UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED
SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22546
ClearBridge Energy Midstream Opportunity Fund Inc.
(Exact name of registrant as specified in charter)
620 Eighth
Avenue, 47th Floor, New York, NY 10018
(Address of principal executive offices)
(Zip code)
George P. Hoyt
Franklin
Templeton
100 First Stamford Place
Stamford, CT 06902
(Name
and address of agent for service)
Registrants telephone number, including area code: 1-888-777-0102
Date of fiscal year end: November 30
Date of reporting period: May 31, 2023
ITEM 1. |
REPORT TO STOCKHOLDERS. |
The Semi-Annual Report to Stockholders is filed herewith.
|
|
|
Semi-Annual Report |
|
May 31, 2023 |
CLEARBRIDGE
ENERGY MIDSTREAM OPPORTUNITY FUND INC. (EMO)
|
INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE
VALUE |
Fund objective
The Funds investment objective is to provide long-term investors a high level of total return with an emphasis on cash distributions.
The Fund seeks to achieve its objective by investing primarily in energy midstream entities.
Letter from the chairman
Dear Shareholder,
We are pleased to provide the semi-annual report of ClearBridge Energy Midstream Opportunity Fund Inc. for the six-month
reporting period ended May 31, 2023. Please read on for Fund performance information during the Funds reporting period.
As always, we remain committed to
providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website,
www.franklintempleton.com. Here you can gain immediate access to market and investment information, including:
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Fund prices and performance, |
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|
Market insights and commentaries from our portfolio managers, and |
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|
A host of educational resources. |
We look forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
June 30, 2023
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II |
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
Performance review
For the six months ended May 31, 2023, ClearBridge Energy Midstream Opportunity Fund Inc.
returned -8.52% based on its net asset value (NAV)i and -7.90% based on its New York Stock Exchange
(NYSE) market price per share. The Alerian MLP Indexii returned 0.39%, over the same time frame.
The Fund has a practice of seeking to maintain a relatively stable level of distributions to shareholders. This practice has no impact on the Funds investment
strategy and may reduce the Funds NAV. The Funds manager believes the practice helps maintain the Funds competitiveness and may benefit the Funds market price and premium/discount to the Funds NAV.
During the six-month period, the Fund made distributions to shareholders totaling $1.07 per share. As of May 31, 2023, the
Fund estimates that all of the distributions during the period constituted a return of capital.*The performance table shows the Funds six-month total return based on its NAV and market price as of
May 31, 2023. Past performance is no guarantee of future results.
|
|
|
|
|
Performance Snapshot as of May 31, 2023 (unaudited) |
|
Price Per Share |
|
6-Month Total Return** |
|
$31.89 (NAV) |
|
|
-8.52% |
|
$27.01 (Market Price) |
|
|
-7.90% |
|
All figures represent past performance and are not a guarantee of
future results. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.
** Total returns are based on
changes in NAV or market price, respectively. Returns reflect the deduction of all Fund expenses, including management fees, operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that
investors may pay on distributions or the sale of shares.
Total return assumes the reinvestment of all distributions, including returns of capital, if
any, at NAV.
Total return assumes the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with
the Funds Dividend Reinvestment Plan.
Looking for additional information?
The Fund is traded under the symbol EMO and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available
online under the symbol XEMOX on most financial websites. Barrons and The Wall Street Journals Monday edition both carry closed-end fund tables that provide additional
information. In addition,
* |
This estimate is not for tax purposes. The Fund will issue a Form 1099 with final composition of the distributions for tax
purposes after year-end. A return of capital is not taxable and results in a reduction in the tax basis of a shareholders investment. For more information about a distributions composition, please
refer to the Funds distribution press release or, if applicable, the Section 19 notice located in the press release section of our website, www.franklintempleton.com. |
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ClearBridge Energy Midstream Opportunity Fund Inc. |
|
III |
Performance review (contd)
the Fund issues a monthly press release that can be found on most major financial websites as
well as www.franklintempleton.com.
In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Funds current NAV, market price and other information.
Thank you for your investment in ClearBridge Energy Midstream Opportunity Fund Inc. As always, we appreciate that you have chosen us to manage your assets and we remain
focused on achieving the Funds investment goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
June 30, 2023
RISKS: The Fund is a non-diversified,
closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty
inherent in all investments, there can be no assurance that the Fund will achieve its investment objective. The Funds common stock is traded on the New York Stock Exchange. Similar to stocks, the Funds share price will fluctuate with
market conditions and, at the time of sale, may be worth more or less than the original investment. Shares of closed-end funds often trade at a discount to their net asset value. Because the Fund is non-diversified, it may be more susceptible to economic, political or regulatory events than a diversified fund. The Funds investments are subject to a number of risks such as stock market risk, MLP and
midstream entities risk, market events risk and portfolio management risk. MLP distributions are not guaranteed and there is no assurance that all distributions will be tax deferred. Investments in MLP securities and midstream entities are subject
to unique risks. The Funds concentration of investments in energy-related MLPs and midstream entities subjects it to the risks of MLPs, midstream entities and the energy sector, including the risks of declines in energy or commodity prices,
decreases in energy demand, adverse weather conditions, natural or other disasters, changes in government regulation, and changes in tax laws. Leverage may result in greater volatility of NAV and the market price of common shares and increases a
shareholders risk of loss. The Fund may make significant investments in derivative instruments. Derivative instruments can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. The Fund
may invest in small-capitalization or illiquid securities, which can increase the risk and volatility of the Fund. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market
conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or
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IV |
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
foreign central banks, market disruptions caused by trade disputes or other factors, political developments, armed
conflicts, economic sanctions and countermeasures in response to sanctions, major cybersecurity events, investor sentiment, the global and domestic effects of a pandemic, and other factors that may or may not be related to the issuer of the security
or other asset. The Fund may also invest in money market funds, including funds affiliated with the Funds manager and subadviser.
All investments are
subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
i |
Net asset value (NAV) is calculated by subtracting total liabilities, including liabilities associated with
financial leverage (if any), from the closing value of all securities held by the Fund (plus all other assets) and dividing the result (total net assets) by the total number of the common shares outstanding. The NAV fluctuates with changes in the
market prices of securities in which the Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is the Funds market price as determined by supply of and demand for the Funds shares.
