Prospectus
October
31, 2023
Disclosure
contained herein relates to all classes of the Fund, as listed below, unless
otherwise noted.
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Share
Class | Ticker |
A | FGCAX |
Institutional | FGCIX |
Service | FGCSX |
R6 | SRBRX |
Federated Hermes Short-Intermediate Total Return Bond Fund
A Portfolio of Federated Hermes Institutional Trust
A mutual
fund seeking to provide total return. The Fund’s total return consists of two
components: (1) changes in the market value of its portfolio of securities (both
realized and unrealized appreciation); and (2) income received from its
portfolio of securities.
As with
all mutual funds, the Securities and Exchange Commission (SEC) has not approved
or disapproved these securities or passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
Not
FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee
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IS |
SS |
R6 |
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Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
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Maximum
Deferred Sales Charge (Load) (as a percentage of original purchase price
or redemption proceeds, as applicable) |
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Maximum
Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) (as a percentage of offering price) |
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Redemption
Fee (as a percentage of amount redeemed, if
applicable) |
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Exchange
Fee |
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A |
IS |
SS |
R6 |
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Management
Fee |
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Distribution
(12b-1) Fee |
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Other
Expenses |
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Acquired
Fund Fees and Expenses |
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Total
Annual Fund Operating Expenses |
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Fee
Waivers and/or Expense Reimbursements2 |
( |
( |
( |
( |
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Total
Annual Fund Operating Expenses After Fee Waivers and/or Expense
Reimbursements |
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1
2
1
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Share
Class |
1
Year |
3
Years |
5
Years |
10
Years |
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A |
$ |
$ |
$ |
$ |
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IS |
$ |
$ |
$ |
$ |
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SS |
$ |
$ |
$ |
$ |
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R6 |
$ |
$ |
$ |
$ |
2
◾ Investment
Sector Allocation Risk. Because
the Fund may allocate relatively more assets to certain fixed-income sectors
than to others, the Fund’s performance may be susceptible to any developments
which affect those fixed-income sectors emphasized by the
Fund.
◾ Interest
Rate Risk. Prices of
fixed-income securities generally fall when interest rates rise. The longer the
duration of a fixed-income security, the more susceptible it is to interest rate
risk. Recent and potential future changes in monetary policy made by central
banks and/or their governments are likely to affect the level of interest
rates.
◾ Risk
Associated with Noninvestment-Grade Securities.
Securities rated below investment grade may be subject to greater interest rate,
credit and liquidity risks than investment-grade securities. These securities
are considered speculative with respect to the issuer’s ability to pay interest
and repay principal.
◾ Risk
Related to the Economy. The value
of the Fund’s portfolio may decline in tandem with a drop in the overall value
of the markets in which the Fund invests and/or other markets. Economic,
political and financial conditions, industry or economic trends and developments
or public health risks, such as epidemics or pandemics, may, from time to time,
and for varying periods of time, cause the Fund to experience volatility,
illiquidity, shareholder redemptions, or other potentially adverse effects.
Among other investments, lower-grade bonds and loans may be particularly
sensitive to changes in the economy.
◾ Credit
Risk. It is
possible that interest or principal on securities will not be paid when due.
Such non-payment or default may reduce the value of the Fund’s portfolio
holdings, its share price and its performance.
◾ MBS
Risk. A rise in
interest rates may cause the value of MBS held by the Fund to decline. Certain
MBS issued by GSEs are not backed by the full faith and credit of the U.S.
government. A non-agency MBS is subject to the risk that the value of such
security will decline, because the security is not issued or guaranteed as to
principal or interest by the U.S. government or a GSE. The Fund’s investments in
collateralized mortgage obligations (CMOs) may entail greater market, prepayment
and liquidity risks than other MBS.
◾ Risk
Associated with Complex CMOs. CMOs with
complex or highly variable prepayment terms, such as companion classes, IOs,
POs, Inverse Floaters and residuals, generally entail greater market, prepayment
and liquidity risks than other mortgage-backed securities. For example, their
prices are more volatile and their trading market may be more
limited.
◾ Prepayment
and Extension Risk. When
homeowners prepay their mortgages in response to lower interest rates, the Fund
may be required to reinvest the proceeds at the lower interest rates then
available. Also, when interest rates fall, the price of mortgage-backed
securities may not rise to as great an extent as other fixed-income securities.
When interest rates rise, homeowners are less likely to prepay their mortgages.
A decreased rate of prepayments lengthens the expected maturity of a
mortgage-backed security, and the price of mortgage-backed securities may
decrease more than the price of other fixed income securities when interest
rates rise.
3
◾ Liquidity
Risk. The
fixed-income securities in which the Fund invests may be less readily marketable
and may be subject to greater fluctuation in price than other securities. Also,
market growth at rates greater than dealers’ capacity to make markets, as well
as regulatory changes or certain other developments, can reduce dealer
inventories of securities (such as corporate bonds), which can further constrain
liquidity and increase price volatility. Liquidity risk also refers to the
possibility that the Fund may not be able to sell a security or close out a
derivative contract when it wants to. If this happens, the Fund could incur
losses. High levels of shareholder redemptions in response to market conditions
also may increase liquidity risk and may negatively impact Fund performance.
Over-the-counter (OTC) derivative contracts generally carry greater liquidity
risks than exchange-traded contracts.
◾ Risk
of Investing in Loans. In
addition to the risks generally associated with debt instruments, such as
credit, market, interest rate, liquidity and derivatives risks, bank loans are
also subject to the risk that the value of the collateral securing a loan may
decline, be insufficient to meet the obligations of the borrower or be difficult
to liquidate. The Fund’s access to the collateral may be limited by bankruptcy,
other insolvency laws or by the type of loan the Fund has purchased. For
example, if the Fund purchases a participation instead of an assignment, it
would not have direct access to collateral of the borrower. As a result, a
floating rate loan may not be fully collateralized and can decline significantly
in value. Additionally, collateral on loan instruments may consist of assets
that may not be readily liquidated, and there is no assurance that the
liquidation of such assets will satisfy a borrower’s obligations under the
instrument. Loans generally are subject to legal or contractual restrictions on
resale. Loans and other forms of indebtedness may be structured such that they
are not securities under securities laws. As such, it is unclear whether loans
and other forms of direct indebtedness offer securities law protections, such as
those against fraud and misrepresentation. In the absence of definitive
regulatory guidance, while there can be no assurance that fraud or
misrepresentation will not occur with respect to the loans and other investments
in which the Fund invests, the Fund relies on the Adviser’s research in an
attempt to seek to avoid situations where fraud or misrepresentation could
adversely affect the Fund.
◾ Loan
Liquidity Risk. Loans
generally are subject to legal or contractual restrictions on resale. The
liquidity of loans, including the volume and frequency of secondary market
trading in such loans, varies significantly over time and among individual
loans. For example, if the credit quality of a loan unexpectedly declines
significantly, secondary market trading in that loan can also decline for a
period of time. During periods of infrequent trading, valuing a loan can be more
difficult and buying and selling a loan at an acceptable price can be more
difficult and delayed. Difficulty in selling a loan can result in a loss. Loan
instruments may not be readily marketable and may be subject to restrictions on
resale. In some cases, negotiations involved in disposing of loans may require
weeks to complete. Thus, transactions in loan instruments may take longer than
seven days to settle. This could pose a liquidity risk to the Fund and, if the
Fund’s exposure to such investments is substantial, could impair the Fund’s
ability to meet shareholder redemptions in a timely manner. A majority of the
Fund’s assets are likely to be invested in assets that are considerably less
liquid than debt instruments traded on national exchanges. Market quotations for
such assets may be volatile and/or subject to large spreads between bid and ask
prices.
◾ Agent
Insolvency Risk. In a
syndicated loan, the agent bank is the bank that undertakes the bulk of the
administrative duties involved in the day-to-day administration of the loan. In
the event of the insolvency of an agent bank, a loan could be subject to
settlement risk as well as the risk of interruptions in the administrative
duties performed in the day to day administration of the loan (such as
processing LIBOR calculations, processing draws,
etc.).
◾ Loan
Prepayment Risk. During
periods of declining interest rates or for other purposes, borrowers may
exercise their option to prepay principal earlier than scheduled which may force
the Fund to reinvest in lower-yielding instruments.
◾ Risk
of Foreign Investing. Because
the Fund invests in dollar-denominated securities issued by foreign companies,
the Fund’s share price may be more affected by foreign economic and political
conditions, taxation policies and accounting and auditing standards than could
otherwise be the case.
◾ European
Union and Eurozone Related Risk. A number
of countries in the European Union (EU), including certain countries within the
EU that have adopted the euro (Eurozone), have experienced, and may continue to
experience, severe economic and financial difficulties. Additional countries
within the EU may also fall subject to such difficulties. These events could
negatively affect the value and liquidity of the Fund’s investments in
euro-denominated securities and derivatives contracts, securities of issuers
located in the EU or with significant exposure to EU issuers or
countries.
◾ Risk
of Investing in Emerging Market Countries.
Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. Emerging market economies
may also experience more severe downturns (with corresponding currency
devaluations) than developed economies.
4
◾ Risk
of Investing in Derivative Contracts and Hybrid Instruments.
Derivative contracts and hybrid instruments involve risks different from, or
possibly greater than, risks associated with investing directly in securities
and other traditional investments. Specific risk issues related to the use of
such contracts and instruments include valuation and tax issues, increased
potential for losses and/or costs to the Fund, and a potential reduction in
gains to the Fund. Each of these issues is described in greater detail in this
Prospectus. Derivative contracts and hybrid instruments may also involve other
risks described in this Prospectus, such as interest rate, credit, currency,
liquidity and leverage risks.
◾ Exchange-Traded
Funds Risk.
An investment in an exchange-traded fund (ETF) generally presents the same
primary risks as an investment in a conventional fund (i.e., one that is not
exchange-traded) that has the same investment objectives, strategies and
policies. The price of an ETF can fluctuate up or down, and the Fund could lose
money investing in an ETF if the prices of the securities owned by the ETF go
down.
◾ Risk
of Loss after Redemption. The Fund
may also invest in trade finance loan instruments primarily by investing in
other investment companies (which are not available for general investment by
the public) that own those instruments, are advised by an affiliate of the
Adviser and are structured as an extended payment
fund.
◾ Leverage
Risk. Leverage
risk is created when an investment exposes the Fund to a level of risk that
exceeds the amount invested. Changes in the value of such an investment magnify
the Fund’s risk of loss and potential for gain.
◾ Technology
Risk. The
Adviser uses various technologies in managing the Fund, consistent with its
investment objective and strategy described in this Prospectus. For example,
proprietary and third-party data and systems are utilized to support decision
making for the Fund. Data imprecision, software or other technology
malfunctions, programming inaccuracies and similar circumstances may impair the
performance of these systems, which may negatively affect Fund
performance.
◾ Underlying
Fund Risk. The risk
that the Fund’s performance is closely related to the risks associated with the
securities and other investments held by the Underlying Fund and that the
ability of the Fund to achieve its investment objective will depend upon the
ability of the Underlying Fund to achieve its investment objectives. The Fund
bears Underlying Fund fees and expenses indirectly. However, to avoid charging
duplicative fees, the Adviser will waive and/or reimburse the Fund’s Management
Fee with respect to the amount of its net assets invested in the affiliated fund
as required by Rule 12d1-1.
The
Fund’s IS class total return for the nine-month period from January 1, 2023 to
September 30, 2023, was 1.60%.
Within
the periods shown in the bar chart, the Fund’s IS class highest quarterly return
was 2.33% (quarter ended June 30, 2020). Its lowest quarterly return was (3.24)%
(quarter ended March 31, 2022).
5
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Share
Class |
1
Year |
5
Years |
10
Years |
Since
Inception |
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A: |
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Inception
Date: |
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Return
Before Taxes |
( |
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IS: |
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Return
Before Taxes |
( |
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Return
After Taxes on Distributions |
( |
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Return
After Taxes on Distributions and Sale of Fund Shares |
( |
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SS: |
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Return
Before Taxes |
( |
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R6: |
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Inception
Date: |
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Return
Before Taxes |
( |
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Bloomberg
1-5 Year U.S. Government/Credit Index1
(reflects
no deduction for fees, expenses or taxes) |
( |
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Morningstar
Short-Term Bond Funds Average2
(reflects
no deduction for fees, expenses or taxes) |
( |
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1
2
FUND
MANAGEMENT
The Fund’s
Investment Adviser is Federated Investment Management Company.
John
Gentry, CFA, Senior Portfolio Manager, has been the Fund’s portfolio manager
since November of 2013.
Chengjun
(Chris) Wu, CFA, Senior Portfolio Manager, has been the Fund’s portfolio manager
since October of 2018.
Robert Matthews, CFA,
Portfolio Manager, has been the Fund’s portfolio manager since October of
2023.
purchase
and sale of fund shares
You
may purchase, redeem or exchange Shares of the Fund on any day the New York
Stock Exchange is open. Shares may be
purchased through a financial intermediary firm that has entered into a Fund
selling and/or servicing agreement with the Distributor or an affiliate
(“Financial Intermediary”) or directly from the Fund, by wire or by check.
Please note that certain purchase restrictions may apply. Redeem or exchange
Shares through a financial intermediary or directly from the Fund by telephone
at 1-800-341-7400 or by mail.
A
Class
The
minimum investment amount for the Fund’s A class is generally $1,500 for initial
investments and $100 for subsequent
investments. There is no minimum initial or subsequent investment amount
required for employer-sponsored retirement plans invested in A or IS Shares;
however, such accounts remain subject to the Fund’s policy on “Accounts with Low
Balances.” Certain types of accounts are eligible for lower minimum investments.
The minimum investment amount for Systematic Investment Programs is
$50.
6
IS
& SS Classes
The
minimum initial investment amount for the Fund’s IS and SS classes is generally
$1,000,000 and there is no minimum
subsequent investment amount. Certain types of accounts are eligible for lower
minimum investments. The minimum investment amount for Systematic Investment
Programs is $50.
R6
Class
There
are no minimum initial or subsequent investment amounts required. The minimum
investment amount for Systematic
Investment Programs is $50.
Tax
Information
A,
IS & SS Classes
The
Fund’s distributions are taxable as ordinary income or capital gains except when
your investment is through a 401(k)
plan, an Individual Retirement Account or other tax-advantaged investment
plan.
R6
Class
The
Fund’s distributions are taxable as ordinary income or capital gains except when
your investment is through a tax-advantaged
investment plan.
Payments
to Broker-Dealers and Other Financial Intermediaries
A,
IS & SS Classes
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and/or its related
companies may pay the intermediary for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing the
broker-dealer or other intermediary and your salesperson to recommend the Fund
over another investment. Ask your salesperson or visit your financial
intermediary’s website for more information.
R6
Class
Class
R6 Shares do not make any payments to financial intermediaries, either from Fund
assets or from the investment adviser
and its affiliates.
What are
the Fund’s Investment Strategies?
The
Fund’s investment objective is to provide total return. The Fund’s total return
consists of two components: (1)
changes in the market value of its portfolio of securities (both realized and
unrealized appreciation); and (2) income received from its portfolio of
securities. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this Prospectus.
The
Fund expects that, under normal market conditions, income received from its
portfolio of securities will comprise the
largest component of its total return. The Fund seeks to provide the
appreciation component of total return by selecting those securities whose
prices will, in the opinion of the Adviser, benefit from anticipated changes in
economic and market conditions.
A
description of the principal types of securities and derivative contracts in
which the Fund invests, other investment techniques principally
used by the Fund and their risks immediately follows this strategy section. The
Fund’s overall strategy is to invest in a portfolio consisting primarily of U.S.
Treasury securities, U.S. government agency securities (including
mortgage-backed securities issued or guaranteed by U.S. government agencies or
instrumentalities), mortgage-backed securities (MBS), asset-backed securities
and investment-grade corporate securities. The Fund may invest its assets in
securities of other investment companies, including the securities of affiliated
exchange-traded funds and money market funds (“Underlying Funds”), as an
efficient means of implementing its investment strategies and/or managing its
uninvested cash.
The Fund
may also
invest in derivative contracts or hybrid instruments (such as, for example,
futures contracts, option contracts and swap contracts) to implement its
investment strategies as more fully described herein. The Adviser expects that,
normally, no more than 35% of the Fund’s total assets will be invested in
securities that are rated below investment grade (otherwise known as “junk
bonds” or “leveraged loans”). The maximum amount that the Fund may invest in
emerging market securities, including trade finance, is 10% of the Fund’s total
assets. Investment-grade, fixed-income securities are rated in one of the four
highest categories (BBB- or higher) by a nationally recognized statistical
rating organization (NRSRO). Noninvestment-grade, fixed-income securities are
rated in one of the six lowest categories (BB or lower) by a NRSRO, or in either
case if unrated, of comparable quality as determined by the Adviser. Investors
in lower-rated, fixed-income securities may receive higher yields as
compensation for assuming higher credit risks. The Adviser seeks to enhance the
Fund’s performance by allocating relatively more of its portfolio to the sector
that the Adviser expects to offer the best balance between total return and risk
and thus offer the greatest potential for return.
7
Certain
of the government securities in which the Fund invests are not backed by the
full faith and credit of the U.S.
government, such as those issued by the Federal Home Loan Mortgage Corporation
(“Freddie Mac”), the Federal National Mortgage Association (“Fannie Mae”) and
the Federal Home Loan Bank System. These entities are, however supported through
federal subsidies, loans or other benefits. The Fund may also invest in
government securities that are supported by the full faith and credit of the
U.S. government, such as those issued by the Government National Mortgage
Association (“Ginnie Mae”). Finally, to a lesser extent, the Fund may invest in
certain government securities that have no explicit financial support, but which
are regarded as having implied support because the federal government sponsors
their activities.
The
Fund buys and sells portfolio securities based primarily on the Adviser’s market
outlook and analysis of how securities
may perform under different market conditions. The Adviser’s market outlook
reflects multiple factors, including:
◾ current
and expected U.S. economic growth;
◾ current
and expected changes in the rate of inflation;
◾ the level
of interest rates in other countries as compared to U.S. interest
rates;
◾ the
Federal Reserve Board’s monetary policy; and
◾ technical
factors affecting the supply or demand for specific securities or types of
securities.
Within
the context of its duration, yield curve and sector allocation strategies, the
Fund will select individual securities which
will, in the opinion of the Adviser, benefit from anticipated changes in market
conditions.
Duration
Duration
measures the price sensitivity of a fixed-income security to changes in the
interest rates. The Adviser selects securities
with longer or shorter durations based on its interest rate outlook. Although
the value of the Fund’s Shares will fluctuate, the Adviser will seek, under
normal market conditions, to manage the magnitude of the fluctuation by limiting
the Fund’s dollar-weighted average effective duration to be within a range of
1.5 to 3.5 years.
While
not based on the Fund’s actual duration or market interest rate movements at any
particular date or during any particular
period, the following hypothetical example is intended to demonstrate the effect
that “duration” may have on a mutual fund portfolio. Assume that a mutual fund’s
dollar-weighted average duration is 4.0 years at a particular point in time, and
that a relevant interest rate on that same date was 4.0%. Understanding that
duration generally represents the potential change in value given a
100-basis-point (1.00%) change in a relevant interest rate, and assuming that
the mutual fund’s dollar-weighted average duration, portfolio, portfolio
structure and other relevant factors that could affect the value of the mutual
fund remain unchanged, then: (a) if interest rates rise to 5.0% over a 12-month
period, the mutual fund’s net asset value (NAV) theoretically would decline by
4.0%; and (b) if interest rates decline to 3.0% over a 12-month period, the
mutual fund’s NAV theoretically would increase by 4.0%.
Derivative
Contracts
The
Fund may use derivative contracts and/or hybrid instruments to implement
elements of its investment strategy. For example,
the Fund may use derivative contracts or hybrid instruments to increase or
decrease the portfolio’s exposure to the investment(s) underlying the derivative
or hybrid instrument in an attempt to benefit from changes in the value of the
underlying investment(s). Additionally, by way of example, the Fund may use
derivative contracts in an attempt to:
◾ increase
or decrease the effective duration of the Fund portfolio;
◾ seek to
benefit from anticipated changes in the volatility of designated assets or
instruments, such as indices, currencies and interest rates (volatility is a
measure of the frequency and level of changes in the value of an asset or
instrument without regard to the direction of such changes);
◾ obtain
premiums from the sale of derivative contracts;
◾ realize
gains from trading a derivative contract; or
◾ hedge
against potential losses.
There
can be no assurance that the Fund’s use of derivative contracts or hybrid
instruments will work as intended. Derivative
investments made by the Fund are included within the Fund’s 80% policy (as
described below) and are calculated at market value.
Investment
Methodology
Within the
above limitations the Adviser utilizes a four-part decision-making
process.
First,
the Adviser lengthens or shortens portfolio duration from time to time based on
its interest rate outlook. “Duration”
measures the sensitivity of a security’s price to changes in interest rates. The
greater a portfolio’s average duration, the greater the change in the
portfolio’s value in response to a change in market interest rates.
8
Second,
the Adviser strategically positions the portfolio based on its expectations for
changes in the yield curve. The Adviser
tries to combine individual portfolio securities with different durations to
take advantage of relative changes in interest rates. Relative changes in
interest rates may occur whenever longer-term interest rates move more, less or
in a different direction than shorter-term interest rates.
Third, the
Adviser pursues relative value opportunities within the sectors in which the
Fund may invest.
Finally,
the Adviser selects individual securities within each sector that it believes
may outperform a sector-specific benchmark. For example,
the Adviser employs a fundamental analysis of factors such as cash flow,
leverage business conditions, product line, quality of management and credit
ratings to determine the best corporate debt securities within specific credit
quality constraints. Similarly, with respect to mortgage-backed debt securities,
the Adviser utilizes sophisticated models to analyze specific characteristics of
the underlying pool (such as past prepayment experience, pool age, weighted
coupon yield and geographic distribution) and find the best available securities
in the sector.
This
four-part investment process is designed to capitalize on the depth of
experience and focus of each of the Adviser’s fixed-income
sector teams–government,
corporate, mortgage-backed, asset-backed, high-yield and international
(including
emerging markets and trade finance).
The
Fund will invest its assets so that at least 80% of its net assets (plus any
borrowings for investment purposes) are invested
in fixed-income securities. The Fund will notify shareholders at least 60 days
in advance of any changes in its investment policy that would enable it to
invest, under normal circumstances, less than 80% of its net assets (plus any
borrowings for investment purposes) in fixed-income securities.
TEMPORARY
INVESTMENTS
The
Fund may temporarily depart from its principal investment strategies by
investing its assets in shorter-term debt securities
and similar obligations or holding cash. It may do this in response to unusual
circumstances, such as: adverse market, economic, or other conditions (for
example, to help avoid potential losses, or during periods when there is a
shortage of appropriate securities); to maintain liquidity to meet shareholder
redemptions; or to accommodate cash inflows. It is possible that such
investments could affect the Fund’s investment returns and/or the ability to
achieve the Fund’s investment objectives.
What are
the Fund’s Principal Investments?
The
following provides general information on the Fund’s principal investments. The
Fund’s Statement of Additional Information
(SAI) provides information about the Fund’s non-principal investments and may
provide additional information about the Fund’s principal
investments.
Fixed-Income
Securities
Fixed-income
securities pay interest, dividends or distributions at a specified rate. The
rate may be a fixed percentage of the
principal or may be adjusted periodically. In addition, the issuer of a
fixed-income security must repay the principal amount of the security, normally
within a specified time. Fixed-income securities provide more regular income
than equity securities. However, the returns on fixed-income securities are
limited and normally do not increase with the issuer’s earnings. This limits the
potential appreciation of fixed-income securities as compared to equity
securities.
