|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
3
|
Statement of assets and liabilities (unaudited)
May 31,
2020
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
Investments, at value (Cost $538,775,005)
|
|
$
|
330,389,334
|
|
Dividends and distributions receivable
|
|
|
319,452
|
|
Interest receivable
|
|
|
2,569
|
|
Prepaid expenses
|
|
|
75,584
|
|
Total Assets
|
|
|
330,786,939
|
|
|
|
Liabilities:
|
|
|
|
|
Senior Secured Notes (net of deferred debt issuance and offering costs of $261,150) (Note 6)
|
|
|
53,018,468
|
|
Mandatory Redeemable Preferred Stock ($100,000 liquidation value per share; 431 shares issued and outstanding) (net of
deferred offering costs of $369,502) (Note 7)
|
|
|
42,730,498
|
|
Income tax payable
|
|
|
2,736,156
|
|
Interest expense payable
|
|
|
358,430
|
|
Investment management fee payable
|
|
|
250,534
|
|
Distributions payable to Mandatory Redeemable Preferred Stockholders
|
|
|
124,927
|
|
Directors fees payable
|
|
|
29,773
|
|
Accrued expenses
|
|
|
329,460
|
|
Total Liabilities
|
|
|
99,578,246
|
|
Total Net Assets Applicable to Common Shareholders
|
|
$
|
231,208,693
|
|
|
|
Net Assets Applicable to Common Shareholders:
|
|
|
|
|
Common stock par value ($0.001 par value; 71,713,987 shares issued and outstanding; 100,000,000 common shares
authorized)
|
|
$
|
71,714
|
|
Paid-in capital in excess of par value
|
|
|
799,484,274
|
|
Total distributable earnings (loss), net of income taxes
|
|
|
(568,347,295)
|
|
Total Net Assets Applicable to Common Shareholders
|
|
$
|
231,208,693
|
|
|
|
Common Shares Outstanding
|
|
|
71,713,987
|
|
|
|
Net Asset Value Per Common Share
|
|
$
|
3.22
|
|
See Notes to Financial
Statements.
|
|
|
4
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
Statement of operations (unaudited)
For the
Six Months Ended May 31, 2020
|
|
|
|
|
|
|
Investment Income:
|
|
|
|
|
Dividends and distributions
|
|
$
|
30,272,119
|
|
Return of capital (Note 1(g))
|
|
|
(23,580,265)
|
|
Net Dividends and Distributions
|
|
|
6,691,854
|
|
Interest
|
|
|
41,700
|
|
Less: Foreign taxes withheld
|
|
|
(160,526)
|
|
Total Investment Income
|
|
|
6,573,028
|
|
|
|
Expenses:
|
|
|
|
|
Interest expense (Notes 5 and 6)
|
|
|
6,416,862
|
|
Investment management fee (Note 2)
|
|
|
3,386,505
|
|
Distributions to Mandatory Redeemable Preferred Stockholders (Notes 1 and 7)
|
|
|
1,158,963
|
|
Amortization and write-off of debt issuance and offering costs (Note
6)
|
|
|
413,869
|
|
Commitment fees (Note 5)
|
|
|
171,997
|
|
Audit and tax fees
|
|
|
143,738
|
|
Directors fees
|
|
|
105,512
|
|
Legal fees
|
|
|
78,877
|
|
Transfer agent fees
|
|
|
62,806
|
|
Amortization of preferred stock offering costs (Note 7)
|
|
|
54,417
|
|
Fund accounting fees
|
|
|
36,342
|
|
Stock exchange listing fees
|
|
|
18,439
|
|
Franchise taxes
|
|
|
13,000
|
|
Shareholder reports
|
|
|
11,782
|
|
Rating agency fees
|
|
|
9,993
|
|
Insurance
|
|
|
5,567
|
|
Custody fees
|
|
|
4,921
|
|
Miscellaneous expenses
|
|
|
74,775
|
|
Total Expenses
|
|
|
12,168,365
|
|
Less: Fee waivers and/or expense reimbursements (Note 2)
|
|
|
(178,800)
|
|
Net Expenses
|
|
|
11,989,565
|
|
Net Investment Loss, before income taxes
|
|
|
(5,416,537)
|
|
Current tax expense (Note 9)
|
|
|
(5,341,264)
|
|
Net Investment Loss, net of income taxes
|
|
|
(10,757,801)
|
|
|
|
Realized and Unrealized Loss on Investments (Notes 1, 3 and 9):
|
|
|
|
|
Net Realized Loss From Investment Transactions, net of income taxes
|
|
|
(240,663,398)
|
|
Change in Net Unrealized Appreciation (Depreciation) From Investments, net of income taxes
|
|
|
(123,936,003)
|
|
Net Loss on Investments, net of income taxes
|
|
|
(364,599,401)
|
|
Decrease in Net Assets Applicable to Common Shareholders From Operations
|
|
$
|
(375,357,202)
|
|
See Notes to Financial
Statements.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
5
|
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Six Months Ended May 31, 2020 (unaudited) and the Year Ended
November 30, 2019
|
|
2020
|
|
|
2019
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment loss, net of income taxes
|
|
$
|
(10,757,801)
|
|
|
$
|
(10,048,879)
|
|
Net realized loss, net of income taxes
|
|
|
(240,663,398)
|
|
|
|
(33,310,334)
|
|
Change in net unrealized appreciation (depreciation), net of income taxes
|
|
|
(123,936,003)
|
|
|
|
893,504
|
|
Decrease in Net Assets Applicable to Common Shareholders From
Operations
|
|
|
(375,357,202)
|
|
|
|
(42,465,709)
|
|
|
|
|
Distributions to Common Shareholders From (Note 1):
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
(24,170,779)
|
|
Return of capital
|
|
|
(21,155,626)
|
|
|
|
(41,806,089)
|
|
Decrease in Net Assets From Distributions to Common
Shareholders
|
|
|
(21,155,626)
|
|
|
|
(65,976,868)
|
|
Decrease in Net Assets Applicable to Common
Shareholders
|
|
|
(396,512,828)
|
|
|
|
(108,442,577)
|
|
|
|
|
Net Assets Applicable to Common Shareholders:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
627,721,521
|
|
|
|
736,164,098
|
|
End of period
|
|
$
|
231,208,693
|
|
|
$
|
627,721,521
|
|
See Notes to Financial
Statements.
|
|
|
6
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
Statement of cash flows (unaudited)
For the
Six Months Ended May 31, 2020
|
|
|
|
|
|
|
Increase (Decrease) in Cash:
|
|
|
|
|
Cash Provided (Used) by Operating Activities:
|
|
|
|
|
Net decrease in net assets applicable to common shareholders resulting from operations
|
|
$
|
(375,357,202)
|
|
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided (used) by operating
activities:
|
|
|
|
|
Purchases of portfolio securities
|
|
|
(70,445,204)
|
|
Sales of portfolio securities
|
|
|
324,993,652
|
|
Net purchases, sales and maturities of short-term investments
|
|
|
(18,134,968)
|
|
Return of capital
|
|
|
23,580,265
|
|
Decrease in dividends and distributions receivable
|
|
|
623,916
|
|
Decrease in interest receivable
|
|
|
20,280
|
|
Decrease in prepaid expenses
|
|
|
30,220
|
|
Decrease in income tax receivable
|
|
|
474,020
|
|
Amortization of preferred stock offering costs
|
|
|
54,417
|
|
Amortization and write-off of debt issuance and offering costs
|
|
|
413,869
|
|
Decrease in investment management fee payable
|
|
|
(541,720)
|
|
Increase in Directors fees payable
|
|
|
14,662
|
|
Decrease in interest expense payable
|
|
|
(1,689,363)
|
|
Increase in income tax payable
|
|
|
2,736,156
|
|
Decrease in accrued expenses
|
|
|
(124,126)
|
|
Increase in distributions payable to Mandatory Redeemable Preferred Stockholders
|
|
|
27,733
|
|
Net realized loss on investments
|
|
|
240,663,398
|
|
Change in net unrealized appreciation (depreciation) of investments
|
|
|
123,936,003
|
|
Net Cash Provided by Operating Activities*
|
|
|
251,276,008
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
Distributions paid on common stock
|
|
|
(21,155,626)
|
|
Proceeds from loan facility borrowings
|
|
|
43,500,000
|
|
Repayment of Senior Secured Notes at maturity
|
|
|
(27,420,382)
|
|
Repayment of loan facility borrowings
|
|
|
(75,000,000)
|
|
Redemption of Senior Secured Notes
|
|
|
(166,300,000)
|
|
Redemption of Mandatory Redeemable Preferred Stock
|
|
|
(4,900,000)
|
|
Net Cash Used in Financing Activities
|
|
|
(251,276,008)
|
|
Cash and restricted cash at beginning of period
|
|
|
|
|
Cash and restricted cash at end of period
|
|
|
|
|
*
|
Included in operating expenses is cash of $8,265,163 paid for interest and commitment fees on borrowings and $2,131,088 paid for income taxes, net of
refunds, if any.
|
|
The following table provides a reconciliation of cash and restricted cash reported within the Statement of Assets and Liabilities that sums to the total
of such amounts shown on the Statement of Cash Flows.
