Investment Company Act of 1940 – Section 7(b) 

Cantor Fitzgerald & Company 

February 17, 2004 

 Our Ref. No. 200399956 

RESPONSE OF THE OFFICE OF CHIEF COUNSEL Cantor Fitzgerald & Co. 

DIVISION OF INVESTMENT MANAGEMENT File No. 132-3 

Your letter dated February 11, 2004 requests our assurance that we would not 

recommend enforcement action to the Commission under Section 7 of the Investment 

Company Act of 1940 (“1940 Act”) against Cantor Fitzgerald & Co. (“Cantor 

Fitzgerald”), trusts issuing depositary receipts, or the trustees of such trusts, if the Yield 

Underlying Participating Securities (“YUPS”) program, as described below, is 

implemented without registration of the trusts as investment companies under the 1940 

Act. 

FACTS

You state that Cantor Fitzgerald, as initial depositor, will establish each YUPS 

trust1

 that will hold on behalf of receiptholders: (a) shares of common stock of a single 

issuer that is listed for trading on a national securities exchange or the Nasdaq National 

Market System (“Nasdaq NMS”) (each, a “trading facility”), representing approximately 

70% of the initial assets of the YUPS trust; and (b) zero-coupon U.S. Treasury securities 

(“STRIPS”) maturing quarterly, representing approximately 30% of the initial assets of 

the YUPS trust.2

 You represent that each YUPS trust will issue and cancel receipts in 

round lots of 100, or integral multiples thereof, evidencing an entire and undivided 

interest in each of the deposited securities held by the YUPS trust for the benefit of 

receiptholders. 

You state that the YUPS program is intended, and will be marketed, to provide 

receiptholders with an investment that integrates an equity investment with a stream of 

predictable income. You state that the YUPS program is intended to allow a 

receiptholder to: (a) hold a single, exchange-listed or Nasdaq-quoted instrument (“YUPS 

receipt”) representing the receiptholder’s beneficial ownership of the deposited securities; 

(b) maintain an ownership interest in each of the deposited securities represented by the 

YUPS receipts; (c) cancel his or her YUPS receipts to receive each of the deposited 

 

1

 You state that each YUPS trust will be formed under a depositary trust agreement 

among: Bank of New York (“BONY”), a state-chartered U.S. bank that meets the 

standards as specified under Section 26(a)(1) of the 1940 Act, as trustee; Cantor 

Fitzgerald, as initial depositor; and other depositors and the investors in the YUPS 

program (“receiptholders”). You state that the term of a YUPS trust will be three years 

from the date of formation. 

2

 You represent that no YUPS trust will include securities that could not be 

purchased in open market transactions outside of the YUPS Program. 
 

securities represented by the receipts; and (d) trade the YUPS receipts at a lower cost 

than the cost of trading each of the deposited securities separately. 

You state that the underlying equity securities to be held by a YUPS trust will be 

securities that are registered under Section 12 of the Securities Exchange Act of 1934 

(“Exchange Act”), and thus each equity issuer will be a public reporting company that is 

subject to the reporting, proxy, and other provisions of the Exchange Act. You further 

state that each equity security will qualify as an “actively-traded security” under 

Regulation M of the Exchange Act. Additionally, you state that each equity issuer of a 

security underlying each YUPS trust must: (a) be eligible to use Form S-3 or Form F-3 

under the Securities Act of 1933 (“Securities Act”); and (b) meet the listing criteria that 

an issuer would have to meet in order to list equity-linked notes pursuant to exchange 

rules.3

You state that the STRIPS held by each YUPS trust will be U.S. Treasury 

securities, backed by the full faith and credit of the U.S. Treasury, that are eligible for 

stripping by banks, broker-dealers, and government securities dealers.4

 You state that the 

STRIPS that are selected for a YUPS trust will be 12 consecutive coupons, and that the 

selection of the coupons will be made mechanically based on the specific YUPS trust’s 

life span. You assert that there is a large and active secondary market for STRIPS that is 

highly transparent and that real-time, intra-day yield and price information for STRIPS is 

available from broker-dealers, and through a number of electronic systems. In addition, 

you state that any trading facility on which a YUPS receipt is listed will provide on its 

website the current aggregate market price of the securities underlying a YUPS receipt. 

Accordingly, you represent that receiptholders will be able to compare the current 

valuation price to the last trade price of the YUPS receipt to determine whether to hold or 

surrender the YUPS receipt. 

You state that each YUPS trust will be a single-purpose trust and will not engage 

in any business or activity other than holding the underlying securities, issuing and 

canceling receipts, distributing dividends and shareholder communications, and other 

activities as specifically enumerated in the depositary trust agreement. You state that 

each YUPS trust will function solely as a pass-through mechanism and hold securities 

only in a depositary capacity. You state that the YUPS receipts will be issued on a 

continuous basis as designated securities are deposited into or withdrawn from a YUPS 

trust.5

 You state that the trustee will not trade any of the deposited securities on behalf of 

the YUPS trust, but that each YUPS trust’s assets can increase and decrease through in-

 

3

 You state that the issuer of any equity security included in a YUPS trust will not 

be affiliated with Cantor Fitzgerald. 

4

 You state that when Treasury securities are stripped, each periodic interest 

payment and principal payment becomes a separate zero-coupon security. 

5

 You state that each YUPS trust will issue receipts in one or more global 

certificates that the trustee will deposit with the Depositary Trust Company. 

