Method and apparatus of creating a financial instrument and administering an adjustable rate loan system

• US 6,148,293 A
• Filed: 10/17/1997
• Issued: 11/14/2000
• Est. Priority Date: 01/18/1995
• Status: Expired due to Fees

• Current Assignee: Douglas L. King
• Original Assignee: Douglas L. King
• Inventors: King, Douglas L.
• Primary Examiner(s): Cosimano, Edward R.
• Application Number:
  US08/953,572
• Time in Patent Office: 1,124 Days
• Field of Search: 235/379, 705/1, 705/30, 705/35, 705/36, 705/38
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof

Abstract

An operatively interconnected data processing and computing system is provided for creating, servicing and paying loan agreements between a lender and borrower providing for repayment of the loan together with interest at a periodically adjusted rate based on the terms of the agreement. The system includes data processing for a novel form of relationship management links, supervising and balancing the interests of contractholders, marketing agents, financial intermediaries, investment managers, investment bankers, custodians, rating agencies and an issuing entity.

Claims

1. A computer-based system employing operatively interconnected data processing and computing means for creating, servicing and paying in financial contracts having terms and conditions which provide repayment of monies tendered by one entity to another on a date or dates in the future, along with periodically provided compensation thereon, said system comprising:

means for inputting and storing into at least one electronic database, which includes one or more accounts, the negotiated terms and conditions of a financial contract with an identified lender which provides for the level of compensation thereon to be adjusted periodically to produce a rate of compensation tied to an external benchmark, allowing the issuing entity to establish a lower rate of compensation in any period in which its solvency or deteriorating credit quality, including with respect to the business activity to which the contract relates, is otherwise threatened in exchange for establishment of a higher rate of compensation during periods in which the results of a formula computation exceed certain pre-agreed levels; and

means accessible to at least one electronic database for issuing and displaying the financial contract and terms thereof with constraints comprising the agreed terms and conditions.

2. The computer-based system of claim 1, comprising restriction means coupled to said at least one electronic database for identifying a particular business activity, agreeing, recording and communicating the terms under which funds received from the issuance of the financial contract(s) will be used by the issuing entity.

3. The computer-based system of claim 1, comprising account establishing means coupled to said at least one electronic database for creating one or more accounts for the purpose of allocating the financial results of the issuing entity'"'"'s business activities identified to the financial contract(s) and initially establishing and periodically determining its obligations to contractholder(s) and service providers.

4. The computer-based system of claim 1, comprising entering means coupled to said at least one electronic database for recording and storing contract purchase, contract terms and conditions, payment information, current interest rate matrix, compensation and paying information, acceleration notice provisions, and other contract information and contractholder inquiries.

5. The computer-based system of claim 1, comprising asset position list means coupled to said at least one electronic database for recording and storing an asset position list of current balance information concerning application of contract proceeds.

6. The computer-based system of claim 1, comprising reporting means coupled to said at least one electronic database for generating and displaying detail and summary data on initial terms of the financial contract(s) and the initial status of the issuing entity'"'"'s assets and its contractual obligations to the contractholder through print or electronic display means.

7. The computer-based system of claim 1, comprising account list means coupled said at least one electronic database for recording and storing an account list of current balance information for each financial contract, account information and the accounts into which said issuing means has issued a financial contract.

8. The computer-based system of claim 1, comprising means coupled to said at least one electronic database for establishing and entering the amount and currency of the contract proceeds transferred to the issuing entity, the maturity date of the financial contract, the initial compensation period, the rate of compensation during the initial compensation period, the currency in which the financial contract is denominated, the contract proceeds currency exchange rate if applicable, compensation periods, dates and terms under which periodic compensation will be accrued and paid, specific rate parameters and procedure for determining periodic compensation, prepayment provisions, account drawdown provisions, payment procedures, and such other information as the issuing entity and contractholder(s) may agree.

9. The computer-based system of claim 1, comprising means coupled to said at least one electronic database for issuing electronically or in print form the financial instrument as a debt obligation, an annuity contract, a guaranteed investment contract, a certificate of deposit, a note, a swap contract, or other form of financial instrument.

10. The computer-based system of claim 1, comprising means coupled to said at least one electronic database for issuing the financial instrument where the issuing entity is selected from the group consisting of an insurance company, bank, single purpose corporation, governmental issuer or affiliate, individual, trust, mutual fund, investment company, partnership, limited partnership, or other incorporated or unincorporated entity.

11. The computer-based system of claim 1, comprising contract negotiation means coupled to said at least one electronic database for the issuing entity and one or more contractholders to enter and negotiate through computer assisted means, which may include the use of intermediaries and service providers, the terms of financial contract(s) which provide for the level of compensation thereon to be adjusted periodically to produce a rate of compensation tied to an external benchmark, allowing the paying entity to establish a lower rate of compensation in any period in which its solvency or deteriorating credit quality, including with respect to the business activity to which the contract relates, is otherwise threatened in exchange for establishment of a higher rate of compensation during periods in which the results of a formula computation exceed certain pre-agreed levels.

12. The computer-based system of claim 11 of contract negotiation means, comprising:

means coupled to said at least one electronic database for recording and storing proposed contract terms, which may include the proposed date of transfer and amount to be tendered by prospective contractholder(s) to the issuing entity, the proposed amounts and dates of repayment by the issuing entity of such tendered amounts, the dates and method of determining payments of periodic compensation to contractholder(s) by issuing entity, any restriction(s) on use of contract proceeds, initial compensation period and rate of compensation, minimum rates of compensation, maximum rates of compensation, interest rate crediting parameters and formula computation methods, prepayment terms, and other proposed contract terms; and

means for communicating such proposed contract terms and other information between issuing entity, prospective contractholders, intermediaries and service providers by print means, video display means, or other electronic communication means.

