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Stocks 502: Unconventional Equities

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1.
If you are a mutual fund investor, you can invest in master limited partnerships.
Choose wisely. There is only one correct answer.
True. The government recently gave mutual funds the green light to invest in MLPs.
2.
As an investor in a royalty trust, you will generally have to pay state income taxes on your royalties.
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True. You are liable for income taxes in the states in which the trust generates its royalties--and that could even be multiple states.
3.
Real estate investment trusts must distribute _______ of their taxable income to shareholders each year as dividends.
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At least 90%. By law, they must distribute at least 90%.
4.
Why do nearly all royalty trusts have above-average yields?
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They are required to pay out essentially all of their cash flow as distributions. This results in relatively large yields for investors.
5.
The prices of MLP units often change in conjunction with changes in _______.
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Interest rates. Since MLP cash distributions are so steady, many investors treat them like bonds. Thus, when interest rates rise, bond and MLP prices tend to fall. This relationship is not perfect, but it generally holds over time.