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Series 7 > Unit 11 > Flashcards

Unit 11 Flashcards

1
Q
  1. A company that sells stock without specifying how invested money will be spent
  2. A DPP that does not state in advance all of the specific properties in which the GP will invest that partnerships money. At least 25% of the proceeds of the offering are kept in reserve for the purchase of non specified properties
A

Blind Pool

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2
Q

A transaction involving the combination or reorganization of one or more limited partnerships into securities of a successor corporation

A

Roll-Up

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3
Q

The money received by a business minus the money paid out. Equal to net income plus depreciation or depletion

A

Cash Flow

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4
Q

Means there is a potential for returns from cash distributions and capital gains

A

Economic Viability

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5
Q

Formula for Tax Basis

A

Investment in partnership + share of recourse debt (+ no recourse debt in real estate DPPs) - cash or distributions

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6
Q

LPs basis consists of

A
  1. Cash contributions
  2. No cash property contributions
  3. Recourse debt
  4. Non recourse debt
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7
Q

Represents the upper limit on deductibility of losses

Amount at risk used to determine the gain or loss upon the sale of their partnership interest

A

Tax Basis

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8
Q

A tax deduction that compensates a business for the decreasing supply of the natural resource that provides its income

Ex: oil, gas, coal, gold

A

Depletion

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9
Q
  1. A tax deduction that compensates a business for the cost of certain tangible assets
  2. A decrease in the value of a particular currency relative to other currencies
A

Depreciation

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10
Q

Costs incurred that have salvage value. These costs are not immediately deductible but are deductible over several years

Ex: storage tanks and wellhead equipment

A

Tangible Drilling Costs

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11
Q

In an oil and gas limited partnership, a tax deductible cost. Usually this is for a non physical asset such as labor or fuel that does not depreciate

Has no salvage value

A

Intangible Drilling Cost

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12
Q

The careful investigation by the underwriting participants necessary to ensure that all material information pertinent to an issue has been disclosed to prospective investors

A

Due Diligence

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13
Q

A DPP that purchases equipment for leasing to other businesses on a long term basis. Tax sheltered income is the primary objective

A

Equipment Leasing Limited Partnership

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14
Q

A limited partnership program that invests in producing oil or gas wells for the purpose of generating income and taking advantage of the depletion allowance

Low risk

Income sheltering from depletion allowances

Oil prices; wells stop producing

Immediate cash flow

A

Income

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15
Q

A limited partnership that drills for oil, gas or minerals in areas of proven reserves or near existing fields

Medium to high risk

Medium intangible drilling costs, immediate tax sheltering

Few new wells produced

Less discovery risk

A

Developmental

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16
Q

A limited partnership that aims to locate and recover undiscovered reserves of oil, gas or minerals. (Income program)

High risk (most risky)

High intangible drilling costs

Few new wells produced

High rewards for discovery

A

Exploratory (wildcatting)

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17
Q

A DPP formed to locate new oil and gas reserves, develop existing reserves or generate income from producing wells

A

Oil and gas DPP

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18
Q

A real estate DPP that aims to provide capital appreciation from historic sites for commercial usage

Similar risk to new construction

Tax credit and deductions for expenses and depreciation

Potential cost overruns

Tax credits for preserving historic structure

A

Historic rehabilitation structure

19
Q

A real estate DPP that aims to provide capital appreciation from building new property.

Less risky than new land

Potential cost overruns

Depreciation and expense deductions after completion and income is generated

A

New construction program

20
Q

A real estate DPP that sims to provide capital appreciation for low income and retirement housing

Relatively low risk

Tax credits and losses

Low appreciation potential

Tax credits and rent subsidies

A

Government assisted housing programs

21
Q

A real estate DPP that sims to provide capital appreciation from existing structures

Relatively low risk

Deductions for mortgage interest and depreciation

Greater maintenance or repair expenses

Immediate cash flow

A

Existing Property Program

22
Q

A real estate DPP that aims to provide capital appreciation by investing in undeveloped land

