cushing-tr_nq.htm
As filed with the Securities and Exchange Commission on October 30, 2012



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, 2012
 
 
 
 
 
 
Item 1. Schedule of Investments.
 
The Cushing MLP Total Return Fund
            
SCHEDULE OF INVESTMENTS (Unaudited)
            
       
   
August 31, 2012
  
             
   
Shares
    
Fair Value
  
             
Common Stock - 5.6% (1)
            
Natural Gas Gathering/Processing - 1.0% (1)
            
United States - 1.0% (1)
            
Targa Resources Corp.
     51,800     $ 2,344,986  
                 
Crude Oil/Natural Gas Production - 4.6% (1)
                
United States - 4.6% (1)
                
Seadrill Ltd.
     250,000       10,305,000  
                 
Total Common Stock (Cost $12,647,925)
           $ 12,649,986  
                 
Master Limited Partnerships and Related Companies  - 94.3% (1)
                
Coal - 3.0% (1)
                
United States - 3.0% (1)
                
Alliance Holdings GP, L.P.
     53,100     $ 2,570,040  
Alliance Resources Partners, L.P.
     66,500       4,118,345  
              6,688,385  
Crude Oil/Natural Gas Production - 14.9% (1)
                
United States - 14.9% (1)
                
Breitburn Energy Partners, L.P. (3)
     521,000       10,195,970  
EV Energy Partners, L.P.
     97,000       6,088,690  
Legacy Reserves, L.P.
     169,000       4,713,410  
Linn Energy, LLC (3)
     284,500       11,311,720  
Vanguard Natural Resources, LLC
     38,900       1,113,318  
              33,423,108  
Crude Oil/Refined Products Pipelines and Storage - 29.6% (1)
                
United States - 29.6% (1)
                
Blueknight Energy Partners, L.P.
     216,778       1,402,553  
Enbridge Energy Partners, L.P. (3)
     377,000       11,106,420  
Genesis Energy, L.P. (3)
     304,200       9,831,744  
Kinder Morgan Management, LLC (3) (4) (5)
     116,000       8,597,923  
Magellan Midstream Partners, L.P. (3)
     75,200       6,239,344  
NuStar Energy, L.P. (3)
     245,800       12,466,976  
NuStar GP Holdings, LLC
     70,900       2,160,323  
Plains All American Pipeline, L.P. (3)
     136,800       11,837,304  
Tesoro Logistics, L.P.
     65,400       2,849,478  
              66,492,065  
Fertilizers - 1.4% (1)
                
United States - 1.4% (1)
                
Rentech Nitrogen Partners L.P.
     92,100       3,128,637  
                 
 
 
 
 
 
Natural Gas/Natural Gas Liquid Pipelines and Storage - 18.9% (1)
                
United States - 18.9% (1)
                
Boardwalk Pipeline Partners, L.P. (3)
     325,500       8,798,265  
El Paso Pipeline Partners, L.P.
     128,000       4,632,320  
Energy Transfer Partners, L.P. (3)
     251,500       10,744,080  
Enterprise Products Partners, L.P. (3)
     172,600       9,216,840  
ONEOK Partners, L.P. (3)
     81,300       4,619,466  
TC Pipelines, L.P.
     98,600       4,478,412  
              42,489,383  
Natural Gas Gathering/Processing - 17.1% (1)
                
United States - 17.1% (1)
                
Crosstex Energy, L.P. (3)
     404,500       6,018,960  
DCP Midstream Partners, L.P. (3)
     214,000       9,231,960  
MarkWest Energy Partners, L.P. (3)
     89,700       4,763,070  
Regency Energy Partners, L.P. (3)
     282,800       6,543,992  
Targa Resources Partners, L.P.
     175,000       7,091,000  
Western Gas Partners, L.P.
     101,400       4,841,850  
              38,490,832  
Propane - 9.4% (1)
                
United States - 9.4% (1)
                
Ferrellgas Partners, L.P.
     125,000       2,562,500  
Inergy, L.P. (3)
     472,807       10,193,719  
NGL Energy Partners, L.P.
     175,000       4,443,250  
Suburban Propane Partners, L.P.
     101,600       3,931,920  
              21,131,389  
                 
