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 811-22693
ClearBridge MLP and Midstream Total Return Fund Inc.
(Exact name of registrant as specified in charter)
620 Eighth
Avenue, 47th Floor, New York, NY 10018
(Address of principal executive offices) (Zip code)
George P. Hoyt
Franklin
Templeton
100 First Stamford Place
Stamford, CT 06902
(Name
and address of agent for service)
Registrant’s telephone number, including area code: 1-888-777-0102
Date of fiscal year end: November 30
Date of reporting period: November 30, 2023
| ITEM 1. |
REPORT TO STOCKHOLDERS. |
The Annual Report to Stockholders is filed herewith.
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| Annual Report |
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November 30, 2023 |
CLEARBRIDGE
MLP AND MIDSTREAM TOTAL RETURN FUND INC. (CTR)
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| INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE |
Fund objective
The Fund’s investment objective is to provide a high level of total return, consisting of cash distributions and capital appreciation.
The Fund seeks to achieve its objective by investing primarily in energy master limited partnerships (“MLPs”) and energy midstream entities.
Letter from the chairman
Dear Shareholder,
We are pleased to provide the annual report of ClearBridge MLP and Midstream Total Return Fund Inc. for the twelve-month reporting period ended November 30, 2023.
Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.
Special shareholder notice
Effective
December 31, 2023, Patrick McElroy, CFA will join the Fund’s portfolio management team and Michael Clarfeld, CFA will step down as a member of the Fund’s portfolio management team.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support
you receive from your financial advisor. One way we accomplish this is through our website, www.franklintempleton.com. Here you can gain immediate access to market and investment information, including:
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Fund prices and performance, |
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Market insights and commentaries from our portfolio managers, and |
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A host of educational resources. |
We look forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
December 29, 2023
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II |
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ClearBridge MLP and Midstream Total Return Fund Inc. |
Fund overview
Q. What is the Fund’s investment strategy?
A. The Fund’s investment objective is to provide a high level of total return, consisting of cash distributions and capital appreciation. The Fund seeks to
achieve its objective by investing primarily in energy master limited partnerships (“MLPs”) and energy midstream entities. Under normal market conditions, the Fund invests at least 80% of its managed assets in energy MLPs and energy
midstream entities (the 80% policy).
For purposes of the 80% policy, the Fund considers investments in MLPs to include investments that offer economic exposure to
public and private MLPs in the form of MLP equity securities, securities of entities holding primarily general partner or managing member interests in MLPs, securities that are derivatives of interests in MLPs (including I-Shares), exchange-traded funds that primarily hold MLP interests and debt securities of MLPs. For purposes of the 80% policy, the Fund considers investments in midstream entities as direct or indirect investments
in those entities that provide midstream services including the gathering, transporting, processing, fractionation, storing, refining, and distribution of oil, natural gas liquids, natural gas and refined petroleum products. Energy entities are
engaged in the business of exploring, developing, producing, gathering, fractionating, transporting, processing, storing, refining, distributing, mining or marketing natural gas, natural gas liquids (including propane), crude oil, refined petroleum
products or coal. The Fund may also invest up to 20% of its managed assets in other securities that are not MLPs or midstream entities.
ClearBridge Investments, LLC
is the Fund’s subadviser. The portfolio managers primarily responsible for overseeing the day-to-day management of the Fund are Chris Eades, Peter Vanderlee, CFA
and Michael Clarfeld, CFA. Effective December 31, 2023, Patrick McElroy, CFA will join the Fund’s portfolio management team and Michael Clarfeld, CFA will step down as a member of the Fund’s portfolio management team.
Q. What were the overall market conditions during the Fund’s reporting period?
A. Global economies continued to face multiple headwinds, led by a combination of stubbornly high (though recently moderating) inflation, elevated geopolitical
uncertainty and lingering supply chain and policy impacts from the COVID-19 pandemic. In the U.S., we began to see the dampening effects on the economy of tighter monetary conditions. During 2022, equity
markets began pricing in a reasonable chance of recession, both in the U.S. and abroad. Throughout 2023, global equity markets have recovered most of the losses incurred during 2022, and expectations are increasing that developed economies might
avert a severe recession.
Q. What were the overall market conditions for the MLP sector during the reporting period?
A. Throughout the reporting period, recession fears made oil market traders fearful of global demand downdrafts for crude oil in 2023 much like those witnessed
during the Global Financial Crisis. Crude oil prices fell from more than $120 per barrel in June 2022 to $70 per barrel to end June 2023. A stronger U.S. dollar and large-scale releases of crude oil from the U.S. Strategic Petroleum Reserve (SPR)
further pressured oil prices. On the other hand, demand fear was partially offset by some optimism for a rebound in China demand with the lifting of COVID-19 restrictions. The surprise OPEC+ supply cut of
1.1 million barrels per day at the end of March 2023 put a floor on oil prices over the near term. With better visibility on global demand impacts from rising interest rates, oil prices steadied and
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| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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Fund overview (cont’d)
rose in the third quarter of 2023. With recession fears weighing on higher-beta oil and gas
exploration companies, MLP stocks were prized by investors for their defensive nature and their strong cash flows. The MLP sector performed strongly during the reporting period, with the Alerian MLP
Indexi outperforming the broad market S&P 500 Indexii as well as the energy sector in that index.
Q. How did we respond to these changing market conditions?
A. We remained disciplined in our positioning. The trajectory of oil prices over the next year or so will likely be dictated by demand factors — not supply.
Most oil economists forecast a roughly two million barrels per day increase in global oil demand to 102 million barrels per day in 2023 and a further 1.0-1.5 million barrels per day increase in
global demand in 2024. Essentially all of this oil demand growth is expected in developing nations, rather than OECD nations. We would argue that oil prices of roughly $70 per barrel at the end of June discounted that oil demand growth will not
approach levels expected by oil economists in 2023 and 2024. Said differently, oil traders seemed to expect a material contraction in global oil demand growth rates compared to oil economists. A final twist to oil demand analysis remains the timing
of the U.S. refilling its vastly depleted SPR. After depleting the SPR by roughly 275 million barrels (or 45%) in the previous eighteen months, the U.S. government announced in June initial plans to begin refilling the SPR beginning in
September. Thus, what has been a meaningful source of supply in the crude oil markets will become a source of demand looking forward.
If global oil demand growth
does approach roughly 2 million barrels per day in 2023 and another 1.0-1.5 million barrels per day in 2024, we see upside in oil prices over the balance of 2023 and into 2024. The supply side of the
global oil market will meaningfully struggle to meet that kind of demand growth. We would also argue that the incremental barrel oil supply in such a scenario will almost have to be a barrel of U.S. oil — continuing to drive visibility in
continued growth in U.S. oil production to the benefit of U.S. midstream companies.
Looking at natural gas, the short-term outlook is decidedly negative while the intermediate-to long-term outlook remains robust. An almost complete lack of typical weather last winter left natural gas storage levels 32% higher at the end of March 2023 than a year before. Higher storage levels
entering the spring and summer simply also equates to lower natural gas demand to refill storage levels. As a result, U.S. natural gas prices fell from above $5 per MMBtu at the end of March 2022 to $2 per MMBtu at the end of March 2023. In our
view, pricing for U.S. natural gas will not meaningfully recover until the beginning of the 2023/2024 winter (with an effective reset on storage levels). With continued organic domestic demand growth and increasing demand for U.S. liquefied natural
gas in the international markets, the intermediate- to long-term outlook for U.S. natural gas prices and necessary production levels remains constructive for U.S. midstream companies.
Valuation for U.S. midstream companies remains well below the levels seen before the pandemic. Entering 2020, enterprise value to EBITDA (EV/EBITDA) multiples stood at
roughly 10.5x. Despite the rebound the sector has experienced since the March 2020 lows, the sector today trades at 8.4x — despite what we view as a vastly better business model. Dividend/distribution coverage has moved from 1.1x to more than
2.0x. The sector has moved from being free cash negative to free cash flow positive (increasingly so in 2023) and balance sheet leverage (debt/EBITDA) has moved from more than 5.0x to below 3.5x. With
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ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
no need for midstream companies to access capital markets for the foreseeable future, we increasingly expect excess cash
flow (above and beyond capital spending and dividends/ distributions) to be used for increasing share buybacks and further increasing dividends/ distributions.
With
improving financial metrics and continued low valuations, we still see solid upside potential for the U.S. midstream sector despite strong performance in 2022 and thus far in 2023.
Performance review
For the twelve months ended
November 30, 2023, ClearBridge MLP and Midstream Total Return Fund Inc. returned 13.95% based on its net asset value (“NAV”)iii and 20.72% based on its New York Stock Exchange
(“NYSE”) market price per share. The Alerian MLP Index (the “Index”), a gauge of the total return of energy infrastructure master limited partnerships, returned 23.29% 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 twelve-month period, the Fund made distributions to shareholders totaling $2.51 per share. The performance table shows the Fund’s twelve-month total
return based on its NAV and market price as of November 30, 2023. Past performance is no guarantee of future results.
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| Performance Snapshot as of November 30, 2023 |
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| Price Per Share |
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12-Month
Total Return* |
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| $40.12 (NAV) |
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13.95 |
%† |
| $34.37 (Market Price) |
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20.72 |
%‡ |
All figures represent past performance and are not a guarantee of future results.
* 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 at NAV.
‡ Total return assumes the reinvestment of all distributions in additional shares in accordance with the Fund’s Dividend Reinvestment Plan.
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| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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3 |
Fund overview (cont’d)
Q. What were the leading contributors to performance?
A. On an absolute basis, the liquids transportation & storage subsector was the leading contributor to performance during the period, followed by the
diversified energy infrastructure subsector. In terms of individual Fund holdings, the top contributors to performance for the period were Magellan Midstream Partners, Energy Transfer, Plains All American Pipeline, Targa Resources and Plains GP
Holdings.
Q. What were the leading detractors from performance?
A. On a relative basis, stock selection in the liquids transportation & storage and diversified energy infrastructure subsectors detracted the most; an
underweight to the liquids transportation & storage subsector was also detrimental. In terms of individual Fund holdings, the sole detractors were Enviva, Brookfield Infrastructure Partners, Enbridge, PBF Energy and TC Energy.
Q. Were there any significant changes to the Fund during the reporting period?
A. During the reporting period, we exited positions in Enviva and DCP Midstream. In addition, Crestwood Equity Partners was acquired by holding Energy Transfer.
PBF Energy (PBF), the parent company of holding PBF Logistics (PBFX), bought back the remaining 52% of shares of PBFX that it didn’t already own at a premium. We received and did not retain shares of PBF. Also, Magellan Midstream Partners was
acquired by portfolio holding ONEOK.
Looking for additional information?
The Fund is traded under the symbol “CTR” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available
online under the symbol “XCTRX” 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.
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ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
Thank you for your investment in the ClearBridge MLP
and Midstream Total Return 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,
Chris Eades
Portfolio Manager
ClearBridge Investments, LLC
Peter Vanderlee, CFA
Portfolio Manager
ClearBridge Investments, LLC
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| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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Fund overview (cont’d)
Michael Clarfeld, CFA
Portfolio Manager
ClearBridge Investments, LLC
December 15, 2023
RISKS: The Fund is a non-diversified,
closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty
inherent in all investments, there can be no assurance that the Fund will achieve its investment objective. The 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, including 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 and 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 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. For more information on Fund risks, see Summary of information regarding the Fund — Principal Risk Factors
in this report.
Portfolio holdings and breakdowns are as of November 30, 2023 and are subject to change and may not be representative of the portfolio
managers’ current or future investments. The Fund’s top ten holdings (as a percentage of net assets) as of November 30, 2023 were: Energy Transfer LP (16.1%), ONEOK Inc. (11.3%), Targa Resources Corp. (10.7%), MPLX LP (10.2%), Western
Midstream Partners LP (9.6%), Enterprise Products Partners LP (8.8%), Williams Cos. Inc. (7.5%), Plains All American Pipeline LP (7.2%), Enbridge Inc. (7.0%) and Antero Midstream Corp. (6.7%). Please refer to pages 10 through 11 for a list and
percentage breakdown of the Fund’s holdings.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation
to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice
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ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
regarding the appropriateness of investing in any
securities or investment strategies discussed should consult their financial professional. The Fund’s top five sector holdings (as a percentage of net assets) as of November 30, 2023 were: oil, gas & consumable fuels (51.7%),
diversified energy infrastructure (41.2%), gathering/processing (15.3%), liquids transportation & storage (11.0%) and oil/refined products (10.2%). The Fund’s portfolio composition is subject to change at any time.
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.
The information provided is not intended to be a forecast of
future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
| i |
The Alerian MLP Index is a gauge of the total return of energy infrastructure master limited partnerships
(“MLPs”) and is calculated using a float-adjusted, capitalization-weighted methodology. |
| ii |
The S&P 500 Index is an unmanaged index of the stocks of 500 leading companies, and is generally representative of the
performance of larger companies in the U.S. |
| iii |
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.
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| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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7 |
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 November 30, 2023 and
November 30, 2022. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time. |
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ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
Fund performance (unaudited)
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| Net Asset Value |
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| Average annual total returns1 |
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| Twelve Months Ended 11/30/23 |
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13.95 |
% |
| Five Years Ended 11/30/23 |
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|
2.00 |
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| Ten Years Ended 11/30/23 |
|
|
-2.72 |
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| Cumulative total returns1 |
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| 11/30/13 through 11/30/23 |
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-24.08 |
% |
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| Market Price |
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| Average annual total returns2 |
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| Twelve Months Ended 11/30/23 |
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20.72 |
% |
| Five Years Ended 11/30/23 |
|
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2.54 |
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| Ten Years Ended 11/30/23 |
|
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-2.86 |
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| Cumulative total returns2 |
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| 11/30/13 through 11/30/23 |
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-25.15 |
% |
All figures represent past performance and are not a guarantee of future results. 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.
| 1 |
Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value.
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| 2 |
Assumes the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance
with the Fund’s Dividend Reinvestment Plan. |
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| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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9 |
Fund performance
(unaudited) (cont’d)
Value
of $10,000 invested in
ClearBridge MLP and Midstream Total Return Fund Inc. vs. Alerian MLP Index† — November 2013 -
November 2023
All figures represent past performance and are not a guarantee of future results. 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.
| † |
Hypothetical illustration of $10,000 invested in ClearBridge MLP and Midstream Total Return Fund Inc. on November 30,
2013, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value and also assuming the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the
Fund’s Dividend Reinvestment Plan through November 30, 2023. The hypothetical illustration also assumes a $10,000 investment in the Alerian MLP Index. The Alerian MLP Index (the “Index”) is a gauge of the total return of energy
infrastructure master limited partnerships and is calculated using a float-adjusted, capitalization-weighted methodology. The Index is unmanaged. Please note that an investor cannot invest directly in an index. |
| |
The performance of the Index reflects no deduction for fees, expenses or taxes, or the impact from the use of leverage.
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ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
Schedule of investments
November 30, 2023
ClearBridge MLP and Midstream Total Return Fund Inc.
(Percentages shown based on Fund net assets)
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| Security |
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Shares/Units |
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Value |
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| Master Limited Partnerships — 84.9% |
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| Diversified Energy Infrastructure —
41.2% |
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| Energy Transfer LP |
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3,203,091 |
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$ |
44,490,934 |
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| Enterprise Products Partners LP |
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908,511 |
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24,329,925 |
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| Genesis Energy LP |
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559,610 |
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7,028,702 |
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| Plains All American Pipeline LP |
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1,245,856 |
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19,784,193 |
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| Plains GP Holdings LP, Class A Shares |
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1,119,865 |
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18,097,018 |
* |
| Total Diversified Energy
Infrastructure |
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113,730,772 |
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| Gathering/Processing —
15.3% |
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| Hess Midstream LP, Class A Shares |
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489,307 |
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15,922,050 |
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| Western Midstream Partners LP |
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887,766 |
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26,473,182 |
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| Total
Gathering/Processing |
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42,395,232 |
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| Global Infrastructure —
3.1% |
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| Brookfield Infrastructure Partners LP |
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329,170 |
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8,624,254 |
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| Liquids Transportation & Storage
— 11.0% |
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| Delek Logistics Partners LP |
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269,688 |
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13,797,238 |
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| Holly Energy Partners LP |
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247,340 |
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5,058,103 |
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| NuStar Energy LP |
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603,210 |
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11,485,119 |
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| Total Liquids Transportation &
Storage |
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30,340,460 |
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| Natural Gas Transportation &
Storage — 2.2% |
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| Cheniere Energy Partners LP |
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101,000 |
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6,235,740 |
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| Oil/Refined Products —
10.2% |
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| MPLX LP |
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772,829 |
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28,177,345 |
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| Propane — 1.9% |
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| Suburban Propane Partners LP |
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|
|
300,767 |
|
|
|
5,158,154 |
|
| Total Master Limited Partnerships (Cost —
$215,121,871) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234,661,957 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Shares |
|
|
|
|
| Common Stocks — 52.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Energy — 51.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Oil, Gas & Consumable Fuels —
51.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Antero Midstream Corp. |
|
|
|
|
|
|
|
|
|
|
1,384,032 |
|
|
|
18,435,306 |
|
| Enbridge Inc. |
|
|
|
|
|
|
|
|
|
|
558,085 |
|
|
|
19,460,424 |
|
| Equitrans Midstream Corp. |
|
|
|
|
|
|
|
|
|
|
177,205 |
|
|
|
1,662,183 |
|
| Kinder Morgan Inc. |
|
|
|
|
|
|
|
|
|
|
831,400 |
|
|
|
14,607,698 |
|
| ONEOK Inc. |
|
|
|
|
|
|
|
|
|
|
454,911 |
|
|
|
31,320,622 |
|
| Targa Resources Corp. |
|
|
|
|
|
|
|
|
|
|
325,570 |
|
|
|
29,447,807 |
|
| TC Energy Corp. |
|
|
|
|
|
|
|
|
|
|
192,734 |
|
|
|
7,231,380 |
|
| Williams Cos. Inc. |
|
|
|
|
|
|
|
|
|
|
563,427 |
|
|
|
20,728,479 |
|
| Total Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,893,899 |
|
See Notes to Financial Statements.
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
11 |
Schedule of investments (cont’d)
November 30, 2023
ClearBridge MLP and Midstream Total Return Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Security |
|
|
|
|
|
|
|
Shares |
|
|
Value |
|
| Industrials — 0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial Services & Supplies
— 0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Aris Water Solutions Inc., Class A Shares |
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
$ |
808,000 |
|
| Total Common Stocks (Cost —
$142,784,061) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,701,899 |
|
| Total Investments before Short-Term Investments (Cost —
$357,905,932) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,363,856 |
|
|
|
|
|
|
| |
|
Rate |
|
|
|
|
|
|
|
|
|
|
| Short-Term Investments — 3.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| JPMorgan 100% U.S. Treasury Securities Money Market Fund, Institutional Class
(Cost — $10,314,190) |
|
|
5.231 |
% |
|
|
|
|
|
|
10,314,190 |
|
|
|
10,314,190 |
(a) |
| Total Investments** — 140.6% (Cost —
$368,220,122) |
|
|
|
388,678,046 |
|
| Mandatory Redeemable Preferred Stock, at Liquidation Value —
(7.0)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,500,010 |
) |
| Other Liabilities in Excess of Other Assets —
(33.6)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,874,940 |
) |
| Total Net Assets Applicable to Common Shareholders
— 100.0% |
|
|
$ |
276,303,096 |
|
| * |
Non-income producing security. |
| ** |
The entire portfolio is subject to a lien, granted to the lender and Senior Note holders, to the extent of the borrowings
outstanding and any additional expenses. |
| (a) |
Rate shown is one-day yield as of the end of the reporting period.
|
See Notes to Financial Statements.
|
|
|
|
|
|
12 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
Statement of assets and liabilities
November 30, 2023
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
| Investments, at value (Cost — $368,220,122) |
|
$ |
388,678,046 |
|
| Dividends and distributions receivable |
|
|
436,166 |
|
| Income tax receivable |
|
|
147,502 |
|
| Money market fund distributions receivable |
|
|
60,690 |
|
| Prepaid expenses |
|
|
25,757 |
|
| Total Assets |
|
|
389,348,161 |
|
|
|
| Liabilities: |
|
|
|
|
| Loan payable (Note 5) |
|
|
75,500,000 |
|
| Mandatory Redeemable Preferred Stock ($100,000 and $30 liquidation value per share; 85 and
366,667 shares issued and outstanding, respectively) (net of deferred offering costs of $332,235) (Note 7) |
|
|
19,167,775 |
|
| Senior Secured Notes (net of deferred debt issuance and offering costs of $48,281) (Note
6) |
|
|
15,550,951 |
|
| Income tax payable |
|
|
1,729,519 |
|
| Investment management fee payable |
|
|
293,846 |
|
| Interest expense payable |
|
|
152,383 |
|
| Distributions payable to Mandatory Redeemable Preferred Stockholders |
|
|
48,705 |
|
| Directors’ fees payable |
|
|
334 |
|
| Accrued expenses |
|
|
601,552 |
|
| Total Liabilities |
|
|
113,045,065 |
|
| Total Net Assets Applicable to Common Shareholders |
|
$ |
276,303,096 |
|
|
|
| Net Assets Applicable to Common Shareholders: |
|
|
|
|
| Common stock par value ($0.001 par value; 6,886,833 shares issued and outstanding;
99,633,248 common shares authorized) |
|
$ |
6,887 |
|
| Paid-in capital in excess of par value |
|
|
319,569,917 |
|
| Total distributable earnings (loss), net of income taxes |
|
|
(43,273,708) |
|
| Total Net Assets Applicable to Common Shareholders |
|
$ |
276,303,096 |
|
|
|
| Common Shares Outstanding |
|
|
6,886,833 |
|
|
|
| Net Asset Value Per Common Share |
|
|
$40.12 |
|
See Notes to Financial
Statements.
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
13 |
Statement of operations
For the Year Ended November 30, 2023
|
|
|
|
|
| Investment Income: |
|
|
|
| Dividends and distributions |
|
$ |
25,925,359 |
|
| Return of capital (Note 1(h)) |
|
|
(19,156,094) |
|
| Net Dividends and Distributions |
|
|
6,769,265 |
|
| Money market fund distributions |
|
|
369,792 |
|
| Less: Foreign taxes withheld |
|
|
(255,300) |
|
| Total Investment
Income |
|
|
6,883,757 |
|
|
|
| Expenses: |
|
|
|
|
| Interest expense (Notes 5 and 6) |
|
|
4,886,997 |
|
| Investment management fee (Note 2) |
|
|
3,583,337 |
|
| Distributions to Mandatory Redeemable Preferred Stockholders (Notes 1 and 7) |
|
|
1,145,301 |
|
| Transfer agent fees |
|
|
303,003 |
|
| Audit and tax fees |
|
|
267,135 |
|
| Legal fees |
|
|
262,252 |
|
| Directors’ fees |
|
|
135,190 |
|
| Amortization of preferred stock offering costs (Note 7) |
|
|
78,647 |
|
| Fund accounting fees |
|
|
68,003 |
|
| Amortization of debt issuance and offering costs (Note 6) |
|
|
36,152 |
|
| Commitment fees (Note 5) |
|
|
26,258 |
|
| Shareholder reports |
|
|
23,978 |
|
| Rating agency fees |
|
|
22,990 |
|
| Stock exchange listing fees |
|
|
15,301 |
|
| Franchise taxes |
|
|
5,043 |
|
| Insurance |
|
|
2,031 |
|
| Custody fees |
|
|
1,724 |
|
| Miscellaneous expenses |
|
|
117,899 |
|
| Total Expenses |
|
|
10,981,241 |
|
| Less: Fee waivers and/or expense reimbursements (Note 2) |
|
|
(179,167) |
|
| Net Expenses |
|
|
10,802,074 |
|
| Net Investment Loss, before income taxes |
|
|
(3,918,317) |
|
| Current tax expense (Note 9) |
|
|
(6,753,320) |
|
| Net Investment Loss, net of income taxes |
|
|
(10,671,637) |
|
|
|
| Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions (Notes 1, 3 and 9): |
|
|
|
|
| Net Realized Gain (Loss) From: |
|
|
|
|
| Investment transactions |
|
|
62,895,923 |
|
| Foreign currency transactions |
|
|
(10,010) |
|
| Net Realized Gain, before income
taxes |
|
|
62,885,913 |
|
| Net Realized Gain, net of income
taxes |
|
|
62,885,913 |
|
| Change in Net Unrealized Appreciation (Depreciation) From: |
|
|
|
|
| Investments |
|
|
(18,953,335) |
|
| Foreign currencies |
|
|
7,686 |
|
| Change in Net Unrealized Appreciation
(Depreciation), before income taxes |
|
|
(18,945,649) |
|
| Change in Net Unrealized Appreciation
(Depreciation), net of income taxes |
|
|
(18,945,649) |
|
| Net Gain on Investments and Foreign Currency Transactions, net of income taxes |
|
|
43,940,264 |
|
| Increase in Net Assets Applicable to Common Shareholders From Operations |
|
$ |
33,268,627 |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
14 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
| For the Years Ended November 30, |
|
2023 |
|
|
2022 |
|
|
|
|
| Operations: |
|
|
|
|
|
|
|
|
| Net investment loss, net of income taxes |
|
$ |
(10,671,637) |
|
|
$ |
(6,094,349) |
|
| Net realized gain, net of income taxes |
|
|
62,885,913 |
|
|
|
11,943,682 |
|
| Change in net unrealized appreciation (depreciation), net of income taxes |
|
|
(18,945,649) |
|
|
|
74,041,607 |
|
| Increase in Net Assets Applicable to
Common Shareholders From Operations |
|
|
33,268,627 |
|
|
|
79,890,940 |
|
|
|
|
| Distributions to Common Shareholders From (Note 1): |
|
|
|
|
|
|
|
|
| Dividends |
|
|
(17,304,099) |
|
|
|
(14,182,061) |
|
| Decrease in Net Assets From Distributions
to Common Shareholders |
|
|
(17,304,099) |
|
|
|
(14,182,061) |
|
|
|
|
| Fund Share Transactions: |
|
|
|
|
|
|
|
|
| Cost of shares repurchased (114,911 and 75,547 shares repurchased, respectively) (Note
8) |
|
|
(3,280,752) |
|
|
|
(2,115,925) |
|
| Decrease in Net Assets From Fund Share
Transactions |
|
|
(3,280,752) |
|
|
|
(2,115,925) |
|
| Increase in Net Assets Applicable to
Common Shareholders |
|
|
12,683,776 |
|
|
|
63,592,954 |
|
|
|
|
| Net Assets Applicable to Common Shareholders: |
|
|
|
|
|
|
|
|
| Beginning of year |
|
|
263,619,320 |
|
|
|
200,026,366 |
|
| End of year |
|
$ |
276,303,096 |
|
|
$ |
263,619,320 |
|
See Notes to Financial
Statements.
