Putnam
Mortgage Securities
Fund

Annual report
9 | 30 | 21

 

 

Message from the Trustees

November 8, 2021

Dear Fellow Shareholder:

In the final months of the year, markets may be at a crossroads. The Federal Reserve is poised to begin reducing its monthly purchases of Treasury and mortgage-backed bonds, a program that has been in place since early 2020. Congress is considering major legislation to support infrastructure projects, which may include both higher tax rates and borrowing. Also of note, companies continue to respond creatively to the evolving challenges of the Covid-19 pandemic.

The investment landscape could change in the months ahead, as often occurs in a dynamic economy. Be assured that Putnam’s research teams will actively analyze new opportunities and risks that might emerge. They will work to uncover investment potential others may miss as they select securities for your fund.

Thank you for investing with Putnam.

 

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See page 3 and pages 9–11 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.

Before April 19, 2018, the fund was managed with a materially different investment strategy and may have achieved materially different performance results under its current investment strategy from that shown for periods before this date.

* The Bloomberg GNMA-Bloomberg U.S. MBS Linked Benchmark represents performance of the Bloomberg GNMA Index from inception date of the fund, February 8, 1984, through April 18, 2018, and performance of the Bloomberg U.S. MBS Index from April 19, 2018, and thereafter.

Lipper peer group average provided by Lipper, a Refinitiv company.

 

 

This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 9/30/21. See page 2 and pages 9–11 for additional fund performance information. Index descriptions can be found on pages 16–17.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

 

What was the market environment like during the reporting period?

Investors had to navigate fluctuating financial markets during the fiscal 12-month period. Key equity market indexes advanced, driven by a broader rollout of vaccines, fiscal stimulus, low interest rates, and a pickup in economic activity. Growth in the United States is being fueled largely by federal funding, including President Biden’s multitrillion dollar spending packages, and consumer spending. However, fixed-income securities and other risky assets came under pressure periodically due to concerns that rising inflation and a speedy economic recovery could prompt central bankers to pare back easy monetary policies.

Starting in July 2021, Covid-19 cases and hospitalizations also began to rise, spurred by the Delta variant and some vaccine resistance. Worries about contagion from debt-laden property developer China Evergrande Group as well as data showing U.S. growth starting to slow have weighed on markets. In late September 2021, the Federal Reserve [Fed] signaled it was poised to begin scaling back asset purchases as soon as November 2021. Half of the Fed’s 18 policymakers expect to lift

 

 

Allocations are shown as a percentage of the fund’s net assets as of 9/30/21. Cash and net other assets, if any, represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the portfolio. Summary information may differ from the portfolio schedule included in the financial statements due to the inclusion of derivative securities, any interest accruals, the use of different classifications of securities for presentation purposes, and rounding. Allocations may not total 100% because the table includes the notional value (non-cash investments) of certain derivatives (the economic value for purposes of calculating periodic payment obligations), including to-be-announced (TBA) commitments, if any, in addition to the market value of securities. Holdings and allocations may vary over time.

Credit qualities are shown as a percentage of the fund’s net assets as of 9/30/21. A bond rated BBB or higher (A-3 or higher, for short-term debt) is considered investment grade. This chart reflects the highest security rating provided by one or more of Standard & Poor’s, Moody’s, and Fitch. To-be-announced (TBA) mortgage commitments, if any, are included based on their issuer ratings. Ratings may vary over time.

Cash, derivative instruments, and net other assets are shown in the not-rated category. Payables and receivables for TBA mortgage commitments are included in the not-rated category and may result in negative weights. The fund itself has not been rated by an independent rating agency.

 

 

interest rates from near zero in 2022, according to updated economic projections. The yield on 10-year Treasury notes, which helps set borrowing costs on everything from mortgages to corporate debt, rose to 1.52% at period-end from 0.69% at the end of September 2020. The yield on 2-year Treasury notes advanced to 0.28% from 0.13% a year ago.

How did the fund perform for the 12 months ended September 30, 2021?

The fund returned 2.80%, outpacing its primary benchmark, the Bloomberg U.S. MBS Index. The Bloomberg U.S. MBS Index declined 0.43%.

Which holdings and strategies fueled the fund’s performance?

Our mortgage credit holdings, most notably commercial mortgage-backed securities [CMBS], boosted relative performance for the period. Broadly, the market has rallied since the announcement of viable vaccines in November 2020 and as the overall fundamental picture for commercial real estate cash flows has continued to improve. Additionally, forbearance agreements and other loan modifications have helped suppress some fears of significantly prolonged difficulties on properties that are positioned and operated well.

Agency credit-risk transfer [CRT] securities were another large contributor for the period. The U.S. housing market proved resilient through the pandemic and continues to have the support of the U.S. government as lawmakers prioritize keeping people in their homes. The market has remained optimistic about housing, and home prices are expected to continue to

ABOUT DERIVATIVES

Derivatives are an increasingly common type of investment instrument, the performance of which is derived from an underlying security, index, currency, or other area of the capital markets. Derivatives employed by the fund’s managers generally serve one of two main purposes: to implement a strategy that may be difficult or more expensive to invest in through traditional securities, or to hedge unwanted risk associated with a particular position.

For example, the fund’s managers may identify a bond that they believe is undervalued relative to its risk of default, but may seek to reduce the interest-rate risk of that bond by using interest-rate swaps, a derivative through which two parties “swap” payments based on the movement of certain rates.

Like any other investment, derivatives may not appreciate in value and may lose money. Derivatives may amplify traditional investment risks through the creation of leverage and may be less liquid than traditional securities. Because derivatives typically represent contractual agreements between two financial institutions, derivatives entail “counterparty risk,” which is the risk that the other party is unable or unwilling to pay. Putnam monitors the counterparty risks we assume. For example, Putnam often enters into collateral agreements that require the counterparties to post collateral on a regular basis to cover their obligations to the fund. Counterparty risk for exchange-traded futures and centrally cleared swaps is generally mitigated by the daily exchange of margin and other safeguards against default through their respective clearinghouses.

 

 

appreciate as demand remains high while new supply has been low.

What about detractors?

Prepayment strategies demonstrated negative performance for the period. Despite advancing during the first half of the period, agency interest-only [IO] holdings faced headwinds in the second half as prepayment speeds remained elevated longer than the market anticipated due to historically low mortgage rates and significant home price appreciation.

The fund’s interest-rate and yield-curve positioning also detracted from performance during the period as our protective strategy performed negatively amid higher inflation and an elevated real yield environment.

How did the fund use derivatives?

The fund used interest-rate swaps to hedge term-structure risk and for yield-curve positioning. The fund used options for hedging duration and convexity, to isolate prepayment risk, and to manage downside risks. The fund used credit default swaps for hedging credit and market risks, and to gain exposure to specific sectors. The fund used total return swaps for hedging sector exposure and for gaining exposure to specific sectors.

What is the team’s near-term outlook?

U.S. economic growth expectations have moderated somewhat. However, we believe gross domestic product will continue to grow at a rate above the longer-term trend into 2022. We were encouraged that, as of September 30, 2021, U.S. cases of, and hospitalizations from, Covid-19 continued to steadily decline. The country seems to be moving past a July surge caused by the highly transmissible Delta variant, in our view.

We think these factors will support continued solid growth in corporate earnings. Strong cash-flow generation has helped boost companies’ earnings and enabled them to reduce debt, creating an overall positive backdrop for credit fundamentals, in our view.

In light of the Fed’s shift in tone, we think less bond buying by the central bank is likely to nudge both real and nominal Treasury yields higher in the months ahead. That said, we think

This chart illustrates the fund’s composition by maturity, showing the percentage of holdings in different maturity ranges and how the composition has changed over the past six months. Holdings and maturity ranges may vary over time. A negative number represents cash to be allocated to to-be-announced (TBA) agency pass-through mortgage-backed securities that the fund has agreed to purchase.

 

 

the trend toward higher rates will be gradual as bond investors adjust their growth and inflation outlooks, leading to periods of market volatility.

What are your current views on the various sectors in which the fund invests?

The fundamental outlook for commercial real estate continues to improve as the ongoing distribution of vaccines significantly reduces the downside risks of prolonged economic lockdowns. By virtue of having real assets serving as collateral, inflation pressures are better absorbed by CMBS, creating attractive relative value opportunities versus corporate debt, in our view. We find value in seasoned collateral, but the longer leases and strong underwriting of newer vintages also provide attractive relative value.

Residential mortgage credit continues to be supported by low mortgage rates, high demand, and a depleted inventory of available homes. We expect home price appreciation to continue, albeit at a more moderate level. Many borrowers continue to exit their post-Covid forbearance plans with favorable outcomes, and we expect a large percentage of the remaining delinquent borrowers will either become current on their mortgage given the home equity buildup or will work out a loan modification, thus keeping end losses low.

We believe prepayment-sensitive areas of the market serve as important sources of diversification for the fund. In our view, many prepayment-sensitive assets now offer an attractive risk-adjusted return at current price levels and have the potential for significant upside if elevated prepayment speeds subside, which we believe is likely.

Thank you, Mike, for your time and insights today.

The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.

Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future. Current and future portfolio holdings are subject to risk. Statements in the Q&A concerning the fund’s performance or portfolio composition relative to those of the fund’s Lipper peer group may reference information produced by Lipper Inc. or through a third party.

 

 

Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended September 30, 2021, the end of its most recent fiscal year. In accordance with regulatory requirements for mutual funds, we also include expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class R, R6, and Y shares are not available to all investors. See the Terms and definitions section in this report for definitions of the share classes offered by your fund.

Fund performance Total return for periods ended 9/30/21

 

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A shares reflect the deduction of the maximum 4.00% sales charge levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class R, R6, and Y shares have no initial sales charge or CDSC. Performance for class B, C, R, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares, except for class Y shares, for which 12b-1 fees are not applicable. Performance for class R6 shares prior to their inception is derived from the historical performance of class Y shares and has not been adjusted for the lower investor servicing fees applicable to class R6 shares; had it, returns would have been higher.

Before April 19, 2018, the fund was managed with a materially different investment strategy and may have achieved materially different performance results under its current investment strategy from that shown for periods before this date.

For a portion of the periods, the fund had expense limitations, without which returns would have been lower.

Class B and C share performance reflects conversion to class A shares after eight years.

 

 

Comparative index returns For periods ended 9/30/21

 

Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.

All Bloomberg indices provided by Bloomberg Index Services Limited.

Lipper peer group average provided by Lipper, a Refinitiv company.

^* The Bloomberg GNMA-Bloomberg U.S. MBS Linked Benchmark represents performance of the Bloomberg GNMA Index from inception date of the fund, February 8, 1984, through April 18, 2018, and performance of the Bloomberg U.S. MBS Index from April 19, 2018 and thereafter.

^† Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 9/30/21, there were 132, 119, 106, 77, and 3 funds, respectively, in this Lipper category.

Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B and C shares would have been valued at $11,255 and $11,249, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class R, R6, and Y shares would have been valued at $11,627, $12,286, and $12,233, respectively.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

 

Fund price and distribution information For the 12-month period ended 9/30/21

 

The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (4.00% for class A shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.

^* See page 92.

¹ Most recent distribution, including any return of capital and excluding capital gains, annualized and divided by share price before or after sales charge at period-end.

² Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.

 

 

Your fund’s expenses

As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund’s expenses were limited; had expenses not been limited, they would have been higher. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.

Expense ratios

 

Fiscal year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report.

Expenses are shown as a percentage of average net assets.

^* Expense ratios for each class are for the fund’s most recent fiscal half year. As a result of this, ratios may differ from expense ratios based on one-year data in the financial highlights.

Expenses per $1,000

The following table shows the expenses you would have paid on a $1,000 investment in each class of the fund from 4/1/21 to 9/30/21. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

 

^* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 9/30/21. The expense ratio may differ for each share class.

^† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period (183); and then dividing that result by the number of days in the year (365).

^# Effective 7/1/21 the fund’s contractual expense limit expired. If the contractual expense limit had not been in effect during the most recent fiscal half year, the Expenses paid per $1,000 would have been as follows:

 

 

 

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended 9/30/21, use the following calculation method. To find the value of your investment on 4/1/21, call Putnam at 1-800-225-1581.

Compare expenses using the SEC’s method

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

 

^* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 9/30/21. The expense ratio may differ for each share class.

