As filed with the Securities and Exchange Commission on February 5, 2018

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

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, 2017

Date of reporting period: November 30, 2017

 

 

 

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Item 1. Reports to Stockholders.

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Table of Contents

 

Shareholder Letter			1
Allocation of Portfolio Assets			5
Key Financial Data			6
Schedule of Investments			7
Statement of Assets & Liabilities			9
Statement of Operations			10
Statements of Changes in Net Assets			11
Statement of Cash Flows			12
Financial Highlights			13
Notes to Financial Statements			15
Report of Independent Registered Public Accounting Firm			24
Trustees and Executive Officers			25
Additional Information			27

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The Cushing^® MLP Total Return Fund

Shareholder Letter

 

 

The Cushing^® MLP Total Return Fund

Dear Fellow Shareholder,

For the twelve month fiscal period ended November 30, 2017 (the “period”), the Cushing MLP Total Return Fund (the “Fund”) delivered a Net Asset Value Total Return (equal to the change in net asset value per share plus the reinvested cash distribution paid during the period) of -11.8%, versus a total return of 22.9% for the S&P 500 Index (Total Return). The Fund’s Share Price Total Return (equal to the change in net share price per share plus the reinvested cash distribution paid during the period) was -8.1%, for the fiscal period and differs from the Net Asset Value Total Return due to fluctuations in the discount of share price to NAV. The Fund’s shares traded at a 10.8% discount to NAV as of the end of the period, compared to a 14.5% discount as of the end of the Fund’s last fiscal year. As measured by the Alerian MLP Index (Total Return) (AMZ), the performance of master limited partnerships (MLPs) decreased -6.8% for the period.

Industry Overview and Themes

Energy commodity prices and the equities of midstream master limited partnerships (“MLPs”) initially benefited early in the period from favorable production curtailments agreed to by certain OPEC and non-OPEC nations (the “OPEC Agreement”) as well as indications that the newly-elected U.S. President would increase infrastructure spending and reduce federal regulations. However, investor sentiment in energy-related equities (including those held by the Fund) progressively worsened during the period driving lackluster sector performance. Despite the subsequent recovery in crude oil prices beginning in June 2017, the midstream MLP sector, as measured by performance of the AMZ, continued to slide to new lows in November. While the space recovered somewhat towards the end of the fiscal period, we remain frustrated and perplexed by the midstream MLP sector’s performance given the improving macro backdrop and attractive sector valuations. Frustratingly, MLPs traded below relative low levels experienced by the sector in February 2016, when crude oil prices fell to $26 per barrel.

Fundamentals for the midstream energy sector continued to improve during the period with increasing energy commodity prices driving higher rig counts, improving volume projections and new capital project announcements. However, several factors weighed on investor sentiment and created headwinds for performance including: 1) concerns over capital discipline and project returns in the energy sector and MLPs specifically; 2) related fears of increasing competitive forces (particularly in the Permian Basin) driven by significant new project proposals and competition from private equity; 3) another round of distribution reductions by several midstream companies; 4) concerns over corporate governance and limited partner unitholder rights following a number of adverse corporate actions; 5) the cost of capital burden imposed by incentive distribution rights (IDRs) given lower sector growth; and 6) MLP equity issuance in the face of anemic MLP-focused product fund flows. Other factors that contributed to negative sentiment at various times during the period but the impacts of which were subsequently abated or mitigated included: 1) continued crude oil price volatility; 2) uncertainty regarding the exit strategy related to the OPEC Agreement; 3) continued elevated domestic crude oil inventories weighing on crude oil prices; 4) ongoing regulatory and environmental pressure; and 5) lack of conviction in the U.S. federal government’s ability to execute on the aforementioned pro-business and pro-energy company agenda.

 

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Having said that, we believe the sector is actively addressing the concerns around corporate structure noted above and thus our outlook for midstream MLPs remains constructive, especially given the improving fundamental backdrop for energy. Several drivers of our positive outlook include: 1) improving fundamentals as U.S. shale producers have increased drilling activity (higher rig counts) and production which should lead to growing midstream system volumes; 2) record export volumes of U.S. produced hydrocarbons; 3) midstream company valuations that currently screen attractive relative to historical levels and compared to other energy subsectors and yield products, in our opinion; 4) crude oil macro supply and demand fundamentals appear more constructive globally; and 5) in general, midstream company balance sheets, leverage and coverage ratios appear to be improving.

Fund Performance and Strategy

Turning to the Fund’s performance for the period, the Fund incrementally benefited from its exposure to Large Cap Diversified, Natural Gas Transportation and Storage and YieldCo’s, but performance was negatively impacted by exposure to Natural Gas Gatherers and Processors and General Partners. In addition, Fund performance was negatively impacted by the use of leverage, which averaged approximately 144% for the period. During the period, the Fund increased holdings in Large Cap Diversified, Natural Gas Gathering and Transportation and General Partners and decreased holdings in Crude Oil and Refined Products and Natural Gas Transportation subsectors. The Fund added a position in the YieldCo subsector, which is comprised primarily of solar and wind energy companies. Companies within this subsector own and operate solar and wind generation facilities back by long term contracts that are designed to produce stable secure cash flow streams.

The Fund was positively impacted by the performance of holdings in the Natural Transportation and Storage, Marine and YieldCo subsectors. The Fund’s holdings in the Natural Gas Transportation and Storage subsector performed well due to their relatively conservative capitalization, strong cash flow and distribution growth, and limited association with the crude oil volatility experience during the period. The Marine subsector benefitted from a favorable Liquefied Natural Gas (“LNG”) environment and the YieldCo sector performed well due to increased demand for solar and wind facilities and continued reduction in the cost of renewable energy.

The Fund was most negatively impacted by the performance of holdings in the Crude Oil and Refined Products, Natural Gas Gathering and Processing and General Partner MLP subsectors. Performance of all three subsectors was negatively impacted by distribution reductions, capital market weakness and concerns regarding the availability and costs of financing future growth capital expenditures.

On a stock specific basis, the top three contributors to the Fund’s performance during the reporting period were, in order of greatest contribution to least: 1) Dominion Energy Midstream Partners, LP (NYSE: DM), a Natural Gas Transportation and Storage MLP; 2) Oneok Partners, LP (NYSE: OKS), a Large Cap Diversified MLP; and 3) MPLX, LP (NYSE: MPLX), a Large Cap Diversified MLP. DM benefited from its addition to the Alerian MLP Infrastructure Index (“AMZI”) and solid operating results. OKS performance was driven by the consolidation transaction with its parent, ONEOK, Inc. (NYSE: OKE) and its exposure to the SCOOP/STACK basin in Oklahoma. MPLX enjoyed momentum from a series of strong earnings reports and the announcement of a planned buy-out of its IDRs. All three of these holdings had positive absolute performance during the period.

The bottom three contributors to performance during the reporting period, in order of the most negative performance to the least negative performance, were: 1) Energy Transfer Partners, L.P. (NYSE: ETP), a Large Cap Diversified MLP; 2) Plains All American Pipeline, LP (NYSE: PAA), a Large Cap Diversified MLP; and 3) Western Gas Partners, LP (NYSE: WES), a Gatherer and Processor MLP. ETP suffered from a number of external and self-inflicted factors including project and regulatory

 

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challenges along with a large equity offering in August of 2017. PAA was negatively impacted by persistently weaker than expected earnings results and the eventual reduction of its distribution for the second time. WES was negatively impacted after several high-growth Permian Basin exploration & production operators guided to a slower production trajectory.

From a subsector exposure level, the Fund’s weightings in Large Cap Diversified, Natural Gas Gathering and Transportation and General Partners increased during the period. The Fund’s exposure to the Crude Oil and Refined Products and Natural Gas Transportation subsectors were reduced. At the end of the reporting period, the three largest subsector exposures, in order of size, were: 1) Large Cap Diversified; 2) Natural Gas Gathering & Processing; and 3) Crude Oil & Refined Products.

Leverage

The Fund’s investment strategy focuses on holding core positions in companies with cash flow generating business models and long-term growth prospects. We also work diligently to optimize the use of leverage for additional income and total return potential. This involves leveraging investments when the probabilities of positive total return are deemed to be skewed favorably. As the prices of the Fund’s investment increase or decline, there is a risk that the impact to the Fund’s NAV and total return will be negatively impacted by leverage, but this strategy is designed to have a positive impact over the longer term. At the end of the period, the Fund had a leverage ratio of approximately 144%, which compares to an average 146% leverage ratio in the prior fiscal year. Leverage was increased compared with the previous year given our positive outlook for the energy sector during the period. Fund performance was negatively impacted by the use of leverage during the period.

Closing

In conclusion, even though midstream energy sector performance and sentiment remained challenged during the period, we maintain a positive outlook given our expectation for improving hydrocarbon volumes, relatively attractive sector valuations and recovering global crude oil supply / demand fundamentals. We remain confident that North American shale basins will be developed over time and that midstream infrastructure will be well utilized given the need to move production to market.

