cushing-tr_nq.htm
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM N-Q
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY

Investment Company Act file number  811-22072

The Cushing MLP Total Return Fund
(Exact name of registrant as specified in charter)
 
8117 Preston Road Suite 440
Dallas, TX 75225
(Address of principal executive offices) (Zip code)

Jerry V. Swank
8117 Preston Road Suite 440
Dallas, TX 75225
 (Name and address of agent for service)
 
214-692-6334
Registrant’s telephone number, including area code
 
Date of fiscal year end: November 30
 
Date of reporting period: February 28, 2014
 
 
 
 

Item 1. Schedule of Investments.
 
The Cushing® MLP Total Return Fund
SCHEDULE OF INVESTMENTS (Unaudited)
 
   
February 28, 2014
  
             
   
Shares
    
Fair Value
  
Common Stock - 5.7% (1)
            
Large Cap Diversified - 5.7% (1)
            
Bermuda - 3.3% (1)
            
Seadrill Limited
     200,000     $ 7,392,000  
United States - 2.4% (1)
                
Targa Resources Corp. (2)
     55,300       5,350,828  
Total Common Stock (Cost $10,700,871)
           $ 12,742,828  
                 
Master Limited Partnerships and Related Companies  - 124.8% (1)
                
Coal - 3.1% (1)
                
United States - 3.1% (1)
                
Natural Resource Partners, L.P. (2)
     445,700       6,738,984  
                 
Crude Oil & Refined Products - 8.7% (1)
                
United States - 8.7% (1)
                
Blueknight Energy Partners, L.P.
     216,778       1,957,505  
Buckeye Partners, L.P.
     101,400       7,425,522  
NuStar Energy, L.P. (2)
     165,900       8,281,728  
Sprague Resources, L.P.
     85,000       1,569,950  
              19,234,705  
General Partnerships - 5.3% (1)
                
United States - 5.3% (1)
                
Atlas Energy, L.P.
     21,500       912,675  
Energy Transfer Equity, L.P.
     129,400       5,648,310  
NuStar GP Holdings, LLC
     169,100       5,079,764  
              11,640,749  
Large Cap Diversified - 20.8% (1)
                
United States - 20.8% (1)
                
Enbridge Energy Management LLC (3) (4)
     168,215       4,499,749  
Enbridge Energy Partners, L.P.
     313,600       8,630,272  
Energy Transfer Partners, L.P. (2)
     213,188       11,838,330  
Kinder Morgan Management, LLC (4)
     154,385       10,776,050  
Williams Partners, L.P.
     208,800       10,358,568  
              46,102,969  
Natural Gas Gatherers & Processors - 27.0% (1)
                
United States - 27.0% (1)
                
Atlas Pipeline Partners, L.P.
     334,000       10,267,160  
Crestwood Midstream Partners, L.P.
     329,440       7,376,162  
Crosstex Energy, L.P.
     230,400       7,117,056  
DCP Midstream Partners, L.P.
     145,000       7,076,000  
MarkWest Energy Partners, L.P.
     55,900       3,569,215  
PVR Partners, L.P.
     389,900       10,464,916  
Regency Energy Partners, L.P. (2)
     343,400       9,014,250  
Southcross Energy Partners, L.P.
     270,000       4,752,000  
              59,636,759  
 
 
 
 
 
Natural Gas Transportation & Storage - 5.6% (1)
                
United States - 5.6% (1)
                
El Paso Pipeline Partners, L.P.
     190,000       5,709,500  
TC Pipelines, L.P. (2)
     142,800       6,657,336  
              12,366,836  
Other - 4.6% (1)
                
Republic of the Marshall Islands - 0.8% (1)
                
Seadrill Partners, LLC
     56,950       1,788,799  
United States - 3.8% (1)
                
Exterran Partners, L.P.
     202,400       6,072,000  
OCI Partners, L.P. (3)
     95,948       2,375,672  
              10,236,471  
Propane - 6.9% (1)
                
United States - 6.9% (1)
                
Ferrellgas Partners, L.P.
     133,000       3,392,830  
NGL Energy Partners, L.P.
     85,600       3,103,856  
NGL Energy Partners, L.P. (5) (6)
     150,000       5,439,000  
Suburban Propane Partners, L.P. (5) (6)
     78,000       3,360,240  
              15,295,926  
Shipping - 12.5% (1)
                
