N-Q 1 h77227nvq.htm FORM N-Q nvq
Table of Contents

 
 
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 811-21750
KAYNE ANDERSON ENERGY TOTAL RETURN FUND, INC.
 
(Exact name of registrant as specified in charter)
     
717 Texas Avenue, Suite 3100, Houston, Texas   77002
 
(Address of principal executive offices)   (Zip code)
David Shladovsky, Esq.
KA Fund Advisors, LLC, 717 Texas Avenue, Suite 3100, Houston, Texas 77002
 
(Name and address of agent for service)
Registrant’s telephone number, including area code: (713) 493-2020
Date of fiscal year end: November 30, 2010
Date of reporting period: August 31, 2010
 
 

 

TABLE OF CONTENTS

Item 1: Schedule of Investments
Item 2: Controls and Procedures
Item 3: Exhibits
SIGNATURES
EX-99.CERT

Table of Contents

Item 1: Schedule of Investments
KAYNE ANDERSON ENERGY TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
AUGUST 31, 2010
(amounts in 000’s, except number of option contracts)
(UNAUDITED)
                 
    No. of        
Description   Shares/Units     Value  
Long-Term Investments — 145.3%
                
Equity Investments(a) — 116.4%
                
United States — 98.4%
                
MLP(b)(c) — 46.9%
                
Alliance Holdings GP, L.P.
     95     $ 3,637  
Capital Product Partners L.P.(d)
     2,176       17,583  
Copano Energy, L.L.C.
     355       8,908  
Crosstex Energy, L.P.(e)
     186       2,228  
DCP Midstream Partners, LP
     373       11,851  
Energy Transfer Equity, L.P.
     221       7,672  
Energy Transfer Partners, L.P.
     141       6,457  
Enterprise Products Partners L.P.(f)
     909       33,613  
Exterran Partners, L.P.
     374       8,743  
Global Partners LP
     292       7,262  
Holly Energy Partners, L.P.
     99       4,962  
Inergy, L.P.
     416       15,497  
Magellan Midstream Partners, L.P.(f)
     111       5,366  
MarkWest Energy Partners, L.P.(f)
     598       19,916  
Martin Midstream Partners L.P.
     233       6,921  
Navios Maritime Partners L.P.(d)
     2,036       35,235  
ONEOK Partners, L.P.(f)
     77       5,318  
Penn Virginia GP Holdings, L.P.
     486       9,523  
Penn Virginia Resource Partners, L.P.
     47       1,055  
Plains All American Pipeline, L.P.(g)
     1,113       66,838  
Quicksilver Gas Services LP
     103       2,397  
Regency Energy Partners LP
     606       14,418  
Targa Resources Partners LP
     234       5,924  
Teekay LNG Partners L.P.
     263       8,633  
Teekay Offshore Partners L.P.(d)
     1,612       34,264  
TransMontaigne Partners L.P.
     63       2,208  
Western Gas Partners, LP
     61       1,460  
Williams Partners L.P.
     430       18,087  
 
              
 
             365,976  
 
              
MLP Affiliates(c) — 29.0%
                
Enbridge Energy Management, L.L.C.(h)
     1,895       100,558  
Kinder Morgan Management, LLC(f)(h)
     2,137       126,230  
 
              
 
             226,788  
 
              

 

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KAYNE ANDERSON ENERGY TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
AUGUST 31, 2010
(amounts in 000’s, except number of option contracts)
(UNAUDITED)
                 
    No. of        
Description   Shares/Units     Value  
Marine Transportation — 12.4%
                
Baltic Trading Limited
     189     $ 2,114  
Crude Carriers Corp.
     373       6,740  
Diana Shipping Inc.(e)
     333       3,964  
Frontline Ltd.
     75       1,988  
Genco Shipping & Trading Limited(e)(f)
     481       7,237  
Knightsbridge Tankers Limited
     715       12,518  
Nordic American Tanker Shipping Limited
     663       17,544  
Overseas Shipholding Group, Inc.(f)
     90       2,898  
Safe Bulkers, Inc.
     1,880       13,985  
Teekay Tankers Ltd.
     2,405       27,784  
 