|
|
|
|
|
|
|
|
May 31, 2020
|
|
Cash
|
|
|
|
|
Restricted cash
|
|
|
|
|
Total cash and restricted cash shown in the Statement of Cash Flows
|
|
|
|
|
See Notes to Financial
Statements.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
7
|
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a common share of capital stock outstanding
throughout each year ended November 30,
unless otherwise
noted:
|
|
|
|
20201,2
|
|
|
20191
|
|
|
20181
|
|
|
20171
|
|
|
20161
|
|
|
20151
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
|
$8.75
|
|
|
|
$10.27
|
|
|
|
$11.37
|
|
|
|
$13.84
|
|
|
|
$15.25
|
|
|
|
$25.80
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
(0.15)
|
|
|
|
(0.14)
|
|
|
|
0.06
|
|
|
|
(0.20)
|
|
|
|
(0.40)
|
|
|
|
(0.18)
|
|
Net realized and unrealized gain (loss)
|
|
|
(5.08)
|
|
|
|
(0.46)
|
|
|
|
0.12
|
|
|
|
(0.99)
|
|
|
|
0.27
|
|
|
|
(8.86)
|
|
Total income (loss) from operations
|
|
|
(5.23)
|
|
|
|
(0.60)
|
|
|
|
0.18
|
|
|
|
(1.19)
|
|
|
|
(0.13)
|
|
|
|
(9.04)
|
|
|
Less distributions to common shareholders from:
|
|
Dividends
|
|
|
|
|
|
|
(0.34)
|
|
|
|
(0.32)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of capital
|
|
|
(0.30)
|
3
|
|
|
(0.58)
|
|
|
|
(0.96)
|
|
|
|
(1.28)
|
|
|
|
(1.28)
|
|
|
|
(1.51)
|
|
Total distributions to common shareholders
|
|
|
(0.30)
|
|
|
|
(0.92)
|
|
|
|
(1.28)
|
|
|
|
(1.28)
|
|
|
|
(1.28)
|
|
|
|
(1.51)
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
|
$3.22
|
|
|
|
$8.75
|
|
|
|
$10.27
|
|
|
|
$11.37
|
|
|
|
$13.84
|
|
|
|
$15.25
|
|
|
|
|
|
|
|
|
Market price, end of period
|
|
|
$2.66
|
|
|
|
$7.62
|
|
|
|
$9.23
|
|
|
|
$10.47
|
|
|
|
$12.83
|
|
|
|
$14.71
|
|
Total return, based on NAV4,5
|
|
|
(61.47)
|
%
|
|
|
(6.57)
|
%
|
|
|
0.67
|
%
|
|
|
(9.34)
|
%
|
|
|
0.68
|
%
|
|
|
(36.35)
|
%
|
Total return, based on Market Price6
|
|
|
(62.97)
|
%
|
|
|
(8.15)
|
%
|
|
|
(0.87)
|
%
|
|
|
(9.54)
|
%
|
|
|
(2.83)
|
%
|
|
|
(32.14)
|
%
|
|
|
|
|
|
|
|
Net assets applicable to common shareholders, end of period (millions)
|
|
|
$231
|
|
|
|
$628
|
|
|
|
$736
|
|
|
|
$355
|
|
|
|
$432
|
|
|
|
$473
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
1.56
|
%7
|
|
|
1.50
|
%
|
|
|
1.49
|
%
|
|
|
1.43
|
%
|
|
|
1.43
|
%
|
|
|
1.44
|
%
|
Other expenses
|
|
|
4.03
|
7,8
|
|
|
2.16
|
|
|
|
2.12
|
|
|
|
1.72
|
|
|
|
2.65
|
9
|
|
|
1.49
|
|
Subtotal
|
|
|
5.59
|
7,8
|
|
|
3.66
|
|
|
|
3.61
|
|
|
|
3.15
|
|
|
|
4.08
|
9
|
|
|
2.93
|
|
Income tax expenses
|
|
|
2.46
|
7
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
0.10
|
|
|
|
|
|
Total gross expenses
|
|
|
8.05
|
7,8
|
|
|
3.66
|
|
|
|
3.61
|
|
|
|
3.15
|
|
|
|
4.18
|
9
|
|
|
2.93
|
|
Total net expenses
|
|
|
7.97
|
7,8,11
|
|
|
3.59
|
11
|
|
|
3.60
|
11
|
|
|
3.15
|
|
|
|
4.18
|
9
|
|
|
2.93
|
|
Net investment income (loss), net of income taxes
|
|
|
(4.94)
|
7,8
|
|
|
(1.37)
|
|
|
|
0.52
|
|
|
|
(1.45)
|
|
|
|
(3.12)
|
9
|
|
|
(0.84)
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
11
|
%
|
|
|
29
|
%
|
|
|
14
|
%
|
|
|
16
|
%
|
|
|
23
|
%
|
|
|
8
|
%
|
See Notes to Financial Statements.
|
|
|
8
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a common share of capital stock outstanding
throughout each year ended November 30,
unless otherwise
noted:
|
|
|
|
20201,2
|
|
|
20191
|
|
|
20181
|
|
|
20171
|
|
|
20161
|
|
|
20151
|
|
|
|
|
|
|
|
|
Supplemental data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan and Debt Issuance Outstanding, End of Period (000s)
|
|
|
$53,280
|
|
|
|
$278,500
|
|
|
|
$343,000
|
|
|
|
$158,000
|
|
|
|
$147,000
|
|
|
|
$235,000
|
|
Asset Coverage Ratio for Loan and Debt Issuance Outstanding12
|
|
|
615
|
%
|
|
|
343
|
%
|
|
|
329
|
%
|
|
|
339
|
%
|
|
|
409
|
%
|
|
|
331
|
%
|
Asset Coverage, per $1,000 Principal Amount of Loan and Debt Issuance Outstanding12
|
|
|
$6,148
|
|
|
|
$3,426
|
|
|
|
$3,286
|
|
|
|
$3,390
|
|
|
|
$4,093
|
|
|
|
$3,312
|
|
Weighted Average Loan and Debt Issuance (000s)
|
|
|
$194,000
|
|
|
|
$318,462
|
|
|
|
$163,197
|
|
|
|
$157,819
|
|
|
|
$137,883
|
|
|
|
$247,384
|
|
Weighted Average Interest Rate on Loan and Debt Issuance
|
|
|
6.62
|
%13
|
|
|
3.83
|
%
|
|
|
3.51
|
%
|
|
|
3.32
|
%
|
|
|
4.38
|
%13
|
|
|
2.76
|
%
|
Mandatory Redeemable Preferred Stock at Liquidation Value, End of Period (000s)
|
|
|
$43,100
|
|
|
|
$48,000
|
|
|
|
$48,000
|
|
|
|
$23,000
|
|
|
|
$23,000
|
|
|
|
$70,000
|
|
Asset Coverage Ratio for Mandatory Redeemable Preferred Stock14
|
|
|
340
|
%
|
|
|
292
|
%
|
|
|
288
|
%
|
|
|
296
|
%
|
|
|
354
|
%
|
|
|
255
|
%
|
Asset Coverage, per $100,000 Liquidation Value per Share of Mandatory Redeemable Preferred Stock14
|
|
|
$339,894
|
|
|
|
$292,258
|
|
|
|
$288,277
|
|
|
|
$295,913
|
|
|
|
$353,918
|
|
|
|
$255,188
|
|
See Notes to Financial
Statements.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
9
|
Financial highlights (contd)
|
Calculation of the net gain per share (both realized and unrealized) does not correlate to the aggregate realized and unrealized losses presented in the
Statement of Operations due to the timing of the sales and repurchases of Fund shares in relation to fluctuating market values of the investments of the Fund.
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
For the six months ended May 31, 2020 (unaudited).
|
3
|
The actual source of the Funds current fiscal year distributions may be from dividends, return of capital or a combination of both. Shareholders will be
informed of the tax characteristics of the distributions after the close of the fiscal year.
|
4
|
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance
arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.
|
5
|
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results. Total returns for periods of
less than one year are not annualized.
|
6
|
The total return calculation assumes that distributions are reinvested in accordance with the Funds dividend reinvestment plan. Past performance is no
guarantee of future results. Total returns for periods of less than one year are not annualized.
|
8
|
Includes non-recurring prepayment penalties and the write-off of debt issuance
and offering costs recognized during the period totaling 1.37% of average assets.
|
9
|
Includes non-recurring prepayment penalties, the write-off of debt issuance and
offering costs and the write-off of preferred stock offering costs recognized during the period totaling 0.66% of average assets.
|
10
|
For the years ended November 30, 2019, 2018, 2017 and 2015, the net income tax benefit was 0.88%, 3.08%, 4.20% and 23.47%, respectively. The net income tax
benefit is not reflected in the Funds expense ratios.
|
11
|
Reflects fee waivers and/or expense reimbursements.
|
12
|
Represents value of net assets plus the loan outstanding, debt issuance outstanding and mandatory redeemable preferred stock at the end of the period divided by
the loan and debt issuance outstanding at the end of the period.
|
13
|
Includes prepayment penalties recognized during the period.
|
14
|
Represents value of net assets plus the loan outstanding, debt issuance outstanding and mandatory redeemable preferred stock at the end of the period divided by
the loan, debt issuance and mandatory redeemable preferred stock outstanding at the end of the period.
|
See Notes to Financial Statements.
|
|
|
10
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
Notes to financial statements (unaudited)
1. Organization and significant accounting policies
ClearBridge Energy Midstream Opportunity Fund Inc. (the Fund) was incorporated in Maryland on April 5, 2011 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 Funds investment objective is to provide long-term investors a high level of total return with an emphasis on cash distributions. There can be no assurance that the Fund will achieve its investment objective. On April 1, 2020, the
Board of Directors of the Fund approved amendments to the Funds bylaws. The amended and restated bylaws were subsequently filed on Form 8-K and are available on the Securities and Exchange
Commissions website at www.sec.gov.
The Fund seeks to achieve its objective by investing primarily in energy midstream entities. Under normal
market conditions, the Fund invests at least 80% of its Managed Assets in energy midstream entities including entities structured as both partnerships and corporations (the 80% policy). For purposes of the 80% policy, the Fund considers investments
in midstream entities as those entities that provide midstream services including the gathering, transporting, processing, fractionation, storing, refining, and distribution of oil, natural gas liquids and natural gas. The Fund considers an entity
to be within the Energy sector if it derives at least 50% of its revenues from the business of exploring, developing, producing, gathering, transporting, processing, fractionating, storing, refining, distributing, mining or marketing natural gas,
natural gas liquids (including propane), crude oil, refined petroleum products or coal. Managed Assets means net assets plus the amount of 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). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial
markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(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,
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
11
|
Notes to financial statements
(unaudited) (contd)
credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at
the closing net asset value per share of each fund on the day of valuation. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern
Time).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 Funds 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 Atlantic 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 Funds 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
issuers 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.
|
|
|
12
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
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.
