Multi-asset participation structured note and swap combination

• US 20050114251A1
• Filed: 11/12/2004
• Published: 05/26/2005
• Est. Priority Date: 03/25/1999
• Status: Abandoned Application

• Current Assignee: Alpha Financial Technologies LLC
• Original Assignee: Alpha Financial Technologies LLC
• Inventors: Sperandeo, Victor
• Application Number:
  US10/987,584
• Publication Number:
  US 20050114251A1
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 20/102 Bill distribution or payments
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A unitary investment instrument combining a swap and a structured note, both of which provide multiple utilization of capital. The unitary instrument has three performance components. An investor invests in the issuer the principal amount of the structured note component. The structured note provides its own portfolio exposures as well as serving as collateral for the base benchmark portfolio swap (alternatively, the base benchmark portfolio exposure can be acquired through a separate collateral deposit on the investor'"'"'s own portfolio). The first component is a benchmark portfolio, which in one preferred embodiment is a financial or stock index such as the S&P 500 Stock Index. The second component is an incremental benchmark portfolio keyed to the same benchmark index and the third component is keyed to a passive commodity index, having long and short positions, which in one preferred embodiment is the Mount Lucas Management Commodity Index. The instrument'"'"'s passive commodity index exposure is established as the product of a leverage factor and the amount of the benchmark portfolio exposure; thereafter this exposure may be the product of (1) a leverage factor and/or (2) the change in value of the overall investment, the benchmark component and/or the commodity index component. The basic return to the investor comprises the change in value of the benchmark, the incremental benchmark and the passive commodity index exposure over a predetermined period of time. The structured note component of the investment instrument includes a guarantee of the return of the investment principal; the swap does not do so, but rather reflects the full risk of the benchmark portfolio exposure. However, research indicates that the unitary swap/structured note instrument has an unusually high probability of outperforming the benchmark index across a wide range of market cycles.

Claims

1-11. -11. (canceled)

12. A method of investment utilizing a unitary swap and structured note investment instrument, comprising the steps of:

establishing a predetermined time period for investment in the instrument,

selecting a notional performance portfolio for determining a return to the investor, the performance portfolio comprising;

(a) a benchmark portfolio having a selected exposure amount,

(b) an incremental benchmark portfolio increasing the exposure amount in (a),

(c) a passive commodity index portfolio, of long and short positions, in an amount substantially equal to the product of the benchmark portfolio amount in (a) and a leverage factor of at least 100%, which together define a commodity index portfolio exposure that reduces the risk while increasing the return of the performance portfolio.

13. A method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 including the step of establishing a principal invested in the structured note as a collateral deposit for the swap component.

14. A method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 including the step of establishing a separate collateral deposit for the swap component.

15. A method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 wherein a portion of the selected exposure amount is provided by the investor'"'"'s own portfolio and the commodity index portfolio exposure amount is selected to be a notional component.

16. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 13, further comprising the step of returning the principal invested in the structured note to the investor by an issuer at the end of the predetermined time period.

17. Method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 13, wherein the principal comprises stocks, bonds, T-bills, cash, currencies, mortgages, any other security, or a combination thereof.

18. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12, further comprising the step of releveraging the passive commodity index portfolio to have an exposure in an amount which is a function of the commodity index portfolio exposure and a second leverage factor.

19. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 wherein the benchmark portfolio is keyed to an equity index.

20. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 19 wherein the equity index comprises the S&

P 500 Stock Index.

21. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 wherein the passive commodity index portfolio is keyed to the S&

P Diversified Trends Indicator.

22. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 wherein the leverage factor is a function of the performance of the passive commodity index portfolio over a selected period of time.

23. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 22 wherein the leverage factor of the passive commodity index portfolio is a first predetermined number if the passive commodity index portfolio has had a specified return over a selected period of time and is a second predetermined number if the passive commodity index portfolio has not had the specified return over the selected period of time.

24. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 23 wherein the first predetermined number is at least 100% and the second predetermined number is greater than the first predetermined number.

25. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 wherein the exposure of the incremental benchmark portfolio is less than or equal to 20% of the selected exposure amount.

26. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 wherein the exposure of the incremental benchmark portfolio is less than or equal to 50% of the selected exposure amount.

27. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 wherein the leverage factor is less than or equal to 150%.

28. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 wherein the leverage factor is at least 50%.

29. The method of investment utilizing a unitary swap and structured note investment instrument as recited in claim 12 wherein the leverage factor is less than or equal to 300%.

30. An investment created in accordance with the method of claim 12.

31. A computer adapted to implement the method of claim 12.