              
 
             96,772  
 
              
Coal — 5.6%
                
Alpha Natural Resources, Inc.(e)
     283       10,507  
Arch Coal, Inc.
     100       2,251  
CONSOL Energy Inc.(f)
     365       11,760  
Massey Energy Company
     281       8,093  
Peabody Energy Corporation
     260       11,132  
 
              
 
             43,743  
 
              
Royalty Trust — 3.6%
                
ECA Marcellus Trust I(i)
     180       3,595  
MV Oil Trust
     450       12,270  
Permian Basin Royalty Trust
     680       12,410  
 
              
 
             28,275  
 
              
Other — 0.9%
                
CenterPoint Energy, Inc.
     460       6,797  
 
              
Total United States (Cost — $574,719)
             768,351  
 
              
 
                
Canada — 18.0%
                
Royalty Trust — 18.0%
                
ARC Energy Trust
     84       1,568  
Bonavista Energy Trust
     804       18,570  
Bonterra Energy Corp.
     15       573  
Crescent Point Energy Trust
     644       22,669  
Enerplus Resources Fund
     1,455       33,324  
NAL Oil & Gas Trust
     1,777       17,881  
Northland Power Income Fund
     80       1,122  
Penn West Energy Trust
     459       8,613  
Peyto Energy Trust
     35       460  
Vermilion Energy Trust
     195       6,506  
Westshore Terminals Income Fund
     1,108       19,473  
Zargon Energy Trust
     609       10,284  
 
              
Total Canada (Cost — $144,340)
             141,043  
 
              
Total Equity Investments (Cost — $719,059)
             909,394  
 
              

 

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KAYNE ANDERSON ENERGY TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
AUGUST 31, 2010
(amounts in 000’s, except number of option contracts)
(UNAUDITED)
                                 
    Interest     Maturity     Principal        
Description   Rate     Date     Amount     Value  
Energy Debt Investments — 28.9%
                                
Upstream — 11.6%
                                
Antero Resources Finance Corp.
     9.375 %     12/1/17     $ 18,500     $ 19,101  
Atlas Energy Resources, LLC
     12.125       8/1/17       5,100       5,859  
Atlas Energy Resources, LLC
     10.750       2/1/18       15,750       17,364  
Bill Barrett Corporation
     9.875       7/15/16       4,350       4,720  
Carrizo Oil & Gas, Inc.(j)
     4.375       6/1/28       16,500       15,407  
Hilcorp Energy Company
     7.750       11/1/15       3,974       4,024  
Petroleum Development Corporation
     12.000       2/15/18       2,205       2,370  
Quicksilver Resources Inc.
     11.750       1/1/16       1,000       1,150  
Quicksilver Resources Inc.
     9.125       8/15/19       6,000       6,435  
Rosetta Resources Inc.
     9.500       4/15/18       13,500       13,770  
 
                              
 
                             90,200  
 
                              
Marine Transportation — 8.1%
                                
Genco Shipping & Trading Limited(k)
     5.000       8/15/15       5,000       4,994  
General Maritime Corporation
     12.000       11/15/17       11,750       12,426  
Navios Maritime Holdings Inc.
     9.500       12/15/14       22,250       22,194  
Navios Maritime Holdings Inc.
     8.875       11/1/17       5,000       5,187  
Overseas Shipholding Group, Inc.
     7.500       2/15/24       9,602       8,270  
Ship Finance International Limited
     8.500       12/15/13       10,575       10,548  
 
                              
 
                             63,619  
 
                              
Coal — 4.5%
                                
Foresight Energy LLC
     9.625       8/15/17       15,000       14,888  
International Coal Group, Inc.
     9.125       4/1/18       8,820       9,327  
James River Coal Company
     9.375       6/1/12       750       766  
Patriot Coal Corporation
     8.250       4/30/18       10,500       10,421  
 
                              
 
