SEC Company Response from WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC. (MHF) (CIK 0000830487) (MHF) — Aug 29, 2019
WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC. (MHF) (CIK 0000830487)
Date: Aug. 29, 2019 · CIK: 0000830487 · Accession: 0001193125-19-233533
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 811-02351, 811-04052, 811-04254, 811-05497, 811-05812, 811-06110, 811-06310, 811-06506, 811-07362, 811-07920, 811-10603, 811-21128, 811-21343, 811-21403, 811-21477, 811-21609, 811-22265, 811-22294, 811-22334, 811-22369, 811-22405, 811-22444, 811-22546, 811-22693, 811-22805
Letter
VIA EDGAR Securities and Exchange Commission Division of Investment Management 100 F Street, N.E. Washington, DC 20549 Attention: Ken Ellington Re: The Registrants (the “Registrants”) and Fund (the “Funds”) Listed in Annex A
Dear Mr. Ellington:
On behalf of the Registrants,1 we are filing this letter to respond to the comments you delivered by telephone on July 31, 2019 on behalf of the Staff (the “Staff”) of the Securities and Exchange Commission after the Staff’s review of the Funds’ annual reports to shareholders filed on Form N-CSR, in each case with respect to the fiscal year listed beside the name of the applicable Fund in Annex A hereto. For convenience of reference, summaries of the comments of the Staff have been included herein.
1. Comment: Western Asset SMASh Series M Fund has reported high portfolio turnover in its financial highlights. Please explain if active and frequent trading is part of the Fund’s principal investment strategy and, if so, why an applicable risk related to portfolio turnover has not been added as a principal risk to the summary prospectus.
Response: The Registrant does not consider frequent trading to be a principal investment strategy of the Fund. However, the Registrant acknowledges that implementation of the Fund’s investment strategy may result in relatively high portfolio turnover from time to time. Accordingly, the Registrant intends to add disclosure on portfolio turnover risk to the Fund’s summary prospectus and statutory prospectus.
2. Comment: With regard to each of QS Strategic Real Return Fund and EnTrustPermal Alternative Core Fund (now known as EnTrust Global – Alternative Core Fund), in Note 1 to the financial statements (“Organization and significant accounting policies”), please disclose the percentage of the Fund that is invested in a subsidiary.
When used in the responses below, term “Fund” refers to the applicable Fund and the term “Registrant” refers to the Registrant listed beside the name of such Fund in Annex A.
Response: The Registrant notes that Note 1 to the financial statements of each of QS Strategic Real Return Fund and EnTrustPermal Alternative Core Fund discloses the maximum amount that the Fund may invest in its wholly-owned subsidiary. The Registrant respectfully submits that its current disclosure is in compliance with disclosure requirements and also observes that each Fund’s prospectus provides information on the Fund’s target exposure with respect to commodities (or, in the case of EnTrustPermal Alternative Core Fund, alternative investments). As the precise amount to which each Fund invests in commodities changes from time to time, the Registrant does not believe that providing the requested information as of a particular date would be materially helpful to shareholders.
3. Comment: With regard to each of Western Asset Institutional Liquid Reserves and Western Asset Select Tax Free Reserves, please disclose any significant policies relating to redemption gates in the notes to the financial statements.
Response: The Registrant respectfully notes that each of Western Asset Institutional Liquid Reserves and Western Asset Select Tax Free Reserves currently discloses its significant policies relating to redemption gates in the section entitled “Notes to the financial statements” under note one “Organization and significant accounting policies.”
4. Comment: With regard to each “global” Fund, the following sentence relating to the Fund’s definition of “Global Fund” currently reads, “As a global Fund, the Fund can seek investment opportunities anywhere in the world, and under normal market conditions, the Fund will invest in or have exposure to at least three countries, which may include the United States.” Please update this disclosure to reflect recent conversations between the Staff and Fund counsel regarding BrandywineGLOBAL – Global Total Return ETF, so that it reads, in pertinent part, “The fund normally will hold a portfolio of [insert types of securities]…of issuers tied economically to a minimum of three countries and, will invest at least 40% of its assets (or if conditions are deemed to be unfavorable, at least 30% of its assets) in investments tied economically to countries outside of the United States.”
