ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1: Valuations based on quoted prices for identical securities in active markets.
Level 2: Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| | | |
| | Valuation inputs |
| Other financial instruments: | Level 1 | Level 2 | Level 3 |
| Forward currency contracts | $— | $(130,420) | $— |
| Futures contracts | 461,665 | — | — |
| Written options outstanding | — | (2,680) | — |
| Forward premium swap option contracts | — | 516,548 | — |
| TBA sale commitments | — | (203,754,616) | — |
| Interest rate swap contracts | — | 3,014,565 | — |
| Total return swap contracts | — | (162,650) | — |
| Credit default contracts | — | (207,136) | — |
| Totals by level | $461,665 | $(200,726,389) | $— |
| * Common stock classifications are presented at the sector level, which may differ from the fund’s portfolio presentation. |
| At the start and close of the reporting period, Level 3 investments in securities represented less than 1% of the fund’s net assets and were not considered a significant portion of the fund’s portfolio. |
The accompanying notes are an integral part of these financial statements.
| |
62 Master Intermediate Income Trust |
Statement of assets and liabilities 3/31/23 (Unaudited)
| |
| ASSETS | |
| Investment in securities, at value (Notes 1 and 9): | |
| Unaffiliated issuers (identified cost $476,009,692) | $463,200,567 |
| Affiliated issuers (identified cost $18,308,455) (Note 5) | 18,308,455 |
| Foreign currency (cost $5,901) (Note 1) | 6,017 |
| Dividends, interest and other receivables | 1,589,232 |
| Receivable for investments sold | 793,450 |
| Receivable for sales of TBA securities (Note 1) | 91,853,183 |
| Receivable for variation margin on futures contracts (Note 1) | 66,499 |
| Receivable for variation margin on centrally cleared swap contracts (Note 1) | 2,136,127 |
| Unrealized appreciation on forward premium swap option contracts (Note 1) | 6,707,322 |
| Unrealized appreciation on forward currency contracts (Note 1) | 100,133 |
| Unrealized appreciation on OTC swap contracts (Note 1) | 1,766,428 |
| Premium paid on OTC swap contracts (Note 1) | 2,007,724 |
| Deposits with broker (Note 1) | 5,163,068 |
| Prepaid assets | 36,470 |
| Total assets | 593,734,675 |
| |
| LIABILITIES | |
| Payable to custodian | 378,690 |
| Payable for investments purchased | 637,117 |
| Payable for purchases of TBA securities (Note 1) | 197,413,605 |
| Payable for shares of the fund repurchased | 321,423 |
| Payable for compensation of Manager (Note 2) | 327,560 |
| Payable for custodian fees (Note 2) | 46,798 |
| Payable for investor servicing fees (Note 2) | 14,572 |
| Payable for Trustee compensation and expenses (Note 2) | 98,347 |
| Payable for administrative services (Note 2) | 1,045 |
| Payable for variation margin on futures contracts (Note 1) | 4,219 |
| Payable for variation margin on centrally cleared swap contracts (Note 1) | 2,210,409 |
| Distributions payable to shareholders | 1,092,739 |
| Unrealized depreciation on OTC swap contracts (Note 1) | 2,240,359 |
| Premium received on OTC swap contracts (Note 1) | 1,903,579 |
| Unrealized depreciation on forward currency contracts (Note 1) | 230,553 |
| Unrealized depreciation on forward premium swap option contracts (Note 1) | 6,190,774 |
| Written options outstanding, at value (premiums $275,000) (Note 1) | 2,680 |
| TBA sale commitments, at value (proceeds receivable $202,386,191) (Note 1) | 203,754,616 |
| Collateral on certain derivative contracts and TBA commitments, at value (Notes 1 and 9) | 3,690,722 |
| Other accrued expenses | 131,343 |
| Total liabilities | 420,691,150 |
| | |
| Net assets | $173,043,525 |
(Continued on next page)
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| Master Intermediate Income Trust 63 |
Statement of assets and liabilities cont.
| |
| REPRESENTED BY | |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $308,407,556 |
| Total distributable earnings (Note 1) | (135,364,031) |
| Total — Representing net assets applicable to capital shares outstanding | $173,043,525 |
| |
| COMPUTATION OF NET ASSET VALUE | |
| Net asset value per share | |
| ($173,043,525 divided by 49,383,363 shares) | $3.50 |
The accompanying notes are an integral part of these financial statements.
|
| 64 Master Intermediate Income Trust |
Statement of operations Six months ended 3/31/23 (Unaudited)
| |
| INVESTMENT INCOME | |
| Interest (including interest income of $391,849 from investments in affiliated issuers) (Note 5) | $3,645,863 |
| Total investment income | 3,645,863 |
| |
| EXPENSES | |
| Compensation of Manager (Note 2) | 664,245 |
| Investor servicing fees (Note 2) | 44,293 |
| Custodian fees (Note 2) | 51,547 |
| Trustee compensation and expenses (Note 2) | 4,925 |
| Administrative services (Note 2) | 3,966 |
| Auditing and tax fees | 70,142 |
| Other | 105,415 |
| Total expenses | 944,533 |
| Expense reduction (Note 2) | (3,520) |
| Net expenses | 941,013 |
| | |
| Net investment income | 2,704,850 |
| |
| REALIZED AND UNREALIZED GAIN (LOSS) | |
| Net realized gain (loss) on: | |
| Securities from unaffiliated issuers (Notes 1 and 3) | (1,107,755) |
| Foreign currency transactions (Note 1) | 19,477 |
| Forward currency contracts (Note 1) | (137,298) |
| Futures contracts (Note 1) | (976,937) |
| Swap contracts (Note 1) | (2,399,335) |
| Written options (Note 1) | (10,963,519) |
| Total net realized loss | (15,565,367) |
| Change in net unrealized appreciation (depreciation) on: | |
| Securities from unaffiliated issuers and TBA sale commitments | 4,886,123 |
| Assets and liabilities in foreign currencies | (3,826) |
| Forward currency contracts | (552,513) |
| Futures contracts | 1,329,292 |
| Swap contracts | 2,323,174 |
| Written options | 10,388,053 |
| Total change in net unrealized appreciation | 18,370,303 |
| | |
| Net gain on investments | 2,804,936 |
| |
| Net increase in net assets resulting from operations | $5,509,786 |
The accompanying notes are an integral part of these financial statements.
