWDWLRQV HTXDOO\ ZHOO /HW H5 VWDQG IRU WKH HYLGHQFH ZH KDYH DIWHU GUDZLQJ WKH QLQHW\ QLQH EDOOV ZKLFK LV IRUPXODWHGZLWKWKHSUHGLFDWH5³LVUHG´VLPLODUO\H6LVWKHVDPHHYLGHQFH FDVWLQWHUPVRI³6´ /HWF⏐ EHDFRQILUPDWLRQIXQFWLRQGHILQHGLQRQHRI WKH&DUQDS+LQWLNNDVW\OHV\VWHPVRILQGXFWLYHORJLF7KXVZHKDYH F5D ⏐H5  U F6D ⏐H6  U 7KH PDWKHPDWLFDO IXQFWLRQ *VL V ț  WKDW ³FRPSOHWHO\´ FKDUDFWHUL]HV WKH FRQILUPDWLRQIXQFWLRQGHSHQGVRQWKHQXPEHURISULPLWLYHSUHGLFDWHVțWKH QXPEHURIREVHUYHGLQVWDQFHVRIDJLYHQSUHGLFDWHVLDQGWKHWRWDOQXPEHURI LQGLYLGXDOV REVHUYHG V 1RZ LW ZRXOG VHHP WKDW ț5 ț6 V5 V6 DQG V LV REYLRXVO\ WKH VDPH WKURXJKRXW ERWK GHVFULSWLRQV )URP WKHVH HTXDOLWLHV LW IROORZV RQDQ\ H[FOXVLYHO\ VHPDQWLFDO GHILQLWLRQ RIFRQILUPDWLRQ EDVHG RQ WKHFKDUDFWHULVWLFIXQFWLRQ*VLVț WKDWU U:HNQRZKRZHYHUWKDW 6D →¤5D  VR WKDW WKH WZR LQFRQVLVWHQW SUHGLFWLRQV KDYH WKH VDPH GHJUHH RI FRQILUPDWLRQ7KLVDSSDUHQWO\GHPRQVWUDWHVWKHLQDGHTXDF\RIDQ\GHILQLWLRQ 

%$<(6,$1(3,67(02/2*<   RI FRQILUPDWLRQ WKDW &DUQDS LV DEOH WR FRPH XS ZLWK EHFDXVH WKHVH GHILQLWLRQV DUH LQFDSDEOH RI GLVFHUQLQJ EHWZHHQ WKH 6W\SH DQG WKH 5W\SH SUHGLFDWHV &DUQDS¶V RZQ REMHFWLRQ ZDV LQ HIIHFW WKDW ³ț5 ț6´ GRHV QRW KROG &DUQDS D   7KH UHDVRQ LV WKDW ³6´ LV D TXDQWLWDWLYH SUHGLFDWHLHRQHWKDWUHTXLUHVWLPHUHIHUHQFHZKLOH³5´LVDTXDOLWDWLYHRQH 7KLVREMHFWLRQKRZHYHUDV*RRGPDQFRUUHFWO\SRLQWVRXWZLOOQRWGR)RU ³5´ PLJKW EH GHILQHG E\ PHDQV RI ³6´ DV ³LV GUDZQ E\ 9LFWRU\ LQ (XURSH 'D\DQGLV6RULVGUDZQODWHUDQGLVQRQ6´ ,WZDVLQWKDW*RRGPDQ¶VERRNHQWLWOHG)DFW)LFWLRQDQG)RUHFDVW DSSHDUHG*RRGPDQ $QGLWZDVWKLVERRNWKDWFRQWDLQHG WKHZLGHVSUHDGYHUVLRQRIWKH*RRGPDQSDUDGR[6XSSRVHWKDWDOOHPHUDOGV H[DPLQHG EHIRUH W KDYH EHHQ JUHHQ 7KLV HYLGHQFH WKXV VXSSRUWV WKH K\SRWKHVLVWKDWDOOHPHUDOGVDUHJUHHQDVZHOODVWKHLQVWDQFHSUHGLFWLRQWKDW WKH QH[W HPHUDOG WR EH REVHUYHG LH WR EH REVHUYHG DIWHU W ZLOO DOVR EH JUHHQ 6XSSRVH KRZHYHU WKDW ZH LQWURGXFH D SUHGLFDWH ³*UXH´ GHILQHG DV ³LV H[DPLQHG EHIRUHW DQGLV JUHHQ RU LWLV QRW H[DPLQHG EHIRUHW DQG LW LV EOXH´%\WKHHYLGHQFHZHKDYHDOOHPHUDOGVREVHUYHGVRIDUDUHJUXH$QG WKH HYLGHQFH VXSSRUWV WKH LQVWDQFHSUHGLFWLRQ WKDW WKH QH[W HPHUDOG WR EH REVHUYHG ZLOO DOVR EH JUXH $Q DQDO\VLV DQDORJRXV WR WKH RQH DERYH ZLOO GHPRQVWUDWHWKDWRQDQ\GHILQLWLRQRIWKHFRQILUPDWLRQIXQFWLRQSURYLGHGE\ &DUQDSERWKSUHGLFDWHV³*UHHQ´DQG³*UXH´DUHLQGLVWLQJXLVKDEOH7KXVWKH IRUPDO GHILQLWLRQ RI WKH FRQILUPDWLRQ IXQFWLRQ LV LQGLIIHUHQW WR WKH SDUDGR[ WKDW DULVHV ,W ZLOO RQO\ EH SRVVLEOH WR GLVFHUQ EHWZHHQ WKH WZR NLQGV RI SUHGLFDWHV*RRGPDQFODLPVLQSUDJPDWLFWHUPV7KXVLIZHZDQWWRDGPLW WKDW RQO\ WKH ³*UHHQ´ K\SRWKHVLV DQG ³*UHHQ´ SUHGLFWLRQ DUH FRQILUPHG ZKLOHWKH³*UXH´K\SRWKHVLVDQGWKH³*UXH´SUHGLFWLRQDUHQRWZHKDYHWR LQWURGXFHDWHUPRIGLVWLQFWLRQ,WFDQQRWEHDV\QWDFWLFDORUVHPDQWLFDOWHUP IRU WKH IDLOXUH RI &DUQDS¶V V\VWHPV RI LQGXFWLYH ORJLF WR FRSH ZLWK WKH GLVWLQFWLRQLOOXVWUDWHVWKDWWKHVHVRUWVRIWHUPVZLOOQRWGR*RRGPDQ¶VRZQ VROXWLRQ ZDV WR LQYROYH ³HQWUHQFKPHQW´ :KDW GLVWLQJXLVKHV ³*UHHQ´ IURP ³*UXH´LVWKDWWKHIRUPHULVHQWUHQFKHGLQRXUSUDFWLFHVRISUHGLFWLRQPDNLQJ DQGK\SRWKHVLVFRQILUPDWLRQZKLOHWKHODWWHULVQRW ,WLVQRWP\DLPKHUHWRGLVFXVVWKHYLDELOLW\RI*RRGPDQ¶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³*UXH´RQHZHFRQVLGHU 

 &+$37(5  DVXQMXVWLILHG,QVXFKDFDVHWKHGHJUHHRIFRQILUPDWLRQZRXOGEHWKHVDPH IRUMXVWLILHGDQGXQMXVWLILHGVHQWHQFHV7KHSRLQWFRXOGEHPDGHHYHQPRUH VWURQJO\ LW LV QRW RQO\ &DUQDS¶V DQG +LQWLNND¶V DWWHPSWV WR SURYLGH WKH PLQLPDOLVWFRQGLWLRQRIMXVWLILFDWLRQWKDWIDLO²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¶V LQLWLDO LQWHQWLRQ WR GHYHORS WKH V\VWHPV WR EH DEOH WR UHSUHVHQW RUGHUDQGWLPHRUGHULQJLQSDUWLFXODU7KHLPSRUWDQWSRLQWLVWKHIROORZLQJ VXSSRVHZHKDYHREVHUYHGQLQGLYLGXDOV:HZDQWWKHQWRPDNHDSUHGLFWLRQ FRQFHUQLQJWKHQH[WLQGLYLGXDOQRQWKHJURXQGVRIWKHHYLGHQFHZHKDYH DIWHU KDYLQJ REVHUYHG Q LQGLYLGXDOV *RRGPDQ¶V SRLQW LV WKDW DQ\ ³SURMHFWLRQ´ RQWR WKH IXWXUH RQ WKH EDVLV RI WKH HYLGHQFH RI WKH SDVW LV DV JRRGDVDQ\RWKHURQV\QWDFWLFDODQGVHPDQWLFDOJURXQGVDORQH:KDWWKHQ ZLOO WKH SUHGLFWLRQ ORRN OLNH LQ RUGHU WR DFNQRZOHGJH WKH SRLQW *RRGPDQ DGYDQFHV" ,Q WKH ILUVW LQVWDQFH WKH ZD\ WKH XSFRPLQJ HYLGHQFH LV DFFRPPRGDWHGZLWKLQWKHV\VWHPRILQGXFWLYHORJLFZLOOQRWEHIDYRUDEOHWR DQ\ SRVVLEOH SURMHFWLRQ 7KDW WKH DFTXLVLWLRQ RI WKH XSFRPLQJ HYLGHQFH WUHDWVLQGHHGDOOSRVVLEOHSURMHFWLRQVRQDSDULVZDUUDQWHGE\ZKDW&DUQDS FDOOV³V\PPHWU\FRQGLWLRQV´ ,QRWKHUZRUGVZKDWZHDFTXLUHIURPHYLGHQFHLVWKHIUHTXHQF\ YHFWRU ZKLFKLVLQGLIIHUHQWZLWKUHVSHFWWRLQGLYLGXDOVREVHUYHGDQGWKHSUHGLFDWHV DSSOLHG WR VWDWH WKH UHVXOWV RI WKH REVHUYDWLRQ +RZHYHU *RRGPDQ¶V JUXH OLNH SUHGLFDWHV GR QRW VDWLVI\ WKH V\PPHWU\ FRQGLWLRQV ,Q HIIHFW WKH JUXH OLNH SUHGLFDWHV WKDW ZH UHDG RII IURP WKH HYLGHQFH IRUFH XV WR LPSRVH DV\PPHWULHVEHWZHHQGLIIHUHQWSURMHFWLRQV*RRGPDQVHHPVWRIRUFHDELDV LQWRWKHPHFKDQLVPRIHYLGHQFHDFTXLVLWLRQ²DELDVWRZDUGVVRPHNLQGVRI WKHSRVVLEOHSURMHFWLRQV,WLVQRWKRZHYHUWKHDFTXLVLWLRQRIQHZHYLGHQFH WKDWZLOOEHELDVHG&DUQDSLQVWHDGSURSRVHVWKDWZKDWLVWREHELDVHGLVWKH ZD\ WKDW JUXHOLNH DQG QRQJUXHOLNH SUHGLFDWHV DIIHFW WKH GHJUHH RI 

%$<(6,$1(3,67(02/2*<   FRQILUPDWLRQ ,I ZH WDNH IRU LQVWDQFH WKH ȜV\VWHP LWV FKDUDFWHULVWLF IXQFWLRQ PD\ EH SUHVHQWHG DV D ZHLJKWHG PHDQ RI WKH ³HPSLULFDO´ DQG ³OLQJXLVWLF´IDFWRUV VL ⎛ V ⎞  ⎛ λ ⎞ ⋅⎜ ⎟ ⋅ ⎜ ⎟ V ⎝ Vλ ⎠ κ ⎝ Vλ ⎠

6XSSRVHQRZWKDWZHKDYHWZRODQJXDJHV\VWHPVZKLFKDUHWRWDOO\DOLNH H[FHSW WKDW RQH RI WKHP FDOO LW /6 KDV WKH ³*UXH´ SUHGLFDWH LQ SODFH RI ³*UHHQ´FDOOWKHODWWHUODQJXDJHV\VWHP/5,WKROGVWKHQWKDWț5 ț6V5 V6 DQGVLVWKHVDPHIRU/5DQG/6:KDWLVVWLOOWREHGHWHUPLQHGLQDSDUWLFXODU FRQWH[W RI DSSOLFDWLRQ KRZHYHU LV WKH YDOXH RI Ȝ5 DQG Ȝ6 7KH FRQWH[W RI DSSOLFDWLRQ DVLVSHUVLVWHQWO\ HPSKDVL]HG E\ &DUQDSLV QRWD PDWWHURIWKH LQGXFWLYH ORJLF DORQH EXW LW LV D PDWWHU RI PHWKRGRORJ\ RI LQGXFWLYH ORJLF LQVWHDG $ VLPLODU SRLQW LV DGYRFDWHG E\ -HIIUH\ ZKR SURSRVHV WR UHGHILQH SURMHFWLELOLW\ LQ VHPDQWLFDO WHUPV DQG WKHQ SRLQWV RXW WKDW ³WKH LPSDFW RI *RRGPDQ¶V 4XHU\ RQ &DUQDSLDQ FRQILUPDWLRQ WKHRU\ LV WKDW TXHVWLRQV RI SURMHFWLELOLW\FDQEHGHDOWZLWKTXLWHKDQGLO\LQWKDWWKHRU\RQFHLWLVSODFHG VTXDUHO\ RQ WKH VHPDQWLFDO IRRWLQJ LW UHTXLUHV´ -HIIUH\    ,Q RWKHU ZRUGV LW LV WKH FRQWH[W RI DSSOLFDWLRQ LQ ZKLFK WKH SUDJPDWLF FRQFHSWV²WKDW*RRGPDQZRUULHVVRPXFKDERXW²ILQGWKHLUVXLWDEOHSODFH ,QIDFWLWLV²IRURQH²WKHSUDJPDWLFFRQFHSWRIWKHWRWDOHYLGHQFHWKDWZLOO SURYHHVVHQWLDOLQDVVLJQLQJDQXPHULFDOYDOXHWRȜ5DQGȜ6$QGLIZHDUHWR PDNH D SUHGLFWLRQ LQ /5 DQG /6 WKHQ WRWDO HYLGHQFH ZLOO GHILQLWHO\ EH GLIIHUHQW²LQVRIDUDVLWFRQWDLQVWKHVDPHEDFNJURXQGNQRZOHGJHWKDWWHOOVXV WKDWJUXHOLNHSUHGLFWLRQVDQGJUXHOLNHK\SRWKHVHVDUHFRXQWHULQWXLWLYH²DQG DSSURSULDWHO\ ZLOO GLIIHU WKH YDOXHV RI Ȝ5 DQG Ȝ6 +HQFH LW LV SRVVLEOH WKDW F5DQ ⏐H5  ZLOO EH FORVH WR  ZKLOH F6DQ ⏐H6  ZLOO DSSURDFK  $ VLPLODU SRLQW WULYLDOO\ KROGV ZLWK UHVSHFW WR JHQHUDO K\SRWKHVHV LQ WKH ĮȜ FRQWLQXXP 7KHSRLQW,SURSRXQGHGKHUHFDQDOVREHH[WHQGHGWRFRYHUWKHPRGLILHG YHUVLRQV RI WKH V\VWHPV ZKLFK DUH FDSDEOH RI UHSUHVHQWLQJ WLPHRUGHULQJ 7KHJHQHUDOVWUDWHJ\RXWOLQHGE\6N\UPVLQ6N\UPV WXUQVRQ WKH H[SODQDWLRQ RI SURMHFWLELOLW\ LQ WHUPV RI V\PPHWU\ RI VWUXFWXUHV HVSHFLDOO\LQWHUPVRISDUWLDOH[FKDQJHDELOLW\DSSOLHGWR0DUNRYFKDLQVDQG HUJRGLFWKHRULHV



 



&+$37(5

7KH6WUXFWXUDO5HOLDELOLVW5HGHILQLWLRQRIWKH %D\HVLDQ2EMHFWLYH6XEMHFWLYH'LFKRWRP\

,I ZH DJUHH WKDW &DUQDS DGYDQFHV D VWDQGDUG HPSLULFLVW YHUVLRQ RI IRXQGDWLRQDOLVP²OLNH WKH RQH LQ $\HU   RU /HZLV  ²WKHQ , DGPLW WKHUH DUH VHYHUH FULWLFLVPV WR EH OHYHOHG DJDLQVW WKLV SRVLWLRQ $SSDUHQWO\ WKRXJK LW ZRXOG EH PRUH DSSURSULDWH WR ODEHO &DUQDS ³SUREDELOLVWLF UDWLRQDOLVW´ UDWKHU WKDQ HPSLULFLVW -HIIUH\     6DUNDU E   7KLV LV EHFDXVH YDULRXV DVVXPSWLRQV ZKLFK &DUQDSXVHGLQWKHFRQVWUXFWLRQVLPSO\GRQRWILWWKHFULWHULDRIREMHFWLYLW\ SUHIHUUHG E\ HPSLULFLVWV 7KH HPSLULFLVW H[SHFWDWLRQ FRQFHUQLQJ LQGXFWLYH ORJLF LV WKDW E\ PHDQV RI PDWKHPDWLFV ZH H[WUDFW ³SUREDELOLWLHV´ IURP LQQRFHQWGDWDVHWV7KHWDVNRILQGXFWLYHORJLFZRXOGWKHQEHWRFDVWGLIIHUHQW UHDOL]DWLRQV RI WKH SURFHGXUH RI H[WUDFWLQJ SUREDELOLWLHV IURP GDWD DV D KRPRJHQHRXVSDWWHUQ7KXVWKHHSLVWHPLFUROHRI³ORJLF´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³DFFHSWHG´ ODZV DQG WKHRULHV DUH VHW IRUWK 2Q WKH JURXQGV RI 6DOPRQ¶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¶VHSLVWHPLFUROHLVZRUGHGE\ +RZVRQDQG8UEDFKWKXV³ZHWDNHORJLFWREHHVVHQWLDOO\QRQFRPPLWWDORQ VXEVWDQWLYH PDWWHUV´ +RZVRQ DQG 8UEDFK    +RZHYHU WKH\ PLVWDNHQO\LGHQWLI\WKHWDUJHWLHWKHDQDO\WLFDOQDWXUHRI&DUQDS¶VLQGXFWLYH ORJLF ,Q WKHVH WHUPV WKH ODWWHU LV DQDO\WLFDO ZKLOH DOVR ³FRPPLWWDO´ RQ HSLVWHPLFPDWWHUV)RUDFFRUGLQJWR&DUQDS¶VVWUXFWXUDOUHOLDELOLVWSRVLWLRQ LWRQO\PDNHVVHQVHWRSRVHHSLVWHPLFTXHVWLRQVZKHQDODQJXDJHHPEHGGHG VWUXFWXUHLVDOUHDG\GHWHUPLQHGZKLFKSURYLGHVWKHZKROHVHPDQWLFDOVHWXS 

%$<(6,$1(3,67(02/2*<   QHFHVVDU\ DQG VXIILFLHQW WR GHWHUPLQH WKH HSLVWHPLF VWDWXV RI D JLYHQ K\SRWKHVLVZLWKLQWKHODQJXDJHHPEHGGHGVWUXFWXUH&DUQDS ,Q VHWWLQJ IRUWK WKH UROH RI ORJLF DV HSLVWHPRORJLFDO PHDQV &DUQDS GUHZ XSRQ .DQW¶V LGHD WKDW LW LV SULPDULO\ WKH WDVN RI ORJLF WR SURYLGH ³WKH IRUPV RI FRQFHSWVVWDWHPHQWVDQGLQIHUHQFHVZKLFKDUHWKHQDSSOLFDEOHHYHU\ZKHUH´ &DUQDS D   ,Q SDUWLFXODU WKH EDVLF LGHD EHKLQG WKLV VWUXFWXUDO DSSURDFKWRREMHFWLYLW\LV WKDWZHFDQGHILQHHDFKVFLHQWLILFFRQFHSWXQLTXHO\E\ORRNLQJDWLWVSXUHO\VWUXFWXUDO UHODWLRQV WR DOO RWKHU VFLHQWLILF FRQFHSWV²RQO\ E\ HPEHGGLQJ WKH FRQFHSWV LQWR WKLV KROLVWLFV\VWHPFDQZHKRSHWKDWORJLFDOVWUXFWXUHZLOOVLQJOHRXWUHODWLRQVXQLTXHO\,I VXFFHVVIXO WKLV SURJUDP ZRXOG VROYH WKH SUREOHP RI WKH SRVVLELOLW\ RI REMHFWLYH NQRZOHGJH5LFKDUGVRQ 

%D\HVLDQFXPH[WUD YLHZRIIHUV DQ DOWHUQDWLYHVXEMHFWLYHLQWHUSUHWDWLRQ RILQGXFWLYHORJLF:HGRQRWNQRZZKHWKHUGH)LQHWWL¶VDFFHSWHG&DUQDS¶V GHFODUDWLRQWKDWKLVLQGXFWLYHORJLFLVDVWKH%D\HVLDQFXPH[WUDYLHZZRXOG KDYHLWEDVHGRQWKHVWDQGDUGD[LRPVRISUREDELOLW\WKHRU\RQWKHRQHKDQG DQG RQ WKH H[WUD D[LRPV RQ WKH RWKHU 1HYHUWKHOHVV WKH IROORZHUV RI GH )LQHWWL VHHP WR EH UDWKHU VNHSWLFDO FRQFHUQLQJ WKH YLDELOLW\ RI &DUQDS¶V %D\HVLDQLVP$OWKRXJK-HIIUH\DSSDUHQWO\DGRSWVWKHJHQHUDO%D\HVLDQFXP H[WUDYLHZRQ&DUQDSKHGRHVQRWKHVLWDWHWRFRQFOXGHWKDWWKHH[WUDD[LRPV DUH³KRSHOHVV´RQWKHVXEMHFWLYH%D\HVLDQJURXQGV-HIIUH\E IRULW QDUURZV WKH DSSOLFDELOLW\ RI &DUQDS¶V V\VWHP E\ IRU H[DPSOH -RKQVRQ¶V VXIILFLHQWQHVVSRVWXODWHRUH[FKDQJHDELOLW\-HIIUH\VHHPVWREHWKHRQO\RQH WRWU\WRFRPHWRJULSVZLWKWKLVDSSDUHQWLQFRKHUHQFHLQ&DUQDS¶VYLHZV+H LGHQWLILHV WZR VHQVHV RI ³ORJLFDO´ LQ &DUQDS¶V LQGXFWLYH ORJLF )LUVW LW LV HTXLYDOHQW WR ³QRQIDFWXDO´ VHFRQG LW PHDQV ³LQ DJUHHPHQW ZLWK RXU LQGXFWLYHLQWXLWLRQVDVWKH\ZLOOH[LVWDWWKHWLPHZKHQWKHSURJUDPKDVEHHQ FDUULHGRXW´-HIIUH\  $FFRUGLQJ WR -HIIUH\ WKH SURFHVV RI GHYHORSLQJ LQGXFWLYH ORJLF IURP /RJLFDO)RXQGDWLRQVRI3UREDELOLW\RQLQGXFHVWKHGHYHORSPHQWRILQGXFWLYH LQWXLWLRQVDQGYLFHYHUVD)URPWKHVXEMHFWLYLVW¶VSHUVSHFWLYH-HIIUH\DGPLWV WKH GLIIHUHQFHV EHWZHHQ WKH FRQILUPDWLRQ IXQFWLRQV RI WKH ȜV\VWHP ZKLFK VHHPWRUHIOHFWGLIIHUHQFHVLQWKHLQGLYLGXDOSV\FKRORJ\RIHSLVWHPLFDJHQWV GR QRW XQGHUPLQH WKH JHQHUDO XQLW\ ZKLFK VHHPV WR UHIOHFW JHQHUDO SV\FKRORJ\LPSRVHGE\WKHFKDUDFWHULVWLFIXQFWLRQ*VHHGHILQLWLRQRQ SDJH   RQ WKH FRQILUPDWLRQ IXQFWLRQV 7KH LQGLYLGXDO GLIIHUHQFHV DUH KRZHYHU VZDPSHG E\ H[SHULHQFH DQG WKXV WKH\ DUH RQO\ UHIOHFWHG DV WKH DUJXPHQWHRIF⏐ VSHFLI\LQJH[SHULHQFHRIDJLYHQDJHQWEXWWKH\GRQRW DIIHFWWKHIXQFWLRQLWVHOI²³LQGXFWLYHWHPSHUDPHQW´DV-HIIUH\FDOOVLW 7KHLPSRUWDQWFRQFOXVLRQIRUWKHSUHVHQWDUJXPHQWLVWKDW&DUQDSDWWLPHV ³VRXQGV.DQWLDQRQH¶VLQGXFWLYHWHPSHUDPHQWLVHYRNHGEXWQRWGHWHUPLQHG 