We truly appreciate your support, and look forward to continuing to help you achieve your investment goals.

Sincerely,

 

Jerry V. Swank

Chairman, Chief Executive Officer and President

The information provided herein represents the opinion of the Fund’s portfolio managers and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice. The opinions expressed are as of the date of this report and are subject to change.

The information in this report is not a complete analysis of every aspect of any market, sector, industry, security or the Fund itself. Statements of fact are from sources considered reliable, but the Fund makes no representation or warranty as to their completeness or accuracy. Discussions of specific investments are for illustration only and are not intended as recommendations of individual investments. Please refer to the Schedule of Investments for a complete list of Fund holdings.

 

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Past performance does not guarantee future results. Investment return, net asset value and common share market price will fluctuate so that you may have a gain or loss when you sell shares. Since the Fund is a closed-end management investment company, shares of the Fund may trade at a discount or premium from net asset value. This characteristic is separate and distinct from the risk that net asset value could decrease as a result of investment activities and may be a greater risk to investors expecting to sell their shares after a short time. The Fund cannot predict whether shares will trade at, above or below net asset value. The Fund should not be viewed as a vehicle for trading purposes. It is designed primarily for risk-tolerant long-term investors.

An investment in the Fund involves risks. Leverage creates risks which may adversely affect returns, including the likelihood of greater volatility of net asset value and market price of the Fund’s common shares. The Fund is nondiversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund.

The Fund will invest in energy companies, including Master Limited Partnerships (MLPs), which concentrate investments in the natural resources sector. Energy companies are subject to certain risks, including, but not limited to the following: fluctuations in the prices of commodities; the highly cyclical nature of the natural resources sector may adversely affect the earnings or operating cash flows of the companies in which the Fund will invest; a significant decrease in the production of energy commodities could reduce the revenue, operating income, operating cash flows of MLPs and other natural resources sector companies and, therefore, their ability to make distributions or pay dividends and a sustained decline in demand for energy commodities could adversely affect the revenues and cash flows of energy companies. Holders of MLP units are subject to certain risks inherent in the structure of MLPs, including tax risks; the limited ability to elect or remove management or the general partner or managing member; limited voting rights and conflicts of interest between the general partner or managing member and its affiliates, on the one hand, and the limited partners or members, on the other hand. Damage to facilities and infrastructure of MLPs may significantly affect the value of an investment and may incur environmental costs and liabilities due to the nature of their business. Investors in MLP funds incur management fees from underlying MLP investments. Small- and mid-cap stocks are often more volatile and less liquid than large-cap stocks. Smaller companies generally face higher risks due to their limited product lines, markets, and financial resources. Funds that invest in bonds are subject to interest-rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk, in which the bond issuer may fail to pay interest and principal in a timely manner. High yield securities have speculative characteristics and present a greater risk of loss than higher quality debt securities. These securities can also be subject to greater price volatility. An investment in the Fund will involve tax risks, including, but not limited to: The portion, if any, of a distribution received by the Fund as the holder of an MLP equity security that is offset by the MLP’s tax deductions or losses generally will be treated as a return of capital to the extent of the Fund’s tax basis in the MLP equity security, which will cause income or gain to be higher, or losses to be lower, upon the sale of the MLP security by the Fund. Changes in tax laws, regulations or interpretations of those laws or regulations in the future could adversely affect the Fund or the energy companies in which the Fund will invest.

The Fund is organized as a “C” corporation and is subject to U.S. federal income tax on its taxable income at the corporate tax rate as well as state and local income taxes. The potential tax benefits of investing in MLPs depend on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation then its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution to the Fund which could result in a reduction of the Fund’s value.

The Fund incurs operating expenses, including advisory fees, as well as leverage costs. Investment returns for the Fund are shown net of fees and expenses.

The Fund accrues deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily NAV and as a result the Fund’s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.

Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Please refer to the Schedule of Investments for a complete list of Fund holdings.

The S&P 500 Index is an unmanaged index of common stocks that is frequently used as a general measure of stock market performance. The Alerian MLP Index is a capitalization-weighted index of the most prominent energy master limited partnerships. Neither index includes fees or expenses. It is not possible to invest directly in an index.

 

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The Cushing^® MLP Total Return Fund

Allocation of Portfolio Assets⁽¹⁾ (Unaudited)

November 30, 2017

(Expressed as a Percentage of Total Investments)

 

 

 

 

(1)	Fund holdings and sector allocations are subject to change and there is no assurance that the Fund will continue to hold any particular security.

(2)	Master Limited Partnerships and Related Companies

(3)	Common Stock

(4)	Senior Notes

 

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The Cushing^® MLP Total Return Fund

Key Financial Data (Supplemental Unaudited Information)

 

 

The Information presented below regarding Distributable Cash Flow is supplemental non-GAAP financial information, which we believe is meaningful to understanding our operating performance. Supplemental non-GAAP measures should be read in conjunction with our full financial statements.

 

		Fiscal Year Ended 11/30/17				Fiscal Year Ended 11/30/16				Fiscal Year Ended 11/30/15				Fiscal Year Ended 11/30/14 (a)				Fiscal Year Ended 11/30/13 (a)
FINANCIAL DATA
Total income from investments
Distributions and dividends received, net of foreign taxes withheld		$	9,481,830			$	9,454,162			$	13,068,439			$	26,986,074			$	27,806,587
Interest			15,536				68,490				333,901				488,952				669,582
Other			1,093				27,378				80,169				198,333				798,964
Total income from investments		$	9,498,459			$	9,550,030			$	13,482,509			$	27,673,359			$	29,275,133
Adviser fee and operating expenses
Adviser fees, less reimbursement by Adviser		$	1,362,722			$	1,009,528			$	1,899,225			$	4,314,026			$	3,862,641
Operating expenses (b)			565,496				671,117				895,481				1,127,724				686,943
Interest and dividends			1,028,222				907,714				1,447,431				1,264,615				552,890
Other			0				1,097				124,456				112,527				8,116
Total Adviser fees and operating expenses		$	2,956,440			$	2,589,456			$	4,366,593			$	6,818,892			$	5,110,590
Distributable Cash Flow (DCF) (c)		$	6,542,019			$	6,960,574			$	9,115,916			$	20,854,467			$	24,164,543
Distributions paid on common stock		$	7,293,250			$	7,273,047			$	14,873,359			$	30,182,347			$	30,006,331
Distributions paid on common stock per share		$	1.08			$	1.08			$	2.21			$	4.50			$	4.50
Distribution Coverage Ratio
Before Adviser fee and operating expenses			1.3 x				1.3 x				0.9 x				0.9 x				1.0 x
After Adviser fee and operating expenses			0.9 x				1.0 x				0.6 x				0.7 x				0.8 x
OTHER FUND DATA (end of period)
Total Assets, end of period			114,917,830				149,772,615				138,132,445				326,002,305				329,717,559
Unrealized appreciation (depreciation)			(5,855,903	)			21,588,546				(30,615,651	)			(8,126,321	)			17,896,838
Short-term borrowings			33,650,000				49,454,119				43,368,787				95,547,072				72,950,000
Short-term borrowings as a percent of total assets			29	%			33	%			31	%			29	%			22	%
Net Assets, end of period			81,002,320				99,969,625				92,650,518				199,847,099				233,619,616
Net Asset Value per common share		$	12.03			$	14.84			$	13.76			$	29.70			$	34.90
Market Value per share		$	10.73			$	12.69			$	12.02			$	40.50			$	40.45
Market Capitalization		$	72,259,060			$	85,458,292			$	80,946,310			$	272,396,066			$	270,839,382
Shares Outstanding			6,734,302				6,734,302				6,734,302				6,725,829				6,695,658

 

(a)	Per share data adjusted for 1:5 reverse stock split completed as of September 14, 2015.

(b)	Excludes expenses related to capital raising.

(c)	“Net Investment Income (Loss), before Income Taxes” on the Statement of Operations is adjusted as follows to reconcile to Distributable Cash Flow: increased by the return of capital on MLP distributions.