2
 

kind deposits and withdrawals of the deposited securities and decrease through 

distributions of payments upon the maturity of the STRIPS. 

You state that the trustee will hold the deposited securities for the benefit of

receiptholders and maintain a record of the record owners of each round lot of 100 YUPS 

receipts and of the securities underlying the outstanding YUPS receipts.6

 You state that 

the deposited securities will not be considered to be assets of the trustee or Cantor 

Fitzgerald, except to the extent that either the trustee or Cantor Fitzgerald beneficially 

owns YUPS receipts. You state that the deposited securities would not be subject to any 

third-party claims against either the trustee or Cantor Fitzgerald. You also state that the 

trustee will pass through to receiptholders all shareholder communications7

 and all 

distributions that it receives on the underlying securities as promptly as possible.8

 You 

state that distributions will include any dividend payments and other cash or non-cash 

distributions that a YUPS trust receives from the issuer of the underlying equity security, 

as well as any distributions in connection with mergers or other significant corporate 

transactions relating to the underlying security, and will include the proceeds of the 

maturing STRIPS.9

 You state that the trustee will not invest any distributions before 

forwarding them to receiptholders. 

You state that the offer and sale of YUPS receipts will be registered under the 

Securities Act.10 You represent that each receiptholder will have all the same rights and 

privileges as if the receiptholder held the deposited securities directly. You represent that 

in the event that a claim arises against an issuer of deposited securities, a receiptholder

will have the right to proceed against the issuer, without acting in concert with other 

receiptholders, to the same extent as if the receiptholder had purchased or held the 

issuer’s securities outside of the YUPS program. 

 

6

 In addition, you state that BONY, the trustee, will act as transfer agent with 

respect to transfers of the YUPS receipts. 

7

 You represent that to the extent that the YUPS receipts are held in street name, the 

trustee will deliver all shareholder communications to the record owners of the YUPS 

receipts who will in turn deliver them to the beneficial owners of the YUPS receipts. 

8

 You represent that to the extent that the YUPS receipts are held in street name, the 

trustee will make these distributions, generally within three days after the trust receives 

the distributions, to the record owners of the YUPS receipts who will in turn deliver the 

distributions to the beneficial owners of the YUPS receipts. 

9

 You state that the trustee will ensure that, to the extent practicable, each YUPS 

trust’s record date will be the same as the record date fixed by the equity issuer associated 

with the particular YUPS trust and to the maturity date (the payment date) of each 

STRIPS component in the YUPS trust. 

10 You state that the YUPS receipts will be listed for trading on a trading facility and 

registered under Section 12 of the Exchange Act. 

3
 

You state that investors may acquire YUPS receipts by either purchasing YUPS 

receipts for cash in the initial offering, purchasing YUPS receipts for cash in the 

secondary market, or making an in-kind deposit of the required number of shares of 

common stock of the underlying issuer and STRIPS. You state that investors may only 

create, buy, sell, cancel, or trade YUPS receipts in round-lot amounts of 100 shares, or 

multiples thereof, and that no receiptholder is expected to receive a partial interest in any 

deposited security.11 You also state that receiptholders may cancel their YUPS receipts 

and withdraw the deposited securities at any time.12 

DISCUSSION

Section 7(b) of the 1940 Act generally prohibits any depositor or trustee of or 

underwriter for any investment company, organized or otherwise created under the laws 

of the United States or of a state, without a board of directors, from, among other things, 

offering, selling, or delivering after sale, any security or interest in a security unless the 

company is registered under the 1940 Act. You maintain that the YUPS trusts should not 

have to register as investment companies under the 1940 Act because each YUPS trust 

will function essentially as a pass-through mechanism by which receiptholders may enjoy 

the convenience of holding and trading deposited securities. 

You contend that the staff has provided no-action assurances to receipt programs

that are substantially similar to the YUPS program.13 We disagree with this contention. 

We have not previously addressed a receipt program like Cantor Fitzgerald’s that would 

involve a receipt representing an interest in both fixed-income securities and equity 

 

11 You state that a receiptholder could receive a partial interest in a security only 

under very limited circumstances, such as when the issuer of the equity securities that are 

deposited in a YUPS trust distributes to all receiptholders of its shares fractional interests 

on a whole share. 

12 You state that there will be no charges on such withdrawals. You further state 

that a 1.00% underwriting fee will be imposed on all purchases of YUPS receipts (except 

for secondary market purchases) whether during the initial offering of YUPS receipts or 

when YUPS receipts are created through the deposit of securities with a trust. You state 

that no purchases or sales of YUPS receipts through the trust will be subject to any 

administrative charge. 

13 You cite the following no-action letters: Merrill Lynch, Pierce, Fenner & Smith 

Incorporated (pub. avail. Sept. 3, 1999); Indosuez Asset Management Asia Limited (pub. 

avail. Feb. 14, 1997); Commonwealth Bank of Australia (pub. avail. Sept. 23, 1996); 

Robertson, Stephens & Company (pub. avail. March 13, 1993); CRT Government 

Securities, Ltd. (pub. avail. Aug. 4, 1992); Bear, Stearns & Co. (pub. avail. Jan. 28, 

1992); Merrill Lynch, Pierce, Fenner & Smith Incorporated (pub. avail. Sept. 26, 1990); 

Financial Security Assurance, Inc. (pub. avail. March 30, 1988). 