A
security’s yield measures the annual income earned on a security as a percentage
of its price. A security’s yield will increase
or decrease depending upon whether it costs less (a “discount”) or more (a
“premium”) than the principal amount. If the issuer may redeem the security
before its scheduled maturity, the price and yield on a discount or premium
security may change based upon the probability of an early redemption.
Securities with higher risks generally have higher yields.
The
following describes the fixed-income securities in which the Fund principally
invests:
Treasury
Securities (A Type of Fixed-Income Security)
Treasury
securities are direct obligations of the federal government of the United
States. Treasury securities are generally
regarded as having minimal credit risks.
Government
Securities (A Type of Fixed-Income Security)
Government
securities are issued or guaranteed by a federal agency or instrumentality
acting under federal authority. Some
government securities, including those issued by Government National Mortgage
Association (“Ginnie Mae”), are supported by the full faith and credit of the
United States and are guaranteed only as to the timely payment of interest and
principal.
9
Other
government securities receive support through federal subsidies, loans or other
benefits, but are not backed by the full
faith and credit of the United States. For example, the U.S. Treasury is
authorized to purchase specified amounts of securities issued by (or otherwise
make funds available to) the Federal Home Loan Bank System, Federal Home Loan
Mortgage Corporation (“Freddie Mac”) and Federal National Mortgage Association
(“Fannie Mae”) in support of such obligations.
Some
government agency securities have no explicit financial support and are
supported only by the credit of the applicable
agency, instrumentality or corporation. The U.S. government has provided
financial support to Freddie Mac and Fannie Mae, but there is no assurance that
it will support these or other agencies in the future.
The
Fund treats mortgage-backed securities guaranteed by a federal agency or
instrumentality as government securities. Although
such a guarantee protects against credit risk, it does not eliminate it entirely
or reduce other risks.
Asset-Backed
Securities (A Type of Fixed-Income Security)
Asset-backed
securities are payable from pools of obligations other than mortgages. Most
asset-backed securities involve
consumer or commercial debts with maturities of less than 10 years. However,
almost any type of fixed-income assets (including other fixed-income securities,
such as corporate debt securities) may be used to create an asset-backed
security. Asset-backed securities may take the form of notes or pass-through
certificates. Asset-backed securities have prepayment risks. Like CMOs,
asset-backed securities may be structured like Floaters, Inverse Floaters, IOs
and POs.
Mortgage-Backed
Securities (MBS) (A Type of Fixed-Income Security)
An
MBS is a type of pass-through security, which is a pooled debt obligation
repackaged as interests that pass principal and
interest through an intermediary to investors. In the case of MBS, the ownership
interest is issued by a trust and represents participation interests in pools of
adjustable and fixed-rate mortgage loans. MBS are most commonly issued or
guaranteed by the U.S. government or one of its agencies or instrumentalities
(“agency MBS”), but also may be issued or guaranteed by private entities
(“non-agency MBS”). Unlike conventional debt obligations, MBS provide monthly
payments derived from the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans. Most
MBS make these payments monthly; however, certain MBS are backed by mortgage
loans which do not generate monthly payments but rather generate payments less
frequently.
The
mortgage loan collateral for non-agency MBS consists of residential mortgage
loans that do not conform to GSEs underwriting
guidelines. Non-agency MBS generally offer a higher yield than agency MBS
because there are no direct or indirect government guarantees of
payment.
The
non-agency and agency MBS acquired by the Fund could be secured by fixed-rate
mortgages, adjustable rate mortgages
or hybrid adjustable rate mortgages. Adjustable rate mortgages are mortgages
whose interest rates are periodically reset when market rates change. A hybrid
adjustable rate mortgage (“hybrid ARM”) is a type of mortgage in which the
interest rate is fixed for a specified period and then resets periodically, or
floats, for the remaining mortgage term. Hybrid ARMs are usually referred to by
their fixed and floating periods. For example, a “5/1 ARM” refers to a mortgage
with a five-year fixed interest rate period, followed by 25 annual interest rate
adjustment periods.
The
Fund also may invest in collateralized mortgage obligations (CMOs). The two
types of CMOs are: (1) MBS that are collateralized
by mortgage loans or mortgage pass-through securities; and (2) multi-class,
pass-through securities, which are interests in a trust composed of mortgage
loans or other MBS. CMOs may be issued by U.S. governmental or
government-related enterprises, or by private entities, such as banks and
others. CMOs are issued in multiple classes, often referred to as “tranches,”
with each tranche having a specific fixed or floating coupon rate, and stated
maturity or final distribution date. CMOs are subject to the uncertainty of the
timing of cash flows that results from the rate of prepayments on the underlying
mortgages serving as collateral and from the structure of the particular CMO
transaction (that is, the priority of the individual tranches). An increase or
decrease in prepayment rates (resulting from a decrease or increase in mortgage
interest rates) may cause the CMOs to be retired substantially earlier or later
than their stated maturities or final distribution dates, and will affect the
yields and prices of CMOs.
Mortgage
dollar rolls are transactions in which the Fund sells MBS for delivery in the
current month with a simultaneous
contract entered to repurchase substantially similar (same type, coupon and
maturity) securities on a specified future date and price (a “mortgage roll”).
During the roll period, the Fund foregoes principal and interest paid on the
MBS. Mortgage dollar-roll transactions may be used to seek to increase the
Fund’s income. The Fund uses repurchase agreements and short-term, fixed-income
securities to secure its obligations in these transactions.
Investments
in MBS expose the Fund to MBS, interest rate, prepayment and credit
risks.
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Commercial
Mortgage-Backed Securities (A Type of Mortgage-Backed Security)
Commercial
mortgage-backed securities (CMBS) represent interests in mortgage loans on
commercial real estate, such as loans
for hotels, shopping centers, office buildings and apartment buildings.
Generally, the interest and principal payments on these loans are passed on to
investors in CMBS according to a schedule of payments. The Fund may invest in
individual CMBS issues or, alternately, may gain exposure to the overall CMBS
market by investing in a derivative contract, the performance of which is
related to changes in the value of a domestic CMBS index. The risks associated
with CMBS reflect the risks of investing in the commercial real estate securing
the underlying mortgage loans and are therefore different from the risks of
other types of MBS. Additionally, CMBS may expose the Fund to interest rate,
liquidity and credit risks.
Collateralized
Mortgage Obligations (A Type of Mortgage-Backed Security)
CMOs,
including interests in real estate mortgage investment conduits (REMICs),
allocate payments and prepayments from an
underlying pass-through certificate among holders of different classes of
mortgage-backed securities. This creates different prepayment and interest rate
risks for each CMO class. The degree of increased or decreased prepayment risks
depends upon the structure of the CMOs. However, the actual returns on any type
of mortgage-backed security depend upon the performance of the underlying pool
of mortgages, which no one can predict with certainty and will vary among
pools.
Non-Governmental
Mortgage-Backed Securities (A Type of Mortgage-Backed Security)
Non-governmental
mortgage-backed securities (including non-governmental CMOs) are issued by
private entities, rather
than by U.S. government agencies. The non-governmental mortgage-backed
securities in which the Fund invests will be treated as mortgage-related,
asset-backed securities. These securities involve credit risk and liquidity
risk. The degree of risks will depend significantly on the ability of borrowers
to make payments on the underlying mortgages and the seniority of the security
held by the Fund with respect to such payments.
Sequential
CMOs (A Type of CMO)
In
a sequential pay CMO, one class of CMOs receives all principal payments and
prepayments. The next class of CMOs receives
all principal payments after the first class is paid off. This process repeats
for each sequential class of CMO. As a result, each class of sequential pay CMOs
reduces the prepayment risks of subsequent classes.
PACs,
TACs and Companion Classes (Types of CMOs)
More
sophisticated CMOs include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and
TACs are issued with companion classes. PACs and TACs receive principal payments
and prepayments at a specified rate. The companion classes receive principal
payments and prepayments in excess of the specified rate. In addition, PACs will
receive the companion classes’ share of principal payments, if necessary, to
cover a shortfall in the prepayment rate. This helps PACs and TACs to control
prepayment risks by increasing the risks to their companion
classes.
Corporate
Debt Securities (A Type of Fixed-Income Security)
Corporate
debt securities are fixed-income securities issued by businesses. Notes, bonds,
debentures and commercial paper are
the most prevalent types of corporate debt securities. The Fund may also
purchase interests in bank loans to companies. The credit risks of corporate
debt securities vary widely among issuers.
In
addition, the credit risk of an issuer’s debt security may vary based on its
priority for repayment. For example, higher ranking
(“senior”) debt securities have a higher priority than lower ranking
(“subordinated”) securities. This means that the issuer might not make payments
on subordinated securities while continuing to make payments on senior
securities. In addition, in the event of bankruptcy, holders of senior
securities may receive amounts otherwise payable to the holders of subordinated
securities. Some subordinated securities, such as trust-preferred and
capital-securities notes, also permit the issuer to defer payments under certain
circumstances. For example, insurance companies issue securities known as
surplus notes that permit the insurance company to defer any payment that would
reduce its capital below regulatory requirements.
Lower-Rated,
Fixed-Income Securities
Lower-rated,
fixed-income securities are securities rated below investment grade (i.e., BB or
lower) by a nationally recognized
statistical rating organization (NRSRO). There is no minimal acceptable rating
for a security to be purchased or held by the Fund and the Fund may purchase or
hold unrated securities and securities whose issuers are in
default.
Loan
Instruments (A Fixed-Income Investment)
The
Fund may invest in loan (and loan-related) instruments, which are interests in
amounts owed by a corporate, governmental
or other borrower to lenders or groups of lenders known as lending syndicates
(loans and loan participations). Such instruments may include loans made in
connection with trade financing transactions.
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Investments
in certain loans have additional risks that result from the use of agents and
other interposed financial institutions.
Such loans are structured and administered by a financial institution (e.g., a
commercial bank) that acts as the agent of the lending syndicate. The agent
bank, which may or may not also be a lender, typically administers and enforces
the loan on behalf of the lenders in the lending syndicate. In addition, an
institution, typically but not always the agent bank, holds the collateral, if
any, on behalf of the lenders. A financial institution’s employment as an agent
bank might be terminated for a number of reasons, for example, in the event that
it fails to observe a requisite standard of care or becomes insolvent. A
successor agent bank would generally be appointed to replace the terminated
agent bank, and assets held by the agent bank under the loan agreement likely
would remain available to holders of such indebtedness. However, if assets held
by the agent bank for the benefit of the Fund were determined to be subject to
the claims of the agent bank’s general creditors, the Fund might incur certain
costs and delays in realizing payment on a loan or loan participation and could
suffer a loss of principal and/or interest. In situations involving other
interposed financial institutions (e.g., an insurance company or government
agency) similar risks may arise.
Loan
instruments may be secured or unsecured. If secured, then the lenders have been
granted rights to specific property (such as
receivables, tangible goods, real property or commodities), which is commonly
referred to as collateral. The purpose of securing a loan is to allow the
lenders to exercise their rights over the collateral if the loan is not repaid
as required by the terms of lending agreement. Unsecured loans expose the
lenders to increased credit risk.
Trade
finance is a long established form of commercial financing that involves
providing producers, traders, distributors and end
users with short- and medium-term loans or other forms of debt obligation. Trade
finance is a major loan asset class for many of the world’s commercial banks and
trade finance is an important source of funding in emerging markets. For
emerging economies that are exporters of commodities, payments made in advance
and prior to export sale (“pre-export finance”) provide a way for banks and
other lenders to lend to local producers against future earnings. Trade finance
also seeks to finance the industrialization of these economies in the form of
project-finance and project-related finance lending. This lending activity is
supported by commercial banks, export credit agencies as well as multilateral
agencies. Imports that are financed will include productions inputs, inventory
and plant and equipment. Many transactions of this type facilitate import
substitution or provide future enhancement of export generation.
The
loan instruments in which the Fund may invest may involve borrowers, agent
banks, co-lenders and collateral located
both in the United States and outside of the United States (in both developed
and emerging markets).
The
Fund treats loan instruments as a type of fixed-income security. Investments in
loan instruments may expose the Fund to
risks of investing in loans, loan liquidity risks, agent insolvency risks, loan
prepayment risks, interest rate risk, risks of investing in foreign securities,
credit risk, liquidity risk, risks of noninvestment-grade securities, risks of
emerging markets and leverage risks. (For purposes of the descriptions in this
Prospectus of these various risks, references to “issuer” include borrowers in
loan instruments.) Many loan instruments incorporate risk mitigation and
insurance products into their structures, in order to manage these risks. There
is no guarantee that these risk management techniques will work as
intended.
FOREIGN
SECURITIES
Foreign
securities are securities of issuers based outside the United States. To the
extent a Fund invests in securities included
in its applicable broad-based securities market index, the Fund may consider an
issuer to be based outside the United States if the applicable index classifies
the issuer as based outside the United States. Accordingly, the Fund may
consider an issuer to be based outside the United States if the issuer satisfies
at least one, but not necessarily all, of the following:
◾ it is
organized under the laws of, or has its principal office located in, another
country;
◾ the
principal trading market for its securities is in another country;
◾ it
(directly or through its consolidated subsidiaries) derived in its most current
fiscal year at least 50% of its total assets, capitalization, gross revenue or
profit from goods produced, services performed or sales made in another country;
or
◾ it is
classified by an applicable index as based outside the United
States.
Foreign
securities are primarily denominated in foreign currencies. Along with the risks
normally associated with domestic
securities of the same type, foreign securities are subject to currency risks
and risks of foreign investing. Trading in certain foreign markets is also
subject to liquidity risks.
Foreign
Government Securities (A Type of Foreign Fixed-Income Security)
Foreign
government securities generally consist of fixed-income securities supported by
national, state or provincial governments
or similar political subdivisions. Foreign government securities also include
debt obligations of supranational entities, such as international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the “World Bank”), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
12
Foreign
government securities also include fixed-income securities of quasi-governmental
agencies that are either issued by
entities owned by a national, state or equivalent government or are obligations
of a political unit that are not backed by the national government’s full faith
and credit. Further, foreign government securities include mortgage-related
securities issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
Foreign
Corporate Debt Securities
The
Fund will also invest in high-yield debt securities of foreign corporations.
Notes, bonds, debentures, loans and commercial
paper are the most prevalent types of corporate debt securities. The credit
risks of corporate debt securities vary widely among issuers.
Derivative
Contracts
Derivative
contracts are financial instruments that derive their value from underlying
securities, commodities, currencies, indices, or
other assets or instruments, including other derivative contracts (each a
“Reference Instrument” and collectively, “Reference Instruments”). The most
common types of derivative contracts are swaps, futures and options, and major
asset classes include interest rates, equities, commodities and foreign
exchange. Each party to a derivative contract may sometimes be referred to as a
“counterparty.” Some derivative contracts require payments relating to an
actual, future trade involving the Reference Instrument. These types of
derivatives are frequently referred to as “physically settled” derivatives.
Other derivative contracts require payments relating to the income or returns
from, or changes in the market value of, a Reference Instrument. These types of
derivatives are known as “cash-settled” derivatives since they require cash
payments in lieu of delivery of the Reference Instrument.
Many
derivative contracts are traded on exchanges. In these circumstances, the
relevant exchange sets all the terms of the contract except for
the price. Parties to an exchange-traded derivative contract make payments
through the exchange. Most exchanges require traders to maintain margin accounts
through their brokers to cover their potential obligations to the exchange.
Parties to the contract make (or collect) daily payments to the margin accounts
to reflect losses (or gains) in the value of their contracts. This protects
traders against a potential default by their counterparty. Trading contracts on
an exchange also allows traders to hedge or mitigate certain risks or carry out
more complex trading strategies by entering into offsetting
contracts.
The
Fund may also trade derivative contracts over-the-counter (OTC), meaning
off-exchange, in transactions negotiated directly between the Fund and an
eligible counterparty, which may be a financial institution. OTC contracts do
not necessarily have standard terms, so they may be less liquid and more
difficult to close out than exchange-traded derivative contracts. In addition,
OTC contracts with more specialized terms may be more difficult to value than
exchange-traded contracts, especially in times of financial stress.
The
market for swaps and other OTC derivatives was largely unregulated prior to the
enactment of federal legislation known as the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
Regulations enacted by the Commodity Futures Trading Commission (the “CFTC”)
under the Dodd-Frank Act require the Fund to clear certain types of swap
contracts (including certain interest rate and credit default swaps) through a
central clearinghouse known as a derivatives clearing organization
(DCO).
To
clear a swap through a DCO, the Fund will submit the contract to, and post
margin with, a futures commission merchant (FCM) that is a
clearinghouse member. The Fund may enter into the swap with a counterparty other
than the FCM and arrange for the contract to be transferred to the FCM for
clearing or enter into the contract with the FCM itself. If the Fund must
centrally clear a transaction, the CFTC’s regulations also generally require
that the swap be executed on a registered exchange (either a designated contract
market (DCM) or swap execution facility (SEF)). Central clearing is presently
required only for certain swaps; the CFTC is expected to impose a mandatory
central clearing requirement for additional derivative instruments over
time.
DCOs,
DCMs, SEFs and FCMs are all subject to regulatory oversight by the CFTC. In
addition, certain derivative market participants that
act as market makers and engage in a significant amount of “dealing” activity
are also required to register as swap dealers with the CFTC. Among other things,
swap dealers are subject to minimum capital requirements and business conduct
standards and must also post and collect initial and variation margin on
uncleared swaps with certain of their counterparties. Because of this, if the
Fund enters into uncleared swaps with any swap dealers, it may be subject to
initial and variation margin requirements that could impact the Fund’s ability
to enter into swaps in the OTC market, including making transacting in uncleared
swaps significantly more expensive.
13
At
this point in time, most of the Dodd-Frank Act has been fully implemented,
though a small number of remaining rulemakings
are unfinished or are subject to phase-in periods. Any future regulatory or
legislative activity would not necessarily have a direct, immediate effect upon
the Fund, though it is within the realm of possibility that, upon implementation
of these measures or any future measures, they could potentially limit or
completely restrict the ability of the Fund to use these instruments as a part
of its investment strategy, increase the costs of using these instruments or
make them less effective.
Depending
on how the Fund uses derivative contracts and the relationships between the
market value of a derivative contract and the Reference
Instrument, derivative contracts may increase or decrease the Fund’s exposure to
the risks of the Reference Instrument and may also expose the Fund to liquidity
and leverage risks. OTC contracts also expose the Fund to credit risks in the
event that a counterparty defaults on the contract, although this risk may be
mitigated by submitting the contract for clearing through a DCO, or certain
other factors, such as collecting margin from the counterparty.
As
discussed above, a counterparty’s exposure under a derivative contract may in
some cases be required to be secured with
initial and/or variation margin (a form of “collateral”).
The
Fund may invest in a derivative contract if it is permitted to own, invest in,
or otherwise have economic exposure to the
Reference Instrument. The Fund is not required to own a Reference Instrument in
order to buy or sell a derivative contract relating to that Reference
Instrument. The Fund may trade in the following specific types and/or
combinations of derivative contracts:
Futures
Contracts (A Type of Derivative)
Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a Reference
Instrument at a specified price, date and time. Entering into a contract to buy
a Reference Instrument is commonly referred to as buying a contract or holding a
long position in the asset. Entering into a contract to sell a Reference
Instrument is commonly referred to as selling a contract or holding a short
position in the Reference Instrument. Futures contracts are considered to be
commodity contracts. The Adviser has claimed an exclusion from the definition of
the term “commodity pool operator” under the Commodity Exchange Act with respect
to the Fund, and therefore is not subject to registration or regulation as a
commodity pool operator under the Act with respect to the Fund. Futures
contracts traded OTC are frequently referred to as forward contracts. The Fund
can buy or sell financial futures (such as interest rate futures, index futures
and security futures), as well as currency futures and currency forward
contracts.
Option
Contracts (A Type of Derivative)
Option
contracts (also called “options”) are rights to buy or sell a Reference
Instrument for a specified price (the “exercise
price”) during, or at the end of, a specified period. The seller (or “writer”)
of the option receives a payment, or premium, from the buyer, which the writer
keeps regardless of whether the buyer uses (or exercises) the option. A call
option gives the holder (buyer) the right to buy the Reference Instrument from
the seller (writer) of the option. A put option gives the holder the right to
sell the Reference Instrument to the writer of the option. Options may be bought
or sold on a wide variety of Reference Instruments. Options that are written on
futures contracts will be subject to margin requirements similar to those
applied to futures contracts.
Swap
Contracts (A Type of Derivative)
A
swap contract (also known as a “swap”) is a type of derivative contract in which
two parties agree to pay each other (swap) the
returns derived from Reference Instruments. Swaps do not always involve the
delivery of the Reference Instruments by either party, and the parties might not
own the Reference Instruments underlying the swap. The payments are usually made
on a net basis so that, on any given day, the Fund would receive (or pay) only
the amount by which its payment under the contract is less than (or exceeds) the
amount of the other party’s payment. Swap agreements are sophisticated
instruments that can take many different forms and are known by a variety of
names. Common types of swaps in which the Fund may invest include interest rate
swaps, caps and floors, total return swaps, credit default swaps and currency
swaps and or volatility swaps.
Investing
in Securities of Other Investment Companies
The
Fund may invest its assets in securities of other investment companies,
including the securities of affiliated exchange-traded funds and
money market funds, as an efficient means of implementing its investment
strategies, managing its uninvested cash and/or other investment reasons
consistent with the Fund’s investment objective and investment strategies. The
Fund may also invest in loan instruments, including trade finance loan
instruments, bank loans, mortgage-backed, high-yield and emerging market debt
securities primarily by investing in another investment company (which is not
available for general investment by the public) that owns those securities and
that is advised by an affiliate of the Adviser. The Fund’s investment in the
trade finance loan instruments through another investment company may expose the
Fund to risks of loss after redemption. The Fund’s may also invest in such
securities directly. These other
14
investment
companies are managed independently of the Fund and incur additional fees and/or
expenses which would, therefore, be borne indirectly by the Fund in connection
with any such investment. These investments also can create conflicts of
interests for the Adviser to the Fund and the investment adviser to the acquired
fund. For example, a conflict of interest can arise due to the possibility that
the Adviser to the Fund could make a decision to redeem the Fund’s investment in
the acquired fund. In the case of an investment in an affiliated fund, a
conflict of interest can arise if, because of the Fund’s investment in the
acquired fund, the acquired fund is able to garner more assets, thereby growing
the acquired fund and increasing the management fees received by the investment
adviser to the acquired fund, which would either be the Adviser or an affiliate
of the Adviser. However, the Adviser believes that the benefits and efficiencies
of making investments in other investment companies should outweigh the
potential additional fees and/or expenses and resulting conflicts of interest.
In light of the Fund’s investments in other investment companies, other
registered investment companies may be limited in their ability to invest in the
Fund.
Investing in
Exchange-Traded Funds
The Fund may invest in
exchange-traded funds (ETFs) as an efficient means of carrying out its
investment strategies. As with traditional mutual funds, ETFs charge asset-based
fees, although these fees tend to be relatively low. ETFs are traded on stock
exchanges or on the over-the-counter market. ETFs do not charge initial sales
charges or redemption fees and investors pay only customary brokerage fees to
buy and sell ETF shares.