Most speculative

Not considered tax shelter

No income or depreciation deductions

No income distributions or tax deductions

A

Raw Land Programs

23
Q

A DPP formed to build new structures, generate income from existing property or profit from the capital appreciation of undeveloped land

A

Real Estate Limited Partnership

24
Q

LPs cannot

A
  1. Act on behalf of partnership
  2. Knowingly sign a certificate containing false information
  3. Have their names appear as part of the partnerships name
25
Q

GPs cannot

A
  1. Compete against partnership
  2. Borrow from partnership
  3. Commingle funds
  4. Admit new GPs or LPs or continue the loss of a GP unless specified in agreement
26
Q
  1. Has partial liability
  2. No management responsibility
  3. May sue GP
  4. Votes on changes
  5. Votes on sale or refinancing
  6. Receives cash distributions
  7. Inspects books and records
  8. Exercise partnership democracy
A

Limited Partner (LP)

27
Q
  1. Has complete liability
  2. Management responsibility
  3. Fiduciary responsibility
  4. Makes legally binding decisions
  5. Buys and sells property
  6. Maintains financial interest (min of 1%)
  7. Receives compensation
A

General Partner (GP)

28
Q

What is the order of dissolution?

A
  1. Secured lenders
  2. Other creditors
  3. LP
  4. GP
29
Q

Debt incurred for a partnership that does not hold the limited partners personally liable

A

Non recourse loans

30
Q

Debt incurred for the purchase of an asset and that which holds the borrower personally liable for the debt

A

Recourse loan

31
Q

Appoints one or more GPs to act on behalf of the investors and is only effective when the GP signs it

Must include: investors net worth, investors annual income, statement attesting that the investor understands the risk involved, a power of attorney appointing the GP as the agent of the partnership.

A

Subscription agreement

32
Q

Describes the roles of the GP and LP and guidelines for the partnerships operation

A

Partnership agreement

33
Q

Where must the certificate of Limited Partnerships be filed?

A

In the home state of the partnership

34
Q

What are the three important documents required for Limited Partnerships?

A
  1. Certificate of limited partnership
  2. Partnership agreement
  3. Subscription agreement
35
Q

Oversees the swing and promotion of the partnership

Responsible for the preparation of any paperwork necessary for the registration of the partnership

Fees limited to 10% of the gross dollar amount of securities sold

A

Syndicator

36
Q

Invokes a small group of investors each contributing a large sum of money

Investors must be accredited

A

Private Placement Memorandum

37
Q

A business formed by filing a partnership agreement with a state that consists of a GP and one or more LP.

Sold through private placements or public offerings

A

Limited Partnership

38
Q

A form of business organization requiring a minimum of two participants

Cannot be: an organization that refers to itself as incorporated or as a corporation, an insurance company, a REIT, an organization classified as a trust or otherwise subject to special treatment under the IRC

A

Partnership

39
Q

Investments that pass income, gains, losses and tax benefits (such as depreciation, depletion and tax credits) directly to the limited partners

Ex: oil and gas programs, real estate programs, agricultural programs, motion pictures and cattle programs

A

Direct Participation Program (DPP)

40
Q

A REIT is generally not subject to corporate tax if it distributes to its shareholders substantially all of its table income for each year.

How much is substantially all?

A

By receiving 75% or more of its income from real estate and distributing 90% or more of its table income to its shareholders

41
Q

Owns commercial property and owns mortgage on commercial property

Combination of both mortgage and equity REITS

A

Hybrid REITs

42
Q

Owns mortgage on commercial property

They make real estate loans

Their earnings come from the interest payments on those loans

A

Mortgage REITs

43
Q

Owns commercial property

They take an ownership position in the properties

They receive rental income and possible capital gains upon a future sale of the properties

A

Equity REITs

44
Q

A corporation or trust that uses the pooled capital of many investors to invest in direct ownership of either income property or mortgage loans. If trades on exchanges or OTC they are very liquid. Real estate is not.

Organized as trusts, not redeemable and have liquidity of listed stocks.

Compute a NAV per unit

A

Real Estate Investment Trust (REIT)

Series 7 (12 decks)

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