Series 7 Direct Participation Programs

Front 1

What are the direct participation programs

Back 1

illiquid investments that pass income, gains, losses, and tax benefit directly to the limited partners

Front 2

What entities are DPP structured

Back 2

Limited partnerships or subchapter S

Front 3

What entities can not be partners

Back 3

REIT, certain banks, insurance companies, nonprofits

Front 4

When considering the purchase of a limited partnership interest, and investors should be most concerned with

Back 4

Economic viability

Front 5

Limited partnerships may be sold through private placement or public offering. If sold privately, what document replaces the prospectus

Back 5

A private placement memorandum for disclosure. If sold publicly a prospectus must be provided

Front 6

What is a subscription agreement

Back 6

The subscription agreement is the instrument by which the limited partners invest . All investors interested in becoming a limited partnerships must complete a subscription agreement. The subscription agreement must include the investors net good, but investors annual income, a statement that the investor understand the risk, and a power of attorney appointing the GPS the agent of the partnership

Front 7

When dissolved in a general partnership the GP must cancel the certificate of limited partnership and settle accounts in what order

Back 7

Security lenders, other creditors, limited partners, general partners

Front 8

A limited partnership becomes effective when

Back 8

The certificate is filed with the proper authorities

Front 9

What is partnership democracy

Back 9

Allows limited partnerships to vote on major decisions, but not on day-to-day operations

Front 10

What benefits do real estate limited partnerships provide investors

Back 10

Capital growth potential, cash flow, tax deductions, tax credit

Front 11

Which real estate investment has the highest risk and which has the lowest

Back 11

Raw land is most speculative. Existing property, gov assistance housing have the lowest risk

Front 12

Write offs for the expenses of drilling are 100% deductible in the first year of operation for

Back 12

Oil and gas partnerships. Intangible drilling costs are any costs that after being incurred has no salvage value like wages and supplies

Front 13

Which oil and gas partnership is the most risky

Back 13

Wildcat team or exploratory

Front 14

What is the overriding royalty interest sharing arrangements for oil and gas partnerships

Back 14

The holder of this interest received royalties but has no partnership risk ( no responsibility for extraction costs) . An example of this is it land owner that sells mineral rights to a partnership

Front 15

What is the reversionary working interest sharing arrangement for oil and gas partnership

Back 15

The GP bears no cost of the program and receives no revenue until LPs have recovered their capital. LT's bear all the deductable and non deductible costs

Front 16

What is the disproportionate sharing arrangements for oil and gas partnership

Back 16

The GP shares tangible drilling cost with LPs but receives no IDCs. The GP bears a relatively small percentage of expenses but receives a relatively large percentage of the revenue. The LP receives immediate deductions, whereas the GPs receive write offs from depreciation over the life of the property

Front 17

Which limited partnership programs provide the most potential tax credits to partners

Back 17

Government assisted housing programs and rehabilitation of historic properties

Front 18

What is the functional allocation sharing arrangements for oil and gas partnerships

Back 18

This is the most common sharing arrangement. The LPs receive the IDCs which allow immediate deductions. The GPs received the tangible drilling cost, which are depreciated over several years. Revenues are shared

Front 19

What is a crossover point for a DPP

Back 19

The point at which the program begins to generate taxable income instead of losses

Front 20

What is a blind pool or nonspecific program

Back 20

In a blind pool, less than 75% of the assets are specified as to use. 25% or more of the specific properties in real estate or sites in oil and gas have not been identified at the time of the offering

Front 21

What are some important factors that investors should consider in their overall analysis of limited partnerships

Back 21

Management ability and experience of the GP, time frame, opportunity cost, lack of liquidity of the interest

Front 22

What is the maximum compensation that may be taken by sponsors selling DPPs

Back 22

10%

Front 23

Which DPP creates the largest amount of passive losses

Back 23

Oil and gas drilling

Front 24

When can the benefit of limited liability be lost by a limited partner

Back 24

Is a limited partner engages in certain activities including the day-to-day management of the property, representing himself as a general partner, and financial control of the partnership

Front 25

What do analyst use to establish the rate of return on a direct participation program

Back 25

Analyst use both present value and the internal rate of return to establish a direct participation programs rate of return. Both involve assumptions based on future cash flows generated by the program

Front 26

What is unique about real estate partnerships regarding nonrecourse debt and basis compared to other limited partnerships

Back 26

In a real estate partnership, non recourse debt is added to basis. Generally, non recourse debt does not add to the basis because the limited partner is not responsible at risk for the repayment of the debt.