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| Master Intermediate Income Trust 65 |
Statement of changes in net assets
| | |
| DECREASE IN NET ASSETS | Six months ended 3/31/23* | Year ended 9/30/22 |
| Operations | | |
| Net investment income | $2,704,850 | $9,394,348 |
| Net realized loss on investments | | |
| and foreign currency transactions | (15,565,367) | (18,850,913) |
| Change in net unrealized appreciation (depreciation) | | |
| of investments and assets and liabilities | | |
| in foreign currencies | 18,370,303 | (5,717,948) |
| Net increase (decrease) in net assets resulting | | |
| from operations | 5,509,786 | (15,174,513) |
| Distributions to shareholders (Note 1): | | |
| From ordinary income | | |
| Net investment income | (6,588,268) | (13,403,127) |
| Increase in capital share transactions from reinvestment | | |
| of distributions | — | 211,674 |
| Decrease from capital share transactions (Note 4) | (2,820,347) | (3,434,912) |
| Total decrease in net assets | (3,898,829) | (31,800,878) |
| |
| NET ASSETS | | |
| Beginning of period | 176,942,354 | 208,743,232 |
| End of period | $173,043,525 | $176,942,354 |
| |
| NUMBER OF FUND SHARES | | |
| Shares outstanding at beginning of period | 50,253,394 | 51,186,687 |
| Shares issued in connection with reinvestment | | |
| of distributions | — | 53,198 |
| Shares repurchased (Note 4) | (870,031) | (986,491) |
| Shares outstanding at end of period | 49,383,363 | 50,253,394 |
* Unaudited.
The accompanying notes are an integral part of these financial statements.
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| 66 Master Intermediate Income Trust |
Financial highlights
(For a common share outstanding throughout the period)
| | | | | | |
| PER-SHARE OPERATING PERFORMANCE | | | | | | |
| Six months ended** | | | Year ended | | |
| | 3/31/23 | 9/30/22 | 9/30/21 | 9/30/20 | 9/30/19 | 9/30/18 |
| Net asset value, beginning of period | $3.52 | $4.08 | $4.30 | $4.83 | $4.94 | $5.03 |
| Investment operations: | | | | | | |
| Net investment incomea | .05 | .18 | .19 | .18 | .24 | .26 |
| Net realized and unrealized | | | | | | |
| gain (loss) on investments | .05 | (.49) | (.13) | (.35) | (.02) | (.06) |
| Total from investment operations | .10 | (.31) | .06 | (.17) | .22 | .20 |
| Less distributions: | | | | | | |
| From net investment income | (.13) | (.26) | (.03) | (.21) | (.34) | (.29) |
| From return of capital | — | — | (.25) | (.15) | — | — |
| Total distributions | (.13) | (.26) | (.28) | (.36) | (.34) | (.29) |
| Increase from shares repurchased | .01 | .01 | —e | —e | .01 | —e |
| Net asset value, end of period | $3.50 | $3.52 | $4.08 | $4.30 | $4.83 | $4.94 |
| Market value, end of period | $3.18 | $3.25 | $4.07 | $4.11 | $4.59 | $4.52 |
| Total return at market value (%)b | 1.80* | (14.14) | 5.82 | (2.85) | 9.48 | 1.66 |
| |
| RATIOS AND SUPPLEMENTAL DATA | | | | | | |
| Net assets, end of period | | | | | | |
| (in thousands) | $173,044 | $176,942 | $208,743 | $220,091 | $249,961 | $262,509 |
| Ratio of expenses to average | | | | | | |
| net assets (%)c | .53* | 1.04 | 1.01 | 1.01 | 1.02 | 1.00 |
| Ratio of net investment income | | | | | | |
| to average net assets (%) | 1.53* | 4.83 | 4.35 | 3.98 | 4.90 | 5.11 |
| Portfolio turnover (%)d | 757* | 949 | 1,073 | 995 | 899 | 715 |
* Not annualized.
** Unaudited.
a Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period.
b Total return assumes dividend reinvestment.
c Includes amounts paid through expense offset arrangements, if any (Note 2).
d Portfolio turnover includes TBA purchase and sales commitments.
e Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
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| Master Intermediate Income Trust 67 |
Notes to financial statements 3/31/23 (Unaudited)
Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC. Additionally, references to “OTC”, if any, represent over-the-counter and references to “ESG”, if any, represent environmental, social and governance. Unless otherwise noted, the “reporting period” represents the period from October 1, 2022 through March 31, 2023.
Putnam Master Intermediate Income Trust (the fund) is a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company. The goal of the fund is to seek with equal emphasis high current income and relative stability of net asset value by allocating its investments among the U.S. investment grade sector, high-yield sector, and international sector.
The fund’s shares trade on a stock exchange at market prices, which may be lower than the fund’s net asset value.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.
The fund has entered into contractual arrangements with an investment adviser, administrator, transfer agent and custodian, who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the fund’s Amended and Restated Agreement and Declaration of Trust, any claims asserted against or on behalf of the Putnam Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Note 1: Significant accounting policies
The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements.
Security valuation Portfolio securities and other investments are valued using policies and procedures adopted by the Board of Trustees. The Trustees have formed a Pricing Committee to oversee the implementation of these procedures and have delegated responsibility for valuing the fund’s assets in accordance with these procedures to Putnam Management. Putnam Management has established an internal Valuation Committee that is responsible for making fair value determinations, evaluating the effectiveness of the pricing policies of the fund and reporting to the Pricing Committee.
Investments for which market quotations are readily available are valued at the last reported sales price on their principal exchange, or official closing price for certain markets, and are classified as Level 1 securities under Accounting Standards Codification 820 Fair Value Measurements and Disclosures (ASC 820). If no sales are reported, as in the case of some securities that are traded OTC, a security is valued at its last reported bid price and is generally categorized as a Level 2 security.
Investments in open-end investment companies (excluding exchange-traded funds), if any, which can be classified as Level 1 or Level 2 securities, are valued based on their net asset value. The net asset value of such investment companies equals the total value of their assets less their liabilities and divided by the number of their outstanding shares.
Market quotations are not considered to be readily available for certain debt obligations (including short-term investments with remaining maturities of 60 days or less) and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Management. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various
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| 68 Master Intermediate Income Trust |
relationships, generally recognized by institutional traders, between securities (which consider such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2.
