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: August 31, 2014

 
 
 
 
 
Item 1. Schedule of Investments.
 

The Cushing® MLP Total Return Fund
            
SCHEDULE OF INVESTMENTS (Unaudited)
            
       
     
August 31, 2014
  
               
     
Shares
    
Fair Value
  
Common Stock - 6.6% (1)
            
Large Cap Diversified - 2.5% (1)
            
Bermuda - 2.5% (1)
            
Seadrill Limited
     169,550     $ 6,315,738  
General Partnerships - 4.1% (1)
                
United States - 4.1% (1)
                
Kinder Morgan, Inc. (2) (3)
     100,000       4,026,000  
Targa Resources Corp. (2)
     45,800       6,391,390  
Total Common Stock (Cost $15,083,390)
           $ 16,733,128  
                   
Master Limited Partnerships and Related Companies  - 130.7% (1)
                
Coal - 3.7% (1)
                
United States - 3.7% (1)
                
Natural Resource Partners, L.P. (2)
     583,000     $ 9,258,040  
                   
Crude Oil & Refined Products - 15.2% (1)
                
United States - 15.2% (1)
                
Blueknight Energy Partners, L.P. (2)
     216,778       1,885,969  
Buckeye Partners, L.P. (2) (3)
     42,400       3,349,600  
Constellation Energy Partners, LLC
     367,700       1,422,999  
Enbridge Energy Management, LLC (2) (4) (5)
     174,107       6,236,506  
Enbridge Energy Partners, L.P. (2)
     138,300       5,023,056  
Lehigh Gas Partners, L.P. (2)
     181,300       6,561,247  
NuStar Energy, L.P. (2)
     175,600       11,605,404  
Sprague Resources, L.P. (2)
     85,000       2,214,250  
 
             38,299,031  
General Partnerships - 3.8% (1)
                
United States - 3.8% (1)
                
Energy Transfer Equity, L.P. (2)
     58,700       3,560,155  
NuStar GP Holdings, LLC (2)
     141,350       6,085,117  
              9,645,272  
Large Cap Diversified - 11.2% (1)
                
United States - 11.2% (1)
                
Energy Transfer Partners, L.P. (2)
     240,388       13,810,291  
Kinder Morgan Management, LLC (2) (4) (5)
     8,137       795,143  
Williams Partners, L.P. (2)
     258,221       13,688,295  
 
             28,293,729  
Natural Gas Gatherers & Processors - 18.4% (1)
                
United States - 18.4% (1)
                
American Midstream Partners, L.P. (2)
     42,000       1,252,020  
Atlas Pipeline Partners, L.P. (2)
     405,240       14,965,513  
EnLink Midstream Partners, L.P. (2)
     172,500       5,345,775  
MarkWest Energy Partners, L.P. (2) (3)
     66,100       5,270,153  
Regency Energy Partners, L.P. (2)
     398,926       13,156,579  
Southcross Energy Partners, L.P. (2)
     289,500       6,400,845  
              46,390,885  
 
 
 
 
 
 
 
Natural Gas Transportation & Storage - 5.0% (1)
                
United States - 5.0% (1)
                
TC Pipelines, L.P. (2)
     215,600       12,638,472  
Other - 9.6% (1)
                
Republic of the Marshall Islands - 2.0% (1)
                
Seadrill Partners, LLC (2)
     146,950       5,074,184  
United States - 7.6% (1)
                
Compressco Partners, L.P. (2)
     308,135       8,316,564  
Exterran Partners, L.P. (2)
     264,614       7,673,806  
OCI Partners, L.P. (2)
     155,948       3,220,326  
                24,284,880  
Propane - 8.1% (1)
                
United States - 8.1% (1)
                
Amerigas Partners, L.P. (2)
     169,300       7,833,511  
Ferrellgas Partners, L.P. (2)
     183,400       5,226,900  
NGL Energy Partners, L.P.
     58,271       2,481,179  
Suburban Propane Partners, L.P. (2)
     108,650       4,831,666  
                20,373,256  
Shipping - 13.8% (1)
                
Republic of the Marshall Islands - 13.8% (1)
                
Capital Product Partners, L.P. (2)
     1,538,111       16,826,934  
Navios Maritime Partners, L.P. (2)
     920,950       18,142,715  
                34,969,649  
Upstream - 41.2% (1)
                
United States - 41.2% (1)
                
