Statement of cash flows (unaudited)
For the Six Months Ended May 31, 2022
|
|
|
|
|
Increase (Decrease) in Cash: |
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
Net increase in net assets applicable to common shareholders resulting from
operations |
|
$ |
142,609,679 |
|
Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided (used) by operating activities: |
|
|
|
|
Purchases of portfolio securities |
|
|
(167,187,824) |
|
Sales of portfolio securities |
|
|
127,220,830 |
|
Net purchases, sales and maturities of short-term investments |
|
|
7,697,865 |
|
Return of capital |
|
|
16,292,651 |
|
Increase in dividends and distributions receivable |
|
|
(59,748) |
|
Increase in interest receivable |
|
|
(3,224) |
|
Decrease in prepaid expenses |
|
|
25,560 |
|
Increase in other receivables |
|
|
(518) |
|
Amortization of preferred stock offering costs |
|
|
46,300 |
|
Amortization of debt issuance and offering costs |
|
|
36,344 |
|
Increase in investment management fee payable |
|
|
94,027 |
|
Decrease in Directors fees payable |
|
|
(4,833) |
|
Increase in interest expense payable |
|
|
1,705 |
|
Increase in accrued expenses |
|
|
69,493 |
|
Decrease in distributions payable to Mandatory Redeemable Preferred Stockholders |
|
|
(9,517) |
|
Net realized gain on investments |
|
|
(29,710,337) |
|
Change in net unrealized appreciation (depreciation) of investments |
|
|
(115,314,884) |
|
Net Cash Used in Operating
Activities* |
|
|
(18,196,431) |
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
Distributions paid on common stock |
|
|
(11,597,913) |
|
Proceeds from loan facility borrowings |
|
|
41,000,000 |
|
Payment for Fund shares repurchased (net of payable for Fund shares repurchased) |
|
|
(7,105,656) |
|
Redemption of Mandatory Redeemable Preferred Stock |
|
|
(4,100,000) |
|
Net Cash Provided by Financing
Activities |
|
|
18,196,431 |
|
Cash and restricted cash at beginning of period |
|
|
|
|
Cash and restricted cash at end of period |
|
|
|
|
|
* Included in operating expenses is $1,579,214 paid for interest and commitment fees
on borrowings and $899,813 paid for distributions to Mandatory Redeemable Preferred Stockholders. |
|
|
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, 2022 |
|
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. 2022 Semi-Annual Report |
|
7 |
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a common share of capital stock outstanding throughout each year ended
November 30, unless otherwise noted: |
|
|
|
20221,2 |
|
|
20211 |
|
|
20201,3 |
|
|
20191,3 |
|
|
20181,3 |
|
|
20171,3 |
|
|
|
|
|
|
|
|
Net asset value, beginning of period |
|
|
$26.53 |
|
|
|
$17.13 |
|
|
|
$43.75 |
|
|
|
$51.35 |
|
|
|
$56.85 |
|
|
|
$69.20 |
|
|
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
|
(0.19) |
|
|
|
(0.36) |
|
|
|
(1.07) |
|
|
|
(0.70) |
|
|
|
0.30 |
|
|
|
(1.00) |
|
Net realized and unrealized gain (loss) |
|
|
11.12 |
|
|
|
11.01 |
|
|
|
(23.54) |
|
|
|
(2.30) |
|
|
|
0.60 |
|
|
|
(4.95) |
|
Total income (loss) from
operations |
|
|
10.93 |
|
|
|
10.65 |
|
|
|
(24.61) |
|
|
|
(3.00) |
|
|
|
0.90 |
|
|
|
(5.95) |
|
|
Less distributions to common shareholders from: |
|
Dividends |
|
|
(0.72) |
4 |
|
|
(0.54) |
|
|
|
|
|
|
|
(1.70) |
|
|
|
(1.60) |
|
|
|
|
|
Return of capital |
|
|
(0.17) |
4 |
|
|
(0.93) |
|
|
|
(2.13) |
|
|
|
(2.90) |
|
|
|
(4.80) |
|
|
|
(6.40) |
|
Total distributions to common
shareholders |
|
|
(0.89) |
|
|
|
(1.47) |
|
|
|
(2.13) |
|
|
|
(4.60) |
|
|
|
(6.40) |
|
|
|
(6.40) |
|
Anti-dilutive impact of repurchase plan |
|
|
0.13 |
5 |
|
|
0.22 |
5 |
|
|
0.12 |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period |
|
|
$36.70 |
|
|
|
$26.53 |
|
|
|
$17.13 |
|
|
|
$43.75 |
|
|
|
$51.35 |
|
|
|
$56.85 |
|
|
|
|
|
|
|
|
Market price, end of period |
|
|
$29.91 |
|
|
|
$21.65 |
|
|
|
$12.70 |
|
|
|
$38.10 |
|
|
|
$46.15 |
|
|
|
$52.35 |
|
Total return, based on NAV6,7 |
|
|
42.08 |
% |
|
|
64.18 |
% |
|
|
(57.35) |
% |
|
|
(6.57) |
% |
|
|
0.67 |
% |
|
|
(9.34) |
% |
Total return, based on Market Price8 |
|
|
42.56 |
% |
|
|
82.70 |
% |
|
|
(62.74) |
% |
|
|
(8.15) |
% |
|
|
(0.87) |
% |
|
|
(9.54) |
% |
|
|
|
|
|
|
|
Net assets applicable to common shareholders, end of period (millions) |
