Putnam
Diversified Income
Trust

Annual report
9 | 30 | 23

 

 

Message from the Trustees

November 7, 2023

Dear Fellow Shareholder:

Equity markets have risen from the depths of the 2022 downturn over the past 12 months. At the same time, the U.S. economy has continued to grow. However, both stocks and bonds have encountered headwinds recently. With the rate of inflation above the Federal Reserve’s target of 2%, the Fed has made it clear that short-term interest rates will remain high heading into 2024. Many experts believe the Fed’s restrictive policy keeps the risk of a recession alive.

Turning to bond markets, performance has been mostly lackluster over the past 12 months. The rise in bond yields since July has challenged many fixed income assets. Against this backdrop, investors are weighing the impact of high borrowing costs and tighter lending conditions at banks.

As active managers, your investment team continues to research attractive opportunities for your fund while monitoring risks. This report offers an update on their efforts.

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 below and pages 8–10 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.

Lipper peer group median is provided by Lipper, an LSEG company.

* The fund’s benchmark, the ICE BofA U.S. Treasury Bill Index, was introduced on 6/30/92, which post-dates the inception of the fund.

This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 9/30/23. See above and pages 8–10 for additional fund performance information. Index descriptions can be found on page 12.

All Bloomberg indices are provided by Bloomberg Index Services Limited.

 

 

Mike, please describe investing conditions during the 12-month reporting period.

Bond market performance was mixed over the period. Stubborn inflation, banking turmoil, a U.S. debt ceiling crisis, and recessionary concerns weighed on financial markets. The U.S. Federal Reserve made a series of interest-rate hikes to bring the rate of inflation closer to its 2% target. At period-end, the federal funds rate reached a 22-year high of 5.25%–5.50%.

In December 2022, inflation eased enough for the Fed to begin reducing the size and pace of its interest-rate hikes. The U.S. economy, buoyed by a strong labor market, remained in expansion. Quarterly corporate earnings surpassed investors’ expectations. Risk appetite improved as recessionary fears declined.

In calendar 2023, new risks emerged. Sticky inflation caused the Fed to keep interest rates higher for longer than anticipated. The failure of several U.S. regional banks in March 2023 and concern over the federal deficit also weighed on investor sentiment. U.S. Treasury yields rose sharply in May 2023 following a resolution to the U.S. debt ceiling debate. After skipping a rate hike in June 2023, the Fed lifted

 

 

Credit qualities are shown as a percentage of the fund’s net assets as of 9/30/23. 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. Ratings and portfolio credit quality will vary over time. Due to rounding, percentages may not equal 100%.

Cash and net other assets, if any, represent the market value weights of cash, derivatives, and short-term securities in the portfolio. The fund itself has not been rated by an independent rating agency.

rates in July 2023. Treasury yields remained elevated after Fitch Ratings downgraded the U.S. government’s credit rating in August 2023. The Fed held interest rates steady in September 2023, but indicated another rate hike was possible before year-end.

Against this backdrop, high-yield bonds and floating-rate bank loans outperformed the broader fixed income market. Mortgage-backed securities and investment-grade [IG] corporate bonds, which are generally more sensitive to higher interest rates, were relative underperformers. Credit spreads largely tightened over the period. [Credit spreads are the yield advantage credit-sensitive bonds offer over comparable-maturity U.S. Treasuries. Bond prices rise as yield spreads tighten and decline as spreads widen.] The yield on the benchmark 10-year U.S. Treasury note climbed from 3.83% at the start of the period to 4.59% at period-end.

How did the fund perform compared with its benchmark for the reporting period?

The fund’s class A shares returned 1.17%, underperforming the benchmark ICE BofA U.S. Treasury Bill Index, which returned 4.52%.

Which holdings and strategies detracted from fund performance during the reporting period?

Term structure risk strategies were the largest detractors from fund performance during the period. The period was marked by higher yields and an inverted yield curve, which happens when yields on longer-term bonds fall below those of shorter-term bonds. These conditions negatively impacted the fund, which is positioned with a structural positive duration that has settled around four years. Our structural duration positioning and discretionary relative value strategies drove the fund’s underperformance relative to its benchmark.

 

 

Currency risk strategies modestly detracted from fund performance during the period. This strategy employs a hedge of safe-haven currencies that typically do well in risk-averse investing environments. We held a long position to the U.S. dollar, Japanese yen, and Swiss franc versus the remaining G10 currencies [the top 10 most-traded currencies in the world]. During the period, the Japanese yen weakened, the Swiss franc strengthened, and the U.S. dollar fluctuated relative to all G10 currencies, which led to the strategies’ underperformance.

Exposure to commercial mortgage-backed securities [CMBS] also detracted from fund performance. In the first quarter of calendar 2023, poor technicals [supply/demand metrics] and negative headlines surrounding office properties were a drag on the CMBS market.

What about contributors for the reporting period?

Corporate credit strategies were the fund’s largest contributors, led by high-yield bonds. High-yield spreads tightened by approximately 150 basis points [bps] during the period, as measured by the JPMorgan Developed High Yield Index.

Prepayment risk strategies, led by our mortgage basis positioning and exposure to agency interest-only [IO] securities, also contributed to the fund’s performance. We shifted to a long basis positioning in late calendar 2022, which was beneficial as the mortgage basis significantly tightened. The fund’s long mortgage basis positioning is a strategy that capitalizes on the difference between longer-term U.S. Treasury yields and the interest rates on

This table shows the fund’s top 10 individual holdings and the percentage of the fund’s net assets that each represented as of 9/30/23. Short-term investments, to-be-announced (TBA) commitments, and derivatives, if any, are excluded. Holdings may vary over time.

 

 

30-year home mortgages. Additionally, agency IO securities continued to benefit from low prepayment speeds.

Emerging market [EM] risk strategies and exposure to residential mortgage credit, led by our seasoned credit risk transfer [CRT] holdings, also helped results. CRTs performed well as they continued to be tendered by issuers and received some upgrades by rating agencies.

How did you use derivatives during the period?

We used credit default swaps to gain exposure to CMBS via CMBX, and also to hedge the fund’s credit and market risks. [CMBX is a group of tradable indexes that each reference a basket of 25 CMBS issued in a particular year.] We also used credit default swap contracts to gain exposure to specific sectors and individual names. We used bond futures contracts and interest-rate swaps to take tactical positions at various points along the yield curve, and to hedge the risk associated with the fund’s curve positioning. We also employed interest-rate swaps to gain exposure to rates in various countries. We utilized options to hedge the fund’s duration and convexity, to isolate the prepayment risk associated with our holdings of collateralized mortgage obligations, and to help manage overall downside risk. Lastly, we used currency forward contracts to hedge the foreign exchange risk associated with non-U.S. bonds and to efficiently gain exposure to foreign currencies.

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

A large budget deficit in an expanding U.S. economy, combined with stubborn inflation, contributed to rising interest rates year to date. Treasury yields have traded up since the resolution of the debt ceiling in May 2023. We expect interest rates to stay higher for longer on the back of increased Treasury supply and hawkish Fed rhetoric, in our view. We believe markets have priced in expectations for a U.S. recession in mid-2024.

We believe growth has been more resilient in the U.S. than in other major economies. We expect the U.S. dollar to appreciate given higher interest rates in the world’s reserve currency. In Europe, the central bank has signaled an end to its tightening cycle amid weak economic growth and tepid risk appetite, which we believe will put downward pressure on the euro. In our view, the Bank of Japan is far behind in the tightening cycle relative to other developed-market central banks. We expect the yen to continue to depreciate until a recession is more likely.

Healthy market technicals and supportive macroeconomic data have kept IG spread volatility low. Against this backdrop, the high-yield market has performed strongly along with other risk assets. Year to date, corporate fundamentals have been resilient; quarterly corporate earnings were largely better than expected. Technicals have been improving with a pick-up in inflows in recent months. Low new issuance in high yield, coupled with an increase in rising stars [companies showing the potential to improve in credit quality], also has created a supportive technical backdrop, in our view. Valuations are still somewhat attractive, in our view. Credit spreads are pricing in a continued increase in defaults along with slower growth. However, these conditions do not indicate a harsh recession, in our view. Year to date, spreads within IG have tightened 12 bps to 118 bps, leaving little room for error. Within high yield, valuation now sits at the 48th percentile over the past 10 years in terms of spread, while yield seems attractive versus historical averages, currently at the 92nd percentile. We believe risks to our outlook include macro forces of high inflation, central bank tightening, slowing growth, and heightened geopolitical tension.

Commercial real estate is facing meaningful headwinds and increased risks, in our view.

 

 

These include the impact of a post-pandemic shift in office demand and rising costs of capital. Property values will likely face pressure over the medium term, with prices varying significantly by geography and property type, in our view. However, this scenario is more daunting for the equity investor, in our view. Debt holders only need the borrower to pay off the remaining interest and principal owed, which limits the impact on CMBS. We believe much of the risk has been priced into the market based on substantial spread widening over the past 12 months. The most attractive relative value opportunities require detailed loan-level analysis and security selection, in our view.

We believe U.S. homeowner balance sheets remain well positioned, supported by locked-in, ultra-low mortgage rates and substantial home price appreciation in recent years. We expect home prices to be flat for calendar 2023. However, certain geographies that became overheated may be susceptible to retractions. Spreads have narrowed compared with calendar 2022 but remain wider than the tights of calendar 2021. At current levels, we believe attractive risk-adjusted return opportunities can be found across the capital stack.

For EM credit, we have a cautious intermediate outlook. EM sovereigns appear overvalued across the quality spectrum. We see the risks of recession and inflation declining, which may be supportive of EM in the near term. We expect slightly more downside within the next three to nine months. We prefer to stay beta neutral [risk is not correlated to broader market volatility] and seek relative value opportunities. We remain very selective when adding high-yield risk exposure.

We maintain a neutral to slightly long position to the mortgage basis overall but remain tactical. The systemic risk posed by regional bank failures in March 2023 appears to be behind us, and market supply should taper down in the near term. However, the future of bank demand remains uncertain and may hinge upon regulatory changes.

We expect mortgage prepayment speeds will be stable going forward. The prepayment strategy may provide good protection against a recession scenario that negatively impacts home prices or unemployment. In our view, many prepayment-sensitive assets now offer an attractive risk-adjusted return at current price levels. We also believe they may offer significant upside potential if rates stabilize and volatility declines.

Thanks for your time and for bringing us up to date, Mike.

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.

Of special interest

The fund’s monthly dividend rate for class A shares increased from $0.025 to $0.029 per share in December 2022. The increase reflects Putnam Management’s earnings expectations in the current fixed income environment. Similar increases were made to other share classes of the fund.

 

 

Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended September 30, 2023, 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 M, R, R6, and Y shares are not available to all investors.

Annualized fund performance Total return for periods ended 9/30/23

 

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 4.00% and 3.25% sales charge, respectively, 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, M, 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.

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 annualized index returns For periods ended 9/30/23

 

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

Lipper peer group median is provided by Lipper, an LSEG company.

^* The fund’s benchmark, the ICE BofA U.S. Treasury Bill Index, was introduced on 6/30/92, which post-dates the inception of the fund.

^† Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 9/30/23, there were 106, 95, 85, 43, 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 $10,468 and $10,477, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,675 after sales charge) would have been valued at $10,493. A $10,000 investment in the fund’s class R, R6, and Y shares would have been valued at $10,849, $11,497, and $11,402, respectively.

 

 

Fund price and distribution information For the 12-month period ended 9/30/23

 

The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M 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 and 3.25% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.

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. 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 4/1/23 to 9/30/23. 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 9/30/23. 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).

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended 9/30/23, use the following calculation method. To find the value of your investment on 4/1/23, 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 9/30/23. 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).

 

 

Comparative index definitions

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

ICE BofA (Intercontinental Exchange Bank of America) U.S. Treasury Bill Index is an unmanaged index that tracks the performance of U.S. dollar-denominated U.S. Treasury Bills publicly issued in the U.S. domestic market. Qualifying securities must have a remaining term of at least one month to final maturity and a minimum amount outstanding of $1 billion.

JPMorgan Developed High Yield Index is an unmanaged index of high-yield fixed income securities issued in developed countries.

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, an LSEG company, is a third-party industry-ranking entity that ranks 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 medians reflect performance trends for funds within a category.

 

 

Other information for shareholders

Important notice regarding delivery of shareholder documents

In accordance with Securities and Exchange Commission (SEC) regulations, Putnam sends a single notice of internet availability, or a single printed copy, of annual and semiannual shareholder reports, prospectuses, and proxy statements to Putnam shareholders who share the same address, unless a shareholder requests otherwise. If you prefer to receive your own copy of these documents, please call Putnam at 1-800-225-1581 or, for exchange-traded funds only, 1-833-228-5577. We will begin sending individual copies within 30 days.