Many securities markets and exchanges outside the U.S. close prior to the scheduled close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the scheduled close of the New York Stock Exchange. Accordingly, on certain days, the fund will fair value certain foreign equity securities taking into account multiple factors including movements in the U.S. securities markets, currency valuations and comparisons to the valuation of American Depository Receipts, exchange-traded funds and futures contracts. The foreign equity securities, which would generally be classified as Level 1 securities, will be transferred to Level 2 of the fair value hierarchy when they are valued at fair value. The number of days on which fair value prices will be used will depend on market activity and it is possible that fair value prices will be used by the fund to a significant extent. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management in accordance with policies and procedures approved by the Trustees. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures, recovery rates, sales and other multiples and resale restrictions. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
To assess the continuing appropriateness of fair valuations, the Valuation Committee reviews and affirms the reasonableness of such valuations on a regular basis after considering all relevant information that is reasonably available. Such valuations and procedures are reviewed periodically by the Trustees. Certain securities may be valued on the basis of a price provided by a single source. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income, net of any applicable withholding taxes, if any, is recorded on the accrual basis. Amortization and accretion of premiums and discounts on debt securities, if any, is recorded on the accrual basis.
The fund may have earned certain fees in connection with its senior loan purchasing activities. These fees, if any, are treated as market discount and are amortized into income in the Statement of operations.
Stripped securities The fund may invest in stripped securities which represent a participation in securities that may be structured in classes with rights to receive different portions of the interest and principal. Interest-only securities receive all of the interest and principal-only securities receive all of the principal. If the interest-only securities experience greater than anticipated prepayments of principal, the fund may fail to recoup fully its initial investment in these securities. Conversely, principal-only securities increase in value if prepayments are greater than anticipated and decline if prepayments are slower than anticipated. The fair value of these securities is highly sensitive to changes in interest rates.
Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The fair value of foreign securities, currency holdings, and other assets and liabilities is recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when earned or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from
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| Master Intermediate Income Trust 69 |
changes in the value of assets and liabilities other than investments at the period end, resulting from changes in the exchange rate.
Options contracts The fund uses options contracts for hedging duration and convexity, to isolate prepayment risk and to manage downside risks.
The potential risk to the fund is that the change in value of options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments if there is an illiquid secondary market for the contracts, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.
Exchange-traded options are valued at the last sale price or, if no sales are reported, the last bid price for purchased options and the last ask price for written options. OTC traded options are valued using prices supplied by dealers.
Options on swaps are similar to options on securities except that the premium paid or received is to buy or grant the right to enter into a previously agreed upon interest rate or credit default contract. Forward premium swap option contracts include premiums that have extended settlement dates. The delayed settlement of the premiums is factored into the daily valuation of the option contracts. In the case of interest rate cap and floor contracts, in return for a premium, ongoing payments between two parties are based on interest rates exceeding a specified rate, in the case of a cap contract, or falling below a specified rate in the case of a floor contract.
Written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.
Futures contracts The fund uses futures contracts for hedging treasury term structure risk and for yield curve positioning.
The potential risk to the fund is that the change in value of futures contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. With futures, there is minimal counterparty credit risk to the fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized on the Statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.”
Futures contracts outstanding at period end, if any, are listed after the fund’s portfolio.
Forward currency contracts The fund buys and sells forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used for hedging currency exposures and for gaining exposure to currencies.
The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The fair value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily and the change in fair value is recorded as an unrealized gain or loss. The fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed when the contract matures or by delivery of the currency. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. Risks may exceed amounts recognized on the Statement of assets and liabilities.
Forward currency contracts outstanding at period end, if any, are listed after the fund’s portfolio.
Interest rate swap contracts The fund entered into OTC and/or centrally cleared interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, for hedging term structure risk, for yield curve positioning and for gaining exposure to rates in various countries.
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| 70 Master Intermediate Income Trust |
An OTC and centrally cleared interest rate swap can be purchased or sold with an upfront premium. For OTC interest rate swap contracts, an upfront payment received by the fund is recorded as a liability on the fund’s books. An upfront payment made by the fund is recorded as an asset on the fund’s books. OTC and centrally cleared interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers. Any change is recorded as an unrealized gain or loss on OTC interest rate swaps. Daily fluctuations in the value of centrally cleared interest rate swaps are settled through a central clearing agent and are recorded in variation margin on the Statement of assets and liabilities and recorded as unrealized gain or loss. Payments, including upfront premiums, received or made are recorded as realized gains or losses at the reset date or the closing of the contract. Certain OTC and centrally cleared interest rate swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract.
The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults, in the case of OTC interest rate contracts, or the central clearing agency or a clearing member defaults, in the case of centrally cleared interest rate swap contracts, on its respective obligation to perform under the contract. The fund’s maximum risk of loss from counterparty risk or central clearing risk is the fair value of the contract. This risk may be mitigated for OTC interest rate swap contracts by having a master netting arrangement between the fund and the counterparty and for centrally cleared interest rate swap contracts through the daily exchange of variation margin. There is minimal counterparty risk with respect to centrally cleared interest rate swap contracts due to the clearinghouse guarantee fund and other resources that are available in the event of a clearing member default. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities.
At the close of the reporting period, the fund has deposited cash valued at $5,163,068 in a segregated account to cover margin requirements on open centrally cleared swap contracts.
OTC and centrally cleared interest rate swap contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.
Total return swap contracts The fund entered into OTC and/or centrally cleared total return swap contracts, which are arrangements to exchange a market-linked return for a periodic payment, both based on a notional principal amount, for hedging sector exposure, for gaining exposure to specific sectors, for hedging inflation and for gaining exposure to inflation.
To the extent that the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. OTC and/or centrally cleared total return swap contracts are marked to market daily based upon quotations from an independent pricing service or market maker. Any change is recorded as an unrealized gain or loss on OTC total return swaps. Daily fluctuations in the value of centrally cleared total return swaps are settled through a central clearing agent and are recorded in variation margin on the Statement of assets and liabilities and recorded as unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain OTC and/or centrally cleared total return swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. The fund’s maximum risk of loss from counterparty risk or central clearing risk is the fair value of the contract. This risk may be mitigated for OTC total return swap contracts by having a master netting arrangement between the fund and the counterparty and for centrally cleared total return swap contracts through the daily exchange of variation margin. There is minimal counterparty risk with respect to centrally cleared total return swap contracts due to the clearinghouse guarantee fund and other resources that are available in the event of a clearing member default. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities.
OTC and/or centrally cleared total return swap contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.
Credit default contracts The fund entered into OTC and/or centrally cleared credit default contracts for hedging credit risk, for gaining liquid exposure to individual names, for hedging market risk and for gaining exposure to specific sectors.