^† Expenses are calculated by multiplying the expense ratio by the average account value for the six-month period; then multiplying the result by the number of days in the six-month period (183); and then dividing that result by the number of days in the year (365).

^# Effective 7/1/21 the fund’s contractual expense limit expired. If the contractual expense limit had not been in effect during the most recent fiscal half year, the Expenses paid per $1,000 would have been as follows:

 

 

 

Consider these risks before investing

Funds that invest in government securities are not guaranteed. Mortgage- and asset-backed securities are subject to prepayment risk, which means that they may increase in value less than other bonds when interest rates decline and decline in value more than other bonds when interest rates rise. The fund may have to invest the proceeds from prepaid investments, including mortgage- and asset-backed investments, in other investments with less attractive terms and yields.

The fund’s investments in mortgage-backed securities and asset-backed securities, and in certain other securities and derivatives, may be or become illiquid. The fund’s exposure to privately issued commercial and residential mortgage-backed securities and mortgage-backed securities issued or guaranteed by the U.S. government or its agencies or instrumentalities may make the fund’s net asset value more susceptible to economic, market, political and other developments affecting the housing or real estate markets and the servicing of mortgage loans secured by real estate properties. The fund currently has significant investment exposure to commercial mortgage-backed securities, which, during periods of difficult economic conditions, may experience an increase in delinquencies and losses as a result of the effects of those conditions on commercial real estate markets, the ability of commercial tenants to make loan payments, and the ability of a property to attract and retain commercial tenants. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds. Default risk is generally higher for non-qualified mortgages. Risks associated with derivatives include increased investment exposure (which may be considered leverage) and, in the case of over-the-counter instruments, the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Unlike bonds, funds that invest in bonds have fees and expenses. The value of investments in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general economic, political, or financial market conditions; investor sentiment and market perceptions; government actions; geopolitical events or changes; and factors related to a specific issuer, geography (such as a region of the United States), industry, or sector, such as the housing or real estate markets. These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings or in relevant markets.

Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund’s other service providers, may experience disruptions or operating errors that could have a negative effect on the fund. You can lose money by investing in the fund.

 

 

Terms and definitions

Important terms

Total return shows how the value of the fund’s shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund.

Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 4.00% maximum sales charge for class A shares.

Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B CDSC declines over time from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.

Share classes

Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).

Class B shares are closed to new investments and are only available by exchange from another Putnam fund or through dividend and/or capital gains reinvestment. They are not subject to an initial sales charge and may be subject to a CDSC.

Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.

Class R shares are not subject to an initial sales charge or CDSC and are only available to employer-sponsored retirement plans.

Class R6 shares are not subject to an initial sales charge or CDSC and carry no 12b-1 fee. They are generally only available to employer-sponsored retirement plans, corporate and institutional clients, and clients in other approved programs.

Class Y shares are not subject to an initial sales charge or CDSC and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.

Fixed-income terms

Current rate is the annual rate of return earned from dividends or interest of an investment. Current rate is expressed as a percentage of the price of a security, fund share, or principal investment.

Mortgage-backed security (MBS), also known as a mortgage “pass-through,” is a type of asset-backed security that is secured by a mortgage or collection of mortgages. The following are types of MBSs:

• Agency credit-risk transfer security (CRT) is backed by a reference pool of agency mortgages. Unlike a regular agency pass-through, the principal invested in a CRT is not backed by a U.S. government agency. To compensate investors for this risk, a CRT typically offers a higher yield than conventional pass-through securities. Similar to a CMBS, a CRT is structured into various tranches for investors, offering different levels of risk and yield based on the underlying reference pool.

• Agency “pass-through” has its principal and interest backed by a U.S. government agency, such as the Federal National Mortgage Association (Fannie Mae), Government National Mortgage Association (Ginnie Mae), and

 

 

Federal Home Loan Mortgage Corporation (Freddie Mac).

• Collateralized mortgage obligation (CMO) represents claims to specific cash flows from pools of home mortgages. The streams of principal and interest payments on the mortgages are distributed to the different classes of CMO interests in “tranches.” Each tranche may have different principal balances, coupon rates, prepayment risks, and maturity dates. A CMO is highly sensitive to changes in interest rates and any resulting change in the rate at which homeowners sell their properties, refinance, or otherwise prepay loans. CMOs are subject to prepayment, market, and liquidity risks.

° Interest-only (IO) security is a type of CMO in which the underlying asset is the interest portion of mortgage, Treasury, or bond payments.

• Non-agency residential mortgage-backed security (RMBS) is an MBS not backed by Fannie Mae, Ginnie Mae, or Freddie Mac. One type of RMBS is an Alt-A mortgage-backed security.

• Commercial mortgage-backed security (CMBS) is secured by the loan on a commercial property.

• CMBS mezzanine tranches are securities positioned between a senior tranche (mostly rated AAA) and a subordinated tranche (unrated, typically called an equity tranche). The mezzanine tranches are typically rated between AA and B because they are more exposed to credit risk than the senior tranches, and thus generally carry a higher yield.

Yield curve is a graph that plots the yields of bonds with equal credit quality against their differing maturity dates, ranging from shortest to longest. It is used as a benchmark for other debt, such as mortgage or bank lending rates.

Comparative indexes

Bloomberg GNMA Index is an unmanaged index of Government National Mortgage Association bonds.

Bloomberg GNMA – Bloomberg U.S. MBS Linked Benchmark represents performance of the Bloomberg GNMA Index from the inception date of the fund, February 8, 1984, through April 18, 2018, and performance of the Bloomberg U.S. MBS Index from April 19, 2018, and thereafter.

Bloomberg U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.

Bloomberg U.S. MBS Index is an unmanaged index of agency mortgage-backed pass-through securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).

CMBX Index tracks the performance of a basket of CMBS issued in a particular year.

ICE BofA (Intercontinental Exchange Bank of America) U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.

S&P 500^® Index is an unmanaged index of common stock performance.

Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.

BLOOMBERG^®  is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approve or endorse this material, or guarantee the accuracy or completeness of any information herein, or make any warranty, express or implied, as to the results to be obtained therefrom, and to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

ICE Data Indices, LLC (“ICE BofA”), used with permission. ICE BofA permits use of the ICE BofA indices and related data on an “as is” basis; makes no warranties regarding same; does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the ICE BofA indices or any data included in, related to, or derived therefrom; assumes no liability in connection with the

 

 

use of the foregoing; and does not sponsor, endorse, or recommend Putnam Investments, or any of its products or services.

Lipper, a Refinitiv company, is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.

Other information for shareholders

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2021, are available in the Individual Investors section of putnam.com and on the Securities and Exchange Commission (SEC) website, www.sec.gov. If you have questions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT within 60 days of the end of such fiscal quarter. Shareholders may obtain the fund’s Form N-PORT on the SEC’s website at www.sec.gov.

Prior to its use of Form N-PORT, the fund filed its complete schedule of its portfolio holdings with the SEC on Form N-Q, which is available online at www.sec.gov.

Trustee and employee fund ownership

Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of September 30, 2021, Putnam employees had approximately $562,000,000 and the Trustees had approximately $79,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.

Liquidity risk management program

Putnam, as the administrator of the fund’s liquidity risk management program (appointed by the Board of Trustees), presented the most recent annual report on the program to the Trustees in April 2021. The report covered the structure of the program, including the program documents and related policies and procedures adopted to comply with Rule 22e-4 under the Investment Company Act of 1940, and reviewed the operation of the program from January 2020 through December 2020. The report included a description of the annual liquidity assessment of the fund that Putnam performed in November 2020. The report noted that there were no material compliance exceptions identified under Rule 22e-4 during the period. The report included a review of the governance of the program and the methodology for classification of the fund’s investments. The report also included a discussion of liquidity monitoring during the period, including during the market liquidity challenges caused by the Covid-19 pandemic, and the impact those challenges had on the liquidity of the fund’s investments. Putnam concluded that the program has been operating effectively and adequately to ensure compliance with Rule 22e-4.

 

 

Important notice regarding Putnam’s privacy policy

In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.

It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.

Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.

 

 

Trustee approval of management contract

General conclusions

The Board of Trustees of The Putnam Funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management, LLC (“Putnam Management”) and the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”). The Board, with the assistance of its Contract Committee, requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. The Contract Committee consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of The Putnam Funds (“Independent Trustees”).

At the outset of the review process, members of the Board’s independent staff and independent legal counsel considered any possible changes to the annual contract review materials furnished to the Contract Committee during the course of the previous year’s review and, as applicable, identified those changes to Putnam Management. Following these discussions and in consultation with the Contract Committee, the Independent Trustees’ independent legal counsel requested that Putnam Management and its affiliates furnish specified information, together with any additional information that Putnam Management considered relevant, to the Contract Committee. Over the course of several months ending in June 2021, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided. Throughout this process, the Contract Committee was assisted by the members of the Board’s independent staff and by independent legal counsel for The Putnam Funds and the Independent Trustees.

In May 2021, the Contract Committee met in executive session to discuss and consider its recommendations with respect to the continuance of the contracts. At the Trustees’ June 2021 meeting, the Contract Committee met in executive session with the other Independent Trustees to review a summary of the key financial, performance and other data that the Contract Committee considered in the course of its review. The Contract Committee then presented its written report, which summarized the key factors that the Committee had considered and set forth its recommendations. The Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management and sub-management contracts, effective July 1, 2021. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not attempted to evaluate PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)

The Independent Trustees’ approval was based on the following conclusions:

• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds, the costs incurred by Putnam Management in providing services to the fund and the application of certain reductions and waivers noted below; and

• That the fee schedule in effect for your fund represented an appropriate sharing between fund shareholders and Putnam Management of any economies of scale as may exist in the management of the fund at current asset levels.

These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the management arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that some aspects of the arrangements may receive greater scrutiny in some years than others and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years. For example, with certain exceptions primarily involving newly

 

 

launched or repositioned funds, the current fee arrangements under the vast majority of the funds’ management contracts were first implemented at the beginning of 2010 following extensive review by the Contract Committee and discussions with representatives of Putnam Management, as well as approval by shareholders.

Management fee schedules and total expenses

The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. Under its management contract, your fund has the benefit of breakpoints in its management fee schedule that provide shareholders with reduced fee levels as assets under management in the Putnam family of funds increase. The Trustees also reviewed the total expenses of each Putnam fund, recognizing that in most cases management fees represented the major, but not the sole, determinant of total costs to fund shareholders. (Two funds have implemented so-called “all-in” management fees covering substantially all routine fund operating costs.)

In reviewing fees and expenses, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management, changes in a fund’s investment strategy, changes in Putnam Management’s operating costs or profitability, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not indicate that changes to the management fee schedule for your fund would be appropriate at this time.

As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. The Trustees and Putnam Management and the funds’ investor servicing agent, Putnam Investor Services, Inc. (“PSERV”), have implemented expense limitations that were in effect during your fund’s fiscal year ending in 2020. These expense limitations were: (i) a contractual expense limitation applicable to specified open-end funds, including your fund, of 25 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to specified open-end funds, including your fund, of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, distribution fees, investor servicing fees, investment-related expenses, interest, taxes, brokerage commissions, acquired fund fees and expenses and extraordinary expenses). These expense limitations attempt to maintain competitive expense levels for the funds. Most funds, including your fund, had sufficiently low expenses that these expense limitations were not operative during their fiscal years ending in 2020. Putnam Management and PSERV have agreed to maintain these expense limitations until at least January 30, 2023. Putnam Management and PSERV’s commitment to these expense limitation arrangements, which were intended to support an effort to have fund expenses meet competitive standards, was an important factor in the Trustees’ decision to approve the continuance of your fund’s management and sub-management contracts. In addition, during its fiscal year ending in 2020, your fund’s expenses were reduced as a result of Putnam Management’s contractual agreement to waive fees and/or reimburse expenses of your fund to the extent that expenses of the fund (excluding payments under the fund’s distribution plans, investor servicing fees, brokerage, interest, taxes, investment-related expenses, extraordinary expenses and acquired fund fees and expenses) exceeded an annual rate of 0.32% of its average net assets. Effective July 1, 2021, this expense limitation is no longer operative.