                             35,402  
 
                              
Other — 3.0%
                                
Energy Future Holdings Corp.(l)
     10.000       1/15/20       4,000       3,852  
NRG Energy, Inc.
     8.250       9/1/20       10,000       10,063  
Texas Competitive Electric Holdings (l)
     (m )     10/10/14       12,311       9,402  
 
                              
 
                             23,317  
 
                              
Midstream — 1.1%
                                
El Paso Corporation
     7.750       1/15/32       4,035       4,062  
Holly Corporation
     9.875       6/15/17       4,115       4,321  
 
                              
 
                             8,383  
 
                              

 

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KAYNE ANDERSON ENERGY TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
AUGUST 31, 2010
(amounts in 000’s, except number of option contracts)
(UNAUDITED)
                                 
    Interest     Maturity     Principal        
Description   Rate     Date     Amount     Value  
Oilfield Services — 0.6%
                                
Basic Energy Services, Inc.
     7.125 %     4/15/16     $ 5,455     $ 4,882  
 
                              
Total Energy Debt Investments (Cost — $216,501)
                             225,803  
 
                              
Total Long-Term Investments (Cost — $935,560)
                             1,135,197  
 
                              
 
                                
Short-Term Investment — 0.5%
                                
Repurchase Agreement — 0.5%
                                
J.P. Morgan Securities Inc. (Agreement dated 8/31/10 to be repurchased at $3,572), collateralized by $3,643 in U.S. Treasury notes (Cost — $3,566)
     0.140       9/1/10               3,566  
 
                              
 
                                
Total Investments — 145.8% (Cost — $939,126)
                            1,138,763  
 
                              
                 
Liabilities              
Call Option Contracts Written(e)
   No. of
Contracts		          
Coal
                
CONSOL Energy Inc., call option expiring 9/17/10 @ $33.00
     750       (73 )
Marine Transportation
                
Genco Shipping & Trading Limited, call option expiring 9/17/10 @ $17.00
     1,000       (15 )
Overseas Shipholding Group Inc., call option expiring 9/17/10 @ $35.00
     400       (16 )
 
              
 
             (31 )
 
              
MLP
                
Enterprise Products Partners L.P., call option expiring 9/17/10 @ $36.00
     950       (95 )
Enterprise Products Partners L.P., call option expiring 9/17/10 @ $37.00
     850       (53 )
Magellan Midstream Partners, L.P., call option expiring 9/17/10 @ $50.00
     1,000       (20 )
Mark West Energy Partners, L.P., call option expiring 9/17/10 @ $34.00
     150       (7 )
Mark West Energy Partners, L.P., call option expiring 9/17/10 @ $35.00
     150       (2 )
ONEOK Partners, L.P., call option expiring 9/17/10 @ $70.00
     700       (35 )
 
              
 
             (212 )
 
              
MLP Affiliates
                
Kinder Morgan Management, LLC, call option expiring 9/17/10 @ $60.00
     1,500       (64 )
 
              
Total Call Option Contracts Written (Premium Received — $706)
             (380 )
Revolving Credit Facility
             (28,000 )
Senior Unsecured Notes
             (250,000 )
Mandatory Redeemable Preferred Stock at Redemption Value
             (90,000 )
Other Liabilities
             (4,094 )
 
              
Total Liabilities
             (372,474 )
Other Assets
             14,727  
 
              
Total Liabilities in Excess of Other Assets
             (357,747 )
Net Assets Applicable To Common Stockholders
           $ 781,016  
 
              

 

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KAYNE ANDERSON ENERGY TOTAL RETURN FUND, INC.
SCHEDULE OF INVESTMENTS
AUGUST 31, 2010
(amounts in 000’s, except number of option contracts)
(UNAUDITED)
 
(a)   Unless otherwise noted, equity investments are common units/common shares.
 
(b)   Unless otherwise noted, securities are treated as a publicly-traded partnership for regulated investment company (“RIC”) qualification purposes. To qualify as a RIC for tax purposes, Kayne Anderson Energy Total Return Fund, Inc. (the “Fund”) may directly invest up to 25% of its total assets in equity and debt securities of entities treated as publicly-traded partnerships. The Fund had less than 25% of its total assets invested in publicly-traded partnerships at August 31, 2010. It is the Fund’s intention to be treated as a RIC for tax purposes.
 