Proxy voting

Putnam is committed to managing our 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, 2023, are available in the Individual Investors section of putnam.com and on the SEC’s 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 or, for exchange-traded funds only, 1-833-228-5577.

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.

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 funds. As of September 30, 2023, Putnam employees had approximately $477,000,000 and the Trustees had approximately $65,000,000 invested in Putnam 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 May 2023. 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 2022 through December 2022. The report included a description of the annual liquidity assessment of the fund that Putnam performed in November 2022. 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. 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 contracts

Consideration of your fund’s new and interim management and sub-management contracts

At their meeting on June 23, 2023, the Board of Trustees of your fund, including all of the 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 mutual funds, closed-end funds and exchange-traded funds (collectively, the “funds”) (the “Independent Trustees”) approved, subject to approval by your fund’s shareholders, a new management contract with Putnam Investment Management (“Putnam Management”) and a new sub-management contract between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”) (collectively, the “New Management Contracts”). The Trustees considered the proposed New Management Contracts in connection with the planned acquisition of Putnam U.S. Holdings I, LLC (“Putnam Holdings”) by a subsidiary of Franklin Resources, Inc. (“Franklin Templeton”). The Trustees considered that, on May 31, 2023, Franklin Templeton and Great-West Lifeco Inc., the parent company of Putnam Holdings, announced that they had entered into a definitive agreement for a subsidiary of Franklin Templeton to acquire Putnam Holdings in a stock and cash transaction (the “Transaction”). The Trustees noted that Putnam Holdings was the parent company of Putnam Management and PIL. The Trustees were advised that the Transaction would result in a “change of control” of Putnam Management and PIL and would cause your fund’s current Management Contract with Putnam Management and Sub-Management Contract with PIL (collectively, the “Current Management Contracts”) to terminate in accordance with the 1940 Act. The Trustees considered that the New Management Contracts would take effect upon the closing of the Transaction, which was expected to occur in the fourth quarter of 2023.

In addition to the New Management Contracts, the Trustees also approved interim management and sub-management contracts with Putnam Management and PIL, respectively (the “Interim Management Contracts”), which would take effect in the event that for any reason shareholder approval of a New Management Contract was not received by the time of the Transaction closing. The Trustees considered that each Interim Management Contract that became effective would remain in effect until shareholders approved the proposed New Management Contract, or until 150 days elapse after the closing of the Transaction, whichever occurred first. The considerations and conclusions discussed in connection with the Trustees’ consideration of the New Management Contracts and the continuance of your fund’s Current Management Contracts also apply to the Trustees’ consideration of the Interim Management Contracts, supplemented by consideration of the terms, nature and reason for any Interim Management Contract.

The Independent Trustees met with their independent legal counsel, as defined in Rule 0 – 1(a)(6) under the 1940 Act (their “independent legal counsel”), and representatives of Putnam Management and its parent company, Power Corporation of Canada, to discuss the potential Transaction, including the timing and structure of the Transaction and its implications for Putnam Management and the funds, during their regular meeting on November 18, 2022, and the full Board of Trustees further discussed these matters with representatives of Putnam Management at its regular meeting on December 15, 2022. At a special meeting on December 20, 2022, the full Board of Trustees met with representatives of Putnam Management, Power Corporation of Canada and Franklin Templeton to further discuss the potential Transaction, including Franklin Templeton’s strategic plans for Putnam Management’s asset management business and the funds, potential sources of synergy between Franklin Templeton and Putnam Management, potential areas of partnership between Power Corporation of Canada and Franklin Templeton, Franklin Templeton’s distribution capabilities, Franklin Templeton’s existing service provider relationships and Franklin Templeton’s recent acquisitions of other asset management firms.

In order to assist the Independent Trustees in their consideration of the New Management Contracts and other anticipated impacts of the Transaction on the funds and their shareholders, independent legal counsel for the Independent Trustees furnished an initial information request to Franklin Templeton (the “Initial Franklin Request”). At a special meeting of the full Board of Trustees held on January 25, 2023, representatives of Franklin Templeton addressed the firm’s responses to the Initial Franklin Request. At the

 

 

meeting, representatives of Franklin Templeton discussed, among other things, the business and financial condition of Franklin Templeton and its affiliates, Franklin Templeton’s U.S. registered fund operations, its recent acquisition history, Franklin Templeton’s intentions regarding the operation of Putnam Management and the funds following the completion of the potential Transaction and expected benefits to the funds and Putnam Management that might result from the Transaction.

The Board of Trustees actively monitored developments with respect to the potential Transaction throughout the period leading up to the public announcement of a final sale agreement on May 31, 2023. The Independent Trustees met to discuss these matters at their regular meetings on January 27, April 20 and May 19, 2023. The full Board of Trustees also discussed developments at their regular meeting on February 23, 2023. Following the public announcement of the Transaction on May 31, 2023, independent legal counsel for the Independent Trustees furnished a supplemental information request (the “Supplemental Franklin Request”) to Franklin Templeton. At the Board of Trustees’ regular in-person meeting held on June 22–23, 2023, representatives of Putnam Management and Power Corporation of Canada provided further information regarding, among other matters, the final terms of the Transaction and efforts undertaken to retain Putnam employees. The Contract Committee of the Board of Trustees also met on June 22, 2023 to discuss Franklin Templeton’s responses to the Supplemental Franklin Request. Mr. Reynolds, the only Trustee affiliated with Putnam Management, participated in portions of these meetings to provide the perspective of the Putnam organization, but did not otherwise participate in the deliberations of the Independent Trustees or the Contract Committee regarding the potential Transaction.

After the presentations and after reviewing the written materials provided, the Independent Trustees met at their in-person meeting on June 23, 2023 to consider the New Management Contracts for each fund, proposed to become effective upon the closing of the Transaction, and the filing of a preliminary proxy statement. At this meeting and throughout the process, the Independent Trustees also received advice from their independent legal counsel regarding their responsibilities in evaluating the potential Transaction and the New Management Contracts. The Independent Trustees reviewed the terms of the proposed New Management Contracts and the differences between the New Management Contracts and the Current Management Contracts. They noted that the terms of the proposed New Management Contracts were substantially identical to the Current Management Contracts, except for certain changes designed largely to address differences among various of the existing contracts, which had been developed and implemented at different times in the past.

In considering the approval of the proposed New Management Contracts, the Board of Trustees took into account a number of factors, including:¹

(i) Franklin Templeton’s and Putnam Management’s belief that the Transaction would not adversely affect the funds or their shareholders and their belief that the Transaction was likely to result in certain benefits (described below) for the funds and their shareholders;

(ii) That Franklin Templeton did not intend to make any material change in Putnam Management’s senior investment professionals (other than certain changes related to reporting structure and organization of personnel discussed below), including the portfolio managers of the funds, or to the firm’s operating locations as a result of the Transaction;

(iii) That Franklin Templeton intended for Putnam Management’s equity investment professionals to continue to operate largely independently from Franklin Templeton, reporting to Franklin Templeton’s Head of Public Markets following the Transaction;

(iv) That, while Putnam Management’s organizational structure was not expected to change immediately following the Transaction, Franklin Templeton intended to revise Putnam Management’s reporting structure in order to include Putnam Management’s fixed income investment professionals in Franklin Templeton’s fixed income group and to include Putnam Management’s Global Asset Allocation (“GAA”) investment professionals in Franklin Templeton’s investment solutions group, with both Franklin Templeton groups reporting to Franklin Templeton’s Head of Public Markets;

¹ All subsequent references to Putnam Management describing the Board of Trustees’ considerations should be deemed to include references to PIL as necessary or appropriate in the context.

 

 

(v) Franklin Templeton’s expectation that there would not be any changes in the investment objectives, strategies or portfolio holdings of the funds as a result of the Transaction;

(vi) That neither Franklin Templeton nor Putnam Management had any current plans to propose changes to the funds’ existing management fees or expense limitations, or current plans to make changes to the funds’ existing distribution arrangements;

(vii) Franklin Templeton’s and Putnam Management’s representations that, following the Transaction, there was not expected to be any diminution in the nature, quality and extent of services provided to the funds and their shareholders by Putnam Management and PIL, including compliance and other non-advisory services;

(viii) That Franklin Templeton did not currently plan to change the branding of the funds or to change the lineup of funds in connection with the Transaction but would continue to evaluate how best to position the funds in the market;

(ix) The possible benefits accruing to the funds and their shareholders as a result of the Transaction, including:

a. That the scale of Franklin Templeton’s investment operations platform would increase the investment and operational resources available to the funds;

b. That the Putnam open-end funds would benefit from Franklin Templeton’s large retail and institutional global distribution capabilities and significant network of intermediary relationships, which may provide additional opportunities for the funds to increase assets and reduce expenses by spreading expenses over a larger asset base; and

c. Potential benefits to shareholders of the Putnam open-end funds that could result from the alignment of certain fund features and shareholder benefits with those of other funds sponsored by Franklin Templeton and its affiliates and access to a broader array of investment opportunities;

(x) The financial strength, reputation, experience and resources of Franklin Templeton and its investment advisory subsidiaries;

(xi) Franklin Templeton’s expectation that the Transaction would not impact the capabilities or responsibilities of Putnam Management’s Investment Division (other than any impact related to reporting structure changes for Putnam Management’s equity, fixed income and GAA investment groups and to including Putnam Management’s fixed income and GAA investment professionals in existing Franklin Templeton investment groups, as discussed above) and that any changes to the Investment Division over the longer term would be made in order to achieve perceived operational efficiencies or improvements to the portfolio management process;

(xii) Franklin Templeton’s commitment to maintaining competitive compensation arrangements to allow Putnam Management to continue to attract and retain highly qualified personnel and Putnam Management’s and Franklin Templeton’s efforts to retain personnel, including efforts implemented since the Transaction was announced;

(xiii) That the current senior management teams at Putnam Management and Power Corporation of Canada had indicated their strong support of the Transaction and that Putnam Management had recommended that the Board of Trustees approve the New Management Contracts; and

(xiv) Putnam Management’s and Great-West Lifeco Inc.’s commitment to bear all expenses incurred by the funds in connection with the Transaction, including all costs associated with the proxy solicitation in connection with seeking shareholder approval of the New Management Contracts.

Finally, in considering the proposed New Management Contracts, the Board of Trustees also took into account their concurrent deliberations and conclusions, as described below, in connection with their annual review of the funds’ Current Management Contracts and the approval of their continuance, effective July 1, 2023, and the extensive materials that they had reviewed in connection with that review process.

Based upon the foregoing considerations, on June 23, 2023, the Board of Trustees, including all of the Independent Trustees, unanimously approved the proposed New Management Contracts and determined to recommend their approval to the shareholders of the funds.

General conclusions — Current Management Contracts

The Board of Trustees 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 Management and the sub-management contract with respect to your fund between Putnam Management and PIL. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees did not attempt to evaluate PIL as a separate entity.) The Board of Trustees, 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 Independent Trustees.

At the outset of the review process, members of the Board of Trustees’ 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 2023, 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 of Trustees’ independent staff and by independent legal counsel for the funds and the Independent Trustees.

At the Board of Trustees’ June 2023 meeting, the Contract Committee met in executive session to discuss and consider its recommendations with respect to the continuance of the contracts. At that meeting, the Contract Committee also 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 recommended, and the Independent Trustees approved, the continuance of your fund’s Current Management Contracts, effective July 1, 2023, and the approval of your fund’s New Management Contracts and Interim Management Contracts, as discussed above.

The Independent Trustees’ approvals were 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 mutual funds and closed-end 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 newer funds (including the exchange-traded funds) 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. The Trustees also took into account their concurrent deliberations and conclusions, and the materials that they had reviewed, in connection with their approval on June 23, 2023 of the Interim Management Contracts and the New Management Contracts, which had been proposed in light of the Transaction (which would cause the fund’s Current Management Contracts to terminate in accordance with applicable law or the terms of each contract).

 

 

Management fee schedules and total expenses

The Trustees reviewed the management fee schedules in effect for all funds, including fee levels and any 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 mutual funds and each of the exchange-traded funds have implemented so-called “all-in” or unitary 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 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, 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 2022. These expense limitations were: (i) a contractual expense limitation applicable to specified mutual funds, including your fund, of 25 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to specified mutual 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 2022. Putnam Management and PSERV have agreed to maintain these expense limitations until at least January 30, 2025. Putnam Management and PSERV’s commitment to these expense limitation arrangements, which were intended to support an effort to have the mutual fund expenses meet competitive standards, was an important factor in the Trustees’ decision to approve your fund’s New Management Contracts and Interim Management Contracts and the continuance of your fund’s Current Management Contracts.