OTHER
INVESTMENTS, TRANSACTIONS, TECHNIQUES
Additional
Information Regarding the Security Selection Process
As
part of analysis in its security selection process, among other factors, the
Adviser also evaluates whether environmental,
social and governance factors could have a positive or negative impact on the
risk profiles of many issuers or guarantors in the universe of securities in
which the Fund may invest. The Adviser may also consider information derived
from active engagements conducted by its in-house stewardship team with certain
issuers or guarantors on environmental, social and governance topics. This
qualitative analysis does not automatically result in including or excluding
specific securities but may be used by Federated Hermes as an additional input
in its primary analysis.
Repurchase
Agreements
Repurchase
agreements are transactions in which the Fund buys a security from a dealer or
bank and agrees to sell the security
back at a mutually agreed-upon time and price. The repurchase price exceeds the
sale price, reflecting the Fund’s return on the transaction. This return is
unrelated to the interest rate on the underlying security. The Fund will enter
into repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
Adviser.
The
Fund’s custodian or sub-custodian will take possession of the securities subject
to repurchase agreements. The Adviser or
sub-custodian will monitor the value of the underlying security each day to
ensure that the value of the security always equals or exceeds the repurchase
price.
Repurchase
agreements are subject to credit risks.
Delayed
Delivery Transactions
Delayed
delivery transactions, including when-issued transactions, are arrangements in
which the Fund buys securities for a set
price, with payment and delivery of the securities scheduled for a future time.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value in
determining the price of its Shares. Settlement dates may be a month or more
after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, delayed delivery
transactions create interest rate risks for the Fund. Delayed delivery
transactions also involve credit risks in the event of a counterparty default.
These transactions create leverage risks.
To
Be Announced Securities (TBAs) (A Type of Delayed Delivery
Transaction)
As
with other delayed delivery transactions, a seller agrees to deliver a TBA
security at a future date. However, the seller
does not specify the particular securities to be delivered. Instead, the Fund
agrees to accept any security that meets specified terms. For example, in a TBA
mortgage-backed transaction, the Fund and the seller would agree upon the
issuer, interest rate and terms of the underlying mortgages. The seller would
not identify the specific underlying mortgages until it delivers the security.
TBA mortgage-backed securities increase interest rate risks because the
underlying mortgages may be less favorable than anticipated by the
Fund.
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Dollar
Rolls (A Type of Delayed Delivery Transaction)
Dollar
rolls are transactions where the Fund sells mortgage-backed securities with a
commitment to buy similar, but not identical,
mortgage-backed securities on a future date at a lower price. Normally, one or
both securities involved are TBA mortgage-backed securities. Dollar rolls are
subject to interest rate risks and credit risks.
Hybrid
Instruments
Hybrid
instruments combine elements of two different kinds of securities or financial
instruments (such as a derivative contract).
Frequently, the value of a hybrid instrument is determined by reference to
changes in the value of a Reference Instrument (that is a designated security,
commodity, currency, index or other asset or instrument including a derivative
contract). The Fund may use hybrid instruments only in connection with
permissible investment activities. Hybrid instruments can take on many forms
including, but not limited to, the following forms. First, a common form of a
hybrid instrument combines elements of a derivative contract with those of
another security (typically a fixed-income security). In this case all or a
portion of the interest or principal payable on a hybrid security is determined
by reference to changes in the price of a Reference Instrument. Second, hybrid
instruments may include convertible securities with conversion terms related to
a Reference Instrument.
Depending
on the type and terms of the hybrid instrument, its risks may reflect a
combination of the risks of investing in the
Reference Instrument with the risks of investing in other securities, currencies
and derivative contracts. Thus, an investment in a hybrid instrument may entail
significant risks in addition to those associated with traditional investments
or the Reference Instrument. Hybrid instruments are also potentially more
volatile than traditional securities or the Reference Instrument. Moreover,
depending on the structure of the particular hybrid, it may expose the Fund to
leverage risks or carry liquidity risks.
Derivatives
Regulation and Asset Coverage
The
regulation of the U.S. and non-U.S. derivatives markets has undergone
substantial change in recent years and such change may continue.
In addition, effective August 19, 2022, Rule 18f-4 (the “Derivatives Rule”)
under the Investment Company Act of 1940,
as amended
(the “1940 Act”), replaced the asset segregation framework previously used by
funds to comply with limitations on leverage imposed by the 1940 Act. The
Derivatives Rule generally mandates that a fund either limit derivatives
exposure to 10% or less of its net assets, or in the alternative implement: (i)
limits on leverage calculated based value-at-risk (VAR); (ii) a written
derivatives risk management program (DRMP) administered by a derivatives risk
manager appointed by the Fund’s Board, including a majority of the independent
Board members, that is periodically reviewed by the Board; and (iii) new
reporting and recordkeeping requirements.
Securities
Lending
The
Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or
liquid securities from the borrower as collateral. The borrower must furnish
additional collateral if the market value of the loaned securities increases.
Also, the borrower must pay the Fund the equivalent of any dividends or interest
received on the loaned securities.
The
Fund will reinvest cash collateral in securities that qualify as an acceptable
investment for the Fund. However, the Fund must
pay interest to the borrower for the use of cash collateral. An acceptable
investment into which the Fund may reinvest cash collateral includes, among
other acceptable investments, securities of affiliated money market funds
(including affiliated institutional prime money market funds with a “floating”
net asset value that can impose redemption fees and liquidity gates, impose
certain operational impediments to investing cash collateral, and, if net asset
value decreases, result in the Fund having to cover the decrease in the value of
the cash collateral).
Loans
are subject to termination at the option of the Fund or the borrower. The Fund
will not have the right to vote on securities
while they are on loan. However, the Fund will attempt to terminate a loan in an
effort to reacquire the securities in time to vote on matters that are deemed to
be material by the Adviser. There can be no assurance that the Fund will have
sufficient notice of such matters to be able to terminate the loan in time to
vote thereon. The Fund may pay administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on the cash
collateral to a securities lending agent or broker. Securities lending
activities are subject to interest rate risks and credit risks. These
transactions create leverage risks.
Investment
Ratings for Investment-Grade Securities
The
Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more NRSROs.
For example, Standard & Poor’s, an NRSRO, assigns ratings to
investment-grade securities (AAA, AA, A and BBB including modifiers,
sub-categories and gradations) based on their assessment of the likelihood of
the issuer’s inability to pay interest or principal (default) when due on each
security. Lower credit ratings correspond to higher credit risk. If a security
has not received a rating, the Fund must rely entirely upon the Adviser’s credit
assessment that the
16
security
is comparable to investment grade. The presence of a ratings modifier,
sub-category or gradation (for example, a (+) or (-)) is intended to show
relative standing within the major rating categories and does not affect the
security credit rating for purposes of the Fund’s investment parameters. If a
security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell
it.
Investment
Ratings for Noninvestment-Grade Securities
Noninvestment-grade
securities are rated below BBB- by an NRSRO. These bonds have greater economic,
credit and liquidity
risks than investment-grade securities.
What are
the Specific Risks of Investing in the Fund?
The
following provides general information on the risks associated with the Fund’s
principal investments. Any additional
risks associated with the Fund’s non-principal investments are described in the
Fund’s SAI. The Fund’s SAI also may provide additional information about the
risks associated with the Fund’s principal investments.
INVESTMENT
SECTOR ALLOCATION RISK
Because
the Fund may allocate relatively more assets to certain fixed-income sectors
than to others, the Fund’s performance
may be susceptible to any developments which affect those fixed-income sectors
emphasized by the Fund.
Interest
Rate Risk
Prices
of fixed-income securities rise and fall in response to changes in interest
rates. Generally, when interest rates rise, prices of
fixed-income securities fall. However, market factors, such as the demand for
particular fixed-income securities, may cause the price of certain fixed-income
securities to fall while the prices of other securities rise or remain
unchanged.
The
longer the duration of a fixed-income security, the more susceptible it is to
interest rate risk. The duration of a fixed-income
security may be equal to or shorter than the stated maturity of a fixed-income
security. Recent and potential futures changes in monetary policy made by
central banks and/or their governments are likely to affect the level of
interest rates.
Duration
measures the price sensitivity of a fixed-income security given a change in
interest rates. For example, if a fixed-income
security has an effective duration of three years, a 1% increase in general
interest rates would be expected to cause the security’s value to decline about
3% while a 1% decrease in general interest rates would be expected to cause the
security’s value to increase about 3%.
Risk
Associated with Noninvestment-Grade Securities
Securities
rated below investment grade, also known as junk bonds, generally entail greater
economic, credit and liquidity
risks than investment-grade securities. For example, their prices are more
volatile, economic downturns and financial setbacks may affect their prices more
negatively, and their trading market may be more limited. These securities are
considered speculative with respect to the issuer’s ability to pay interest and
repay principal.
RISK
RELATED TO THE ECONOMY
The
value of the Fund’s portfolio may decline in tandem with a drop in the overall
value of the markets in which the Fund
invests and/or other markets based on negative developments in the U.S. and
global economies. Economic, political and financial conditions, or industry or
economic trends and developments, may, from time to time, and for varying
periods of time, cause volatility, illiquidity or other potentially adverse
effects in the financial markets, including the fixed-income market. The
commencement, continuation or ending of government policies and economic
stimulus programs, changes in monetary policy, increases or decreases in
interest rates, or other factors or events that affect the financial markets,
including the fixed-income markets, may contribute to the development of or
increase in volatility, illiquidity, shareholder redemptions and other adverse
effects which could negatively impact the Fund’s performance. For example, the
value of certain portfolio securities may rise or fall in response to changes in
interest rates, which could result from a change in government policies, and has
the potential to cause investors to move out of certain portfolio securities,
including fixed-income securities, on a large scale. This may increase
redemptions from funds that hold large amounts of certain securities and may
result in decreased liquidity and increased volatility in the financial markets.
Market factors, such as the demand for particular portfolio securities, may
cause the price of certain portfolio securities to fall while the prices of
other securities rise or remain unchanged. Among other investments, lower-grade
bonds and loans may be particularly sensitive to changes in the
economy.
17
Epidemic
and Pandemic Risk
An outbreak of respiratory
disease caused by a novel coronavirus was first detected in China in late 2019
and subsequently spread globally. This coronavirus has resulted in,
and may
continue to result in, closed borders, enhanced health screenings, disruptions
to healthcare service preparation and delivery, quarantines, cancellations and
disruptions to supply chains, workflow operations and consumer activity, as well
as general concern and uncertainty. The impact of this coronavirus has resulted
in substantial economic volatility. Health crises caused by outbreaks, such as
the coronavirus outbreak, may exacerbate other pre-existing political, social
and economic risks. The impact of this outbreak, and other epidemics and
pandemics that may arise in the future, could continue to negatively affect the
worldwide economy, as well as the economies of individual countries, individual
companies, including certain Fund service providers and issuers of the Fund’s
investments, and the markets in general in significant and unforeseen ways. In
addition, governments, their regulatory agencies, or self-regulatory
organizations may take actions in response to the pandemic, including
significant fiscal and monetary policy changes, that may affect the instruments
in which the Fund invests or the issuers of such instruments. Any such impact
could adversely affect the Fund’s performance.
Credit
Risk
It
is possible that interest or principal on securities will not be paid when due.
Noninvestment-grade securities generally have a
higher default risk than investment-grade securities. Such nonpayment or default
may reduce the value of the Fund’s portfolio holdings, its share price and its
performance.
Many
fixed-income securities receive credit ratings from NRSROs such as Fitch Rating
Service, Moody’s Investor Services,
Inc. and Standard & Poor’s that assign ratings to securities by assessing
the likelihood of an issuer and/or guarantor default. Higher credit ratings
correspond to lower perceived credit risk and lower credit ratings correspond to
higher perceived credit risk. Credit ratings may be upgraded or downgraded from
time to time as an NRSRO’s assessment of the financial condition of a party
obligated to make payments with respect to such securities and credit risk
changes. The impact of any credit rating downgrade can be uncertain. Credit
rating downgrades may lead to increased interest rates and volatility in
financial markets, which in turn could negatively affect the value of the Fund’s
portfolio holdings, its share price and its investment performance. Credit
ratings are not a guarantee of quality. Credit ratings may lag behind the
current financial conditions of the issuer and/or guarantor and do not provide
assurance against default or other loss of money. Credit ratings do not protect
against a decline in the value of a security. If a security has not received a
rating, the Fund must rely entirely upon the Adviser’s credit
assessment.
Fixed-income
securities generally compensate for greater credit risk by paying interest at a
higher rate. The difference between
the yield of a security and the yield of a U.S. Treasury security or other
appropriate benchmark with a comparable maturity (the “spread”) measures the
additional interest paid for risk. Spreads may increase generally in response to
adverse economic or market conditions. A security’s spread may also increase if
the security’s rating is lowered, or the security is perceived to have an
increased credit risk. An increase in the spread will cause the price of the
security to decline.
Credit
risk includes the possibility that a party to a transaction involving the Fund
will fail to meet its obligations. This could
cause the Fund to lose the benefit of the transaction or prevent the Fund from
selling or buying other securities to implement its investment
strategy.
MBS
Risk
MBS
have unique risks. A rise in interest rates may cause the value of MBS held by
the Fund to decline. The mortgage loans
underlying MBS generally are subject to a greater rate of principal prepayments
in a declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. If the underlying
mortgages are paid off sooner than expected, the Fund may have to reinvest this
money in mortgage-backed or other securities that have lower yields. Hybrid ARMs
also involve special risks. Like ARMs, hybrid ARMs have periodic and lifetime
limitations on the increases that can be made to the interest rates that
mortgagors pay. Therefore, if during a floating rate period, interest rates rise
above the interest rate limits of the hybrid ARM, the Fund will not benefit from
further increases in interest rates. See “Prepayment and Extension Risk” and
“Interest Rate Risk.” CMOs with complex or highly variable prepayment terms
generally entail greater market, prepayment and liquidity risks than other MBS.
For example, their prices are more volatile and their trading market may be more
limited.
MBS
are subject to the risk that payments made on a security will not be made when
due. Payments on MBS are primarily
derived from the interest and principal payments of the underlying mortgages.
Some MBS also have guarantees or other structural features that provide
additional support for interest and principal payments on the MBS if payments on
the underlying mortgages are not made. MBS are subject to the risk that the
underlying mortgage borrowers fail to make timely payments of interest and
principal and that any guarantee or other structural feature, if present, is
insufficient to enable the timely payment of interest and principal on the MBS.
The structure of certain CMO interests held by the Fund
18
may cause
the Fund to be paid interest and/or principal on its investment only after
holders of other interests in that particular CMO have received the full
repayment of principal or interest on their investments. MBS are most commonly
issued or guaranteed by GSEs, but also may be issued or guaranteed by private
entities, which generally entail greater risk. Certain MBS issued by GSEs are
not backed by or entitled to the full faith and credit of the U.S. government,
but are, however, supported through federal subsidies, loans or other benefits.
The Fund also may invest in certain MBS issued by GSEs that have no explicit
financial support, and are supported only by the credit of the applicable GSEs
(in addition to the underlying mortgages and related debt service payments). The
U.S. government has provided financial support to Freddie Mac and Fannie Mae,
but there is no assurance that it will support these or other GSEs in the
future. Although certain MBS are guaranteed as to timely payment of interest and
principal by a GSE, the market prices for such securities are not guaranteed and
will fluctuate.
RISK
ASSOCIATED WITH COMPLEX CMOs
CMOs
with complex or highly variable prepayment terms, such as companion classes,
IOs, POs, Inverse Floaters and residuals,
generally entail greater market, prepayment and liquidity risks than other
mortgage-backed securities. For example, their prices are more volatile and
their trading market may be more limited.
Prepayment
AND EXTENSION Risk
Unlike
traditional fixed-income securities, which pay a fixed rate of interest until
maturity (when the entire principal amount is
due), payments on mortgage-backed securities include both interest and a partial
payment of principal. Partial payment of principal may be comprised of scheduled
principal payments as well as unscheduled payments from the voluntary
prepayment, refinancing or foreclosure of the underlying loans. These
unscheduled prepayments of principal create risks that can adversely affect a
fund holding mortgage-backed securities.
For
example, when interest rates decline, the values of mortgage-backed securities
generally rise. However, when interest
rates decline, unscheduled prepayments can be expected to accelerate, and the
Fund would be required to reinvest the proceeds of the prepayments at the lower
interest rates then available. Unscheduled prepayments would also limit the
potential for capital appreciation on mortgage-backed securities.
Conversely,
when interest rates rise, the values of mortgage-backed securities generally
fall. Since rising interest rates typically
result in decreased prepayments, this could lengthen the average lives of
mortgage-backed securities, and cause their value to decline more than
traditional fixed-income securities.
Generally,
mortgage-backed securities compensate for the increased risk associated with
prepayments by paying a higher
yield. The additional interest paid for risk is measured by the difference
between the yield of a mortgage-backed security and the yield of a U.S. Treasury
security or other appropriate benchmark with a comparable maturity (the
“spread”). An increase in the spread will cause the price of the mortgage-backed
security to decline. Spreads generally increase in response to adverse economic
or market conditions. Spreads may also increase if the security is perceived to
have an increased prepayment risk or is perceived to have less market
demand.
Liquidity
Risk
Trading
opportunities are more limited for fixed-income securities that have not
received any credit ratings, have received
any credit ratings below investment grade or are not widely held.
Trading
opportunities are more limited for CMOs that have complex terms or that are not
widely held.
Also,
if dealer capacity has not kept, or does not keep, pace with market growth, or
if regulatory changes or other certain
developments warrant, dealer inventories of securities (such as corporate bonds)
may reach low levels and impact a dealer’s ability to “make markets” (or buy or
sell a security at a quoted bid and ask price). These factors may make it more
difficult to sell or buy a security at a favorable price or time. Consequently,
the Fund may have to accept a lower price to sell a security or not sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund’s
performance. A significant reduction in dealer inventories or “market makers,”
or other factors resulting in infrequent trading of securities, can lead to
decreased liquidity and may also lead to an increase in their price volatility.
These affects may be exacerbated during times of economic or political
stress.
Liquidity
risk also refers to the possibility that the Fund may not be able to sell a
security or close out a derivative contract
when it wants to. If this happens, the Fund will be required to continue to hold
the security or keep the position open, and the Fund could incur
losses.
OTC
derivative contracts generally carry greater liquidity risk than exchange-traded
contracts. This risk may be increased
in times of financial stress, if the trading market for OTC derivative contracts
becomes restricted.
Increased
Fund redemption activity, which may occur in a rising interest rate environment
or for other reasons, also may increase
liquidity risk due to the need of the Fund to sell portfolio securities and may
negatively impact Fund performance.
19
RISK
of investing in loans
In
addition to the risks generally associated with debt instruments, such as
credit, market, interest rate, liquidity and derivatives
risks, bank loans are also subject to the risk that the value of the collateral
securing a loan may decline, be insufficient to meet the obligations of the
borrower or be difficult to liquidate. The Fund’s access to the collateral may
be limited by bankruptcy, other insolvency laws or by the type of loan the Fund
has purchased. For example, if the Fund purchases a participation instead of an
assignment, it would not have direct access to collateral of the borrower. As a
result, a floating rate loan may not be fully collateralized and can decline
significantly in value. Additionally, collateral on loan instruments may consist
of assets that may not be readily liquidated, and there is no assurance that the
liquidation of such assets will satisfy a borrower’s obligations under the
instrument. Loans generally are subject to legal or contractual restrictions on
resale.
Loans
and other forms of indebtedness may be structured such that they are not
securities under securities laws. As such, it
is unclear whether loans and other forms of direct indebtedness offer securities
law protections, such as those against fraud and misrepresentation. In the
absence of definitive regulatory guidance, while there can be no assurance that
fraud or misrepresentation will not occur with respect to the loans and other
investments in which the Fund invests, the Fund relies on the Adviser’s research
in an attempt to seek to avoid situations where fraud or misrepresentation could
adversely affect the Fund.
LOAN
LIQUIDITY RISK
Loans
generally are subject to legal or contractual restrictions on resale. The
liquidity of loans, including the volume and
frequency of secondary market trading in such loans, varies significantly over
time and among individual loans. For example, if the credit quality of a loan
unexpectedly declines significantly, secondary market trading in that loan can
also decline for a period of time. During periods of infrequent trading, valuing
a loan can be more difficult and buying and selling a loan at an acceptable
price can be more difficult and delayed. Difficulty in selling a loan can result
in a loss.
Loan
instruments may not be readily marketable and may be subject to restrictions on
resale. In some cases, negotiations
involved in disposing of loans may require weeks to complete. Thus, transactions
in loan instruments may take longer than seven days to settle. This could pose a
liquidity risk to the Fund and, if the Fund’s exposure to such investments is
substantial, could impair the Fund’s ability to meet shareholder redemptions in
a timely manner.
A
majority of the Fund’s assets are likely to be invested in assets that are
considerably less liquid than debt instruments traded on
national exchanges. Market quotations for such assets may be volatile and/or
subject to large spreads between bid and ask prices.
AGENT
INSOLVENCY RISK
In
a syndicated loan, the agent bank is the bank that undertakes the bulk of the
administrative duties involved in the day-to-day
administration of the loan. In the event of the insolvency of an agent bank, a
loan could be subject to settlement risk as well as the risk of interruptions in
the administrative duties performed in the day-to-day administration of the loan
(such as processing LIBOR calculations, processing draws, etc.).
LOAN
PREPAYMENT RISK
During
periods of declining interest rates or for other purposes, borrowers may
exercise their option to prepay principal earlier
than scheduled which may force the Fund to reinvest in lower-yielding debt
securities.
RISK
OF FOREIGN INVESTING
Foreign
securities pose additional risks because foreign economic or political
conditions may be less favorable than those of
the United States. Securities in foreign markets may also be subject to taxation
policies that reduce returns for U.S. investors.
Foreign
companies may not provide information (including financial statements) as
frequently or to as great an extent as companies
in the United States. Foreign companies may also receive less coverage than U.S.
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards, or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its Adviser from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
Foreign
countries may have restrictions on foreign ownership of securities or may impose
exchange controls, capital flow
restrictions or repatriation restrictions which could adversely affect the
liquidity of the Fund’s investments.
20
European
Union and eurozone Related risk
A
number of countries in the European Union (EU), including certain countries
within the EU that have adopted the euro
(Eurozone), have experienced, and may continue to experience, severe economic
and financial difficulties. Additional countries within the EU may also fall
subject to such difficulties. These events could negatively affect the value and
liquidity of the Fund’s investments in euro-denominated securities and
derivatives contracts, securities of issuers located in the EU or with
significant exposure to EU issuers or countries. If the euro is dissolved
entirely, the legal and contractual consequences for holders of euro-denominated
obligations and derivative contracts would be determined by laws in effect at
such time. Such investments may continue to be held, or purchased, to the extent
consistent with the Fund’s investment objective(s) and permitted under
applicable law. These potential developments, or market perceptions concerning
these and related issues, could adversely affect the value of the
Shares.
Certain
countries in the EU have had to accept assistance from supra-governmental
agencies such as the International Monetary
Fund, the European Stability Mechanism (the “ESM”) or other supra-governmental
agencies. The European Central Bank has also been intervening to purchase
Eurozone debt in an attempt to stabilize markets and reduce borrowing costs.
There can be no assurance that these agencies will continue to intervene or
provide further assistance and markets may react adversely to any expected
reduction in the financial support provided by these agencies. Responses to the
financial problems by European governments, central banks and others including
austerity measures and reforms, may not work, may result in social unrest and
may limit future growth and economic recovery or have other unintended
consequences.