 

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The Cushing^® MLP Total Return Fund

Statement of Assets & Liabilities

November 30, 2017

 

 

Assets
Investments, at fair value (cost $120,197,199)		$	114,527,185
Purchased options, at fair value (premiums paid $194,889)			9,000
Current tax receivable			346,677
Distributions and dividends receivable			13,628
Interest receivable			5,293
Prepaid expenses			16,047
Total assets			114,917,830
Liabilities
Short-term borrowings			33,650,000
Distributions and dividends payable			5,882
Payable to Adviser, net of waiver			95,474
Accrued interest expense			2,217
Accrued expenses and other liabilities			161,937
Total liabilities			33,915,510
Net assets applicable to common stockholders		$	81,002,320
Components of Net Assets
Capital stock, $0.001 par value; 6,734,302 shares issued and outstanding (unlimited shares authorized)		$	6,734
Additional paid-in capital			254,125,082
Distributions in excess of net investment income			(80,409,158	)
Accumulated realized loss			(86,864,435	)
Net unrealized depreciation on investments			(5,670,014	)
Net unrealized depreciation on options			(185,889	)
Net assets applicable to common stockholders		$	81,002,320
Net asset value per common share outstanding (net assets applicable to common shares divided by common shares outstanding)		$	12.03

 

 

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The Cushing^® MLP Total Return Fund

Statement of Operations

Fiscal Year Ended November 30, 2017

 

 

Investment Income
Distributions and dividends received		$	9,481,830
Less: return of capital on distributions			(8,639,095	)
Distribution and dividend income			842,735
Interest income			15,536
Other income			1,093
Total Investment Income			859,364
Expenses
Adviser fees			1,787,170
Professional fees			140,891
Administrator fees			128,092
Trustees’ fees			80,445
Reports to stockholders			56,678
Fund accounting fees			46,405
Insurance expense			41,766
Transfer agent fees			28,507
Registration fees			26,567
Custodian fees and expenses			9,574
Franchise tax expense			6,571
Total Expenses before Interest			2,352,666
Interest expense			1,028,222
Total Expenses			3,380,888
Less: expense waived by Adviser			(424,448	)
Net Expenses			2,956,440
Net Investment Loss			(2,097,076	)
Deferred tax expense			(972,195	)
Net Investment Loss			(3,069,271	)
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments			765,309
Net realized loss on purchased options			(99,097	)
Net realized gain on written options			111,041
Net realized gain on investments			777,253
Net change in unrealized appreciation of investments			(9,196,148	)
Net change in unrealized depreciation of options			(185,889	)
Net change in unrealized depreciation of investments			(9,382,037	)
Net Realized and Unrealized Loss on Investments			(8,604,784	)
Net Decrease in Net Assets Applicable to Common Stockholders Resulting from Operations		$	(11,674,055	)

 

 

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The Cushing^® MLP Total Return Fund

Statements of Changes in Net Assets

 

 

		Fiscal Year Ended November 30, 2017				Fiscal Year Ended November 30, 2016
Operations
Net investment loss		$	(3,069,271	)		$	(1,950,608	)
Net realized gain (loss) on investments and options			777,253				(35,661,435	)
Net change in unrealized appreciation (depreciation) of investments and options			(9,382,037	)			52,204,197
Net increase (decrease) in net assets applicable to common stockholders resulting from operations			(11,674,055	)			14,592,154
Distributions and Dividends to Common Stockholders
Net investment income			—				—
Return of capital			(7,293,250	)			(7,273,047	)
Total distributions and dividends to common stockholders			(7,293,250	)			(7,273,047	)
Total increase (decrease) in net assets applicable to common stockholders			(18,967,305	)			7,319,107
Net Assets
Beginning of fiscal year			99,969,625				92,650,518
End of fiscal year		$	81,002,320			$	99,969,625
Undistributed (distributions in excess of) net investment income at the end of the fiscal year		$	(80,409,158	)		$	(77,604,268	)

 

 

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The Cushing^® MLP Total Return Fund

Statement of Cash Flows

Fiscal Year Ended November 30, 2017

 

 

Operating Activities
Net Decrease in Net Assets Applicable to Common Stockholders Resulting from Operations		$	(11,674,055	)
Adjustments to reconcile decrease in the net assets applicable to common stockholders to net cash provided by operating activities
Net change in unrealized depreciation of investments			9,382,037
Purchases of investments			(88,351,006	)
Proceeds from sales of investments			102,066,822
Proceeds from option transactions, net			447,599
Return of capital on distributions			8,639,095
Net realized gain on sales of investments			(777,230	)
Net proceeds from sales of short-term investments, net			123,774
Changes in operating assets and liabilities
Deferred tax asset			972,195
Interest receivable			(4,706	)
Distributions and dividends receivable			(13,628	)
Current tax receivable			2,362,834
Prepaid expenses			6,999
Distributions and dividends payable			(596	)
Payable to Adviser, net of waiver			3,957
Accrued interest expense			2,217
Accrued expenses and other liabilities			(88,939	)
Net cash provided by operating activities			23,097,369
Financing Activities
Proceeds from borrowing facility			38,200,600
Repayment of borrowing facility			(54,004,719	)
Distributions and dividends paid to common stockholders			(7,293,250	)
Net cash used in financing activities			(23,097,369	)
Increase in Cash and Cash Equivalents			—
Cash and Cash Equivalents:
Beginning of fiscal year			—
End of fiscal year		$	—
Supplemental Disclosure of Cash Flow and Non-Cash Information
Interest Paid		$	1,026,005
Taxes Paid		$	3,271

 

 

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The Cushing^® MLP Total Return Fund

Financial Highlights

 

 

		Fiscal Year Ended November 30, 2017				Fiscal Year Ended November 30, 2016				Fiscal Year Ended November 30, 2015				Fiscal Year Ended November 30, 2014(1)				Fiscal Year Ended November 30, 2013(1)
Per Common Share Data(2)
Net Asset Value, beginning of fiscal year		$	14.84			$	13.76			$	29.70			$	34.90			$	33.10
Income from Investment Operations:
Net investment loss			(0.42	)			(0.29	)			(8.83	)			(5.60	)			(4.80	)
Net realized and unrealized gain (loss) on investments			(1.31	)			2.45				(4.90	)			4.90				11.10
Total increase (decrease) from investment operations			(1.73	)			2.16				(13.73	)			(0.70	)			6.30
Less Distributions and Dividends to Common Stockholders:
Net investment income			—				—				—				(4.50	)			(3.95	)
Return of capital			(1.08	)			(1.08	)			(2.21	)			—				(0.55	)
Total distributions and dividends to common stockholders			(1.08	)			(1.08	)			(2.21	)			(4.50	)			(4.50	)
Net Asset Value, end of fiscal year		$	12.03			$	14.84			$	13.76			$	29.70			$	34.90
Per common share fair value, end of fiscal year		$	10.73			$	12.69			$	12.02			$	40.50			$	40.45
Total Investment Return Based on Fair Value(3)			(8.05	)%			15.98	%			(67.20	)%			11.89	%			18.86	%

 

 

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The Cushing^® MLP Total Return Fund

Financial Highlights — (Continued)

 

 

		Fiscal Year Ended November 30, 2017				Fiscal Year Ended November 30, 2016				Fiscal Year Ended November 30, 2015				Fiscal Year Ended November 30, 2014(1)				Fiscal Year Ended November 30, 2013(1)
Supplemental Data and Ratios
Net assets applicable to common stockholders, end of fiscal year (000’s)		$	81,002			$	99,970			$	92,651			$	199,847			$	233,620
Ratio of expenses (including current and deferred income tax benefit/expense) to average net assets after waiver(4)(5)			4.04	%			3.14	%			2.11	%			3.41	%			4.64	%
Ratio of net investment income (loss) to average net assets before waiver(4)(6)(7)			(2.60	)%			(2.85	)%			(2.19	)%			(0.07	)%			(0.05	)%
Ratio of net investment income (loss) to average net assets after waiver(4)(6)(7)			(2.16	)%			(2.08	)%			(1.58	)%			(0.07	)%			(0.05	)%
Ratio of net investment income (loss) to average net assets after current and deferred income tax benefit/expense, before waiver(4)			(3.60	)%			(3.01	)%			(1.30	)%			(0.55	)%			(2.50	)%
Ratio of net investment income (loss) to average net assets after current and deferred income tax benefit/expense, after waiver(4)			(3.16	)%			(2.24	)%			(0.70	)%			(0.55	)%			(2.50	)%
Portfolio turnover rate			62.87	%			97.78	%			97.30	%			137.17	%			297.81	%
Total borrowings outstanding (in thousands)		$	33,650			$	49,454			$	43,369			$	95,547			$	72,950
Asset coverage per $1,000 of indebtedness(8)		$	3,407			$	3,021			$	3,136			$	3,092			$	4,202

 

(1)	Per share data adjusted for 1:5 reverse stock split completed as of September 14, 2015.

 

(2)	Information presented relates to a share of common stock outstanding for the entire fiscal year.

 

(3)	The calculation also assumes reinvestment of dividends at actual prices pursuant to the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions.

 

(4)	For the fiscal year ended November 30, 2017, the Fund accrued $972,195 in net current and deferred tax expense.

 

For the fiscal year ended November 30, 2016, the Fund accrued $141,294 in net current and deferred tax expense.

 

For the fiscal year ended November 30, 2015, the Fund accrued $1,289,093 in net current and deferred tax benefit.

 

For the fiscal year ended November 30, 2014, the Fund accrued $1,115,507 in net current and deferred tax expense.

 

For the fiscal year ended November 30, 2013, the Fund accrued $5,743,456 in net current tax expense.