4
 

securities.14 We believe that receipts evidencing ownership in equity securities that are 

registered under Section 12 of the Exchange Act and listed for trading on a national 

securities exchange or the Nasdaq NMS generally would provide receiptholders with 

transparency and liquidity in the underlying securities.15 Receipts evidencing interests in 

fixed-income securities generally would not. We acknowledge, however, that the fixedincome securities to be included in the YUPS program are STRIPS that will have no

credit risk because they will be backed by the full faith and credit of the United States 

Treasury. You also represent that there is a large and active secondary market for 

STRIPS that is highly transparent. In addition, you represent that the current aggregate 

market price of the securities underlying a YUPS receipt will be posted on the website of 

any trading facility that lists the YUPS receipt. 

On the basis of the facts and representations contained in your letter, we would 

not recommend enforcement action to the Commission under Section 7(b) of the 1940 

Act against Cantor Fitzgerald, any YUPS trust, or any trustee of a YUPS trust, if the 

YUPS program is implemented as described in your letter without registration of each 

 

14 See Merrill Lynch, Pierce, Fenner & Smith Incorporated (pub. avail. Sept. 3, 

1999) (public offer of receipts for underlying equity securities of multiple issuers that 

were registered under Section 12 of the Exchange Act and traded on a national securities 

exchange or the Nasdaq NMS), Robertson, Stephens & Company (pub. avail. Jan. 8, 

1993) (private offer to qualified institutional buyers of receipts for underlying preferred 

stock of approximately seven issuers), and Central Utah Rural Impact Capital Corp. (pub. 

avail. Aug. 29, 1980) (public offer of receipts that were jointly issued by the 

municipalities that issued the underlying municipal securities). Each of the other letters 

that you cite (that are listed in footnote 12 above) involved a receipt representing an 

interest in a single underlying security of a single issuer. Please be aware that the 

positions that we took in each of those letters were based on the particular facts and 

representations set forth in each letter. Those positions should not be interpreted to 

extend beyond any of the facts and representations set forth therein. 

15 See Representation (k), Merrill Lynch, Pierce, Fenner & Smith Incorporated (pub. 

avail. Sept. 3, 1999). Price transparency and liquidity in the underlying securities allow 

investors to determine the correlation between the market price of a receipt and the 

aggregate market price of the underlying securities, and pursue the most cost-efficient 

method of acquiring and disposing the receipts. Cf. Section 22(d) of the Company Act 

and Rule 22c-1 thereunder (setting forth the pricing requirements for the purchase and 

sale of redeemable securities in transactions involving, among others, dealers in the 

securities). See also Actively Managed Exchanged-Traded Funds, Investment Company 

Act Release No. 25258 (Nov. 8, 2001) (discussing the importance of transparency and 

liquidity of the underlying securities, and how Section 22(d) and Rule 22c-1 apply to 

secondary market transactions in redeemable securities). 

 

5
 

YUPS trust as an investment company.16 Our position is based upon the facts and 

representations set forth in your letter, including your representations that: 

(a) each round-lot of 100 YUPS receipts will represent a discrete, identifiable, 

and undivided beneficial ownership interest in specified securities held by a 

YUPS trust; 

(b) each record owner’s ownership interest in particular underlying securities will 

be identified and recorded by the trustee; 

(c) beneficial owners of YUPS receipts will be permitted to withdraw the 

deposited securities from a YUPS trust at any time, without paying a 

transaction fee; 

(d) in the event that a claim arises against an issuer of deposited securities, each 

beneficial owner of YUPS receipts will have the right to proceed against the 

issuer to the same extent as if the beneficial owner of YUPS receipts had 

purchased or held the issuer’s securities outside of the YUPS program, and 

will not be required to act in concert with other beneficial owners or the 

trustee; 

(e) the trustee will perform only clerical or ministerial services in connection with 

the YUPS program, and a YUPS trust’s assets will not be otherwise actively 

managed; 

(f) the trustee will pass through to the YUPS owners, as promptly as practicable 

after the trustee’s or its agent’s receipt, copies of all communications, proxy 

statements, and other materials that it receives from the issuers of the 

deposited securities; 

(g) the trustee will pass through to the YUPS owners all distributions received

from the issuers of the deposited securities as promptly as practicable, and the 

trustee will use its best efforts to ensure that, to the extent practicable, the 

record date set by a YUPS trust is the same as the record date set by the issuer 

of the deposited securities and to the maturity date of each STRIPS 

component in the YUPS trust; 

(h) the trustee will be a state-chartered U.S. bank that meets the standards 

specified in Section 26(a)(1) of the 1940 Act; 

 

16 You do not ask for assurances, and we provide none, under Section 7 of the 1940 

Act regarding any other receipt program involving the underlying securities of multiple 

issuers (e.g., fixed-income securities of multiple issuers). 

6
 

(i) the deposited securities will not be considered to be the assets of the trustee or 

Cantor Fitzgerald, and as a result, would not be subject to any third-party

claims against the trustee or Cantor Fitzgerald (except to the extent that the 

trustee or Cantor Fitzgerald is itself a beneficial owner of YUPS receipts); 

(j) the YUPS program will not be marketed as an investment company; 

(k) the deposited securities for a YUPS trust will consist of the equity securities 

of a single issuer that are registered under Section 12 of the Exchange Act and 

will be listed for trading on a national securities exchange or the Nasdaq 

NMS, and U.S. Treasury STRIPS issued and backed by the full faith and 

credit of the United States Treasury; 

(l) purchases of YUPS receipts through a YUPS trust will be subject to a 

underwriting fee of 1.00% or less and no administrative charges; and 

(m)any national securities exchange or the Nasdaq NMS upon which a YUPS 

receipt will be listed for trading will post on its website the current aggregate 

market price of the securities underlying a YUPS receipt. 

