Prospectus
Disclosure
contained herein relates to all classes of the Fund, as listed below, unless
otherwise noted.
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Share
Class | Ticker |
Institutional | FSGVX |
Service | FSGIX |
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Federated Hermes Short-Term Government Fund
A Portfolio of Federated Hermes Short-Term Government Trust
A mutual
fund seeking to provide current income by investing in a portfolio generally
consisting of U.S. Treasury securities and U.S. government agency securities
with maturities of not less than one year and not more than three years, and
related derivative contracts.
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 |
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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IS |
SS |
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Management
Fee |
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Distribution
(12b-1) Fee |
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Other
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
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Share
Class |
1
Year |
3
Years |
5
Years |
10
Years |
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IS |
$ |
$ |
$ |
$ |
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SS |
$ |
$ |
$ |
$ |
1
■ 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.
■ 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. These features 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, 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. Infrequent trading of securities may also lead to an
increase in their 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 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.
2
■ 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.
■ 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.
■ 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, liquidity and
leverage risks.
■ Risk
of Investing in Inflation-Protected Securities. The value
of inflation-protected securities is subject to the effects of changes in market
interest rates caused by factors other than inflation (“real interest rates”).
If interest rates rise due to reasons other than inflation, the Fund’s
investment in these securities may not be protected to the extent that the
increase is not reflected in the security’s inflation measure. Generally, when
real interest rates rise, the value of inflation-protected securities will fall
and the Fund’s value may decline as a result of this exposure to these
securities. The greatest risk occurs when interest rates rise and inflation
declines.
■ Prepayment
and Extension Risk. When
homeowners prepay their mortgages in response to lower interest rates, the Fund
will be required to reinvest the proceeds at the lower interest rates available.
Also, when interest rates fall, the price of mortgage-backed securities may not
rise to as great an extent as that of 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.
■ 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.
■ Mortgage-Backed
Securities (MBS) Risk. Mortgage-backed
securities (MBS) have unique risks. A rise in interest rates may cause the value
of MBS held by the Fund to decline. MBS are subject to the risk that payments
made on a security will not be made when due. Certain MBS issued by U.S.
government-sponsored enterprises are not backed by the full faith and credit of
the U.S. government.
■ Large
Shareholder Risk. A significant percentage
of the Fund’s shares may be owned or controlled by a large shareholder, such as
other funds or accounts, including those of which the Adviser or an affiliate of
the Adviser may have investment discretion. Accordingly, the Fund can be subject
to the potential for large scale inflows and outflows as a result of purchases
and redemptions made by significant shareholders. These inflows and outflows
could be significant and, if frequently occurring, could negatively affect the
Fund’s net asset value and performance and could cause the Fund to buy or sell
securities at inopportune times in order to meet purchase or redemption
requests.
■ 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.
3
The
Fund’s IS class total return for the three-month period from January 1, 2024 to
March 31, 2024, was 0.42%.
Within
the periods shown in the bar chart, the Fund’s IS class highest quarterly return
was 2.48% (quarter ended December 31, 2023). Its lowest quarterly return was
(2.43)% (quarter ended March 31, 2022).
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Share
Class |
1
Year |
5
Years |
10
Years |
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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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( |
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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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ICE
BofA 1-3 Year US Treasury Index1
(reflects
no deduction for fees, expenses or taxes) |
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Morningstar
Short Government Funds Average2 |
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1
2
FUND
MANAGEMENT
The Fund’s
Investment Adviser is Federated Investment Management Company.
J. Andrew
Kirschler, Portfolio Manager, has been the Fund’s portfolio manager since July
of 2013.
Todd A.
Abraham, CFA, Senior Portfolio Manager, has been the Fund’s portfolio manager
since April of 2017.
4
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.
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.
Tax
Information
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.
Payments
to Broker-Dealers and Other Financial Intermediaries
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.
What are
the Fund’s Investment Strategies?