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 first 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 second quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2022. 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, 2022 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, as applicable. 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 (as applicable) the funds’ management, distribution and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability in 2022 for each of the applicable 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 each of the 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 funds at that time.

The information examined by the Trustees in connection with their annual contract review for the funds included information regarding services provided and fees charged by Putnam Management and its affiliates to other clients, including collective investment trusts offered in the defined contribution and defined benefit retirement plan markets, sub-advised mutual funds, private funds sponsored by affiliates of Putnam Management, model-only separately managed accounts and Putnam Management’s manager-traded separately managed account programs. 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 funds, as well as an assessment of the differences in the services provided to these clients as compared to the services provided to the funds. The Trustees observed that the differences in fee rates between these clients and the 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 1940 Act-registered funds than for other clients, and the Trustees also considered the differences between the services that Putnam Management provides to the 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, peer-relative and benchmark-relative Putnam fund performance was generally encouraging in 2022 against a backdrop of volatile equity and fixed income markets, driven by factors such as Russia’s invasion of Ukraine, increased tensions with China, disruptions in energy markets and broader supply chains, rising inflation and the significant tightening of monetary policy by the Board of Governors of the Federal Reserve in an effort to combat inflation. The Trustees further noted that, in the face of these numerous economic headwinds, corporate earnings and employment data had been generally robust throughout 2022. For the one-year period ended December 31, 2022, the Trustees noted that the Putnam funds, on an asset-weighted basis, ranked in the 41st percentile of their peers as determined by Lipper Inc. (“Lipper”) and, on an asset-weighted-basis, outperformed their benchmarks by 1.3% gross of fees over the one-year period. The Committee also noted that the funds’ aggregate performance over longer-term periods continued to be strong, with the funds, on an asset-weighted basis, ranking in the 34th, 27th and 22nd percentiles of their Lipper peers over the three-year, five-year and ten-year periods ended December 31, 2022, respectively. The Trustees further noted that the funds, in the aggregate, outperformed their benchmarks on a gross basis for each of the three-year, five-year and ten-year periods. The Trustees also considered the Morningstar Inc. ratings assigned to the funds and that 40 funds were rated four or five stars at the

 

 

end of 2022, which represented an increase of 15 funds year-over-year. The Trustees also considered that seven funds were five-star rated at the end of 2022, which was a year-over-year decrease of two funds, and that 83% of the funds’ aggregate assets were in four- or five-star rated funds at year end.

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, as reported in the Barron’s/Lipper Fund Families survey (the “Survey”). The Trustees noted that the Survey ranks mutual fund companies based on their performance across a variety of asset types, and that The Putnam Fund complex had performed exceptionally well in 2022. In this regard, the Trustees considered that the funds had ranked 9th out of 49 fund companies, 3rd out of 49 fund companies and 2nd out of 47 fund companies for the one-year, five-year and ten-year periods, respectively. The Trustees also noted that The Putnam Fund complex had been the only fund family to rank in the top ten in all three time periods. They also noted, however, the disappointing investment performance of some Putnam funds for periods ended December 31, 2022 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and, where relevant, actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor the performance of those funds.

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 Alternative Credit Focus Funds) for the one-year, three-year and five-year periods ended December 31, 2022 (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, 2022, there were 98, 93 and 82 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 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.

Brokerage and soft-dollar allocations; distribution and 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 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 made to Putnam Management’s

 

 

affiliates by the mutual funds for distribution services and investor services. In conjunction with the 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 mutual funds to PSERV and PRM for such services were 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 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 mutual 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 (not required for money market funds) 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 Diversified Income Trust:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the fund’s portfolio, of Putnam Diversified Income Trust (the “Fund”) as of September 30, 2023, the related statement of operations for the year ended September 30, 2023, the statement of changes in net assets for each of the two years in the period ended September 30, 2023, including the related notes, and the financial highlights for each of the four years in the period ended September 30, 2023 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2023, 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, 2023 and the financial highlights for each of the four years in the period ended September 30, 2023 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 12, 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, 2023 by correspondence with the custodian, transfer agent, agent banks 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 7, 2023

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 9/30/23

U.S. GOVERNMENT AND AGENCY MORTGAGE OBLIGATIONS (68.1%)*	Principal amount	Value
U.S. Government Guaranteed Mortgage Obligations (8.1%)
Government National Mortgage Association Pass-Through Certificates
6.50%, 11/20/38	$82,581	$85,070
5.50%, TBA, 10/1/53	32,000,000	31,056,112
4.50%, TBA, 10/1/53	45,000,000	41,564,880
4.00%, TBA, 10/1/53	30,000,000	27,029,178
3.50%, with due dates from 9/20/49 to 11/20/49	74,462	65,149
		99,800,389
U.S. Government Agency Mortgage Obligations (60.0%)
Uniform Mortgage-Backed Securities
6.50%, TBA, 10/1/53	206,000,000	206,984,639
6.00%, TBA, 10/1/53	266,000,000	262,560,567
5.50%, TBA, 10/1/53	167,000,000	161,416,021
5.00%, TBA, 10/1/53	5,000,000	4,718,167
3.50%, TBA, 10/1/53	31,000,000	26,655,152
3.00%, TBA, 10/1/53	36,000,000	29,763,295
2.50%, TBA, 10/1/53	64,000,000	50,762,464
		742,860,305
Total U.S. government and agency mortgage obligations (cost $854,514,724)		$842,660,694

U.S. TREASURY OBLIGATIONS (1.1%)*	Principal amount	Value
U.S. Treasury Bonds 1.875%, 2/15/51 i	$18,000	$10,132
U.S. Treasury Notes
3.25%, 6/30/27 i	1,107,000	1,060,705
3.125%, 11/15/28 i	354,000	333,723
1.875%, 2/28/27 i	138,000	125,809
1.625%, 5/15/31 i	6,440,000	5,267,791
1.625%, 8/15/29 i	149,000	126,738
0.625%, 8/15/30 i	8,264,000	6,349,231
0.375%, 11/30/25 i	338,000	306,613
0.25%, 7/31/25 i	452,000	414,045
Total U.S. treasury obligations (cost $13,994,787)		$13,994,787

MORTGAGE-BACKED SECURITIES (36.0%)*		Principal amount	Value
Agency collateralized mortgage obligations (14.2%)
Federal Home Loan Mortgage Corporation
REMICs Ser. 4509, Class CI, IO, 6.00%, 9/15/45		$8,663,642	$1,890,130
REMICs Ser. 4077, Class IK, IO, 5.00%, 7/15/42		2,366,125	486,475
REMICs Ser. 5093, Class YI, IO, 4.50%, 12/25/50		20,021,538	4,514,399
REMICs Ser. 5024, Class HI, IO, 4.50%, 10/25/50		4,337,937	964,271
REMICs Ser. 4984, Class IL, IO, 4.50%, 6/25/50		2,211,371	490,141
REMICs Ser. 4000, Class PI, IO, 4.50%, 1/15/42		3,014,572	462,053
REMICs Ser. 23-5349, Class IB, IO, 4.00%, 12/15/46		4,600,000	848,226
REMICs Ser. 4193, Class PI, IO, 4.00%, 3/15/43		11,279,861	1,696,151
REMICs Ser. 4020, Class IA, IO, 4.00%, 3/15/27		1,129,843	39,985
REMICs Ser. 4484, Class TI, IO, 3.50%, 11/15/44		857,759	73,593
REMICs Ser. 4105, Class HI, IO, 3.50%, 7/15/41		1,597,043	117,342

MORTGAGE-BACKED SECURITIES (36.0%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Federal Home Loan Mortgage Corporation
REMICs Ser. 23-5349, Class IA, IO, 3.00%, 12/15/42		$5,300,000	$461,837
REMICs IFB Ser. 5011, Class SA, IO, ((-1 x US 30 Day Average SOFR) + 6.14%), 0.821%, 9/25/50		3,397,637	351,316
REMICs IFB Ser. 4742, Class S, IO, ((-1 x US 30 Day Average SOFR) + 6.09%), 0.772%, 12/15/47		9,865,900	966,858
REMICs IFB Ser. 4839, Class WS, IO, ((-1 x US 30 Day Average SOFR) + 5.99%), 0.672%, 8/15/56		1,777,726	169,293
REMICs IFB Ser. 4678, Class MS, IO, ((-1 x US 30 Day Average SOFR) + 5.99%), 0.672%, 4/15/47		6,253,174	587,083
REMICs IFB Ser. 4265, Class SD, IO, ((-1 x US 30 Day Average SOFR) + 5.99%), 0.672%, 1/15/35		17,339,932	851,819
REMICs IFB Ser. 5002, Class SJ, IO, ((-1 x US 30 Day Average SOFR) + 5.99%), 0.671%, 7/25/50		30,550,861	2,845,981
REMICs IFB Ser. 4945, Class SL, IO, ((-1 x US 30 Day Average SOFR) + 5.94%), 0.621%, 1/25/50		2,092,848	162,084
Strips IFB Ser. 326, Class S2, IO, ((-1 x US 30 Day Average SOFR) + 5.84%), 0.522%, 3/15/44		3,753,591	289,391
Strips IFB Ser. 311, Class S1, IO, ((-1 x US 30 Day Average SOFR) + 5.84%), 0.522%, 8/15/43		6,634,914	558,511
Structured Pass-Through Certificates FRB Ser. 57, Class 1AX, IO, 0.384%, 7/25/43 W		5,376,976	71,063
Federal National Mortgage Association
Grantor Trust Ser. 98-T2, Class A4, IO, 6.50%, 10/25/36		3,928	313
REMICs Ser. 16-3, Class NI, IO, 6.00%, 2/25/46		6,966,818	1,166,610
REMICs Ser. 15-69, IO, 6.00%, 9/25/45		8,268,947	1,882,550
REMICs Ser. 15-58, Class KI, IO, 6.00%, 3/25/37		12,085,381	2,109,479
Interest Strip Ser. 399, Class 2, IO, 5.50%, 11/25/39		11,826	2,480
Interest Strip Ser. 374, Class 6, IO, 5.50%, 8/25/36		488,857	80,525
REMICs Ser. 15-30, IO, 5.50%, 5/25/45		877,104	137,565
Interest Strip Ser. 378, Class 19, IO, 5.00%, 6/25/35		539,189	75,848
REMICs Ser. 12-151, Class IN, IO, 5.00%, 1/25/43		5,662,377	1,083,383
REMICs Ser. 20-76, Class BI, IO, 4.50%, 11/25/50		2,837,903	517,043
REMICs Ser. 18-58, Class AI, IO, 4.50%, 8/25/48		15,985,431	2,437,492
REMICs Ser. 12-127, Class BI, IO, 4.50%, 11/25/42		2,831,880	547,699
Interest Strip Ser. 405, Class 2, IO, 4.00%, 10/25/40		39,918	6,777
REMICs Ser. 23-49, Class IC, IO, 4.00%, 11/25/49		7,100,000	1,147,126
REMICs Ser. 13-41, Class IP, IO, 4.00%, 5/25/43		6,518,759	940,135
REMICs Ser. 13-44, Class PI, IO, 4.00%, 1/25/43		2,346,992	335,573
REMICs Ser. 13-60, Class IP, IO, 4.00%, 10/25/42		1,961,896	234,643
REMICs Ser. 23-49, Class IB, IO, 3.50%, 3/25/47		17,000,000	2,582,912
REMICs Ser. 23-49, Class IA, IO, 3.00%, 8/25/46		15,500,000	1,760,149
REMICs IFB Ser. 10-35, Class SG, IO, ((-1 x US 30 Day Average SOFR) + 6.29%), 0.971%, 4/25/40		3,662,409	312,056
REMICs IFB Ser. 18-38, Class SA, IO, ((-1 x US 30 Day Average SOFR) + 6.09%), 0.771%, 6/25/48		22,647,305	2,069,477
REMICs IFB Ser. 18-44, Class SA, IO, ((-1 x US 30 Day Average SOFR) + 6.09%), 0.771%, 6/25/48		26,952,688	2,502,557
REMICs IFB Ser. 15-42, Class LS, IO, ((-1 x US 30 Day Average SOFR) + 6.09%), 0.771%, 6/25/45		1,553,084	63,826

