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Cushing MLP Total Return Fund (NYSE:SRV) is a closed end investment company that invests in MLPs. The fund's objective is to obtain a high after-tax return from a combination of capital appreciation and current income. The fund has been paying $.225 per share since 2009. The stock price of the fund is $8.56 as this article is being written. The distribution rate is over 10% at the present price.

Several months ago I purchased several hundred shares of SRV for my portfolio and added it to some of the accounts I manage for others. Since that time the price and NAV of this fund has been declining. NAV at the beginning of the fiscal year was $7.74 per share. As of 10/31/2012 the NAV of the fund was $6.86, almost a dollar decline per share. See the graph below from Interactive Brokers to track the price decline.

(click to enlarge)

One can argue that the NAV does not represent the value of this fund because it is leveraged. SRV is currently leveraged at 25%; the fund has net assets of $230 million with assets at $358 million. Most of this leverage is done with short-term borrowings. Below is a list of the top 10 holdings of the fund:(click to enlarge)

The list above appears to be reassuring. The top 10 MLPs are all well-known reasonable performers. With the performance of MLPs recently, it did not make sense that the price of the fund and the NAV of the fund should be declining. Therefore I looked at the semi-annual report and it gave me reasons to question the administration of the fund. The portfolio turnover rate for 6 months at the end of May was 73%. This means the portfolio is being turned over 1.5 times a year. This churn rate on dividend paying stocks is creating heavy trading expenses and probably adversely affects the gathering of distributions. The fund also sold shares short for $227 million and wrote options totaling over $110 thousand over that same 6 month period.

The fund also reported carrying capital losses on its books for $105 million for the past 5 years. Over $36 million of these losses are for fiscal 2012. The administrators and advisors to this fund are doing poorly with all this trading. Furthermore the owners of the fund are paying these same advisors $3 million to manage this fund for just 6 months and it will likely double to $6 million till the end of this fiscal year, the same amount as fiscal 2011. The mystery of the loss in price and NAV is now evident. These advisors are costing the owners of this fund money rather than making money for them.

After completing this research I sold all of the shares in my account as well as those in the accounts that I administer. I can do better by investing directly into MLPs and you probably can as well.

Source: Cushing MLP Total Return Fund: It Costs You Money To Own It