|
|
$474 |
|
|
|
$350 |
|
|
|
$238 |
|
|
|
$628 |
|
|
|
$736 |
|
|
|
$355 |
|
|
|
|
|
|
|
|
Ratios to average net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees |
|
|
1.44 |
%9 |
|
|
1.41 |
% |
|
|
1.52 |
% |
|
|
1.50 |
% |
|
|
1.49 |
% |
|
|
1.43 |
% |
Other expenses |
|
|
1.42 |
9 |
|
|
1.68 |
|
|
|
3.65 |
10 |
|
|
2.16 |
|
|
|
2.12 |
|
|
|
1.72 |
|
Subtotal |
|
|
2.86 |
9 |
|
|
3.09 |
|
|
|
5.17 |
10 |
|
|
3.66 |
|
|
|
3.61 |
|
|
|
3.15 |
|
Income tax expenses |
|
|
|
|
|
|
|
11 |
|
|
1.32 |
|
|
|
|
11 |
|
|
|
11 |
|
|
|
11 |
Total gross
expenses |
|
|
2.86 |
9 |
|
|
3.09 |
|
|
|
6.49 |
10 |
|
|
3.66 |
|
|
|
3.61 |
|
|
|
3.15 |
|
Total net
expenses |
|
|
2.79 |
9,12 |
|
|
3.03 |
12 |
|
|
6.42 |
10,12 |
|
|
3.59 |
12 |
|
|
3.60 |
12 |
|
|
3.15 |
|
Net investment income (loss), net of income taxes |
|
|
(1.16) |
9 |
|
|
(1.43) |
|
|
|
(4.71) |
10 |
|
|
(1.37) |
|
|
|
0.52 |
|
|
|
(1.45) |
|
|
|
|
|
|
|
|
Portfolio turnover rate |
|
|
22 |
% |
|
|
37 |
% |
|
|
19 |
% |
|
|
29 |
% |
|
|
14 |
% |
|
|
16 |
% |
See Notes to Financial Statements.
|
|
|
8 |
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a common share of capital stock outstanding throughout each year ended
November 30, unless otherwise noted: |
|
|
|
20221,2 |
|
|
20211 |
|
|
20201,3 |
|
|
20191,3 |
|
|
20181,3 |
|
|
20171,3 |
|
|
|
|
|
|
|
|
Supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan and Debt Issuance Outstanding, End of Period (000s) |
|
|
$165,104 |
|
|
|
$124,104 |
|
|
|
$55,104 |
|
|
|
$278,500 |
|
|
|
$343,000 |
|
|
|
$158,000 |
|
Asset Coverage Ratio for Loan and Debt Issuance Outstanding13 |
|
|
411 |
% |
|
|
417 |
% |
|
|
609 |
% |
|
|
343 |
% |
|
|
329 |
% |
|
|
339 |
% |
Asset Coverage, per $1,000 Principal Amount of Loan and Debt Issuance Outstanding13 |
|
|
$4,108 |
|
|
|
$4,170 |
|
|
|
$6,094 |
|
|
|
$3,426 |
|
|
|
$3,286 |
|
|
|
$3,390 |
|
Weighted Average Loan and Debt Issuance (000s) |
|
|
$142,812 |
|
|
|
$95,983 |
|
|
|
$122,617 |
|
|
|
$318,462 |
|
|
|
$163,197 |
|
|
|
$157,819 |
|
Weighted Average Interest Rate on Loan and Debt Issuance |
|
|
2.12 |
% |
|
|
2.48 |
% |
|
|
6.14 |
%14 |
|
|
3.83 |
% |
|
|
3.51 |
% |
|
|
3.32 |
% |
Mandatory Redeemable Preferred Stock at Liquidation Value, End of Period (000s) |
|
|
$39,000 |
|
|
|
$43,100 |
|
|
|
$43,100 |
|
|
|
$48,000 |
|
|
|
$48,000 |
|
|
|
$23,000 |
|
Asset Coverage Ratio for Mandatory Redeemable Preferred Stock15 |
|
|
332 |
% |
|
|
309 |
% |
|
|
342 |
% |
|
|
292 |
% |
|
|
288 |
% |
|
|
296 |
% |
Asset Coverage, per $100,000 Liquidation Value per Share of Mandatory Redeemable Preferred
Stock15 |
|
|
$332,311 |
|
|
|
$309,498 |
|
|
|
$341,958 |
|
|
|
$292,258 |
|
|
|
$288,277 |
|
|
|
$295,913 |
|
See Notes to Financial
Statements.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 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, 2022 (unaudited). |
3 |
On July 28, 2020, the Fund completed a
1-for-5 reverse stock split. Prior year per share amounts have been restated to reflect the impact of the reverse stock split. |
4 |
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. |
5 |
The repurchase plan was completed at an average repurchase price of $25.27 for 282,823 shares and $7,145,648 for the six
months ended May 31, 2022 and $17.25 for 665,383 shares and $11,481,173 for the year ended November 30, 2021 and $9.32 for 579,300 shares and $5,398,982 for the year ended November 30, 2020. |
6 |
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.
|
7 |
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. |
8 |
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. |
10 |
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 0.92% of average net assets.
|
11 |
For the years ended November 30, 2021, 2019, 2018 and 2017, the net income tax benefit was 0.19%, 0.88%, 3.08% and
4.20%, respectively. The net income tax benefit is not reflected in the Funds expense ratios. |
12 |
Reflects fee waivers and/or expense reimbursements. |
13 |
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. |
14 |
Includes prepayment penalties recognized during the period. |
15 |
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. 2022 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.
