5(&200(1'(' )25 )8//7(;7 38%/,&$7,21 3XUVXDQW WR 6L[WK &LUFXLW 5XOH $PHULFDQ(OHF3RZHU&R 1R (/(&7521,& &,7$7,21 )(' $SS 3 WK &LU ,QFHWDOY8QLWHG6WDWHV )LOH 1DPH DS :DONHU sRKQVRQ sHDQ 0DOH %D[OH\ 67(372( 81,7('67$7(6&28572)$33($/6 s2+1621:DVKLQJWRQ'&5DQGROSK&DUVRQ:LVHPDQ %5,&.(5 (&./(5 &ROXPEXV 2KLR IRU $SSHOODQWV )257+(6,;7+&,5&8,7 'HQQLV 0 'RQRKXH $OH[ ( 6DGOHU 5LFKDUG )DUEHU BBBBBBBBBBBBBBBBB 81,7(' 67$7(6 '(3$570(17 2) s867,&( 7$; ',9,6,21:DVKLQJWRQ'&sDPHV'+LOO,17(51$/ 5(9(18( 6(59,&( 2)),&( 2) &+,() &2816(/ &LQFLQQDWL 2KLR IRU $SSHOOHH %HUQDUG s /RQJ '2: $0(5,&$1 (/(&75,& 32:(5 ; /2+1(6 $/%(57621:DVKLQJWRQ'&5DM0DGDQ &203$1< ,1&HWDO 5LFKDUG&6WDUNsRKQ%0DJHH*HUDOG*ROGPDQ0F.(( 3ODLQWLIIV$SSHOODQWV 1(/621//3:DVKLQJWRQ'&IRU$PLFL&XULDH 1R *,/0$1sGHOLYHUHGWKHRSLQLRQRIWKHFRXUWLQZKLFK Y ! &2/( s MRLQHG 1(/621 s SS GHOLYHUHG D VHSDUDWHFRQFXUULQJRSLQLRQ 81,7(' 67$7(6 2) $0(5,&$ 'HIHQGDQW$SSHOOHH BBBBBBBBBBBBBBBBB 1 23,1,21 BBBBBBBBBBBBBBBBB $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW IRUWKH6RXWKHUQ'LVWULFWRI2KLRDW&ROXPEXV 521$/' /(( *,/0$1 &LUFXLW sXGJH $PHULFDQ 1RV nsDPHV/*UDKDP (OHFWULF 3RZHU &RPSDQ\ ,QF $(3 LPSOHPHQWHG D 'LVWULFWsXGJH FRUSRUDWHRZQHG OLIH LQVXUDQFH &2/, SODQ LQ WKDW FDXVHGLWWRSXUFKDVHSROLFLHVRQWKHOLYHVRIRYHURI $UJXHG 0DUFK LWV HPSOR\HHV ,Q $(3 GHGXFWHG IURP LWV IHGHUDO LQFRPHWD[DSSUR[LPDWHO\PLOOLRQLQLQWHUHVWGXHRQORDQV 'HFLGHGDQG)LOHG $SULO PDGHDJDLQVWWKHSROLFLHV7KH,56GLVDOORZHGWKHGHGXFWLRQ DQGDVVHVVHG$(3ZLWKDQDGGLWLRQDOPLOOLRQLQWD[HVIRU %HIRUH 1(/621&2/(DQG*,/0$1&LUFXLWsXGJHV WKH \HDU LQ TXHVWLRQ $(3 SDLG WKH DGGLWLRQDO WD[ XQGHU SURWHVW DQGWKHQVXHGIRUDUHIXQGLQIHGHUDOGLVWULFWFRXUW BBBBBBBBBBBBBBBBB $IWHU D VL[ZHHN EHQFK WULDO WKH GLVWULFW FRXUW JUDQWHG MXGJPHQW LQ IDYRU RI WKH JRYHUQPHQW )RU WKH UHDVRQV VHW &2816(/ IRUWKEHORZZH$)),50WKHMXGJPHQWRIWKHGLVWULFWFRXUW $5*8(' $UWKXU / %DLOH\ 67(372( s2+1621 :DVKLQJWRQ '& IRU $SSHOODQWV 'HQQLV 0 'RQRKXH 81,7(' 67$7(6 '(3$570(17 2) s867,&( 7$; ',9,6,21:DVKLQJWRQ'&IRU$SSHOOHH21%5,() $UWKXU / %DLOH\ sDPHV 3 +ROGHQ 6XVDQ + 6HUOLQJ s 1R $PHULFDQ(OHF3RZHU&R $PHULFDQ(OHF3RZHU&R 1R ,QFHWDOY8QLWHG6WDWHV ,QFHWDOY8QLWHG6WDWHV ,%$&.*5281' 7KHQHWHTXLW\RI$(3jV&2/,SODQZDVEDVHGXSRQWKH SROLF\YDOXHPLQXVSROLF\ORDQVDQGDFFUXHGLQWHUHVW$(3jV $ )DFWXDOEDFNJURXQG SODQ RSHUDWHG VR WKDW ZKDWHYHU FDVK ZDV SDLG LQ DW WKH EHJLQQLQJRIWKH\HDUZDVXVHGXSE\WKH\HDUjVHQG$WWKH $(3SXUFKDVHGD&2/,SODQRIIHUHGE\0XWXDO%HQHILW/LIH HQGRIHDFK\HDUWKHUHIRUHWKH&2/,SODQKDGDQHWHTXLW\RI ,QVXUDQFH &RPSDQ\ 0%/ LQ %\ YLUWXH RI D ]HUR UHLQVXUDQFH WUDQVDFWLRQ +DUWIRUG /LIH ,QVXUDQFH &RPSDQ\ UHSODFHG0%/DVWKHSULPDU\LQVXUHULQ )RUVLPSOLFLW\ 7KHSODQZDVDOVRGHVLJQHGWRHQVXUHmPRUWDOLW\QHXWUDOLW\l ERWKFRPSDQLHVZLOOKHUHDIWHUEHUHIHUUHGWRDV0%/ 7KH 7KLVPHDQWWKDWQHLWKHU$(3QRU0%/UHDVRQDEO\H[SHFWHGWR SODQFRQVLVWHGRIOLIHLQVXUDQFHSROLFLHVRQRYHU$(3 