 &+$37(5  E\RQH¶VH[SHULHQFH´-HIIUH\ LHRQH¶VH[SHULHQFH³HYRNHV´EXW GRHV QRW ³GHWHUPLQH´ WKH FIXQFWLRQ 7KXV ZH DSSURDFK WKH UDWLRQDOH IRU D VXEMHFWLYLVWQRWWRDFFHSW&DUQDS¶VH[WUDD[LRPV)RUWKHFIXQFWLRQLPSRVHV ³UDWLRQDOLW\´XSRQWKHHPSLULFDODJHQW¶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¶VPLQLPDOLVWVWDQGSRLQWRQ MXVWLILFDWLRQ -HIIUH\¶V HSLVWHPRORJLFDO DQDO\VLV RI &DUQDS¶V SRVLWLRQ DV PXFK DV LW JRHV DORQJ WKH OLQHV RI VWUXFWXUDO UHOLDELOLVP DQVZHUV WZR ZRUULHV RI 6DOPRQ¶VWKDWLWLVDUELWUDU\WRMXVWLI\WKHD[LRPVRILQGXFWLYHORJLFE\PHUH ³LQGXFWLYH LQWXLWLRQ´ DV ZHOO DV WKH SUREOHP ³+RZ FDQ VWDWHPHQWV WKDW VD\ QRWKLQJDERXWDQ\PDWWHUVRIIDFWVHUYHDVDµ*XLGHWROLIH¶"´7KHDQVZHU LVLQPXFKWKHVDPHYHLQDVEHIRUHORJLFLVFRPPLWWDORQHSLVWHPLFPDWWHUV DQGWKHRQO\DFFHVVZHKDYHIDOOLEOHDQGYDJXHDVLWPD\DSSHDUDIWHUDOOLV YLDLQGXFWLYHLQWXLWLRQ&DUQDS  ,IZHVXVSHQGWKHHSLVWHPRORJLFDOSHUVSHFWLYHIRUDZKLOHWKH%D\HVLDQ FXPH[WUD UHDGLQJ RI &DUQDS¶V V\VWHPV²DV VKRZQ LQ GHWDLO E\ 6N\UPV² VHHPVWRSURPLVHPRVWLQWHUPVRIHOLPLQDWLQJWKHOLPLWDWLRQVFRQFHUQLQJWKH DSSOLFDWLRQ RI WKH V\VWHPV RI LQGXFWLYH ORJLF ,QGHHG LW RIIHUV D FRPSUHKHQVLYH DFFRPPRGDWLRQ RI &DUQDS¶V LQGXFWLYH ORJLF WKH LQWHQGHG GHYHORSPHQWV LQFOXGHG ZLWKLQ WKH VXEMHFWLYH %D\HVLDQ VWDWLVWLFV ,Q WKH FODVVLFDO %D\HVLDQ YLHZ &DUQDS¶V PHWKRGV FRUUHVSRQG WR PXOWLQRPLDO VDPSOLQJ ZLWK 'LULFKOHW SULRUV IURP V\PPHWULFDO WR XQLIRUP 6N\UPV YLD -RKQVRQ¶V VXIILFLHQWQHVV SRVWXODWH REWDLQV D SXUHO\ VXEMHFWLYH %D\HVLDQ UHDGLQJRI&DUQDS¶VPHWKRGVDV³VWURQJV\PPHWULHVLQDSUHGLFWRU¶VGHJUHHV RIEHOLHI´6N\UPVD  ,QVLPLODUYHLQ/HKUHUDGPLWVWKDWKHUHJDUGV WKH ORJLFDO WKHRU\ RI SUREDELOLW\ DV SURYLGLQJ VRPH URXWLQH ZD\V RI IRUPXODWLQJ VXEMHFWLYH SUREDELOLWLHV 7KH ORJLFDO WKHRULVW OLNH &DUQDS DQG +LQWLNND , YLHZ DV PDNLQJWKHYHU\LPSRUWDQWFRQWULEXWLRQRIRIIHULQJXVDYDULHW\RIGLIIHUHQWZD\VRI DVVLJQLQJ SUREDELOLWLHV VXEMHFWLYHO\ 7KLV LV D QRWDEOH FRQWULEXWLRQ $ VXEMHFWLYLVW PXVW ILQG VRPH PHWKRG IRU H[SUHVVLQJ D SUREDELOLW\ DVVLJQPHQW WKDW LV FRKHUHQW /HKUHUD 

7KH %D\HVLDQ YLHZ LV VWURQJO\ FRPSHOOLQJ IRU QRW RQO\ DUH &DUQDS¶V FRQWLQXD RI 7KH &RQWLQXXP RI ,QGXFWLYH 0HWKRGV DQG WKHLU ODWHU GHYHORSPHQWV HPEHGGHG ZLWKLQ VXEMHFWLYH %D\HVLDQ VWDWLVWLFV EXW 6N\UPV 

%$<(6,$1(3,67(02/2*<   DOVRH[WHQGVWKHPZLWKLQWKLVFRQWH[WWRPHHWWKHPRVWFKDOOHQJLQJSUREOHPV IRU &DUQDS WKH YDOXH FRQWLQXXP DQDORJ\ E\ VLPLODULW\ DQG SUR[LPLW\ DV ZHOO DV WKH SUREOHP RI FDSWXULQJ RUGHU UHODWLRQV ZLWKLQ LQGXFWLYH ORJLF 6N\UPV  6N\UPV LV KRZHYHU TXLWH H[SOLFLW RQ WKH HSLVWHPRORJLFDO GUDZEDFN RI WKLVVROXWLRQ IURPDVXEMHFWLYHSRLQWRIYLHZQRQHRI-RKQVRQ¶VSRVWXODWHVKDVDQ\ORJLFDOVWDWXV WKH\ PHUHO\ VHUYH WR FKDUDFWHUL]H FDVHV LQ ZKLFK GHJUHHV RI EHOLHI KDYH FHUWDLQ LQWHUHVWLQJDQGFRPSXWDWLRQDOO\WUDFWDEOHV\PPHWULHV6N\UPV 

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¶V LQGXFWLYH ORJLF ZLWKLQ %D\HVLDQ VWDWLVWLFV WKH HSLVWHPRORJLFDO IRXQGDWLRQDO SODQVRI/RJLFDO)RXQGDWLRQVRI3UREDELOLW\DUHORVW)URPWKLVSHUVSHFWLYH &DUQDS VHHPV WR EH FDVW LQ D WUDGHRII RQ WKH RQH KDQG HSLVWHPRORJLFDO DVVXPSWLRQV OHDG WR FRPSXWDWLRQDO PHWKRGV RI D YHU\ OLPLWHG DUHD RI DSSOLFDWLRQVHHSDJH ZKHUHDVRQWKHRWKHUPRUHUHOD[HGFRPSXWDWLRQDO PHWKRGVDUHGHYRLGRIHSLVWHPRORJLFDOIRXQGDWLRQ 7KLV HSLVWHPRORJLFDO LQDGHTXDF\ RI WKH VWDQGDUG %D\HVLDQ UHDGLQJ RI &DUQDS¶V DQG +LQWLNND¶V V\VWHPV RI LQGXFWLYH ORJLF LV LPSRUWDQW IRU %D\HVLDQLVP LWVHOI DV , ZLOO DUJXH $ IXQGDPHQWDO HSLVWHPRORJLFDO GLVSXWH ZLWKLQ%D\HVLDQLVPFRQFHUQVWKHJURXQGVRQZKLFKDSULRUGLVWULEXWLRQLVWR EH EDVHG ([WUHPH VXEMHFWLYLVW %D\HVLDQV FODLP WKDW WKH RQO\ EDVLV WR JURXQGDSULRUGLVWULEXWLRQDUHSHUVRQDOSUREDELOLWLHVLHVRPHRQH¶VGHJUHHV RI EHOLHI ZKLFK VDWLVI\ WKH VWDQGDUG D[LRPV RI SUREDELOLW\ VHH SDJH   ([WUHPH REMHFWLYH %D\HVLDQV RQ WKH RWKHU KDQG FODLP WKDW D SULRU GLVWULEXWLRQPXVWEHJURXQGHGLQGHSHQGHQWO\RIDQ\RQH¶VGHJUHHVRIEHOLHI HJEDVHGRQWKHVWUXFWXUHRIWKHDYDLODEOHGDWDRUWKHSK\VLFDOFKDQFHVHW XS6XSSRVHIRULQVWDQFHWKDWWKHUHLVDZKHHORIIRUWXQHSDUWLWLRQHGLQWRQ GLIIHUHQWO\ FRORUHG ILHOGV RQH RI ZKLFK LV ODEHOHG ³EDQNUXSW´ :KDW LV WKH SULRUSUREDELOLW\LHWKHSUREDELOLW\SULRUWRDQ\VSLQQLQJRIWKLVZKHHOWKDW DIWHUWKHILUVWURWDWLRQRIWKHZKHHOLWZLOOQRWVWRSDWWKHILHOGEDQNUXSW"7KH H[WUHPH VXEMHFWLYLVW %D\HVLDQ ZLOO FODLP WKDW RQH LV DOORZHG WR DVVLJQ DQ\ QXPHULFDO YDOXH IURP WKH FORVHG LQWHUYDO > @ SURYLGHG WKDW WKH RYHUDOO 

 &+$37(5  GLVWULEXWLRQRQWKHRXWFRPHVRIWKHFLUFXODWLRQRIWKHZKHHOLVFRKHUHQW$Q\ RWKHU FRQVWUDLQW EH\RQG RQH¶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²YLD =DEHOO¶V WKHRUHP RQ HTXLYDOHQFH EHWZHHQ VXIILFLHQWQHVV DQG H[FKDQJHDELOLW\ RQ WKH RQH KDQG DQG &DUQDS¶V SULQFLSOHV XQGHUO\LQJ KLV LQGXFWLYH ORJLF RQ WKH RWKHU²WDNHV WKH &DUQDS+LQWLNND VW\OH V\VWHPV RI LQGXFWLYH ORJLF LQ SDUWLFXODU WKH ȖȜV\VWHP WR WKH VXEMHFWLYLVW H[WUHPH 6XIILFLHQWQHVV DQG H[FKDQJHDELOLW\ ZRXOG WKXV UHSUHVHQW VWURQJ V\PPHWULHV DPRQJWKHSUHGLFWRU¶VEHOLHIVZLWKRXWDQ\UHFRXUVHWRREMHFWLYHFKDQFHVHW XS $OOWKHVHDWWHPSWVWRORFDWH&DUQDS¶VDQG+LQWLNND¶VV\VWHPVRILQGXFWLYH ORJLF ZLWKLQ WKH REMHFWLYHVXEMHFWLYH %D\HVLDQ GLFKRWRP\ IDLO KRZHYHU LQVRIDUDVWKHVWDQGDUG%D\HVLDQUHDGLQJRI&DUQDS¶VDQG+LQWLNND¶VV\VWHPV IDLOV DV , DUJXHG DW WKH EHJLQQLQJ RI WKLV VHFWLRQ $Q H[SODQDWLRQ IRU WKLV IDLOXUH PLJKW EH WKDW &DUQDS DQG +LQWLNND SURMHFW D KLWKHUWR XQNQRZQ SRVLWLRQ UHFRQFLOLQJ WKH WZR H[WUHPHV &RQWUDU\ WR DSSHDUDQFHV /HZLV¶V 3ULQFLSDO3ULQFLSOHHPHUJHVDVDJRRGDSSUR[LPDWLRQRIKRZWRXQGHUVWDQG &DUQDS¶VRZQDSSURDFKWRWKHREMHFWLYHVXEMHFWLYHGLFKRWRP\FI+RZVRQ  $WWKHRXWVHW/HZLVUHFRJQL]HVWKHGLFKRWRP\DQGDFNQRZOHGJHV WKDW ³&DUQDS GLG ZHOO WR GLVWLQJXLVK WZR FRQFHSWV RI SUREDELOLW\ LQVLVWLQJ WKDWERWKZHUHOHJLWLPDWHDQGXVHIXODQGWKDWQHLWKHUZDVDWIDXOWEHFDXVHLW ZDVQRWWKHRWKHU´/HZLV 7KRXJK&DUQDS¶VFRQFHSWVRI³GHJUHH RIFRQILUPDWLRQ´DQG³UHODWLYHIUHTXHQF\LQWKHORQJUXQ´DUHVXEVXPHGE\ DFFRUGLQJO\ ³FUHGHQFH RU GHJUHH RI EHOLHI´ DQG ³FKDQFH RU SURSHQVLW\´ 7KLV GLVFUHSDQF\ KRZHYHU FRXOG VDIHO\ EH LJQRUHG KHUH FI /HZLV  :KDWLVSHUWLQHQWWRWKHWDVNDWKDQGLVWKDW/HZLVVHHNVWR FRQWULYHDVWUDLJKWIRUZDUGDQGLQWXLWLYHO\SODXVLEOHUXOHZKLFKZLOOFRPSULVH HOHPHQWVRIERWKH[WUHPHVRIWKHGLFKRWRP\7KHUXOHLQTXHVWLRQLVFDOOHG E\/HZLVDSSURSULDWHO\HQRXJKWKH3ULQFLSDO3ULQFLSOH 

%$<(6,$1(3,67(02/2*<



 33  /HW & EH DQ\ UHDVRQDEOH LQLWLDO FUHGHQFH IXQFWLRQ /HW WEH DQ\ WLPH /HW [ EH DQ\UHDOQXPEHULQWKHXQLWLQWHUYDO/HW;EHWKHSURSRVLWLRQWKDWWKHFKDQFHDW WLPHWRI$¶VKROGLQJHTXDOV[/HW(EHDQ\SURSRVLWLRQFRPSDWLEOHZLWK;WKDW LVDGPLVVLEOHDWWLPHW7KHQ&$⏐;(  [/HZLV 

,Q KLV ZULWLQJV RQ SUREDELOLW\ &DUQDS SHUVLVWHQWO\ GLVWLQJXLVKHG WKH ORJLFDO FRQFHSW RI SUREDELOLW\ LH ³WKH GHJUHH RI FRQILUPDWLRQ´ IURP WKH HPSLULFDOFRQFHSW RI SUREDELOLW\LH³WKHUHODWLYH IUHTXHQF\´ /HZLV LQ WKH 3ULQFLSDO 3ULQFLSOH WULHV WR RYHUFRPH WKLV GLFKRWRP\ UHSODFLQJ WKRXJK &DUQDS¶VLQLWLDO³GHJUHHRIFRQILUPDWLRQ´ZLWK³FUHGHQFH´DQG³WKHUHODWLYH IUHTXHQF\´ZLWK³FKDQFH´/HZLV  6XFK D UXOH RU VR LW ZRXOG VHHP LV DW YDULDQFH ZLWK &DUQDS¶V GLVFULPLQDWLRQ EHWZHHQ WKH WZR H[WUHPHV RI WKH %D\HVLDQ REMHFWLYH VXEMHFWLYH GLVWLQFWLRQ $ PLQXWH FRQWHPSODWLRQ RI &DUQDS¶V FKDUDFWHULVWLF IXQFWLRQ * GHILQLWLRQ   WR WDNH MXVW RQH H[DPSOH ZRXOG VXIILFH WR FRQFOXGHWKDWXQGHUDSSURSULDWHVXEVWLWXWLRQIRUSDUDPHWHUVWKLVIRUPXODZLOO UHVHPEOH/HZLV¶V3ULQFLSDO3ULQFLSOH FK⏐H∧M  *VVLț  ±ȗ ⋅VLV  ZKHUHȗHTXDOVWRRUDSSURDFKHV 7KHWRWDOHYLGHQFHH∧MLVWKHEHVWLQGLFDWLRQRIWKHREMHFWLYHSUREDELOLW\ RIREWDLQLQJVLVXFFHVVHVLQVH[SHULPHQWVDQG²RQWKHDVVXPSWLRQWKDWWKH ODQJXDJH RI VFLHQFH DSSUR[LPDWHV LWV PDWXUH VWDWXV²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³WKH FKDQFH RI $ LV WKDW TXDQWLW\ZKLFKPDNHVRXUZDUUDQWHGGHJUHHRIEHOLHILQ$FRQVWDQWLQMXVWWKH IDFWXDOFLUFXPVWDQFHVFLWHG´+RZVRQ ,QGHHGLWPLJKWVHHPWKDW /HZLVLVPRWLYDWHGE\+XPH¶VVNHSWLFLVP³7KRXJKWKHUHEHQRVXFKWKLQJ DV&KDQFHLQWKHZRUOGRXULJQRUDQFHRIWKHUHDOFDXVHVRIDQ\HYHQWKDVWKH VDPHLQIOXHQFHRQWKHXQGHUVWDQGLQJDQGEHJHWVDOLNHVSHFLHV RIEHOLHIRU RSLQLRQ´ +XPH    $ VLPLODU YLHZ LV DGYRFDWHG E\ -HIIUH\ ZKRIROORZVGH)LQHWWLLQFODLPLQJWKDWFKDQFHVDUHOLNHVHFRQGDU\TXDOLWLHV IRU-/RFNH-HIIUH\  

 &+$37(5  $ GLIIHUHQW FRQFHUQ LV UDLVHG E\ 6DOPRQ +H UHFRJQL]HV QRW RQO\ WKH SULQFLSOH EXW ± LQ FRQWUDVW WR +RZVRQ ± DOVR WKH WZRIROG QDWXUH RI SUREDELOLW\6WLOOWKHSUREOHPUHPDLQV³ZKRLVLQWKHGULYHU¶VVHDWVXEMHFWLYH FUHGHQFHRUREMHFWLYHFKDQFH"´6DOPRQ /HWPHH[SODLQ6DOPRQ¶V SRLQWLQWHUPVRI³LQSXWV´DQG³RXWSXWV´7KHSRLQW6DOPRQPDNHVVHHPVWR EHWKDWWKHVXEMHFWLYHDQGREMHFWLYHLQWHUSUHWDWLRQRIWKH3ULQFLSDO3ULQFLSOH KDQJVRQZKDWWKHLQSXWDQGRXWSXWDUJXPHQWVRIWKHSULQFLSOHDUH,I;DQG( DUH LQSXWV DQG [ LV DQ RXWSXW WKHQ WKH 3ULQFLSDO 3ULQFLSOH H[SUHVVHV DFFRUGLQJWR6DOPRQRQHRIWKHPRVWHOHPHQWDU\UHTXLUHPHQWVRIG\QDPLF UDWLRQDOLW\ 7KH UHTXLUHPHQW LV WKDW RQH¶V GHJUHHV RI EHOLHI RU RQH¶V ³FUHGHQFH IXQFWLRQ´ KDV WR EH XSGDWHG FRQGLWLRQDO RQ WKH XSFRPLQJ HYLGHQFH ZKLFK UHSRUWV WKH QHZ HPSLULFDO GDWD +RZHYHU LI ( DQG [ DUH LQSXWVDQG;LVDQRXWSXWRIWKH3ULQFLSDO3ULQFLSOHWKHQ6DOPRQFODLPVZH IDFHDSXUHO\VXEMHFWLYLVWLQWHUSUHWDWLRQRIWKHSULQFLSOHDFFRUGLQJWRZKLFK REMHFWLYHFKDQFHVDUHGHWHUPLQHGE\RQH¶VFUHGHQFHIXQFWLRQ,QWKHZKHHORI IRUWXQH H[DPSOH WKLV LV WDQWDPRXQW WR DFNQRZOHGJLQJ WKDW WKH REMHFWLYH FKDQFHRIWKHZKHHOVWRSSLQJDWWKHILHOG³EDQNUXSW´LVGHWHUPLQHGE\RQH¶V FUHGHQFHIXQFWLRQSURYLGHGQRGHIHDWLQJHYLGHQFHLVDYDLODEOH )URP WKH SHUVSHFWLYH RI WKH DUJXPHQW , GHYHORS LW LV DW WKH PRPHQW LUUHOHYDQWZKHWKHU6DOPRQ¶VFULWLFLVPRIWKHVXEMHFWLYHLQWHUSUHWDWLRQRIWKH 3ULQFLSDO3ULQFLSOHLVFRUUHFWRUQRW)RU&DUQDSLQWHQGHGWKHORJLFDOFRQFHSW RI SUREDELOLW\ WR EH DQ HVWLPDWH RI WKH UHODWLYH IUHTXHQF\ DQG VLPLODUO\ /HZLV LQWHQGV WR GHWHUPLQH REMHFWLYH SUREDELOLWLHV LH FKDQFHV ZLWKLQ WKH VXEMHFWLYH IUDPHZRUN 0RUHRYHU ERWK &DUQDS DQG /HZLV LQWHQG WR GHILQH WKHFRQFHSWRISUREDELOLW\ZKLFKZLOOVHUYHDVD³JXLGHWROLIH´ &RQVLGHUILUVWWKHSUREOHPUDLVHGE\+RZVRQ,IKHLVULJKWWKDW³FKDQFH´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¶V FUHGHQFHIXQFWLRQVXFKDIXQFWLRQLVVXVFHSWLEOHWRHPSLULFDOLQYHVWLJDWLRQV DQG GRHV QRW LQIOXHQFH WKH HSLVWHPLF VWDWXV RI WKH VHQWHQFHV XSRQ ZKLFK LW RSHUDWHV0RUHRYHUWKHFUHGHQFHIXQFWLRQRIDQLQGLYLGXDOLVQRWGHWHUPLQHG D SULRUL EXW LW LV GHYHORSHG DFURVV WKH LQGLYLGXDO¶VOLIHVSDQ %\ QR PHDQV WKHQ FDQ D FUHGHQFH IXQFWLRQ VHUYH WR GHWHUPLQH RU HVWLPDWH REMHFWLYH FKDQFHV,WLVWKHRWKHUZD\URXQGDFUHGHQFHIXQFWLRQLQRUGHUWREHUDWLRQDO 

%$<(6,$1(3,67(02/2*<   PXVW LWVHOI DFNQRZOHGJH WKH UHOHYDQW REMHFWLYH FKDQFHV ,I QRW WKHQ VXFK D FUHGHQFH IXQFWLRQ ZLOO OHDG WR LUUDWLRQDO EHKDYLRU RQ WKH SDUW RI WKH LQGLYLGXDOZKRHPEUDFHVLW ,Q/HZLV¶VRZQIRUPXODWLRQKRZHYHUFKDQFHLVQRW±DV+RZVRQZRXOG KDYHLWFUHGHQFHLQGLVJXLVH FKDQFH LV QHLWKHU DQ\RQH¶V DFWXDO FUHGHQFH QRU WKH FUHGHQFH ZDUUDQWHG E\ RXU WRWDO DYDLODEOH HYLGHQFH ,I WKHUH ZHUH QR EHOLHYHUV RU LI RXU WRWDO HYLGHQFH FDPH IURP PLVOHDGLQJO\ XQUHSUHVHQWDWLYH VDPSOHV WKDW ZRXOGQ¶W DIIHFW FKDQFH LQ DQ\ ZD\ /HZLV 