Front 27

What is the certificate of limited partnership

Back 27

The certificate of limited partnership gives public information about the partnership and is filed in the home state

Front 28

What is the partnership agreement

Back 28

The partnership agreement spelled out the roles of the general and limited partners

Front 29

What type of risk will a non leveraged direct participation programs never have

Back 29

If debt is not used by the partnership, rate risk does not exist

Front 30

Architectures fees incurred in designing a building of a real estate direct participation program will be what type of costs

Back 30

Non depreciable costs that are part of the limited partners beginning basis but not part of the depreciated basis

Front 31

Cash flow will not include

Back 31

Depreciation

Front 32

Newly issued non-exempt securities like publicly offered direct participation programs are governed by

Back 32

The security act of 1933, FINRA, and any applicable blue sky laws

Front 33

REIT, real estate investment trusts, are unlike other direct participation programs in what ways

Back 33

NO written verification of the financial status of the customer is needed
NO pass through of losses

Front 34

A customer with a moderate income would like to participate in a limited partnership. If she is willing to accept only a moderate amount of risk, what limited partnerships would be appropriate

Back 34

Oil and gas income program. The customer who is not in a high tax bracket would not be able to take full advantage of the tax benefit produced by an exploratory oil and gas program or by a new construction real estate limited partnerships. A raw land real estate partnerships is speculative and high risk.

Front 35

What is the maximum compensation that can be taken by a sponsor and how are commissions treated in a direct participation program

Back 35

Under FINRA rules, the maximum compensation is 10 %. Upfront costs, such as commissions taken and accounting costs, do not reduce the beginning basis

Front 36

How do exploratory programs compared to developmental programs in oil and gas limited partnerships

Back 36

Exploratory programs are more risky however they provide higher returns then developmental programs

Front 37

What is the principal tax benefit of investing in an exploratory oil and gas drilling program

Back 37

IDC . It sees our cause that, after entered, hold no salvage or on going value such as labor or Geological Survey

Front 38

What does the term direct participation refer to

Back 38

The flow through of profits and losses of the partnership to the individual limited partners

Front 39

The general partner is forbidden by law to

Back 39

Borrow money from the partnership

Front 40

In order of importance what should your client consider in assessing a direct participation program

Back 40

A program's economic viability is the first priority in the assessment BPP. Second, tax write offs. IRS considers programs designed solely to generate tax benefits abusive. Third= liquidity, because there is a very limited secondary market for DPPs

Front 41

What are four items that are included in the certificate of limited partnership

Back 41

The limited partnerships name, the limited partner's power to assign, the liability for future additional contributions, and conditions of dissolution

Front 42

The document attached to the formation of a limited partnership, filed with the State is called

Back 42

The certificate of limited partnership. The uniform Limited Partnership Act requires that two or more persons sign and swear to a certificate of limited partnership. It is filed with the state and is a public document.

Front 43

When does an investor of acquire limited partner status in a direct participation program

Back 43

When he AND the general partner have both signed the Subscription Agreement.

Front 44

Being traded or non-traded is a important distinction of REIT. What are the adv/disadvs of a non-traded REIT.

Back 44

ADV= High dividends which can be sourced from additional offerings
DISADV=less liquid than traded REIT; less public information; share value not known until 18 months after offering closes; external mgr (often thieves) rather than EEs; high front loaded broker fees

Front 45

REITs are traded in what type of security

Back 45

publicly traded REIT=cs, PS or debt+ Brokerage fee
nonxchange traded REIT=Shares in a REIT=via broker, REIT mutual funds or ETF

Front 46

What are the tax consideration for REITs

Back 46

REITs pay out 100% of their taxable income to shareholders, who are taxed at ordinary income. Dividends from REITs are nonqualified and therefore not entitled to capital gain tax rates

Front 47

What source can one use for REIT due diligence

Back 47

The SEC EDGAR system where you can verify the registration of both publicly traded and non traded REITs also review annual and quarterly reports and any offering prospectus

Front 48

What is SEC's EDGAR

Back 48

EDGAR= Electronic Data Gathering Analysis and Retrieval system. The database is available to the public online

Front 49

What is an advantage of an oil and gas income program as compared with other types of oil and gas programs

Back 49

Lowest risk of capital.