QBank Unit 5

Which of the following are municipal securities?

529 Savings Plans 529 plans are established by each individual state—therefore they are municipal issues

Regarding limited partnerships, which of the following are true? - A general partner can be held personally liable for business losses and debts - A limited partner can be held personally liable for business losses and debts - A general partner business decisions are legally binding on the partnership - A limited partner business decisions are legally binding on the partnership

A general partner can be held personally liable for business losses and debts A general partner business decisions are legally binding on the partnership. General partners have unlimited liability, meaning that they can be held personally liable for the partnership's losses and debts. In their role to manage the partnership, they make decisions that are legally binding on the partnershi

Tax-advantaged savings accounts for individuals with disabilities and their families are

ABLE accounts. ABLE (Achieving a Better Life Experience) accounts are tax-advantaged savings accounts for individuals with disabilities and their families. They were created as a result of the passage of the Achieving a Better Life Experience Act. The beneficiary of the account is the account owner, and income earned by the accounts is not taxed. The ABLE Act limits eligibility to individuals with significant disabilities where the age of onset of the disability occurred before turning age 26

Which of the following is the best description of a limited partnership?

An investment that permits both gains and losses to pass through to the investors Limited partnerships (LPs) are investment opportunities that permit the economic consequences of a business to flow or pass through to investors (limited partners). These would include the consequences of both income received and losses incurred

Which of the following is not a type of real estate direct participation program?

Income Direct participation real estate programs come in three types: raw land, new construction, and existing properties. Income is a type of oil and gas program

Regarding exchange-traded funds (ETFs), as compared to open-end (mutual) funds, which of the following are true? - ETF transactions are subject to commissions - Expenses for ETFs tend to be very high compared to mutual funds - ETFs may trade at a price that is less than the NAV per share - ETFs cannot be purchased on margin while mutual funds can be

ETF transactions are subject to commissions ETFs may trade at a price that is less than the NAV per share Because ETFs usually track an index, the operating expense ratios are generally lower than that of open-end companies. But that advantage can be canceled out by the commission charges when purchasing and selling an ETF. An open-end investment company must redeem shares at the NAV per share; with ETFs, pricing is based on supply and demand, making it possible to receive less than NAV. One cannot purchase open-end shares on margin, but ETFs can be

A prospectus must be delivered to customers following a transaction in all of the following except

ETFs ETFs make final and summary prospectuses available, for example on a website, for viewing or downloading but there is no requirement to send one to those who trade the exchange-traded fund. Publicly traded closed-end funds are not obligated to deliver a prospectus when traded in the secondary market place

All of the following would be considered advantages of exchange-traded funds (ETFs) as opposed to mutual funds except

ETFs are commissionable Trading on exchanges, ETFs are priced throughout the trading day making them easy to trade and liquid. They can also be bought or sold on margin. The purchase or sale of ETF shares is a commissionable transaction. However, the commissions paid can erode the low expense advantage of ETFs and this would have the greatest impact when trading in and out of ETF shares frequently, or when investing smaller sums of money

When speaking to a customer about exchange-traded funds (ETFs), a registered representative could make which of the following correct statements?

ETFs have different potential tax consequences than mutual funds The potential tax consequences of owning an ETF can be different than those experienced when owning mutual funds. While an ETF can make a capital gains distribution, they generally do not—unlike a mutual fund, which generally would make such distributions on an annual basis. ETFs can be traded like other exchange products using traditional stock-trading techniques and order types and are priced by supply and demand. Customers pay commissions, not sales charges

Which of the following securities would most likely have the lowest expense ratio?

Exchange-traded fund (ETF) Expenses tend to be lower than those of mutual funds, and the management fee is low as well. Remember that the portfolio is designed to track an index, and just as the securities contained in the index are change infrequently, so are the securities in the fund portfolio

Which of the following statements is true regarding Exchange-traded notes?

Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution ETNs are senior, unsecured debt securities issued by a bank or financial institution. They are backed only by the good faith and credit of the issuer. The notes track the performance of a particular market index but do not represent ownership in a pool of securities the way share ownership of a fund does. ETNs are bond like with a stated maturity date but do not pay interest and offer no principal protection. ETN investors receive cash payments linked to the performance of its underlying index less management fees when the note matures

Which of the following oil and gas direct participation programs might be considered the riskiest?