13. The computer-based system of claim 1, comprising proceeds application means coupled to said at least one electronic database for selecting a portfolio of securities and/or application of contract proceeds to other business purposes.

14. The computer-based system of claim 13, comprising:

means coupled to said at least one electronic database for identifying, recording, storing and communicating the specific investments, investment activities, or other purposes for which a portion of the contract proceeds are to be used, and the parameters under which the issuing entity will conduct such business activities;

means coupled to said at least one electronic database for establishing investment quality, currency and duration parameters for investment securities allocated to the payment account(s); and

means coupled to said at least one electronic database for restricting the use of profits generated from the investment of contract proceeds allocated to at least one purpose account, to enhance the security and repayment of financial contract obligations, including increasing the level of periodic compensation.

15. The computer-based system of claim 1, comprising recalculation means coupled to said at least one electronic database for determining the inputs based on such terms and conditions for recalculating the periodic compensation.

16. The computer-based system of claim 15, wherein said recalculation means comprises:

means for dividing the adjusted periodic balance of the computational account by the balance on a periodic computation date of the balance account, added to the minimum rate, if such rate is funded with assets allocated to the payment account and such payment account is not insufficient on the date of the periodic computation, said result being the formula rate; and

means for comparing the formula rate to the external benchmark, and other rates which may include a minimum rate, a contract maximum rate, and a maximum rate for the period.

17. The computer-based system of claim 15, further comprising:

means coupled to said at least one electronic database for determining the amount to be allocated to the computational account if the formula rate is less than the external benchmark to permit the issuing entity to establish the compensation crediting rate for the subsequent period at the external benchmark; and

means coupled to said at least one electronic database for determining whether sufficient such amount to be allocated is available for transfer from the purpose accounts or from other assets or revenues of the issuing entity to the extent agreed at issuance of the financial contract, and if not, the amount otherwise available for such transfer.

18. The computer-based system of claim 15, further comprising:

means coupled to said at least one electronic database for establishing the compensation crediting rate at the external benchmark if the formula rate is below the external benchmark and sufficient assets are available for allocation to the computational account;

means coupled to said at least one electronic database for establishing the compensation crediting rate at a level below the external benchmark if assets allocated to the computational account are not sufficient to establish such rate at the external benchmark, such lower rate being determined by computing the percentage at which such available assets would be sufficient to fund compensation for the subsequent period; and

means coupled to said at least one electronic database for establishing the compensation crediting rate above the formula rate if such rate does not exceed any periodic maximum or contract maximum rate, and in the event the formula rate does exceed such maximum rates, establishing the compensation crediting rate for the subsequent period at the lower of such rates.

19. The computer-based system of claim 1, comprising prepayment means coupled to said at least one electronic database for determining, recording and storing at issuance of the financial contract the terms under which the issuing entity could partially or wholly prepay the financial contract during its term.

20. The computer-based system of of claim 19, comprising means coupled to said at least one electronic database for recording and storing periodic dates on which the issuing entity could elect to partially or wholly prepay the financial contract;

and means coupled to said at least one electronic database for recording and storing terms and conditions for periodic rate recomputation.

21. The computer-based system of claim 19, comprising means coupled to said at least one electronic database for determining a minimum rate of periodic compensation to be paid to the contractholder if the issuing entity wholly prepays the financial contract prior to maturity.

22. The computer-based system of claim 19, comprising means coupled to said at least one electronic database for determining a portion of the financial contract which may not be prepaid prior to maturity.

23. The computer-based system of claim 1, comprising account allocation means coupled to said at least one electronic database for allocating and entering contract proceeds to various ones of said accounts established at issuance of the financial contract, allocation and entering of the issuing entity'"'"'s obligations to contractholder(s) to one or more of said accounts, and for determining account balances at issuance of the financial contract.

24. The computer-based system of claim 23, comprising means coupled to said at least one electronic database for creating a balance account to which an initial balance is credited at issuance of said financial contract equal to the amount of proceeds of said financial contract.

25. The computer-based system of claim 23, comprising means coupled to said at least one electronic database for creating a said computational account to which an initial balance is credited at issuance equal to the amount of proceeds of a financial contract.

26. The computer-based system of claim 25, comprising:

means coupled to said at least one electronic database for allocating from the computational account at issuance of the financial contract amounts payable to intermediaries and service providers;

means for allocating a portion of the financial contract proceeds to one or more payment accounts; and

means coupled to said at least one electronic database for allocating part or all of the proceeds to one or more of said purpose accounts.

27. The computer-based system of claim 23, comprising means coupled to said at least one electronic database for creating a payment account to which amounts are periodically credited and payments to contractholder(s) are deducted therefrom.

28. The computer-based system of claim 27, further comprising means coupled to said at least one electronic database for determining the present value at issuance of the financial contract of contract proceeds to be repaid at maturity, based on current interest rates for investment securities.

29. The computer-based system of claim 27, further comprising means coupled to said at least one electronic database for initially allocating investment securities to such payment account which are invested at such current market rates of interest and are sufficient at their respective maturities dates to repay the initial proceeds of the financial contract.

30. The computer-based system of claim 27, further comprising means coupled to said at least one electronic database for determining the present value at issuance of the financial contract of minimum periodic compensation to be paid on one or more periodic compensation payment dates in the future, based on current interest rates for investment securities matching such payment dates.

31. The computer-based system of claim 27, further comprising means coupled to said at least one electronic database for initially allocating investment securities to said payment account which are invested at predetermined rates of interest and are sufficient at their respective maturities dates to pay the minimum rate of periodic compensation on the financial contract on one or more periodic compensation payment dates in the future.