|
ii |
The Alerian MLP Index is a composite of the fifty most prominent energy master limited partnerships (MLPs) and
is calculated using a float-adjusted, capitalization-weighted methodology. |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
|
V |
Fund at a glance (unaudited)
Investment breakdown (%) as a percent of total investments
|
The bar graph above represents the composition of the Funds investments as of May 31, 2023 and
November 30, 2022. The Fund is actively managed. As a result, the composition of the Funds investments is subject to change at any time. |
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|
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ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
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|
|
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1 |
|
Schedule of investments (unaudited)
May 31, 2023
ClearBridge Energy Midstream
Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
Security |
|
Shares/Units |
|
|
Value |
|
Master Limited Partnerships 104.0% |
|
|
|
|
|
|
|
|
Diversified Energy Infrastructure
40.4% |
|
|
|
|
|
|
|
|
Energy Transfer LP |
|
|
4,176,293 |
|
|
|
$51,786,033 |
|
Enterprise Products Partners LP |
|
|
1,807,049 |
|
|
|
45,772,551 |
|
Genesis Energy LP |
|
|
1,135,650 |
|
|
|
10,959,023 |
|
Plains All American Pipeline LP |
|
|
2,175,671 |
|
|
|
28,109,669 |
|
Plains GP Holdings LP, Class A Shares |
|
|
2,053,665 |
|
|
|
27,929,844 |
* |
Total Diversified Energy
Infrastructure |
|
|
|
|
|
|
164,557,120 |
|
Gathering/Processing
25.2% |
|
|
|
|
|
|
|
|
Crestwood Equity Partners LP |
|
|
750,490 |
|
|
|
19,257,573 |
|
DCP Midstream LP |
|
|
571,976 |
|
|
|
23,788,482 |
|
Hess Midstream LP, Class A Shares |
|
|
630,288 |
|
|
|
17,578,732 |
|
Western Midstream Partners LP |
|
|
1,669,556 |
|
|
|
42,139,594 |
|
Total
Gathering/Processing |
|
|
|
|
|
|
102,764,381 |
|
Global Infrastructure
5.0% |
|
|
|
|
|
|
|
|
Brookfield Infrastructure Partners LP |
|
|
565,566 |
|
|
|
20,298,164 |
|
Liquids Transportation & Storage
16.2% |
|
|
|
|
|
|
|
|
Delek Logistics Partners LP |
|
|
136,030 |
|
|
|
7,318,414 |
|
Holly Energy Partners LP |
|
|
482,232 |
|
|
|
8,279,923 |
|
Magellan Midstream Partners LP |
|
|
664,890 |
|
|
|
40,033,027 |
|
NuStar Energy LP |
|
|
647,470 |
|
|
|
10,573,185 |
|
Total Liquids Transportation &
Storage |
|
|
|
|
|
|
66,204,549 |
|
Natural Gas Transportation &
Storage 4.9% |
|
|
|
|
|
|
|
|
Cheniere Energy Partners LP |
|
|
450,793 |
|
|
|
20,037,749 |
|
Oil, Gas & Consumable Fuels
0.6% |
|
|
|
|
|
|
|
|
Green Plains Partners LP |
|
|
200,000 |
|
|
|
2,406,000 |
|
Oil/Refined Products
11.5% |
|
|
|
|
|
|
|
|
MPLX LP |
|
|
1,407,331 |
|
|
|
46,920,416 |
|
Propane 0.2% |
|
|
|
|
|
|
|
|
Suburban Propane Partners LP |
|
|
66,060 |
|
|
|
1,008,736 |
|
Total Master Limited Partnerships (Cost
$401,570,433) |
|
|
|
|
|
|
424,197,115 |
|
|
|
|
|
|
Shares |
|
|
|
|
Common Stocks 43.7% |
|
|
|
|
|
|
|
|
Energy 43.3% |
|
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels
43.3% |
|
|
|
|
|
|
|
|
Antero Midstream Corp. |
|
|
2,209,686 |
|
|
|
22,560,894 |
|
DT Midstream Inc. |
|
|
138,000 |
|
|
|
6,273,480 |
|
Enbridge Inc. |
|
|
603,209 |
|
|
|
21,232,957 |
|
Equitrans Midstream Corp. |
|
|
686,724 |
|
|
|
5,857,756 |
|
Kinder Morgan Inc. |
|
|
1,249,630 |
|
|
|
20,131,539 |
|
See Notes to Financial Statements.
|
|
|
|
|
2 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
ClearBridge Energy Midstream Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Security |
|
|
|
|
Shares |
|
|
Value |
|
Oil, Gas & Consumable Fuels
continued |
|
|
|
|
|
|
|
|
|
|
|
|
ONEOK Inc. |
|
|
|
|
|
|
362,917 |
|
|
$ |
20,562,877 |
|
Targa Resources Corp. |
|
|
|
|
|
|
564,753 |
|
|
|
38,431,442 |
|
TC Energy Corp. |
|
|
|
|
|
|
385,541 |
|
|
|
15,012,967 |
|
Williams Cos. Inc. |
|
|
|
|
|
|
921,675 |
|
|
|
26,415,205 |
|
Total Energy |
|
|
|
|
|
|
|
|
|
|
176,479,117 |
|
Industrials 0.4% |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Services & Supplies
0.4% |
|
|
|
|
|
|
|
|
|
|
|
|
Aris Water Solutions Inc., Class A Shares |
|
|
|
|
|
|
183,470 |
|
|
|
1,686,089 |
|
Total Common Stocks (Cost
$201,826,822) |
|
|
|
|
|
|
|
|
|
|
178,165,206 |
|
Total Investments before Short-Term Investments (Cost
$603,397,255) |
|
|
|
602,362,321 |
|
|
|
|
|
|
|
Rate |
|
|
|
|
|
|
|
Short-Term Investments 1.6% |
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan 100% U.S. Treasury Securities Money Market Fund, Institutional Class (Cost
$6,633,449) |
|
|
4.877 |
% |
|
|
6,633,449 |
|
|
|
6,633,449 |
(a) |
Total Investments** 149.3% (Cost
$610,030,704) |
|
|
|
|
|
|
|
608,995,770 |
|
Mandatory Redeemable Preferred Stock, at Liquidation
Value (12.7)% |
|
|
|
|
|
|
|
(51,900,070 |
) |
Other Liabilities in Excess of Other Assets
(36.6)% |
|
|
|
|
|
|
|
|
|
|
(149,336,825 |
) |
Total Net Assets Applicable to Common Shareholders
100.0% |
|
|
|
|
|
|
$ |
407,758,875 |
|
* |
Non-income producing security. |
** |
The entire portfolio is subject to a lien, granted to the lender and Senior Note holders, to the extent of the borrowings
outstanding and any additional expenses. |
(a) |
Rate shown is one-day yield as of the end of the reporting period.
|
See Notes to Financial Statements.
