Textbook Chap 9 (SIE)

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

Two (one general partner and one limited partner)

Identify the acronym: ETF

Exchange Traded Fund

T/F: Limited partners may be forced to invest more money into a partnership

True. One of the risks of owning a partnership is a possible capital call (demand)

What are the most important numbers associated with REITs?

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

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

False. Passive income derived from an investment in a direct participation program (e.g., limited partnership)

T/F: Hedge funds are typically registered with the SEC

False. Hedge funds are typically exempt under both the Securities Act of 1933 and Investment Company Act of 1940

What is a REIT?

Real Estate Investment

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

Exploratory (wildcatting)

T/F: Hedge fund can assess a sales charge of more than 8.5%

True. Since hedge funds are exempt from the Act of 1940, they can assess a sales charge of more than 8.5%

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

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

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

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

________ Drilling Programs Drill in proven areas.

Developmental

For income that’s passed through a partnership, ___% of it is deductible (excluded from tax)

20%

Who typically buys hedge funds?

Accredited (sophisticated) investors through Reg. D offerings

what types of investments do private equity and venture capital funds buy?

Privately help and start-up companies

What is a private equity fund?

A private partnership or company that buys businesses with the intent to later sell them at a profit

Name some of the different types of Direct Partnership Programs (DPPs)

General partnerships, limited partnerships, joint ventures, Subchapter S corporations

Is a hedge fund investment considered liquid?

No

What is the order of liquidation for a limited partnership?

1) Secured Creditor 2) General Creditor 3) Limited Partner 4) General Partner

T/F: DPPs are pass through investments

ture

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

False. Registration is required for REITs

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

Limited

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

Balanced

Is a REIT a form of direct participation program (DPP)?

No. Unlike DPPs, REITs do not pass through losses

May hedge funds sell stocks short and use margin?

Yes

T/F: DPP investments are often uncorrelated with the stock and bond market

True. DPPs are often purchased because they can diversify an investor’s portfolio

In a limited partnership, which partner has unlimited personal liability and which has limited liability?

General partners (GPs) have unlimited liability, while the limited partners (LPs) have limited liability

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

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

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

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

____ management involves simply attempting to match the market by tracking an index.

Passive

The risk that an investment cannot easily be converted into cash is known as ____ risk.

liquidity

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

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

T/F: ETFs are marginable and may be sold short

true

The ______ partner is in charge of management and decision-making for the partnership

general

Define alternative investment

An investment that does not fit into one of the three traditional asset types (i.e., stocks, bonds, and cash)

What funds are similar to an index fund, but trade in the secondary market like stock?

Exchange-Traded Funds (ETFs)

Exploratory drilling is also referred to as _____.

Wildcatting

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

true

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

General partner and limited partner

Is a limited partnership a security?

Yes

What amount of net income must a REIT distributed

A REIT could derive income from what different sources?

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

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

Raw Land Program

What is a hedge fund?

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

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

tax credits

T/F: Investors who purchase ETF shares must pay a sales charge

False. since ETF shares are exchange traded, investors pay commissions

For tax purposes, what can passive losses be used against?

They can only be used against passive income. They cannot be taken against capital gains, ordinary income, or dividends

General Partners must contribute at least ___% of the capital

1%

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

true