cushing-tr_nq.htm
 
As filed with the Securities and Exchange Commission on October 28, 2013

 
 
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: August 31, 2013

 
 
 
 
 
Item 1. Schedule of Investments.
 

The Cushing MLP Total Return Fund
            
SCHEDULE OF INVESTMENTS (Unaudited)
            
       
     
August 31, 2013
  
               
     
Shares
    
Fair Value
  
Common Stock - 8.7% (1)
            
Large Cap Diversified - 8.7% (1)
            
Bermuda - 3.2% (1)
            
Seadrill Limited
     160,000     $ 7,401,600  
United States - 5.5% (1)
                
Williams Companies, Inc.
     200,000       7,248,000  
Targa Resources Corp
     79,600       5,419,964  
Total Common Stock (Cost $19,271,845)
           $ 20,069,564  
                   
Master Limited Partnerships and Related Companies  - 91.9% (1)
                
Coal - 5.8% (1)
                
United States -5.8% (1)
                
Alliance Resources Partners, L.P. (2)
     64,000     $ 4,817,920  
Natural Resource Partners, L.P. (2)
     444,900       8,724,489  
                13,542,409  
Crude Oil & Refined Products - 6.7% (1)
                
United States - 6.7% (1)
                
Blueknight Energy Partners, L.P.
     216,778       1,883,801  
Buckeye Partners, L.P. (2)
     101,400       7,098,000  
NuStar Energy, L.P. (2)
     159,900       6,669,429  
 
             15,651,230  
General Partnerships - 2.2% (1)
                
United States - 2.2% (1)
                
Inergy, L.P. (2)
     227,800       3,129,972  
NuStar GP Holdings, LLC
     87,100       2,063,399  
              5,193,371  
Large Cap Diversified - 19.0% (1)
                
United States - 19.0% (1)
                
Enbridge Energy Management LLC(3)(4)
     2,645       79,313  
Enbridge Energy Partners, L.P. (2)
     370,600       11,051,292  
Energy Transfer Partners, L.P. (2)
     278,188       14,262,698  
Kinder Morgan Management, LLC (2) (3) (4)
     104,121       8,312,983  
Williams Partners, L.P.
     211,800       10,448,094  
 
             44,154,380  
Natural Gas Gatherers & Processors - 25.6% (1)
                
United States - 25.6% (1)
                
Atlas Pipeline Partners, L.P. (2)
     214,000       8,303,200  
Crosstex Energy, L.P. (2)
     500,400       9,367,488  
MarkWest Energy Partners, L.P. (2)
     55,900       3,733,561  
PVR Partners, L.P. (2)
     466,900       10,836,749  
QEP Midstream Partners, L.P.(3)
     282,300       6,394,095  
Regency Energy Partners, L.P. (2)
     343,400       9,282,102  
Targa Resources Partners, L.P. (2)
     235,400       11,501,644  
              59,418,839  
Natural Gas Transportation & Storage - 10.4% (1)
                
United States - 10.4% (1)
                
Boardwalk Pipeline Partners, L.P. (2)
     299,800       9,011,988  
El Paso Pipeline Partners, L.P. (2)
     138,000       5,758,740  
Niska Gas Storage Partners, LLC
     175,000       2,476,250  
TC Pipelines, L.P. (2)
     142,800       6,900,096  
              24,147,074  
Other - 3.8% (1)
                
United States - 3.8% (1)
                
Calumet Specialty Products Partners, L.P. (2)
     143,800       4,395,966  
Exterran Partners, L.P.
     157,400       4,396,182  
                8,792,148  
Propane - 4.7% (1)
                
United States - 4.7% (1)
                
Ferrellgas Partners, L.P.
     133,000       3,096,240  
NGL Energy Partners, L.P. (2)
     250,600       7,738,528  
                10,834,768  
Shipping - 8.9% (1)
                
Republic of the Marshall Islands - 8.9% (1)
                
Capital Product Partners, L.P.
     1,870,111       16,569,184  
Teekay LNG Partners, L.P.
     99,900       4,203,792  
                20,772,976  
Upstream - 3.6% (1)
                
United States - 3.6% (1)
                
Breitburn Energy Partners, L.P.
     200,000       3,534,000  
Legacy Reserves, L.P. (2)
     91,300       2,463,274  
QR Energy, L.P. (2)
     140,100       2,306,046  
                8,303,320  
Variable Distribution - 1.2%(1)
                
United States - 1.2%(1)
                
Northern Tier Energy, L.P.
     135,000       2,812,050  
 
 
 
 
 
Total Master Limited Partnerships and Related Companies (Cost $208,625,888)
           $ 213,622,565  
                   
Preferred Stock - 2.9% (1)
                
Crude Oil & Refined Products - 2.9% (1)
                