Exploratory Exploratory programs, also called wildcatting programs, are those that look for resources near existing producing wells in the hopes of finding more deposits. These are considered riskiest of the oil and gas programs—exploratory, income or a combination of the two. Raw land is a type of real estate program, not an oil and gas program

For a real estate DPP, which of the following is true?

Income can be derived from rents received for the properties For real estate DPPs, both income and capital growth are possible. Income comes from the property rents received, and capital growth would come from the appreciation of the properties

Each of the following is defined as an investment company except

Real estate investment trusts (REITs) Real estate investment trusts (REITs) are not investment companies such as UITs and management companies (both open and closed-end)

At the time of a limited partnership's dissolution, who is the last to be paid?

General partners When a limited partnership (LP) is dissolved, the general partners are paid last

Under the Investment Company Act of 1940, which of the following is not considered and investment company?

Hedge fund Investment companies include face-amount certificates, unit investment trusts, and management companies (both open- and closed-end). Hedge funds are organized as private investment companies, which are excluded under the definition of investment company und the Act of 1940

An investor makes several statements regarding what they know about exchange-traded funds (ETFs). All of them are correct except

I can't buy them on margin because they represent an entire basket of stocks like mutual funds do Though mutual funds cannot be purchased on margin, ETFs can be. They can be traded throughout the trading day with purchases and sales commissionable transactions. They tend to have low expense ratios

An accredited investor is one who meets which of the following criteria?

Income, net worth, or professional designation Investors in private placements are generally accredited investors. The generally accepted definition of an accredited investor is one who meets designated annual income or net worth criteria or who holds certain professional designations

A hedge fund is permitted to do which of the following that a mutual fund is not permitted to do?

Invest in commodities and currencies All the answer selections are applicable to both hedge funds and mutual funds except investing in commodities and currencies. Mutual funds are limited to investing in securities only. While commodities and currencies can be investments, they are not securities

What is the greatest disadvantage of limited partnerships?

Lack of liquidity Partnerships are generally illiquid, and this drawback is one of the primary disadvantages with limited partnerships

At the time of dissolution, which of the following regarding a limited partnership is true?

Limited partners are paid before general partners. When a limited partnership (LP) is dissolved, limited partners are paid before general partners. Remember that with an LP, all tax consequences are passed on to the partners. Therefore, it is the individual partners who may incur a tax liability to be paid to the IRS, not the partnership entity

Which of following securities is least likely to have an active trading market?

Limited partnership interests A disadvantage to limited partnership interests is the lack of liquidity. Of the choices above, direct participation programs such as limited partnership interests are generally deemed illiquid. Whereas municipal debt securities, preferred stock, and REITs are often freely traded in their respective marketplaces

Which of the following types of investments is least likely to be a major investment strategy for hedge funds?

Money market instrument Hedge funds typically invest in very aggressive strategies like options, short sales, and currency and commodity trading

Which of the following securities are nonexempt from registration under the Securities Act of 1933?

Real estate investment trusts (REITs) and corporate equity issues REITs are nonexempt securities subject to the registration and new issue disclosure provisions of the Securities Act of 1933. Agency issues, U.S. government issues, and municipal securities are exempt

Deductions for depletion would most likely apply to which of the following direct participation programs (DPP)?

Oil and gas income program The depletion allowance is a tax benefit reflecting the decreasing supply of oil or gas (or any other natural resource or mineral) after it is taken and sold. With income programs, the wells have been drilled and are already producing and, therefore, being depleted. By contrast, exploratory programs have a low expectation of success and it is therefore more likely that there will not be anything found to deplete

How often may funds be rolled over from one state's Section 529 plan to another's?

