A system, method, and computer program product for implementing municipal arbitrage portfolios are set forth herein. A first investment fund that is compliant with the Investment Company Act of 1940 (the 1940 Act) uses a special purpose trust that: (i) issues at least a First Security funded at least in part by equity of the first investment fund, the First Security providing a series of residual interest payments to the first investment fund; (ii) issues at least one Second Security that results in a series of distributions to a second investment fund; and (iii) owns one or more municipal bonds. The first investment fund may have an obligation to reimburse a liquidity provider (LP) for losses incurred by the liquidity provider from performing its obligation to purchase the Second Security upon tender by a holder. Consolidation of the municipal bonds held by the special purpose trust on the balance sheet of the first investment fund is avoided by using one or more step out transactions.