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 Funds 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 Funds 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
|
|
$
|
241,657,954
|
|
|
|
|
|
|
|
|
|
|
$
|
241,657,954
|
|
Common Stocks
|
|
|
67,948,326
|
|
|
|
|
|
|
|
|
|
|
|
67,948,326
|
|
Total Long-Term Investments
|
|
|
309,606,280
|
|
|
|
|
|
|
|
|
|
|
|
309,606,280
|
|
Short-Term Investments
|
|
|
20,783,054
|
|
|
|
|
|
|
|
|
|
|
|
20,783,054
|
|
Total Investments
|
|
$
|
330,389,334
|
|
|
|
|
|
|
|
|
|
|
$
|
330,389,334
|
|
|
See Schedule of Investments for additional detailed categorizations.
|
(b) Net asset value. The Fund determines the net asset value of its common stock on each day the NYSE is open for business, as of the close of
the customary trading session (normally 4:00 p.m. Eastern Time), or any earlier closing time that day. The Fund determines the net asset value per share of common stock by dividing the value of the Funds securities, cash and other assets
(including interest accrued but not collected) less all its liabilities
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
13
|
Notes to financial statements
(unaudited) (contd)
(including accrued expenses, borrowings, interest payables and the aggregate liquidation value (i.e., $100,000 per outstanding share) of the Mandatory Redeemable
Preferred Stock (MRPS)), net of income taxes, by the total number of shares of common stock outstanding.
(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, as amended (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 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) Foreign investment risks. The Funds investments in foreign securities may involve risks not present in domestic investments. Since
securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect
the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the
market and/or credit risk of the investments.
(e) 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.
|
|
|
14
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
(f) Security transactions and investment income.
Security transactions are accounted for on a trade date basis. Interest income (including interest income from
payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund
determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that
impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
(g) Return of capital estimates. Distributions received from the Funds investments in MLPs generally are comprised of income and return
of capital. The Fund records investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on historical information available from each MLP and other industry sources. These
estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded.
For the six months
ended May 31, 2020, the Fund estimated that approximately 86% of the MLP distributions received would be treated as a return of capital. The Fund recorded as return of capital the amount of $25,977,415 of dividends and distributions received
from its investments.
Additionally, the Fund recorded revisions to the return of capital estimates from the year ended November 30, 2019 in the
amount of an increase of $2,397,150 in dividends and distributions received from investments.
(h) Partnership accounting policy.
The Fund records its pro rata share of the income (loss) and capital gains (losses), to the extent of distributions it has received, allocated from the underlying partnerships and accordingly
adjusts the cost basis of the underlying partnerships for return of capital. These amounts are included in the Funds Statement of Operations.
(i) Distributions to shareholders. Distributions to common shareholders are declared and paid on a quarterly basis and are recorded on the ex-dividend date. The estimated characterization of the distributions paid to common shareholders will be either a dividend (ordinary income), distribution (return of capital) or combination of both. This estimate
is based on the Funds operating results during the period. The Fund anticipates that 100% of its current period distribution will be comprised of return of capital. The actual tax
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
15
|
Notes to financial statements
(unaudited) (contd)
characterization of the common stock distributions made during the current year will not be determined until after the end of the fiscal year when the Fund can
determine its earnings and profits and, therefore, may differ from the preliminary estimates.
Distributions to holders of MRPS are accrued on a daily
basis as described in Note 7 and are treated as an operating expense as required by GAAP. For tax purposes, the payments made to the holders of the Funds MRPS are treated as a dividend (ordinary income) or distribution (return of capital)
similar to the treatment of distributions made to common shareholders as described above. The Fund anticipates that 100% of its current period distribution to the MRPS shareholders will be treated as return of capital. The actual tax
characterization of the MRPS distributions made during the current year will not be determined until after the end of the fiscal year when the Fund can determine its earnings and profits and, therefore, may differ from the preliminary estimates.
(j) Compensating balance arrangements. The Fund has an arrangement with its
custodian bank whereby a portion of the custodians fees is paid indirectly by credits earned on the Funds cash on deposit with the bank.
(k) Federal and other taxes. The Fund, as a corporation, is obligated to pay federal and state income tax on its taxable income. The Fund
invests its assets primarily in MLPs, which generally are treated as partnerships for federal income tax purposes. As a limited partner in the MLPs, the Fund includes its allocable share of the MLPs taxable income in computing its own taxable
income. The Fund, and entities in which the Fund invests, may be subject to audit by the Internal Revenue Service or other applicable tax authorities. The Funds taxable income or tax liability for prior taxable years could be adjusted if there
is an audit of the Fund, or of any entity that is treated as a partnership for tax purposes in which the Fund holds an equity interest. The Fund may be required to pay tax, as well as interest and penalties, in connection with such an adjustment.
Deferred income taxes reflect (i) taxes on unrealized gains (losses), which are attributable to the temporary difference between fair market value
and book basis, (ii) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and, as applicable, (iii) the net tax
benefit of accumulated net operating losses, capital losses and tax credit carryforwards. To the extent the Fund has a deferred tax asset, consideration is given as to whether or not a valuation allowance is required. The need to establish a
valuation allowance for deferred tax assets is assessed periodically by management of the Fund based on Financial Accounting Standards Board (FASB), Accounting Standards Codification Topic 740, Income Taxes (ASC 740) that it
is more likely than not that some portion or all of the deferred tax asset will not be realized. In the assessment for a valuation allowance, consideration is given to all positive and negative evidence related to the realization of the deferred tax
asset. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future
|
|
|
16
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
profitability (which are highly dependent on future allocations of taxable income and future cash distributions from
the Funds MLP holdings), the duration of statutory carryforward periods and the associated risk that net operating losses, capital losses and tax credit carryforwards may expire unused.
For all open tax years and for all major jurisdictions, management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
Furthermore, management of the Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
The Fund may rely to some extent on information provided by the MLPs, which may not necessarily be timely, to estimate taxable income and gains allocable from the
MLP units held in the portfolio and to estimate the associated deferred tax liability. Such estimates are made in good faith. From time to time, as new information becomes available, the Fund modifies its estimates or assumptions regarding the
current and deferred tax liabilities.
The Funds policy is to classify interest and penalties associated with underpayment of federal and state
income taxes, if any, as income tax expense on its Statement of Operations. The 2015 through 2019 tax years remain open and subject to examination by tax jurisdictions.
(l) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial
and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the period ended May 31, 2020, the Fund had no reclassifications.
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners
Fund Advisor, LLC (LMPFA) is the Funds investment manager and ClearBridge Investments, LLC (ClearBridge) is the Funds subadviser. LMPFA and ClearBridge are wholly-owned subsidiaries of Legg Mason, Inc. (Legg
Mason).
Under the investment management agreement, the Fund pays LMPFA an annual fee, paid monthly, in an amount equal to 1.00% of the Funds
average daily Managed Assets.
LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadviser the day-to-day portfolio management of the Fund. For its services, LMPFA pays ClearBridge a fee monthly, at an annual rate equal to 70% of the net management fee it receives from
the Fund.
Effective November 19, 2018, LMPFA agreed to a waiver in the amount of 0.05% of the investment management fee that is paid to it by the
Fund. The waiver will extend through December 1, 2020.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
17
|
Notes to financial statements
(unaudited) (contd)
During periods in which the Fund utilizes financial leverage, the fees paid to LMPFA will be higher than if the Fund did not utilize leverage because the fees are
calculated as a percentage of the Funds assets, including those investments purchased with leverage.
During the six months ended May 31,
2020, fees waived and/or expenses reimbursed amounted to $178,800.
All officers and one Director of the Fund are employees of Legg Mason or its
affiliates and do not receive compensation from the Fund.
3. Investments
During the six months ended May 31, 2020, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
|
|
|
|
|
Purchases
|
|
$
|
70,445,204
|
|
Sales
|
|
|
324,993,662
|
|
4. Derivative instruments and hedging activities
During the six months ended May 31, 2020, the Fund did not invest in derivative instruments.
5. Loan
The Fund has a revolving credit
agreement with The Bank of Nova Scotia (Credit
Agreement), which allows the Fund to borrow up to an aggregate amount of $75,000,000 and
renews daily for a 179-day term, unless notice to the contrary is given to the Fund. Prior to May 8, 2020, the Credit Agreement allowed the Fund to borrow up to an aggregate amount of $175,000,000. The
Fund pays a commitment fee on the unutilized portion of the loan commitment amount at an annual rate of 0.25%, except that the commitment fee is 0.15% in the event that the aggregate outstanding principal balance of the loan is equal to or greater
than 75% of $75,000,000. The interest on the loan is calculated at a variable rate based on LIBOR plus any applicable margin. Securities held by the Fund are subject to a lien, granted to The Bank of Nova Scotia, to the extent of the borrowing
outstanding and any additional expenses. The Funds Credit Agreement contains customary covenants that, among other things, may limit the Funds ability to pay distributions in certain circumstances, incur additional debt, change its
fundamental investment policies and engage in certain transactions, including mergers and consolidations and require asset coverage ratios in addition to those required by the 1940 Act. In addition, the Credit Agreement may be subject to early
termination under certain conditions and may contain other provisions that could limit the Funds ability to utilize borrowing under the agreement. At May 31, 2020, the Fund had no borrowings outstanding per this credit agreement. Interest
expense related to this loan for the six months ended May 31, 2020 was $323,846. For the six months ended May 31, 2020, the Fund incurred commitment fees of $171,997. For the six months ended May 31, 2020, based on the number of days
during the reporting period that the Fund had a loan balance outstanding, the average daily loan balance was $48,575,000 and the weighted average interest rate was 2.44%.
|
|
|
18
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
6. Senior secured notes
At May 31, 2020, the Fund had $53,279,618 aggregate principal amount of fixed-rate senior secured notes (Senior Notes) outstanding. Interest expense, including prepayment penalties, related to the
Senior Notes for the six months ended May 31, 2020 was $6,093,016. Costs incurred by the Fund in connection with the Senior Notes are recorded as a deferred charge and are amortized over the life of the notes. Securities held by the Fund are
subject to a lien, granted to the Senior Notes holders, to the extent of the borrowings outstanding and any additional expenses. The Senior Notes holders and the lender have equal access to the lien (See Note 5).