The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Broadridge Financial Solutions, Inc. (“Broadridge”). This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fees), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the second quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the first quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2020. The first quintile represents the least expensive funds and the fifth quintile the most expensive funds. The fee and expense data reported by Broadridge as of December 31, 2020 reflected the most recent fiscal year-end data available in Broadridge’s database at that time.

In connection with their review of fund management fees and total expenses, the Trustees also reviewed the costs of the services provided and the profits realized by Putnam Management and

 

 

its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of the revenues, expenses and profitability of Putnam Management and its affiliates, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place for the Putnam funds, including the fee schedule for your fund, represented reasonable compensation for the services being provided and represented an appropriate sharing between fund shareholders and Putnam Management of any economies of scale as may exist in the management of the Putnam funds at that time.

The information examined by the Trustees in connection with their annual contract review for the Putnam funds included information regarding services provided and fees charged by Putnam Management and its affiliates to other clients, including defined benefit pension and profit-sharing plans, sub-advised mutual funds, private funds sponsored by affiliates of Putnam Management, model-only separately managed accounts and Putnam Management’s newly launched exchange-traded funds. This information included, in cases where a product’s investment strategy corresponds with a fund’s strategy, comparisons of those fees with fees charged to the Putnam funds, as well as an assessment of the differences in the services provided to these clients as compared to the services provided to the Putnam funds. The Trustees observed that the differences in fee rates between these clients and the Putnam funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients may reflect, among other things, historical competitive forces operating in separate marketplaces. The Trustees considered the fact that in many cases fee rates across different asset classes are higher on average for mutual funds than for other clients, and the Trustees also considered the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to its other clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.

Investment performance

The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of Putnam Management’s investment process and performance by the work of the investment oversight committees of the Trustees and the full Board of Trustees, which meet on a regular basis with individual portfolio managers and with senior management of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investment results for every fund in every time period.

The Trustees considered that, in the aggregate, The Putnam Funds generally performed well in 2020, which Putnam Management characterized as a challenging year with significant volatility and varied market dynamics. On an asset-weighted basis, the Putnam funds ranked in the second quartile of their peers as determined by Lipper Inc. (“Lipper”) for the year ended December 31, 2020 and, on an asset-weighted-basis, delivered a gross return that was 2.3% ahead of their benchmarks in 2020. In addition to the performance of the individual Putnam funds, the Trustees considered, as they had in prior years, the performance of The Putnam Fund complex versus competitor fund complexes. In this regard, the Trustees observed that The Putnam Funds’ relative performance, as reported in the Barron’s/Lipper Fund Families survey, continued to be exceptionally strong over the long term, with The Putnam Funds ranking as the 3rd best performing mutual fund complex out of 44 complexes for the ten-year period, with 2020 marking the fourth consecutive year that The Putnam Funds have ranked in the top ten fund complexes for the ten-year period. The Trustees noted that The Putnam Funds’ performance was

 

 

solid over the one- and five-year periods, with The Putnam Funds ranking 22nd out of 53 complexes and 14th out of 50 complexes, respectively. In addition to the Barron’s/Lipper Fund Families Survey, the Trustees also considered the funds’ ratings assigned by Morningstar Inc., noting that 26 of the funds were four- or five-star rated at the end of 2020 (representing an increase of four funds year-over-year) and that this included seven funds that had achieved a five-star rating (representing an increase of two funds year-over-year). They also noted, however, the disappointing investment performance of some funds for periods ended December 31, 2020 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor closely the performance of those funds and evaluate whether additional actions to address areas of underperformance may be warranted.

For purposes of the Trustees’ evaluation of the Putnam funds’ investment performance, the Trustees generally focus on a competitive industry ranking of each fund’s total net return over a one-year, three-year and five-year period. For a number of Putnam funds with relatively unique investment mandates for which Putnam Management informed the Trustees that meaningful competitive performance rankings are not considered to be available, the Trustees evaluated performance based on their total gross and net returns and comparisons of those returns to the returns of selected investment benchmarks. In the case of your fund, the Trustees considered that its class A share cumulative total return performance at net asset value was in the following quartiles of its Lipper peer group (Lipper U.S. Mortgage Funds) for the one-year, three-year and five-year periods ended December 31, 2020 (the first quartile representing the best-performing funds and the fourth quartile the worst-performing funds):

 

Over the one-year, three-year and five-year periods ended December 31, 2020, there were 128, 110 and 104 funds, respectively, in your fund’s Lipper peer group. (When considering performance information, shareholders should be mindful that past performance is not a guarantee of future results.) The Trustees expressed concern about your fund’s fourth quartile performance over the one-year and five-year periods ended December 31, 2020 and considered the circumstances that may have contributed to this disappointing performance. The Trustees considered Putnam Management’s observation that the fund’s underperformance over the one-year period was driven by significant underperformance in the securitized sector in 2020, which resulted from the outsized impact of the COVID-19 pandemic on the commercial mortgage space. The Trustees also noted Putnam Management’s view that the commercial real estate sector was not supported by monetary and fiscal policies to the same extent as other sectors and did not recover as strongly from the downturn in March 2020. The Trustees considered Putnam Management’s observation that the fund’s prepayment and term structure strategies had performed well in 2020.

In addition, the Trustees noted that the fund had performed in the top decile of its Lipper peer group since its repositioning from Putnam U.S. Government Income Trust to Putnam Mortgage Securities Fund in April 2018 until the onset of the COVID-19 pandemic, and had performed in the top third of its Lipper peer group since the fund was repositioned through March 31, 2021. The Trustees considered Putnam Management’s observation that the fund’s term structure and prepayment positioning and the rebound in commercial mortgage-backed investments contributed to the fund’s top quintile performance year to date, as of March 31, 2021. The Trustees noted that Putnam Management remained confident in the fund’s portfolio managers. The Trustees also considered Putnam Management’s continued efforts to support fund performance through certain initiatives, including structuring compensation for portfolio managers to enhance accountability for fund performance, emphasizing accountability in the portfolio management process and affirming its commitment to a fundamental-driven approach to investing. The Trustees noted further that Putnam Management had made selective hires and internal promotions in 2020 to strengthen its investment team.

As a general matter, the Trustees believe that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance concerns that may arise from time to time. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam

 

 

organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on Putnam Management’s willingness to take appropriate measures to address fund performance issues and Putnam Management’s responsiveness to Trustee concerns about investment performance, the Trustees concluded that it continued to be advisable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of engaging a new investment adviser for an underperforming fund, with all the attendant risks and disruptions, would not likely provide any greater assurance of improved investment performance.

Brokerage and soft-dollar allocations; investor servicing

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft dollars generated by these means are used predominantly to acquire brokerage and research services (including third-party research and market data) that enhance Putnam Management’s investment capabilities and supplement Putnam Management’s internal research efforts. The Trustees indicated their continued intent to monitor regulatory and industry developments in this area with the assistance of their Brokerage Committee. In addition, with the assistance of their Brokerage Committee, the Trustees indicated their continued intent to monitor the allocation of the Putnam funds’ brokerage in order to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.

Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management and sub-management contracts, the Trustees reviewed your fund’s investor servicing agreement with PSERV and its distributor’s contract and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are fair and reasonable in relation to the nature and quality of such services, the fees paid by competitive funds and the costs incurred by PSERV and PRM, as applicable, in providing such services. Furthermore, the Trustees were of the view that the investor services provided by PSERV were required for the operation of the funds, and that they were of a quality at least equal to those provided by other providers.

 

 

Audited financial statements

These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, constitute the fund’s audited financial statements.

The fund’s portfolio lists all the fund’s investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification.

Statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and non-investment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the liquidation preference of preferred shares.)

Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal period.

Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, by distributions to shareholders, and by changes in the number of the fund’s shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned.

Financial highlights provide an overview of the fund’s investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlights table also includes the current reporting period.

 

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of
Putnam Mortgage Securities Fund:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the fund’s portfolio, of Putnam Mortgage Securities Fund (the “Fund”) as of September 30, 2021, the related statement of operations for the year ended September 30, 2021, the statement of changes in net assets for each of the two years in the period ended September 30, 2021, including the related notes, and the financial highlights for each of the two years in the period ended September 30, 2021 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2021, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended September 30, 2021, and the financial highlights for each of the two years in the period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

The financial statements of the Fund as of and for the year ended September 30, 2019, and the financial highlights for each of the periods ended on or prior to September 30, 2019 (not presented herein, other than the financial highlights) were audited by other auditors whose report dated November 13, 2019, expressed an unqualified opinion on those financial statements and financial highlights.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of September 30, 2021, by correspondence with the custodian, transfer agent, and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
November 8, 2021

We have served as the auditor of one or more investment companies in the Putnam Investments family of funds since at least 1957. We have not been able to determine the specific year we began serving as auditor.

 

 

The fund’s portfolio 9/30/21

MORTGAGE-BACKED SECURITIES (77.8%)*		Principal amount	Value
Agency collateralized mortgage obligations (37.9%)
Federal Home Loan Mortgage Corporation
REMICs IFB Ser. 3408, Class EK, ((-4.024 x 1 Month US LIBOR) + 25.79%), 25.456%, 4/15/37		$198,025	$352,856
REMICs IFB Ser. 2976, Class LC, ((-3.667 x 1 Month US LIBOR) + 24.42%), 24.113%, 5/15/35		791,311	1,251,220
REMICs IFB Ser. 3072, Class SM, ((-3.667 x 1 Month US LIBOR) + 23.80%), 23.49%, 11/15/35		414,130	712,990
REMICs IFB Ser. 3065, Class DC, ((-3 x 1 Month US LIBOR) + 19.86%), 19.609%, 3/15/35		1,771,983	2,364,711
REMICs IFB Ser. 2990, Class LB, ((-2.556 x 1 Month US LIBOR) + 16.95%), 16.732%, 6/15/34		409,218	478,800
REMICs IFB Ser. 4136, Class ES, IO, ((-1 x 1 Month US LIBOR) + 6.25%), 6.166%, 11/15/42		2,156,229	244,619
REMICs IFB Ser. 4436, Class SC, IO, ((-1 x 1 Month US LIBOR) + 6.15%), 6.066%, 2/15/45		4,642,969	875,260
REMICs IFB Ser. 5003, Class DS, IO, ((-1 x 1 Month US LIBOR) + 6.10%), 6.014%, 8/25/50		10,834,042	2,155,500
REMICs IFB Ser. 4326, Class GS, IO, ((-1 x 1 Month US LIBOR) + 6.05%), 5.966%, 4/15/44		13,233,512	2,300,457
REMICs IFB Ser. 4949, Class WS, IO, ((-1 x 1 Month US LIBOR) + 6.00%), 5.914%, 2/25/50		6,749,329	1,299,683
REMICs IFB Ser. 4933, Class SA, IO, ((-1 x 1 Month US LIBOR) + 6.00%), 5.914%, 12/25/49		8,430,482	1,769,495
REMICs Ser. 5018, Class QI, IO, 5.00%, 10/25/50		9,855,771	1,500,977
REMICs Ser. 4122, Class TI, IO, 4.50%, 10/15/42		2,285,802	316,545
REMICs Ser. 4024, Class PI, IO, 4.50%, 12/15/41		1,099,444	111,008
REMICs Ser. 4018, Class DI, IO, 4.50%, 7/15/41		1,178,779	88,162
REMICs Ser. 5121, Class KI, IO, 4.00%, 6/25/51		11,225,726	1,960,772
REMICs Ser. 4953, Class AI, IO, 4.00%, 2/25/50		7,338,739	1,123,414
REMICs Ser. 4425, IO, 4.00%, 1/15/45		2,981,881	362,716
REMICs Ser. 4425, Class EI, IO, 4.00%, 1/15/45		4,033,265	465,237
REMICs Ser. 4452, Class QI, IO, 4.00%, 11/15/44		3,645,273	602,863
REMICs Ser. 4213, Class GI, IO, 4.00%, 11/15/41		3,376,112	171,248
REMICs Ser. 4019, Class JI, IO, 4.00%, 5/15/41		2,749,516	188,136
REMICs Ser. 4015, Class GI, IO, 4.00%, 3/15/27		1,424,539	96,297
Structured Pass-Through Certificates FRB Ser. 57, Class 2A1, 3.568%, 7/25/43 W		12,626	13,558
REMICs Ser. 5065, Class DI, IO, 3.50%, 1/25/51		16,335,674	2,542,404
REMICs Ser. 5050, Class IM, IO, 3.50%, 10/25/50		14,317,024	2,604,205
REMICs Ser. 5080, Class IQ, IO, 3.50%, 4/25/50		22,461,522	3,681,700
REMICs Ser. 4165, Class AI, IO, 3.50%, 2/15/43		2,141,915	336,099
REMICs Ser. 4136, Class IQ, IO, 3.50%, 11/15/42		4,677,401	585,704
Strips Ser. 304, Class C37, IO, 3.50%, 12/15/27		738,368	42,083
Structured Pass-Through Certificates FRB Ser. 59, Class 2A1, 3.402%, 10/25/43 W		7,321	9,165
REMICs Ser. 5071, Class IV, IO, 3.00%, 12/25/50		22,848,985	3,563,800
REMICs Ser. 4150, Class DI, IO, 3.00%, 1/15/43		4,573,162	411,585
REMICs Ser. 4141, Class PI, IO, 3.00%, 12/15/42		4,096,239	449,597
REMICs Ser. 4158, Class TI, IO, 3.00%, 12/15/42		6,407,315	504,576