In OTC and centrally cleared credit default contracts, the protection buyer typically makes a periodic stream of payments to a counterparty, the protection seller, in exchange for the right to receive a contingent payment upon the occurrence of a credit event on the reference obligation or all other equally ranked obligations of the
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| Master Intermediate Income Trust 71 |
reference entity. Credit events are contract specific but may include bankruptcy, failure to pay, restructuring and obligation acceleration. For OTC credit default contracts, an upfront payment received by the fund is recorded as a liability on the fund’s books. An upfront payment made by the fund is recorded as an asset on the fund’s books. Centrally cleared credit default contracts provide the same rights to the protection buyer and seller except the payments between parties, including upfront premiums, are settled through a central clearing agent through variation margin payments. Upfront and periodic payments received or paid by the fund for OTC and centrally cleared credit default contracts are recorded as realized gains or losses at the reset date or close of the contract. The OTC and centrally cleared credit default contracts are marked to market daily based upon quotations from an independent pricing service or market makers. Any change in value of OTC credit default contracts is recorded as an unrealized gain or loss. Daily fluctuations in the value of centrally cleared credit default contracts are recorded in variation margin on the Statement of assets and liabilities and recorded as unrealized gain or loss. Upon the occurrence of a credit event, the difference between the par value and fair value of the reference obligation, net of any proportional amount of the upfront payment, is recorded as a realized gain or loss.
In addition to bearing the risk that the credit event will occur, the fund could be exposed to market risk due to unfavorable changes in interest rates or in the price of the underlying security or index or the possibility that the fund may be unable to close out its position at the same time or at the same price as if it had purchased the underlying reference obligations. In certain circumstances, the fund may enter into offsetting OTC and centrally cleared credit default contracts which would mitigate its risk of loss. Risks of loss may exceed amounts recognized on the Statement of assets and liabilities. The fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk may be mitigated for OTC credit default contracts by having a master netting arrangement between the fund and the counterparty and for centrally cleared credit default contracts through the daily exchange of variation margin. Counterparty risk is further mitigated with respect to centrally cleared credit default swap contracts due to the clearinghouse guarantee fund and other resources that are available in the event of a clearing member default. Where the fund is a seller of protection, the maximum potential amount of future payments the fund may be required to make is equal to the notional amount.
OTC and centrally cleared credit default contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.
TBA commitments The fund may enter into TBA (to be announced) commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price and par amount have been established, the actual securities have not been specified. However, it is anticipated that the amount of the commitments will not significantly differ from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date.
The fund may also enter into TBA sale commitments to hedge its portfolio positions, to sell mortgage-backed securities it owns under delayed delivery arrangements or to take a short position in mortgage-backed securities. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, either equivalent deliverable securities or an offsetting TBA purchase commitment deliverable on or before the sale commitment date are held as “cover” for the transaction, or other liquid assets in an amount equal to the notional value of the TBA sale commitment are segregated. If the TBA sale commitment is closed through the acquisition of an offsetting TBA purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into.
TBA commitments, which are accounted for as purchase and sale transactions, may be considered securities themselves, and involve a risk of loss due to changes in the value of the security prior to the settlement date as well as the risk that the counterparty to the transaction will not perform its obligations. Counterparty risk is mitigated by having a master agreement between the fund and the counterparty.
Unsettled TBA commitments are valued at their fair value according to the procedures described under “Security valuation” above. The contract is marked to market daily and the change in fair value is recorded by the fund as an unrealized gain or loss. Based on market circumstances, Putnam Management will determine whether to take delivery of the underlying securities or to dispose of the TBA commitments prior to settlement.
TBA purchase commitments outstanding at period end, if any, are listed within the fund’s portfolio and TBA sale commitments outstanding at period end, if any, are listed after the fund’s portfolio.
|
| 72 Master Intermediate Income Trust |
Master agreements The fund is a party to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements that govern OTC derivative and foreign exchange contracts and Master Securities Forward Transaction Agreements that govern transactions involving mortgage-backed and other asset-backed securities that may result in delayed delivery (Master Agreements) with certain counterparties entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral pledged to the fund is held in a segregated account by the fund’s custodian and, with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio.
Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty.
With respect to ISDA Master Agreements, termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term or short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund had a net liability position of $1,667,863 on open derivative contracts subject to the Master Agreements. Collateral pledged by the fund at period end for these agreements totaled $1,602,034 and may include amounts related to unsettled agreements.
Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the SEC. This program allows the fund to lend to other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
The fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
The fund may also be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or capital gains are earned. In some cases, the fund may be entitled to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected as an asset on the fund’s books. In many cases, however, the fund may not receive such amounts for an extended period of time, depending on the country of investment.
Under the Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred for an unlimited period and the carry forwards will retain their character as either short-term or long-term capital losses. At September 30, 2022, the fund had the following capital loss carryovers available, to the extent allowed by the Code, to offset future net capital gain, if any:
| | |
| | Loss carryover | |
| Short-term | Long-term | Total |
| $31,343,761 | $52,646,765 | $83,990,526 |
|
| Master Intermediate Income Trust 73 |
Tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be final tax cost basis adjustments, but closely approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. The aggregate identified cost on a tax basis is $314,997,329, resulting in gross unrealized appreciation and depreciation of $19,173,794 and $52,927,125, respectively, or net unrealized depreciation of $33,753,031.
Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The fund uses targeted distribution rates, whose principal source of the distribution is ordinary income. However,the balance of the distribution, if any, comes first from capital gain and then will constitute a return of capital. A return of capital is not taxable; rather it reduces a shareholder’s tax basis in their shares of the fund. The fund may make return of capital distributions to achieve the targeted distribution rates. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations.
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management for management and investment advisory services quarterly based on the average net assets (including assets, but excluding liabilities, attributable to leverage for investment purposes) of the fund. The fee is based on the following annual rates:
| | | | |
| | of the first $500 million of average | | | of the next $5 billion of average |
| 0.750% | net assets, | | 0.480% | net assets, |
| | of the next $500 million of average | | | of the next $5 billion of average |
| 0.650% | net assets, | | 0.470% | net assets, |
| | of the next $500 million of average | | | of the next $5 billion of average |
| 0.600% | net assets, | | 0.460% | net assets, |
| | of the next $5 billion of average | | | of the next $5 billion of average |
| 0.550% | net assets, | | 0.450% | net assets, |
| | of the next $5 billion of average | | | of the next $5 billion of average |
| 0.525% | net assets, | | 0.440% | net assets, |
| | of the next $5 billion of average | | | of the next $8.5 billion of average net |
| 0.505% | net assets, | | 0.430% | assets and |
| | of the next $5 billion of average | | 0.420% | of any excess thereafter. |
| 0.490% | net assets, | | | |
For the reporting period, the management fee represented an effective rate (excluding the impact from any expense waivers in effect) of 0.375% of the fund’s average net assets.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. PIL did not manage any portion of the assets of the fund during the reporting period. If Putnam Management were to engage the services of PIL, Putnam Management would pay a quarterly sub-management fee to PIL for its services at an annual rate of 0.20% of the average net assets (including assets, but excluding liabilities, attributable to leverage for investment purposes) of the portion of the fund managed by PIL.
