exchange fund

(redirected from Swap Funds)

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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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. An exchange fund is also called a swap fund.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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The apex bank said that the window would allow it to swap funds mobilised through foreign currency deposits to attract overseas funds.
Thereafter, the swap funds were considerably less expensive than privatemarket funds during the height of the crisis as the spread between Libor and OIS widened dramatically.
Of particular concern to Congress was the reappearance of so-called swap funds, which are partnerships or RICs that are structured to fall outside the definition of an investment company, thereby allowing contributors to make tax-free contributions of stock and securities in exchange for an interest in an entity that holds similar assets.
The change to the definition of an investment company in the 1997 Act was intended to prevent the growth of "swap fund" transactions, in which a taxpayer transferred appreciated (but non-marketable) stock or securities to a partnership that held cash or other liquid assets.
The Senate Report to the Act explained that Congress intended to prevent the nontaxable formation of "swap funds" in which an RIC was established under Sec.