United States - 2.9% (1)
                
Blueknight Energy Partners, L.P.
     757,519     $ 6,810,096  
                   
Total Preferred Stock (Cost $5,053,158)
           $ 6,810,096  
Short-Term Investments - Investment Companies - 1.5% (1)
  
Shares
          
United States - 1.5% (1)
                
AIM Short-Term Treasury Portfolio Fund - Institutional Class, 0.02% (5)
     711,038     $ 711,038  
Fidelity Government Portfolio Fund - Institutional Class, 0.01% (5)
     711,038       711,038  
Fidelity Money Market Portfolio - Institutional Class, 0.05% (5)
     711,038       711,038  
First American Government Obligations Fund - Class Z, 0.02% (5)
     711,039       711,039  
Invesco STIC Prime Portfolio, 0.02% (5)
     711,039       711,039  
Total Short-Term Investments (Cost $3,555,192)
           $ 3,555,192  
                   
Total Investments - 105.0% (1) (Cost $236,506,083)
           $ 244,057,417  
Liabilities in Excess of Other Assets - (5.0)% (1)
             (11,690,018 )
Net Assets Applicable to Common Stockholders - 100.0% (1)
           $ 232,367,399  
                   
Schedule of Securites Sold Short - (6.0)% (1)
                
Exchange Traded Funds - (6.0)%(1)
                
United States - (6.0)% (1)
  
Shares
          
Market Vectors ETF Trust Oil Services
     (155,000 )   $ (6,968,800 )
Energy Select Sector SPDR
     (85,000 )     (6,933,450 )
                   
Total Securities Sold Short  (Proceeds $14,005,366)
           $ (13,902,250 )
                   
 
(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 August 31, 2013.  As such, it is
                
 
classified as a non-income producing security as of August 31, 2013.
                
(4)
Security distributions are paid-in-kind.
                
(5)
Rate reported is the current yield as of August 31, 2013.
                
 

 
 
 

Tax Basis

The cost basis of investments for federal income tax purposes at August 31, 2013 was as follows*:
 
Cost of investments                               
 $ 217,360,746  
Gross unrealized appreciation $ 138,075,320  
Gross unrealized depreciation   (125,280,899 )
Net unrealized appreciation $   12,794,421  
  
*The above table only reflects tax adjustments through November 30, 2012.  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
  
August 31, 2013
    
(Level 1)
    
(Level 2)
    
(Level 3)
  
Assets
Equity Securities
                        
Common Stock(a)
 
   $ 20,069,564     $ 20,069,564     $ -     $ -  
Master Limited
  Partnerships and
  Related Companies (a)
     213,622,565       213,622,565       -       -  
  Preferred Stock (a)
     6,810,096       -       6,810,096       -  
Total Equity Securities
     240,502,225       233,692,129       6,810,096       -  
 
 
 
 
 
 
Other
                                
Short-term
  Investments
   $ 3,555,192     $ 3,555,192     $ -     $ -  
Total Assets
   $ 244,057,417     $ 237,247,321     $ 6,810,096     $ -  
 
Liabilities
                                
        Exchange Traded
   $ 13,902,250     $ 13,902,250     $ -     $ -  
Total Liabilities
   $ 13,902,250     $ 13,902,250     $ -     $ -  
Total
   $ 230,155,167     $ 223,345,071     $ 6,810,096     $ -  

(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 August 31, 2013.

There were no transfers between any levels during the period ended August 31, 2013.

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 August 31, 2013, are as follows:
 
   
Contracts
    
Premiums
  
Outstanding at December 1, 2012
               -                       -  
Options purchased
      30,700        3,676,199  
Options covered
               -                       -  
Options exercised
       (5,000)          (535,128)  
Options expired
     (25,700)       (3,141,071)  
Outstanding at August 31, 2013
                -     $                 -  

The average monthly fair value of purchased options during the period ended August 31, 2013 was $290,194.

Transactions in written options contracts for the period ended August 31, 2013, are as follows:
 
   
Contracts
    
Premiums
  
Outstanding at December 1, 2012
     3,300     $    71,034  
Options written
     4,600        155,270  
Options covered
             -                    -  
Options exercised
     (2,225)        (65,250)  
Options expired
     (5,675)       (161,054)  
Outstanding at August 31, 2013
             -     $              -  

The average monthly fair value of written options during the period ended August 31, 2013 was $16,139.
 
 
 
 
 

The effect of derivative instruments on the Statement of Operations for the period ended August 31, 2013:
 
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
  
$(2,559,008)
$161,054
$(2,397,954)
           
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
  
$               -
$ 40,966
$ 40,966

 
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         October 28, 2013                                                                             



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         October 28, 2013                                                                             

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

Date         October 28, 2013