System, method and computer program product for implementing a municipal arbitrage portfolio (map) in an investment company act of 1940 fund (1940 act fund)

A computer-implemented system that implements a municipal arbitrage portfolio (MAP) Fund that is compliant with the 1940 Act, wherein the assets of the MAP Fund are managed by at least one fund manager, comprising:

• means for establishing a special purpose trust comprising:
• means for issuing at least a First Security funded at least in part by equity of the MAP Fund, the First Security providing a series of residual interest payments to the MAP Fund;
• means for issuing at least one Second Security that results in a series of distributions to a second investor or investors;
• and means for owning one or more municipal bonds;
• and wherein the MAP Fund is obligated to reimburse losses incurred by a third party liquidity provider (LP) from performing its obligation to purchase the Second Security upon tender by a holder, wherein said obligation to reimburse said losses is imposed using at least one of:
• means for using a reimbursement agreement between a LP and the MAP Fund, wherein the reimbursement agreement may include provisions that permit the LP to cause a sale of the municipal bonds or a Second Trust which holds the First Security and other investment securities if shortfall criteria specified in the reimbursement agreement are not met;
• means for using a shortfall swap agreement between the LP and the MAP Fund (or Second Trust), wherein if the LP cannot recover losses of the LP from a sale of the municipal bonds underlying the special purpose trust that issued the First Security and Second Security, the shortfall swap agreement requires the MAP Fund (or Second Trust) to pay an amount to the LP equal to such shortfall;
• means for using at least one tri-party agreement between the LP, the MAP Fund (or Second Trust), and a financial intermediary approved by the LP and the MAP Fund, where the tri-party agreement includes provisions that permit the financial intermediary (or custodian) to fulfill a role as trustee to enforce provisions of a reimbursement agreement or a shortfall swap agreement, for the benefit of the LP;
• or
• means for using a non-recourse obligation of the MAP Fund;
• and
• means for avoiding consolidation on a balance sheet of the MAP Fund, of the municipal bonds held by the Trust, by using one or more step out transactions that ensure that brokers or the Trust, acting on instructions from the manager or the MAP Fund, act only as principals for the benefit of the Trust and not as agents for the at least one manager or the MAP Fund.

A computer program product embodied on a computer accessible medium comprises program logic which when executed on a processor enable the processor to perform a method for implementing a municipal arbitrage portfolio (MAP) Fund that is compliant with the 1940 Act, wherein the assets of the MAP Fund are managed by at least one fund manager, the method comprising:

• (a) establishing a special purpose trust comprising:
• issuing at least a First Security funded at least in part by equity of the MAP Fund, the First Security providing a series of residual interest payments to the MAP Fund;
• issuing at least one Second Security that results in a series of distributions to a second investor or investors;
• and owning one or more municipal bonds;
• and wherein the MAP Fund is obligated to reimburse a third party liquidity provider (LP) for losses incurred performing its obligation to purchase the Second Security upon tender by a holder, wherein said obligation to reimburse said losses is imposed using at least one of:
• using a reimbursement agreement between a LP and the MAP Fund, wherein the reimbursement agreement may include provisions that permit the LP to cause a sale of the municipal bonds or a Second Trust which holds the First Security and other investment securities if shortfall criteria specified in the reimbursement agreement are not met;
• using a shortfall swap agreement between the LP and the MAP Fund (or Second Trust), wherein if the LP cannot recover losses of the LP from a sale of the municipal bonds underlying the special purpose trust that issued the First Security and Second Security, the shortfall swap agreement requires the MAP Fund (or Second Trust) to pay an amount to the LP equal to a shortfall;
• using at least one tri-party agreement between the LP, the MAP Fund (or Second Trust), and a financial intermediary approved by the LP and the MAP Fund, where the tri-party agreement includes provisions that permit the financial intermediary (or custodian) to fulfill a role as trustee to enforce provisions of a reimbursement agreement or a shortfall swap agreement, for the benefit of the LP;
• or
• using a non-recourse obligation of the MAP Fund;
• and
• (b) avoiding consolidation on a balance sheet of the MAP Fund, of the municipal bonds held by the Trust, by using one or more step out transactions that ensure that brokers or the Trust, acting on instructions from the manager or the MAP Fund, act only as principals for the benefit of the Trust and not as agents for the at least one manager or the MAP Fund.