32. The computer-based system of claim 1, comprising rate establishing means coupled to said at least one electronic database for initially establishing and inputting the external benchmark used as a basis to reset periodic compensation of the financial contract, establishing and entering periodic rate parameters, and initially establishing and entering the conditions under which the issuing entity could reduce periodic compensation of the financial contract to a level less than an amount determined by applying the external benchmark.

33. The computer-based system of claim 32 comprising means coupled to said at least one electronic database for establishing an initial compensation period and an initial rate of compensation for such period.

34. The computer-based system of claim 32, comprising means coupled to said at least one electronic database for establishing the external benchmark as the periodic interest rate on government securities of similar term to the financial contract (remaining term government rate).

35. The computer-based system of claim 32, further comprising means coupled to said at least one electronic database for establishing an adjustment factor including basis point adjustment to augment or diminish an externally determined periodic rate, the resultant periodic value being the external benchmark for the purposes of determining periodic compensation under the financial contact.

36. The computer-based system of claim 32, further comprising means coupled to said at least one electronic database for establishing a minimum periodic rate of compensation.

37. The computer-based system of claim 32, comprising means coupled to said at least one electronic database for establishing a conditional maximum rate of compensation during any period by augmenting the external benchmark with a pre-agreed number of basis points (one hundred basis points equalling one percent).

38. The computer-based system of claim 32 further comprising means coupled to said at least one electronic database for establishing a maximum rate of compensation for all periods during the life of the financial contract.

39. The computer-based system of claim 32, further comprising means coupled to said at least one electronic database for determining and inputting into said at least one electronic database inputs to and computational parameters of a formula which guages the solvency and credit quality of the issuing entity'"'"'s periodic activities with respect to the business activities for which the contract proceeds are dedicated.

40. The computer-based system of claim 32, comprising:

means coupled to said at least one electronic database for entering, storing, updating and communicating external market rate data used to determine the periodic external benchmark rate; and

means coupled to said at least one electronic database for entering, storing, updating and communicating the results of the periodic rate formula, and maximum annual compensation rates.

41. The computer-based system of claim 32 comprising means coupled to said at least one electronic database for recording and storing periodic dates for recalculation;

and means coupled to said at least one electronic database for recording and storing a procedure for periodic rate recomputation.

42. The computer-based system of claim 41, comprising means coupled to said at least one electronic database for allocating and determining revenues and assets of the issuing entity, other than those assets identified to the financial contract to which its contract proceeds are initially applied, to the establishment and payment of periodic compensation and for inputting such into said at least one electronic database.

43. A computer-based system employing operatively interconnected data processing and computing means for administering and terminating financial contracts having terms and conditions which provide repayment of monies tendered by one entity to another on a date or dates in the future, along with periodically provided compensation thereon, said system comprising:

means for periodically updating at least one electronic database including means for rebalancing financial accounts corresponding to said financial contracts and for periodically establishing a rate of compensation tied to an external benchmark, being diminished during any period in which the issuing entity'"'"'s solvency is threatened or credit quality, including with respect to the business activity to which the contract relates, is impaired and augmented during periods in which the results of a formula computation exceed certain preagreed levels; and

means accessible to at least one electronic database for periodically determining and displaying the status of a selected financial contract relative to termination pursuant to the agreed terms and conditions of the financial contract.

44. The computer-based system of claim 43, comprising date determining means coupled to said at least one electronic database for determining that periodic computation, period ending, payment, and maturity dates have occurred or will occur within a preset number of days.

45. The computer-based system of claim 43, comprising payment establishing means coupled to said at least one electronic database for determining payments to contractholder, intermediaries, and service providers.

46. The computer-based system of claim 43, comprising account transfer means coupled to said at least one electronic database for allocating transfer amounts between the accounts established at said issuance of the financial contract.

47. The computer-based system of claim 43, comprising restriction means coupled to said at least one electronic database for determining allocation of amounts identified to the financial contract are being used by the issuing entity in the identified business activity(ies), consistent with the terms agreed, recorded and communicated at issuance of the financial contract(s).

48. The computer-based system of claim 43, comprising portfolio management means coupled to said at least one electronic database for periodically adjusting a portfolio of securities and updating an asset position list periodically.

49. The computer-based system of claim 43, comprising reporting means coupled to said at least one electronic database for generating detail and summary data on account balances, the value and type of the issuing entity'"'"'s assets and its contractual obligations to the contractholder.

50. The computer-based system of claim 43, comprising account list means coupled said at least one electronic database for recording, updating and storing the account list of current balance information for each financial contract, account information and the accounts into which said issuing means has issued a financial contract.

51. The computer-based system of claim 43, comprising transaction and inquiry reporting means coupled to said at least one electronic database for confirming individual transactions and responding to inquiries from customers.

52. The computer-based system of claim 43, comprising management reporting means coupled to said at least one electronic database for periodically generating a report including a summary of financial contracts issued, periodic compensation allocations to one or more of said contractholders, payments, asset and liability position, and investment performance.

53. The computer-based system of claim 43, further comprising means coupled to said at least one electronic database to create subaccounts and periodically allocate a portion of amounts allocated to said accounts to such subaccounts.

54. The computer-based system of claim 43, further comprising means coupled to said at least one electronic database including:

portfolio management means for selecting an asset portfolio of securities and for creating and updating an asset position list periodically, based on an amount of cash that is available for investment, current composition of the asset portfolio, projected cash need for the following period, projected compensation liability schedule, and predefined portfolio selection criteria, in order to generate a stream of cash flows from the asset portfolio that will be sufficient to cover in full in a timely manner the contract obligations; and

means for recording the selected security purchase and sale transaction data to update the asset position list.