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
15 |
Statement of cash flows
For the Year Ended November 30, 2023
|
|
|
|
|
|
|
| Increase (Decrease) in Cash: |
|
|
|
|
| Cash Flows from Operating Activities: |
|
|
|
|
| Net increase in net assets applicable to common shareholders resulting from
operations |
|
$ |
33,268,627 |
|
| Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided (used) by operating activities: |
|
|
|
|
| Purchases of portfolio securities |
|
|
(278,602,991) |
|
| Sales of portfolio securities |
|
|
283,888,099 |
|
| Net purchases, sales and maturities of short-term investments |
|
|
(2,125,411) |
|
| Return of capital |
|
|
19,156,094 |
|
| Securities litigation proceeds |
|
|
15,965 |
|
| Increase in dividends and distributions receivable |
|
|
(138,285) |
|
| Increase in money market fund distributions receivable |
|
|
(37,185) |
|
| Increase in prepaid expenses |
|
|
(24,165) |
|
| Decrease in income tax receivable |
|
|
158,365 |
|
| Decrease in payable for securities purchased |
|
|
(536,695) |
|
| Amortization of preferred stock offering costs |
|
|
78,647 |
|
| Amortization of debt issuance and offering costs |
|
|
36,152 |
|
| Increase in investment management fee payable |
|
|
14,202 |
|
| Decrease in Directors’ fees payable |
|
|
(11,530) |
|
| Decrease in interest expense payable |
|
|
(42,576) |
|
| Increase in income tax payable |
|
|
921,819 |
|
| Increase in accrued expenses |
|
|
281,711 |
|
| Net realized gain on investments |
|
|
(62,895,923) |
|
| Change in net unrealized appreciation (depreciation) of investments |
|
|
18,953,335 |
|
| Net Cash Provided in Operating
Activities* |
|
|
12,358,255 |
|
|
|
| Cash Flows from Financing Activities: |
|
|
|
|
| Distributions paid on common stock |
|
|
(17,304,099) |
|
| Proceeds from loan facility borrowings |
|
|
18,500,000 |
|
| Repayment of Senior Secured Notes at maturity |
|
|
(10,241,920) |
|
| Payment for Fund shares repurchased |
|
|
(3,280,752) |
|
| Preferred stock offering costs |
|
|
(31,484) |
|
| Net Cash Used by Financing
Activities |
|
|
(12,358,255) |
|
| Cash and restricted cash at beginning of year |
|
|
— |
|
| Cash and restricted cash at end of year |
|
|
— |
|
| * |
Included in operating expenses is $4,964,571 paid for interest and commitment fees on borrowings, $1,145,301 paid for
distributions to Mandatory Redeemable Preferred Stockholders and $5,673,136 paid for income taxes, net of refunds, if any. |
| |
The following table provides a reconciliation of cash and restricted cash reported within the Statement of Assets and
Liabilities that sums to the total of such amounts shown on the Statement of Cash Flows. |
|
|
|
|
|
| |
|
November 30, 2023 |
|
| Cash |
|
|
— |
|
| Restricted cash |
|
|
— |
|
| Total cash and restricted cash shown in the Statement of Cash Flows |
|
|
— |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
16 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For a common share of capital stock outstanding throughout each year ended November 30: |
|
| |
|
20231 |
|
|
20221 |
|
|
20211 |
|
|
20201,2 |
|
|
20191,2 |
|
|
|
|
|
|
|
| Net asset value, beginning of year |
|
|
$37.65 |
|
|
|
$28.26 |
|
|
|
$18.10 |
|
|
|
$44.55 |
|
|
|
$52.25 |
|
|
|
|
|
|
|
| Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net investment income (loss) |
|
|
(1.55) |
|
|
|
(0.87) |
|
|
|
0.15 |
|
|
|
(1.53) |
|
|
|
(0.95) |
|
| Net realized and unrealized gain (loss) |
|
|
6.43 |
|
|
|
12.20 |
|
|
|
11.49 |
|
|
|
(22.77) |
|
|
|
(2.35) |
|
| Total income (loss) from
operations |
|
|
4.88 |
|
|
|
11.33 |
|
|
|
11.64 |
|
|
|
(24.30) |
|
|
|
(3.30) |
|
|
|
|
|
|
|
| Less distributions to common shareholders from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dividends |
|
|
(2.51) |
|
|
|
(2.02) |
|
|
|
(1.66) |
|
|
|
— |
|
|
|
— |
|
| Return of capital |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.30) |
|
|
|
(4.40) |
|
| Total distributions to common
shareholders |
|
|
(2.51) |
|
|
|
(2.02) |
|
|
|
(1.66) |
|
|
|
(2.30) |
|
|
|
(4.40) |
|
| Anti-dilutive impact of repurchase plan |
|
|
0.10 |
3 |
|
|
0.08 |
3 |
|
|
0.18 |
3 |
|
|
0.15 |
3 |
|
|
— |
|
|
|
|
|
|
|
| Net asset value, end of year |
|
|
$40.12 |
|
|
|
$37.65 |
|
|
|
$28.26 |
|
|
|
$18.10 |
|
|
|
$44.55 |
|
|
|
|
|
|
|
| Market price, end of year |
|
|
$34.37 |
|
|
|
$30.81 |
|
|
|
$23.63 |
|
|
|
$14.29 |
|
|
|
$38.55 |
|
| Total return, based on NAV4,5 |
|
|
13.95 |
% |
|
|
40.81 |
% |
|
|
66.14 |
% |
|
|
(55.48) |
% |
|
|
(6.98) |
% |
| Total return, based on Market Price6 |
|
|
20.72 |
% |
|
|
39.43 |
% |
|
|
77.71 |
% |
|
|
(58.38) |
% |
|
|
(8.94) |
% |
|
|
|
|
|
|
| Net assets applicable to common shareholders, end of year (millions) |
|
|
$276 |
|
|
|
$264 |
|
|
|
$200 |
|
|
|
$133 |
|
|
|
$342 |
|
|
|
|
|
|
|
| Ratios to average net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Management fees |
|
|
1.42 |
% |
|
|
1.37 |
% |
|
|
1.36 |
% |
|
|
1.44 |
% |
|
|
1.46 |
% |
| Other expenses |
|
|
2.93 |
|
|
|
1.48 |
|
|
|
1.45 |
|
|
|
3.26 |
7 |
|
|
1.99 |
|
| Subtotal |
|
|
4.35 |
|
|
|
2.85 |
|
|
|
2.81 |
|
|
|
4.70 |
7 |
|
|
3.45 |
|
| Income tax expenses |
|
|
2.67 |
|
|
|
1.88 |
|
|
|
— |
8 |
|
|
3.86 |
|
|
|
0.02 |
|
| Total gross
expenses |
|
|
7.02 |
9 |
|
|
4.73 |
|
|
|
2.81 |
|
|
|
8.56 |
7 |
|
|
3.47 |
|
| Total net
expenses |
|
|
6.95 |
9,10 |
|
|
4.66 |
10 |
|
|
2.75 |
10 |
|
|
8.48 |
7,10 |
|
|
3.47 |
|
| Net investment income (loss), net of income taxes |
|
|
(4.23) |
|
|
|
(2.50) |
|
|
|
0.57 |
|
|
|
(6.38) |
7 |
|
|
(1.86) |
|
|
|
|
|
|
|
| Portfolio turnover rate |
|
|
79 |
% |
|
|
43 |
% |
|
|
79 |
% |
|
|
12 |
% |
|
|
28 |
% |
See Notes to Financial
Statements.
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
17 |
Financial highlights (cont’d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For a common share of capital stock outstanding throughout each year ended November 30: |
|
| |
|
20231 |
|
|
20221 |
|
|
20211 |
|
|
20201,2 |
|
|
20191,2 |
|
|
|
|
|
|
|
| Supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loan and Debt Issuance Outstanding, End of Year (000s) |
|
|
$91,099 |
|
|
|
$82,841 |
|
|
|
$67,917 |
|
|
|
$45,417 |
|
|
|
$146,500 |
|
| Asset Coverage Ratio for Loan and Debt Issuance Outstanding11 |
|
|
425 |
% |
|
|
442 |
% |
|
|
411 |
% |
|
|
418 |
% |
|
|
343 |
% |
| Asset Coverage, per $1,000 Principal Amount of Loan and Debt Issuance Outstanding11 |
|
|
$4,247 |
|
|
|
$4,418 |
|
|
|
$4,107 |
|
|
|
$4,180 |
|
|
|
$3,430 |
|
| Weighted Average Loan and Debt Issuance (000s) |
|
|
$86,280 |
|
|
|
$81,030 |
|
|
|
$57,636 |
|
|
|
$67,128 |
|
|
|
$168,007 |
|
| Weighted Average Interest Rate on Loan and Debt Issuance |
|
|
5.59 |
% |
|
|
2.84 |
% |
|
|
2.38 |
% |
|
|
6.10 |
%12 |
|
|
3.72 |
% |
| Mandatory Redeemable Preferred Stock at Liquidation Value, End of Year (000s) |
|
|
$19,500 |
|
|
|
$19,500 |
|
|
|
$11,000 |
|
|
|
$11,000 |
|
|
|
$14,000 |
|
| Asset Coverage Ratio for Mandatory Redeemable Preferred Stock13 |
|
|
350 |
% |
|
|
358 |
% |
|
|
353 |
% |
|
|
337 |
% |
|
|
313 |
% |
| Asset Coverage, per $100,000 Liquidation Value per Share of Mandatory Redeemable Preferred
Stock13 |
|
|
$349,824 |
|
|
|
$357,589 |
|
|
|
$353,465 |
|
|
|
$336,502 |
|
|
|
$313,114 |
|
| Asset Coverage, per $30 Liquidation Value per Share of Mandatory Redeemable Preferred
Stock13 |
|
|
$105 |
|
|
|
$107 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
18 |
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|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
| 1 |
Per share amounts have been calculated using the average shares method. |
| 2 |
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. |
| 3 |
The repurchase plan was completed at an average repurchase price of $28.55 for 114,911 shares and $3,280,752 for the year
ended November 30, 2023, $28.01 for 75,547 shares and $2,115,925 for the year ended November 30, 2022, $19.33 for 293,044 shares and $5,663,999 for the year ended November 30, 2021 and $9.99 for 381,908 shares and $3,813,473 for the
year ended November 30, 2020. |
| 4 |
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the
absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
| 5 |
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future
results. |
| 6 |
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. |
| 7 |
Includes non-recurring prepayment penalties and the
write-off of debt issuance and offering costs recognized during the period totaling 0.98% of average net assets. |
| 8 |
For the year ended November 30, 2021, the net income tax benefit was 1.54%. The net income tax benefit is not
reflected in the Fund’s expense ratios. |
| 9 |
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 6.89% and 6.82%, respectively. |
| 10 |
Reflects fee waivers and/or expense reimbursements. |
| 11 |
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. |
| 12 |
Includes prepayment penalties recognized during the period. |
| 13 |
Represents value of net assets plus the loan outstanding, debt issuance outstanding and mandatory redeemable preferred
stock at the end of the period divided by the loan, debt issuance and mandatory redeemable preferred stock outstanding at the end of the period. |
See Notes to Financial Statements.
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
19 |
Notes to financial statements
1. Organization and significant accounting policies
ClearBridge MLP and Midstream Total Return Fund Inc. (the “Fund”) was incorporated in Maryland on April 10, 2012 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
99,633,248 shares of $0.001 par value common stock. The Fund’s investment objective is to provide a high level of total return, consisting of cash distributions and capital appreciation. The Fund seeks to achieve its objective by investing
primarily in energy master limited partnerships (“MLPs”) and energy midstream entities. There can be no assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund invests at least 80% of its Managed Assets in energy MLPs and energy midstream entities (the 80% policy). For purposes of the
80% policy, the Fund considers investments in MLPs to include investments that offer economic exposure to public and private MLPs in the form of MLP equity securities, securities of entities holding primarily general partner or managing member
interests in MLPs, securities that are derivatives of interests in MLPs (including I-Shares), exchange-traded funds that primarily hold MLP interests and debt securities of MLPs. For purposes of the 80%
policy, the Fund considers investments in midstream entities as direct or indirect investments in those entities that provide midstream services including the gathering, transporting, processing, fractionation, storing, refining, and distribution of
oil, natural gas liquids, natural gas and refined petroleum products. Energy entities are engaged in the business of exploring, developing, producing, gathering, fractionating, transporting, processing, storing, refining, distributing, mining or
marketing natural gas, natural gas liquids (including propane), crude oil, refined petroleum products or coal. The Fund may also invest up to 20% of its managed assets in other securities that are not MLPs or midstream entities. “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,
|
|
|
|
|
|
20 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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 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
|
|
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|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
21 |
Notes to financial statements (cont’d)
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ASSETS |
|
| Description |
|
Quoted Prices
(Level 1) |
|
|
Other Significant
Observable Inputs (Level 2) |
|
|
Significant
Unobservable Inputs (Level 3) |
|
|
Total |
|
| Long-Term Investments†: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Master Limited Partnerships |
|
$ |
234,661,957 |
|
|
|
— |
|
|
|
— |
|
|
$ |
234,661,957 |
|
| Common Stocks |
|
|
143,701,899 |
|
|
|
— |
|
|
|
— |
|
|
|
143,701,899 |
|
| Total Long-Term Investments |
|
|
378,363,856 |
|
|
|
— |
|
|
|
— |
|
|
|
378,363,856 |
|
| Short-Term Investments† |
|
|
10,314,190 |
|
|
|
— |
|
|
|
— |
|
|
|
10,314,190 |
|
| Total Investments |
|
$ |
388,678,046 |
|
|
|
— |
|
|
|
— |
|
|
$ |
388,678,046 |
|
| † |
See Schedule of Investments for additional detailed categorizations. |
|
|
|
|
|
|
22 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
(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” 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.
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
23 |
Notes to financial statements (cont’d)
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, 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
|
|
|
|
|
|
24 |
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|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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 year ended November 30, 2023, the Fund estimated that approximately 73% of the MLP
distributions received would be treated as a return of capital. The Fund recorded as return of capital the amount of $19,014,474 of dividends and distributions received from its investments.
Additionally, the Fund updated the return of capital estimates from the year ended November 30, 2022 based on actual amounts subsequently reported to the Fund. This
resulted in a decrease of $141,620 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 year. 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 year 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
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|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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|
|
25 |
Notes to financial statements (cont’d)
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 year 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, 2022.
(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 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.
|
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|
26 |
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|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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 2022 tax years remain open and subject to examination by tax jurisdictions.
(m) Reclassification. GAAP requires that certain components of net assets
be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the Fund had no reclassifications.
2. Investment management agreement and other transactions with affiliates
Franklin Templeton Fund Adviser, LLC (“FTFA”) (formerly known as Legg Mason Partners Fund Advisor, LLC prior to November 30, 2023) 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 December 1, 2019, FTFA implemented a
voluntary investment management fee waiver of 0.05% that will continue until May 31, 2024.
During the year ended November 30, 2023, fees waived and/or
expenses reimbursed amounted to $179,167.
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
27 |
Notes to financial statements (cont’d)
All officers and one Director of the Fund are employees of Franklin Resources or its affiliates
and do not receive compensation from the Fund.
3. Investments
During the year ended November 30, 2023, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
|
|
|
|
|
| Purchases |
|
$ |
278,602,991 |
|
| Sales |
|
|
283,888,099 |
|
4. Derivative instruments and hedging activities
During the year ended November 30, 2023, the Fund did not invest in derivative instruments.
5. Loan
The Fund has a revolving credit
agreement with The Bank of Nova Scotia (“Credit Agreement”), which allows the Fund to borrow up to an aggregate amount of $80,000,000 ($115,000,000 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 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 November 30, 2023, the Fund had $75,500,000 of borrowings outstanding per this Credit Agreement. Interest expense related to this loan for the year ended November 30, 2023 was $4,136,635. For the year
ended November 30, 2023, the Fund incurred commitment fees of $26,258. For the year ended November 30, 2023, the average daily loan balance was $67,397,260 and the weighted average interest rate was 6.05%.
6. Senior secured notes
At November 30,
2023, the Fund had $15,599,232 aggregate principal amount of fixed-rate senior secured notes (“Senior Notes”) outstanding. Interest expense related to the Senior Notes for the year ended November 30, 2023 was $750,348. 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
|
|
|
|
|
|
28 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
Notes holders, to the extent of the borrowings
outstanding and any additional expenses. The Senior Notes holders and the lender have equal access to the lien (See Note 5).
On March 28, 2023, Series B Senior
Notes in the amount of $10,241,920 matured.
The table below summarizes the key terms of each series of Senior Notes at November 30, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Security |
|
Amount |
|
|
Rate |
|
|
Maturity |
|
|
Estimated
Fair Value |
|
| Senior secured notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Series C |
|
$ |
11,660,031 |
|
|
|
4.08 |
% |
|
|
March 28, 2025 |
|
|
$ |
11,313,580 |
|
| Series E |
|
|
1,575,680 |
|
|
|
3.60 |
% |
|
|
August 26, 2024 |
|
|
|
1,521,811 |
|
| Series F |
|
|
2,363,521 |
|
|
|
3.76 |
% |
|
|
August 26, 2026 |
|
|
|
2,186,551 |
|
| |
|
$ |
15,599,232 |
|
|
|
|
|
|
|
|
|
|
$ |
15,021,942 |
|
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
November 30, 2023, the Fund had 366,752 shares of fixed rate MRPS outstanding with an aggregate liquidation value of $19,500,010. Offering costs incurred by the Fund in connection with the MRPS issuance are being amortized to expense over the
respective life of each series of MRPS.
The table below summarizes the key terms of each series of the MRPS at November 30, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Series |
|
Term
Redemption
Date |
|
|
Rate |
|
|
Shares |
|
|
Liquidation
Preference
Per Share |
|
|
Aggregate
Liquidation
Value |
|
|
Estimated
Fair Value |
|
| Series D |
|
|
3/26/2024 |
|
|
|
4.26 |
% |
|
|
85 |
|
|
$ |
100,000 |
|
|
$ |
8,500,000 |
|
|
$ |
8,202,792 |
|
| Series E |
|
|
11/17/2029 |
|
|
|
7.12 |
% |
|
|
366,667 |
|
|
|
30 |
|
|
|
11,000,010 |
|
|
|
11,034,741 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,500,010 |
|
|
$ |
19,237,533 |
|
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”
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
29 |
Notes to financial statements (cont’d)
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 E MRPS have one vote per share and the holders of Series D MRPS have one vote for every $30.00 of liquidation preference held. Holders of MRPS vote
together with the holders of common stock of the Fund as a single class, except on matters affecting only the holders of MRPS or the holders of common stock. Pursuant to the 1940 Act, holders of the MRPS have the right to elect two Directors of the
Fund, voting separately as a class.
8. Stock repurchase program
On November 16, 2015, the Fund announced that the 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 year ended November 30, 2023, the Fund repurchased and retired 1.50% of its common shares outstanding
under the repurchase plan. The weighted average discount per share on these repurchases was 17.03% for the year ended November 30, 2023. During the year ended November 30, 2022, the Fund repurchased and retired 0.98% of its common shares
outstanding under the repurchase plan. The weighted average discount per share on these repurchases was 15.21% for the year ended November 30, 2022. Shares repurchased and the corresponding dollar amount are included in the Statements of
Changes in Net
|
|
|
|
|
|
30 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
Assets. The anti-dilutive impact of these share
repurchases is included in the Financial Highlights.
Since the commencement of the stock repurchase program through November 30, 2023, the Fund repurchased
865,410 shares or 10.33% of its common shares outstanding for a total amount of $14,874,149.
9. Income taxes
The Fund’s federal and state income tax provisions consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Federal |
|
|
State |
|
|
Total |
|
| Current tax expense (benefit) |
|
$ |
6,436,819 |
|
|
$ |
316,501 |
|
|
$ |
6,753,320 |
|
| Deferred tax expense (benefit) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Total tax expense (benefit) |
|
$ |
6,436,819 |
|
|
$ |
316,501 |
|
|
$ |
6,753,320 |
|
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).
During the year, the Fund’s combined federal and state income tax rate decreased from 22.2% to 21.9% due to changes in the composition of the MLP portfolio of
investments and the enactment of lower tax rates in various state tax jurisdictions where the Fund’s MLP investments have a significant presence. The remeasuring of the Fund’s net deferred tax asset to a lower tax rate resulted in the
additional income tax expense and corresponding increase in the Fund’s effective tax rate as outlined below. The adjustment, however, was fully offset by an equivalent change in valuation allowance.
The provision for income taxes differs from the amount derived from applying the statutory income tax rate to net investment income (loss) and realized and unrealized
gains (losses) before income taxes as follows:
|
|
|
|
|
|
|
|
|
| Provision at statutory rates |
|
|
21.00 |
% |
|
$ |
8,404,609 |
|
| State taxes, net of federal tax benefit |
|
|
0.90 |
% |
|
|
360,198 |
|
| Non-deductible distributions on MRPS, dividends received deduction and other, net (federal and state) |
|
|
(0.25) |
% |
|
|
(97,571) |
|
| Change in valuation allowance |
|
|
(5.22) |
% |
|
|
(2,090,907) |
|
| Change in blended state tax rate from 1.2% to 0.9% |
|
|
0.44 |
% |
|
|
176,991 |
|
| Total tax expense (benefit) |
|
|
16.87 |
% |
|
$ |
6,753,320 |
|
Components of the Fund’s net deferred tax asset (liability) as of November 30, 2023 are as follows:
|
|
|
|
|
| Deferred tax assets |
|
|
|
|
| Capital loss carryforward |
|
$ |
18,803,603 |
|
| Other deferred tax assets |
|
|
1,020,695 |
|
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
31 |
Notes to financial statements (cont’d)
|
|
|
|
|
|
|
| Deferred tax liabilities |
|
|
|
|
| Unrealized gains on investment securities |
|
|
(4,481,418) |
|
| Basis reduction resulting from differences in the book vs. taxable income received from MLPs |
|
|
(6,919,600) |
|
| Net deferred tax asset (liability) before valuation allowance |
|
|
8,423,280 |
|
| Less: Valuation allowance |
|
|
(8,423,280) |
|
| Total net deferred tax asset (liability) |
|
|
— |
|
At November 30, 2023, the Fund had federal and state capital loss carryforwards of $85,861,201 (deferred tax asset of $18,803,603),
which may be carried forward for 5 years. During the year ended November 30, 2023, the Fund utilized $46,875,451 of capital loss carryforward available from previous years. If not utilized, the capital loss carryforward expires in tax year
2024. For corporations, capital losses can only be used to offset capital gains and cannot be used to offset ordinary income. Therefore, the use of this capital loss carryforward is dependent upon the Fund generating sufficient net capital gains
prior to the expiration of the loss carryforward.
The amount of capital loss carryforward differed from the amount 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 November 30, 2023. Note 1(l) describes the assessment required under ASC 740 to determine whether a valuation allowance for deferred tax assets is necessary using a more likely than not
standard of realizability. Based on that assessment, management has determined that the Fund is not expected to be able to generate significant future taxable income of the appropriate character in order to realize its deferred tax assets, and
accordingly has determined that a full valuation allowance on its net deferred tax asset is appropriate at this time. The capital loss carryforward is a material component of the net deferred tax asset and also has a five-year expiration. If in the
future, a valuation allowance is required to reserve against an individual deferred tax asset, such as the capital loss carryforward, it could have a material impact on the Fund’s net asset value and results of operations in the period it is
recorded.
At November 30, 2023, the cost basis of investments for Federal income tax purposes was $335,884,714. At November 30, 2023, gross unrealized
appreciation and depreciation of investments for Federal income tax purposes were as follows:
|
|
|
|
|
| Gross unrealized appreciation |
|
$ |
61,629,157 |
|
| Gross unrealized depreciation |
|
|
(8,835,825) |
|
| Net unrealized appreciation (depreciation) before tax |
|
$ |
52,793,332 |
|
| Net unrealized appreciation (depreciation) after tax |
|
$ |
41,231,592 |
|
10. 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)
|
|
|
|
|
|
32 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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.
* * *
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the “Act”) into
law. The Act, among other things, imposes a nondeductible 1 percent excise tax on public company stock buybacks. This excise tax is applicable to the fair market value of stock repurchased after December 31, 2022, and may include both
common and preferred stock. The Act also imposes a 15 percent corporate alternative minimum tax on the adjusted financial statement income of large corporations for taxable years beginning after December 31, 2022. Management anticipates
forthcoming proposed regulations from the Treasury Department to determine the impact of the Act, however based on interim guidance currently does not believe such potential impact to be material to the Fund.
* * *
In June
2022, the FASB issued Accounting Standards Update (ASU) No. 2022-03, Fair Value Measurement (Topic 820) — Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.
The amendments in the ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, should not be considered in measuring fair value. The ASU is
effective for interim and annual reporting periods beginning after December 15, 2023, with the option of early adoption. Management has reviewed the requirements and believes that the adoption of the ASU will not have a material impact on the
financial statements.
11. Subsequent event
On December 26, 2023, the Fund announced that it entered into an agreement with Saba Capital Management, L.P. (“Saba”) and certain associated parties (the
“Standstill Agreement”). The Standstill Agreement has been approved by the Fund’s Board of Directors. During the effective period of the Standstill Agreement, Saba has agreed to (1) be bound by the terms of the Standstill
Agreement, including certain standstill covenants, and (2) vote its shares on all proposals submitted to shareholders in accordance with the recommendation of the Fund’s Board of Directors. Saba has filed a copy of the Standstill Agreement
with the U.S. Securities and Exchange Commission (“SEC”) as an exhibit to its Schedule 13D filed on December 27, 2023.