The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund’s assets are provided by State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. was paid a monthly fee for investor servicing at an annual rate of 0.05% of the fund’s average daily net assets. The amounts incurred for investor servicing agent functions during the reporting period are included in Investor servicing fees in the Statement of operations.
|
| 74 Master Intermediate Income Trust |
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $3,520 under the expense offset arrangements.
Each Independent Trustee of the fund receives an annual Trustee fee, of which $161, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
Note 3: Purchases and sales of securities
During the reporting period, the cost of purchases and the proceeds from sales, excluding short-term investments, were as follows:
| | |
| | Cost of purchases | Proceeds from sales |
| Investments in securities, including TBA commitments (Long-term) | $1,724,638,430 | $1,723,603,924 |
| U.S. government securities (Long-term) | — | — |
| Total | $1,724,638,430 | $1,723,603,924 |
The fund may purchase or sell investments from or to other Putnam funds in the ordinary course of business, which can reduce the fund’s transaction costs, at prices determined in accordance with SEC requirements and policies approved by the Trustees. During the reporting period, purchases or sales of long-term securities from or to other Putnam funds, if any, did not represent more than 5% of the fund’s total cost of purchases and/or total proceeds from sales.
Note 4: Shares repurchased
In September 2022, the Trustees approved the renewal of the repurchase program to allow the fund to repurchase up to 10% of its outstanding common shares over the 365 day period ending September 30, 2023 (based on shares outstanding as of September 30, 2022). Prior to this renewal, the Trustees had approved a repurchase program to allow the fund to repurchase up to 10% of its outstanding common shares over the 365 day period ending September 30, 2022 (based on shares outstanding as of September 30, 2021). Repurchases are made when the fund’s shares are trading at less than net asset value and in accordance with procedures approved by the fund’s Trustees.
For the reporting period, the fund repurchased 870,031 common shares for an aggregate purchase price of $2,820,347, which reflects a weighted-average discount from net asset value per share of 8.50%. The weighted-average discount reflects the payment of commissions by the fund to execute repurchase trades.
For the previous fiscal year, the fund repurchased 986,491 common shares for an aggregate purchase price of $3,434,912, which reflected a weighted-average discount from net asset value per share of 8.30%. The weighted-average discount reflected the payment of commissions by the fund to execute repurchase trades.
At the close of the reporting period, Putnam Investments, LLC owned approximately 2,474 shares of the fund (0.01% of the fund’s shares outstanding), valued at $8,659 based on net asset value.
|
| Master Intermediate Income Trust 75 |
Note 5: Affiliated transactions
Transactions during the reporting period with any company which is under common ownership or control were as follows:
| | | | | |
| | | | | | Shares |
| | | | | | outstanding |
| | | | | | and fair |
| | Fair value as | Purchase | Sale | Investment | value as |
| Name of affiliate | of 9/30/22 | cost | proceeds | income | of 3/31/23 |
| Short-term investments | | | | | |
| Putnam Short Term | | | | | |
| Investment Fund* | $22,638,559 | $27,226,904 | $31,557,008 | $391,849 | $18,308,455 |
| Total Short-term | | | | | |
| investments | $22,638,559 | $27,226,904 | $31,557,008 | $391,849 | $18,308,455 |
* Management fees charged to Putnam Short Term Investment Fund have been waived by Putnam Management. There were no realized or unrealized gains or losses during the period.
Note 6: Market, credit and other risks
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations.
The fund may invest a significant portion of its assets in securitized debt instruments, including mortgage-backed and asset-backed investments. The yields and values of these investments are sensitive to changes in interest rates, the rate of principal payments on the underlying assets and the market’s perception of the issuers. The market for these investments may be volatile and limited, which may make them difficult to buy or sell.
On July 27, 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced its intention to cease compelling banks to provide the quotations needed to sustain LIBOR after 2021. ICE Benchmark Administration, the administrator of LIBOR, ceased publication of most LIBOR settings on a representative basis at the end of 2021 and is expected to cease publication of a majority of U.S. dollar LIBOR settings on a representative basis after June 30, 2023. In addition, global regulators have announced that, with limited exceptions, no new LIBOR-based contracts should be entered into after 2021. LIBOR has historically been a common benchmark interest rate index used to make adjustments to variable-rate loans. It is used throughout global banking and financial industries to determine interest rates for a variety of financial instruments and borrowing arrangements. Actions by regulators have resulted in the establishment of alternative reference rates to LIBOR in most major currencies. Various financial industry groups have been planning for the transition away from LIBOR, but there are obstacles to converting certain longer-term securities and transactions to new reference rates. Markets are developing slowly and questions around liquidity in these rates and how to appropriately adjust these rates to mitigate any economic value transfer at the time of transition remain a significant concern. Neither the effect of the transition process nor its ultimate success can yet be known. The transition process might lead to increased volatility and illiquidity in markets that rely on LIBOR to determine interest rates. It could also lead to a reduction in the value of some LIBOR-based investments and reduce the effectiveness of related transactions, such as hedges. While some LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate-setting methodology, not all may have such provisions and there may be significant uncertainty regarding the effectiveness of any such alternative methodologies. Since the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur at any time.
The Covid–19 pandemic and efforts to contain its spread have resulted in, among other effects, significant market volatility, exchange trading suspensions and closures, declines in global financial markets, higher default rates, significant changes in fiscal and monetary policies, and economic downturns and recessions. The effects of the Covid–19 pandemic have negatively affected, and may continue to negatively affect, the global economy, the economies of the United States and other individual countries, the financial performance of individual issuers, sectors, industries, asset classes, and markets, and the value, volatility, and liquidity of particular securities and other assets. The effects of the Covid–19 pandemic also are likely to exacerbate other risks that apply to the fund,
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| 76 Master Intermediate Income Trust |
which could negatively impact the fund’s performance and lead to losses on your investment in the fund. The duration of the Covid–19 pandemic and its effects cannot be determined with certainty.
Note 7: Senior loan commitments
Senior loans are purchased or sold on a when-issued or delayed delivery basis and may be settled a month or more after the trade date, which from time to time can delay the actual investment of available cash balances; interest income is accrued based on the terms of the securities. Senior loans can be acquired through an agent, by assignment from another holder of the loan, or as a participation interest in another holder’s portion of the loan. When the fund invests in a loan or participation, the fund is subject to the risk that an intermediate participant between the fund and the borrower will fail to meet its obligations to the fund, in addition to the risk that the borrower under the loan may default on its obligations.