(YHQLIZHFRQWHQGWKDWWKHUHDUHLQIDFWWZRDVSHFWVRISUREDELOLW\WKHQ ZHVWLOOQHHGWRIDFHWKHZRUU\UDLVHGE\6DOPRQQDPHO\KRZWRPDNHVHQVH RI WKH LGHD WKDW UDWLRQDO FUHGHQFH GHWHUPLQHV REMHFWLYH FKDQFH /HZLV YHKHPHQWO\SURWHVWDJDLQVWWKLVLGHD 'HVSLWHDSSHDUDQFHVDQGWKHRGGPHWDSKRUWKLVLVQRWHSLVWHPRORJ\
:KDW VWLOO UHPDLQV XQDQVZHUHG WKRXJK LV +RZVRQ¶V REMHFWLRQ WKDW /HZLV¶V 3ULQFLSDO 3ULQFLSOH DQG WKH GHILQLWLRQ RI LQGXFWLYH PHWKRGV ZLWKLQ WKH &DUQDS+LQWLNND VW\OH V\VWHPV RI LQGXFWLYH ORJLF DUH SODJXHG E\ WKH VDPHVRUWRIDUELWUDULQHVV7KHUHIRUHUDWLRQDOFUHGHQFHDVUHIHUUHGWRLQWKH 3ULQFLSDO 3ULQFLSOH PD\ RQO\ DOORZ IRU D FDVXDO LGHQWLILFDWLRQ ZLWK VRPHRQH¶VDFWXDOGHJUHHVRIEHOLHI6DOPRQ¶VZRUU\LWZRXOGVHHPWKHQLV EDVHG RQ D PLVXQGHUVWDQGLQJ 6WLOO LW ZRXOG PDNH QR GLIIHUHQFH ± DV +RZVRQDUJXHV±ZKHWKHUZHDSSHDOWRUDWLRQDORUDFWXDOFUHGHQFHXQOHVVLW LV DSSDUHQW WKDW WKH IRUPHU LV QRW SODJXHG E\ WKH VDPH DUELWUDULQHVV DV WKH ODWWHU /HZLV DFNQRZOHGJHG WKH SRLQW UDLVHG E\ +RZVRQ DQG PRGLILHG WKH 3ULQFLSDO 3ULQFLSOH ,Q WKH QHZ YHUVLRQ WKH SULQFLSOH UHIHUV WR FKDQFH FRQGLWLRQDO RQ WKH WRWDO HYLGHQFH XS WR WLPH W UDWKHU WKDQ WR XQFRQGLWLRQDO FKDQFH/HZLV  6LPLODUO\WRWKHQHZYHUVLRQRIWKH3ULQFLSDO3ULQFLSOHWKHSDUDPHWHUVLQ WKHV\VWHPVRILQGXFWLYHORJLFVXFKDVĮȜRUȖDFTXLUHQXPHULFDOYDOXHV RQO\LQWKHFRQWH[WRIDSSOLFDWLRQDQGWKHUHDUHQRGHILQLWHUXOHVRQKRZWR DFFRPSOLVK WKLV LQ WKH VDPH ZD\ DV WKHUH DUH QR GHILQLWH UXOHV RQ KRZ WR SURYLGHDFUHGHQFHIXQFWLRQLQ/HZLV¶VDFFRXQW$FWXDOFUHGHQFHIXQFWLRQLV DFRKHUHQWPHDVXUHRIWKHGHJUHHVRIEHOLHIVRIDQHPSLULFDOFRJQLWLYHDJHQW 6RWKHFUHGHQFHIXQFWLRQVPD\YDU\LQDVPXFKDVLQGLYLGXDOVGLIIHULQWKHLU GHJUHHV RI EHOLHIV SURYLGHG WKHVH DUH FRKHUHQW 1HLWKHU IRU &DUQDS QRU IRU 

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³WKHZRUOGKDVJRWSRSXODWHGZLWKHQWLWLHV ZKLFK ORRN OLNH REMHFWLYLVHG SURMHFWLRQV RI RXU LQGXFWLYH SUDFWLFHV´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³FXUUHQWGHJUHHRIH[SOLFLWQHVVRIWKHUXOHVRIWKH ODQJXDJHLVVWLOOYHU\VPDOO´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

%$<(6,$1(3,67(02/2*<   VFLHQFHGRHVQRWDVVXUHXVRIDXQLTXHREMHFWLYHO\GHWHUPLQHGDQVZHUWRWKH TXHVWLRQ ,Q WKH FDVH RI WKH ȖȜV\VWHP IRU LQVWDQFH LQGXFWLYH ORJLF GHWHUPLQHV WKH WZR ERXQGDULHV ȖL⋅Į  DQG VLV⋅±Į  7KH H[DFW YDOXHV RI SDUDPHWHUV KDYH VWLOO WR EH DVVHVVHG $QG WKLV DVVHVVPHQW FDQQRW EH DFFRPSOLVKHG H[FHSW RQ VXEMHFWLYH JURXQGV LH RQ WKH JURXQGV RI RQH¶V DFTXDLQWDQFHZLWKWKHW\SHRIWKHFRQWH[WRIDSSOLFDWLRQLQTXHVWLRQDVZHOO DV RQH¶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±EHLQJDZDUHRIWKHVXEVHTXHQWDFFRPSOLVKPHQWV±LVPXFK OHVVVR7KHUHIRUHDVZHKDYHREVHUYHGKHOHDYHVURRPIRUVXEMHFWLYLW\LQ VFLHQFHDWWKHSUHVHQWVWDJHRILWVSURJUHVV$FFRUGLQJO\DVORQJDVWKHUHDUH VFLHQWLILF WKHRULHV FDVW LQ ODQJXDJHV DOORZLQJ IRU GLIIHUHQW QXPEHU RI  SULPLWLYH SUHGLFDWHV SURSHUWLHV  WKH LQGXFWLYH PHWKRGV GHILQHG LQ WKH V\VWHPV RI LQGXFWLYH ORJLF ZLOO KDYH WR WDNH LQWR DFFRXQW WKRVH YDULRXV SRVVLELOLWLHV DQG LQFOXGH WKH SDUDPHWHUV OLNH ț 7KXV LW OHDGV WR WKH FRQFOXVLRQWKDWWKHXOWLPDWHVWDJHRIVFLHQWLILFSURJUHVVZLOOEHFRPHPDQLIHVW RQO\ ZKHQ WKHUH RQO\ EH D XQLILHG ODQJXDJH RI VFLHQFH ZLWK XQLTXHO\ GHWHUPLQHG QXPEHU RI SULPLWLYH SUHGLFDWHV EHFDXVH DW SUHVHQW ³RXU HPSLULFDOODQJXDJHFDQRQO\EHXQGHUVWRRGDVDQLQFRKHUHQWDQGIUDJPHQWDU\ VFKHPD RI DQ LGHDOO\ FRKHUHQW ODQJXDJH´ 6HOODUV    ,W LV DW WKLVILQDOVWDJHWKDW/HZLV¶V3ULQFLSDO3ULQFLSOHLQWKHLQLWLDOIRUPFRXOGEH VDIHO\ GHULYHG IURP WKH V\VWHPV RI LQGXFWLYH ORJLF 7KH GHJUHH RI FRQILUPDWLRQ RI D JLYHQ K\SRWKHVLV FRQGLWLRQDO RQ WRWDO HYLGHQFH ZLOO 

 &+$37(5  VXSHUYHQH RQ QRWKLQJ EXW UHODWLYH IUHTXHQF\ $W WKLV DGYDQFHG VWDJH KRZHYHUWKHOLPLWRI UHODWLYHIUHTXHQF\RUFKDQFH ZLOOEHDFRQVHTXHQFH RI WKH XOWLPDWH WKHRU\ RU ³WKH EHVW V\VWHP´ WR XVH /HZLV¶V IDYRULWH WHUP  UDWKHUWKDQDQHPSLULFDOJHQHUDOL]DWLRQ7KHVXSHUYHQLHQFHRIWKHGHJUHHRI FRQILUPDWLRQ RQWKHWRWDO HYLGHQFH ± VXPPLQJ XS UHODWLYHIUHTXHQF\ ± ZLOO RQO\EHSRVVLEOHDV/HZLV¶V3ULQFLSDO3ULQFLSOHGHPRQVWUDWHVLQWKHDEVHQFH LQDGPLVVLEOH HYLGHQFH 7KHUH VHHP WR EH WZR VRUWV RI FDQGLGDWHV IRU LQDGPLVVLEOH HYLGHQFHVHQWHQFHV LQ WKH V\VWHPV RI LQGXFWLYH ORJLF FI &DUQDS   )LUVW DQ\ HYLGHQFHVHQWHQFH IRUPXODWHG LQ D ODQJXDJH ZKLFKDOORZVIRUDGLIIHUHQWQXPEHURISULPLWLYHSUHGLFDWHVWKDQWKHRQHLQ ZKLFK D K\SRWKHVLV LV FDVW %XW WKLV RSWLRQ LV DXWRPDWLFDOO\ UXOHG RXW HVSHFLDOO\DWWKHVWDJHZKHQWKHXQLILHGODQJXDJHRIVFLHQFHZRXOGGHWHUPLQH DXQLTXHQXPEHURISULPLWLYHSUHGLFDWHV6HFRQGJLYHQWKHXQLILHGODQJXDJH WKHUH LV VWLOO DQ LQILQLWH QXPEHU RI HYLGHQFHVHQWHQFHV $QG DV /HZLV FRQFHGHVWKHUHLVQRFRQFOXVLYHDUJXPHQWWRWKHHIIHFWWKDWWKHUHZLOORQO\ EH RQH HYLGHQFHVHQWHQFH WR VDWLVI\ SODXVLEOH²DQG SHUKDSV VWUXFWXUDOO\ VXSHUYHQLHQW²FULWHULDVXFKDVVLPSOLFLW\VWUHQJWKDQGILWQHVV8QOHVVVXFKD VWDJHRIVFLHQWLILFSURJUHVVLVUHDFKHGDQGWKHXQLTXHWRWDOHYLGHQFHLVSLFNHG RXW WKH V\VWHPV RI LQGXFWLYH ORJLF KDYH WR DFFRPPRGDWH VRPH LQGHWHUPLQDF\DVWKH\FRXOGQRWDFFRPSOLVKPRUHWKDQVFLHQFHLWVHOI 

1RWHV  6HH3ROORFN 3ODQWLQJD IRUDFULWLFDOGLVFXVVLRQ  $VLPLODUSRLQWLVDGYDQFHGLQ+LQWLNND +LOSLQHQ   ,WPLJKWEHDUJXHGKRZHYHUWKDWDQ\WKHRU\RISUREDELOLW\ZKLFKHPEUDFHVQRUPDOL]DWLRQ FDQ RQO\ EH FRPSDWLEOH ZLWK D QRQVXEMHFWLYLVW LQWHUSUHWDWLRQ LQ SDUWLFXODU ZLWK QRQ VXEMHFWLYLVW%D\HVLDQLVPFI&RRNH   6HH6N\UPV IRUDGLVFXVVLRQRIKRZWRSURFHHGIURPILQLWHWRFRXQWDEOHDGGLWLYLW\ RQ%GH)LQHWWL¶VJURXQGV  )RUDJHQHUDOGLVFXVVLRQVHHRIWKHFRQFHSWVRI³DQDO\WLFLW\´VHH3U]HáĊFNLDQG:yMFLFNL    7KH HPSLULFLVW JURXQGV IRU : & 6DOPRQ¶V FULWLFLVP WR IROORZ DUH FKDOOHQJHG E\ /%RQ-RXUFI%RQ-RXUD   $ VWLOO VWURQJHU FODLP LV WKDW WKH UHTXLUHG MXVWLILFDWLRQ QHHGV WR EH JURXQGHG LQ ODZOLNH GHSHQGHQFLHVDPRQJHYHQWVUHSRUWHGDQGSUHGLFWHGFI*ROGPDQ 7KLVYLHZ ZDV LQFRUSRUDWHG LQWR WKH V\VWHPV RI LQGXFWLYH ORJLF E\ - +LQWLNND +LQWLNND   -3LHWDULQHQ3LHWDULQHQ ,1LLQLOXRWR1LLQLOXRWRE DQG5)HVWD   &I6DOPRQD +DFNLQJ +RZVRQ )RUDFULWLFDOGLVFXVVLRQ RI WKLV DQG DOWHUQDWLYH ZD\V WR MXVWLI\ WKH VWDQGDUG D[LRPV RI SUREDELOLW\ WKHRU\ VHH 6KLPRQ\ 0DKHU 

 

%$<(6,$1(3,67(02/2*<



   &I &DUQDS    6DOPRQ D  E   .XLSHUV   +LQWLNND E  .XLSHUV D   .XLSHUV E   -HIIUH\  )RU D GLVFXVVLRQ RI WKH GLIILFXOWLHVWRRYHUFRPHVHHàRĞ +XPSKUH\V  ,VKDOOQRWVWXG\KHUHWKHTXHVWLRQRIZKHWKHUWKHHSLVWHPLFSULQFLSOHVLQWKHRWKHUV\VWHPV DUHKRPRJHQHRXVZLWKWKRVHXQGHUO\LQJ&DUQDS¶VV\VWHP $ & *UD\OLQJ SHUFHLYHV WKH WUDQVLWLRQ IURP PLQLPDOLVW WKHRU\ WR PHQWDOLVWLF WKHRU\ RI MXVWLILFDWLRQDVRQHRIWKHHVVHQWLDOHSLVWHPRORJLFDOSUREOHPVZKLFKKDVLWVVRXUFHLQWKH FRJQLWLYH OLPLWDWLRQV RI HPSLULFDO FRJQLWLYH DJHQWV²³WKH ILQLWDU\ SUHGLFDPHQW´² FI*UD\OLQJ  )RU DQ DOWHUQDWLYH VHPDQWLFDO DSSURDFK WR FRQILUPDWLRQ DV D ³FRJQDWH RI WKH QRWLRQ RI WUXWK´VHH:yMFLFNL  5&KLVKROPSRLQWVRXWWKDWLQDFRQWH[WRIDSSOLFDWLRQ&DUQDSLDQFRQFHSWRIWRWDOHYLGHQFH ZLOOLQHYLWDEO\EHUHODWLYL]HGWRWRWDOHYLGHQFHRIDJLYHQHSLVWHPLFDJHQW7KHUHIRUHWKH LQLWLDOGHILQLWLRQRIFRQILUPDWLRQSURYLGHGE\&DUQDSKDVWREHVXLWDEO\UHILQHGLQRUGHUWR EH XVHIXO IRU WKH GHILQLWLRQ RI NQRZOHGJH FI &KLVKROP     6XFK D PRGLILFDWLRQZKLFKWXUQVRQ6¶VFRPSXWDWLRQDOFDSDFLWLHVVHH6ZLQEXUQH  7 :LOOLDPVRQ GHIHQGV WKH YLHZ WKDW NQRZOHGJH DQG HYLGHQFH DUH HTXLYDOHQW FI:LOOLDPVRQ )RUDFULWLFLVPVHH0DKHU  $VLPLODUDUJXPHQWLVDGYRFDWHGE\+ROODQGHWDO  5+LOSLQHQLQ+LOSLQHQ JLYHVJRRGJURXQGVIRUVNHSWLFLVPUHJDUGLQJWKHVHSODQV ,Q WKH ILUVW LQVWDQFH , ZLOO RPLW WKRVH SDUDGR[HV ZKLFK DUH WULYLDOO\ UHVROYHG ZLWKLQ WKH &DUQDS+LQWLNNDVW\OHV\VWHPVRILQGXFWLYHORJLF ,+DFNLQJKRZHYHUFODLPVWKDWWKLVNLQGRISDUDGR[LVKLVWRULFDOO\DQGFRQFHSWXDOO\SULRU WR +XPH¶V SUREOHP RI LQGXFWLRQ FI +DFNLQJ   VHH DOVR .DSODQ     $VLPLODUSRLQWLVDGYDQFHGE\(6RVDFI6RVD  )RUDGLVFXVVLRQVHH7RXOPLQ  ,Q UHSUHVHQWLQJ WKH DUJXPHQW , IROORZ 6XSSHV D   0RUWLPHU    UDWKHUWKDQ+HPSHO  $FKLQVWHLQLQ$FKLQVWHLQ VHWIRUWKVHYHUDOGLIILFXOWLHVDJDLQVW&DUQDS¶VFRQFHSWRI HYLGHQFH IRU D FULWLFDO DVVHVVPHQW RI $FKLQVWHLQ¶V DUJXPHQWV VHH .URQ]   DQG IRU $FKLQVWHLQ¶V UHVSRQVH WR WKHP VHH $FKLQVWHLQ   6HH DOVR 6XSSHV E   6DOPRQ  6HHDOVR0LFKDORVE 3ROORFN )RUDVXUYH\RIUHFHQWGLVFXVVLRQVVHH 0DKHU  )RUDFULWLFLVPRIWKLVVROXWLRQVHH%ODFN  -$JDVVLUDLVHGWKHFULWLFLVPWKDWWKLVLVPHUHO\DOLQJXLVWLFWULFNQRWDVROXWLRQFI$JDVVL   6HH$FKLQVWHLQ IRUDOLVWRISURSRVDOVRIVLPLODUVROXWLRQVRIWKHSDUDGR[)RU %D\HVLDQ VROXWLRQV RI WKH SDUDGR[ VHH +RZVRQ DQG 8UEDFK    $FKLQVWHLQ   7KH IODZV ZHUH SRLQWHG RXW E\ %ODFN %ODFN    DQG DQDO\]HG LQ GHWDLO E\ 0RUWLPHU0RUWLPHU  7KLVOLPLWDWLRQFDQHDVLO\EHUHPRYHGLIZHGHILQH3S  FS⏐W  7KLVZDVWKHSRLQWRIWKHFRXQWHUDUJXPHQWOHYHOHGE\%ODFNFI%ODFN 

 

  

&+$37(5

$Q DSSURDFK WR UHVROYH WKH UDYHQV SDUDGR[ RQ WKH JURXQGV RI WKH &DUQDS+LQWLNND VW\OH V\VWHPV RI LQGXFWLYH ORJLF ZKLFK LV DOOHJHGO\ DGMXVWHG WR WDNH LQWR DFFRXQW WKH ]HUR FRQILUPDWLRQSUREOHPVHH+XPEXUJ  7KLUW\\HDUVODWHURUVR-(DUPDQTXHVWLRQHGWKHJURXQGVIRU6XSSHV¶VRSWLPLVP(DUPDQ &K  7KLVLVSUHFLVHO\IRUWKDWUHDVRQWKDW+LQWLNND¶VVROXWLRQWRWKHUDYHQVSDUDGR[EDVHGRQWKH SUHVXSSRVLWLRQ YLHZ RI LQGXFWLRQ VXUSDVVHV WKH VWUXFWXUDO SHUVSHFWLYH DGRSWHG KHUH FI+LQWLNND  )RU D GLVFXVVLRQ VHH 6N\UPV D  E   )RU DQ H[WHQVLYH DQQRWDWHG ELEOLRJUDSK\RQWKH*RRGPDQSDUDGR[VHH6WDONHU  $VLPLODUSRLQWLVDGYRFDWHGE\666KRHPDNHUEXWKLVVROXWLRQRIWKHSDUDGR[LQYROYHV WKHSUHVXSSRVLWLRQYLHZRQLQGXFWLRQFI6KRHPDNHU DQG6ZLQEXUQH IRUD FULWLFLVP)RUDGHIHQVHRI&DUQDS¶VFODLPVHH6DOPRQE  7KH VDPH SRLQW PXWDWLV PXWDQGLV FDQ EH HDVLO\ VKRZQ WR KROG IRU +LQWLNND¶V V\VWHPV ,OLPLWP\GLVFXVVLRQEDVLFDOO\WR&DUQDS¶VV\VWHPVDWWKHPRPHQWIRULWZDV*RRGPDQ¶V LQLWLDOWDUJHW ,WIROORZVIURP&DUQDS¶VV\PPHWU\FRQGLWLRQRQSUHGLFDWHVDVZHOOVHHSDJH  ,QDGGLWLRQ&DUQDSDQG+HPSHOREMHFWHGWKDWWKLVH[DPSOHYLRODWHVWKHSULQFLSOHRIWRWDO HYLGHQFHFI&DUQDSD +HPSHO  &I *RRGPDQ D  )RU D UHVSRQVH VHH &DUQDS E  )RU D GHIHQVH RI &DUQDS¶VRULJLQDOREMHFWLRQVHHDOVR.DKDQH *ROGVWLFN DQG:HLU IRU FULWLFLVP )RUDVROXWLRQDOWHUQDWLYHWRWKHRQH,GHYHORSKHUHVHH'XEXFVD  $OWKRXJK + .DKDQH DWWHPSWV WR VXSSRUW WKH YLHZ WKDW HYHQ RQ WKH JURXQGV RI &DUQDS¶V LQGXFWLYH ORJLF DORQH LW LV SRVVLEOH WR IRUPXODWH K\SRWKHVHV ZKLFK DUH QRW SURMHFWDEOH FI.DKDQH 7KLVDWWHPSWKDVEHHQGLVPLVVHGE\5-$FNHUPDQZKRVKRZHGKRZ WRPDNH.DKDQH¶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¶'RQQHOO  )RU D FULWLFLVP RI WKH REMHFWLYH LQWHUSUHWDWLRQ RI WKH FRQFHSW RI SUREDELOLW\ VHH HJ 'H )LQHWWL  $VLPLODUREMHFWLRQLVUDLVHGLQ)LQH  &DUQDS¶VFRQFHSWLRQRILQGXFWLYHORJLFLVSDUWLFXODUO\GLIILFXOWWRVZDOORZIRUDQHPSLULFLVW EHFDXVH LW FRQIOLFWV ZLWK WKH HPSLULFLVW FRQFHSWLRQ RI DQDO\WLFLW\ FI %RQ-RXU E  %RQ-RXUD  1HYHUWKHOHVV VLQFH &DUQDS   KH VHHPV WR KDYH UHVLJQHG IURP WKLV HSLVWHPRORJLFDO UROHRIORJLFZKLOHDVVXPLQJDOVRWKDWWKHHVVHQWLDOFRQFHSWRIGHJUHHRIFRQILUPDWLRQLVQR ORQJHU D SXUHO\ ORJLFDO FRQFHSW EXW LV SULPDULO\ D GHFLVLRQWKHRUHWLF RQH FI &DUQDS E 

 