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
|
|
|
33 |
Notes to financial statements (cont’d)
Under the Standstill Agreement the Fund has agreed to conduct a tender offer for up to 50% of its
outstanding shares of common stock (“Shares”) at a price per share equal to 100% of the Fund’s net asset value as of the business day immediately following the expiration date of the tender offer (the “Tender Offer”). The
commencement of the Tender Offer will be announced at a later date. The Tender Offer will not expire or close prior to June 11, 2024, nor be held open after June 21, 2024. The Fund will repurchase Shares tendered and accepted in the Tender
Offer in exchange for cash. In the event the Tender Offer is oversubscribed, Shares will be repurchased on a pro rata basis. The Tender Offer was approved by the Fund’s Board of Directors on December 20, 2023.
The Tender Offer increases uncertainty around the utilization of the Fund’s capital loss carryforward, which is set to expire in tax year 2024 (i.e. on
November 30, 2025). To generate cash consideration for the Tender Offer, the Fund may be required to sell investments at such a time and in such quantities that it would normally not do in the ordinary course of business, and which may have
adverse consequences on the utilization of the capital loss carryforward. As transactions associated with the Tender Offer progress, 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 this event, it could have a material impact on the Fund’s net asset value and results of operations in the period it is recorded.
|
|
|
|
|
|
34 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of ClearBridge MLP and
Midstream Total Return Fund Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of ClearBridge MLP and Midstream Total Return Fund Inc. (the
“Fund”) as of November 30, 2023, the related statements of operations and cash flows for the year ended November 30, 2023, the statement of changes in net assets for each of the two years in the period ended November 30,
2023, including the related notes, and the financial highlights for each of the five years in the period ended November 30, 2023 (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Fund as of November 30, 2023, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the
period ended November 30, 2023 and the financial highlights for each of the five years in the period ended November 30, 2023 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are
the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our
procedures included confirmation of securities owned as of November 30, 2023 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
|
| /s/PricewaterhouseCoopers LLP |
|
| Baltimore, Maryland |
| January 18, 2024 |
We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.
|
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| ClearBridge MLP and Midstream Total Return Fund Inc. 2023 Annual Report |
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|
|
35 |
Additional information (unaudited)
Information about Directors and Officers
The business and
affairs of ClearBridge MLP and Midstream Total Return Fund Inc. (the “Fund”) are conducted by management under the supervision and subject to the direction of its Board of Directors. The business address of each Director is c/o Jane Trust,
Franklin Templeton, 280 Park Avenue, 8th Floor, New York, New York 10017.
Information pertaining to the Directors and officers of the Fund is set forth below. The
Fund’s annual proxy statement includes additional information about Directors and is available, without charge, upon request by calling the Fund at
1-888-777-0102.
|
|
|
| Independent Directors† |
|
|
|
|
| Robert D. Agdern |
|
|
|
|
| Year of birth |
|
1950 |
| Position(s) held with Fund1 |
|
Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, and Compliance Liaison, Class III |
| Term of office1 and length of time served |
|
Since 2015 |
| Principal occupation(s) during the past five years |
|
Member of the Advisory Committee of the Dispute Resolution Research Center at the Kellogg Graduate School of Business, Northwestern University (2002 to 2016); formerly, Deputy General
Counsel responsible for western hemisphere matters for BP PLC (1999 to 2001); Associate General Counsel at Amoco Corporation responsible for corporate, chemical, and refining and marketing matters and special assignments (1993 to 1998) (Amoco merged
with British Petroleum in 1998 forming BP PLC) |
| Number of portfolios in fund complex overseen by Director (including the Fund) |
|
18 |
| Other board memberships held by Director during the past five years |
|
None |
|
|
| Carol L. Colman |
|
|
|
|
| Year of birth |
|
1946 |
| Position(s) held with Fund1 |
|
Director and Member of Nominating, Audit and Compensation Committees, and Chair of Pricing and Valuation Committee, Class I |
| Term of office1 and length of time served |
|
Since 2012 |
| Principal occupation(s) during the past five years |
|
President, Colman Consulting Company (consulting) |
| Number of portfolios in fund complex overseen by Director (including the Fund) |
|
18 |
| Other board memberships held by Director during the past five years |
|
None |
|
|
|
|
|
|
36 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. |
|
|
|
| Independent Directors†
(cont’d) |
|
|
|
|
| Daniel P. Cronin |
|
|
|
|
| Year of birth |
|
1946 |
| Position(s) held with Fund1 |
|
Director and Member of Audit, Compensation and Pricing and Valuation Committees, and Chair of Nominating Committee, Class I |
| Term of office1 and length of time served |
|
Since 2012 |
| Principal occupation(s) during the past five years |
|
Retired; formerly, Associate General Counsel, Pfizer Inc. (prior to and including 2004) |
| Number of portfolios in fund complex overseen by Director (including the Fund) |
|
18 |
| Other board memberships held by Director during the past five years |
|
None |
|
|
| Paolo M. Cucchi |
|
|
|
|
| Year of birth |
|
1941 |
| Position(s) held with Fund1 |
|
Director and Member of Nominating, Audit, and Pricing and Valuation Committees, and Chair of Compensation Committee, Class I |
| Term of office1 and length of time served |
|
Since 2012 |
| Principal occupation(s) during the past five years |
|
Emeritus Professor of French and Italian (since 2014) and formerly, Vice President and Dean of The College of Liberal Arts (1984 to 2009) and Professor of French and Italian (2009 to 2014)
at Drew University |
| Number of portfolios in fund complex overseen by Director (including the Fund) |
|
18 |
| Other board memberships held by Director during the past five years |
|
None |
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. |
|
|
|
37 |
Additional information
(unaudited) (cont’d)
Information about Directors and Officers
|
|
|
| Independent Directors†
(cont’d) |
|
|
|
|
| Eileen A. Kamerick |
|
|
|
|
| Year of birth |
|
1958 |
|
|
| Position(s) held with Fund1 |
|
Lead Independent Director and Member of Nominating, Compensation, Pricing and Valuation and Audit Committees, Class III |
| Term of office1 and length of time served |
|
Since 2013 |
| Principal occupation(s) during the past five years |
|
Chief Executive Officer, The Governance Partners, LLC (consulting firm) (since 2015); National Association of Corporate Directors Board Leadership Fellow (since 2016, with Directorship
Certification since 2019) and NACD 2022 Directorship 100 honoree; Adjunct Professor, Georgetown University Law Center (since 2021); Adjunct Professor, The University of Chicago Law School (since 2018); Adjunct Professor, University of Iowa College
of Law (since 2007); formerly, Chief Financial Officer, Press Ganey Associates (health care informatics company) (2012 to 2014); Managing Director and Chief Financial Officer, Houlihan Lokey (international investment bank) and President, Houlihan
Lokey Foundation (2010 to 2012) |
| Number of portfolios in fund complex overseen by Director (including the Fund) |
|
18 |
| Other board memberships held by Director during the past five years |
|
Director, VALIC Company I (since October 2022); Director of ACV Auctions Inc. (since 2021); formerly, Director of Hochschild Mining plc (precious metals company) (2016 to 2023); Director of
Associated Banc-Corp (financial services company) (since 2007); formerly Trustee of AIG Funds and Anchor Series Trust (2018 to 2021) |
|
|
| Nisha Kumar |
|
|
|
|
| Year of birth |
|
1970 |
| Position(s) held with Fund1 |
|
Director and Member of Nominating, Compensation and Pricing and Valuation Committees, and Chair of the Audit Committee, Class II |
| Term of office1 and length of time served |
|
Since 2019 |
| Principal occupation(s) during the past five years |
|
Formerly, Managing Director and the Chief Financial Officer and Chief Compliance Officer of Greenbriar Equity Group, LP (2011 to 2021); formerly, Chief Financial Officer and Chief
Administrative Officer of Rent the Runway, Inc. (2011); Executive Vice President and Chief Financial Officer of AOL LLC, a subsidiary of Time Warner Inc. (2007 to 2009); Member of the Council of Foreign Relations |
| Number of portfolios in fund complex overseen by Director (including the Fund) |
|
18 |
| Other board memberships held by Director during the past five years |
|
Director of The India Fund, Inc. (since 2016); formerly, Director of Aberdeen Income Credit Strategies Fund (2017 to 2018); and Director of The Asia Tigers Fund, Inc. (2016 to
2018) |
|
|
|
|
|
|
38 |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. |
|
|
|
| Interested Director and Officer |
|
|
|
|
| Jane Trust, CFA2 |
|
|
|
|
| Year of birth |
|
1962 |
| Position(s) held with Fund1 |
|
Director, Chairman, President and Chief Executive Officer, Class II |
| Term of office1 and length of time served |
|
Since 2015 |
| Principal occupation(s) during the past five years |
|
Senior Vice President, Fund Board Management, Franklin Templeton (since 2020); Officer and/or Trustee/Director of 123 funds associated with FTFA or its affiliates (since 2015); President
and Chief Executive Officer of FTFA (since 2015); formerly, Senior Managing Director (2018 to 2020) and Managing Director (2016 to 2018) of Legg Mason & Co., LLC (“Legg Mason & Co.”); and Senior Vice President of FTFA
(2015) |
| Number of portfolios in fund complex overseen by Director (including the Fund) |
|
123 |
| Other board memberships held by Director during the past five years |
|
None |
|
|
|
| Additional Officers |
|
|
|
|
| Fred Jensen
Franklin Templeton 280 Park Avenue,
8th Floor, New York, NY 10017 |
|
|
| Year of birth |
|
1963 |
| Position(s) held with Fund1 |
|
Chief Compliance Officer |
| Term of office1 and length of time served |
|
Since 2020 |
|
|
| Principal occupation(s) during the past five years |
|
Director - Global Compliance of Franklin Templeton (since 2020); Managing Director of Legg Mason & Co. (2006 to 2020); Director of Compliance, Legg Mason Office of the Chief
Compliance Officer (2006 to 2020); formerly, Chief Compliance Officer of Legg Mason Global Asset Allocation (prior to 2014); Chief Compliance Officer of Legg Mason Private Portfolio Group (prior to 2013); formerly, Chief Compliance Officer of The
Reserve Funds (investment adviser, funds and broker-dealer) (2004) and Ambac Financial Group (investment adviser, funds and broker-dealer) (2000 to 2003) |
|
|
| Marc A. De Oliveira Franklin Templeton 100 First Stamford Place, 6th Floor, Stamford, CT 06902 |
|
|
| Year of birth |
|
1971 |
| Position(s) held with Fund1 |
|
Secretary and Chief Legal Officer |
| Term of office1 and length of time served |
|
Since 2023 |
|
|
| Principal occupation(s) during the past five years |
|
Associate General Counsel of Franklin Templeton (since 2020); Secretary and Chief Legal Officer of certain funds associated with Legg Mason & Co. or its affiliates since 2020);
Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); formerly, Managing Director (2016 to 2020) and Associate General Counsel of Legg Mason & Co. (2005 to 2020) |
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. |
|
|
|
39 |
Additional information
(unaudited) (cont’d)
Information about Directors and Officers
|
|
|
| Additional Officers (cont’d) |
|
|
|
|
| Thomas C. Mandia Franklin Templeton 100 First Stamford Place, 6th Floor, Stamford, CT 06902 |
|
|
| Year of birth |
|
1962 |
| Position(s) held with Fund1 |
|
Senior Vice President |
|
|
| Term of office1 and length of time served |
|
Since 2022 |
| Principal occupation(s) during the past five years |
|
Senior Associate General Counsel of Franklin Templeton (since 2020); Secretary of FTFA (since 2006); Assistant Secretary of certain funds associated with Legg Mason & Co. or its
affiliates (since 2006); Secretary of LM Asset Services, LLC (“LMAS”) (since 2002) and Legg Mason Fund Asset Management, Inc. (“LMFAM”) (since 2013) (formerly registered investment advisers); formerly, Managing Director and
Deputy General Counsel of Legg Mason & Co. (2005 to 2020) and Assistant Secretary of certain funds in the fund complex (2006 to 2022) |
|
|
| Christopher Berarducci Franklin Templeton 280 Park Avenue, 8th Floor, New York, NY 10017 |
|
|
| Year of birth |
|
1974 |
| Position(s) held with Fund1 |
|
Treasurer and Principal Financial Officer |
| Term of office1 and length of time served |
|
Since 2019 |
|
|
| Principal occupation(s) during the past five years |
|
Vice President, Fund Administration and Reporting, Franklin Templeton (since 2020); Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain funds associated with Legg
Mason & Co. or its affiliates; formerly, Managing Director (2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co. |
|
|
| Jeanne M. Kelly Franklin Templeton 280 Park Avenue, 8th Floor, New York, NY 10017 |
|
|
| Year of birth |
|
1951 |
| Position(s) held with Fund1 |
|
Senior Vice President |
| Term of office1 and length of time served |
|
Since 2012 |
|
|
| Principal occupation(s) during the past five years |
|
U.S. Fund Board Team Manager, Franklin Templeton (since 2020); Senior Vice President of certain funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice
President of FTFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); formerly, Managing Director of Legg Mason & Co. (2005 to 2020); Senior Vice President of LMFAM (2013 to 2015) |
| |
FTFA, referenced above, was formerly known as LMPFA prior to November 30, 2023. |
| † |
Directors who are not “interested persons” of the Fund within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940, as amended (the “1940 Act”). |
|
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|
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|
40 |
|
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|
ClearBridge MLP and Midstream Total Return Fund Inc. |
| 1 |
The Fund’s Board of Directors is divided into three classes: Class I, Class II and Class III. The
terms of office of the Class I, II and III Directors expire at the Annual Meetings of Stockholders in the year 2025, year 2026 and year 2024, respectively, or thereafter in each case when their respective successors are duly elected and
qualified. The Fund’s executive officers are chosen each year, to hold office until their successors are duly elected and qualified. |
| 2 |
Ms. Trust is an “interested person” of the Fund as defined in the 1940 Act because Ms. Trust is an
officer of FTFA and certain of its affiliates. |
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. |
|
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|
41 |
Annual chief executive officer and
principal financial officer certifications (unaudited)
The Fund’s Chief
Executive Officer (“CEO”) has submitted to the NYSE the required annual certification and the Fund also has included the Certifications of the Fund’s CEO and Principal Financial Officer required by Section 302 of the
Sarbanes-Oxley Act in the Fund’s Form N-CSR filed with the SEC for the period of this report.
|
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42 |
|
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|
ClearBridge MLP and Midstream Total Return Fund Inc. |
Other shareholder communications regarding accounting matters (unaudited)
The Fund’s Audit Committee has established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal
accounting controls or auditing matters (collectively, “Accounting Matters”). Persons with complaints or concerns regarding Accounting Matters may submit their complaints to the Chief Compliance Officer (“CCO”). Persons who are
uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit complaints directly to the Fund’s Audit Committee Chair. Complaints may be submitted on an anonymous basis.
The CCO may be contacted at:
Franklin Resources Inc.
Compliance Department
280 Park Ave, 8th Floor
New York, NY 10017
Complaints may also be submitted by telephone at 1-800-742-5274. Complaints submitted through this number will be received by the CCO.
|
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| ClearBridge MLP and Midstream Total Return Fund Inc. |
|
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43 |
Summary of information regarding the Fund (unaudited)
Investment Objective
The Fund’s investment
objective is to provide a high level of total return, consisting of cash distributions and capital appreciation.
Principal Investment
Policies and Strategies
Under normal market conditions, the Fund invests at least 80% of its Managed Assets in energy MLPs and energy midstream entities
(the 80% policy). For purposes of the 80% policy, the Fund considers investments in MLPs to include investments that offer economic exposure to public and private MLPs in the form of MLP equity securities, securities of entities holding primarily
general partner or managing member interests in MLPs, securities that are derivatives of interests in MLPs (including I-Shares), exchange-traded funds that primarily hold MLP interests and debt securities of
MLPs. For purposes of the 80% policy, the Fund considers investments in midstream entities as direct or indirect investments in those entities that provide midstream services including the gathering, transporting, processing, fractionation, storing,
refining, and distribution of oil, natural gas liquids, natural gas and refined petroleum products. Energy entities are engaged in the business of exploring, developing, producing, gathering, fractionating, transporting, processing, storing,
refining, distributing, mining or marketing natural gas, natural gas liquids (including propane), crude oil, refined petroleum products or coal.
For as long as
“MLP” and “Midstream” are in the name of the Fund, the Fund will invest at least 80% of its Managed Assets in energy MLPs and energy midstream entities. The Fund may not change its policy to invest at least 80% of its managed
assets in energy MLPs and energy midstream entities unless it provides stockholders with at least 60 days’ written notice of such change.
Entities commonly
referred to as “MLPs” are generally organized under state law as limited partnerships or limited liability companies. The Fund intends to primarily invest in MLPs receiving partnership taxation treatment under the Internal Revenue Code of
1986, as amended (the “Code”), and whose interests or “units” are traded on securities exchanges like shares of corporate stock. To be treated as a partnership for United States federal income tax purposes, an MLP whose units are
traded on a securities exchange must receive at least 90% of its gross 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
|
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44 |
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ClearBridge MLP and Midstream Total Return Fund Inc. |
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 MLP. 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 United States 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, natural resources or real estate sectors.
The Fund may invest up to 20% of its Managed Assets in securities of issuers that are not MLPs or midstream entities.
The Fund may invest up to 30% of its Managed Assets in unregistered or otherwise restricted securities. “Restricted securities” are securities that are
unregistered, held by control persons of the issuer or subject to contractual restrictions on resale. In connection with its investments in restricted securities generally, the Fund may invest up to 15% of its Managed Assets in restricted securities
issued by non-public companies. The Fund may purchase Rule 144A securities for which there may be a secondary market of qualified institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the “1933 Act”).
The Fund may invest up to 20% of its Managed Assets in debt securities of MLPs and other issuers, including both
investment grade debt securities and debt securities rated below investment grade (that is, rated Ba or lower by Moody’s Investors Service, Inc. (“Moody’s”), BB+ or lower by Standard & Poor’s Ratings Group
(“S&P”) or Fitch Ratings (“Fitch”), comparably rated by another nationally recognized statistical rating organization (“NRSRO”), or, if unrated, as determined by ClearBridge to be of comparable credit quality.
Debt securities may have fixed or variable principal payments and all types of interest rate and dividend payment and reset terms, including fixed rate, adjustable rate,
zero coupon, contingent, deferred, payment in kind and auction rate features. The Fund has the flexibility to invest in debt securities that are below investment grade quality (that is, rated Ba or lower by Moody’s, BB+ or lower by S&P or
Fitch, comparably rated by another NRSRO, or, if unrated, determined by ClearBridge to be of comparable credit quality). These debt securities are commonly referred to as “high yield” securities or “junk” bonds. The Fund may
invest in debt securities without regard for their maturity.
The Fund may invest in royalty trusts. However, such investments do not count towards the Fund’s
80% policy.
|
|
|
|
|
| ClearBridge MLP and Midstream Total Return Fund Inc. |
|
|
|
45 |
Summary of information regarding the Fund (unaudited) (cont’d)
The Fund may invest in securities of foreign issuers including securities traded on non-U.S. exchanges and of emerging markets
issuers. Such investments in securities of foreign issuers may include investments in American Depositary Receipts.
The Fund may invest up to 15% of its Managed
Assets, at the time of purchase, in securities of any single issuer.
The Fund may enter into derivative transactions, such as interest rate swaps, options
contracts, futures contracts, forward contracts, options on futures contracts and indexed securities for investment, hedging and risk management purposes; provided that the Fund’s exposure to derivative instruments, as measured by the total
notional amount of all such instruments, will not exceed 33 1/3% of its Managed Assets. With respect to this limitation, the Fund may net derivatives with opposite exposure to the same underlying instrument. To the extent that the security or index
underlying the derivative or synthetic instrument is or is composed of securities of energy MLPs, the Fund will include such derivative and synthetic instruments, at market value, for the purposes of the Fund’s 80% policy. The Fund may sell
certain equity securities short for investment and/or hedging purposes. The Fund may use any or all of these techniques at any time, and the use of any particular derivative transaction will depend on market conditions.
The Fund is operated by persons who have claimed an exclusion, granted to operators of registered investment companies like the Fund, from registration as a
“commodity pool operator” with respect to the Fund under the Commodity Exchange Act (the “CEA”), and, therefore, are not subject to registration or regulation with respect to the Fund under the CEA. As a result, effective
December 31, 2012, the Fund has been limited in its ability to use commodity futures (which include futures on broad-based securities indexes and interest rate futures) (collectively, “commodity interests”) or options on commodity
futures, engage in certain swaps transactions or make certain other investments (whether directly or indirectly through investments in other investment vehicles) for purposes other than “bona fide hedging,” as defined in the rules of the
Commodity Futures Trading Commission.
At times ClearBridge may judge that conditions in the markets for securities of MLP entities make pursuing the Fund’s
primary investment strategy inconsistent with the best interests of its stockholders. At such times ClearBridge may, temporarily, use alternative strategies primarily designed to reduce fluctuations in the value of the Fund’s assets. If the
Fund takes a temporary defensive position, it may be unable to achieve its investment objective.
In implementing these “defensive” strategies, the Fund
may invest all or a portion of its assets in cash, obligations of the U.S. government, its agencies or instrumentalities; other investment grade debt securities; investment grade commercial paper; certificates of deposit and bankers’
acceptances; or any other fixed income securities that ClearBridge considers consistent with this strategy. It is impossible to predict if, when or for how long
|
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46 |
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ClearBridge MLP and Midstream Total Return Fund Inc. |
the Fund will use these alternative strategies. There can be no assurance that such strategies
will be successful.
Principal Risk Factors
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. Your securities at any point in time may be worth less than you invested, even after taking into account the reinvestment of Fund dividends and distributions.
Investment and Market Risk. An investment in the Fund is subject to investment risk, including the possible loss of the entire amount that you invest. Your
investment in the Common Stock represents an indirect investment in the MLPs, energy midstream entities and other investments owned by the Fund, most of which could be purchased directly. The value of the Fund’s portfolio securities may move up
or down, sometimes rapidly and unpredictably. At any point in time, your Common Stock may be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions.
Energy Sector Risks. MLPs and midstream entities operating in the energy sector are subject to many operating risks, including: equipment failure causing outages;
structural, maintenance, impairment and safety problems; transmission or transportation constraints, inoperability or inefficiencies; dependence on a specified fuel source; changes in electricity and fuel usage; availability of competitively priced
alternative energy sources; changes in generation efficiency and market heat rates; lack of sufficient capital to maintain facilities; significant capital expenditures to keep older assets operating efficiently; seasonality; changes in supply and
demand for energy; catastrophic and/or weather-related events such as spills, leaks, well blowouts, uncontrollable flows, ruptures, fires, explosions, floods, earthquakes, hurricanes, discharges of toxic gases and similar occurrences; storage,
handling, disposal and decommissioning costs; and environmental compliance. Breakdown or failure of an energy company’s assets may prevent it from performing under applicable sales agreements, which in certain situations, could result in
termination of the agreement or incurring a liability for liquidated damages. As a result of the above risks and other potential hazards associated with energy companies, certain companies may become exposed to significant liabilities for which they
may not have adequate insurance coverage. Any of the aforementioned risks could have a material adverse effect on the business, financial condition, results of operations and cash flows of energy companies.
Because the Fund invests at least 80% of its Managed Assets in energy MLPs and energy midstream entities including entities structured as both partnerships and
corporations, concentration in the energy sector may present more risks than if the Fund were broadly
|
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|
| ClearBridge MLP and Midstream Total Return Fund Inc. |
|
|
|
47 |
Summary of information regarding the Fund (unaudited) (cont’d)
diversified over numerous sectors of the economy. A downturn in the energy sector of the economy, adverse political, legislative or regulatory developments, material
declines in energy-related commodity prices (such as those experienced over the last few years) or other events 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. In addition, there are several specific risks associated with investments in the energy sector, including the following.
Regulatory Risk. The energy sector is highly regulated. MLPs and midstream entities operating in the energy sector are subject to significant regulation of nearly
every aspect of their operations by federal, state and local governmental agencies. Such regulation can change rapidly or over time in both scope and intensity. For example, a particular by-product or process,
including hydraulic fracturing, may be declared hazardous — sometimes retroactively — by a regulatory agency and unexpectedly increase production costs or limit ability to develop reserves. Various governmental authorities have the power
to enforce compliance with these regulations and the permits issued under them, and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions or both. Stricter laws, regulations or enforcement policies
could be enacted in the future which would likely increase compliance costs and may materially adversely affect the financial performance of MLPs and midstream entities.
Specifically, the operations of wells, gathering systems, pipelines, refineries and other facilities are subject to stringent and complex federal, state and local
environmental laws and regulations. These include, for example:
| • |
|
the federal Clean Air Act and comparable state laws and regulations that impose obligations related to air emissions;
|
| • |
|
the federal Clean Water Act and comparable state laws and regulations that impose obligations related to discharges of
pollutants into regulated bodies of water; |
| • |
|
RCRA and comparable state laws and regulations that impose requirements for the handling and disposal of waste from
facilities; and |
| • |
|
CERCLA, also known as “Superfund,” and comparable state laws and regulations that regulate the cleanup of
hazardous substances that may have been released at properties currently or previously owned or operated by MLPs or at locations to which they have sent waste for disposal. |
Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary
penalties, the imposition of remedial requirements, and the issuance of orders enjoining future
|
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48 |
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ClearBridge MLP and Midstream Total Return Fund Inc. |
operations. Certain environmental statutes,
including RCRA, CERCLA, the federal Oil Pollution Act and analogous state laws and regulations, impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been disposed of or otherwise
released. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other waste products into the environment.
There is an inherent risk that entities may incur environmental costs and liabilities due to the nature of their businesses and the substances they handle. For
example, an accidental release from wells or gathering pipelines could subject them to substantial liabilities for environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and
property damage, and fines or penalties for related violations of environmental laws or regulations. Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly increase the compliance costs of
entities or limit their ability to develop some reserves. For example, hydraulic fracturing, a technique used in the completion of certain oil and gas wells, has become a subject of increasing regulatory scrutiny and may be subject in the future to
more stringent, and more costly to comply with, requirements. Similarly, the implementation of more stringent environmental requirements could significantly increase the cost of any remediation that may become necessary. Entities may not be able to
recover these costs from insurance.