MORTGAGE-BACKED SECURITIES (36.0%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Federal National Mortgage Association
REMICs IFB Ser. 13-18, Class SB, IO, ((-1 x US 30 Day Average SOFR) + 6.04%), 0.721%, 10/25/41		$396,821	$704
Grantor Trust Ser. 00-T6, IO, 0.717%, 11/25/40 W		2,109,631	8,905
REMICs IFB Ser. 16-96, Class ST, IO, ((-1 x US 30 Day Average SOFR) + 5.99%), 0.671%, 12/25/46		24,833,045	1,358,601
REMICs IFB Ser. 20-12, Class SK, IO, ((-1 x US 30 Day Average SOFR) + 5.94%), 0.621%, 3/25/50		1,703,031	150,412
REMICs IFB Ser. 19-43, Class JS, IO, ((-1 x US 30 Day Average SOFR) + 5.94%), 0.621%, 8/25/49		978,117	67,426
REMICs IFB Ser. 19-47, Class SA, IO, ((-1 x US 30 Day Average SOFR) + 5.94%), 0.621%, 8/25/49		10,552,836	886,436
REMICs IFB Ser. 19-34, Class SL, IO, ((-1 x US 30 Day Average SOFR) + 5.94%), 0.621%, 7/25/49		12,310,512	1,040,329
REMICs IFB Ser. 11-101, Class SA, IO, ((-1 x US 30 Day Average SOFR) + 5.79%), 0.471%, 10/25/41		6,845,399	440,826
FRB Ser. 02-W8, Class 1, IO, 0.296%, 6/25/42 W		3,611,819	20,495
Government National Mortgage Association
Ser. 17-104, Class MI, IO, 5.50%, 7/16/47		8,250,185	1,807,687
Ser. 19-119, Class IN, IO, 5.00%, 9/20/49		15,533,186	3,349,095
Ser. 18-37, IO, 5.00%, 3/20/48		6,511,458	1,382,640
Ser. 17-179, Class WI, IO, 5.00%, 12/20/47		3,886,196	843,201
Ser. 16-126, Class PI, IO, 5.00%, 2/20/46		6,488,295	1,166,855
Ser. 15-167, Class MI, IO, 5.00%, 6/20/45		11,037,696	2,156,578
Ser. 18-127, Class IC, IO, 5.00%, 10/20/44		1,450,705	326,583
Ser. 14-132, IO, 5.00%, 9/20/44		4,545,748	1,016,566
Ser. 12-146, IO, 5.00%, 12/20/42		3,217,838	610,874
Ser. 10-35, Class UI, IO, 5.00%, 3/20/40		12,791,249	2,614,786
Ser. 10-20, Class UI, IO, 5.00%, 2/20/40		3,979,715	799,596
Ser. 10-9, Class UI, IO, 5.00%, 1/20/40		21,739,327	4,476,998
Ser. 09-121, Class UI, IO, 5.00%, 12/20/39		11,932,437	2,439,587
Ser. 17-26, Class MI, IO, 5.00%, 11/20/39		875,497	171,778
Ser. 15-105, Class LI, IO, 5.00%, 10/20/39		5,797,952	1,119,294
Ser. 15-79, Class GI, IO, 5.00%, 10/20/39		5,253,494	1,023,842
Ser. 18-94, Class AI, IO, 4.50%, 7/20/48		1,442,774	284,716
Ser. 16-17, Class IA, IO, 4.50%, 3/20/45		7,262,253	1,359,153
Ser. 13-34, Class IH, IO, 4.50%, 3/20/43		5,154,737	1,002,413
Ser. 17-42, Class IC, IO, 4.50%, 8/20/41		11,802,099	2,290,482
Ser. 13-167, IO, 4.50%, 9/20/40		2,251,390	398,528
Ser. 10-35, Class AI, IO, 4.50%, 3/20/40		2,871,305	487,366
Ser. 10-35, Class QI, IO, 4.50%, 3/20/40		8,249,936	1,429,565
Ser. 10-20, Class BI, IO, 4.50%, 2/16/40		7,059,534	1,258,009
Ser. 14-71, Class PI, IO, 4.50%, 12/20/39		4,116,439	390,897
Ser. 15-89, Class IP, IO, 4.00%, 2/20/45		11,629,266	1,587,940
Ser. 15-64, Class YI, IO, 4.00%, 11/20/44		6,768,068	883,572
Ser. 14-4, Class BI, IO, 4.00%, 1/20/44		5,513,277	995,391
Ser. 14-4, Class IC, IO, 4.00%, 1/20/44		3,588,748	591,507
Ser. 14-163, Class PI, IO, 4.00%, 10/20/43		430,727	6,528
Ser. 13-165, Class IL, IO, 4.00%, 3/20/43		2,269,552	349,406

MORTGAGE-BACKED SECURITIES (36.0%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Government National Mortgage Association
Ser. 13-27, Class IJ, IO, 4.00%, 2/20/43		$2,731,855	$421,935
Ser. 12-56, Class IB, IO, 4.00%, 4/20/42		1,677,233	284,671
Ser. 21-8, Class VI, IO, 3.50%, 12/20/50		25,418,849	4,026,361
Ser. 19-110, Class PI, IO, 3.50%, 9/20/49		8,629,249	1,499,764
Ser. 18-21, Class AI, IO, 3.50%, 2/20/48		1,284,118	138,223
Ser. 15-131, Class CI, IO, 3.50%, 9/20/45		3,374,893	511,331
Ser. 15-131, Class MI, IO, 3.50%, 9/20/45		5,304,497	911,923
Ser. 16-75, Class EI, IO, 3.50%, 8/20/45		6,257,707	1,029,284
Ser. 15-168, Class IG, IO, 3.50%, 3/20/43		3,631,566	472,023
Ser. 13-28, IO, 3.50%, 2/20/43		1,358,057	196,769
Ser. 13-54, Class JI, IO, 3.50%, 2/20/43		3,212,208	366,898
Ser. 12-140, Class IC, IO, 3.50%, 11/20/42		14,753,466	2,419,273
Ser. 12-128, Class IA, IO, 3.50%, 10/20/42		9,728,869	1,514,264
Ser. 15-52, Class KI, IO, 3.50%, 11/20/40		4,491,377	279,812
Ser. 20-175, Class NI, IO, 3.00%, 11/20/50		29,022,832	4,448,078
Ser. 16-H04, Class HI, IO, 2.357%, 7/20/65 W		23,149,003	618,079
Ser. 18-H15, Class EI, IO, 2.03%, 8/20/68 W		39,857,989	2,088,558
Ser. 15-H23, Class DI, IO, 1.854%, 9/20/65 W		22,899,750	1,035,068
Ser. 15-H15, Class AI, IO, 1.807%, 6/20/65 W		27,709,021	1,169,321
Ser. 15-H12, Class AI, IO, 1.793%, 5/20/65 W		48,498,415	1,532,550
FRB Ser. 15-H08, Class CI, IO, 1.744%, 3/20/65 W		36,639,964	1,143,167
Ser. 17-H06, Class DI, IO, 1.705%, 2/20/67 W		20,440,763	625,488
Ser. 15-H23, Class BI, IO, 1.687%, 9/20/65 W		41,197,472	1,256,523
Ser. 15-H03, Class CI, IO, 1.632%, 1/20/65 W		41,660,002	1,320,622
Ser. 16-H18, IO, 1.615%, 8/20/66 W		26,606,856	733,631
Ser. 16-H14, IO, 1.613%, 6/20/66 W		24,961,667	663,506
Ser. 14-H25, Class BI, IO, 1.608%, 12/20/64 W		27,509,524	713,542
Ser. 17-H03, Class HI, IO, 1.589%, 1/20/67 W		40,806,811	1,185,167
Ser. 17-H18, Class FI, IO, 1.588%, 9/20/67 W		27,033,829	1,448,168
Ser. 15-H01, Class BI, IO, 1.499%, 1/20/65 W		21,295,647	543,188
IFB Ser. 13-9, Class S, IO, ((-1 x CME Term SOFR 1 Month) + 6.64%), 1.311%, 1/20/43		13,827,124	1,391,830
IFB Ser. 20-61, Class SF, IO, ((-1 x CME Term SOFR 1 Month) + 6.33%), 1.001%, 7/20/43		17,581,840	1,324,103
IFB Ser. 21-98, Class SK, IO, ((-1 x CME Term SOFR 1 Month) + 6.19%), 0.861%, 6/20/51		5,953,715	595,848
IFB Ser. 21-77, Class SM, IO, ((-1 x CME Term SOFR 1 Month) + 6.19%), 0.861%, 5/20/51		31,646,704	3,116,175
IFB Ser. 21-42, Class SG, IO, ((-1 x CME Term SOFR 1 Month) + 6.19%), 0.861%, 3/20/51		31,340,117	2,079,699
IFB Ser. 18-105, Class SG, IO, ((-1 x CME Term SOFR 1 Month) + 6.14%), 0.811%, 8/20/48		13,962,627	1,094,917
IFB Ser. 18-67, Class SC, IO, ((-1 x CME Term SOFR 1 Month) + 6.09%), 0.761%, 5/20/48		9,106,908	707,153
IFB Ser. 17-160, Class S, IO, ((-1 x CME Term SOFR 1 Month) + 6.09%), 0.761%, 10/20/43		15,660,181	1,104,340
Ser. 17-H20, Class HI, IO, 0.735%, 10/20/67 W		24,476,384	1,233,397
Ser. 15-H18, Class BI, IO, 0.719%, 7/20/65 W		22,149,553	854,973

MORTGAGE-BACKED SECURITIES (36.0%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Government National Mortgage Association
IFB Ser. 20-97, Class QS, IO, ((-1 x CME Term SOFR 1 Month) + 6.04%), 0.711%, 7/20/50		$2,333,294	$230,376
IFB Ser. 18-139, Class SA, IO, ((-1 x CME Term SOFR 1 Month) + 6.04%), 0.711%, 10/20/48		1,320,341	95,860
IFB Ser. 13-152, Class SJ, IO, ((-1 x CME Term SOFR 1 Month) + 6.04%), 0.711%, 5/20/41		11,799,625	894,279
IFB Ser. 10-20, Class SC, IO, ((-1 x CME Term SOFR 1 Month) + 6.04%), 0.711%, 2/20/40		2,928,483	219,636
Ser. 16-H16, Class EI, IO, 0.704%, 6/20/66 W		22,812,539	800,720
IFB Ser. 20-63, Class PS, IO, ((-1 x CME Term SOFR 1 Month) + 5.99%), 0.661%, 4/20/50		2,583,736	237,571
IFB Ser. 19-96, Class SY, IO, ((-1 x CME Term SOFR 1 Month) + 5.99%), 0.661%, 8/20/49		1,347,794	115,506
IFB Ser. 19-83, Class SY, IO, ((-1 x CME Term SOFR 1 Month) + 5.99%), 0.661%, 7/20/49		1,394,905	115,456
IFB Ser. 18-164, Class AS, IO, ((-1 x CME Term SOFR 1 Month) + 5.99%), 0.661%, 12/20/48		21,394,722	1,665,966
IFB Ser. 14-46, Class SA, IO, ((-1 x CME Term SOFR 1 Month) + 5.99%), 0.661%, 3/20/44		5,912,548	453,197
IFB Ser. 14-4, Class SG, IO, ((-1 x CME Term SOFR 1 Month) + 5.99%), 0.661%, 1/20/44		9,315,689	734,539
Ser. 16-H17, Class KI, IO, 0.617%, 7/20/66 W		13,157,158	540,158
Ser. 15-H20, Class BI, IO, 0.617%, 8/20/65 W		25,510,588	854,605
IFB Ser. 20-7, Class SK, IO, ((-1 x CME Term SOFR 1 Month) + 5.94%), 0.611%, 1/20/50		26,350,651	2,171,691
IFB Ser. 19-125, Class SG, IO, ((-1 x CME Term SOFR 1 Month) + 5.94%), 0.611%, 10/20/49		7,838,915	810,002
IFB Ser. 19-6, Class SM, IO, ((-1 x CME Term SOFR 1 Month) + 5.94%), 0.611%, 1/20/49		12,487,437	852,075
Ser. 15-H15, Class BI, IO, 0.529%, 6/20/65 W		39,554,323	1,376,491
Ser. 17-H11, Class DI, IO, 0.496%, 5/20/67 W		16,418,649	807,860
Ser. 15-H24, Class AI, IO, 0.43%, 9/20/65 W		20,503,759	522,026
Ser. 17-H12, Class QI, IO, 0.22%, 5/20/67 W		25,987,680	814,610
IFB Ser. 14-119, Class SA, IO, ((-1 x CME Term SOFR 1 Month) + 5.49%), 0.161%, 8/20/44		8,063,287	519,713
Ser. 17-H16, IO, 0.16%, 8/20/67 W		24,915,580	1,295,211
Ser. 17-H11, Class TI, IO, 0.133%, 4/20/67 W		16,944,380	908,219
Ser. 17-H03, Class EI, IO, 0.117%, 1/20/67 W		17,495,355	855,126
Ser. 18-H01, Class XI, IO, 0.107%, 1/20/68 W		26,375,211	1,578,798
Ser. 16-H24, Class JI, IO, 0.091%, 11/20/66 W		13,673,893	632,217
Ser. 17-H16, Class JI, IO, 0.069%, 8/20/67 W		27,315,931	1,234,496
Ser. 17-H06, Class MI, IO, 0.064%, 2/20/67 W		23,810,589	742,486
Ser. 18-H02, Class HI, IO, 0.051%, 1/20/68 W		39,338,907	1,601,762
Ser. 18-H02, Class EI, IO, 0.05%, 1/20/68 W		48,045,499	1,968,664
Ser. 18-H04, IO, 0.049%, 2/20/68 W		30,500,206	1,272,895
Ser. 15-H10, Class BI, IO, 0.047%, 4/20/65 W		20,599,448	801,318
Ser. 18-H05, Class AI, IO, 0.036%, 2/20/68 W		37,926,409	1,505,375
Ser. 18-H05, Class BI, IO, 0.036%, 2/20/68 W		44,786,446	1,765,526
Ser. 18-H01, IO, 0.035%, 12/20/67 W		16,592,977	643,028