%$<(6,$1(3,67(02/2*<



  7KH SULRULW\ LQ DWWULEXWLQJ WKH HSLVWHPLF PHULW WR D EHOLHIJHQHUDWLQJ RU MXVWLILFDWLRQ FRQIHUULQJPHFKDQLVPVHHPVWREHDJHQHULFIHDWXUHRIUHOLDELOLVWHSLVWHPRORJLHVFI6RVD   6DOPRQE 7KLVFODLP5&DUQDSDGYDQFHVILUVWLQ&DUQDS  7KHVXEMHFWLYHUHDGLQJRQWKH%D\HVLDQYLHZLVQRWWKHRQO\RQHDQREMHFWLYHDOWHUQDWLYHLV SUHVHQWHGE\)HVWDZKRDSSHQGVSUDJPDWLFDVVXPSWLRQVWRWKHLQLWLDOYHUVLRQRI&DUQDS¶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³LQWHUVXEMHFWLYH´ LQWHUSUHWDWLRQ RI SUREDELOLW\FI*LOOLHV  ,Q WKH UHPDLQGHU RI WKLV VHFWLRQ , ZLOO IRFXV RQ &DUQDS¶V YHUVLRQ RI LQGXFWLYH ORJLF )RU +LQWLNND DQG KLV FRZRUNHUV SURSRXQG DQ DOWHUQDWLYH VWDQGSRLQW RQ WKH REMHFWLYH VXEMHFWLYH GLFKRWRP\ +LQWLNND   3LHWDULQHQ   7KH ODWWHU SURJUDPPDWLFDOO\ GUDZV XSRQ D NLQG RI HYLGHQFH ZKLFK IURP WKH VWUXFWXUDO SHUVSHFWLYH DSSDUHQWO\ LV LQDGPLVVLEOHDQGWKHUHIRUH,UHOHJDWHWKHGLVFXVVLRQRIWKLVVROXWLRQWRDVHSDUDWHVWXG\ )RUDVLPLODUSURSRVDORI³REMHFWLILFDWLRQ´RIVXEMHFWLYHSUREDELOLW\VHH-HIIUH\ D  $V /HZLV FRUUHFWO\ DFNQRZOHGJHV WKLV IRUPXODWLRQ UHTXLUHV IXUWKHU H[SODQDWLRQV DQG WKHVH²DVZHOODVFULWLFLVPVLQHJ+DOO ²OHDGKLPWRSURYLGHDPRUHVRSKLVWLFDWHG YHUVLRQRIWKH3ULQFLSDO3ULQFLSOHFI/HZLV /HZLV  6LQFH P\DUJXPHQWGRHVQRWWXUQRQWKHVLPSOLILFDWLRQVSUHVHQWLQWKHTXRWHGIRUPXODWLRQRIWKH SULQFLSOH,ZLOOPDLQO\UHIHUWRWKHOHVVWHFKQLFDOIRUPXODWLRQRIWKHSULQFLSOH )RU D GLVFXVVLRQ RI WKH FRQFHSW RI FKDQFH IURP WKH SHUVSHFWLYH RI WKH &DUQDS+LQWLNND VW\OH V\VWHPV RI LQGXFWLYH ORJLF VHH 6ZLQEXUQH   6DOPRQ    1LLQLOXRWRE  )RUDFULWLFLVPRIWKHVHDWWHPSWVWRHPEUDFH³REMHFWLILFDWLRQ´RISUREDELOLW\VHH.\EXUJ  6DOPRQ  7KHGLVFXVVLRQRI+RZVRQ¶VDUJXPHQWWRWKHHIIHFWWKDW7KH3ULQFLSDO3ULQFLSOHLVYLDEOH RQO\LILWVDFFRUGLQJHOHPHQWVDUHVXEVXPHGE\WKHLUVXEMHFWLYHFRXQWHUSDUWVZRXOGVXUSDVV WKHOLPLWVRIWKLVERRN )HVWD¶V UHVHDUFK RQ WKH RSWLPXP LQGXFWLYH PHWKRGV SURYLGHV D IXUWKHU DSSUR[LPDWLRQ RI WKH H[DFW VKDSH RI WKH PDWKHPDWLFDO IXQFWLRQV FRQGLWLRQDO KRZHYHU RQ WKH DYDLODEOH EDFNJURXQGNQRZOHGJHFRQFHUQLQJWKHFRQWH[WRILQTXLU\





&RQFOXVLRQ

7KH ODERULRXV WDVN RI IRVWHULQJ D FRKHVLYH WKHRU\ LV DOZD\V D FKDOOHQJH DWWHQGHGWRE\SKLORVRSKHUV$VLWDSSHDUV&DUQDSLVWKHDXWKRURIWKHWZR PRVWV\VWHPDWLFSKLORVRSKLFDOFRQVWUXFWLRQVSURSRXQGHGLQWKHWKFHQWXU\ 7KH ILUVW RQH XQGHUWDNHQ LQ KLV 'HU ORJLVFKH $XIEDX GHU :HOW &DUQDS  LVUHJDUGHGDVSULPDULO\DGGUHVVLQJHSLVWHPRORJLFDOLVVXHV7KHRWKHU RQH²/RJLFDO )RXQGDWLRQV RI 3UREDELOLW\²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³QRWKLQJ FDQFRXQWDVDUHDVRQIRUKROGLQJDEHOLHIH[FHSWDQRWKHUEHOLHI´'DYLGVRQ   $ IXUWKHU VWXG\ DLPLQJ DW D FRPSUHKHQVLYH DFFRXQW RI VWUXFWXUDO UHOLDELOLVP ZRXOG KDYH WR UHVROYH DOVR WKH LVVXH RI KRZ WKLV WKHRU\ RI  P. Kawalec (ed.), Structural Reliabilism © Kluwer Academic Publishers 2003

 &21&/86,21  MXVWLILFDWLRQ UHODWHV WR WKH GHEDWH EHWZHHQ HSLVWHPRORJLFDO H[WHUQDOLVP DQG LQWHUQDOLVP:KLOHDQDO\VHVRI*ROGPDQ¶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´4XLQH 

2I FRXUVH WKLV QDWXUDOLVWLF SDUDGLJP LV LWVHOI QRW LPPXQH IURP REMHFWLRQV 6LHJHO  6WURXG  $OPHGHU   $JDLQ WKH DQDO\VHV RI *ROGPDQ¶VUHOLDELOLVPZRXOGVXJJHVWWKDWLWLVDQDWXUDOLVWLFWKHRU\LQGHHGD VRSKLVWLFDWHGRQHZKLFKFRXOGDFFRPPRGDWHQRUPDWLYLW\,WLVFODLPHGIRU LQVWDQFHWKDW*ROGPDQ¶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¶V FKDOOHQJH FDQ EH PHW RQ %D\HVLDQ JURXQGV DQG RQ WKH JURXQGV RI VWUXFWXUDO UHOLDELOLVP LQ SDUWLFXODU 6DOPRQ   E F 5RVHQNUDQW]   6LQWRQHQ D   ,Q IDFW WKH YHU\ SRVVLELOLW\ RI HODERUDWLQJ WKH VWUXFWXUDO UHOLDELOLVW WKHRU\ RI MXVWLILFDWLRQ ZKLFKZRXOGEHDGHTXDWHWRLVVXHVRIMXVWLILFDWLRQUDLVHGLQWKHDFWXDOKLVWRU\ 

&21&/86,21   RI VFLHQFH KDV WR EH DVVHVVHG DV ZHOO &DOOHEDXW   (PPHULFK DQG *UHHQR  7KHSUREOHPRIZKHWKHUVWUXFWXUDOUHOLDELOLVPFRXOGDOVRFRQVWLWXWHWKHVHW RIFULWHULDRIG\QDPLFUDWLRQDOLW\WRZLWWKHFULWHULDRIKRZWRFKDQJHRQH¶V EHOLHIV UDWLRQDOO\ LV D SUHVVLQJ RQH LI VWUXFWXUDO UHOLDELOLVP LV WR EH IXOO\ DFFRPPRGDWHG ZLWKLQ %D\HVLDQ HSLVWHPRORJ\ ,Q SDUWLFXODUWKHSUREOHP LV SUHVVLQJIRUWKRVHZKRFODLPWKDW%D\HVLDQLVPLQWKHSKLORVRSK\RIVFLHQFH KDVUHSODFHG+HPSHO¶VPRGHORIH[SODQDWLRQ 7KHUHVXOWVRIWKHSUHVHQWVWXG\DUHSHUWLQHQWWRWKHEORVVRPLQJILHOGRI KLVWRULFDO VWXGLHV RI WKH $XIEDX 5LFKDUGVRQ DGYDQFHV WKH FODLP WKDW LW LV SUHFLVHO\ WKH XQIROGLQJ RI &DUQDS¶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¶V SKLORVRSK\ GLYHUJHV IURP WKH WUDGLWLRQDO ORJLFDO HPSLULFLVP DGYRFDWHG E\ % 5XVVHOO )RU HYHQ &DUQDS¶V FORVHVW DOOLHV VXFK DV + )HLJO DQG & * +HPSHO PLVFRQFHLYHGWKHKLVWRULFDOFRQWH[WRIKLVZRUN 3HUKDSVGXHWRWKLVPLVXQGHUVWDQGLQJ&DUQDSFRQWLQXHVWREHLQIOXHQWLDO EXW QRW E\ WKH WKHVHV KH SURSRXQGHG EXW UDWKHU E\ KLV ZD\ RI SUDFWLFLQJ SKLORVRSK\ 6SRKQ E   &UHDWK FODLPV IXUWKHU WKDW ³SURPLQHQW FRQWHPSRUDU\ SKLORVRSKHUV 4XLQH DQG .XKQ  ZKR DUH WKRXJKW WR KDYH GHPROLVKHG ORJLFDO HPSLULFLVP DUH VKRZQ WR H[KLELW FHQWUDO YLHZV RI WKH ORJLFDO HPSLULFLVWV UDWKHU WKDQ KDYLQJ RYHUWKURZQ WKHP´ DQG LW LV &DUQDS ZKRLV³XQGRXEWHGO\DFHQWUDOILJXUHDQGYHU\RIWHQZKHQSHRSOHVSHDNRI ORJLFDOSRVLWLYLVPWKH\PHDQ&DUQDS´&UHDWK 2QWKH RWKHU KDQG KRZHYHU 0 3 %UDGLH HOXFLGDWHV DQ DSSURDFK WR % 5XVVHOO¶V HSLVWHPRORJ\ZKLFKLVVLPLODUWRWKHVWUXFWXUDOUHOLDELOLVWDSSURDFKDGYDQFHG KHUH%UDGLH  * + YRQ :ULJKW GLVFXVVHV WKH JHQHUDO FXOWXUDO FRQWH[W RI WKH SKLORVRSKLFDOSURJUDPGHYHORSHGE\&DUQDSWKURXJKRXWKLVFDUHHU&DUQDS¶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³/RJLF LV QR ORQJHU PHUHO\ RQH 

 &21&/86,21  SKLORVRSKLFDO GLVFLSOLQH DPRQJ RWKHUV  /RJLF LV WKH PHWKRG RI SKLORVRSKL]LQJ´&DUQDS 

1RWHV  7KH FODLP LV DGYRFDWHG E\ : 6DOPRQ FI 6DOPRQ D  VHH DOVR 6N\UPV D E +RZVRQD +RZVRQD (DUPDQDQG6DOPRQ (DUPDQ  +RZVRQDQG8UEDFK 6N\UPVDG   3XWQDP    +DXVPDQ DQG :LOVRQ   $FKLQVWHLQ DQG %DUNHU HGV    6DOPRQ )HLJO 4XLQH[[LY *UQEDXPDQG6DOPRQHGV  





5HIHUHQFHV

$FKLQVWHLQ3³&RQFHSWVRI(YLGHQFH´0LQG $FKLQVWHLQ3³7KH(YLGHQFH$JDLQVW.URQ]´3KLORVRSKLFDO6WXGLHV $FKLQVWHLQ3³+HPSHO¶V3DUDGR[RIWKH5DYHQV´LQ'DQF\DQG6RVDHGV   $FKLQVWHLQ3³2Q(YLGHQFH$5HSO\WR0F*UHZ´$QDO\VLV $FKLQVWHLQ 3 DQG %DUNHU 6 ) HGV   7KH /HJDF\ RI /RJLFDO 3RVLWLYLVP %DOWLPRUH +RSNLQV $FNHUPDQ5-³'LVFXVVLRQ3URMHFWLQJ8QSURMHFWLEOHV´3KLORVRSK\RI6FLHQFH  $GDPV : (  ³7KH (PSLULFDO )RXQGDWLRQV RI (OHPHQWDU\ *HRPHWU\´ LQ )HLJO DQG 0D[ZHOO $GOHU-(³&ULWHULDIRU$*RRG,QGXFWLYH/RJLF´LQ&RKHQDQG+HVVH $JDVVL-³7KH0\VWHU\RIWKH5DYHQV´3KLORVRSK\RI6FLHQFH $MGXNLHZLF] .  ³7KH 3UREOHP RI )RXQGDWLRQ´ LQ . $MGXNLHZLF] HG   7KH )RXQGDWLRQRI6WDWHPHQWVDQG'HFLVLRQV:DUV]DZD3:1 $OPHGHU 5 DQG +RJJ )  ³5HOLDELOLVP DQG *ROGPDQ¶V 7KHRU\ RI -XVWLILFDWLRQ´ 3KLORVRSKLD± $OPHGHU5³2Q1DWXUDOL]LQJ(SLVWHPRORJ\´$PHULFDQ3KLORVRSKLFDO4XDUWHUO\ 5HSULQWHGLQ)HW]HUHG ± $OVWRQ:(SLVWHPLF-XVWLILFDWLRQ(VVD\VLQWKH7KHRU\RI.QRZOHGJH,WKDFD&RUQHOO 8QLYHUVLW\3UHVV $OVWRQ : D ³(SLVWHPLF :DUUDQW DV 3URSHU )XQFWLRQ´ 3KLORVRSK\ DQG 3KHQRPHQRORJLFDO5HVHDUFK $OVWRQ:E³+RZWR7KLQNDERXW5HOLDELOLW\´3KLORVRSKLFDO7RSLFV $OVWRQ :  ³,QWHUQDOLVP DQG ([WHUQDOLVP LQ (SLVWHPRORJ\´ LQ &UDLJ HG 9RO ,9 $ULVWRWOH 7KH &RPSOHWH :RUNV RI $ULVWRWOH (GLWHG E\ - %DUQHV 3ULQFHWRQ 3ULQFHWRQ 8QLYHUVLW\3UHVVYROV $UPVWURQJ ' 0  %HOLHI 7UXWK DQG .QRZOHGJH &DPEULGJH &DPEULGJH 8QLYHUVLW\ 3UHVV



 

5()(5(1&(6

$XGL 5  (SLVWHPRORJ\ $ &RQWHPSRUDU\ ,QWURGXFWLRQ WR WKH 7KHRU\ RI .QRZOHGJH /RQGRQ5RXWOHGJH $\HU$-7KH)RXQGDWLRQVRI(PSLULFDO.QRZOHGJH/RQGRQ0DFPLOODQ $\HU $-³7KH&RQFHSWLRQRI3UREDELOLW\DVD/RJLFDO5HODWLRQ´LQ6.|UQHUHG  2EVHUYDWLRQDQG-XVWLILFDWLRQ1HZ


5()(5(1&(6



 %URQN$³)LOR]RILDLQDXNDSUREOHPGHPDUNDFML´5RF]QLNL)LOR]RILF]QHI  %URQN$³7KH$[LRORJLFDODQG'HRQWRORJLFDO'LPHQVLRQRI-XVWLILFDWLRQ´LQ:yMFLFNL HG  %URQN $ D ³$OYLQD 3ODQWLQJL NRQFHSFMD X]DVDGQLDQLD´ LQ - &LFKRĔ HG  5DWLR HW UHYHODWLR=UHIOHNVMLILOR]RILF]QRWHRORJLF]Q\FK2SROH:782 %URQN$E=UR]XPLHüĞZLDWZVSyáF]HVQ\/XEOLQ71.8/ %XFN 5 & DQG &RKHQ 5 6 HGV    36$  ,Q PHPRU\ RI 5XGROI &DUQDS 'RUGUHFKW5HLGHO %XUNV $ :  ³7KH 3UHVXSSRVLWLRQ 7KHRU\ RI ,QGXFWLRQ´ 3KLORVRSK\ RI 6FLHQFH   %XUNV$:³2QWKH6LJQLILFDQFHRI&DUQDS¶V6\VWHPRI,QGXFWLYH/RJLF´LQ6FKLOSS HG  %\UQH()3UREDELOLW\DQG2SLQLRQ$6WXG\LQWKH0HGLHYDO3UHVXSSRVLWLRQVRI3RVW PHGLHYDO7KHRULHVRI3UREDELOLW\7KH+DJXH1LMKRII &DOOHEDXW :  ³3RVW±3RVLWLYLVW 9LHZV RI 6FLHQWLILF ([SODQDWLRQ´ LQ - 'XFKHQH * :XQVFKDQG(9LOTXLQHGV ([SODQDWLRQLQWKH6RFLDO6FLHQFHV7KH6HDUFKIRU &DXVHVLQ'HPRJUDSK\%UX[HOOHV&LDFR± &DOOHEDXW :  ³6FLHQFH '\QDPLFV 7KH 'LIILFXOW %LUWK RI D 0HWDVFLHQFH´ LQ + 6WDFKRZLDNHG 3UDJPDWLN+DQGEXFK3UDJPDWLVFKHQ'HQNHQV9RO+DPEXUJ )HOL[0HLQHU± &DOOHEDXW:³7KH)XWXUHRI1DWXUDOLVWLF3KLORVRSK\RI6FLHQFH´/XGXV9LWDOLV±  &DPSEHOO ' 7  ³6FLHQFH¶V 6RFLDO 6\VWHP RI 9DOLGLW\±(QKDQFLQJ &ROOHFWLYH %HOLHI &KDQJH DQG WKH 3UREOHPV RI WKH 6RFLDO 6FLHQFHV´ LQ ' : )LVNH DQG 5 $ 6KZHGHU HGV 0HWDWKHRU\LQ6RFLDO6FLHQFH&KLFDJR&KLFDJR8QLYHUVLW\3UHVV± &DPSEHOO ' 7  ³6HOHFWLRQ 7KHRU\ DQG WKH 6RFLRORJ\ RI 6FLHQWLILF 9DOLGLW\´ LQ : &DOOHEDXW DQG 5 3LQ[WHQ HGV   (YROXWLRQDU\ (SLVWHPRORJ\ 'RUGUHFKW 5HLGHO ± &DPSEHOO ' 7 DQG 3DOOHU % 7  ³([WHQGLQJ (YROXWLRQDU\ (SLVWHPRORJ\ WR ³-XVWLI\LQJ´ 6FLHQWLILF %HOLHIV´ LQ . +DKOZHJ & $ +RRNHU HGV   ,VVXHV LQ (YROXWLRQDU\(SLVWHPRORJ\$OEDQ\681<8QLYHUVLW\3UHVV± &DUQDS5'HUORJLVFKH$XIEDXGHU:HOW%HUOLQ:HOWNUHLV &DUQDS5³7KH2OGDQGWKH1HZ/RJLF´(UNHQQWQLV7UDQVODWHGIURP*HUPDQ DQGUHSULQWHGLQ$\HUHG  &DUQDS 5  ³:DKUKHLW XQG %HZDHKUXQJ´ LQ $FWHV GX &RQJUHV ,QWHUQDWLRQDO GH 3KLORVRSKLH 6FLHQWLILTXH  3DULV +HUPDQQ 7UDQVODWHG DV ³7UXWK DQG &RQILUPDWLRQ´ E\ + )HLJO LQ )HLJO DQG 6HOODUV HGV   5HDGLQJV LQ 3KLORVRSKLFDO $QDO\VLV 1HZ


 

5()(5(1&(6

&DUQDS5³3UREDELOLW\$V$*XLGHLQ/LIH´7KH-RXUQDORI3KLORVRSK\ &DUQDS 5 E ³5HSO\ WR 1HOVRQ *RRGPDQ¶V µ2Q ,QILUPLWLHV RI &RQILUPDWLRQWKHRU\¶´ 3KLORVRSK\ DQG 3KHQRPHQRORJLFDO 5HVHDUFK   5HSULQWHGLQ(OJLQHG  &DUQDS 5  ³(PSLULFLVP 6HPDQWLFV DQG 2QWRORJ\´ 5HYXH ,QWHUQDWLRQDOH GH 3KLORVRSKLH5HSULQWHGLQ&DUQDS &DUQDS 5  7KH /RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ &KLFDJR 8QLYHUVLW\ RI &KLFDJR 3UHVV &DUQDS5D7KH1DWXUHDQG$SSOLFDWLRQRI,QGXFWLYH/RJLF&RQVLVWLQJRI6L[6HFWLRQV IURP/RJLFDO)RXQGDWLRQVRI3UREDELOLW\&KLFDJR8QLYHUVLW\RI&KLFDJR3UHVV &DUQDS5E³7KH3UREOHPRI5HODWLRQVLQ,QGXFWLYH/RJLF´3KLORVRSKLFDO5HYLHZ  &DUQDS5D³0HDQLQJ3RVWXODWHV´LQ3KLORVRSKLFDO6WXGLHV &DUQDS 5 E 7KH &RQWLQXXP RI ,QGXFWLYH 0HWKRGV &KLFDJR 8QLYHUVLW\ RI &KLFDJR 3UHVV &DUQDS5D³,QGXFWLYH/RJLFDQG6FLHQFH´3URFHHGLQJVRIWKH$PHULFDQ$FDGHP\RI $UWVDQG6FLHQFHV &DUQDS 5 E ³2Q WKH &RPSDUDWLYH &RQFHSW RI &RQILUPDWLRQ´ %ULWLVK -RXUQDO IRU WKH 3KLORVRSK\RI6FLHQFH &DUQDS 5 F ³5HPDUNV WR .HPHQ\¶V 3DSHU $ &RQWULEXWLRQ WR ,QGXFWLYH /RJLF´ 3KLORVRSK\DQG3KHQRPHQRORJLFDO5HVHDUFK &DUQDS5G³:KDWLV3UREDELOLW\"´6FLHQWLILF$PHULFDQ &DUQDS5³2Q6RPH&RQFHSWVRI3UDJPDWLFV´ 3KLORVRSKLFDO6WXGLHV 5HSULQWHGLQ&DUQDS &DUQDS 5  6WDWLVWLFDO DQG ,QGXFWLYH 3UREDELOLW\ %URRNO\Q *DORLV ,QVWLWXWH RI 0DWKHPDWLFVDQG$UW &DUQDS 5  0HDQLQJ DQG 1HFHVVLW\ $ 6WXG\ LQ 6HPDQWLFV DQG 0RGDO /RJLF 6HFRQG HGLWLRQ&KLFDJR8QLYHUVLW\RI&KLFDJR3UHVV &DUQDS5³7KH0HWKRGRORJLFDO&KDUDFWHURI7KHRUHWLFDO&RQFHSWV´LQ+)HLJO DQG06FULYHQHGV 7KH)RXQGDWLRQVRI6FLHQFHDQGWKH&RQFHSWVRI3V\FKRORJ\ DQG 3V\FKRDQDO\VLV 0LQQHDSROLV 8QLYHUVLW\ RI 0LQQHVRWD 3UHVV  5HSULQWHG LQ 6DKRWUDHG  &DUQDS 5  ³7KH $LP RI ,QGXFWLYH /RJLF´ LQ 1DJHO 6XSSHV DQG 7DUVNL HGV   ± &DUQDS5D³,QWHOOHFWXDO$XWRELRJUDSK\´LQ6FKLOSSHG  &DUQDS5E³5HPDUNVRQ3UREDELOLW\´3KLORVRSKLFDO6WXGLHV &DUQDS5F³5HSOLHVDQG6\VWHPDWLF([SRVLWLRQV´LQ6FKLOSSHG  &DUQDS 5 G ³9DULHW\ $QDORJ\ DQG 3HULRGLFLW\ LQ ,QGXFWLYH /RJLF´ 3KLORVRSK\ RI 6FLHQFH &DUQDS5D³,QGXFWLYH/RJLFDQG,QGXFWLYH,QWXLWLRQ´LQ/DNDWRVHG E &DUQDS5E³2Q5XOHVRI$FFHSWDQFH´LQ/DNDWRVHG E &DUQDS5F³7KH&RQFHSWRI&RQVWLWXHQWVWUXFWXUH´LQ/DNDWRVHG E &DUQDS5D³$%DVLF6\VWHPRI,QGXFWLYH/RJLF3DUW,´LQ&DUQDSDQG-HIIUH\HGV  E± &DUQDS5E³)XUWKHU0DWHULDOIRUWKH,QWURGXFWLRQ´LQ&DUQDSDQG-HIIUH\HGV E  &DUQDS 5 F ³,QGXFWLYH /RJLF DQG 5DWLRQDO 'HFLVLRQV´ LQ &DUQDS DQG -HIIUH\ HGV  E± &DUQDS5³1RWHVRQ3UREDELOLW\DQG,QGXFWLRQ´6\QWKHVH