Voluntary initiatives and mandatory controls have been adopted or are being discussed both in the United States and worldwide to
reduce emissions of “greenhouse gases” such as carbon dioxide, a by-product of burning fossil fuels, and methane, the major constituent of natural gas, which many scientists and policymakers believe
contribute to global climate change. These measures and future measures could result in increased costs to certain companies in which the Fund may invest to operate and maintain facilities and administer and manage a greenhouse gas emissions program
and may reduce demand for fuels that generate greenhouse gases and that are managed or produced by companies in which the Fund may invest.
Federal, state and local
governments may enact laws, and federal, state and local agencies (such as the Environmental Protection Agency) may promulgate rules or regulations, that prohibit or significantly regulate the operation of energy assets. For instance, in the wake of
a Supreme Court decision holding that the EPA has some legal authority to deal with climate change under the Clean Air Act, the EPA and the Department of Transportation jointly wrote regulations to cut gasoline use and control greenhouse gas
emissions from cars and trucks. The EPA has also taken action to require certain entities to measure and report greenhouse gas emissions and certain facilities may be required to control emissions
|
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| ClearBridge MLP and Midstream Total Return Fund Inc. |
|
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49 |
Summary of information regarding the Fund (unaudited) (cont’d)
of greenhouse gases pursuant to EPA air permitting and other regulatory programs. These measures, and other programs addressing greenhouse gas emissions, could reduce
demand for energy or raise prices, which may adversely affect the total return of certain of the Fund’s investments.
Commodity Price Risk. MLPs and
midstream entities operating in the energy sector may be affected by fluctuations in the prices of energy commodities, including, for example, natural gas, natural gas liquids, crude oil and coal, in the short- and long-term. Fluctuations in energy
commodity prices would impact directly companies that own such energy commodities and could impact indirectly companies that engage in transportation, storage, processing, distribution or marketing of such energy commodities. Fluctuations in energy
commodity prices can result from changes in general economic conditions or political circumstances (especially of key energy producing and consuming countries); market conditions; weather patterns; domestic production levels; volume of imports;
energy conservation; domestic and foreign governmental regulation; international politics; policies of OPEC; taxation; tariffs; and the availability and costs of local, intrastate and interstate transportation methods. The energy sector as a whole
may also be impacted by the perception that the performance of energy sector companies is directly linked to commodity prices. High commodity prices may drive further energy conservation efforts, and a slowing economy may adversely impact energy
consumption, which may adversely affect the performance of MLPs and midstream entities operating in the energy sector. Recent economic and market events have fueled concerns regarding potential liquidations of commodity futures and options
positions.
Depletion Risk. Entities engaged in the exploration, development, management or production of energy commodities face the risk that commodity
reserves are depleted over time. Such companies seek to increase their reserves through expansion of their current businesses, acquisitions, further development of their existing sources of energy commodities, exploration of new sources of energy
commodities or by entering into long-term contracts for additional reserves; however, there are risks associated with each of these potential strategies. If such companies fail to acquire additional reserves in a cost-effective manner and at a rate
at least equal to the rate at which their existing reserves decline, their financial performance may suffer. Additionally, failure to replenish reserves could reduce the amount and affect the tax characterization of the distributions paid by such
companies.
Supply and Demand Risk. Entities operating in the energy sector could be adversely affected by reductions in the supply of or demand for energy
commodities. The volume of production of energy commodities and the volume of energy commodities available for transportation, storage, processing or distribution could be affected by a variety of factors, including depletion of resources; depressed
commodity prices; catastrophic events; labor
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50 |
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ClearBridge MLP and Midstream Total Return Fund Inc. |
relations; increased environmental or other governmental regulation; equipment malfunctions and
maintenance difficulties; import volumes; international politics, policies of OPEC; and increased competition from alternative energy sources. Alternatively, a decline in demand for energy commodities could result from factors such as adverse
economic conditions (especially in key energy-consuming countries); increased taxation; increased environmental or other governmental regulation; increased fuel economy; increased energy conservation or use of alternative energy sources; legislation
intended to promote the use of alternative energy sources; or increased commodity prices.
Acquisition Risk. MLP and midstream entity investments owned by the
Fund may depend on their ability to make acquisitions that increase adjusted operating surplus per unit in order to increase distributions to unit holders. The ability of such MLPs and midstream entities to make future acquisitions is dependent on
their ability to identify suitable targets, negotiate favorable purchase contracts, obtain acceptable financing and outbid competing potential acquirers. To the extent that such MLPs and midstream entities are unable to make future acquisitions, or
such future acquisitions fail to increase the adjusted operating surplus per unit, their growth and ability to make distributions to unit holders will be limited. There are risks inherent in any acquisition, including erroneous assumptions regarding
revenues, acquisition expenses, operating expenses, cost savings and synergies; assumption of liabilities; indemnification; customer losses; key employee defections; distraction from other business operations; and unanticipated difficulties in
operating or integrating new product areas and geographic regions.
Weather Risks. Weather plays a role in the seasonality of some entities’ cash flows.
Entities in the propane industry, for example, rely on the winter season to generate almost all of their earnings. In an unusually warm winter season, propane MLPs experience decreased demand for their product. Although most entities can reasonably
predict seasonal weather demand based on normal weather patterns, extreme weather conditions, such as the hurricanes that severely damaged cities along the U.S. Gulf Coast in recent years, demonstrate that no amount of preparation can protect an
entity from the unpredictability of the weather or possible climate change. The damage done by extreme weather also may serve to increase many entities’ insurance premiums and could adversely affect such companies’ financial condition and
ability to pay distributions to shareholders.
Cyclical Industry Risk. The energy industry is cyclical and from time to time may experience a shortage of
drilling rigs, equipment, supplies, or qualified personnel, or due to significant demand, such services may not be available on commercially reasonable terms. An entity’s ability to successfully and timely complete capital improvements to
existing or other capital projects is contingent upon many variables. Should any such efforts be unsuccessful, an entity could be subject to additional costs and/or the write-off of its investment in the
project or improvement. The marketability of oil and gas production depends in large part on
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| ClearBridge MLP and Midstream Total Return Fund Inc. |
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Summary of information regarding the Fund (unaudited) (cont’d)
the availability, proximity and capacity of pipeline systems owned by third parties. Oil and gas properties are subject to royalty interests, liens and other burdens,
encumbrances, easements or restrictions, all of which could impact the production of a particular entity. Oil and gas entities operate in a highly competitive and cyclical industry, with intense price competition. A significant portion of their
revenues may depend on a relatively small number of customers, including governmental entities and utilities.
Catastrophic Event Risk. MLPs and midstream
entities operating in the energy sector are subject to many dangers inherent in the production, exploration, management, transportation, processing and distribution of natural gas, natural gas liquids, crude oil, refined petroleum and petroleum
products and other hydrocarbons. These dangers include leaks, fires, explosions, damage to facilities and equipment resulting from natural disasters, inadvertent damage to facilities and equipment (such as those suffered by BP’s Deepwater
Horizon drilling platform in 2010 or spills by various onshore oil pipelines) and terrorist acts. Since the September 11th terrorist attacks, the U.S. government has issued warnings that energy assets, specifically U.S. pipeline infrastructure, may
be targeted in future terrorist attacks. These dangers give rise to risks of substantial losses as a result of loss or destruction of commodity reserves; damage to or destruction of property, facilities and equipment; pollution and environmental
damage; and personal injury or loss of life. Any occurrence of such catastrophic events could bring about a limitation, suspension or discontinuation of the operations of MLPs and midstream entities operating in the energy sector. MLPs and midstream
entities operating in the energy sector may not be fully insured against all risks inherent in their business operations and therefore accidents and catastrophic events could adversely affect such companies’ financial condition and ability to
pay distributions to shareholders. It is expected that increased governmental regulation will mitigate such catastrophic risk, such as the recent oil spills referred to above, which could increase insurance premiums and other operating costs for
MLPs and midstream entities.
Industry Specific Risks. MLPs and midstream entities operating in the energy sector are also subject to risks that are specific
to the industry they serve.
Pipelines. Pipeline companies are subject to the demand for natural gas, natural gas liquids, crude oil or refined products in
the markets they serve, changes in the availability of products for gathering, transportation, processing or sale due to natural declines in reserves and production in the supply areas serviced by the companies’ facilities, sharp decreases in
crude oil or natural gas prices that cause producers to curtail production or reduce capital spending for exploration activities, and environmental regulation. Demand for gasoline, which accounts for a substantial portion of refined product
transportation, depends on price, prevailing economic conditions in the markets served, and demographic and seasonal factors. Companies that own interstate pipelines that transport natural gas, natural gas liquids, crude oil or refined petroleum
products are subject to regulation by the Federal
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Energy Regulatory Commission (“FERC”) with respect to the tariff rates they may charge
for transportation services. An adverse determination by FERC with respect to the tariff rates of such companies could have a material adverse effect on their business, financial condition, results of operations and cash flows and their ability to
pay cash distributions or dividends.
Further, effective January 2018, the 2017 Tax Cuts and Jobs Act changed several provisions of the federal tax code, including a
reduction in the maximum corporate tax rate. Following the 2017 Tax Cuts and Jobs Act being signed into law, filings have been made at FERC requesting that FERC require natural gas and liquids pipelines to lower their transportation rates to account
for lower taxes. Following the effective date of the law, FERC orders granting certificates to construct proposed natural gas pipeline facilities have directed pipelines proposing new rates for service on those facilities to re-file such rates so that the rates reflect the reduction in the corporate tax rate, and FERC has issued data requests in pending certificate proceedings for proposed natural gas pipeline facilities requesting
pipelines to explain the impacts of the reduction in the corporate tax rate on the rate proposals in those proceedings and to provide re-calculated initial rates for service on the proposed pipeline
facilities. Furthermore, on March 15, 2018, the FERC took a number of actions that could materially adversely impact MLPs. For example, the FERC reversed a long-standing policy that allowed MLPs to recover an income tax allowance when
calculating the transportation rates for cost-of-service pipelines owned by such MLPs, arguing that MLPs are pass-through entities that do not incur income taxes and
that recovery of an income tax allowance would lead to double recovery. In July of 2018, the FERC issued Order No. 849, which required pipelines to make one-time filings to allow FERC to determine which cost-of-service natural gas pipelines may be collecting unjust and unreasonable rates or are overearning in light of 1) the corporate income tax reductions; and 2) the
FERC’s revised policy concerning an MLP’s ability to recover an income tax allowance. Reports were filed in late 2018. While the Commission has closed some of these proceedings with no further action, the Commission has also initiated
investigations into the rates of a number of pipelines pursuant to its authority under section 5 of the Natural Gas Act as a result of its review of the one-time filings. With respect to cost-of-service oil and refined products pipelines, the FERC announced that it will account for the lower corporate tax rate and the FERC’s policy change related to an
MLP’s ability to recover an income tax allowance in 2020 when setting the next cost inflation index level, which index level sets the maximum allowable rate increases for oil and refined products pipelines and is set by FERC every five years,
which could limit such pipelines’ ability to raise rates.
FERC also issued a policy statement that provides accounting and ratemaking guidance for treatment of
accumulated deferred income tax (“ADIT”) for all FERC-jurisdictional public utilities, natural gas pipelines, and oil pipelines, as FERC found the tax rate reduction would also result in a reduction in ADIT liabilities and ADIT assets on
the books of rate-regulated
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| ClearBridge MLP and Midstream Total Return Fund Inc. |
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53 |
Summary of information regarding the Fund (unaudited) (cont’d)
companies. The companies in the energy and infrastructure sector that own the affected natural gas, oil or refined products pipelines could experience a material
reduction in revenues and cash flows, which may in turn materially adversely affect their financial condition. FERC may enact other regulations or issue further requests to pipelines that may lead to lower rates.
Gathering and processing. Gathering and processing companies are subject to natural declines in the production of oil and natural gas fields, which utilize their
gathering and processing facilities as a way to market their production, prolonged declines in the price of natural gas or crude oil, which curtails drilling activity and therefore production, and declines in the prices of natural gas liquids and
refined petroleum products, which cause lower processing margins. In addition, some gathering and processing contracts subject the gathering or processing company to direct commodities price risk.
Midstream. MLPs and midstream entities that provide crude oil, refined product and natural gas services are subject to supply and demand fluctuations in the
markets they serve which may be impacted by a wide range of factors including fluctuating commodity prices, weather, increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion, rising
interest rates, declines in domestic or foreign production, accidents or catastrophic events, and economic conditions, among others.
Exploration and
production. Exploration, development and production companies are particularly vulnerable to declines in the demand for and prices of crude oil and natural gas. Reductions in prices for crude oil and natural gas can cause a given reservoir to
become uneconomic for continued production earlier than it would if prices were higher, resulting in the plugging and abandonment of, and cessation of production from, that reservoir. In addition, lower commodity prices not only reduce revenues but
also can result in substantial downward adjustments in reserve estimates. The accuracy of any reserve estimate is a function of the quality of available data, the accuracy of assumptions regarding future commodity prices and future exploration and
development costs and engineering and geological interpretations and judgments. Different reserve engineers may make different estimates of reserve quantities and related revenue based on the same data. Actual oil and gas prices, development
expenditures and operating expenses will vary from those assumed in reserve estimates, and these variances may be significant. Any significant variance from the assumptions used could result in the actual quantity of reserves and future net cash
flow being materially different from those estimated in reserve reports. In addition, results of drilling, testing and production and changes in prices after the date of reserve estimates may result in downward revisions to such estimates.
Substantial downward adjustments in reserve estimates could have a material adverse effect on a given exploration and production company’s financial position and results of operations. In addition, due to natural declines in reserves and
production, exploration and production
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ClearBridge MLP and Midstream Total Return Fund Inc. |
companies must economically find or acquire and develop additional reserves in order to maintain
and grow their revenues and distributions.
Propane. Propane MLPs are subject to earnings variability based upon weather conditions in the markets they serve,
fluctuating commodity prices, increased use of alternative fuels, increased governmental or environmental regulation, and accidents or catastrophic events, among others.
Coal. MLPs and other entities with coal assets are subject to supply and demand fluctuations in the markets they serve, which may be impacted by a wide range of
factors including fluctuating commodity prices, the level of their customers’ coal stockpiles, weather, increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion, rising interest
rates, declines in domestic or foreign production, mining accidents or catastrophic events, health claims and economic conditions, among others. It has become increasingly difficult to obtain and maintain the permits necessary to mine coal. Further,
such permits, if obtained, have increasingly contained more stringent, and more difficult and costly to comply with, provisions relating to environmental protection.
Marine shipping. Marine shipping (or “tanker” companies) are exposed to many of the same risks as other energy companies. In addition, the highly
cyclical nature of the tanker industry may lead to volatile changes in charter rates and vessel values, which may adversely affect the earnings of tanker companies in our portfolio. Fluctuations in charter rates and vessel values result from changes
in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products. Historically, the tanker markets have been volatile because many conditions and factors can affect the supply and demand for tanker capacity.
Changes in demand for transportation of oil over longer distances and supply of tankers to carry that oil may materially affect revenues, profitability and cash flows of tanker companies. The successful operation of vessels in the charter market
depends upon, among other things, obtaining profitable spot charters and minimizing time spent waiting for charters and traveling unladen to pick up cargo. The value of tanker vessels may fluctuate and could adversely affect the value of tanker
company securities in our portfolio. Declining tanker values could affect the ability of tanker companies to raise cash by limiting their ability to refinance their vessels, thereby adversely impacting tanker company liquidity. Tanker company
vessels are at risk of damage or loss because of events such as mechanical failure, collision, human error, war, terrorism, piracy, cargo loss and bad weather. Tanker vessels are also subject to international environmental regulations, including
increasingly stringent engine efficiency and ballast water exchange requirements, and older vessels that have not been retrofitted may be limited in the ports they can access. In addition, changing economic, regulatory and political conditions in
some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of
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| ClearBridge MLP and Midstream Total Return Fund Inc. |
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55 |
Summary of information regarding the Fund (unaudited) (cont’d)
waterways, piracy, terrorism, labor strikes, boycotts and government requisitioning of vessels. These sorts of events could interfere with shipping lanes and result in
market disruptions and a significant loss of tanker company earnings.
Energy and Energy Infrastructure Sector Risk. The Fund is subject to the risk of
focusing investments in the energy sector, which makes it more susceptible to factors adversely affecting issuers within that industry than would a fund investing in a more diversified portfolio of securities. A downturn in the energy sector of the
economy could have an adverse impact on the Fund. At times, the performance of securities of companies in the energy sector of the economy may lag the performance of other sectors or the broader market as a whole. The profitability of companies in
the energy infrastructure sector is related to worldwide energy prices and costs related to energy production. The energy sector is cyclical and highly dependent on commodity prices. Energy-related companies can be significantly affected by the
supply of, and demand for, particular energy products (such as oil and natural gas). Companies in the energy infrastructure sector may be adversely affected by natural disasters or other catastrophes. These companies may be at risk for environmental
damage claims and other types of litigation. Companies in the energy infrastructure sector also may be adversely affected by changes in exchange rates, interest rates, economic conditions, tax treatment, government regulation and intervention,
negative perception, efforts at energy conservation and world events in the regions in which the companies operate (e.g., expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments
and repatriation of capital, military coups, social unrest, violence or labor unrest). Companies in the energy infrastructure sector may have significant capital investments in, or engage in transactions involving, emerging market countries, which
may heighten these risks.
Risks of Investing in MLP Units. An investment in MLP units involves risks that differ from a similar investment in equity
securities, such as common stock, of a corporation. Holders of MLP units have the rights typically afforded to limited partners in a limited partnership. As compared to common stockholders of a corporation, holders of MLP units have more limited
control and limited rights to vote on matters affecting the partnership. Holders of MLP units are also exposed to the risk that they will be required to repay amounts to the MLP that are wrongfully distributed to them. There are certain tax risks
associated with an investment in MLP units (described further below). Additionally, conflicts of interest may exist among common unit holders, subordinated unit holders and the general partner or managing member of an MLP; for example a conflict may
arise as a result of incentive distribution payments.
Tax Risks of Investing in Equity Securities of MLPs. Partnerships do not pay United States federal
income tax at the partnership level. Rather, each partner of a partnership, in computing its United States federal income tax liability, will include its allocable share of
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ClearBridge MLP and Midstream Total Return Fund Inc. |
the partnership’s income, gains, losses, deductions and expenses. A change in current tax
law, a change in the business of a given MLP, or a change in the types of income earned by a given MLP, could result in an MLP being treated as a corporation for United States federal income tax purposes, which would result in such MLP being
required to pay United States federal income tax on its taxable income. The classification of an MLP as a corporation for United States federal income tax purposes would have the effect of reducing the amount of cash available for distribution by
the MLP and causing any such distributions received by the Fund to be taxed as dividend income to the extent of the MLP’s current or accumulated earnings and profits. Thus, if any of the MLPs owned by the Fund were treated as corporations for
United States federal income tax purposes, the after-tax return to the Fund with respect to its investment in such MLPs could be materially reduced, which could cause a substantial decline in the value of the
Common Stock.
The Fund is treated as a regular corporation, or a “C” corporation, for United States federal income tax purposes and, as a result, unlike
most investment companies, is subject to corporate income tax to the extent the Fund recognizes positive returns. Any taxes paid by the Fund reduce the amount available to pay distributions to Common Stockholders, and therefore investors in the Fund
will likely receive lower distributions than if they invested directly in MLPs.
To the extent that the Fund invests in the equity securities of an MLP, the Fund
will be a partner in such MLP. Accordingly, the Fund is required to include in its taxable income the Fund’s allocable share of the income, gains, losses, deductions and expenses recognized by each such MLP, regardless of whether the MLP
distributes cash to the Fund. Historically, MLPs have been able to offset a significant portion of their income with tax deductions. The Fund incurs a current tax liability on its allocable share of an MLP’s income and gains that are not offset
by the MLP’s tax deductions, losses and credits, or its net operating loss carryovers, if any. The portion, if any, of a distribution received by the Fund from an MLP that is offset by the MLP’s tax deductions, losses or credits is treated
as a return of capital. However, those distributions reduce the Fund’s adjusted tax basis in the equity securities of the MLP, which results in an increase in the amount of gain (or decrease in the amount of loss) that is recognized by the Fund
for United States federal income tax purposes upon the sale of any such equity securities or upon subsequent distributions in respect of such equity securities. The percentage of an MLP’s income and gains that are offset by tax deductions,
losses and credits will fluctuate over time for various reasons. A significant slowdown in acquisition activity or capital spending by MLPs held in the Fund’s portfolio could result in a reduction of accelerated depreciation generated by new
acquisitions, which may result in increased current tax liability for the Fund.
The Fund accrues deferred income taxes for its future tax liability associated with
the difference between the Fund’s tax basis in an MLP security and the fair market value of the
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| ClearBridge MLP and Midstream Total Return Fund Inc. |
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Summary of information regarding the Fund (unaudited) (cont’d)
MLP security. Upon the Fund’s sale of an MLP security, the Fund will be liable for previously deferred taxes on taxable realized gains from such sale. The Fund
relies to some extent on information provided by MLPs, which may not necessarily be timely, to estimate its deferred tax liability for purposes of financial statement reporting and determining its net asset value. From time to time, the Fund may
modify its estimates or assumptions regarding its deferred tax liability as new information becomes available.
A corporation’s earnings and profits are
generally calculated by making certain adjustments to the corporation’s reported taxable income. However, because of the Fund’s investment in equity securities of MLPs, its earnings and profits may be calculated using accounting methods
that are different from those used for calculating taxable income. Due to these differences, the Fund may make distributions out of its current or accumulated earnings and profits, which will be treated as dividends, that are in excess of its
taxable income.
In addition, changes in tax laws or regulations, or future interpretations of such laws or regulations, could adversely affect the Fund or the MLP
investments in which the Fund invests. For instance, the Tax Cuts and Jobs Act enacted in 2017 has resulted in significant changes to the federal tax law. Some of these changes, such as partial limitations on the deductibility of business interest
expense and the use of net operating loss carryovers, may have an adverse impact on the Fund or the MLPs in which it invests.
Lack of Diversification of
Customers and Suppliers. Certain MLPs and midstream entities in which the Fund invests or may invest in the future depend upon a limited number of customers for substantially all of their revenue. Similarly, certain MLPs and midstream entities
in which the Fund invests or may invest in the future depend upon a limited number of suppliers of goods or services to continue their operations. The loss of any such customers or suppliers could materially adversely affect such MLPs’ and
midstream entities’ results of operations and cash flow, and their ability to make distributions to unit holders, such as the Fund, would therefore be materially adversely affected.
Affiliated Party Risk. Certain MLPs in which the Fund may invest depend upon their parent or sponsor entities for the majority of their revenues. If their parent
or sponsor entities fail to make such payments or satisfy their obligations, the revenues and cash flows of such MLPs and ability of such MLPs to make distributions to unit holders, such as the Fund, would be adversely affected.
Equity Securities Risk. A substantial percentage of the Fund’s assets are invested in equity securities, including MLP common units, MLP subordinated units,
MLP preferred units, equity securities of MLP affiliates, including I-Shares, and common stocks of other issuers. Equity risk is the risk that MLP units or other equity securities held by the Fund will fall
due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate, changes in interest rates, and the
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ClearBridge MLP and Midstream Total Return Fund Inc. |
particular circumstances and performance of particular companies whose securities the Fund holds.
The price of an equity security of an issuer may be particularly sensitive to general movements in the stock market, or a drop in the stock market may depress the price of most or all of the equity securities held by the Fund. In addition, MLP units
or other equity securities held by the Fund may decline in price if the issuer fails to make anticipated distributions or dividend payments because, among other reasons, the issuer experiences a decline in its financial condition.
MLP subordinated units typically are convertible to MLP common units at a one-to-one
ratio. The price of MLP subordinated units is typically tied to the price of the corresponding MLP common unit, less a discount. The size of the discount depends upon a variety of factors, including the likelihood of conversion, the length of time
remaining until conversion and the size of the block of subordinated units being purchased or sold.
I-Shares represent an
indirect investment in MLP I-units. Prices and volatilities of I-Shares tend to correlate to the price of common units. Holders of
I-Shares are subject to the same risks as holders of MLP common units. In addition, I-Shares may trade less frequently, particularly those of issuers with smaller
capitalizations. Given their potential for limited trading volume, I-Shares may display volatile or erratic price movements. In addition, I-Shares often may be
subordinated in terms of liquidation rights to MLP common units.
Interest Rate Risk. Rising interest rates could increase the costs of capital thereby
increasing operating costs and reducing the ability of MLPs and other entities operating in the energy sector to carry out acquisitions or expansions in a cost-effective manner. As a result, rising interest rates could negatively affect the
financial performance of MLPs and other entities operating in the energy sector. Rising interest rates may also impact the price of the securities of MLPs and other entities operating in the energy sector as the yields on alternative investments
increase. During periods of declining interest rates, the market price of fixed income securities generally rises. Conversely, during periods of rising interest rates, the market price of such securities generally declines.
Inflation/Deflation Risk. Inflation risk is the risk that the value of certain assets or income from the Fund’s investments will be worth less in the future
as inflation decreases the value of money. As inflation increases, the real value of the Common Stock and distributions on the Common Stock can decline. In addition, during any periods of rising inflation, the dividend rates or borrowing costs
associated with the Fund’s use of leverage would likely increase, which would tend to further reduce returns to stockholders. Deflation risk is the risk that prices throughout the economy decline over time — the opposite of inflation.
Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value of the Fund’s portfolio.
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Summary of information regarding the Fund (unaudited) (cont’d)
Liquidity Risk. Although the equity securities of the MLPs in which the Fund invests generally trade on major stock exchanges, certain securities may trade less
frequently, particularly those of MLPs and other issuers with smaller capitalizations. Securities with limited trading volumes may display volatile or erratic price movements. Also, the Fund may be one of the largest investors in certain sub-sectors of the energy or natural resource sectors. Thus, it may be more difficult for the Fund to buy and sell significant amounts of such securities without an unfavorable impact on prevailing market prices.