55. The computer-based system of claim 43, further comprising payment and reporting means coupled to said electronic databases responsive to generating and displaying contractholders periodic payments, notices and status reports of their financial contracts electronically and/or in print form.

56. The computer-based system of claim 43, comprising account beginning balance establishing means coupled to said at least one electronic database for determining the balance at the end of the previous period(s) of the accounts used for the purpose of allocating the financial results of the issuing entity'"'"'s business activities identified to the financial contract(s) and periodically determining its obligations to contractholder(s) and service providers.

57. The computer-based system of claim 56, wherein the account establishing means comprises means coupled to said at least one electronic database for retrieving the previous period ending balance of the balance, payment, and purpose accounts.

58. The computer-based system of claim 43, comprising rate setting means coupled to said at least one electronic database for determining and storing the periodic external benchmark to be used to reset periodic compensation of the financial contract, the rate parameters for the period, and the conditions under which the issuing entity could reduce the periodic compensation of the financial contract to a level less than an amount determined by applying the external benchmark.

59. The computer-based system of claim 58, wherein the rate setting means comprises means coupled to said at least one electronic database for determining the external benchmark rate for a given period of said financial contracts and other rate levels, which may include the maximum compensation rate for the given period, the financial contract maximum rate, and a contract minimum rate.

60. The computer-based system of claim 43, comprising account adjustment means coupled to said at least one electronic database for determining the inputs to the accounts for the current period after calculation of the periodic compensation.

61. The computer-based system of claim 60, comprising means coupled to said at least one electronic database including:

means for determining the present value of the subsequent period compensation based on the newly established compensation crediting rate;

means for transferring such amount of the present value from a computational account to a payment account; and

means for transferring any remaining balance in the computational account to one or more purpose accounts.

62. The computer-based system of claim 43, comprising account ending balance establishing means coupled to said at least one electronic database for determining and storing the balance at the end of the current period of the accounts used for the purpose of allocating the financial results of the issuing entity'"'"'s business activities identified to the financial contract(s) and periodically determining its obligations to contractholder(s) and service providers.

63. The computer-based system of claim 62, comprising:

means coupled to said at least one electronic database for reducing the payment account by any payments made to contractholder; and

means coupled to said at least one electronic database for increasing the balance account by the accrual of compensation based on the compensation crediting rate.

64. The computer-based system of claim 43, comprising prepayment means coupled to said at least one electronic database for determining if conditions exist during a period under which the issuing entity could partially or wholly prepay the financial contract during its term, and means for partially or wholly prepaying such financial contract.

65. The computer-based system of claim 64, comprising means coupled to said at least one electronic database comprising:

means for retrieving the prepayment parameters of the financial contract;

means for entering and monitoring and reporting changes in investments, interest rates, inflation rates, profits generated on assets identified to the financial instrument and other criteria and information parameters; and

means for determining the effects of changes in interest rates and account balances on the economics of the financial contract and the appropriateness of prepaying the financial contract.

66. The computer-based system of claim 65, comprising:

means coupled to said at least one electronic database for determining a redemption value of assets set aside to assure payment of minimum contract obligations, and the minimum requirement for contract repayment prior to maturity; and

means coupled to said at least one electronic database for determining the cost to defease or repay said contract liability based on the present value of assets identified to the contract, data concerning investment yields, other costs, and the time period to said payment date, which may include any minimum prepayment amounts.

67. The computer-based system of claim 65, comprising means coupled to said at least one electronic database for determining that a prepayment date is within periodic dates on which the issuing entity can elect to partially or wholly prepay the financial contract.

68. The computer-based system of claim 43, comprising input determination means coupled to said at least one electronic database for determining the inputs to the accounts for a current period prior to calculation of periodic compensation.

69. The computer-based system of claim 58, wherein the input determination means comprises means for determining as of the periodic computation date, after distribution of required payments to one or more contractholderis, the amount of contract proceeds and accrued compensation, if applicable, outstanding to contractholder(s) from issuing entity, such amount being the balance on the periodic computation date of the balance account.

70. The computer-based system of claim 68, wherein said input determination means comprises:

means coupled to said at least one electronic database for determining the amount of assets allocated to the payment account when compounded to payment date(s) required under the financial contract using rates of compensation accruing on such financial contract sufficient to meet all previously agreed terms of the financial contract; and

means coupled to said at least one electronic database for determining, if such assets are insufficient, a percentage as it relates to the balance account of the amount necessary to eliminate such shortfall.

71. The computer-based system of claim 68, further comprising means coupled to said at least one electronic database for creating purpose and computational accounts for determining the amount of the periodic increase in assets allocated to said purpose account(s) attributable to the computational account in a respective current period.

72. The computer-based system of claim 71, comprising:

means coupled to said at least one electronic database for establishing the beginning periodic computational balance;

means for retrieving adjustment parameter data agreed at issuance of said financial contract; and

means for determining an adjusted periodic balance of the computational account to be used in determining periodic compensation.

73. A data processing system employing operatively interconnected data processing and computing means for creating, servicing and paying financial contracts having terms and conditions which provide repayment of monies tendered by one entity to another on a date or dates in the future, along with periodically provided compensation thereon, said system comprising:

means for inputting and storing into at least one electronic database, which may include one or more financial accounts, the negotiated terms and conditions of a financial contract with an identified lender which provides for the level of compensation thereon to be adjusted periodically to produce a rate of compensation tied to an external benchmark, allowing the issuing entity to establish a lower rate of compensation in any period in which its solvency or deteriorating credit quality, including with respect to the business activity to which the contract relates, is otherwise threatened in exchange for establishment of a higher rate of compensation during periods in which the results of a formula computation exceed certain preagreed levels;

means accessible to at least one electronic database for issuing and displaying the financial contract and terms thereof with constraints comprising the agreed terms and conditions;

means for periodically updating at least one electronic database including rebalancing financial accounts coupled to financial contracts and periodically establishing a rate of compensation tied to an external benchmark; and

means accessible to at least one electronic database for periodically determining and displaying the status of the financial contract as to termination pursuant to the agreed terms and conditions of the financial contract.