On February 7, 2020, Series A Senior Notes in the amount of $27,420,382 matured.
During the six months ended May 31, 2020, the Fund redeemed $166,300,000 of Senior Notes. The table below summarizes the Senior Notes redeemed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of
Redemption
|
|
Series
|
|
|
Amount
Redeemed
|
|
|
Rate
|
|
|
Maturity
|
|
|
Redemption
Price
|
|
|
Prepayment
Penalty
|
|
Senior secured notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 23, 2020
|
|
|
Series B
|
|
|
$
|
15,698,788
|
|
|
|
3.87%
|
|
|
|
February 7, 2023
|
|
|
|
102%
|
|
|
$
|
313,976
|
|
March 23, 2020
|
|
|
Series C
|
|
|
$
|
18,909,903
|
|
|
|
4.02%
|
|
|
|
February 7, 2025
|
|
|
|
102%
|
|
|
$
|
378,198
|
|
March 23, 2020
|
|
|
Series D
|
|
|
$
|
7,135,812
|
|
|
|
3.33%
|
|
|
|
August 26, 2022
|
|
|
|
102%
|
|
|
$
|
142,716
|
|
March 23, 2020
|
|
|
Series E
|
|
|
$
|
1,783,953
|
|
|
|
3.76%
|
|
|
|
August 26, 2026
|
|
|
|
102%
|
|
|
$
|
35,679
|
|
March 23, 2020
|
|
|
Series F
|
|
|
$
|
15,345,528
|
|
|
|
3.89%
|
|
|
|
October 15, 2020
|
|
|
|
102%
|
|
|
$
|
306,911
|
|
March 23, 2020
|
|
|
Series G
|
|
|
$
|
21,790,650
|
|
|
|
4.51%
|
|
|
|
October 15, 2023
|
|
|
|
102%
|
|
|
$
|
435,813
|
|
March 23, 2020
|
|
|
Series H
|
|
|
$
|
19,335,366
|
|
|
|
4.66%
|
|
|
|
October 15, 2025
|
|
|
|
102%
|
|
|
$
|
386,707
|
|
March 27, 2020
|
|
|
Series B
|
|
|
$
|
10,408,296
|
|
|
|
3.87%
|
|
|
|
February 7, 2023
|
|
|
|
101%
|
|
|
$
|
104,083
|
|
March 27, 2020
|
|
|
Series C
|
|
|
$
|
12,537,266
|
|
|
|
4.02%
|
|
|
|
February 7, 2025
|
|
|
|
101%
|
|
|
$
|
125,373
|
|
March 27, 2020
|
|
|
Series D
|
|
|
$
|
4,731,044
|
|
|
|
3.33%
|
|
|
|
August 26, 2022
|
|
|
|
101%
|
|
|
$
|
47,310
|
|
March 27, 2020
|
|
|
Series E
|
|
|
$
|
1,182,761
|
|
|
|
3.76%
|
|
|
|
August 26, 2026
|
|
|
|
101%
|
|
|
$
|
11,828
|
|
March 27, 2020
|
|
|
Series F
|
|
|
$
|
10,174,085
|
|
|
|
3.89%
|
|
|
|
October 15, 2020
|
|
|
|
101%
|
|
|
$
|
101,741
|
|
March 27, 2020
|
|
|
Series G
|
|
|
$
|
14,447,201
|
|
|
|
4.51%
|
|
|
|
October 15, 2023
|
|
|
|
101%
|
|
|
$
|
144,472
|
|
March 27, 2020
|
|
|
Series H
|
|
|
$
|
12,819,347
|
|
|
|
4.66%
|
|
|
|
October 15, 2025
|
|
|
|
101%
|
|
|
$
|
128,193
|
|
|
|
|
|
|
|
$
|
166,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,663,000
|
|
The table below summarizes the key terms of each series of Senior Notes at May 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Amount
Outstanding at
November 30, 2019
|
|
|
Amount
Redeemed/
Matured
|
|
|
Amount
Outstanding at
May 31, 2020
|
|
|
Rate
|
|
|
Maturity
|
|
|
Estimated
Fair Value
|
|
Senior secured notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
$
|
27,420,382
|
|
|
$
|
(27,420,382)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
$
|
34,471,338
|
|
|
$
|
(26,107,084)
|
|
|
$
|
8,364,254
|
|
|
|
3.87%
|
|
|
|
February 7, 2023
|
|
|
$
|
8,631,973
|
|
Series C
|
|
$
|
41,522,293
|
|
|
$
|
(31,447,169)
|
|
|
$
|
10,075,124
|
|
|
|
4.02%
|
|
|
|
February 7, 2025
|
|
|
$
|
10,567,825
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
19
|
Notes to financial statements
(unaudited) (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Amount
Outstanding at
November 30, 2019
|
|
|
Amount
Redeemed/
Matured
|
|
|
Amount
Outstanding at
May 31, 2020
|
|
|
Rate
|
|
|
Maturity
|
|
|
Estimated
Fair Value
|
|
Senior secured notes (contd):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D
|
|
$
|
15,668,790
|
|
|
$
|
(11,866,856)
|
|
|
$
|
3,801,934
|
|
|
|
3.33%
|
|
|
|
August 26, 2022
|
|
|
$
|
3,847,206
|
|
Series E
|
|
$
|
3,917,197
|
|
|
$
|
(2,966,714)
|
|
|
$
|
950,483
|
|
|
|
3.76%
|
|
|
|
August 26, 2026
|
|
|
$
|
986,946
|
|
Series F
|
|
$
|
33,695,652
|
|
|
$
|
(25,519,613)
|
|
|
$
|
8,176,039
|
|
|
|
3.89%
|
|
|
|
October 15, 2020
|
|
|
$
|
8,272,470
|
|
Series G
|
|
$
|
47,847,826
|
|
|
$
|
(36,237,851)
|
|
|
$
|
11,609,975
|
|
|
|
4.51%
|
|
|
|
October 15, 2023
|
|
|
$
|
12,192,798
|
|
Series H
|
|
$
|
42,456,522
|
|
|
$
|
(32,154,713)
|
|
|
$
|
10,301,809
|
|
|
|
4.66%
|
|
|
|
October 15, 2025
|
|
|
$
|
11,107,944
|
|
|
|
$
|
247,000,000
|
|
|
$
|
(193,720,382)
|
|
|
$
|
53,279,618
|
|
|
|
|
|
|
|
|
|
|
$
|
55,607,162
|
|
The Senior Notes are not listed on any exchange or automated quotation system. The estimated fair value of the Senior Notes was
calculated, for disclosure purposes, based on estimated market yields and credit spreads for comparable instruments with similar maturity, terms and structure. The Senior Notes are categorized as Level 3 within the fair value hierarchy.
7. Mandatory redeemable preferred stock
At May 31, 2020, the Fund had 431 shares of fixed rate MRPS outstanding with an aggregate liquidation value of $43,100,000. Offering costs incurred by the Fund in connection with the MRPS issuance are being
amortized to expense over the respective life of each series of MRPS.
On March 26, 2020, which was the scheduled redemption date, the Fund redeemed
49 shares of Series A MRPS at a liquidation value of $4,900,000 plus any accumulated unpaid dividends.
The table below summarizes the key terms of each
series of the MRPS at May 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
|
|
Term
Redemption
Date
|
|
|
Rate
|
|
|
Shares
|
|
|
Liquidation
Preference
Per Share
|
|
|
Aggregate
Liquidation
Value
|
|
|
Estimated
Fair Value
|
|
Series B
|
|
|
3/28/2022
|
|
|
|
4.07
|
%
|
|
|
41
|
|
|
$
|
100,000
|
|
|
$
|
4,100,000
|
|
|
$
|
4,167,240
|
|
Series C
|
|
|
3/26/2024
|
|
|
|
4.26
|
%
|
|
|
140
|
|
|
$
|
100,000
|
|
|
$
|
14,000,000
|
|
|
$
|
14,470,254
|
|
Series D
|
|
|
7/23/2024
|
|
|
|
4.37
|
%
|
|
|
30
|
|
|
$
|
100,000
|
|
|
$
|
3,000,000
|
|
|
$
|
3,112,934
|
|
Series E
|
|
|
7/23/2026
|
|
|
|
4.55
|
%
|
|
|
70
|
|
|
$
|
100,000
|
|
|
$
|
7,000,000
|
|
|
$
|
7,372,137
|
|
Series F
|
|
|
8/7/2022
|
|
|
|
4.01
|
%
|
|
|
41
|
|
|
$
|
100,000
|
|
|
$
|
4,100,000
|
|
|
$
|
4,162,548
|
|
Series G
|
|
|
8/7/2024
|
|
|
|
4.30
|
%
|
|
|
109
|
|
|
$
|
100,000
|
|
|
$
|
10,900,000
|
|
|
$
|
11,282,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,100,000
|
|
|
$
|
44,567,312
|
|
The MRPS are not listed on any exchange or automated quotation system. The estimated fair value of the MRPS was calculated, for
disclosure purposes, based on estimated market yields and credit spreads for comparable instruments with similar maturity, terms and structure. The MRPS are categorized as Level 3 within the fair value hierarchy.
|
|
|
20
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
Holders of MRPS are entitled to receive quarterly cumulative cash dividends payable on the first business day
following each quarterly dividend date (February 15, May 15, August 15 and November 15). In the event of a rating downgrade of any series of the MRPS below A by Fitch Ratings Inc. (Fitch), the applicable dividend
rate will increase, according to a predetermined schedule, by 0.5% to 4.0%. In March 2020, Fitch revised its ratings assigned to the MRPS from AA to BBB and, consequently, holders of MRPS are entitled to receive enhanced
dividends by 2.0%.
