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

The Cushing Energy 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)

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

Registrant's telephone number, including area code

Date of fiscal year end: November 30

Date of reporting period:  August 31, 2017

 

Item 1. Schedule of Investments.

 

The Cushing Energy Income Fund
SCHEDULE OF INVESTMENTS (Unaudited)
		August 31, 2017
						Fair
Common Stock - 83.3%		Shares				Value
Exploration & Production - 73.0%
Canada - 7.6%
Canadian Natural Resources Ltd.(1)			19,000			$	585,580
Seven Generations Energy Ltd.(2)			20,500				311,463
Suncor Energy, Inc.(1)			27,658				866,525
France - 3.9%
Total S.A.(1)			17,200				895,088
Netherlands - 9.2%
Royal Dutch Shell Plc(1)			38,500				2,124,430
Norway - 5.9%
Statoil ASA(1)			71,800				1,353,430
United Kingdom - 5.4%
BP Plc(1)			36,064				1,252,503
United States - 41.0%
Anadarko Petroleum Corporation			6,750				276,278
Antero Resources Corporation(1)(2)			17,000				334,730
Callon Petroleum Company(1)(2)			61,625				638,435
Centennial Resource Development, Inc.(1)(2)			15,000				259,350
Chevron Corporation(1)			14,000				1,506,680
Cimarex Energy Company			5,000				498,450
Concho Resources, Inc.(1)(2)			4,400				488,268
EOG Resources, Inc.(1)			12,280				1,043,677
Newfield Exploration Company(1)(2)			19,962				521,607
Oasis Pete, Inc.(1)(2)			9,000				65,700
Parsley Energy, Inc.(1)(2)			22,348				559,817
Pioneer Natural Resource Company(1)			10,558				1,368,845
QEP Resources, Inc.(2)			52,000				392,600
Range Resources Corporation			6,000				104,160
Rice Energy, Inc.(1)(2)			30,000				820,800
RSP Permian, Inc.(1)(2)			17,659				554,139
							16,822,555
General Partners - 5.4%
United States - 5.4%
Targa Resources Corporation(1)			27,926				1,244,662
Integrated Oil & Gas - 2.3%
Canada - 2.3%
Cenovus Energy, Inc.			67,000				523,940
Oil Services - 2.6%
United States - 2.6%
Halliburton Company(1)			15,500				604,035
Total Common Stocks (Cost $20,580,522)						$	19,195,192
MLP Investments and Related Companies - 23.3%
Large Cap Diversified - 4.7%
United States - 4.7%
Energy Transfer Partners, L.P.(1)			56,832			$	1,080,376

Natural Gas Gatherers & Processors - 7.3%
United States - 7.3%
American Midstream Partners, L.P.(1)			29,000				381,350
DCP Midstream Partners, L.P.(1)			22,821				732,782
EnLink Midstream Partners, L.P.			35,000				568,050
							1,682,182
Shipping - 9.7%
Republic of the Marshall Islands - 9.7%
GasLog Partners, L.P.			48,000				1,089,600
Golar LNG Partners, L.P.			52,000				1,142,960
							2,232,560
Upstream - 1.6%
United States - 1.6%
Kimbell Royalty Partners, L.P.			14,613				229,278
Mid-Con Energy Partners, L.P.(3)			116,279				132,558
							361,836
Total MLP Investments and Related Companies (Cost $5,986,992)						$	5,356,954
Preferred Stock - 2.4%
Large Cap Diversified - 2.4%
United States - 2.4%
Kinder Morgan, Inc.			13,000			$	548,210
Total Preferred Stock (Cost $609,722)						$	548,210
Fixed Income - 11.9%
Exploration & Production - 8.5%
United States - 8.5%
Bill Barrett Corporation, 7.000%, due 10/15/2022			500,000			$	435,000
Continental Resources, Inc., 3.800%, due 06/01/2024			500,000				467,500
Murphy Oil Corporation, 6.125%, due 12/01/2042			600,000				567,000
Range Resources Corporation, 5.000%, due 03/15/2023(4)			500,000				496,250
							1,965,750
Upstream - 3.4%
United States - 3.4%
EV Energy Partners, L.P., 8.000%, due 04/15/2019(1)			2,000,000				790,000
Total Fixed Income (Cost $3,920,257)						$	2,755,750
Short-Term Investments - Investment Companies - 2.3%
United States - 2.3%
Fidelity Government Portfolio Fund - Institutional Class, 0.90%(5)			133,434			$	133,434
First American Prime Obligations Fund - Class Z, 0.88%(5)			133,434				133,434
Invesco Short-Term Government & Agency Portfolio - Institutional Class, 0.93%(5)			133,433				133,433
Morgan Stanley Institutional Liquidity Funds - Government Portfolio - Institutional Class, 0.89%(5)			133,433				133,433
Total Short-Term Investments - Investment Companies (Cost $533,734)						$	533,734
Total Investments - 123.2% (Cost $31,631,227)						$	28,389,840
Liabilities in Excess of Other Assets - (23.2%)							(5,352,638)
Net Assets Applicable to Common Stockholders - 100.0%						$	23,037,202
SCHEDULE OF WRITTEN OPTIONS - 0.0%
United States - 0.0%		Contracts
Energy Transfer Partners LP
Expiration: September 2017, Exercise Price $21.00			(200)			$	(400)
Halliburton Company
Expiration: September 2017, Exercise Price $42.50			(75)				(225)

Royal Dutch Shell Plc
Expiration: September 2017, Exercise Price $57.50			(150)				(375)
Targa Resources Corporation
Expiration: September 2017, Exercise Price $48.00			(120)				(600)
Total S.A.
Expiration: September 2017, Exercise Price $52.50			(69)				(2,622)
Total Written Options (Proceeds $15,115)						$	(4,222)