74. The data processing system of claim 73, comprising:

means coupled to said at least one electronic database for entering and identifying a particular business activity and for entering an agreement to the terms under which funds received from the issuance of the financial contract(s) will be used by the issuing entity; and

means coupled to said at least one electronic database for entering the results of negotiation including means for electronically negotiating between an issuing entity and one or more contractholders, the terms of financial contract(s) which provide for the level of compensation thereon to be adjusted periodically to produce a rate of compensation tied to an external benchmark, allowing the paying entity to establish a lower rate of compensation in any period in which its solvency or deteriorating credit quality is otherwise threatened in exchange for establishment of a higher rate of compensation during periods in which the results of a formula computation exceed certain pre-agreed levels.

75. The data Processing system of claim 73, comprising:

means coupled to said at least one electronic database for the issuing entity to create and enter one or more accounts for the purpose of allocating the financial results of its business activities identified to the financial contract (s);

means coupled to said at least one electronic database for the issuing entity to create and enter one or more accounts for the purpose of initially establishing and periodically determining its obligations to contractholder(s) and service providers; and

memory means coupled to said at least one electronic database for storing information pertaining to each said account.

76. The data processing system of claim 73, comprising means coupled to said at least one electronic database for initially establishing and periodically updating the external benchmark used to establish periodic compensation of the financial contract.

77. The data processing system of claim 73, comprising means coupled to said at least one electronic database for initially establishing the conditions under which the issuing entity could reduce periodic compensation of the financial contract to a level less than an amount determined by applying the external benchmark.

78. The data processing system of claim 73, comprising means coupled to said at least one electronic database for the issuing entity to periodically establish the level of compensation of the financial contract to the contractholder(s) for each respective period.

79. The data processing system of claim 73, comprising:

means coupled to said at least one electronic database for entering and storing the terms under which the issuing entity could partially or wholly prepay the financial contract; and

means coupled to said at least one electronic database for determining in a given period that conditions exist which permit the issuing entity to partially or completely prepay the financial contract.

80. The data processing system of claim 73, comprising means coupled to said at least one electronic database including:

investment management means for selecting an asset portfolio of securities and/or application of contract proceeds to other business purposes, and periodically updating said asset allocation accounts; and

reporting means for generating detail and summary data on the current status of the issuing entity'"'"'s assets and its contractual obligations to the contractholder.

81. A method of creating, servicing and paying financial contracts and operating a plurality of financial accounts connected thereto having terms and conditions which provide repayment of monies tendered by one entity to another on a date or dates in the future, along with periodically provided compensation thereon, for the purpose of protecting the solvency of the issuing entity and providing reasonable compensation to contractholders, said method comprising the steps of:

inputting and storing the negotiated terms and conditions of a financial contract with an identified contractholder into at least one electronic database which terms and conditions provide for the level of compensation on the financial contract to be adjusted periodically to produce a rate of compensation tied to an external benchmark, allowing the issuing entity to establish a lower rate of compensation in any period in which its solvency or deteriorating credit quality, including with respect to the business activity to which the contract relates, is otherwise threatened in exchange for establishment of a higher rate of compensation during periods in which the results of a formula computation exceed certain pre-agreed levels;

issuing the financial contract with the agreed terms and conditions representing constraints comprising the agreed terms and conditions;

creating and maintaining one or more accounts in at least one electronic database to which funds received on the issuance of the financial contract are allocated; and

utilizing one or more computers to interact and update said accounts maintained in said memory means and report the data contained therein.

82. The method of claim 81, further comprising the steps of:

entering, storing, updating and communicating by electronic means external market rate data used to determine the periodic external benchmark rate; and

entering, storing, updating and communicating by electronic means the results of periodic rate formula, and maximum annual compensation rates.

83. A financial contract produced by the practice of the method of claim 81.

84. The method of claim 81, further comprising the steps of:

allocating by computer processing means contract proceeds to various accounts established at issuance of the financial contract, allocation of the issuing entity'"'"'s obligations to contractholder(s) to one or more accounts, and determining account balances at issuance of the financial contract;

selecting and entering a portfolio of securities and/or application of contract proceeds to other business purposes into said at least one electronic database;

recording and storing an asset position list in said at least one electronic database of current balance information concerning application of contract proceeds;

generating detail and summary data by computer means on initial terms of the financial contract(s) and the initial status of the issuing entity'"'"'s assets and its contractual obligations to the contractholder; and

recording and storing by memory means an account list of current balance information for each financial contract, account information and the accounts corresponding to the financial contract.

85. The method of allocating assets of claim 84, further comprising the steps of:

identifying, recording, storing and communicating by computer processing means the specific investments, investment activities, or other purposes for which a portion of the contract proceeds are to be used, and the parameters under which the issuing entity will conduct such business activities;

establishing, entering and storing in memory means investment quality, currency and duration parameters for investment securities allocated to the payment account(s); and

restricting through computer processing means the use of profits generated from the investment of contract proceeds allocated to purpose accounts, to enhance the security and repayment of financial contract obligations, including increasing the level of periodic compensation.

