Ch. 11 S7

Question 1

To invest in a limiter partnership, and investor must complete the _________ _________.

Answer 1

Subscription agreement

Question 2

What happens when an investors passive losses exceed her passive income?

Answer 2

She is able to carry forward the passive losses.

Question 3

What does it mean to say “a limited partnership is a pass through investment”?

Answer 3

The result of the business venture (profits and losses) flow through directly to the investor.

Question 4

T/F: Raw land is not a depreciable asset.

Answer 4

True

Question 5

A limited partner could lose a limited liability status for what reasons?

Answer 5

Taking an active role in the management of the program (hire/fire employees or negotiate contracts)

Question 6

T/F: A hedge fund is always required to register as an investment company.

Answer 6

F; a hedge fund is not required to register if it has no more than 100 shareholders and makes no public offering.

Question 7

List some of the characteristics of hedge funds.

Answer 7

Hedge funds are often leveraged, unregistered, and illiquid

Question 8

What are the important numbers associated with REITs?

Answer 8

90% income distributed, 5 or less may not own more than 50%, 100+ shareholders, 75% of assets invested in real estate.

Question 9

A major advantage to investing in Government Assisted Housing Programs is the availability of __________.

Answer 9

Tax credits

Question 10

What is the difference between straight line depreciation and accelerated depreciation?

Answer 10

Straight line has the same deduction each year, while accelerated has larger deductions in the early years

Question 11

T/F: Limited partnership units are illiquid and require permission of the general partner to sell.

Answer 11

T

Question 12

What is the role of a wholesaler when dealing with limited partnerships?

Answer 12

A wholesaler assists in marketing the partnership to other BDs as well as educating RRs.

Question 13

What may an RR recommend to a non-accredited investor writhing to participate in hedge fund investing?

Answer 13

A fine of hedge funds. However, these funds do not offer daily redemption rights

Question 14

General Partners must contribute at least _____% of the capital.

Answer 14

1%

Question 15

Name some of the different types of Direct Participation Programs.

Answer 15

General Partnerships, Limited partnerships, joint ventures, sub chapter S corporations.

Question 16

What programs generates no cash flow and is based on the speculation of land value appreciation?

Answer 16

Raw land program

Question 17

_________ Partners are the primary contributors of capital to a limited partnership.

Answer 17

General

Question 18

Is a REIT a form of a DPP?

Answer 18

No, unlike DPPs, REITs do not pass through losses

Question 19

Is income generated by a limited partnership taxed once or twice?

Answer 19

Only once, and it is at the partners level. The program itself is not a taxable entity.

Question 20

T/F: DPPs are pass through investments.

Answer 20

T

Question 21

If a REIT pays dividends, would the corporate dividend exclusion rule apply?

Answer 21

No

Question 22

Lost some natural resource wasting assets that a DPP is permitted to deplete.

Answer 22

Oil, gas, gold, and timber; but not wheat since it’s replanted and grown every year.

Question 23

May hedge funds sell stocks short and use margin?

Answer 23

Yes

Question 24

The _________ partnership is in charge of management and decision making for the partnership.

Answer 24

General

Question 25

__________ Drilling programs drill in proven areas.

Answer 25

Developmental

Question 26

T/F: Passive income is income derived from dividends and interest estates by securities in a portfolio.

Answer 26

F; passive income is derived from an investment in a DPP

Question 27

Is a hedge fund investment considered liquid?

Answer 27

No

Question 28

What actions are considered a violation for the general partner of a limited partnership?

Answer 28

Admit another general partner, change the partnership, compete with the program, personally use partnership assets

Question 29

_________ is the deduction allowed for naturally wasting assets.

Answer 29

Depletion

Question 30

A limited partnership could be formed by a minimum of how many individuals?

Answer 30

Two (one general and one limited)

Question 31

Regarding limited partnerships, what is the difference between a managed and non-managed offering?

Answer 31

Managed uses an underwriting syndicate; non-managed offerings use a wholesaler rather than a syndicate

Question 32

Over development and high leverage are the risks associated with a _______ _________ Program.

Answer 32

New Construction

Question 33

What document is filed with the state of legal domicile to create a partnership?

Answer 33

Certificate of Limited Partnership

Question 34

What amount of net income must a REIT distribute?

Answer 34

90%

Question 35

What type of oil and gas program drills for new oil reserves in unproven areas?

Answer 35

Exploratory (wildcatting)

Question 36

What is a REIT?

Answer 36

Real Estate Investment Trust

Question 37

To become a limited partner, the ________ _______’s signature is required on the Subscription Agreement.

Answer 37

General partners

Question 38

A REIT could derive income from what different sources?

Answer 38

Interest (mortgage REIT), rent from both residential and commercial property, and capital gains (equity REIT)

Question 39

What are some of the acceptable actions for the limited partner?

Answer 39

Inspecting partnership books, suing the general partner, voting on major issues affecting the partnership, competing

Question 40

What does the Partnership Agreement define?

Answer 40

The rights, liabilities, and obligations of each partner

Question 41

The _____________ is the point at which a program stops losing and starts making money.

Answer 41

Cross over point

Question 42

When a partner sells his interest in a partnership, what can he do with the remaining losses?

Answer 42

Passive losses can be deducted against any type of income (passive or non passive)

Question 43

What is a hedge fund?

Answer 43

An investment pool that typically has a complex investment strategy, is leveraged, and employed long and short strategies

Question 44

Prior to selling a DPP, passive losses can only be used as deductions against ____________.

Answer 44

Passive income

Question 45

Exploratory drilling is also referred to as ___________.

Answer 45

Wildcatting

Question 46

What does a limited partnerships Subscription Agreement state in regard to a purchaser?

Answer 46

He is aware of risks, can meet suitability standards, has read disclosure document, and knows the required investment

Question 47

T/F: Income Programs purchase already producing wells, but offer few intangible drilling costs.

Answer 47

T

Question 48

What are the two types of partners in a limited partnership?

Answer 48

General and Limited Partner

Question 49

What is the primary disadvantage to Government Assisted Housing Programs?

Answer 49

The historic lack of potential appreciation

Question 50

What benefit will a tax deduction provide for an investor?

Answer 50

Deductions reduce an Investors taxable income with a tax savings found by multiplying the deduction by the tax bracket.

Question 51

What is the order of liquidation for a limited partnership?

Answer 51

Secured creditor, general creditor, limited partner, general partner

Question 52

Describe the liability of the two partners in a limited partnership.

Answer 52

General partners have unlimited liability, while limited partners have limited liability.

Question 53

T/F: REITs are exempt from the registration requirements of the Securities Act of 1933.

Answer 53

F; registration is required for REITs

Question 54

___________ Drilling Programs drill in proven areas and also look for new oil.

Answer 54

Balanced

Question 55

Name the real estate program that does not specify the property or land to be purchased at the time the program is created.

Answer 55

Blind pool

Question 56

_____% of the gross proceeds represents the maximum allowable underwriting compensation for a limited partnership.

Answer 56

10%

Question 57

T/F: Investment Tax Credits are applied directly against an investors tax liability

Answer 57

T; tax credits provide a dollar for dollar tax savings

Question 58

The trading of REITs is most similar to what type of investment company?

Answer 58

Closed end management companies, since both trade in the secondary market (exchange or OTC)