MORTGAGE-BACKED SECURITIES (36.0%)* cont.		Principal amount	Value
Agency collateralized mortgage obligations cont.
Government National Mortgage Association
Ser. 17-H02, Class BI, IO, 0.031%, 1/20/67 W		$14,481,885	$396,804
Ser. 16-H22, Class AI, IO, 0.03%, 10/20/66 W		24,812,952	781,013
Ser. 16-H23, Class NI, IO, 0.03%, 10/20/66 W		58,995,374	2,212,327
Ser. 16-H27, Class EI, IO, 0.024%, 12/20/66 W		19,263,727	488,027
Ser. 17-H10, Class MI, IO, 0.021%, 4/20/67 W		51,825,654	1,363,015
Ser. 18-H03, Class XI, IO, 0.019%, 2/20/68 W		59,760,105	2,444,188
Ser. 17-H08, Class NI, IO, 0.019%, 3/20/67 W		32,102,199	947,015
Ser. 17-H06, Class BI, IO, 0.015%, 2/20/67 W		31,530,779	888,352
Ser. 17-H09, IO, 0.014%, 4/20/67 W		27,338,757	644,375
Ser. 16-H06, Class CI, IO, 0.002%, 2/20/66 W		23,462,374	327,511
Ser. 20-H12, Class IH, IO, zero %, 7/20/70 W		40,902,100	2,333,342
			176,052,836
Commercial mortgage-backed securities (11.7%)
Barclays Commercial Mortgage Trust 144A
FRB Ser. 19-C5, Class F, 2.729%, 11/15/52 W		415,000	206,465
Ser. 19-C5, Class D, 2.50%, 11/15/52		442,000	261,192
Benchmark Mortgage Trust FRB Ser. 18-B1, Class C, 4.329%, 1/15/51 W		501,000	349,636
Benchmark Mortgage Trust 144A FRB Ser. 18-B3, Class D, 3.176%, 4/10/51 W		4,712,000	2,556,859
BWAY Mortgage Trust 144A FRB Ser. 22-26BW, Class F, 5.029%, 2/10/44 W		5,376,000	3,200,693
CD Commercial Mortgage Trust FRB Ser. 17-CD3, Class C, 4.696%, 2/10/50 W		551,000	296,654
CD Commercial Mortgage Trust 144A Ser. 17-CD3, Class D, 3.25%, 2/10/50		4,998,000	2,237,448
CFCRE Commercial Mortgage Trust 144A FRB Ser. 11-C2, Class E, 5.08%, 12/15/47 W		7,980,000	6,523,801
Citigroup Commercial Mortgage Trust 144A
FRB Ser. 15-GC27, Class D, 4.566%, 2/10/48 W		242,000	206,939
Ser. 15-P1, Class D, 3.225%, 9/15/48		2,618,000	2,091,906
Ser. 15-GC27, Class E, 3.00%, 2/10/48		476,000	302,188
COMM Mortgage Trust
FRB Ser. 14-CR16, Class C, 5.08%, 4/10/47 W		389,000	327,400
Ser. 12-LC4, Class B, 4.934%, 12/10/44 W		199,358	179,422
Ser. 13-CR12, Class AM, 4.30%, 10/10/46		4,154,100	3,616,809
Ser. 15-DC1, Class B, 4.035%, 2/10/48 W		2,646,000	2,297,042
COMM Mortgage Trust 144A
FRB Ser. 14-CR17, Class D, 5.006%, 5/10/47 W		326,000	295,058
FRB Ser. 14-CR17, Class E, 5.006%, 5/10/47 W		360,000	239,544
FRB Ser. 13-CR13, Class D, 4.95%, 11/10/46 W		1,583,000	1,233,085
FRB Ser. 14-UBS3, Class D, 4.923%, 6/10/47 W		165,000	107,272
FRB Ser. 13-CR7, Class D, 4.398%, 3/10/46 W		170,850	147,785
FRB Ser. 15-LC19, Class E, 4.354%, 2/10/48 W		3,181,000	2,389,225
Ser. 12-LC4, Class E, 4.25%, 12/10/44		10,009,000	1,851,676
Ser. 12-CR4, Class B, 3.703%, 10/15/45		2,026,000	1,238,522
Ser. 15-LC19, Class D, 2.867%, 2/10/48		312,000	272,930

MORTGAGE-BACKED SECURITIES (36.0%)* cont.		Principal amount	Value
Commercial mortgage-backed securities cont.
Credit Suisse Commercial Mortgage Trust 144A FRB Ser. 08-C1, Class AJ, 6.01%, 2/15/41 W		$10,781,406	$3,281,246
Credit Suisse Mortgage Trust 144A FRB Ser. 22-NWPT, Class A, 8.475%, 9/9/24		2,015,000	2,030,015
CSAIL Commercial Mortgage Trust 144A FRB Ser. 15-C1, Class D, 3.892%, 4/15/50 W		272,000	165,920
DBUBS Mortgage Trust 144A FRB Ser. 11-LC3A, Class D, 5.537%, 8/10/44 W		252,837	224,138
Federal Home Loan Mortgage Corporation 144A Multifamily Structured Credit Risk FRB Ser. 21-MN3, Class M2, 9.315%, 11/25/51		5,326,000	5,054,240
GS Mortgage Securities Corp., II 144A FRB Ser. 13-GC10, Class D, 4.688%, 2/10/46 W		273,000	236,122
GS Mortgage Securities Trust Ser. 14-GC18, Class B, 4.885%, 1/10/47 W		401,000	333,522
GS Mortgage Securities Trust 144A
FRB Ser. 11-GC5, Class B, 5.299%, 8/10/44 W		290,000	240,886
FRB Ser. 14-GC24, Class D, 4.657%, 9/10/47 W		15,515,000	6,675,510
Ser. 19-GC38, Class D, 3.00%, 2/10/52		600,000	377,780
JPMBB Commercial Mortgage Securities Trust FRB Ser. 14-C22, Class C, 4.70%, 9/15/47 W		530,000	459,649
JPMBB Commercial Mortgage Securities Trust 144A
FRB Ser. 14-C18, Class D, 4.893%, 2/15/47 W		9,906,000	6,143,929
FRB Ser. 14-C19, Class C19, 4.781%, 4/15/47 W		3,346,000	3,111,773
FRB Ser. 14-C18, Class E, 4.393%, 2/15/47 W		7,852,000	4,610,349
FRB Ser. 14-C23, Class D, 4.129%, 9/15/47 W		301,000	249,169
FRB Ser. 14-C25, Class D, 4.081%, 11/15/47 W		7,740,000	3,998,848
Ser. 14-C25, Class E, 3.332%, 11/15/47 W		15,725,000	3,940,355
JPMDB Commercial Mortgage Securities Trust
FRB Ser. 18-C8, Class C, 4.923%, 6/15/51 W		1,098,000	878,400
Ser. 17-C5, Class C, 4.512%, 3/15/50 W		254,000	178,990
JPMorgan Chase Commercial Mortgage Securities Trust
FRB Ser. 13-LC11, Class D, 4.261%, 4/15/46 W		431,000	265,594
Ser. 13-LC11, Class B, 3.499%, 4/15/46		180,000	157,231
JPMorgan Chase Commercial Mortgage Securities Trust 144A FRB Ser. 13-LC11, Class E, 3.25%, 4/15/46 W		9,371,809	3,993,150
Mezz Cap Commercial Mortgage Trust 144A FRB Ser. 07-C5, Class X, IO, 7.004%, 12/15/49 W		60,277	1
Morgan Stanley Bank of America Merrill Lynch Trust
Ser. 12-C6, Class C, 4.536%, 11/15/45 W		2,598,485	2,392,508
FRB Ser. 15-C22, Class C, 4.341%, 4/15/48 W		2,362,000	2,068,959
Ser. 14-C19, Class C, 4.00%, 12/15/47		1,678,000	1,515,966
Morgan Stanley Bank of America Merrill Lynch Trust 144A
FRB Ser. 13-C12, Class D, 5.074%, 10/15/46 W		534,000	442,832
FRB Ser. 12-C6, Class E, 4.531%, 11/15/45 W		2,446,000	1,589,900
FRB Ser. 15-C23, Class D, 4.276%, 7/15/50 W		2,330,000	1,959,115
FRB Ser. 13-C11, Class D, 4.22%, 8/15/46 W		650,000	5,850
FRB Ser. 13-C10, Class F, 4.095%, 7/15/46 W		254,000	12,755
FRB Ser. 13-C9, Class D, 3.972%, 5/15/46 W		389,000	287,860
Ser. 14-C17, Class E, 3.50%, 8/15/47		9,096,000	7,271,770
Ser. 14-C18, Class D, 3.389%, 10/15/47		427,000	351,895
Ser. 14-C19, Class D, 3.25%, 12/15/47		3,933,000	3,248,300

MORTGAGE-BACKED SECURITIES (36.0%)* cont.		Principal amount	Value
Commercial mortgage-backed securities cont.
Morgan Stanley Capital I Trust
Ser. 06-HQ10, Class B, 5.448%, 11/12/41 W		$1,336,155	$1,114,086
FRB Ser. 18-H3, Class C, 5.013%, 7/15/51 W		2,271,437	1,822,458
Morgan Stanley Capital I Trust 144A
FRB Ser. 12-C4, Class D, 5.336%, 3/15/45 W		1,255,323	1,156,320
FRB Ser. 12-C4, Class E, 5.336%, 3/15/45 W		7,066,000	5,102,359
Multifamily Connecticut Avenue Securities Trust 144A
FRB Ser. 20-01, Class M10, 9.179%, 3/25/50		566,757	551,375
FRB Ser. 19-01, Class M10, 8.679%, 10/25/49		450,890	439,192
PFP, Ltd. 144A FRB Ser. 21-8, Class A, 6.446%, 8/9/37 (Cayman Islands)		134,128	132,176
Ready Capital Mortgage Financing, LLC 144A FRB Ser. 22-FL9, Class A, 7.787%, 6/25/37		3,038,053	3,035,732
RIAL Issuer, Ltd. 144A FRB Ser. 22-FL8, Class B, 8.581%, 1/19/37 (Bermuda)		2,575,000	2,459,125
TIAA Real Estate CDO, Ltd. 144A Ser. 03-1A, Class E, 8.00%, 12/28/38 (In default) †		4,414,162	44
UBS-Barclays Commercial Mortgage Trust 144A Ser. 13-C6, Class E, 3.50%, 4/10/46		7,734,000	3,332,650
Wells Fargo Commercial Mortgage Trust FRB Ser. 15-C29, Class D, 4.359%, 6/15/48 W		3,205,000	2,748,462
Wells Fargo Commercial Mortgage Trust 144A
FRB Ser. 15-C30, Class D, 4.648%, 9/15/58 W		140,000	104,474
FRB Ser. 13-LC12, Class D, 4.087%, 7/15/46 W		11,277,111	2,847,788
Ser. 14-LC16, Class D, 3.938%, 8/15/50		11,010,000	838,938
Ser. 16-C33, Class D, 3.123%, 3/15/59		699,000	497,801
Ser. 19-C53, Class D, 2.50%, 10/15/52		395,000	215,844
WF-RBS Commercial Mortgage Trust Ser. 14-C21, Class C, 4.234%, 8/15/47 W		180,000	150,999
WF-RBS Commercial Mortgage Trust 144A
FRB Ser. 13-UBS1, Class D, 5.206%, 3/15/46 W		1,796,000	1,736,375
FRB Ser. 13-UBS1, Class E, 5.206%, 3/15/46 W		2,518,000	2,436,979
FRB Ser. 12-C9, Class E, 4.876%, 11/15/45 W		265,000	228,808
FRB Ser. 12-C10, Class D, 4.549%, 12/15/45 W		12,891,000	7,028,904
FRB Ser. 13-C15, Class D, 4.352%, 8/15/46 W		24,207,996	5,991,480
			144,156,447
Residential mortgage-backed securities (non-agency) (10.1%)
American Home Mortgage Investment Trust FRB Ser. 07-1, Class GA1C, (CME Term SOFR 1 Month + 0.30%), 5.624%, 5/25/47		2,768,608	1,615,774
BCAP, LLC Trust 144A FRB Ser. 11-RR3, Class 3A6, 5.501%, 11/27/36 W		4,746,951	3,275,396
Bear Stearns Alt-A Trust FRB Ser. 05-8, Class 21A1, 4.749%, 10/25/35 W		44,741	36,786
Bear Stearns Asset Backed Securities I Trust FRB Ser. 05-HE8, Class M3, (CME Term SOFR 1 Month + 2.06%), 7.384%, 8/25/35		280,702	272,990
Bear Stearns Mortgage Funding Trust FRB Ser. 06-AR2, Class 2A1, (CME Term SOFR 1 Month + 0.57%), 5.894%, 9/25/46		3,525,900	2,998,605
Chevy Chase Funding, LLC Mortgage-Backed Certificates 144A FRB Ser. 06-4A, Class A2, (CME Term SOFR 1 Month + 0.29%), 5.614%, 11/25/47		1,849,223	1,362,437

