Adjustments To The Segregated Fund Principal Guarantee

When a withdrawal is made from a segregated fund, the principal guarantee is adjusted using a

• linear reduction or
• proportion reduction
(1)
\begin{equation} Proceeds = Net Asset Value + Principal Guarantee Adjustment - Losses - Expenses \end{equation}

# Linear Reduction Method ("dollar for dollar")

The guarantee is reduced based on the dollar amount withdrawn in relation to the original purchase price.

(2)
\begin{align} NewGuarantee = [PurchasePrice - Withdrawals] \times Guarantee \; \% \end{align}
(3)
\begin{align} e.g., \; [10,000 - 1,000] \times 75 \% = 6,750 \end{align}

# Proportional Reduction Method

The guarantee is reduced in proportion to the number of units redeemed in relation to the number of units at that time.

(4)
\begin{align} NewGuarantee = PurchasePrice \times \left[ \frac{ CurrentMarketValue - Withdrawal}{CurrentMarketValue } \right ] \times Guarantee \; \% \end{align}
(5)
\begin{align} \; 10,000 \times \left[ \frac{ 12,000 - 1,000}{12,000 } \right ] \times 75 \% = 6,875 \end{align}
page revision: 20, last edited: 03 Jan 2008 00:37