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
3 |
|
Statement of assets and liabilities (unaudited)
May 31, 2023
|
|
|
|
|
|
|
Assets: |
|
|
|
|
Investments, at value (Cost $610,030,704) |
|
$ |
608,995,770 |
|
Income tax receivable |
|
|
3,181,173 |
|
Receivable for securities sold |
|
|
845,423 |
|
Dividends and distributions receivable |
|
|
551,537 |
|
Money market fund distributions receivable |
|
|
32,697 |
|
Prepaid expenses |
|
|
44,314 |
|
Total Assets |
|
|
613,650,914 |
|
|
|
Liabilities: |
|
|
|
|
Loan payable (Note 5) |
|
|
120,000,000 |
|
Mandatory Redeemable Preferred Stock ($100,000 and $30 liquidation value per share; 349
and 566,669 shares issued and outstanding, respectively) (net of deferred offering costs of $539,313) (Note 7) |
|
|
51,360,757 |
|
Senior Secured Notes (net of deferred debt issuance and offering costs of $58,526) (Note
6) |
|
|
32,878,865 |
|
Investment management fee payable |
|
|
504,242 |
|
Interest expense payable |
|
|
261,482 |
|
Distributions payable to Mandatory Redeemable Preferred Stockholders |
|
|
114,707 |
|
Directors fees payable |
|
|
866 |
|
Accrued expenses |
|
|
771,120 |
|
Total Liabilities |
|
|
205,892,039 |
|
Total Net Assets Applicable to Common Shareholders |
|
$ |
407,758,875 |
|
|
|
Net Assets Applicable to Common Shareholders: |
|
|
|
|
Common stock par value ($0.001 par value; 12,787,291 shares issued and outstanding;
99,432,982 common shares authorized) |
|
$ |
12,787 |
|
Paid-in capital in excess of par value |
|
|
709,051,488 |
|
Total distributable earnings (loss), net of income taxes |
|
|
(301,305,400) |
|
Total Net Assets Applicable to Common Shareholders |
|
$ |
407,758,875 |
|
|
|
Common Shares Outstanding |
|
|
12,787,291 |
|
|
|
Net Asset Value Per Common Share |
|
$ |
31.89 |
|
See Notes to Financial
Statements.
|
|
|
|
|
4 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
Statement of operations (unaudited)
For the Six Months Ended May 31, 2023
|
|
|
|
|
|
|
Investment Income: |
|
|
|
|
Dividends and distributions |
|
$ |
23,247,909 |
|
Return of capital (Note 1(h)) |
|
|
(18,287,159) |
|
Net Dividends and Distributions |
|
|
4,960,750 |
|
Money market fund distributions |
|
|
178,049 |
|
Less: Foreign taxes withheld |
|
|
(202,215) |
|
Total Investment
Income |
|
|
4,936,584 |
|
|
|
Expenses: |
|
|
|
|
Interest expense (Notes 5 and 6) |
|
|
4,181,299 |
|
Investment management fee (Note 2) |
|
|
3,180,638 |
|
Distributions to Mandatory Redeemable Preferred Stockholders (Notes 1 and 7) |
|
|
1,372,382 |
|
Transfer agent fees |
|
|
515,063 |
|
Legal fees |
|
|
322,431 |
|
Audit and tax fees |
|
|
139,296 |
|
Directors fees |
|
|
89,929 |
|
Amortization of preferred stock offering costs (Note 7) |
|
|
56,871 |
|
Commitment fees (Note 5) |
|
|
35,195 |
|
Fund accounting fees |
|
|
34,825 |
|
Amortization of debt issuance and offering costs (Note 6) |
|
|
21,663 |
|
Rating agency fees |
|
|
11,552 |
|
Shareholder reports |
|
|
10,363 |
|
Franchise taxes |
|
|
7,698 |
|
Insurance |
|
|
1,877 |
|
Stock exchange listing fees |
|
|
1,090 |
|
Custody fees |
|
|
1,017 |
|
Miscellaneous expenses |
|
|
226,458 |
|
Total Expenses |
|
|
10,209,647 |
|
Less: Fee waivers and/or expense reimbursements (Note 2) |
|
|
(159,032) |
|
Net Expenses |
|
|
10,050,615 |
|
Net Investment Loss, before income taxes |
|
|
(5,114,031) |
|
Current tax expense (Note 9) |
|
|
(202,660) |
|
Net Investment Loss, net of income taxes |
|
|
(5,316,691) |
|
|
|
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions (Notes 1, 3 and 9): |
|
|
|
|
Net Realized Gain (Loss) From: |
|
|
|
|
Investment transactions |
|
|
8,297,988 |
|
Foreign currency transactions |
|
|
(7,426) |
|
Net Realized Gain, before income
taxes |
|
|
8,290,562 |
|
Net Realized Gain, net of income
taxes |
|
|
8,290,562 |
|
Change in Net Unrealized Appreciation (Depreciation) From: |
|
|
|
|
Investments |
|
|
(42,386,471) |
|
Foreign currencies |
|
|
2,133 |
|
Change in Net Unrealized Appreciation
(Depreciation), before income taxes |
|
|
(42,384,338) |
|
Change in Net Unrealized Appreciation
(Depreciation), net of income taxes |
|
|
(42,384,338) |
|
Net Loss on Investments and Foreign Currency Transactions, net of income taxes |
|
|
(34,093,776) |
|
Decrease in Net Assets Applicable to Common Shareholders From Operations |
|
$ |
(39,410,467) |
|
See Notes to Financial Statements.
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
5 |
|
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Six Months Ended May 31, 2023 (unaudited)
and the Year Ended November 30, 2022 |
|
2023 |
|
|
2022 |
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
Net investment loss, net of income taxes |
|
$ |
(5,316,691) |
|
|
$ |
(5,597,287) |
|
Net realized gain, net of income taxes |
|
|
8,290,562 |
|
|
|
54,149,128 |
|
Change in net unrealized appreciation (depreciation), net of income taxes |
|
|
(42,384,338) |
|
|
|
97,845,488 |
|
Increase (Decrease) in Net Assets
Applicable to Common Shareholders From Operations |
|
|
(39,410,467) |
|
|
|
146,397,329 |
|
|
|
|
Distributions to Common Shareholders From (Note 1): |
|
|
|
|
|
|
|
|
Dividends |
|
|
|
|
|
|
(24,902,723) |
|
Return of capital |
|
|
(13,682,401) |
|
|
|
|
|
Decrease in Net Assets From Distributions
to Common Shareholders |
|
|
(13,682,401) |
|
|
|
(24,902,723) |
|
|
|
|
Fund Share Transactions: |
|
|
|
|
|
|
|
|
Cost of shares repurchased (130,000 and 284,640 shares repurchased, respectively) (Note
8) |
|
|
(3,730,554) |
|
|
|
(7,201,095) |
|
Decrease in Net Assets From Fund Share
Transactions |
|
|
(3,730,554) |
|
|
|
(7,201,095) |
|
Increase (Decrease) in Net Assets
Applicable to Common Shareholders |
|
|
(56,823,422) |
|
|
|
114,293,511 |
|
|
|
|
Net Assets Applicable to Common Shareholders: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
464,582,297 |
|
|
|
350,288,786 |
|
End of period |
|
$ |
407,758,875 |
|
|
$ |
464,582,297 |
|
See Notes to Financial
Statements.