Republic of the Marshall Islands - 12.5% (1)
                
Capital Product Partners, L.P.
     1,538,111       16,550,074  
Navios Maritime Partners, L.P.
     650,000       11,115,000  
              27,665,074  
Upstream - 25.0% (1)
                
United States - 25.0% (1)
                
Atlas Resource Partners, L.P.
     402,000       8,707,320  
Breitburn Energy Partners, L.P.
     470,000       9,395,300  
Eagle Rock Energy Partners, L.P.
     1,140,362       5,530,756  
EV Energy Partners, L.P.
     141,000       4,946,280  
Legacy Reserves, L.P. (2)
     253,277       6,686,513  
LinnCo, LLC
     274,258       8,362,126  
Memorial Production Partners, L.P.
     258,125       5,766,513  
QR Energy, L.P. (2)
     338,100       5,930,274  
              55,325,082  
Variable Distribution - 5.3% (1)
                
United States - 5.3% (1)
                
CVR Refining, L.P.
     100,000       2,088,000  
Emerge Energy Services, L.P.
     67,700       3,097,275  
Northern Tier Energy, L.P.
     160,000       3,868,800  
PetroLogistics, L.P.
     200,000       2,582,000  
              11,636,075  
                 
Total Master Limited Partnerships and Related Companies (Cost $262,300,896)
     $ 275,879,630  
                 
Royalty Trusts - 1.5% (1)
                
Natural Gas Gatherers & Processors - 1.5% (1)
                
United States - 1.5% (1)
                
SandRidge Permian Trust
     260,000     $ 3,328,000  
                 
Total Royalty Trusts (Cost $3,561,269)
           $ 3,328,000  
 
 
 
 
 
Preferred Stock - 3.3% (1)
                
Crude Oil & Refined Products - 3.3% (1)
                
United States - 3.3% (1)
                
Blueknight Energy Partners, L.P.
     757,519     $ 7,416,111  
                 
Total Preferred Stock (Cost $4,789,116)
           $ 7,416,111  
                 
Fixed Income - 3.7% (1)
                
Exploration & Production - 2.3% (1)
                
United States - 2.3% (1)
                
Denbury Resources, Inc., 4.625%, due 07/15/2023
     2,000,000     $ 1,895,000  
Oasis Petroleum, Inc., 6.875%, due 03/15/2022 (7)
     500,000       545,000  
Rosetta Resources, Inc., 5.625%, due 05/01/2021
     2,000,000       2,070,000  
Sanchez Energy Corp., 7.750%, due 06/15/2021 (7)
     500,000       525,000  
              5,035,000  
Refining & Marketing - 1.4% (1)
                
United States - 1.4% (1)
                
Western Refining, Inc., 6.250%, due 04/01/2021
     3,000,000       3,105,000  
                 
Total Fixed Income (Cost $7,676,808)
           $ 8,140,000  
                 
Short-Term Investments - Investment Companies - 3.0% (1)
  
Shares
          
United States - 3.0% (1)
                
AIM Short-Term Treasury Portfolio Fund - Institutional Class, 0.01% (8)
     1,314,387     $ 1,314,387  
Fidelity Government Portfolio Fund - Institutional Class, 0.01% (8)
     1,314,387       1,314,387  
Fidelity Money Market Portfolio - Institutional Class, 0.04% (8)
     1,314,387       1,314,387  
First American Government Obligations Fund - Class Z, 0.01% (8)
     1,314,387       1,314,387  
Invesco STIC Prime Portfolio, 0.04% (8)
     1,314,386       1,314,386  
Total Short-Term Investments (Cost $6,571,934)
           $ 6,571,934  
                 
Options - 0.0% (1)
                
Bermuda - 0.0% (1)
  
Contracts
          
Seadrill Limited, Call Option
                
Expiration: March 2014, Exercise Price: $39.00
     2,000     $ 22,000  
Total Options (Cost $89,439)
           $ 22,000  
                 