MORTGAGE-BACKED SECURITIES (36.0%)* cont.		Principal amount	Value
Residential mortgage-backed securities (non-agency) cont.
Citigroup Mortgage Loan Trust, Inc.
FRB Ser. 07-AMC3, Class A2D, (CME Term SOFR 1 Month + 0.46%), 5.784%, 3/25/37		$5,249,562	$4,267,118
FRB Ser. 07-AMC3, Class A2B, (CME Term SOFR 1 Month + 0.29%), 5.614%, 3/25/37		902,305	733,457
Citigroup Mortgage Loan Trust, Inc. 144A Ser. 22-A, Class A1, 6.17%, 9/25/62		190,209	183,187
COLT Mortgage Loan Trust 144A Ser. 20-2, Class A3, 3.698%, 3/25/65 W		410,000	376,761
Countrywide Alternative Loan Trust
FRB Ser. 05-38, Class A3, (CME Term SOFR 1 Month + 0.81%), 6.134%, 9/25/35		457,428	401,299
FRB Ser. 05-59, Class 1A1, (CME Term SOFR 1 Month + 0.77%), 6.099%, 11/20/35		445,009	391,277
FRB Ser. 06-OA10, Class 3A1, (CME Term SOFR 1 Month + 0.49%), 5.814%, 8/25/46		3,553,725	3,091,649
FRB Ser. 06-OA10, Class 4A1, (CME Term SOFR 1 Month + 0.49%), 5.814%, 8/25/46		7,465,493	6,086,379
FRB Ser. 06-OA10, Class 1A1, (Federal Reserve US 12 Month Cumulative Avg 1 yr CMT + 0.96%), 5.586%, 8/25/46		2,202,492	1,960,398
FRB Ser. 06-OA7, Class 1A2, (Federal Reserve US 12 Month Cumulative Avg 1 yr CMT + 0.94%), 5.566%, 6/25/46		223,295	185,769
FRB Ser. 05-65CB, Class 2A1, (CME Term SOFR 1 Month + 0.54%), 5.50%, 12/25/35		325,228	218,909
FRB Ser. 06-OA7, Class 1A1, 3.46%, 6/25/46 W		1,989,703	1,745,367
Federal Home Loan Mortgage Corporation
Structured Agency Credit Risk Debt FRN Ser. 15-HQA2, Class B, (US 30 Day Average SOFR + 10.61%), 15.929%, 5/25/28		6,314,753	6,824,577
Structured Agency Credit Risk Debt FRN Ser. 16-DNA1, Class B, (US 30 Day Average SOFR + 10.11%), 15.429%, 7/25/28		2,083,655	2,318,308
Structured Agency Credit Risk Debt FRN Ser. 15-DNA3, Class B, (US 30 Day Average SOFR + 9.46%), 14.779%, 4/25/28		4,555,421	4,969,935
Structured Agency Credit Risk Debt FRN Ser. 15-DNA2, Class B, (US 30 Day Average SOFR + 7.66%), 12.979%, 12/25/27		7,219,464	7,615,608
Seasoned Credit Risk Transfer Trust Ser. 19-3, Class M, 4.75%, 10/25/58 W		1,710,000	1,555,542
Federal Home Loan Mortgage Corporation 144A
Structured Agency Credit Risk Trust FRB Ser. 19-HQA1, Class B2, (US 30 Day Average SOFR + 12.36%), 17.679%, 2/25/49		841,000	1,039,926
Structured Agency Credit Risk Trust REMICs FRB Ser. 20-DNA5, Class B2, (US 30 Day Average SOFR + 11.50%), 16.815%, 10/25/50		256,000	329,170
Structured Agency Credit Risk Trust FRB Ser. 18-HQA2, Class B2, (US 30 Day Average SOFR + 11.11%), 16.429%, 10/25/48		2,017,000	2,477,875
Structured Agency Credit Risk Trust REMICs FRB Ser. 22-HQA1, Class B2, (US 30 Day Average SOFR + 11.00%), 16.315%, 3/25/42		4,969,000	5,503,168
Structured Agency Credit Risk Trust FRB Ser. 19-DNA1, Class B2, (US 30 Day Average SOFR + 10.86%), 16.179%, 1/25/49		111,000	135,699
Structured Agency Credit Risk Trust FRB Ser. 19-DNA2, Class B2, (US 30 Day Average SOFR + 10.61%), 15.929%, 3/25/49		242,000	284,123
Structured Agency Credit Risk Trust REMICs FRB Ser. 20-DNA4, Class B2, (US 30 Day Average SOFR + 10.11%), 15.429%, 8/25/50		448,000	573,160

MORTGAGE-BACKED SECURITIES (36.0%)* 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 B2, (US 30 Day Average SOFR + 10.11%), 15.429%, 7/25/50		$3,318,000	$4,143,352
Structured Agency Credit Risk Trust REMICs FRB Ser. 20-DNA3, Class B2, (US 30 Day Average SOFR + 9.46%), 14.779%, 6/25/50		239,000	297,256
Structured Agency Credit Risk Trust FRB Ser. 19-FTR1, Class B2, (US 30 Day Average SOFR + 8.46%), 13.779%, 1/25/48		700,000	780,938
Structured Agency Credit Risk Trust FRB Ser. 18-DNA3, Class B2, (US 30 Day Average SOFR + 7.86%), 13.179%, 9/25/48		408,000	452,154
Structured Agency Credit Risk Trust REMICs FRB Ser. 20-HQA2, Class B2, (US 30 Day Average SOFR + 7.71%), 13.029%, 3/25/50		500,000	549,652
Structured Agency Credit Risk Trust REMICs FRB Ser. 20-HQA3, Class B1, (US 30 Day Average SOFR + 5.86%), 11.179%, 7/25/50		306,726	334,103
Structured Agency Credit Risk Trust FRB Ser. 19-FTR3, Class FTR3, (US 30 Day Average SOFR + 4.91%), 10.202%, 9/25/47		468,000	461,565
Structured Agency Credit Risk Trust REMICs FRB Ser. 20-DNA5, Class B1, (US 30 Day Average SOFR + 4.80%), 10.115%, 10/25/50		870,000	946,261
Structured Agency Credit Risk Trust REMICs FRB Ser. 20-HQA2, Class M2, (US 30 Day Average SOFR + 3.21%), 8.529%, 3/25/50		371,945	383,539
Seasoned Credit Risk Transfer Trust Ser. 19-2, Class M, 4.75%, 8/25/58 W		5,008,000	4,445,530
Seasoned Credit Risk Transfer Trust Ser. 17-3, Class M2, 4.75%, 7/25/56 W		538,000	502,458
Seasoned Credit Risk Transfer Trust FRB Ser. 17-2, Class 2, 4.00%, 8/25/56 W		132,830	129,990
Federal National Mortgage Association
Connecticut Avenue Securities FRB Ser. 16-C02, Class 1B, (US 30 Day Average SOFR + 12.36%), 17.679%, 9/25/28		12,323,190	14,476,883
Connecticut Avenue Securities FRB Ser. 16-C03, Class 1B, (US 30 Day Average SOFR + 11.86%), 17.179%, 10/25/28		7,683,624	8,950,597
Connecticut Avenue Securities FRB Ser. 16-C01, Class 1B, (US 30 Day Average SOFR + 11.86%), 17.179%, 8/25/28		4,973,398	5,732,154
Connecticut Avenue Securities FRB Ser. 16-C05, Class 2B, (US 30 Day Average SOFR + 10.86%), 16.179%, 1/25/29		443,875	504,415
Connecticut Avenue Securities FRB Ser. 16-C04, Class 1B, (US 30 Day Average SOFR + 10.36%), 15.679%, 1/25/29		148,259	167,748
Connecticut Avenue Securities FRB Ser. 16-C06, Class 1B, (US 30 Day Average SOFR + 9.36%), 14.679%, 4/25/29		415,916	463,799
Connecticut Avenue Securities FRB Ser. 17-C02, Class 2B1, (US 30 Day Average SOFR + 5.61%), 10.929%, 9/25/29		395,000	436,903
Connecticut Avenue Securities FRB Ser. 16-C03, Class 1M2, (US 30 Day Average SOFR + 5.41%), 10.729%, 10/25/28		73,800	78,171
Connecticut Avenue Securities FRB Ser. 18-C04, Class 2B1, (US 30 Day Average SOFR + 4.61%), 9.929%, 12/25/30		368,000	403,391
Connecticut Avenue Securities FRB Ser. 17-C07, Class 2B1, (US 30 Day Average SOFR + 4.56%), 9.879%, 5/25/30		28,000	30,306
Connecticut Avenue Securities FRB Ser. 18-C06, Class 1B1, (US 30 Day Average SOFR + 3.86%), 9.179%, 3/25/31		313,000	335,081

MORTGAGE-BACKED SECURITIES (36.0%)* cont.		Principal amount	Value
Residential mortgage-backed securities (non-agency) cont.
Federal National Mortgage Association 144A
Connecticut Avenue Securities Trust FRB Ser. 20-SBT1, Class 1B1, (US 30 Day Average SOFR + 6.86%), 12.179%, 2/25/40		$1,645,000	$1,683,979
Connecticut Avenue Securities Trust FRB Ser. 21-R01, Class 1B2, (US 30 Day Average SOFR + 6.00%), 11.315%, 10/25/41		185,000	186,388
Connecticut Avenue Securities Trust FRB Ser. 19-R04, Class 2B1, (US 30 Day Average SOFR + 5.36%), 10.679%, 6/25/39		486,029	513,065
Connecticut Avenue Securities Trust FRB Ser. 22-R02, Class 2B1, (US 30 Day Average SOFR + 4.50%), 9.815%, 1/25/42		1,471,000	1,504,098
Connecticut Avenue Securities Trust FRB Ser. 19-R01, Class 2B1, (US 30 Day Average SOFR + 4.46%), 9.779%, 7/25/31		163,000	172,882
Connecticut Avenue Securities Trust FRB Ser. 19-R03, Class 1B1, (US 30 Day Average SOFR + 4.21%), 9.529%, 9/25/31		314,000	329,839
Connecticut Avenue Securities Trust FRB Ser. 20-SBT1, Class 1M2, (US 30 Day Average SOFR + 3.76%), 9.079%, 2/25/40		239,000	248,693
Connecticut Avenue Securities Trust FRB Ser. 20-R02, Class 2B1, (US 30 Day Average SOFR + 3.11%), 8.429%, 1/25/40		126,000	126,124
Connecticut Avenue Securities Trust FRB Ser. 22-R02, Class 2M2, (US 30 Day Average SOFR + 3.00%), 8.315%, 1/25/42		3,600,000	3,625,877
Connecticut Avenue Securities Trust FRB Ser. 19-R01, Class 2M2, (US 30 Day Average SOFR + 2.56%), 7.879%, 7/25/31		38,665	38,821
GSAA Home Equity Trust FRB Ser. 06-8, Class 2A2, (CME Term SOFR 1 Month + 0.47%), 5.794%, 5/25/36		9,106,789	2,178,178
GSR Mortgage Loan Trust FRB Ser. 07-OA1, Class 2A3A, (CME Term SOFR 1 Month + 0.42%), 5.744%, 5/25/37		3,885,359	2,223,295
HarborView Mortgage Loan Trust FRB Ser. 05-2, Class 1A, (CME Term SOFR 1 Month + 0.63%), 5.962%, 5/19/35		10,386,208	3,172,261
Morgan Stanley Re-REMIC Trust 144A FRB Ser. 10-R4, Class 4B, (CME Term SOFR 1 Month + 0.34%), 2.696%, 2/26/37		126,483	102,505
Oaktown Re III, Ltd. 144A
FRB Ser. 19-1A, Class B1B, (US 30 Day Average SOFR + 4.46%), 9.779%, 7/25/29 (Bermuda)		383,000	379,845
FRB Ser. 19-1A, Class B1A, (US 30 Day Average SOFR + 3.61%), 8.929%, 7/25/29 (Bermuda)		317,000	313,661
Towd Point Mortgage Trust 144A
Ser. 19-2, Class A2, 3.75%, 12/25/58 W		256,000	218,881
Ser. 18-5, Class M1, 3.25%, 7/25/58 W		240,000	179,878
WaMu Mortgage Pass-Through Certificates Trust FRB Ser. 05-AR13, Class A1C3, (CME Term SOFR 1 Month + 1.09%), 6.414%, 10/25/45		85,110	77,654
			125,112,819
Total mortgage-backed securities (cost $548,663,822)			$445,322,102