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Federal Home Loan Mortgage Corporation
REMICs Ser. 4165, Class TI, IO, 3.00%, 12/15/42		$7,495,544	$587,778
REMICs Ser. 4171, Class NI, IO, 3.00%, 6/15/42		5,065,166	296,815
REMICs Ser. 4183, Class MI, IO, 3.00%, 2/15/42		2,856,752	171,976
REMICs Ser. 4201, Class JI, IO, 3.00%, 12/15/41		3,103,462	108,584
Structured Pass-Through Certificates FRB Ser. 8, Class A9, IO, 0.436%, 11/15/28 W		518,053	3,885
Structured Pass-Through Certificates FRB Ser. 59, Class 1AX, IO, 0.281%, 10/25/43 W		2,454,485	26,018
Structured Pass-Through Certificates Ser. 48, Class A2, IO, 0.212%, 7/25/33 W		3,797,768	28,483
REMICs Ser. 3835, Class FO, PO, zero %, 4/15/41		1,332,558	1,225,678
REMICs Ser. 3369, Class BO, PO, zero %, 9/15/37		2,851	2,609
REMICs Ser. 3391, PO, zero %, 4/15/37		36,500	33,671
REMICs Ser. 3175, Class MO, PO, zero %, 6/15/36		18,040	16,236
REMICs Ser. 3210, PO, zero %, 5/15/36		2,815	2,759
REMICs FRB Ser. 3117, Class AF, (1 Month US LIBOR + 0.00%), zero %, 2/15/36		16,332	14,372
Strips Ser. 315, PO, zero %, 9/15/43		9,608,354	8,686,046
Federal National Mortgage Association
REMICs IFB Ser. 06-62, Class PS, ((-6 x 1 Month US LIBOR) + 39.90%), 39.384%, 7/25/36		219,490	428,092
REMICs IFB Ser. 05-74, Class NK, ((-5 x 1 Month US LIBOR) + 27.50%), 27.07%, 5/25/35		551,443	764,172
REMICs IFB Ser. 06-8, Class HP, ((-3.667 x 1 Month US LIBOR) + 24.57%), 24.251%, 3/25/36		285,926	468,380
REMICs IFB Ser. 07-53, Class SP, ((-3.667 x 1 Month US LIBOR) + 24.20%), 23.885%, 6/25/37		320,311	564,315
REMICs IFB Ser. 08-24, Class SP, ((-3.667 x 1 Month US LIBOR) + 23.28%), 22.968%, 2/25/38		1,132,894	1,466,194
REMICs IFB Ser. 05-106, Class JC, ((-3.101 x 1 Month US LIBOR) + 20.12%), 19.857%, 12/25/35		522,594	783,891
REMICs IFB Ser. 11-4, Class CS, ((-2 x 1 Month US LIBOR) + 12.90%), 12.728%, 5/25/40		628,515	792,569
REMICs IFB Ser. 11-123, Class KS, IO, ((-1 x 1 Month US LIBOR) + 6.60%), 6.514%, 10/25/41		470,284	55,577
REMICs IFB Ser. 18-47, Class SA, IO, ((-1 x 1 Month US LIBOR) + 6.25%), 6.164%, 7/25/48		6,169,535	1,293,381
REMICs IFB Ser. 18-36, Class SD, IO, ((-1 x 1 Month US LIBOR) + 6.25%), 6.164%, 6/25/48		17,130,577	3,415,606
REMICs IFB Ser. 18-20, Class SB, IO, ((-1 x 1 Month US LIBOR) + 6.25%), 6.164%, 3/25/48		6,958,993	1,255,402
REMICs IFB Ser. 17-104, Class SL, IO, ((-1 x 1 Month US LIBOR) + 6.15%), 6.064%, 1/25/48		9,467,287	1,610,154
REMICs IFB Ser. 16-81, Class SA, IO, ((-1 x 1 Month US LIBOR) + 6.15%), 6.064%, 11/25/46		17,323,594	3,366,110
REMICs IFB Ser. 20-41, Class SE, IO, ((-1 x 1 Month US LIBOR) + 6.10%), 6.014%, 6/25/50		7,755,563	1,671,927
REMICs IFB Ser. 16-83, Class BS, IO, ((-1 x 1 Month US LIBOR) + 6.10%), 6.014%, 11/25/46		19,667,906	3,902,809

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Federal National Mortgage Association
REMICs IFB Ser. 16-85, Class SL, IO, ((-1 x 1 Month US LIBOR) + 6.10%), 6.014%, 11/25/46		$26,561,683	$4,557,985
REMICs IFB Ser. 16-50, Class SM, IO, ((-1 x 1 Month US LIBOR) + 6.10%), 6.014%, 8/25/46		12,579,990	2,301,834
REMICs Ser. 15-58, Class KI, IO, 6.00%, 3/25/37		6,833,949	1,562,897
REMICs IFB Ser. 19-51, Class SA, IO, ((-1 x 1 Month US LIBOR) + 6.05%), 5.964%, 9/25/49		12,517,267	2,101,185
REMICs IFB Ser. 19-45, Class SD, IO, ((-1 x 1 Month US LIBOR) + 6.05%), 5.964%, 8/25/49		8,570,546	1,498,519
REMICs IFB Ser. 16-8, Class SA, IO, ((-1 x 1 Month US LIBOR) + 6.05%), 5.964%, 3/25/46		12,592,823	2,493,482
REMICs IFB Ser. 19-71, Class CS, IO, ((-1 x 1 Month US LIBOR) + 6.00%), 5.914%, 11/25/49		3,154,983	769,279
REMICs IFB Ser. 19-83, Class QS, IO, ((-1 x 1 Month US LIBOR) + 5.95%), 5.864%, 1/25/50		20,614,483	4,228,995
REMICs Ser. 16-3, Class MI, IO, 5.50%, 2/25/46		4,839,289	868,410
REMICs Ser. 15-86, Class MI, IO, 5.50%, 11/25/45		5,779,563	1,062,457
REMICs Ser. 10-109, Class IM, IO, 5.50%, 9/25/40		11,603,681	2,099,618
REMICs Ser. 18-51, Class BI, IO, 5.50%, 7/25/38		7,715,378	1,043,123
REMICs Ser. 17-19, Class IH, IO, 5.00%, 3/25/47		6,734,531	1,132,748
REMICs Ser. 12-151, Class IM, IO, 5.00%, 4/25/42		4,553,631	694,550
REMICs Ser. 20-31, IO, 4.50%, 5/25/50		15,718,849	2,455,264
REMICs Ser. 17-66, IO, 4.50%, 9/25/47		5,555,068	821,222
REMICs Ser. 17-32, Class IP, IO, 4.50%, 5/25/47		7,100,096	1,394,240
REMICs Ser. 15-83, IO, 4.00%, 10/25/43		1,920,964	228,626
REMICs Ser. 12-62, Class MI, IO, 4.00%, 3/25/41		1,662,876	78,488
REMICs Ser. 12-104, Class HI, IO, 4.00%, 9/25/27		3,272,293	227,215
REMICs FRB Ser. 03-W14, Class 2A, 3.853%, 1/25/43 W		9,610	10,045
Trust FRB Ser. 03-W3, Class 1A4, 3.559%, 8/25/42 W		20,228	21,502
REMICs Ser. 21-25, Class IJ, IO, 3.50%, 5/25/51		38,523,307	3,641,608
REMICs Ser. 20-20, Class IK, IO, 3.50%, 3/25/50		19,313,872	1,426,439
REMICs Ser. 20-62, Class MI, IO, 3.50%, 5/25/49		40,506,787	6,991,115
REMICs Ser. 16-70, Class QI, IO, 3.50%, 10/25/46		6,893,918	768,810
REMICs Ser. 15-10, Class AI, IO, 3.50%, 8/25/43		2,191,525	45,571
REMICs Ser. 13-22, Class PI, IO, 3.50%, 10/25/42		3,182,012	379,080
REMICs Ser. 12-114, Class NI, IO, 3.50%, 10/25/41		3,418,027	162,481
REMICs Trust FRB Ser. 04-W7, Class A2, 3.361%, 3/25/34 W		2,746	3,011
Trust FRB Ser. 04-W2, Class 4A, 3.145%, 2/25/44 W		6,369	6,681
REMICs FRB Ser. 03-W11, Class A1, 3.083%, 6/25/33 W		269	274
REMICs Ser. 20-96, IO, 3.00%, 1/25/51		13,100,685	1,286,487
REMICs Ser. 20-68, Class LI, IO, 3.00%, 10/25/50		11,594,747	1,804,954
REMICs Ser. 13-55, Class IK, IO, 3.00%, 4/25/43		3,179,752	353,547
REMICs Ser. 13-6, Class JI, IO, 3.00%, 2/25/43		5,992,805	524,370
REMICs Ser. 12-151, Class PI, IO, 3.00%, 1/25/43		3,243,374	376,611
REMICs Ser. 12-145, Class TI, IO, 3.00%, 11/25/42		1,475,477	83,608
REMICs Ser. 13-55, Class PI, IO, 3.00%, 5/25/42		2,817,905	106,175
REMICs Ser. 13-53, Class JI, IO, 3.00%, 12/25/41		3,431,050	213,192
REMICs Ser. 13-23, Class PI, IO, 3.00%, 10/25/41		1,213,622	19,152