|
|
|
|
|
6 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
Statement of cash flows (unaudited)
For the Six Months Ended May 31, 2023
|
|
|
|
|
|
|
Increase (Decrease) in Cash: |
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
Net decrease in net assets applicable to common shareholders resulting from
operations |
|
$ |
(39,410,467) |
|
Adjustments to reconcile net decrease in net assets resulting from operations to net cash
provided (used) by operating activities: |
|
|
|
|
Purchases of portfolio securities |
|
|
(140,791,574) |
|
Sales of portfolio securities |
|
|
136,599,791 |
|
Net purchases, sales and maturities of short-term investments |
|
|
6,948,274 |
|
Return of capital |
|
|
18,287,159 |
|
Increase in dividends and distributions receivable |
|
|
(32,369) |
|
Increase in receivable for securities sold |
|
|
(845,423) |
|
Decrease in money market fund distributions receivable |
|
|
5,732 |
|
Increase in prepaid expenses |
|
|
(14,281) |
|
Decrease in income tax receivable |
|
|
2,700,724 |
|
Decrease in payable for securities purchased |
|
|
(1,089,250) |
|
Amortization of preferred stock offering costs |
|
|
56,871 |
|
Amortization of debt issuance and offering costs |
|
|
21,663 |
|
Decrease in investment management fee payable |
|
|
(5,324) |
|
Decrease in Directors fees payable |
|
|
(19,134) |
|
Decrease in interest expense payable |
|
|
(76,919) |
|
Increase in accrued expenses |
|
|
388,701 |
|
Decrease in distributions payable to Mandatory Redeemable Preferred Stockholders |
|
|
(3,771) |
|
Net realized gain on investments |
|
|
(8,297,988) |
|
Change in net unrealized appreciation (depreciation) of investments |
|
|
42,386,471 |
|
Net Cash Provided in Operating
Activities* |
|
|
16,808,886 |
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
Distributions paid on common stock |
|
|
(13,682,401) |
|
Proceeds from loan facility borrowings |
|
|
9,000,000 |
|
Repayment of Senior Secured Notes at maturity |
|
|
(8,364,254) |
|
Payment for Fund shares repurchased |
|
|
(3,730,554) |
|
Preferred stock offering costs |
|
|
(31,677) |
|
Net Cash Used by Financing
Activities |
|
|
(16,808,886) |
|
Cash and restricted cash at beginning of period |
|
|
|
|
Cash and restricted cash at end of period |
|
|
|
|
* |
Included in operating expenses is $4,304,177 paid for interest and commitment fees on borrowings, $1,376,153 paid for
distributions to Mandatory Redeemable Preferred Stockholders and $2,498,064 refunded for income taxes, net of income taxes paid. |
See Notes to Financial Statements.
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
7 |
|
Statement of cash flows
(unaudited) (contd)
For the Six Months Ended May 31, 2023
|
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, 2023 |
|
Cash |
|
|
|
|
Restricted cash |
|
|
|
|
Total cash and restricted cash shown in the Statement of Cash Flows |
|
|
|
|
See Notes to Financial
Statements.
|
|
|
|
|
8 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a common share of capital stock outstanding throughout each year ended
November 30, unless otherwise noted: |
|
|
|
20231,2 |
|
|
20221 |
|
|
20211 |
|
|
20201,3 |
|
|
20191,3 |
|
|
20181,3 |
|
|
|
|
|
|
|
|
Net asset value, beginning of period |
|
|
$35.97 |
|
|
|
$26.53 |
|
|
|
$17.13 |
|
|
|
$43.75 |
|
|
|
$51.35 |
|
|
|
$56.85 |
|
|
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
|
(0.42) |
|
|
|
(0.43) |
|
|
|
(0.36) |
|
|
|
(1.07) |
|
|
|
(0.70) |
|
|
|
0.30 |
|
Net realized and unrealized gain (loss) |
|
|
(2.63) |
|
|
|
11.65 |
|
|
|
11.01 |
|
|
|
(23.54) |
|
|
|
(2.30) |
|
|
|
0.60 |
|
Total income (loss) from
operations |
|
|
(3.05) |
|
|
|
11.22 |
|
|
|
10.65 |
|
|
|
(24.61) |
|
|
|
(3.00) |
|
|
|
0.90 |
|
|
|
|
|
|
|
|
Less distributions to common shareholders from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
|
|
|
|
(1.92) |
|
|
|
(0.54) |
|
|
|
|
|
|
|
(1.70) |
|
|
|
(1.60) |
|
Return of capital |
|
|
(1.07) |
4 |
|
|
|
|
|
|
(0.93) |
|
|
|
(2.13) |
|
|
|
(2.90) |
|
|
|
(4.80) |
|
Total distributions to common
shareholders |
|
|
(1.07) |
|
|
|
(1.92) |
|
|
|
(1.47) |
|
|
|
(2.13) |
|
|
|
(4.60) |
|
|
|
(6.40) |
|
Anti-dilutive impact of repurchase plan |
|
|
0.04 |
5 |
|
|
0.14 |
5 |
|
|
0.22 |
5 |
|
|
0.12 |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period |
|
|
$31.89 |
|
|
|
$35.97 |
|
|
|
$26.53 |
|
|
|
$17.13 |
|
|
|
$43.75 |
|
|
|
$51.35 |
|
Market price, end of period |
|
|
$27.01 |
|
|
|
$30.43 |
|
|
|
$21.65 |
|
|
|
$12.70 |
|
|
|
$38.10 |
|
|
|
$46.15 |
|
Total return, based on NAV6,7 |
|
|
(8.52) |
% |
|
|
43.33 |
% |
|
|
64.18 |
% |
|
|
(57.35) |
% |
|
|
(6.57) |
% |
|
|
0.67 |
% |
Total return, based on Market Price8 |
|
|
(7.90) |
% |
|
|
50.20 |
% |
|
|
82.70 |
% |
|
|
(62.74) |
% |
|
|
(8.15) |
% |
|
|
(0.87) |
% |
|
|
|
|
|
|
|
Net assets applicable to common shareholders, end of period (millions) |
|
|
$408 |
|
|
|
$465 |
|
|
|
$350 |
|
|
|
$238 |
|
|
|
$628 |
|
|
|
$736 |
|
|
|
|
|
|
|
|
Ratios to average net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees |
|
|
1.48 |
%9 |
|
|
1.44 |
% |
|
|
1.41 |
% |
|
|
1.52 |
% |
|
|
1.50 |
% |
|
|
1.49 |
% |
Other expenses |
|
|
3.27 |
9 |
|
|
1.70 |
|
|
|
1.68 |
|
|
|
3.65 |
10 |
|
|
2.16 |
|
|
|
2.12 |
|
Subtotal |
|
|
4.75 |
9 |
|
|
3.14 |
|
|
|
3.09 |
|
|
|
5.17 |
10 |
|
|
3.66 |
|
|
|
3.61 |
|
Income tax expenses |
|
|
0.05 |
11 |
|
|
0.11 |
|
|
|
|
12 |
|
|
1.32 |
|
|
|
|
12 |
|
|
|
12 |
Total gross
expenses |
|
|
4.80 |
13,14 |
|
|
3.25 |
|
|
|
3.09 |
|
|
|
6.49 |
10 |
|
|
3.66 |
|
|
|
3.61 |
|
Total net expenses15 |
|
|
4.73 |
13,14 |
|
|
3.18 |
|
|
|
3.03 |
|
|
|
6.42 |
10 |
|
|
3.59 |
|
|
|
3.60 |
|
Net investment income (loss), net of income taxes |
|
|
(2.43) |
13 |
|
|
(1.31) |
|
|
|
(1.43) |
|
|
|
(4.71) |
10 |
|
|
(1.37) |
|
|
|
0.52 |
|
|
|
|
|
|
|
|
Portfolio turnover rate |
|
|
22 |
% |
|
|
60 |
% |
|
|
37 |
% |
|
|
19 |
% |
|
|
29 |
% |
|
|
14 |
% |
See Notes to Financial
Statements.