Total Master Limited Partnerships and Related Companies (Cost $202,612,912)
           $ 211,843,799  
                 
Preferred Stock - 7.4% (1)
                
Crude Oil/Refined Products Pipelines and Storage - 2.9% (1)
                
United States - 2.9% (1)
                
Blueknight Energy Partners, L.P.
     757,519     $ 6,544,964  
                 
Shipping - 4.5% (1)
                
Republic of the Marshall Islands - 4.5% (1)
                
Capital Product Partners, L.P. (6)
     1,111,111       9,999,999  
                 
Total Preferred Stock (Cost $14,778,572)
           $ 16,544,963  
   
Principal
          
   
Amount
          
Senior Notes - 4.9% (1)
                
Crude Oil/Natural Gas Production - 2.5% (1)
                
United States - 2.5% (1)
                
Breitburn Energy Partners, L.P., 8.625%, due 10/15/2020
   $ 1,389,000     $ 1,500,120  
Linn Energy, LLC, 7.750%, due 02/01/2021
     4,000,000       4,190,000  
              5,690,120  
Natural Gas/Natural Gas Liquid Pipelines and Storage - 0.5% (1)
                
United States - 0.5% (1)
                
 
 
 
 
 
Niska Gas Storage US LLC, 8.875%, due 03/15/2018
     1,000,000       1,025,000  
                 
Natural Gas Gathering/Processing - 0.5% (1)
                
United States - 0.5% (1)
                
Copano Energy LLC, 7.750%, due 06/01/2018
     325,000       342,875  
Targa Resources Partners, L.P., 6.875%, due 02/01/2021
     686,000       740,880  
              1,083,755  
Propane - 1.4% (1)
                
United States - 1.4% (1)
                
Suburban Propane Partners, L.P., 7.500%, due 10/01/2018 (6)
     3,000,000       3,247,500  
                 
                 
Total Senior Notes (Cost $11,053,504)
           $ 11,046,375  
                 
Options - 0.3% (1)
  
Contracts
          
United States Oil Fund, L.P. Call Option
                
 Expiration: November 2012, Exercise Price: $36.00
     2,000     $ 390,000  
United States Oil Fund, L.P. Call Option
                
 Expiration: November 2012, Exercise Price: $37.00
     2,000       278,000  
Total Options (Cost $761,197)
           $ 668,000  
                 
                 
Short-Term Investments - Investment Companies - 0.8% (1)
  
Shares
          
United States - 0.8% (1)
                
AIM Short-Term Treasury Portfolio Fund - Institutional Class, 0.02% (2)
     356,918     $ 356,918  
Fidelity Government Portfolio Fund - Institutional Class, 0.01% (2)
     356,919       356,919  
First American Treasury Obligations Fund - Class A, 0.00% (2)
     356,918       356,918  
First American Treasury Obligations Fund - Class Y, 0.00% (2)
     356,918       356,918  
First American Treasury Obligations Fund - Class Z, 0.00% (2)
     356,918       356,918  
Total Short-Term Investments (Cost $1,784,591)
           $ 1,784,591  
                 
                 
Total Investments - 113.3% (1) (Cost $243,638,701)
           $ 254,537,714  
Liabilities in Excess of Other Assets - (13.3)% (1)
             (29,834,426 )
Net Assets Applicable to Common Stockholders - 100.0% (1)
           $ 224,703,288  
                 
SCHEDULE OF SECURITIES SOLD SHORT
                
Exchange Traded Notes - (4.5)%(1)
                
United States - (4.5)% (1)
  
Shares
          
Market Vectors Oil Service ETF (4)
     253,100     $ 10,199,930  
                 
Total Securities Sold Short - (4.5)%(1) (Proceeds $10,290,821)
           $ 10,199,930  
                 
(1)
Calculated as a percentage of net assets applicable to common stockholders.
      
(2)
Rate reported is the current yield as of August 31, 2012.
      
