Form N-CSRS - Certified Shareholder Report, Semi-Annual
July 30 2024 - 10:22AM
Edgar (US Regulatory)
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)
Marc A. De Oliveira
Franklin Templeton
100 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant’s telephone number, including area code:
1-888-777-0102
Date of fiscal year end: November 30
Date of reporting period: May 31, 2024
| ITEM 1. |
REPORT TO STOCKHOLDERS. |
The Semi-Annual Report to Stockholders is filed
herewith.
Semi-Annual Report
May 31, 2024
CLEARBRIDGE
ENERGY MIDSTREAM OPPORTUNITY FUND
INC. (EMO)
Fund objective
The Fund’s 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.
ClearBridge Energy Midstream Opportunity Fund Inc.
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, 2024. Please
read on for Fund performance information during the Fund’s reporting period.
Special shareholder notices
On December 26, 2023, ClearBridge Energy Midstream Opportunity Fund Inc. (NYSE: EMO)
(the “Fund”) announced that the Fund, among other affiliated funds, entered into an agreement with Saba Capital Management, L.P. (“Saba”) and certain associated parties (the “Settlement Agreement”). During the effective period of the Settlement Agreement, Saba agreed to (1) be bound by the terms of the Settlement Agreement, including certain
standstill covenants, and (2) vote its Shares (as defined below) on all proposals
submitted to stockholders in accordance with the recommendation of each Fund’s Board of Directors.
Under the Settlement Agreement, the Fund agreed to conduct a tender offer for up to
50% of the Fund’s outstanding shares of common stock (“Shares”) at a price per share equal to 100% of the Fund’s net asset value on the day on which the tender offer expires (“Tender Offer”).
On May 21, 2024, the Fund announced the commencement of the Tender Offer, with an
expiration time of 5:00 p.m., Eastern Time, on June 20, 2024. On June 24, 2024, the
Fund announced the final results of the Tender Offer. A total of 7,259,865 Shares were
duly tendered and not withdrawn. Because the number of Shares tendered exceeded 6,393,645
Shares, the tender offer has been oversubscribed. Therefore, in accordance with the
terms and conditions specified in the tender offer, the Fund purchased Shares from all tendering
stockholders on a pro rata basis, disregarding fractions. Accordingly, on a pro rata
basis, approximately 88.08% of Shares for each stockholder who properly tendered shares have
been accepted for payment. The Shares accepted for tender were repurchased at a price
of $44.45 equal to 100% of the per Share net asset value, as of the close of the regular
trading session of the New York Stock Exchange on June 20, 2024. Payment for such
Shares was made on June 25, 2024. Shares that were not tendered remain outstanding.
On January 26, 2024, the Fund, ClearBridge MLP and Midstream Fund Inc. (NYSE: CEM),
ClearBridge MLP and Midstream Total Return Fund Inc. (NYSE: CTR) (individually, a “Fund” and collectively, the “Funds”) announced approval by each Fund’s Board of Directors of a proposal to merge (i) CEM with and into EMO and (ii) CTR with and into EMO, subject
to approval by stockholders of each Fund (each, a “Merger” and collectively, the “Mergers”).
ClearBridge Energy Midstream Opportunity Fund Inc.
Letter from the chairman (cont’d)
Management and each Fund’s Board of Directors believed it was in the best interest of stockholders to merge CEM and CTR with and into EMO in part because the combined Fund
is expected to have lower operating expenses, enhanced earning potential and greater
trading volume. Management and each Fund’s investment adviser do not anticipate any material portfolio turnover as a result of the Mergers. The Mergers of the Funds into
EMO is expected to qualify as a tax-free reorganization for federal income tax purposes.
On May 20, 2024, the Funds announced that stockholders of each of the Funds approved
the Mergers at the Joint Special Meeting of Stockholders of the Funds held on May 17,
2024. It is currently anticipated that each Merger will be effective before markets open on
Monday, August 19, 2024, subject to all regulatory requirements and customary closing conditions
being satisfied.
Upon completion of the Mergers, each share of common stock of CEM and CTR will convert
into an equivalent dollar amount (to the nearest $0.001) of full shares of common
stock of EMO, based on the net asset value of each Fund on the business day preceding the Mergers. EMO will not issue fractional shares to CEM and CTR stockholders. In lieu
of issuing fractional shares, EMO will pay cash to each former holder of CEM and CTR
common stock in an amount equal to the net asset value of the fractional shares of
EMO common stock that the investor would otherwise have received in the Mergers.
Each Fund has outstanding Mandatory Redeemable Preferred Stock (“MRPS”). In connection with the closing of each Merger, EMO will issue and deliver to each of the CEM’s and CTR’s MRPS holders newly issued shares of EMO’s MRPS with the same aggregate liquidation preference and terms as their MRPS that are issued and outstanding immediately before
the date of the Mergers. The liquidation preference per share for the newly issued
EMO MRPS will be $35 per share. EMO will issue a corresponding number of newly issued
shares of EMO’s MRPS so that the aggregate liquidation preference for the replaced CEM MRPS and the replaced CTR MRPS remains the same. EMO will also amend its MRPS that
are outstanding prior to the closing of the Mergers to align the voting rights of all of EMO’s outstanding preferred stock so that each preferred stockholder will have one vote
for every $35 of liquidation preference (i.e. one vote per share) following the Mergers. No
fractional MRPS will be issued to CEM and CTR holders as a result of the Mergers. EMO will round
up to the next whole share instead of issuing fractional shares of MRPS.
ClearBridge Energy Midstream Opportunity Fund Inc.
Letter from the chairman (cont’d)
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:
•
Fund prices and performance,
•
Market insights and commentaries from our portfolio managers, and
•
A host of educational resources.
We look forward to helping you meet your financial goals.
Jane Trust, CFA
Chairman, President and Chief Executive Officer
ClearBridge Energy Midstream Opportunity Fund Inc.