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
9 |
|
Financial highlights (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a common share of capital stock outstanding throughout each year ended
November 30, unless otherwise noted: |
|
|
|
20231,2 |
|
|
20221 |
|
|
20211 |
|
|
20201,3 |
|
|
20191,3 |
|
|
20181,3 |
|
|
|
|
|
|
|
|
Supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan and Debt Issuance Outstanding, End of Period (000s) |
|
|
$152,937 |
|
|
|
$152,302 |
|
|
|
$124,104 |
|
|
|
$55,104 |
|
|
|
$278,500 |
|
|
|
$343,000 |
|
Asset Coverage Ratio for Loan and Debt Issuance Outstanding16 |
|
|
401 |
% |
|
|
439 |
% |
|
|
417 |
% |
|
|
609 |
% |
|
|
343 |
% |
|
|
329 |
% |
Asset Coverage, per $1,000 Principal Amount of Loan and Debt Issuance Outstanding16 |
|
|
$4,006 |
|
|
|
$4,391 |
|
|
|
$4,170 |
|
|
|
$6,094 |
|
|
|
$3,426 |
|
|
|
$3,286 |
|
Weighted Average Loan and Debt Issuance (000s) |
|
|
$154,724 |
|
|
|
$148,414 |
|
|
|
$95,983 |
|
|
|
$122,617 |
|
|
|
$318,462 |
|
|
|
$163,197 |
|
Weighted Average Interest Rate on Loan and Debt Issuance |
|
|
5.35 |
% |
|
|
2.87 |
% |
|
|
2.48 |
% |
|
|
6.14 |
%17 |
|
|
3.83 |
% |
|
|
3.51 |
% |
Mandatory Redeemable Preferred Stock at Liquidation Value, End of Period (000s) |
|
|
$51,900 |
|
|
|
$51,900 |
|
|
|
$43,100 |
|
|
|
$43,100 |
|
|
|
$48,000 |
|
|
|
$48,000 |
|
Asset Coverage Ratio for Mandatory Redeemable Preferred Stock18 |
|
|
299 |
% |
|
|
328 |
% |
|
|
309 |
% |
|
|
342 |
% |
|
|
292 |
% |
|
|
288 |
% |
Asset Coverage, per $100,000 Liquidation Value per Share of Mandatory Redeemable Preferred
Stock18 |
|
|
$299,065 |
|
|
|
$327,511 |
|
|
|
$309,498 |
|
|
|
$341,958 |
|
|
|
$292,258 |
|
|
|
$288,277 |
|
Asset Coverage, per $30 Liquidation Value per Share of Mandatory Redeemable Preferred
Stock18 |
|
|
$90 |
|
|
|
$98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial
Statements.
|
|
|
|
|
10 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
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, 2023 (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 $28.70 for 130,000 shares and $3,730,554 for the six
months ended May 31, 2023, $25.30 for 284,640 shares and $7,201,095 for the year ended November 30, 2022, $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.
|
12 |
For the years ended November 30, 2021, 2019 and 2018, the net income tax benefit was 0.19%, 0.88% and 3.08%,
respectively. The net income tax benefit is not reflected in the Funds expense ratios. |
13 |
Annualized, except for income tax expenses. |
14 |
Included in the expense ratios are certain non-recurring legal and transfer agent
fees that were incurred by the Fund during the period. Without these fees, the gross and net expense ratios would have been 4.41% and 4.34%, respectively. |
15 |
Reflects fee waivers and/or expense reimbursements. |
16 |
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. |
17 |
Includes prepayment penalties recognized during the period. |
18 |
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.
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
11 |
|
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
99,432,982 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 Fund follows the accounting and reporting guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946,
Financial Services Investment Companies (ASC 946). The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles
(GAAP), including, but not limited to, ASC 946. 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
|
|
|
|
|
12 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
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 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.
Pursuant to policies
adopted by the Board of Directors, the Funds manager has been designated as the valuation designee and is responsible for the oversight of the daily valuation process. The Funds manager is assisted by the Global Fund Valuation Committee
(the Valuation Committee). The Valuation Committee is responsible for making fair value determinations, evaluating the effectiveness of the Funds pricing policies, and reporting to the Funds manager and 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
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|
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ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
13 |
|
Notes to financial statements
(unaudited) (contd)
available market quotations. The Valuation Committee reviews the results of such back testing
monthly and fair valuation occurrences are reported to the Board of Directors quarterly.
The Fund uses valuation techniques to measure fair value that are
consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or
comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
GAAP establishes a disclosure
hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
|
|
Level 1 unadjusted 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 |
|
$ |
424,197,115 |
|
|
|
|
|
|
|
|
|
|
$ |
424,197,115 |
|
Common Stocks |
|
|
178,165,206 |
|
|
|
|
|
|
|
|
|
|
|
178,165,206 |
|
Total Long-Term Investments |
|
|
602,362,321 |
|
|
|
|
|
|
|
|
|
|
|
602,362,321 |
|
Short-Term Investments |
|
|
6,633,449 |
|
|
|
|
|
|
|
|
|
|
|
6,633,449 |
|
Total Investments |
|
$ |
608,995,770 |
|
|
|
|
|
|
|
|
|
|
$ |
608,995,770 |
|
|
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
|
|
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|
|
14 |
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ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
(including accrued expenses, borrowings, interest payables and the aggregate liquidation value
(i.e., $100,000 and $30 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.
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ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
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|
|
|
15 |
|
Notes to financial statements
(unaudited) (contd)
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 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.
|
|
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|
|
16 |
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|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
(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 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, 2023, the Fund estimated that approximately 79% of the MLP distributions received would be
treated as a return of capital. The Fund recorded as return of capital the amount of $18,403,834 of dividends and distributions received from its investments.
Additionally, the Fund updated the return of capital estimates from the year ended November 30, 2022 based on actual amounts subsequently reported to the Fund. This
resulted in an increase of $116,675 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 anticipates that 100% of its current period distributions will be comprised of return of capital. 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 return of capital. The actual tax characterization of the MRPS distributions made during the current year will not be
determined until after the end of the fiscal year when the Fund can determine its earnings and profits and, therefore, may differ from the preliminary estimates.
|
|
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ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
17 |
|
Notes to financial statements
(unaudited) (contd)
(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.
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
|
|
|
|
|
18 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
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 2018 through 2022 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 Fund had no reclassifications.
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager and ClearBridge Investments, LLC (ClearBridge) is the
Funds subadviser. LMPFA and ClearBridge are 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, 2024.
During the six months ended May 31, 2023, fees waived and/or expenses reimbursed amounted to $159,032.