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Federal National Mortgage Association
REMICs Ser. 13-30, Class IP, IO, 3.00%, 10/25/41		$1,652,578	$28,987
REMICs Ser. 13-23, Class LI, IO, 3.00%, 6/25/41		1,270,328	32,094
REMICs Ser. 14-28, Class AI, IO, 3.00%, 3/25/40		2,284,890	69,184
REMICs Trust Ser. 98-W5, Class X, IO, 0.421%, 7/25/28 W		1,043,368	22,119
REMICs FRB Ser. 01-50, Class B1, IO, 0.38%, 10/25/41 W		2,269,320	11,347
REMICs FRB Ser. 07-95, Class A3, (1 Month US LIBOR + 0.25%), 0.334%, 8/27/36		25,120,382	23,442,047
REMICs Ser. 01-79, Class BI, IO, 0.264%, 3/25/45 W		1,159,997	7,192
REMICs Ser. 03-34, Class P1, PO, zero %, 4/25/43		48,673	42,832
REMICs Ser. 08-53, Class DO, PO, zero %, 7/25/38		129,903	121,834
REMICs Ser. 07-44, Class CO, PO, zero %, 5/25/37		91,344	82,210
REMICs Ser. 07-14, Class KO, PO, zero %, 3/25/37		4,534	4,172
REMICs Ser. 06-125, Class OX, PO, zero %, 1/25/37		947	861
REMICs Ser. 06-84, Class OT, PO, zero %, 9/25/36		1,414	1,329
REMICs Ser. 06-46, Class OC, PO, zero %, 6/25/36		2,382	2,216
REMICs Ser. 08-36, Class OV, PO, zero %, 1/25/36		16,239	15,052
REMICs Trust Ser. 98-W2, Class X, IO, zero %, 6/25/28 W		3,313,914	74,563
Government National Mortgage Association
IFB Ser. 13-182, Class SP, IO, ((-1 x 1 Month US LIBOR) + 6.70%), 6.613%, 12/20/43		3,978,286	780,739
IFB Ser. 11-156, Class SK, IO, ((-1 x 1 Month US LIBOR) + 6.60%), 6.513%, 4/20/38		5,588,698	1,313,455
FRB Ser. 20-112, Class MS, IO, ((-1 x 1 Month US LIBOR) + 6.30%), 6.213%, 8/20/50		7,246,653	1,505,927
IFB Ser. 21-77, Class SM, IO, ((-1 x 1 Month US LIBOR) + 6.30%), 6.213%, 5/20/51		17,154,507	2,337,583
IFB Ser. 20-133, Class CS, IO, ((-1 x 1 Month US LIBOR) + 6.30%), 6.213%, 9/20/50		11,929,063	2,372,559
IFB Ser. 18-89, Class LS, IO, ((-1 x 1 Month US LIBOR) + 6.20%), 6.113%, 6/20/48		5,931,670	900,997
IFB Ser. 17-156, Class SL, IO, ((-1 x 1 Month US LIBOR) + 6.20%), 6.113%, 10/20/47		6,653,005	1,180,908
IFB Ser. 13-87, Class SA, IO, ((-1 x 1 Month US LIBOR) + 6.20%), 6.113%, 6/20/43		10,047,680	1,890,796
IFB Ser. 19-35, Class SE, IO, ((-1 x 1 Month US LIBOR) + 6.15%), 6.065%, 1/16/44		7,471,070	1,299,310
IFB Ser. 19-158, Class AS, IO, ((-1 x 1 Month US LIBOR) + 6.15%), 6.065%, 9/16/43		8,041,049	1,480,946
IFB Ser. 19-56, Class SK, IO, ((-1 x 1 Month US LIBOR) + 6.15%), 6.063%, 5/20/49		8,319,837	1,200,792
IFB Ser. 10-20, Class SC, IO, ((-1 x 1 Month US LIBOR) + 6.15%), 6.063%, 2/20/40		640,876	112,679
IFB Ser. 19-100, Class JS, IO, ((-1 x 1 Month US LIBOR) + 6.10%), 6.013%, 8/20/49		6,624,311	881,974
IFB Ser. 16-80, Class SD, IO, ((-1 x 1 Month US LIBOR) + 6.10%), 6.013%, 6/20/46		5,187,503	980,597
Ser. 16-75, Class LI, IO, 6.00%, 1/20/40		4,559,328	931,549
IFB Ser. 20-15, Class CS, IO, ((-1 x 1 Month US LIBOR) + 6.05%), 5.963%, 2/20/50		1,627,388	198,631

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Government National Mortgage Association
IFB Ser. 19-125, Class SG, IO, ((-1 x 1 Month US LIBOR) + 6.05%), 5.963%, 10/20/49		$9,731,951	$2,572,361
IFB Ser. 19-110, Class SQ, IO, ((-1 x 1 Month US LIBOR) + 6.05%), 5.963%, 9/20/49		10,138,354	1,656,537
IFB Ser. 19-99, Class KS, IO, ((-1 x 1 Month US LIBOR) + 6.05%), 5.963%, 8/20/49		631,653	91,916
IFB Ser. 19-78, Class SJ, IO, ((-1 x 1 Month US LIBOR) + 6.05%), 5.963%, 6/20/49		435,366	55,405
IFB Ser. 19-121, Class SD, IO, ((-1 x 1 Month US LIBOR) + 6.00%), 5.913%, 10/20/49		9,498,612	2,678,457
IFB Ser. 14-119, Class SA, IO, ((-1 x 1 Month US LIBOR) + 5.60%), 5.513%, 8/20/44		4,729,357	845,292
Ser. 14-137, Class ID, IO, 5.50%, 9/16/44		4,243,945	821,472
Ser. 18-127, Class ID, IO, 5.00%, 7/20/45		89,292	13,080
Ser. 15-89, Class LI, IO, 5.00%, 12/20/44		5,284,629	994,144
Ser. 14-133, Class IP, IO, 5.00%, 9/16/44		3,547,375	617,456
Ser. 14-76, IO, 5.00%, 5/20/44		3,023,690	532,167
Ser. 13-51, Class QI, IO, 5.00%, 2/20/43		4,011,168	604,167
Ser. 13-3, Class IT, IO, 5.00%, 1/20/43		1,701,832	321,816
Ser. 13-6, Class OI, IO, 5.00%, 1/20/43		8,654,973	1,633,972
Ser. 10-35, Class UI, IO, 5.00%, 3/20/40		1,447,890	265,125
Ser. 10-9, Class UI, IO, 5.00%, 1/20/40		7,103,162	1,349,601
Ser. 09-121, Class UI, IO, 5.00%, 12/20/39		4,255,490	794,074
Ser. 18-1, IO, 4.50%, 1/20/48		6,497,415	995,798
Ser. 18-127, Class IB, IO, 4.50%, 6/20/45		746,536	76,072
Ser. 13-34, Class HI, IO, 4.50%, 3/20/43		5,106,395	823,507
Ser. 13-39, Class IJ, IO, 4.50%, 3/20/43		6,616,630	1,117,957
Ser. 12-129, IO, 4.50%, 11/16/42		3,526,958	648,643
Ser. 10-35, Class AI, IO, 4.50%, 3/20/40		4,552,206	402,420
Ser. 10-35, Class DI, IO, 4.50%, 3/20/40		7,255,511	1,194,330
Ser. 10-35, Class QI, IO, 4.50%, 3/20/40		1,838,572	304,923
Ser. 10-9, Class QI, IO, 4.50%, 1/20/40		1,060,582	175,951
Ser. 09-121, Class CI, IO, 4.50%, 12/16/39		4,862,392	837,954
Ser. 18-72, Class IB, IO, 4.00%, 4/20/46		9,804,952	1,405,611
Ser. 15-94, IO, 4.00%, 7/20/45		11,932,460	2,224,211
Ser. 15-53, Class MI, IO, 4.00%, 4/16/45		4,449,580	845,420
Ser. 14-2, Class IL, IO, 4.00%, 1/16/44		904,838	136,062
Ser. 14-100, Class NI, IO, 4.00%, 6/20/43		4,687,949	298,182
Ser. 13-67, Class IP, IO, 4.00%, 4/16/43		5,667,496	910,143
Ser. 13-165, Class IL, IO, 4.00%, 3/20/43		1,576,163	219,513
Ser. 12-56, Class IB, IO, 4.00%, 4/20/42		4,216,283	669,486
Ser. 12-38, Class MI, IO, 4.00%, 3/20/42		7,875,530	1,366,562
Ser. 12-47, Class CI, IO, 4.00%, 3/20/42		1,952,661	298,527
Ser. 14-104, IO, 4.00%, 3/20/42		5,820,705	730,300
Ser. 14-4, Class IK, IO, 4.00%, 7/20/39		246,729	754
Ser. 11-71, Class IK, IO, 4.00%, 4/16/39		217,804	2,225
Ser. 14-182, Class BI, IO, 4.00%, 1/20/39		7,120,566	798,923
Ser. 20-175, Class JI, IO, 3.50%, 11/20/50		15,012,387	2,166,044

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Government National Mortgage Association
Ser. 13-79, Class PI, IO, 3.50%, 4/20/43		$3,311,086	$293,859
Ser. 15-168, Class IG, IO, 3.50%, 3/20/43		3,100,887	296,707
Ser. 13-37, Class JI, IO, 3.50%, 1/20/43		1,616,582	169,305
Ser. 13-27, Class PI, IO, 3.50%, 12/20/42		851,293	85,657
Ser. 12-136, IO, 3.50%, 11/20/42		7,178,965	1,070,669
Ser. 18-127, Class IA, IO, 3.50%, 4/20/42		7,250,696	527,996
Ser. 14-102, Class IG, IO, 3.50%, 3/16/41		1,499,913	79,791
Ser. 15-52, Class KI, IO, 3.50%, 11/20/40		2,945,691	193,532
Ser. 15-24, Class AI, IO, 3.50%, 12/20/37		3,601,358	86,721
Ser. 15-24, Class IC, IO, 3.50%, 11/20/37		1,171,423	30,574
Ser. 12-48, Class AI, IO, 3.50%, 2/20/36		1,206,176	21,105
Ser. 14-160, Class IB, IO, 3.00%, 11/20/40		1,135,689	10,996
Ser. 14-141, Class CI, IO, 3.00%, 3/20/40		587,824	4,879
Ser. 14-174, Class AI, IO, 3.00%, 11/16/29		2,742,156	190,854
Ser. 16-H13, Class IK, IO, 2.636%, 6/20/66 W		17,913,453	1,799,742
Ser. 21-8, Class IP, IO, 2.50%, 1/20/51		40,509,493	4,203,719
Ser. 20-138, Class IB, IO, 2.50%, 9/20/50		23,584,153	2,875,382
Ser. 17-H25, Class AI, IO, 2.491%, 12/20/67 W		6,762,861	517,782
Ser. 16-H24, Class KI, IO, 2.462%, 11/20/66 W		9,361,253	773,766
Ser. 17-H04, Class BI, IO, 2.459%, 2/20/67 W		14,187,226	1,166,013
Ser. 17-H08, Class EI, IO, 2.387%, 2/20/67 W		16,185,488	1,289,781
Ser. 16-H04, Class HI, IO, 2.387%, 7/20/65 W		14,716,186	662,228
Ser. 16-H18, Class QI, IO, 2.371%, 6/20/66 W		17,717,973	1,359,376
Ser. 18-H05, Class ID, IO, 2.353%, 3/20/68 W		7,679,215	633,535
Ser. 16-H27, Class GI, IO, 2.35%, 12/20/66 W		22,526,163	2,186,142
Ser. 18-H04, Class JI, IO, 2.33%, 3/20/68 W		16,513,363	1,215,384
Ser. 18-H02, Class IM, IO, 2.33%, 2/20/68 W		11,603,209	1,089,614
Ser. 17-H08, Class GI, IO, 2.329%, 2/20/67 W		12,356,954	1,301,342
Ser. 17-H25, Class CI, IO, 2.311%, 12/20/67 W		19,781,328	1,866,863
Ser. 18-H01, Class XI, IO, 2.307%, 1/20/68 W		15,688,698	1,561,516
Ser. 16-H07, Class PI, IO, 2.287%, 3/20/66 W		26,750,673	2,349,044
Ser. 17-H14, Class LI, IO, 2.275%, 6/20/67 W		8,730,306	710,701
Ser. 17-H08, Class NI, IO, 2.245%, 3/20/67 W		13,188,257	896,802
Ser. 17-H03, Class KI, IO, 2.231%, 1/20/67 W		21,289,920	2,103,444
Ser. 16-H23, Class NI, IO, 2.225%, 10/20/66 W		30,328,653	2,141,203
Ser. 17-H06, Class MI, IO, 2.218%, 2/20/67 W		22,416,257	1,574,652
FRB Ser. 16-H19, Class AI, IO, 2.20%, 9/20/66 W		31,692,931	2,376,780
Ser. 16-H24, IO, 2.14%, 9/20/66 W		15,071,722	1,330,550
Ser. 17-H20, Class AI, IO, 2.137%, 10/20/67 W		27,235,260	2,297,975
Ser. 17-H14, Class JI, IO, 2.134%, 6/20/67 W		7,152,828	713,048
Ser. 16-H17, Class DI, IO, 2.133%, 7/20/66 W		19,205,417	1,320,795
Ser. 17-H25, IO, 2.118%, 11/20/67 W		12,093,989	891,932
Ser. 16-H24, Class JI, IO, 2.103%, 11/20/66 W		4,998,275	406,891
Ser. 16-H06, Class HI, IO, 2.076%, 2/20/66 W		15,353,248	910,801
Ser. 15-H24, Class HI, IO, 2.059%, 9/20/65 W		15,075,530	531,111
Ser. 15-H23, Class TI, IO, 1.90%, 9/20/65 W		17,433,139	1,227,293
Ser. 15-H25, Class BI, IO, 1.875%, 10/20/65 W		13,343,032	918,001
FRB Ser. 15-H16, Class XI, IO, 1.871%, 7/20/65 W		10,351,383	792,916