The MRPS rank senior to the Funds outstanding common stock and on parity with any other preferred stock. The Fund may, at its
option, redeem the MRPS, in whole or in part, at the liquidation preference amount plus all accumulated but unpaid dividends plus the make whole amount equal to the discounted value of the remaining scheduled payments. If the Fund fails to maintain
a total leverage (debt and preferred stock) asset coverage ratio of at least 225% or is in default of specified rating agency requirements, the MRPS are subject to mandatory redemption under certain provisions.
The Fund may not declare dividends or make other distributions on shares of its common stock unless the Fund has declared and paid full cumulative dividends on the
MRPS, due on or prior to the date of the common stock dividend or distribution, and meets the MRPS asset coverage and rating agency requirements.
The
holders of the MRPS have one vote per share and vote together with the holders of common stock of the Fund as a single class except on matters affecting only the holders of MRPS or the holders of common stock. Pursuant to the 1940 Act, holders of
the MRPS have the right to elect two Directors of the Fund, voting separately as a class.
8. Stock repurchase program
On November 16, 2015, the Fund announced that the Funds Board of Directors (the Board) had authorized the Fund to repurchase in the open
market up to approximately 10% of the Funds outstanding common stock when the Funds shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of common stock at such times and
in such amounts as management reasonably believes may enhance stockholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts. During the six months ended May 31, 2020, the Fund
did not repurchase any shares.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
21
|
Notes to financial statements
(unaudited) (contd)
9. Income taxes
The Funds current and
deferred income tax provision for the respective categories on the Statement of Operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment
Loss
|
|
|
Net Realized
Loss
|
|
|
Change in Net
Unrealized
Depreciation
|
|
|
Total
|
|
Current tax expense (benefit)
|
|
$
|
5,341,264
|
|
|
|
|
|
|
|
|
|
|
$
|
5,341,264
|
|
Deferred tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax expense (benefit)
|
|
$
|
5,341,264
|
|
|
|
|
|
|
|
|
|
|
$
|
5,341,264
|
|
The Funds federal and state income tax provision consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
State
|
|
|
Total
|
|
Current tax expense (benefit)
|
|
$
|
4,784,661
|
|
|
$
|
556,603
|
|
|
$
|
5,341,264
|
|
Deferred tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax expense (benefit)
|
|
$
|
4,784,661
|
|
|
$
|
556,603
|
|
|
$
|
5,341,264
|
|
Total income taxes have been computed by applying the U.S. federal statutory income tax rate of 21% plus a blended net state income
tax rate of 1.8%. The Fund applied this rate to net investment income (loss) and realized and unrealized gains (losses) on investments before income taxes in computing its total income tax expense (benefit).
The provision for income taxes differs from the amount derived from applying the statutory income tax rate to net investment income (loss) and realized and
unrealized gains (losses) before income taxes as follows:
|
|
|
|
|
|
|
|
|
Provision at statutory rates
|
|
|
21.00
|
%
|
|
$
|
(77,703,347)
|
|
State taxes, net of federal tax benefit
|
|
|
1.80
|
%
|
|
|
(6,660,287)
|
|
Non-deductible distributions on MRPS
|
|
|
(0.07)
|
%
|
|
|
276,651
|
|
Dividends received deduction
|
|
|
0.13
|
%
|
|
|
(471,135)
|
|
Change in valuation allowance
|
|
|
(24.20)
|
%
|
|
|
89,540,751
|
|
Other, net
|
|
|
(0.10)
|
%
|
|
|
358,631
|
|
Total tax expense (benefit)
|
|
|
(1.44)
|
%
|
|
$
|
5,341,264
|
|
Components of the Funds net deferred tax asset (liability) as of May 31, 2020 are as follows:
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
37,449,631
|
|
Capital loss carryforward
|
|
|
117,259,562
|
|
Unrealized losses on investment securities
|
|
|
47,511,933
|
|
Other deferred tax assets
|
|
|
1,190,790
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
Basis reduction resulting from differences in the book vs. taxable income received from MLPs
|
|
|
(25,754,611)
|
|
Net deferred tax asset (liability) before valuation allowance
|
|
|
177,657,305
|
|
Less: Valuation allowance
|
|
|
(177,657,305)
|
|
Total net deferred tax asset (liability)
|
|
|
|
|
|
|
|
22
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
At May 31, 2020 the Fund had federal and state net operating loss carryforwards of $162,049,778 and $58,820,573
(net of state apportionment), respectively (deferred tax asset of $37,449,631). Several states compute net operating losses before apportionment, therefore the value of the state net operating loss carryforward disclosed may fluctuate for changes in
apportionment factors. Realization of the deferred tax asset related to the net operating loss carryforwards is dependent, in part, on generating sufficient taxable income in each respective jurisdiction prior to expiration of the loss
carryforwards. During the period ended May 31, 2020 the Fund utilized $31,996,439 of net operating loss carryforward available from previous years. If not utilized, the federal net operating loss carryforward expires in tax years 2033 and 2036,
and the state net operating loss carryforwards expire in tax years between 2023 and 2037.
Additionally, at May 31, 2020, the Fund had a capital
loss carryforward of $514,296,327 (deferred tax asset of $117,259,562), which may be carried forward for 5 years. If not utilized, the capital loss will expire in tax years 2019, 2020, 2023 and 2024. For corporations, capital losses can only be used
to offset capital gains and cannot be used to offset ordinary income. Therefore, the use of this capital loss carryforward is dependent upon the Fund generating sufficient net capital gains prior to the expiration of the loss carryforward.
As a result of the November 16, 2018 acquisition of ClearBridge American Energy MLP Fund Inc., the Funds
pre-acquisition loss carryovers are now subject to an annual limitation of approximately $8.0 million under Section 382 of the Code. Additionally, under Section 384 of the Code, the Fund is
limited in its ability to use the acquired funds loss carryovers to offset the recognition of its built-in gains in assets that existed at the time of the acquisition for a period of
five-years.
The amount of net operating loss and capital loss carryforwards differed from the amounts disclosed in the prior year financial statements
due to differences between the estimated and actual amounts of taxable income received from the MLPs for the prior year.
Significant declines in the
fair market value of its portfolio of investments, in conjunction with cumulative net operating losses and capital losses incurred and expected to be incurred, have resulted in the Fund having a net deferred tax asset as of May 31, 2020. Based
on the assessment, as described in Note 1(k), and considering the limitations imposed under Sections 382 and 384 as discussed above, management of the Fund has determined that it is not more likely than not that it will be able to generate
significant future taxable income of the appropriate character in order to realize its deferred tax assets. Accordingly, management of the Fund has determined that a full valuation allowance on its net deferred tax asset is appropriate at this time.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
23
|
Notes to financial statements
(unaudited) (contd)
At May 31, 2020, the cost basis of investments for Federal income tax purposes was $422,806,904. At May 31, 2020, gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
|
|
|
|
|
Gross unrealized appreciation
|
|
$
|
29,439,483
|
|
Gross unrealized depreciation
|
|
|
(121,857,053)
|
|
Net unrealized appreciation (depreciation) before tax
|
|
$
|
(92,417,570)
|
|
Net unrealized appreciation (depreciation) after tax
|
|
$
|
(71,346,364)
|
|
10. Other matters
On February 18, 2020, Franklin Resources, Inc. (Franklin Resources) and Legg Mason announced that they have entered into a definitive agreement for Franklin Resources to acquire Legg Mason in an all-cash transaction. As part of this transaction, LMPFA and the subadviser(s), each currently a subsidiary of Legg Mason, would become a subsidiary of Franklin Resources. The transaction is subject to approval by
Legg Masons shareholders and customary closing conditions, including receipt of applicable regulatory approvals. Subject to such approvals and the satisfaction of the other conditions, the transaction is expected to be consummated later this
year.
Under the Investment Company Act of 1940, consummation of the transaction will result in the automatic termination of the Funds management
contract, and any related subadvisory contract(s), where applicable. Therefore, the Funds Board has approved new management and subadvisory contracts that have been presented to the shareholders of the Fund for their approval.
* * *
The
outbreak of the respiratory illness COVID-19 (commonly referred to as coronavirus) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and
financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely
affect the value and liquidity of the Funds investments and negatively impact the Funds performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result
in disruptions to the services provided to the Fund by its service providers.
* * *
The London Interbank Offered Rate, or LIBOR, the offered rate for short-term Eurodollar deposits between major international banks, is used extensively
in the United States and globally as a reference rate in various financing and commercial transactions. Plans are underway to phase out the use of LIBOR by the end of 2021. There remains uncertainty regarding the nature of any replacement rate and
the impact of the transition from LIBOR on the financial markets generally, transactions that use LIBOR as a reference rate and financial institutions that engage in such transactions, including issuers of securities in which the Fund invests. As
such, the potential effect of a transition away from LIBOR on the Fund or the Funds investments cannot yet be determined.
|
|
|
24
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
11. Subsequent events
The portfolio managers primarily responsible for overseeing the day-to-day management of the Fund are Richard A. Freeman, Michael
Clarfeld, CFA, Chris Eades, and Peter Vanderlee, CFA. Effective September 30, 2020, Mr. Freeman will no longer serve as a member of the Funds portfolio management team.
* * *
On
July 14, 2020, the Fund announced that the Board of Directors on behalf of the Fund has approved a 1-for-5 reverse stock split. The Fund anticipates completing the 1-for-5 reverse stock split prior to the open of trading on the New York Stock Exchange (the NYSE) on July 28, 2020 for common stockholders of record as of
the close of business on July 27, 2020. Common stock of the Fund will continue to trade on the NYSE under its current symbol but will trade under the new CUSIP number 18469P209.
As a result of the reverse stock split, every five outstanding shares of common stock of the Fund will be automatically converted into one share of common stock.
The reverse stock split will decrease the number of the Funds shares of common stock outstanding and potentially increase the market price per share by a
proportional amount. Neither the Funds portfolio holdings nor the total value of stockholders investments in the Funds will be affected as a result of the reverse stock split. The reverse stock split is intended to increase the market
price per share of the Fund and broaden the range of potential investors in shares of the Funds common stock, thereby potentially improving the market for, and liquidity of, shares of the Funds common stock.