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 typically use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit
risks/spreads, default rates and quoted prices for similar securities. 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
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
|
11 |
Notes to financial statements
(unaudited) (contd)
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 Global 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.
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.
|
|
|
12 |
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
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 |
|
$ |
448,487,772 |
|
|
|
|
|
|
|
|
|
|
$ |
448,487,772 |
|
Common Stocks |
|
|
219,332,947 |
|
|
|
|
|
|
|
|
|
|
|
219,332,947 |
|
Total Long-Term Investments |
|
|
667,820,719 |
|
|
|
|
|
|
|
|
|
|
|
667,820,719 |
|
Short-Term Investments |
|
|
5,232,858 |
|
|
|
|
|
|
|
|
|
|
|
5,232,858 |
|
Total Investments |
|
$ |
673,053,577 |
|
|
|
|
|
|
|
|
|
|
$ |
673,053,577 |
|
|
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 (including accrued expenses, borrowings, interest payables and the aggregate liquidation
|
|
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ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
|
13 |
Notes to financial statements
(unaudited) (contd)
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 currency translation. Investment securities and other assets
and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign
currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not
isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and
losses on forward foreign currency contracts, currency gains or losses
|
|
|
14 |
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
realized between the trade and settlement dates on securities transactions, and the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets
and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and currency
transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic instability.
(e) 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 may 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.
(f) 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.
(g) 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.
(h) 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
|
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ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
|
15 |
Notes to financial statements
(unaudited) (contd)
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, 2022, the Fund estimated that approximately 84% of the MLP distributions received would be treated as a return of capital. The Fund
recorded as return of capital the amount of $16,668,163 of dividends and distributions received from its investments.
Additionally, the Fund updated the return of
capital estimates from the year ended November 30, 2021 based on actual amounts subsequently reported to the Fund. This resulted in an increase of $375,512 in net dividends and distributions received from investments.
(i) 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.
(j) 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 has generated sufficient current year
earnings and profits for tax purposes from gains realized on the sale of its MLP investments such that approximately 81% of the distributions paid during the current period will be treated as dividend income. Because the Fund is taxed as a
C Corporation, the distributions paid by the Fund are considered to be dividend income to the extent that the distributions are paid out of the Funds current net income and realized capital gains. The actual tax 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 distributions to the MRPS shareholders will be treated as dividend income. The actual tax characterization of the MRPS distributions made during the current year will not be
|
|
|
16 |
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
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.
(k) 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.
(l) 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 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.
|
|
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ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
|
17 |
Notes to financial statements
(unaudited) (contd)
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 2017 through 2021 tax years remain open and subject to examination by tax jurisdictions.
(m) 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 current period, the following reclassifications have been made:
|
|
|
|
|
|
|
|
|
|
|
Total Distributable Earnings (Loss), Net of Income Taxes |
|
|
Paid-in
Capital in Excess of
Par Value |
|
(a) |
|
$ |
3,565,716 |
|
|
$ |
(3,565,716) |
|
(a) |
Reclassifications are due to the expiration of a capital loss carryforward. |
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 indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (Franklin Resources).
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.
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.
Effective March 1, 2021, LMPFA implemented a voluntary investment management fee waiver of 0.05% that will continue until May 31, 2023.
During the six months ended May 31, 2022, fees waived and/or expenses reimbursed amounted to $150,488.
|
|
|
18 |
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
All officers and one Director of the Fund are employees of Franklin Resources or its affiliates and do not receive
compensation from the Fund.
3. Investments
During the six months ended May 31, 2022, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
|
|
|
|
|
Purchases |
|
|
$167,187,824 |
|
Sales |
|
|
127,220,830 |
|
4. Derivative instruments and hedging activities
During the six months ended May 31, 2022, 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 $120,000,000 ($160,000,000
effective June 22, 2022). Effective December 15, 2021, the Credit Agreement is subject to a scheduled commitment termination date of December 14, 2022. 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 the current commitment amount. The interest on the loan is
calculated at a variable rate based on a benchmark (adjusted Term SOFR effective June 30, 2022 and prior to June 30, 2022 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, 2022, the Fund had $120,000,000 of borrowings
outstanding per this credit agreement. Interest expense related to this loan for the six months ended May 31, 2022 was $588,877. For the six months ended May 31, 2022, the Fund incurred commitment fees of $27,951. For the six months ended
May 31, 2022, the average daily loan balance was $97,708,791 and the weighted average interest rate was 1.19%.
6. Senior secured notes
At May 31, 2022, the Fund had $45,103,579 aggregate principal amount of fixed-rate senior secured notes (Senior Notes) outstanding.
Interest expense related to the Senior Notes for the six months ended May 31, 2022 was $944,771. Costs incurred by the Fund in
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
|
19 |
Notes to financial statements
(unaudited) (contd)
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).