Response: The Registrants acknowledge that the prospectus for the above-referenced fund states the minimum percentage of that fund’s assets that will normally be invested in countries outside of the United States. Nonetheless, the Registrants respectfully note that they believe the current prospectus disclosure of the Funds with names containing the word “global” is consistent with Rule 35d-1. An Investment Company Institute memorandum to members dated June 4, 2012, which summarized conversations with senior members of the Staff, stated that the 40% policy was not compulsory for global funds. Memorandum from Investment Company Institute to SEC Rules Members No. 47-12 et al. (June 4, 2012). This is consistent with the Commission’s statements in the final release adopting Rule 35d-1 that “[t]he terms “international” and
“global[”] … connote diversification among investments in a number of different countries throughout the world, and “international” and “global” funds will not be subject to the rule. We would expect, however, that investment companies using these terms in their names will invest their assets in investments that are tied economically to a number of countries throughout the world.” Accordingly, the disclosure for each “global” Fund states that “under normal circumstances, the Fund invests in at least three countries, which may include the United States.
5. Comment: Under the concentration policy of BrandywineGLOBAL –Alternative Credit Fund, as disclosed in the Fund’s SAI, the Fund states that it does not consider mortgage-related securities or asset-backed securities to represent interests in an industry or group of industries. The Staff believes that the Fund’s position as currently worded conflicts with Section 8(b)(1)(E) of the Investment Company Act of 1940 (“Act”) by allowing the Fund to reserve freedom of action to concentrate. The Staff does not believe that it is consistent with Section 13(a) of the Act to categorically exclude mortgage-related securities and asset-backed securities from counting as investments in any industry or group of industries, because concentrated investments in those securities can expose investors to risks common to one industry. The Staff takes the position that every investment – other than investments in government securities, domestic bank deposit instruments or tax exempt securities issued by governments or their political subdivisions (excluding private activity municipal debt securities) – is an investment in some industry or group of industries.
Accordingly, a Fund must determine which industry classification or classifications reasonably apply with respect to each mortgage-related security or asset-backed security issuance for concentration purposes. Toward this end, the Fund could consider, the nature of an asset-backed security’s underlying receivables (e.g., auto loans, aircraft leases, etc.) to determine its industry classification for purposes of the Fund’s concentration policy. A Fund could also reasonably choose to classify its non-mortgage related ABS investments in a single industry for concentration purposes.
Please revise this description in the SAI to conform to this position and make any necessary conforming changes to the Principal Strategies section of the Fund’s prospectus.
Response: The Registrant acknowledges the Staff’s comment, but respectfully notes that it believes the Fund’s disclosure satisfies Section 8(b)(1) of the 1940 Act as well as Item 16(c)(1)(iv) of Form N-1A, both of which require a Fund to state its policy on concentrating investments in a particular industry or group of industries and neither of which define what constitutes an industry or group of industries. The Staff has stated that a registrant may select its own industry classifications so long as they are reasonable and not so broad “that the primary economic characteristics of the companies in a single class are materially different.” See Former Guide 19 to Form N-1A. The Staff has also stated that Section 8(b)(1) of the 1940 Act “permits a Fund to implement a concentration policy
that allows for some degree of discretion.” See no-action letters for issued to BlackRock Multi-Sector Income Trust (publicly available July 8, 2013) and Morgan Stanley Mortgage Securities Trust (publicly available July 8, 2013). The Registrant believes the Fund’s current SAI disclosure on industry concentration describes “the circumstances under which the Fund intends to concentrate its investments.” Id.
6. Comment: With regard to ClearBridge Large Cap Value Fund, please include an explanatory footnote in the fee table that briefly explains the terms of the management fee arrangement. The Fund should: (a) disclose the Fund’s base fee; (b) disclose that the base fee may adjust upwards or downwards according to Fund performance relative to its benchmark index; and (c) identify the Fund’s benchmark index.