Note 8: Summary of derivative activity
The volume of activity for the reporting period for any derivative type that was held during the period is listed below and was based on an average of the holdings at the end of each fiscal quarter:
| |
| Purchased equity option contracts (contract amount) | $—* |
| Purchased TBA commitment option contracts (contract amount) | $37,900,000 |
| Purchased swap option contracts (contract amount) | $592,100,000 |
| Written equity option contracts (contract amount) | $—* |
| Written TBA commitment option contracts (contract amount) | $37,900,000 |
| Written swap option contracts (contract amount) | $350,600,000 |
| Futures contracts (number of contracts) | 200 |
| Forward currency contracts (contract amount) | $19,500,000 |
| Centrally cleared interest rate swap contracts (notional) | $1,691,200,000 |
| OTC total return swap contracts (notional) | $2,100,000 |
| OTC credit default contracts (notional) | $22,500,000 |
| Centrally cleared credit default contracts (notional) | $2,900,000 |
| Warrants (number of warrants) | 20 |
* For the reporting period, there were no holdings at the end of each fiscal quarter and the transactions were considered minimal. The following is a summary of the fair value of derivative instruments as of the close of the reporting period:
| | | | |
| Fair value of derivative instruments as of the close of the reporting period | |
| | ASSET DERIVATIVES | LIABILITY DERIVATIVES |
| Derivatives not | | | | |
| accounted for as | Statement of | | Statement of | |
| hedging instruments | assets and | | assets and | |
| under ASC 815 | liabilities location | Fair value | liabilities location | Fair value |
| Credit contracts | Receivables | $3,381,762 | Payables | $3,751,548 |
| Foreign exchange | | | | |
| contracts | Investments, Receivables | 100,133 | Payables | 230,553 |
| | Investments, | | | |
| | Receivables, Net | | | |
| | assets — Unrealized | | Payables, Net assets — | |
| Interest rate contracts | appreciation | 38,608,322* | Unrealized depreciation | 33,954,824* |
| Total | | $42,090,217 | | $37,936,925 |
* Includes cumulative appreciation/depreciation of futures contracts and/or centrally cleared swaps as reported in the fund’s portfolio. Only current day’s variation margin is reported within the Statement of assets and liabilities.
|
| Master Intermediate Income Trust 77 |
The following is a summary of realized and change in unrealized gains or losses of derivative instruments in the Statement of operations for the reporting period (Note 1):
| | | | | | |
| Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments |
| Derivatives not | | | | | | |
| accounted for as | | | | | | |
| hedging | | | | Forward | | |
| instruments under | | | | currency | | |
| ASC 815 | Warrants | Options | Futures | contracts | Swaps | Total |
| Credit contracts | $— | $— | $— | $— | $(264,541) | $(264,541) |
| Foreign exchange | | | | | | |
| contracts | — | — | — | (137,298) | — | (137,298) |
| Equity contracts | (2) | — | — | — | — | (2) |
| Interest rate | | | | | | |
| contracts | — | (7,007,501) | (976,937) | — | (2,134,794) | (10,119,232) |
| Total | $(2) | $(7,007,501) | $(976,937) | $(137,298) | $(2,399,335) | $(10,521,073) |
| | | | | | |
| Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) |
| on investments | | | | | | |
| Derivatives not | | | | | | |
| accounted for as | | | | | | |
| hedging | | | | Forward | | |
| instruments under | | | | currency | | |
| ASC 815 | Warrants | Options | Futures | contracts | Swaps | Total |
| Credit contracts | $— | $— | $— | $— | $745,021 | $745,021 |
| Foreign exchange | | | | | | |
| contracts | — | — | — | (552,513) | — | (552,513) |
| Equity contracts | 1 | — | — | — | — | 1 |
| Interest rate | | | | | | |
| contracts | — | 5,931,138 | 1,329,292 | — | 1,578,153 | 8,838,583 |
| Total | $1 | $5,931,138 | $1,329,292 | $(552,513) | $2,323,174 | $9,031,092 |
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| 78 Master Intermediate Income Trust |
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|
| Master Intermediate Income Trust 79 |
Note 9: Offsetting of financial and derivative assets and liabilities
The following table summarizes any derivatives, repurchase agreements and reverse repurchase agreements, at the end of the reporting period, that are subject to an enforceable master netting agreement or similar agreement. For securities lending transactions or borrowing transactions associated with securities sold short, if any, see Note 1. For financial reporting purposes, the fund does not offset financial assets and financial liabilities that are subject to the master netting agreements in the Statement of assets and liabilities.
| | | | | | | | | | | | | | | | | | | |
| | Bank of
America N.A. | Barclays Bank
PLC | Barclays
Capital, Inc.
(clearing
broker) | Citibank, N.A. | Citigroup
Global
Markets, Inc. | Credit Suisse
International | Deutsche
Bank AG | Goldman
Sachs
International | HSBC Bank
USA, National
Association | JPMorgan
Chase Bank
N.A. | JPMorgan
Securities LLC | Merrill Lynch
International | Morgan
Stanley & Co.