 

(5)	The ratio of expenses (including current and deferred income tax benefit/expense) to average net assets before waiver was 4.48%, 3.91%, 2.71%, 3.41%, and 4.64% for the fiscal years ended November 30, 2017, 2016, 2015, 2014, and 2013, respectively.

 

(6)	The ratio of expenses (excluding current and deferred income tax expense) to average net assets before waiver was 3.48%, 3.75%, 3.60%, 2.93%, and 2.18% for the fiscal years ended November 30, 2017, 2016, 2015, 2014, and 2013, respectively.

 

The ratio of expenses (excluding current and deferred income tax expense) to average net assets after waiver was 3.04%, 2.97%, 2.99%, 2.93%, and 2.18% for the fiscal years ended November 30, 2017, 2016, 2015, 2014, and 2013, respectively.

 

(7)	This ratio excludes current and deferred income tax benefit/expense on net investment income.

 

(8)	Calculated by subtracting the Fund’s total liabilities (not including borrowings) from the Fund’s total assets and dividing by the total borrowings.

 

 

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The Cushing^® MLP Total Return Fund

Notes to Financial Statements

November 30, 2017

 

1.    Organization

The Cushing^® MLP Total Return Fund (the “Fund”) was formed as a Delaware statutory trust on May 23, 2007, and is a non-diversified, closed-end investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund is managed by Cushing^® Asset Management, LP (the “Adviser”). The Fund’s investment objective is to obtain a high after-tax total return from a combination of capital appreciation and current income. The Fund commenced operations on August 27, 2007. The Fund’s shares are listed on the New York Stock Exchange under the symbol “SRV.”

In October 2016, the SEC adopted amendments to rules under the Investment Company Act of 1940 (“final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. The final rules amend Regulation S-X and require funds to provide standardized, enhanced derivative disclosure in fund financial statements in a format designed for individual investors. The amendments to Regulation S-X also update the disclosures for other investments and investments in and advances to affiliates and amend the rules regarding the general form and content of fund financial statements. The compliance date for the amendments to Regulation S-X is August 1, 2017, and has been adopted accordingly.

2.    Significant Accounting Policies

A.  Use of Estimates

The following is a summary of significant accounting policies, consistently followed by the Fund in preparation of the financial statements. The Fund is considered an investment company and accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946, Financial Services — Investment Companies, which is part of U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, recognition of distribution income and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

B.  Investment Valuation

The Fund uses the following valuation methods to determine fair value as either fair value for investments for which market quotations are available, or if not available, the fair value, as determined in good faith pursuant to such policies and procedures as may be approved by the Fund’s Board of Trustees (“Board of Trustees”) from time to time. The valuation of the portfolio securities of the Fund currently includes the following processes:

(i)  The market value of each security listed or traded on any recognized securities exchange or automated quotation system will be the last reported sale price at the relevant valuation date on the composite tape or on the principal exchange on which such security is traded except those listed on the NASDAQ Global Market^®, NASDAQ Global Select Market^® and the NASDAQ Capital Market^® exchanges (collectively, “NASDAQ”). Securities traded on NASDAQ will be valued at the NASDAQ official closing price. If no sale is reported on that date, the closing price from the prior day may be used.

 

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(ii)  Listed options on debt securities are valued at the last sale price, or if there are no trades for the day, the mean of the bid price and the ask price. Unlisted options on debt or equity securities are valued based upon their composite bid prices if held long, or their composite ask prices if held short. Futures are valued at the settlement price. Premiums for the sale of options written by the Fund will be included in the assets of the Fund, and the market value of such options will be included as a liability.

(iii)  The Fund’s non-marketable investments will generally be valued in such manner as the Adviser determines in good faith to reflect their fair values under procedures established by, and under the general supervision and responsibility of, the Board of Trustees. The pricing of all assets that are fair valued in this manner will be subsequently reported to and ratified by the Board of Trustees.

The Fund may engage in short sale transactions. For financial statement purposes, an amount equal to the settlement amount, if any, is included in the Statement of Assets and Liabilities as a liability. The amount of the liability is subsequently marked-to-market to reflect the fair value of the short positions. Subsequent fluctuations in market prices of securities sold short may require purchasing the securities at prices which may differ from the fair value reflected on the Statement of Assets and Liabilities. When the Fund sells a security short, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale. A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited in size, will be recognized under the termination of a short sale. The Fund is also subject to the risk that it may be unable to reacquire a security to terminate a short position except at a price substantially in excess of the last quoted price. The Fund is liable for any distributions and dividends (collectively referred to as “Distributions”) paid on securities sold short and such amounts, if any, are reflected as a Distribution expense in the Statement of Operations. The Fund’s obligation to replace the borrowed security is secured by collateral deposited with the broker-dealer. The Fund also is required to segregate similar collateral to the extent, if any, necessary so that the value of both collateral amounts in the aggregate is at all times equal to at least 100% of the fair value of the securities sold short. The Fund did not hold any securities sold short as of November 30, 2017.

C.  Security Transactions, Investment Income and Expenses

Security transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains and losses are reported on a specific identified cost basis. Interest income is recognized on an accrual basis, including amortization of premiums and accretion of discounts. Distributions are recorded on the ex-dividend date. Distributions received from the Fund’s investments in master limited partnerships (“MLPs”) generally are comprised of ordinary income, capital gains and return of capital from the MLPs. The Fund records investment income on the ex-date of the Distributions. For financial statement purposes, the Fund uses return of capital and income estimates to allocate the Distribution income received. Such estimates are based on historical information available from each MLP and other industry sources. These estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded, as the actual character of these Distributions is not known until after the fiscal year end of the Fund.

The Fund estimates the allocation of investment income and return of capital for the Distributions received from its portfolio investments within the Statement of Operations. For the fiscal year ended November 30, 2017, the Fund has estimated approximately 91% of the Distributions received from its portfolio investments to be return of capital.

Expenses are recorded on an accrual basis.

D.  Distributions to Stockholders

Distributions to common stockholders are recorded on the ex-dividend date. The character of Distributions to common stockholders made during the year may differ from their ultimate characterization

 

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for federal income tax purposes. For the fiscal year ended November 30, 2017, the Fund’s Distributions were expected to be comprised of 100% return of capital. The final character of Distributions paid for the fiscal year ended November 30, 2017 will be determined in early 2018. The final character of Distributions paid for the fiscal year ended November 30, 2016 was 100%, or $7,273,047, return of capital.

E.  Federal Income Taxation

The Fund, taxed as a corporation, is obligated to pay federal and state income tax on its taxable income. Currently, the maximum marginal regular federal income tax rate for a corporation is 35%. The Fund may be subject to a 20% federal alternative minimum tax on its federal alternative minimum taxable income to the extent that its alternative minimum tax exceeds its regular federal income tax.

The Fund invests its assets primarily in MLPs, which generally are treated as partnerships for federal income tax purposes. As a limited partner in MLPs, the Fund reports its allocable share of each MLP’s taxable income in computing its own taxable income.

The Fund’s tax expense or benefit is included in the Statement of Operations based on the component of income or gains (losses) to which such expense or benefit relates. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

The Fund recognizes in the financial statements the impact of a tax position, if that position is more-likely-than-not to be sustained on examination by the taxing authorities, based on the technical merits of the position. Tax benefits resulting from such a position are measured as the amount that has a greater than fifty percent likelihood on a cumulative basis to be sustained on examination.

F.  Cash and Cash Equivalents

The Fund considers all highly liquid investments purchased with initial maturity equal to or less than three months to be cash equivalents.

G.  Cash Flow Information

The Fund makes Distributions from investments, which include the amount received as cash distributions from MLPs, common stock dividends and interest payments. These activities are reported in the Statement of Changes in Net Assets, and additional information on cash receipts and payments is presented in the Statement of Cash Flows.

H.  Indemnification

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts that provide general indemnification to other parties. The Fund’s maximum exposure under such indemnification arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred, and may not occur. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

I.  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.

 

17

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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 Financial Accounting Standards Board (“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.

The average monthly fair value of purchased options during the fiscal year ended November 30, 2017 was $113,958.

The average monthly fair value of written options during the fiscal year ended November 30, 2017 was $5,673.

 

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The effect of derivative instruments on the Statement of Operations for the fiscal year ended November 30, 2017:

 

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		$	(99,097	)		$	111,041			$	11,944
Amount of Unrealized Appreciation on Derivatives Recognized in Income
Derivatives not accounted for as hedging instruments under ASC 815		Purchased Options				Written Options				Total
Equity Contracts		$	(185,889	)		$	—			$	(185,889	)

 

Asset derivatives
Risk Exposure Category		Statement of Assets and Liabilites location		Fair value
Equity Contracts		Purchased options, at fair value		$	9,000

3.    Concentrations of Risk

The Fund, under normal market conditions, invests at least 80% of its assets (net assets plus any borrowings for investment purposes) in a portfolio of MLPs and MLP-related investments. Therefore, the Fund may be subject to more risks than if they were more broadly diversified over numerous industries and sectors of the economy. General changes in market sentiment towards companies in the sectors in which they invest may adversely affect the Fund, and the performance of such sectors may lag behind the broader market as a whole.