5()(5(1&(6



 &DUQDS 5  ³2EVHUYDWLRQ /DQJXDJH DQG 7KHRUHWLFDO /DQJXDJH´ LQ +LQWLNND HG  E &DUQDS 5  7ZR (VVD\V RQ (QWURS\ (GLWHG E\ $ 6KLPRQ\ %HUNHOH\ 8QLYHUVLW\ RI &DOLIRUQLD3UHVV &DUQDS5³$%DVLF6\VWHPRI,QGXFWLYH/RJLF3DUW´LQ-HIIUH\HG E &DUQDS5DQG-HIIUH\5&D³,QWURGXFWLRQ´LQ&DUQDSDQG-HIIUH\HGV E± &DUQDS5DQG-HIIUH\5&HGV E6WXGLHVLQ,QGXFWLYH/RJLFDQG3UREDELOLW\9RO %HUNHOH\/RV$QJHOHV8QLYHUVLW\RI&DOLIRUQLD3UHVV &DUQDS 5 DQG 6WHJPOOHU :  ,QGXNWLYH /RJLN XQG :DKUVFKHLQOLFKNHLW :LHQ 6SULQJHU &KDWDOLDQ *  ³3UREDELOLW\ ,QGXFWLYH YHUVXV 'HGXFWLYH´ 3KLORVRSKLFDO 6WXGLHV    &KLVKROP 5 0  3HUFHLYLQJ $ 3KLORVRSKLFDO 6WXG\ ,WKDFD 1HZ


 

5()(5(1&(6

&UHDWK5³&DUQDS¶V&RQYHQWLRQDOLVP´LQ6DUNDUHG D &UHDWK5³$UH'LQRVDXUV([WLQFW"´)RXQGDWLRQVRI6FLHQFH &UHDWK5³&DUQDS5XGROI ´LQ&UDLJHG 9RO,, &URVVOH\1-DQG'XPPHWW0$(HGV )RUPDO6\VWHPVDQG5HFXUVLYH)XQFWLRQV 3URFHHGLQJVRIWKH(LJKWK/RJLF&ROORTXLXP2[IRUG$PVWHUGDP1RUWK±+ROODQG 'DQF\-DQG6RVD(HGV $&RPSDQLRQWR(SLVWHPRORJ\2[IRUG%ODFNZHOO 'DYLGVRQ'³&RKHUHQFH7KHRU\RI7UXWKDQG.QRZOHGJH´LQ'+HQULFKHG  .DQWRGHU+HJHO"6WXWWJDUW.OHWW&RWWD 'HVFDUWHV 5  7KH 3KLORVRSKLFDO :RUNV RI 'HVFDUWHV  YROV 7UDQVODWHG E\ (6 +DOGDQHDQG*575RVV&DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV 'H )LQHWWL %  ³)RUHVLJKW ,WV /RJLFDO /DZV ,WV 6XEMHFWLYH 6RXUFHV´ 7UDQVODWHG IURP,WDOLDQDQGUHSULQWHGLQ.\EXUJDQG6PRNOHUHGV E 'H )LQHWWL %  ³2Q WKH &RQGLWLRQ RI 3DUWLDO ([FKDQJHDELOLW\´ LQ -HIIUH\ HG  E  'H )LQHWWL %  ³3UREDELOLW\ 7KH 'LIIHUHQW 9LHZV DQG 7HUPLQRORJLHV LQ D &ULWLFDO $QDO\VLV´LQ&RKHQHG  'H)LQHWWL%³3UREDELOLVP´7UDQVODWHGIURP,WDOLDQDQGUHSULQWHGLQ(UNHQQWQLV  'LDFRQLV3 DQG +ROPHV 6  ³$UH 7KHUH 6WLOO 7KLQJV WRGR LQ %D\HVLDQ 6WDWLVWLFV´ LQ &RQVWDQWLQLDQG*DODYRWWLHGV  'UHWVNH),D³&RQFOXVLYH5HDVRQV´$XVWUDODVLDQ-RXUQDORI3KLORVRSK\ 'UHWVNH),E³5HDVRQV.QRZOHGJHDQG3UREDELOLW\´3KLORVRSK\RI6FLHQFH  'XEXFV-3D³,QGXFWLYH/RJLF5HYLVLWHG´LQ'XEXFVHG E 'XEXFV-3HG E3KLORVRSK\RI3UREDELOLW\'RUGUHFKW.OXZHU 'XPLWULX$+LVWRU\RI/RJLF9RO,,,7XQEULGJH:HOOV$EDFXV (DUPDQ - HG   7HVWLQJ 6FLHQWLILF 7KHRULHV 0LQQHDSROLV 8QLYHUVLW\ RI 0LQQHVRWD 3UHVV (DUPDQ-%D\HVRU%XVW"$&ULWLFDO([DPLQDWLRQRI%D\HVLDQ&RQILUPDWLRQ7KHRU\ &DPEULGJH0,73UHVV (DUPDQ-DQG6DOPRQ:&³2QWKH&RQILUPDWLRQRI6FLHQWLILF+\SRWKHVHV´LQ0 + 6DOPRQ - (DUPDQ & *O\PRXU -* /HQQR[ -( 0F*XLUH -' 1RUWRQ :& 6DOPRQ.)6FKDIIQHUHGV ,QWURGXFWLRQWRWKH3KLORVRSK\RI6FLHQFH(QJOHZRRG &OLIIV3UHQWLFH+DOO (HOOV(³%D\HVLDQ(SLVWHPRORJ\3UREDELOLVWLF&RQILUPDWLRQDQG5DWLRQDO'HFLVLRQ´ 3URWRVR]LRORJLH (OJLQ&=HG 1HOVRQ*RRGPDQ¶V1HZ5LGGOHRI,QGXFWLRQ1HZ


5()(5(1&(6



 )HLJO + 6HOODUV : DQG /HKUHU . HGV   1HZ 5HDGLQJV LQ 3KLORVRSKLFDO $QDO\VLV 1HZ


 

5()(5(1&(6

*ROGPDQ$,³:KDWLV-XVWLILHG%HOLHI"´LQ*3DSSDVHG -XVWLILFDWLRQ DQG.QRZOHGJH'RUGUHFKW5HLGHO5HSULQWHGLQ*RRGPDQDQG6Q\GHUHGV   *ROGPDQ$,(SLVWHPRORJ\DQG&RJQLWLRQ&DPEULGJH+DUYDUG8QLYHUVLW\3UHVV *ROGPDQ$,³5HOLDELOLVP´LQ'DQF\DQG6RVDHGV  *ROGPDQ$,³5HOLDELOLVP´LQ&UDLJHG 9RO9,,, *ROGVWLFN'³7KH0HDQLQJRIµ*UXH¶´(UNHQQWQLV *RRGPDQ 0 ) DQG 6Q\GHU 5 $ HGV   &RQWHPSRUDU\ 5HDGLQJV LQ (SLVWHPRORJ\ (QJOHZRRG&OLIIV3UHQWLQFH+DOO *RRGPDQ1³$4XHU\RQ&RQILUPDWLRQ´7KH-RXUQDORI3KLORVRSK\ *RRGPDQ 1  ³2Q ,QILUPLWLHV RI &RQILUPDWLRQ7KHRU\´ 3KLORVRSK\ DQG 3KHQRPHQRORJLFDO5HVHDUFK5HSULQWHGLQ(OJLQHG  *RRGPDQ 1  )DFW )LFWLRQ DQG )RUHFDVW )RXUWK HGLWLRQ &DPEULGJH +DUYDUG 8QLYHUVLW\3UHVV *UD\OLQJ $ &  ³-XVWLILFDWLRQ DQG WKH 6WUXFWXUH RI ,QIHUHQFH´ LQ /D -XVWLILFDWLRQ eSLVWpPLTXH *UQEDXP $ DQG 6DOPRQ : & HG    7KH /LPLWDWLRQV RI 'HGXFWLYLVP %HUNHOH\ 8QLYHUVLW\RI&DOLIRUQLD3UHVV +DOO1³&RUUHFWLQJWKH*XLGHWR2EMHFWLYH&KDQFH´0LQG +DDSDUDQWD / .XVFK 0 DQG , 1LLQLOXRWR HGV   /DQJXDJH .QRZOHGJH DQG ,QWHQWLRQDOLW\3HUVSHFWLYHVRQWKH3KLORVRSK\RI-DDNNR+LQWLNND+HOVLQNL3KLORVRSKLFDO 6RFLHW\RI)LQODQG +DFNLQJ,³2QH3UREOHPDERXW,QGXFWLRQ´LQ/DNDWRVHG E +DFNLQJ,³/LQJXLVWLFDOO\,QYDULDQW,QGXFWLYH/RJLF´6\QWKHVH +DFNLQJ ,  ³7KH /HLEQL]&DUQDS3URJUDP IRU ,QGXFWLYH /RJLF´ 7KH -RXUQDO RI 3KLORVRSK\ +DFNLQJ,7KH(PHUJHQFHRI3UREDELOLW\$3KLORVRSKLFDO6WXG\RI(DUO\,GHDV$ERXW 3UREDELOLW\,QGXFWLRQDQG6WDWLVWLFDO,QIHUHQFH/RQGRQ&DPEULGJH8QLYHUVLW\3UHVV +DFNLQJ ,  ³*RRGPDQ¶V 1HZ 5LGGOH LV 3UH+XPHDQ´ 5HYXH ,QWHUQDWLRQDOH GH 3KLORVRSKLH5HSULQWHGLQ(OJLQHG  +DLOSHULQ7³3UREDELOLW\/RJLFLQWKH7ZHQWLHWK&HQWXU\´+LVWRU\DQG3KLORVRSK\RI /RJLF +DMGXN=2DNFHSWDFMLWHRULLHPSLU\F]QHM/XEOLQ5:.8/ +DUPDQ *  ³,QGXFWLRQ (QXPHUDWLYH DQG +\SRWKHWLFDO´ LQ 'DQF\ DQG 6RVD HGV   +DXVPDQ $ DQG :LOVRQ )  &DUQDS DQG *RRGPDQ 7ZR )RUPDOLVWV ,RZD &LW\ 8QLYHUVLW\RI,RZD +HLGHOEHUJHU+³.QRZOHGJH&HUWDLQW\DQG3UREDELOLW\´,QTXLU\± +HLO-³%HOLHI´LQ'DQF\DQG6RVDHGV  +HPSHO&*³2QWKH/RJLFDO3RVLWLYLVW¶V7KHRU\RI7UXWK´$QDO\VLV +HPSHO & *  ³$ 3XUHO\ 6\QWDFWLFDO 'HILQLWLRQ RI &RQILUPDWLRQ´ 7KH -RXUQDO RI 6\PEROLF/RJLF +HPSHO & * D ³*HRPHWU\ DQG (PSLULFDO 6FLHQFH´ $PHULFDQ 0DWKHPDWLFDO 0RQWKO\5HSULQWHGLQ)HLJODQG6HOODUVHGV  +HPSHO&*E³2QWKH1DWXUHRI0DWKHPDWLFDO7UXWK´$PHULFDQ0DWKHPDWLFDO 0RQWKO\5HSULQWHGLQ)HLJODQG6HOODUVHGV  +HPSHO & *  ³6WXGLHV LQ WKH /RJLF RI &RQILUPDWLRQ´ 0LQG  5HSULQWHG LQ +HPSHO



5()(5(1&(6



 +HPSHO&*³3UREOHPVDQG&KDQJHVLQWKH(PSLULFLVW&ULWHULRQRI0HDQLQJ´ 5HYXH,QWHUQDWLRQDOHGH3KLORVRSKLH5HSULQWHGLQ6DKRWUDHG  +HPSHO & *  ³7KH (PSLULFLVW &ULWHULRQ RI 0HDQLQJ´ 5HYXH ,QWHUQDWLRQDOH GH 3KLORVRSKLH5HSULQWHGLQ$-$\HUHG  +HPSHO & *  ³'HGXFWLYH±1RPRORJLFDO YHUVXV 6WDWLVWLFDO ([SODQDWLRQ´ LQ )HLJO DQG 0D[ZHOOHG ± +HPSHO&*³,QGXFWLYH,QFRQVLVWHQFLHV´LQ.D]HPLHUDQG9X\VMHHGV   +HPSHO & *  ³,PSOLFDWLRQV RI &DUQDS¶V :RUN IRU WKH 3KLORVRSK\ RI 6FLHQFH´ LQ 6FKLOSSHG  +HPSHO&*$VSHFWVRI6FLHQWLILF([SODQDWLRQ1HZ


 

5()(5(1&(6

+LQWLNND-D³&RQGLWLRQDOL]DWLRQDQG,QIRUPDWLRQ´LQ/DNDWRVHG E +LQWLNND - E ³,QGXFWLRQ E\ (QXPHUDWLRQ DQG ,QGXFWLRQ E\ (OLPLQDWLRQ´ LQ /DNDWRV HG E +LQWLNND-F³5HSO\´LQ/DNDWRVHG E +LQWLNND-G³7KH3RVVLELOLW\RI5XOHVRI$FFHSWDQFH´LQ/DNDWRVHG E +LQWLNND-³,QGXFWLYH,QGHSHQGHQFHDQGWKH3DUDGR[HVRI&RQILUPDWLRQ´LQ5HVFKHU HWDOHGV ± +LQWLNND -  ³8QNQRZQ SUREDELOLWLHV %D\HVLDQLVP DQG GH )LQHWWL¶V 5HSUHVHQWDWLRQ 7KHRUHP´LQ%XFNDQG&RKHQHGV  +LQWLNND -  ³&DUQDS¶V +HULWDJH LQ /RJLFDO 6HPDQWLFV´ 6\QWKHVH   5HSULQWHGLQ+LQWLNNDHG E +LQWLNND - D ³&DUQDS DQG (VVOHU YHUVXV ,QGXFWLYH *HQHUDOL]DWLRQ´ LQ +LQWLNND HG  E +LQWLNND - HG  E 5XGROI &DUQDS /RJLFDO (PSLULFLVW 0DWHULDOV DQG 3HUVSHFWLYHV 'RUGUHFKW5HLGHO +LQWLNND-³$ULVWRWHOLDQ,QGXFWLRQ´5HYXH,QWHUQDWLRQDOHGH3KLORVRSKLH  +LQWLNND-³6HPDQWLFV$5HYROW$JDLQVW)UHJH´LQ)ORLVWDGHG  +LQWLNND-D³5HSOLHVDQG&RPPHQWV´LQ%RJGDQHG  +LQWLNND-E³6HOI3URILOH´LQ%RJGDQHG  +LQWLNND - D ³&DUQDS WKH 8QLYHUVDOLW\ RI /DQJXDJH DQG ([WUHPDOLW\ $[LRPV´ LQ 6SRKQHG D +LQWLNND-E³.DQW¶Vµ1HZ0HWKRGRI7KRXJKW¶DQG+LV7KHRU\RI0DWKHPDWLFV´LQ- +LQWLNND  .QRZOHGJH DQG WKH .QRZQ +LVWRULFDO 3HUVSHFWLYHV LQ (SLVWHPRORJ\ 'RUGUHFKW5HLGHO +LQWLNND-³5HSOLHV´LQ6LQWRQHQHG E +LQWLNND-DQG%XWWV5(HGV 3URFHHGLQJVRIWKH)LIWK,QWHUQDWLRQDO&RQJUHVVRI /RJLF 0HWKRGRORJ\ DQG 3KLORVRSK\ RI 6FLHQFH /RQGRQ 2QWDULR &DQDGD  'RUGUHFKW5HLGHO +LQWLNND - DQG +LOSLQHQ 5  ³.QRZOHGJH $FFHSWDQFH DQG ,QGXFWLYH /RJLF´ LQ +LQWLNNDDQG6XSSHVHGV ± +LQWLNND - DQG 1LLQLOXRWR ,  ³$Q $[LRPDWLF )RXQGDWLRQ IRU WKH /RJLF RI ,QGXFWLYH *HQHUDOL]DWLRQ´ LQ 0 3U]HáĊFNL HW DO HGV    $ FRUUHFWHG YHUVLRQ UHSULQWHGLQ-HIIUH\HG E +LQWLNND - DQG 5DQWDOD 9  ³6\VWHPDWL]LQJ 'HILQDELOLW\ 7KHRU\´ LQ 6 .DQJHU HG   3URFHHGLQJV RI WKH 7KLUG 6FDQGLQDYLDQ /RJLF 6\PSRVLXP $PVWHUGDP 1RUWK +ROODQG +LQWLNND - DQG 6XSSHV 3 HGV   $VSHFWV RI ,QGXFWLYH /RJLF $PVWHUGDP 1RUWK± +ROODQG +ROODQG-++RO\RDN.-1LVEHWW5(DQG7KDJDUG35,QGXFWLRQ3URFHVVHVRI ,QIHUHQFH/HDUQLQJDQG'LVFRYHU\&DPEULGJH0,73UHVV +RUZLFK3³%D\HVLDQLVP´LQ'DQF\DQG6RVDHGV  +RVDFN-³2Q3UREDELOLVPDQG,QGXFWLRQ´7RSRL +RVLDVVRQ/LQGHQEDXP-³2Q&RQILUPDWLRQ´7KH-RXUQDORI6\PEROLF/RJLF  +RZVRQ&D³)LWWLQJ


5()(5(1&(6



 +RZVRQ&D³7KH/DVW:RUGRQ,QGXFWLRQ"´(UNHQQWQLV +RZVRQ & E ³7KH µ2OG (YLGHQFH¶ 3UREOHP´ %ULWLVK -RXUQDO IRU WKH 3KLORVRSK\ RI 6FLHQFH +RZVRQ&³3HUVRQDOLVWLF%D\HVLDQLVP´LQ'XEXFVHG E +RZVRQ&³7KHRULHVRI3UREDELOLW\´%ULWLVK-RXUQDOIRUWKH3KLORVRSK\RI6FLHQFH  +RZVRQ&D³$/RJLFRI,QGXFWLRQ´3KLORVRSK\RI6FLHQFH +RZVRQ&E³/RJLFDQG3UREDELOLW\´%ULWLVK-RXUQDOIRUWKH3KLORVRSK\RI6FLHQFH  +RZVRQ & DQG 8UEDFK 3  6FLHQWLILF 5HDVRQLQJ 7KH %D\HVLDQ $SSURDFK /D 6DOOH 2SHQ&RXUW +XPEXUJ-³7KH6ROXWLRQRI+HPSHO¶V5DYHQ3DUDGR[LQ5XGROI&DUQDS¶V6\VWHPRI ,QGXFWLYH/RJLF´(UNHQQWQLV +XPH'$7UHDWLVHRI+XPDQ1DWXUH2[IRUG&ODUHQGRQ +XPH'$Q(QTXLU\&RQFHUQLQJ+XPDQ8QGHUVWDQGLQJ/D6DOOH2SHQ&RXUW +XPSKUH\V3³&RPSXWDWLRQDO(PSLULFLVP´)RXQGDWLRQVRI6FLHQFH +XPSKUH\V3³3UREDELOLW\,QWHUSUHWDWLRQVRI´LQ&UDLJHG 9RO9,, ,QJDUGHQ5³%HPHUNXQJHQ]XP3UREOHPGHU%HJUQGXQJ´6WXGLD/RJLFD -HIIUH\ 5 &  ³9DOXDWLRQ DQG $FFHSWDQFH RI 6FLHQWLILF +\SRWKHVHV´ 3KLORVRSK\ RI 6FLHQFH± -HIIUH\5&³&RQWULEXWLRQVWRWKH7KHRU\RI,QGXFWLYH3UREDELOLW\´3ULQFHWRQ3K' 7KHVLV -HIIUH\57KH/RJLFRI'HFLVLRQ1HZ


 

5()(5(1&(6

-HIIUH\ 5 &  ³3UREDELOLW\ 5HSDUDWLRQ 7KH 3UREOHP RI 1HZ ([SODQDWLRQ´ 3KLORVRSKLFDO6WXGLHV -HIIUH\ 5 &  ³8QNQRZQ 3UREDELOLWLHV ,Q 0HPRU\ RI $QQHPDULH $QURG 6KLPRQ\  ´(UNHQQWQLV -HIIUH\5&DQG&DUQDS5³&RUUHVSRQGHQFH´0DQXVFULSW -HIIUH\V+7KH7KHRU\RI3UREDELOLW\2[IRUG2[IRUG8QLYHUVLW\3UHVV -RKQVRQ:(/RJLF3DUW,,,&DPEULGJH -RKQVRQ : (  ³$SSHQGL[ WR 3UREDELOLW\ 7KH 'HGXFWLYH DQG ,QGXFWLYH 3UREOHPV´ 0LQG .DKDQH +  ³1HOVRQ *RRGPDQ¶V (QWUHQFKPHQW 7KHRU\´ 3KLORVRSK\ RI 6FLHQFH   .DKQHPDQ ' 6ORYLF 3 DQG 7YHUVN\ $ HGV   -XGJPHQWV XQGHU 8QFHUWDLQW\ +HXULVWLFVDQG%LDVHV&DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV .DNNXUL.QXXWWLOD 0/ ³:KDW &DQ WKH 6FLHQFHV RI 0DQ /HDUQ IURP $ULVWRWOH"´ LQ 06LQWRQHQHG E .DNNXUL.QXXWWLOD 0/ DQG .QXXWWLOD 6  ³,QGXFWLRQ DQG &RQFHSWXDO $QDO\VLV LQ $ULVWRWOH´LQ+DDSDUDQWDHWDOHGV  .DSODQ0'HFLVLRQ7KHRU\DV3KLORVRSK\&DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV .DSODQ0³,QGXFWLRQ(SLVWHPLF,VVXHVLQ´LQ&UDLJHG 9RO,9 .DZDOHF3D³7ZR&RQFHSWVRI(SLVWHPLF-XVWLILFDWLRQ´LQ5:yMFLFNLHG   .DZDOHF 3 E ³3UDJPDWLF 3UHGLFDPHQWV WR WKH /RJLFDO 7KHRU\ RI 1RQGHGXFWLYH ,QIHUHQWLDO -XVWLILFDWLRQ´ LQ * 6FKXU] DQG * 'RUQ HGV   3UHSURFHHGLQJV RI WKH WK,QWHUQDWLRQDO:LWWJHQVWHLQ6\PSRVLXP.LUFKEHUJSS .DZDOHF 3 F ³7H]D /DXGDQD D LQWHUQDOL]P -DDNNR +LQWLNNL WHRULL LQGXNFML´ 5RF]QLNL )LOR]RILF]QHI .DZDOHF 3  ³$ 3UDJPDWLF )ODZ LQ ,QIHUHQWLDO (SLVWHPLF -XVWLILFDWLRQ´ 5HSRUWV RQ 3KLORVRSK\  .DZDOHF3³7KH5LVHRIWKH&RQFHSWRI-XVWLILFDWLRQLQWKH/YRY:DUVDZ6FKRRODQG WKH 5HYLVLRQ RI 3V\FKRORJLVP LQ /RJLF , ´ LQ - 1LGD5PHOLQ HG   5DWLRQDOLW\ 5HDOLVP5HYLVLRQ1HZ