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For the six months ended May 31, 2024, ClearBridge Energy Midstream Opportunity Fund Inc. returned 18.20% based on its net asset value (NAV)i and 26.50% based on its New York Stock Exchange (NYSE) market price per share. The Alerian MLP Indexii (the “Index”), a gauge of the total return of energy infrastructure master limited partnerships,
returned 10.24% over the same time frame. The performance of the Index reflects no
deduction for fees, expenses or taxes, or the impact from the use of leverage. The
Fund invests both in securities structured as master limited partnerships and in corporations
for federal income tax purposes, producing an asset allocation that generally differs
significantly from the Index. The Fund’s higher allocation to corporations may produce differences in performance versus the Index.
The Fund has a practice of seeking to maintain a relatively stable level of distributions
to shareholders. This practice has no impact on the Fund’s investment strategy and may reduce the Fund’s NAV. The Fund’s manager believes the practice helps maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/discount to the Fund’s NAV.
During the six-month period, the Fund made distributions to shareholders totaling
$1.34 per share. As of May 31, 2024, the Fund estimates that all of the distributions were a
dividend.* The performance table shows the Fund’s six-month total return based on its NAV and market price as of May 31, 2024. Past performance is no guarantee of future results.
Performance Snapshot as of May 31, 2024 (unaudited)
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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 Fund’s Dividend Reinvestment Plan.
*
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 shareholder’s investment. For more information about a distribution’s composition, please refer to the Fund’s distribution press release or, if applicable, the Section 19 notice located in the
press release section of our website, www.franklintempleton.com.
ClearBridge Energy Midstream Opportunity Fund Inc.
Performance review (cont’d)
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. Barron’s and The Wall Street Journal’s Monday edition both carry closed-end fund tables that provide additional information. In
addition, 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 Fund’s current NAV, market price and other information.
Thank you for your investment in the 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 Fund’s investment goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
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 Fund’s common stock is traded on the New York Stock Exchange. Similar to stocks, the Fund’s 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 Fund’s 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 Fund’s 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 shareholder’s risk of loss. The Fund may make significant
ClearBridge Energy Midstream Opportunity Fund Inc.
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 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 Fund’s 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 Fund’s market price as determined by supply of and demand for the Fund’s 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.
Important data provider notices and terms available at www.franklintempletondatasources.com.
ClearBridge Energy Midstream Opportunity Fund Inc.
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Fund at a glance† (unaudited)
Investment breakdown (%) as a percent of total investments
†
The bar graph above represents the composition of the Fund’s investments as of May 31, 2024 and November 30, 2023. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Schedule of investments (unaudited)
May 31, 2024
ClearBridge Energy Midstream Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
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Master Limited Partnerships — 53.9%
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Diversified Energy Infrastructure — 34.4%
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Enterprise Products Partners LP
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Plains All American Pipeline LP
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Plains GP Holdings LP, Class A Shares
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Total Diversified Energy Infrastructure
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Gathering/Processing — 8.2%
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Hess Midstream LP, Class A Shares
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Western Midstream Partners LP
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Total Gathering/Processing
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Global Infrastructure — 1.4%
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Brookfield Infrastructure Partners LP
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Liquids Transportation & Storage — 0.4%
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Delek Logistics Partners LP
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Natural Gas Transportation & Storage — 1.9%
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Cheniere Energy Partners LP
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Oil/Refined Products — 7.3%
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Total Oil/Refined Products
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Suburban Propane Partners LP
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Total Master Limited Partnerships (Cost — $313,543,355)
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Oil, Gas & Consumable Fuels — 49.6%
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Equitrans Midstream Corp.
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See Notes to Financial Statements.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
ClearBridge Energy Midstream Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
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Commercial Services & Supplies — 0.3%
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Aris Water Solutions Inc., Class A Shares
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Total Common Stocks (Cost — $272,017,620)
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Total Investments before Short-Term Investments (Cost — $585,560,975)
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Short-Term Investments — 6.7%
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JPMorgan 100% U.S. Treasury Securities Money Market
Fund, Institutional Class (Cost — $38,032,071)
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Total Investments** — 110.5% (Cost — $623,593,046)
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Mandatory Redeemable Preferred Stock, at Liquidation Value — (6.7)%
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Other Liabilities in Excess of Other Assets — (3.8)%
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Total Net Assets Applicable to Common Shareholders — 100.0%
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Non-income producing security.
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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.
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Rate shown is one-day yield as of the end of the reporting period.
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See Notes to Financial Statements.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Statement of assets and liabilities (unaudited)
May 31, 2024
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Investments, at value (Cost — $623,593,046)
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Dividends and distributions receivable
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Money market fund distributions receivable
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Mandatory Redeemable Preferred Stock ($100,000 and $30 liquidation value per share;
209
and 566,669 shares issued and outstanding, respectively) (net of deferred offering
costs of
$426,406) (Note 7)
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Senior Secured Notes (net of deferred debt issuance and offering costs of
$29,574) (Note 6)
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Deferred tax liability (Note 11)
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Investment management fee payable
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Interest and commitment fees payable
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Excise tax payable (Note 1(l))
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Distributions payable to Mandatory Redeemable Preferred Stockholders
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Total Net Assets Applicable to Common Shareholders
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Net Assets Applicable to Common Shareholders:
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Common stock par value ($0.001 par value; 12,787,291 shares issued and outstanding;
99,433,122 common shares authorized)
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Paid-in capital in excess of par value
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Total distributable earnings (loss), net of income taxes
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Total Net Assets Applicable to Common Shareholders
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Common Shares Outstanding
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Net Asset Value Per Common Share
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See Notes to Financial Statements.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Statement of operations (unaudited)
For the Six Months Ended May 31, 2024
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Dividends and distributions
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Return of capital (Note 1(h))
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Net Dividends and Distributions
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Money market fund distributions
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Less: Foreign taxes withheld
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Interest expense (Notes 5 and 6)
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Investment management fee (Note 2)
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Distributions to Mandatory Redeemable Preferred Stockholders (Notes 1 and 7)
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Excise tax (Notes 1(l) and 7)
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Amortization of preferred stock offering costs (Note 7)
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Amortization of debt issuance and offering costs (Note 6)
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Stock exchange listing fees
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Less: Fee waivers and/or expense reimbursements (Note 2)
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Net Investment Loss, before income taxes
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Net current and deferred tax benefit (Note 11)
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Net Investment Loss, net of income taxes
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Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions
(Notes 1, 3 and 11):