(1)	All or a portion of these securities are held as collateral pursuant to the loan agreements.
(2)	No distribution or dividend was made during the period ended August 31, 2017.  As such, it is classified as a non-income producing security as of August 31, 2017.
(3)	Restricted security.  Fair valued by the Adviser using the Fund's valuation prodecures and subsequently ratified by the Board of Trustees.  The position was acquired on August 11, 2016 at $250,000 and the fair value accounted for 0.58% of the Fund's net assets at August 31, 2017.
(4)	Securities purchased pursuant to Rule 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "qualified institutional buyers."  These securities have been deemed to be liquid by the Fund's adviser under the supervision of the Board of Directors.  As of August 31, 2017, the value of these investments was $496,250, or 2.15% of total net assets.
(5)	Rate reported is the current yield as of August 31, 2017.

Tax Basis

The cost basis of investments for federal income tax purposes at August 31, 2017 was as follows*:

 

Cost of investments		$	31,616,112
Gross unrealized appreciation			1,746,281
Gross unrealized depreciation			(4,976,774)
Net unrealized appreciation		$	(3,230,493)

 

 

 

 

 

 

* The above table only reflects tax adjustments through November 30, 2016.  For the previous fiscal year's federal income tax information, please refer to the Notes to Financial Statements section in the Cushing Energy Income Fund's (the "Fund") most recent semi-annual or annual report.

 

Fair Value Measurements

 

Various inputs that are used in determining the fair value of the Fund's investments are summarized in the three broad levels listed below:

·	Level 1 — quoted prices in active markets for identical securities

·	Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)

·	Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)

 

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

These inputs are summarized in the three broad levels listed below.

 

(a)	All other industry classifications are identified in the Schedule of Investments.  The Fund did not hold Level 3 investments at any time during the period ended August 31, 2017.

Transfers into and out of each level are measured at fair value at the end of the fiscal period.  There were no transfers between any levels during the period ended August 31, 2017

Derivative Financial Instruments

The Fund provides disclosure regarding derivatives and hedging activity to allow investors to understand how and why the Fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect the Fund's results of operations and financial position.

The Fund occasionally purchases and sells ("writes") put and call equity options as a source of potential protection against a broad market decline. A purchaser of a put option has the right, but not the obligation, to sell the underlying instrument at an agreed upon price ("strike price") to the option seller. A purchaser of a call option has the right, but not the obligation, to purchase the underlying instrument at the strike price from the option seller. Options are settled for cash.

Purchased Options — Premiums paid by the Fund for purchased options are included in the Statement of Assets and Liabilities as an investment. The option is adjusted daily to reflect the fair value of the option and any change in fair value is recorded as unrealized appreciation or depreciation of investments. If the option is allowed to expire, the Fund will lose the entire premium paid and record a realized loss for the premium amount. Premiums paid for purchased options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain/loss or cost basis of the security.

Written Options — Premiums received by the Fund for written options are included in the Statement of Assets and Liabilities. The amount of the liability is adjusted daily to reflect the fair value of the written option and any change in fair value is recorded as unrealized appreciation or depreciation of investments. Premiums received from written options that expire are treated as realized gains. The Fund records a realized gain or loss on written options based on whether the cost of the closing transaction exceeds the premium received. If a call option is exercised by the option buyer, the premium received by the Fund is added to the proceeds from the sale of the underlying security to the option buyer and compared to the cost of the closing transaction to determine whether there has been a realized gain or loss. If a put option is exercised by an option buyer, the premium received by the option seller reduces the cost basis of the purchased security.

Written uncovered call options subject the Fund to unlimited risk of loss. Written covered call options limit the upside potential of a security above the strike price. Put options written subject the Fund to risk of loss if the value of the security declines below the exercise price minus the put premium.

The Fund is not subject to credit risk on written options as the counterparty has already performed its obligation by paying the premium at the inception of the contract.

The Fund has adopted the disclosure provisions of FASB Accounting Standard Codification 815, Derivatives and Hedging ("ASC 815").  ASC 815 requires enhanced disclosures about the Fund's use of and accounting for derivative instruments and the effect of derivative instruments on the Fund's results of operations and financial position.  Tabular disclosure regarding derivative fair value and gain/loss by contract type (e.g., interest rate contracts, foreign exchange contracts, credit contracts, etc.) is required and derivatives accounted for as hedging instruments under ASC 815 must be disclosed separately from those that do not qualify for hedge accounting.  Even though the Fund may use derivatives in an attempt to achieve an economic hedge, the Fund's derivatives are not accounted for as hedging instruments under ASC 815 because investment companies account for their derivatives at fair value and record any changes in fair value in current period earnings.

There were no transactions in purchased options during the period ended August 31, 2017.

Transactions in written options contracts for the period ended August 31, 2017, are as follows:

The average monthly fair value of written options during the period ended August 31, 2017 was $469.

 

Item 2. Controls and Procedures.

 

(a)

The Fund's President and Treasurer have concluded that the Fund'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 Fund'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 Fund's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Fund's internal control over financial reporting.

 

 

Item 3. Exhibits.

 

Separate certifications for each principal executive officer and principal financial officer of the Fund 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 Fund has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

By (Signature and Title) /s/ Jerry V. Swank                                                                               

                                           Jerry V. Swank, President & Chief Executive Officer

 

Date                                                              October 20, 2017                                                       

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 Fund 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                                                              October 20, 2017                                                       

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

                                           John H. Alban, Treasurer & Chief Financial Officer

 

Date                                                              October 20, 2017