5()(5(1&(6



 .HPHQ\-*D³)DLU%HWVDQG,QGXFWLYH3UREDELOLWLHV´7KH-RXUQDORI6\PEROLF/RJLF  .HPHQ\- *E³7ZR0HDVXUHVRI&RPSOH[LW\´7KH-RXUQDORI3KLORVRSK\  .HPHQ\-*³&DUQDS¶V7KHRU\RI3UREDELOLW\DQG,QGXFWLRQ´LQ3$6FKLOSSHG  7KH3KLORVRSK\RI5XGROI&DUQDS/D6DOOH2SHQ&RXUW .H\QHV-0$7UHDWLVHRQ3UREDELOLW\/RQGRQ0DF0LOODQ .LP-³:KDWLVµ1DWXUDOL]HG(SLVWHPRORJ\¶"´3KLORVRSKLFDO3HUVSHFWLYHV .LVWOHU0³/DMXVWLILFDWLRQGHODFRQQDLVVDQFHHPSLULTXHGDQVOH&HUFOHGH9LHQQH´LQ /D-XVWLILFDWLRQeSLVWpPLTXH .LWFKHU3³7KH1DWXUDOLVWV5HWXUQ´7KH3KLORVRSKLFDO5HYLHZ± .OD\PDQ - DQG +D <:  ³&RQILUPDWLRQ 'LVFRQILUPDWLRQ DQG ,QIRUPDWLRQ LQ +\SRWKHVLV7HVWLQJ´3V\FKRORJLFDO5HYLHZ .RM/³3UDJPDW\NDORJLF]QD´LQ:0DUFLV]HZVNLHG /RJLNDIRUPDOQD  .RM/3UREOHP\VHPLRW\NLORJLF]QHM:DUV]DZD376 .ROPRJRURY$1)RXQGDWLRQVRIWKH7KHRU\RI3UREDELOLW\1HZ


 

5()(5(1&(6

.XLSHUV7$)³7KH&DUQDS+LQWLNND3URJUDPLQ,QGXFWLYH/RJLF´LQ6LQWRQHQHG  E .XLSHUV7$)³&RQILUPDWLRQ7KHRU\´LQ:&UDLJHG 9RO,, .XLSHUV7$))URP,QVWUXPHQWDOLVPWR&RQVWUXFWLYH5HDOLVP'RUGUHFKW.OXZHU .XVFK03V\FKRORJLVP$&DVH6WXG\LQWKH6RFLRORJ\RI3KLORVRSKLFDO.QRZOHGJH /RQGRQ5RXWOHGJH .\EXUJ + (  ³'HPRQVWUDWLYH ,QGXFWLRQ´ 3KLORVRSK\ DQG 3KHQRPHQRORJLFDO 5HVHDUFK .\EXUJ + (  3UREDELOLW\ DQG WKH /RJLF RI 5DWLRQDO %HOLHI 0LGGOHWRZQ :HVOH\DQ 8QLYHUVLW\3UHVV .\EXUJ+(³5HFHQW:RUNLQ,QGXFWLYH/RJLF´$PHULFDQ3KLORVRSKLFDO4XDUWHUO\  .\EXUJ+(³3UREDELOLW\5DWLRQDOLW\DQGD5XOHRI'HWDFKPHQW´LQ%DU+LOOHOHG  ± .\EXUJ+(³3UREDELOLW\DQG'HFLVLRQ´3KLORVRSK\RI6FLHQFH .\EXUJ+(³%HWVDQG%HOLHIV´7KH-RXUQDORI3KLORVRSK\ .\EXUJ+(D³5HSO\´LQ/DNDWRVHG E .\EXUJ+(E³7KH5XOHRI'HWDFKPHQWLQ,QGXFWLYH/RJLF´LQ/DNDWRVHG E  .\EXUJ+(³&RQMXQFWLYLVWV´LQ6ZDLQHG  .\EXUJ+(³/RFDODQG*OREDO,QGXFWLRQ´LQ%RJGDQHG  .\EXUJ+(³,QGXFWLYH/RJLFDQG([SHULPHQWDO'HVLJQ´LQ&RKHQDQG+HVVHHGV   .\EXUJ+³+REJREOLQ´0RQLVW± .\EXUJ+(DQG6PRNOHU+(HGV 6WXGLHVLQ6XEMHFWLYH3UREDELOLW\1HZ


5()(5(1&(6



 /HZLV'³,PPRGHVW,QGXFWLYH0HWKRGV´3KLORVRSK\RI6FLHQFH /HZLV '  ³$ 6XEMHFWLYLVW¶V *XLGH WR 2EMHFWLYH &KDQFH´ LQ -HIIUH\ HG  E  /HZLV '  ³+XPHDQ 6XSHUYHQLHQFH 'HEXJJHG´ LQ /HZLV ' 3DSHUV LQ 0HWDSK\VLFVDQG(SLVWHPRORJ\&DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV /RHZHU%³3UREDELOLW\7KHRU\DQG(SLVWHPRORJ\´LQ&UDLJHG 9RO9, /XSHU6³%HOLHIDQG.QRZOHGJH´LQ&UDLJHG 9RO, /\FDQ:³7KHRUHWLFDO(SLVWHPLF 9LUWXHV´LQ&UDLJHG 9RO,; àDNRPD(+LVWRU\F]Q\UR]ZyMSRMĊFLDSUDZGRSRGRELHĔVWZD:DUV]DZD610 àRĞ-³2FLDáDFK]GDU]HĔLLFKGHILQLFMLZDNVMRPDW\FHWHRULLSUDZGRSRGRELHĔVWZD´ 6WXGLD/RJLFD àXNDVLHZLF] -  'LH ORJLVFKH *UXQGODJHQ GHU :DKUVFKHLQOLFKNHLWVUHFKQXQJ .UDNyZ  7UDQVODWHG E\ 2 :RMWDVLHZLF] DV ³/RJLFDO )RXQGDWLRQV RI 3UREDELOLW\ 7KHRU\´ LQ 6HOHFWHG :RUNV $PVWHUGDP:DUV]DZD 1RUWK+ROODQG3:1  (GLWHG E\/%RUNRZVNL 0DKHU3³6XEMHFWLYHDQG2EMHFWLYH&RQILUPDWLRQ´3KLORVRSK\RI6FLHQFH 0DKHU 3  ³'HSUDJPDWL]HG 'XWFK %RRN $UJXPHQWV´ 3KLORVRSK\ RI 6FLHQFH    0DKHU3³,QGXFWLYH,QIHUHQFH´LQ&UDLJHG 9RO,9 0DKHU3³,QGXFWLYH/RJLFDQGWKH5DYHQV3DUDGR[´3KLORVRSK\RI6FLHQFH 0DQQ:3HWHUV$DQG7K|OH%³5HFKWIHUWLJXQJ´LQ-5LWWHUDQG.*UQGHUHGV  3KLORVRSKLVFKHV:|UWHUEXFK%DVHO6FKZDEH9RO9,,, 0DUFLV]HZVNL:3RGVWDZ\ORJLF]QHMWHRULLSU]HNRQDĔ:DUV]DZD3:1 0DUWLQ50³$)RUPDOL]DWLRQRI,QGXFWLYH/RJLF´7KH-RXUQDORI6\PEROLF/RJLF  0DUWLQ507RZDUGD6\VWHPDWLF3UDJPDWLFV$PVWHUGDP1RUWK±+ROODQG 0D]XUNLHZLF]6³=XU$[LRPDWLNGHU:DKUVFKHLQOLFKNHLWVUHFKQXQJ´&RPSWHV5HQGXV GHV6FLHQFHGHOD6RFLpWpGHV6FLHQFHVHWGHV/HWWUHVGH9DUVRYLH9RO 0LFKDORV$&D³+LOSLQHQ¶V5XOHVRI$FFHSWDQFHDQG,QGXFWLYH/RJLF´3KLORVRSK\RI 6FLHQFH± 0LFKDORV$&E7KH3RSSHU&DUQDS&RQWURYHUV\7KH+DJXH1LMKRII 0LOOHU'³2QWKH6XEMHFWLYH,QWHUSUHWDWLRQRI3UREDELOLW\´LQ/DNDWRVHG E  0LOOHU'³$5HVWRUDWLRQRI3RSSHULDQ,QGXFWLYH6NHSWLFLVP´%ULWLVK-RXUQDOIRUWKH 3KLORVRSK\RI6FLHQFH 0LOWRQ-5³,QGXFWLRQEHIRUH+XPH´%ULWLVK-RXUQDOIRUWKH3KLORVRSK\RI6FLHQFH  0LVDN&-9HULILFDWLRQLVP,WV+LVWRU\DQG3URVSHFWV/RQGRQ5RXWOHGJH 0LVHV5YRQ3UREDELOLW\6WDWLVWLFVDQG7UXWK1HZ


 

5()(5(1&(6

1DJHO (  ³3UREDELOLW\ DQG 1RQGHPRQVWUDWLYH ,QIHUHQFH´ 3KLORVRSK\ DQG 3KHQRPHQRORJLFDO5HVHDUFK 1DJHO(³&DUQDS¶V7KHRU\RI,QGXFWLRQ´LQ6FKLOSSHG  1DJHO ( 6XSSHV 3 DQG 7DUVNL $ HGV   /RJLF 0HWKRGRORJ\ DQG 3KLORVRSK\ RI 6FLHQFH6WDQIRUG6WDQIRUG8QLYHUVLW\3UHVV 1HNUDVDV (  :LHG]D SUDZGRSRGREQD 3RZVWDQLH L UR]ZyM Z HPSLU\]PLH ORJLF]Q\P SURJUDPX SUREDELOLVW\F]QHM RFHQ\ ZLHG]\ QDXNRZHM 7UDQVODWHG E\ = 6LPELHURZLF]:DUV]DZD3:1 1HXUDWK 2  ³3ULQFLSOHV RI WKH 7KHRU\ RI 3UREDELOLW\´ LQ 1HXUDWK 2 &DUQDS 5 DQG 0RUULV&KHGV ,QWHUQDWLRQDO(QF\FORSHGLDRI8QLILHG6FLHQFH&KLFDJR&KLFDJR 8QLYHUVLW\3UHVV9RO,, 1HZWRQ6PLWK:+7KH5DWLRQDOLW\RI6FLHQFH/RQGRQ5RXWOHGJH 1LLQLOXRWR,³,QGXFWLYH6\VWHPDWL]DWLRQ'HILQLWLRQDQG$&ULWLFDO6XUYH\´6\QWKHVH  1LLQLOXRWR ,  ³5HYLHZ RI $ & 0LFKDORV 7KH 3RSSHU&DUQDS &RQWURYHUV\ 7KH +DJXH1LMKRII´6\QWKHVH 1LLQLOXRWR ,  ³,QGXFWLYH /RJLF DQG 7KHRUHWLFDO &RQFHSWV´ LQ 3U]HáĊFNL HW DO HGV   1LLQLOXRWR,³2QD.'LPHQVLRQDO6\VWHPRI,QGXFWLYH/RJLF´LQ)6XSSHDQG3' $VTXLWKHGV 36$9RO 1LLQLOXRWR ,  ³$QDORJ\ 7UDQVLWLYLW\WKH &RQILUPDWLRQ RI 7KHRULHV´ LQ &RKHQ DQG +HVVHHGV  1LLQLOXRWR,D³$QDORJ\DQG,QGXFWLYH/RJLF´(UNHQQWQLV 1LLQLOXRWR,E³6WDWLVWLFDO([SODQDWLRQ5HFRQVLGHUHG´6\QWKHVH 1LLQLOXRWR,7UXWKOLNHQHVV'RUGUHFKW.OXZHU 1LLQLOXRWR,D³$QDORJ\DQG6LPLODULW\LQ6FLHQWLILF5HDVRQLQJ´LQ'++HOPDQHG  $QDORJLFDO5HDVRQLQJ'RUGUHFKW.OXZHU 1LLQLOXRWR,E³3UREDELOLW\3RVVLELOLW\DQG3OHQLWXGH´LQ)HW]HUHG  1LLQLOXRWR ,  ³+LQWLNND DQG :KHZHOO RQ $ULVWRWHOLDQ ,QGXFWLRQ´ *UD]HU 3KLORVRSKLVFKH6WXGLHQ 1LLQLOXRWR,³,QGXFWLYH/RJLF$WRPLVPDQG2EVHUYDWLRQDO(UURU´LQ6LQWRQHQHG  E 1LLQLOXRWR , DQG 7RXPHOD 5  7KHRUHWLFDO &RQFHSWV DQG +\SRWKHWLFR,QGXFWLYH ,QIHUHQFH'RUGUHFKW5HLGHO 1R]LFN53KLORVRSKLFDO([SODQDWLRQV&DPEULGJH+DUYDUG8QLYHUVLW\3UHVV 2EHUGDQ 7  ³7KH 9LHQQD &LUFOH¶V µ$QWL)RXQGDWLRQDOLVP¶´ %ULWLVK -RXUQDO IRU WKH 3KLORVRSK\RI6FLHQFH 2 'RQQHOO5³7KH(SLVWHPRORJ\RI-0.H\QHV´%ULWLVK-RXUQDOIRUWKH3KLORVRSK\ RI6FLHQFH 3DVWLQ0³6RFLDODQG$QWL6RFLDO-XVWLILFDWLRQ$6WXG\RI/HKUHU¶V(SLVWHPRORJ\´LQ %RJGDQHG  3LFDUGL(³6LJZDUW+XVVHUODQG)UHJHRQ7UXWKDQG/RJLFRU,V3V\FKRORJLVP6WLOOD 7KUHDW"´(XURSHDQ-RXUQDORI3KLORVRSK\ 3LHWDULQHQ -  ³4XDQWLWDWLYH 7RROV IRU (YDOXDWLQJ 6FLHQWLILF 6\VWHPDWL]DWLRQV´ LQ - +LQWLNNDDQG6XSSHV3HGV ,QIRUPDWLRQDQG,QIHUHQFH 'RUGUHFKW5HLGHO  3LHWDULQHQ-/DZOLNHQHVV$QDORJ\DQG,QGXFWLYH/RJLF$PVWHUGDP1RUWK+ROODQG 3LHWDULQHQ -  ³,QGXFWLYH ,PPRGHVW\ DQG /DZOLNHQHVV´ 3KLORVRSK\ RI 6FLHQFH  



5()(5(1&(6



 3ODQWLQJD$:DUUDQW7KH&XUUHQW'HEDWH2[IRUG2[IRUG8QLYHUVLW\3UHVV 3ODQWLQJD $ D ³-XVWLILFDWLRQ LQWKH WK &HQWXU\´3KLORVRSK\ DQG 3KHQRPHQRORJLFDO 5HVHDUFK6XSSO9RO 3ODQWLQJD $ E ³3UpFLV RI :DUUDQW 7KH &XUUHQW 'HEDWH DQG :DUUDQW DQG 3URSHU )XQFWLRQ´3KLORVRSK\DQG3KHQRPHQRORJLFDO5HVHDUFK 3ODQWLQJD $ F ³5HOLDELOLVP $QDO\VHV DQG 'HIHDWHUV´ 3KLORVRSK\ DQG 3KHQRPHQRORJLFDO5HVHDUFK 3ROORFN-³/D\LQJWKH5DYHQWR5HVW$'LVFXVVLRQRI+HPSHODQGWKH3DUDGR[HVRI &RQILUPDWLRQ´7KH-RXUQDORI3KLORVRSK\ 3ROORFN-&RQWHPSRUDU\7KHRULHVRI.QRZOHGJH7RWRZD5RZPDQ /LWWOHILHOG 3RSSHU.³2Q5XOHVRI'HWDFKPHQWDQG6RFDOOHG,QGXFWLYH/RJLF´LQ/DNDWRVHG  E 3RSSHU . DQG 0LOOHU '  ³$ 3URRI RI WKH ,PSRVVLELOLW\ RI ,QGXFWLYH 3UREDELOLW\´ 1DWXUH 3U]HáĊFNL 0 DQG :yMFLFNL 5  ³7KH 3UREOHP RI $QDO\WLFLW\´ 6\QWKHVH  5HSULQWHGLQ3U]HáĊFNLDQG:yMFLFNLHGV  3U]HáĊFNL 0 DQG :yMFLFNL 5 HGV   7ZHQW\ILYH


 

5()(5(1&(6

5HVFKHU 1 $QGHUVRQ $5 %HQDFHUUDI 3 *UQEDXP $ 0DVVH\ * - DQG 5XGQHU 56 HGV (VVD\VLQ+RQRURI&DUO*+HPSHO$7ULEXWHRQWKH2FFDVLRQRI+LV6L[W\± )LIWK%LUWKGD\'RUGUHFKW5HLGHO 5LFKDUGVRQ$³/RJLFDO,GHDOLVPDQG&DUQDS¶V&RQVWUXFWLRQRIWKH:RUOG´LQ6DUNDU HG D 5LFKDUGVRQ$&DUQDS¶V&RQVWUXFWLRQRIWKH:RUOG7KH$XIEDXDQGWKH(PHUJHQFH RI/RJLFDO(PSLULFLVP&DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV 5LQJ (  ³*ROGPDQ¶V 5HOLDELOLW\ 7KHRU\ RI -XVWLILHG %HOLHI´ $XVWUDODVLDQ -RXUQDO RI 3KLORVRSK\ 5RGULJXH] $ 5  ³2Q 3RSSHU0LOOHU¶V 3URRI RI WKH ,PSRVVLELOLW\ RI ,QGXFWLYH 3UREDELOLW\´(UNHQQWQLV 5RRUGD -  ³)DOOLELOLVP $PELYDOHQFH DQG %HOLHI´ 7KH -RXUQDO RI 3KLORVRSK\   5RUW\ 5  ³7KH 8QQDWXUDOQHVV RI (SLVWHPRORJ\´ LQ ' ) *XVWDIVRQ DQG % 7DSVFRWW HGV %RG\0LQGDQG0HWKRG'RUGUHFKW5HLGHO 5RVHQNUDQW] 5 '  ³5DWLRQDO ,QIRUPDWLRQ $FTXLVLWLRQ´ LQ &RKHQ DQG +HVVH HGV   5RVHQNUDQW] 5 '  ³)RXQGDWLRQV DQG $SSOLFDWLRQV RI ,QGXFWLYH 3UREDELOLW\´ $WDVFDGHUR5LGJHYLHZ 5\QLQ0³3UREDELOLW\DQG0HDQLQJ´7KH-RXUQDORI3KLORVRSK\ 6DDULQHQ(+LOSLQHQ51LLQLOXRWR,DQG+LQWLNND03HGV (VVD\VLQ+RQRXURI -DDNNR +LQWLNND 2Q WKH 2FFDVLRQ RI +LV )LIWLHWK %LUWKGD\ RQ -DQXDU\   'RUGUHFKW5HLGHO 6DKOLQ1(³µ+HLV1R*RRGIRU0\:RUN¶2QWKH3KLORVRSKLFDO5HODWLRQVEHWZHHQ 5DPVH\DQG:LWWJHQVWHLQ´LQ6LQWRQHQHG E 6DOPRQ:&³9LQGLFDWLRQRI,QGXFWLRQ´LQ)HLJODQG0D[ZHOOHGV  6DOPRQ : & D ³,QGXFWLYH ,QIHUHQFH´ LQ % + %DXPULQ HG   3KLORVRSK\ RI 6FLHQFH7KH'HODZDUH6HPLQDU9RO1HZ


5()(5(1&(6



 6DOPRQ : &  ³5XVVHOO RQ 6FLHQWLILF ,QIHUHQFH RU :LOO WKH 5HDO 'HGXFWLYLVW 3OHDVH 6WDQG 8S"´ LQ * 1DNKQLNLDQ HG   %HUWUDQG 5XVVHOO¶V 3KLORVRSK\ /RQGRQ 'XFNZRUWK 6DOPRQ : &  ³&RQILUPDWLRQ DQG 5HOHYDQFH´ LQ * 0D[ZHOO DQG 5 0 $QGHUVRQ HGV   0LQQHVRWD 6WXGLHV LQ WKH 3KLORVRSK\ RI 6FLHQFH YRO 9, 0LQQHDSROLV 8QLYHUVLW\RI0LQQHVRWD3UHVV 6DOPRQ:&³3URSHQVLWLHV$'LVFXVVLRQ5HYLHZ´(UNHQQWQLV 6DOPRQ:&³,Q3UDLVHRI5HOHYDQFH´7HDFKLQJ3KLORVRSK\ 6DOPRQ:&³'\QDPLF5DWLRQDOLW\3URSHQVLW\3UREDELOLW\DQG&UHGHQFH´LQ)HW]HU HG  6DOPRQ : &  ³)RXU 'HFDGHV RI 6FLHQWLILF ([SODQDWLRQ´ LQ 3 .LWFKHU DQG 6DOPRQ:& HGV   0LQQHVRWD 6WXGLHV LQ WKH 3KLORVRSK\ RI 6FLHQFH 9RO ;,,, 6FLHQWLILF([SODQDWLRQ0LQQHDSROLV8QLYHUVLW\RI0LQQHVRWD3UHVV 6DOPRQ : & D )RXU 'HFDGHV RI 6FLHQWLILF ([SODQDWLRQ 0LQQHDSROLV 8QLYHUVLW\ RI 0LQQHVRWD3UHVV 6DOPRQ : & E ³5DWLRQDOLW\ DQG 2EMHFWLYLW\ LQ 6FLHQFH RU 7RP .XKQ 0HHWV 7RP %D\HV´LQ6DYDJHHG  6DOPRQ:&³&DUQDS5XGROI´LQ'DQF\DQG6RVDHGV  6DUNDU6HG D&DUQDS$&HQWHQDU\5HDSSUDLVDO'RUGUHFKW.OXZHU 6DUNDU 6 E ³5XGROI &DUQDS  7KH (GLWRU¶V ,QWURGXFWLRQ´ LQ 6DUNDU HG  D 6DUNDU 6 HG   'HFOLQH DQG 2EVROHVFHQFH RI /RJLFDO (PSLULFLVP &DUQDS YV 4XLQH DQGWKH&ULWLFV1HZ


 

