cushing-royalty_nq.htm
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM N-Q
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT
INVESTMENT COMPANY

Investment Company Act file number  811-22593

Cushing Royalty & Income Fund
(Exact name of registrant as specified in charter)
 
8117 Preston Road Suite 440
Dallas, TX 75225
(Address of principal executive offices) (Zip code)

Jerry V. Swank
8117 Preston Road Suite 440
Dallas, TX 75225
(Name and address of agent for service)

214-692-6334
Registrant’s telephone number, including area code
 
Date of fiscal year end: November 30
 
Date of reporting period:  February 28, 2014
 
 
 
 
 
Item 1. Schedule of Investments.
                 
The Cushing® Royalty & Income Fund
            
SCHEDULE OF INVESTMENTS (Unaudited)
            
       
   
February 28, 2014
  
             
Common Stock  - 15.5% (1)
  
Shares
    
Fair Value
  
Exploration & Production - 2.9% (1)
            
United States - 2.9% (1)
            
RSP Permian, Inc. (2)
     180,000     $ 5,004,000  
                 
Upstream - 12.6% (1)
                
Canada - 12.6% (1)
                
Arc Resources LTD (3)
     176,959       4,773,562  
Bonterra Energy Corporation
     19,178       944,611  
Crescent Point Energy Corporation (3)
     217,062       7,617,655  
Enerplus Corporation (3)
     447,273       8,864,951  
              22,200,779  
                 
Total Common Stock (Cost $24,617,006)
           $ 27,204,779  
                 
Master Limited Partnerships and Related Companies  - 100.6% (1)
                
Coal - 1.2% (1)
                
United States - 1.2% (1)
                
Natural Resource Partners, L.P.
     135,046     $ 2,041,895  
                 
Crude Oil & Refined Products - 2.3% (1)
                
United States - 2.3% (1)
                
Delek Logistics Partners, L.P.
     75,482       2,551,292  
Sprague Resources, L.P.
     79,537       1,469,048  
              4,020,340  
Natural Gas Gatherers & Processors - 1.6% (1)
                
United States - 1.6% (1)
                
PVR Partners, L.P.
     104,903       2,815,597  
                 
Other - 1.9% (1)
                
United States - 1.9% (1)
                
Emerge Energy Services, L.P.
     72,841       3,332,476  
                 
Shipping - 1.9% (1)
                
Republic of the Marshall Islands - 1.9% (1)
                
Capital Product Partners, L.P.
     315,265       3,392,251  
                 
Upstream - 90.5% (1)
                
United States - 90.5% (1)
                
Atlas Resource Partners, L.P.
     503,977       10,916,142  
BreitBurn Energy Partners, L.P. (3)
     881,867       17,628,521  
Dorchester Minerals, L.P. (3)
     228,223       5,732,962  
Eagle Rock Energy Partners, L.P.
     376,139       1,824,274  
EV Energy Partners, L.P.
     318,795       11,183,329  
Legacy Reserves, L.P. (3)
     617,144       16,292,602  
LinnCo, LLC
     201,233       6,135,594  
Linn Energy, LLC (3)
     489,080       15,586,980  
LRR Energy, L.P. (3)
     213,514       3,651,089  
Memorial Production Partners, L.P. (3)
     776,513       17,347,300  
MID-CON Energy Partners, L.P. (3)
     726,059       17,113,211  
QR Energy, L.P. (3)
     990,503       17,373,423  
Vanguard Natural Resources, LLC (3)
     613,473       18,318,304  
              159,103,731  
 
 
 
 
 
Variable Distribution - 1.2% (1)
                
United States - 1.2% (1)
                
Northern Tier Energy, L.P.
     87,905       2,125,543  
                 
                 
Total Master Limited Partnerships and Related Companies (Cost $154,494,925)
           $ 176,831,833  
                 
Royalty Trusts - 2.3% (1)
                
Upstream - 2.3% (1)
                
United States - 2.3% (1)
                
Pacific Coast Oil Trust
     289,719     $ 3,972,047  
Total US Royalty Trusts (Cost $5,675,625)
           $ 3,972,047  
 
Senior Notes - 1.8% (1)
    
Principal
Amount		          
Upstream - 1.8% (1)
                
United States - 1.8% (1)
                
BreitBurn Energy Partners, L.P., 7.875%, due 04/15/2022
     1,000,000     $ 1,095,000  
EV Energy Partners, L.P., 8.000%, due 04/15/2019
     2,000,000       2,070,000  
Total Senior Notes (Cost $3,095,000)
           $ 3,165,000  
                 
Short-Term Investments - Investment Companies - 0.3% (1)
  