In
addition, one or more countries may withdraw from the EU, and one or more
countries within the Eurozone may abandon the euro. The
impact of these actions, especially if they occur in a disorderly fashion, could
be significant and far-reaching. On January 31, 2020, the United Kingdom (UK)
left the EU, commonly referred to as “Brexit,” and there commenced a transition
period during which the EU and UK negotiated and agreed on the nature of their
future relationship, with such agreements becoming effective on December 31,
2020. There is significant market uncertainty regarding Brexit’s ramifications,
and the range and potential implications of possible political, regulatory,
economic and market outcomes are difficult to predict. This long-term
uncertainty may affect other countries in the EU and elsewhere and may cause
volatility within the EU, triggering prolonged economic downturns in certain
countries within the EU. In addition, Brexit may create additional and
substantial economic stresses for the UK, including a contraction of the UK
economy and price volatility in UK stocks, decreased trade, capital outflows,
devaluation of the British pound, wider corporate bond spreads due to
uncertainty and declines in business and consumer spending as well as foreign
direct investment. Brexit may also adversely affect UK-based financial firms,
including certain sub-advisers to the Federated Hermes Funds, that have
counterparties in the EU or participate in market infrastructure (trading
venues, clearinghouses, settlement facilities) based in the EU. These events and
the resulting market volatility may have an adverse effect on the performance of
the Fund.
RISK
OF INVESTING IN EMERGING MARKET COUNTRIES
Securities
issued or traded in emerging markets generally entail greater risks than
securities issued or traded in developed
markets. For example, the prices of such securities may be significantly more
volatile than prices of securities in developed countries. Emerging market
economies may also experience more severe down-turns (with corresponding
currency devaluations) than developed economies.
Emerging
market countries may have relatively unstable governments and may present the
risks of nationalization of businesses,
expropriation, confiscatory taxation or, in certain instances, reversion to
closed market, centrally planned economies.
Risk
of Investing in Derivative Contracts and Hybrid Instruments
The
Fund’s exposure to derivative contracts and hybrid instruments (either directly
or through its investment in another investment
company) involves risks different from, or possibly greater than, the risks
associated with investing directly in securities and other traditional
investments. First, changes in the value of the derivative contracts and hybrid
instruments in which the Fund invests may not be correlated with changes in the
value of the underlying Reference Instruments or, if they are correlated, may
move in the opposite direction than originally anticipated. Second, while some
strategies involving derivatives may reduce the risk of loss, they may also
reduce potential gains or, in some cases, result in losses by offsetting
favorable price movements in portfolio holdings. Third, there is a risk that
derivative contracts and hybrid instruments may be erroneously priced or
improperly valued and, as a result, the Fund may need to make increased cash
payments to the counterparty. Fourth, exposure to derivative contracts and
hybrid instruments may have tax consequences to the Fund and its shareholders.
For example, derivative contracts and hybrid instruments may cause the Fund to
realize increased ordinary income or short-term capital gains (which are treated
as ordinary income for Federal income tax purposes) and, as a result, may
increase taxable distributions to shareholders. In addition, under certain
circumstances certain derivative contracts and hybrid instruments may cause the
Fund to: (a) incur an excise tax on a portion of the
21
income
related to those contracts and instruments; and/or (b) reclassify, as a return
of capital, some or all of the distributions previously made to shareholders
during the fiscal year as dividend income. Fifth, a common provision in OTC
derivative contracts permits the counterparty to terminate any such contract
between it and the Fund, if the value of the Fund’s total net assets declines
below a specified level over a given time period. Factors that may contribute to
such a decline (which usually must be substantial) include significant
shareholder redemptions and/or a marked decrease in the market value of the
Fund’s investments. Any such termination of the Fund’s OTC derivative contracts
may adversely affect the Fund (for example, by increasing losses and/or costs,
and/or preventing the Fund from fully implementing its investment strategies).
Sixth, the Fund may use a derivative contract to benefit from a decline in the
value of a Reference Instrument. If the value of the Reference Instrument
declines during the term of the contract, the Fund makes a profit on the
difference (less any payments the Fund is required to pay under the terms of the
contract). Any such strategy involves risk. There is no assurance that the
Reference Instrument will decline in value during the term of the contract and
make a profit for the Fund. The Reference Instrument may instead appreciate in
value creating a loss for the Fund. Seventh, a default or failure by a CCP or an
FCM (also sometimes called a “futures broker”), or the failure of a contract to
be transferred from an Executing Dealer to the FCM for clearing, may expose the
Fund to losses, increase its costs, or prevent the Fund from entering or exiting
derivative positions, accessing margin, or fully implementing its investment
strategies. The central clearing of a derivative and trading of a contract over
a SEF could reduce the liquidity in, or increase costs of entering into or
holding, any contracts. Finally, derivative contracts and hybrid instruments may
also involve other risks described in this Prospectus, such as interest rate,
credit, currency, liquidity and leverage risks.
Exchange-Traded
Funds
Risk
An
investment in an ETF generally presents the same primary risks as an investment
in a conventional fund (i.e., one that is not
exchange-traded) that has the same investment objectives, strategies and
policies. The price of an ETF can fluctuate up or down, and the Fund could lose
money investing in an ETF if the prices of the securities owned by the ETF go
down. In addition, ETFs may be subject to the following risks that do not apply
to conventional funds:
(i) the
market price of an ETF’s shares may trade above or below their net asset
value;
(ii) an
active trading market for an ETF’s shares may not develop or be maintained; or
(iii) trading of an ETF’s shares may be halted if the listing exchange’s
officials deem such action appropriate, the shares are delisted from the
exchange or the activation of market-wide
“circuit
breakers”
(which are
tied to large decreases in stock prices)
halts
stock
trading
generally.
RISK
OF LOSS AFTER REDEMPTION
The
Fund is an extended payment fund. A shareholder will bear the risk of investment
loss during the period between when
Shares are presented to the transfer agent for redemption and when the net asset
value of the Fund is determined for payment of the redeemed Shares (the
“Redemption Pricing Date”). The time between when Shares are presented for
redemption and the Redemption Pricing Date will be no more than twenty-four (24)
days or if such date falls on a weekend or a holiday, on the preceding business
day. Shares tendered for redemption will participate proportionately in the
Fund’s gains and losses during between when Shares are presented for redemption
and the Redemption Pricing Date. During this time the value of the Fund’s Shares
will likely fluctuate and Shares presented for redemption could be worth less on
the Redemption Pricing Date than on the day the Shares were presented to the
transfer agent for redemption. The Fund has adopted a fundamental policy that
may only be changed by shareholder vote, that the Redemption Pricing Date will
be no more than twenty-four (24) days after the date a shareholder presents
Shares for redemption in good order. If such date is a weekend or holiday the
Redemption Pricing Date will be on the preceding business day.
Leverage
Risk
Leverage
risk is created when an investment, which includes, for example, an investment
in a derivative contract, exposes the Fund to a
level of risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund’s risk of loss and potential for gain. Investments
can have these same results if their returns are based on a multiple of a
specified index, security or other benchmark.
technology
Risk
The
Adviser uses various technologies in managing the Fund, consistent with its
investment objective(s) and strategy described in this
Prospectus. For example, proprietary and third-party data and systems are
utilized to support decision-making for the Fund. Data imprecision, software or
other technology malfunctions, programming inaccuracies and similar
circumstances may impair the performance of these systems, which may negatively
affect Fund performance.
22
UNDERLYING
FUND RISK
The
risk that the Fund’s performance is closely related to, the risks associated
with the securities and other investments held by the Underlying
Funds and that the ability of a Fund to achieve its investment objective will
depend upon the ability of the Underlying Funds to achieve their investment
objectives. The Fund bears Underlying Fund fees and expenses
indirectly.
What Do
Shares Cost?
CALCULATION
OF NET ASSET VALUE
When
the Fund receives your transaction request in proper form (as described in this
Prospectus under the sections entitled “How to Purchase
Shares” and “How to Redeem and Exchange Shares”), it is processed at the next
calculated net asset value of a Share (NAV) plus any applicable front-end sales
charge (“public offering price”). A Share’s NAV is determined as of the end of
regular trading on the New York Stock Exchange (NYSE) (normally 4:00 p.m.
Eastern time), each day the NYSE is open. The Fund calculates the NAV of each
class by valuing the assets allocated to the Share’s class, subtracting the
liabilities allocated to each class and dividing the balance by the number of
Shares of the class outstanding. The NAV for each class of Shares may differ due
to the level of expenses allocated to each class as well as a result of the
variance between the amount of accrued investment income and capital gains or
losses allocated to each class and the amount actually distributed to
shareholders of each class. The Fund’s current NAV and/or public offering price
may be found at FederatedHermes.com/us, via online news sources and in certain
newspapers.
You can
purchase, redeem or exchange Shares any day the NYSE is open.
When
the Fund holds securities that trade principally in foreign markets on days the
NYSE is closed, the value of the Fund’s
assets may change on days you cannot purchase or redeem Shares. This may also
occur when the U.S. markets for fixed-income securities are open on a day the
NYSE is closed.
In
calculating its NAV, the Fund generally values investments as
follows:
◾ Equity
securities listed on an exchange or traded through a regulated market system are
valued at their last reported sale price or official closing price in their
principal exchange or market.
◾ Fixed-income
securities are fair valued using price evaluations provided by a pricing service
approved by the Adviser.
◾ Derivative
contracts listed on exchanges are valued at their reported settlement or closing
price, except that options are valued at the mean of closing bid and ask
quotations.
◾ Over-the-counter
(OTC) derivative contracts are fair valued using price evaluations provided by a
pricing service approved by the Adviser.
If
any price, quotation, price evaluation or other pricing source is not readily
available when the NAV is calculated, if the Fund
cannot obtain price evaluations from a pricing service or from more than one
dealer for an investment within a reasonable period of time as set forth in the
Adviser’s valuation policies and procedures, or if information furnished by a
pricing service, in the opinion of the Valuation Committee, is deemed not
representative of the fair value of such security, the Fund uses the fair value
of the investment determined in accordance with the procedures generally
described below. There can be no assurance that the Fund could obtain the fair
value assigned to an investment if it sold the investment at approximately the
time at which the Fund determines its NAV per share.
Shares
of other mutual funds are valued based upon their reported NAVs. The
prospectuses for these mutual funds explain
the circumstances under which they will use fair value pricing and the effects
of using fair value pricing.
Fair
Valuation and Significant Events Procedures
Pursuant
to Rule 2a-5 under the Investment Company Act of 1940, as amended, the Board has
designated the Adviser as the Fund’s
valuation designee to perform the fair valuation determination for securities
and other assets held by the Fund. The Adviser, acting through its “Valuation
Committee,” is responsible for determining the fair value of investments for
which market quotations are not readily available. The Valuation Committee is
comprised of officers of the Adviser and certain of the Adviser’s affiliated
companies and determines fair value and oversees the calculation of the NAV. The
Valuation Committee is subject to Board oversight and certain reporting and
other requirements intended to provide the Board the information it needs to
oversee the Adviser’s fair value determinations.
The
Valuation Committee is also authorized to use pricing services to provide
fair price
evaluations of the current fair value of certain investments for purposes of
calculating the NAV. In the event that market quotations and price evaluations
are not available for an investment, the Valuation Committee determines the fair
value of the investment in accordance with procedures adopted by the Adviser as
the valuation designee. The Board periodically reviews the fair valuations made
by the Valuation Committee. The Board has also approved the Adviser’s fair
valuation and significant events procedures as part of the Fund’s compliance
program and will review any changes made to the procedures. The Fund’s SAI
discusses the methods used by pricing services and the Valuation Committee in
valuing investments.
23
Using
fair value to price investments may result in a value that is different from an
investment’s most recent closing price and from the prices
used by other registered funds to calculate their NAVs. The application of the
fair value procedures to an investment represents a good faith determination of
such investment’s fair value. There can be no assurance that the Fund could
obtain the fair value assigned to an investment if it sold the investment at
approximately the time at which the Fund determines its NAV per share, and the
actual value could be materially different.
The
Adviser also has adopted procedures requiring an investment to be priced at its
fair value whenever the Valuation Committee
determines that a significant event affecting the value of the investment has
occurred between the time as of which the price of the investment would
otherwise be determined and the time as of which the NAV is computed. An event
is considered significant if there is both an affirmative expectation that the
investment’s value will change in response to the event and a reasonable basis
for quantifying the resulting change in value.
Examples
of significant events that may occur after the close of the principal market on
which a security is traded, or after
the time of a price evaluation provided by a pricing service or a dealer,
include:
◾ With
respect to securities traded principally in foreign markets, significant trends
in U.S. equity markets or in the trading of foreign securities index futures
contracts;
◾ Political
or other developments affecting the economy or markets in which an issuer
conducts its operations or its securities are traded; and
◾ Announcements
concerning matters such as acquisitions, recapitalizations or litigation
developments or a natural disaster affecting the issuer’s operations or
regulatory changes or market developments affecting the issuer’s
industry.
The
Adviser has adopted procedures whereby the Valuation Committee uses a pricing
service to provide factors to update the
fair value of equity securities traded principally in foreign markets from the
time of the close of their respective foreign stock exchanges to the pricing
time of the Fund. For other significant events, the Fund may seek to obtain more
current quotations or price evaluations from alternative pricing sources. If a
reliable alternative pricing source is not available, the Valuation Committee
will determine the fair value of the investment. The Board periodically reviews
fair valuations made in response to significant events.
The
fair valuation of securities following a significant event can serve to reduce
arbitrage opportunities for short-term traders to
profit at the expense of long-term investors in the Fund. For example, such
arbitrage opportunities may exist when the market on which portfolio securities
are traded closes before the Fund calculates its NAV, which is typically the
case with Asian and European markets. However, there is no assurance that these
significant event procedures will prevent dilution of the NAV by short-term
traders. See “Account and Share Information–Frequent
Trading Policies” for other procedures
the Fund employs to deter such short-term trading.
SALES
CHARGE INFORMATION
A
Class
The
following sections relate to sales charge information in connection with the
purchase of the share class listed above.
The
following table summarizes the minimum investment amount and the maximum sales
charge, if any, that you will pay on an
investment in the Fund. Keep in mind that financial intermediaries may charge
you fees for their services in connection with your Share
transactions.
|
|
Minimum
Initial/Subsequent
Investment
Amounts1
|
Maximum
Sales Charges | |
|
Shares
Offered |
Front-End
Sales
Charge2
|
Contingent
Deferred
Sales
Charge | |
|
A |
$1,500/$100 |
1.00% |
None |
1
The
minimum initial and subsequent investment amounts for Individual Retirement
Accounts (IRAs) are generally $250 and $100, respectively. There is no minimum
initial or subsequent investment amount required for employer-sponsored
retirement plans; however, such accounts remain subject to the Fund’s policy on
“Accounts with Low Balances” as discussed later in this Prospectus. Please see
“By Systematic Investment Program” for applicable minimum investment. Financial
intermediaries may impose higher or lower minimum investment requirements on
their customers than those imposed by the Fund.
2
Front-End
Sales Charge is expressed as a percentage of public offering price. See “Sales
Charge When You Purchase.”
SALES
CHARGE WHEN YOU PURCHASE
The
following table lists the sales charges which will be applied to your Share
purchase, subject to the breakpoint discounts
indicated in the table and described below.
24
|
A
Class: | ||
|
Purchase
Amount |
Sales
Charge
as a
Percentage
of
Public
Offering
Price |
Sales
Charge
as a
Percentage
of
NAV |
|
Less
than $100,000 |
1.00% |
1.01% |
|
$100,000
or greater |
0.00% |
0.00% |
REDUCING
THE SALES CHARGE WITH BREAKPOINT DISCOUNTS
Your
investment may qualify for a reduction or elimination of the sales charge, also
known as a breakpoint discount. The
breakpoint discounts offered by the Fund are indicated in the table
above.
You
or your financial intermediary must notify the Fund’s Transfer Agent of
eligibility for any applicable breakpoint discount
at the time of purchase.
In
order to receive the applicable breakpoint discount, it may be necessary at the
time of purchase for you to inform your
financial intermediary or the Transfer Agent of the existence of other accounts
in which there are holdings eligible to be aggregated to meet a sales charge
breakpoint (“Qualifying Accounts”). Qualifying Accounts mean those share
accounts in the Federated Hermes funds held directly or through a financial
intermediary or through a single-participant retirement account by you, your
spouse, your parents (if you are under age 21) and/or your children under age
21, which can be linked using tax identification numbers (TINs), social security
numbers (SSNs) or broker identification numbers (BINs). Accounts held through
401(k) plans and similar multi-participant retirement plans, or through “Section
529” college savings plans or those accounts which cannot be linked using TINs,
SSNs or BINs, are not Qualifying Accounts.
In
order to verify your eligibility for a breakpoint discount, you will be required
to provide to your financial intermediary or the
Transfer Agent certain information on your New Account Form and may be required
to provide account statements regarding Qualifying Accounts. If you purchase
through a financial intermediary, you may be asked to provide additional
information and records as required by the financial intermediary. Failure to
provide proper notification or verification of eligibility for a breakpoint
discount may result in your not receiving a breakpoint discount to which you are
otherwise entitled. Breakpoint discounts apply only to your current purchase and
do not apply retroactively to previous purchases. The sales charges applicable
to the Shares offered in this Prospectus, and the breakpoint discounts offered
with respect to such Shares, are described in full in this Prospectus. Because
the Prospectus is available on FederatedHermes.com/us free of charge, Federated
Hermes does not disclose this information separately on the website.
Contingent
upon notification to the Transfer Agent, the sales charge at purchase of the A
class only, may be reduced
or eliminated by:
Larger
Purchases
◾ Purchasing
the A class in greater quantities to reduce the applicable sales
charge;
Concurrent
and Accumulated Purchases
◾ Excluding
any Federated Hermes fund A class without a sales charge (“no-load A class”),
combining concurrent purchases of and/or current investments in the A class, B
class, C class, F class and R class shares of any Federated Hermes fund made or
held by Qualifying Accounts; the purchase amount used in determining the sales
charge on your additional Share purchase will be calculated by multiplying the
respective maximum public offering price times the number of the A class, B
class, C class, F class and R class shares of any Federated Hermes fund
currently held in Qualifying Accounts and adding the dollar amount of your
current purchase; or
Letter
of Intent
◾ Signing a
letter of intent to purchase a qualifying amount of the A class within 13
months. (Call your financial intermediary or the Fund for more information.) The
Fund’s custodian will hold Shares in escrow equal to the maximum applicable
sales charge. If you complete the Letter of Intent, the Custodian will release
the Shares in escrow to your account. If you do not fulfill the Letter of
Intent, the Custodian will redeem the appropriate amount from the Shares held in
escrow to pay the sales charges that were not applied to your
purchases.
25
ELIMINATING
The SALES CHARGE
Your
investment may qualify for a sales charge waiver. Sales charge waivers offered
by the Fund are listed below. In order to
receive a sales charge waiver, you must inform your financial intermediary or
the Transfer Agent at the time of each purchase that your investment is eligible
for a waiver. It is possible that your financial intermediary may not, in
accordance with its policies, procedures and system limitations, be able to
ensure your receipt of one or more of these waiver categories. In this
situation, you would need to invest directly through the Fund’s Transfer Agent.
If you do not let your financial intermediary or the Transfer Agent know that
your investment is eligible for a sales charge waiver at the time of purchase,
you may not receive the waiver to which you may otherwise be
entitled.
Contingent
upon notification to the Transfer Agent, the sales charge will be eliminated
when you purchase
or acquire Shares:
◾ within 120
days of redeeming Shares of an equal or greater amount (see “120 Day
Reinstatement Program” below);
◾ through an
eligible program offered by a Financial Intermediary that provides for the
purchase of Shares without imposition of a sales charge (for example, a wrap
account, self-directed brokerage account, retirement, or other fee-based program
offered by the Financial Intermediary);
◾ with
reinvested dividends or capital gains;
◾ issued in
connection with the merger, consolidation, or acquisition of the assets of
another fund. Further, the sales charge will be eliminated on purchases of
Shares made by a shareholder that originally became a shareholder of a Federated
Hermes Fund pursuant to the terms of an agreement and plan of reorganization
which permits shareholders to acquire Shares at NAV, provided that such
purchased Shares are held directly with the Fund’s transfer agent. If the Shares
are held through a financial intermediary the sales charge waiver will not apply
(A class only);
◾ as a
Federated Hermes Life Member (Federated Hermes shareholders who originally were
issued shares through the “Liberty Account,” which was an account for the
Liberty Family of Funds on February 28, 1987, or who invested through an
affinity group prior to August 1, 1987, into the Liberty Account) (A class
only);
◾ as a
Trustee, employee or former employee of the Fund, the Adviser, the Distributor
and their affiliates, an employee of any financial intermediary that sells
Shares according to a sales agreement with the Distributor, an immediate family
member of these individuals or a trust, pension or profit-sharing plan for these
individuals; or
◾ pursuant
to the exchange privilege.
The
sales charge will not be eliminated if you purchase Shares of the Fund through
an exchange of shares of any no-load A
class unless your no-load A class shares were acquired through an exchange of
shares on which the sales charge had previously been paid.
120
Day reinstatement program
Within
120 days of redeeming Class A Shares of the Fund, upon proper notification to
the Fund’s Transfer Agent, you may
reinvest all or a portion of the redemption proceeds in Class A Shares of the
Fund at net asset value, without the imposition of a sales charge or CDSC.
Please note:
◾ The
ownership of the account receiving the purchase is not required to be identical
to that of the account in which the redemption was placed; however, the
registration of the account receiving the purchase must include at least one
registered shareholder of the account from which the redemption
occurred.
◾ You will
not be reimbursed for any fees originally incurred on the redemption (e.g., CDSC
or redemption fees) by subsequently participating in the 120 Day Reinstatement
Program.
◾ The 120
Day Reinstatement Program does not supersede or override any restrictions placed
on an account due to frequent trading and/or client contractual
issues.
Additional
operational restrictions may apply, please contact a Client Service
Representative at 1-800-341-7400 for more
information.
ADDITIONAL
INFORMATION ON THE AVAILABILITY OF CERTAIN WAIVERS AND DISCOUNTS
The
availability of certain sales charge waivers and discounts will depend on
whether you purchase your shares directly from the Fund or through a
financial intermediary. Certain
financial intermediaries may have different policies and procedures regarding
the availability of front-end sales load waivers or CDSC waivers which are
discussed in Appendix B to this Prospectus. The information contained in
Appendix B is provided by these financial intermediaries. Please contact your
financial intermediary to ensure that you have the information regarding the
sales charge waivers and discounts available to you and that you understand the
steps you must take to qualify for available waivers and discounts. In all instances, it is
the shareholder’s responsibility to notify the Fund or the
26
shareholder’s
Financial Intermediary at the time of purchase of any relationship or other
facts qualifying the investor for sales charge waivers or discounts.
For
waivers and discounts not available through a particular financial intermediary,
shareholders will have to purchase Fund shares directly from the Fund or through
another financial intermediary to receive these waivers or
discounts.
COMMISSIONS
ON CERTAIN SHARES
The
Fund does not charge any front-end load, deferred sales charge or other
asset-based fee for sales or distribution of IS, SS or
R6 Shares. However, if you purchase IS, SS or R6 Shares through a broker acting
solely as an agent on behalf of its customers, you may be required to pay a
commission to the broker in an amount determined and separately disclosed to you
by the broker.