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Government National Mortgage Association
Ser. 17-H23, Class BI, IO, 1.867%, 11/20/67 W		$10,930,450	$749,829
Ser. 15-H23, Class DI, IO, 1.842%, 9/20/65 W		5,169,687	345,852
Ser. 17-H10, Class MI, IO, 1.83%, 4/20/67 W		15,107,020	867,143
Ser. 17-H09, IO, 1.821%, 4/20/67 W		12,946,233	759,245
Ser. 15-H20, Class CI, IO, 1.817%, 8/20/65 W		24,647,885	1,833,803
Ser. 15-H22, Class AI, IO, 1.785%, 9/20/65 W		27,303,211	1,883,922
Ser. 15-H13, Class AI, IO, 1.781%, 6/20/65 W		18,461,919	1,197,140
Ser. 16-H03, Class AI, IO, 1.761%, 1/20/66 W		15,380,734	942,070
Ser. 15-H10, Class HI, IO, 1.741%, 4/20/65 W		21,559,377	1,399,204
Ser. 14-H25, Class BI, IO, 1.677%, 12/20/64 W		15,883,120	885,897
Ser. 17-H16, Class HI, IO, 1.654%, 8/20/67 W		10,471,363	638,099
Ser. 16-H06, Class AI, IO, 1.634%, 2/20/66 W		10,638,428	687,764
Ser. 14-H21, Class AI, IO, 1.619%, 10/20/64 W		18,919,521	1,199,895
Ser. 15-H04, Class AI, IO, 1.613%, 12/20/64 W		17,672,925	980,295
Ser. 16-H06, Class DI, IO, 1.603%, 7/20/65 W		18,876,318	928,375
Ser. 14-H18, Class CI, IO, 1.573%, 9/20/64 W		12,721,890	851,120
Ser. 16-H04, Class KI, IO, 1.517%, 2/20/66 W		15,929,604	789,013
Ser. 16-H10, Class AI, IO, 1.496%, 4/20/66 W		24,968,060	1,246,256
Ser. 16-H08, Class GI, IO, 1.423%, 4/20/66 W		12,172,635	536,399
FRB Ser. 11-H07, Class FI, IO, 1.226%, 2/20/61 W		23,942,793	641,667
Ser. 10-151, Class KO, PO, zero %, 6/16/37		430,887	388,424
GSMPS Mortgage Loan Trust 144A FRB Ser. 99-2, IO, 0.431%, 9/19/27 W		357,498	1,358
			267,061,361
Commercial mortgage-backed securities (19.1%)
BANK 144A Ser. 17-BNK9, Class D, 2.80%, 11/15/54		890,000	810,530
Barclays Commercial Mortgage Trust 144A Ser. 19-C4, Class E, 3.25%, 8/15/52		1,810,000	1,556,189
Bear Stearns Commercial Mortgage Securities Trust FRB Ser. 07-T26, Class AJ, 5.54%, 1/12/45 W		1,472,000	1,177,600
Benchmark Mortgage Trust 144A Ser. 19-B11, Class D, 3.00%, 5/15/52		1,058,000	969,841
CD Commercial Mortgage Trust FRB Ser. 17-CD4, Class C, 4.35%, 5/10/50 W		1,239,000	1,331,341
CD Commercial Mortgage Trust 144A
Ser. 17-CD4, Class D, 3.30%, 5/10/50		1,099,000	1,016,339
Ser. 17-CD3, Class D, 3.25%, 2/10/50		1,686,000	1,401,064
Citigroup Commercial Mortgage Trust FRB Ser. 15-P1, Class C, 4.514%, 9/15/48 W		888,000	934,185
Citigroup Commercial Mortgage Trust 144A FRB Ser. 12-GC8, Class C, 5.038%, 9/10/45 W		1,273,000	1,269,116
COMM Mortgage Trust
FRB Ser. 14-UBS2, Class C, 5.138%, 3/10/47 W		951,000	988,149
FRB Ser. 14-CR16, Class C, 5.083%, 4/10/47 W		491,000	517,811
FRB Ser. 14-UBS3, Class C, 4.897%, 6/10/47 W		956,000	1,017,545
FRB Ser. 14-UBS4, Class C, 4.806%, 8/10/47 W		1,158,060	1,194,671
FRB Ser. 18-COR3, Class C, 4.712%, 5/10/51 W		1,041,000	1,136,726
Ser. 13-LC6, Class C, 4.242%, 1/10/46 W		1,677,000	1,714,636
FRB Ser. 15-CR26, Class D, 3.63%, 10/10/48 W		1,467,375	1,452,977

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Commercial mortgage-backed securities cont.
COMM Mortgage Trust 144A
FRB Ser. 13-LC13, Class D, 5.437%, 8/10/46 W		$2,373,000	$2,267,027
FRB Ser. 13-CR13, Class D, 5.045%, 11/10/46 W		1,906,000	1,977,404
FRB Ser. 14-CR17, Class D, 5.009%, 5/10/47 W		3,623,000	3,419,087
FRB Ser. 14-UBS3, Class D, 4.927%, 6/10/47 W		1,060,000	1,068,174
FRB Ser. 14-CR19, Class D, 4.86%, 8/10/47 W		2,082,000	2,062,712
Ser. 12-CR4, Class B, 3.703%, 10/15/45		2,419,000	2,064,766
Ser. 13-LC6, Class E, 3.50%, 1/10/46		1,077,000	830,114
CSAIL Commercial Mortgage Trust Ser. 19-C15, Class B, 4.476%, 3/15/52		1,540,000	1,728,855
CSAIL Commercial Mortgage Trust 144A
FRB Ser. 18-C14, Class D, 5.052%, 11/15/51 W		1,300,000	1,357,134
Ser. 20-C19, Class D, 2.50%, 3/15/53		477,000	439,923
Ser. 19-C17, Class D, 2.50%, 9/15/52		1,626,000	1,458,396
DBUBS Mortgage Trust 144A FRB Ser. 11-LC3A, Class D, 5.545%, 8/10/44 W		4,854,000	4,839,438
FREMF Mortgage Trust 144A
FRB Ser. 19-KF65, Class B, (1 Month US LIBOR + 2.40%), 2.483%, 7/25/29		1,833,847	1,851,017
FRB Ser. 19-KF66, Class B, (1 Month US LIBOR + 2.40%), 2.483%, 7/25/29		1,571,470	1,582,481
GS Mortgage Securities Corp., II 144A
FRB Ser. 13-GC10, Class D, 4.548%, 2/10/46 W		2,209,000	2,043,473
Ser. 13-GC10, Class C, 4.285%, 2/10/46 W		1,184,000	1,214,939
GS Mortgage Securities Trust
FRB Ser. 14-GC18, Class C, 5.141%, 1/10/47 W		4,153,000	2,159,560
FRB Ser. 14-GC22, Class C, 4.845%, 6/10/47 W		1,596,000	1,660,205
GS Mortgage Securities Trust 144A
FRB Ser. 10-C1, Class D, 6.187%, 8/10/43 W		1,263,000	932,671
FRB Ser. 14-GC24, Class D, 4.669%, 9/10/47 W		4,747,000	3,236,412
JPMBB Commercial Mortgage Securities Trust
FRB Ser. 14-C22, Class C, 4.705%, 9/15/47 W		2,294,000	2,260,143
FRB Ser. 13-C12, Class C, 4.235%, 7/15/45 W		1,307,000	1,337,568
JPMBB Commercial Mortgage Securities Trust 144A
FRB Ser. C14, Class D, 4.699%, 8/15/46 W		4,088,000	2,693,536
FRB Ser. 13-C12, Class E, 4.235%, 7/15/45 W		1,235,000	988,095
FRB Ser. 14-C23, Class D, 4.133%, 9/15/47 W		2,078,000	2,090,704
JPMDB Commercial Mortgage Securities Trust Ser. 17-C5, Class C, 4.512%, 3/15/50 W		1,858,000	1,824,785
JPMorgan Chase Commercial Mortgage Securities Trust
FRB Ser. 07-CB19, Class AJ, 6.261%, 2/12/49 W		1,114,348	1,260,406
Ser. 06-LDP9, Class AMS, 5.337%, 5/15/47		2,284,463	2,021,749
FRB Ser. 13-LC11, Class D, 4.305%, 4/15/46 W		2,891,000	2,396,417
Ser. 13-LC11, Class B, 3.499%, 4/15/46		725,000	737,246
JPMorgan Chase Commercial Mortgage Securities Trust 144A
FRB Ser. 10-C2, Class D, 5.872%, 11/15/43 W		1,295,000	1,267,933
FRB Ser. 11-C3, Class D, 5.707%, 2/15/46 W		3,045,000	1,875,459
FRB Ser. 11-C3, Class E, 5.707%, 2/15/46 W		1,629,000	594,054
FRB Ser. 11-C4, Class C, 5.575%, 7/15/46 W		657,543	684,000
FRB Ser. 13-C16, Class D, 5.189%, 12/15/46 W		2,285,000	2,329,494

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Commercial mortgage-backed securities cont.
ML-CFC Commercial Mortgage Trust FRB Ser. 06-4, Class C, 5.324%, 12/12/49 W		$155,108	$154,748
Morgan Stanley Bank of America Merrill Lynch Trust 144A
FRB Ser. 13-C12, Class D, 4.922%, 10/15/46 W		479,000	442,244
FRB Ser. 13-C12, Class E, 4.922%, 10/15/46 W		2,040,618	1,408,755
FRB Ser. 12-C6, Class G, 4.50%, 11/15/45 W		1,288,000	864,248
FRB Ser. 15-C23, Class D, 4.282%, 7/15/50 W		458,000	461,861
FRB Ser. 13-C9, Class D, 4.247%, 5/15/46 W		1,234,000	1,136,514
FRB Ser. 13-C10, Class F, 4.216%, 7/15/46 W		2,316,000	509,520
Ser. 14-C19, Class D, 3.25%, 12/15/47		2,098,000	2,076,605
Morgan Stanley Capital I Trust 144A
FRB Ser. 12-C4, Class E, 5.539%, 3/15/45 W		2,436,000	1,707,636
FRB Ser. 11-C3, Class E, 5.467%, 7/15/49 W		8,047,130	6,586,408
Multifamily Connecticut Avenue Securities Trust 144A
FRB Ser. 20-01, Class M10, 3.836%, 3/25/50		2,630,000	2,728,240
FRB Ser. 19-01, Class M10, 3.336%, 10/15/49		6,245,000	6,302,661
FRB Ser. 19-01, Class M7, 1.786%, 10/15/49		1,003,040	998,592
UBS Commercial Mortgage Trust 144A
FRB Ser. 12-C1, Class D, 5.734%, 5/10/45 W		4,617,000	4,347,916
FRB Ser. 12-C1, Class E, 5.00%, 5/10/45 W		2,266,000	902,125
UBS-Barclays Commercial Mortgage Trust 144A FRB Ser. 12-C4, Class D, 4.611%, 12/10/45 W		1,801,000	1,580,846
UBS-Citigroup Commercial Mortgage Trust 144A
FRB Ser. 11-C1, Class B, 6.452%, 1/10/45 W		1,745,000	1,747,914
FRB Ser. 11-C1, Class D, 6.452%, 1/10/45 W		3,176,000	3,107,378
Wells Fargo Commercial Mortgage Trust
FRB Ser. 16-NXS5, Class D, 5.151%, 1/15/59 W		1,190,000	1,279,381
FRB Ser. 18-C46, Class C, 5.144%, 8/15/51 W		823,000	913,617
FRB Ser. 20-C57, Class C, 4.158%, 8/15/53 W		788,000	885,011
FRB Ser. 20-C56, Class C, 3.871%, 6/15/53 W		1,217,000	1,281,245
Wells Fargo Commercial Mortgage Trust 144A
FRB Ser. 15-C30, Class D, 4.648%, 9/15/58 W		1,361,000	1,397,457
Ser. 16-C33, Class D, 3.123%, 3/15/59		2,280,000	2,158,257
WF-RBS Commercial Mortgage Trust 144A
Ser. 11-C4, Class E, 5.023%, 6/15/44 W		1,659,568	1,209,817
FRB Ser. 12-C9, Class D, 4.969%, 11/15/45 W		5,183,466	5,101,445
FRB Ser. 12-C9, Class E, 4.969%, 11/15/45 W		2,012,000	1,795,521
			134,130,059
Residential mortgage-backed securities (non-agency) (20.8%)
American Home Mortgage Investment Trust FRB Ser. 07-1, Class GA1C, (1 Month US LIBOR + 0.19%), 0.276%, 5/25/47		6,143,495	3,593,185
Arroyo Mortgage Trust 144A Ser. 19-3, Class M1, 4.204%, 10/25/48 W		750,000	774,593
Bayview Financial Mortgage Pass-Through Trust Ser. 06-C, Class 1A3, 6.528%, 11/28/36		6,545,158	6,604,557
Bear Stearns Alt-A Trust
FRB Ser. 05-8, Class 21A1, 2.462%, 10/25/35 W		540,580	501,420
FRB Ser. 05-10, Class 11A1, (1 Month US LIBOR + 0.50%), 0.586%, 1/25/36		302,659	368,542