Atlas Resource Partners, L.P. (2)
     611,840       12,310,221  
BreitBurn Energy Partners, L.P. (2)
     227,950       5,215,496  
EV Energy Partners, L.P. (2)
     336,800       14,078,240  
Legacy Reserves, L.P. (2)
     422,227       12,983,480  
LinnCo, LLC (2)
     424,758       13,358,639  
LRR Energy, L.P. (2)
     318,050       6,097,018  
Memorial Production Partners, L.P. (2)
     515,425       12,060,945  
QR Energy, L.P. (2)
     939,750       20,326,793  
Vanguard Natural Resources, LLC (2)
     262,750       7,730,105  
                104,160,937  
Variable Distribution - 0.7% (1)
                
United States - 0.7% (1)
                
Alon USA Partners, L.P.
     86,250       1,674,112  
                   
                   
Total Master Limited Partnerships and Related Companies (Cost $285,418,207)
           $ 329,988,263  
                   
Royalty Trusts - 1.2% (1)
                
Natural Gas Gatherers & Processors - 1.2% (1)
                
United States - 1.2% (1)
                
SandRidge Permian Trust (2)
     260,000     $ 3,013,400  
                   
Total Royalty Trusts (Cost $3,558,042)
           $ 3,013,400  
 
 
 
 
 
 
 
                   
Preferred Stock - 3.0% (1)
                
Crude Oil & Refined Products - 3.0% (1)
                
United States - 3.0% (1)
                
Blueknight Energy Partners, L.P.
     757,519     $ 7,635,792  
                   
Total Preferred Stock (Cost $5,303,661)
           $ 7,635,792  
                   
Fixed Income - 3.2% (1)
                
Exploration & Production - 2.0% (1)
                
United States - 2.0% (1)
                
Midcontinent Express Pipeline LLC, 6.700%, due 09/15/2019 (2) (6)
     2,500,000     $ 2,843,750  
Oasis Petroleum, Inc., 6.875%, due 03/15/2022
     500,000       548,750  
Rosetta Resources, Inc., 5.625%, due 05/01/2021 (2)
     1,000,000       1,028,750  
Sanchez Energy Corp., 6.125%, due 01/15/2023 (2) (6)
     500,000       518,750  
                4,940,000  
Refining & Marketing - 1.2% (1)
                
United States - 1.2% (1)
                
Western Refining, Inc., 6.250%, due 04/01/2021
     3,000,000       3,135,000  
                   
Total Fixed Income (Cost $7,670,345)
           $ 8,075,000  
                   
Short-Term Investments - Investment Companies - 2.8% (1)
  
Shares
          
United States - 2.8% (1)
                
AIM Short-Term Treasury Portfolio Fund - Institutional Class, 0.01% (7)
     1,423,154     $ 1,423,154  
Fidelity Government Portfolio Fund - Institutional Class, 0.01% (7)
     1,423,154       1,423,154  
Fidelity Money Market Portfolio - Institutional Class, 0.05% (7)
     1,423,154       1,423,154  
First American Government Obligations Fund - Class Z, 0.01% (7)
     1,423,155       1,423,155  
Invesco STIC Prime Portfolio, 0.01% (7)
     1,423,154       1,423,154  
Total Short-Term Investments (Cost $7,115,771)
           $ 7,115,771  
                   
Options - 0.4% (1)
                
United States - 0.4% (1)
  
Contracts
          
Boardwalk Pipeline Partners, L.P., Call Option
                
 
Expiration: December 2014, Exercise Price: $20.00
     2,738     $ 397,010  
Breitburn Energy Partners, L.P., Put Option
                
 
Expiration: September 2014, Exercise Price: $20.00
     2,200       8,800  
JP Morgan Alerian MLP ETN, Put Option
                
 
Expiration: September 2014, Exercise Price: $50.00
     3,000       120,000  
JP Morgan Alerian MLP ETN, Put Option
                
 
Expiration: October 2014, Exercise Price: $51.00
     4,500       405,000  
Total Options (Cost $1,049,161)
           $ 930,810  
                   
Total Investments - 147.9% (1) (Cost $325,198,577)
           $ 373,492,164  
Liabilities in Excess of Other Assets - (47.9)% (1)
             (121,036,703 )
Net Assets Applicable to Common Stockholders - 100.0% (1)
           $ 252,455,461  
                   
Schedule of Securites Sold Short - (8.8)% (1)
                
Exchange Traded Funds - (8.8)%(1)
                
United States - (8.8)% (1)
  
Shares
          
Energy Select Sector SPDR
     (124,800 )   $ (12,322,752 )
Market Vectors ETF Trust Oil Services
     (109,650 )     (6,048,294 )
SPDR S&P Oil & Gas Exploration & Production ETF
     (47,600 )     (3,762,780 )
                   