Response: The following disclosure will be added as an explanatory footnote in the fee table for ClearBridge Large Cap Value Fund: “The management fee consists of (i) a base fee calculated at a rate that decreases as assets increase and (ii) a possible positive or negative performance adjustment of up to 0.025% per quarter based upon the Fund’s performance relative to the S&P 500 Index. The management fee shown in the table represents the fee rate paid by the Fund for the fiscal year ended October 31, 2019, which was comprised of a base fee of [0.__%] and a performance adjustment of [0.__%] [(0.__%)].”
7. Comment: With regard to ClearBridge Large Cap Value Fund, please consider adding risk disclosure related to the fulcrum fee to explain that the adviser may earn incentive compensation even if the Fund is losing money.
Response: In response to the Staff’s comment, the Registrant intends to add the following disclosure to the “More on Fund management – Management fee.”
“Under this arrangement, it is possible that the Fund could pay the manager more than the base fee, even though the performance of the Fund is negative, if the Fund outperforms this benchmark.”
Please contact the undersigned at 617-951-8267 with any questions or comments you might have regarding the above.
Sincerely,
/s/ Barry N. Hurwitz
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CORRESP 1 filename1.htm LEGG MASON PARTNERS INCOME TRUST Morgan, Lewis & Bockius LLP One Federal Street Boston, MA 02110 August 29, 2019 VIA EDGAR Securities and Exchange Commission Division of Investment Management 100 F Street, N.E. Washington, DC 20549 Attention: Ken Ellington Re: The Registrants (the “Registrants”) and Fund (the “Funds”) Listed in Annex A Dear Mr. Ellington: On behalf of the Registrants,1 we are filing this letter to respond to the comments you delivered by telephone on July 31, 2019 on behalf of the Staff (the “Staff”) of the Securities and Exchange Commission after the Staff’s review of the Funds’ annual reports to shareholders filed on Form N-CSR, in each case with respect to the fiscal year listed beside the name of the applicable Fund in Annex A hereto. For convenience of reference, summaries of the comments of the Staff have been included herein. 1. Comment: Western Asset SMASh Series M Fund has reported high portfolio turnover in its financial highlights. Please explain if active and frequent trading is part of the Fund’s principal investment strategy and, if so, why an applicable risk related to portfolio turnover has not been added as a principal risk to the summary prospectus. Response: The Registrant does not consider frequent trading to be a principal investment strategy of the Fund. However, the Registrant acknowledges that implementation of the Fund’s investment strategy may result in relatively high portfolio turnover from time to time. Accordingly, the Registrant intends to add disclosure on portfolio turnover risk to the Fund’s summary prospectus and statutory prospectus. 2. Comment: With regard to each of QS Strategic Real Return Fund and EnTrustPermal Alternative Core Fund (now known as EnTrust Global – Alternative Core Fund), in Note 1 to the financial statements (“Organization and significant accounting policies”), please disclose the percentage of the Fund that is invested in a subsidiary. 1 When used in the responses below, term “Fund” refers to the applicable Fund and the term “Registrant” refers to the Registrant listed beside the name of such Fund in Annex A. Response: The Registrant notes that Note 1 to the financial statements of each of QS Strategic Real Return Fund and EnTrustPermal Alternative Core Fund discloses the maximum amount that the Fund may invest in its wholly-owned subsidiary. The Registrant respectfully submits that its current disclosure is in compliance with disclosure requirements and also observes that each Fund’s prospectus provides information on the Fund’s target exposure with respect to commodities (or, in the case of EnTrustPermal Alternative Core Fund, alternative investments). As the precise amount to which each Fund invests in commodities changes from time to time, the Registrant does not believe that providing the requested information as of a particular date would be materially helpful to shareholders. 