The
Fund’s investment objective is to provide current income. While there is no
assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the principal strategies and policies described
in this Prospectus. The Fund’s Statement of Additional Information (SAI)
provides information about the Fund’s non-principal strategies.
The
Fund is intended to provide returns consistent with investments in short-term
obligations of the U.S. government and its agencies and
instrumentalities. The Fund’s overall strategy is therefore to invest in a
portfolio generally consisting of U.S. Treasury securities and U.S. government
agency securities with maturities of not less than one year and not more than
three years, and related derivative contracts. The Fund may also invest in bonds
issued by banks and guaranteed by the Federal Deposit Insurance Corporation
(FDIC). 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 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.
The
Adviser’s securities analysis considers, among other factors, the historical and
expected performance of securities relative
to their risks. Performance includes the potential for appreciation, as well as
a security’s expected yield. The analysis also considers: (a) the relative yield
changes between U.S. government and government agency securities; and (b) some
or all of the risks described below.
The
Adviser evaluates the investment strategy by comparing the performance and
composition of the Fund’s portfolio to the performance and
composition of the ICE BofA 1-3 Year US Treasury Index, an index composed of
U.S. Treasury notes and bonds with maturities greater than or equal to one year
and less than three years (the “Index”). Although there can be no assurance that
the Fund’s total return will exceed the performance of the Index during any
period, the Fund seeks to construct a portfolio that will perform favorably when
compared to the Index over the long term. In pursuing this strategy, the
composition of the Fund’s portfolio will vary from the composition of the Index.
The Fund’s portfolio may include individual securities not represented in the
Index.
5
The
Adviser may seek to control risks by adopting policies that limit the extent to
which the Fund’s portfolio may vary from the
Index. For example, under normal market conditions, the Adviser limits the
extent to which it may vary the effective duration of the Fund’s portfolio to
within 20% of the effective duration of the Index. Effective duration provides a
measure of the price sensitivity of a fixed-income security or portfolio of
fixed-income securities to changes in interest rates. The Adviser may change
these limitations at any time without prior approval from the Fund’s Board of
Trustees or shareholders.
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
contract 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.
The
Fund invests in overnight repurchase agreements or affiliated money market funds
in order to maintain sufficient cash to
pay for daily net redemptions and portfolio transactions.
The
Fund may invest in government mortgage-backed securities. The government
mortgage-backed securities in which the Fund may invest are
government mortgage-backed securities such as those issued by the Government
National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage
Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation
(“Freddie Mac”).
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 Freddie Mac, 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 Ginnie Mae. Finally, 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 will invest its assets so that at least 80% of its net assets (plus any
borrowings for investment purposes) are invested
in U.S. government investments. The Fund will notify shareholders at least 60
days in advance of any change in its investment policy that would enable the
Fund to invest, under normal circumstances, less than 80% of its net assets
(plus the amount of any borrowings for investment purposes) in U.S. government
investments.
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.
6
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:
U.S.
Government Securities (A Type of Fixed-Income Security)
U.S.
government securities include U.S. Treasury obligations, which differ in their
yields, maturities and times of issuance,
and obligations issued or guaranteed by U.S. government agencies or
instrumentalities (“agency obligations”). Agency obligations may be guaranteed
by the U.S. government or they may be backed by the right of the issuer to
borrow from the U.S. Treasury, the discretionary authority of the U.S.
government to purchase the obligations, or the credit of the agency or
instrumentality. As a result of their high credit quality and market liquidity,
U.S. government securities generally provide lower current yields than
obligations of other issuers. While certain U.S. government-sponsored
enterprises (such as the Federal Home Loan Mortgage Corporation and the Federal
National Mortgage Association) may be chartered or sponsored by acts of
Congress, their securities are neither issued nor guaranteed by the U.S.
Treasury or any other segment of the U.S. government.