Larger purchases or sales of these securities by the Fund in a short period of time may cause abnormal movements in the market price of these securities. As a result, these securities may be difficult to dispose of at a fair price at the times when
ClearBridge believe it is desirable to do so.
Natural Resources Sector Risks. The natural resources sector includes companies principally engaged in owning
or developing non-energy natural resources (including timber and minerals) and industrial materials, or supplying goods or services to such companies. The Fund’s investments in MLPs and midstream entities
operating in the natural resources sector will be subject to the risk that prices of these securities may fluctuate widely in response to the level and volatility of commodity prices; exchange rates; import controls; domestic and global competition;
environmental regulation and liability for environmental damage; mandated expenditures for safety or pollution control; the success of exploration projects; depletion of resources; tax policies; and other governmental regulation. Investments in the
natural resources sector can be significantly affected by changes in the supply of or demand for various natural resources. The value of investments in the natural resources sector may be adversely affected by a change in inflation.
Small Capitalization Risk. The Fund may invest in securities of MLPs, midstream entities and other issuers that have comparatively smaller capitalizations
relative to issuers whose securities are included in major benchmark indexes, which presents unique investment risks. These companies often have limited product lines, markets, distribution channels or financial resources, and the management of such
companies may be dependent upon one or a few key people. The market movements of equity securities issued by MLPs and midstream entities with smaller capitalizations may be more abrupt or erratic than the market movements of equity securities of
larger, more established companies or the stock market in general. Historically, smaller capitalization companies have sometimes gone through extended periods when they did not perform as well as larger companies. In addition, equity securities of
smaller capitalization companies generally are less liquid than those of larger companies. Finally, small-cap securities may not be widely followed by the investment community, which may result in reduced
demand. This means that the Fund could have greater difficulty selling such securities at the time and price that the Fund would like.
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ClearBridge MLP and Midstream Total Return Fund Inc. |
Competition Risk. A number of alternatives available to the Fund as vehicles for investment
in a portfolio of energy MLPs, midstream entities and their affiliates currently exist, including other publicly traded investment companies, structured notes and private funds. These competitive conditions may adversely impact our ability to meet
our investment objective, which in turn could adversely impact our ability to make distributions.
Restricted Securities Risk. The Fund may invest up to 30%
of its Managed Assets in unregistered or otherwise restricted securities. The term “restricted securities” refers to securities that are unregistered, held by control persons of the issuer or are subject to contractual restrictions on
their resale. Restricted securities are often purchased at a discount from the market price of unrestricted securities of the same issuer reflecting the fact that such securities may not be readily marketable without some time delay. Such securities
are often more difficult to value and the sale of such securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of liquid securities trading on national securities
exchanges or in the over-the-counter markets. Contractual restrictions on the resale of securities result from negotiations between the issuer and purchaser of such
securities and therefore vary substantially in length and scope. To dispose of a restricted security that the Fund has a contractual right to sell, the Fund may first be required to cause the security to be registered. A considerable period may
elapse between a decision to sell the securities and the time when the Fund would be permitted to sell, during which time the Fund would bear market risks. The difficulties and delays associated with selling restricted securities could result in our
inability to realize a favorable price upon disposition of such securities, and at times might make disposition of such securities impossible.
Cash Flow Risk.
The Fund expects that a substantial portion of the cash flow it receives will be derived from its investments in equity securities of MLPs and midstream entities. The amount of cash available for distribution by an MLP or midstream entity
depends upon the amount of cash generated by such entity’s operations. Cash available for distribution by MLPs and midstream entities will vary widely from quarter to quarter and is affected by various factors affecting the entity’s
operations and the energy industry at large. Large declines in commodity prices (such as those experienced from mid-2014 to early 2016) can result in material declines in cash flow from operations. Further,
covenants in debt instruments issued by MLPs and midstream entities in which the Fund intends to invest may restrict distributions to equity holders or, in certain circumstances, may not allow distributions to be made to equity holders. Finally, the
acquisition of an MLP or midstream entity by an acquiror with a lower yield could result in lower distributions to the equity holders of the acquired MLP or midstream entity. These kind of transactions have become more prevalent in recent years. To
the extent MLPs and midstream entities that the Fund owns reduce their distributions to equity holders, this will result in reduced levels of net distributable income and can cause the Fund to reduce its distributions. In addition to the
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Summary of information regarding the Fund (unaudited) (cont’d)
risks described herein, operating costs, capital expenditures, acquisition costs, construction costs, exploration costs and borrowing costs may reduce the amount of cash
that an MLP or a midstream entity has available for distribution in a given period.
Market Events Risk. The market values of securities or other assets will
fluctuate, sometimes sharply and unpredictably, due to factors such as economic 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, the global and domestic effects of widespread or local health, weather or climate events, and other
factors that may or may not be related to the issuer of the security or other asset. Economies and financial markets throughout the world are increasingly interconnected. Economic, financial or political events, trading and tariff arrangements,
public health events, terrorism, wars, natural disasters and other circumstances in one country or region could have profound impacts on global economies or markets. As a result, whether or not the fund invests in securities of issuers located in or
with significant exposure to the countries or markets directly affected, the value and liquidity of the fund’s investments may be negatively affected. Following Russia’s invasion of Ukraine, Russian stocks lost all, or nearly all, of their
market value. Other securities or markets could be similarly affected by past or future geopolitical or other events or conditions. Furthermore, events involving limited liquidity, defaults, non-performance or
other adverse developments that affect one industry, such as the financial services industry, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems, may spread to other
industries, and could negatively affect the value and liquidity of the fund’s investments.
The long-term impact of the
COVID-19 pandemic and its subsequent variants on economies, markets, industries and individual issuers is not known. Some sectors of the economy and individual issuers have experienced or may experience
particularly large losses. Periods of extreme volatility in the financial markets, reduced liquidity of many instruments, increased government debt, inflation, and disruptions to supply chains, consumer demand and employee availability, may continue
for some time. The U.S. government and the Federal Reserve, as well as certain foreign governments and central banks, took extraordinary actions to support local and global economies and the financial markets in response to the COVID-19 pandemic. This and other government intervention into the economy and financial markets may not work as intended, and have resulted in a large expansion of government deficits and debt, the long term
consequences of which are not known. In addition, the COVID-19 pandemic, and measures taken to mitigate its effects, could result in disruptions to the services provided to the fund by its service providers.
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ClearBridge MLP and Midstream Total Return Fund Inc. |
Raising the ceiling on U.S. government debt has become increasingly politicized. Any failure to
increase the total amount that the U.S. government is authorized to borrow could lead to a default on U.S. government obligations, with unpredictable consequences for economies and markets in the U.S. and elsewhere. Recently, inflation and interest
rates have increased and may rise further. These circumstances could adversely affect the value and liquidity of the fund’s investments, impair the fund’s ability to satisfy redemption requests, and negatively impact the fund’s
performance.
The United States and other countries are periodically involved in disputes over trade and other matters, which may result in tariffs, investment
restrictions and adverse impacts on affected companies and securities. For example, the United States has imposed tariffs and other trade barriers on Chinese exports, has restricted sales of certain categories of goods to China, and has established
barriers to investments in China. Trade disputes may adversely affect the economies of the United States and its trading partners, as well as companies directly or indirectly affected and financial markets generally. The United States government has
prohibited U.S. persons from investing in Chinese companies designated as related to the Chinese military. These and possible future restrictions could limit the fund’s opportunities for investment and require the sale of securities at a loss
or make them illiquid. Moreover, the Chinese government is involved in a longstanding dispute with Taiwan that has included threats of invasion. If the political climate between the United States and China does not improve or continues to
deteriorate, if China were to attempt unification of Taiwan by force, or if other geopolitical conflicts develop or get worse, economies, markets and individual securities may be severely affected both regionally and globally, and the value of the
fund’s assets may go down.
Valuation Risk. The sales price the Fund could receive for any particular portfolio investment may differ from the
Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a fair value methodology. These differences may increase significantly and affect Fund investments more broadly
during periods of market volatility. The Fund’s ability to value its investments may be impacted by technological issues and/or errors by pricing services or other third party service providers. The valuation of the Fund’s investments
involves subjective judgment. To the extent the Fund invests in private securities, market prices generally are unavailable for such investments, including MLP subordinated units, direct ownership of general partner or managing member interests and
restricted or unregistered securities of certain MLPs, midstream entities and private companies. The values of such securities will ordinarily be determined by fair valuations determined by the Board of Directors or its designee in accordance with
procedures governing the valuation of portfolio securities adopted by the Board of Directors. Proper valuation of such securities may require more reliance on the judgment of ClearBridge than valuation of securities for which an active trading
market exists. As a limited partner in the MLPs, the Fund includes its allocable share of the MLP’s
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Summary of information regarding the Fund (unaudited) (cont’d)
taxable income in computing its own taxable income. Deferred income taxes in the financial statements of the Fund reflect (i) taxes on unrealized gains/losses,
which are attributable to the temporary difference between fair market value and the cost basis of the Fund’s assets for financial reporting purposes, (ii) the net tax effects of temporary differences between the carrying amount and the
cost basis of such 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 carryovers.
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 the Fund based on the
criterion established by Financial Accounting Standards Board Codification Topic 740, Income Taxes (formerly Statement of Financial Accounting Standards No. 109) 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 carryover periods and the associated risk that net operating loss, capital loss and tax credit carryovers may expire unused.
The Fund may rely to some
extent on information provided by the MLPs, which may not necessarily be timely, to estimate taxable income allocable to the MLP units held in the portfolio and to estimate the associated deferred tax asset or 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 deferred tax asset or liability.
Deferred tax assets may constitute a relatively high percentage of the Fund’s net asset value. A capital loss carryforward may constitute a material deferred tax
asset and also has a five-year expiration. Any valuation allowance required against deferred tax assets, such as a capital loss carryforward, or future adjustments to a valuation allowance could have a material impact on the Fund’s net asset
value and results of operations in the period the valuation allowance is recorded or adjusted.
Royalty Trust Risk. Royalty trusts are exposed to many of the
same risks as other MLPs. In addition, the value of the equity securities of the royalty trusts in which the Fund invests may fluctuate in accordance with changes in the financial condition of those royalty trusts, the condition of equity markets
generally, commodity prices, and other factors. Distributions on royalty trusts in which the Fund may invest will depend upon the declaration of distributions from the constituent royalty trusts, but there can be no assurance that those royalty
trusts will pay distributions on their securities. Typically royalty trusts own the rights
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to royalties on the production and sales of a natural resource, including oil, gas, minerals and
timber As these deplete, production and cash flows steadily decline, which may decrease distributions. The declaration of such distributions generally depends upon various factors, including the operating performance and financial condition of the
royalty trust and general economic conditions.
In many circumstances, the royalty trusts in which the Fund may invest may have limited operating histories. The
value of royalty trust securities in which the Fund invests are influenced by factors that are not within the Fund’s control, including the financial performance of the respective issuers, interest rates, exchange rates and commodity prices
(which will vary and are determined by supply and demand factors including weather and general economic and political conditions), the hedging policies employed by such issuers, issues relating to the regulation of the energy industry and
operational risks relating to the energy industry.
Market Discount from Net Asset Value Risk. Shares of closed-end
investment companies frequently trade at a discount from their net asset value. This risk is separate and distinct from the risk that the Fund’s net asset value could decrease as a result of its investment activities and may be a greater risk
to investors expecting to sell their Common Stock in a relatively short period following completion of this offering. Whether investors will realize gains or losses upon the sale of the Common Stock will depend not upon the Fund’s net asset
value but upon whether the market price of the Common Stock at the time of sale is above or below the investor’s purchase price for the Common Stock.
Because
the market price of the Common Stock will be determined by factors such as relative supply of and demand for the Common Stock in the market, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot
predict whether the Common Stock will trade at, above or below net asset value or at, above or below the initial public offering price. The Fund’s Common Stock is designed primarily for long term investors and you should not view the Fund as a
vehicle for trading purposes.
Below Investment Grade (High Yield or Junk Bond) Securities Risk. The Fund may invest up to 20% of its Managed Assets in fixed
income securities of below investment grade quality. High yield debt securities are generally subject to greater credit risks than higher-grade debt securities, including the risk of default on the payment of interest or principal. High yield debt
securities are considered speculative, typically have lower liquidity and are more difficult to value than higher grade bonds. High yield debt securities tend to be volatile and more susceptible to adverse events, credit downgrades and negative
sentiments and may be difficult to sell at a desired price, or at all, during periods of uncertainty or market turmoil.
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| ClearBridge MLP and Midstream Total Return Fund Inc. |
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65 |
Summary of information regarding the Fund (unaudited) (cont’d)
Foreign Securities and Emerging Markets Risk. A fund that invests in foreign (non-U.S.) securities may experience more
rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies. The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of
industries. Investments in foreign securities (including those denominated in U.S. dollars) are subject to economic and political developments in the countries and regions where the issuers operate or are domiciled, or where the securities are
traded, such as changes in economic or monetary policies. Values may also be affected by restrictions on receiving the investment proceeds from a foreign country. Less information may be publicly available about foreign companies than about U.S.
companies. Foreign companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. In addition, the Fund’s investments in foreign securities may be subject to the risk of
nationalization or expropriation of assets, imposition of currency exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial instability and adverse diplomatic developments. In addition,
there may be difficulty in obtaining or enforcing a court judgment abroad. Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to non-U.S. withholding taxes, and special
U.S. tax considerations may apply.
The risks of foreign investment are greater for investments in emerging markets. The Fund considers a country to be an emerging
market country if, at the time of investment, it is represented in the J.P. Morgan Emerging Markets Bond Index Global or categorized by the World Bank in its annual categorization as middle- or low-income.
Emerging market countries typically have economic and political systems that are less fully developed, and that can be expected to be less stable, than those of more advanced countries. Low trading volumes may result in a lack of liquidity and in
price volatility. Emerging market countries may have policies that restrict investment by foreigners, that require governmental approval prior to investments by foreign persons, or that prevent foreign investors from withdrawing their money at will.
An investment in emerging market securities should be considered speculative.
Currency Risk. The value of investments in securities denominated in foreign
currencies increases or decreases as the rates of exchange between those currencies and the U.S. dollar change. Currency conversion costs and currency fluctuations could erase investment gains or add to investment losses. Currency exchange rates can
be volatile, and are affected by factors such as general economic conditions, the actions of the U.S. and foreign governments or central banks, the imposition of currency controls and speculation. The Fund may be unable or may choose not to hedge
its foreign currency exposure.
Leverage Risk. The Fund may use leverage through borrowings, including loans from certain financial institutions and/or the
issuance of debt securities, and through the issuance of
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preferred stock. The Fund may use leverage through borrowings in an aggregate amount of up to
approximately 33 1/3% of the Fund’s total assets less all liabilities and indebtedness not represented by senior securities (for these purposes, “total net assets”) immediately after such borrowings. Furthermore, the Fund may use
leverage through the issuance of preferred stock in an aggregate amount of liquidation preference attributable to the preferred shares combined with the aggregate amount of any borrowings of up to approximately 50% of the Fund’s total net
assets immediately after such issuance. The Fund had outstanding senior secured notes, a revolving credit facility with a financial institution and outstanding MRPS. Any effective leverage will create an opportunity for increased returns on the
Fund’s Common Stock but also create the possibility of losses if the cost of leverage exceeds the return on the Fund’s investment. The effective leverage offered by such investments could cause the Fund’s net asset value to be subject
to more frequent and wider fluctuation than would be the case if the Fund did not invest in them. Because the fees received by the LMPFA and Clearbridge are based on the total Managed Assets of the Fund, the LMPFA and Clearbridge have a financial
incentive for the Fund to use financial leverage, which may create a conflict of interest between the LMPFA and Clearbridge and the Common Stockholders. There is no assurance that the Fund’s strategy of investing in instruments that have the
economic effect of financial leverage will be successful.
Derivatives Risk. The Fund may utilize a variety of derivative instruments such as interest rate
swaps, options contracts, futures contracts, forward contracts, options on futures contracts and indexed securities. Using derivatives can increase Fund losses and reduce opportunities for gains when market prices, interest rates, currencies, or the
derivatives themselves behave in a way not anticipated by the Fund. Using derivatives also can have a leveraging effect and increase Fund volatility. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial
investment. Derivatives may not be available at the time or price desired, may be difficult to sell, unwind or value, and the counterparty may default on its obligations to the Fund. Derivatives are generally subject to the risks applicable to the
assets, rates, indices or other indicators underlying the derivative. The value of a derivative may fluctuate more than the underlying assets, rates, indices or other indicators to which it relates. Use of derivatives may have different tax
consequences for the Fund than an investment in the underlying security, and those differences may affect the amount, timing and character of income distributed to shareholders. The U.S. government and foreign governments are in the process of
adopting and implementing regulations governing derivatives markets, including mandatory clearing of certain derivatives, margin and reporting requirements. The ultimate impact of the regulations remains unclear. Additional regulation of derivatives
may make derivatives more costly, limit their availability or utility, otherwise adversely affect their performance or disrupt markets.
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67 |
Summary of information regarding the Fund (unaudited) (cont’d)
Effective August 19, 2022, the Fund began operating under Rule 18f-4 under the 1940 Act which, among other things, governs
the use of derivative investments and certain financing transactions (e.g. reverse repurchase agreements) by registered investment companies. Among other things, Rule 18f-4 requires funds that invest in
derivative instruments beyond a specified limited amount to apply a value at risk (VaR) based limit to their use of certain derivative instruments and financing transactions and to adopt and implement a derivatives risk management program. A fund
that uses derivative instruments in a limited amount is not subject to the full requirements of Rule 18f-4. Compliance with Rule 18f-4 by the Fund could, among other
things, make derivatives more costly, limit their availability or utility, or otherwise adversely affect their performance. Rule 18f-4 may limit the Fund’s ability to use derivatives as part of its
investment strategy.
Short Sales Risk. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces
the borrowed security, the Fund will realize a loss, which may be substantial. A fund that engages in a short sale or short position may lose more money than the actual cost of the short sale or short position and its potential losses may be
unlimited if the fund does not own the security sold short or the reference instrument and it is unable to close out of the short sale or short position.
Legal
and Regulatory Risk. Legal, tax and regulatory changes could occur and may adversely affect the Fund and its ability to pursue its investment strategies and/or increase the costs of implementing such strategies. New (or revised) laws or
regulations may be imposed by the CFTC, the SEC, the U.S. Federal Reserve or other banking regulators, other governmental regulatory authorities or self-regulatory organizations that supervise the financial markets that could adversely affect the
Fund. In particular, these agencies are empowered to promulgate a variety of new rules pursuant to recently enacted financial reform legislation in the United States. The Fund also may be adversely affected by changes in the enforcement or
interpretation of existing statutes and rules by these governmental regulatory authorities or self-regulatory organizations.
In addition, the securities and futures
markets are subject to comprehensive statutes, regulations and margin requirements. The CFTC, the SEC, the Federal Deposit Insurance Corporation, other regulators and self-regulatory organizations and exchanges are authorized under these statutes,
regulations and otherwise to take extraordinary actions in the event of market emergencies. The Fund and the Investment Manager have historically been eligible for exemptions from certain regulations. However, there is no assurance that the Fund and
LMPFA will continue to be eligible for such exemptions.
The U.S. Government enacted legislation that provides for new regulation of the derivatives market,
including clearing, margin, reporting, recordkeeping, and registration requirements. Although the CFTC has released final rules relating to clearing, reporting, recordkeeping and registration requirements under the legislation, certain of the
provisions are subject to
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further final rule making, and thus its ultimate impact remains unclear. New regulations could,
among other things, restrict the Fund’s ability to engage in derivatives transactions (for example, by making certain types of derivatives transactions no longer available to the Fund) and/or increase the costs of such derivatives transactions
(for example, by increasing margin or capital requirements), and the Fund may be unable to execute its investment strategies as a result. It is unclear how the regulatory changes will affect counterparty risk.
The CFTC and certain futures exchanges have established limits, referred to as “position limits,” on the maximum net long or net short positions which any
person may hold or control in particular options and futures contracts; those position limits may also apply to certain other derivatives positions the Fund may wish to take. All positions owned or controlled by the same person or entity, even if in
different accounts, may be aggregated for purposes of determining whether the applicable position limits have been exceeded. Thus, even if the Fund does not intend to exceed applicable position limits, it is possible that different clients managed
by the Investment Manager and its affiliates may be aggregated for this purpose. Therefore it is possible that the trading decisions of the Investment Manager may have to be modified and that positions held by the Fund may have to be liquidated in
order to avoid exceeding such limits. The modification of investment decisions or the elimination of open positions, if it occurs, may adversely affect the performance of the Fund.
The SEC has in the past adopted interim rules requiring reporting of all short positions above a certain de minimis threshold and may adopt rules requiring monthly
public disclosure in the future. In addition, other non-U.S. jurisdictions where the Fund may trade have adopted reporting requirements. If the Fund’s short positions or its strategy become generally
known, it could have a significant effect on ClearBridge’s ability to implement its investment strategy. In particular, it would make it more likely that other investors could cause a “short squeeze” in the securities held short by
the Fund, forcing the Fund to cover its positions at a loss. Such reporting requirements also may limit the Investment Manager’s ability to access management and other personnel at certain companies where ClearBridge seeks to take a short
position. In addition, if other investors engage in copycat behavior by taking positions in the same issuers as the Fund, the cost of borrowing securities to sell short could increase drastically and the availability of such securities to the Fund
could decrease drastically. Such events could make the Fund unable to execute its investment strategy. In addition, the SEC and other regulatory and self-regulatory authorities have implemented various rules and may adopt additional rules in the
future that may impact those engaging in short selling activity. If additional rules were adopted regarding short sales, they could restrict the Fund’s ability to engage in short sales in certain circumstances, and the Fund may be unable to
execute its investment strategy as a result.
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| ClearBridge MLP and Midstream Total Return Fund Inc. |
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Summary of information regarding the Fund (unaudited) (cont’d)
The SEC and regulatory authorities in other jurisdictions may adopt (and in certain cases, have adopted) bans on short sales of certain securities in response to market
events. Bans on short selling may make it impossible for the Fund to execute certain investment strategies and may have a material adverse effect on the Fund’s ability to generate returns.
Counterparty Risk. The Fund may enter into transactions with counterparties that become unable or unwilling to fulfill their contractual obligations. There can be
no assurance that any such counterparty will not default on its obligations to the Fund. In the event of a counterparty default, the Fund may be hindered or delayed in exercising rights against a counterparty and may experience significant losses.
To the extent that the Fund enters into multiple transactions with a single or small set of counterparties, the Fund will be subject to increased counterparty risk.
Privately Held Company Risk. Privately held companies are not subject to SEC reporting requirements, are not required to maintain their accounting records in
accordance with generally accepted accounting principles, and are not required to maintain effective internal controls over financial reporting. As a result, ClearBridge may not have timely or accurate information about the business, financial
condition and results of operations of the privately held companies in which the Fund invests.
Debt Securities Risk. Debt securities in which the Fund
invests are subject to many of the risks described elsewhere in this section. In addition, they are subject to credit risk, interest rate risk, and, depending on their quality, other special risks. An issuer of a debt security may be unable to make
interest payments and repay principal. The Fund could lose money if the issuer of a debt obligation is, or is perceived to be, unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The
downgrade of a security by rating agencies may further decrease its value. Certain debt instruments, particularly below investment grade securities, may contain call or redemption provisions which would allow the issuer thereof to prepay principal
prior to the debt instrument’s stated maturity. This is known as prepayment risk. Prepayment risk is greater during a falling interest rate environment as issuers can reduce their cost of capital by refinancing higher yielding debt instruments
with lower yielding debt instruments. An issuer may also elect to refinance its debt instruments with lower yielding debt instruments if the credit standing of the issuer improves. To the extent debt securities in its portfolio are called or
redeemed, the Fund may be forced to reinvest in lower yielding securities. Debt securities have reinvestment risk, which is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured,
traded or called fixed income instruments at market interest rates that are below the portfolio’s current earnings rate. A decline in income could affect the Fund’s Common Stock price or its overall return.
Redenomination Risk. Continuing uncertainty as to the status of the euro and the EMU has created significant volatility in currency and financial markets
generally. Any partial or
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complete dissolution of the EMU could have significant adverse effects on currency and financial
markets, and on the values of the Fund’s portfolio investments. If one or more EMU countries were to stop using the euro as its primary currency, the Fund’s investments in such countries may be redenominated into a different or newly
adopted currency. As a result, the value of those investments could decline significantly and unpredictably. In addition, securities or other investments that are redenominated may be subject to foreign currency risk, liquidity risk and valuation
risk to a greater extent than similar investments currently denominated in euros. To the extent a currency used for redenomination purposes is not specified in respect of certain EMU-related investments, or
should the euro cease to be used entirely, the currency in which such investments are denominated may be unclear, making such investments particularly difficult to value or dispose of. The Fund may incur additional expenses to the extent it is
required to seek judicial or other clarification of the denomination or value of such securities.
Management Risk. The Fund is subject to management risk
because it is an actively managed investment portfolio. Clearbridge and each individual portfolio manager will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will
produce the desired results. Clearbridge’s judgement about the attractiveness, relative value or potential appreciation of a particular sector or security may prove to be incorrect.
Potential Conflicts of Interest Risk. LMPFA, ClearBridge and the portfolio managers have interests which may conflict with the interests of the Fund. In
particular, LMPFA also manages, and ClearBridge serves as subadviser to, other closed-end investment companies listed on the NYSE that have investment objectives and investment strategies that are
substantially similar to those of the Fund. Further, LMPFA and ClearBridge may at some time in the future manage and/or advise other investment funds or accounts with the same or substantially similar investment objective and strategies as the Fund.
As a result, LMPFA, ClearBridge and the Fund’s portfolio managers may devote unequal time and attention to the management of the Fund and those other funds and accounts, and may not be able to formulate as complete a strategy or identify
equally attractive investment opportunities as might be the case if they were to devote substantially more attention to the management of the Fund. LMPFA, ClearBridge and the Fund’s portfolio managers may identify a limited investment
opportunity that may be suitable for multiple funds and accounts, and the opportunity may be allocated among these several funds and accounts, which may limit the Fund’s ability to take full advantage of the investment opportunity.