Total Investments - 142.0% (1) (Cost $295,690,333)
           $ 314,100,503  
Liabilities in Excess of Other Assets - (42.0)% (1)
             (92,976,426 )
Net Assets Applicable to Common Stockholders - 100.0% (1)
           $ 221,124,077  
 
(1)
Calculated as a percentage of net assets applicable to common stockholders.
(2)
All or a portion of these securities are held as collateral pursuant to the loan agreements.
(3)
No distribution or dividend was made during the period ended February 28, 2014.  As such, it is
 
classified as a non-income producing security as of February 28, 2014.
(4)
Security distributions are paid-in-kind.
(5)
Restricted security.
(6)
Fair valued by the Adviser in good faith under procedures that were approved by the Board of Trustees.
(7)
Restricted security under Rule 144A under the Securities Act of 1933, as amended.
(8)
Rate reported is the current yield as of February 28, 2014.
 
 
 
 

Tax Basis

The cost basis of investments for federal income tax purposes at February 28, 2014 was as follows*:
 
Cost of investments                               
 $ 279,709,289  
Gross unrealized appreciation $ 160,973,966  
Gross unrealized depreciation   (126,582,752 )
Net unrealized appreciation $  34,391,214­  
  
*The above table only reflects tax adjustments through November 30, 2013.  For the previous fiscal year’s federal income tax information, please refer to the Notes to Financial Statements section in the Fund’s most recent semi-annual or annual report.

Fair Value Measurements

Various inputs that are used in determining the fair value of the Fund’s investments are summarized in the three broad levels listed below:

 
·
Level 1 — quoted prices in active markets for identical securities
 
·
Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
 
·
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
These inputs are summarized in the three broad levels listed below.
 
 
 
 
 
         
Fair Value Measurements at Reporting Date Using
  
         
Quoted Prices in
          
Significant
  
         
Active Markets for
    
Significant Other
    
Unobservable
  
   
Fair Value at
    
Identical Assets
    
Observable Inputs
    
Inputs
  
Description
  
February 28, 2014
    
(Level 1)
    
(Level 2)
    
(Level 3)
  
Assets
Equity Securities
                        
Common Stock (a)
   $ 12,742,828     $ 12,742,828     $ -     $ -  
Master Limited
Partnerships and
Related
Companies (a)
     275,879,630       275,879,630       -       -  
Royalty Trusts(a)
     3,328,000       3,328,000       -       -  
Preferred Stock(a)
     7,416,111       7,416,111       -       -  
Total Equity Securities
     299,366,569       299,366,569       -       -  
Notes
        Senior Notes(a)
     8,140,000       -       8,140,000       -  
Total Notes
     8,140,000       -       8,140,000       -  
Other
        Options
     22,000       22,000       -       -  
    Short Term Investment
     6,571,934       6,571,934       -       -  
Total Other
     6,593,934       6,593,934       -       -  
Total
   $ 314,100,503     $ 305,960,503     $ 8,140,000     $ -  

(a)
All other industry classifications are identified in the Schedule of Investments.  The Fund did not hold Level 3 investments at any time during the period ended February 28, 2014.

Transfers into and out of each level are measured at fair value at the end of the fiscal period.  There were no transfers between any levels during the period ended February 28, 2014.

Derivative Financial Instruments

The Fund provides disclosure regarding derivatives and hedging activity to allow investors to understand how and why the Fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect the Fund’s results of operations and financial position.

The Fund occasionally purchases and sells (“writes”) put and call equity options as a source of potential protection against a broad market decline. A purchaser of a put option has the right, but not the obligation, to sell the underlying instrument at an agreed upon price (“strike price”) to the option seller. A purchaser of a call option has the right, but not the obligation, to purchase the underlying instrument at the strike price from the option seller. Options are settled for cash.

Purchased Options — Premiums paid by the Fund for purchased options are included in the Statement of Assets and Liabilities as an investment. The option is adjusted daily to reflect the fair value of the option and any change in fair value is recorded as unrealized appreciation or depreciation of investments. If the option is allowed to expire, the Fund will lose the entire premium paid and record a realized loss for the premium amount. Premiums paid for purchased options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain/loss or cost basis of the security.
 