Inflation-Protected
Securities (A Type of Fixed-Income Security)
Inflation-protected
securities are fixed-income securities whose principal value or interest rate is
periodically adjusted according
to the rate of inflation. If the index measuring inflation falls (“deflation”),
the principal value or interest rate of the securities will be adjusted downward
and consequently the interest payable on these securities will be reduced. U.S.
Treasury Inflation-Protected Securities, also known as TIPS, are adjusted as to
principal; repayment of the original principal upon maturity of the security is
guaranteed if the security is purchased when originally issued. With respect to
other types of inflation-protected securities that are adjusted to the principal
amount, the adjusted principal value of the security repaid at maturity may be
less than the original principal. Most other types of inflation-protected
securities, however, are adjusted with respect to the interest rate, which has a
minimum coupon of 0%, and the principal value does not
change.
Mortgage-Backed
Securities (A Type of Fixed-Income Security)
A
mortgage-backed security (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 interests are issued by a trust and represent
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). 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
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.
Investments
in MBS expose the Fund to interest rate, prepayment and credit
risks.
7
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 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. The Fund will only invest in CMBS that are guaranteed by a federal
agency or instrumentality, such as (but not limited to), Freddie Mac and Fannie
Mae. The Fund’s CMBS investments may expose the Fund to interest rate,
prepayment and liquidity risks.
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.
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.
8
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).
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 and volatility
swaps.
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.
9
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.
OTHER
INVESTMENTS, TRANSACTIONS, TECHNIQUES
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 risk.
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 counterparty credit risks.
These transactions create leverage 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.
Investing
in Securities of Other Investment Companies
The
Fund may invest its assets in shares of other investment companies 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. These
investments may include shares of an affiliated money market fund; or preferred
shares of a closed-end fund that are eligible for purchase by money market funds
(generally, because such preferred shares are structured as unconditional demand
instruments with a third party Demand Provider). Other 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
10
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.
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.
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 future 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%.
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.
These
features 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, 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. Infrequent trading of securities may also lead to an
increase in their 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 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.
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 United States and global
economies. 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 volatility,
illiquidity and/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.
11
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.
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 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,
liquidity and leverage risks.
Risk
of investing in Inflation-Protected Securities
The
value of inflation-protected securities is subject to the effects of changes in
market interest rates caused by factors other than
inflation (“real interest rates”). If interest rates rise due to reasons other
than inflation, the Fund’s investment in these securities may not be protected
to the extent that the increase is not reflected in the security’s inflation
measure. Generally, when real interest rates rise, the value of
inflation-protected securities will fall and the Fund’s value may decline as a
result of this exposure to these securities. The greatest risk occurs when
interest rates rise and inflation declines.
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.
12
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.
Credit
Risk
Credit
risk is the possibility that a security will default by failing to pay interest
or principal when due. If this occurs, the Fund will
lose money.
Many
fixed-income securities receive credit ratings from nationally recognized
statistical rating organizations (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 downgrade in a credit rating 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 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. See Credit Risks. Some MBS may also require
the repayment of more senior MBS secured by the same underlying mortgages. The
Fund only invests in MBS that are issued or guaranteed by government supported
entities (GSEs). Certain MBS issued by GSEs are not backed by the full faith and
credit of the U.S. government, but are, however, supported through federal
subsidies, loans
13
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. See “Credit
Risk.”
LARGE
SHAREHOLDER RISK
A
significant percentage of the Fund’s shares may be owned or controlled by a
large shareholder, such as other funds or accounts, including those
of which the Adviser or an affiliate of the Adviser may have investment
discretion. Accordingly, the Fund can be subject to the potential for large
scale inflows and outflows as a result of purchases and redemptions made by
significant shareholders. These inflows and outflows could be significant and,
if frequently occurring, could negatively affect the Fund’s net asset value and
performance and could cause the Fund to buy or sell securities at inopportune
times in order to meet purchase or redemption requests. Investments in the Fund
by other investment companies also can create conflicts of interests for the
Adviser to the Fund and the investment adviser to the acquiring fund. For
example, a conflict of interest can arise due to the possibility that the
investment adviser to the acquiring fund could make a decision to redeem the
acquiring fund’s investment in the Fund. In the case of an investment by an
affiliated fund, a conflict of interest can arise if, because of the acquiring
fund’s investment in the Fund, the Fund is able to garner more assets from
third-party investors, thereby growing the Fund and increasing the management
fees received by the Adviser, which could also be the investment adviser to the
acquiring fund.