Because this position is based on all of the facts and representations made in your 

letter, you should note that any different facts or representations might require a different 

conclusion. Moreover, this response represents the Division’s position on enforcement 

action only and does not express any legal conclusions on the legal issues presented. 

Your request for confidential treatment under the Commission’s Rule 81 (17 

C.F.R. § 200.81) is granted until the earlier of: (i) 120 days from the date of the issuance 

of this response; or (ii) the date of any public disclosure of facts sufficient to reveal the 

information contained in your no-action request or this response. 

Kenneth C. Fang 

Senior Counsel 

7
 

INCOMING LETTER: 

February 11, 2004 Investment 

Company Act of 1940 

 Section 7

Douglas J. Scheidt, Esq. 

Associate Director (Chief Counsel) FOIA Confidential 

Treatment Request 

Division of Investment Management 

Securities and Exchange Commission 

450 Fifth Street, N.W. 

Stop 5-6 

Washington, DC 20549 

 

Re: Request for No-Action Relief Regarding YUPS Depositary Receipts 

Program 

 

Dear Mr. Scheidt: 

We are writing on behalf of our client Cantor Fitzgerald & Co. (“Cantor 

Fitzgerald”) with respect to a proposed depositary receipts program called 

YUPS (the acronym for “Yield Underlying Participating Securities”).17 We 

respectfully request that you confirm that the Division will not recommend 

that the Commission take any enforcement action under Section 7 of the 

Investment Company Act of 1940 (the “1940 Act”) against Cantor Fitzgerald, 

a trust formed to issue YUPS, or the trustee of such trust if the YUPS 

program is implemented without registration of the trust as an investment 

company under the Investment Company Act. Cantor Fitzgerald, as 

depositor, has filed a registration statement with the Commission registering 

the offer and sale of YUPS with respect to a yet-to-be named issuer on Form 

S-1 under the Securities Act of 1933 (the “Securities Act”). An application 

also has been made to list the YUPS on the American Stock Exchange. 

Introduction 

The YUPS program is intended to, and will be marketed as a means to, 

provide investors with a less costly way to buy, hold and sell an investment 

that integrates an equity investment with a stream of predictable income, and 

not as an investment company. Specifically, the program is intended to allow 

 

17 YUPS is a service mark owned by Cantor Fitzgerald. 

8
 

investors to: (i) hold a single, exchange-listed or Nasdaq-quoted instrument 

representing the investors’ beneficial ownership of the deposited securities; 

(ii) maintain an ownership interest in each of the deposited securities 

represented by the YUPS, and cancel their YUPS to receive each of the 

deposited securities represented by the receipts; and (iii) trade the YUPS at a 

lower cost than the cost of trading each of the deposited securities separately. 

The YUPS represent an undivided beneficial ownership interest in the 

securities held by an issuer trust on the holder’s behalf. Each YUPS trust 

will be formed under a depositary trust agreement among Bank of New York 

(“BONY”), as trustee; Cantor Fitzgerald as initial depositor; and other 

depositors and the owners of the YUPS. The term of a YUPS trust will be 

three years from formation. Cantor Fitzgerald may determine, at the end of 

the term of a YUPS trust, that sufficient interest exists to create a new YUPS 

trust to hold the same equity security as held by the YUPS trust now 

terminating. In such instance Cantor Fitzgerald intends to impose a 1% 

underwriting fee on all purchases of YUPS, as discussed below, and this fee 

will be described in the subsequent trust’s prospectus. 

Each YUPS trust will hold (i) shares of common stock of a single issuer 

listed for trading on a national securities exchange or the Nasdaq National 

Market System, representing approximately 70% of the initial assets of the 

trust, and (ii) a series of zero-coupon U.S. Treasury Securities (“Treasury 

STRIPS”) maturing quarterly during the term of the trust and representing 

approximately 30% of the initial assets of the trust. The trustee will not trade 

the deposited securities on behalf of the YUPS trust. However, the YUPS 

trust’s assets may increase or decrease as a result of in-kind deposits and 

withdrawals of the deposited securities during the life of the YUPS trust, and 

will decrease as a result of distribution of payments upon maturity of the 

Treasury STRIPS. 

The program is similar in operation to the HOLDRs Trusts sponsored 

by Merrill Lynch & Co., in which the HOLDRs securities issued by the 

HOLDRs Trust represent an undivided interest in the listed common shares 

of a number of unaffiliated issuers that are deposited in the trust. Unlike 

HOLDRs, a YUPS trust will hold the equity securities of only one public 

company, which in no instance will be affiliated with Cantor Fitzgerald, as 

well the zero-coupon Treasury Securities. As with the HOLDRs program, 

each YUPS trust will function solely as a pass-through mechanism and hold 

securities only in a depositary capacity. Each holder will have all the same 

rights and privileges as if the owner held the deposited securities directly. 