International
PLC | NatWest
Markets PLC | State Street
Bank and
Trust Co. | Toronto-
Dominion
Bank | UBS AG | WestPac
Banking Corp. | Total |
| Assets: | | | | | | | | | | | | | | | | | | | |
| Centrally cleared interest rate | | | | | | | | | | | | | | | | | | | |
| swap contracts§ | $— | $— | $2,136,127 | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $2,136,127 |
| OTC Total return swap | | | | | | | | | | | | | | | | | | | |
| contracts*# | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
| OTC Credit default contracts — | | | | | | | | | | | | | | | | | | | |
| protection sold*# | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
| OTC Credit default contracts — | | | | | | | | | | | | | | | | | | | |
| protection purchased*# | — | — | — | — | 1,302,809 | 475,555 | — | 259,219 | — | — | 492,754 | 210,216 | 641,209 | — | — | — | — | — | 3,381,762 |
| Futures contracts§ | — | — | — | — | — | — | — | — | — | — | 66,499 | — | — | — | — | — | — | — | 66,499 |
| Forward currency contracts# | 94 | 8,383 | — | 163 | — | — | — | 27,497 | 6,371 | 298 | — | — | 15,349 | — | 37,512 | 524 | 695 | 3,247 | 100,133 |
| Forward premium swap | | | | | | | | | | | | | | | | | | | |
| option contracts# | 3,452,922 | — | — | 1,165,854 | — | — | 78,307 | 167,102 | — | 1,033,083 | — | — | 8,512 | — | — | 72,937 | 728,605 | — | 6,707,322 |
| Purchased options**# | — | — | — | — | — | — | — | — | — | 663,400 | — | — | — | — | — | — | — | — | 663,400 |
| Total Assets | $3,453,016 | $8,383 | $2,136,127 | $1,166,017 | $1,302,809 | $475,555 | $78,307 | $453,818 | $6,371 | $1,696,781 | $559,253 | $210,216 | $665,070 | $— | $37,512 | $73,461 | $729,300 | $3,247 | $13,055,243 |
| Liabilities: | | | | | | | | | | | | | | | | | | | |
| Centrally cleared interest rate | | | | | | | | | | | | | | | | | | | |
| swap contracts§ | — | — | 2,210,409 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 2,210,409 |
| OTC Total return swap | | | | | | | | | | | | | | | | | | | |
| contracts*# | — | — | — | — | — | — | — | — | — | — | — | — | 162,650 | — | — | — | — | — | 162,650 |
| OTC Credit default contracts — | | | | | | | | | | | | | | | | | | | |
| protection sold*# | 27,073 | — | — | — | 1,749,311 | 263,313 | — | 761,078 | — | — | 115,614 | 83,712 | 588,797 | — | — | — | — | — | 3,588,898 |
| OTC Credit default contracts — | | | | | | | | | | | | | | | | | | | |
| protection purchased*# | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
| Futures contracts§ | — | — | — | — | — | — | — | — | — | — | 4,219 | — | — | — | — | — | — | — | 4,219 |
| Forward currency contracts# | 3,511 | 58 | — | 12,311 | — | — | — | 2,358 | 7,505 | 155 | — | — | 72,095 | 11,891 | 94,460 | 2,298 | 23,704 | 207 | 230,553 |
| Forward premium swap | | | | | | | | | | | | | | | | | | | |
| option contracts# | 2,849,394 | 20,876 | — | 1,315,581 | — | — | 22,216 | 282,222 | — | 1,001,203 | — | — | 226,650 | — | — | 47,063 | 425,569 | — | 6,190,774 |
| Written options# | — | — | — | — | — | — | — | — | — | 2,680 | — | — | — | — | — | — | — | — | 2,680 |
| Total Liabilities | $2,879,978 | $20,934 | $2,210,409 | $1,327,892 | $1,749,311 | $263,313 | $22,216 | $1,045,658 | $7,505 | $1,004,038 | $119,833 | $83,712 | $1,050,192 | $11,891 | $94,460 | $49,361 | $449,273 | $207 | $12,390,183 |
| Total Financial and | | | | | | | | | | | | | | | | | | | |
| Derivative Net Assets | $573,038 | $(12,551) | $(74,282) | $(161,875) | $(446,502) | $212,242 | $56,091 | $(591,840) | $(1,134) | $692,743 | $439,420 | $126,504 | $(385,122) | $(11,891) | $(56,948) | $24,100 | $280,027 | $3,040 | $665,060 |
| Total collateral received | | | | | | | | | | | | | | | | | | | |
| (pledged)†## | $573,038 | $— | $— | $(131,102) | $(446,502) | $120,000 | $— | $(520,679) | $— | $620,000 | $346,000 | $126,504 | $(385,122) | $— | $— | $24,100 | $280,027 | $— | |
| Net amount | $— | $(12,551) | $(74,282) | $(30,773) | $— | $92,242 | $56,091 | $(71,161) | $(1,134) | $72,743 | $93,420 | $— | $— | $(11,891) | $(56,948) | $— | $— | $3,040 | |
| |
| 80 Master Intermediate Income Trust | Master Intermediate Income Trust 81 |
| | | | | | | | | | | | | | | | | | | |
| | Bank of
America N.A. | Barclays Bank
PLC | Barclays
Capital, Inc.
(clearing
broker) | Citibank, N.A. | Citigroup
Global
Markets, Inc. | Credit Suisse
International | Deutsche
Bank AG | Goldman
Sachs
International | HSBC Bank
USA, National
Association | JPMorgan
Chase Bank
N.A. | JPMorgan
Securities LLC | Merrill Lynch
International | Morgan
Stanley & Co.
International
PLC | NatWest
Markets PLC | State Street
Bank and
Trust Co. | Toronto-
Dominion
Bank | UBS AG | WestPac
Banking Corp. | Total |
| Controlled collateral | | | | | | | | | | | | | | | | | | | |
| received (including TBA | | | | | | | | | | | | | | | | | | | |
| commitments)** | $750,046 | $— | $— | $— | $638,000 | $120,000 | $— | $— | $— | $620,000 | $989,000 | $133,676 | $— | $— | $— | $110,000 | $330,000 | $— | $3,690,722 |
| Uncontrolled collateral | | | | | | | | | | | | | | | | | | | |
| received | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— | $— |
| Collateral (pledged) (including | | | | | | | | | | | | | | | | | | | |
| TBA commitments)** | $— | $— | $— | $(131,102) | $(538,643) | $— | $— | $(520,679) | $— | $— | $— | $— | $(411,610) | $— | $— | $— | $— | $— | $(1,602,034) |
* Excludes premiums, if any. Included in unrealized appreciation and depreciation on OTC swap contracts on the Statement of assets and liabilities.
** Included with Investments in securities on the Statement of assets and liabilities.
† Additional collateral may be required from certain brokers based on individual agreements.
# Covered by master netting agreement (Note 1).
## Any over-collateralization of total financial and derivative net assets is not shown. Collateral may include amounts related to unsettled agreements.
§ Includes current day’s variation margin only as reported on the Statement of assets and liabilities, which is not collateralized. Cumulative appreciation/(depreciation) for futures contracts and centrally cleared swap contracts is represented in the tables listed after the fund’s portfolio. Collateral pledged for initial margin on futures contracts and centrally cleared swap contracts, which is not included in the table above, amounted to $450,132 and $5,163,068, respectively.