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Net Realized Gain (Loss) From:
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Foreign currency transactions
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Net Realized Gain, before income taxes
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Deferred tax expense (Note 11)
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Net Realized Gain, net of income taxes
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Change in Net Unrealized Appreciation (Depreciation) From:
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Change in Net Unrealized Appreciation (Depreciation), before income taxes
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Deferred tax benefit (Note 11)
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Change in Net Unrealized Appreciation (Depreciation), net of income taxes
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Net Gain on Investments and Foreign Currency Transactions, net of income taxes
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Increase in Net Assets Applicable to Common Shareholders From Operations
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See Notes to Financial Statements.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Statements of changes in net assets
For the Six Months Ended May 31, 2024 (unaudited)
and the Year Ended November 30, 2023
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Net investment loss, net of income taxes
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Net realized gain, net of income taxes
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Change in net unrealized appreciation (depreciation), net of income taxes
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Increase in Net Assets Applicable to Common Shareholders
From Operations
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Distributions to Common Shareholders From (Note 1):
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Decrease in Net Assets From Distributions to Common
Shareholders
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Cost of shares repurchased (0 and 130,000 shares repurchased,
respectively) (Note 8)
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Decrease in Net Assets From Fund Share Transactions
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Increase in Net Assets Applicable to Common Shareholders
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Net Assets Applicable to Common Shareholders:
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See Notes to Financial Statements.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Statement of cash flows (unaudited)
For the Six Months Ended May 31, 2024
Increase (Decrease) in Cash:
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Cash Flows from Operating Activities:
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Net increase in net assets applicable to common shareholders resulting from operations
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Adjustments to reconcile net increase in net assets resulting from operations to net
cash
provided (used) by operating activities:
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Purchases of portfolio securities
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Sales of portfolio securities
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Net purchases, sales and maturities of short-term investments
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Securities litigation proceeds
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Decrease in dividends and distributions receivable
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Increase in money market fund distributions receivable
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Decrease in prepaid expenses
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Decrease in income tax receivable
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Amortization of preferred stock offering costs
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Amortization of debt issuance and offering costs
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Decrease in investment management fee payable
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Decrease in Directors’ fees payable
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Decrease in interest and commitment fees payable
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Decrease in accrued expenses
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Decrease in distributions payable to Mandatory Redeemable Preferred Stockholders
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Increase in deferred tax liability
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Increase in excise tax payable (Notes 1(l) and 7)
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Net realized gain on investments
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Change in net unrealized appreciation (depreciation) of investments
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Net Cash Provided in Operating Activities*
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Cash Flows from Financing Activities:
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Distributions paid on common stock
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Proceeds from loan facility borrowings
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Repayment of loan facility borrowings
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Redemption of Mandatory Redeemable Preferred Stock
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Net Cash Used by Financing Activities
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Net Increase in Cash and Restricted Cash
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Cash and restricted cash at beginning of period
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Cash and restricted cash at end of period
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Included in operating expenses is $4,574,303 paid for interest and commitment fees
on borrowings, $1,291,663
paid for distributions to Mandatory Redeemable Preferred Stockholders and $317,613
refunded for income taxes,
net of income taxes paid.
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See Notes to Financial Statements.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Statement of cash flows (unaudited) (cont’d)
For the Six Months Ended May 31, 2024
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.
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Total cash and restricted cash shown in the Statement of Cash Flows
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See Notes to Financial Statements.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
For a common share of capital stock outstanding throughout each year ended November
30,
unless otherwise noted:
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Net asset value, beginning of
period
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Income (loss) from operations:
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Net realized and unrealized
gain (loss)
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Total income (loss)
from operations
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Less distributions to common
shareholders from:
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Total distributions to
common
shareholders
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Anti-dilutive impact of
repurchase plan
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Net asset value, end of
period
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Market price, end of period
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Total return, based on NAV6,7
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Net assets applicable to
common shareholders, end
of period (millions)
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Ratios to average net assets:
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Net investment loss, net of
income taxes
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See Notes to Financial Statements.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Financial highlights (cont’d)
For a common share of capital stock outstanding throughout each year ended November
30,
unless otherwise noted:
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Loan and Debt Issuance
Outstanding, End of Period
(000s)
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Asset Coverage Ratio for
Loan and Debt Issuance
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Asset Coverage, per $1,000
Principal Amount of Loan and
Debt Issuance Outstanding17
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Weighted Average Loan and
Debt Issuance (000s)
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Weighted Average Interest
Rate on Loan and Debt
Issuance
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Mandatory Redeemable
Preferred Stock at Liquidation
Value, End of Period (000s)
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Asset Coverage Ratio for
Mandatory Redeemable
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Asset Coverage, per $100,000
Liquidation Value per Share
of Mandatory Redeemable
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Asset Coverage, per $30
Liquidation Value per Share
of Mandatory Redeemable
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See Notes to Financial Statements.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
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Per share amounts have been calculated using the average shares method.
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For the six months ended May 31, 2024 (unaudited).
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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.
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The actual source of the Fund’s 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.
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The repurchase plan was completed at an average repurchase price of $28.70 for 130,000
shares and $3,730,554
for the year ended November 30, 2023 and $25.30 for 284,640 shares and $7,201,095
for the year ended
November 30, 2022 and $17.25 for 665,383 shares and $11,481,173 for the year ended
November 30, 2021 and
$9.32 for 579,300 shares and $5,398,982 for the year ended November 30, 2020.
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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.
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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.
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Ratios and total return for the six months ended May 31, 2024, include certain non-recurring
fees incurred by the
Fund during the period. Without these items, the gross and net expense ratios and
the net investment loss ratio
would have been 4.42%, 4.36% and (1.32)%, respectively, and total return based on
NAV would have been
18.23%.
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The total return calculation assumes that distributions are reinvested in accordance with the Fund’s dividend
reinvestment plan. Past performance is no guarantee of future results. Total returns
for periods of less than one
year are not annualized.
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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.
