Exchange Funds are: definition
Exchange funds allow investors a tax-free means to diversify a low-cost-basis and/or restricted stock position. Exchange funds allow investors to pool their low-cost-basis stocks in a fund.
In exchange for contributing their stock to the fund, each investor owns a pro-rata share of the fund. After a set period of time – generally seven years – investors can redeem their interest in the fund. They will receive a non-taxable distribution of a diversified pool of stock from the fund’s portfolio. The value of this distribution is equal to the net asset value of their pro-rata interest in the fund at the time of the distribution.