SURILWRYHUWKHOLIHRIWKHSODQEHFDXVHRIWKHGHDWKRI$(3 HPSOR\HHV$(3ZDVWKHQDPHGEHQHILFLDU\RQDOORIWKHVH HPSOR\HHV7RDFKLHYHWKLVHTXLOLEULXPmFRVWRILQVXUDQFH SROLFLHV(DFKSROLF\KDGDIL[HGDQQXDOSUHPLXPRI FKDUJHVl LQFUHDVHG LI PRUH HPSOR\HHV GLHG WKDQ ZHUH WKHVLJQLILFDQFHRIZKLFKLVH[SODLQHGLQ3DUW,,$EHORZ H[SHFWHG DQG LI H[SHULHQFH SURYHG WKH RSSRVLWH WKH LQVXUDQFHFRPSDQ\SDLG$(3mPRUWDOLW\GLYLGHQGVl 7KHSODQXWLOL]HGDQLQWULFDWHIXQGLQJPHFKDQLVP2QWKH ILUVWGD\RIHDFKRIWKHILUVWWKUHHSROLF\\HDUVWZRILQDQFLDO 7KH&2/,SODQDIIRUGHG$(3WKHRSSRUWXQLW\WRDQQXDOO\ WUDQVIHUVWRRNSODFHVLPXOWDQHRXVO\7KHILUVWZDVWKHWRWDO VHOHFWIURPDPHQXRIRSWLRQVWKHLQWHUHVWUDWHWKDWLWZRXOG SUHPLXPSDLGE\$(3 DQDPRXQWLQH[FHVVRIPLOOLRQ SD\0%/RQWKHSROLF\ORDQV$(3DOZD\VSLFNHGRQHRIWKH ZKLFK0%/FUHGLWHGWRWKHmSROLF\YDOXHl m3ROLF\YDOXHl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mQHWWLQJWUDQVDFWLRQlUHVXOWHGLQ$(3DFWXDOO\ WR$(3ZDVRQO\WKHRQHSHUFHQWGLIIHUHQWLDOEHWZHHQZKDW SD\LQJ0%/WKHJUHDWO\UHGXFHGVXPRIPLOOLRQ $(3SDLG0%/DVLQWHUHVWRQWKHSROLF\ORDQVDQGZKDW0%/ FUHGLWHGEDFNWR$(3LQWKHIRUPRImLQWHUHVWlRQWKHSROLF\ $GLIIHUHQWQHWWLQJWUDQVDFWLRQRFFXUUHGRQWKHILUVWGD\RI YDOXH HDFK RI WKH QH[W IRXU SROLF\ \HDUV $(3 SDLG WKH IXOO SUHPLXP EXW 0%/ DSSOLHG RQO\ DERXW SHUFHQW RI WKH 7KHLQWHUHVWUDWHFRPSRQHQWRI$(3jV&2/,SODQZDVRQO\ SUHPLXPWRLQFUHDVHWKHSROLF\YDOXH,WWRRNWKHUHPDLQGHU RQHRIPDQ\SURYLVLRQVGHVLJQHGWRH[SORLWFHUWDLQDVSHFWVRI DV DQ mH[SHQVH FKDUJHl 0%/ WKHQ UHWXUQHG WR $(3 WKH,QWHUQDO5HYHQXH&RGH ,5& WKHQ LQ HIIHFWZKLFKDUH DSSUR[LPDWHO\ SHUFHQWRIWKHDPRXQWWDNHQDVDQH[SHQVH GLVFXVVHGLQ3DUW,,$EHORZ$(3IXOO\XQGHUVWRRGWKDWWKH FKDUJHDVDmORDGLQJGLYLGHQGl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mLWLVSDWHQWWKDWWKHUH>LV@QRWKLQJRIVXEVWDQFHWR $ EHQFK WULDO FRPPHQFHG LQ 2FWREHU RI DQG EHUHDOL]HGE\>WKHWD[SD\HU@IURP>D@WUDQVDFWLRQEH\RQGDWD[ FRQFOXGHG WZR PRQWKV ODWHU %RWK VLGHV ILOHG SURSRVHG GHGXFWLRQl WKH GHGXFWLRQ LV QRW DOORZHG GHVSLWH WKH ILQGLQJV RI IDFW DQG SRVWWULDO PHPRUDQGD ,Q )HEUXDU\ RI WUDQVDFWLRQj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mDOO LQWHUHVW SDLG RU >W@KHSURSHUVWDQGDUGLQGHWHUPLQLQJLIDWUDQVDFWLRQLVD DFFUXHG ZLWKLQ WKH WD[DEOH \HDU RQ LQGHEWHGQHVVl ,5& VKDP LV ZKHWKHU WKH WUDQVDFWLRQ KDV DQ\ SUDFWLFDEOH D %XWVSHFLDOUXOHVDSSO\WROLIHLQVXUDQFH,Q HFRQRPLFHIIHFWVRWKHUWKDQWKHFUHDWLRQRILQFRPHWD[ ,5& D SURYLGHGWKDWZLWKFHUWDLQH[FHSWLRQVQR ORVVHV$WD[SD\HUjVVXEMHFWLYHEXVLQHVVSXUSRVHDQGWKH GHGXFWLRQZDVSHUPLWWHGIRUmDQ\DPRXQWSDLGRUDFFUXHGRQ WUDQVDFWLRQjV REMHFWLYH HFRQRPLF VXEVWDQFH PD\ EH LQGHEWHGQHVVLQFXUUHGRUFRQWLQXHGWRSXUFKDVHRUFDUU\OLIH UHOHYDQWWRWKLVLQTXLU\ LQVXUDQFH SXUVXDQW WR D SODQ RI SXUFKDVH ZKLFK FRQWHPSODWHVWKHV\VWHPDWLFGLUHFWRULQGLUHFWERUURZLQJRI 5RVHY&RPPjU)G WK&LU FLWDWLRQV SDUWRUDOORIWKHLQFUHDVHVLQWKHFDVKYDOXHRIVXFKFRQWUDFW RPLWWHG l6HFWLRQ F