The Fund is also subject to MLP structure risk. Holders of MLP units are subject to certain risks inherent in the structure of MLPs, including (i) tax risks, (ii) the limited ability to elect or remove management or the general partner or managing member, (iii) limited voting rights, except with respect to extraordinary transactions, and (iv) conflicts of interest between the general partner or managing member and its affiliates, on the one hand, and the limited partners or members, on the other hand, including those arising from incentive distribution payments or corporate opportunities.

4.    Agreements and Related Party Transactions

The Fund has entered into an Investment Management Agreement with the Adviser (the “Agreement”). Under the terms of the Agreement, the Fund will pay the Adviser a fee, payable at the end of each calendar month, at an annual rate equal to 1.25% of the average weekly value of the Fund’s Managed Assets during such month for the services and facilities provided by the Adviser to the Fund. The Fund’s Board of Trustees approved a waiver of the advisory fees to be paid to the Adviser in the amount of 0.50% of the Fund’s Managed Assets through February 1, 2017. As of February 1, 2017, the Fund’s Board of Trustees approved a waiver of the advisory fees to be paid to the Adviser in the amount of 0.25% of the Fund’s Managed Assets through February 1, 2018. The Adviser earned $1,787,170 and waived $424,448 in advisory fees for the fiscal year ended November 30, 2017. The Adviser will not recoup any of the waived expenses from the Fund.

The Fund has engaged U.S. Bancorp Fund Services, LLC to serve as the Fund’s administrator. The Fund pays the administrator a monthly fee computed at an annual rate of 0.08% of the first $100,000,000 of the Fund’s average daily net assets, 0.05% on the next $200,000,000 of average daily net assets and 0.04% on the balance of the Fund’s average daily net assets, with a minimum annual fee of $40,000.

U.S. Bancorp Fund Services, LLC serves as the Fund’s transfer agent, dividend paying agent, and agent for the automatic dividend reinvestment plan.

 

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U.S. Bank, N.A. serves as the Fund’s custodian. The Fund pays the custodian a monthly fee computed at an annual rate of 0.004% of the Fund’s average daily market value, with a minimum annual fee of $4,800.

Fees paid to trustees for their services to the Fund are reflected as Trustees’ fees on the Statement of Operations.

5.    Income Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Fund’s deferred tax assets and liabilities as of November 30, 2017, were as follows:

 

Deferred tax assets:
Net operating loss carryforward		$	1,570,382
Capital loss carryforward			38,124,382
Unrealized depreciation on investments			1,015,774
Total deferred tax assets before valuation allowance			40,710,538
Valuation allowance			(40,710,538	)
Net deferred tax asset		$	—

As of November 30, 2017, a valuation allowance of $40,710,538 was deemed necessary, as the Fund does not believe that there is an ability to realize this portion of the deferred tax asset through future taxable income.

The net operating loss carryforward and capital loss carryforwards are available to offset future taxable income. The Fund had the following net operating loss and capital loss amounts:

 

Fiscal Year Ended Net Operating Loss		Amount				Expiration
November 30, 2017		$	3,359,284				November 30, 2037
		$	3,359,284

 

Fiscal Year Ended Capital Loss		Amount				Expiration
November 30, 2012		$	8,179,856				November 30, 2017
November 30, 2015			58,090,492				November 30, 2020
November 30, 2016			35,612,716				November 30, 2021
November 30, 2017			823,268				November 30, 2022
Total Fiscal Year Ended Capital Loss		$	102,706,332

For corporations, capital losses can only be used to offset capital gains and cannot be used to offset ordinary income. Net operating losses may be carried forward for 20 years or back 2 years, and capital losses may be carried forward for 5 years.

Total income tax benefit (current and deferred) differs from the amount computed by applying the federal statutory income tax rate of 35% to net investment income and realized and unrealized gains (losses) on investments before taxes for the period ended November 30, 2017, as follows:

 

Income tax benefit at the Federal statutory rate of 35%		$	(3,745,652	)
State income tax benefit, net of federal benefit			(230,577	)
Income tax benefit on permanent items			(133,479	)
Federal refund			(346,677	)
Valuation allowance changes affecting the provision for income taxes			5,428,580
Total tax expense		$	972,195

 

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At November 30, 2017, the tax cost basis of investments was $104,316,806 and gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:

 

Gross unrealized appreciation		$	13,521,691
Gross unrealized depreciation			(3,302,310	)
Net unrealized appreciation		$	10,219,381

The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on U.S. tax returns and state tax returns filed since inception of the Fund. No income tax returns are currently under examination. All tax years beginning after November 30, 2014 remain subject to examination by the tax authorities in the United States. Due to the nature of the Fund’s investments, the Fund may be required to file income tax returns in several states. The Fund is not aware of any tax positions for which it is reasonably expected that the total amounts of unrecognized tax benefits will change materially in the next 12 months.

6.    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 levels listed below.

 

						Fair Value Measurements at Reporting Date Using
Description		Fair Value at November 30, 2017				Quoted Prices in Active  Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets
Equity Securities
Common Stock(a)		$	16,856,044			$	16,856,044			$	—			$	—
Master Limited Partnerships and Related Companies(a)			95,632,612				94,822,612				810,000				—
Total Equity Securities		$	112,488,656			$	111,678,656			$	810,000			$	—
Notes
Senior Notes		$	1,988,750			$	—			$	1,988,750			$	—
Total Notes		$	1,988,750			$	—			$	1,988,750			$	—
Other
Purchased Options		$	9,000			$	9,000			$	—			$	—
Short-Term Investments(a)			49,779				49,779				—				—
Total Other			58,779				58,779				—				—
Total Assets		$	114,536,185			$	111,737,435			$	2,798,750			$	—

 

(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 fiscal year ended November 30, 2017.

 

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Transfers into and out of each level are measured at fair value as of the end of the period. There were no transfers between any levels during the fiscal year ended November 30, 2017.

7.    Investment Transactions

For the fiscal year ended November 30, 2017, the Fund purchased (at cost) and sold securities (proceeds) in the amount of $88,351,006 and $102,066,822 (excluding short-term securities), respectively. The Fund purchased (at cost) and sold covered options (proceeds) in the amount of $401,942 and $731,942, respectively. The Fund sold written options (proceeds) and covered written options (at cost) in the amount of $123,620 and $6,021, respectively.

8.    Common Stock

The Fund had unlimited shares of capital stock authorized and 6,734,302 shares outstanding as of November 30, 2017. Transactions in common stock for the fiscal years ended November 30, 2016 and November 30, 2017 were as follows:

 

Shares at November 30, 2015			6,734,302
Shares at November 30, 2016			6,734,302
Shares at November 30, 2017			6,734,302

9.    Borrowing Facilities

The Fund maintained a margin account arrangement with Credit Suisse during the period. The interest rate charged on margin borrowing is tied to the cost of funds for Credit Suisse (which approximates LIBOR plus 1.20%). In March 2017, the Fund established a margin account with Scotiabank^TM. The interest rate charged on margin borrowing is tied to the cost of funds for Scotiabank^TM (which approximates LIBOR plus 1.00%). Proceeds from the margin account arrangement are used to execute the Fund’s investment objective.

The average principal balance and interest rate for the period during which the credit facilities were utilized during the fiscal year ended November 30, 2017 was approximately $46,403,000 and 2.20%, respectively. At November 30, 2017, the principal balance outstanding was $33,650,000 and accrued interest expense was $2,217.

10.    Subsequent Events

Subsequent to November 30, 2017, the Fund declared monthly distributions to common stockholders in the amount of $0.0903 per share per month, payable on December 29, 2017 and January 31, 2018, to stockholders of record on December 18, 2017 and January 19, 2018, respectively.

On December 20. 2017, the Fund notified shareholders informing them of certain changes to the Fund’s non-fundamental investment policies. Effective as of February 20, 2018:

 

•

Under normal market conditions, the Fund will invest at least 80% of its net assets, plus any borrowings for investment purposes, in a portfolio of infrastructure master limited partnerships (“MLPs”) and MLP-related investments (together, “MLP Investments”) (the “80% policy”). For purposes of the Fund’s 80% policy, MLP Investments are investments that offer economic exposure to public and private MLPs in the form of common or subordinated units issued by MLPs, securities of entities holding primarily general partner or managing member interests in MLPs, debt securities of MLPs, and securities that are derivatives of interests in MLPs, which are I-Shares and other derivative securities that have economic characteristics of MLP securities, and businesses that operate and have the economic characteristics of MLP Investments but are

 

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organized and taxed as “C” corporations or as limited liability companies (“Other Natural Resources Companies”). The Fund considers an MLP Investment to be an infrastructure MLP Investment if at least 50% of its assets, income, sales or profits are committed to or derived from the development, construction, management, ownership or operation of assets that are used for natural resources-based activities; and

 

•

The Fund will invest no more than 25% of its total assets in securities of energy MLPs that qualify as publicly traded partnerships under the Internal Revenue Code. Under the modified investment policies, the Fund intends to manage its portfolio in a manner intended to allow the Fund to qualify as a regulated investment company (“RIC”) for U.S. federal income tax purposes beginning in the Fund’s fiscal year ending November 30, 2018. There can be no reassurance that the Fund will qualify as a RIC. The taxation of shareholders with respect to their investment in a RIC can differ from an investment in a C corporation. Shareholders are urged to consult their tax advisor to determine the tax consequences to them of an investment in the Fund. If the Fund qualifies and elects to be treated as a RIC, the Fund will provide additional information with respect to the tax effects of such election and related risks associated with an investment in the Fund in a subsequent report to shareholders.