5()(5(1&(6

6KLPRQ\$³&DUQDSRQ(QWURS\´LQ+LQWLNNDHG E 6KLPRQ\$³$Q$GDPLWH'HULYDWLRQRIWKH3ULQFLSOHVRIWKH&DOFXOXVRI3UREDELOLW\´ LQ)HW]HUHG  6KLPRQ\ $  ³2Q &DUQDS 5HIOHFWLRQV RI D 0HWDSK\VLFDO 6WXGHQW´ 6\QWKHVH   6KRHPDNHU66³3URSHUWLHV&DXVDWLRQDQG3URMHFWLELOLW\´LQ&RKHQDQG+HVVHHGV   6LHJHO+³-XVWLILFDWLRQ'LVFRYHU\DQGWKH1DWXUDOL]LQJRI(SLVWHPRORJ\´3KLORVRSK\ RI6FLHQFH± 6LQWRQHQ0D³)URPWKH6FLHQFHRI/RJLFWRWKH/RJLFRI6FLHQFH´LQ6LQWRQHQHG  E 6LQWRQHQ0HG E.QRZOHGJHDQG,QTXLU\(VVD\VRQ-DDNNR+LQWLNND¶V(SLVWHPRORJ\ DQG3KLORVRSK\RI6FLHQFH$PVWHUGDP5RGRSL 6N\UPV % D &KRLFH DQG &KDQFH $Q ,QWURGXFWLRQ WR ,QGXFWLYH /RJLF (QFLQR 'LFNHQVRQ 6N\UPV%E³1RPRORJLFDO1HFHVVLW\DQGWKH3DUDGR[HVRI&RQILUPDWLRQ´3KLORVRSK\ RI6FLHQFH 6N\UPV%³7KH*RRGPDQ3DUDGR[DQGWKH1HZ5LGGOHRI,QGXFWLRQ´LQ)HLJOHWDO HGV  6N\UPV %  ³7KUHH :D\V WR *LYH $ 3UREDELOLW\ $VVLJQPHQW $ 0HPRU\´ LQ (DUPDQ HG  6N\UPV % D ³'\QDPLF &RKHUHQFH´ LQ , % 0DF1HLOO DQG * 8PSKUH\ HGV  )RXQGDWLRQVRI6WDWLVWLFDO,QIHUHQFH'RUGUHFKW5HLGHO 6N\UPV%E³'\QDPLF&RKHUHQFHDQG3UREDELOLW\.LQHPDWLFV´3KLORVRSK\RI6FLHQFH  6N\UPV%³&DUQDSLDQ,QGXFWLRQ/RJLFIRU0DUNRY&KDLQV´(UNHQQWQLV 6N\UPV %  ³&RKHUHQFH 3UREDELOLW\ DQG ,QGXFWLRQ LQ 5DWLRQDOLW\´ LQ ( 9LOODQXHYD HG (SLVWHPRORJ\$WDVFDGHUR5LGJHYLHZ 6N\UPV%D³$0LVWDNHLQ'\QDPLF&RKHUHQFH $UJXPHQWV"´3KLORVRSK\RI6FLHQFH  6N\UPV % E ³$QDORJ\ E\ 6LPLODULW\ LQ +\SHU&DUQDSLDQ ,QGXFWLYH /RJLF´ LQ - (DUPDQ$,-DQLVDQG*-0DVVH\HGV 3KLORVRSKLFDO3UREOHPVRIWKH,QWHUQDO DQG([WHUQDO:RUOGV(VVD\VLQWKH3KLORVRSK\RI$GROI*UQEDXP3LWWVEXUJK8QLYHUVLW\ RI3LWWVEXUJK3UHVV 6N\UPV%F³&DUQDSLDQ,QGXFWLYH/RJLFIRUD9DOXH&RQWLQXXP´LQ+:HWWVWHLQHG   7KH 3KLORVRSK\ RI 6FLHQFH 0LGZHVW 6WXGLHV LQ 3KLORVRSK\ 9RO ;9,,, 6RXWK %HQG8QLYHUVLW\RI1RWUH'DPH3UHVV 6N\UPV%G³'LVFXVVLRQ$0LVWDNHLQ'\QDPLF&RKHUHQFH$UJXPHQWV"´3KLORVRSK\ RI6FLHQFH 6N\UPV%H³3UREDELOLW\7KHRULHVRI´LQ'DQF\DQG6RVDHGV  6N\UPV%³%D\HVLDQ3URMHFWLELOLW\´LQ6WDONHUHG  6N\UPV%D³&DUQDSLDQ,QGXFWLYH/RJLFDQG%D\HVLDQ6WDWLVWLFV´LQ76)HUJXVRQ/ 6 6KDSOH\ DQG - % 0DF4XHHQ HGV   6WDWLVWLFV 3UREDELOLW\ DQG *DPH 7KHRU\ 3DSHUVLQ+RQRURI'DYLG%ODFNZHOO+D\ZDUG,QVWLWXWHRI0DWKHPDWLFDO6WDWLVWLFV  6N\UPV%E³7KH6WUXFWXUHRI5DGLFDO3UREDELOLVP´(UNHQQWQLV 6PRNOHU+³/DQJXDJH'HSHQGHQFLHVDQG6\VWHPVRI&RQILUPDWLRQ´7KH-RXUQDORI 3KLORVRSK\



5()(5(1&(6



 6PRNOHU+³6HPDQWLFDO4XHVWLRQVLQ&DUQDS¶V,QGXFWLYH/RJLF´%ULWLVK-RXUQDOIRU WKH3KLORVRSK\RI6FLHQFH 6REHU(³3V\FKRORJLVP´-RXUQDOIRUWKH7KHRU\RI6RFLDO%HKDYLRU 6RVD(.QRZOHGJHLQ3HUVSHFWLYH&DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV 6RVD(³)RXQGDWLRQDOLVP´LQ&UDLJHG 9RO,,, 6SRKQ :  ³$QDORJ\ DQG ,QGXFWLYH /RJLF $ 1RWH RQ 1LLQLOXRWR´ (UNHQQWQLV   6SRKQ:HG D(UNHQQWQLV2ULHQWDWHG$&HQWHQQLDO9ROXPHIRU5XGROI&DUQDSDQG +DQV5HLFKHQEDFK'RUGUHFKW.OXZHU 6SRKQ:E³3UHIDFH´LQ6SRKQHG D 6WDONHU'HG *UXH7KH1HZ5LGGOHRI,QGXFWLRQ/D6DOOH2SHQ&RXUW 6WDQRYLFK.(DQG:HVW)5³,QGLYLGXDO'LIIHUHQFHVLQ5HDVRQLQJ,PSOLFDWLRQVIRU WKH5DWLRQDOLW\'HEDWH"´%HKDYLRUDODQG%UDLQ6FLHQFHV 6WHJPOOHU :  &DUQDS ,, 1RUPDWLYH 7KHRULH GHV ,QGXNWLYHQ 5lVRQLHUHQV %HUOLQ 6SULQJHU 6WHJPOOHU:³+RPDJHWR&DUQDS´LQ+LQWLNNDHG E/,9/9,,, 6WLFK63DQG1LVEHWW(³-XVWLILFDWLRQDQG3V\FKRORJ\RI+XPDQ5HDVRQLQJ´ 3KLORVRSK\RI6FLHQFH5HSULQWHGLQ(OJLQHG  6WURXG %  ³7KH 6LJQLILFDQFH RI 1DWXUDOL]HG (SLVWHPRORJ\´ LQ 3 $ )UHQFK 7 ( 8HKOLQJDQG+.:HWWVWHLQHGV 0LGZHVW6WXGLHVLQ3KLORVRSK\9,0LQQHDSROLV 8QLYHUVLW\RI0LQQHVRWD 6WXUJHRQ6³5HOLDELOLVP´LQ:yMFLFNLHG  6XSSHV3D³$%D\HVLDQ$SSURDFKWRWKH3DUDGR[HVRI&RQILUPDWLRQ´LQ+LQWLNNDDQG 6XSSHVHGV ± 6XSSHV3E³3UREDELOLVWLF,QIHUHQFH DQGWKH&RQFHSWRI 7RWDO(YLGHQFH´LQ+LQWLNND DQG6XSSHVHGV ± 6ZDLQ0HG ,QGXFWLRQ$FFHSWDQFHDQG5DWLRQDO%HOLHI'RUGUHFKW5HLGHO 6ZDLQ05HDVRQVDQG.QRZOHGJH,WKDFD&RUQHOO8QLYHUVLW\3UHVV 6ZLQEXUQH5³7KH3UREDELOLW\RI3DUWLFXODU(YHQWV´3KLORVRSK\RI6FLHQFH  6ZLQEXUQH5*³3URSHUWLHV&DXVDWLRQSURMHFWLELOLW\5HSO\WR6KRHPDNHU´LQ&RKHQ DQG+HVVHHGV  6ZLQEXUQH5*³-XVWLILFDWLRQDQG3UREDELOLW\´LQ:yMFLFNLHG  7DUVNL $ E ³7KH &RQFHSW RI 7UXWK LQ )RUPDOL]HG /DQJXDJHV´ 7UDQVODWHG DQG UHSULQWHGLQ7DUVNL 7DUVNL $  ³7KH 6HPDQWLF &RQFHSWLRQ RI 7UXWK DQG WKH )RXQGDWLRQV RI 6HPDQWLFV´3KLORVRSK\DQG3KHQRPHQRORJLFDO5HVHDUFK5HSULQWHGLQ)HLJODQG6HOODUV HGV  7DUVNL$/RJLF6HPDQWLFV0HWDPDWKHPDWLFV3DSHUV)URPWR7UDQVODWHG E\-+:RRGJHU2[IRUG&ODUHQGRQ 7KLHO &  ³)URP /HLEQL] WR )UHJH 0DWKHPDWLFDO /RJLF %HWZHHQ  DQG ´ LQ &RKHQHG  7KRP5³7KH5ROHRI0DWKHPDWLFVLQ3UHVHQW'D\6FLHQFH´LQ&RKHQHG   7RXOPLQ67KH8VHVRI$UJXPHQW&DPEULGJH&DPEULGJH8QLYHUVLW\3UHVV 7XRPHOD 5  ³,QGXFWLYH *HQHUDOL]DWLRQ LQ DQ 2UGHUHG 8QLYHUVH´ LQ +LQWLNND DQG 6XSSHVHGV ± 7XRPHOD5³*URXS%HOLHIV´6\QWKHVH



 

5()(5(1&(6

7YHUVN\ $DQG.DKQHPDQ'³&DXVDO7KLQNLQJLQ-XGJPHQWXQGHU8QFHUWDLQW\´LQ +LQWLNNDDQG%XWWVHGV  7YHUVN\ $ DQG .DKQHPDQ '  ³([WHQVLRQDO 9HUVXV ,QWXLWLYH 5HDVRQLQJ 7KH &RQMXQFWLRQ)DOODF\LQ3UREDELOLW\-XGJPHQW´3V\FKRORJLFDO5HYLHZ± 8FKLL 6  ³,QGXFWLYH /RJLF :LWK &DXVDO 0RGDOLWLHV $ 3UREDELOLVWLF $SSURDFK´ 3KLORVRSK\RI6FLHQFH 8FKLL 6  ³,QGXFWLYH /RJLF :LWK &DXVDO 0RGDOLWLHV $ 'HWHUPLQLVWLF $SSURDFK´ 6\QWKHVH 8HEHO 7  ³$QWL)RXQGDWLRQDOLVP DQG WKH 9LHQQD &LUFOH¶V 5HYROXWLRQ LQ3KLORVRSK\´ %ULWLVK-RXUQDOIRUWKH3KLORVRSK\RI6FLHQFH 9HQQ-7KH3ULQFLSOHVRI(PSLULFDORU,QGXFWLYH/RJLF1HZ


5()(5(1&(6



 :ULJKW * + YRQ  ³7KH 3DUDGR[HV RI &RQILUPDWLRQ´ LQ +LQWLNND DQG 6XSSHV HGV  ± :ULJKW*+YRQ³:LWWJHQVWHLQDQGWKH7ZHQWLHWK&HQWXU\´LQ+DDSDUDQWDHWDOHGV   =DEHOO 6 /  ³: ( -RKQVRQ¶V 6XIILFLHQWQHVV 3RVWXODWH´ $QQDOV RI 6WDWLVWLFV   =DEHOO6/³7KH5XOHRI6XFFHVVLRQ´(UNHQQWQLV =DEHOO6/³3UHGLFWLQJWKH8QSUHGLFWDEOH´6\QWKHVH =DEHOO6/³&KDUDFWHUL]LQJ0DUNRY([FKDQJHDEOH6HTXHQFHV´-RXUQDORI7KHRUHWLFDO 3UREDELOLW\ =DEHOO 6 /  ³7KH &RQWLQXXP RI ,QGXFWLYH 0HWKRGV 5HYLVLWHG´ LQ - (DUPDQ DQG - 1RUWRQHGV 7KH&RVPRVRI6FLHQFH3LWWVEXUJK.RQVWDQ]6HULHVLQWKH3KLORVRSK\DQG +LVWRU\RI6FLHQFH3LWWVEXUJK?.RQVWDQ]8QLYHUVLW\RI3LWWVEXUJK3UHVV?8QLYHUVLWlWVYHUODJ .RQVWDQ] =DEHOO6/³&RQILUPLQJ8QLYHUVDO*HQHUDOL]DWLRQV´(UNHQQWQLV





,QGH[

DSULRULUHODWLYL]HG DFFHSWDQFH DQGH[SODQDWLRQ DQGORJLFDOFORVXUH DQGVFLHQFH &DUQDSRQ SUREDELOLVWLF UXOHRI±± DFFHVVHSLVWHPLF DQGLQGXFWLYHLQWXLWLRQ $FKLQVWHLQ3 $FNHUPDQ5- $GDPV( DGGLWLYLW\ FRXQWDEOH ILQLWH ıDGGLWLYLW\ DGHTXDF\HPSLULFDO $GOHU-( $JDVVL- DJHQW HPSLULFDO± DQGRPQLVFLHQFH HSLVWHPLF[LY± ± DQGFRQILUPDWLRQIXQFWLRQ LGHDO $MGXNLHZLF]. $OPHGHU5 $OVWRQ:±± 

DQDORJ\ E\SUR[LPLW\ E\VLPLODULW\ DQDO\VLVORJLFDO DSSOLFDWLRQIDOODF\ DSSOLFDWLRQFRQWH[WRI± ± DUJXPHQW SUHVHQWDEVWUDFWLRQ VHOIDEVWUDFWLRQ $ULVWRWOH $UPVWURQJ'0 $UQDXOG$ DVVXPSWLRQ HSLVWHPRORJLFDO H[WUDORJLFDO[LL±  H[WUDVHPDQWLFDO IDFWXDO PHWDOHYHO[L[LL SUDJPDWLF SV\FKRORJLFDOLPSODXVLELOLW\RI DWRPLVPORJLFDO DWWLWXGH GR[DVWLF[LL[LY QRQLGHDOL]HG SURSRVLWLRQDO±± ±± SV\FKRORJLFDO $XGL5± 



 

,1'(;

$XIEDXWKH $\HU$-

EHOLHIFRQWLQXHG  DQGSURFHVV DQGSURSRVLWLRQ DQGSURSRVLWLRQDODWWLWXGH DQGUHOLDELOLW\± DQGVWUXFWXUDOUHOLDELOLVP DQGWKHSULQFLSDOSULQFLSOH EDFNJURXQG EDVLF FKDQJH UDWLRQDO GHILQLWLRQRI GHJUHHRI±  HSLVWHPLFVWDWXV± IXOO KLJKHURUGHU LQSURJUHVV LQIHUHQWLDO LQSXW± MXVWLILFDWRU\VWDWXV MXVWLILHG± QRQLQIHUHQWLDO RUGHULQJRQ RUGLQDU\±± RXWSXW SHUFHSWXDO UDWLRQDO UHODWLRQDO VFLHQWLILF VLPSOH VRFLDO W\SHVRI ZDUUDQWHG ZLWKKROG[LY %HUQRXOOLSURFHVV EHWWLQJTXRWLHQW %ODFN0 %ODFN5 %ODFNZHOO' %RJGDQ5- %RKQHUW+*± %RQ-RXU/ %RUHODOJHEUD %RUHOVHW %UDGLH03 %UDLQH0'6 EUDLQLQDYDW %URQN$[Y±

 EDFNJURXQGNQRZOHGJH  DQGVFLHQFH HQWLUH %DUFDQ0DUFXV5 %DU+LOOHO< %DUNHU6) EDVHFRQGLWLRQ±± %DWHQV' %D\HV7 %D\HV¶VWKHRUHP  %D\HVLDQLVP  DQGFRKHUHQFH DQGHSLVWHPLFMXVWLILFDWLRQ DQGHSLVWHPRORJ\ DQGLQGXFWLYHORJLF %D\HVLDQFXPH[WUDYLHZ± ± &DUQDSRQ FODVVLFDO REMHFWLYH  REMHFWLYHVXEMHFWLYHGLFKRWRP\  SUREDELOLVWLFHSLVWHPRORJ\±  VXEMHFWLYH± ± EHOLHI[±±± ±±±  DFTXLVLWLRQRI DQGD[LRPVRISUREDELOLW\ DQGGLUHFWMXVWLILFDWLRQ DQGHYLGHQFH DQGLQIHUHQFH DQGLQYDULDQFH DQGMXVWLILFDWLRQ DQGORJLFDOFRQVHTXHQFH DQGPHQWDOVWDWH DQGPLQLPDOLVWMXVWLILFDWLRQ DQGQXPHULFDOYDOXH DQGSUDJPDWLFV DQGSULRUSUREDELOLW\



,1'(;



 %XUNV$:

FRKHUHQWLVPFRQWLQXHG  PHQWDOLVWLF FRQGLWLRQDOL]DWLRQ DQGSDUDPHWHUV &RQHH5 FRQILUPDWLRQ[L ± DQDO\WLFDO DQGEHWWLQJTXRWLHQW DQGFKDUDFWHULVWLFIXQFWLRQ DQGGHFLVLRQWKHRU\ DQGMXVWLILFDWLRQ DQGNQRZOHGJH DQGOLQJXLVWLFLQYDULDQFH DQGORJLFDOLPSOLFDWLRQ DQGUDQJH DQGUHODWLYHIUHTXHQF\ DQGWUXWK F  F‚ GHILQLWLRQRI GHJUHHRI[LLL±± ± ±± ± IXQFWLRQ± ±± DQGH[SHULHQFH DQGLQGXFWLYHWHPSHUDPHQW DQGODQJXDJHV\VWHP FKRLFHRI FRQWLQXXPRI± GHILQLWLRQRI HPSLULFDO H[WUHPH± LQWHUSUHWDWLRQRI OHDUQLQJIURPH[SHULHQFH ORJLFDO UHJXODU± V\PPHWULFDO XQLTXH± LQLWLDO LQYDULDQW PD[LPDOYDOXH PHWDOHYHO PLQLPDOYDOXH QXOO SRVWHULRU SULRU±

 F⏐ VHHFRQILUPDWLRQIXQFWLRQ &DOOHEDXW:± &DPEULGJH6FKRROWKH &DPSEHOO'7 FDSDFLW\ FRJQLWLYH± FRPSXWDWLRQDO LQWURVSHFWLYH &DUQDS 5 L[ [ [L [LL [LLL ± ± ±±± ± ± ± ± ± ± ±  ± FHUWDLQW\SUDFWLFDO FIXQFWLRQVHHFRQILUPDWLRQIXQFWLRQ FKDQFH± DQGVHFRQGDU\TXDOLW\ HVWLPDWLRQRI REMHFWLYH± SK\VLFDO± VXEMHFWLYH± XQFRQGLWLRQDO FKDUDFWHULVWLFIXQFWLRQ±  DQGFRQILUPDWLRQIXQFWLRQ DQGWKHSULQFLSDOSULQFLSOH * *& JHQHUDOL]HG FKDUDFWHULVWLFIXQFWLRQWKH DQGWZRIDFWRUV FRQWLQXXPRI FKDUDFWHULVWLFDXQLYHUVDOLV± &KDWDOLDQ* &KLVKROP5[LY± ± &KXDTXL5 &RFFKLDUHOOD1 &RIID$ &RKHQ/- &RKHQ6 FRKHUHQFH DQGSUREDELOLW\ FRQGLWLRQVRI VWULFW FRKHUHQWLVP±VHH MXVWLILFDWLRQ



 

,1'(;

FRQILUPDWLRQFRQWLQXHG  TXDQWLWDWLYH UHGXFWLRQWRPHDVXUH VXSHUYHQLHQW WKHRU\RI LQIDOOLEOH &RQVWDQWLQL' FRQVWLWXHQW±± DWWULEXWLYH± VLPSOLFLW\RI VWUXFWXUH FRQYHQWLRQ DQGVWDQGDUGSUREDELOLW\WKHRU\ PHWULF &RRNH50 &UHDWK5[L± FUHGHQFH± DQGFRQILUPDWLRQ UDWLRQDO± FULWHULRQRIOLQJXLVWLFLQYDULDQFHWKH  &WLVHHFRQVWLWXHQW &ZVHHFRQVWLWXHQW

HPSLULFLVPFRQWLQXHG  ORJLFDO[L± HQWDLOPHQWSULQFLSOHWKH HQWUHQFKPHQW HSLVWpPH HSLVWHPRORJ\[ %D\HVLDQ[LLL HYROXWLRQDU\ QDWXUDOLVWLF HUJRGLFWKHRU\ (VVOHU:.± HYDOXDWLYHVWDQGDUG± DQGMXVWLILFDWLRQ DQGORJLF HSLVWHPLF±± ± PHWDOHYHO RUGLQDU\ HYLGHQFH±± ± ±± ± DFFXPXODWLRQRI $FKLQVWHLQRQ DFTXLVLWLRQ DQGEHOLHI DQGFRQGLWLRQDOL]DWLRQ DQGHSLVWHPLFUHVSRQVLELOLW\ DQGMXVWLILFDWLRQ DQGNQRZOHGJH DQGUDWLRQDOEHOLHI DQGVWUXFWXUH DQGWKHUDYHQVSDUDGR[ FKDQJH HPSLULFDO H[SOLFLW LQDGPLVVLEOH QHZ QRQGHGXFWLYH ROG SUREDELOLVWLF UHOHYDQW UXOHVRI V\QWKHWLF WRWDO±± DQGPHWKRGRORJ\ XQFHUWDLQ ZHLJKWRI

 'DFH\5[Y 'DYLGVRQ' 'H)LQHWWL%±  GHGXFLELOLW\ GHILQLWLRQ H[SOLFLW LPSOLFLW GHRQWRORJLVP 'HVFDUWHV5 'LULFKOHWGLVWULEXWLRQ± JHQHUDOL]DWLRQRI GLVTXRWDWLRQDOVFKHPDWKH GLVWULEXWLRQVWDWLVWLFDO GLVWULEXWLYHQRUPDOIRUPWKH 'RRE¶VEDVLFFRQYHUJHQFHWKHRUHP 'UHWVNH) 'XEXFV-3 'XPLWULX$

 (DUPDQ- (HOOV( HPSLULFLVP[LL DQGDQDO\WLFLW\ DQGORJLF[LL



,1'(;



 H[FKDQJHDELOLW\±±  SDUWLDO H[SHFWHGXWLOLW\ H[SODQDWLRQPRGHORI[L[LLL H[WHUQDOLVP± H[WUDORJLFDOFRQVWUDLQWVHHDVVXPSWLRQ

JHQHUDOL]DWLRQFRQWLQXHG  DQGDFFHSWDQFH DQGRUGHU DQGSDUDPHWHUĮ DQGVWDWHGHVFULSWLRQ KDVW\ LQGXFWLYH LQGXFWLYHMXVWLILFDWLRQRI QRPLF SRVLWLYHFRQILUPDWLRQ ]HURFRQILUPDWLRQ[LLL± ± JHRPHWU\±± DEVWUDFW DQGLGHDOL]DWLRQ DQGORJLFDOVWUXFWXUH DQGVXEVWDQWLYHWKHRU\± D[LRPV (XFOLGHDQ QRQ(XFOLGHDQ VXFFHVVRI *LOOLHV'$ *LQLGLYHUVLW\ *|GHO. *ROGPDQ$,[LL±±  *ROGVWLFN' *RRGPDQSDUDGR[WKH[[LLL ± DQGIRUPDOWKHRU\RIMXVWLILFDWLRQ DQG+XPH¶SUREOHP DQGLQGXFWLYHORJLF DQGPLQLPDOLVWMXVWLILFDWLRQ &DUQDSRQ± LQLWLDOYHUVLRQ *RRGPDQ1± *UD\OLQJ$&± *UREOHU$[Y JUXH± *UQEDXP$

 IDFWRU HPSLULFDO± OLQJXLVWLF ORJLFDOț±  )HLJO+± )HOGPDQ5± )HUJXVRQGLVWULEXWLRQ )HVWD5[Y±±  )LQH7±± ILQLWDU\SUHGLFDPHQWWKH ILQLWHYDULHW\DVVXPSWLRQWKH±  UHODWLYL]HG )LQQLVK6FKRROWKH[[L± ±  )LVDN-( ILWQHVV )RGRU- )ROH\5[LY IRXQGDWLRQDOLVP[LL± ±VHHMXVWLILFDWLRQ DQGHPSLULFLVP DQWL &KLVKROPLDQ IRUPDO ROG )UHJH* IUHTXHQWLVP )ULHGPDQ0[L )XOOHU6