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.
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). 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 fixed-income securities that trade on days the NYSE is closed,
the value of the Fund’s assets may change on
days you cannot purchase or redeem Shares.
In
calculating its NAV, the Fund generally values investments as
follows:
■ 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.
14
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
Pursuant
to Rule 2a-5 under the Investment Company Act of 1940, 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.
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.
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 Shares.
However, if you purchase 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 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: Institutional Shares (IS) and Service
Shares (SS), each representing interests
in a single portfolio of securities. All Share classes have different sales
charges and/or other 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.).
The
Fund’s Distributor markets the IS and SS classes to Eligible Investors, as
described below. In connection with a request to
purchase an IS or SS class, you should provide documentation sufficient to
verify your status as an Eligible Investor. As a general matter, IS and SS
classes are 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 IS or 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;
15
■
Additional sales to an investor (including a natural person) who owned IS and/or
SS classes of the Fund as of December 31, 2008;
■ A
Federated Hermes Fund;
■ An
investor (including a natural person) who acquired IS and/or 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 IS or SS classes (see “How to Purchase Shares” below):
■ An
investor, other than a natural person, purchasing IS and/or SS classes directly
from the Fund; and
■ In
connection with an initial purchase of IS and/or SS classes through an exchange,
an investor (including a natural person) who owned IS and/or SS classes of
another Federated Hermes fund as of December 31, 2008.
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. 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.
RULE
12b-1
FEES
SS
Class
The
Board has adopted a Rule 12b-1 Plan, which allows payment of marketing fees of
up to 0.25% of average net assets to the
Distributor for the sale, distribution, administration and customer servicing of
the Fund’s SS 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 Fund’s SS class has no present intention of paying, accruing or incurring
any Rule 12b-1Fees 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/or marketing fees.
service
fees
SS
Class
The
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
SS
Class
The
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.
16
RECORDKEEPING
FEES
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 Account Administration Fees or Networking Fees on that
same account.
networking
fees
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
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 “Commissions on
Certain Shares,” if you purchase 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.
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 IS and SS classes is
generally $1,000,000. There is no minimum
subsequent investment amount.
For
important account information, see the section “Security and Privacy
Protection.”
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,
17
SS&C
GIDS, Inc. (“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.
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
18
■ 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.
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.
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.
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.
19
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.
20
■ 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.
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.
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.
21
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 no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously
issued by the Fund, you must return the certificates with your written
redemption or exchange request. For your protection, send your certificates by
registered or certified mail, but do not endorse them.
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.
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.
22
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. If the Fund declares more
than one distribution of capital gains during the course of a calendar year, the
Fund will attempt to pay all distributions at one time at the end of the year.
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.
ACCOUNTS
WITH LOW BALANCES
Federated
Hermes reserves the right to close accounts if redemptions or exchanges cause
the account balance to fall
below:
■ $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.
23
FREQUENT
TRADING POLICIES
Given
the short-term nature of the Fund’s investments, the Fund does not anticipate
that in the normal case frequent or short-term
trading into and out of the Fund will have significant adverse consequences for
the Fund and its shareholders. For this reason and because the Fund is intended
to be used as a liquid short-term investment, the Fund’s Board has not adopted
policies or procedures to monitor or discourage frequent or short-term trading
of the Fund’s Shares. Regardless of their frequency or short-term nature,
purchases and redemptions of Fund Shares can have adverse effects on the
management of the Fund’s portfolio and its performance.
Other
funds in the Federated Hermes family of funds may impose monitoring policies.