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For the years ended November 30, 2021 and 2019, the net income tax benefit was 0.19%
and 0.88%, respectively.
The net income tax benefit is not reflected in the Fund’s expense ratios.
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Annualized, except for income tax expenses.
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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 4.57% and 4.49%,
respectively.
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Reflects fee waivers and/or expense reimbursements.
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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.
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Includes prepayment penalties recognized during the period.
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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. 2024 Semi-Annual Report
Notes to financial statements (unaudited)
1. Organization and significant accounting policies
ClearBridge Energy Midstream Opportunity Fund Inc. (the “Fund”) was incorporated in Maryland on April 5, 2011 and is registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Board of Directors authorized 99,433,122 shares of $0.001 par value common stock. The Fund’s 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
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
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
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 Fund’s Board of Directors.
Pursuant to policies adopted by the Board of Directors, the Fund’s manager has been designated as the valuation designee and is responsible for the oversight of the daily
valuation process. The Fund’s 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 Fund’s pricing policies, and reporting to the Fund’s 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 issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time
of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of
merger proposals or tender offers affecting the security; the price and extent of public
trading in similar securities of the issuer or comparable companies; and the existence of a shelf
registration for restricted securities.
For each portfolio security that has been fair valued pursuant to the policies adopted
by the Board of Directors, the fair value price is compared against the last available and
next available market quotations. The Valuation Committee reviews the results of such back
testing monthly and fair valuation occurrences are reported to the Board of Directors
quarterly.
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
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Notes to financial statements (unaudited) (cont’d)
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 Fund’s 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 Fund’s assets carried at fair value:
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Other Significant
Observable Inputs
(Level 2)
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Significant
Unobservable
Inputs
(Level 3)
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Master Limited Partnerships
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Total Long-Term Investments
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See Schedule of Investments for additional detailed categorizations.
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(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 Fund’s securities, cash and other assets (including interest accrued but not collected) less all its
liabilities (including accrued expenses, borrowings, interest payables and the aggregate liquidation
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”
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
are traded on securities exchanges like shares of corporate stock. To be treated as
a partnership for U.S. federal income tax purposes, an MLP whose units are traded on
a securities exchange must receive at least 90% of its income from qualifying sources
such as interest, dividends, real estate rents, gain from the sale or disposition of real
property, income and gain from mineral or natural resources activities, income and gain from
the transportation or storage of certain fuels, and, in certain circumstances, income
and gain from commodities or futures, forwards and options with respect to commodities. Mineral
or natural resources activities include exploration, development, production, processing,
mining, refining, marketing and transportation (including pipelines) of oil and gas,
minerals, geothermal energy, fertilizer, timber or industrial source carbon dioxide. An MLP
consists of a general partner and limited partners (or in the case of MLPs organized as limited
liability companies, a managing member and members). The general partner or managing member
typically controls the operations and management of the MLP and has an ownership stake
in the partnership. The limited partners or members, through their ownership of limited
partner or member interests, provide capital to the entity, are intended to have no
role in the operation and management of the entity and receive cash distributions. The MLPs
themselves generally do not pay U.S. federal income taxes. Thus, unlike investors
in corporate securities, direct MLP investors are generally not subject to double taxation
(i.e., corporate level tax and tax on corporate dividends). Currently, most MLPs operate
in the energy and/or natural resources sector.
(d) Foreign currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon
prevailing exchange rates on the date of valuation. Purchases and sales of investment
securities and income and expense items denominated in foreign currencies are translated
into U.S. dollar amounts based upon prevailing exchange rates on the respective dates
of such transactions.
The Fund does not isolate that portion of the results of operations resulting from
fluctuations in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included with the
net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies,
including gains and losses on forward foreign currency contracts, currency gains or
losses 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 Fund’s 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,
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Notes to financial statements (unaudited) (cont’d)
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 Fund’s 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) is recorded on the accrual basis. Amortization of premiums and accretion
of discounts on debt securities are recorded to interest income over the lives of the
respective securities, except for premiums on certain callable debt securities, which are amortized
to the earliest call date. Dividend income is recorded on the ex-dividend date for dividends
received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend
date or as soon as practicable after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence. The cost of investments sold
is determined by use of the specific identification method. To the extent any issuer
defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest
income accruals and consider the realizability of interest accrued up to the date
of default or credit event.
(h) Return of capital estimates. Distributions received from the Fund’s 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, 2024, the Fund estimated that approximately 70% of the MLP distributions received would be treated as a return of capital. The Fund recorded
as return of capital the amount of $15,668,984 of dividends and distributions received
from its investments.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Additionally, the Fund updated the return of capital estimates from the year ended
November 30, 2023 based on actual amounts subsequently reported to the Fund. This
resulted in a decrease of $1,075,507 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 Fund’s 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 Fund’s operating results during the period. The Fund has generated sufficient current year earnings and profits for tax purposes from gains realized on the sale
of its MLP investments such that 100% of the distributions paid during the current period will
be treated as dividend income. Because the Fund is taxed as a “C” Corporation, the distributions paid by the Fund are considered to be dividend income to the extent
that the distributions are paid out of the Fund’s current net income and realized capital gains. The actual tax characterization of the common stock distributions made during the current
year will not be determined until after the end of the fiscal year when the Fund can determine
its earnings and profits and, therefore, may differ from the preliminary estimates.
Distributions to holders of MRPS are accrued on a daily basis as described in Note
7 and are treated as an operating expense as required by GAAP. For tax purposes, the payments
made to the holders of the Fund’s MRPS are treated as a dividend (ordinary income) or distribution (return of capital) similar to the treatment of distributions made to
common shareholders as described above. The Fund anticipates that 100% of its current period
distributions to the MRPS shareholders will be treated as dividend income. The actual
tax characterization of the MRPS distributions made during the current year will not be
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.
The tax character of the distributions for both common and MRPS shareholders were
100% dividend income for the year ended November 30, 2023.
(k) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s 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 MLP’s taxable income in computing its own taxable income. The Fund, and entities in which the Fund invests, may be subject
to
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Notes to financial statements (unaudited) (cont’d)
audit by the Internal Revenue Service or other applicable tax authorities. The Fund’s 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 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 Fund’s 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.