Additionally, transaction orders may be aggregated for multiple accounts for purpose of execution, which may cause the price or brokerage costs to be less favorable to the Fund than if similar transactions were not being executed concurrently for
other accounts. At times, a portfolio manager may determine that an investment opportunity may be appropriate for only some of the funds and accounts for which he or she exercises investment responsibility, or may decide that
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| ClearBridge MLP and Midstream Total Return Fund Inc. |
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Summary of information regarding the Fund (unaudited) (cont’d)
certain of the funds and accounts should take differing positions with respect to a particular security. In these cases, the portfolio manager may place separate
transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and accounts. For example, a portfolio manager may
determine that it would be in the interest of another account to sell a security that the Fund holds, potentially resulting in a decrease in the market value of the security held by the Fund.
The portfolio managers may also engage in cross trades between funds and accounts, may select brokers or dealers to execute securities transactions based in part on
brokerage and research services provided to LMPFA or ClearBridge which may not benefit all funds and accounts equally and may receive different amounts of financial or other benefits for managing different funds and accounts. Finally, LMPFA or its
affiliates may provide more services to some types of funds and accounts than others.
There is no guarantee that the policies and procedures adopted by LMPFA,
ClearBridge and the Fund will be able to identify or mitigate the conflicts of interest that arise between the Fund and any other investment funds or accounts that LMPFA and/or ClearBridge may manage or advise from time to time.
Portfolio Turnover Risk. Changes to the investments of the Fund may be made regardless of the length of time particular investments have been held. A high
portfolio turnover rate may result in increased transaction costs for the Fund in the form of increased dealer spreads and other transactional costs, which may have an adverse impact on performance. The portfolio turnover rate of the Fund will vary
from year to year, as well as within a year.
Government Intervention in Financial Markets Risk. The instability in the financial markets has led the U.S.
government and foreign governments to take a number of unprecedented actions designed to support certain financial institutions and segments of the financial markets that have experienced extreme volatility, and in some cases a lack of liquidity.
U.S. federal and state governments and foreign governments, their regulatory agencies or self-regulatory organizations may take additional actions that affect the regulation of the securities in which the Fund invests, or the issuers of such
securities, in ways that are unforeseeable Issuers of corporate fixed income securities might seek protection under the bankruptcy laws. Legislation or regulation may also change the way in which the Fund itself is regulated. Such legislation or
regulation could limit or preclude the Fund’s ability to achieve its investment objective. ClearBridge monitors developments and seeks to manage the Fund’s portfolio in a manner consistent with achieving the Fund’s investment
objective, but there can be no assurance that it will be successful in doing so.
Non-Diversification Risk. The Fund
is classified as “non-diversified” under the 1940 Act. As a result, it can invest a greater portion of its assets in obligations of a single issuer than a
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“diversified” fund. The Fund may therefore be more susceptible than a diversified fund
to being adversely affected by any single corporate, economic, political or regulatory occurrence.
Anti-Takeover Provisions Risk. The Charter and Bylaws of
the Fund include provisions that are designed to limit the ability of other entities or persons to acquire control of the Fund for short-term objectives, including by converting the Fund to open-end status or
changing the composition of the Board, that may be detrimental to the Fund’s ability to achieve its primary investment objective of seeking high current income. The Bylaws also contain a provision providing that the Board of Directors has
adopted a resolution to opt in the Fund to the provisions of the Maryland Control Share Acquisition Act (“MCSAA”). There can be no assurance, however, that such provisions will be sufficient to deter professional arbitrageurs that seek to
cause the Fund to take actions that may not be consistent with its investment objective or aligned with the interests of long-term shareholders, such as liquidating debt investments prior to maturity, triggering taxable events for shareholders and
decreasing the size of the Fund. Such provisions may limit the ability of shareholders to sell their shares at a premium over prevailing market prices by discouraging an investor from seeking to obtain control of the Fund. There can be no assurance,
however, that such provisions will be sufficient to deter professional investors that seek to cause the Fund to take actions that may not be aligned with the interests of long-term shareholders in order to allow the professional investor to
arbitrage the Fund’s market price.
Operational risk. The valuation of the Fund’s investments may be negatively impacted because of the operational
risks arising from factors such as processing errors and human errors, inadequate or failed internal or external processes, failures in systems and technology, changes in personnel, and errors caused by third party service providers or trading
counterparties. It is not possible to identify all of the operational risks that may affect the Fund or to develop processes and controls that completely eliminate or mitigate the occurrence of such failures. The Fund and its shareholders could be
negatively impacted as a result.
Cybersecurity risk. Cybersecurity incidents, both intentional and unintentional, may allow an unauthorized party to gain
access to Fund assets, Fund or proprietary information, cause the Fund, the Fund’s manager and subadviser and/or their service providers to suffer data breaches, data corruption or loss of operational functionality or prevent fund investors
from purchasing, redeeming or exchanging shares or receiving distributions. The Fund, manager and subadviser have limited ability to prevent or mitigate cybersecurity incidents affecting third party service providers, and such third party service
providers may have limited indemnification obligations to the Fund or the manager. Cybersecurity incidents may result in financial losses to the Fund and its shareholders, and substantial costs may be incurred in an effort to prevent or mitigate
future cybersecurity incidents. Issuers of securities in
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Summary of information regarding the Fund (unaudited) (cont’d)
which the Fund invests are also subject to cybersecurity risks, and the value of these securities could decline if the issuers experience cybersecurity incidents.
More Information
For a complete list of the
Fund’s fundamental investment restrictions and more detailed descriptions of the Fund’s investment policies, strategies and risks, see the Fund’s registration statement on Form N-2 that was
declared effective by the SEC on March 31, 2015, as amended or superseded by subsequent disclosures. The Fund’s fundamental investment restrictions may not be changed without the approval of the holders of a majority of the outstanding
voting securities, as defined in the 1940 Act.
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Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends and return
of capital distributions, on your Common Stock will be automatically reinvested by Computershare Trust Company, N.A., as agent for the stockholders (the “Plan Agent”), in additional shares of Common Stock under the 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
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| ClearBridge MLP and Midstream Total Return Fund Inc. |
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75 |
Dividend reinvestment plan
(unaudited) (cont’d)
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.
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76 |
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ClearBridge MLP and Midstream Total Return Fund Inc. |
ClearBridge
MLP and Midstream Total Return Fund Inc.
Directors
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Chairman
Officers
Jane Trust
President and Chief Executive Officer
Christopher Berarducci
Treasurer and Principal Financial Officer
Fred Jensen
Chief Compliance Officer
Marc A. De Oliveira*
Secretary and Chief Legal Officer
Thomas C. Mandia
Senior Vice President
Jeanne M. Kelly
Senior Vice President
ClearBridge MLP and Midstream Total Return Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Investment manager
Franklin Templeton Fund Adviser, LLC**
Subadviser
ClearBridge Investments, LLC
Custodian
The Bank of New York Mellon
Transfer agent
Computershare Inc.
P.O. Box 43006
Providence, RI 02940-3078
Independent registered public
accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Legal counsel
Simpson Thacher & Bartlett
LLP
900 G Street NW
Washington, DC 20001
New York Stock Exchange Symbol
CTR
| * |
Effective September 7, 2023, Mr. De Oliveira became Secretary and Chief Legal Officer. |
| ** |
Formerly known as Legg Mason Partners Fund Advisor, LLC. |
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very
Important to the Legg Mason Funds
This Privacy and Security Notice (the “Privacy Notice”) addresses the Legg Mason Funds’ privacy and
data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include the Western Asset Money Market Funds sold by the Funds’ distributor, Franklin Distributors, LLC, as well as Legg
Mason-sponsored closed-end funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited
to:
| • |
|
Personal information included on applications or other forms; |
| • |
|
Account balances, transactions, and mutual fund holdings and positions; |
| • |
|
Bank account information, legal documents, and identity verification documentation; and |
| • |
|
Online account access user IDs, passwords, security challenge question responses. |
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, unless you have authorized the
Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law.
The Funds may disclose information about you to:
| • |
|
Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business or
to comply with obligations to government regulators; |
| • |
|
Service providers, including the Funds’ affiliates, who assist the Funds as part of the ordinary course of business
(such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds’ behalf, including companies that may perform statistical analysis, market research and marketing services solely
for the Funds; |
| • |
|
Permit access to transfer, whether in the United States or countries outside of the United States to such Funds’
employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators; |
| • |
|
The Funds’ representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary
business, or to comply with obligations to government regulators; |
| • |
|
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
|
|
| NOT PART OF THE ANNUAL REPORT |
Legg Mason 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.
Revised
October 2022
|
| NOT PART OF THE ANNUAL REPORT |
Legg Mason Funds Privacy and Security Notice (cont’d)
Legg Mason California Consumer Privacy Act Policy
Although much of the personal information we collect is “nonpublic personal information” subject to federal law, residents of California may, in certain
circumstances, have additional rights under the California Consumer Privacy Act (“CCPA”). For example, if you are a broker, dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the account of any other person(s)
or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your personal information (as defined
by the CCPA).
In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the categories and specific pieces
of personal information we have collected about you.
You also have the right to request the deletion of the personal information collected or maintained by the
Funds.
If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set forth
below. The rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process described
below. We do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.
We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a request
on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or other
applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an agent if
suitable and appropriate proof is not provided.
For the 12-month period prior to the date of this Privacy Policy, the Legg
Mason Funds have not sold any of your personal information; nor do we have any plans to do so in the future.
Contact Information
Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202
Email: DataProtectionOfficer@franklintempleton.com
Phone: 1-800-396-4748
Revised October 2022
|
| NOT PART OF THE ANNUAL REPORT |
ClearBridge MLP and Midstream Total Return Fund Inc.
ClearBridge MLP and Midstream Total Return 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 MLP and Midstream Total Return 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
CBAX015220 1/24 SR23-4802
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer,
principal accounting officer or controller.
| ITEM 3. |
AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Directors of the registrant has determined that Eileen A. Kamerick and Nisha Kumar, are the members of the Board’s Audit
Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial experts”.
| ITEM 4. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
(a) Audit Fees. The aggregate fees billed in the previous fiscal years ending November 30, 2022 and November 30, 2023 (the
“Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by
the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $105,000 in November 30, 2022 and $105,000 in November 30, 2023.
(b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are
reasonably related to the performance of the Registrant’s financial statements were $0 in November 30, 2022 and $0 in November 30, 2023.
(c) Tax Fees. The aggregate fees billed by PwC for tax compliance, tax advice and tax planning services, which include the filing
and amendment of federal, state and local income tax returns and tax distribution and analysis planning to the Fund for the fiscal years ended November 30, 2022 and November 30, 2023 were $159,208 and $136,765, respectively. These services
consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns and refund claims ($159,208 and $136,765 for the fiscal years ended November 30, 2022 and November 30, 2023, respectively) and (ii) U.S.
federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments and other tax advice ($0 and $0 for the fiscal years ended November 30, 2022 and November 30, 2023, respectively).
There were no fees billed by PwC to the Service Affiliates for tax services for the fiscal years ended November 30, 2022 and
November 30, 2023 that were required to be approved by the Fund’s Audit Committee.
(d) All Other Fees. The aggregate fees
for other fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item for the ClearBridge MLP and Midstream Total Return Fund Inc. were
$0 in November 30, 2022 and $0 in November 30, 2023.
All Other Fees. There were no other
non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”), and any entity controlling, controlled by or under common control with LMPFA that provided ongoing
services to ClearBridge MLP and Midstream Total Return Fund Inc. requiring pre-approval by the Audit Committee in the Reporting Period.
(e) Audit Committee’s pre—approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
(1) The Charter for the Audit Committee (the “Committee”) of the Board of each
registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible
non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and
any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.
The Committee shall not approve non-audit services that the Committee believes may impair the
independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not
prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation;
(iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing
services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the
Public Company Accounting Oversight Board determines, by regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit
services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under
common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the
permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services
to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time
of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the
audit.
(2) None of the services described in paragraphs (b) through (d) of this Item were performed in reliance on paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not
applicable.
(g) Non-audit fees billed by the Auditor for services rendered to ClearBridge MLP
and Midstream Total Return Fund Inc., LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to ClearBridge MLP and Midstream Total Return Fund Inc. during the reporting period were
$257,700 in November 30, 2022 and $269,700 in November 30, 2023.
(h) Yes. ClearBridge MLP and Midstream Total Return
Fund Inc.’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not
requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the ClearBridge MLP and Midstream Total Return Fund Inc. or to Service
Affiliates, which were required to be pre-approved, were pre-approved as required.
(i) Not applicable.
(j) Not
applicable.
| ITEM 5. |
AUDIT COMMITTEE OF LISTED REGISTRANTS. |
a) Registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)58(A) of
the Exchange Act. The Audit Committee consists of the following Board members:
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
Eileen A. Kamerick
Nisha Kumar
b)
Not applicable
| ITEM 6. |
SCHEDULE OF INVESTMENTS. |
Included herein under Item 1.
| ITEM 7. |
DISCLOSURE OF PROXY VOTING POLOCIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES |
CLEARBRIDGE INVESTMENTS
PROXY VOTING POLICIES AND PROCEDURES
AMENDED AS OF SEPTEMBER 2023
| I. |
Types of Accounts for Which ClearBridge Votes Proxies |
| III. |
How ClearBridge Votes |
| IV. |
Conflicts of Interest |
| |
A. |
Procedures for Identifying Conflicts of Interest |
| |
B. |
Procedures for Assessing Materiality of Conflicts of Interest and for Addressing Material Conflicts of Interest
|
| |
C. |
Third Party Proxy Voting Firm - Conflicts of Interest |
| |
D. |
Proxy Contest Defenses |
| |
F. |
Miscellaneous Governance Provisions |
| |
H. |
Executive and Director Compensation |
| |
I. |
State/Country of Incorporation |
| |
J. |
Mergers and Corporate Restructuring |
| |
K. |
Social and Environmental Issues |
| VII. |
Disclosure of Proxy Voting |
| VIII. |
Recordkeeping and Oversight |
CLEARBRIDGE INVESTMENTS
Proxy Voting Policies and Procedures
| I. |
TYPES OF ACCOUNTS FOR WHICH CLEARBRIDGE VOTES PROXIES |
ClearBridge votes proxies for each client for which it has investment discretion unless the investment management agreement provides that the
client or other authorized party (e.g., a trustee or named fiduciary of a plan) is responsible for voting proxies.
In voting proxies, we are guided by general fiduciary principles. Our goal is to act prudently, solely in the best interest of the beneficial
owners of the accounts we manage. We attempt to provide for the consideration of all factors that could affect the value of the investment and will vote proxies in the manner that we believe will be consistent with efforts to maximize shareholder
values.
| III. |
HOW CLEARBRIDGE VOTES |
Section V of these policies and procedures sets forth certain stated positions. In the case of a proxy issue for which there is a stated
position, we generally vote in accordance with the stated position. In the case of a proxy issue for which there is a list of factors set forth in Section V that we consider in voting on such issue, we consider those factors and vote on a case-by-case basis in accordance with the general principles set forth above. In the case of a proxy issue for which there is no stated position or list of factors that we
consider in voting on such issue, we vote on a case-by-case basis in accordance with the general principles set forth above. We may utilize an external service provider
to provide us with information and/or a recommendation with regard to proxy votes but we are not required to follow any such recommendations. The use of an external service provider does not relieve us of our responsibility for the proxy vote.
For routine matters, we usually vote according to our policy or the external service provider’s recommendation, although we are not
obligated to do so and each individual portfolio management team may vote contrary to our policy or the recommendation of the external service provider. If a matter is non-routine, e.g., management’s
recommendation is different than that of the external service provider and ClearBridge is a significant holder or it is a significant holding for ClearBridge, the issues will be highlighted to the appropriate investment teams. Different investment
teams may vote differently on the same issue, depending upon their assessment of clients’ best interests.
ClearBridge’s policies are reviewed annually and its proxy voting process is overseen and
coordinated by its Proxy Committee.
| IV. |
CONFLICTS OF INTEREST |
In furtherance of ClearBridge’s goal to vote proxies in the best interests of clients, ClearBridge follows procedures designed to identify
and address material conflicts that may arise between ClearBridge’s interests and those of its clients before voting proxies on behalf of such clients.
| |
A. |
Procedures for Identifying Conflicts of Interest |
ClearBridge relies on the following to seek to identify conflicts of interest with respect to proxy voting:
| |
1. |
ClearBridge’s employees are periodically reminded of their obligation (i) to be aware of the
potential for conflicts of interest on the part of ClearBridge with respect to voting proxies on behalf of client accounts both as a result of their personal relationships or personal or business relationships relating to another Franklin Resources,
Inc. (“Franklin”) business unit, and (ii) to bring conflicts of interest of which they become aware to the attention of ClearBridge’s Chief Compliance Officer. |
| |
2. |
ClearBridge’s finance area maintains and provides to ClearBridge Compliance and proxy voting personnel an up- to-date list of all client relationships that have historically accounted for or are projected to account for greater than 1% of ClearBridge’s net revenues.
|
| |
3. |
As a general matter, ClearBridge takes the position that relationships between a
non-ClearBridge Franklin unit and an issuer (e.g., investment management relationship between an issuer and a non-ClearBridge Franklin affiliate) do not present a
conflict of interest for ClearBridge in voting proxies with respect to such issuer because ClearBridge operates as an independent business unit from other Franklin business units and because of the existence of informational barriers between
ClearBridge and certain other Franklin business units. As noted above, ClearBridge employees are under an obligation to bring such conflicts of interest, including conflicts of interest which may arise because of an attempt by another Franklin
business unit or non-ClearBridge Franklin officer or employee to influence proxy voting by ClearBridge to the attention of ClearBridge Compliance. |
| |
4. |
A list of issuers with respect to which ClearBridge has a potential conflict of interest in voting proxies on
behalf of client accounts will be maintained by ClearBridge proxy voting personnel. ClearBridge will not vote proxies relating to such issuers until it has been determined that the conflict of interest is not material or a method for resolving the
conflict of interest has been agreed upon and implemented, as described in Section IV below. |
| |
B. |
Procedures for Assessing Materiality of Conflicts of Interest and for Addressing Material Conflicts of
Interest |
| |
1. |
ClearBridge maintains a Proxy Committee which, among other things, reviews and addresses conflicts of interest
brought to its attention. The Proxy Committee is comprised of such ClearBridge personnel (and others, at ClearBridge’s request), as are designated from time to time. The current members of the Proxy Committee are set forth in the Proxy
Committee’s Terms of Reference. |
| |
2. |
All conflicts of interest identified pursuant to the procedures outlined in Section IV. A. must be brought to
the attention of the Proxy Committee for resolution. A proxy issue that will be voted in accordance with a stated ClearBridge position on such issue or in accordance with the recommendation of an independent third party generally is not brought to
the attention of the Proxy Committee for a conflict of interest review because ClearBridge’s position is that any conflict of interest issues are resolved by voting in accordance with a pre-determined
policy or in accordance with the recommendation of an independent third party. |
| |
3. |
The Proxy Committee will determine whether a conflict of interest is material. A conflict of interest will be
considered material to the extent that it is determined that such conflict is likely to influence, or appear to influence, ClearBridge’s decision-making in voting the proxy. All materiality determinations will be based on an assessment of the
particular facts and circumstances. A written record of all materiality determinations made by the Proxy Committee will be maintained. |
| |
4. |
If it is determined by the Proxy Committee that a conflict of interest is not material, ClearBridge may vote
proxies notwithstanding the existence of the conflict. |
| |
5. |
If it is determined by the Proxy Committee that a conflict of interest is material, the Proxy Committee will
determine an appropriate method to resolve such conflict of interest before the proxy affected by the conflict of interest is voted. Such determination shall be based on the particular facts and circumstances, including the importance of the proxy
issue, the nature of the conflict of interest, etc. Such methods may include: |
| |
• |
|
disclosing the conflict to clients and obtaining their consent before voting; |
| |
• |
|
suggesting to clients that they engage another party to vote the proxy on their behalf; |
| |
• |
|
in the case of a conflict of interest resulting from a particular employee’s personal relationships,
removing such employee from the decision-making process with respect to such proxy vote; or |
| |
• |
|
such other method as is deemed appropriate given the particular facts and circumstances, including the importance
of the proxy issue, the nature of the conflict of interest, etc.* |
A
written record of the method used to resolve a material conflict of interest shall be maintained.
| |
C. |
Third Party Proxy Voting Firm - Conflicts of Interest |
With respect to a third-party proxy voting firm described herein, the Proxy Committee will periodically review and assess such firm’s
policies, procedures and practices with respect to the disclosure and handling of conflicts of interest.
These are policy guidelines that can always be superseded, subject to the duty to act solely in the best interest of the beneficial owners of
accounts, by the investment management professionals responsible for the account holding the shares being voted. There may be occasions when different investment teams vote differently on the same issue. In addition, in the case of Taft-Hartley
clients, ClearBridge will comply with a client direction to vote proxies in accordance with Institutional Shareholder Services’ (ISS) PVS Proxy Voting Guidelines, which ISS represents to be fully consistent with
AFL-CIO guidelines.
| |
1. |
Voting on Director Nominees in Uncontested Elections. |
| |
a. |
We withhold our vote from a director nominee who: |
| |
• |
|
attended less than 75 percent of the company’s board and committee meetings without a valid excuse
(illness, service to the nation/local government, work on behalf of the company); |
| * |
Especially in the case of an apparent, as opposed to actual, conflict of interest, the Proxy Committee may
resolve such conflict of interest by satisfying itself that ClearBridge’s proposed vote on a proxy issue is in the best interest of client accounts and is not being influenced by the conflict of interest. |
| |
• |
|
received more than 50 percent withheld votes of the shares cast at the previous board election, and the
company has failed to address the issue as to why; |
| |
• |
|
is a member of the company’s audit committee, when excessive
non-audit fees were paid to the auditor, or there are chronic control issues and an absence of established effective control mechanisms; |
| |
• |
|
is a member of the company’s compensation committee if the compensation committee ignore a say on pay
proposal that a majority of shareholders opposed; |
| |
• |
|
is a member of the company’s nominating committee and there is no gender diversity on the board (or those
currently proposed for election to the board do not meet that criterion). |
| |
• |
|
is a member of the company’s nominating committee and there is no racial/ethnic diversity on the board (or
those currently proposed for election to the board do not meet that criterion).1 |
| |
b. |
We vote on a case-by-case basis
in the following circumstances: |
| |
i. |
Significant Greenhouse Gas (GHG) Emitters – We will generally vote against the Chair of the board
and the Chair of the responsible committee for companies that are significant GHG emitters in cases where the company is not taking the minimum steps needed to understand, assess, and mitigate risks related to climate change to the company and the
larger economy. Minimum steps include detailed disclosure of climate-related risks, such as the Task Force on Climate-related Financial Disclosures (TCFD); and, at this time, “appropriate” GHG emissions reductions targets (i.e., short-term
and medium-term GHG reduction targets or net zero by 2050 GHG reduction targets). |
| |
ii. |
Lack of Progress Towards Addressing Emissions – We may decide to vote against the Chair of the
board and relevant Directors in connection with our net zero commitment if we determine that insufficient progress has been made towards addressing emissions. Such a vote against the Chair and Directors would be one of the final steps in our net
zero escalation policy. A vote against the Chair and Directors would only be considered after extensive direct engagement with the company and where there is insufficient progress being made via engagement after several years. This vote would be
placed on an ad hoc basis and only upon our specific request. |
| |
c. |
We vote for all other director nominees. |
| |
2. |
Chairman and CEO is the Same Person. |
We vote on a case-by-case basis on shareholder proposals that
would require the positions of the Chairman and CEO to be held by different persons. We would generally vote FOR such a proposal unless there are compelling reasons to vote against the proposal, including:
| |
• |
|
Designation of a lead director |
| |
• |
|
Majority of independent directors (supermajority) |
| |
• |
|
All independent key committees |
| |
• |
|
Size of the company (based on market capitalization) |
| |
• |
|
Established governance guidelines |
| 1. |
This position only applies to Anglo markets which is defined as US, Canada, UK, Ireland, Australia and New
Zealand. |
| |
3. |
Majority of Independent Directors |
| |
a. |
We vote for shareholder proposals that request that the board be comprised of a majority of independent
directors. Generally that would require that the director have no connection to the company other than the board seat. In determining whether an independent director is truly independent (e.g. when voting on a slate of director candidates), we
consider certain factors including, but not necessarily limited to, the following: whether the director or his/her company provided professional services to the company or its affiliates either currently or in the past year; whether the director has
any transactional relationship with the company; whether the director is a significant customer or supplier of the company; whether the director is employed by a foundation or university that received significant grants or endowments from the
company or its affiliates; and whether there are interlocking directorships. |
| |
b. |
We vote for shareholder proposals that request that the board audit, compensation and/or nominating committees
include independent directors exclusively. |
| |
4. |
Stock Ownership Requirements |
We vote against shareholder proposals requiring directors to own a minimum amount of company stock in order to qualify as a director, or to
remain on the board.
We vote against shareholder proposals to limit the tenure of independent directors.
| |
6. |
Director and Officer Indemnification and Liability Protection |
| |
a. |
Subject to subparagraphs 2, 3, and 4 below, we vote for proposals concerning director and officer
indemnification and liability protection. |
| |
b. |
We vote for proposals to limit and against proposals to eliminate entirely director and officer liability for
monetary damages for violating the duty of care. |
| |
c. |
We vote against indemnification proposals that would expand coverage beyond just legal expenses to acts, such
as negligence, that are more serious violations of fiduciary obligations than mere carelessness. |
| |
d. |
We vote for only those proposals that provide such expanded coverage noted in subparagraph 3 above in cases
when a director’s or officer’s legal defense was unsuccessful if: (1) the director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of the company, and (2) if only the
director’s legal expenses would be covered. |
| |
7. |
Director Qualifications |
| |
a. |
We vote case-by-case on
proposals that establish or amend director qualifications. Considerations include how reasonable the criteria are and to what degree they may preclude dissident nominees from joining the board. |
| |
b. |
We vote against shareholder proposals requiring two candidates per board seat. |
| |
1. |
Voting for Director Nominees in Contested Elections |
We vote on a case-by-case basis in contested elections of
directors. Considerations include: chronology of events leading up to the proxy contest; qualifications of director nominees (incumbents and dissidents); for incumbents, whether the board is comprised of a majority of outside directors; whether key
committees (i.e.: nominating, audit, compensation) comprise solely of independent outsiders; discussion with the respective portfolio manager(s).
| |
2. |
Reimburse Proxy Solicitation Expenses |
We vote on a case-by-case basis on proposals to provide full
reimbursement for dissidents waging a proxy contest. Considerations include: identity of persons who will pay solicitation expenses; cost of solicitation; percentage that will be paid to proxy solicitation firms.