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.
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 percentage breakdowns of
the portfolio by type of security.
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 101 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 $757.6 billion as of December 31, 2023. Federated Hermes was
established in 1955 as Federated Investors, Inc. and is one of the largest
investment managers in the United States with more than 2,000 employees.
Federated Hermes provides investment products to more than 10,000 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 $468.4 billion as of December 31,
2023.
PORTFOLIO
MANAGEMENT INFORMATION
J.
Andrew Kirschler
J. Andrew
Kirschler, Portfolio Manager, has been the Fund’s portfolio manager since July
of 2013.
24
Mr.
Kirschler 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 1990; has
worked in investment management since 1994; has managed investment portfolios
since 2013. Education: B.S., The Pennsylvania State University; M.B.A.,
University of Pittsburgh.
Todd
A. Abraham
Todd A.
Abraham, CFA, Senior Portfolio Manager, has been the Fund’s portfolio manager
since April of 2017.
Mr.
Abraham is Head of the Government/Mortgage-backed Fixed Income Group. He is
responsible for overseeing the macro risk
elements in the portfolio. He has been with the 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;
M.B.A., Loyola College.
The
Fund’s SAI provides additional information about the 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 February 28 and August 31,
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 Ernst & Young LLP, an independent registered
public accounting firm, whose report,
along with the Fund’s audited financial statements, is included in the Annual
Report.
25
Financial
Highlights–Institutional
Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended February 28 or 29, | ||||
|
|
2024 |
2023 |
2022 |
2021 |
2020 |
|
Net
Asset Value, Beginning of Period |
$9.63 |
$10.16 |
$10.40 |
$10.35 |
$10.16 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss)1 |
0.38 |
0.25 |
0.05 |
0.08 |
0.22 |
|
Net
realized and unrealized gain (loss) |
(0.01) |
(0.54) |
(0.25) |
0.06 |
0.19 |
|
Total
From Investment Operations |
0.37 |
(0.29) |
(0.20) |
0.14 |
0.41 |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.38) |
(0.24) |
(0.04) |
(0.09) |
(0.22) |
|
Net
Asset Value, End of Period |
$9.62 |
$9.63 |
$10.16 |
$10.40 |
$10.35 |
|
Total
Return2 |
3.96% |
(2.88)% |
(1.89)% |
1.35% |
4.11% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses3 |
0.36% |
0.41% |
0.44% |
0.42% |
0.45% |
|
Net
investment income |
4.00% |
2.58% |
0.47% |
0.81% |
2.15% |
|
Expense
waiver/reimbursement4 |
0.31% |
0.28% |
0.30% |
0.26% |
0.21% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$68,956 |
$93,119 |
$62,418 |
$79,451 |
$65,923 |
|
Portfolio
turnover5 |
61% |
220% |
133% |
99% |
110% |
|
1 |
Per
share numbers have been calculated using the average shares
method. |
|
2 |
Based
on net asset value. |
|
3 |
Amount
does not reflect net expenses incurred by investment companies in which
the Fund may invest. |
|
4 |
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. |
|
5 |
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
February 29, 2024, which can be obtained free of charge.