Because
the Fund is not a party to any such commission arrangement between you and your
broker, any purchases and
redemptions of IS, SS or R6 Shares will be made at the applicable net asset
value (before imposition of the sales commission). Any such commissions charged
by a broker are not reflected in the fees and expenses listed in the
“Risk/Return Summary: Fees and Expenses” section of the Fund’s Prospectus and
described above nor are they reflected in the “Performance: Bar Chart and
Table,” because they are not charged by the Fund.
Shares of
the Fund are available in other share classes that have different fees and
expenses.
How is the
Fund Sold?
The
Fund offers the following Share classes: Class A Shares (A), Institutional
Shares (IS), Service Shares (SS) and Class R6
Shares (R6), each representing interests in a single portfolio of securities.
All Share classes have different sales charges and/or expenses which affect
their performance. Please note that certain purchase restrictions may
apply.
Under
the Distributor’s Contract with the Fund, the Distributor, Federated Securities
Corp., offers Shares on a continuous,
best-efforts basis. The Distributor is a subsidiary of Federated Hermes, Inc.
(“Federated Hermes,” formerly, Federated Investors, Inc.).
A
Class
The Fund’s
Distributor markets the A class to individuals, directly or through financial
intermediaries.
IS
& SS Class
The
Fund’s Distributor markets the IS and SS classes to Eligible Investors, as
described below. In connection with a request to
purchase the IS and SS classes, you should provide documentation sufficient to
verify your status as an Eligible Investor. As a general matter, the IS and SS
classes is not available for direct investment by natural persons.
The
following categories of Eligible Investors are not subject to any minimum
initial investment amount for the purchase
of the IS and SS classes (however, such accounts remain subject to the Fund’s
policy on “Accounts with Low Balances” as discussed later in this
Prospectus):
◾ An
investor participating in a no-load platform, network or other fee-based program
offered by a financial intermediary, for example, a wrap-account or retirement
platform where Federated Hermes has entered into an agreement with the
intermediary;
◾ A
trustee/director, employee or former employee of the Fund, the Adviser, the
Distributor and their affiliates; an immediate family member of these
individuals or a trust, pension or profit-sharing plan for these
individuals;
◾ An
employer-sponsored retirement plan;
◾ A trust
institution investing on behalf of its trust customers;
◾ Additional
sales to an investor (including a natural person) who owned the IS and SS
classes of the Fund as of December 31, 2008;
◾ A
Federated Hermes Fund;
◾ An
investor (including a natural person) who acquired the IS and SS classes of a
Federated Hermes fund pursuant to the terms of an agreement and plan of
reorganization which permits the investor to acquire such shares;
and
◾ In connection with an
acquisition of an investment management or advisory business, or related
investment services, products or assets, by Federated Hermes or its investment
advisory subsidiaries, an investor (including a natural person) who: (1) becomes
a client of an investment advisory subsidiary of Federated Hermes; or (2) is a
shareholder or interest holder of a pooled investment vehicle or product that
becomes advised or sub-advised by a Federated Hermes investment advisory
subsidiary as a result of such an acquisition other than as a result of a fund
reorganization transaction pursuant to an agreement and plan of
reorganization.
The
following categories of Eligible Investors are subject to applicable minimum
initial investment amounts for the purchase
of the IS and SS classes (see “How to Purchase Shares” below):
◾ An
investor, other than a natural person, purchasing the IS and SS classes directly
from the Fund; and
27
◾ In
connection with an initial purchase of the IS and SS classes through an
exchange, an investor (including a natural person) who owned the IS and SS
classes of another Federated Hermes fund as of December 31, 2008.
R6
Class
The
Fund’s Distributor markets the R6 class to Eligible Investors, as described
below. The Class R6 Shares are sold
at net asset value and are not subject to any minimum initial or subsequent
investment amounts. In connection with a request to purchase the R6 class, you
should provide documentation sufficient to verify your status as an Eligible
Investor.
Class R6 Shares do not
carry sales commissions or pay Rule 12b-1 fees, or make similar payments to
financial intermediaries. As a general matter, the R6 class is not available for
direct investment by natural persons. Individual shareholders who purchase Class
R6 Shares through retirement platforms or other intermediaries will not be
eligible to hold Class R6 Shares outside of their respective plan or
intermediary platform.
Following
are categories of Eligible Investors:
◾ An
investor participating in a no-load platform, network or other fee-based program
offered by a financial intermediary, for example, a wrap-account or retirement
platform where Federated Hermes has entered into an agreement with the
intermediary;
◾ A
trustee/director, employee or former employee of the Fund, the Adviser, the
Distributor and their affiliates; an immediate family member of these
individuals or a trust, pension or profit-sharing plan for these
individuals;
◾ An
employer-sponsored retirement plan;
◾ A trust
institution investing on behalf of its trust customers;
◾ An
investor, other than a natural person, purchasing Shares directly from the
Fund;
◾ A
Federated Hermes Fund;
◾ An
investor (including a natural person) who acquired the R6 class of a Federated
Hermes fund pursuant to the terms of an agreement and plan of reorganization
which permits the investor to acquire such shares; and
◾ In
connection with an acquisition of an investment management or advisory business,
or related investment services, products or assets, by Federated Hermes or its
investment advisory subsidiaries, an investor (including a natural person) who:
(1) becomes a client of an investment advisory subsidiary of Federated Hermes;
or (2) is a shareholder or interest holder of a pooled investment vehicle or
product that becomes advised or sub-advised by a Federated Hermes investment
advisory subsidiary as a result of such an acquisition other than as a result of
a fund reorganization transaction pursuant to an agreement and plan of
reorganization.
Intra-Fund
Share Conversion Program
A
shareholder in the Fund’s Shares may convert their Shares at net asset value to
any other share class of the Fund if the shareholder
meets the investment minimum and eligibility requirements for the share class
into which the conversion is sought, as applicable. The share conversion program
is not applicable to the Fund’s Class A Shares subject to a contingent deferred
sales charge, if applicable. Such conversion of classes should not result in a
realization event for tax purposes. Contact your financial intermediary or call
1-800-341-7400 to convert your Shares.
Payments
to Financial Intermediaries
The
Fund and its affiliated service providers may pay fees as described below to
financial intermediaries (such as broker-dealers,
banks, investment advisers or third-party administrators) whose customers are
shareholders of the Fund.
The
Fund’s Class R6 Shares do not make any payments to financial intermediaries,
either from Fund assets or from the investment
adviser and its affiliates.
FRONT-END
SALES CHARGE REALLOWANCES
The
Distributor receives a front-end sales charge on certain Share sales. The
Distributor pays a portion of this charge to financial
intermediaries that are eligible to receive it (the “Dealer Reallowance”) and
retains any remaining portion of the front-end sales charge.
When
a financial intermediary’s customer purchases Shares, the financial intermediary
may receive a Dealer Reallowance
as follows:
|
A
Class: |
|
|
Purchase
Amount |
Dealer
Reallowance
as a
Percentage of
Public
Offering Price |
|
Less
than $100,000 |
1.00% |
|
$100,000
or greater |
0.00% |
28
RULE
12b-1
FEES
A
Class
The
Board has adopted a Rule 12b-1 Plan, which allows payment of marketing fees of
up to 0.05% for A class of average
net assets to the Distributor for the sale, distribution, administration and
customer servicing of the Fund’s A class. When the Distributor receives Rule
12b-1 Fees, it may pay some or all of them to financial intermediaries whose
customers purchase Shares. The A class of the Fund has no present intention of
paying, accruing or incurring any Rule 12b-1 Fees until such time as approved by
the Fund’s Board of Trustees. Federated Hermes and its subsidiaries may benefit
or sustain losses from such arrangements. Because these Shares pay marketing
fees on an ongoing basis, your investment cost may be higher over time than
other shares with different sales charges and marketing fees.
service
fees
A
& SS Classes
The
A class and SS class may pay Service Fees of up to 0.25% of average net assets
to financial intermediaries or to Federated
Shareholder Services Company (FSSC), a subsidiary of Federated Hermes, for
providing services to shareholders and maintaining shareholder accounts.
Intermediaries that receive Service Fees may include a company affiliated with
management of Federated Hermes. If a financial intermediary receives Service
Fees on an account, it is not eligible to also receive Account Administration
Fees on that same account.
ACCOUNT
ADMINISTRATION FEES
A
& SS Classes
The
A class and SS class may pay Account Administration Fees of up to 0.25% of
average net assets to banks that are not
registered as broker-dealers or investment advisers for providing administrative
services to the Fund and its shareholders. If a financial intermediary receives
Account Administration Fees on an account, it is not eligible to also receive
Service Fees or Recordkeeping Fees on that same account.
RECORDKEEPING
FEES
A,
IS & SS
The
Fund may pay Recordkeeping Fees on an average-net-assets basis or on a
per-account-per-year basis to financial intermediaries
for providing recordkeeping services to the Fund and its shareholders. If a
financial intermediary receives Recordkeeping Fees on an account, it is not
eligible to also receive Networking Fees on that same account.
networking
fees
A,
IS & SS
The
Fund may reimburse Networking Fees on a per-account-per-year basis to financial
intermediaries for providing administrative
services to the Fund and its shareholders on certain non-omnibus accounts. If a
financial intermediary receives Networking Fees on an account, it is not
eligible to also receive Recordkeeping Fees on that same account.
ADDITIONAL
PAYMENTS TO FINANCIAL INTERMEDIARIES
A,
IS & SS
The
Distributor may pay out of its own resources amounts to certain financial
intermediaries, including broker-dealers, banks,
registered investment advisers, independent financial planners and retirement
plan administrators, that support the sale of Shares or provide services to Fund
shareholders. The amounts of these payments could be significant, and may create
an incentive for the financial intermediary or its employees or associated
persons to recommend or sell Shares of the Fund to you. Not all financial
intermediaries receive such payments, and the amount of compensation may vary by
intermediary. In some cases, such payments may be made by or funded from the
resources of companies affiliated with the Distributor (including the Adviser).
These payments are not reflected in the fees and expenses listed in the fee
table section of the Fund’s Prospectus and described above because they are not
paid by the Fund.
These
payments are negotiated and may be based on such factors as: the number or value
of Shares that the financial intermediary
sells or may sell; the value of client assets invested; the level and types of
services or support furnished by the financial intermediary; or the Fund’s
and/or other Federated Hermes funds’ relationship with the financial
intermediary. These payments may be in addition to payments, as described above,
made by the Fund to the financial intermediary. In connection with these
payments, the financial intermediary may elevate the prominence or profile of
the Fund and/or other Federated Hermes funds, within the financial
intermediary’s organization by, for example, placement on a list of preferred or
recommended funds and/or granting the Distributor preferential or enhanced
opportunities to promote the funds in various ways within the financial
intermediary’s organization. In addition, as discussed above in
29
“Commissions
on Certain Shares,” if you purchase IS, SS or R6 Shares through a broker acting
solely as an agent on behalf of its customers, you may be required to pay a
commission to the broker in an amount determined and separately disclosed to you
by the broker. You can ask your financial intermediary for information about any
payments it receives from the Distributor or the Fund and any services provided,
as well as about fees and/or commissions it charges.
How to
Purchase Shares
You
may purchase Shares of the Fund any day the NYSE is open. Shares will be
purchased at the NAV next calculated after your
investment is received by the Fund, or its agent, in proper form. The Fund
reserves the right to reject any request to purchase or exchange Shares. New
investors must submit a completed New Account Form. All accounts, including
those for which there is no minimum initial investment amount required, are
subject to the Fund’s policy on “Accounts with Low Balances” as discussed later
in this Prospectus.
Where
the Fund offers more than one Share class and you do not specify the class
choice on your New Account Form or form of
payment (e.g., Federal Reserve wire or check), you automatically will receive
the A class.
For
important account information, see the section “Security and Privacy
Protection.”
A
Class
You
may purchase Shares through a financial intermediary, directly from the Fund or
through an exchange from another Federated
Hermes fund.
IS
& SS Classes
Eligible
investors may purchase Shares through a financial intermediary, directly from
the Fund or through an exchange from
another Federated Hermes fund in the manner described above under “How is the
Fund Sold?”
Where
applicable, the required minimum initial investment for the IS and SS classes is
generally $1,000,000. There is no minimum
subsequent investment amount.
R6
Class
Eligible
Investors may purchase Shares through a financial intermediary, directly from
the Fund or through an exchange from
another Federated Hermes fund in the manner described above under “How is the
Fund Sold?”
There is
no minimum initial or subsequent investment amount required.
THROUGH
A FINANCIAL INTERMEDIARY
◾ Establish
an account with the financial intermediary; and
◾ Submit
your purchase order to the financial intermediary before the end of regular
trading on the NYSE (normally 4:00 p.m. Eastern time).
The
Fund has authorized certain intermediaries to accept Share purchase orders on
its behalf. When authorized intermediaries
receive an order in proper form, the order is considered as being placed with
the Fund and Shares will be bought at the NAV next calculated after such an
order is received by the authorized intermediary. If your financial intermediary
is not an authorized intermediary, the Fund or its agent must receive the
purchase order in proper form from your financial intermediary by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time) in order for your
transaction to be priced at that day’s NAV. In addition, your financial
intermediary must forward your payment by the prescribed trade settlement date
(typically within one to three business days) to the Fund’s transfer agent,
State Street Bank and Trust Company (“Transfer Agent”). You will become the
owner of Shares and receive dividends when your payment is received in
accordance with these time frames (provided that, if payment is received in the
form of a check, the check clears). If your payment is not received in
accordance with these time frames, or a check does not clear, your purchase will
be canceled and you could be liable for any losses, fees or expenses incurred by
the Fund or the Fund’s Transfer Agent.
Financial
intermediaries should send payments according to the instructions in the
sections “By Wire” or “By Check.”
Financial
intermediaries may impose higher or lower minimum investment requirements on
their customers than those imposed by
the Fund. Keep in mind that financial intermediaries may charge you fees for
their services in connection with your Share transactions.
Shareholders
are encouraged to ask their financial intermediary if they are an authorized
agent for the Fund and about any fees
that may be charged by the financial intermediary.
DIRECTLY
FROM THE FUND
◾ Establish
your account with the Fund by submitting a completed New Account Form;
and
◾ Send your
payment to the Fund by Federal Reserve wire or check.
30
You
will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire
or your check. If your check does not clear, your purchase will be canceled and
you could be liable for any losses or fees incurred by the Fund or the Fund’s
Transfer Agent.
By
Wire
To
facilitate processing your order, please call the Fund before sending the wire.
Send your wire to:
State
Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
BNF: 23026552
Attention: Federated Hermes EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
BNF: 23026552
Attention: Federated Hermes EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot
purchase Shares by wire on holidays when wire transfers are
restricted.
By
Check
Make your
check payable to The
Federated Hermes Funds, note
your account number on the check, and send it to:
The
Federated Hermes Funds
P.O. Box 219318
Kansas City, MO 64121-9318
P.O. Box 219318
Kansas City, MO 64121-9318
If you
send your check by a private
courier or overnight delivery service that
requires a street address, send it to:
The
Federated Hermes Funds
430 W 7th Street
Suite 219318
Kansas City, MO 64105-1407
430 W 7th Street
Suite 219318
Kansas City, MO 64105-1407
Payment
should be made in U.S. dollars and drawn on a U.S. bank. The Fund reserves the
right to reject any purchase
request. For example, to protect against check fraud the Fund may reject any
purchase request involving a check that is not made payable to The
Federated Hermes Funds
(including, but not limited to, requests to purchase Shares using third-party
checks) or involving temporary checks or credit card checks.
By
Direct Deposit
You may
establish Payroll Deduction/Direct Deposit arrangements for investments into the
Fund by either calling a Client Service
Representative at 1-800-341-7400; or by completing the Payroll Deduction/Direct
Deposit Form, which is available on FederatedHermes.com/us under “Resources” and
then “Literature and Forms,” then “Forms.” You will receive a confirmation when
this service is available.
THROUGH
AN EXCHANGE
You may
purchase Fund Shares through an exchange from another Federated Hermes fund. To
do this you must:
◾ meet any
applicable shareholder eligibility requirements;
◾ ensure
that the account registrations are identical;
◾ meet any
applicable minimum initial investment requirements; and
◾ receive a
prospectus for the fund into which you wish to exchange.
An
exchange is treated as a redemption and a subsequent purchase, and is a taxable
transaction. The Fund reserves the right to
reject any request to purchase or exchange Shares. The Fund may modify or
terminate the exchange privilege at any time.
A
Class
You may
purchase Shares through an exchange from the same share class of another
Federated Hermes fund.
IS,
SS & R6 Classes
You
may purchase Shares through an exchange from any Federated Hermes fund or share
class that does not have a stated
sales charge or contingent deferred sales charge, except Shares of Federated
Hermes Institutional Money Market Management, Federated Hermes Institutional
Tax-Free Cash Trust, Federated Hermes Institutional Prime Obligations Fund,
Federated Hermes Institutional Prime Value Obligations Fund, no-load Class A
Shares and Class R Shares of any Fund.
31
By
Online Account Services
You may
access your accounts online to purchase Shares through FederatedHermes.com/us’s
Shareholder Account Access system once you have registered for access. Online
transactions may be subject to certain limitations including limitations as to
the amount of the transaction. For more information about the services available
through Shareholder Account Access, please visit FederatedHermes.com/us and
select “Sign In” and “Access and Manage Investments,” or call 1-800-341-7400,
Option #4 to speak with a Client Service Representative.
BY
SYSTEMATIC INVESTMENT PROGRAM (SIP)
Once
you have opened an account, you may automatically purchase additional Shares on
a regular basis by completing the SIP
section of the New Account Form or by contacting the Fund or your financial
intermediary. The minimum investment amount for SIPs is $50.
BY
AUTOMATED CLEARING HOUSE (ACH)
Once
you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH
member. This purchase option can be established by completing the appropriate
sections of the New Account Form.
RETIREMENT
INVESTMENTS
A
Class
You
may purchase Shares as retirement investments (such as qualified plans and IRAs
or transfer or rollover of assets).
Call your financial intermediary or the Fund for information on retirement
investments. We suggest that you discuss retirement investments with your tax
adviser. You may be subject to an account fee charged by your financial
intermediary.
R6
Class
You
may purchase Shares as retirement investments (such as qualified plans or
transfer of assets). Call your financial intermediary
or the Fund for information on retirement investments. We suggest that you
discuss retirement investments with your tax adviser. You may be subject to an
account fee charged by your financial intermediary.
How to
Redeem and Exchange Shares
You should
redeem or exchange Shares:
◾ through a
financial intermediary if you purchased Shares through a financial intermediary;
or
◾ directly
from the Fund if you purchased Shares directly from the Fund.
Shares
of the Fund may be redeemed for cash, or exchanged for shares of other Federated
Hermes funds as described herein, on
days on which the Fund computes its NAV. Redemption requests may be made by
telephone or in writing.
Redemption
proceeds normally are wired or mailed within one business day for each method of
payment after receiving a timely
request in proper form. Depending upon the method of payment, when shareholders
receive redemption proceeds can differ. Payment may be delayed for up to seven
days under certain circumstances (see “Limitations on Redemption
Proceeds”).
For
important account information, see the section “Security and Privacy
Protection.”
THROUGH
A FINANCIAL INTERMEDIARY
Submit
your redemption or exchange request to your financial intermediary by the end of
regular trading on the NYSE (normally
4:00 p.m. Eastern time). The redemption amount you will receive is based upon
the next calculated NAV after the Fund receives the order from your financial
intermediary.
DIRECTLY
FROM THE FUND
By
Telephone
You may
redeem or exchange Shares by simply calling the Fund at
1-800-341-7400.
If
you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time), you will receive a redemption
amount based on that day’s NAV.
By
Mail
You may
redeem or exchange Shares by sending a written request to the Fund.
You
will receive a redemption amount based on the next calculated NAV after the Fund
receives your written request in proper
form.
32
Send
requests by mail to:
The
Federated Hermes Funds
P.O. Box 219318
Kansas City, MO 64121-9318
P.O. Box 219318
Kansas City, MO 64121-9318
Send
requests by private
courier or overnight delivery service
to:
The
Federated Hermes Funds
430 W 7th Street
Suite 219318
Kansas City, MO 64105-1407
430 W 7th Street
Suite 219318
Kansas City, MO 64105-1407
All
requests must include:
◾ Fund name
and Share class, account number and account registration;
◾ amount to
be redeemed or exchanged;
◾ signatures
of all shareholders exactly as registered; and
◾ if
exchanging, the Fund
name and Share class, account number and account registration into which you are
exchanging.
Call your
financial intermediary or the Fund if you need special instructions.
Signature
Guarantees
Signatures
must be guaranteed by a financial institution which is a participant in a
Medallion signature guarantee program
if:
◾ your
redemption will be sent to an address other than the address of
record;
◾ your
redemption will be sent to an address of record that was changed within the last
30 days;
◾ a
redemption is payable to someone other than the shareholder(s) of record;
or
◾ transferring
into another fund with a different shareholder registration.
A
Medallion signature guarantee is designed to protect your account from fraud.
Obtain a Medallion signature guarantee from a
bank or trust company, savings association, credit union or broker, dealer or
securities exchange member. A
notary
public
cannot provide a signature guarantee.
By
Online Account Services
You may
access your accounts online to redeem or exchange Shares through FederatedHermes.com/us’s
Shareholder Account Access system once you have registered for access. Online
transactions may be subject to certain limitations including limitations as to
the amount of the transaction. For more information about the services available
through Shareholder Account Access, please visit FederatedHermes.com/us and
select “Sign In” and “Access and Manage Investments,” or call 1-800-341-7400,
Option #4 to speak with a Client Service Representative.
PAYMENT
METHODS FOR REDEMPTIONS
Your
redemption proceeds will be mailed by check to your address of record. The
following payment options are available
if you complete the appropriate section of the New Account Form or an Account
Service Options Form. These payment options require a signature guarantee if
they were not established when the account was opened:
◾ An
electronic transfer to your account at a financial institution that is an ACH
member; or
◾ Wire
payment to your account at a domestic commercial bank that is a Federal Reserve
System member.
Methods
the Fund May Use to Meet Redemption Requests
The
Fund intends to pay Share redemptions in cash. To ensure that the Fund has cash
to meet Share redemptions on any day, the
Fund typically expects to hold a cash or cash equivalent reserve or sell
portfolio securities.
In unusual
or stressed circumstances, the Fund may generate cash in the following
ways:
◾ Inter-fund
Borrowing and Lending. The SEC
has granted an exemption that permits the Fund and all other funds advised by
subsidiaries of Federated Hermes (“Federated Hermes funds”) to lend and borrow
money for certain temporary purposes directly to and from other Federated Hermes
funds. Inter-fund borrowing and lending is permitted only: (a) to meet
shareholder redemption requests; (b) to meet commitments arising from “failed”
trades; and (c) for other temporary purposes. All inter-fund loans must be
repaid in seven days or less.
◾ Committed
Line of Credit. The Fund
participates with certain other Federated Hermes funds, on a several basis, in
an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit
(LOC) agreement. The LOC was made available to temporarily finance the
repurchase or redemption of shares of the funds, failed trades, payment of
dividends, settlement of trades and for other short-term, temporary or emergency
general business purposes. The Fund cannot borrow under the LOC if an inter-fund
loan is outstanding.
