Before all the conspiracy theorists come on here to claim that this was done to seomhow appease S&L, let me take the offensive. I believe the distributions would be non-taxable (a plus for everyone), but shareholders would have to reduce their tax basis in the shares held by the amount of their distribution. This would disincetivize (if that's a word) S&L from selling as their capital gains would be that much larger. In effect, it would defer paying taxes from 2006 to 2007 (if they sold in 2007) which in itself might have been incentive enough for the reclassification. However, I would think it would also give them incentive to hold a little longer.