No fractional shares will be issued as a result of the reverse stock splits. Instead, stockholders entitled to fractional shares that result from the reverse stock
split will receive a proportional cash payment in lieu of such fractional shares. The reverse stock split will not impact any stockholders ownership in the Fund or voting power, except for minimal effects resulting from the treatment of
fractional shares.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2020 Semi-Annual Report
|
|
25
|
Board approval of new management and new subadvisory agreements (unaudited)
Background
On March 9, 2020, during a
telephonic meeting of the Boards of Directors (each, a Board and each Board member, a Director or a Board Member) of the closed-end funds under the Boards purview
(each, a Fund and together, the Funds), Board Members discussed with management of Legg Mason, Inc. (Legg Mason) and certain representatives of Franklin Resources, Inc. and its subsidiaries (together,
Franklin Templeton) the acquisition of Legg Mason by Franklin Templeton (the Transaction) and Franklin Templetons plans and intentions regarding the Funds and Legg Masons asset management business, including the
preservation and continued investment autonomy of the investment advisory businesses conducted by Legg Masons separate investment advisory subsidiaries and the combination of Legg Masons and Franklin Templetons distribution
resources. The Board of each Fund was advised that the Transaction, if completed, would constitute a change of control under the Investment Company Act of 1940, as amended (the 1940 Act), that would result in the termination of the
current management agreement between each Fund and Legg Mason Partners Fund Advisor, LLC (the Manager) (the Current Management Agreements) and the current subadvisory agreements with each Funds subadviser or subadvisers
(each, a Subadviser and together, the Subadvisers) (the Current Subadvisory Agreements).
At
meetings held on April 1, 2020 the Board of each Fund, including a majority of the Board Members who are not interested persons of the Fund or the Manager as defined in the 1940 Act (the Independent Board Members),
approved the new management agreement between each Fund and the Manager (each, a New Management Agreement) and each new subadvisory agreement between each Funds Manager and its Subadviser or Subadvisers relating to the Fund (each,
a New Subadvisory Agreement).1 (The New Management Agreement for a
Fund and the New Subadvisory Agreement or Agreements for the Fund are referred to, collectively, as the New Agreements, the Current Management Agreement for a Fund and the Current Subadvisory Agreement or Agreements for the Fund are
referred to, collectively, as the Current Agreements, and the Manager and the Subadviser or Subadvisers for a Fund are referred to, collectively, as the Advisers.)
At these meetings, which included meetings of the full Board of each Fund and separate meetings of the Independent Board Members, the Board considered, among other things, whether it would be in the best interests
of each Fund and its respective shareholders to approve the New Agreements, and the anticipated impacts of the Transaction on the Funds and their shareholders. To assist the Board of each Fund in its consideration of the New
1
|
This meeting was held telephonically in reliance on an exemptive order issued by the Securities and Exchange Commission on March 13, 2020. Reliance on the
exemptive order is necessary and appropriate due to circumstances related to current or potential effects of COVID-19. All Board Members participating in the telephonic meeting were able to hear each other
simultaneously during the meeting. Reliance on the exemptive order requires Board Members, including a majority of the Independent Board Members, to ratify actions taken pursuant to the exemptive order by vote cast at the next in-person meeting.
|
|
|
|
26
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
Agreements, Franklin Templeton provided materials and information about Franklin Templeton, including its financial condition and asset management capabilities and organization, Legg Mason
provided materials and information about Legg Mason, including performance and expense comparison data and profitability information by Fund and with respect to the Legg Mason fund complex as a whole, and Franklin Templeton and Legg Mason provided
materials and information about the proposed Transaction between Legg Mason and Franklin Templeton.
Before and during the April 1, 2020 meetings,
the Board of each Fund sought certain information as it deemed necessary and appropriate. In connection with their consideration of the New Agreements, the Independent Board Members worked with their independent legal counsel to prepare requests for
additional information that were submitted to Franklin Templeton and Legg Mason. The requests for information of the Board of each Fund sought information relevant to the Boards consideration of the New Agreements and other anticipated impacts
of the Transaction on the Funds and their shareholders. Franklin Templeton and Legg Mason provided documents and information in response to these requests for information. Following their review of this information, the Independent Board Members
requested additional information from Franklin Templeton and Legg Mason. Franklin Templeton and Legg Mason provided further information in response to these requests, which the Board of each Fund reviewed. Senior management representatives from
Franklin Templeton and Legg Mason participated in a portion of each of these meetings and addressed various questions raised by the Board of each Fund.
At the April 1, 2020 meeting of the Board of each Fund, representatives of Legg Mason and Franklin Templeton made presentations to, and responded to questions
from, the Board. After the presentations and after reviewing the written materials provided, the Independent Board Members met in executive session with their counsel to consider the New Agreements.
Board Approval of New Management Agreements and New Subadvisory Agreements
Each Funds Boards evaluation of the New Agreements reflected the information provided specifically in connection with their review of the New Agreements, as well as, where relevant, information that was
previously furnished to the Board in connection with the most recent renewal of the Current Agreements at in-person meetings held on November 14, 2019 and at other Board meetings throughout the prior
year.
Among other things, the Board Members considered:
(i)
|
the reputation, experience, financial strength and resources of Franklin Templeton and its investment advisory subsidiaries;
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
|
27
|
Board approval of new management and new subadvisory agreements (unaudited) (contd)
(ii)
|
that Franklin Templeton has informed the Board of each Fund that it intends to maintain the investment autonomy of the Legg Mason investment advisory
subsidiaries;
|
(iii)
|
that Franklin Templeton and Legg Mason have informed the Board of each Fund that, following the Transaction, there is not expected to be any diminution
in the nature, quality and extent of services provided to the Funds and their shareholders by the Advisers, including compliance and other non-advisory services, and have represented that there are not
expected to be any changes in the portfolio management personnel managing the Funds as a result of the Transaction;
|
(iv)
|
that Franklin Templeton and Legg Mason have informed the Board of each Fund regarding transition plans, including Legg Masons provision of
retention incentives for certain Legg Mason corporate personnel until the Transaction closes, and Franklin Templetons provision of long-term retention mechanisms for certain personnel following the closing;
|
(v)
|
that there are not expected to be any changes to any Funds custodian or other service providers as a result of the Transaction;
|
(vi)
|
that Franklin Templeton has informed the Board of each Fund that it has no present intention to alter currently effective expense waivers and
reimbursements after their expiration, and, while it reserves the right to do so in the future, it would consult with the applicable Funds Board before making any changes;
|
(vii)
|
that Franklin Templeton does not expect to propose any changes to the investment objective(s) of any Fund or any changes to the principal investment
strategies of any Fund as a result of the Transaction;
|
(viii)
|
the potential benefits to Fund shareholders from being part of a combined fund family with Franklin Templeton-sponsored funds and access to a broader
array of investment opportunities;
|
(ix)
|
that Franklin Templeton and Legg Mason will each derive benefits from the Transaction and that, as a result, they have a financial interest in the
matters that were being considered;
|
(x)
|
the fact that each Funds contractual management fee rates will remain the same and will not increase by virtue of the New Agreements;
|
(xi)
|
the terms and conditions of the New Agreements, including that each New Agreement is identical to its corresponding Current Agreement except for their
respective dates of execution, effectiveness and termination;
|
|
|
|
28
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
(xii)
|
the support expressed by the current senior management team at Legg Mason for the Transaction and Legg Masons recommendation that the Board of
each Fund approve the New Agreements;
|
(xiii)
|
that the Current Agreements, except in the case of newer Funds, are the product of multiple years of review and negotiation and information received and
considered by the applicable Funds Board in the exercise of their business judgment during those years, and that within the past six-months the Board of each Fund had performed a full review of and
approved the Current Agreements as required by the 1940 Act and had determined in the exercise of the Board Members business judgment that each applicable Adviser had the capabilities, resources and personnel necessary to provide the services
provided to each Fund, and that the management and subadvisory fees paid by or in respect of the Fund, taking into account any applicable agreed-upon fee reductions, represented reasonable compensation to the applicable Adviser in light of the
services provided, the costs to the Adviser of providing those services, the fees and other expenses paid by similar funds, and such other matters as the Board Members considered relevant in the exercise of their business judgment, and represented
an appropriate sharing between Fund shareholders and the Advisers of any economies of scale in the management of the Fund at current and anticipated asset levels;
|
(xiv)
|
that the Current Agreements were considered and approved as recently as November 2019, except in the case of one Fund, which is currently in the initial
term of its agreement;
|
(xv)
|
that the Funds will not bear the costs of obtaining shareholder approval of the New Agreements, including proxy solicitation costs, legal fees and the
costs of printing and mailing the proxy statement, regardless of whether the Transaction is consummated; and
|
(xvi)
|
that under the a definitive agreement between Legg Mason and Franklin Templeton (the Transaction Agreement), Franklin Templeton has
acknowledged that Legg Mason had entered into the Transaction Agreement in reliance upon the benefits and protections provided by Section 15(f) of the 1940 Act, and that, in furtherance of the foregoing, Franklin Templeton agreed to use
reasonable best efforts to conduct its business so that (a) for a period of not less than three years after the closing of the Transaction no more than 25% of the members of the Board of any Fund shall be interested persons (as
defined in the 1940 Act) of any investment adviser for a Fund, and (b) for a period of not less than two years after the closing, neither Franklin Templeton nor any of its affiliates shall impose an unfair burden (within the meaning
of the 1940 Act, including any interpretations or no-action letters of the Securities and Exchange Commission) on any Fund as a result of the transactions contemplated by the Transaction Agreement or any
express or implied terms, conditions or understandings applicable thereto.
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
|
29
|
Board approval of new management and new subadvisory agreements (unaudited) (contd)
Certain of these considerations are discussed in more detail below.