33
◾ Redemption
in Kind. Although
the Fund intends to pay Share redemptions in cash, it reserves the right to pay
the redemption price in whole or in part by an “in-kind” distribution of the
Fund’s portfolio securities. Because the Fund has elected to be governed by Rule
18f-1 under the 1940 Act, the Fund is obligated to pay Share redemptions to any
one shareholder in cash only up to the lesser of $250,000 or 1% of the net
assets represented by such Share class during any 90-day period. Redemptions in
kind are made consistent with the procedures adopted by the Fund’s Board, which
generally include distributions of a pro rata share of the Fund’s portfolio
assets. Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, securities received may be subject to market risk and the
shareholder could incur taxable gains and brokerage or other charges in
converting the securities to cash.
LIMITATIONS
ON REDEMPTION PROCEEDS
Redemption
proceeds normally are wired or mailed within one business day after receiving a
request in proper form. Payment
may be delayed for up to seven days:
◾ to allow
your purchase to clear (as discussed below);
◾ during
periods of market volatility;
◾ when a
shareholder’s trade activity or amount adversely impacts the Fund’s ability to
manage its assets; or
◾ during any
period when the Federal Reserve wire or applicable Federal Reserve banks are
closed, other than customary weekend and holiday closings.
If
you request a redemption of Shares recently purchased by check (including a
cashier’s check or certified check), money
order, bank draft or ACH, your redemption proceeds may not be made available for
up to seven calendar days to allow the Fund to collect payment on the instrument
used to purchase such Shares. If the purchase instrument does not clear, your
purchase order will be canceled and you will be responsible for any losses
incurred by the Fund as a result of your canceled order.
In
addition, the right of redemption may be suspended, or the payment of proceeds
may be delayed (including beyond seven
days), during any period:
◾ when the
NYSE is closed, other than customary weekend and holiday closings;
◾ when
trading on the NYSE is restricted, as determined by the SEC;
◾ in which
an emergency exists, as determined by the SEC, so that disposal of the Fund’s
investments or determination of its NAV is not reasonably practicable;
or
◾ as the SEC
may by order permit for the protection of Fund shareholders.
You
will not accrue interest or dividends on uncashed redemption checks from the
Fund when checks are undeliverable and
returned to the Fund.
redemptions
from retirement accounts
A
& R6 Classes
In
the absence of your specific instructions, 10% of the value of your redemption
from a retirement account in the Fund may be
withheld for taxes. This withholding only applies to certain types of retirement
accounts.
EXCHANGE
PRIVILEGE
You may
exchange Shares of the Fund. To do this, you must:
◾ meet any
applicable shareholder eligibility requirements;
◾ ensure
that the account registrations are identical;
◾ meet any
applicable minimum initial investment requirements; and
◾ receive a
prospectus for the fund into which you wish to exchange.
An
exchange is treated as a redemption and a subsequent purchase, and is a taxable
transaction. The Fund reserves the right to
reject any request to purchase or exchange Shares. The Fund may modify or
terminate the exchange privilege at any time.
In
addition, the Fund may terminate your exchange privilege if your exchange
activity is found to be excessive under the Fund’s
frequent trading policies. See “Account and Share Information–Frequent
Trading Policies.”
Financial
intermediaries may have different policies and procedures regarding the
availability of intra-fund exchanges (“automatic
exchanges”). These exchanges which are directed by the financial intermediary
and not the Fund are discussed in Appendix B to this Prospectus.
A
Class
You may
exchange Shares into shares of the same class of another Federated Hermes
fund.
34
IS,
SS & R6 Classes
You
may exchange Shares of the Fund for shares of any Federated Hermes fund or share
class that does not have a stated
sales charge or contingent deferred sales charge, except Shares of Federated
Hermes Institutional Money Market Management, Federated Hermes Institutional
Tax-Free Cash Trust, Federated Hermes Institutional Prime Obligations Fund,
Federated Hermes Institutional Prime Value Obligations Fund, no-load Class A
Shares and Class R Shares of any Fund.
Systematic
Withdrawal/Exchange Program
You
may automatically redeem or exchange Shares. The minimum amount for all new or
revised systematic redemptions
or exchanges of Shares is $50 per transaction per fund. Complete the appropriate
section of the New Account Form or an Account Service Options Form or contact
your financial intermediary or the Fund. Your account value must meet the
minimum initial investment amount at the time the program is established. This
program may reduce, and eventually deplete, your account. Payments should not be
considered yield or income.
Generally,
it is not advisable to continue to purchase Shares subject to a sales charge
while redeeming Shares using this
program.
ADDITIONAL
CONDITIONS
Telephone
Transactions
The
Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Share
Certificates
The Fund
does not issue share certificates.
Security
and Privacy Protection
ONLINE
ACCOUNT and TELEPHONE ACCESS SECURITY
Federated
Hermes will not be responsible for losses that result from unauthorized
transactions, unless Federated Hermes does not
follow procedures designed to verify your identity. When initiating a
transaction by telephone or online, shareholders should be aware that any person
with access to your account and other personal information including PINs
(Personal Identification Numbers) may be able to submit instructions by
telephone or online. Shareholders are responsible for protecting their identity
by using strong usernames and complex passwords which utilize combinations of
mixed case letters, numbers and symbols, and change passwords and PINs
frequently.
Using
FederatedHermes.com/us’s
Account Access website means you are consenting to sending and receiving
personal financial information over the Internet, so you should be sure you are
comfortable with the risks. You will be required to accept the terms of an
online agreement and to establish and utilize a password in order to access
online account services. The Transfer Agent has adopted security procedures to
confirm that Internet instructions are genuine. The Transfer Agent will also
send you written confirmation of share transactions. The Transfer Agent, the
Fund and any of its affiliates will not be liable for losses or expenses that
occur from fraudulent Internet instructions reasonably believed to be
genuine.
The
Transfer Agent or the Fund will employ reasonable procedures to confirm that
telephone transaction requests are genuine,
which may include recording calls, asking the caller to provide certain personal
identification information, sending you written confirmation, or requiring other
confirmation security procedures. The Transfer Agent, the Fund and any of its
affiliates will not be liable for relying on instructions submitted by telephone
that the Fund reasonably believes to be genuine.
ANTI-MONEY
LAUNDERING COMPLIANCE
To
help the government fight the funding of terrorism and money laundering
activities, federal law requires financial institutions
to obtain, verify and record information that identifies each new customer who
opens a Fund account and to determine whether such person’s name appears on
governmental lists of known or suspected terrorists or terrorist organizations.
Pursuant to the requirements under the USA PATRIOT Act, the information obtained
will be used for compliance with the USA PATRIOT Act or other applicable laws,
regulations and rules in connection with money laundering, terrorism or other
illicit activities.
35
Information
required includes your name, residential or business address, date of birth (for
an individual), and other information
that identifies you, including your social security number, tax identification
number or other identifying number. The Fund cannot waive these requirements.
The Fund is required by law to reject your Account Application if the required
information is not provided. If, after reasonable effort, the Fund is unable to
verify your identity or that of any other person(s) authorized to act on your
behalf, or believes it has identified potentially suspicious, fraudulent or
criminal activity, the Fund reserves the right to close your account and redeem
your shares at the next calculated NAV without your permission. Any applicable
contingent deferred sales charge (CDSC) will be assessed upon redemption of your
shares.
The
Fund has a strict policy designed to protect the privacy of your personal
information. A copy of Federated Hermes’ privacy policy notice was
given to you at the time you opened your account. The Fund sends a copy of the
privacy notice to you annually. You may also obtain the privacy notice by
calling the Fund, or through FederatedHermes.com/us.
Account
and Share Information
CONFIRMATIONS
AND ACCOUNT STATEMENTS
You
will receive confirmation of purchases, redemptions and exchanges (except for
systematic transactions). In addition,
you will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS
AND CAPITAL GAINS
The
Fund declares any dividends daily and pays them monthly to shareholders. If you
purchase Shares by wire, you begin
earning dividends on the day your wire is received. If you purchase Shares by
check, you begin earning dividends on the business day after the Fund receives
your check. In either case, you earn dividends through the day your redemption
request is received.
In
addition, the Fund pays any capital gains at least annually, and may make such
special distributions of dividends and capital
gains as may be necessary to meet applicable regulatory requirements. Your
dividends and capital gains distributions will be automatically reinvested in
additional Shares without a sales charge, unless you elect cash payments.
Dividends may also be reinvested without sales charges in shares of any class of
any other Federated Hermes fund of which you are already a
shareholder.
If
you purchase Shares just before the record date for a capital gain distribution,
you will pay the full price for the Shares and
then receive a portion of the price back in the form of a taxable distribution,
whether or not you reinvest the distribution in Shares. Therefore, you should
consider the tax implications of purchasing Shares shortly before the record
date for a capital gain. Contact your financial intermediary or the Fund for
information concerning when dividends and capital gains will be
paid.
Under
the federal securities laws, the Fund is required to provide a notice to
shareholders regarding the source of distributions made by the
Fund if such distributions are from sources other than ordinary investment
income. In addition, important information regarding the Fund’s distributions,
if applicable, is available via the link to the Fund and share class name at
FederatedHermes.com/us/FundInformation.
Small
Distributions and Uncashed Checks
Generally,
dividend and/or capital gain distributions payable by check in an amount of less
than $25 will be automatically
reinvested in additional shares. This policy does not apply if you have elected
to receive cash distributions that are directly deposited into your bank account
via wire or ACH.
Additionally,
if one or more dividend or capital gain distribution checks are returned as
“undeliverable,” or remain uncashed
for 180 days, all subsequent dividend and capital gain distributions will be
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution checks. For questions on whether reinvestment applies
to your distributions, please contact a Client Service Representative at
1-800-341-7400.
Certain
states, including the State of Texas, have laws that allow shareholders to
designate a representative to receive abandoned or unclaimed
property (“escheatment”) notifications by completing and submitting a
designation form that generally can be found on the official state website. If a
shareholder resides in an applicable state and elects to designate a
representative to receive escheatment notifications, escheatment notices
generally will be delivered as required by such state laws, including, as
applicable, to both the shareholder and the designated representative. A
completed designation form may be mailed to the Fund (if Shares are held
directly with the Fund) or to the shareholder’s financial intermediary (if
Shares are not held directly with the Fund). Shareholders should refer to
relevant state law for the shareholder’s specific rights and responsibilities
under his or her state’s escheatment law(s), which can generally be found on a
state’s official website.
36
ACCOUNTS
WITH LOW BALANCES
Federated
Hermes reserves the right to close accounts if redemptions or exchanges cause
the account balance to fall
below:
◾ $1,500 for
the A class (or in the case of IRAs, $250);
◾ $25,000
for the IS and SS classes.
Before
an account is closed, you will be notified and allowed at least 30 days to
purchase additional Shares to meet the
minimum.
TAX
INFORMATION
The
Fund and/or your financial intermediary provides year-end tax information and an
annual statement of your account activity
to assist you in completing your federal, state and local tax returns. Fund
distributions of dividends and capital gains are taxable to you whether paid in
cash or reinvested in the Fund. Dividends are taxable at different rates
depending on the source of dividend income. Distributions of net short-term
capital gains are taxable to you as ordinary income. Distributions of net
long-term capital gains are taxable to you as long-term capital gains regardless
of how long you have owned your Shares.
Fund
distributions are expected to be primarily dividends. Redemptions and exchanges
are taxable sales. Please consult your tax
adviser regarding your federal, state and local tax liability.
FREQUENT
TRADING POLICIES
Frequent
or short-term trading into and out of the Fund can have adverse consequences for
the Fund and shareholders who use
the Fund as a long-term investment vehicle. Such trading in significant amounts
can disrupt the Fund’s investment strategies (e.g., by requiring it to sell
investments at inopportune times or maintain excessive short-term or cash
positions to support redemptions), increase brokerage and administrative costs
and affect the timing and amount of taxable gains distributed by the Fund.
Investors engaged in such trading may also seek to profit by anticipating
changes in the Fund’s NAV in advance of the time as of which NAV is calculated
or through an overall strategy to buy and sell Shares in response to incremental
changes in the Fund’s NAV.
The
Fund’s Board has approved policies and procedures intended to discourage
excessive frequent or short-term trading of the
Fund’s Shares. The Fund’s fair valuation procedures are intended in part to
discourage short-term trading strategies by reducing the potential for these
strategies to succeed. See “What Do Shares Cost?” The Fund also monitors trading
in Fund Shares in an effort to identify disruptive trading activity. The Fund
monitors trades into and out of the Fund within a period of 30 days or less. The
Fund may also monitor trades into and out of the Fund for potentially disruptive
trading activity over periods longer than 30 days. The size of Share
transactions subject to monitoring varies. Where it is determined that a
shareholder has exceeded the detection amounts twice within a period of 12
months, the Fund will temporarily prohibit the shareholder from making further
purchases or exchanges of Fund Shares. If the shareholder continues to exceed
the detection amounts for specified periods the Fund will impose lengthier
trading restrictions on the shareholder, up to and including permanently
prohibiting the shareholder from making any further purchases or exchanges of
Fund Shares. Whether or not the specific monitoring limits are exceeded, the
Fund’s management or the Adviser may determine from the amount, frequency or
pattern of purchases and redemptions or exchanges that a shareholder is engaged
in excessive trading that is or could be detrimental to the Fund and other
shareholders and may prohibit the shareholder from making further purchases or
exchanges of Fund Shares. No matter how the Fund defines its limits on frequent
trading of Fund Shares, other purchases and sales of Fund Shares may have
adverse effects on the management of the Fund’s portfolio and its
performance.
The
Fund’s frequent trading restrictions do not apply to purchases and sales of Fund
Shares by other Federated Hermes funds.
These funds impose the same frequent trading restrictions as the Fund at their
shareholder level. In addition, allocation changes of the investing Federated
Hermes fund are monitored, and the managers of the recipient fund must determine
that there is no disruption to their management activity. The intent of this
exception is to allow investing fund managers to accommodate cash flows and
other activity that result from non-abusive trading in the investing fund,
without being stopped from such trading because the aggregate of such trades
exceeds the monitoring limits. Nonetheless, as with any trading in Fund Shares,
purchases and redemptions of Fund Shares by other Federated Hermes funds could
adversely affect the management of the Fund’s portfolio and its
performance.
The
Fund will not restrict transactions made on a non-discretionary basis by certain
asset allocation programs, wrap programs,
fund of funds, collective funds or other similar accounts that have been
pre-approved by Federated Hermes (“Approved Accounts”). The Fund will continue
to monitor transactions by the Approved Accounts and will seek to limit or
restrict even non-discretionary transactions by Approved Accounts that are
determined to be disruptive or harmful to the Fund.
37
The
Fund’s objective is that its restrictions on short-term trading should apply to
all shareholders that are subject to the restrictions,
regardless of the number or type of accounts in which Shares are held. However,
the Fund anticipates that limitations on its ability to identify trading
activity to specific shareholders, including where shares are held through
intermediaries in multiple or omnibus accounts, will mean that these
restrictions may not be able to be applied uniformly in all cases.
Other
funds in the Federated Hermes family of funds may impose different monitoring
policies or in some cases, may not
monitor for frequent or short-term trading. Under normal market conditions such
monitoring policies are designed to protect the funds being monitored and their
shareholders and the operation of such policies and shareholder investments
under such monitoring are not expected to have materially adverse impact on the
Federated Hermes funds or their shareholders. If you plan to exchange your fund
shares for shares of another Federated Hermes fund, please read the prospectus
of that other Federated Hermes fund for more information.
The
Fund may invest in affiliated investment companies whose boards have determined
not to adopt frequent trading policies.
The Fund therefore may be exposed to any adverse consequences of any frequent or
short-term trading in such funds, to the extent of the Fund’s investment
therein.
PORTFOLIO
HOLDINGS INFORMATION
Information
concerning the Fund’s portfolio holdings is available via the link to the Fund
and share class name at FederatedHermes.com/us/FundInformation.
A complete listing of the Fund’s portfolio holdings as of the end of each
calendar quarter is posted on the website 30 days (or the next business day)
after the end of the quarter and remains posted for six months thereafter.
Summary portfolio composition information as of the close of each month is
posted on the website 15 days (or the next business day) after month-end and
remains posted until replaced by the information for the succeeding month. The
summary portfolio composition information may include identification of the
Fund’s top 10 holdings and a percentage breakdown of the portfolio by sector and
credit quality.
You may
also access portfolio information as of the end of the Fund’s fiscal quarters
via the link to the Fund and share class name at
FederatedHermes.com/us. The Fund’s Annual and Semi-Annual Shareholder Reports
contain complete listings of the Fund’s portfolio holdings as of the end of the
Fund’s second and fourth fiscal quarters. Fiscal quarter information is made
available on the website within 70 days after the end of the fiscal quarter.
This information is also available in reports filed with the SEC at the SEC’s
website at sec.gov.
Each
fiscal quarter, the Fund will file with the SEC a complete schedule of its
monthly portfolio holdings on “Form N-PORT.” The Fund’s
holdings as of the end of the third month of every fiscal quarter, as reported
on Form N-PORT, will be publicly available on the SEC’s website at sec.gov
within 60 days of the end of the fiscal quarter upon filing. You may also access
this information via the link to the Fund and share class name at
FederatedHermes.com/us.
In
addition, from time to time (for example, during periods of unusual market
conditions), additional information regarding the Fund’s
portfolio holdings and/or composition may be posted to FederatedHermes.com/us.
If and when such information is posted, its availability will be noted on, and
the information will be accessible from, the home page of the
website.
Who
Manages the Fund?
The
Board governs the Fund. The Board selects and oversees the Adviser, Federated
Investment Management Company.
The Adviser manages the Fund’s assets, including buying and selling portfolio
securities. Federated Advisory Services Company (FASC), an affiliate of the
Adviser, provides certain support services to the Adviser. The fee for these
services is paid by the Adviser and not by the Fund.
The
address of the Adviser and FASC is 1001 Liberty Avenue, Pittsburgh, PA
15222-3779.
The
Adviser and other advisory subsidiaries of Federated Hermes combined, advise
approximately 102 registered investment companies
spanning equity, fixed-income and money market mutual funds and also manage a
variety of other pooled investment vehicles, private investment companies and
customized separately managed accounts (including non-U.S./offshore funds).
Federated Hermes’ assets under management totaled approximately $668.9 billion
as of December 31, 2022. Federated Hermes was established in 1955 as Federated
Investors, Inc. and is one of the largest investment managers in the United
States with nearly 2,000 employees. Federated Hermes provides investment
products to more than 11,000 investment professionals and
institutions.
The
Adviser advises approximately 73 registered investment
companies and also manages sub-advised funds. The Adviser’s assets under
management totaled approximately $399.6 billion as of December 31,
2022.
38
PORTFOLIO
MANAGEMENT INFORMATION
John
Gentry
John
Gentry, CFA, Senior Portfolio Manager, has been the Fund’s portfolio manager
since November of 2013.
Mr.
Gentry is Head of the Corporate
Fixed Income Group. He is responsible for day to day management of the Fund
focusing on asset allocation, interest rate strategy and security selection. He
has been with the Adviser or an affiliate since 1995; has worked in investment
management since 1990; has managed investment portfolios since 1997. Education:
B.A., University of Virginia; and M.B.A., Cornell University.
Chengjun
(Chris) Wu
Chengjun
(Chris) Wu, CFA, Senior Portfolio Manager, has been the Fund’s portfolio manager
since October of 2018.
Mr. Wu
is is
responsible for providing research and advice on sector allocation and security
selection. He has been with Adviser or an affiliate since 2006; has worked in
investment management since 2006; and has managed investment portfolios since
2011. Education: B.S., Beijing Normal University; M.S. University of Illinois at
Chicago; and M.B.A., University of Chicago, Graduate School of
Business.
Robert
Matthews
Robert Matthews, CFA,
Portfolio Manager, has been the Fund’s portfolio manager since October of
2023.
Mr.
Matthews is responsible for day to day management of the Fund focusing on asset
allocation and security selection. He has been with the
Adviser or an affiliate since 2007; has worked in investment management since
2010; has managed investment portfolios since 2018. Education: B.S., Washington
& Jefferson College; M.B.A., Robert Morris University.
MORTGAGE-BACKED
AFFILIATED FUND
Todd
A. Abraham
Todd A.
Abraham, CFA, Senior Portfolio Manager, has been the Mortgage-Backed Affiliated
Fund’s portfolio manager since its inception in
February of 1999.
Mr.
Abraham is Head of the
Government/Mortgage-backed Fixed Income Group. He is responsible for day to day
management of the Mortgage-Backed Affiliated Fund focusing on asset allocation,
interest rate strategy and security selection. He has been with Adviser or an
affiliate since 1993; has worked in investment management since 1993; has
managed investment portfolios since 1995. Education: B.S., Indiana University of
Pennsylvania; and M.B.A., Loyola College.
HIGH-YIELD
AFFILIATED FUND
Mark
E. Durbiano
Mark E.
Durbiano, CFA, Senior Portfolio Manager, has been the High-Yield Affiliated
Fund’s portfolio manager since its inception in December
of 1997.
Mr.
Durbiano is Head of the Domestic High
Yield Group and Head of the Bond Sector Pod/Committee. He is responsible for day
to day management of the High-Yield Affiliated Fund focusing on asset allocation
and security selection. He has been with Adviser or an affiliate since 1982; has
worked in investment management since 1982; has managed investment portfolios
since 1984. Education: B.A., Dickinson College; and M.B.A., University of
Pittsburgh.
EMERGING
MARKETS AFFILIATED FUND
Ihab
Salib
Ihab
L. Salib, Senior Portfolio Manager, has been the Emerging Markets Affiliated
Fund’s portfolio manager since May of
2013.
Mr.
Salib is Head
of the International Fixed Income Group and Chairman of the Currency Management
Committee. He is responsible for day to day management of the Emerging Markets
Affiliated Fund focusing on asset allocation, interest rate strategy and
security selection. He has been with Adviser or an affiliate since 1999; has
worked in investment management since 1992; has managed investment portfolios
since 2002. Education: B.A., State University of New York at Stony
Brook.
39
Bank
Loan Affiliated Fund
Anthony
Venturino
Anthony
Venturino,
CFA,
Portfolio Manager, has been the Bank Loan Affiliated Fund’s portfolio manager
since March of 2019.
Mr.
Venturino
is
responsible for day-to-day management of the Bank Loan Affiliated Fund focusing
on asset allocation and security selection. He has been with the Adviser or an
affiliate since 2005, has worked in investment management since
1998,
and has
managed investment portfolios since 2019. Education: B.S., University of Dayton;
M.B.A., Tepper School of Business, Carnegie Mellon University.
Project
and Trade Finance Affiliated Fund
Christopher
McGinley
Christopher
P. McGinley, Senior Portfolio Manager, has been the Project and Trade Finance
Affiliated Fund’s portfolio manager
since December of 2009.
Mr.
McGinley
is Head of
the Trade Finance Team and is responsible for day to day management of the
Project and Trade Finance Affiliated Fund focusing on asset allocation, interest
rate strategy and security selection. He has been with Adviser or an affiliate
since 2004; has worked in investment management since 2005; has managed
investment portfolios since 2009. Education: B.S., University of Pittsburgh; and
M.P.I.A., University of Pittsburgh.
The
Fund’s SAI provides additional information about the Fund’s and affiliated
funds’ Portfolio Managers’
compensation,
management of other accounts and ownership of securities in the
Fund.
ADVISORY
FEES
The
Fund’s investment advisory contract provides for payment to the Adviser of an
annual investment advisory fee of 0.30% of
the Fund’s average daily net assets. The Adviser may voluntarily waive a portion
of its fee or reimburse the Fund for certain operating expenses. The Adviser and
its affiliates have also agreed to certain “Fee Limits” as described in the
footnote to the “Risk/Return Summary: Fees and Expenses” table found in the
“Fund Summary” section of the Prospectus.