3. Comment: With regard to each of Western Asset Institutional Liquid Reserves and Western Asset Select Tax Free Reserves, please disclose any significant policies relating to redemption gates in the notes to the financial statements. Response: The Registrant respectfully notes that each of Western Asset Institutional Liquid Reserves and Western Asset Select Tax Free Reserves currently discloses its significant policies relating to redemption gates in the section entitled “Notes to the financial statements” under note one “Organization and significant accounting policies.” 4. Comment: With regard to each “global” Fund, the following sentence relating to the Fund’s definition of “Global Fund” currently reads, “As a global Fund, the Fund can seek investment opportunities anywhere in the world, and under normal market conditions, the Fund will invest in or have exposure to at least three countries, which may include the United States.” Please update this disclosure to reflect recent conversations between the Staff and Fund counsel regarding BrandywineGLOBAL – Global Total Return ETF, so that it reads, in pertinent part, “The fund normally will hold a portfolio of [insert types of securities]…of issuers tied economically to a minimum of three countries and, will invest at least 40% of its assets (or if conditions are deemed to be unfavorable, at least 30% of its assets) in investments tied economically to countries outside of the United States.” Response: The Registrants acknowledge that the prospectus for the above-referenced fund states the minimum percentage of that fund’s assets that will normally be invested in countries outside of the United States. Nonetheless, the Registrants respectfully note that they believe the current prospectus disclosure of the Funds with names containing the word “global” is consistent with Rule 35d-1. An Investment Company Institute memorandum to members dated June 4, 2012, which summarized conversations with senior members of the Staff, stated that the 40% policy was not compulsory for global funds. Memorandum from Investment Company Institute to SEC Rules Members No. 47-12 et al. (June 4, 2012). This is consistent with the Commission’s statements in the final release adopting Rule 35d-1 that “[t]he terms “international” and 2 “global[”] … connote diversification among investments in a number of different countries throughout the world, and “international” and “global” funds will not be subject to the rule. We would expect, however, that investment companies using these terms in their names will invest their assets in investments that are tied economically to a number of countries throughout the world.” Accordingly, the disclosure for each “global” Fund states that “under normal circumstances, the Fund invests in at least three countries, which may include the United States. 5. Comment: Under the concentration policy of BrandywineGLOBAL –Alternative Credit Fund, as disclosed in the Fund’s SAI, the Fund states that it does not consider mortgage-related securities or asset-backed securities to represent interests in an industry or group of industries. The Staff believes that the Fund’s position as currently worded conflicts with Section 8(b)(1)(E) of the Investment Company Act of 1940 (“Act”) by allowing the Fund to reserve freedom of action to concentrate. The Staff does not believe that it is consistent with Section 13(a) of the Act to categorically exclude mortgage-related securities and asset-backed securities from counting as investments in any industry or group of industries, because concentrated investments in those securities can expose investors to risks common to one industry. The Staff takes the position that every investment – other than investments in government securities, domestic bank deposit instruments or tax exempt securities issued by governments or their political subdivisions (excluding private activity municipal debt securities) – is an investment in some industry or group of industries. Accordingly, a Fund must determine which industry classification or classifications reasonably apply with respect to each mortgage-related security or asset-backed security issuance for concentration purposes. Toward this end, the