CORPORATE BONDS AND NOTES (16.9%)*		Principal amount	Value
Basic materials (2.0%)
ArcelorMittal SA sr. unsec. unsub. notes 7.00%, 10/15/39 (France)		$1,035,000	$1,035,326
ATI, Inc. sr. unsec. notes 7.25%, 8/15/30		455,000	451,588
ATI, Inc. sr. unsec. notes 4.875%, 10/1/29		1,035,000	910,523
Axalta Coating Systems, LLC 144A company guaranty sr. unsec. notes 3.375%, 2/15/29		3,306,000	2,752,548

CORPORATE BONDS AND NOTES (16.9%)* cont.		Principal amount	Value
Basic materials cont.
Boise Cascade Co. 144A company guaranty sr. unsec. notes 4.875%, 7/1/30		$1,470,000	$1,282,785
Builders FirstSource, Inc. 144A company guaranty sr. unsec. bonds 6.375%, 6/15/32		1,375,000	1,294,299
Builders FirstSource, Inc. 144A company guaranty sr. unsec. bonds 4.25%, 2/1/32		615,000	504,340
Celanese US Holdings, LLC company guaranty sr. unsec. notes 6.33%, 7/15/29 (Germany)		985,000	965,508
Commercial Metals Co. sr. unsec. notes 4.375%, 3/15/32		1,536,000	1,288,312
Constellium SE sr. unsec. notes Ser. REGS, 3.125%, 7/15/29 (France)	EUR	980,000	876,079
HTA Group, Ltd./Mauritius company guaranty sr. unsec. notes Ser. REGS, 7.00%, 12/18/25 (Tanzania)		$1,970,000	1,891,200
HudBay Minerals, Inc. 144A company guaranty sr. unsec. notes 6.125%, 4/1/29 (Canada)		1,435,000	1,327,739
IHS Holding, Ltd. company guaranty sr. unsec. notes Ser. REGS, 6.25%, 11/29/28 (Nigeria)		3,250,000	2,457,814
Intelligent Packaging Holdco Issuer LP 144A sr. unsec. notes 9.00%, 1/15/26 (Canada) ‡‡		223,000	184,533
Intelligent Packaging, Ltd., Finco, Inc./Intelligent Packaging, Ltd. Co-Issuer, LLC 144A sr. notes 6.00%, 9/15/28 (Canada)		750,000	655,528
Olympus Water US Holding Corp. 144A sr. notes 9.75%, 11/15/28		1,875,000	1,870,947
Resideo Funding, Inc. 144A company guaranty sr. unsec. unsub. notes 4.00%, 9/1/29		1,625,000	1,335,067
SCIH Salt Holdings, Inc. 144A sr. unsec. notes 6.625%, 5/1/29		1,000,000	856,907
Stillwater Mining Co. company guaranty sr. unsec. notes Ser. REGS, 4.50%, 11/16/29 (South Africa)		270,000	207,641
WR Grace Holdings, LLC 144A sr. notes 7.375%, 3/1/31		1,410,000	1,385,326
WR Grace Holdings, LLC 144A sr. unsec. notes 5.625%, 8/15/29		1,000,000	808,750
			24,342,760
Capital goods (1.5%)
Benteler International AG 144A company guaranty sr. notes 10.50%, 5/15/28 (Austria)		2,980,000	3,002,350
Clarios Global LP/Clarios US Finance Co. company guaranty sr. notes Ser. REGS, 4.375%, 5/15/26	EUR	1,265,000	1,282,908
Crown Cork & Seal Co., Inc. company guaranty sr. unsec. bonds 7.375%, 12/15/26		$138,000	140,070
GFL Environmental, Inc. 144A company guaranty sr. unsec. notes 4.75%, 6/15/29 (Canada)		1,542,000	1,370,697
Great Lakes Dredge & Dock Corp. 144A company guaranty sr. unsec. notes 5.25%, 6/1/29		3,120,000	2,559,016
Howmet Aerospace, Inc. sr. unsec. unsub. bonds 5.95%, 2/1/37		920,000	863,821
Madison IAQ, LLC 144A sr. unsec. notes 5.875%, 6/30/29		1,500,000	1,207,863
MajorDrive Holdings IV, LLC 144A sr. unsec. notes 6.375%, 6/1/29		1,269,000	1,044,353
Pactiv Evergreen Group Issuer, Inc./Pactiv Evergreen Group Issuer, LLC 144A company guaranty sr. notes 4.00%, 10/15/27		1,530,000	1,357,875
Ritchie Bros Holdings, Inc. 144A company guaranty sr. unsec. unsub. notes 7.75%, 3/15/31		1,309,000	1,326,999
Roller Bearing Co. of America, Inc. 144A sr. notes 4.375%, 10/15/29		1,545,000	1,328,950
Spirit AeroSystems, Inc. company guaranty sr. unsec. unsub. notes 4.60%, 6/15/28		1,000,000	779,211

CORPORATE BONDS AND NOTES (16.9%)* cont.		Principal amount	Value
Capital goods cont.
Terex Corp. 144A company guaranty sr. unsec. notes 5.00%, 5/15/29		$1,491,000	$1,335,228
TransDigm, Inc. company guaranty sr. unsec. sub. notes 4.875%, 5/1/29		110,000	96,645
TransDigm, Inc. company guaranty sr. unsec. sub. notes 4.625%, 1/15/29		940,000	820,968
TransDigm, Inc. 144A sr. notes 6.875%, 12/15/30		625,000	612,840
			19,129,794
Communication services (0.8%)
CCO Holdings, LLC/CCO Holdings Capital Corp. 144A sr. unsec. unsub. notes 4.75%, 2/1/32		3,840,000	3,072,000
CSC Holdings, LLC 144A company guaranty sr. unsec. notes 5.50%, 4/15/27		1,565,000	1,341,323
Embarq Corp. sr. unsec. unsub. bonds 7.995%, 6/1/36		1,500,000	845,625
Level 3 Financing, Inc. 144A company guaranty sr. unsec. notes 4.25%, 7/1/28		1,250,000	778,792
SBA Communications Corp. sr. unsec. notes 3.125%, 2/1/29 R		1,635,000	1,363,709
Viasat, Inc. 144A sr. unsec. notes 7.50%, 5/30/31		1,000,000	660,000
Vmed O2 UK Financing I PLC sr. notes Ser. REGS, 3.25%, 1/31/31 (United Kingdom)	EUR	1,490,000	1,287,353
			9,348,802
Consumer cyclicals (5.0%)
Bath & Body Works, Inc. 144A company guaranty sr. unsec. unsub. bonds 6.625%, 10/1/30		$3,189,000	2,989,719
Beasley Mezzanine Holdings, LLC 144A company guaranty sr. notes 8.625%, 2/1/26		1,500,000	962,509
Block, Inc. sr. unsec. notes 3.50%, 6/1/31		1,665,000	1,307,959
Boyd Gaming Corp. 144A sr. unsec. bonds 4.75%, 6/15/31		1,545,000	1,314,758
Caesars Entertainment, Inc. 144A sr. notes 7.00%, 2/15/30		1,659,000	1,614,309
Carnival Corp. 144A notes 9.875%, 8/1/27		1,330,000	1,388,420
Carnival Corp. 144A sr. unsec. notes 5.75%, 3/1/27		750,000	678,918
Cinemark USA, Inc. 144A company guaranty sr. unsec. notes 5.25%, 7/15/28		1,570,000	1,393,626
Crocs, Inc. 144A company guaranty sr. unsec. notes 4.125%, 8/15/31		1,695,000	1,311,413
Dufry One BV company guaranty sr. unsec. notes Ser. REGS, 3.375%, 4/15/28 (Netherlands)	EUR	1,345,000	1,272,620
Hanesbrands, Inc. 144A company guaranty sr. unsec. unsub. notes 9.00%, perpetual maturity		$1,320,000	1,252,350
iHeartCommunications, Inc. company guaranty sr. notes 6.375%, 5/1/26		1,630,000	1,404,546
iHeartCommunications, Inc. company guaranty sr. unsec. notes 8.375%, 5/1/27		1,500,000	1,076,046
IHO Verwaltungs GmbH sr. unsub. notes Ser. REGS, 8.75%, 5/15/28 (Germany) ‡‡	EUR	2,720,000	2,973,524
JELD-WEN, Inc. 144A company guaranty sr. unsec. notes 4.875%, 12/15/27		$1,535,000	1,354,453
Kontoor Brands, Inc. 144A company guaranty sr. unsec. notes 4.125%, 11/15/29		1,610,000	1,336,300
Las Vegas Sands Corp. sr. unsec. unsub. notes 3.90%, 8/8/29		1,535,000	1,310,020
Levi Strauss & Co. sr. unsec. notes 3.375%, 3/15/27	EUR	1,004,000	993,980

CORPORATE BONDS AND NOTES (16.9%)* cont.		Principal amount	Value
Consumer cyclicals cont.
Light & Wonder International, Inc. 144A company guaranty sr. unsec. notes 7.25%, 11/15/29		$3,115,000	$3,052,700
Macy’s Retail Holdings, LLC 144A company guaranty sr. unsec. unsub. bonds 6.125%, 3/15/32		734,000	605,763
Masonite International Corp. 144A company guaranty sr. unsec. notes 3.50%, 2/15/30		1,625,000	1,320,355
Mattamy Group Corp. 144A sr. unsec. notes 4.625%, 3/1/30 (Canada)		3,525,000	3,000,055
Mattel, Inc. 144A company guaranty sr. unsec. notes 3.75%, 4/1/29		1,550,000	1,349,173
McGraw-Hill Education, Inc. 144A sr. notes 5.75%, 8/1/28		2,155,000	1,859,227
McGraw-Hill Education, Inc. 144A sr. unsec. notes 8.00%, 8/1/29		1,000,000	867,500
Neptune Bidco US, Inc. 144A sr. notes 9.29%, 4/15/29		1,534,000	1,388,748
News Corp. 144A sr. unsec. notes 3.875%, 5/15/29		1,565,000	1,345,900
Nexstar Media, Inc. 144A company guaranty sr. unsec. notes 4.75%, 11/1/28		1,565,000	1,295,365
Outfront Media Capital, LLC/Outfront Media Capital Corp. 144A company guaranty sr. unsec. notes 5.00%, 8/15/27		1,485,000	1,308,406
Penn Entertainment, Inc. 144A sr. unsec. notes 4.125%, 7/1/29		1,670,000	1,364,699
PetSmart, Inc./PetSmart Finance Corp. 144A company guaranty sr. unsec. notes 7.75%, 2/15/29		970,000	903,932
Royal Caribbean Cruises, Ltd. 144A company guaranty sr. unsec. unsub. notes 9.25%, 1/15/29		1,350,000	1,426,190
Sirius XM Radio, Inc. 144A company guaranty sr. unsec. notes 4.125%, 7/1/30		1,695,000	1,357,034
Spanish Broadcasting System, Inc. 144A sr. notes 9.75%, 3/1/26		690,000	461,553
Spectrum Brands, Inc. 144A company guaranty sr. unsec. bonds 5.00%, 10/1/29		1,497,000	1,356,432
Standard Industries, Inc. sr. unsec. notes Ser. REGS, 2.25%, 11/21/26	EUR	1,474,000	1,372,315
Station Casinos, LLC 144A sr. unsec. bonds 4.625%, 12/1/31		$1,650,000	1,319,807
Taylor Morrison Communities, Inc. 144A sr. unsec. bonds 5.125%, 8/1/30		3,416,000	2,984,730
Taylor Morrison Communities, Inc. 144A sr. unsec. notes 5.75%, 1/15/28		788,000	734,022
Univision Communications, Inc. 144A sr. notes 7.375%, 6/30/30		1,427,000	1,304,130
Verisure Midholding AB company guaranty sr. unsec. notes Ser. REGS, 5.25%, 2/15/29 (Sweden)	EUR	3,240,000	3,007,820
Via Celere Desarrollos Inmobiliarios SA company guaranty sr. notes Ser. REGS, 5.25%, 4/1/26 (Spain)	EUR	246,000	244,489
Warnermedia Holdings, Inc. company guaranty sr. unsec. bonds 5.141%, 3/15/52		$1,160,000	861,927
			62,027,742
Consumer staples (1.1%)
1011778 BC ULC/New Red Finance, Inc. 144A bonds 4.00%, 10/15/30 (Canada)		1,625,000	1,350,332
Albertsons Cos., Inc./Safeway, Inc./New Albertsons LP/Albertsons, LLC 144A company guaranty sr. unsec. notes 3.50%, 3/15/29		1,583,000	1,349,643
Aramark Services, Inc. 144A company guaranty sr. unsec. notes 5.00%, 2/1/28		1,481,000	1,369,678
Avis Budget Finance PLC 144A sr. unsec. notes 7.25%, 7/31/30	EUR	420,000	440,701

