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 Exchange Funds |
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Description
If you own low tax basis securities, Legg Mason Exchange Funds allow you to exchange them for shares in a Limited Partnership or Limited Liability Company without causing a taxable event. Outside of Exchange Funds, there are very few options available to help you gain greater diversification without selling your securities or incurring a capital gains tax.
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Benefits
Exchange Funds allow you to achieve greater diversity and a significant tax advantage while maintaining ownership of your securities.
If you have a time horizon of seven years or more, you will realize the greatest benefits of an exchange fund. After a seven-year period, you may be able to receive a diversified basket of securities as a tax-free redemption.
Some funds have an estate-planning feature that may prompt you to remain in the fund longer.
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Features
The minimum investment is usually $1 million.
Clients must be qualified purchasers or accredited investors, thus they must have a net worth of at least $5 million (exclusive of homes, furnishings, and automobiles), and income of $200,000 per year for each of the past two years and the upcoming year in order to invest. Most Exchange Funds have at least 50 and as many as 499 investors, and are only open to new investors for set periods of time.
For tax purposes, each security and its corresponding cost basis follows the contributing member until he or she exits the fund. Therefore, if a security must be sold, the capital gains liability flows back to the contributing member.
Exchange funds may not invest more than 80% of assets in stocks or securities. Thus, exchange funds typically invest at least 20% of assets in real estate through REIT operating partnerships. This protects the tax-advantaged nature of the product. Exchange funds typically leverage 20-25% of their portfolios to meet this requirement.
Exchange funds are extremely illiquid; investors rarely can retrieve their investment without paying substantial penalties.
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Related Products/Services
Legg Mason Mutual Funds
Legg Mason Offshore Funds
Mutual Funds
Mutual Solutions
Key Client Program
Wealth Management
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