Financial Services Alert

SEC Issues FAQ On Mutual Fund After-Tax Returns

The staff of the Division of Investment Management of the SEC issued "Frequently Asked Questions About After-Tax Return Requirements" in response to inquiries regarding new rules that mandate the use of standardized after-tax returns in certain mutual fund advertising and offering documents. The frequently asked questions ("FAQ") addresses topics such as applicable tax rates (in part by providing historical rate charts), compliance dates and the treatment of cost basis, capital gains and losses, reinvested dividends, foreign tax credits, redemption fees, and contingent deferred sales loads.

OTS Proposes Easing Thrift Lending And Investment Limits

The OTS proposed regulations easing and clarifying its lending and investment regulations. Comments on the proposal are due by December 3, 2001.

Service Corporations. The proposed rules would reflect a 2001 federal law change by expanding activities that are pre-approved for service corporations of thrifts to small business investment companies and new markets venture capital companies licensed by the Small Business Administration without placing restrictions on the activities of those companies. The proposed rules would also preapprove service corporation subsidiaries with public welfare investment authority equivalent to national banks, as well as service corporations that conduct any activities on an agency basis.

Loans. Currently, OTS regulators require that, with respect to real estate loans, the thrift "substantially rely" on real estate as the "primary security" for the loan. The proposed rule would eliminate the primary security requirement and define "substantially relies" as requiring the thrift to rely substantially upon a security interest in real estate given by the borrower as a condition of making the loan (i.e., the loan would not have been made in the same amount or upon the same terms without the real estate). The proposal would also expand the definition of "small business loan" to include any loan of less than $2 million to a business or farm (an increase from the respective $1 million and $500,000 limits currently imposed).

De Minimis Community Development Investments. The proposal also would increase the ability of a thrift to directly invest in community development projects (greater of 1% of total capital or $250,000) so as to provide generally the same authority as a national bank.

Debt and Government Obligations. The...