Cantor Fitzgerald, as the depositor, will establish a trust that will hold, 

on behalf of investors in the YUPS program, shares of common stock 

representing a single issuer and Treasury STRIPS maturing quarterly during 

the term of the trust and representing approximately 30% of the initial assets 

of the trust. The trust will issue receipts to investors that represent the 

9
 

investors’ discrete, identifiable, and undivided beneficial ownership interest in 

specified underlying shares of common stock and Treasury STRIPS, and the 

receipts are registered under the Securities Act. Investors may acquire 

receipts by either purchasing YUPS in the initial offering for cash,18 making 

an in-kind deposit of the required number of shares of common stock of the 

underlying issuer and Treasury STRIPS with the trustee, or purchasing YUPS 

for cash in the secondary market. Purchases and sales of YUPS through the 

trust will not be subject to any administrative charges. As described in more 

detail below, investors may cancel their receipts and withdraw the underlying 

securities by delivering to the trustee a specified number of round lots of 

YUPS; no charges will be imposed on such a withdrawal. The YUPS program 

will not be marketed to investors as an investment company. An investor 

who decides to invest in the securities represented by a YUPS may either 

directly buy, hold, and sell each of the underlying securities outside of the 

program, or may purchase YUPS that represent the investor’s interest in 

those underlying securities. 

Cantor Fitzgerald will select the underlying equity security for a 

particular YUPS trust based on its assessment of market demand for a YUPS 

representing equity securities of a particular issuer. As discussed below, 

each equity issuer will be a public reporting company. 

Equity securities 

The underlying equity securities to be included in a particular YUPS 

trust will be equity securities listed for trading on a national securities 

exchange or the Nasdaq National Market System, and registered under 

Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”), and 

thus each equity issuer will be a public reporting company subject to the 

reporting, proxy and other provisions of the Exchange Act. The underlying 

equity securities to be included in a particular YUPS trust will qualify as 

“actively-traded securities” under Regulation M of the Securities Exchange 

Act of 1934, as amended, meaning that they will have average daily trading 

volume of at least $1 million and will be issued by an issuer whose common 

shares have a public float value of at least $150 million. In addition, each 

issuer of a security underlying YUPS must (1) be eligible to use Form S-3 or 

Form F-3 under the Securities Act for a primary offering of non-investment 

grade securities, or (2) meet the listing criteria an issuer would have to meet 

if the issuer were to list equity-linked notes pursuant to exchange rules such 

as American Stock Exchange Rule 107B. The YUPS themselves will be listed 

on an exchange or traded on the Nasdaq Stock Market and registered under 

Section 12 of the Exchange Act. 

 

18 A 1.00% underwriting fee will be imposed on all purchases of YUPS, including those created

subsequent to the initial offering, except for those purchased in the secondary market. 

10
 

If a company terminates its reporting obligations, its securities as well 

as the Treasury STRIPS deposited in that YUPS trust will be distributed to 

receipt holders, and those equity securities will be removed from the list of 

securities eligible for deposit within the program. No YUPS trust will include 

securities that could not be purchased in open-market transactions outside 

of the YUPS program. A company will be removed from the program only if it 

terminates its reporting obligations or under another termination event 

described below under “Operation of the Program.” 

Treasury STRIPS 

Treasury STRIPS are not originated by the Department of Treasury. 

Rather, the Treasury designates those Treasury securities that are eligible for 

stripping by banks, broker-dealers, and government securities dealers. When 

interest bearing Treasury securities are stripped on the books of the financial 

institution, each periodic interest payment and the principal payment 

becomes a separate zero coupon security. Each component has its own 

identifying number and can be held or traded separately. STRIPS are also 

called zero-coupon securities because the only time an investor receives a 

payment during the life of a STRIP is when it matures. 

There is a large and active secondary market for STRIPS (see, e.g., 

www.publicdebt.treas.gov). Many brokers and dealers make markets in these 

securities. Moreover, the market is highly transparent. Pricing is possible by 

reviewing the published quotations in financial publications such as The Wall 

Street Journal. Real-time, intraday yield and price information for Treasury 

STRIPS is available from broker-dealers, and through a number of 

subscription services such as GovPx, Inc., Bloomberg, Reuters, Bridge 

Information Systems, and Telerate. In addition, to provide additional 

transparency to holders of YUPS, any exchange or the Nasdaq Stock Market 

on which YUPS are listed or quoted will post on its website the current 

aggregate market price of the securities underlying a receipt. Investors will 

be able to compare the current valuation price to the last trade price and 

decide whether to hold or surrender their YUPS. 

Treasury STRIPS are backed by the full faith and credit of the Treasury 

and do not present any credit risk. The STRIPS selected for a YUPS trust will 

be 12 consecutive coupons (one for each quarter the trust is in existence). 

The selection of these 12 consecutive coupons will be a mechanical process 

driven exclusively by the trust’s life span, will occur at the trust’s inception, 

and will not involve any portfolio management. 

Operation of the Program 

11
 

Under the program, investors may only create, buy, sell, cancel, or 

trade in the secondary market YUPS in a round lot amount or integral 

multiples thereof. Like common stock, 100 YUPS will equal a round lot. The 

transfer agent will not be permitted to transfer YUPS in less than round lot 

amounts.19 Each round-lot of 100 YUPS will represent a discrete, identifiable 

and undivided beneficial ownership interest in specified deposited securities. 

The securities will be deposited into a trust to be formed under depositary 

trust agreement among Cantor Fitzgerald, as initial depositor, BONY, as 

trustee, and all holders and beneficial owners of the YUPS. 