A 1% non-deductible excise tax is imposed on the aggregate fair market value of stock
repurchased by the Fund during a taxable year, subject to certain adjustments. The
excise tax is applicable for repurchases after December 31, 2022 and applies to both common
stock (open market and tender offers) and MRPS redemptions.
For all open tax years and for all major jurisdictions, management of the Fund has
concluded that there are no significant uncertain tax positions that would require
recognition in the financial statements. Furthermore, management of the Fund is also
not aware of any tax positions for which it is reasonably possible that the total amounts
of unrecognized tax benefits will significantly change in the next twelve months.
The Fund may rely to some extent on information provided by the MLPs, which may not
necessarily be timely, to estimate taxable income and gains allocable from the MLP
units held in the portfolio and to estimate the associated deferred tax liability. Such
estimates are made in good faith. From time to time, as new information becomes available, the
Fund modifies its estimates or assumptions regarding the current and deferred tax liabilities.
The Fund’s 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 2019 through 2023 tax years remain open and subject to examination
by tax jurisdictions.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
(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
Franklin Templeton Fund Adviser, LLC (“FTFA”) is the Fund’s investment manager and ClearBridge Investments, LLC (“ClearBridge”) is the Fund’s subadviser. FTFA and ClearBridge are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”).
Under the investment management agreement, the Fund pays FTFA an annual fee, paid
monthly, in an amount equal to 1.00% of the Fund’s average daily Managed Assets.
FTFA provides administrative and certain oversight services to the Fund. FTFA delegates
to the subadviser the day-to-day portfolio management of the Fund. For its services,
FTFA 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 FTFA
will be higher than if the Fund did not utilize leverage because the fees are calculated as
a percentage of the Fund’s assets, including those investments purchased with leverage.
Effective March 1, 2021, FTFA implemented a voluntary investment management fee waiver
of 0.05% that will continue until May 31, 2025.
During the six months ended May 31, 2024, fees waived and/or expenses reimbursed amounted to $178,514.
All officers and one Director of the Fund are employees of Franklin Resources or its
affiliates and do not receive compensation from the Fund.
During the six months ended May 31, 2024, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
4. Derivative instruments and hedging activities
During the six months ended May 31, 2024, the Fund did not invest in derivative instruments.
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 ($215,000,000 effective December 13, 2023). The Credit Agreement is subject to a scheduled commitment termination date of December 11, 2024 (previously, 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
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Notes to financial statements (unaudited) (cont’d)
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 Fund’s Credit Agreement contains customary covenants that, among other things, may limit the Fund’s 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 Fund’s ability to utilize borrowing under the agreement. At May 31, 2024, the Fund had no borrowings outstanding per this Credit Agreement.
Interest expense related to this loan for the six months ended May 31, 2024 was $3,957,801. For the six months ended May 31, 2024, the Fund incurred commitment fees of $114,453. For the six months ended May 31, 2024, the average daily loan balance was $139,163,522 and the weighted average interest rate was 6.44%.
At May 31, 2024, the Fund had $21,327,416 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, 2024 was $461,672. 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).
The table below summarizes the key terms of each series of Senior Notes at May 31,
2024.
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, 2024, the Fund had 566,878 shares of fixed rate MRPS outstanding with an
aggregate liquidation value of $37,900,070. 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.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
On March 26, 2024, which was the scheduled redemption date, the Fund redeemed 140
shares of Series H MRPS at a liquidation value of $14,000,000 plus any accumulated
unpaid dividends. During the six months ended May 31, 2024, the Fund accrued $140,000 of
excise tax applicable to the mandatory redemption of Series H MRPS.
The table below summarizes the key terms of each series of the MRPS at May 31, 2024.
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Liquidation
Preference
Per Share
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Aggregate
Liquidation
Value
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The MRPS are not listed on any exchange or automated quotation system. The estimated
fair value of the MRPS was calculated, for disclosure purposes, based on estimated
market yields and credit spreads for comparable instruments with similar maturity, terms
and structure. The MRPS are categorized as Level 3 within the fair value hierarchy.
Holders of MRPS are entitled to receive quarterly cumulative cash dividends payable
on the first business day following each quarterly dividend date (February 15, May 15, August
15 and November 15). In the event of a rating downgrade of any series of the MRPS below “A” by a nationally recognized statistical ratings organization (“NRSRO”) then providing a rating, the applicable dividend rate will increase by 0.5% to 4.0% according to a predetermined
schedule.
The MRPS rank senior to the Fund’s 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 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.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Notes to financial statements (unaudited) (cont’d)
8. Stock repurchase program
On November 16, 2015, the Fund announced that the Fund’s Board of Directors (the “Board”) had authorized the Fund to repurchase in the open market up to approximately 10% of
the Fund’s outstanding common stock when the Fund’s 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 Fund’s repurchase program under which the Fund may continue to repurchase in the open market up to an additional 10% of the Fund’s outstanding common stock when the Fund’s 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, 2024, the Fund did not repurchase any shares.
During the year ended November 30, 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 year ended November 30, 2023. Shares repurchased
and the corresponding dollar amount are included in the Statements of Changes in Net
Assets. The anti-dilutive impact of these share repurchases is included in the Financial
Highlights.
Since the commencement of the stock repurchase program through May 31, 2024, the
Fund repurchased 1,659,323 shares or 10.85% of its common shares outstanding for a total
amount of $27,811,805.
On December 26, 2023, ClearBridge Energy Midstream Opportunity Fund Inc. (NYSE: EMO)
(the “Fund”) announced that the Fund, among other affiliated funds, entered into an agreement with Saba Capital Management, L.P. (“Saba”) and certain associated parties (the “Settlement Agreement”). During the effective period of the Settlement Agreement, Saba agreed to (1) be bound by the terms of the Settlement Agreement, including certain
standstill covenants, and (2) vote its Shares (as defined below) on all proposals
submitted to stockholders in accordance with the recommendation of the Fund’s Board of Directors.