The table below summarizes the key terms of each series of Senior Notes at May 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security |
|
Amount |
|
|
Rate |
|
|
Maturity |
|
|
Estimated Fair Value |
|
Senior secured notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B |
|
$ |
8,364,254 |
|
|
|
3.87 |
% |
|
|
February 7, 2023 |
|
|
$ |
8,337,757 |
|
Series C |
|
|
10,075,124 |
|
|
|
4.02 |
% |
|
|
February 7, 2025 |
|
|
|
9,840,041 |
|
Series D |
|
|
3,801,934 |
|
|
|
3.33 |
% |
|
|
August 26, 2022 |
|
|
|
3,813,343 |
|
Series E |
|
|
950,483 |
|
|
|
3.76 |
% |
|
|
August 26, 2026 |
|
|
|
909,639 |
|
Series G |
|
|
11,609,975 |
|
|
|
4.51 |
% |
|
|
October 15, 2023 |
|
|
|
11,644,504 |
|
Series H |
|
|
10,301,809 |
|
|
|
4.66 |
% |
|
|
October 15, 2025 |
|
|
|
10,241,407 |
|
|
|
$ |
45,103,579 |
|
|
|
|
|
|
|
|
|
|
$ |
44,786,691 |
|
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, 2022, the Fund had 390 shares of fixed rate MRPS outstanding with an aggregate liquidation value of $39,000,000. 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 28, 2022, which was the scheduled redemption date, the Fund redeemed 41 shares of Series B MRPS at a liquidation value of
4,100,000 plus any accumulated unpaid dividends.
The table below summarizes the key terms of each series of the MRPS at May 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series |
|
Term Redemption Date |
|
|
Rate |
|
|
Shares |
|
|
Liquidation Preference Per Share |
|
|
Aggregate Liquidation Value |
|
|
Estimated Fair Value |
|
Series C |
|
|
3/28/2024 |
|
|
|
4.26 |
% |
|
|
140 |
|
|
$ |
100,000 |
|
|
$ |
14,000,000 |
|
|
$ |
13,754,329 |
|
Series D |
|
|
7/23/2024 |
|
|
|
4.37 |
% |
|
|
30 |
|
|
|
100,000 |
|
|
|
3,000,000 |
|
|
|
2,953,474 |
|
Series E |
|
|
7/23/2026 |
|
|
|
4.55 |
% |
|
|
70 |
|
|
|
100,000 |
|
|
|
7,000,000 |
|
|
|
6,773,860 |
|
Series F |
|
|
8/7/2022 |
|
|
|
4.01 |
% |
|
|
41 |
|
|
|
100,000 |
|
|
|
4,100,000 |
|
|
|
4,119,373 |
|
Series G |
|
|
8/7/2024 |
|
|
|
4.30 |
% |
|
|
109 |
|
|
|
100,000 |
|
|
|
10,900,000 |
|
|
|
10,716,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
39,000,000 |
|
|
$ |
38,317,847 |
|
|
|
|
20 |
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
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.
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 a nationally recognized statistical ratings organization (NRSRO) then providing a rating, the applicable
dividend rate will increase by 0.5% to 4.0% according to a predetermined schedule.
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, 2022, the Fund repurchased and
retired 1.97% of its common shares outstanding under the repurchase plan. The weighted average discount per share on these repurchases was 19.61% for the six months ended May 31, 2022. During the year ended November 30, 2021, the Fund
repurchased and retired 4.64% of its common shares outstanding under the repurchase plan. The weighted average discount per share on
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
|
21 |
Notes to financial statements
(unaudited) (contd)
these repurchases was 20.72% for the year ended November 30, 2021. Shares repurchased and the
corresponding dollar amount are included in the Statements of Changes in Net Assets. The anti-dilutive impact of these share repurchases is included in the Financial Highlights.
Since the commencement of the stock repurchase program through May 31, 2022, the Fund repurchased 1,527,506 shares or 9.93% of its common shares outstanding for a
total amount of $24,025,803.
9. Income taxes
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 1.5%. 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 |
% |
|
$ |
29,948,033 |
|
State taxes, net of federal tax benefit |
|
|
1.50 |
% |
|
|
2,139,145 |
|
Non-deductible distributions on MRPS, dividends received deduction and other, net (federal and state) |
|
|
0.09 |
% |
|
|
124,517 |
|
Change in valuation allowance |
|
|
(23.15) |
% |
|
|
(33,013,981) |
|
Expiration of capital loss carryforward |
|
|
0.56 |
% |
|
|
802,286 |
|
Total tax expense (benefit) |
|
|
0.00 |
% |
|
|
|
|
Components of the Funds net deferred tax asset (liability) as of May 31, 2022 are as follows:
|
|
|
|
|
Deferred tax assets |
|
|
|
|
Net operating loss carryforwards |
|
$ |
36,361,938 |
|
Capital loss carryforward |
|
|
67,370,429 |
|
Other deferred tax assets |
|
|
1,016,095 |
|
|
|
Deferred tax liabilities |
|
|
|
|
Unrealized gains on investment securities |
|
|
(13,236,302) |
|
Basis reduction resulting from differences in the book vs. taxable income received from MLPs |
|
|
(29,014,456) |
|
Net deferred tax asset (liability) before valuation allowance |
|
|
62,497,704 |
|
Less: Valuation allowance |
|
|
(62,497,704) |
|
Total net deferred tax asset (liability) |
|
|
|
|
At May 31, 2022, the Fund had federal and state net operating loss carryforwards of $155,696,751 and $71,255,173 (net of state
apportionment), respectively (deferred tax asset of $36,361,938). Several states compute net operating losses before apportionment, therefore the value of the state net operating loss carryforward disclosed may fluctuate for
|
|
|
22 |
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
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. If not utilized, the federal net operating loss carryforwards of $43,371,602 and $78,250,167 expire in tax
years 2033 and 2036, respectively, and the state net operating loss carryforwards expire in tax years between 2021 and 2041. Net operating loss carryforwards of $34,074,982 generated in tax years 2020 and 2021 do not have an expiration for federal
purposes nor for state purposes in select jurisdictions that conform to the Code.