26
Financial
Highlights–Service
Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended February 28 or 29, | ||||
|
|
2024 |
2023 |
2022 |
2021 |
2020 |
|
Net
Asset Value, Beginning of Period |
$9.62 |
$10.15 |
$10.39 |
$10.33 |
$10.15 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss)1 |
0.36 |
0.21 |
0.01 |
0.04 |
0.18 |
|
Net
realized and unrealized gain (loss) |
(0.01) |
(0.54) |
(0.24) |
0.06 |
0.18 |
|
Total
From Investment Operations |
0.35 |
(0.33) |
(0.23) |
0.10 |
0.36 |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.36) |
(0.20) |
(0.01) |
(0.04) |
(0.18) |
|
Net
Asset Value, End of Period |
$9.61 |
$9.62 |
$10.15 |
$10.39 |
$10.33 |
|
Total
Return2 |
3.70% |
(3.23)% |
(2.26)% |
1.00% |
3.58% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses3 |
0.61% |
0.78% |
0.86% |
0.86% |
0.86% |
|
Net
investment income |
3.75% |
2.13% |
0.05% |
0.39% |
1.73% |
|
Expense
waiver/reimbursement4 |
0.31% |
0.28% |
0.30% |
0.26% |
0.21% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$6,089 |
$7,145 |
$6,514 |
$6,183 |
$7,567 |
|
Portfolio
turnover5 |
61% |
220% |
133% |
99% |
110% |
|
1 |
Per
share numbers have been calculated using the average shares
method. |
|
2 |
Based
on net asset value. |
|
3 |
Amount
does not reflect net expenses incurred by investment companies in which
the Fund may invest. |
|
4 |
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. |
|
5 |
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
February 29, 2024, which can be obtained free of
charge.
27
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-TERM GOVERNMENT FUND - IS CLASS | |||||
|
ANNUAL
EXPENSE RATIO: 0.68% | |||||
|
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 |
$69.47 |
$10,432.00 |
|
2 |
$10,432.00 |
$521.60 |
$10,953.60 |
$72.47 |
$10,882.66 |
|
3 |
$10,882.66 |
$544.13 |
$11,426.79 |
$75.60 |
$11,352.79 |
|
4 |
$11,352.79 |
$567.64 |
$11,920.43 |
$78.87 |
$11,843.23 |
|
5 |
$11,843.23 |
$592.16 |
$12,435.39 |
$82.27 |
$12,354.86 |
|
6 |
$12,354.86 |
$617.74 |
$12,972.60 |
$85.83 |
$12,888.59 |
|
7 |
$12,888.59 |
$644.43 |
$13,533.02 |
$89.54 |
$13,445.38 |
|
8 |
$13,445.38 |
$672.27 |
$14,117.65 |
$93.40 |
$14,026.22 |
|
9 |
$14,026.22 |
$701.31 |
$14,727.53 |
$97.44 |
$14,632.15 |
|
10 |
$14,632.15 |
$731.61 |
$15,363.76 |
$101.65 |
$15,264.26 |
|
Cumulative |
|
$6,092.89 |
|
$846.54 |
|
|
FEDERATED
HERMES SHORT-TERM GOVERNMENT FUND - SS CLASS | |||||
|
ANNUAL
EXPENSE RATIO: 0.93% | |||||
|
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 |
$94.89 |
$10,407.00 |
|
2 |
$10,407.00 |
$520.35 |
$10,927.35 |
$98.75 |
$10,830.56 |
|
3 |
$10,830.56 |
$541.53 |
$11,372.09 |
$102.77 |
$11,271.36 |
|
4 |
$11,271.36 |
$563.57 |
$11,834.93 |
$106.96 |
$11,730.10 |
|
5 |
$11,730.10 |
$586.51 |
$12,316.61 |
$111.31 |
$12,207.52 |
|
6 |
$12,207.52 |
$610.38 |
$12,817.90 |
$115.84 |
$12,704.37 |
|
7 |
$12,704.37 |
$635.22 |
$13,339.59 |
$120.56 |
$13,221.44 |
|
8 |
$13,221.44 |
$661.07 |
$13,882.51 |
$125.46 |
$13,759.55 |
|
9 |
$13,759.55 |
$687.98 |
$14,447.53 |
$130.57 |
$14,319.56 |
|
10 |
$14,319.56 |
$715.98 |
$15,035.54 |
$135.88 |
$14,902.37 |
|
Cumulative |
|
$6,022.59 |
|
$1,142.99 |
|
28
An SAI dated April 30,
2024, 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-Term Government 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. 811-3947
CUSIP
31428M100
CUSIP 31428M209
CUSIP 31428M209
43500
(4/24)
© 2024 Federated Hermes,
Inc.