Under the Settlement Agreement, the Fund agreed to conduct a tender offer for up to
50% of the Fund’s outstanding shares of common stock (“Shares”) at a price per share equal to 100% of the Fund’s net asset value on the day on which the tender offer expires (“Tender Offer”).
The Fund commenced the Tender Offer on May 21, 2024.
Subsequent to the period end of this report, the Tender Offer expired at 5:00 p.m.
Eastern Time on June 20, 2024. A total of 7,259,865 Shares were duly tendered and not withdrawn.
Because the number of Shares tendered exceeded 6,393,645 Shares, the tender offer
has been oversubscribed. Therefore, in accordance with the terms and conditions specified
in the Tender Offer, the Fund purchased Shares from all tendering stockholders on a pro
rata basis, disregarding fractions. Accordingly, on a pro rata basis, approximately 88.08%
of
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Shares for each stockholder who properly tendered shares have been accepted for payment.
The Shares accepted for tender were repurchased at a price of $44.45 equal to 100%
of the per Share net asset value, as of the close of the regular trading session of the New
York Stock Exchange on June 20, 2024. An excise tax of $2,578,557 was accrued in connection
with the 6,393,645 Shares repurchased calculated based on the Fund’s market close price on that date.
Payment for such Shares was made on June 25, 2024. Shares that were not tendered will
remain outstanding.
On May 20, 2024, the Fund announced the results of the votes cast at the Joint Special
Meeting of Stockholders held on May 17, 2024. Stockholders voted to approve the merger
of ClearBridge MLP and Midstream Fund Inc. (“CEM”) with and into the Fund and the merger of ClearBridge MLP and Midstream Total Return Fund Inc. (“CTR”) with and into the Fund (each a “Merger” and collectively, the “Mergers”), each in accordance with the Maryland General Corporation Law. Upon completion of the Mergers, each share of common stock of CEM and CTR will convert into an equivalent dollar amount (to the
nearest $0.001) of full shares of common stock of the Fund, based on the net asset value on
the business day preceding the Mergers. The Fund will not issue fractional shares to CEM
and CTR stockholders. In lieu of issuing fractional shares, the Fund will pay cash to
each former holder of CEM and CTR common stock in an amount equal to the net asset value of the
fractional shares of the Fund’s common stock that the investor would otherwise have received in the Mergers. It is currently anticipated that each Merger will be effective
before markets open on Monday, August 19, 2024, subject to all regulatory requirements and
customary closing conditions being satisfied.
The Fund, CEM and CTR have outstanding Mandatory Redeemable Preferred Stock (“MRPS”). In connection with the closing of each Merger, the Fund will issue and deliver to each of the CEM’s and CTR’s MRPS holders newly issued shares of the Fund’s MRPS with the same aggregate liquidation preference and terms as their MRPS that are issued
and outstanding immediately before the date of the Mergers. The liquidation preference
per share for the newly issued EMO MRPS will be $35 per share. The Fund will issue a corresponding number of newly issued shares of EMO’s MRPS so that the aggregate liquidation preference for the replaced CEM MRPS and the replaced CTR MRPS remains
the same. The Fund will also amend its MRPS that are outstanding prior to the closing
of the Mergers to align the voting rights of all of the Fund’s outstanding preferred stock so that each preferred stockholder will have one vote for every $35 of liquidation preference
(i.e. one vote per share) following the Mergers. No fractional MRPS will be issued to CEM
and CTR holders as a result of the Mergers. The Fund will round up to the next whole share
instead of issuing fractional shares of MRPS.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Notes to financial statements (unaudited) (cont’d)
11. Income taxes
The Fund’s current and deferred income tax provisions for the respective categories on the Statement of Operations are as follows:
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Change in Net
Unrealized
Depreciation
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Current tax expense (benefit)
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Deferred tax expense (benefit)
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Total tax expense (benefit)
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The Fund’s federal and state income tax provisions consist of the following:
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Current tax expense (benefit)
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Deferred tax expense (benefit)
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Total tax expense (benefit)
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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 0.9%. 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
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State taxes, net of federal tax benefit
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Non-deductible distributions on MRPS, dividends received deduction and other,
net (federal and state)
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Change in valuation allowance
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Total tax expense (benefit)
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Components of the Fund’s net deferred tax asset (liability) as of May 31, 2024 are as follows:
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Net operating loss carryforward
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Capital loss carryforward
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Other deferred tax assets
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Unrealized gains on investment securities
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Basis reduction resulting from differences in the book vs. taxable income received
from MLPs
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Net deferred tax asset (liability) before valuation allowance
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Less: Valuation allowance
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Total net deferred tax asset (liability)
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ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
At May 31, 2024, the Fund had federal and state net operating loss carryforwards of
$1,280,741 and $38,953,158 (net of state apportionment), respectively (deferred tax
asset of $2,387,930). Several states compute net operating losses before apportionment, therefore
the value of the state net operating loss carryforward disclosed may fluctuate for
changes in apportionment factors. Realization of the deferred tax asset related to the net
operating loss carryforward is dependent, in part, on generating sufficient taxable income in
each respective jurisdiction prior to expiration of the loss carryforward. During the period
ended May 31, 2024, the Fund utilized $23,101,882 and $4,543,176 of federal and state net
operating loss carryforwards, respectively, available from previous years. If not
utilized, the state net operating loss carryforward either expires in tax years between 2023 and
2040 or has an indefinite carryforward. The federal net operating loss carryforward does not
have an expiration.
Additionally, at May 31, 2024, the Fund had federal and state capital loss carryforwards
of $134,570,633 (deferred tax asset of $29,492,651), which may be carried forward for
5 years. During the period ended May 31, 2024, the Fund utilized $94,259,570 of capital loss
carryforward available from previous years. If not utilized, the capital loss carryforward
expires in tax year 2024 (i.e. November 30, 2025). Additionally, it is anticipated
that the Fund’s capital loss carryforward will be subject to an annual limitation under Section 382 of the Code following the Mergers. For corporations, capital losses can only be used
to offset capital gains and cannot be used to offset ordinary income. Therefore, the use of
this capital loss carryforward is dependent upon the Fund generating sufficient net capital
gains prior to the expiration of the loss carryforward, as well as the amount of annual
limitation on losses as calculated on the effective date of the Mergers.