Additionally, at May 31, 2022, the Fund had a federal and state capital loss
carryforward of $299,424,128 (deferred tax asset of $67,370,429), which may be carried forward for 5 years. During the period ended May 31, 2022, the Fund utilized $25,912,539 of capital loss carryforward available from previous years. If not
utilized, the remaining capital loss carryforwards of $25,552,402 and $273,871,726 expire in tax years 2023 and 2024, respectively. 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.
Under Section 384 of the Code, the Fund is limited in its ability to use loss carryovers acquired in the November 16, 2018 acquisition of ClearBridge American
Energy MLP Fund Inc. 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. This also resulted in the additional expiration of capital loss carryforward available from previous years of $3,565,716. A valuation allowance was previously
recorded against this deferred tax asset, therefore its expiration had no effect on net assets or net asset value per share.
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, 2022. Based on the
assessment, as described in Note 1(l), and considering the limitations imposed under Section 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. If in the future,
a valuation allowance is required to reserve against an individual deferred tax asset, it could have a material impact on the Funds net asset value and results of operations in the period it is recorded.
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
|
23 |
Notes to financial statements
(unaudited) (contd)
At May 31, 2022, the cost basis of investments for Federal income tax purposes was
$488,766,701. At May 31, 2022, gross unrealized appreciation and depreciation of investments for Federal income tax purposes were as follows:
|
|
|
|
|
Gross unrealized appreciation |
|
$ |
196,145,255 |
|
Gross unrealized depreciation |
|
|
(11,858,379) |
|
Net unrealized appreciation (depreciation) before tax |
|
$ |
184,286,876 |
|
Net unrealized appreciation (depreciation) after tax |
|
$ |
142,822,329 |
|
10. Recent accounting pronouncement
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04,
Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU No. 2021-01, with further amendments to
Topic 848. The amendments in the ASUs provide optional temporary accounting recognition and financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other
interbank-offered based reference rates as of the end of 2021 and 2023. The ASUs are effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has
reviewed the requirements and believes the adoption of these ASUs will not have a material impact on the financial statements.
11. Other
matters
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. On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of the overnight and one-, three-,
six- and twelve-month USD LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023. All other LIBOR settings, including the one-week and two-month USD LIBOR settings, have ceased publication as of January 1, 2022. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the financial
markets
|
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24 |
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
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.
* * *
On
February 24, 2022, Russia engaged in military actions in the sovereign territory of Ukraine. The current political and financial uncertainty surrounding Russia and Ukraine may increase market volatility and the economic risk of investing in
securities in these countries and may also cause uncertainty for the global economy and broader financial markets. The ultimate fallout and long-term impact from these events are not known. The Fund will continue to assess the impact on valuations
and liquidity and will take any potential actions needed in accordance with procedures approved by the Board of Directors.
|
|
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ClearBridge Energy Midstream Opportunity Fund Inc. 2022 Semi-Annual Report |
|
25 |
Board approval of management and subadvisory agreements (unaudited)
Background
The Investment Company Act of 1940,
as amended (the 1940 Act), requires that the Board of Directors (the Board) of ClearBridge Energy Midstream Opportunity Fund Inc. (the Fund), including a majority of its members who are not considered to be
interested persons under the 1940 Act (the Independent Directors) voting separately, approve on an annual basis the continuation of the investment management agreement (the Management Agreement) between the Fund
and the Funds manager, Legg Mason Partners Fund Advisor, LLC (the Manager), and the sub-advisory agreement (the Sub-Advisory Agreement)
between the Manager and ClearBridge Investments, LLC (the Sub-Adviser), an affiliate of the Manager, with respect to the Fund.
At an in-person meeting (the Contract Renewal Meeting) held on May 10-11,
2022, the Board, including the Independent Directors, considered and approved the continuation of each of the Management Agreement and the Sub-Advisory Agreement for an additional one-year period. To assist in its consideration of the renewal of each of the Management Agreement and the Sub-Advisory Agreement, the Board received and considered extensive
information (together with the information provided at the Contract Renewal Meeting, the Contract Renewal Information) about the Manager and the Sub-Adviser, as well as the management and sub-advisory arrangements for the Fund and the other closed-end funds in the same complex under the Boards purview (the Franklin Templeton/Legg Mason Closed-end Funds), certain portions of which are discussed below.