(3)
All or a portion of these securities are held as collateral pursuant to the loan agreements.
      
(4)
No distribution or dividend was made during the period ended August 31, 2012.  As such, it is
      
 
classified as a non-income producing security as of August 31, 2012.
      
(5)
Security distributions are paid-in-kind.
      
(6)
Restricted security under Rule 144A.
      

 
 
 

Tax Basis

The cost basis of investments for federal income tax purposes at August 31, 2012 was as follows*:
 
Cost of investments 
   $ 231,408,672  
Gross unrealized appreciation
   $ 44,205,458  
Gross unrealized depreciation 
     (31,276,346 )
Net unrealized appreciation 
   $ 12,929,112  
 
*The above table only reflects tax adjustments through November 30, 2011.  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, 2012
    
(Level 1)
    
(Level 2)
    
(Level 3)
  
Assets
Equity Securities
                        
Common Stock(a)
 
   $ 12,649,986     $ 12,649,986     $ -     $ -  
Master Limited
  Partnerships and
  Related
  Companies (a)
     211,843,799       211,843,799       -       -  
Preferred Stock (a)
     16,544,963       6,544,963       9,999,999       -  
Total Equity Securities
     241,038,748       231,038,749       9,999,999       -  
 
 
 
 
 
Notes
                                
Senior Notes (a)
     11,046,375       -       11,046,375       -  
Total Notes
     11,046,375       -       11,046,375       -  
Derivatives
                                
        Options
     668,000       668,000       -       -  
Total Derivatives
     668,000       668,000       -       -  
Other
                                
Short-Term
  Investments
     1,784,591       1,784,591       -       -  
Total Other
     1,784,591       1,784,591       -       -  
Total Assets
   $ 254,537,714     $ 233,491,340     $ 21,046,374     $ -  
 
Liabilities
Note
                                
        Exchange Traded
              Notes
   $ 10,199,930     $ 10,199,930     $ -     $ -  
Total Notes
     10,199,930       10,199,930       -       -  
Total Liabilities
   $ 10,199,930     $ 10,199,930     $ -     $ -  
Total
   $ 264,737,644     $ 243,691,270     $ 21,046,374     $ -  

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, 2012, are as follows:
 
   
Contracts
    
Premiums
  
Outstanding at December 1, 2011
     -     $ -  
Options purchased
     4,000       852,396  
Options covered
     -       -  
Options exercised
     -       -  
Options expired
     -       -  
Outstanding at August 31, 2012
     4,000     $ 852,396  

The average monthly fair value of purchased options during the period ended August 31, 2012 was $74,222.

Transactions in written options contracts for the period ended August 31, 2012, are as follows:
 
 
   
Contracts
    
Premiums
  
Outstanding at December 1, 2011
     -     $ -  
Options written
     11,400       281,381  
Options covered
     (900 )     (17,087 )
Options exercised
     (2,850 )     (126,048 )
Options expired
     (7,650 )     (138,245 )
Outstanding at August 31, 2012
     -     $ -  

The average monthly fair value of written options during the period ended August 31, 2012 was $47,389.
 
 
 
 

The effect of derivative instruments on the Statement of Assets and Liabilities as of August 31, 2012:

Statement of Assets and Liabilities
            
   
            Assets
  
 Liabilities
Derivatives
  
 Description
  
 Fair Value
  
 Description
  
 Fair Value
 
Equity Contracts:
                
  Purchased Call Options
  
Purchased call options at fair value
 
 $  668,000
  
N/A
 
 $             -
Total
      
 $  668,000
      
$             -



The effect of derivative instruments on the Statement of Operations for the period ended August 31, 2012:
 
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
Derivatives not accounted for as hedging instruments under ASC 815
  
Purchased Options
Written Options
Total
Equity Contracts
  
-
$335,675
$335,675
           
 
 
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/ Jerry V. Swank            
Jerry V. Swank, President

Date           October 29, 2012                                                                       



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/ Jerry V. Swank            
Jerry V. Swank, President

Date            October 29, 2012                                                                      

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

Date           October 29, 2012