 
 
 

Written Options — Premiums received by the Fund for written options are included in the Statement of Assets and Liabilities. The amount of the liability is adjusted daily to reflect the fair value of the written option and any change in fair value is recorded as unrealized appreciation or depreciation of investments. Premiums received from written options that expire are treated as realized gains. The Fund records a realized gain or loss on written options based on whether the cost of the closing transaction exceeds the premium received. If a call option is exercised by the option buyer, the premium received by the Fund is added to the proceeds from the sale of the underlying security to the option buyer and compared to the cost of the closing transaction to determine whether there has been a realized gain or loss. If a put option is exercised by an option buyer, the premium received by the option seller reduces the cost basis of the purchased security.

Written uncovered call options subject the Fund to unlimited risk of loss. Written covered call options limit the upside potential of a security above the strike price. Put options written subject the Fund to risk of loss if the value of the security declines below the exercise price minus the put premium.

The Fund is not subject to credit risk on written options as the counterparty has already performed its obligation by paying the premium at the inception of the contract.

The Fund has adopted the disclosure provisions of FASB Accounting Standard Codification 815, Derivatives and Hedging (“ASC 815”).  ASC 815 requires enhanced disclosures about the Fund’s use of and accounting for derivative instruments and the effect of derivative instruments on the Fund’s results of operations and financial position.  Tabular disclosure regarding derivative fair value and gain/loss by contract type (e.g., interest rate contracts, foreign exchange contracts, credit contracts, etc.) is required and derivatives accounted for as hedging instruments under ASC 815 must be disclosed separately from those that do not qualify for hedge accounting.  Even though the Fund may use derivatives in an attempt to achieve an economic hedge, the Fund’s derivatives are not accounted for as hedging instruments under ASC 815 because investment companies account for their derivatives at fair value and record any changes in fair value in current period earnings.

Transactions in purchased options contracts for the period ended February 28, 2014, are as follows:
               
   
Contracts
  
Premiums
  
Outstanding at December 1, 2013
     -     $ -    
Options purchased
     7,500       630,820    
Options covered
     (500 )     (47,267 )  
Options exercised
     -       -    
Options expired
     (5,000 )     (494,114 )  
Outstanding at February 28, 2014
     2,000     $ 89,439    

The average monthly fair value of purchased options during the period ended February 28, 2014 was $210,273.
 
 
 
 

Transactions in written options contracts for the period ended February 28, 2014, are as follows:
               
   
Contracts
    
Premiums
  
Outstanding at December 1, 2013
     -     $ -    
Options written
     1,800       79,209    
Options covered
     -       -    
Options exercised
     -       -    
Options expired
     (1,800 )     (79,209 )  
Outstanding at February 28, 2014
     -     $ -    

The average monthly fair value of written options during the period ended February 28, 2014 was $26,403.
 
The effect of derivative instruments on the Statement of Operations for the period ended February 28, 2014:
 
Amount of Realized Gain (Loss) on Derivatives Recognized in Income
Derivatives not accounted for as
hedging instruments under ASC
815
  
Purchased
Options
Written
Options
Total
Equity Contracts
  
$(537,415)
$ 79,209
$(458,206)
           
Amount of Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income
Derivatives not accounted for as
hedging instruments under ASC
815
  
Purchased
Options
Written
Options
Total
Equity Contracts
  
$ (67,439)
$          -
$ (67,439)
 
Item 2. Controls and Procedures.
 
(a)
The Registrant’s President and Treasurer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “1940 Act”)) (17 CFR 270.30a-3(c)) are effective as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rule 13a-15(b) or Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(d)).

(b)
There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) (17 CFR 270.30a-3(d)) that occurred during the Registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
 
Item 3. Exhibits.
 
Separate certifications for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)).  Filed herewith.
 
 
 
 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant)  The Cushing MLP Total Return Fund                                  
 
 
By (Signature and Title)              /s/ Daniel L. Spears                                 
Daniel L. Spears, President
 
Date        April 29, 2014                                                                                   
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)              /s/ Daniel L. Spears                                 
Daniel L. Spears, President

Date        April 29, 2014                                                                                   
 

By (Signature and Title)               /s/ John H. Alban                                  
John H. Alban, Treasurer

Date        April 29, 2014