Shares
          
United States - 0.3% (1)
                
AIM Short-Term Treasury Portfolio Fund - Institutional Class, 0.01% (4)
     125,416       125,416  
Fidelity Government Portfolio Fund - Institutional Class, 0.01% (4)
     125,416       125,416  
Fidelity Money Market Portfolio - Institutional Class, 0.04% (4)
     125,416       125,416  
First American Government Obligations Fund - Class Z, 0.01% (4)
     125,416       125,416  
Invesco STIC Prime Portfolio, 0.04% (4)
     125,416       125,416  
Total Short-Term Investments (Cost $627,080)
           $ 627,080  
                 
Total Investments - 120.5% (1) (Cost $188,509,636)
           $ 211,800,739  
Liabilities in Excess of Other Assets - (20.5)% (1)
             (35,980,515 )
Net Assets Applicable to Common Stockholders - 100.0% (1)
           $ 175,820,224  
 
         
(1)
Calculated as a percentage of net assets applicable to common stockholders.
    
(2)
No distribution or dividend was made during the period ended February 28, 2014.  As such, it is classified as a non-income producing security as of February 28, 2014.
(3)
All or a portion of these securities are held as collateral pursuant to the loan agreements.
    
(4)
Rate reported is the current yield as of February 28, 2014.
      
 
 
 
 
 
Tax Basis
 
The cost basis of investments for federal income tax purposes at February 28, 2014 was as follows*:
         
Cost of investments
   $ 189,225,813  
Gross unrealized appreciation
     34,263,238  
Gross unrealized depreciation
    
­(11,688,312
 ) 
Net unrealized appreciation
   $ 22,574,926  
 
* The above table only reflects tax adjustments through November 30, 2013.  For the previous fiscal year’s federal income tax information, please refer to the Notes to Financial Statements section in the Fund’s most recent semi-annual or annual report.
 
Fair Value Measurements
 
Various inputs that are used in determining the fair value of the Cushing Royalty & Income Fund’s (the “Fund”) investments are summarized in the three broad levels listed below:
 
●
Level 1 — quoted prices in active markets for identical securities
●
Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
●
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
 
These inputs are summarized in the three broad levels listed below.
 
         Fair Value Measurements at Reporting Date Using  
         
Quoted Prices in
          
Significant
  
         
Active Markets for
    
Significant Other
    
Unobservable
  
   
Fair Value at
    
Identical Assets
    
Observable Inputs
    
Inputs
  
Description
  
February 28, 2014
    
(Level 1)
    
(Level 2)
    
(Level 3)
  
Assets
Equity Securities
                        
Common Stock (a)
   $ 27,204,779     $ 27,204,779     $ -     $ -  
Master Limited Partnerships and Related Companies (a)
     176,831,833       176,831,833       -       -  
US Royalty Trusts (a)
     3,972,047       3,972,047       -       -  
Total Equity Securities
     208,008,659       208,008,659       -       -  
 
 
 
 
 
Notes
        Senior Notes(a)
     3,165,000       -       3,165,000       -  
Total Notes
     3,165,000       -       3,165,000       -  
Other
                                
Short-Term Investments
     627,080       627,080       -       -  
Total Other
     627,080       627,080       -       -  
Total
   $ 211,800,739     $ 208,635,739     $ 3,165,000     $ -  
 
(a)
All other industry classifications are identified in the Schedule of Investments.  The Fund did not hold Level 3 investments at any time during the period ended February 28, 2014.
 
Transfers into and out of each level are measured at fair value at the end of the fiscal period.  There were no transfers between any levels during the period ended February 28, 2014.
 
Derivative Financial Instruments
 
The Fund did not hold any derivative financial instruments during the period ended February 28, 2014.
 
Item 2. Controls and Procedures.
 
(a)  
The Registrant’s President and Treasurer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “1940 Act”)) (17 CFR 270.30a-3(c)) are effective as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rule 13a-15(b) or Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(d)).

(b)  
There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) (17 CFR 270.30a-3(d)) that occurred during the Registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
 
Item 3. Exhibits.
 
Separate certifications for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)).  Filed herewith.
 
 
 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
(Registrant)  The Cushing Royalty & Income Fund                              
 
By (Signature and Title)               /s/ Daniel L. Spears                            
Daniel L. Spears, President

Date        April 29, 2014                                                                               
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
By (Signature and Title)              /s/ Daniel L. Spears                              
Daniel L. Spears, President

Date        April 29, 2014                                                                                
 
 
By (Signature and Title)               /s/ John H. Alban                                
John H. Alban, Treasurer

Date        April 29, 2014