Once every 12 months A rollover involves actually withdrawing funds from one account for reinvestment in another. The investor thus has constructive receipt of the money and could be liable for taxes on any growth or earnings withdrawn if the rollover is not completed. The rollover procedure, when completed, protects from tax liability but may only be done once every 12 months

Which of the following are the two basic types of Section 529 plans, which are products used for funding higher education? - Savings plans - Education savings accounts - Secondary school funding plans - Prepaid tuition plans

Savings plans Prepaid tuition plans The savings plan allows the investor to accumulate money for use later in funding someone's education. The prepaid tuition plan allows the purchaser to pay the tuition for a particular K-12 or higher education institution at current rates, either in a lump sum or by periodic payments. The beneficiary of the plan then attends the institution, perhaps many years later, tuition-free. Note that Education Savings Accounts (ESAs) are not a type of 529 plan

When a limited partnership is liquidated (dissolved), the priority of payments to settle accounts are made from first to last in which order? - General partners - Limited partners - General creditors - Secured creditors

Secured creditors General creditors Limited partners General partners Creditors are paid first in a liquidation, with priority given to the secured lenders before general lenders; limited partners are paid first of the partners, with general partners last to be paid

Which of the following statements regarding real estate investment trusts (REITs) are true? - Hybrid REITs typically invest in both commercial property and residential property - Some REITs hold no real property but hold mortgages on commercial property instead - Hybrid REITs can hold only residential property and mortgages on residential property - REITs can pay dividends to shareholders and make capital gains distributions

Some REITs hold no real property but hold mortgages on commercial property instead REITs can pay dividends to shareholders and make capital gains distributions. Equity REITs typically hold commercial property rather than residential property. Mortgage REITs hold mortgages on commercial property, and hybrid REITs do both. Dividend disbursements, as well as capital gains distributions, can be made to shareholders

In explaining hedge funds to an investor, a registered representative might correctly characterize them as utilizing

advanced and complicated strategies entailing high risk Hedge fund portfolios are aggressively managed in an attempt to achieve high returns. To do so they utilize advanced and complicated strategies generally associated with high risk

Which of the following are potential benefits associated with a real estate direct participation program?

Tax deductions and credits For real estate programs, both deductions (from mortgage interest expenses and depreciation) and credits (for certain types of programs) are potential benefits. Depletion and intangible costs are associated with natural resource programs such as oil and gas, and DPPs do not pay dividends or interest

Which of the following is true for exchange-traded funds (ETFs)?

The Securities and Exchange Commission (SEC) has classified them as a type of open-end fund, and they have operating costs and expenses that are lower than most mutual funds. The SEC has classified ETFs as a type of open-end fund but not a mutual fund. ETFs traditionally have operating costs and expenses that are lower than most mutual funds because they do not have to purchase and sell holdings within the portfolio to accommodate investors purchasing shares or redeeming shares, as is the case with mutual funds

Which of the following incur a fiduciary responsibility in a limited partnership?

The general partners It is the investors in an LP who are the partners. Only the general partners, however, incur a fiduciary responsibility to run the partnership and use the invested capital in the best interest of all the investors (partners)

In a limited partnership, which of the following best describes who is responsible for tax consequences of the business?

The investors All tax consequences of the business flow through proportionality to the investors. All partners will have some tax impact, not just the general or just the limited partners

Nolan Babbage owns several units of the Cray Leasing LP. He is frustrated by the lack of cash flow and begins consulting with the general partners on how best to market the partnership's services. Which of the following features of a limited partnership has he placed in jeopardy?

The limited liability of a limited partner A limited partner that takes on any level of active participation in the running of the partnership will likely lose their liability protection. In all other ways, they remain a limited partner

What might happen if a limited partner begins making day-to-day business decisions for the partnership?

The partner might jeopardize the limited liability status held as an LP While LPs can vote on overall business objectives, they cannot vote on any day-to-day operational business decisions. A limited partner having any control over the partnership's day-to-day operations could be judged a general partner and lose LP status

In an LP, which of the following is true?

The partnership entity is not responsible for paying taxes on gains Both gains and losses from an LP flow through to the individual partners. Gains are taxable, and any taxes due are the responsibility of the individual partners, not the partnership entity

Which of the following characteristics are typical of an exchange-traded product (ETP)?

The value of an ETP is derived from other investment instruments, and it trades on a national securities exchange ETPs are priced so that the value of the product is derived from other investment instruments, such as a commodity, a currency, a share price or an interest rate. ETPs are benchmarked to stocks, commodities or indices. They are marginable and may be sold short

Which of the following is not a characteristic associated with hedge funds?

They are regulated under the Investment Company Act of 1940 Hedge funds are considered unregulated (not highly regulated). They employ strategies and invest in such a way that they are not considered suitable for anyone but accredited investors. These strategies might include utilizing derivative products, commodities and currencies, margin (borrowing) trading, and selling short

For hedge funds organized as private investment partnerships, which of the following is true?

