ClearBridge Energy MLP Total Return Fund

 

 

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 811-22693

ClearBridge Energy MLP Total Return Fund Inc.

(Exact name of registrant as specified in charter)

620 Eighth Avenue, 49th Floor, New York, NY 10018

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-(888) 777-0102

Date of fiscal year end: November 30

Date of reporting period: August 31, 2014

 

 

 


 

ITEM 1. SCHEDULE OF INVESTMENTS.


ClearBridge Energy MLP Total Return Fund Inc. (CTR)

FORM N-Q

AUGUST 31, 2014


CLEARBRIDGE ENERGY MLP TOTAL RETURN FUND INC.

 

Schedule of investments (unaudited)    August 31, 2014

 

SECURITY

   SHARES/UNITS      VALUE  
MASTER LIMITED PARTNERSHIPS(a) - 146.4%      

Crude/Refined Products Pipelines - 2.0%

     

Kinder Morgan Energy Partners LP

     216,480       $ 20,864,342   
     

 

 

 

Diversified Energy Infrastructure - 39.8%

     

Energy Transfer Equity LP

     940,120         57,018,278   

Energy Transfer Partners LP

     822,460         47,250,327   

Enterprise Products Partners LP

     2,414,160         98,087,321   

Genesis Energy LP

     641,910         35,754,387   

Kinder Morgan Management LLC

     820,845         80,212,973 (b) 

ONEOK Partners LP

     505,685         30,052,859   

Plains GP Holdings LP, Class A Shares

     485,000         14,967,100   

Regency Energy Partners LP

     699,170         23,058,627   

Williams Partners LP

     400,000         21,204,000   
     

 

 

 

Total Diversified Energy Infrastructure

        407,605,872   
     

 

 

 

Gathering/Processing - 50.8%

     

Access Midstream Partners LP

     847,200         54,517,320   

Crestwood Midstream Partners LP

     1,598,868         37,349,557   

DCP Midstream Partners LP

     820,738         46,437,356   

Enable Midstream Partners LP

     401,541         10,291,496   

EnLink Midstream Partners LP

     800,000         24,792,000   

EQT Midstream Partners LP

     331,560         32,323,784   

Exterran Partners LP

     438,870         12,727,230   

MarkWest Energy Partners LP

     1,262,280         100,641,584   

Midcoast Energy Partners LP

     755,550         16,999,875   

NGL Energy Partners LP

     695,900         29,631,422   

Southcross Energy Partners LP

     293,681         6,493,287   

Summit Midstream Partners LP

     619,140         34,226,059   

Targa Resources Partners LP

     1,155,960         86,003,424   

Western Gas Partners LP

     350,000         27,121,500   
     

 

 

 

Total Gathering/Processing

        519,555,894   
     

 

 

 

General Partner - 1.6%

     

Crestwood Equity Partners LP

     1,314,530         16,760,258   
     

 

 

 

Global Infrastructure - 3.2%

     

Brookfield Infrastructure Partners LP

     764,910         32,470,430   
     

 

 

 

Liquids Transportation & Storage - 30.8%

     

Buckeye Partners LP

     547,580         43,258,820   

Delek Logistics Partners LP

     387,630         16,086,645   

Enbridge Energy Partners LP

     1,350,000         49,032,000   

Holly Energy Partners LP

     155,220         5,632,934   

Magellan Midstream Partners LP

     196,440         16,487,209   

MPLX LP

     222,590         13,577,990   

Oiltanking Partners LP

     300,894         14,770,887   

PBF Logistics LP

     675,000         16,848,000   

Plains All American Pipeline LP

     1,399,926         83,897,565   

Sunoco Logistics Partners LP

     244,756         12,110,527   

Susser Petroleum Partners LP

     477,540         27,257,983   

Tesoro Logistics LP

     37,278         2,619,898   

World Point Terminals LP

     725,240         13,852,084   
     

 

 

 

Total Liquids Transportation & Storage

        315,432,542   
     

 

 

 

Natural Gas Transportation & Storage - 5.1%

     

El Paso Pipeline Partners LP

     674,120         28,016,427   

TC Pipelines LP

     410,910         24,087,544   
     

 

 

 

Total Natural Gas Transportation & Storage

        52,103,971   
     

 

 

 

Oil/Refined Products - 4.3%

     

Rose Rock Midstream LP

     390,219         23,799,457   

VTTI Energy Partners LP

     731,500         20,013,840
     

 

 

 

Total Oil/Refined Products

        43,813,297   
     

 

 

 

Petrochemicals - 0.3%

     

Westlake Chemical Partners LP

     97,000         2,944,920 * 
     

 

 

 

 

See Notes to Schedule of Investments.