In addition, effective as of February 20, 2018, as a result of the changes to the Fund’s investment policies, the Fund’s name will change to the Cushing^® MLP & Infrastructure Total Return Fund.

 

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The Cushing^® MLP Total Return Fund

Report of Independent Registered Public Accounting Firm

 

The Board of Trustees and Shareholders of

The Cushing MLP Total Return Fund

We have audited the accompanying statement of assets and liabilities of The Cushing MLP Total Return Fund (the Fund), including the schedule of investments, as of November 30, 2017, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2017, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Cushing MLP Total Return Fund at November 30, 2017, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

 

Dallas, Texas

January 29, 2018

 

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The Cushing^® MLP Total Return Fund

Trustees and Executive Officers (Unaudited)

November 30, 2017

 

Set forth below is information with respect to each of the Trustees and executive officers of the Trust, including their principal occupations during the past five years. The business address of the Fund, its Trustees and executive officers is 8117 Preston Road, Suite 440, Dallas, Texas 75225.

Board of Trustees

 

Name and Year of Birth		Position(s) Held with the Trust		Term of Office and Length of Time Served(1)		Principal Occupations During Past Five Years		Number of Portfolios in Fund Complex(2) Overseen by Trustee		Other Directorships Held by Trustee During the Past Five Years
Independent Trustees
Brian R. Bruce (1955)		Lead Independent Trustee		Trustee since 2007		Chief Executive Officer, Hillcrest Asset Management, LLC (2008 to present) (registered investment adviser). Previously, Director of Southern Methodist University’s Encap Investment and LCM Group Alternative Asset Management Center (2006 to 2011). Chief Investment Officer of Panagora Asset Management, Inc. (1999 to 2007) (investment management company).		6		CM Advisers Family of Funds (2 series) (2003 to present) and Dreman Contrarian Funds (2 series) (2007 to present).
Brenda A. Cline (1960)		Trustee and Chair of the Audit Committee		Trustee since 2017		Executive Vice President, Chief Financial Officer, Secretary and Treasurer of Kimbell Art Foundation (1993 – present)		6		American Beacon Funds (32 Series) (2004 – present); Tyler Technologies, Inc. (2014 – present) (software); Range Resources Corporation (2015 – present) (natural gas and oil exploration and production).
Ronald P. Trout (1939)		Trustee and Chairman of the Nominating and Corporate Governance Committee		Trustee since 2007		Retired. Previously, founding partner and Senior Vice President of Hourglass Capital Management, Inc. (1989 to 2002) (investment management company).		6		Dorchestor Minerals, L.P. (2008 to present) (acquisition, ownership and administration of natural gas and crude oil royalty, net profits and leasehold interests in the U.S.)
Interested Trustees
Jerry V. Swank (1951)(3)		Trustee, Chairman of the Board, Chief Executive Officer and President		Trustee since 2007		Managing Partner of the Adviser and founder of Swank Capital, LLC (2000 to present).		6		E-T Energy Ltd. (2008 to 2014) (developing, operating, producing and selling recoverable bitumen); Central Energy Partners, LP (2010-2013) (storage and transportation of refined petroleum products and petrochemicals).

 

(1)	After a Trustee’s initial term, each Trustee is expected to serve a three-year term concurrent with the class of Trustees for which he serves. Mr. Bruce is expected to stand for re-election in 2020, Ms. Cline and Mr. Swank in 2018, and Mr. Trout in 2019.

 

(2)	The “Fund Complex” includes each registered investment company for which the Adviser serves as investment adviser. As of November 30, 2017, there were six funds in the Fund Complex.

 

(3)	Mr. Swank is an “interested person” of the Fund, as defined under the 1940 Act, by virtue of his position as Managing Partner of the Adviser.

 

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Executive Officers

The following provides information regarding the executive officers of the Fund who are not Trustees. Officers serve at the pleasure of the Board of Trustees and until his or her successor is appointed and qualified or until his or her earlier resignation or removal.

 

Name and Year of Birth		Position(s) Held with the Trust		Term of Office and Length of Time Served(1)		Principal Occupations During Past Five Years
Jerry V. Swank (1951)		Chief Executive Officer and President		Officer since 2007		Managing Partner of the Adviser and founder of Swank Capital, LLC (2000 to present).
John H. Alban (1963)		Chief Financial Officer and Treasurer		Officer since 2010		Chief Operating Officer (“COO”) of the Adviser (2010 – present); Previously, Chief Administrative Officer of NGP Energy Capital Management (2007 – 2009); COO of Spinnerhawk Capital Management, L.P. (2005 – 2007).
Barry Y. Greenberg (1963)		Chief Compliance Officer and Secretary		Officer since 2010		General Counsel and Chief Compliance Officer (“CCO”) of the Adviser; Partner at Akin Gump Strauss Hauer & Feld LLP (2005 – 2010); Vice President, Legal, Compliance & Administration at American Beacon Advisors (1995 – 2005); Attorney and Branch Chief at the U.S. Securities and Exchange Commission (1988 – 1995).

 

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The Cushing^® MLP Total Return Fund

Additional Information (Unaudited)

November 30, 2017

 

Investment Policies and Parameters

The Fund is a non-diversified, closed-end management investment company under the 1940 Act. Accordingly, the Fund may invest a greater portion of its assets in a more limited number of issuers than a diversified fund. An investment in the Fund may present greater risk to an investor than an investment in a diversified portfolio because changes in the financial condition or market assessment of a single issuer may cause greater fluctuations in the value of the Fund’s shares. Previously, the Fund had stated an intention to generally invest in 20-30 issuers. The Board of Trustees has approved eliminating that policy. While the Fund initially expects to invest in a greater number of issuers, the Fund may in the future invest in fewer issuers.

The Commodity Futures Trading Commission (“CFTC”) amended Rule 4.5, which permits investment advisers to registered investment companies to claim an exclusion from the definition of commodity pool operator with respect to a fund provided certain requirements are met. In order to permit the Investment Adviser to continue to claim this exclusion with respect to the Fund under the amended rule, the Fund limits its transactions in futures, options of futures and swaps (excluding transactions entered into for “bona fide hedging purposes,” as defined under CFTC regulations) such that either: (i) the aggregate initial margin and premiums required to establish its futures, options on futures and swaps do not exceed 5% of the liquidation value of the Fund’s portfolio, after taking into account unrealized profits and losses on such positions; or (ii) the aggregate net notional value of its futures, options on futures and swaps does not exceed 100% of the liquidation value of the Fund’s portfolio, after taking into account unrealized profits and losses on such positions. The Fund and the Adviser do not believe that complying with the amended rule will limit the Fund’s ability to use futures, options and swaps to the extent that it has used them in the past.

Trustee and Executive Officer Compensation

The Fund does not currently compensate any of its trustees who are interested persons nor any of its officers. For the fiscal year ended November 30, 2017, the aggregate compensation paid by the Fund to the independent trustees was $80,445. The Fund did not pay any special compensation to any of its trustees or officers. The Fund continuously monitors standard industry practices and this policy is subject to change.

Cautionary Note Regarding Forward-Looking Statements

This report contains “forward-looking statements” as defined under the U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from the Fund’s historical experience and its present expectations or projections indicated in any forward-looking statements. These risks include, but are not limited to, changes in economic and political conditions; regulatory and legal changes; MLP industry risk; leverage risk; valuation risk; interest rate risk; tax risk; and other risks discussed in the Fund’s filings with the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. The Fund undertakes no obligation to update or revise any forward-looking statements made herein. There is no assurance that the Fund’s investment objective will be attained.

 

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Proxy Voting Policies

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities owned by the Fund and information regarding how the Fund voted proxies relating to the portfolio of securities during the 12-month period ended June 30 are available to stockholders without charge, upon request by calling the Fund toll-free at (800)236-4424 and on the Fund’s website at www.cushingcef.com. Information regarding how the Fund voted proxies relating to the portfolio of securities during the 12-month period ended June 30 are also available to stockholders without charge on the SEC’s website at www.sec.gov.