Fund could consider, the nature of an asset-backed security’s underlying receivables (e.g., auto loans, aircraft leases, etc.) to determine its industry classification for purposes of the Fund’s concentration policy. A Fund could also reasonably choose to classify its non-mortgage related ABS investments in a single industry for concentration purposes. Please revise this description in the SAI to conform to this position and make any necessary conforming changes to the Principal Strategies section of the Fund’s prospectus. Response: The Registrant acknowledges the Staff’s comment, but respectfully notes that it believes the Fund’s disclosure satisfies Section 8(b)(1) of the 1940 Act as well as Item 16(c)(1)(iv) of Form N-1A, both of which require a Fund to state its policy on concentrating investments in a particular industry or group of industries and neither of which define what constitutes an industry or group of industries. The Staff has stated that a registrant may select its own industry classifications so long as they are reasonable and not so broad “that the primary economic characteristics of the companies in a single class are materially different.” See Former Guide 19 to Form N-1A. The Staff has also stated that Section 8(b)(1) of the 1940 Act “permits a Fund to implement a concentration policy 3 that allows for some degree of discretion.” See no-action letters for issued to BlackRock Multi-Sector Income Trust (publicly available July 8, 2013) and Morgan Stanley Mortgage Securities Trust (publicly available July 8, 2013). The Registrant believes the Fund’s current SAI disclosure on industry concentration describes “the circumstances under which the Fund intends to concentrate its investments.” Id. 6. Comment: With regard to ClearBridge Large Cap Value Fund, please include an explanatory footnote in the fee table that briefly explains the terms of the management fee arrangement. The Fund should: (a) disclose the Fund’s base fee; (b) disclose that the base fee may adjust upwards or downwards according to Fund performance relative to its benchmark index; and (c) identify the Fund’s benchmark index. Response: The following disclosure will be added as an explanatory footnote in the fee table for ClearBridge Large Cap Value Fund: “The management fee consists of (i) a base fee calculated at a rate that decreases as assets increase and (ii) a possible positive or negative performance adjustment of up to 0.025% per quarter based upon the Fund’s performance relative to the S&P 500 Index. The management fee shown in the table represents the fee rate paid by the Fund for the fiscal year ended October 31, 2019, which was comprised of a base fee of [0.__%] and a performance adjustment of [0.__%] [(0.__%)].” 7. Comment: With regard to ClearBridge Large Cap Value Fund, please consider adding risk disclosure related to the fulcrum fee to explain that the adviser may earn incentive compensation even if the Fund is losing money. Response: In response to the Staff’s comment, the Registrant intends to add the following disclosure to the “More on Fund management – Management fee.” “Under this arrangement, it is possible that the Fund could pay the manager more than the base fee, even though the performance of the Fund is negative, if the Fund outperforms this benchmark.” Please contact the undersigned at 617-951-8267 with any questions or comments you might have regarding the above. Sincerely, /s/ Barry N. Hurwitz 4 Annex A Registrant 1940 Act File No. Fund Series Identifier Fiscal Year LEGG MASON PARTNERS INCOME TRUST 811-04254 Western Asset Income Fund S000008972 7/31/2018 Western Asset Municipal High Income Fund S000008976 7/31/2018 Western Asset Short Duration High Income Fund S000008975 7/31/2018 Western Asset Short Term Yield Fund S000032916 7/31/2018 Western Asset Short Duration Municipal Income Fund S000016249 2/28/2019 Western Asset Intermediate Maturity California Municipals Fund S000016650 11/30/2018 Western Asset Intermediate Maturity New York Municipals Fund S000016625 11/30/2018 Western Asset Massachusetts Municipals Fund S000016629 11/30/2018 Western Asset Corporate Bond Fund S000016627 12/31/2018 Western Asset Global High Yield Bond Fund S000016648 12/31/2018 Western Asset Mortgage Backed