We vote for proposals to ratify auditors, unless an auditor has a financial interest in or association with the company, and is therefore not
independent; or there is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the company’s financial position or there is reason to believe the independent auditor has not followed
the highest level of ethical conduct. Specifically, we will vote to ratify auditors if the auditors only provide the company audit services and such other audit-related and non-audit services the provision of
which will not cause such auditors to lose their independence under applicable laws, rules and regulations.
| |
2. |
Financial Statements and Director and Auditor Reports |
We generally vote for management proposals seeking approval of financial accounts and reports and the discharge of management and supervisory
board members, unless there is concern about the past actions of the company’s auditors or directors.
| |
3. |
Remuneration of Auditors |
We vote for proposals to authorize the board or an audit committee of the board to determine the remuneration of auditors, unless there is
evidence of excessive compensation relative to the size and nature of the company.
| |
4. |
Indemnification of Auditors |
We vote against proposals to indemnify auditors.
| |
D. |
Proxy Contest Defenses |
| |
1. |
Board Structure: Staggered vs. Annual Elections |
| |
a. |
We vote against proposals to classify the board. |
| |
b. |
We vote for proposals to repeal classified boards and to elect all directors annually. |
| |
2. |
Shareholder Ability to Remove Directors |
| |
a. |
We vote against proposals that provide that directors may be removed only for cause. |
| |
b. |
We vote for proposals to restore shareholder ability to remove directors with or without cause.
|
| |
c. |
We vote against proposals that provide that only continuing directors may elect replacements to fill board
vacancies. |
| |
d. |
We vote for proposals that permit shareholders to elect directors to fill board vacancies.
|
| |
a. |
If plurality voting is in place for uncontested director elections, we vote for proposals to permit or restore
cumulative voting. |
| |
b. |
If majority voting is in place for uncontested director elections, we vote against cumulative voting.
|
| |
c. |
If plurality voting is in place for uncontested director elections, and proposals to adopt both cumulative
voting and majority voting are on the same slate, we vote for majority voting and against cumulative voting. |
We vote for non-binding and/or binding resolutions requesting that the board amend a company’s by-laws to stipulate that directors need to be elected with an affirmative majority of the votes cast, provided that it does not conflict with the state law where the company is incorporated. In addition, all
resolutions need to provide for a carve-out for a plurality vote standard when there are more nominees than board seats (i.e. contested election). In addition, ClearBridge strongly encourages companies to
adopt a post-election director resignation policy setting guidelines for the company to follow to promptly address situations involving holdover directors.
| |
5. |
Shareholder Ability to Call Special Meetings |
| |
a. |
We vote against proposals to restrict or prohibit shareholder ability to call special meetings.
|
| |
b. |
We vote for proposals that provide shareholders with the ability to call special meetings, taking into account
a minimum ownership threshold of 10 percent (and investor ownership structure, depending on bylaws). |
| |
6. |
Shareholder Ability to Act by Written Consent |
| |
a. |
We vote against proposals to restrict or prohibit shareholder ability to take action by written consent.
|
| |
b. |
We vote for proposals to allow or make easier shareholder action by written consent. |
| |
7. |
Shareholder Ability to Alter the Size of the Board |
| |
a. |
We vote for proposals that seek to fix the size of the board. |
| |
b. |
We vote against proposals that give management the ability to alter the size of the board without shareholder
approval. |
| |
8. |
Advance Notice Proposals |
We vote on advance notice proposals on a case-by-case basis,
giving support to those proposals which allow shareholders to submit proposals as close to the meeting date as reasonably possible and within the broadest window possible.
| |
a. |
We vote against proposals giving the board exclusive authority to amend the
by-laws. |
| |
b. |
We vote for proposals giving the board the ability to amend the by-laws
in addition to shareholders. |
| |
10. |
Article Amendments (not otherwise covered by ClearBridge Proxy Voting Policies and Procedures).
|
We review on a case-by-case basis all
proposals seeking amendments to the articles of association.
We vote for article amendments if:
| |
• |
|
shareholder rights are protected; |
| |
• |
|
there is negligible or positive impact on shareholder value; |
| |
• |
|
management provides adequate reasons for the amendments; and |
| |
• |
|
the company is required to do so by law (if applicable). |
| |
a. |
We vote for shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
|
| |
b. |
We vote on a case-by-case basis
on shareholder proposals to redeem a company’s poison pill. Considerations include: when the plan was originally adopted; financial condition of the company; terms of the poison pill. |
| |
c. |
We vote on a case-by-case basis
on management proposals to ratify a poison pill. Considerations include: sunset provision - poison pill is submitted to shareholders for ratification or rejection every 2 to 3 years; shareholder redemption feature
-10% of the shares may call a special meeting or seek a written consent to vote on rescinding the rights plan. |
| |
a. |
We vote for fair price proposals, as long as the shareholder vote requirement embedded in the provision is no
more than a majority of disinterested shares. |
| |
b. |
We vote for shareholder proposals to lower the shareholder vote requirement in existing fair price provisions.
|
| |
a. |
We vote for proposals to adopt anti-greenmail charter or bylaw amendments or otherwise restrict a
company’s ability to make greenmail payments. |
| |
b. |
We vote on a case-by-case basis
on anti-greenmail proposals when they are bundled with other charter or bylaw amendments. |
| |
a. |
We vote against dual class exchange offers. |
| |
b. |
We vote against dual class re-capitalization. |
| |
5. |
Supermajority Shareholder Vote Requirement to Amend the Charter or Bylaws |
| |
a. |
We vote against management proposals to require a supermajority shareholder vote to approve charter and bylaw
amendments. |
| |
b. |
We vote for shareholder proposals to lower supermajority shareholder vote requirements for charter and bylaw
amendments. |
| |
6. |
Supermajority Shareholder Vote Requirement to Approve Mergers |
| |
a. |
We vote against management proposals to require a supermajority shareholder vote to approve mergers and other
significant business combinations. |
| |
b. |
We vote for shareholder proposals to lower supermajority shareholder vote requirements for mergers and other
significant business combinations. |
| |
7. |
White Knight/Squire Placements |
We vote for shareholder proposals to require approval of blank check preferred stock issues.
| |
F. |
Miscellaneous Governance Provisions |
| |
a. |
We vote for shareholder proposals that request corporations to adopt confidential voting, use independent
tabulators and use independent inspectors of election as long as the proposals include clauses for proxy contests as follows: in the case of a contested election, management is permitted to request that the dissident group honor its confidential
voting policy. If the dissidents agree, the policy remains in place. If the dissidents do not agree, the confidential voting policy is waived. |
| |
b. |
We vote for management proposals to adopt confidential voting subject to the proviso for contested elections
set forth in sub-paragraph A.1. above. |
We vote for shareholder proposals that would allow significant company shareholders equal access to management’s proxy material in order
to evaluate and propose voting recommendations on proxy proposals and director nominees, and in order to nominate their own candidates to the board.
We vote on a case-by-case basis on bundled or
“conditioned” proxy proposals. In the case of items that are conditioned upon each other, we examine the benefits and costs of the packaged items. In instances when the joint effect of the conditioned items is not in shareholders’
best interests and therefore not in the best interests of the beneficial owners of accounts, we vote against the proposals. If the combined effect is positive, we support such proposals.
| |
4. |
Shareholder Advisory Committees |
We vote on a case-by-case basis on proposals to establish a
shareholder advisory committee. Considerations include: rationale and cost to the firm to form such a committee. We generally vote against such proposals if the board and key nominating committees are comprised solely of independent/outside
directors.
We vote for proposals that seek to bring forth other business matters.
We vote on a case-by-case basis on proposals that seek to
adjourn a shareholder meeting in order to solicit additional votes.
We vote against proposals if a company fails to provide shareholders with adequate information upon which to base their voting decision.
| |
1. |
Common Stock Authorization |
| |
a. |
We vote on a case-by-case basis
on proposals to increase the number of shares of common stock authorized for issue, except as described in paragraph 2 below. |
| |
b. |
Subject to paragraph 3, below we vote for the approval requesting increases in authorized shares if the company
meets certain criteria: |
| |
• |
|
Company has already issued a certain percentage (i.e. greater than 50%) of the company’s allotment.
|
| |
• |
|
The proposed increase is reasonable (i.e. less than 150% of current inventory) based on an analysis of the
company’s historical stock management or future growth outlook of the company. |
| |
c. |
We vote on a case-by-case
basis, based on the input of affected portfolio managers, if holding is greater than 1% of an account. |
| |
2. |
Stock Distributions: Splits and Dividends |
We vote on a case-by-case basis on management proposals to
increase common share authorization for a stock split, provided that the split does not result in an increase of authorized but unissued shares of more than 100% after giving effect to the shares needed for the split.
We vote for management proposals to implement a reverse stock split, provided that the reverse split does not result in an increase of
authorized but unissued shares of more than 100% after giving effect to the shares needed for the reverse split.
| |
4. |
Blank Check Preferred Stock |
| |
a. |
We vote against proposals to create, authorize or increase the number of shares with regard to blank check
preferred stock with unspecified voting, conversion, dividend distribution and other rights. |
| |
b. |
We vote for proposals to create “declawed” blank check preferred stock (stock that cannot be used as
a takeover defense). |
| |
c. |
We vote for proposals to authorize preferred stock in cases where the company specifies the voting, dividend,
conversion, and other rights of such stock and the terms of the preferred stock appear reasonable. |
| |
d. |
We vote for proposals requiring a shareholder vote for blank check preferred stock issues.
|
| |
5. |
Adjust Par Value of Common Stock |
We vote for management proposals to reduce the par value of common stock.
| |
a. |
We vote on a case-by-case basis
for shareholder proposals seeking to establish them and consider the following factors: |
| |
• |
|
Characteristics of the size of the holding (holder owning more than 1% of the outstanding shares).
|
| |
• |
|
Percentage of the rights offering (rule of thumb less than 5%). |
| |
b. |
We vote on a case-by-case basis
for shareholder proposals seeking the elimination of pre-emptive rights. |
We vote on a case-by-case basis for proposals to increase
common and/or preferred shares and to issue shares as part of a debt-restructuring plan. Generally, we approve proposals that facilitate debt restructuring.
| |
8. |
Share Repurchase Programs |
We vote for management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms.
We vote for proposals to eliminate dual-class structures, unless a company has a stated policy that stipulates that the dual class structure
will be eliminated in a period not to exceed 5 years from its initial public offering.
| |
10. |
Issue Stock for Use with Rights Plan |
We vote against proposals that increase authorized common stock for the explicit purpose of implementing a shareholder rights plan (poison
pill).
| |
11. |
Debt Issuance Requests |
When evaluating a debt issuance request, the issuing company’s present financial situation is examined. The main factor for analysis is
the company’s current debt-to-equity ratio, or gearing level. A high gearing level may incline markets and financial analysts to downgrade the company’s bond
rating, increasing its investment risk factor in the process. A gearing level up to 100 percent is considered acceptable.
We vote for debt issuances for companies when the gearing level is between zero and 100 percent.
We view on a case-by-case basis proposals where the issuance
of debt will result in the gearing level being greater than 100 percent. Any proposed debt issuance is compared to industry and market standards.
We generally vote for the adopting of financing plans if we believe they are in the best economic interests of shareholders.
| |
H. |
Executive and Director Compensation |
In general, we vote for executive and director compensation plans, with the view that viable compensation programs reward the creation of
stockholder wealth by having high payout sensitivity to increases in shareholder value. Certain factors, however, such as repricing underwater stock options without shareholder approval, would cause us to vote against a plan. Additionally, in some
cases we would vote against a plan deemed unnecessary.
| |
1. |
OBRA-Related Compensation Proposals |
| |
a. |
Amendments that Place a Cap on Annual Grant or Amend Administrative Features |
We vote for plans that simply amend shareholder-approved plans to include administrative features or place a cap on the annual grants any one
participant may receive to comply with the provisions of Section 162(m) of the Internal Revenue Code.
| |
b. |
Amendments to Added Performance-Based Goals |
We vote for amendments to add performance goals to existing compensation plans to comply with the provisions of Section 162(m) of the
Internal Revenue Code.
| |
c. |
Amendments to Increase Shares and Retain Tax Deductions Under OBRA |
We vote for amendments to existing plans to increase shares reserved and to qualify the plan for favorable tax treatment under the provisions
of Section 162(m) the Internal Revenue Code.
| |
d. |
Approval of Cash or
Cash-and-Stock Bonus Plans |
We vote for
cash or cash-and-stock bonus plans to exempt the compensation from taxes under the provisions of Section 162(m) of the Internal Revenue Code.
We vote for proposals to expense stock options on financial statements.
| |
3. |
Shareholder Proposals to Limit Executive and Director Pay |
| |
a. |
We vote on a case-by-case basis
on all shareholder proposals that seek additional disclosure of executive and director pay information. Considerations include: cost and form of disclosure. We vote for such proposals if additional disclosure is relevant to shareholder’s needs
and would not put the company at a competitive disadvantage relative to its industry. |
| |
b. |
We vote on a case-by-case basis
on all other shareholder proposals that seek to limit executive and director pay. |
| |
4. |
Reports to Assess the Feasibility of Including Sustainability as a Performance Metric |
We vote in favor of non-binding proposals for reports on the feasibility of including sustainability as
a performance metric for senior executive compensation.
We have a policy of voting to reasonably limit the level of options and other
equity-based compensation arrangements available to management to reasonably limit shareholder dilution and management compensation. For options and equity-based compensation arrangements, we vote FOR proposals or amendments that would result in the
available awards being less than 10% of fully diluted outstanding shares (i.e. if the combined total of shares, common share equivalents and options available to be awarded under all current and proposed compensation plans is less than 10% of fully
diluted shares). In the event the available awards exceed the 10% threshold, we would also consider the % relative to the common practice of its specific industry (e.g. technology firms). Other considerations would include, without limitation, the
following:
| |
• |
|
Compensation committee comprised of independent outside directors |
| |
• |
|
Repricing without shareholder approval prohibited |
| |
• |
|
3-year average burn rate for company |
| |
• |
|
Plan administrator has authority to accelerate the vesting of awards |
| |
• |
|
Shares under the plan subject to performance criteria |
| |
a. |
We vote for shareholder proposals to have golden parachutes submitted for shareholder ratification.
|
| |
b. |
We vote on a case-by-case basis
on all proposals to ratify or cancel golden parachutes. Considerations include: the amount should not exceed 3 times average base salary plus guaranteed benefits; golden parachute should be less attractive than an ongoing employment opportunity with
the firm. |
| |
a. |
We vote for shareholder proposals that request a company not to make any death benefit payments to senior
executives’ estates or beneficiaries, or pay premiums in respect to any life insurance policy covering a senior executive’s life (“golden coffin”). We carve out benefits provided under a plan, policy or arrangement applicable to
a broader group of employees, such as offering group universal life insurance. |
| |
b. |
We vote for shareholder proposals that request shareholder approval of survivor benefits for future agreements
that, following the death of a senior executive, would obligate the company to make payments or awards not earned. |
| |
7. |
Anti-Tax Gross-up Policy
|
| |
a. |
We vote for proposals that ask a company to adopt a policy whereby it will not make, or promise to make, any
tax gross-up payment to its senior executives, except for tax gross-ups provided pursuant to a plan, policy, or arrangement applicable to management employees of the
company generally, such as relocation or expatriate tax equalization policy; we also vote for proposals that ask management to put gross-up payments to a shareholder vote. |
| |
b. |
We vote against proposals where a company will make, or promise to make, any tax
gross-up payment to its senior executives without a shareholder vote, except for tax gross-ups provided pursuant to a plan, policy, or arrangement applicable to
management employees of the company generally, such as relocation or expatriate tax equalization policy. |
| |
8. |
Employee Stock Ownership Plans (ESOPs) |
We vote for proposals that request shareholder approval in order to implement an ESOP or to increase authorized shares for existing ESOPs,
except in cases when the number of shares allocated to the ESOP is “excessive” (i.e., generally greater than five percent of outstanding shares).
| |
9. |
Employee Stock Purchase Plans |
| |
a. |
We vote for qualified plans where all of the following apply: |
| |
• |
|
The purchase price is at least 85 percent of fair market value |
| |
• |
|
The offering period is 27 months or less |
| |
• |
|
The number of shares allocated to the plan is five percent or less of outstanding shares |
If the above do not apply, we vote on a
case-by-case basis.
| |
b. |
We vote for non-qualified plans where all of the following apply:
|
| |
• |
|
All employees of the company are eligible to participate (excluding 5 percent or more beneficial owners)
|
| |
• |
|
There are limits on employee contribution (ex: fixed dollar amount) |
| |
• |
|
There is a company matching contribution with a maximum of 25 percent of an employee’s contribution
|
| |
• |
|
There is no discount on the stock price on purchase date (since there is a company match) |
If the above do not apply, we vote against the non-qualified employee stock purchase
plan.
| |
10. |
401(k) Employee Benefit Plans |
We vote for proposals to implement a 401(k) savings plan for employees.
| |
11. |
Stock Compensation Plans |
| |
a. |
We vote for stock compensation plans which provide a dollar-for-dollar cash for stock exchange. |
| |
b. |
We vote on a case-by-case basis
for stock compensation plans which do not provide a dollar-for-dollar cash for stock exchange using a quantitative model. |
| |
12. |
Directors Retirement Plans |
| |
a. |
We vote against retirement plans for non-employee directors.
|
| |
b. |
We vote for shareholder proposals to eliminate retirement plans for
non-employee directors. |
| |
13. |
Management Proposals to Reprice Options |
We vote against management proposals seeking approval to reprice options.
| |
14. |
Shareholder Proposals Regarding Executive and Director Pay |
| |
a. |
We vote against shareholder proposals seeking to set absolute levels on compensation or otherwise dictate the
amount or form of compensation. |
| |
b. |
We vote against shareholder proposals requiring director fees be paid in stock only. |
| |
c. |
We vote against shareholder proposals to eliminate vesting of options and restricted stock on change of
control. |
| |
d. |
We vote for shareholder proposals to put option repricing to a shareholder vote. |
| |
e. |
We vote for shareholder proposals that call for a non-binding advisory
vote on executive pay (“say-on-pay”). Company boards would adopt a policy giving shareholders the opportunity at each annual meeting to vote on an advisory
resolution to ratify the compensation of the named executive officers set forth in the proxy statement’s summary compensation table. |
| |
f. |
We vote “annual” for the frequency of
say-on-pay proposals rather than once every two or three years. |
| |
g. |
We vote on a case-by-case basis
for all other shareholder proposals regarding executive and director pay, taking into account company performance, pay level versus peers, pay level versus industry, and long term corporate outlook. |
| |
15. |
Management Proposals on Executive Compensation |
For non-binding advisory votes on executive officer compensation, when management and the external
service provider agree, we vote for the proposal. When management and the external service provider disagree, the proposal becomes a refer item. In the case of a Refer item, the factors under consideration will include the following:
| |
• |
|
Company performance over the last 1, 3, and 5-year periods on a total
shareholder return basis |
| |
• |
|
Performance metrics for short- and long-term incentive programs |
| |
• |
|
CEO pay relative to company performance (is there a misalignment) |
| |
• |
|
Tax gross-ups to senior executives |
| |
• |
|
Change-in-control arrangements
|
| |
• |
|
Presence of a clawback provision, ownership guidelines, or stock holding requirements for senior executives
|
| |
16. |
Stock Retention / Holding Period of Equity Awards |
We vote on a case-by-case basis on shareholder proposals
asking companies to adopt policies requiring senior executives to retain all or a significant (>50 percent) portion of their shares acquired through equity compensation plans, either:
| |
• |
|
While employed and/or for one to two years following the termination of their employment; or
|
| |
• |
|
For a substantial period following the lapse of all other vesting requirements for the award, with ratable
release of a portion of the shares annually during the lock-up period |
The following factors will be taken into consideration:
| |
• |
|
Whether the company has any holding period, retention ratio, or named executive officer ownership requirements
currently in place |
| |
• |
|
Actual stock ownership of the company’s named executive officers |
| |
• |
|
Policies aimed at mitigating risk taking by senior executives |
| |
• |
|
Pay practices at the company that we deem problematic |
| |
I. |
State/Country of Incorporation |
| |
1. |
Voting on State Takeover Statutes |
| |
a. |
We vote for proposals to opt out of state freeze-out provisions.
|
| |
b. |
We vote for proposals to opt out of state disgorgement provisions. |
| |
2. |
Voting on Re-incorporation Proposals |
We vote on a case-by-case basis on proposals to change a
company’s state or country of incorporation. Considerations include: reasons for re-incorporation (i.e. financial, restructuring, etc); advantages/benefits for change (i.e. lower taxes); compare the
differences in state/country laws governing the corporation.
| |
3. |
Control Share Acquisition Provisions |
| |
a. |
We vote against proposals to amend the charter to include control share acquisition provisions.
|
| |
b. |
We vote for proposals to opt out of control share acquisition statutes unless doing so would enable the
completion of a takeover that would be detrimental to shareholders. |
| |
c. |
We vote for proposals to restore voting rights to the control shares. |
| |
d. |
We vote for proposals to opt out of control share cashout statutes. |
| |
J. |
Mergers and Corporate Restructuring |
| |
1. |
Mergers and Acquisitions |
| |
a. |
We vote on a case-by-case basis
on mergers and acquisitions. Considerations include: benefits/advantages of the combined companies (i.e. economies of scale, operating synergies, increase in market power/share, etc.); offer price (premium or discount); change in the capital
structure; impact on shareholder rights. |
| |
2. |
Corporate Restructuring |
| |
a. |
We vote on a case-by-case basis
on corporate restructuring proposals involving minority squeeze outs and leveraged buyouts. Considerations include: offer price, other alternatives/offers considered and review of fairness opinions. |
| |
a. |
We vote on a case-by-case basis
on spin-offs. Considerations include the tax and regulatory advantages, planned use of sale proceeds, market focus, and managerial incentives. |
| |
a. |
We vote on a case-by-case basis
on asset sales. Considerations include the impact on the balance sheet/working capital, value received for the asset, and potential elimination of diseconomies. |
| |
a. |
We vote on a case-by-case basis
on liquidations after reviewing management’s efforts to pursue other alternatives, appraisal value of assets, and the compensation plan for executives managing the liquidation. |
| |
a. |
We vote for proposals to restore, or provide shareholders with, rights of appraisal. |
| |
7. |
Changing Corporate Name |
| |
a. |
We vote for proposals to change the “corporate name”, unless the proposed name change bears a
negative connotation. |
| |
8. |
Conversion of Securities |
| |
a. |
We vote on a case-by-case basis
on proposals regarding conversion of securities. Considerations include the dilution to existing shareholders, the conversion price relative to market value, financial issues, control issues, termination penalties, and conflicts of interest.
|
| |
9. |
Stakeholder Provisions |
| |
a. |
We vote against proposals that ask the board to consider
non-shareholder constituencies or other non-financial effects when evaluating a merger or business combination. |
| |
K. |
Social and Environmental Issues |
When considering environmental and social (E&S) proposals, we have an obligation to vote proxies in the best interest of our clients,
considering both shareholder value as well as societal impact.
| |
1. |
Sustainability Reporting |
| |
a. |
We vote for proposals seeking greater disclosure on the company’s environmental, social &
governance policies and practices; |
| |
b. |
We vote for proposals that would require companies whose annual revenues are at least $5 billion to
prepare a sustainability report. All others will be decided on a case-by-case basis. |
| |
a. |
We vote for proposals supporting nomination of most qualified candidates, inclusive of a diverse pool of women
and people of color, to the Board of Directors and senior management levels; |
| |
b. |
We vote for proposals requesting comprehensive disclosure on board diversity; |
| |
c. |
We vote for proposals requesting comprehensive disclosure on employee diversity; |
| |
d. |
We vote for proposals requesting comprehensive reports on gender and racial pay disparity;
|
| |
e. |
We vote for proposals seeking to amend a company’s EEO statement or diversity policies to prohibit
discrimination based on sexual orientation and/or gender identity. |
| |
3. |
Climate Risk Disclosure |
| |
a. |
We vote for climate proposals that are not overly prescriptive seeking more disclosure on financial, physical
or regulatory risks related to climate change and/or how the company measures and manages such risks; |
| |
b. |
We vote for climate proposals that are not overly prescriptive requesting a report/disclosure of goals on GHG
emissions reduction targets from company operations and/or products; |
| |
4. |
Case-by-case E&S proposals
(examples) |
| |
a. |
Animal welfare policies; |
| |
b. |
Human rights and related company policies; |
| |
c. |
Talent acquisition and retention policies; we generally support proposals that enable a company to recruit,
support and retain talent in a globally competitive world; |
| |
d. |
Operations in high-risk or sensitive areas; |
| |
e. |
Product integrity and marketing; and |
| |
f. |
Proposals asking a company to conduct an independent racial equity and/or civil rights audit, which we
generally support but vote on a case-by-case basis given the variability in the language. |
| |
1. |
Charitable Contributions |
We vote against proposals to eliminate, direct or otherwise restrict charitable contributions.
| |
2. |
Political Contributions |
We will vote in favor of non-binding proposals for reports on corporate lobbying and
political contributions.