CORPORATE BONDS AND NOTES (16.9%)* cont.		Principal amount	Value
Consumer staples cont.
Herc Holdings, Inc. 144A company guaranty sr. unsec. notes 5.50%, 7/15/27		$1,450,000	$1,371,198
Lamb Weston Holdings, Inc. 144A company guaranty sr. unsec. notes 4.375%, 1/31/32		1,550,000	1,298,493
Lamb Weston Holdings, Inc. 144A company guaranty sr. unsec. notes 4.125%, 1/31/30		1,050,000	897,906
Loxam SAS company guaranty sr. notes Ser. EMTN, 6.375%, 5/15/28 (France)	EUR	1,330,000	1,375,334
Match Group Holdings II, LLC 144A sr. unsec. notes 4.125%, 8/1/30		$1,607,000	1,326,033
US Foods, Inc. 144A company guaranty sr. unsec. notes 4.75%, 2/15/29		1,485,000	1,327,246
VM Consolidated, Inc. 144A company guaranty sr. unsec. notes 5.50%, 4/15/29		1,491,000	1,341,906
			13,448,470
Energy (3.4%)
Antero Resources Corp. 144A sr. unsec. notes 5.375%, 3/1/30		1,425,000	1,311,952
Callon Petroleum Co. 144A company guaranty sr. unsec. notes 7.50%, 6/15/30		1,422,000	1,378,739
Centennial Resource Production, LLC 144A company guaranty sr. unsec. notes 6.875%, 4/1/27		2,828,000	2,787,624
Civitas Resources, Inc. 144A company guaranty sr. unsec. notes 8.375%, 7/1/28		1,235,000	1,256,613
Civitas Resources, Inc. 144A company guaranty sr. unsec. unsub. notes 8.75%, 7/1/31		3,000,000	3,064,407
DCP Midstream Operating LP 144A company guaranty sr. unsec. unsub. bonds 6.75%, 9/15/37		801,000	813,738
Ecopetrol SA sr. unsec. unsub. bonds 8.875%, 1/13/33 (Colombia)		1,870,000	1,826,600
Ecopetrol SA sr. unsec. unsub. notes 6.875%, 4/29/30 (Colombia)		1,800,000	1,643,506
Encino Acquisition Partners Holdings, LLC 144A company guaranty sr. unsec. notes 8.50%, 5/1/28		1,000,000	960,170
Endeavor Energy Resources LP/EER Finance, Inc. 144A sr. unsec. bonds 5.75%, 1/30/28		1,429,000	1,378,933
EnLink Midstream, LLC 144A company guaranty sr. unsec. unsub. notes 6.50%, 9/1/30		1,385,000	1,343,494
Hess Midstream Operations LP 144A company guaranty sr. unsec. notes 4.25%, 2/15/30		1,560,000	1,315,452
KazMunayGas National Co. JSC sr. unsec. notes Ser. REGS, 5.375%, 4/24/30 (Kazakhstan)		450,000	410,175
KazMunayGas National Co. JSC sr. unsec. unsub. bonds Ser. REGS, 6.375%, 10/24/48 (Kazakhstan)		980,000	796,250
Kinetik Holdings LP 144A company guaranty sr. unsec. notes 5.875%, 6/15/30		1,450,000	1,359,376
Occidental Petroleum Corp. sr. unsec. sub. bonds 6.20%, 3/15/40		1,350,000	1,286,827
Patterson-UTI Energy, Inc. sr. unsec. sub. notes 5.15%, 11/15/29		2,485,000	2,265,271
Pertamina Persero PT sr. unsec. unsub. bonds Ser. REGS, 6.00%, 5/3/42 (Indonesia)		890,000	806,646
Petrobras Global Finance BV company guaranty sr. unsec. unsub. bonds 6.50%, 7/3/33 (Brazil)		1,011,000	964,497
Petrobras Global Finance BV company guaranty sr. unsec. unsub. notes 6.25%, 3/17/24 (Brazil)		208,000	207,204

CORPORATE BONDS AND NOTES (16.9%)* cont.		Principal amount	Value
Energy cont.
Petrobras Global Finance BV company guaranty sr. unsec. unsub. notes 5.299%, 1/27/25 (Brazil)		$138,000	$135,455
Petroleos del Peru SA sr. unsec. unsub. bonds Ser. REGS, 4.75%, 6/19/32 (Peru)		1,330,000	936,402
Petroleos Mexicanos company guaranty sr. unsec. unsub. FRB 5.95%, 1/28/31 (Mexico)		1,918,000	1,372,809
Petroleos Mexicanos company guaranty sr. unsec. unsub. notes 6.84%, 1/23/30 (Mexico)		2,220,000	1,734,268
Petroleos Mexicanos company guaranty sr. unsec. unsub. notes 6.70%, 2/16/32 (Mexico)		836,000	620,454
Petroleos Mexicanos company guaranty sr. unsec. unsub. notes 6.49%, 1/23/27 (Mexico)		550,000	488,040
Petroleos Mexicanos 144A sr. unsec. bonds 10.00%, 2/7/33 (Mexico)		170,000	150,875
Petronas Capital, Ltd. company guaranty sr. unsec. bonds Ser. REGS, 4.55%, 4/21/50 (Malaysia)		876,000	710,344
Petronas Capital, Ltd. company guaranty sr. unsec. unsub. bonds Ser. REGS, 2.48%, 1/28/32 (Malaysia)		1,980,000	1,570,752
Rockcliff Energy II, LLC 144A sr. unsec. notes 5.50%, 10/15/29		1,499,000	1,349,049
SM Energy Co. sr. unsec. unsub. notes 6.50%, 7/15/28		1,425,000	1,368,000
Southwestern Energy Co. company guaranty sr. unsec. notes 5.375%, 2/1/29		1,475,000	1,358,457
Venture Global LNG, Inc. 144A sr. notes 8.375%, 6/1/31		3,080,000	3,027,831
			42,000,210
Financials (0.2%)
Alliant Holdings Intermediate, LLC/Alliant Holdings Co-Issuer 144A sr. notes 4.25%, 10/15/27		1,489,000	1,333,161
Cobra AcquisitionCo, LLC 144A company guaranty sr. unsec. notes 6.375%, 11/1/29		750,000	555,000
Deutsche Bank AG jr. unsec. sub. FRN 6.00%, perpetual maturity (Germany)		1,400,000	1,092,687
Dresdner Funding Trust I 144A jr. unsec. sub. notes 8.151%, 6/30/31		100,000	106,000
			3,086,848
Health care (1.1%)
Charles River Laboratories International, Inc. 144A company guaranty sr. unsec. notes 4.00%, 3/15/31		1,563,000	1,318,781
Charles River Laboratories International, Inc. 144A company guaranty sr. unsec. notes 3.75%, 3/15/29		50,000	43,063
CHS/Community Health Systems, Inc. 144A jr. notes 6.875%, 4/15/29		1,000,000	531,020
Elanco Animal Health, Inc. sr. unsec. notes Ser. WI, 6.65%, 8/28/28		1,385,000	1,346,913
Mozart Debt Merger Sub, Inc. 144A sr. notes 3.875%, 4/1/29		1,570,000	1,327,313
Organon Finance 1, LLC 144A sr. notes 4.125%, 4/30/28		1,510,000	1,312,052
Service Corp. International sr. unsec. sub. notes 4.00%, 5/15/31		1,625,000	1,334,094
Tenet Healthcare Corp. 144A company guaranty sr. notes 6.75%, 5/15/31		3,140,000	3,028,437
Teva Pharmaceutical Finance Netherlands II BV company guaranty sr. unsec. unsub. notes 4.375%, 5/9/30 (Israel)	EUR	930,000	838,952
Teva Pharmaceutical Finance Netherlands III BV company guaranty sr. unsec. unsub. notes 8.125%, 9/15/31 (Israel)		$2,035,000	2,096,050
			13,176,675

CORPORATE BONDS AND NOTES (16.9%)* cont.		Principal amount	Value
Technology (1.0%)
Arches Buyer, Inc. 144A sr. notes 4.25%, 6/1/28		$1,600,000	$1,364,148
Cloud Software Group, Inc. 144A notes 9.00%, 9/30/29		500,000	435,000
Cloud Software Group, Inc. 144A sr. notes. 6.50%, 3/31/29		500,000	442,165
CommScope Technologies, LLC 144A company guaranty sr. unsec. notes 6.00%, 6/15/25		750,000	713,965
CommScope, Inc. 144A company guaranty sr. notes 4.75%, 9/1/29		500,000	367,772
CrowdStrike Holdings, Inc. company guaranty sr. unsec. notes 3.00%, 2/15/29		1,603,000	1,350,170
Imola Merger Corp. 144A sr. notes 4.75%, 5/15/29		1,576,000	1,381,208
NCR Corp. 144A company guaranty sr. unsec. sub. notes 5.125%, 4/15/29		1,545,000	1,361,235
RingCentral, Inc. 144A sr. unsec. notes 8.50%, 8/15/30		1,000,000	966,250
Rocket Software, Inc. 144A sr. unsec. notes 6.50%, 2/15/29		1,000,000	825,000
Twilio, Inc. company guaranty sr. unsec. notes 3.625%, 3/15/29		1,595,000	1,335,244
ZoomInfo Technologies, LLC/ZoomInfo Finance Corp. 144A company guaranty sr. unsec. notes 3.875%, 2/1/29		1,728,000	1,440,193
			11,982,350
Transportation (0.1%)
Air France-KLM sr. unsec. notes 8.125%, 5/31/28 (France)	EUR	1,200,000	1,320,932
			1,320,932
Utilities and power (0.7%)
Aegea Finance SARL 144A company guaranty sr. unsec. notes 9.00%, 1/20/31 (Luxembourg)		$1,450,000	1,457,250
Diamond II, Ltd. 144A company guaranty sr. notes 7.95%, 7/28/26 (India)		2,440,000	2,397,300
Electricite De France SA 144A jr. unsec. sub. FRB 9.125%, perpetual maturity (France)		1,280,000	1,326,400
NRG Energy, Inc. 144A company guaranty sr. unsec. bonds 3.875%, 2/15/32		1,771,000	1,329,472
PG&E Corp. sr. sub. notes 5.25%, 7/1/30		1,560,000	1,355,737
Vistra Operations Co., LLC 144A company guaranty sr. unsec. unsub. notes 4.375%, 5/1/29		1,560,000	1,341,026
			9,207,185
Total corporate bonds and notes (cost $221,151,549)			$209,071,768

FOREIGN GOVERNMENT AND AGENCY BONDS AND NOTES (9.3%)*		Principal amount	Value
Angola (Republic of) sr. unsec. notes Ser. REGS, 8.00%, 11/26/29 (Angola)		$500,000	$410,000
Angola (Republic of) sr. unsec. unsub. notes Ser. REGS, 8.75%, 4/14/32 (Angola)		1,090,000	873,363
Argentine (Republic of) sr. unsec. unsub. bonds 3.625%, 7/9/35 (Argentina)		1,850,000	456,313
Argentine (Republic of) sr. unsec. unsub. notes 0.75%, 7/9/30 (Argentina)		1,740,000	494,738
Bahrain (Kingdom of) sr. unsec. notes Ser. REGS, 7.375%, 5/14/30 (Bahrain)		1,462,000	1,465,655
Benin (Republic of) sr. unsec. bonds Ser. REGS, 4.95%, 1/22/35 (Benin)	EUR	300,000	216,761
Benin (Republic of) sr. unsec. notes Ser. REGS, 4.875%, 1/19/32 (Benin)	EUR	1,290,000	1,008,037