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, 2023, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
|
|
|
|
|
Purchases |
|
$ |
140,791,574 |
|
Sales |
|
|
136,599,791 |
|
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
19 |
|
Notes to financial statements
(unaudited) (contd)
4. Derivative instruments and hedging activities
During the six months ended May 31, 2023, 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 $160,000,000. The Credit Agreement is subject to a scheduled commitment termination date of December 13,
2023. 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 adjusted Term SOFR 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, 2023, 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, 2023 was $3,400,756. For the six months ended May 31, 2023, the Fund incurred commitment fees of $35,195. For the six months
ended May 31, 2023, the average daily loan balance was $118,615,385 and the weighted average interest rate was 5.67%.
6. Senior
secured notes
At May 31, 2023, the Fund had $32,937,391 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, 2023 was $780,543. Costs incurred by the Fund in connection with the Senior Notes are recorded as a deferred charge and are amortized over the life of
the notes. Securities held by the Fund are subject to a lien, granted to the Senior Notes holders, to the extent of the borrowings outstanding and any additional expenses. The Senior Notes holders and the lender have equal access to the lien (See
Note 5).
On February 7, 2023, Series B Senior Notes in the amount of $8,364,254 matured.
|
|
|
|
|
20 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
The table below summarizes the key terms of each series of Senior Notes at May 31, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security |
|
Amount |
|
|
Rate |
|
|
Maturity |
|
|
Estimated Fair Value |
|
Senior secured notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C |
|
$ |
10,075,124 |
|
|
|
4.02 |
% |
|
|
February 7, 2025 |
|
|
$ |
9,593,233 |
|
Series E |
|
|
950,483 |
|
|
|
3.76 |
% |
|
|
August 26, 2026 |
|
|
|
886,391 |
|
Series G |
|
|
11,609,975 |
|
|
|
4.51 |
% |
|
|
October 15, 2023 |
|
|
|
11,271,443 |
|
Series H |
|
|
10,301,809 |
|
|
|
4.66 |
% |
|
|
October 15, 2025 |
|
|
|
9,928,857 |
|
|
|
$ |
32,937,391 |
|
|
|
|
|
|
|
|
|
|
$ |
31,679,924 |
|
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, 2023, the Fund had 567,018 shares of fixed rate MRPS outstanding with an aggregate liquidation value of $51,900,070. 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.
The table below summarizes the key terms of each series of the MRPS at May 31, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series |
|
Term Redemption Date |
|
|
Rate |
|
|
Shares |
|
|
Liquidation Preference Per Share |
|
|
Aggregate Liquidation Value |
|
|
Estimated Fair Value |
|
Series H |
|
|
3/26/2024 |
|
|
|
4.26 |
% |
|
|
140 |
|
|
$ |
100,000 |
|
|
$ |
14,000,000 |
|
|
$ |
13,524,878 |
|
Series I |
|
|
7/23/2024 |
|
|
|
4.37 |
% |
|
|
30 |
|
|
|
100,000 |
|
|
|
3,000,000 |
|
|
|
2,901,246 |
|
Series J |
|
|
7/23/2026 |
|
|
|
4.55 |
% |
|
|
70 |
|
|
|
100,000 |
|
|
|
7,000,000 |
|
|
|
6,585,774 |
|
Series K |
|
|
8/7/2024 |
|
|
|
4.30 |
% |
|
|
109 |
|
|
|
100,000 |
|
|
|
10,900,000 |
|
|
|
10,534,124 |
|
Series L |
|
|
11/17/2032 |
|
|
|
7.28 |
% |
|
|
566,669 |
|
|
|
30 |
|
|
|
17,000,070 |
|
|
|
17,695,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,900,070 |
|
|
$ |
51,241,267 |
|
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.
|
|
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|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
21 |
|
Notes to financial statements
(unaudited) (contd)
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, if applicable, is in default of specified rating agency requirements, the MRPS are subject to mandatory redemption and
penalties 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, if applicable, rating agency requirements.
The holders of Series L MRPS have one vote per share and the holders of Series H, Series I, Series J and Series K MRPS have one vote for every $30.00 of liquidation
preference held. Holders of MRPS 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. On July 29, 2022, the Fund announced that the Board had authorized the amendment of the Funds
repurchase program under which the Fund may continue to repurchase in the open market up to an additional 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 continue 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, 2023, the Fund repurchased and retired 0.91% of its common shares outstanding
under the repurchase plan. The weighted average discount per share on these repurchases was 12.95% for the six months ended May 31, 2023. During the year ended November 30, 2022, the Fund repurchased and retired 1.98% of its common shares
outstanding under the repurchase plan. The weighted average discount per share on these repurchases was 19.61% for the year ended November 30, 2022. 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.
|
|
|
|
|
22 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
Since the commencement of the stock repurchase program through May 31, 2023, the Fund
repurchased 1,659,323 shares or 10.85% of its common shares outstanding for a total amount of $27,811,805.
9. Income taxes
The Funds federal and state income tax provisions consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
State |
|
|
Total |
|
Current tax expense (benefit) |
|
$ |
126,979 |
|
|
$ |
75,681 |
|
|
$ |
202,660 |
|
Deferred tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
Total tax expense (benefit) |
|
$ |
126,979 |
|
|
$ |
75,681 |
|
|
$ |
202,660 |
|
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 1.2%. 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 |
% |
|
$ |
(8,233,639) |
|
State taxes, net of federal tax benefit |
|
|
1.20 |
% |
|
|
(470,494) |
|
Non-deductible distributions on MRPS, dividends received deduction and other, net (federal and state) |
|
|
(0.16) |
% |
|
|
61,716 |
|
Change in valuation allowance |
|
|
(22.56) |
% |
|
|
8,845,077 |
|
Total tax expense (benefit) |
|
|
(0.52) |
% |
|
$ |
202,660 |
|
Components of the Funds net deferred tax asset (liability) as of May 31, 2023 are as follows:
|
|
|
|
|
Deferred tax assets |
|
|
|
|
Net operating loss carryforward |
|
$ |
21,705,863 |
|
Capital loss carryforward |
|
|
63,011,076 |
|
Unrealized losses on investment securities |
|
|
230,302 |
|
Other deferred tax assets |
|
|
3,463,053 |
|
|
|
Deferred tax liabilities |
|
|
|
|
Basis reduction resulting from differences in the book vs. taxable income received from MLPs |
|
|
(18,029,842) |
|
Net deferred tax asset (liability) before valuation allowance |
|
|
70,380,452 |
|
Less: Valuation allowance |
|
|
(70,380,452) |
|
Total net deferred tax asset (liability) |
|
|
|
|
At May 31, 2023, the Fund had federal and state net operating loss carryforwards of $90,204,891 and $53,952,262 (net of state
apportionment), respectively (deferred tax asset of $21,705,863). Several states compute net operating losses before apportionment, therefore the value of the state net operating loss carryforward disclosed may fluctuate for
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
23 |
|
Notes to financial statements
(unaudited) (contd)
changes in apportionment factors. Realization of the deferred tax asset related to the net
operating loss carryforward is dependent, in part, on generating sufficient taxable income in each respective jurisdiction prior to expiration of the loss carryforward. If not utilized, the federal net operating loss carryforward of $67,405,599
expires in tax year 2036, and the remaining balance of $22,799,292 does not have an expiration. The state net operating loss carryforward either expires in tax years between 2023 and 2042 or has an indefinite carryforward.