A presentation made by the Manager and the Sub-Adviser to the Board at the Contract Renewal Meeting in connection with the Boards evaluation of each of the Management Agreement and the Sub-Advisory Agreement
encompassed the Fund and other Franklin Templeton/Legg Mason Closed-end Funds. In addition to the Contract Renewal Information, the Board received performance and other information throughout the year related
to the respective services rendered by the Manager and the Sub-Adviser to the Fund. The Boards evaluation took into account the information received throughout the year and also reflected the knowledge
and experience gained as members of the Boards of the Fund and other Franklin Templeton/Legg Mason Closed-end Funds with respect to the services provided to the Fund by the Manager and the Sub-Adviser. The information received and considered by the Board (including its various committees) both in conjunction with the Contract Renewal Meeting and throughout the year was both written and oral. The
contractual arrangements discussed below are the product of multiple years of review and negotiation and information received and considered by the Board during those years.
At a meeting held by videoconference on April 19, 2022, the Independent Directors, in preparation for the Contract Renewal Meeting, met in a private session with
their independent legal counsel to review the Contract Renewal Information regarding the Franklin Templeton/Legg Mason Closed-end Funds, including the Fund, received to date. No
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|
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26 |
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ClearBridge Energy Midstream Opportunity Fund Inc. |
representatives of the Manager or the Sub-Adviser participated in this meeting.
Following the April 19, 2022 meeting, the Independent Directors submitted certain questions and requests for additional information to management. The Independent Directors also met in private sessions with their independent legal counsel to
consider the Contract Renewal Information and managements responses to the Independent Directors questions and requests for additional information in advance of and during the Contract Renewal Meeting. The discussion below reflects all
of these reviews.
The Manager provides the Fund with investment advisory and administrative services pursuant to the Management Agreement and the Sub-Adviser provides the Fund with investment sub-advisory services pursuant to the Sub-Advisory Agreement. The discussion below covers
both the advisory and administrative functions being rendered by the Manager, each such function being encompassed by the Management Agreement, and the investment sub-advisory functions being rendered by the Sub-Adviser pursuant to the Sub-Advisory Agreement.
Board
Approval of Management Agreement and Sub-Advisory Agreement
The Independent Directors were advised by separate
independent legal counsel throughout the process. Prior to voting, the Independent Directors received a memorandum discussing the legal standards for their consideration of the proposed continuation of the Management Agreement and the Sub-Advisory Agreement. The Independent Directors considered the Management Agreement and Sub-Advisory Agreement separately in the course of their review. In doing so, they
noted the respective roles of the Manager and the Sub-Adviser in providing services to the Fund.
In approving the
continuation of the Management Agreement and Sub-Advisory Agreement, the Board, including the Independent Directors, considered a variety of factors, including those factors discussed below. No single factor
reviewed by the Board was identified by the Board as the principal factor in determining whether to approve the continuation of the Management Agreement and the Sub-Advisory Agreement. Each Director may have
attributed different weight to the various factors in evaluating the Management Agreement and the Sub-Advisory Agreement.
After considering all relevant factors and information, the Board, exercising its reasonable business judgment, determined that the continuation of the Management
Agreement and Sub-Advisory Agreement were in the best interests of the Funds shareholders and approved the continuation of each such agreement for an additional
one-year period.
Nature, Extent and Quality of the Services under the Management Agreement and Sub-Advisory Agreement
The Board received and considered Contract Renewal Information regarding the nature, extent, and
quality of services provided to the Fund by the Manager and the Sub-Adviser
|
|
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ClearBridge Energy Midstream Opportunity Fund Inc. |
|
27 |
Board approval of management and subadvisory agreements (unaudited) (contd)
under the Management Agreement and the Sub-Advisory Agreement, respectively, during the past year. The Board noted information
received at regular meetings throughout the year related to the services provided by the Manager in its management of the Funds affairs and the Managers role in coordinating the activities of the
Sub-Adviser and the Funds other service providers. The Board observed that the scope of services provided by the Manager and the Sub-Adviser, and of the
undertakings required of the Manager and Sub-Adviser in connection with those services, including maintaining and monitoring their own and the Funds compliance programs had expanded over time as a result
of regulatory, market and other developments. The Board also noted that on a regular basis it received and reviewed information from the Manager and the Sub-Adviser regarding the Funds compliance
policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the risks associated with the Fund borne by the Manager, the
Sub-Adviser and their affiliates, including entrepreneurial, operational, reputational, litigation and regulatory risks, as well as the Managers and the
Sub-Advisers risk management processes.
The Board reviewed the qualifications, backgrounds, and responsibilities of
the Managers senior personnel and the Sub-Advisers portfolio management team primarily responsible for the day-to-day
portfolio management of the Fund. The Board also considered, based on its knowledge of the Manager and its affiliates, the financial resources of Franklin Resources, Inc., the parent organization of the Manager and the
Sub-Adviser. The Board recognized the importance of having a fund manager with significant resources.
The Board considered
the division of responsibilities between the Manager and the Sub-Adviser under the Management Agreement and the Sub-Advisory Agreement, respectively, including the
Managers coordination and oversight of the services provided to the Fund by the Sub-Adviser and other fund service providers. The Management Agreement permits the Manager to delegate certain of its
responsibilities, including its investment advisory duties thereunder, provided that the Manager, in each case, will supervise the activities of the delegee.
In
reaching its determinations regarding continuation of the Management Agreement and the Sub-Advisory Agreement, the Board took into account that Fund stockholders, in pursuing their investment goals and
objectives, may have purchased their shares of the Fund based upon the reputation and the investment style, philosophy and strategy of the Manager and the Sub-Adviser, as well as the resources available to the
Manager and the Sub-Adviser.