86. The method of allocating assets at issuance of claim 84, comprising the steps of:

creating in said at least one electronic database a balance account to which an initial balance is credited at issuance equal to the amount of contract proceeds;

creating in said at least one electronic database a computational account to which an initial balance is credited at issuance equal to the amount of contract proceeds;

creating in said at least one electronic database a payment account to which amounts are periodically credited and payments to contractholder(s) are deducted therefrom;

allocating by computer processing means from the computational account at issuance amounts payable to intermediaries and service providers;

allocating by computer processing means a portion of contract proceeds to the payment account; and

allocating by computer processing means part or all of contract proceeds to one or more purpose accounts.

87. The method of creating a payment account of claim 86, further comprising the steps of:

determining through computer processing means the present value at issuance of contract proceeds to be repaid at maturity, based on current interest rates for investment securities; and

allocating by computer processing means investment securities to such payment account which are invested at such current market rates of interest and are sufficient at their respective maturities dates to repay the initial contract proceeds of the financial contract.

88. The method of claim 87, further comprising the steps of:

determining through computer processing means the present value at issuance of minimum periodic compensation to be paid on one or more periodic compensation payment dates in the futures, based on current interest rates for investment securities matching such payment date(s); and

initially allocating by computer processing means investment securities to such payment account which are invested at predetermined rates of interest and are sufficient at their respective maturities dates to pay the minimum rate of periodic compensation on the financial contract on one or more periodic compensation payment dates in the future.

89. The method of claim 81, comprising the steps of:

contract negotiation between the issuing entity and one or more contractholders to negotiate, which may include the use of intermediaries and service providers through electronic means, the terms of financial contracts;

identifying a particular business activity, recording into said at least one electronic database and communicating through electronic or print means the terms under which funds received from the issuance of the financial contract (s) will be used by the issuing entity;

creating one or more accounts within said at least one electronic database for the purpose of allocating the financial results of the issuing entity'"'"'s business activities identified to the financial contract(s) and initially establishing and periodically determining through computer means its obligations to contractholder(s) and service providers;

initially establishing and storing by memory means the external benchmark used as a basis to reset periodic compensation of the financial contract, establishing through computer means the periodic rate parameters, and initially establishing and storing by memory means the conditions under which the issuing entity could reduce periodic compensation of the financial contract to a level less than an amount determined by applying the external benchmark;

determining by processing means the inputs based on such terms and conditions for recalculating the periodic compensation;

determining, recording and storing in said at least one electronic database at issuance the terms under which the issuing entity could partially or wholly prepay the financial contract during its term;

recording and storing in said at least one electronic database contract purchase, contract terms and conditions, payment information, current interest rate matrix, compensation and paying information, acceleration notice provisions, and other contract information and contractholder inquiries; and

preparing and issuing through computer assisted print means financial contracts which provide compensation periodically determined by the issuing entity.

90. The method of claim 89 comprising the steps of:

recording and storing proposed contract terms, which may include the proposed date of transfer and amount to be tendered by prospective contractholder(s) to the issuing entity, the proposed amounts and dates of repayment by the issuing entity of such tendered amounts, the dates and method of determining payments of periodic compensation to contractholder(s) by issuing entity, any restriction(s) on use of contract proceeds, initial compensation period and rate of compensation, minimum rates of compensation, maximum rates of compensation, interest rate crediting parameters and formula computation methods, prepayment terms, and other proposed contract terms; and

communicating such proposed contract terms and other information between issuing entity, prospective contractholders, intermediaries and service providers.

91. The method of claim 89 of establishing accounts, further comprising the step of creating a plurality of accounts in said at least one electronic database coupled to a financial contract which may include one or more balance, payment, purpose and computational accounts.

92. The method of establishing recalculation terms and conditions of claim 89, comprising the steps of:

recording and storing in said at least one electronic database periodic dates for recalculation; and

recording and storing in said at least one electronic database a procedure for periodic rate recomputation;

allocating and determining by computer means revenues and assets of the issuing entity, if any, other than those assets identified to the financial contract to which its contract proceeds are initially applied, to the establishment and payment of periodic compensation.

93. The method of establishing prepayment terms and conditions of claim 89, comprising the steps of:

recording and storing in said at least one electronic database periodic dates on which the issuing entity could elect to partially or wholly prepay the financial contract;

recording and storing in said at least one electronic database terms and conditions for periodic rate recomputation;

determining by computer means a minimum rate of periodic compensation to be paid to the contractholder if the issuing entity wholly prepays the financial contract prior to maturity, if applicable;

determining by computer processing means a portion of the financial contract which may not be prepaid prior to maturity, if applicable.

94. The method of issuing the contract of claim 89, further comprising the steps of:

establishing and storing in said at least one electronic database the amount and currency of the contract proceeds transferred to the issuing entity, the maturity date of the financial contract, the initial compensation period, the rate of compensation during the initial compensation period, the currency in which the financial contract is denominated, the contract proceeds currency exchange rate if applicable, compensation periods, dates and terms under which periodic compensation will be accrued and paid, specific rate parameters and procedure for determining periodic compensation, prepayment provisions, account drawdown provisions, payment procedures, and such other information as the issuing entity and contractholder(s) may agree;

issuing the financial instrument as a debt obligation, an annuity contract, a guaranteed investment contract, a certificate of deposit, a note, a swap contract, or other form of financial instrument; and

issuing the financial instrument where the issuing entity is any one of an insurance company, bank, single purpose corporation, individual, trust, mutual fund, investment company, partnership, limited partnership, or other incorporated or unincorporated entity.

