The calculations for your return are based on three factors:

• Settlement Level (SL): is based on the average month-end closing value of the index or fund for the 12 months prior to maturity.
• Base Level (BL): the index or fund value at the beginning of the GIC term.
• Participation Factor (PF): the percentage at which the GIC will participate in the returns of the index or fund; it is set at the time of purchase and depends on market conditions.

The following formula is used to calculate your variable return payment:

	Principal x (SL - BL) x PF
	BL

For example, let's say you invest $10,000 in a 5-year Fund-Linked GIC with a Participation Factor of 60% and a Base Level of 1,000. If after five years, the Settlement Level is 1,653, then your variable return payment would be calculated as:

Variable return payment	= $10,000 x (1,653 - 1,000) x 60%
	1000
	= $3,918 (or 6.8% compound annual rate of return)

At maturity, you would receive your original principal of $10,000 plus the variable return payment of $3,918, for a total of $13,918. The better the index/fund performs, the higher the Settlement Level will rise and the higher your return will be.

Using this same example, if after five years, the Settlement Level drops to 865 instead, your calculated variable return payment would be -$810
($10,000 x [(865 - 1,000)/1,000] x 60%). In this scenario, your variable return would be set to zero. Therefore, if the index/fund performs negatively and the Settlement Level decreases below the Base Level, you will not earn any return, but your principal will be fully guaranteed.

In addition to the Settlement Level, your variable return is also affected by the Participation Factor, which is set at the time of purchase by RBC and is dependent on market conditions. Within a non-registered account, the variable return payment is taxed as interest income.