Form N-Q

The Fund files its complete schedule of portfolio holdings for the first and third quarters of each fiscal year with the SEC on Form N-Q. The Fund’s Form N-Q and statement of additional information are available without charge by visiting the SEC’s website at www.sec.gov. In addition, you may review and copy the Fund’s Form N-Q at the SEC’s Public Reference Room in Washington D.C. You may obtain information on the operation of the Public Reference Room by calling (800) SEC-0330.

Portfolio Turnover

The portfolio turnover rate for the fiscal year ended November 30, 2017 was 62.87%. Portfolio turnover may vary greatly from period to period. The Fund does not consider portfolio turnover rate a limiting factor in the Adviser’s execution of investment decisions, and the Fund may utilize investment and trading strategies that may involve high portfolio turnover. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund.

Certifications

The Fund’s Chief Executive Officer has submitted to the New York Stock Exchange the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Fund Manual.

The Fund has filed with the SEC the certification of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act.

Distribution and Dividend Reinvestment Plan

How the Plan Works

Unless the registered owner of common shares elects to receive cash by contacting the Plan Agent, all dividends and distributions (collectively referred to in this section as “dividends”) declared for your common shares of the Fund will be automatically reinvested by U.S. Bancorp Fund Services, LLC (the “Plan Agent”), agent for stockholders in administering the Fund’s Dividend Reinvestment Plan (the “Plan”), in additional common shares of the Fund. The Plan Agent will open an account for each common stockholder under the Plan in the same name in which such common stockholder’s common shares are registered. Whenever the Fund declares a dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in common shares. The common shares will be acquired by the Plan Agent for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares from the Fund (“newly-issued common shares”) or (ii) by purchase of outstanding common shares on the open market (“open-market purchases”) on the New York Stock Exchange or elsewhere.

 

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If, on the payment date for any dividend, the market price per common share plus per share fees (which include any brokerage commissions the Plan Agent is required to pay) is greater than the net asset value per common share, the Plan Agent will invest the dividend amount in newly-issued common shares, including fractions, on behalf of the participants. The number of newly-issued common shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the net asset value per common share on the payment date; provided that, if the net asset value per common share is less than 95% of the market price per common share on the payment date, the dollar amount of the dividend will be divided by 95% of the market price per common share on the payment date. If, on the payment date for any dividend, the net asset value per common share is greater than the market value per common share plus per share fees, the Plan Agent will invest the dividend amount in common shares acquired on behalf of the participants in open-market purchases.

Participation in the Plan

If a registered owner of common shares elects not to participate in the Plan, you will receive all dividends in cash paid by check mailed directly to you (or, if the shares are held in street or other nominee name, then to such nominee) by the Plan Agent, as dividend disbursing agent. You may elect not to participate in the Plan and to receive all dividends in cash by sending written or telephonic instructions to the Plan Agent, as dividend paying agent, or by contacting the Plan Agent via their website at the address set out below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by contacting the Plan Agent before the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution.

Plan Fees

There will be no per share fees with respect to common shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with open-market purchases. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.

Tax Implications

The automatic reinvestment of dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. Accordingly, any taxable dividend received by a participant that is reinvested in additional common shares will be subject to federal (and possibly state and local) income tax even though such participant will not receive a corresponding amount of cash with which to pay such taxes.

Contact Information

For more information about the plan you may contact the Plan Agent in writing at PO Box 708, Milwaukee, WI 53201-0701, or by calling the Plan Agent at 1-800-662-7232.

Privacy Policy

In order to conduct its business, the Fund collects and maintains certain nonpublic personal information about its stockholders of record with respect to their transactions in shares of the Fund’s securities. This information includes the stockholder’s address, tax identification or Social Security number, share balances, and dividend elections. We do not collect or maintain personal information about stockholders whose share balances of our securities are held in “street name” by a financial institution such as a bank or broker.

 

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We do not disclose any nonpublic personal information about you, the Fund’s other stockholders or the Fund’s former stockholders to third parties unless necessary to process a transaction, service an account, or as otherwise permitted by law.

To protect your personal information internally, we restrict access to nonpublic personal information about the Fund’s stockholders to those employees who need to know that information to provide services to our stockholders. We also maintain certain other safeguards to protect your nonpublic personal information.

Other Information For Stockholders

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Fund from time to time may purchase its common shares of beneficial interest in the open market.

This report is sent to stockholders of The Cushing^® MLP Total Return Fund for their information. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report.

The Fund does not make available copies of its Statement of Additional Information because the Fund’s shares are not continuously offered, which means that the Statement of Additional Information has not been updated after completion of the Fund’s initial public offering and the information contained in such Statement of Additional Information may have become outdated.

The Fund makes available performance and certain other on its website at www.cushingcef.com. Investors and others are advised to periodically check the website for updated performance information and the release of other material information about the Fund. This reference to the Fund’s website is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate the Fund’s website in this report.

New Trustee

Effective as of January 18, 2017, Brenda A. Cline was appointed as a Trustee of the Fund.

 

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The Cushing^® MLP Total Return Fund

 

 

NOT FDIC INSURED   |   NOT BANK GUARANTEED   |   MAY LOSE VALUE

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THE CUSHING^® MLP TOTAL RETURN FUND

 

 

		Investment Adviser Cushing® Asset Management, LP 8117 Preston Road Suite 440 Dallas, TX 75225 (214) 692-6334 (888) 777-2346 www.cushingcef.com www.cushingasset.com

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Item 2. Code of Ethics.

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report.

The registrant undertakes to provide to any person without charge, upon request, a copy of its code of ethics by mail when they call the registrant at 1-888-777-2346.

Item 3. Audit Committee Financial Expert.

The registrant’s Board of Trustees has determined that there is at least one audit committee financial expert serving on its audit committee. Ms. Brenda A. Cline is the “audit committee financial expert” and is considered to be “independent” as each term is defined in Item 3 of Form N-CSR.

Item 4. Principal Accountant Fees and Services.

The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past two fiscal years. “Audit services” refer to performing an audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. “Audit-related services” refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. “Tax services” refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. There were no “other services” provided by the principal accountant. The following table details the aggregate fees billed or expected to be billed for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant.

 

		FYE 11/30/2017		FYE 11/30/2016
Audit Fees		81,000		79,600
Audit-Related Fees		None		None
Tax Fees		21,400		21,000
All Other Fees		None		None

The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve all audit and non-audit services of the registrant, including services provided to any entity affiliated with the registrant.

The percentages of fees billed by Ernst & Young LLP applicable to non-audit services pursuant to waiver of pre-approval requirement were as follows:

 

		FYE 11/30/2017		FYE 11/30/2016
Audit-Related Fees		0%		0%
Tax Fees		0%		0%
All Other Fees		0%		0%

 

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All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full-time permanent employees of the principal accountant. (If more than 50 percent of the accountant’s hours were spent to audit the registrant’s financial statements for the most recent fiscal year, state how many hours were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.)

The following table indicates the non-audit fees billed or expected to be billed by the registrant’s accountant for services to the registrant and to the registrant’s investment adviser (and any other controlling entity, etc.—not sub-adviser) for the last two years. The audit committee of the board of trustees/directors has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser is compatible with maintaining the principal accountant’s independence and has concluded that the provision of such non-audit services by the accountant has not compromised the accountant’s independence.

 

Non-Audit Related Fees		FYE 11/30/2017		FYE 11/30/2016
Registrant		21,400		21,000
Registrant’s Investment Adviser		None		None

Item 5. Audit Committee of Listed Registrants.

The registrant is an issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934, (the “Act”) and has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Act. The independent members of the committee are as follows: Brenda A. Cline, Brian R. Bruce and Ron P. Trout.

Item 6. Investments.

 

(a)	Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.

 

(b)	Not Applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Cushing Asset Management, LP (the “Investment Adviser”) serves as the investment adviser and general partner, respectively, of certain investment vehicles (the “Affiliate Funds” and, together with the registrant, each a “Client” and collectively, the “Clients”). Through these relationships the Investment Adviser is delegated the right to vote, on behalf of the Clients, proxies received from companies, the securities of which are owned by the Clients.

Purpose

The Investment Adviser follows this proxy voting policy (the “Policy”) to ensure that proxies the Investment Adviser votes on behalf of each Client are voted to further the best interest of that Client. The Policy establishes a mechanism to address any conflicts of interests between the Investment Adviser and the Client. Further, the Policy establishes how Clients may obtain information on how the proxies have been voted.

 

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Determination of Vote

The Investment Adviser determines how to vote after studying the proxy materials and any other materials that may be necessary or beneficial to voting. The Investment Adviser votes in a manner that the Investment Adviser believes reasonably furthers the best interests of the Client and is consistent with the investment philosophy as set out in the relevant investment management documents.