95. A financial contract produced by the practice of the method of claim 89.

96. The method of establishing the rates of claim 89, comprising the steps of:

external benchmark as the periodic interest rate on government securities of similar term to the financial contract (remaining term government rate);

entering and storing in said at least one electronic database an adjustment factor including basis point adjustment to augment or diminish an externally determined periodic rate, said resultant periodic value being the external benchmark for the purposes of determining periodic compensation under the financial contact; and

entering and storing in said at least one electronic database inputs to and computational parameters of a formula which gauges the solvency and credit quality of the issuing entity'"'"'s periodic activities with respect to the business activities for which the contract proceeds are dedicated.

97. The method of establishing rates of claim 96, further comprising the steps of:

entering and storing in said at least one electronic database a minimum periodic rate of compensation;

entering and storing in said at least one electronic database a conditional maximum rate of compensation during any specific period by way of augmenting the external benchmark by a pre-agreed number of basis points (one hundred basis points equalling one percent); and

entering and storing in said at least one electronic database a maximum rate of compensation for all periods during the life of the financial contract.

98. A method of servicing and paying financial contracts and operating a plurality of financial accounts connected thereto having terms and conditions which provide repayment of monies tendered by one entity to another on a date or dates in the future, along with periodically provided compensation thereon, for the purpose of protecting the solvency of the issuing entity and providing reasonable compensation to contractholders, said method comprising the steps of:

periodically updating at least one electronic database including rebalancing by computer processing means financial accounts coupled to financial contracts and stored in at least one electronic database and periodically establishing a rate of compensation tied to an external benchmark, being diminished during any period in which the issuing entity'"'"'s solvency is threatened or credit quality, including with respect to the business activity to which the contract relates, is impaired and augmented during periods in which the results of a formula computation exceed certain pre-agreed levels; and

means accessible to at least one electronic database for periodically determining and displaying by print or electronic means if the financial contract can be or is subject to termination pursuant to the agreed terms and conditions of the financial contract.

99. A financial contract produced by the practice of the method of claim 98.

100. The method of claim 98, further comprising the step of determining by electronic means coupled to said at least one electronic database if conditions exist during a period under which the issuing entity could partially or wholly prepay the financial contract during its term, and means for partially or wholly prepaying such financial contract.

101. A financial contract produced by the practice of the method of claim 100.

102. The method of claim 100, further comprising the steps of:

retrieving from said at least one electronic database the prepayment parameters of the financial contract;

monitoring and reporting by electronic, video, or print means changes in investments, interest rates, inflation rates, profits generated on assets identified to the financial instrument and other criteria and information parameters;

determining through computer processing means coupled with said at least one electronic database the effects of changes in interest rates and account balances on the economics of the financial contract and the appropriateness of prepaying the financial contract;

calculating a redemption value of assets set aside to assure payment of minimum contract obligations, and the minimum requirement for contract repayment prior to maturity;

determining by computer processing means the cost to defease or repay contract liability based on the present value of assets identified to the contract, data concerning investment yields, other costs, and the time period to said payment date, which may include any minimum prepayment amounts; and

determining from said at least one electronic database that the prepayment date is within periodic dates on which the issuing entity can elect to partially or wholly prepay the financial contract.

103. A financial contract produced by the practice of the method of claim 102.

104. The method of claim 98, comprising

maintaining by memory means one or more financial accounts in said at least one electronic database;

utilizing one or more data processing computers in cooperation with said accounts comprising the steps of;

communicating with said accounts;

interacting with said accounts maintained by memory means;

determining by computer processing means that periodic computation, period ending, payment, and maturity dates have occurred or will occur within a preset number of days;

establishing by computer processing means the balance at the end of the previous period(s) of the accounts used for the purpose of allocating the financial results of the issuing entity'"'"'s business activities identified to the financial contract(s) and periodically determining its obligations to contractholder(s) and service providers;

determining and storing by memory means the periodic external benchmark to be used to reset periodic compensation of the financial contract, the rate parameters for the period, and the conditions under which the issuing entity could reduce the periodic compensation of the financial contract to a level less than an amount determined by applying the external benchmark;

processing and storing in said at least one electronic database the inputs to the accounts for the current period(s) prior to calculation of periodic compensation;

determining and recalculating by computer processing means the periodic compensation rate;

updating the inputs to the accounts for the current period(s) after calculation of periodic compensation;

determining by computer processing means payments to contractholder, intermediaries, and service providers;

allocating by electronic means transfer amounts between the accounts established at issuance of the financial contract; and

determining by processing means and storing in said at least one electronic database the balance at the end of the current period(s) of the accounts used for the purpose of allocating the financial results of the issuing entity'"'"'s business activities identified to the financial contract (s) and periodically determining its obligations to contractholder(s) and service providers.

105. The method of claim 104, further comprises the steps of:

determining from said at least one electronic database that allocation of amounts identified to the financial contract are being used by the issuing entity in the identified business activity (ies), consistent with the terms agreed, recorded and communicated at issuance of the financial contract(s); and

periodically through computer processing means adjusting and updating a portfolio of securities and said asset position list.

106. The method of claim 104, further comprises the steps of:

recording, updating, and storing payment information, current rate information, compensation and paying information and other contract information and contractholder inquiries, which may be contained in one or more system databases;

generating electronically and/or in print form detail and summary data on account balances and the status of the issuing entity'"'"'s assets and its contractual obligations to the contractholder; and

recording, updating and storing the account list of current balance information for each financial contract, account information and the accounts into which said issuing means has issued a financial contract in said at least one electronic database.

107. The method of claim 104, comprising the steps of:

confirming individual transactions and responding to inquiries from customers by electronic, video display terminal telephone, or print means; and

periodically generating and publishing a report by computer processing means including a summary of contracts issued, periodic compensation allocations, payments, asset and liability position, and investment performance.

