The Cushing MLP Total Return Fund
Overview
The Cushing MLP Total Return Fund is a newly organized, non-diversified, closed-end management investment company registered under the 1940 Act. The Fund was formed as a Delaware statutory trust on May 23, 2007.
The Cushing name originates from a city in Oklahoma of the same name that was a center for the exploration, production and storage of crude oil during the early 20th century. Cushing, Oklahoma, with its large amount of energy infrastructure assets, is currently a major storage and trade clearing hub for crude oil and refined products in the United States.
The Fund's Investments
The Fund will invest primarily in the securities of MLPs, other equity securities, debt securities and securities of non-U.S. issuers as described below.
Description of MLPs
Master limited partnerships are formed as limited partnerships or limited liability companies and taxed as partnerships for federal income tax purposes. The securities issued by many master limited partnerships are listed and traded on a U.S. exchange. A master limited partnership typically issues general partner and limited partner interests, or managing member and member interests. The general partner or managing member manages and often controls, has an ownership stake in, and is normally eligible to receive incentive distribution payments from, the master limited partnership. To be treated as a partnership for U.S. federal income tax purposes, a master limited partnership must derive at least 90% of its gross income for each taxable year from specified qualifying sources as described in Section 7704 of the Code.
These qualifying sources include natural resource-based activities such as the exploration, development, mining, production, processing, refining, transportation, storage and marketing of mineral or natural resources. The general partner or managing member may be structured as a private or publicly traded corporation or other entity. The general partner or managing member typically control the operations and management of the entity through an up to 2% general partner or managing member interest in the entity plus, in many cases, ownership of some percentage of the outstanding limited partner or member interests. The limited partners or members, through their ownership of limited partner or member interests, provide capital to the entity, are intended to have no role in the operation and management of the entity and receive cash distributions. Due to their structure as partnerships for federal income tax purposes, master limited partnerships generally do not pay federal income taxes. Thus, unlike investors in corporate securities, direct master limited partnership investors are generally not subject to double taxation (i.e., corporate level tax and tax on corporate dividends). Currently, most master limited partnerships operate in the energy and midstream, natural resources, shipping or real estate sectors.
MLPs are typically structured such that common units and general partner interests have first priority to receive the Minimum Quarterly Distributions (MQD). Common and general partner interests also accrue arrearages in distributions to the extent the MQD is not paid. Once common units and general partner interests have been paid, subordinated units receive distributions up to the MQD; however, subordinated units do not accrue arrearages. The subordinated units are normally owned by the owners or affiliates of the general partner and convert on a one for one basis into common units, generally in three to five years after the master limited partnership’s initial public offering or after certain distribution levels have been exceeded. Distributable cash in excess of the MQD is distributed to both common and subordinated units generally on a pro rata basis. The general partner is also normally eligible to receive incentive distributions if the general partner operates the business in a manner which results in payment of per unit distributions that exceed threshold levels above the MQD. As the general partner increases cash distributions to the limited partners, the general partner receives an increasingly higher percentage of the incremental cash distributions. A common arrangement provides that the general partner can reach a tier where it receives 50% of every incremental dollar distributed by the master limited partnership. These incentive distributions encourage the general partner to increase the partnership's cash flow and raise the quarterly cash distribution by pursuing steady cash flow investment opportunities, streamlining costs and acquiring assets. Such results benefit all security holders of the MLP.
Click here to download a copy of the Audit Committee Charter Adopted August 16, 2007.
Click here to download a copy of the Nominating, Corporate Governance and Compensation Committee Charter Adopted August 16, 2007.