 

1


CLEARBRIDGE ENERGY MLP TOTAL RETURN FUND INC.

 

Schedule of investments (unaudited) (cont’d)    August 31, 2014

 

SECURITY

   SHARES/UNITS      VALUE  

Propane - 1.2%

     

Suburban Propane Partners LP

     280,957       $ 12,494,158   
     

 

 

 

Refining - 0.6%

     

Western Refining Logistics LP

     182,970         6,297,827   
     

 

 

 

Shipping - 6.7%

     

Golar LNG Partners LP

     333,340         12,693,587   

KNOT Offshore Partners LP

     549,590         15,416,000   

Teekay LNG Partners LP

     381,410         16,553,194   

Teekay Offshore Partners LP

     671,096         23,649,423   
     

 

 

 

Total Shipping

        68,312,204   
     

 

 

 

TOTAL MASTER LIMITED PARTNERSHIPS

(Cost - $887,545,250)

        1,498,655,715   
     

 

 

 
     SHARES         
COMMON STOCKS - 1.6%      
ENERGY - 0.9%      

Oil, Gas & Consumable Fuels - 0.9%

     

Williams Cos. Inc.

     150,000         8,916,000   
     

 

 

 
INDUSTRIALS - 0.7%      

Transportation Infrastructure - 0.7%

     

Macquarie Infrastructure Co. LLC

     105,000         7,573,650   
     

 

 

 

TOTAL COMMON STOCKS

(Cost - $15,496,097)

        16,489,650   
     

 

 

 

TOTAL INVESTMENTS - 148.0%

(Cost - $903,041,347#)

        1,515,145,365   

Liabilities in Excess of Other Assets - (48.0)%

        (491,361,852
     

 

 

 

TOTAL NET ASSETS - 100.0%

      $ 1,023,783,513   
     

 

 

 

 

* Non-income producing security.

 

(a) The entire portfolio is subject to lien, granted to the lender and Senior Note holders, to the extent of the borrowing outstanding and any additional expenses.

 

(b) Payment-in-kind security receives stock dividends in the form of additional shares.

 

# Aggregate cost for federal income tax purposes is substantially the same.

 

See Notes to Schedule of Investments.

 

2


Notes to Schedule of Investments (unaudited)

 

1. Organization and significant accounting policies

ClearBridge Energy MLP Total Return Fund Inc. (the “Fund”) was incorporated in Maryland on April 10, 2012 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Board of Directors authorized 100 million shares of $0.001 par value common stock. The Fund’s investment objective is to provide a high level of total return, consisting of cash distributions and capital appreciation. The Fund seeks to achieve its objective by investing primarily in master limited partnerships (“MLPs”) in the energy sector. There can be no assurance that the Fund will achieve its investment objective.

Under normal market conditions, the Fund will invest at least 80% of its managed assets in MLPs in the energy sector (the “80% policy”). For purposes of the 80% policy, the Fund considers investments in MLPs to include investments that offer economic exposure to public and private MLPs in the form of equity securities of MLPs, securities of entities holding primarily general partner or managing member interests in MLPs, securities that are derivatives of interests in MLPs, including I-Shares, and debt securities of MLPs. Entities in the energy sector are engaged in the business of exploring, developing, producing, gathering, transporting, processing, storing, refining, distributing, mining or marketing of natural gas, natural gas liquids (including propane), crude oil, refined petroleum products or coal. “Managed Assets” means net assets plus the amount of any borrowings and assets attributable to any preferred stock of the Fund that may be outstanding.

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”).

(a) Investment valuation. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Directors.

The Board of Directors is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North American Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.

The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.

For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Directors, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Directors quarterly.

 

3


Notes to Schedule of Investments (unaudited) (continued)

 

The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.

GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:

 

   

Level 1 – quoted prices in active markets for identical investments

 

   

Level 2 – other significant observable inputs (including quoted prices for similar investments, 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 methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value:

 

ASSETS

 

DESCRIPTION

   QUOTED PRICES
(LEVEL 1)
     OTHER SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
     SIGNIFICANT
UNOBSERVABLE
INPUTS

(LEVEL 3)
     TOTAL  

Long-term investments†:

           

Master limited partnerships

   $ 1,498,655,715         —           —         $ 1,498,655,715   

Common stocks

     16,489,650         —           —           16,489,650   
  

 

 

    

 

 

    

 

 

    

 

 

 
Total investments    $ 1,515,145,365         —           —         $ 1,515,145,365   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

See Schedule of Investments for additional detailed categorizations.