GHOLQHDWHGWKHH[FHSWLRQUHOHYDQWWR $(3jV&2/,SODQ DGHGXFWLRQZDVDOORZHGmLIQRSDUWRIRI 7KHGLVWULFWFRXUWGHFLGHGWKDW$(3jV&2/,SODQZDVDQ WKHDQQXDOSUHPLXPVGXHGXULQJWKH\HDUSHULRG EHJLQQLQJ HFRQRPLFVKDP,WVILQGLQJVRIIDFWRQWKLVLVVXHDUHUHYLHZHG ZLWKWKHGDWHWKHILUVWSUHPLXPRQWKHFRQWUDFWWRZKLFKVXFK XQGHUWKHmFOHDUO\HUURQHRXVlVWDQGDUG5LQNY&RPPjU SODQUHODWHVZDVSDLG LVSDLGXQGHUVXFKSODQE\PHDQVRI )G WK&LU %XWWKHVWDQGDUGRIUHYLHZIRU LQGHEWHGQHVVl,QDQ\FDVH D FDSSHGWKHLQWHUHVW WKHXOWLPDWHFRQFOXVLRQnVKDPRUQRVKDPnLVQRWDVFOHDU WKDWFRXOGEHGHGXFWHGRQLQGHEWHGQHVVLQFXUUHGWRSXUFKDVH 7KHJRYHUQPHQWDVVHUWVWKDWWKHXOWLPDWHFRQFOXVLRQLVDOVR OLIHLQVXUDQFHDWRILQGHEWHGQHVVSHULQVXUHGOLIH VXEMHFW WR WKH FOHDUO\ HUURQHRXV VWDQGDUG RI UHYLHZ FLWLQJ 5DWOLII Y &RPPLVVLRQHU )G WK &LU $(3jV&2/,SODQRQLWVIDFHILWVQHDWO\ZLWKLQWKHRI VWDWLQJ WKDW m>W@KHUH LV RQH LVVXH SUHVHQWHG LQ WKLV FDVH VDIHKDUERUUXOH2QO\LQWKHILUVWWKUHH\HDUVRIWKHSODQZHUH ZKHWKHUWKH7D[&RXUWHUUHGLQFRQFOXGLQJWKDWWKHVWUDGGOH SUHPLXPVILQDQFHGWKURXJKSROLF\ORDQV$QGEHFDXVHWKH WUDQVDFWLRQV HQJDJHG LQ E\ WKH WD[SD\HUV ZHUH µVKDPV LQ SUHPLXPVZHUHIL[HGDWWKHSROLF\ORDQVWKURXJKWKH 1R $PHULFDQ(OHF3RZHU&R $PHULFDQ(OHF3RZHU&R 1R ,QFHWDOY8QLWHG6WDWHV ,QFHWDOY8QLWHG6WDWHV VXEVWDQFHjlDQGWKHQDVVHUWLQJWKDWmWKHGHWHUPLQDWLRQRIWKH 7KHGLVWULFWFRXUWIRXQGWKDWDEVHQWWKHSROLF\ORDQLQWHUHVW 7D[ &RXUW LV ELQGLQJ RQ WKH DSSHOODWH FRXUW XQOHVV FOHDUO\ GHGXFWLRQV$(3ZRXOGORVHDVXEVWDQWLDODPRXQWRIPRQH\ HUURQHRXVl RQLWV&2/,SODQ EXWZLWKWKHGHGXFWLRQV$(3VWRRGWRJDLQ SRVLWLYHFDVKIORZHYHU\\HDU$P(OHF3RZHU,QFY8QLWHG 7KLV FRXUW KRZHYHU KDV VXEVHTXHQWO\ UHDG 5DWOLII DV 6WDWHV ) 6XSS G 6' 2KLR PHDQLQJWKDWmWKHOHJDOVWDQGDUGDSSOLHGE\WKH7D[&RXUWDQG 0RUHRYHUWKHGLVWULFWFRXUWIRXQGWKDWmWKHRSSRUWXQLW\IRU LWV OHJDO FRQFOXVLRQV EDVHG XSRQ LWV ILQGLQJV RI IDFW DUH WD[DUELWUDJHZDVWKHUHDOPRWLYDWLRQIRU$(3jVSXUFKDVH UHYLHZHGGHQRYRl6PLWKY&RPPjU )G RIWKH&2/,SROLFLHVl,GDW7KH&2/,SODQWKXVEHDUV WK&LU FLWLQJ5DWOLII)GDW 5HO\LQJRQ WKHKDOOPDUNVRIDQHFRQRPLFVKDP 6PLWK $(3 FRQWHQGV WKDW GH QRYR UHYLHZ RI WKH GLVWULFW FRXUWjVXOWLPDWHGHWHUPLQDWLRQLVDSSURSULDWH%H\RQGWKHLU $(3 FRQWHQGV KRZHYHU WKDW :RRGVRQ7HQHQW DUJXPHQWVDQGWKHDERYHFLWDWLRQVWKHSDUWLHVGRQRWSURYLGH /DERUDWRULHV,QFY8QLWHG6WDWHV)G WK&LU DQ\ DGGLWLRQDO JXLGDQFH FRQFHUQLQJ WKH SURSHU VWDQGDUG RI GLFWDWHV D FRQWUDU\ FRQFOXVLRQ :H GLVDJUHH 7KLV UHYLHZ FRXUWLQ:RRGVRQ7HQHQWIRXQGWKDWWKHWZRFRUSRUDWHRZQHG OLIH LQVXUDQFH SROLFLHV RQ NH\ HPSOR\HHV KDG HFRQRPLF 6PLWKGRHVVHHPWRDGRSWDVWUDLQHGUHDGLQJRI5DWOLIIDQG VXEVWDQFH 8QGHU WKRVH SROLFLHV WKH FRPSDQ\ FRXOG KDYH m>D@ SDQHO RI WKLV >F@RXUW FDQQRW RYHUUXOH WKH GHFLVLRQ RI UHDOL]HGDVXEVWDQWLDOPRUWDOLW\JDLQLILWVNH\HPSOR\HHVGLHG DQRWKHUSDQHOl6DOPLY6HFj\RI+HDOWK +XPDQ6HUYV SUHPDWXUHO\ ,Q FRQWUDVW WKH PRUWDOLW\QHXWUDO GHVLJQ RI )G WK&LU %XWWKHVWDQGDUGRIUHYLHZ $(3jV &2/, SODQ HOLPLQDWHG WKLV