The major proxy-related issues generally fall within five categories: corporate governance, takeover defenses, compensation plans, capital structure, and social responsibility. The Investment Adviser will cast votes for these matters on a case-by-case basis. The Investment Adviser will generally vote in favor of matters which follow an agreeable corporate strategic direction, support an ownership structure that enhances shareholder value without diluting management’s accountability to shareholders and/or present compensation plans that are commensurate with enhanced manager performance and market practices.

Resolution of any Conflicts of Interest

If a proxy vote creates a material conflict between the interests of the Investment Adviser and a Client, the Investment Adviser will resolve the conflict before voting the proxies. The Investment Adviser will either disclose the conflict to the Client and obtain a consent or take other steps designed to ensure that a decision to vote the proxy was based on the Investment Adviser’s determination of the Client’s best interest and was not the product of the conflict.

Records

The Investment Adviser maintains records of (i) all proxy statements and materials the Investment Adviser receives on behalf of Clients; (ii) all proxy votes that are made on behalf of the Clients; (iii) all documents that were material to a proxy vote; (iv) all written requests from Clients regarding voting history; and (v) all responses (written and oral) to Clients’ requests. Such records are available to the Clients (and owners of a Client that is an investment vehicle) upon request.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Jerry V. Swank and Paul N. Euseppi (the “portfolio managers”) are primarily responsible for the day-to-day management of the registrant’s portfolio.

 

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(a)(1) The following table provides biographical information about the registrant’s portfolio manager as of the date of this filing:

 

Name		Positions(s) Held With Registrant and Length of Time Served		Principal Occupation During Past Five Years
Jerry V. Swank		Trustee, Chairman of the Board, Chief Executive Officer and President since 2007.		Managing Partner and Co-Chief Investment Officer of the Investment Adviser since 2003.
Paul N. Euseppi		None.		Portfolio Manager of the Investment Adviser since 2008.

(a)(2) The following table provides information about the other accounts managed on a day-to-day basis by the portfolio managers as of November 30, 2017:

 

Name of Portfolio Manager		Number of Accounts		Total Assets of Accounts				Number of Accounts Subject to a Performance Fee		Total Assets of Accounts Subject to a Performance Fee
Jerry V. Swank
Registered investment companies		9		$	1,871,951,883			0		$	0
Other pooled investment vehicles		5		$	225,291,280			5		$	225,291,280
Other accounts		28		$	1,365,487,051			1		$	3,025,820
Paul N. Euseppi
Registered investment companies		0		$	0			0		$	0
Other pooled investment vehicles		2		$	211,145,340			2		$	211,145,340
Other accounts		2		$	11,488,099			1		$	3,025,820

 

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(iv) Conflicts of Interest with the Investment Adviser

Conflicts of interest may arise because the Investment Adviser and its affiliates generally will be carrying on substantial investment activities for other Clients, including, but not limited to, other investment vehicles for which the Adviser serves as investment adviser or general partner of such vehicles (the “Affiliated Funds”), in which the registrant will have no interest. The Investment Adviser or its affiliates may have financial incentives to favor certain of such accounts over the registrant. Any of the proprietary accounts of the Investment Adviser and its affiliates and other customer accounts may compete with the registrant for specific trades. The Investment Adviser or its affiliates may buy or sell securities for the registrant which differ from securities bought or sold for other accounts and customers, even though the investment objectives and policies of the other accounts may be similar to the registrant’s. Situations may occur where the registrant could be disadvantaged as a result of the investment activities conducted by the Investment Adviser and its affiliates for other accounts resulting in, among other things, legal or internal restrictions on the combined size of positions that may be taken for the registrant and the other accounts, limits on the size of the registrant’s position, or difficulty in liquidating an investment for the registrant and the other accounts where the market cannot absorb the sale of the combined position. Notwithstanding these potential conflicts of interest, the Investment Adviser, the registrant’s Board of Trustees and its officers have a fiduciary obligation to act in the registrant’s best interest.

The registrant’s investment opportunities may be limited by potential affiliations of the Investment Adviser or its affiliates with MLPs and other natural resource companies. Additionally, to the extent that the Investment Adviser sources and structures private investments in MLPs and other natural resource companies, certain employees of the Investment Adviser may become aware of actions planned by MLPs and other natural resource companies, such as acquisitions, that may not be announced to the public. It is possible that the registrant could be precluded from investing in an MLP or other natural resource company as a result of such an occurrence.

The Investment Adviser manages several Affiliated Funds. Some of these Affiliated Funds have investment objectives that are similar to or overlap with the registrant’s investment objectives. Further, the Investment Adviser may at some time in the future manage other investment funds with the same or similar investment objective as the registrant.

Investment decisions for the registrant are made independently from those of other Clients; however, from time to time, the same investment decision may be made for more than one fund or account.

When two or more Clients advised by the Investment Adviser or its affiliates seek to purchase or sell the same publicly traded securities, the securities actually purchased or sold will be allocated among the Clients on a good faith equitable basis by the Investment Adviser in its discretion in accordance with the Clients’ various investment objectives and procedures adopted by the Investment Adviser and approved by the registrant’s Board of Trustees. In some cases, this system may adversely affect the price or size of the position obtained by the registrant.

The registrant’s investment opportunities may be limited by the availability of investment opportunities in the MLPs and other natural resource companies that the Investment Adviser evaluates for the Affiliated Funds. To the extent a potential investment is appropriate for the registrant and one or more of the Affiliated Funds, the Investment Adviser will fairly allocate that investment to the registrant or an Affiliated Fund, or both, depending on its allocation procedures and applicable law related to combined or joint transactions. Under such circumstances, there may be an attractive limited investment opportunity otherwise suitable for the registrant in which the registrant cannot invest because of the particular allocation method being used for that investment.

 

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Under the Investment Company Act of 1940 (the “1940 Act”), the registrant and its Affiliated Funds may be precluded from co-investing in private placements of securities. Except as permitted by law or positions of the staff of the Securities and Exchange Commission, the Investment Adviser will not co-invest its other Clients’ assets in private transactions in which the registrant invests. To the extent the registrant is precluded from co-investing in such transactions, the Investment Adviser will allocate private investment opportunities among its Clients, including but not limited to the registrant and the Affiliated Funds, based on allocation policies that take into account several suitability factors, including the size of the investment opportunity, the amount each Client has available for investment and the Client’s investment objectives. These allocation policies may result in the allocation of investment opportunities to an Affiliated Fund rather than to the registrant.

(a)(3) As of November 30, 2017:

Compensation

Messrs. Swank and Euseppi are compensated by the Investment Adviser. Mr. Swank is a principal of the Investment Adviser and is compensated through partnership distributions that are based primarily on the profits and losses of the Investment Adviser. Mr. Euseppi receives a base salary and participates in an incentive compensation plan based on the profits of the Investment Adviser. The partnership distributions and incentive compensation plan are affected by the amount of assets the Investment Adviser manages and the appreciation of those assets, particularly over the long-term, but are not determined with specific reference to any particular performance benchmark or time period. Some of the other accounts managed by Messrs. Swank and Euseppi, including the Affiliated Funds, have investment strategies that are similar to the registrant’s investment strategy. However, the Investment Adviser manages potential material conflicts of interest by allocating investment opportunities in accordance with its allocation policies and procedures.

(a)(4) As of November 30, 2017:

Securities Beneficially Owned in the Registrant by Portfolio Managers

The following table provides information about the dollar range of equity securities in the registrant beneficially owned by the portfolio manager:

 

Portfolio Manager		Aggregate Dollar Range of Beneficial Ownership in the Registrant
Jerry V. Swank		$100,001 – 500,000(1)
Paul N. Euseppi		$10,001 – 50,000

 

(1)

Includes securities owned by the Investment Adviser. By virtue of his control of the Investment Adviser, Mr. Swank may be deemed to beneficially own the securities held by the Investment Adviser.

 

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Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

 

Period		(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 06/01/2017-06/30/2017		0		0		0		0
Month #2 07/01/2017-07/31/2017		0		0		0		0
Month #3 08/01/2017-08/31/2017		0		0		0		0
Month #4 09/01/2017-09/30/2017		0		0		0		0
Month #5 10/01/2017-10/31/2017		0		0		0		0
Month #6 11/01/2017-11/30/2017		0		0		0		0
Total		0		0		0		0

Item 10. Submission of Matters to a Vote of Security Holders.

Not Applicable.

Item 11. Controls and Procedures.

 

(a)

The registrant’s President/Principal Executive Officer and Treasurer/Principal Financial Officer have reviewed the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the registrant and by the registrant’s service provider.

 

(b)

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

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Item 12. Exhibits.

 

(a)	(1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Filed herewith.

(2) A separate certification for each principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. None.

 

(b)	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.

 

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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 & Chief Executive Officer

 

Date		2/1/18

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 & Chief Executive Officer

 

Date		2/1/18

 

By (Signature and Title)*		/s/ John H. Alban
		John H. Alban, Treasurer & Chief Financial Officer

 

Date		2/1/18

 

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