They can limit the number of investors and require large or minimum initial investments Hedge funds organized as private investment partnerships typically limit the number of investors and require large minimum initial investments. This would be the opposite of a regulated investment company, such as an open- or closed-end fund company

Which of the following is true regarding general partners (GPs) in a limited partnership?

They should participate in the day-to-day management of the partnership General partners have a fiduciary responsibility to manage the partnership in the best interest of the investors (partners). In doing so, they make decisions regarding all day-to-day management of the business. These decisions are, therefore, legally binding on the business. GPs may not, however, borrow money from or compete with the partnership

Identify two trading strategies that a hedge fund could employ in its portfolio but a mutual fund cannot. - Limiting investments to a narrow group of securities within one industry - Trading on margin to purchase portfolio securities - Purchasing speculative or low rated securities - Selling short stocks

Trading on margin to purchase portfolio securities Selling short stocks While there can be limited and rare exceptions, mutual funds are prohibited from purchasing securities on margin and selling securities short. Both strategies, however, are commonly employed by hedge funds

For ETFs, the phrase "tax efficiency" can best be described by which of the following concepts?

Usually, for ETFs, there are no tax consequences for investors until the shares are sold The single greatest advantage associated with ETFs is the fact that while they can pass on capital gains from time to time, creating tax consequences in that year, they rarely do. Therefore, there would be no expected tax consequences until the shares are sold. This is the tax efficiency generally associated with ETFs

Which of the following are considered intangible drilling costs (IDCs) for an oil and gas DPP?

Wages and insurance Intangible drilling costs (IDCs) are costs for those items that would have no salvage value at the end of the program. These might include wages, supplies (not equipment that can be depreciated), fuel, and insurance

Which of the following is true when opening an out-of-state Section 529 plan?

Withdrawals may not be free of state taxation Contributions into a 529 plan are always after tax at the federal level but not always at the state level. Therefore, withdrawals are always tax free at the federal level if used for qualified education purposes (tuition, books, lecture fees, lab fees). They are generally tax free at the state level unless it is an out-of-state plan, in which case, state tax law may apply

Hedge funds are considered

a form of private investment company and, therefore, unregulated. Hedge funds are considered to be a form of private investment company. They do not come under the Investment Company Act of 1940 as mutual funds do, and they do not require Securities and Exchange Commission (SEC) registration. They are, therefore, considered unregulated

Limited partnerships sold publicly via a prospectus offering would be expected to have

a large group of investors, each contributing a small sum Unlike partnerships sold as private placements, those limited partnerships sold through a public offering via a prospectus would consist of a large group of investors (partners), each contributing a small investment sum to the partnership

An investment that allows for a share in the income, gains, losses, deductions, and tax credits of the business entity to pass through to investors while protecting the investors from liability is known as

a limited partnership Both general and limited partnerships pass through to investors (partners) a share in the income, gains, losses, deductions, and tax credits of the business entity. Limited partnerships shield the limited partners from liablility incurred by the partnership; general partners have no such protection

Limited partnerships sold through private placements involve

a small group of investors, each contributing a large sum Limited partnerships sold through private placements generally consist of a small group of accredited investors, each contributing a large sum to the partnership

Hedge funds attempt to

achieve high returns and are, therefore, associated with high-risk investments While hedging is the practice of attempting to limit or mitigate risk, most hedge funds specify generating high returns as their primary investment objective. In attempting to achieve these returns, they tend to entail a substantial amount of risk for those who own shares

In a leasing partnership program, loans are taken to purchase equipment that is then leased to companies in return for the lease payments. This process

allows for the loan interest and equipment depreciation to be taken as deductions that will shelter the income from the lease payments received When a leasing program purchases equipment that it will lease to companies in return for the lease payments, the program can deduct over the life of the program any interest costs on the loans to purchase the equipment, as well as any depreciation on the equipment it owns and leases. These deductions shelter the income taken in from the lease payments

An oil and gas DDP that invests in wells that are already producing is known as

an income program An oil and gas DDP that invests in wells that are already producing is known as an income program. Exploratory programs are drilling new wells in search of new deposits

Hedge funds

are not regulated under the Investment Company Act and no Securities and Exchange Commission (SEC) registration is required Hedge funds normally do not require registration with the SEC as they are often sold under Reg D. Furthermore, they do not come under the Investment Company Act of 1940.