In their deliberations, the Board Members considered information received in connection with the most recent approval or continuation of each Current Agreement in
addition to information provided by Franklin Templeton and Legg Mason in connection with their evaluation of the terms and conditions of the New Agreements. In connection with the most recent approval or continuation of each Current Agreement, and
in connection with their review of each New Agreement, the Board Members did not identify any particular information that was all-important or controlling, and each Board Member may have attributed different
weights to the various factors. The Board Members evaluated all information available to them on a Fund-by-Fund basis with respect to their consideration of the Current
Agreements and the New Agreements, and their determinations were made separately in respect of each Fund.
The information provided and presentations
made to the Board of each Fund encompassed each Fund and all other Funds for which the Board has responsibility. The discussion below covers both the advisory and the administrative functions rendered by the Manager for each Fund, both of which
functions are encompassed by the New Management Agreement for the Fund, as well as the advisory functions rendered by the Subadviser(s) pursuant to the New Subadvisory Agreement(s) for the Fund. The Independent Board Members of each Fund considered
the New Management Agreement and the New Subadvisory Agreement(s) separately in the course of their review. In doing so, they considered the respective roles and compensation of the Manager and the Subadviser(s) in providing services to the Fund.
The Independent Board Members were advised by separate independent legal counsel throughout the process. Prior to voting, the Independent Board Members
of each Fund received a memorandum from their independent legal counsel discussing the legal standards for their consideration of the New Agreements for the Fund. The Independent Board Members of each Fund, including ClearBridge Energy Midstream
Opportunity Fund Inc. (the ClearBridge Fund), reviewed the proposed approval of the New Agreements for the Fund on multiple occasions with their independent legal counsel in private sessions at which no representatives of Franklin
Templeton, Legg Mason, or the Manager or Subadviser(s) for the Fund were present.
Nature, Extent and Quality of the Services under
the New Agreements
The Board of each Fund received and considered information regarding the nature, extent and quality of services provided to the
Fund by the Manager and the Subadviser(s) under the Current Agreements. In evaluating the nature, quality and extent of the services to be provided by the Advisers under the New Agreements, the Board Members considered,
|
|
|
30
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
among other things, the expected impact, if any, of the Transaction on the operations, facilities, organization and personnel of each Adviser, and that Franklin Templeton and Legg Mason have
advised the Board of each Fund that, following the Transaction, there is not expected to be any diminution in the nature, quality and extent of services provided to the Funds and their shareholders by the Advisers, including compliance and other non-advisory services, and that there are not expected to be any changes in portfolio management personnel as a result of the Transaction. In this regard, the Board of each Fund took into account that Franklin
Templeton and Legg Mason have informed the Board regarding Legg Masons provision of retention incentives for certain Legg Mason corporate personnel until the Transaction closes, and Franklin Templetons provision of long-term retention
mechanisms for certain personnel following the closing. The Board of each Fund has received information at regular meetings throughout the past year related to the services rendered by the Manager in its management of the Funds affairs and the
Managers role in coordinating the activities of the Funds other service providers. Each Funds Boards evaluation of the services provided by the Manager and the Subadviser(s) took into account the Board Members knowledge
gained as Board Members of other Funds in the Legg Mason fund complex, including knowledge gained regarding the scope and quality of the investment management and other capabilities of the Manager and the Subadviser(s), and the quality of the
Managers administrative and other services. The Board of each Fund observed that the scope of services provided by the Manager and the Subadviser(s), and the undertakings required of the Manager and Subadviser(s) in connection with those
services, including maintaining and monitoring their own and the Funds compliance programs, liquidity management programs and cybersecurity programs, had expanded over time as a result of regulatory, market and other developments. The Board of
each Fund has received and reviewed on a regular basis information from the Manager and the Subadviser(s) regarding the Funds compliance policies and procedures established pursuant to Rule 38a-1 under
the 1940 Act, and took that information into account in its evaluation of the New Agreements. The Board of each Fund also considered the risks associated with the Fund borne by the Advisers and their affiliates (such as entrepreneurial, operational,
reputational, litigation and regulatory risk), as well as the risk management processes of the Manager and Subadviser(s).
The Board of each Fund
considered information provided by Franklin Templeton regarding its business and operating structure, scale of operation, leadership and reputation, distribution capabilities, and financial condition (pre- and
post-closing).
The Board of each Fund also reviewed the qualifications, backgrounds and responsibilities of the senior personnel of the Manager and the
Subadviser(s) and the team of investment professionals primarily responsible for the day-to-day portfolio management of the Fund. The Board of each Fund noted in
particular that following the Transaction, Franklin Templeton is expected to have resources that will provide it with substantial capacity to
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
|
31
|
Board approval of new management and new subadvisory agreements (unaudited) (contd)
invest across the business. The Board of each Fund also considered the financial resources of Legg Mason and Franklin Templeton and the importance of having a Fund
manager with, or with access to, significant organizational and financial resources.
The Board also considered the benefits to each Fund of being part
of a larger combined organization with greater financial resources following the Transaction, particularly during periods of market disruptions and volatility. In addition, the Board also considered Franklin Templetons significant experience
in dealing with issues unique to the management of closed-end funds.
The Board of each Fund also considered the
policies and practices of the Manager and the Subadvisers regarding the selection of brokers and dealers and the execution of portfolio transactions for the Fund.
The Board of each Fund received performance information for the Fund, as well as for a group of funds (the Performance Universe) selected by Broadridge Financial Solutions, Inc.
(Broadridge), an independent provider of investment company data, based on classifications provided by Thomson Reuters Lipper (Lipper). The Board of each Fund was provided with a description of the methodology used to
determine the similarity of the Fund with the funds included in the Performance Universe. It was noted that while the Board of each Fund has found the Broadridge data generally useful they recognized its limitations, including that the data may vary
depending on the end date selected and that the results of the performance comparisons may vary depending on the selection of the peer group and its composition over time. It was also noted that the Board of each Fund has received and discussed with
management information throughout the year at periodic intervals comparing the Funds performance against its benchmark and against the Funds peers. In addition, the Board of each Fund considered the Funds performance in light of
overall financial market conditions. Where a Funds performance was below the median during one or more specified periods, the Funds Board noted the explanations from the Advisers concerning the Funds relative performance versus the
peer group for the various periods
Based on their review of the materials provided and the assurances they had received from Franklin Templeton and Legg
Mason, the Board Members of each Fund determined that the Transaction was not expected to affect adversely the nature, extent and quality of services provided by each Adviser and that the Transaction was not expected to have an adverse effect on the
ability of the Advisers to provide those services, and the Board of each Fund, including the ClearBridge Fund, concluded that, overall, the nature, extent and quality of services expected to be provided, including performance, under the New
Agreements for the Fund were sufficient for approval.
|
|
|
32
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
Management Fees and
Expense Ratios
The Board of each Fund considered that it had reviewed the Funds management fee and total expense ratio at the November 2019
contract renewal meeting. The Board of each Fund considered that the New Management Agreement does not change any Funds management fee rate or the computation method for calculating such fees, and that there is no present intention to alter
expense waiver and reimbursement arrangements that are currently in effect. The Board of each Fund noted that by their terms none of the current expense waiver and reimbursement arrangements would expire before December 2020 and that Franklin
Templeton had indicated that it would consult with the applicable Funds Board before making any changes to the Funds current expense waiver and reimbursement arrangements.
The Board of each Fund reviewed and considered the contractual management fee and the actual management fees paid by the Fund to the Manager in light of the nature, extent and quality of the management and
subadvisory services to be provided by the Manager and the Subadviser(s). The Board of each Fund also noted that the compensation paid to the Subadviser(s) is the responsibility and expense of the Manager, or in some cases another Subadviser, and
not the Fund. In addition, the Board of each Fund received and considered information provided by Broadridge comparing the contractual management fee and the actual management fee for the Fund, as well as the total actual expenses for the Fund, with
those of funds in both the relevant expense group and a broader group of funds, each selected by Broadridge based on classifications provided by Lipper. It was noted that, while the Board of each Fund has found the Broadridge data generally useful,
it recognized its limitations, including that the data may vary depending on the selection of the peer group. The Board of each Fund also considered the overall management fee, the fees of each Subadviser and the portion of the management fee
retained by the Manager after payment of the subadvisory fees, in each case in light of the services rendered for those amounts. The Board of each Fund also received an analysis of Legg Mason complex-wide management fees for Funds with a similar
strategy provided by the Manager, which, among other things, set out a framework of fees based on asset classes.
The Board of each Fund reviewed
information regarding fees charged by the Manager and/or the Subadviser(s) to other U.S. clients investing primarily in an asset class similar to that of the Fund, including, where applicable, separate accounts. The Manager reviewed with the Board
of each Fund the differences in services provided to these different types of accounts, including that the Fund is provided with certain administrative services, office facilities, and Fund officers (including the Funds chief executive, chief
financial and chief compliance officers), and that the Manager coordinates and oversees the provision of services to the Fund by other Fund service providers. The Board of each Fund considered the fee comparisons in light of the differences in
management of these different types of accounts and the differences in associated risks borne by the Advisers.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
|
33
|
Board approval of new management and new subadvisory agreements (unaudited) (contd)
In evaluating the costs of the services to be provided by the Advisers under the New Agreements, the Board Members considered, among other things, whether
management fees or other expenses would change as a result of the Transaction. Based on their review of the materials provided and the assurances they had received from Franklin Templeton and Legg Mason, the Board Members determined that the
Transaction would not increase the total fees payable by any Fund for management services.
Taking all of the above into consideration, as well as the
factors identified below, the Board of each Fund, including the ClearBridge Fund, determined that the management fee and the subadvisory fees for the Fund were reasonable in light of the nature, extent and quality of the services to be provided to
the Fund under the New Agreements.
Profitability and Economies of Scale
The Board of each Fund received and considered an analysis of the profitability of the Manager and its affiliates in providing services to the Fund. The Board of each Fund also received profitability information
with respect to the Legg Mason fund complex as a whole. In addition, the Board of each Fund received information with respect to the Managers allocation methodologies used in preparing this profitability data. It was noted that the allocation
methodologies had been previously reviewed by an outside consultant. The profitability of the Manager and its affiliates was considered by each Funds Board not to be excessive in light of the nature, extent and quality of the services provided
to the Fund, including the ClearBridge Fund.