Note 10: Additional information
On February 23, 2023, the fund’s Trustees voted to exempt, including on a going forward basis, all prior and, until further notice, new purchases of shares of the fund that might otherwise be deemed “Control Share Acquisitions” under Article 15 of the fund’s Amended and Restated Bylaws from the provisions of Article 15 of the fund’s Amended and Restated Bylaws.
| |
| 82 Master Intermediate Income Trust | Master Intermediate Income Trust 83 |
Shareholder meeting results (Unaudited)
April 21, 2023 annual meeting
At the meeting, a proposal to fix the number of Trustees at 11 was approved as follows:
| | |
| Votes for | Votes against | Abstentions |
| 22,648,425 | 1,700,956 | 543,445 |
At the meeting, each of the nominees for Trustees was elected as follows:
| | |
| | Votes for | Votes withheld |
| Liaquat Ahamed | 22,548,060 | 2,344,780 |
| Barbara M. Baumann | 22,701,727 | 2,191,113 |
| Katinka Domotorffy | 22,637,002 | 2,255,838 |
| Catharine Bond Hill | 22,663,320 | 2,229,520 |
| Kenneth R. Leibler | 22,601,916 | 2,290,924 |
| Jennifer Williams Murphy | 23,807,119 | 1,085,721 |
| Marie Pillai | 22,687,408 | 2,205,432 |
| George Putnam III | 22,592,802 | 2,300,038 |
| Robert L. Reynolds | 22,570,243 | 2,322,597 |
| Manoj P. Singh | 22,471,772 | 2,421,069 |
| Mona K. Sutphen | 22,619,223 | 2,273,618 |
All tabulations are rounded to the nearest whole number.
|
| 84 Master Intermediate Income Trust |
Fund information
Founded over 85 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage funds across income, value, blend, growth, sustainable, and asset allocation categories.
| | |
| Investment Manager | Trustees | Richard T. Kircher |
| Putnam Investment | Kenneth R. Leibler, Chair | Vice President and |
| Management, LLC | Barbara M. Baumann, Vice Chair | BSA Compliance Officer |
| 100 Federal Street | Liaquat Ahamed | |
| Boston, MA 02110 | Katinka Domotorffy | Martin Lemaire |
| | Catharine Bond Hill | Vice President and |
| Investment Sub-Advisor | Jennifer Williams Murphy | Derivatives Risk Manager |
| Putnam Investments Limited | Marie Pillai | |
| 16 St James’s Street | George Putnam III | Susan G. Malloy |
| London, England SW1A 1ER | Robert L. Reynolds | Vice President and |
| | Manoj P. Singh | Assistant Treasurer |
| Marketing Services | Mona K. Sutphen | |
| Putnam Retail Management | | Alan G. McCormack |
| Limited Partnership | Officers | Vice President and |
| 100 Federal Street | Robert L. Reynolds | Derivatives Risk Manager |
| Boston, MA 02110 | President | |
| | | Denere P. Poulack |
| Custodian | James F. Clark | Assistant Vice President, |
| State Street Bank | Vice President, Chief Compliance | Assistant Clerk, and |
| and Trust Company | Officer, and Chief Risk Officer | Assistant Treasurer |
| | | |
| Legal Counsel | Michael J. Higgins | Janet C. Smith |
| Ropes & Gray LLP | Vice President, Treasurer, | Vice President, |
| | and Clerk | Principal Financial Officer, |
| | | Principal Accounting Officer, |
| | Jonathan S. Horwitz | and Assistant Treasurer |
| | Executive Vice President, | |
| | Principal Executive Officer, | Stephen J. Tate |
| | and Compliance Liaison | Vice President and |
| | | Chief Legal Officer |
| | | |
| | | Mark C. Trenchard |
| | | Vice President |
Call 1-800-225-1581 Monday through Friday between 8:00 a.m. and 8:00 p.m. Eastern Time, or visit putnam.com anytime for up-to-date information about the fund’s NAV.
| |
| Item 3. Audit Committee Financial Expert: |
| |
| Item 4. Principal Accountant Fees and Services: |
| |
| Item 6. Schedule of Investments: |
| |
| The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above. |
| |
| Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies: |
| |
| Item 8. Portfolio Managers of Closed-End Management Investment Companies |
| |
| (b) Effective March 31, 2023, Michael Atkin, a Portfolio Manager of the fund, retired from Putnam Investments. |
| |
| Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers: |
| |
| Registrant Purchase of Equity Securities |
| | | | | |
| | | | | Maximum |
| | | | Total Number | Number (or |
| | | | of Shares | Approximate |
| | | | Purchased | Dollar Value) |
| | | | as Part | of Shares |
| | | | of Publicly | that May Yet Be |
| | Total Number | Average | Announced | Purchased |
| | of Shares | Price Paid | Plans or | under the Plans |
| Period | Purchased | per Share | Programs* | or Programs** |
| | | | | |
| October 1 – October 31, 2022 | 79,705 | $3.25 | 79,705 | 4,945,634 |
| November 1 – November 30, 2022 | — | — | — | 4,945,634 |
| December 1 – December 31, 2022 | 261,385 | $3.25 | 261,385 | 4,684,249 |
| January 1 – January 31, 2023 | 159,435 | $3.34 | 159,435 | 4,524,814 |
| February 1 – February 28, 2023 | 76,517 | $3.23 | 76,517 | 4,448,297 |
| March 1 – March 31, 2023 | 292,989 | $3.18 | 292,989 | 4,155,308 |
| | | | | |
| * | In October 2005, the Board of Trustees of the Putnam Funds initiated the closed-end fund share repurchase program, which, as subsequently amended, authorized the fund to repurchase of up to 10% of its fund’s outstanding common shares over the two-years ending October 5, 2007. The Trustees have subsequently renewed the program on an annual basis. The program renewed by the Board in September 2021, which was in effect between October 1, 2021 and September 30, 2022, allowed the fund to repurchase up to 5,118,668 of its shares. The program renewed by the Board in September 2022, which is in effect between October 1, 2022 and September 30, 2023, allows the fund to repurchase up to 5,025,339 of its shares. |
| ** | Information prior to October 1, 2022, is based on the total number of shares eligible for repurchase under the program, as amended through September 2021. Information from October 1, 2022 forward is based on the total number of shares eligible for repurchase under the program, as amended through September 2022. |
| |
| Item 10. Submission of Matters to a Vote of Security Holders: |
| |
| Item 11. Controls and Procedures: |
| |
| (a) The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. |
| |
| (b) Changes in internal control over financial reporting: Not applicable |
| |
| Item 12. Disclosures of Securities Lending Activities for Closed-End Investment Companies: |
| |
| 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, thereunto duly authorized. |
| |
| Putnam Master Intermediate Income Trust |
| |
| By (Signature and Title): |
| |
| /s/ Janet C. Smith
Janet C. Smith
Principal Accounting Officer
|
| |
| 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 (Signature and Title): |
| |
| /s/ Jonathan S. Horwitz
Jonathan S. Horwitz
Principal Executive Officer
|
| |
| By (Signature and Title): |
| |
| /s/ Janet C. Smith
Janet C. Smith
Principal Financial Officer
|