Additionally, at May 31, 2023, the Fund had federal and state capital loss carryforwards of $283,833,674 (deferred tax asset of $63,011,076), which may be carried
forward for 5 years. During the period ended May 31, 2023, the Fund utilized $4,947,708 of capital loss carryforward available from previous years. If not utilized, the remaining capital loss carryforward balances of $9,961,948 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.
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, 2023. Note 1(l) describes the assessment required under ASC 740 to determine whether a valuation
allowance for deferred tax assets is necessary using a more likely than not standard of realizability. Based on that assessment, and considering the limitations imposed under Section 384 as discussed above, management has determined that the
Fund is not expected to be able to generate significant future taxable income of the appropriate character in order to realize its deferred tax assets, and accordingly has determined that a full valuation allowance on its net deferred tax asset is
appropriate at this time. The capital loss carryforward is a material component of the net deferred tax asset and also has a five-year expiration. If in the future, a valuation allowance is required to reserve against an individual deferred tax
asset, such as the capital loss carryforward, it could have a material impact on the Funds net asset value and results of operations in the period it is recorded.
|
|
|
|
|
24 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
At May 31, 2023, the cost basis of investments for Federal income tax purposes was
$537,045,069. At May 31, 2023, gross unrealized appreciation and depreciation of investments for Federal income tax purposes were as follows:
|
|
|
|
|
Gross unrealized appreciation |
|
$ |
101,646,337 |
|
Gross unrealized depreciation |
|
|
(29,695,636) |
|
Net unrealized appreciation (depreciation) before tax |
|
$ |
71,950,701 |
|
Net unrealized appreciation (depreciation) after tax |
|
$ |
55,977,645 |
|
10. Recent accounting pronouncement and regulatory update
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the Act) into law. The Act, among other things, imposes a nondeductible
1 percent excise tax on public company stock buybacks. This excise tax is applicable to the fair market value of stock repurchased after December 31, 2022, and may include both common and preferred stock. The Act also imposes a
15 percent corporate alternative minimum tax on the adjusted financial statement income of large corporations for taxable years beginning after December 31, 2022. Management anticipates forthcoming proposed regulations from the Treasury
Department to determine the impact of the Act, however based on interim guidance currently does not believe such potential impact to be material to the Fund.
* * *
In June
2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-03, Fair Value Measurement (Topic 820) Fair Value Measurement of Equity Securities Subject
to Contractual Sale Restrictions. The amendments in the ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, should not be considered in
measuring fair value. The ASU is effective for interim and annual reporting periods beginning after December 15, 2023, with the option of early adoption. Management has reviewed the requirements and believes that the adoption of the ASU will
not have a material impact on the financial statements.
11. Subsequent event
On July 21, 2023, the Fund was served with a complaint by Saba Capital Master Fund, Ltd. and Saba Capital Management, L.P. dated June 29, 2023 (the
Complaint). The Complaint, filed with the United States District Court, Southern District of New York, alleges that the control share provisions of the Maryland Control Share Acquisition Act (MCSAA) that apply to the Fund
under Maryland law violate the 1940 Act. The Complaint also asks the court to rescind the application of the MCSAA provisions to the Fund and a declaration that the MCSAA provisions are void. Fifteen other
closed-end investment companies registered under the 1940 Act were also named in the Complaint. As of the date these financial statements were issued, the court has not ruled on these allegations or the
plaintiffs
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
|
|
|
|
25 |
|
Notes to financial statements
(unaudited) (contd)
related requests for judgment. At this time no reasonable estimate can be made as to the potential
outcome of the complaint nor any possible loss or damage to the Fund.
|
|
|
|
|
26 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. 2023 Semi-Annual Report |
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 9-10,
2023, 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) in conjunction with both 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 each of those years.
At a meeting held on April 18, 2023, 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
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
|
|
|
|
27 |
|
Board approval of management and subadvisory agreements (unaudited) (contd)
Closed-end Funds, including the Fund, received to date. No representatives of the Manager or the
Sub-Adviser participated in this meeting. Following the April 18, 2023 meeting, the Independent Directors submitted certain questions and requests for additional information to Fund management. The
Independent Directors also met in private sessions with their independent legal counsel to consider the Contract Renewal Information and Fund 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 during 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.
|
|
|
|
|
28 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
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 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 respective compliance programs as well as 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 borne by the Manager, the Sub-Adviser and their respective affiliates on behalf of the Fund, 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.
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
|
|
|
|
29 |
|
Board approval of management and subadvisory agreements (unaudited) (contd)
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.
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 comparable 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 Broadridge Performance 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-year period ended December 31, 2022, and was below the median for the 3-, 5- and 10-year
periods ended December 31, 2022. 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, 2024 (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
|
|
|
|
|
30 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
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 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.
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
|
|
|
|
31 |
|
Board approval of management and subadvisory agreements (unaudited) (contd)
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 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, 2022 and September 30, 2021. 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.
|
|
|
|
|
32 |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
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 14, 2023 for the purpose of considering and voting upon the proposals presented at the Meeting. The following table provides information
concerning the matters voted upon at the Meeting:
Election of Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominees |
|
Outstanding
Voting Securities of Common
Shares and Preferred Shares, voting
together, Voted FOR Election |
|
|
Outstanding
Voting Securities of Common
Shares and Preferred Shares,
voting together, WITHHELD |
|
|
Outstanding
Voting Securities of Common
Shares and Preferred Shares,
voting together, ABSTAIN |
|
|
Outstanding
Voting Securities of Preferred
Shares, Voted FOR Election |
|
|
Outstanding
Voting Securities of Preferred
Shares, WITHHELD |
|
|
Outstanding
Voting Securities of Preferred
Shares, ABSTAIN |
|
Robert D. Agdern |
|
|
2,861,416 |
|
|
|
449,894 |
|
|
|
85,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Eileen A. Kamerick |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,076,668 |
|
|
|
|
|
|
|
|
|
Paul Kazarian |
|
|
5,084,337 |
|
|
|
48,627 |
|
|
|
10,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of the record date of the Annual Meeting, 12,787,291 voting securities of common stock were outstanding and 1,730,002 voting
securities of preferred stock were outstanding. The total number of outstanding voting securities as of the record date was 14,517,293.
Eileen A. Kamerick was
elected as a Director of the Fund by holders of its shares of preferred stock, voting as a separate class.
Neither Robert D. Agdern or Paul Kazarian received the
majority of votes entitled to be cast by holders of shares of the Funds common stock and preferred stock, voting as a single class. As a result, the Funds incumbent Director nominee, Robert D. Agdern, will continue to serve on the
Funds Board of Directors.