The Board concluded that, overall, the nature, extent, and quality of the management and other
services provided (and expected to be provided) to the Fund, under the Management Agreement and the Sub-Advisory Agreement were satisfactory.
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28 |
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ClearBridge Energy Midstream Opportunity Fund Inc. |
Fund Performance
The Board received and considered information regarding Fund performance, including information and analyses (the Broadridge 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 third-party provider of investment company data. The Board was provided with a
description of the methodology Broadridge used to determine the similarity of the Fund with the funds included in the Performance Universe. It was noted that while the Board found the Broadridge Performance Information 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. The Board also
noted that Board members had received and discussed with the Manager and the Sub-Adviser information throughout the year at periodic intervals comparing the Funds performance against its benchmark and
against the Funds peers. In addition, the Board considered the Funds performance in view of overall financial market conditions.
The information
comparing the Funds performance to that of its Performance Universe, consisting of the Fund and all leveraged closed-end energy MLP funds classified by Broadridge, regardless of asset size, showed, among
other data, that based on net asset value per share, the Funds performance was above the median for the 1- and 10-year periods ended December 31, 2021, and
was below the median for the 3- and 5-year periods ended December 31, 2021. The Board noted the explanations from the Manager and the
Sub-Adviser regarding the Funds relative performance versus the Performance Universe for the various periods.
Based on
the reviews and discussions of Fund performance and considering other relevant factors, including an agreement at the Contract Renewal Meeting by the Manager to continue the current voluntary fee waiver of 0.05% through May 31, 2023 (the
Fee Waiver) and other factors noted above, the Board concluded, under the circumstances, that continuation of the Management Agreement and the Sub-Advisory Agreement for an additional one-year period would be consistent with the interests of the Fund and its stockholders.
Management and Sub-Advisory Fees and Expense Ratios
The Board reviewed and considered the contractual management fee (the
Contractual Management Fee) and the actual management fee (the Actual Management Fee) payable by the Fund to the Manager under the Management Agreement and the sub-advisory fee (the Sub-Advisory Fee) payable by the Manager to the Sub-Adviser under the Sub-Advisory Agreement in view of the nature, extent
and overall quality of the management, investment advisory and other services provided by the Manager and the Sub-Adviser, respectively. The Board noted that the
Sub-Advisory Fee is paid by the
|
|
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ClearBridge Energy Midstream Opportunity Fund Inc. |
|
29 |
Board approval of management and subadvisory agreements (unaudited) (contd)
Manager, not the Fund, and, accordingly, that the retention of the Sub-Adviser does not increase the fees or expenses otherwise
incurred by the Funds stockholders.
In addition, the Board received and considered information and analyses prepared by Broadridge (the Broadridge
Expense Information) comparing the Contractual Management Fee and the Actual Management Fee and the Funds total actual expenses with those of funds in an expense group (the Expense Group), as well as a broader group of funds,
each selected and provided by Broadridge. The comparison was based upon the constituent funds latest fiscal years. It was noted that while the Board found the Broadridge Expense Information generally useful, they recognized its limitations,
including that the data may vary depending on the selection of the peer group.
The Broadridge Expense Information showed that the Funds Contractual Management
Fee was equal to the median. The Broadridge Expense Information also showed that the Funds Actual Management Fee was above the median compared on the basis of common share assets and below the median compared on the basis of leveraged assets.
The Broadridge Expense Information also showed that the Funds actual total expenses were above the median based on both common share assets and leveraged assets. The Board took into account managements discussion of the Funds
expenses and noted the limited size of the Expense Group. The Board also considered the Managers agreement to continue the Fee Waiver for an additional year.
The Board also reviewed Contract Renewal Information regarding fees charged by the Manager and/or the Sub-Adviser to other U.S.
clients investing primarily in an asset class similar to that of the Fund, including, where applicable, institutional and separate accounts. The Manager reviewed with the Board the differences in services provided to these different types of
accounts, noting that the Fund is provided with certain administrative services, office facilities, and Fund officers, and that the Fund is subject not only to heightened regulatory requirements relative to institutional clients but also to
requirements for listing on the New York Stock Exchange, and that the Manager coordinates and oversees the provision of services to the Fund by other fund service providers. The Board considered the fee comparisons in view of the different services
provided in managing these other types of clients and funds.
The Board considered the overall management fee, the fees of the
Sub-Adviser and the amount of the management fee retained by the Manager after payment of the subadvisory fee in each case in view of the services rendered for those amounts. The Board also received an
analysis of complex-wide management fees provided by the Manager, which, among other things, set out a framework of fees based on asset classes.
Taking all of the
above into consideration, as well as the factors identified below, the Board determined that the management fee and the Sub-Advisory Fee were reasonable in view of
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30 |
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ClearBridge Energy Midstream Opportunity Fund Inc. |
the nature, extent and overall quality of the management, investment advisory and other services provided by the Manager
and the Sub-Adviser to the Fund under the Management Agreement and the Sub-Advisory Agreement, respectively.