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Residential mortgage-backed securities (non-agency) cont.
Bellemeade Re, Ltd. 144A
FRB Ser. 17-1, Class B1, (1 Month US LIBOR + 4.75%), 4.836%, 10/25/27 (Bermuda)		$498,000	$512,166
FRB Ser. 17-1, Class M2, (1 Month US LIBOR + 3.35%), 3.436%, 10/25/27 (Bermuda)		3,092,648	3,134,201
Carrington Mortgage Loan Trust FRB Ser. 06-NC2, Class A4, (1 Month US LIBOR + 0.24%), 0.326%, 6/25/36		8,710,000	8,554,143
Countrywide Alternative Loan Trust FRB Ser. 06-OA19, Class A1, (1 Month US LIBOR + 0.18%), 0.267%, 2/20/47		2,452,191	1,915,328
Countrywide Asset-Backed Certificates FRB Ser. 07-10, Class 1A1, (1 Month US LIBOR + 0.18%), 0.266%, 6/25/47		5,266,395	5,081,613
Eagle Re, Ltd. 144A FRB Ser. 20-1, Class B1, (1 Month US LIBOR + 2.85%), 2.936%, 1/25/30		765,000	727,484
Federal Home Loan Mortgage Corporation
Structured Agency Credit Risk Debt FRN Ser. 15-DNA3, Class B, (1 Month US LIBOR + 9.35%), 9.436%, 4/25/28		330,129	372,605
Structured Agency Credit Risk Debt Notes FRB Ser. 15-HQA1, Class B, (1 Month US LIBOR + 8.80%), 8.886%, 3/25/28		2,718,096	2,915,563
Structured Agency Credit Risk Debt FRN Ser. 17-DNA2, Class B1, (1 Month US LIBOR + 5.15%), 5.236%, 10/25/29		1,235,000	1,349,655
Structured Agency Credit Risk Debt FRN Ser. 16-DNA3, Class M3, (1 Month US LIBOR + 5.00%), 5.086%, 12/25/28		4,797,832	5,032,481
Structured Agency Credit Risk Debt FRN Ser. 17-HQA2, Class B1, (1 Month US LIBOR + 4.75%), 4.836%, 12/25/29		250,000	266,883
Structured Agency Credit Risk Debt FRN Ser. 14-HQ3, Class M3, (1 Month US LIBOR + 4.75%), 4.836%, 10/25/24		76,016	76,580
Structured Agency Credit Risk Debt FRN Ser. 17-DNA2, Class M2, (1 Month US LIBOR + 3.45%), 3.536%, 10/25/29		1,703,000	1,764,301
Structured Agency Credit Risk Debt FRN Ser. 18-DNA1, Class B1, (1 Month US LIBOR + 3.15%), 3.236%, 7/25/30		2,084,000	2,119,900
Structured Agency Credit Risk Debt FRN Ser. 17-HQA2, Class M2, (1 Month US LIBOR + 2.65%), 2.736%, 12/25/29		2,687,148	2,745,513
Structured Agency Credit Risk Debt FRN Ser. 18-HQA1, Class M2, (1 Month US LIBOR + 2.30%), 2.386%, 9/25/30		2,765,082	2,800,953
Federal Home Loan Mortgage Corporation 144A
Structured Agency Credit Risk Trust FRB Ser. 19-HQA2, Class B2, (1 Month US LIBOR + 11.25%), 11.336%, 4/25/49		637,000	712,601
Structured Agency Credit Risk Trust FRB Ser. 18-HQA2, Class B2, (1 Month US LIBOR + 11.00%), 11.086%, 10/25/48		2,108,000	2,488,366
Structured Agency Credit Risk Trust FRB Ser. 19-DNA1, Class B2, (1 Month US LIBOR + 10.75%), 10.836%, 1/25/49		4,520,000	5,225,770
Structured Agency Credit Risk Trust FRB Ser. 19-DNA2, Class B2, (1 Month US LIBOR + 10.50%), 10.586%, 3/25/49		282,000	317,524
Structured Agency Credit Risk Trust REMICs FRB Ser. 20-DNA4, Class B2, (1 Month US LIBOR + 10.00%), 10.086%, 8/25/50		2,647,000	3,312,059
Structured Agency Credit Risk Trust REMICs FRB Ser. 20-HQA3, Class B2, (1 Month US LIBOR + 10.00%), 10.086%, 7/25/50		916,000	1,142,710
Structured Agency Credit Risk Trust FRB Ser. 19-DNA3, Class B2, (1 Month US LIBOR + 8.15%), 8.236%, 7/25/49		393,000	426,803
Structured Agency Credit Risk Trust FRB Ser. 19-DNA4, Class B2, (1 Month US LIBOR + 6.25%), 6.336%, 10/25/49		2,980,000	3,089,209

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Residential mortgage-backed securities (non-agency) cont.
Federal Home Loan Mortgage Corporation 144A
Structured Agency Credit Risk Trust REMICs FRB Ser. 20-HQA3, Class B1, (1 Month US LIBOR + 5.75%), 5.836%, 7/25/50		$1,351,000	$1,434,022
Structured Agency Credit Risk Trust FRB Ser. 19-FTR3, Class FTR3, (1 Month US LIBOR + 4.80%), 4.884%, 9/25/47		371,000	372,623
Seasoned Credit Risk Transfer Trust Ser. 19-2, Class M, 4.75%, 8/25/58 W		1,129,000	1,192,941
Seasoned Credit Risk Transfer Trust FRB Ser. 18-3, Class 3, 4.75%, 8/25/57 W		876,000	917,077
Seasoned Credit Risk Transfer Trust Ser. 19-4, Class M, 4.50%, 2/25/59 W		485,000	504,857
Structured Agency Credit Risk Trust FRB Ser. 18-HQA2, Class B1, (1 Month US LIBOR + 4.25%), 4.336%, 10/25/48		1,347,000	1,405,931
Structured Agency Credit Risk Trust FRB Ser. 18-DNA2, Class B1, (1 Month US LIBOR + 3.70%), 3.786%, 12/25/30		2,018,000	2,093,771
Structured Agency Credit Risk Trust FRB Ser. 19-DNA1, Class M2, (1 Month US LIBOR + 2.65%), 2.736%, 1/25/49		777,631	788,009
Structured Agency Credit Risk Trust FRB Ser. 19-DNA2, Class M2, (1 Month US LIBOR + 2.45%), 2.536%, 3/25/49		292,055	296,071
Structured Agency Credit Risk Trust FRB Ser. 19-HQA1, Class M2, (1 Month US LIBOR + 2.35%), 2.436%, 2/25/49		1,391,374	1,401,359
Federal National Mortgage Association
Connecticut Avenue Securities FRB Ser. 16-C03, Class 2B, (1 Month US LIBOR + 12.75%), 12.836%, 10/25/28		467,943	536,035
Connecticut Avenue Securities FRB Ser. 16-C03, Class 1B, (1 Month US LIBOR + 11.75%), 11.836%, 10/25/28		2,825,928	3,274,548
Connecticut Avenue Securities FRB Ser. 16-C04, Class 1B, (1 Month US LIBOR + 10.25%), 10.336%, 1/25/29		782,291	884,478
Connecticut Avenue Securities FRB Ser. 16-C06, Class 1B, (1 Month US LIBOR + 9.25%), 9.336%, 4/25/29		505,734	555,950
Connecticut Avenue Securities FRB Ser. 15-C04, Class 1M2, (1 Month US LIBOR + 5.70%), 5.786%, 4/25/28		454,044	479,135
Connecticut Avenue Securities FRB Ser. 17-C02, Class 2B1, (1 Month US LIBOR + 5.50%), 5.586%, 9/25/29		2,538,000	2,766,821
Connecticut Avenue Securities FRB Ser. 16-C03, Class 1M2, (1 Month US LIBOR + 5.30%), 5.386%, 10/25/28		794,212	834,214
Connecticut Avenue Securities FRB Ser. 18-C04, Class 2B1, (1 Month US LIBOR + 4.50%), 4.586%, 12/25/30		2,530,000	2,673,113
Connecticut Avenue Securities FRB Ser. 17-C07, Class 2B1, (1 Month US LIBOR + 4.45%), 4.536%, 5/25/30		2,739,000	2,842,387
Connecticut Avenue Securities FRB Ser. 17-C06, Class 2B1, (1 Month US LIBOR + 4.45%), 4.536%, 2/25/30		3,913,000	4,115,987
Connecticut Avenue Securities FRB Ser. 16-C05, Class 2M2, (1 Month US LIBOR + 4.45%), 4.536%, 1/25/29		309,976	321,588
Connecticut Avenue Securities FRB Ser. 17-C06, Class 1B1, (1 Month US LIBOR + 4.15%), 4.236%, 2/25/30		3,742,000	3,895,169
Connecticut Avenue Securities FRB Ser. 18-C06, Class 2B1, (1 Month US LIBOR + 4.10%), 4.186%, 3/25/31		1,273,000	1,320,285
Connecticut Avenue Securities FRB Ser. 17-C07, Class 1B1, (1 Month US LIBOR + 4.00%), 4.086%, 5/25/30		3,800,000	3,965,873

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Residential mortgage-backed securities (non-agency) cont.
Federal National Mortgage Association
Connecticut Avenue Securities FRB Ser. 18-C06, Class 1B1, (1 Month US LIBOR + 3.75%), 3.836%, 3/25/31		$1,687,000	$1,722,467
Connecticut Avenue Securities FRB Ser. 18-C03, Class 1B1, (1 Month US LIBOR + 3.75%), 3.836%, 10/25/30		1,154,000	1,203,766
Connecticut Avenue Securities FRB Ser. 17-C05, Class 1B1, (1 Month US LIBOR + 3.60%), 3.686%, 1/25/30		7,485,000	7,801,100
Connecticut Avenue Securities FRB Ser. 17-C01, Class 1M2, (1 Month US LIBOR + 3.55%), 3.636%, 7/25/29		2,475,817	2,548,242
Connecticut Avenue Securities FRB Ser. 17-C03, Class 1M2, (1 Month US LIBOR + 3.00%), 3.086%, 10/25/29		4,154,693	4,267,042
Connecticut Avenue Securities FRB Ser. 18-C01, Class 1M2, (1 Month US LIBOR + 2.25%), 2.336%, 7/25/30		313,865	317,716
Connecticut Avenue Securities FRB Ser. 18-C02, Class 2M2, (1 Month US LIBOR + 2.20%), 2.286%, 8/25/30		2,275,451	2,303,245
Federal National Mortgage Association 144A
Connecticut Avenue Securities Trust FRB Ser. 20-SBT1, Class 1B1, (1 Month US LIBOR + 6.75%), 6.836%, 2/25/40		2,355,000	2,454,429
Connecticut Avenue Securities Trust FRB Ser. 19-R01, Class 2B1, (1 Month US LIBOR + 4.35%), 4.436%, 7/25/31		653,000	674,223
Connecticut Avenue Securities Trust FRB Ser. 20-SBT1, Class 1M2, (1 Month US LIBOR + 3.65%), 3.736%, 2/25/40		1,887,000	1,966,225
Connecticut Avenue Securities Trust FRB Ser. 20-R01, Class 1B1, (1 Month US LIBOR + 3.25%), 3.336%, 1/25/40		347,000	348,692
Connecticut Avenue Securities Trust FRB Ser. 20-R02, Class 2B1, (1 Month US LIBOR + 3.00%), 3.086%, 1/25/40		311,000	310,109
Connecticut Avenue Securities Trust FRB Ser. 19-R01, Class 2M2, (1 Month US LIBOR + 2.45%), 2.536%, 7/25/31		46,590	46,852
HarborView Mortgage Loan Trust FRB Ser. 05-2, Class 1A, (1 Month US LIBOR + 0.52%), 0.607%, 5/19/35		1,079,206	493,097
Home Re, Ltd. 144A FRB Ser. 21-2, Class B1, (US 30 Day Average SOFR + 4.15%), 4.20%, 1/25/34 (Bermuda)		1,000,000	1,000,302
JPMorgan Alternative Loan Trust FRB Ser. 06-A6, Class 1A1, (1 Month US LIBOR + 0.32%), 0.406%, 11/25/36		1,669,331	1,603,979
Legacy Mortgage Asset Trust 144A FRB Ser. 19-GS2, Class A2, 4.25%, 1/25/59		1,220,000	1,219,998
Morgan Stanley ABS Capital I, Inc. Trust FRB Ser. 04-HE9, Class M2, (1 Month US LIBOR + 0.93%), 1.016%, 11/25/34		579,254	571,971
Oaktown Re II, Ltd. 144A FRB Ser. 18-1A, Class M2, (1 Month US LIBOR + 2.85%), 2.936%, 7/25/28 (Bermuda)		2,980,000	3,036,737
Oaktown Re III, Ltd. 144A
FRB Ser. 19-1A, Class B1B, (1 Month US LIBOR + 4.35%), 4.436%, 7/25/29 (Bermuda)		695,000	707,279
FRB Ser. 19-1A, Class B1A, (1 Month US LIBOR + 3.50%), 3.586%, 7/25/29 (Bermuda)		574,000	585,258
Oaktown Re, Ltd. 144A FRB Ser. 17-1A, Class M2, (1 Month US LIBOR + 4.00%), 4.086%, 4/25/27 (Bermuda)		657,330	662,663
Radnor Re, Ltd. 144A Mortgage Insurance-Linked FRN Ser. 20-1, Class B1, (1 Month US LIBOR + 3.00%), 3.086%, 1/25/30		430,000	426,619
Structured Asset Mortgage Investments II Trust FRB Ser. 06-AR7, Class A1BG, (1 Month US LIBOR + 0.12%), 0.206%, 8/25/36		391,541	374,608