 +D<: +DFNLQJ,±±  +DLOSHULQ7 +DMGXN=± +DOO1 +DUPDQ* +DXVPDQ$

 *DLIPDQ+ *DODYRWWL0& *HPHV. JHQHUDOLW\SUREOHPWKH JHQHUDOL]DWLRQ[LLL± ± DFFLGHQWDO



 

,1'(;

+HLGHOEHUJHU+ +HPSHO&*[L[LLL ±±±  +HUEXW-[Y +HVVH0[LLL +HWKHULQJWRQ6& +LOSLQHQ5[Y±± ±± +LQWLNND-[[L[LL±± ±±± ±±± ±±±±  +RJJ) +ROODQG-+ +RUZLFK3 +RVDFN- +RVLDVVRQ/LQGHQEDXP-± ± +RZVRQ& ±±  +XPEXUJ- +XPH'± +XPH¶VSUREOHP +XPSKUH\V3 K\SRWKHVLV WHVWLQJ

LQIHUHQFH DFWXDO DQGMXVWLILFDWLRQ DQGVWDWLVWLFDOV\OORJLVP DQGWKH*RRGPDQSDUDGR[ DQGWUDQVPLVVLRQRIMXVWLILFDWLRQ FRQWHQWRI GHGXFWLYH± HSLVWHPRORJLFDOIRXQGDWLRQ IDFWXDO IRUPRI IRXQGDWLRQRI LQGXFWLYH[± ±± MXVWLILFDWRU\ MXVWLILFDWRU\VWDWXV PXOWLQRPLDO QRQGHPRQVWUDWLYH SURFHVVRI SV\FKRORJLFDO UXOHRI UXOHRIGHWDFKPHQWWKH± VWDWLVWLFDO[L VWUXFWXUH ,QJDUGHQ5 LQWHUQDOLVP LQWXLWLRQLQGXFWLYH± DQGORJLF





-HIIUH\5&±± ± -HIIUH\V+± -RKQVRQ:(±± -RKQVRQ¶VSRVWXODWH± DQGORJLF MXVWLILFDWLRQL[± DQDO\WLF DQGEHOLHI DQGFRKHUHQFH DQGKROLVP DQGLGHDOL]DWLRQ DQGNQRZOHGJHL[ DQGORJLFDOFRQVHTXHQFH DQGQRQLQIHUHQWLDOEHOLHI DQGVFLHQFH DQGWUXWK± EHDUHURIL[[± FRPSDUDWLYH GLDFKURQLF

LGLRWVDYDQW LQGHSHQGHQFH DQGH[FKDQJHDELOLW\ DQGH[SHULPHQW ORJLFDO SUREDELOLVWLF± LQGH[RIFDXWLRQVHHSDUDPHWHU LQGXFLELOLW\ LQGXFWLRQ±± DQGDFFHSWDQFH DQGSUREDELOLW\ FRQFHSWRI FULWHULDRIDGHTXDF\± TXDOLWDWLYHWKHRU\RI TXDQWLWDWLYHWKHRU\RI±  UXOHVRI WKHFULWHULDRIDGHTXDF\ WKHSUHVXSSRVLWLRQYLHZRI



,1'(;



 MXVWLILFDWLRQFRQWLQXHG  GLUHFW HSLVWHPLFL[[LL±  H[SODQDWRU\ LQGXFWLYH LQIHUHQWLDO  LQWHUQDOLVW PHQWDOLVWLF[±[LY±± ±±±± ± PHWDOHYHO PHWKRGRORJLFDO PLQLPDOLVW[[LL±[LLL± ±± ±  PLQLPDOLVWVXEVWDQWLYH QHFHVVDU\DQGVXIILFLHQWFRQGLWLRQ  QHFHVVDU\FRQGLWLRQ[[L[LL  QRPLF[L±± QRQSUDJPDWLF SUDJPDWLF SURSRVLWLRQDO TXDOLWDWLYH TXDQWLWDWLYH±± TXLHWLVWLF[L±± UHOLDELOLVWFRQGLWLRQ VHPDQWLFDO VWUXFWXUDO VWUXFWXUDOO\VXEVWDQWLYH VWUXFWXUH VXEVWDQWLYH[L± VXIILFLHQWFRQGLWLRQ VXSHUYHQLHQW V\QFKURQLF V\QWKHWLFDSULRUL WKHRU\RIL[[±[LY±± ±± ± HSLVWHPRORJLFDOL[±[ UHOLDELOLVWL[±[

.DáXV]\ĔVND([Y .DQW, .DSODQ0 .DZDOHF3±  .HPHQ\-*±± .H\QHV-±±± .LP- .LVWOHU0 .LWFKHU3 .OD\PDQ- NQRZOHGJHL[VHH EDFNJURXQGNQRZOHGJH DQGEHOLHI DQGMXVWLILFDWLRQ DQGORJLFDOFORVXUH &KLVKROPRQ FRGLILFDWLRQRI GHILQLWLRQRI[LL[LLL±±  HPSLULFDO IDFWXDO JHQHUDO REMHFWLYH SULRU SUREDEOH VFLHQWLILF[LL WKHRU\RI± ± WRWDO ZLWKRXWEHOLHI NQRZOHGJHVWDWHV± HSLVWHPLFVWDWXV .QXXWWLOD6 .RM/[Y .ROPRJRURY$1 .RRSPDQ1 .RSSHOEHUJ' .RUQEOLWK+ .UDXVV3 .URQ])0 .XKQ7 .XLSHUV7$)[LLL[Y±± ± .XVFK0 .\EXUJ+(±± ±

 .DKDQH+ .DKQHPDQ' .DNNXUL.QXXWWLOD0/

 /DG\PDQ-



 

,1'(;

/DNDWRV, ODQJXDJH[LL±±± ± DQGLQGXFWLYHORJLF DQGLQWHUSUHWDWLRQ DQGORJLF DQGSKLORVRSK\ DQGSUDJPDWLFV DQGVFLHQFH DQGXQLILHGVFLHQFH DUWLILFLDO FRPSOH[ FRQVWUXFWLRQUXOHV GHJUHHRIH[SOLFLWQHVV HPSLULFDO HSLVWHPRORJLFDO IDPLO\RI IRUPDO JHQHUDO LGHDOO\FRKHUHQW LQWHQGHGLQWHUSUHWDWLRQ PHWDODQJXDJH REMHFWODQJXDJH RUGLQDU\XVDJHRI VLPSOH VLPSOLFLW\RI XQLILHG XQLTXH XVDJHRI ODQJXDJHV\VWHP±±  DQGOLQJXLVWLFLQYDULDQFH LQILQLWH RQHDGHTXDWH XOWLPDWH /DSODFH36GH± ODZOLNHQHVV /HKUHU.[LLL±±±   /HLEQL]*:± /HQ]-: /HSRUH( /HYL,± /HZLV&, /HZLV'± OLNHOLKRRG± /RFNH- /RHZHU%

ORJLF[LL± DQG DQGFRQFHSWXDOL]DWLRQ DQGHSLVWHPLFUROH DQGHSLVWHPRORJ\±  DQGMXVWLILFDWLRQ DQGPHWKRGRISKLORVRSKL]LQJ DQGSUDJPDWLFV DQGWKHRU\RIFRQFHSWV DSSOLHG GHGXFWLYHL[  ILUVWRUGHU± IRUPDO± KLJKHURUGHU LQGXFWLYHL[±[LL[LLL±±± ±±± ± DQGLQGXFWLYHLQWXLWLRQ DQGQXPEHUV DQGREMHFWLYLW\ DQGVWDWLVWLFDOLQIHUHQFH %D\HVLDQUHDGLQJRI[LL± ± LQWXLWLRQLVWLF PDWKHPDWLFDO QRQFRPPLWWDO V\PEROLF WKUHHYDOXHG WZRFRQFHSWVRI ORJLFDOFRQVWUXFWLRQ ORJLFLVP± ORWWHU\SDUDGR[WKH /XSHU6 /YRY:DUVDZ6FKRROWKH[ /\FDQ:

 àDNRPD( àRĞ- àXNDVLHZLF]-

 0DF4XHHQ-% 0DKHU3± 0DQQ:[LY 0DUFLV]HZVNL: 0DUNRYFKDLQ± XUQPRGHORI 0DUWLQ50



,1'(;



 0D]XUNLHZLF]6 PHDQLQJFULWHULRQRI[L PHDVXUH[LL±± VHHSUREDELOLW\ DGGLWLYH DQGGH)LQHWWLUHSUHVHQWDWLRQ DQGODZOLNHQHVV DQGORJLFDOUHODWLRQV DQGREMHFWLYHIRUP FRQWLQXRXV HIIHFWLYH IXQFWLRQ±±  DQGPRGHOV P ± P‚± UHJXODU V\PPHWULFDO± JOREDO /HEHVJXH QRQQHJDWLYH TXDQWLWDWLYH ıPHDVXUH PHDVXUHIXQFWLRQ UHJXODU PHQWDOVWDWHV[ PHWKRGRORJLFDOUXOHWKH PHWKRGRORJ\ DQGLQGXFWLYHORJLF PHWULF JOREDO PIXQFWLRQVHHPHDVXUHIXQFWLRQ 0LFKDORV$& 0LOO-6 0LOOHU' 0LOWRQ-5 0LVDN&[LLL 0LVHV5YRQ PRGHO DQGVSHFLILFDWLRQRIGRPDLQ 0RUWLPHU+ 0RXOLQHV&8[LLL PXOWLQRPLDOFRQWH[W± 0XUD$ 0XVJUDYH$

1LFROH3 1LLQLOXRWR,[Y±± ± 1LVEHWW( QRGLVWLQFWLRQSUREOHPWKH

 2¶'RQQHOO5 2EHUGDQ7 2 %ULHQ'3 RQWRORJLFDOFRPPLWPHQW RQWRORJ\ DQGLQGXFWLYHORJLF

 3DOOHU%7 SDUDGR[RIROGHYLGHQFHWKH SDUDGR[HVRIFRQILUPDWLRQ SDUDPHWHU± ±VHHIDFWRU DQGJHQHUDOL]DWLRQ DQGODZOLNHQHVV DQGVLQJXODUVHQWHQFH DQGWKHQHZSULQFLSDOSULQFLSOH LQWHUSUHWDWLRQRI RSWLPXP VXEMHFWLYHDVVHVVPHQW Į± LQWHUSUHWDWLRQRI ȕ Ȗ Ȝ±±±  LQWHUSUHWDWLRQRI SDUWLDOLPSOLFDWLRQ SDUWLWLRQ± 3DVFDO% 3DVWLQ0 SHUVRQDOLVP%D\HVLDQ SK\VLFV ODZV XOWLPDWH 3LFDUGL( 3LGJHRQ1 3LHWDULQHQ-±  3LWPDQ- 3ODQWLQJD$[LY 3ROORFN-±± 3RO\DXUQPRGHOV 3RSSHU.±

 1DJHO(± 1HNUDVDV( QHR.DQWLDQLVP



 

,1'(;

SRVLWLYHUHOHYDQFH± SRVVLEOHZRUOG±± SUDJPDWLFV &DUQDSRQ SULQFLSDOSULQFLSOHWKH± DQGHSLVWHPRORJ\ LQWHUSUHWDWLRQRI QHZ SULQFLSOHRILQGLIIHUHQFHWKH± ± SULQFLSOHRILQLWLDOSRVVLELOLW\WKH SULQFLSOHRIRUGHULQGLIIHUHQFHWKH SULQFLSOHRIUHVWULFWHGUHOHYDQFHWKH±  SULQFLSOHRIXQLIRUPLW\RIQDWXUHWKH SUREDELOLWDV SUREDELOLW\[± DSRVWHULRUL DSULRUL[LLL DQG³JXLGHWROLIH´ DQGFRQWLQJHQWWUXWK DQGJDPEOLQJ DQGMXVWLILFDWLRQRID[LRPV DQGMXVWLILFDWLRQRIH[WUDD[LRPV  DQGORJLF DQGPHWDLQGXFWLYHMXVWLILFDWLRQ DQGV\PPHWU\ DQGXQFHUWDLQW\ D[LRPV FODVVLFDOFRQFHSWRI FRPSDUDWLYH FRQGLWLRQDO GHJUHHVRI HPSLULFDO HTXDO H[SOLFDQGXP H[SOLFDWXP± H[WUDD[LRPV IUHTXHQF\LQWHUSUHWDWLRQRI JHQXLQH K\SHUSULRU LQGXFWLYH LQQRFHQW LQWHUSUHWDWLRQVRI± LQWHUVXEMHFWLYH ORJLFDO±±± ± PHDVXUH

SUREDELOLW\FRQWLQXHG  REMHFWLILFDWLRQ REMHFWLYH[LLL±±  SHUVRQDO SK\VLFDO± SUHGLFWLYH± SULRU± ±±  TXDQWLWDWLYH VSDFH VWDQGDUGD[LRPV±±±  VXEMHFWLYH[LLL VZDPSLQJSULRUV V\QWKHWLF WKHRU\RI[L± ± WRWDO WZRFRQFHSWVRI±  XQFRQGLWLRQDO XQLIRUP SURMHFWLRQ± SURSHQVLW\ 3U]HáĊFNL0 3VLOORV6 3XWQDP+

 4SUHGLFDWH±± ± 4VHW TXDQWLILHUXQLYHUVDO PHDQLQJLQODQJXDJHV\VWHP 4XLQH:9±

 5DELQRZLF]:[Y 5DPVH\)3 UDQJHRIVHQWHQFHV ±±  DQGGHJUHHRIFRQILUPDWLRQ DQGQRUPDOIRUP 5DQWDOD9 UDWLRQDOLVP SUREDELOLVWLF UDWLRQDOLW\G\QDPLF UDYHQVSDUDGR[WKH DQGLQGXFWLYHORJLF



,1'(;



 UDYHQVSDUDGR[WKHFRQWLQXHG  +LQWLNNDRQ UHDOLVP SV\FKRORJLFDO VWUXFWXUDO UHDVRQLQJ GHGXFWLYH LQGXFWLYH SURFHVVRI UHFXUVLYHFODXVH[LL VWUXFWXUDO± 5HGKHDG0 UHJXODULW\ FUHJXODULW\ PUHJXODULW\ 5HLFKHQEDFK+ UHODWLYHIUHTXHQF\± ± HVWLPDWLRQRI WKHOLPLWRI UHOLDELOLVP[LLL± &DUQDSRQ NLQGVRI PHQWDOLVWLF SURFHVV[LL± VWUXFWXUDOL[±[LLL±± ±±± ± DQGEHOLHI DQGMXVWLILFDWLRQ DQGVXEMHFWLYH%D\HVLDQLVP DQGWKH*RRGPDQSDUDGR[ DQGWKHRU\RINQRZOHGJH UHSUHVHQWDWLRQWKHRUHP UHTXLUHPHQWRIFRPSOHWHQHVVWKH 5LFKDUGVRQ$ 5LQJ( 5RGULJXH]$5 5RRUGD- 5RUW\5 5RVHQNUDQW]5'± UXOHRIKLJKSUREDELOLW\± JHQHUDOL]HG± UXOHRILQYDULDQFH UXOHRIVXFFHVVLRQ 5XVVHOO% 5\QLQ0[LLL

6DOPRQ:&[L[LLL[Y± ± ±±±  VDPSOHVSDFH 6DUNDU6 6DYDJH/- 6FKLFN)± 6FKOLFN0 VFLHQFH DFWXDO DQGDSULRULFDWHJRUL]DWLRQ± DQGGHFLVLRQV DQGMXVWLILFDWLRQ DQGSURJUHVV DQGVXEMHFWLYLW\± HPSLULFDO IRUPDO LQFRPSOHWH± ORJLFDODQDO\VLVRI PDWXUH VXFFHVVRI± XOWLPDWH XQLILHGL[ 6FRPSXWDWLRQDOFRQVHTXHQFH± 6FRWW' 6HOODUV:± VHPDQWLFV± DQGLQGXFWLYHORJLF DQGORJLF IRUPDO ORJLFDO SRVVLEOHZRUOG VHPLRWLFV GHVFULSWLYH ORJLFDO VHQWHQFH DQDO\WLFDO DQGFRPSOHWHFKDUDFWHULVWLFV DQGLGHDOL]DWLRQ DQGLVRPRUSKLVP DQGODQJXDJHHPEHGGHGVWUXFWXUH DQGORJLFDOVWUXFWXUH DQGPHDVXUH DQGQXPHULFDOYDOXH DQGSUREDELOLW\ DQGSURSRVLWLRQ DQGSURSRVLWLRQDODWWLWXGH DQGUHOLDELOLW\

 

 

,1'(;

VHQWHQFHFRQWLQXHG  DQGVWDWHRIDIIDLUV DQGXQLTXHFKDUDFWHULVWLFV DWRPLF EDVLF± FRQWHQWRI HSLVWHPLFVWDWXVRI  IDFWXDO IRUPDWLRQ KLJKHURUGHU MXVWLILFDWRU\UHODWLRQ MXVWLILFDWRU\VWDWXV NLQGVRI PHDVXUHRQ PHWDOHYHO VFLHQWLILF±±  VLQJXODU±± DFFHSWDQFHRI VWUXFWXUHRI V\QRQ\PRXV WUXHLQVWDWHGHVFULSWLRQ 6KLPRQ\$± 6KRHPDNHU66 6LHJHO+ 6LQWRQHQ0 6N\UPV%[LLL±± ±±  6PRNOHU+± 6QLU0 6REHU( 6RVD(±  VSHFLDOYDOXH±± DQGSUHGLFWLYHSUREDELOLW\ 6SRKQ: 6WDQRYLFK.( VWDWHRIDIIDLUV VWDWHGHVFULSWLRQ±± ± DQGFKDUDFWHULVWLFIXQFWLRQ DQGFRQVWLWXHQW DQGLVRPRUSKLVP DQGORJLFDOLQGHSHQGHQFH DQGPHDVXUH DQGQRUPDOIRUP DQGSRVVLEOHZRUOG

VWDWHGHVFULSWLRQFRQWLQXHG  DQGSULRUSUREDELOLW\ DQGVLQJXODUVHQWHQFH DQGWUXWK JHQHUDOL]DWLRQRI LQFRQVLVWHQW VWDWLVWLFV DQGLQGXFWLYHORJLF %D\HVLDQ± FODVVLFDO 6WHJPOOHU: 6WLFK63 VWRFKDVWLFSURFHVV VWUHQJWK 6WURXG% VWUXFWXUH DEVWUDFW DQGJHRPHWU\ DQGLQGXFWLYHORJLF DQGNQRZOHGJH DQGODQJXDJH DQGODQJXDJHV\VWHP DQGORJLFDOUHODWLRQV DQGPDWKHPDWLFDOFHUWDLQW\ DQGREMHFWLYH%D\HVLDQLVP DQGSRVVLEOHZRUOG DQGVFLHQFH DQGVXEVWDQWLYHMXVWLILFDWLRQ DQGWUDVPLVVLRQRIMXVWLILFDWLRQ FRQFHSWXDO FRQWH[WIUHH IRUPDO LQIHUHQWLDO MXVWLILFDWRU\ ODQJXDJHHPEHGGHG±±  DQGORJLF ORJLFDO[LL±  ORJLFRPDWKHPDWLFDO REMHFWLYH TXDQWLWDWLYH UHODWLRQDO VXSHUYHQLHQFHRQ V\PPHWU\RI VWUXFWXUHGHVFULSWLRQ±±  DQGSUREDELOLW\ DQGV\PPHWU\



,1'(;



 VXIILFLHQWQHVV±±  6XSSHV3± 6ZDLQ0 6ZLQEXUQH5± V\OORJLVPVWDWLVWLFDO± DQGGHGXFWLYHDUJXPHQW DQGPRGDOTXDOLILFDWLRQ DQGWRWDOHYLGHQFH SDUDGR[ V\PPHWU\±± ± DQGEHOLHI± DQGSUHGLFWRU¶VEHOLHI FV\PPHWU\ PV\PPHWU\ V\VWHPVHHORJLFLQGXFWLYH DQDO\WLFDO DQGDQDORJ\ DQG%D\HVLDQLVP DQGFRKHUHQWLVP DQGFRQWLQXXPRIFRQILUPDWLRQ IXQFWLRQV DQGFRQYHQWLRQ DQGGHGXFWLYHORJLF DQGGLVWULEXWLYHQRUPDOIRUP DQGHSLVWHPRORJ\ DQGHYDOXDWLYHVWDQGDUG DQGIRXQGDWLRQDOLVP DQGJHRPHWU\ DQGLQWHUQDOLVP DQGMXVWLILFDWLRQ DQGORJLF DQGORJLFROLQJXLVWLFVWUXFWXUH DQGPRGHO DQGQHZFDWHJRULHV DQGRUGHUUHODWLRQV DQGUXOHRIDFFHSWDQFH DQGVHPDQWLFV DQGVHWWKHRU\ DQGVSHFLDOYDOXH DQGVWDWHGHVFULSWLRQ DQGWKHSULQFLSOHRIXQLIRUPLW\RI QDWXUH DQGWLPHRUGHULQJ DQGWUXWK DQGYDOXHFRQWLQXXP DQG]HURFRQILUPDWLRQ D[LRPDWLF±

V\VWHPFRQWLQXHG  GHYHORSPHQWRI HSLVWHPRORJLFDOLVVXHV ILQLWH K\SHU&DUQDSLDQ LQLWLDOYHUVLRQ PL[HGZLWKDSSOLFDWLRQ RSWLPXP± SUHD[LRPDWLF VHPDQWLFDO WKHEHVWV\VWHP YHUVLRQVRI± ĮȜV\VWHP±±  ȖƒȜV\VWHP ȖȜV\VWHP±  ȜV\VWHP±± 

 7DUVNL$ WHUP HSLVWHPLF[LY±  QRQHSLVWHPLFL[[LY± ± SUDJPDWLF± SULPLWLYH TXDQWLWDWLYH VHPDQWLFDO  VWUXFWXUDO[L± V\QWDFWLFDO 7KLHO& 7KRP5 WLPHRUGHULQJ DQG%D\HVLDQLVP DQGLQGXFWLYHORJLF± 7RXOPLQ6 WUDQVODWLRQVWUXFWXUDO± WUXWK DEVROXWH DQDO\WLF FRQWLQJHQW GHILQLWLRQRI GHJUHHRISRVVLELOLW\RI LQPRGHO ORJLFDO QHFHVVDU\



 

,1'(;

WUXWKFRQWLQXHG  VHPDQWLFDOFRQFHSWRI 7DUVNL¶VGHILQLWLRQRI 7XRPHOD5 7YHUVN\$ 7ZDUGRZVNL.

 8FKLL6 8UEDFK3 

 YDJXHQHVV YDOXHFRQWLQXXP± 9HQQ- YHULILFDWLRQ[L YHULVLPLOLWXGH 9RLVKYLOOR(. YRQ3ODWR-

 :DJQHU&* :DON. :DONHU(5[LLL :DWW'( :HLU$ :HVW)5 :LOOLDPV' :LOOLDPV'& :LOOLDPVRQ7 :LOVRQ) :LWWJHQVWHLQ/ :RUUDOO- :ROHĔVNL- :yMFLFNL5[LLL±[Y±  :ULJKW*+YRQ

 =DEHOO6[Y±±±