Each YUPS trust will be a single-purpose trust and will not engage in 

any business or activity other than holding the underlying securities, issuing 

and canceling receipts, distributing dividends and shareholder 

communications, and other activities incidental and necessary to carry on 

these duties, as specifically enumerated in the depositary trust agreement. 

The trust will issue receipts in one or more global certificates that the trustee 

will deposit with the Depositary Trust Company. The trust will issue and 

cancel receipts on a continuous basis as designated securities are deposited 

into or withdrawn from the trust. 

Pursuant to the terms of the depositary trust agreement, the trustee 

will pass through to receipt holders all distributions it receives on the 

underlying securities as promptly as possible after the trust’s receipt of the 

distributions (generally, within three business days of receipt). In accordance 

with the terms of the depositary trust agreement, the Trustee will ensure 

that, to the extent practicable, each trust’s record dates will be the same as 

the record date fixed by the equity issuer associated with the particular YUPS 

trust and the maturity date (the payment date) of each Treasury STRIP in the 

YUPS trust. Distributions will include any dividend payments and other cash 

or non-cash distributions that the trust receives from the issuer of the 

underlying equity security, as well as other distributions in connection with 

mergers or other significant corporate transactions relating to the underlying 

security, and also will include the proceeds of the maturing Treasury STRIPS. 

The trustee will not invest the distributions before passing them on to receipt 

holders. Further, the depositary trust agreement provides that the trustee 

may only vote the underlying securities in accordance with voting 

instructions received from the receipt holders. The depositary trust 

agreement further provides that the trustee will forward as promptly as 

possible to receipt holders copies of all communications, proxy statements 

and other materials that the trust receives from issuers of the underlying 

 

19 BONY will act as transfer agent with respect to transfers of YUPS. 

12
 

securities (generally, within three business days of receipt).20 Additionally, 

receipt holders have the right under the depositary trust agreement to 

withdraw the underlying securities at any time. These rights provide receipt 

holders with the same benefits to which they would be entitled if they held 

the underlying securities outside of the YUPS program. 

 

As stated above, under the terms of the program a beneficial owner of a 

specified number of round-lots of 100 YUPS will have the right to request 

delivery of the owner’s deposited securities from the trustee. In addition, 

each YUPS trust will distribute all deposited securities (or other assets, as 

described below) under the following circumstances (each, a “termination 

event”): 

A. If the equity issuer associated with a particular YUPS no longer has a 

class of common stock registered under Section 12 of the Exchange Act, then 

its securities will no longer be eligible as deposited securities and the trustee 

will distribute the securities of that issuer to the owners of the YUPS as well 

as any STRIPS remaining. 

B. If the SEC finds that the equity issuer associated with a particular YUPS 

is a company that should be registered as an investment company under the 

Investment Company Act, and the trustee has actual knowledge of the SEC 

finding, then the trustee will distribute the securities of that company as well 

as any STRIPS remaining to the owners of the receipts. 

C. If the equity securities of the issuer associated with a particular YUPS are 

no longer outstanding as a result of a merger, consolidation, or other 

corporate event, the trustee will distribute the consideration paid by and 

received from the acquiring company to the beneficial owners of YUPS, along 

with any remaining STRIPS. 

D. If the equity issuer’s underlying securities are delisted from trading on a 

national securities exchange or Nasdaq and are not listed for trading on 

another national securities exchange or authorized for quotation on the 

Nasdaq National Market System within five business days from the date the 

these securities are delisted, then the trustee will distribute the securities of 

that company as well as any STRIPS remaining to the owners of the receipts. 

E. The receipts of a particular YUPS program are delisted from the national 

securities exchange upon which they are listed and are not listed for trading 

 

20 Where YUPS are held in street name, the Trustee will deliver all distributions and shareholder 

communications to the record holders, who in turn will deliver distributions and all shareholder 

communications to the beneficial owners. 

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on another national securities exchange or through Nasdaq within five 

business days from the date the YUPS are delisted. 

F. The trustee resigns and no successor trustee is appointed within 60 days 

from the date the trustee provides notice of its intent to resign to the owners 

of the receipts. 

G. 50% of the owners of outstanding YUPS vote to dissolve and liquidate the 

trust. 

H. If either Cantor Fitzgerald, as initial depositor, or the trustee determines, 

in its sole discretion, that legal or regulatory issues make early termination in 

the best interests of the beneficial owners of the YUPS. 

If a termination event occurs, the trustee will distribute the deposited 

securities to the receipt holder as promptly as practicable following the 

occurrence of the termination event. 

Legal Analysis 

In a series of no-action and interpretive letters involving custodial 

receipt arrangements substantially similar to the YUPS program, the most 

recent of which addressed the status of the HOLDRs program, the Staff 

examined whether investors holding receipts in the program have interests or 

rights that differ from the interests or rights associated with holding the 

underlying securities directly.21 In these letters, the Staff has considered the 

following factors, all of which the YUPS program meets: 

(1) The receipt holders will have all the rights and privileges of owners of

the underlying securities. 

Each beneficial owner of YUPS will have all of the same rights and 

privileges as if the owner beneficially held the deposited securities outside the 

program. A YUPS represents only a convenience to the investor who wants to 

own equity securities of a particular issuer coupled with a stream of 

predictable income. Holding securities through a YUPS is not intended to 

change the owner’s beneficial ownership interest in the individual securities 

 

21 See Merrill Lynch, Pierce, Fenner & Smith Incorporated, SEC No-Action Letter (Sept. 3, 1999); 

Indosuez Asset Management Asia Limited, SEC No-Action Letter (Feb. 14, 1997); Commonwealth Bank

of Australia, SEC No-Action Letter (Sept. 23, 1996); Robertson, Stephens & Company, SEC No-Action 

Letter (March 13, 1993); CRT Government Securities, Ltd., SEC No-Action Letter (Aug. 4, 1992); Bear, 

Stearns & Co., SEC No-Action Letter (Jan. 28, 1992); Merrill Lynch, Pierce, Fenner & Smith Incorporated, 

SEC No-Action Letter (Sept. 26, 1990); Financial Security Assurance Inc., SEC No-Action Letter (Mar. 

30, 1988).

14
 

represented by a YUPS. For example, an owner will have the right to instruct 

the trustee to vote the shares represented by a receipt, or may himself attend 

shareholder meetings. An owner also will receive dividends and other 

distributions on deposited shares, if any are declared and paid to the trustee 

by the issuer of a deposited security, as well as the proceeds of the maturing 

Treasury STRIPS. The trustee will provide any dividends, distributions and 

proceeds to owners as promptly as practicable following the trustee’s receipt 

of the distribution. An owner will receive copies of all communications, proxy 

statements, and other materials received by the trustee or its agent that the 

owner would receive if it held the underlying securities directly. The trustee 

or its agent will provide these materials to the owners as promptly as 

practicable following the trustee’s or its agent’s receipt of these materials. 

For purposes of the federal income tax laws, a U.S. receipt holder will be 

treated as directly owning the deposited securities. But for the convenience 

provided by holding the deposited securities by means of the receipt, an 

owner’s rights with respect to the deposited securities will not change. 

 (2) Each receipt represents the entire interest in the underlying security

or securities, and holders of receipts will be permitted to withdraw the

underlying securities from the receipt program at any time.

YUPS may be issued, held, traded and surrendered only in a round lot 

amount of 100 receipts and integral multiples thereof. A round lot of YUPS 

will represent an entire and undivided ownership interest in each of the 

deposited securities held by the trust for the benefit of the owners. Because 

YUPS will be issued and transferred only in round lot amounts, no owner of a 

YUPS is expected to receive a partial interest in any deposited security.22 The 

trustee will maintain a record of the particular securities represented by each 

YUPS. An owner will have the right to withdraw the deposited securities 

represented by his or her YUPS upon request at any time by delivering a 

round lot of 100 YUPS, and integral multiples thereof, to the trustee. No 

transaction fees will be charged by the sponsor, trustee or trust on a 

withdrawal of deposited securities (unlike in the HOLDRs program). When 

the YUPS investor has withdrawn the securities underlying the YUPS, he or 

she may keep or dispose of any or all of the underlying securities at any time. 

(3) Each receipt holder’s ownership interest in particular underlying 

securities will be identified and recorded by the trustee. 

The trustee will hold the securities for the benefit of the owners of the 

YUPS and will maintain a record of the record owner of each round lot of 100 

 

22 A YUPS holder could receive a partial interest in a security only under very limited circumstances, 

such as when the issuer of the equity securities associated with a particular YUPS trust distributes 

fractional interests on a whole share to all holders of its shares. 

15
 

YUPS and a record of the securities underlying those outstanding YUPS. By 

maintaining these records, the trustee will identify and record each record 

owner’s ownership interest in particular underlying securities. 

(4) Each receipt holder, as beneficial owner of the underlying securities, 

will have the right to bring an action against an issuer of the underlying 

securities, and will not be required to act in concert with other receipt holders or 

the trustee. 

In the event that a claim arises against the issuer of a deposited 

security, a YUPS holder will have the right to proceed against the issuer to 

the same extent as if the holder had purchased or held the issuer’s securities 

outside of the YUPS program. A YUPS holder will have the right to withdraw 

the securities from the YUPS program at any time and bring an action against 

the issuer of the security to the same extent as if the holder held the issuer’s 

securities directly. The holder will not be required to act in concert either 

with other YUPS owners or the trustee. 

(5) The trustee performs only clerical or ministerial services on behalf of

the receipt holders. 

The YUPS trusts will not be actively managed. The trustee will perform 

only clerical and administrative functions, and will not make any investment 

decisions regarding the securities represented by a YUPS. The trustee will 

hold the securities for the benefit of the owners of YUPS and maintain a 

record of the record owners of the YUPS and of the securities underlying the 

outstanding YUPS. In addition, the trustee will act as transfer agent with 

respect to transfers of the YUPS. All of these tasks are nondiscretionary and 

ministerial. 

(6) The trustee undertakes to notify receipt holders in the event of a

default of an issuer of underlying securities, and will forward to the receipt

holders copies of all communications from the issuers of the underlying 

securities.

The trustee or its agent will transmit to YUPS owners as promptly as 

practicable after the trustee’s or its agent’s receipt copies of all 

communications, proxy statements and other materials that it receives from 

the issuers of the deposited securities. 

(7) The underlying securities will not be considered assets of the 

sponsoring firm or trustee bank. 