SRVVLELOLW\ :RRGVRQ DQQRXQFHGLQ6PLWKLVFOHDUO\FRUUHFWJLYHQWKDWWKH6XSUHPH 7HQHQWLVWKHUHIRUHLQDSSRVLWH &RXUW KDV VWDWHG WKDW m>W@KH JHQHUDO FKDUDFWHUL]DWLRQ RI D WUDQVDFWLRQIRUWD[SXUSRVHVLVDTXHVWLRQRIODZl)UDQN $(3 DOVR UHOLHV XSRQ 8QLWHG 6WDWHV Y &RQVXPHU /LIH /\RQ&RY8QLWHG6WDWHV86Q ,QVXUDQFH&R86 ,Q&RQVXPHU/LIHWKH %HFDXVH 5DWOLII GLG QRW VSHFLILFDOO\ KROG WKDW WKH XOWLPDWH 6XSUHPH &RXUW KHOG WKDW D UHLQVXUDQFH DJUHHPHQW EHWZHHQ TXHVWLRQRIZKHWKHUDWUDQVDFWLRQLVDVKDPLVWREHUHYLHZHG WZRLQVXUDQFHFRPSDQLHVZKLFKLQFOXGHGDSURYLVLRQWKDWWKH XQGHU WKH FOHDUO\ HUURQHRXV VWDQGDUG DOWKRXJK RQH RI LWV UHLQVXUHUZRXOGHYHQWXDOO\UHFRXSWKHDPRXQWLWSDLGRXWRQ SDUHQWKHWLFDOFLWDWLRQVGLGVRVWDWH DQGEHFDXVH)UDQN/\RQ FODLPV WKURXJK mH[SHULHQFH UHIXQGVl IURP WKH SULPDU\ LQGLFDWHVWKDWUHYLHZVKRXOGEHGHQRYRZHZLOOIROORZ6PLWK LQVXUHUKDGHFRQRPLFVXEVWDQFH,GDW:HDJUHHEXW 7KHGLVWULFWFRXUWjVFRQFOXVLRQWKDW$(3jV&2/,SODQZDVD VLPSO\ILQGDZRUOGRIGLIIHUHQFHEHWZHHQKDYLQJDmPRUWDOLW\ VKDPLVWKHUHIRUHVXEMHFWWRGHQRYRUHYLHZ QHXWUDOLW\l SURYLVLRQ RU LWV HTXLYDOHQW LQ D UHLQVXUDQFH DJUHHPHQWEHWZHHQWZRLQVXUDQFHFRPSDQLHVDVRSSRVHGWR :HQRZWXUQWRWKHPHULWVRIWKHFDVHm7KHPDLQQRQWD[ KDYLQJ VXFK D SURYLVLRQ LQ DQ DJUHHPHQW EHWZHHQ DQ EHQHILWVLQVXUDQFHSODQVJHQHUDOO\RIIHUDUHPRUWDOLW\JDLQVWR LQVXUDQFHFRPSDQ\DQGWKHLQVXUHG0RUWDOLW\JDLQVWRWKH WKH EHQHILFLDU\ ZKR GRHV QRW SD\ WD[ RQ SURFHHGV DQG EHQHILFLDU\DIWHUDOODUHRQHRIWKHPDLQQRQWD[EHQHILWVLI LQWHUHVWIUHH LQVLGH EXLOGXS >WKH DFFUXDO RI LQWHUHVW RQ WKH QRW WKH PDLQ QRQWD[ EHQHILW WKDW PRWLYDWHV FRQVXPHUV WR SROLF\YDOXH@l,QUH&0+ROGLQJV)G G&LU SXUFKDVHOLIHLQVXUDQFHSROLFLHV,QUH&0+ROGLQJV)G $(3ZDVXQDEOHWRUHDOL]HHLWKHUEHQHILWRQLWV&2/, DW:HWKHUHIRUHILQG$(3jVUHOLDQFHRQ&RQVXPHU/LIH SODQKRZHYHUEHFDXVHWKHSODQZDVPRUWDOLW\QHXWUDODQGKDG XQSHUVXDVLYH ]HURQHWHTXLW\DWWKHHQGRIHDFKSROLF\\HDU 1R $PHULFDQ(OHF3RZHU&R $PHULFDQ(OHF3RZHU&R 1R ,QFHWDOY8QLWHG6WDWHV ,QFHWDOY8QLWHG6WDWHV 6LPLODUUHDVRQLQJOHDGVXVWRUHMHFW$(3jVDUJXPHQWWKDW GLG QRW FUHDWH WKHP IURP WKLQ DLU WKH EXVLQHVV RI EHFDXVHmHDFKLQGLYLGXDO&2/,SROLF\WUDQVIHUVULVNDQGKDV SXWWLQJVRODUZDWHUKHDWHUVRQKRPHRZQHUVjURRIVZDV HFRQRPLFVXEVWDQFHlWKH&2/,SODQDVDZKROHPXVWKDYH JHQXLQH DQG WKHEXVLQHVVFRQVHTXHQFHVRIDULVHRU HFRQRPLFVXEVWDQFH(DFKLQGLYLGXDO&2/,SROLF\GLGLQIDFW IDOO LQ HQHUJ\ SULFHV DQG VRODU HQHUJ\ GHYLFHV ZHUH WUDQVIHUULVNDQGWKHUHE\KDYHHFRQRPLFVXEVWDQFHDVZDVWKH JHQXLQHO\VKLIWHGWR6DFNVE\WKHWUDQVDFWLRQ FDVH LQ :RRGVRQ7HQHQW 0RUWDOLW\ QHXWUDOLW\ KRZHYHU RSHUDWHG RQ WKH SODQ DV D ZKROH HQVXULQJ WKDW ZKDWHYHU ,GDW ,QFRQWUDVW$(3GLGQRWKLQJPRUHWKDQmVKRZ>@D WUDQVIHURIULVNRFFXUUHGDWWKHOHYHORIWKHLQGLYLGXDOSROLF\ GHGXFWLEOHH[SHQVHRQSDSHUZLWKRXWDFWXDOO\VXIIHULQJDQ\ FHDVHGWRH[LVWIRUWKHRYHUDOOSODQ RIWKHRUGLQDU\HFRQRPLFFRQVHTXHQFHVRISD\LQJWKHPRQH\l LG EHFDXVH FLUFXODU QHWWLQJ WUDQVDFWLRQV REYLDWHG WKH $(3 DOWHUQDWLYHO\ FRQWHQGV