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Exchange Fund

   Also found in: Wikipedia 0.02 sec.
Exchange fund
Investment vehicle introduced in 1999 that appeals to wealthy investors with large holdings in a single stock who want to diversify without paying capital gains taxes. These funds allow investors to exchange their stock for shares in a diversified portfolio of stocks in a tax-free transaction.
exchange fund
An open-end investment company that swaps its own shares for an equal value of securities owned by an individual investor. Although the exchange is tax-free, the fund assumes the stockholder's basis on the securities it obtains. Thus, exchange funds ordinarily have large potential capital gains liabilities. Because of a 1967 Internal Revenue Service ruling, shares of these funds are no longer offered.
Exchange Fund
An investment vehicle allowing investors with large holdings in a single stock to exchange them for a diversified portfolio. This allows the investors to diversify their holdings without selling any stocks, thereby avoiding taxes on their capital gains until the shares are actually sold. Exchange funds are controversial as investors could avoid taxes completely by never selling the portfolio and simply borrowing against it. They were originally introduced in 1999.


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A solution to diversify the sellers' stock holdings is for the selling shareholder to contribute their stock (which they receive from their business' sale) to an "exchange fund," where different investors contribute large blocks of each investor's publicly traded stock into the exchange fund, which in turn results in diversification of stock ownership among the fund's investors.
Buyers and sellers: tax strategies for buying and selling businesses by Briskin, Robert / California CPA
Known also as an exchange fund or a diversification fund, a swap fund uses partnership tax breaks to help wealthy investors diversify their assets without paying capital-gains taxes.
STRATEGY CUTS INVESTORS' TAX : WALL STREET USES LOOPHOLES TO AVOID ... by Daily News (Los Angeles, CA)
These Oak Hill partnerships comprise over $20 billion of investment capital across multiple asset classes, including private equity, special situations, high yield and bank debt, venture capital, real estate, a public equity exchange fund and a global fixed income and equity hedge fund.
The New York Times Company Agrees to Sell Its Broadcast Media Group ... by Business Wire
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