In order for a business entity to qualify as a limited partnership, the LP must have

at least one general partner and one limited partner Limited partnerships are required to have at least one general partner and one limited partner

Intangible drilling costs (IDCs) associated with oil and gas DPPs can generally

be deducted completely in the first year of the program The deduction allowable for IDCs associated with oil and gas DPPs is one of the unique tax advantages of these programs. These costs can be deducted completely in the first year of the program instead of over the life of the program

Advantages enjoyed by the limited partners in a partnership might be all of the following except

being in a fiduciary position with responsibilities to others The fiduciary responsibility is borne by the GPs, not the LPs. The flow through of income and expenses, limited liability, and having an investment managed by the GPs are all considered advantages for the LPs

A general partner would be considered to have a conflict of interest with the limited partnership if the GP

borrows money from the business The general partner manages the business and acts as agent for the business for which they may receive compensation. They may not borrow from the partnership because this would be considered a conflict of interest

Exchange-traded funds are priced

by supply and demand where transaction prices may be higher or lower than the fund's NAV ETFs trade on exchanges and are priced by supply and demand, like any other exchange-traded product. With pricing influenced by market forces, transaction prices at any given time might be more or less than the fund's NAV

Exchange-traded funds (ETFs)

can be bought and sold throughout the trading day and have low expense ratios Advantages of Exchange-traded funds (ETFs) are that they have low operating costs and expense ratios and can be bought and sold throughout the trading day. While they can pass on capital gains to investors like mutual funds, they rarely do

Your customer is a limited partner in a real estate partnership. This partner has the right to do all of the following except

choose which properties the partnership should buy or sell All of these are rights of the LP, except choosing the assets to be purchased for the partnership. This is a function of the general partner (GP

Intraday price changes due to normal market forces would be found with - closed-end fund shares - exchange-traded fund shares - hedge fund shares - open-end (mutual) fund shares

closed-end fund shares exchange-traded fund shares Both closed-end funds and ETFs trade in the open market and are priced by supply and demand. Open-end (mutual) funds use forward pricing and generally price only once per day (usually at the end of the trading day). Most hedge funds are organized as private investment partnerships and are considered illiquid. Some have minimum holding requirements known as lock-up provisions, and in that light, their interests do not reliably trade intraday

All of the following are characteristics of 529 Savings Plans except

contributions are federally tax deductible Contributions of 529 Savings Plans are not federally tax deductible

Partners in direct participation leasing programs can receive write-offs for all the following except

depletion Write-offs (deductions) associated with leasing programs are those taken for operating expenses, depreciation of the equipment owned and leased, and interest costs on the loans to purchase the equipment. Depletion, however, is a deduction associated with natural resources programs, such as oil and gas

An allowable deduction to compensate for decreasing natural resources in an oil and gas DPP are known as

depletion allowances Tax deductions that compensate an oil and gas program for the decreasing supply of the resource after it is taken out of the ground and sold are known as depletion allowances

The allowable deduction for equipment used in an oil and gas direct participation program is taken as

depreciation over the life of the program. Tangibles such as equipment that will have some salvage value at the end of the program can be depreciated. The depreciation is an allowable deduction taken over the life of the program

An LP is a type of

direct participation program A limited partnership (LP) is the most common form of direct participation program (DPP). LPs are business entities allowing for the economic consequences of the business to flow through to the individual investors (partners)

Limited partnership programs are categorized as direct participation programs. The term direct participation refers to the

flow through of profits and losses of the partnership to the individual limited partners Understanding the flow through concept is critical with DPPs. Only DPPs allow flow through of losses

All of the following would generally be associated with a limited partnership (LP) except

freely transferrable interests With no secondary market trading, one of the greatest disadvantages of a limited partnership is that an investor's partnership interest in one is generally not considered to be freely transferrable. The pass through of gains and losses, all tax consequences, and the individual partners being responsible for reporting to the IRS are all characteristics of LPs

Tax credits for partners in a real estate program can come primarily from

government-assisted housing and historic rehabilitation properties For partners in a real estate programs, tax credits would come primarily from programs concentrating on properties designated for government-assisted housing or historic rehabilitation. These are credits offered by the federal government