WKDW WKH SODQ KDG QRQWD[ REOLJDWLRQWRHYHUDFWXDOO\UHSD\WKHXQGHUO\LQJSROLF\ORDQV HFRQRPLF FRQVHTXHQFHV EHFDXVH VRPH RI LWV VXEVLGLDULHV 7KLV PHDQV WKDW WKH WD[ EHQHILWV JHQHUDWHG E\ WKH FLUFXODU H[SHULHQFHGPRUWDOLW\ORVVZKLOHRWKHUVH[SHULHQFHGPRUWDOLW\ SROLF\ORDQ LQWHUHVW GHGXFWLRQV DURVH mIURP WKLQ DLUl ,G JDLQ 7KLV DUJXPHQW VXIIHUV IURP WKH VDPH IODZ 7KH )XUWKHUPRUH WKH EXVLQHVV FRQVHTXHQFHV RI XQDQWLFLSDWHG HFRQRPLFVKDP DQDO\VLV IRFXVHV RQ WKH mVXEVWDQFH WR EH PRUWDOLW\H[SHULHQFHZHUHQRWJHQXLQHO\DVVXPHGE\HLWKHU UHDOL]HGE\>WKHWD[SD\HU@IURP>D@WUDQVDFWLRQl.QHWVFK $(3RU0%/EHFDXVHWKHSODQZDVPRUWDOLW\QHXWUDO 86DW HPSKDVLVDGGHG DQGWKHWUDQVDFWLRQKHUHZDV $(3jVSXUFKDVHRIWKH&2/,SODQ0RUWDOLW\QHXWUDOLW\DQG $(3WKHUHIRUHKDVQREDVLVWRUHO\RQWKHGLFWXPLQ6DFNV ]HURQHWHTXLW\RSHUDWHGRQO\DWWKHOHYHORIWKHHQWLUHSODQ WKDWm>Z@KHUHDWUDQVDFWLRQKDVHFRQRPLFVXEVWDQFHLWGRHV $(3FLWHV+XPDQD,QFY&RPPLVVLRQHU)G WK QRW EHFRPH D VKDP PHUHO\ EHFDXVH LW LV OLNHO\ WR EH &LU IRUWKHSURSRVLWLRQWKDWmGLIIHULQJVXEVLGLDU\OHYHO XQSURILWDEOHRQDSUHWD[EDVLVl,GDW $VWKHIRUHJRLQJ H[SHULHQFHPHDQVWKHWUDQVDFWLRQKDVHFRQRPLFHIIHFWl%XW DQDO\VLV GHPRQVWUDWHV 6DFNVjV WUDQVDFWLRQ KDG JHQXLQH +XPDQD LV UHDGLO\ GLVWLQJXLVKDEOH SDUWO\ EHFDXVH RI WKH HFRQRPLFFRQVHTXHQFHVRWKHUWKDQWKHFUHDWLRQRIGHGXFWLRQV FRPSOHWHO\GLIIHUHQWIDFWSDWWHUQZKHUHERWKWKHLQVXUHGDQG ZKHUHDV$(3jVGRHVQRW WKHLQVXUHUZHUHZKROO\RZQHGVXEVLGLDULHVRIWKHVDPHSDUHQW FRUSRUDWLRQ DQG SDUWO\ EHFDXVH WKH SROLFLHV DW LVVXH LQ 1RUGRZHEHOLHYHWKDWWKH6DFNVFRXUWjVGLFWXPDERXWmSUH +XPDQDZHUHQRWPRUWDOLW\QHXWUDO7KHFDVHVLPSO\KDVQR WD[l SURILWDELOLW\ PHDQV DV $(3 XUJHV WKDW ZH VKRXOG UHOHYDQFHWRWKHIDFWXDOFLUFXPVWDQFHVEHIRUHXV HYDOXDWH WKH WUDQVDFWLRQjV SURILWDELOLW\ DIWHU WKH FKDOOHQJHG GHGXFWLRQKDVEHHQDOORZHG7RGRVRZRXOGVZDOORZWKH $QRWKHU FDVH XSRQ ZKLFK $(3 UHOLHV 6DFNV Y VKDPDQDO\VLVHQWLUHO\$VWKH7KLUG&LUFXLWKDVH[SODLQHG &RPPLVVLRQHU )G WK &LU LV DOVR HDVLO\ GLVWLQJXLVKDEOH7KHFRXUWLQ6DFNVUHDVRQHGDVIROORZV 7KHSRLQWRIWKHDQDO\VLVLVWRUHPRYHIURPFRQVLGHUDWLRQ WKHFKDOOHQJHGWD[GHGXFWLRQDQGHYDOXDWHWKHWUDQVDFWLRQ )DFWRUV ZKLFK GHPRQVWUDWH WKDW 0U 6DFNVj GHDO KDG RQLWVPHULWVWRVHHLILWPDNHVVHQVHHFRQRPLFDOO\RULV JHQXLQHHFRQRPLFHIIHFWVDQGZDVQRWDVKDPDUHWKDW PHUHWD[DUELWUDJH&RXUWVXVHµSUHWD[jDVVKRUWKDQGIRU 0U6DFNVj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jVZHUHHFRQRPLFVKDPV,Q JHQHUDWLQJDGHGXFWLRQLVQRW UH &0 +ROGLQJV )G G &LU m>7@KH WUDQVDFWLRQDVDZKROHODFNHGHFRQRPLFVXEVWDQFHDQGWKXV ,QUH&0+ROGLQJV)G G&LU /LIH ZDVDQHFRQRPLFVKDPl :LQQ'L[LH6WRUHV,QFY&RPPjU LQVXUDQFHLVWD[IDYRUHGDQGDFRPSDQ\PD\XWLOL]HWKHWD[ )G WK&LU m>7@KHEURDGEDVHG DGYDQWDJHV RI D &2/, SODQ VR ORQJ DV WKH SODQ KDV UHDO &2/, SURJUDP ODFNHG VXIILFLHQW HFRQRPLF VXEVWDQFH WR EH HFRQRPLF FRQVHTXHQFHV 6XFK ZDV WKH FDVH LQ :RRGVRQ UHVSHFWHGIRUWD[SXUSRVHVl FHUWGHQLHG86 7HQHQW%XWLWPD\QRWXWLOL]HOLIHLQVXUDQFHVROHO\WRFUHDWH :HUHDFKWKHVDPHFRQFOXVLRQLQWKLVFDVH WD[GHGXFWLRQVDVZDVGRQHLQWKHSUHVHQWFDVHDQGH[SHFW WKRVHGHGXFWLRQVWREHDOORZHG % :KHWKHUSDUWLFXODUDVSHFWVRIWKH&2/,SODQZHUH VKDPVLQIDFW $(3jVILQDODUJXPHQWDVWRZK\WKH&2/,SODQZDVQRWD VKDPLVEDVHGRQ$(3jVJRRGIDLWKLQWHQWWRXWLOL]HWKHWD[ 7KHGLVWULFWFRXUWDOVRKHOGWKDWWKHGLYLGHQGVLQWKHIRXUWK VDYLQJVIURPWKHSODQWRRIIVHWGUDPDWLFDOO\LQFUHDVHGFRVWV WKURXJK VHYHQWK \HDUV RI $(3jV &2/, SODQ DPRQJ RWKHU GXH WR D PDQGDWHG DFFRXQWLQJ FKDQJH UHJDUGLQJ LWV DVSHFWVZHUHVKDPVLQIDFW$IWHUGLVUHJDUGLQJWKRVHSDUWVRI HPSOR\HHVjPHGLFDOEHQHILWVUDWKHUWKDQKDYLQJWRFRYHUWKH WKH SODQ WKDW LW FRQFOXGHG ZHUH IDFWXDO VKDPV WKH GLVWULFW FRVWLQFUHDVHZLWKKLJKHUXWLOLW\UDWHVWRLWVFXVWRPHUV7KH FRXUWKHOGWKDWWKHSODQGLGQRWILWLQWRWKHRIVDIHKDUERU FRQWUROOLQJTXHVWLRQKRZHYHULVZKHWKHUWKHUHLVDQ\WKLQJRI UXOHRI,5&7KLVDQDO\VLVFRQVWLWXWHGDQDOWHUQDWLYH mVXEVWDQFH WR EH UHDOL]HG E\ >WKH WD[SD\HU@ IURP >D@ EDVLV IRU WKH GLVWULFW FRXUWjV FRQFOXVLRQ WKDW $(3 ZDV QRW WUDQVDFWLRQEH\RQGDWD[GHGXFWLRQl.QHWVFK86DW HQWLWOHGWRGHGXFWWKHSROLF\ORDQLQWHUHVWSXUSRUWHGO\LQFXUUHG LQ $(3FKDOOHQJHVWKHVRXQGQHVVRIWKHFRXUWjVVKDP LQIDFWDQDO\VLV%HFDXVHZHFRQFOXGHWKDWWKH&2/,SODQDV ,QVWDWLQJWKDWm>D@WD[SD\HUjVVXEMHFWLYHSXUSRVHPD\EH DZKROHZDVDQHFRQRPLFVKDPZHQHHGQRWUHDFKWKLVLVVXH UHOHYDQWWRWKLVLQTXLU\l5RVHY&RPPjU)G WK &LU WKLV FRXUW ZDV UHIHUULQJ WR WKH WD[SD\HUjV :HREVHUYHKRZHYHUWKDWWKHFRUUHFWQHVVRIWKHGLVWULFW VXEMHFWLYHLQWHQWZLWKUHVSHFWWRWKHWUDQVDFWLRQLWVHOIQRWLWV FRXUWjV VKDPLQIDFW DQDO\VLV LV IDU IURP FOHDU m)DFWXDO LQWHQWZLWKUHVSHFWWRSRWHQWLDOXVHVIRUWKHWD[VDYLQJVWREH VKDPVDUHµWUDQVDFWLRQVjWKDWQHYHUDFWXDOO\RFFXUUHGl,QUH GHULYHGIURPDVKDPWUDQVDFWLRQ,OOHVY&RPPjU )G &0 +ROGLQJV )G DW 7KLV FRXUWjV GHFLVLRQ LQ WK&LU TXRWLQJWKHDERYHVWDWHPHQWE\WKH .HQQHG\Y&RPPLVVLRQHU)G WK&LU LV 5RVH FRXUW DQG H[SODLQLQJ WKDW WKH HFRQRPLFVKDP LQTXLU\ FRQVLVWHQWZLWKWKLVXQGHUVWDQGLQJRIZKDWFRQVWLWXWHVDVKDP mFRQVLVWV RI DQ H[DPLQDWLRQ RI WKH WUDQVDFWLRQ QRW WKH LQIDFW,Q.HQQHG\WKHWD[SD\HUWULHGWRFODLPDGHGXFWLRQ WD[SD\HU,IWKHWUDQVDFWLRQODFNVHFRQRPLFVXEVWDQFHWKHQWKH IRUmH[SHQGLWXUHVSDLGRULQFXUUHGGXULQJWKHWD[DEOH\HDUIRU GHGXFWLRQPXVWEHGLVDOORZHGZLWKRXWUHJDUGWRWKHµQLFHWLHVj WKHGHYHORSPHQWRIDPLQHRURWKHUQDWXUDOGHSRVLWl,G RIWKHWD[SD\HUjVLQWHQWl 0RQH\JHQHUDWHGE\PHDQVRI DW TXRWLQJ86& D 7KLVFRXUWXSKHOGWKH DEXVLYHWD[GHGXFWLRQVFDQDOZD\VEHDSSOLHGWREHQHILFLDO WD[FRXUWjVGLVDOORZDQFHRIWKHFODLPHGGHGXFWLRQEHFDXVHWKH FDXVHVEXWWKHHYHQWXDOXVHRIWKHPRQH\WKXVJHQHUDWHGLV XQGHUO\LQJ WUDQVDFWLRQ ZDV D IDFWXDO VKDP m>7@KHUH LV QR QRWSDUWRIWKHHFRQRPLFVKDPDQDO\VLV,QUH&0+ROGLQJV HYLGHQFHVKRZLQJWKDWDQ\DPRXQWVLQYHVWHGE\WKHWD[SD\HUV %5 ZHUHVSHQWRQPLQLQJGHYHORSPHQWRIWKHLUSORWV7KH 1R $PHULFDQ(OHF3RZHU&R $PHULFDQ(OHF3RZHU&R 1R ,QFHWDOY8QLWHG6WDWHV ,QFHWDOY8QLWHG6WDWHV HYLGHQFH KHUH VXSSRUWV WKH WULDO FRXUWjV ILQGLQJ WKDW WKH BBBBBBBBBBBBBBBBB LQYHVWRUVjPLQHUDOFODLPOHDVHVZHUHILFWLWLRXVl,GDW 6LPLODUO\WKHWD[FRXUWGLVDOORZHGFHUWDLQFODLPHGGHGXFWLRQV &21&855(1&( LQ )RUVHWK Y &RPPLVVLRQHU 7& ZKHUH LW BBBBBBBBBBBBBBBBB GHWHUPLQHG WKDW WKH XQGHUO\LQJ SUHFLRXVPHWDO WUDQVDFWLRQV GLGQRWH[LVW m3HWLWLRQHUVKDYHIDLOHGWRSURYHWKDWWKHUHZDV '$9,'$1(/621&LUFXLWsXGJHFRQFXUULQJ,IXOO\ DQ\DFWXDOJROGRUSODWLQXPWKDWWKHUHZDVDQ\UHDOPDUNHWRU FRQFXULQWKHMXGJPHQWDQGLQsXGJH*LOPDQjVRSLQLRQ0\ WUDGLQJ RU WKDW WKHUH ZDV DQ\ SXUSRVH RWKHU WKDQ WKH RQO\SXUSRVHLQZULWLQJVHSDUDWHO\LVWRFRPPHQWRQDFRXSOH DYRLGDQFHRIWD[HVIRUDQ\RIWKHWUDQVDFWLRQVLQLVVXHl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jVKROGLQJWKHUHIRUH HFRQRPLVWDQGWD[H[SHUW'U&KDUOHV'0F/XUHsU7KH VHHPVWREHH[WHQGLQJWKHIDFWXDOVKDPGRFWULQHEH\RQGLWV FHQWUDOWKHPHRI'U0F/XUHjVWHVWLPRQ\ZDVWKDWZKHWKHURU JHQHUDOO\DFFHSWHGGHILQLWLRQ,QGLFWDWKH7KLUG&LUFXLWKDV QRW FRUSRUDWHRZQHG OLIH LQVXUDQFH LV SXUFKDVHG ZLWK UHMHFWHG WKH GLVWULFW FRXUWjV FRQFOXVLRQ RQ WKLV SRLQW m7KH ERUURZHG IXQGV WKH WD[ DGYDQWDJH RI VXFK LQVXUDQFH LV ORDGLQJ GLYLGHQGV RI \HDUV ZHUH VLPLODU VLPXOWDQHRXV DWWULEXWDEOHWRWKHIDFWWKDWWKHmLQVLGHEXLOGXSlLQWKHYDOXHRI QHWWLQJWUDQVDFWLRQVWKDWµDFWXDOO\RFFXUUHGjDQGDUHWKHUHIRUH WKH LQVXUDQFH LV H[HPSW IURP WD[DWLRQ ,PSOLFLW LQ WKLV QRWIDFWXDOVKDPVl,QUH&0+ROGLQJV)GDW WHVWLPRQ\DV,XQGHUVWDQGLWLVWKHSURSRVLWLRQWKDWZKHUH &RQJUHVVKDVFUHDWHGVXFKDWD[SUHIHUHQFHoDVLWKDVGRQH ,QVXPWKHVRXQGQHVVRIWKHGLVWULFWFRXUWjVVKDPLQIDFW LQ H[HPSWLQJ IURP WD[DWLRQ WKH LQWHUHVW SDLG RQ PXQLFLSDO DQDO\VLVLVTXHVWLRQDEOH+DYLQJFRQFOXGHGKRZHYHUWKDW ERQGV IRU H[DPSOH o WD[SD\HUV VKRXOG EH IUHH WR DFFHSW $(3jV&2/,SODQDVDZKROHODFNHGHFRQRPLFVXEVWDQFHZH &RQJUHVVjLPSOLHGLQYLWDWLRQWRFDVKRXWRQWKHSUHIHUHQFH GHFOLQH WR GHFLGH ZKHWKHU DQ\ SDUWLFXODU DVSHFWV RI $(3jV &2/,SODQZHUHIDFWXDOVKDPV ,KDYHQRTXDUUHOZLWKWKLVSURSRVLWLRQZKLFKLVFRQVLVWHQW ,EHOLHYHZLWK:RRGVRQ7HQHQW/DERUDWRULHV,QFY8QLWHG ,,,&21&/86,21 6WDWHV)G WK&LU DQGWKHWZRFDVHVRQ ZKLFKWKDWGHFLVLRQUHVWHG&DPSEHOOY&HQ7H[,QF )RU DOO RI WKH UHDVRQV VHW IRUWK DERYH ZH $)),50 WKH )G WK &LU DQG 3ULHVWHU 0DFKLQHU\ &R Y MXGJPHQWRIWKHGLVWULFWFRXUW 8QLWHG6WDWHV )6XSS :'7HQQ ,QDOO WKUHHRIWKRVHFDVHVWKHWD[SD\HUVXVHGWKHSURFHHGVRISROLF\ ORDQV ORDQV WKDW FDUULHG D IRXU SHUFHQW LQWHUHVW UDWH LQ SUHSD\LQJSUHPLXPVRQmNH\PDQlLQVXUDQFHSROLFLHV7KH LQVXUDQFH SROLFLHV KDG VXEVWDQWLDO QHW FDVK YDOXHV WKDW LQFUHDVHGRYHUWLPHDQGWKHLQVXUDQFHEHQHILWVSD\DEOHRQWKH 1R $PHULFDQ(OHF3RZHU&R $PHULFDQ(OHF3RZHU&R 1R ,QFHWDOY8QLWHG6WDWHV ,QFHWDOY8QLWHG6WDWHV GHDWKVRIWKHQDPHGLQVXUHGVZHUHVXEVWDQWLDOO\JUHDWHUWKDQ 8QOLNH WKH WD[SD\HUV LQ :RRGVRQ7HQHQW &HQ7H[ DQG WKHDPRXQWVRIWKHORDQV6HHHJ3ULHVWHU )6XSSDW 3ULHVWHU0DFKLQHU\$(3KDGQRQHWHTXLW\LQWKHLQVXUDQFH 7KHRZQHUVRIWKHLQVXUDQFHSROLFLHVFRXOGLQDVHQVH DWWKHHQGRIDQ\SROLF\\HDUDQGYLHZHGIURPDORQJWHUP