(c)   Includes Limited Liability Companies.
 
(d)   Security is not treated as a publicly-traded partnership for RIC qualification purposes.
 
(e)   Security is non-income producing.
 
(f)   Security or a portion thereof is segregated as collateral on option contracts written.
 
(g)   The Fund believes that it is an affiliate of Plains All American Pipeline, L.P.
 
(h)   Distributions are paid-in-kind.
 
(i)   Security is treated as a publicly-traded partnership for RIC qualification purposes.
 
(j)   Security is convertible, using a net share settlement process, into a combination of cash and common shares of the issuer. The Fund may require the issuer to repurchase notes at par on June 1, 2013, 2018 and 2023.
 
(k)   Security is convertible into common shares of the issuer.
 
(l)   Energy Future Holdings Corp., formerly TXU Corp., is a privately-held energy company with a portfolio of competitive and regulated energy subsidiaries. Texas Competitive Electric Holdings is a wholly owned subsidiary of Energy Future Holdings Corp.
 
(m)   Floating rate senior secured first lien term loan. Security pays interest at a rate of LIBOR + 350 basis points (3.79% as of August 31, 2010).

 

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From time to time, certain of the Fund’s investments may be restricted as to resale. For instance, private investments that are not registered under the Securities Act of 1933, as amended, cannot be offered for public sale in a non-exempt transaction without first being registered. In other cases, certain of the Fund’s investments have restrictions such as lock-up agreements that preclude the Fund from offering these securities for public sale.
At August 31, 2010, the Fund held the following restricted investments, all of which are considered Level 2 categorization:
                                                                 
            Acquisition     Type of     Principal     Cost     Fair     Percent of     Percent of  
Investment   Security     Date     Restriction     (in 000s)     Basis     Value     Net Assets     Total Assets  
Energy Future Holdings Corp.
   Senior Notes   (1)     (2)     $ 4,000     $ 4,141     $ 3,852       0.5 %     0.3 %
Foresight Energy LLC
   Senior Notes   (1)     (2)       15,000       14,905       14,888       1.9       1.3  
Hilcorp Energy Company
   Senior Notes   (1)     (2)       3,974       3,880       4,024       0.5       0.3  
Navios Maritime Holdings Inc.
   Senior Notes   (1)     (2)       5,000       5,039       5,187       0.7       0.5  
NRG Energy, Inc.
   Senior Notes   (1)     (2)       10,000       10,150       10,063       1.3       0.9  
Rosetta Resources Inc.
   Senior Notes   (1)     (2)       13,500       13,568       13,770       1.7       1.2  
Texas Competitive Electric Holdings
   Secured Term Loan   (1)     (2)       12,311       9,609       9,402       1.2       0.8  
 
                                                        
 
                                                                
Total of securities valued by prices provided by market maker or independent pricing services $ 61,292     $ 61,186       7.8 %     5.3 %
 
(1)   These securities were acquired at various dates throughout the nine months ended August 31, 2010 and in prior years. Securities are valued using prices provided by a principal market maker, syndicate bank or an independent pricing service.
 
(2)   Unregistered security.
At August 31, 2010, the cost basis of investments for federal income tax purposes was $963,289. At August 31, 2010, gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
         
Gross unrealized appreciation
   $ 228,768  
Gross unrealized depreciation
     (53,294 )
 
      
Net unrealized appreciation
  $ 175,474  
 
      
The identified cost basis of federal tax purposes is estimated based on information available from the Fund’s portfolio companies. In some cases, this information is very limited. Accordingly, the actual cost basis may prove higher or lower than the estimated cost basis included above.
As required by the Fair Value Measurement and Disclosures of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification, the Fund has performed an analysis of all assets and liabilities measured at fair value to determine the significance and character of all inputs to their fair value determination.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.
  •   Level 1 — Quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement.
 
  •   Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.
 
  •   Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.