A limited partnership (LP)

has two types of partners LPs have two types of partners: general and limited. There must be at least one of each. It is the general partner who is responsible for running the partnership entity

Regarding oil and gas DPPs, tangible drilling costs are associated with items that - have no salvage value at the end of the program - have some salvage value at the end of the program - can be depreciated - cannot be depreciated

have some salvage value at the end of the program can be depreciated Costs for items that will have some salvage value at the end of the program are considered tangible drilling costs. These items, such as equipment, can be depreciated and written off over the life of the program

Direct participation programs (DPPs) are set up

having the owners of the business liable for any taxes due DPPs are not taxed directly as a corporation would be. Instead, the income or losses from the business are passed directly through to the owners of the partnership. These are the investors who are then individually responsible for any tax liability

Unique tax advantages associated with oil and gas direct participation programs are

intangible costs and depletion allowances Intangible drilling costs (IDCs) and depletion allowances are both unique tax advantages associated with oil and gas DPPs. IDCs can all be written off completely in the first year of the program instead of over the entire life of the program, and depletion allowances are allowable deductions that compensate for the depletion of the natural resource taken after it is sold

All of the following would be associated with hedge funds except

investing in government debt securities Hedge fund managers often employ highly speculative strategies and products associated with substantial risk. These might include using leverage (borrowing to purchase securities), selling securities short, (selling securities the portfolio does not own), investing in commodities or currencies, and utilizing derivative products such as options or futures. Investing in federal government debt securities, considered among the safest and risk-free investments would be uncharacteristic of hedge funds

A hedge fund having a lock-up provision means that

investors are required to maintain the investment for a minimum length of time A lock-up provision means that the fund requires investors to hold their shares for a minimum length of time that the fund establishes. Therefore funds having a lock-up provision are associated with being illiquid

All of the following regarding a trust set up for the purpose of holding commercial property, or mortgages on commercial property, are true except

investors may never purchase shares in these trusts on an exchange or over-the-counter (OTC) This is a REIT. REIT shares can trade on exchanges or over the counter (OTC). Owners of these shares may receive dividend distributions and have capital gains pass through to them for tax purposes as well. REITS, organized as trusts, are not investment companies (open- or closed-end funds). Shares in REITs are equity securities

All of the following is true about local government investment pools (LGIPs) except

investors must be provided a prospectus at or before they purchase shares in the investment portfolio. The operating characteristics of LGIPs are similar to those of money market funds, and they keep a $1 net asset value (NAV). They are not required to register with the SEC and therefore there is no prospectus but do provide information statements, which include details of the management fees

An example of securities that are established by states to provide other government entities such as cities, towns, school districts or state agencies with a short-term investment vehicle to invest funds include

local government investment pools (LGIPS) LGIPs are established by states to provide other government entities within its borders such as cities, counties, school districts or other state agencies with a short-term investment vehicle to invest funds

For real estate program partners, tax deductions will be derived from

mortgage interest paid and depreciation Deductions for real estate programs come primarily from mortgage interest paid on the properties and the depreciation allowable for the properties

Limited partnerships

must end on a predetermined date or can be dissolved earlier by vote Unlike with a corporate charter, which has corporate entities existing in perpetuity, limited partnerships are scheduled to end on a predetermined date. The exception to ending on that predetermined date would be when all partnership assets are sold earlier than anticipated and a vote to dissolve the partnership occurs

Section 529 plans are considered municipal fund securities. They must therefore be sold by

official statement Municipal bonds are sold by an official statement, a document similar to a prospectus used in the sale of municipal securities. Because Section 529 plans are state sponsored, they must be sold by official statement

All of the following would be advantages of a limited partner in a DPP except

participate in the management of the business Limited partners who take on a management role lose their limited liability protection

Real estate investment trusts (REITs)

pay dividends and pass gains through to investors but not losses REITs pay dividends and pass gains through to investors but do not pass through losses like limited partnerships do. With no pass through of losses, this differentiates them from direct participation programs (DPPs)

All of the following are true for 529 plans except

plan donors must be related to the student benefactor Donors to 529 plans need not be related to the student benefactor. Each of the remaining statements is true