For the period ended August 31, 2014, as a result of the fair value pricing procedures for international equities utilized by the Fund, certain securities have transferred in and out of Level 1 and Level 2 measurements during the period. The Fund’s policy is to recognize transfers between levels as of the end of the reporting period. At August 31, 2014, securities valued at $29,631,422 were transferred from Level 2 to Level 1 within the fair value hierarchy because of the availability of a quoted price in an active market for an identical investment.

(b) Repurchase agreements. The Fund may enter into repurchase agreements with institutions that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield during the Fund’s holding period. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian, acting on the Fund’s behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Fund generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Fund seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.

(c) Master limited partnerships. Entities commonly referred to as “MLPs” are generally organized under state law as limited partnerships or limited liability companies. The Fund intends to primarily invest in MLPs receiving partnership taxation treatment under the Internal Revenue Code of 1986 (the “Code”), and whose interests or “units” are traded on securities exchanges like shares of corporate stock. To be treated as a partnership for U.S. federal income tax purposes, an MLP whose units are traded on a securities exchange must receive at least 90% of its income from qualifying sources such as interest, dividends, real estate rents, gain from the sale or disposition of real property, income and gain from mineral or natural resources activities, income and gain from the transportation or storage of certain fuels, and, in certain circumstances, income and gain from commodities or futures, forwards and options with respect to commodities. Mineral or natural resources activities include exploration, development, production, processing, mining, refining, marketing and transportation (including pipelines) of oil and gas, minerals, geothermal energy, fertilizer, timber or industrial source carbon dioxide. An MLP consists of a general partner and limited partners (or in the case of MLPs organized as limited liability companies, a managing member and members). The general partner or managing member typically controls the operations and management of the MLP and has an ownership stake in the partnership. The limited partners or members, through their ownership of limited partner or member interests, provide

 

4


Notes to Schedule of Investments (unaudited) (continued)

 

capital to the entity, are intended to have no role in the operation and management of the entity and receive cash distributions. The MLPs themselves generally do not pay U.S. federal income taxes. Thus, unlike investors in corporate securities, direct MLP investors are generally not subject to double taxation (i.e., corporate level tax and tax on corporate dividends). Currently, most MLPs operate in the energy and/or natural resources sector.

(d) Concentration risk. Concentration in the energy sector may present more risks than if the Fund were broadly diversified over numerous sectors of the economy. A downturn in the energy sector of the economy could have a larger impact on the Fund than on an investment company that does not concentrate in the sector. At times, the performance of securities of companies in the sector may lag the performance of other sectors or the broader market as a whole.

(e) Security transactions. Security transactions are accounted for on a trade date basis.

2. Investments

At August 31, 2014, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

   $  613,168,101   

Gross unrealized depreciation

     (1,064,083
  

 

 

 

Net unrealized appreciation

   $ 612,104,018   
  

 

 

 

3. Derivative instruments and hedging activities

GAAP requires enhanced disclosure about an entity’s derivative and hedging activities.

During the period ended August 31, 2014, the Fund did not invest in any derivative instruments.

4. Transactions with affiliated companies

An “Affiliated Company”, as defined in the 1940 Act, includes a company in which the Fund owns 5% or more of the company’s outstanding voting securities at any time during the period. The following transactions were effected in shares of such companies for the period ended August 31, 2014:

 

     Affiliate
Value
at 11/30/13
     Purchased      Sold      Return of
Capital
     Affiliate
Value
at 8/31/14
     Realized
Gain/Loss
 

Company

      Cost      Shares/Par      Cost      Shares/Par           

Knot Offshore Partners LP(1)

   $ 15,415,999         —           —           —           —           —           —           —     

 

(1) This security was not an affiliated company as of August 31, 2014.

 

5


 

ITEM 2. CONTROLS AND PROCEDURES.

 

  (a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.

 

  (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) that occurred during the registrant’s last fiscal quarter that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

 

ITEM 3. EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.


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.

ClearBridge Energy MLP Total Return Fund Inc.

 

By  

/s/    KENNETH D. FULLER      

  Kenneth D. Fuller
  Chief Executive Officer
Date:   October 23, 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  

/s/    KENNETH D. FULLER      

  Kenneth D. Fuller
  Chief Executive Officer
Date:  

October 23, 2014

 

By  

/s/    RICHARD F. SENNETT      

  Richard F. Sennett
  Principal Financial Officer
Date:   October 23, 2014