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1.
If prices of the underlying commodities of a royalty trust fall, what will happen to the royalties that the trust normally pays out?
They will fall. Since royalties are based on the underlying commodities, a fall in the commodities' prices will cause a drop in royalties.
2.
Real estate investment trusts specialize by _______.
Type of property. For example, they may specialize in offices, malls, hotels, or many other property types.
3.
Why have so many energy firms reorganized as master limited partnerships?
To avoid double taxation of earnings. There is no counterpart to the corporate income tax. Owners of a partnership are taxed only once: when they receive distributions.
4.
Why do nearly all royalty trusts have above-average yields?
They are required to pay out essentially all of their cash flow as distributions. This results in relatively large yields for investors.
5.
Which of the following is true regarding the tax treatment of master limited partnerships?
The owner might have to file tax returns in the states where the partnership operates. MLP unitholders pay regular income tax annually on their share of the partnership's net income.