The deposited securities and YUPS will not be considered the assets of 

Cantor Fitzgerald or BONY, except to the extent that the Cantor Fitzgerald or 

BONY itself beneficially owns YUPS and therefore is a beneficial owner of the 

16
 

particular securities underlying the YUPS. As a result, the deposited 

securities and YUPS (other than those YUPS beneficially owned by Cantor 

Fitzgerald or BONY) would not be subject to any third-party claims against 

Cantor Fitzgerald or BONY. 

 (8) The trustee will be a bank. 

The trustee will be BONY, which is a state-chartered U.S. bank that is 

a member of the Federal Reserve system and meets the standards for a 

trustee specified in Section 26(a)(1) of the 1940 Act. 

(9) Neither the trustee nor the sponsor additionally will guarantee or 

otherwise enhance the creditworthiness of the underlying securities. 

The deposited securities, as well as the YUPS, will trade in the public 

markets in regular way secondary trading transactions on the floor of a 

national securities exchange or in the over-the-counter market. As noted 

above, an application has been made to list YUPS on the American Stock 

Exchange. In addition, Cantor Fitzgerald currently intends (although it is not 

obligated) to make a market in the YUPS. No owner of a YUPS will depend 

solely, or even primarily, upon anyone other than the specialist (or Nasdaq 

market maker) for trade, execution, or market liquidity. In addition, no party 

to a YUPS program will guarantee or otherwise enhance the creditworthiness 

of any deposited security or YUPS. 

(10) Other factors are not present, such as remarketing agreements, that

would require the investors to rely on the sponsor to obtain the benefit of their 

investment. 

No such factors are present in the YUPS program. 

In the absence of active management, and provided that a receipt 

holder has an undivided ownership interest in the underlying security or 

securities, as well as all of the rights and benefits that he or she would have if 

he or she held the underlying security or securities directly, it does not 

matter whether the receipt represents a single security, several securities of 

the same issuer, or several securities of different issuers.23 The YUPS 

program is intended merely to offer a more convenient way for investors to 

purchase, hold, and transfer the underlying securities, and to hold an 

investment that integrates an equity investment with a stream of predictable 

income. There is no active management in the YUPS program. 

 

23 Compare Robertson, Stephens & Company, SEC No-Action Letter (March 13, 1993) with CRT 

Government Securities, Ltd., SEC No-Action Letter (Aug. 4, 1992). 

17
 

As discussed above, except for a few minor differences (such as the 

absence of withdrawal and transaction fees) the YUPS program will operate 

similar to the manner in which the HOLDRs program operates. While 

HOLDRs involved a basket of equities, and YUPS involves a single equity and 

twelve Treasury STRIPS, this difference is not material to the analysis under 

the 1940 Act. No portfolio management activity occurs in connection with 

the STRIPS (the STRIPS present no credit issues), and the STRIPS are part of 

an extremely liquid Government securities market. Indeed, the Staff has 

granted no-action relief to custodial receipt programs that involved fixed 

income securities, such as CRT Government Securities, Ltd. (Treasury 

STRIPS and Resolution Funding Corporation STRIPS), Merrill Lynch, Pierce, 

Fenner & Smith, Inc. (municipal bonds), and Financial Security Assurance 

(municipal bonds).24 The key aspect of a custodial receipt program such as 

the YUPS program is not the type of security or securities represented by the 

receipt, but whether the program operates as a convenience for investors, and 

whether investors have the unilateral right to surrender their receipt and 

receive the component securities. 

The YUPS trusts should not each have to register as an investment 

company under the 1940 Act because each trust will function essentially as a 

pass-through mechanism by which investors may enjoy the convenience of 

holding and trading deposited securities through YUPS. Each trust will hold 

securities only in a depositary capacity, and each round lot of 100 YUPS will 

represent an entire and undivided ownership interest in each of the deposited 

securities held by the trust for the benefit of the owners. An owner may 

withdraw the deposited securities at any time by delivering to the trustee a 

specified number of round-lots of 100 YUPS, with no withdrawal fee. An 

owner of YUPS will have all of the same rights and privileges as if the owner 

held the deposited securities outside of the program. These rights and 

privileges include, among other things: (i) the right of an owner to attend 

shareholder meetings, or instruct the trustee to vote the shares represented 

by a receipt according to the owner’s instructions; (ii) the right to receive any 

dividends or other distributions that are paid on deposited shares; (iii) the 

right to receive copies of communications, proxy statements, and other 

materials relating to the deposited shares; and (iv) the right at any time to 

withdraw the deposited securities and bring an action against an issuer of 

deposited securities. For purposes of the federal tax laws, an owner will be 

treated in the same manner as if the owner held the deposited securities 

directly. The trust will not be actively managed and the trustee will perform 

only clerical and administrative functions with respect to the trust. 

Conclusion 

 

24 CRT Government Securities, Merrill Lynch, and Financial Security Assurance, supra note 3. 

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For the reasons discussed above, we believe that the YUPS trusts 

should not have to register as investment companies under the 1940 Act. We 

further request confidential treatment pursuant to Section 200.81 and 

Section 200.83(c) of the SEC Commission’s Rules of Practice until the earlier 

of (a) 120 days from the date of issuance of the no-action letter; or (b) the 

date of any public disclosure of facts sufficient to reveal the essence of the 

no-action request or the Commission’s response. If you have any questions, 

please call me at (202) 739-5662 or Monica Parry at (202) 739-5692. 

Very truly yours, 

Thomas S. Harman 

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