Next Investments, the New Jersey-based structured products developer, has filed to launch its first exchange-traded fund.

The proposal is for a new fund of funds. Its only holding would be the S&P 500 SPDRs (NYSE: SPY). Every month, the ETF's adviser would sell a certain percentage of the portfolio's shares.

What's interesting about this ETF is that by making predefined distributions on a regular basis, such payouts could be treated as return of capital for tax purposes. That would seemingly provide investors with a way to earn tax-deferred treatment of distributions from the fund.

In the filing, Next notes that at SPY's current yield of around 2%, the new ETF's targeted rate of return—with a majority of distribution payments coming on a tax-deferred basis—would provide roughly another 4% to the fund's income stream.  

But that's just yield. The fund would remain invested at all times in SPY.

Officials at Next Investments declined to comment on the filing on Wednesday. However, Next Investments Chief Executive Dan McCabe has told IndexUniverse.com in the past that the firm is working on developing a suite of different ETFs. A patent is pending on the structured distribution process for ETFs created by Next.  

In theory at least, the work on more structured income-producing ETFs by Next could lead to a new wave of lifecycle and target-date retirement ETFs. Barclays and TDX, for example, have been jumping into those markets following the success of mutual funds in retirement accounts using similar portfolios.

But a knock on target-date funds, both in the mutual funds and ETF format, is that bear markets can cause extreme losses. That's due to the fact that such portfolios typically invest predominately in stocks for investors in younger age brackets. Asset allocations are bumped more toward bonds at set intervals as investors become older.

The new Next funds would differ by allowing investors to reinvest in underlying ETFs or to take gains at their own discretion. And if more ETFs sporting largely tax-deferred yields come out, then investors could conceivably build their own suite of lifecyclelike funds.

Even outside of the target-date marketplace, more structured ETF portfolios deferring yields for investors could provide a greater deal of flexibility across a range of different strategies and asset classes. As the filing noted, at the very least, investors could have less reason to consider tax implications by gaining more immediate control over their income streams.  

Next Investments was formed two years ago by four main principals. Three of those were executives at Bear Hunter Structured Products, a NYSE and AMEX specialist firm. Joining the group was Stuart Thomas, who helped develop the SPDR Gold Shares (NYSE: GLD) and Rydex's family of currency ETFs.