108. The method of claim 104, further comprising the steps of:

retrieving the previous period ending balance of the balance, payment, and purpose accounts from said at least one electronic database prior to a given period;

calculating the external benchmark rate for the period and other rate levels, which may include the maximum rate for the period, the contract maximum rate, and a contract minimum rate;

determining by computer processing means as of the periodic computation date, after distribution of required payments to contractholder(s), the amount of contract proceeds and accrued compensation, if applicable, outstanding to contractholder(s) from issuing entity, such amount being the balance on the periodic computation date of the balance account; and

calculating by computer means the amount of the periodic increase in assets allocated to purpose account(s) to be recognized as attributable to the computational account in the respective period.

109. The method of claim 104, comprising the steps of:

entering and storing in said at least one electronic database a beginning periodic computational balance;

retrieving by computer processing means the adjustment parameter data agreed at issuance of the financial contract; and

calculating an adjusted periodic balance of the computational account to be used in determining periodic compensation.

110. The method of claim 104, further comprising the steps of:

determining the amount of assets allocated to the payment account when compounded to payment date(s) required under the financial contract using rates of compensation accruing on such instruments and determining if the amount is sufficient to meet all previously agreed terms of the financial contract; and

determining, if such assets are insufficient, a percentage as it relates to the balance account of the amount necessary to eliminate such shortfall.

111. The method of claim 104, further comprising the steps of:

determining by computer means by dividing the adjusted periodic balance of the computational account by the balance on the periodic computation date of the balance account, added to the minimum rate, if such rate is funded with assets allocated to the payment account and such payment account is not insufficient on the date of the periodic computation, said result being the formula rate; and

comparing through computer processing means the formula rate to the external benchmark, and other rates which may include a minimum rate, a contract maximum rate, and a maximum rate for the period.

112. The method of claim 104, further comprising the steps of:

determining by computer processing means the amount to be allocated to a computational account if the formula rate is less than the external benchmark to permit the issuing entity to establish the compensation crediting rate for the subsequent period at the external benchmark; and

determining by computer processing means whether sufficient such amount is available for transfer from purpose accounts or from other assets or revenues of the issuing entity to the extent agreed at issuance of the financial contract, and if not, the amount otherwise available for such transfer.

113. The method of claim 104, further comprising the steps of:

determining through computer processing means the compensation crediting rate;

at the external benchmark if a formula rate is below the external benchmark and sufficient assets are available for allocation to the computational account;

at a level below the external benchmark if assets allocated to the computational account are not sufficient to establish such rate at the external benchmark, such lower rate being determined by computing the percentage at which such available assets would be sufficient to fund compensation for the subsequent period; and

above the formula rate if such rate does not exceed any periodic maximum or contract maximum rate, and in the event the formula rate does exceed such maximum rates, establishing and storing in said at least one electronic database the compensation crediting rate for the subsequent period at the lower of such rates.

114. The method of claim 104, further comprising the steps of:

calculating by computer means the present value of the subsequent period compensation based on the newly established compensation crediting rate;

allocating such amount from a computational account to a payment account within said at least one electronic database; and

allocating any remaining balance in the computational account to one or more purpose accounts or as otherwise as provided in the financial contract.

115. The method of claim 104, further comprising the steps of:

creating and reducing a payment account by any payments made to contractholder; and

creating and increasing a balance account by the accrual of compensation based on the compensation crediting rate.

116. The method of claim 104, further comprising the steps of:

creating subaccounts within said at least one electronic database and periodically allocating a portion of amounts allocated to accounts to such subaccounts;

selecting through computer processing means and input means a portfolio of securities and updating said asset position list periodically, based on an amount of cash that is available for investment, current composition of the asset portfolio, projected cash need for the following period, projected compensation liability schedule, and predefined portfolio selection criteria, in order to generate a stream of cash flows from the asset portfolio that will be sufficient to cover in full in a timely manner the contract obligations;

recording the selected security purchase and sale transaction data to update the asset position list in said at least one electronic database; and

sending by electronic, video or print means contractholders periodic payments, notices and status reports of their financial contracts.

117. A financial contract produced by the practice of the method of claim 104.

118. A method of creating, servicing and saying financial contracts and operating a plurality of financial accounts connected thereto having terms and conditions which provide repayment of monies tendered by one entity to another on a date or dates in the future, along with periodically provided compensation thereon, for the purpose of protecting the solvency of the issuing entity and providing reasonable compensation to contractholders, said method comprising the steps of:

inputting and storing the negotiated terms and conditions of a financial contract with an identified contractholder into at least one electronic database which terms and conditions provide for the level of compensation on the financial contract to be adjusted periodically to produce a rate of compensation tied to an external benchmark, allowing the issuing entity to establish a lower rate of compensation in any period in which its solvency or deteriorating credit quality, including with respect to the business activity to which the contract relates, is otherwise threatened in exchange for establishment of a higher rate of compensation during periods in which the results of a formula computation exceed certain pre-agreed levels;

issuing the financial contract with the agreed terms and conditions representing constraints comprising the agreed terms and conditions;

creating and maintaining one or more accounts in said at least one electronic database to which funds received on the issuance of the financial contract are allocated;

utilizing one or more computers to interact and update said accounts maintained in said memory means and resort the data contained therein;

periodically updating said at least one electronic database including rebalancing by computer processing means financial accounts coupled to the said financial contracts and stored in said at least one electronic database and periodically establishing a rate of compensation tied to an external bench-mark, being diminished during any period in which the issuing entity'"'"'s solvency is threatened or credit quality, including with respect to the business activity to which the contract relates, is impaired and augmented during periods in which the results of a formula computation exceed certain pre-agreed levels; and

periodically determining and displaying the status of a financial contract relative to termination pursuant to the agreed terms and conditions of the financial contract.