Securities Fund S000016649 12/31/2018 Western Asset Short-Term Bond Fund S000016639 12/31/2018 LEGG MASON PARTNERS MONEY MARKET TRUST 811-04052 Western Asset Prime Obligations Money Market Fund S000052041 8/31/2018 Western Asset Government Reserves S000016623 8/31/2018 Western Asset New York Tax Free Money Market Fund S000008928 8/31/2018 Western Asset Tax Free Reserves S000008929 8/31/2018 Western Asset U.S. Treasury Reserves S000008930 8/31/2018 LEGG MASON PARTNERS PREMIUM MONEY MARKET TRUST 811-05812 Western Asset Premium Liquid Reserves S000008923 8/31/2018 Western Asset Premium U.S. Treasury Reserves S000008924 8/31/2018 LEGG MASON PARTNERS VARIABLE EQUITY TRUST 811-21128 ClearBridge Variable Aggressive Growth Portfolio S000016933 12/31/2018 ClearBridge Variable Appreciation Portfolio S000017013 12/31/2018 ClearBridge Variable Dividend Strategy Portfolio S000008304 12/31/2018 ClearBridge Variable Large Cap Growth Portfolio S000016935 12/31/2018 ClearBridge Variable Large Cap Value Portfolio S000017019 12/31/2018 ClearBridge Variable Mid Cap Portfolio S000016937 12/31/2018 ClearBridge Variable Small Cap Growth Portfolio S000017007 12/31/2018 QS Legg Mason Dynamic Multi-Strategy VIT Portfolio S000034620 12/31/2018 QS Variable Conservative Growth S000017009 12/31/2018 QS Variable Growth S000017011 12/31/2018 QS Variable Moderate Growth S000017010 12/31/2018 LEGG MASON PARTNERS VARIABLE INCOME TRUST 811-06310 Western Asset Core Plus VIT Portfolio S000016930 12/31/2018 Western Asset Variable Global High Yield Bond Portfolio S000017004 12/31/2018 WESTERN ASSET EMERGING MARKETS DEBT FUND INC. 811-21343 Western Asset Emerging Markets Debt Fund Inc. CEF0000891 12/31/2018 WESTERN ASSET FUNDS INC. 811-06110 Western Asset Macro Opportunities Fund S000041845 10/31/2018 Western Asset Core Bond Fund S000000713 12/31/2018 Western Asset Core Plus Bond Fund S000000714 12/31/2018 Western Asset Inflation Indexed Plus Bond Fund S000000715 12/31/2018 Western Asset High Yield Defined Opportunity Fund Inc. 811-22444 Western Asset High Yield Defined Opportunity Fund Inc. CEF0001407 8/31/2018 WESTERN ASSET HIGH INCOME OPPORTUNITY FUND INC. 811-07920 Western Asset High Income Opportunity Fund Inc. CEF0000463 9/30/2018 WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC. 811-21609 Western Asset Variable Rate Strategic Fund Inc. CEF0001014 9/30/2018 WESTERN ASSET GLOBAL CORPORATE DEFINED OPPORTUNITY FUND INC. 811-22334 Western Asset Global Corporate Defined Opportunity Fund Inc. CEF0001347 10/31/2018 WESTERN ASSET MUNICIPAL HIGH INCOME FUND INC. 811-05497 Western Asset Municipal High Income Fund Inc. CEF0000134 10/31/2018 WESTERN ASSET INTERMEDIATE MUNI FUND INC. 811-06506 Western Asset Intermediate Muni Fund Inc. CEF0000302 11/30/2018 Western Asset Investment Grade Defined Opportunity Trust Inc. 811-22294 Western Asset Investment Grade Defined Opportunity Trust Inc. CEF0001329 11/30/2018 Western Asset Municipal Defined Opportunity Trust Inc. 811-22265 Western Asset Municipal Defined Opportunity Trust Inc. CEF0001309 11/30/2018 WESTERN ASSET MUNICIPAL PARTNERS FUND INC. 811-07362 Western Asset Municipal Partners Fund Inc. CEF0000388 11/30/2018 WESTERN ASSET INFLATION- LINKED INCOME FUND 811-21403 Western Asset Inflation-Linked Income Fund CEF0000929 11/30/2018 WESTERN ASSET INFLATION- LINKED OPPORTUNITIES & INCOME FUND 811-21477 Western Asset Inflation-Linked Opportunities & Income Fund CEF0000953 11/30/2018 Western Asset Investment Grade Income Fund Inc. 811-02351 Western Asset Investment Grade Income Fund Inc. CEF0000022 12/31/2018 Western Asset Mortgage Defined Opportunity Fund Inc. 811-22369 Western Asset Mortgage Defined Opportunity Fund Inc. CEF0001363 12/31/2018 WESTERN ASSET PREMIER BOND FUND 811-10603 Western Asset Premier Bond Fund CEF0000741 12/31/2018 CLEARBRIDGE AMERICAN ENERGY MLP FUND INC. 811-22805 Clearbridge American Energy MLP Fund Inc. Liquidated ClearBridge MLP & Midstream Fund Inc. 811-22405 ClearBridge MLP & Midstream Fund Inc. 11/30/2018 ClearBridge Energy Midstream Opportunity Fund Inc. 811-22546 ClearBridge Energy Midstream Opportunity Fund Inc. 11/30/2018 ClearBridge MLP & Midstream Total Return Fund Inc. 811-22693 ClearBridge MLP & Midstream Total Return Fund Inc. 11/30/2018 Legg Mason