Unit investment trusts ("UITs") with payoff structures similar to those usually associated with structured notes are beginning to gain appeal. These UITs are a departure from the traditional UIT asset classes (i.e., tax-exempt municipal bonds, taxable debt, or equities) in that the structured UIT's portfolio may consist of, for example, exchange-traded options, U.S. treasury obligations, and/or cash or cash equivalents, and the payoff will be obtained by referencing the performance of a traditional structured notes underlying reference asset, such as an exchange-traded fund.6

For those of us accustomed to the expedited registration and shelf takedown process available to well-known seasoned issuers ("WKSIs"), which include most structured note issuers, the registration process for UITs may be unfamiliar. In fact, the process may seem like a throwback to pre-2005, or pre-Rule 415, practice. This article summarizes the registration process for UITs and some of the differences between structured notes and structured UITs as they relate to SEC registration.

Dual Registration

Units of a UIT must be offered and sold pursuant to a registration statement on Form S-6 deemed effective by the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933 (the "Securities Act"). The UIT also is an investment company subject to registration under the Investment Company Act of 1940 (the "Investment Company Act"). As a result, it must also register with the SEC on Form N-8B-2. Form S-6 filings are subject to review by the SEC's Division of Corporation Finance, and Form N-8B-2 filings are subject to review by the Division of Investment Management.

If the UIT is organized as a series trust, each subsequent series of that UIT must also register separately on a registration statement on Form S-6. The advantage of the series trust structure is that a single trust can issue multiple series. If a separate trust is created for each offering, each new trust would have to be organized under the relevant state law (generally, New York or Delaware) and register on a Form N-8B-2.

Subsequent Offerings

Although there is no Rule 415 shelf registration process for UITs, Rule 487 under the Securities Act does afford some flexibility for the offering of subsequent series on an expedited basis. To avail itself of the rule, the initial series of a UIT must be offered pursuant to a registration statement on Form S-6 that is subject to review by the SEC. Rule 487 then permits the Form S-6 registration statement relating to a subsequent series of that UIT to become effective automatically without an SEC review period if the new series of the UIT satisfies a number of conditions:

  • The UIT must identify one or more prior series that the SEC has declared effective;
  • The UIT must represent that the securities deposited in the new series being registered do not differ materially in type or in quality from those deposited in the prior series, and the disclosure in the prospectus for the series being registered may not differ materially from the disclosure in the prior series' registration statement; and
  • The UIT must deliver a preliminary prospectus in compliance with Rule 460 (delivery to underwriters).

The SEC limits the availability of Rule 487 for subsequent series. For example, Rule 487 was not available for a UIT with a buffered, leveraged and capped payoff structure linked to the performance of the iShares Russell 2000 ETF (IWM), when the precedent series was linked to the performance of the SPDR S&P 500 ETF (SPY). The SEC's rationale was that, because the underlying index was different and there would be different risk factors, the subsequent series would be materially different from the initial filing.

A Rule 487 S-6 is generally just three pages long a facing page, identification of a prospectus for a previously effective series that will be used as the preliminary prospectus for the current series, and the signature page and exhibit list.

It is good practice to check with your examiner prior to relying on Rule 487.

Naming Conventions

The title of a structured note always includes the name of the underlying reference asset; in fact, not doing so might be considered misleading. If a UIT, however, uses a name that suggests an investment focus, the UIT must devote at least 80% of its assets to that area of focus. Consequently, if the portfolio of a UIT series with a structured payoff consists of exchange-traded options, U.S. treasury obligations, and/or cash or cash equivalents but the payoff of that UIT series is linked to the performance of the SPY, the UIT cannot use the name "SPDR S&P 500 ETF" in its name because 80% of the UIT's assets are not invested in the SPY. To learn more, see our Frequently Asked Questions about UITs here.