FDSWXUHWKHYDOXHRIWKHLQVLGHEXLOGXSE\FDVKLQJWKHGHDWK SURJUDPZLGH VWDQGSRLQW WKH FRPSDQ\ GLG QRW VWDQG WR EHQHILW FKHFNV WKH\ UHFHLYHG ZKHQ WKH LQVXUHG HPSOR\HHV UHDOL]HDQ\JDLQXSRQWKHGHDWKVRILQVXUHGHPSOR\HHV,Q GLHG DQG WKHUH ZDV D PHDQLQJIXO FKDQFH WKDW WKH SROLF\ HFRQRPLF WHUPV , EHOLHYH WKH HQWLUH YDOXH RI WKH LQVLGH RZQHUV ZRXOG UHDOL]H QRQWD[ HFRQRPLF JDLQV WKURXJK EXLOGXSZDVFRQYHUWHGLQWRWD[GHGXFWLRQVIRUWKHDUWLILFLDOO\ SUHPDWXUHHPSOR\HHGHDWKV KLJKLQWHUHVW$(3ZDVSD\LQJ,I,DPFRUUHFWLQWKLVLWGRHV QRWVHHPWRPHWKDW'U0F/XUHj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jV RILWVH[SHQGLWXUHVWKDWIDFWFRXOGOHQGHFRQRPLFVXEVWDQFH KLJKHULQVLGHEXLOGXSGLGQRWWUDQVODWHLQWRFDVKIORZVZKHQ WRDSURJUDPWKDWZRXOGRWKHUZLVHDSSHDUWRODFNVXEVWDQFH LQVXUHGLQGLYLGXDOVGLHG,QGHHG$(3QHYHUDFFHVVHGDQ\ $V,QRZXQGHUVWDQGLWKRZHYHUQRWHYHQFDWDVWURSKLFORVVHV PDWHULDOSDUWRIWKHLQVLGHEXLOGXSWKURXJKGLUHFWSD\PHQWV RI$(3SHUVRQQHOFRXOGWUXPSWKHUHTXLUHPHQWWKDWWKHFRVW IURPWKHLQVXUDQFHFRPSDQ\$(3NHSWLWVLQVXUDQFHFRVWVDV RI LQVXUDQFH FKDUJHV EH DGMXVWHG WR UHIOHFW $(3jV DFWXDO ORZ DV SRVVLEOH E\ PD[LPL]LQJ LWV XVH RI ZLWKGUDZDOV DQG PRUWDOLW\H[SHULHQFH ,QDQ\HYHQWWKHUHLVQRHYLGHQFHDQG SROLF\ORDQVZKLOHWKHLQVXUHGLQGLYLGXDOVZHUHDOLYHDQGLW LWKDVQRWEHHQDUJXHGWKDWDGHVLUHWRLQVXUHDJDLQVWVXFKD UHDOL]HGQRVLJQLILFDQWPRUWDOLW\JDLQVZKHQWKHLQGLYLGXDOV FDWDVWURSKHSOD\HGDQ\SDUWLQ$(3jVGHFLVLRQWRSXUFKDVHWKH GLHG7KLVZDVEHFDXVHWKHLQVXUDQFHSURJUDPUHTXLUHG$(3 &2/,SURJUDP WRSD\LQFUHDVHGDQQXDOFKDUJHVLIWKHFRPSDQ\UHDOL]HGGHDWK EHQHILWVWKDWH[FHHGHGWKHLQVXUHUjVDFWXDULDOSURMHFWLRQV ,QVXPPDU\LWORRNVWRPHDVWKRXJK$(3jVVROHSXUSRVH LQSXUFKDVLQJWKHSURJUDPZDVWREX\WD[GHGXFWLRQV8QGHU .QHWVFKDVsXGJH*LOPDQjVRSLQLRQH[SODLQVVXFKDSXUFKDVH PXVWEHWUHDWHGDVDVKDPWUDQVDFWLRQIRUWD[SXUSRVHV$QG WKHIDFWWKDWWKHWD[VDYLQJV$(3KRSHGWRUHDOL]HIURPWKH 'HDWK EHQHILWV DUH QRW JHDUHG WR LQVLGH EXLOGXS RI FRXUVH EXW 'U 0F/XUH DFFHSWHG D VXJJHVWLRQ E\ WKH JRYHUQPHQW WKDW GHDWK EHQHILWV UHSUHVHQW RQH ZD\ LQ ZKLFK mWKH FDVK YDOXH DQG WKH LQVLGH EXLOGXS ZLWKLQ ,Q DGGLWLRQ WR UHTXLULQJ DGMXVWPHQW RI WKH FRVW RI LQVXUDQFH FKDUJHV WKH FDVK YDOXH FDQ WUDQVODWH LQWR FDVK IORZV l 7ULDO WUDQVFULSW S WKH &2/, SURJUDP SURYLGHG IRU WKH SD\PHQW RI mPRUWDOLW\ GLYLGHQGVl DV D PHDQV RI LPSOHPHQWLQJ mPRUWDOLW\ QHXWUDOLW\l 7KLV LV RQH UHVSHFW LQ $V JRYHUQPHQW H[SHUW sDPHV +RDJ H[SODLQHG LQVXUDQFH FRPSDQLHV ZKLFK $(3jV SURJUDP GLIIHUHG IURP WKH SURJUDP DW LVVXH LQ 'RZ FDQ DIIRUG WR FKDUJH ORZ LQWHUHVW UDWHV IRU SROLF\ ORDQV EHFDXVH WKH ORDQV &KHPLFDO &R Y 8QLWHG 6WDWHV BB )6XSSG BB BB (' 0LFK EHLQJ VHFXUHG E\ WKH SROLFLHV WKHPVHOYHV FDUU\ QR FUHGLW ULVN QRWLQJ WKH DEVHQFH RI PRUWDOLW\ GLYLGHQGV IURP WKH FKDOOHQJHG SURJUDP 1R $PHULFDQ(OHF3RZHU&R ,QFHWDOY8QLWHG6WDWHV VKDPZRXOGKDYHEHHQXVHGIRUSHUIHFWO\OHJLWLPDWHEXVLQHVV SXUSRVHVFDQQRWOHJLWLPL]HWKHWUDQVDFWLRQLWVHOI