At May 31, 2023, in addition to Eileen Kamerick and Robert D. Agdern, the other Directors of the Fund were as follows:
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
Nisha Kumar
Jane Trust
|
|
|
|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
|
|
|
|
33 |
|
Additional shareholder information (unaudited) (contd)
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, 2023.
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
8,146,021 |
|
284,452 |
|
109,329 |
|
|
|
|
|
34 |
|
|
|
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 P.O. Box 43006, Providence, RI 02940-3078 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; otherwise such
|
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|
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
|
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35 |
|
Dividend reinvestment plan
(unaudited) (contd)
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 P.O. Box 43006, Providence, RI 02940-3078 or by calling the Plan Agent at 1-888-888-0151.
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36 |
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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
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.
P.O. Box 43006
Providence, RI 02940-3078
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
Legg Mason Funds Privacy and Security Notice
Legg Your Privacy Mason Funds and the Security of Your Personal
Information is Very Important to the
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 the Western Asset Money Market 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; and |
|
|
Online account access user IDs, passwords, security challenge question responses. |
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, unless you have authorized the
Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law.
The Funds may disclose information about you to:
|
|
Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business or
to comply with obligations to government regulators; |
|
|
Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business
(such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform statistical analysis, market research and marketing services solely
for the Funds; |
|
|
Permit access to transfer, whether in the United States or countries outside of the United States to such Funds
employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators; |
|
|
The Funds representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary
business, or to comply with obligations to government regulators; |
|
|
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
|
|
NOT PART OF THE SEMI-ANNUAL
REPORT |
Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds behalf,
including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to
perform.
The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or
required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to
disclose your nonpublic personal information to third parties. While it is the Funds practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain
unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time, they will
notify you promptly if this privacy policy changes.
The Funds Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds internal data
security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them,
and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented
to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is
incomplete, not accurate or not current, if you have questions about the Funds privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by
clicking on the Contact Us section of the Funds website at www.franklintempleton.com, or contact the Funds at
1-877-721-1926 for the Western Asset Money Market Funds or 1-888-777-0102 for the Legg Mason-sponsored closed-end funds.
Revised
October 2022
|
NOT PART OF THE SEMI-ANNUAL
REPORT |
Legg Mason Funds Privacy and Security Notice (contd)
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, 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).
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.
You also have the right to request the deletion of the personal information collected or maintained by the
Funds.
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 2022
|
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.
P.O. Box 43006
Providence, RI 02940-3078
CBAX014784 07/23 SR23-4678
Not applicable.
ITEM 3. |
AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable.
ITEM 4. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable.
ITEM 5. |
AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. |
SCHEDULE OF INVESTMENTS. |
Included herein under Item 1.
ITEM 7. |
DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. |
PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
|
Not applicable.
ITEM 9. |
PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
(d) |
|
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
|
December 1 through December 31 |
|
|
130,000 |
|
|
$ |
28.70 |
|
|
|
130,000 |
|
|
|
1,313,052 |
|
January 1 through January 31 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,313,052 |
|
February 1 through February 28 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,313,052 |
|
March 1 through March 31 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,313,052 |
|
April 1 through April 30 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,313,052 |
|
May 1 through May 31 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,313,052 |
|
Total |
|
|
130,000 |
|
|
$ |
28.70 |
|
|
|
130,000 |
|
|
|
1,313,052 |
|
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. On July 29, 2022, the Fund announced that the
Board had authorized the amendment of the Funds repurchase program under which the Fund may continue to repurchase in the open market up to an additional 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 continue 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.
ITEM 10. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
ITEM 11. |
CONTROLS AND PROCEDURES. |
|
(a) |
The registrants principal executive officer and principal financial officer have concluded that the
registrants disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the 1940 Act)) are effective as of a date within 90 days of
the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. |
|
(b) |
There were no changes in the registrants internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected, or are likely to materially affect the registrants internal control over financial reporting.
|
ITEM 12. |
DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT
INVESTMENT COMPANIES. |
Not applicable
(a) (1) Not applicable.
Exhibit
99.CODE ETH
(a) (2)
Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit
99.CERT
(b) Certifications pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this
Report to be signed on its behalf by the undersigned, there unto duly authorized.
ClearBridge Energy Midstream Opportunity Fund Inc.
|
|
|
By: |
|
/s/ Jane Trust |
|
|
Jane Trust |
|
|
Chief Executive Officer |
|
|
Date: |
|
July 26, 2023 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940,
this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
By: |
|
/s/ Jane Trust |
|
|
Jane Trust |
|
|
Chief Executive Officer |
|
|
Date: |
|
July 26, 2023 |
|
|
By: |
|
/s/ Christopher Berarducci |
|
|
Christopher Berarducci |
|
|
Principal Financial Officer |
|
|
Date: |
|
July 26, 2023 |
CERTIFICATIONS PURSUANT TO SECTION 302
EX-99.CERT
CERTIFICATIONS
I, Jane Trust,
certify that:
1. |
I have reviewed this report on Form N-CSR of ClearBridge Energy
Midstream Opportunity Fund Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the
periods presented in this report; |
4. |
The registrants other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule
30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; |
|
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that
occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officers and I have disclosed to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrants internal control over financial reporting. |
|
|
|
|
|
|
|
Date: July 26, 2023 |
|
|
|
|
|
/s/ Jane Trust |
|
|
|
|
|
|
Jane Trust |
|
|
|
|
|
|
Chief Executive Officer |
CERTIFICATIONS
I, Christopher Berarducci, certify that:
1. |
I have reviewed this report on Form N-CSR of ClearBridge Energy
Midstream Opportunity Fund Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial information included in this report, and the financial statements on which
the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the
registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule
30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; |
|
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that
occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officers and I have disclosed to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrants internal control over financial reporting. |
|
|
|
|
|
|
|
Date: July 26, 2023 |
|
|
|
|
|
/s/ Christopher Berarducci |
|
|
|
|
|
|
Christopher Berarducci |
|
|
|
|
|
|
Principal Financial Officer |
CERTIFICATIONS PURSUANT TO SECTION 906
EX-99.906CERT
CERTIFICATION
Jane Trust, Chief
Executive Officer, and Christopher Berarducci, Principal Financial Officer of ClearBridge Energy Midstream Opportunity Fund Inc. (the Registrant), each certify to the best of their knowledge that:
1. The Registrants periodic report on Form N-CSR for the period ended
May 31, 2023 (the Form N-CSR) fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Form N-CSR fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
|
|
|
|
|
Chief Executive Officer |
|
|
|
Principal Financial Officer |
ClearBridge Energy Midstream Opportunity Fund Inc. |
|
|
|
ClearBridge Energy Midstream Opportunity Fund Inc. |
|
|
|
/s/ Jane Trust |
|
|
|
/s/ Christopher Berarducci |
Jane Trust |
|
|
|
Christopher Berarducci |
Date: July 26, 2023 |
|
|
|
Date: July 26, 2023 |
This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. § 1350 and
is not being filed as part of the Form N-CSR with the Commission.
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