The Board of each Fund received and considered information concerning whether the Advisers realize
economies of scale as the Funds assets grow. In conjunction with their most recent or prior deliberations concerning the Current Agreements, the Board Members have noted that advisory or management fee reductions had been implemented for
certain Funds, as well as expense limitations, and that after taking those reductions and expense limitations into account, the Board Members had determined that the total fees for management services, and administrative services for the applicable
Funds, were reasonable in light of the services provided to the Funds, including the ClearBridge Fund, and that any economies of scale were being shared appropriately.
The Board Members noted that Franklin Templeton and Legg Mason expected to realize cost savings from the Transaction based on synergies of operations, primarily at the holding company distribution level, as well as
to benefit from possible growth of the Funds resulting from enhanced distribution capabilities. The Board of each Fund took into account that cost synergies were not the primary driver of the Transaction. However, they noted that other factors could
also affect profitability and potential economies of scale, and that it was not possible to predict with any degree of certainty how the Transaction would affect the Advisers profitability from their relationship with the Funds, nor to
quantify at this time any possible future economies of scale. The Board Members noted they will have the opportunity to periodically re-examine such profitability and any economies of scale going forward.
|
|
|
34
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
Other Benefits to the
Advisers
The Board of each Fund considered other benefits received by the Manager, the Subadviser(s) and their affiliates as a result of their
relationship with the Fund, including the opportunity to offer additional products and services to Fund shareholders. In light of the costs of providing investment management and other services to the Funds and the ongoing commitment of the Manager
and the Subadviser(s) to the Funds, the Board of each Fund considered that the ancillary benefits that the Manager, the Subadviser(s) and their affiliates received as a result of their relationship with the Fund, including the ClearBridge Fund, were
reasonable. In evaluating the fall-out benefits to be received by the Advisers under the New Agreements, the Board Members considered whether the Transaction would have an impact on the fall-out benefits received by virtue of the Current Agreements.
The Board of each Fund considered that Franklin
Templeton may derive reputational and other benefits from its ability to use the Legg Mason investment affiliates names in connection with operating and marketing the Funds. The Board of each Fund considered that the Transaction, if completed,
would significantly increase Franklin Templetons assets under management and expand Franklin Templetons investment capabilities.
Conclusion
After consideration of the factors described above as well as other factors, and in
the exercise of their business judgment, the Board Members, including the Independent Board Members, concluded that the New Agreements, including the fees payable thereunder, were fair and reasonable to each Fund and that entering into the New
Agreements for each Fund, including the ClearBridge Fund, was in the best interests of the Funds shareholders, and they voted to approve the New Agreements for each Fund and to recommend that the Funds shareholders approve the New
Agreements.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
|
35
|
Additional shareholder information (unaudited)
Results of annual meeting of shareholders
The Annual Meeting of Shareholders of ClearBridge Energy Midstream Opportunity Fund Inc. was held on March 20, 2020 for the purpose of considering and voting
upon the proposals presented at the Meeting. The following table provides information concerning the matters voted upon at the Meeting:
Election of directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominees
|
|
Common
Shares and
Preferred
Shares, voting
together,
For Election
|
|
|
Common
Shares and
Preferred
Shares, voting
together,
Against
|
|
|
Preferred
Shares,
For Election
|
|
|
Preferred
Shares,
Against
|
|
Robert D. Agdern
|
|
|
58,824,372
|
|
|
|
5,261,360
|
|
|
|
|
|
|
|
|
|
Eileen A. Kamerick
|
|
|
|
|
|
|
|
|
|
|
284
|
|
|
|
|
|
At May 31, 2020, in addition to Robert D. Agdern and Eileen A. Kamerick, the other Directors of the Fund were as follows:
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
William R. Hutchinson
Nisha Kumar
Jane Trust
Ratification of Selection of Independent Registered Public Accountants
To ratify the selection of PricewaterhouseCoopers LLP (PwC) as independent registered public accountants of the Fund for the fiscal year ended November 30, 2020.
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
62,375,570
|
|
941,927
|
|
768,235
|
|
|
|
36
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends and
return of capital distributions, on your Common Stock will be automatically reinvested by Computershare Trust Company, N.A., as agent for the stockholders (the Plan Agent), in additional shares of Common Stock under the Funds
Dividend Reinvestment Plan (the Plan). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by Computershare
Trust Company, N.A., as dividend paying agent.
If you participate in the Plan, the number of shares of Common Stock you will receive will be determined
as follows:
(1) If the market price of the Common Stock (plus $0.03 per share commission) on the payment date (or, if the payment date
is not a NYSE trading day, the immediately preceding trading day) is equal to or exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE on the payment date, the Fund will issue new Common Stock at a price equal
to the greater of (a) the net asset value per share at the close of trading on the NYSE on the payment date or (b) 95% of the market price per share of the Common Stock on the payment date.
(2) If the net asset value per share of the Common Stock exceeds the market price of the Common Stock (plus $0.03 per share commission) at the close
of trading on the NYSE on the payment date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Stock in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading
day following the payment date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the payment date for the next succeeding dividend or distribution to be made to the stockholders;
except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price (plus $0.03 per share commission) rises so that it equals or exceeds the net asset value per share of the Common
Stock at the close of trading on the NYSE on the payment date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the
Plan Agent will cease purchasing Common Stock in the open market and the Fund shall issue the remaining Common Stock at a price per share equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the day
prior to the issuance of shares for reinvestment or (b) 95% of the then current market price per share.
Common Stock in your account will be held by the
Plan Agent in non-certificated form. Any proxy you receive will include all shares of Common Stock you have received under the Plan. You may withdraw from the Plan (i.e.,
opt-out) by notifying the Plan Agent in writing at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any dividend or distribution record date;
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
|
37
|
Dividend reinvestment plan
(unaudited) (contd)
otherwise such withdrawal will be effective as soon as practicable after the Plan Agents investment of the most recently declared dividend or distribution on
the Common Stock.
Plan participants who sell their shares will be charged a service charge (currently $5.00 per transaction) and the Plan Agent is
authorized to deduct brokerage charges actually incurred from the proceeds (currently $0.05 per share commission). There is no service charge for reinvestment of your dividends or distributions in Common Stock. However, all participants will pay a
pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional shares of Common Stock, this allows you to add to your
investment through dollar cost averaging, which may lower the average cost of your Common Stock over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the Funds net asset value declines. While
dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.
Automatically reinvesting dividends
and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Investors will be subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Directors, the change is warranted. The Plan may be terminated,
amended or supplemented by the Fund upon notice in writing mailed to stockholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination or amendment is to be effective. Upon
any termination, you will be sent cash for any fractional share of Common Stock in your account. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your Common Stock on your behalf.
Additional information about the Plan and your account may be obtained from the Plan Agent at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151.
|
|
|
38
|
|
ClearBridge Energy Midstream Opportunity Fund Inc.
|
ClearBridge
Energy Midstream Opportunity Fund Inc.
Directors
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
William R. Hutchinson
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Chairman
Officers
Jane Trust
President and Chief Executive Officer
Christopher Berarducci
Treasurer and Principal Financial Officer
Fred Jensen*
Chief Compliance Officer
Jenna Bailey
Identity Theft Prevention Officer
Robert I.
Frenkel
Secretary and Chief Legal Officer
Thomas
C. Mandia
Assistant Secretary
Jeanne M. Kelly
Senior Vice President
*
|
Effective April 17, 2020, Mr. Jensen became Chief Compliance Officer.
|
ClearBridge Energy Midstream Opportunity Fund Inc.
620 Eighth Avenue
49th Floor
New York, NY 10018
Investment manager
Legg Mason Partners Fund Advisor, LLC
Subadviser
ClearBridge Investments, LLC
Custodian
The Bank of New York Mellon
Transfer agent
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Legal counsel
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
New York Stock
Exchange
Symbol
EMO
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Legg Mason Funds privacy and data protection practices with respect to
nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds distributor, Legg Mason Investor Services, LLC, as well as Legg Mason-sponsored closed-end
funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and
maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:
|
|
Personal information included on applications or other forms;
|
|
|
Account balances, transactions, and mutual fund holdings and positions;
|
|
|
Bank account information, legal documents, and identity verification documentation;
|
|
|
Online account access user IDs, passwords, security challenge question responses; and
|
|
|
Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individuals total debt,
payment history, etc.).
|
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial
institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have
authorized or as permitted or required by law. The Funds may disclose information about you to:
|
|
Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business or to comply with obligations to
government regulators;
|
|
|
Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or
processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds;
|
|
|
Permit access to transfer, whether in the United States or countries outside of the United States to such Funds employees, agents and affiliates and
service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;
|
|
|
The Funds representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations
to government regulators;
|
|
|
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
|
|
NOT PART OF THE SEMI-ANNUAL REPORT
|
Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds
behalf, including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them
to perform.
The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as
permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be
required to disclose your nonpublic personal information to third parties. While it is the Funds practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will
remain unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they
will notify you promptly if this privacy policy changes.
The Funds Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds internal data
security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event
of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented to the Funds using electronic communications
or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In
order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the
Funds privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds website at
www.leggmason.com, or contact the Funds at 1-888-777-0102.
Revised April 2018
|
NOT PART OF THE SEMI-ANNUAL REPORT
|
ClearBridge Energy Midstream Opportunity Fund Inc.
ClearBridge Energy Midstream Opportunity Fund Inc.
620 Eighth
Avenue
49th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market prices, shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each
fiscal year as an exhibit to its reports on Form N-PORT. The Funds Forms N-PORT are available on the SECs website at www.sec.gov. To obtain information on
Form N-PORT, shareholders can call the Fund at 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th
of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) at www.lmcef.com and (3) on the SECs website at www.sec.gov.
This report is transmitted to the shareholders of ClearBridge Energy Midstream Opportunity Fund Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report.
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
CBAX014784 7/20 SR20- 3915