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Chapter 8 SIE
| Term | Definition |
|---|---|
| After-tax dollars | income after all taxes are deducted |
| exempt | not subject to an obligation (e.g., tax exempt) |
| Liquidity | the ease with which an asset can be converted into cash quickly |
| medicaid | a federal and state funded program for those whose income and resources are insufficient to meet the cost of necessary medical care |
| syndicate | a group of underwriters that is formed to distribute an issue of securities to the public. They act as the organizer of the partnership. |
| trade ticket | the original record that documents a buy or sell transaction |
| Volatility | a measure of risk related to a security's price stability (movement in the market) |
| municipal fund securities | issued by a state or local government and regulated by the MSRB. They do not have to register with the SEC. They include 529 education savings plans, ABLE accounts for individuals with disability and local government investment pools (LGIPs) |
| 529 plans | education savings plans funded with after-tax dollars, they grow tax deferred and the earnings are federally income tax free if used for qualified education expenses. |
| qualified higher education expenses | include tuition, mandatory feed, room and board, computers, books and supplies. They also include up to $10,000 in annual expenses for tuition at elementary or secondary public, private or religious schools |
| advisor sold plans | are purchased from a broker, are more expensive because of additional feed related to sales loads, charges at purchase and redemption, and ongoing distribution fees. |
| Direct-sold plans | permit consumers to invest directly into 529 plans, without using the services of a broker. They are less expensive because there are no additional fees charged by the broker. |
| program disclosure document | the issuer's disclosure document for the offering of shares or units in a 529 education savings plan |
| prepaid tuition plans | allow an account holder to purchase units or credits at participating colleges for future tuition and mandatory fees at current prices for the beneficiary. They usually can't be used to pay for future room and board at colleges |
| ABLE Accounts | aka 529A Accounts, are savings accounts with tax advantages for individuals with disabilities. IT helps save money for disability related expenses. Limit is $16,000/individual |
| Local Government Investment Pools (LGIP) | an investment pool established by a state or local governmental entity to invest public funds for the purpose of providing short-term funding to government entities. Benefits include protection of principal and cash management. |
| Direct Participation Programs | entities that pass all income and expenses directly to the owners. It is not taxed. If offers investors steady returns and exposure to non-correlated assets. |
| Limited Partnership (LPs) | a common type of DPP. Risks include audit risk which could result in revocation of this status, inability to meet the objectives, lack of transparency, and illiquidity. They are complex & designed for sophisticated, affluent investors. |
| General Partner | has unlimited liability in a limited partnership. They have a fiduciary responsibility to act in the best interest of the LPs. They must avoid activities that present a conflict of interest. |
| Roll Up | an LP might change its status from an unlisted illiquid investment to a listed liquid investment through this offering. LPs much vote for this, GPs must disclose any conflicts of interest, and any fees attributed to the structuring are limited to 2% |
| Subscription agreement | the trade ticket for an LP purchase. IT contains a detailed financial questionnaire which an investor must complete & sign. Written verification of net worth is required. |
| Real estate limited partnerships | emphasize either depreciation deductions, income from existing rental properties, or growth from new development. They may take advantage of tax credits |
| Oil and gas limited partnerships | vary from risky exploratory deals, to less profitable but more reliable developmental programs, to more conservative income programs. |
| equipment leasing programs | structured to provide income b/c there is little or no capital appreciation potential. They generate rental income for the partners. They use accelerated depreciation methods. This creates larger expends write offs in the early years of partnership. |
| Raw Land LP | has the highest risk and greatest potential return. It has a long investment time horizon, which means it has a long term holding period. It provides no expense write-offs b/c land does not depreciate, and there is no resource depletion. |
| New Construction LP | Its objective is capital appreciation. Th GP purchases the land, develops it, and hopefully sells it at a profit. |
| Rental Income LP | Buys and manages property for its income. It is the safest type of partnership b/c it invests in an established real asset with an existing income stream, historical occupancy rate, and known tenant base. |
| Low income housing credit | offers very limited capital appreciation b/c there is no potential to improve the rental income stream, the rents are fixed at a low rate. It is designed to attract investor capital to an otherwise unattractive market sector. |
| Recourse debt | increases the LP's cost basis in the partnership, while any principal repayment lowers the LP's basis. The LP assumes the responsibility for the loan's repayment. |
| Nonrecourse debt | does not typically get added to an LP's cost basis. When offered through a qualified lender it increases investor basis in a real estate program, without the investor being legally at risk. Cash distribution & repayment decreases the LP's basis. |
| Exploratory or wildcat drilling | this drilling is in an unproven area. It is the riskiest of all oil and gas programs, but also offers the greatest potential return if successful |
| Developmental drilling | Drilling is done in an area with proven reserves. Developing these proven reserves is less risky than exploratory drilling |
| Combination program | combines exploratory & developmental drilling. They are less risky than pure exploratory drilling & offer better potential returns than pure developmental drilling |
| Income programs | purchase and manage producing wells. It is the safest type of program because it invests in established, measurable production. |
| Intangible Drilling Costs (IDCs) | expenses for consumables, such as labor and equipment rental. They are immediate expenses of drilling programs & provide high early write-offs for the LPs. They are associated with exploratory wells b/c of the relatively higher upfront labor costs. |
| Tenants in Common (TIC) | an undivided partial ownership by more than one party in an asset, typically real estate. They are offered through private placements. This provides a way for a seller to defer paying capital gains taxes on the sale of that property |
| Investment contract | an investment of money in an enterprise made with the expectation of profit arising from and dependent on the efforts of others. TICs qualify as this. |
| Depletion | cost recovery system that is used for irreplaceable natural resources |
| Direct Participation Program (DPP) | an entity that passes all profits and losses directly to the investors |
| Passive Income Generators (PIGs) | a type of income that passive activity losses may be deducted against |
Created by:
emulligan
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