A
discussion of the Board’s review of the Fund’s investment advisory contract is
available in the Fund’s Annual and
Semi-Annual
Shareholder
Reports for the periods ended August 31 and February 29,
respectively.
Financial
Information
FINANCIAL
HIGHLIGHTS
The
Financial Highlights will help you understand the Fund’s financial performance
for its past five fiscal years. Some of the
information is presented on a per Share basis. Total returns represent the rate
an investor would have earned (or lost) on an investment in the Fund, assuming
reinvestment of any dividends and capital gains.
This
Information has been audited by KPMG LLP, an independent registered public
accounting firm, whose report, along with
the Fund’s audited financial statements, is included in the Annual
Report.
40
Financial
Highlights–Class
A Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended August 31, | ||||
|
|
2023 |
2022 |
2021 |
2020 |
2019 |
|
Net
Asset Value, Beginning of Period |
$9.95 |
$10.69 |
$10.73 |
$10.45 |
$10.13 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss) |
0.21 |
0.13 |
0.11 |
0.18 |
0.22 |
|
Net
realized and unrealized gain (loss) |
(0.10) |
(0.74) |
(0.04) |
0.28 |
0.32 |
|
Total
From Investment Operations |
0.11 |
(0.61) |
0.07 |
0.46 |
0.54 |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.21) |
(0.13) |
(0.11) |
(0.18) |
(0.22) |
|
Net
Asset Value, End of Period |
$9.85 |
$9.95 |
$10.69 |
$10.73 |
$10.45 |
|
Total
Return1 |
1.16% |
(5.77)% |
0.68% |
4.41% |
5.35% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses2 |
0.62% |
0.62% |
0.62% |
0.62% |
0.62% |
|
Net
investment income |
2.13% |
1.24% |
1.06% |
1.18% |
2.10% |
|
Expense
waiver/reimbursement3 |
0.08% |
0.07% |
0.08% |
0.20% |
0.17% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$376,551 |
$680,888 |
$1,420,469 |
$835,680 |
$23,774 |
|
Portfolio
turnover4 |
39% |
22% |
19% |
20% |
33% |
|
1 |
Based
on net asset value, which does not reflect the sales charge, redemption
fee or contingent deferred sales charge, if
applicable. |
|
2 |
Amount
does not reflect net expenses incurred by investment companies in which
the Fund may invest. |
|
3 |
This
expense decrease is reflected in both the net expense and the net
investment income ratios shown above. Amount does not reflect expense
waiver/
reimbursement
recorded by investment companies in which the Fund may
invest. |
|
4 |
Securities
that mature are considered sales for purposes of this
calculation. |
Further information
about the Fund’s performance is contained in the Fund’s Annual Report, dated
August 31, 2023, which can be obtained free of charge.
41
Financial
Highlights–Institutional
Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended August 31, | ||||
|
|
2023 |
2022 |
2021 |
2020 |
2019 |
|
Net
Asset Value, Beginning of Period |
$9.94 |
$10.69 |
$10.72 |
$10.45 |
$10.13 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss) |
0.24 |
0.15 |
0.14 |
0.20 |
0.24 |
|
Net
realized and unrealized gain (loss) |
(0.09) |
(0.75) |
(0.03) |
0.27 |
0.32 |
|
Total
From Investment Operations |
0.15 |
(0.60) |
0.11 |
0.47 |
0.56 |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.24) |
(0.15) |
(0.14) |
(0.20) |
(0.24) |
|
Net
Asset Value, End of Period |
$9.85 |
$9.94 |
$10.69 |
$10.72 |
$10.45 |
|
Total
Return1 |
1.51% |
(5.63)% |
1.03% |
4.58% |
5.61% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses2 |
0.37% |
0.37% |
0.37% |
0.37% |
0.37% |
|
Net
investment income |
2.40% |
1.48% |
1.31% |
1.87% |
2.36% |
|
Expense
waiver/reimbursement3 |
0.10% |
0.10% |
0.10% |
0.16% |
0.15% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$438,864 |
$631,841 |
$560,396 |
$449,201 |
$289,131 |
|
Portfolio
turnover4 |
39% |
22% |
19% |
20% |
33% |
|
1 |
Based
on net asset value. |
|
2 |
Amount
does not reflect net expenses incurred by investment companies in which
the Fund may invest. |
|
3 |
This
expense decrease is reflected in both the net expense and the net
investment income ratios shown above. Amount does not reflect expense
waiver/
reimbursement
recorded by investment companies in which the Fund may
invest. |
|
4 |
Securities
that mature are considered sales for purposes of this
calculation. |
Further information
about the Fund’s performance is contained in the Fund’s Annual Report, dated
August 31, 2023, which can be obtained free of charge.
42
Financial
Highlights–Service
Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended August 31, | ||||
|
|
2023 |
2022 |
2021 |
2020 |
2019 |
|
Net
Asset Value, Beginning of Period |
$9.94 |
$10.68 |
$10.72 |
$10.44 |
$10.12 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss) |
0.21 |
0.13 |
0.11 |
0.19 |
0.21 |
|
Net
realized and unrealized gain (loss) |
(0.10) |
(0.74) |
(0.04) |
0.27 |
0.32 |
|
Total
From Investment Operations |
0.11 |
(0.61) |
0.07 |
0.46 |
0.53 |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.21) |
(0.13) |
(0.11) |
(0.18) |
(0.21) |
|
Net
Asset Value, End of Period |
$9.84 |
$9.94 |
$10.68 |
$10.72 |
$10.44 |
|
Total
Return1 |
1.16% |
(5.77)% |
0.68% |
4.42% |
5.35% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses2 |
0.62% |
0.62% |
0.62% |
0.62% |
0.62% |
|
Net
investment income |
2.15% |
1.23% |
1.05% |
1.62% |
2.10% |
|
Expense
waiver/reimbursement3 |
0.10% |
0.10% |
0.11% |
0.17% |
0.15% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$11,860 |
$14,235 |
$17,757 |
$18,388 |
$12,477 |
|
Portfolio
turnover4 |
39% |
22% |
19% |
20% |
33% |
|
1 |
Based
on net asset value. |
|
2 |
Amount
does not reflect net expenses incurred by investment companies in which
the Fund may invest. |
|
3 |
This
expense decrease is reflected in both the net expense and the net
investment income ratios shown above. Amount does not reflect expense
waiver/
reimbursement
recorded by investment companies in which the Fund may
invest. |
|
4 |
Securities
that mature are considered sales for purposes of this
calculation. |
Further information
about the Fund’s performance is contained in the Fund’s Annual Report, dated
August 31, 2023, which can be obtained free of charge.
43
Financial
Highlights–Class
R6 Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended August 31, | ||||
|
|
2023 |
2022 |
2021 |
2020 |
2019 |
|
Net
Asset Value, Beginning of Period |
$9.94 |
$10.69 |
$10.72 |
$10.45 |
$10.13 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss) |
0.24 |
0.15 |
0.14 |
0.20 |
0.24 |
|
Net
realized and unrealized gain (loss) |
(0.09) |
(0.75) |
(0.03) |
0.27 |
0.32 |
|
Total
From Investment Operations |
0.15 |
(0.60) |
0.11 |
0.47 |
0.56 |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.24) |
(0.15) |
(0.14) |
(0.20) |
(0.24) |
|
Net
Asset Value, End of Period |
$9.85 |
$9.94 |
$10.69 |
$10.72 |
$10.45 |
|
Total
Return1 |
1.52% |
(5.62)% |
1.04% |
4.59% |
5.62% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses2 |
0.36% |
0.36% |
0.36% |
0.36% |
0.36% |
|
Net
investment income |
2.43% |
1.49% |
1.33% |
1.87% |
2.37% |
|
Expense
waiver/reimbursement3 |
0.06% |
0.06% |
0.06% |
0.13% |
0.12% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$214,723 |
$201,845 |
$179,432 |
$76,732 |
$48,105 |
|
Portfolio
turnover4 |
39% |
22% |
19% |
20% |
33% |
|
1 |
Based
on net asset value. |
|
2 |
Amount
does not reflect net expenses incurred by investment companies in which
the Fund may invest. |
|
3 |
This
expense decrease is reflected in both the net expense and the net
investment income ratios shown above. Amount does not reflect expense
waiver/
reimbursement
recorded by investment companies in which the Fund may
invest. |
|
4 |
Securities
that mature are considered sales for purposes of this
calculation. |
Further information
about the Fund’s performance is contained in the Fund’s Annual Report, dated
August 31, 2023, which can be obtained free of charge.
44
Appendix
A: Hypothetical Investment and Expense Information
The
following charts provide additional hypothetical information about the effect of
the Fund’s expenses, including investment advisory fees
and other Fund costs, on the Fund’s assumed returns over a 10-year period. The
charts show the estimated expenses that would be incurred in respect of a
hypothetical investment of $10,000, assuming a 5% return each year, and no
redemption of Shares. Each chart also assumes that the Fund’s annual expense
ratio stays the same throughout the 10-year period and that all dividends and
distributions are reinvested. The annual expense ratio used in each chart is the
same as stated in the “Fees and Expenses” table of this Prospectus (and thus
does not reflect any fee waiver or expense reimbursement currently in effect).
The maximum amount of any sales charge that might be imposed on the purchase of Shares (and deducted
from the hypothetical initial investment of $10,000; the “Front-End Sales
Charge”) is reflected in the “Hypothetical Expenses” column. The hypothetical
investment information does not reflect the effect of charges (if any) normally
applicable to redemptions of Shares (e.g., deferred
sales charges, redemption fees). Mutual fund returns, as well as fees and
expenses, may fluctuate over time, and your actual investment returns and total
expenses may be higher or lower than those shown below.
|
FEDERATED
HERMES SHORT-INTERMEDIATE TOTAL RETURN BOND FUND - A
CLASS | |||||
|
ANNUAL
EXPENSE RATIO: 0.71% | |||||
|
MAXIMUM
FRONT-END SALES CHARGE: 1.00% |
|
|
|
|
|
|
Year |
Hypothetical
Beginning
Investment |
Hypothetical
Performance
Earnings |
Investment
After
Returns |
Hypothetical
Expenses |
Hypothetical
Ending
Investment |
|
1 |
$10,000.00 |
$495.00 |
$10,395.00 |
$171.80 |
$10,324.71 |
|
2 |
$10,324.71 |
$516.24 |
$10,840.95 |
$74.88 |
$10,767.64 |
|
3 |
$10,767.64 |
$538.38 |
$11,306.02 |
$78.09 |
$11,229.57 |
|
4 |
$11,229.57 |
$561.48 |
$11,791.05 |
$81.44 |
$11,711.32 |
|
5 |
$11,711.32 |
$585.57 |
$12,296.89 |
$84.93 |
$12,213.74 |
|
6 |
$12,213.74 |
$610.69 |
$12,824.43 |
$88.58 |
$12,737.71 |
|
7 |
$12,737.71 |
$636.89 |
$13,374.60 |
$92.38 |
$13,284.16 |
|
8 |
$13,284.16 |
$664.21 |
$13,948.37 |
$96.34 |
$13,854.05 |
|
9 |
$13,854.05 |
$692.70 |
$14,546.75 |
$100.47 |
$14,448.39 |
|
10 |
$14,448.39 |
$722.42 |
$15,170.81 |
$104.78 |
$15,068.23 |
|
Cumulative |
|
$6,023.58 |
|
$973.69 |
|
|
FEDERATED
HERMES SHORT-INTERMEDIATE TOTAL RETURN BOND FUND - IS
CLASS | |||||
|
ANNUAL
EXPENSE RATIO: 0.48% | |||||
|
MAXIMUM
FRONT-END SALES CHARGE: NONE | |||||
|
Year |
Hypothetical
Beginning
Investment |
Hypothetical
Performance
Earnings |
Investment
After
Returns |
Hypothetical
Expenses |
Hypothetical
Ending
Investment |
|
1 |
$10,000.00 |
$500.00 |
$10,500.00 |
$49.08 |
$10,452.00 |
|
2 |
$10,452.00 |
$522.60 |
$10,974.60 |
$51.30 |
$10,924.43 |
|
3 |
$10,924.43 |
$546.22 |
$11,470.65 |
$53.62 |
$11,418.21 |
|
4 |
$11,418.21 |
$570.91 |
$11,989.12 |
$56.05 |
$11,934.31 |
|
5 |
$11,934.31 |
$596.72 |
$12,531.03 |
$58.58 |
$12,473.74 |
|
6 |
$12,473.74 |
$623.69 |
$13,097.43 |
$61.23 |
$13,037.55 |
|
7 |
$13,037.55 |
$651.88 |
$13,689.43 |
$63.99 |
$13,626.85 |
|
8 |
$13,626.85 |
$681.34 |
$14,308.19 |
$66.89 |
$14,242.78 |
|
9 |
$14,242.78 |
$712.14 |
$14,954.92 |
$69.91 |
$14,886.55 |
|
10 |
$14,886.55 |
$744.33 |
$15,630.88 |
$73.07 |
$15,559.42 |
|
Cumulative |
|
$6,149.83 |
|
$603.72 |
|
45
|
FEDERATED
HERMES SHORT-INTERMEDIATE TOTAL RETURN BOND FUND - SS
CLASS | |||||
|
ANNUAL
EXPENSE RATIO: 0.73% | |||||
|
MAXIMUM
FRONT-END SALES CHARGE: NONE | |||||
|
Year |
Hypothetical
Beginning
Investment |
Hypothetical
Performance
Earnings |
Investment
After
Returns |
Hypothetical
Expenses |
Hypothetical
Ending
Investment |
|
1 |
$10,000.00 |
$500.00 |
$10,500.00 |
$74.56 |
$10,427.00 |
|
2 |
$10,427.00 |
$521.35 |
$10,948.35 |
$77.74 |
$10,872.23 |
|
3 |
$10,872.23 |
$543.61 |
$11,415.84 |
$81.06 |
$11,336.47 |
|
4 |
$11,336.47 |
$566.82 |
$11,903.29 |
$84.52 |
$11,820.54 |
|
5 |
$11,820.54 |
$591.03 |
$12,411.57 |
$88.13 |
$12,325.28 |
|
6 |
$12,325.28 |
$616.26 |
$12,941.54 |
$91.90 |
$12,851.57 |
|
7 |
$12,851.57 |
$642.58 |
$13,494.15 |
$95.82 |
$13,400.33 |
|
8 |
$13,400.33 |
$670.02 |
$14,070.35 |
$99.91 |
$13,972.52 |
|
9 |
$13,972.52 |
$698.63 |
$14,671.15 |
$104.18 |
$14,569.15 |
|
10 |
$14,569.15 |
$728.46 |
$15,297.61 |
$108.63 |
$15,191.25 |
|
Cumulative |
|
$6,078.76 |
|
$906.45 |
|
|
FEDERATED
HERMES SHORT-INTERMEDIATE TOTAL RETURN BOND FUND - R6
CLASS | |||||
|
ANNUAL
EXPENSE RATIO: 0.44% | |||||
|
MAXIMUM
FRONT-END SALES CHARGE: NONE | |||||
|
Year |
Hypothetical
Beginning
Investment |
Hypothetical
Performance
Earnings |
Investment
After
Returns |
Hypothetical
Expenses |
Hypothetical
Ending
Investment |
|
1 |
$10,000.00 |
$500.00 |
$10,500.00 |
$45.00 |
$10,456.00 |
|
2 |
$10,456.00 |
$522.80 |
$10,978.80 |
$47.06 |
$10,932.79 |
|
3 |
$10,932.79 |
$546.64 |
$11,479.43 |
$49.20 |
$11,431.33 |
|
4 |
$11,431.33 |
$571.57 |
$12,002.90 |
$51.44 |
$11,952.60 |
|
5 |
$11,952.60 |
$597.63 |
$12,550.23 |
$53.79 |
$12,497.64 |
|
6 |
$12,497.64 |
$624.88 |
$13,122.52 |
$56.24 |
$13,067.53 |
|
7 |
$13,067.53 |
$653.38 |
$13,720.91 |
$58.81 |
$13,663.41 |
|
8 |
$13,663.41 |
$683.17 |
$14,346.58 |
$61.49 |
$14,286.46 |
|
9 |
$14,286.46 |
$714.32 |
$15,000.78 |
$64.29 |
$14,937.92 |
|
10 |
$14,937.92 |
$746.90 |
$15,684.82 |
$67.23 |
$15,619.09 |
|
Cumulative |
|
$6,161.29 |
|
$554.55 |
|
46
Appendix
B: Sales Charge Waivers and Exchange Features for Shareholders Purchasing
Through Certain Financial Intermediaries
The
term “fund family,” used herein, shall refer to the Federated Hermes mutual
funds.
The
following Appendix applies to certain share classes offered by the
Fund.
Ameriprise
Financial
CLASS
A SHARES FRONT-END SALES CHARGE WAIVERS AVAILABLE AT AMERIPRISE
FINANCIAL:
The
following information applies to Class A shares purchases if you have an account
with or otherwise purchase Fund shares through Ameriprise Financial:
Effective
January 15, 2021, shareholders purchasing Fund shares through an Ameriprise
Financial retail brokerage account
are eligible for the following front-end sales charge waivers, which may differ
from those disclosed elsewhere in this Fund’s prospectus or SAI:
◾ Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b)
plans, profit sharing and money purchase pension plans and defined benefit
plans). For purposes of this provision, employer-sponsored retirement plans do
not include SEP IRAs, Simple IRAs or SAR-SEPs.
◾ Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same Fund (but not any other fund
within the same fund family).
◾ Shares
exchanged from Class C shares of the same fund in the month of or following the
7-year anniversary of the purchase date. To the extent that this prospectus
elsewhere provides for a waiver with respect to exchanges of Class C shares or
conversion of Class C shares following a shorter holding period, that waiver
will apply.
◾ Employees
and registered representatives of Ameriprise Financial or its affiliates and
their immediate family members.
◾ Shares
purchased by or through qualified accounts (including IRAs, Coverdell Education
Savings Accounts, 401(k)s, 403(b) TSCAs subject to ERISA and defined benefit
plans) that are held by a covered family member, defined as an Ameriprise
financial advisor and/or the advisor’s spouse, advisor’s lineal ascendant
(mother, father, grandmother, grandfather, great grandmother, great
grandfather), advisor’s lineal descendant (son, step-son, daughter,
step-daughter, grandson, granddaughter, great grandson, great granddaughter) or
any spouse of a covered family member who is a lineal descendant.
◾ Shares
purchased from the proceeds of redemptions within the same fund family, provided
(1) the repurchase occurs within 90 days following the redemption, (2) the
redemption and purchase occur in the same account, and (3) redeemed shares were
subject to a front-end or deferred sales load (i.e., Rights of
Reinstatement).
Robert
W. Baird & Co., Inc.
Effective
June 15, 2020, shareholders purchasing Fund shares through a Baird platform or
account will only be eligible for the
following sales charge waivers (front-end sales charge waivers and CDSC waivers)
and discounts, which may differ from those disclosed elsewhere in this
prospectus or the SAI.
Front-End
Sales Charge Waivers on Investors A-shares Available at Baird
◾ Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing share of the same fund;
◾ Share
purchase by employees and registered representatives of Baird or its affiliate
and their family members as designated by Baird;
◾ Shares
purchase from the proceeds of redemptions within the same fund family, provided:
(1) the repurchase occurs within 90 days following the redemption; (2) the
redemption and purchase occur in the same accounts; and (3) redeemed shares were
subject to a front-end or deferred sales charge (known as rights of
reinstatement);
◾ Class C
(i.e., level-load) shares that are no longer subject to a CDSC and are exchanged
to Class A shares (or the appropriate share class) of the same fund pursuant to
Baird’s intra-fund share class policies and procedures;
◾ Employer-sponsored
retirement plans or charitable accounts in a transactional brokerage account at
Baird, including 401(k) plans, 457 plans, employer-sponsored 403(b) plans,
profit sharing and money purchase pension plans and defined benefit plans. For
purposes of this provision, employer-sponsored retirement plans do not include
SEP IRAs, Simple IRAs or SAR-SEPs.
47
CDSC
Waivers on Investor A and C Shares Available at Baird
◾ Shares
sold upon the death or disability of the shareholder;
◾ Shares
sold as part of a systematic withdrawal plan as described in the Fund’s
Prospectus;
◾ Shares
bought due to returns of excess contributions from an IRA Account;
◾ Shares
sold as part of a required minimum distribution for IRA and retirement accounts
pursuant to the Internal Revenue Code;
◾ Shares
sold to pay Baird fees but only if the transaction is initiated by
Baird;
◾ Shares
acquired through a right of reinstatement.
Front-End
Sales Charge Discounts Available at Baird: Breakpoints and/or Rights of
Accumulations
◾ Breakpoints
as described in this prospectus;
◾ Rights of
accumulations which entitles shareholders to breakpoint discounts will be
automatically calculated based on the aggregated holding of fund family assets
held by accounts within the purchaser’s household at Baird. Eligible fund family
assets not held at Baird may be included in the rights of accumulations
calculation only if the shareholder notifies his or her financial advisor about
such assets;
◾ Letters of
Intent (LOI) allow for breakpoint discounts based on anticipated purchases
within a fund family through Baird, over a 13-month period of time.
Edward
D. Jones & Co., L.P. (EDWARD JONES)
Policies
Regarding Transactions Through Edward Jones
Effective
on or after March 1, 2021, the following information supersedes prior
information with respect to transactions and
positions held in fund shares through an Edward Jones system. Shareholders
purchasing Fund shares on the Edward Jones commission and fee-based platforms
are eligible only for the following sales charge waivers (front-end sales charge
waivers and contingent deferred sales charge (CDSC), or back-end sales charge,
waivers) and discounts, which may differ from those disclosed elsewhere in this
Fund’s prospectus or statement of additional information (SAI). In all
instances, it is the shareholder’s responsibility to inform Edward Jones at the
time of purchase of any relationship, holdings of fund family, or other facts
qualifying the purchaser for waivers or discounts. Edward Jones can ask for
documentation of such circumstance. Shareholders should contact Edward Jones if
they have questions regarding their eligibility for these discounts and
waivers.
Front-End
Sales Load Waivers on Class A and F Shares Available at Edward Jones
Sales
charges are waived for the following shareholders and in the following
situations:
◾ Associates
of Edward Jones and its affiliates and their family members who are in the same
pricing group (as determined by Edward Jones under its policies and procedures)
as the associate. This waiver will continue for the remainder of the associate’s
life if the associate retires from Edward Jones in good-standing and remains in
good standing pursuant to Edward Jones’ policies and procedures.
◾ Shares
purchased in an Edward Jones fee-based program.
◾ Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment.
◾ Shares
purchased from the proceeds of redeemed shares of the same fund family so long
as the following conditions are met: 1) the proceeds are from the sale of shares
within 60 days of the purchase, and 2) the sale and purchase are made in the
same share class and the same account or the purchase is made in an individual
retirement account with proceeds from liquidations in a non-retirement
account.
◾ Shares
exchanged into Class A shares from another share Class so long as the exchange
is into the same fund and was initiated at the discretion of Edward Jones.
Edward Jones is responsible for any remaining CDSC due to the fund company, if
applicable. Any future purchases are subject to the applicable sales charge as
disclosed in the prospectus.
◾ Exchanges
from Class C shares to Class A shares of the same fund, generally, in the 84th
month following the anniversary of the purchase date or earlier at the
discretion of Edward Jones. Edward Jones will be responsible for any remaining
CDSC due to the fund company, if applicable.