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 capital losses incurred have resulted in the Fund having a net deferred
tax asset as of May 31, 2024. 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, 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 valuation allowance on its capital loss carryforward
deferred tax asset is appropriate at this time. The approval of the Tender Offer and
the Mergers during the period increase uncertainty around the utilization of the Fund’s capital loss carryforward, which has a five-year expiration. The valuation allowance recorded
as of May 31, 2024 is based on estimates of information currently available. As transactions
associated with the Tender Offer and the Mergers progress, and additional information
becomes available, management will assess the potential impact on the realizability
of the capital loss carryforward and the related deferred tax asset. If management determines
a change in valuation allowance is required under ASC 740 in light of these events,
it could have a material impact on the Fund’s net asset value and results of operations in the period it is recorded.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 Semi-Annual Report
Notes to financial statements (unaudited) (cont’d)
At May 31, 2024, the cost basis of investments for Federal income tax purposes was
$601,405,268. At May 31, 2024, gross unrealized appreciation and depreciation of investments for Federal income tax purposes were as follows:
Gross unrealized appreciation
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Gross unrealized depreciation
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Net unrealized appreciation (depreciation) before tax
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Net unrealized appreciation (depreciation) after tax
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12. Recent accounting pronouncements and regulatory update
In December 2023, the FASB issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures. The amendments in the ASU require entities to disclose (1) specific categories in the rate reconciliation
and provide additional information for reconciling items that meet a quantitative threshold,
(2) the amount of income taxes paid disaggregated by federal, state and foreign taxes
and further disaggregated by individual jurisdiction in which income taxes paid is equal
to or greater than 5 percent of total income taxes paid, and (3) the income or loss from
continuing operations before income tax expense or benefit (separated between domestic and foreign)
and the income tax expense or benefit from continuing operations (separated by federal,
state and foreign). The ASU is effective for annual reporting periods beginning after
December 15, 2024, with the option for early adoption. Management is currently evaluating
the impact, if any, of applying this ASU.
In June 2022, the 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.
ClearBridge Energy Midstream Opportunity Fund Inc. 2024 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 Fund’s manager, Franklin Templeton Fund Adviser, LLC (formerly, 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 20-21, 2024, 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 Board’s purview (the “Franklin Templeton 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 Board’s evaluation of each of the Management Agreement and the Sub-Advisory Agreement encompassed the Fund and other Franklin Templeton 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 Board’s 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 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 26, 2024, 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 Closed-end
ClearBridge Energy Midstream Opportunity Fund Inc.
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
Funds, including the Fund, received to date. No representatives of the Manager or
the Sub-Adviser participated in this meeting. Following the April 26, 2024 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 management’s 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 Fund’s stockholders and approved the continuation of each such agreement for an additional one-year period.
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 Fund’s affairs and the Manager’s role in coordinating the activities of the Sub-Adviser and the Fund’s 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 Fund’s 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 Fund’s 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 Manager’s and the Sub-Adviser’s risk management processes.
The Board reviewed the qualifications, backgrounds, and responsibilities of the Manager’s senior personnel and the Sub-Adviser’s 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 Manager’s 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.
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
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.
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 Fund’s performance against its benchmark and against the Fund’s peers. In addition, the Board considered the Fund’s performance in view of overall financial market conditions.
The Broadridge Performance Information comparing the Fund’s 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 Fund’s performance was above the median for the 1- and 3-year periods ended December 31, 2023, and was below the median for the 5-
and 10-year periods ended December 31, 2023. The Board noted the explanations from the
Manager and the Sub-Adviser regarding the Fund’s relative performance versus the Performance Universe for the various periods. The Board also considered that its previous
approval of the merger of two Franklin Templeton Closed-end Funds, ClearBridge MLP
and Midstream Fund Inc. and ClearBridge MLP and Midstream Total Return Fund Inc., with
and into the Fund.
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, 2025 (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.
ClearBridge Energy Midstream Opportunity Fund Inc.
Management and Sub-Advisory Fees and Expense Ratios
The Board reviewed and considered the contractual management fee (the “Contractual Management Fee”) and the actual management fee (the “Actual Management Fee”) payable by the Fund to the Manager under the Management Agreement and the sub-advisory fee (the “Sub-Advisory Fee”) payable by the Manager to the Sub-Adviser under the Sub-Advisory Agreement in view of the nature, extent and overall quality of the management, investment advisory and other services provided by the Manager and the
Sub-Adviser, respectively. The Board noted that the Sub-Advisory Fee is paid by the
Manager, not the Fund, and, accordingly, that the retention of the Sub-Adviser does
not increase the fees or expenses otherwise incurred by the Fund’s 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 Fund’s 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 Fund’s Contractual Management Fee was equal to the median. The Broadridge Expense Information also showed that the Fund’s Actual Management Fee was above the median based on common share assets and below
the median based on leveraged assets. The Broadridge Expense Information also showed
that the Fund’s actual total expenses were above the median based on both common share assets and leveraged assets. The Board took into account management’s discussion of the Fund’s expenses and noted the limited size of the Expense Group. The Board also considered the Manager’s 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.
ClearBridge Energy Midstream Opportunity Fund Inc.
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
The Board considered the overall management fee, the fees of the Sub-Adviser and the
amount of the management fee retained by the Manager after payment of the subadvisory
fee in each case in view of the services rendered for those amounts. The Board also
received an analysis of complex-wide management fees provided by the Manager, which,
among other things, set out a framework of fees based on asset classes.
Taking all of the above into consideration, as well as the factors identified below,
the Board determined that the management fee and the Sub-Advisory Fee were reasonable in view
of 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.
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 Manager’s fiscal years ended September 30, 2023 and September 30, 2022. The Board also received profitability information with respect to the Franklin Templeton fund complex
as a whole. In addition, the Board received Contract Renewal Information with respect to
the Manager’s 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 Board’s 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.