In general, we vote on a
case-by-case basis on other shareholder proposals pertaining to political contributions. In determining our vote on political contribution proposals we consider, among
other things, the following:
| |
• |
|
Does the company have a political contributions policy publicly available |
| |
• |
|
How extensive is the disclosure on these documents |
| |
• |
|
What oversight mechanisms the company has in place for approving/reviewing political contributions and
expenditures |
| |
• |
|
Does the company provide information on its trade association expenditures |
| |
• |
|
Total amount of political expenditure by the company in recent history |
| |
a. |
We vote against proposals to provide management with the authority to adjourn an annual or special meeting
absent compelling reasons to support the proposal. |
| |
b. |
We vote against proposals to reduce quorum requirements for shareholder meetings below a majority of the shares
outstanding unless there are compelling reasons to support the proposal. |
| |
c. |
We vote for by-law or charter changes that are of a housekeeping nature
(updates or corrections). |
| |
d. |
We vote for management proposals to change the date/time/location of the annual meeting unless the proposed
change is unreasonable. |
| |
e. |
We vote against shareholder proposals to change the date/time/location of the annual meeting unless the current
scheduling or location is unreasonable. |
| |
f. |
We vote against proposals to approve other business when it appears as voting item. |
In some markets, shareholders are routinely asked to approve:
| |
• |
|
the opening of the shareholder meeting |
| |
• |
|
that the meeting has been convened under local regulatory requirements |
| |
• |
|
the presence of a quorum |
| |
• |
|
the agenda for the shareholder meeting |
| |
• |
|
the election of the chair of the meeting |
| |
• |
|
the allowance of questions |
| |
• |
|
the publication of minutes |
| |
• |
|
the closing of the shareholder meeting |
We generally vote for these and similar routine management proposals.
| |
5. |
Allocation of Income and Dividends |
We generally vote for management proposals concerning allocation of income and the distribution of dividends, unless the amount of the
distribution is consistently and unusually small or large.
| |
6. |
Stock (Scrip) Dividend Alternatives |
| |
a. |
We vote for most stock (scrip) dividend proposals. |
| |
b. |
We vote against proposals that do not allow for a cash option unless management demonstrates that the cash
option is harmful to shareholder value. |
ClearBridge has determined that registered investment companies, particularly
closed end investment companies, raise special policy issues making specific voting guidelines frequently inapplicable. To the extent that ClearBridge has proxy voting authority with respect to shares of registered investment companies, ClearBridge
shall vote such shares in the best interest of client accounts and subject to the general fiduciary principles set forth herein without regard to the specific voting guidelines set forth in Section V. A. through L.
The voting policy guidelines set forth herein will be reviewed annually and may be changed by ClearBridge in its sole
discretion.
In certain situations, ClearBridge may determine not to vote proxies on behalf of a client because ClearBridge believes that the expected
benefit to the client of voting shares is outweighed by countervailing considerations. Examples of situations in which ClearBridge may determine not to vote proxies on behalf of a client include:
Proxy voting in certain countries requires “share blocking.” This means that shareholders wishing to vote their proxies must deposit
their shares shortly before the date of the meeting (e.g. one week) with a designated depositary. During the blocking period, shares that will be voted at the meeting cannot be sold until the meeting has taken place and the shares have been returned
to client accounts by the designated depositary. In deciding whether to vote shares subject to share blocking, ClearBridge will consider and weigh, based on the particular facts and circumstances, the expected benefit to clients of voting in
relation to the detriment to clients of not being able to sell such shares during the applicable period.
Certain clients of ClearBridge, such as an institutional client or a mutual fund for which ClearBridge acts as a
sub-adviser, may engage in securities lending with respect to the securities in their accounts. ClearBridge typically does not direct or oversee such securities lending activities. To the extent feasible and
practical under the circumstances, ClearBridge will request that the client recall shares that are on loan so that such shares can be voted if ClearBridge believes that the expected benefit to the client of voting such shares outweighs the detriment
to the client of recalling such shares (e.g., foregone income). The ability to timely recall shares for proxy voting purposes typically is not entirely within the control of ClearBridge and requires the cooperation of the client and its other
service providers. Under certain circumstances, the recall of shares in time for such shares to be voted may not be possible due to applicable proxy voting record dates and administrative considerations.
| VII. |
DISCLOSURE OF PROXY VOTING |
ClearBridge employees may not disclose to others outside of ClearBridge (including employees of other Franklin business units) how ClearBridge
intends to vote a proxy absent prior approval from ClearBridge’s Chief Compliance Officer, except that a ClearBridge investment professional may disclose to a third party (other than an employee of another Franklin business unit) how s/he
intends to vote without obtaining prior approval from ClearBridge’s Chief Compliance Officer if (1) the disclosure is intended to facilitate a discussion of publicly available information by ClearBridge personnel with a representative of a
company whose securities are the subject of the proxy, (2) the company’s market capitalization exceeds $1 billion and (3) ClearBridge has voting power with respect to less than 5% of the outstanding common stock of the company.
If a ClearBridge employee receives a request to disclose ClearBridge’s proxy voting intentions to, or is otherwise contacted by,
another person outside of ClearBridge (including an employee of another Franklin business unit) in connection with an upcoming proxy voting matter, he/she should immediately notify ClearBridge’s Chief Compliance Officer.
If a portfolio manager wants to take a public stance with regards to a proxy, s/he must consult with ClearBridge’s Chief Compliance
Officer before making or issuing a public statement.
| VIII. RECORDKEEPING |
AND OVERSIGHT |
ClearBridge shall maintain the following records relating to proxy voting:
| |
• |
|
a copy of these policies and procedures; |
| |
• |
|
a copy of each proxy form (as voted); |
| |
• |
|
a copy of each proxy solicitation (including proxy statements) and related materials with regard to each vote;
|
| |
• |
|
documentation relating to the identification and resolution of conflicts of interest; |
| |
• |
|
any documents created by ClearBridge that were material to a proxy voting decision or that memorialized the basis
for that decision; and |
| |
• |
|
a copy of each written client request for information on how ClearBridge voted proxies on behalf of the client,
and a copy of any written response by ClearBridge to any (written or oral) client request for information on how ClearBridge voted proxies on behalf of the requesting client. |
Such records shall be maintained and preserved in an easily accessible place for a period of not less than six years from the end of the fiscal
year during which the last entry was made on such record, the first two years in an appropriate office of the ClearBridge adviser.
To the extent that ClearBridge is authorized to vote proxies for a United States Registered
Investment Company, ClearBridge shall maintain such records as are necessary to allow such fund to comply with its recordkeeping, reporting and disclosure obligations under applicable laws, rules and regulations.
In lieu of keeping copies of proxy statements, ClearBridge may rely on proxy statements filed on the EDGAR system as well as on third party
records of proxy statements and votes cast if the third party provides an undertaking to provide the documents promptly upon request.
| ITEM 8. |
PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
|
(a)(1): As of the date of filing this report:
|
|
|
|
|
| NAME AND
ADDRESS |
|
LENGTH OF
TIME SERVED |
|
PRINCIPAL OCCUPATION(S) DURING
PAST 5 YEARS |
| Chris Eades Clearbridge
620 Eighth Avenue New York, NY
10018 |
|
Since 2012 |
|
Co-portfolio manager of the fund; Managing Director, Co-Director of Research, Senior Research Analyst for Energy joined ClearBridge in 2006 as a senior
research analyst for energy and was named co-director of research in 2009. He has 30 years of investment industry experience. Prior to joining ClearBridge, Mr. Eades served as an energy analyst and
portfolio manager at Saranac Capital from 2002 to 2006. |
|
|
|
| Peter Vanderlee, CFA Clearbridge
620 Eighth Avenue New York, NY
10018 |
|
Since 2012 |
|
Co-portfolio manager of the fund; Managing Director and Portfolio Manager with ClearBridge Advisors. Mr. Vanderlee has 23 years of investment industry experience. |
|
|
|
| Patrick McElroy Clearbridge
620 Eighth Avenue New York, NY
10018 |
|
Since 2023 |
|
Co-portfolio manager of the fund; Mr. McElroy is a Director and a Portfolio Manager of ClearBridge. Mr. McElroy joined the subadviser in 2007 and was previously a Convertible
Securities Research Analyst for Palisade Capital Management, a Convertible Securities and Equities Research Analyst at Jefferies & Co., a Research Associate for Fixed Income at Standard & Poor’s and prior to that, worked in
Fixed Income Division Sales at Donaldson, Lufkin and Jenrette Securities. He has 31 years of investment industry experience. |
(a)(2): DATA TO BE PROVIDED BY FINANCIAL CONTROL
The following tables set forth certain additional information with respect to the fund’s portfolio managers for the fund. Unless noted otherwise, all
information is provided as of November 30, 2023.
Other Accounts Managed by Portfolio Managers
The table below identifies the number of accounts (other than the fund) for which the fund’s portfolio managers have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories:
registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the
accounts where fees are based on performance is also indicated.
|
|
|
|
|
|
|
|
|
|
|
| Name of PM |
|
Type of Account |
|
Number of
Accounts
Managed |
|
Total Assets
Managed |
|
Number of
Accounts
Managed
for
which
Advisory Fee
is
Performance-
Based |
|
Assets
Managed for
which
Advisory Fee is
Performance-
Based |
| Chris Eades |
|
Other Registered Investment Companies |
|
2 |
|
$ 1.56 billion |
|
None |
|
None |
| |
Other Pooled Vehicles |
|
1 |
|
$90 million |
|
None |
|
None |
| |
Other Accounts |
|
None |
|
None |
|
None |
|
None |
| Michael Clarfeld* |
|
Other Registered Investment Companies |
|
7 |
|
$10.10 billion |
|
None |
|
None |
| |
Other Pooled Vehicles |
|
3 |
|
$200 million |
|
None |
|
None |
| |
Other Accounts |
|
50,342 |
|
$17.80 billion |
|
None |
|
None |
| Peter Vanderlee |
|
Other Registered Investment Companies |
|
9 |
|
$10.73 billion |
|
None |
|
None |
| |
Other Pooled Vehicles |
|
6 |
|
$1.08 billion |
|
None |
|
None |
| |
Other Accounts |
|
51,798 |
|
$18.26 billion |
|
None |
|
None |
| Patrick McElroy** |
|
Other Registered Investment Companies |
|
2 |
|
$620 million |
|
None |
|
None |
| |
Other Pooled Vehicles |
|
3 |
|
$880 million |
|
None |
|
None |
| |
Other Accounts |
|
1,566 |
|
$510 million |
|
None |
|
None |
| * |
Effective December 31, 2023, Mr. Clarfeld was no longer a portfolio manager of the Fund.
|
| ** |
Effective December 31, 2023, Mr. McElroy became a portfolio manager of the Fund.
|
(a)(3): As of November 30, 2023:
Portfolio Manager Compensation Structure (ClearBridge)
Potential Conflicts of Interest
In this
subsection and the next subsection titled “Portfolio Manager Compensation Structure”, “Subadviser” refers to ClearBridge Investments, LLC.
Potential conflicts of interest may arise when the Fund’s portfolio managers also have day-to-day management responsibilities with respect to one or more other funds or other accounts, as is the case for the Fund’s portfolio managers.
The Subadviser and the Fund have adopted compliance policies and procedures that are designed to address various conflicts of interest that
may arise for the Subadviser and the individuals that each employs. For example, the Subadviser seeks to minimize the effects of competing interests for the time and attention of portfolio managers by assigning portfolio managers to manage funds and
accounts that share a similar investment style. The Subadviser has also adopted trade allocation procedures that are designed to facilitate the fair allocation of investment opportunities among multiple funds and accounts. There is no guarantee,
however, that the policies and procedures adopted by the Subadviser and the Fund will be able to detect and/or prevent every situation in which an actual or potential conflict may appear. These potential conflicts include:
Allocation of Limited Time and Attention. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote
unequal time and attention to the management of those funds and/or accounts. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
Allocation of Investment Opportunities. If a portfolio manager identifies an investment opportunity that may be suitable for
multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit a fund’s ability to take full advantage of the investment opportunity. The Subadviser has adopted policies and procedures to
ensure that all accounts, including the Fund, are treated equitably.
Pursuit of Differing Strategies. At times, a portfolio
manager may determine that an investment opportunity may be appropriate for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing
positions with respect to a particular security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both,
to the detriment or benefit of one or more other funds and/or accounts.
Selection of Broker/Dealers. In addition to executing
trades, some broker/dealers provide brokerage and research services (as those terms are defined in Section 28(e) of the 1934 Act), which may result in the payment of higher brokerage fees than might have otherwise been available. These services
may be more beneficial to certain funds or accounts than to others. For this reason, the Subadviser has formed a brokerage committee that reviews, among other things, the allocation of brokerage to broker/dealers, best execution and soft dollar
usage.
Variation in Compensation. A conflict of interest may arise where the financial or other benefits available to the
portfolio manager differ among the funds and/or accounts that he or she manages. If the structure of the manager’s management fee (and the percentage paid to the Subadviser) differs among funds and/or accounts (such as where certain funds or
accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts over others.
The portfolio manager might be motivated to favor funds and/or accounts in which he or she has an interest or in which the manager and/or its
affiliates have interests. Similarly, the desire to maintain assets under management or to enhance the portfolio manager’s performance record or to derive other rewards, financial or otherwise, could influence the portfolio manager in affording
preferential treatment to those funds and/or accounts that could most significantly benefit the portfolio manager.
Portfolio Manager Compensation Structure
The Subadviser’s portfolio managers participate in a competitive compensation program that is designed to attract and retain outstanding
investment professionals and closely align the interests of its investment professionals with those of its clients and overall firm results. The total compensation program includes a significant incentive component that rewards high performance
standards, integrity, and collaboration consistent with the firm’s values. Portfolio manager compensation is reviewed and modified each year as appropriate to reflect changes in the market and to ensure the continued alignment with the goals
stated above. A portion of annual bonuses is deferred into compensation plans that vest over the course of several years after the grant date. Deferrals are tied to portfolio performance, ClearBridge equity products, and Franklin Resources stock.
The Subadviser’s portfolio managers and other investment professionals receive a combination of base compensation and discretionary
compensation, comprising a cash incentive award and deferred incentive plans described below.
Base salary compensation. Base
salary is fixed and primarily determined based on market factors and the experience and responsibilities of the investment professional within the firm.
Discretionary compensation. In addition to base compensation managers may receive discretionary compensation.
Discretionary compensation can include:
| |
• |
|
The Subadviser’s Deferred Incentive Plan (CDIP)—a mandatory program that typically defers 15% of
discretionary year-end compensation into the Subadviser’s managed products. For portfolio managers, one-third of this deferral tracks the performance of their
primary managed product, one-third tracks the performance of a composite portfolio of the firm’s new product and one-third can be elected to track the performance
of one or more of the Subadviser’s managed funds. Consequently, portfolio managers can have two-thirds of their CDIP award tracking the performance of their primary managed products. For centralized
research analysts, two-thirds of their deferral is elected to track the performance of one of more of Subadviser’s managed funds, while one-third tracks the
performance of the new product composite. The Subadviser then makes a company investment in the proprietary managed funds equal to the deferral amounts by fund. This investment is a company asset held on the balance sheet and paid out to the
employees in the shares subject to vesting requirements. |
| |
• |
|
Franklin Resources Restricted Stock Deferral—a mandatory program that typically defers 5% of discretionary year-end compensation into Franklin Resources restricted stock. The award is paid out to employees in shares subject to vesting requirements. |
Several factors are considered by the Subadviser’s Senior Management when determining discretionary compensation for portfolio managers.
These include but are not limited to:
| |
• |
|
Investment performance. A portfolio manager’s compensation is linked to the
pre-tax investment performance of the fund/accounts managed by the portfolio manager. Investment performance is calculated for 1-,
3-, and 5-year periods measured against the applicable product benchmark (e.g., a securities index and, with respect to a fund, the benchmark set forth in the
Fund’s Prospectus) and relative to applicable industry peer groups. The greatest weight is generally placed on 3- and 5-year performance. |
| |
• |
|
Appropriate risk positioning that is consistent with the Subadviser’s investment philosophy and the
Investment Committee/CIO approach to generation of alpha. |
| |
• |
|
Overall firm profitability and performance. |
| |
• |
|
Amount and nature of assets managed by the portfolio manager. |
| |
• |
|
Contributions for asset retention, gathering and client satisfaction. |
| |
• |
|
Contribution to mentoring, coaching and/or supervising. |
| |
• |
|
Contribution and communication of investment ideas in the Subadviser’s Investment Committee meetings and on
a day to day basis. |
| |
• |
|
Market compensation survey research by independent third parties. |
(a)(4): Portfolio Manager Securities Ownership
The table below identifies the dollar range of securities beneficially owned by each portfolio managers as of November 30, 2023.
|
|
|
| Portfolio Manager(s) |
|
Dollar Range of
Portfolio
Securities
Beneficially
Owned |
| Chris Eades |
|
E |
| Michael Clarfeld*
Peter Vanderlee |
|
C
B |
| Patrick McElroy** |
|
A |
| * |
Effective December 31, 2023, Mr. Clarfeld was no longer a portfolio manager of the Fund.
|
| ** |
Effective December 31, 2023, Mr. McElroy became a portfolio manager of the Fund.
|
Dollar Range ownership is as follows:
A:
none
B: $1 - $10,000
C: 10,001 - $50,000
D: $50,001 - $100,000
E: $100,001 - $500,000
F: $500,001 - $1 million
G: over $1 million
| ITEM 9. |
PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
(d) |
|
| Period |
|
Total
Number
of Shares
Purchased |
|
|
Average
Price Paid
per Share |
|
|
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs |
|
|
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs |
|
| December 1 through December 31 |
|
|
81,915 |
|
|
$ |
28.64 |
|
|
|
81,915 |
|
|
|
775,805 |
|
| January 1 through January 31 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
775,805 |
|
| February 1 through February 28 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
775,805 |
|
| March 1 through March 31 |
|
|
32,996 |
|
|
$ |
28.34 |
|
|
|
32,996 |
|
|
|
742,809 |
|
| April 1 through April 30 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
742,809 |
|
| May 1 through May 31 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
742,809 |
|
| June 1 through June 30 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
775,805 |
|
| July 1 through July 31 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
775,805 |
|
| August 1 through August 31 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
775,805 |
|
| September 1 through September 30 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
742,809 |
|
| October 1 through October 31 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
742,809 |
|
| November 1 through November 30 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
742,809 |
|
| Total |
|
|
114,911 |
|
|
$ |
28.55 |
|
|
|
114,911 |
|
|
|
742,809 |
|
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.
| ITEM 10. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
| ITEM 11. |
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 12. |
DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT
INVESTMENT COMPANIES. |
Not applicable.
| ITEM 13. |
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION. |
(a) (1) Code of Ethics attached hereto.
Exhibit
99.CODE ETH
(a) (2)
Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.CERT
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this
Report to be signed on its behalf by the undersigned, there unto duly authorized.
ClearBridge MLP and Midstream Total Return Fund Inc.
|
|
|
| By: |
|
/s/ Jane Trust |
|
|
Jane Trust |
|
|
Chief Executive Officer |
|
|
| Date: |
|
January 24, 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: |
|
January 24, 2024 |
|
|
| By: |
|
/s/ Christopher Berarducci |
|
|
Christopher Berarducci |
|
|
Principal Financial Officer |
|
|
| Date: |
|
January 24, 2024 |
Code of Conduct for Principal Executive and Financial Officers (SOX)
Covered Officers and Purpose of the Code
The Funds’
code of ethics (the “Code”) for investment companies within the Legg Mason family of mutual funds (each a “Fund,” and collectively, the “Funds”) applies to each Fund’s Principal Executive Officer, Principal
Financial Officer, and Controller (the “Covered Officers”) for the purpose of promoting:
| |
• |
|
honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest between
personal and professional relationships; |
| |
• |
|
full, fair, accurate, timely and understandable disclosure in reports and documents a registrant files with, or
submits to, the Securities and Exchange Commission (“SEC”) and in other public communications made by the Funds; |
| |
• |
|
compliance with applicable laws and governmental rules and regulations; |
| |
• |
|
prompt internal reporting of Code violations to appropriate persons identified in the Code; and
|
| |
• |
|
accountability for adherence to the Code. |
Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as
apparent conflicts of interest.
Covered Officers Should Ethically Handle Actual and Apparent Conflicts of Interest
A “conflict of interest” occurs when a Covered Officer’s private interest interferes with the interests of, or his or her service to, a Fund.
For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with a Fund.
Certain conflicts of interest arise out of the relationships between Covered Officers and a Fund and already are subject to conflict of interest provisions in
the Investment Company Act of 1940 (“Investment Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”). For example, Covered Officers may not individually engage in certain transactions (such as the
purchase or sale of securities or other property) with a Fund because of their status as “affiliated persons” of the Fund. The Funds’ and the investment advisers’ compliance programs and procedures are designed to prevent, or
identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code.
Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between
a Fund and an investment adviser of which Covered Officers are also officers or employees. As a result, this Code recognizes Covered Officers will, in the normal course of their duties (whether formally for a Fund or for the adviser, or for both),
be involved in establishing policies and
implementing decisions that will have different effects on the adviser and the Funds. The participation of Covered Officers in such activities is inherent in the contractual relationship between
a Fund and an adviser and is consistent with the performance by Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such
activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds’ Boards of Directors/Trustees (“Boards”) that Covered Officers may also be officers or employees of one or more other investment
companies covered by this or other codes and that such service, by itself does not give rise to a conflict of interest.
Other conflicts of interest are
covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers
should keep in mind these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of a Fund.
Each Covered Officer must:
| |
• |
|
not use his or her personal influence or personal relationships improperly to influence investment decisions or
financial reporting by a Fund; |
| |
• |
|
not cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered
Officer rather than the benefit the Fund; and, |
| |
• |
|
not use material non-public knowledge of portfolio transactions made or
contemplated for the Trust to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. |
There are some actual or potential conflict of interest situations that, if material, should always be discussed with the Chief Compliance Officer
(“CCO”) or designate that has been appointed by the Board of the Funds. Examples of these include:
| |
• |
|
service as a director on the board of any public company (other than the Funds or their investment advisers or
any affiliated person thereof); |
| |
• |
|
the receipt of any non-nominal gifts (i.e., in excess of $100);
|
| |
• |
|
the receipt of any entertainment from any company with which a Fund has current or prospective business dealings
unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; |
| |
• |
|
any ownership interest in, or any consulting or employment relationship with, any of the Funds’ service
providers (other than their investment advisers, or principal underwriter, or any affiliated person thereof); |
| |
• |
|
a direct or indirect financial interest in commissions, transaction charges or spreads paid by a Fund for
effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s employment, such as compensation or equity ownership. |
Disclosure and Compliance
Each Covered Officer should:
| |
• |
|
familiarize him or herself with the disclosure requirements generally applicable to the Funds;
|
| |
• |
|
not knowingly misrepresent, or cause others to misrepresent, facts about a Fund to others, whether within or
outside the Fund, including to the Fund’s Directors/Trustees and auditors, and to governmental regulators and self-regulatory organizations; and |
| |
• |
|
to the extent appropriate within his or her area of responsibility, consult with other officers and employees of
the Funds and the advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds.
|
It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws,
rules and regulations.
Reporting and Accountability
Each Covered Officer must:
| |
• |
|
upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to
the Board that he or she has received, read, and understands the Code; |
| |
• |
|
annually thereafter affirm to the Board that he or she has complied with the requirements of the Code;
|
| |
• |
|
not retaliate against any other Covered Officer or any employee of the Funds or their advisers or any affiliated
persons thereof or service providers of the Funds for reports of potential violations that are made in good faith; |
| |
• |
|
notify the CCO promptly if he or she knows of any violation of this Code, of which failure to do so is itself a
violation; and |
| |
• |
|
report at least annually, if necessary, any employment position, including officer or directorships, held by the
Covered Officer or any immediate family member of a Covered Officer with affiliated persons of or Service Providers to the Funds. |
The CCO is responsible for applying this Code to specific situations in which questions are presented and has the
authority to interpret this Code in any particular situation. However, approvals or waivers sought by a Covered Officer will be considered by the Compliance Committee or Audit Committee, (the “Committee”) responsible for oversight of the
Fund’s code of ethics under Rule 17j-1 under the Investment Company Act. If a Covered Officer seeking an approval or waiver sits on the Committee, the Covered Person shall recuse him or herself from any
such deliberations. Any approval or waiver granted by the Committee will be reported promptly to the Chair of the Audit Committees of the Funds.
The
Funds will follow these procedures in investigating and enforcing this Code:
| |
• |
|
the CCO will take all appropriate action to investigate any potential violations reported to him, which actions
may include the use of internal or external counsel, accountants or other personnel; |
| |
• |
|
if, after such investigation, the CCO believes that no violation has occurred, the CCO is not required to take
any further action; |
| |
• |
|
any matter that the CCO believes is a violation will be reported to the Committee; |
| |
• |
|
if the Committee concurs that a violation has occurred, it will inform the Board, which will consider appropriate
action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer;
|
| |
• |
|
the Committee will be responsible for granting waivers, as appropriate; and, |
| |
• |
|
any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules.
|
Other Policies and Procedures
This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable
to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds’ advisers, principal underwriter, or other service providers govern or purport to govern the behavior or activities of Covered
Officers subject to this Code, they are superseded by this Code to the extent they overlap or conflict with the provisions of this Code. The Funds’ and their investment advisers’ and principal underwriter’s codes of ethics under Rule 17j-1 under the Investment Company Act are separate requirements applying to Covered Officers and others, and are not part of this Code.
Confidentiality
All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except
as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board and Fund counsel, and the board of Directors/Trustees and fund counsel of any other investment company for whom a Covered
Officer serves in a similar capacity.
Annual Report
No less than annually, the CCO shall provide the Board with a written report describing any issues having arisen since the prior year’s report.
Internal Use
This Code is intended solely for the
internal use by the Funds and does not constitute an admission by or on behalf of any Fund, as to any fact, circumstance or legal consideration.
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 MLP and
Midstream Total Return 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: January 24, 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 MLP and
Midstream Total Return 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: January 24, 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 MLP and Midstream Total Return 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
November 30, 2023 (the “Form N-CSR”) fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial
condition and results of operations of the Registrant.
|
|
|
|
|
| Chief Executive Officer |
|
|
|
Principal Financial Officer |
| ClearBridge MLP and Midstream Total Return Fund Inc. |
|
|
|
ClearBridge MLP and Midstream Total Return Fund Inc. |
|
|
|
| /s/ Jane Trust |
|
|
|
/s/ Christopher Berarducci |
| Jane Trust |
|
|
|
Christopher Berarducci |
| Date: January 24, 2024 |
|
|
|
Date: January 24, 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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