CDSC
Waivers on A, B, C and F Shares Available at Edward Jones
If
the shareholder purchases shares that are subject to a CDSC and those shares are
redeemed before the CDSC is expired,
the shareholder will be responsible to pay the CDSC except in the following
conditions:
◾ Shares
sold upon the death or disability of the shareholder.
◾ Shares
sold as part of a systematic withdrawal plan (limited to up to 10% per year of
the account value).
◾ Return of
excess contributions from an Individual Retirement Account (IRA).
48
◾ Shares
sold as part of a required minimum distribution for IRA and retirement accounts
if the redemption is taken in or after the year the shareholder reaches
qualified age based on applicable IRS regulations.
◾ Shares
sold to pay Edward Jones fees or costs in such cases where the transaction is
initiated by Edward Jones.
◾ Shares
exchanged in an Edward Jones fee-based program. Edward Jones is responsible for
any remaining CDSC due to the fund company, if applicable.
◾ Shares
acquired through a right of reinstatement.
◾ Shares
redeemed at the discretion of Edward Jones for Minimum Balances, as described
below.
Front-End
Load Discounts Available at Edward Jones:
Rights
of Accumulation (ROA)
◾ The
applicable sales charge on a purchase of Class A shares is determined by taking
into account all share classes (except certain money market funds and any assets
held in group retirement plans) of the fund family held by the shareholder or in
an account grouped by Edward Jones with other accounts for the purpose of
providing certain pricing considerations (“pricing groups”). If grouping assets
as a shareholder, this includes all share classes held on the Edward Jones
platform and/or held on another platform. The inclusion of eligible fund family
assets in the ROA calculation is dependent on the shareholder notifying Edward
Jones of such assets at the time of calculation. Money market funds are included
only if such shares were sold with a sales charge at the time of purchase or
acquired in exchange for shares purchased with a sales charge.
◾ The
employer maintaining a SEP IRA plan and/or SIMPLE IRA plan may elect to
establish or change ROA for the IRA accounts associated with the plan to a
plan-level grouping as opposed to including all share classes at a shareholder
or pricing group level.
◾ ROA is
determined by calculating the higher of cost minus redemptions or market value
(current shares x NAV).
Letter
of Intent (LOI)
◾ Through a
LOI, shareholders can receive the sales charge and breakpoint discounts for
purchases shareholders intend to make over a 13-month period from the date
Edward Jones receives the LOI. The LOI is determined by calculating the higher
of cost or market value of qualifying holdings at LOI initiation in combination
with the value that the shareholder intends to buy over a 13-month period to
calculate the front-end sales charge and any breakpoint discounts. Each purchase
the shareholder makes during that 13-month period will receive the sales charge
and breakpoint discount that applies to the total amount. The inclusion of
eligible fund family assets in the LOI calculation is dependent on the
shareholder notifying Edward Jones of such assets at the time of calculation.
Purchases made before the LOI is received by Edward Jones are not adjusted under
the LOI and will not reduce the sales charge previously paid. Sales charges will
be adjusted if LOI is not met.
◾ If the
employer maintaining a SEP IRA plan and/or SIMPLE IRA plan has elected to
establish or change ROA for the IRA accounts associated with the plan to a
plan-level grouping, LOIs will also be at the plan-level and may only be
established by the employer.
Other
Important Information REGARDING TRANSACTIONS THROUGH EDWARD JONES
Minimum
Purchase Amounts
◾ Initial
purchase minimum: $250
◾ Subsequent
purchase minimum: none
Minimum
Balances
◾ Edward
Jones has the right to redeem at its discretion fund holdings with a balance of
$250 or less. The following are examples of accounts that are not included in
this policy:
◾ A
fee-based account held on an Edward Jones platform
◾ A 529
account held on an Edward Jones platform
◾ An account
with an active systematic investment plan or LOI
Exchanging
Share Classes
◾ At any
time it deems necessary, Edward Jones has the authority to exchange at NAV a
shareholder’s holdings in a fund to Class A shares of the same fund.
49
Janney
Montgomery Scott LLC
Effective
May 1, 2020, if you purchase or redeem Fund shares through a Janney Montgomery
Scott LLC (“Janney”) brokerage
account, you will be eligible for the following load waivers (front-end sales
charge waivers and contingent deferred sales charge (CDSC), or back-end sales
charge, waivers) and discounts, which may differ from those disclosed elsewhere
in this Fund’s Prospectus or SAI.
Front-end
sales charge waivers on Class A Shares available at Janney
◾ Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same fund (but not any other fund
within the fund family).
◾ Shares
purchased by employees and registered representatives of Janney or its
affiliates and their family members as designated by Janney.
◾ Shares
purchased from the proceeds of redemptions within the same fund family,
provided: (1) the repurchase occurs within ninety (90) days following the
redemption; (2) the redemption and purchase occur in the same account; and (3)
redeemed shares were subject to a front-end or deferred sales load (i.e., right
of reinstatement).
◾ Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b)
plans, profit sharing and money purchase pension plans and defined benefit
plans). For purposes of this provision, employer-sponsored retirement plans do
not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans.
◾ Shares
acquired through a right of reinstatement.
◾ Class C
shares that are no longer subject to a contingent deferred sales charge and are
exchanged to Class A shares (or the appropriate share class) of the same fund
pursuant to Janney’s intra-fund share class policies and procedures.
CDSC
Waivers on Class A and C Shares available at Janney
◾ Shares
sold upon the death or disability of the shareholder.
◾ Shares
sold as part of a systematic withdrawal plan as described in the fund’s
Prospectus.
◾ Shares
purchased in connection with a return of excess contributions from an IRA
account.
◾ Shares
sold as part of a required minimum distribution for IRA and retirement accounts
if the redemption is taken in or after the year the shareholder reaches
qualified age based on applicable IRS regulations.
◾ Shares
sold to pay Janney fees but only if the transaction is initiated by
Janney.
◾ Shares
acquired through a right of reinstatement.
◾ Shares
exchanged into the same share class of a different Federated Hermes fund, if the
shares were held for the applicable CDSC holding period (the holding period on
the shares purchased in the exchange will include the holding period of the
shares sold in the exchange).
Front-end
sales charge discounts available at Janney: Breakpoints, Rights of Accumulation,
and/or Letters of Intent
◾ Breakpoints
as described in the fund’s Prospectus.
◾ Rights of accumulation
(ROA), which entitle shareholders to breakpoint discounts, will be automatically
calculated based on the aggregated holding of fund family assets held by
accounts within the purchaser’s household at Janney. Eligible fund family assets
not held at Janney may be included in the ROA calculation only if the
shareholder notifies his or her financial advisor about such assets.
◾ Letters of
intent which allow for breakpoint discounts based on anticipated purchases
within a fund family, over a 13-month time period. Eligible fund family assets
not held at Janney may be included in the calculation of letters of intent only
if the shareholder notifies his or her financial advisor about such
assets.
J.P.
Morgan Securities LLC
Effective September 29,
2023, if you purchase or hold Fund shares through an applicable J.P. Morgan
Securities LLC brokerage account, you will be eligible for the following sales
charge waivers (front-end sales charge waivers and contingent deferred sales
charge (CDSC), or back-end sales charge, waivers), share class conversion policy
and discounts, which may differ from those disclosed elsewhere in this Fund’s
prospectus or SAI.
Front-end sales
charge waivers on Class A shares available at J.P. Morgan Securities
LLC
◾ Shares exchanged from
Class C (i.e., level-load) shares that are no longer subject to a CDSC and are
exchanged into Class A shares of the same fund pursuant to J.P. Morgan
Securities LLC’s share class exchange policy.
◾ Qualified
employer-sponsored defined contribution and defined benefit retirement plans,
nonqualified deferred compensation plans, other employee benefit plans and
trusts used to fund those plans. For purposes of this provision, such plans do
not include SEP IRAs, SIMPLE IRAs, SAR-SEPs or 501(c)(3) accounts.
◾ Shares of funds purchased
through J.P. Morgan Securities LLC Self-Directed Investing accounts.
50
◾ Shares purchased through
rights of reinstatement.
◾ Shares purchased through
reinvestment of capital gains distributions and dividend reinvestment when
purchasing shares of the same fund (but not any other fund within the fund
family).
◾ Shares purchased by
employees and registered representatives of J.P. Morgan Securities LLC or its
affiliates and their spouse or financial dependent as defined by J.P. Morgan
Securities LLC.
Class C to Class
A share conversion
◾ A shareholder in the
Fund’s Class C shares will have their shares converted by J.P. Morgan Securities
LLC to Class A shares (or the appropriate share class) of the same fund if the
shares are no longer subject to a CDSC and the conversion is consistent with
J.P. Morgan Securities LLC’s policies and procedures.
CDSC waivers on
Class A and C shares available at J.P. Morgan Securities LLC
◾ Shares sold upon the death
or disability of the shareholder.
◾ Shares sold as part of a
systematic withdrawal plan as described in the Fund’s prospectus.
◾ Shares purchased in
connection with a return of excess contributions from an IRA
account.
◾ Shares sold as part of a
required minimum distribution for IRA and retirement accounts pursuant to the
Internal Revenue Code.
◾ Shares acquired through a
right of reinstatement.
Front-end load
discounts available at J.P. Morgan Securities LLC: breakpoints, rights of
accumulation & letters of intent
◾ Breakpoints as described
in the prospectus.
◾ Rights of Accumulation
(ROA) which entitle shareholders to breakpoint discounts as described in the
Fund’s prospectus will be automatically calculated based on the aggregated
holding of fund family assets held by accounts within the purchaser’s household
at J.P. Morgan Securities LLC. Eligible fund family assets not held at J.P.
Morgan Securities LLC (including 529 program holdings, where applicable) may be
included in the ROA calculation only if the shareholder notifies their financial
advisor about such assets.
◾ Letters of Intent (LOI)
which allow for breakpoint discounts based on anticipated purchases within a
fund family, through J.P. Morgan Securities LLC, over a 13-month period of time
(if applicable).
Merrill
Lynch
Shareholders
purchasing Fund shares through a Merrill Lynch platform or account will be
eligible only for the following
load waivers (front-end sales charge waivers and contingent deferred, or
back-end, sales charge waivers) and discounts, which may differ from those
disclosed elsewhere in this Fund’s prospectus or SAI.
Front-end
Sales Load Waivers on Class A Shares available at Merrill Lynch
◾ Employer-sponsored
retirement, deferred compensation and employee benefit plans (including health
savings accounts) and trusts used to fund those plans, provided that the shares
are not held in a commission-based brokerage account and shares are held for the
benefit of the plan;
◾ Shares
purchased by a 529 Plan (does not include 529 Plan units or 529-specific share
classes or equivalents);
◾ Shares
purchased through a Merrill Lynch affiliated investment advisory program or
exchanged due to the holdings moving from the program;
◾ Shares
exchanged due to the holdings moving from a Merrill Lynch affiliated investment
advisory program to a Merrill Lynch brokerage (non-advisory) account pursuant to
Merrill Lynch’s policies relating to sales load discounts and
waivers;
◾ Shares
purchased by third party investment advisors on behalf of their advisory clients
through Merrill Lynch’s platform;
◾ Shares of
funds purchased through the Merrill Edge Self-Directed platform (if
applicable);
◾ Shares
purchased through reinvestment of capital gains distributions and dividend
reinvestment when purchasing shares of the same fund (but not any other fund
within the fund family);
◾ Shares
exchanged from Class C (i.e., level-load) shares of the same fund pursuant to
Merrill Lynch’s policies relating to sales load discounts and
waivers;
◾ Employees
and registered representatives of Merrill Lynch or its affiliates and their
family members;
◾ Directors
or Trustees of the Fund, and employees of the Fund’s investment adviser or any
of its affiliates, as described in the prospectus;
51
◾ Eligible
shares purchased from the proceeds of redemptions within the same fund family,
provided: (1) the repurchase occurs within 90 days following the redemption; (2)
the redemption and purchase occur in the same account; and (3) redeemed shares
were subject to a front-end or deferred sales load (known as Rights of
Reinstatement). Automated transactions (i.e., systematic purchases and
withdrawals) and purchases made after shares are automatically sold to pay
Merrill Lynch’s account maintenance fees are not eligible for
reinstatement.
CDSC
Waivers on A, B and C Shares available at Merrill Lynch
◾ Death or
disability of the shareholder;
◾ Shares
sold as part of a systematic withdrawal plan as described in the Fund’s
prospectus;
◾ Return of
excess contributions from an IRA Account;
◾ Shares
sold as part of a required minimum distribution for IRA and retirement accounts
pursuant to the Internal Revenue Code;
◾ Shares
sold to pay Merrill Lynch fees but only if the transaction is initiated by
Merrill Lynch;
◾ Shares
acquired through a right of reinstatement;
◾ Shares
held in retirement brokerage accounts, that are exchanged for a lower cost share
class due to transfer to certain fee based accounts or platforms (applicable to
A and C shares only);
◾ Class A
Shares received through an exchange due to the holdings moving from a Merrill
Lynch affiliated investment advisory program to a Merrill Lynch brokerage
(non-advisory) account pursuant to Merrill Lynch’s policies relating to sales
load discounts and waivers.
Front-end
load Discounts Available at Merrill Lynch:
Breakpoints, Rights of Accumulation & Letters of Intent
Breakpoints, Rights of Accumulation & Letters of Intent
◾ Breakpoints
as described in this prospectus;
◾ Rights of
Accumulation (ROA) which entitle shareholders to breakpoint discounts as
described in the Fund’s prospectus will be automatically calculated based on the
aggregated holding of fund family assets held by accounts (including 529 program
holdings, where applicable) within the purchaser’s household at Merrill Lynch.
Eligible fund family assets not held at Merrill Lynch may be included in the ROA
calculation only if the shareholder notifies his or her financial advisor about
such assets;
◾ Letters of
Intent (LOI) which allow for breakpoint discounts based on anticipated purchases
within a fund family, through Merrill Lynch, over a 13-month period of time (if
applicable).
Morgan
Stanley Smith Barney
Shareholders
purchasing Fund shares through a Morgan Stanley Wealth Management transactional
brokerage account will be
eligible only for the following front-end sales charge waivers with respect to
Class A shares, which may differ from and may be more limited than those
disclosed elsewhere in this Fund’s Prospectus or SAI.
Front-End
Sales Charge Waivers on Class A Shares Available at Morgan Stanley Wealth
Management
◾ Employer-sponsored
retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b)
plans, profit sharing and money purchase pension plans and defined benefit
plans). For purposes of this provision, employer-sponsored retirement plans do
not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans;
◾ Morgan
Stanley employee and employee-related accounts according to Morgan Stanley’s
account linking rules;
◾ Shares
purchased through reinvestment of dividends and capital gains distributions when
purchasing shares of the same fund;
◾ Shares
purchased through a Morgan Stanley self-directed brokerage account;
◾ Class C
(i.e., level-load) shares that are no longer subject to a contingent deferred
sales charge and are exchanged to Class A shares of the same fund pursuant to
Morgan Stanley Wealth Management’s intra-fund share class exchange
program;
◾ Shares
purchased from the proceeds of redemptions within the same fund family, provided
(i) the repurchase occurs within 90 days following the redemption, (ii) the
redemption and purchase occur in the same account, and (iii) redeemed shares
were subject to a front-end or deferred sales charge.
OPPENHEIMER
& CO., INC.
Effective
May 1, 2020, shareholders purchasing Fund shares through an Oppenheimer &
Co., Inc. (OPCO) platform or account
are eligible only for the following load waivers (front-end sales charge waivers
and contingent deferred, or back-end, sales charge waivers) and discounts, which
may differ from those disclosed elsewhere in this Fund’s prospectus or
SAI.
52
Front-end
Sales Load Waivers on Class A Shares available at OPCO
◾ Employer-sponsored
retirement, deferred compensation and employee benefit plans (including health
savings accounts) and trusts used to fund those plans, provided that the shares
are not held in a commission-based brokerage account and shares are held for the
benefit of the plan
◾ Shares
purchased by or through a 529 Plan
◾ Shares
purchased through an OPCO affiliated investment advisory program
◾ Shares
purchased through reinvestment of dividends and capital gains distributions when
purchasing shares of the same fund (but not any other fund within the fund
family)
◾ Shares
purchased from the proceeds of redemptions within the same fund family,
provided: (1) the repurchase occurs within 90 days following the redemption; (2)
the redemption and purchase occur in the same account; and (3) redeemed shares
were subject to a front-end or deferred sales load (known as Rights of
Reinstatement).
◾ A
shareholder in the Fund’s Class C shares will have their shares automatically
exchanged at net asset value to Class A shares (or the appropriate share class)
of the Fund if the shares are no longer subject to a CDSC and the automatic
exchange is in line with the policies and procedures of OPCO
◾ Employees
and registered representatives of OPCO or its affiliates and their family
members
◾ Directors
or Trustees of the Fund, and employees of the Fund’s investment adviser or any
of its affiliates, as described in this prospectus
CDSC
Waivers on A, B and C Shares available at OPCO
◾ Death or
disability of the shareholder
◾ Shares
sold as part of a systematic withdrawal plan as described in the Fund’s
prospectus
◾ Return of
excess contributions from an IRA Account
◾ Shares
sold as part of a required minimum distribution for IRA and retirement accounts
pursuant to the Internal Revenue Code
◾ Shares
sold to pay OPCO fees but only if the transaction is initiated by
OPCO
◾ Shares
acquired through a right of reinstatement
Front-end
load Discounts Available at OPCO: Breakpoints, Rights of Accumulation &
Letters of Intent
◾ Breakpoints
as described in this prospectus.
◾ Rights of
Accumulation (ROA), which entitle shareholders to breakpoint discounts, will be
automatically calculated based on the aggregated holding of fund family assets
held by accounts within the purchaser’s household at OPCO. Eligible fund family
assets not held at OPCO may be included in the ROA calculation only if the
shareholder notifies his or her financial advisor about such assets
Raymond
James & Associates, Inc., Raymond James Financial Services, Inc. and each
entity’s affiliates (“Raymond James”)
Effective
March 1, 2019, shareholders purchasing and redeeming Fund shares through a
Raymond James platform or account,
or through an introducing broker-dealer or independent registered investment
adviser for which Raymond James provides trade execution, clearance, and/or
custody services, will be eligible only for the following load waivers
(front-end sales charge waivers and contingent deferred, or back-end, sales
charge waivers) and discounts, which may differ from those disclosed elsewhere
in this Fund’s prospectus or SAI.
Front-End
Sales Load Waivers on Class A Shares Available at Raymond James
◾ Shares
purchased in an investment advisory program.
◾ Shares
purchased within the same fund family through a systematic reinvestment of
capital gains and dividend distributions.
◾ Employees
and registered representatives of Raymond James or its affiliates and their
family members as designated by Raymond James.
◾ Shares
purchased from the proceeds of redemptions within the same fund family,
provided: (1) the repurchase occurs within 90 days following the redemption; (2)
the redemption and purchase occur in the same account; and (3) redeemed shares
were subject to a front-end or deferred sales load (known as Rights of
Reinstatement).
◾ A
shareholder in the Fund’s Class C shares will have their shares automatically
exchanged at net asset value to Class A shares (or the appropriate share class)
of the Fund if the shares are no longer subject to a CDSC and the automatic
exchange is in line with the policies and procedures of Raymond
James.
53
CDSC
Waivers on A, B and C Shares Available at Raymond James
◾ Death or
disability of the shareholder.
◾ Shares
sold as part of a systematic withdrawal plan as described in the fund’s
prospectus.
◾ Return of
excess contributions from an IRA Account.
◾ Shares
sold as part of a required minimum distribution for IRA and retirement accounts
due to the shareholder reaching the qualified age based on applicable IRS
regulations as described in the fund’s prospectus.
◾ Shares
sold to pay Raymond James fees but only if the transaction is initiated by
Raymond James.
◾ Shares
acquired through a right of reinstatement.
Front-End
Load Discounts Available at Raymond James: Breakpoints, Rights of Accumulation,
and/or Letters of Intent
◾ Breakpoints
as described in this prospectus;
◾ Rights of
accumulation which entitle shareholders to breakpoint discounts will be
automatically calculated based on the aggregated holding of fund family assets
held by accounts within the purchaser’s household at Raymond James. Eligible
fund family assets not held at Raymond James may be included in the calculation
of rights of accumulation only if the shareholder notifies his or her financial
advisor about such assets.
◾ Letters of
Intent which allow for breakpoint discounts based on anticipated purchases
within a fund family, over a 13-month time period. Eligible fund family assets
not held at Raymond James may be included in the calculation of letters of
intent only if the shareholder notifies his or her financial advisor about such
assets.
Stifel,
Nicolaus & Company, Incorporated
Effective
July 1, 2020, shareholders purchasing Fund shares through a Stifel, Nicolaus
& Company, Incorporated (“Stifel”)
platform or account or who own shares for which Stifel or an affiliate is the
broker-dealer of record are eligible for the following additional sales charge
waiver.
Front-End
Sales Load Waiver on Class A Shares
◾ Class C
shares that have been held for more than seven (7) years will be converted to
Class A shares of the same Fund pursuant to Stifel’s policies and
procedures
All other
sales charge waivers and reductions described elsewhere in the Fund’s Prospectus
or SAI still apply.
U.S.
Bancorp Investments, Inc.
Effective
November 1, 2021, shareholders purchasing Fund shares through a U.S. Bancorp
Investments, Inc. (USBI) platform or who own
shares for which USBI is the broker-dealer, where the shares are held in an
omnibus account, will be eligible for the following front-end sales charge
waivers and discounts, which may differ from those disclosed elsewhere in the
Funds’ Prospectus or SAI. All other sales charge waivers and reductions
described elsewhere in the Fund’s Prospectus or SAI still apply.
USBI
Conversion of Class C Shares
Class
C (i.e., level-load) shares that are no longer subject to a contingent deferred
sales charge are systematically converted
to the Class A shares of the same fund pursuant to USBI’s intra-fund share class
policy. No front-end sales charge will apply to such
conversions.
54
An SAI dated October 31,
2023, is incorporated by reference into this Prospectus. Additional information
about the Fund and its investments is contained in the Fund’s SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report’s Management’s Discussion of Fund Performance discusses market conditions
and investment strategies that significantly affected the Fund’s performance
during its last fiscal year. The SAI contains a description of the Fund’s
policies and procedures with respect to the disclosure of its portfolio
securities. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and to make inquiries, call your financial
intermediary or the Fund at 1-800-341-7400.
The Fund’s shareholder
reports will be made available on FederatedHermes.com/us/FundInformation, and
you will be notified and provided with a link each time a report is posted to
the website. You may request to receive paper reports from the Fund or from your
financial intermediary, free of charge, at any time. You may also request to
receive documents through e-delivery.
These documents, as well
as additional information about the Fund (including portfolio holdings,
performance and distributions), are also available on
FederatedHermes.com/us.
You can
obtain information about the Fund (including the SAI) by accessing Fund
information from the EDGAR Database on the SEC’s website at sec.gov. You can
purchase copies of this information by contacting the SEC by email at
[email protected].
Federated Hermes
Short-Intermediate Total Return Bond Fund
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at
FederatedHermes.com/us
or call 1-800-341-7400.
or call 1-800-341-7400.
Federated Securities
Corp., Distributor
Investment
Company Act File No. 811-7193
CUSIP
31420B870
CUSIP 31420B607
CUSIP 31420B508
CUSIP 31420B862
CUSIP 31420B607
CUSIP 31420B508
CUSIP 31420B862
33330
(10/23)
© 2023 Federated Hermes,
Inc.