Total Securities Sold Short (Proceeds $20,715,761)
           $ (22,133,826 )
 
 
 
 
 
 
 
                   
Schedule of Written Options - (0.0)%(1)
                
United States - (0.0)% (1)
  
Contracts
          
Buckeye Partners, L.P., Call Option
                
 
 Expiration: October 2014, Exercise Price: $80.00
     (200 )   $ (25,000 )
Kinder Morgan, Inc., Call Option
                
 
 Expiration: October 2014, Exercise Price: $45.00
     (400 )     (3,200 )
Markwest Energy Partners, L.P., Call Option
                
 
 Expiration: September 2014, Exercise Price: $80.00
     (250 )     (30,000 )
                   
Total Written Options (Proceeds $26,068)
           $ (58,200 )
                   
(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)
All or a portion of these securities represent cover for outstanding call options written.
          
(4)
No distribution or dividend was made during the period ended August 31, 2014. As such, it is
          
 
classified as a non-income producing security as of August 31, 2014.
                
(5)
Security distributions are paid-in-kind.
                
(6)
Restricted security under Rule 144A under the Securities Act of 1933, as amended.
          
(7)
Rate reported is the current yield as of August 31, 2014.
                
 
 
 
 
 
 
Tax Basis

The cost basis of investments for federal income tax purposes at August 31, 2014 was as follows*:

Cost of investments                                                                             $ 288,475,704
Gross unrealized appreciation                                                              190,093,833
Gross unrealized depreciation                                                             (127,269,399)
Net unrealized appreciation                                                                 $ 62,824,434 ­

*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
August 31, 2014
  
(Level 1)
(Level 2)
(Level 3)
Assets
Equity Securities
          
Common Stock (a)
$          16,733,128
  
$              16,733,128
$                         -
   $                                 -
Master Limited Partnerships and Related Companies (a)
329,988,263
  
329,988,263
-
  -
Royalty Trusts(a)
3,013,400
  
3,013,400
-
-
Preferred Stock(a)
7,635,792
  
7,635,792
-
-
Total Equity Securities
    357,370,583
  
    357,370,583
                      -
                   -
Notes
        Senior Notes(a)
8,075,000
  
-
8,075,000
 
-
Total Notes
8,075,000
  
-
8,075,000
-
Other
      Short Term Investment
7,115,771
  
7,115,771
-
-
      Options
930,810
  
                  930,810
                      -
                   -
Total Other
         8,046,581
  
8,046,581
                      -
                   -
Total Assets
$        373,492,164
  
$            365,417,164
$         8,075,000
$                                 -
Liabilities
        Securities Sold Short
$          22,133,826
  
$              22,133,826
$                        -
   $                                 -
 Written Options
58,200
  
58,200
    
Total Liabilities
$          22,192,026
  
$              22,192,026
$                        -
$                                 -
Total
$        351,300,138
  
$            343,225,138
$         8,075,000
$                                 -


(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 August 31, 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 August 31, 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 August 31, 2014, are as follows:
 
   
Contracts
    
Premiums
  
Outstanding at December 1, 2013
     -     $ -  
Options purchased
     51,100       3,777,911  
Options covered
     (14,662 )     (1,293,056 )
Options expired
     (24,000 )     (1,391,514 )
Options exercised
     -       -  
Outstanding at August 31, 2014
     12,438     $ 1,049,161  
 
 
 
 
 

 
The average monthly fair value of purchased options during the period ended August 31, 2014 was $599,701.

Transactions in written options contracts for the period ended August 31, 2014, are as follows:
 
 
   
Contracts
    
Premiums
  
Outstanding at December 1, 2013
     -     $ -  
Options written
     21,640       1,023,141  
Options covered
     -       -  
Options expired
     (12,173 )     (511,844 )
Options exercised
     (8,617 )     (485,229 )
Outstanding at August 31, 2014
     850     $ 26,068  

The average monthly fair value of written options during the period ended August 31, 2014 was $106,789.


The effect of derivative instruments on the Statement of Operations for the period ended August 31, 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
   $ (268,717 )   $ 511,844     $ 243,127  
                         
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
   $ (118,351 )   $ (32,132 )   $ (150,483 )

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, 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 October 28, 2014                                                                                          

 
 
By (Signature and Title) /s/ John H. Alban                                                                                                                                                                       
                                           John H. Alban, Treasurer
 
 
Date   October 28, 2014