The general partner of a limited partnership has responsibility for all the following except

providing all of the partnership capital. The general partner organizes and manages the partnership and assumes unlimited liability, responsible for paying all partnership debts. While some capital may also be provided by the general partners (GPs), it is the limited partners who provide the bulk of the capital

The Securities Act of 1933 exempts all of the following securities from registration except

public real estate investment trusts (REITs) Though some REITs trade on exchanges and others may not, all public REITs are nonexempt securities which must be registered with the Securities and Exchange Commission (SEC)

Obtaining the financial status of the customer, and whether or not they meet income and net worth criteria, could be required for all of the following except

real estate investment trusts (REITs) Real estate investment trusts (REITs) do not require proof of financial status for investment. Limited partnerships and other DPPs can, particularly those that are offered privately (as private placements) as opposed to those that are offered publicly (by public offering)

A customer is interested in an exchange-traded fund (ETF). With regard to how they can be traded, you would want the customer to be aware that

real-time quotes are available for ETFs, which can be purchased throughout the trading day ETFs can be traded (purchased and sold) throughout the trading day. Changing price quotes are available in real time as investors buy and sell. Although ETFs have an NAV that is calculated on the basis of the portfolio holdings, the trading price is determined by supply and demand in the open market, with customers paying commissions (not sales charges)

A REIT can avoid being taxed as a corporation would by

receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders Under the guidelines set by the Internal Revenue Code, a REIT can avoid being taxed as a corporation by receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders

For real estate program partners, tax credits will

reduce tax liability dollar for dollar Offered by the federal government for only certain types of real estate programs (not all), tax credits reduce tax liability dollar for dollar. In this light, credits are considered far greater benefits than deductions, which only reduce taxable income

All of the following are types of direct participation programs (DPPS) except

retail distribution The most common types of direct participation programs are real estate, oil and gas, and leasing programs

An investor in a direct participation program wishes to divest of a partnership interest purchased some time ago. You would correctly advise that

there is no secondary market making them highly illiquid While one's interest in a DPP can be sold, there is virtually no secondary market. In this regard, they are considered highly illiquid

A hedge fund portfolio has been characterized as being highly leveraged. This means that

there is substantial borrowing or purchasing on margin While hedge funds can employ all these investment types and strategies, being highly leveraged means borrowing to purchase. Borrowing to purchase securities is typically known as buying on margin

All of the following are true of REITs except

they are registered as investment companies REITs have many similarities to investment companies but are not classified as an investment company under the Investment Company Act of 1940

All of the following are rights of limited partners in a DPP except

to make day-to-day business decisions Limited partners (LPs) have a number of rights, among them, to vote on business objectives, to inspect all books and records, and if the GPs are not acting in their best interest, to sue them. Making day-to-day business decisions is the responsibility of the GPs, and if an LP were to do so, they could lose their standing as an LP

Exchange-traded funds (ETFs) offer several attractive advantages over mutual funds. All of the following would be advantages that ETFs typically have over mutual funds except

trading costs for active traders Active traders may run up higher expenses because of being charged a commission to buy and then a commission to sell. The other options are all advantages of ETFs versus mutual funds

As an investment vehicle, and regarding the tax consequences, Real Estate Investment Trusts (REITs) are organized as

trusts REITs, as their name tells us, are organized as trusts. Assets held in the trust and the distributions made can impact the tax consequences for the trust. As an investment vehicle, shares are sold to investors and these shares sometimes trade on exchanges. Whether traded or nontraded, the shares are considered to be equity (not debt) securitie

In a real estate limited partnership (DPP), the general partner has

unlimited liability and an active role In limited partnerships, whether real estate or other types, the general partner is the active partner managing the business and taking on unlimited liability

Investors in hedge funds should know that the funds are

unregulated but must abide by laws that investors be accredited Although hedge funds are unregulated (no Securities and Exchange Commission (SEC) registration is required), there are laws requiring that those who purchase shares of hedge funds be accredited investors. That is, they must meet minimum annual income and net worth criteria, as well as have considerable investment knowledge

Regarding the decision to dissolve a LP before its scheduled predetermined dissolution date, it would need to be

voted on by the limited partners holding a majority interest In instances where a decision to dissolve a limited partnership before its predetermined date is made, an affirmative vote to do so must be taken by the limited partners