The Board received and discussed Contract Renewal Information concerning whether the
Manager realizes economies of scale if the Fund’s 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-Adviser’s profitability and the costs of the Sub-Adviser’s provision of services, the Board did not consider the potential for economies of scale in the Sub-Adviser’s management of the Fund to be a material factor in the Board’s 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 Fund’s stockholders. In view of the costs of providing investment management and other services to the Fund and the ongoing commitment of
the
ClearBridge Energy Midstream Opportunity Fund Inc.
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.
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 12, 2024, 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:
|
|
Common
Shares
and
Preferred
Shares,
voting
together,
Voted
FOR
Election
|
Common
Shares and
Preferred
Shares,
voting
together,
WITHHELD
|
Common
Shares
and
Preferred
Shares,
voting
together,
ABSTAIN
|
Preferred
Shares,
Voted
FOR
Election
|
Preferred
Shares,
WITHHELD
|
Preferred
Shares,
ABSTAIN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the Meeting, Mr. Agdern was duly elected by shareholders to serve as a Class III
Director of the Fund until the 2026 Annual Meeting of Shareholders, or until their successors
have been duly elected and qualified or until their resignation or are otherwise removed.
Ms. Colman and Messrs. Cucchi and Cronin were each duly elected by the shareholders to
serve as Class I Directors of the Fund until the 2027 Annual Meeting of Shareholders, or
until their successors have been duly elected and qualified or until their resignation or
are otherwise removed.
At May 31, 2024, in addition to Messrs. Agdern, Cronin and Cucchi and Ms. Colman,
the other Directors of the Fund were as follows:
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Ratification of Selection of Independent Registered Public Accountants
To ratify the selection of PricewaterhouseCoopers LLP (“PwC”) as independent registered public accountants of the Fund for the fiscal year ended November 30, 2024.
ClearBridge Energy Midstream Opportunity Fund Inc.
Results of special meeting of shareholders
A Special Meeting of Shareholders of ClearBridge Energy Midstream Opportunity Fund
Inc. (“EMO”) was held on May 17, 2024 for the purpose of considering and voting upon the proposal presented at the Meeting. The following table provides information concerning
the matters voted upon at the Meeting:
Proposal to Approve the Merger of ClearBridge MLP and Midstream Total Return Fund Inc. with and into the Fund
To approve the merger of the ClearBridge MLP and Midstream Total Return Fund Inc.
(“CTR”) with and into the in accordance with the Maryland General Corporation Law and pursuant to an Agreement and Plan of Merger between CTR and EMO
Proposal to Approve the Merger of ClearBridge MLP and Midstream Fund Inc. with and into the Fund
To approve the merger of the ClearBridge MLP and Midstream Fund Inc. (“CEM”) with and into the in accordance with the Maryland General Corporation Law and pursuant to an
Agreement and Plan of Merger between CEM and EMO
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 stock-
holders (the “Plan Agent”), in additional shares of Common Stock under the Fund’s 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
ClearBridge Energy Midstream Opportunity Fund Inc.
withdrawal will be effective as soon as practicable after the Plan Agent’s 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 Fund’s 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.
ClearBridge Energy Midstream Opportunity Fund Inc.
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ClearBridge
Energy Midstream Opportunity Fund Inc.
Directors
Jane Trust
Chairman
Jane Trust
President and Chief Executive
Officer
Christopher Berarducci
Treasurer and Principal Financial
Officer
Fred Jensen
Chief Compliance Officer
Marc A. De Oliveira
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
Franklin Templeton Fund Adviser, LLC
ClearBridge Investments, LLC
The Bank of New York Mellon
Computershare Inc.
P.O. Box 43006
Providence, RI 02940-3078
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Simpson Thacher & Bartlett LLP
900 G Street NW
Washington, DC 20001
New York Stock
Exchange Symbol
Franklin Templeton Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to Us
This Privacy and Security Notice (the “Privacy Notice”) addresses the Funds’ privacy and data protection practices with respect to nonpublic personal information the Fund receives.
The Legg Mason Funds include the Western Asset Money Market Funds (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
Franklin Templeton Funds Privacy and Security Notice
(cont’d)
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. For additional information related to certain state privacy rights, please
visit https://www.franklintempleton.com/help/privacy-policy.
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 Fund’s Forms N-PORT are available on the SEC’s 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 SEC’s 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 Templeton’s website, which can be accessed at www.franklintempleton.com. Any reference to Franklin Templeton’s 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 Templeton’s 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
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. |
FINANCIAL STATEMENTS AND FINANCIAL HIGLIGHTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
|
ITEM 8. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
|
ITEM 9. |
PROXY DISCLOSURES FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
|
ITEM 10. |
REMUNERATION PAID TO DIRECTORS, OFFICERS, AND OTHERS OF OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
|
ITEM 11. |
STATEMENT REGARDING BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACT. |
Not applicable.
|
ITEM 12. |
DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 13. |
PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
| |
|
| |
Not applicable. |
| ITEM 14. |
PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
| |
|
| |
Not applicable. |
| |
|
| ITEM 15. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
| |
|
| |
Not applicable. |
| |
|
| ITEM 16. |
CONTROLS AND PROCEDURES. |
| |
(a) |
The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “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 registrant’s 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 registrant’s internal control over financial reporting. |
| ITEM 17. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 18. | RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION. |
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 25, 2024 |
|
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 25, 2024 |
|
| By: |
/s/ Christopher Berarducci |
|
| |
Christopher Berarducci |
|
| |
Principal Financial Officer |
|
| |
|
|
| Date: |
July 25, 2024 |
|
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 registrant’s 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 registrant’s
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 registrant’s
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 registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officers
and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s
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 registrant’s internal control over financial reporting. |
| Date: |
July 25, 2024 |
/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 registrant’s 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 registrant’s
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 registrant’s 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 registrant’s internal control
over financial reporting; and |
| 5. | The registrant’s other certifying officers
and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over
financial reporting. |
| Date: |
July 25, 2024 |
/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 Registrant’s periodic report on Form N-CSR for
the period ended May 31, 2024 (the “Form N-CSR”) fully complies with the requirements of Section 13(a) or 15(d), as
applicable, 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 25, 2024 |
|
Date: July 25, 2024 |
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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