 

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Note that the valuation levels below are not necessarily an indication of the risk or liquidity associated with the underlying investment. For instance, the Fund’s repurchase agreements, which are collateralized by U.S. Treasury bonds, are generally high quality and liquid; however, the Fund reflects these repurchase agreements as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market.
The following table presents the Fund’s assets and liabilities measured at fair value on a recurring basis at August 31, 2010.
                                 
            Quoted Prices in     Prices with Other     Unobservable  
            Active Markets     Observable Inputs     Inputs  
    Total     (Level 1)     (Level 2)     (Level 3)  
Assets at Fair Value
                                
Equity investments
   $ 909,394     $ 909,394     $ —     $ —  
Energy debt investments
     225,803       —       225,803       —  
Repurchase agreement
     3,566       —       3,566       —  
Total assets at fair value
   $ 1,138,763     $ 909,394     $ 229,369     $ —  
 
                        
 
                                
Liabilities at Fair Value
                                
Call Option Contracts Written
   $ 380     $ —     $ 380     $ —  
 
                        
The following table presents the Fund’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended August 31, 2010.
         
    Long-Term  
    Investments  
Assets at Fair Value Using Unobservable Inputs (Level 3)
                                
Balance — November 30, 2009
   $ 2,237  
Transfers in/out of Level 3
     (2,237 )
Realized gain (losses)
     —  
Unrealized gains, net
     —  
Purchases, issuances or settlements
     —  
 
      
Balance —August 31, 2010
   $ —  
 
      
At August 31, 2010, the Fund did not have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3). The Fund did not have any liabilities that were measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at November 30, 2009.
As required by the Derivatives and Hedging Topic of the FASB Accounting Standards Codification, the following are the derivative instruments and hedging activities of the Fund. The total number of outstanding options at August 31, 2010 is indicative of the volume of this type of derivative for the period ended August 31, 2010.
The following table sets forth the fair value of the Fund’s derivative instruments.
                 
            Fair Value as of  
Derivatives Not Accounted for as Hedging Instruments   Statement of Assets and Liabilities Location     August 31, 2010  
Liabilities
                
Call options
   Call option contracts written   $ 380  
The following tables set forth the effect of the Fund’s derivative instruments.
                         
            For the Nine Months  
            Ended August 31, 2010  
            Net Realized     Net Change in  
            Gains/(Losses) on     Unrealized  
            Derivatives     Gains/(Losses) on  
    Location of Gains on Derivatives     Recognized     Derivatives Recognized  
Derivatives Not Accounted for as Hedging Instruments   Recognized in Income     in Income     in Income  
Put options
   Options   $ (49 )   $ 41  
Call options
   Options   $ 6,130     $ 329  

 

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Securities valuation policies and other investment related disclosures are hereby incorporated by reference to the Fund’s semi-annual report previously filed with the Securities and Exchange Commission on form N-CSR on July 28, 2010 with a file number 811-21750.
Other information regarding the Fund is available in the Fund’s most recent annual report. This information is also available on the Fund’s website at www.kaynefunds.com; or on the website of the Securities and Exchange Commission at www.sec.gov.
Item 2: Controls and Procedures
     (a) As of a date within 90 days from the filing date of this report, the principal executive officer and principal financial officer 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 “Act”)), were effective based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities and Exchange Act of 1934, as amended.
     (b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) 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
     1. The certifications of the registrant as required by Rule 30a-2(a) under the Act are exhibits to this report.

 

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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.
         
  KAYNE ANDERSON ENERGY TOTAL RETURN FUND, INC.
 		  
  /s/ Kevin S. McCarthy    
  Name:   Kevin S. McCarthy   
  Title:   Chairman of the Board of Directors,
President and Chief Executive Officer		  
  Date:    October 29, 2010   
 
     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.
         
     
  /s/ Kevin S. McCarthy    
  Name:   Kevin S. McCarthy   
  Title:   Chairman of the Board of Directors,
President and Chief Executive Officer		  
  Date:   October 29, 2010   
 
     
  /s/ Terry A. Hart    
  Name:   Terry A. Hart   
  Title:   Chief Financial Officer and Treasurer  
  Date:   October 29, 2010