MORTGAGE-BACKED SECURITIES (77.8%)* cont.		Principal amount	Value
Residential mortgage-backed securities (non-agency) cont.
Towd Point Mortgage Trust 144A Ser. 19-2, Class A2, 3.75%, 12/25/58 W		$862,000	$927,197
WaMu Mortgage Pass-Through Certificates Trust FRB Ser. 05-AR8, Class 2AC2, (1 Month US LIBOR + 0.92%), 1.006%, 7/25/45		704,889	680,900
Wells Fargo Home Equity Asset-Backed Securities Trust FRB Ser. 07-2, Class A3, (1 Month US LIBOR + 0.23%), 0.316%, 4/25/37		1,011,592	995,979
			146,049,647
Total mortgage-backed securities (cost $578,587,490)			$547,241,067

U.S. GOVERNMENT AND AGENCY MORTGAGE OBLIGATIONS (54.2%)*	Principal amount	Value
U.S. Government Guaranteed Mortgage Obligations (11.0%)
Government National Mortgage Association Adjustable Rate Mortgages (1 Yr Monthly Treasury Average CMT Index + 1.50%), 2.25%, 7/20/26	$4,525	$4,590
Government National Mortgage Association Pass-Through Certificates
7.50%, 10/20/30	27,227	31,460
6.00%, 1/15/29	1	1
5.50%, with due dates from 8/15/35 to 5/20/49	192,078	219,759
5.00%, with due dates from 5/20/49 to 3/20/50	516,918	572,774
4.70%, with due dates from 5/20/67 to 8/20/67	520,491	570,061
4.66%, 9/20/65	122,634	131,749
4.642%, 6/20/67	507,645	561,137
4.50%, TBA, 10/1/51	2,000,000	2,132,874
4.50%, with due dates from 2/20/34 to 1/20/50	8,555,217	9,430,442
4.48%, 3/20/67	518,906	574,659
4.328%, 5/20/67	227,735	254,725
4.00%, with due dates from 9/20/44 to 1/20/50	2,673,173	2,926,501
3.50%, with due dates from 8/20/49 to 3/20/50	1,513,375	1,630,454
3.00%, TBA, 10/1/51	44,000,000	45,975,354
3.00%, with due dates from 3/20/43 to 10/20/44	1,396,777	1,500,164
2.00%, TBA, 10/1/51	11,000,000	11,155,262
		77,671,966
U.S. Government Agency Mortgage Obligations (43.2%)
Federal Home Loan Mortgage Corporation Pass-Through Certificates
7.50%, 10/1/29	108,308	124,019
4.50%, with due dates from 1/1/37 to 6/1/37	85,583	94,265
Federal National Mortgage Association Pass-Through Certificates
6.00%, with due dates from 4/1/22 to 8/1/22	675	682
5.00%, with due dates from 1/1/49 to 8/1/49	219,130	243,248
4.50%, with due dates from 3/1/39 to 5/1/49	554,384	610,244
4.00%, with due dates from 2/1/45 to 6/1/46	554,218	606,783
3.50%, with due dates from 5/1/56 to 6/1/56	6,122,605	6,702,410
3.50%, with due dates from 10/1/44 to 1/1/47	11,443,345	12,483,553
2.50%, 3/1/43	16,690,408	17,303,694
Uniform Mortgage-Backed Securities
6.00%, TBA, 10/1/51	11,400,000	12,750,822
5.50%, TBA, 10/1/51	52,000,000	58,160,414
4.50%, TBA, 10/1/51	95,000,000	102,737,294
4.00%, TBA, 10/1/51	14,000,000	15,001,328

U.S. GOVERNMENT AND AGENCY MORTGAGE OBLIGATIONS (54.2%)* cont.	Principal amount	Value
U.S. Government Agency Mortgage Obligations cont.
Uniform Mortgage-Backed Securities
3.50%, TBA, 10/1/51	$7,000,000	$7,407,693
3.00%, TBA, 11/1/51	2,000,000	2,090,545
3.00%, TBA, 10/1/51	10,000,000	10,465,226
2.50%, TBA, 10/1/51	55,000,000	56,712,310
		303,494,530
Total U.S. government and agency mortgage obligations (cost $377,867,167)		$381,166,496

ASSET-BACKED SECURITIES (4.5%)*		Principal amount	Value
1Sharpe Mortgage Trust 144A FRB Ser. 20-1, Class NOTE, (BBA LIBOR USD 3 Month + 2.90%), 3.025%, 7/25/24		$3,503,000	$3,507,554
LHOME Mortgage Trust 144A Ser. 21-RTL1, Class A1, 2.09%, 9/25/26 W		511,000	511,102
Mello Warehouse Securitization Trust 144A
FRB Ser. 20-1, Class A, (1 Month US LIBOR + 0.90%), 0.986%, 10/25/53		1,639,000	1,639,000
FRB Ser. 20-2, Class A, (1 Month US LIBOR + 0.80%), 0.886%, 11/25/53		987,000	987,000
Mortgage Repurchase Agreement Financing Trust 144A FRB Ser. 20-5, Class A1, (1 Month US LIBOR + 1.00%), 1.085%, 8/10/23		1,184,000	1,190,874
MRA Issuance Trust 144A
FRB Ser. 21-EBO4, Class A1X, (1 Month US LIBOR + 1.75%), 1.836%, 2/16/22		2,167,000	2,167,000
FRB Ser. 21-EBO1, Class A1X, (1 Month US LIBOR + 1.75%), 1.834%, 2/16/22		1,980,000	1,980,000
FRB Ser. 20-11, Class A1X, (1 Month US LIBOR + 1.70%), 1.784%, 4/22/22		2,255,000	2,255,000
FRB Ser. 21-NA1, Class A1X, (1 Month US LIBOR + 1.50%), 1.586%, 3/8/22		2,227,000	2,227,000
FRB Ser. 20-2, Class A2, (1 Month US LIBOR + 1.45%), 1.286%, 8/15/22		2,155,000	2,155,000
FRB Ser. 21-14, Class A1X, (1 Month US LIBOR + 1.25%), 1.243%, 2/15/22		2,156,000	2,156,000
FRB Ser. 21-8, Class A1X, (1 Month US LIBOR + 1.15%), 1.236%, 10/15/21		2,139,000	2,139,000
FRB Ser. 21-11, Class A1X, (1 Month US LIBOR + 1.15%), 1.234%, 1/25/22		2,167,000	2,171,328
Station Place Securitization Trust 144A
FRB Ser. 21-6, Class A, (1 Month US LIBOR + 0.80%), 0.883%, 4/25/22		4,213,000	4,213,000
FRB Ser. 21-10, Class A, (1 Month US LIBOR + 0.75%), 0.854%, 8/8/22		2,100,000	2,100,000
Total asset-backed securities (cost $31,382,990)			$31,398,858

PURCHASED SWAP OPTIONS OUTSTANDING (1.8%)*
Counterparty Fixed right % to receive or (pay)/ Floating rate index/Maturity date	Expiration date/strike		Notional/ Contract amount	Value
Bank of America N.A.
3.312/3 month USD-LIBOR-BBA/Nov-38	Nov-28/3.312		$73,288,200	$9,232,115
(3.312)/3 month USD-LIBOR-BBA/Nov-38	Nov-28/3.312		73,288,200	1,925,281
0.485/3 month USD-LIBOR-BBA/Jan-25	Jan-24/0.485		51,153,500	40,923
Morgan Stanley & Co. International PLC
(1.613)/3 month USD-LIBOR-BBA/Aug-34	Aug-24/1.613		17,746,600	1,121,763
1.613/3 month USD-LIBOR-BBA/Aug-34	Aug-24/1.613		17,746,600	521,395
Total purchased swap options outstanding (cost $11,843,746)				$12,841,477

PURCHASED OPTIONS OUTSTANDING (0.1%)* Counterparty	Expiration date/strike price	Notional amount		Contract amount	Value
JPMorgan Chase Bank N.A.
Government National Mortgage Association 30 yr 3.50% TBA commitments (Call)	Oct-21/$105.28	$122,000,000		$122,000,000	$33,672
Government National Mortgage Association 30 yr 4.00% TBA commitments (Call)	Oct-21/106.19	100,000,000		100,000,000	27,800
Uniform Mortgage-Backed Securities 30 yr 2.50% TBA commitments (Call)	Oct-21/103.75	65,000,000		65,000,000	4,875
Uniform Mortgage-Backed Securities 30 yr 3.00% TBA commitments (Call)	Oct-21/104.56	180,000,000		180,000,000	273,420
Uniform Mortgage-Backed Securities 30 yr 3.50% TBA commitments (Call)	Oct-21/105.84	280,000,000		280,000,000	92,120
Uniform Mortgage-Backed Securities 30 yr 4.00% TBA commitments (Call)	Oct-21/107.15	105,000,000		105,000,000	38,325
Total purchased options outstanding (cost $2,125,001)					$470,212

SHORT-TERM INVESTMENTS (24.4%)*		Principal amount/ shares	Value
Putnam Government Money Market Fund Class P 0.01% L	Shares	10,000	$10,000
Putnam Short Term Investment Fund Class P 0.08% L	Shares	50,544,303	50,544,303
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.03% P	Shares	1,810,000	1,810,000
U.S. Treasury Bills 0.043%, 2/24/22 # ∆ §		$10,700,000	10,697,830
U.S. Treasury Bills 0.048%, 3/24/22 # ∆ §		20,200,000	20,195,362
U.S. Treasury Bills 0.045%, 10/7/21 ∆		5,300,000	5,299,967
U.S. Treasury Bills 0.044%, 2/17/22 # ∆ §		4,100,000	4,099,248
U.S. Treasury Bills 0.046%, 3/3/22 ∆ §		3,700,000	3,699,312
U.S. Treasury Bills 0.032%, 2/10/22 # ∆		19,900,000	19,896,717
U.S. Treasury Bills 0.038%, 3/17/22 ∆ §		3,700,000	3,699,185
U.S. Treasury Bills 0.045%, 4/21/22 ∆		700,000	699,804
U.S. Treasury Bills 0.038%, 2/3/22 ∆		13,200,000	13,197,823
U.S. Treasury Bills 0.031%, 3/10/22 ∆ §		12,200,000	12,197,424