Manager Profitability
The Board, as part of the
Contract Renewal Information, received an analysis of the profitability to the Manager and its affiliates in providing services to the Fund for the Managers fiscal years ended September 30, 2021 and September 30, 2020. The Board also
received profitability information with respect to the Franklin Templeton/Legg Mason fund complex as a whole. In addition, the Board received Contract Renewal Information with respect to the Managers revenue and cost allocation methodologies
used in preparing such profitability data. It was noted that the allocation methodologies had been reviewed by an outside consultant. The profitability to the Sub-Adviser was not considered to be a material
factor in the Boards considerations since the Sub-Advisory Fee is paid by the Manager, not the Fund, although the Board noted the affiliation of the Manager with the
Sub-Adviser. The profitability of the Manager and its affiliates was considered by the Board to be reasonable in view of the nature, extent and quality of services provided to the Fund.
Economies of Scale
The Board received and
discussed Contract Renewal Information concerning whether the Manager realizes economies of scale if the Funds assets grow. The Board noted that because the Fund is a closed-end fund it has limited
ability to increase its assets. The Board determined that the Management Fee structure was appropriate under the circumstances. For similar reasons as stated above with respect to the Sub-Advisers
profitability and the costs of the Sub-Advisers provision of services, the Board did not consider the potential for economies of scale in the Sub-Advisers
management of the Fund to be a material factor in the Boards consideration of the Sub-Advisory Agreement.
Other Benefits to the Manager and the Sub-Adviser
The Board considered other benefits
received by the Manager, the Sub-Adviser and their affiliates as a result of their relationship with the Fund, including the opportunity to offer additional products and services to the Funds
shareholders. In view of the costs of providing investment management and other services to the Fund and the ongoing commitment of the Manager and the Sub-Adviser to the Fund, the Board considered that the
ancillary benefits that the Manager and its affiliates, including the Sub-Adviser, were reasonable.
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ClearBridge Energy Midstream Opportunity Fund Inc. |
|
31 |
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 April 8, 2022, 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
|
|
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|
|
|
|
|
|
|
|
|
|
Nominees |
|
Common
Shares and Preferred Shares,
voting together, Voted FOR
Election |
|
|
Common
Shares and Preferred Shares,
voting together, WITHHELD |
|
|
Common
Shares and Preferred Shares,
voting together, ABSTAIN |
|
William R. Hutchinson |
|
|
8,734,547 |
|
|
|
1,560,001 |
|
|
|
149,433 |
|
Nisha Kumar |
|
|
8,740,937 |
|
|
|
1,553,672 |
|
|
|
149,372 |
|
Jane Trust |
|
|
8,864,737 |
|
|
|
1,430,969 |
|
|
|
148,275 |
|
At May 31, 2022, in addition to William R. Hutchinson, Nisha Kumar and Jane Trust, the other Directors of the Fund were as follows:
Robert D. Agdern
Carol L.Colman
Daniel P. Cronin
Paolo M. Cucchi
Eileen A. Kamerick
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, 2022.
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
10,304,483 |
|
56,486 |
|
83,012 |
|
|
|
32 |
|
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;
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|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
|
33 |
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.
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34 |
|
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
George P. Hoyt
Secretary and Chief Legal Officer
Thomas C. Mandia*
Senior Vice President
Jeanne M. Kelly
Senior Vice President
ClearBridge Energy Midstream
Opportunity Fund Inc.
620 Eighth Avenue
47th 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
900 G Street NW
Washington, DC 20001
New York Stock Exchange Symbol
EMO
* |
Effective February 10, 2022, Mr. Mandia became a Senior Vice President. |
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, Franklin Distributors, 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; |
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Online account access user IDs, passwords, security challenge question responses; and |
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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; |
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|
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; |
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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; |
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Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
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|
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.franklintempleton.com, or contact the Fund at
1-888-777-0102.
Revised April 2018
Legg Mason California Consumer Privacy Act Policy
Although much of the personal information we collect is nonpublic personal information subject to federal law, residents of California may, in certain
circumstances, have additional rights under the California Consumer Privacy Act (CCPA). For example, if you are a broker,
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NOT PART OF THE SEMI-ANNUAL
REPORT |
Legg Mason Funds Privacy and Security Notice (contd)
dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the account of any
other person(s) or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your personal
information (as defined by the CCPA).
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In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the
categories and specific pieces of personal information we have collected about you. |
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You also have the right to request the deletion of the personal information collected or maintained by the Funds.
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If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set
forth below. The rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process
described below. We do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.
We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a request
on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or other
applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an agent if
suitable and appropriate proof is not provided.
For the 12-month period prior to the date of this Privacy Policy, the Legg
Mason Funds have not sold any of your personal information; nor do we have any plans to do so in the future.
Contact Information
Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202
Email: DataProtectionOfficer@franklintempleton.com
Phone: 1-800-396-4748
Revised October 2020
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NOT PART OF THE SEMI-ANNUAL
REPORT |
ClearBridge Energy Midstream Opportunity Fund Inc.
ClearBridge Energy Midstream Opportunity Fund Inc.
620 Eighth Avenue
47th 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.franklintempleton.com and (3) on the SECs website at www.sec.gov.
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Fund may be found on Franklin Templetons
website, which can be accessed at www.franklintempleton.com. Any reference to Franklin Templetons website in this report is intended to allow investors public access to information regarding the Fund and does not, and is not intended to,
incorporate Franklin Templetons website in this report.
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 7/22 SR22-4456